SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 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 February 29, 2000
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: 0-05531
Gerald Stevens, Inc.
--------------------
(Exact Name of Registrant as Specified in its Charter)
Florida 41-0719035
------- ----------
(State of Incorporation) (IRS Employer Identification No.)
301 East Las Olas Boulevard, Suite 300
Ft. Lauderdale, Florida 33301
----------------------- -----
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (954) 713-5000
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Indicate by check mark 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 |_|
On April 11, 2000 the registrant had 48,931,652 outstanding shares of
common stock, par value $.01 per share.
<PAGE>
GERALD STEVENS, INC.
INDEX
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page No.
<S> <C> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of February 29, 2000 and August 31, 1999 1
Condensed Consolidated Statements of Operations for the Three and Six Months
Ended February 29, 2000 and February 28, 1999 2
Condensed Consolidated Statement of Changes in Stockholders' Equity for the Six
Months ended February 29, 2000 3
Condensed Consolidated Statements of Cash Flows for the Six Months ended
February 29, 2000 and February 28, 1999 4
Notes to Condensed Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 23
Item 4. Submission of Matters to a Vote of Security Holders 23
Item 6. Exhibits and Reports on Form 8-K 24
Signatures 25
</TABLE>
<PAGE>
PART 1. FINANCIAL INFORMATION
GERALD STEVENS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
February 29, August 31,
2000 1999
------------- ----------
(Unaudited)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 2,956 $ 4,602
Accounts receivable, net 22,628 10,074
Inventories 12,915 8,454
Prepaid and other current assets 4,409 2,653
--------- ---------
Total current assets 42,908 25,783
--------- ---------
PROPERTY AND EQUIPMENT, net 26,044 15,953
--------- ---------
OTHER ASSETS:
Intangible assets, net 161,140 129,897
Other 1,826 1,390
--------- ---------
Total other assets 162,966 131,287
--------- ---------
Total assets $ 231,918 $ 173,023
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ 481 $ 2,009
Accounts payable 28,777 12,551
Accrued liabilities 18,553 15,567
Deferred revenue 3,226 2,164
--------- ---------
Total current liabilities 51,037 32,291
--------- ---------
LONG-TERM DEBT 31,900 4,340
--------- ---------
OTHER 681 419
--------- ---------
Total liabilities 83,618 37,050
--------- ---------
COMMITMENTS AND CONTINGENCIES (Note 8)
STOCKHOLDERS' EQUITY:
Preferred stock, $10 par value, 600,000 shares authorized, none issued -- --
Common stock $0.01 par value, 250,000,000 shares authorized, 45,757,042
and 44,011,401 shares issued and outstanding on February 29, 2000 and August 31,
1999, respectively 457 440
Additional paid-in capital 168,553 155,224
Accumulated deficit (19,094) (18,075)
Treasury stock, 519,975 shares at cost (1,616) (1,616)
--------- ---------
Total stockholders' equity 148,300 135,973
--------- ---------
Total liabilities and stockholders' equity $ 231,918 $ 173,023
========= =========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
statements.
1
<PAGE>
GERALD STEVENS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------- --------------------------
February 29, February 28, February 29, February 28,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUE:
Product sales, net $ 63,186 $ 19,678 $ 100,643 $ 28,373
Service and other revenue 18,393 7,094 30,140 11,622
--------- --------- --------- ---------
81,579 26,772 130,783 39,995
--------- --------- --------- ---------
OPERATING COSTS AND EXPENSES:
Cost of product sales 22,545 8,896 36,552 12,744
Operating expenses 27,716 9,023 47,355 13,356
Selling, general and administrative expenses 27,353 8,901 46,814 14,260
Merger expenses -- 3,966 -- 4,051
--------- --------- --------- ---------
77,614 30,786 130,721 44,411
--------- --------- --------- ---------
Operating income (loss) 3,965 (4,014) 62 (4,416)
--------- --------- --------- ---------
OTHER INCOME (EXPENSE):
Interest expense (531) (115) (925) (183)
Interest income 13 66 29 173
Other income 179 66 160 96
--------- --------- --------- ---------
(339) 17 (736) 86
--------- --------- --------- ---------
Income (loss) before provision for income taxes 3,626 (3,997) (674) (4,330)
PROVISION FOR INCOME TAXES 345 2,127 345 2,127
--------- --------- --------- ---------
Net income (loss) $ 3,281 $ (6,124) $ (1,019) $ (6,457)
========= ========= ========= =========
BASIC INCOME (LOSS) PER SHARE $ 0.07 $ (0.18) $ (0.02) $ (0.21)
========= ========= ========= =========
DILUTED INCOME (LOSS) PER SHARE $ 0.07 $ (0.18) $ (0.02) $ (0.21)
========= ========= ========= =========
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING:
Basic 45,323 33,532 44,844 31,198
========= ========= ========= =========
Diluted 46,293 33,532 44,844 31,198
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
statements.
2
<PAGE>
GERALD STEVENS, INC.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Common Stock
----------------------- Additional
Par Paid-In Accumulated Treasury
Shares Value Capital Deficit Stock Total
------ ----- ------- ------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, August 31, 1999 44,011 $ 440 $ 155,224 $ (18,075) $ (1,616) $ 135,973
Sale of common stock, net 328 3 948 -- -- 951
Common stock issued in acquisitions 1,418 14 12,381 -- -- 12,395
Net loss -- -- -- (1,019) -- (1,019)
--------- --------- --------- --------- --------- ---------
BALANCE, February 29, 2000 45,757 $ 457 $ 168,553 $ (19,094) $ (1,616) $ 148,300
========= ========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
statements.
3
<PAGE>
GERALD STEVENS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended
----------------------------------------
February 29, 2000 February 28, 1999
----------------- -----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,019) $ (6,457)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Deferred income tax expense -- 25
Depreciation and amortization 4,389 1,078
Compensation expense under stock option plan -- 1,373
Provision for doubtful accounts 133 76
Changes in assets and liabilities, net of acquisitions:
Accounts receivable (10,751) (3,868)
Inventories (1,669) 219
Prepaid, other current and current deferred tax assets (1,505) 213
Other assets and deferred tax assets (718) 1,908
Accounts payable 11,237 1,985
Accrued liabilities 699 2,920
Other long-term liabilities 262 43
-------- --------
Net cash provided by (used in) operating activities 1,058 (485)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (10,970) (1,359)
Collection of amounts due from former owners of acquired subsidiary -- 1,300
Advance to subsequently acquired company -- (113)
Payments for acquisitions, net of cash acquired (17,088) (25,638)
-------- --------
Net cash used in investing activities (28,058) (25,810)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net 951 25,523
Payments on long-term debt (3,007) (1,304)
Payment of commitment fee on credit facility -- (304)
Proceeds from credit facility 83,280 16,900
Payment of credit facility (55,870) (16,900)
-------- --------
Net cash provided by financing activities 25,354 23,915
-------- --------
Net decrease in cash and cash equivalents (1,646) (2,380)
CASH AND CASH EQUIVALENTS, beginning of period 4,602 7,148
-------- --------
CASH AND CASH EQUIVALENTS, end of period $ 2,956 $ 4,768
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 843 $ 74
======== ========
Cash paid during the period for income taxes $ -- $ 320
======== ========
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES:
Common stock issued in acquisitions $ 12,395 $ 22,980
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
statements.
