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 December 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                    

FTD Group, Inc.

Delaware		87-0719190
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		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 [X] NO [ ]

     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).

     As of January 31, 2008, there were 29,827,968 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
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			13
Item 3. Quantitative and Qualitative Disclosures about Market Risk			22
Item 4. Controls and Procedures			22
Part II. Other Information
Item 1. Legal Proceedings			23
Item 1A. Risk Factors			23
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			23
Item 4. Submission of Matters to a Vote of Security Holders			24
Item 6. Exhibits			24
Signature			25
Index of Exhibits			26
302 Certification of Chief Executive Officer
302 Certification of Chief Financial Officer
906 Certification of CEO and CFO

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

FTD GROUP, INC.

		December 31, 2007				June 30, 2007
		(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents		$	27,548			$	25,462
Accounts receivable, less allowance for doubtful accounts of $6,329 at December 31, 2007 and $5,431 at June 30, 2007			41,071				32,416
Inventories, net			5,802				3,694
Other current assets			14,253				9,500
Total Current Assets			88,674				71,072
Property and Equipment:
Property and equipment			37,082				35,791
Less accumulated depreciation			13,257				11,018
Property and Equipment, net			23,825				24,773
Other Assets:
Computer software, net			12,441				12,699
Other noncurrent assets			23,038				21,085
Other intangible assets, less accumulated amortization of$10,757 at December 31, 2007 and $9,154 at June 30, 2007			11,848				13,454
Trademarks			187,598				187,816
Goodwill			417,734				418,001
Total Other Assets			652,659				653,055
Total Assets		$	765,158			$	748,900
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable		$	64,473			$	52,009
Current income taxes payable			6,308				1,671
Other accrued liabilities			31,550				26,840
Current maturities of long-term debt			1,318				8,475
Dividends payable			4,843				4,707
Total Current Liabilities			108,492				93,702
Senior secured credit facility			128,832				133,418
Senior subordinated notes			170,117				170,117
Post-retirement benefits, accrued pension obligations and other liabilities			3,509				4,535
Deferred income taxes			78,666				85,350
Stockholders’ Equity:
Common stock: $0.01 par value, 75,000 shares authorized; 29,818 shares issued as of December 31, 2007 and 29,482 shares issued as of June 30, 2007			298				295
Additional paid-in capital			236,577				235,589
Retained earnings			29,159				20,952
Accumulated other comprehensive income			9,706				9,933
Treasury stock, at cost, 20 shares as of December 31, 2007 and 519 shares as of June 30, 2007			(198	)			(4,991	)
Total Stockholders’ Equity			275,542				261,778
Total Liabilities and Stockholders’ Equity		$	765,158			$	748,900

SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

FTD GROUP, INC.

		Three Months Ended								Six Months Ended
		December 31,								December 31,
		2007				2006				2007				2006
Revenues:
Products		$	114,967			$	115,828			$	203,825			$	189,701
Services			40,522				35,712				75,409				70,610
Total revenues			155,489				151,540				279,234				260,311
Costs of Products Sold and Services Provided:
Products			87,216				84,392				153,949				140,546
Services			4,745				4,926				9,181				9,195
Total costs of products sold and services provided			91,961				89,318				163,130				149,741
Gross Profit:
Products			27,751				31,436				49,876				49,155
Services			35,777				30,786				66,228				61,415
Total gross profit			63,528				62,222				116,104				110,570
Operating Expenses:
Advertising and selling			22,936				24,855				39,588				41,419
General and administrative			20,432				20,354				39,503				36,764
Total operating expenses			43,368				45,209				79,091				78,183
Income from operations			20,160				17,013				37,013				32,387
Other Income and Expenses:
Interest income			(319	)			(339	)			(621	)			(637	)
Interest expense			6,155				7,009				12,542				15,235
Other (income) expense, net			(138	)			249				(348	)			(1,295	)
Total other income and expenses			5,698				6,919				11,573				13,303
Income before income tax expense			14,462				10,094				25,440				19,084
Income tax expense			5,496				3,987				8,318				7,534
Net income		$	8,966			$	6,107			$	17,122			$	11,550
Other Comprehensive Income (Loss):
Foreign currency translation adjustments			(3,116	)			3,987				(227	)			6,387
Comprehensive income		$	5,850			$	10,094			$	16,895			$	17,937
Net income per Common Share — basic		$	0.30			$	0.22			$	0.58			$	0.41
Net income per Common Share — diluted		$	0.30			$	0.21			$	0.58			$	0.39
Weighted Average Common Shares Outstanding:
Basic			29,509				28,335				29,287				28,283
Diluted			29,758				29,762				29,653				29,479
Cash Dividends Declared per Common Share		$	0.1625			$	—			$	0.3250			$	—

SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

FTD GROUP, INC.

