<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, 2000
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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
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U.S.A. Floral Products, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 52-2030697
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(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
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (202) 333-0800
----------------------------
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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 16,112,404 shares at August 14, 2000.
<PAGE>
U.S.A. FLORAL PRODUCTS, INC.
----------------------------
INDEX
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets at June 30, 2000 and December 31, 1999
Consolidated Statements of Operations for the Six Months Ended June 30,
2000 and 1999 and for the Three Months Ended June 30, 2000 and 1999
Consolidated Statement of Stockholders' Equity for the Six Months
Ended June 30, 2000
Consolidated Statements of Cash Flows for the Six Months Ended June 30,
2000 and 1999
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;
. seasonal and holiday demand fluctuations;
. our ability to obtain floral products during periods of peak demand;
. changes in, or failure to maintain, current pricing levels;
. currency fluctuations;
. 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.
3
<PAGE>
PART I - FINANCIAL INFORMATION
------------------------------
ITEM 1. Financial Statements
4
<PAGE>
U.S.A. FLORAL PRODUCTS, INC.
CONSOLIDATED BALANCE SHEET
(in thousands, except par value)
<TABLE>
<CAPTION>
June 30, 2000 December 31, 1999
------------- -----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 13,878 $ 10,048
Accounts receivable, net of allowance of
$9,051 and $7,774, respectively 97,250 102,524
Inventory 21,383 24,569
Prepaid expenses and other assets 10,999 14,444
Recoverable income taxes 3,108 -
Deferred income tax assets 2,224 2,931
--------- ---------
Total current assets 148,842 154,516
Property and equipment, net 48,426 53,357
Goodwill, net 262,074 267,590
Restricted cash 3,865 3,834
Deferred financing costs 5,150 2,971
Other assets 2,622 4,542
--------- ---------
Total assets $ 470,979 $ 486,810
========= =========
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt $ 200,521 $ 4,919
Accounts payable 47,438 60,574
Accrued expenses 18,207 15,501
Restructuring reserve 5,728 269
Due to stockholders 2,278 2,278
Income taxes payable 2,248 2,328
--------- ---------
Total current liabilities 276,420 85,869
Long-term debt 1,172 195,914
Deferred income tax liabilities 5,140 3,469
Other liabilities 538 618
--------- ---------
Total liabilities 283,270 285,870
--------- ---------
Minority interests in subsidiaries 314 363
--------- ---------
Commitments and contingencies
Stockholders' equity:
Common stock, $0.001 par value: 100,000 shares authorized;
15,950 and 16,266 shares issued, respectively 16 16
Treasury stock (14 shares) (287) (287)
Additional paid-in capital 190,693 193,477
Retained earnings (accumulated deficit) (4,748) 5,093
Accumulated other comprehensive income 1,721 2,278
--------- ---------
Total stockholders' equity 187,395 200,577
--------- ---------
Total liabilities and stockholders' equity $ 470,979 $ 486,810
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
5
<PAGE>
U.S.A. FLORAL PRODUCTS, INC.
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, 2000 June 30, 1999 June 30, 2000 June 30, 1999
---------------- ---------------- ------------------- ------------------
<S> <C> <C> <C> <C>
Net revenues $ 491,946 $ 510,384 $ 240,301 $ 239,041
Cost of sales 371,357 380,616 181,406 175,847
--------- --------- --------- ---------
Gross margin 120,589 129,768 58,895 63,194
Selling, general and administrative expenses 104,628 107,064 52,150 53,085
Goodwill amortization 3,524 3,507 1,766 1,780
Integration charge 10,155 40 - 3
--------- --------- --------- ---------
Income from operations 2,282 19,157 4,979 8,326
Other income (expense):
Interest expense (9,505) (7,911) (4,874) (4,048)
Interest income 612 994 297 612
Other 24 322 68 140
Loss on sale of business assets (3,673) - (3,673) -
--------- --------- --------- ---------
Income (loss) before income taxes and minority
interest (10,260) 12,562 (3,203) 5,030
Provision for (benefit from) income taxes (442) 6,819 (1,263) 3,307
--------- --------- --------- ---------
Income (loss) before minority interest (9,818) 5,743 (1,940) 1,723
Minority interest (23) 3 (7) 11
--------- --------- --------- ---------
Net income (loss) $ (9,841) $ 5,746 $ (1,947) $ 1,734
========= ========= ========= =========
Net income (loss) per share:
Basic $ (0.60) $ 0.35 $ (0.12) $ 0.11
Diluted $ (0.60) $ 0.35 $ (0.12) $ 0.11
Weighted average shares outstanding:
Basic 16,450 16,315 16,472 16,315
Diluted 16,450 16,496 16,472 16,429
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
6
<PAGE>
U.S.A. FLORAL PRODUCTS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(In thousands)
<TABLE>
<CAPTION>
Retained Accumulated
Common Stock Additional Earnings Other Total
--------------- Treasury Paid-In (Accumulated Comprehensive Stockholders'
Shares Amount Stock Capital Deficit) Income Equity
------ ------ -------- ---------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1999 16,252 $16 $ (287) $193,477 $ 5,093 $2,278 $200,577
Issuance of common stock and warrants 87 - 1,520 1,520
Receipt and retirement of common stock (403) (4,304) (4,304)
Net loss (9,841) (9,841)
Foreign currency adjustment (557) (557)
--------------------------------------------------------------------------------------
Balances at June 30, 2000 15,936 $16 $ (287) $190,693 $(4,748) $1,721 $187,395
======================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements
7
<PAGE>
U.S.A. FLORAL PRODUCTS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
June 30, 2000 June 30, 1999
---------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (9,841) $ 5,746
Adjustments to reconcile net income (loss) to cash
provided by operating activities:
Depreciation and amortization 4,409 4,846
Amortization of goodwill 3,524 3,507
Amortization of deferred financing costs 903 252
Loss (gain) on disposal of property and equipment (123) 46
Loss on disposal of business assets 3,673 -
Loss (gain) applicable to minority interests 23 (3)
Changes in operating assets and liabilities,
exclusive of acquired/divested companies:
Accounts receivable 4,595 (1,674)
Inventory 2,879 (2,175)
Prepaid expenses and other current assets (912) (3,393)
Other assets 1,885 790
Income taxes payable (817) 1,980
Accounts payable (11,336) (4,040)
Accrued expenses 1,397 2,758
Other liabilities (1,430) -
Integration reserve 7,062 -
-------- --------
Net cash provided by operating activities 5,891 8,640
-------- --------
Cash flows from investing activities:
Purchases of property and equipment (3,278) (6,675)
Proceeds from sale of property and equipment 845 900
Proceeds from sale of business assets 1,000 -
Payments to stockholders (800) (4,658)
Payment for business acquisitions (376) -
Increase in restricted cash (31) (97)
-------- --------
Net cash used in investing activities (2,640) (10,530)
-------- --------
Cash flows from financing activities:
Proceeds from and repayments of debt 3,038 (2,037)
Increase in deferred financing costs (1,820) (154)
Proceeds from issuance of common stock 57 164
Proceeds from exercise of stock options - 87
Stock issuance costs - (92)
-------- --------
Net cash provided by (used in) financing
activities 1,275 (2,032)
-------- --------
Effect of exchange rates on cash (696) 777
-------- --------
Net increase (decrease) in cash and cash equivalents 3,830 (3,145)
Cash and cash equivalents - beginning of the period 10,048 20,196
-------- --------
Cash and cash equivalents - end of the period $ 13,878 $ 17,051
======== ========
</TABLE>
See Note 12 for supplemental cash flow information
The accompanying notes are an integral part of these
consolidated financial statements.
