<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
_____________
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
------------------
or
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission file number 000-23121
-----------
U.S.A. Floral Products, Inc.
----------------------------
(Exact name of registrant as specified in its charter)
Delaware 52-2030697
- --------------------------------------------------------------------------------
(State or other jurisdiction (I.R.S. employer
of incorporation or organization) identification no.)
1025 Thomas Jefferson Street, N.W., Suite 300 East Washington, DC 20007
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (202) 333-0800
------------------
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year,
if changed since last report.
Indicate by check whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
The number of shares outstanding of the registrant's Common Stock, par
value $.001 per share (which is the only outstanding class of the registrant's
common stock) was 16,313,902 shares at May 17, 1999.
<PAGE>
Forward Looking Statements
In this Form 10-Q ("Form 10-Q"), "USA Floral," "we," "us," and "our" refer
to U.S.A. Floral Products, Inc. and its subsidiaries, unless the context
otherwise requires. This Form 10-Q contains (or incorporates by reference)
certain "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. These statements generally can be
identified by the use of forward-looking terminology such as "may," "will,"
"intend," "estimate," "anticipate," "believe," "expect," or "continue" or
variations thereon or similar terminology. We have based these forward-looking
statements on our current expectations and projections about future events.
These forward-looking statements are subject to risks, uncertainties and
assumptions about USA Floral, including among other things:
. general economic and business conditions;
. changes in political, social and economic conditions and local
regulations, particularly in Central America and South America;
. changes in, or failure to comply with, government regulations;
. demographic changes;
. change in our sales mix;
. our ability to obtain floral products during periods of peak demand;
. changes in, or failure to maintain, current pricing levels;
. any reduction in sales to or loss of any significant customers;
. competition;
. changes in our business strategy or development;
. availability of sufficient capital to meet our needs or on terms or at
times acceptable to us; and
. availability of qualified personnel.
We undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
Because of these risks, uncertainties and assumptions, the forward-looking
events discussed in this Form 10-Q might not occur.
PART I - FINANCIAL INFORMATION
- ------------------------------
ITEM 1. Financial Statements
<PAGE>
U.S.A. FLORAL PRODUCTS, INC.
UNAUDITED CONSOLIDATED BALANCE SHEET
(in thousands, except par value)
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
-------------- -----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 26,139 $ 20,196
Accounts receivable, net 117,450 97,769
Inventory 21,229 18,577
Prepaid expenses and other assets 11,442 12,259
Deferred income tax assets 3,406 3,376
--------- ---------
Total current assets 179,666 152,177
Property and equipment, net 57,080 59,636
Goodwill, net 273,369 267,763
Restricted cash 3,688 3,672
Deferred financing costs 3,391 3,477
Other assets 6,785 7,309
========= =========
Total assets $ 523,979 $ 494,034
========= =========
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt $ 5,124 $ 5,005
Accounts payable 68,925 58,033
Accrued expenses 26,168 29,919
Due to stockholders 23,546 15,350
Income taxes payable 4,987 3,227
--------- ---------
Total current liabilities 128,750 111,534
Long-term debt 202,924 194,668
Deferred income tax liabilities 2,003 1,784
--------- ---------
Total liabilities 333,677 307,986
--------- ---------
Minority interest in subsidiaries 388 423
Commitments and contingencies
Stockholders' equity:
Common stock, $0.001 par value; 100,000 shares authorized;
14,888 and 14,850 shares issued, respectively 15 15
Treasury stock (14 shares) (287) (287)
Additional paid-in capital 178,362 178,130
Retained earnings 12,171 8,159
Accumulated other comprehensive income (347) (392)
--------- ---------
Total stockholders' equity 189,914 185,625
========= =========
Total liabilities and
stockholders' equity $ 523,979 $ 494,034
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
U.S.A. FLORAL PRODUCTS, INC.
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 31, 1999 March 31, 1998
-------------- --------------
<S> <C> <C>
Net revenues $ 271,343 $ 100,520
Cost of sales 204,769 74,056
--------- ---------
Gross margin 66,574 26,464
Selling, general and administrative expenses 53,979 18,540
Goodwill amortization 1,727 746
Integration charge 37 -
--------- ---------
Income from operations 10,831 7,178
Other income (expense):
Interest expense (3,863) (681)
Interest income 382 270
Other 182 315
--------- ---------
Income before income taxes and minority interest 7,532 7,082
Provision for income taxes 3,512 3,130
--------- ---------
Net income before minority interest 4,020 3,952
Minority interest (8) -
========= =========
Net income $ 4,012 $ 3,952
========= =========
Net income per share
Basic $ 0.25 $ 0.32
Diluted $ 0.24 $ 0.31
Weighted average shares outstanding:
Basic 16,314 12,360
Diluted 16,563 12,927
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
U.S.A. FLORAL PRODUCTS, INC.
