<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 June 30, 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 16,314,799 shares at August 13, 1999.
<PAGE>
U.S.A. FLORAL PRODUCTS, INC.
----------------------------
INDEX
-----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets at June 30, 1999 and December 31, 1998
Consolidated Statements of Operations for the Six Months Ended
June 30, 1999 and 1998 and for the Three Months Ended June 30,
1999 and 1998
Consolidated Statement of Stockholders' Equity for the Six Months
Ended June 30, 1999
Consolidated Statements of Cash Flows for the Six Months Ended
June 30, 1999 and 1998
Notes to Consolidated 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
<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.
<PAGE>
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>
June 30, 1999 December 31, 1998
--------------- ---------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 17,051 $ 20,196
Accounts receivable, net 89,994 97,769
Inventory 20,971 18,577
Prepaid expenses and other assets 10,727 12,259
Deferred income tax assets 3,376 3,376
--------------- ---------------
Total current assets 142,119 152,177
Property and equipment, net 56,319 59,636
Goodwill, net 273,104 267,763
Restricted cash 3,769 3,672
Deferred financing costs 3,379 3,477
Other assets 7,054 7,309
--------------- ---------------
Total assets $ 485,744 $ 494,034
=============== ===============
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt $ 3,712 $ 5,005
Accounts payable 52,072 58,033
Accrued expenses 20,852 29,919
Due to stockholders 11,550 15,350
Income taxes payable 5,261 3,227
--------------- ---------------
Total current liabilities 93,447 111,534
Long-term debt 187,864 194,668
Deferred income tax liabilities 2,663 1,784
Other liabilities 1,800
--------------- ---------------
Total liabilities 285,774 307,986
--------------- ---------------
Minority interest in subsidiaries 348 423
Commitments and contingencies
Stockholders' equity:
Common stock, $0.001 par value; 100,000 shares authorized;
15,514 and 14,850 shares issued, respectively 16 15
Treasury stock (14 shares) (287) (287)
Additional paid-in capital 185,537 178,130
Retained earnings 13,905 8,159
Accumulated other comprehensive income 451 (392)
--------------- ---------------
Total stockholders' equity 199,622 185,625
--------------- ---------------
Total liabilities and stockholders' equity $ 485,744 $ 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>
Six Months Ended Six Months Ended Three Months Ended Three Months Ended
June 30, 1999 June 30, 1998 June 30, 1999 June 30, 1998
---------------- ---------------- ------------------ ------------------
<S> <C> <C> <C> <C>
Net revenues $ 510,384 $ 234,294 $ 239,041 $ 133,775
Cost of sales 380,616 170,721 175,847 96,666
---------------- ---------------- ------------------ ------------------
Gross margin 129,768 63,573 63,194 37,109
Selling, general and administrative expenses 107,064 44,557 53,085 26,016
Goodwill amortization 3,507 1,884 1,780 1,138
Integration charge 40 - 3 -
---------------- ---------------- ------------------ ------------------
Income from operations 19,157 17,132 8,326 9,955
Other income (expense):
Interest expense (7,911) (2,094) (4,048) (1,413)
Interest income 994 743 612 472
Other 322 378 140 62
---------------- ---------------- ------------------ ------------------
Income before income taxes and minority interest 12,562 16,159 5,030 9,076
Provision for income taxes 6,819 7,244 3,307 4,113
---------------- ---------------- ------------------ ------------------
Income before minority interest 5,743 8,915 1,723 4,963
Minority interest 3 - 11 -
---------------- ---------------- ------------------ ------------------
Net income 5,746 $ 8,915 $ 1,734 $ 4,963
================ ================ ================== ==================
Net income per share
Basic $ 0.35 $ 0.67 $ 0.11 $ 0.35
Diluted $ 0.35 $ 0.64 $ 0.11 $ 0.34
Weighted average shares outstanding:
Basic 16,315 13,356 16,315 14,352
Diluted 16,496 13,855 16,429 14,783
</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 657 1 7,320 7,321
Net income 5,746
Foreign currency translation adjustment 843
Total comprehensive income 6,589
---------------------------------------------------------------------------------------
Balance at June 30, 1999 15,500 $ 16 $ (287) $ 185,537 $ 13,905 $ 451 $ 199,622
=======================================================================================
</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>
Six months ended Six months ended
June 30, 1999 June 30, 1998
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 5,746 $ 8,915
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation 4,846 1,541
Amortization of goodwill 3,507 1,884
Amortization of deferred financing costs 252 187
Gain (loss) on disposal of property and equipment 46 72
Income applicable to minority interests (3) -
Deferred income taxes 879 286
Changes in operating assets and liabilities, exclusive of acquired
companies:
Accounts receivable (1,674) (1,118)
Inventory (2,175) (80)
Due from other related parties - 5,659
Prepaid expenses and other current assets (3,393) (1,497)
