SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
_____________
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
-----------------
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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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 16,068,224 shares at May 15, 2000.
1
U.S.A. FLORAL PRODUCTS, INC.
----------------------------
INDEX
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets at March 31, 2000 and December 31, 1999
Consolidated Statements of Operations for Three Months Ended March 31,
2000 and 1999
Consolidated Statement of Stockholders' Equity for the Three Months
Ended March 31, 2000
Consolidated Statements of Cash Flows for the Three Months Ended March
31, 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
2
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
PART I - FINANCIAL INFORMATION
- ------------------------------
ITEM 1. Financial Statements
4
U.S.A. FLORAL PRODUCTS, INC.
CONSOLIDATED BALANCE SHEET
(in thousands, except par value)
March 31, 2000 December 31, 1999
-------------- -----------------
ASSETS
Current assets:
Cash and cash equivalents $ 9,641 $ 10,048
Accounts receivable, net 111,958 102,524
Inventory 23,319 24,569
Prepaid expenses and other assets 14,876 14,444
Deferred income tax assets 2,865 2,931
------------- -------------
Total current assets 162,659 154,516
Property and equipment, net 49,993 53,357
Goodwill, net 266,892 267,590
Restricted cash 3,837 3,834
Deferred financing costs 5,496 2,971
Other assets 4,107 4,542
------------- -------------
Total assets $ 492,984 $ 486,810
============= =============
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt $ 9,882 $ 4,919
Accounts payable 57,008 60,574
Accrued expenses 25,915 15,770
Due to stockholders 2,628 2,278
Income taxes payable 2,261 2,328
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Total current liabilities 97,694 85,869
Long-term debt 197,161 195,914
Deferred income tax liabilities 3,442 3,469
Other liabilities 542 618
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Total liabilities 298,839 285,870
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Minority interests in subsidiaries 333 363
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Commitments and contingencies
Stockholders' equity:
Common stock, $0.001 par value; 100,000 shares authorized;
16,291 and 16,266 shares issued, respectively 16 16
Treasury stock (14 shares) (287) (287)
Additional paid-in capital 194,772 193,477
Retained earnings (accumulated deficit) (2,801) 5,093
Accumulated other comprehensive income 2,112 2,278
------------- -------------
Total stockholders' equity 193,812 200,577
------------- -------------
Total liabilities and stockholders' equity $ 492,984 $ 486,810
============= =============
The accompanying notes are an integral part of these consolidated financial
statements.
5
U.S.A. FLORAL PRODUCTS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except per share amounts)
Three Months Ended Three Months Ended
03/31/2000 03/31/1999
------------ ------------
Net revenues $ 251,645 $ 271,343
Cost of sales 189,951 204,769
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Gross margin 61,694 66,574
Selling, general and administrative expenses 52,478 53,979
Goodwill amortization 1,758 1,727
Restructuring charges 10,155 37
------------ ------------
Income (loss) from operations (2,697) 10,831
Other income (expense):
Interest expense (4,631) (3,863)
Interest income 315 382
Other, net (44) 182
------------ ------------
Income (loss) before income taxes and (7,057) 7,532
minority interests
Provision for income taxes 821 3,512
------------ ------------
Income (loss) before minority interests (7,878) 4,020
Minority interest (16) (8)
------------ ------------
Net income (loss) $ (7,894) $ 4,012
============ ============
Net income (loss) per share:
Basic $ (0.48) $ 0.25
Diluted $ (0.48) $ 0.24
Weighted average shares outstanding:
Basic 16,428 16,314
Diluted 16,428 16,563
The accompanying notes are an integral part of these consolidated financial
statements.