UNAUDITED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(in thousands)
<TABLE>
<CAPTION>
Accumulated
Common Stock Additional Other Total
------------
Treasury Paid-in Retained Comprehensive Stockholders'
Shares Amount Stock Capital Earnings Income Equity
------ ------ ----- ------- -------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998 14,836 $ 15 $ (287) $ 178,130 $ 8,159 $ (392) $ 185,625
Exercise of stock options 7 - 87 87
Issuance of common stock 31 - 145 145
Net income 4,012
Foreign currency translation adjustment 45
Total comprehensive income 4,057
-------------------------------------------------------------------------------------
Balance at March 31, 1999 14,874 $ 15 $ (287) $ 178,362 $ 12,171 $ ( 347) $ 189,914
=====================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
U.S.A. FLORAL PRODUCTS, INC.
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 31, 1999 March 31, 1998
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 4,012 $ 3,952
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 2,382 568
Amortization of goodwill 1,727 746
Amortization of deferred financing costs 188 90
Loss on disposal of property and equipment (45) (16)
Foreign currency translation losses 4 -
Income applicable to minority interests 8 -
Deferred income taxes - (163)
Changes in operating assets and liabilities,
exclusive of acquired companies:
Accounts receivable (22,991) (7,121)
Inventory (2,769) (1,272)
Due from related parties - 3,323
Prepaid expenses and other current assets 2,641 (477)
Other assets 694 484
Income taxes payable 2,157 1,757
Other liabilities - 253
Accounts payable 9,754 1,111
Accrued expenses (1,066)
-------- --------
Net cash provided (used in) by operating activities: (3,304) 3,235
-------- --------
Cash flows from investing activities:
Purchases of property and equipment (3,168) (585)
Payment for business acquisitions, net of cash acquired - (47,332)
Increase in restricted cash (16) (3,526)
Deferred acquisition costs - 199
-------- --------
Net cash used in investing activities (3,184) (51,244)
-------- --------
Cash flows from financing activities:
Proceeds from and repayments of long term debt 12,683 45,889
Increase in deferred financing costs (102) (70)
Proceeds from issuance of common stock 145
Proceeds from exercise of stock options 87
-------- --------
Net cash provided by financing activities 12,813 45,819
Effect of exchange rates on cash (382) -
-------- --------
Net increase in cash and cash equivalents 5,943 (2,190)
Cash and cash equivalents - beginning of the period 20,196 15,582
-------- --------
Cash and cash equivalents - end of the period $ 26,139 $ 13,392
======== ========
See Note 8 for supplemental cash flow information
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
U.S.A. FLORAL PRODUCTS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
NOTE 1 -- GENERAL
U.S.A. Floral Products, Inc., a Delaware corporation ("USA Floral" or the
"Company"), was founded in April 1997 and since then has grown to become a
worldwide distributor of floral products. USA Floral acquired eight U.S.
businesses in the floral industry (the "Founding Companies") simultaneously with
the initial public offering ("IPO") of its Common Stock in October 1997,
acquired six U.S. businesses in the floral industry in January 1998 (the
"January 1998 Class"), acquired eight businesses in the floral industry in April
1998 (the "April 1998 Class"), acquired nine businesses in the floral industry
in July 1998 (the "July 1998 Class"), and on October 1, 1998 acquired the
business of Florimex Worldwide GmbH and related entities ("Florimex"), an
international distributor of floral products headquartered in Nurnberg, Germany
(together, the "Acquisitions"). These financial statements include the results
of operations of USA Floral and the Founding Companies, the January 1998 Class,
the April 1998 Class, the July 1998 Class and Florimex subsequent to their
acquisitions. The Company intends to continue to acquire, through merger or
purchase, similar companies to expand its domestic and international operations.
The unaudited condensed consolidated financial statements reflect all
adjustments which are, in the opinion of management, necessary to a fair
statement of the results for the interim periods presented. All such adjustments
are of a normal, recurring nature.
The unaudited interim financial information should be read in conjunction
with the consolidated financial statements contained in the Company's 1998
Annual Report on Form 10-K.
NOTE 2 - ACQUISITIONS
Contingent purchase consideration related to earn-out arrangements included
in the definitive agreements for DL Jones and Allan Stanley were achieved during
the three month period ended March 31, 1999. These earn-out arrangements
provided for the Company to pay additional consideration based on adjusted
earnings before interest and taxes, as defined, for the twelve months ended
February 28, 1999 for DL Jones in the amount of $1,468 and for the twelve months
ended March 31, 1999 for Allan Stanley in the amount of $5,422. These amounts
have been included in goodwill at March 31, 1999. Further, the total purchase
consideration does not reflect contingent consideration related to an earn-out
arrangement included in the definitive agreement for Channel Islands. This earn-
out arrangement provides for the Company to pay additional consideration, not to
exceed $3,000, based on adjusted earnings before interest and taxes, as defined,
for the eighteen month period ending December 31, 1999 for Channel Islands.
