<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________
FORM 8-K/A
(Amendment No. 1)
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): January 28, 1998
U.S.A. Floral Products, Inc.
(Exact Name of Registrant as Specified in Charter)
Delaware 000-23121 52-2030697
(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
1025 Thomas Jefferson Street, N.W., Suite 600 West, Washington, D.C. 20007
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (202) 333-0800
<PAGE>
U.S.A. Floral Products, Inc. (the "Company") hereby amends and restates
Item 7 of its Current Report on Form 8-K, dated February 9, 1998, as follows:
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a)(i) Financial Statements of Businesses Acquired. Financial Statements
of Continental Farms Limited and Atlantic Bouquet Company Limited as of December
31, 1996 and 1997 and for each of the three years in the period ended December
31, 1997.
(ii) Financial Statements of XL Group, Inc. as of December 31, 1997 and
for the year then ended.
(iii) Financial Statements of Koehler & Dramm, Inc. as of July 31, 1997
and for the year then ended.
(b) Pro Forma Financial Information. Pro Forma Financial Information as
of December 31, 1997 and for the year then ended.
(c) Exhibits. The following exhibits are filed as part of this Current
Report on Form 8-K:
<TABLE>
<CAPTION>
Description Exhibit No.
- ----------------------------------------------------------------------
<S> <C>
Purchase Agreement by and among U.S.A. Floral 2.1*
Products, Inc., CFL Acquisition Corp., ABCL
Acquisition Corp., Continental Farms Limited, Atlantic
Bouquet Company Limited, Continental Farms
Management, Inc. and the Limited Partners named
therein.
Agreement and Plan of Reorganization by and among 2.2*
U.S.A. Floral Products, Inc., XLG Acquisition Corp.,
XL Group, Inc. and Peter F. Ullrich.
Agreement and Plan of Reorganization by and among 2.3**
U.S.A. Floral Products, Inc., KDI Acquisition Corp.,
Koehler & Dramm, Inc. and the Stockholders named
therein.
Consent of Price Waterhouse LLP 23.1***
</TABLE>
__________
* Previously filed as part of the Company's Current Report on Form 8-K, filed
on February 9, 1998 (File No. 000-23121), and omitted pursuant to General
Instruction B.3 of Form 8-K.
** Previously filed as part of the Company's Registration Statement on Form S-
1, filed March 6, 1998 (File No. 333-39969), and omitted pursuant to
General Instruction B.3 of Form 8-K.
*** Filed herewith.
<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......................... 1
Unaudited Pro Forma Combined Balance Sheet................................................ 2
Unaudited Pro Forma Combined Statement of Operations...................................... 3
Notes to Unaudited Pro Forma Combined Financial Statements................................ 4
CONTINENTAL FARMS LIMITED and ATLANTIC BOUQUET COMPANY LIMITED
Report of Independent Certified Public Accountants........................................ 9
Consolidated Balance Sheet................................................................ 10
Consolidated Statement of Operations...................................................... 11
Consolidated Statement of Stockholders' Equity and Partners' Capital...................... 12
Consolidated Statement of Cash Flows...................................................... 13
Notes to Financial Statements............................................................. 14
XL GROUP, INC.
Report of Independent Certified Public Accountants........................................ 20
Balance Sheet............................................................................. 21
Statement of Operations................................................................... 22
Statement of Stockholder's Equity......................................................... 23
Statement of Cash Flows................................................................... 24
Notes to Financial Statements............................................................. 25
KOEHLER & DRAMM, INC.
Report of Independent Accountants......................................................... 30
Balance Sheet............................................................................. 31
Consolidated Statement of Operations...................................................... 32
Consolidated Statement of Stockholders' Equity............................................ 33
Consolidated Statement of Cash Flows...................................................... 34
Notes to Consolidated Financial Statements................................................ 35
</TABLE>
<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
acquisitions completed through January 28, 1998 by U.S.A. Floral Products, Inc.
("USA Floral").
The unaudited pro forma combined balance sheet gives effect to the acquisition
of Continental Farms Limited and Atlantic Bouquet Company Limited
("Continental"), XL Group, Inc. ("XL Group"), Koehler & Dramm, Inc. ("Koehler &
Dramm"), Everflora, Inc. and Everflora Miami, Inc. ("Everflora"), H&H Flowers,
Inc. ("H&H Flowers") and UltraFlora Corporation ("UltraFlora") (collectively
the "Recent Acquisitions"), consummated in January 1998 as if all such
acquisitions had occurred as of the Company's most recent balance sheet date,
December 31, 1997. Continental, XL Group and Koehler & Dramm are considered
significant under the rules and regulations of the Securities and Exchange
Commission and are therefore referred to as the "Significant Recent
Acquisitions".
The unaudited pro forma combined statement of operations gives effect to (i)
USA Floral's initial public offering ("IPO") of Common Stock on October 16, 1997
as if such offering had occurred on January 1, 1997; (ii) the acquisition,
effective October 16, 1997, of the Founding Companies which were business
combinations accounted for under the purchase method of accounting as if such
acquisitions had been consummated on January 1, 1997; and (iii) the acquisition
in January 1998 of the Recent Acquisitions which were business combinations
accounted for under the purchase method of accounting, as if such acquisitions
had been consummated on January 1, 1997.
The pro forma statement of operations for the year ended December 31, 1997
includes (i) the audited financial statements of USA Floral for the period April
22, 1997 to December 31, 1997 which include the operating results of the
Founding Companies subsequent to October 16, 1997; (ii) the audited financial
statements of the Founding Companies for the period January 1, 1997 to the
acquisition date of October 15, 1997, except that unaudited financial
information for the period January 1, 1997 to October 15, 1997 is included for
United Wholesale, whose fiscal year end was June 30; (iii) the audited financial
statements of Continental and XL Group for the year ended December 31, 1997; and
(iv) unaudited financial statements for Koehler & Dramm whose fiscal year end is
July 31, and for Everflora, H&H Flowers and UltraFlora (collectively the "Other
Acquisitions") for the year ended December 31, 1997.
The pro forma adjustments are based on preliminary estimates, available
information and certain assumptions that management deems appropriate, and may
be revised as additional information becomes available. The pro forma financial
data presented herein does 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.
The unaudited pro forma combined financial statements should be read in
conjunction with the other financial statements and notes thereto included
elsewhere in this Form 8-K/A and USA Floral's consolidated financial statements
and notes thereto included in its Annual Report on Form 10-K for the year ended
December 31, 1997.
1
<PAGE>
U.S.A. FLORAL PRODUCTS, INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
DECEMBER 31, 1997
(in thousands)
<TABLE>
<CAPTION>
Pro Forma
Pro Forma Significant Other
USA Continental XL Koehler & Adjustments Recent Recent
Floral Farms Group Dramm (See Note 3) Acquisitions Acquisitions
-------- ----------- ------ --------- ------------- ------------ ------------
ASSETS
<S> <C> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents................ $ 15,582 $ 8,124 $1,200 $ 339 $(13,232) $ 12,013 $ 556
Accounts receivable, net................. 18,505 6,165 2,858 2,637 -- 30,165 7,265
Inventory................................ 4,937 693 -- 1,654 -- 7,284 930
Due from related parties................. 1,153 -- 4,658 -- (4,605) 1,206 --
Prepaid expenses and other............... 1,011 34 47 110 -- 1,202 460
-------- ------- ------ ------ -------- -------- -------
Total current assets................... 41,188 15,016 8,763 4,740 (17,837) 51,870 9,211
-------- ------- ------ ------ -------- -------- -------
Property and equipment, net.............. 8,726 4,031 692 576 1,000 15,025 1,293
Due from related parties................. 994 -- -- -- -- 994 --
Deferred income taxes.................... 394 -- -- -- -- 394 20
Goodwill, net............................ 52,569 -- -- -- 72,023 124,592 --
Restricted cash.......................... -- -- -- -- 3,500 3,500 --
Other assets............................. 3,377 258 13 150 (444) 3,354 575
-------- ------- ------ ------ -------- -------- -------
Total assets........................... $107,248 $19,305 $9,468 $5,466 $ 58,242 $199,729 $11,099
-------- ------- ------ ------ -------- -------- -------
LIABILITIES AND
STOCKHOLDERS' EQUITY
Short-term debt.......................... $ 290 $ 100 -- -- $ 39,779 $ 40,169 $ 787
Accounts payable and accrued
expenses................................ 12,734 6,294 $ 286 $1,139 1,229 21,682 4,162
Due to stockholders...................... 6,060 -- -- -- -- 6,060 --
Income taxes payable..................... 1,008 -- -- -- -- 1,008 381
Due to related parties................... 36 66 3,364 -- (3,466) 1,135
-------- ------- ------ ------ -------- -------- -------
Total current liabilities.............. 20,128 6,460 3,650 1,139 37,542 68,919 6,465
-------- ------- ------ ------ -------- -------- -------
Long-term debt........................... 309 900 -- 27 (900) 336 25
Deferred income taxes.................... 97 -- -- -- 160 257 5
Other.................................... 549 -- -- 3 -- 552 5
-------- ------- ------ ------ -------- -------- -------
Total liabilities...................... 21,083 7,360 3,650 1,169 36,802 70,064 6,500
-------- ------- ------ ------ -------- -------- -------
Stockholders' equity:
Common stock............................ 9 -- -- 227 (224) 12 40
Additional paid-in capital.............. 85,740 11,945 200 21 31,331 129,237 682
Retained earnings....................... 416 -- 5,618 4,049 (9,667) 416 3,877
-------- ------- ------ ------ -------- -------- -------
Total stockholders' equity............. 86,165 11,945 5,818 4,297 21,440 129,665 4,599
-------- ------- ------ ------ -------- -------- -------
Total liabilities and stockholders'
equity............................... $107,248 $19,305 $9,468 $5,466 $ 58,242 $199,729 $11,099
======== ======= ====== ====== ======== ======== =======
<CAPTION>
Pro Forma
Adjustments Pro Forma
(See Note 3) Combined
------------ ---------
ASSETS
<S> <C> <C>
Cash and cash equivalents................ $(8,350) $ 4,219
Accounts receivable, net................. -- 37,430
Inventory................................ -- 8,214
Due from related parties................. (1,135) 71
Prepaid expenses and other............... -- 1,662
------- --------
Total current assets................... (9,485) 51,596
------- --------
Property and equipment, net.............. -- 16,318
Due from related parties................. -- 994
Deferred income taxes.................... -- 414
Goodwill, net............................ 17,385 141,977
Restricted cash.......................... -- 3,500
Other assets............................. (274) 3,655
------- --------
Total assets........................... $ 7,626 $218,454
------- --------
LIABILITIES AND
STOCKHOLDERS' EQUITY
Short-term debt.......................... $ 40,956
Accounts payable and accrued
expenses................................ $ 592 26,436
Due to stockholders...................... -- 6,060
Income taxes payable..................... 1,389
Due to related parties................... (1,135) --
------- --------
Total current liabilities.............. (543) 74,841
------- --------
Long-term debt........................... -- 361
Deferred income taxes.................... -- 262
Other.................................... -- 557
------- --------
Total liabilities...................... (543) 76,021
------- --------
Stockholders' equity:
Common stock............................ (39) 13
Additional paid-in capital.............. 12,085 142,004
Retained earnings....................... (3,877) 416
------- --------
Total stockholders' equity............. 8,169 142,433
------- --------
Total liabilities and stockholders'
equity............................... $ 7,626 $218,454
======= ========
</TABLE>
See notes to unaudited pro forma combined financial statements.
