<PAGE>
REGISTRATION NO. 333-39969
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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U.S.A. FLORAL PRODUCTS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 5193 52-2030697
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL
JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION
NO.)
CLASSIFICATION CODE NUMBER)
INCORPORATION OR
ORGANIZATION)
1025 THOMAS JEFFERSON STREET, N.W.
SUITE 600 WEST
WASHINGTON, D.C. 20007
(202) 333-0800
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
ROBERT J. POIRIER
CHAIRMAN OF THE BOARD, PRESIDENT AND CHIEF EXECUTIVE OFFICER
U.S.A. FLORAL PRODUCTS, INC.
1025 THOMAS JEFFERSON STREET, N.W.
SUITE 600 WEST
WASHINGTON, D.C. 20007
(202) 333-0800
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
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COPY TO:
DAVID A. GERSON, ESQ.
MORGAN, LEWIS & BOCKIUS LLP
ONE OXFORD CENTRE
THIRTY-SECOND FLOOR
PITTSBURGH, PENNSYLVANIA 15219
(412) 560-3300
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE 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. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) 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 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 this Form is a post-effective amendment filed pursuant to Rule 462(d)
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,
check the following box. [_]
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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.
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<PAGE>
PROSPECTUS
12,500,000 SHARES
U.S.A. FLORAL PRODUCTS, INC.
COMMON STOCK
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This Prospectus covers 12,500,000 shares of common stock, $.001 par value
(the "Common Stock") which may be offered and issued by U.S.A. Floral
Products, Inc. (the "Company" or "USA Floral") from time to time in connection
with merger or acquisition transactions entered into by the Company. It is
expected that the terms of the acquisitions involving the issuance of
securities covered by this Prospectus will be determined by direct
negotiations with the owners or controlling businesses of the respective
businesses or assets to be merged with or acquired by the Company, and that
the shares of Common Stock issued will be valued at prices reasonably related
to the market prices of Common Stock either at the time the terms of a merger
or acquisition are agreed upon or at or about the time shares are delivered.
No underwriting discounts or commissions will be paid, although finder's fees
may be paid from time to time with respect to specific mergers or
acquisitions. Any person receiving such fees may be deemed to be an
underwriter within the meaning of the Securities Act of 1933, as amended (the
"Securities Act").
The Company's Common Stock is approved for quotation on the Nasdaq National
Market. As of November 18, 1997, 9,594,050 shares of Common Stock were
outstanding, of which 5,750,000 shares are registered and available for
unrestricted trading in the public markets unless owned by affiliates of the
Company. Application will be made to list the shares of Common Stock offered
hereby on the Nasdaq National Market. On November 18, 1997, the closing price
of the Common Stock on the Nasdaq National Market was $16.375 per share. The
Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports and other information with the Securities and Exchange
Commission. See "Additional Information."
All expenses of this offering will be paid by the Company.
----------------
SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS.
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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.
----------------
The date of this Prospectus is November 18, 1997
<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. 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.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Prospectus Summary.................. 3
Risk Factors........................ 9
Formation of the Company............ 15
Price Range of Common Stock......... 18
Dividend Policy..................... 18
Capitalization...................... 19
Selected Pro Forma Combined
Financial Data..................... 20
Management's Discussion and Analysis
of Pro Forma Combined Financial
Condition and Pro Forma Combined
Results of
Operations......................... 22
Selected Financial Data of the
Founding Companies................. 26
</TABLE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Management's Discussion and
Analysis of Financial Condition
and Results of Operations of the
Founding Companies................ 29
Business........................... 47
Management......................... 54
Certain Relationships and Related
Party Transactions................ 60
Principal Stockholders............. 65
Description of Capital Stock....... 66
Shares Eligible for Future Sale.... 68
Plan of Distribution............... 68
Legal Matters...................... 69
Experts............................ 69
Additional Information............. 69
Index to Financial Statements...... F-1
</TABLE>
2
<PAGE>
PROSPECTUS SUMMARY
Simultaneously with the consummation of its initial public offering (the
"IPO") on October 16, 1997, U.S.A. Floral Products, Inc. acquired, 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 has been adjusted to give effect to the Mergers
and the IPO.
THE COMPANY
USA Floral was founded in April 1997 to create a national consolidator and
operator of floral products distribution businesses. The Company commenced
operations on October 16, 1997, the date of the consummation of the IPO and the
Mergers. 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, based upon the experience of management of USA
Floral and the Founding Companies, 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 $4.8 million and pro forma combined net income of $2.6 million.
The floriculture industry, which includes cultivators, distributors and
sellers of floral products, 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, based upon the experience of management of USA
Floral and the Founding Companies, 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. The Company believes 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. See "Business--Industry Overview."
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
3
<PAGE>
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, Chairman of the
Board, 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 and Chairman of the Board 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 190 companies since its inception in October 1994, and is
the founder, Chairman and Chief Executive Officer of Consolidation Capital
Corporation, a company founded in February 1997 to build consolidated
enterprises with national market reach through the acquisition and integration
of businesses in fragmented industries.
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. See "Business--Strategy."
4
<PAGE>
THE FOUNDING COMPANIES
USA Floral acquired the Founding Companies contemporaneously with the
consummation of the IPO, in part through the application of a portion of the
proceeds therefrom. USA Floral has conducted operations since October 16, 1997.
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 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 350 wholesale distributors. Flower Trading has
approximately 45 employees. Flower Trading's annual revenues in 1996 were
approximately $20.3 million.
United Wholesale Florists, Inc. and United Wholesale Florists of America,
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, 1997 were approximately $19.7 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.
5
<PAGE>
Alpine Gem Flower Shippers, Inc. ("Alpine Gem"). Founded in 1978, Alpine Gem
is a broker of perishable floral products, operating from one location in
Montana and one in California. Alpine Gem purchases flowers from approximately
250 growers, principally located in the United States, and sells flowers on
consignment for approximately 18 growers. Alpine Gem distributes flowers 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.
RISK FACTORS
See "Risk Factors" for a discussion of certain risks that should be
considered in connection with an investment in the Common Stock offered hereby,
including, without limitation, risks related to: (i) the absence of a combined
operating history; (ii) the Company's acquisition strategy; (iii) the financing
of acquisitions; (iv) internal growth and operating strategies; (v) seasonality
and cyclicality, and fluctuations in quarterly operating results; (vi) weather;
(vii) competition; (viii) the valuations of the Founding Companies; (ix) the
amortization of intangible assets; (x) dependence upon key personnel; and (xi)
imported products and anti-dumping liability.
THE MERGERS
Simultaneously with the closing of the IPO, the Company consummated the
Mergers pursuant to agreements that the Company had entered into with the
Founding Companies and their stockholders (the "Merger Agreements"). The
aggregate consideration paid by the Company upon consummation of the Mergers
was approximately $63.7 million, which consisted of: (i) $42.4 million in cash
(before giving effect to the receipt by the Company upon consummation of the
Mergers of approximately $1.3 million of net related party receivables); (ii)
$4.0 million in S Corporation distributions to the stockholders of CFX and
Alpine Gem; and (iii) the $17.3 million fair value (based upon the initial
public offering price of $13.00 per share) of 1,334,050 shares of Common Stock
issued to the stockholders of the Founding Companies. In addition, pursuant to
earn-out arrangements provided for in the Merger Agreements with American
Florist and Monterey Bay, the Company may pay additional consideration of up to
$0.5 million in cash and up to $5.4 million in shares of Common Stock (or, in
the event the fair market value per share is less than $10.00, such additional
shares of Common Stock or, at the Company's option, cash as is necessary so
that the stockholders receive consideration equal to $10.00 per share). The
Company also assumed a tax liability of Flower Trading of approximately $0.5
million. For the consideration paid to each Founding Company, see "Formation of
the Company--the Mergers." The stockholders of the Founding Companies were
granted certain registration rights with respect to the shares of Common Stock
received under the Merger Agreements. The Merger Agreements also provided for
the grant of 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 to
employees of the Founding Companies. The Merger Agreements contained covenants
not to compete (subject to certain exceptions) and required 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 was
appointed to the Board of Directors of the Company at the Board's meeting in
November 1997. See "Formation of the Company," "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.
6
<PAGE>
SUMMARY PRO FORMA COMBINED FINANCIAL DATA
USA Floral acquired the Founding Companies simultaneously with the
consummation of the IPO. 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 IPO 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 it will
realize savings from the following: more favorable discounts and rebates on
hardgood products than those 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 NINE MONTHS ENDED SEPTEMBER 30,
DECEMBER 31, -----------------------------------------
1996 1996 1997
------------- ----------------- ------------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA (1):
Net sales............... $ 175,467 $ 132,631 $ 139,495
Gross profit (2)........ 49,247 37,484 40,171
Selling, general and ad-
ministrative expense
(3).................... 43,309 31,572 32,167
Goodwill amortization
(4).................... 1,090 817 817
------------ ----------------- -----------------
Operating income........ 4,848 5,095 7,187
Interest and other (in-
come) expense, net
(5).................... (141) (364) (128)
------------ ----------------- -----------------
Income before income
taxes.................. 4,989 5,459 7,315
------------ ----------------- -----------------
Net income (6).......... $ 2,557 $ 2,949 $ 4,062
============ ================= =================
Net income per share.... $ .33 $ .38 $ .52
============ ================= =================
Shares used in computing
net income per share
(7).................... 7,738,819 7,738,819 7,738,819
============ ================= =================
<CAPTION>
AS OF SEPTEMBER 30, 1997
-----------------------------------------
PRO FORMA AS
COMBINED ADJUSTED (9)
----------------- ------------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA (8):
Working capital....................... $(32,931)(10) $ 35,399
Total assets.......................... 85,663 109,930
Total long term debt.................. 3,796 3,796
Stockholders' equity.................. 17,695 86,025
</TABLE>
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(1) The pro forma combined statement of operations data assume that the
Mergers and the IPO 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 $407,000 and $397,000 for the nine-month periods
ended September 30, 1996 and 1997, respectively, attributable to a
significant reduction in the services provided under a contract for
various services with an affiliated entity of Flower Trading that was
renegotiated pursuant to the Flower Trading Merger Agreement.
7
<PAGE>
(3) The pro forma combined statement of operations data reflect an aggregate
of approximately (i) $3.6 million, $3.2 million and $609,000 for the year
ended December 31, 1996 and the nine-month periods ended September 30,
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 in the employment agreements entered into upon consummation of
the IPO (the "Compensation Differential"), (ii) a net reduction of lease-
related expenses of $367,000 for the year ended December 31, 1996 and
$244,000 for the nine months ended September 30, 1996 and $225,000 for the
nine months ended September 30, 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, $375,000 and
$345,000 for the year ended December 31, 1996, and for the nine-month
periods ended September 30, 1996 and 1997, respectively, of expenses
associated with corporate management, as well as costs associated with
being a public company, and (iv) $156,000 for the year ended December 31,
1996 and $117,000 for each of the nine-month periods ended September 30,
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 $43.6 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 $123,000 for each of the nine-month periods ended
September 30, 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 issued to stockholders of the Founding
Companies, (ii) 2,400,000 shares issued to the founders and initial
investors in USA Floral, (iii) 3,956,692 of the 5,750,000 shares sold in
the IPO 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) 48,077
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 September 30, 1997. Prior to the Mergers, Bay State
distributed to its stockholders certain real estate having a net book
value of $850,000. Additionally, in conjunction with the Mergers certain
real estate was acquired and certain associated debt was assumed.
(9) Adjusted to reflect the sale of the 5,750,000 shares of Common Stock in
the IPO and the application of the estimated net proceeds therefrom. Also
reflects proceeds of $1.4 million from the exercise by Jonathan J. Ledecky
of an option to purchase 110,000 shares at the initial public offering
price of $13.00 per share.
(10) Includes $44.6 million paid to stockholders of the Founding Companies,
representing the cash portion of the Merger consideration paid from a
portion of the net proceeds of the IPO, plus S Corporation distributions
made to the stockholders of certain of the Founding Companies, less the
amount received by the Company upon consummation of the Mergers in
repayment of net related party receivables. See "Notes to Unaudited Pro
Forma Combined Financial Statements."
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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 operations since
October 16, 1997. USA Floral acquired the Founding Companies simultaneously
with the consummation of the IPO. Prior to the IPO, the Founding Companies had
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
of the individual Founding Companies will remain at the Founding Company
level, in accordance with the Company's decentralized management philosophy.
Currently, the full-time employees of USA Floral include Robert J. Poirier,
its Chairman of the Board, President and Chief Executive Officer, Raymond C.
Anderson, its Chief Financial Officer, a Vice President of Administration and
a Vice President of Marketing; these employees are responsible for the
Company's day-to-day management as a combined entity. Management may not be
able to oversee the combined entity effectively or to implement effectively
the Company's operating strategies. Any failure by the Company to implement
its strategies or oversee effectively the combined entity could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Formation of the Company," "Business--The Founding
Companies" and "Management."
VALUATIONS OF THE FOUNDING COMPANIES UNRELATED TO APPRAISALS OR ASSET VALUES
Valuations of the Founding Companies were not established by independent
appraisals, but were determined through negotiations between USA Floral and
representatives of each of the Founding Companies. The consideration paid for
each of the Founding Companies, including Founding Companies whose
stockholders become affiliates of the Company upon consummation of the
Offering, was based exclusively on these private negotiations between USA
Floral and the representatives of each Founding Company, in which a variety of
factors--including, but not limited to, the financial performance of each
Founding Company, its markets, its management and the interest of its owners
in reaching agreement upon a possible Merger--played roles; the consideration
paid does not necessarily bear any relationship to the net book value of the
acquired assets or to any other recognized indicia of value. For example,
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. In particular, the aggregate purchase price paid
in the acquisitions of the Founding Companies was approximately $43.6 million
greater than the amount of that purchase price allocated to the assets
acquired for purposes of the Company's pro forma balance sheet. The future
performance of the Founding Companies may not be commensurate with the
consideration paid to acquire the Founding Companies. See "--Amortization of
Intangible Assets" and "Formation of the Company--The Mergers."
AMORTIZATION OF INTANGIBLE ASSETS
Approximately $43.6 million, or 40.7%, of the Company's as adjusted pro
forma total assets as of September 30, 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 sheet. 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
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<PAGE>
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.
The Company plans to amortize goodwill associated with the acquisitions of
the Founding Companies over a period of 40 years. The Company plans to
evaluate continually whether events or circumstances have occurred that
indicate that the remaining useful life of goodwill may warrant revision.
Additionally, in accordance with the provisions of Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of," the Company will evaluate
any potential goodwill impairments by reviewing the future cash flows of the
respective acquired entities' operations and comparing these amounts with the
carrying value of the associated goodwill.
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.
In addition, on October 16, 1997 the Company entered into a $100.0 million
revolving credit facility (the "Credit Facility") with various lenders, for
whom Bankers Trust Company ("BT") is agent. The Credit Facility contains
certain covenants which will restrict the ability of the Company to engage in
certain mergers, acquisitions and dispositions. Among other things, the Credit
Facility provides that: (i) the total consideration for any acquisition may
not exceed $25 million unless not more than 10% of such amount is in cash; and
(ii) for a group of acquisitions occurring within a six-month period, no less
than one-third of the aggregate purchase price therefor may be in Common Stock
of the Company. The Credit Facility also contains various financial covenants
customary for transactions of this type, including ratios of total debt to
cash flow and cash flow to fixed charges, each of which may limit the ability
of the Company to pursue future acquisitions. See "Management's Discussion and
Analysis of Pro Forma Combined Financial Condition and Pro Forma Combined
Results of Operations--Liquidity and Capital Resources."
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. 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
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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."
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; FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
Unit sales of floral products have historically been seasonal, concentrated
primarily in the first and second calendar quarters as a result of holidays
such as Valentine's Day and Mother's Day. 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. By contrast with the first and second calendar quarters,
unit sales of floral products are significantly lower in the third and fourth
calendar quarters, which have relatively few flower-giving holidays.
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 (including operating losses), net income (including
net losses) and cash flows; negative fluctuations have been particularly
pronounced, and net losses have been incurred, in the third and fourth
calendar quarters. The Company expects to continue to experience such
quarterly fluctuations in operating results (including possible net losses)
due to the factors discussed above, and may also experience quarterly
fluctuations as a result of 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; 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
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<PAGE>
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,
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 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.
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, Chairman
of the Board, 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. Pursuant to the Company's Bylaws,
the duties of the Non-Executive Chairman of the Board consist of presiding at
meetings of the Board of Directors and stockholders of the Company, and do not
include serving as an officer of the Company or performing any executive,
supervisory or management functions or duties separate and apart from such
individual's role as a director of the Company. While the Company has entered
into employment agreements with Mr. Poirier and senior management of the
Founding Companies, the Company cannot assure that such individuals will
remain with the Company throughout the terms of the agreements, or thereafter.
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." The Company does not maintain any
policies of key person life insurance on the lives of its senior management
personnel.
RISKS ASSOCIATED WITH IMPORTED PRODUCTS; ANTI-DUMPING LIABILITY
The majority of the perishable floral products distributed by the Company
are of foreign origin. These products are imported principally from countries
in South America and Latin America, including Colombia, Ecuador, Costa Rica
and Mexico. Floral product purchases are denominated in U.S. Dollars. 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. Although such
restrictions and conditions have not had a material impact on the operations
of the Company or the Founding Companies to date, there can be no assurance
that such restrictions and conditions will not have a material adverse effect
on the Company's business, financial condition and results of operations. 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 home
market value. 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 home market value, then the Commerce
Department will impose an anti-dumping duty upon the importer. The Commerce
Department is currently conducting anti-dumping reviews, related to the sales
of certain flowers imported from Colombia. Two periods (a period is March 1
through February 28) are being reviewed currently, and the determination of
the Commerce Department with
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<PAGE>
respect to three other periods is pending appeal. The Company's operating
units that are importers, such as CFX and Flower Trading impose a surcharge
upon sales of those flowers that are under review or for which reviews are
pending appeal and maintain reserves to offset any final duty that may be
imposed. The surcharge is imposed because, although "dumping," if any, is an
activity that is purportedly engaged in by growers, not importers, any final
duty assessed is paid by importers, rather than by growers. Since any
liability will ultimately be paid by the importers, they maintain reserves
against that possible liability to the extent described in their financial
statements. In effect, the surcharge helps importers to generate the cash
necessary to pay any finally-determined duties. The accrued reserves may not
be adequate to satisfy any duty that is assessed. In addition, the Commerce
Department may initiate additional reviews at any time and duties may be
imposed on sales of flowers for which the importers 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. The Company's subsidiaries may not make
sufficient dividend or other payments to permit the Company to fund its
obligations or meet its cash needs, in whole or in part. 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 elect to reduce or cease purchases from the
Company, the Company's business, financial condition and results of operations
would be materially and adversely affected.
POTENTIAL CONFLICTS OF INTEREST
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. Dwight Haight, President
of CFX, owns a 25% interest in two farms, Miramonte and Mocari, located in
Colombia, from which CFX purchases roses. Mr. Haight also owns a 50% interest
in La Fleurette, a bouquet manufacturer with which CFX conducts business and
for which CFX provides management services. John T. Dickinson, President of
American Florist, has an ownership interest in a rose farm, Meadow Flowers,
located in Ecuador, from which American Florist purchases roses. 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 IPO, the Company's executive officers,
directors and five-percent stockholders owned beneficially an aggregate of
approximately 29.3% of the outstanding shares of Common Stock. The Company's
officers, directors and five-percent stockholders if acting together may be
able to control
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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. See
"Principal Stockholders."
SHARES ELIGIBLE FOR FUTURE SALE
As of October 31, 1997, 9,594,050 shares of Common Stock were outstanding.
The 5,750,000 shares sold in the IPO are 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 the resale limitations of Rule 144 described below. All of the
3,844,050 remaining outstanding shares of Common Stock will be available for
resale at various dates beginning 180 days after the date of the IPO, upon
expiration of applicable lock-up agreements and subject to compliance with
Rule 144 under the Securities Act as the holding provisions of Rule 144 are
satisfied. Of those shares, 3,654,050 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. The additional shares
(approximately 415,385 shares, assuming a price per share at the calculation
date equal to the initial public offering price of $13.00 per share) 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, 941,250 shares of Common Stock are issuable upon the exercise
of stock options of which options to purchase 160,000 shares are currently
exercisable. The Company has filed a registration statement on Form S-8 to
register the issuance of the shares issuable upon the exercise of such
options. In addition, the 12,500,000 shares of Common Stock offered by this
Prospectus generally will be freely tradeable after their issuance by persons
not affiliated with the Company, unless their resale is contractually
restricted. Sales, or the availability for sale, of substantial amounts of the
Common Stock in the public market could adversely affect prevailing market
prices and the future ability of the Company to raise equity capital and to
complete acquisitions in which all or a portion of the consideration is Common
Stock.
NO PRIOR MARKET FOR THE COMMON STOCK; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the IPO, there was no public market for the Company's Common Stock.
The offering price for the Common Stock to be issued pursuant to this
Prospectus will be based upon the Company's closing stock price at a date
certain or the average closing stock price over a period of time determined by
negotiations between the Company and the owners of the Companies to be
acquired. Any such negotiated price may bear no relationship to the price at
which the Common Stock will trade after each respective acquisition and an
active trading market may not be sustained subsequent to any future
acquisition transactions. 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.
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."
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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 IPO, 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, Chairman of the Board, President and Chief Executive Officer of USA
Floral and Mr. Ledecky is its co-founder and Non-Executive Chairman of the
Board. Immediately following the IPO, the co-founders of USA Floral owned
beneficially in the aggregate approximately 24.3% of the outstanding Common
Stock of the Company. See "Certain Relationships and Related Party
Transactions--Organization of USA Floral."
THE MERGERS
Simultaneously with the consummation of the IPO, USA Floral acquired in
eight separate transactions all of the issued and outstanding capital stock of
each of the Founding Companies for an aggregate consideration of $63.7
million, which consisted of: (i) $42.4 million in cash paid to the
stockholders of the Founding Companies, (before giving effect to the receipt
by the Company upon consummation of the Mergers of approximately $1.3 million
of net related party receivables); (ii) $4.0 million in cash to fund S
Corporation distributions to the stockholders of CFX and Alpine Gem; and (iii)
the $17.3 million fair value (based upon the initial public offering price of
$13.00 per share) of 1,334,050 shares of Common Stock issued to the
stockholders of the Founding Companies. In addition, the Company may pay
additional consideration of up to $0.5 million in cash and issue up to $5.4
million in shares of Common Stock (approximately 415,385 shares, assuming a
price per share at the calculation date equal to the initial public offering
price of $13.00 per share) (or, in the event the fair market value per share
is less than $10.00, such additional shares of Common Stock or, at the
Company's option, cash as is necessary so that the stockholders receive
consideration equal to $10.00 per share), pursuant to earn-out arrangements
with two of the Founding Companies. The Company also assumed an estimated tax
liability of one of the Founding Companies of approximately $0.5 million. 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 paid to the
stockholders of each of the Founding Companies, the acquisition of each
Founding Company was subject to substantially the same terms and conditions as
those to which the acquisition of each other Founding Company was subject. The
following table contains information concerning the aggregate cash paid,
Common Stock issued (at the IPO price of $13.00 per share) and S Corporation
distributions 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
- ---------------- ----- ------------- --------- ------------ -------------
(IN MILLIONS, EXCEPT SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Houff................... $11.0 -- -- -- $11.0
CFX..................... 5.8 $ 4.0 250,000 $ 3.2 13.0
Bay State............... 6.0 -- 495,550 6.4 12.4
Flower Trading.......... 5.9(1) -- 160,000 2.1 8.0
United Wholesale........ 4.8 -- 268,500 3.5 8.3
American Florist........ 4.8 -- -- (2) -- (2) 4.8(2)
Monterey Bay............ 2.5 -- -- (3) -- (3) 2.5(3)
Alpine Gem.............. 1.6 -- (4) 160,000 2.1 3.7
----- ----- --------- ----- -----
Total................. $42.4(5) $ 4.0 1,334,050 $17.3 $63.7
===== ===== ========= ===== =====
</TABLE>
- --------
(1) Does not include an estimated tax liability of approximately $0.5 million
payable after consummation of the Flower Trading Merger, which was 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
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to $2.4 million (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 $3.0 million (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 $42,000.
(5) Does not reflect the receipt by the Company upon consummation of the
Mergers of approximately $1.3 million of net related party receivables.
The consummation of each Merger was contingent upon the consummation of the
IPO and the satisfaction of customary closing conditions, including the
absence of material adverse changes in the business, operations and financial
condition of the Founding Companies and the Company and certification by the
parties to each Merger Agreement that the representations and warranties made
by such party in the Merger Agreement were true and correct as of the
consummation of the Merger and that such party had performed its obligations
under the Merger Agreement. The Merger Agreements provided 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. Pursuant to the Merger Agreements, 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, were
made available to employees of the Founding Companies. The options have an
exercise price equal to the initial public offering price per share and vest
ratably over a four-year period, beginning on the anniversary of the date of
the grant. The Merger Agreements further provided 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 IPO, as security for the stockholders'
indemnification obligations.