<PAGE>
U.S.A. FLORAL PRODUCTS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
NOTE 3 - EARNINGS PER SHARE
The shares used in computing net income per share are as follows:
<TABLE>
<CAPTION>
Three months Three months
ended ended
March 31, 1999 March 31, 1998
-------------- --------------
<S> <C> <C>
Weighted average shares outstanding - Basic 16,313,902 12,359,761
Dilution attributable to options 249,476 567,004
------------ ------------
Weighted average shares outstanding - Diluted 16,563,378 12,926,765
============ ============
</TABLE>
The above calculations for the three months ended March 31, 1999 do not
include shares which may be issued under an earn-out arrangement for Channel
Islands.
Included in the weighted average shares outstanding - basic are 1,409,439
shares of common stock attributable to contingent consideration earned and
unpaid and 30,620 shares of common stock to be issued under the employee stock
purchase plan at March 31, 1999.
NOTE 4 - INVENTORY
Inventory consists of the following finished goods:
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
--------- ------------
<S> <C> <C>
Hardgoods $ 15,502 $ 15,574
Perishables 5,727 3,003
--------- ------------
$ 21,229 $ 18,577
========= ============
</TABLE>
NOTE 5 - COMMITMENTS AND CONTINGENCIES
The Company is involved in various legal proceedings that have arisen in
the ordinary course of business. The Company does not believe that any of these
proceedings will have a material adverse effect on the financial position,
results of operations or cash flows of the Company.
<PAGE>
U.S.A. FLORAL PRODUCTS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
NOTE 6 - INTEGRATION PLANS
In November 1998, in connection with management's plan to reduce costs and
improve operating efficiencies, the Company announced an integration plan which
is expected to result in a charge of approximately $3.8 million.
In connection with the integration plan, the Company will integrate certain
warehouse and distribution facilities, principally those associated with the
Company's import and bouquet manufacturing operations in Miami, Florida.
Approximately $3.4 million of the charge was recorded in the fourth quarter of
1998. An additional $37 of the charge was recorded in the first quarter of 1999.
The balance of the charge is to be recorded in the second and third quarters of
1999. The integration charges principally relate to the write-down to fair value
of equipment made obsolete or redundant, severance related to the termination of
180 employees, and lease termination costs due to the decision to merge certain
facilities. The integration of the warehouses and distribution facilities began
in November 1998 and is expected to be complete by September 30, 1999.
The major components of the integration charge are as follows:
<TABLE>
<CAPTION>
<S> <C>
Severance and related costs $ 800
Write down of property, plant and equipment 2,100
Lease termination costs 400
Professional fees and other costs 500
----------
$ 3,800
==========
</TABLE>
At March 31, 1999, $2.4 million of the integration charge remained in
accrued liabilities and 35 employees had been terminated. The balance is
primarily comprised of $450 for the reduction of approximately 145 employees in
North America to be completed in 1999, $275 for closing excess facilities and
$1,675 for non-cash write downs of recorded assets. A summary of the integration
activity is presented below:
<TABLE>
<S> <C>
Balance at December 31, 1998 $ 2,924
1999 Activity:
Non cash write-down of
property and equipment (180)
Lease-termination cash payments (105)
Reduction in workforce and
other cash outflows (246)
-------
Balance at March 31, 1999 $ 2,393
=======
</TABLE>
<PAGE>
U.S.A. FLORAL PRODUCTS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
In connection with the Company's acquisition of Florimex, the Company
acquired approximately $2.7 million in reserves for a restructuring of the
German wholesale operation and a plan to integrate certain operations,
warehouses and distribution facilities, principally those associated with the
International Division of the Company's operations in the Netherlands. Of the
reserves, approximately $2.575 million relates to severance payments for 25
employees and the balance of approximately $125 relates to the write down of
assets. The integration of the operations, warehouses and distribution
facilities is expected to be complete by September 30, 1999.
At March 31, 1999, $2.1 million of the integration charge remained in
accrued liabilities and 7 employees had been terminated. The balance was
comprised of $2.0 million for the reduction of approximately 17 employees in the
International Division to be completed in 1999, and $100 for non-cash write-
downs of recorded assets. A summary of the integration activity is presented
below:
<TABLE>
<S> <C>
Balance at December 31, 1998 $ 2,367
1999 Activity:
Reduction in workforce cash outflows (171)
Other cash outflows (120)
--------
Balance at March 31, 1999 $ 2,076
========
</TABLE>
NOTE 7 - GEOGRAPHIC REGION AND BUSINESS SEGMENT INFORMATION
Segment information has been provided for each of the periods presented in
the Company's statement of operations. The Company is organized primarily on a
geographic basis with an International Division and a North America Division and
secondarily based on the products and services that it offers. Each division has
three segments: import/export, wholesale distribution and bouquet manufacturers.