2
<PAGE>
U.S.A. FLORAL PRODUCTS, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(in thousands, except share data)
<TABLE>
<CAPTION>
Pro Forma Pro Forma
USA Founding Adjustments Founding Continental XL
Floral Companies (See Note 4) Companies Farms Group
----------- ---------- ------------ ----------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Net sales................................... $ 37,380 $146,744 $ -- $ 184,124 $62,494 $32,329
Cost of sales............................... 26,685 104,991 (420) 131,256 44,774 24,443
---------- -------- ------- ---------- ------- -------
Gross profit.............................. 10,695 41,753 420 52,868 17,720 7,886
Selling, general and administrative......... 9,791 36,320 (1,995) 44,116 12,820 7,284
Goodwill amortization....................... 275 -- 1,046 1,321 -- --
---------- -------- ------- ---------- ------- -------
Income from operations.................... 629 5,433 1,369 7,431 4,900 602
Other (income) expense:
Interest expense........................... 8 435 (325) 118 57 --
Interest income............................ (248) (340) -- (588) (458) (40)
Other, net................................. (37) (366) -- (403) (58) (4)
---------- -------- ------- ---------- ------- -------
Income before income taxes.................. 906 5,704 1,694 8,304 5,359 646
Provision for income taxes.................. 490 960 2,400 3,850 -- --
---------- -------- ------- ---------- ------- -------
Net income.................................. $ 416 $ 4,744 $ (706) $ 4,454 $ 5,359 $ 646
========== ======== ======= ========== ======= =======
Net income per share, basic and diluted..... $0.09
==========
Weighted average shares outstanding:
Basic...................................... 4,734,198
==========
Diluted.................................... 4,824,097
==========
Pro forma net income per share, basic
and diluted............................... $0.50
==========
Shares used in computing pro forma net
income per share (see Note 6):
Basic...................................... 8,845,711
==========
Diluted.................................... 8,944,382
==========
<CAPTION>
Pro Forma
Founding
Pro Forma Companies
Pro Forma Significant Other Pro Forma and All
Koehler Adjustments Recent Recent Adjustments Recent
& Dramm (See Note 5) Acquisitions Acquisitions (See Note 5) Acquisitions
--------- ------------ ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Net sales................................... $22,685 $301,632 $55,109 $ 356,741
Cost of sales............................... 15,882 $(2,701) 213,654 44,146 $(213) 257,587
------- ------- -------- ------- ----- -----------
Gross profit.............................. 6,803 2,701 87,978 10,963 213 99,154
Selling, general and administrative......... 5,425 (996) 68,649 8,500 (97) 77,052
Goodwill amortization....................... -- 1,800 3,121 -- 435 3,556
------- ------- -------- ------- ----- -----------
Income from operations.................... 1,378 1,897 16,208 2,463 (125) 18,546
Other (income) expense:
Interest expense........................... 4 3,313 3,492 94 3,586
Interest income............................ -- 132 (954) (115) 206 (863)
Other, net................................. (63) (528) (20) -- (548)
------- ------- -------- ------- ----- -----------
Income before income taxes.................. 1,437 (1,548) 14,198 2,504 (331) 16,371
Provision for income taxes.................. 551 2,527 6,928 582 461 7,971
------- ------- -------- ------- ----- -----------
Net income.................................. $ 886 $(4,075) $ 7,270 $ 1,922 $(792) $ 8,400
======= ======= ======== ======= ===== ===========
Net income per share, basic and diluted.....
Weighted average shares outstanding:
Basic......................................
Diluted....................................
Pro forma net income per share, basic
and diluted............................... $ .63
===========
Shares used in computing pro forma net
income per share (see Note 6):
Basic...................................... 13,278,610
===========
Diluted.................................... 13,377,281
===========
</TABLE>
See notes to unaudited pro forma combined financial statements.
3
<PAGE>
FLORAL PRODUCTS, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
(in thousands, except share data)
NOTE 1--ACQUISITION OF FOUNDING COMPANIES
USA Floral was founded in April 1997 to create a national consolidator and
operator of floral products distribution businesses. Effective October 16, 1997
USA Floral acquired all of the outstanding capital stock of the Founding
Companies concurrently with the closing of its IPO. These business combinations
were accounted for under the purchase method of accounting.
The following table sets forth the consideration paid in cash and 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 purchase price for financial accounting purposes,
the value of Common Stock is based upon the IPO price of $13.00 per share.
<TABLE>
<CAPTION>
Shares of Net
Common Value of Total Assets
Cash(1) Stock Shares Consideration Acquired Goodwill
------------ ----------- ----------- ------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Houff................ $11,006 -- $ -- $11,006 $ 3,454 $ 7,552
CFX.................. 6,521 250,000 3,250 9,771 1,229 8,542
Bay State............ 6,045 495,550 6,442 12,487 4,156 8,331
Flower Trading....... 5,920 160,000 2,080 8,000 1,273 6,727
United Wholesale..... 4,788 268,500 3,491 8,279 2,298 5,981
American Florist..... 4,800 141,334 2,400 7,200 249 6,951
Monterey Bay......... 3,000 176,668 3,000 6,000 705 5,295
Alpine Gem........... 1,600 160,000 2,080 3,680 215 3,465
------- --------- ------- ------- ------- -------
Total.............. $43,680 1,652,052 $22,743 $66,423 $13,579 $52,844
======= ========= ======= ======= ======= =======
</TABLE>
- --------------
(1) Does not include S Corporation distributions paid to owners of CFX, Inc.
The unaudited pro forma combined statement of operations for the year ended
December 31, 1997 gives effect to the acquisition of the Founding Companies as
if they had been consummated on January 1, 1997.
NOTE 2--RECENT ACQUISITIONS
In January 1998 USA Floral acquired the outstanding capital stock of the
Continental, XL Group, Koehler & Dramm, Everflora, H&H Flowers and UltraFlora.
These business combinations were accounted for under the purchase method of
accounting.
The following table sets forth the consideration paid in cash and in shares of
Common Stock to the stockholders of each of the Recent Acquisitions, the
allocation of the consideration to net assets acquired and resulting goodwill.
The purchase price includes contingent consideration of approximately $6,000 in
shares of Common Stock related to an earn-out arrangement for UltraFlora, which
is based on 1997 earnings before interest and taxes. The total purchase
consideration does not reflect contingent consideration related to earn-out
arrangements included in the Definitive Agreements for H&H Flowers and XL Group.
The arrangements provide for the Company to pay additional consideration in
Common Stock, based on earnings before interest and taxes for the twelve
months ending June 30, 1998 for H&H Flowers and the twelve months ending
December 31, 1998 for XL Group.
