<PAGE>
PROSPECTUS
5,000,000 Shares
U.S.A. Floral Products, Inc.
COMMON STOCK
----------------
ALL OF THE SHARES OF COMMON STOCK BEING OFFERED HEREBY ARE BEING SOLD BY
THE COMPANY. PRIOR TO THIS OFFERING, THERE HAS BEEN NO PUBLIC MARKET FOR
THE COMMON STOCK OF THE COMPANY. SIMULTANEOUSLY WITH, AND AS A
CONDITION TO, THE CONSUMMATION OF THE OFFERING, THE COMPANY WILL
ACQUIRE ALL OF THE OUTSTANDING STOCK OF THE FOUNDING
COMPANIES (AS DEFINED HEREIN). SEE "FORMATION OF THE
COMPANY." SEE "UNDERWRITERS" FOR A DISCUSSION OF THE
FACTORS CONSIDERED IN DETERMINING THE INITIAL
PUBLIC OFFERING PRICE.
----------------
THE COMMON STOCK HAS BEEN APPROVED FOR QUOTATION ON THE NASDAQ NATIONAL MARKET
UNDER THE SYMBOL "ROSI."
----------------
SEE "RISK FACTORS" BEGINNING ON PAGE 11 FOR INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------------
PRICE $13 A SHARE
----------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS (1) COMPANY (2)
-------- --------------- -----------
<S> <C> <C> <C>
Per Share............................... $13.00 $.91 $12.09
Total (3)............................... $65,000,000 $4,550,000 $60,450,000
</TABLE>
- --------
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended.
(2) Before deducting expenses payable by the Company estimated at
$2,250,000.
(3) The Company has granted to the Underwriters an option, exercisable
within 30 days of the date hereof, to purchase up to an aggregate of
750,000 additional Shares at the price to public less underwriting
discounts and commissions for the purpose of covering over-allotments,
if any. If the Underwriters exercise such option in full, the total
price to public, underwriting discounts and commissions and proceeds to
Company will be $74,750,000, $5,232,500, and $69,517,500, respectively.
See "Underwriters."
----------------
The Shares are offered, subject to prior sale, when, as and if accepted by
the Underwriters named herein and subject to approval of certain legal matters
by Davis Polk & Wardwell, counsel for the Underwriters. It is expected that
delivery of the Shares will be made on or about October 16, 1997 at the office
of Morgan Stanley & Co. Incorporated, New York, N.Y., against payment therefor
in immediately available funds.
----------------
MORGAN STANLEY DEAN WITTER
BANCAMERICA ROBERTSON STEPHENS
SMITH BARNEY INC.
October 9, 1997
<PAGE>
[THIS PAGE CONTAINS A GRAPHIC DEPICTION OF A MAP OF THE CONTINENTAL UNITED
STATES, ON WHICH LOCATIONS IN CALIFORNIA, MONTANA, ARKANSAS, ILLINOIS, FLORIDA
AND MASSACHUSETTS ARE MARKED; THE LOGOS OF THE APPROPRIATE FOUNDING COMPANIES
ARE SHOWN IN CLOSE PROXIMITY TO THE APPLICABLE LOCATIONS. THE PAGE ALSO REFLECTS
THE REGISTRANT'S LOGO, AND PRESENTS THREE PHOTOGRAPHS: (i) A BOUQUET ASSEMBLY
AREA WITH WORKERS; (ii) A HARDGOODS DISPLAY RACK AT A WHOLESALER; AND (iii) A
FRESH CUT FLOWER DISPLAY AND STORAGE AREA AT A WHOLESALER.]
<PAGE>
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY ANY UNDERWRITER.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY
JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION TO
SUCH PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY OFFER OR SALE
MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCE IMPLY THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
UNTIL NOVEMBER 3, 1997 (25 DAYS AFTER THE COMMENCEMENT OF THE OFFERING), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary...................................................... 4
Risk Factors............................................................ 11
Formation of the Company................................................ 18
Use of Proceeds......................................................... 22
Dividend Policy......................................................... 22
Capitalization.......................................................... 23
Dilution................................................................ 24
Selected Pro Forma Combined Financial Data.............................. 26
Management's Discussion and Analysis of Pro Forma Combined Financial
Condition and Pro Forma Combined Results of Operations................. 28
Selected Financial Data of the Founding Companies....................... 33
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Management's Discussion and Analysis of Financial Condition and
Results of Operations of the Founding Companies........................ 36
Business................................................................ 54
Management.............................................................. 61
Certain Relationships and Related Party Transactions.................... 67
Principal Stockholders.................................................. 72
Description of Capital Stock............................................ 73
Shares Eligible for Future Sale......................................... 75
Underwriters............................................................ 76
Legal Matters........................................................... 78
Experts................................................................. 78
Additional Information.................................................. 78
Index to Financial Statements........................................... F-1
</TABLE>
----------------
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH THE OFFERING,
AND MAY BID FOR, AND PURCHASE, SHARES OF THE COMMON STOCK IN THE OPEN MARKET.
FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITERS."
3
<PAGE>
PROSPECTUS SUMMARY
Simultaneously with the closing of the offering made by this Prospectus (the
"Offering"), U.S.A. Floral Products, Inc. will acquire, in separate
transactions (the "Mergers"), a number of floral products businesses
(collectively, the "Founding Companies"). See "Formation of the Company."
Unless otherwise indicated, all references to the "Company" include the
Founding Companies after the effectiveness of the Mergers, and references to
"USA Floral" mean U.S.A. Floral Products, Inc. prior to the effectiveness of
the Mergers. The following summary is qualified in its entirety by, and should
be read in conjunction with, the more detailed information and the financial
statements, including the notes thereto, appearing elsewhere in this
Prospectus. Unless otherwise indicated, all share, per share and financial
information set forth herein (i) has been adjusted to give effect to the
Mergers and (ii) assumes no exercise of the Underwriters' over-allotment
option.
THE COMPANY
USA Floral was founded in April 1997 to create a national consolidator and
operator of floral products distribution businesses. Upon consummation of the
Mergers, the Company will engage 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 will also import cut
flowers from growers in foreign countries, provide pre-packaged floral bouquets
and arrangements to retail florists and mass-market retailers and engage 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, upon consummation of the Mergers, it will be 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
4
<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, Chairman of the Board and Chief Executive Officer of
U.S. Office Products Company, a publicly-held supplier of a broad range of
office products and business services that has been built primarily through the
acquisition and integration of over 190 companies since its inception in
October 1994, and is the founder and Chairman 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. With the exception of the Mergers, the
Company is not currently involved in negotiations and has no current
commitments or agreements with respect to any acquisitions.
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."
5
<PAGE>
THE FOUNDING COMPANIES
USA Floral has entered into agreements to acquire the Founding Companies
contemporaneously with the consummation of the Offering with a portion of the
proceeds therefrom. The consummation of the Mergers is a condition to the
consummation of the Offering. USA Floral has conducted no operations and
generated no revenues to date.
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.
6
<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.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by
the Company............ 5,000,000 Shares (1)
Common Stock to be
outstanding after the
Offering............... 8,734,050 Shares (1) (2)
Use of proceeds......... To pay the cash portion of the purchase price for the
Founding Companies, to fund S Corporation distributions
and for working capital and general corporate purposes.
See "Use of Proceeds."
Nasdaq National Market
symbol ................ ROSI
</TABLE>
- --------
(1) Assumes the over-allotment option is not exercised. See "Underwriters."
(2) 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 be granted to Jonathan J. Ledecky, the Company's
Non-Executive Chairman of the Board) will be granted upon consummation of
the Offering at an exercise price equal to the initial public offering
price per share, and options to purchase 125,000 shares of Common Stock
will be granted upon consummation of the Offering at an exercise price
equal to $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 will be granted
upon consummation of the Offering at an exercise price equal to the initial
public offering price per share; (iv) 1,000,000 shares of Common Stock
reserved for issuance under the Company's 1997 Employee Stock Purchase
Plan; and (v) 110,000 shares reserved for issuance pursuant to an option to
be granted to Jonathan J. Ledecky on the effective date of the registration
statement of which this Prospectus forms a part, at an exercise price equal
to the initial public offering price per share, which option is being
granted to facilitate the treatment of the issuance of shares in the
Mergers as a tax-free exchange under Section 351 of the Internal Revenue
Code of 1986, as amended (the "Internal Revenue Code") and which option Mr.
Ledecky intends to exercise concurrently with the consummation of the
Offering. See "Formation of the Company--The Mergers," "Management--1997
Long-Term Incentive Plan," "--1997 Non-Employee Directors' Stock Plan" and
"--Other Plans" and "Principal Stockholders."
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) the substantial portion of the proceeds
of the Offering that is payable to affiliates; (xi) dependence upon key
personnel; and (xii) imported products and anti-dumping liability.
7
<PAGE>
THE MERGERS
Simultaneously with, and as a condition to, the closing of the Offering, the
Company will consummate the Mergers pursuant to agreements that the Company has
entered into with the Founding Companies and their stockholders (the "Merger
Agreements"). The aggregate consideration to be paid by the Company upon
consummation of the Mergers will be approximately $ 63.7 million, which
consists of: (i) $42.4 million in cash, which will be paid from the proceeds of
the Offering (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 S Corporation distributions to the
stockholders of CFX and Alpine Gem, which will be paid from the proceeds of the
Offering; and (iii) the $17.3 million estimated fair value of 1,334,050 shares
of Common Stock to be 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 will also assume 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" and "Use of
Proceeds." The stockholders of the Founding Companies will receive certain
registration rights with respect to the shares of Common Stock to be received
under the Merger Agreements. The Merger Agreements also provide that options to
purchase a number of shares of Common Stock equal to 6.25% of the cash and
Common Stock portion of the Merger consideration, based on the initial public
offering price, will be made available to employees of the Founding Companies.
The consummation of each Merger Agreement is contingent upon the consummation
of the Offering and customary closing conditions. The Merger Agreements contain
covenants not to compete (subject to certain exceptions) and require certain of
the executive officers of each of the Founding Companies to enter into
employment agreements with their respective Founding Companies effective upon
consummation of the Mergers. One of the executives of each of the Founding
Companies will be appointed to the Board of Directors of the Company following
the consummation of the Offering. See "Formation of the Company," "Use of
Proceeds," "Management's Discussion and Analysis of Financial Condition and
Results of Operations of the Founding Companies--Liquidity and Capital
Resources," "Management--Employment Agreements," "Certain Relationships and
Related Party Transactions," "Shares Eligible for Future Sale," and the
Unaudited Pro Forma Combined Financial Statements and the notes thereto
appearing elsewhere in this Prospectus.
8
<PAGE>
SUMMARY PRO FORMA COMBINED FINANCIAL DATA
USA Floral was established in April 1997 to acquire the Founding Companies
simultaneously with and as a condition to the consummation of this Offering.
For financial statement presentation purposes, USA Floral has been identified
as the "accounting acquiror." The following unaudited summary pro forma
combined financial data present data for the Company, adjusted to give effect
to (i) the consummation of the Mergers, (ii) certain pro forma adjustments to
the historical financial statements described below and (iii) the consummation
of the Offering and the application of the net proceeds therefrom. The summary
pro forma data are not necessarily indicative of operating results or financial
position that would have been achieved had the events described above been
consummated and should not be construed as representative of future operating
results or financial position. The summary pro forma combined financial data
should be read in conjunction with the Unaudited Pro Forma Combined Financial
Statements and the notes thereto and the historical financial statements of the
Founding Companies and the notes thereto included elsewhere in this Prospectus.
The Company anticipates that, subsequent to the Mergers, it will realize
savings from the following: more favorable discounts and rebates on hardgood
products than those currently obtained individually by the Founding Companies;
the combination of functions such as accounting and finance, insurance,
employee benefits, strategic marketing and legal support at the corporate
level; and, to a lesser extent, reduced transportation and handling costs on
perishable floral products. However, these savings cannot be quantified or
reasonably estimated and have not been included in the Unaudited Pro Forma
Combined Financial Statements.
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED JUNE 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 $ 97,269 $ 103,015
Gross profit (2)........ 49,247 27,146 29,378
Selling, general and ad-
ministrative expense
(3).................... 43,309 21,574 22,091
Goodwill amortization
(4).................... 1,090 545 545
-------------- ---------------- ----------------
Operating income........ 4,848 5,027 6,742
Interest and other (in-
come) expense, net
(5).................... (141) (211) (76)
-------------- ---------------- ----------------
Income before income
taxes.................. 4,989 5,238 6,818
-------------- ---------------- ----------------
Net income (6).......... $ 2,557 $ 2,925 $ 3,873
============== ================ ================
Net income per share.... $ .33 $ .38 $ .50
============== ================ ================
Shares used in computing
net income per share
(7).................... 7,738,819 7,738,819 7,738,819
============== ================ ================
<CAPTION>
AS OF JUNE 30, 1997
----------------------------------------
PRO FORMA AS
COMBINED ADJUSTED (9)
---------------- -----------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA (8):
Working capital......................... $(33,717) (10) $25,913
Total assets............................ 85,774 100,367
Total long term debt.................... 3,569 3,569
Stockholders' equity.................... 17,669 77,299
</TABLE>
- --------
(1) The pro forma combined statement of operations data assume that the
Mergers and the Offering were consummated on January 1, 1996.
(2) Reflects the reduction in costs of sales of $579,000 for the year ended
December 31, 1996 and $290,000 and $300,000 for the six-month periods
ended June 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.
9
<PAGE>
(3) The pro forma combined statement of operations data reflect an aggregate
of approximately (i) $3.6 million, $2.7 million and $403,000 for the year
ended December 31, 1996 and the six-month periods ended June 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 prospectively in the employment agreements to be entered into upon
consummation of the Offering (the "Compensation Differential"), (ii) a net
reduction of lease-related expenses of $367,000 for the year ended
December 31, 1996 and $183,000 for each of the six-month periods ended
June 30, 1996 and 1997, pursuant to real estate acquired, real estate
distributed and amendment of associated lease agreements in connection
with the Mergers, (iii) an increase of $500,000, $250,000 and $220,000 for
the year ended December 31, 1996, and for the six-month periods ended June
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 six-month periods ended June 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 six-month periods ended June
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 to be issued to stockholders of the Founding
Companies, (ii) 2,400,000 shares issued to the founders and initial
investors in USA Floral, (iii) 3,956,692 of the 5,000,000 shares sold in
the Offering to pay the cash portion of the Merger consideration, to fund
S Corporation distributions to stockholders of certain of the Founding
Companies, and to pay certain expenses of the Offering, and (iv) 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 June 30, 1997. Prior to the Mergers, Bay State will
distribute to its stockholders certain real estate having a net book value
of $842,000. Additionally, in conjunction with the Mergers certain real
estate will be acquired and certain associated debt assumed.
(9) Adjusted to reflect the sale of the 5,000,000 shares of Common Stock
offered hereby 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 per share.
(10) Includes $44.6 million payable to stockholders of the Founding Companies,
representing the cash portion of the Merger consideration to be paid from
a portion of the net proceeds of the Offering, plus S Corporation
distributions to be made to the stockholders of certain of the Founding
Companies, less the amount to be received by the Company upon consummation
of the Mergers in repayment of net related party receivables. See "Use of
Proceeds" and "Notes to Unaudited Pro Forma Combined Financial
Statements."
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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 no operations to
date. USA Floral has entered into agreements to acquire the Founding Companies
simultaneously with the consummation of the Offering. The Founding Companies
have been operating independently and the Company may not be able to integrate
these businesses successfully on an economic basis. The Company's management
group has been assembled only recently and the management control structure is
still in its formative stages. The pro forma combined financial results of USA
Floral and the Founding Companies cover periods when USA Floral and the
Founding Companies were not under common control or management and may not be
indicative of the Company's future financial or operating results. Management
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 consist of Robert J. Poirier,
its Chairman of the Board, President and Chief Executive Officer, Raymond C.
Anderson, its Chief Financial Officer, and a non-executive Director of
Administration; upon consummation of the Mergers, these employees will be
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 have not been established by
independent appraisals, but have been determined through negotiations between
USA Floral and representatives of each of the Founding Companies. The
consideration being paid for each of the Founding Companies, including
Founding Companies whose stockholders will become affiliates of the Company
upon consummation of the Offering, is based 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 to be 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 to be paid in the acquisitions of the
Founding Companies is approximately $43.6 million greater than the amount of
that purchase price that will be 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 being paid
to acquire the Founding Companies or the price of the Common Stock offered
hereby. See "--Amortization of Intangible Assets" and "Formation of the
Company--The Mergers."
AMORTIZATION OF INTANGIBLE ASSETS
Approximately $43.6 million, or 43.4%, of the Company's as adjusted pro
forma total assets as of June 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
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in a particular period constituting an expense that reduces the Company's net
income for that period. The amount amortized, however, will not give rise to a
deduction for tax purposes. In addition, the Company will be required to
amortize the goodwill, if any, from any future acquisitions. A reduction in
net income resulting from the amortization of goodwill may have an adverse
impact upon the market price of the Company's Common Stock.
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, in September 1997, Bankers Trust Company ("BT") committed to
provide to the Company a $100.0 million revolving credit facility (the "Credit
Facility"), subject to consummation of the Offering and to certain closing
conditions. 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 will provide 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 will also contain 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
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or a portion of the consideration to be paid for future acquisitions, dilution
may be experienced by existing stockholders, including the purchasers of
Common Stock in the Offering. See "Dilution," "Use of Proceeds" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
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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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.
SUBSTANTIAL PROCEEDS OF OFFERING PAYABLE TO AFFILIATES
Approximately $42.4 million of the $58.2 million net proceeds of the
Offering will be used to pay the cash portion of the purchase price for the
Founding Companies (before giving effect to the receipt by the Company upon
consummation of the Mergers of approximately $1.7 million of net related party
receivables) and $4.0 million will be used to fund S Corporation distributions
to the stockholders of CFX. In addition, the Company will assume a tax
liability of one of the Founding Companies of approximately $0.5 million to be
paid. Up to an additional $0.5 million may be used to pay the cash portion of
the earn-out arrangement in connection with the Monterey Bay Merger. See
"Formation of the Company--The Mergers."
DEPENDENCE ON KEY PERSONNEL
The Company believes that its success will depend to a significant extent
upon the efforts and abilities of Robert J. Poirier, its co-founder, 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
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conditions have not had a material impact on the operations of 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 respect to three other periods is pending appeal. CFX and Flower Trading,
which are importers, 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 CFX and Flower
Trading as 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 CFX and Flower Trading have not maintained reserves.
HOLDING COMPANY STRUCTURE
The Company is a holding company, the principal assets of which are the
shares of the capital stock of its subsidiaries. As a holding company without
independent means of generating operating revenues, the Company depends on
dividends and other payments from its subsidiaries to fund its obligations and
meet its cash needs. Expenses of the Company include salaries of its executive
officers, insurance, professional fees and service of any indebtedness that
may be outstanding from time to time. 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
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less favorable than those the Company could negotiate with an unrelated third
party, the interests of officers of the Founding Companies in their capacities
with related third party entities may come into conflict with the interests of
such persons in their capacities with the Company.
POTENTIAL INFLUENCE OF EXISTING STOCKHOLDERS
After the consummation of the Offering, the Company's executive officers,
directors and five-percent stockholders will own beneficially an aggregate of
approximately 31.7% of the outstanding shares of Common Stock (approximately
29.3% if the Underwriters' over-allotment option is exercised in full). The
Company's officers, directors and five-percent stockholders if acting together
may be able to control the election of directors and matters requiring the
approval of the stockholders of the Company. This concentration of ownership
may also have the effect of delaying or preventing a change in control of the
Company. See "Principal Stockholders."
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have 8,734,050 shares of
Common Stock outstanding, based upon the number of shares outstanding as of
September 15, 1997 and assuming consummation of the Mergers, but without
giving effect to the anticipated exercise by Mr. Ledecky of an option to
purchase 110,000 shares of Common Stock. The 5,000,000 shares sold in the
Offering will be freely tradeable without restriction or further registration
under the Securities Act, unless acquired by an "affiliate" of the Company, as
that term is defined in Rule 144 promulgated under the Securities Act ("Rule
144"); shares held by affiliates will be subject to resale limitations of Rule
144 described below. All of the 3,734,050 remaining outstanding shares of
Common Stock will be available for resale at various dates beginning 180 days
after the date of this Prospectus, upon expiration of applicable lock-up
agreements described below and subject to compliance with Rule 144 under the
Securities Act as the holding provisions of Rule 144 are satisfied. Of those
shares, 3,544,050 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, upon consummation of the Offering, 1,051,250 shares of Common
Stock will be issuable upon the exercise of stock options to be granted on the
effective date of the registration statement of which this Prospectus forms a
part, of which options to purchase 270,000 shares are immediately exercisable.
Such options include an option to purchase 110,000 shares to be granted to
Jonathan J. Ledecky to facilitate the treatment of the shares to be issued in
the Mergers as a tax-free exchange under the Internal Revenue Code. Mr.
Ledecky intends to exercise such option on or about the effective date of the
registration statement of which this Prospectus forms a part. The Company
intends to file a registration statement on Form S-8 as soon as practicable
after the consummation of the Offering with respect to the shares of Common
Stock issuable upon the exercise of all such options (other than the option to
purchase 110,000 shares to be granted to Mr. Ledecky).
Sales of substantial amounts of Common Stock, or the perception that such
sales could occur, could adversely affect prevailing market prices of the
Common Stock. Each of the Company and the directors, executive officers and
stockholders of the Company has agreed that, without the prior written consent
of Morgan Stanley & Co. Incorporated on behalf of the Underwriters, it will
not, subject to certain exceptions, during the period ending 180 days after
the date of this Prospectus, (i) offer, pledge, sell, contract to sell, sell
any option or contract to purchase, purchase any option or contract to sell,
grant any option, right or warrant to purchase, lend, or otherwise transfer or
dispose of, directly or indirectly, any shares of Common Stock or any
securities convertible into or exercisable or exchangeable for Common Stock or
(ii) enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of the Common
Stock, whether any such transaction described in clause (i) or (ii) above is
to be settled by delivery of Common Stock or such other securities, in cash or
otherwise. See "Underwriters."
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NO PRIOR MARKET FOR THE COMMON STOCK; POSSIBLE VOLATILITY OF STOCK PRICE
There is currently no established public market for securities of companies
that own and operate floral product distribution businesses and, prior to the
Offering, there has been no public market for the Company's Common Stock.
There can be no assurance that an active public market for the Common Stock
will develop or be sustained after the Offering. The initial public offering
price of the Common Stock was determined by negotiation between the Company
and the representatives of the Underwriters based on the factors described
under "Underwriters." The price at which the Common Stock will trade in the
public market after the Offering may be less than the initial public offering
price. In addition, the trading price of the Common Stock could be subject to
significant fluctuations in response to activities of the Company's
competitors, variations in quarterly operating results, changes in market
conditions and other events or factors. Moreover, the stock market in the past
has experienced significant price and value fluctuations, which have not
necessarily been related to corporate operating performance. The volatility of
the market could adversely affect the market price of the Common Stock and the
ability of the Company to raise equity in the public markets. See
"Underwriters."
DILUTION TO NEW INVESTORS
After giving effect to the Mergers, purchasers of Common Stock in the
Offering will experience immediate and substantial dilution in the pro forma
as adjusted net tangible book value of their shares in the amount of $9.24 per
share. See "Dilution." If the Company issues additional Common Stock in the
future, including shares which may be issued pursuant to earn-out
arrangements, option grants and future acquisitions, purchasers of Common
Stock in the Offering may experience further dilution in the net tangible book
value per share of the Common Stock.