Other assets 790 (1,257)
Income taxes payable 1,980 1,676
Accounts payable and accrued expenses (2,086) (2,282)
Other liabilities - (73)
------------- --------------
Net cash provided by operating activities: 8,715 13,913
Cash flows from investing activities:
Purchases of property and equipment (6,675) (1,672)
Proceeds from sale of property and equipment 900 -
Payment for business acquisitions, net of cash acquired - (66,272)
Payments to stockholders (4,658) -
Increase in restricted cash (97) (3,584)
Increase in minority interest (75) -
------------- --------------
Net cash used in investing activities (10,605) (71,528)
Cash flows from financing activities:
Proceeds from and repayments of long term debt (2,037) 64,278
Increase in deferred financing costs (154) (187)
Proceeds from issuance of common stock 164 -
Proceeds from exercise of stock options 87 -
Stock issuance costs (92) (676)
------------- --------------
Net cash provided by financing activities (2,032) 63,415
Effect of exchange rates on cash 777 -
------------- --------------
Net increase (decrease) in cash and cash equivalents (3,145) 5,800
Cash and cash equivalents - beginning of the period 20,196 15,582
------------- --------------
Cash and cash equivalents - end of the period $ 17,051 $ 21,382
============= ==============
See Note 9 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 and shares 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 Nuremberg, 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 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 six month period ended June 30, 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 contingent purchase
considerations have been reflected as additions to goodwill at June 30, 1999.
Further, the earnout arrangement included in the definitive agreement for
Channel Islands 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 and shares in thousands)
NOTE 3 - EARNINGS PER SHARE
The shares used in computing net income per share are as follows:
<TABLE>
<CAPTION>
Six months Six months Three months Three months
ended ended ended ended
June 30, 1999 June 30, 1998 June 30, 1999 June 30, 1998
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Weighted average shares outstanding -
Basic 16,315 13,356 16,315 14,352
Dilution attributable to options 149 499 51 431
Dilution attributable to potentially
issuable shares under earnout
arrangements 32 - 63
---------------------------------------------------------------------------------
Weighted average shares outstanding -
Diluted 16,496 13,855 16,429 14,783
---------------------------------------------------------------------------------
</TABLE>
Included in the weighted average shares outstanding - basic are 764 shares
of common stock attributable to contingent consideration earned and unpaid and
51 shares of common stock to be issued under the employee stock purchase plan at
June 30, 1999.
NOTE 4 - INVENTORY
Inventory consists of the following finished goods:
June 30, December 31,
1999 1998
--------------------- --------------------
Hardgoods $15,595 $15,574
Perishables 5,376 3,003
===================== ====================
$20,971 $18,577
===================== ====================
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 and shares in thousands)
Antidumping
Beginning in 1986, the U.S. Department of Commerce (the "DOC") imposed an
antidumping duty deposit ("ADD") on the importation of certain flowers (the
"Antidumping Order") from Colombia. Such antidumping duty is subject to change
based upon annual reviews of the flower growers' margins. On May 20, 1999, a
settlement was reached whereby all open review periods through February 28, 1997
(periods 5, 6, 7, 9 and 10) were finalized at the cash deposit rate. That is,
the Company does not owe any additional antidumping duties for those periods. On
July 20, 1999, the DOC revoked the Antidumping Order on fresh cut flowers from
Colombia retroactive to March 1, 1997, the beginning of period 11. Further, the
DOC stated that, as a result of the retroactive revocation, the DOC has
terminated its reviews of periods 11 and 12 and that the DOC intends to refund
any ADD collected on or after March 1, 1997. Therefore, as a result of the final
determinations by the DOC regarding open review periods and the DOC's
retroactive revocation of the Antidumping Order, the Company has released
approximately $2.2 million in antidumping reserves at June 30, 1999. The release
of the reserves was recorded as a reduction to cost of sales in the three month
period ended June 30, 1999. Further, due to the uncertainty of the amount and
the timing of the ADD refunds related to periods subsequent to March 1, 1997,
such refunds, if any, will be recorded as a reduction to cost of sales at the
time of the receipt of such refunds.
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 $40 of the charge was recorded in the first six months of
1999. The balance of the charge is expected to be recorded in the third and
fourth quarter 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 approximately 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 December 1999.
