<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 SEPTEMBER 30, 1997
-------------------------
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 0-10583
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- --------------------------------------------------------------------------------
FUQUA ENTERPRISES, INC.
-----------------------
(Exact name of registrant as specified in its charter)
DELAWARE 13-1988043
---------------------------------- -----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation of organization Identification No.)
ONE ATLANTIC CENTER, SUITE 5000
1201 W. PEACHTREE STREET, N.W., ATLANTA, GEORGIA 30309
------------------------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code: 404-815-2000
------------
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
-------- --------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. As of September 30, 1997,
there were 4,482,709 shares of Common Stock, Par Value $2.50 per share
outstanding.
<PAGE> 2
FUQUA ENTERPRISES, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
- September 30, 1997 and December 31, 1996
Condensed Consolidated Statements of Income
- for three months and nine months ended September 30, 1997 and September 30, 1996
Condensed Consolidated Statements of Cash Flows
- for nine months ended September 30, 1997 and September 30, 1996
Notes to Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 6. Exhibits and Reports on Forms 8-K
</TABLE>
(i)
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
FUQUA ENTERPRISES, INC. AND SUBSIDIARIES
(Interim Amounts Are Unaudited; Amounts In Thousands)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------ --------------
<S> <C> <C>
ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,072 $ 4,616
Receivables
Trade accounts, less allowance of $250 (1996, $250) . . . . . . . . . . . . . 42,419 33,871
Lease receivables, less allowance of $350 (1996, $350) . . . . . . . . . . . - 1,147
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46,433 42,059
Prepaid expenses and other assets . . . . . . . . . . . . . . . . . . . . . . . 3,594 2,620
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,802 3,477
-------------------------
Total Current Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 99,320 87,790
-------------------------
Property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . 52,710 48,927
Less accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . (18,546) (15,166)
-------------------------
Net Property, Plant and Equipment . . . . . . . . . . . . . . . . . . . . . 34,164 33,761
-------------------------
Intangible assets, less accumulated amortization of $1,282 (1996, $399) . . . . 37,655 20,014
Lease receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 3,503
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,746 1,408
-------------------------
Total Assets of Continuing Operations . . . . . . . . . . . . . . . . . . . 172,885 146,476
Total Assets of Discontinued Operations . . . . . . . . . . . . . . . . . . 3,637 4,935
-------------------------
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 176,522 $ 151,411
=========================
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
1
<PAGE> 4
CONDENSED CONSOLIDATED BALANCE SHEETS
FUQUA ENTERPRISES, INC. AND SUBSIDIARIES
(Interim Amounts Are Unaudited; Amounts In Thousands, Except Share Data)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses . . . . . . . . . . . . . . . . . . . . . $ 26,905 $ 29,992
Current portion of debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . 589 1,453
--------------------------
Total Current Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 27,494 31,445
Long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54,444 30,686
--------------------------
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81,938 62,131
--------------------------
Stockholders' equity
Preference stock, $1 par value:
authorized 8,000,000 shares; none issued . . . . . . . . . . . . . . . . . - -
Common stock, $2.50 par value:
authorized 20,000,000 shares; issued 4,528,669
(1996 - 4,523,669) shares . . . . . . . . . . . . . . . . . . . . . . . . . 11,322 11,309
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . 24,902 24,847
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59,233 53,971
--------------------------
95,457 90,127
Treasury stock, at cost: 45,960 (1996 - 44,822) shares . . . . . . . . . . . . (873) (847)
--------------------------
Total Stockholders' Equity . . . . . . . . . . . . . . . . . . . . . . . . 94,584 89,280
--------------------------
Total Liabilities and Stockholders' Equity . . . . . . . . . . . . . . . $ 176,522 $ 151,411
==========================
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
2
<PAGE> 5
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FUQUA ENTERPRISES, INC. AND SUBSIDIARIES