CERTAIN ANTITAKEOVER PROVISIONS
Certain provisions of the Company's Certificate of Incorporation and Bylaws
and Delaware law may make a change in the control of the Company more
difficult to effect, even if a change in control were in the stockholders'
interest. Pursuant to the Certificate of Incorporation and Bylaws, the Board
of Directors is divided into three classes of directors elected for staggered
three-year terms. In addition, the Company is subject to the anti-takeover
provisions of Section 203 of the Delaware General Corporation Law, which
prohibit the Company from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an "interested stockholder," unless the
business combination is approved in a prescribed manner. See "Description of
Capital Stock--Certain Provisions of Delaware Law and the Company's
Certificate of Incorporation and Bylaws."
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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 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. Subsequent to the Mergers and the Offering, the co-founders of USA
Floral will own beneficially in the aggregate approximately 27.5% of the
outstanding Common Stock of the Company. See "Certain Relationships and
Related Party Transactions--Organization of USA Floral."
THE MERGERS
Simultaneously with and as a condition to the consummation of the Offering,
USA Floral will acquire in eight separate transactions all of the issued and
outstanding capital stock of each of the Founding Companies for an aggregate
consideration of $63.7 million, which consists of: (i) $42.4 million in cash
to be paid to the stockholders of the Founding Companies, which will be paid
from the proceeds of the Offering (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, which will be paid
from the proceeds of the Offering; and (iii) the $17.3 million estimated fair
value of 1,334,050 shares of Common Stock to be 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 will also assume 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 to be paid to the
stockholders of each of the Founding Companies, the acquisition of each
Founding Company is subject to substantially the same terms and conditions as
those to which the acquisition of each other Founding Company is subject. The
following table contains information concerning the aggregate cash to be paid,
Common Stock to be issued (at an initial public offering price of $13.00 per
share) and S Corporation distributions to be made in connection with the
Mergers:
<TABLE>
<CAPTION>
SHARES OF VALUE OF
S CORP. COMMON SHARES OF TOTAL
FOUNDING COMPANY CASH DISTRIBUTIONS STOCK COMMON STOCK CONSIDERATION
- ---------------- ----- ------------- --------- ------------ -------------
(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 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
18
<PAGE>
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 $1.7 million of net related party receivables.
See "Use of Proceeds."
The consummation of each Merger is contingent upon the consummation of the
Offering 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 are true and correct as of the
consummation of the Merger and that such party has performed its obligations
under the Merger Agreement. The Merger Agreements provide that the
stockholders of the Founding Companies will have the right, under
circumstances specified in the Merger Agreements, to register the shares of
Common Stock received by the stockholders as a portion of the Merger
consideration. The Merger Agreements provide that options to purchase a number
of shares of Common Stock, equal to 6.25% of the cash and Common Stock portion
of the Merger consideration, based on the initial public offering price, shall
be made available to employees of the Founding Companies. The options will
have an exercise price equal to the initial public offering price per share
and will vest ratably over a four-year period, beginning on the anniversary of
the date of the grant. The Merger Agreements further provide that the
stockholders of the Founding Companies will indemnify USA Floral from certain
liabilities that may arise in connection with the Mergers. A portion of the
consideration payable to the stockholders of each of the Founding Companies
will be escrowed, in the case of cash, or pledged, in the case of Common
Stock, for a period of twelve months from the consummation of the Offering, as
security for the stockholders' indemnification obligations. Each of the Merger
Agreements provides that USA Floral and certain key employees of each of the
Founding Companies will enter into employment agreements.
THE ROY HOUFF COMPANY
USA Floral will acquire all of the outstanding stock of Houff in a reverse
subsidiary merger (the "Houff Merger") for $11.0 million in cash. In
connection with the Houff Merger, Roy O. Houff, the Chief Executive Officer
and sole stockholder of Houff, will become a Director of the Company. Mr.
Houff will enter into a two-year covenant not to compete with the Company and
its affiliates and a two-year employment agreement with the subsidiary of the
Company that operates the Houff business after the Merger. Immediately prior
to the Houff Merger, Roy Houff, the sole stockholder of Houff, will transfer
the real estate to be acquired in the Houff Merger and the indebtedness
associated therewith. Pursuant to the Merger Agreement, USA Floral may elect
not to acquire two parcels of real property which are undergoing environmental
remediation. 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. The Company intends to review the test results
of the soil samples that will be taken from the vicinity of the USTs prior to
determining whether to acquire this property. 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. If the Company elects not to acquire the property
located in Chicago, Illinois, the Merger Agreement provides that the Company
will lease such property from Roy Houff for the fair market rental value and
that the Merger consideration will be adjusted accordingly.
19
<PAGE>
CFX, INC.
USA Floral will acquire 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
will be distributed to the stockholders of CFX immediately prior to the
consummation of the CFX Merger; and (iii) 250,000 shares of Common Stock. In
connection with the CFX Merger, Dwight Haight, the President of CFX, will
become a Director of the Company. Mr. Haight will enter into a two-year
covenant not to compete with the Company and its affiliates (subject to
certain exceptions) and a two-year employment agreement with the subsidiary of
the Company that operates the CFX business after the Merger.
BAY STATE FLORIST SUPPLY, INC.
USA Floral will acquire all of the outstanding stock of Bay State in a
reverse subsidiary merger (the "Bay State Merger") for $6.0 million in cash
and 495,550 shares of Common Stock. In connection with the Bay State Merger,
William W. Rudolph, the President of Bay State, will become a Director of the
Company. Mr. Rudolph will enter into a two-year covenant not to compete with
the Company and its affiliates (subject to certain exceptions) and a two-year
employment agreement with the subsidiary of the Company that operates the Bay
State business after the Merger. Immediately prior to the consummation of the
Merger, Bay State will distribute real estate owned by Bay State to its
stockholders. Upon consummation of the Merger, Bay State will 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 will acquire all of the outstanding stock of Flower Trading in a
reverse subsidiary merger (the "Flower Trading Merger") for $5.9 million in
cash and 160,000 shares of Common Stock. In addition, the Company will assume
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, will become a Director of the Company. Mr. Moreno will enter
into a two-year covenant not to compete with the Company and its affiliates
(subject to certain exceptions) and a two-year employment agreement with the
subsidiary of the Company that operates the Flower Trading business after the
Merger.
UNITED WHOLESALE FLORISTS, INC.
USA Floral will acquire all of the outstanding stock of United Wholesale in
a reverse subsidiary merger (the "United Wholesale Merger") for $4.8 million
in cash and 268,500 shares of Common Stock. In connection with the Merger,
Raymond R. Ashmore, the President of United Wholesale, will become a Director
of the Company. Mr. Ashmore will enter into a two-year covenant not to compete
with the Company and its affiliates and a two-year employment agreement with
the subsidiary of the Company that operates the United Wholesale business
after the Merger. The Merger Agreement provides that the Company will be
granted a five-year option to purchase the real estate leased by United
Wholesale from affiliated entities. 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 will acquire all of the outstanding stock of American Florist in
a reverse subsidiary merger (the "American Florist Merger") for $4.8 million
in cash. In connection with the American Florist Merger, John T. Dickinson,
the President of American Florist, will become a Director of the Company. Mr.
Dickinson will enter into a two-year covenant not to compete with the Company
and its affiliates and a two-year employment agreement with the subsidiary of
the Company that operates the American Florist business after the Merger. In
addition, Mr. Dickinson may receive a contingent payment of up to $2.4
million, based on American Florist's earnings before interest and taxes for
the year ended December 31, 1997. The contingent payment is payable in Common
Stock. The number of shares to be issued in satisfaction of the contingent
payment will be calculated by reference to the average closing price of the
Common Stock for the ten trading days prior to December 31, 1997. The American
Florist Merger Agreement provides that, if the average closing price is less
than $10 per
20
<PAGE>
share, then the Company, at its sole option, may satisfy any contingent
payment obligation in excess of 240,000 shares by issuance of additional
shares of Common Stock, by payment of cash, or by a combination of cash and
Common Stock.
MONTEREY BAY BOUQUET, INC. AND BAY AREA BOUQUETS, INC.
USA Floral will acquire all of the outstanding stock of Monterey Bay in a
reverse subsidiary merger (the "Monterey Bay Merger") for $2.5 million in
cash. In connection with the Monterey Bay Merger, Jeffrey Brothers, the
President of Monterey Bay, will become a Director of the Company. Mr. Brothers
will enter into a two-year covenant not to compete and a two-year employment
agreement with the subsidiary of the Company that operates the Monterey Bay
business after the Merger. In addition, the stockholders of Monterey Bay may
receive a contingent payment of up to $3.5 million, based on Monterey Bay's
earnings before interest and taxes for the year ended December 31, 1997. Of
the contingent payment, $0.5 million is payable in cash and $3.0 million is
payable in Common Stock. The number of shares to be issued in satisfaction of
the contingent payment will be calculated by reference to the average closing
price of the common stock for the ten trading days prior to December 31, 1997.
The Monterey Bay Merger Agreement provides that, if the average closing price
is less than $10 per share, then the Company, at its sole option, may satisfy
any contingent payment obligation in excess of 300,000 shares by issuance of
additional shares of Common Stock, by payment of cash, or by a combination of
cash and Common Stock.
ALPINE GEM FLOWER SHIPPERS, INC.
USA Floral will acquire all of the outstanding stock of Alpine Gem in a
reverse subsidiary merger (the "Alpine Gem Merger") for (i) $1.6 million in
cash; (ii) $42,000 in cash representing the amount of Alpine Gem's accumulated
adjustments account, which will be distributed to the stockholders of Alpine
Gem immediately prior to the consummation of the Alpine Gem Merger and (ii)
160,000 shares of Common Stock. In connection with the Alpine Gem Merger, John
Q. Graham, Jr., the President of Alpine Gem, will become a Director of the
Company. Mr. Graham will enter into a two-year covenant not to compete with
the Company and its affiliates and a two-year employment agreement with the
subsidiary of the Company that operates the Alpine Gem business after the
Merger.
21
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
offered hereby, after deducting estimated underwriting discounts and other
offering expenses, all of which are payable by the Company, are estimated to be
approximately $58.2 million (approximately $67.3 million if the Underwriters'
over-allotment option is exercised in full). The principal uses of such net
proceeds to the Company are described below.
<TABLE>
<CAPTION>
USE AMOUNT
--- -------------
<S> <C>
Cash portion of Merger consideration...................... $42.4 million (1)
S Corporation distributions............................... 4.0 million
Working capital and general corporate purposes............ 11.8 million
</TABLE>
- --------
(1) Before giving effect to the receipt by the Company upon consummation of the
Mergers of approximately $1.7 million of net related party receivables.
Approximately $42.4 million of the net proceeds will be used to pay the cash
portion of the aggregate purchase price for the Founding Companies at closing
of the Mergers (before giving effect to the receipt by the Company upon
consummation of the Mergers of approximately $1.7 million of net related party
receivables). Approximately $4.0 million of the net proceeds will be used to
fund S Corporation distributions to the stockholders of certain of the Founding
Companies. Pursuant to the CFX and Alpine Gem Merger Agreements, an amount
equal to the CFX and Alpine Gem accumulated adjustments accounts will be
distributed to the stockholders of CFX and Alpine Gem, respectively,
immediately prior to the consummation of the CFX and Alpine Gem Mergers. See
"Formation of the Company--The Mergers" and "Certain Relationships and Related
Party Transactions--The Mergers."
The Company intends to use the balance of the net proceeds (approximately
$11.8 million) for working capital and general corporate purposes.
In addition, the Company anticipates that, substantially contemporaneously
with the consummation of the Offering, Jonathan J. Ledecky will exercise
options to purchase 110,000 shares of Common Stock at an exercise price per
share equal to the initial public offering price. Such exercise would result in
additional proceeds to the Company of approximately $1.4 million, which the
Company intends to apply to working capital and general corporate purposes.
Pending the application of any such additional proceeds or any of the net
proceeds of the Offering as described above, the Company intends to invest any
such amounts in short-term investment grade securities.
DIVIDEND POLICY
The Company does not anticipate paying any cash dividends on its Common Stock
in the foreseeable future because it intends to retain its earnings, if any, to
finance the expansion of its business and for general corporate purposes. Any
payment of future dividends will be at the discretion of the Board of Directors
and will depend upon, among other factors, the Company's earnings, financial
condition, capital requirements, level of indebtedness, contractual
restrictions with respect to the payment of dividends and other considerations
that the Company's Board of Directors deems relevant.
22
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at June 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 sale of shares
of Common Stock offered hereby at an initial public offering price of $13.00
per share and the issuance of 110,000 shares expected to be issued upon
exercise of an option to be granted to Jonathan J. Ledecky on the effective
date of the registration statement of which this Prospectus forms a part, at
an exercise price equal to the initial public offering price per share, which
option is being granted to facilitate the treatment of the issuance of shares
in the Mergers as a tax-free exchange under Section 351 of the Internal
Revenue Code, and the application of the estimated net proceeds therefrom. See
"Selected Financial Data of the Founding Companies" and "Use of Proceeds."
This table should be read in conjunction with the Unaudited Pro Forma Combined
Financial Statements and the notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1997
------------------------
PRO FORMA
COMBINED AS ADJUSTED(1)
--------- --------------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt and current portion of long-term
debt................................................ $ 3,540 $ 3,540
======= =======
Long-term debt and capital lease obligations, less
current portion..................................... 3,569 3,569
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 9
Additional paid-in capital........................... 17,695 77,320
Retained deficit..................................... (30) (30)
------- -------
Total stockholders' equity......................... 17,669 77,299
------- -------
Total capitalization............................... $21,238 $80,868
======= =======
</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 be granted to Jonathan J. Ledecky, the
Company's Non-Executive Chairman of the Board) will be granted upon
consummation of the Offering at an exercise price equal to the initial
public offering price per share, and options to purchase 125,000 shares of
Common Stock will be granted upon consummation of the Offering at an
exercise price equal to $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 will be granted upon consummation of the Offering at an
exercise price equal to the initial public offering price 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," "--
1997 Non-Employee Directors' Stock Plan" and "--Other Plans" and
"Principal Stockholders."
23
<PAGE>
DILUTION
The Company had a pro forma net tangible book value deficit at June 30,
1997, of $26.4 million, or a deficit of $7.07 per share of Common Stock. Pro
forma net tangible book value per share is determined by dividing the pro
forma net tangible book value of the Company (tangible assets less
liabilities) by the number of shares of Common Stock outstanding prior to the
Offering of 3,734,050. Adjusting for the issuance of 110,000 shares pursuant
to the anticipated exercise by Mr. Ledecky of an option to purchase shares of
Common Stock at $13.00 and the sale by the Company of 5,000,000 shares of
Common Stock offered hereby at an initial public offering price of $13.00 per
share, and the application of the estimated net proceeds therefrom as
described under "Use of Proceeds," the pro forma net tangible book value of
the Company, as adjusted, at June 30, 1997 would have been $33.2 million, or
$3.76 per share. This amount represents an immediate dilution to new investors
of $9.24 per share and an immediate increase in pro forma as adjusted net
tangible book value per share to existing stockholders of $10.83 per share.
The following table illustrates this per share dilution to new investors:
<TABLE>
<S> <C> <C>
Initial public offering price per share..................... $13.00
Pro forma net tangible book value per share at June 30,
1997..................................................... $(7.07)
Increase in pro forma net tangible book value per share
resulting from the Offering............................. 10.83
------
Pro forma as adjusted net tangible book value per share af-
ter the Mergers and the Offering........................... 3.76
------
Pro forma as adjusted dilution to new investors............. $ 9.24
======
</TABLE>
If the Underwriters' over-allotment option is exercised in full, the
increase in pro forma net tangible book value per share attributable to the
Offering, pro forma as adjusted net tangible book value per share after the
Offering, and pro forma as adjusted dilution per share to new investors would
be $11.48, $4.41 and $8.59, respectively.
The following table sets forth at June 30, 1997, after giving effect to the
Mergers and the sale of the Common Stock offered by the Company in the
Offering: (i) the number of shares of Common Stock purchased by existing
stockholders from the Company and the total consideration (including the fair
value of the shares of Common Stock issued to the Sellers) and the average
price per share paid to the Company for such shares; (ii) the number of shares
of Common Stock purchased by new investors in the Offering from the Company
and the total consideration and the price per share paid by them for such
shares; and (iii) the percentage of shares purchased from the Company by
existing stockholders and the new investors and the percentages of
consideration paid to the Company for such shares by existing stockholders and
new investors.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
----------------- ------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing
stockholders(1)........ 3,734,050 42% $17,744,650 21% $ 4.75
Exercise of options by
Mr. Ledecky(2)......... 110,000 1 $ 1,430,000 2 $13.00
New investors........... 5,000,000 57 $65,000,000 77 $13.00
--------- --- ----------- ---
Total................. 8,844,050 100% $84,174,650 100%
========= === =========== ===
</TABLE>
- --------
(1) Includes shares issuable upon the consummation of the Mergers. 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 872,753 shares of Common Stock (including options to
24
<PAGE>
purchase 200,000 shares to be granted to Jonathan J. Ledecky, the Company's
Non-Executive Chairman of the Board) will be granted upon consummation of
the Offering at an exercise price equal to the initial public offering
price per share, and options to purchase 125,000 shares of Common Stock
will be granted upon consummation of the Offering at an exercise price
equal to $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 will be granted
upon consummation of the Offering at an exercise price equal to the initial
public offering price 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," "--1997 Non-Employee Directors' Stock Plan" and "--
Other Plans" and "Principal Stockholders."
(2) Consists of 110,000 shares expected to be issued upon exercise of an
option to be granted to Jonathan J. Ledecky on the effective date of the
registration statement of which this Prospectus forms a part, at an
exercise price equal to the initial public offering price per share, which
option is being granted to facilitate the treatment of the issuance of
shares in the Mergers as a tax-free exchange under Section 351 of the
Internal Revenue Code.
25
<PAGE>
SELECTED PRO FORMA COMBINED FINANCIAL DATA
USA Floral was established in April 1997 to acquire the Founding Companies
simultaneously with and as a condition to the consummation of this Offering.
For financial statement presentation purposes, USA Floral has been identified
as the "accounting acquiror." The following unaudited summary pro forma
combined financial data present data for the Company, adjusted to give effect
to (i) the consummation of the Mergers, (ii) certain pro forma adjustments to
the historical financial statements described below and (iii) the consummation
of the Offering and the application of the net proceeds therefrom. The
selected pro forma data are not necessarily indicative of operating results or
financial position that would have been achieved had the events described
above been consummated and should not be construed as representative of future
operating results or financial position. The selected pro forma combined
financial data should be read in conjunction with the Unaudited Pro Forma
Combined Financial Statements and the notes thereto and the historical
financial statements of the Founding Companies and the notes thereto included
elsewhere in this Prospectus. The Company anticipates that following the
Mergers it will realize savings from the following: more favorable discounts
and rebates on hardgood products than those currently obtained individually by
the Founding Companies; the combination of functions such as accounting and
finance, insurance, employee benefits, strategic marketing and legal support
at the corporate level; and, to a lesser extent, reduced transportation and
handling costs on perishable floral products. However, these savings cannot be
quantified or reasonably estimated and have not been included in the selected
pro forma combined financial data.
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED JUNE 30,
DECEMBER 31, --------------------------------
1996 1996 1997
--------------------------------- ---------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DA-
TA(1):
Net sales.................. $ 175,467 $ 97,269 $ 103,015
Gross profit(2)............ 49,247 27,146 29,378
Selling, general and admin-
istrative expense(3)...... 43,309 21,574 22,091
Goodwill amortization(4)... 1,090 545 545
--------------- --------------- ---------------
Operating income........... 4,848 5,027 6,742
Interest and other (income)
expense, net(5)........... (141) (211) (76)
--------------- --------------- ---------------
Income before income tax-
es........................ 4,989 5,238 6,818
--------------- --------------- ---------------
Net income(6).............. $ 2,557 $ 2,925 $ 3,873
=============== =============== ===============
Net income per share...... $ .33 $ .38 $ .50
=============== =============== ===============
Shares used in computing
net income per share(7).. 7,738,819 7,738,819 7,738,819
=============== =============== ===============
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, 1997
-----------------------------
PRO FORMA
COMBINED AS ADJUSTED(9)
--------- --------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA(8):
Working capital.................................... $(33,717)(10) $ 25,913
Total assets....................................... 85,774 100,367
Total long-term debt............................... 3,569 3,569
Stockholders' equity............................... 17,669 77,299
</TABLE>
- --------
(1) The pro forma combined statement of operations data assume that the
Mergers and the Offering were consummated on January 1, 1996.
(2) Reflects the reduction in costs of sales of $579,000 for the year ended
December 31, 1996 and $290,000 and $300,000 for the six-month periods
ended June 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.
26
<PAGE>
(3) The pro forma combined statement of operations data reflect an aggregate
of approximately (i) $3.6 million, $2.7 million and $403,000 for the year
ended December 31, 1996 and the six-month periods ended June 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 prospectively in the employment agreements to be entered into upon
consummation of the Offering (the "Compensation Differential"), (ii) a
net reduction of lease-related expenses of $367,000 for the year ended
December 31, 1996 and $183,000 for each of the six-month periods ended
June 30, 1996 and 1997, pursuant to real estate acquired, real estate
distributed and amendment of associated lease agreements in connection
with the Mergers, (iii) an increase of $500,000, $250,000 and $220,000
for the year ended December 31, 1996, and for the six-month periods ended
June 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 six-month periods ended June 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 six-month periods ended
June 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 to be issued to stockholders of the
Founding Companies, (ii) 2,400,000 shares issued to the founders and
initial investors in USA Floral, (iii) 3,956,692 of the 5,000,000 shares
sold in the Offering to pay the cash portion of the Merger consideration,
to fund S Corporation distributions to stockholders of certain of the
Founding Companies, and to pay certain expenses of the Offering, and (iv)
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 June 30, 1997. Prior to the Mergers, Bay State will
distribute to its stockholders certain real estate having a net book
value of $842,000. Additionally, in conjunction with the Mergers certain
real estate will be acquired and certain associated debt assumed.
(9) Adjusted to reflect the sale of the 5,000,000 shares of Common Stock
offered hereby 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 per share.
(10) Includes $44.6 million payable to stockholders of the Founding Companies,
representing the cash portion of the Merger consideration to be paid from
a portion of the net proceeds of the Offering, plus S Corporation
distributions to be made to the stockholders of certain of the Founding
Companies, less the amount to be received by the Company upon
consummation of the Mergers in repayment of net related party
receivables. See "Use of Proceeds" and "Notes to Unaudited Pro Forma
Combined Financial Statements."
27
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF PRO FORMA COMBINED FINANCIAL
CONDITION AND PRO FORMA COMBINED RESULTS OF OPERATIONS
GENERAL
USA Floral was founded in April 1997 to create a national consolidator and
operator of floral products distribution businesses. The Company engages
primarily in the wholesale distribution of perishable floral products and
floral-related hardgoods. The Company also imports cut flowers from growers in
foreign countries, provides pre-packaged floral bouquets and arrangements to
retail florists and mass-market retailers and engages in brokerage services
for wholesalers of both foreign and domestic cut flowers.
The Company, which has conducted no operations to date, has entered into
agreements to acquire the Founding Companies simultaneously with the
consummation of the Offering. The Founding Companies have been operating
independently. The Company intends to integrate these businesses, their
operations and their administrative functions over a period of time. Such
integration may present opportunities to reduce costs through the elimination
of duplicate functions and through economies of scale, and may necessitate
additional costs and expenditures for corporate management and administration,
corporate expenses related to being a public company, systems integration,
employee relocation and severance and facilities expansion. These various
costs and possible cost-savings may make comparison of future operating
results with historical operating results difficult.
The Company derives its revenues from the sale of perishable floral products
and floral-related hardgoods. Sales of perishable products, which include cut
flowers, bouquets and potted plants, accounted for approximately 90% of the
Company's pro forma combined revenues in 1996. Sales of floral-related
hardgoods, which include vases and glassware, foam for flower arranging, tools
and other supplies accounted for approximately 10% of the pro forma combined
revenues in 1996.
Net sales are recognized upon the shipment of products to customers. Cost of
sales generally includes the cost of perishable products and floral-related
hardgoods plus the cost of in-bound freight. Although the Company generally
does not enter into long-term contracts with its suppliers, it does conduct
business on a fixed-price "standing order" basis with certain importers in
order to insure an adequate supply of flowers during periods of peak demand.