The import/export segment purchases flowers from farms located primarily in
South America, Africa and Europe and sells them to wholesalers and bouquet
manufacturers. The wholesale distribution segment purchases perishable flowers
and floral related hardgoods from growers, importer/exporters and brokers and
sells them to retail florists and mass marketers. The bouquet manufacturers
segment procures and produces fresh cut floral bouquets for distribution
primarily to mass markets, broadly defined as supermarkets and discount
retailers. The Company's reportable divisions and segments are strategic
business units that offer different floral related products and services. They
are managed separately because each business division and segment requires
different marketing and management strategies. The Company evaluates segment
performance and allocates resources to them based on gross margin and income
from operations.
The accounting policies of the segments are the same as those described in
the Company's 1998 Annual Report on Form 10K. Segment data includes intersegment
sales and transfers which the Company accounts for as if the sales or transfers
were to third parties, that is, at current market prices.
<PAGE>
U.S.A. FLORAL PRODUCTS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
The following tables present information about reported segments:
<TABLE>
<CAPTION>
North America Division
For the three months ended March 31, 1998
---------------------------------------------------------------
Import/ Wholesale Bouquet
Export Distribution Manufacturers Total
--------- ------------ ------------- --------
<S> <C> <C> <C> <C>
Revenues - external customers $ 42,674 $ 33,866 $ 23,980 $100,520
Revenues - intercompany 5,382 - - 5,382
Gross margin 11,371 10,922 4,171 26,464
Depreciation and amortization 579 549 267 1,395
Integration charge - - - -
Income from operations 4,733 1,725 1,843 8,301
</TABLE>
There was no International Division during the first three months of 1998.
<TABLE>
<CAPTION>
North America Division For the three months ended March 31, 1999
---------------------------------------------------------------
Import/ Wholesale Bouquet
Export Distribution Manufacturers Total
--------- ------------ ------------- --------
<S> <C> <C> <C> <C>
Revenues - external customers $ 65,946 $ 51,771 $ 51,302 $169,019
Revenues - intercompany 13,802 225 1,414 15,441
Gross margin 19,234 16,124 9,786 45,144
Depreciation and amortization 1,073 711 529 2,313
Integration charge - 37 - 37
Income from operations 7,690 1,776 2,110 11,576
</TABLE>
<TABLE>
<CAPTION>
International Division For the three months ended March 31, 1999
---------------------------------------------------------------
Import/ Wholesale Bouquet
Export Distribution Manufacturers Total
--------- ------------ ------------- --------
<S> <C> <C> <C> <C>
Revenues - external customers $ 64,800 $ 18,943 $ 18,581 $102,324
Revenues - intercompany 21,288 35 179 21,502
Gross margin 13,489 4,702 3,239 21,430
Depreciation and amortization 553 477 258 1,288
Integration charge - - - -
Income from operations 1,579 52 715 2,346
</TABLE>
<PAGE>
U.S.A. FLORAL PRODUCTS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
<TABLE>
<CAPTION>
Consolidated For the three months ended March 31, 1999
-----------------------------------------------------------------
Import/ Wholesale Bouquet
Export Distribution Manufacturers Total
--------- ------------ ------------- -------
<S> <C> <C> <C> <C>
Revenues - external customers $ 130,746 $ 70,714 $ 69,883 $271,343
Revenues - intercompany 35,090 260 1,593 36,943
Gross margin 32,723 20,826 13,025 66,574
Depreciation and amortization 1,626 1,188 787 3,601
Integration charge - 37 - 37
Income from operations 9,269 1,828 2,825 13,922
</TABLE>
Total Assets as of December 31, 1998 and March 31, 1999 by segment are:
<TABLE>
<CAPTION>
Total Assets As of December 31, 1998
-----------------------------------------------------------------
Import/ Wholesale Bouquet
Export Distribution Manufacturers Total
--------- ------------ ------------- -------
<S> <C> <C> <C> <C>
North America Division $ 143,171 $ 95,167 $ 69,780 $308,118
International Division 65,010 21,298 18,653 104,961
------------------------------------------------------------------
Total segment assets $ 208,181 $ 116,465 $ 88,433 $413,079
==================================================================
</TABLE>
<TABLE>
<CAPTION>
Total Assets As of March 31, 1999
-----------------------------------------------------------------
Import/ Wholesale Bouquet
Export Distribution Manufacturers Total
--------- ------------ ------------- -------
<S> <C> <C> <C> <C>
North America Division $ 161,979 $ 100,061 $ 74,078 $336,118
International Division 64,105 20,844 18,121 103,070
------------------------------------------------------------------
Total segment assets $ 226,084 $ 120,905 $ 92,199 $439,188
==================================================================
</TABLE>
<PAGE>
U.S.A. FLORAL PRODUCTS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
Reconciliations of total segment income from operations to total consolidated
income before income taxes and total segment assets to consolidated total assets
are as follows:
<TABLE>
<CAPTION>
Three months ended Three months ended
March 31, 1999 March 31, 1998
------------------ ------------------
<S> <C> <C>
Income from Operations
Total segment income from operations $ 13,922 $ 8,301