		Six Months Ended
		December 31,
		2007				2006
Cash Flows from Operating Activities:
Net income		$	17,122			$	11,550
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			6,419				7,201
Stock-based compensation expense			1,314				959
Amortization and write off of deferred financing costs			470				2,294
Provision for doubtful accounts			1,862				1,481
Deferred income taxes			(6,575	)			753
Excess tax benefit from stock-based compensation			(2,308	)			(654	)
(Decrease) increase due to changes in operating assets and liabilities, net of acquisition:
Accounts receivable			(10,499	)			(9,072	)
Inventories			(2,112	)			(1,531	)
Prepaid expenses and other			(4,102	)			(6,052	)
Other noncurrent assets			(2,550	)			(1,133	)
Accounts payable			11,753				12,373
Other accrued liabilities			11,432				794
Net cash provided by operating activities			22,226				18,963
Cash Flows from Investing Activities:
Capital expenditures			(3,622	)			(4,849	)
Acquisition of business, net of cash acquired			—				(96,717	)
Net cash used in investing activities			(3,622	)			(101,566	)
Cash Flows from Financing Activities:
Repayments of long-term debt			(11,743	)			(50,375	)
Dividends paid			(9,515	)			—
Proceeds from exercise of stock options			2,156				422
Excess tax benefit from stock-based compensation			2,308				654
Proceeds from issuance of long-term debt, net of financing costs			—				148,536
Proceeds from issuance of common stock			6				—
Net cash (used in) provided by financing activities			(16,788	)			99,237
Effect of foreign exchange rate changes on cash and cash equivalents			270				3,172
Net increase in cash and cash equivalents			2,086				19,806
Cash and cash equivalents at beginning of period			25,462				10,954
Cash and cash equivalents at end of period		$	27,548			$	30,760
Supplemental disclosures of cash flow information
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

SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

FTD Group, Inc.

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, 2007. 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.

     On July 31, 2006, the Company completed its acquisition of Interflora Holdings Limited (“Interflora”), 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 2 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 the international segment.

     All intercompany accounts and transactions have been eliminated in consolidation.

Recently Issued Accounting Pronouncements

     In December 2007, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 141 (revised 2007), Business Combinations (“SFAS No. 141(R)”). SFAS No. 141(R) establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any noncontrolling interest in the acquiree and the goodwill acquired in a business combination. SFAS No. 141(R) also establishes disclosure requirements to enable the evaluation of the nature and financial effects of the business combination. SFAS No. 141(R) is effective for the Company’s fiscal year ending June 30, 2010. This statement is applicable to business combinations entered into subsequent to the effective date.

     In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements—an amendment of Accounting Research Bulletin No. 51 (“SFAS No. 160”). SFAS No. 160 establishes accounting and reporting standards for noncontrolling ownership interests in entities controlled by parties other than the reporting entity, the amount of consolidated net income attributable to the controlling interest and to the noncontrolling interest, changes in a controlling entity’s ownership interest, and the valuation of retained noncontrolling equity investments when a subsidiary is deconsolidated. SFAS No. 160 also establishes disclosure requirements that clearly identify and distinguish between the interests of the controlling entity and the interests of the noncontrolling owners. SFAS No. 160 is effective for the Company’s fiscal year ending June 30, 2010. The Company is currently evaluating the potential impact, if any, the adoption of SFAS No. 160 will have on the Company’s consolidated financial statements.

     In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities — Including an amendment of FASB Statement No. 115 (“SFAS No. 159”). SFAS No. 159 provides a company with the option to measure selected financial instruments and certain other items at fair value at specified election dates. The election may be applied on an item by item basis, with disclosure regarding reasons for partial election and additional information about items for which the company elects the fair value option. SFAS No. 159 is effective for the Company’s fiscal year ending June 30, 2009. The Company is currently evaluating the potential impact, if any, the adoption of SFAS No. 159 will have on the Company’s consolidated financial statements.

