<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 7, 1997
REGISTRATION NO. 333-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
----------------
U.S.A. FLORAL PRODUCTS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware 5193 52-2030697
(State or other jurisdiction of (Primary standard industrial (I.R.S. Employer Identification No.)
incorporation or organization) classification code number)
</TABLE>
3500 Whitehaven Parkway
Washington, D.C. 20007
(202) 333-0800
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
----------------
Robert Poirier
President and Chief Executive Officer
U.S.A. Floral Products, Inc.
3500 Whitehaven Parkway
Washington, D.C. 20007
(202) 333-0800
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
----------------
Copies to:
David A. Gerson, Esq. Jeffrey Small, Esq.
Morgan, Lewis & Bockius LLP Davis Polk & Wardwell
One Oxford Centre 450 Lexington Avenue
Thirty-Second Floor New York, New York 10017
Pittsburgh, Pennsylvania 15219 (212) 450-4000
(412) 560-3300
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after this registration statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
_________________
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
==========================================================================================
Title of each class of Proposed maximum Amount of
securities to be registered aggregate offering price (1) registration fee
<S> <C> <C>
Common stock, par value $.001 per share $82,800,000 $25,100
==========================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee; based
on a bona fide estimate of the maximum offering price of the securities
being registered in accordance with Rule 457(o).
______________________
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
<PAGE>
LOCATION IN PROSPECTUS
OF INFORMATION REQUIRED BY PART I
OF FORM S-1
<TABLE>
<CAPTION>
ITEM NO. CAPTION LOCATION IN PROSPECTUS
- -------- --------------------------- -----------------------------------------
<C> <S> <C>
1. Forepart of the
Registration Statement and Outside Front Cover Page
Outside Front Cover Page
of Prospectus
2. Inside Front and Outside
Back Cover Pages of Inside Front and Outside Back Cover Pages
Prospectus
3. Summary Information, Risk
Factors and Ratio Prospectus Summary; Risk Factors;
of Earnings to Fixed Business
Charges
4. Use of Proceeds Prospectus Summary; Use of Proceeds
5. Determination of Offering Underwriters
Price
6. Dilution Dilution
7. Selling Security Holders Not applicable
8. Plan of Distribution Outside Front Cover Page; Underwriters
9. Description of Securities Description of Capital Stock
to be Registered
10. Interests of Named Experts Not applicable
and Counsel
11. Information with Respect Prospectus Summary; Formation of the
to the Registrant Company; Risk Factors; Dividend Policy;
Capitalization; Selected Pro Forma
Combined Financial Data; Management's
Discussion and Analysis of Pro Forma
Combined Financial Condition and Pro
Forma Combined Results of Operations;
Selected Financial Data of the Founding
Companies; Management's Discussion and
Analysis of Financial Condition and
Results of Operations of the Founding
Companies; Business; Management; Shares
Eligible for Future Sale; Index to
Financial Statements
12. Disclosure of Commission
Position on
Indemnification for Not applicable
Securities Act
Liabilities
</TABLE>
<PAGE>
+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS (SUBJECT TO COMPLETION)
ISSUED AUGUST 7, 1997
[LOGO]
SHARES
U.S.A. FLORAL PRODUCTS, INC.
COMMON STOCK
----------------------
All of the Shares of Common Stock being offered hereby are being sold by the
Company. Prior to the Offering, there has been no public market for the Common
Stock of the Company. It is currently estimated that the initial public
offering price per share will be between $ and
$ . See "Underwriters" for a discussion of the factors
considered in determining the initial public offering price.
----------------------
Application has been made to list the Shares on The Nasdaq National Market under
the symbol "ROSY."
----------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 11 FOR INFORMATION THAT
SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS
----------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------------------
PRICE $ A SHARE
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS (1) COMPANY (2)
-------- -------------- -----------
<S> <C> <C> <C>
Per Share $ $ $
Total (3) $ $ $
</TABLE>
- -------------
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended.
(2) Before deducting expenses payable by the Company estimated at $ .
(3) The Company has granted to the Underwriters an option, exercisable within
30 days of the date hereof, to purchase up to an aggregate of additional
Shares at the price to public less underwriting discounts and commissions
for the purpose of covering over-allotments, if any. If the Underwriters
exercise such option in full, the total price to public, underwriting
discounts and commissions and proceeds to Company will be $ ,
$ , and $ , respectively. See
"Underwriters."
----------------------
The Shares are offered, subject to prior sale, when, as and if accepted by the
Underwriters named herein, and subject to approval of certain legal matters by
Davis Polk & Wardwell, counsel for the Underwriters. It is expected that
delivery of the Shares will be made on or about , 1997 at the
office of Morgan Stanley & Co. Incorporated, New York, New York, against
payment therefor in immediately available funds.
MORGAN STANLEY DEAN WITTER
ROBERTSON, STEPHENS & COMPANY
SMITH BARNEY INC.
, 1997
<PAGE>
[INSIDE COVER ART]
<PAGE>
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN
WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION TO SUCH PERSON. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY OFFER OR SALE MADE HEREUNDER SHALL UNDER
ANY CIRCUMSTANCE IMPLY THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY DATE SUBSEQUENT TO THE DATE HEREOF.
----------------------
UNTIL , 1997 (25 DAYS AFTER THE COMMENCEMENT OF THE
OFFERING), ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR
NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
----------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.......................... 4
Risk Factors................................ 11
Formation of the Company.................... 17
Use of Proceeds............................. 21
Dividend Policy............................. 22
Capitalization.............................. 23
Dilution.................................... 24
Selected Pro Forma Combined Financial
Data 26
Management's Discussion and Analysis of
Pro Forma Financial Condition and
Pro Forma Results of Operations............ 28
Selected Financial Data of the
Founding Companies......................... 31
<CAPTION>
PAGE
----
<S> <C>
Management's Discussion and Analysis of
Financial Condition and Results of
Operations of the Founding Companies..... 35
Business................................... 51
Management................................. 57
Certain Relationships and Related Party
Transactions............................. 64
Principal Stockholders..................... 69
Description of Capital Stock............... 71
Shares Eligible for Future Sale............ 73
Underwriters............................... 74
Legal Matters.............................. 75
Experts.................................... 75
Additional Information..................... 76
Index to Financial Statements.............. F-1
</TABLE>
----------------------
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH THE OFFERING,
AND MAY BID FOR, AND PURCHASE, SHARES OF THE COMMON STOCK IN THE OPEN MARKET.
FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITERS."
----------------------
3
<PAGE>
PROSPECTUS SUMMARY
Simultaneously with the closing of the offering made by this Prospectus (the
"Offering"), U.S.A. Floral Products, Inc. will acquire, in separate transactions
(the "Mergers"), a number of floral products businesses (collectively, the
"Founding Companies"). See "Formation of the Company." Unless otherwise
indicated, all references to the "Company" include the Founding Companies after
the effectiveness of the Mergers, and references to "USA Floral" mean U.S.A.
Floral Products, Inc. prior to the effectiveness of the Mergers. The following
summary is qualified in its entirety by, and should be read in conjunction with,
the more detailed information and the financial statements, including the notes
thereto, appearing elsewhere in this Prospectus. Unless otherwise indicated,
all share, per share and financial information set forth herein (i) has been
adjusted to give effect to the Mergers and (ii) assumes no exercise of the
Underwriters' over-allotment option.
THE COMPANY
USA Floral was founded in April 1997 to create a national consolidator and
operator of floral products distribution businesses. The Company engages
primarily in the wholesale distribution of perishable floral products (including
fresh cut flowers, greens and potted plants) and floral-related hardgoods
(including vases and glassware, foam for flower arranging, tools and other
supplies). The Company also imports cut flowers from growers in foreign
countries, provides pre-packaged floral bouquets and arrangements to retail
florists and mass-market retailers and engages in brokerage services for
wholesalers of both foreign and domestic cut flowers. The Company believes that
it is one of the largest integrated distributors of floral products in the
United States. The Company has approximately 945 employees and serves thousands
of customers nationwide from 32 facilities in 17 states. For the year ended
December 31, 1996, the Company had pro forma combined revenues of $175.5
million, pro forma combined operating income of $5.1 million and pro forma
combined net income of $2.7 million.
The floriculture industry extends from growers, who produce perishable floral
products, through importers, brokers, shippers and wholesalers who distribute
and market fresh cut flowers and greens, potted plants and floral-related
hardgoods, to retail florists and mass market distributors, who sell floral
products to consumers. The distribution channel in the floriculture industry is
highly fragmented and consists mainly of small, family-owned firms that operate
from a single location or from a small number of outlets in a single region.
While floral products have historically been sold at retail through a large
number of traditional florists, who continue to serve the majority of consumers,
the Company believes that changes in consumer buying habits are causing more
consumers to seek floral products from mass market retailers such as
supermarkets, discount retailers and chain stores. Industry sources estimate
that sales in the retail segment of the floriculture industry totaled
approximately $15.0 billion in 1996, and that approximately 45% of retail sales
are generated by mass market retailers. Management believes that the growing
consumer preference for more convenient floral products retailers, together with
the potential efficiencies to be achieved from operating floral products
businesses on a large scale, have well positioned the floriculture industry for
consolidation and provide an attractive opportunity for the Company to build an
integrated, nationwide floral products distributor that can serve the growing
mass market while continuing to meet the needs of the traditional florists for
high quality products and services.
STRATEGY
The Company's goal is to become the leading consolidator and operator of
floral products distribution businesses. Key elements of the Company's strategy
include the following:
PURSUE STRATEGIC ACQUISITIONS. The Company intends to capitalize upon
consolidation opportunities in the U.S. floral products industry by pursuing
selective acquisitions in the distribution segment of the industry. To build
upon and enhance its nationwide presence, the Company will focus upon
opportunities that complement and complete its floral products offerings and in
new geographic markets with above-average population growth and floral products
consumption. The Company intends to implement an aggressive acquisition program
utilizing a "hub and spoke" strategy for expansion into its targeted markets.
As part of this strategy, the Company plans to make acquisitions of established,
high-quality local companies in targeted geographic areas, which can then serve
as"hubs" for the acquisition of smaller, synergistic "spokes" in that locality
or in surrounding markets. The Company believes that it can
4
<PAGE>
successfully integrate the operations of acquired spokes into its hubs, in order
to leverage more effectively its sales, marketing and distribution capabilities.
Robert J. Poirier, the Company's co-founder, President and Chief Executive
Officer, has over 22 years of experience in the floral products industry, and
has extensive relationships with wholesalers, importers, brokers and bouquet
manufacturers. Mr. Poirier's industry knowledge is complemented by the
acquisition expertise of Jonathan J. Ledecky, the Company's co-founder and Non-
Executive Chairman of the Board. Mr. Ledecky is the founder, Chairman of the
Board and Chief Executive Officer of U.S. Office Products Company, a publicly-
held supplier of a broad range of office products and business services that has
been built primarily through the acquisition and integration of over 185
companies since its inception in October 1994.
OPERATE WITH DECENTRALIZED MANAGEMENT. The Company plans to conduct its
operations with a decentralized management approach through which individual
management teams will be responsible for the day-to-day operations of the
Founding Companies as well as for helping to identify additional acquisition
candidates in their respective locales. At the same time, a company-wide team
of senior management will provide the Founding Companies with strategic
oversight and guidance with respect to acquisitions, financing, marketing and
operations. As part of this strategy, the Company intends to foster a culture
of cooperation and teamwork that emphasizes dissemination of "best practices"
among its local management teams. The Company believes that stock ownership and
incentive compensation will help to keep the objectives of local management
aligned with those of the Company, and that a decentralized management approach
will result in better customer service by allowing local management the
flexibility to implement policies and make decisions based on the needs of local
customers.
ACHIEVE OPERATING EFFICIENCIES. The Company believes that it will be able to
increase operating efficiency and achieve certain synergies among its
constituent businesses. In particular, with larger operational scale, the
Company believes that it can increase distribution efficiencies by utilizing
shipping and delivery capacity more efficiently. The Company will also seek to
combine certain administrative functions, such as accounting and finance,
insurance, employee benefits, strategic marketing and legal support, at the
corporate level, and to institute a Company-wide management information system.
The Company believes that increased scale and administrative integration will
enable it not only to operate more efficiently, but also to obtain more
favorable discounts and rebates on floral products hardgoods and, to a lesser
extent, realize savings on transportation and handling costs of fresh flowers.
INTRODUCE NEW PRODUCTS AND SERVICES. The Company believes that over time it
will be able to develop and market high value-added products and services, such
as "branded" flowers and bouquets specifically identified with quality and
consistency. By utilizing its contacts with growers and leveraging its
distribution efficiencies, the Company believes that it can establish
specifications for fresh flowers and control product quality at each step in the
distribution process, thereby building a brand identification that will command
a premium price. The Company also intends to service retailers by providing
pre-packaged fresh flowers and arrangements during periods of peak demand, as
well as to market floral products through corporate account relationships and
other means.
THE FOUNDING COMPANIES
The Founding Companies will be acquired contemporaneously with the
consummation of the Offering with a portion of the proceeds therefrom. The
consummation of the Mergers is a condition to the consummation of the Offering.
The Roy Houff Company ("Houff"). Founded in 1977, Houff is a wholesale
distributor of perishable floral products and floral-related hardgoods,
operating from seven locations in Illinois, Virginia and Arizona. Houff
purchases floral products from importers, brokers and shippers and sells them to
approximately 3,000 customers, including retail florists and mass market
retailers. Houff has approximately 270 employees. Houff's annual revenues in
1996 were approximately $39.1 million.
CFX, Inc. ("CFX"). Founded in 1974, CFX is an importer and distributor of
perishable floral products located in Miami, Florida. CFX imports flowers from
approximately 40 farms located primarily in Colombia and Ecuador, and
distributes them throughout the United States to approximately 400 wholesale
distributors as well as directly to mass market retailers. CFX has
approximately 110 employees. CFX's annual revenues in 1996 were approximately
$35.7
5
<PAGE>
million.
Bay State Florist Supply, Inc. ("Bay State"). Founded in 1952, Bay State is a
wholesale distributor of perishable floral products and floral-related
hardgoods, operating from six locations in Massachusetts, New York, New
Hampshire, Connecticut and Rhode Island. Bay State purchases floral products
from domestic growers, importers, brokers and shippers and sells them to
approximately 3,000 customers, including retail florists and mass market
retailers. Bay State has approximately 190 employees. Bay State's annual
revenues in 1996 were approximately $30.6 million.
Flower Trading Corporation ("Flower Trading"). Founded in 1977, Flower
Trading is an importer and distributor of perishable floral products, located in
Miami, Florida. Flower Trading imports flowers from farms located primarily in
Colombia, Ecuador, Guatemala and Peru and distributes them throughout the United
States to approximately 400 wholesale distributors. Flower Trading has
approximately 45 employees. Flower Trading's annual revenues in 1996 were
approximately $20.3 million.
United Wholesale Florists, Inc. ("United Wholesale"). Founded in 1947, United
Wholesale is a wholesale distributor of perishable floral products and floral-
related hardgoods, operating from 13 locations in Arkansas, Alabama,
Mississippi, Oklahoma, Tennessee and Texas. United Wholesale purchases floral
products from domestic growers, importers, brokers and shippers and sells them
to approximately 3,000 customers, including retail florists and mass marketers.
United Wholesale has approximately 175 employees. United Wholesale's revenues
for the fiscal year ended June 30, 1996 were approximately $19.0 million.
American Florist Supply, Inc. ("American Florist"). Founded in 1994, American
Florist is a wholesale distributor of perishable floral products and floral-
related hardgoods, located in Woburn, Massachusetts. American Florist purchases
floral products from foreign and domestic growers, brokers and importers and
sells them to approximately 450 customers, including retail florists and mass
market retailers in Maine, Massachusetts, Vermont and New Hampshire. American
Florist also provides pre-packaged fresh cut floral bouquets to retail florists
and mass-market retailers. American Florist has approximately 70 employees.
American Florist's annual revenues in 1996 were approximately $11.7 million.
Monterey Bay Bouquet, Inc. and Bay Area Bouquets, Inc. ("Monterey Bay").
Founded in 1993, Monterey Bay, located in Watsonville, California, is a
manufacturer of fresh cut flower bouquets, consisting primarily of specialty
California-grown flowers. Monterey Bay purchases flowers from 12 importers and
nearly 150 domestic growers and distributes them to a supermarket and a discount
retailer, each of which has numerous locations throughout the western United
States. Monterey Bay has approximately 65 employees. Monterey Bay's annual
revenues in 1996 were approximately $9.5 million.
Alpine Gem Flower Shippers, Inc. ("Alpine Gem"). Founded in 1972, Alpine Gem
is a broker of perishable floral products, operating from two locations in
Montana and California. Alpine Gem obtains flowers from nearly 100 growers,
principally located in the United States, and distributes them to nearly 750
customers, primarily wholesalers, located throughout the U.S. Alpine Gem has
approximately 20 employees. Alpine Gem's annual revenues in 1996 were
approximately $9.3 million.
6
<PAGE>
THE OFFERING
Common Stock offered by
the Company ............... Shares (1)
Common Stock to be
outstanding
after the Offering ......... Shares (1), (2)
Use of proceeds ............ To pay the cash portion of the purchase price
for the Founding Companies, to fund certain S
Corporation distributions and to fund general
corporate purposes, including payment of an
estimated tax liability being assumed in one of
the Mergers, working capital and possible
acquisitions. See "Use of Proceeds." The Company
is currently negotiating to obtain a bank credit
facility. If the Company obtains a credit
facility, the Company may use debt, rather than
proceeds of the Offering, to fund S Corporation
distributions.
Proposed Nasdaq National
Market Symbol ............. ROSY
- ----------
(1) Assumes the over-allotment option is not exercised. See "Underwriters."
(2) Does not include: (i) up to 540,000 shares which may be issued to the
stockholders of two of the Founding Companies pursuant to earn-out
arrangements to be calculated with reference to the performance of those
Founding Companies through December 31, 1997; (ii) shares of Common Stock
equal to 15% of the shares of Common Stock outstanding from time to time
that are reserved for issuance under the Company's 1997 Long-Term Incentive
Plan, of which options to purchase 872,753 shares of Common Stock (including
options to purchase 200,000 shares to be granted to Jonathan J. Ledecky, the
Company's Non-Executive Chairman of the Board) will be granted upon
consummation of the Offering at an exercise price equal to the initial
public offering price per share, and options to purchase 125,000 shares of
Common Stock will be granted upon consummation of the Offering at an
exercise price equal to the greater of $8.00 or 60% of the initial public
offering price per share; (iii) 300,000 shares of Common Stock reserved for
issuance under the Company's 1997 Non-Employee Directors' Stock Plan, of
which options to purchase 63,000 shares of Common Stock will be granted upon
consummation of the Offering at an exercise price equal to the initial
public offering price per share; (iv) 1,000,000 shares of Common Stock
reserved for issuance under the Company's 1997 Employee Stock Purchase Plan;
and (v) 110,000 shares reserved for issuance pursuant to an option to be
granted to Jonathan J. Ledecky on the effective date of the registration
statement of which this Prospectus forms a part, at an exercise price equal
to the initial public offering price per share, which option is being
granted to facilitate the treatment of the issuance of shares in the Mergers
as a tax-free exchange under Section 351 of the Internal Revenue Code of
1986, as amended (the "Internal Revenue Code"). See "Formation of the
Company--The Mergers," "Management--1997 Long-Term Incentive Plan," "--1997
Non-Employee Directors' Stock Plan" and "--Other Plans" and "Principal
Stockholders."
THE MERGERS
Simultaneously with, and as a condition to, the closing of the
Offering, the Company will consummate the Mergers pursuant to agreements that
the Company has entered into with the Founding Companies and their stockholders
(the "Merger Agreements"). The aggregate consideration to be paid by the
Company upon consummation of the Mergers will be approximately $ million,
consisting of 1,334,050 shares of Common Stock with a value of $
7
<PAGE>
million and $42.4 million in cash (before giving effect to the repayment upon
consummation of the Mergers of approximately $1.6 million of net related party
receivables). In addition, the Company will fund approximately $4.0 million in
S Corporation distributions to the stockholders of certain of the Founding
Companies and will assume a tax liability of one of the Founding Companies of
approximately $0.5 million. Following the consummation of the Mergers, the
aggregate long-term indebtedness of the Company will be approximately $3.5
million, which will comprise long-term debt of the Founding Companies upon the
Mergers. In addition, pursuant to earn-out arrangements provided for in two of
the Merger Agreements, the Company may make an additional payment of up to $0.5
million in cash and issue up to 540,000 additional shares of Common Stock,
subject to upward adjustment based upon the then-current market price of the
Common Stock. The stockholders of the Founding Companies will receive certain
registration rights with respect to the shares of Common Stock to be received
under the Merger Agreements. The Merger Agreements also provide that options to
purchase a number of shares of Common Stock equal to 6.25% of the cash and
Common Stock portion of the Merger consideration, based on the initial public
offering price, will be made available to employees of the Founding Companies.
The consummation of each Merger Agreement is contingent upon the consummation of
the Offering and customary closing conditions. The Merger Agreements contain
covenants not to compete (subject to certain exceptions) and require certain of
the executive officers of each of the Founding Companies to enter into
employment agreements with their respective Founding Companies effective upon
consummation of the Mergers. One of the executives of each of the Founding
Companies will be appointed to the Board of Directors of the Company following
the consummation of the Offering. See "Formation of the Company," "Use of
Proceeds," "Management's Discussion and Analysis of Financial Condition and
Results of Operations of the Founding Companies--Liquidity and Capital
Resources," "Management--Employment Agreements," "Certain Relationships and
Related Party Transactions," "Shares Eligible for Future Sale," and the
Unaudited Pro Forma Combined Financial Statements and the notes thereto
appearing elsewhere in this Prospectus.
8
<PAGE>
SUMMARY PRO FORMA COMBINED FINANCIAL DATA
USA Floral was established in April 1997 to acquire the Founding
Companies simultaneously with and as a condition to the consummation of this
Offering. For financial statement presentation purposes, USA Floral has been
identified as the "accounting acquiror." The following unaudited summary pro
forma combined financial data present data for the Company, adjusted to give
effect to (i) the consummation of the Mergers, (ii) certain pro forma
adjustments to the historical financial statements described below and (iii) the
consummation of the Offering and the application of the net proceeds therefrom.
The summary pro forma data are not necessarily indicative of operating results
or financial position that would have been achieved had the events described
above been consummated and should not be construed as representative of future
operating results or financial position. The summary pro forma combined
financial data should be read in conjunction with the Unaudited Pro Forma
Combined Financial Statements and the notes thereto and the historical financial
statements of the Founding Companies and the notes thereto included elsewhere in
this Prospectus. The Company anticipates that, subsequent to the Mergers, it
will realize savings from the following: more favorable discounts and rebates on
hardgood products than those currently obtained individually by the Founding
Companies; the combination of functions such as accounting and finance,
insurance, employee benefits, strategic marketing and legal support at the
corporate level; and, to a lesser extent, reduced transportation and handling
costs on perishable floral products. However, these savings cannot be
quantified or reasonably estimated and have not been included in the Unaudited
Pro Forma Combined Financial Statements.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, THREE MONTHS ENDED MARCH 31,
1996 1996 1997
---------- ------------- ----------
(in thousands, except share and per share data)
STATEMENT OF OPERATIONS DATA (1):
<S> <C> <C> <C>
Net sales................................... $ 175,467 $ 50,485 $ 54,796
Gross profit (2)............................ 49,247 13,319 14,716
Selling, general and
administrative expense (3)................. 43,093 10,484 10,841
Goodwill amortization (4)................... 1,032 258 258
---------- ------------- ----------
Operating income............................ 5,122 2,577 3,617
Interest and other
(income) expense, net (5).................. (140) (146) (95)
Income before income taxes.................. 5,262 2,723 3,712
---------- ------------- ----------
Net income (6).............................. $ 2,744 $ 1,531 $ 2,124
========== ============= ==========
Net income per share........................
========== ============= ==========
Shares used in computing
net income per share (7)...................
</TABLE>
<TABLE>
<CAPTION>
AS OF
MARCH 31, 1997
------------------------------
Pro Forma As
Combined Adjusted (9)
-------- -----------
(in thousands)
<S> <C> <C>
Balance Sheet Data (8):
Working capital................... $(35,389) (10) $
Total assets...................... 83,963
Total long term debt.............. 3,478
Stockholders' equity.............. 13,385
</TABLE>
- ------------------
(1) The pro forma combined statement of operations data assume that the
Mergers and the Offering were consummated on January 1, 1996.
(2) Reflects the reduction in costs of sales of $579,000 for the year ended
December 31, 1996 and $145,000 and $150,000 for the three-month periods
ended March 31, 1996 and 1997, respectively, attributable to the
renegotiation of a contract for various services with an affiliated
entity of Flower Trading.
(3) The pro forma combined statement of operations data reflect an aggregate
of approximately (i) $3.7 million,
9
<PAGE>
$1.6 million and $256,000 for the year ended December 31, 1996 and the
three-month periods ended March 31, 1996 and 1997, respectively, in pro
forma reductions in salaries, bonuses and benefits to the stockholders of
the Founding Companies to which they have agreed prospectively in the
employment agreements to be entered into upon consummation of the
Offering (the "Compensation Differential"), (ii) a net reduction of
lease-related expenses of $396,000 for the year ended December 31, 1996
and $99,000 for each of the three-month periods ended March 31, 1996 and
1997, pursuant to real estate acquired, real estate distributed and
amendment of associated lease agreements in connection with the Mergers,
(iii) an increase of $500,000 for the year ended December 31, 1996 and
$125,000 for each of the three-month periods ended March 31, 1996 and
1997, of expenses associated with corporate management, as well as costs
associated with being a public company, and (iv) $63,000 for the year
ended December 31, 1996 and $16,000 for each of the three-month periods
ended March 31, 1996 and 1997 of expense attributable to compensation
expense associated with 125,000 options granted with an exercise price
below the initial public offering price which will vest over a four-year
period.
(4) Consists of amortization of the $41.3 million of goodwill to be recorded
as a result of the Mergers over a 40-year period and computed on the
basis described in the Notes to the Unaudited Pro Forma Combined
Financial Statements.
(5) Reflects an increase in interest expense of $162,000 for the year ended
December 31, 1996 and $41,000 for each of the three-month periods ended
March 31, 1996 and 1997 relating to debt assumed in connection with real
estate transferred to Houff from the stockholder of Houff as part of the
transaction.
(6) Assumes that all income is subject to a corporate income tax rate of 40%
and that all goodwill is non-deductible.
(7) Includes (i) 1,334,050 shares to be issued to stockholders of the
Founding Companies, (ii) 2,400,000 shares issued to the founders and
initial investors in USA Floral, (iii) of the shares
sold in the Offering to pay the cash portion of the Merger consideration,
to fund S Corporation distributions to stockholders of certain of the
Founding Companies, and to pay certain expenses of the Offering, and (iv)
25,000 shares related to the dilution attributable to options granted
with an exercise price below the initial public offering price, in
accordance with the treasury stock method.
(8) The pro forma combined balance sheet data assume that the Mergers were
consummated on March 31, 1997. Prior to the Mergers, Bay State will
distribute to its stockholders certain real estate having a net book
value of $850,000. Additionally, in conjunction with the Mergers certain
real estate will be acquired and certain associated debt assumed.
(9) Adjusted to reflect the sale of the shares of Common Stock
offered hereby and the application of the estimated net proceeds
therefrom. See "Use of Proceeds."
(10) Includes $44.8 million payable to stockholders of the Founding Companies,
representing the cash portion of the Merger consideration to be paid from
a portion of the net proceeds of the Offering, plus S Corporation
distributions to be made to the stockholders of certain of the Founding
Companies, less the amount to be received by the Company upon
consummation of the Mergers in repayment of net related party
receivables. See "Use of Proceeds" and "Notes to Unaudited Pro Forma
Combined Financial Statements."
10
<PAGE>
RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a high
degree of risk. Prospective investors should consider carefully the following
risk factors, in addition to the other information contained in this Prospectus,
in evaluating an investment in the shares of Common Stock offered hereby.
ABSENCE OF COMBINED OPERATING HISTORY
USA Floral was founded in April 1997 and has conducted no operations to
date. USA Floral has entered into agreements to acquire the Founding Companies
simultaneously with the consummation of the Offering. The Founding Companies
have been operating independently and the Company may not be able to integrate
these businesses successfully on an economic basis. The Company's management
group has been assembled only recently and the management control structure is
still in its formative stages. The pro forma combined financial results of USA
Floral and the Founding Companies cover periods when USA Floral and the Founding
Companies were not under common control or management and may not be indicative
of the Company's future financial or operating results. Management may not be
able to oversee the combined entity effectively or to implement effectively the
Company's operating strategies. See "Formation of the Company," "Business--The
Founding Companies" and "Management."
RISKS ASSOCIATED WITH ACQUISITION STRATEGY
The Company intends to grow significantly through the acquisition of
additional floral products businesses. This strategy will entail reviewing and
potentially reorganizing acquired business operations, corporate infrastructure
and systems and financial controls. Unforeseen expenses, difficulties,
complications and delays frequently encountered in connection with the rapid
expansion of operations could inhibit the Company's growth. There can be no
assurance that the Company will maintain or accelerate its growth or anticipate
all of the changing demands that expanding operations will impose on its
management personnel, operational and management information systems, and
financial systems. The Company may not be able to identify, acquire or manage
profitably additional businesses or to integrate successfully any acquired
businesses into the Company without substantial costs, delays or other
operational or financial difficulties. Any failure by the Company to do so could
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Business--Strategy."
RISKS RELATED TO ACQUISITION FINANCING
A significant portion of the Company's resources may be used for acquisitions.
The timing, size and success of the Company's acquisition efforts and any
associated capital commitments cannot be readily predicted. The Company
currently intends to finance future acquisitions by using shares of its Common
Stock, cash or a combination of Common Stock and cash. If the Common Stock does
not maintain a sufficient market value, or if potential acquisition candidates
are otherwise unwilling to accept Common Stock as part of the consideration for
the sale of their businesses, the Company may be required to utilize more of its
cash resources, if available, in order to initiate and maintain its acquisition
program. Upon consummation of this Offering, the Company will have $ million of
net proceeds remaining for future acquisitions and working capital, after
payment of the cash portion of the purchase price for the Founding Companies and
expenses of the Mergers and the Offering. If the Company does not have
sufficient cash resources, its growth could be limited unless it is able to
obtain additional capital through debt or equity financings. There can be no
assurance that the Company will be able to obtain additional financing it may
need for its acquisition program on terms that the Company deems acceptable. To
the extent the Company uses Common Stock for all or a portion of the
consideration to be paid for future acquisitions, dilution may be experienced by
existing stockholders, including the purchasers of Common Stock in the Offering.
See "Dilution," "Use of Proceeds" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources."
11
<PAGE>
RISKS RELATED TO INTERNAL GROWTH AND OPERATING STRATEGIES
Key elements of the Company's strategy are to improve the profitability and
to continue to expand the net sales of the Founding Companies and any
subsequently acquired businesses. The Company's ability to increase net sales
will be affected by various factors, including demand for, pricing and
availability of floral products, the Company's ability to expand the range of
products and services offered and the Company's ability to enter new markets
successfully. Many of these factors are beyond the control of the Company, and
the Company's strategies may not be successful or the Company may be unable to
generate cash flow adequate for its operations and to support internal growth. A
key component of the Company's strategy is to operate on a decentralized basis,
with local management retaining responsibility for day-to-day operations,
profitability and the growth of the business. If proper overall business
controls are not implemented, this decentralized operating strategy could result
in inconsistent operating and financial practices at the Founding Companies and
subsequently acquired businesses, which could materially and adversely affect
the Company's overall profitability. See "Business--Strategy."
SEASONALITY AND CYCLICALITY; POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING
RESULTS
Unit sales of floral products have historically been seasonal, concentrated in
the first and second calendar quarters as a result of holidays such as
Valentine's Day and Mother's Day and, to a lesser extent, in the fourth calendar
quarter as a result of Thanksgiving and Christmas. In particular, a significant
portion of the Company's annual revenues is derived from sales of floral
products for Valentine's Day. Historically, Valentine's Day sales have been
relatively lower in those years when the holiday falls on a Saturday or Sunday.
In 1998 and 1999, Valentine's Day will be on Saturday and Sunday, respectively;
accordingly, the Company expects relatively lower Valentine's Day product sales
in those years.
The Company believes that the floriculture industry is influenced by general
economic conditions and particularly by the level of personal discretionary
spending, and thus that the industry tends to experience periods of decline and
recession during economic downturns. The industry may experience sustained
periods of decline in sales in the future, and any such decline may have a
material adverse effect on the Company.
The Founding Companies have in the past experienced quarterly variations in
revenues, operating income and cash flows. The Company could in the future
experience such quarterly fluctuations in operating results due to the factors
discussed above and other factors, including the loss of a major customer,
additional selling, general and administrative expenses to acquire and support
new business and the timing and magnitude of required capital expenditures. The
Company plans its operating expenditures based on revenue forecasts, and a
revenue shortfall below such forecasts in any quarter would likely adversely
affect the Company's operating results for that quarter. See "Management's
Discussion and Analysis of Pro Forma Financial Condition and Pro Forma Results
of Operations--Seasonality and Cyclicality; Potential Fluctuations in Quarterly
Operating Results."
WEATHER
The supply of perishable floral products is significantly dependent on
weather conditions where the products are grown. Severe weather, including
unexpected cold weather, may have an effect on the available supply of flowers
at times of peak demand. For example, in order for a sufficient supply of roses
to be available for sale on Valentine's Day, rose-growing regions must not
suffer a freeze or other harsh conditions in the weeks leading up to the
holiday. Shortages or disruptions in the supply of fresh flowers or the
inability of the Company to procure such materials from alternate sources at
acceptable prices in a timely manner, could lead to the loss of customers which
in turn could result in a material adverse effect on the Company's business,
financial condition and results of operations.
COMPETITION
The distribution segment of the floriculture industry is highly competitive.
The Company competes with other importers, brokers, wholesalers and bouquet
companies based upon price, credit terms, breadth of product offerings, product
quality, customer service and location. In addition, the Company competes with
other buyers and sellers of
12
<PAGE>
floral and floral-related products, such as garden centers and farm stores. To
the extent that the Company is unable to compete successfully against its
existing and future competitors, its business, operating results and financial
condition would be materially adversely affected. While the Company believes
that it competes effectively within its industry, additional competitors with
greater resources than the Company may enter the industry and compete
effectively against the Company. Moreover, the Company may depend in part upon a
trend toward consolidation in the floral products industry in order to execute
effectively its acquisition and vertical integration strategy. This trend may
not continue. If the Company's customers do not receive the Company's vertical
integration strategy favorably, such customers have numerous alternative sources
of supply.
VALUATIONS OF THE FOUNDING COMPANIES
Valuations of the Founding Companies have not been established by independent
appraisals, but have been determined through negotiations between USA Floral and
representatives of each of the Founding Companies. The consideration being paid
for each of the Founding Companies, including Founding Companies whose
stockholders will become affiliates of the Company upon consummation of the
Offering, is based primarily on the value of each such Founding Company as a
going concern and not on the value of the acquired assets. Valuations of the
Founding Companies determined solely by appraisals of the acquired assets would
be less than the consideration being paid by USA Floral for the Founding
Companies. The future performance of the Founding Companies may not be
commensurate with the consideration being paid to acquire the Founding Companies
or the price of the Common Stock offered hereby. See "Formation of the Company--
The Mergers."
AMORTIZATION OF INTANGIBLE ASSETS
Approximately $41.3 million, or 46.9%, of the Company's pro forma total assets
as of March 31, 1997 consists of goodwill arising from the acquisitions of the
Founding Companies. Goodwill is an intangible asset that represents the
difference between the aggregate purchase price for the assets acquired and the
amount of such purchase price allocated to such assets for purposes of the
Company's pro forma balance sheets. The Company is required to amortize the
goodwill from the Mergers over a period of time, with the amount amortized in a
particular period constituting an expense that reduces the Company's net income
for that period. The amount amortized, however, will not give rise to a
deduction for tax purposes. In addition, the Company will be required to
amortize the goodwill, if any, from any future acquisitions. A reduction in net
income resulting from the amortization of goodwill may have an adverse impact
upon the market price of the Company's Common Stock.
SUBSTANTIAL PROCEEDS OF OFFERING PAYABLE TO AFFILIATES
Approximately $42.4 million of the $ million net proceeds of the Offering
will be used to pay the cash portion of the purchase price for the Founding
Companies (before giving effect to the repayment upon consummation of the
Mergers of approximately $1.6 million of net related party receivables) and $4.0
million will be used to fund S Corporation distributions to the stockholders of
certain of the Founding Companies. In addition, the Company will assume a tax
liability of one of the Founding Companies of approximately $0.5 million. Up to
an additional $0.5 million may be used to pay the cash portion of the earn-out
arrangement in connection with the Monterey Bay Merger. See "Formation of the
Company--The Mergers."
DEPENDENCE ON KEY PERSONNEL
The Company believes that its success will depend to a significant extent upon
the efforts and abilities of Robert J. Poirier, its co-founder, President and
Chief Executive Officer, Jonathan J. Ledecky, its co-founder and Non-Executive
Chairman of the Board, the Company's other executive officers and, due to the
Company's decentralized operating strategy, senior management of the Founding
Companies. The Company likely will depend on the senior management of any
significant business it acquires in the future. If the Company loses the
services of one or more of these key employees before the Company is able to
attract and retain qualified replacement personnel, the Company's business could
be adversely affected. See "Management."
13
<PAGE>
IMPORTED PRODUCTS
The majority of the perishable floral products distributed by the Company are
of foreign origin. Accordingly, the Company is subject to the import and export
restrictions of various jurisdictions and is dependent to some extent upon
general economic conditions in and political relations with a number of foreign
countries. One such factor, among others, is the imposition of anti-dumping
duties upon certain imports of perishable floral products. "Dumping" is the
practice whereby importers sell flowers in the United States at prices below the
grower's cost. The U.S. Commerce Department investigates claims of dumping made
by domestic growers. If the Commerce Department determines that an importer sold
flowers for a price less than the grower's cost, then the Commerce Department
will impose an anti-dumping duty upon the importer. The Commerce Department is
currently reviewing two anti-dumping cases, three anti-dumping cases are pending
judicial appeal and additional cases may be initiated at any time. CFX and
Flower Trading, which are importers, impose a surcharge upon certain flowers
that may become subject to an anti-dumping duty and maintain reserves for the
estimated final duty that may be imposed; the accrued reserve may not be
adequate to satisfy any duty that is assessed, and duties may be imposed on
sales of flowers for which CFX and Flower Trading have not maintained reserves.
HOLDING COMPANY STRUCTURE
The Company is a holding company, the principal assets of which are the
shares of the capital stock of its subsidiaries. As a holding company without
independent means of generating operating revenues, the Company depends on
dividends and other payments from its subsidiaries to fund its obligations and
meet its cash needs. Expenses of the Company include salaries of its executive
officers, insurance, professional fees and service of any indebtedness that may
be outstanding from time to time. See "Management--Summary Compensation Table."
ABSENCE OF CONTRACTUAL RELATIONSHIPS WITH CUSTOMERS
Companies in the floral products industry generally do not enter into sales
contracts with their customers requiring them to make purchases over any
specific term. Instead, sales are generally evidenced by purchase orders or
similar documentation limited to specific sales. As a result of these practices,
the Company's customers generally have the right to terminate their
relationships with the Company without penalty and with little or no notice.
Accordingly, a customer from which the Company generates substantial revenue in
one period may not be a substantial source of revenue in a subsequent period. If
the Company's customers determine to reduce or cease purchases from the Company,
the Company's business, financial condition and results of operations would be
materially and adversely affected.
CERTAIN RELATIONSHIPS AND TRANSACTIONS
The Company is subject to risks associated with potential conflicts of
interest that may arise out of the interrelationships among certain of the
officers of the Founding Companies and related third party entities with which
the Founding Companies conduct business transactions. For a more detailed
description of these and certain other related party transactions, see "Certain
Relationships and Related Party Transactions." While the Company intends to
conduct all related party transactions on terms no less favorable than those the
Company could negotiate with an unrelated third party, the interests of officers
of the Founding Companies in their capacities with related third party entities
may come into conflict with the interests of such persons in their capacities
with the Company.
POTENTIAL INFLUENCE OF EXISTING STOCKHOLDERS
After the consummation of the Offering, the Company's executive officers,
directors and five-percent stockholders will own beneficially an aggregate of
approximately % of the outstanding shares of Common Stock (approximately % if
the Underwriters' over-allotment option is exercised in full). The Company's
officers, directors and five-percent stockholders if acting together may be able
to control the election of directors and matters requiring the approval of the
stockholders of the Company. This concentration of ownership may also have the
effect of delaying or preventing a change in control of the Company. In
addition, Robert J. Poirier and Jonathan J. Ledecky who upon consummation of the
Offering will own beneficially % and %, respectively, of the Common Stock to be
14
<PAGE>
outstanding after the Offering, have entered into an agreement pursuant to which
Mr. Poirier and Mr. Ledecky will vote their Common Stock together on all matters
submitted to a vote of stockholders. See "Principal Stockholders."
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have shares of Common
Stock outstanding, based upon the number of shares outstanding as of , 1997. The
shares sold in the Offering will be freely tradeable without restriction or
further registration under the Securities Act, unless acquired by an "affiliate"
of the Company, as that term is defined in Rule 144 promulgated under the
Securities Act ("Rule 144"); shares held by affiliates will be subject to resale
limitations of Rule 144 described below. All of the remaining outstanding shares
of Common Stock will be available for resale at various dates beginning 180 days
after the date of this Prospectus, upon expiration of applicable lock-up
agreements described below and subject to compliance with Rule 144 under the
Securities Act as the holding provisions of Rule 144 are satisfied. Of those
shares, 3,438,000 may be included in certain registration statements that may be
filed by the Company, in accordance with piggyback registration rights granted
pursuant to the Merger Agreements or pursuant to such rights granted to Mr.
Ledecky and Mr. Poirier. Up to 540,000 shares that may be issued to stockholders
of two of the Founding Companies pursuant to earn-out arrangements (to be
calculated with reference to the performance of those Founding Companies) will
also be subject to such piggyback registration rights. Further, upon
consummation of the Offering, 1,170,753 shares of Common Stock will be issuable
upon the exercise of stock options to be granted on the effective date of the
registration statement of which this Prospectus forms a part, of which options
to purchase 270,000 shares are immediately exercisable. Such options include an
option to purchase 110,000 shares to be granted to Jonathan J. Ledecky to
facilitate the treatment of the shares to be issued in the Mergers as a tax-free
exchange under the Internal Revenue Code of 1986. Mr. Ledecky has indicated his
intention to exercise such option on or about the effective date of the
registration statement of which this Prospectus forms a part. The Company
intends to file a registration statement on Form S-8 as soon as practicable
after the consummation of the Offering with respect to the shares of Common
Stock issuable upon the exercise of all such options (other than the option to
purchase 110,000 shares to be granted to Mr. Ledecky).
Sales of substantial amounts of Common Stock, or the perception that such
sales could occur, could adversely affect prevailing market prices of the Common
Stock. Each of the Company and the directors, executive officers and certain
other stockholders of the Company has agreed that, without the prior written
consent of Morgan Stanley & Co. Incorporated on behalf of the Underwriters, it
will not, during the period ending 180 days after the date of this Prospectus,
(i) offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right or
warrant to purchase, lend, or otherwise transfer or dispose of, directly or
indirectly, any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock or (ii) enter into any swap or
other arrangement that transfers to another, in whole or in part, any of the
economic consequences of ownership of the Common Stock, whether any such
transaction described in clause (i) or (ii) above is to be settled by delivery
of Common Stock or such other securities, in cash or otherwise. See
"Underwriters."
NO PRIOR MARKET FOR THE COMMON STOCK; POSSIBLE VOLATILITY OF STOCK PRICE
There is currently no established public market for securities of companies
that own and operate floral product distribution businesses and, prior to the
Offering, there has been no public market for the Company's Common Stock. There
can be no assurance that an active public market for the Common Stock will
develop or be sustained after the Offering. The initial public offering price of
the Common Stock will be determined by negotiation between the Company and the
representatives of the Underwriters based on the factors described under
"Underwriting." The price at which the Common Stock will trade in the public
market after the Offering may be less than the initial public offering price. In
addition, the trading price of the Common Stock could be subject to significant
fluctuations in response to activities of the Company's competitors, variations
in quarterly operating results, changes in market conditions and other events or
factors. Moreover, the stock market in the past has experienced significant
price and value fluctuations, which have not necessarily been related to
corporate operating performance. The volatility of the market could adversely
affect the market price of the Common Stock and the ability of the Company to
raise equity in the public markets. See "Underwriters."
15
<PAGE>
DILUTION TO NEW INVESTORS
After giving effect to the Mergers, purchasers of Common Stock in the
Offering will experience immediate and substantial dilution in the pro forma as
adjusted net tangible book value of their shares in the amount of $ per share.
See "Dilution." If the Company issues additional Common Stock in the future,
including shares which may be issued pursuant to earn-out arrangements, option
grants and future acquisitions, purchasers of Common Stock in the Offering may
experience further dilution in the net tangible book value per share of the
Common Stock.
CERTAIN ANTITAKEOVER PROVISIONS
Certain provisions of the Company's Certificate of Incorporation and Bylaws
and Delaware law may make a change in the control of the Company more difficult
to effect, even if a change in control were in the stockholders' interest.
Pursuant to the Certificate of Incorporation and Bylaws, the Board of Directors
is divided into three classes of directors elected for staggered three-year
terms. In addition, the Company is subject to the anti-takeover provisions of
Section 203 of the Delaware General Corporation Law, which prohibit the Company
from engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an "interested stockholder", unless the business combination is approved
in a prescribed manner. See "Description of Capital Stock--Certain Provisions of
Delaware Law and the Company's Certificate of Incorporation and Bylaws."
16
<PAGE>
FORMATION OF THE COMPANY
USA FLORAL
USA Floral was incorporated in Delaware in April 1997 as a holding company to
acquire businesses in the floriculture industry. Prior to the Mergers and the
Offering, USA Floral issued 2,400,000 shares of Common Stock for cash to its co-
founders and initial investors, including 1,000,000 shares to Robert J. Poirier
and 1,100,000 shares to Jonathan J. Ledecky. Mr. Poirier is the co-founder,
President and Chief Executive Officer of USA Floral and Mr. Ledecky is its co-
founder and Non-Executive Chairman of the Board. Subsequent to the Mergers and
the Offering, the co-founders of USA Floral will own directly in the aggregate
approximately % of the outstanding Common Stock of the Company. See "Certain
Relationships and Related Party Transactions--Organization of USA Floral."
THE MERGERS
Simultaneously with and as a condition to the consummation of the Offering,
USA Floral will acquire in eight separate transactions all of the issued and
outstanding capital stock of each of the Founding Companies for an aggregate
consideration of $ million, which consists of: (i) $42.4 million in cash to be
paid to the stockholders of the Founding Companies (before giving effect to the
repayment upon consummation of the Mergers of approximately $1.6 million of net
related party receivables); (ii) $4.0 million in cash to fund S Corporation
distributions; (iii) the $ million estimated fair value of 1,334,050 shares of
Common Stock to be issued to the stockholders of the Founding Companies; and
(iv) up to $0.5 million in cash and 540,000 shares of Common Stock, pursuant to
earn-out arrangements with two of the Founding Companies. In addition, the
Company will assume an estimated tax liability of one of the Founding Companies
of approximately $0.5 million. Following the consummation of the Mergers, the
aggregate long-term indebtedness of the Company will be approximately $3.5
million, which will comprise long-term debt of the Founding Companies upon the
Mergers. The purchase price for each Founding Company was determined based on
negotiations between USA Floral and that Founding Company. The factors
considered by the parties in determining the purchase price included, among
other factors, cash flows, historical operating results, growth rates and
business prospects of the Founding Companies. With the exception of the
consideration to be paid to the stockholders of each of the Founding Companies,
the acquisition of each Founding Company is subject to substantially the same
terms and conditions as those to which the acquisition of each other Founding
Company is subject. The following table contains information concerning the
aggregate cash to be paid, Common Stock to be issued and S Corporation
distributions to be made in connection with the Mergers:
<TABLE>
<CAPTION>
Shares of Value of
S Corp. Common shares of Total
Founding Company Cash Distributions Stock Common Stock Consideration
- ------------------ ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
(dollars in millions)
HOUFF $ 11.0 -- -- -- $
CFX 5.8 $ 4.0 250,000 --
BAY STATE 6.0 -- 495,550 --
FLOWER TRADING 5.9 (1) -- 160,000 --
UNITED WHOLESALE 4.8 -- 268,500 --
AMERICAN FLORIST 4.8 -- -- (2) -- (2) (2)
MONTEREY BAY 2.5 -- -- (3) -- (3) (3)
ALPINE GEM 1.6 -- (4) 160,000
-------- ------- ------------------ ------------- -----------
Total $42.4 (5) $ 4.0 1,334,050 $ $
</TABLE>
17
<PAGE>
- --------------------------
(1) Does not include an estimated tax liability of approximately $0.5 million
payable after consummation of the Flower Trading Merger, which is to be
assumed by the Company in connection with the Flower Trading Merger.
(2) The sellers of American Florist have entered into an earn-out arrangement
pursuant to which the sellers may receive additional consideration
consisting of shares of Common Stock with an aggregate value of up to
$2,400,000 (based on the average closing price of the Common Stock for the
ten trading days prior to December 31, 1997). The earn-out is based upon
American Florist's 1997 earnings before interest and taxes .
(3) The sellers of Monterey Bay have entered into an earn-out arrangement
pursuant to which the sellers may receive additional consideration
consisting of up to $0.5 million in cash and shares of Common Stock with an
aggregate value of up to $3,000,000 (based on the average closing price of
the Common Stock for the ten trading days prior to December 31, 1997). The
earn-out is based upon Monterey Bay's 1997 earnings before interest and
taxes.
(4) The amount of the Alpine Gem S Corporation distribution is $48,000.
(5) Does not reflect the repayment to the Company of approximately $1.6 million
of net related party receivables. See "Use of Proceeds."
The consummation of each Merger Agreement is contingent upon the consummation
of the Offering and the satisfaction of customary closing conditions. The Merger
Agreements provide that the stockholders of the Founding Companies will have the
right, under circumstances specified in the Merger Agreements, to register the
shares of Common Stock received by the stockholders as a portion of the Merger
consideration. The Merger Agreements provide that options to purchase a number
of shares of Common Stock, equal to 6.25% of the cash and Common Stock portion
of the Merger consideration, based on the initial public offering price, shall
be made available to employees of the Founding Companies. The options will have
an exercise price equal to the initial public offering price per share and will
vest ratably over a four-year period, beginning on the anniversary of the date
of the grant. The Merger Agreements further provide that the stockholders of the
Founding Companies will indemnify USA Floral from certain liabilities that may
arise in connection with the Mergers. A portion of the consideration payable to
the stockholders of each of the Founding Companies will be escrowed, in the case
of cash, or pledged, in the case of Common Stock, for a period of twelve months
from the consummation of the Offering, as security for the stockholders'
indemnification obligations. Each of the Merger Agreements provides that USA
Floral and certain key employees of each of the Founding Companies will enter
into employment agreements.
THE ROY HOUFF COMPANY
USA Floral will acquire all of the outstanding stock of Houff in a reverse
subsidiary merger (the "Houff Merger") for $11.0 million in cash. In connection
with the Houff Merger, Roy O. Houff, the Chief Executive Officer and sole
stockholder of Houff, will become a Director of the Company. Mr. Houff will
enter into a two-year covenant not to compete with the Company and its
affiliates and a two-year employment agreement with the subsidiary of the
Company that operates the Houff business after the Merger. Immediately prior to
the Houff Merger, Roy Houff, the sole stockholder of Houff, will transfer the
real estate to be acquired in the Houff Merger and the indebtedness associated
therewith. Pursuant to the Merger Agreement, USA Floral may elect not to acquire
two parcels of real property which are undergoing environmental remediation. If
the Company elects not to acquire either or both of the properties, the Merger
Agreement provides that the Company will lease such property from Roy Houff for
the fair market rental value and that the Merger consideration will be adjusted
accordingly.