<TABLE>
<CAPTION>
Shares of Net
Common Value of Total Assets
Cash(1) Stock Shares Consideration Acquired Goodwill
------------ ----------- --------- ------------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Continental Farms..... $27,500 1,642,672 $27,500 $ 55,000 $ 5,791 $49,209
XL Group.............. 11,250 660,938 11,000 22,250 5,604 16,646
Everflora............. 4,000 246,654 4,000 8,000 2,846 5,154
H&H Flowers........... 1,600 -- -- 1,600 (720) 2,320
UltraFlora............ 2,750 517,698 8,768 11,518 1,607 9,911
Koehler & Dramm....... 5,000 298,596 5,000 10,000 3,832 6,168
------- --------- ------- -------- ------- -------
Total............... $52,100 3,366,558 $56,268 $108,368 $18,960 $89,408
======= ========= ======= ======== ======= =======
</TABLE>
- --------------
(1) Does not include S Corporation distributions paid to owners of Continental
Farms.
4
<PAGE>
U.S.A. FLORAL PRODUCTS, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS--(Continued)
The unaudited pro forma combined balance sheet gives effect to the Recent
Acquisitions as if they were consummated on December 31, 1997. The unaudited pro
forma combined statement of operations for the year ended December 31, 1997
gives effect to the Recent Acquisitions as if they had been consummated on
January 1, 1997.
NOTE 3 UNAUDITED PRO FORMA COMBINED BALANCE SHEET ADJUSTMENTS
The following table summarizes unaudited pro forma combined balance sheet
adjustments for the Recent Acquisitions:
<TABLE>
<CAPTION>
Total Pro Forma
Adjustments
----------------------------
Significant Other
Recent Recent
Pro Forma Adjustments Acquisitions Acquisitions
---------------------------------------- ------------- -------------
(a) (b) (c) (d)
-------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents............................ $ -- $(6,000) $ -- $(15,582) $(13,232) $(8,350)
Due from related parties............................. (4,605) (1,135) -- (4,605) (1,135)
------- -------- ------- -------- -------- -------
Total current assets............................... (4,605) (6,000) (1,135) (15,582) (17,837) (9,485)
Property and equipment............................... -- -- -- 1,000 1,000
Goodwill, net........................................ -- -- -- 89,408 72,023 17,385
Restricted cash...................................... 3,500 -- -- -- 3,500 --
Other assets......................................... -- -- -- (718) (444) (274)
------- -------- ------- -------- -------- -------
Total assets....................................... $(1,105) $(6,000) $(1,135) $ 74,108 $ 58,242 $ 7,626
======= ======= ======= ======== ======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term debt...................................... $ 3,261 $ -- $ -- $ 36,518 $ 39,779 $ --
Due to related parties............................... (3,466) -- (1,135) -- (3,466) (1,135)
Accounts payable and accrued expenses................ -- -- -- 1,821 1,229 592
------- -------- ------- -------- -------- -------
Total current liabilities.......................... (205) -- (1,135) 38,339 37,542 (543)
Long-term debt....................................... (900) -- -- -- (900) --
Deferred income taxes................................ -- -- -- 160 160 --
------- -------- ------- -------- -------- -------
Total liabilities.................................. (1,105) -- (1,135) 38,499 36,802 (543)
Stockholders' equity:
Common stock........................................ -- -- -- (263) (224) (39)
Additional paid-in capital.......................... -- -- -- 43,416 31,331 12,085
Retained earnings................................... -- (6,000) -- (7,544) (9,667) (3,877)
------- -------- ------- -------- -------- -------
Total stockholders' equity......................... -- (6,000) -- 35,609 21,440 8,169
------- -------- ------- -------- -------- -------
Total liabilities and stockholders' equity......... $(1,105) $(6,000) $(1,135) $ 74,108 $ 58,242 $ 7,626
======= ======== ======= ======== ======== =======
</TABLE>
(a) Records the settlement of certain related party payables and receivables of
the Recent Acquisitions, the use of short-term debt to fund cash required in
escrow and the repayment of long-term debt with the short-term facility.
(b) Reflects the use of cash to fund S-Corporation distributions paid subsequent
to December 31, 1997.
(c) Reflects the elimination of receivables and payables between the Founding
Companies and the Recent Acquisitions.
(d) Records the purchase of the Recent Acquisitions by USA Floral, various
purchase price adjustments, including the adjustment of property to fair
market value and establishment of deferred taxes for certain S-
Corporations, and the recording of incremental debt necessary to fund the
acquisitions of Continental Farms and XL Group.
5
<PAGE>
U.S.A. FLORAL PRODUCTS, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share data)
NOTE 4 UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS ADJUSTMENTS--
FOUNDING COMPANIES
The following table summarizes unaudited pro forma combined statement of
operations adjustments associated with the Founding Companies:
<TABLE>
<CAPTION>
Year Ended December 31, 1997
-----------------------------------------------------------------------------------
Pro Forma
------------
(a) (b) (c) (d) (e) (f) (g) (h) Adjustments
-------- -------- ------ ------ ------- ------ ------ -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Cost of sales.............................. $ -- $ -- $ -- $ -- $ -- $(420) $ -- $ -- $ (420)
Selling, general and administrative........ (1,618) -- -- (284) 413 -- (506) -- (1,995)
Goodwill amortization...................... -- 1,046 -- -- -- -- -- -- 1,046
------- ------- ----- ----- ----- ----- ----- ------- -------
Income from operations.................. 1,618 (1,046) -- 284 (413) 420 506 -- 1,369
Other (income) expense:
Interest expense......................... -- -- (325) -- -- -- -- -- (325)
------- ------- ----- ----- ----- ----- ----- ------- -------
Income before income taxes................. 1,618 (1,046) 325 284 (413) 420 506 -- 1,694
Provision for income taxes................. -- -- -- -- -- -- -- 2,400 2,400
------- ------- ----- ----- ----- ----- ----- ------- -------
Net income................................. $ 1,618 $(1,046) $ 325 $ 284 $(413) $ 420 $ 506 $(2,400) $ (706)
======= ======= ===== ===== ===== ===== ===== ======= =======
</TABLE>
(a) Reflects the reduction in salaries, bonuses and benefits to the former
owners of the Founding Companies to which they have agreed prospectively.
(b) Reflects the amortization of goodwill recorded as a result of these
acquisitions over a 40-year estimated life as if these acquisitions had
occurred on January 1, 1997.
(c) Reflects the elimination of interest expense on debt repaid with proceeds
from the IPO.
(d) Reflects adjustment for the following (i) elimination of rental lease
expense of $406 associated with the purchase of $3,800 of real estate and
a related increase in depreciation expense and real estate taxes
associated with this real estate totaling $76; and (ii) increase in rental
expense as a result of distribution of $842 of real estate prior to the
acquisitions of the Founding Companies of $149 and a related decrease in
depreciation expense and real estate taxes of $103.
(e) Reflects: (i) an increase in expenses associated with USA Floral
management and administration and the costs of being a public entity of
$290; and (ii) compensation expense of $123 associated with the issuance
of 125,000 stock options with an exercise price below the IPO price which
vest over four years.
(f) Reflects the reduction in cost of sales attributable to a reduction in the
level of services provided under a contract for various services performed
by an affiliated entity of Flower Trading, to which USA Floral and the
affiliated entity have agreed to prospectively.
(g) Reflects the elimination of legal costs incurred by the Founding Companies
in connection with the acquisitions.
(h) 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 combined federal and state
corporate income tax rate of 40% and the non-deductibility of goodwill.
6
<PAGE>
U.S.A. FLORAL PRODUCTS, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share data)
NOTE 5 UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS ADJUSTMENTS--
RECENT ACQUISITIONS
The following table summarizes unaudited pro forma combined statement of
operations adjustments associated with the Recent Acquisitions:
<TABLE>
<CAPTION>
Year Ended December 31, 1997
----------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g)
------------- -------- ------ --------- ----- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Costs of sales............................. $ -- $ -- $ -- $(2,914) $ -- $ -- $ --
Selling, general and administrative........ (716) -- (377) -- -- -- --
Goodwill amortization...................... -- 2,235 -- -- -- -- --
----- ------- ----- ------- ---- ------- --------
Income from operations.................. 716 (2,235) 377 2,914 -- -- --
Other (income) expense:
Interest expense......................... -- -- -- -- (50) 3,363 --
Interest income.......................... -- -- -- -- 50 288 --
----- ------- ----- ------- ---- ------- --------
Income before income taxes................. 716 (2,235) 377 2,914 -- (3,651) --
Provision for income taxes................. -- -- -- -- -- -- 2,988
----- ------- ----- ------- ---- ------- --------
Net income................................. $ 716 $(2,235) $ 377 $ 2,914 $ -- $(3,651) $(2,988)
===== ======= ===== ======= ==== ======= ========
<CAPTION>
Pro Forma
Adjustments
-------------
Significant Other
Recent Recent
Acquisitions Acquisitions
------------- -------------
<S> <C> <C>
Costs of sales............................. $(2,701) $(213)
Selling, general and administrative........ (996) (97)
Goodwill amortization...................... 1,800 435
------- -----
Income from operations.................. 1,897 (125)
Other (income) expense:
Interest expense......................... 3,313 --
Interest income.......................... 132 206
------- -----
Income before income taxes................. (1,548) (331)
Provision for income taxes................. 2,527 461
------- -----
Net income................................. $(4,075) $(792)
======= =====
</TABLE>
(a) Reflects the reduction in salaries, bonuses and benefits to the former
owners of the Recent Acquisitions to which they have agreed prospectively,
net of an increase in expenses associated with USA Floral management and
administration required by the Recent Acquisitions. The increase in USA
Floral expenses has been prorated based on the total consideration paid
for each of the Recent Acquisitions (see Note 2).