In general, the Founding Companies have been able to pass on most of their
direct price increases to customers. Selling, general and administrative costs
include warehouse and customer delivery expenses, employee salaries, telephone
expenses, advertising and promotional expenses, wages and benefits,
depreciation and occupancy costs.
The Founding Companies have operated historically as independent, privately-
owned entities, and their results of operations reflect varying tax
structures, including both S and C Corporations, which have influenced the
historical level of owners' compensation. The selling, general and
administrative expenses of the Founding Companies include compensation to
employee-stockholders totaling $3.5 million, $3.8 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. Upon consummation of the Mergers, certain employee-stockholders
will enter into employment agreements and the aggregate compensation paid to
the stockholders of the Founding Companies will be reduced. 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.
28
<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>
SIX MONTHS ENDED JUNE 30,
-----------------------------
1996 1997
------------- --------------
<S> <C> <C> <C> <C>
Net Sales....................................... $97,269 100.0% $103,015 100.0%
Cost of Sales................................... 70,123 72.1 73,637 71.5
Selling, General and Administrative Expenses.... 21,574 22.2 22,091 21.4
Goodwill........................................ 545 0.6 545 0.5
------- ----- -------- -----
Operating Income................................ $ 5,027 5.2% $ 6,742 6.6%
======= ===== ======== =====
</TABLE>
Six Months Ended June 30, 1997 Compared to Six Months Ended June 30, 1996
Net Sales. Net sales increased to $103.0 million in the six months ended
June 30, 1997 from $97.3 million in the six months ended June 30, 1996, an
increase of $5.7 million, or 5.9%. 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 $2.0 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 $73.6 million in the six months
ended June 30, 1997 from $70.1 million in the six months ended June 30, 1996,
an increase of $3.5 million, or 5.0%, primarily as a result of the increased
sales. As a percentage of net sales, cost of sales decreased to 71.5% in the
six months ended June 30, 1997 from 72.1% in the six months ended June 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 $22.1 million in the six months ended June 30, 1997 from
$21.6 million in the six months ended June 30, 1996, an increase of $0.5
million, or 2.4%. 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 21.4% in the six months ended
June 30, 1997 from 22.2% in the six months ended June 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 $6.7 million in the six months ended June 30, 1997 from
$5.0 million in the six months ended June 30, 1996, an increase of $1.7
million, or 34.1%. As a percentage of net sales, operating income increased to
6.6% in the six months ended June 30, 1997 from 5.2% in the six months ended
June 30, 1996.
PRO FORMA RESULTS OF OPERATIONS OF THE FOUNDING COMPANIES
The following tables provide the pro forma operating results for the year
ended December 31, 1996 and the six-month periods ended June 30, 1996 and 1997
for each of the respective Founding Companies. 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
that the owners of the Founding Companies have agreed prospectively to
reductions in salary, bonuses and benefits, these reductions have been
reflected in the pro forma combined statement of operations. Additionally, pro
forma operating income has been adjusted for other items directly attributable
to the transaction and reflects the estimated amortization of goodwill
recorded in connection with the Mergers.
29
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
------------------------------------------------------------------
BAY FLOWER UNITED AMERICAN MONTEREY ALPINE
HOUFF CFX STATE TRADING WHOLESALE FLORIST BAY GEM
------- ------- ------- ------- --------- -------- -------- ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales............... $39,090 $35,684 $30,563 $20,313 $19,327 $11,679 $9,477 $9,334
Cost of sales........... 25,537 28,190 20,722 15,335 12,751 8,268 8,285 7,132
------- ------- ------- ------- ------- ------- ------ ------
Gross profit............ 13,553 7,494 9,841 4,978 6,576 3,411 1,192 2,202
Selling, general and
administrative......... 12,142 6,327 8,844 4,026 5,788 2,658 930 1,938
Goodwill amortization... 157 196 202 162 148 101 48 76
------- ------- ------- ------- ------- ------- ------ ------
Income from
operations............ $ 1,254 $ 971 $ 795 $ 790 $ 640 $ 652 $ 214 $ 188
======= ======= ======= ======= ======= ======= ====== ======
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1996
------------------------------------------------------------------
BAY FLOWER UNITED AMERICAN MONTEREY ALPINE
HOUFF CFX STATE TRADING WHOLESALE FLORIST BAY GEM
------- ------- ------- ------- --------- -------- -------- ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales............... $22,165 $20,585 $16,412 $11,305 $10,552 $6,444 $4,827 $4,979
Cost of sales........... 14,693 16,031 11,279 8,638 7,018 4,458 4,166 3,840
------- ------- ------- ------- ------- ------ ------ ------
Gross profit............ 7,472 4,554 5,133 2,667 3,534 1,986 661 1,139
Selling, general and
administrative......... 6,210 3,014 4,353 1,929 3,109 1,389 404 838
Goodwill amortization... 78 98 101 81 74 51 24 38
------- ------- ------- ------- ------- ------ ------ ------
Income from
operations............ $ 1,184 $ 1,442 $ 679 $ 657 $ 351 $ 546 $ 233 $ 263
======= ======= ======= ======= ======= ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1997
------------------------------------------------------------------
BAY FLOWER UNITED AMERICAN MONTEREY ALPINE
HOUFF CFX STATE TRADING WHOLESALE FLORIST BAY GEM
------- ------- ------- ------- --------- -------- -------- ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales............... $20,410 $22,854 $16,375 $12,997 $10,897 $7,082 $6,803 $5,597
Cost of sales........... 13,204 17,759 11,080 9,839 7,128 4,793 5,575 4,259
------- ------- ------- ------- ------- ------ ------ ------
Gross profit............ 7,206 5,095 5,295 3,158 3,769 2,289 1,228 1,338
Selling, general and
administrative......... 5,651 3,549 4,498 1,920 3,100 1,547 563 934
Goodwill amortization... 78 98 101 81 74 51 24 38
------- ------- ------- ------- ------- ------ ------ ------
Income from
operations............ $ 1,477 $ 1,448 $ 696 $ 1,157 $ 595 $ 691 $ 641 $ 366
======= ======= ======= ======= ======= ====== ====== ======
</TABLE>
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.
30
<PAGE>
In September 1997, the Company received the commitment of BT to provide 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. Amounts
outstanding under the Credit Facility are to bear interest, at the Company's
option, at 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 to be guaranteed by the direct and
indirect domestic subsidiaries of the Company and by any applicable foreign
subsidiaries. The Credit Facility is to be 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. Pursuant to the BT commitment, the Credit
Facility is to contain 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 is to contain 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 will be obligated to pay a financing fee equal to
1.5% of the total amount of the Credit Facility, an annual administration fee
of $75,000, a commitment fee of 0.25% per year on BT's total commitment under
the Credit Facility in effect from time to time from the date of BT's
commitment until the Credit Facility is entered into, 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 is entered into, and a fee equal
to 0.75% of the total commitment under the Credit Facility in the event that
the Credit Facility is not entered into simultaneously with the consummation
of the Offering and the Mergers. 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, $.4 million and
$.7 million, respectively. United Wholesale's capital expenditures were $.3
million, $.3 million and $.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. Although the Company is not currently involved in negotiations
and has no current commitments or agreements with respect to any acquisitions
(other than the Mergers), to the extent that the Company is successful in
consummating acquisitions, it may be necessary to finance such acquisitions
through the issuance of additional equity securities, incurrence of
indebtedness or a combination of both.
SEASONALITY AND CYCLICALITY; 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 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
31
<PAGE>
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>
32
<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 for the six
months ended June 30, 1996 and 1997 have been derived from the unaudited
financial statements included elsewhere herein. Such selected financial data
are not necessarily indicative of the results to be expected for the full
year.
In the opinion of the Company, the unaudited financial statements of the
Founding Companies reflect all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the financial
position and results of operations of the Founding Companies for those periods
in accordance with generally accepted accounting principles. The following
selected financial data of the Founding Companies should be read in
conjunction with the historical financial statements and notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of the Founding Companies" included elsewhere in this Prospectus.
All Founding Companies have fiscal years ending December 31, with the
exception of United Wholesale, whose fiscal year end is June 30.
33
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEAR ENDED DECEMBER 31, JUNE 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 $ 22,165 $ 20,410
Cost of sales........... 20,754 21,707 26,683 27,899 25,537 14,693 13,204
Selling, general and
administrative
expenses............... 9,654 10,091 11,617 12,695 12,789 6,533 5,924
Operating income........ 984 608 798 937 764 939 1,282
Net income.............. 1,139 784 991 1,068 775 1,043 1,299
CFX
Net sales............... $27,317 $26,736 $30,590 $32,096 $35,684 $ 20,585 $ 22,854
Cost of sales........... 20,356 19,976 23,839 24,328 28,190 16,031 17,759
Selling, general and
administrative
expenses............... 6,313 6,137 6,266 6,773 8,956 5,249 3,657
Operating income
(loss)................. 648 623 485 995 (1,462) (695) 1,438
Net income (loss)....... 881 721 355 1,538 (1,247) (551) 1,497
BAY STATE
Net sales............... $16,063 $17,979 $19,203 $25,592 $30,563 $ 16,412 $ 16,375
Cost of sales........... 10,919 12,040 12,807 17,068 20,722 11,279 11,080
Selling, general and
administrative
expenses............... 4,599 5,126 5,529 7,579 8,976 4,429 4,556
Operating income........ 545 813 867 945 865 704 739
Net income.............. 736 938 958 1,119 1,033 701 757
FLOWER TRADING
Net sales............... $15,145 $17,246 $18,478 $20,335 $20,313 $ 11,305 $ 12,997
Cost of sales........... 11,802 13,676 14,452 15,921 15,914 8,928 10,139
Selling, general and
administrative
expenses............... 2,789 3,292 3,605 4,068 4,142 1,944 1,936
Operating income........ 553 278 421 346 257 433 922
Net income.............. 415 196 301 130 62 253 545
AMERICAN FLORIST (1)
Net sales............... -- -- $ 6,293 $10,783 $11,679 $ 6,444 $ 7,082
Cost of sales........... -- -- 4,579 7,788 8,268 4,458 4,793
Selling, general and
administrative
expenses............... -- -- 1,545 2,531 2,723 1,421 1,579
Operating income........ -- -- 169 464 688 565 710
Net income.............. -- -- 132 423 683 561 711
MONTEREY BAY (2)
Net sales............... -- $ 2,615 $ 4,253 $ 6,903 $ 9,477 $ 4,827 $ 6,803
Cost of sales........... -- 2,259 3,773 5,959 8,285 4,166 5,575
Selling, general and
administrative
expenses............... -- 301 458 910 1,113 496 563
Operating income........ -- 55 22 34 79 165 665
Net income.............. -- 38 19 20 48 100 367
ALPINE GEM
Net sales............... $ 3,476 $ 4,547 $ 7,252 $ 8,139 $ 9,334 $ 4,979 $ 5,597
Cost of sales........... 2,710 3,448 5,438 6,287 7,132 3,840 4,259
Selling, general and
administrative
expenses............... 697 813 1,320 1,526 1,868 802 902
Operating income........ 69 286 494 326 334 337 436
Net income.............. 78 315 524 224 233 356 462
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
---------------------------------------
1993 1994 1995 1996 1997
------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
UNITED WHOLESALE (3)
Net sales............... $18,508 $18,541 $17,985 $19,030 $19,673
Cost of sales........... 12,250 12,042 11,556 12,563 12,862
Selling, general and
administrative
expenses............... 5,401 6,162 5,926 6,101 6,046
Operating income........ 286 337 503 366 765
Net income.............. 6 54 187 144 482
</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.
34
<PAGE>
<TABLE>
<CAPTION>
AS OF FISCAL YEAR END DECEMBER 31,
---------------------------------- AS OF
1992 1993 1994 1995 1996 JUNE 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 $6,494
Debt......................... -- -- 76 -- 450 390
Equity....................... 2,095 2,159 2,285 1,974 2,006 2,464
CFX
Total assets................. $5,903 $5,826 $7,519 $7,342 $6,474 $8,027
Debt......................... 159 81 -- -- 21 12
Equity....................... 3,474 3,428 3,783 5,280 3,737 5,234
BAY STATE
Total assets................. $5,826 $6,076 $6,727 $7,657 $8,511 $9,110
Debt......................... -- -- -- 412 358 396
Equity....................... 4,309 4,504 4,697 5,032 5,466 5,566
FLOWER TRADING
Total assets................. $3,232 $3,483 $3,662 $3,615 $3,651 $4,211
Debt......................... -- 126 51 8 391 339
Equity....................... 1,456 1,693 1,994 2,124 1,470 2,015
AMERICAN FLORIST (1)
Total assets................. -- -- $1,878 $2,136 $2,438 $2,580
Debt......................... -- -- -- 598 598 598
Equity....................... -- -- 532 650 628 1,040
MONTEREY BAY(2)
Total assets................. -- $ 547 $ 797 $1,101 $1,321 $1,791
Debt......................... -- 13 23 30 24 36
Equity....................... -- 116 135 181 229 596
ALPINE GEM
Total assets................. $ 686 $ 872 $1,110 $1,269 $1,260 $1,615
Debt......................... -- -- -- -- -- --
Equity....................... 420 488 668 749 609 770
<CAPTION>
AS OF FISCAL YEAR END JUNE 30,
----------------------------------
1993 1994 1995 1996 1997
------ ------ ------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
UNITED WHOLESALE (3)
Total assets................. $6,061 $5,968 $6,076 $6,789 $7,752
Debt......................... 1,019 645 1,265 961 356
Equity....................... 1,283 1,376 1,564 1,708 2,190
</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.
35
<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. The selling, general
and administrative expenses of the Founding Companies include compensation to
employee-stockholders of the Founding Companies 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. Upon consummation of the Mergers, certain employee-stockholders
will enter into employment agreements and the aggregate compensation paid to
stockholders of the Founding Companies will be reduced. As a result of varying
practices regarding compensation to employee-stockholders among the Founding
Companies, the comparison of operating margins among the Founding Companies
and from period to period in respect of a particular Founding Company may be
difficult.
THE ROY HOUFF COMPANY
Founded in 1977, Houff is a wholesale distributor of perishable floral
products and floral-related hardgoods. Perishable floral products, which
include flowers, plants and other greenery, accounted for approximately 84% of
sales, while floral-related hardgoods, which include products such as vases,
ribbons and balloons, accounted for approximately 16% of sales in fiscal year
1996. Houff operates from seven locations in Illinois, Virginia and Arizona.
Houff has approximately 270 employees and sells its products to approximately
3,000 customers.
Houff experienced a number of facility changes during the three-year period
ended December 31, 1996. In January 1994, Houff acquired a distressed
wholesale distribution facility in Atlanta, Georgia, which Houff believed it
could return to profitability. The Atlanta facility did not adequately meet
Houff's financial performance expectations and was closed in October 1996.
Houff also began a shipping business in January 1994 to provide shipping
services for smaller wholesalers. This business was discontinued in February
1996 due to a declining customer base. In October 1995, Houff opened a new
wholesale distribution facility in Phoenix, Arizona.
RESULTS OF OPERATIONS
The following table sets forth selected financial data and data as a
percentage of net sales for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 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% $22,165 100.0% $20,410 100.0%
Cost of Sales........... 26,683 68.2 27,899 67.2 25,537 65.3 14,693 66.3 13,204 64.7
Selling, General and
Administrative
Expenses............... 11,617 29.7 12,695 30.6 12,789 32.7 6,533 29.5 5,924 29.0
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Operating Income........ $ 798 2.0% $ 937 2.3% $ 764 2.0% $ 939 4.2% $ 1,282 6.3%
======= ===== ======= ===== ======= ===== ======= ===== ======= =====
</TABLE>
36
<PAGE>
Six Months Ended June 30, 1997 Compared to Six Months Ended June 30, 1996
Net Sales. Net sales decreased to $20.4 million in the six months ended June
30, 1997 from $22.2 million in the six months ended June 30, 1996, a decrease
of $1.8 million, or 7.9%. This decrease resulted from the closing of Houff's
wholesale distribution facility in Atlanta, Georgia in October 1996, which
accounted for $2.0 million in net sales in the six months ended June 30, 1996,
partially offset by increases in other locations.
Cost of Sales. Cost of sales, which consists of perishable and hardgood
products and in-bound freight costs, decreased to $13.2 million in the six
months ended June 30, 1997 from $14.7 million in the six months ended June 30,
1996, a decrease of $1.5 million, or 10.1%. As a percentage of net sales,
costs of sales decreased to 64.7% in the six months ended June 30, 1997 from
66.3% in the six months ended June 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 $5.9 million in the six months ended June 30, 1997 from
$6.5 million in the six months ended June 30, 1996, a decrease of $0.6
million, or 9.3%. As a percentage of net sales, selling general and
administrative expenses decreased to 29.0% in the six months ended June 30,
1997 from 29.5% in the six months ended June 30, 1996. This decrease resulted
from the closing of Houff's wholesale distribution facility in Atlanta,
Georgia in October 1996.
Operating Income. As a result of the factors discussed above, operating
income increased to $1.3 million in the six months ended June 30, 1997 from
$0.9 million in the six months ended June 30, 1997, an increase of $0.3
million, or 36.5%. As a percentage of net sales, operating income increased to
6.3% in the six months ended June 30, 1997 from 4.2% in the six months ended
June 30, 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.
37
<PAGE>
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Net Sales. Net sales increased to $41.5 million in the year ended December
31, 1995 from $39.1 million in the year ended December 31, 1994, an increase
of $2.4 million, or 6.2%. The increase in net sales resulted from increased
revenues from the shipping business, increased sales for Valentine's Day in
1995, three months of revenues from the Phoenix, Arizona facility, which
opened in October 1995 and increased sales at other facilities.
Cost of Sales. Cost of sales increased to $27.9 million in the year ended
December 31, 1995 from $26.7 million in the year ended December 31, 1994, an
increase of $1.2 million, or 4.6%, primarily as a result of increased sales.
As a percentage of net sales, cost of sales decreased to 67.2% for the year
ended December 31, 1995 from 68.2% for the year ended December 31, 1994, due
to management changes and the implementation of more aggressive purchasing and
sales policies.
Selling, General and Administrative. Selling, general and administrative
expenses increased to $12.7 million in the year ended December 31, 1995, from
$11.6 million in the year ended December 31, 1994, an increase of $1.1
million, or 9.3%. As a percentage of net sales, selling, general and
administrative expenses increased to 30.6% in the year ended December 31, 1995
from 29.7% in the year ended December 31, 1994. This increase resulted from an
increase in personnel and facilities costs attributable to the shipping
business, the Atlanta, Georgia facility and the Phoenix, Arizona facility.
Operating Income. As a result of the factors discussed above, operating
income increased to $0.9 million in the year ended December 31, 1995 from $0.8
million in the year ended December 31, 1994, an increase of $0.1 million or
17.4%. As a percentage of net sales, operating income increased to 2.3% in the
year ended December 31, 1995 from 2.0% in the year ended December 31, 1994.
38
<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 are being acquired in connection with the
CFX Merger. The Company intends to renegotiate, as necessary, all arrangements
with related parties so that all continuing obligations of CFX thereunder are
no greater than those the Company would agree to with unaffiliated third
parties. See "Certain Relationships and Related Party Transactions--CFX." CFX
has approximately 110 employees.
CFX imposes a surcharge upon certain flowers that are or may become subject
to an anti-dumping duty and reserves that amount against the possibility that
a duty will be imposed. The Commerce Department is currently reviewing two
anti-dumping cases, three anti-dumping cases are pending judicial appeal and
additional cases may be initiated at any time.
RESULTS OF OPERATIONS
The following table sets forth selected financial data and data as a
percentage of net sales for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 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% $20,585 100.0% $22,854 100.0%
Cost of Sales........... 23,839 77.9 24,328 75.8 28,190 79.0 16,031 77.9 17,759 77.7
Selling, General and
Administrative
Expenses............... 6,266 20.5 6,773 21.1 8,956 25.1 5,249 25.5 3,657 16.0
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Operating Income
(Loss)................. $ 485 1.6% $ 995 3.1% $(1,462) (4.1)% $ (695) (3.4)% $ 1,438 6.3%
======= ===== ======= ===== ======= ===== ======= ===== ======= =====
</TABLE>
Six Months Ended June 30, 1997 Compared to Six Months Ended June 30, 1996
Net Sales. Net sales increased to $22.9 million in the six months ended June
30, 1997 from $20.6 million in the six months ended June 30, 1996, an increase
of $2.3 million, or 11.0%. This increase resulted primarily from obtaining
higher prices for certain products, increased volume of sales 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 $17.8 million in the six months ended June 30, 1997
from $16.0 million in the six months ended June 30, 1996, an increase of $1.7
million, or 10.8%, 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 77.7% in the six months ended June 30, 1997 from 77.9% in
the six months ended June 30, 1996.
Selling, General and Administrative. Selling, general and administrative
expenses decreased to $3.7 million in the six months ended June 30, 1997 from
$5.2 million in the six months ended June 30, 1996, a decrease of $1.6
million, or 30.3%. This decrease resulted from decreased compensation to
employee-stockholders, partially offset by increases in personnel and
occupancy costs. As a percentage of net sales, selling,
39
<PAGE>
general and administrative expenses decreased to 16.0% in the six months ended
June 30, 1997 from 25.5% in the six months ended June 30, 1996. Selling,
general and administrative expenses included compensation paid to employee-
stockholders totaling $0.3 million in the six months ended June 30, 1997 and
$2.4 million in the six months ended June 30, 1996.
Operating Income. As a result of the factors discussed above, operating
income increased to $1.4 million in the six months ended June 30, 1997 from
($0.7) million in the six months ended June 30, 1996, an increase of $2.1
million. As a percentage of net sales, operating income increased to 6.3% in
the six months ended June 30, 1997 from (3.4%) in the six months ended June
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
40
<PAGE>
increase of $0.5 million, or 8.1%. This increase primarily resulted from an
increase in personnel costs as well as increased contributions to CFX's profit
sharing plan. As a percentage of net sales, selling, general and
administrative expenses increased to 21.1% in the year ended December 31, 1995
from 20.5% in the year ended December 31, 1994. Selling, general and
administrative expenses include compensation paid to stockholder-employees
totaling $1.4 million in the year ended December 31, 1995 and $1.3 million in
the year ended December 31, 1994.
Operating Income. As a result of the factors discussed above, operating
income increased to $1.0 million in the year ended December 31, 1995 from $0.5
million in the year ended December 31, 1994, an increase of $0.5 million, or
105.2% As a percentage of net sales, operating income increased to 3.1% in the
year ended December 31, 1995 from 1.6% in the year ended December 31, 1994.
41
<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, SIX MONTHS ENDED JUNE 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% $16,412 100.0% $16,375 100.0%
Cost of Sales........... 12,807 66.7 17,068 66.7 20,722 67.8 11,279 68.7 11,080 67.7
Selling, General and
Administrative
Expenses............... 5,529 28.8 7,579 29.6 8,976 29.4 4,429 27.0 4,556 27.8
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Operating Income........ $ 867 4.5% $ 945 3.7% $ 865 2.8% $ 704 4.3% $ 739 4.5%
======= ===== ======= ===== ======= ===== ======= ===== ======= =====
</TABLE>
Six Months Ended June 30, 1997 Compared to Six Months Ended June 30, 1996
Net Sales. Net sales were $16.4 million in the six months ended June 30,
1997 and the six months ended June 30, 1996. Net sales remained relatively
unchanged due to a reduction in sales to a supermarket chain in the six months
ended June 30, 1997. The supermarket chain, which accounted for $0.6 million
of net sales in the six months ended June 30, 1997 and $1.6 million of net
sales in the six months ended June 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 $11.1 million in
the six months ended June 30, 1997 from $11.3 million in the six months ended
June 30, 1996, a decrease of $0.2 million, or 1.8%. As a percentage of net
sales, cost of sales decreased to 67.7% in the six months ended June 30, 1997
from 68.7% in the six months ended June 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 increased to $4.6 million in the six months ended June 30, 1997 from
$4.4 million in the six months ended June 30, 1996, an increase of $0.1
million, or 2.9%. As a percentage of net sales, selling, general and
administrative expenses increased to 27.8% in the six months ended June 30,
1997 from 27.0% in the six months ended June 30, 1996. This increase primarily
resulted from increased compensation and benefit expenses.