Interest income 382 270
Interest expense (3,863) (681)
Other income 182 315
Unallocated corporate S,G&A expenses (2,625) (1,123)
Unallocated goodwill amortization (466) -
-----------------------------------------
Total consolidated income before income taxes $ 7,532 $ 7,082
=========================================
Total Assets March 31, December 31,
1999 1998
------------------ ------------------
Total segment assets $ 439,188 $ 413,079
Elimination of intercompany receivables
(9,729) (6,464)
Goodwill not allocated to segments 80,782 70,462
Other assets 13,738 16,957
-----------------------------------------
Total consolidated assets $ 523,979 $ 494,034
=========================================
</TABLE>
The following table presents revenues and long-lived asset information by
geographic area:
<TABLE>
<CAPTION>
Revenues Long-lived Assets
---------------------------------------------------------------------------------
Three months ended Three months ended As of As of December 31,
March 31, 1999 March 31, 1998 March 31, 1999 1998
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
United States $ 160,283 $ 100,520 $ 247,914 $ 240,425
Germany 32,939 - 74,896 36,495
Netherlands 40,261 - 8,694 42,412
Other foreign countries 37,860 - 12,629 22,525
---------------------------------------------------------------------------------
Total $ 271,343 $ 100,520 $ 344,133 $ 341,857
=================================================================================
</TABLE>
Revenues are based on the country in which the sale originates (i.e., where
the legal subsidiary is domiciled) and do not include intercompany sales.
<PAGE>
U.S.A. FLORAL PRODUCTS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
NOTE 8 - SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental disclosure of cash flow information:
<TABLE>
<CAPTION>
Three months Three months
ended ended
March 31, March 31,
1999 1998
----------------------------------------------
<S> <C> <C>
Cash paid during the period for interest $1,097 $ 152
================== ================
Cash paid during the period for income taxes $ 478 $ 772
================== ================
Supplemental disclosure of non-cash transactions:
Business acquisitions:
Cash paid for business acquisitions $ - $ 52,100
Less: cash acquired - 4,768
------------------ ----------------
Cash paid for business acquisitions, net - 47,332
Issuance of common stock for business acquisitions - 56,142
------------------ ----------------
- 103,474
Fair value of net assets acquired, net of cash - 13,398
------------------ ----------------
$ - $ 90,076
================== ================
</TABLE>
Although there were no acquisitions in the first quarter of 1999, during the
three months ended March 31, 1999 the Company accrued $8,196 in contingent
consideration for earnouts which are anticipated to be satisfied in the second
quarter of 1999 in amounts of cash of $3,830 and common stock of $4,366.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
<TABLE>
<CAPTION>
For the three For the three
Statement of Operations: months ended months ended
(in thousands except per March 31, March 31,
share data) 1999 1998
------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net revenue $271,343 100.0% $100,520 100.0%
Cost of sales 204,769 75.5% 74,056 73.7%
------------------------------------------------------------------
Gross margin 66,574 24.5% 26,464 26.3%
Selling, general and
administrative expenses 53,979 19.9% 18,540 18.4%
Goodwill amortization 1,727 0.6% 746 0.7%
Integration charge 37 0.0% - 0.0%
------------------------------------------------------------------
Income from operations 10,831 4.0% 7,178 7.2%
Interest expense (3,863) (1.4)% (681) (0.7)%
Interest income 382 0.1% 270 0.2%
Other income 182 0.1% 315 0.3%
------------------------------------------------------------------
Income before income taxes and
minority interest 7,532 2.8% 7,082 7.0%
Provision for income taxes 3,512 1.3% 3,130 3.1%
------------------------------------------------------------------
Income before minority interest 4,020 1.5% 3,952 3.9%
Minority interest (8) 0.0% - 0.0%
------------------------------------------------------------------
Net income $ 4,012 1.5% $ 3,952 3.9%
------------------------------------------------------------------
Net income per share:
Basic $ 0.25 $ 0.32
Diluted $ 0.24 $ 0.31
Shares used in computing
net income per share:
Basic 16,314 12,360
Diluted 16,563 12,927
</TABLE>
Results of Operations
- ---------------------
Three months ended March 31, 1999 compared to three months ended March 31, 1998
Net Revenues. Net revenues for the quarter ended March 31, 1999 were $271.3
million. Revenues increased from $100.5 million in the same quarter last year.
This increase was primarily due to the acquisition of 18 floral businesses
completed during 1998, all of which were accounted for under the purchase method
of accounting, coupled with the impact in 1999 of a full quarter of operations
of the January 1998 Class acquisition. Revenues for the North America Division
were $169.0 million, or 62.3%, of the consolidated revenues and revenues for the
International Division were $102.3 million, or 37.7%. Revenues for the
International Division consisted primarily of revenues from Germany, the
Netherlands, Italy and Japan. In 1998, all revenues were generated by the North
America Division as there was no International Division during the first three
months of 1998.