CFX, INC.
USA Floral will acquire all of the outstanding stock of CFX in a reverse
subsidiary merger (the "CFX Merger") for: (i) $5.8 million in cash; (ii) $4.0
million in cash, representing the amount of CFX's accumulated adjustments
account, which will be distributed to the stockholders of CFX immediately prior
to the consummation of the CFX Merger; and (iii) 250,000 shares of Common
Stock. In connection with the CFX Merger, Dwight Haight, the President of CFX,
will become a Director of the Company. Mr. Haight will enter into a two-year
covenant not to compete with the Company and its affiliates (subject to certain
exceptions) and a two-year employment agreement with the subsidiary of the
Company that operates the CFX business after the Merger.
18
<PAGE>
BAY STATE FLORIST SUPPLY, INC.
USA Floral will acquire all of the outstanding stock of Bay State in a
reverse subsidiary merger (the "Bay State Merger") for $6.0 million in cash and
495,550 shares of Common Stock. In connection with the Bay State Merger, William
W. Rudolph, the President of Bay State, will become a Director of the Company.
Mr. Rudolph will enter into a two-year covenant not to compete with the Company
and its affiliates (subject to certain exceptions) and a two-year employment
agreement with the subsidiary of the Company that operates the Bay State
business after the Merger. Immediately prior to the consummation of the Merger,
Bay State will distribute real estate owned by Bay State to certain of its
stockholders. Upon consummation of the Merger, Bay State will lease the property
from the stockholders.
FLOWER TRADING CORPORATION
USA Floral will acquire all of the outstanding stock of Flower Trading in a
reverse subsidiary merger (the "Flower Trading Merger") for $5.9 million in cash
and 160,000 shares of Common Stock. In connection with the Flower Trading
Merger, Gustavo Moreno, the President of Flower Trading, will become a Director
of the Company. Mr. Moreno will enter into a two-year covenant not to compete
with the Company and its affiliates (subject to certain exceptions) and a two-
year employment agreement with the subsidiary of the Company that operates the
Flower Trading business after the Merger.
UNITED WHOLESALE FLORISTS, INC.
USA Floral will acquire all of the outstanding stock of United Wholesale in a
reverse subsidiary merger (the "United Wholesale Merger") for $4.8 million in
cash. In connection with the Merger, R. Raymond Ashmore, the President of United
Wholesale, will become a Director of the Company. Mr. Ashmore will enter into a
two-year covenant not to compete with the Company and its affiliates and a two-
year employment agreement with the subsidiary of the Company that operates the
United Wholesale business after the Merger. The Merger Agreement provides that
the Company will be granted a five-year option to purchase the real estate
leased by United Wholesale from affiliated entities.
AMERICAN FLORIST SUPPLY, INC.
USA Floral will acquire all of the outstanding stock of American Florist in a
reverse subsidiary merger (the "American Florist Merger") for $4.8 million in
cash. In connection with the American Florist Merger, John T. Dickinson, the
President of American Florist, will become a Director of the Company. Mr.
Dickinson will enter into a two-year covenant not to compete with the Company
and its affiliates and a two-year employment agreement with the subsidiary of
the Company that operates the American Florist business after the Merger. In
addition, Mr. Dickinson may receive a contingent payment of up to $2.4 million,
based on American Florist's earnings before interest and taxes for the year
ended December 31, 1997. The contingent payment is payable in Common Stock. The
number of shares to be issued in satisfaction of the contingent payment will be
calculated by reference to the average closing price of the Common Stock for the
ten trading days prior to December 31, 1997. The American Florist Merger
Agreement provides that, if the average closing price is less than $10 per
share, then the Company, at its sole option, may satisfy any contingent payment
obligation in excess of 240,000 shares by issuance of additional shares of
Common Stock, by payment of cash, or by a combination of cash and Common Stock.
MONTEREY BAY BOUQUET, INC. AND BAY AREA BOUQUETS, INC.
USA Floral will acquire all of the outstanding stock of Monterey Bay in a
reverse subsidiary merger (the "Monterey Bay Merger") for $2.5 million in cash.
In connection with the Monterey Bay Merger, Jeffrey Brothers, the President of
Monterey Bay, will become a Director of the Company. Mr. Brothers will enter
into a two-year covenant not to compete and a two-year employment agreement with
the subsidiary of the Company that operates the Monterey Bay business after the
Merger. In addition, the stockholders of Monterey Bay may receive a contingent
payment of up
19
<PAGE>
to $3.5 million, based on Monterey Bay's earnings before interest and taxes for
the year ended December 31, 1997. Of the contingent payment, $0.5 million is
payable in cash and $3.0 million is payable in Common Stock. The number of
shares to be issued in satisfaction of the contingent payment will be calculated
by reference to the average closing price of the common stock for the ten
trading days prior to December 31, 1997. The Monterey Bay Merger Agreement
provides that, if the average closing price is less than $10 per share, then the
Company, at its sole option, may satisfy any contingent payment obligation in
excess of 300,000 shares by issuance of additional shares of Common Stock, by
payment of cash, or by a combination of cash and Common Stock.
ALPINE GEM FLOWER SHIPPERS, INC.
USA Floral will acquire all of the outstanding stock of Alpine Gem in a
reverse subsidiary merger (the "Alpine Gem Merger") for (i) $1.6 million in
cash; (ii) $48,000 in cash representing the amount of Alpine Gem's accumulated
adjustments account, which will be distributed to the stockholders of Alpine Gem
immediately prior to the consummation of the Alpine Gem Merger and (ii) 160,000
shares of Common Stock. In connection with the Alpine Gem Merger, John Q.
Graham, Jr., the President of Alpine Gem, will become a Director of the Company.
Mr. Graham will enter into a two-year covenant not to compete with the Company
and its affiliates and a two-year employment agreement with the subsidiary of
the Company that operates the Alpine Gem business after the Merger.
20
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
offered hereby, after deducting estimated underwriting discounts and other
offering expenses, all of which are payable by the Company, are estimated to be
approximately $ million (approximately $ million if the Underwriters' over-
allotment option is exercised in full), assuming an initial public offering
price of $ per share. The principal uses of such net proceeds to the Company are
described below. The Company is currently negotiating to obtain a bank credit
facility. If the Company obtains a credit facility, the Company may use debt,
rather than proceeds of the Offering, to fund S Corporation distributions.
USE AMOUNT
--- ------
Cash portion of Merger consideration $42.4 million(1)
S Corporation distributions 4.0 million
Working capital and general corporate purposes million (2)
________________
(1) Before giving effect to the repayment upon consummation of the Mergers of
approximately $1.6 million of net related party receivables.
(2) Includes approximately $0.5 million to pay an estimated tax liability to be
assumed in connection with the Flower Trading Merger.
CONSUMMATION OF MERGERS
Approximately $42.4 million of the net proceeds will be used to pay the cash
portion of the aggregate purchase price for the Founding Companies at closing of
the Mergers (before giving effect to the repayment upon consummation of the
Mergers of approximately $1.6 million of net related party receivables). See
"Formation of the Company--The Mergers" and "Certain Relationships and Related
Party Transactions--The Mergers."
S CORPORATION DISTRIBUTIONS
Approximately $4.0 million of the net proceeds will be used to fund S
Corporation distributions to the stockholders of certain of the Founding
Companies. Pursuant to the CFX and Alpine Gem Merger Agreements, an amount equal
to the CFX and Alpine Gem accumulated adjustments accounts will be distributed
to the stockholders of CFX and Alpine Gem, respectively, immediately prior to
the consummation of the CFX and Alpine Gem Mergers. See "Formation of the
Company--The Mergers" and "Certain Relationships and Related Party Transactions
- --The Mergers."
WORKING CAPITAL AND GENERAL CORPORATE PURPOSES
The balance of the net proceeds, approximately $ million (approximately $
million if the Underwriters' over-allotment option is exercised in full), will
be added to the Company's working capital and used for general corporate
purposes (including approximately $0.5 million to pay an estimated tax liability
assumed in connection with the Flower Trading Merger), possible acquisitions and
capital expenditures associated with integrating the Founding Companies. In
addition, up to $0.5 million of the net proceeds may be used to pay that portion
of the purchase price of the Monterey Bay Merger that is subject to an earn-out
arrangement. See "Formation of the Company--The Mergers" and "Certain
Relationships and Related Party Transactions--The Mergers." With the exception
of the Mergers, the Company is not currently involved in negotiations and has no
current commitments or agreements with respect to any acquisitions. There can be
no assurance that any further acquisitions will ever be consummated.
21
<PAGE>
Pending application of the net proceeds as described above, the Company
intends to invest the net proceeds in short-term investment grade securities.
DIVIDEND POLICY
The Company does not anticipate paying any cash dividends on its Common Stock
in the foreseeable future because it intends to retain its earnings, if any, to
finance the expansion of its business and for general corporate purposes. Any
payment of future dividends will be at the discretion of the Board of Directors
and will depend upon, among other factors, the Company's earnings, financial
condition, capital requirements, level of indebtedness, contractual restrictions
with respect to the payment of dividends and other considerations that the
Company's Board of Directors deems relevant.
22
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at March 31,
1997, on a pro forma basis (i) to reflect the consummation of the Mergers and
the issuance of 1,334,050 shares of Common Stock in connection therewith, and
(ii) on such pro forma basis as adjusted to give effect to the sale of
shares of Common Stock offered hereby at an assumed initial public offering
price of $ per share and the application of the estimated net proceeds
therefrom. See "Selected Financial Data of the Founding Companies" and "Use of
Proceeds." This table should be read in conjunction with the Unaudited Pro Forma
Combined Financial Statements and the notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
AS OF
MARCH 31, 1997
---------------------------------
PRO FORMA
COMBINED AS ADJUSTED (1)
-------------- -------------------
<S> <C> <C>
(in thousands)
Short-term debt and current portion of $ 3,343 $
long-term debt ========= ==============
Long-term debt and capital lease 3,478 --
obligations, less current portion
Stockholders' equity:
Common stock, $.001 par value per share,
authorized, shares issued and 37
outstanding pro forma, shares issued and
outstanding pro forma as adjusted
Additional paid-in capital 13,348
Retained earnings -- --
---------------------------------
Total stockholders' equity 13,385
---------------------------------
Total capitalization $16,863 $
- ----------------------------------------=================================
</TABLE>
- -----------------------------
(1) Does not include: (i) up to 540,000 shares which may be issued to the
stockholders of two of the Founding Companies pursuant to earn-out
arrangements; to be calculated with reference to the performance of
those Founding Companies through December 31, 1997; (ii) shares of
Common Stock equal to 15% of the shares of Common Stock outstanding from
time to time that are reserved for issuance under the Company's 1997
Long-Term Incentive Plan, of which options to purchase 872,753 shares of
Common Stock (including options to purchase 200,000 shares to be granted
to Jonathan J. Ledecky, the Company's Non-Executive Chairman of the
Board) will be granted upon consummation of the Offering at an exercise
price equal to the initial public offering price per share, and options
to purchase 125,000 shares of Common Stock will be granted upon
consummation of the Offering at an exercise price equal to the greater
of $8.00 or 60% of the initial public offering price per share; (iii)
300,000 shares of Common Stock reserved for issuance under the Company's
1997 Non-Employee Directors' Stock Plan, of which options to purchase
63,000 shares of Common Stock will be granted upon consummation of the
Offering at an exercise price equal to the initial public offering price
per share; (iv) 1,000,000 shares of Common Stock reserved for issuance
under the Company's 1997 Employee Stock Purchase Plan; and (v) 110,000
shares reserved for issuance pursuant to an option to be granted to
Jonathan J. Ledecky on the effective date of the registration statement
of which this Prospectus forms a part, at an exercise price equal to the
initial public offering price per share, which option is being granted
to facilitate the treatment of the issuance of shares in the Mergers as
a tax-free exchange under Section 351 of the Internal Revenue Code. See
"Formation of the Company--The Mergers," "Management--1997 Long-Term
Incentive Plan," "--1997 Non-Employee Directors' Stock Plan" and
"--Other Plans" and "Principal Stockholders."
23
<PAGE>
DILUTION
The Company had a pro forma net tangible book value at March 31, 1997, of $ ,
or $ per share of Common Stock. Pro forma net tangible book value per share is
determined by dividing the pro forma net tangible book value of the Company
(tangible assets less liabilities) by the number of shares of Common Stock
outstanding. Adjusting for the Mergers and the sale by the Company of the shares
of Common Stock offered hereby at an assumed initial public offering price of $
per share, and the application of the estimated net proceeds therefrom as
described under "Use of Proceeds," the pro forma net tangible book value of the
Company, as adjusted, at December 31, 1996 would have been $ , or $ per share.
This amount represents an immediate dilution to new investors of $ per share and
an immediate increase in pro forma as adjusted net tangible book value per share
to existing stockholders of $ per share. The following table illustrates this
per share dilution to new investors:
Assumed initial public offering price per share $
Pro forma net tangible book value per share after $
Initial Capitalization
Increase in net tangible book value per share
resulting from the Mergers and the Offering (1)
Pro forma as adjusted net tangible book value per
share after the Mergers and the Offering
Pro forma as adjusted dilution to new investors (2) =========
(1) The increase in net tangible book value per share consists of a decrease of
$ to the net tangible book value per share resulting from the Mergers and
an increase of $ to the net tangible book value per share resulting from
the Offering.
(2) Determined by subtracting the pro forma as adjusted net tangible book value
per share after the Offering from the assumed initial public offering price
per share.
If the Underwriters' over-allotment option is exercised in full, the increase
in pro forma net tangible book value per share attributable to the Offering, pro
forma as adjusted net tangible book value per share after the Offering, and pro
forma as adjusted dilution to new investors would be $ , $ and $ , respectively.
The following table sets forth at March 31, 1997, after giving effect to the
Mergers and the sale of the Common Stock offered by the Company in the Offering:
(i) the number of shares of Common Stock purchased by existing stockholders from
the Company and the total consideration (including the fair value of the shares
of Common Stock issued to the Sellers) and the average price per share paid to
the Company for such shares; (ii) the number of shares of Common Stock purchased
by new investors in the Offering from the Company and the total consideration
and the price per share paid by them for such shares; and (iii) the percentage
of shares purchased from the Company by existing stockholders and the new
investors and the percentages of consideration paid to the Company for such
shares by existing stockholders and new investors.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE PRICE
PER SHARE
-------------------------------------------------------------------------
NUMBER PERCENT AMOUNT PERCENT
------------------------------------------------------------------------
<S> <C> <C> <C>
Existing stockholders (1) $ $
New investors $ $
---------------------------------------------------------
Total $
- ---------------------------=========================================================---------------
</TABLE>
_____________________
(1) Includes shares issuable upon the consummation of the Mergers. Does not
include: (i) up to 540,000 shares which may be issued to the stockholders
of two of the Founding Companies pursuant to earn-out arrangements; to be
calculated with reference to the performance of those Founding Companies
through December 31, 1997; (ii) shares of Common Stock equal to 15% of the
shares of Common Stock
24
<PAGE>
outstanding from time to time that are reserved for issuance under the
Company's 1997 Long-Term Incentive Plan, of which options to purchase
872,753 shares of Common Stock (including options to purchase 200,000
shares to be granted to Jonathan J. Ledecky, the Company's Non-Executive
Chairman of the Board) will be granted upon consummation of the Offering
at an exercise price equal to the initial public offering price per share,
and options to purchase 125,000 shares of Common Stock will be granted
upon consummation of the Offering at an exercise price equal to the
greater of $8.00 or 60% of the initial public offering price per share;
(iii) 300,000 shares of Common Stock reserved for issuance under the
Company's 1997 Non-Employee Directors' Stock Plan, of which options to
purchase 63,000 shares of Common Stock will be granted upon consummation
of the Offering at an exercise price equal to the initial public offering
price per share; (iv) 1,000,000 shares of Common Stock reserved for
issuance under the Company's 1997 Employee Stock Purchase Plan; and (v)
110,000 shares reserved for issuance pursuant to an option to be granted
to Jonathan J. Ledecky on the effective date of the registration statement
of which this Prospectus forms a part, at an exercise price equal to the
initial public offering price per share, which option is being granted to
facilitate the treatment of the issuance of shares in the Mergers as a
tax-free exchange under Section 351 of the Internal Revenue Code. See
"Formation of the Company--The Mergers," "Management--1997 Long-Term
Incentive Plan," "--1997 Non-Employee Directors' Stock Plan" and "--Other
Plans" and "Principal Stockholders."
25
<PAGE>
SELECTED PRO FORMA COMBINED FINANCIAL DATA
USA Floral was established in April 1997 to acquire the Founding Companies
simultaneously with and as a condition to the consummation of this Offering. For
financial statement presentation purposes, USA Floral has been identified as the
"accounting acquiror." The following unaudited summary pro forma combined
financial data present data for the Company, adjusted to give effect to (i) the
consummation of the Mergers, (ii) certain pro forma adjustments to the
historical financial statements described below and (iii) the consummation of
the Offering and the application of the net proceeds therefrom. The selected pro
forma data are not necessarily indicative of operating results or financial
position that would have been achieved had the events described above been
consummated and should not be construed as representative of future operating
results or financial position. The selected pro forma combined financial data
should be read in conjunction with the Unaudited Pro Forma Combined Financial
Statements and the notes thereto and the historical financial statements of the
Founding Companies and the notes thereto included elsewhere in this Prospectus.
The Company anticipates that following the Mergers it will realize savings from
the following: more favorable discounts and rebates on hardgood products than
those currently obtained individually by the Founding Companies; the combination
of functions such as accounting and finance, insurance, employee benefits,
strategic marketing and legal support at the corporate level; and, to a lesser
extent, reduced transportation and handling costs on perishable floral products.
However, these savings cannot be quantified or reasonably estimated and have not
been included in the selected pro forma combined financial data.
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED MARCH 31,
DECEMBER 31, --------------------------------------------
1996 1996 1997
--------------------- ---------------------------------------------
<S> <C> <C> <C>
(in thousands, except share and per share data)
STATEMENT OF OPERATIONS DATA (1):
Net sales $ 175,467 $ 50,485 $ 54,796
Gross profit (2) 49,247 13,319 14,716
Selling, general and 43,093 10,484 10,844
administrative expense (3)
Goodwill amortization (4) 1,032 258 258
---------- ------------- ----------
Operating income 5,122 2,577 3,617
Interest and other (140) (146) (95)
(income) expense, net (5)
Income before income taxes 5,262 2,723 3,712
---------- ------------- ----------
Net income (6) $ 2,744 $ 1,531 $ 2,124
========== ============= ==========
Net income per share $ $ $
========== = ============ ==========
Shares used in computing
net income per share (7)
AS OF
MARCH 31, 1997
----------------------------------------------------
Pro Forma Combined As Adjusted (9)
---------------------------------------------------
(in thousands)
Balance Sheet Data (8):
Working capital $(35,389) (10)
Total assets 83,963
Total long-term debt 3,478
Stockholders' equity 13,385
- -----------------------------
</TABLE>
(1) The pro forma combined statement of operations data assume that the Mergers
and the Offering were consummated on January 1, 1996.
(2) Reflects the reduction in costs of sales of $579,000 for the year ended
December 31, 1996 and $145,000 and $150,000 for the three-month periods
ended March 31, 1996 and 1997, respectively, attributable to the
renegotiation of a contract for various services with an affiliated entity
of Flower Trading.
(3) The pro forma combined statement of operations data reflect an aggregate of
approximately (i) $3.7 million, $1.6 million and $256,000 for the year
ended December 31, 1996 and the three-month periods ended March 31, 1996
and 1997, respectively, in pro forma reductions in salaries, bonuses and
benefits to the stockholders of the Founding Companies to which they have
agreed prospectively in the employment
26
<PAGE>
agreements to be entered into upon consummation of the Offering (the
"Compensation Differential"), (ii) a net reduction of lease-related
expenses of $396,000 for the year ended December 31, 1996 and $99,000 for
each of the three-month periods ended March 31, 1996 and 1997, pursuant to
real estate acquired, real estate distributed and amendment of associated
lease agreements in connection with the Mergers, (iii) an increase of
$500,000 for the year ended December 31, 1996 and $125,000 for each of the
three-month periods ended March 31, 1996 and 1997, of expenses associated
with corporate management, as well as costs associated with being a public
company, and (iv) $63,000 for the year ended December 31, 1996 and $16,000
for each of the three-month periods ended March 31, 1996 and 1997 of
expense attributable to compensation expense associated with 125,000
options granted with an exercise price below the initial public offering
price which will vest over a four-year period.
(4) Consists of amortization of the $41.3 million of goodwill to be recorded as
a result of the Mergers over a 40-year period and computed on the basis
described in the Notes to the Unaudited Pro Forma Combined Financial
Statements.
(5) Reflects an increase in interest expense of $162,000 for the year ended
December 31, 1996 and $41,000 for each of the three-month periods ended
March 31, 1996 and 1997 relating to debt assumed in connection with real
estate transferred to Houff from the stockholder of Houff as part of the
transaction.
(6) Assumes that all income is subject to a corporate income tax rate of 40%
and that all goodwill is non-deductible.
(7) Includes (i) 1,334,050 shares to be issued to stockholders of the Founding
Companies, (ii) 2,400,000 shares issued to the founders and initial
investors in USA Floral, (iii) of the shares sold in
the Offering to pay the cash portion of the Merger consideration, to fund S
Corporation distributions to stockholders of certain of the Founding
Companies, and to pay certain expenses of the Offering, and (iv) 25,000
shares related to the dilution attributable to options granted with an
exercise price below the initial public offering price, in accordance with
the treasury stock method.
(8) The pro forma combined balance sheet data assume that the Mergers were
consummated on March 31, 1997. Prior to the Mergers, Bay State will
distribute to its stockholders certain real estate having a net book value
of $850,000. Additionally, in conjunction with the Mergers certain real
estate will be acquired and certain associated debt assumed.
(9) Adjusted to reflect the sale of the shares of Common Stock
offered hereby and the application of the estimated net proceeds therefrom.
See "Use of Proceeds."
(10) Includes $44.8 million payable to stockholders of the Founding Companies,
representing the cash portion of the Merger consideration to be paid from a
portion of the net proceeds of the Offering, plus S Corporation
distributions to be made to the stockholders of certain of the Founding
Companies, less the amount to be received by the Company upon consummation
of the Mergers in repayment of net related party receivables. See "Use of
Proceeds" and "Notes to Unaudited Pro Forma Combined Financial Statements."
27
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF PRO FORMA COMBINED FINANCIAL
CONDITION AND PRO FORMA COMBINED RESULTS OF OPERATIONS
GENERAL
USA Floral was founded in April 1997 to create a national consolidator and
operator of floral products distribution businesses. The Company engages
primarily in the wholesale distribution of perishable floral products and
floral-related hardgoods. The Company also imports cut flowers from growers in
foreign countries, provides pre-packaged floral bouquets and arrangements to
retail florists and mass-market retailers and engages in brokerage services for
wholesalers of both foreign and domestic cut flowers.
The Company, which has conducted no operations to date, has entered into
agreements to acquire the Founding Companies simultaneously with the
consummation of the Offering. The Founding Companies have been operating
independently. The Company intends to integrate these businesses, their
operations and their administrative functions over a period of time. Such
integration may present opportunities to reduce costs through the elimination of
duplicate functions and through economies of scale, and may necessitate
additional costs and expenditures for corporate management and administration,
corporate expenses related to being a public company, systems integration,
employee relocation and severance and facilities expansion. These various costs
and possible cost-savings may make comparison of future operating results with
historical operating results difficult.
The Company derives its revenues from the sale of perishable floral
products and floral-related hardgoods. Sales of perishable products, which
include cut flowers, bouquets and potted plants, accounted for approximately 90%
of the Company's pro forma combined revenues in 1996. Sales of floral-related
hardgoods, which include vases and glassware, foam for flower arranging, tools
and other supplies accounted for approximately 10% of the pro forma combined
revenues in 1996.
Net sales are recognized upon the shipment of products to customers. Cost
of sales generally includes the cost of perishable products and floral-related
hardgoods plus the cost of in-bound freight. Although the Company generally does
not enter into long-term contracts with its suppliers, it does conduct business
on a fixed-price "standing order" basis with certain importers in order to
insure an adequate supply of flowers during periods of peak demand. In general,
the Founding Companies have been able to pass on most of their direct price
increases to customers. Selling, general and administrative costs include
warehouse and customer delivery expenses, employee salaries, telephone expenses,
advertising and promotional expenses, wages and benefits, depreciation and
occupancy costs.
The Founding Companies have operated historically as independent,
privately-owned entities, and their results of operations reflect varying tax
structures, including both S and C Corporations, which have influenced the
historical level of owners' compensation. The selling, general and
administrative expenses of the Founding Companies include compensation to
employee-stockholders totaling $3.5 million, $3.5 million and $4.7 million for
the years ended December 31, 1994, 1995 and 1996, respectively. As a result of
varying practices regarding compensation to employee-stockholders among the
Founding Companies, the comparison of operating margins among the Founding
Companies and from period to period in respect of a particular Founding Company
may be difficult. Upon consummation of the Mergers, certain employee-
stockholders will enter into employment agreements and the aggregate
compensation paid to the stockholders of the Founding Companies will be reduced.
This Compensation Differential has been reflected in the Unaudited Pro Forma
Combined Statement of Operations.
PRO FORMA COMBINED RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Unaudited
Pro Forma Financial Statements, and the related notes thereto and the historical
financial statements of the Founding Companies and the related notes appearing
elsewhere in this Prospectus.
28
<PAGE>
Three Months Ended March 31, 1997 Compared to Three Months Ended March 31, 1996
NET SALES. Net sales increased to $54.8 million in the three months ended
March 31, 1997 from $50.5 million in the three months ended March 31, 1996, an
increase of $4.3 million, or 8.5%. This increase represents an increase in the
volume of flowers sold.
COST OF SALES. Cost of sales increased to $40.1 million in the three months
ended March 31, 1997 from $37.2 million in the three months ended March 31,
1996, an increase of $2.9 million, or 7.8%. As a percentage of net sales, cost
of sales decreased to 73.1% in the three months ended March 31, 1997 from 73.6%
in the three months ended March 31, 1996.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased to $10.8 million in the three months ended March 31, 1997
from $10.4 million in the three months ended March 31, 1996, an increase of $0.4
million, or 3.4%. As a percentage of net sales, selling, general and
administrative expenses decreased to 19.8% in the three months ended March 31,
1997 from 20.8% in the three months ended March 31, 1996.
OPERATING INCOME. Operating income increased to $3.6 million in the three
months ended March 31, 1997 from $2.6 million in the three months ended March
31, 1996, an increase of $1.0 million, or 40.4%. As a percentage of net sales,
operating income increased to 6.6% in the three months ended March 31, 1997 from
5.1% in the three months ended March 31, 1996. This change is primarily
attributable to increases in revenues at the Company, particularly at Monterey
Bay, CFX and Flower Trading.
LIQUIDITY AND CAPITAL RESOURCES
The Founding Companies' principal sources of liquidity have historically
been cash flows from operating activities and, to a lesser extent, borrowings.
Approximately $42.4 million of the proceeds from the Offering will be used to
fund the cash portion of the consideration to be paid in connection with the
Mergers. As of March 31, 1997, the Company had cash and cash equivalents (on a
pro forma basis) of approximately $2.7 million. Although there can be no
assurance of its ability to do so, the Company expects to fund its future cash
requirements from funds generated from operations, from borrowed funds or from
other sources. The Company is currently negotiating to obtain a bank credit
facility. No assurance can be given that any such facility will be obtained.
The Company's capital expenditures for the twelve months ended December 31,
1996 and the quarters ended March 31, 1996 and 1997 were $1.7 million, $0.5
million and $0.4 million, respectively, primarily for machinery, office
equipment and computers, building additions and facility upgrades. The Company
believes that funds generated from operations, together with the proceeds from
the Offering and possible future sources of borrowings will be sufficient to
finance its current operations and planned capital expenditure requirements at
least through 1998. To the extent that the Company is successful in consummating
acquisitions, it may be necessary to finance such acquisitions through the
issuance of additional equity securities, incurrence of indebtedness or a
combination of both.
SEASONALITY AND CYCLICALITY; POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING
RESULTS
Unit sales of floral products have historically been seasonal, concentrated
in the first and second calendar quarters as a result of holidays such as
Valentine's Day and Mother's Day and, to a lesser extent, the fourth calendar
quarter as a result of Thanksgiving and Christmas. In particular, a significant
portion of the Company's revenues are derived from sales of floral products for
Valentine's Day. Historically, Valentine's Day product sales have been
relatively lower in those years when the holiday falls on a Saturday or Sunday.
In 1998 and 1999, Valentine's Day will be on Saturday and Sunday, respectively;
accordingly, the Company expects relatively lower Valentine's Day product sales
in those years.
The Company believes that the floriculture industry is influenced by
general economic conditions and particularly by the level of personal
discretionary spending and that the industry tends to experience periods of
decline
29
<PAGE>
and recession during economic downturns. The industry may experience sustained
periods of decline in sales in the future, and any such decline may have a
material adverse effect on the Company.
The Founding Companies have in the past experienced quarterly variations in
revenues, operating income and cash flows. The Company could in the future
experience such quarterly fluctuations in operating results due to the factors
discussed above and other factors, including the loss of a major customer,
additional selling, general and administrative expenses to acquire and support
new business and the timing and magnitude of required capital expenditures. The
Company plans its operating expenditures based on revenue forecasts, and a
revenue shortfall below such forecasts in any quarter would likely adversely
affect the Company's operating results for that quarter. See "Risk Factors--
Seasonality and Cyclicality, Potential Fluctuations in Quarterly Operating
Results."
The following table sets forth the pro forma combined total net sales of
the Company on a quarterly basis for the year ended December 31, 1996:
<TABLE>
<CAPTION>
1996 QUARTER
-----------------------------------------------
First Second Third Fourth Total
----- ------ ----- ------ -----
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Net sales............. $50,884 $46,786 $35,366 $42,431 $175,467
Percentage of annual 29.0% 26.7% 20.1% 24.2% 100.0%
net sales..........
</TABLE>
30
<PAGE>
SELECTED FINANCIAL DATA OF THE FOUNDING COMPANIES
The selected financial data of the Founding Companies are derived in part
from the more detailed historical financial statements and notes thereto of the
Founding Companies included elsewhere in this Prospectus. The balance sheet data
as of December 31, 1995 and 1996, and the statement of operations data for each
of the three years in the period ended December 31, 1996, for Houff, CFX, Bay
State and Flower Trading have been derived from the audited financial statements
included elsewhere herein. The balance sheet data as of December 31, 1995 and
1996 and the statement of operations data for each of the two years in the
period ended December 31, 1996 for American Florist, Monterey Bay and Alpine Gem
have been derived from the audited financial statements included elsewhere
herein. The balance sheet data as of June 30, 1995 and 1996 and the statement of
operations data for each of the two years in the period ended June 30, 1996 for
United Wholesale have been derived from the audited financial statements
included elsewhere herein. The balance sheet data as of December 31, 1992, 1993
and 1994 and the statement of operations data for each of the two years in the
period ended December 31, 1993, for Houff, CFX, Bay State and Flower Trading
have been derived from unaudited financial statements. The balance sheet data as
of December 31, 1992, 1993 and 1994 and the statement of operations data for
each of the three years in the period ended December 31, 1994 for American
Florist, Monterey Bay and Alpine Gem have been derived from unaudited financial
statements. The balance sheet data as of June 30, 1992, 1993 and 1994 and the
statement of operations data for each of the three years in the period ended
June 30, 1994 for United Wholesale have been derived from unaudited financial
statements.
The selected individual financial data of the Founding Companies for the
three months ended March 31, 1996 and 1997 have been derived from the unaudited
financial statements included elsewhere herein. Such selected financial data are
not necessarily indicative of the results to be expected for the full year.
In the opinion of the Company, the unaudited financial statements of the
Founding Companies reflect all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the financial position and
results of operations of the Founding Companies for those periods in accordance
with generally accepted accounting principles. The following selected financial
data of the Founding Companies should be read in conjunction with the historical
financial statements and notes thereto and "Management's Discussion and Analysis
of Financial Condition and Results of Operations of the Founding Companies"
included elsewhere in this Prospectus. All Founding Companies have fiscal years
ending December 31, with the exception of United Wholesale, whose fiscal year
end is June 30.
31
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FISCAL YEAR ENDED MARCH 31,
---------------------------------------------- -------------------
STATEMENT OF OPERATIONS DATA: 1992 1993 1994 1995 1996 1996 1997
--------- ------- ------- ------- ------- ------- -------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
HOUFF
Net sales...................................... $31,392 $32,406 $39,098 $41,531 $39,090 $11,257 $10,598
Cost of sales.................................. 20,754 21,707 26,683 27,899 25,537 7,688 7,043
Selling, general and administrative expenses... 9,654 10,091 11,617 12,695 12,789 3,172 2,928
Operating income............................... 984 608 798 937 764 397 627
Net income..................................... 1,139 784 991 1,068 775 445 668
CFX
Net sales...................................... 27,317 26,736 30,590 32,096 35,684 11,323 12,679
Cost of sales.................................. 20,356 19,976 23,839 24,328 28,190 8,888 9,975
Selling, general and administrative expenses... 6,313 6,137 6,266 6,773 8,956 2,878 1,849
Operating income (loss)........................ 648 623 485 995 (1,462) (443) 855
Net income (loss).............................. 881 721 355 1,538 (1,247) (333) 874
BAY STATE
Net sales...................................... 16,063 17,979 19,203 25,592 30,563 7,927 8,380
Cost of sales.................................. 10,919 12,040 12,807 17,068 20,722 5,605 5,833
Selling, general and administrative expenses... 4,599 5,126 5,529 7,579 8,976 2,193 2,287
Operating income............................... 545 813 867 945 865 129 260
Net income..................................... 736 938 958 1,119 1,033 117 339
FLOWER TRADING
Net sales...................................... 15,145 17,246 18,478 20,335 20,313 6,390 7,431
Cost of sales.................................. 11,802 13,676 14,452 15,921 15,914 5,173 5,907
Selling, general and administrative expenses... 2,789 3,292 3,605 4,068 4,142 1,012 971
Operating income............................... 553 278 421 346 257 205 553
Net income..................................... 415 196 301 130 62 117 324
UNITED WHOLESALE (1)
Net sales...................................... 16,031 18,508 18,541 17,985 19,030 14,050 14,608
Cost of sales.................................. 10,667 12,250 12,042 11,556 12,563 9,294 9,632
Selling, general and administrative expenses... 4,731 5,401 6,162 5,926 6,101 4,361 4,392
Operating income............................... 274 286 337 503 366 395 584
Net income..................................... 97 6 54 187 144 159 295
AMERICAN FLORIST (2)
Net sales...................................... -- -- 6,293 10,783 11,679 3,155 3,559
Cost of sales.................................. -- -- 4,579 7,788 8,268 2,180 2,442
Selling, general and administrative expenses... -- -- 1,545 2,531 2,723 687 784
Operating income............................... -- -- 169 464 688 288 333
Net income..................................... -- -- 132 423 683 261 314
MONTEREY BAY (3)
Net sales...................................... -- 2,615 4,253 6,903 9,477 2,263 3,641
Cost of sales.................................. -- 2,259 3,773 5,959 8,285 1,982 3,047
Selling, general and administrative expenses... -- 301 458 910 1,113 206 263
Operating income............................... -- 55 22 34 79 75 331
Net income..................................... -- 38 19 20 48 45 186
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FISCAL YEAR ENDED MARCH 31,
---------------------------------------------- ------------------
STATEMENT OF OPERATIONS DATA: 1992 1993 1994 1995 1996 1996 1997
--------- ------- ------- ------- ------- ------- -------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
ALPINE GEM
Net sales...................................... 3,476 4,547 7,252 8,139 9,334 2,598 2,674
Cost of sales.................................. 2,710 3,448 5,438 6,287 7,132 2,045 2,084
Selling, general and administrative expenses... 697 813 1,320 1,526 1,868 369 394
Operating income............................... 69 286 494 326 334 184 196
Net income..................................... 78 315 524 224 233 109 128
</TABLE>
- ------------
(1) United Wholesale Florists of America, Inc., one of the two constituent
corporations that compose United Wholesale, commenced operations in July
1992. Information provided is for the fiscal years ended June 30 and the
nine months ended March 31, 1996 and 1997.
(2) American Florist commenced operations in April 1994; accordingly there
were no historical operating results prior to that date.
(3) Monterey Bay commenced operations in March 1993; accordingly there were
no historical operating results prior to that date.
33
<PAGE>
<TABLE>
<CAPTION>
AT
AT FISCAL YEAR END MARCH 31,
--------------------------------------------- ------------
BALANCE SHEET DATA: 1992 1993 1994 1995 1996 1997
---------------------------------------------- ------------
<S> <C> <C> <C> <C> <C> <C>
(in thousands)
HOUFF
Total assets.................. $5,874 $6,243 $8,169 $8,125 $7,276 7,628
Debt.......................... -- -- 76 -- 450 420
Equity........................ 2,095 2,159 2,285 1,974 2,006 2,474
CFX
Total assets.................. 5,753 5,676 7,519 7,342 6,474 7,641
Debt.......................... 159 81 -- -- 21 13
Equity........................ 3,324 3,278 3,783 5,280 3,737 4,611
BAY STATE
Total assets.................. 5,826 6,076 6,727 7,657 8,511 9,743
Debt.......................... -- -- -- 412 358 418
Equity........................ 4,309 4,504 4,697 5,032 5,466 5,448
FLOWER TRADING
Total assets.................. 3,232 3,483 3,662 3,615 3,651 4,413
Debt.......................... -- 126 51 8 391 365
Equity........................ 1,456 1,693 1,994 2,124 1,470 1,794
UNITED WHOLESALE (1)
Total assets.................. 5,215 6,061 5,968 6,076 6,789 7,438
Debt.......................... 762 1,019 645 1,265 1,061 787
Equity........................ 1,276 1,283 1,376 1,564 1,708 2,003
AMERICAN FLORIST (2)
Total assets.................. -- -- 1,878 2,136 2,438 2,781
Debt.......................... -- -- -- 598 598 598
Equity........................ -- -- 532 650 628 942
MONTEREY BAY(3)
Total assets.................. -- 547 797 1,101 1,321 1,916
Debt.......................... -- 13 23 30 24 45
Equity........................ -- 116 135 181 229 415
ALPINE GEM
Total assets.................. 686 872 1,110 1,269 1,260 1,582
Debt.......................... -- -- -- -- -- --
Equity........................ 420 488 668 749 609 806
</TABLE>
- -----------
(1) United Wholesale Florists of America, Inc., one of the two constituent
corporations that compose United Wholesale, commenced operations in July
1992.
(2) American Florist commenced operations in April 1994; accordingly there were
no historical results prior to that date.
(3) Monterey Bay commenced operations in March 1993; accordingly there were no
historical results prior to that date.
34
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF THE FOUNDING COMPANIES
The following discussion should be read in conjunction with the Selected
Financial Data of the Founding Companies and the historical financial statements
of the Founding Companies and related notes thereto appearing elsewhere in this
Prospectus.
FOUNDING COMPANIES
Each of the Founding Companies (other than Flower Trading, Monterey Bay and
one of the two corporations that compose United Wholesale) has elected to be
treated as an S Corporation. As a result, no Founding Company (other than
Monterey Bay and one of the two corporations that compose United Wholesale) was
subject to federal income taxes. The selling, general and administrative
expenses of the Founding Companies include compensation to employee-stockholders
of the Founding Companies totaling $3.5 million, $3.5 million and $4.7 million
for the years ended December 31, 1994, 1995 and 1996, respectively. Upon
consummation of the Mergers, certain employee-stockholders will enter into
employment agreements and the aggregate compensation paid to stockholders of the
Founding Companies will be reduced. As a result of varying practices regarding
compensation to employee-stockholders among the Founding Companies, the
comparison of operating margins among the Founding Companies and from period to
period in respect of a particular Founding Company may be difficult.
THE ROY HOUFF COMPANY
Founded in 1977, Houff is a wholesale distributor of perishable floral
products and floral-related hardgoods. Perishable floral products, which include
flowers, plants and other greenery, accounted for approximately 84% of sales,
while floral-related hardgoods, which include products such as vases, ribbons
and balloons, accounted for approximately 16% of sales in fiscal year 1996.
Houff operates from seven locations in Illinois, Virginia and Arizona. Houff has
approximately 270 employees and sells its products to approximately 3,000
customers.
Houff experienced a number of facility changes during the three-year period
ended December 31, 1996. In January 1994, Houff acquired a distressed wholesale
distribution facility in Atlanta, Georgia, which Houff believed it could return
to profitability. The Atlanta facility did not adequately meet Houff's financial
performance expectations and was closed in October 1996. Houff also began a
shipping business in January 1994 to provide shipping services for smaller
wholesalers. This business was discontinued in February 1996 due to a declining
customer base. In October 1995, Houff opened a new wholesale distribution
facility in Phoenix, Arizona.
RESULTS OF OPERATIONS
The following table sets forth selected financial data and data as a
percentage of net sales for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS EDNDED MARCH 31,
----------------------------------------------------- ---------------------------------
1994 1995 1996 1996 1997
---------------- ---------------- --------------- -------------- ----------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales...................... $39,098 100.0% $41,531 100.0% $39,090 100.0% $11,257 100.0% $10,598 100.0%
Cost of Sales.................. 26,683 68.2 27,899 67.2 25,537 65.3 7,688 68.3 7,043 66.5
Selling, General and
Administrative Expenses...... 11,617 29.7 12,695 30.6 12,789 32.7 3,172 28.2 2,928 27.6
------- ------- ------- ------- -------
Operating Income............... $ 798 2.0% $ 937 2.3% $ 764 2.0% $ 397 3.5% $ 627 5.9%
======= ======= ======= ======= =======
Pro Forma Operating
Income (1).................... -- -- -- -- $ 1,417 3.6% $ 560 5.0% $ 790 7.5%
======= ======= =======
</TABLE>
- -------------------
35
<PAGE>
(1) The pro forma adjustments made in computing pro forma operating income
include Compensation Differential and a net reduction in rental expenses to
reflect the acquisition of real estate from the stockholder of Houff and
exclude amortization of goodwill.
Three Months Ended March 31, 1997 Compared to Three Months Ended March 31, 1996
NET SALES. Net sales decreased to $10.6 million in the three months ended
March 31, 1997 from $11.3 million in the three months ended March 31, 1996, a
decrease of $0.7 million or 5.9%. This decrease resulted from the closing of
Houff's wholesale distribution facility in Atlanta, Georgia in October 1996,
which accounted for $1.0 million in net sales in the three months ended March
31, 1996.
COST OF SALES. Cost of sales, which consists of the cost of perishable and
hardgood products and in-bound freight costs, decreased to $7.0 million in the
three months ended March 31, 1997 from $7.7 million in the three months ended
March 31, 1996, a decrease of $0.7 million or 8.4%. As a percentage of net
sales, cost of sales decreased to 66.5% in the three months ended March 31, 1997
from 68.3% in the three months ended March 31, 1996. This decrease resulted
primarily from a reduction in lower margin sales associated with the Atlanta,
Georgia facility and the shipping business and Houff's ability to obtain more
favorable pricing.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses decreased to $2.9 million in the three months ended March 31, 1997 from
$3.2 million in the three months ended March 31, 1996, a decrease of $0.2
million or 7.7%. This decrease resulted from the closing of Houff's wholesale
distribution facility in Atlanta, Georgia in October 1996. As a percentage of
net sales, selling, general and administrative expenses decreased to 27.6% in
the three months ended March 31, 1997 from 28.2% in the three months ended March
31, 1996.
OPERATING INCOME. As a result of the factors discussed above, operating
income increased to $0.6 million in the three months ended March 31, 1997 from
$0.4 million in the three months ended March 31, 1996, an increase of $0.2
million or 57.9%. As a percentage of net sales, operating income increased to
5.9% in the three months ended March 31, 1997 from 3.5% in the three months
ended March 31, 1996.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
NET SALES. Net sales decreased to $39.1 million in the year ended December
31, 1996 from $41.5 million in the year ended December 31, 1995, a decrease of
$2.4 million, or 5.9%. The decrease in net sales resulted from the
discontinuation of the shipping business in February 1996, which accounted for a
decrease of $1.8 million, the closing of Houff's wholesale facility in Atlanta,
Georgia in October 1996, which accounted for a decrease of $1.5 million, and a
greater focus on higher margin, lower volume business, partially offset by
increased sales attributable to a full year of operating results from the
facility in Phoenix, Arizona, which commenced operations in October 1995.
COST OF SALES. Cost of sales decreased to $25.5 million in the year ended
December 31, 1996, from $27.9 million in the year ended December 31, 1995, a
decrease of $2.4 million, or 8.5%, as a result of Houff's greater focus on
higher margin, lower volume business. As a percentage of net sales, cost of
sales decreased to 65.3% in the year ended December 31, 1996 from 67.2% in the
year ended December 31, 1995. This decrease resulted primarily from a reduction
in lower margin sales associated with the Atlanta, Georgia facility and the
shipping business and Houff's ability to obtain more favorable pricing.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses remained relatively flat at $12.8 million in the year ended December
31, 1996, compared to $12.7 million in the year ended December 31, 1995, an
increase of $0.1 million, or 0.7%. As a percentage of net sales, selling,
general and administrative expenses increased to 32.7% for the year ended
December 31, 1996 from 30.6% for the year ended December 31, 1995. This increase
resulted from costs associated with the closing of the Atlanta, Georgia
facility, including a loss on disposition of fixed assets, the write-off of
intangibles and the write-off of uncollectible accounts.
36
<PAGE>
OPERATING INCOME. As a result of the factors discussed above, operating
income decreased to $0.8 million in the year ended December 31, 1996 from $0.9
million in the year ended December 31, 1995, a decrease of $0.2 million or
18.5%. As a percentage of net sales, operating income decreased to 2.0% in the
year ended December 31, 1996 from 2.3% in the year ended December 31, 1995.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
NET SALES. Net sales increased to $41.5 million in the year ended December
31, 1995 from $39.1 million in the year ended December 31, 1994, an increase of
$2.4 million, or 6.2%. The increase in net sales resulted from increased
revenues from the shipping business, increased sales for Valentine's Day in
1995, three months of revenues from the Phoenix, Arizona facility, which opened
in October 1995 and increased sales at other facilities.
COST OF SALES. Cost of sales increased to $27.9 million in the year ended
December 31, 1995 from $26.7 million in the year ended December 31, 1994, an
increase of $1.2 million, or 4.6%, primarily as a result of increased sales. As
a percentage of net sales, cost of sales decreased to 67.2% for the year ended
December 31, 1995 from 68.2% for the year ended December 31, 1994, due to
management changes and the implementation of more aggressive purchasing and
sales policies.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased to $12.7 million in the year ended December 31, 1995, from
$11.6 million in the year ended December 31, 1994, an increase of $1.1 million,
or 9.3%. As a percentage of net sales, selling, general and administrative
expenses increased to 30.6% in the year ended December 31, 1995 from 29.7% in
the year ended December 31, 1994. This increase resulted from an increase in
personnel and facilities costs attributable to the shipping business, the
Atlanta, Georgia facility and the Phoenix, Arizona facility.
OPERATING INCOME. As a result of the factors discussed above, operating
income increased to $0.9 million in the year ended December 31, 1995 from $0.8
million in the year ended December 31, 1994, an increase of $0.1 million or
17.4%. As a percentage of net sales, operating income increased to 2.3% in the
year ended December 31, 1995 from 2.0% in the year ended December 31, 1994.
CFX, INC.
Founded in 1974, CFX is an importer and distributor of perishable floral
products which are imported from approximately 40 farms located primarily in
Colombia and Ecuador, and distributed throughout the United States. CFX's net
sales are derived from the sale of perishable floral products and from handling
charges. Approximately 85% of CFX's sales are to approximately 400 wholesale
distributors and 15% are to the mass market. For the year ended December 31,
1996, net sales to H&H Flowers, Inc. d/b/a La Fleurette ("La Fleurette"), a
wholesale distributor owned by stockholders of CFX, totaled $3.9 million.
Approximately 43% of CFX's cost of sales in 1996 represented purchases from two
Colombian farms in which the stockholders of CFX prior to the CFX Merger hold
ownership interests. Neither the operations of La Fleurette nor the Colombian
farms are being acquired in connection with the CFX Merger. The Company intends
to renegotiate, as necessary, all arrangements with related parties so that all
continuing obligations of CFX thereunder are no greater than those the Company
would agree to with unaffiliated third parties. See "Certain Relationships and
Related Party Transactions -- CFX." CFX has approximately 110 employees.
CFX imposes a surcharge upon certain flowers that are or may become subject
to an anti-dumping duty and reserves that amount against the possibility that a
duty will be imposed. The Commerce Department is currently reviewing two anti-
dumping cases, three anti-dumping cases are pending judicial appeal and
additional cases may be initiated at any time.
RESULTS OF OPERATIONS
The following table sets forth selected financial data and data as a
percentage of net sales for the periods indicated.
37
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS EDNDED MARCH 31,
------------------------------------------------------------------------------------------
1994 1995 1996 1996 1997
---------------- ---------------- --------------- --------------- ----------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales..................... $30,590 100.0% $32,096 100.0% $35,684 100.0% $11,323 100.0% $12,679 100.0%
Cost of Sales................. 23,839 77.9 24,328 75.8 28,190 79.0 8,888 78.5 9,975 78.7
Selling, General and
Administrative Expenses..... 6,266 20.5 6,773 21.1 8,956 25.1 2,878 25.4 1,849 14.6
------- ------- ------- ------- -------
Operating Income (Loss)....... $ 485 1.6% $ 995 3.1% $(1,462) (4.1)% $ (443) (3.9)% $ 855 6.7%
======= ======= ======= ======= =======
Pro Forma Operating
Income(1).................... -- -- -- -- $ 1,167 3.3% $ 867 7.7% $ 909 7.2%
======= ======= =======
</TABLE>
- --------------------
(1) The pro forma adjustments made in computing pro forma operating income
consist of Compensation Differential and exclude amortization of
goodwill.
Three Months Ended March 31, 1997 Compared to Three Months Ended March 31, 1996
NET SALES. Net sales increased to $12.7 million in the three months ended
March 31, 1997 from $11.3 million in the three months ended March 31, 1996, an
increase of $1.4 million, or 12.0%. This increase resulted primarily from
increased product availability, and a new fuel surcharge related to airline
shipments that was added to customer invoices.
COST OF SALES. Cost of sales, which primarily consists of payment for fresh
cut flowers, increased to $10.0 million in the three months ended March 31, 1997
from $8.9 million in the three months ended March 31, 1996, an increase of $1.1
million, or 12.2%, primarily as a result of the increase in sales and the
imposition of a fuel surcharge related to airline shipments. As a percentage of
net sales, cost of sales increased to 78.7% in the three months ended March 31,
1997 from 78.5% in the three months ended March 31, 1996.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses decreased to $1.8 million in the three months ended March 31, 1997 from
$2.9 million in the three months ended March 31, 1996, a decrease of $1.0
million, or 35.8%. The decrease resulted from decreased compensation to
employee-stockholders, partially offset by increases in personnel and occupancy
costs. As a percentage of net sales, selling, general and administrative
expenses decreased to 14.6% in the three months ended March 31, 1997 from 25.4%
in the three months ended March 31, 1996. Selling, general and administrative
expenses included compensation paid to employee-stockholders totaling $0.2
million in the three months ended March 31, 1997 and $1.2 million in the three
months ended March 31, 1996.