8
<PAGE>
U.S.A FLORAL PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
NOTE 1 - GENERAL
USA Floral is the largest integrated distributor of floral products in the
world. We are organized into two divisions, an International Division and a
North American Division. Within each of these divisions, we have three
reportable operating segments: Import/Export, Wholesale Distribution and Bouquet
Making and Distribution.
Through these divisions, we:
. import, export and distribute floral products and floral-related hardgoods;
. engage in brokerage and shipping services for wholesale distributors of
both international and domestic cut flowers;
. provide traditional and Internet floral fulfillment services to non-store
retailers; and
. provide in-store merchandising services to certain supermarkets and
mass-market retailers.
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 1999
Annual Report on Form 10-K.
NOTE 2 - ACQUISITIONS
Pursuant to the terms of the purchase agreements, contingent consideration
in the amount of $4,304, originally paid to the former shareholders of Maxima
was returned to the Company in April 2000 as a result of their 1999 adjusted
earnings before interest and taxes being lower than the 1998 adjusted earnings
before interest and taxes. The common shares associated with the contingent
consideration were retired during the three-month period ended June 30, 2000.
Additional contingent purchase consideration related to earn-out arrangements
included in the definitive agreements for Allan Stanley were finalized during
the three months ended March 31, 2000. Subsequent to March 31, 2000, the total
additional purchase consideration paid to the former owners of Allan Stanley was
$350 ($150 in cash and $200 in shares of common stock) .
NOTE 3 - LOSS ON SALE OF BUSINESS ASSETS
On June 30, 2000, the Company executed a definite sales agreement to sell
the assets and liabilities of its Alpine Gem subsidiary. It was determined by
management that the Alpine Gem subsidiary no longer fit with the strategic
direction of USA Floral. As a result of the sale, the Company incurred a loss on
sale of approximately $3.7 million, primarily related to the unamortized
goodwill balance.
9
<PAGE>
U.S.A FLORAL PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
NOTE 4 - EARNINGS PER SHARE
The shares used in computing net income (loss) per share are as follows:
Six months ended Three months ended
June 30, June 30,
2000 1999 2000 1999
--------- --------- --------- ---------
Weighted average shares
outstanding -- basic 16,450 16,315 16,472 16,315
Dilution attributable to
options - 149 - 51
Dilution attributable to
potentially issuable shares
under earnout arrangements - 32 - 63
--------- --------- --------- ---------
Weighted average shares
outstanding -- diluted 16,450 16,496 16,472 16,429
--------- --------- --------- ---------
Included in the weighted average shares outstanding -- basic are 44 shares
of common stock issued under the employee stock purchase plan at June 30, 2000.
As the Company reported a loss for the period ended June 30, 2000, 20 options
and 347 warrants were excluded from the weighted average shares outstanding --
diluted calculation for the six months ended June 30, 2000 and 640 warrants
were excluded from the weighted average shares outstanding -- diluted
calculation for the three months ended June 30, 2000 because to do so would have
been anti-dilutive.
NOTE 5 - INVENTORY
Inventory consists of the following finished goods:
June 30, December 31,
2000 1999
---------------- ----------------
Hardgoods $ 16,593 $ 20,430
Hardgoods inventory allowance (517) (642)
---------------- ----------------
Hardgoods, net of allowance 16,076 $ 19,788
Perishables 5,307 4,781
---------------- ----------------
$ 21,383 $ 24,569
---------------- ----------------
NOTE 6 - 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.
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
10
<PAGE>
U.S.A FLORAL PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
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 released
antidumping reserves aggregating $2.2 million as a reduction to cost of sales
during the second quarter of 1999. Further, ADD refunds aggregating $1.9 million
related to periods subsequent to March 1, 1997, were received during the first
quarter of 2000 and were recorded as a reduction to cost of sales. Management
believes that the majority of refunds related to periods subsequent to March 1,
1997, have been received at June 30, 2000.
NOTE 7 - INTEGRATION AND RESTRUCTURING PLANS
March 2000 Restructuring Plan
In the first quarter of 2000, the Company recorded a restructuring charge
of approximately $10.2 million before income taxes. The Company will discontinue
several strategic initiatives, close certain under-performing and unprofitable
business locations and re-focus on the core business operations. The charge
principally relates to severance payments, lease termination costs, write-down
of information technology assets and the write-down of property and equipment
associated with the discontinuance of strategic initiatives and the write-down
of assets, including property and equipment and goodwill related to the closure
of one company and two branch locations of two wholesale companies. The closure
of the unprofitable locations was substantially completed as of June 30, 2000.
The balance of the restructuring plan is expected to be completed by year-end.
The Company will reduce the number of employees by 85 or approximately 3% of the
North American workforce.
The major components of the restructuring charge as originally estimated are as
follows:
Severance and related costs $1,869
Write-down of property and equipment 1,932
Write-down of goodwill 710
Write-down of information technology assets 4,215
Lease termination costs 228
Contract termination costs 980
Other costs 221
------------
$10, 155
------------
11
<PAGE>
U.S.A FLORAL PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
At June 30, 2000, $5.7 million of the restructuring charge remained in
accrued liabilities and 68 employees had been terminated. Management believes
the remaining accrual will be sufficient to cover the remaining costs associated
with the restructuring plan. A summary of the restructuring activity is
presented below:
Initial Balance $ 10,155
Restructuring activity:
Severance and related costs (1,711)
Non cash write-down of property and equipment (1,327)
Non cash write-down of goodwill (153)
Non cash write-down of information
technology assets (115)
Lease termination costs (118)
Contract termination costs (730)
Other cash outflows (273)
-------------
Balance at June 30, 2000 $ 5,728
=============
NOTE 8 - 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 making and
distribution. The import/export segment purchases flowers from farms located
primarily in South America, Africa and Europe and sells them to wholesaler and
bouquet making and distribution companies. 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 making and distribution segment procures and produces
fresh cut floral bouquets for distribution primarily to mass marketers, 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
primarily on gross margins and income from operations.