6
U.S.A. FLORAL PRODUCTS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(in thousands)
Accumulated
Common Stock Additional Retained Other Total
----------------------- Earnings
Treasury Paid-in (accumulated Comprehensive Stockholders'
Shares Amount Stock Capital deficit) Income Equity
------ ------ ----- ------- -------- ------------- ---------------
Balances at December 31, 1999 16,252 $ 16 $ (287) $ 193,477 $ 5,093 $ 2,278 $ 200,577
Issuance of common stock 25 34 34
Issuance of warrants 1,261 1,261
Net loss (7,894)
Foreign currency adjustment (166)
Total comprehensive loss (8,060)
--------------------------------------------------------------------------------------
Balances at March 31, 2000 16,277 $ 16 $ (287) $ 194,772 $(2,801) $ 2,112 $ 193,812
======================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
7
U.S.A. FLORAL PRODUCTS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
Three Months Ended Three Months Ended
March 31, 2000 March 31, 1999
-------------- --------------
Cash flows from operating activities:
Net income (loss) $ (7,894) $ 4,012
Adjustments to reconcile net income to cash
used in operating activities:
Depreciation 2,221 2,382
Amortization of goodwill 1,698 1,727
Amortization of deferred financing costs 487 188
(Gain) loss on disposal of property and equipment 25 (45)
Income applicable to minority interests 16 8
Changes in operating assets and liabilities,
exclusive of acquired companies:
Accounts receivable (9,514) (22,991)
Inventory 998 (2,769)
Prepaid expenses and other current assets (979) 2,641
Other assets 408 694
Income taxes payable (159) 2,157
Accounts payable (2,554) 9,754
Accrued expenses 2,799 (1,066)
Other liabilities (77) 4
Restructuring reserve 7,512 -
------------ ------------
Net cash used in operating activities (5,013) (3,304)
------------ ------------
Cash flows from investing activities:
Purchases of property and equipment (1,615) (3,168)
Proceds from sale of property and equiptment 140 -
Payments to stockholders (650) -
Increase in restricted cash (3) (16)
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Net cash used in investing activities (2,128) (3,184)
------------ ------------
Cash flows from financing activities:
Proceeds from and repayments of debt 8,855 12,683
Increase in deferred financing costs (1,751) (102)
Proceeds from issuance of common stock 34 145
Proceeds from exercise of stock options - 87
------------ ------------
Net cash provided by financing activities 7,138 12,813
------------ ------------
Effect of exchange rates on cash (404) (382)
------------ ------------
Net increase (decrease) in cash and cash equivalents (407) 5,943
Cash and cash equivalents - beginning of the period 10,048 20,196
------------ ------------
Cash and cash equivalents - end of the period $ 9,641 $26,139
============ ============
See Note 11 for supplemental cash flow information
The accompanying notes are an integral part of these consolidated financial
statements.
8
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 agreement, contingent consideration in
the amount of $4,304, originally paid to the former shareholders of Maxima was
returned to the Company subsequent to March 31, 2000 as a result of their 1999
adjusted earnings before interest and taxes being lower than the 1998 adjusted
earnings before interest and taxes. 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).
9
U.S.A. FLORAL PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
NOTE 3 - EARNINGS PER SHARE
The shares used in computing net income per share are as follows:
Three months ended
March 31,
2000 1999
------------------ -------------------
Weighted average shares outstanding - basic 16,428 16,314
Dilution attributable to options - 249
------------------ -------------------
Weighted average shares outstanding - diluted 16,428 16,563
------------------ -------------------
Included in the weighted average shares outstanding - basic are 25 shares of
common stock issued under the employee stock purchase plan at March 31, 2000.
As the Company reported a loss for the period ending March 31, 2000, 40 options
to purchase the Company's stock and 54 warrants were excluded from the weighted
average shares outstanding - diluted calculation because to do so would have
been anti-dilutive.
NOTE 4 - INVENTORY
Inventory consists of the following finished goods:
March 31, December 31,
2000 1999
----------------------- ----------------------
Hardgoods, net of allowance $17,808 $19,788
Perishables 5,511 4,781
----------------------- ----------------------
$23,319 $24,569
======================= ======================
NOTE 5 - COMMITMENTS AND CONTINGENCIES
The Company is involved in various legal proceedings that have arisen in the
ordinary course of business. The Company does not believe that any of these
proceedings will have a material adverse effect on the financial position,
results of operations or cash flows of the Company.