(Unaudited; Amounts In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
FOR THREE MONTHS ENDED FOR NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------------- ---------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES:
Net sales . . . . . . . . . . . . . . . . . . . . . . . $ 60,372 $ 49,655 $ 178,701 $ 127,053
Investment income . . . . . . . . . . . . . . . . . . . 104 572 187 1,839
-------------------------------------------------------
Total revenues . . . . . . . . . . . . . . . . . . . . 60,476 50,227 178,888 128,892
-------------------------------------------------------
COSTS AND EXPENSES:
Cost of sales . . . . . . . . . . . . . . . . . . . . . 47,377 38,210 141,655 98,584
Selling, general and administrative expenses . . . . . 8,968 7,881 26,982 19,682
Interest expense . . . . . . . . . . . . . . . . . . . 776 862 2,307 1,956
-------------------------------------------------------
Total costs and expenses . . . . . . . . . . . . . . . 57,121 46,953 170,944 120,222
-------------------------------------------------------
INCOME BEFORE INCOME TAXES . . . . . . . . . . . . . . . 3,355 3,274 7,944 8,670
INCOME TAXES . . . . . . . . . . . . . . . . . . . . . . 1,040 1,187 2,682 3,145
-------------------------------------------------------
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . $ 2,315 $ 2,087 $ 5,262 $ 5,525
=======================================================
PER SHARE:
Net income . . . . . . . . . . . . . . . . . . . . . . .51 .46 1.16 1.21
Common shares and equivalents . . . . . . . . . . . . . . 4,563 4,565 4,530 4,556
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
3
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FUQUA ENTERPRISES, INC. AND SUBSIDIARIES
(Unaudited; Amounts In Thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------------
1997 1996
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net cash used in continuing operations . . . . . . . . . . . . . . . . . . . $ (6,266) $ (6,584)
Net cash provided by discontinued operations . . . . . . . . . . . . . . . . 1,298 3,759
-------------------------
Net Cash Used In All Operations . . . . . . . . . . . . . . . . . . . . . (4,968) (2,825)
-------------------------
INVESTING ACTIVITIES
Purchase of business, net of cash acquired . . . . . . . . . . . . . . . . . 1,058 (41,300)
Sales of available for sale investments . . . . . . . . . . . . . . . . . . . - 21,465
Purchases of available for sale investments . . . . . . . . . . . . . . . . . - (20,341)
Purchases of property, plant and equipment . . . . . . . . . . . . . . . . . (2,070) (2,041)
Total from discontinued operations . . . . . . . . . . . . . . . . . . . . . - (165)
-------------------------
Net Cash Used In Investing Activities . . . . . . . . . . . . . . . . . . (1,012) (42,382)
-------------------------
FINANCING ACTIVITIES
Net increase in notes payable . . . . . . . . . . . . . . . . . . . . . . . . - 20,200
Payment of long-term liabilities . . . . . . . . . . . . . . . . . . . . . . (1,193) (2,064)
Additional long-term liabilities . . . . . . . . . . . . . . . . . . . . . . 4,587 -
Exercise of stock options . . . . . . . . . . . . . . . . . . . . . . . . . . 68 974
Acquired shares for treasury . . . . . . . . . . . . . . . . . . . . . . . . (26) (827)
-------------------------
Net Cash Provided By Financing Activities . . . . . . . . . . . . . . . 3,436 18,283
-------------------------
Increase (Decrease) in Cash and Cash Equivalents
Continuing Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,559) (30,518)
Discontinued Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 3,594
Cash and Cash Equivalents, Beginning of Period . . . . . . . . . . . . . . . . 4,616 29,000
-------------------------
Cash and Cash Equivalents, End of Period . . . . . . . . . . . . . . . . . . . $ 2,072 $ 2,076
=========================
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
4
<PAGE> 7
FUQUA ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
September 30, 1997
1. CORPORATE DEVELOPMENT ACTIVITIES:
Merger: On September 5, 1997, Fuqua Enterprises, Inc. ("Fuqua") entered
into an Agreement and Plan of Merger whereby Fuqua would be acquired by
Graham-Field Health Products, Inc. ("Graham-Field") in a tax free exchange of
2.1 shares of Graham-Field common stock for each share of Fuqua common stock
(the "Merger"). The exchange ratio is subject to upward adjustment in the event
that Graham-Field's average stock price for the 10-day period ending two days
prior to the Merger falls below $13.5714 and to downward adjustment in the
event that the average stock price exceeds $17.6190. Accordingly, Fuqua
stockholders are assured of receiving Graham-Field stock valued at not less
than $28.50 nor more than $37.00 in exchange for each Fuqua share.