The accounting policies of the segments are the same as those described in
the Company's 1999 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.
12
<PAGE>
U.S.A FLORAL PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
The following tables present information about reported segments:
For the Six Months For the Three Months
Revenues - external customers Ended June 30, Ended June 30,
2000 1999 2000 1999
--------------------------------------------------------------------------------
North America Division
Import/Export $102,919 $122,873 $ 50,075 $ 56,927
Wholesale Distribution 99,356 103,669 50,824 51,898
Bouquet Making and Distribution 95,316 97,623 48,585 46,321
--------------------------------------------------------------------------------
Total North America Division 297,591 324,165 149,484 155,146
--------------------------------------------------------------------------------
International Division
Import/Export 103,462 117,475 49,694 52,675
Wholesale Distribution 55,851 36,177 25,612 17,234
Bouquet Making and Distribution 35,042 32,567 15,511 13,986
--------------------------------------------------------------------------------
Total International Division 194,355 186,219 90,817 83,895
--------------------------------------------------------------------------------
Total of Reportable Segments
Import/Export 206,381 240,348 99,769 109,602
Wholesale Distribution 155,207 139,846 76,436 69,132
Bouquet Making and Distribution 130,358 130,190 64,096 60,307
--------------------------------------------------------------------------------
Total of Reportable Segments $491,946 $510,384 $240,301 $239,041
--------------------------------------------------------------------------------
For the Six Months For the Three Months
Revenues - intercompany Ended June 30, Ended June 30,
2000 1999 2000 1999
--------------------------------------------------------------------------------
North America Division
Import/Export $ 23,178 $ 25,005 $ 10,955 $ 11,203
Wholesale Distribution 1,889 920 735 695
Bouquet Making and Distribution 7,903 2,790 3,535 1,376
--------------------------------------------------------------------------------
Total North America Division 32,970 28,715 15,225 13,274
--------------------------------------------------------------------------------
International Division
Import/Export 22,100 36,627 9,498 15,339
Wholesale Distribution 3,519 68 1,670 33
Bouquet Making and Distribution 370 238 156 59
--------------------------------------------------------------------------------
Total International Division 25,989 36,933 11,324 15,431
--------------------------------------------------------------------------------
Total of Reportable Segments
Import/Export 45,278 61,632 20,453 26,542
Wholesale Distribution 5,408 988 2,405 728
Bouquet Making and Distribution 8,273 3,028 3,691 1,435
--------------------------------------------------------------------------------
Total of Reportable Segments $ 58,959 $ 65,648 $ 26,549 $ 28,705
--------------------------------------------------------------------------------
13
<PAGE>
U.S.A FLORAL PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
For the Six Months For the Three Months
Gross Margin Ended June 30, Ended June 30,
2000 1999 2000 1999
--------------------------------------------------------------------------------
North America Division
Import/Export $ 31,415 $ 38,138 $ 14,943 $ 18,904
Wholesale Distribution 30,751 32,478 15,601 16,354
Bouquet Making and Distribution 19,194 19,314 9,566 9,528
--------------------------------------------------------------------------------
Total North America Division 81,360 89,930 40,110 44,786
--------------------------------------------------------------------------------
International Division
Import/Export 22,026 24,600 10,532 11,111
Wholesale Distribution 11,863 9,302 5,648 4,600
Bouquet Making and Distribution 5,340 5,936 2,605 2,697
--------------------------------------------------------------------------------
Total International Division 39,229 39,838 18,785 18,408
--------------------------------------------------------------------------------
Total of Reportable Segments
Import/Export 53,441 62,738 25,475 30,015
Wholesale Distribution 42,614 41,780 21,249 20,954
Bouquet Making and Distribution 24,534 25,250 12,171 12,225
--------------------------------------------------------------------------------
Total of Reportable Segments $120,589 $129,768 $ 58,895 $ 63,194
--------------------------------------------------------------------------------
For the Six Months For the Three Months
Depreciation and Amortization Ended June 30, Ended June 30,
2000 1999 2000 1999
--------------------------------------------------------------------------------
North America Division
Import/Export $ 2,064 $ 2,335 $ 1,009 $ 1,262
Wholesale Distribution 1,593 1,491 776 780
Bouquet Making and Distribution 1,009 1,116 470 587
--------------------------------------------------------------------------------
Total North America Division 4,666 4,942 2,255 2,629
--------------------------------------------------------------------------------
International Division
Import/Export 644 1,109 308 556
Wholesale Distribution 1,034 907 509 430
Bouquet Making and Distribution 399 504 180 246
--------------------------------------------------------------------------------
Total International Division 2,077 2,520 997 1,232
--------------------------------------------------------------------------------
Total of Reportable Segments
Import/Export 2,708 3,444 1,317 1,818
Wholesale Distribution 2,627 2,398 1,285 1,210
Bouquet Making and Distribution 1,408 1,620 650 833
--------------------------------------------------------------------------------
Total of Reportable Segments $ 6,743 $ 7,462 $ 3,252 $ 3,861
--------------------------------------------------------------------------------
14
<PAGE>
U.S.A FLORAL PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
For the Six Months For the Three Months
Restructuring Charge Ended June 30, Ended June 30,
2000 1999 2000 1999
--------------------------------------------------------------------------------
North America Division
Import/Export $ 30 $ - $ - $ -
Wholesale Distribution 3,135 40 - 3
Bouquet Making and Distribution 50 - - -
--------------------------------------------------------------------------------
Total North America Division 3,215 40 - 3
--------------------------------------------------------------------------------
International Division
Import/Export - - - -
Wholesale Distribution - - - -
Bouquet Making and Distribution - - - -
--------------------------------------------------------------------------------
Total International Division - - - -
--------------------------------------------------------------------------------
Total of Reportable Segments
Import/Export 30 - - -
Wholesale Distribution 3,135 40 - 3
Bouquet Making and Distribution 50 - - -
--------------------------------------------------------------------------------
Total of Reportable Segments $ 3,215 $ 40 $ - $ 3
--------------------------------------------------------------------------------
For the Six Months For the Three Months
Income from Operations Ended June 30, Ended June 30,
2000 1999 2000 1999
--------------------------------------------------------------------------------
North America Division
Import/Export $ 8,084 $15,073 $ 4,317 $ 7,383
Wholesale Distribution 68 3,228 1,915 1,452
Bouquet Making and Distribution 5,213 2,532 2,770 422
--------------------------------------------------------------------------------
Total North America Division 13,365 20,883 9,002 9,257
--------------------------------------------------------------------------------
International Division
Import/Export 4,371 1,816 1,647 237
Wholesale Distribution 1,260 498 580 446
Bouquet Making and Distribution 1,000 1,181 460 466
--------------------------------------------------------------------------------
Total International Division 6,631 3,495 2,687 1,149
--------------------------------------------------------------------------------
Total of Reportable Segments
Import/Export 12,455 16,889 5,964 7,620
Wholesale Distribution 1,328 3,726 2,495 1,898
Bouquet Making and Distribution 6,213 3,713 3,230 888