4
<PAGE>
GERALD STEVENS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(ALL AMOUNTS AND RELATED DISCLOSURES APPLICABLE TO
THE THREE AND SIX MONTHS ENDED FEBRUARY 29, 2000 AND
FEBRUARY 28, 1999 ARE UNAUDITED)
1. General and Summary of Significant Accounting Policies
Organization and Operations
Gerald Stevens, Inc. ("Gerald Stevens", the "Company" or "We") is a
leading integrated retailer and marketer of flowers, plants and complementary
gifts and decorative accessories. We operate the largest company-owned network
of floral specialty retail stores, with locations in 35 markets in the United
States and Canada as of February 29, 2000. We are building a national brand and
transforming the retail floral industry by integrating our operations throughout
the floral supply chain, from product sourcing to delivery, and by managing
every interaction with the customer, from order generation to order fulfillment.
We own and operate our own import operation and have relationships with leading
growers around the world. Our national sales and marketing division permits us,
through multiple distribution channels, including the Internet, dial-up numbers
and direct mail, to serve customers who do not visit or phone our retail stores.
Basis of Presentation
The accompanying condensed consolidated financial statements of the
Company have been prepared, without audit, pursuant to the rules and regulations
of the Securities and Exchange Commission (the "SEC"). Certain information and
footnote disclosures normally included in financial statements in accordance
with accounting principles generally accepted in the United States have been
condensed or omitted pursuant to such rules and regulations. The information in
this report should be read in conjunction with the Company's audited
consolidated financial statements and notes thereto included in the Company's
Annual Report on Form 10-K for the fiscal year ended August 31, 1999, as amended
(the "Form 10-K").
The unaudited condensed consolidated financial statements included
herein reflect all adjustments (consisting only of normal, recurring
adjustments) which are, in the opinion of the Company's management, necessary
for a fair presentation of the information for the periods presented. The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenue and expenses
5
<PAGE>
during the reporting period. Actual results could differ from those estimates.
Interim results of operations for the three and six months ended February 29,
2000 and February 28, 1999 are not necessarily indicative of operating results
for the full fiscal years or for any future periods.
Previously reported amounts have been reclassified to make them
consistent with the current presentation.
Intangible Assets
Intangible assets consisted of the following:
February 29, August 31,
2000 1999
---- ----
(In thousands)
Goodwill $ 160,255 $ 126,999
Other 5,158 4,926
--------- ---------
165,413 131,925
Less: Accumulated amortization (4,273) (2,028)
--------- ---------
$ 161,140 $ 129,897
========= =========
Goodwill consists of the excess of purchase price over the fair value
of assets and liabilities acquired in acquisitions accounted for under the
purchase method of accounting. (See Note 2.) Included in goodwill for both
periods is $2.0 million from an acquisition prior to October 31, 1970 which is
not required to be amortized. Otherwise, goodwill is amortized over periods
ranging from 20 to 40 years, which management believes is a reasonable life in
light of the characteristics present in the floral industry, such as the
significant number of years that the industry has been in existence, the
continued trends by consumers in purchasing flowers for many different occasions
and the stable nature of the customer base.
Other intangible assets consist primarily of customer lists, telephone
numbers and contractual rights related to yellow page advertisements that were
acquired by the Company from floral businesses that have discontinued their
operations. Other intangible assets are amortized over periods ranging from 5 to
10 years.
Amortization expense related to goodwill and other intangible assets
was $1.3 million and $2.2 million for the three and six months ended February
29, 2000, respectively, as compared to $0.2 million and $0.4 million for the
three and six months ended February 28, 1999, respectively.
In accordance with Statement of Financial Accounting Standards ("SFAS")
No. 121, Accounting for the Impairment of Long-Lived Assets and Long-Lived
Assets to be Disposed of, the Company periodically analyzes the carrying value
of its goodwill and other intangible assets to assess recoverability from future
operations using an
6
<PAGE>
undiscounted projected cash flow approach. Impairments are recognized in
operating results to the extent that carrying value exceeds fair value.
Income Taxes
The Company has significant operating loss carryforwards available to
offset future federal taxable income. Because of the uncertainty of future
period income, the Company has provided a full valuation allowance against its
related net deferred tax asset accounts. Accordingly, the Company has recorded
no federal income tax provision or benefit for the three and six months ended
February 29, 2000. However, the Company currently pays income tax in certain
states and as a result, recorded a provision of $0.3 million for the three and
six month periods ended February 29, 2000. Gerald Stevens' future effective tax
rate will depend on various factors, including the mix between state taxable
income or losses, amounts of nondeductible goodwill, and the timing of
adjustments to the valuation allowance on our net deferred tax assets.
Seasonality
The floral industry has historically been seasonal, with higher revenue
and net income generated during holidays such as Thanksgiving, Christmas,
Valentine's Day, Easter and Mother's Day. Conversely, during the summer months,
floral retailers tend to experience a decline in revenue and net income. In
addition, the floral industry in general may be affected by economic conditions
and other factors, including floral promotions, competition and the weather
conditions in key flower-growing regions.
Comprehensive Income
The Company has no components of comprehensive income. Accordingly, net
income (loss) equals comprehensive net income (loss) for all periods presented.
Impact of Recently Issued Accounting Standards
In June 1999, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 137, Accounting for Derivative Instruments and Hedging
Activities-Deferral of Effective Date of FASB Statement No. 133. SFAS No. 137
defers for one year the effective date of SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities. SFAS No. 133 will now apply to
all fiscal quarters of all fiscal years beginning after June 15, 2000. SFAS No.
133 will require the Company to recognize all derivatives on the balance sheet
at fair value. Derivatives that are not hedges must be adjusted to fair value
through income. The Company will adopt SFAS No. 133 as required for its first
quarterly filing of fiscal year 2001. We believe the adoption of this Statement
will not have a material effect on the earnings and financial position of the
Company.
