<PAGE> 1
Page 1
FORM 10-Q
Securities and Exchange Commission
Washington, D.C. 20549
(MARK ONE)
[ x ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Quarterly Period Ended June 30, 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 1-8801
GRAHAM-FIELD HEALTH PRODUCTS, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 11-2578230
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
400 Rabro Drive East, Hauppauge, New York 11788
-----------------------------------------------
(Address of principal executive offices)
(Zip Code)
(516) 582-5900
----------------------------------------------------
(Registrant's telephone number, including area code)
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.
Yes X No
Applicable Only to Issuers Involved in Bankruptcy
Proceedings During the Preceding Five Years:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by the court.
Yes No
Applicable Only to Corporate Issuers:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
Common Stock, $.025 Par Value --- 31,234,668 shares as of August 11, 1998
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GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
I N D E X
Part I. Financial Information: Page
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets -
June 30, 1998 (Unaudited) and December 31, 1997
(Audited) 3
Condensed Consolidated Statements of Operations for
the three and six months ended June 30, 1998 and 1997
(Unaudited) 4-5
Condensed Consolidated Statements of Cash Flows for
the six months ended June 30, 1998 and 1997 (Unaudited) 6-7
Notes to Condensed Consolidated Financial Statements
(Unaudited) 8-19
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 19-25
Part II. Other Information:
Item 1. Legal Proceedings 26
Item 4. Submission of Matters to a Vote of Security Holders 26
Item 5. Other Matters 26
Item 6. Exhibits and Reports on Form 8-K 26
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CONDENSED CONSOLIDATED BALANCE SHEETS
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
June 30, December 31,
ASSETS 1998 1997
------------- -------------
(unaudited) (audited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 3,426,000 $ 4,430,000
Accounts receivable - less allowances for doubtful
accounts of $8,636,000 and $13,199,000, respectively 102,069,000 91,451,000
Inventories 76,365,000 73,532,000
Other current assets 16,225,000 8,103,000
Recoverable and prepaid income taxes 5,225,000 4,422,000
Deferred tax assets 10,843,000 10,695,000
Asset held for sale -- 61,706,000
------------- -------------
TOTAL CURRENT ASSETS 214,153,000 254,339,000
PROPERTY, PLANT AND EQUIPMENT - net 37,664,000 35,955,000
EXCESS OF COST OVER NET ASSETS ACQUIRED - net of
accumulated amortization of $15,561,000 and
$11,512,000, respectively 234,433,000 240,071,000
DEFERRED TAX ASSETS 3,383,000 3,044,000
OTHER ASSETS 15,611,000 13,709,000
------------- -------------
TOTAL ASSETS $ 505,244,000 $ 547,118,000
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Credit facility $ 35,462,000 $ 65,883,000
Current maturities of long-term debt 1,803,000 2,619,000
Accounts payable 32,541,000 33,888,000
Accrued expenses 42,949,000 54,331,000
------------- -------------
TOTAL CURRENT LIABILITIES 112,755,000 156,721,000
Long-term debt and Senior Subordinated Notes 106,933,000 107,733,000
Other long-term liabilities 15,144,000 13,816,000
------------- -------------
TOTAL LIABILITIES 234,832,000 278,270,000
STOCKHOLDERS' EQUITY:
Series A preferred stock -- --
Series B preferred stock 28,200,000 28,200,000
</TABLE>
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<TABLE>
<S> <C> <C>
Series C preferred stock 3,400,000 3,400,000
Common stock 799,000 764,000
Additional paid-in capital 284,261,000 279,341,000
(Deficit) (46,227,000) (42,953,000)
Cumulative translation adjustment (21,000) 96,000
------------- -------------
TOTAL STOCKHOLDERS' EQUITY 270,412,000 268,848,000
COMMITMENTS AND CONTINGENCIES
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 505,244,000 $ 547,118,000
============= =============
</TABLE>
See notes to condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
-------------------------------- --------------------------------
1998 1997 1998 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
NET REVENUES:
Medical equipment and supplies $ 96,936,000 $ 62,579,000 $ 194,663,000 $ 118,770,000
Interest and other income 520,000 252,000 935,000 396,000
------------- ------------- ------------- -------------
97,456,000 62,831,000 195,598,000 119,166,000
COSTS AND EXPENSES:
Cost of revenues 67,030,000 42,503,000 134,132,000 80,941,000
Selling, general and administrative 30,239,000 14,765,000 58,449,000 27,958,000
Interest expense 3,015,000 1,169,000 5,758,000 2,163,000
------------- ------------- ------------- -------------
100,284,000 58,437,000 198,339,000 111,062,000
------------- ------------- ------------- -------------
(LOSS) INCOME BEFORE INCOME
TAXES (2,828,000) 4,394,000 (2,741,000) 8,104,000
INCOME TAX PROVISION
(BENEFIT) (800,000) 1,681,000 -- 3,208,000
------------- ------------- ------------- -------------
NET (LOSS) INCOME (2,028,000) 2,713,000 (2,741,000) 4,896,000
PREFERRED STOCK DIVIDENDS 267,000 -- 533,000 --
------------- ------------- ------------- -------------
NET (LOSS) INCOME AVAILABLE
TO COMMON SHAREHOLDERS $ (2,295,000) $ 2,713,000 $ (3,274,000) $ 4,896,000
============= ============= ============= =============
PER SHARE DATA:
</TABLE>
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<TABLE>
<S> <C> <C> <C> <C>
Common shares outstanding - basic 31,100,000 20,204,000 30,990,000 19,985,000
Convertible preferred stock -- 4,435,000 -- 4,435,000
Common equivalent shares outstanding -- 849,000 -- 908,000
------------- ------------- ------------- -------------
Common shares outstanding - diluted 31,100,000 25,488,000 30,990,000 25,328,000
Basic (loss) earnings per share $ (.07) $ .13 $ (.11) $ .24
Diluted (loss) earnings per share $ (.07) $ .11 $ (.11) $ .19
</TABLE>
See notes to condensed consolidated financial statements.
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
------------------------------
1998 1997
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net (loss) income $ (2,741,000) $ 4,896,000
Adjustments to reconcile net (loss) income
to net cash used in operating activities:
Depreciation and amortization 7,470,000 2,662,000
Deferred income taxes -- 911,000
Provisions for losses on accounts receivable 1,263,000 295,000
Changes in operating assets and liabilities:
Accounts receivable (11,758,000) (14,832,000)
Inventories (3,250,000) (2,416,000)
Other current assets and
recoverable and prepaid income taxes (5,854,000) (2,949,000)
Accounts payable, accrued expenses and other liabilities (13,173,000) (6,360,000)
------------ ------------
NET CASH USED IN OPERATING (28,043,000) (17,793,000)
ACTIVITIES
INVESTING ACTIVITIES
Purchases of property, plant and equipment (5,168,000) (1,643,000)
Proceeds from sale of asset held for sale 60,167,000 --
Acquisitions, net of cash acquired (419,000) (1,003,000)
Increase in excess of cost over net assets acquired -- (559,000)
Net decrease in other assets (543,000) (802,000)
------------ ------------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES $ 54,036,000 $ (4,007,000)
</TABLE>
See notes to condensed consolidated financial statements.
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS--Continued
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------------------------------
1998 1997
------------- -------------
<S> <C> <C>
FINANCING ACTIVITIES:
Proceeds from credit facility and long-term debt $ 191,090,000 $ 118,763,000
Principal payments on credit facility and long-term debt (222,774,000) (80,658,000)
Payments on acceptances -- (16,300,000)
Proceeds from exercise of stock options 4,687,000 591,000
------------- -------------
NET CASH (USED IN) PROVIDED BY (26,997,000) 22,396,000
FINANCING ACTIVITIES
(DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (1,004,000) 596,000
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 4,430,000 1,241,000
------------- -------------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 3,426,000 $ 1,837,000
============= =============
SUPPLEMENTARY CASH FLOW INFORMATION:
Interest paid $ 6,228,000 $ 1,680,000
============= =============
Income taxes paid $ 237,000 $ 339,000
============= =============
SUPPLEMENTAL DISCLOSURE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES:
Investment in preferred stock received as
partial proceeds from sale of asset $ 1,539,000
=============
Decrease in excess of cost over net assets acquired
offset by increase in other current assets $ 2,385,000
=============
Increase in excess of cost over net assets acquired
offset by adjustments to property, plant and
equipment, inventory, prepaid and deferred taxes,
accrued expense and debt $ 375,000
=============
</TABLE>
See notes to condensed consolidated financial statements.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
(Unaudited)
1. GENERAL
In the opinion of the Company, the accompanying unaudited condensed
consolidated financial statements contain all adjustments (consisting only of
normal recurring adjustments) necessary to present fairly the financial position
as of June 30, 1998 (unaudited), the results of operations for the three months
and the six months ended June 30, 1998 and 1997 (unaudited) and the statements
of cash flows for the six months ended June 30, 1998 and 1997 (unaudited).