Antidumping
Beginning in 1986, the U.S. Department of Commerce (the "DOC") imposed an
antidumping duty deposit ("ADD") on the importation of certain flowers (the
"Antidumping Order") from Colombia. Such antidumping duty is subject to change
based upon annual reviews of the flower growers' margins. On May 20, 1999, a
settlement was reached whereby all open review periods through February 28, 1997
(periods 5, 6, 7, 9 and 10) were finalized at the cash deposit rate. That is,
the Company does not owe any additional antidumping duties for those periods.
On July 20, 1999, the DOC revoked the Antidumping Order on fresh cut flowers
from Colombia retroactive to March 1, 1997, the beginning of period 11.
Further, the DOC stated that, as a result of the retroactive revocation, the DOC
has terminated its reviews of periods 11 and 12 and that the DOC intends to
refund any ADD collected on or after March 1, 1997. Therefore, as a result of
the final determinations by the DOC
10
U.S.A. FLORAL PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
regarding open review periods and the DOC's retroactive revocation of the
Antidumping Order, the Company released antidumping reserves 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 March 31, 2000.
NOTE 6 - 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 is expected to be completed by June 30, 2000. 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
================
At March 31, 2000, $6,683 of the restructuring charge remained in accrued
liabilities and 50 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 (1,494)
Non cash write-down of property and equipment (984)
Non cash write-down of goodwill ---
Non cash write-down of information technology assets (115)
Lease termination costs (34)
Contract termination costs (730)
Other cash outflows (115)
----------
Balance at March 31, 2000 $ 6,683
==========
11
U.S.A. FLORAL PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
November 1998 Integration Plan
As of March 31, 2000, the final phase of November 1998 integration plan was
completed and the integration accrual of $269 remaining at December 31, 1999 was
fully utilized.
NOTE 7 - GEOGRAPHIC REGION AND BUSINESS SEGMENT INFORMATION
Segment information has been provided for each of the periods presented in the
Company's statement of operations. The Company is organized primarily on a
geographic basis with an International Division and a North America Division and
secondarily based on the products and services that it offers. Each division
has three segments: import/export, wholesale distribution and bouquet 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 margin, 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
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 Three Months Ended March 31,
Revenues - external customers
2000 1999
- --------------------------------------------------------------------------------------------------
North America Division
Import/Export $ 52,844 $ 65,946
Wholesale Distribution 48,532 51,771
Bouquet Making and Distribution 46,731 51,302
- --------------------------------------------------------------------------------------------------
Total North America Division 148,107 169,019
- --------------------------------------------------------------------------------------------------
International Division
Import/Export 53,768 64,800
Wholesale Distribution 30,239 18,943
Bouquet Making and Distribution 19,531 18,581
- --------------------------------------------------------------------------------------------------
Total International Division 103,538 102,324
- --------------------------------------------------------------------------------------------------
Total of Reportable Segments
Import/Export 106,612 130,746
Wholesale Distribution 78,771 70,714
Bouquet Making and Distribution 66,262 69,883
- --------------------------------------------------------------------------------------------------
Total of Reportable Segments $251,645 $271,343
- --------------------------------------------------------------------------------------------------
For the Three Months Ended March 31,
Revenues - intercompany
2000 1999
- --------------------------------------------------------------------------------------------------
North America Division
Import/Export $12,223 $13,802
Wholesale Distribution 1,154 225
Bouquet Making and Distribution 4,368 1,414
- --------------------------------------------------------------------------------------------------
Total North America Division 17,745 15,441
- --------------------------------------------------------------------------------------------------
International Division
Import/Export 12,602 21,288
Wholesale Distribution 1,849 35
Bouquet Making and Distribution 214 179
- --------------------------------------------------------------------------------------------------
Total International Division 14,665 21,502
- --------------------------------------------------------------------------------------------------
Total of Reportable Segments
Import/Export 24,825 35,090
Wholesale Distribution 3,003 260
Bouquet Making and Distribution 4,582 1,593
- --------------------------------------------------------------------------------------------------
Total of Reportable Segments $32,410 $36,943
- --------------------------------------------------------------------------------------------------
13
U.S.A. FLORAL PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
For the Three Months Ended March 31,
Gross Margin
2000 1999