OPERATING INCOME. As a result of the factors discussed above, operating
income increased to $0.9 million in the three months ended March 31, 1997 from
($0.4) million in the three months ended March 31, 1996, an increase of $1.3
million. As a percentage of net sales, operating income increased to 6.7% in the
three months ended March 31, 1997 from (3.9%) in the three months ended March
31, 1996.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
NET SALES. Net sales increased to $35.7 million in the year ended December
31, 1996 from $32.1 million in the year ended December 31, 1995, an increase of
$3.6 million, or 11.2%. The increase in net sales resulted primarily from the
availability and sale of higher quality flowers from a key supplier.
COST OF SALES. Cost of sales increased to $28.2 million in the year ended
December 31, 1996, from $24.3 million in the year ended December 31, 1995, an
increase of $3.9 million, or 15.9%, primarily as a result of the increase in
sales. As a percentage of net sales, cost of sales increased to 79.0% in the
year ended December 31, 1996 from 75.8% in the year ended December 31, 1995. The
increase resulted from an adjustment due to under-accrual for anti-dumping
liability in a prior period and from lower cost of sales in 1995 due to an
adjustment in that period for an over-accrual of anti-dumping liability.
38
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased to $9.0 million in the year ended December 31, 1996, from
$6.8 million in the year ended December 31, 1995, an increase of $2.2 million,
or 32.2%. This increase primarily resulted from increased compensation and
customer promotion programs. As a percentage of net sales, selling, general and
administrative expenses increased to 25.1% in the year ended December 31, 1996
from 21.1% in the year ended December 31, 1995. Selling, general and
administrative expenses include compensation paid to employee-stockholders
totaling $3.0 million in the year ended December 31, 1996 and $1.4 million in
the year ended December 31, 1995.
OPERATING INCOME. As a result of the factors discussed above, operating
income decreased to ($1.5) million in the year ended December 31, 1996 from $1.0
million in the year ended December 31, 1995, a decrease of $2.5 million, or
246.9% As a percentage of net sales, operating income decreased to (4.1%) in the
year ended December 31, 1996 from 3.1% in the year ended December 31, 1995.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
NET SALES. Net sales increased to $32.1 million in the year ended December
31, 1995 from $30.6 million in the year ended December 31, 1994, an increase of
$1.5 million, or 4.9%. This increase primarily resulted from the availability
and sale of higher quality products from a key supplier.
COST OF SALES. Cost of sales increased to $24.3 million in the year ended
December 31, 1995, from $23.9 million in the year ended December 31, 1994, an
increase of $0.5 million, or 2.1%, primarily as a result of increased sales. As
a percentage of net sales, cost of sales decreased to 75.8% in the year ended
December 31, 1995 from 77.9% in the year ended December 31, 1994, primarily from
an adjustment due to over-accrual for anti-dumping liability in a prior period.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased to $6.8 million in the year ended December 31, 1995 from $6.3
million in the year ended December 31, 1994, an increase of $0.5 million, or
8.1%. This increase primarily resulted from an increase in personnel costs as
well as increased contributions to CFX's profit sharing plan. As a percentage of
net sales, selling, general and administrative expenses increased to 21.1% in
the year ended December 31, 1995 from 20.5% in the year ended December 31, 1994.
Selling, general and administrative expenses include compensation paid to
stockholder-employees totaling $1.4 million in the year ended December 31, 1995
and $1.3 million in the year ended December 31, 1994.
OPERATING INCOME. As a result of the factors discussed above, operating
income increased to $1.0 million in the year ended December 31, 1995 from $0.5
million in the year ended December 31, 1994, an increase of $0.5 million, or
105.2% As a percentage of net sales, operating income increased to 3.1% in the
year ended December 31, 1995 from 1.6% in the year ended December 31, 1994.
BAY STATE FLORIST SUPPLY, INC.
Founded in 1952, Bay State is a wholesale distributor of perishable floral
products and floral-related hardgoods, operating from six locations in
Massachusetts, New York, New Hampshire, Connecticut and Rhode Island. Bay State
purchases floral products from domestic growers, brokers and importers and sells
them to both retail florists and mass marketers. Perishable products accounted
for approximately 70% of sales, while hardgoods accounted for approximately 30%
of sales in 1996. Bay State has approximately 190 employees. Bay State's results
of operations have been impacted in recent years by its acquisition of a
distressed wholesale distributor in Providence, Rhode Island in 1995 and a
wholesale distributor in Clifton Park, New York in 1996.
RESULTS OF OPERATIONS
The following table sets forth selected financial data and data as a
percentage of net sales for the periods indicated.
39
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
----------------------------------------------------- ---------------------------------
1994 1995 1996 1996 1997
---------------- ---------------- --------------- -------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(dollars in thousands)
Net Sales....................... $19,203 100.0% $25,592 100.0% $30,563 100.0% $7,927 100.0% $8,380 100.0%
Cost of Sales................... 12,807 66.7 17,068 66.7 20,722 67.8 5,605 70.7 5,833 69.6
Selling, General and
Administrative Expenses....... 5,529 28.8 7,579 29.6 8,976 29.4 2,193 27.7 2,287 27.3
------ ----- ------- ----- ------ ----- ------ ----- ----- -----
Operating Income................ $ 867 4.5% $ 945 3.7% $ 865 2.8% $ 129 1.6% $ 260 3.1%
======= ======= ======= ====== ======
Pro Forma Operating Income(1)... -- -- -- -- $ 1,041 3.4% $ 173 2.2% $ 307 3.7%
======= ====== ======
</TABLE>
- ------------
(1) The pro forma adjustments made in computing pro forma operating income
include Compensation Differential, offset by a net increase in rental
expense and exclude amortization of goodwill.
Three Months Ended March 31, 1997 Compared to Three Months Ended March 31, 1996
NET SALES. Net sales increased to $8.4 million in the three months ended
March 31, 1997 from $7.9 million in the three months ended March 31, 1996, an
increase of $0.5 million, or 5.7%. This increase primarily resulted from
increased sales from Bay State's Providence, Rhode Island, Manchester, New
Hampshire and Clifton Park, New York locations.
COST OF SALES. Cost of sales, which consists of the cost of perishable and
hardgood products and in-bound freight costs, increased to $5.8 million in the
three months ended March 31, 1997 from $5.6 million in the three months ended
March 31, 1996, an increase of $0.2 million, or 4.1%, primarily as a result of
increased sales. As a percentage of net sales, cost of sales decreased to 69.6%
during the three months ended March 31, 1997 from 70.7% during the three months
ended March 31, 1996. This decrease was due to obtaining more favorable prices
during the three months ended March 31, 1997 and excess purchases in
anticipation of Valentine's Day for the three months ended March 31, 1996.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased to $2.3 million in the three months ended March 31, 1997 from
$2.2 million in the three months ended March 31, 1996, an increase of $0.1
million, or 4.3%. As a percentage of net sales, selling general and
administrative expenses decreased to 27.3% in the three months ended March 31,
1997 from 27.7% in the three months ended March 31, 1996.
OPERATING INCOME. As a result of the factors discussed above, operating
income increased to $0.3 million in the three months ended March 31, 1997 from
$0.2 million in the three months ended March 31, 1996, an increase of $0.1
million or 101.6%. As a percentage of sales, operating income increased to 3.1%
in the three months ended March 31, 1997 from 1.6% in the three months ended
March 31, 1996.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
NET SALES. Net sales increased to $30.6 million in the year ended December
31, 1996 from $25.6 million in the year ended December 31, 1995, an increase of
$5.0 million, or 19.4%. This increase resulted primarily from the acquisition of
a wholesale distributor in Clifton Park, New York in 1996, which accounted for
$2.5 million in net sales in 1996, increased sales from the Providence, Rhode
Island facility, which accounted for $1.5 million of the increase, and increased
sales from other locations.
COST OF SALES. Cost of sales increased to $20.7 million in the year ended
December 31, 1996 from $17.1 million in the year ended December 31, 1995, an
increase of $3.7 million, or 21.4%, primarily as a result of increased sales. As
a percentage of net sales, cost of sales increased to 67.8% in the year ended
December 31, 1996 from 66.7% in the year ended December 31, 1995.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased to $9.0 million in the year ended December 31, 1996 from $7.6
million in the year ended December 31, 1995, an increase of $1.4 million, or
18.4%. This increase resulted primarily from costs and expenses associated with
the new Clifton Park, New York
40
<PAGE>
facility and the growth of the Providence, Rhode Island facility. As a
percentage of net sales, selling, general and administrative expenses decreased
to 29.4% in the year ended December 31, 1996 from 29.6% in the year ended
December 31, 1995. Selling, general and administrative expenses include
compensation paid to employee-stockholders totaling $0.6 million in the year
ended December 31, 1996 and $0.7 million in the year ended December 31, 1995.
OPERATING INCOME. As a result of the factors discussed above, operating
income decreased by $80,000 in the year ended December 31, 1996 from the year
ended December 31, 1995, a decrease of 8.5%. As a percentage of net sales,
operating income decreased to 2.8% in the year ended December 31, 1996 from
3.7% in the year ended December 31, 1995.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
NET SALES. Net sales increased to $25.6 million in the year ended December
31, 1995 from $19.2 million in the year ended December 31, 1994, an increase of
$6.4 million, or 33.3%. This increase resulted primarily from the acquisition of
a wholesale distributor in Providence, Rhode Island in 1995.
COST OF SALES. Cost of sales increased to $17.1 million in the year ended
December 31, 1995 from $12.8 million in the year ended December 31, 1994, an
increase of $4.3 million, or 33.3%, primarily as a result of increased sales. As
a percentage of net sales, cost of sales were 66.7% in the year ended December
31, 1995 and the year ended December 31, 1994.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased to $7.6 million in the year ended December 31, 1995 from $5.5
million in the year ended December 31, 1994, an increase of $2.1 million, or
37.1%. This increase resulted primarily from costs associated with the opening
of the Providence, Rhode Island facility and increased sales efforts at the
Cromwell, Connecticut facility. As a percentage of net sales, selling general
and administrative expenses increased to 29.6% in the year ended December 31,
1995 from 28.8% in the year ended December 31, 1994. Selling, general and
administrative expenses include compensation paid to employee-stockholders
totaling $0.7 million in the year ended December 31, 1995 and $0.8 million in
the year ended December 31, 1994.
OPERATING INCOME. As a result of the factors discussed above, operating
income was unchanged from the year ended December 31, 1994 to the year ended
December 31, 1995. As a percentage of net sales, operating income decreased to
3.7% in the year ended December 31, 1995 from 4.5% in the year ended December
31, 1994.
FLOWER TRADING CORPORATION
Founded in 1977, Flower Trading is an importer and distributor of perishable
floral products which are imported from farms located primarily in Colombia and
Ecuador, and are distributed throughout the United States to approximately 350
customers, which include both wholesale distributors and mass market retailers.
Flower Trading has approximately 45 employees.
Flower Trading's net sales consist of sales of perishable floral products and
handling charges related to preparing products for shipment. Flower Trading's
cost of sales includes a "box fee" paid by Flower Trading on purchases from
Colombia. The box fees are paid to a broker with established relationships in
Colombia to procure flowers from various suppliers; the broker is currently
affiliated with a Flower Trading stockholder. The broker's services include
arranging for a consistent, reliable, ample supply of quality flowers and
consolidating and arranging for shipments with common carriers to provide Flower
Trading with savings on shipping and handling costs.
Approximately 16% of Flower Trading's cost of sales in the year ended
December 31, 1996 was paid to entities affiliated with Flower Trading by common
ownership. These entities are not being acquired in connection with the Flower
Trading Merger. Flower Trading imposes a surcharge upon certain flowers that are
or may become subject to an anti-dumping liability and reserves that amount
against the possibility that a duty will be imposed.
41
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth selected financial data and data as a
percentage of net sales for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
---------------------------------------------------- -------------------------------------
1994 1995 1996 1996 1997
---------------- ---------------- ------------------ ---------------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(dollars in thousands)
Net Sales............................. $18,478 100.0% $20,335 100.0% $20,313 100.0% $6,390 100.0% $7,431 100.0%
Cost of Sales......................... 14,452 78.2 15,921 78.3 15,914 78.3 5,173 81.0 5,907 79.5
Selling, General and
Administrative Expenses............. 3,605 19.5 4,068 20.0 4,142 20.4 1,012 15.8 971 13.1
Operating Income...................... $ 421 2.3% $ 346 1.7% $ 257 1.3% $ 205 3.2% $ 553 7.4%
======= ======= ======= ====== ======
Pro Forma Operating Income(1). -- -- -- -- $ 953 4.7% $ 379 5.9% $ 711 9.6%
======= ====== ======
</TABLE>
-----------------
(1) The pro forma adjustments made in computing pro forma operating income
include the renegotiation of the agreement under which Flower Trading
pays box fees to its broker on purchases from Colombia and Compensation
Differential and exclude amortization of goodwill.
Three Months Ended March 31, 1997 Compared To Three Months Ended March 31,1996
NET SALES. Net sales increased to $7.4 million in the three months ended
March 31, 1997 from $6.4 million in the three months ended March 31, 1996, an
increase of $1.0 million, or 16.3 %. The increase resulted from a fuel surcharge
that was added to customer invoices, increased sales and increased revenues at
Valentine's Day.
COST OF SALES. Cost of sales, which primarily consists of the cost of
purchasing perishables, increased to $5.9 million in the three months ended
March 31, 1997 from $5.2 million in the three months ended March 31, 1996, an
increase of $0.7 million, or 14.2%. The increase resulted from a fuel surcharge
related to airline shipments that was imposed by airlines beginning in April
1996, and increases in the direct purchase costs, commissions for consignment
sales and freight costs associated with the increased sales. As a percentage of
net sales, cost of sales decreased to 79.5% in the three months ended March 31,
1997 from 81.0% in the three months ended March 31, 1996.
SELLING, GENERAL AND ADMINISTRATIVE. Selling general and administrative
expenses were $1.0 million in each of the three-month periods ended March 31,
1996 and 1997. As a percentage of net sales, selling, general and administrative
expenses decreased to 13.1% in the three months ended March 31, 1997 from 15.8%
in the three months ended March 31, 1996.
OPERATING INCOME. As a result of the factors discussed above, operating
income increased to $0.6 million in the three months ended March 31, 1997 from
$0.2 million in the three months ended March 31, 1996, an increase of $0.4
million, or 169.8%. As a percentage of net sales, operating income increased to
7.4% in the three months ended March 31, 1997 from 3.2% in the three months
ended March 31,1996.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
NET SALES. Net sales were $20.3 million in the year ended December 31, 1996
and in the year ended December 31, 1995. Net sales remained at the same level
due to an increase attributable to a fuel surcharge that was added to customer
invoices, offset by a decrease in anti-dumping duties collected.
COST OF SALES. Cost of sales remained relatively constant at $15.9 million
in the year ended December 31, 1996 and in the year ended December 31, 1995.
Cost of sales increased due to a fuel surcharge that airlines imposed beginning
in April 1996, the imposition by U.S. Customs of a higher percentage anti-
dumping duty, and a negotiated lower margin with growers, due to the decreased
volume of flowers sold, which was offset by decreased volume of
42
<PAGE>
flowers sold. As a percentage of net sales, cost of sales were 78.3% in the year
ended December 31, 1996 and in the year ended December 31, 1995.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses were $4.1 million in the year ended December 31, 1996 and the year
ended December 31, 1995. As a percentage of net sales, selling, general and
administrative expenses increased to 20.4% in the year ended December 31, 1996
from 20.0% in the year ended December 31, 1995.
OPERATING INCOME. As a result of the factors discussed above, operating
income decreased $0.1 million in the year ended December 31, 1996 from $0.3
million in the year ended December 31, 1995, a decrease of 25.7%. As a
percentage of net sales, operating income decreased to 1.3% in the year ended
December 31, 1996 from 1.7% in the year ended December 31, 1995.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
NET SALES. Net sales increased to $20.3 million in the year ended December
31, 1995 from $18.5 million in the year ended December 31, 1994, an increase of
$1.9 million, or 10.0%. The increase resulted from an increase in the volume of
flowers sold, and an increase in handling charges and anti-dumping duties.
COST OF SALES. Cost of sales increased to $15.9 million in the year ended
December 31, 1995 from $14.5 million in the year ended December 31, 1994, an
increase of $1.5 million, or 10.2%, primarily as a result of increased sales. As
a percentage of sales, cost of sales increased to 78.3% in the year ended
December 31, 1995 from 78.2% in the year ended December 31, 1994.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased to $4.1 million in the year ended December 31, 1995 from $3.6
million in the year ended December 31, 1994, an increase of $0.5 million, or
12.8%. This increase resulted from increased compensation expense and related
benefits. As a percentage of net sales, selling, general and administrative
expenses increased to 20.0% in the year ended December 31, 1995 from 19.5% in
the year ended December 31, 1994.
OPERATING INCOME. As a result of the factors discussed above, operating
income decreased to $0.3 million in the year ended December 31, 1995 from $0.4
million in the year ended December 31, 1994, a decrease of $0.1 million, or
17.8%. As a percentage of net sales, operating income decreased to 1.7% in the
year ended December 31, 1995 from 2.3% in the year ended December 31, 1994.
UNITED WHOLESALE FLORISTS, INC. AND UNITED WHOLESALE FLORISTS OF AMERICA, INC.
Founded in 1947, United Wholesale is a wholesale distributor of perishable
floral products and floral-related hardgoods operating from 13 locations in
Arkansas, Alabama, Mississippi, Oklahoma, Tennessee and Texas. United Wholesale
purchases floral products from domestic growers, brokers and importers and sells
them to approximately 3,000 customers, including both retail florists, and mass
market retailers. Perishable products accounted for approximately 70% of sales,
while hardgoods accounted for approximately 30% of sales in fiscal 1996. United
Wholesale has approximately 175 employees. United Wholesale has expanded to 13
locations through acquisitions of wholesale distributors.
In 1991, United Wholesale began to operate a bouquet manufacturing business.
This business was discontinued at the end of 1994 due to operating losses.
RESULTS OF OPERATIONS
The following table sets forth selected financial data and data as a
percentage of net sales for the periods indicated.
43
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, NINE MONTHS ENDED MARCH 31,
------------------------------------------------------ --------------------------------------
1994 1995 1996 1996 1997
----------------- ---------------- ------------------- ---------------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(dollars in thousands)
Net Sales........................... $18,541 100.0% $17,985 100.0% $19,030 100.0% $14,050 100.0% $14,608 100.0%
Cost of Sales....................... 12,042 65.0 11,556 64.3 12,563 66.0 9,294 66.1 9,632 65.9
Selling, General and
Administrative Expenses........... 6,162 33.2 5,926 33.0 6,101 32.1 4,361 31.0 4,392 30.1
------- ------- ------- ------- -------
Operating Income.................... $ 337 1.8% $ 503 2.8% $ 366 1.9% $ 395 2.8% $ 584 4.0%
======= ======= ======= ======= =======
Pro Forma Operating
Income(1).......................... -- -- -- -- $ 860 4.5% $ 406 2.9% $ 441 3.0%
======= ======= =======
</TABLE>
--------------------
(1) The pro forma adjustments made in computing pro forma operating income
consist principally of Compensation Differential and exclude amortization
of goodwill.
Nine Months Ended March 31, 1997 Compared To Nine Months Ended March 31,1996
NET SALES. Net sales increased to $14.6 million in the nine months ended
March 31, 1997 from $14.1 million in the nine months ended March 31, 1996, an
increase of $0.6 million, or 4.0%, as a result of increased sales at United
Wholesale's Mississippi facilities due to reduced competition.
COST OF SALES. Cost of sales, which consists of the cost of perishable and
hardgood products and in-bound freight costs, increased to $9.6 million in the
nine months ended March 31, 1997 from $9.3 million in the nine months ended
March 31, 1996, an increase of $0.3 million, or 3.6%, primarily as a result of
increased sales. As a percentage of net sales, cost of sales decreased to 65.9%
in the nine months ended March 31, 1997 from 66.1% in the nine months ended
March 31, 1996.
SELLING, GENERAL AND ADMINISTRATIVE. Selling general and administrative
expenses remained unchanged at $4.4 million in the nine months ended March 31,
1997 and March 31, 1996. As a percentage of net sales, selling, general and
administrative expenses decreased to 30.1% in the nine months ended March 31,
1997 from 31.0% in the nine months ended March 31, 1996. This decrease resulted
primarily from spreading fixed costs over increased sales.
OPERATING INCOME. As a result of the factors discussed above, operating
income increased to $0.6 million in the nine months ended March 31, 1997 from
$0.4 million in the nine months ended March 31, 1996, an increase of $0.2
million, or 47.8%. As a percentage of net sales, operating income increased to
3.9% in the nine months ended March 31, 1997 from 2.8% in the nine months ended
March 31, 1996.
Year Ended June 30, 1996 Compared to Year Ended June 30, 1995
NET SALES. Net sales increased to $19.0 million in the year ended June 30,
1996 from $18.0 million in the year ended June 30, 1995, an increase of $1.0
million, or 5.8%. This increase resulted primarily from increased sales at
United Wholesale's Mobile, Alabama facility, which increased its emphasis on
sales of perishables, and its Tulsa, Oklahoma facility, which increased its
customer base by beginning a policy of extending credit to customers.
COST OF SALES. Cost of sales increased to $12.6 million in the year ended
June 30, 1996 from $11.6 million in the year ended June 30, 1995, an increase of
$1.0 million, or 8.7%, primarily as a result of operational difficulties at the
Memphis, Tennessee location, particularly with respect to inventory management.
As a percentage of net sales, cost of sales increased to 66.0% in the year ended
June 30, 1996 from 64.3% in the year ended June 30, 1995.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased to $6.1 million in the year ended June 30, 1996 from $5.9
million in the year ended June 30, 1995, an increase of $0.2 million, or 3.0%.
As a percentage of net sales, selling, general and administrative expenses
decreased to 32.1% in the year ended June 30, 1996 from 32.9% in the year ended
June 30, 1995. This decrease resulted primarily from spreading fixed costs over
increased sales.
44
<PAGE>
OPERATING INCOME. As a result of the factors discussed above, operating
income decreased to $0.4 million in the year ended June 30, 1996 from $0.5
million in the year ended June 30, 1995, a decrease of $0.1 million, or 27.2%.
As a percentage of net sales, operating income decreased to 1.9% in the year
ended June 30, 1996 from 2.8% in the year ended June 30, 1995.
Year Ended June 30, 1995 Compared to Year Ended June 30, 1994
NET SALES. Net sales decreased to $18.0 million in the year ended June 30,
1995 from $18.5 million in the year ended June 30, 1994, a decrease of $0.6
million, or 3.0%. The decrease resulted from the discontinuation of the bouquet
business at the end of 1994 and decreased sales attributable to turnover in the
sales force.
COST OF SALES. Cost of sales decreased to $11.6 million in the year ended
June 30, 1995 from $12.0 million in the year ended June 30, 1994, a decrease of
$0.5 million, or 4.0%, primarily as a result of the discontinuation of the
bouquet business, and the associated decrease in the labor component of cost of
sales. As a percentage of net sales, cost of sales decreased to 64.3% in the
year ended June 30, 1995 from 64.9% in the year ended June 30, 1994.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses decreased to $5.9 million in the year ended June 30, 1995 from $6.2
million in the year ended June 30, 1994, a decrease of $0.2 million, or 3.8%. As
a percentage of net sales, selling, general and administrative expenses
decreased to 32.9% in the year ended June 30, 1995 from 33.2% in the year ended
June 30, 1994. This decrease resulted primarily from the elimination of expenses
associated with the bouquet business, a reduction in bad debts and a reduction
in insurance costs, all of which were partially offset by salary increases.
OPERATING INCOME. As a result of the factors discussed above, operating
income increased to $0.5 million in the year ended June 30, 1995 from $0.3
million in the year ended June 30, 1994, an increase of $0.2 million, or 49.3%.
As a percentage of net sales, operating income increased to 2.8% in the year
ended June 30, 1995 from 1.8% in the year ended June 30, 1994.
AMERICAN FLORIST SUPPLY, INC.
Founded in 1994, American Florist is a wholesale distributor of perishable
floral products and floral-related hardgoods located in Massachusetts. In April
1994, American Florist acquired the wholesale distribution business of Johnson's
Roses, which was founded in 1927. American Florist purchases floral products
from foreign and domestic growers, brokers and importers and sells them to both
retail florists, and mass market retailers in Maine, Massachusetts, Rhode
Island, Vermont, New Hampshire. American Florist also manufactures floral
bouquets for distribution to supermarkets. American Florist has approximately 70
employees.
RESULTS OF OPERATIONS
The following table sets forth selected financial data and data as a
percentage of net sales for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, Three Months Ended March 31,
---------------------------------------------------------------------------------------------
1994 (1) 1995 1996 1996 1997
------------------- ----------------- ------------------ ---------------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(dollars in thousands)
Net Sales ......................... $ 6,293 100.0% $10,783 100.0% $11,679 100.0% $3,155 100.0% $3,559 100.0%
Cost of Sales...................... 4,579 72.8 7,788 72.2 8,268 70.8 2,180 69.1 2,442 68.6
Selling, General and
Administrative Expenses.......... 1,545 24.6 2,531 23.5 2,723 23.3 687 21.8 784 22.0
Operating Income................... $ 169 2.7% $ 464 4.3% $ 688 5.9% $ 288 9.1% $ 333 9.4%
======== ======= ======= ====== ======
Pro Forma Operating Income(2)...... $ 753 6.4% $ 304 9.6% $ 349 9.8%
======= ====== ======
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The financial data for 1994 reflect eight months of operations.
45
<PAGE>
(2) The pro forma adjustments made in computing pro forma operating income
consist of Compensation Differential and exclude amortization of
goodwill.
Three Months Ended March 31, 1997 Compared to Three Months Ended March 31, 1996
NET SALES. Net sales increased to $3.6 million in the three months ended
March 31, 1997 from $3.2 million in the three months ended March 31, 1996, an
increase of $0.4 million, or 12.8%. This increase primarily resulted from sales
associated with the addition of new sales persons late in 1996.
COST OF SALES. Cost of sales, which consists of the cost of perishable and
hardgood products and in-bound freight costs, increased to $2.4 million in the
three months ended March 31, 1997 from $2.2 million in the three months ended
March 31, 1996, an increase of $0.2 million, or 12.0%, primarily as a result of
increased sales. As a percentage of net sales, cost of sales decreased to 68.6%
in the three months ended March 31, 1997 from 69.1% in the three months ended
March 31, 1996, due to management's efforts to obtain more favorable prices and
improved inventory management.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased to $0.8 million in the three months ended March 31, 1997 from
$0.7 million in the three months ended March 31, 1996, an increase of $0.1
million, or 14.1%. As a percentage of net sales, selling, general and
administrative expenses increased to 22.0% in the three months ended March 31,
1997 from 21.8% in the three months ended March 31, 1996, primarily as a result
of additional personnel costs.
OPERATING INCOME. As a result of the factors discussed above, operating
income increased by 15.6%, or $45,000, from the three months ended March 31,
1997 to the three months ended March 31, 1996. As a percentage of net sales,
operating income increased to 9.4% in the three months ended March 31, 1997 from
9.1% in the three months ended March 31,1996.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
NET SALES. Net sales increased to $11.7 million in the year ended December
31, 1996 from $10.8 million in the year ended December 31, 1995, an increase of
$0.9 million, or 8.3%. This increase resulted from an increased focus on bouquet
sales to mass market retailers, improved quality of products and the addition of
floral-related hardgoods to American Florist's product line.
COST OF SALES. Cost of sales increased to $8.3 million in the year ended
December 31, 1996 from $7.8 million in the year ended December 31, 1995, an
increase of $0.5 million, or 6.2%, primarily as a result of increased sales. As
a percentage of net sales, cost of sales decreased to 70.8% in the year ended
December 31, 1996 from 72.2% in the year ended December 31, 1995, due to
management's efforts to obtain more favorable product prices.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased to $2.7 million in the year ended December 31, 1996 from $2.5
million in the year ended December 31, 1995, an increase of $0.2 million, or
7.6%. As a percentage of net sales, selling, general and administrative expenses
decreased to 23.3% in the year ended December 31, 1996 from 23.5% in the year
ended December 31, 1995, primarily as a result of additional personnel.
OPERATING INCOME. As a result of the factors discussed above, operating
income increased to $0.7 million in the year ended December 31, 1996 from $0.5
million in the year ended December 31, 1995, an increase of $0.2 million or
48.3%. As a percentage of net sales, operating income increased to 5.9% in the
year ended December 31, 1996 from 4.3% in the year ended December 31, 1995.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
NET SALES. Net sales increased to $10.8 million in the year ended December
31, 1995 from $6.3 million in the year ended December 31, 1994, an increase of
$4.5 million, or 71.3%. This increase primarily resulted from a full year of
operations in 1995 compared to eight months of operations in 1994.
46
<PAGE>
COST OF SALES. Cost of sales increased to $7.8 million in the year ended
December 31, 1995 from $4.6 million in the year ended December 31, 1994, an
increase of $3.2 million, or 70.1%, primarily as a result of increased sales. As
a percentage of net sales, cost of sales decreased to 72.2% in the year ended
December 31, 1995 from 72.8% in the year ended December 31, 1994, due to
management's efforts to obtain more favorable prices.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased to $2.5 million in the year ended December 31, 1995 from $1.5
million in the year ended December 31, 1994, an increase of $1.0 million, or
63.8%. This increase primarily resulted from a full year of operations in 1995
compared to eight months of operations in 1994. As a percentage of net sales,
selling, general and administrative expenses decreased to 23.5% in the year
ended December 31, 1995 from 24.6% in the year ended December 31, 1994.
OPERATING INCOME. As a result of the factors discussed above, operating
income increased to $0.5 million in the year ended December 31, 1995 from $0.2
million in the year ended December 31, 1994, an increase of $0.3 million or
174.6%. As a percentage of net sales, operating income increased to 4.3% in the
year ended December 31, 1995 from 2.7% in the year ended December 31, 1994.
MONTEREY BAY BOUQUET, INC. AND BAY AREA BOUQUETS, INC.
Founded in 1993, Monterey Bay, located in Watsonville, California, is a
manufacturer and wholesale distributor of fresh cut flower bouquets, consisting
primarily of specialty California grown flowers. Monterey Bay purchases flowers
from nearly 150 growers and 12 importers. Monterey Bay has two customers which
account for nearly all of its sales: a supermarket and a discount retailer. Each
of these customers has numerous locations throughout the western United States.
In February 1995, Monterey Bay acquired a bouquet manufacturer that distributed
bouquets to the discount retailer, and Monterey Bay began producing bouquets for
that discount retailer. Monterey Bay has approximately 65 employees.
RESULTS OF OPERATIONS
The following table sets forth selected financial data and data as a
percentage of net sales for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
-------------------------------------------------------------------------------------------------------
1994 1995 1996 1996 1997
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(in thousands)
Net Sales $4,253 100.0% $6,903 100.0% $9,477 100.0% $2,263 100.0% $3,641 100.0%
Cost of Sales 3,773 88.7 5,959 86.3 8,285 87.4 1,982 87.6 3,047 83.7
Selling, General and
Administrative Expenses 458 10.8 910 13.2 1,113 11.7 206 9.1 263 7.2
------ ------ ----- ----- ------
Operating Income $ 22 0.5% $ 34 0.5% $ 79 0.8% $ 75 3.3% $ 331 9.1%
====== ====== ====== ====== ======
Pro Forma Operating Income(1) -- -- -- -- $ 262 2.8% $ 121 5.3% $ 331 9.1%
====== ====== ======
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Pro forma adjustments made in computing pro forma operating income consist
of Compensation Differential and exclude amortization of goodwill.
Three Months Ended March 31, 1997 Compared to Three Months Ended March 31, 1996
NET SALES. Net sales increased to $3.6 million in the three months ended
March 31, 1997 from $2.3 million in the three months ended March 31, 1996, an
increase of $1.4 million, or 60.9%. This increase resulted primarily from
continued increases in purchase levels from Monterey Bay's existing customers
due to service and quality improvements.
COST OF SALES. Cost of sales, which primarily consists of fresh cut flowers,
production, labor and distribution costs, increased to $3.0 million in the three
months ended March 31, 1997 from $2.0 million in the three months ended March
31, 1996, an increase of $1.1 million, or 53.7%. As a percentage of net sales,
cost of sales decreased to 83.7% in the three months ended March 31, 1997 from
87.6% during the three months ended March 31, 1996. This decrease resulted
47
<PAGE>
primarily from more favorable prices obtained through volume purchasing, lower
prices resulting from greater product availability due to relatively better
weather, and lower costs for shipping materials.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased to $0.3 million in the three months ended March 31, 1997 from
$0.2 million in the three months ended March 31, 1996, an increase of $0.1
million, or 27.7%. As a percentage of net sales, selling, general and
administrative expenses decreased to 7.2% from 9.1% during the prior period.
This decrease resulted primarily from spreading fixed costs over increased net
sales. Selling, general and administrative expenses included compensation paid
to employee-stockholders totaling $85,000 in the three months ended March 31,
1997 and $69,000 in the three months ended March 31, 1996.
OPERATING INCOME. As a result of the factors discussed above, operating
income increased to $0.3 million in the three months ended March 31, 1997 from
$0.1 million in the three months ended March 31, 1996, an increase of $0.3
million, or 341.3%. As a percentage of net sales, operating income increased to
9.1% in the three months ended March 31, 1997 from 3.3% in the three months
ended March 31, 1996.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
NET SALES. Net sales increased to $9.5 million in the year ended December 31,
1996 from $6.9 million in the year ended December 31, 1995, an increase of $2.6
million, or 37.3%. This increase resulted primarily from increased purchases
from existing stores of both of Monterey Bay's customers due to Monterey Bay's
focus on service and quality, and expansion into new stores.
COST OF SALES. Cost of sales increased to $8.3 million in the year ended
December 31, 1996 from $6.0 million in the year ended December 31, 1995, an
increase of $2.3 million, or 39.0%, primarily as a result of increased sales. As
a percentage of net sales, cost of sales increased to 87.4% in the year ended
December 31, 1996 from 86.3% in the year ended December 31, 1995.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased to $1.1 million in the year ended December 31, 1996 from $0.9
million in the year ended December 31, 1995, an increase of $0.2 million, or
22.3%. As a percentage of net sales, selling, general and administrative
expenses decreased to 11.7% for the year ended December 31, 1996 from 13.2% for
the year ended December 31, 1995. This decrease resulted primarily from
spreading fixed costs over increased net sales. Selling, general and
administrative expenses include compensation paid to employee-stockholders
totaling $0.3 million in both the year ended December 31, 1996 and the year
ended December 31, 1995.
OPERATING INCOME. As a result of the factors discussed above, operating
income increased by $45,000 in the year ended December 31, 1996 from the year
ended December 31, 1995, an increase of 132.4%. As a percentage of net sales,
operating income increased to 0.8% in the year ended December 31, 1996 from 0.5%
in the year ended December 31, 1995.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
NET SALES. Net sales increased to $6.9 million in the year ended December 31,
1995 from $4.3 million in the year ended December 31, 1994, an increase of $2.7
million, or 62.3%. This increase resulted primarily from the acquisition of a
bouquet manufacturer that produced bouquets for a discount retailer in February
1995 and Monterey Bay's focus on improving quality and service.
COST OF SALES. Cost of sales increased to $6.0 million in the year ended
December 31, 1995 from $3.8 million in the year ended December 31, 1994, an
increase of $2.2 million, or 57.9%, primarily as a result of the increase in
sales. As a percentage of sales, cost of sales decreased to 86.3% in the year
ended December 31, 1995 from 88.7% in the year ended December 31, 1994. This
decrease resulted primarily from favorable prices obtained through volume
purchasing.
48
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased to $0.9 million in the year ended December 31, 1995 from $0.5
million in the year ended December 31, 1994, an increase of $0.4 million, or
98.7%. This increase primarily resulted from the addition of personnel. As a
percentage of net sales, selling general and administrative expenses increased
to 13.2% in the year ended December 31, 1995 from 10.8% in the year ended
December 31, 1994. Selling, general and administrative expenses include
compensation paid to employee-stockholders totaling $0.3 million in the year
ended December 31, 1995 and $0.2 million in the year ended December 31, 1994.
OPERATING INCOME. As a result of the factors discussed above, operating
income increased to $34,000 in the year ended December 31, 1995 from $22,000 in
the year ended December 31, 1994, an increase of $12,000, or 54.5%. As a
percentage of net sales, operating income was 0.5% in the year ended December
31, 1995 and the year ended December 31, 1994.
ALPINE GEM FLOWER SHIPPERS, INC.
Founded in 1972, Alpine Gem is a broker and shipper of perishable floral
products. Alpine Gem purchases flowers from approximately 80 growers and sells
flowers on consignment for approximately 18 growers. Alpine Gem distributes
flowers to nearly 750 customers located throughout the United States. Alpine Gem
has one location in Montana and one in California and has approximately 20
employees.
RESULTS OF OPERATIONS
The following table sets forth selected financial data and data as a
percentage of net sales for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
---------------------------------------------------- -----------------------------------
1994 1995 1996 1996 1997
---------------- ------------- -------------- ---------------- ---------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales..................... $7,252 100.0% $8,139 100.0% $9,334 100.0% $2,598 100.0% $2,674 100.0%
Cost of Sales................. 5,438 75.0 6,287 77.2 7,132 76.4 2,045 78.7 2,084 77.9
Selling, General and
Administrative Expenses..... 1,320 18.2 1,526 18.7 1,868 20.0 369 14.2 394 14.7
------ ------ ------ ------ ------
Operating Income.............. $ 494 6.8% $ 326 4.0% $ 334 3.6% $ 184 7.1% $ 196 7.3%
====== ====== ====== ====== ======
Pro Forma Operating Income(1). -- -- -- -- $ 264 2.8% $ 166 6.4% $ 178 6.7%
====== ======
</TABLE>
(1) The pro forma adjustments made in computing pro forma operating income
consist of Compensation Differential and exclude amortization of goodwill.
Three Months Ended March 31, 1997 Compared to Three Months Ended March 31, 1996
NET SALES. Net sales increased to $2.7 million in the three months ended
March 31, 1997 from $2.6 million in the three months ended March 31, 1996, an
increase of $0.1 million, or 2.9%. This increase resulted primarily from
improved promotion of goods and marketing additional varieties of products.
COST OF SALES. Cost of sales, which primarily consists of the cost of
perishable goods and in-bound freight costs, increased to $2.1 million in the
three months ended March 31, 1997 from $2.0 million in the three months ended
March 31, 1996, an increase of $39,000, or 1.9%, primarily as a result of
increased sales. As a percentage of net sales, cost of sales decreased to 77.9%
in the three months ended March 31, 1997 from 78.7% in the three months ended
March 31, 1996.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased to $394,000 in the three months ended March 31, 1997 from
$369,000 in the three months ended March 31, 1996, an increase of $25,000, or
6.8%. As a percentage of net sales, selling general and administrative expenses
increased to 14.7% in the three months ended March 31, 1997 from 14.2% in the
three months ended March 31, 1996.
49
<PAGE>
OPERATING INCOME. Operating income increased by $12,000 to $0.2 million in the
three months ended March 31, 1997 from the three months ended March 31, 1996, an
increase of 6.5%. As a percentage of net sales, operating income increased to
7.3% in the three months ended March 31, 1997 from 7.1% in the three months
ended March 31,1996.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
NET SALES. Net sales increased to $9.3 million in the year ended December 31,
1996 from $8.1 million in the year ended December 31, 1995, an increase of $1.2
million, or 14.7%. This increase resulted primarily from increased marketing
efforts directed at increasing the variety of available products.
COST OF SALES. Cost of sales increased to $7.1 million in the year ended
December 31, 1996 from $6.3 million in the year ended December 31, 1995, an
increase of $0.8 million, or 13.4%. This increase resulted primarily from
increased sales. As a percentage of net sales, cost of sales decreased to 76.4%
in the year ended December 31, 1996 from 77.2% in the year ended December 31,
1995, as a result of increased sales of products with a higher value to
purchasers, for which Alpine Gem was able to charge a premium.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased to $1.9 million in the year ended December 31, 1996 from $1.5
million in the year ended December 31, 1995, an increase of $0.3 million, or
22.4%. As a percentage of net sales, selling, general and administrative
expenses increased to 20.0% in the year ended December 31, 1996 from 18.7% in
the year ended December 31, 1995.
OPERATING INCOME. Operating income was $0.3 million in the year ended December
31, 1996 and the year ended December 31, 1995. As a percentage of net sales,
operating income decreased to 3.6% in the year ended December 31, 1996 from 4.0%
in the year ended December 31, 1995.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
NET SALES. Net sales increased to $8.1 million in the year ended December 31,
1995 from $7.3 million in the year ended December 31, 1994, an increase of $0.8
million, or 12.2%. This increase resulted primarily from the use of independent
sales representatives to sell products, as well as entry into the Florida
market. Alpine Gem subsequently discontinued its Florida operations.
COST OF SALES. Cost of sales increased to $6.3 million in the year ended
December 31, 1995 from $5.4 million in the year ended December 31, 1994, an
increase of $0.8 million, or 15.6%. This increase resulted primarily from Alpine
Gem's entry into the Florida market. As a percentage of net sales, cost of sales
increased to 77.2% in the year ended December 31, 1995 from 75.0% in the year
ended December 31, 1994.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased to $1.5 million in the year ended December 31, 1995 from $1.3
million in the year ended December 31, 1994, an increase of $0.2 million, or
15.6%. As a percentage of net sales, selling general and administrative expenses
increased to 18.7% in the year ended December 31, 1995 from 18.2% in the year
ended December 31, 1994.
OPERATING INCOME. As a result of the factors discussed above, operating income
decreased to $0.3 million in the year ended December 31, 1995 from $0.5 million
in the year ended December 31, 1994, a decrease of $0.2 million, or 34.0%. As a
percentage of net sales, operating income decreased to 4.0% in the year ended
December 31, 1995 from 6.8% in the year ended December 31, 1994.
50
<PAGE>
BUSINESS
OVERVIEW
USA Floral was founded in April 1997 to create a national consolidator and
operator of floral products distribution businesses. The Company engages
primarily in the wholesale distribution of perishable floral products and
floral-related hardgoods. The Company also imports cut flowers from growers in
foreign countries, provides pre-packaged floral bouquets and arrangements to
retail florists and mass-market retailers and engages in brokerage and shipping
services for wholesalers of both foreign and domestic cut flowers. The Company
believes that it is one of the largest integrated distributors of floral
products in the United States. The Company has approximately 945 employees and
serves thousands of customers nationwide from 32 facilities in 17 states. For
the year ended December 31, 1996, the Company had pro forma combined revenues of
$175.5 million, pro forma combined operating income of $5.1 million and pro
forma combined net income of $2.7 million.
INDUSTRY OVERVIEW
The floriculture industry produces, distributes and markets fresh cut flowers
and greens, potted plants and floral-related hardgoods such as vases and
glassware, foam for flower arranging, and tools and supplies. Through a network
of importers, brokers, shippers and wholesalers, flowers are brought from
growing regions throughout the United States and in countries around the world
to consumers who purchase from retail florists and mass market distributors such
as supermarkets and discount stores.
Fresh flowers are grown commercially at farms around the world. Principal
sources of supply for the United States market are growers in Colombia and
Ecuador in South America, Costa Rica and Mexico in Latin America, Holland in
Europe, and to a lesser extent Australia and New Zealand in the Pacific Rim.
Latin America and South America are the predominant sources of supply for
flowers imported into the United States. Domestic sources of supply include
farms in California and the Pacific Northwest, as well as Hawaii for tropical
varieties and the Northeast for greens that are particularly in demand during
the winter holidays. While a limited number of growers operate large, integrated
farms, both foreign and domestic growers are typically small businesses
operating in a highly fragmented environment.
Flowers grown abroad arrive at United States ports of entry, principally
Miami, Florida, by air each day. Importers of floral products receive these
flowers, generally on consignment, and facilitate their passage through U.S.
customs inspection and clearance procedures. Once the flowers have cleared
customs, the importers often pre-cool the flowers at their own facilities to
help preserve them as they move through the distribution channel. Typically,
flowers spend only one or two days in customs clearance and pre-cooling.
Importers, for foreign flowers, and brokers for both foreign and domestic
flowers, match the available flower supply with demand from wholesalers and
bouquet companies. The flowers are shipped to shippers and wholesalers from
importers' facilities at ports of entry or from domestic growers on refrigerated
trucks, usually arriving at the wholesaler within one to three days. Shippers
break large shipments of perishable floral products down into lots sized to meet
customer requirements, and then send them to wholesalers, bouquet companies and
mass-market retailers. Wholesalers then market and supply fresh flowers and
floral products hardgoods to traditional retail florists and mass-market
retailers, as well as to bouquet manufacturers.
Bouquet companies, which have emerged over the past decade to provide pre-
packaged products to mass-market retailers, obtain flowers from importers, as
well as directly from growers, and, to a lesser extent, from wholesalers and
shippers. Bouquet companies employ mass-production techniques in order to
replicate cost-effectively a particular floral product design for widespread
distribution. They wrap cut flowers in plastic sleeves and produce floral
arrangements, which are packaged in shipping containers, for sale through mass
market retailers such as the floral departments of grocery stores and discount
merchandisers.
51
<PAGE>
At each stage of the distribution chain, the pricing of cut flowers varies
with quality and freshness. As days pass from the time of first cutting, fresh
products that remain unsold decline in price, until they are ultimately sold or
discarded. Since the freshest, highest-quality flowers command the highest
prices, the distribution system effectively rewards the growers that produce the
best flowers, the importers and brokers that clear and match flowers with buyers
most efficiently, and the wholesalers and bouquet companies that store and
preserve flowers most effectively and bring the best products to market most
quickly.
The distribution channel in the floriculture industry is highly fragmented,
and consists mainly of small, family-owned firms that operate from a single
location or from a small number of outlets in a single region. While floral
products have historically been sold at retail through a large number of
traditional florists, who continue to serve the majority of consumers, the
Company believes that changes in consumer buying habits are causing more
consumers to seek floral products from mass-market retailers such as
supermarkets, discount retailers and chain stores. Industry sources estimate
that, sales in the retail segment of the floriculture industry totaled
approximately $15.0 billion in 1996, and that approximately 45% of retail sales
are generated by mass market retailers. Management believes that the growing
consumer preference for more convenient floral products retailers, together with
the potential efficiencies to be achieved from operating floral products
businesses on a large scale, have well positioned the floriculture industry for
consolidation and provide an attractive opportunity for the Company to build an
integrated, nationwide floral products distributor that can serve the growing
mass market while continuing to meet the needs of the traditional florists for
high quality products and services.
STRATEGY
The Company believes that, as the first consolidator in the highly fragmented
floral products industry, it is uniquely positioned to create a new industry
operating model that streamlines distribution, improves product quality and
provides better service to retailers, particularly in the mass market. To attain
its goals, the Company's strategy is to (i) acquire profitable floral products
businesses in each segment of the distribution channel, (ii) empower
decentralized local management to stay close to customers and generate new ideas
for Company-wide dissemination, (iii) achieve operating efficiencies by
combining certain functions at the corporate level, and (iv) introduce new
products and services to the traditional retail florist, the mass market
supplier and the consumer, including "brand-name" flowers and express services
for certain pre-packaged products.
PURSUE STRATEGIC ACQUISITIONS. The Company intends to capitalize upon
consolidation opportunities in the U.S. floral products industry by pursuing
selective acquisitions in all components of the distribution segment of the
industry. To build upon and enhance its nationwide presence, the Company will
focus upon opportunities that complement and complete its floral products
offerings and in new geographic markets with above-average population growth and
floral products consumption. The Company intends to implement an aggressive
acquisition program utilizing a "hub and spoke" strategy for expansion into its
targeted markets. As part of this strategy, the Company plans to make
acquisitions of established, high-quality local companies in targeted geographic
areas, which can then serve as "hubs" for the acquisition of smaller,
synergistic "spokes" in that locality or in surrounding markets. The Company
believes that it can successfully integrate the operations of acquired spokes
into its hubs, in order to leverage more effectively its sales, marketing and
distribution capabilities. Robert J. Poirier, the Company's co-founder,
President and Chief Executive Officer, has over 22 years of experience in the
floral products industry, with extensive relationships with wholesalers,
importers, brokers and bouquet manufacturers. Mr. Poirier's industry knowledge
is complemented by the acquisition expertise of Jonathan J. Ledecky, the
Company's co-founder and Non-Executive Chairman of the Board. Mr. Ledecky is the
founder, Chairman of the Board and Chief Executive Officer of U.S. Office
Products Company, a publicly-held supplier of a broad range of office products
and business services that has been built primarily through the acquisition and
integration of over 185 companies since its inception in October 1994.
OPERATE WITH DECENTRALIZED MANAGEMENT. The Company plans to conduct its
operations with a decentralized management approach through which individual
management teams will be responsible for the day-to-day operations of the
Founding Companies as well as for helping to identify additional acquisition
candidates in their respective locales. At the same time, a company-wide team of
senior management will provide the Founding Companies with strategic oversight
and guidance with respect to acquisitions, financing, marketing and operations.
As part of this strategy, the
52
<PAGE>
Company intends to foster a culture of cooperation and teamwork that emphasizes
dissemination of "best practices" among its local management teams. The Company
believes that stock ownership and incentive compensation will help to keep the
objectives of local management aligned with those of the Company, and that a
decentralized management approach will result in better customer service by
allowing local management the flexibility to implement policies and make
decisions based on the needs of local customers.
ACHIEVE OPERATING EFFICIENCIES. The Company believes that it will be able to
increase operating efficiency and achieve certain synergies among its
constituent businesses. In particular, with larger operational scale, the
Company believes that it can increase distribution efficiencies by utilizing
shipping and delivery capacity more efficiently. The Company will also seek to
combine certain administrative functions, such as accounting and finance,
insurance, employee benefits, strategic marketing and legal support, at the
corporate level, and to institute a Company-wide management information system.
The Company believes that increased scale and administrative integration will
enable it not only to operate more efficiently, but also to obtain more
favorable discounts and rebates on floral products hardgoods and, to a lesser
extent, realize savings on transportation and handling costs of fresh flowers.
INTRODUCE NEW PRODUCTS AND SERVICES. The Company believes that over time it
will be able to develop and market high-value added products and services, such
as "branded" flowers and bouquets specifically identified with quality and
consistency. By utilizing its contacts with growers and leveraging its
distribution, the Company believes that it can establish specifications for
fresh flowers and control product quality at each step in the distribution
process, thereby building a brand identification that will command a premium
price. The Company also intends to service retailers by providing pre-packaged
fresh flowers and arrangements during periods of peak demand, as well as to
market floral products through corporate account relationships and other means.
COMPANY PRODUCTS AND SERVICES
Through the Founding Companies, the Company provides a full range of
interrelated floral products and services, including importing, brokerage,
wholesaling and bouquet manufacturing.
IMPORTING. Through CFX and Flower Trading, the Company imports fresh flowers
such as roses, carnations, mums and alstromeria from abroad, principally from
Colombia and Ecuador. Flowers arrive daily at a U.S. port of entry in Miami,
Florida. CFX and Flower Trading assist in clearing each shipment through United
States customs and then transfer the flowers to their own facilities. Here the
flowers are pre-cooled and rehydrated, while CFX and Flower Trading act as
intermediaries to link their available stocks of flowers with interested
wholesalers. To a limited extent, Alpine Gem also imports flowers grown in the
Pacific Rim.