Additionally, it should be noted that the accompanying financial
statements and notes thereto do not purport to be complete disclosures in
conformity with generally accepted accounting principles. While the Company
believes that the disclosures presented are adequate to make the information
contained herein not misleading, it is suggested that these financial statements
be read in conjunction with the financial statements and the notes included in
the Company's Annual Report on Form 10-K for the year ended December 31, 1997.
Inventories at June 30, 1998 have been valued at standard cost for
manufactured goods and at average cost for other inventories based primarily on
perpetual records or the gross profit method.
As of January 1, 1998, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income." SFAS
No. 130 establishes new rules for the reporting and display of comprehensive
income and its components, however, the adoption of this Statement had no impact
on the Company's net loss or shareholders' equity. SFAS No. 130 requires foreign
translation adjustments, which prior to adoption were reported separately in
shareholders' equity, to be included in other comprehensive income, net of tax
effect.
During the three and six months ended June 30, 1998, total
comprehensive (loss) income amounted to ($2,093,000) and ($2,810,000),
respectively, as compared with $2,748,000 and $4,938,000 for the same periods in
1997.
The results of operations for the three and six months ended June 30,
1998 and 1997 are not necessarily indicative of results for the full year.
Certain amounts in the 1997 financial statements have been reclassified
to conform to the 1998 presentation.
2. EARNINGS PER SHARE
Earnings per share amounts are calculated in accordance with SFAS No.
128 "Earnings
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per Share." Diluted earnings per share is calculated for the three and six
months ended June 30, 1997 assuming the conversion of the Series B and Series C
Cumulative Convertible Preferred Stock and elimination of the related dividends
and conversion of dilutive common equivalent shares outstanding using the
treasury stock method. Conversion of the preferred stock and common stock
equivalent shares was not assumed for the three and six months ended June 30,
1998 since the result would have been antidilutive.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --Continued
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
(Unaudited)
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
----------- -----------
<S> <C> <C>
Raw materials $16,103,000 $16,553,000
Work-in-process 7,982,000 6,735,000
Finished goods 52,280,000 50,244,000
----------- -----------
$76,365,000 $73,532,000
=========== ===========
</TABLE>
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
------------ ------------
<S> <C> <C>
Land and buildings $ 17,968,000 $ 16,358,000
Equipment 30,236,000 29,831,000
Furniture and fixtures 2,411,000 1,297,000
Leasehold improvements 3,512,000 3,089,000
Construction in progress 2,501,000 2,191,000
------------ ------------
$ 56,628,000 $ 52,766,000
Accumulated depreciation
and amortization (18,964,000) (16,811,000)
------------ ------------
$ 37,664,000 $ 35,955,000
============ ============
</TABLE>
5. INCOME TAXES
At June 30, 1998, the Company has net deferred tax assets of
approximately $14,226,000, which consist principally of net operating loss
carryforwards, reserves and restructuring charges not currently deductible for
tax return purposes. A valuation allowance of approximately $14,500,000 has been
provided against certain gross deferred tax assets of the Company, of which
approximately $13,300,000 are attributable to the acquired net operating loss
carryforwards and other deferred tax assets of Everest & Jennings International
Ltd. ("Everest & Jennings"). When realized, the tax benefit for those items will
be recorded as a reduction of the excess of cost over net assets acquired. In
addition, the Company has a valuation allowance of approximately $1,200,000
against a portion of its remaining gross deferred tax assets as a result of
recent acquisitions. The amount of the net deferred tax asset considered
realizable could be reduced in the near term if estimates of future taxable
income are reduced.
The Company has not provided any income taxes or benefit for the six
months ended June 30, 1998 reflecting the impact of nondeductible goodwill
amortization expense on the statutory Federal rate for 1998.
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The effective tax rate for 1997 approximates the statutory rate after
adjustment for state taxes and non-deductible goodwill amortization expense.
6. ACQUISITION OF BUSINESSES
On December 30, 1997, the Company acquired Fuqua Enterprises, Inc.
(currently, Lumex/Basic American Holdings, Inc.) ("Fuqua") pursuant to an
Agreement and Plan of Merger (the "Fuqua Merger Agreement"), dated as of
September 5, 1997 and amended as of September 29, 1997, by and among Fuqua, GFHP
Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of the
Company ("Sub"), and the Company. Under the terms of the Fuqua Merger Agreement,
Sub was merged with and into Fuqua with Fuqua continuing as the surviving
corporation wholly-owned by the Company (the "Fuqua Merger"). In the Fuqua
Merger, each share of Fuqua's common stock, par value $2.50 per share (the
"Fuqua Common Stock"), other than shares of Fuqua Common Stock canceled pursuant
to the Fuqua Merger Agreement, was converted into the right to receive 2.1
shares of common stock, par value $.025 per share of the Company (the "Company
Common Stock"). There were 4,482,709 shares of Fuqua Common Stock outstanding on
December 30, 1997, which converted into 9,413,689 shares of the Company Common
Stock.
In accordance with the terms of the Fuqua Merger Agreement, each Fuqua
stock option was assumed by Graham-Field and was converted into the right to
purchase shares of the Company Common Stock. As of the effective date of the
Fuqua Merger, there were Fuqua stock options outstanding representing the right
to purchase 421,500 shares of Fuqua Common Stock. The equivalent number of
shares of the Company Common Stock to be issued, after giving effect to the
exercise price of the Fuqua stock options as adjusted for the exchange ratio of
2.1, is approximately 364,319 shares of the Company Common Stock. For purposes
of calculating the purchase price, the Company Common Stock was valued at $16.69
per share, which represents the average closing market price of the Company
Common Stock for the period three business days immediately prior to and three
business days immediately after the announcement on September 8, 1997 of the
execution of the Fuqua Merger Agreement.
The acquisition of Fuqua has been accounted for under the purchase
method of accounting and, accordingly, the operating results of Fuqua have been
included in the Company's consolidated financial statements from the date of
acquisition. The excess of the aggregate purchase price over the estimated fair
market value of the net assets acquired is approximately $132,500,000, as
adjusted, which is being amortized on a straight line basis over 30 years. The
purchase price allocations were made on a preliminary basis, and are subject to
additional adjustment.
In connection with the Fuqua Merger, the Company acquired the leather
operations of Fuqua ("Leather Operations"). It was the Company's intention to
dispose of this Leather Operations as soon as reasonably practicable following
the consummation of the Fuqua Merger. Accordingly, the net assets of the Leather
Operations have been reflected as "Assets held for sale" in the accompanying
consolidated balance sheet as of December 31, 1997. The net asset value of the
Leather Operations includes the value of the proceeds that were realized from
the sale of the Leather Operations. The Company did not record any earnings or
losses for the Leather Operations for the period December 30, 1997 to January
27, 1998 (date of disposal).
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On January 27, 1998, Fuqua disposed of the Leather Operations (the
"Leather Sale Transaction") through the sale of all of the capital stock of
Irving Tanning Company ("ITC"), Hancock Ellsworth Tanners, Inc., Kroy Tanning
Company, Incorporated and Seagrave Leather Corporation (collectively, the
"Leather Companies"), to the management of ITC pursuant to a (i) Stock Purchase
Agreement dated as of January 27, 1998, by and among IT Acquisition Corporation
("ITAC"), the Company and Fuqua, and (ii) Stock Purchase Agreement dated as of
January 27, 1998, by and among HEKS Corporation, the Company and Fuqua. The
aggregate selling price for the Leather Companies consisted of (a) $60,167,400
in cash, (b) an aggregate of 5,000 shares of Series A Preferred Stock of ITAC
with a stated value of $4,250,000 (which has been valued at $1,539,000), and (c)
the assumption of debt of $2,341,250. In addition, as the holder of the ITAC
Preferred Stock, the Company is entitled to appoint one director to the Board of
Directors of ITAC.
On August 28, 1997, the Company acquired all of the issued and
outstanding shares of the capital stock of Medical Supplies of America, Inc., a
Florida corporation ("Medapex"), pursuant to an Agreement and Plan of
Reorganization (the "Reorganization Agreement") dated August 28, 1997, by and
among the Company, S.E. (Gene) Davis and Vicki Ray (collectively the "Medapex
Selling Stockholders"). In accordance with the terms of the Reorganization
Agreement, Medapex became a wholly-owned subsidiary of the Company and the
Medapex Selling Stockholders received in the aggregate 960,000 shares of Company
Common Stock in exchange for all of the issued and outstanding shares of the
capital stock of Medapex. Pursuant to a Real Estate Sales Agreement dated as of
August 28, 1997 (the "Real Estate Sales Agreement"), by and between the Company
and BBD&M, a Georgia Limited Partnership and an affiliate of Medapex, the
Company acquired Medapex's principal corporate headquarters and distribution
facility in Atlanta, Georgia for a purchase price consisting of (i) $622,335
payable (a) by the issuance of 23,156 shares of the Company Common Stock and (b)
in cash in the amount of $311,167, and (ii) the assumption of debt in the amount
of $477,664. Each of the Medapex Selling Stockholders entered into a two-year
employment agreement and non-competition agreement with the Company. The Medapex
transaction was accounted for as a pooling of interests and the Company's
historical financial statements have been restated to reflect this transaction.