7
<PAGE>
2. Acquisitions
From September 1, 1999 through February 29, 2000, we acquired 60 retail
florist businesses located in existing markets, six new markets in the United
States and one new market in Canada for aggregate consideration of $28.8
million, consisting of $16.4 million in cash and 1,417,928 shares of our common
stock valued at share prices ranging from $5.72 to $11.53 per share. All of the
acquisitions were accounted for as business combinations under the purchase
method of accounting, and accordingly, are included in our condensed
consolidated financial statements from the date of acquisition.
During the six months ended February 29, 2000, we also acquired certain
intangible assets related to floral businesses that discontinued their
operations. The acquired intangible assets consisted principally of customer
lists, telephone numbers and yellow page advertising contractual rights.
Aggregate consideration paid for all such intangible asset acquisitions was $0.2
million in cash.
Our strategic plan contemplates the closing or relocation of a number
of our acquired retail stores within each of our targeted market areas. An
assessment of which retail stores to close or relocate for all acquisitions
consummated prior to May 31, 1999, as well as some acquisitions consummated in
the fourth quarter of fiscal 1999, has been completed. As a result of such
assessment, additional purchase liabilities of approximately $2.8 million for
costs associated with the shut down and consolidation of certain acquired retail
stores were recorded (considering existing contractual lease obligations and
management's estimate of future operating lease costs). For all remaining
acquisitions consummated after May 31, 1999, we are in the process of completing
such assessment. We expect to complete our assessment of retail store closures
and relocations for all acquisitions consummated through August 31, 1999 by May
2000. Once we finalize our assessment of the remaining retail stores to be
closed or relocated, additional purchase liabilities are expected to be
recognized. During the six months ended February 29, 2000, $80,000 was paid and
charged against the established liability. The following table summarizes the
closed store liability activity for the six months ended February 29, 2000:
(In thousands)
--------------
Balance at August 31, 1999 $ 1,632
Additional purchase liability for the six months ended
February 29 2000 1,217
Cash payments for the six months ended
February 29, 2000 (80)
------------
Balance at February 29, 2000 $ 2,769
============
8
<PAGE>
The preliminary purchase price allocation for businesses acquired
during the six months ended February 29, 2000 under the purchase method of
accounting is as follows:
(In thousands)
Tangible assets (includes cash acquired of $767) $ 7,160
Intangible assets 29,624
Liabilities (8,008)
-----------
$ 28,776
===========
The Company's pro forma results of operations, assuming each of the
acquisitions described above and each of the fiscal year 1999 acquisitions were
consummated as of the beginning of the periods presented, are as follows:
For the Six Months Ended
February 29, 2000 February 28, 1999
(In thousands, except per share data)
Revenue $ 145,780 $ 137,304
========= =========
Net income (loss) $ 46 $ (2,749)
========= =========
Diluted net income (loss) per share $ 0.00 $ (0.06)
========= =========
3. Property and Equipment, Net
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
February 29, August 31,
2000 1999
---- ----
(In thousands)
<S> <C> <C>
Land, building and leasehold improvements $ 11,031 $ 8,502
Furniture, fixtures and equipment 5,721 3,497
Computer hardware and software 12,132 6,036
Communication systems 2,166 1,526
Vehicles 1,467 925
-------- --------
32,517 20,486
Less: Accumulated depreciation and amortization (6,473) (4,533)
-------- --------
$ 26,044 $ 15,953
======== ========
</TABLE>
9
<PAGE>
4. Accrued Liabilities
Accrued liabilities consisted of the following:
<TABLE>
<CAPTION>
February 29, August 31,
2000 1999
---- ----
(In thousands)
<S> <C> <C>
Salaries and benefits $ 4,510 $ 3,787
Wire Service 2,021 3,104
Store closure costs 2,769 1,632
Taxes-non payroll 1,952 669
Insurance 1,237 448
Acquired business consideration 672 1,459
Other 5,392 4,468
------- -------
$18,553 $15,567
======= =======
</TABLE>
5. Debt
Notes Payable
Notes payable at February 29, 2000 and August 31, 1999 were $0.5
million and $2.0 million, respectively. The effective interest rates associated
with these notes range from 7.00% to 10.12%. Notes payable for both periods
consist principally of mortgage notes and installment notes for vehicles,
equipment, and leasehold improvements assumed by the Company in connection with
acquisitions completed during the latter part of each fiscal quarter. The
Company substantially pays all these notes in full periodically, following the
close of acquisitions.
Long-Term Debt
At February 29, 2000, outstanding borrowings under the Company's $40
million credit facility were $31.9 million. The effective Eurodollar borrowing
rate and base rate as of February 29, 2000 were 7.89% and 9.25%, respectively.
6. Stockholders' Equity
From September 1, 1999 to February 29, 2000, the Company issued
1,417,928 shares of its common stock with an aggregate value of $12.4 million to
fund the non-cash portion of the total consideration for acquisitions completed
during the period. Additionally, a total of 327,713 shares of common stock were
issued for total consideration of $1.0 million in connection with stock options
and warrants exercised during this same period.
10
<PAGE>
7. Earnings Per Share
Basic and diluted earnings per share in the accompanying condensed
consolidated statements of operations are based upon the weighted average shares
outstanding during the applicable period. The impact of common stock equivalents
has not been included for the loss periods presented as they are anti-dilutive.
The components of basic and diluted earnings per share are as follows:
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended Ended
February 29, February 28, February 29, February 28,
2000 1999 2000 1999
---- ---- ---- ----
(In thousands) (In thousands)
<S> <C> <C> <C> <C>
Basic Average Shares Outstanding 45,323 33,532 44,844 31,198
Common Stock Equivalents 970 -- -- --
------ ------ ------ ------
Diluted Average Shares Outstanding 46,293 33,532 44,844 31,198
====== ====== ====== ======
Common stock equivalents not included in the calculation of
diluted earnings per share because their impact is antidilutive 265 2,542 2,098 2,542
====== ====== ====== ======
</TABLE>
8. Commitments and Contingencies
Supply Agreement
On October 1, 1998, the Company entered into a five-year supply
agreement with certain flower farms (the "Farms"). The agreement requires that
the Farms provide to the Company a certain percentage of their flowers on a
consignment basis. The Farms must produce and deliver a minimum number of stems
for the Company during the growing year commencing on October 1. Each July,
during the term of the agreement, the parties will meet to establish the minimum
stem obligation for each flower type for the upcoming growing year. The Company
has no obligation to pay for any flowers it receives from the Farms unless and
until such flowers are sold by the Company.
Business Combinations
The Company may be required to make additional payments of up to $0.9
million to the sellers of three of the businesses that it acquired. Because the
outcome of the contingencies underlying these payments are not yet determinable,
the payments have not been recorded as a component of the cost of these
acquisitions at February 29, 2000.