BROKERAGE. Through Alpine Gem, the Company serves as a broker for domestic
flowers, linking flowers grown primarily in California with wholesalers
throughout the United States. Alpine Gem obtains information about maturing
fresh flowers in California fields from a network of nearly 100 growers. At the
same time, Alpine Gem gauges wholesaler demand for domestic flowers through
contacts with wholesale distributors across the country. When matches are made,
Alpine Gem obtains the flowers from the growers, breaks them down and repackages
them to suit customer requirements and arranges delivery from the grower or from
Alpine Gem to the wholesaler or bouquet company by refrigerated trucks operated
by third-party shippers. To a lesser extent, CFX and Flower Trading also serve
as brokers, arranging for drop shipments of flowers directly to wholesalers and
bouquet companies.
WHOLESALING. Wholesalers sell imported and domestic perishable floral products
and floral-related hardgoods directly to thousands of retail florists as well as
to mass market retailers. The Company operates in Illinois, Virginia and Arizona
through Houff; in Massachusetts, Connecticut, New York, New Hampshire and Rhode
Island, through Bay State; in Arkansas, Alabama, Mississippi, Oklahoma,
Tennessee and Texas through United Wholesale; and in Massachusetts, Vermont, New
Hampshire and Maine through American Florist. Houff, Bay State and United
Wholesale each have multiple branches within a region in order to provide
customers with timely and complete service.
53
<PAGE>
BOUQUET MANUFACTURING. Through Monterey Bay and American Florist, the Company
takes fresh flowers obtained from growers or importers and creates pre-packaged
bunches or arrangements for distribution to retail florists and mass market
retailers, and primarily to a large supermarket chain and a large chain discount
retailer.
SALES AND MARKETING
The Founding Companies each employ a dedicated sales force to market floral
products directly to entities at the next level of the distribution chain. Sales
and marketing is done primarily on a one-to-one basis by telephone calls to
established accounts. In addition, the Company's wholesalers typically maintain
limited "showroom" space for walk-in business from trade customers, in which
hardgoods such as vases and ribbons are displayed for sale. Trade customers can
also examine and select fresh flowers from the wholesalers' on-site coolers.
The Company believes that the nationwide scope and significant scale that it
can attain through its acquisition strategy will create opportunities, over
time, to promote high-quality, brand-name products, principally through direct
sales techniques and retail promotions. In addition, the Company intends to seek
corporate account opportunities to market products to selected audiences of
employees and corporate purchasing personnel.
SOURCES OF SUPPLY
Approximately 75% of the fresh flowers sold by the Company are imported from
abroad, principally from Colombia and Ecuador; the remaining 25% are grown in
the United States, principally in California. Although the Company does not
generally enter into contracts with its suppliers, it actively manages
relationships with a large number of growers, importers and brokers to obtain
high-quality flowers in amounts and at times needed. In addition, when
appropriate the Company enters into standing order arrangements with certain
importers, which provide for fixed quantity purchases on a fixed price basis
throughout the year with higher quantities at that price during peak demand
periods, to ensure an adequate supply of flowers during periods of peak demand.
The Company believes that it has good relationships with its suppliers and that
the large number of current and potential suppliers should continue to make
perishable floral products available to the Company as needed.
CUSTOMERS
The Founding Companies have thousands of customers, consisting of other
wholesalers and bouquet companies, traditional florists and mass market
retailers. Certain other participants in the floriculture industry, including
wire services such as Florists' Transworld Delivery Association ("FTD") and
order aggregators such as 1-800-FLOWERS (both of which rely upon traditional
retail florists such as those supplied by the Company to fulfill their orders),
are also indirect customers for the Company's products through the demand that
their orders generate at retail florists. No single customer accounted for more
than 5% of the Company's pro forma combined 1996 revenues. To a limited extent,
the Founding Companies have historically been suppliers to and customers of each
other; the Company expects that these relationships will continue following the
Mergers, and that the Company's strategy of fostering cooperation and teamwork
may yield new opportunities for the Founding Companies and any subsequently
acquired companies to pursue business together.
COMPETITION
The distribution segment of the floriculture industry is highly competitive,
with numerous distributors in each market. The Company competes with other
importers, brokers, wholesalers and bouquet companies based upon price, credit
terms, breadth of product offerings, product quality, customer service and
location. In addition, the Company competes with other buyers and sellers of
floral and floral-related products, such as garden centers and farm stores. To
the extent that the Company is unable to compete successfully against its
existing and future competitors, its business, operating results and financial
condition would be materially adversely affected. While the Company believes
that it competes effectively within its industry, additional competitors with
greater resources than the Company may enter the industry and compete
effectively against the Company. Moreover, the Company may depend in part upon a
trend toward consolidation in the floral products industry in order to execute
effectively its acquisition and vertical integration
54
<PAGE>
strategy. This trend may not continue. If the Company's customers do not
receive the Company's vertical integration strategy favorably, such customers
have numerous alternative sources of supply.
FACILITIES
The Company's corporate offices are located in leased space in Washington,
D.C. at 3500 Whitehaven Parkway, Washington, D.C. 20007. The telephone number of
its principal executive offices is (202) 333-0800. To accommodate its planned
growth, the Company is in the process of seeking a larger headquarters facility
in the Washington area, which it intends to lease.
In addition to its corporate offices, upon consummation of the Mergers the
Company will maintain the following facilities:
<TABLE>
<CAPTION>
Owned or
Founding Company Location Principal Use Leased
- --------------------------- ------------------ ------------------ --------
<S> <C> <C> <C>
Houff Chicago, IL Headquarters and Owned
Distribution
Facility
Chicago, IL Distribution Owned
Facility
Normal, IL Distribution Owned
Facility
Wheeling, IL Distribution Owned
Facility
Phoenix, AZ Distribution Owned
Facility
Norfolk, VA Distribution Owned
Facility
Richmond, VA Distribution Leased
Facility
CFX Miami, FL Headquarters, Leased
Sales Office,
Distribution
Facility
Bay State Waltham, MA Headquarters and Leased
Distribution
Facility
Springfield, MA Distribution Leased
Facility
Cromwell, CT Distribution Leased
Facility
Manchester, NH Distribution Leased
Facility
Clifton Park, NY Distribution Leased
Facility
Providence, RI Distribution Leased
Facility
Flower Trading Miami, FL Headquarters, Leased
Sales Office,
Distribution
Facility
United Wholesale Little Rock, AR Headquarters Leased
Little Rock, AR Distribution Leased
Facility
Fort Smith, AR Distribution Leased
Facility
Mobile, AL Distribution Leased
Facility
Jackson, MS Distribution Owned
Facility
Tupelo, MS Distribution Leased
Facility
Oklahoma City, OK Distribution Owned
Facility
Tulsa, OK Distribution Leased
Facility
Jackson, TN Distribution Owned
Facility
Memphis, TN Distribution Owned
Facility
</TABLE>
55
<PAGE>
<TABLE>
<CAPTION>
Owned or
Founding Company Location Principal Use Leased
- ---------------- -------- ------------- ------
<S> <C> <C> <C>
Amarillo, TX Distribution Leased
Facility
Longview, TX Distribution Leased
Facility
Texarkana, TX Distribution Leased
Facility
Tyler, TX Distribution Leased
Facility
American Florist Woburn, MA Headquarters and Leased
Distribution
Facility
Monterey Bay Watsonville, CA Headquarters and Leased
Bouquet
Manufacturing
Facility
Alpine Gem Thompson Falls, MT Headquarters and Leased
Sales Office
Watsonville, CA Sales Office and Leased
Distribution
Facility
- --------------------------------------------------------------------------------
</TABLE>
The Company believes that all of the facilities of the Founding Companies are
adequate for their respective current and anticipated operations.
EMPLOYEES
On a pro forma combined basis as of June 30, 1997, the Company employed
approximately 945 people, of whom approximately 845 were full-time employees and
approximately 100 were part-time employees. Approximately 475 employees were
engaged in operations, 275 were engaged in sales, and 195 were engaged in a
variety of administrative and managerial functions. The Company believes that
its relations with all of its employees are good.
LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings.
56
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information concerning each of the
executive officers and directors of the Company following the consummation of
this Offering:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- --------------------------------------------------------------------------------
<S> <C> <C>
Robert J. Poirier 45 President and Chief Executive Officer and a
Director
Jonathan J. Ledecky 39 Non-Executive Chairman of the Board
Raymond C. Anderson 32 Chief Financial Officer
Raymond R. Ashmore 53 President of United Wholesale and Person
Named to Become a Director
Jeffrey Brothers 38 President of Monterey Bay and Person Named to
Become a Director
John T. Dickinson 36 President of American Florist and Person
Named to Become a Director
John Q. Graham, Jr. 49 President of Alpine Gem and Person Named to
Become a Director
Dwight Haight 49 President of CFX and Person Named to Become a
Director
Roy O. Houff 56 President of Houff and Person Named to Become
a Director
Gustavo Moreno 43 President of Flower Trading Corporation and
Person Named to be Director
William W. Rudolph 64 President of Bay State and Person Named to
Become a Director
Vincent W. Eades 38 Director
Edward J. Mathias 55 Director
John A. Quelch 45 Director
- --------------------------------------------------------------------------------
</TABLE>
ROBERT J. POIRIER co-founded USA Floral in April 1997 and has since served as
its President and Chief Executive Officer and a Director. Mr. Poirier served as
Vice President of 1-800-FLOWERS from 1993 until March 1997, and was most
recently responsible for that company's florist network operations, consisting
of 2,500 independent retail florists. From 1989 to 1993, Mr. Poirier served as
Group Director of FTD. Mr. Poirier has been employed in the floral products
industry for 22 years, and has extensive experience at all levels of the floral
distribution channel.
JONATHAN J. LEDECKY co-founded USA Floral in April 1997 and has since served
as its Non-Executive Chairman of the Board. Mr. Ledecky founded U.S. Office
Products Company, a publicly-held supplier of a broad range of office products
and business services, in October 1994 and has served since then as its Chairman
of the Board and Chief Executive Officer. Since its inception, U.S. Office
Products Company has acquired and integrated over 185 companies. From 1991 until
September 1994 Mr. Ledecky served as President and Chief Executive Officer of
Legacy Dealer Capital Fund, Inc.
RAYMOND C. ANDERSON has been the Chief Financial Officer of USA Floral since
July 1997. From May 1997 until the consummation of the Offering, Mr. Anderson
served as the President and Chief Operating Officer of Houff. From April 1995
until May 1997, Mr. Anderson served as the Vice President-Finance of Houff.
From 1991 until April 1995, Mr. Anderson was associated with the Tax Division
of Arthur Andersen & Co.
57
<PAGE>
RAYMOND R. ASHMORE will serve as President of United Wholesale after the
United Wholesale Merger and as a Director of USA Floral upon consummation of the
Offering. Mr. Ashmore has served as President of United Wholesale since 1983.
JEFFREY BROTHERS will serve as President of Monterey Bay after the Monterey
Bay Merger and as a Director of USA Floral upon consummation of the Offering.
Mr. Brothers has served as President of Monterey Bay since February 1993. From
1985 until January 1993, Mr. Brothers was President of Brothers Brothers, Inc.,
a wholesale flower distributor.
JOHN T. DICKINSON will serve as President of American Florist after the
American Florist Merger and as a Director of USA Floral upon consummation of the
Offering. Mr. Dickinson has served as President of American Florist since 1994.
Prior to 1994, Mr. Dickinson served in a number of sales and marketing positions
for General Electric Company, most recently as an area sales manager.
JOHN Q. GRAHAM, JR. will serve as President of Alpine Gem after the Alpine
Gem Merger and as a Director of USA Floral upon consummation of the Offering.
Mr. Graham has served as President of Alpine Gem since 1978.
DWIGHT HAIGHT will serve as President of CFX after the CFX Merger and as a
Director of USA Floral upon consummation of the Offering. Mr. Haight has served
as President of CFX, Inc. since 1974.
ROY O. HOUFF will serve as President of Houff after the Houff Merger and as a
Director of USA Floral upon consummation of the Offering. Mr. Houff has served
as Chief Executive Officer of Houff since May 1997, and served as President of
Houff from 1977 until May 1997.
GUSTAVO MORENO will serve as President of Flower Trading after the Flower
Trading Merger and as a Director of the Company upon consummation of the
Offering. Mr. Moreno has served as President of Flower Trading since 1977.
WILLIAM W. RUDOLPH will serve as President of Bay State after the Bay State
Merger and as a Director of USA Floral upon consummation of the Offering. Mr.
Rudolph has served as President of Bay State since 1990.
VINCENT W. EADES has been a Director of USA Floral since July 1997. From
April 1995 to the present, Mr. Eades has served as the Senior Vice President of
Sales and Marketing for Starbucks Coffee Co. Inc. For more than five years prior
to April 1995, Mr. Eades was associated with Hallmark Cards Inc., most recently
as a General Manager.
EDWARD J. MATHIAS has been a Director of USA Floral since July 1997. Mr.
Mathias served as a Director of U.S. Office Products Company since February
1995. Mr. Mathias has served as Managing Director of the Carlyle Group, a
Washington, D.C. based merchant bank since 1993. From 1971 to 1993, Mr.
Mathias was with T. Rowe Price Associates, Inc., an investment management
organization, most recently as a Managing Director.
JOHN A. QUELCH has been a Director of USA Floral since July 1997. Dr. Quelch
has been a Director of U.S. Office Products Company since February 1995. Dr.
Quelch is the Sebastian S. Kresge Professor of Marketing at the Harvard
Business School. Dr. Quelch serves on the board of directors of WPP Group plc, a
marketing services company that includes Ogilvy & Mather, J. Walter Thompson and
Hill & Knowlton.
The Company does not currently intend to increase the size of the Board of
Directors beyond 13 members.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company's Board of Directors has established an Audit Committee and a
Compensation Committee.
The responsibilities of the Audit Committee include recommending to the Board
of Directors the independent public accountants to be selected to conduct the
annual audit of the books and records of the Company, reviewing the
58
<PAGE>
proposed scope of such audit and approving the audit fees to be paid, reviewing
accounting and financial controls of the Company with the independent public
accountants and the Company's financial and accounting staff and reviewing and
approving transactions between the Company and its directors, officers and
affiliates. and are the members of the Audit Committee.
The Compensation Committee provides a general review of the Company's
compensation plans to ensure that they meet corporate objectives. The
responsibilities of the Compensation Committee also include administering the
1997 Long-Term Incentive Plan, including selecting the officers and salaried
employees to whom awards will be granted. Messrs. Ledecky and Mathias are the
members of the Compensation Committee.
DIRECTOR COMPENSATION
Directors who are not currently receiving compensation as officers, employees
or consultants of the Company are entitled to receive an annual retainer fee of
$ , plus $ and reimbursement of expenses for each meeting of the Board of
Directors and each committee meeting that they attend in person. In addition,
non-employee directors receive certain formula grants of non-qualified stock
options under the 1997 Non-Employee Directors' Stock Plan. See "--1997 Non-
Employee Directors' Stock Plan."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee following the consummation of the
Offering are to be Messrs. Ledecky and Mathias.
EXECUTIVE COMPENSATION
USA Floral was incorporated in April 1997. Effective upon consummation of the
Mergers and for the balance of 1997, the Company anticipates that it will,
pursuant to employment agreements, pay compensation based on the following
annual salaries to its Chief Executive Officer and Chief Financial Officer named
below who are to be executive officers of the Company and whom the Company
believes will be its only executive officers in 1997 (together, the "Named
Executive Officers").
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ---------------------
---------------------------- SECURITIES UNDERLYING
NAME POSITION SALARY BONUS OPTIONS
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Robert J. Poirier President and Chief Executive $160,000 --(1) 110,000 (2)
Officer
Raymond C. Anderson Chief Financial Officer $150,000 --(3) 50,000 (4)
- ------------------------------------------------------------------------------
</TABLE>
(1) Mr. Poirier will be entitled to an annual bonus based upon the operating
performance of the Company. The terms and amount of the annual bonus will
be determined by the Board of Directors.
(2) Consists of options to be granted under the 1997 Long-Term Incentive Plan
as of the effective date of the registration statement of which this
Prospectus forms a part, at an exercise price equal to the initial public
offering price per share. Options to purchase 60,000 shares will be
immediately
59
<PAGE>
exercisable, and options to purchase the remaining 50,000 shares will vest
in 25% annual installments over four years commencing on the first
anniversary of the date of grant.
(3) Will consist of a performance bonus, if any, to be awarded based in part
upon the individual's performance and in part upon the operating
performance of the Company, on terms to be determined by the Board of
Directors.
(4) Consists of options to be granted under the 1997 Long-Term Incentive Plan
as of the effective date of the registration statement of which this
Prospectus forms a part, at an exercise price equal to the greater of
$8.00 or 60% of the initial public offering price per share. The options
will vest in 25% annual installments over four years commencing on the
first anniversary of the date of grant.
60
<PAGE>
1997 LONG-TERM INCENTIVE PLAN
The Company's Board of Directors has adopted, and the Company's stockholders
have approved, the Company's 1997 Long-Term Incentive Plan (the "Incentive
Plan"). The maximum number of shares of Common Stock that may be subject to
outstanding awards may not be greater than that number of shares equal to 15% of
the number of shares of Common Stock outstanding from time to time. Awards may
be settled in cash, shares, other awards or other property, as determined by the
Committee. The number of shares reserved or deliverable under the Incentive Plan
and the annual per-participant limit on the number of shares as to or with
reference to which awards may be granted are subject to adjustment in the event
of stock splits, stock dividends and other extraordinary corporate events.
The purpose of the Incentive Plan is to provide executive officers (including
directors who also serve as executive officers), key employees, consultants and
other service providers with additional incentives by enabling such persons to
increase their ownership interests in the Company. Individual awards under the
Incentive Plan may take the form of one or more of: (i) either incentive stock
options ("ISOs") or non-qualified stock options ("NQSOs", and together with
ISOs, "Options"); (ii) stock appreciation rights ("SARs"); (iii) restricted or
deferred stock; (iv) dividend equivalents; (v) bonus shares and awards in lieu
of Company obligations to pay cash compensation; and (vi) other awards the value
of which is based in whole or in part upon the value of the Common Stock. Upon a
change of control of the Company (as defined in the Incentive Plan), certain
conditions and restrictions relating to an award with respect to the
exercisability or settlement of such award will be accelerated.
The Compensation Committee will administer the Incentive Plan and generally
select the individuals who will receive awards and the terms and conditions of
those awards (including exercise prices, vesting and forfeiture conditions,
performance conditions and periods during which awards will remain outstanding).
The Incentive Plan also provides that no participant may be granted in any
calendar year awards settleable by delivery of more than 750,000 shares and
limits payments under cash-settled awards in any calendar year to an amount
equal to the fair market value of that number of shares.
The Company generally will be entitled to a tax deduction equal to the amount
of compensation realized by a participant through awards under the Incentive
Plan, except that (i) no deduction is permitted in connection with ISOs if the
participant holds the shares acquired upon exercise for the required holding
periods, and (ii) deductions for some awards could be limited under the $1
million deductibility cap of Section 162(m) of the Internal Revenue Code. This
limitation, however, should not apply to awards granted under a plan during a
grace period of up to three years following the Offering, and should not apply
to certain options, SARs and performance-based awards granted thereafter if the
Company complies with certain requirements under Section 162(m).
The Incentive Plan will remain in effect until terminated by the Board. The
Incentive Plan may be amended by the Board without the consent of the
stockholders of the Company, except that any amendment, although effective when
made, will be subject to stockholder approval if required by any federal or
state law or regulation or by the rules of any stock exchange or automated
quotation system on which the Common Stock may then be listed or quoted.
1997 NON-EMPLOYEE DIRECTORS' STOCK PLAN
The Company's Board of Directors has adopted, and the Company's stockholders
have approved, the 1997 Non-Employee Directors' Stock Plan (the "Directors'
Plan"), which provides for the automatic grant to each non-employee director of
(i) an option (an "Initial Grant") to purchase 21,000 shares on the later of the
date on which the non-employee director is elected or the effective date of the
registration statement of which this Prospectus forms a part, and (ii) an option
to purchase 6,000 shares on the day after each annual meeting of the Company's
stockholders. A total of 300,000 shares are reserved for issuance under the
Directors' Plan. The number of shares reserved, as well as the number to be
subject to automatically granted options, will be adjusted in the event of stock
splits, stock dividends and other extraordinary corporate events.
Options granted under the Directors' Plan will have an exercise price per
share equal to the fair market value of a share at the date of grant (in the
case of Initial Grants upon the effective date of the registration statement of
which
61
<PAGE>
this Prospectus forms a part, the initial public offering price per share.
Options will expire at the earlier of 10 years from the date of grant or 90 days
after termination of service as a director. Options will vest and become
exercisable ratably, 20% per year, over the five-year period following the date
of grant of the options, subject to acceleration by the Board. In the event of a
change in control of the Company prior to normal vesting, all options not
already exercisable would become fully vested and exercisable under the
Directors' Plan. A non-employee director's death would also cause immediate
vesting of his or her non-vested options. In addition, the Directors' Plan
permits non-employee directors to elect to receive, in lieu of cash directors'
fees, nonforfeitable shares or nonforfeitable credits representing "deferred
shares" settleable at future dates, as elected by the director. The number of
shares or "deferred shares" received will be equal to the number of shares
which, at the date the fees would otherwise be payable, will have an aggregate
fair market value equal to the amount of such fees. Each "deferred share" will
be settled by delivery of a share of Common Stock at such time as may have been
elected by the director prior to the deferral.
OTHER PLANS
The Company's Board of Directors has adopted, and the Company's stockholders
have approved, the 1997 Employee Stock Purchase Plan. This plan will permit
eligible employees of the Company and its subsidiaries (generally all full-time
employees who have completed one year of service) to purchase shares of Common
Stock at a discount. Employees who elect to participate will have amounts
withheld through payroll deduction during purchase periods. At the end of each
purchase period, accumulated payroll deductions will be used to purchase stock
at a price equal to 85% of the market price at the beginning of the period or
the end of the period, whichever is lower. Stock purchased under the plan will
be subject to a six-month holding period. The Company has reserved 1,000,000
shares of Common Stock for issuance under this plan.
NEW PLAN BENEFITS
Upon the effective date of the registration statement of which this
Prospectus forms a part, it is contemplated that the Company will grant Options
to purchase an aggregate of 872,753 shares of Common Stock under the Incentive
Plan at an exercise price equal to the initial public offering price per share.
These Options include: (i) Options to purchase an aggregate of 150,000 shares
that will be granted to executive officers of the Founding Companies, who will
become directors of the Company after consummation of the Mergers; (ii) Options
to purchase an aggregate of 50,000 shares to be granted to a non-executive
employee; (iii) Options to purchase an aggregate of 362,753 shares to be
granted to employees of the Founding Companies in accordance with the Merger
Agreements, which provide that options to purchase a number of shares of Common
Stock equal to 6.25% of the cash and Common Stock portion of the Merger
consideration, based on the initial public offering price, shall be made
available to such employees; (iv) Options to purchase an aggregate of 110,000
shares to be granted to the Chief Executive Officer of the Company; and (v)
Options to purchase an aggregate of 200,000 shares that will be granted to the
Company's Non-Executive Chairman. In addition, pursuant to employment agreements
the Company will grant Options under the Incentive Plan to certain employees,
including Mr. Anderson, to purchase an aggregate of 100,000 shares of Common
Stock at an exercise price equal to the greater of $8.00 or 60% of the initial
public offering price per share. See "--Employment Agreements." The Board of
Directors has also determined to grant Options to purchase 25,000 shares to a
non-executive employee at such price. Of the Options granted under the Incentive
Plan, Options to purchase 160,000 shares will be immediately exercisable. All of
the remaining Options will vest 25% each on the first four anniversaries of the
date of grant. All Options granted under the Incentive Plan expire on the tenth
anniversary of the date of grant. In addition, it is contemplated that Initial
Grants will be made under the Directors' Plan upon the effective date of the
registration statement of which this Prospectus forms a part. The following
table sets forth certain information with respect to all of the option grants
contemplated under the Incentive Plan and the Directors' Plan.
<TABLE>
<CAPTION>
NAME AND POSITION DOLLAR VALUE (1) NUMBER OF UNITS (2)
- ------------------------------------------------- ---------------- -------------------
<S> <C> <C>
Robert J. Poirier
President and Chief Executive Officer Not determinable 110,000
Raymond C. Anderson
Chief Financial Officer Not determinable 50,000
</TABLE>
62
<PAGE>
<TABLE>
<CAPTION>
NAME AND POSITION DOLLAR VALUE (1) NUMBER OF UNITS (2)
- ------------------------------------------------- ---------------- -------------------
<S> <C> <C>
All current executive officers as a group.......... Not determinable 160,000
All current directors who are not
executive officers as a group..................... Not determinable 263,000
All employees, including all current officers
who are not executive officers, as a group........ Not determinable 235,000
- -------------------------------------------------------------------------------------------------
</TABLE>
(1) The dollar values of the awards under the Incentive Plan and the
Directors' Plan are not determinable at this time, since the options are
expected to be granted at an exercise price equal to, or calculated with
reference to, the initial public offering price of the Common Stock.
(2) The number of units represents the number of shares of Common Stock
underlying the options expected to be granted.
EMPLOYMENT AGREEMENTS
Effective as of April 2, 1997, USA Floral entered into an Employment
Agreement with Robert J. Poirier, pursuant to which USA Floral agreed to employ
Mr. Poirier as President and Chief Executive Officer for a term of two years at
an annual base salary of $160,000. In addition, the agreement provides that Mr.
Poirier will be granted: (i) an option on the effective date of the registration
statement of which this Prospectus forms a part to purchase 110,000 shares of
Common Stock at an exercise price equal to the initial public offering price per
share, which shall be fully vested and immediately exercisable as to 60,000
shares, and which shall vest and become exercisable with respect to 12,500
additional shares on each of the first four anniversaries of the date of the
grant; and (ii) an immediately exercisable option on the first anniversary of
the effective date of the registration statement of which this Prospectus forms
a part to purchase an additional 60,000 shares at an exercise price equal to the
then-current fair market value per share. The agreement provides that Mr.
Poirier will be eligible to participate in an incentive bonus program, which is
to be established. If Mr. Poirier is terminated without cause, he is entitled to
receive his base salary, plus benefits, for the two year period following the
termination, and all unvested options become fully vested.
Upon consummation of the Offering, the Company will enter into an
employment agreement with Raymond C. Anderson, who currently serves as President
of Houff and as the Company's Chief Financial Officer and will remain so until
the consummation of the Offering, providing for a base salary of $150,000 for a
term of two years, plus a bonus based upon the performance of the Company. The
agreement also includes a two-year post-employment non-competition provision.
In addition, Mr. Anderson will be granted options to purchase 50,000 shares of
Common Stock with an exercise price equal to the greater of $8.00 per share or
60% of the initial public offering price per share. If Mr. Anderson is
terminated without cause, he is entitled to receive his base salary plus
benefits for the longer of (i) the remainder of the term or (ii) twelve months.
The Merger Agreements provide that the Company, through its wholly-owned
subsidiaries, will enter into employment agreements with certain of the
individuals principally responsible for management of the Founding Companies.
Each such employment agreement provides for a base salary, plus a bonus based in
part upon the performance of the applicable Founding Company and in part upon
the performance of the Company. Each such agreement also includes a two-year
post-employment non-competition provision.
63
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Set forth below is a description of certain transactions and relationships
between USA Floral and certain persons who will become officers, directors and
principal stockholders of the Company following the Mergers and the Offering.
In addition, set forth below is certain information regarding transactions and
relationships prior to the Mergers between certain of the Founding Companies and
their respective officers, directors and principal stockholders.
ORGANIZATION OF USA FLORAL
USA Floral was founded as a holding company to acquire businesses in the
floral products distribution industry. Prior to the Mergers and the Offering,
USA Floral issued 2,400,000 shares of Common Stock for cash to its co-founders
and initial investors, including 1,000,000 shares to Robert J. Poirier and
1,100,000 shares to Jonathan J. Ledecky. Mr. Poirier is the co-founder,
President and Chief Executive Officer of USA Floral and Mr. Ledecky is its co-
founder and Non-Executive Chairman of the Board. For information regarding
certain employment arrangements between the Company and certain directors,
officers and key employees, see "Management--Employment Agreements."
THE MERGERS
Simultaneously with and as a condition to the consummation of the Offering,
USA Floral will acquire in eight separate transactions all of the issued and
outstanding capital stock of each of the Founding Companies for an aggregate
consideration of $ million, which consists of: (i) $42.4 million in cash to
be paid to the stockholders of the Founding Companies (before giving effect to
the repayment upon consummation of the Mergers of approximately $1.6 million of
net related party receivables); (ii) $4.0 million in cash to fund S Corporation
distributions; (iii) the $ million estimated fair value of 1,334,050 shares
of Common Stock to be issued to the stockholders of the Founding Companies; and
(iv) up to $0.5 million in cash and 540,000 shares of Common Stock, pursuant to
earn-out arrangements with two of the Founding Companies. In addition, the
Company will assume a tax liability of one of the Founding Companies of
approximately $0.5 million. Following the consummation of the Mergers, the
aggregate long-term indebtedness of the Company will be approximately $3.5
million, which will comprise long-term debt of the Founding Companies upon the
Merger. The purchase price for each Founding Company was determined based on
negotiations between USA Floral and that Founding Company. The factors
considered by the parties in determining the purchase price included, among
other factors, cash flows, historical operating results, growth rates and
business prospects of the Founding Companies. With the exception of the
consideration to be paid to the stockholders of each of the Founding Companies,
the acquisition of each Founding Company is subject to substantially the same
terms and conditions as those to which the acquisition of each other Founding
Company is subject. The following table contains information concerning the
aggregate cash to be paid, Common Stock to be issued and S Corporation
distributions to be made in connection with the Mergers:
<TABLE>
<CAPTION>
S Corp. Shares of Value of Shares of Total
Founding Company Cash Distributions Common Stock Common Stock Consideration
- ------------------ ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
(dollars in millions)
HOUFF $ 11.0 -- -- -- $
CFX 5.8 $ 4.0 250,000 --
BAY STATE 6.0 -- 495,550 --
FLOWER TRADING 5.9 (1) -- 160,000 --
UNITED WHOLESALE 4.8 -- 268,500 --
AMERICAN FLORIST 4.8 -- -- (2) -- (2) (2)
</TABLE>
64
<PAGE>
<TABLE>
<CAPTION>
S Corp. Shares of Value of Shares of Total
Founding Company Cash Distributions Common Stock Common Stock Consideration
- ------------------ ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
MONTEREY BAY 2.5 -- -- (3) -- (3) (3)
ALPINE GEM 1.6 -- (4) 160,000
----- ------- --------- ------- -------
Total $42.4 (5) $ 4.0 1,334,050 $ $
</TABLE>
- -------------------
(1) Does not include an estimated tax liability of approximately $0.5 million
payable after consummation of the Flower Trading Merger, which is to be
assumed by the Company in connection with the Flower Trading Merger.
(2) The sellers of American Florist have entered into an earn-out arrangement
pursuant to which the sellers may receive additional consideration
consisting of shares of Common Stock with an aggregate value of up to
$2,400,000 (based on the average closing price of the Common Stock for the
ten trading days prior to December 31, 1997). The earn-out is based upon
American Florist's 1997 earnings before interest and taxes.
(3) The sellers of Monterey Bay have entered into an earn-out arrangement
pursuant to which the sellers may receive additional consideration
consisting of up to $0.5 million in cash and shares of Common Stock with an
aggregate value of up to $3,000,000 (based on the average closing price of
the Common Stock for the ten trading days prior to December 31, 1997). The
earn-out is based upon Monterey Bay's 1997 earnings before interest and
taxes.
(4) The amount of the Alpine Gem S Corporation distribution is $48,000.
(5) Does not reflect the repayment to the Company of approximately $1.6 million
of net related party receivables. See "Use of Proceeds."
THE ROY HOUFF COMPANY
USA Floral will acquire all of the outstanding stock of Houff in a reverse
subsidiary merger for $11.0 million in cash. In connection with the Houff
Merger, Roy O. Houff, the Chief Executive Officer and sole stockholder of Houff,
will become a Director of the Company. Mr. Houff will enter a two-year covenant
not to compete with the Company and its subsidiaries and a one-year consulting
agreement with the subsidiary of the Company that operates the Houff business
after the Houff Merger.
Mr. Houff is the sole stockholder of RHI Industries, Inc. ("RHI
Industries"). Houff pays management fees, vehicle lease payments and health
insurance premiums to RHI Industries, which payments totaled $1.0 million in the
year ended December 31, 1996. All payments to RHI Industries will be terminated
upon consummation of the Merger. Houff leases six of its seven facilities from
Mr. Houff. Lease payments totaled $0.5 million for the year ended December 31,
1996. The properties owned by Mr. Houff will be acquired by Houff prior to the
Houff Merger and the lease arrangement will thereupon be terminated. From time
to time, Houff loaned funds to Mr. Houff. As of December 31, 1996 Mr. Houff owed
approximately $0.1 million to Houff. All amounts due from Mr. Houff will be
repaid to Houff upon consummation of the Houff Merger.
CFX, INC.
USA Floral will acquire all of the outstanding stock of CFX in a reverse
subsidiary merger for: (i) $5.8 million in cash; (ii) $4.0 million in cash,
representing the amount of CFX's accumulated adjustments account, which will be
distributed to the stockholders of CFX immediately prior to the consummation of
the CFX Merger (which amount is estimated to be approximately $4.0 million); and
(iii) 250,000 shares of Common Stock. In connection with the CFX Merger, Dwight
Haight, the President of CFX, will become a Director of the Company. Mr. Haight
will receive approximately $2.8 million in cash and 118,750 shares of Common
Stock for his shares of capital stock of CFX. Mr. Haight will enter into a two-
year covenant not to compete with the Company and its affiliates (subject to
certain
65
<PAGE>
exceptions) and a two-year employment agreement with the subsidiary of the
Company that operates the CFX business after the CFX Merger.
Dwight Haight, who will be named a Director of the Company upon
consummation of the Offering, owns 25% of two farms, Miramonte and Mocari,
located in Colombia. CFX purchases roses from these farms on a consignment
basis, which purchases totaled $12.0 million in the year ended December 31,
1996. Mr. Haight owns 50% of La Fleurette, a bouquet manufacturer with which CFX
conducts business. Sales to and purchases from La Fleurette in the year ended
December 31, 1996 totaled $3.9 million and $0.3 million, respectively. CFX
provides management services to La Fleurette, for which services La Fleurette
paid fees totaling $0.6 million in the year ended December 31, 1996. The Company
intends to renegotiate, as necessary, all arrangements with related parties so
that all continuing obligations of CFX thereunder are no greater than those the
Company would agree to with unaffiliated third parties. Mr. Haight owns 50% of
Floraltech, Inc., an entity that manages CFX's Colombian business activities.
CFX paid $0.3 million to Floraltech, Inc. in the year ended December 31, 1996.
The CFX Merger Agreement provides that, upon consummation of the Merger, CFX
will acquire the stock of Floraltech, Inc. for $10.00. Mr. Haight owns 50% of
Flying High Venture, from which entity CFX leases its facility in Miami,
Florida. Lease payments to Flying High Venture in the year ended December 31,
1996 totaled $0.2 million. In connection with Flying High Venture's financing of
the acquisition of the real property, CFX guaranteed an industrial revenue bond
and a term loan to Flying High Venture. CFX's guaranty obligation under the
industrial revenue bond is secured by a pledge of all of the assets of CFX. As
of December 31, 1996, the outstanding principal balance of the industrial
revenue bond and the term loan in the aggregate was $4.9 million. CFX's guaranty
obligation will not terminate upon consummation of the Merger. From time to
time, CFX has advanced funds to Mr. Haight. As of December 31, 1996, the total
amount owed to CFX by Mr. Haight was approximately $0.2 million. All amounts due
to CFX from Mr. Haight will be repaid to CFX upon consummation of the CFX
Merger.
BAY STATE FLORIST SUPPLY, INC.
USA Floral will acquire all of the outstanding stock of Bay State in a
reverse subsidiary merger for $6.0 million in cash and 495,550 shares of Common
Stock. In connection with the Bay State Merger, William W. Rudolph, the
President of Bay State, will become a Director of the Company. Mr. Rudolph will
receive approximately $0.5 million in cash and 43,000 shares of Common Stock for
his shares of capital stock of Bay State. Mr. Rudolph will enter into a two-year
covenant not to compete with the Company and its affiliates (subject to certain
exceptions) and a two-year employment agreement with the subsidiary of the
Company that operates the Bay State business after the Bay State Merger.
Mr. Rudolph owns 8.7% of Cromwell Properties LLC ("Cromwell"), which is the
owner of a building in Cromwell, Connecticut from which Bay State operates a
wholesale distribution facility. Bay State made rental payments to Cromwell in
the amount of $0.1 million for the year ended December 31, 1996. The Company
intends to renegotiate, if necessary, the lease so that its terms are no less
favorable than those the Company could obtain from an unaffiliated third party.
Pursuant to a deferred compensation arrangement entered into between Bay
State and Mr. Rudolph in July 1976 and amended in August 1984 and March 1997,
Mr. Rudolph is to receive deferred compensation of $35,000 per year for the 10
years following the termination of his employment with Bay State.
FLOWER TRADING CORPORATION
USA Floral will acquire all of the outstanding stock of Flower Trading in a
reverse subsidiary merger for $6.4 million in cash and 160,000 shares of Common
Stock. In connection with the Flower Trading Merger, Gustavo Moreno, the
President of Flower Trading, will become a Director of the Company. Mr. Moreno
will receive approximately $0.6 million in cash and 57,400 shares of Common
Stock for his shares of capital stock of Flower Trading. Mr. Moreno will enter
into a two-year covenant not to compete with the Company and its affiliates
(subject to certain exceptions) and a two-year employment agreement with the
subsidiary of the Company that operates the Flower Trading business after the
Merger.
66
<PAGE>
UNITED WHOLESALE FLORISTS, INC. AND UNITED WHOLESALE FLORISTS OF AMERICA, INC.
USA Floral will acquire all of the outstanding stock of United Wholesale in
a reverse subsidiary merger for $4.8 million in cash and 268,500 shares of
Common Stock. In connection with the United Wholesale Merger, R. Raymond
Ashmore, the President of United Wholesale, will become a Director of the
Company. Mr. Ashmore will receive approximately $0.9 million in cash and 91,250
shares of Common Stock for his shares of capital stock of United Wholesale. Mr.
Ashmore will enter into a two-year covenant not to compete with the Company and
its affiliates and a two-year employment agreement with the subsidiary of the
Company that operates the United Wholesale business after the United Wholesale
Merger.
Mr. Ashmore owns 33% of United Properties, an entity from which United
Wholesale leases eight of its facilities. Lease payments made by United
Wholesale to United Properties in the year ended December 31, 1996 totaled $0.3
million. United Wholesale leases its corporate headquarters from a partnership
in which United Properties has a 50% interest. Lease payments to the affiliate
in the year ended December 31, 1996 totaled $0.1 million. The Company will be
granted a five-year option to purchase the property leased from these affiliated
entities.
United Wholesale has made advances to Mr. Ashmore totaling $34,000 in the
year ended December 31, 1996 and to United Properties totaling $1.1 million as
of March 31, 1997. Upon consummation of the United Wholesale Merger, Mr. Ashmore
and United Properties will pay to United Wholesale the balance of these
advances.
AMERICAN FLORIST SUPPLY, INC.
USA Floral will acquire all of the outstanding stock of American Florist in
a reverse subsidiary merger for $4.8 million in cash and the assumption of $0.6
million in indebtedness. In connection with the American Florist Merger, John T.
Dickinson, the President of American Florist, will become a Director of the
Company. Mr. Dickinson is the sole stockholder of American Florist. Mr.
Dickinson will enter into a two-year covenant not to compete with the Company
and its affiliates and a two-year employment agreement with the subsidiary of
the Company that operates the American Florist business after the American
Florist Merger. Mr. Dickinson will receive options to purchase 50,000 shares of
Common Stock at an exercise price per share equal to the initial public offering
price. In addition, Mr. Dickinson may receive a contingent payment of up to $2.4
million, based on American Florist's earnings before interest and taxes for the
year ended December 31, 1997. The contingent payment is payable in Common Stock.
The number of shares to be issued in satisfaction of the contingent payment will
be calculated by reference to the average closing price of the Common Stock for
the ten trading days prior to December 31, 1997. The American Florist Merger
Agreement provides that if the average closing price is less than $10 per share,
then the Company, at its sole option, may satisfy the contingent payment
obligation, if any over 240,000 shares, by issuance of additional shares of
Common Stock, or payment of cash, or a combination of cash and Common Stock.
Mr. Dickinson has an ownership interest in a rose farm in Ecuador ("Meadow
Flowers"). Mr. Dickinson's spouse is the sole stockholder of Farm Direct
Flowers, Inc., which has a 13.5% interest in Meadow Flowers. American Florist
purchases roses, as well as other types of flowers, from Meadow Flowers; for the
year ended December 31, 1996, purchases from Meadow Flowers totaled $0.1
million. Upon consummation of the American Florist Merger, the Company intends
to evaluate the terms of purchases made from Meadow Flowers to ensure that the
terms are no less favorable than those the Company could obtain from an
unaffiliated third party.
MONTEREY BAY BOUQUET, INC. AND BAY AREA BOUQUETS, INC.
USA Floral will acquire all of the outstanding stock of Monterey Bay in a
reverse subsidiary merger for $2.5 million in cash. In connection with the
Monterey Bay Merger, Jeffrey Brothers, the President of Monterey Bay, will
become a Director of the Company. Mr. Brothers will receive $1.0 million in cash
for his shares of capital stock of Monterey Bay. Mr. Brothers will enter into a
two-year covenant not to compete with the Company and its affiliates and a two-
year employment agreement with the subsidiary of the Company that operates the
Monterey Bay business after the Monterey Bay Merger. Mr. Brothers will receive
options to purchase 50,000 shares of Common Stock at an exercise
67
<PAGE>
price per share equal to the initial public offering price. The stockholders of
Monterey Bay, including Mr. Brothers, may receive a contingent payment of up to
$3.5 million, based on Monterey Bay's earnings before interest and taxes for the
year ended December 31, 1997. Of the contingent payment, $0.5 million is payable
in cash and $3.0 million is payable in Common Stock. The number of shares to be
issued in satisfaction of the contingent payment will be calculated by reference
to the average closing price of the Common Stock for the ten trading days prior
to December 31, 1997. The Monterey Bay Merger Agreement provides that if the
average closing price is less than $10 per share, then the Company, at its sole
option may satisfy the contingent payment obligation, if any, over 300,000
shares by issuance of additional shares of Common Stock, or payment of cash, or
a combination of cash and Common Stock.
Jeffrey Brothers has a 40% interest in the entity that owns the property
which Monterey Bay leases. Monterey Bay's lease payments totaled $0.1 million in
the year ended December 31, 1996. Upon consummation of the Merger, the Company
intends to retain the lease, which terminates December 31, 1999 and provides for
monthly rental payments of $12,000.
ALPINE GEM FLOWER SHIPPERS, INC.
USA Floral will acquire all of the outstanding stock of Alpine Gem for (i)
$1.6 million in cash; (ii) S Corporation distributions of approximately $48,000;
and (iii) 160,000 shares of Common Stock. In connection with the Alpine Gem
Merger, John Q. Graham, Jr., will become a Director of the Company. Mr. Graham
will receive $0.8 million in cash and 80,000 shares of Common Stock for his
shares of capital stock of Alpine Gem. Mr. Graham will enter into a two-year
covenant not to compete with the Company and its affiliates and a two-year
employment agreement with the subsidiary of the Company that operates the
business after the Alpine Gem Merger. Mr. Graham will receive options to
purchase 50,000 shares of Common Stock at an exercise price per share equal to
the initial public offering price.
68
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of June 30, 1997, assuming completion of the
Mergers, and as adjusted to reflect the sale of the Common Stock being offered
hereby, by: (i) each person (or group of affiliated persons) known by the
Company to be the beneficial owner of more than five percent of the outstanding
Common Stock; (ii) each Named Executive Officer of the Company; (iii) each
director of the Company and each person named to become a director; and (iv) all
of the Company's directors, persons named to become directors and executive
officers as a group. Each stockholder possesses sole voting and investment power
with respect to the shares listed, unless otherwise noted.
<TABLE>
<CAPTION>
Percentage of Common Stock Owned
--------------------------------
Name and Address of Number of Shares Before the After the
Beneficial Owner of Common Stock Offering Offering
- --------------------------- ---------------- ---------------- --------------
<S> <C> <C> <C>
Jonathan J. Ledecky (1).......... 1,310,000 31.4
c/o U.S.A. Floral Products, Inc.
3500 Whitehaven Parkway
Washington, D.C. 20007
Robert J. Poirier (2)............ 1,060,000 26.3
c/o U.S.A. Floral
Products, Inc.
3500 Whitehaven Parkway
Washington, D.C. 20007
Raymond C. Anderson.............. -- --
Vincent W. Eades................. -- --
Edward J. Mathias (3)............ 100,000 2.5
John A. Quelch................... 25,000 *
R. Raymond Ashmore............... 88,750 2.2
Jeffrey Brothers................. -- --
John T. Dickinson................ -- --
John Q. Graham, Jr............... 80,000 2.0
Dwight Haight.................... 118,750 3.0
Roy O. Houff..................... -- *
Gustavo Moreno................... 22,960 *
William W. Rudolph............... 42,955 1.1
All directors, persons
named to become directors, 3,108,415 73.4
and executive officers, as
a group (4).....................
</TABLE>
- -----------------
* Less than one percent.
(1) Includes 210,000 shares issuable upon the exercise of options to be granted
to Mr. Ledecky on the effective date of the registration statement of which
this Prospectus forms a part, which options will be immediately exercisable.
Mr. Ledecky has indicated his intention to exercise options to purchase
110,000 of such shares, which were granted in order to facilitate the
treatment of the issuance of the shares in the Mergers as a tax-free
exchange under Section 351 of the Internal Revenue Code of 1986, as amended.
69
<PAGE>
(2) Includes 60,000 shares issuable upon the exercise of an option to be granted
to Mr. Poirier on the effective date of the registration statement of which
this Prospectus forms a part, which option will be immediately exercisable.
(3) Includes 50,000 shares owned by Mr. Mathias' daughter. Mr. Mathias
disclaims beneficial ownership of all such shares.
(4) Includes 270,000 shares issuable upon the exercise of immediately
exercisable options. See Notes (1) and (2).
70
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 100,000,000 shares
of Common Stock, par value $.001 per share. The following summary description of
the capital stock of the Company does not purport to be complete and is subject
to the detailed provisions of, and qualified in its entirety by reference to,
the Company's Certificate of Incorporation and Bylaws, copies of which have been
filed as exhibits to the registration statement of which this Prospectus forms a
part, and to the applicable provisions of the General Corporation Law of the
State of Delaware (the "DGCL").
COMMON STOCK
The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. Subject to the
rights of any holders of Preferred Stock, holders of Common Stock are entitled
to receive ratably such dividends as may be declared by the Board of Directors
out of funds legally available. See "Dividend Policy." In the event of a
liquidation, dissolution or winding up of the Company, holders of the Common
Stock are entitled to share ratably in the distribution of all assets remaining
after payment of liabilities, subject to the rights of any holders of preferred
stock of the Company. The holders of Common Stock have no preemptive rights to
subscribe for additional shares of the Company and no right to convert their
Common Stock into any other securities. In addition, there are no redemption or
sinking fund provisions applicable to the Common Stock. All of the outstanding
shares of Common Stock are, and the shares of Common Stock offered hereby will
be, fully paid and nonassessable.
CERTAIN PROVISIONS OF DELAWARE LAW AND THE COMPANY'S CERTIFICATE OF
INCORPORATION
The Company is subject to the provisions of Section 203 of the DGCL.
Section 203 prohibits a publicly-held Delaware corporation from engaging in a
"business combination" with an "interested stockholder" for a period of three
years after the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in a prescribed manner.
A "business combination" includes a merger, asset sale or other transaction
resulting in a financial benefit to the interested stockholder. Subject to
certain exceptions, an "interested stockholder" is a person who, together with
affiliates and associates, owns, or within three years prior to the proposed
business combination has owned 15% or more of the corporation's voting stock.
The Company's Certificate of Incorporation and Bylaws divide the Board of
Directors of the Company into three classes, each class to be as nearly equal in
number of directors as possible. At each annual meeting of stockholders,
directors in each class will be elected for three-year terms to succeed the
directors of that class whose terms are expiring. Pursuant to the Company's
Bylaws, all of the current directors are to stand for re-election at the 1998
Annual Meeting of Stockholders, at which time they will be elected to their
respective classes. Messrs. and will be Class I
directors whose terms will expire in 1999. Messrs. and
will be Class II directors whose terms will expire in 2000. Messrs.
and will be Class III directors whose terms will expire in 2001.
In accordance with the Delaware General Corporation Law, directors serving on
classified boards of directors may only be removed from office for cause. These
provisions could, under certain circumstances, operate to delay, defer or
prevent a change in control of the Company.
The Company's Certificate of Incorporation provides that liability of
directors of the Company is eliminated to the fullest extent permitted under
Section 102(b)(7) of the DGCL. As a result, no director of the Company will be
liable to the Company or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability: (i) for any breach of the
director's duty of loyalty to the Company or its stockholders; (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law; (iii) for any wilful or negligent payment of an unlawful
dividend, stock purchase or redemption; or (iv) for any transaction from which
the director derived an improper personal benefit.
71
<PAGE>
REGISTRATION RIGHTS
Pursuant to the Merger Agreements, the Company granted to the recipients of
Common Stock in the Mergers the right to include all or a portion of the shares
of Common Stock held by them in any registration by the Company under the
Securities Act of shares of Common Stock, other than a registration on Form S-4
or Form S-8 or their then equivalents, and other than a "shelf" registration of
securities for sale by the Company. Such a registration will be at the expense
of the Company, other than underwriting discounts and commissions, which will be
borne by the sellers of the shares. The Company has also granted such
registration rights to Messrs. Poirier and Ledecky on substantially the same
terms.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is .
72
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have shares of
Common Stock outstanding, based upon the number of shares outstanding as of
, 1997. The shares sold in the Offering will be freely
tradeable without restriction or further registration under the Securities Act,
unless acquired by an "affiliate" of the Company, as that term is defined in
Rule 144 promulgated under the Securities Act ("Rule 144"); shares held by
affiliates will be subject to resale limitations of Rule 144 described below.
All of the remaining outstanding shares of
Common Stock will be available for resale at various dates beginning 180 days
after the date of this Prospectus, upon expiration of applicable lock-up
agreements described below and subject to compliance with Rule 144 under the
Securities Act as the holding provisions of Rule 144 are satisfied. Of those
shares, 3,438,000 may be included in certain registration statements that may be
filed by the Company, in accordance with piggyback registration rights granted
pursuant to the Merger Agreements or pursuant to such rights granted to Mr.
Ledecky and Mr. Poirier. Up to 540,000 shares that may be issued to stockholders
of two of the Founding Companies pursuant to earn-out arrangements (to be
calculated with reference to the performance of those Founding Companies) will
also be subject to such piggyback registration rights. Further, upon
consummation of the Offering, 1,170,753 shares of Common Stock will be issuable
upon the exercise of stock options to be granted on the effective date of the
registration statement of which this Prospectus forms a part, of which options
to purchase 270,000 shares are immediately exercisable. Such options include
options to purchase 110,000 shares to be granted to Jonathan J. Ledecky to
facilitate the treatment of the shares to be issued in the Mergers as a tax-free
exchange under the Internal Revenue Code of 1986, as amended. Mr. Ledecky has
indicated his intention to exercise such option on or about the effective date
of the registration statement of which this Prospectus forms a part. The Company
intends to file a registration statement on Form S-8 as soon as practicable
after the consummation of the Offering with respect to the shares of Common
Stock issuable upon exercise of all such options. (other than the option to
purchase 110,000 shares to be granted to Mr. Ledecky).