THE ROY HOUFF COMPANY
USA Floral acquired 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, became a Director of the Company upon
appointment to the Board at its meeting in November 1997. Mr. Houff entered
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, Mr. Houff transferred the real estate acquired in the Houff Merger and
the indebtedness associated therewith. Two of the parcels of real property are
undergoing environmental remediation. The property located in Wheeling,
Illinois has undergone remediation to remove soil contaminated by a leaking
underground storage tank ("UST"). The Company has received a closure letter
from the Illinois Environmental Protection Agency, indicating that no further
remediation is required, and therefore the Company will acquire this property.
Two USTs are being removed and one UST is being closed in place on one of the
properties located in Chicago, Illinois. If further environmental
contamination is discovered at any property acquired by the Company, or if the
existing contamination is not properly remediated, the Company could incur
liability, which could be material and which could include payments for the
costs of cleanup, damages to third parties and penalties to state and federal
environmental agencies.
CFX, INC.
USA Floral acquired all of the outstanding stock of CFX in a reverse
subsidiary merger (the "CFX Merger") for: (i) $9.8 million in cash, of which a
portion represents the amount of CFX's accumulated adjustments account which
was 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
16
<PAGE>
Haight, the President of CFX, became a Director of the Company upon
appointment to the Board at its meeting in November 1997. Mr. Haight entered
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.
BAY STATE FLORIST SUPPLY, INC.
USA Floral acquired 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, became a Director of the
Company upon appointment to the Board at its meeting in November 1997. Mr.
Rudolph entered 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 distributed real estate owned by Bay State to its
stockholders. Bay State lease the property from the stockholders, at a rate to
be determined, which will not exceed the rate that would obtain in an arm's-
length negotiation.
FLOWER TRADING CORPORATION
USA Floral acquired 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 addition, the Company assumed an
estimated tax liability of Flower Trading of approximately $0.5 million. In
connection with the Flower Trading Merger, Gustavo Moreno, the President of
Flower Trading, became a Director of the Company upon appointment to the Board
at its meeting in November 1997. Mr. Moreno entered 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 acquired all of the outstanding stock of United Wholesale in a
reverse subsidiary merger (the "United Wholesale Merger") for $4.8 million in
cash and 268,500 shares of Common Stock. In connection with the Merger,
Raymond R. Ashmore, the President of United Wholesale, became a Director of
the Company upon appointment to the Board at its meeting in November 1997. Mr.
Ashmore entered 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. United Wholesale will lease properties from affiliated entities, at
a rate to be determined, which will not exceed the rate that would obtain in
an arm's-length negotiation.
AMERICAN FLORIST SUPPLY, INC.
USA Floral acquired 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, became a Director of the Company upon
appointment to the Board at its meeting in November 1997. Mr. Dickinson
entered 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
17
<PAGE>
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 acquired 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, became a Director of the Company upon appointment
to the Board at its meeting in November 1997. Mr. Brothers entered 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 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 acquired 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)
$42,000 in cash representing the amount of Alpine Gem's accumulated
adjustments account, which was 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, became a Director of the Company.
Mr. Graham entered 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.
PRICE RANGE OF COMMON STOCK
The Company's Common Stock has been quoted on the Nasdaq National Market
since October 10, 1997. On November 18, 1997, the last sale price of the
Common Stock was $16.375 per share. As of November 18, 1997, there were
approximately 60 holders of record of the Company's Common Stock. The Common
Stock has traded at prices ranging from $14.625 to $21.25 during the period
from October 10, 1997 to November 18, 1997.
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. In
addition, the Company's credit facility includes restrictions on the ability
of the Company to pay dividends without the consent of the lender.
18
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at September
30, 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 IPO and the
issuance of 110,000 shares to Jonathan J. Ledecky in October 1997 pursuant to
the exercise of an option at an exercise price equal to the initial public
offering price of $13.00 per share, which option was 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, and the application of the estimated
net proceeds therefrom. See "Selected Financial Data of the Founding
Companies." 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 SEPTEMBER 30, 1997
------------------------
PRO FORMA
COMBINED AS ADJUSTED(1)
--------- --------------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt and current portion of long-term
debt................................................ $ 2,257 $ 2,257
------- -------
Long-term debt and capital lease obligations, less
current portion..................................... 3,796 3,796
Stockholders' equity:
Common stock, $.001 par value per share, authorized,
shares issued and outstanding pro forma, shares
issued and outstanding pro forma as adjusted........ 4 10
Additional paid-in capital........................... 17,801 86,125
Retained deficit..................................... (110) (110)
------- -------
Total stockholders' equity......................... 17,695 86,025
------- -------
Total capitalization............................. $21,491 $89,821
======= =======
</TABLE>
- --------
(1) Does not include: (i) 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 (approximately 415,385 shares, assuming a price
per share at the calculation date equal to the initial public offering
price of $13.00 per share); (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 816,250 shares of Common Stock (including options to
purchase 200,000 shares to Jonathan J. Ledecky, the Company's Non-Executive
Chairman of the Board) were granted upon consummation of the Offering at an
exercise price equal to the initial public offering price of $13.00 per
share, and options to purchase 125,000 shares of Common Stock were granted
upon consummation of the Offering at an exercise price equal to $8.00 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 were granted upon consummation of
the Offering at an exercise price equal to the initial public offering
price of $13.00 per share; and (iv) 1,000,000 shares of Common Stock
reserved for issuance under the Company's 1997 Employee Stock Purchase
Plan. See "Formation of the Company--The Mergers," "Management--1997 Long-
Term Incentive Plan" and "--1997 Non-Employee Directors' Stock Plan" and
"Principal Stockholders."
19
<PAGE>
SELECTED PRO FORMA COMBINED FINANCIAL DATA
USA Floral was established in April 1997 and acquired the Founding Companies
simultaneously with the consummation of the IPO. 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 IPO 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 it will realize savings from the following: more favorable
discounts and rebates on hardgood products than those 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 NINE MONTHS ENDED SEPTEMBER 30,
DECEMBER 31, ------------------------------------
1996 1996 1997
------------- ----------------- -----------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA(1):
Net sales................. $ 175,467 $ 132,631 $ 139,495
Gross profit(2)........... 49,247 37,484 40,171
Selling, general and ad-
ministrative expense(3).. 43,309 31,572 32,167
Goodwill amortization(4).. 1,090 817 817
------------ ----------------- -----------------
Operating income.......... 4,848 5,095 7,187
Interest and other (in-
come) expense, net(5).... (141) (364) (128)
------------ ----------------- -----------------
Income before income tax-
es....................... 4,989 5,459 7,315
------------ ----------------- -----------------
Net income(6)............. $ 2,557 $ 2,949 $ 4,062
============ ================= =================
Net income per share..... $ .33 $ .38 $ .52
============ ================= =================
Shares used in computing
net income per
share(7)................ 7,738,819 7,738,819 7,738,819
============ ================= =================
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1997
-----------------------------
PRO FORMA
COMBINED AS ADJUSTED(9)
--------- --------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA(8):
Working capital.................................... $(32,931)(10) $ 35,399
Total assets....................................... 85,663 109,930
Total long-term debt............................... 3,796 3,796
Stockholders' equity............................... 17,695 86,025
</TABLE>
- --------
(1) The pro forma combined statement of operations data assume that the
Mergers and the IPO 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 $407,000 and $397,000 for the nine-month periods
ended September 30, 1996 and 1997, respectively, attributable to a
significant reduction in the services provided under a contract for
various services with an affiliated entity of Flower Trading that was
renegotiated pursuant to the Flower Trading Merger Agreement.
20
<PAGE>
(3) The pro forma combined statement of operations data reflect an aggregate
of approximately (i) $3.6 million, $3.2 million and $609,000 for the year
ended December 31, 1996 and the nine-month periods ended September 30,
1996 and 1997, respectively, in Compensation Differential, (ii) a net
reduction of lease-related expenses of $367,000 for the year ended
December 31, 1996 and $244,000 for the nine-months ended September 30,
1996 and $225,000 for the nine months ended September 30, 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, $375,000 and $345,000 for the year ended December
31, 1996, and for the nine-month periods ended September 30, 1996 and
1997, respectively, of expenses associated with corporate management, as
well as costs associated with being a public company, and (iv) $156,000
for the year ended December 31, 1996 and $78,000 for each of the nine-
month periods ended September 30, 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 $43.6 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 $82,000 for each of the nine-month periods ended
September 30, 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 issued to stockholders of the Founding
Companies, (ii) 2,400,000 shares issued to the founders and initial
investors in USA Floral, (iii) 3,956,692 of the 5,750,000 shares sold in
the IPO 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) 48,077
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 September 30, 1997. Prior to the Mergers, Bay State
distributed to its stockholders certain real estate having a net book
value of $850,000. Additionally, in conjunction with the Mergers certain
real estate was acquired and certain associated debt was assumed.
(9) Adjusted to reflect the sale of the 5,750,000 shares of Common Stock in
the IPO and the application of the estimated net proceeds therefrom. See
"Use of Proceeds." Also reflects proceeds of $1.4 million from the
exercise by Jonathan J. Ledecky of an option to purchase 110,000 shares
at the initial public offering price of $13.00 per share.
(10) Includes $44.6 million paid to stockholders of the Founding Companies,
representing the cash portion of the Merger consideration paid from a
portion of the net proceeds of the IPO, plus S Corporation distributions
made to the stockholders of certain of the Founding Companies, less the
amount received by the Company upon consummation of the Mergers in
repayment of net related party receivables. See "Notes to Unaudited Pro
Forma Combined Financial Statements."
21
<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 commenced operations on October 16, 1997, the date of the
consummation of the IPO and the Mergers. Prior to the Mergers, the Founding
Companies were 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 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, $3.8 million and $5.0 million for the
fiscal years ended December 31, 1994, 1995 and 1996 (in the case of each
Founding Company other than United Wholesale) and June 30, 1995, 1996 and 1997
(in the case of United Wholesale), 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. Effective upon consummation of the Mergers, certain employee-
stockholders entered into employment agreements and the aggregate compensation
paid to the stockholders of the Founding Companies was reduced. See "Pro Forma
Results of Operations of the Founding Companies." This Compensation
Differential has been reflected in the Unaudited Pro Forma Combined Statement
of Operations.
22
<PAGE>
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.
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER
30,
------------------------------
1996 1997
-------------- --------------
<S> <C> <C> <C> <C>
Net Sales...................................... $132,631 100.0% $139,495 100.0%
Cost of Sales.................................. 95,147 71.8 99,324 71.2
Selling, General and Administrative Expenses... 31,572 23.8 32,167 23.0
Goodwill....................................... 817 0.6 817 0.6
-------- ----- -------- -----
Operating Income............................... $ 5,095 3.8% $ 7,187 5.2%
======== ===== ======== =====
</TABLE>
Nine Months Ended September 30, 1997 Compared to Nine Months Ended September
30, 1996
Net Sales. Net sales increased to $139.5 million in the nine months ended
September 30, 1997 from $132.6 million in the nine months ended September 30,
1996, an increase of $6.9 million, or 5.2%. This increase was primarily driven
by CFX and Flower Trading, which accounted for $4.0 million of the increase as
a result of increased sales volume, higher prices for certain products, and a
fuel surcharge fee related to airline shipments that was added to customer
invoices, and a $2.9 million increase at Monterey Bay as a result of increases
in volume primarily due to additional promotional activities. These increases
were partially offset by a decrease at Houff as a result of the closing of its
wholesale distribution facility in Atlanta, Georgia in October 1996.
Cost of Sales. Cost of sales increased to $99.3 million in the nine months
ended September 30, 1997 from $95.1 million in the nine months ended September
30, 1996, an increase of $4.2 million, or 4.4%, primarily as a result of the
increased sales. As a percentage of net sales, cost of sales decreased to
71.2% in the nine months ended September 30, 1997 from 71.8% in the nine
months ended September 30, 1996. The decrease in costs of sales as a
percentage of sales is primarily a result of the Founding Companies obtaining
more favorable prices, partially due to increased volume purchasing, better
inventory management and reduced freight costs.
Selling, General and Administrative. Selling, general and administrative
expenses increased to $32.2 million in the nine months ended September 30,
1997 from $31.6 million in the nine months ended September 30, 1996, an
increase of $0.6 million, or 1.9%. The increase was primarily a result of
increased personnel costs to support the increase in sales. As a percentage of
net sales, selling, general and administrative expenses decreased to 23.0% in
the nine months ended September 30, 1997 from 23.8% in the nine months ended
September 30, 1996 primarily as a result of spreading fixed costs over
increased sales.
Operating Income. As a result of the factors discussed above, operating
income increased to $7.2 million in the nine months ended September 30, 1997
from $5.1 million in the nine months ended September 30, 1996, an increase of
$2.1 million, or 41.1%. As a percentage of net sales, operating income
increased to 5.2% in the nine months ended September 30, 1997 from 3.8% in the
nine months ended September 30, 1996.
23
<PAGE>
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 and $4.0 million will be used to fund S Corporation distributions to
the stockholders of CFX and Alpine Gem. As of June 30, 1997, the Company had
cash and cash equivalents (on a pro forma combined basis) of approximately
$6.0 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.
In October 1997, the Company entered into a $100.0 million Credit Facility,
with a $75.0 million sub-limit for permitted acquisitions and a $10.0 million
sub-limit for letters of credit. The Credit Facility is provided by various
lenders, for whom BT is the Agent. Amounts outstanding under the Credit
Facility bear interest, at the Company's option, at either BT's base rate plus
an applicable margin of up to 0.625% or a eurodollar rate plus an applicable
margin of up to 1.875%. The Company's obligations under the Credit Facility
are guaranteed by the direct and indirect domestic subsidiaries of the Company
and by any applicable foreign subsidiaries. The Credit Facility is secured by
a first priority pledge of all of the notes and capital stock owned by the
Company and such guarantors, and a first priority security interest in all
other assets of the Company and such guarantors. The Credit Facility contains
customary conditions to the initial borrowings and to all subsequent loans,
including satisfactory documentation and capital structure, receipt of
required consents, absence of material adverse effect, absence of material
litigation, solvency, accuracy of representations and warranties and, as to
the initial borrowings, satisfactory completion of due diligence by the
lenders. The Credit Facility contains customary covenants, including
restrictions on other indebtedness, restrictions on mergers, acquisitions,
dispositions and similar transactions within certain parameters (including an
aggregate limit upon the cash consideration to be paid of $25.0 million,
subject to certain exceptions), sale-leaseback transactions and lease
payments, dividends, voluntary prepayments and amendments of other debt,
transactions with affiliates, investments, creation of liens, capital
expenditures and material amendments of organization documents, as well as
various financial covenants customary for transactions of this type, including
ratios of total debt to cash flow and cash flow to fixed charges. The Company
paid a financing fee equal to 1.5% of the total amount of the Credit Facility,
and is obligated to pay an annual administration fee of $75,000, and a
commitment fee of 0.25% to 0.5% per year on the unused portion of the Credit
Facility from and after the date on which the Credit Facility was entered
into. As of November 7, 1997, no amounts were outstanding under the Credit
Facility. See "Risk Factors--Risks Associated with Acquisition Strategy."
With the exception of United Wholesale, the Founding Companies' capital
expenditures for the twelve months ended December 31, 1996 and the six months
ended June 30, 1996 and 1997 were approximately $1.4 million, $0.4 million and
$0.7 million, respectively. United Wholesale's capital expenditures were $0.3
million, $0.3 million and $0.1 million for the three years ended June 30,
1997, respectively. These capital expenditures were primarily for machinery,
office equipment and computers, building additions and facility upgrades. The
Company currently does not have any commitments to make significant capital
expenditures in the next twelve months. 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
future acquisitions, if any, 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; FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
Unit sales of floral products have historically been seasonal, concentrated
primarily in the first and second calendar quarters as a result of holidays
such as Valentine's Day and Mother's Day. 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
24
<PAGE>
Company expects relatively lower Valentine's Day product sales in those years.
By contrast with the first and second calendar quarters, unit sales of floral
products are significantly lower in the third and fourth calendar quarters,
which have relatively few flower-giving holidays.
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 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 (including operating losses), net income (including
net losses) and cash flows; negative fluctuations have been particularly
pronounced, and net losses have been incurred, in the third and fourth
calendar quarters. The Company expects to continue to experience such
quarterly fluctuations in operating results (including possible net losses)
due to the factors discussed above, and may also experience quarterly
fluctuations as a result of 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; 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
------- ------- ------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net sales.................... $50,485 $46,784 $35,362 $42,836 $175,467
Percentage of annual net
sales....................... 28.8% 26.7% 20.1% 24.4% 100.0%
</TABLE>
25
<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,
1996 and 1997 and the statement of operations data for each of the three years
in the period ended June 30, 1997 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, 1993, 1994 and 1995 and the statement of operations data
for each of the two 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 as of
September 30, 1997 and for the nine months ended September 30, 1996 and 1997
and for the three months ended September 30, 1996 and 1997 for United
Wholesale 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.
26
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------- --------------------
1992 1993 1994 1995 1996 1996 1997
STATEMENT OF OPERATIONS DATA: ------- ------- ------- ------- ------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
HOUFF
Net sales............... $31,392 $32,406 $39,098 $41,531 $39,090 $ 30,068 $ 27,774
Cost of sales........... 20,754 21,707 26,683 27,899 25,537 19,839 18,003
Selling, general and
administrative
expenses............... 9,654 10,091 11,617 12,695 12,789 9,478 8,559
Operating income........ 984 608 798 937 764 751 1,212
Net income.............. 1,139 784 991 1,068 775 892 1,264
CFX
Net sales............... $27,317 $26,736 $30,590 $32,096 $35,684 $ 27,695 $ 29,972
Cost of sales........... 20,356 19,976 23,839 24,328 28,190 21,469 23,222
Selling, general and
administrative
expenses............... 6,313 6,137 6,266 6,773 8,956 6,991 5,210
Operating income
(loss)................. 648 623 485 995 (1,462) (792) 1,540
Net income (loss)....... 881 721 355 1,538 (1,247) (620) 1,626
BAY STATE
Net sales............... $16,063 $17,979 $19,203 $25,592 $30,563 $ 22,545 $ 22,373
Cost of sales........... 10,919 12,040 12,807 17,068 20,722 15,333 15,057
Selling, general and
administrative
expenses............... 4,599 5,126 5,529 7,579 8,976 6,666 6,552
Operating income........ 545 813 867 945 865 546 764
Net income.............. 736 938 958 1,119 1,033 670 813
FLOWER TRADING
Net sales............... $15,145 $17,246 $18,478 $20,335 $20,313 $ 15,163 $ 16,838
Cost of sales........... 11,802 13,676 14,452 15,921 15,914 11,854 13,031
Selling, general and
administrative
expenses............... 2,789 3,292 3,605 4,068 4,142 2,826 2,889
Operating income........ 553 278 421 346 257 483 918
Net income.............. 415 196 301 130 62 294 464
AMERICAN FLORIST (1)
Net sales............... -- -- $ 6,293 $10,783 $11,679 $ 8,759 $ 9,563
Cost of sales........... -- -- 4,579 7,788 8,268 6,128 6,535
Selling, general and
administrative
expenses............... -- -- 1,545 2,531 2,723 2,065 2,275
Operating income........ -- -- 169 464 688 566 753
Net income.............. -- -- 132 423 683 557 791
MONTEREY BAY (2)
Net sales............... -- $ 2,615 $ 4,253 $ 6,903 $ 9,477 $ 6,797 $ 9,714
Cost of sales........... -- 2,259 3,773 5,959 8,285 5,851 7,895
Selling, general and
administrative
expenses............... -- 301 458 910 1,113 760 896
Operating income........ -- 55 22 34 79 186 923
Net income.............. -- 38 19 20 48 115 520
ALPINE GEM
Net sales............... $ 3,476 $ 4,547 $ 7,252 $ 8,139 $ 9,334 $ 7,192 $ 8,151
Cost of sales........... 2,710 3,448 5,438 6,287 7,132 5,503 6,090
Selling, general and
administrative
expenses............... 697 813 1,320 1,526 1,868 1,243 1,382
Operating income........ 69 286 494 326 334 446 679
Net income.............. 78 315 524 224 388 476 724
<CAPTION>
THREE MONTHS ENDED
FISCAL YEAR ENDED JUNE 30, SEPTEMBER 30, 1997
--------------------------------------- --------------------
1993 1994 1995 1996 1997 1996 1997
------- ------- ------- ------- ------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
UNITED WHOLESALE (3)
Net sales............... $18,508 $18,541 $17,985 $19,030 $19,673 $3,860 $4,213
Cost of sales........... 12,250 12,042 11,556 12,563 12,862 2,532 2,760
Selling, general and
administrative
expenses............... 5,401 6,162 5,926 6,101 6,046 1,296 1,434
Operating income........ 286 337 503 366 765 32 19
Net income.............. 6 54 187 144 482 4 (15)
</TABLE>
- --------
(1) American Florist commenced operations in April 1994; accordingly there were
no historical operating results prior to that date.
(2) Monterey Bay commenced operations in March 1993; accordingly there were no
historical operating results prior to that date.
(3) United Wholesale Florists of America, Inc., one of the two constituent
corporations that compose United Wholesale, commenced operations in July
1992.
27
<PAGE>
<TABLE>
<CAPTION>
AS OF FISCAL YEAR END DECEMBER 31,
---------------------------------- AS OF
1992 1993 1994 1995 1996 SEPTEMBER 30, 1997
BALANCE SHEET DATA: ------ ------ ------ ------ ------ ------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
HOUFF
Total assets............ $5,874 $6,243 $8,169 $8,125 $7,276 $6,516
Debt.................... -- -- 76 -- 450 360
Equity.................. 2,095 2,159 2,285 1,974 2,006 2,429
CFX
Total assets............ $5,903 $5,826 $7,519 $7,342 $6,474 $7,150
Debt.................... 159 81 -- -- 21 7
Equity.................. 3,474 3,428 3,783 5,280 3,737 5,363
BAY STATE
Total assets............ $5,826 $6,076 $6,727 $7,657 $8,511 $8,452
Debt.................... -- -- -- 412 358 433
Equity.................. 4,309 4,504 4,697 5,032 5,466 5,239
FLOWER TRADING
Total assets............ $3,232 $3,483 $3,662 $3,615 $3,651 $3,965
Debt.................... -- 126 51 8 391 313
Equity.................. 1,456 1,693 1,994 2,124 1,470 1,934
AMERICAN FLORIST (1)
Total assets............ -- -- $1,878 $2,136 $2,438 $2,466
Debt.................... -- -- -- 598 598 598
Equity.................. -- -- 532 650 628 1,120
MONTEREY BAY(2)
Total assets............ -- $ 547 $ 797 $1,101 $1,321 $1,842
Debt.................... -- 13 23 30 24 29
Equity.................. -- 116 135 181 229 749
ALPINE GEM
Total assets............ $ 686 $ 872 $1,110 $1,269 $1,260 $1,820
Debt.................... -- -- -- -- -- --
Equity.................. 420 488 668 749 609 960
<CAPTION>
AS OF FISCAL YEAR END JUNE 30,
---------------------------------- AS OF
1993 1994 1995 1996 1997 SEPTEMBER 30, 1997
------ ------ ------ ------ ------ ------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
UNITED WHOLESALE (3)
Total assets............ $6,061 $5,968 $6,076 $6,789 $7,752 $7,252
Debt.................... 1,019 645 1,265 961 356 628
Equity.................. 1,283 1,376 1,564 1,708 2,190 2,175
</TABLE>
- --------
(1) American Florist commenced operations in April 1994; accordingly there
were no historical results prior to that date.
(2) Monterey Bay commenced operations in March 1993; accordingly there were no
historical results prior to that date.
(3) United Wholesale Florists of America, Inc., one of the two constituent
corporations that compose United Wholesale, commenced operations in July
1992.
28
<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
Flower Trading, Monterey Bay and one of the two corporations that compose
United Wholesale) was subject to federal income taxes. Upon consummation of
the Mergers, certain employee-stockholders entered into employment agreements
and the aggregate compensation paid to stockholders of the Founding Companies
was 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, NINE MONTHS ENDED SEPTEMBER 30,
------------------------------------------- ---------------------------------
1994 1995 1996 1996 1997
------------- ------------- ------------- ---------------- ----------------
(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% $ 30,068 100.0% $ 27,774 100.0%
Cost of Sales........... 26,683 68.2 27,899 67.2 25,537 65.3 19,839 66.0 18,003 64.8
Selling, General and
Administrative
Expenses............... 11,617 29.7 12,695 30.6 12,789 32.7 9,478 31.5 8,559 30.8
------- ----- ------- ----- ------- ----- -------- ------ -------- ------
Operating Income........ $ 798 2.0% $ 937 2.3% $ 764 2.0% $ 751 2.5% $ 1,212 4.4%
======= ===== ======= ===== ======= ===== ======== ====== ======== ======
</TABLE>
Nine Months Ended September 30, 1997 Compared to Nine Months Ended September
30, 1996
Net Sales. Net sales decreased to $27.8 million in the nine months ended
September 30, 1997 from $30.1 million in the nine months ended September 30,
1996, a decrease of $2.3 million or 7.6%. This decrease
29
<PAGE>
primarily resulted from the closing of Houff's wholesale distribution facility
in Atlanta, Georgia in October 1996, which accounted for $2.5 million in net
sales in the nine months ended September 30, 1996, as well as decreased sales
at the Oak Park, Illinois facility partially offset by increased sales in
other locations.