<PAGE>
Gross margin. Gross margin for the three months ended March 31, 1999 and
1998 were $66.6 million and $26.5 million, respectively. Gross margin as a
percentage of net revenue was 24.5%, for the three months ended March 31, 1999
and 26.3% for the three months ended March 31, 1998. The decline in the gross
margin is mainly attributable to the inclusion of the International Division in
1999. The International Division historically operates at a lower gross margin
and therefore, reduces the consolidated gross margin of the Company. For the
three months ended March 31, 1999, the gross margin of the International
Division was 20.9%. The North America Division gross margin was 26.7% for the
three months ended March 31, 1999 as compared to 26.3% for the same prior
period. The modest increase was the result of improved intercompany sales
between importers and wholesalers in North America.
Selling, General and Administrative. Selling general and administrative
expenses were $54.0 million in the three months ended March 31, 1999, or 19.9%
of net revenues and $18.5 million in the three months ended March 31, 1998, or
18.4% of net revenues. The increase in selling, general and administrative
expense is primarily the result of the acquisition of 18 floral businesses in
1998 and expenses associated with building an infrastructure for a publicly
held, multi-national corporation.
Income from operations. Income from operations was $10.8 million, or 4.0%
of net revenues, for the three months ended March 31, 1999 and $7.2 million or
7.2% of net revenues for the three months ended March 31, 1998.
Interest expense. Substantially all lines of credit and other bank debt
assumed by the Company in connection with the acquisitions consummated in 1998
were paid in full. Our outstanding debt at March 31, 1999 primarily relates to
our credit agreement. For the three months ended March 31, 1999, interest
expense was approximately $3.9 million as compared to $0.7 million for the three
months ended March 31, 1998. The increase in interest expense is primarily the
result of borrowings used to fund the cash portion of the total consideration
for the acquisition of the 18 floral businesses completed during 1998. The
Company's average borrowing rate for the three month period ended March 31, 1999
was 7.6% based on the Company's weighted average outstanding debt balance.
Provision for income taxes. The provision for income taxes was $3.5 million
for the three months ended March 31, 1999 on pre-tax income of $7.5 million and
$3.1 million for the quarter ended March 31, 1998 on pre-tax income of $7.1
million for the period. The 1999 and 1998 effective income tax rate of 47% and
44%, respectively, are higher than the statutory rate primarily due to the non-
deductibility of certain goodwill amortization. The increase in the effective
tax rate in 1999 is primarily the result of a higher tax rate for the
International Division which was not acquired until October 1998.
Net income. The Company had net income of $4.0 million for the three months
ended March 31, 1999, or $0.25 per basic share and $0.24 per diluted share. The
Company had net income of $4.0 million for the three months ended March 31,
1998, or $0.32 per basic share and $0.31 per diluted share. The principal cause
of the reduction in earnings per share was lower revenue than the Company
anticipated for the three months ended March 31, 1999, due primarily to the
following: Industry wide North American import demand from South America was
weak for the first two months of 1999 as compared to the same period in 1998 and
average unit prices for the industry were down as much as 30%. Industry-wide
Dutch exports were down approximately 12% for the first two months of 1999, as
compared to the same period in 1998 and average unit prices fell approximately
12.5% from the prior year. Valentine's Day fell on a Sunday of a
<PAGE>
Holiday weekend. The strength of the U.S. dollar versus the Euro also impacted
the Company. We derive about 40% of our revenue internationally, primarily from
Europe, and we estimate that the stronger U.S. dollar negatively impacted
reported international earnings by approximately 8%. Also, the earnings per
share is affected by the manner in which the Company financed its acquisitions.
The Founding Company and the January 1998 Class included in the results for the
three months ended March 31, 1998 were financed primarily from proceeds from the
Company's initial public offering and to a lesser extent from bank financings.
These acquisitions were in general 50% cash and 50% stock transactions. The
results for the three months ended March 31, 1999 include the April 1998 Class,
July 1998 Class and Florimex acquisitions, all of which were financed with bank
financings. Both the April 1998 Class and July 1998 Class were generally 50%
cash and 50% stock transactions, however, the Florimex transaction was 100% cash
which increases the Company's relative interest expense.