- --------------------------------------------------------------------------------------------------
North America Division
Import/Export $16,472 $19,234
Wholesale Distribution 15,150 16,124
Bouquet Making and Distribution 9,628 9,786
- --------------------------------------------------------------------------------------------------
Total North America Division 41,250 45,144
- --------------------------------------------------------------------------------------------------
International Division
Import/Export 11,494 13,489
Wholesale Distribution 6,215 4,702
Bouquet Making and Distribution 2,735 3,239
- --------------------------------------------------------------------------------------------------
Total International Division 20,444 21,430
- --------------------------------------------------------------------------------------------------
Total of Reportable Segments
Import/Export 27,966 32,723
Wholesale Distribution 21,365 20,826
Bouquet Making and Distribution 12,363 13,025
- --------------------------------------------------------------------------------------------------
Total of Reportable Segments $61,694 $66,574
- --------------------------------------------------------------------------------------------------
For the Three Months Ended March 31,
Depreciation and Amortization
2000 1999
- --------------------------------------------------------------------------------------------------
North America Division
Import/Export $1,055 $1,073
Wholesale Distribution 817 711
Bouquet Making and Distribution 539 529
- --------------------------------------------------------------------------------------------------
Total North America Division 2,411 2,313
- --------------------------------------------------------------------------------------------------
International Division
Import/Export 336 553
Wholesale Distribution 525 477
Bouquet Making and Distribution 219 258
- --------------------------------------------------------------------------------------------------
Total International Division 1,080 1,288
- --------------------------------------------------------------------------------------------------
Total of Reportable Segments
Import/Export 1,391 1,626
Wholesale Distribution 1,342 1,188
Bouquet Making and Distribution 758 787
- --------------------------------------------------------------------------------------------------
Total of Reportable Segments $3,491 $3,601
- --------------------------------------------------------------------------------------------------
14
U.S.A. FLORAL PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
For the Three Months Ended March 31,
Restructuring Charge
2000 1999
- --------------------------------------------------------------------------------------------------
North America Division
Import/Export $ 30 $ ---
Wholesale Distribution 3,135 37
Bouquet Making and Distribution 50 ---
- --------------------------------------------------------------------------------------------------
Total North America Division 3,215 37
- --------------------------------------------------------------------------------------------------
International Division
Import/Export --- ---
Wholesale Distribution --- ---
Bouquet Making and Distribution --- ---
- --------------------------------------------------------------------------------------------------
Total International Division --- ---
- --------------------------------------------------------------------------------------------------
Total of Reportable Segments
Import/Export 30 ---
Wholesale Distribution 3,135 37
Bouquet Making and Distribution 50 ---
- --------------------------------------------------------------------------------------------------
Total of Reportable Segments $3,215 $ 37
- --------------------------------------------------------------------------------------------------
For the Three Months Ended March 31,
Income from Operations
2000 1999
- ---------------------------------------------------------------------------------------------------
North America Division
Import/Export $ 3,767 $ 7,690
Wholesale Distribution (1,847) 1,776
Bouquet Making and Distribution 2,443 2,110
- ---------------------------------------------------------------------------------------------------
Total North America Division 4,363 11,576
- ---------------------------------------------------------------------------------------------------
International Division
Import/Export 2,724 1,579
Wholesale Distribution 680 52
Bouquet Making and Distribution 540 715
- ---------------------------------------------------------------------------------------------------
Total International Division 3,944 2,346
- ---------------------------------------------------------------------------------------------------
Total of Reportable Segments
Import/Export 6,491 9,269
Wholesale Distribution (1,167) 1,828
Bouquet Making and Distribution 2,983 2,825
- ---------------------------------------------------------------------------------------------------
Total of Reportable Segments $ 8,307 $13,922
- ---------------------------------------------------------------------------------------------------
15
U.S.A. FLORAL PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
Total Assets
March 31, 2000 December 31, 1999
- --------------------------------------------------------------------------------------------------
North America Division
Import/Export $158,300 $158,870
Wholesale Distribution 98,846 102,306
Bouquet Making and Distribution 70,162 71,896
- --------------------------------------------------------------------------------------------------