Cost of Sales. Cost of sales, which consists of perishable and hardgood
products and in-bound freight costs, decreased to $18.0 million in nine months
ended September 30, 1997 from $19.8 million in the nine months ended September
30, 1996, a decrease of $1.8 million, or 9.3%. As a percentage of net sales,
costs of sales decreased to 64.8% in the nine months ended September 30, 1997
from 66.0% in the nine months ended September 30, 1996. This decrease resulted
primarily from a reduction in lower margin sales associated with the Atlanta,
Georgia facility and the shipping business and management's ability to obtain
more favorable pricing.
Selling, General and Administrative. Selling, general and administrative
expenses decreased to $8.6 million in the nine months ended September 30, 1997
from $9.5 million in the nine months ended September 30, 1996, a decrease of
$0.9 million, or 9.7%. As a percentage of net sales, selling general and
administrative expenses decreased to 30.8% in the nine months ended September
30, 1997 from 31.5% in the nine months ended September 30, 1996. This decrease
resulted from the closing of Houff's wholesale distribution facility in
Atlanta, Georgia in October 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.
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.
30
<PAGE>
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.
31
<PAGE>
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 were 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.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------------------- -----------------------------------
1994 1995 1996 1996 1997
------------- ------------- -------------- ----------------- ----------------
(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% $ 27,695 100.0% $ 29,972 100.0%
Cost of Sales........... 23,839 77.9 24,328 75.8 28,190 79.0 21,496 77.6 23,222 77.5
Selling, General and
Administrative
Expenses............... 6,266 20.5 6,773 21.1 8,956 25.1 6,991 25.2 5,210 17.4
------- ----- ------- ----- ------- ----- -------- ------ -------- ------
Operating Income
(Loss)................. $ 485 1.6% $ 995 3.1% $(1,462) (4.1)% $ (792) (2.8)% $ 1,540 5.1%
======= ===== ======= ===== ======= ===== ======== ====== ======== ======
</TABLE>
Nine Months Ended September 30, 1997 Compared to Nine Months Ended September
30, 1996
Net Sales. Net sales increased to $30.0 million in the nine months ended
September 30, 1997 from $27.7 million in the nine months ended September 30,
1996, an increase of $2.3 million, or 8.2%. This increase resulted primarily
from obtaining higher prices for certain products and a fuel surcharge fee
related to airline shipments that was added to customer invoices.
Cost of Sales. Cost of sales, which consists primarily of payment for fresh
cut flowers, increased to $23.2 million in the nine months ended September 30,
1997 from $21.5 million in the nine months ended September 30, 1996, an
increase of $1.7 million, or 8.0%, primarily as a result of the increase in
sales and the imposition of a fuel surcharge related to airline shipments that
was imposed by airlines beginning in April 1996. As a percentage of net sales,
costs of sales decreased to 77.5% in the nine months ended September 30, 1997
from 77.6% in the nine months ended September 30, 1996.
Selling, General and Administrative. Selling, general and administrative
expenses decreased to $5.2 million in the nine months ended September 30, 1997
from $7.0 million in the nine months ended September 30, 1996, a decrease of
$1.8 million, or 25.5%. This decrease resulted from decreased compensation
32
<PAGE>
to employee-stockholders, partially offset by increases in personnel costs. As
a percentage of net sales, selling, general and administrative expenses
decreased to 17.4% in the nine months ended September 30, 1997 from 25.2% in
the nine months ended September 30, 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.
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
increased expenses associated with CFX's 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 $23.8 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.
33
<PAGE>
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.
34
<PAGE>
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.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED SEPTEMBER 30,
------------------------------------------- ---------------------------------
1994 1995 1996 1996 1997
------------- ------------- ------------- ---------------- ----------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales............... $19,203 100.0% $25,592 100.0% $30,563 100.0% $ 22,545 100.0% $ 22,373 100.0%
Cost of Sales........... 12,807 66.7 17,068 66.7 20,722 67.8 15,333 68.0 15,057 67.3
Selling, General and
Administrative
Expenses............... 5,529 28.8 7,579 29.6 8,976 29.4 6,666 29.6 6,552 29.3
------- ----- ------- ----- ------- ----- -------- ------ -------- ------
Operating Income........ $ 867 4.5% $ 945 3.7% $ 865 2.8% $ 546 2.4% $ 764 3.4%
======= ===== ======= ===== ======= ===== ======== ====== ======== ======
</TABLE>
Nine Months Ended September 30, 1997 Compared to Nine Months Ended September
30, 1996
Net Sales. Net sales decreased to $22.4 million in the nine months ended
September 30, 1997 from $22.5 million in the nine months ended September 30,
1996, a decrease of $0.2 million, or 0.8%, due to a reduction in sales to a
supermarket chain in the nine months ended September 30, 1997. The supermarket
chain, which accounted for $0.7 million of net sales in the nine months ended
September 30, 1997 and $2.3 million of net sales in the nine months ended
September 30, 1996, was acquired in late 1996 by another supermarket chain
which operates its own wholesale distribution facility. The reduction in sales
to this customer was offset by increased sales to existing customers and sales
to new customers, including new supermarket customers.
Cost of Sales. Cost of sales, which consists of the cost of perishable and
hardgood products and in-bound freight costs, decreased to $15.1 million in the
nine months ended September 30, 1997 from $15.3 million in the nine months
ended September 30, 1996, a decrease of $0.3 million, or 1.8%. As a percentage
of net sales, cost of sales decreased to 67.3% in the nine months ended
September 30, 1997 from 68.0% in the nine months ended September 30, 1996. This
decrease primarily resulted from management's ability to obtain more favorable
prices and better inventory management.
Selling, General and Administrative. Selling, general and administrative
expenses decreased to $6.6 million in the nine months ended September 30, 1997
from $6.7 million in the nine months ended September 30, 1996, a decrease of
$0.1 million, or 1.7%. As a percentage of net sales, selling, general and
administrative expenses decreased to 29.3% in the nine months ended September
30, 1997 from 29.6% in the nine months ended September 30, 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.
35
<PAGE>
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 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 $0.8 million in the year ended December 31, 1996 and 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 $0.8 million in the year ended December 31, 1995 and
$0.7 million in the year ended December 31, 1994.
Operating Income. As a result of the factors discussed above, operating
income decreased by $78,000 in the year ended December 31, 1995 from the year
ended December 31, 1994. 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.
36
<PAGE>
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 wholesale distributors. 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 affiliated with a current 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 25% of Flower Trading's cost of sales in the year ended
December 31, 1996 was paid to affiliated entities. These entities were not
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.
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, NINE MONTHS ENDED SEPTEMBER 30,
------------------------------------------- ---------------------------------
1994 1995 1996 1996 1997
------------- ------------- ------------- ---------------- ----------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales............... $18,478 100.0% $20,335 100.0% $20,313 100.0% $ 15,163 100.0% $ 16,838 100.0%
Cost of Sales........... 14,452 78.2 15,921 78.3 15,914 78.3 11,854 78.2 13,031 77.4
Selling, General and
Administrative
Expenses............... 3,605 19.5 4,068 20.0 4,142 20.4 2,826 18.6 2,889 17.1
------- ----- ------- ----- ------- ----- -------- ------ -------- ------
Operating Income........ $ 421 2.3% $ 346 1.7% $ 257 1.3% $ 483 3.2% $ 918 5.5%
======= ===== ======= ===== ======= ===== ======== ====== ======== ======
</TABLE>
Nine Months Ended September 30, 1997 Compared to Nine Months Ended September
30, 1996
Net Sales. Net sales increased to $16.8 million in the nine months ended
September 30, 1997 from $15.2 million in the nine months ended September 30,
1996, an increase of $1.7 million, or 11.0%. The increase resulted primarily
from an increased volume of sales, increased revenues at Valentine's Day and a
fuel surcharge fee that was added to customer invoices.
Cost of Sales. Cost of sales, which primarily consists of the cost of
purchasing fresh cut flowers, increased to $13.0 million in the nine months
ended September 30, 1997 from $11.9 million in the nine months ended September
30, 1996, an increase of $1.2 million, or 9.9%. The increase resulted from the
imposition of a fuel surcharge related to airline shipments that was imposed
by airlines beginning in April 1996, and increases in direct purchase costs,
sales commission and freight costs associated with the increased sales. As a
percentage of net sales, cost of sales decreased to 77.4% in the nine months
ended September 30, 1997 from 78.2% in the nine months ended September 30,
1996, due to management's efforts to obtain more favorable prices.
Selling, General and Administrative. Selling, general and administrative
expenses increased to $2.9 million in the nine months ended September 30, 1997
from $2.8 million in the nine months ended September 30, 1996, an increase of
$0.1 million, or 2.2%. As a percentage of net sales, selling, general and
administrative expenses decreased to 17.1% in the nine months ended September
30, 1997 from 18.6% in the nine months ended September 30, 1996. This decrease
resulted primarily from spreading fixed costs over increased sales.
37
<PAGE>
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
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 by $89,000 in the year ended December 31, 1996 from 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 net 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.
38
<PAGE>
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 69% of sales, while hardgoods accounted for approximately 31% of
sales in fiscal 1997. 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.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED JUNE 30, SEPTEMBER 30,
------------------------------------------- --------------------------
1995 1996 1997 1996 1997
------------- ------------- ------------- ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales............... $17,985 100.0% $19,030 100.0% $19,673 100.0% $3,860 100.0% $4,213 100.0%
Cost of Sales........... 11,556 64.3 12,563 66.0 12,862 65.4 2,532 65.6 2,760 65.5
Selling, General and
Administrative
Expenses............... 5,926 32.9 6,101 32.1 6,046 30.7 1,296 33.6 1,434 34.0
------- ----- ------- ----- ------- ----- ------ ----- ------ -----
Operating Income........ $ 503 2.8% $ 366 1.9% $ 765 3.9% $ 32 0.8% $ 19 0.5%
======= ===== ======= ===== ======= ===== ====== ===== ====== =====
</TABLE>
Three Months Ended September 30, 1997 Compared to Three Months Ended
September 30, 1996
Net Sales. Net sales increased to $4.2 million in the three months ended
September 30, 1997 from $3.9 million in the year ended September 30, 1996, an
increase of $0.4 million, or 9.1%, 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 $2.8 million in the
three months ended September 30, 1997 from $2.5 million in the three months
ended September 30, 1996, an increase of $0.2 million, or 9.0%, primarily as a
result of increased sales. As a percentage of net sales, cost of sales
decreased to 65.5% in the three months ended September 30, 1997 from 65.6% in
the three months ended September 30, 1996.
Selling, General and Administrative. Selling, general and administrative
expenses increased to $1.4 million in the three months ended September 30,
1997 from $1.3 million in the three months ended September 30, 1996, an
increase of $0.1 million, or 10.6%. As a percentage of net sales, selling,
general and administrative expenses increased to 34.0% in the three months
ended September 30, 1997 from 33.6% in the three months ended September 30,
1996.
Year Ended June 30, 1997 Compared to Year Ended June 30, 1996
Net Sales. Net sales increased to $19.7 million in the year ended June 30,
1997 from $19.0 million in the year ended June 30, 1996, an increase of $0.6
million, or 3.4%, 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 $12.9 million in
the year ended June 30, 1997 from $12.6 million in the year ended
39
<PAGE>
June 30, 1996, an increase of $0.3 million, or 2.4%, primarily as a result of
increased sales. As a percentage of net sales, cost of sales decreased to
65.4% in the year ended June 30, 1997 from 66.0% in the year ended June 30,
1996. This decrease resulted from savings obtained through a group buying
program and reductions in in-bound freight costs.
Selling, General and Administrative. Selling, general and administrative
expenses decreased to $6.0 million in the year ended June 30, 1997 from $6.1
million in the year ended June 30, 1996, a decrease of $0.1 million, or 0.9%.
As a percentage of net sales, selling, general and administrative expenses
decreased to 30.7% in the year ended June 30, 1997 from 32.1% in the year
ended June 30, 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 $0.8 million in the year ended June 30, 1997 from $0.4
million in the year ended June 30, 1996, an increase of $0.4 million, or
109.0%. As a percentage of net sales, operating income increased to 3.9% in
the year ended June 30, 1997 from 1.9% in the year ended June 30, 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.
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.
40
<PAGE>
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, Vermont and 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, NINE MONTHS ENDED SEPTEMBER 30,
------------------------------------------ ----------------------------------
1994 (1) 1995 1996 1996 1997
------------ ------------- ------------- ---------------- ----------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales............... $6,293 100.0% $10,783 100.0% $11,679 100.0% $ 8,759 100.0% $ 9,563 100.0%
Cost of Sales........... 4,579 72.8 7,788 72.2 8,268 70.8 6,128 70.0 6,535 68.3
Selling, General and
Administrative
Expenses............... 1,545 24.6 2,531 23.5 2,723 23.3 2,065 23.6 2,275 23.8
------ ----- ------- ----- ------- ----- -------- ------- -------- -------
Operating Income........ $ 169 2.7% $ 464 4.3% $ 688 5.9% $ 566 6.4% $ 753 7.9%
====== ===== ======= ===== ======= ===== ======== ======= ======== =======
</TABLE>
- --------
(1) The financial data for 1994 reflect eight months of operations.
Nine Months Ended September 30, 1997 Compared to Nine Months Ended September
30, 1996
Net Sales. Net sales increased to $9.6 million in the nine months ended
September 30, 1997 from $8.8 million in the nine months ended September 30,
1996, an increase of $0.8 million, or 9.2%. This increase resulted from
increased sales to existing customers and sales to new customers.
Cost of Sales. Cost of sales, which consists of the cost of perishable and
hardgood products and in-bound freight costs, increased to $6.5 million in the
nine months ended September 30, 1997 from $6.1 million in the nine months
ended September 30, 1996, an increase of $0.4 million, or 6.6%, primarily as a
result of increased sales. As a percentage of net sales, cost of sales
decreased to 68.3% in the nine months ended September 30, 1997 from 70.0% in
the nine months ended September 30, 1996, due to management's ability to
obtain more favorable prices, improved inventory management and reduced
freight costs.
Selling, General and Administrative. Selling, general and administrative
expenses increased to $2.3 million in the nine months ended September 30, 1997
from $2.1 million in the nine months ended September 30, 1996, an increase of
$0.2 million, or 10.2%. As a percentage of net sales, selling, general and
administrative expenses increased to 23.8% in the nine months ended September
30, 1997 from 23.6% in the nine months ended September 30, 1996, primarily as
a result of additional personnel costs.
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
41
<PAGE>
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.
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.
42
<PAGE>
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, NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------------- ----------------------------------
1994 1995 1996 1996 1997
------------ ------------ ------------ ---------------- ----------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales............... $4,253 100.0% $6,903 100.0% $9,477 100.0% $ 6,797 100.0% $ 9,714 100.0%
Cost of Sales........... 3,773 88.7 5,959 86.3 8,285 87.4 5,851 86.1 7,895 81.3
Selling, General and
Administrative
Expenses............... 458 10.8 910 13.2 1,113 11.7 760 11.2 896 9.2
------ ----- ------ ----- ------ ----- -------- ------- -------- -------
Operating Income........ $ 22 0.5% $ 34 0.5% $ 79 0.8% $ 186 2.7% $ 923 9.5%
====== ===== ====== ===== ====== ===== ======== ======= ======== =======
</TABLE>
Nine Months Ended September 30, 1997 Compared to Nine Months Ended September
30, 1996
Net Sales. Net sales increased to $9.7 million in the nine months ended
September 30, 1997 from $6.8 million in the nine months ended September 30,
1996, an increase of $2.9 million, or 42.9%. The increase reflected an
increased volume of sales.
Cost of Sales. Cost of sales, which primarily consists of fresh cut flowers,
production, labor and distribution costs, increased to $7.9 million in the
nine months ended September 30, 1997 from $5.9 million in the nine months
ended September 30, 1996, an increase of $2.0 million, or 34.9%, primarily as
a result of the increased sales. As a percentage of net sales, cost of sales
decreased to 81.3% in the nine months ended September 30, 1997 from 86.1% in
the nine months ended September 30, 1996. This decreased resulted primarily
from better prices obtained through higher volume purchases of both perishable
products and packaging materials.
Selling, General and Administrative. Selling, general and administrative
expenses increased to $0.9 million in the nine months ended September 30, 1997
from $0.8 million in the nine months ended September 30, 1996, an increase of
$0.1 million, or 17.9%. The increase was attributable to increased sales. As a
percentage of net sales, selling, general and administrative expenses
decreased to 9.2% in the nine months ended September 30, 1997 from 11.2% in
the nine months ended September 30, 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
43
<PAGE>
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.
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 $0.5 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.
44
<PAGE>
ALPINE GEM FLOWER SHIPPERS, INC.
Founded in 1978, Alpine Gem is a broker and shipper of perishable floral
products. Alpine Gem purchases flowers from approximately 250 growers and
sells flowers on consignment for approximately 18 growers. Alpine Gem
distributes flowers to nearly 750 customers, primarily wholesalers, located
throughout the United States. Alpine Gem has approximately 20 employees.
Alpine Gem has one location in Montana and one in California.
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, NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------------- ----------------------------------
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% $ 7,192 100.0% $ 8,151 100.0%
Cost of Sales........... 5,438 75.0 6,287 77.2 7,132 76.4 5,503 76.5 6,090 74.7
Selling, General and
Administrative
Expenses............... 1,320 18.2 1,526 18.7 1,868 20.0 1,243 17.3 1,382 17.0
------ ----- ------ ----- ------ ----- -------- ------- -------- -------
Operating Income........ $ 494 6.8% $ 326 4.0% $ 334 3.6% $ 446 6.2% $ 679 8.3%
====== ===== ====== ===== ====== ===== ======== ======= ======== =======
</TABLE>
Nine Months Ended September 30, 1997 Compared to Nine Months Ended September
30, 1996
Net Sales. Net sales increased to $8.2 million in the nine months ended
September 30, 1997 from $7.2 million in the nine months ended September 30,
1996, an increase of $1.0 million, or 13.3%, primarily from sales resulting
from improved promotion of goods and marketing of additional varieties of
products.
Cost of Sales. Cost of sales, which primarily consists of the cost of fresh
cut flowers, increased to $6.1 million in the nine months ended September 30,
1997 from $5.5 million in the nine months ended September 30, 1996, an
increase of $0.6 million, or 10.7%, primarily as a result of increased sales.
As a percentage of net sales, cost of sales decreased to 74.7% in the nine
months ended September 30, 1997 from 76.5% in the nine months ended September
30, 1996.
Selling, General and Administrative. Selling, general and administrative
expenses increased to $1.4 million in the nine months ended September 30, 1997
from $1.2 million in the nine months ended September 30, 1996, an increase of
$0.1 million, or 11.2%, primarily as a result of increased sales, marketing
and lease expenses. As a percentage of net sales, selling, general and
administrative expenses decreased to 17.0% in the nine months ended June 30,
1997 from 17.3% the nine months ended September 30, 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
45
<PAGE>
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
$0.9 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.
46
<PAGE>
BUSINESS
OVERVIEW
USA Floral was founded in April 1997 to create a national consolidator and
operator of floral products distribution businesses. The Company commenced
operations on October 16, 1997, the date of the consummation of the IPO and
the Mergers. 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, based upon the experience of
management of USA Floral and the Founding Companies, 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 $4.8 million and pro forma combined net income of
$2.6 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. Flowers imported into the United States
primarily consist of roses, carnations, mums and alstromeria, each of which
are imported in a number of varieties. 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.
47
<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, based upon the experience of management of USA Floral and of
the Founding Companies, 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. The Company believes 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 it is a leading consolidator in the highly
fragmented floral products industry and is therefore 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, Chairman of the Board, 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 and Chairman
of the Board 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 190 companies since
its inception in October 1994, and is the founder, Chairman and Chief
Executive Officer of Consolidation Capital Corporation, a company founded in
February 1997 to build consolidated enterprises with national market reach
through the acquisition and integration of businesses in fragmented
industries.
48
<PAGE>
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, 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
USA Floral acquired the Founding Companies contemporaneously with the
consummation of the IPO, in part through the application of a portion of the
proceeds therefrom. USA Floral has conducted operations since October 16,
1997.
The Roy Houff Company. 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. 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 million.
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,
49
<PAGE>
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. 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 350 wholesale distributors. Flower Trading has approximately
45 employees. Flower Trading's annual revenues in 1996 were approximately
$20.3 million.
United Wholesale Florists, 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, 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, 1997 were approximately $19.7 million.
American Florist Supply, Inc. 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. 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. Founded in 1978, Alpine Gem is a broker of
perishable floral products, operating from one location in Montana and one in
California. Alpine Gem purchases flowers from approximately 250 growers,
principally located in the United States, and sells flowers on consignment for
approximately 18 growers. Alpine Gem distributes flowers 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.
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, including roses, carnations, mums and alstromeria, from abroad,
principally from Colombia and Ecuador. The Company imports flowers daily
through the U.S. port of entry in Miami, Florida. CFX and Flower Trading
assist in clearing each shipment through U.S. customs and then transfer the
flowers to their own facilities for pre-cooling. CFX and Flower Trading then
act as intermediaries to link their available stocks of flowers with
wholesalers throughout the country. 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
50
<PAGE>
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.
Upon receipt of shipments of flowers from suppliers, the Company's
wholesalers process incoming flowers (i.e., break bulk, hydrate, re-cut stems
and repackage to suit customer demand) to facilitate further distribution to
retailers. In some cases, these wholesalers will also prepare specific
arrangements to meet customer needs. Most of the Company's wholesale
facilities are able to make deliveries to each of their retail customers once
per day, and in some cases twice per day.
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 are conducted primarily on a one-to-one basis by telephone
calls to established accounts. The Founding Companies employ an aggregate of
275 salespersons. Most of these employees are compensated on a commission
basis or through other incentive-based compensation programs that encourage
employees to build existing business as well as generate new customer
relationships.
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
51
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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. The Company
sources its hardgood products from a number of suppliers. The Company believes
that it has good relationships with its suppliers, and that alternative
sources of supply are readily available if necessary.
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. The Company generally
does not enter into long-term sales contracts with its
customers. The Company's sales are generally evidenced by a purchase order or
other sales documentation limited to a specific sale. 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 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 1025 Thomas Jefferson Street, N.W., Suite 600 West, Washington, D.C.
20007. The telephone number of its principal executive offices is (202) 333-
0800.
In addition to its corporate offices, the Company maintained the following
facilities as of November 18, 1997:
<TABLE>
<CAPTION>
OWNED OR
FOUNDING COMPANY LOCATION PRINCIPAL USE LEASED
---------------- -------- ------------- --------
<S> <C> <C> <C>
Houff................... Chicago, IL Headquarters and Distribution Owned
Facility
Chicago, IL Distribution Facility Owned
Normal, IL Distribution Facility Owned
Wheeling, IL Distribution Facility Owned
Phoenix, AZ Distribution Facility Owned
Norfolk, VA Distribution Facility Owned
Richmond, VA Distribution Facility Leased
</TABLE>
52
<PAGE>
<TABLE>
<CAPTION>
OWNED OR
FOUNDING COMPANY LOCATION PRINCIPAL USE LEASED
---------------- -------- ------------- --------
<S> <C> <C> <C>
CFX..................... Miami, FL Headquarters, Sales Office, Leased
Distribution Facility
Bay State............... Waltham, MA Headquarters and Distribution Leased
Facility
Springfield, MA Distribution Facility Leased
Cromwell, CT Distribution Facility Leased
Manchester, NH Distribution Facility Leased
Clifton Park, NY Distribution Facility Leased
Providence, RI Distribution Facility Leased
Flower Trading.......... Miami, FL Headquarters, Sales Office, Leased
Distribution Facility
United Wholesale........ Little Rock, AR Headquarters Leased
Little Rock, AR Distribution Facility Leased
Fort Smith, AR Distribution Facility Leased
Mobile, AL Distribution Facility Leased
Jackson, MS Distribution Facility Owned
Tupelo, MS Distribution Facility Leased
Oklahoma City, OK Distribution Facility Owned
Tulsa, OK Distribution Facility Leased
Jackson, TN Distribution Facility Owned
Memphis, TN Distribution Facility Owned
Amarillo, TX Distribution Facility Leased
Longview, TX Distribution Facility Leased
Texarkana, TX Distribution Facility Leased
Tyler, TX Distribution Facility Leased
American Florist........ Woburn, MA Headquarters and Distribution Leased
Facility
Monterey Bay............ Watsonville, CA Headquarters and Bouquet Leased
Manufacturing Facility
Alpine Gem.............. Thompson Falls, MT Headquarters and Sales Office Leased
Watsonville, CA Sales Office and Distribution Leased
Facility
</TABLE>
The Company believes that its facilities are adequate for the Company's
current and anticipated operations.
EMPLOYEES
On a pro forma combined basis as of September 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. Approximately 15
delivery personnel employed by Houff are members of Illinois Local 703 of the
International Brotherhood of Teamsters, and are employed pursuant to a
collective bargaining agreement. 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.