Operating Income. As a result of the factors discussed above, operating
income was $0.7 million in the six months ended June 30, 1997 and the six
months ended June 30, 1996. As a percentage of net sales, operating income
increased to 4.5% in the six months ended June 30, 1997 from 4.3% in the six
months ended June 30, 1996.
42
<PAGE>
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Net Sales. Net sales increased to $30.6 million in the year ended December
31, 1996 from $25.6 million in the year ended December 31, 1995, an increase
of $5.0 million, or 19.4%. This increase resulted primarily from the
acquisition of a wholesale distributor in Clifton Park, New York in 1996,
which accounted for $2.5 million in net sales in 1996, increased sales from
the Providence, Rhode Island facility, which accounted for $1.5 million of the
increase, and increased sales from other locations.
Cost of Sales. Cost of sales increased to $20.7 million in the year ended
December 31, 1996 from $17.1 million in the year ended December 31, 1995, an
increase of $3.7 million, or 21.4%, primarily as a result of increased sales.
As a percentage of net sales, cost of sales increased to 67.8% in the year
ended December 31, 1996 from 66.7% in the year ended December 31, 1995.
Selling, General and Administrative. Selling, general and administrative
expenses increased to $9.0 million in the year ended December 31, 1996 from
$7.6 million in the year ended December 31, 1995, an increase of $1.4 million,
or 18.4%. This increase resulted primarily from costs and expenses associated
with the new Clifton Park, New York 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.
43
<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 are not
being acquired in connection with the Flower Trading Merger. Flower Trading
imposes a surcharge upon certain flowers that are or may become subject to an
anti-dumping liability and reserves that amount against the possibility that a
duty will be imposed.
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, SIX MONTHS ENDED JUNE 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% $11,305 100.0% $12,997 100.0%
Cost of Sales........... 14,452 78.2 15,921 78.3 15,914 78.3 8,928 79.0 10,139 78.0
Selling, General and
Administrative
Expenses............... 3,605 19.5 4,068 20.0 4,142 20.4 1,944 17.2 1,936 14.9
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Operating Income........ $ 421 2.3% $ 346 1.7% $ 257 1.3% $ 433 3.8% $ 922 7.1%
======= ===== ======= ===== ======= ===== ======= ===== ======= =====
</TABLE>
Six Months Ended June 30, 1997 Compared To Six Months Ended June 30, 1996
Net Sales. Net sales increased to $13.0 million in the six months ended June
30, 1997 from $11.3 million in the six months ended June 30, 1996, an increase
of $1.7 million, or 15.0%. 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 $10.1 million in the six months
ended June 30, 1997 from $8.9 million in the six months ended June 30, 1996,
an increase of $1.2 million, or 13.6%. 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 commissions and freight costs associated with the increased sales. As a
percentage of net sales, cost of sales decreased to 78.0% in the six months
ended June 30, 1997 from 79.0% in the six months ended June 30, 1996, due to
management's efforts to obtain more favorable prices.
Selling, General and Administrative. Selling, general and administrative
expenses were $1.9 million in the six months ended June 30, 1997 and the six
months ended June 30, 1996. As a percentage of net sales, selling,
44
<PAGE>
general and administrative expenses decreased to 14.9% in the six months ended
June 30, 1997 from 17.2% in the six months 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 $0.9 million in the six months ended June 30, 1997 from
$0.4 million in the six months ended June 30, 1996, an increase of $0.5
million, or 112.9%. As a percentage of net sales, operating income increased
to 7.1% in the six months ended June 30, 1997 from 3.8% in the six months
ended June 30, 1996.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Net Sales. Net sales were $20.3 million in the year ended December 31, 1996
and in the year ended December 31, 1995. Net sales remained at the same level
due to an increase attributable to a fuel surcharge that was added to customer
invoices, offset by a decrease in anti-dumping duties collected.
Cost of Sales. Cost of sales remained relatively constant at $15.9 million
in the year ended December 31, 1996 and in the year ended December 31, 1995.
Cost of sales increased due to a fuel surcharge that airlines imposed
beginning in April 1996, the imposition by U.S. Customs of a higher percentage
anti-dumping duty, and a negotiated lower margin with growers, due to the
decreased volume of flowers sold, which was offset by decreased volume of
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.
45
<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>
YEAR ENDED JUNE 30,
-------------------------------------------
1995 1996 1997
------------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net Sales........................ $17,985 100.0% $19,030 100.0% $19,673 100.0%
Cost of Sales.................... 11,556 64.3 12,563 66.0 12,862 65.4
Selling, General and
Administrative Expenses......... 5,926 32.9 6,101 32.1 6,046 30.7
------- ----- ------- ----- ------- -----
Operating Income................. $ 503 2.8% $ 366 1.9% $ 765 3.9%
======= ===== ======= ===== ======= =====
</TABLE>
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 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.
46
<PAGE>
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.
47
<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, SIX MONTHS ENDED JUNE 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% $6,444 100.0% $7,082 100.0%
Cost of Sales........... 4,579 72.8 7,788 72.2 8,268 70.8 4,458 69.2 4,793 67.7
Selling, General and
Administrative
Expenses............... 1,545 24.6 2,531 23.5 2,723 23.3 1,421 22.1 1,579 22.3
------ ----- ------- ----- ------- ----- ------ ----- ------ -----
Operating Income........ $ 169 2.7% $ 464 4.3% $ 688 5.9% $ 565 8.8% $ 710 10.0%
====== ===== ======= ===== ======= ===== ====== ===== ====== =====
</TABLE>
- --------
(1) The financial data for 1994 reflect eight months of operations.
Six Months Ended June 30, 1997 Compared to Six Months Ended June 30, 1996
Net Sales. Net sales increased to $7.1 million in the six months ended June
30, 1997 from $6.4 million in the six months ended June 30, 1996, an increase
of $0.6 million, or 9.9%. 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 $4.8 million in the
six months ended June 30, 1997 from $4.5 million in the six months ended June
30, 1996, an increase of $0.3 million, or 7.5%, primarily as a result of
increased sales. As a percentage of net sales, cost of sales decreased to
67.7% in the six months ended June 30, 1997 from 69.2% in the six months ended
June 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 $1.6 million in the six months ended June 30, 1997 from
$1.4 million in the six months ended June 30, 1996, an increase of $0.2
million, or 11.1%. As a percentage of net sales, selling, general and
administrative expenses increased to 22.3% in the six months ended June 30,
1997 from 22.1% in the six months ended June 30, 1996, primarily as a result
of additional personnel costs.
Operating Income. As a result of the factors discussed above, operating
income increased to $0.7 million in the six months ended June 30, 1997 from
$0.6 million in the six months ended June 30, 1996, an increase of $0.1
million, or 25.7%. As a percentage of net sales, operating income increased to
10.0% in the six months ended June 30, 1997 from 8.8% in the six months ended
June 30, 1996.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Net Sales. Net sales increased to $11.7 million in the year ended December
31, 1996 from $10.8 million in the year ended December 31, 1995, an increase
of $0.9 million, or 8.3%. This increase resulted from an
48
<PAGE>
increased focus on bouquet sales to mass market retailers, improved quality of
products and the addition of floral-related hardgoods to American Florist's
product line.
Cost of Sales. Cost of sales increased to $8.3 million in the year ended
December 31, 1996 from $7.8 million in the year ended December 31, 1995, an
increase of $0.5 million, or 6.2%, primarily as a result of increased sales.
As a percentage of net sales, cost of sales decreased to 70.8% in the year
ended December 31, 1996 from 72.2% in the year ended December 31, 1995, due to
management's efforts to obtain more favorable product prices.
Selling, General and Administrative. Selling, general and administrative
expenses increased to $2.7 million in the year ended December 31, 1996 from
$2.5 million in the year ended December 31, 1995, an increase of $0.2 million,
or 7.6%. As a percentage of net sales, selling, general and administrative
expenses decreased to 23.3% in the year ended December 31, 1996 from 23.5% in
the year ended December 31, 1995, primarily as a result of additional
personnel.
Operating Income. As a result of the factors discussed above, operating
income increased to $0.7 million in the year ended December 31, 1996 from $0.5
million in the year ended December 31, 1995, an increase of $0.2 million or
48.3%. As a percentage of net sales, operating income increased to 5.9% in the
year ended December 31, 1996 from 4.3% in the year ended December 31, 1995.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Net Sales. Net sales increased to $10.8 million in the year ended December
31, 1995 from $6.3 million in the year ended December 31, 1994, an increase of
$4.5 million, or 71.3%. This increase primarily resulted from a full year of
operations in 1995 compared to eight months of operations in 1994.
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.
49
<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, SIX MONTHS ENDED JUNE 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% $4,827 100.0% $6,803 100.0%
Cost of Sales........... 3,773 88.7 5,959 86.3 8,285 87.4 4,166 86.3 5,575 81.9
Selling, General and
Administrative
Expenses............... 458 10.8 910 13.2 1,113 11.7 496 10.3 563 8.3
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Operating Income........ $ 22 0.5% $ 34 0.5% $ 79 0.8% $ 165 3.4% $ 665 9.8%
====== ===== ====== ===== ====== ===== ====== ===== ====== =====
</TABLE>
Six Months Ended June 30, 1997 Compared to Six Months Ended June 30, 1996
Net Sales. Net sales increased to $6.8 million in the six months ended June
30, 1997 from $4.8 million in the six months ended June 30, 1996, an increase
of $2.0 million, or 40.9%. 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 $5.6 million in the six
months ended June 30, 1997 from $4.2 million in the six months ended June 30,
1996, an increase of $1.4 million, or 33.8%, primarily as a result of the
increased sales. As a percentage of net sales, cost of sales decreased to
81.9% in the six months ended June 30, 1997 from 86.3% in the six months ended
June 30, 1996. This decrease 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 $0.6 million in the six months ended June 30, 1997 from
$0.5 million in the six months ended June 30, 1996, an increase of $0.1
million, or 13.5%. The increase was attributable to increased sales. As a
percentage of net sales, selling, general and administrative expenses
decreased to 8.3% in the six months ended June 30, 1997 from 10.3% in the six
months ended June 30, 1996.
Operating Income. As a result of the factors discussed above, operating
income increased to $0.7 million in the six months ended June 30, 1997 from
$0.2 million in the six months ended June 30, 1996, an increase of $0.5
million or 303.0%. As a percentage of net sales, operating income increased to
9.8% in the six months ended June 30, 1997 from 3.4% in the six months ended
June 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.
50
<PAGE>
Cost of Sales. Cost of sales increased to $8.3 million in the year ended
December 31, 1996 from $6.0 million in the year ended December 31, 1995, an
increase of $2.3 million, or 39.0%, primarily as a result of increased sales.
As a percentage of net sales, cost of sales increased to 87.4% in the year
ended December 31, 1996 from 86.3% in the year ended December 31, 1995.
Selling, General and Administrative. Selling, general and administrative
expenses increased to $1.1 million in the year ended December 31, 1996 from
$0.9 million in the year ended December 31, 1995, an increase of $0.2 million,
or 22.3%. As a percentage of net sales, selling, general and administrative
expenses decreased to 11.7% for the year ended December 31, 1996 from 13.2%
for the year ended December 31, 1995. This decrease resulted primarily from
spreading fixed costs over increased net sales. Selling, general and
administrative expenses include compensation paid to employee-stockholders
totaling $0.3 million in both the year ended December 31, 1996 and the year
ended December 31, 1995.
Operating Income. As a result of the factors discussed above, operating
income increased by $45,000 in the year ended December 31, 1996 from the year
ended December 31, 1995, an increase of 132.4%. As a percentage of net sales,
operating income increased to 0.8% in the year ended December 31, 1996 from
0.5% in the year ended December 31, 1995.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Net Sales. Net sales increased to $6.9 million in the year ended December
31, 1995 from $4.3 million in the year ended December 31, 1994, an increase of
$2.7 million, or 62.3%. This increase resulted primarily from the acquisition
of a bouquet manufacturer that produced bouquets for a discount retailer in
February 1995 and Monterey Bay's focus on improving quality and service.
Cost of Sales. Cost of sales increased to $6.0 million in the year ended
December 31, 1995 from $3.8 million in the year ended December 31, 1994, an
increase of $2.2 million, or 57.9%, primarily as a result of the increase in
sales. As a percentage of sales, cost of sales decreased to 86.3% in the year
ended December 31, 1995 from 88.7% in the year ended December 31, 1994. This
decrease resulted primarily from favorable prices obtained through volume
purchasing.
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.
51
<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, SIX MONTHS ENDED JUNE 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% $4,979 100.0% $5,597 100.0%
Cost of Sales........... 5,438 75.0 6,287 77.2 7,132 76.4 3,840 77.1 4,259 76.1
Selling, General and
Administrative
Expenses............... 1,320 18.2 1,526 18.7 1,868 20.0 802 16.1 902 16.1
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Operating Income........ $ 494 6.8% $ 326 4.0% $ 334 3.6% $ 337 6.8% $ 436 7.8%
====== ===== ====== ===== ====== ===== ====== ===== ====== =====
</TABLE>
Six Months Ended June 30, 1997 Compared to Six Months Ended June 30, 1996
Net Sales. Net sales increased to $5.6 million in the six months ended June
30, 1997 from $5.0 million in the six months ended June 30, 1996, an increase
of $0.6 million, or 12.4%, 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, to $4.3 million in the six months ended June 30, 1997 from $3.8
million in the six months ended June 30, 1996, an increase of $0.4 million, or
10.9%, primarily as a result of increased sales. As a percentage of net sales,
cost of sales decreased to 76.1% in the six months ended June 30, 1997 from
77.1% in the six months ended June 30, 1996.
Selling, General and Administrative. Selling, general and administrative
expenses increased to $0.9 million in the six months ended June 30, 1997 from
$0.8 million in the six months ended June 30, 1996, an increase of $0.1
million, or 12.5%, primarily as a result of increased sales, marketing and
lease expenses. As a percentage of net sales, selling, general and
administrative expenses were 16.1% in the six months ended June 30, 1997 and
the six months ended June 30, 1996.
Operating Income. As a result of the factors discussed above, operating
income increased to $0.4 million in the six months ended June 30, 1997 from
$0.3 million in the six months ended June 30, 1996, an increase of $0.1
million, or 29.4%. As a percentage of net sales, operating income increased to
7.8% in the six months ended June 30, 1997 from 6.8% in the six months ended
June 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
52
<PAGE>
December 31, 1996 from 77.2% in the year ended December 31, 1995, as a result
of increased sales of products with a higher value to purchasers, for which
Alpine Gem was able to charge a premium.
Selling, General and Administrative. Selling, general and administrative
expenses increased to $1.9 million in the year ended December 31, 1996 from
$1.5 million in the year ended December 31, 1995, an increase of $0.3 million,
or 22.4%. As a percentage of net sales, selling, general and administrative
expenses increased to 20.0% in the year ended December 31, 1996 from 18.7% in
the year ended December 31, 1995.
Operating Income. Operating income was $0.3 million in the year ended
December 31, 1996 and the year ended December 31, 1995. As a percentage of net
sales, operating income decreased to 3.6% in the year ended December 31, 1996
from 4.0% in the year ended December 31, 1995.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Net Sales. Net sales increased to $8.1 million in the year ended December
31, 1995 from $7.3 million in the year ended December 31, 1994, an increase of
$0.9 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.
53
<PAGE>
BUSINESS
OVERVIEW
USA Floral was founded in April 1997 to create a national consolidator and
operator of floral products distribution businesses. Upon consummation of the
Mergers, the Company will engage primarily in the wholesale distribution of
perishable floral products and floral-related hardgoods. The Company will also
import cut flowers from growers in foreign countries, provide pre-packaged
floral bouquets and arrangements to retail florists and mass-market retailers
and engage 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, upon consummation
of the Mergers, it will be 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.
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<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, Chairman of
the Board and Chief Executive Officer of U.S. Office Products Company, a
publicly-held supplier of a broad range of office products and business
services that has been built primarily through the acquisition and integration
of over 190 companies since its inception in October 1994, and is the founder
and Chairman 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.
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<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 has entered into agreements to acquire the Founding Companies
contemporaneously with the consummation of the Offering with a portion of the
proceeds therefrom. The consummation of the Mergers is a condition to the
consummation of the Offering. USA Floral has conducted no operations and
generated no revenues to date.
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,
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<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
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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
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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 3500 Whitehaven Parkway, Washington, D.C. 20007. The telephone number
of its principal executive offices is (202) 333-0800. To accommodate its
planned growth, the Company is in the process of seeking a larger headquarters
facility in the Washington area, which it intends to lease.
In addition to its corporate offices, upon consummation of the Mergers the
Company will maintain the following facilities:
<TABLE>
<CAPTION>
OWNED OR
FOUNDING COMPANY LOCATION PRINCIPAL USE LEASED
---------------- -------- ------------- --------
<S> <C> <C> <C>
Houff................... Chicago, IL Headquarters and 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>
59
<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 all of the facilities of the Founding Companies
are adequate for their respective current and anticipated operations.
EMPLOYEES
On a pro forma combined basis as of June 30, 1997, the Company employed
approximately 945 people, of whom approximately 845 were full-time employees
and approximately 100 were part-time employees. Approximately 475 employees
were engaged in operations, 275 were engaged in sales, and 195 were engaged in
a variety of administrative and managerial functions. 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.
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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 following the consummation of
this Offering:
<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 Person Named to
Become a Director
Jeffrey Brothers 38 President of Monterey Bay and Person Named to Become a
Director
John T. Dickinson 36 President of American Florist and Person Named to
Become a Director
John Q. Graham, Jr. 49 President of Alpine Gem and Person Named to Become a
Director
Dwight Haight 50 President of CFX and Person Named to Become a Director
Roy O. Houff 56 Chief Executive Officer of Houff and Person Named to
Become a Director
Gustavo Moreno 43 President of Flower Trading Corporation and Person
Named to be Director
William W. Rudolph 64 President of Bay State and Person Named to Become a
Director
Vincent W. Eades 38 Director
Edward J. Mathias 55 Director
John A. Quelch 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 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 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 will serve as President of United Wholesale after the
United Wholesale Merger and as a Director of USA Floral upon consummation of
the Offering. Mr. Ashmore has served as President of United Wholesale since
1983.
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Jeffrey Brothers will serve as President of Monterey Bay after the Monterey
Bay Merger and as a Director of USA Floral upon consummation of the Offering.
Mr. Brothers has served as President of Monterey Bay since February 1993. From
1985 until January 1993, Mr. Brothers was President of Brothers Brothers,
Inc., a wholesale flower distributor.
John T. Dickinson will serve as President of American Florist after the
American Florist Merger and as a Director of USA Floral upon consummation of
the Offering. Mr. Dickinson has served as President of American Florist since
1994. Prior to 1994, Mr. Dickinson served in a number of sales and marketing
positions for General Electric Company, most recently as an area sales
manager.
John Q. Graham, Jr. will serve as President of Alpine Gem after the Alpine
Gem Merger and as a Director of USA Floral upon consummation of the Offering.
Mr. Graham has served as President of Alpine Gem since 1978.
Dwight Haight will serve as President of CFX after the CFX Merger and as a
Director of USA Floral upon consummation of the Offering. Mr. Haight has
served as President of CFX, Inc. since 1974.
Roy O. Houff will serve as Chief Executive Officer of Houff after the Houff
Merger and as a Director of USA Floral upon consummation of the Offering. Mr.
Houff has served as Chief Executive Officer of Houff since May 1997, and
served as President of Houff from 1977 until May 1997.
Gustavo Moreno will serve as President of Flower Trading after the Flower
Trading Merger and as a Director of the Company upon consummation of the
Offering. Mr. Moreno has served as President of Flower Trading since 1977.
William W. Rudolph will serve as President of Bay State after the Bay State
Merger and as a Director of USA Floral upon consummation of the Offering. Mr.
Rudolph has served 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. Mathias and Quelch are the members
of the Audit Committee.
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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 following the consummation of the
Offering are to be Messrs. Ledecky and Mathias.
EXECUTIVE COMPENSATION
USA Floral was incorporated in April 1997. Effective upon consummation of
the Mergers and for the balance of 1997, the Company anticipates that it will,
pursuant to employment agreements, pay compensation based on the following
annual salaries to its Chief Executive Officer and Chief Financial Officer
named below who are to be executive officers of the Company and whom the
Company believes will be its only executive officers in 1997 (together, the
"Named Executive Officers").
<TABLE>
<CAPTION>
LONG-TERM
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 to be granted under the 1997 Long-Term Incentive Plan
as of the effective date of the registration statement of which this
Prospectus forms a part, at an exercise price equal to the initial public
offering price per share. Options to purchase 60,000 shares will be
immediately exercisable, and options to purchase the remaining 50,000
shares will vest in 25% annual installments over four years commencing on
the first anniversary of the date of grant.
(3) Will consist of a performance bonus, if any, to be awarded based in part
upon the individual's performance and in part upon the operating
performance of the Company, on terms to be determined by the Board of
Directors.
(4) Consists of options to be granted under the 1997 Long-Term Incentive Plan
as of the effective date of the registration statement of which this
Prospectus forms a part, at an exercise price equal to $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
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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 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 of which this
Prospectus forms a part, and (ii) an option to purchase 6,000 shares on the
day after each annual meeting of the Company's stockholders. A total of
300,000 shares are reserved for issuance under the Directors' Plan. The number
of shares reserved, as well as the number to be subject to automatically
granted options, will be adjusted in the event of stock splits, stock
dividends and 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
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statement of which this Prospectus forms a part, the initial public offering
price per share). Options will expire at the earlier of 10 years from the date
of grant or 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.
NEW PLAN BENEFITS
Upon the effective date of the registration statement of which this
Prospectus forms a part, it is contemplated that the Company will grant
Options to purchase an aggregate of 816,250 shares of Common Stock under the
Incentive Plan at an exercise price equal to the initial public offering price
per share. These Options include: (i) Options to purchase an aggregate of
150,000 shares that will be granted to executive officers of the Founding
Companies, who will become directors of the Company after consummation of the
Mergers; (ii) Options to purchase an aggregate of 50,000 shares to be granted
to a non-executive employee; (iii) Options to purchase an aggregate of 306,250
shares to be granted to employees of the Founding Companies in accordance with
the Merger Agreements, which provide that options to purchase a number of
shares of Common Stock equal to 6.25% of the cash and Common Stock portion of
the Merger consideration, based on the initial public offering price, shall be
made available to such employees; (iv) Options to purchase an aggregate of
110,000 shares to be granted to the Chief Executive Officer of the Company;
and (v) Options to purchase an aggregate of 200,000 shares that will be
granted to the Company's Non-Executive Chairman. In addition, pursuant to
employment agreements the Company will grant Options under the Incentive Plan
to certain employees, including Mr. Anderson, to purchase an aggregate of
100,000 shares of Common Stock at an exercise price equal to $8.00 per share.
See "--Employment Agreements." The Board of Directors has also determined to
grant Options to
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<PAGE>
purchase 25,000 shares to a non-executive employee at such price. Of the
Options granted under the Incentive Plan, Options to purchase 160,000 shares
will be immediately exercisable. All of the remaining Options will vest 25%
each on the first four anniversaries of the date of grant. All Options granted
under the Incentive Plan expire on the tenth anniversary of the date of grant.
In addition, it is contemplated that Initial Grants will be made under the
Directors' Plan upon the effective date of the registration statement of which
this Prospectus forms a part. The following table sets forth certain
information with respect to all of the option grants contemplated under the
Incentive Plan and the Directors' Plan.