Litigation
There are various claims, lawsuits, and pending actions against Gerald
Stevens incident to the operations of its businesses. It is the opinion of
management, after consultation with counsel, that the ultimate resolution of
such claims, lawsuits and
11
<PAGE>
pending actions will not have a material adverse effect on the Company's
consolidated financial position, results of operations or liquidity.
9. Business Segments
Gerald Stevens operates in two principal business segments: retail and
order generation. The Company's reportable segments are strategic business units
that offer different products and services. The Company evaluates the
performance of its segments based on revenue and operating income. The Company's
retail segment consists of the retail florists acquired as well as its import
business. The Company's order generation business consists primarily of
Florafax, National Flora, Calyx & Corolla and on-line businesses. There is no
material inter-segment revenue.
The following table presents financial information regarding the
Company's different business segments as of and for the six months ended on the
dates set forth below:
<TABLE>
<CAPTION>
February 29, February 28,
2000 1999
---- ----
(In thousands)
<S> <C> <C>
Net revenue:
Retail $ 102,470 $ 31,109
Order generation 28,313 8,886
--------- ---------
$ 130,783 $ 39,995
========= =========
Operating income (loss):
Retail $ 8,676 $ 2,390
Order generation 1,034 1,534
Corporate (9,648) (8,340)
--------- ---------
$ 62 $ (4,416)
========= =========
Identifiable assets:
Retail $ 168,042 $ 58,505
Order generation 52,080 11,973
Corporate 11,796 1,067
--------- ---------
$ 231,918 $ 71,545
========= =========
</TABLE>
10. SUBSEQUENT EVENTS
Business Combinations
From March 1, 2000 through April 10, 2000, we acquired 19 retail
florist businesses for total consideration of $5.1 million, consisting of $2.2
million in cash and
12
<PAGE>
437,585 shares of our common stock valued at prices ranging from $6.20 to $7.27
per share.
Private Placement
In March 2000, Gerald Stevens completed a private placement in which
3,257,000 shares of its common stock were sold to institutional investors at
$7.00 per share. Proceeds received from the offering, net of expenses, were
approximately $22.0 million and will be used for general corporate purposes.
13
<PAGE>
Item 2. Management's Discussion And Analysis
------------------------------------
Of Financial Condition And Results Of Operations
------------------------------------------------
General
Gerald Stevens, Inc. ("Gerald Stevens," the "Company" or "We"),
formerly known as Florafax International, Inc., is a leading integrated retailer
and marketer of flowers, plants, and complementary gifts and decorative
accessories. The Company operates the largest company-owned network of floral
specialty retail stores with locations in 35 markets in the United States and
Canada as of February 29, 2000. We are building a national brand and
transforming the retail floral industry by integrating our operations throughout
the floral supply chain, from product sourcing to delivery, and by managing
every interaction with the customer, from order generation to order fulfillment.
The Company owns and operates its own import operation and has relationships
with leading growers around the world. Our national sales and marketing division
permits us, through multiple distribution channels including the Internet,
dial-up numbers and direct mail, to serve customers who do not visit or phone
our retail stores.
On April 30, 1999, Gerald Stevens and Gerald Stevens Retail, Inc.
("Gerald Stevens Retail"), completed a merger accounted for as a pooling of
interests. This Management's Discussion and Analysis of Financial Condition and
Results of Operations gives retroactive effect to the merger, and should be read
in conjunction with our accompanying unaudited condensed consolidated financial
statements. In the merger, we issued approximately 28.1 million shares of our
common stock to the stockholders of Gerald Stevens Retail, resulting in the
former Gerald Stevens Retail stockholders owning approximately 77.5% of the
shares of our common stock immediately following the merger.
Forward-Looking Statements
This Quarterly Report on Form 10-Q, as well as our other reports filed
with the SEC and our press releases and other communications, contain
forward-looking statements which reflect the Company's current views with
respect to future events and financial performance. Forward-looking statements
include all statements regarding our expected financial position, results of
operations, cash flows, dividends, financing plans, strategy, budgets, capital
and other expenditures, competitive positions, growth opportunities, benefits
from new technology, plans and objectives of management, and markets for stock.
In addition to general economic, business and market conditions, we are subject
to risks and uncertainties that could cause such forward-looking statements to
prove incorrect, including those stated in the "Risk Factors" section of the
Annual Report on Form 10-K for the fiscal year ended August 31, 1999 as amended
on Form 10-K/A, and the following:
14
<PAGE>
o Our ability to accomplish our anticipated growth strategies and to
integrate acquired businesses.
o Our need to improve our information systems.
o Unexpected liabilities incurred in our acquisitions.
o Our dependence on additional capital for growth.
o A decline in customer discretionary spending.
o Weather, governmental regulations, transportation problems or other factors
that could prevent us from obtaining sufficient products when needed.
o Our ability to maintain business relationships within the industry,
including relationships with wire services, wholesalers, growers, importers
and other florist shops.
o Our ability to develop relationships with supermarkets, mass merchants,
department stores and other businesses to expand our store-in-store
operations.
o Our ability to develop a profitable Internet business.
Acquisitions
In October 1998, we entered the retail distribution segment of the
floral industry. From October 1, 1998 through August 31, 1999 we acquired 69
retail florist businesses located in 28 markets throughout the United States for
total aggregate consideration of $98.7 million, consisting of $66.8 million in
cash and 7,060,934 shares of our common stock valued at share prices ranging
from $3.52 per share to $15.30 per share. Additionally, in October 1998, we
acquired AGA Flowers, Inc., a floral import business, for total consideration of
$2.9 million, consisting of $1.5 million in cash and 417,078 shares of our
common stock valued at $3.52 per share.
During the six-month period ended February 29, 2000, we acquired an
additional 60 retail florist businesses located in existing markets and seven
new markets for total consideration of $28.8 million, consisting of $16.4
million in cash and 1,417,928 shares of our common stock valued at prices
ranging from $5.72 to $11.53 per share.
In March 1999, we acquired National Flora, a floral order generation
business, for total consideration of $19.7 million, consisting of $10.0 million
in cash and 1,552,500 shares of our common stock valued at $6.30 per share.
In July 1999, we acquired Calyx & Corolla, Inc., a catalog and
Internet-based floral order generation business for total consideration of $11.6
million, consisting of
15
<PAGE>
approximately $.1 million in cash, 934,435 shares of our common stock valued at
$10.80 per share, and the assumption of stock option and warrant obligations
which converted into rights to acquire 152,081 shares of our common stock at
exercise prices ranging from $0.36 to $9.44 per share.
All of the acquisitions discussed in the preceding paragraphs were
accounted for as business combinations under the purchase method of accounting
and have been included in our consolidated financial statements from the date of
acquisition.