(b) Reflects the amortization of goodwill to be recorded as a result of these
acquisitions over 40-year estimated life as if these acquisitions had
occurred on January 1, 1997.
(c) Reflects: (i) the reduction in lease expense of $494 associated with the
negotiation of new lease agreements with related party entities to arms-
length rates; and (ii) an increase in depreciation expense of $117
associated with the increase in fair value of property acquired.
(d) Reflects the reduction in costs of sales attributable to a reduction in
the services provided under a contract for various services performed by
an affiliated entity, to which the Company and the affiliated entity have
agreed to prospectively.
(e) Reflects the elimination of interest income and interest expense on
related party payables and receivables between the Founding Companies and
the Recent Acquisitions.
(f) Reflects: (i) the elimination of interest income earned on IPO
proceeds assumed to be utilized in the purchase of the Recent
Acquisitions; and (ii) an increase in interest expense and related fees
associated with necessary debt incurred to fund the acquisitions of
Continental Farms and XL Group, assuming the $100 million credit facility
was established on January 1, 1997.
(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.
7
<PAGE>
U.S.A. FLORAL PRODUCTS, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share data)
NOTE 6 SHARES USED IN COMPUTING PRO FORMA NET INCOME PER SHARE
The shares used in computing pro forma net income per share for the Founding
Companies is calculated as follows:
<TABLE>
<CAPTION>
Weighted
Actual Average
Shares Shares
----------- -------------
<S> <C> <C>
Shares issued upon formation of USA Floral............................................ 2,400,000
Shares issued to owners of the Founding Companies..................................... 1,652,052
Shares sold in the IPO to pay the cash portion of the Founding Companies consider-
ation, to repay certain indebtedness and to pay expenses of the
Offering.......................................................................... 4,508,561
---------
Shares considered outstanding January 1--October 15, 1997............................. 8,560,613 6,754,675
---------
Remaining shares issued in the IPO.................................................... 1,241,439
Shares issued upon exercise of option................................................. 110,000
---------
Shares considered outstanding October 16--December 31, 1997........................... 9,912,052 2,091,036
========= ----------
Weighted average shares outstanding--Basic............................................ 8,845,711
Dilution attributable to options...................................................... 98,671
----------
Weighted average shares outstanding--Diluted.......................................... 8,944,382
==========
</TABLE>
The shares used in computing pro forma net income per share giving effect to
the Recent Acquisitions is calculated as follows:
<TABLE>
<CAPTION>
Weighted
Actual Average
Shares Shares
----------- -------------
<S> <C> <C>
Shares outstanding, subsequent to the IPO............................................. 9,912,052
Shares issued to the owners of the Recent Acquisitions................................ 3,366,558
---------
Weighted average shares outstanding--Basic............................................ 13,278,610
Dilution attributable to options...................................................... 98,671
----------
Weighted average shares outstanding--Diluted.......................................... 13,377,281
==========
</TABLE>
The above calculations do not include shares which may be issued under the
earn-out arrangements for XL Group and H&H Flowers as discussed in Note 2 of the
Notes to Unaudited Pro Forma Combined Financial Statements.
8
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Partners of
Continental Farms Limited and
Atlantic Bouquet Company Limited
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of stockholders' equity and partners'
capital and of cash flows present fairly, in all material respects, the
consolidated financial position of Continental Farms Limited and Atlantic
Bouquet Company Limited (the "Partnerships") at December 31, 1996 and 1997,
and the results of their consolidated operations and cash flows for each of the
three years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Partnerships' 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.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Miami, Florida
February 27, 1998
9
<PAGE>
CONTINENTAL FARMS LIMITED AND ATLANTIC BOUQUET COMPANY LIMITED
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
December 31,
--------------------
1996 1997
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...................... $ 8,669 $ 8,124
Investment..................................... -- 63
Accounts receivable, net....................... 6,106 6,165
Inventory...................................... 737 693
Prepaid expenses............................... 80 34
Miscellaneous receivables...................... 149 41
Advances to growers............................ 406 123
------- -------
Total current assets.......................... 16,147 15,243
Property and equipment, net..................... 4,343 4,031
Deposits........................................ 28 31
------- -------
Total assets.................................. $20,518 $19,305
======= =======
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Notes payable--current......................... $ 763 $ 100
Accounts payable--related growers.............. 1,013 798
Accounts payable--unrelated growers............ 1,936 2,278
Accrued expenses and other payables............ 3,409 3,218
Due to related parties......................... 1 66
------- -------
Total current liabilities..................... 7,122 6,460
Notes payable, net of current maturities........ 1,000 900
------- -------
Total liabilities............................. 8,122 7,360
Commitments and contingencies
Partners' capital............................... 12,396 11,945
------- -------
Total liabilities and partners' capital....... $20,518 $19,305
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
10
<PAGE>
CONTINENTAL FARMS LIMITED AND ATLANTIC BOUQUET COMPANY LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Net sales.................................................... $65,240 $64,349 $62,494
Cost of sales................................................ 47,802 47,093 44,774
------- ------- -------
Gross profit............................................... 17,438 17,256 17,720
Selling, general and administrative expenses................. 13,945 13,133 12,820
------- ------- -------
Operating income........................................... 3,493 4,123 4,900
Other (income) expense:
Interest expense............................................ 120 115 57
Interest income............................................. (708) (503) (458)
Other, net.................................................. (293) (138) (58)
------- ------- -------
Income before income taxes................................. 4,374 4,649 5,359
Provision for income taxes................................... 1,552 -- --
------- ------- -------
Net income................................................. $ 2,822 $ 4,649 $ 5,359
======= ======= =======
Unaudited pro forma information:
Pro forma net income before provision for income taxes...... $ 4,649 $ 5,359
Provision for income taxes.................................. 1,860 2,144
------- -------
Pro forma income (see Note 2)............................... $ 2,789 $ 3,215
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
11
<PAGE>
CONTINENTAL FARMS LIMITED AND ATLANTIC BOUQUET COMPANY LIMITED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS'
EQUITY AND PARTNERS' CAPITAL
(in thousands)
<TABLE>
<CAPTION>
Common Stock Additional Total Total
--------------------- Paid-in Retained Stockholders' Partners'
Shares Amount Capital Earnings Equity Capital
--------- ---------- ------------ ----------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994...... 300 $ 300 $ 95 $ 9,318 $ 9,713 $ --
Net income for 1995.............. 2,822 2,822 --
Distributions to stockholders.... -- -- -- (316) (316) --
---- ----- ---- -------- -------- -------
Balance at December 31, 1995...... 300 300 95 11,824 12,219 --
Reorganization (Note 1).......... (300) (300) (95) (11,824) (12,219) 12,219
---- ----- ---- -------- -------- -------
Balance at January 1, 1996........ -- $ -- $ -- $ -- $ -- 12,219
==== ===== ==== ======== ========
Net income for 1996.............. 4,649
Partner distributions............ (4,472)
-------
Balance at December 31, 1996...... 12,396
Net income for 1997.............. 5,359
Partner distributions............ (5,821)
Unrealized gain on securities.... 11
-------
Balance at December 31, 1997...... $11,945
=======
</TABLE>
The accompanying notes are an integral part of these financial statements.
12
<PAGE>
CONTINENTAL FARMS LIMITED AND ATLANTIC BOUQUET COMPANY LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income.......................................................................... $ 2,822 $ 4,649 $ 5,359
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization...................................................... 622 552 448
Changes in operating assets and liabilities:
Accounts receivable.............................................................. (152) 438 (59)
Inventory........................................................................ (29) 244 44
Prepaid expenses................................................................. 15 61 46
Miscellaneous receivables........................................................ (299) 184 108
Advances to growers.............................................................. (345) 46 283
Other assets..................................................................... 22 88 (3)
Due from related parties......................................................... -- 1 65
Accounts payable and accrued expenses............................................ (1,063) 173 (64)
------- ------- -------
Net cash provided by operating activities....................................... 1,593 6,436 6,227
------- ------- -------
Cash flows from investing activities:
Purchases of property and equipment................................................. (286) (187) (136)
Purchase of investment.............................................................. -- -- (52)
------- ------- -------
Net cash used in investing activities........................................... (286) (187) (188)
------- ------- -------
Cash flows from financing activities:
Repayments of notes payable......................................................... (140) (140) (763)
Stockholders' dividends............................................................. (316) -- --
Partners' distributions............................................................. -- (4,472) (5,821)
------- ------- -------
Net cash used in financing activities........................................... (456) (4,612) (6,584)
------- ------- -------
Net increase (decrease) in cash and cash equivalents................................. 851 1,637 (545)
Cash and cash equivalents, beginning of period....................................... 6,181 7,032 8,669
------- ------- -------
Cash and cash equivalents, end of period............................................. $ 7,032 $ 8,669 $ 8,124
======= ======= =======
Supplemental disclosure of cash flow information:
Cash paid during the period for interest............................................ $ 118 $ 115 $ 67
Cash paid during the period for income taxes........................................ $ 1,714 $ -- $ --
</TABLE>
The accompanying notes are an integral part of these financial statements.