The closing of the Merger, which currently is expected to occur in December
1997, is subject to customary conditions, including approval by the
stockholders of both Graham-Field and Fuqua and the receipt of all necessary
governmental and regulatory approvals. The principal stockholders of Fuqua,
which own approximately 46% of the outstanding shares (including the Fuqua
family which owns 32%), have entered into voting agreements with Graham-Field
pursuant to which they have agreed to vote their shares in favor of the Merger.
Graham-Field stockholders owning shares representing approximately 37% of the
outstanding voting power have entered into similar voting agreements. The
waiting period required by Hart-Scott-Rodino Antitrust Improvements Act expired
October 25, 1997. The Merger is expected to close in December 1997.
Acquisitions: On April 3, 1996, Fuqua acquired the medical products
operations of Lumex, Inc. (the "Lumex Division") from Cybex International, Inc.
(formerly Lumex, Inc., the "Seller"). The purchase price for the Lumex
Division was $40.7 million subject to a final adjustment as provided in the
asset sale agreement. The final purchase price adjustment is in dispute and is
being resolved through arbitration. Fuqua submitted its initial position
statement to the arbitrator in March 1997, which claimed that net assets at the
closing date were overstated by $9.3 million. In March 1997, Fuqua gave notice
to the Seller to preserve Fuqua's indemnification rights provided in the asset
sale agreement. 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 forthwith. 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 have continued the arbitration proceedings
which are expected to be completed by December 1997. On August 4, 1997, the
Seller filed its brief with the Appellate Division in connection with the
Seller's appeal of the May 9, 1997 Order of the New York County Supreme Court.
The appeal is scheduled to be considered by the Appellate Division in the
December 1997 term of court.
On February 26, 1997, Fuqua acquired 100% of the outstanding common stock
and warrants of Prism Enterprises, Inc. ("Prism"). Prism, whose 1996 net
sales were $12.0 million, is a manufacturer of therapeutic heat and cold packs
for medical and consumer uses and vacuum systems for obstetrical and other
applications. Prism's operating facilities are located in San Antonio, Texas
and Rancho Cucamonga, California. The purchase price was $19.5 million and was
financed with borrowings under Fuqua's Revolving Credit Facility. Based on the
preliminary allocation of purchase price, the excess purchase price over the
net assets acquired of $16.2 million was assigned to goodwill and is being
amortized on a straight-line basis over 30 years.
The results of operations of the Lumex Division are included in the
Condensed Consolidated Financial Statements for the three months and nine
months ended September 30, 1997. The results of operations of Prism are
included in the Condensed Consolidated Financial Statements for the period from
acquisition date, February 26, 1997, through
5
<PAGE> 8
September 30, 1997. The following pro forma summary presents Fuqua's
consolidated results from operations as if these acquisitions had occurred on
the first day of each of the respective three and nine month periods for Prism
and on January 1, 1996 for the Lumex Division. These pro forma results have
been prepared for comparative purposes only and do not purport to be indicative
of what would have occurred had the acquisitions actually been made as of those
dates or the results which may occur in the future.
<TABLE>
<CAPTION>
FOR THREE MONTHS FOR THREE MONTHS FOR NINE MONTHS FOR NINE MONTHS
ENDED ENDED ENDED ENDED
(Amounts in Thousands, Except Share Data) SEPTEMBER 30, 1997 SEPTEMBER 30, 1996 SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 60,372 $ 52,959 $ 179,278 $ 149,810
Net income 2,315 2,473 5,225 1,260
Net income per share .51 .54 1.15 .28
</TABLE>
2. PER SHARE CALCULATIONS:
Per share calculations are based on the average number of shares outstanding
plus common stock equivalents, if dilutive. Common stock equivalents include
the effect of options granted to key employees under Fuqua's Stock Option
Plans. Fully diluted per share calculations are not significantly different
from those reported.