During the year ended August 31, 1999 and the six months ended February
29, 2000, we also acquired certain intangible assets related to floral
businesses that discontinued their operations. The acquired intangible assets
consisted principally of customer lists, telephone numbers and yellow page
advertising contractual rights. Aggregate consideration paid for all such
intangible asset acquisitions during the year ended August 31, 1999 was $4.5
million, consisting of $2.8 million in cash and 159,823 shares of our common
stock at a price of $10.14 per share. Aggregate consideration paid for
intangible asset acquisitions during the six months ended February 29, 2000 was
$0.2 million in cash.
Results of Operations
Upon consummation of our merger with Gerald Stevens Retail, we
redefined the manner in which we evaluate and report the operating results of
our newly combined business for internal purposes. In this regard, we have
chosen to break down our component businesses into two segments: (1) Retail and
(2) Order Generation. The Retail segment consists of all retail and import
businesses and operations while the Order Generation segment consists of all
non-retail order generation and fulfillment businesses and operations. The
tables below present the results of operations through operating income (loss)
of Gerald Stevens' Retail and Order Generation segments and Corporate for the
three and six month periods ended February 29, 2000 and February 28, 1999.
The Retail segment 2000 results include the operating results of the 69
retail florist businesses and one import business acquired during the year ended
August 31, 1999 and the post-acquisition operating results of the 60 retail
florist businesses acquired during the six months ended February 29, 2000. The
Retail segment 1999 results include only the post-acquisition operating results
of the initial 17 retail florist businesses and one import business acquired by
the Company from October 1, 1998 to February 28, 1999.
The Order Generation segment 2000 and 1999 results include the
operating results of the Company's wire service, credit and charge card
processing and The Flower Club business units, in addition to the activities of
Gerald Stevens' recently formed Internet-based order generation business. The
Order Generation segment 2000 results additionally include the operating results
of National Flora and Calyx & Corolla. Prior to the acquisition of its initial
retail florist and import businesses on October 1, 1998, the Company operated
only in the Order Generation segment.
16
<PAGE>
The tables below present the results of operations through operating
income (loss) of the Company's Retail and Order Generation segments and
Corporate for the three and six month periods ended February 29, 2000 and
February 28, 1999, respectively.
<TABLE>
<CAPTION>
Unaudited
Three Months Ended February 29, 2000
------------------------------------
(dollars in thousands)
Order Corporate
Retail Generation Overhead Total
------ ---------- -------- -----
<S> <C> <C> <C> <C>
Revenue:
Product sales, net $ 56,349 $ 6,837 $ -- $ 63,186
Service and other revenue 6,984 11,409 -- 18,393
-------------------------------------------------------------
63,333 18,246 -- 81,579
Operating costs and expenses:
Cost of Product Sales 20,269 2,276 -- 22,545
Operating 27,716 -- -- 27,716
Selling, general and administrative 7,877 14,667 4,809 27,353
Merger expenses -- -- -- --
-------------------------------------------------------------
55,862 16,943 4,809 77,614
-------------------------------------------------------------
Operating income (loss) $ 7,471 $ 1,303 ($ 4,809) $ 3,965
=============================================================
</TABLE>
[RESTUBBED TABLE]
<TABLE>
<CAPTION>
Unaudited
Three Months Ended February 28, 1999
------------------------------------
(dollars in thousands)
Order Corporate
Retail Generation Overhead Total
------ ---------- -------- -----
<S> <C> <C> <C> <C>
Revenue:
Product sales, net $ 19,678 $ -- $ -- $ 19,678
Service and other revenue 1,964 5,130 -- 7,094
---------------------------------------------------------------
21,642 5,130 -- 26,772
Operating costs and expenses:
Cost of Product Sales 8,896 -- -- 8,896
Operating 9,023 -- -- 9,023
Selling, general and administrative 1,872 4,330 2,699 8,901
Merger expenses -- -- 3,966 3,966
---------------------------------------------------------------
19,791 4,330 6,665 30,786
---------------------------------------------------------------
Operating income (loss) $ 1,851 $ 800 ($ 6,665) ($ 4,014)
===============================================================
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended February 29, 2000
----------------------------------
(dollars in thousands)
Order Corporate
Retail Generation Overhead Total
------ ---------- -------- -----
<S> <C> <C> <C> <C>
Revenue:
Product sales, net $ 91,533 $ 9,110 $ -- $ 100,643
Service and other revenue 10,937 19,203 -- 30,140
----------------------------------------------------------------
102,470 28,313 -- 130,783
Operating costs and expenses:
Cost of Product Sales 33,443 3,109 -- 36,552
Operating 47,355 -- -- 47,355
Selling, general and administrative 12,996 24,170 9,648 46,814
Merger expenses -- -- -- --
----------------------------------------------------------------
93,794 27,279 9,648 130,721
----------------------------------------------------------------
Operating income (loss) $ 8,676 $ 1,034 ($ 9,648) $ 62
================================================================
</TABLE>
[RESTUBBED TABLE]
<TABLE>
<CAPTION>
Six Months Ended February 28, 1999
----------------------------------
(dollars in thousands)
Order Corporate
Retail Generation Overhead Total
------ ---------- -------- -----
<S> <C> <C> <C> <C>
Revenue:
Product sales, net $ 28,373 $ -- $ -- $ 28,373
Service and other revenue 2,736 8,886 -- 11,622
---------------------------------------------------------------
31,109 8,886 -- 39,995
Operating costs and expenses:
Cost of Product Sales 12,744 -- -- 12,744
Operating 13,356 -- -- 13,356
Selling, general and administrative 2,619 7,352 4,289 14,260
Merger expenses -- -- 4,051 4,051
---------------------------------------------------------------
28,719 7,352 8,340 44,411
---------------------------------------------------------------
Operating income (loss) $ 2,390 $ 1,534 ($ 8,340) ($ 4,416)
===============================================================
</TABLE>
Retail Segment. Product sales within the Retail segment include sales
of floral and gift products at retail businesses and sales of floral product by
the Company's import business. Service and other revenue within the Retail
segment is generated at the Company's retail businesses and consists of delivery
and other service fees charged to customers and commissions on orders
transmitted to and fulfilled by other retail florists. Total Retail segment
revenue for the three and six months ended February 29, 2000 increased by $41.7
million to $63.3 million and by $71.4 million to $102.5 million, respectively,
compared to the same periods in the prior year due principally to revenue
generated at newly acquired businesses.
Cost of product sales within the Retail segment includes the cost of
products sold at retail businesses and at the Company's import business. Cost of
product sales for the three and six months ended February 29, 2000 increased by
$11.4 million to $20.3 million and by $20.7 million to $33.4 million,
respectively, compared to the same periods in the prior year due principally to
cost of goods sold incurred by newly acquired businesses.