     In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“SFAS No. 157”). SFAS No. 157 clarifies the principle that fair value should be based on the assumptions market participants would use when pricing an asset or liability and establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. Under the standard, fair value measurements would be separately disclosed by level within the fair value hierarchy. SFAS No. 157 is effective for the Company’s fiscal year ending June 30, 2009. The Company is currently evaluating the potential impact, if any, the adoption of SFAS No. 157 will have on the Company’s consolidated financial statements.

Note 2. Acquisition of Interflora Holdings Limited

     On July 31, 2006 the Company completed the acquisition of Interflora for a purchase price of approximately $122.8 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 notes payable, of which $23.1 million were paid in May 2007 and the remainder, $1.7 million, is expected to be paid in the first half of fiscal year 2009. The remainder of the purchase price 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 (the “2006 Credit Agreement”) consisting of a $150.0 million term loan and a $75.0 million revolving credit facility. The proceeds from the 2006 Credit Agreement were also used to repay the Company’s existing term loan. 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 was recorded in other (income) expense, net within the Condensed Consolidated Statements of Income and Comprehensive Income. A contract in the amount of £10.0 million was settled on May 1, 2007 and resulted in a gain of $1.4 million, which offset the foreign currency loss on the notes in the same amount. The remaining forward contract for £0.8 million is expected to be settled during the first quarter of fiscal year 2009. For the three-month and six-month periods ended December 31, 2007, other (income) expense, net, related to the mark-to-market adjustments on this forward contract and the related note payable was not significant. For the three-month and six-month periods ended December 31, 2006, other (income) expense, net, included $0.2 million and $1.3 million, respectively, of income 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, 2006 (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 material to the Company’s operating results.

		Six Months Ended
		December 31,
		2006
Pro forma revenues		$	270,964
Pro forma income from operations		$	33,262
Pro forma net income		$	11,720
Pro forma net income per share — basic		$	0.41
Pro forma net income per share — diluted		$	0.40

     In conjunction with the acquisition, 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 seven years following the acquisition. The maximum payout under such plan is £2.6 million ($5.2 million translated at the December 31, 2007 exchange rate). The amounts accrued under this deferred compensation plan were $1.7 million and $0.6 million as of December 31, 2007, and 2006, respectively.

Note 3. Income Taxes

     Taxes on earnings reflect the estimated annual effective rates, excluding the effect of significant unusual items. Tax expense in the six-months ended December 31, 2007 includes $1.3 million of tax benefit related to a statutory income tax rate reduction in the U.K. Excluding this unusual item, the effective tax rate was 38.0% for the three-month and six-month periods ended December 31, 2007. For the three-month and six-month periods ended December 31, 2006, the effective rate was 39.5%.

     Unrecognized tax benefits as of the adoption of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109 (“FIN 48”) on July 1, 2007 were approximately $2.4 million. If recognized, $0.7 million of these unrecognized tax benefits would reduce the effective tax rate. As a result of the implementation of FIN 48, the Company recognized a $0.7 million decrease in the liability for unrecognized tax benefits. This decrease in the liability resulted in an increase to beginning retained earnings of $0.7 million. The Company does not expect the total amount of unrecognized tax benefits to change significantly within the next twelve months. Consistent with prior periods, the Company recognizes interest and penalties related to unrecognized benefits as a component of tax expense. Reserves for interest and penalties are not significant. The Company is subject to U.S. Federal income tax examinations for the tax years ended June 30, 2004 through June 30, 2007. The Company is subject to income tax examinations in the U.K. for the twelve-month period ended May 31, 2007 and the one-month period ended June 30, 2007. In addition, the Company is subject to various state and local income tax examinations for the tax years ended June 30, 2003 through June 30, 2007. During the six months ended December 31, 2007, the change in unrecognized tax benefits was not significant.

Note 4. 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. 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 Interbank 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 interest rate at December 31, 2007 and 2006 on the term loan was 6.60% and 7.35%, respectively. The Credit Agreement also requires the Company to pay commitment fees on the unused portion of the revolving credit facility. For the three-month and six-month periods ended December 31, 2007 and 2006, the commitment fees were not significant. The Agreement also includes covenants that, among other things, require that FTD, Inc. maintain a certain ratio of consolidated total debt to consolidated earnings before interest, taxes, depreciation and amortization (subject to certain adjustments), as well as a certain fixed charge ratio. Such ratios adjust quarterly in accordance with the terms of the Agreement. FTD, Inc. was in compliance with all debt covenants as of December 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, allows the Company to make certain restricted junior payments, including dividend payments, subject to certain conditions.

