SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
__________
FORM 10-Q/A
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the quarterly period ended September 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from ____________ to ___________
Commission file number: 000-23121
U.S.A. FLORAL PRODUCTS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 52-2030697
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
1025 Thomas Jefferson Street, N.W.
Suite 300 East
Washington, DC 20007
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's Telephone Number, Including Area Code (202) 333-0800
Not Applicable
(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. [X] Yes [ ] 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 14,850,398 shares at November 16, 1998.
U.S.A. Floral Products, Inc.
Form 10-Q/A
For the Quarterly Period Ended September 30, 1998
Table of Contents
Page
----
Part I. Financial Information..........................................
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations..........................................
Signatures ...............................................................
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PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
Nine and Three Months Ended September 30, 1998
Net Sales. Net sales for the nine and three months ended September 30,
1998 were $345.1 million and $110.8 million, respectively.
Cost of Sales. Cost of sales for the nine and three months ended September
30, 1998 was $250.0 million and $79.3 million, respectively. Cost of sales as a
percentage of net sales was 72.4%, resulting in a gross profit margin of 27.6%,
for the nine months ended September 30, 1998. For the three months ended
September 30, 1998, cost of sales as a percentage of sales were 71.6%, resulting
in a gross profit margin of 28.4%.
Selling, General and Administrative. Selling general and administrative
expenses were $73.6 million and $29.1 million in the nine and three months ended
September 30, 1998, respectively. Selling, general and administrative expenses
for the nine and three month periods ended September 30, 1998 were 21.3% and
26.2% as a percentage of net sales, respectively.
PRO FORMA COMBINED RESULTS OF OPERATIONS
USA Floral was incorporated in April 1997 and conducted no operations prior
to the October 1997 consummation of its IPO and the acquisition of the Founding
Companies. Since then, it has consummated the acquisitions of the January 1998
Class, the April 1998 Class and the July 1998 Class. Pro forma combined results
of operations for the three and nine months ended September 30, 1998 may not be
comparable with pro forma combined results of operations for the corresponding
periods in 1997, because the Company had no operations during any relevant point
in 1997 and did not, throughout the 1997 periods and for portions of the 1998
periods, actually own or operate any of the businesses whose operations have
been combined on a pro forma basis.
Nine Months Ended September 30, 1998 Compared to Nine Months Ended September 30,
1997
The following unaudited pro forma information presents the combined results
of operations of the Company, the July 1998 Class, the April 1998 Class, the
January 1998 Class and the Founding Companies, as if all such acquisitions and
the IPO occurred on January 1, 1997. The information does not include financial
results of the Florimex Transaction, which was consummated after the close of
business on September 30, 1998. The pro forma amounts give effect to certain
adjustments, including amortization of intangible assets, interest expense on
incremental financing, reduction in salary, bonuses and benefits in connection
with the transactions, anticipated compensation of the Company's management and
associated costs of being a public company, and income taxes.
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YEAR ENDED NINE MONTHS ENDED
---------- -----------------
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
----------- ------------- ------------
1997 1998 1997
---- ---- ----
$561,790 $451,621 $425,786
Net Sales
Cost of Sales 410,836 328,955 312,338
Selling, General and
Administrative Expenses 119,961 95,397 87,826
Goodwill Amortization 5,011 3,757 3,757
-------- -------- --------
$ 25,988 $ 23,512 $ 21,864
Operating Income ======== ======== ========
The pro forma information does not purport to represent what the Company's
results of operations actually would have been if such transactions had occurred
on January 1, 1997 and is not necessarily representative of the Company's
results of operations for any future period. Since the July 1998 Class, the
April 1998 Class, the January 1998 Class and the Founding Companies were not
under common control or management at any time prior to the actual consummation
of each respective acquisition, historical combined results may not be
comparable to, or indicative of, future, performance.
Net Sales. Pro forma net sales increased to $451.6 million in the nine
months ended. September 30, 1998 from $425.8 million for the nine months ended
September 30, 1997, an increase of $25.8 million or 6.1%. The increase in Pro
forma sales was attributable to an increase in the volume of flowers sold during
the second and third quarter of 1998, primarily at the companies involved in
importing and bouquet manufacturing and distribution.