--------------------------------------------------------------------------------
Total of Reportable Segments $19,996 $24,328 $11,689 $10,406
--------------------------------------------------------------------------------
15
<PAGE>
U.S.A FLORAL PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
Total Assets June 30, 2000 December 31, 1999
--------------------------------------------------------------------------------
North America Division
Import/Export $148,380 $158,870
Wholesale Distribution 98,163 102,306
Bouquet Making and Distribution 68,996 71,896
--------------------------------------------------------------------------------
Total North America Division 315,539 333,072
--------------------------------------------------------------------------------
International Division
Import/Export 47,141 61,634
Wholesale Distribution 42,958 17,431
Bouquet Making and Distribution 11,933 12,225
--------------------------------------------------------------------------------
Total International Division 102,032 91,290
--------------------------------------------------------------------------------
Total of Reportable Segments
Import/Export 195,521 220,504
Wholesale Distribution 141,121 119,737
Bouquet Making and Distribution 80,929 84,121
--------------------------------------------------------------------------------
Total of Reportable Segments $417,571 $424,362
--------------------------------------------------------------------------------
For the Six Months For the Three Months
Capital Expenditures Ended June 30, Ended June 30,
2000 1999 2000 1999
--------------------------------------------------------------------------------
North America Division
Import/Export $ 1,244 $ 1,909 $ 436 $ 1,109
Wholesale Distribution 101 2,069 56 867
Bouquet Making and Distribution 229 854 98 286
--------------------------------------------------------------------------------
Total North America Division 1,574 4,833 590 2,262
--------------------------------------------------------------------------------
International Division
Import/Export 413 936 256 779
Wholesale Distribution 472 18 110 -
Bouquet Making and Distribution 232 - 127 -
--------------------------------------------------------------------------------
Total International Division 1,117 955 493 779
--------------------------------------------------------------------------------
Total of Reportable Segments
Import/Export 1,657 2,846 692 1,888
Wholesale Distribution 573 2,088 166 867
Bouquet Making and Distribution 461 854 225 286
--------------------------------------------------------------------------------
Total of Reportable Segments $ 2,691 $ 5,787 $ 1,083 $ 3,041
--------------------------------------------------------------------------------
16
<PAGE>
U.S.A FLORAL PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
A reconciliation of total segment income from operations to total consolidated
income before income taxes is as follows;
<TABLE>
<CAPTION>
For the Six Months For the Three Months
Ended June 30, Ended June 30,
Income from Operations 2000 1999 2000 1999
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total segment income from operations $ 19,996 $ 24,328 $ 11,689 $ 10,406
Interest income 612 994 297 612
Interest expense (9,505) (7,911) (4,874) (4,048)
Other income 24 322 68 140
Loss on sale of business assets (3,673) - (3,673) -
Unallocated information technology
expenses (4,582) - (2,445) -
Unallocated corporate S,G&A expenses (5,590) (4,431) (3,950) (1,806)
Unallocated goodwill amortization (603) (740) (315) (274)
Unallocated restructuring charge (6,939) - - -
-----------------------------------------------------------------------------------------
Total consolidated income (loss)
Before Income taxes $(l0,260) $ 12,562 $ (3,203) $ 5,030
-----------------------------------------------------------------------------------------
</TABLE>
As part of the Company's increased focus to control costs a technology
department was established. Prior to January 1, 2000 the expenses associated
with information technology were recorded by each subsidiary and reported as a
component of total segment income from operations. Prior period information
technology expenses were not restated because to do so would be impracticable.
A reconciliation of total segment assets to consolidated total assets is as
follows:
June 30, December 31,
Total Assets 2000 1999
--------------------------------------------------------------------------------
Total segment assets $ 417,571 $ 424,362
Elimination of intercompany receivable (5,354) (592)
Goodwill not allocated to segments 45,114 54,200
Other assets 13,648 8,840
--------------------------------------------------------------------------------
Total consolidated assets $ 470,979 $ 486,810
--------------------------------------------------------------------------------
The following table presents revenues and long-lived assets information by
geographic area. Sales are based on the country in which the sale originates
(i.e., where the legal subsidiary is domiciled) and does not include
intercompany sales.
For the Six Months For the Three Months
Revenues Ended June 30, Ended June 30,
2000 1999 2000 1999
-----------------------------------------------------
United States $279,752 $306,961 $140,345 $146,678
Germany 53,476 60,185 24,396 27,246
Netherlands 86,967 74,837 41,612 34,576
Other foreign countries 71,751 68,401 33,948 30,541
-----------------------------------------------------
Total $491,946 $510,384 $240,301 $239,041
-----------------------------------------------------
17
<PAGE>
U.S.A FLORAL PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
Long-lived Assets June 30, 2000 December 31, 1999
--------------------------------------------
United States $231,041 $230,503
Germany 70,934 72,734
Netherlands 7,204 7,681
Other foreign countries 12,958 21,376
--------------------------------------------
Total $322,137 $332,294
--------------------------------------------
NOTE 9 - INCOME TAXES
The effective income tax rate is different than the statutory rate
primarily due to the non-deductibility of certain goodwill amortization. The
effect of the non-deductibility of certain goodwill amortization is much more
pronounced with the lower base of income (loss) before provision for taxes.
During the six month period ended June 30, 2000, the Company recorded an income
tax benefit of $2.0 million in the North American division and an income tax
provision of $1.6 million in the International division. The income tax benefit
in North America relates to certain net operating loss carrybacks which will be
utilized in future taxation periods. No valuation allowance has been made
against these income tax benefits.
NOTE 10 - CREDIT FACILITY
Effective October 2, 1998, the Company amended and restated its existing
credit agreement with a syndicate of lenders for which Bankers Trust Company
serves as agent (the "Amended Credit Agreement"). Pursuant to the terms of the
Amended Credit Agreement, the amount of the Company's revolving credit
facilities was 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 foreign subsidiaries of USA Floral 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 facilities. Borrowings under the
revolving credit facilities bear interest, at the Company's 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%. The Company paid aggregate financing fees of
approximately $3.9 million, which has been deferred and will be amortized over
the term of the Amended Credit Agreement. In addition, a commitment fee of 0.50%
will be charged on the unused portion of the revolving credit facilities on a
quarterly basis. Both the revolving credit facilities and the term loan mature
five years from the closing date. The installments of the term loan in the next
four years are: 2000 - $2.5 million, 2001 - $12.5 million, 2002 - $20 million
and 2003 - $15 million. At June 30, 2000, the aggregate outstanding indebtedness
under both the revolving credit facilities and the term loan including issued
Letters of Credit was approximately $201.7 million and the effective interest
rate was approximately 9.4% on the revolving credit facility and approximately
6.9% on the term loan.