     Both the 2006 Credit Agreement and the indenture governing the 7.75% Senior Subordinated Notes (the “Notes”) impose 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, 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 with the proceeds from the 2006 Credit Agreement. 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 December 31, 2007, the Company had $170.1 million of Notes outstanding, $130.2 million outstanding under the 2006 Credit Agreement, $1.7 million of notes payable related to the acquisition of Interflora and an additional $1.3 million in outstanding letters of credit and, as a result, approximately $72.0 million of the revolving credit facility was available.

Note 5. Net Income Per Common Share

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

		Three Months Ended								Six Months Ended
		December 31,								December 31,
		2007				2006				2007				2006
Net income		$	8,966			$	6,107			$	17,122			$	11,550
Weighted average common shares outstanding — basic			29,509				28,335				29,287				28,283
Effect of dilutive securities — stock options and restricted stock			249				1,427				366				1,196
Weighted average common shares outstanding — diluted			29,758				29,762				29,653				29,479
Net income per share of Common Stock — basic		$	0.30			$	0.22			$	0.58			$	0.41
Net income per share of Common Stock - diluted		$	0.30			$	0.21			$	0.58			$	0.39

     For the three-month and six-month periods ended December 31, 2007 there were 1,010,028 and 977,927 outstanding stock options, respectively, that were not included in the computation of diluted earnings per share because the exercise prices of the options were greater than the average market prices of the Company’s Common Stock during the periods and, therefore, were anti-dilutive. For the three-month and six-month periods ended December 31, 2006, there were 12,500 and 1,015,217, respectively, outstanding stock options which were not included in the computation of diluted earnings per share because their effect was anti-dilutive.

Note 6. Stock-Based Compensation

      During the three-month period ended December 31, 2007, the Company granted 15,000 options to various directors of the Company in accordance with the Company’s director compensation plan. In addition to such grants, during the six-month period ended December 31, 2007, the Company granted 300,000 shares of restricted stock to certain members of management. During the three-month and six-month periods ended December 31, 2006, the Company granted 12,500 and 1,380,217 options, respectively, to various employees and directors of the Company. The restricted shares vest equally each year over a five-year service period. 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, depending 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 six-month periods ended December 31, 2007, 176,332 and 216,332 options, respectively, were forfeited. During the three-month and six-month periods ended December 31, 2007, 20,000 shares of restricted stock were forfeited. During the six-month period ended December 31, 2006, 116,666 options were forfeited, none of which were forfeited during the three-month period ended December 31, 2006. During the three-month and six-month periods ended December 31, 2007, 21,700 and 555,264 options, respectively were exercised. During the six-month period ended December 31, 2006, 140,780 options were exercised, none of which were exercised during the three-month period ended December 31, 2006.

     Stock-based compensation expense was $0.6 million and $1.3 million, and $0.6 million and $1.0 million for the three-month and six-month periods ended December 31, 2007, and 2006, respectively.

Note 7. 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 outcomes of these matters are uncertain, they are not expected to have a material adverse effect on the Company’s financial condition, results of operations and cash flows.

Note 8. Segment Information

     Operating segments are components of the business for which separate financial information is available that is regularly reviewed by the enterprise’s chief operating decision maker to make decisions about resources to be allocated to each segment and to assess its performance. Revenue earned and expenses charged between segments are recorded at fair value and eliminated in consolidation.

     During the first quarter of the fiscal year ending June 30, 2008, the Company eliminated certain allocations of costs between its consumer and florist segments in order to simplify financial reporting and to reflect how the Company now manages its businesses. Certain reclassifications have been made to the basis of presentation to reflect the elimination of these allocations to facilitate comparable reporting. Such changes do not impact the consolidated financial statements.

     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 recorded on a consolidated corporate basis.

     The consumer segment encompasses sales of floral and specialty gift products, which are sold to consumers primarily in the U.S. and Canada through the Company’s web site, www.ftd.com, in addition to its toll-free telephone number, 1-800-SEND-FTD.