Cost of Sales. Pro forma cost of sales increased to $329.0 million in the
nine months ended September 30, 1998 from $312.3 million in the nine months
ended September 30, 1997, an increase of $16.6 million or 5.3%, primarily as a
result of increased pro forma are sales. As a percentage of sales, Pro forma
cost of sales was 72.8% for the nine months ended September 30, 1998 and 73.4%
for the nine months ended September 30, 1997. The decrease as a percentage of
sales is a result of favorable pricing received from certain suppliers of
flowers and an increase in intercompany sales.
Selling General and Administrative. Selling general and administrative
expenses increased to $95.4 million in the nine months ended September 30, 1998
from $87.8 million for the nine months ended September 30, 1997, an increase of
$7.6 million or 8.6%. The increase is primarily due to an increase in expenses
at certain of the April 1998 Class companies in the three months prior to their
acquisition and increased selling, commissions and other costs associated with
the increased sales at the companies involved in importing and bouquet
manufacturing, as well as increased costs at the Company.
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Operating Income. As a result of the factors discussed above, operating
income increased to $23.5 million in the nine months ended September 30, 1998
from $21.9 million in the nine months ended September 30, 1997, a increase of
$1.6 million, or 7.5%. As a percentage of net sales, operating income increased
to 5.2% in the nine months ended September 30, 1998 from 5.1% in the nine months
ended September 30, 1997.
SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
Except for historical information contained herein, the statements made in
this Form 10-Q, including those with respect to results for the three and nine
month periods ended September 30, 1998 as they apply to possible results for the
full fiscal year, and those with respect to the effects of purchasing synergies,
expense reductions, acquisition explorations and marketing and research and
development efforts, as they apply to such possible future synergies,
reductions, exploration efforts or the Company's results therefore constitute
forward-looking statements that involve certain risks and uncertainties. Certain
factors may cause actual results to differ materially from those contained in
the forward looking statements, including those risks detailed in the Company's
Prospectus dated May 8, 1998 relating to, among other things: the absence of a
combined operating history; the Company's acquisition strategy; the
concentration of flower sales in traditional holiday periods; the financing of
acquisitions; the Company's internal growth and operating strategies;
seasonality, cyclicality, fluctuations in quarterly operating results, and
weather; competition; the amortization of intangible assets; dependence upon key
personnel; and imported products matters. In addition, results may vary as a
result of factors set forth from time to time in the Company's reports on file
at the Securities and Exchange Commission.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of liquidity have historically been cash
flows from operating activities and borrowings. To date, approximately $127.5
million has been used to fund the cash portion of the consideration paid in
connection with the acquisitions.
Effective October 2, 1998, USA Floral amended and restated its existing
credit agreement with a syndicate of leaders 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. Finally, a new $50 million, Deutsche Mark
denominated term loan was created as an additional source of borrowings in
excess of the $200 million revolving credit 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 1.0% or (b)
a Eurodollar rate plus an applicable margin of up to 2.25%. Borrowings under the
term loan bear interest at the interbank rate for Deutsche Marks plus an
applicable margin of up to 2.25%. The Company paid on closing a financing fee of
approximately $3.6 million, which has been deferred and will be amortized over
the term of the Amended Credit Agreement. In addition, a commitment fee of up to
0.50% will
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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 entire $50 million proceeds of the new term loan and $54.1 million of
the borrowings available under the revolving credit facilities were used to
finance the aggregate purchase price of approximately $90 million (including the
assumption of indebtedness) and related transactional expenses for the purchase
of the business of Florimex. In addition, on October 2, 1998, the Company
rolled over approximately $86.5 million in outstanding borrowings, accrued
interest and related fees under its existing revolving credit facility, so that
the aggregate both the revolving credit facilities and the term loan were
approximately $190 million. The proceeds of the outstanding borrowings under the
revolving credit facility prior to its amendment on October 2, were used to
finance acquisitions and fund related working capital requirements.
As a result of the amendment and restatement of the credit facility and
termination of the original credit agreement, the Company will record a charge
before income taxes of $1,602 in the fourth quarter of 1998, to the write off
unamortized portion of the deferred financing fee related to the original credit
agreement.
The capital expenditures of the Company for the nine months ended September
30, 1998 were approximately $2.6 million. These capital expenditures were
primarily for vehicles, machinery, office equipment and computer equipment and
software, building additions and facility upgrades. Although the Company
currently does not have any commitments to make significant capital
expenditures, the Company does expect to expend approximately $10 million for
capital expenditures in the next twelve months in the normal course of business.
Excluding capital requirements for future acquisitions, if any, which the
Company cannot currently predict, the Company believes that funds generated from
operations, together with borrowings under the Amended Credit Agreement, will be
sufficient to finance its current operations and planned capital expenditure
requirements at least through 1999. To the extent that the Company is 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 the Company.