53
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information concerning each of the
executive officers and directors of the Company as of November 18, 1997:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
---- --- -------------------------
<C> <C> <S>
Robert J. Poirier 45 Chairman of the Board, President and Chief Executive
Officer
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 a Director
Jeffrey Brothers 38 President of Monterey Bay and a Director
John T. Dickinson 36 President of American Florist and a Director
John Q. Graham, Jr. 49 President of Alpine Gem and a Director
Dwight Haight 50 President of CFX and a Director
Roy O. Houff 56 Chief Executive Officer of Houff and a Director
Gustavo Moreno 43 President of Flower Trading Corporation and Director
William W. Rudolph 64 President of Bay State and a Director
Vincent W. Eades 38 Director
Edward J. Mathias 56 Director
John A. Quelch 46 Director
</TABLE>
Robert J. Poirier co-founded USA Floral in April 1997 and has since served
as its Chairman of the Board, President and Chief Executive Officer. 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, until November 5, 1997, its Chief Executive
Officer. Since its inception, U.S. Office Products Company has acquired and
integrated over 190 companies. In February 1997, Mr. Ledecky founded
Consolidation Capital Corporation, a company that will seek to build
consolidated enterprises with national market reach through the acquisition
and integration of businesses in fragmented industries. Mr. Ledecky currently
serves as Chairman and Chief Executive Officer of Consolidation Capital
Corporation. 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 September 1, 1997, 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.
Raymond R. Ashmore has served as President of the Company's United Wholesale
operating unit since the United Wholesale Merger and as a Director of USA
Floral since appointment to the Board at its meeting in November 1997. Mr.
Ashmore has served as President of United Wholesale since 1983.
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<PAGE>
Jeffrey Brothers has served as President of the Company's Monterey Bay
operating unit since the Monterey Bay Merger and as a Director of USA Floral
since appointment to the Board at its meeting in November 1997. 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 has served as President of the Company's American Florist
operating unit since the American Florist Merger and as a Director of USA
Floral since appointment to the Board at its meeting in November 1997. 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. has served as President of the Company's Alpine Gem
operating unit since the Alpine Gem Merger and as a Director of USA Floral
since appointment to the Board at its meeting in November 1997. Mr. Graham has
served as President of Alpine Gem since 1978.
Dwight Haight has served as President of the Company's CFX operating unit
since the CFX Merger and as a Director of USA Floral since appointment to the
Board at its meeting in November 1997. Mr. Haight has served as President of
CFX, Inc. since 1974.
Roy O. Houff has served as Chief Executive Officer of the Company's Houff
operating unit since the Houff Merger and as a Director of USA Floral since
appointment to the Board at its meeting in November 1997. 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 has served as President of the Company's Flower Trading
operating unit since the Flower Trading Merger and as a Director of the
Company since appointment to the Board at its meeting in November 1997. Mr.
Moreno has served as President of Flower Trading since 1977.
William W. Rudolph has served as President of the Company's Bay State
operating unit since the Bay State Merger and as a Director of USA Floral
since appointment to the Board at its meeting in November 1997. Mr. Rudolph
has served in an executive capacity with Bay State since 1962, most recently
serving 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 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. Messrs. Eades and Quelch are the members
of the Audit Committee.
55
<PAGE>
The Compensation Committee provides a general review of the Company's
compensation plans and policies to ensure that they meet corporate objectives.
As described below, the Company's existing plans with respect to executive
compensation are largely based upon contractual commitments set forth in
employment agreements that are either in effect or are to be entered into upon
consummation of the Mergers. See "--Executive Compensation." 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 $25,000, plus 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 are 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 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
ANNUAL COMPENSATION COMPENSATION AWARDS
---------------------- ---------------------
SECURITIES UNDERLYING
NAME POSITION SALARY BONUS OPTIONS
---- -------- ------------ --------- ---------------------
<S> <C> <C> <C> <C>
Robert J. Poirier....... Chairman of the Board, $160,000 -- (1) 110,000 (2)
President and Chief
Executive 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 granted under the 1997 Long-Term Incentive Plan as of
October 9, 1997, at an exercise price equal to the initial public offering
price per share. Options to purchase 60,000 shares will be immediately
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 October 9, 1997, at an exercise price equal to $8.00 per share. The
options will vest in 25% annual installments over four years commencing on
the first anniversary of the date of grant.
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
56
<PAGE>
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 certain other 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 lapse.
The Compensation Committee will administer the Incentive Plan and generally
select the individuals who will receive awards. In addition, the Compensation
Committee will determine the type and number of 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 which may be settled 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 $1.0 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 to the Board of
Directors or the effective date of the registration statement relating to the
IPO, 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 certain other 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
57
<PAGE>
statement relating to the IPO, the initial public offering price per share).
Options will expire at the earlier of 10 years from the date of grant or one
year after termination of service as a director. Options will vest and become
exercisable ratably, 50% six months after the date of initial grant and 50%
one year after the date of initial grant. In the event of a change in control
of the Company (as defined in the Directors' Plan) 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.
The Directors' Plan will remain in effect until terminated by the Board or
until no shares of Common Stock are available for issuance under the
Directors' Plan. The Directors' 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 EMPLOYEE STOCK PURCHASE PLAN
The Company's Board of Directors has adopted, and the Company's stockholders
have approved, the 1997 Employee Stock Purchase Plan (the "Purchase Plan").
The Purchase 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 Purchase Plan will be subject to
a one-year holding period. The Company has reserved 1,000,000 shares of Common
Stock for issuance under the Purchase Plan.
The Purchase Plan will remain in effect until terminated by the Board or
until no shares of Common Stock are available for issuance under the Purchase
Plan. The Purchase 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.
EMPLOYMENT AGREEMENTS
Effective as of April 22, 1997 and as amended August 6, 1997, USA Floral
entered into a two-year Employment Agreement with Robert J. Poirier, pursuant
to which USA Floral agreed to employ Mr. Poirier as Chairman of the Board,
President and Chief Executive Officer for a term of two years at an annual
base salary of $160,000. In addition, pursuant to the agreement, Mr. Poirier:
(i) was granted an option on October 9, 1997 to purchase 110,000 shares of
Common Stock at an exercise price equal to the initial public offering price
of $13.00 per share, which was 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) is to be granted an immediately exercisable option in
October 1998 to purchase an additional 60,000 shares at an exercise price
equal to the then-current fair market value per share. The agreement also
includes a two-year post-employment non-competition provision. 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.
58
<PAGE>
Upon consummation of the IPO, the Company entered into a two-year employment
agreement with Raymond C. Anderson, the Company's Chief Financial Officer,
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 was
granted options on October 9, 1977 to purchase 50,000 shares of Common Stock
with an exercise price equal to $8.00 per share. If Mr. Anderson is terminated
without cause, he is entitled to receive accelerated vesting of vested options
to purchase shares of Common Stock then held by him, as well as his base
salary plus benefits for the greater of (i) the remainder of the term or (ii)
twelve months.
The Company, through its wholly-owned subsidiaries, has entered into
employment agreements with certain of the individuals principally responsible
for management of the Founding Companies. Each of the agreements described
below provides that the employee (i) will receive a specified base salary,
(ii) will be employed for a two-year period, (iii) agrees to not compete with
the Company for two years following termination of employment and (iv) is
eligible for an annual bonus of up to 100% of base salary based in part on the
performance of the applicable Founding Company and in part upon the
performance of the Company. Roy O. Houff's employment agreement with Houff
provides that Mr. Houff will be employed for a two-year period with a base
salary of $150,000. Dwight Haight's employment agreement with CFX provides
that Mr. Haight will be employed for a two-year period with a base salary of
$216,000. William W. Rudolph's employment agreement with Bay State provides
that Mr. Rudolph will be employed for a two-year period with a base salary
equal to his current salary through December 31, 1997 and a base salary of
$150,000 beginning January 1, 1998. Jeffrey Brother's employment agreement
with Monterey Bay provides that Mr. Brothers will be employed for a two-year
period with a base salary of $170,000. In addition, Mr. Brothers was granted
options to purchase 50,000 shares of Common Stock with an exercise price equal
to the initial public offering price of $13.00 per share. John Q. Graham,
Jr.'s employment agreement with Alpine Gem provides that Mr. Graham will be
employed for a two-year period with a base salary of $80,000. In addition, Mr.
Graham was granted options to purchase 50,000 shares of Common Stock with an
exercise price equal to the initial public offering price of $13.00 per share.
Raymond R. Ashmore's employment agreement with United Wholesale provides that
Mr. Ashmore will be employed for a two-year period with a base salary of
$150,000. John T. Dickinson's employment agreement with American Florist
provides that Mr. Dickinson will be employed for a two-year period with a base
salary of $150,000. In addition, Mr. Dickinson was granted options to purchase
50,000 shares of Common Stock, with an exercise price equal to the initial
public offering price of $13.00 per share. Gustavo Moreno's employment
agreement with Flower Trading provides that Mr. Moreno will be employed for a
two-year period with a base salary of $270,000.
59
<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 are or will become officers,
directors and principal stockholders of the Company following the Mergers and
IPO. 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,
Chairman of the Board, 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 the consummation of the IPO, USA Floral acquired in
eight separate transactions all of the issued and outstanding capital stock of
each of the Founding Companies for an aggregate consideration of $63.7
million, which consisted of: (i) $42.4 million in cash paid to the
stockholders of the Founding Companies, (before giving effect to the receipt
by the Company upon consummation of the Mergers of approximately $1.7 million
of net related party receivables); (ii) $4.0 million in cash to fund
S Corporation distributions to the stockholders of CFX and Alpine Gem; and
(iii) the $17.3 million fair value (based upon the initial public offering
price of $13.00 per share) of 1,334,050 shares of Common Stock issued to the
stockholders of the Founding Companies. In addition, the Company may pay
additional consideration of up to $0.5 million in cash and issue up to $5.4
million in shares of Common Stock (approximately 415,385 shares, assuming a
price per share equal at the calculation date to the initial public offering
price of $13.00 per share) (or, in the event the fair market value per share
is less than $10.00, such additional shares of Common Stock or, at the
Company's option, cash as is necessary so that the stockholders receive
consideration equal to $10.00 per share), pursuant to earn-out arrangements
with two of the Founding Companies. The Company also assumed a tax liability
of one of the Founding Companies of approximately $0.5 million. 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 paid to the
stockholders of each of the Founding Companies, the acquisition of each
Founding Company was subject to substantially the same terms and conditions as
those to which the acquisition of each other Founding Company was subject. The
following table contains information concerning the aggregate cash to be paid,
Common Stock issued (at an initial public offering price of $13.00 per share)
and S Corporation distributions to be made in connection with the Mergers:
60
<PAGE>
<TABLE>
<CAPTION>
S CORP. SHARES OF VALUE OF SHARES OF TOTAL
FOUNDING COMPANY CASH DISTRIBUTIONS COMMON STOCK COMMON STOCK CONSIDERATION
- ---------------- ----- ------------- ------------ ------------------ -------------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Houff................... $11.0 -- -- -- $11.0
CFX..................... 5.8 $ 4.0 250,000 $ 3.2 13.0
Bay State............... 6.0 -- 495,550 6.4 12.4
Flower Trading.......... 5.9(1) -- 160,000 2.1 8.0
United Wholesale........ 4.8 -- 268,500 3.5 8.3
American Florist........ 4.8 -- -- (2) -- (2) 4.8(2)
Monterey Bay............ 2.5 -- -- (3) -- (3) 2.5(3)
Alpine Gem.............. 1.6 -- (4) 160,000 2.1 3.7
----- ----- --------- ----- -----
Total................. $42.4(5) $ 4.0 1,334,050 $17.3 $63.7
===== ===== ========= ===== =====
</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 $2.4
million (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 $3.0 million (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 $42,000.
(5) Does not reflect the receipt by the Company upon consummation of the
Mergers of approximately $1.3 million of net related party receivables.
THE ROY HOUFF COMPANY
USA Floral acquired 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, became a Director of the Company upon appointment to the Board at its
meeting in November 1997. Mr. Houff entered into a two-year covenant not to
compete with the Company and its subsidiaries and a two-year employment
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 paid 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 terminated
upon consummation of the Merger. Houff leased 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 were acquired by Houff prior to the
Houff Merger and the lease arrangement was 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 were
repaid to Houff upon consummation of the Houff Merger.
CFX, INC.
USA Floral acquired all of the outstanding stock of CFX in a reverse
subsidiary merger for: (i) $9.8 million in cash, of which a portion represents
the amount of CFX's accumulated adjustments account, which was distributed to
the stockholders of CFX immediately prior to the consummation of the CFX
Merger; and
61
<PAGE>
(ii) 250,000 shares of Common Stock. In connection with the CFX Merger, Dwight
Haight, the President of CFX, became a Director of the Company upon
appointment to the Board at its meeting in November 1997. Mr. Haight received
approximately $2.8 million in cash and 118,750 shares of Common Stock for his
shares of capital stock of CFX. Mr. Haight entered 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 CFX Merger.
Mr. Haight owns 25% of two farms, Miramonte and Mocari, both of which are
located in Colombia (of the other 75% interest, 25% is held by a current
stockholder of CFX). 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 (the other 50% interest is held by a current
stockholder of CFX). 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 (the other 50% interest is held by a current
stockholder of CFX). 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 (the other 50% interest is held by a
current stockholder of CFX). 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. Interest on the industrial revenue bond and the term loan accrues at
an effective annual rate of 7.48% and 9.44%, respectively. While USA Floral
has not assumed any guaranty obligation and is not an obligor under the bond
or the term loan, CFX will continue to be a guarantor of the industrial
revenue bond and term loan following consummation of the Merger. From time to
time, CFX has advanced funds to Mr. Haight. As of June 30, 1997, the total
amount owed to CFX by Mr. Haight was approximately $0.2 million. All amounts
due to CFX from Mr. Haight were repaid to CFX upon consummation of the CFX
Merger.
BAY STATE FLORIST SUPPLY, INC.
USA Floral acquired 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, became a Director of the Company upon appointment to the Board at
its meeting in November 1997. Mr. Rudolph received approximately $0.5 million
in cash and 43,000 shares of Common Stock for his shares of capital stock of
Bay State. Mr. Rudolph entered 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 Floral 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.
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<PAGE>
FLOWER TRADING CORPORATION
USA Floral acquired all of the outstanding stock of Flower Trading in a
reverse subsidiary merger for $5.9 million in cash and 160,000 shares of
Common Stock. In addition, the Company assumed an estimated tax liability of
Flower Trading of approximately $0.5 million. In connection with the Flower
Trading Merger, Gustavo Moreno, the President of Flower Trading, became a
Director of the Company upon appointment to the Board at its meeting in
November 1997. Mr. Moreno received approximately $0.8 million in cash and
22,400 shares of Common Stock for his shares of capital stock of Flower
Trading. Mr. Moreno entered 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.
Flower Trading owns a 75% interest in UltraFlora Corporation Limited
("UltraFlora"). Flower Trading provides handling services to UltraFlora. In
the year ended December 31, 1996, UltraFlora paid Flower Trading $0.2 million
for such services. Prior to the Flower Trading Merger, Flower Trading sold its
ownership interest in UltraFlora directly to one of the stockholders of Flower
Trading.
UNITED WHOLESALE FLORISTS, INC. AND UNITED WHOLESALE FLORISTS OF AMERICA, INC.
USA Floral acquired 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, became a Director of the Company
upon appointment to the Board at its meeting in November 1997. Mr. Ashmore
received approximately $1.0 million in cash and 98,625 shares of Common Stock
for his shares of capital stock of United Wholesale. Mr. Ashmore entered 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 was 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 repaid the balance of these advances.
AMERICAN FLORIST SUPPLY, INC.
USA Floral acquired all of the outstanding stock of American Florist in a
reverse subsidiary merger for $4.8 million in cash. In connection with the
American Florist Merger, John T. Dickinson, the President of American Florist,
became a Director of the Company upon appointment to the Board at its meeting
in November 1997. Mr. Dickinson is the sole stockholder of American Florist.
Mr. Dickinson entered 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 received 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.
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<PAGE>
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. 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 acquired 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, became a
Director of the Company upon appointment to the Board at its meeting in
November 1997. Mr. Brothers received $1.0 million in cash for his shares of
capital stock of Monterey Bay. Mr. Brothers entered 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 received options to
purchase 50,000 shares of Common Stock at an exercise 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. The lease, which terminates December 31,
1999, 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
$42,000; and (iii) 160,000 shares of Common Stock. In connection with the
Alpine Gem Merger, John Q. Graham, Jr., became a Director of the Company upon
appointment to the Board at its meeting in November 1997. Mr. Graham received
$0.8 million in cash and 80,000 shares of Common Stock for his shares of
capital stock of Alpine Gem. Mr. Graham entered 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 received options to purchase 50,000 shares
of Common Stock at an exercise price per share equal to the initial public
offering price.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of October 31, 1997, 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>
NUMBER OF SHARES PERCENTAGE OF
BENEFICIAL OWNER OF COMMON STOCK COMMON STOCK OWNED
---------------- ---------------- ------------------
<S> <C> <C>
Jonathan J. Ledecky (1).................... 1,310,000 13.5
c/o U.S.A. Floral Products, Inc.
3500 Whitehaven Parkway
Washington, D.C. 20007
Robert J. Poirier (2)...................... 1,060,000 11.0
c/o U.S.A. Floral Products, Inc.
3500 Whitehaven Parkway
Washington, D.C. 20007
Raymond C. Anderson........................ -- *
Vincent W. Eades........................... 5,000 *
Edward J. Mathias (3)...................... 100,000 1.0
John A. Quelch............................. 25,000 *
Raymond R. Ashmore......................... 100,125 1.0
Jeffrey Brothers........................... 4,000 *
John T. Dickinson.......................... -- *
John Q. Graham, Jr. ....................... 80,000 *
Dwight Haight.............................. 118,750 1.2
Roy O. Houff............................... -- *
Gustavo Moreno............................. 22,400 *
William W. Rudolph......................... 42,955 *
All directors, persons named to become
directors,
and executive officers, as a group (4).... 2,857,730 29.3
</TABLE>
- --------
*Less than one percent.
(1) Includes 100,000 shares which may be acquired within 60 days of October
31, 1997 pursuant to the exercise of options granted under the Incentive
Plan.
(2) Includes 60,000 shares which may be acquired within 60 days of October 31,
1997 pursuant to the exercise of options granted under the Incentive Plan.
Also includes 100,000 shares held by a trust for the benefit of Mr.
Poirier's spouse and children. Mr. Poirier disclaims beneficial ownership
of all such shares.
(3) Includes 50,000 shares owned by Mr. Mathias' daughter. Mr. Mathias
disclaims beneficial ownership of all such shares.
(4) Includes 160,000 shares which may be acquired within 60 days of October
31, 1997 pursuant to the exercise of options granted under the Incentive
Plan. See Notes (1) and (2).
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<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. Messrs. Ashmore, Haight,
Houff and Rudolph will be Class I directors whose terms will expire in 1998.
Messrs. Brothers, Dickinson, Graham and Moreno will be Class II directors
whose terms will expire in 1999. Messrs. Poirier, Ledecky, Eades, Mathias and
Quelch are Class III directors whose terms will expire in 2000. 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.
66
<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 American Stock
Transfer & Trust Company.
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
As of October 16, 1997, 9,594,050 shares of Common Stock were outstanding.
The 5,750,000 shares sold in the IPO are 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
3,844,050 remaining outstanding shares of Common Stock will be available for
resale at various dates beginning 180 days after the date of the IPO, upon
expiration of applicable lock-up agreements and subject to compliance with
Rule 144 under the Securities Act as the holding provisions of Rule 144 are
satisfied. Of those shares, 3,654,050 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. The additional shares
(approximately 415,385 shares, assuming a price per share at the calculation
date equal to the initial public offering price of $13.00 per share) 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, 941,250 shares of Common Stock are issuable upon the exercise
of stock options of which options to purchase 160,000 shares are currently
exercisable. The Company has filed a registration statement on Form S-8 to
register the issuance of the shares issuable upon the exercise of such
options. In addition, the 12,500,000 shares of Common Stock offered by this
Prospectus generally will be freely tradeable after their issuance by persons
not affiliated with the Company, unless their resale is contractually
restricted. Sales, or the availability for sale, of substantial amounts of the
Common Stock in the public market could adversely affect prevailing market
prices and the future ability of the Company to raise equity capital and to
complete acquisitions in which all or a portion of the consideration is Common
Stock.
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; 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.
Prior to the IPO, there was no public market for the Company's Common Stock.
The offering price for the Common Stock to be issued pursuant to this
Prospectus will be based upon the Company's closing stock price at a date
certain or the average closing stock price over a period of time determined by
negotiations between the Company and the owners of the Companies to be
acquired. The negotiated price may bear no relationship to the price at which
the Common Stock will trade after the respective acquisition and an active
trading market may not be sustained subsequent to any future acquisition
transactions. 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.
PLAN OF DISTRIBUTION
The Company will issue the Common Stock from time to time in connection with
merger or acquisition transactions entered into by the Company. It is expected
that the terms of such acquisitions will be determined by direct negotiations
with the owners or controlling persons of the businesses, assets or securities
to be acquired by the Company. No underwriting discounts or commissions will
be paid, although finder's fees may be paid from time to time with respect to
specific mergers or acquisitions. Any person receiving such fees may be deemed
to be an underwriter within the meaning of the Securities Act.
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<PAGE>
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.
EXPERTS
The financial statements of USA Floral as of September 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.
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 Florist, 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, 1996 and 1997
and for each of the three years in the period ended 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.
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.
69
<PAGE>
The Company is subject to the informational requirements of the Exchange Act
and in accordance therewith files reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information filed by the Company with the Commission can be inspected and
copied at prescribed rates at the public reference facilities maintained by
the Commission at Judiciary Plaza, Room 1024, 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. In addition,
registration statements and certain other filings made with the Commission
through EDGAR are publicly available through the Commission's site on the
Internet's World Wide Web, located at http://www.sec.gov.
70
<PAGE>
U.S.A. FLORAL PRODUCTS, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE #
------
<S> <C>
U.S.A. FLORAL PRODUCTS, INC. UNAUDITED PRO FORMA COMBINED FINANCIAL
STATEMENTS
Introduction to Unaudited Pro Forma Combined Financial Statements.... F-3
Unaudited Pro Forma Combined Balance Sheet........................... F-4
Unaudited Pro Forma Combined Statements of Operations................ F-5
Notes to Unaudited Pro Forma Combined Financial Statements........... F-8
U.S.A. FLORAL PRODUCTS, INC.
Report of Independent Accountants.................................... F-15
Balance Sheet........................................................ F-16
Statement of Operations.............................................. F-17
Statement of Stockholders' Equity.................................... F-18
Statement of Cash Flows.............................................. F-19
Notes to Financial Statements........................................ F-20
THE ROY HOUFF COMPANY
Report of Independent Accountants.................................... F-23
Balance Sheet........................................................ F-24
Statement of Operations.............................................. F-25
Statement of Stockholder's Equity.................................... F-26
Statement of Cash Flows.............................................. F-27
Notes to Financial Statements........................................ F-28
CFX, INC.
Report of Independent Accountants.................................... F-33
Independent Auditors' Report......................................... F-34
Balance Sheet........................................................ F-35
Statement of Operations.............................................. F-36
Statement of Stockholders' Equity.................................... F-37
Statement of Cash Flows.............................................. F-38
Notes to Financial Statements........................................ F-39
BAY STATE FLORIST SUPPLY, INC.
Report of Independent Accountants.................................... F-45
Balance Sheet........................................................ F-46
Statement of Operations.............................................. F-47
Statement of Stockholders' Equity.................................... F-48
Statement of Cash Flows.............................................. F-49
Notes to Financial Statements........................................ F-50
FLOWER TRADING CORPORATION
Report of Independent Accountants.................................... F-56
Consolidated Balance Sheet........................................... F-57
Consolidated Statement of Operations................................. F-58
Consolidated Statement of Stockholders' Equity....................... F-59
Consolidated Statement of Cash Flows................................. F-60
Notes to Consolidated Financial Statements........................... F-61
</TABLE>
F-1
<PAGE>
<TABLE>
<CAPTION>
PAGE #
------
<S> <C>
UNITED WHOLESALE FLORISTS, INC.
Report of Independent Accountants...................................... F-67
Combined Balance Sheet................................................. F-68
Combined Statement of Operations....................................... F-69
Combined Statement of Stockholders' Equity............................. F-70
Combined Statement of Cash Flows....................................... F-71
Notes to Combined Financial Statements................................. F-72
AMERICAN FLORIST SUPPLY, INC.
Report of Independent Accountants...................................... F-79
Balance Sheet.......................................................... F-80
Statement of Operations................................................ F-81
Statement of Stockholder's Equity...................................... F-82
Statement of Cash Flows................................................ F-83
Notes to Financial Statements.......................................... F-84
MONTEREY BAY BOUQUET, INC.
Report of Independent Accountants...................................... F-89
Combined Balance Sheet................................................. F-90
Combined Statement of Operations....................................... F-91
Combined Statement of Stockholders' Equity............................. F-92
Combined Statement of Cash Flows....................................... F-93
Notes to Combined Financial Statements................................. F-94
ALPINE GEM FLOWER SHIPPERS, INC.