Total North America Division 327,308 333,072
- --------------------------------------------------------------------------------------------------
International Division
Import/Export 51,067 61,634
Wholesale Distribution 45,478 17,431
Bouquet Making and Distribution 15,011 12,225
- --------------------------------------------------------------------------------------------------
Total International Division 111,556 91,290
- --------------------------------------------------------------------------------------------------
Total of Reportable Segments
Import/Export 209,367 220,504
Wholesale Distribution 144,324 119,737
Bouquet Making and Distribution 85,173 84,121
- --------------------------------------------------------------------------------------------------
Total of Reportable Segments $438,864 $424,362
- --------------------------------------------------------------------------------------------------
For the Three Months Ended March 31,
Capital Expenditures
2000 1999
- --------------------------------------------------------------------------------------------------
North America Division
Import/Export $ 808 $ 562
Wholesale Distribution 45 1,440
Bouquet Making and Distribution 131 569
- --------------------------------------------------------------------------------------------------
Total North America Division 984 2,571
- --------------------------------------------------------------------------------------------------
International Division
Import/Export 157 156
Wholesale Distribution 362 257
Bouquet Making and Distribution 105 116
- --------------------------------------------------------------------------------------------------
Total International Division 624 529
- --------------------------------------------------------------------------------------------------
Total of Reportable Segments
Import/Export 965 718
Wholesale Distribution 407 1,697
Bouquet Making and Distribution 236 685
- --------------------------------------------------------------------------------------------------
Total of Reportable Segments $1,608 $3,100
- --------------------------------------------------------------------------------------------------
16
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 is as follows:
For the Three Months Ended
March 31,
Income from Operations 2000 1999
------------------------------------------------------------------------------------------------------------------
Total segment income from operations $ 8,307 $13,922
Interest income 315 382
Interest expense (4,631) (3,863)
Other income (44) 182
Unallocated information technology
expenses (2,137) ---
Unallocated corporate S,G&A expenses (1,639) (2,625)
Unallocated goodwill amortization (288) (466)
Unallocated restructuring charge (6,940) ---
------------------------------------------------------------------------------------------------------------------
Total consolidated income (loss)
Before Income taxes $(7,057) $ 7,532
==================================================================================================================
As part of the Company's increased focus to control costs a technology
department was established. Previously 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:
March 31, December 31,
Total Assets 2000 1999
-----------------------------------------------------------------------------------------------------------------
Total segment assets $438,864 $424,362
Elimination of intercompany receivable 1,946 (592)
Goodwill not allocated to segments 45,306 54,200
Other assets 6,868 8,840
-----------------------------------------------------------------------------------------------------------------
Total consolidated assets $492,984 $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.
Revenues Long-lived Assets
-------- -----------------
Three months ended
March 31, March 31, December 31,
2000 1999 2000 1999
------------------------------------------------------------------------
United States $139,407 $160,283 $238,083 $230,503
Germany 29,080 32,939 71,743 72,734
Netherlands 45,355 40,261 7,173 7,681
Other foreign countries 37,803 37,860 13,326 21,376
------------------------------------------------------------------------
Total $251,645 $271,343 $330,325 $332,294
========================================================================
17
U.S.A. FLORAL PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
NOTE 8 - INCOME TAXES
The effective income tax rate is higher 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.
NOTE 9 - 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 March 31, 2000, the aggregate outstanding indebtedness under
both the revolving credit facilities and the term loan was approximately $205.5
million and the effective interest rate was approximately 9.2% on the revolving
credit facility and approximately 6.8% on the term loan.
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.
As of December 31, 1999, the Company was not in compliance with 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 Company obtained a
waiver on all financial covenants at December 31, 1999, and 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
18
U.S.A. FLORAL PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
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 and at March 31, 2000, the aggregate
outstanding borrowings were approximately $205.5 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 822,000 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.