The results of operations previously reported by the separate
enterprises and the combined amounts presented in the accompanying consolidated
financial statements are summarized below.
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
June 30, 1997 June 30, 1997
------------- ------------
<S> <C> <C>
Net revenues:
Graham-Field $ 57,828,000 $109,160,000
Medapex 5,003,000 10,006,000
------------ ------------
Combined $ 62,831,000 $119,166,000
Net income:
Graham-Field $ 2,616,000 $ 4,700,000
Medapex 97,000 196,000
------------ ------------
Combined $ 2,713,000 $ 4,896,000
</TABLE>
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On August 17, 1997, the Company acquired substantially all of the
assets and certain liabilities of Medi-Source, Inc. ("Medi-Source"), a
privately-owned distributor of medical supplies, for $4.5 million in cash. The
Company also entered into a five (5) year non-competition agreement with the
previous owner in the aggregate amount of $301,000 payable over the five (5)
year period. The acquisition was accounted for as a purchase, and accordingly,
assets and liabilities were recorded at fair value at the date of acquisition
and the results of operations are included subsequent to that date. The excess
of the purchase price over net assets acquired was approximately $3.7 million.
On June 25, 1997, the Company acquired all of the capital stock of
LaBac Systems, Inc., a Colorado corporation ("LaBac"), in a merger transaction
pursuant to an Agreement and Plan of Merger dated June 25, 1997, by and among
the Company, LaBac Acquisition Corp., a wholly-owned subsidiary of the Company,
LaBac, Gregory A. Peek and Michael L. Peek (collectively, the "LaBac Selling
Stockholders"). In connection with the acquisition, LaBac became a wholly-owned
subsidiary of the Company, and the LaBac Selling Stockholders received in the
aggregate 772,557 shares of Company Common Stock valued at $11.77 per share in
exchange for all of the issued and outstanding shares of the capital stock of
LaBac. The Company also entered into a three (3) year consulting agreement with
the LaBac Selling Stockholders and an entity controlled by the LaBac Selling
Stockholders, and non-competition agreements with each of the LaBac Selling
Stockholders. The acquisition was accounted for as a purchase and accordingly,
assets and liabilities were recorded at fair value at the date of acquisition
and the results of operations are included subsequent to that date. The excess
of cost over net assets acquired amounted to approximately $7.7 million, as
adjusted.
On March 7, 1997, Everest & Jennings, Inc., a wholly-owned subsidiary
of the Company, acquired Kuschall of America, Inc. ("Kuschall"), a manufacturer
of pediatric wheelchairs, high-performance adult wheelchairs and other
rehabilitation products, for a purchase price of $1.5 million representing the
net book value of Kuschall. The purchase price was paid by the issuance of
116,154 shares of Company Common Stock valued at $13.00 per share, of which
23,230 shares were delivered into escrow. The escrow shares will be released on
March 7, 1999, subject to any purchase price adjustments in favor of the Company
and claims for indemnification. The acquisition was accounted for as a purchase
and accordingly, assets and liabilities were recorded at fair value at the date
of acquisition and the results of operations are included subsequent to that
date.
On February 28, 1997, Everest & Jennings Canadian Limited ("Everest &
Jennings Canada"), a wholly-owned subsidiary of the Company, acquired
substantially all of the assets and certain liabilities of Motion 2000 Inc. and
its wholly-owned subsidiary, Motion 2000 Quebec Inc., for a purchase price equal
to Cdn. $2.9 million (Canadian Dollars) (approximately U.S. $2.15 million). The
purchase price was paid by the issuance of 187,733 shares of the Company Common
Stock valued at $11.437 per share. The acquisition was accounted for as a
purchase and accordingly, assets and liabilities were recorded at fair value at
the date of acquisition and the results of operations are included subsequent to
that date. The excess of cost over the net assets acquired amounted to
approximately $2.5 million.
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The following summary presents unaudited pro forma consolidated results
of operations for the six months ended June 30, 1997 as if the acquisitions
described above occurred at the beginning of 1997. This information gives effect
to the adjustment of interest expense, income tax provisions, and to the assumed
amortization of fair value adjustments, including the excess of cost over net
assets acquired. The pro forma information does not include the write-off of
certain purchased in-process research and development costs of $3.3 million, and
merger, restructuring and other related charges of $31,202,000 associated with
the Company's strategic restructuring initiatives recorded in the fourth quarter
ended December 31, 1997.
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<TABLE>
<CAPTION>
Pro Forma
Six Months Ended
June 30, 1997
----------------
<S> <C>
Net Revenues $182,439,000
------------
Income Before Income Taxes $ 8,667,000
Income Taxes $ 4,145,000
------------
Net Income $ 4,522,000
============
Net income per common share:
Net income $ 4,522,000
Preferred stock dividends -- (a)
------------
Net income available to common $ 4,522,000
============
shareholders
Common shares outstanding - basic 30,254,000
------------
Convertible preferred stock 4,435,000
Incremental shares using treasury stock
method 1,272,000
------------
Common shares outstanding - diluted 35,961,000
============
Basic earnings per share $ .15
Diluted earnings per share $ .13
</TABLE>
(a) Assumes conversion of the preferred stock and elimination of any
dividends relating to such preferred stock.
7. ACQUISITION INTEGRATION AND RESTRUCTURING PLAN
In connection with the acquisition of Fuqua on December 30, 1997, the
Company adopted a plan to implement certain strategic restructuring initiatives
(the "Restructuring Plan") and recorded restructuring reserves of $23,470,000.
The plan consists of a broad range of efforts, including the consolidation of
the Company's Temco manufacturing operations in New Jersey into Fuqua's Lumex
manufacturing facility in New York and relocation of the Company's corporate
headquarters to the Lumex facility. In addition, the Company plans to
consolidate certain distribution facilities and other operations in an effort to
improve manufacturing, distribution and operating efficiencies.
Throughout 1998, the Company will continue to evaluate its
Restructuring Plan and additional restructuring charges may be necessary.
The following summarizes the activity in the restructuring reserves for
the six months ending June 30, 1998:
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<TABLE>
<CAPTION>
Merger and
Restructuring Reserve
charges Write-offs and Reserve Balances Write-offs and Balances
recorded in cash payments December 31, cash payments June 30,
1997 in 1997 1997 in 1998 1998
------------ -------------- ---------------- -------------- -----------
<S> <C> <C> <C> <C> <C>
Exit costs $18,237,000 $(1,294,000) $16,943,000 $ (658,000) $16,285,000
Severance 650,000 -- 650,000 (122,000) 528,000
Merger related 4,583,000 (1,788,000) 2,795,000 (2,245,000) 550,000
----------- ----------- ----------- ----------- -----------
Total reserves $23,470,000 $(3,082,000) $20,388,000 $(3,025,000) $17,363,000
=========== =========== =========== =========== ===========
</TABLE>
8. LEGAL PROCEEDINGS
Following the Company's public announcement on March 23, 1998 of its
financial results for the fourth quarter and year ended December 31, 1997, the
Company and certain of its directors and officers were named as defendants in at
least thirteen putative class action lawsuits filed primarily in the United
States District Court for the Eastern District of New York on behalf of all
purchasers of the Company Common Stock (including former Fuqua shareholders
who received shares of the Company Common Stock when the Company acquired Fuqua
in December 1997) during various periods within the time period May 1997 to
March 1998. The complaints assert claims against the Company and the other
defendants for violations of Sections 11, 12(2) and 15 of the Securities Act of
1933, as amended, and Sections 10(b) and 20(a) of the Securities Exchange Act of
1934, as amended, and Rule 10b-5 promulgated thereunder with respect to alleged
material misrepresentations and omissions in public filings made with the
Securities and Exchange Commission and certain press releases and other public
statements made by the Company and certain of its officers relating to the
Company's business, results of operations, financial condition and future
prospects, as a result of which, it is alleged, the market price of the Company
Common Stock was artificially inflated during the putative class periods.
Several of the complaints focus on statements made concerning the Company's
integration of its various recent acquisitions. The plaintiffs seek unspecified
compensatory damages and costs (including attorneys and expert fees), expenses
and other unspecified relief on behalf of the putative classes. The Company
believes that it has complied with all of its obligations under the Federal
securities laws, considers the plaintiffs' allegations to be without merit and
intends to defend these suits vigorously.
On March 27, 1998, agents of the U.S. Customs Service and the Food and
Drug Administration arrived at the Company's principal headquarters and one
other Company location and retrieved several documents pursuant to search
warrants. The Company has subsequently been advised by an Assistant United
States Attorney for the Southern District of Florida that the Company is a
target of an ongoing grand jury investigation involving alleged fraud by one or
more of the Company's suppliers relating to the unauthorized
<PAGE> 17
Page 17
diversion of medical products intended for sale outside of the United States
into United States markets. The Company has also been advised that similar
search warrants were obtained with respect to approximately 14 other
participants in the distribution of medical products. The Company is presently
investigating these matters. The Company does not know when the grand jury
investigation will conclude or what action, if any, may be taken by the
government against the Company or any of its employees, so it cannot yet assess
the impact of this investigation on the Company. The Company intends to
cooperate fully with the government in its investigation.