Report of Independent Accountants...................................... F-99
Balance Sheet.......................................................... F-100
Statement of Operations................................................ F-101
Statement of Stockholders' Equity...................................... F-102
Statement of Cash Flows................................................ F-103
Notes to Financial Statements.......................................... F-104
</TABLE>
F-2
<PAGE>
U.S.A. 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 U.S.A. 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") occurred simultaneously with the closing of USA Floral's initial
public offering (the "IPO") 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 September 30, 1997. The unaudited
pro forma combined statements of operations give effect to these transactions
as if they had occurred on January 1, 1996. The pro forma combined statements
of operations reflect the operating results of each of the Founding Companies
for their fiscal year ending December 31, 1996 and the interim nine month
periods ending September 30, 1996 and 1997; in the case of USA Floral, which
was incorporated in April 1997, no operations were conducted in the year ended
December 31, 1996 or the nine months ended June 30, 1996. USA Floral and each
of the Founding Companies have fiscal years ending December 31, with the
exception of United Wholesale, whose fiscal year end is June 30. Specifically,
for purposes of the December 31, 1996 pro forma income statement, United
Wholesale's operating results for the year ended June 30, 1996 were adjusted
by adding subsequent interim period July 1, 1996 to December 31, 1996 and
subtracting the six months ended July 1, 1995 to December 31, 1995. The pro
forma income statements for the nine months ended September 30, 1996 and 1997
represent United Wholesale's operating results for these respective interim
periods.
USA Floral has preliminarily analyzed the savings that it expects to realize
from reductions in salaries and certain benefits to the owners of the Founding
Companies. To the extent the owners of the Founding Companies have agreed
prospectively to reductions in salary, bonuses, and benefits in connection
with the merger transactions, 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-3
<PAGE>
U.S.A. FLORAL PRODUCTS, INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
MERGER
ADJUST-
USA ROY CFX, BAY FLOWER UNITED AMERICAN MONTEREY ALPINE MENTS PRO FORMA
FLORAL HOUFF INC. STATE TRADING WHOLESALE FLORIST BAY GEM (SEE NOTE 3) COMBINED
------ ------- ------- ------- ------- --------- -------- -------- ------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and cash
equivalents........ $ 78 $ 723 $ 651 $ 1,007 $ 409 $ 510 $ 260 $ 277 $ (596) $ 3,319
Accounts receivable,
net................ $3,186 3,611 3,421 2,157 1,203 1,225 945 1,504 17,252
Inventories......... 1,315 2,072 2,119 111 181 5,798
Due from related
parties............ 770 41 748 31 (1,221) 369
Due from
stockholders....... 347 6 (347) 6
Prepaid expenses and
other.............. 2,214 239 663 353 205 157 35 69 16 3,951
------ ------- ------- ------- ------- ------- ------- ------- ------- -------- --------
Total current
assets......... 2,292 4,740 5,767 6,497 3,410 4,983 1,918 1,455 1,797 (2,164) 30,695
Property and
equipment, net..... 1,776 411 1,578 360 1,901 197 168 23 3,123 9,537
Due from related
parties............ 10 10
Due from
stockholders....... 602 49 (651)
Deferred taxes...... 90 105 195
Goodwill, net....... 219 281 43,565 44,065
Other assets........ 360 377 105 149 70 170 (70) 1,161
------ ------- ------- ------- ------- ------- ------- ------- ------- -------- --------
Total assets.... $2,292 $ 6,516 $ 7,150 $ 8,452 $ 3,965 $ 7,252 $ 2,466 $ 1,842 $ 1,820 $ 43,908 $ 85,665
====== ======= ======= ======= ======= ======= ======= ======= ======= ======== ========
LIABILITIES AND
STOCKHOLDERS'
EQUITY
Short-term debt..... $ 320 $ 22 $ 281 $ 104 $ 1,496 $ 34 $ 2,257
Notes payable to
stockholders....... 16 550 $ (547) 19
Accounts payable and
accrued expenses... $2,000 3,391 1,758 2,099 989 2,138 $ 723 632 $ 860 30 14,620
Due to related
parties............ 292 292
Income taxes
payable............ 302 210 363 500 1,375
Payable to
stockholders....... 45,063 45,063
------ ------- ------- ------- ------- ------- ------- ------- ------- -------- --------
Total current
liabilities.... 2,000 3,727 1,780 2,380 1,687 4,394 723 1,029 860 45,046 63,626
Long-term debt...... 360 7 433 313 628 598 29 1,428 3,796
Other............... 400 31 55 25 35 546
------ ------- ------- ------- ------- ------- ------- ------- ------- -------- --------
Total
liabilities.... 2,000 4,087 1,787 3,213 2,031 5,077 1,346 1,093 860 46,474 67,968
Stockholders'
equity:
Common stock...... 2 425 3 5 150 11 400 78 727 (1,797) 4
Additional paid-in
capital.......... 400 57 376 328 25 16,615 17,801
Retained
earnings......... (110) 2,004 5,303 5,334 1,456 2,164 720 646 233 (17,860) (110)
Less: Treasury
stock (476) 476
------ ------- ------- ------- ------- ------- ------- ------- ------- -------- --------
Total
stockholders'
equity......... 292 2,429 5,363 5,239 1,934 2,175 1,120 749 960 (2,566) 17,695
------ ------- ------- ------- ------- ------- ------- ------- ------- -------- --------
Total
liabilities and
stockholders'
equity......... $2,292 $ 6,516 $ 7,150 $ 8,452 $ 3,965 $ 7,252 $ 2,466 $ 1,842 $ 1,820 $ 43,908 $ 85,663
====== ======= ======= ======= ======= ======= ======= ======= ======= ======== ========
<CAPTION>
PRO FORMA
OFFERING
ADJUST-
MENTS AS
(SEE NOTE 3) ADJUSTED
------------ ---------
<S> <C> <C>
ASSETS
Cash and cash
equivalents........ $23,481 $ 26,800
Accounts receivable,
net................ 17,252
Inventories......... 5,798
Due from related
parties............ 369
Due from
stockholders....... 6
Prepaid expenses and
other.............. (2,214) 1,737
------------ ---------
Total current
assets......... 21,267 51,962
Property and
equipment, net..... 9,537
Due from related
parties............ 10
Due from
stockholders.......
Deferred taxes...... 195
Goodwill, net....... 44,065
Other assets........ 1,161
------------ ---------
Total assets.... $21,267 $106,930
============ =========
LIABILITIES AND
STOCKHOLDERS'
EQUITY
Short-term debt..... $ 2,257
Notes payable to
stockholders....... 19
Accounts payable and
accrued expenses... (2,000) 12,620
Due to related
parties............ 292
Income taxes
payable............ 1,375
Payable to
stockholders....... (45,063)
------------ ---------
Total current
liabilities.... (47,063) 16,563
Long-term debt...... 3,796
Other............... 546
------------ ---------
Total
liabilities.... (47,063) 20,905
Stockholders'
equity:
Common stock...... 6 10
Additional paid-in
capital.......... 68,324 86,125
Retained
earnings......... (110)
Less: Treasury
stock
------------ ---------
Total
stockholders'
equity......... 68,330 86,025
------------ ---------
Total
liabilities and
stockholders'
equity......... $21,267 $106,930
============ =========
</TABLE>
See Notes to Unaudited Pro Forma Combined Financial Statements.
F-4
<PAGE>
U.S.A. FLORAL PRODUCTS, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
ADJUST- PRO
USA ROY CFX, BAY FLOWER UNITED AMERICAN MONTEREY ALPINE MENTS FORMA
FLORAL HOUFF INC. STATE TRADING WHOLESALE FLORIST BAY GEM (SEE NOTE 4) COMBINED
------ -------- -------- -------- -------- --------- -------- -------- ------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales........ -- $ 39,090 $ 35,684 $ 30,563 $ 20,313 $ 19,327 $ 11,679 $ 9,477 $ 9,334 $ -- $ 175,467
Cost of sales.... -- 25,537 28,190 20,722 15,914 12,751 8,268 8,285 7,132 (579) 126,220
--- -------- -------- -------- -------- -------- -------- ------- ------- ------- ---------
Gross profit.... -- 13,553 7,494 9,841 4,399 6,576 3,411 1,192 2,202 579 49,247
Selling, general
and
administrative.. -- 12,789 8,956 8,976 4,142 6,056 2,723 1,113 1,868 (3,314) 43,309
Goodwill
amortization.... -- 1,090 1,090
--- -------- -------- -------- -------- -------- -------- ------- ------- ------- ---------
Income from
operations..... -- 764 (1,462) 865 257 520 688 79 334 2,803 4,848
Other (income)
expense:
Interest
expense........ -- 110 33 32 226 43 15 162 621
Interest
income......... -- (39) (115) (35) (5) (119) (11) (41) (365)
Other, net...... -- (95) (100) (247) 120 10 (64) (8) (13) (397)
--- -------- -------- -------- -------- -------- -------- ------- ------- ------- ---------
Income before
income taxes.... -- 788 (1,247) 1,114 110 403 720 72 388 2,641 4,989
Provision for
income taxes.... -- 13 81 48 126 37 24 2,103 2,432
--- -------- -------- -------- -------- -------- -------- ------- ------- ------- ---------
Net income....... -- $ 775 $ (1,247) $ 1,033 $ 62 $ 277 $ 683 $ 48 $ 388 $ 538 $ 2,557
=== ======== ======== ======== ======== ======== ======== ======= ======= ======= =========
Net income per
share........... $ .33
=========
Shares used in
computing pro
forma net income
per share(1).... 7,738,819
=========
</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)
3,956,692 of the 5,750,000 shares sold in the IPO necessary to pay the
cash portion of the Merger consideration, to fund the S Corporation
distributions and to pay expenses of the IPO and (iv) 48,077 shares
related to the dilution attributable to options granted at below the
offering price in accordance with the treasury stock method.
See Notes to Unaudited Pro Forma Combined Financial Statements.
F-5
<PAGE>
U.S.A. FLORAL PRODUCTS, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO
FORMA
ADJUST- PRO
USA ROY CFX, BAY FLOWER UNITED AMERICAN MONTEREY ALPINE MENTS FORMA
FLORAL HOUFF INC. STATE TRADING WHOLESALE FLORIST BAY GEM (SEE NOTE 4) COMBINED
------ ------- -------- ------- ------- --------- -------- -------- ------ ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales.......... -- $30,068 $ 27,695 $22,545 $15,163 $14,412 $8,759 $6,797 $7,192 $ -- $ 132,631
Cost of sales...... -- 19,839 21,496 15,333 11,854 9,550 6,128 5,851 5,503 (407) 95,147
--- ------- -------- ------- ------- ------- ------ ------ ------ ------- ---------
Gross profit...... -- 10,229 6,199 7,212 3,309 4,862 2,631 946 1,689 407 37,484
Selling, general
and
administrative.... -- 9,478 6,991 6,666 2,826 4,537 2,065 760 1,243 (2,994) 31,572
Goodwill
amortization...... -- 817 817
--- ------- -------- ------- ------- ------- ------ ------ ------ ------- ---------
Income from
operations....... -- 751 (792) 546 483 325 566 186 446 2,584 5,095
Other (income)
expense:
Interest expense.. -- 82 25 5 168 30 6 123 439
Interest income... -- (29) (78) (30) (5) (86) (4) (31) (263)
Other, net........ -- (194) (94) (178) (26) 11 (47) (13) 1 (540)
--- ------- -------- ------- ------- ------- ------ ------ ------ ------- ---------
Income before
income taxes...... -- 892 (620) 729 509 232 587 193 476 2,461 5,459
Provision for
income taxes...... -- 59 215 84 30 78 2,044 2,510
--- ------- -------- ------- ------- ------- ------ ------ ------ ------- ---------
Net income......... -- $ 892 $ (620) $ 670 $ 294 $ 148 $ 557 $ 115 $ 476 $ 417 $ 2,949
=== ======= ======== ======= ======= ======= ====== ====== ====== ======= =========
Net income per
share $ .38
=========
Shares used in
computing pro
forma net income
per share(1)......... 7,738,819
=========
</TABLE>
See Notes to Unaudited Pro Forma Combined Financial Statements.
- --------
(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)
3,956,692 of the 5,750,000 shares sold in the IPO necessary to pay the
cash portion of the Merger consideration, to fund the S Corporation
distributions and to pay expenses of the IPO and (iv) 48,077 shares
related to the dilution attributable to options granted at below the
offering price in accordance with the treasury stock method.
F-6
<PAGE>
U.S.A. FLORAL PRODUCTS, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1997
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO
FORMA
ADJUST-
MENTS PRO
USA ROY CFX, BAY FLOWER UNITED AMERICAN MONTEREY ALPINE (SEE FORMA
FLORAL HOUFF INC. STATE TRADING WHOLESALE FLORIST BAY GEM NOTE 4) COMBINED
------ ------- ------- ------- ------- --------- -------- -------- ------ ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales.............. $27,774 $29,972 $22,373 $16,838 $15,110 $9,563 $9,714 $8,151 $ -- $ 139,495
Cost of sales.......... 18,003 23,222 15,057 13,031 9,888 6,535 7,895 6,090 (397) 99,324
----- ------- ------- ------- ------- ------- ------ ------ ------ ------- ---------
Gross profit.......... 9,771 6,750 7,316 3,807 5,222 3,028 1,819 2,061 397 40,171
Selling, general and
administrative........ $ 110 8,559 5,210 6,552 2,889 4,666 2,275 896 1,382 (372) 32,167
Goodwill amortization.. 817 817
----- ------- ------- ------- ------- ------- ------ ------ ------ ------- ---------
Income
(loss) from
operations........... (110) 1,212 1,540 764 918 556 753 923 679 (48) 7,187
Other (income) expense:
Interest expense...... 58 36 46 183 25 12 123 483
Interest income....... (13) (55) (37) (14) (89) (12) (17) (237)
Other, net............ (97) (31) (128) 36 (33) (87) (6) (28) (374)
----- ------- ------- ------- ------- ------- ------ ------ ------ ------- ---------
Income (loss) before
income taxes.......... (110) 1,264 1,626 893 850 495 827 917 724 (171) 7,315
Provision for income
taxes................. 80 386 163 36 397 2,191 3,253
----- ------- ------- ------- ------- ------- ------ ------ ------ ------- ---------
Net income (loss)...... $(110) $ 1,264 $ 1,626 $ 813 $ 464 $ 332 $ 791 $ 520 $ 724 $(2,362) $ 4,062
===== ======= ======= ======= ======= ======= ====== ====== ====== ======= =========
Net income per share... $ .52
=========
Shares used in
computing pro forma
net income per
share(1).............. 7,738,819
=========
</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)
3,956,692 of the 5,750,000 shares sold in the IPO necessary to pay the
cash portion of the Merger consideration, to fund the S Corporation
distributions and to pay expenses of the IPO and (iv) 48,077 shares
related to the dilution attributable to options granted at below the
offering price in accordance with the treasury stock method.
See Notes to Unaudited Pro Forma Combined Financial Statements.
F-7
<PAGE>
U.S.A. FLORAL PRODUCTS, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
NOTE 1--GENERAL
U.S.A. 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 USA Floral and the Founding Companies and were
derived from USA Floral and the respective Founding Companies' financial
statements where indicated. The periods included in these financial statements
USA Floral and for all of the individual Founding Companies are for the year
ended December 31, 1996 and for the nine months ended September 30, 1996 and
as of and for the nine months ended September 30, 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 the closing of the IPO, 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 (the "Purchase
Consideration") (a) in cash and (b) in shares of Common Stock to the common
stockholders of each of the Founding Companies, the allocation of the
consideration to net assets acquired and resulting goodwill. 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 $13.00. The
total Purchase Consideration does not reflect the S Corporation distributions
totaling $4,596 constituting substantially all of the undistributed earnings
of the Founding Companies that are S Corporations previously taxed to their
stockholders and tax payments on current earnings of such Founding Companies
("S Corporation Distributions"), the assumption of an estimated tax liability
of approximately $0.5 million of one of the Founding Companies or contingent
consideration related to earn out arrangements included in the definitive
agreements for American Florist and Monterey Bay. These arrangements provide
for the Company to pay additional consideration, based on 1997 earnings before
interest and taxes, of up to $0.5 million in cash and up to $5.4 million in
shares of common stock, calculated by reference to the average closing price
of the Common Stock for the ten trading days prior to December 31, 1997.
The purchase price has been allocated to the Company's historical assets and
liabilities based on their respective carrying values, with the exception of
acquired property at certain of the entities, as these carrying values are
deemed to represent fair market value of these assets and liabilities. The
fair market value of the properties acquired was determined via an independent
valuation by a third party. Additionally, adjustments have been made for S
Corporation distributions subsequent to September 30, 1997, debt assumed as
part of property purchased and the establishment of deferred income tax
liabilities and assets assumed in the transaction for purposes of determining
the excess of the purchase price over the net assets acquired. The allocation
of the purchase price is considered preliminary until such time as the closing
of the transaction and consummation of the Mergers. The Company does not
anticipate that the final allocation of purchase price will differ
significantly from that presented.
F-8
<PAGE>
U.S.A. FLORAL PRODUCTS, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
SHARES OF VALUE NET
COMMON OF TOTAL ASSETS
CASH STOCK SHARES CONSIDERATION ACQUIRED GOODWILL
------- --------- ------- ------------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Roy Houff............... $11,000 -- $11,000 $ 4,678 $ 6,322
CFX, Inc................ 5,790 250,000 $ 3,250 9,040 1,213 7,827
Bay State............... 6,000 495,550 6,442 12,442 4,399 8,043
Flower Trading.......... 5,900 160,000 2,080 7,980 1,434 6,546
United Wholesale
Florists, Inc.......... 4,773 268,500 3,491 8,264 2,348 5,916
American Florist Supply,
Inc.................... 4,800 -- 4,800 580 4,220
Monterey Bay............ 2,500 -- 2,500 679 1,821
Alpine Gem.............. 1,600 160,000 2,080 3,680 810 2,870
------- --------- ------- ------- ------- -------
Total................. $42,363 1,334,050 $17,343 $59,706 $16,141 $43,565
======= ========= ======= ======= ======= =======
</TABLE>
F-9
<PAGE>
U.S.A. FLORAL PRODUCTS, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
NOTE 3--UNAUDITED PRO FORMA COMBINED BALANCE SHEET ADJUSTMENTS
The following table summarizes unaudited pro forma combined balance sheet
adjustments:
<TABLE>
<CAPTION>
MERGER OFFERING POST-
ADJUSTMENTS PRO FORMA ADJUSTMENTS MERGER
------------------------------------------------ ADJUST- ------------------------ ADJUST-
(A) (B) (C) (D) (E) (F) MENTS (G) (H) (I) MENTS
------- ------- ------ ---- ------- ------- --------- ------- ------ -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and cash
equivalents......... $ (596) $ (596) $67,114 $1,430 $(45,063) $23,481
Due from related
parties............. $(1,221) (1,221)
Due from
stockholders........ (347) (347)
Prepaid expenses and
other............... (2,214) (2,214)
------- ------- ------ ---- ------- ------- -------- ------- ------ -------- -------
Total current
assets............. (596) (1,568) (2,164) 64,900 1,430 (45,063) 21,267
Property and
equipment........... $ (850) $ 3,973 3,123
Due from
stockholders........ (651) (651)
Deferred taxes....... $105 105
Goodwill, net........ (105) 43,670 43,565
Other assets......... (70) (70)
------- ------- ------ ---- ------- ------- -------- ------- ------ -------- -------
Total assets........ $ (596) $ (920) $ -- $47,643 $(2,219) $ 43,908 $64,900 $1,430 $(45,063) $21,267
======= ======= ====== ==== ======= ======= ======== ======= ====== ======== =======
LIABILITIES AND
STOCKHOLDERS' EQUITY
Short-term debt......
Notes payable to
stockholders........ $ (547) $ (547)
Accounts payable and
accrued expenses.... 30 30 $(2,000) $(2,000)
Income taxes
payable............. $ 500 500
Payable to
stockholders........ $42,363 $ 4,000 (1,300) 45,063 (45,063) (45,063)
------- ------- ------ ---- ------- ------- -------- ------- ------ -------- -------
Total current
liabilities........ 42,363 4,000 30 500 (1,847) 45,046 (2,000) (45,063) (47,063)
Long-term debt....... 1,800 (372) 1,428
------- ------- ------ ---- ------- ------- -------- ------- ------ -------- -------
Total liabilities... 42,363 4,000 30 2,300 (2,219) 46,474 (2,000) (45,063) (47,063)
Stockholders' equity:
Common stock........ (1,794) (1,797) 6 6
Additional paid-in
capital............ (42,363) 58,978 16,615 66,894 1,430 68,324
Retained earnings... (4,596) (950) (12,314) (17,860)
Treasury stock...... 476 476
------- ------- ------ ---- ------- ------- -------- ------- ------ -------- -------
Total stockholders'
equity............. (42,363) (4,596) (950) 45,343 (2,566) 66,900 1,430 68,330
------- ------- ------ ---- ------- ------- -------- ------- ------ -------- -------
Total liabilities
and stockholders'
equity............. $ -- $ (596) $ (920) $47,643 $(2,219) $ 43,908 $64,900 $1,430 $(45,063) $21,267
======= ======= ====== ==== ======= ======= ======== ======= ====== ======== =======
</TABLE>
F-10
<PAGE>
U.S.A. FLORAL PRODUCTS, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(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. (See Note 1).
(b) Establishment of liability for S Corporation distributions to be paid in
connection with the Merger of $4,000 with respect to CFX and to reflect
normal S Corporation distributions which occurred subsequent to September
30, 1997 totaling $596 ($6 for Houff, $440 for American Florist and $150
for CFX).
(c) Records the distribution by Bay State of certain real estate totaling $850
prior to the Merger and certain liabilities incurred and assets to be
retained by American totaling $100.
(d) Records the net deferred income tax liability attributable to the
temporary differences between the financial reporting and tax basis of
assets and liabilities held in S Corporations consisting of a net deferred
tax asset of $255 at Roy Houff and a deferred tax liability at Alpine Gem
of $150.
(e) 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 $13 per share (or $17,343) for a total estimated purchase price
of $59,706. 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 $43,565.
(f) Represents the settlement of certain related party and shareholder
receivables and payables as required by the Merger agreements (comprised
of related party and shareholder receivables of $1,156 and payables of
$547 at United Wholesale, a shareholder receivable of $602 at CFX, a
shareholder receivable of $49 at Monterey Bay a receivable of $40 at
Flower Trading, a related party receivable of $372 at Bay State and debt
of $372 at Bay State to be repaid with the proceeds from the receivable).
The net cash to be received by the Company from the settlement of these
amounts of $1,300 has been recorded as a reduction of the amounts payable
to the shareholders at closing.
(g) Records the cash proceeds from the issuance of 5,750,000 shares of USA
Floral Common Stock net of offering costs. IPO costs primarily consist of
underwriting discounts and commissions, accounting fees, legal fees and
printing expenses.
(h) Records the net proceeds of the issuance of 110,000 shares at the price of
$13 from the exercise of a stock option granted to Jonathan J. Ledecky on
October 9, 1997.
(i) Records the use of IPO 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 $4,000 S
Corporation distributions to stockholders of certain of the Founding
Companies, net of related parties receivables of $1,300.
F-11
<PAGE>
U.S.A. FLORAL PRODUCTS, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
NOTE 4--UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS ADJUSTMENTS
The following table summarizes unaudited pro forma combined statements of
operations adjustments:
<TABLE>
<CAPTION>
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......... $(3,603) $ (367) $ 656 (3,314)
Goodwill amortization... $ 1,090 1,090
------- ------- ------ ------ ----- ----- ------- --------
Income from
operations............ 3,603 (1,090) 367 (656) 579 2,803
Other (income) expense:
Interest expense....... $ 162 162
------- ------- ------ ------ ----- ----- ------- --------
Income before income
taxes.................. 3,603 (1,090) (162) 367 (656) 579 2,641
Provision for income
taxes.................. $ 2,103 2,103
------- ------- ------ ------ ----- ----- ------- --------
Net income.............. $ 3,603 $(1,090) $ (162) $ 367 $(656) $ 579 $(2,103) $ 538
======= ======= ====== ====== ===== ===== ======= ========
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1996
--------------------------------------------------------------------
PRO FORMA
(A) (B) (C) (D) (E) (F) (G) ADJUSTMENTS
------- ------- ------ ------ ----- ----- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Costs of sales.......... $(407) $ (407)
Selling, general and
administrative......... $(3,242) $ (244) $ 492 (2,994)
Goodwill amortization... $ 817 817
------- ------- ------ ------ ----- ----- ------- --------
Income from
operations............ 3,242 (817) 244 (492) 407 2,584
Other (income) expense:
Interest expense....... $ 123 123
------- ------- ------ ------ ----- ----- ------- --------
Income before income
taxes.................. 3,242 (817) (123) 244 (492) 407 2,461
Provision for income
taxes.................. $ 2,044 2,044
------- ------- ------ ------ ----- ----- ------- --------
Net income.............. $ 3,242 $ (817) $ (123) $ 244 $(492) $ 407 $(2,044) $ 417
======= ======= ====== ====== ===== ===== ======= ========
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1997
--------------------------------------------------------------------
PRO FORMA
(A) (B) (C) (D) (E) (F) (G) ADJUSTMENTS
------- ------- ------ ------ ----- ----- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Costs of sales.......... $(397) $ (397)
Selling, general and
administrative......... $ (609) $ (225) $ 462 (372)
Goodwill amortization... $ 817 817
------- ------- ------ ------ ----- ----- ------- --------
Income from
operations............ 609 (817) 225 (462) 397 (48)
Other (income) expense:
Interest expense....... $ 123 123
------- ------- ------ ------ ----- ----- ------- --------
Income before income
taxes.................. 609 (817) (123) 225 (462) 397 (171)
Provision for income
taxes.................. $ 2,191 2,191
------- ------- ------ ------ ----- ----- ------- --------
Net income.............. $ 609 $ (817) $ (123) $ 225 $(462) $ 397 $(2,191) $ (2,362)
======= ======= ====== ====== ===== ===== ======= ========
</TABLE>
F-12
<PAGE>
U.S.A. FLORAL PRODUCTS, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(a) Reflects the reduction in salaries, bonuses and benefits to the owners of
the Founding Companies to which they have agreed prospectively, as
follows:
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
-----------------------
FOR THE YEAR ENDED
DECEMBER 31, 1996 1996 1997
------------------ ----------- ----------
<S> <C> <C> <C>
Roy Houff......................... $ 252 $ 189 $ 129
CFX, Inc.......................... 2,629 2,579 162
Bay State......................... 196 152 125
Flower Trading.................... 116 22 23
United Wholesale.................. 232 171 171
American Florist.................. 65 47 47
Monterey Bay...................... 183 136 --
Alpine Gem........................ (70) (54) (48)
------ ----------- ---------
$3,603 $3,242 $ 609
====== =========== =========
</TABLE>
Pursuant to the terms of employment agreements to be entered into upon
consummation of the Mergers, the owners of the Founding Companies will be
eligible for performance-based bonuses of up to 100% of their respective
annual base salaries. Bonuses under the employment agreements will be
awarded based upon substantial improvement in the operating performance of
both the Founding Companies and USA Floral. The bonuses paid historically
to the owners of the Founding Companies were not awarded based upon the
same performance criteria and compensation expense has been reduced
accordingly in the pro forma adjustments. Whether the bonuses that may be
awarded under the new employment agreements will be earned cannot be
determined at this time and therefore are not reflected in the pro forma
adjustments. If bonuses are awarded, compensation expense would increase.