<TABLE>
<CAPTION>
NAME AND POSITION DOLLAR VALUE (1) NUMBER OF UNITS (2)
----------------- ---------------- -------------------
<S> <C> <C>
Robert J. Poirier......................... Not determinable 110,000
Chairman of the Board, President and
Chief Executive Officer
Raymond C. Anderson....................... Not determinable 50,000
Chief Financial Officer
All current executive officers as a
group.................................... Not determinable 160,000
All current directors who are not
executive officers as a group............ Not determinable 263,000
All employees, including all current
officers who are not executive officers,
as a group............................... Not determinable 235,000
</TABLE>
- --------
(1) The dollar values of the awards under the Incentive Plan and the
Directors' Plan are not determinable at this time, since the options are
expected to be granted at an exercise price equal to, or calculated with
reference to, the initial public offering price of the Common Stock.
(2) The number of units represents the number of shares of Common Stock
underlying the options expected to be granted.
EMPLOYMENT AGREEMENTS
Effective as of April 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, the agreement provides that Mr. Poirier
will be granted: (i) an option on the effective date of the registration
statement of which this Prospectus forms a part to purchase 110,000 shares of
Common Stock at an exercise price equal to the initial public offering price
per share, which shall be fully vested and immediately exercisable as to
60,000 shares, and which shall vest and become exercisable with respect to
12,500 additional shares on each of the first four anniversaries of the date
of the grant; and (ii) an immediately exercisable option on the first
anniversary of the effective date of the registration statement of which this
Prospectus forms a part to purchase an additional 60,000 shares at an exercise
price equal to the then-current fair market value per share. The agreement
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.
Upon consummation of the Offering, the Company will enter 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 will be granted options 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 his base salary plus benefits for the
greater of (i) the remainder of the term or (ii) twelve months.
The Merger Agreements provide that the Company, through its wholly-owned
subsidiaries, will enter into employment agreements with certain of the
individuals principally responsible for management of the Founding Companies.
Each of the agreements described below provides that the employee (i) will
receive a specified base
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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
will provide 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 will provide
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 will
provide 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 will provide that Mr. Brothers will be employed for a two-
year period with a base salary of $170,000. In addition, Mr. Brothers will be
granted options to purchase 50,000 shares of Common Stock with an exercise
price equal to the initial public offering price. John Q. Graham, Jr.'s
employment agreement with Alpine Gem will provide that Mr. Graham will be
employed for a two-year period with a base salary of $80,000. In addition, Mr.
Graham will be granted options to purchase 50,000 shares of Common Stock with
an exercise price equal to the initial public offering price. Raymond R.
Ashmore's employment agreement with United Wholesale will provide 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 will provide
that Mr. Dickinson will be employed for a two-year period with a base salary
of $150,000. In addition, Mr. Dickinson will be granted options to purchase
50,000 shares of Common Stock, with an exercise price equal to the initial
public offering price. Gustavo Moreno's employment agreement with Flower
Trading will provide that Mr. Moreno will be employed for a two-year period
with a base salary of $270,000.
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Set forth below is a description of certain transactions and relationships
between USA Floral and certain persons who will become officers, directors and
principal stockholders of the Company following the Mergers and the Offering.
In addition, set forth below is certain information regarding transactions and
relationships prior to the Mergers between certain of the Founding Companies
and their respective officers, directors and principal stockholders.
ORGANIZATION OF USA FLORAL
USA Floral was founded as a holding company to acquire businesses in the
floral products distribution industry. Prior to the Mergers and the Offering,
USA Floral issued 2,400,000 shares of Common Stock for cash to its co-founders
and initial investors, including 1,000,000 shares to Robert J. Poirier and
1,100,000 shares to Jonathan J. Ledecky. Mr. Poirier is the co-founder,
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 and as a condition to the consummation of the Offering,
USA Floral will acquire in eight separate transactions all of the issued and
outstanding capital stock of each of the Founding Companies for an aggregate
consideration of $63.7 million, which consists of: (i) $42.4 million in cash
to be paid to the stockholders of the Founding Companies, which will be paid
from the proceeds of the Offering (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, which will be paid
from the proceeds of the Offering; and (iii) the $17.3 million estimated fair
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value of 1,334,050 shares of Common Stock to be 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 will also assume a tax liability of one of the
Founding Companies of approximately $0.5 million. Following the consummation
of the Mergers, the aggregate long-term indebtedness of the Company will be
approximately $3.5 million, which will comprise long-term debt of the Founding
Companies upon the Merger. The purchase price for each Founding Company was
determined based on negotiations between USA Floral and that Founding Company.
The factors considered by the parties in determining the purchase price
included, among other factors, cash flows, historical operating results,
growth rates and business prospects of the Founding Companies. With the
exception of the consideration to be paid to the stockholders of each of the
Founding Companies, the acquisition of each Founding Company is subject to
substantially the same terms and conditions as those to which the acquisition
of each other Founding Company is subject. The following table contains
information concerning the aggregate cash to be paid, Common Stock to be
issued (at an initial public offering price of $13.00 per share) and S
Corporation distributions to be made in connection with the Mergers:
<TABLE>
<CAPTION>
S CORP. SHARES OF VALUE OF SHARES OF TOTAL
FOUNDING COMPANY CASH DISTRIBUTIONS COMMON STOCK COMMON STOCK CONSIDERATION
- ---------------- ----- ------------- ------------ ------------------ -------------
(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 $1.7 million of net related party receivables.
See "Use of Proceeds."
THE ROY HOUFF COMPANY
USA Floral will acquire all of the outstanding stock of Houff in a reverse
subsidiary merger for $11.0 million in cash. In connection with the Houff
Merger, Roy O. Houff, the Chief Executive Officer and sole stockholder of
Houff, will become a Director of the Company. Mr. Houff will enter a two-year
covenant not to compete with the Company and its subsidiaries and a two-year
employment agreement with the subsidiary of the Company that operates the
Houff business after the Houff Merger.
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Mr. Houff is the sole stockholder of RHI Industries, Inc. ("RHI
Industries"). Houff pays management fees, vehicle lease payments and health
insurance premiums to RHI Industries, which payments totaled $1.0 million in
the year ended December 31, 1996. All payments to RHI Industries will be
terminated upon consummation of the Merger. Houff leases six of its seven
facilities from Mr. Houff. Lease payments totaled $0.5 million for the year
ended December 31, 1996. The properties owned by Mr. Houff will be acquired by
Houff prior to the Houff Merger and the lease arrangement will thereupon be
terminated. From time to time, Houff loaned funds to Mr. Houff. As of December
31, 1996 Mr. Houff owed approximately $0.1 million to Houff. All amounts due
from Mr. Houff will be repaid to Houff upon consummation of the Houff Merger.
CFX, INC.
USA Floral will acquire all of the outstanding stock of CFX in a reverse
subsidiary merger for: (i) $5.8 million in cash; (ii) $4.0 million in cash,
representing the amount of CFX's accumulated adjustments account, which will
be distributed to the stockholders of CFX immediately prior to the
consummation of the CFX Merger (which amount is estimated to be approximately
$4.0 million); and (iii) 250,000 shares of Common Stock. In connection with
the CFX Merger, Dwight Haight, the President of CFX, will become a Director of
the Company. Mr. Haight will receive approximately $2.8 million in cash and
118,750 shares of Common Stock for his shares of capital stock of CFX. Mr.
Haight will enter into a two-year covenant not to compete with the Company and
its affiliates (subject to certain exceptions) and a two-year employment
agreement with the subsidiary of the Company that operates the CFX business
after the CFX Merger.
Dwight Haight, who will be named a Director of the Company upon consummation
of the Offering, owns 25% of two farms, Miramonte and Mocari, 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
will not assume any guaranty obligation and will not become 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 will be repaid to CFX upon consummation of
the CFX Merger.
BAY STATE FLORIST SUPPLY, INC.
USA Floral will acquire all of the outstanding stock of Bay State in a
reverse subsidiary merger for $6.0 million in cash and 495,550 shares of
Common Stock. In connection with the Bay State Merger, William W. Rudolph, the
President of Bay State, will become a Director of the Company. Mr. Rudolph
will receive approximately $0.5 million in cash and 43,000 shares of Common
Stock for his shares of capital stock of Bay
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<PAGE>
State. Mr. Rudolph will enter into a two-year covenant not to compete with the
Company and its affiliates (subject to certain exceptions) and a two-year
employment agreement with the subsidiary of the Company that operates the Bay
State business after the Bay State Merger.
Mr. Rudolph owns 8.7% of Cromwell 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.
FLOWER TRADING CORPORATION
USA Floral will acquire 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 will assume 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, will become a
Director of the Company. Mr. Moreno will receive approximately $0.8 million in
cash and 22,400 shares of Common Stock for his shares of capital stock of
Flower Trading. Mr. Moreno will enter into a two-year covenant not to compete
with the Company and its affiliates (subject to certain exceptions) and a two-
year employment agreement with the subsidiary of the Company that operates the
Flower Trading business after the Merger.
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 will
sell 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 will acquire all of the outstanding stock of United Wholesale in
a reverse subsidiary merger for $4.8 million in cash and 268,500 shares of
Common Stock. In connection with the United Wholesale Merger, R. Raymond
Ashmore, the President of United Wholesale, will become a Director of the
Company. Mr. Ashmore will receive approximately $1.0 million in cash and
98,625 shares of Common Stock for his shares of capital stock of United
Wholesale. Mr. Ashmore will enter into a two-year covenant not to compete with
the Company and its affiliates and a two-year employment agreement with the
subsidiary of the Company that operates the United Wholesale business after
the United Wholesale Merger.
Mr. Ashmore owns 33% of United Properties, an entity from which United
Wholesale leases eight of its facilities. Lease payments made by United
Wholesale to United Properties in the year ended December 31, 1996 totaled
$0.3 million. United Wholesale leases its corporate headquarters from a
partnership in which United Properties has a 50% interest. Lease payments to
the affiliate in the year ended December 31, 1996 totaled $0.1 million. The
Company will be granted a five-year option to purchase the property leased
from these affiliated entities.
United Wholesale has made advances to Mr. Ashmore totaling $34,000 in the
year ended December 31, 1996 and to United Properties totaling $1.1 million as
of March 31, 1997. Upon consummation of the United Wholesale Merger, Mr.
Ashmore and United Properties will pay to United Wholesale the balance of
these advances.
AMERICAN FLORIST SUPPLY, INC.
USA Floral will acquire all of the outstanding stock of American Florist in
a reverse subsidiary merger for $4.8 million in cash. In connection with the
American Florist Merger, John T. Dickinson, the President of
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<PAGE>
American Florist, will become a Director of the Company. Mr. Dickinson is the
sole stockholder of American Florist. Mr. Dickinson will enter into a two-year
covenant not to compete with the Company and its affiliates and a two-year
employment agreement with the subsidiary of the Company that operates the
American Florist business after the American Florist Merger. Mr. Dickinson
will receive options to purchase 50,000 shares of Common Stock at an exercise
price per share equal to the initial public offering price. In addition, Mr.
Dickinson may receive a contingent payment of up to $2.4 million, based on
American Florist's earnings before interest and taxes for the year ended
December 31, 1997. The contingent payment is payable in Common Stock. The
number of shares to be issued in satisfaction of the contingent payment will
be calculated by reference to the average closing price of the Common Stock
for the ten trading days prior to December 31, 1997. The American Florist
Merger Agreement provides that if the average closing price is less than $10
per share, then the Company, at its sole option, may satisfy the contingent
payment obligation, if any over 240,000 shares, by issuance of additional
shares of Common Stock, or payment of cash, or a combination of cash and
Common Stock.
Mr. Dickinson has an ownership interest in a rose farm in Ecuador ("Meadow
Flowers"). Mr. Dickinson's spouse is the sole stockholder of Farm Direct
Flowers, Inc., which has a 13.5% interest in Meadow Flowers. American Florist
purchases roses, as well as other types of flowers, from Meadow Flowers; for
the year ended December 31, 1996, purchases from Meadow Flowers totaled $0.1
million. Upon consummation of the American Florist Merger, the Company intends
to evaluate the terms of purchases made from Meadow Flowers to ensure that the
terms are no less favorable than those the Company could obtain from an
unaffiliated third party.
MONTEREY BAY BOUQUET, INC. AND BAY AREA BOUQUETS, INC.
USA Floral will acquire all of the outstanding stock of Monterey Bay in a
reverse subsidiary merger for $2.5 million in cash. In connection with the
Monterey Bay Merger, Jeffrey Brothers, the President of Monterey Bay, will
become a Director of the Company. Mr. Brothers will receive $1.0 million in
cash for his shares of capital stock of Monterey Bay. Mr. Brothers will enter
into a two-year covenant not to compete with the Company and its affiliates
and a two-year employment agreement with the subsidiary of the Company that
operates the Monterey Bay business after the Monterey Bay Merger. Mr. Brothers
will receive options to purchase 50,000 shares of Common Stock at an exercise
price per share equal to the initial public offering price. The stockholders
of Monterey Bay, including Mr. Brothers, may receive a contingent payment of
up to $3.5 million, based on Monterey Bay's earnings before interest and taxes
for the year ended December 31, 1997. Of the contingent payment, $0.5 million
is payable in cash and $3.0 million is payable in Common Stock. The number of
shares to be issued in satisfaction of the contingent payment will be
calculated by reference to the average closing price of the Common Stock for
the ten trading days prior to December 31, 1997. The Monterey Bay Merger
Agreement provides that if the average closing price is less than $10 per
share, then the Company, at its sole option may satisfy the contingent payment
obligation, if any, over 300,000 shares by issuance of additional shares of
Common Stock, or payment of cash, or a combination of cash and Common Stock.
Jeffrey Brothers has a 40% interest in the entity that owns the property
which Monterey Bay leases. Monterey Bay's lease payments totaled $0.1 million
in the year ended December 31, 1996. Upon consummation of the Merger, the
Company intends to retain the lease, which terminates December 31, 1999 and
provides for monthly rental payments of $12,000.
ALPINE GEM FLOWER SHIPPERS, INC.
USA Floral will acquire all of the outstanding stock of Alpine Gem for (i)
$1.6 million in cash; (ii) S Corporation distributions of approximately
$42,000; and (iii) 160,000 shares of Common Stock. In connection with the
Alpine Gem Merger, John Q. Graham, Jr., will become a Director of the Company.
Mr. Graham will receive $0.8 million in cash and 80,000 shares of Common Stock
for his shares of capital stock of Alpine Gem. Mr. Graham will enter into a
two-year covenant not to compete with the Company and its affiliates and a
two-year employment agreement with the subsidiary of the Company that operates
the business after the Alpine Gem Merger. Mr. Graham will receive options to
purchase 50,000 shares of Common Stock at an exercise price per share equal to
the initial public offering price.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of September 15, 1997, assuming completion of
the Mergers, and as adjusted to reflect the sale of the Common Stock being
offered hereby, by: (i) each person (or group of affiliated persons) known by
the Company to be the beneficial owner of more than five percent of the
outstanding Common Stock; (ii) each Named Executive Officer of the Company;
(iii) each director of the Company and each person named to become a director;
and (iv) all of the Company's directors, persons named to become directors and
executive officers as a group. Each stockholder possesses sole voting and
investment power with respect to the shares listed, unless otherwise noted.
<TABLE>
<CAPTION>
PERCENTAGE OF
COMMON STOCK OWNED
--------------------
NUMBER OF SHARES BEFORE THE AFTER THE
BENEFICIAL OWNER OF COMMON STOCK OFFERING OFFERING
---------------- ---------------- ---------- ---------
<S> <C> <C> <C>
Jonathan J. Ledecky (1).................. 1,310,000 33.2 14.6
c/o U.S.A. Floral Products, Inc.
3500 Whitehaven Parkway
Washington, D.C. 20007
Robert J. Poirier (2).................... 1,060,000 27.9 12.1
c/o U.S.A. Floral Products, Inc.
3500 Whitehaven Parkway
Washington, D.C. 20007
Raymond C. Anderson...................... -- * *
Vincent W. Eades......................... -- * *
Edward J. Mathias (3).................... 100,000 2.7 1.1
John A. Quelch........................... 25,000 * *
Raymond R. Ashmore....................... 98,625 2.6 1.1
Jeffrey Brothers......................... -- * *
John T. Dickinson........................ -- * *
John Q. Graham, Jr. ..................... 80,000 2.1 *
Dwight Haight............................ 118,750 3.2 1.4
Roy O. Houff............................. -- * *
Gustavo Moreno........................... 22,400 * *
William W. Rudolph....................... 42,955 1.2 *
All directors, persons named to become
directors,
and executive officers, as a group (4).. 2,857,730 71.4 31.7
</TABLE>
- --------
*Less than one percent.
(1) Includes 210,000 shares issuable upon the exercise of options to be
granted to Mr. Ledecky on the effective date of the registration statement
of which this Prospectus forms a part, which options will be immediately
exercisable. Mr. Ledecky intends to exercise an option to purchase 110,000
of such shares, which was granted in order to facilitate the treatment of
the issuance of the shares in the Mergers as a tax-free exchange under
Section 351 of the Internal Revenue Code.
(2) Includes 60,000 shares issuable upon the exercise of an option to be
granted to Mr. Poirier on the effective date of the registration statement
of which this Prospectus forms a part, which option will be immediately
exercisable. 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 270,000 shares issuable upon the exercise of immediately
exercisable options. 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.
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<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
Upon completion of the Offering, the Company will have 8,734,050 shares of
Common Stock outstanding, based upon the number of shares outstanding as of
September 15, 1997 and assuming consummation of the Mergers, but without
giving effect to the anticipated exercise by Mr. Ledecky of an option to
purchase 110,000 shares of Common Stock. The 5,000,000 shares sold in the
Offering will be freely tradeable without restriction or further registration
under the Securities Act, unless acquired by an "affiliate" of the Company, as
that term is defined in Rule 144; shares held by affiliates will be subject to
resale limitations of Rule 144 described below. All of the remaining 3,734,050
outstanding shares of Common Stock will be available for resale at various
dates beginning 180 days after the date of this Prospectus, upon expiration of
applicable lock-up agreements described below and subject to compliance with
Rule 144 under the Securities Act as the holding provisions of Rule 144 are
satisfied. Of those shares, 3,438,000 may be included in certain registration
statements that may be filed by the Company, in accordance with piggyback
registration rights granted pursuant to the Merger Agreements or pursuant to
such rights granted to Mr. Ledecky and Mr. Poirier. 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, upon consummation of the Offering, 1,051,250 shares of Common
Stock will be issuable upon the exercise of stock options to be granted on the
effective date of the registration statement of which this Prospectus forms a
part, of which options to purchase 270,000 shares are immediately exercisable.
Such options include an option to purchase 110,000 shares to be granted to
Jonathan J. Ledecky to facilitate the treatment of the shares to be issued in
the Mergers as a tax-free exchange under the Internal Revenue Code. Mr.
Ledecky has indicated his intention to exercise such option on or about the
effective date of the registration statement of which this Prospectus forms a
part. The Company intends to file a registration statement on Form S-8 as soon
as practicable after the consummation of the Offering with respect to the
shares of Common Stock issuable upon exercise of all such options (other than
the option to purchase 110,000 shares to be granted to Mr. Ledecky).
In general, under Rule 144 as currently in effect, a stockholder who has
beneficially owned for at least one year shares privately acquired directly or
indirectly from the Company or from an affiliate of the Company, and persons
who are affiliates of the Company who have acquired the shares in registered
transactions, will be entitled to sell within any three-month period a number
of shares that does not exceed the greater of: (i) one percent of the
outstanding shares of Common Stock (approximately 83,000 shares immediately
after completion of the Offering); or (ii) the average weekly trading volume
in the Common Stock during the four calendar weeks preceding such sale. Sales
under Rule 144 are also subject to certain requirements relating to the manner
and notice of sale and the availability of current public information about
the Company.
The Company, each of its directors and officers and stockholders have agreed
with the Underwriters, subject to certain exceptions, not to offer, sell or
otherwise dispose of any shares of Common Stock or securities convertible into
or exercisable or exchangeable for such shares for a period of 180 days after
the date of this Prospectus without the prior written consent of Morgan
Stanley & Co. Incorporated. The holders of the shares of Common Stock issued
or to be issued in the Mergers and certain related persons have agreed with
the Underwriters not to offer, sell or otherwise dispose of any shares of
Common Stock or securities convertible into or exercisable or exchangeable for
such shares for a period of 180 days after the date of this Prospectus without
the prior written consent of Morgan Stanley & Co. Incorporated.
Prior to this Offering, there has been no market for the Common Stock. No
predictions can be made with respect to the effect, if any, that public sales
of shares of the Common Stock or the availability of shares for sale will have
on the market price of the Common Stock after the completion of the Offering.
Sales of substantial amounts of Common Stock in the public market following
the Offering, or the perception that such sales may occur, could adversely
affect the market price of the Common Stock or the ability of the Company to
raise capital through sales of its equity securities. See "Risk Factors--No
Prior Market for Common Stock; Possible Volatility of Stock Price."
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<PAGE>
UNDERWRITERS
Under the terms and subject to the conditions contained in an Underwriting
Agreement dated the date of this Prospectus (the "Underwriting Agreement"),
the Underwriters named below, for whom Morgan Stanley & Co. Incorporated,
BancAmerica Robertson Stephens and Smith Barney Inc. are acting as
Representatives, have severally agreed to purchase, and the Company has agreed
to sell to them, severally, the respective number of shares of Common Stock
set forth opposite the names of such Underwriters below:
<TABLE>
<CAPTION>
NUMBER
NAME OF SHARES
---- ---------
<S> <C>
Morgan Stanley & Co. Incorporated............................... 1,133,334
BancAmerica Robertson Stephens.................................. 1,133,333
Smith Barney Inc................................................ 1,133,333
Advest, Inc..................................................... 160,000
J.C. Bradford & Co.............................................. 160,000
Blackford Securities Corp....................................... 160,000
BT Alex. Brown Incorporated..................................... 160,000
Friedman, Billings, Ramsey & Co., Inc........................... 160,000
Furman Selz LLC................................................. 160,000
Janney Montgomery Scott Inc..................................... 160,000
Edward D. Jones & Co., L.P...................................... 160,000
Oppenheimer & Co., Inc.......................................... 160,000
Sands Brothers & Co., Ltd....................................... 160,000
---------
Total......................................................... 5,000,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Common Stock
offered hereby are subject to the approval of certain legal matters by their
counsel and to certain other conditions. The Underwriters are obligated to
take and pay for all of the shares of Common Stock offered hereby (other than
those covered by the Underwriters' over-allotment option described below) if
any such shares are taken.
The Underwriters initially propose to offer part of the shares of Common
Stock directly to the public at the public offering price set forth on the
cover page hereof and part to certain dealers at a price that represents a
concession not in excess of $.55 a share under the public offering price. Any
Underwriter may allow, and such dealers may reallow, a concession not in
excess of $.10 a share to other Underwriters or to certain other dealers.
The Company has granted to the Underwriters an option, exercisable for 30
days from the date of this Prospectus, to purchase up to an aggregate of
additional shares of Common Stock at the public offering price set forth on
the cover page hereof, less underwriting discounts and commissions. The
Underwriters may exercise such option solely for the purpose of covering over-
allotments, if any, made in connection with the offering of the shares of
Common Stock offered hereby. To the extent such option is exercised, each
Underwriter will become obligated, subject to certain conditions, to purchase
approximately the same percentage of such additional shares of Common Stock as
the number set forth next to such Underwriter's name in the preceding table
bears to the total number of shares of Common Stock offered by the
Underwriters hereby.
The Common Stock has been approved for quotation on The Nasdaq National
Market under the symbol "ROSI."
At the request of the Company, the Underwriters have reserved up to 310,000
shares of Common Stock offered hereby for sale at the initial public offering
price to certain employees of the Company and to certain other persons. The
number of shares available for sale to the general public will be reduced to
the extent that such persons purchase such reserved shares. Any reserved
shares not so purchased will be offered by the Underwriters to the general
public on the same basis as the other shares of Common Stock offered hereby.