<PAGE>
U.S.A. FLORAL PRODUCTS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(dollars and shares in thousands)
The major components of the integration charge are as follows:
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
===========
At June 30, 1999, approximately $2.2 million of the integration charge
remained in accrued liabilities and 137 employees have been terminated with an
additional 43 terminations to be completed in 1999. The balance is primarily
comprised of $350 for severance and related costs, $260 for closing excess
facilities and $1,590 for non-cash write downs of recorded assets.
A summary of the integration activity is presented below:
Balance at December 31, 1998 $2,924
1999 Activity:
Non cash write-down of
property and equipment (180)
Lease-termination cash payments (120)
Reduction in workforce and other
cash outflows (382)
-----------
Balance at June 30, 1999 $2,242
===========
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 December 1999.
At June 30, 1999, $1.8 million of the integration charge remained in
accrued liabilities and 13 employees had been terminated with an additional 12
terminations to be completed in 1999. The balance was comprised of $1,725 for
severance and related costs, and $75 for non-cash write-downs of recorded
assets. A summary of the integration activity is presented below:
Balance at December 31, 1998 $2,367
1999 Activity:
Reduction in workforce cash outflows (446)
Other cash outflows (145)
-----------
Balance at June 30, 1999 $1,776
===========
<PAGE>
U.S.A. FLORAL PRODUCTS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(dollars and shares in thousands)
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 primarily organized 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 unrelated third parties, that is, at current market prices.
The following tables present information about reported segments:
<TABLE>
<CAPTION>
North America Division
For the six months ended June 30, 1998
-------------------------------------------------------------------------
Import/ Wholesale Bouquet
Export Distribution Manufacturers Total
------ ------------ ------------- -----
<S> <C> <C> <C> <C>
Revenues - external
customers $101,790 $76,604 $55,900 $234,294
Revenues - intercompany 10,921 36 1,035 11,992
Gross margin 28,342 25,146 10,085 63,573
Depreciation and
amortization 1,496 1,190 724 3,410
Integration charge - - - -
Income from operations 11,435 4,598 2,640 18,673
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
North America Division
For the three months ended June 30, 1998
-------------------------------------------------------------------------
Import/ Wholesale Bouquet
Export Distribution Manufacturers Total
------ ------------ ------------- -----
<S> <C> <C> <C> <C>
Revenues - external
customers $59,117 $42,738 $31,920 $133,775
Revenues - intercompany 5,539 36 1,035 6,610
Gross margin 16,971 14,224 5,914 37,109
Depreciation and
amortization 917 641 457 2,015
Integration charge - - - -
Income from operations 6,702 2,873 797 10,372
</TABLE>
There was no International Division during the first six months of 1998.
<TABLE>
<CAPTION>
North America Division For the six months ended June 30, 1999
-------------------------------------------------------------------------
Import/ Wholesale Bouquet
Export Distribution Manufacturers Total
------ ------------ ------------- -----
<S> <C> <C> <C> <C>
Revenues - external
customers $122,873 $103,669 $97,623 $324,165
Revenues - intercompany 25,005 920 2,790 28,715
Gross margin 38,138 32,478 19,314 89,930
Depreciation and
amortization 2,335 1,491 1,116 4,942
Integration charge - 40 - 40
Income from operations 15,073 3,228 2,532 20,883
<CAPTION>
International Division For the six months ended June 30, 1999
-------------------------------------------------------------------------
Import/ Wholesale Bouquet
Export Distribution Manufacturers Total
------ ------------ ------------- -----
<S> <C> <C> <C> <C>
Revenues - external
customers $117,475 $36,177 $32,567 $186,219
Revenues - intercompany 36,627 68 238 36,933
Gross margin 24,600 9,302 5,936 39,838
Depreciation and
amortization 1,109 907 504 2,520
Integration charge - - - -
Income from operations 1,816 498 1,181 3,495
<CAPTION>
Consolidated For the six months ended June 30, 1999
--------------------------------------------------------------------------
Import/ Wholesale Bouquet
Export Distribution Manufacturers Total
------ ------------ ------------- -----
<S> <C> <C> <C> <C>
Revenues - external
customers $240,348 $139,846 $130,190 $510,384
Revenues - intercompany 61,632 988 3,028 65,648
Gross margin 62,738 41,780 25,250 129,768
Depreciation and
amortization 3,444 2,398 1,620 7,462
Integration charge - 40 - 40