     The florist segment includes all products and services sold to FTD members and other retail locations offering floral products primarily in the U.S. and Canada, encompassing clearinghouse services, publishing products and services, online services, technology sales and leases, fresh flower sales and other specialty wholesale products.

     The international segment is primarily comprised of Interflora, 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. Interflora’s products and services enable its members to send and deliver floral orders. It is also an Internet and telephone marketer of flowers and specialty gift items to consumers, operating primarily thorough the www.interflora.co.uk Web site as well as a toll-free telephone number. Interflora was acquired by the Company on July 31, 2006. As such, the six months ended December 31, 2007 includes the results of operations of Interflora for six months whereas the six months ended December 31, 2006 includes the results of Interflora’s operations for only five months.

     The Company’s total assets by segment are as follows (in thousands):

		December 31,
		2007				2006
Consumer segment		$	263,567			$	264,957
Florist segment*			324,062				322,171
International segment			177,529				193,300
Total		$	765,158			$	780,428

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

		Three Months Ended December 31,
		2007												2006
		Gross Segment				Eliminations				Consolidated				Gross Segment				Eliminations				Consolidated
(In thousands)
Revenues:
Consumer segment		$	67,441			$	(2,807	)		$	64,634			$	72,551			$	(3,076	)		$	69,475
Florist segment			44,727				(126	)			44,601				44,701				(123	)			44,578
International segment			46,137				117				46,254				37,422				65				37,487
Total			158,305				(2,816	)			155,489				154,674				(3,134	)			151,540
Cost of Products Sold and Services Provided:
Consumer segment			45,656				(126	)			45,530				50,163				(123	)			50,040
Florist segment			14,146				—				14,146				13,064				—				13,064
International segment			31,852				(41	)			31,811				25,740				(24	)			25,716
Corporate			474				—				474				498				—				498
			92,128				(167	)			91,961				89,465				(147	)			89,318
Gross Profit:
Consumer segment			21,785				(2,681	)			19,104				22,388				(2,953	)			19,435
Florist segment			30,581				(126	)			30,455				31,637				(123	)			31,514
International segment			14,285				158				14,443				11,682				89				11,771
Corporate			(474	)			—				(474	)			(498	)			—				(498	)
Total			66,177				(2,649	)			63,528				65,209				(2,987	)			62,222
Advertising and Selling:
Consumer segment			7,470				—				7,470				8,855				—				8,855
Florist segment			14,022				(2,807	)			11,215				15,850				(3,076	)			12,774
International segment			4,234				17				4,251				3,296				(70	)			3,226
Total			25,726				(2,790	)			22,936				28,001				(3,146	)			24,855
General and Administrative
Consumer segment			4,473				—				4,473				5,747				—				5,747
Florist segment			2,179				—				2,179				2,031				—				2,031
International segment			6,110				(7	)			6,103				5,722				121				5,843
Corporate			7,677				—				7,677				6,733				—				6,733
Total			20,439				(7	)			20,432				20,233				121				20,354
Operating Income (Loss) before Corporate Allocations:
Consumer segment			9,842				(2,681	)			7,161				7,786				(2,953	)			4,833
Florist segment			14,380				2,681				17,061				13,756				2,953				16,709
International segment			3,941				148				4,089				2,664				38				2,702
Corporate			(8,151	)			—				(8,151	)			(7,231	)			—				(7,231	)
Total			20,012				148				20,160				16,975				38				17,013
Corporate Allocations:
Consumer segment			1,042				—				1,042				1,053				—				1,053
Florist segment			2,991				—				2,991				2,331				—				2,331
International segment			—				—				—				—				—				—
Corporate			(4,033	)			—				(4,033	)			(3,384	)			—				(3,384	)
Total			—				—				—				—				—				—
Operating Income (Loss):
Consumer segment			8,800				(2,681	)			6,119				6,733				(2,953	)			3,780
Florist segment			11,389				2,681				14,070				11,425				2,953				14,378
International segment			3,941				148				4,089				2,664				38				2,702
Corporate			(4,118	)			—				(4,118	)			(3,847	)			—				(3,847	)
Total		$	20,012			$	148			$	20,160			$	16,975			$	38			$	17,013
Depreciation and Amortization:
Consumer segment		$	862			$	—			$	862			$	993			$	—			$	993
Florist segment			644				—				644				797				—				797
International segment			1,037				—				1,037				1,129				—				1,129
Corporate			655				—				655				966				—				966
Total		$	3,198			$	—			$	3,198			$	3,885			$	—			$	3,885