17
<PAGE>
Retail segment gross margins as a percentage of total revenue for the
three and six months ended February 29, 2000 increased by 9.1% to 68.0% and by
8.4% to 67.4%, respectively, compared to the same periods in the prior year. A
substantial portion of the gross margin percentage increase is related to
changes in the mix between revenue at the Company's retail stores and revenue at
its import business. As a result of acquisitions, higher margin retail store
revenue has increased significantly more than lower margin import revenue over
the past year. To a lesser extent, gross margins have improved due to the recent
implementation of various national product purchasing programs at the Company's
retail stores, including the sourcing of floral product from the Company's
import business, and to the acquisition of retail businesses during the past
year that have higher average gross margins than the average gross margins
generated by the Company's initial acquired businesses.
Retail segment operating expenses for the three and six months ended
February 29, 2000 increased by $18.7 million to $27.7 million and by $34.0
million to $47.4 million, respectively, compared to the same periods in the
prior year due principally to operating expenses incurred by newly acquired
businesses. Retail segment operating expenses as a percentage of total revenue
for the three and six months ended February 29, 2000 increased by 2.1% to 43.8%
and by 3.3% to 46.2%, respectively, compared to the same periods in the prior
year. The majority of the percentage increase is related to the aforementioned
period-to-period change in mix between the Company's retail store and import
businesses and the fact that operating expenses as a percentage of revenue are
significantly higher at the Company's retail stores compared to its import
business.
Retail segment selling, general and administrative expenses for the
three and six months ended February 29, 2000 increased by $6.0 million to $7.9
million and by $10.4 million to $13.0 million, respectively, compared to the
same periods in the prior year due principally to expenses incurred by newly
acquired businesses. Retail segment selling, general and administrative expenses
as a percentage of total revenue for the three and six months ended February 29,
2000 increased by 3.8% to 12.4% and by 4.3% to 12.7%, respectively, compared to
the same periods in the prior year due principally to increases in wire
commission, advertising and insurance expenses.
Order Generation Segment. Product sales within the Order Generation
segment for the three and six months ended February 29, 2000 reflect $6.8
million and $9.1 million, respectively, of sales made by Calyx & Corolla.
Service and other revenue within the Order Generation segment consists of order
generation commissions and processing fees, wire service dues and fees, and
credit card processing fees. Total Order Generation segment service and other
revenue for the three and six months ended February 29, 2000 increased by $6.3
million to $11.4 million and by $10.3 million to $19.2 million, respectively,
compared to the same periods in the prior year. This significant increase in
revenue is due primarily to our acquisition of National Flora, which generated
$3.9 million and $6.9 million in revenue during the three and six months ended
February 29, 2000, respectively. Additionally, continued increases in The Flower
Club revenue, revenue from the Company's recently formed Internet-based order
18
<PAGE>
generation business unit, and other revenue generated at Calyx & Corolla also
contributed to the current periods' service and other revenue increase.
Cost of goods sold within the Order Generation segment for the three
and six months ended February 29, 2000 reflect $2.3 million and $3.1 million,
respectively, of costs incurred at Calyx & Corolla. Calyx & Corolla gross
margins as a percentage of product sales revenue for the three and six months
ended February 29, 2000 were 66.7% and 65.9%, respectively.
Total Order Generation segment selling, general and administrative
expenses for the three and six months ended February 29, 2000 increased by $10.3
million to $14.7 million and by $16.8 million to $24.2 million, respectively,
compared to the same periods in the prior year. Selling, general and
administrative expenses incurred by National Flora and Calyx & Corolla during
the current three and six-month periods totaled $8.2 million and $12.7 million,
respectively, representing a significant portion of the current periods' expense
increase. Additionally, costs incurred in connection with the Company's
Internet-based order generation business unit were $1.0 million and $2.1 million
for the three and six months ended February 29, 2000. To a lesser extent,
expense increases related to the expansion of The Flower Club business unit and
expenses related to our acquired Flowerlink website also contributed to the
higher current period expense levels.
Corporate. Total Corporate selling, general and administrative expenses
for the three and six months ended February 29, 2000 increased by $2.1 million
to $4.8 million and by $5.4 million to $9.6 million, respectively, compared to
the same periods in the prior year, excluding $4.0 million and $4.1 million in
merger expenses incurred during the three and six months ended February 28,
1999, respectively. These increases were due primarily to expenses incurred at
Gerald Stevens' expanded corporate headquarters in Ft. Lauderdale, Florida and
to the significant expansion of the Company into retail and other related
segments of the floral industry. We plan to significantly expand our business
over the next several years, largely through the acquisition of retail florist
businesses. We also expect Corporate expenses to increase over this time period,
due principally to integration costs planned to be incurred in connection with
the development and implementation of centralized operational and financial
systems and the establishment of the Gerald Stevens brand name.
Interest. Interest expense for the three and six months ended February
29, 2000 increased by $0.4 million to $0.5 million and by $0.7 million to $0.9
million, respectively, compared to the same periods in the prior year. The
increase in interest expense during the current period is due primarily to
increased borrowings under the Company's revolving credit facility to finance
the expansion of its business activities and, to a lesser extent, increases in
interest rates.
Income Taxes. The Company has significant operating loss carryforwards
available to offset future federal taxable income. Because of the uncertainty of
future period income, the Company has provided a full valuation allowance
against its related net deferred tax asset accounts. Accordingly, the Company
has recorded no federal
19
<PAGE>
income tax provision or benefit for the three and six months ended February 29,
2000. However, the Company currently pays income tax in certain states and as a
result, recorded a provision of $0.3 million for the three and six month periods
ended February 29, 2000. Gerald Stevens' future effective tax rate will depend
on various factors, including the mix between state taxable income or losses,
amounts of nondeductible goodwill, and the timing of adjustments to the
valuation allowance on our net deferred tax assets.
Liquidity and Capital Resources
We had cash and cash equivalents of $3.0 million and $4.8 million as of
February 29, 2000 and February 28, 1999, respectively. Cash and cash equivalents
decreased by $1.6 million and $2.4 million during the six months ended February
29, 2000 and February 28, 1999, respectively. The major components of these
changes are discussed below.
Cash provided by operating activities for the six months ended February
29, 2000 was $1.1 million compared to cash used in operating activities of $.5
million for the same period last year. Cash provided by (used in) operating
activities improved during the current period as the result of increased
operating cash flows offset by higher working capital investments compared to
the prior year period.
The cash portion of the purchase prices for all acquisitions completed
by the Company, net of cash acquired, during the six months ended February 29,
2000 and February 28, 1999 aggregated $17.1 million and $25.6 million,
respectively, as more fully described in the preceding section entitled
"Acquisitions." Capital expenditures during the six months ended February 29,
2000 totaled $11.0 million compared to capital expenditures of $1.4 million in
the same period of the prior year. Capital expenditures primarily include
computer hardware, software and communication system expenditures related to the
expansion of our retail and order generation businesses.