Income from operations 16,889 3,726 3,713 24,328
</TABLE>
<PAGE>
U.S.A. FLORAL PRODUCTS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(dollars and shares in thousands)
<TABLE>
<CAPTION>
North America Division For the three months ended June 30, 1999
--------------------------------------------------------------------------
Import/ Wholesale Bouquet
Export Distribution Manufacturers Total
------ ------------ ------------- -----
<S> <C> <C> <C> <C>
Revenues - external
customers $56,927 $51,898 $46,321 $155,146
Revenues - intercompany 11,203 695 1,376 13,274
Gross margin 18,904 16,354 9,528 44,786
Depreciation and
amortization 1,262 780 587 2,629
Integration charge - 3 - 3
Income from operations 7,383 1,452 422 9,257
<CAPTION>
International Division For the three months ended June 30, 1999
--------------------------------------------------------------------------
Import/ Wholesale Bouquet
Export Distribution Manufacturers Total
------ ------------ ------------- -----
<S> <C> <C> <C> <C>
Revenues - external
customers $52,675 $17,234 $13,986 $83,895
Revenues - intercompany 15,339 33 59 15,431
Gross margin 11,111 4,600 2,697 18,408
Depreciation and
amortization 556 430 246 1,232
Integration charge - - - -
Income from operations 237 446 466 1,149
<CAPTION>
Consolidated For the three months ended June 30, 1999
--------------------------------------------------------------------------
Import/ Wholesale Bouquet
Export Distribution Manufacturers Total
------ ------------ ------------- -----
<S> <C> <C> <C> <C>
Revenues - external
customers $109,602 $69,132 $60,307 $239,041
Revenues - intercompany 26,542 728 1,435 28,705
Gross margin 30,015 20,954 12,225 63,194
Depreciation and
amortization 1,818 1,210 833 3,861
Integration charge - 3 - 3
Income from operations 7,620 1,898 888 10,406
</TABLE>
<PAGE>
U.S.A. FLORAL PRODUCTS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(dollars and shares in thousands)
Total assets as of December 31, 1998 and June 30, 1999 by segment are:
Total Assets December 31, 1998
------------------------------------------------
Import/ Wholesale Bouquet
Export Distribution Manufacturers Total
------ ------------ ------------- -----
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
================================================
Total Assets June 30, 1999
------------------------------------------------
Import/ Wholesale Bouquet
Export Distribution Manufacturers Total
------ ------------ ------------- -----
North America Division $157,928 $101,119 $ 71,436 $330,483
International Division 49,761 17,126 13,185 80,072
------------------------------------------------
Total segment assets $207,689 $118,245 $ 84,621 $410,555
================================================
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>
Six months Six months Three months Three months
ended ended ended ended
June 30, June 30, June 30, June 30,
1999 1998 1999 1998
--------------------------------------------------------
<S> <C> <C> <C> <C>
Income from Operations
Total segment income from
operations $24,328 $18,673 $10,406 $10,372
Interest income 994 743 612 472
Interest expense (7,911) (2,094) (4,048) (1,413)
Other income 322 378 140 62
Unallocated corporate
S, G&A expenses (4,431) (1,541) (1,806) (417)
Unallocated goodwill
amortization (740) - (274) -
--------------------------------------------------------
Total consolidated income
before income taxes and
minority interest $12,562 $16,159 $5,030 $9,076
=========================================================
</TABLE>
<PAGE>
U.S.A. FLORAL PRODUCTS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(dollars and shares in thousands)
Total Assets June 30, December 31,
1999 1998
-----------------------------------
Total segment assets $410,555 $413,079
Elimination of intercompany receivables 2,312 (6,464)
Goodwill not allocated to segments 55,999 70,462
Other assets 16,878 16,957
-----------------------------------
Total consolidated assets $485,744 $494,034
===================================
The following table presents revenues by geographic area:
<TABLE>
<CAPTION>
---------------------------------------------------------
Six months Six months Three months Three months
ended ended ended ended
June 30, June 30, June 30, June 30,
1999 1998 1999 1998
---------------------------------------------------------
<S> <C> <C> <C> <C>
United States $306,961 $228,841 $146,678 $128,322
Germany 60,185 - 27,246 -
Netherlands 74,837 - 34,576 -
Other foreign countries 68,401 5,453 30,541 5,453
=========================================================
Total $510,384 $234,294 $239,041 $133,775
=========================================================
</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.