<PAGE>
Liquidity and Capital Resources
- -------------------------------
Historical. Historically, the Company's primary sources of liquidity have
been cash from operations and borrowings under our credit facility. For fiscal
1998, quarterly net pro forma revenues as a percentage of total pro forma
revenues were approximately 29%, 27%, 20%, and 24%, respectively, for the first
through the fourth quarters of the fiscal year on a pro forma basis. In
addition, for fiscal 1998 quarterly income from operations as a percentage of
total income from operations was approximately 5%, 4%, (0)%, and 1.6%,
respectively for the first through the fourth quarters of the fiscal year on a
pro forma basis. The Company's need for cash historically has been greater in
its first and second quarters when cash generated from operating activities
coupled with drawdowns from bank lines have been invested in receivables and to
a lesser extent inventories. The Company experiences higher levels of sales in
the first two quarters of the year due to the traditional flower giving
holidays, Valentine's Day in February and Mother's Day in May. In the three
months ended March 31, 1999, operating activities used $3.3 million of net cash
compared to $3.2 million of cash which was provided for operations in the same
period last year. The decrease is principally attributable to the net income
from operations being $4.0 million in both 1999 and 1998 despite an increase in
Company sales to $271.3 million in 1999 from $100.5 million in 1998.
Our capital expenditures for the three months ended March 31, 1999 were
approximately $3.2 million. Although we currently do not have any commitments to
make significant capital expenditures, we expect to spend approximately $8
million for capital expenditures in the next twelve months in the normal course
of business and $6 million for our Year 2000 project (see below) to remediate
existing systems and replace non-compliant systems.
The Company's principal sources of liquidity will come from cash flow
generated from operations and borrowings under the Company's $200 million
revolving credit facility described below. The Company's principal uses of
liquidity will be to provide working capital, meet debt service requirements and
finance the Company's strategic plans. At March 31, 1999, the Company had an
available borrowing capacity of $30.7 million (net of $11.2 million of
outstanding letters of credit) under the revolving credit facility. The Company
does not have any required amortization of Term Loans in fiscal 1999.
Financing. Effective October 2, 1998, we amended and restated our existing
credit agreement with a syndicate of lenders for which Bankers Trust Company
serves as agent (the "Credit Agreement"). Pursuant to the terms of the Credit
Agreement, the amount of our revolving credit facility were increased to $200
million, of which the sub-limit for permitted acquisitions is $180 million and
the sub-limit for working capital purposes and letters of credit is $20 million.
In addition, of the $200 million in revolving credit facilities, up to $15
million has been designated to be a revolving loan which is available to certain
of our foreign subsidiaries in either Deutsche Marks or Guilders. Finally, a new
$50 million, Deutsche Mark denominated term loan was created as an additional
source of borrowings in excess of the $200 million revolving credit facility.
Borrowings under the revolving credit facility bear interest, at our option, at
(a) Bankers Trust Company's base rate plus an applicable margin of up to 1.0% or
(b) a Eurodollar rate plus an applicable margin of up to 2.25%. Borrowings under
the term loan bear interest at the interbank rate for Deutsche Marks plus an
applicable margin of up to 2.25%. We paid on closing a financing fee of
approximately $3.6 million, which has been deferred and will be amortized over
the term of the Credit Agreement. In addition, a commitment fee of up to 0.50%
will be charged on the unused portion of the revolving credit facility on a
quarterly basis. Both the revolving credit facilities and
<PAGE>
the term loan mature five years from the closing date. At March 31, 1999
outstanding borrowings under our Credit Agreement aggregated $202 million.
Excluding capital requirements for future acquisitions, if any, which we
cannot currently predict, we believe that funds generated from operations,
together with borrowings under the Credit Agreement, should be sufficient to
finance our current operations and planned capital expenditure requirements for
at least the next twelve months; thereafter, we do not currently perceive needs
for cash (other than future acquisitions, if any, that we may choose to finance
in whole or in part with cash) that would exceed anticipated sources of cash
from operations and from credit facility currently in place. To the extent that
we are successful in consummating future acquisitions, if any, it may be
necessary to finance such acquisitions through the issuance of additional equity
securities, incurrence of indebtedness, or a combination of both. Such
additional equity issuances or incurrences of indebtedness may not be possible,
or if possible, may not be available on terms acceptable to us.
Year 2000
We have been conducting a comprehensive review of our computer systems to
identify those that could be adversely affected by the "Year 2000 issue" (which
refers to the inability of many computer systems to process accurately dates
later than December 31, 1999), and we are executing a plan to remediate or
replace affected systems.
Our Year 2000 compliance project includes four phases: (1) evaluation of our
owned or leased systems and equipment to identify potential Year 2000 compliance
issues; (2) remediation or replacement of any systems and equipment determined
to be non-compliant (and testing of remediated systems before returning them to
production); (3) inquiry regarding Year 2000 readiness of material business
partners and other third parties on whom our business is dependent; and (4)
development of contingency plans, where feasible, to address potential third
party non-compliance or failure of our material systems.
The initial phase of the Year 2000 compliance project included the evaluation
of all software, hardware and equipment we owned or licensed, and identification
of those systems and equipment requiring Year 2000 remediation. Analysis of all
material software and hardware has been completed and of those systems requiring
remediation or replacement, approximately 35% (or 50% of all system users) have
already been replaced by Year 2000 compliant hardware and software. We
anticipate that all remaining material systems will be remediated or replaced by
October, 1999.