NOTE 10 - COMPREHENSIVE INCOME (LOSS)
The table below presents the components of the Company's comprehensive income
(loss) for the quarters ended March 31, 2000 and 1999:
Three months ended March 31,
2000 1999
---------------------------------------
Net income (loss) $(7,894) $4,012
Foreign currency translation adjustment (166) 45
---------------------------------------
Comprehensive income (loss) $(8,060) $4,057
=======================================
NOTE 11 - SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental disclosure of cash flow information:
Three months ended March 31,
2000 1999
------------------------------------
Cash paid during the period for interest $4,270 $1,097
====== ======
Cash paid during the period for income taxes $ 753 $ 478
====== ======
During the quarter ended March 31, 2000 the Company issued warrants with the
aggregate fair value of $1.26 million.
19
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Three Months Ended March 31, 2000
Statement of Operations: For the three For the three
(in thousands except per Months ended Months ended
share data) March 31, 2000 March 31, 1999
---------------------------------------------------------------------------
Net revenue $251,645 100.0% $271,343 100.0%
Cost of sales 189,951 75.5% 204,769 75.5%
---------------------------------------------------------------------------
Gross margin 61,694 24.5% 66,574 24.5%
Selling, general and
administrative expenses 52,478 20.9% 53,979 19.9%
Goodwill amortization 1,758 0.7% 1,727 0.6%
Integration charges 10,155 4.0% 37 0.0%
---------------------------------------------------------------------------
Income (loss) from operations (2,697) (1.1)% 10,831 4.0%
Interest expense (4,631) (1.8)% (3,863) (1.4)%
Interest income 315 0.1% 382 0.1%
Other,net (44) 0.0% 182 0.1%
---------------------------------------------------------------------------
Income (loss) before income taxes and
minority interest (7,057) (2.8)% 7,532 2.8%
Provision for income taxes 821 0.3% 3,512 1.3%
---------------------------------------------------------------------------
Income (loss) before minority interest
(7,878) (3.1)% 4,020 1.5%
Minority interest (16) 0.0% (8) 0.0%
---------------------------------------------------------------------------
Net income (loss) $ (7,894) (3.1)% $ 4,012 1.5%
===========================================================================
Net income (loss) per share:
Basic $ (0.48) $ 0.25
Diluted $ (0.48) $ 0.24
Shares used in computing
net income (loss) per share:
Basic 16,428 16,314
Diluted 16,428 16,563
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.
20
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 March 31, 2000 compared to three months ended March 31, 1999
Net Revenues. Net revenues for the quarter ended March 31, 2000 were $251.6
million. Revenues decreased from $271.3 million in the same quarter last year.
Revenues for the North America Division were $148.1 million, or 58.9% of the
consolidated revenues and revenues for the International Division were $103.5
million, or 41.1%. Revenues for the International Division consisted primarily
of revenues from Germany, the Netherlands, Italy and Japan. In 1999, 62.3%
revenues were generated by the North American Division and 37.7% were generated
by the International Division. The Company experienced a reduction in revenues
for the three months ended March 31, 2000 when compared to the same period in
the prior year primarily due to the Import Division in North America. Revenues
for the import division in North America decreased to $52.8 million or 20% from
$65.9 million. The decline in revenues can be attributable to the following:
increased competition, growers selling directly to wholesalers and quality of
product and service issues. The International Division revenues increased to
$103.5 million for the quarter ended March 31, 2000 from $102.3 million as a
result of firmer flower pricing at the Dutch auction. 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 13%.
21
Gross margin. Gross margins for the three months ended March 31, 2000 and
1999 were $61.7 million (including approximately $1.9 million from the receipt
of antidumping duty deposit refunds) and $66.6 million, respectively. Gross
margin as a percentage of net revenue was 24.5% (23.8% excluding the effect of
the refund of antidumping deposit refunds)for the three months ended March 31,
2000 and March 31, 1999. The North America Division gross margin was 26.6%
(excluding the effect of the refund of antidumping deposit refunds) for the
three months ended March 31, 2000 and 26.7%, for the three months ended March
31, 1999. The International Division's gross margin was 19.7% for the three
months ended March 31, 2000 and 20.9% for the three months ended March 31, 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 during
the three months ended March 31, 2000.