During the six months ended February 29, 2000, the Company issued a
total of 327,713 shares of common stock for total consideration of $1.0 million
in connection with the exercise of stock options and warrants. During the six
months ended February 28, 1999 we issued 6,217,537 shares of common stock in
private placement transactions for total consideration of $21.1 million, net of
placement fees and expenses, 224,000 shares of common stock for total
consideration of $0.3 million in connection with the exercise of stock options
and warrants, and we also collected a $4.2 million stock subscription receivable
balance related to the initial capitalization of Gerald Stevens Retail.
During the six months ended February 29, 2000, the Company borrowed a
net amount of $27.4 million on its existing revolving credit facility and repaid
$3.0 million of debt incurred in connection with certain retail florist
acquisitions. A total of $1.3 million of debt primarily related to a prior
revolving credit facility, which was terminated in June 1999, was repaid during
the six months ended February 28, 1999.
20
<PAGE>
The outstanding balance on the Company's revolving credit facility at
February 29, 2000 was $31.9 million. We are currently in discussions with our
primary lending bank regarding a proposed syndication of our bank credit
facility. In this regard, we intend to increase the borrowing limits under our
credit facility from $40.0 million to approximately $50.0 to $75.0 million.
However, there can be no assurance that we will be successful in increasing such
borrowing limits, or that any such increase can be made on terms comparable to
our current credit facility.
In March 2000, Gerald Stevens completed a private placement in which
3,257,000 shares of its common stock were sold to institutional investors at
$7.00 per share. Proceeds received from the offering, net of expenses, were
approximately $22.0 million and will be used for general corporate purposes. The
Company is also currently in discussion with a number of third parties regarding
different debt or equity investments in Gerald Stevens. There can be no
assurance that any of these discussions will result in additional capital for
the Company.
We believe that cash flows from operating activities, in addition to
borrowings from our current credit facilities, will provide adequate funds to
meet the ongoing cash requirements of our existing business over the next 12
months. However, failure to increase our current bank borrowing limits or
otherwise raise additional capital could limit our ability to acquire new
businesses or otherwise expand our existing business in accordance with our
current operating plan. Further, unplanned events, including temporary or
long-term adverse changes in global capital markets, could interrupt or curtail
our short-term or long-term growth plans.
Year 2000 Issue
The Company had successfully completed all Year 2000 remediation,
replacement, and testing prior to January 1, 2000. Through April 10, 2000, the
Company has experienced no Year 2000 problems that affected business operations.
The Company's business partners have reported no Year 2000 problems. At this
time, the Company does not expect any future problems related to Year 2000 to
materialize. However, the Company will continue to monitor the systems for
potential issues over the next six months through normal operational and support
processes.
Impact of Recently Issued Accounting Standards
In June 1999, The Financial Accounting Standards Board ("FASB") issued
SFAS No. 137, Accounting for Derivative Instruments and Hedging
Activities-Deferral of Effective Date of FASB Statement No. 133. Statement No.
137 defers for one year the effective date of SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities. SFAS No. 133 will now apply to
all fiscal quarters of all fiscal years beginning after June 15, 2000. SFAS
Statement No. 133 will require the Company to recognize all derivatives on the
balance sheet at fair value. Derivatives that are not
21
<PAGE>
hedges must be adjusted to fair value through income. The Company will adopt
SFAS No. 133 as required for its first quarterly filing of fiscal year 2001. We
believe the adoption of this Statement will not have a material effect on the
earnings and financial position of the Company.
22
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
- ---------------------------
In Item 3, "Legal Proceedings" of our Annual Report on Form 10-K for
the year ended August 31, 1999, filed November 24, 1999, as amended on Form
10-K/A, filed on December 28, 1999, we provided information concerning a civil
lawsuit entitled Harvey Seslowsky v. Gerald Stevens, Inc., et al. In January
2000, the parties settled this lawsuit; the payment that we made under the
settlement was immaterial.
Item 4. Submission of Matters to a Vote of Security Holders.
- -------------------------------------------------------------
On February 29, 2000, Gerald Stevens, Inc. held its annual meeting of
stockholders. At the annual meeting, stockholders voted on:
(a) The election of directors.
(b) The reincorporation of Gerald Stevens, Inc. in the State of
Florida.
(c) The approval and adoption of the Gerald Stevens, Inc. 2000
Stock Option Plan.
(d) The approval of the selection of our independent accountants
for the 2000 fiscal year.
All of the matters were approved by the stockholders.
23
<PAGE>
The following sets forth the results of voting at the annual meeting:
<TABLE>
<CAPTION>
Votes
-------------------------------------------------------------
Broker
Matter For Against Abstentions Non-Votes
- ------ --- ------- ----------- ---------
<S> <C> <C> <C> <C>
Election of Directors:
Steven R. Berrard 35,875,102 58,472
Gerald R. Geddis 35,874,802 58,772
Robert L. Johnson 35,872,872 60,702
Ruth M. Owades 35,463,198 470,376
Adam D. Phillips 35,874,802 58,772
Kenneth G. Puttick 35,465,422 468,152
Kenneth Royer 35,732,012 201,562
Andrew W. Williams 35,912,548 21,026
Reincorporation in Florida: 28,692,548 478,047 22,968 6,740,011
2000 Stock Option Plan: 28,845,755 194,178 153,630 6,740,011
Approval of Accountants: 35,831,867 51,919 49,788
</TABLE>
Item 6. Exhibits and Reports on Form 8-K.
- -------------------------------------------
(a) Exhibits. The following are being filed as exhibits to this
Report:
-- Restated Articles of Incorporation
-- Form of stock option agreements
-- financial data schedule
(b) Reports on Form 8-K. We filed no Reports on Form 8-K during
the quarter ended February 29, 2000. To date in the following
quarter, we have filed the following Report on Form 8-K:
Date of Filing Disclosure(s)
- -------------- -------------
April 6, 2000 Announcement of private placement.
24
<PAGE>
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GERALD STEVENS, INC.
--------------------
(Registrant)
Date: April 12, 2000 By /s/ Albert J. Detz
-------------------------
Albert J. Detz
Senior Vice President and
Chief Financial Officer
25
<PAGE>
Gerald Stevens, Inc.
Quarterly Report on Form 10-Q
For the quarter ended February 29, 2000
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
3.1 Restated Articles of Incorporation
10.1 Form of stock option agreements
27 Financial Data Schedule
RESTATED
ARTICLES OF INCORPORATION
OF
GERALD STEVENS, INC.