In general, under Rule 144 as currently in effect, a stockholder who has
beneficially owned for at least one year shares privately acquired directly or
indirectly from the Company or from an affiliate of the Company, and persons who
are affiliates of the Company who have acquired the shares in registered
transactions, will be entitled to sell within any three-month period a number of
shares that does not exceed the greater of: (i) one percent of the outstanding
shares of Common Stock (approximately shares immediately
after completion of the Offering); or (ii) the average weekly trading volume in
the Common Stock during the four calendar weeks preceding such sale. Sales under
Rule 144 are also subject to certain requirements relating to the manner and
notice of sale and the availability of current public information about the
Company.
The Company, each of its directors and officers and certain related persons
have agreed with the Underwriters not to offer, sell or otherwise dispose of any
shares of Common Stock or securities convertible into or exercisable or
exchangeable for such shares for a period of 180 days after the date of this
Prospectus without the prior written consent of Morgan Stanley & Co.
Incorporated. The holders of the shares of Common Stock issued or to be issued
in the Mergers and certain related persons have agreed with the Underwriters not
to offer, sell or otherwise dispose of any shares of Common Stock or securities
convertible into or exercisable or exchangeable for such shares for a period of
180 days after the date of this Prospectus without the prior written consent of
Morgan Stanley & Co. Incorporated.
Prior to this Offering, there has been no market for the Common Stock. No
predictions can be made with respect to the effect, if any, that public sales of
shares of the Common Stock or the availability of shares for sale will have on
the market price of the Common Stock after the completion of the Offering. Sales
of substantial amounts of Common Stock in the public market following the
Offering, or the perception that such sales may occur, could adversely affect
the market price of the Common Stock or the ability of the Company to raise
capital through sales of its equity securities. See "Risk Factors--No Prior
Market for Common Stock; Possible Volatility of Stock Price."
73
<PAGE>
UNDERWRITERS
Under the terms and subject to the conditions contained in an Underwriting
Agreement dated the date of this Prospectus (the "Underwriting Agreement"), the
Underwriters named below, for whom Morgan Stanley & Co. Incorporated, Robertson
Stephens & Company LLC and Smith Barney Inc. are acting as Representatives, have
severally agreed to purchase, and the Company has agreed to sell to them,
severally, the respective number of shares of Common Stock set forth opposite
the names of such Underwriters below:
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES
- --------------------------------- ----------------
<S> <C>
Morgan Stanley & Co. Incorporated
Robertson, Stephens & Company LLC
Smith Barney Inc.
---------------
Total.........................
================
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Common Stock
offered hereby are subject to the approval of certain legal matters by their
counsel and to certain other conditions. The Underwriters are obligated to take
and pay for all of the shares of Common Stock offered hereby (other than those
covered by the Underwriters' over-allotment option described below) if any such
shares are taken. All shares of Common Stock to be purchased by the Underwriters
under the Underwriting Agreement are referred to herein as the "Shares."
The Underwriters initially propose to offer part of the shares of Common
Stock directly to the public at the public offering price set forth on the cover
page hereof and part to certain dealers at a price that represents a concession
not in excess of $ a share under the public offering price. Any Underwriter may
allow, and such dealers may reallow, a concession not in excess of $ a share to
other Underwriters or to certain other dealers. After the initial offering of
the shares of Common Stock, the offering price and other selling terms may from
time to time be varied by the Representatives.
The Company has granted to the Underwriters an option, exercisable for 30
days from the date of this Prospectus, to purchase up to an aggregate of
additional shares of Common Stock at the public offering price set forth on the
cover page hereof, less underwriting discounts and commissions. The Underwriters
may exercise such option solely for the purpose of covering over-allotments, if
any, made in connection with the offering of the shares of Common Stock offered
hereby. To the extent such option is exercised, each Underwriter will become
obligated, subject to certain conditions, to purchase approximately the same
percentage of such additional shares of Common Stock as the number set forth
next to such Underwriter's name in the preceding table bears to the total number
of shares of Common Stock offered by the Underwriters hereby.
Company has applied for listing of the Common Stock on The Nasdaq National
Market under the symbol "ROSY".
At the request of the Company, the Underwriters have reserved up to shares
of Common Stock offered hereby for sale at the initial public offering price to
certain employees of the Company and other persons. The number of shares
available for sale to the general public will be reduced to the extent that such
persons purchase such reserved shares. Any reserved shares not so purchased will
be offered by the Underwriters to the general public on the same basis as the
other shares of Common Stock offered hereby.
Each of the Company and the directors, executive officers and certain other
stockholders of the Company has agreed that, without the prior written consent
of Morgan Stanley & Co. Incorporated on behalf of the Underwriters, it will not,
during the period ending 180 days after the date of this Prospectus, with
certain limited exceptions, (i) offer, pledge, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contact to sell, grant
any option, right or warrant to purchase, lend, or otherwise transfer or dispose
of, directly or indirectly, any shares of Common Stock or any securities
convertible into or exercisable or exchangeable for
74
<PAGE>
Common Stock or (ii) enter into any swap or other arrangement that transfers to
another, in whole or in part, any of the economic consequences of ownership of
the Common Stock, whether any such transaction described in clause (i) or (ii)
above is to be settled by delivery of Common Stock or such other securities, in
cash or otherwise. The restrictions described in this paragraph do not apply to
(x) the sale of the Shares to the Underwriters or (y) the issuance by the
Company of the shares of Common Stock upon the exercise of any option or a
warrant or the conversion of a security outstanding on the date of this
Prospectus of which the Underwriters have been advised in writing provided that
the recipient of such shares agrees to be bound by the transfer restrictions set
forth herein.
The Underwriters have informed the Company that they do not intend sales to
discretionary accounts to exceed five percent of the total number of shares of
Common Stock offered by them.
From time to time, each of the Underwriters and their respective affiliates
may provide investment banking services to the Company.
The Company and the Underwriters have agreed to indemnify each other
against certain liabilities, including liabilities under the Securities Act.
In order to facilitate the offering of the Common Stock, the Underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the Common Stock. Specifically, the Underwriters may over-allot in
connection with the offering, creating a short position in the Common Stock for
their own account. In addition, to cover over-allotments or to stabilize the
price of the Common Stock, the Underwriters may bid for, and purchase, shares of
Common Stock in the open market. Finally, the underwriting syndicate may reclaim
selling concessions allowed to an Underwriter or a dealer for distributing the
Common Stock in the Offering, if the syndicate repurchases previously
distributed Common Stock in transactions to cover syndicate short positions, in
stabilization transactions or otherwise. Any of these activities may stabilize
or maintain the market price of the Common Stock above independent market
levels. The Underwriters are not required to engage in these activities, and may
end any of these activities at any time.
PRICING OF THE OFFERING
Prior to this offering, there has been no public market for the Common
Stock. The initial public offering price will be determined by negotiations
between the Company and the Representatives. Among the factors to be considered
in determining the initial public offering price will be the future prospects of
the Company and its industry in general, sales, earnings and certain other
financial and operating information of the Company in recent periods, and the
price-earnings ratios, price-sales ratios, market prices of securities and
certain financial and operating information of companies engaged in activities
similar to those of the Company. The estimated initial public offering price
range set forth on the cover page of this Preliminary Prospectus is subject to
change as a result of market conditions and other factors.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Morgan, Lewis & Bockius LLP, Pittsburgh, Pennsylvania.
Certain legal matters relating to the shares of Common Stock offered hereby will
be passed upon for the Underwriters by Davis Polk & Wardwell, New York, New
York.
EXPERTS
The financial statements of USA Floral as of June 30, 1997 included in this
Prospectus have been so included in reliance on the report of Price Waterhouse
LLP, independent accountants, given on the authority of said firm as experts in
auditing and accounting.
75
<PAGE>
The financial statements of Houff, Bay State, and Flower Trading, as of
December 31, 1995 and 1996 and for each of the three years in the period ended
December 31, 1996 included in this Prospectus have been so included in reliance
on the report of Price Waterhouse LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
The financial statements of American Florists Monterey Bay and Alpine Gem
as of December 31, 1995 and 1996 and for the years then ended included in this
Prospectus have been so included in reliance on the report of Price Waterhouse
LLP, independent accountants, given on the authority of said firm as experts in
auditing and accounting.
The financial statements of United Wholesale as of June 30, 1995 and 1996
and for the years then ended included in this Prospectus have been so included
in reliance on the report of Price Waterhouse LLP, independent accountants,
given on the authority of said firm as experts in auditing and accounting.
The financial statements of CFX as of December 31, 1996 and for the year
then ended have been so included in reliance on the report of Price Waterhouse
LLP, independent accountants, given on the authority of said firm as experts in
auditing and accounting.
The financial statements of CFX as of December 31, 1994 and 1995 and for
the years then ended included in this Prospectus have been so included in
reliance on the report of Madsen, Sapp, Mena, Rodriguez & Co., P.A. independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (the "Registration
Statement") under the Securities Act and the rules and regulations promulgated
thereunder, covering the Common Stock offered hereby. This Prospectus omits
certain information contained in the Registration Statement, and reference is
made to the Registration Statement, and the exhibits and schedules thereto for
further information with respect to the Company and the Common Stock offered
hereby. Statements contained in this Prospectus as to the contents of any
contract, agreement or other document filed as an exhibit to the Registration
Statement are not necessarily complete, and in each instance, reference is made
to the exhibit for a more complete description of the matter involved, each such
statement being qualified in its entirety by such reference. The Registration
Statement may be inspected and copied at the public reference facilities
maintained by the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the regional offices of the Commission maintained
at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven World
Trade Center, Suite 1300, New York, New York 10048. Copies of such materials may
be obtained from the Public Reference Section of the Commission, Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. In addition, registration statements and certain other filings made with
the Commission through its Electronic Data Gathering, Analysis and Retrieval
("EDGAR") system are publicly available through the Commission's site on the
Internet's World Wide Web, located at http://www.sec.gov. The Registration
Statement, including all exhibits thereto and amendments thereof, has been filed
with the Commission through EDGAR.
76
<PAGE>
USA FLORAL PRODUCTS, INC.
-------------------------
INDEX TO FINANCIAL STATEMENTS
-----------------------------
<TABLE>
<CAPTION>
Page #
------
<S> <C>
USA FLORAL PRODUCTS, INC. UNAUDITED COMBINED PRO FORMA
FINANCIAL STATEMENTS
Introduction to Unaudited Pro Forma Combined Financial Statements F-4
Unaudited Pro Forma Combined Balance Sheet F-5
Unaudited Pro Forma Combined Statement of Operations F-6
Notes to Unaudited Pro Forma Combined Financial Statements F-9
USA FLORAL PRODUCTS, INC.
Report of Independent Accountants F-14
Balance Sheet F-15
Notes to Financial Statements F-16
Founding Companies
THE ROY HOUFF COMPANY
Report of Independent Accountants F-19
Balance Sheet F-20
Statement of Operations F-21
Statement of Stockholder's Equity F-22
Statement of Cash Flows F-23
Notes to Financial Statements F-24
CFX, INC.
Report of Independent Accountants F-30
Independent Auditors' Report F-31
Balance Sheet F-32
Statement of Operations F-33
Statement of Stockholders' Equity F-34
Statement of Cash Flows F-35
Notes to Financial Statements F-37
BAY STATE FLORIST SUPPLY, INC.
Report of Independent Accountants F-44
Balance Sheet F-45
Statement of Operations F-46
Statement of Stockholders' Equity F-47
Statement of Cash Flows F-48
Notes to Financial Statements F-49
FLOWER TRADING CORPORATION
Report of Independent Accountants F-55
Balance Sheet F-56
Statement of Operations F-57
Statement of Stockholders' Equity F-58
</TABLE>
F-1
<PAGE>
<TABLE>
<S> <C>
Statement of Cash Flows F-59
Notes to Financial Statements F-60
</TABLE>
F-2
<PAGE>
<TABLE>
<CAPTION>
Page #
------
<S> <C>
UNITED WHOLESALE FLORISTS, INC.
Report of Independent Accountants F-67
Balance Sheet F-68
Statement of Operations F-69
Statement of Stockholders' Equity F-70
Statement of Cash Flows F-71
Notes to Financial Statements F-72
AMERICAN FLORIST SUPPLY, INC.
Report of Independent Accountants F-80
Balance Sheet F-81
Statement of Operations F-82
Statement of Stockholder's Equity F-83
Statement of Cash Flows F-84
Notes to Financial Statements F-85
MONTEREY BAY BOUQUET
Report of Independent Accountants F-90
Combined Balance Sheet F-91
Combined Statement of Operations F-92
Combined Statement of Stockholders' Equity F-93
Combined Statement of Cash Flows F-94
Notes to Combined Financial Statements F-95
ALPINE GEM FLOWER SHIPPERS, INC.
Report of Independent Accountants F-103
Balance Sheet F-104
Statement of Operations F-105
Statement of Stockholders' Equity F-106
Statement of Cash Flows F-107
Notes to Financial Statements F-108
</TABLE>
F-3
<PAGE>
USA FLORAL PRODUCTS, INC.
------------------------
INTRODUCTION TO UNAUDITED PRO FORMA
-----------------------------------
COMBINED FINANCIAL STATEMENTS
-----------------------------
The following unaudited pro forma combined financial statements give effect
to the acquisitions by USA Floral Products, Inc. ("USA Floral") of the
outstanding capital stock of The Roy Houff Company, CFX, Inc., Flower Trading
Corporation, Bay State Florist Supply, Inc., United Wholesale Florists, Inc.,
American Florist Supply, Inc., Monterey Bay Bouquet and Alpine Gem Flower
Shippers, Inc. (together, the "Founding Companies"). These acquisitions (the
"Mergers") will occur simultaneously with the closing of USA Floral's initial
public offering (the "Offering") and will be accounted for using the purchase
method of accounting. USA Floral is deemed to be the accounting acquiror.
The unaudited pro forma combined balance sheet gives effect to the Mergers
and the Offering as if they had occurred on March 31, 1997. The unaudited
pro forma combined statements of operations give effect to these transactions
as if they had occurred on January 1, 1996.
USA Floral has preliminarily analyzed the savings that it expects to realize
from reductions in salaries and certain benefits to the owners. To the
extent the owners of the Founding Companies have agreed prospectively to
reductions in salary, bonuses, and benefits, these reductions have been
reflected in the pro forma combined statement of operations. With respect to
other potential cost savings, USA Floral has not and cannot quantify these
savings until completion of the combination of the Founding Companies.
Additionally, the pro forma combined statement of operations gives effect to
anticipated compensation of USA Floral's new corporate management and
associated costs of being a public company.
The pro forma adjustments are based on estimates, available information and
certain assumptions and may be revised as additional information becomes
available. The pro forma financial data do not purport to represent what USA
Floral's financial position or results of operations would actually have been
if such transactions in fact had occurred on those dates and are not
necessarily representative of USA Floral's financial position or results of
operations for any future period. Since the Founding Companies were not under
common control or management, historical combined results may not be
comparable to, or indicative of, future performance. The unaudited pro forma
combined financial statements should be read in conjunction with the other
financial statements and notes thereto included elsewhere in this Prospectus.
See "Risk Factors" included elsewhere herein.
F-4
<PAGE>
USA FLORAL PRODUCTS, INC.
------------------------
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
------------------------------------------
MARCH 31, 1997
--------------
(Amounts in thousands)
<TABLE>
<CAPTION>
Roy CFX, Bay Flower United American
ASSETS Houff Inc. State Trading Wholesale Florist
------ ----- ---- ----- ------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents $ 169 $ 1,364 $ 910 $ 2 $ 529 $ 23
Accounts receivable, net 3,989 4,619 3,962 3,631 1,213 1,741
Due from related parties 205 546 136 251
Inventories 1,238 2,184 44 1,806 83
Prepaid expenses and other 168 126 190 37 167 27
-------- -------- -------- -------- --------- --------
Total current assets 5,564 6,314 7,792 3,850 3,715 2,125
Property and equipment, net 1,987 353 1,474 335 1,973 294
Due from related parties 1,061
Due from stockholders 77 602 347
Goodwill, net 227 293
Other assets 372 477 228 115 69
-------- -------- -------- -------- --------- --------
Total assets $ 7,628 $ 7,641 $ 9,743 $ 4,413 $ 7,438 $ 2,781
======== ======== ======== ======== ========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Short-term debt $ 320 $ 22 $ 271 $ 447 $ 1,982 $ 225
Accounts payable and
accrued expenses 4,253 2,995 3,206 1,353 2,406 978
Due to related parties 161 429 51
Income taxes payable 25 140 13
Notes payable to stockholders
-------- -------- -------- -------- --------- --------
Total current liabilities 4,734 3,017 3,477 2,254 4,579 1,216
Long-term debt 420 13 418 365 237 598
Payable to stockholders 550
Other 400 69 25
Deferred income taxes
-------- -------- -------- -------- --------- --------
Total liabilities 5,154 3,030 4,295 2,619 5,435 1,839
Stockholders' equity:
Common stock 250 3 5 160 11 400
Additional paid-in capital 175 57 376 318
Retained earnings 2,049 4,551 5,543 1,316 1,992 542
Less: Treasury stock (476)
-------- -------- -------- -------- --------- --------
Total stockholders' equity 2,474 4,611 5,448 1,794 2,003 942
-------- -------- -------- -------- --------- --------
Total liabilities and
stockholders' equity $ 7,628 $ 7,641 $ 9,743 $ 4,413 $ 7,438 $ 2,781
======== ======== ======== ======== ========= ========
<CAPTION>
Pro Forma Pro Forma
Merger Offering
Monterey Alpine Adjust- Pro Forma Adjust- As
ASSETS Bay Gem ments Combined ments Adjusted
------ --- --- ----- -------- ----- --------
<S> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents $ 234 $ 214 $ (698) $ 2,747 $ $
Accounts receivable, net 1,236 1,320 21,711
Due from related parties (797) 341
Inventories 126 5,481
Prepaid expenses and other 11 22 748
-------- -------- -------- --------- -------- ---------
Total current assets 1,607 1,556 (1,495) 31,028
Property and equipment, net 178 26 3,123 9,743
Due from related parties (1,061)
Due from stockholders (1,026)
Goodwill, net 34 41,280 41,834
Other assets 97 1,358
-------- -------- -------- --------- -------- ---------
Total assets $ 1,916 $ 1,582 $ 40,821 $ 83,963 $ $
======== ======== ======== ========= ======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Short-term debt $ 76 $ 3,343
Accounts payable and
accrued expenses 1,176 $ 676 17,043
Due to related parties 13 100 (325) 429
Income taxes payable 152 500 830
Notes payable to stockholders $ 44,772 44,772
-------- -------- -------- --------- -------- ---------
Total current liabilities 1,417 776 44,947 66,417
Long-term debt 45 1,382 3,478
Payable to stockholders (550)
Other 39 533
Deferred income taxes 150 150
-------- -------- -------- --------- -------- ---------
Total liabilities 1,501 776 45,929 70,578
Stockholders' equity:
Common stock 78 (870) 37
Additional paid-in capital 25 727 11,670 13,348
Retained earnings 312 79 (16,384)
Less: Treasury stock 476
-------- -------- -------- --------- -------- ---------
Total stockholders' equity 415 806 (5,108) 13,385
-------- -------- -------- --------- -------- ---------
Total liabilities and
stockholders' equity $ 1,916 $ 1,582 $ 40,821 $ 83,963 $ $
======== ======== ======== ========= ======== =========
</TABLE>
F-5
<PAGE>
USA FLORAL PRODUCTS, INC.
------------------------
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
----------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1996
------------------------------------
(Amounts in thousands, except share amounts)
<TABLE>
<CAPTION>
Roy CFX, Bay Flower United American
Houff Inc. State Trading Wholesale Florist
----- ---- ----- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Net sales $ 39,090 $ 35,684 $ 30,563 $ 20,313 $ 19,327 $ 11,679
Cost of sales 25,537 28,190 20,722 15,914 12,751 8,268
--------- ---------- --------- --------- --------- ---------
Gross profit 13,553 7,494 9,841 4,399 6,576 3,411
Selling, general and administrative 12,789 8,956 8,976 4,141 6,056 2,723
Goodwill amortization
--------- ---------- --------- --------- --------- ---------
Income from operations 764 (1,462) 865 258 520 688
Other income (expense):
Interest income 39 115 35 5 119 11
Interest expense (110) (33) (32) (226) (43)
Other, net 95 100 247 (121) (10) 64
--------- ---------- --------- --------- --------- ---------
Income before income taxes 788 (1,247) 1,114 110 403 720
Provision for income taxes 13 81 48 126 37
--------- ---------- --------- --------- --------- ---------
Net income $ 775 $ (1,247) $ 1,033 $ 62 $ 277 $ 683
========= ========== ========= ========= ========= =========
Net income per share
Shares used in computing pro forma net
income per share(1)
<CAPTION>
Pro Forma Pro
Monterey Alpine Adjust- Forma
Bay Gem ments Combined
--------- ------- -------- --------
<S> <C> <C> <C> <C>
Net sales $ 9,477 $ 9,334 $ - $ 175,467
Cost of sales 8,285 7,132 (579) 126,220
-------- -------- --------- ---------
Gross profit 1,192 2,202 579 49,247
Selling, general and
administrative 1,113 1,868 (3,529) 43,093
Goodwill amortization 1,032 1,032
-------- -------- --------- ---------
Income from operations 79 334 3,076 5,122
Other income (expense):
Interest income 41 365
Interest expense (15) (162) (621)
Other, net 8 13 396
-------- -------- --------- ---------
Income before income taxes 72 388 2,914 5,262
Provision for income taxes 24 2,189 2,518
-------- -------- --------- ---------
Net income $ 48 $ 388 $ 725 $ 2,744
======== ======== ========= =========
Net income per share $
=========
Shares used in computing pro forma net
income per share (1)
=========
</TABLE>
(1) Includes (i) 2,400,000 shares issued upon formation of USA Floral, (ii)
1,334,050 shares issued to owners of the Founding Companies, (iii) _________
of the __________ shares sold in the Offering necessary to pay the cash
portion of the Merger consideration, to fund the S-Corporation distributions
and to pay expenses of this Offering and (iv) 25,000 shares related to the
dilution attributable to options granted at below the offering price in
accordance with the treasury stock method.
F-6
<PAGE>
USA FLORAL PRODUCTS, INC.
------------------------
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
----------------------------------------------------
FOR THE THREE MONTHS ENDED MARCH 31, 1996
-----------------------------------------
(Amounts in thousands, except share amounts)
<TABLE>
<CAPTION>
Pro
Forma Pro
Roy CFX, Bay Flower United American Monterey Alpine Adjust- Forma
Houff Inc. State Trading Wholesale Florist Bay Gem ments Combined
--------- ----------- ------- -------- ---------- --------- --------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $11,257 $ 11,323 $7,927 $6,390 $5,572 $3,155 $2,263 $2,598 $ - $50,485
Cost of sales 7,688 8,888 5,605 5,173 3,750 2,180 1,982 2,045 (145) 37,166
------- ---------- ------ ------ ------ ------ ------ ------ ------- -------
Gross profit 3,569 2,435 2,322 1,217 1,822 975 281 553 145 13,319
Selling, general and
administrative 3,172 2,878 2,193 1,012 1,501 687 206 369 (1,534) 10,484
Goodwill amortization 258 258
------- ---------- ------ ------ ------ ------ ------ ------ ------- -------
Income from operations 397 (443) 129 205 321 288 75 184 1,421 2,577
Other income (expense):
Interest income 6 22 8 1 23 1 9 70
Interest expense (26) (8) (3) (65) (12) (3) (41) (158)
Other, net 68 88 63 4 3 15 5 (12) 234
------- ---------- ------ ------ ------ ------ ------ ------ ------- ------
Income before income taxes 445 (333) 192 207 282 292 77 181 1,380 2,723
Provision for income taxes 15 89 123 31 32 902 1,192
------- ---------- ------ ------ ------ ------ ------ ------ ------- -------
Net income $ 445 $ (333) $ 177 $ 118 $ 159 $ 261 $ 45 $ 181 $ 478 $ 1,531
======= ========== ====== ====== ====== ====== ====== ====== ======= =======
Net income per share
------
Shares used in computing
pro forma net income
per share (1)
==========
</TABLE>
(1) Includes (i) 2,400,000 shares issued upon formation of USA Floral, (ii)
1,334,050 shares issued to owners of the Founding Companies, (iii) _________
of the _________ shares sold in the Offering necessary to pay the cash
portion of the Merger consideration, to fund the S-Corporation distributions
and to pay expenses of this Offering and (iv) 25,000 shares related to the
dilution attributable to options granted at below the offering price in
accordance with the treasury stock method.
F-7
<PAGE>
USA FLORAL PRODUCTS, INC.
------------------------
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
----------------------------------------------------
FOR THE THREE MONTHS ENDED MARCH 31, 1997
-----------------------------------------
(Amounts in thousands, except share amounts)
<TABLE>
<CAPTION>
Pro
Forma
Pro
Roy CFX, Flower Bay United American Monterey Alpine Adjust- Forma
Houff Inc. Trading State Wholesale Florist Bay Gem ments Combined
--------- ----------- -------- ------- ---------- --------- --------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $10,598 $ 12,679 $7,432 $8,380 $5,833 $3,559 $3,641 $2,674 $ - $ 54,796
Cost of sales 7,043 9,975 5,907 5,833 3,899 2,442 3,047 2,084 (150) 40,080
------- ---------- ------ ------ ------ ------ ------ ------ ------ -------
Gross profit 3,555 2,704 1,525 2,547 1,934 1,117 594 590 150 14,716
Selling, general and
administrative 2,928 1,849 972 2,287 1,578 784 263 394 (214) 10,841
Goodwill amortization 258 258
------- ---------- ------ ------ ------ ------ ------ ------ ------ -------
Income from operations 627 855 553 260 356 333 331 196 106 3,617
Other income (expense):
Interest income 7 16 9 34 4 8 78
Interest expense (21) (23) (8) (60) (15) (7) (41) (175)
Other, net 55 3 (3) 107 8 10 2 10 192
------- ---------- ------ ------ ------ ------ ------ ------ ------ -------
Income before income taxes 668 874 527 368 338 332 326 214 65 3,712
Provision for income taxes 203 29 176 18 140 1,022 1,588
------- ---------- ------ ------ ------ ------ ------ ------ ------ -------
Net income $ 668 $ 874 $ 324 $ 339 $ 162 $ 314 $ 186 $ 214 $ (957) $ 2,124
======= ========== ====== ====== ====== ====== ====== ====== ====== =======
Net income per share $
=======
Shares used in computing
pro forma net income
per share(1)
==========
</TABLE>
(1) Includes (i) 2,400,000 shares issued upon formation of USA Floral, (ii)
1,334,050 shares issued to owners of the Founding Companies, (iii) ________
of the ________ shares sold in the Offering necessary to pay the cash
portion of the Merger consideration, to fund the S-Corporation distributions
and to pay expenses of this Offering and (iv) 25,000 shares related to the
dilution attributable to options granted at below the offering price in
accordance with the treasury stock method.
F-8
<PAGE>
USA FLORAL PRODUCTS, INC. AND FOUNDING COMPANIES
------------------------------------------------
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
----------------------------------------------------------
(In thousands, except share amounts)
NOTE 1 - GENERAL
- ----------------
USA Floral Products, Inc. ("USA Floral") was founded in April 1997 to create a
national consolidator and operator of floral products distribution businesses.
USA Floral has conducted no operations to date and will acquire the Founding
Companies concurrently with and as a condition to the closing of this Offering.
The historical financial statements reflect the financial position and results
of operations of the Founding Companies and were derived from the respective
Founding Companies' financial statements where indicated. The periods included
in these financial statements for all of the individual Founding Companies are
as of and for the year ended December 31, 1996 and for the three months ended
March 31, 1996 and 1997. The audited historical financial statements included
elsewhere herein have been included in accordance with Securities and Exchange
Commission Staff Accounting Bulletin No. 80.
NOTE 2 - ACQUISITION OF FOUNDING COMPANIES
- ------------------------------------------
Concurrently with and as a condition to with the closing of this Offering, USA
Floral will acquire all of the outstanding capital stock of the Founding
Companies. The acquisitions will be accounted for using the purchase method of
accounting with USA Floral being treated as the accounting acquiror.
The following table sets forth the consideration to be paid (a) in cash and (b)
in shares of Common Stock to the common stockholders of each of the Founding
Companies. For purposes of computing the estimated purchase price for accounting
purposes, the value of shares is based upon the assumed initial public offering
price of __________. The estimated purchase price for the acquisitions is based
upon preliminary estimates and is subject to certain purchase price adjustments
at and following closing. The table does not reflect the S-Corporation
distributions totaling $5,100 constituting substantially all of the Founding
Companies' undistributed earnings previously taxed to their stockholders and tax
payments on current earnings of such Founding Companies ("S-Corporation
Distributions") or $5.9 million of contingent consideration related to earn out
arrangements included in the definitive agreements for American Florist and
Monterey Bay.
<TABLE>
<CAPTION>
Shares of
Common
Cash Stock
------- ---------
<S> <C> <C>
Roy Houff $11,000 -
CFX, Inc. 5,790 250,000
Bay State 6,000 495,550
Flower Trading 5,900 160,000
United Wholesale Florists, Inc. 4,773 268,500
American Florist Supply, Inc. 4,800 -
Monterey Bay 2,500 -
Alpine Gem 1,600 160,000
------- ---------
Total $42,363 1,334,050
======= =========
</TABLE>
F-9
<PAGE>
NOTE 3 - UNAUDITED PRO FORMA COMBINED BALANCE SHEET ADJUSTMENTS
- ---------------------------------------------------------------
(a) Records the liability for the cash portion of the consideration to be paid
to the stockholders of the Founding Companies in connection with the
Mergers.
(b) Reflects issuance of 2,400,000 shares of common stock of USA Floral to the
founders of and initial investors in USA Floral upon formation of the
Company in April 1997 and thereafter.
(c) Establishment of liability for S-Corporation distributions to be paid in
connection with the Merger of $4,000 and to reflect normal S-Corporation
distributions which occurred subsequent to March 31, 1997 of $1,100.
(d) Records the distribution of certain real estate totaling $850 prior to the
Merger.
(e) Records the deferred income tax liability attributable to the temporary
differences between the financial reporting and tax basis of assets and
liabilities held in S-Corporations.
(f) Records the purchase of the Founding Companies by USA Floral, including
consideration of $42,363 in cash and 1,334,050 shares of common stock valued
at $_____ per share (or $13,340) for a total estimated purchase price of
$56,203. The purchase price has been allocated to reflect the estimated fair
market value of real estate acquired from the stockholder of Houff of $3,973
including $1,800 of debt assumed in connection with the acquisition of the
real estate, and the establishment of a $500 tax liability resulting from
the sale of the UltraFlora subsidiary of Flower Trading prior to the Merger.
The excess of the purchase price over the fair value of assets acquired is
$41,280.
(g) Represents the settlement of certain related party and shareholder
receivables and payables as required by the Merger agreements. The net cash
to be received by the Company from the settlement of these amounts of $1,591
has been recorded as a reduction of the amounts payable to the shareholders
at closing.
(h) Records the cash proceeds from the issuance of shares of USA Floral Common
Stock net of estimated offering costs (based on an assumed initial public
offering of $__ per share). Offering costs primarily consist of
underwriting discounts and commissions, accounting fees, legal fees and
printing expenses.
(i) Records the use of Offering proceeds to i) pay the cash portion of the
consideration due to the stockholders of the Founding Companies in
connection with the Mergers ($42,363) and ii) fund the S-Corporation
distributions to stockholders of certain of the Founding Companies.
F-10
<PAGE>
The following table summarizes unaudited pro forma combined balance sheet
adjustments:
<TABLE>
<CAPTION>
Merger
Adjustments Pro Forma
----------------------------------------------------------------------- Adjust-
ASSETS (a) (b) (c) (d) (e) (f) (g) ments
------ --- --- --- --- --- --- --- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents $ $ 402 (1,100) $ (698)
Due from related parties $ (797) (797)
-------- -------- -------- ------- ------- -------- ------- --------
Total current assets 402 (1,100) (797) (1,495)
Property and equipment $ (850) $ 3,973 3,123
Due from related parties (1,061) (1,061)
Due from stockholders (1,026) (1,026)
Goodwill, net $ 150 41,130 41,280
-------- -------- -------- ------- ------- -------- ------- --------
Total assets $ $ 402 $(1,100) $ (850) $ 150 $ 45,103 $(2,884) $ 40,821
======== ======== ======== ======= ======= ======== ======= ========
LIABILITIES AND
---------------
STOCKHODLERS'
-------------
EQUITY
------
Income taxes payable $ 500 $ 500
Due to related parties $ (325) (325)
Payable to stockholders $ 42,363 $ 4,000 (1,591) 44,772
-------- -------- -------- ------- ------- -------- ----- --------
Total current
liabilities 42,363 4,000 500 (1,916) 44,947
Notes Payable to
stockholders (550) (550)
Deferred income taxes $ 150 150
Long-term debt $ 1,800 (418) 1,382
-------- -------- -------- ------- ------- -------- ----- --------
Total liabilities 42,363 4,000 150 2,300 (2,884) 45,929
Stockholders' equity:
Common stock (870) (870)
Additional paid-in capital (42,363) $ 402 53,631 11,670
Retained earnings (5,100) (850) (10,434) (16,384)
Treasury stock 476 476
-------- -------- -------- ------- ------- -------- ----- --------
Total stockholders'
equity (42,363) 402 (5,100) (850) 42,803 (5,108)
-------- -------- -------- ------- ------- -------- ----- --------
Total liabilities and
stockholders' equity $ $ 402 $ (1,100) $ (850) $ 150 $ 45,103 $(2,884) $ 40,821
======== ======== ======== ======= ======= ======== ======= ========
Offering Post-
Adjustments Merger
--------------------- Adjust-
ASSETS (h) (i) ments
------ --- --- --------
<S> <C> <C> <C>
Cash and cash equivalents
-------- ---------- --------
Total current assets
Property and equipment
Goodwill, net
-------- ---------- --------
Total assets
======== ========== ========
LIABILITIES AND
---------------
STOCKHODLERS'
-------------
EQUITY
------
Payable to stockholders
-------- ---------- --------
Total current
liabilities
Deferred income taxes
Long-term debt
-------- ---------- --------
Total liabilities
Stockholders' equity:
Common stock
Additional paid-in capital
Retained earnings
Treasury stock
-------- ---------- --------
Total stockholders'
equity
-------- ---------- --------
Total liabilities and
stockholders' equity
======== ========== ========
</TABLE>
F-11
<PAGE>
NOTE 4 - UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS ADJUSTMENTS
- --------------------------------------------------------------------------
(a) Reflects the reduction in salaries, bonuses and benefits to the owners of
the Founding Companies to which they have agreed prospectively. The year
ended December 31, 1996 and the three months ended March 31, 1996 reflect
$2,629 and $1,310 in excess bonus compensation to certain stockholders of
CFX.
(b) Reflects the amortization of goodwill to be recorded as a result of these
Mergers over 40-year estimated life.
(c) Reflects the interest expense at a rate of 9% on $1,800 of debt assumed on
certain real estate purchased from a stockholder of one of the Founding
Companies.
(d) Reflects adjustment for the following (i) elimination of rental lease
expense ($561 for December 31, 1996 and $140 for each of the three month
periods ended March 1996 and 1997) associated with the purchase of $3,800 of
real estate and a related increase in depreciation expense and real estate
taxes associated with this real estate totaling $101 for the year ended
December 31, 1996 and $25 for each of the three month periods ended March
31, 1996 and 1997, and (ii) increase in rental expense as a result of
distribution of $850 real estate prior to the Mergers ($186 for the year
ended December 31, 1996 and $47 for each of the three month periods ended
March 31, 1996 and 1997) and a related decrease in depreciation expense and
real estate taxes of $122 for the year ended December 31, 1996 and $31 for
each of the three month periods ended March 31, 1996 and 1997.
(e) Reflects (i) an increase in expenses associated with USA Floral management
and the costs of being a public entity ($500 for the year ended December 31,
1996 and $125 for the three months ended March 31, 1996 and 1997), and (ii)
compensation expense associated with the issuance of 125,000 stock options
with an exercise price below the initial public offering which vest over
four years ($63 for the year ended December 31, 1996 and $16 for each of the
three month periods ended March 31, 1996 and 1997).
(f) Reflects the reduction in costs of sales attributable to the renegotiation
of a contract for various services performed by an affiliated entity
(through common ownership) of Flower Trading to which the Company and the
affiliated entity have agreed prospectively.
(g) Reflects the incremental provision for federal and state income taxes
assuming all entities were subject to federal and state income tax and
relating to the other statements of operations' adjustments and for income
taxes on S-Corporation income, assuming a corporate income tax rate of 40%
and the non-deductibility of goodwill.
F-12
<PAGE>
The following table summarizes unaudited pro forma combined statements of
operations adjustments:
<TABLE>
<CAPTION>
For the year ended December 31, 1996:
Pro Forma
(a) (b) (c) (d) (e) (f) (g) Adjustments
--- --- --- --- --- --- --- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Costs of sales $(579) $ (579)
Selling, general and
administrative $(3,696) $(396) $ 563 (3,529)
Goodwill amortization $ 1,032 1,032
------- ------- ----- ----- ------ ----- ------- -------
Income from operations 3,696 (1,032) 396 (563) 579 3,076
Other income (expense):
Interest expense $(162) (162)
------- ------- ----- ----- ------ ----- ------- -------
Income before income taxes 3,696 (1,032) (162) 396 (563) 579 2,914
Provision for income taxes $(2,189) (2,189)
------- ------- ----- ----- ------ ----- ------- -------
Net income $ 3,696 $(1,032) $(162) $ 396 $(563) $ 579 $(2,189) $ 725
======= ======= ===== ===== ====== ===== ======= =======
For the three months ended March 31, 1996:
Pro Forma
(a) (b) (c) (d) (e) (f) (g) Adjustments
--- --- --- --- --- --- --- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Costs of sales $(145) $ $ (145)
Selling, general and
administrative $(1,576) $ (99) $ 141 (1,534)
Goodwill amortization $ 258 258
------- ------- ----- ----- ------ ----- ------- -------
Income from operations 1,576 (258) 99 (141) 145 1,421
Other income (expense):
Interest expense $ (41) (41)
------- ------- ----- ----- ------ ----- ------- -------
Income before income taxes 1,576 (258) (41) 99 (141) 145 1,380
Provision for income taxes $ (902) (902)
------- ------- ----- ----- ------ ----- ------- -------
Net income $ 1,576 $ (258) $ (41) $ 99 $(141) $ 145 $ (902) $ 478
======= ======= ===== ===== ====== ===== ======= =======
For the three months ended March 31, 1997:
Pro Forma
(a) (b) (c) (d) (e) (f) (g) Adjustments
--- --- --- --- --- --- --- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Costs of sales $(150) $ (150)
Selling, general and
administrative $ (256) $ (99) $ 141 (214)
Goodwill amortization $ 258 258
------- ------- ----- ----- ------ ----- ------- -------
Income from operations 256 (258) 99 (141) 150 106
Other income (expense):
Interest expense $ (41) (41)
------- ------- ----- ----- ------ ----- ------- -------
Income before income taxes 256 (258) (41) 99 (141) 150 65
Provision for income taxes $(1,022) (1,022)
------- ------- ----- ----- ------ ----- ------- -------
Net income $ 256 $ (258) $ (41) $ 99 $(141) $ 150 $(1,022) $ (957)
======= ======= ===== ===== ====== ===== ======= =======
</TABLE>
F-13
<PAGE>
Report of Independent Accountants
---------------------------------
To the Board of Directors
and Stockholders of
U.S.A. Floral Products, Inc.
In our opinion, the accompanying balance sheet presents fairly, in all
material respects, the financial position of U.S.A. Floral Products, Inc. at
June 30, 1997, in conformity with generally accepted accounting principles.
This financial statement is the responsibility of the Company's management;
our responsibility is to express an opinion on this financial statement based
on our audit. We conducted our audit of this statement in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Minneapolis, Minnesota
July 30, 1997
F-14
<PAGE>
U.S.A. FLORAL PRODUCTS, INC.
---------------------------
BALANCE SHEET
-------------
(In thousands, except share information)
<TABLE>
<CAPTION>
June 30,
1997
----
<S> <C>
ASSETS
------
Cash and cash equivalents $ 317
Deferred offering costs 455
---------
Total assets $ 772
---------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Accrued liabilities $ 400
Stockholders' equity:
Common stock, $.001 par, 100,000,000 shares authorized,
2,400,000 shares issued and outstanding 2
Additional paid-in capital 400
Accumulated deficit (30)
---------
Total stockholders' equity 372
---------
Total liabilities and stockholders' equity $ 772
=========
</TABLE>
The accompanying notes are an
integral part of these financial statements.
F-15
<PAGE>
U.S.A. FLORAL PRODUCTS, INC.
----------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
(In thousands)
NOTE 1 - BUSINESS AND ORGANIZATION
- ----------------------------------
U.S.A. Floral Products, Inc., a Delaware corporation, ("USA Floral" or the
"Company") was founded in April 1997 to create a nationwide distributor of
floral products. USA Floral intends to acquire eight U.S. businesses (the
"Mergers"), upon consummation of an initial public offering (the "Offering") of
its common stock and, subsequent to the Offering, continue to acquire through
merger or purchase, similar companies to expand its national operations.
USA Floral has not conducted any operations, and all activities to date have
related to the Offering and the Mergers. The Company's cash balances were
generated from the initial capitalization of the Company. Accordingly,
statements of operations and cash flows for this period would not provide
meaningful information and have been omitted. Operating expenses subsequent to
inception consist primarily of the salary of the Company's one employee which
has been expensed. As of June 30, 1997 approximately $455 has been incurred in
connection with the Offering and the Company has capitalized these costs as
Deferred Offering costs. These costs include legal and accounting fees which
will be offset against the proceeds of the Offering at closing. USA Floral is
dependent upon the Offering to execute the pending Mergers. There is no
assurance that the pending Mergers discussed will be completed or that USA
Floral will be able to generate future operating revenues.
NOTE 2 - STOCKHOLDERS' EQUITY
- -----------------------------
Common Stock
- ------------
In connection with the organization and initial capitalization of USA Floral,
the Company issued 2,000,000 shares of common stock at $.001 per share. In
April and May, the Company issued 400,000 additional shares for $1.00 per share.
1997 Long-Term Incentive Plan
- -----------------------------
The Company's Board of Directors have adopted and the Company's stockholders
have approved the Company's 1997 Long-Term Incentive Plan (the "Incentive
Plan"). The maximum number of shares of Common Stock that may be subject to
outstanding awards may not be greater than that number of shares equal to
fifteen percent (15%) of the outstanding shares. Awards may be settled in cash,
shares, other awards or other property, as determined by the Committee.
The terms of the option awards will be established by the Compensation Committee
of the Company's Board of Directors. The Company intends to file a registration
statement on Form S-8 under the Securities Act registering the issuance of
shares upon exercise of options granted under this Plan. The Company expects to
grant stock options to purchase approximately 875,000 shares of Common Stock to
key employees of the Company at the initial public offering price upon
consummation of the Offering and options to purchase 125,000 shares of Common
Stock to other key employees at the greater of $8.00 per share or 60% of the
initial public offering price. Compensation expense will be recorded in the
future over the four year vesting period for the options issued at a discount.
F-16
<PAGE>
1997 Non-Employee Directors' Stock Plan
- ---------------------------------------
The Company has adopted and the Company's stockholders have approved the 1997
Non-Employee Directors' Stock Plan (the "Directors' Plan"), which provides for
the automatic grant to each nonemployee director of an option to purchase 21,000
shares on the date elected or on the effective date of the Offering. Thereafter
nonemployee directors will receive an option to purchase 6,000 shares on the day
after each annual meeting of the Company's stockholders. A total of 300,000
shares are reserved for issuance under the Directors' Plan, and options to
purchase 63,000 options are to be issued on the date of the Offering.
Options granted under the Directors' Plan will have an exercise price per share
equal to the fair market value of a share at the date of grant. Options will
expire at the earlier of 10 years from the date of grant or 90 days after
termination of service as a director. Options will vest and become exercisable
ratably, 20% per year, over the five-year period following the date of grant of
the options, subject to acceleration by the Board. In the event of a change in
control of the Company prior to normal vesting, all options not already
exercisable would become fully vested and exercisable.
NOTE 3 - STOCK-BASED COMPENSATION
- ---------------------------------
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock-Based Compensation," allows entities to choose between a new fair value
based method of accounting for employee stock options or similar equity
instruments and the current intrinsic, value-based method of accounting
prescribed by Accounting Principles Board Opinion No. 25 ("APB No. 25").
Entities electing to remain with the accounting in APB Opinion No. 25 must make
pro forma disclosures of net income and earnings per share as if the fair value
method of accounting has been applied. The Company will provide pro forma
disclosure of net income and earnings per share, as applicable, in the notes to
future consolidated financial statements.
NOTE 4 - NEW ACCOUNTING PRONOUNCEMENTS
- --------------------------------------
In February 1997, the Financial Accounting Standards Board issued Statement of
Accounting Standards No. 128. Earnings per Share ("SFAS No. 128"). For the
Company, SFAS No. 128 will be effective for the year ended December 31, 1997.
SFAS No. 128 simplifies the standards required under current accounting rules
for computing earnings per share and replaces the presentation of primary
earnings per share and fully diluted earnings per share with a presentation of
basic earnings per share ("basic EPS") and diluted earnings per share ("diluted
EPS"). Basic EPS excludes dilution and is determined by dividing income
available to common stockholders by the weighted average number of common shares
outstanding during the period. Diluted EPS reflects the potential dilution that
could offer if securities and other contracts to issue common stock were
exercised or converted into common stock. Diluted EPS is computed similarly to
fully diluted earnings per share under current accounting rules. The
implementation of SFAS No. 128 is not expected to have a material effect on the
Company's earnings per share as determined under current accounting rules.
F-17
<PAGE>
NOTE 5 - UNAUDITED SUBSEQUENT EVENTS
- ------------------------------------
Wholly-owned subsidiaries of USA Floral have signed definitive agreements to
acquire by merger eight companies ("Founding Companies") to be effective
contemporaneously with the Offering. The companies to be acquired are The Roy
Houff Company, CFX, Inc., Flower Trading, Inc., Bay State Florist Supply, Inc.,
United Wholesale Florists, Inc., American Florist Supply, Inc., Monterey Bay
Bouquet, Inc. and Bay Area Bouquets, Inc. and Alpine Gem Flower Shippers, Inc.
The aggregate consideration that will be paid by USA Floral to acquire the
Founding Companies is approximately $42,363 million in cash and 1,334,050 shares
of Common Stock.
On August 7, 1997 USA Floral filed a registration statement on Form S-1 for the
initial public offering of its common stock. See "Risk Factors" included
elsewhere within this Prospectus.
F-18
<PAGE>
Report of Independent Accountants
---------------------------------
To the Board of Directors
and Stockholder of
The Roy Houff Company
In our opinion, the accompanying balance sheet and the related statements of
operations, stockholder's equity and of cash flows present fairly, in all
material respects, the financial position of The Roy Houff Company at
December 31, 1995 and 1996 and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Minneapolis, Minnesota
June 25, 1997
F-19
<PAGE>
THE ROY HOUFF COMPANY
---------------------
BALANCE SHEET
-------------
(In thousands, except share amounts)
<TABLE>
<CAPTION>
December 31,
--------------------- March 31,
1995 1996 1997
---- ---- ----
ASSETS (Unaudited)
------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 67 $ 210 $ 169
Accounts receivable, net 4,101 3,604 3,989
Inventory 1,202 1,118 1,238
Prepaid expenses and other current assets 178 211 168
Advances to stockholder 88 77
--------- --------- --------
Total current assets 5,548 5,231 5,641
Property and equipment, net 2,187 2,045 1,987
Advances to stockholder 312
Intangible assets 78
--------- --------- --------
Total assets $ 8,125 $ 7,276 $ 7,628
========= ========= ========
LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------
Current liabilities:
Bank line of credit $ 1,500 $ 400 $ 200
Notes payable - current 120 120
Accounts payable 3,827 3,519 3,737
Accrued expenses 601 657 516
Due to related parties 223 124 161
--------- --------- --------
Total current liabilities 6,151 4,820 4,734
Notes payable, net of current maturities 450 420
Commitments and contingencies
Stockholder's equity:
Common stock, no par value; 10,000 shares
authorized; 50 shares issued and outstanding 425 425 425
Retained earnings 1,549 1,581 2,049
--------- --------- --------
Total stockholder's equity 1,974 2,006 2,474
--------- --------- --------
Total liabilities and stockholder's equity $ 8,125 $ 7,276 $ 7,628
========= ========= ========
</TABLE>
The accompanying notes are an
integral part of these financial statements.
F-20
<PAGE>
THE ROY HOUFF COMPANY
---------------------
STATEMENT OF OPERATIONS
-----------------------
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended
Year Ended December 31, March 31,
----------------------------- ------------------
1994 1995 1996 1996 1997
---- ---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C>
Net sales $39,098 $41,531 $39,090 $11,257 $10,598
Cost of sales 26,683 27,899 25,537 7,688 7,043
------- ------- ------- ------- -------
Gross margin 12,415 13,632 13,553 3,569 3,555
Selling, general and
administrative
expenses 11,617 12,695 12,789 3,172 2,928
------- ------- ------- ------- -------
Operating income 798 937 764 397 627
Other (income) expense:
Interest expense 58 84 110 26 21
Interest income (34) (76) (39) (6) (7)
Other, net (227) (151) (95) (68) (55)
------- ------- ------- ------- -------
Income before provision
for income taxes 1,001 1,080 788 445 668
Provision for income taxes 10 12 13
------- ------- ------- ------- -------
Net income $ 991 $ 1,068 $ 775 $ 445 $ 668
======= ======= ======= ======= =======
Unaudited pro forma
information:
Pro forma net income
before provision for
income taxes $ 1,001 $ 1,080 $ 788 $ 445 $ 668
Provision for income taxes 400 432 315 178 267
------- ------- ------- ------- -------
Pro forma income (see
Note 2) $ 601 $ 648 $ 473 $ 267 $ 401
======= ======= ======= ======= =======
</TABLE>
The accompanying notes are an
integral part of these financial statements.
F-21
<PAGE>
THE ROY HOUFF COMPANY
---------------------
STATEMENT OF STOCKHOLDER'S EQUITY
---------------------------------
(In thousands, except share amounts)
<TABLE>
<CAPTION>
Common Stock Total
------------------ Retained Stockholder's
Shares Amount Earnings Equity
------ ------ -------- ------
<S> <C> <C> <C> <C>
Balance at December 31, 1993 50 $ 425 $ 1,654 $ 2,079
Net income 991 991
Dividends paid (785) (785)
------ ----- ------- -------
Balance at December 31, 1994 50 425 1,860 2,285
Net income 1,068 1,068
Dividends paid (1,379) (1,379)
------ ----- ------- -------
Balance at December 31, 1995 50 425 1,549 1,974
Net income 775 775
Dividends paid (743) (743)
------ ----- ------- -------
Balance at December 31, 1996 50 425 1,581 2,006
Net income (unaudited) 668 668
Dividends paid (unaudited) (200) (200)
------ ----- ------- -------
Balance at March 31, 1997
(unaudited) 50 $ 425 $ 2,049 $ 2,474
====== ===== ======= =======
</TABLE>
The accompanying notes are an
integral part of these financial statements.