3. INVENTORIES:
Inventories consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
(Amounts In Thousands) 1997 1996
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Finished goods $ 16,663 $ 16,238
Work in progress 11,238 12,338
Raw materials and supplies 18,532 13,483
-------- --------
$ 46,433 $ 42,059
======== ========
</TABLE>
4. SUPPLEMENTAL CASH FLOW INFORMATION:
<TABLE>
<CAPTION> FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
(Amounts In Thousands) 1997 1996
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Interest payments $ 2,220 $ 2,179
-------- --------
Income tax payments $ 1,364 $ 2,095
-------- --------
Issuance of debt in connection with business acquisition $ 19,500 $ 33,000
-------- --------
</TABLE>
5. CAPITAL STOCK:
During the three months ended September 30, 1997, options for 27,000 and
2,000 shares of common stock were granted at $21.188 and $24.50 per share,
respectively, no options were exercised and Fuqua acquired no shares of common
stock for its treasury. During the three months ended September 30, 1996,
options for 25,000 shares of common stock were granted at $24.00 per share, no
shares were exercised and Fuqua acquired no shares of common stock for its
treasury.
____________________
The unaudited condensed consolidated financial statements reflect all
adjustments (consisting of normal recurring accruals) which are, in the opinion
of management, necessary for a fair presentation of the results for the interim
periods. However, interim period results are not necessarily indicative of
results for the year, taken as a whole. It is suggested that these unaudited
condensed consolidated financial statements be read in conjunction with the
consolidated financial statements and notes thereto included in Fuqua's 1996
Annual Report on Form 10-K.
6
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Merger: On September 5, 1997, Fuqua Enterprises, Inc. ("Fuqua") entered
into an Agreement and Plan of Merger whereby Fuqua would be acquired by
Graham-Field Health Products, Inc. ("Graham-Field") in a tax free exchange of
2.1 shares of Graham-Field common stock for each share of Fuqua common stock
(the "Merger"). The exchange ratio is subject to upward adjustment in the
event that Graham-Field's average stock price for the 10-day period ending two
days prior to the Merger falls below $13.5714, and to downward adjustment in
the event that the average stock price exceeds $17.6190. Accordingly, Fuqua
stockholders are assured of receiving Graham-Field stock valued at not less
than $28.50 nor more than $37.00 in exchange for each Fuqua share.
The closing of the Merger, which currently is expected to occur in December
1997, is subject to customary conditions, including approval by the
stockholders of both Graham-Field and Fuqua and the receipt of all necessary
governmental and regulatory approvals. The principal stockholders of Fuqua,
which own approximately 46% of the outstanding shares (including the Fuqua
family which owns 32%), have entered into voting agreements with Graham-Field
pursuant to which they have agreed to vote their shares in favor of the Merger.
Graham-Field stockholders owning shares representing approximately 37% of the
outstanding voting power have entered into similar voting agreements. The
waiting period required by Hart-Scott-Rodino Antitrust Improvements Act expired
October 25, 1997. The Merger is expected to close in December 1997.
Acquisitions: On April 3, 1996, Fuqua acquired the medical products
operations of Lumex, Inc. (the "Lumex Division") from Cybex International, Inc.
(formerly Lumex, Inc., the "Seller"). The purchase price for the Lumex
Division was $40.7 million subject to a final adjustment as provided in the
asset sale agreement. The final purchase price adjustment is in dispute and is
being resolved through arbitration. Fuqua submitted its initial position
statement to the arbitrator in March 1997, which claimed that the net assets at
the closing date were overstated by $9.3 million. In March 1997, Fuqua gave
notice to the Seller to preserve Fuqua's indemnification rights provided in the
asset sale agreement. 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
forthwith. 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 have continued
the arbitration proceedings which are expected to be completed by December
1997. On August 4, 1997, the Seller filed its brief with the Appellate
Division in connection with the Seller's appeal of the May 9, 1997 Order of the
New York County Supreme Court. The appeal is scheduled to be considered by the
Appellate Division in the December 1997 term of court.
On February 26, 1997, Fuqua acquired 100% of the outstanding common stock
and warrants of Prism Enterprises, Inc. ("Prism"). Prism, whose 1996 net
sales were $12.0 million, is a manufacturer of therapeutic heat and cold packs
for medical and consumer uses and vacuum systems for obstetrical and other
applications. Prism's operating facilities are located in San Antonio, Texas
and Rancho Cucamonga, California. The purchase price was $19.5 million and was
financed with borrowings under Fuqua's Revolving Credit Facility. Based on the
preliminary allocation of purchase price, the excess purchase price over the
net assets acquired of $16.2 million was assigned to goodwill and is being
amortized on a straight-line basis over 30 years.