		Six Months Ended December 31,
		2007												2006
		Gross Segment				Eliminations				Consolidated				Gross Segment				Eliminations				Consolidated
(In thousands)
Revenues:
Consumer segment		$	115,377			$	(5,023	)		$	110,354			$	122,193			$	(5,325	)		$	116,868
Florist segment			87,652				(230	)			87,422				88,613				(214	)			88,399
International segment			81,257				201				81,458				54,946				98				55,044
Total			284,286				(5,052	)			279,234				265,752				(5,441	)			260,311
Cost of Products Sold and Services Provided:
Consumer segment			77,679				(230	)			77,449				83,701				(214	)			83,487
Florist segment			29,328				—				29,328				27,528				—				27,528
International segment			55,468				(68	)			55,400				37,752				(40	)			37,712
Corporate			953				—				953				1,014				—				1,014
			163,428				(298	)			163,130				149,995				(254	)			149,741
Gross Profit:
Consumer segment			37,698				(4,793	)			32,905				38,492				(5,111	)			33,381
Florist segment			58,324				(230	)			58,094				61,085				(214	)			60,871
International segment			25,789				269				26,058				17,194				138				17,332
Corporate			(953	)			—				(953	)			(1,014	)			—				(1,014	)
Total			120,858				(4,754	)			116,104				115,757				(5,187	)			110,570
Advertising and Selling:
Consumer segment			12,234				—				12,234				13,741				—				13,741
Florist segment			25,386				(5,023	)			20,363				28,574				(5,325	)			23,249
International segment			6,956				35				6,991				4,542				(113	)			4,429
Total			44,576				(4,988	)			39,588				46,857				(5,438	)			41,419
General and Administrative
Consumer segment			8,878				—				8,878				10,225				—				10,225
Florist segment			4,278				—				4,278				4,296				—				4,296
International segment			11,947				32				11,979				8,745				257				9,002
Corporate			14,368				—				14,368				13,241				—				13,241
Total			39,471				32				39,503				36,507				257				36,764
Operating Income (Loss) before Corporate Allocations:
Consumer segment			16,586				(4,793	)			11,793				14,526				(5,111	)			9,415
Florist segment			28,660				4,793				33,453				28,215				5,111				33,326
International segment			6,886				202				7,088				3,907				(6	)			3,901
Corporate			(15,321	)			—				(15,321	)			(14,255	)			—				(14,255	)
Total			36,811				202				37,013				32,393				(6	)			32,387
Corporate Allocations:
Consumer segment			2,028				—				2,028				1,870				—				1,870
Florist segment			5,560				—				5,560				4,723				—				4,723
International segment			—				—				—				—				—				—
Corporate			(7,588	)			—				(7,588	)			(6,593	)			—				(6,593	)
Total			—				—				—				—				—				—
Operating Income (Loss):
Consumer segment			14,558				(4,793	)			9,765				12,656				(5,111	)			7,545
Florist segment			23,100				4,793				27,893				23,492				5,111				28,603
International segment			6,886				202				7,088				3,907				(6	)			3,901
Corporate			(7,733	)			—				(7,733	)			(7,662	)			—				(7,662	)
Total		$	36,811			$	202			$	37,013			$	32,393			$	(6	)		$	32,387
Depreciation and Amortization:
Consumer segment		$	1,768			$	—			$	1,768			$	1,933			$	—			$	1,933
Florist segment			1,310				—				1,310				1,631				—				1,631
International segment			2,031				—				2,031				1,705				—				1,705
Corporate			1,310				—				1,310				1,932				—				1,932
Total		$	6,419			$	—			$	6,419			$	7,201			$	—			$	7,201