F-22
<PAGE>
THE ROY HOUFF COMPANY
---------------------
STATEMENT OF CASH FLOWS
-----------------------
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended
Year Ended December 31, March 31,
--------------------------- ------------------
1994 1995 1996 1996 1997
---- ---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income $ 991 $ 1,068 $ 775 $ 445 $ 668
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization 460 546 687 117 110
Loss on disposal of fixed
assets 3 123 144
Change in operating assets
and liabilities:
Accounts receivable (478) (147) 497 (378) (385)
Inventory (304) (295) 84 (192) (120)
Prepaid expenses and other
current assets (68) (46) (33) 59 43
Accounts payable and
accrued expenses 494 344 (254) 458 79
------ ------- ------- ----- -----
Net cash provided by
operating activities 1,098 1,593 1,900 509 395
Cash flows from investing
activities:
Purchases of property and
equipment (591) (1,043) (640) (96) (52)
Proceeds from disposal of
property and equipment 30
------ ------- ------- ----- -----
Net cash used in
investing activities (591) (1,043) (610) (96) (52)
Cash flows from financing
activities:
Advances to stockholder (787) (365) (13)
Repayments to stockholder 840 237 184 10
Due from/to related parties 77 (226) (4) 4
Borrowings (repayments) under
line of credit agreement, net 1,200 322 (530) (412) (230)
Proceeds from notes payable 56 75 23 5 32
Payments of notes payable (26) (249) (117)
Stockholder dividends (785) (1,379) (743) (200)
------ ------- ------- ----- -----
Net cash used in
financing activities (265) (982) (1,147) (223) (384)
Net increase (decrease) in cash
and cash equivalents 242 (432) 143 190 (41)
Cash and cash equivalents -
beginning of period 257 499 67 67 210
------ ------- ------- ----- -----
Cash and cash equivalents - end
of period $ 499 $ 67 $ 210 $ 257 $ 169
====== ======= ======= ===== =====
Supplemental disclosure of cash
flow information:
Cash paid during the period
for interest $ 57 $ 84 $ 93 $ 27 $ 21
Cash paid during the period
for income taxes $ 10 $ 11 $ 13
</TABLE>
The accompanying notes are an
integral part of these financial statements.
F-23
<PAGE>
THE ROY HOUFF COMPANY
---------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
DECEMBER 31, 1996
-----------------
(In thousands)
NOTE 1 - BUSINESS ORGANIZATION
- ------------------------------
Founded in 1977, The Roy Houff Company (the "Company") is a distributor of
perishable floral products and floral-related hardgoods, operating from seven
locations in Illinois, Virginia and Arizona. The Company purchases floral
products from importers, brokers and shippers and sells them to retail florists
and mass marketers.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------------
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period.
Actual results could differ from those estimates.
Revenue Recognition
- -------------------
Revenue is recognized upon shipment of product.
Cash Equivalents
- ----------------
For purposes of the statement of cash flows, the Company considers all highly
liquid debt instruments purchased with a maturity of three months or less at
date of purchase to be cash equivalents.
Inventory
- ---------
Inventory is stated at the lower of cost or market. Cost is determined on a
first-in, first-out basis (FIFO).
Property and Equipment
- ----------------------
Property and equipment are carried at cost. Depreciation is provided using
straight-line and accelerated methods over the estimated useful lives of the
related assets (five years). Leasehold improvements are amortized over the
shorter of their lease term or estimated useful life.
F-24
<PAGE>
Intangible Assets
- -----------------
Intangible assets consisted of goodwill acquired in the purchase of new branches
and was amortized ratably over a period of five to fifteen years. In 1996, the
remaining goodwill balance was written off in connection with the disposition of
the Atlanta operation as discussed in Note 10.
Fair Value of Financial Instruments
- -----------------------------------
The carrying amount of cash and cash equivalents, accounts receivable/payable,
notes receivable/payable, insurance receivable, accrued expenses and short-term
debt approximates fair value because of the short maturity of these instruments.
The estimated fair value of long-term debt and other long-term liabilities
approximates its carrying value. Additionally, interest rates on outstanding
debt are at rates which approximate market rates for debt with similar terms and
average maturities.
Concentration of Credit Risk
- ----------------------------
Financial instruments that potentially subject the Company to concentrations of
credit risk consist principally of trade accounts receivable. Receivables are
not collateralized and accordingly, the Company performs ongoing credit
evaluations of its customers to reduce the risk of loss.
Income Taxes
- ------------
The Company has elected to be treated as an S-Corporation for federal and state
income taxes and, accordingly, any liabilities for income taxes are the direct
responsibility of the stockholders. The Company is liable only for Illinois
state replacement tax.
There are differences between the financial statement carrying amounts and the
tax bases of existing assets and liabilities. At December 31, 1996, the tax
basis of the Company's net assets exceeds the financial reporting bases by
approximately $535.
The unaudited pro forma income tax information included in the Statement of
Operations is presented in accordance with Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes," as if the Company had been
subject to federal and state income taxes for the entire periods presented.
Unaudited Interim Financial Statements
- --------------------------------------
In the opinion of management, the Company has made all adjustments, consisting
only of normal recurring adjustments, necessary for a fair presentation of the
financial position of the Company as of March 31, 1997 and of the results of
operations and cash flows for the three months ended March 31, 1996 and 1997 as
presented in the accompanying unaudited interim financial statements.
F-25
<PAGE>
NOTE 3 - ALLOWANCE FOR DOUBTFUL ACCOUNTS
- ----------------------------------------
<TABLE>
<CAPTION>
Balance at Charged to Balance
Beginning Costs and at end
of Period Expenses Write-offs of Period
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Year ended December 31, 1994 $ 216 $ 108 $ (91) $ 233
Year ended December 31, 1995 $ 233 $ 163 $ (135) $ 261
Year ended December 31, 1996 $ 261 $ 280 $ (275) $ 266
</TABLE>
NOTE 4 - INVENTORY
- ------------------
Inventory consists of the following finished goods:
<TABLE>
<CAPTION>
1995 1996
------ ------
<S> <C> <C>
Perishables $ 142 $ 147
Hardgoods 1,060 971
------ ------
$1,202 $1,118
====== ======
</TABLE>
NOTE 5 - PROPERTY AND EQUIPMENT
- -------------------------------
Property and equipment consist of the following:
<TABLE>
<CAPTION>
December 31,
------------------
1995 1996
---- ----
<S> <C> <C>
Leasehold improvements $ 1,179 $ 1,420
Computer equipment 852 650
Furniture, fixtures and equipment 2,466 2,436
Vehicles 17 17
------- -------
4,514 4,523
Accumulated depreciation and amortization (2,327) (2,478)
------- -------
$ 2,187 $ 2,045
======= =======
</TABLE>
Depreciation expense for the years ended December 31, 1994, 1995 and 1996 was
$450, $526 and $609, respectively.
F-26
<PAGE>
NOTE 6 - CREDIT FACILITIES
- --------------------------
Line of Credit
- --------------
At December 31, 1995 and 1996, the Company had a $2,000 and $1,450 revolving
line of credit with a bank, respectively. Advances on the credit line are
payable on demand and bear interest at prime (8.50% and 8.25% as of December 31,
1995 and 1996, respectively). The credit line is unsecured. Outstanding
balances on the line were $1,500 and $400 as of December 31, 1995 and 1996,
respectively.
Bank Term Note
- --------------
During 1996, the Company borrowed $600 under a term note that requires payments
of $120 per year through 2000 and $90 in 2001. The note bears interest at the
bank's prime rate (8.25% at December 31, 1996) and is secured by certain
equipment.
Notes Payable to Related Parties
- --------------------------------
Included in amounts shown as Due to Related Parties is an unsecured demand note
which bears interest at the higher of 10% or prime. The balance of this note
was $215 and $120 as of December 31, 1995 and 1996, respectively. This note was
paid in May, 1997.
Principal maturities on notes payable are as follows:
<TABLE>
<CAPTION>
Year Ended
December 31,
1996
----
<S> <C>
1997 $ 240
1998 120
1999 120
2000 120
2001 90
-----
Total $ 690
=====
</TABLE>
NOTE 7 - EMPLOYEE BENEFIT PLAN
- ------------------------------
The Company has established an employee savings plan under the provisions of
section 401(k) of the Internal Revenue Code. Virtually all employees are
eligible to participate in the plan. Employees can contribute up to 15% of
their gross salary to the plan. The Company is liable for matching
contributions of 50% of participants' contributions up to a certain amount per
participant. For the years ended December 31, 1994, 1995 and 1996, Company
contributions to the plan were approximately $17, $22 and $23, respectively.
F-27
<PAGE>
NOTE 8 - RELATED PARTY TRANSACTIONS
- -----------------------------------
Salaries for several officers of the Company are paid through an entity owned by
the Company's stockholder. In turn, the related entity charges the Company a
management fee based on net sales. Management fees paid to the related entity
were approximately $584, $563 and $567 for 1994, 1995 and 1996, respectively.
The Company also leases vehicles from the related entity. Total lease payments
were approximately $322, $208 and $71 for 1994, 1995 and 1996, respectively.
The Company also purchases its health insurance through the related entity.
Premiums paid by the Company were approximately $322, $323 and $293 for 1994,
1995 and 1996, respectively.
The Company leases its corporate and six branch facilities under operating
leases with its sole stockholder. Rent expense under these operating leases for
1994, 1995 and 1996 were approximately $320, $364 and $481, respectively. The
leases expire in years 1997 through 2001.
At December 31, 1995 and 1996, the Company had receivables of $312 and $88,
respectively, of advances to the stockholder of the Company. Interest income
related to this receivable was $15 for the years ended December 31, 1995 and
1996.
NOTE 9 - COMMITMENTS AND CONTINGENCIES
- --------------------------------------
Lease Commitments
- -----------------
The Company leases its warehouse and office facilities and all delivery vehicles
under noncancelable operating leases. Some of the facilities are leased
directly from the Company's stockholder, and certain vehicles are leased from an
entity owned by the Company's stockholder (see Note 8). The aggregate future
minimum rentals (exclusive of real estate taxes and expenses) are as follows:
<TABLE>
<S> <C>
1997 $ 998
1998 826
1999 511
2000 310
2001 106
------
$2,751
======
</TABLE>
Legal Matters
- -------------
The Company is involved in various legal matters in the normal course of
business. In the opinion of the Company's management, these matters are not
anticipated to have a material adverse effect on the financial position or
results of operations or cash flows of the Company.
F-28
<PAGE>
NOTE 10 - CLOSING OF THE ATLANTA BRANCH
- ---------------------------------------
During October 1996, the Company closed its branch in Atlanta, Georgia. To the
extent possible, remaining inventories and certain equipment were transferred to
other branches. The operations of the Atlanta branch, which are reflected in
the accompanying statement of income for 1996, follow:
<TABLE>
<S> <C>
Net sales $ 2,690
Cost of sales (1,997)
-------
Gross margin 693
Selling, general and administrative expenses:
Operating expenses (960)
Write-off of intangibles (78)
Loss on disposition of fixed assets (127)
-------
Net loss $ (472)
=======
</TABLE>
NOTE 11 - UNAUDITED SUBSEQUENT EVENT
- ------------------------------------
The Company and its stockholder have entered into a definitive agreement with
USA Floral Products, Inc. ("USA Floral") pursuant to which the Company will
merge with USA Floral. All outstanding shares of the Company will be exchanged
for cash concurrent with the consummation of the initial public offering of the
common stock of USA Floral.
The management fees, leasing payments and health insurance premiums paid to a
related party as described in Note 8 will be terminated upon consummation of the
merger. Additionally the properties owned by Roy Houff will be acquired by the
Company prior to the merger and the lease arrangement described in Note 8 will
thereupon be terminated. All amounts due from Roy Houff will be repaid to Houff
upon consummation of the Houff merger.
F-29
<PAGE>
Report of Independent Accountants
---------------------------------
To the Board of Directors
and Stockholders of
CFX, Inc.
In our opinion, the accompanying balance sheet and the related statements of
operations, stockholders' equity and of cash flows present fairly, in all
material respects, the financial position of CFX, Inc. at December 31, 1996,
and the results of its operations and its cash flows for the year then ended,
in conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based
on our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above. The financial statements of
CFX, Inc. for the years ended December 31, 1994 and 1995 were audited by
other independent accountants whose report dated March 8, 1996, expressed an
unqualified opinion on those statements.
Price Waterhouse LLP
Minneapolis, Minnesota
June 20, 1997
F-30
<PAGE>
[LETTERHEAD OF MADSEN, SAPP, MENA, RODRIGUEZ & CO., P.A. APPEARS HERE]
Independent Auditors' Report
----------------------------
Board of Directors
CFX, Inc.
Miami, Florida
We have audited the accompanying balance sheets of CFX, Inc., as of December 31,
1995 and 1994, and the related statements of income and retained earnings and
cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of CFX, Inc., as of December 31,
1995 and 1994, and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting principles.
/s/ Madsen, Sapp, Mena, Rodriguez & Co. P.A.
MADSEN, SAPP, MENA, RODRIGUEZ, & CO., P.A.
March 8, 1996
F-31
<PAGE>
CFX, INC.
--------
BALANCE SHEET
-------------
(In thousands, except share amounts)
<TABLE>
<CAPTION>
December 31,
--------------------- March 31,
1995 1996 1997
---- ---- ----
ASSETS (Unaudited)
------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 105 $1,385 $1,364
Marketable trading securities 877
Accounts receivable, net 3,143 3,242 4,619
Due from related parties 96 397 205
Prepaid expenses and other current assets 112 78 52
Advances to growers 61 145 74
------ ------ ------
Total current assets 4,394 5,247 6,314
Property and equipment, net 450 402 353
Other assets:
Due from related parties 1,535
Cash surrender value - life insurance 247 207 207
Deposits 37 13 13
Advances to stockholders 673 428 602
Advances to growers 175 150
Other 6 2 2
------ ------ ------
Total assets $7,342 $6,474 $7,641
====== ====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Line of credit $ 1 $ 1 $ 1
Current maturities of notes payable 16 21
Accounts payable 403 548 1,150
Accrued expenses 733 1,835 1,845
Due to related party growers 925 316
------ ------ ------
Total current liabilities 2,062 2,716 3,017
Notes payable, net of current maturities 21 13
Commitments and contingencies
Stockholders' equity:
Common stock $5.00 par value; 1,000 shares
authorized; 600 shares issued and
outstanding 3 3 3
Additional paid-in capital 57 57 57
Retained earnings 5,220 3,677 4,551
------ ------ ------
Total stockholders' equity 5,280 3,737 4,611
------ ------ ------
Total liabilities and stockholders' equity $7,342 $6,474 $7,641
====== ====== ======
</TABLE>
The accompanying notes are an
integral part of these financial statements.
F-32
<PAGE>
CFX, INC.
--------
STATEMENT OF OPERATIONS
-----------------------
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended
Year Ended December 31, March 31,
----------------------------- ------------------
1994 1995 1996 1996 1997
---- ---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C>
Net sales (includes sales
to related parties of
$2,420, $3,121 and $3,859) $30,590 $32,096 $35,684 $11,323 $12,679
Cost of sales (includes
purchases from related
parties of $9,081, $9,644
and $12,263) 23,839 24,328 28,190 8,888 9,975
------- ------- ------- ------- -------
Gross margin 6,751 7,768 7,494 2,435 2,704
Selling, general and
administrative expenses 6,266 6,773 8,956 2,878 1,849
------- ------- ------- ------- -------
Operating income
(loss) 485 995 (1,462) (443) 855
Other (income) expense:
Interest income (117) (173) (115) (22) (16)
Other, net 247 (370) (100) (88) (3)
------- ------- ------- ------- -------
Net income (loss) $ 355 $ 1,538 $(1,247) $ (333) $ 874
======= ======= ======= ======= =======
Unaudited pro forma
information:
Pro forma net income (loss)
before provision (benefit)
for income taxes $ 355 $ 1,538 $(1,247) $ (333) $ 874
Provision (benefit) for
income taxes 202 615 (499) (133) 350
------- ------- ------- ------- -------
Pro forma income (loss)
(see Note 2) $ 153 $ 923 $ (748) $ (466) $ 524
======= ======= ======= ======= =======
</TABLE>
The accompanying notes are an
integral part of these financial statements.
F-33
<PAGE>
CFX, INC.
--------
STATEMENT OF STOCKHOLDERS' EQUITY
---------------------------------
(In thousands, except share amounts)
<TABLE>
<CAPTION>
Common Stock Additional Total
--------------------- Paid-in Retained Stockholders'
Shares Amount Capital Earnings Equity
------ ------ ------- -------- ------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993 600 $ 3 $ 57 $ 3,367 $ 3,427
Net income 355 355
-------- ------- -------- ------- -------
Balance at December 31, 1994 600 3 57 3,722 3,782
Net income 1,538 1,538
Dividends paid (40) (40)
-------- ------- -------- ------- -------
Balance at December 31, 1995 600 3 57 5,220 5,280
Net loss (1,247) (1,247)
Dividends paid (296) (296)
-------- ------- -------- ------- -------
Balance at December 31, 1996 600 3 57 3,677 3,737
Net income (unaudited) 874 874
-------- ------- -------- ------- -------
Balance at March 31, 1997 (unaudited) 600 $ 3 $ 57 $ 4,551 $ 4,611
======== ======= ======== ======= =======
</TABLE>
The accompanying notes are an
integral part of these financial statements.
F-34
<PAGE>
CFX, INC.
--------
STATEMENT OF CASH FLOWS
-----------------------
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended
Year Ended December 31, March 31,
----------------------------- ------------------
1994 1995 1996 1996 1997
---- ---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 355 $ 1,538 $(1,247) $ 319 $ 874
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 244 265 264 53 60
Unrealized/realized loss (gain) on
marketable trading securities 118 (336) (92) (92)
Gain on disposal of property, plant and
equipment (8) (1) (3)
Purchase of marketable trading securities (765) (14)
Proceeds on sale of marketable trading
securities 603 966 966
Changes in operating assets and liabilities:
Accounts receivable (504) (50) (99) (1,188) (1,378)
Prepaid expenses and other current assets (24) (13) 34 44 26
Long-term receivables 17 12 4 6
Other assets 130 (42) 67 2
Accounts payable and accrued expenses 402 (231) 1,231 1,313 612
Due from/to related parties 28 (383) (518) 324
----- ------- ------- ------- -------
Net cash provided by operating
activities 1 1,341 609 1,744 194
Cash flows from investing activities:
Advances to growers (33) 72 (243) (76) 96
Decrease in certificate of deposit 16 180
Purchases of property and equipment (166) (287) (179) (19) (11)
Proceeds from sale of equipment 8 1 3
Advances to related parties (299) (450) (126)
Repayments from related parties 253 24 1,269 1,412 (123)
Advances to stockholders (255) (258) (1,557) (66) (174)
Repayments from stockholders 1,802
----- ------- ------- ------- -------
Net cash provided by (used in)
investing activities (484) (711) 967 1,254 (212)
Cash flows from financing activities:
Borrowings/payments on bank line of credit 810 (810)
Repayments of long-term debt (77) (81) (3)
Repayments of stockholders notes payable (100)
Repayments of life insurance loan (254)
Stockholder dividends (40) (296)
----- ------- ------- ------- -------
Net cash provided by (used in)
financing activities 479 (1,031) (296) (3)
Net increase (decrease) in cash and cash
equivalents (4) (401) 1,280 2,998 (21)
Cash and cash equivalents - beginning of period 510 506 105 105 1,385
----- ------- ------- ------- -------
Cash and cash equivalents - end of period $ 506 $ 105 $ 1,385 $ 3,103 $ 1,364
===== ======= ======= ======= =======
</TABLE>
(Continued)
F-35
<PAGE>
CFX, INC.
--------
STATEMENT OF CASH FLOWS
-----------------------
(In thousands)
(Continued)
<TABLE>
<CAPTION>
Three Months Ended
Year Ended December 31, March 31,
----------------------- ------------------
1994 1995 1996 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Supplemental disclosure of cash flow
information:
Cash paid during the period for interest $ 46 $ 21 $ 2 $ 8 $ 16
Supplemental disclosure of noncash investing
and financing activities:
Debt incurred for the acquisition of equipment $ 37
Acquired grower advance asset by assuming
directly related liability $ 16
Reclassification from accounts payable to due
to related parties $ 816
Reclassification from advances to growers to
advances to stockholders $ 160
</TABLE>
The accompanying notes are an
integral part of these financial statements.
F-36
<PAGE>
CFX, INC.
--------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
DECEMBER 31, 1996
-----------------
(In thousands)
NOTE 1 - BUSINESS ORGANIZATION
- ------------------------------
Founded in 1974, CFX, Inc. (the "Company") is an importer and distributor of
perishable floral products operating from one location in Florida. The Company
imports flowers from farms located primarily in Columbia and Ecuador, and
distributes them throughout the United States to wholesale distributors and mass
markets.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------------
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period.
Actual results could differ from those estimates. Significant estimates used in
preparing these financial statements include those assumed in computing the
antidumping duty liability.
Revenue Recognition
- -------------------
Revenue is recognized upon shipment of product.
Cash Equivalents
- ----------------
For purposes of the statement of cash flows, the Company considers all highly
liquid debt instruments purchased with a maturity of approximately three months
or less at date of purchase to be cash equivalents.
Advances to Growers
- -------------------
Advances to growers consist of cash advances to unrelated growers for working
capital purposes. The advances are usually to be repaid by sales of flowers by
the Company, on behalf of the growers.
Financial Instruments
- ---------------------
Investments in debt and equity securities are categorized as trading securities.
Unrealized holding gains and losses are included in earnings.
F-37
<PAGE>
Property and Equipment
- ----------------------
Property and equipment are carried at cost. Depreciation is provided using
straight-line and accelerated methods over the estimated useful lives of the
related assets (three to seven years). Leasehold improvements are amortized
over the shorter of the lease term or the estimated useful life.
Fair Value of Financial Instruments
- -----------------------------------
The carrying amount of cash and cash equivalents, accounts receivable/payable,
notes receivable/payable, insurance receivable, accrued expenses and short-term
debt approximates fair value because of the short maturity of these instruments.
The estimated fair value of long-term debt and other long-term liabilities
approximates its carrying value. Additionally, interest rates on outstanding
debt are at rates which approximate market rates for debt with similar terms and
average maturities.
Concentration of Credit Risk
- ----------------------------
Financial instruments that potentially subject the Company to concentrations of
credit risk consist principally of cash and cash equivalents, marketable trading
securities, trade accounts receivable and amounts due from related parties and
related and unrelated growers. The Company extends unsecured credit to
wholesale florists primarily throughout the United States. The Company, from
time to time, advances funds to related parties and related and unrelated
growers on an unsecured basis. Receivables are not collateralized and
accordingly, the Company performs ongoing credit evaluations of its customers to
reduce the risk of loss.
The Company receives a significant portion of their fresh-cut flowers from the
South American country of Columbia.
Income Taxes
- ------------
The Company has elected to be treated as an S-Corporation for federal and state
income taxes and, accordingly, any liability for income taxes are the direct
responsibility of the stockholders.
The unaudited pro forma income tax information included in the Statement of
Operations is presented in accordance with Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes," as if the Company had been
subject to applicable federal and state income taxes for the entire periods
presented.
Unaudited Interim Financial Statements
- --------------------------------------
In the opinion of management, the Company has made all adjustments, consisting
only of normal recurring adjustments, necessary for a fair presentation of the
financial position of the Company at March 31, 1997, and the results of its
operations and its cash flows for the three months ended March 31, 1996 and
1997, as presented in the accompanying unaudited interim financial statements.
F-38
<PAGE>
NOTE 3 - ALLOWANCE FOR DOUBTFUL ACCOUNTS
- ----------------------------------------
<TABLE>
<CAPTION>
Balance at Charged to Balance
Beginning Costs and at end
of Period Expenses Write-offs of Period
---------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Year ended December 31, 1994 $145 $(43) $(12) $90
Year ended December 31, 1995 $ 90 $ 15 $(15) $90
Year ended December 31, 1996 $ 90 $ 32 $(32) $90
</TABLE>
NOTE 4 - PROPERTY AND EQUIPMENT
- -------------------------------
Property and equipment consist of the following:
<TABLE>
<CAPTION>
December 31,
------------------
1995 1996
---- ----
<S> <C> <C>
Leasehold improvements $ 729 $ 729
Equipment 1,446 1,547
Vehicles 417 491
Furniture and fixtures 162 138
------- -------
2,754 2,905
Accumulated depreciation and amortization (2,304) (2,503)
------- -------
$ 450 $ 402
======= =======
</TABLE>
Depreciation expense for the years ended December 31, 1994, 1995 and 1996 was
$244, $265 and $264, respectively.
NOTE 5 - CREDIT FACILITIES
- --------------------------
Bank Lines of Credit
- --------------------
The Company maintains a line of credit and an overline facility which provide
for borrowings of up to $2,000 and $500, respectively, and bear interest at
prime plus 1/2% (9.5% and 8.75% at December 31, 1995 and 1996, respectively).
These facilities expired on May 31, 1997; however, any amount drawn upon the
overline may be converted to a promissory note. The borrowings are
collateralized by all of the Company's personal property and place restrictions
on indebtedness, capital expenditures, the payment of dividends, the sale of
assets, and mergers and acquisitions. In addition, the loan agreement requires
certain ratios and other financial statistics and restrictions. The Company was
in compliance with these restrictions as of December 31, 1996 with the exception
of the covenants relating to tangible net worth, indebtedness and payment of
dividends. Appropriate waivers were obtained for those covenants that were in
default.
F-39
<PAGE>
Note Payable to Bank
- --------------------
The Company's $37 note payable with a bank requires monthly installments of
approximately $2 due through January 1999 plus interest at prime (8.25% at
December 31, 1996). This note is collateralized by automotive equipment, with a
carrying value of approximately $37.
Principal maturities on the note payable over the next five years are as
follows:
<TABLE>
<CAPTION>
Year Ended
December 31,
1996
----
<S> <C>
1997 $ 16
1998 19
1999 2
Thereafter
-------
Total $ 37
=======
</TABLE>
NOTE 6 - PROFIT SHARING PLAN
- ----------------------------
The Company has a contributory profit sharing plan covering substantially all
employees. Participant contributions may not exceed 15% of eligible
compensation. Employer contributions, if any, are determined annually by the
Board of Directors and may not exceed the amount deductible for Federal income
tax purposes. The Company's contributions to this plan were $0, $100 and $100
for the years ended December 31, 1994, 1995 and 1996, respectively.
NOTE 7 - RELATED PARTY TRANSACTIONS
- -----------------------------------
The Company receives flowers from farms partially owned by the Company's
majority stockholders. Total purchases from these related party farms were
$9,081, $9,644 and $11,993 in cost of sales for the years ended December 31,
1994, 1995 and 1996, respectively.
The Company sells flowers to, and purchases flowers from, a bouquet manufacturer
affiliate owned by its majority stockholders. Sales were approximately $2,420,
$3,121 and $3,859 to this affiliate for the years ended December 31, 1994, 1995
and 1996, respectively. Related accounts receivable balances were $224 and $0
at December 31, 1995 and 1996, respectively. The financial statements include
cost of sales of $0, $0 and $270 for the years ended December 31, 1994, 1995 and
1996, respectively.
The Company also provides services to and receives services from the bouquet
manufacturer affiliate. Net management fee income for such services were
approximately $605, $518 and $570 for the years ended December 31, 1994, 1995
and 1996, respectively. At December 31, 1995 and 1996, the outstanding
receivable balance resulting from such transactions was approximately $1,623 and
$388, respectively. In 1995, $96 of the outstanding balance is included in due
from related parties - current and $1,527 is in due from related parties -
noncurrent. The entire 1996 balance is included in due from related parties -
current.
F-40
<PAGE>
The Company uses a related party agent corporation to handle certain business
activities in Colombia. Administrative expenses paid to the agent corporation
were approximately $212 and $308 for the years ended December 31, 1995 and 1996,
respectively. At December 31, 1996, the outstanding balance resulting from such
transactions was approximately $11 and is included in accounts payable. In
addition, a long-term receivable exists from the related party agent of
approximately $8 as of December 31, 1995 and 1996 and is included in due from
related parties - noncurrent at December 31, 1995 and due from related parties -
current at December 31, 1996.
The Company loans cash to the bouquet manufacturer affiliate on a daily basis.
The accompanying financial statements include interest income from related
parties of approximately $62, $112 and $61 for the years ended December 31,
1994, 1995 and 1996, respectively.
Advances to stockholders represent noninterest bearing funds advanced to the
Company's majority stockholders for the purpose of acquiring an interest in a
farm in Central America and initial capitalization of an agent corporation
located in South America. Official terms of the advances have not been
determined.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
- --------------------------------------
Lease Commitments
- -----------------
The Company and its bouquet manufacturer affiliate jointly lease office and
warehouse space from partnership owned by the Company's majority shareholders.
Lease payments in 1996 were divided 33% to the Company and 67% to the affiliate
based on square footage of lease space utilized.
The lease expires December 31, 2006 and requires basic rent of an amount equal
to principal and interest payments on the bond and second mortgage and other
expenses of the partnership.
As of December 31, 1996, CFX's allocable share of the future minimum rent under
the current terms of the above office and warehouse lease are as follows:
<TABLE>
<CAPTION>
Year Ended
December 31,
1996
----
<S> <C>
1997 $ 274
1998 274
1999 274
2000 274
2001 274
Thereafter 1,369
---------
Total $ 2,739
=========
</TABLE>
Rent expense was $228, $203 and $213 for the years ended December 31, 1994, 1995
and 1996, respectively.
F-41
<PAGE>
Guarantees
- ----------
During 1996, an affiliated partnership owned by the Company's majority
stockholders extended the terms of an Industrial Development Bond and entered
into an interest rate swap as a hedge. The bond has an outstanding balance of
approximately $4,000 and $3,760 at December 31, 1995 and 1996, respectively, and
matures in January 2002. The affiliated partnership also entered into a
variable rate second mortgage during 1996. The mortgage has an outstanding
balance of approximately $1,180 at December 31, 1996 and matures in October
2006. The bond and mortgage are collateralized by land and building which are
leased by the Company and its wholesale affiliate. The Company has pledged all
of its assets as collateral and guaranteed the bond and mortgage. The bond
agreement places restrictions on indebtedness and liens, the payment of
dividends, the sale of assets, mergers and acquisitions and other restrictions.
In addition, the bond agreement requires the Company and its wholesale affiliate
to maintain certain combined ratios and other financial statistics.
During 1995, a related party farm obtained a loan to purchase a vehicle which
the Company has guaranteed. The loan matures in August 1998 and had an
outstanding balance at December 31, 1995 and 1996 of approximately $45 and $29,
respectively.
At December 31, 1995 and 1996, the Company had three outstanding
uncollateralized letters of credit totaling approximately $403 and $318,
respectively, which were used for the borrowings of related farms. The letters
of credit reduce the borrowings allowed under the line of credit discussed in
Note 5.
Legal Matters
- -------------
The Company is involved in various legal matters in the normal course of
business. In the opinion of the Company's management, these matters are not
anticipated to have a material adverse effect on the financial position or
results of the Company.
Antidumping Duty
- ----------------
In 1986, the U.S. Department of Commerce ("DOC") imposed an antidumping duty
deposit ("ADD") on the importation of certain flowers, pending the imposition of
a final duty rate based on annual reviews of the flower growers' margins. Since
that time, the DOC has undertaken ten reviews, the last one for the period
ending February 28, 1997. As a result of those reviews, the Company's
importation of flowers from its suppliers has been subject to antidumping
duties. The ADDs from the second and fourth reviews are awaiting final
liquidation from the DOC. Final rate determinations have been published for the
fifth through seventh reviews but judicial appeals are pending. The eighth
review was liquidated at the cash-deposit rate. The ninth review is pending
final rate determination. The tenth review is in process. All other reviews
have been resolved.
Included in accrued expenses is approximately $184 and $1,248 as of December 31,
1995 and 1996, respectively, of estimated antidumping duty imposed by the
Department of Commerce. The duty is based on rates imposed on certain products
from certain growers in Columbia and Ecuador. The antidumping duty is subject
to change upon the Department of Commerce's final review of all open antidumping
periods as well as various legal appeals.
F-42
<PAGE>
NOTE 9 - OTHER INCOME
- ---------------------
Significant components of other income (expense) are as follows:
<TABLE>
<CAPTION>
December 31,
--------------------
1994 1995 1996
------ ----- -----
<S> <C> <C> <C>
Realized and unrealized gain on trading securities $ 279 $ 92
Gain on sale of property and equipment 65
Other $ (97) 26 8
----- ----- -----
$ (97) $ 370 $ 100
===== ===== =====
</TABLE>
NOTE 10 - SIGNIFICANT CUSTOMERS
- -------------------------------
Sales to the Company's bouquet manufacturing affiliate approximated 7%, 10% and
11% of revenues for 1994, 1995 and 1996, respectively.
Additionally, this customer represented 7% and 0% of accounts receivable at
December 31, 1995 and 1996, respectively. This customer is 100% owned by the
two majority stockholders.
NOTE 11 - UNAUDITED SUBSEQUENT EVENT
- ------------------------------------
The Company and its stockholders have entered into a definitive agreement with
USA Floral Products, Inc. ("USA Floral") pursuant to which the Company will
merge with USA Floral. All outstanding shares of the Company will be exchanged
for cash and shares of USA Floral common stock concurrent with the consummation
of the initial public offering of the common stock of USA Floral.
All related party agreements, understandings and arrangements as outlined in
Note 7 will be amended upon consummation of the merger described above so that
all continuing obligations thereunder are no greater than they would be under
agreements with unaffiliated third parties. In addition, all advances to
stockholders balances will be paid to the Company with the consummation of the
initial public offering.
F-43
<PAGE>
Report of Independent Accountants
---------------------------------
To the Board of Directors
and Stockholders of
Bay State Florist Supply, Inc.
In our opinion, the accompanying balance sheet and the related statements of
operations, stockholders' equity and of cash flows present fairly, in all
material respects, the financial position of Bay State Florist Supply, Inc.
at December 31, 1995 and 1996, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Minneapolis, Minnesota
June 27, 1997
F-44
<PAGE>
BAY STATE FLORIST SUPPLY, INC.
------------------------------
BALANCE SHEET
-------------
(In thousands, except share amounts)
<TABLE>
<CAPTION>
December 31,
-------------------- March 31,
1995 1996 1997
---- ---- ----
ASSETS (Unaudited)
------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 795 $ 791 $ 910
Accounts receivable, net 3,090 3,413 3,962
Inventory 1,397 1,701 2,184
Due from related parties 486 559 546
Prepaid expenses and other current assets 199 165 190
------ ------ ------
Total current assets 5,967 6,629 7,792
Property and equipment, net 1,339 1,505 1,474
Cash surrender value - life insurance 338 364 364
Other assets 13 13 113
------ ------ ------
Total assets $7,657 $8,511 $9,743
====== ====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Note payable to bank $ 200 $ 212
Current maturities of long-term debt $ 50 50 59
Accounts payable 1,441 1,701 2,839
Accrued expenses 322 336 367
------ ------ ------
Total current liabilities 1,813 2,287 3,477
Note payable, net of current maturities 412 358 418
Commitments and contingencies
Other long term liabilities 400 400 400
Stockholders' equity:
Common stock $0.01 par value; 500,000
shares authorized; 461,840 shares issued and
outstanding 5 5 5
Additional paid-in capital 376 376 376
Retained earnings 5,127 5,561 5,543
Less: Treasury stock (476) (476) (476)
------ ------ ------
Total stockholders' equity 5,032 5,466 5,448
------ ------ ------
Total liabilities and stockholders'
equity $7,657 $8,511 $9,743
====== ====== ======
</TABLE>
The accompanying notes are an
integral part of these financial statements.
F-45
<PAGE>
BAY STATE FLORIST SUPPLY, INC.
-----------------------------
STATEMENT OF OPERATIONS
-----------------------
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended
Year Ended December 31, March 31,
----------------------------- ------------------
1994 1995 1996 1996 1997
---- ---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C>
Net sales $19,203 $25,592 $30,563 $7,927 $8,380
Cost of sales 12,807 17,068 20,722 5,605 5,833
------- ------- ------- ------ ------
Gross margin 6,396 8,524 9,841 2,322 2,547
Selling, general and
administrative
expenses 5,529 7,579 8,976 2,193 2,287
------- ------- ------- ------ ------
Operating income 867 945 865 129 260
Other (income) expense:
Interest expense 9 16 33 8 8
Interest income (26) (48) (35) (8) (9)
Other, net (199) (229) (247) (63) (107)
------- ------- ------- ------ ------
Income before income taxes 1,083 1,206 1,114 192 368
Provision for income taxes 125 87 81 15 29
------- ------- ------- ------ ------
Net income $ 958 $ 1,119 $ 1,033 $ 177 $ 339
======= ======= ======= ====== ======
Unaudited pro forma
information:
Pro forma net income
before
provision for income
taxes $ 1,083 $ 1,206 $ 1,114 $ 192 $ 368
Provision for income taxes 433 482 446 77 147
------- ------- ------- ------ ------
Pro forma income (see
Note 2) $ 650 $ 724 $ 668 $ 115 $ 221
======= ======= ======= ====== ======
</TABLE>
The accompanying notes are an
integral part of these financial statements.
F-46
<PAGE>
BAY STATE FLORIST SUPPLY, INC.
-----------------------------
STATEMENT OF STOCKHOLDERS' EQUITY
---------------------------------
(In thousands, except share amounts)
<TABLE>
<CAPTION>
Common Stock Additional Total
--------------------- Paid-in Retained Treasury Stockholders'
Shares Amount Capital Earnings Stock Equity
------ ------ ------- -------- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993 461,040 $ 5 $ 372 $ 4,549 $ (422) $ 4,504
Net income 958 958
Dividends paid (769) (769)
Stock issued 800 4 4
-------- ------ -------- -------- ------- ---------
Balance at December 31, 1994 461,840 5 376 4,738 (422) 4,697
Net income 1,119 1,119
Dividends paid (730) (730)
Repurchase of stock (54) (54)
-------- ------ -------- -------- ------- ---------
Balance at December 31, 1995 461,840 5 376 5,127 (476) 5,032
Net income 1,033 1,033
Dividends paid (599) (599)
-------- ------ -------- -------- ------- ---------
Balance at December 31, 1996 461,840 5 376 5,561 (476) 5,466
Net income (unaudited) 339 339
Dividends paid (unaudited) (357) (357)
-------- ------ -------- -------- ------- ---------
Balance at March 31, 1997
(unaudited) 461,840 $ 5 $ 376 $ 5,543 $ (476) $ 5,448
======== ====== ======== ======== ======= =========
</TABLE>
The accompanying notes are an
integral part of these financial statements.
F-47
<PAGE>
BAY STATE FLORIST SUPPLY, INC.
-----------------------------
STATEMENT OF CASH FLOWS
-----------------------
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended
Year Ended December 31, March 31,
--------------------------- ------------------
1994 1995 1996 1996 1997
---- ---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income $ 958 $1,119 $1,033 $ 177 $ 339
Adjustments to reconcile
net income to net
cash provided by
operating activities:
Depreciation 144 149 154 38 37
Change in operating
assets and liabilities:
Accounts receivable (51) (919) (323) (834) (549)
Inventory 87 (116) (304) (743) (483)
Prepaid expenses and
other current assets 18 (54) 34 (24) (25)
Accounts payable and
accrued expenses (12) 681 274 1,168 1,169
Due from/to related
parties (533) 47 (73) 8 13
------ ------ ------ ------ ------
Net cash provided
by (used in)
operating activities 611 907 795 (210) 501
Cash flows from investing
activities:
Purchases of property and
equipment (148) (219) (320) (50) (6)
Cash surrender value of
life insurance (16) (49) (26)
------ ------ ------ ------ ------
Net cash used in
investing activities (164) (268) (346) (50) (6)
Cash flows from financing
activities:
Proceeds from issuance of
long-term debt 550 200 12
Payments of long-term debt (87) (54) (12) (32)
Issuance of common stock 4
Purchase of treasury stock (54)
Stockholder dividends (769) (730) (599) (26) (356)
------ ------ ------ ------ ------
Net cash used in
financing activities (215) (871) (453) (38) (376)
Net increase (decrease) in
cash and cash equivalents 232 (232) (4) (298) 119
Cash and cash equivalents
- beginning of period 795 1,027 795 795 791
------ ------ ------ ------ ------
Cash and cash equivalents
- end of period $1,027 $ 795 $ 791 $ 497 $ 910
====== ====== ====== ====== ======
Supplemental disclosure of
cash flow information:
Cash paid during the
period for interest $ 9 $ 16 $ 33 $ 8 $ 8
Note payable issued for
acquisition $ 100
</TABLE>
The accompanying notes are an
integral part of these financial statements.
F-48
<PAGE>
BAY STATE FLORIST SUPPLY, INC.
-----------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
DECEMBER 31, 1996
-----------------
(In thousands)
NOTE 1 - BUSINESS ORGANIZATION
- ------------------------------
Founded in 1952, Bay State Florist Supply, Inc. (the "Company") is a wholesale
distributor of perishable floral products and floral-related hardgoods,
operating from six locations in Massachusetts, New York, New Hampshire,
Connecticut and Rhode Island. The Company purchases floral products from
domestic growers, importers, brokers and shippers and sells them to retail
florists and mass marketer retailers throughout the United States.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------------
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period.
Actual results could differ from these estimates.
Revenue Recognition
- -------------------
The Company recognizes revenue upon delivery.
Cash Equivalents
- ----------------
For purposes of the statement of cash flows, the Company considers all highly
liquid short-term investments with maturities of less than three months at date
of purchase to be cash equivalents.
Inventory
- ---------
Inventory is valued at the lower of average cost or market, cost being
determined on a first-in first-out (FIFO) basis.
Property and Equipment
- ----------------------
Property and equipment are stated at cost. Replacements and improvements are
capitalized, while repairs and maintenance costs are charged to expense as
incurred. Depreciation is provided using straight-line method for federal
income tax and financial statement reporting purposes over the estimated useful
lives of the related assets (3 to 40 years). Leasehold improvements are
amortized over the shorter of the lease term or the estimated useful life.
F-49
<PAGE>
Fair Value of Financial Instruments
- -----------------------------------
The carrying amount of cash and cash equivalents, accounts receivable/payable,
notes receivable/payable, insurance receivable, accrued expenses and short-term
debt approximates fair value because of the short maturity of these instruments.
The estimated fair value of long-term debt and other long-term liabilities
approximates its carrying value. Additionally, interest rates on outstanding
debt are at rates which approximate market rates for debt with similar terms and
average maturities.
Concentration of Credit Risk
- ----------------------------
Financial instruments that potentially subject the Company to concentrations of
credit risk consist principally of trade accounts receivable. Receivables are
not collateralized and accordingly, the company performs on going credit
evaluations of its customers to reduce the risk of loss. The Company, from time
to time, advances funds to related parties on an unsecured basis.
Accounts Payable
- ----------------
Accounts payable includes certain amounts which represent checks written but not
yet cleared by the bank.
Income Taxes
- ------------
The Company has elected to be treated as an S-Corporation for federal and state
income taxes and, accordingly, any liabilities for income taxes are the direct
responsibility of the stockholders. No provision for federal income tax is
required. The Commonwealth of Massachusetts, which is the Company's principal
place of business, imposes a corporate level state income tax on certain
S-Corporations which has been provided for.
The unaudited pro forma income tax information included in the Statement of
Operations is presented in accordance with Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes," as if the Company had been
subject to federal income taxes for the entire periods presented.
Unaudited Interim Financial Statements
- --------------------------------------
In the opinion of management, the Company has made all adjustments, consisting
only of normal recurring adjustments, necessary for a fair presentation of the
financial position of the Company as of March 31, 1997 and the results of
operations and cash flows for the three months ended March 31, 1996 and 1997 as
presented in the accompanying unaudited interim financial statements.
F-50
<PAGE>
NOTE 3 - ALLOWANCE FOR DOUBTFUL ACCOUNTS
- ----------------------------------------
<TABLE>
<CAPTION>
Balance at Charged to Balance
Beginning Costs and at end
of Period Expenses Write-offs of Period
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Year ended December 31, 1994
allowance for
doubtful accounts $ 0 $ 86 $ (26) $ 60
Year ended December 31, 1995
allowance for
doubtful accounts $ 60 $ 71 $ (71) $ 60
Year ended December 31, 1996
allowance for
doubtful accounts $ 60 $ 57 $ (57) $ 60
</TABLE>
NOTE 4 - INVENTORY
- ------------------
Inventory consists of the following finished goods:
<TABLE>
<CAPTION>
December 31,
------------------ March 31,
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Perishable $ 88 $ 165 $ 268
Non-perishable 1,309 1,536 1,916
------ ------ ------
Total $1,397 $1,701 $2,184
====== ====== ======
</TABLE>
Perishable goods consist of assorted flowers and green plants. Non-perishable
goods consist of assorted silk flowers, vases, baskets and accessories.
NOTE 5 - PROPERTY AND EQUIPMENT
- -------------------------------
Property and equipment consist of the following:
<TABLE>
<CAPTION>
December 31,
-------------------
1995 1996
---- ----
<S> <C> <C>
Land $ 393 $ 393
Buildings 939 939
Building improvements 693 911
Furniture, fixtures and equipment 896 919
Motor vehicles 185 184
------- -------
3,106 3,346
Accumulated depreciation (1,767) (1,841)
------- -------
$ 1,339 $ 1,505
======= =======
</TABLE>
Depreciation expense for the years ended December 31, 1994, 1995 and 1996 was
$144, $149 and $154, respectively.
F-51
<PAGE>
NOTE 6 - COMMITMENTS AND CONTINGENCIES
- --------------------------------------
Lease Commitments
- -----------------
The Company leases office space, vehicles and equipment under operating leases.
Future minimum lease payments under such leases at December 31, 1996 are as
follows:
<TABLE>
<CAPTION>
Year Ended
December 31,
1996
----
<S> <C>
1997 $ 196
1998 196
1999 60
2000 60
-----
Total future minimum payments $ 512
=====
</TABLE>
Rental expense under operating leases during 1994, 1995 and 1996 was $154, $298
and $365, respectively.
Legal Matters
- -------------
The Company is involved in various legal matters in the normal course of
business. In the opinion of the Company's management, these matters are not
anticipated to have a material adverse effect on the financial position or
results of operations or cash flows of the Company.
NOTE 7 - CREDIT FACILITIES
- --------------------------
Short-Term Debt
- ---------------
Short-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
-------------
1995 1996
---- ----
<S> <C> <C>
Revolving line of credit; due May 31, 1998; interest on outstanding
balance at the bank's prime rate per annum; $1,000,000 borrowing
maximum; limited to eligible accounts receivable and inventory,
as defined. $ 0 $ 200
----- -----
$ 0 $ 200
===== =====
</TABLE>
F-52
<PAGE>
Long-Term Debt
- --------------
Long-term debt consists of:
<TABLE>
<CAPTION>
December 31,
------------
1995 1996
---- ----
<S> <C> <C>
Note payable, due March 31, 1998; interest on outstanding
balance at the bank's prime rate plus 0.5% per annum. $ 462 $ 408
Less: Current maturities 50 50
----- -----
$ 412 $ 358
===== =====
</TABLE>
As further discussed in Note 9, Related Party Transactions, this note payable
represents an unsecured note, the proceeds of which were provided to a separate
affiliated entity, Cromwell Properties LLC (the "LLC"), to purchase a building
in Cromwell, Connecticut. The Company has a corresponding receivable classified
as Due from Related Parties in the financial statements.
Principal maturities on notes payable over the next three years are as follows:
<TABLE>
<CAPTION>
Year Ended
December 31,
------------
<S> <C>
1997 $ 50
1998 50
1999 308
----
Total $408
====
</TABLE>
Interest expense incurred for the years ended December 31, 1994, 1995 and 1996
was $9, $16 and $33, respectively.
In March 1997, the Company entered into a Note Payable in conjunction with the
purchase of a facility in Clifton Park, which requires annual principal and
interest payments of $19 for a period of eight years. The outstanding balance
was $100 at 3/31/97.
NOTE 8 - EMPLOYEE BENEFIT PLAN
- ------------------------------
The Company has a 401(k) savings plan covering substantially all employees.
Under the plan, the Company matches 50% of employee contributions up to the
first 6% of an employee's compensation contributed to the plan. The Company's
contributions to the 401(k) savings plan were approximately $33, $41 and $56 for
1994, 1995 and 1996, respectively. Additionally, the Company, at its
discretion, may make additional contributions (considered profit sharing
contributions). The Company's goal is to contribute 4% of net income to the
Plan through the 401(k) match or the discretionary contribution. In 1994, the
Company made a discretionary contribution of approximately $11. No
discretionary contributions were made in 1995 or 1996.
F-53
<PAGE>
NOTE 9 - RELATED PARTY TRANSACTIONS
- -----------------------------------
At December 31, 1995 and 1996, the Company held a note payable to Bank Boston,
the proceeds of which were provided to the affiliate LLC and used to purchase a
building in Cromwell, Connecticut. The Company leases this building from the
LLC on a month-to-month basis. Rental expense to the LLC under this lease was
$24, $108 and $108 for 1994, 1995 and 1996, respectively. Included in Due from
Related Parties is a corresponding receivable from the LLC for amounts provided.
Additionally, the Company is acting as Guarantor for a $75 loan from BayBank,
N.A. to a Director of the Company. The loan arrangement, executed on June 5,
1996, is payable in 60 monthly installments of $1 at the bank's prime rate plus
1.5% per annum. Additionally, the Director has pledged his share in the Company
(approximately 13%) as consideration for this guaranty.
NOTE 10 - OTHER INCOME/OTHER EXPENSE
- ------------------------------------
<TABLE>
<CAPTION>
Other (income) is comprised of the following:
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Finance charges $(100) $(139) $(176)
Real estate rental income, net (33) (35) (23)
Other (income) expense, net (66) (55) (48)
----- ----- -----
Total other (income) $(199) $(229) $(247)
===== ===== =====
</TABLE>
NOTE 11 - STOCK SPLIT
- ---------------------
In March 1997, the Company approved an amendment to the existing stock plan
whereby there would be (i) a 40-for-1 stock split; (ii) an increase in number of
authorized shares from 200,000 to 500,000; and (iii) a decrease in par value
from $10.00 to $0.01.
Accordingly, all share data presented in these financial statements has been
restated to give retroactive effect to the stock split and amendment.
NOTE 12 - DEFERRED COMPENSATION ARRANGEMENTS
- --------------------------------------------
The Company has entered into deferred compensation arrangements with three
officers which call for monthly payments to the officer or a designated
beneficiary for a period of ten years following retirement. The Company has
recorded the present value of these future payments as a long term liability and
has purchased life insurance policies on these individuals to provide a funding
mechanism for these liabilities.
NOTE 13 - UNAUDITED SUBSEQUENT EVENT
- ------------------------------------
The Company and its stockholders have entered into a definitive agreement with
USA Floral Products, Inc. ("USA Floral") pursuant to which the Company will
merge with USA Floral. All outstanding shares of the Company will be exchanged
for cash and shares of USA Floral common stock concurrent with the consummation
of the initial public offering of the common stock of USA Floral.
In conjunction with the merger the amounts Due From Related Parties will be
repaid and the proceeds will be used to pay the outstanding balance of the Note
Payable described in Note 7.
Additionally, the terms of the lease described in Note 9 will be evaluated and
renegotiated, if necessary, to ensure such terms are no less favorable to the
Company than those that Bay State could obtain with unaffiliated third parties.