In March 1994, the Suffolk County Authorities initiated an
investigation to determine whether regulated substances had been discharged in
excess of permitted levels from Fuqua's Lumex division (the "Lumex Division")
located in Bayshore, New York. An environmental consulting firm was engaged by
the Lumex Division to conduct a more comprehensive site investigation, develop a
remediation work plan and provide a remediation cost estimate. These activities
were performed to determine the nature and extent of contaminants present on the
site and to evaluate their potential off-site extent.
In connection with Fuqua's April 1996 acquisition of the Lumex
Division, Fuqua assumed the obligations associated with this environmental
matter. In late 1996, Fuqua conducted surficial soil remediation at the Bayshore
facilities and reported the results to the Suffolk County Authorities in March
1997. A ground water work plan was submitted concurrently with the soil
remediation report and Fuqua is waiting for the necessary approvals from the
Suffolk County Authorities before proceeding with execution of the ground water
work plan. Management is not currently able to determine when any required
remediation and monitoring efforts with respect to the ground water
contamination will be completed. In May 1997, the Suffolk County Authorities
approved the soil remediation conducted by Fuqua and provided comments on the
ground water work plan.
In November 1997, the Lumex Division received the results of additional
ground water testing that had been performed in August and September 1997. The
results revealed significantly lower concentrations of contaminants than were
known at the time the "Ground Water Work Plan" was prepared in March 1997. Due
to the relatively low levels of contaminants detected, the Lumex Division
proposed sampling the groundwater on a quarterly basis for two years to ensure
that the groundwater was not significantly affected. In January and April 1998,
additional confirmatory samples were taken and analyzed. These analytical
results provide further support that the groundwater is not significantly
contaminated. The Lumex Division will continue to monitor the quality of the
groundwater to confirm that it remains acceptable.
At June 30, 1998, the Lumex Division had reserves for remediation costs
and additional investigation costs which will be required. Reserves are
established when it is probable that a liability has been incurred and such
costs can be reasonably estimated. The Lumex Division's estimates of these costs
were based upon currently enacted laws and regulations and the professional
judgment of independent consultants and counsel. Where available information was
sufficient to estimate the amount of liability, that estimate has been used.
Where information was only sufficient to establish a range of probable liability
and no point within the range is more likely than another, the lower end of the
range has been used. The Lumex Division has not assumed that any such costs
would be recoverable from third
<PAGE> 18
Page 18
parties nor has the Lumex Division discounted any of its estimated costs,
although a portion of the remediation work plan will be performed over a period
of years.
The amount of environmental liabilities are difficult to estimate due
to such factors as the extent to which remedial actions may be required, laws
and regulations change or the actual costs of remediation differ when the final
work plan is performed.
On April 3, 1996, Fuqua acquired certain assets of the Lumex Division
from Cybex International, Inc. (formerly, Lumex, Inc.). The purchase price for
the Lumex Division was $40.7 million, subject to a final purchase price
adjustment in the asset sale agreement. The final purchase price adjustment was
disputed and, pursuant to the asset sale agreement, was to be resolved through
arbitration. On April 18, 1997, the seller obtained an interim stay of the
arbitration proceedings pending a hearing on May 9, 1997. On May 9, 1997, the
New York County Supreme Court vacated its stay of the arbitration proceedings
and directed Fuqua and the seller to proceed to arbitration. On June 10, 1997,
the seller filed a motion for a stay of arbitration pending the hearing and
determination of the seller's appeal with the Appellate Division of the New York
County Supreme Court. On June 24, 1997, the Appellate Division denied the
seller's motion to stay the arbitration proceedings pending appeal. Accordingly,
Fuqua and the seller continued the arbitration proceedings. The Appellate
Division subsequently affirmed the Supreme Court's denial of the stay, and
seller's motion for reconsideration has been denied. On February 13, 1998, the
arbitrator accepted $3,179,685 in claims by Fuqua, with interest of $350,690,
yielding a net award to Fuqua of $2,384,606, which has been included in other
current assets in the accompanying Condensed Consolidated Balance Sheets. Such
amount was recorded as a reduction of the excess of cost over net assets
acquired at June 30, 1998. On July 30, 1998, the Company received a payment of
$2,468,358 from Cybex. The Company believes, however, that this payment does not
adequately or completely satisfy the New York judgment and intends to file a
motion to resettle the New York judgment.
In March 1997, Fuqua gave notice to the seller to preserve Fuqua's
indemnification rights provided in the asset sale agreement.
In February 1998, Fuqua filed in the State Court of Fulton County a
lawsuit against the seller and certain former officers and it states claims for
fraud, breach of warranty, negligent misrepresentation, Georgia RICO, and
attorney's fees. Defendants filed an answer and counterclaim on April 7, 1998,
denying liability and asserting fifteen defenses. Defendant Cybex has asserted
four counterclaims, seeking $1,284,288 in damages, plus attorneys' fees and
costs. Fuqua believes that the counterclaims lack merit for several reasons,
including, among others, that the putative claim for $1,284,288, was decided
adversely to Cybex in the arbitration. On July 31, 1998, Cybex and the
defendants filed a motion to dismiss. The individual defendants have moved to
dismiss based on an alleged lack of personal jurisdiction, and Cybex has moved
to dismiss on substantive grounds as to certain counts. The Company believes the
motion to dismiss lacks merit and intends to oppose it vigorously.
On August 3, 1998, the Company and another defendant were served with a
lawsuit initiated by JOFRA Enterprises, Inc. ("JOFRA") in New York State Supreme
Court, Westchester County. The complaint seeking damages of $25,000,000 alleges
that the Company's hiring of a certain officer and employees of JOFRA
constituted, among other
<PAGE> 19
Page 19
things, unfair competition and wrongful appropriation of business opportunities.
The Company considers the plaintiff's allegations to be without merit and
intends to defend this lawsuit vigorously.
The Company and its subsidiaries are parties to lawsuits and other
proceedings arising out of the conduct of its ordinary course of business,
including those relating to product liability and the sale and distribution of
its products. While the results of such lawsuits and other proceedings cannot be
predicted with certainty, management does not expect that the ultimate
liabilities, if any, will have a material adverse effect on the consolidated
financial position or results of operations of the Company.
9. SELINGER SEPARATION AGREEMENT
On July 29, 1998, Irwin Selinger resigned as Chairman of the Board,
Chief Executive Officer and President of the Company, and entered into a
separation agreement (the "Separation Agreement") with the Company. The
Separation Agreement provides for (i) the continuation of Mr. Selinger's (a)
base salary of $550,000 through July 31, 1999, (b) healthcare and insurance
benefits through July 8, 2001, and (c) automobile lease payments and associated
automobile expenses through July 8, 2001, (ii) the forgiveness of Mr. Selinger's
$2.2 million loan in consideration of Mr. Selinger's repayment of $500,000 on
June 30, 1999, (iii) a three (3) year non-competition agreement, (iv) the
continuation of Mr. Selinger's split dollar life insurance policy in accordance
with the terms of Mr. Selinger's divorce judgment, (v) a non-disparagement
agreement, (vi) mutual releases, and (vii) the continuation of the Company's
indemnification provisions for Mr. Selinger. The Company will record the
financial effects of the Separation Agreement in the third quarter ending
September 30, 1998.
Simultaneously with Mr. Selinger's resignation, Rodney F. Price, the
Chairman of Thistle Hotels PLC and a consultant to Brierley Investments Ltd.,
("Brierley") a New Zealand investment holding company, was appointed Chairman of
the Board and Chief Executive Officer of Graham-Field. Mr. Price was formerly
the Chairman of Everest & Jennings and an executive director of Brierley.
Brierley currently holds approximately 24% of the voting power of the capital
stock of the Company. Paul Bellamy, the Chief Financial Officer of the Company
was named President and Chief Operating Officer.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Forward-Looking Statements
This report on Form 10-Q contains forward-looking statements as defined
by the Private Securities Litigation Reform Act of 1995. Forward-looking
statements include plans and objectives of management for future operations,
including plans and objectives relating to the future economic performance and
financial results of the Company. The forward-looking statements relate to (i)
the expansion of the Company's market share, (ii) the Company's growth into new
markets, (iii) the development of new products and product lines to appeal to
the needs of the Company's customers, (iv) the opening of new distribution and
warehouse facilities, (v) obtaining regulatory and governmental approvals, (vi)
the upgrading of the Company's technological resources and systems and (vii) the
retention of the Company's earnings for use in the operation and expansion of
the Company's business.
Important factors and risks that could cause actual results to differ
materially from those referred to in the forward-looking statements include, but
are not limited to, the effect of economic and market conditions, the impact of
the consolidation of healthcare practitioners, the impact of healthcare reform,
the Company's ability to effectively integrate acquired companies, the
termination of the Company's Exclusive Wheelchair Supply Agreement with P.T.