The following table presents long-lived assets by geographic area:
June 30, December 31,
1999 1998
-------------------------------------
United States $246,068 $240,425
Germany 74,996 36,495
Netherlands 8,164 42,412
Other foreign countries 14,397 22,525
=====================================
Total $343,625 $341,857
=====================================
<PAGE>
U.S.A. FLORAL PRODUCTS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(dollars and shares in thousands)
NOTE 8 - INCOME TAXES
The tax provision for the three months ended June 30, 1999 includes
approximately $575,000 representing the tax effect on the income for the three
months ended March 31, 1999 resulting from a change in the Company's estimate of
its annual effective tax rate. This change in the effective tax rate is the
result of the Company's less than anticipated operating results through the
first six months of the 1999.
NOTE 9 - SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental disclosure of cash flow information:
Six months Six months
ended ended
June 30 June 30,
1999 1998
----------------------------
Cash paid during the period for interest $4,501 $ 1,245
====== ========
Cash paid during the period for income taxes $3,005 $ 5,418
====== ========
Supplemental disclosure of non-cash transactions:
Business acquisitions:
Cash paid for business acquisitions $ - $ 72,449
Less: cash acquired - 6,802
------ --------
Cash paid for business acquisitions, net - 65,647
Issuance of common stock for business acquisitions - 81,181
------ --------
- 146,828
Fair value of net assets acquired, net of cash - 15,768
------ --------
$ - $131,060
====== ========
During the six months ended June 30, 1999 the Company accrued $8,178 in
contingent consideration for earnouts. In the second quarter of 1999, $1,320 of
this contingent consideration was satisfied through a cash payment and in the
third quarter of 1999 the balance of $2,703 in cash and $4,155 in common stock
will be satisfied.
<PAGE>
U.S.A. FLORAL PRODUCTS, INC.
(dollars and shares in thousands)
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Three Months Ended June 30, 1999
<TABLE>
<CAPTION>
Statement of Operations: For the three For the three
(in thousands except per months ended months ended
share data) June 30, 1999 June 30, 1998
-------------------------------------------------------
<S> <C> <C> <C> <C>
Net revenue $239,041 100.0% $133,775 100.0%
Cost of sales 175,847 73.6% 96,666 72.3%
-------------------------------------------------------
Gross margin 63,194 26.4% 37,109 27.7%
Selling, general and
Administrative expenses 53,085 22.2% 26,016 19.4%
Goodwill amortization 1,780 0.7% 1,138 0.9%
Integration charge 3 0.0% - 0.0%
-------------------------------------------------------
Income from operations 8,326 3.5% 9,955 7.4%
Interest expense (4,048) (1.7)% (1,413) (1.0)%
Interest income 612 0.3% 472 0.4%
Other income 140 0.0% 62 0.0%
-------------------------------------------------------
Income before income taxes
and minority interest 5,030 2.1% 9,076 6.8%
Provision for income taxes 3,307 1.4% 4,113 3.1%
-------------------------------------------------------
Income before minority
interest 1,723 0.7% 4,963 3.7%
Minority interest 11 0.0% - 0.0%
-------------------------------------------------------
Net income $1,734 0.7% $4,963 3.7%
=======================================================
Net income per share:
Basic $ 0.11 $ 0.35
Diluted $ 0.11 $ 0.34
Shares used in computing
Net income per share:
Basic 16,315 14,352
Diluted 16,429 14,783
</TABLE>
Results of Operations
- ---------------------
Three months ended June 30, 1999 compared to three months ended June 30, 1998
Net Revenues. Net revenues for the quarter ended June 30, 1999 were $239.0
million. Revenues increased from $133.8 million in the same quarter last year.
This increase was primarily due to the acquisition of 10 floral businesses
completed during 1998, all of which were accounted for under the purchase method
of accounting. Revenues for the North America Division were $155.1
<PAGE>
U.S.A. FLORAL PRODUCTS, INC.
(dollars and shares in thousands)
million, or 64.9% of the consolidated revenues and revenues for the
International Division were $83.9 million, or 35.1%. 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 nine
months of 1998.
Gross margin. Gross margin for the three months ended June 30, 1999 and
1998 were $63.2 million and $37.1 million, respectively. Included in the gross
margin for June 30, 1999 was approximately $2.2 million from the final
determination of antidumping duties. Beginning in 1986, the U.S. Department of
Commerce (the "DOC") has imposed an antidumping duty deposit ("ADD") on the
importation of certain flowers (the "Antidumping Order") from Colombia. As a
result of the final determinations by the DOC regarding open review periods and
the DOC's retroactive revocation of the Antidumping Order, the Company has
released approximately $2.2 million in antidumping reserves at June 30, 1999.