13
<PAGE>
CONTINENTAL FARMS LIMITED AND ATLANTIC BOUQUET COMPANY LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
NOTE 1 BUSINESS ORGANIZATION
Basis of Consolidation
The consolidated financial statements include the accounts of Continental
Farms Limited and Atlantic Bouquet Company Limited (the "Partnerships"), which
are commonly owned and managed. All intercompany transactions have been
eliminated in these financial statements.
Reorganization
Continental Farms, Inc. and its wholly-owned subsidiary, Atlantic Bouquet
Company, were the predecessor entities of the Partnerships. These entities were
organized in 1987 and 1989, respectively, were headquartered in Miami, Florida
and were engaged in the business of importation and distribution of flowers and
bouquets throughout the United States and Canada.
These entities were reorganized as limited partnerships as of January 1, 1996.
Under a plan of liquidation, the assets, liabilities and equity of Atlantic
Bouquet Company were combined with Continental Farms, Inc.'s assets, liabilities
and equity. Certain holders of restricted stock of Continental Farms, Inc. had
their shares redeemed and then liquidating distributions were made to the
remaining shareholders. The prior shareholders of Continental Farms, Inc. then
contributed certain assets, liabilities and capital to Continental Farms
Limited. Continental Farms Limited contributed a portion of these certain assets
and liabilities to Atlantic Bouquet Company Limited. This reorganization did not
result in a change in the carrying amount of the net assets of the Partnerships.
Management Agreements
Each Partnership has a management agreement dated January 1, 1996 with its
general partner, Continental Farms Management, Inc. Each agreement provides,
among other things, that the general partner will function as the manager and
sole general partner of the Partnership. The manager shall be responsible for
the day-to-day management of the business. The manager is reimbursed for actual
costs, including salaries, bonuses and certain other related costs, incurred in
connection with the management of the Partnership.
The terms of the agreements were initially for twelve months with automatic
renewal on each agreement's anniversary date unless the Partnerships give the
manager (general partner) written notice at least sixty days prior to expiration
of the current term.
The general partner for the Partnerships has employment contracts with three
executive employees. These contracts have severance benefits which are payable
under certain conditions after the second year of the contract. These employment
contracts are guaranteed by the Partnerships.
Each of the executives, who are shareholders in the general partner and are
limited partners in the Partnerships, have entered into Rights Agreements dated
January 1, 1996 with the general partner and the Partnerships. The Rights
Agreements restrict the transfer of partnership units and shares of the general
partner. In addition, the units/shares cannot be pledged, hypothecated or
disposed of without written authorization by the Board of Directors of the
general partner.
In the event of death, disability or termination of employment by persons
under contract, partnership units and equity (in the Partnerships and the
general partner, respectively) will be redeemed at a contractually agreed price.
Continental Farms Limited: The partners of Continental Farms Limited entered
into a partnership agreement effective January 1, 1996. The partnership
structure is composed of Class A units and Class B units. Class A units may be
transferred, sold or pledged, in whole or in part, to any transferee under
certain conditions. Class B units cannot be transferred, pledged or hypothecated
or disposed of unless authorized in writing by the Board of Directors of the
general partner.
Atlantic Bouquet Company Limited: The partners entered into a limited
partnership agreement effective January 1, 1996. The sole general partner is
Continental Farms Management, Inc. The limited partner is Continental Farms
Limited. The partnership structure is composed of Class A units. Class A units
may be transferred, sold or pledged, in whole or in part, to any transferee
under certain conditions.
Partners' Capital
The following units were issued and outstanding as of December 31, 1996 and
1997:
<TABLE>
<S> <C>
Continental Farms Limited:
Class A Units.................. 784
Class B Units.................. 216
-----
Total......................... 1,000
=====
Atlantic Bouquet Limited:
Class A Units.................. 1,000
=====
</TABLE>
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 (see Note 10).
Revenue Recognition
Revenue is recognized upon shipment of product to the customer.
Cash Equivalents
For purposes of the statement of cash flows, the Partnerships consider all
highly liquid short-term investments purchased with a maturity of approximately
three months or less at date of purchase to be cash equivalents.
Investment
The Partnerships own common stock of USA Floral Products, Inc. at December 31,
1997. This investment is classified as an available-for-sale security with
unrealized holding gains being recorded as a separate component of equity. At
December 31, 1997 an unrealized gain on this investment of $11 is recorded in
partners' capital.
14
<PAGE>
CONTINENTAL FARMS LIMITED AND ATLANTIC BOUQUET COMPANY LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Inventory
Inventory maintained by Continental Farms Limited is on consignment.
Continental Farms Limited primarily obtains products from growers on a
consignment basis. The Partnership periodically remits sales proceeds to growers
less sales commissions, duties, freight and other miscellaneous selling
expenses. Inventory used by the Partnerships for its own behalf is considered a
sale for purposes of remittances to growers. Inventory on consignment which is
unsold as of December 31, 1996 and 1997 is not recorded in the accompanying
consolidated balance sheets.
Inventory of Atlantic Bouquet Company Limited is recorded at average cost,
which does not exceed market value.
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 Partnerships, on behalf of the growers under the consignment agreement.
Property and Equipment
Property and equipment are carried at cost. Depreciation is provided using the
straight-line method over the estimated useful lives of the related assets
(three to thirty-two 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 payable, accrued expenses and the current portion of long-term debt
approximates fair value because of the short maturity of these instruments. The
estimated fair value of the non-current portion of long-term debt approximates
its carrying value, because interest rates on outstanding debt are at rates
which approximate market rates for debt with similar terms and maturities.
Concentration of Credit Risk
Financial instruments that potentially subject the Partnerships to
concentrations of credit risk consist principally of cash and cash equivalents,
trade accounts receivable and amounts due from related parties and related and
unrelated growers. The Partnerships extend unsecured credit to wholesale
florists primarily throughout the United States. The Partnerships, from time to
time, advance 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.
Customers are geographically dispersed throughout the North American continent
and sales to any one customer are not significant enough to expose the
Partnerships to additional credit risk.
The Partnerships receive a significant portion of their fresh-cut flowers from
Colombia.
Income Taxes
The Partnerships are not tax paying entities for federal or state income tax
purposes, and therefore no income tax expense is recorded in the consolidated
financial statements for the years ended December 31, 1996 and 1997. The income
from the Partnerships is taxed to the partners in accordance with income
allocations under
15
<PAGE>
CONTINENTAL FARMS LIMITED AND ATLANTIC BOUQUET COMPANY LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
the partnership agreements. The predecessor entities were incorporated and
subject to federal and state income tax. For 1995, income taxes were computed
using the liability method under the provisions of the Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes."
The unaudited pro forma income tax information included in the Consolidated
Statement of Operations is presented in accordance with SFAS No. 109 as if the
Partnerships had been subject to applicable federal and state income taxes for
each of the two years in the period ended December 31, 1997.
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......... $241 $51 $ (59) $233
Year ended December 31, 1996......... $233 $78 $ (98) $213
Year ended December 31, 1997......... $213 $ 9 $(105) $117
</TABLE>
NOTE 4 INVENTORY
Inventory consists of the following:
<TABLE>
<CAPTION>
December 31,
----------------
1996 1997
------- -------
<S> <C> <C>
Supplies............. $ 663 $ 623
Flowers.............. 71 64
Finished goods....... 3 6
----- -----
$ 737 $ 693
===== =====
</TABLE>
NOTE 5 PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
December 31,
------------------------
1996 1997
----------- -----------
<S> <C> <C>
Buildings and improvements....................... $ 3,495 $ 3,495
Office equipment................................. 1,503 1,636
Refrigeration equipment.......................... 1,471 1,471
Machinery and equipment.......................... 1,283 1,286
Furniture and fixtures........................... 585 585
Automobiles and trailers......................... 284 284
------- -------
Total depreciable assets at cost................. 8,621 8,757
Accumulated depreciation and amortization........ (5,244) (5,692)
------- -------
Net depreciable assets........................... 3,377 3,065
Land............................................. 966 966
------- -------
$ 4,343 $ 4,031
======= =======
</TABLE>
Depreciation and amortization expense for the years ended December 31, 1995,
1996 and 1997 was $622, $552 and $448, respectively.
16
<PAGE>
CONTINENTAL FARMS LIMITED AND ATLANTIC BOUQUET COMPANY LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 6 ACCRUED EXPENSES AND OTHER PAYABLES
Accrued expenses and other payables consist of the following:
<TABLE>
<CAPTION>
December 31,
------------------
1996 1997
-------- --------
<S> <C> <C>
Accrued antidumping fees.................. $1,962 $1,613
Accounts payable--non-growers............. 760 816
Accrued payroll and related benefits...... 515 542
Customer rebates.......................... 141 217
Miscellaneous accrued expenses............ 31 30
------ ------
$3,409 $3,218
====== ======
</TABLE>
NOTE 7 CREDIT FACILITIES
<TABLE>
<CAPTION>
December 31,
----------------------------------
1996 1997
----------------- ---------------
Long- Long-
Current Term Current Term
------- -------- ------- ------
<S> <C> <C> <C> <C>
Dade County Industrial Development Authority
Mandatory principal repayments of $100 due on December 1, 1992-
2002 (inclusive); balloon payment of $500 due December 1, 2003;
interest payable monthly at a rate which approximates the issuing
bank's demand note index for high quality short-term tax-exempt
obligations (approximately 3%); loan is collateralized by property
with a net book value of $1,833..................................... $100 $1,000 $100 $900
NationsBank--Mortgage
Principal of $3 payable monthly; balloon payment of $643 due
August 1997; interest payable monthly at prime rate; loan is
collateralized by property with a net book value of $972............ 663 -- -- --
---- ------ ---- ----
$763 $1,000 $100 $900
==== ====== ==== ====
</TABLE>
Interest expense for the years ended December 31, 1995, 1996 and 1997 was
$120, $115 and $57, respectively.