18
<PAGE>
U.S.A FLORAL PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
Borrowings under the Amended Credit Agreement are collateralized by
receivables, inventories, equipment and certain real property. Under the terms
of the Amended Credit Agreement, the Company is required to maintain certain
financial ratios and other financial and non-financial conditions. The Amended
Credit Agreement prohibits the Company from incurring additional indebtedness,
limits certain investments, advances or loans and restricts substantial asset
sales, capital expenditures and cash dividends.
On March 24, 2000, the financial covenants, including the leverage ratio
and consolidated interest coverage ratio were amended under the Fourth Amendment
and Waiver to the Credit Agreement ("Fourth Amendment"). Pursuant to the terms
of the Fourth Amendment, the Company is required to achieve minimum EBITDA
levels. The minimum EBITDA levels established in the Fourth Amendment are based
upon the objectives set forth in the Company's 2000 Operating Plan.
Additionally, the Fourth Amendment limits the level of the Company's total
outstanding borrowings to $224.0 million. As a result of the Fourth Amendment,
the level of available total outstanding borrowings to the Company was reduced
and the Company recorded a charge of $0.3 million in the first quarter 2000,
representing a write-off of a prorata portion of the unamortized deferred
financing fees related to the October 1998 credit facility amendment, which has
been recorded as interest expense in the accompanying Statement of Operations.
In consideration for the Fourth Amendment, the Company agreed to pay a
financing fee of $1.75 million on March 31, 2001 and issue approximately 865
warrants to purchase common stock of the Company at an exercise price of $0.25
per share. The warrants issued are exercisable anytime after March 31, 2001 and
expire March 31, 2010. Both the financing fee and the fair value of the warrants
issued have been deferred and will be amortized over the remaining term of the
Amended Credit Agreement.
As of June 30, 2000, the Company was not in compliance with the applicable
financial covenants, including the leverage ratio. Pursuant to the terms of the
Credit Agreement, non-compliance with one or more financial covenants permits
the lenders to exercise certain remedies, which include termination of the
commitment and declare that the principal balance and any accrued interest on
all loans and obligations immediately due and payable. The Lenders have not
exercised these remedies. The Company obtained a waiver letter through August
16, 2000, from the Bank with respect to the noncompliance as of June 30, 2000
under the Amended Credit Agreement. Based on current projections, the Company
anticipates it will not be in compliance with the financial covenants in the
third quarter. Hence, the outstanding balance has been classified as a current
liability at June 30, 2000. In order to be in compliance with certain covenants
in the Credit Agreement during the remainder of 2000, the Company will likely
require additional amendments. The Company is currently discussing amending the
financial covenants and restructuring the debt with the bank. There can be no
assurance that any such amendment will be available on terms favorable to the
Company. Inability of the Company to reach an agreement with the Lender on
amendments or to arrange alternative financing could have a material adverse
affect on the Company. If the current credit agreement is refinanced or the
borrowed amount is declared by the lenders to be payable on demand, the
remaining unamortized deferred financing costs of $5.2 million will be adjusted
in the period of refinancing or when the debt is declared payable.
19
<PAGE>
U.S.A FLORAL PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
NOTE 11 - COMPREHENSIVE INCOME (LOSS)
The table below presents the components of the Company's comprehensive income
(loss) for the three and six month periods ended June 30, 2000 and 1999:
For the Six Months For the Three Months
Ended June 30, Ended June 30,
2000 1999 2000 1999
--------------------------------------------------
Net income (loss) $ (9,841) $ 5,746 $(l,947) $ 1,734
Foreign currency translation
adjustment (557) 843 (391) 798
--------------------------------------------------
Comprehensive income (loss) $(10,398) $ 6,589 $ (2,338) $ 2,532
--------------------------------------------------
NOTE 12 - SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental disclosure of cash flow information:
Six months ended June 30,
2000 1999
-----------------------------
Cash paid during the period for interest $8,594 $4,501
------ ------
Cash paid during the period for income taxes $2,172 $3,005
------ ------
During the six months ended June 30, 2000 the Company issued warrants valued at
$1,262 in consideration for the Fourth Amendment and Waiver to the Credit
Aggreement.
20
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Three Months Ended June 30, 2000
Statement of Operations: For the Three For the Three
(in thousands except per Months ended Months ended
share data) June 30, 2000 June 30, 1999
------------------------------------------------
Net revenue $240,301 100.0% $239,041 100.0%
Cost of sales 181,406 75.5% 175,847 73.6%
------------------------------------------------
Gross margin 58,895 24.5% 63,194 26.4%
Selling, general and
administrative expenses 52,150 21.7% 53,085 22.2%
Goodwill amortization 1,766 0.7% 1,780 0.7%
Integration charges - 0.0% 3 0.0%
------------------------------------------------
Income from operations 4,979 2.1% 8,326 3.5%
Interest expense (4,874) (2.0)% (4,048) (l.7)%
Interest income 297 0.1% 612 0.3%
Other 68 0.0% 140 0.0%
Loss on sale of business assets (3,673) (1.5)% - 0.0%
------------------------------------------------
Income (loss) before income
taxes and minority interest (3,203) (1.3)% 5,030 2.1%
Provision for (benefit from)
income taxes (1,263) (0.5)% 3,307 1.4%
------------------------------------------------
Income (loss) before minority
interest (1,940) (0.8)% 1,723 0.7%
Minority interest (7) (0.0)% 11 0.0%
------------------------------------------------
Net income (loss) $(l,947) (0.8)% $1,734 0.7%
------------------------------------------------
Net income (loss) per share:
Basic $(0.12) $0.11
Diluted $(0.12) $0.11
Shares used in computing
net income (loss) per share:
Basic 16,472 16,315
Diluted 16,472 16,429
USA Floral is the largest integrated distributor of floral products in the
world. We:
. import, export and distribute floral products and floral-related hardgoods;
. engage in brokerage and shipping services for wholesale distributors of both
international and domestic cut flowers;
. provide traditional floral and Internet fulfillment services to non-store
retailers; and
. provide in-store merchandising services to certain supermarkets and
mass-market retailers.
21
<PAGE>
Increasingly, we provide higher value-added services including bouquet and
arrangement making and marketing support to retailers. Our customers are retail
florists, supermarkets, other mass-market retailers and Internet fulfillment and
catalog retailers, as well as wholesale distributors and bouquet and arrangement
makers. We do not own or operate growing operations or retail florists. We
operate from 102 facilities in 18 countries located on five continents.
We derive our revenues from the sale of perishable floral products and
floral-related hardgoods. Sales of perishable products, which include cut
flowers, bouquets and potted plants, accounted for approximately 95% of our
actual revenues. Sales of floral-related hardgoods, which include vases and
glassware, foam for flower arranging, tools and other supplies, account for
approximately 5% of our revenues.