Dharma Polimetal ("P.T. Dharma"), an Indonesian company, the ability of the
Company to maintain its gross profit margins, the ability to obtain additional
financing to expand the Company's business, the failure of the Company to
successfully compete with the Company's competitors that have greater financial
resources, the loss of key management personnel or the inability of the Company
to attract and retain qualified personnel, adverse litigation results, the
acceptance and quality of new software and hardware products which will enable
the Company to expand its business, the acceptance and ability to manage the
Company's operations in foreign markets, possible disruptions in the Company's
computer systems or distribution technology systems, possible increases in
shipping rates or interruptions in shipping service, the level and volatility of
interest rates and currency values, the impact of current or pending legislation
and regulation, as well as the risks described from time to time in the
Company's filings with the Securities and Exchange Commission, which include
this report on Form 10-Q, the Company's annual report on Form 10-K for the year
ended December 31, 1997, and the section entitled "Risk Factors" in the
<PAGE> 20
Page 20
Company's Registration Statement on Form S-4 dated as of December 19, 1997.
The forward-looking statements are based on current expectations and
involve a number of known and unknown risks and uncertainties that could cause
the actual results, performance and/or achievements of the Company to differ
materially from any future results, performance or achievements, express or
implied, by the forward-looking statements. Readers are cautioned not to place
undue reliance on these forward-looking statements, and that in light of the
significant uncertainties inherent in forward-looking statements, the inclusion
of such statements should not be regarded as a representation by the Company or
any other person that the objectives or plans of the Company will be achieved.
Operating Revenues
Operating revenues for the quarter and six month period ended June 30,
1998 were $96,936,000 and $194,663,000, respectively, representing an increase
of approximately 55% and 64%, respectively over the same periods in the prior
year. Revenues for the quarter and six month period ended June 30, 1998 included
revenues of approximately $25.7 million and $50.3 million, respectively
attributable to the results for the Fuqua entities acquired on December 30,
1997, as well as the revenues of five additional companies acquired in 1997 (see
Note 6 to the Condensed Consolidated Financial Statements). The Company's
revenues for the quarter and six month period ended June 30, 1998 increased
approximately 4% and 7%, respectively, as compared to the same periods in the
prior year on a pro forma basis (as if all acquisitions completed in 1997 were
recorded as of January 1, 1997). The increase in overall operating revenues was
primarily attributable to the six acquisitions completed in 1997, the growth of
the Company's "Graham-Field Express" program and expansion of the Company's
Consolidation Advantage Program ("CAP"). Management believes that intense
competition within the healthcare industry will continue in 1998.
In March 1996, Graham-Field Express was introduced to offer "same-day"
and "next-day" service to home healthcare dealers of certain strategic home
healthcare products, including Lumex and Temco patient aids, adult incontinence
products, Everest & Jennings wheelchairs, Smith & Davis homecare beds,
nutritional supplements and other freight and time sensitive products. As of
June 30, 1998, the Company had opened seven (7) Graham-Field Express facilities
operating in the Bronx, New York; San Juan, Puerto Rico; Dallas, Texas;
Baltimore, Maryland; Cleveland, Ohio; Louisville, Kentucky; and Boston,
Massachusetts. The Graham-Field Express facility in Baltimore, Maryland began
operations in the second quarter of 1997; the Cleveland, Ohio; and Bowling
Green, Kentucky facilities were opened in the third quarter of 1997. The
Louisville, Kentucky facility (replacing the Bowling Green location) and the
Boston, Massachusetts facility began operations in the second quarter of 1998.
Management intends to moderate the growth of the Graham-Field Express program in
1998.
Interest and Other Income
Interest and other income for the three and six month periods ended
June 30, 1998 was $520,000, and $935,000, respectively as compared to $252,000
and $396,000 for the same periods in the prior year. The increase is primarily
due to interest of approximately
<PAGE> 21
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$90,000 and $130,000, respectively, earned on an advance to P.T. Dharma (see
Liquidity and Capital Resources), dividends of $44,000 and $125,000,
respectively, earned on preferred stock acquired in connection with the sale of
the Leather Operations, and net sublease income of approximately $98,000 and
$145,000, respectively, attributable to certain Fuqua properties.
Cost of Revenues
Cost of revenues as a percentage of operating revenues was 69.1% and
68.9% respectively for the three and six month periods ended June 30, 1998, as
compared to 67.9% and 68.1% recorded in the prior year. The Fuqua entities and
LaBac contributed higher gross profit margins, offset in large part, by a higher
mix of redistributed product primarily through the expansion of the GF Express
program, which historically earns lower gross profit margins and by operating
inefficiencies incurred at the Company's Temco manufacturing facility due to the
close-down of that facility which is expected to be completed in 1998.
Selling, General and Administrative Expenses
Selling, general and administrative expenses as a percentage of
operating revenues for the three and six month periods ended June 30, 1998 were
31.2% and 30.0% as compared to 23.6% and 23.5% recorded in the same periods in
the prior year. The increase is primarily attributable to higher corporate
office and administrative overhead to integrate the acquisitions completed in
1997, and the contribution of revenue by the Fuqua entities and LaBac at a
higher percentage of selling, general and administrative expenses.
Interest Expense
Interest expense for the three and six month periods ended June 30,
1998 increased to $3,015,000 and $5,758,000, respectively, as compared to
$1,169,000 and $2,163,000 for the same periods in the prior year. The increase
is primarily due to increased borrowings attributable to the Company's growth,
expansion of the Graham-Field Express Program, and the sale of the Company's
$100 million Senior Subordinated Notes (the "Senior Subordinated Notes") in
August 1997.
Net Income
The Company had a loss before income taxes of $2,828,000 and
$2,741,000, respectively for the three and six month periods ended June 30, 1998
as compared to income before income taxes of $4,394,000 and $8,104,000 for the
same periods in the prior year.
The decrease is primarily due to reduced margins, increased selling,
general and administrative expenses as a percentage of operating revenue, and
the increase in interest expense.
The Company had a net loss for the three and six month periods ended
June 30, 1998 of $2,028,000 and $2,741,000, respectively as compared to net
income of $2,713,000 and $4,896,000, for the same periods last year. The Company
has not provided any income
<PAGE> 22
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taxes or benefit for the six month period ended June 30, 1998 reflecting the
impact of nondeductible goodwill amortization expense on the statutory Federal
rate for 1998. The Company recorded income tax provisions of $1,681,000 and
$3,208,000 for the same period last year. Deferred taxes have not been provided
on the undistributed earnings of the foreign entities as it is management's
intention to invest such earnings in the entities indefinitely.
The Company's business has not been materially affected by inflation.
Liquidity and Capital Resources
The Company had net working capital of $101,398,000 at June 30, 1998,
as compared to $97,618,000 at December 31, 1997. The increase in working capital
is primarily attributable to working capital generated from operations of
$4,729,000, comprised of the net loss of $2,741,000, adjusted for $7,470,000 of
depreciation and amortization expense, plus proceeds of $4,687,000 from the
exercise of stock options and the recording of a receivable for a $2,385,000
settlement from Cybex (see Note 8 to the Condensed Consolidated Financial
Statements), offset by payments of $5,168,000 for the purchase of property,
plant and equipment, the receipt of preferred stock (a long-term asset) valued
at $1,539,000 as a component of the proceeds from the sale of the Leather
Operations and goodwill and acquisition adjustments totalling approximately
$765,000.
Cash used in operations for the six months ended June 30, 1998 was
$28,043,000, as compared to $17,793,000 in the same period in the prior year.
The principal reason for the increase in cash used in operations was a
$2,829,000 decrease in net income (adjusted for the change in depreciation and
amortization expense), a decrease in accrued expenses primarily relating to
payments against restructuring reserves (See Note 7 to the Condensed,
Consolidated Financial Statements) and acquisition related accruals and an
increase in other assets.
Management anticipates utilizing approximately $3,000,000 in cash
during the remainder of 1998 related to the restructuring and merger accruals
recorded in 1997.
The increase in other assets includes an advance in February 1998 of
$3.5 million to P.T. Dharma, the Company's supplier of commodity wheelchairs, in
consideration of the grant of an option to purchase the wheelchair assets of
P.T. Dharma for a price to be determined. During the option period which expires
on January 31, 1999, the Company is paid interest on the advance at an annual
interest rate of 10.3 percent. The advance is collateralized by shares of the
capital stock of P.T. Dharma, and is to be applied against the purchase price if
a purchase transaction is ultimately consummated. In the event the Company and
P.T. Dharma are unable to agree upon the terms of the transaction, the advance
is to be returned to the Company.
As at December 31, 1997, the allowance for doubtful accounts receivable
was increased $5,000,000 to reflect increased credit risk due to the anticipated
impact of state medicare reimbursement and procurement policies for certain
product lines and the extended payment terms being taken by the Company's
customers. During the six months ended June 30, 1998, $5,598,000 of fully
reserved accounts receivable was written off against the related reserve for
doubtful accounts.