Medical Products Operations: Net sales in the third quarter of 1997 were
$26,526,000 as compared to $21,826,000 in the third quarter of 1996. The cost
of sales increased from $15,322,000 in the third quarter of 1996 to $16,857,000
in the third quarter of 1997. Selling, general and administrative costs
increased from $5,165,000 in the third quarter of 1996 to $6,479,000 in the
third quarter of 1997. Net sales during the nine months ended September 30,
1997 were $77,321,000 as compared to $49,596,000 in the comparable period of
1996. The cost of sales during the nine months ended September 30, 1997 were
$51,889,000 as compared to $35,275,000 in the nine months ended September 30,
1996. Selling, general and administrative costs increased from $11,559,000 in
the nine months ended September 30, 1996 to $18,621,000 in the nine months
ended September 30, 1997. The increases in
7
<PAGE> 10
net sales, cost of sales and selling, general and administrative costs are due
principally to the acquisition of the Lumex Division and Prism which are
included in the periods presented for 1997, but not in any (Prism) or only
portions (Lumex Division) of the comparable periods of 1996.
Inventories at September 30, 1997 were $16,875,000 as compared to
$17,279,000 at December 31, 1996 and accounts receivable at September 30, 1997
were $17,653,000 as compared to $16,879,000 at December 31, 1996. The decrease
in inventories resulted from improvements in operational efficiencies at the
Lumex Division and Basic American Medical Products, Inc. which more than offset
the addition of Prism's inventories. The increase in accounts receivable is
due principally to the acquisition of Prism.
Capital expenditures for the Medical Products Operations were $886,000 in
the third quarter of 1997 as compared to $459,000 in the third quarter of 1996.
Capital expenditures were $1,830,000 in the first nine months of 1997 as
compared to $805,000 in the first nine months of 1996. Capital expenditures
are expected to be approximately $1,950,000 for the entire year of 1997.
Depreciation and amortization expense for the third quarter of 1997 was
$973,000 as compared to $681,000 in the third quarter of 1996. Depreciation
and amortization expense was $1,830,000 in the first nine months of 1997 as
compared to $1,529,000 in the first nine months of 1996.
Leather Operations: Net sales of the Leather Operations increased
$6,067,000 or 21.8% in the third quarter of 1997 versus the comparable period
of 1996, principally as a result of increased quantities of leather sold. Net
sales of the Leather Operations increased $23,981,000 or 31.0% in the first
nine months of 1997 as compared to the first nine months of 1996. Sales to
foreign customers represented 39.0% of net sales in the third quarter of 1997
as compared to 34.9% of net sales in the third quarter of 1996.
The profit margin decreased to 5.2% of sales in the third quarter of 1997
from 11.2% in the comparable period of 1996 and decreased to 5.5% of sales in
the first nine months of 1997 from 11.2% in the comparable period of 1996,
primarily due to the reduction of raw material hide inventories which were
acquired when prices were higher and a temporary reduction in shipments to a
significant customer in 1997.
Selling, general and administrative expenses decreased $124,000 or 6.8% in
the third quarter of 1997 as compared to the third quarter of 1996,
representing 5.0% of net sales and 6.6% in the comparable period of 1996 due
principally to Irving Tanning Company's operations in China. Selling, general
and administrative expenses in the first nine months of 1997 were $6,123,000,
which represented an increase of $617,000 or 11.2% compared to the first nine
months of 1996. The increase in selling, general and administrative expenses
was principally due to increased selling expenses associated with higher levels
of foreign sales.
Accounts receivable increased to $24,766,000 at September 30, 1997, as
compared to $15,803,000 at December 31, 1996. Inventories increased 19.3%,
from $24,780,000 at December 31, 1996 to $29,558,000 at September 30, 1997.
The increases in accounts receivable and inventories were due principally to
seasonal factors.
Capital expenditures for the Leather Operations were $453,000 in the third
quarter of 1997 and $1,295,000 in the first nine months of 1997, and are
expected to be approximately $1,765,000 for the entire year of 1997.