76
<PAGE>
Each of the Company and the directors, executive officers and stockholders
of the Company has agreed that, without the prior written consent of Morgan
Stanley & Co. Incorporated on behalf of the Underwriters, it will not, during
the period ending 180 days after the date of this Prospectus, with certain
limited exceptions, (i) offer, pledge, sell, contract to sell, sell any option
or contract to purchase, purchase any option or contact to sell, grant any
option, right or warrant to purchase, lend, or otherwise transfer or dispose
of, directly or indirectly, any shares of Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock or (ii) enter
into any swap or other arrangement that transfers to another, in whole or in
part, any of the economic consequences of ownership of the Common Stock,
whether any such transaction described in clause (i) or (ii) above is to be
settled by delivery of Common Stock or such other securities, in cash or
otherwise. The restrictions described in this paragraph do not apply to (w)
the sale of the Shares to the Underwriters, (x) the issuance by the Company of
the shares of Common Stock upon the exercise of any option or a warrant or the
conversion of a security outstanding on the date of this Prospectus of which
the Underwriters have been advised in writing, (y) the issuance of shares to
be used as consideration for future acquisitions or (z) the grant of options
under the Company's stock option plans, provided such options do not vest
prior to the 180-day period referenced herein, and provided further that, in
the case of subclauses (x) and (y), the recipient of any such shares agrees to
be bound by the transfer restrictions set forth herein.
The Underwriters have informed the Company that they do not intend sales to
discretionary accounts to exceed five percent of the total number of shares of
Common Stock offered by them.
From time to time, each of the Underwriters and their respective affiliates
may provide investment banking services to the Company.
The Company and the Underwriters have agreed to indemnify each other against
certain liabilities, including liabilities under the Securities Act.
In order to facilitate the offering of the Common Stock, the Underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the Common Stock. Specifically, the Underwriters may over-allot in
connection with the offering, creating a short position in the Common Stock
for their own account. In addition, to cover over-allotments or to stabilize
the price of the Common Stock, the Underwriters may bid for, and purchase,
shares of Common Stock in the open market. Finally, the underwriting syndicate
may reclaim selling concessions allowed to an Underwriter or a dealer for
distributing the Common Stock in the Offering, if the syndicate repurchases
previously distributed Common Stock in transactions to cover syndicate short
positions, in stabilization transactions or otherwise. Any of these activities
may stabilize or maintain the market price of the Common Stock above
independent market levels. The Underwriters are not required to engage in
these activities, and may end any of these activities at any time.
PRICING OF THE OFFERING
Prior to this offering, there has been no public market for the Common
Stock. The initial public offering price was determined by negotiations
between the Company and the Representatives. Among the factors considered in
determining the initial public offering price were the future prospects of the
Company and its industry in general, sales, earnings and certain other
financial and operating information of the Company in recent periods, and the
price-earnings ratios, price-sales ratios, market prices of securities and
certain financial and operating information of companies engaged in activities
similar to those of the Company.
77
<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.
Certain legal matters relating to the shares of Common Stock offered hereby
will be passed upon for the Underwriters by Davis Polk & Wardwell, New York,
New York.
EXPERTS
The financial statements of USA Floral as of June 30, 1997 included in this
Prospectus have been so included in reliance on the report of Price Waterhouse
LLP, independent accountants, given on the authority of said firm as experts
in auditing and accounting.
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.
78
<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 Statement 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
Notes to Financial Statements........................................ F-17
THE ROY HOUFF COMPANY
Report of Independent Accountants.................................... F-20
Balance Sheet........................................................ F-21
Statement of Operations.............................................. F-22
Statement of Stockholder's Equity.................................... F-23
Statement of Cash Flows.............................................. F-24
Notes to Financial Statements........................................ F-25
CFX, INC.
Report of Independent Accountants.................................... F-30
Independent Auditors' Report......................................... F-31
Balance Sheet........................................................ F-32
Statement of Operations.............................................. F-33
Statement of Stockholders' Equity.................................... F-34
Statement of Cash Flows.............................................. F-35
Notes to Financial Statements........................................ F-36
BAY STATE FLORIST SUPPLY, INC.
Report of Independent Accountants.................................... F-42
Balance Sheet........................................................ F-43
Statement of Operations.............................................. F-44
Statement of Stockholders' Equity.................................... F-45
Statement of Cash Flows.............................................. F-46
Notes to Financial Statements........................................ F-47
FLOWER TRADING CORPORATION
Report of Independent Accountants.................................... F-53
Balance Sheet........................................................ F-54
Consolidated Statement of Operations................................. F-55
Consolidated Statement of Stockholders' Equity....................... F-56
Consolidated Statement of Cash Flows................................. F-57
Notes to Consolidated Financial Statements........................... F-58
</TABLE>
F-1
<PAGE>
<TABLE>
<CAPTION>
PAGE #
------
<S> <C>
UNITED WHOLESALE FLORISTS, INC.
Report of Independent Accountants...................................... F-64
Balance Sheet.......................................................... F-65
Combined Statement of Operations....................................... F-66
Combined Statement of Stockholders' Equity............................. F-67
Combined Statement of Cash Flows....................................... F-68
Notes to Combined Financial Statements................................. F-69
AMERICAN FLORIST SUPPLY, INC.
Report of Independent Accountants...................................... F-76
Balance Sheet.......................................................... F-77
Statement of Operations................................................ F-78
Statement of Stockholder's Equity...................................... F-79
Statement of Cash Flows................................................ F-80
Notes to Financial Statements.......................................... F-81
MONTEREY BAY BOUQUET, INC.
Report of Independent Accountants...................................... F-86
Combined Balance Sheet................................................. F-87
Combined Statement of Operations....................................... F-88
Combined Statement of Stockholders' Equity............................. F-89
Combined Statement of Cash Flows....................................... F-90
Notes to Combined Financial Statements................................. F-91
ALPINE GEM FLOWER SHIPPERS, INC.
Report of Independent Accountants...................................... F-96
Balance Sheet.......................................................... F-97
Statement of Operations................................................ F-98
Statement of Stockholders' Equity...................................... F-99
Statement of Cash Flows................................................ F-100
Notes to Financial Statements.......................................... F-101
</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") will occur simultaneously with the closing of USA Floral's initial
public offering (the "Offering") and will be accounted for using the purchase
method of accounting. USA Floral is deemed to be the accounting acquiror.
The unaudited pro forma combined balance sheet gives effect to the Mergers
and the Offering as if they had occurred on June 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 six month periods
ending June 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 six 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 six months ended June 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 JUNE 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........ $ 317 $ 61 $ 2,284 $ 1,714 $ 862 $ 625 $ 421 $ 319 $ 131 $ (800) $ 5,934
Accounts receivable,
net................ 3,210 3,916 3,076 2,526 1,186 1,379 912 1,441 17,646
Inventories......... 1,144 1,751 47 1,963 91 181 5,177
Due from related
parties............ 210 380 40 1,240 (1,620) 250
Due from
stockholders....... 389 (389)
Prepaid expenses and
other.............. 455 172 187 106 169 127 25 28 20 1,289
----- ------- ------- ------- ------- ------- ------- ------- ------- -------- --------
Total current
assets......... 772 4,587 6,597 7,027 3,644 5,530 1,916 1,440 1,592 (2,809) 30,296
Property and
equipment, net..... 1,907 352 1,605 332 1,886 289 175 23 3,131 9,700
Due from related
parties............ 8 8
Due from
stockholders....... 602 52 (654)
Deferred taxes...... 90 188 278
Goodwill, net....... 222 287 43,566 44,075
Other assets........ 468 478 145 114 88 124 1,417
----- ------- ------- ------- ------- ------- ------- ------- ------- -------- --------
Total assets.... $ 772 $ 6,494 $ 8,027 $ 9,110 $ 4,211 $ 7,752 $ 2,580 $ 1,791 $ 1,615 $ 43,422 $ 85,774
===== ======= ======= ======= ======= ======= ======= ======= ======= ======== ========
LIABILITIES AND
STOCKHOLDERS'
EQUITY
Short-term debt..... $ $ 220 $ 19 $ 281 $ 104 $ 1,987 $ $ 84 $ 845 $ $ 3,540
Notes payable to
stockholders....... 21 558 (579)
Accounts payable and
accrued expenses... 400 3,399 2,480 2,467 922 2,390 885 784 13,727
Due to related
parties............ 282 581 863
Income taxes
payable............ 250 210 32 254 500 1,246
Payable to
stockholders....... 44,637 44,637
----- ------- ------- ------- ------- ------- ------- ------- ------- -------- --------
Total current
liabilities.... 400 3,640 2,781 2,748 1,857 5,145 917 1,122 845 44,558 64,013
Long-term debt...... 390 12 396 339 356 598 36 1,442 3,569
Other............... 400 61 25 37 523
----- ------- ------- ------- ------- ------- ------- ------- ------- -------- --------
Total
liabilities.... 400 4,030 2,793 3,544 2,196 5,562 1,540 1,195 845 46,000 68,105
Stockholders'
equity:
Common stock...... 2 250 3 5 150 11 400 78 727 (1,622) 4
Additional paid-in
capital.......... 400 175 57 376 328 25 16,334 17,695
Retained
earnings......... (30) 2,039 5,174 5,661 1,537 2,179 640 493 43 (17,766) (30)
Less: Treasury
stock (476) 476
----- ------- ------- ------- ------- ------- ------- ------- ------- -------- --------
Total
stockholders'
equity......... 372 2,464 5,234 5,566 2,015 2,190 1,040 596 770 (2,578) 17,669
----- ------- ------- ------- ------- ------- ------- ------- ------- -------- --------
Total
liabilities and
stockholders'
equity......... $ 772 $ 6,494 $ 8,027 $ 9,110 $ 4,211 $ 7,752 $ 2,580 $ 1,791 $ 1,615 $ 43,422 $ 85,774
===== ======= ======= ======= ======= ======= ======= ======= ======= ======== ========
<CAPTION>
PRO FORMA
OFFERING
ADJUST-
MENTS AS
(SEE NOTE 3) ADJUSTED
------------ ---------
<S> <C> <C>
ASSETS
Cash and cash
equivalents........ $15,048 $ 20,982
Accounts receivable,
net................ 17,646
Inventories......... 5,177
Due from related
parties............ 250
Due from
stockholders.......
Prepaid expenses and
other.............. (455) 834
------------ ---------
Total current
assets......... 14,593 44,889
Property and
equipment, net..... 9,700
Due from related
parties............ 8
Due from
stockholders.......
Deferred taxes...... 278
Goodwill, net....... 44,075
Other assets........ 1,417
------------ ---------
Total assets.... $14,593 $100,367
============ =========
LIABILITIES AND
STOCKHOLDERS'
EQUITY
Short-term debt..... $ $ 3,540
Notes payable to
stockholders.......
Accounts payable and
accrued expenses... (400) 13,327
Due to related
parties............ 863
Income taxes
payable............ 1,246
Payable to
stockholders....... (44,637)
------------ ---------
Total current
liabilities.... (45,037) 18,976
Long-term debt...... 3,569
Other............... 523
------------ ---------
Total
liabilities.... (45,037) 23,068
Stockholders'
equity:
Common stock...... 5 9
Additional paid-in
capital.......... 59,625 77,320
Retained
earnings......... (30)
Less: Treasury
stock
------------ ---------
Total
stockholders'
equity......... 59,630 77,299
------------ ---------
Total
liabilities and
stockholders'
equity......... $14,593 $100,367
============ =========
</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 5,000,000 shares sold in the Offering necessary to pay
the cash portion of the Merger consideration, to fund the S Corporation
distributions and to pay expenses of this Offering and (iv) 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
SIX MONTHS ENDED JUNE 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.......... -- $22,165 $ 20,585 $16,412 $11,305 $10,552 $6,444 $4,827 $4,979 $ -- $ 97,269
Cost of sales...... -- 14,693 16,031 11,279 8,928 7,018 4,458 4,166 3,840 (290) 70,123
--- ------- -------- ------- ------- ------- ------ ------ ------ ------- ---------
Gross profit...... -- 7,472 4,554 5,133 2,377 3,534 1,986 661 1,139 290 27,146
Selling, general
and
administrative.... -- 6,533 5,249 4,429 1,944 3,241 1,421 496 802 (2,541) 21,574
Goodwill
amortization...... -- 545 545
--- ------- -------- ------- ------- ------- ------ ------ ------ ------- ---------
Income from
operations....... -- 939 (695) 704 433 293 565 165 337 2,286 5,027
Other (income)
expense:
Interest expense.. -- 58 17 5 121 20 5 82 308
Interest income... -- (12) (51) (20) (2) (53) (3) (20) (161)
Other, net........ -- (150) (93) (55) (6) (3) (43) (9) 1 (358)
--- ------- -------- ------- ------- ------- ------ ------ ------ ------- ---------
Income before
income taxes...... -- 1,043 (551) 762 436 228 591 169 356 2,204 5,238
Provision for
income taxes...... -- 61 183 84 30 69 1,886 2,313
--- ------- -------- ------- ------- ------- ------ ------ ------ ------- ---------
Net income......... -- $ 1,043 $ (551) $ 701 $ 253 $ 144 $ 561 $ 100 $ 356 $ 318 $ 2,925
=== ======= ======== ======= ======= ======= ====== ====== ====== ======= =========
Net income per
share $ .38
=========
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 5,000,000 shares sold in the Offering necessary to pay
the cash portion of the Merger consideration, to fund the S Corporation
distributions and to pay expenses of this Offering and (iv) 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-6
<PAGE>
U.S.A. FLORAL PRODUCTS, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 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.............. $20,410 $22,854 $16,375 $12,997 $10,897 $7,082 $6,803 $5,597 $ -- $ 103,015
Cost of sales.......... 13,204 17,759 11,080 10,139 7,128 4,793 5,575 4,259 (300) 73,637
---- ------- ------- ------- ------- ------- ------ ------ ------ ------- ---------
Gross profit.......... 7,206 5,095 5,295 2,858 3,769 2,289 1,228 1,338 300 29,378
Selling, general and
administrative........ $ 30 5,924 3,657 4,556 1,936 3,232 1,579 563 902 (288) 22,091
Goodwill amortization.. 545 545
---- ------- ------- ------- ------- ------- ------ ------ ------ ------- ---------
Income
(loss) from
operations........... (30) 1,282 1,438 739 922 537 710 665 436 43 6,742
Other (income) expense:
Interest expense...... 40 25 35 126 25 8 82 341
Interest income....... (10) (32) (23) (4) (68) (8) (17) (162)
Other, net............ (47) (27) (90) 7 (31) (54) (4) (9) (255)
---- ------- ------- ------- ------- ------- ------ ------ ------ ------- ---------
Income (loss) before
income taxes.......... (30) 1,299 1,497 827 884 510 747 661 462 (39) 6,818
Provision for income
taxes................. 70 339 163 36 294 2,043 2,945
---- ------- ------- ------- ------- ------- ------ ------ ------ ------- ---------
Net income (loss)...... $(30) $ 1,299 $ 1,497 $ 757 $ 545 $ 347 $ 711 $ 367 $ 462 $(2,082) $ 3,873
==== ======= ======= ======= ======= ======= ====== ====== ====== ======= =========
Net income per share... $ .50
=========
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 5,000,000 shares sold in the Offering necessary to pay
the cash portion of the Merger consideration, to fund the S Corporation
distributions and to pay expenses of this Offering and (iv) 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
USA Floral Products, Inc. ("USA Floral") was founded in April 1997 to create
a national consolidator and operator of floral products distribution
businesses. USA Floral has conducted no operations to date and will acquire
the Founding Companies concurrently with and as a condition to the closing of
this Offering.
The historical financial statements reflect the financial position and
results of operations of 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 six months ended June 30, 1996 and as of
and for the six months ended June 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 with the closing of this Offering,
USA Floral will acquire all of the outstanding capital stock of the Founding
Companies. The acquisitions will be accounted for using the purchase method of
accounting with USA Floral being treated as the accounting acquiror.
The following table sets forth the consideration to be paid (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 $4,800 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 June 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 $ 4,727 $ 6,273
CFX, Inc................ 5,790 250,000 $ 3,250 9,040 1,194 7,846
Bay State............... 6,000 495,550 6,442 12,442 4,374 8,068
Flower Trading.......... 5,900 160,000 2,080 7,980 1,515 6,465
United Wholesale
Florists, Inc.......... 4,773 268,500 3,491 8,264 2,363 5,901
American Florist Supply,
Inc.................... 4,800 -- 4,800 743 4,057
Monterey Bay............ 2,500 -- 2,500 596 1,904
Alpine Gem.............. 1,600 160,000 2,080 3,680 628 3,052
------- --------- ------- ------- ------- -------
Total................. $42,363 1,334,050 $17,343 $59,706 $16,140 $43,566
======= ========= ======= ======= ======= =======
</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.......... $ (800) $ (800) $58,255 $1,430 $(44,637) $15,048
Due from related
parties.............. $(1,620) (1,620)
Due from
stockholders......... (389) (389)
Prepaid expenses and
other................ (455) (455)
------- ------- ------ ---- ------- ------- -------- ------- ------ -------- -------
Total current
assets.............. (800) (2,009) (2,809) 57,800 1,430 (44,637) 14,593
Property and
equipment............ $ (842) $ 3,973 3,131
Due from
stockholders......... (654) (654)
Deferred taxes........ $188 188
Goodwill, net......... (188) 43,754 43,566
------- ------- ------ ---- ------- ------- -------- ------- ------ -------- -------
Total assets......... $ (800) $ (842) $ -- $47,727 $(2,663) $ 43,422 $57,800 $1,430 $(44,637) $14,593
======= ======= ====== ==== ======= ======= ======== ======= ====== ======== =======
LIABILITIES AND
STOCKHOLDERS' EQUITY
Notes payable to
stockholders......... $ (579) $ (579)
Accounts payable and
accrued expenses..... $ (400) $ (400)
Income taxes payable.. $ 500 500
Payable to
stockholders......... $42,363 $ 4,000 (1,726) 44,637 (44,637) (44,637)
------- ------- ------ ---- ------- ------- -------- ------- ------ -------- -------
Total current
liabilities......... 42,363 4,000 500 (2,305) 44,558 (400) (44,637) (45,037)
Long-term debt........ 1,800 (358) 1,442
------- ------- ------ ---- ------- ------- -------- ------- ------ -------- -------
Total liabilities.... 42,363 4,000 2,300 (2,663) 46,000 (400) (44,637) (45,037)
Stockholders' equity:
Common stock......... (1,622) (1,622) 5 5
Additional paid-in
capital............. (42,363) 58,697 16,334 58,195 1,430 59,625
Retained earnings.... (4,800) (842) (12,124) (17,766)
Treasury stock....... 476 476
------- ------- ------ ---- ------- ------- -------- ------- ------ -------- -------
Total stockholders'
equity.............. (42,363) (4,800) (842) 45,427 (2,578) 58,200 1,430 59,630
------- ------- ------ ---- ------- ------- -------- ------- ------ -------- -------
Total liabilities and
stockholders'
equity.............. $ -- $ (800) $ (842) $47,727 $(2,663) $ 43,422 $57,800 $1,430 $(44,637) $14,593
======= ======= ====== ==== ======= ======= ======== ======= ====== ======== =======
</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 June 30,
1997 totaling $800 ($350 for Bay State, $50 for Houff, $300 for American
Florist, $50 for Alpine Gem and $50 for CFX).
(c) Records the distribution by Bay State of certain real estate totaling $842
prior to the Merger.
(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 $288 at Roy Houff and a deferred tax liability at Alpine Gem
of $100.
(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 $43,566.
(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 $1,629 and payables of
$558 at United Wholesale, a shareholder receivable of $602 at CFX, a
shareholder receivable of $52 at Monterey Bay, a related party receivable
of $380 at Bay State and debt of $379 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 $1,726 has been recorded as a
reduction of the amounts payable to the shareholders at closing.
(g) Records the cash proceeds from the issuance of shares of USA Floral Common
Stock net of estimated offering costs (based on the initial public
offering of $13 per share). Offering 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 expected exercise of a stock option to be granted to Jonathan
J. Ledecky on the effective date of the registration statement.
(i) Records the use of Offering proceeds to i) pay the cash portion of the
consideration due to the stockholders of the Founding Companies in
connection with the Mergers ($42,363) and ii) fund the $4,000 S
Corporation distributions to stockholders of certain of the Founding
Companies, net of related parties receivables of $1,726.
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>
SIX MONTHS ENDED JUNE 30, 1996
-------------------------------------------------------------------
PRO FORMA
(A) (B) (C) (D) (E) (F) (G) ADJUSTMENTS
------- ------- ----- ------ ----- ----- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Costs of sales.......... $(290) $ (290)
Selling, general and
administrative......... $(2,686) $ (183) $ 328 (2,541)
Goodwill amortization... $ 545 545
------- ------- ----- ------ ----- ----- ------- --------
Income from
operations............ 2,686 (545) 183 (328) 290 2,286
Other (income) expense:
Interest expense....... $ 82 82
------- ------- ----- ------ ----- ----- ------- --------
Income before income
taxes.................. 2,686 (545) (82) 183 (328) 290 2,204
Provision for income
taxes.................. $ 1,886 1,886
------- ------- ----- ------ ----- ----- ------- --------
Net income.............. $ 2,686 $ (545) $ (82) $ 183 $(328) $ 290 $(1,886) $ 318
======= ======= ===== ====== ===== ===== ======= ========
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1997
-------------------------------------------------------------------
PRO FORMA
(A) (B) (C) (D) (E) (F) (G) ADJUSTMENTS
------- ------- ----- ------ ----- ----- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Costs of sales.......... $(300) $ (300)
Selling, general and
administrative......... $ (403) $ (183) $ 298 (288)
Goodwill amortization... $ 545 545
------- ------- ----- ------ ----- ----- ------- --------
Income from
operations............ 403 (545) 183 (298) 300 43
Other (income) expense:
Interest expense....... $ 82 82
------- ------- ----- ------ ----- ----- ------- --------
Income before income
taxes.................. 403 (545) (82) 183 (298) 300 (39)
Provision for income
taxes.................. $ 2,043 2,043
------- ------- ----- ------ ----- ----- ------- --------
Net income.............. $ 403 $ (545) $ (82) $ 183 $(298) $ 300 $(2,043) $ (2,082)
======= ======= ===== ====== ===== ===== ======= ========
</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 SIX MONTHS
ENDED JUNE 30,
---------------------
FOR THE YEAR ENDED
DECEMBER 31, 1996 1996 1997
------------------ ---------- ---------
<S> <C> <C> <C>
Roy Houff........................... $ 252 $ 126 $ 86
CFX, Inc............................ 2,629 2,235 108
Bay State........................... 196 108 95
Flower Trading...................... 116 15 --
United Wholesale.................... 232 114 114
American Florist.................... 65 32 32
Monterey Bay........................ 183 92 --
Alpine Gem.......................... (70) (36) (32)
------ ---------- --------
$3,603 $2,686 $ 403
====== ========== ========
</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 SIX MONTHS
ENDED JUNE 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) $ (280) $ (280)
Increase in depreciation expense
related to real estate acquired by
Houff (approximately $3,800 over
30-year useful life).............. 130 65 65
Increase in rental expense at Bay
State as a result of the distribu-
tion of real estate (book value of
$842) and subsequent leaseback.... 186 94 94
Elimination of Bay State deprecia-
tion on real estate distributed to
stockholders of Bay State......... (24) (12) (12)
Elimination of Bay State real es-
tate taxes on real estate distrib-
uted to stockholders of Bay
State............................. (98) (50) (50)
----- --------- ---------
$(367) $ (183) $ (183)
===== ========= =========
</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 $250 for the six months ended June 30, 1996
and $220 for the six months ended June 30, 1997), and (ii) compensation
expense associated
F-13
<PAGE>
U.S.A. FLORAL PRODUCTS, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
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 $78 for each of the six month periods ended June 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,
1997
--------
<S> <C>
ASSETS
Cash and cash equivalents............................................. $ 317
Deferred offering costs............................................... 455
-----
Total assets...................................................... $ 772
=====
LIABILITIES AND STOCKHOLDERS' EQUITY
Accrued liabilities................................................... $ 400
Stockholders' equity:
Common stock, $.001 par, 100,000,000 shares authorized, 2,400,000
shares issued and outstanding...................................... 2
Additional paid-in capital.......................................... 400
Accumulated deficit................................................. (30)
-----
Total stockholders' equity........................................ 372
-----
Total liabilities and stockholders' equity........................ $ 772
=====
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-16
<PAGE>
U.S.A. FLORAL PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS)
NOTE 1--BUSINESS AND ORGANIZATION
U.S.A. Floral Products, Inc., a Delaware corporation, ("USA Floral" or the
"Company") was founded in April 1997 to create a nationwide distributor of
floral products. USA Floral intends to acquire eight U.S. businesses (the
"Mergers"), upon consummation of an initial public offering (the "Offering")
of its common stock and, subsequent to the Offering, continue to acquire
through merger or purchase, similar companies to expand its national
operations.