<PAGE> 23
Page 23
The Company periodically evaluates recoverability of its tangible and
intangible assets in accordance with SFAS No. 121. In addition, based on
projected results for the remainder of 1998, the Company believes that it will
be in compliance with the financial covenants contained in its Senior Secured
Revolving Credit Facility, as amended (the "Credit Facility"), arranged by IBJ
Schroder Business Credit Corporation ("IBJ Schroder"). The Company anticipates
that its cash flow from operations, together with its current cash balance, and
the proceeds from its Credit Facility will be sufficient to meet its working
capital requirements. However, actual results and performance could differ.
The Credit Facility. As of June 30, 1998, the Company was not in
compliance with certain financial covenants contained in the Credit Facility. On
August 18, 1998, the Credit Facility was amended (the "August 1998 Amendment")
to provide for, among other things, the waiver of the financial covenant
defaults effective as of June 30, 1998 and the amendment of the financial
covenants for the balance of the term of the Credit Facility. In connection with
the August 1998 Amendment, the Company's line of credit, which provides for
borrowings on a revolving credit basis, subject to availability formulas,
including letters of credit and other terms and conditions, was reduced from
$100 million to $80 million. At June 30, 1998, the Company had availability to
borrow up to approximately $55 million under the Credit Facility, of which
approximately $35 million was utilized. Effective as of August 18, 1998,
borrowings bear interest at IBJ Schroder's prime rate (8.50% at June 30, 1998)
plus 1%. Prior to August 18, 1998, borrowings bore interest at Graham-Field's
option, at IBJ Schroder's prime rate or 2.25% above LIBOR, or 1.5% above IBJ
Schroder's banker's acceptance rate. The Credit Facility is secured by all of
the assets of Graham-Field and the capital stock of certain of its subsidiaries.
The Credit Facility contains certain customary terms and provisions,
including limitations with respect to the repayment or prepayment of principal
on subordinated debt, including the Senior Subordinated Notes, the incurrence of
additional debt, liens, transactions with affiliates and certain consolidations,
mergers and acquisitions and sales of assets. In addition, Graham-Field is
prohibited from declaring or paying any dividend or making any distribution on
any shares of common stock or preferred stock of Graham-Field (other than
dividends or distributions payable in its stock, or split-ups or
reclassifications of its stock) or applying any of its funds, property or assets
to the purchase, redemption or other retirement of any such shares, or of any
options to purchase or acquire any such shares. Notwithstanding the foregoing
restrictions, Graham-Field is permitted to pay cash dividends in any fiscal year
in an amount not to exceed the greater of (i) the amount of dividends due BIL
under the terms of the Series B and Series C Preferred Stock in any fiscal year,
or (ii) 12.5% of the net income of Graham-Field on a consolidated basis,
provided that no event of default under the Credit Facility shall have occurred
and be continuing or would exist after giving effect to the payment of the
dividends. The Credit Facility contains certain financial covenants, including a
cash flow coverage and leverage ratio, and an earnings before interest, taxes,
depreciation and amortization covenant, as well as the requirement that
Graham-Field reduce outstanding borrowings with the net cash proceeds of certain
asset sales.
The Senior Subordinated Notes. On August 4, 1997, Graham-Field issued
the Senior Subordinated Notes under Rule 144A of the Securities Act of 1933, as
amended (the "Securities Act"). On February 9, 1998, Graham-Field completed its
exchange offer to exchange the outstanding Senior Subordinated Notes for an
equal amount of the new Senior
<PAGE> 24
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Subordinated Notes, which have been registered under the Securities Act. The new
Senior Subordinated Notes are identical in all material respects to the
previously outstanding Senior Subordinated Notes. The Senior Subordinated Notes
bear interest at the rate of 9.75% per annum and mature on August 15, 2007. The
Senior Subordinated Notes are general unsecured obligations of Graham-Field,
subordinated in right of payment to all existing and future senior debt of
Graham-Field, including indebtedness under the Credit Facility. The Senior
Subordinated Notes are guaranteed (the "Subsidiary Guarantees"), jointly and
severally, on a senior subordinated basis by all existing and future restricted
subsidiaries of Graham-Field (the "Guaranteeing Subsidiaries"). The Subsidiary
Guarantees are subordinated in right of payment to all existing and future
senior debt of the Guaranteeing Subsidiaries, including any guarantees by the
Guaranteeing Subsidiaries of Graham-Field's obligations under the Credit
Facility.
The net proceeds from the offering of the Senior Subordinated Notes
were used to repay $60.3 million of indebtedness under the Credit Facility and
$5 million of indebtedness due to BIL. The balance of the proceeds were used for
general corporate purposes.
Under the terms of the Indenture, the Senior Subordinated Notes are not
redeemable at Graham-Field's option prior to August 15, 2002. Thereafter, the
Senior Subordinated Notes are redeemable, in whole or in part, at the option of
Graham-Field, at certain redemption prices plus accrued and unpaid interest to
the date of redemption. In addition, prior to August 15, 2000, Graham-Field may,
at its option, redeem up to 25% of the aggregate principal amount of Senior
Subordinated Notes originally issued with the net proceeds from one or more
public offerings of common stock at a redemption price of 109.75% of the
principal amount, plus accrued and unpaid interest to the date of redemption;
provided that at least 75% of the aggregate principal amount of Senior
Subordinated Notes originally issued remain outstanding after giving effect to
any such redemption.
The Indenture contains customary covenants including, but not limited
to, covenants relating to limitations on the incurrence of additional
indebtedness, the creation of liens, restricted payments, the sales of assets,
mergers and consolidations, payment restrictions affecting subsidiaries and
transactions with affiliates. In addition, in the event of a change of control
of Graham-Field as defined in the Indenture, each holder of the Senior
Subordinated Notes will have the right to require Graham-Field to repurchase
such holder's Senior Subordinated Notes, in whole or in part, at a purchase
price of 101% of the principal amount thereof plus accrued and unpaid interest
to the date of repurchase. In addition, Graham-Field will be required in certain
circumstances to make an offer to purchase Senior Subordinated Notes at a
purchase price equal to 100% of the principal amount thereof plus accrued and
unpaid interest to the date of purchase, with the net cash proceeds of certain
asset sales. The Credit Facility, however, prohibits Graham-Field from
purchasing the Senior Subordinated Notes without the consent of the lenders
thereunder.
In addition, the Indenture prohibits the Company from declaring or
paying any dividend or making any distribution or restricted payment as defined
in the Indenture (collectively, the "Restricted Payments") (other than dividends
or distributions payable in capital stock of the Company), unless, at the time
of such payment (i) no default or event of default shall have occurred and be
continuing or would occur as a consequence thereof; (ii) the Company would be
able to incur at least $1.00 of additional indebtedness under the fixed
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charge coverage ratio contained in the Indenture; and (iii) such Restricted
Payment, together with the aggregate of all Restricted Payments made by the
Company after the date of the Indenture is less than the sum of (a) 50% of the
consolidated net income of the Company for the period (taken as one accounting
period) beginning on April 1, 1997 to the end of the Company's most recently
ended fiscal quarter for which internal financial statements are available at
the time of such Restricted Payment (or, if such consolidated net income for
such period is a deficit, minus 100% of such deficit), plus (b) 100% of the
aggregate net cash proceeds received by the Company from contributions of
capital or the issue or sale since the date of the Indenture of capital stock of
the Company or of debt securities of the Company that have been converted into
capital stock of the Company.
<PAGE> 26
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Part II. Other Information
Item 1. Legal Proceedings
See Note 8 to the Condensed Consolidated Financial Statements.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Matters
On July 29, 1998, Irwin Selinger resigned as Chairman of the Board,
Chief Executive Officer and President of the Company, and entered into a
separation agreement (the "Separation Agreement") with the Company. For a
description of the terms and provisions of the Separation Agreement, see the
Company's Current Report on Form 8-K dated as of August 11, 1998.
Simultaneously with Mr. Selinger's resignation, Rodney F. Price, the
Chairman of Thistle Hotels PLC and a consultant to Brierley Investments Ltd.
("Brierley"), a New Zealand investment holding company, was appointed Chairman
of the Board and Chief Executive Officer of the Company. Mr. Price was formerly
the Chairman of Everest & Jennings International Ltd. and an executive director
of Brierley. Brierley currently holds approximately 24% of the voting power of
the capital stock of the Company. Paul Bellamy, the Chief Financial Officer of
the Company was named President and Chief Operating Officer.
Item 6. Exhibits and Reports on Form 8-K
Exhibits:
Exhibit No. 10. Waiver and Amendment No. 6 to Revolving Credit and
Security Agreement dated as of August 18, 1998.
Reports on Form 8-K:
The Company's Current Report on Form 8-K dated as of August 11, 1998
(Date of Event: July 29, 1998).
<PAGE> 27
Page 27
S I G N A T U R E S
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.
GRAHAM-FIELD HEALTH PRODUCTS, INC.