Principal maturities on the note payable are as follows:
<TABLE>
<S> <C>
Year ending December 31:
1998........................... $ 100
1999........................... 100
2000........................... 100
2001........................... 100
2002........................... 100
Thereafter..................... 500
------
$1,000
======
</TABLE>
17
<PAGE>
CONTINENTAL FARMS LIMITED AND ATLANTIC BOUQUET COMPANY LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 8 EMPLOYEE BENEFIT PLAN
The Partnerships established an employee savings plan under the provisions of
section 401(k) of the Internal Revenue Code on July 1, 1997. Prior to this date,
the Partnerships maintained a profit sharing plan and trust with terms
consistent with those of the 401(k) plan. For each of the three years ended
December 31, 1997, the Partnerships contributed $72 to these plans. Employees
are eligible to participate in the plan subject to certain requirements.
Qualified employees may contribute, on a pre-tax basis, up to the maximum amount
permitted by law. The Partnerships' contributions to the plan are discretionary.
NOTE 9 RELATED PARTY TRANSACTIONS
Purchases
Continental Farms Limited, in the normal course of business, purchases
inventory for resale and holds inventory on consignment from related parties.
Purchases from related entities amounted to approximately $10,496, $10,558 and
$10,112 for the years ended December 31, 1995, 1996 and 1997, respectively. Fees
paid to Continental Farms Management, Inc. for salaries, bonuses and certain
other related management costs were approximately $1,890, $2,070 and $1,836 for
the years ended December 31, 1995, 1996 and 1997, respectively. The Partnerships
pay a related party for the handling of flower shipment arrangements. The
related party negotiates fixed shipping rates with a third party carrier and
receives a fee for this service. Fees paid by the Partnership to the related
party for the three years ended December 31, 1995, 1996, and 1997 were $1,152,
$1,318 and $1,301, respectively.
NOTE 10 COMMITMENTS AND CONTINGENCIES
Lease Commitments
The Partnerships lease office space, equipment, and vehicles under operating
leases. Future minimum lease payments under these leases at December 31, 1997
are as follows:
<TABLE>
<S> <C>
1998.......... $190
1999.......... 138
2000.......... 69
2001.......... 15
----
Total....... $412
====
</TABLE>
Rent expense for the years ended December 31, 1995, 1996 and 1997 was
approximately $227, $194 and $220, respectively.
Legal Matters
The Partnerships are involved in various legal matters in the normal course of
business. In the opinion of the Partnerships' management, these matters are not
anticipated to have a material adverse effect on the financial position, results
of operations or cash flows of the Partnerships.
IRS Audits
Predecessor entities are currently under IRS audit for the final period of
their operations. Any additional taxes, penalties and interest assessed will be
borne by the stockholders of the predecessor entities in accordance with the USA
Floral Products, Inc. Purchase Agreement, dated January 20, 1998 (see Note 11).
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
18
<PAGE>
CONTINENTAL FARMS LIMITED AND ATLANTIC BOUQUET COMPANY LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
flower growers' margins. Since that time, the DOC has undertaken ten reviews,
the last one for the period ended 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 and eleventh reviews are
in process. All other reviews have been resolved.
Included in accrued expenses is approximately $1,962 and $1,613 as of December
31, 1996 and 1997, respectively, of estimated antidumping duty imposed by the
DOC. The antidumping duty is based on rates imposed on certain products from
certain growers in Colombia and Ecuador. The duty is subject to change upon the
DOC final review of all open antidumping periods as well as various legal
appeals.
NOTE 11 SUBSEQUENT EVENT
Effective January 28, 1998, all of the Partnerships' outstanding Class A and
Class B units were sold to U.S.A. Floral Products, Inc. ("USA Floral") for an
aggregate of $55,000, comprised of cash and USA Floral Common Stock. The price
is subject to adjustment for net worth requirements as of the date of closing.
No effect has been given by USA Floral to adjustments that have or will take
place as a result of the purchase of the Partnerships.
19
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
XL Group Inc.
In our opinion, the accompanying balance sheet and the related statements of
operations, of stockholder's equity and of cash flows present fairly, in all
material respects, the financial position of XL Group, Inc. at December 31,
1997, 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.
XL Group, Inc., as disclosed in the financial statements, has extensive
transactions and relationships with related parties. Because of these
relationships, it is possible that the terms of these transactions are not the
same as those that would result from transactions among wholly unrelated
parties.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Miami, Florida
February 9, 1998
20
<PAGE>
XL GROUP INC.
BALANCE SHEET
(in thousands, except share amounts)
<TABLE>
<CAPTION>
December 31,
1997
------------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................................................... $1,200
Accounts receivable, net..................................................................... 2,858
Prepaid expenses............................................................................. 47
Advances to related parties.................................................................. 2,693
Advances to related party grower............................................................. 705
Advances to stockholder...................................................................... 1,260
------
Total current assets........................................................................ 8,763
Property and equipment, net................................................................... 692
Other assets.................................................................................. 13
------
Total assets................................................................................ $9,468
======
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable............................................................................. $ 129
Accrued expenses............................................................................. 157
Due to related party growers................................................................. 3,364
------
Total current liabilities................................................................... 3,650
Commitments and contingencies
Stockholder's equity:
Common stock $1.00 par value; 100 shares authorized; 100 shares issued and outstanding....... --
Additional paid-in capital................................................................... 200
Retained earnings............................................................................ 5,618
------
Total stockholder's equity.................................................................. 5,818
------
Total liabilities and stockholder's equity.................................................. $9,468
======
</TABLE>
The accompanying notes are an integral part of these financial statements.
21
<PAGE>
XL GROUP, INC,
STATEMENT OF OPERATIONS
(in thousands)
<TABLE>
<CAPTION>
Year ended
December 31,
1997
--------------
<S> <C>
Net sales and other revenues........................................ $32,329
Cost of sales (includes purchases from related parties of $24,216).. 24,443
-------
Gross profit...................................................... 7,886
Selling, general and administrative expenses........................ 7,284
-------
Operating income.................................................. 602
Other (income):
Interest income.................................................... (40)
Gain on disposal of equipment...................................... (4)
-------
Net income........................................................ $ 646
=======
Unaudited pro forma information:
Pro forma net income before provision for income taxes............. $ 646
Provision for income taxes......................................... 258
-------
Pro forma income (see Note 2)...................................... $ 388
=======
</TABLE>
The accompanying notes are an integral part of these financial statements.
22
<PAGE>
XL GROUP, INC.
STATEMENT OF STOCKHOLDER'S EQUITY
(in thousands, except share amounts)
<TABLE>
<CAPTION>
Common Stock Additional Total
-------------------- Paid-in Retained Stockholder's
Shares Amount Capital Earnings Equity
------- ----------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996 100 $ -- $200 $4,972 $5,172
Net income....................... -- -- -- 646 646
--- ----------- ---- ------ ------
Balance at December 31, 1997...... 100 $ -- $200 $5,618 $5,818
=== =========== ==== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
23
<PAGE>
XL GROUP INC.
STATEMENT OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Year Ended
December 31,
1997
--------------
<S> <C>
Cash flows from operating activities:
Net income.......................................................................... $ 646
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization...................................................... 308
Gain on disposal of property and equipment......................................... 4
Changes in operating assets and liabilities:
Accounts receivable.............................................................. 14
Prepaid expenses................................................................. 13
Accounts payable and accrued expenses............................................ (228)
Advances to/due to related party growers......................................... 1,317
-------
Net cash provided by operating activities....................................... 2,074
Cash flows from investing activities:
Purchase of property and equipment.................................................. (399)
Proceeds from sale of equipment..................................................... 20
Advances to related parties......................................................... (508)
Repayments from related parties..................................................... --
Advances to stockholder............................................................. (3,317)
Repayments from stockholder......................................................... 1,912
-------
Net cash used in investing activities........................................... (2,292)
Net decrease in cash and cash equivalents............................................ (218)
-------
Cash and cash equivalents, beginning of period....................................... 1,418
-------
Cash and cash equivalents, end of period............................................. $ 1,200
=======
</TABLE>
The accompanying notes are an integral part of these financial statements.
24
<PAGE>
XL GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 BUSINESS ORGANIZATION
Founded in 1986, XL Group, Inc. (the "Company") is an importer and
distributor of perishable floral products operating from one location in
Florida. The Company imports flowers from related party farms located in
Colombia, Costa Rica and Ecuador, and distributes them throughout the United
States to wholesale distributors and mass markets. Flowers are received on
consignment from these farms.
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 short-term investments purchased with a maturity of approximately three
months or less at date of purchase to be cash equivalents.
Inventory
The Company obtains products from growers on a consignment basis. Upon sale,
the Company remits to growers the sales proceeds for the period less sales
commissions, duties, freight and other miscellaneous selling expenses. Inventory
on consignment which is unsold at December 31, 1997 is not recorded in the
accompanying balance sheet.