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Information

     Unless the context otherwise indicates, as used in this Form 10-Q, the term “Company” refers to FTD Group, Inc. and its consolidated subsidiaries, taken as a whole. This Quarterly Report on Form 10-Q contains various “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements may include statements regarding the Company’s outlook, anticipated revenue growth and profitability; anticipated benefits of its acquisition of Interflora Holdings Limited (“Interflora”), anticipated benefits of investments in new products, programs and offerings and opportunities and trends within both the domestic and international floral businesses, including opportunities to expand these businesses and capitalize on growth opportunities or increase penetration of service offerings. The international business includes the operations of Interflora. These forward-looking statements are based on management’s current expectations, assumptions, estimates and projections about the Company and the Company’s industry. Investors are cautioned that actual results could materially differ from those contained in any forward-looking statements as a result of: the Company’s ability to acquire and retain FTD and Interflora members and continued recognition by members of the value of the Company’s products and services; the acceptance by members of new or modified service offerings recently introduced; the Company’s ability to sell additional products and services to FTD and Interflora members; the Company’s ability to expand existing marketing partnerships and secure new marketing partners within the domestic and international consumer businesses; the success of the Company’s marketing campaigns; the ability to retain customers and maintain average order value within the domestic and international consumer businesses; the ability to manage foreign currency exchange rate risk; the Company’s performance during key holiday selling seasons such as Christmas, Valentine’s Day and Mother’s Day; the existence of failures in the Company’s computer systems; competition from existing and potential new competitors; levels of discretionary consumer purchases of flowers and specialty gifts; the Company’s ability to manage or reduce its level of expenses within both the domestic and international businesses; actual growth rates for the markets in which the Company competes compared with forecasted growth rates; the Company’s ability to increase capacity and introduce enhancements to its Web sites; the Company’s ability to integrate additional partners or acquisitions, if any are identified; and other factors described in this Quarterly Report on Form 10-Q and in the Company’s Annual Report on Form 10-K, including under Item 1A — “Risk Factors,” as well as other potential risks and uncertainties, which are discussed in the Company’s other reports and documents filed with the Securities and Exchange Commission. The Company expressly disclaims any obligation to update its forward-looking statements.

     The following discussion should be read in conjunction with the condensed consolidated financial statements and notes to those statements that appear elsewhere in this Quarterly Report on Form 10-Q. The following discussion contains forward-looking statements that reflect the Company’s plans, estimates and beliefs. The Company’s actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to any differences include, but are not limited to, those discussed under the captions “Forward-Looking Information,” “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q.

Overview

     FTD Group, Inc. is a leading provider of floral and specialty gift products to consumers and retail florists, as well as other retail locations offering floral products, primarily in the U.S., Canada, the U.K. and the Republic of Ireland. The business utilizes the highly recognized FTD and Interflora brands, both supported by the Mercury Man logo, which is displayed in approximately 45,000 floral shops worldwide. The Company conducts business through three operating segments, the consumer segment, the florist segment and the international segment.

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

     Florist Segment. The florist segment provides a comprehensive suite of products and services that enable FTD members to send and deliver floral orders. The Company provides these services to its network of independent members located primarily in the U.S. and Canada, which includes traditional retail florists as well as other retailers offering floral products.

     International Segment. The international segment is primarily comprised of Interflora, which serves both the florist and consumer markets. Interflora markets floral products and specialty gifts direct to consumers in the U.K. and the Republic of Ireland through both the www.interflora.co.uk Web site and a toll-free telephone number. Interflora also provides various products and services to its members.

     Corporate Costs. Costs related to corporate headquarters, including accounting, executive, legal, facilities, corporate information technology and credit and collections are charged to Corporate. Costs related to facilities, corporate information technology and credit and collections are then allocated to the consumer and florist segments.

     Seasonality. In view of seasonal variations in the revenues and operating results of the Company’s florist, consumer and international segments, the Company believes that comparisons of its revenues and operating results for any period with those of the immediately preceding period, or in some instances, the same period of the preceding fiscal year may be of limited relevance in evaluating the Company’s historical performance and predicting the Company’s future financial performance. The Company’s working capital, cash and short-term borrowings also fluctuate during the year as a result of the factors set forth below.

     Revenues and operating results tend to be lower for the quarter ending September 30 because none of the most popular floral and gift holidays, which include Valentine’s Day, Easter, Mother’s Day, Thanksgiving and Christmas, fall within that quarter. In addition, depending on the year, the popular floral holidays of Easter and the U.K. Mother’s Day sometimes fall within the quarter ending March 31 and sometimes fall within the quarter ending June 30.