(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:
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
--------------------
FOR THE YEAR ENDED
DECEMBER 31, 1996 1996 1997
------------------ --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Elimination of rent due to acquisi-
tion of real estate by Houff ..... $(561) $ (388) $ (383)
Increase in depreciation expense
related to real estate acquired by
Houff (approximately $3,800 over
30-year useful life).............. 130 98 98
Increase in rental expense at Bay
State as a result of the distribu-
tion of real estate (book value of
$850) and subsequent leaseback.... 186 141 141
Elimination of Bay State deprecia-
tion on real estate distributed to
stockholders of Bay State......... (24) (18) (18)
Elimination of Bay State real es-
tate taxes on real estate distrib-
uted to stockholders of Bay
State............................. (98) (77) (63)
----- --------- ---------
$(367) $ (244) $ (225)
===== ========= =========
</TABLE>
(e) Reflects (i) an increase in expenses associated with USA Floral management
of $310 and the costs of being a public entity of $190 ($500 for the year
ended December 31, 1996, and $375 for the nine months ended September 30,
1996 and $345 for the nine months ended September 30, 1997), and (ii)
compensation
F-13
<PAGE>
U.S.A. FLORAL PRODUCTS, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
expense associated with the issuance of 125,000 stock options with an
exercise price below the initial public offering which vest over four years
($156 for the year ended December 31, 1996 and $117 for each of the nine
month periods ended September 30, 1996 and 1997).
(f) Reflects the reduction in costs of sales attributable to a significant
reduction in the services provided under a contract for various services
with an affiliated entity of Flower Trading that was renegotiated pursuant
to the Flower Trading Merger Agreement.
(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-14
<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-15
<PAGE>
U.S.A. FLORAL PRODUCTS, INC.
BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
1997 1997
-------- -------------
<S> <C> <C>
(unaudited)
ASSETS
Cash and cash equivalents............................... $ 317 $ 78
Deferred offering costs................................. 455 2,214
----- ------
Total assets........................................ $ 772 $2,292
===== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Accrued liabilities..................................... $ 400 $2,000
Stockholders' equity:
Common stock, $.001 par, 100,000,000 shares
authorized, 2,400,000 shares issued and outstanding.. 2 2
Additional paid-in capital............................ 400 400
Accumulated deficit................................... (30) (110)
----- ------
Total stockholders' equity.......................... 372 292
----- ------
Total liabilities and stockholders' equity.......... $ 772 $2,292
===== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-16
<PAGE>
U.S.A. FLORAL PRODUCTS, INC.
STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED APRIL 1 -
APRIL 1-JUNE 30, SEPTEMBER 30, SEPTEMBER 30,
---------------- ------------------ -------------
1997 1997 1997
---- ---- ----
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Selling, general and
administrative expenses.... $ 30 $ 80 $ 110
---- ---- -----
Operating loss.......... (30) (80) (110)
---- ---- -----
Net loss.................... $(30) $(80) $(110)
==== ==== =====
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-17
<PAGE>
U.S.A. FLORAL PRODUCTS, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
---------------- ADDITIONAL RETAINED STOCKHOLDERS'
SHARES AMOUNT PAID-IN CAPITAL DEFICIT EQUITY
--------- ------ --------------- -------- -------------
<S> <C> <C> <C> <C> <C>
Balance April 1997...... -- -- -- -- --
Stock issued.......... 2,400,000 $2 $400 $ 402
Net loss for period
April 1 to September
30, 1997
(unaudited).......... $(110) $(110)
--------- --- ---- ----- -----
Balance, September 30,
1997 (unaudited)....... 2,400,000 $2 $400 $(110) $ 292
========= === ==== ===== =====
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-18
<PAGE>
U.S.A. FLORAL PRODUCTS, INC.
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED APRIL 1-
APRIL 1-JUNE 30, SEPTEMBER 30, SEPTEMBER 30,
---------------- ------------- -------------
1997 1997 1997
---- ---- ----
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating
activities:
Net loss......................... $ (30) $ (80) $ (110)
Adjustments to reconcile net loss
to net cash provided by
operating activities:
Change in operating assets and
liabilities:
(Increase) in deferred offering
costs......................... (455) ( 1,759) (2,214)
Increase in Accrued expenses... 400 1,600 2,000
----- ------- -------
Net cash used in operating
activities................... (85) (239) (324)
Cash flows from financing
activities:
Issuance of common stock......... 402 402
----- ------- -------
Net cash provided by financing
activities................... 402 402
----- ------- -------
Net increase (decrease) in cash
and cash equivalents............. 317 (239) 78
Cash and cash equivalents--
beginning of period.............. -- 317 --
----- ------- -------
Cash and cash equivalents--end of
period........................... $ 317 $ 78 $ 78
===== ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-19
<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. Operating expenses
subsequent to inception consist primarily of the salaries of the Company's
employees which have been expensed. As of September 30, 1997 approximately
$2,214 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 on April 22, 1997 issued 2,000,000 shares of common stock
at $.001 per share. Subsequently, the Company issued on April 23, 1997 300,000
shares for $1.00 per share, on May 8, 1997 issued 25,000 shares for $1.00 per
share, on May 10, 1997 issued 25,000 shares for $1.00 and on May 25, 1997
issued 50,000 shares at $1.00 per share.
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
fifteen percent (15%) of the outstanding shares. Awards may be settled in
cash, shares, other awards or other property, as determined by the
Compensation Committee of the Company's Board of Directors (the "Committee").
The terms of the option awards will be established by the Committee. 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.
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 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
F-20
<PAGE>
U.S.A. FLORAL PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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 occur 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.
NOTE 5--UNAUDITED SUBSEQUENT EVENTS
Wholly-owned subsidiaries of USA Floral have acquired by merger eight
companies ("Founding Companies") effective contemporaneously with the IPO. The
companies 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 paid by USA
Floral to acquire the Founding Companies was approximately $42,363 million in
cash and 1,334,050 shares of Common Stock.
F-21
<PAGE>
U.S.A. FLORAL PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The following table reflects the consideration paid in cash and shares of
Common Stock, the allocation of the consideration to net assets acquired and
resulting goodwill.
<TABLE>
<CAPTION>
SHARES OF VALUE NET
COMMON OF TOTAL ASSETS
CASH STOCK SHARES CONSIDERATION ACQUIRED GOODWILL
------- --------- ------- ------------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Roy Houff............... $11,000 -- $11,000 $ 4,678 $ 6,322
CFX, Inc................ 5,790 250,000 $ 3,250 9,040 1,213 7,827
Bay State............... 6,000 495,550 6,442 12,442 4,399 8,043
Flower Trading.......... 5,900 160,000 2,080 7,980 1,434 6,546
United Wholesale
Florists, Inc.......... 4,773 268,500 3,491 8,264 2,348 5,916
American Florist Supply,
Inc.................... 4,800 -- 4,800 580 4,220
Monterey Bay............ 2,500 -- 2,500 679 1,821
Alpine Gem.............. 1,600 160,000 2,080 3,680 810 2,870
------- --------- ------- ------- ------- -------
Total................. $42,363 1,334,050 $17,343 $59,706 $16,141 $43,565
======= ========= ======= ======= ======= =======
</TABLE>
The total consideration does not reflect contingent consideration which may
be issued pursuant to earn out arrangements included in the definitive
agreements for American Florist and Monterey Bay. These arrangements provide
for the Company to pay additional consideration of up to $.5 million in cash
and issue up to $5.4 million in shares of Common Stock, based on 1997 earnings
before interest and taxes.
The purchase price has been allocated to the Company's historical assets and
liabilities based on their respective carrying values, with the exception of
acquired property at certain of the entities, as these carrying values are
deemed to represent fair market value of these assets and liabilities. The fair
market value of the properties acquired was determined via an independent
valuation by a third party. Additionally, adjustments have been made for the S
Corporation distributions subsequent to September 30, 1997, debt assumed as
part of property purchased and establishment of deferred income tax liabilities
and assets assumed in the transaction for purposes of determining the excess of
the purchase price over the net assets acquired. The allocation of the purchase
price is considered preliminary until such time as the closing of the
transaction and consummation of the Mergers. The Company does not anticipate
that the final allocation of purchase price will differ significantly from that
presented.
On August 7, 1997 USA Floral filed a registration statement on Form S-1 for
the initial public offering of its common stock. On October 16, 1997 USA Floral
consummated the IPO and acquisitions of the Founding Companies.
F-22
<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-23
<PAGE>
THE ROY HOUFF COMPANY
BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------- SEPTEMBER 30,
1995 1996 1997
------- ------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...................... $ 67 $ 210
Accounts receivable, net....................... 4,101 3,604 $ 3,186
Inventory...................................... 1,202 1,118 1,315
Prepaid expenses and other current assets...... 178 211 239
Advances to stockholder........................ 88
------- ------- -------
Total current assets......................... 5,548 5,231 4,740
Property and equipment, net...................... 2,187 2,045 1,776
Advances to stockholder.......................... 312
Intangible assets................................ 78
------- ------- -------
Total assets................................. $ 8,125 $ 7,276 $ 6,516
======= ======= =======
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 2,896
Accrued expenses............................... 601 657 495
Due to related parties......................... 223 124 16
------- ------- -------
Total current liabilities.................... 6,151 4,820 3,727
Notes payable, net of current maturities......... 450 360
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 2,004
------- ------- -------
Total stockholder's equity................... 1,974 2,006 2,429
------- ------- -------
Total liabilities and stockholder's equity... $ 8,125 $ 7,276 $ 6,516
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-24
<PAGE>
THE ROY HOUFF COMPANY
STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------- ------------------
1994 1995 1996 1996 1997
------- ------- ------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales....................... $39,098 $41,531 $39,090 $ 30,068 $ 27,774
Cost of sales................... 26,683 27,899 25,537 19,839 18,003
------- ------- ------- -------- --------
Gross margin................ 12,415 13,632 13,553 10,229 9,771
Selling, general and
administrative expenses........ 11,617 12,695 12,789 9,478 8,559
------- ------- ------- -------- --------
Operating income............ 798 937 764 751 1,212
Other (income) expense:
Interest expense.............. 58 84 110 82 58
Interest income............... (34) (76) (39) (29) (13)
Other, net.................... (227) (151) (95) (194) (97)
------- ------- ------- -------- --------
Income before provision for
income taxes................... 1,001 1,080 788 892 1,264
Provision for income taxes...... 10 12 13
------- ------- ------- -------- --------
Net income...................... $ 991 $ 1,068 $ 775 $ 892 $ 1,264
======= ======= ======= ======== ========
Unaudited pro forma information:
Pro forma net income before
provision for income taxes... $ 1,001 $ 1,080 $ 788 $ 892 $ 1,264
Provision for income taxes.... 400 432 315 357 506
------- ------- ------- -------- --------
Pro forma income (see Note 2)... $ 601 $ 648 $ 473 $ 535 $ 758
======= ======= ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-25
<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)................ 1,264 1,264
Dividends paid (unaudited)............ (841) (841)
--- ---- ------- -------
Balance at September 30, 1997
(unaudited)............................ 50 $425 $ 2,004 $ 2,429
=== ==== ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-26
<PAGE>
THE ROY HOUFF COMPANY
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------- --------------
1994 1995 1996 1996 1997
------- -------- ------- ----- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income......................... $ 991 $ 1,068 $ 775 $ 892 $ 1,264
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization..... 460 546 687 392 361
Loss on disposal of fixed assets.. 3 123 144 102
Change in operating assets and
liabilities:
Accounts receivable.............. (478) (147) 497 532 417
Inventory........................ (304) (295) 84 (78) (29)
Prepaid expenses and other
current assets.................. (68) (46) (33) (131) (196)
Due to affiliate................. (108) 12
Accounts payable and accrued
expenses........................ 494 344 (254) (250) (784)
------ -------- ------- ----- -------
Net cash provided by operating
activities..................... 1,098 1,593 1,900 1,249 1,147
Cash flows from investing
activities:
Purchases of property and
equipment......................... (591) (1,043) (640) (465) (202)
Proceeds from disposal of property
and equipment..................... 30 8
------ -------- ------- ----- -------
Net cash used in investing
activities..................... (591) (1,043) (610) (465) (194)
Cash flows from financing
activities:
Advances to stockholder............ (787) (365) (13)
Repayments to stockholder.......... 840 237 312 88
Due from/to related parties........ 77 (226) (4)
Borrowings (repayments) under line
of credit agreement, net.......... 1,200 322 (530) (667) (320)
Proceeds from notes payable........ 56 75 23 183
Payments of notes payable.......... (26) (249) (117) (90)
Stockholder dividends.............. (785) (1,379) (743) (629) (841)
------ -------- ------- ----- -------
Net cash used in financing
activities..................... (265) (982) (1,147) (801) (1,163)
Net increase (decrease) in cash and
cash equivalents................... 242 (432) 143 (17) (210)
Cash and cash equivalents--beginning
of period.......................... 257 499 67 67 210
------ -------- ------- ----- -------
Cash and cash equivalents--end of
period............................. $ 499 $ 67 $ 210 $ 50 $ 0
====== ======== ======= ===== =======
Supplemental disclosure of cash flow
information:
Cash paid during the period for
interest.......................... $ 58 $ 84 $ 93 $ 82 $ 58
Cash paid during the period for
income taxes...................... $ 10 $ 12 $ 13 $ 13 $ 13
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-27
<PAGE>
THE ROY HOUFF COMPANY
NOTES TO FINANCIAL STATEMENTS
(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.
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.
F-28
<PAGE>
THE ROY HOUFF COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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 June 30, 1997 and
of the results of operations and cash flows for the six months ended June 30,
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 WRITE- AT END
OF PERIOD EXPENSES 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>
F-29
<PAGE>
THE ROY HOUFF COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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.
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>
F-30
<PAGE>
THE ROY HOUFF COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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.
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-31
<PAGE>
THE ROY HOUFF COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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 EVENTS
The Company and its stockholder entered into a definitive agreement with
U.S.A. Floral Products, Inc. ("USA Floral") pursuant to which the Company
merged with USA Floral. All outstanding shares of the Company were 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 were terminated upon consummation of the
merger. Additionally the properties owned by Roy Houff were acquired by the
Company prior to the merger and the lease arrangement described in Note 8 was
thereupon be terminated. All amounts due from Roy Houff were repaid to Houff
upon consummation of the Houff merger.
F-32
<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-33
<PAGE>
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.
Madsen, Sapp, Mena, Rodriguez & Co. P.A.
Plantation, Florida
March 8, 1996
F-34
<PAGE>
CFX, INC.
BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------- SEPTEMBER 30,
1995 1996 1997
------ ------ -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................ $ 105 $1,385 $ 723
Marketable trading securities.................... 877
Accounts receivable, net......................... 3,143 3,242 3,611
Due from related parties......................... 96 397 770
Prepaid expenses and other current assets........ 112 78 110
Advances to growers.............................. 61 145 553
------ ------ ------
Total current assets........................... 4,394 5,247 5,767
Property and equipment, net........................ 450 402 411
Other assets:
Due from related parties......................... 1,535 10
Cash surrender value--life insurance............. 247 207 207
Deposits......................................... 37 13 151
Advances to stockholders......................... 673 428 602
Advances to growers.............................. 175
Other............................................ 6 2 2
------ ------ ------
Total assets................................... $7,342 $6,474 $7,150
====== ====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit................................... $ 1 $ 1 $ 1
Current maturities of notes payable.............. 16 21
Accounts payable................................. 403 548 141
Accrued expenses................................. 733 1,835 1,617
Due to related party growers..................... 925 316
------ ------ ------
Total current liabilities...................... 2,062 2,716 1,780
Notes payable, net of current maturities........... 21 7
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 5,303
------ ------ ------
Total stockholders' equity..................... 5,280 3,737 5,363
------ ------ ------
Total liabilities and stockholders' equity..... $7,342 $6,474 $7,150
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-35
<PAGE>
CFX, INC.
STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------- ------------------
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 $ 27,695 $ 29,972
Cost of sales (includes
purchases from related parties
of $9,081, $9,644 and
$12,263)....................... 23,839 24,328 28,190 21,496 23,222
------- ------- ------- -------- --------
Gross margin................ 6,751 7,768 7,494 6,199 6,750
Selling, general and
administrative expenses........ 6,266 6,773 8,956 6,991 5,210
------- ------- ------- -------- --------
Operating income (loss)..... 485 995 (1,462) (792) 1,540
Other (income) expense:
Interest income............... (117) (173) (115) (78) (55)
Other, net.................... 247 (370) (100) (94) (31)
------- ------- ------- -------- --------
Net income (loss)........... $ 355 $ 1,538 $(1,247) $ (620) $ 1,626
======= ======= ======= ======== ========
Unaudited pro forma information:
Pro forma net income (loss)
before provision (benefit)
for income taxes............. $ 355 $ 1,538 $(1,247) $ (620) $ 1,626
Provision (benefit) for income
taxes........................ 202 615 (499) (248) 650
------- ------- ------- -------- --------
Pro forma income (loss) (see
Note 2)...................... $ 153 $ 923 $ (748) $ (372) $ 976
======= ======= ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-36
<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)..... 1,626 1,626
--- --- --- ------- -------
Balance at September 30, 1997
(unaudited)................. 600 $ 3 $57 $ 5,303 $ 5,363
=== === === ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-37
<PAGE>
CFX, INC.
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------- --------------
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) $ (620) $1,626
Adjustments to reconcile net
income (loss) to net cash
provided by operating activities:
Depreciation and amortization..... 244 265 264 168 141
Unrealized/realized loss (gain)
on marketable trading
securities....................... 118 (336) (92) (89)
Gain on disposal of property,
plant and equipment.............. (8) (1) (1)
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) (252) (369)
Prepaid expenses and other
current assets.................. (24) (13) 34 26 (32)
Long-term receivables............ 17 12 4
Other assets..................... 130 (42) 67 (127) (138)
Accounts payable and accrued
expenses........................ 402 (231) 1,231 2,772 (625)
Due from/to related parties...... 28 (383) (518) (1,121) (699)
------ -------- -------- ------ ------
Net cash provided by operating
activities..................... 1 1,341 609 1,722 (96)
Cash flows from investing
activities:
Advances to growers............... (33) 72 (243) (358) (233)
Decrease in certificate of
deposit.......................... 16 180
Purchases of property and
equipment........................ (166) (287) (179) (164) (150)
Proceeds from sale of equipment... 8 1
Advances to related parties....... (299) (450) (126)
Repayments from related parties... 253 24 1,269
Advances to stockholders.......... (255) (258) (1,557) (174)
Repayments from stockholders...... 1,802 673
------ -------- -------- ------ ------
Net cash provided by (used in)
investing activities........... (484) (711) 967 151 (557)
Cash flows from financing
activities:
Borrowings/payments on bank line
of credit........................ 810 (810)
Repayments of long-term debt...... (77) (81) 255 (9)
Repayments of stockholders notes
payable.......................... (100)
Repayments of life insurance
loan............................. (254)
Stockholder dividends............. (40) (296) (146)
------ -------- -------- ------ ------
Net cash provided by (used in)
financing activities........... 479 (1,031) (296) 109 (9)
Net increase (decrease) in cash and
cash equivalents.................. (4) (401) 1,280 1.982 (662)
Cash and cash equivalents--
beginning of period............... 510 506 105 105 1,385
------ -------- -------- ------ ------
Cash and cash equivalents--end of
period............................ $ 506 $ 105 $ 1,385 $2,087 $ 723
====== ======== ======== ====== ======
Supplemental disclosure of cash
flow information:
Cash paid during the period for
interest......................... $ 46 $ 21 $ 2 $ 1 $ 13
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-38
<PAGE>
CFX, INC.
NOTES TO FINANCIAL STATEMENTS
(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. Cost
of investments are determined on a specific identification basis.
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.
F-39
<PAGE>
CFX, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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 Colombia.
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 June 30, 1997, and the
results of its operations and its cash flows for the six months ended June 30,
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.... $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>
F-40
<PAGE>
CFX, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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.
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
F-41
<PAGE>
CFX, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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.
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>
F-42
<PAGE>
CFX, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Rent expense was $228, $203 and $213 for the years ended December 31, 1994,
1995 and 1996, respectively.
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 Colombia 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-43
<PAGE>
CFX, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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 gains on trading securities ...................... $ $ 14 $ 92
Unrealized gains (losses) on trading securities............ (119) 265
Gain on sale of property and equipment..................... 65
Other...................................................... (128) 26 8
----- ---- ----
$(247) $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 EVENTS
The Company and its stockholders entered into a definitive agreement with
U.S.A. Floral Products, Inc. ("USA Floral") pursuant to which the Company
merged with USA Floral. All outstanding shares of the Company were 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 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 were paid to the Company with
the consummation of the initial public offering.
F-44
<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-45
<PAGE>
BAY STATE FLORIST SUPPLY, INC.
BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------- SEPTEMBER 30,
1995 1996 1997
------ ------ -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...................... $ 795 $ 791 $ 651
Accounts receivable, net....................... 3,090 3,413 3,421
Inventory...................................... 1,397 1,701 2,072
Due from related parties....................... 486 559 --
Prepaid expenses and other current assets...... 199 165 353
------ ------ ------
Total current assets......................... 5,967 6,629 6,497
Property and equipment, net...................... 1,339 1,505 1,578
Cash surrender value--life insurance............. 338 364 364
Other assets..................................... 13 13 13
------ ------ ------
Total assets................................. $7,657 $8,511 $8,452
====== ====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable to bank........................... $ 200 $ 212
Current maturities of long-term debt........... $ 50 50 69
Accounts payable............................... 1,441 1,701 1,776
Accrued expenses............................... 322 336 323
------ ------ ------
Total current liabilities.................... 1,813 2,287 2,380
Note payable, net of current maturities.......... 412 358 433
Commitments and contingencies (Note 6)
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 5,334
Less: Treasury stock........................... (476) (476) (476)
------ ------ ------
Total stockholders' equity................... 5,032 5,466 5,239
------ ------ ------
Total liabilities and stockholders' equity... $7,657 $8,511 $8,452
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-46
<PAGE>
BAY STATE FLORIST SUPPLY, INC.
STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
------------------------- --------------------
1994 1995 1996 1996 1997
------- ------- ------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales..................... $19,203 $25,592 $30,563 $ 22,545 $ 22,373
Cost of sales................. 12,807 17,068 20,722 15,333 15,057
------- ------- ------- --------- ---------
Gross margin.............. 6,396 8,524 9,841 7,212 7,316
Selling, general and
administrative expenses...... 5,529 7,579 8,976 6,666 6,552
------- ------- ------- --------- ---------
Operating income.......... 867 945 865 546 764
Other (income) expense:
Interest expense............ 9 16 33 25 36
Interest income............. (26) (48) (35) (30) (37)
Other, net.................. (199) (229) (247) (178) (128)
------- ------- ------- --------- ---------
Income before income taxes.... 1,083 1,206 1,114 729 893
Provision for income taxes.... 125 87 81 59 80
------- ------- ------- --------- ---------
Net income.................... $ 958 $ 1,119 $ 1,033 $ 670 $ 813
======= ======= ======= ========= =========
Unaudited pro forma
information:
Pro forma net income before
provision for income
taxes...................... $ 1,083 $ 1,206 $ 1,114 $ 729 $ 893
Provision for income taxes.. 433 482 446 292 357
------- ------- ------- --------- ---------
Pro forma income (see Note
2)......................... $ 650 $ 724 $ 668 $ 437 $ 536
======= ======= ======= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-47
<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).......... 813 813
Dividends paid
(unaudited).......... (1,040) (1,040)
------- --- ---- ------ ----- ------
Balance at September 30,
1997 (unaudited)....... 461,840 $ 5 $376 $5,334 $(476) $5,239
======= === ==== ====== ===== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-48
<PAGE>
BAY STATE FLORIST SUPPLY, INC.