The costs and timing for replacement of certain of our systems that were not
Year 2000 compliant have been anticipated as part of our planned information
systems spending. We estimate that the total additional cost of managing the
Year 2000 project, remediating existing systems and replacing non-compliant
systems, is approximately $6.0 million of which approximately $1.2 million will
be expensed as incurred, and $4.8 million will be capitalized. Although we
believe our Year 2000 compliance efforts with respect to our systems will be
successful, any failure or delay could cause actual costs and timing to differ
materially from that presently contemplated. We intend to develop a contingency
plan to permit our primary operations to continue if the modifications and
conversions of our systems are not successfully completed on a timely basis, but
the foregoing cost estimates do not take into account any expenditures
associated with such contingencies. Our cost estimates also do not include time
or costs that may be incurred as a result of third parties' becoming Year 2000
compliant on a timely basis.
<PAGE>
We are communicating with our business partners, including the key suppliers,
vendors, banks and other third parties with whom we do business, to obtain
information regarding their state of readiness with respect to the Year 2000
issue. Failure of third parties to remediate Year 2000 issues affecting their
respective businesses on a timely basis, or to implement contingency plans
sufficient to permit uninterrupted continuation of their businesses in the event
of a failure of their systems, could have a material adverse effect on our
business and results of operations. Assessment of third party Year 2000
readiness is expected to be substantially completed by the end of June, 1999.
We will not be able to determine our most reasonably likely worst case scenario
until the assessment of third parties' Year 2000 compliance is completed.
Our Year 2000 compliance project includes development of a contingency plan
designed to support critical business operations in the event of the occurrence
of systems failures or the occurrence of reasonably likely worst case scenarios.
We anticipate that contingency plans will be substantially developed by July,
1999.
We may not be able to compensate adequately for business interruption caused
by certain third parties. Potential risks include suspension or significant
curtailment of service or significant delays by banks, utilities or common
carriers, or at U.S. ports of entry. Our business also could be materially
adversely affected by the failure of governmental agencies to address Year 2000
issues affecting our operations. For example, a significant amount of our
merchandise is grown outside the United States, and we are dependent upon the
issuance by foreign governmental agencies of export visas for, and upon the U.S.
Custom Service to process and permit entry into the United States of, such
merchandise. If failures in government systems result in the suspension or delay
of these agencies' services, we could experience significant interruption or
delays in our product flow.
The costs and timing for management's completion of Year 2000 compliance,
modification and testing processes are based on management's best estimates,
which were derived utilizing numerous assumptions of future events, including
the continued availability of certain resources, the success of third parties'
Year 2000 compliance efforts and other factors. There can be no assurance that
these assumptions will be realized or that actual results will not vary
materially.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
There has been no material change in the information set forth in our December
31, 1998 Form 10-K filed with the Securities and Exchange Commission on March
30, 1999.
<PAGE>
PART II - OTHER INFORMATION
- ---------------------------
Item 1. Legal Proceedings
U.S.A. Floral and its subsidiaries are from time to time parties to
lawsuits arising out of our respective operations. We believe that any
pending litigation to which we or our subsidiaries are parties will not
have a material adverse effect upon our consolidated financial position
or results of operations.
Item 2. Changes in Securities and Use of Proceeds
(a) Not applicable.
(b) Pursuant to the Credit Agreement, the Company is not permitted
to pay dividends upon its common stock without the consent of
the lenders thereunder.
(c) Not applicable.
(d) Not applicable.
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
In April 1999, the Company retained Wilmer Cutler & Pickering,
Washington, D.C., as its external legal counsel.
Item 6. Exhibits and Reports on Form 8-K
None
<PAGE>
Signatures
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
U.S.A. FLORAL PRODUCTS, INC.
Date: May 17, 1999 By: /s/ W. Michael Kipphut
------------------------------------
W. Michael Kipphut,
Chief Financial Officer
<PAGE>
U.S.A. FLORAL PRODUCTS, INC.
----------------------------
INDEX
-----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Balance Sheets at March 31, 1999 and December 31, 1998
Statements of Operations for the Three Months Ended March 31, 1999 and
1998
Statement of Stockholders' Equity
Statements of Cash Flows for the Three Months Ended March 31, 1999 and
1998
Notes to Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risks
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
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<PAGE>
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 26,139
<SECURITIES> 0
<RECEIVABLES> 117,450
<ALLOWANCES> 0
<INVENTORY> 21,229
<CURRENT-ASSETS> 179,666
<PP&E> 57,080
<DEPRECIATION> 0
<TOTAL-ASSETS> 523,979
<CURRENT-LIABILITIES> 128,750
<BONDS> 0
0
0
<COMMON> 15
<OTHER-SE> 189,899
<TOTAL-LIABILITY-AND-EQUITY> 523,979
<SALES> 271,343
<TOTAL-REVENUES> 271,343
<CGS> 204,769
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<INCOME-PRETAX> 7,532
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