The release of the reserves was recorded as a reduction of cost of sales in the
three month period ended June 30, 1999. Gross margin as a percentage of net
revenue was 26.4%, for the three months ended June 30, 1999 and 27.7% for the
three months ended June 30, 1998. The decline in the gross margin percentage is
primarily attributable to the inclusion of the International Division in 1999.
Historically, the International Division operates at a lower gross margin and
therefore, reduces the consolidated gross margin of the Company. For the three
months ended June 30, 1999, the gross margin of the International Division was
21.9%. The North America Division gross margin was 28.9% for the three months
ended June 30, 1999 as compared to 27.7% for the same prior period. The increase
was the result of the inclusion of the final determination of antidumping
duties. Without the release of the $2.2 million antidumping accrual consolidated
gross margin was 27.4%.
Selling, General and Administrative. Selling general and administrative
expenses were $53.1 million in the three months ended June 30, 1999, or 22.2% of
net revenues and $26.0 million in the three months ended June 30, 1998, or 19.4%
of net revenues. The increase in selling, general and administrative expense is
primarily the result of the acquisition of 10 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 $8.3 million, or 3.5% of
net revenues, for the three months ended June 30, 1999 and $10.0 million or 7.4%
of net revenues for the three months ended June 30, 1998.
Interest expense. For the three months ended June 30, 1999, interest
expense was approximately $4.0 million as compared to $1.4 million for the three
months ended June 30, 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 10 floral businesses completed during 1998 and to a
lessor extent borrowings for working capital purposes. The Company's average
borrowing rate for the three month period ended June 30, 1999 was 8.0% based on
the Company's weighted average outstanding debt balance.
<PAGE>
U.S.A. FLORAL PRODUCTS, INC.
(dollars and shares in thousands)
Provision for income taxes. The provision for income taxes was $3.3 million
for the three months ended June 30, 1999 on pre-tax income of $5.0 million and
$4.1 million for the quarter ended June 30, 1998 on pre-tax income of $9.1
million for the period. The 1999 and 1998 effective income tax rate of 65.7% and
45.3%, 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 substantially lower income
before provision for taxes in 1999 as compared to 1998. The effect of the
non-deductibility of certain goodwill amortization is much more pronounced with
the lower base of income before provision for taxes.
The tax provision for the three months ended June 30, 1999 includes
approximately $575,000 representing the tax effect on the income for the three
months ended March 31, 1999 resulting from a change in the Company's estimate of
its annual effective tax rate. This change in the effective tax rate is the
result of the Company's less than anticipated operating results through the
first six months of the 1999. The consolidated effective tax rate utilized for
the three month period ended March 31, 1999 was 46.6%. The revised consolidated
annual effective tax rate is estimated to be 54.3%. This revised effective tax
rate was determined utilizing the actual results for the six month period ended
June 30, 1999 and a forecast of the results for the six month period ending
December 31, 1999.
Net income. The Company had net income of $1.7 million for the three months
ended June 30, 1999, or $0.11 per basic and diluted share. The Company had net
income of $5.0 million for the three months ended June 30, 1998, or $0.35 per
basic share and $0.34 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 June 30, 1999, due primarily to the following: Industry wide North
American imports from South America in the second quarter of 1999 experienced
declines in average unit sales prices in major product categories of
approximately 35% to 65% as compared to the same period in 1998 as a result of
over supplied markets. Industry wide Dutch exports were down approximately 10%
for the second quarter of 1999, as compared to the same period in 1998 and
average unit sales prices fell approximately 10% from the prior year. Interest
expense for the three-month period ended June 30, 1999 was $4.1 million as
compared to $1.4 million of the same period in the prior year, an increase of
$2.7 million. The strength of the U.S. dollar versus the Euro also impacted the
Company. The Company derives 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 5%.
<PAGE>
U.S.A. FLORAL PRODUCTS, INC.