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
------------------------- ---------------------
1994 1995 1996 1996 1997
------- ------- ------- --------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income.................. $ 958 $ 1,119 $ 1,033 $ 670 $ 813
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation............... 144 149 154 167 100
Change in operating assets
and liabilities:
Accounts receivable...... (51) (919) (323) 56 353
Inventory................ 87 (116) (304) (988) (370)
Prepaid expenses and
other current assets.... 18 (54) 34 89 (203)
Accounts payable and
accrued expenses........ (12) 681 274 583 76
Due from/to related
parties................. (533) 47 (73)
------- ------- ------- --------- ----------
Net cash provided by
(used in) operating
activities............ 611 907 795 577 769
Cash flows from investing
activities:
Purchases of property and
equipment................. (148) (219) (320) (248) (173)
Repayments from related
parties................... 198
Advances to related
parties................... (36)
Cash surrender value of
life insurance............ (16) (49) (26)
------- ------- ------- --------- ----------
Net cash used in
investing activities.. (164) (268) (346) (284) 25
Cash flows from financing
activities:
Proceeds from issuance of
long-term debt............ 550 200 106
Payments of long-term
debt...................... (87) (54) (41)
Issuance of common stock... 4
Purchase of treasury
stock..................... (54)
Stockholder dividends...... (769) (730) (599) (526) (1,040)
------- ------- ------- --------- ----------
Net cash used in
financing activities.. (215) (871) (453) (567) (934)
Net increase (decrease) in
cash and cash equivalents... 232 (232) (4) (274) (140)
Cash and cash equivalents--
beginning of period......... 795 1,027 795 795 791
------- ------- ------- --------- ----------
Cash and cash equivalents--
end of period............... $ 1,027 $ 795 $ 791 $ 521 $ 651
======= ======= ======= ========= ==========
Supplemental disclosure of
cash flow information:
Cash paid during the period
for interest.............. $ 9 $ 16 $ 33 $ 25 $ 36
Note payable issued for
acquisition...............
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-49
<PAGE>
BAY STATE FLORIST SUPPLY, INC.
NOTES TO FINANCIAL STATEMENTS
(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 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 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 an accelerated method for federal
income tax reporting purposes and the straight line method for 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.
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.
F-50
<PAGE>
BAY STATE FLORIST SUPPLY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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 June 30, 1997 and
the results of operations and cash flows for the six months ended June 30, 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
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,
-------------
1995 1996
------ ------
<S> <C> <C>
Perishable..................................................... $ 88 $ 165
Non-perishable, net............................................ 1,309 1,536
------ ------
Total........................................................ $1,397 $1,701
====== ======
</TABLE>
F-51
<PAGE>
BAY STATE FLORIST SUPPLY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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.
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.
F-52
<PAGE>
BAY STATE FLORIST SUPPLY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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>
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 March 31, 1997.
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
F-53
<PAGE>
BAY STATE FLORIST SUPPLY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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.
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>
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 (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 EVENTS
The Company and its stockholders entered into a definitive agreement with
U.S.A Floral Products, Inc. ("USA Floral") pursuant to which the Company merged
with USA Floral. All outstanding shares of the Company were 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.
F-54
<PAGE>
BAY STATE FLORIST SUPPLY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
In conjunction with the merger the amounts Due From Related Parties were
repaid and the proceeds were 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-55
<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. (for the purposes hereof, "Flower Trading Corporation" or the
"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
August 1, 1997
F-56
<PAGE>
FLOWER TRADING CORPORATION
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------- SEPTEMBER 30,
1995 1996 1997
------ ------ -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................ $ 126 $ 70 $1,007
Accounts receivable, net......................... 2,612 2,747 2,157
Officers, employees and related party
receivables..................................... 21 38 --
Other receivables................................ 109 10 74
Inventory........................................ 23 52 41
Prepaid expenses and other current assets........ 36 171 131
------ ------ ------
Total current assets......................... 2,927 3,088 3,410
Property and equipment, net........................ 489 330 360
Cash surrender value--life insurance............... 39 44 44
Deferred income taxes.............................. 91 79 90
Other assets....................................... 69 110 61
------ ------ ------
Total assets....................................... $3,615 $3,651 $3,965
====== ====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank line of credit.............................. $ 200
Notes payable--current........................... $ 43 112 $ 104
Trade accounts payable........................... 862 669 724
Trade accounts payable due to affiliates......... 483 532 292
Other accounts payable and accrued expenses...... 86 277 265
Income taxes payable............................. 9 302
------ ------ ------
Total current liabilities...................... 1,483 1,790 1,687
Notes payable, net of current maturities........... 8 391 313
Deferred income taxes.............................. 31
------ ------ ------
Total liabilities.............................. 1,491 2,181 2,031
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 1,456
------ ------ ------
Total stockholders' equity..................... 2,124 1,470 1,934
------ ------ ------
Total liabilities and stockholders' equity..... $3,615 $3,651 $3,965
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-57
<PAGE>
FLOWER TRADING CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------- ------------------
1994 1995 1996 1996 1997
------- ------- ------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales........................ $18,478 $20,335 $20,313 $ 15,163 $ 16,838
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,
respectively)................... 14,452 15,921 15,914 11,854 13,031
------- ------- ------- -------- --------
Gross profit................. 4,026 4,414 4,399 3,309 3,807
Selling, general and
administrative expenses......... 3,605 4,068 4,142 2,826 2,889
------- ------- ------- -------- --------
Operating income............. 421 346 257 483 918
Other (income) expense:
Interest expense............... 17 9 32 5 46
Interest income................ (11) (18) (5) (5) (14)
Write off of investment........ 181 129
Other, net..................... (87) (51) (9) (26) 36
------- ------- ------- -------- --------
Income before provision for
income taxes.................... 502 225 110 509 850
Provision for income taxes....... 201 95 48 215 386
------- ------- ------- -------- --------
Net income....................... $ 301 $ 130 $ 62 $ 294 $ 464
======= ======= ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-58
<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)...... 464 464
------- ---- ---- ------ ------
Balance at September 30, 1997
(unaudited).................. 160,000 $150 $328 $1,456 $1,934
======= ==== ==== ====== ======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-59
<PAGE>
FLOWER TRADING CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------- --------------
1994 1995 1996 1996 1997
------- ------- -------- ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income......................... $ 301 $ 130 $ 62 $ 294 $ 464
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization..... 196 216 202 140 115
Loss on investment................ 181 129
Loss on disposal of fixed assets.. 40
Change in operating assets and
liabilities:
Accounts receivable.............. 99 63 (53) 240 526
Inventory........................ 19 (7) (29) 7 11
Prepaid expenses and other
current assets.................. 195 (15) (176) (9) 50
Accounts payable................. 43 (27) (144) (338) (185)
Accrued expenses................. (235) 59 191 16 (12)
Income taxes payable............. 78 (69) (9) (9) 302
Deferred taxes asset and other
assets.......................... 3 (91) 41 21 20
------- ------ -------- ------ ------
Net cash (used) provided by
operating activities........... 699 440 254 362 1,291
Cash flows from investing
activities:
Purchase of investment............. (181) (129)
Purchases of property and
equipment......................... (83) (60) (106)
Proceeds from disposal of property
and equipment..................... (288) (162)
Cash surrender value of life
insurance......................... 4 (5)
Advances to (repayments from)
related parties................... (67) 28 21 38
------- ------ -------- ------ ------
Net cash used in investing
activities..................... (355) (311) (217) (39) (68)
Cash flows from financing
activities:
Proceeds from issuance of long-term
debt.............................. 1,100 1,100
Repayments of long-term debt....... (74) (74) (648) (40) (78)
Distribution to stockholders for
investment in subsidiary.......... (745) (1,295)
Borrowings (repayments) under line
of credit agreement, net.......... (200) 200 (208)
------- ------ -------- ------ ------
Net cash (used) provided by in
financing activities........... (274) (74) (93) (235) (286)
Net increase (decrease) in cash and
cash equivalents................... 70 55 (56) 88 937
Cash and cash equivalents--beginning
of period.......................... 1 71 126 126 70
------- ------ -------- ------ ------
Cash and cash equivalents--end of
period............................. $ 71 $ 126 $ 70 $ 214 $1,007
======= ====== ======== ====== ======
Supplemental disclosure of cash flow
information:
Cash paid during the period for
interest.......................... $ 17 $ 9 $ 32 $ 5 $ 45
Cash paid during the period for
income taxes...................... $ 201 $ 189 $ 189 $ 139 $ 49
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-60
<PAGE>
FLOWER TRADING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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 U.S.A. Floral Products, Inc. ("USA Floral") pursuant to which the Company
will merge with a subsidiary of 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 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 Company does not plan to include
UltraFlora Corporation and its subsidiary in the merger, and will divest 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 Corporation and its subsidiary.
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.
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.
F-61
<PAGE>
FLOWER TRADING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
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 June 30, 1997 and
of the results of operations and cash flows for the six months ended June 30,
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>
F-62
<PAGE>
FLOWER TRADING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
Long-Term Debt
Long-term debt consists of the following at December 31, 1995 and 1996:
<TABLE>
<CAPTION>
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
===== ======
</TABLE>
F-63
<PAGE>
FLOWER TRADING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Principal maturities on notes payable are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996
------------
<S> <C>
1997............................................................ $112
1998............................................................ 104
1999............................................................ 104
2000............................................................ 104
2001............................................................ 79
----
Total....................................................... $503
====
</TABLE>
NOTE 6--INCOME TAXES
The provision for income taxes is as follows:
<TABLE>
<CAPTION>
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
==== ==== ===
Deferred expense:
State........................................................ $ 2 $ (9) $ 1
Federal...................................................... (81) 11
---- ---- ---
Total income tax provision............................... $ 2 $(90) $12
==== ==== ===
</TABLE>
The provision for income taxes differs from the U.S. statutory federal
income tax rate for the following reasons:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
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%
==== ==== ====
</TABLE>
Deferred tax assets were comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1995 1996
------ ------
<S> <C> <C>
Allowance for doubtful accounts.............................. $ 91 $ 23
Accruals..................................................... 56
------ ------
$ 91 $ 79
====== ======
</TABLE>
F-64
<PAGE>
FLOWER TRADING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 Colombia. 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 and
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.
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 $750. 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
F-65
<PAGE>
FLOWER TRADING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 Colombia 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.
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 entered into a definitive agreement with
USA Floral pursuant to which the Company merged with USA Floral. All
outstanding shares of the Company were 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 were 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
due to a significant reduction in the services provided. In addition, the
Company's guarantee of the two lines of credit of a related entity will be
discontinued as will the guarantee of the Company's debt by such related
party.
The Company will continue to lease office and warehouse space under the
current lease agreement, and will also continue to provide handling and
administrative services to a related entity for a monthly fee. Additionally,
the Company will continue to purchase flowers from a related entity.
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 related
combined 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, 1996 and 1997, and the results of their operations and
their cash flows for each of the three years in the period ended June 30, 1997
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 31, 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,
------------- SEPTEMBER 30,
1996 1997 1997
------ ------ -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................ $ 434 $ 625 $ 409
Accounts receivable, net......................... 1,062 1,186 1,203
Inventory........................................ 1,799 1,963 2,119
Advances to affiliates........................... 1,240 748
Advances to stockholders......................... 389 347
Prepaid expenses and other current assets........ 41 127 157
------ ------ ------
Total current assets........................... 3,336 5,530 4,983
Property and equipment, net........................ 1,802 1,886 1,901
Advances to affiliates............................. 1,059
Advances to stockholders........................... 221
Goodwill........................................... 233 222 219
Deferred income taxes.............................. 6
Other assets....................................... 132 114 149
------ ------ ------
Total assets................................... $6,789 $7,752 $7,252
====== ====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit................................... $1,283 $1,683 $1,450
Current maturities of long-term debt............. 96 104 46
Current maturities of notes payable to
stockholders.................................... 222 558 550
Current obligations under capital leases......... 145 200
Accounts payable................................. 2,127 2,179 2,052
Accrued expenses and other current liabilities... 163 211 86
Income taxes payable............................. 210 210
------ ------ ------
Total current liabilities...................... 4,036 5,145 4,394
Long-term debt..................................... 194 62 90
Obligations under capital leases................... 195 294 538
Notes payable to stockholders...................... 572
Other liabilities.................................. 84 61 55
Commitments and contingencies
Stockholders' equity:
Common stock..................................... 11 11 11
Retained earnings................................ 1,697 2,179 2,164
------ ------ ------
Total stockholders' equity..................... 1,708 2,190 2,175
------ ------ ------
Total liabilities and stockholders' equity..... $6,789 $7,752 $7,252
====== ====== ======
</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>
THREE MONTHS ENDED
YEAR ENDED JUNE 30, SEPTEMBER 30,
------------------------- --------------------
1995 1996 1997 1996 1997
------- ------- ------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales..................... $17,985 $19,030 $19,673 $ 3,860 $ 4,213
Cost of sales................. 11,556 12,563 12,862 2,532 2,760
------- ------- ------- --------- ---------
Gross margin.............. 6,429 6,467 6,811 1,328 1,453
Selling, general and
administrative expenses...... 5,926 6,101 6,046 1,296 1,434
------- ------- ------- --------- ---------
Operating income.......... 503 366 765 32 19
Other (income) expense:
Interest expense............ 227 236 231 47 57
Interest income............. (91) (95) (133) (33) (21)
Other, net.................. 9 (14) (20) 14 (2)
------- ------- ------- --------- ---------
Income (loss) before income
taxes........................ 358 239 687 4 (15)
Provision for income taxes.... 171 95 205 -- --
------- ------- ------- --------- ---------
Net income (loss)............. $ 187 $ 144 $ 482 $ 4 $ (15)
======= ======= ======= ========= =========
Unaudited pro forma
information:
Pro forma net income (loss)
before provision for income
taxes...................... $ 358 $ 239 $ 687 $ 4 $ (15)
Provision for income taxes.. 143 96 275 2 (6)
------- ------- ------- --------- ---------
Pro forma income (loss) (see
Note 2)...................... $ 215 $ 143 $ 412 $ 2 $ (9)
======= ======= ======= ========= =========
</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 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............................ 482 482
------ ---- ------- ------
Balance at June 30, 1997................ 2,000 11 2,179 2,190
Net loss (unaudited).................. -- -- (15) (15)
------ ---- ------- ------
Balance at September 30, 1997
(unaudited)............................ $2,000 $ 11 $ 2,164 $2,175
====== ==== ======= ======
</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>
THREE MONTHS
ENDED
YEAR ENDED JUNE 30, SEPTEMBER 30,
--------------------- --------------
1995 1996 1997 1996 1997
------ ------ ----- ------ ------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)...................... $ 187 $ 144 $ 482 4 (15)
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization......... 341 410 442 107 103
Deferred income taxes................. 17 26 6 3
Loss on disposal of fixed assets...... 18
Provision for doubtful accounts....... 26 16 25
Change in operating assets and
liabilities:
Accounts receivable.................. (30) (149) (149) (57) (16)
Inventory............................ 74 (99) (164) (260) (156)
Prepaid expenses and other current
assets.............................. (6) (18) (86) 23 (29)
Accounts payable and accrued
expenses............................ (266) 881 100 292 (253)
Income taxes payable................. 66 (153) 210
Changes in other assets............... (6) (12) (12) (8) (42)
Changes in other liabilities.......... (19) (21) (23) (8) (6)
------ ------ ----- ------ ------
Net cash provided by (used in)
operating activities............... 402 1,025 831 96 (414)
Cash flows from investing activities:
Purchases of property and equipment.... (304) (295) (107) (10)
Proceeds from disposal of property and
equipment............................. 8 1
Advances to stockholders............... (30) (155) (168) (43) 42
Advances to affiliates................. (151) (19) (181) 3 492
------ ------ ----- ------ ------
Net cash used in (provided by)
investing activities............... (477) (469) (455) (40) 524
Cash flows from financing activities:
Net borrowings (repayments) on line of
credit................................ 300 383 400 (21) (233)
Principal payments on capital lease
obligations........................... (207) (202) (225) (70) (55)
Proceeds from long-term debt........... 470 57 18
Repayments on long-term debt........... (990) (323) (142) (53) (30)
Proceeds from notes payable to
stockholders.......................... 1,192 2
Repayments of notes payable to
stockholders.......................... (849) (274) (236) (66) (8)
------ ------ ----- ------ ------
Net cash used in financing activities.. (84) (357) (185) (210) (326)
------ ------ ----- ------ ------
Net increase (decrease) in cash and
cash equivalents...................... (159) 199 191 (154) (216)
Cash and cash equivalents--beginning of
period................................ 394 235 434 434 625
------ ------ ----- ------ ------
Cash and cash equivalents--end of
period................................. $ 235 $ 434 $ 625 $ 280 $ 409
====== ====== ===== ====== ======
Supplemental disclosure of cash flow
information:
Cash paid during the period for
interest.............................. $ 216 $ 231 $ 246 40 56
Cash paid during the period for income
taxes................................. $ 84 $ 242 $ 57
Supplemental disclosure of non-cash
transactions:
Acquisition of vehicles under capital
leases................................ $ 174 $ 219 $ 379 99
</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
(IN THOUSANDS)
NOTE 1--BUSINESS ORGANIZATION
Founded in 1947, United Wholesale Florists, Inc. and United Wholesale
Florists of America, Inc. (together the "Company") compose 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.
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 $213 and $224 at June 30, 1996 and 1997,
respectively.
F-72
<PAGE>
UNITED WHOLESALE FLORISTS, INC. AND
UNITED WHOLESALE FLORISTS OF AMERICA, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
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, 1997, there
were no impairments of the Company's assets.
Other Assets
Other assets is comprised of organizational costs with a net value of $5 and
$0 at June 30, 1996 and 1997 and a non-compete agreement with a net value of
$57 and $31 as of June 30, 1996 and 1997, 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, 1996 and 1997.
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.
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 its financial records on a fiscal year ending on June 30.
F-73
<PAGE>
UNITED WHOLESALE FLORISTS, INC. AND
UNITED WHOLESALE FLORISTS OF AMERICA, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The unaudited pro forma income tax information included in the Combined
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.
NOTE 3--ALLOWANCE FOR DOUBTFUL ACCOUNTS
<TABLE>
<CAPTION>
BALANCE CHARGED TO BALANCES AT
AT BEGINNING COSTS AND WRITE- END OF
OF PERIOD EXPENSES 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
Year-ended June 30, 1997
allowance for doubtful
accounts..................... $16 $25 $(11) $30
</TABLE>
NOTE 4--INVENTORY
Inventory consists of the following finished goods:
<TABLE>
<CAPTION>
JUNE 30,
-------------
1996 1997
------ ------
<S> <C> <C>
Perishables.................................................... $ 138 $ 143
Hardgoods...................................................... 1,661 1,820
------ ------
$1,799 $1,963
====== ======
</TABLE>
NOTE 5--PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
JUNE 30,
----------------
1996 1997
------- -------
<S> <C> <C>
Land....................................................... $ 157 $ 157
Buildings and leasehold improvements....................... 1,414 1,426
Automobiles and delivery vehicles.......................... 1,253 1,321
Furniture, fixtures and equipment.......................... 1,349 1,438
------- -------
4,173 4,342
Accumulated depreciation and amortization.................. (2,371) (2,456)
------- -------
$ 1,802 $ 1,886
======= =======
</TABLE>
Depreciation and amortization expense for the years ended June 30, 1995,
1996 and 1997 was $299, $368 and $401, respectively.
F-74
<PAGE>
UNITED WHOLESALE FLORISTS, INC. AND
UNITED WHOLESALE FLORISTS OF AMERICA, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 6--CREDIT FACILITIES
Short-term debt consists of the following:
<TABLE>
<CAPTION>
JUNE 30,
-------------
1996 1997
------ ------
<S> <C> <C>
Line of credit arrangement collateralized by accounts
receivable and inventory, due May 1998, including interest at
a variable rate (8.5% at June 30, 1997)...................... $1,283 $1,683
====== ======
</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.
The Company was in compliance with its covenants, with the exception of the
working capital minimum, for which an appropriate waiver was obtained.
Long-Term Debt
Long-term debt consists of:
<TABLE>
<CAPTION>
JUNE 30,
-----------
1996 1997
---- -----
<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......................................................... $100 $ 33
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........... 124 96
Unsecured notes payable to individuals arising from non-
compete agreements, due 1998................................. 66 37
Less: Current maturities...................................... (96) (104)
---- -----
$194 $ 62
==== =====
</TABLE>
Long-term principal maturities on notes payable over the next three years
are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
JUNE 30, 1997
-------------
<S> <C>
1998........................................................... $104
1999........................................................... 40
2000........................................................... 22
----
Total........................................................ $166
====
</TABLE>
F-75
<PAGE>
UNITED WHOLESALE FLORISTS, INC. AND
UNITED WHOLESALE FLORISTS OF AMERICA, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Notes payable to stockholders of $794 and $558 at June 30, 1996 and 1997,
respectively, are discussed in Note 8.
NOTE 7--INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------------------------------------
1995 1996 1997
------------------- ------------------- -------------------
FEDERAL STATE TOTAL FEDERAL STATE TOTAL FEDERAL STATE TOTAL
------- ----- ----- ------- ----- ----- ------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Current......... $130 $24 $154 $59 $11 $70 $168 $31 $199
Deferred........ 14 3 17 21 4 25 5 1 6
---- --- ---- --- --- --- ---- --- ----
$144 $27 $171 $80 $15 $95 $173 $32 $205
==== === ==== === === === ==== === ====
</TABLE>
Net deferred tax asset (liability) is comprised of the following:
<TABLE>
<CAPTION>
JUNE 30,
----------
1996 1997
---- ----
<S> <C> <C>
Allowance for doubtful accounts.................................. $ 6 $11
Inventory reserves............................................... 8 8
---- ---
Current deferred tax assets.................................... 14 19
Deferred compensation............................................ 32 23
Depreciation..................................................... (40) (42)
---- ---
Noncurrent deferred tax asset (liability)...................... (8) (19)
---- ---
Net deferred tax assets........................................ $ 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 1997
-------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Income taxes of the statutory rate............... $125 35% $84 35% $240 35%
(Income) loss of S Corporation................... 22 6 (7) (3) (58) (8)
State income tax, net of federal benefit......... 18 5 10 4 21 3
Non-deductible goodwill amortization............. 4 1 4 2 4 1
Other............................................ 2 1 4 2 (2) (1)
---- --- --- --- ---- ---
$171 48% $95 40% $205 30%
==== === === === ==== ===
</TABLE>
NOTE 8--RELATED PARTY TRANSACTIONS
The Company makes advances to affiliates in the ordinary course of business.
Receivables from affiliates totaled $1,059 and $1,240 at June 30, 1996 and
1997, 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, 1996 and 1997, was $87, $89 and
$80, respectively.
The Company makes advances to the stockholders. Receivables from
stockholders totaled $221 and $389 at June 30, 1996 and 1997, respectively.
The advances bear interest at a rate of 8.5% per annum although no formal
F-76
<PAGE>
UNITED WHOLESALE FLORISTS, INC. AND
UNITED WHOLESALE FLORISTS OF AMERICA, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
repayment terms exist. Interest income related to this receivable for the
years ended June 30, 1995, 1996 and 1997 was $5, $12 and $24, respectively.
The Company leases eight of its thirteen facilities from an affiliated
partnership, United Properties. Total rent expense related to these leases was
$206 in 1995 and $221 in 1996 and 1997, 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 in 1995 and $81 in 1996 and 1997.
At June 30, 1995, 1996 and 1997, the Company has $1,066, $794 and $558,
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, 1996 and 1997 was $102, $106 and $54, respectively,
of interest related to this obligation.
Principal maturities on these notes payable as of June 30, 1997 are as
follows:
<TABLE>
<S> <C>
1998.................................................................... $ 36
1999.................................................................... 40
2000.................................................................... 43
2001.................................................................... 47
Thereafter.............................................................. 392
----
$558
====
</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 8). Rent expense under all
operating leases was $245 for the year ended June 30, 1995 and $334 for both
of the years ended June 30, 1996 and 1997.
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, and $1,252 and $675 as of June 30, 1997,
respectively. Depreciation expense of vehicles under capital lease for the
years ended June 30, 1995, 1996 and 1997 was approximately $184, $218 and
$220, respectively.