(Registrant)
/s/Rodney F. Price
-----------------------------------
Rodney F. Price
Chairman of the Board and
Chief Executive Officer
Date: August 18, 1998 /s/Paul Bellamy
-----------------------------------
Paul Bellamy
Vice President - Finance
Principal Financial Officer
<PAGE> 1
Exhibit No. 10
WAIVER AND AMENDMENT NO. 6
TO
REVOLVING CREDIT AND SECURITY AGREEMENT
THIS WAIVER AND AMENDMENT NO. 6 ("Amendment") is entered into as of
August 18, 1998, by and among GRAHAM-FIELD HEALTH PRODUCTS, INC., a corporation
organized under the laws of the State of Delaware ("Holdings"), GRAHAM-FIELD,
INC., a corporation organized under the laws of the State of New York ("Field"),
GRAHAM-FIELD EXPRESS, INC., a corporation organized under the laws of the State
of Delaware ("Express"), GRAHAM-FIELD TEMCO, INC., a corporation organized under
the laws of the State of New Jersey ("Temco"), GRAHAM-FIELD DISTRIBUTION, INC.,
a corporation organized under the laws of the State of Missouri
("Distribution"), GRAHAM-FIELD BANDAGE, INC., a corporation organized under the
laws of the State of Rhode Island ("Bandage"), GRAHAM-FIELD EXPRESS (PUERTO
RICO), INC., a corporation organized under the laws of the State of Delaware
("GFPR"), EVEREST & JENNINGS, INC., a corporation organized under the laws of
the State of California ("E & J"), LABAC SYSTEMS, INC., a corporation organized
under the laws of the State of Colorado ("LaBac"), MEDICAL SUPPLIES OF AMERICA,
INC., a corporation organized under the laws of the State of Florida
("Medapex"), HEALTH CARE WHOLESALERS, INC., a corporation organized under the
laws of the State of Georgia ("Health Care"), H C WHOLESALERS, INC., a
corporation organized under the laws of the State of Georgia ("HCW"), CRITICAL
CARE ASSOCIATES, INC., a corporation organized under the laws of the State of
Georgia ("Critical"), LUMEX/BASIC AMERICAN HOLDINGS, INC., a corporation
organized under the laws of the State of Delaware ("Lumex"), BASIC AMERICAN
MEDICAL PRODUCTS, INC., a corporation organized under the laws of the State of
Georgia ("Basic American"), LUMEX MEDICAL PRODUCTS, INC., a corporation
organized under the laws of the State of Delaware ("Lumex Medical"), PRISM
ENTERPRISES, INC., a corporation organized under the laws of the State of
Delaware ("Prism"), BASIC AMERICAN SALES AND DISTRIBUTION CO., INC., a
corporation organized under the laws of the State of Delaware ("Basic
Distribution"), PRISTECH, INC., a corporation organized under the laws of the
State of Delaware ("Pristech"), LUMEX SALES AND DISTRIBUTION CO., INC., a
corporation organized under the laws of the State of Delaware ("Lumex
Distribution") and MUL ACQUISITION CORP. II, a corporation organized under the
laws of the State of Delaware ("Mul Acquisition") (each a "Borrower" and
collectively "Borrowers"), the financial institutions which are now or which
hereafter become a party to (collectively, the "Lenders" and individually a
"Lender") the Loan Agreement (as defined below) and IBJ SCHRODER BUSINESS CREDIT
CORPORATION, a New York corporation ("IBJS"), as agent for Lenders (IBJS, in
such capacity, the "Agent").
BACKGROUND
Borrowers, Lenders and Agent are parties to a Revolving Credit and
Security Agreement dated as of December 10, 1996, as amended by an Amendment
Letter dated May 15, 1997, Amendment No. 1 dated June 25, 1997, Amendment No. 2
dated July 9, 1997, Amendment No.
<PAGE> 2
3 dated July 9, 1997, a Letter Amendment dated September 18, 1997, Amendment No.
4 and Joinder Agreement dated December 30, 1997 and an Amendment No. 5 dated as
of April 13, 1998 (as further amended, supplemented or otherwise modified from
time to time, the "Loan Agreement") pursuant to which Lenders provide Borrowers
with certain financial accommodations.
Borrowers have requested that Agent and Lenders waive various Events of
Default that have occurred and to make certain amendments to the Loan Agreement,
and Agent and Lenders are willing to do so on the terms and conditions set forth
below.
NOW, THEREFORE, in consideration of any loan or advance or grant of
credit heretofore or hereafter made to or for the account of Borrowers by Agent
and/or Lenders, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
1. Definitions. All capitalized terms not otherwise defined herein
shall have the meanings given to them in the Loan Agreement.
2. Waiver. Subject to the satisfaction of the conditions precedent set
forth in Section 4 below, Agent and Lenders hereby waive the Events of Default
that have occurred as a result of (i) Borrowers' non-compliance with Section 6.6
of the Loan Agreement due to Borrowers' failure to be in compliance with such
section for the period ending June 30, 1998 and (ii) the execution of that
certain Separation Agreement dated as of July 29, 1998 by and between Holdings
and Irwin Selinger relating to Mr. Selinger's termination of employment as an
officer and director of the Borrowers and severance arrangements for Mr.
Selinger. Agent and Required Lenders shall determine, in their sole discretion,
whether any future restructuring or other charges recorded by Borrowers during
the quarter ending September 30, 1998 or December 31,1998, which charges are
identified and segregated in the financial statements as non-recurring charges,
shall be excluded for purposes of calculating compliance with the financial
covenants contained in the Loan Agreement.
3. Amendment to Loan Agreement. Subject to satisfaction of the
conditions precedent set forth in Section 4 below, the Loan Agreement is amended
as follows:
(a) The following definitions are added to Section 1.2:
"Amendment No. 6" shall mean Waiver and Amendment No.
6 to Revolving Credit and Security Agreement dated as of August 18, 1998.
"Amendment No. 6 Effective Date" shall mean the date
all of the conditions set forth in Section 4 of Amendment No. 6 have been
satisfied.
"Net Cash Flow" shall mean for any period Cash Flow
during such period minus Total Debt Payments during such period.
"Selinger Separation Agreement" shall mean that
certain Separation
2
<PAGE> 3
Agreement dated as of July 29, 1998 by and between Holdings and Irwin Selinger.
(b) The following definitions in Section 1.2 are hereby
amended as follows:
"Maximum Revolving Advance Amount" shall mean
$80,000,000.
"Restructuring Charge Reserve" shall mean
$12,000,000.
"Revolving Interest Rate" shall mean an interest rate
per annum equal to the Alternate Base Rate plus one percent (1.0%).
(c) The penultimate sentence in Section 2.9 of the Loan
Agreement is amended in its entirety to provide as follows:
"The maximum amount of outstanding Acceptances shall
not exceed $0 in the aggregate at any time."
(d) Section 6.6 of the Loan Agreement is amended in its
entirety to provide as follows:
"6.6 Net Cash Flow.
(a) Cause Net Cash Flow to be equal to or
greater than ($4,500,000) at the end of the fiscal
quarter ending September 30, 1998 for the immediately
preceding three (3) month period;
(b) Cause Net Cash Flow to be equal to or
greater than ($8,500,000) at the end of the fiscal
quarter ending December 31, 1998 for the immediately
preceding six (6) month period;
(c) Cause Net Cash Flow to be equal to or
greater than ($10,000,000) at the end of the fiscal
quarter ending March 31, 1999 for the immediately
preceding nine (9) month period;
(d) Cause Net Cash Flow to be equal to or
greater than ($10,000,000) at the end of the fiscal
quarter ending June 30, 1999 for the immediately
preceding twelve (12) month period;
(e) Cause Net Cash Flow to be equal to or
greater than ($6,000,000) at the end of the fiscal
quarter ending September 30, 1999 for the immediately
preceding twelve (12) month period;
(f) Cause Net Cash Flow to be equal to or
greater than ($3,000,000) at the end of the fiscal
quarter ending December 31, 1999 for the immediately
preceding twelve (12) month period;
(g) Cause Net Cash Flow to be equal to or
greater than $0 at
3
<PAGE> 4
the end of the fiscal quarter ending March 31, 2000
and at the end of each fiscal quarter thereafter, in
each case with respect to the four (4) fiscal
quarters then ended.
For purposes of calculating Net Cash Flow pursuant to
this Section 6.6, the financial impact of the
Selinger Separation Agreement shall be excluded."
(e) Sections 6.7(d) and 6.7(e) are amended in their entirety
and Sections 6.7(f)-(i) are added to the Loan Agreement to provide as follows:
"(d) Cause EBITDA to be equal to or greater than
$3,000,000 at the end of the fiscal quarter ending
September 30, 1998 for such fiscal quarter (excluding
the financial impact of the Selinger Separation
Agreement);
(e) Cause EBITDA to be equal to or greater than
$4,000,000 at the end of the fiscal quarter ending
December 31, 1998 with respect to the fiscal quarter
then ended;
(f) Cause EBITDA to be equal to or greater than
$5,000,000 at the end of the fiscal quarter ending
March 31, 1999 with respect to the fiscal quarter
then ended;
(g) Cause EBITDA to be equal to or greater than
$6,000,000 at the end of the fiscal quarter ending
June 30,1999 with respect to the fiscal quarter then
ended;
(h) Cause EBITDA to be equal to or greater than
$7,000,000 at the end of the fiscal quarter ending
September 30,1999 with respect to the fiscal quarter
then ended; and
(i) Cause EBITDA to be equal to or greater than
$8,000,000 at the end of the fiscal quarter ending
December 31,1999, and at the end of each fiscal
quarter thereafter, in each case with respect to the
fiscal quarter then ended."