We recognize net revenues upon the shipment of products to our customers.
Cost of sales generally includes the cost of perishable products and
floral-related hardgoods plus the cost of in-bound freight. In addition, the
cost of sales for bouquet companies also includes production costs. Although we
generally do not enter into long-term contracts with our suppliers, we do
conduct business on a fixed-price "standing order" basis with certain importers
in order to ensure an adequate supply of flowers during periods of peak demand.
In general, our operating subsidiaries have been able to pass on most of their
direct price increases to customers, however, this may not be the case in the
future. Our selling, general and administrative expenses include warehouse and
customer delivery expenses, employee salaries and benefits, telephone expenses,
advertising and promotional expenses, depreciation and occupancy costs.
Results of Operations
---------------------
Three months ended June 30, 2000 compared to three months ended June 30, 1999
Net Revenues. Net revenues for the quarter ended June 30, 2000 were $240.3
million. Revenues increased from $239.0 million in the same quarter last year.
Revenues for the North America Division were $149.5 million, or 62.2% of the
consolidated revenues and revenues for the International Division were $90.8
million, or 37.8%. In 1999, 64.9% revenues were generated by the North American
Division and 35.1% were generated by the International Division. Revenues for
the International Division consisted primarily of revenues from Germany, the
Netherlands, Italy and Japan. The Company experienced an increase in revenues
for the three months ended June 30, 2000 when compared to the same period in the
prior year primarily due to the International Division. The International
Division revenues increased to $90.8 million for the quarter ended June 30, 2000
from $83.9 million as a result of firmer flower pricing at the Dutch auction and
increased bouquet sales to the mass markets. The Company derives nearly 40% of
its revenue internationally primarily from Europe, and management estimates that
the stronger U.S. dollar versus the Euro negatively impacts reported revenues by
approximately 12%. The North American division experienced a decline in revenues
of approximately $5.6 million or 3.6% to $149.5 million. Revenues for the import
division in North America decreased $6.9 million or 12.0% to $50.1 million for
the three months ended June 30, 2000. The decline in revenues
22
<PAGE>
can be attributable to the following: increased competition, growers selling
directly to wholesalers and increased level of sales personnel turnover.
Offsetting the decline in revenues in the import division was an increase in
revenues in the bouquet division. Revenues for the three months ended June 30,
2000 for the bouquet division were $48.6 million an increase of $2.3 million or
4.9% over the same period in the prior year. The Company is in the process of
establishing a national accounts program with designated account managers to
enhance revenues in future periods.
Gross margin. Gross margins for the three months ended June 30, 2000 and
1999 were $58.9 and $63.2 million, respectively. Gross margin as a percentage of
net revenue was 24.5% and 26.4% (including the effect of the final determination
of antidumping duties) for the three months ended June 30, 2000 and June 30,
1999. 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. The decrease in gross
margin as a percentage of revenues for the quarter is partially attributable to
the inclusion of the final determination of antidumping duties in the
comparative prior year numbers. Without the release of the $2.2 million
antidumping accrual in the period ended June 30, 1999, consolidated gross margin
was 25.5%. The North America Division gross margin was 26.8% for the three
months ended June 30, 2000 and 28.9% (including the effect of the final
determination of antidumping duties), for the three months ended June 30, 1999.
The International Division's gross margin was 20.7% for the three months ended
June 30, 2000 and 21.9% for the three months ended June 30, 1999. The decline in
gross margin as a percentage of revenues in the International Division is due
primarily to firmer flower pricing at the Dutch auctions and higher labor costs
associated with bouquet manufacturing during the three months ended June 30,
2000.
Selling, General and Administrative. Selling, general and administrative
expenses were $52.2 million in the three months ended June 30, 2000, or 21.7% of
net revenues, and $53.1 million, or 22.2% of net revenues, in the three months
ended June 30, 1999. The decrease in selling, general and administrative
expenses for the three months ended June 30, 2000 is the primary result of
integration and consolidation of operations and a reduction in sales volume. The
Company continues to integrate all its Miami-based import companies into one
facility to improve efficiencies and eliminate redundancies .
Income from operatiOns. Income from operations was $5.0 million, or 2.1% of
net revenues, for the three months ended June 30, 2000, and $8.3 million, or
3.5% of net revenues, for the three months ended June 30, 1999 for the reasons
discussed above.
23
<PAGE>
Interest expense. For the three months ended June 30, 2000, interest
expense was approximately $4.9 million as compared to $4.0 million for the three
months ended June 30, 1999, an increase of $0.9 million. The Company's average
borrowing rate for the three month period ended June 30, 2000 and 1999 was 8.7%
and 8.0%, respectively, based on the Company's weighted average outstanding debt
balance.
Loss on sale of business assets. On June 30, 2000, the Company executed a
definite sales agreement to sell the assets and liabilities of its Alpine Gem
subsidiary. It was determined by management that the Alpine Gem subsidiary no
longer fit with the strategic direction of USA Floral. As a result of the sale,
the Company incurred a loss on sale of approximately $3.7 million, primarily
related to the goodwill balance.
Provision for income taxes. The provision for income taxes was a $1.3
million tax benefit for the three months ended June 30, 2000 on a pre-tax loss
of $3.2 million compared to $3.3 million in income tax expense for the quarter
ended June 30, 1999 on a pre-tax income of $5.0 million for the period. During
the three month period ended June 30, 2000, the Company recorded an income tax
benefit of $1.5 million in the North America division and an income tax
provision of $0.2 million in the International divison. The income tax benefit
in North America relates to certain net operating loss carrybacks which will be
utilized in future taxation periods. No valuation allowance has been made
against these income tax benefits. The 2000 and 1999 effective income tax rates
of (39.4)% and 65.7%, is different than the statutory rate primarily due to the
non-deductibility of certain goodwill amortization. The effect of the non-
deductibility of certain goodwill amortization is much more pronounced with the
lower base of income (loss) before provision for taxes.
Net income (loss). As a result of the factors discussed above, the Company
had a net loss of $1.9 million for the three months ended June 30, 2000, or
$0.12 per basic and diluted share. 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.