(dollars and shares in thousands)
Six months ended June 30, 1999
<TABLE>
<CAPTION>
Statement of Operations: For the six For the six
(in thousands except per months ended months ended
share data) June 30, 1999 June 30, 1998
-------------------------------------------------------
<S> <C> <C> <C> <C>
Net revenue $510,384 100.0% $234,294 100.0%
Cost of sales 380,616 74.6% 170,721 72.9%
-------------------------------------------------------
Gross margin 129,768 25.4% 63,573 27.1%
Selling, general and
administrative expenses 107,064 20.9% 44,557 19.0%
Goodwill amortization 3,507 0.7% 1,884 0.8%
Integration charge 40 0.0% - 0.0%
-------------------------------------------------------
Income from operations 19,157 3.8% 17,132 7.3%
Interest expense (7,911) (1.6)% (2,094) (0.9)%
Interest income 994 0.2% 743 0.3%
Other income 322 0.1% 378 0.2%
-------------------------------------------------------
Income before income taxes
and minority interest 12,562 2.5% 16,159 6.9%
Provision for income taxes 6,819 1.4% 7,244 3.1%
-------------------------------------------------------
Income before minority
interest 5,743 1.1% 8,915 3.8%
Minority interest 3 0.0% - 0.0%
-------------------------------------------------------
Net income $5,746 1.1% $8,915 3.8%
=======================================================
Net income per share:
Basic $ 0.35 $ 0.67
Diluted $ 0.35 $ 0.64
Shares used in computing
net income per share:
Basic 16,315 13,356
Diluted 16,496 13,855
</TABLE>
Results of Operations
- ---------------------
Six months ended June 30, 1999 compared to six months ended June 30, 1998
Net Revenues. Net revenues for the six months ended June 30, 1999 were
$510.4 million. Revenues increased from $234.3 million in the same period last
year. This increase was primarily due to the acquisition of 10 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 six months of
operations of the January 1998 Class and April Class of acquisitions. Revenues
<PAGE>
U.S.A. FLORAL PRODUCTS, INC.
(dollars and shares in thousands)
for the North America Division were $324.2 million, or 63.5% of the consolidated
revenues and revenues for the International Division were $186.2 million, or
36.5%. 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 nine months of 1998.
Gross margin. Gross margin for the six months ended June 30, 1999 and 1998
were $129.8 million (including approximately $2.2 million from the final
determination of anti dumping duties) and $63.6 million, respectively. Gross
margin as a percentage of net revenue were 25.4% (25.0% excluding the effect of
the final determination of anti dumping duties), for the six months ended June
30, 1999 and 27.1% for the six months ended June 30, 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 six months ended June 30, 1999, the gross margin of the
International Division was 21.4%. The North America Division gross margin was
27.7% (27.1%, excluding the effect of the final determination of anti dumping
duties) for the six months ended June 30, 1999 as compared to 27.1% for the same
period last year.
Selling, General and Administrative. Selling general and administrative
expenses were $107.0 million in the six months ended June 30, 1999, or 20.9% of
net revenues and $44.6 million in the six months ended June 30, 1998, or 19.0%
of net revenues. The increase in selling, general and administrative expense is
primarily the result of the acquisition of 10 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 $19.2 million, or 3.8%
of net revenues, for the six months ended June 30, 1999 and $17.1 million or
7.3% of net revenues for the six months ended June 30, 1998.
Interest expense. For the six months ended June 30, 1999, interest expense
was approximately $7.9 million as compared to $2.0 million for the six months
ended June 30, 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 six month period ended June 30, 1999 was 8.1%
based on the Company's weighted average outstanding debt balance.
Provision for income taxes. The provision for income taxes was $6.8 million
for the six months ended June 30, 1999 on pre-tax income of $12.6 million and
$7.2 million for the quarter ended June 30, 1998 on pre-tax income of $16.2
million for the period. The 1999 and 1998 effective income tax rate of 54.3%
<PAGE>
U.S.A. FLORAL PRODUCTS, INC.
(dollars and shares in thousands)
and 44.8%, 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 substantially lower income
before provision for taxes in 1999 as compared to 1998. The effect of the
non-deductibility of certain goodwill amortization is much more pronounced with
the lower base of income before provision for taxes.
Net income. The Company had net income of $5.7 million for the six months
ended June 30, 1999, or $0.35 per basic share and $0.35 per diluted share. The
Company had net income of $8.9 million for the six months ended June 30, 1998,
or $0.67 per basic share and $0.64 per diluted share. The principal cause of the
reduction in earnings per share was lower revenue than the Company anticipated
for the six months ended June 30, 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 the industry
experienced declines in average unit sales prices in major product categories of
ranging from 20% to 65% as compared to the same period in 1998 as a result of
over supplied markets. Industry wide Dutch exports were down approximately 10%
for the first two months of 1999, as compared to the same period in 1998 and
average unit sales prices fell approximately 10% from the prior year. Also,
Valentine's Day fell on a Sunday of a Holiday weekend. Interest expense for the
three-month period ended June 30, 1999 was $7.9 million as compared to $2.1
million of the same period in the prior year, an increase of $5.8 million. 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 11%.