F-77
<PAGE>
UNITED WHOLESALE FLORISTS, INC. AND
UNITED WHOLESALE FLORISTS OF AMERICA, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Minimum lease payments under the noncancelable portion of capital and
operating leases at June 30, 1997 are as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
FISCAL YEAR LEASES LEASES
----------- --------- -------
<S> <C> <C>
1998....................................................... $ 340 $ 255
1999....................................................... 340 206
2000....................................................... 313 116
2001....................................................... 259 14
Thereafter................................................. 259 --
------ -----
Future minimum lease payments.............................. $1,511 591
======
Imputed interest........................................... (97)
-----
Present value of minimum lease payments.................... 494
Current portion............................................ (200)
-----
Long-term portion.......................................... $ 294
=====
</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 entered into a definitive agreement with USA
Floral Products, Inc. ("USA Floral") pursuant to which the Company merged with
USA Floral. All outstanding shares of the Company were 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 were repaid to the Company. Additionally, amounts Due to
stockholders were repaid by the Company.
F-78
<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-79
<PAGE>
AMERICAN FLORIST SUPPLY, INC.
BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------- SEPTEMBER 30,
1995 1996 1997
------ ------ -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................ $ 3 $ 4 $ 510
Accounts receivable, net......................... 1,339 1,460 1,225
Inventory........................................ 39 65 111
Notes receivable--stockholder.................... 21 231 6
Receivable from affiliate........................ 31
Prepaid expenses and other current assets........ 28 30 35
------ ------ ------
Total current assets........................... 1,430 1,790 1,918
Property and equipment, net........................ 311 278 197
Goodwill and intangibles, net...................... 327 298 281
Restricted investments............................. 25 26 27
Other assets....................................... 43 46 43
------ ------ ------
Total assets................................... $2,136 $2,438 $2,466
====== ====== ======
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Line of credit................................... $ 80 $ 302
Accounts payable................................. 687 709 $ 567
Accrued expenses................................. 75 147 156
Income taxes payable............................. 21 29 --
------ ------ ------
Total current liabilities...................... 863 1,187 723
Long-term debt..................................... 598 598 598
Other long-term liabilities........................ 25 25 25
Commitments and contingencies (Note 11)
Stockholder's equity:
Common stock, no par value; 5,000 shares
authorized; 1,000 shares issued and
outstanding..................................... 400 400 400
Retained earnings................................ 250 228 720
------ ------ ------
Total stockholder's equity..................... 650 628 1,120
------ ------ ------
Total liabilities and stockholder's equity..... $2,136 $2,438 $2,466
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-80
<PAGE>
AMERICAN FLORIST SUPPLY, INC.
STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
---------------- ------------------
1995 1996 1996 1997
------- ------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net sales................................ $10,783 $11,679 $ 8,759 $ 9,563
Cost of sales............................ 7,788 8,268 6,128 6,535
------- ------- -------- --------
Gross margin......................... 2,995 3,411 2,631 3,028
Selling, general and administrative
expenses................................ 2,531 2,723 2,065 2,275
------- ------- -------- --------
Operating income..................... 464 688 566 753
Other (income) expense:
Interest expense....................... 42 43 30 25
Interest income........................ (4) (11) (4) (12)
Other, net............................. (14) (64) (47) (87)
------- ------- -------- --------
Income before income taxes............... 440 720 587 827
Provision for income taxes............... 17 37 30 36
------- ------- -------- --------
Net income............................... $ 423 $ 683 $ 557 $ 791
======= ======= ======== ========
Unaudited pro forma information:
Pro forma net income before provision
for income taxes...................... $ 440 $ 720 $ 587 $ 827
Provision for income taxes............. 176 288 235 331
------- ------- -------- --------
Pro forma income (see Note 2).......... $ 264 $ 432 $ 352 $ 496
======= ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-81
<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)................. 791 791
Dividends paid (unaudited)............. (299) (299)
----- ---- ----- ------
Balance at September 30, 1997
(unaudited)............................. 1,000 $400 $ 720 $1,120
===== ==== ===== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-82
<PAGE>
AMERICAN FLORIST SUPPLY, INC.
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
---------------- ------------------
1995 1996 1996 1997
------- ------- -------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income.............................. $ 423 $ 683 $ 557 $ 791
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization.......... 89 91 83 62
Loss on disposal of fixed assets....... 32 8 6
Changes in operating assets and
liabilities:
Accounts receivable................... (126) (121) 184 266
Inventory............................. (39) (26) (36) (45)
Prepaid expenses and other assets..... (1) (2) (2) 9
Due from related parties.............. (16) (210) (195) 225
Accounts payable and accrued
expenses............................. (85) 94 217 (96)
Income taxes payable.................. 16 8 (37)
------- ------- ------- ---------
Net cash provided by operating
activities.......................... 293 525 808 1,181
Cash flows from investing activities:
Purchases of property and equipment..... (7) (45) (38) (55)
Equipment sale proceeds................. 2
Purchases of investments................ (2) (1)
------- ------- ------- ---------
Net cash used in investing
activities.......................... (9) (44) (38) (55)
Cash flows from financing activities:
Proceeds from issuance of long-term
debt................................... 1,576 1,861 797 1,777
Repayments on note payable.............. (1,595) (1,636) (874) (2,098)
Stockholder dividends................... (265) (705) (695) (299)
------- ------- ------- ---------
Net cash used in financing
activities.......................... (284) (480) (772) (620)
Net increase (decrease) in cash and cash
equivalents............................. 1 (2) 506
Cash and cash equivalents--beginning of
period.................................. 3 3 3 4
------- ------- ------- ---------
Cash and cash equivalents--end of
period.................................. $ 3 $ 4 $ 1 $ 510
======= ======= ======= =========
Supplemental disclosure of cash flow
information:
Cash paid during the period for
interest............................... $ 42 $ 43 $ 30 $ 31
Cash paid during the period for taxes... $ 15 $ 17 $ 15 $ 29
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-83
<PAGE>
AMERICAN FLORIST SUPPLY, INC.
NOTES TO FINANCIAL STATEMENTS
(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-84
<PAGE>
AMERICAN FLORIST SUPPLY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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 Company
has classified these investments as available-for-sale. The amounts presented
at December 31, 1995 and 1996 are at cost which approximates fair value of the
underlying investments.
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 stockholder. 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.
There are differences between the financial statement carrying amounts and
the tax bases of existing assets and liabilities. At December 31, 1996, the
financial reporting bases of the Company's net assets exceeds the tax basis by
approximately $50.
F-85
<PAGE>
AMERICAN FLORIST SUPPLY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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 as of June 30, 1997 and
the results of operations and cash flows for the six months ended June 30,
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 WRITE- AT END
OF PERIOD EXPENSES OFFS OF PERIOD
---------- ---------- ------ ---------
<S> <C> <C> <C> <C>
Year ended December 31, 1995......... $48 $58 $(58) $48
Year ended December 31, 1996......... $48 $48
</TABLE>
NOTE 4--ACQUISITION
The Company acquired certain assets and liabilities of the distribution
business of Johnson's Roses, Inc. on April 11, 1994 under the terms defined in
an Asset Purchase Agreement (the "Agreement"). The final purchase price,
payable to Johnson's Roses, Inc. was $1,284 and consisted of $686.5 in cash
and a subordinated promissory note for principal of $597.5. The acquisition
was accounted for under the purchase method of accounting and the results of
operations have been included from the date of acquisition.
As part of the Agreement with Johnson's Roses, Inc. (the Seller), the
Company has the exclusive right and obligation to buy the Seller's
domestically graded roses at fixed prices through December 1998. See
commitments footnote (Note 11).
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.
F-86
<PAGE>
AMERICAN FLORIST SUPPLY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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.
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-87
<PAGE>
AMERICAN FLORIST SUPPLY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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>
<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 earlier, provided that six months prior
written notification is given to Johnson Roses. 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 EVENTS
The Company and its stockholder entered into a definitive agreement with
U.S.A. Floral Products, Inc. ("USA Floral") pursuant to which the Company
merged with USA Floral. All outstanding shares of the Company were 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 were paid to the Company.
F-88
<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 Bouquets, 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-89
<PAGE>
MONTEREY BAY BOUQUET, INC. AND
BAY AREA BOUQUETS, INC.
COMBINED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------- SEPTEMBER 30,
1995 1996 1997
------ ------ -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................ $ 34 $ 19 $ 260
Accounts receivable.............................. 673 909 945
Inventory........................................ 138 126 181
Prepaid expenses and other current assets........ 8 9 69
------ ------ ------
Total current assets........................... 853 1,063 1,455
Property and equipment, net........................ 158 144 168
Other assets:
Cash surrender value--life insurance............. 43 73 90
Intangibles...................................... 47 41 80
Advances to stockholders......................... 49
------ ------ ------
Total assets................................... $1,101 $1,321 $1,842
====== ====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Credit line payable.............................. $ 100 $ 49 $ --
Current maturities of long-term debt............. 20 6 34
Accounts payable................................. 591 783 597
Accrued expenses................................. 81 167 35
Notes payable to officers and stockholders....... 47 10
Income taxes payable............................. 3 12 363
------ ------ ------
Total current liabilities...................... 842 1,027 1,029
Long-term debt, net of current maturities.......... 30 24 29
Growers contract--related party.................... 48 41 35
Other long-term liabilities........................ --
------ ------ ------
Total liabilities.............................. 920 1,092 1,093
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 Bouquets, Inc., no par
value; 1,000 shares authorized; 100 shares
issued and outstanding.......................... 25 25 25
Retained earnings................................ 78 126 646
------ ------ ------
Total stockholders' equity..................... 181 229 749
------ ------ ------
Total liabilities and stockholders' equity..... $1,101 $1,321 $1,842
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-90
<PAGE>
MONTEREY BAY BOUQUET, INC. AND
BAY AREA BOUQUETS, INC.
COMBINED STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
-------------- ------------------
1995 1996 1996 1997
------ ------ -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net sales................................. $6,903 $9,477 $ 6,797 $ 9,714
Cost of sales............................. 5,959 8,285 5,851 7,895
------ ------ -------- --------
Gross margin.......................... 944 1,192 946 1,819
Selling, general and administrative
expenses................................. 910 1,113 760 896
------ ------ -------- --------
Operating income...................... 34 79 186 923
Other (income) expense:
Interest expense........................ 13 15 6 12
Other, net.............................. (9) (8) (13) (6)
------ ------ -------- --------
Income before provision for income taxes.. 30 72 193 917
Provision for income taxes................ 10 24 78 397
------ ------ -------- --------
Net income................................ $ 20 $ 48 $ 115 $ 520
====== ====== ======== ========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-91
<PAGE>
MONTEREY BAY BOUQUET, INC. AND
BAY AREA BOUQUETS, 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
Bouquets, 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)................. 520 520
------- ---- ---- ----
Balance at September 30, 1997
(unaudited)............................. 102,602 $103 $646 $749
======= ==== ==== ====
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-92
<PAGE>
MONTEREY BAY BOUQUET, INC. AND
BAY AREA BOUQUETS, INC.
COMBINED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
-------------- --------------
1995 1996 1996 1997
------ ------ ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income.................................... $ 20 $ 48 $ 115 $ 520
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization................ 64 87 2 49
Change in deferred income taxes.............. 1 (3)
Change in operating assets and liabilities:
Accounts receivable......................... (157) (236) (229) (36)
Inventory................................... (51) 12 (56) (55)
Prepaid expenses and other current assets... (6) (1) (58)
Income taxes payable........................ 6 12 351
Accounts payable and accrued expenses....... 180 278 345 (323)
Grower contract............................. (8) (20) 8
------ ------ ------ ------
Net cash provided by operating activities.. 57 189 157 456
Cash flows from investing activities:
Purchases of property and equipment........... (97) (63) (18) (70)
Cash surrender value of life insurance........ (23) (18)
Increase in officer receivable................ (30) (30) (4) (10)
Increase in intangibles....................... (12) (3) (43)
------ ------ ------ ------
Net cash used in investing activities...... (139) (96) (45) (141)
Cash flows from financing activities:
Advances to stockholder....................... (28) (37) (50)
Proceeds from issuance of common stock........ 25
Net borrowings (repayments) on line of
credit....................................... 19 (51) (51) (49)
Repayments from related parties............... 14
Proceeds from issuance of long-term debt...... 40 38
Repayments of long-term debt.................. (29) (16) (16) (13)
Proceeds from stockholder loans............... 75 28
------ ------ ------ ------
Net cash (used in) provided by financing
activities................................ 116 (108) (39) (74)
Net increase (decrease) in cash and cash
equivalents................................... 34 (15) 73 241
Cash and cash equivalents--beginning of
period........................................ 34 34 19
------ ------ ------ ------
Cash and cash equivalents--end of period....... $ 34 $ 19 $ 107 $ 260
====== ====== ====== ======
Supplemental disclosure of cash flow
information:
Cash paid during the period for interest...... $ 13 $ 15 $ 6 $ 12
Cash paid during the period for income taxes.. $ 4 $ 14 $ 3 $ 99
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-93
<PAGE>
MONTEREY BAY BOUQUET, INC. AND BAY AREA BOUQUETS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
(IN THOUSANDS)
NOTE 1--BUSINESS ORGANIZATION
Founded in 1993, Monterey Bay Bouquet, Inc. and Bay Area Bouquets, 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 Bouquets, 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 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.
Intangibles
Intangible assets include the costs incurred for the start up and
incorporation of both Monterey Bay Bouquet, Inc. and Bay Area Bouquets, Inc.
and are being amortized over five years. Accumulated amortization of
intangible assets at December 31, 1995 and 1996 was $16 and $25, respectively.
F-94
<PAGE>
MONTEREY BAY BOUQUET, INC. AND
BAY AREA BOUQUETS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
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 June 30, 1997 and
of the results of operations and cash flows for the six months ended June 30,
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>
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%
F-95
<PAGE>
MONTEREY BAY BOUQUET, INC. AND
BAY AREA BOUQUETS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(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>
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>
F-96
<PAGE>
MONTEREY BAY BOUQUET, INC. AND
BAY AREA BOUQUETS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
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.
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.
F-97
<PAGE>
MONTEREY BAY BOUQUET, INC. AND
BAY AREA BOUQUETS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
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.
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 EVENTS
The Company and its stockholders entered into a definitive agreement with
U.S.A. Floral Products, Inc. ("USA Floral") pursuant to which the Company
merged with USA Floral. All outstanding shares of the Company were 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.
In conjunction with the merger, all amounts due from related parties and all
amounts due from stockholders were repaid to the Company.
The Company's line of credit was renewed in July 1997.
F-98
<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-99
<PAGE>
ALPINE GEM FLOWER SHIPPERS, INC.
BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------- SEPTEMBER 30,
1995 1996 1997
------ ------ -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....................... $ 162 $ 1 $ 277
Accounts receivable............................. 1,070 1,215 1,504
Prepaid expenses and other current assets....... 19 18 16
------ ------ ------
Total current assets.......................... 1,251 1,234 1,797
Property and equipment, net....................... 18 26 23
------ ------ ------
Total assets.................................. $1,269 $1,260 $1,820
====== ====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................ $ 357 $ 469 $ 627
Commissions payable............................. 147 168 218
Accrued expenses................................ 16 14 15
------ ------ ------
Total liabilities............................. 520 651 860
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) 233
------ ------ ------
Total stockholders' equity.................... 749 609 960
------ ------ ------
Total liabilities and stockholders' equity.... $1,269 $1,260 $1,820
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-100
<PAGE>
ALPINE GEM FLOWER SHIPPERS, INC.
STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
-------------- ------------------
1995 1996 1996 1997
------ ------ -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net sales.................................. $8,139 $9,334 $ 7,192 $ 8,151
Cost of sales.............................. 6,287 7,132 5,503 6,090
------ ------ -------- --------
Gross margin........................... 1,852 2,202 1,689 2,061
Selling, general and administrative
expenses.................................. 1,526 1,868 1,243 1,382
------ ------ -------- --------
Operating income....................... 326 334 446 679
Other (income) expense:
Interest income.......................... (35) (41) (31) (17)
Other, net............................... (12) (13) 1 (28)
------ ------ -------- --------
Net income................................. $ 373 $ 388 $ 476 $ 724
====== ====== ======== ========
Unaudited pro forma information:
Pro forma net income before provision for
income taxes............................ $ 373 $ 388 $ 476 $ 724
Provision for income taxes............... 149 155 190 290
------ ------ -------- --------
Pro forma income (see Note 2)............ $ 224 $ 233 $ 286 $ 434
====== ====== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-101
<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)................. 724 724
Dividends paid (unaudited)............. (373) (373)
------ ---- ----- -----
Balance at September 30, 1997
(unaudited)............................. 20,000 $727 $ 233 $ 960
====== ==== ===== =====
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-102
<PAGE>
ALPINE GEM FLOWER SHIPPERS, INC.
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
-------------- --------------
1995 1996 1996 1997
------ ------ ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income.................................... $ 373 $ 388 $ 476 $ 724
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation................................. 13 27 20 8
Change in operating assets and liabilities:
Accounts receivable......................... (266) (145) (82) (289)
Prepaid expenses and other current assets... (5) 1 (20) 2
Accounts payable and accrued expenses....... 79 131 224 209
------ ------ ------ ------
Net cash provided by operating activities.. 194 402 618 654
Cash flows from investing activities:
Purchases of property and equipment........... (3) (40) (36) (5)
Proceeds from disposal of property and
equipment.................................... 5
------ ------ ------ ------
Net cash used in investing activities...... (3) (35) (36) (5)
Cash flows from financing activities:
Stockholder dividends......................... (292) (528) (252) (373)
------ ------ ------ ------
Net cash (used in) provided by financing
activities................................ (292) (528) (252) (373)
Net increase (decrease) in cash and cash
equivalents................................... (101) (161) 330 276
Cash and cash equivalents--beginning of
period........................................ 263 162 162 1
------ ------ ------ ------
Cash and cash equivalents--end of period....... $ 162 $ 1 $ 492 $ 277
====== ====== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-103
<PAGE>
ALPINE GEM FLOWER SHIPPERS, INC.
NOTES TO FINANCIAL STATEMENTS
(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.
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
F-104
<PAGE>
ALPINE GEM FLOWER SHIPPERS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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 June 30, 1997 and
of the results of operations and cash flows for the six months ended June 30,
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.
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.
F-105
<PAGE>
ALPINE GEM FLOWER SHIPPERS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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 EVENTS
The Company and its stockholders entered into a definitive agreement with
U.S.A. Floral Products, Inc. ("USA Floral") pursuant to which the Company
merged with USA Floral. All outstanding shares of the Company were 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-106
<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>
<S> <C>
Securities and Exchange Commission Registration Fee ............ $ 66,965
Nasdaq National Market Listing Fee.............................. 17,500
Legal Fees and Expenses......................................... 10,000
Miscellaneous................................................... 5,535
--------
Total......................................................... $100,000
========
</TABLE>
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 maintains directors' and officers'
liability insurance.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
On April 22, 1997 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, 1997 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.
II-1
<PAGE>
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 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
II-2
<PAGE>
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.
As of 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, Seacross Trading, Inc. and Alvaro
McAllister, 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 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, 1997, 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.
On October 9, 1997 the registrant sold 110,000 shares of its common stock to
Jonathan Ledecky for aggregate cash consideration of 1,430,000, upon exercise
of the above-described option. The transaction was intended to be exempt from
the registration requirements of the Securities Act by virtue of Section 4(2)
thereof.
II-3
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following exhibits are filed as part of this registration statement:
<TABLE>
<CAPTION>
INCORPORATED BY
REFERENCE TO THE
EXHIBIT INDICATED
BELOW TO THE COMPANY'S
REGISTRATION STATEMENT
EXHIBIT ON FORM S-1
NUMBER DESCRIPTION (FILE NO. 333-33131)
------- ----------- ----------------------
<C> <S> <C>
3.01 Certificate of Incorporation of U.S.A. Floral 3.01
Products, Inc., as amended.
3.02 Amended and Restated Bylaws of U.S.A. Floral 3.02
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 10.01
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 10.02
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 10.03
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 10.04
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 August
5, 1997.
10.05 Amended and Restated Agreement and Plan of 10.05
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 10.06
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 10.07
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 10.08
among U.S.A. Floral Products, Inc., FT
Acquisition Corporation, Flower Trading
Corporation, Flowtrad Corporation N.V. and
the stockholders of Flowtrad Corporation
N.V., dated as of August 4, 1997.
</TABLE>
- --------
*Previously filed.
II-4
<PAGE>
<TABLE>
<CAPTION>
INCORPORATED BY
REFERENCE TO THE
EXHIBIT INDICATED
BELOW TO THE COMPANY'S
REGISTRATION STATEMENT
EXHIBIT ON FORM S-1
NUMBER DESCRIPTION (FILE NO. 333-33131)
------- ----------- ----------------------
<C> <S> <C>
10.09(a) Employment Agreement between U.S.A. Floral 10.09(a)
Products, Inc. and Robert Poirier, dated
as of April 22, 1997.
10.09(b) Amendment No. 1 to Employment Agreement 10.09(b)
between U.S.A. Floral Products, Inc. and
Robert Poirier, dated August 6, 1997.
10.10 U.S.A. Floral Products, Inc. 1997 Long-Term 10.10
Incentive Plan.
10.11 U.S.A. Floral Products, Inc. 1997 Non- 10.11
Employee Directors' Stock Plan.
10.12 U.S.A. Floral Products, Inc. 1997 Employee 10.12
Stock Purchase Plan.
10.13 Employment Agreement between U.S.A. Floral
Products, Inc. and Raymond C. Anderson,
dated October 9, 1997.*
10.14 Employment Agreement between The Roy Houff
Company and Roy O. Houff, dated October
16, 1997.*
10.15 Employment Agreement between CFX, Inc. and
Dwight Haight, dated October 16, 1997.*
10.16 Employment Agreement between Bay State
Florist Supply, Inc. and William W.
Rudolph, dated October 16, 1997.*
10.17 Employment Agreement between Monterey Bay
Bouquet, Inc. and Jeffrey Brothers, dated
October 16, 1997.*
10.18 Employment Agreement between Alpine Gem
Flower Shippers, Inc. and John Q. Graham,
Jr., dated October 16, 1997.*
10.19 Employment Agreement between United
Wholesale Florists, Inc. and Raymond R.
Ashmore, dated October 16, 1997.*
10.20 Employment Agreement between American
Florist Supply, Inc. and John T.
Dickinson, dated October 16, 1997.*
10.21 Employment Agreement between Flower Trading
Corporation and Gustavo Moreno, dated
October 16, 1997.*
10.22 Registration Rights Agreement, dated as of 10.22
July 25, 1997, among U.S.A. Floral
Products, Inc. and certain stockholders
named therein.*
10.23 Credit Agreement among U.S.A. Floral
Products, Inc., various Lending
Institutions and Bankers Trust Company, as
Agent, dated as of October 16, 1997.*
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.*
</TABLE>
- --------
*Previously filed.
**Filed herewith.
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:
(a) 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
registration statement as of the time it was declared effective.
(b) 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.
(c) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in
the aggregate, represents a fundamental change in the information
set forth in the registration statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities offered
(if the total dollar value of securities offered would not exceed
that which was registered) and any deviation from the low or high
and of the estimated maximum offering range may be reflected in the
form of prospectus filed with the Commission pursuant to Rule
424(b), if, in the aggregate, the changes in volume and price
represent no more than 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee"
table in the effective registration statement.
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration
statement or any material change in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
II-6
<PAGE>
offered therein, and the offering of such securities at the time shall
be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
II-7
<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 Washington, District of
Columbia, on November 18, 1997.
U.S.A. Floral Products, Inc.
By: /s/ Robert J. Poirier
----------------------------------
Robert J. Poirier
Chairman of the Board,
President and Chief Executive
Officer
KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears
below constitutes and apppoints 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 or 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.
SIGNATURE CAPACITY DATE
/s/ Robert J. Poirier Chairman of the
- ------------------------------------- Board, President November 18,
Robert J. Poirier and Chief Executive 1997
Officer and a
Director (Principal
Executive Officer)
/s/ Raymond C. Anderson Chief Financial
- ------------------------------------- Officer (Principal November 18,
Raymond C. Anderson Financial and 1997
Accounting Officer)
/s/ Jonathan J. Ledecky Director
- ------------------------------------- November 18,
Jonathan J. Ledecky 1997
/s/ Vincent W. Eades Director
- ------------------------------------- November 18,
Vincent W. Eades 1997
/s/ Edward J. Mathias Director
- ------------------------------------- November 18,
Edward J. Mathias 1997
/s/ John A. Quelch Director
- ------------------------------------- November 18,
John A. Quelch 1997
II-8
<PAGE>
/s/ Raymond R. Ashmore Director
- ------------------------------------- November 18,
Raymond R. Ashmore 1997
/s/ Jeffrey Brothers Director
- ------------------------------------- November 18,
Jeffrey Brothers 1997
/s/ John T. Dickinson Director
- ------------------------------------- November 18,
John T. Dickinson 1997
/s/ John Q. Graham, Jr. Director
- ------------------------------------- November 18,
John Q. Graham, Jr. 1997
/s/ Dwight Haight Director
- ------------------------------------- November 18,
Dwight Haight 1997
/s/ Roy O. Houff Director
- ------------------------------------- November 18,
Roy O. Houff 1997
/s/ Gustavo Moreno Director
- ------------------------------------- November 18,
Gustavo Moreno 1997
/s/ William W. Rudolph Director
- ------------------------------------- November 18,
William W. Rudolph 1997
II-9
<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
Flowtrad Corporation, N.V. d/b/a
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 Bouquet, 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".
/s/ PRICE WATERHOUSE LLP
November 19, 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
November 18, 1997