Selling, General and Administrative. Selling, general and administrative
expenses were $52.5 million in the three months ended March 31, 2000, or 20.9%
of net revenues and $54.0 million in the three months ended March 31, 1999, or
19.9% of net revenues. The decrease in selling, general and administrative
expenses for the three months ended March 31, 2000 is the primary result of
integration and consolidation of operations and a reduction in sales volume.
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.
In the first quarter of 2000, the Company recorded a restructuring charge of
approximately $10.2 million before income taxes ($6.1 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
is expected to be completed by June 30, 2000. The Company will reduce the number
of employees by 85 or approximately 3% of the North American workforce.
Income (loss) from operations. Loss from operations was $2.7 million, or 1.1%
of net revenues, for the three months ended March 31, 2000, and income from
operations was $10.8 million or 4.0% of net revenues for the three months ended
March 31, 1999 for the reasons discussed above.
Interest expense. For the three months ended March 31, 2000, interest expense
was approximately $4.6 million as compared to $3.9 million for the three months
ended March 31, 1999 an increase of $0.7 million. Interest expense for the three
months ended March 31, 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 three
22
month period ended March 31, 2000 was 9.1% based on the Company's weighted
average outstanding debt balance.
Provision for income taxes. The provision for income taxes was $821 for the
three months ended March 31, 2000 on a pre-tax loss of $7.1 million compared to
$3.5 million in income tax expense for the quarter ended March 31, 1999 on a
pre-tax income of $7.5 million for the period. The 2000 and 1999 effective
income tax rates of (12)% and 47% 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 $7.9 million for the three months ended March 31, 2000, or
$0.48 per basic and diluted share. The Company had net income of $4.0 million
for the three months ended March 31, 1999, or $0.25 per basic share and $0.24
per diluted share.
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. In addition, for fiscal 1999, quarterly cash flow
provided for operations were approximately $3.3 million, $8.7 million, $3.4
million, and $1.4 million, 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
three months ended March 31, 2000 the Company used $8.9 million in proceeds from
borrowings to invest $1.6 million in capital expenditures and fund working
capital for operating activities.
In the three months ended March 31, 2000, operating activities used $5.0 million
of net cash compared to $3.3 million of cash used in operations in the same
period last year. The increase in cash used in operations is principally
attributable to $11.9 million lower net income offset by $7.5 million increase
in the integration reserve and $2.7 million decrease in the use of cash for
working capital and other assets and liabilities.
Our capital expenditures for the three months ended March 31, 2000 were
approximately $1.6 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.
23
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 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.
As of December 31, 1999, the Company was not in compliance with 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 Company obtained a
waiver on all financial covenants at December 31, 1999, and 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 March 31, 2000, the aggregate outstanding borrowings
were approximately $205.5 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 822,000 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.
24
The Company believes there is a risk that it will not achieve the objectives
of its 2000 Operating Plan and therefore, not comply with the covenants in the
Fourth Amendment of its credit facility. If the Company is unable to comply
with the covenants, obtain waivers or obtain adequate alternative sources of
financing, it will have a material adverse effect on the Company.
Excluding capital requirements for future acquisitions, if any, which we
cannot currently predict, we believe that funds generated from operations,
together with borrowings under the Amended Credit Agreement, should be
sufficient to finance our current operations and planned capital expenditure
requirements for at least the next twelve months; thereafter, we do not
currently perceive needs for cash (other than future acquisitions, if any, that
we may choose to finance in whole or in part with cash) that would exceed
anticipated sources of cash from operations and amounts available under credit
facilities 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.
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.
25
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
Form 8-K - Filed February 23, 2000
Exhibit 27 - Financial data schedule
26
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.
By: /s/ Michael W. Broomfield
------------------------------------
Michael W. Broomfield
Chief Executive Officer
Date: May 15, 2000 By: /s/ G. Andrew Cooke
------------------------------------
G. Andrew Cooke
Chief Financial Officer
27