(f) Sections 16.2(b) is hereby amended by amending clause
(iii) in its entirety to provide as follows:
"(iii) alter the definition of the terms Required
Lenders or Availability Reserve or Restructuring
Charge Reserve or alter, amend or modify this Section
16.2(b)."
4. Conditions of Effectiveness. This Amendment shall become effective
upon satisfaction of the following conditions precedent: Agent shall have
received (i) eight (8) copies of this Amendment executed by Borrowers and
Required Lenders and consented and agreed to
4
<PAGE> 5
by Guarantor, (ii) a $100,000 Amendment Fee for the ratable benefit of Lenders
which execute this Amendment, (iii) payment of all amounts due under the fee
letter of even date herewith between Agent and Borrowers, and (iv) such other
certificates, instruments, documents, agreements and opinions of counsel as may
be required by Agent, Lenders or their counsel, each of which shall be in form
and substance satisfactory to Agent, Lenders and their counsel.
5. Covenants. (a) On or before September 2, 1998, Holders shall, and
shall cause each of its Subsidiaries to, pledge (i) all of the stock of each
Borrower (other than Holdings) and of AquaTherm Corp. and Everest & Jennings
International Ltd., (ii) sixty-five percent (65%) of the stock of Guarantor and
of Everest & Jennings de Mexico S.A. de C.V., and (iii) all of the stock of each
Subsidiary of each Borrower which exists after giving effect to the mergers
described on Schedule 1 to this Amendment (which mergers shall occur as soon as
reasonably practicable after the Amendment No. 6 Effective Date but no later
than October 1, 1998) to Agent pursuant to a Pledge Agreement in form of and
substance satisfactory to Agent, so that Agent shall have a first priority
perfected pledge of such stock.
(b) On or before September 2, 1998, Borrowers shall provide
Agent and Lenders with details regarding material litigation against any
Borrower as of the Amendment No. 6 Effective Date.
(c) Each Borrower shall deliver all notes received by such
Borrower in connection with any Receivable due to such Borrower, endorsed to the
order of IBJ Schroder Business Credit Corporation, as Agent, as part of the
Collateral in which Agent has an interest, within five (5) days of receipt of
all such notes by such Borrower; provided, however, with respect to notes
received prior to August 12, 1998, such notes shall be delivered to Agent on or
before August 26, 1998.
6. Eurodollar Rate Loans. Notwithstanding any provision of the Loan
Agreement, Borrowers acknowledge that (i) as of Amendment No. 6 Effective Date,
no Eurodollar Rate Loans shall be available to Borrowers under the Loan
Agreement and (ii) any Eurodollar Rate Loans outstanding on the Amendment No. 6
Effective Date shall be automatically converted without penalty into Domestic
Rate Loans.
7. Representations and Warranties. Each Borrower hereby represents and
warrants as follows:
(a) This Amendment and the Loan Agreement, as amended hereby,
constitute legal, valid and binding obligations of Borrowers and are enforceable
against Borrowers in accordance with their respective terms.
(b) Upon the effectiveness of this Amendment, each Borrower
hereby reaffirms all covenants, representations and warranties made in the Loan
Agreement to the extent the same are not amended hereby and agree that all such
covenants, representations and warranties shall be deemed to have been remade
as of the effective date of this Amendment.
(c) No Event of Default or Default has occurred and is
continuing or would
5
<PAGE> 6
exist after giving effect to this Amendment.
(d) Borrowers have no defense, counterclaim or offset with
respect to the Loan Agreement.
8. Effect on the Loan Agreement.
(a) Upon the effectiveness of Section 3 hereof, each reference
in the Loan Agreement to "this Agreement," "hereunder," "hereof," "herein" or
words of like import shall mean and be a reference to the Loan Agreement as
amended hereby.
(b) Except as specifically amended herein, the Loan Agreement,
and all other documents, instruments and agreements executed and/or delivered in
connection therewith, shall remain in full force and effect, and are hereby
ratified and confirmed.
(c) The execution, delivery and effectiveness of this
Amendment shall not, except as expressly provided in Section 2, operate as a
waiver of any right, power or remedy of Agent or Lenders, nor constitute a
waiver of any provision of the Loan Agreement, or any other documents,
instruments or agreements executed and/or delivered under or in connection
therewith.
(d) The Obligations under the Loan Agreement as amended
pursuant to this Amendment benefit fully from all collateral security and
guaranties with respect thereto.
9. Governing Law. This Amendment shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns and
shall be governed by and construed in accordance with the laws of the State of
New York.
10. Headings. Section headings in this Amendment are included herein
for convenience of reference only and shall not constitute a part of this
Amendment for any other purpose.
11. Counterparts. This Amendment may be executed by the parties hereto
in one or more counterparts, each of which shall be deemed an original and all
of which when taken together shall constitute one and the same agreement.
6
<PAGE> 7
IN WITNESS WHEREOF, this Amendment has been duly executed as of the day
and year first written above.
GRAHAM-FIELD HEALTH PRODUCTS, INC.
GRAHAM-FIELD, INC.
GRAHAM-FIELD EXPRESS, INC.
GRAHAM-FIELD TEMCO, INC.
GRAHAM-FIELD DISTRIBUTION, INC.
GRAHAM-FIELD BANDAGE, INC.
GRAHAM-FIELD EXPRESS (PUERTO RICO), INC.
EVEREST & JENNINGS, INC.
LABAC SYSTEMS, INC.
MEDICAL SUPPLIES OF AMERICA, INC.
HEALTH CARE WHOLESALERS, INC.
H C WHOLESALERS, INC.
CRITICAL CARE ASSOCIATES, INC.
LUMEX/BASIC AMERICAN HOLDINGS, INC.
BASIC AMERICAN MEDICAL PRODUCTS, INC
LUMEX MEDICAL PRODUCTS, INC.
PRISM ENTERPRISES, INC
BASIC AMERICAN SALES AND
DISTRIBUTION CO., INC.
PRISTECH, INC.
LUMEX SALES AND DISTRIBUTION CO., INC.
MUL ACQUISITION CORP. II
By: /s/ Rodney F. Price
-----------------------------------------
Chairman of the Board and
Chief Executive Officer
ATTEST:
/s/ Richard S. Kolodny
- ----------------------------
Vice-President
7
<PAGE> 8
CONSENTED AND AGREED TO:
EVEREST & JENNINGS CANADIAN LIMITED
By: Rodney F. Price
----------------------------
Chairman of the Board and
Chief Executive Officer
IBJ SCHRODER BUSINESS CREDIT CORPORATION,
as Lender and as Agent
By: /s/ James M. Steffy
-------------------------------------
James M. Steffy, Vice President
One State Street
New York, New York 10004
Commitment Percentage: 25.00%
NATIONAL CITY COMMERCIAL FINANCE, INC.
By: /s/ Kathryn Ellero
-----------------------------------
Name: Kathryn Ellero
Title: Vice President
1965 East Sixth Street, Suite 400
Cleveland, Ohio 44114
Commitment Percentage: 25.00%
PNC BANK, NATIONAL ASSOCIATION
By: /s/ William Gennario
------------------------------
Name: William Gennario
Title: Vice President
Two Tower Center
East Brunswick, New Jersey 08816
Commitment Percentage: 25.00%
8
<PAGE> 9
DEUTSCHE FINANCIAL SERVICES CORPORATION
By: /s/ David Mintert
-------------------------------
Name: David Mintert
Title:Vice President
1633 Des Peres Road
Suite 305
P.O. Box 31626
St. Louis, MO 63131
Commitment Percentage: 25.00%
9
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AT JUNE 30, 1998 AND THE CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1998
AS INCLUDED IN THE FORM 10Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 3,426
<SECURITIES> 0
<RECEIVABLES> 102,069
<ALLOWANCES> 0
<INVENTORY> 76,365
<CURRENT-ASSETS> 214,153
<PP&E> 37,664
<DEPRECIATION> 0
<TOTAL-ASSETS> 505,244
<CURRENT-LIABILITIES> 112,755
<BONDS> 106,933
0
31,600
<COMMON> 799
<OTHER-SE> 283,013
<TOTAL-LIABILITY-AND-EQUITY> 505,244
<SALES> 96,936
<TOTAL-REVENUES> 97,456
<CGS> 67,030
<TOTAL-COSTS> 67,030
<OTHER-EXPENSES> 30,239
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,015
<INCOME-PRETAX> (2,828)
<INCOME-TAX> (800)
<INCOME-CONTINUING> (2,028)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,028)
<EPS-PRIMARY> (.07)
<EPS-DILUTED> (.07)
</TABLE>