Depreciation expense for the Leather Operations in the third quarter of 1997
was $421,000 as compared to $432,000 in the comparable period of 1996.
Depreciation expense was $1,269,000 in the first nine months of 1997 as
compared to $1,324,000 in the comparable period of 1996.
Corporate Office Operations: Investment income in the third quarter of 1997
was $54,000 as compared to $564,000 in the comparable period of 1996.
Investment income in the first nine months of 1997 was $129,000 as compared to
$1,831,000 in the first nine months of 1996. The decrease in investment income
in 1997 reflects the lower levels of funds available for investment as a result
of business acquisitions.
Interest expense in the third quarter of 1997 was $776,000 as compared to
$862,000 in the comparable period of 1996 and was $2,307,000 in the first nine
months of 1997 as compared to $1,956,000 in the first nine months of 1996,
reflecting higher interest costs and fees associated with a larger amount of
outstanding debt arising from the acquisitions of the Lumex Division and Prism.
8
<PAGE> 11
General and administrative expenses for corporate office activities were
$859,000 in the third quarter of 1997 as compared to $892,000 in the comparable
period of 1996 and were $2,238,000 in the first nine months of 1997 as compared
to $2,617,000 in the first nine months of 1996. The decrease resulted mainly
from costs and expenses associated with higher 1996 corporate development
activities as compared to such activities during 1997.
Recent Pronouncements: In February 1997, the Financial Accounting Standards
Board issued Statement No. 128, Earnings per Share, which is required to be
adopted on December 31, 1997. At that time, Fuqua will be required to change
the method currently used to compute earnings per share and to restate all
prior periods. Under the new requirements for calculating primary earnings per
share, the dilutive effect of stock options will be excluded. Since Fuqua does
not have a significant amount of common stock equivalents, the impact of
Statement No. 128 on the calculation of earnings per share for the quarter and
nine-month period ended September 30, 1997 is not material.
Statement of Financial Accounting Standards No. 130 ("Statement No. 130")
establishes standards for the reporting and display of comprehensive income and
its components in a full set of general purpose financial statements.
Statement of Financial Accounting Standards No. 131 establishes standards for
disclosures of segment information about products and services, geographic
areas, major customers, and certain interim disclosures of segment information
which is not required by accounting standards currently applied by Fuqua.
These statements are required to be adopted by Fuqua as of January 1, 1998.
Fuqua does not anticipate that Statements No. 130 and No. 131 will have a
material impact on Fuqua's consolidated financial statements.
LIQUIDITY AND CAPITAL RESOURCES:
At September 30, 1997, Fuqua had $2,072,000 in cash and cash equivalents and
$45,000,000 in borrowing capacity under Fuqua's Revolving Credit Facility.
Management believes that Fuqua has adequate resources and borrowing capacity to
meet its obligations when due and to pursue its corporate development
activities.
Certain matters included herein may constitute "forward-looking statements"
within the meaning of Federal securities laws. These forward looking
statements reflect management's current expectations and are based upon
currently available data. Actual results are subject to future events, risks
and uncertainties, such as competition, inflation, timing of capital
expenditures and other risk factors, which could materially impact performance
from that expressed or implied in these statements.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS:
On April 3, 1996, Fuqua acquired the medical products operations of Lumex,
Inc. (the "Lumex Division") from Cybex International, Inc. (formerly Lumex,
Inc., the "Seller"). The purchase price for the Lumex Division was $40.7
million, subject to a final purchase price adjustment as provided in the asset
sale agreement. The final purchase price adjustment is in dispute and is being
resolved through arbitration. Fuqua submitted its initial position statement
to the arbitrator in March 1997, which claimed that net assets at the closing
date were overstated by $9.3 million. In March 1997, Fuqua gave notice to the
Seller to preserve Fuqua's indemnification rights provided in the asset sale
agreement. 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 forthwith. 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 have continued the arbitration proceedings
which are expected to be completed by December 1997. On August 4, 1997, the
Seller filed its brief with the Appellate Division in connection with the
Seller's appeal of the May 9, 1997 Order of the New York County Supreme Court.
The appeal is scheduled to be considered by the Appellate Division in the
December 1997 term of court.