24
<PAGE>
Six months ended June 30, 2000
Statement of Operations: For the Six For the Six
(in thousands except per Months ended Months ended
share data) June 30, 2000 June 30, 1999
------------------------------------------------
Net revenue $491,946 100.0% $510,384 100.0%
Cost of sales 371,357 75.5% 380,616 74.6%
------------------------------------------------
Gross margin 120,589 24.5% 129,768 25.4%
Selling, general and
administrative expenses 104,628 21.3% 107,064 20.9%
Goodwill amortization 3,524 0.7% 3,507 0.7%
Integration charges 10,155 2.1% 40 0.0%
------------------------------------------------
Income from operations 2,282 0.4% 19,157 3.8%
Interest expense (9,505) (1.9)% (7,911) (1.6)%
Interest income 612 0.1% 994 0.2%
Other 24 0.0% 322 0.1%
Loss on sale of business assets (3,673) (0.7)% - 0.0%
------------------------------------------------
Income (loss) before income
taxes and minority interest (10,260) (2.1)% 12,562 2.5%
Provision for (benefit from)
income taxes (442) (0.1)% 6,819 1.4%
------------------------------------------------
Income (loss) before minority
interest (9,818) (2.0)% 5,743 1.1%
Minority interest (23) (0.0)% 3 0.0%
------------------------------------------------
Net income (loss) $(9,841) (2.0)% $5,746 1.1%
------------------------------------------------
Net income (loss) per share:
Basic $(0.60) $0.35
Diluted $(0.60) $0.35
Shares used in computing
net income (loss) per share:
Basic 16,450 16,315
Diluted 16,450 16,496
Results of Operations
---------------------
Six months ended June 30, 2000 compared to six months ended June 30, 1999
Net Revenues. Net revenues for the six months ended June 30, 2000 were
$491.9 million. Revenues decreased from $510.4 million in the same period last
year. Revenues for the North America Division were $297.6 million, or 60.5% of
the consolidated revenues and revenues for the International Division were
$194.4 million, or 39.5%. Revenues for the International Division consisted
primarily of revenues from Germany, the Netherlands, Italy and Japan. In 1999,
63.5% of revenues were generated by the North American Division and 36.5% were
generated by the International Division. The International Division revenues
increased to $194.4 million for the six months ended June 30, 2000 from $186.2
million as a result of firmer flower pricing at the Dutch auction. The Company
derives nearly 40% of its revenue
25
<PAGE>
internationally primarily from Europe, and management estimates that the
stronger U.S. dollar versus the Euro negatively impacts reported revenues by
approximately 13%. The North American division experienced a decline in revenues
of approximately $26.6 million or 8.2% to $297.6 million. Revenues for the
import division in North America decreased $20.0 million or 16.2% to $102.9
million for the six months ended June 30, 2000. The decline in revenues can be
attributable to the following: increased competition, growers selling directly
to wholesalers and increased level of sales personnel turnover. Revenues for the
six months ended June 30, 2000 for the bouquet division were $95.3 million, a
decrease of $2.3 million or 2.4% over the same period in the prior year. The
Company is in the process of establishing a national accounts program with
designated account managers to enhance revenues in future periods.
Gross margin. Gross margins for the six months ended June 30, 2000 and 1999
were $120.6 million and $129.8 million. Gross margin as a percentage of net
revenue was 24.5% (including the effect of the anti-dumping deposit refunds) and
25.4% (including the effect of the final determination of antidumping duties)
for the six months ended June 30, 2000 and June 30, 1999. 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. ADD refunds aggregating $1.9 million
related to periods subsequent to March 1, 1997, were received during the first
quarter of 2000 and were recorded as a reduction to cost of sales. The North
America Division gross margin was 27.3% for the six months ended June 30, 2000
and 27.7% for the six months ended June 30, 1999. The International Division's
gross margin was 20.2% for the six months ended June 30, 2000 and 21.4% for the
six months ended June 30, 1999. The decline in gross margin as a percentage of
revenues in the International Division is due primarily to firmer flower pricing
at the Dutch auctions and increase cost of labor in bouquet manufacturing during
the six months ended June 30, 2000.
Selling, General and Administrative. Selling, general and administrative
expenses were $104.6 million in the six months ended June 30, 2000, or 21.3% of
net revenues and $107.1 million in the six months ended June 30, 1999, or 20.9%
of net revenues. The decrease in selling, general and administrative expenses
for the six months ended June 30, 2000 is the primary result of integration and
consolidation of operations and a reduction in sales volume. The Company
continues to integrate all its Miami-based import companies into one facility to
improve efficiencies and eliminate redundancies.
Restructuring charge. As part of our increased focus on operational
matters, we have pursued cost reduction measures, including the elimination of
duplicative facilities, the consolidation of certain operating functions and the
deployment of common information systems. In implementing these cost reduction
measures, we have incurred, and may incur in the future, certain integration
charges associated with such cost reduction measures.
26
<PAGE>
In the first quarter of 2000, the Company recorded a restructuring charge
of approximately $10.2 million before income taxes ($6.4 million after income
taxes). The Company will discontinue several strategic initiatives, close
certain under-performing and unprofitable business locations and re-focus on the
core business operations. The charge principally relates to severance payments,
lease termination costs, the write-down of information technology assets and the
write-down of property and equipment associated with the discontinuance of
strategic initiatives and the write-down of assets, including property and
equipment and goodwill related to the closure of one company and two branch
locations of two wholesale companies. The closure of the unprofitable locations
were substantially completed as of June 30, 2000. The balance of the
restructuring plan is expected to be completed by year-end. The Company will
reduce the number of employees by 85 or approximately 3% of the North American
workforce.
Income from operations. Income from operations was $2.3 million, or 0.4% of
net revenues, for the six months ended June 30, 2000 and $19.2 million, or 3.8%
of net revenues, for the six months ended June 30, 1999 for the reasons
discussed above.
Interest expense. For the six months ended June 30, 2000, interest expense
was approximately $9.5 million as compared to $7.9 million for the six months
ended June 30, 1999, an increase of $1.6 million. Interest expense for the six
months ended June 30, 2000 includes a charge of approximately $0.3 million
related to the write-off of deferred financing fees related to the amendment
limits on the level of the Company's total outstanding borrowings. The Company's
average borrowing rate for the six month period ended June 30, 2000 and 1999 was
8.2% and 8.1%, respectively, based on the Company's weighted average outstanding
debt balance.
Loss on sale of business assets. On June 30, 2000, the Company executed a
definite sales agreement to sell the assets and liabilities of its Alpine Gem
subsidiary. It was determined by management that the Alpine Gem subsidiary no
longer fit with the strategic direction of USA Floral. As a result of the sale,
the Company incurred a loss on sale of approximately $3.7 million, primarily
related to the goodwill balance.
Provision for income taxes. The provision for income taxes was a $0.4
million tax benefit for the six months ended June 30, 2000 on a pre-tax loss of
$10.3 million compared to $6.8 million in income tax expense for the six months
ended June 30, 1999 on a pre-tax income of $12.6 million for the period. During
the six month period ended June 30, 2000, the Company recorded an income tax
benefit of $2.0 million in the North America division and an income tax
provision of $1.6 million in the International division. The Income tax benefit
in North America relates to certain net operating loss carrybacks which will be
utilized in future taxation periods. The 2000 and 1999 effective income tax
rates of (4.3)% and 54.3% is different than the statutory rate primarily due to
the non-deductibility of certain goodwill amortization. The effect of the non-
deductibility of certain goodwill amortization is much more pronounced with the
lower base of income (loss) before provision for taxes.