-------
The undersigned does hereby act as incorporator in adopting the
following Articles of Incorporation for the purpose of organizing a corporation
for profit, pursuant to the provisions of the Florida Business Corporation Act.
FIRST: The name of the corporation is GERALD STEVENS, INC.
SECOND: The street address of the principal office of the Corporation
is 301 East Las Olas Boulevard, Suite 300, Fort Lauderdale, Florida 33301.
THIRD: The total number of shares that the Corporation is authorized to
issue is Two Hundred Fifty Million (250,000,000) shares of Common Stock, par
value $0.01 per share, and Six Hundred Thousand (600,000) shares of Preferred
Stock, par value $10.00 per share.
The Preferred Stock shall be issued in one or more series. The Board of
Directors is hereby expressly authorized to issue the shares of Preferred Stock
in such series and to fix from time to time before issuance the number of shares
to be included in any series and the designation, relative rights, preferences
and limitations of all shares of such series. The authority of the Board of
Directors with respect to each series shall include, without limitation thereto,
the determination of any or all of the following and the shares of each series
may vary from the shares of any other series in the following respects:
(a) The number of shares constituting such series and the designation
thereof to distinguish the shares of such series from the shares of all other
series;
(b) The annual dividend rate on the shares of that series and whether
such dividends shall be cumulative and, if cumulative, the date from which
dividends shall accumulate;
(c) The redemption price or prices for the particular series, if
redeemable, and the terms and conditions of such redemption;
(d) The preference, if any, of shares of such series in the event of
any voluntary or involuntary liquidation, dissolution or winding-up of the
Corporation;
(e) The voting rights, if any, in addition to the voting rights
prescribed by law and the terms of exercise of such voting rights;
<PAGE>
(f) The right, if any, of shares of such series to be converted into
shares of any other series or class and the terms and conditions of such
conversion; and
(g) Any other relative rights, preferences and limitations of that
series.
FOURTH: The amount of the authorized stock of the Corporation of any
class or classes may be increased or decreased by the affirmative vote of the
holders of a majority of the stock of the Corporation entitled to vote.
FIFTH: The street address of the initial registered office of the
Corporation in the State of Florida is c/o Corporation Service Company, 1201
Hays Street, Tallahassee, Florida 32301.
The name of the initial registered agent of the Corporation at the said
registered office is Corporation Service Company.
The written acceptance of the said initial registered agent, as
required by the provisions of Section 607.0501(3) of the Florida Business
Corporation Act, is set forth following the signature of the incorporator and is
made a part of these Articles of Incorporation.
SIXTH: The name and the address of the incorporator are:
NAME ADDRESS
---- -------
Jeffrey M. Mattson 301 East Las Olas Boulevard, Suite 300
Fort Lauderdale, Florida 33301
SEVENTH: The purposes for which the Corporation is organized are as
follows:
To engage in any lawful business for which corporations may be
organized under the Florida Business Corporation Act.
EIGHTH: The duration of the Corporation shall be perpetual.
NINTH: No contract or transaction between the Corporation and one or
more of its directors or officers or between the Corporation and any other
corporation, partnership, association or other organization in which one or more
of its directors or officers are directors or officers or have a financial
interest, shall be void or voidable solely for this reason, or solely because
the directors or officers are present at or participate in the meeting of the
board or committee thereof which authorizes the contract or transaction, or
solely because the directors or officers or their votes are counted for such
purpose.
TENTH: In furtherance and not in limitation of the power conferred upon
the Board of Directors by law, the Board of Directors shall have power to make,
adopt, alter, amend and repeal from time to time Bylaws of the Corporation,
subject to the right of the stockholders to alter and repeal Bylaws made by the
Board of Directors.
<PAGE>
ELEVENTH: To the maximum extent permitted by the Florida Business
Corporation Act as the same exists or may hereafter be amended, no director of
this Corporation shall be liable to the Corporation or its shareholders for
monetary damages arising by reason of actions or omissions constituting a breach
of fiduciary duty as a director.
TWELFTH: The Corporation expressly elects not to be governed by Section
607.0901 of the Florida Business Corporation Act.
THIRTEENTH: The Corporation expressly elects not to be governed by
Section 607.0902 of the Florida Business Corporation Act.
Signed on March 22, 2000.
/s/ Jeffrey M. Mattson
--------------------------------
Jeffrey M. Mattson, Incorporator
Having been named as registered agent and to accept service of process for the
above-named corporation at the place designated in these Articles of
Incorporation, I hereby accept the appointment as registered agent and agree to
act in this capacity. I further agree to comply with the provisions of all
statutes relating to the proper and complete performance of my duties, and I am
familiar with and accept the obligations of my position as registered agent.
CORPORATION SERVICE COMPANY
By:
----------------------------------
Date:
--------------------------------
EXHIBIT 10.1
[Date]
- --------------
- --------------
- --------------
Dear
--------------
In order to give you a stake in the future growth and prosperity of
Gerald Stevens, Inc. (the "Company") and to encourage you to provide outstanding
services to the Company and its subsidiaries, the Board of Directors has awarded
you, effective ___________, options to acquire ____ shares of the Company's
Common Stock, par value $.01 per share (the "Common Stock"), at an exercise
price of $_____ per share.
The options granted to you are subject to the Gerald Stevens, Inc. 2000
Stock Option Plan (the "Stock Option Plan"), a copy of which is attached.
Options granted under the Stock Option Plan typically vest over a four year
period, with 25% of the shares vesting on the first, second, third and fourth
anniversary of the grant. This year, the Board of Directors has decided to give
a special reward to all option recipients by accelerating the vesting schedule
by one year. This means that 25% of the shares are immediately vested, 25% will
vest on the first anniversary, 25% on the second anniversary and 25% on the
third anniversary. The Board wanted to give you some current value to this grant
in appreciation of your efforts and dedication. We hope however, that you will
see the long-term potential in being an option holder of Gerald Stevens and will
continue to accumulate your shares in anticipation of their future growth and
value.
The options have a term of ten years. Options may be exercised at any
time after they vest (until their expiration on ________) provided you remain an
employee of the Company. If you leave the Company's employ, all options whether
vested and exercisable or not vested and exercisable on the date of termination,
will expire and be forfeited as of that date.
This letter will serve as evidence of your grant of options. Please
indicate your receipt of this letter by signing and returning it to Gerald
Stevens, Inc., P. O. Box 350526, Ft. Lauderdale, Florida 33335-0526, Attention:
Barbara Ann Bohlman. Sign the other copy and keep it with your Stock Option Plan
materials.
On behalf of the Company and the Board of Directors, we appreciate your
contribution to the Company's success.
Very truly yours,
/s/ Art Sanders
---------------
Art Sanders
Vice President, Human Resources
- --------------------------------
Accepted
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