YEAR 2000 COMPLIANCE
The Company has been conducting a comprehensive review of its computer systems
to identify those that could be adversely affected by the "Year 2000 issue"
(which refers to the inability of many computer systems to process accurately
dates later than December 31, 1999), and is executing a plan to remediate or
replace affected systems.
The Company's Year 2000 compliance project includes four phases: (1) evaluation
of the Company's owned or leased systems and equipment to identify potential
Year 2000 compliance
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issues; (2) remediation or replacement of Company systems and equipment
determined to be non-compliant (and testing of remediated systems before
returning them to production); (3) inquiry regarding Year 2000 readiness of
material business partners and other third parties on whom the Company's
business is dependent; and (4) development of contingency plans, where feasible,
to address potential third party non-compliance or failure of material Company
systems.
The initial phase of the Company's Year 2000 compliance project included the
evaluation of all software, hardware and equipment owned or licensed by the
Company, and identification of those systems and equipment requiring Year 2000
remediation. Analysis of all material software and hardware has been completed
and of those systems requiring remediation or replacement, approximately 35% (or
50% of all system users) have already been replaced by Year 2000 compliant
hardware and software. The Company anticipates that all remaining material
systems will be remediated or replaced by October, 1999.
The costs and timing for replacement of certain of the Company's systems that
were not Year 2000 compliant have been anticipated as part of the Company's
planned information systems spending. The Company estimates that the total
additional cost of managing its Year 2000 project, remediating existing systems
and replacing non-compliant systems, is approximately $6.0 million of which
approximately $0.3 million will be expensed as incurred, and $5.7 million will
be capitalized. Although the Company believes its Year 2000 compliance efforts
with respect to its systems will be successful, any failure or delay could cause
actual costs and timing to differ materially from that presently contemplated.
The Company intends to develop a contingency plan to permit its primary
operations to continue if the Company's modifications and conversions of its
systems are not successfully completed on a timely basis, but the foregoing cost
estimates do not take into account any expenditures associated with such
contingencies. The Company's cost estimates also do not include time or costs
that may be incurred as a result of third parties' becoming Year 2000 compliant
on a timely basis.
The Company is communicating with its business partners, including the key
suppliers, vendors, banks and other third parties with whom it does business, to
obtain information regarding their state of readiness with respect to the Year
2000 issue. Failure of third parties to remediate Year 2000 issues affecting
their respective businesses on a timely basis, or to implement contingency plans
sufficient to permit uninterrupted continuation of their businesses in the event
of a failure of their systems, could have a material adverse effect on the
Company's business and results of operations. Assessment of third party Year
2000 readiness is expected to be substantially completed by May, 1999. The
Company will not be able to determine its most reasonably likely worse case
scenario until the assessment of third parties' Year 2000 compliance is
completed.
The Company's Year 2000 compliance project includes development of a contingency
plan designed to support critical business operations in the event of the
occurrence of systems failures or the occurrence of reasonably likely worst case
scenarios. The Company anticipates that contingency plans will be substantially
developed by July, 1999.
The Company may not be able to compensate adequately for business interruption
caused by certain third parties. Potential risks include suspension or
significant curtailment of service or
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significant delays by banks, utilities or common carriers, or at U.S. ports of
entry. The Company's business also could be materially adversely affected by the
failure of governmental agencies to address Year 2000 issues affecting the
Company's operations. For example, a significant amount of the Company's
merchandise is grown outside the United States, and the Company is dependent
upon the issuance by foreign governmental agencies of export visas for, and upon
the U.S. Custom Service to process and permit entry into the United States of,
such merchandise. If failures in government systems result in the suspension or
delay of these agencies' services, the Company could experience significant
interruption or delays in its product flow.
The costs and timing for management's completion of Year 2000 compliance,
modification and testing processes are based on management's best estimates,
which were derived utilizing numerous assumptions of future events, including
the continued availability of certain resources, the success of third parties'
Year 2000 compliance efforts and other factors. There can be no assurance that
these assumptions will be realized or that actual results will not vary
materially.
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SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this amended report to be signed on its behalf by the
undersigned thereunto duly authorized.
U.S.A. FLORAL PRODUCTS, INC.
Date: March 4, 1999 By: ___________________________________________
W. Michael Kipphut
Chief Financial Officer
(On behalf of the registrant and as
Principal Financial and Accounting Officer)
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