USA Floral has not conducted any operations, and all activities to date have
related to the Offering and the Mergers. The Company's cash balances were
generated from the initial capitalization of the Company. Accordingly,
statements of operations and cash flows for this period would not provide
meaningful information and have been omitted. Operating expenses subsequent to
inception consist primarily of the salary of the Company's one employee which
has been expensed. As of June 30, 1997 approximately $455 has been incurred in
connection with the Offering and the Company has capitalized these costs as
Deferred Offering costs. These costs include legal and accounting fees which
will be offset against the proceeds of the Offering at closing. USA Floral is
dependent upon the Offering to execute the pending Mergers. There is no
assurance that the pending Mergers discussed will be completed or that USA
Floral will be able to generate future operating revenues.
NOTE 2--STOCKHOLDERS' EQUITY
Common Stock
In connection with the organization and initial capitalization of USA
Floral, the Company 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-17
<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 signed definitive agreements to
acquire by merger eight companies ("Founding Companies") to be effective
contemporaneously with the Offering. The companies to be acquired are The Roy
Houff Company, CFX, Inc., Flower Trading, Inc., Bay State Florist Supply,
Inc., United Wholesale Florists, Inc., American Florist Supply, Inc., Monterey
Bay Bouquet, Inc. and Bay Area Bouquets, Inc. and Alpine Gem Flower Shippers,
Inc. The aggregate consideration that will be paid by USA Floral to acquire
the Founding Companies is approximately $42,363 million in cash and 1,334,050
shares of Common Stock.
F-18
<PAGE>
U.S.A. FLORAL PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The following table reflects the consideration to be 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 $ 4,727 $ 6,273
CFX, Inc................ 5,790 250,000 $ 3,250 9,040 1,194 7,846
Bay State............... 6,000 495,550 6,442 12,442 4,374 8,068
Flower Trading.......... 5,900 160,000 2,080 7,980 1,515 6,465
United Wholesale
Florists, Inc.......... 4,773 268,500 3,491 8,264 2,363 5,901
American Florist Supply,
Inc.................... 4,800 -- 4,800 743 4,057
Monterey Bay............ 2,500 -- 2,500 596 1,904
Alpine Gem.............. 1,600 160,000 2,080 3,680 628 3,052
------- --------- ------- ------- ------- -------
Total................. $42,363 1,334,050 $17,343 $59,706 $16,140 $43,566
======= ========= ======= ======= ======= =======
</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 June 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.
F-19
<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-20
<PAGE>
THE ROY HOUFF COMPANY
BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------- JUNE 30,
1995 1996 1997
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................ $ 67 $ 210 $ 61
Accounts receivable, net......................... 4,101 3,604 3,210
Inventory........................................ 1,202 1,118 1,144
Prepaid expenses and other current assets........ 178 211 172
Advances to stockholder.......................... 88
------- ------- -------
Total current assets........................... 5,548 5,231 4,587
Property and equipment, net........................ 2,187 2,045 1,907
Advances to stockholder............................ 312
Intangible assets.................................. 78
------- ------- -------
Total assets................................... $ 8,125 $ 7,276 $ 6,494
======= ======= =======
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Bank line of credit.............................. $ 1,500 $ 400 $ 100
Notes payable--current........................... 120 120
Accounts payable................................. 3,827 3,519 2,799
Accrued expenses................................. 601 657 600
Due to related parties........................... 223 124 21
------- ------- -------
Total current liabilities...................... 6,151 4,820 3,640
Notes payable, net of current maturities........... 450 390
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 2,039
------- ------- -------
Total stockholder's equity..................... 1,974 2,006 2,464
------- ------- -------
Total liabilities and stockholder's equity..... $ 8,125 $ 7,276 $ 6,494
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-21
<PAGE>
THE ROY HOUFF COMPANY
STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------- ------------------
1994 1995 1996 1996 1997
------- ------- ------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales....................... $39,098 $41,531 $39,090 $ 22,165 $ 20,410
Cost of sales................... 26,683 27,899 25,537 14,693 13,204
------- ------- ------- -------- --------
Gross margin................ 12,415 13,632 13,553 7,472 7,206
Selling, general and
administrative expenses........ 11,617 12,695 12,789 6,533 5,924
------- ------- ------- -------- --------
Operating income............ 798 937 764 939 1,282
Other (income) expense:
Interest expense.............. 58 84 110 58 40
Interest income............... (34) (76) (39) (12) (10)
Other, net.................... (227) (151) (95) (150) (47)
------- ------- ------- -------- --------
Income before provision for
income taxes................... 1,001 1,080 788 1,043 1,299
Provision for income taxes...... 10 12 13
------- ------- ------- -------- --------
Net income...................... $ 991 $ 1,068 $ 775 $ 1,043 $ 1,299
======= ======= ======= ======== ========
Unaudited pro forma information:
Pro forma net income before
provision for income taxes... $ 1,001 $ 1,080 $ 788 $ 1,043 $ 1,299
Provision for income taxes.... 400 432 315 417 520
------- ------- ------- -------- --------
Pro forma income (see Note 2)... $ 601 $ 648 $ 473 $ 626 $ 779
======= ======= ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-22
<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)................. 1,299 1,299
Dividends paid (unaudited)............. (841) (841)
--- ---- ------- -------
Balance at June 30, 1997 (unaudited)..... 50 $425 $ 2,039 $ 2,464
=== ==== ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-23
<PAGE>
THE ROY HOUFF COMPANY
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------- ----------------
1994 1995 1996 1996 1997
------- -------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income....................... $ 991 $ 1,068 $ 775 $ 1,043 $ 1,299
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization... 460 546 687 316 435
Loss on disposal of fixed
assets......................... 3 123 144 (6)
Change in operating assets and
liabilities:
Accounts receivable............ (478) (147) 497 (22) 394
Inventory...................... (304) (295) 84 (99) (25)
Prepaid expenses and other
current assets................ (68) (46) (33) (83) 39
Due to affiliate............... (64) 17
Accounts payable and accrued
expenses...................... 494 344 (254) 136 (777)
------ -------- ------- ------- -------
Net cash provided by operating
activities................... 1,098 1,593 1,900 1,227 1,376
Cash flows from investing
activities:
Purchases of property and
equipment....................... (591) (1,043) (640) (184) (298)
Proceeds from disposal of
property and equipment.......... 30 6
------ -------- ------- ------- -------
Net cash used in investing
activities................... (591) (1,043) (610) (184) (292)
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) (967) (480)
Proceeds from notes payable...... 56 75 23
Payments of notes payable........ (26) (249) (117)
Stockholder dividends............ (785) (1,379) (743) (360) (841)
------ -------- ------- ------- -------
Net cash used in financing
activities................... (265) (982) (1,147) (1,015) (1,233)
Net increase (decrease) in cash
and cash equivalents............. 242 (432) 143 28 (149)
Cash and cash equivalents--
beginning of period.............. 257 499 67 67 210
------ -------- ------- ------- -------
Cash and cash equivalents--end of
period........................... $ 499 $ 67 $ 210 $ 95 $ 61
====== ======== ======= ======= =======
Supplemental disclosure of cash
flow information:
Cash paid during the period for
interest........................ $ 58 $ 84 $ 93 $ 58 $ 40
Cash paid during the period for
income taxes.................... $ 10 $ 12 $ 13
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-24
<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-25
<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-26
<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-27
<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-28
<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 have entered into a definitive agreement
with U.S.A. Floral Products, Inc. ("USA Floral") pursuant to which the Company
will merge with USA Floral. All outstanding shares of the Company will be
exchanged for cash concurrent with the consummation of the initial public
offering of the common stock of USA Floral.
The management fees, leasing payments and health insurance premiums paid to
a related party as described in Note 8 will be terminated upon consummation of
the merger. Additionally the properties owned by Roy Houff will be acquired by
the Company prior to the merger and the lease arrangement described in Note 8
will thereupon be terminated. All amounts due from Roy Houff will be repaid to
Houff upon consummation of the Houff merger.
F-29
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholders of
CFX, Inc.
In our opinion, the accompanying balance sheet and the related statements of
operations, stockholders' equity and of cash flows present fairly, in all
material respects, the financial position of CFX, Inc. at December 31, 1996,
and the results of its operations and its cash flows for the year then ended,
in conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for the
opinion expressed above. The financial statements of CFX, Inc. for the years
ended December 31, 1994 and 1995 were audited by other independent accountants
whose report dated March 8, 1996, expressed an unqualified opinion on those
statements.
Price Waterhouse LLP
Minneapolis, Minnesota
June 20, 1997
F-30
<PAGE>
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-31
<PAGE>
CFX, INC.
BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------- JUNE 30,
1995 1996 1997
------ ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 105 $1,385 $2,284
Marketable trading securities...................... 877
Accounts receivable, net........................... 3,143 3,242 3,916
Due from related parties........................... 96 397 210
Prepaid expenses and other current assets.......... 112 78 68
Advances to growers................................ 61 145 119
------ ------ ------
Total current assets............................. 4,394 5,247 6,597
Property and equipment, net.......................... 450 402 352
Other assets:
Due from related parties........................... 1,535 8
Cash surrender value--life insurance............... 247 207 207
Deposits........................................... 37 13 39
Advances to stockholders........................... 673 428 602
Advances to growers................................ 175 128
Other.............................................. 6 2 94
------ ------ ------
Total assets..................................... $7,342 $6,474 $8,027
====== ====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit..................................... $ 1 $ 1 $ 1
Current maturities of notes payable................ 16 18
Accounts payable................................... 403 548 558
Accrued expenses................................... 733 1,835 1,922
Due to related party growers....................... 925 316 282
------ ------ ------
Total current liabilities........................ 2,062 2,716 2,781
Notes payable, net of current maturities............. 21 12
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 5,174
------ ------ ------
Total stockholders' equity....................... 5,280 3,737 5,234
------ ------ ------
Total liabilities and stockholders' equity....... $7,342 $6,474 $8,027
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-32
<PAGE>
CFX, INC.
STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 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 $ 20,585 $ 22,854
Cost of sales (includes
purchases from related parties
of $9,081, $9,644 and
$12,263)....................... 23,839 24,328 28,190 16,031 17,759
------- ------- ------- -------- --------
Gross margin................ 6,751 7,768 7,494 4,554 5,095
Selling, general and
administrative expenses........ 6,266 6,773 8,956 5,249 3,657
------- ------- ------- -------- --------
Operating income (loss)..... 485 995 (1,462) (695) 1,438
Other (income) expense:
Interest income............... (117) (173) (115) (51) (32)
Other, net.................... 247 (370) (100) (93) (27)
------- ------- ------- -------- --------
Net income (loss)........... $ 355 $ 1,538 $(1,247) $ (551) $ 1,497
======= ======= ======= ======== ========
Unaudited pro forma information:
Pro forma net income (loss)
before provision (benefit)
for income taxes............. $ 355 $ 1,538 $(1,247) $ (551) $ 1,497
Provision (benefit) for income
taxes........................ 202 615 (499) (220) 599
------- ------- ------- -------- --------
Pro forma income (loss) (see
Note 2)...................... $ 153 $ 923 $ (748) $ (331) $ 898
======= ======= ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-33
<PAGE>
CFX, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
------------- PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
------ ------ ---------- -------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31,
1993........................ 600 $ 3 $57 $ 3,367 $ 3,427
Net income................. 355 355
--- --- --- ------- -------
Balance at December 31,
1994........................ 600 3 57 3,722 3,782
Net income................. 1,538 1,538
Dividends paid............. (40) (40)
--- --- --- ------- -------
Balance at December 31,
1995........................ 600 3 57 5,220 5,280
Net loss................... (1,247) (1,247)
Dividends paid............. (296) (296)
--- --- --- ------- -------
Balance at December 31,
1996........................ 600 3 57 3,677 3,737
Net income (unaudited)..... 1,497 1,497
--- --- --- ------- -------
Balance at June 30, 1997
(unaudited)................. 600 $ 3 $57 $ 5,174 $ 5,234
=== === === ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-34
<PAGE>
CFX, INC.
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 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) $ (551) $1,497
Adjustments to reconcile net
income (loss) to net cash
provided by operating activities:
Depreciation and amortization..... 244 265 264 110 115
Unrealized/realized loss (gain)
on marketable trading
securities....................... 118 (336) (92) (92)
Gain on disposal of property,
plant and equipment.............. (8) (1) (3)
Purchase of marketable trading
securities....................... (765) (14)
Proceeds on sale of marketable
trading securities............... 603 966 966
Changes in operating assets and
liabilities:
Accounts receivable.............. (504) (50) (99) (450) (674)
Prepaid expenses and other
current assets.................. (24) (13) 34 55 10
Long-term receivables............ 17 12 4
Other assets..................... 130 (42) 67 (3) (118)
Accounts payable and accrued
expenses........................ 402 (231) 1,231 2,810 98
Due from/to related parties...... 28 (383) (518) 251 (34)
------ -------- -------- ------ ------
Net cash provided by operating
activities..................... 1 1,341 609 3,093 894
Cash flows from investing
activities:
Advances to growers............... (33) 72 (243) 30 72
Decrease in certificate of
deposit.......................... 16 180
Purchases of property and
equipment........................ (166) (287) (179) (68) (65)
Proceeds from sale of equipment... 8 1 3
Advances to related parties....... (299) (450) (126) (51) (8)
Repayments from related parties... 253 24 1,269 1,524 187
Advances to stockholders.......... (255) (258) (1,557) (548) (174)
Repayments from stockholders...... 1,802
------ -------- -------- ------ ------
Net cash provided by (used in)
investing activities........... (484) (711) 967 890 12
Cash flows from financing
activities:
Borrowings/payments on bank line
of credit........................ 810 (810)
Repayments of long-term debt...... (77) (81) (1) (7)
Repayments of stockholders notes
payable.......................... (100)
Repayments of life insurance
loan............................. (254)
Stockholder dividends............. (40) (296) (296)
------ -------- -------- ------ ------
Net cash provided by (used in)
financing activities........... 479 (1,031) (296) (297) (7)
Net increase (decrease) in cash and
cash equivalents.................. (4) (401) 1,280 3,686 899
Cash and cash equivalents--
beginning of period............... 510 506 105 105 1,385
------ -------- -------- ------ ------
Cash and cash equivalents--end of
period............................ $ 506 $ 105 $ 1,385 $3,791 $2,284
====== ======== ======== ====== ======
Supplemental disclosure of cash
flow information:
Cash paid during the period for
interest......................... $ 46 $ 21 $ 2 $ 1 $ 12
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-35
<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-36
<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-37
<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-38
<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-39
<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-40
<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 have entered into a definitive agreement
with U.S.A. Floral Products, Inc. ("USA Floral") pursuant to which the Company
will merge with USA Floral. All outstanding shares of the Company will be
exchanged for cash and shares of USA Floral common stock concurrent with the
consummation of the initial public offering of the common stock of USA Floral.
All related party agreements, understandings and arrangements as outlined in
Note 7 will be amended upon consummation of the merger described above so that
all continuing obligations thereunder are no greater than they would be under
agreements with unaffiliated third parties. In addition, all advances to
stockholders balances will be paid to the Company with the consummation of the
initial public offering.
F-41
<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-42
<PAGE>
BAY STATE FLORIST SUPPLY, INC.
BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------- JUNE 30,
1995 1996 1997
------ ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................ $ 795 $ 791 $1,714
Accounts receivable, net......................... 3,090 3,413 3,076
Inventory........................................ 1,397 1,701 1,751
Due from related parties......................... 486 559 380
Prepaid expenses and other current assets........ 199 165 106
------ ------ ------
Total current assets........................... 5,967 6,629 7,027
Property and equipment, net........................ 1,339 1,505 1,605
Cash surrender value--life insurance............... 338 364 365
Other assets....................................... 13 13 113
------ ------ ------
Total assets................................... $7,657 $8,511 $9,110
====== ====== ======
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 2,060
Accrued expenses................................. 322 336 407
------ ------ ------
Total current liabilities...................... 1,813 2,287 2,748
Note payable, net of current maturities............ 412 358 396
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 5,661
Less: Treasury stock............................. (476) (476) (476)
------ ------ ------
Total stockholders' equity..................... 5,032 5,466 5,566
------ ------ ------
Total liabilities and stockholders' equity..... $7,657 $8,511 $9,110
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-43
<PAGE>
BAY STATE FLORIST SUPPLY, INC.
STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------- ----------------
1994 1995 1996 1996 1997
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales......................... $19,203 $25,592 $30,563 $16,412 $16,375
Cost of sales..................... 12,807 17,068 20,722 11,279 11,080
------- ------- ------- ------- -------
Gross margin.................. 6,396 8,524 9,841 5,133 5,295
Selling, general and
administrative expenses.......... 5,529 7,579 8,976 4,429 4,556
------- ------- ------- ------- -------
Operating income.............. 867 945 865 704 739
Other (income) expense:
Interest expense................ 9 16 33 17 25
Interest income................. (26) (48) (35) (20) (23)
Other, net...................... (199) (229) (247) (55) (90)
------- ------- ------- ------- -------
Income before income taxes........ 1,083 1,206 1,114 762 827
Provision for income taxes........ 125 87 81 61 70
------- ------- ------- ------- -------
Net income........................ $ 958 $ 1,119 $ 1,033 $ 701 $ 757
======= ======= ======= ======= =======
Unaudited pro forma information:
Pro forma net income before
provision for income taxes..... $ 1,083 $ 1,206 $ 1,114 $ 762 $ 827
Provision for income taxes...... 433 482 446 305 331
------- ------- ------- ------- -------
Pro forma income (see Note 2)... $ 650 $ 724 $ 668 $ 457 $ 496
======= ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-44
<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).......... 757 757
Dividends paid
(unaudited).......... (657) (657)
------- --- ---- ------ ----- ------
Balance at June 30, 1997
(unaudited)............ 461,840 $ 5 $376 $5,661 $(476) $5,566
======= === ==== ====== ===== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-45
<PAGE>
BAY STATE FLORIST SUPPLY, INC.
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 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 $ 701 $ 757
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation..................... 144 149 154 111 73
Change in operating assets and
liabilities:
Accounts receivable............ (51) (919) (323) (200) 337
Inventory...................... 87 (116) (304) (271) (51)
Prepaid expenses and other
current assets................ 18 (54) 34 (10) (40)
Accounts payable and accrued
expenses...................... (12) 681 274 (66) 430
Due from/to related parties.... (533) 47 (73)
------- ------- ------- ------ -------
Net cash provided by (used
in) operating activities.... 611 907 795 265 1,506
Cash flows from investing
activities:
Purchases of property and
equipment....................... (148) (219) (320) (95) (173)
Repayments from related parties.. 8 179
Cash surrender value of life
insurance....................... (16) (49) (26)
------- ------- ------- ------ -------
Net cash used in investing
activities.................. (164) (268) (346) (87) 6
Cash flows from financing
activities:
Proceeds from issuance of long-
term debt....................... 550 200 200 68
Payments of long-term debt....... (87) (54) (25)
Issuance of common stock......... 4
Purchase of treasury stock....... (54)
Stockholder dividends............ (769) (730) (599) (294) (657)
------- ------- ------- ------ -------
Net cash used in financing
activities.................. (215) (871) (453) (119) (589)
Net increase (decrease) in cash and
cash equivalents.................. 232 (232) (4) 59 923
Cash and cash equivalents--
beginning of period............... 795 1,027 795 795 791
------- ------- ------- ------ -------
Cash and cash equivalents--end of
period............................ $ 1,027 $ 795 $ 791 $ 854 $ 1,714
======= ======= ======= ====== =======
Supplemental disclosure of cash
flow information:
Cash paid during the period for
interest........................ $ 9 $ 16 $ 33 $ 17 $ 25
Note payable issued for
acquisition..................... $ 100
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-46
<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-47
<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-48
<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-49
<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-50
<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 have entered into a definitive agreement
with U.S.A Floral Products, Inc. ("USA Floral") pursuant to which the Company
will merge with USA Floral. All outstanding shares of the Company will be
exchanged for cash and shares of USA Floral common stock concurrent with the
consummation of the initial public offering of the common stock of USA Floral.
F-51
<PAGE>
BAY STATE FLORIST SUPPLY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
In conjunction with the merger the amounts Due From Related Parties will be
repaid and the proceeds will be used to pay the outstanding balance of the
Note Payable described in Note 7.
Additionally, the terms of the lease described in Note 9 will be evaluated
and renegotiated, if necessary, to ensure such terms are no less favorable to
the Company than those that Bay State could obtain with unaffiliated third
parties.