F-54
<PAGE>
Report of Independent Accountants
---------------------------------
To the Board of Directors
and Stockholders of
Flowtrad Corporation, N.V.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of Flowtrad
Corporation, N.V. (the "Company") at December 31, 1995 and 1996 and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1996, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
Price Waterhouse LLP
Minneapolis, Minnesota
August 1, 1997
F-55
<PAGE>
FLOWER TRADING CORPORATION
--------------------------
CONSOLIDATED BALANCE SHEET
--------------------------
(In thousands, except share amounts)
<TABLE>
<CAPTION>
December 31,
-------------------- March 31,
1995 1996 1997
---- ---- ----
ASSETS (Unaudited)
------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 126 $ 70 $ 2
Accounts receivable, net 2,612 2,747 3,631
Officers, employees and related parties 21 38 136
Other 109 10 14
Inventory 23 52 44
Prepaid expenses and other current assets 36 171 23
--------- --------- ---------
Total current assets 2,927 3,088 3,850
Property and equipment, net 489 330 335
Cash surrender value - life insurance 39 44 44
Deferred income taxes 91 79 79
Other assets 69 110 105
--------- --------- ---------
Total assets $ 3,615 $ 3,651 $ 4,413
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Bank line of credit $ 200 $ 338
Notes payable - current $ 43 112 109
Trade accounts payable 862 669 1,109
Trade accounts payable due to affiliates 483 532 429
Other accounts payable and accrued expenses 86 277 244
Income taxes payable 9 25
--------- --------- ---------
Total current liabilities 1,483 1,790 2,254
Notes payable, net of current maturities 8 391 365
--------- --------- ---------
Total liabilities 1,491 2,181 2,619
Commitments and contingencies
Stockholders' equity:
Common stock, $1.00 par
value; 150,000 shares authorized, issued and
outstanding 150 150 150
Additional paid-in capital 328 328 328
Retained earnings 1,646 992 1,316
--------- --------- ---------
Total stockholders' equity 2,124 1,470 1,794
--------- --------- ---------
Total liabilities and stockholders' equity $ 3,615 $ 3,651 $ 4,413
========= ========= =========
</TABLE>
The accompanying notes are an
integral part of these consolidated financial statements.
F-56
<PAGE>
FLOWER TRADING CORPORATION
--------------------------
CONSOLIDATED STATEMENT OF OPERATIONS
------------------------------------
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended
Year Ended December 31, March 31,
----------------------------------------- -----------------------
1994 1995 1996 1996 1997
---- ---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C>
Net sales $18,478 $ 20,335 $ 20,313 $ 6,390 $ 7,431
Cost of sales (including purchases from
affiliated farms of $2,612, $4,451,
$3,921 for the years ended December 31,
1994, 1995 and 1996 and $1,186 and
$1,238 for the three months ended
March 31, 1996 and 1997, respectively) 14,452 15,921 15,914 5,173 5,907
------- -------- -------- ------- -------
Gross profit 4,026 4,414 4,399 1,217 1,524
Selling, general and administrative
expenses 3,605 4,068 4,142 1,012 971
------- -------- -------- ------- -------
Operating income 421 346 257 205 553
Other (income) expense:
Interest expense 17 9 32 3 23
Interest income (11) (18) (5) (1)
Write off of investment 181 129
Other, net (87) (51) (9) (3) 3
------- -------- -------- ------- -------
Income before provision for income taxes 502 225 110 206 527
Provision for income taxes 201 95 48 89 203
------- -------- -------- ------- -------
Net income $ 301 $ 130 $ 62 $ 117 $ 324
======= ======== ======== ======= =======
</TABLE>
The accompanying notes are an
integral part of these consolidated financial statements.
F-57
<PAGE>
FLOWER TRADING CORPORATION
--------------------------
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
----------------------------------------------
(In thousands, except share amounts)
<TABLE>
<CAPTION>
Common Stock Additional Total
------------------- Paid-in Retained Stockholders'
Shares Amount Capital Earnings Equity
------ ------ ------- -------- ------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993 160,000 $ 150 $ 328 $ 1,215 $ 1,693
Net income 301 301
-------- -------- -------- -------- --------
Balance at December 31, 1994 160,000 150 328 1,516 1,994
Net income 130 130
-------- -------- -------- -------- --------
Balance at December 31, 1995 160,000 150 328 1,646 2,124
Net income 62 62
Distribution to shareholders
for investment in subsidiary (716) (716)
-------- -------- -------- -------- --------
Balance at December 31, 1996 160,000 150 328 992 1,470
Net income (unaudited) 324 324
-------- -------- -------- -------- --------
Balance at March 31, 1997 (unaudited) 160,000 $ 150 $ 328 $ 1,316 $ 1,794
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an
integral part of these consolidated financial statements.
F-58
<PAGE>
FLOWER TRADING CORPORATION
--------------------------
STATEMENT OF CASH FLOWS
-----------------------
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended
Year Ended December 31, March 31,
------------------------- --------------------
1994 1995 1996 1996 1997
---- ---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income $ 301 $ 130 $ 62 $ 117 $ 324
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 196 216 202 46 38
Loss on investment 181 129
Loss on disposal of fixed assets 40
Change in operating assets and liabilities:
Accounts receivable 99 63 (53) (941) (986)
Inventory 19 (7) (29) 20 8
Prepaid expenses and other current assets 195 (15) (176) (3) 153
Accounts payable 43 (27) (144) 25 337
Accrued expenses (235) 59 191 196 (33)
Income taxes payable 78 (69) (9) 101 25
Deferred taxes asset 3 (91) 41 11
------ ------ ------ ------- -------
Net cash (used) provided by operating activities 699 440 254 (428) (134)
Cash flows from investing activities:
Purchase of investment (181) (129)
Purchases of property and equipment (83) (29) (43)
Proceeds from disposal of property and equipment (288) (162)
Cash surrender value of life insurance 4 (5)
Advances to related parties (67) 28
------ ------ ------ ------- -------
Net cash used in investing activities (355) (311) (217) (29) (43)
Cash flows from financing activities:
Proceeds from issuance of long-term debt 1,100 350
Repayments of long-term debt (74) (74) (648) (19) (29)
Distribution to stockholders for investment
in subsidiary (745)
Borrowings (repayments) under line of credit
agreement, net (200) 200 138
------ ------ ------ ------- -------
Net cash (used) provided by in financing
activities (274) (74) (93) 331 109
Net increase (decrease) in cash and cash equivalents 70 55 (56) (126) (68)
Cash and cash equivalents - beginning of period 1 71 126 71 70
------ ------ ------ ------- -------
Cash and cash equivalents - end of period $ 71 $ 126 $ 70 $ (55) $ 2
====== ====== ====== ======= =======
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 17 $ 9 $ 32 $ 3 $ 23
Cash paid during the period for income taxes $ 201 $ 189 $ 189
</TABLE>
The accompanying notes are an
integral part of these consolidated financial statements.
F-59
<PAGE>
FLOWER TRADING CORPORATION
--------------------------
NOTES TO COMBINED FINANCIAL STATEMENTS
--------------------------------------
DECEMBER 31, 1996
-----------------
(In thousands)
NOTE 1 - BUSINESS ORGANIZATION
- ------------------------------
Founded in 1977, Flower Trading Corporation is an importer and distributor of
perishable floral products which are imported from farms located primarily in
Colombia and Ecuador and distributed to wholesale florists throughout the
United States.
Basis of Presentation
- ---------------------
These consolidated financial statements represent the financial position,
results of operations and net cash flows of Flowtrad Corporation N.V. and its
wholly owned subsidiary, Flower Trading Corporation ("Flower Trading" or the
"Company"). All significant intercompany accounts have been eliminated in
consolidation.
The Company and its stockholders plan to enter into a definitive agreement with
USA Floral Products, Inc. ("USA Floral") pursuant to which the Company will
merge with USA Floral. All outstanding shares of the Company will be exchanged
for cash and shares of USA Floral common stock concurrent with the consummation
of an initial public offering of the common stock of USA Floral.
Flower Trading Corporation also holds a 75 percent interest in a subsidiary,
UltraFlora Corporation, which owns a 99.62 percent interest in UltraFlora
Corporation Limited, a subsidiary in Colombia. The stockholders of the Company
do not plan to merge UltraFlora with USA Floral and will divest of this interest
prior to the merger. Accordingly, these financial statements do not reflect the
financial position, results of operations or net cash flows of UltraFlora.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------------
Use of Estimate
- ---------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period.
Actual results could differ from those estimates.
Revenue Recognition
- -------------------
Revenue is recognized upon shipment of product.
F-60
<PAGE>
Cash Equivalents
- ----------------
For purposes of the statement of cash flows, the Company considers all highly
liquid debt instruments purchased with a maturity of three months or less at
date of purchase to be cash equivalents.
Inventory
- ---------
Inventory is stated at the lower of cost or market. A significant portion of
inventory is purchased on a consignment basis. Cost is determined by the
specific identification method.
Property and Equipment
- ----------------------
Property and equipment are carried at cost less accumulated depreciation.
Depreciation is provided using accelerated methods over the estimated useful
lives of the related assets (three to seven years).
Fair Value of Financial Instruments
- -----------------------------------
The carrying amount of cash and cash equivalents, accounts receivable/payable,
notes receivable/payable, insurance receivable, accrued expenses and short-term
debt approximates fair value because of the short maturity of these instruments.
The estimated fair value of long-term debt and other long-term liabilities
approximates its carrying value. Additionally, interest rates on outstanding
debt are at rates which approximate market rates for debt with similar terms and
average maturities.
Concentration of Credit Risk
- ----------------------------
Financial instruments that potentially subject the Company to concentrations of
credit risk consist principally of trade accounts receivable. Receivables are
not collateralized and accordingly, the Company performs ongoing credit
evaluations of its customers to reduce the risk of loss.
Income Taxes
- ------------
The Company is a C-corporation for federal and state income tax purposes. The
Company accounts for income taxes using the liability method under the
provisions on the Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes."
Other Income
- ------------
In 1995 and 1996 the Company loaned a start-up company $181 and $129,
respectively. As the collectibility of these loans was considered uncertain,
these loans were written off in each of the respective years.
F-61
<PAGE>
Unaudited Interim Financial Statements
- --------------------------------------
In the opinion of management, the Company has made all adjustments, consisting
only of normal recurring adjustments, necessary for a fair presentation of the
financial position of the Company as of March 31, 1997 and of the results of
operations and cash flows for the three months ended March 31, 1996 and 1997 as
presented in the accompanying unaudited interim financial statements.
NOTE 3 - ALLOWANCE FOR DOUBTFUL ACCOUNTS
- ----------------------------------------
<TABLE>
<CAPTION>
Balance at Charged to Balance
Beginning Costs and at end
of Period Expenses Write-offs of Period
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Year ended December 31, 1994 $ 0 $ 4 $ 4 $ 0
Year ended December 31, 1995 $ 0 $ 96 $ 18 $ 78
Year ended December 31, 1996 $ 78 $ 21 $ 21 $ 78
</TABLE>
NOTE 4 - PROPERTY AND EQUIPMENT
- -------------------------------
Property and equipment consist of the following:
<TABLE>
<CAPTION>
December 31,
------------------
1995 1996
---- ----
<S> <C> <C>
Machinery and equipment $ 584 $ 596
Computer equipment and software 634 408
Furniture, fixtures and equipment 241 245
Vehicles 81 81
-------- --------
1,540 1,330
Accumulated depreciation and amortization (1,051) (1,000)
-------- --------
$ 489 $ 330
======== ========
</TABLE>
Depreciation expense for the years ended December 31, 1994, 1995 and 1996 was
$196, $216 and $202, respectively.
NOTE 5 - CREDIT FACILITIES
- --------------------------
Line of Credit
- --------------
At December 31, 1995 and 1996, the Company had a $750 revolving line of credit
with a bank which is due on demand and expired on June 30, 1997. This line of
credit was renewed through June 30, 1998 and increased to $1,500. Advances on
the credit line are payable on demand and bear interest at 1 percent above the
prime rate with interest payable monthly (9.25% at December 31, 1995 and 1996).
The credit line is secured by all of the Company's personal property, including
but not limited to the Company's accounts, inventory and fixed assets.
Outstanding balances on the line were $0 and $200 as of December 31, 1995 and
1996, respectively.
F-62
<PAGE>
Long-Term Debt
- --------------
<TABLE>
<CAPTION>
Long-term debt consists of the following at December 31, 1995 and 1996:
December 31,
----------------------
1995 1996
---- ----
<S> <C> <C>
Note payable to bank, due in monthly installments of $9,
bearing interest at bank's prime rate plus 1% (9.25% at
December 31, 1995 and 1996), due September 6, 2001;
secured by assets of the Company and real property
owned by affiliate. $ $ 495
Note payable to bank, due in monthly installments of $5,
bearing interest at bank's prime rate plus 1.5% (9.75%
at December 31, 1995 and 1996), due June 30, 1996;
secured by receivables, property and equipment, and
certain assets of the Company. 31
Note payable to financial corporation, due in monthly
installments of $1, including interest, through
March 1997 and one final payment of $5; secured by
a vehicle with a net book value of $12 and $10 in
1995 and 1996, respectively. 20 8
---- ----
51 503
Less: Current maturities (43) (112)
---- ----
Long-term debt, excluding current maturities $ 8 $391
==== ====
<CAPTION>
Principal maturities on notes payable are as follows:
Year Ended
December 31,
1996
----
<S> <C>
1997 $ 112
1998 104
1999 104
2000 104
2001 78
------
Total $ 503
======
<CAPTION>
NOTE 6 - INCOME TAXES
- ---------------------
The provision for income taxes is as follows:
December 31,
------------------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Current expense:
State $ 20 $ 19 $ 4
Federal 179 166 32
----- ----- -----
Total income tax provision $ 199 $ 185 36
===== ===== =====
</TABLE>
F-63
<PAGE>
Deferred expense:
State $ 2 $ (9) $ 1
Federal (81) 11
-------- --------- --------
Total income tax provision $ 2 $ (90) $ 12
======== ========= ========
The provision for income taxes differs from the U.S. Statutory federal income
tax rate for the following reasons:
December 31,
--------------------------------
1994 1995 1996
---- ---- ----
Statutory federal tax rate 34.0% 34.0% 34.0%
State taxes, net of federal benefit 3.7 3.7 3.7
Meals and entertainment 1.3 3.1 4.5
Other 1.0 1.4 1.4
---- ---- ----
40.0% 42.2% 43.6%
==== ==== ====
Deferred tax assets were comprised of the following:
December 31,
-------------------
1995 1996
---- ----
Allowance for doubtful accounts $ 91 $ 23
Accruals 56
----- -----
$ 91 $ 79
===== =====
NOTE 7 - EMPLOYEE BENEFIT PLAN
- ------------------------------
In 1995 the Company has established an employee savings plan under the
provisions of section 401(k) of the Internal Revenue Code. Virtually all
employees are eligible to participate in the plan. Employees can contribute up
to 5% of their gross salary to the plan. The Company is liable for matching
contributions of 30% of participants' contributions up to a certain amount per
participant. Company contributions to the plan were approximately $19 and $22
for the year ended December 31, 1995 and 1996, respectively.
NOTE 8 - RELATED PARTY TRANSACTIONS
- -----------------------------------
The Company pays a representative fee to a related entity for flowers shipped
from Columbia. This related entity ensures that the Company has a reliable
source of fresh cut flowers in Colombia. This entity also provides each of the
Company's suppliers with technical expertise to improve the maintain the yield,
quality and durability of the fresh cut flowers. In addition, due to the large
number of suppliers in Colombia, the company requires the service of this entity
to consolidate the shipments of flowers with a common carrier, and generate the
paperwork necessary to complete the shipment of flowers. Representative fees
paid for the years ended December 31, 1994, 1995 and 1996 were $658,$793 and
$675, respectively.
The Company purchases flowers from a related entity. Total purchases were
approximately $1,954, $3,658 and $3,246 for 1994, 1995 and 1996, respectively.
F-64
<PAGE>
The Company leases office and warehouse space from a related entity. Total
lease payments were approximately $201, $223 and $230 for 1994, 1995 and 1996,
respectively.
The Company charges a related entity a monthly fee for the handling of floral
products. Total handling fees were $172, $279 and $225 for 1994, 1995 and 1996,
respectively. Also included in other income at December 31, 1994, 1995 and 1996
is $79, $66 and $54, respectively, representing administrative fees received by
the Company from this related party. At December 31, 1995 and 1996, the Company
had receivables from this entity of $52 and $41, respectively.
The Company guarantees two lines of credit a related entity maintains with a
bank up to a total of $375. These lines expire on May 31, 1998.
NOTE 9 - COMMITMENTS AND CONTINGENCIES
- --------------------------------------
Lease Commitments
- -----------------
The Company leases its warehouse and office facilities from a related party
under a noncancelable operating lease expiring in 1999. Rental payments include
minimum rentals adjusted annually for changes in the consumer price index. The
aggregate future minimum rentals are as follows:
<TABLE>
<S> <C>
1997 $230
1998 230
1999 230
----
$690
====
</TABLE>
Antidumping Duty
- ----------------
In 1986, the U.S. Department of Commerce ("DOC") imposed an antidumping duty
deposit ("ADD") on the importation of certain flowers, pending the imposition of
a final duty rate based on annual reviews of the flower growers' margins. Since
that time, the DOC has undertaken ten reviews. As a result of those reviews, the
Company's importation of flowers from its suppliers has been subject to
antidumping duties. The ADDs from the second and fourth reviews are awaiting
final liquidation from the DOC. Final determinations have been published for the
fifth through seventh reviews but judicial appeals are pending. The eighth
review was liquidated at the cash-deposit rate. The ninth review is pending
final determination. The tenth review is in process. All other reviews have been
resolved.
Included in accrued expenses is approximately $0 and $150 as of December 31,
1995 and 1996, respectively, of estimated antidumping duty imposed by the
Department of Commerce. The duty is based on rates imposed on certain products
from certain growers in Columbia and Ecuador. The antidumping duty is subject
to change upon the Department of Commerce's final review of all open antidumping
periods as well as various legal appeals.
F-65
<PAGE>
Legal Matters
- -------------
The Company is involved in various legal matters in the normal course of
business. In the opinion of the Company's management, these matters are not
anticipated to have a material adverse effect on the financial position or
results of operations or cash flows of the Company.
NOTE 10 - UNAUDITED SUBSEQUENT EVENTS
- -------------------------------------
The Company and its stockholders have entered into a definitive agreement with
USA Floral Products, Inc. ("USA Floral") pursuant to which the Company will
merge with USA Floral. All outstanding shares of the Company will be exchanged
for cash and shares of USA Floral common stock concurrent with the consummation
of the initial public offering of the common stock of USA Floral.
Upon consummation of the merger described above, a portion of the Company's
related party agreements as outlined in Note 8 will be amended. The Company will
continue to pay a representative fee in connection with flowers shipped from
Colombia, however, the fee will be reduced from $3.50 per box to $0.50 per box.
In addition, the Company's guarantee of the two lines of credit of a related
entity will be discontinued.
The Company will continue to lease office and warehouse space under the current
lease agreement. The Company will also continue to provide handling and
administrative services to a related entity for a monthly fee.
F-66
<PAGE>
Report of Independent Accountants
---------------------------------
To the Board of Directors
and Stockholders of
United Wholesale Florists, Inc. and
United Wholesale Florists of America, Inc.
In our opinion, the accompanying combined balance sheet and the combined
related statements of operations, stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of United
Wholesale Florists, Inc. and United Wholesale Florists of America, Inc. (the
"Company") at June 30, 1995 and 1996, and the results of their operations and
their cash flows for the years then ended, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted
our audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
Price Waterhouse LLP
Minneapolis, Minnesota
July 15, 1997
F-67
<PAGE>
UNITED WHOLESALE FLORISTS, INC. AND
-----------------------------------
UNITED WHOLESALE FLORISTS OF AMERICA, INC.
-----------------------------------------
COMBINED BALANCE SHEET
----------------------
(In thousands, except share amounts)
<TABLE>
<CAPTION>
June 30,
------------------ March 31,
1995 1996 1997
---- ---- ----
ASSETS (Unaudited)
------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 235 $ 434 $ 529
Accounts receivable, net 929 1,062 1,213
Inventory 1,700 1,799 1,806
Prepaid expenses and other current assets 23 41 167
------ ------ ------
Total current assets 2,887 3,336 3,715
Property and equipment, net 1,655 1,802 1,973
Advances to affiliates 1,040 1,059 1,061
Advances to stockholders 66 221 347
Goodwill 245 233 227
Deferred income taxes 32 6
Other assets 151 132 115
------ ------ ------
Total assets $6,076 $6,789 $7,438
====== ====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Line of credit $ 900 $1,283 $1,574
Current maturities of long-term debt 242 96 153
Current maturities of notes payable to
stockholders 273 222 51
Current obligations under capital leases 165 145 255
Accounts payable 1,221 2,127 2,264
Accrued expenses and other current liabilities 188 163 142
Income taxes payable 153 140
------ ------ ------
Total current liabilities 3,142 4,036 4,579
Long-term debt 314 194 45
Obligations under capital leases 158 195 192
Notes payable to stockholders 793 672 550
Other liabilities 105 84 69
Commitments and contingencies
Stockholders' equity:
Common stock 11 11 11
Retained earnings 1,553 1,697 1,992
------ ------ ------
Total stockholders' equity 1,564 1,708 2,003
------ ------ ------
Total liabilities and stockholders' equity $6,076 $6,789 $7,438
====== ====== ======
</TABLE>
The accompanying notes are an
integral part of these financial statements.
F-68
<PAGE>
UNITED WHOLESALE FLORISTS, INC. AND
-----------------------------------
UNITED WHOLESALE FLORISTS OF AMERICA, INC.
-----------------------------------------
COMBINED STATEMENT OF OPERATIONS
--------------------------------
(In thousands)
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended June 30, March 31,
------------------- -----------------
1995 1996 1996 1997
---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C>
Net sales $17,985 $19,030 $14,050 $14,608
Cost of sales 11,556 12,563 9,294 9,632
------- ------- ------- -------
Gross margin 6,429 6,467 4,756 4,976
Selling, general and
administrative expenses 5,926 6,101 4,361 4,392
------- ------- ------- -------
Operating income 503 366 395 584
Other (income) expense:
Interest expense 227 236 180 165
Interest income (91) (95) (64) (99)
Other, net 9 (14) (14) 5
------- ------- ------- -------
Income before income taxes 358 239 293 513
Provision for income taxes 171 95 134 218
------- ------- ------- -------
Net income $ 187 $ 144 $ 159 $ 295
======= ======= ======= =======
Unaudited pro forma
information:
Pro forma net income
before provision for
income taxes $ 358 $ 239 $ 293 $ 513
Provision for income taxes 143 96 117 205
------- ------- ------- -------
Pro forma income (see
Note 2) $ 215 $ 143 $ 176 $ 308
======= ======= ======= =======
</TABLE>
The accompanying notes are an
integral part of these financial statements.
F-69
<PAGE>
UNITED WHOLESALE FLORISTS, INC. AND
-----------------------------------
UNITED WHOLESALE FLORISTS OF AMERICA, INC.
-----------------------------------------
COMBINED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
-----------------------------------------------------
(In thousands, except share amounts)
<TABLE>
<CAPTION>
Common Stock Total
------------------ Retained Stockholders'
Shares Amount Earnings Equity
------ ------ -------- ------
<S> <C> <C> <C> <C>
Balance at June 30, 1994 2,000 $ 11 $ 1,366 $1,377
Net income 187 187
----- --- ------ ------
Balance at June 30, 1995 2,000 11 1,553 1,564
Net income 144 144
----- --- ------ ------
Balance at June 30, 1996 2,000 11 1,697 1,708
Net income (unaudited) 295 295
----- --- ------ ------
Balance at March 31, 1997
(unaudited) 2,000 $11 $1,992 $2,003
===== === ====== ======
</TABLE>
The accompanying notes are an
integral part of these financial statements.
F-70
<PAGE>
UNITED WHOLESALE FLORISTS, INC. AND
-----------------------------------
UNITED WHOLESALE FLORISTS OF AMERICA, INC.
-----------------------------------------
COMBINED STATEMENT OF CASH FLOWS
--------------------------------
(In thousands)
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended June 30, March 31,
-------------------- ----------------
1995 1996 1996 1997
---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income $187 $144 $159 $295
Adjustments to reconcile net
income to net cash
provided by operating
activities:
Depreciation and amortization 341 410 272 319
Deferred income taxes 17 26 20 9
Loss on disposal of fixed
assets 18 14
Provision for doubtful accounts 26 16 7 5
Change in operating assets and
liabilities:
Accounts receivable (30) (149) (257) (156)
Inventory 74 (99) (103) (7)
Prepaid expenses and other
current assets (6) (18) (164) (126)
Accounts payable and accrued
expenses (266) 881 1,144 116
Income taxes payable 66 (153) (15) 140
Changes in other assets (6) (12) (8) (7)
Changes in other liabilities (19) (21) (16) (17)
------ ------ ------ -----
Net cash provided by
operating activities 402 1,025 1,039 585
Cash flows from investing
activities:
Purchases of property and
equipment (304) (295) (236) (181)
Proceeds from disposal of
property and equipment 8
Advances to stockholders (30) (155) (138) (126)
Advances to affiliates (151) (19) 17 2
------ ------ ------ -----
Net cash used in investing
activities (477) (469) (357) (305)
Cash flows from financing
activities:
Net borrowings on line of credit 300 383 291
Principal payments on capital
lease obligations (207) (202) (151) (191)
Proceeds from long-term debt 470 57 357 18
Repayments on long-term debt (990) (323) (125) (110)
Proceeds from notes payable to
stockholders 1,192 2 2
Repayments of notes payable to
stockholders (849) (274) (204) (193)
------ ------ ------ -----
Net cash used in financing
activities (84) (357) (121) (185)
Net increase (decrease) in cash
and cash equivalents (159) 199 561 95
Cash and cash equivalents -
beginning of period 394 235 235 434
------ ------ ------ -----
Cash and cash equivalents - end
of period $ 235 $ 434 $ 796 $ 529
====== ====== ====== =====
Supplemental disclosure of cash
flow information:
Cash paid during the period for
interest $ 216 $ 231 $ 165 $ 180
Cash paid during the period for
income taxes $ 84 $ 242 $ 179 $ 35
Supplemental disclosure of
non-cash transactions:
Acquisition of vehicles under
capital leases $ 174 $ 219 $ 164 $ 298
</TABLE>
The accompanying notes are an
integral part of these financial statements.
F-71
<PAGE>
UNITED WHOLESALE FLORISTS, INC. AND
-----------------------------------
UNITED WHOLESALE FLORISTS OF AMERICA, INC.
-----------------------------------------
NOTES TO COMBINED FINANCIAL STATEMENTS
--------------------------------------
JUNE 30, 1996
-------------
(In thousands)
NOTE 1 - BUSINESS ORGANIZATION
- ------------------------------
Founded in 1947, United Wholesale Florists, Inc. and United Wholesale Florists
of America, Inc. (the "Company") is a wholesale distributor of perishable floral
products and floral-related hardgoods, operating from 13 locations in Arkansas,
Alabama, Mississippi, Oklahoma, Tennessee and Texas. The Company purchases
floral products from domestic growers, importers, brokers and shippers and sells
them to retail florists and mass marketers.
The accompanying combined financial statements include the accounts of United
Wholesale Florists, Inc. ("UWF") and United Wholesale Florists of America, Inc.
("UWFA") which are affiliated through common ownership and management. All
intercompany transactions have been eliminated in these financial statements.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------------
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period.
Actual results could differ from those estimates.
Revenue Recognition
- -------------------
Income is recognized upon shipment of goods to the customer.
Cash Equivalents
- ----------------
For purposes of the statement of cash flows, the Company considers all highly
liquid debt instruments purchased with a maturity of approximately three months
or less at date of purchase to be cash equivalents.
Inventories
- -----------
Inventories consist of fresh-cut flowers and floral supplies and are valued at
the lower of cost or market. Cost is determined using the first-in, first-out
("FIFO") method.
F-72
<PAGE>
Property and Equipment
- ----------------------
Property and equipment are stated at cost including the cost of additions and
improvements which materially increase the useful lives or values of the assets.
Depreciation is provided using straight-line and accelerated methods over the
estimated useful lives of the respective assets. Leasehold improvements are
amortized over the shorter of the lease term or the estimated useful life.
Average useful lives are as follows: buildings and improvements - 8 to 30 years;
and furniture and equipment - 5 to 7 years. Amortization on vehicles under
capital leases is computed on a straight-line basis over the estimated useful
life of the vehicles (5 years).
Goodwill
- --------
Goodwill is being amortized by the straight-line basis over a 40 year period.
Accumulated amortization was $202 and $213 at June 30, 1995 and 1996,
respectively.
At each balance sheet date, the Company assesses whether there has been an
impairment in the value of long-lived assets by determining whether projected
undiscounted future cash flows from operations of each facility (as defined in
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,"
exceeds its net book value as of the assessment date. At June 30, 1996, there
were no impairments of the Company's assets.
Other Assets
- ------------
Other assets is comprised of organizational costs with a net value of $9 and $5
at June 30, 1995 and 1996 and a non-compete agreement with a net value of $84
and $57 as of June 30, 1995 and 1996, respectively. These amounts are being
amortized on a straight-line basis over a five and six year period,
respectively. Amortization expense was $31 for each of the years ended June 30,
1995 and 1996.
Fair Value of Financial Instruments
- -----------------------------------
The carrying amount of cash and cash equivalents, accounts receivable/payable,
notes receivable/payable, insurance receivable, accrued expenses and short-term
debt approximates fair value because of the short maturity of these instruments.
The estimated fair value of long-term debt and other long-term liabilities
approximates its carrying value. Additionally, interest rates on outstanding
debt are at rates which approximate market rates for debt with similar terms and
average maturities.
Concentration of Credit Risk
- ----------------------------
Financial instruments that potentially subject the Company to concentrations of
credit risk consist principally of cash and cash equivalents, trade accounts
receivable and amounts due from related parties. The Company limits the amounts
of cash that is deposited in any one bank to ensure balances do not exceed
amounts insured by the Federal Deposit Insurance Corporation. Trade receivables
are not collateralized and accordingly, the Company performs ongoing credit
evaluations of its customers to minimize the risk of loss.
F-73
<PAGE>
Stockholders' Equity
- --------------------
UWF has 200 shares of Class A, voting, $11 par value, common stock authorized,
issued and outstanding. There are also 800 shares of Class B, nonvoting, $9.75
par value, common stock authorized, issued and outstanding.
UWFA has 1,000 shares of voting common stock, no par value, issued and
outstanding (2,000 shares authorized).
Income Taxes
- ------------
UWF accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes." Deferred income
taxes are provided for the tax effects of temporary differences between the
financial reporting basis and income tax basis of the Company's assets and
liabilities.
UWFA has elected to be treated as an S-Corporation for federal and state income
taxes and, accordingly, any liabilities for income taxes are the direct
responsibility of the stockholders. UWFA reports earnings for tax purposes with
a fiscal year ending on December 31. UWF is organized as a C-Corporation and
maintains it's financial records on a fiscal year ending on June 30.
The unaudited pro forma income tax information included in the Statement of
Operations is presented in accordance with Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes," as if the Company had been
subject to federal income taxes for the entire periods presented.
Unaudited Interim Financial Statements
- --------------------------------------
In the opinion of management, the Company has made all adjustments, consisting
only of normal recurring adjustments, necessary for a fair presentation of the
financial position of the Company as of March 31, 1997 and the results of
operations and cash flows for the three months ended March 31, 1996 and 1997 as
presented in the accompanying unaudited interim financial statements.
NOTE 3 - ALLOWANCE FOR DOUBTFUL ACCOUNTS
- ----------------------------------------
<TABLE>
<CAPTION>
Balance Charged to Balances at
at Beginning Costs and End of
of Period Expenses Write-offs Period
------------ ---------- ----------- -----------
<S> <C> <C> <C> <C>
Year-ended June 30, 1995
allowance
for doubtful accounts $21 $26 $(10) $37
Year-ended June 30, 1996
allowance
for doubtful accounts 37 16 (37) 16
</TABLE>
F-74
<PAGE>
NOTE 4 - INVENTORY
- ------------------
Inventory consists of the following finished goods:
<TABLE>
<CAPTION>
June 30,
--------------
1995 1996
---- ----
<S> <C> <C>
Perishables $ 61 $ 138
Hardgoods 1,639 1,661
------ ------
$1,700 $1,799
====== ======
</TABLE>
NOTE 5 - PROPERTY AND EQUIPMENT
- -------------------------------
Property and equipment consist of the following:
<TABLE>
<CAPTION>
June 30,
---------------
1995 1996
---- ----
<S> <C> <C>
Land $ 157 $ 157
Buildings and leasehold improvements 1,294 1,414
Automobiles and delivery vehicles 1,213 1,253
Furniture, fixtures and equipment 1,176 1,349
------- -------
3,840 4,173
Accumulated depreciation and amortization (2,185) (2,371)
------- -------
$ 1,655 $ 1,802
======= =======
</TABLE>
Depreciation and amortization expense for the years ended June 30, 1995 and 1996
was $299 and $368, respectively.
<TABLE>
<CAPTION>
NOTE 6 - CREDIT FACILITIES
- --------------------------
Short-term debt consists of the following:
June 30,
--------------
1995 1996
---- ----
<S> <C> <C>
Line of credit arrangement collateralized
by substantially all assets,
due June 1996, including interest at a
variable rate (9.25% at June 30, 1995). $900 $ -
Line of credit arrangement collateralized
by accounts receivable and inventory,
due May 1997, including interest at a
variable rate (8.25% at June 30, 1996). - 1,283
---- ------
$900 $1,283
==== ======
</TABLE>
In connection with the line of credit arrangement, the Company must maintain a
minimum net worth of $1,500,000, working capital of $500,000 and a ratio of
earnings before interest, taxes and depreciation to interest expense of 2 to 1.
Additionally, if the Company is not in compliance with the restrictive covenants
or any other requirements contained in this debt instrument, the Company is
prohibited from making payments on obligations to its stockholders.
F-75
<PAGE>
In May 1997 the Company renewed its line of credit through May 1998 at
substantially the same terms.
<TABLE>
<CAPTION>
Long-Term Debt
- --------------
Long-term debt consists of:
June 30,
--------------
1995 1996
---- ----
<S> <C> <C>
Various secured fixed payment notes payable to banks at interest
rates ranging from 7.5% to 12%, payments ranging from
$1 to $5 monthly; maturing from May 1996 to November 1999. $ 215 $ 100
Various secured notes payable to banks; interest payable monthly
at rates ranging from 9.25% to 10%; principal due at maturity;
maturing from June 1996 to November 1997. 248 124
Unsecured notes payable to individuals arising from non-compete
agreements, due 1998. 93 66
Less: Current maturities (242) (96)
----- -----
$ 314 $ 194
===== =====
</TABLE>
Long-term principal maturities on notes payable over the next four years are as
follows:
<TABLE>
<CAPTION>
Year Ended
June 30,
1996
----
<S> <C>
1997 $ 96
1998 177
1999 15
2000 2
-----
Total $ 290
=====
</TABLE>
Notes payable to stockholders of $1,066 and $794 at June 30, 1995 and 1996, are
discussed in Note 8.
F-76
<PAGE>
NOTE 7 - INCOME TAXES
- ---------------------
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
Year Ended June 30,
----------------------------------------------
1995 1996
--------------------- -----------------------
Federal State Total Federal State Total
------- ----- ----- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Current $ 130 $ 24 $154 $59 $ 11 $ 70
Deferred 14 3 17 21 4 25
----- ----- ----- ------- ----- -----
$ 144 $ 27 $171 $80 $ 15 $ 95
===== ===== ===== ======= ===== =====
</TABLE>
<TABLE>
<CAPTION>
Net deferred tax asset (liability) is comprised of the following:
June 30,
-------------
1995 1996
---- ----
<S> <C> <C>
Allowance for doubtful accounts $ 14 $ 6
Inventory reserves 8 8
----- -----
Current deferred tax assets 22 14
Deferred compensation 41 32
Depreciation (31) (40)
----- -----
Noncurrent deferred tax asset
(liability) 10 (8)
----- -----
Net deferred tax assets $ 32 $ 6
===== =====
</TABLE>
A reconciliation of the federal statutory tax rate to the effective tax rate is
as follows:
<TABLE>
<CAPTION>
Year Ended June 30,
--------------------
1995 1996
--------------------
<S> <C> <C> <C> <C>
Income taxes of the statutory rate $125 35% $84 35%
(Income) loss of S-corporation 22 6 (7) (3)
State income tax, net of federal benefit 18 5 10 4
Goodwill amortization - non-deductibles 4 1 4 2
Other 2 1 4 2
---- -- --- --
$171 48% $95 40%
==== == === ==
</TABLE>
NOTE 8 - RELATED PARTY TRANSACTIONS
- -----------------------------------
The Company makes advances to affiliates in the ordinary course of business.
Receivables from affiliates totaled $1,040 and $1,059 at June 30, 1995 and 1996,
respectively. The advances bear interest at a rate of 8.5% per annum; although
no formal repayment terms exist. Interest income related to this receivable for
the years ended June 30, 1995 and 1996 was $87 and $89, respectively.
F-77
<PAGE>
The Company makes advances to the stockholders. Receivables from stockholders
totaled $66 and $221 at June 30, 1995 and June 30, 1996, respectively. The
advances bear interest at a rate of 8.5% per annum although no formal repayment
terms exist. Interest income related to this receivable for the years ended
June 30, 1995 and 1996 was $5 and $12, respectively.
The Company leases eight of its thirteen facilities from an affiliated
partnership, United Properties. Total rent expense related to these leases was
$206 and $221 in 1995 and 1996, respectively.
During 1995, the Company entered into a lease for its corporate headquarters
from a partnership which is 50% owned by United Properties. Total lease
payments were $27 and $81 in 1995 and 1996, respectively.
At June 30, 1995 and 1996, the Company has $1,066 and $794, respectively,
payable to the stockholders of the Company. These obligations bear interest at
rates from 8% to 9.25%. Included in interest expense for the years ended June
30, 1995 and 1996 was $102 and $106, respectively, of interest related to this
obligation.
Principal maturities on these notes payable as of June 30, 1996 are as follows:
<TABLE>
<CAPTION>
<S> <C>
1997 $223
1998 34
1999 36
2000 40
2001 43
Thereafter 418
----
$794
====
</TABLE>
NOTE 9 - COMMITMENTS AND CONTINGENCIES
- --------------------------------------
Lease Commitments
- -----------------
The Company leases its land sites and buildings for most of its stores and
office space for corporate operations under operating leases. These leases are
primarily with related party lessors (Note 3). Rent expense under all operating
leases for the years ended June 30, 1995 and 1996 was $245 and $334,
respectively.
The Company leases its vehicle fleet under capital leases. The leases generally
include renewal options at varying terms. The book value and corresponding
accumulated depreciation for the vehicles under capital lease as of June 30,
1996 are $1,186 and $768, respectively. Depreciation expense of vehicles under
capital lease for the years ending June 30, 1995 and 1996 was approximately
$218, respectively.
F-78
<PAGE>
Minimum lease payments under the noncancelable portion of capital and operating
leases at June 30, 1996 are as follows:
<TABLE>
<CAPTION>
Operating Capital
Fiscal Year Leases Leases
- ----------- --------- -------
<S> <C> <C>
1997 $ 324 $ 168
1998 270 128
1999 267 78
2000 240 8
2001 186 -
Thereafter 442 -
------ -----
Future minimum lease payments $1,729 382
======
Imputed interest (42)
-----
Present value of minimum lease payments 340
Current portion (145)
-----
Long-term portion $ 195
=====
</TABLE>
Subsequent to the balance sheet date, the Company renewed its lease agreements
with a related party in six of its thirteen store locations. Terms of the new
leases are substantially the same to those which were in effect at the balance
sheet date.
Litigation
- ----------
The Company is involved in various legal matters in the normal course of
business. In the opinion of the Company's management, these matters are not
anticipated to have a material adverse effect on the financial position or
results of operations or cash flows of the Company.
NOTE 9 - UNAUDITED SUBSEQUENT EVENTS
- ------------------------------------
The Company and its stockholder have entered into a definitive agreement with
USA Floral Products, Inc. ("USA Floral") pursuant to which the Company will
merge with USA Floral. All outstanding shares of the Company will be exchanged
for cash and shares of USA Floral common stock concurrent with the consummation
of the initial public offering of the common stock of USA Floral.
In conjunction with the merger all amounts Due from related parties and Due from
stockholders will be repaid to the Company. Additionally, amounts Due to
stockholders will be repaid by the Company.
F-79
<PAGE>
Report of Independent Accountants
---------------------------------
To the Board of Directors
and Stockholder of
American Florist Supply, Inc.
In our opinion, the accompanying balance sheet and the related statements of
operations, stockholder's equity and of cash flows present fairly, in all
material respects, the financial position of American Florist Supply, Inc. at
December 31, 1995 and 1996 and the results of its operations and its cash
flows for the years then ended, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of
the Company's management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits of
these statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Minneapolis, Minnesota
July 11, 1997
F-80
<PAGE>
AMERICAN FLORIST SUPPLY, INC.
----------------------------
BALANCE SHEET
-------------
(In thousands, except share amounts)
<TABLE>
<CAPTION>
December 31, March 31,
--------------------
1995 1996 1997
---- ---- ----
ASSETS (Unaudited)
------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 3 $ 4 $ 23
Accounts receivable, net 1,339 1,460 1,741
Inventory 39 65 83
Notes receivable - stockholder 21 231 251
Prepaid expenses and other current
assets 28 30 27
------ ------ ------
Total current assets 1,430 1,790 2,125
Property and equipment, net 311 278 294
Goodwill and intangibles, net 327 298 293
Restricted investments 25 26 26
Other assets 43 46 43
------ ------ ------
Total assets $2,136 $2,438 $2,781
====== ====== ======
LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------
Current liabilities:
Line of credit $ 80 $ 302 $ 225
Accounts payable 687 709 838
Accrued expenses 75 147 140
Income taxes payable 21 29 13
------ ------ ------
Total current liabilities 863 1,187 1,216
Long-term debt 598 598 598
Other long-term liabilities 25 25 25
Commitments and contingencies
Stockholder's equity:
Common stock, no par value; 5,000
shares authorized;
1,000 shares issued and outstanding 400 400 400
Retained earnings 250 228 542
------ ------ ------
Total stockholder's equity 650 628 942
------ ------ ------
Total liabilities and stockholder's
equity $ 2,136 $ 2,438 $ 2,781
====== ====== ======
</TABLE>
The accompanying notes are an
integral part of these financial statements.
F-81
<PAGE>
AMERICAN FLORIST SUPPLY, INC.
----------------------------
STATEMENT OF OPERATIONS
-----------------------
(In thousands)
<TABLE>
<CAPTION>
Year Ended Three Months Ended
December 31, March 31,
--------------------- ------------------
1995 1996 1996 1997
---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C>
Net sales $ 10,783 $ 11,679 $ 3,155 $ 3,559
Cost of sales 7,788 8,268 2,180 2,442
--------- --------- -------- --------
Gross margin 2,995 3,411 975 1,117
Selling, general and
administrative expenses 2,531 2,723 687 784
--------- --------- -------- --------
Operating income 464 688 288 333
Other (income) expense:
Interest expense 42 43 12 15
Interest income (4) (11) (1) (4)
Other, net (14) (64) (15) (10)
--------- --------- -------- --------
Income before income taxes 440 720 292 332
Provision for income taxes 17 37 31 18
--------- --------- -------- --------
Net income $ 423 $ 683 $ 261 $ 314
--------- --------- -------- --------
Unaudited pro forma information:
Pro forma net income before
provision
for income taxes $ 440 $ 720 $ 292 $ 332
Provision for income taxes 176 288 117 133
--------- --------- -------- --------
Pro forma income (see Note 2) $ 264 $ 432 $ 175 $ 199
--------- --------- -------- --------
</TABLE>
The accompanying notes are an
integral part of these financial statements.
F-82
<PAGE>
AMERICAN FLORIST SUPPLY, INC.
----------------------------
STATEMENT OF STOCKHOLDER'S EQUITY
---------------------------------
(In thousands, except share amounts)
<TABLE>
<CAPTION>
Common Stock Total
-------------------- Retained Stockholder's
Shares Amount Earnings Equity
------ ------ -------- ------
<S> <C> <C> <C> <C>
Balance at December 31, 1994 1,000 $ 400 $ 92 $ 492
Net income 423 423
Dividends paid (265) (265)
------- ------- --------- --------
Balance at December 31, 1995 1,000 400 250 650
Net income 683 683
Dividends paid (705) (705)
------- ------- --------- --------
Balance at December 31, 1996 1,000 400 228 628
Net income (unaudited) 314 314
------- ------- --------- --------
Balance at March 31, 1997
(unaudited) 1,000 $ 400 $ 542 $ 942
------- ------- --------- --------
</TABLE>
The accompanying notes are an
integral part of these financial statements.
F-83
<PAGE>
AMERICAN FLORIST SUPPLY, INC.
----------------------------
STATEMENT OF CASH FLOWS
-----------------------
(In thousands)
<TABLE>
<CAPTION>
Year Ended Three Months Ended
December 31, March 31,
--------------------- --------------------
1995 1996 1996 1997
---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income $ 423 $ 683 $ 261 $ 314
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization 89 91 25 20
Loss on disposal of fixed
assets 32 8 5
Changes in operating assets
and liabilities:
Accounts receivable (126) (121) (26) (281)
Inventory (39) (26) (27) (18)
Prepaid expenses and other
assets (1) (2) (62) 3
Due from related parties (16) (210) (32) (20)
Accounts payable and accrued
expenses (85) 94 90 122
Income taxes payable 16 8 (10) (16)
--------- --------- -------- --------
Net cash provided by
operating activities 293 525 219 129
Cash flows from investing
activities:
Purchases of property and
equipment (7) (45) (16)
Equipment sale proceeds 2
Purchases of investments (2) (1)
--------- --------- -------- --------
Net cash used in
investing activities (9) (44) (16)
Cash flows from financing
activities:
Proceeds from issuance of
long-term debt 1,576 1,861 500 991
Repayments on note payable (1,595) (1,636) (675) (1,085)
Stockholder dividends (265) (705)
--------- --------- -------- --------
Net cash used in
financing activities (284) (480) (175) (94)
Net increase in cash and cash
equivalents 1 44 19
Cash and cash equivalents -
beginning of period 3 3 3 4
--------- --------- -------- --------
Cash and cash equivalents - end
of period $ 3 $ 4 $ 47 $ 23
--------- --------- -------- --------
Supplemental disclosure of cash
flow information:
Cash paid during the period for
interest $ 42 $ 43 $ 10 $ 13
Cash paid during the period for
taxes $ 15 $ 17 $ 7 $ 0
</TABLE>
The accompanying notes are an
integral part of these financial statements.
F-84
<PAGE>
AMERICAN FLORIST SUPPLY, INC.
----------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
DECEMBER 31, 1996
-----------------
(In thousands)
NOTE 1 - BUSINESS ORGANIZATION
- ------------------------------
American Florist Supply, Inc. (the "Company") is a wholesale distributor of
perishable floral products and floral-related hardgoods, operating from one
location in Massachusetts. The Company purchases floral products from domestic
growers, brokers and importers and sells them to retail florists and mass
marketers in Maine, Massachusetts, Vermont and New Hampshire. The Company also
manufactures fresh cut floral bouquets and distributes them to supermarkets.
The Company was incorporated on April 11, 1994, as a result of the acquisition
of certain assets and liabilities of the distribution business of Johnson's
Roses, Inc.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------------
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period.
Actual results could differ from these estimates.
Revenue Recognition
- -------------------
The Company recognizes revenue upon shipment of product.
Cash Equivalents
- ----------------
For purposes of the statement of cash flows, the Company considers all highly
liquid short-term investments with maturities of three months or less at date of
purchase to be cash equivalents.
Inventory
- ---------
Inventory consists of plants and supplies to be sold and is stated at the lower
of cost or market. Cost is determined on a first-in, first-out (FIFO) basis.
Property and Equipment
- ----------------------
Property and equipment are stated at cost. Depreciation is provided using the
straight-line method over the estimated useful lives of the related assets (five
to seven years). Leasehold improvements are amortized over the shorter of the
lease term or the estimated useful life.
F-85
<PAGE>
Intangible Assets
- -----------------
Goodwill and other intangible assets and related amortization are as follows:
<TABLE>
<CAPTION>
Other
Goodwill Intangibles Total
--------- ----------- -----
<S> <C> <C> <C>
Balance, December 31, 1994 $ 330 $ 26 $ 356
Additions
Amortization (21) (8) (29)
--------- --------- --------
Balance, December 31, 1995 309 18 327
Additions
Amortization (21) (8) (29)
--------- --------- --------
Balance, December 31, 1996 $ 288 $ 10 $ 298
--------- --------- --------
</TABLE>
Goodwill represents the excess of the cost of the acquired business over the
fair market value of the net tangible assets. Goodwill is being amortized on
the straight-line method over a period of 15 years. Other intangibles are
stated at cost and amortized on the straight-line method over a period of five
years. Management periodically evaluates the recoverability of goodwill, which
would be adjusted for a permanent decline in value, if any, by comparing
anticipated undiscounted future cash flows from operations to net book value.
Restricted Investments
- ----------------------
The Company has set aside certain equity investments in an educational fund for
one of their key employees. The principal investment and all earnings on this
investment will be used to fund the Company's recorded obligation to pay
educational expenses for the employee's children in the future. The amounts
presented at December 31, 1995 and 1996 approximates fair value of the
underlying investments held.
Fair Value of Financial Instruments
- -----------------------------------
The carrying amount of cash and cash equivalents, accounts receivable/payable,
notes receivable/payable, insurance receivable, accrued expenses and short-term
debt approximates fair value because of the short maturity of these instruments.
The estimated fair value of long-term debt and other long-term liabilities
approximates its carrying value. Additionally, interest rates on outstanding
debt are at rates which approximate market rates for debt with similar terms and
average maturities.
Concentration of Credit Risk
- ----------------------------
Financial instruments that potentially subject the Company to concentrations of
credit risk consist principally of trade accounts receivable. Receivables are
not collateralized and accordingly, the Company performs ongoing credit
evaluations of its customers to reduce the risk of loss.
F-86
<PAGE>
NOTE 5 - INVENTORY
- ------------------
Inventory consists of the following finished goods:
<TABLE>
<CAPTION>
1995 1996
----- -----
<S> <C> <C>
Perishables $ 12 $ 19
Hardgoods 27 46
----- -----
$ 39 $ 65
===== =====
</TABLE>
NOTE 6 - PROPERTY AND EQUIPMENT
- -------------------------------
Property and equipment consist of the following:
<TABLE>
<CAPTION>
December 31,
--------------
1995 1996
------ ------
<S> <C> <C>
Machinery and equipment $ 243 $ 255
Office equipment 122 127
Furniture, fixtures and equipment 38 38
----- -----
403 420
Accumulated depreciation and amortization (92) (142)
----- -----
$ 311 $ 278
===== =====
</TABLE>
Depreciation expense for the years ended December 31, 1995 and 1996 was $65 and
$67, respectively.
NOTE 7 - RELATED PARTIES
- ------------------------
Notes receivable - stockholder consists of the following at December 31:
- -----------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1996
----- -----
<S> <C> <C>
Unsecured note, due on demand, with interest at 8.5% $ 186
Unsecured note, due on demand, with no state interest rate $ 17 42
----- -----
$ 17 $ 228
===== =====
</TABLE>
Related Party Purchases
- -----------------------
The Company's stockholder's spouse is the sole stockholder of Farm Direct
Flowers, Inc. Farm Direct Flowers, Inc. has a direct interest in Meadow Flower-
Meflor C. LTDA (Meadow Flowers), a rose farm in Ecuador. The Company's
stockholder is also a Director of Meadow Flowers. The Company purchased $2 and
$135 of merchandise from Meadow Flowers during 1995 and 1996, respectively.
These transactions were at arms-length prices. This relationship provides the
Company with the opportunity for access to roses as well as other various types
of flowers.
F-87
<PAGE>
NOTE 8 - CREDIT FACILITIES
- --------------------------
Line of Credit
- --------------
The Company has a revolving line of credit with a commercial bank for borrowings
up to $600. Interest accrues at 1/4% over the bank's base rate (9.5% and 9% at
December 31, 1995 and 1996, respectively) and is payable quarterly in arrears.
The note matures on April 30, 1998 and provides for a commitment fee payable
quarterly, computed as 1/4% of the average unused facility during the quarter.
The note is secured by a first priority perfected security interest in all
assets of the Company. Outstanding balances on the line were $80 and $302 as of
December 31, 1995 and 1996, respectively.