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 (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
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 cash and cash equivalents, trade accounts
receivable and amounts due from related parties and related growers. The
Company, from time to time, advances funds to related parties and related
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
countries of Colombia, Costa Rica and Ecuador.
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 is the direct
responsibility of its stockholder.
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 or state income taxes for the entire periods
presented.
NOTE 3 ALLOWANCE FOR DOUBTFUL ACCOUNTS
<TABLE>
<CAPTION>
Balance at Charged to Balance at
Beginning Costs and Write- End of
of Period Expenses offs Period
--------- ----------- -------- ---------
<S> <C> <C> <C> <C>
Year ended December 31, 1997......... $168 --$ $(88) $80
</TABLE>
NOTE 4 PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
December 31,
1997
--------------
<S> <C>
Leasehold improvements........................... $ 1,388
Equipment........................................ 1,641
Vehicles......................................... 422
Furnitures and fixtures.......................... 417
-------
3,868
Accumulated depreciation and amortization........ (3,176)
-------
$ 692
=======
</TABLE>
Depreciation and amortization expense for the year ended December 31, 1997 was
$308.
NOTE 5 CREDIT FACILITY
The Company maintained a $500 revolving line of credit with a bank which was
due on demand. Advances, if any, on the credit line were payable upon demand and
the interest rate was determined at the date of borrowing. The credit line was
secured by the Company's assets. There were no borrowings outstanding on the
credit line as of December 31, 1997. The credit line was cancelled on January
28, 1998.
NOTE 6 EMPLOYEE BENEFIT PLAN
The Company has established an employee savings plan ("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. Qualified
employees may contribute, on a pretax basis, up to the maximum amount allowable
by law. The Company makes a matching contribution to the Plan not to exceed 6%
of employees compensation. Company contributions to the Plan in 1997 were $100.
25
<PAGE>
XL GROUP, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
NOTE 7 RELATED PARTY TRANSACTIONS
The Company receives flowers on consignment from farms owned by the Company's
stockholder. In 1997, total purchases from these farms were $24,216. At December
31, 1997 the amount due to these farms was $3,364. The Company advanced one farm
cash for working capital purposes. The Company intends to offset future
purchases from this farm against these advances. At December 31, 1997 the
Company had advanced this farm $705.
The Company receives freight service from a cargo airline owned by the
Company's stockholder. In 1997, total freight service was $4,175 of which $2,515
was paid to this cargo airline on behalf of the farms and charged to them. At
December 31, 1997 the Company had advanced the cargo airline $1,698. These
advances are to be applied against future air cargo costs.
The Company provides management and administrative services and pays expenses
on behalf of a company owned by its stockholder. Reimbursement for such services
and expenses of $80 reduced selling, general and administrative expenses in
1997. In addition, the Company advances this company cash for working capital
purposes. At December 31, 1997, $995 was due from this company.
The Company leases office and warehouse space from the Company's stockholder.
In 1997, total lease payments were $806.
The Company advances money to, borrows money from, and pays certain expenses
for its stockholder. At December 31, 1997, the Company had non-interest bearing
advances to its stockholder of $1,260.
NOTE 8 COMMITMENTS
The Company leases its office and warehouse facilities from the Company's
stockholder under an operating lease expiring in 2000. The Company has entered
into agreements to sublease a portion of its office space to unrelated parties.
In addition, the Company leases computer equipment under several leases
classified as operating leases which expire in the years 2000 and 2001.
Future minimum lease payments and receipts under such leases at December 31,
1997 are as follows:
<TABLE>
<CAPTION>
Net
---------
Lease Sublease Lease
--------- -------- ---------
Payments Income Payments
--------- -------- ---------
<S> <C> <C> <C>
1998....... $ 871 $149 $ 722
1999....... 861 144 717
2000....... 420 72 348
------ ---- ------
$2,152 $365 $1,787
====== ==== ======
</TABLE>
Rental expense under operating leases in 1997 was $851. Sublease income in
1997 was $149 and is netted against rental expense for financial reporting
purposes.
During 1997, a related party company, owned solely by the Company's
stockholder, obtained a $3,500 loan which the Company guaranteed. On January 28,
1998, the Company was released from the guarantee by the lender.
NOTE 9 SUBSEQUENT EVENT
Effective January 29, 1998, the stockholder sold all the outstanding shares of
the Company to U.S.A. Floral Products, Inc. ("USA Floral") for $22 million.
All outstanding shares of the Company were exchanged for cash of $11 million and
shares of USA Floral Common Stock equivalent to $11 million. The Company's
stockholder may receive additional consideration of up to a maximum of $4
million in cash and additional shares of USA Floral's Common Stock based upon
the 1998 earnings of the surviving entity.
In conjunction with the sale of the Company, advances to related parties,
advances to related party grower, and advances to stockholder were repaid to the
Company. Additionally, amounts due to related party growers were repaid by the
Company.
The Company will continue to lease office and warehouse space under the
current lease agreement. Additionally, the Company will continue to purchase
flowers from related party growers and freight services from a related party
airline.
No effect has been given to these financial statements for adjustments that
have or will take place as a result of the USA Floral purchase of the Company.
26
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Koehler & Dramm, Inc.
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 Koehler &
Dramm, Inc. and its subsidiary at July 31, 1997 and the results of their
operations and their 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.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
St. Louis, Missouri
March 3, 1998
30
<PAGE>
KOEHLER & DRAMM, INC.
CONSOLIDATED BALANCE SHEET
(in thousands, except share amounts)
<TABLE>
<CAPTION>
July 31, October 31,
1997 1997
-------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .......................... $ 297 $ 211
Marketable securities .............................. 297 302
Accounts receivable, net ........................... 1,831 2,278
Inventory .......................................... 1,836 1,835
Prepaid expenses and other current assets .......... 11 28
Deferred income taxes .............................. 117 117
-------- ------
Total current assets .............................. 4,389 4,771
Property and equipment, net ......................... 623 629
Deferred income taxes ............................... 47 47
Advances to stockholder ............................. 367 373
-------- ------
Total assets ...................................... $5,426 $5,820
======== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank line of credit ................................ $ 80 110
Accounts payable ................................... 1,168 1,506
Accrued expenses ................................... 90 182
Taxes payable ...................................... 171 43
Other current liabilities .......................... 23 19
-------- ------
Total current liabilities ......................... 1,532 1,860
Other liabilities ................................... 166 166
-------- ------
Total liabilities ................................. 1,698 2,026
-------- ------
Commitments and contingencies
Stockholders' equity:
Common stock, $1 par value; 100,000 shares
authorized; 69,547 shares issued and outstanding .. 70 70
Additional paid-in capital ......................... 21 29
Retained earnings .................................. 3,637 3,695
-------- ------
Total stockholders' equity ........................ 3,728 3,794
-------- ------
Total liabilities and stockholders' equity ........ $5,426 $5,820
======== ======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
31
<PAGE>
KOEHLER & DRAMM, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands)
<TABLE>
<CAPTION>
Three months ended
Year ended October 31,
July 31, ------------------------
1997 1996 1997
------------ ------------ -----------
<S> <C> <C> <C>
(Unaudited)
Net sales ..................................... $21,249 $4,513 $5,346
Cost of sales ................................. 14,894 3,215 3,962
------- ------ ------
Gross margin ................................ 6,355 1,298 1,384
Selling, general and administrative expenses .. 5,473 1,144 1,291
------- ------ ------
Operating income ............................ 882 154 93
Other (income) expense:
Interest expense ............................. 4 1 1
Dividend and interest income ................. (159) (22) (31)
Other, net ................................... (42) 8 17
------- ------ ------
Income before provision for income taxes ...... 1,079 167 106
Provision for income taxes .................... 428 63 48
------- ------ ------
Net income .................................... $ 651 $ 104 $ 58
======= ====== ======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
32
<PAGE>
KOEHLER & DRAMM, INC.