Net income (loss). As a result of the factors discussed above, the Company
had a net loss of $9.8 million for the six months ended June 30, 2000, or
$(0.60) per basic and diluted share. The Company had net income of $5.7 million
for the six months ended June 30, 1999, or $0.35 per basic and diluted share.
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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 have been to provide working capital, to
meet debt service requirements and finance the Company's strategic plans. For
fiscal 1999, quarterly net revenues as a percentage of total revenues were
approximately 29%, 26%, 21%, and 24%, respectively, for the first through fourth
quarters of the fiscal year. The Company's need for cash has historically been
greater in its first and second quarters when cash generated from operating
activities coupled with draw-downs 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, such as Valentine's Day in February and Mother's Day in
May. For the six months ended June 30, 2000 the Company used $1.3 million in
proceeds from financing activities and $1.8 million in proceeds from the sale of
property and equipment and business assets to invest $3.3 million in capital
expenditures and fund working capital for operating activities.
In the six months ended June 30, 2000, operating activities provided $5.9
million of net cash compared to $8.6 million of cash provided by operations in
the same period last year. The decrease in cash provided by operations is
principally attributable to $15.5 million lower net income offset by $7.0
million increase in the integration reserve, $3.7 million loss on disposal of
business assets, and $2.0 million decrease in the use of cash for working
capital and other assets and liabilities. During the six month period ended June
30, 2000 the Company experienced a decline in its days payable outstanding to 23
days from 29 days at June 30, 1999 as a result of increased pressure from
suppliers. Cash used in operating activities to support the decrease in accounts
payable were approximately $7.3 million. The Company's days sales outstanding
was relatively consistent with the prior period at June 30, 2000, at 36 days.
Our capital expenditures for the three months ended June 30, 2000 were
approximately $3.3 million. These capital expenditures were primarily for
vehicles, machinery, office equipment and computer equipment and software,
building additions, and facility upgrades. Although we currently do not have any
commitments to make significant capital expenditures, we expect to expend
approximately $6.0 million for capital expenditures in the next twelve months in
the normal course of business.
Financing. Our existing credit agreement is with a syndicate of lenders for
which Bankers Trust Company serves as agent (the "Credit Agreement"). Pursuant
to the terms of the Credit Agreement as of October 2, 1998, the amount of our
revolving credit facility was 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
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margin of up to 2.50%. Borrowings under the term loan bear interest at the
inter-bank rate for Deutsche Marks plus an applicable margin of up to 2.50%. For
the execution of the Amended Credit Agreement the Company paid aggregate
financing fees of approximately $3.9 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 March 31, 2000
outstanding borrowings under our Credit Agreement aggregated $205.5 million. The
Company does not have any required repayments of term loans until December 31,
2000.
On March 24, 2000, the financial covenants, including the leverage ratio
and consolidated interest coverage ratio, were amended under the Fourth
Amendment and waiver to the Credit Agreement ("Fourth Amendment"). Pursuant to
the terms of the Fourth Amendment, the Company is required to achieve minimum
EBITDA levels. The minimum EBITDA levels established in the Fourth Amendment are
based upon the objectives set forth in the Company's 2000 Operating Plan and
require that the Company's achieve the following EBITDA levels in fiscal year
2000; Q1 - $11.5 million, Q2 - $12.75 million, Q3 -$1.25 million, and Q4 - $8.0
million. Additionally, the Fourth Amendment limits the level of the Company's
total outstanding borrowings to $224.0 million and at June 30, 2000, the
aggregate outstanding borrowings were approximately $203 million. As a result of
the Fourth Amendment limits on the level of the Company's total outstanding
borrowings, approximately $0.3 million of the financing fees deferred and
amortized in October 1998 were written off and recorded as interest expense
during the first quarter of 2000. In consideration for the Fourth Amendment, the
Company agreed to pay a financing fee of $1.75 million on March 31, 2001 and
issue approximately 865 warrants to purchase common stock of the Company at an
exercise price of $0.25 per share. The warrants issued are exercisable anytime
after March 31, 2001 and expire March 31, 2010. Both the financing fee and the
fair value of the warrants issued have been deferred and will be amortized over
the remaining term of the Amended Credit Agreement.
As of June 30, 2000, the Company was not in compliance with the applicable
financial covenants, including the leverage ratio. Pursuant to the terms of the
Credit Agreement, non-compliance with one or more financial covenants permits
the lenders to exercise certain remedies, which include termination of the
commitment and declare that the principal balance and any accrued interest on
all loans and obligations immediately due and payable. The Lenders have not
exercised these remedies. The Company obtained a waiver letter through August
16, 2000, from the Bank with respect to the noncompliance as of June 30, 2000
under the Amended Credit Agreement. Based on current projections, the Company
anticipates it will not be in compliance with the financial covenants in the
third quarter. Hence, the outstanding balance has been classified as a current
liability at June 30, 2000. In order to be in compliance with certain covenants
in the Credit Agreement during the remainder of 2000, the Company will likely
require additional amendments. The Company is currently discussing amending the
financial covenants and restructuring the debt with the bank. There can be no
assurance that any such amendment will be available on terms favorable to the
Company. Inability of the Company to reach an agreement with the Lender on
amendments or to arrange alternative financing could have a material adverse
effect on the Company.
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In the event the bank group amends the financial covenants under the
Amended Credit Agreement, 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, the Company does
not believe that a need for cash would exceed anticipated sources of cash from
operations and from the 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.
Other. On July 18, 2000, the Company received notification from the Nasdaq
Stock Market that its common stock has failed to maintain the minimum bid price
of $1.00 as required for continued listing on the Nasdaq SmallCap Market. If the
bid price of USA Floral common stock does not equal or exceed $1.00 for a
minimum of 10 consecutive trading days prior to October 16, 2000, USA Floral
common stock will be delisted from the Nasdaq SmallCap Market. There is no
assurance that the Company's common stock will be eligible for listing on the
Nasdaq SmallCap Market as of October 16, 2000 and failure to maintain listing on
an organized market may have a material adverse effect on the liquidity of the
Company's common stock.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
There has been no material change in the information set forth in our
December 31, 1999 Form 10-K filed with the Securities and Exchange Commission on
March 31, 2000.
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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
None
Item 6. Exhibits and Reports on Form 8-K
Exhibit 27 -- Financial data schedule
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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 14, 2000 By: /s/ Michael W. Broomfield
--------------------------------------
Michael W. Broomfield
Chief Executive Officer
By: /s/ G. Andrew Cooke
--------------------------------------
G. Andrew Cooke
Chief Financial Officer