The Company's current credit facility contains financial and operating covenants
which, among other things, requires the Company to maintain prescribed levels of
tangible net worth and ratios of liabilities to net worth. As of December 31,
1995 and 1996, the Company was in compliance in the performance of its
obligations with respect to the covenants.
Long-Term Debt
- --------------
The Company has a promissory note payable to Johnson's Roses, Inc. due May 2,
1999 in the amount of $597.5, on which interest accrues at 6% and is payable
quarterly in arrears. The note is secured by a subordinated security interest
in all of the assets of the Company. Under the terms of the Agreement,
beginning in 1996, the Company is required to make mandatory pre-payments of
principal equal to 50% of the excess cash flow of the Company for the year then
ended subject to the approval of the commercial bank described above. No such
pre-payments have been made through December 31, 1996.
NOTE 9 - EMPLOYEE BENEFIT PLAN
- ------------------------------
The Company has established an employee savings plan under the provisions of
section 401(k) of the Internal Revenue Code. All employees are eligible to
participate in the plan subject to certain requirements. Employees can
contribute up to 15% of their gross salary to the plan. In addition, the plan
provides for discretionary Company contributions. Company contributions to the
plan for the year ended December 31, 1996 were $76.
F-88
<PAGE>
NOTE 10 - LEASES
- ----------------
The Company leases office space, computers and trucks used in the delivery of
orders to customers under various agreements classified as operating leases.
Rent expense under these operating leases for 1995 and 1996 were approximately
$230 and $267, respectively. The leases expire in years 1997 through 2001.
The aggregate future minimum rentals under these operating leases are as
follows:
<TABLE>
<CAPTION>
<S> <C>
1997 $ 235
1998 196
1999 73
2000 37
2001 9
---------
$ 550
=========
</TABLE>
NOTE 11 - COMMITMENTS AND CONTINGENCIES
- ---------------------------------------
Purchase Commitment
- -------------------
The Company is committed to pay the actual costs of Johnson's Roses, Inc. rose
growing operations in return for the exclusive rights to their roses. The term
of the contract is from November 1, 1995 to December 31, 1998; however, the
Company may cancel the contract within six months. Costs paid to Johnson's
Roses were approximately $1 million for each of the years ended 1995 and 1996.
Prices paid under this contract may be higher than those obtainable from other
suppliers.
Deferred Compensation Plan
- --------------------------
The Company has a deferred compensation plan for one of the key executives. The
deferred compensation plan stipulates that if the executive remains in
continuous employment of the Company until age 65, then upon retirement the
Company shall pay the executive the full proceeds from a life insurance policy.
Payments of the sum specified shall be made in 120 equal monthly payments. The
cash surrender value of the life insurance policy is approximately $40 as of
December 31, and 1996 and is reflected on the Company's balance sheet within
other assets.
NOTE 12 - UNAUDITED SUBSEQUENT EVENT
- ------------------------------------
The Company and its stockholder have entered into a definitive agreement with
USA Floral Products, Inc. ("USA Floral") pursuant to which the Company will
merge with USA Floral. All outstanding shares of the Company will be exchanged
for cash concurrent with the consummation of the initial public offering of the
common stock of USA Floral. Pursuant to the definitive agreement, the Company's
shareholders may receive additional consideration in the form of shares of USA
Floral's common stock based upon 1997 earnings.
In conjunction with the merger the amounts outstanding under Notes Receivable
from stockholders will be paid to the Company.
F-89
<PAGE>
Report of Independent Accountants
---------------------------------
To the Board of Directors
and Stockholders of
Monterey Bay Bouquet, Inc. and
Bay Area Bouquets, Inc.
In our opinion, the accompanying combined balance sheet and the related
combined statements of operations, stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of Monterey
Bay Bouquet, Inc. and Bay Area Bouquet, Inc. (the Company) at December 31,
1995 and 1996, and the results of their operations and their cash flows for
the years then ended, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Minneapolis, Minnesota
June 20, 1997
F-90
<PAGE>
MONTEREY BAY BOUQUET, INC. AND BAY AREA BOUQUET, INC.
----------------------------------------------------
COMBINED BALANCE SHEET
----------------------
(In thousands, except share amounts)
<TABLE>
<CAPTION>
December 31,
---------------------- March 31,
1995 1996 1997
---- ---- ----
ASSETS (Unaudited)
------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 34 $ 19 $ 234
Accounts receivable 673 909 1,236
Inventory 138 126 126
Prepaid expenses and other current assets 8 9 11
------ ------ ------
Total current assets 853 1,063 1,607
Property and equipment, net 158 144 178
Other assets:
Cash surrender value - life insurance 43 73 80
Intangibles 47 41 34
Other 17
------ ------ ------
Total assets $1,101 $1,321 $1,916
====== ====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Credit line payable $ 100 $ 49 $ 50
Current maturities of long-term debt 20 6 26
Accounts payable 591 783 1,122
Accrued expenses 81 167 54
Notes payable to officers and stockholders 47 10 13
Income taxes payable 3 12 152
------ ------ ------
Total current liabilities 842 1,027 1,417
Long-term debt, net of current maturities 30 24 45
Growers contract - related party 48 41 39
------ ------ ------
Total liabilities 920 1,092 1,501
Commitments and contingencies
Stockholders' equity:
Common stock, Monterey Bay Bouquet, Inc.,
no par value; 1,000,000 shares authorized;
102,502 shares issued and outstanding 78 78 78
Common stock, Bay Area Bouquet, Inc., no
par value; 1,000 shares authorized; 100
shares issued and outstanding 25 25 25
Retained earnings 78 126 312
------ ------ ------
Total stockholders' equity 181 229 415
------ ------ ------
Total liabilities and stockholders' equity $1,101 $1,321 $1,916
====== ====== ======
</TABLE>
The accompanying notes are an
integral part of these combined financial statements.
F-91
<PAGE>
MONTEREY BAY BOUQUET, INC. AND BAY AREA BOUQUET, INC.
----------------------------------------------------
COMBINED STATEMENT OF OPERATIONS
--------------------------------
(In thousands)
<TABLE>
<CAPTION>
Year Ended Three Months Ended
December 31, March 31,
---------------------- --------------------
1995 1996 1996 1997
---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C>
Net sales $6,903 $9,477 $2,263 $3,641
Cost of sales 5,959 8,285 1,982 3,047
------ ------ ------ ------
Gross margin 944 1,192 281 594
Selling, general and
administrative expenses 910 1,113 206 263
------ ------ ------ ------
Operating income 34 79 75 331
Other (income) expense:
Interest expense 13 15 3 7
Other, net (9) (8) (5) (2)
------ ------ ------ ------
Income before provision for
income taxes 30 72 77 326
Provision for income taxes 10 24 32 140
------ ------ ------ ------
Net income $ 20 $ 48 $ 45 $ 186
====== ====== ====== ======
</TABLE>
The accompanying notes are an
integral part of these combined financial statements.
F-92
<PAGE>
MONTEREY BAY BOUQUET, INC. AND BAY AREA BOUQUET, INC.
----------------------------------------------------
COMBINED STATEMENT OF STOCKHOLDERS' EQUITY
------------------------------------------
(In thousands, except share amounts)
<TABLE>
<CAPTION>
Common Stock Total
--------------------- Retained Stockholders'
Shares Amount Earnings Equity
------ ------ -------- ------
<S> <C> <C> <C> <C>
Balance at December 31, 1994 102,502 $ 78 $ 58 $ 136
Net income 20 20
Issuance of common stock, Bay Area
Bouquet, Inc. 100 25 25
------- ------- ---------- ---------
Balance at December 31, 1995 102,602 103 78 181
Net income 48 48
------- ------- ---------- ---------
Balance at December 31, 1996 102,602 103 126 229
Net income (unaudited) 186 186
------- ------- ---------- ---------
Balance at March 31, 1997 (unaudited) 102,602 $ 103 $ 312 $ 415
======= ======= ========== =========
</TABLE>
The accompanying notes are an
integral part of these combined financial statements.
F-93
<PAGE>
MONTEREY BAY BOUQUET, INC. AND BAY AREA BOUQUET, INC.
----------------------------------------------------
COMBINED STATEMENT OF CASH FLOWS
--------------------------------
(In thousands)
<TABLE>
<CAPTION>
Year Ended Three Months Ended
December 31, March 31,
------------------------ ------------------
1995 1996 1996 1997
---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income $ 20 $ 48 $ 45 $ 186
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 64 87 22 16
Change in deferred income taxes 1 (3)
Change in operating assets and liabilities:
Accounts receivable (157) (236) (241) (326)
Inventory (51) 12 20
Prepaid expenses and othercurrent assets (6) (1) (2) (2)
Income taxes payable 6 12 43 141
Accounts payable and accrued expenses 180 278 261 226
Grower contract (8) 6 (2)
--------- --------- ------- --------
Net cash provided by operating activities 57 189 154 239
Cash flows from investing activities:
Purchases of property and equipment (97) (63) (26) (49)
Increase in officer receivable (30) (30) (8) (8)
Increase in intangibles (12) (3) (13) (12)
--------- --------- ------- --------
Net cash used in investing activities (139) (96) (47) (69)
Cash flows from financing activities:
Stockholder (advances) payments (28) (37) (18) 3
Proceeds from issuance of common stock 25
Net borrowings (repayments) on line of credit 19 (51) (20) 1
Repayments from related parties 14
Proceeds from issuance of long-term debt 40 50
Repayments of long-term debt (29) (20) (4) (9)
Proceeds from stockholder loans 75
--------- --------- ------- --------
Net cash (used in) provided by financing
activities 116 (108) (42) 45
Net increase (decrease) in cash and cash
equivalents 34 (15) 65 215
Cash and cash equivalents - beginning of period 34 34 19
--------- --------- ------- --------
Cash and cash equivalents - end of period $ 34 $ 19 $ 99 $ 234
========= ========= ======= ========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 13 $ 15 $ 4 $ 7
Cash paid during the period for income taxes $ 4 $ 14 $ 3
</TABLE>
The accompanying notes are an
integral part of these combined financial statements.
F-94
<PAGE>
MONTEREY BAY BOUQUET, INC. AND BAY AREA BOUQUET, INC.
----------------------------------------------------
NOTES TO COMBINED FINANCIAL STATEMENTS
--------------------------------------
DECEMBER 31, 1996
-----------------
(In thousands)
NOTE 1 - BUSINESS ORGANIZATION
- ------------------------------
Founded in 1993, Monterey Bay Bouquet, Inc. and Bay Area Bouquet, Inc. (together
the "Company") is a manufacturer of fresh cut flower bouquets operating from one
location in California. The Company purchases flowers from importers and
domestic growers and distributes them to a supermarket and a discount retailer,
each of which has locations throughout the southwestern United States. The
flower bouquets produced by the Company consist primarily of specialty
California-grown flowers.
The balance sheets and operating results for Monterey Bay Bouquet, Inc. and Bay
Area Bouquet, Inc. have been combined, as both companies have common ownership
and management. All intercompany sales and balances between the two companies
have been eliminated from these financial statements.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------------
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period.
Actual results could differ from those estimates.
Revenue Recognition
- -------------------
Income is recognized when flower bouquets are delivered to the customer.
Cash Equivalents
- ----------------
For purposes of the statement of cash flows, the Company considers all highly
liquid debt instruments purchased with a maturity of approximately three months
or less at date of purchase to be cash equivalents.
Inventory
- ---------
Inventory is stated at the lower of cost or market, with costs determined on a
first-in, first-out (FIFO) basis. Inventory consists of fresh flowers and
miscellaneous bouquet supplies.
Property and Equipment
- ----------------------
Property and equipment are carried at cost. Depreciation is provided using the
double declining
F-95
<PAGE>
balance method over the estimated useful lives of the related assets (five to
seven years). Leasehold improvements are amortized over the shorter of the lease
term or the estimated useful life.
F-96
<PAGE>
Intangibles
- -----------
Intangible assets include the costs incurred for the start up and incorporation
of both Monterey Bay Bouquet, Inc. and Bay Area Bouquet, Inc. and are being
amortized over five years. Accumulated amortization of intangible assets at
December 31, 1995 and 1996 was $16 and $25, respectively.
Fair Value of Financial Instruments
- -----------------------------------
The carrying amount of cash and cash equivalents, accounts receivable/payable,
notes receivable/payable, insurance receivable, accrued expenses and short-term
debt approximates fair value because of the short maturity of these instruments.
The estimated fair value of long-term debt and other long-term liabilities
approximates its carrying value. Additionally, interest rates on outstanding
debt are at rates which approximate market rates for debt with similar terms and
average maturities.
Concentration of Credit Risk
- ----------------------------
Financial instruments that potentially subject the Company to concentrations of
credit risk consist principally of trade accounts receivable. Receivables are
not collaterialized and accordingly, the Company performs ongoing credit
evaluations of its customers to reduce the risk of loss.
Income Taxes
- ------------
The Company is a C-Corporation for federal and state income tax purposes. The
Company accounts for income taxes using the liability method under the
provisions of Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes."
Unaudited Interim Financial Statements
- --------------------------------------
In the opinion of management, the Company has made all adjustments, consisting
only of normal recurring adjustments. necessary for a fair presentation of the
financial position of the Company as of March 31, 1997 and of the results of
operations and cash flows for the three months ended March 31, 1996 and 1997 as
presented in the accompanying unaudited interim financial statements.
F-97
<PAGE>
NOTE 3 - PROPERTY AND EQUIPMENT
- -------------------------------
Property and equipment consist of the following:
<TABLE>
<CAPTION>
December 31,
--------------
1995 1996
------ ------
<S> <C> <C>
Leasehold improvements $ 41 $ 59
Equipment 80 127
Vehicles 127 130
----- -----
248 316
Accumulated depreciation and amortization (90) (172)
----- -----
$ 158 $ 144
===== =====
</TABLE>
Depreciation and amortization expense for the years ended December 31, 1995 and
1996 was $58 and $78, respectively.
NOTE 4 - CREDIT FACILITIES
- --------------------------
Short-Term Debt
- ---------------
The Company's unsecured revolving line of credit, which expires in July 1997,
provides for direct borrowings of up to $100 and $50 in 1995 and 1996,
respectively, and bears interest at the prime rate plus 1 3/4% (8.5% and 8.25%
at December 31, 1995 and 1996, respectively). The prime rate was 8.50% and
8.25% as of December 31, 1995 and 1996, respectively. Monthly payment of
interest only is required. The outstanding balance on this line of credit was
$100 and $49 at December 31, 1995 and 1996, respectively.
Long-Term Debt
- --------------
Outstanding long-term debt consists of the following capital leases:
<TABLE>
<CAPTION>
December 31,
--------------
1995 1996
------ ------
<S> <C> <C>
Car lease; monthly principal and interest payments of $.5
through July 1997, interest at 7.9% $ 8 $ 3
Car lease; monthly principal and interest payments of $.4
through February 1999, interest at 8.5% 13 8
Car lease; monthly principal and interest payments of $1
through June 1999, interest at 12.5% 27 19
Equipment lease; monthly principal and interest payments of $.6
through April 1996, interest at 10% 2 0
----- -----
50 30
Less: Current maturities (20) (6)
----- -----
$ 30 $ 24
===== =====
</TABLE>
F-98
<PAGE>
Principal maturities on notes payable over the next five years are as follows:
<TABLE>
<CAPTION>
Year Ended
December 31,
1996
----
<S> <C>
1997 $ 13
1998 12
1999 5
-------
Total $ 30
=======
</TABLE>
NOTE 5 - INCOME TAXES
- ---------------------
The provision for income taxes is as follows:
<TABLE>
<CAPTION>
December 31,
-----------------
1995 1996
---- ----
<S> <C> <C>
Current expense:
State $ 3 $ 7
Federal 7 17
----- -----
Total income tax provision $ 10 $ 24
===== =====
</TABLE>
The provision for income taxes differs from the U.S. statutory federal income
tax rate for the following reasons:
<TABLE>
<CAPTION>
December 31,
-----------------
1995 1996
---- ----
<S> <C> <C>
Statutory federal tax rate 34.0% 34.0%
State taxes, net of federal benefit 1.4 1.4
Rate differentials (2.0) (2.2)
---- ----
33.4% 33.2%
==== ====
</TABLE>
Composition of deferred taxes has not been presented as amounts are
insignificant.
NOTE 6 - RELATED PARTY TRANSACTIONS
- -----------------------------------
The Company has leased its operating premises from the three stockholders of the
Company since April 1996. Rent paid to these stockholders was $70 for the year
ended December 31, 1996.
There is a net loan payable to the three stockholders in the amount of $47 and
$10 for the years ended December 31, 1995 and 1996, respectively. Interest is
at a rate of 10% per annum and is due upon demand.
Consulting fees were paid to the stockholders in the amounts of $92 and $182 for
the years ended December 31, 1995 and 1996, respectively.
F-99
<PAGE>
NOTE 7 - COMMITMENTS AND CONTINGENCIES
- --------------------------------------
Minimum lease payments under capital and noncancellable operating leases at
December 31, 1996:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
-------- ---------
<S> <C> <C>
1997 $16 $135
1998 14 144
1999 5 144
2000 -
2001 -
Thereafter -
-------- ---------
Total minimum lease payments 35 $423
-------- ---------
Less: Amounts representing interest (5)
--------
Present value of net minimum lease payments $30
========
</TABLE>
The Company entered into a new non-cancelable operating lease on April 1, 1997
with the owners of the Company's operating premises, the stockholders. Under
the terms of the lease, monthly rental of $12 is payable until the leases expire
in December 31, 1999.
In June 1997, the Company entered into capital leases for the purchase of three
delivery trucks. Under the terms of these capital leases monthly lease payments
of $6 are payable between June 1997 and until the leases expire in June 2000.
Legal Matters
- -------------
The Company is involved in various legal matters in the normal course of
business. In the opinion of the Company's management, these matters are not
anticipated to have a material adverse effect on the financial position or
results of operations or cash flows of the Company.
Grower Contract
- ---------------
The Company has entered into a contract with a grower who is also a stockholder
in the Company. The stockholder gave the Company cash up front in exchange for
a commitment from the Company to purchase product from the stockholder. The
contract, although due to expire in 2005, will be terminated in 1997. Income
realized for the years ended December 31, 1995 and 1996 was $8 and $8,
respectively.
F-100
<PAGE>
NOTE 8 - SIGNIFICANT CUSTOMERS AND CONCENTRATION OF CREDIT RISK
- ---------------------------------------------------------------
Sales to customers that exceeded 10% of total revenues were as follows:
<TABLE>
<CAPTION>
December 31,
--------------
1995 1996
------ ------
<S> <C> <C>
Customer A 65% 58%
Customer B 33% 39%
</TABLE>
Additionally, these customers represented 95% and 97% of accounts receivable at
December 31, 1995 and 1996, respectively. Both customers are national publicly
traded companies with multiple purchase divisions.
NOTE 9 - UNAUDITED SUBSEQUENT EVENT
- -----------------------------------
The Company and its stockholders have entered into a definitive agreement with
USA Floral Products, Inc. ("USA Floral") pursuant to which the Company will
merge with USA Floral. All outstanding shares of the Company will be exchanged
for cash concurrent with the consummation of the initial public offering of the
common stock of USA Floral. Pursuant to the definitive agreement, the Company's
shareholders may receive additional consideration of $500 in cash and additional
shares of USA Floral's common stock based upon 1997 earnings.
The Company's line of credit was renewed in July 1997.
F-101
<PAGE>
Report of Independent Accountants
---------------------------------
To the Stockholders of
Alpine Gem Flower Shippers, Inc.
In our opinion, the accompanying balance sheet and the related statements of
operations, stockholders' equity and of cash flows present fairly, in all
material respects, the financial position of Alpine Gem Flower Shippers, Inc.
at December 31, 1995 and 1996, and the results of its operations and its cash
flows for the years then ended, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of
the Company's management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits of
these statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Minneapolis, Minnesota
June 20, 1997
F-102
<PAGE>
ALPINE GEM FLOWER SHIPPERS, INC.
-------------------------------
BALANCE SHEET
-------------
(In thousands, except share amounts)
<TABLE>
<CAPTION>
December 31,
------------------------- March 31,
1995 1996 1997
---- ---- ----
ASSETS (Unaudited)
------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 162 $ 1 $ 214
Accounts receivable 1,070 1,215 1,320
Prepaid expenses and other current assets 19 18 22
------ ------ ------
Total current assets 1,251 1,234 1,556
Property and equipment, net 18 26 26
------ ------ ------
Total assets $1,269 $1,260 $1,582
====== ====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable $ 357 $ 469 $ 491
Commissions payable 147 168 173
Notes payable to stockholders 100
Accrued expenses 16 14 12
------ ------ -------
Total liabilities 520 651 776
Commitments and contingencies
Stockholders' equity:
Common stock, no par value; 50,000 shares
authorized; 20,000 shares issued and outstanding 727 727 727
Retained earnings (deficit) 22 (118) 79
------ ------ ------
Total stockholders' equity 749 609 806
------ ------ ------
Total liabilities and stockholders' equity $1,269 $1,260 $1,582
====== ====== ======
</TABLE>
The accompanying notes are an
integral part of these financial statements.
F-103
<PAGE>
ALPINE GEM FLOWER SHIPPERS, INC.
-------------------------------
STATEMENT OF OPERATIONS
-----------------------
(In thousands)
<TABLE>
<CAPTION>
Year Ended Three Months Ended
December 31, March 31,
---------------------- ------------------
1995 1996 1996 1997
---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C>
Net sales $8,139 $9,334 $2,598 $2,674
Cost of sales 6,287 7,132 2,045 2,084
------ ------ ------ ------
Gross margin 1,852 2,202 553 590
Selling, general and
administrative expenses 1,526 1,868 369 394
------ ------ ------ ------
Operating income 326 334 184 196
Other (income) expense:
Interest income (35) (41) (9) (8)
Other, net (12) (13) 12 (10)
------ ------ ------ ------
Net income $ 373 $ 388 $ 181 $ 214
====== ====== ====== ======
Unaudited pro forma information:
Pro forma net income before
provision for income taxes $ 373 $ 388 $ 181 $ 214
Provision for income taxes 149 155 72 86
------ ------ ------ ------
Pro forma income (see Note 2) $ 224 $ 233 $ 109 $ 128
====== ====== ====== ======
</TABLE>
The accompanying notes are an
integral part of these financial statements.
F-104
<PAGE>
ALPINE GEM FLOWER SHIPPERS, INC.
-------------------------------
STATEMENT OF STOCKHOLDERS' EQUITY
---------------------------------
(In thousands, except share amounts)
<TABLE>
<CAPTION>
Common Stock Total
------------------ Retained Stockholders'
Shares Amount Earnings Equity
------ ------ -------- -------
<S> <C> <C> <C> <C>
Balance at December 31, 1994 20,000 $ 727 $ (59) $ 668
Net income 373 373
Dividends paid (292) (292)
------ ------ -------- -------
Balance at December 31, 1995 20,000 727 22 749
Net income 388 388
Dividends paid (528) (528)
------ ------ -------- -------
Balance at December 31, 1996 20,000 727 (118) 609
Net income (unaudited) 214 214
Dividends paid (unaudited) (17) (17)
------ ------ -------- -------
Balance at March 31, 1997
(unaudited) 20,000 $ 727 $ 79 $ 806
====== ====== ======== =======
</TABLE>
The accompanying notes are an
integral part of these financial statements.
F-105
<PAGE>
ALPINE GEM FLOWER SHIPPERS, INC.
-------------------------------
STATEMENT OF CASH FLOWS
-----------------------
(In thousands)
<TABLE>
<CAPTION>
Year Ended Three Months Ended
December 31, March 31,
------------------------ --------------------
1995 1996 1996 1997
---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income $ 373 $ 388 $ 181 $ 214
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation 13 27
Change in operating assets and
liabilities:
Accounts receivable (266) (145) (290) (105)
Prepaid expenses and other
current assets (5) 1 (2) (4)
Accounts payable and accrued
expenses 79 131 241 25
----- ----- ----- -----
Net cash provided by
operating activities 194 402 130 130
Cash flows from investing activities:
Purchases of property and equipment (3) (40) (26)
Proceeds from disposal of property and
equipment 5
----- ----- ----- -----
Net cash used in investing
activities (3) (35) (26)
Cash flows from financing activities:
Proceeds from short-term loan
from stockholders 100
Stockholder dividends (292) (528) (45) (17)
----- ----- ----- -----
Net cash (used in) provided
by financing activities (292) (528) (45) 83
Net increase (decrease) in cash
and cash equivalents (101) (161) 59 213
Cash and cash equivalents -
beginning of period 263 162 162 1
----- ----- ----- -----
Cash and cash equivalents - end of
period $ 162 $ 1 $ 221 $ 214
===== ===== ===== =====
</TABLE>
The accompanying notes are an
integral part of these financial statements.
F-106
<PAGE>
ALPINE GEM FLOWER SHIPPERS, INC.
-------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
DECEMBER 31, 1996
-----------------
(In thousands)
NOTE 1 - BUSINESS ORGANIZATION
- ------------------------------
Founded in 1972, Alpine Gem Flower Shippers, Inc. (the "Company") is a broker
and shipper of perishable floral products, operating from two locations in
Montana and California. The Company distributes primarily to wholesalers
throughout the United States.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------------
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period.
Actual results could differ from those estimates.
Revenue Recognition
- -------------------
The Company recognizes revenue from product sales when the goods are shipped to
its customers.
Cash Equivalents
- ----------------
For purposes of the statement of cash flows, the Company considers all highly
liquid debt instruments purchased with a maturity of approximately three months
or less at date of purchase to be cash equivalents.
Property and Equipment
- ----------------------
Property and equipment are carried at cost. Depreciation is provided using
accelerated methods over the estimated useful lives of the related assets (five
to seven years).
Fair Value of Financial Instruments
- -----------------------------------
The carrying amount of cash and cash equivalents, accounts receivable/payable,
notes receivable/payable and accrued expenses approximates fair value because of
the short maturity of these instruments.
Concentration of Credit Risk
- ----------------------------
Financial instruments that potentially subject the Company to concentrations of
credit risk consist principally of trade accounts receivable. Receivables are
not collateralized and accordingly, the Company performs ongoing credit
evaluations of its customers to reduce the risk of loss.
F-107
<PAGE>
Income Taxes
- ------------
The Company has elected to be treated as a cash basis S-Corporation for federal
and state income taxes and, accordingly, any liabilities for income taxes are
the direct responsibility of the stockholders.
There are differences between the financial statement carrying amounts and the
tax bases of existing assets and liabilities primarily related to accounts
receivable and accounts payable. At December 31, 1996, the Company's net assets
for financial reporting purposes exceeds the tax basis by approximately $745.
In conjunction with the proposed merger with USA Floral, the Company's S-
Corporation election will terminate and the net difference between the book and
tax bases of assets at that date will be immediately recognized in the financial
statements.
The unaudited pro forma income tax information included in the Statement of
Operations is presented in accordance with Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes," as if the Company had been
subject to federal and state income taxes for the entire periods presented.
Unaudited Interim Financial Statements
- --------------------------------------
In the opinion of management, the Company has made all adjustments, consisting
only of normal recurring adjustments, necessary for a fair presentation of the
financial position of the Company as of March 31, 1997 and of the results of
operations and cash flows for the three months ended March 31, 1996 and 1997 as
presented in the accompanying unaudited interim financial statements.
NOTE 3 - PROPERTY AND EQUIPMENT
- -------------------------------
Property and equipment consist of the following:
<TABLE>
<CAPTION>
December 31,
--------------
1995 1996
---- ----
<S> <C> <C>
Equipment $ 136 $ 163
Accumulated depreciation (117) (137)
----- -----
$ 19 $ 26
===== =====
</TABLE>
Depreciation expense for the years ended December 31, 1995 and 1996 was $13 and
$27, respectively.
NOTE 4 - RELATED PARTY TRANSACTIONS
- -----------------------------------
The Company rents office space from the stockholders of Alpine Gem for the years
ended 1995 and 1996, total rent payments made were $18.
In March 1997, the Company borrowed $100 from the stockholders which was repaid
in full in May 1997.
F-108
<PAGE>
NOTE 5 - COMMITMENTS AND CONTINGENCIES
- --------------------------------------
Lease Commitments
- -----------------
The Company occupies premises under one noncancelable operating lease which
expires on December 31, 1998. At December 31, 1996, future minimum rental
payments under this lease arrangement are as follows:
<TABLE>
<S> <C>
1997 $114
1998 111
----
Total minimum lease payments $225
====
</TABLE>
Rent expense for the years ended December 31, 1995 and 1996 was $82 and $179,
respectively.
Legal Matters
- -------------
The Company is involved in various legal matters in the normal course of
business. In the opinion of the Company's management, these matters are not
anticipated to have a material adverse effect on the financial position or
results of operations or cash flows of the Company.
NOTE 6 - UNAUDITED SUBSEQUENT EVENT
- -----------------------------------
The Company and its stockholders have entered into a definitive agreement with
USA Floral Products, Inc. ("USA Floral") pursuant to which the Company will
merge with USA Floral. All outstanding shares of the Company will be exchanged
for cash and shares of USA Floral common stock concurrent with the consummation
of initial public offering of the common stock of USA Floral.
F-109
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth fees payable to the Securities and Exchange
Commission and the National Association of Securities Dealers, Inc., and other
estimated expenses expected to be incurred in connection with issuance and
distribution of securities being registered. All such fees and expenses shall be
paid by the Company.
<TABLE>
<CAPTION>
<S> <C>
Securities and Exchange Commission..... $25,100
Registration Fee
NASD Fee............................... 8,780
Nasdaq National Market Listing Fee..... 44,095
Printing and Engraving Expenses........ *
Accounting Fees and Expenses........... *
Legal Fees and Expenses................ *
Directors and Officers Insurance....... *
Transfer Agent Fees and Expenses....... *
Miscellaneous.......................... *
-------
Total............................... $
=======
</TABLE>
- ---------------
* To be filed by amendment
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 102(b)(7) of the Delaware General Corporation Law (the "DGCL")
permits a corporation, in its certificate of incorporation, to limit or
eliminate, subject to certain statutory limitations, the liability of directors
to the corporation or its stockholders for monetary damages for breaches of
fiduciary duty, except for liability (a) for any breach of the director's duty
of loyalty to the corporation or its stockholders, (b) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (c) under Section 174 of the DGCL, or (d) for any transaction from which
the director derived an improper personal benefit. Article 10 of the
registrant's Certificate of Incorporation provides that the personal liability
of directors of the registrant is eliminated to the fullest extent permitted by
Section 102(b)(7) of the DGCL.
Under Section 145 of the DGCL, a corporation has the power to indemnify
directors and officers under certain prescribed circumstances and subject to
certain limitations against certain costs and expenses, including attorneys'
fees actually and reasonably incurred in connection with any action, suit or
proceeding, whether civil, criminal, administrative or investigative, to which
any of them is a party by reason of being a director or officer of the
corporation if it is determined that the director or officer acted in accordance
with the applicable standard of conduct set forth in such statutory provision.
Article 7 of the registrant's Bylaws provides that the registrant will indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding by reason of the
fact that he is or was a director, officer, employee or agent of the registrant,
or is or was serving at the request of the registrant as a director, officer,
employee or agent of another entity, against certain liabilities, costs and
expenses. Article 7 further permits the registrant to maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
registrant, or is or was serving at the request of the registrant as a director,
officer, employee or agent of another entity, against any liability asserted
against such person and incurred by such person in any such capacity or arising
out of his status as such, whether or not the registrant would have the power to
indemnify such person against such liability under the DGCL. The registrant
expects to maintain directors' and officers' liability insurance.
II-1
<PAGE>
Under Section 7 of the Underwriting Agreement, the Underwriters are
obligated, under certain circumstances, to indemnify directors and officers of
the registrant against certain liabilities, including liabilities under the
Securities Act of 1933, as amended (the "Securities Act"). Reference is made to
the form of Underwriting Agreement filed as Exhibit 1.01 hereto.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
On April 22, the registrant sold 1,000,000 shares of its common stock to
Robert J. Poirier in an organizational subscription for aggregate cash
consideration of $1,000. The transaction was intended to be exempt from the
registration requirements of the Securities Act by virtue of Section 4(2)
thereof.
On April 22, the registrant sold 1,000,000 shares of its common stock to
Jonathan Ledecky in an organizational subscription for aggregate cash
consideration of $1,000. The transaction was intended to be exempt from the
registration requirements of the Securities Act by virtue of Section 4(2)
thereof.
On April 23, 1997, the registrant sold 100,000 shares of its common stock
to Jonathan Ledecky in an organizational subscription for aggregate cash
consideration of $100,000. The transaction was intended to be exempt from the
registration requirements of the Securities Act by virtue of Section 4(2)
thereof.
On April 23, 1997, the registrant sold 100,000 shares of its common stock
to Dewey K. Shay in an organizational subscription for aggregate cash
consideration of $100,000. The transaction was intended to be exempt from the
registration requirements of the Securities Act by virtue of Section 4(2)
thereof.
On April 23, 1997, the registrant sold 100,000 shares of its common stock
to Edward J. Mathias in an organizational subscription for aggregate cash
consideration of $100,000. The transaction was intended to be exempt from the
registration requirements of the Securities Act by virtue of Section 4(2)
thereof.
On May 8, 1997, the registrant sold 25,000 shares of its common stock to
Mark Ein in an organizational subscription for aggregate cash consideration of
$25,000. The transaction was intended to be exempt from the registration
requirements of the Securities Act by virtue of Section 4(2) thereof.
On May 10, 1997, the registrant sold 25,000 shares of its common stock to
John A. Quelch in an organizational subscription for aggregate cash
consideration of $25,000. The transaction was intended to be exempt from the
registration requirements of the Securities Act by virtue of Section 4(2)
thereof.
On May 25, 1997, the registrant sold 50,000 shares of its common stock to
Joanne C. McClure in an organizational subscription for aggregate cash
consideration of $50,000. The transaction was intended to be exempt from the
registration requirements of the Securities Act by virtue of Section 4(2)
thereof.
As of August 5, 1997, the registrant entered into an Amended and Restated
Agreement and Plan of Contribution with CFX, Inc. ("CFX"), Floral Acquisition
Corporation and Dwight Haight, James A. Hill and Michael Grover, pursuant to
which the registrant has agreed to issue 250,000 shares of its Common Stock, as
partial consideration for the merger of a wholly-owned subsidiary of the
registrant with and into CFX. Pursuant to the Agreement and Plan of
Contribution, the Company has agreed to grant options to purchase that number of
shares of Common Stock equal to 6.25% of the Consideration (as defined in the
Agreement and Plan of Contribution) to certain employees of CFX following
consummation of the merger. The transaction was intended to be exempt from the
registration requirements of the Securities Act by virtue of Section 4(2)
thereof.
As of August 6, 1997, the registrant entered into an Amended and Restated
Agreement and Plan of Contribution with Bay State Florist Supply ("Bay State"),
and BSF Acquisition Corp., pursuant to which the registrant has agreed to issue
495,550 shares of its Common Stock, as partial consideration for the merger of a
wholly-owned subsidiary of the registrant with and into Bay State. Pursuant to
the Agreement and Plan of Contribution, the Company has agreed to grant options
to purchase that number of shares of Common Stock equal
II-2
<PAGE>
to 6.25% of the Consideration (as defined in the Agreement and Plan of
Contribution) to certain employees of Bay State following consummation of the
merger. The transaction was intended to be exempt from the registration
requirements of the Securities Act by virtue of Section 4(2) thereof.
As of August 5, 1997, the registrant entered into an Amended and Restated
Agreement and Plan of Contribution with Alpine Gem Flower Shippers, Inc.
("Alpine Gem"), AGFS Acquisition Corp. and John Q. Graham, Jr. and Diane
Lizotte-Graham, pursuant to which the registrant has agreed to issue 160,000
shares of its Common Stock, as partial consideration for the merger of a wholly-
owned subsidiary of the registrant with and into Alpine Gem. Pursuant to the
Agreement and Plan of Contribution, the Company has agreed to grant options to
purchase that number of shares of Common Stock equal to 6.25% of the
Consideration (as defined in the Agreement and Plan of Contribution) to certain
employees of Alpine Gem following consummation of the merger. The transaction
was intended to be exempt from the registration requirements of the Securities
Act by virtue of Section 4(2) thereof.
As of August 4, 1997, the registrant entered into an Agreement and Plan of
Contribution with United Wholesale Florists, Inc., United Wholesale Florists of
America, Inc., UWF Acquisition Corp., UWFA Acquisition Corp. and G. Warren
Stephenson and Raymond R. Ashmore, pursuant to which the registrant has agreed
to issue 268,500 shares of its Common Stock as partial consideration for the
merger of wholly-owned subsidiaries of the registrant with and into "United
Wholesale" (as defined in the Prospectus). Pursuant to the Agreement and Plan of
Contribution, the Company has agreed to grant options to purchase that number of
shares of Common Stock equal to 6.25% of the Consideration (as defined in the
Agreement and Plan of Contribution) to certain employees of United Wholesale
following consummation of the merger. The transaction was intended to be exempt
from the registration requirements of the Securities Act by virtue of Section
4(2) thereof.
As of August 5, 1997, the registrant entered into an Amended and Restated
Agreement and Plan of Contribution with The Roy Houff Company ("Houff"), RHI
Acquisition Corp. and Roy O. Houff, pursuant to which the registrant has agreed
to grant options to purchase that number of shares of Common Stock equal to
6.25% of the Consideration (as defined in the Agreement and Plan of
Contribution) to certain employees of Houff following consummation of the
merger. The transaction was intended to be exempt from the registration
requirements of the Securities Act by virtue of Section 4(2) thereof.
As of August 5, 1997, the registrant entered into an Agreement and Plan of
Contribution with American Florist Supply, Inc., AFS Acquisition Corp. and John
T. Dickinson, pursuant to which the registrant has agreed (i) to grant options
to purchase that number of shares of Common Stock equal to 6.25% of the
Consideration (as defined in the Agreement and Plan of Contribution) and (ii) to
issue up to that number of shares of Common Stock with an aggregate value of up
to $2,400,000 pursuant to an earn-out arrangement. The transaction was intended
to be exempt from the registration requirements of the Securities Act by virtue
of Section 4(2) thereof.
As of August 5, 1997, the registrant entered into an Amended and Restated
Agreement and Plan of Contribution with Monterey Bay Bouquet, Inc., Bay Area
Bouquets, Inc., USA Floral Acquisition Co. and Jeffrey Brothers, Philip Buran
and Douglas Anderson, pursuant to which the registrant has agreed to (i) grant
options to purchase that number of shares of Common Stock equal to 6.25% of the
Consideration (as defined in the Agreement and Plan of Contribution) to certain
employees of Monterey Bay following consummation of the merger and (ii) to issue
up to that number of shares of Common Stock with an aggregate value of up to
$3,000,000 pursuant to an earn-out arrangement. The transaction was intended to
be exempt from the registration requirements of the Securities Act by virtue of
Section 4(2) thereof.
On August 4, 1997, the registrant entered into an Agreement and Plan of
Contribution with Flower Trading Corporation, FlowTrad Corporation N.V., FT
Acquisition Corp., Gustavo Moreno and Seacross Trading, Inc., pursuant to which
the registrant has agreed to issue 160,000 shares of its Common Stock as partial
consideration for the merger of a wholly-owned subsidiary of the registrant with
and into "Flower Trading" (as defined in the Prospectus). Pursuant to the
Agreement and Plan of Contribution, the Company has agreed to grant options to
purchase that number of shares of Common Stock equal to 6.25% of the
Consideration (as defined in the Agreement
II-3
<PAGE>
and Plan of Contribution) to certain employees of Flower Trading following
consummation of the Merger. The transaction was intended to be exempt from the
registration requirements of the Securities Act by virtue of Section 4(2)
thereof.
On August 6, the registrant granted Jonathan Ledecky an option to purchase
110,000 shares of Common Stock at an exercise price equal to the initial public
offering price. The transaction was intended to be exempt from the registration
requirements of the Securities Act by virtue of Section 4(2) thereof.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following exhibits are filed as part of this registration
statement:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
<C> <S>
1.01 Form of Underwriting Agreement. *
3.01 Amended and Restated Certificate of Incorporation of U.S.A. Floral
Products, Inc. *
3.02 Bylaws of U.S.A. Floral Products, Inc. *
5.01 Opinion of Morgan, Lewis & Bockius LLP as to the legality of the
securities being registered. *
10.01 Amended and Restated Agreement and Plan of Contribution by and among
U.S.A. Floral Products, Inc., RHI Acquisition Corp., The Roy Houff
Company and Roy O. Houff, dated as of August 5, 1997. *
10.02 Amended and Restated Agreement and Plan of Contribution by and among
U.S.A. Floral Products, Inc., Floral Acquisition Corp., CFX, Inc. and
Dwight Haight, James A. Hill and Michael Grover, dated as of August 5,
1997. *
10.03 Amended and Restated Agreement and Plan of Contribution by and among
U.S.A. Floral Products, Inc., BSF Acquisition Corp. and Bay State
Florist Supply, dated as of August 6, 1997. *
10.04 Amended and Restated Agreement and Plan of Contribution by and among
U.S.A. Floral Products, Inc., USA Floral Acquisition Co., Monterey Bay
Bouquet, Inc. and Bay Area Bouquets, Inc., and Jeffrey Brothers, Philip
Buran and Douglas Anderson, dated as of August 5, 1997. *
10.05 Amended and Restated Agreement and Plan of Contribution by and among
U.S.A. Floral Products, Inc., AGFS Acquisition Corp., Alpine Gem Flower
Shippers, Inc., John Q. Graham, Jr. and Diane Lizotte-Graham, dated as
of August 5, 1997. *
10.06 Agreement and Plan of Contribution by and among U.S.A. Floral Products,
Inc., United Wholesale Florists, Inc., United Wholesale Florists of
America, Inc., UWF Acquisition Corp. UWFA Acquisition Corp. and G.
Warren Stephenson and Raymond R. Ashmore, dated as of August 4, 1997. *
10.07 Amended and Restated Agreement and Plan of Contribution by and among
U.S.A. Floral Products, Inc., American Florist Supply, Inc., AFS
Acquisition Corp. and John T. Dickinson, dated as of August 5, 1997. *
10.08 Agreement and Plan of Contribution by and among U.S.A. Floral Products,
Inc., FT Acquisition Corporation, Flower Trading Corporation, Flowrad
Corporation N.V. and the stockholders of Flowrad Corporation N.V.,
dated as of August 4, 1997. *
10.09 Employment Agreement between U.S.A. Floral Products, Inc. and Robert
Poirier, dated as of April 2, 1997. *
</TABLE>
- ---------------
* To be filed by amendment.
II-4
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
10.10 U.S.A. Floral Products, Inc. 1997 Long-Term Incentive Plan.*
10.11 U.S.A. Floral Products, Inc. 1997 Non-Employee Directors' Stock Plan.*
10.12 U.S.A. Floral Products, Inc. 1997 Employee Stock Purchase Plan.*
10.13 Form of Employment Agreement between U.S.A. Floral Products, Inc. and
Raymond C. Anderson.*
10.14 Form of Employment Agreement to be entered into between The Roy Houff
Company and Roy O. Houff.*
10.15 Form of Employment Agreement to be entered into between CFX, Inc. and
Dwight Haight.*
10.16 Form of Employment Agreement to be entered into between Bay State
Florist Supply, Inc. and William W. Rudolph.*
10.17 Form of Employment Agreement to be entered into between Monterey Bay
Bouquet, Inc. and Jeffrey Brothers.*
10.18 Form of Employment Agreement to be entered into between Alpine Gem
Flower Shippers, Inc. and John Q. Graham, Jr.*
10.19 Form of Employment Agreement to be entered into between United
Wholesale Florists, Inc. and Raymond R. Ashmore.*
10.20 Form of Employment Agreement to be entered into between American
Florist Supply, Inc. and John T. Dickinson.*
23.01 Consent of Price Waterhouse LLP.
23.02 Consent of Madsen, Sapp, Mena, Rodriguez & Co., P.A.
23.03 Consent of Morgan, Lewis & Bockius LLP (included in opinion filed as
Exhibit 5.1).*
24.01 Power of Attorney (included on signature page of this registration
statement).
27.01 Financial Data Schedule.
99.01 Consent of Roy O. Houff as a person named to become a director.
99.02 Consent of Dwight Haight as a person named to become a director.
99.03 Consent of William W. Rudolph as a person named to become a director.
99.04 Consent of Jeffrey Brothers as a person named to become a director.
99.05 Consent of John Q. Graham, Jr. as a person named to become a director.
99.06 Consent of Raymond R. Ashmore as a person named to become a director.
99.07 Consent of John T. Dickinson as a person named to become a director.
99.08 Consent of Gustavo Moreno as a person named to become a director.
</TABLE>
- ----------------------------------
* To be filed by amendment.
II-5
<PAGE>
(b) Financial statement schedules have been omitted because they are
inapplicable, are not required under applicable provisions of Regulation S-X, or
the information that would otherwise be included in such schedules is contained
in the registrant's financial statements or accompanying notes.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes to provide to the underwriter
at the closing specified in the underwriting agreements certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registrations
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Philadelphia,
Commonwealth of Pennsylvania, on August 7, 1997.
U.S.A. Floral Products, Inc.
By: /s/ Robert J. Poirier
----------------------------
Robert J. Poirier
President and
Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints Robert J. Poirier and Jonathan J. Ledecky, and
each of them, his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his person's name, place and
stead, in any and all capacities to sign any and all amendments (including post-
effective amendments) to this Registration Statement and to file the same, with
all exhibits thereto, and all other documents in connection therewith, with the
Securities and Exchange Commission, granting unto each said attorney-in-fact and
agent full power and authority to do and perform each and every act in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents, or
either of them or their or his substitute or substitutes may lawfully do ro
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- --------------------------- ---------------------------------- ---------------
<S> <C> <C>
/s/ Robert J. Poirier President and Chief Executive August 7, 1997
- --------------------------- Officer and a Director
Robert J. Poirier (Principal Executive Officer)
/s/ Raymond C. Anderson Chief Financial Officer August 7, 1997
- --------------------------- (Principal Financial and
Raymond C. Anderson Accounting Officer)
/s/ Jonathan J. Ledecky Director August 7, 1997
- ---------------------------
Jonathan J. Ledecky
/s/ Vincent W. Eades Director August 7 , 1997
- ---------------------------
Vincent W. Eades
/s/ Edward J. Mathias Director August 7, 1997
- ---------------------------
Edward J. Mathias
/s/ John A. Quelch Director August 7 , 1997
- ---------------------------
John A. Quelch
</TABLE>
II-7
<PAGE>
Exhibit 23.01
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our reports relating to the respective
financial statements which appear in such Prospectus.
<TABLE>
<CAPTION>
Financial Statements Date
-------------------- ----
<S> <C>
USA Floral Products, Inc. July 30, 1997
The Roy Houff Company June 25, 1997
CFX, Inc. June 20, 1997
Bay State Florist Supply, Inc. June 27, 1997
Flower Trading Corporation August 1, 1997
United Wholesale Florists, Inc. and
United Wholesale Florists of
America, Inc. July 15, 1997
American Florist Supply, Inc. July 11, 1997
Monterey Bay Bouquet, Inc.
and Bay Area Bouquets, Inc. June 20, 1997
Alpine Gem Flower Shippers, Inc. June 20, 1997
</TABLE>
We also consent to the reference to us under the heading "Experts".
PRICE WATERHOUSE LLP
August 7, 1997
<PAGE>
EXHIBIT 23.02
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated March 8, 1996, relating
to the financial statements of CFX, Inc., which appear in such Prospectus. We
also consent to the references to us under the headings "Experts" and "Selected
Financial Data" in such Prospectus. However, it should be noted that Madsen,
Snapp, Mena, Rodriguez & Co., P.A. has not prepared or certified such "Selected
Financial Data."
/s/ Madsen, Snapp, Mena, Rodriguez & Co., P.A
Madsen, Snapp, Mena, Rodriguez & Co., P.A
Plantation, Florida
August 5, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 317
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 455
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 772
<CURRENT-LIABILITIES> 400
<BONDS> 0
0
0
<COMMON> 402
<OTHER-SE> (30)
<TOTAL-LIABILITY-AND-EQUITY> 772
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<PAGE>
EXHIBIT 99.01
CONSENT OF PERSON ABOUT TO BECOME A DIRECTOR
I, Roy O. Houff, hereby consent to the use, in the Registration
Statement on Form S-1 of U.S.A. Floral Products, Inc., a Delaware corporation
(the "Company"), to which this consent is filed as an exhibit included therein,
of my name as a person about to become a Director of the Company.
/s/ Roy O. Houff
--------------------
Roy O. Houff
August , 1997
<PAGE>
EXHIBIT 99.02
CONSENT OF PERSON ABOUT TO BECOME A DIRECTOR
I, Dwight Haight, hereby consent to the use, in the Registration
Statement on Form S-1 of U.S.A. Floral Products, Inc., a Delaware corporation
(the "Company"), to which this consent is filed as an exhibit included therein,
of my name as a person about to become a Director of the Company.
/s/ Dwight Haight
-----------------
Dwight Haight
August 2, 1997
<PAGE>
EXHIBIT 99.03
CONSENT OF PERSON ABOUT TO BECOME A DIRECTOR
I, William W. Rudolph, hereby consent to the use, in the Registration
Statement on Form S-1 of U.S.A. Floral Products, Inc., a Delaware corporation
(the "Company"), to which this consent is filed as an exhibit included therein,
of my name as a person about to become a Director of the Company.
/s/ William W. Rudolph
----------------------
William W. Rudolph
August 3, 1997
<PAGE>
EXHIBIT 99.04
CONSENT OF PERSON ABOUT TO BECOME A DIRECTOR
I, Jeffrey Brothers, hereby consent to the use, in the Registration
Statement on Form S-1 of U.S.A. Floral Products, Inc., a Delaware corporation
(the "Company"), to which this consent is filed as an exhibit included therein,
of my name as a person about to become a Director of the Company.
/s/ Jeffrey Brothers
--------------------
Jeffrey Brothers
August , 1997
<PAGE>
EXHIBIT 99.05
CONSENT OF PERSON ABOUT TO BECOME A DIRECTOR
I, Raymond R. Ashmore, hereby consent to the use, in the Registration
Statement on Form S-1 of U.S.A. Floral Products, Inc., a Delaware corporation
(the "Company"), to which this consent is filed as an exhibit included therein,
of my name as a person about to become a Director of the Company.
/s/ Raymond R. Ashmore
----------------------
Raymond R. Ashmore
August 3, 1997
<PAGE>
EXHIBIT 99.06
CONSENT OF PERSON ABOUT TO BECOME A DIRECTOR
I, John Q. Graham,Jr., hereby consent to the use, in the Registration
Statement on Form S-1 of U.S.A. Floral Products, Inc., a Delaware corporation
(the "Company"), to which this consent is filed as an exhibit included therein,
of my name as a person about to become a Director of the Company.
/s/ John Q. Graham, Jr.
-----------------------
John Q. Graham, Jr.
August 5, 1997
<PAGE>
EXHIBIT 99.07
CONSENT OF PERSON ABOUT TO BECOME A DIRECTOR
I, John T. Dickinson, hereby consent to the use, in the Registration
Statement on Form S-1 of U.S.A. Floral Products, Inc., a Delaware corporation
(the "Company"), to which this consent is filed as an exhibit included therein,
of my name as a person about to become a Director of the Company.
/s/ John T. Dickinson
---------------------
John T. Dickinson
August 4, 1997
<PAGE>
EXHIBIT 99.08
CONSENT OF PERSON ABOUT TO BECOME A DIRECTOR
I, Gustavo Moreno, hereby consent to the use, in the Registration
Statement on Form S-1 of U.S.A. Floral Products, Inc., a Delaware corporation
(the "Company"), to which this consent is filed as an exhibit included therein,
of my name as a person about to become a Director of the Company.
/s/ Gustavo Moreno
------------------
Gustavo Moreno
August 5, 1997