F-52
<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-53
<PAGE>
FLOWER TRADING CORPORATION
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------- JUNE 30,
1995 1996 1997
------ ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 126 $ 70 $ 862
Accounts receivable, net........................... 2,612 2,747 2,526
Officers, employees and related party receivables.. 21 38 40
Other receivables.................................. 109 10 18
Inventory.......................................... 23 52 47
Prepaid expenses and other current assets.......... 36 171 151
------ ------ ------
Total current assets........................... 2,927 3,088 3,644
Property and equipment, net.......................... 489 330 332
Cash surrender value--life insurance................. 39 44 44
Deferred income taxes................................ 91 79 90
Other assets......................................... 69 110 101
------ ------ ------
Total assets......................................... $3,615 $3,651 $4,211
====== ====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank line of credit................................ $ 200
Notes payable--current............................. $ 43 112 $ 104
Trade accounts payable............................. 862 669 667
Trade accounts payable due to affiliates........... 483 532 581
Other accounts payable and accrued expenses........ 86 277 255
Income taxes payable............................... 9 250
------ ------ ------
Total current liabilities........................ 1,483 1,790 1,857
Notes payable, net of current maturities............. 8 391 339
------ ------ ------
Total liabilities................................ 1,491 2,181 2,196
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 1,537
------ ------ ------
Total stockholders' equity....................... 2,124 1,470 2,015
------ ------ ------
Total liabilities and stockholders' equity....... $3,615 $3,651 $4,211
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-54
<PAGE>
FLOWER TRADING CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------- ------------------
1994 1995 1996 1996 1997
------- ------- ------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales........................ $18,478 $20,335 $20,313 $ 11,305 $ 12,997
Cost of sales (including
purchases from affiliated farms
of $2,612, $4,451, $3,921 for
the years ended December 31,
1994, 1995 and 1996 and $1,779
and $2,259 for the six months
ended June 30, 1996 and 1997,
respectively)................... 14,452 15,921 15,914 8,928 10,139
------- ------- ------- -------- --------
Gross profit................. 4,026 4,414 4,399 2,377 2,858
Selling, general and
administrative expenses......... 3,605 4,068 4,142 1,944 1,936
------- ------- ------- -------- --------
Operating income............. 421 346 257 433 922
Other (income) expense:
Interest expense............... 17 9 32 5 35
Interest income................ (11) (18) (5) (2) (4)
Write off of investment........ 181 129
Other, net..................... (87) (51) (9) (6) 7
------- ------- ------- -------- --------
Income before provision for
income taxes.................... 502 225 110 436 884
Provision for income taxes....... 201 95 48 183 339
------- ------- ------- -------- --------
Net income....................... $ 301 $ 130 $ 62 $ 253 $ 545
======= ======= ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-55
<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)...... 545 545
------- ----- ----- ------- -------
Balance at June 30, 1997
(unaudited).................. 160,000 $ 150 $ 328 $ 1,537 $ 2,015
======= ===== ===== ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-56
<PAGE>
FLOWER TRADING CORPORATION
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------- -------------
1994 1995 1996 1996 1997
------- ------- -------- ----- ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income.......................... $ 301 $ 130 $ 62 $ 253 $ 545
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization...... 196 216 202 93 80
Loss on investment................. 181 129
Loss on disposal of fixed assets... 40
Change in operating assets and
liabilities:
Accounts receivable............... 99 63 (53) (141) 211
Inventory......................... 19 (7) (29) 7 5
Prepaid expenses and other current
assets........................... 195 (15) (176) 5 20
Accounts payable.................. 43 (27) (144) (164) 47
Accrued expenses.................. (235) 59 191 (43) (22)
Income taxes payable.............. 78 (69) (9) 88 250
Deferred taxes asset and other
assets........................... 3 (91) 41 (2)
------- ------ -------- ----- ------
Net cash (used) provided by
operating activities............ 699 440 254 98 1,134
Cash flows from investing activities:
Purchase of investment.............. (181) (129)
Purchases of property and
equipment.......................... (83) (32) (82)
Proceeds from disposal of property
and equipment...................... (288) (162)
Cash surrender value of life
insurance.......................... 4 (5)
Advances to related parties......... (67) 28
------- ------ -------- ----- ------
Net cash used in investing
activities...................... (355) (311) (217) (32) (82)
Cash flows from financing activities:
Proceeds from issuance of long-term
debt............................... 1,100
Repayments of long-term debt........ (74) (74) (648) (37) (52)
Distribution to stockholders for
investment in subsidiary........... (745)
Borrowings (repayments) under line
of credit agreement, net........... (200) 200 (208)
------- ------ -------- ----- ------
Net cash (used) provided by in
financing activities............ (274) (74) (93) (37) (260)
Net increase (decrease) in cash and
cash equivalents.................... 70 55 (56) 29 792
Cash and cash equivalents--beginning
of period........................... 1 71 126 126 70
------- ------ -------- ----- ------
Cash and cash equivalents--end of
period.............................. $ 71 $ 126 $ 70 $ 155 $ 862
======= ====== ======== ===== ======
Supplemental disclosure of cash flow
information:
Cash paid during the period for
interest........................... $ 17 $ 9 $ 32 $ 4 $ 34
Cash paid during the period for
income taxes....................... $ 201 $ 189 $ 189 $ 73 $ 52
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-57
<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-58
<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-59
<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-60
<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-61
<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-62
<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 have entered into a definitive agreement
with USA Floral pursuant to which the Company will merge with USA Floral. All
outstanding shares of the Company will be exchanged for cash and shares of USA
Floral common stock concurrent with the consummation of the initial public
offering of the common stock of USA Floral.
Upon consummation of the merger described above, a portion of the Company's
related party agreements as outlined in Note 8 will be amended. The Company
will continue to pay a representative fee in connection with flowers shipped
from Colombia, however, the fee will be reduced from $3.50 per box to $0.50
per box 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-63
<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-64
<PAGE>
UNITED WHOLESALE FLORISTS, INC. AND
UNITED WHOLESALE FLORISTS OF AMERICA, INC.
COMBINED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
JUNE 30,
-------------
1996 1997
------ ------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...................................... $ 434 $ 625
Accounts receivable, net....................................... 1,062 1,186
Inventory...................................................... 1,799 1,963
Advances to affiliates......................................... 1,240
Advances to stockholders....................................... 389
Prepaid expenses and other current assets...................... 41 127
------ ------
Total current assets......................................... 3,336 5,530
Property and equipment, net...................................... 1,802 1,886
Advances to affiliates........................................... 1,059
Advances to stockholders......................................... 221
Goodwill......................................................... 233 222
Deferred income taxes............................................ 6
Other assets..................................................... 132 114
------ ------
Total assets................................................. $6,789 $7,752
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit................................................. $1,283 $1,683
Current maturities of long-term debt........................... 96 104
Current maturities of notes payable to stockholders............ 222 558
Current obligations under capital leases....................... 145 200
Accounts payable............................................... 2,127 2,179
Accrued expenses and other current liabilities................. 163 211
Income taxes payable........................................... 210
------ ------
Total current liabilities.................................... 4,036 5,145
Long-term debt................................................... 194 62
Obligations under capital leases................................. 195 294
Notes payable to stockholders.................................... 572
Other liabilities................................................ 84 61
Commitments and contingencies
Stockholders' equity:
Common stock................................................... 11 11
Retained earnings.............................................. 1,697 2,179
------ ------
Total stockholders' equity................................... 1,708 2,190
------ ------
Total liabilities and stockholders' equity................... $6,789 $7,752
====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-65
<PAGE>
UNITED WHOLESALE FLORISTS, INC. AND
UNITED WHOLESALE FLORISTS OF AMERICA, INC.
COMBINED STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Net sales........................................... $17,985 $19,030 $19,673
Cost of sales....................................... 11,556 12,563 12,862
------- ------- -------
Gross margin.................................... 6,429 6,467 6,811
Selling, general and administrative expenses........ 5,926 6,101 6,046
------- ------- -------
Operating income................................ 503 366 765
Other (income) expense:
Interest expense.................................. 227 236 231
Interest income................................... (91) (95) (133)
Other, net........................................ 9 (14) (20)
------- ------- -------
Income before income taxes.......................... 358 239 687
Provision for income taxes.......................... 171 95 205
------- ------- -------
Net income.......................................... $ 187 $ 144 $ 482
======= ======= =======
Unaudited pro forma information:
Pro forma net income before provision for income
taxes............................................ $ 358 $ 239 $ 687
Provision for income taxes........................ 143 96 275
------- ------- -------
Pro forma income (see Note 2)....................... $ 215 $ 143 $ 412
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-66
<PAGE>
UNITED WHOLESALE FLORISTS, INC. AND
UNITED WHOLESALE FLORISTS OF AMERICA, INC.
COMBINED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
------------- RETAINED STOCKHOLDERS'
SHARES AMOUNT EARNINGS EQUITY
------ ------ -------- -------------
<S> <C> <C> <C> <C>
Balance at June 30, 1994.................. 2,000 $ 11 $ 1,366 $1,377
Net income.............................. 187 187
----- ---- ------- ------
Balance at June 30, 1995.................. 2,000 11 1,553 1,564
Net income.............................. 144 144
----- ---- ------- ------
Balance at June 30, 1996.................. 2,000 11 1,697 1,708
Net income.............................. 482 482
----- ---- ------- ------
Balance at June 30, 1997.................. 2,000 $ 11 $ 2,179 $2,190
===== ==== ======= ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-67
<PAGE>
UNITED WHOLESALE FLORISTS, INC. AND
UNITED WHOLESALE FLORISTS OF AMERICA, INC.
COMBINED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------
1995 1996 1997
------ ------ -----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................................. $ 187 $ 144 $ 482
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization......................... 341 410 442
Deferred income taxes................................. 17 26 6
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)
Inventory............................................ 74 (99) (164)
Prepaid expenses and other current assets............ (6) (18) (86)
Accounts payable and accrued expenses................ (266) 881 100
Income taxes payable................................. 66 (153) 210
Changes in other assets............................... (6) (12) (12)
Changes in other liabilities.......................... (19) (21) (23)
------ ------ -----
Net cash provided by operating activities........... 402 1,025 831
Cash flows from investing activities:
Purchases of property and equipment.................... (304) (295) (107)
Proceeds from disposal of property and equipment....... 8 1
Advances to stockholders............................... (30) (155) (168)
Advances to affiliates................................. (151) (19) (181)
------ ------ -----
Net cash used in investing activities............... (477) (469) (455)
Cash flows from financing activities:
Net borrowings on line of credit....................... 300 383 400
Principal payments on capital lease obligations........ (207) (202) (225)
Proceeds from long-term debt........................... 470 57 18
Repayments on long-term debt........................... (990) (323) (142)
Proceeds from notes payable to stockholders............ 1,192 2
Repayments of notes payable to stockholders............ (849) (274) (236)
------ ------ -----
Net cash used in financing activities.................. (84) (357) (185)
------ ------ -----
Net increase (decrease) in cash and cash equivalents... (159) 199 191
Cash and cash equivalents--beginning of period......... 394 235 434
------ ------ -----
Cash and cash equivalents--end of period................ $ 235 $ 434 $ 625
====== ====== =====
Supplemental disclosure of cash flow information:
Cash paid during the period for interest............... $ 216 $ 231 $ 246
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
</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.
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-69
<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-70
<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-71
<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-72
<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-73
<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-74
<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 have entered into a definitive agreement
with USA Floral Products, Inc. ("USA Floral") pursuant to which the Company
will merge with USA Floral. All outstanding shares of the Company will be
exchanged for cash and shares of USA Floral common stock concurrent with the
consummation of the initial public offering of the common stock of USA Floral.
In conjunction with the merger all amounts Due from related parties and Due
from stockholders will be repaid to the Company. Additionally, amounts Due to
stockholders will be repaid by the Company.
F-75
<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-76
<PAGE>
AMERICAN FLORIST SUPPLY, INC.
BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------- JUNE 30,
1995 1996 1997
------ ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 3 $ 4 $ 421
Accounts receivable, net........................... 1,339 1,460 1,379
Inventory.......................................... 39 65 91
Notes receivable--stockholder...................... 21 231
Prepaid expenses and other current assets.......... 28 30 25
------ ------ ------
Total current assets............................. 1,430 1,790 1,916
Property and equipment, net.......................... 311 278 289
Goodwill and intangibles, net........................ 327 298 287
Restricted investments............................... 25 26 27
Other assets......................................... 43 46 61
------ ------ ------
Total assets..................................... $2,136 $2,438 $2,580
====== ====== ======
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Line of credit..................................... $ 80 $ 302
Accounts payable................................... 687 709 $ 727
Accrued expenses................................... 75 147 158
Income taxes payable............................... 21 29 32
------ ------ ------
Total current liabilities........................ 863 1,187 917
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.................................. 250 228 640
------ ------ ------
Total stockholder's equity....................... 650 628 1,040
------ ------ ------
Total liabilities and stockholder's equity....... $2,136 $2,438 $2,580
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-77
<PAGE>
AMERICAN FLORIST SUPPLY, INC.
STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
---------------- ------------------
1995 1996 1996 1997
------- ------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net sales................................ $10,783 $11,679 $ 6,444 $ 7,082
Cost of sales............................ 7,788 8,268 4,458 4,793
------- ------- -------- --------
Gross margin......................... 2,995 3,411 1,986 2,289
Selling, general and administrative
expenses................................ 2,531 2,723 1,421 1,579
------- ------- -------- --------
Operating income..................... 464 688 565 710
Other (income) expense:
Interest expense....................... 42 43 20 25
Interest income........................ (4) (11) (3) (8)
Other, net............................. (14) (64) (43) (54)
------- ------- -------- --------
Income before income taxes............... 440 720 591 747
Provision for income taxes............... 17 37 30 36
------- ------- -------- --------
Net income............................... $ 423 $ 683 $ 561 $ 711
======= ======= ======== ========
Unaudited pro forma information:
Pro forma net income before provision
for income taxes...................... $ 440 $ 720 $ 591 $ 747
Provision for income taxes............. 176 288 236 299
------- ------- -------- --------
Pro forma income (see Note 2).......... $ 264 $ 432 $ 355 $ 448
======= ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-78
<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).................. 711 711
Dividends paid (unaudited).............. (299) (299)
----- ---- ----- ------
Balance at June 30, 1997 (unaudited)...... 1,000 $400 $ 640 $1,040
===== ==== ===== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-79
<PAGE>
AMERICAN FLORIST SUPPLY, INC.
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
---------------- ------------------
1995 1996 1996 1997
------- ------- -------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income.............................. $ 423 $ 683 $ 561 $ 711
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization.......... 89 91 52 40
Loss on disposal of fixed assets....... 32 8 6
Changes in operating assets and
liabilities:
Accounts receivable................... (126) (121) 95 81
Inventory............................. (39) (26) (18) (26)
Prepaid expenses and other assets..... (1) (2) (11) (10)
Due from related parties.............. (16) (210) (20) 231
Accounts payable and accrued
expenses............................. (85) 94 43 29
Income taxes payable.................. 16 8 34 3
------- ------- ------- ---------
Net cash provided by operating
activities.......................... 293 525 736 1,065
Cash flows from investing activities:
Purchases of property and equipment..... (7) (45) (13) (50)
Equipment sale proceeds................. 2
Purchases of investments................ (2) (1) (1)
------- ------- ------- ---------
Net cash used in investing
activities.......................... (9) (44) (13) (51)
Cash flows from financing activities:
Proceeds from issuance of long-term
debt................................... 1,576 1,861 589 1,773
Repayments on note payable.............. (1,595) (1,636) (669) (2,071)
Stockholder dividends................... (265) (705) (276) (299)
------- ------- ------- ---------
Net cash used in financing
activities.......................... (284) (480) (356) (597)
Net increase in cash and cash
equivalents............................. 1 367 417
Cash and cash equivalents--beginning of
period.................................. 3 3 3 4
------- ------- ------- ---------
Cash and cash equivalents--end of
period.................................. $ 3 $ 4 $ 370 $ 421
======= ======= ======= =========
Supplemental disclosure of cash flow
information:
Cash paid during the period for
interest............................... $ 42 $ 43 $ 20 $ 20
Cash paid during the period for taxes... $ 15 $ 17 $ 11 $ 21
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-80
<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-81
<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-82
<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-83
<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-84
<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 have entered into a definitive agreement
with U.S.A. Floral Products, Inc. ("USA Floral") pursuant to which the Company
will merge with USA Floral. All outstanding shares of the Company will be
exchanged for cash concurrent with the consummation of the initial public
offering of the common stock of USA Floral. Pursuant to the definitive
agreement, the Company's shareholders may receive additional consideration in
the form of shares of USA Floral's common stock based upon 1997 earnings.
In conjunction with the merger the amounts outstanding under Notes
Receivable from stockholders will be paid to the Company.
F-85
<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-86
<PAGE>
MONTEREY BAY BOUQUET, INC. AND
BAY AREA BOUQUETS, INC.
COMBINED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------- JUNE 30,
1995 1996 1997
------ ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 34 $ 19 $ 319
Accounts receivable................................ 673 909 912
Inventory.......................................... 138 126 181
Prepaid expenses and other current assets.......... 8 9 28
------ ------ ------
Total current assets............................. 853 1,063 1,440
Property and equipment, net.......................... 158 144 175
Other assets:
Cash surrender value--life insurance............... 43 73 88
Intangibles........................................ 47 41
Advances to stockholders........................... 52
Other.............................................. 36
------ ------ ------
Total assets..................................... $1,101 $1,321 $1,791
====== ====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Credit line payable................................ $ 100 $ 49 $ 50
Current maturities of long-term debt............... 20 6 34
Accounts payable................................... 591 783 737
Accrued expenses................................... 81 167 47
Notes payable to officers and stockholders......... 47 10
Income taxes payable............................... 3 12 254
------ ------ ------
Total current liabilities........................ 842 1,027 1,122
Long-term debt, net of current maturities............ 30 24 36
Growers contract--related party...................... 48 41
Other long-term liabilities.......................... 37
------ ------ ------
Total liabilities................................ 920 1,092 1,195
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.................................. 78 126 493
------ ------ ------
Total stockholders' equity....................... 181 229 596
------ ------ ------
Total liabilities and stockholders' equity....... $1,101 $1,321 $1,791
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-87
<PAGE>
MONTEREY BAY BOUQUET, INC. AND
BAY AREA BOUQUETS, INC.
COMBINED STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
-------------- ------------------
1995 1996 1996 1997
------ ------ -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net sales................................. $6,903 $9,477 $ 4,827 $ 6,803
Cost of sales............................. 5,959 8,285 4,166 5,575
------ ------ -------- --------
Gross margin.......................... 944 1,192 661 1,228
Selling, general and administrative
expenses................................. 910 1,113 496 563
------ ------ -------- --------
Operating income...................... 34 79 165 665
Other (income) expense:
Interest expense........................ 13 15 5 8
Other, net.............................. (9) (8) (9) (4)
------ ------ -------- --------
Income before provision for income taxes.. 30 72 169 661
Provision for income taxes................ 10 24 69 294
------ ------ -------- --------
Net income................................ $ 20 $ 48 $ 100 $ 367
====== ====== ======== ========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-88
<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)................. 367 367
------- ---- ---- ----
Balance at June 30, 1997 (unaudited)..... 102,602 $103 $493 $596
======= ==== ==== ====
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-89
<PAGE>
MONTEREY BAY BOUQUET, INC. AND
BAY AREA BOUQUETS, INC.
COMBINED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
-------------- ------------
1995 1996 1996 1997
------ ------ ----- -----
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income...................................... $ 20 $ 48 $ 100 $ 367
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.................. 64 87 2 41
Change in deferred income taxes................ 1 (3) 69
Change in operating assets and liabilities:
Accounts receivable........................... (157) (236) 95 (3)
Inventory..................................... (51) 12 84 (55)
Prepaid expenses and other current assets..... (6) (1) (16) (19)
Income taxes payable.......................... 6 12 1 243
Accounts payable and accrued expenses......... 180 278 (193) (171)
Grower contract............................... (8) (2)
------ ------ ----- -----
Net cash provided by operating activities.... 57 189 140 403
Cash flows from investing activities:
Purchases of property and equipment............. (97) (63) (32) (67)
Cash surrender value of life insurance.......... (15) (15)
Increase in officer receivable.................. (30) (30) (70)
Increase in intangibles......................... (12) (3)
------ ------ ----- -----
Net cash used in investing activities........ (139) (96) (117) (82)
Cash flows from financing activities:
Advances to stockholder......................... (28) (37) (52)
Proceeds from issuance of common stock.......... 25
Net borrowings (repayments) on line of credit... 19 (51) (30) 1
Repayments from related parties................. 14
Proceeds from issuance of long-term debt........ 40 3
Repayments of long-term debt.................... (29) (20) (10)
Proceeds from stockholder loans................. 75 5 27
------ ------ ----- -----
Net cash (used in) provided by financing
activities.................................. 116 (108) (35) (21)
Net increase (decrease) in cash and cash
equivalents..................................... 34 (15) (12) 300
Cash and cash equivalents--beginning of period... 34 34 19
------ ------ ----- -----
Cash and cash equivalents--end of period......... $ 34 $ 19 $ 22 $ 319
====== ====== ===== =====
Supplemental disclosure of cash flow information:
Cash paid during the period for interest........ $ 13 $ 15 $ 4 $ 8
Cash paid during the period for income taxes.... $ 4 $ 14 $ 3
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-90
<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-91
<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-92
<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-93
<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-94
<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 have entered into a definitive agreement
with U.S.A. Floral Products, Inc. ("USA Floral") pursuant to which the Company
will merge with USA Floral. All outstanding shares of the Company will be
exchanged for cash concurrent with the consummation of the initial public
offering of the common stock of USA Floral. Pursuant to the definitive
agreement, the Company's shareholders may receive additional consideration of
$500 in cash and additional shares of USA Floral's common stock based upon
1997 earnings.
In conjunction with the merger, all amounts due from related parties and all
amounts due from stockholders will be repaid to the Company.
The Company's line of credit was renewed in July 1997.
F-95
<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-96
<PAGE>
ALPINE GEM FLOWER SHIPPERS, INC.
BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------- JUNE 30,
1995 1996 1997
------ ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $ 162 $ 1 $ 131
Accounts receivable............................... 1,070 1,215 1,441
Prepaid expenses and other current assets......... 19 18 20
------ ------ ------
Total current assets............................ 1,251 1,234 1,592
Property and equipment, net......................... 18 26 23
------ ------ ------
Total assets.................................... $1,269 $1,260 $1,615
====== ====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................. $ 357 $ 469 $ 632
Commissions payable............................... 147 168 198
Accrued expenses.................................. 16 14 15
------ ------ ------
Total liabilities............................... 520 651 845
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) 43
------ ------ ------
Total stockholders' equity...................... 749 609 770
------ ------ ------
Total liabilities and stockholders' equity...... $1,269 $1,260 $1,615
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-97
<PAGE>
ALPINE GEM FLOWER SHIPPERS, INC.
STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
-------------- ------------------
1995 1996 1996 1997
------ ------ -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net sales.................................. $8,139 $9,334 $ 4,979 $ 5,597
Cost of sales.............................. 6,287 7,132 3,840 4,259
------ ------ -------- --------
Gross margin........................... 1,852 2,202 1,139 1,338
Selling, general and administrative
expenses.................................. 1,526 1,868 802 902
------ ------ -------- --------
Operating income....................... 326 334 337 436
Other (income) expense:
Interest income.......................... (35) (41) (20) (17)
Other, net............................... (12) (13) 1 (9)
------ ------ -------- --------
Net income................................. $ 373 $ 388 $ 356 $ 462
====== ====== ======== ========
Unaudited pro forma information:
Pro forma net income before provision for
income taxes............................ $ 373 $ 388 $ 356 $ 462
Provision for income taxes............... 149 155 142 185
------ ------ -------- --------
Pro forma income (see Note 2)............ $ 224 $ 233 $ 214 $ 277
====== ====== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-98
<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).................. 462 462
Dividends paid (unaudited).............. (301) (301)
------ ---- ----- -----
Balance at June 30, 1997 (unaudited)...... 20,000 $727 $ 43 $ 770
====== ==== ===== =====
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-99
<PAGE>
ALPINE GEM FLOWER SHIPPERS, INC.
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
-------------- ------------
1995 1996 1996 1997
------ ------ ----- -----
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income...................................... $ 373 $ 388 $ 356 $ 462
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation................................... 13 27 13 4
Change in operating assets and liabilities:
Accounts receivable........................... (266) (145) (201) (226)
Prepaid expenses and other current assets..... (5) 1 (10) (2)
Accounts payable and accrued expenses......... 79 131 164 194
------ ------ ----- -----
Net cash provided by operating activities.... 194 402 322 432
Cash flows from investing activities:
Purchases of property and equipment............. (3) (40) (31) (1)
Proceeds from disposal of property and
equipment...................................... 5
------ ------ ----- -----
Net cash used in investing activities........ (3) (35) (31) (1)
Cash flows from financing activities:
Proceeds from short-term loan from
stockholders...................................
Stockholder dividends........................... (292) (528) (67) (301)
------ ------ ----- -----
Net cash (used in) provided by financing
activities.................................. (292) (528) (67) (301)
Net increase (decrease) in cash and cash
equivalents..................................... (101) (161) 224 130
Cash and cash equivalents--beginning of period... 263 162 162 1
------ ------ ----- -----
Cash and cash equivalents--end of period......... $ 162 $ 1 $ 386 $ 131
====== ====== ===== =====
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-100
<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-101
<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-102
<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 have entered into a definitive agreement
with U.S.A. Floral Products, Inc. ("USA Floral") pursuant to which the Company
will merge with USA Floral. All outstanding shares of the Company will be
exchanged for cash and shares of USA Floral common stock concurrent with the
consummation of initial public offering of the common stock of USA Floral.
F-103
<PAGE>
[THIS INSIDE BACK COVER PAGE DEPICTS THE CORPORATE LOGOS OF THE REGISTRANT AND
THE OTHER FOUNDING COMPANIES.]
<PAGE>
[THE OUTSIDE BACK COVER PAGE DEPICTS THE REGISTRANT'S CORPORATE LOGO]