Liquidity and Capital Resources
- -------------------------------
Historical. Historically, the Company's primary sources of liquidity have
been cash from operations and borrowings under our credit facility. The
Company's principal uses of liquidity will be to provide working capital, meet
debt service requirements and finance the Company's strategic plans. 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
revenue for the fiscal year 1998 were 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. For the first six
months in 1999 the Company provided $8.7 million in net cash from operating
activities, $3.1 million in cash on hand and $1.6 million in other activities to
invest $2.0 million of repayment on long term debt, $6.7 million in capital
expenditures and pay $4.7 million in earnout arrangements.
<PAGE>
In the six months ended June 30, 1999, operating activities provided $8.7
million of net cash compared to $13.9 million of cash from operations in the
same period last year. The decrease is principally attributable to $3.2 million
lower net income and $8.5 million increase in the use of cash for other assets
and liabilities partially offset by $5.5 million increase in non-cash expenses
(such as depreciation and goodwill amortization). The use of cash for working
capital purposes in the 1999 six months compared unfavorably to the 1998 six
months due to the acquisition of 10 floral business. As a result of the
acquisition of 10 floral businesses the Company's investment in working capital,
particularly accounts payable, accrued expenses, and inventory at June 30, 1999
increased significantly over the same period last year.
Our capital expenditures for the six months ended June 30, 1999 were
approximately $6.7 million. Although we currently do not have any commitments to
make significant capital expenditures, we expect to spend approximately $12
million for capital expenditures in the next twelve months in the normal course
of business including $6.0 million for our Year 2000 project (see below) to
remediate existing systems and replace non-compliant systems.
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. Further, 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 1.25%
or (b) a Eurodollar rate plus an applicable margin of up to 2.50%. Borrowings
under the term loan bear interest at the interbank rate for Deutsche Marks plus
an applicable margin of up to 2.50%. We paid on closing a financing fee of
approximately $3.6 million, which has been deferred and is being amortized over
the term of the Credit Agreement. In addition, a commitment fee of up to 0.50%
is being charged on the unused portion of the revolving credit facility on a
quarterly basis. Both the revolving credit facilities and the term loan mature
five years from the closing date. At June 30, 1999 outstanding borrowings under
our Credit Agreement aggregated $191.6 million. At June 30, 1999, the Company
had an available borrowing capacity of $47.5 million (net of $10.6 million of
outstanding letters of credit) under the revolving credit facility. The Company
does not have any required repayments of term loans until December 31, 2000.
The Company believes 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 currently do not perceive a need for cash
that would exceed anticipated sources of cash from operations and from the
credit facility currently in place. In June 1999, the Company retained Morgan
Stanley Dean Witter and Salomon Smith Barney to advise it in the development and
consideration of strategic and financial alternatives.
<PAGE>
U.S.A. FLORAL PRODUCTS, INC.
(dollars and shares in thousands)
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 54% (or 57% 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' not becoming Year
2000 compliant on a timely basis.
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 September
1999. We can not determine our worst case scenario until the assessment of third
parties' Year 2000 compliance is completed.
<PAGE>
U.S.A. FLORAL PRODUCTS, INC.
(dollars and shares in thousands)
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.
The contingency plans were substantially developed as of June 30, 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 31, 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
Exhibit 27 - Financial Data Schedule
<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: August 13, 1999 By: /s/ W. Michael Kipphut
------------------------------------
W. Michael Kipphut,
Chief Financial Officer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM JUNE 30,
1999 FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1999
<PERIOD-START> JAN-01-1999 APR-01-1999
<PERIOD-END> JUN-30-1999 JUN-30-1999
<CASH> 17,051 0
<SECURITIES> 0 0
<RECEIVABLES> 89,994 0
<ALLOWANCES> 0 0
<INVENTORY> 20,971 0
<CURRENT-ASSETS> 142,119 0
<PP&E> 56,319 0
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 485,744 0
<CURRENT-LIABILITIES> 93,447 0
<BONDS> 0 0
0 0
0 0
<COMMON> 15 0
<OTHER-SE> 199,607 0
<TOTAL-LIABILITY-AND-EQUITY> 485,744 0
<SALES> 510,384 239,041
<TOTAL-REVENUES> 510,384 239,041
<CGS> 380,616 175,847
<TOTAL-COSTS> 110,611 54,868
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 7,911 4,048
<INCOME-PRETAX> 12,562 5,030
<INCOME-TAX> 6,819 3,307
<INCOME-CONTINUING> 5,746 1,734
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 5,746 1,734
<EPS-BASIC> $0.35 $0.11
<EPS-DILUTED> $0.35 $0.11
</TABLE>