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 July 31, 1996 .................. 69,547 $70 $21 $2,986 $3,077
Net income ............................... -- -- -- 651 651
-------- ---------- ---------- ------------ -------------
Balance at July 31, 1997 .................. 69,547 70 21 3,637 3,728
Net income (unaudited) ................... 58 58
Stock issued (unaudited) ................. 554 -- 8 -- 8
-------- ---------- ---------- ------------ -------------
Balance at October 31, 1997 (unaudited) ... 70,101 $70 $29 $3,695 $3,794
======== ========== ========== ============ =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
33
<PAGE>
KOEHLER & DRAMM, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Three months
Year ended ended
July 31, October 31,
1997 1996 1997
------------ ------------ -----------
<S> <C> <C> <C>
(Unaudited)
Cash flow from operating activities:
Net income .............................................................. $ 651 $ 104 $ 58
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation ........................................................... 198 30 26
Net unrealized gain on marketable securities............................. (23)
Proceeds from issuance of common stock ................................. 8
Gain on disposal of fixed assets ....................................... (10) (10) (1)
Change in operating assets and liabilities:
Accounts receivable, net ............................................. (187) (375) (447)
Inventory ............................................................ (744) (149) 1
Prepaid expenses and other current assets ............................ 18 (2) (17)
Advances to stockholder .............................................. 69 (1) (6)
Deferred income taxes ................................................ (18)
Accounts payable ..................................................... 176 270 338
Accrued liabilities .................................................. (11) 91 88
Taxes payable ........................................................ 171 8 (128)
----- ----- -----
Net cash provided by (used in) operating activities ................. 290 (34) (80)
----- ----- -----
Cash flows from investing activities:
Purchases of property and equipment ..................................... (220) (31) (32)
Proceeds from sale of securities.......................................... 35 41
Proceeds from disposal of property and equipment ........................ 24 10 1
Purchase of securities.................................................... (5)
---- ----- -----
Net cash used in investing activities ............................... (161) 20 (36)
----- ----- -----
Cash flows from financing activities:
Proceeds from bank line of credit ....................................... 80 -- 30
----- ----- -----
Net cash provided by financing activities ........................... 80 -- 30
----- ----- -----
Net increase (decrease) in cash and cash equivalents ..................... 209 (14) (86)
Cash and cash equivalents, beginning of period ........................... 88 88 297
----- ----- -----
Cash and cash equivalents, end of period ................................. $ 297 $ 74 $ 211
===== ===== =====
Supplemental disclosure of cash flow information:
Cash paid during the period for interest ................................ $ 4 $ -- $ 1
===== ===== =====
Cash paid during the period for income taxes ............................ $ 275 $ 55 $ 176
===== ===== =====
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
34
<PAGE>
KOEHLER & DRAMM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
1. Business organization
Founded in 1955, Koehler & Dramm, Inc. (the "Company") is a distributor of
perishable floral products and floral related hardgoods, operating from its
headquarters in Minneapolis, Minnesota and from Kansas City, Missouri. The
Company purchases floral products from importers, brokers and shippers and sells
them to retail florists and mass marketers in the upper Midwest United States.
The Company and its stockholders entered into a definitive agreement with
U.S.A. Floral Products, Inc. ("USA Floral") pursuant to which the Company
merged with USA Floral on January 16, 1998. All outstanding shares of the
Company were exchanged for cash and stock of USA Floral. These financial
statements and footnotes do not reflect any purchase accounting adjustments.
2. Summary of significant accounting policies
Principles of consolidation
These consolidated financial statements represent the financial position,
results of operations and net cash flows of the Company and its wholly-owned
subsidiary, Koehler & Dramm of Kansas City, Inc. All significant intercompany
accounts have been eliminated in consolidation.
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 revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Revenue recognition
Revenue is recognized upon shipment of product.
Marketable securities
The Company's marketable securities are classified as trading securities. The
securities are recorded at fair value, with any change in fair value during the
period included in earnings.
Inventory
Inventory is stated at the lower of cost or market; cost is determined on a
first-in, first-out basis. Inventories are reduced for any excess, slow moving
or obsolete items.
Property and equipment
Property and equipment are carried at cost. Depreciation is provided using the
straight-line method over the estimated useful lives of the related assets.
Leasehold improvements are amortized over the shorter of their respective lease
terms or estimated useful lives.
Fair value of financial instruments
The carrying amount of cash and cash equivalents, accounts receivable,
accounts payable accrued expenses and bank line of credit approximates fair
value because of the short-term nature of these instruments.
35
<PAGE>
KOEHLER & DRAMM, INC.
NOTES TO CONSOLIDATED 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 is a C corporation for federal and state income tax purposes. The
Company accounts for income taxes using the liability method in accordance with
the Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes."
3. Allowance for doubtful accounts
<TABLE>
<CAPTION>
Year ended July 31,
1997
-------------------
<S> <C>
Balance at beginning of period ............. $ 150
Changes to costs and expenses .............. 250
Write-offs ................................. (252)
------
Balance at end of period ................... $ 148
======
</TABLE>
4. Inventory
Inventory consists of the following finished goods at July 31, 1997:
<TABLE>
<S> <C>
Perishables ................................ $ 256
Hardgoods .................................. 1,580
------
$1,836
======
</TABLE>
5. Property and equipment
Property and equipment consist of the following at July 31, 1997:
<TABLE>
<S> <C>
Leasehold improvements .................... $ 167
Computer equipment ........................ 126
Furniture, fixtures and equipment ......... 650
Vehicles .................................. 586
------
1,529
Accumulated depreciation .................. (906)
------
$ 623
======
</TABLE>
6. Bank line of credit
Amounts available and outstanding under bank lines of credit were $750 and
$80, respectively. Advances on the credit line bear interest at the bank's
reference rate (8.5% as of July 31, 1997). The credit line is secured by
accounts receivable, equipment and a personal guarantee by its principal
stockholder. The Company terminated the line of credit agreement in January
1998.
36
<PAGE>
KOEHLER & DRAMM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
7. Income taxes
The provision for income taxes at July 31, 1997 is as follows:
<TABLE>
<S> <C>
Current expense:
State ............................... $ 67
Federal ............................. 379
----
Total current tax provision ........ 446
----
Deferred expense:
State ............................... (2)
Federal ............................. (16)
----
Total deferred tax provision ....... (18)
----
Total income tax provision ......... $428
====
</TABLE>
The provision for income taxes at July 31, 1997 differs from the U.S.
Statutory federal income tax rate for the following reasons:
<TABLE>
<S> <C>
Statutory federal tax rate ................... 34.0%
State taxes, net of federal benefit .......... 6.0
Other ........................................ (0.3)
-----
39.7%
=====
</TABLE>
Deferred tax assets (liabilities) at July 31, 1997 were comprised of the
following:
<TABLE>
<S> <C>
Allowance for doubtful accounts ............. $ 59
Inventory reserves .......................... 40
Accrued expenses ............................ 18
-----
Current deferred tax assets .............. 117
Deferred retirement benefit ................. 73
Depreciation ................................ (17)
Unrealized gain on marketable securities .... (9)
-----
Noncurrent deferred tax asset ............ 47
-----
Net deferred tax assets .................. $ 164
=====
</TABLE>
8. Employee benefit plan
The Company has established an employee savings plan under the provisions of
section 401(k) of the Internal Revenue Code. Substantially all employees are
eligible to participate in the plan. Employees can contribute up to 15% of their
gross wages to the plan. The Company is liable for matching contributions of up
to 5% of participants' contributions. For the year ended July 31, 1997, Company
contributions to the plan were approximately $52.
9. Retirement benefit
Upon retirement of a previous owner, the Company entered into an agreement in
which it committed to pay $18 annually to the previous owner and his spouse as
long as either of them is living. A liability of $184 has been recorded in the
financial statements based on the net present value of the total payments
anticipated.
37
<PAGE>
KOEHLER & DRAMM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
10. Related party transactions
The Company advanced $342 to its principal stockholder under a note due on
July 31, 2000 and which bears interest at 7.5%. At July 31, 1997, the accrued
interest totaled $25. Interest income related to the advance was $17 for the
year ended July 31, 1997. The principal portion of the note was repaid in
January 1998.
11. Commitments and contingencies
Lease commitments
The Company leases its warehouse and office facilities in Minneapolis and
Kansas City under noncancelable operating leases. The aggregate future minimum
rentals (exclusive of real estate taxes and expenses) are as follows:
<TABLE>
<S> <C>
Five months ended December 31, 1997 ........ $ 95
Year ended December 31,
1998 ..................................... 229
1999 ..................................... 229
2000 ..................................... 185
----
$738
====
</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.
12. 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 October 31, 1997 and the results of its
operations and its cash flows for the three months ended October 31, 1996 and
1997, as presented in the accompanying unaudited interim financial statements.
38
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
U.S.A. Floral Products, Inc.
Date: March 24, 1998 By: /s/ Raymond C. Anderson
---------------------------
Raymond C. Anderson
Chief Financial Officer
<PAGE>
EXHIBIT INDEX
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<CAPTION>
Sequential
Exhibit No. Description Page No.
- ----------------------------------------------------------------------------
<S> <C> <C>
2.1* Purchase Agreement by and among U.S.A. Floral
Products, Inc., CFL Acquisition Corp., ABCL
Acquisition Corp., Continental Farms Limited,
Atlantic Bouquet Company Limited, Continental
Farms Management, Inc. and the Limited Partners
named therein.
2.2* Agreement and Plan of Reorganization by and
among U.S.A. Floral Products, Inc., XLG
Acquisition Corp., XL Group, Inc. and Peter F.
Ullrich.
2.3** Agreement and Plan of Reorganization by and
among U.S.A. Floral Products, Inc., KDI
Acquisition Corp., Koehler & Dramm, Inc.
and the Stockholders named therein.
23.1*** Consent of Price Waterhouse LLP
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__________
* Previously filed as part of the Company's Current Report on Form 8-K, filed
on February 9, 1998 (File No.000-23121), and omitted pursuant to General
Instruction B.3 of Form 8-K.
** Previously filed as part of the Company's Registration Statement on Form S-
1, filed March 6, 1998 (File No. 333-39969), and omitted pursuant to
General Instruction B.3 of Form 8-K.
*** Filed herewith.
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (SEC File No. 333-39923) of U.S.A. Floral Products, Inc.
of our reports relating to the respective financial statements which appear in
this Current Report on Form 8-K/A.
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<CAPTION>
Financial Statements Report Date
- -------------------- -----------
<S> <C>
XL Group, Inc. February 9, 1998
Continental Farms Limited and
Atlantic Bouquet Company Limited February 27, 1998
Koehler & Dramm, Inc. March 3, 1998
</TABLE>
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Washington, D.C.
March 24, 1998