Three Months Ended December 31, 2007 compared to the Three Months Ended December 31, 2006

Revenues

		Three Months Ended
		December 31,
(In thousands)		2007				2006				% Change
Consumer segment		$	64,634			$	69,475				(7.0	%)
Florist segment			44,601				44,578				0.1	%
International segment			46,254				37,487				23.4	%
Total revenues		$	155,489			$	151,540				2.6	%

     Total revenue grew $4.0 million, or 2.6%, to $155.5 million for the second quarter of fiscal year 2008, compared to total revenues of $151.5 million for the same period of fiscal year 2007. Interflora, which is included in the Company’s international segment, accounted for $8.8 million of the increase in revenue, approximately $3 million of which related to the impact of foreign currency rate changes. This increase was partially offset by a decline in the Company’s consumer segment revenues totaling $4.9 million.

     Revenues in the consumer segment decreased $4.9 million, or 7.0% to $64.6 million in the second quarter of fiscal year 2008, compared to revenues of $69.5 million in the same period of fiscal year 2007. This decline was driven by a 12.2% decrease in order volumes, which totaled 998,000 during the second quarter of fiscal year 2008 compared to 1,136,000 orders in the same period of fiscal year 2007. This decline was partially offset by an increase in average order value to $63.23 for the second quarter of fiscal year 2008, compared to $60.01 for the same period of fiscal year 2007. The percentage of Internet orders increased to 89.1% in the second quarter of fiscal year 2008 from 88.5% in the second quarter of fiscal year 2007.

     Revenues in the florist segment remained consistent at $44.6 million in comparison to the same period of the prior fiscal year. Revenues from fresh flower sales and online services increased, while clearinghouse order volumes and other services decreased.

     Revenues in the international segment increased $8.8 million, or 23.4%, to $46.3 million in the second quarter of fiscal year 2008, compared to revenues of $37.5 million in the same period of fiscal year 2007. The increase was driven by increased order volume in Interflora’s consumer business and an increase in average order value which was primarily related to favorable foreign currency movements between the U.S. dollar and the British pound. Consumer orders in the international segment were 542,000 in the second quarter of 2008, compared to orders of

473,000 in the prior year. Average order value increased to $69.66 in the second quarter of fiscal 2008 compared to $64.07 of the prior year, driven by the favorable exchange rate trend, as well as price and product mix. The percentage of Internet orders increased to 71.8% from 69.3% in the prior year.

Gross profit

		Three Months Ended
		December 31,
(In thousands)		2007				2006				% Change
Consumer segment		$	19,104			$	19,435				(1.7	%)
Florist segment			30,455				31,514				(3.4	%)
International segment			14,443				11,771				22.7	%
Corporate			(474	)			(498	)			(4.8	%)
Total gross profit		$	63,528			$	62,222				2.1	%

     Gross profit increased by $1.3 million, or 2.1% to $63.5 million for the second quarter of fiscal year 2008, compared to gross profit for the second quarter of fiscal year 2007 of $62.2 million. Total gross margin decreased slightly to 40.9% for the second quarter of fiscal year 2008 from 41.1% for the same period in fiscal year 2007.

     Gross profit associated with the consumer segment decreased by $0.3 million, or 1.7%, to $19.1 million for the second quarter of fiscal year 2008, compared to $19.4 million for the second quarter of fiscal year 2007. Gross margin for the consumer segment increased to 29.6% for the second quarter of fiscal year 2008, compared to 28.0% for same period in fiscal year 2007, primarily due to increases in average order value and advertising revenue.

     Gross profit associated with the florist segment decreased by $1.0 million, or 3.4%, to $30.5 million for the second quarter of fiscal year 2008, compared to $31.5 million for the second quarter of fiscal year 2007. Gross margin for the florist segment decreased to 68.3% for the second quarter of fiscal year 2008, compared to 70.7% for the same period in fiscal year 2007, primarily due to a shift in the mix of products and services sold.

     Gross profit associated with the international segment increased by $2.6 million, or 22.7%, to $14.4 million for the second quarter of fiscal year 2008, compared to $11.8 million for the prior year quarter ended December 31, 2006. Gross margin for the international segment decreased to 31.2% for the second quarter of fiscal year 2008, compared to 31.4% for the same period in fiscal year 2007, primarily due to the mix of products and services sold.

Advertising and selling costs

		Three Months Ended
		December 31,
(In thousands)		2007				2006				% Change
Consumer segment		$	7,470			$	8,855				(15.6	%)
Florist segment			11,215				12,774				(12.2	%)
International segment			4,251				3,226				31.8	%
Total advertising and selling costs		$	22,936			$	24,855				(7.7	%)