9
<PAGE> 12
OSHA Matter: By a Settlement Agreement dated September 5, 1996, the Lumex
Division agreed to accept two serious and one other than serious citations
alleging violations of regulations promulgated under the Occupational Safety
and Health Act relating to machine guarding at its Bay Shore, New York
facility, along with the total penalty of $1,013. As part of that
Settlement Agreement, the Lumex Division agreed to an abatement schedule to
install guarding on other machines at the Bay Shore, New York facility. On
August 8, 1997, the Occupational Safety and Health Administration ("OSHA")
issued a Notification of Failure to Abate Alleged Violations against the Lumex
Division regarding the Bay Shore facility, proposing a penalty of $178,500.
Also on August 8, 1997, OSHA issued one serious and one willful citation
against the Lumex Division regarding the Bayshore facility, proposing a penalty
of $115,500. By letter dated August 28, 1997, the Lumex Division contested the
August 8, 1997 Notification of Failure to Abate Alleged Violations and
citations.
The nature of Fuqua's business results in claims or litigation which
management believes to be routine and incidental to Fuqua's business. Fuqua
maintains insurance in such amounts and with such coverages and deductibles as
management believes are reasonable and prudent, although in certain actions,
plaintiffs request damages that may not be covered by insurance. Management
does not believe that the outcome of any such pending claims and litigation
will have a material adverse effect upon Fuqua's results of operations or
financial condition, although no assurance can be given as to the ultimate
outcome of any such claim or litigation.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Listing of Exhibits
2(a) Agreement and Plan of Merger by and among Graham-Field Health
Products, Inc., GFHP Acquisition Corp., and Fuqua dated as of
September 5, 1997 (Incorporated by reference from Fuqua's
Current Report on Form 8-K dated September 5, 1997).
2(b) Amendment No. 1, dated as of September 29, 1997, to the
Agreement and Plan of Merger by and among Graham-Field Health
Products, Inc., GFHP Acquisition Corp., and Fuqua dated as of
September 5, 1997.
10 Letter Agreement dated September 5, 1997 by and among J. B.
Fuqua, J. Rex Fuqua, Graham-Field Health Products, Inc., GFHP
Acquisition Corp. and Fuqua.
11 Statement of Computation of Earnings Per Share
27 Financial Data Schedule (for SEC use only) Article 5
(b) Reports on Form 8-K
A report on Form 8-K dated September 5, 1997 was filed
announcing the execution of the Agreement and Plan of Merger
by and among Graham-Field Health Products, Inc., GFHP
Acquisition Corp., and Fuqua.
10
<PAGE> 13
SIGNATURES
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.
<TABLE>
<S> <C>
FUQUA ENTERPRISES, INC.
REGISTRANT
s/s Brady W. Mullinax, Jr.
--------------------------------------
Brady W. Mullinax, Jr., Vice President-Finance,
Treasurer and Chief Financial Officer
(Principal Financial and Accounting Officer
and Executive Officer duly authorized to sign
on behalf of the registrant)
Date: November 14, 1997
</TABLE>
11
<PAGE> 1
EXHIBIT 2(b)
AMENDMENT NO. 1 TO
AGREEMENT AND PLAN OF MERGER
THIS AMENDMENT NO. 1 TO AGREEMENT AND PLAN OF MERGER (the "Amendment"),
dated as of September 29, 1997, amends that certain Agreement and Plan of Merger
(the "Merger Agreement") dated as of September 5, 1997, by and among
GRAHAM-FIELD HEALTH PRODUCTS, INC., a Delaware corporation ("Buyer") , GFHP
ACQUISITION CORP., a Delaware corporation and a wholly owned subsidiary of Buyer
("Sub") and FUQUA ENTERPRISES, INC., a Delaware corporation ("Target").
W I T N E S S E T H:
WHEREAS, each of the Buyer, Sub and Target has entered into the Merger
Agreement; and
WHEREAS, each of Buyer, Sub and Target desires to amend the Merger
Agreement to correct certain matters, as set forth herein;
NOW, THEREFORE, in consideration of the foregoing premises and the
agreements contained herein the parties hereto agree as follows:
1. Section 6.23 of the Merger Agreement is hereby deleted and replaced
in its entirety with the following:
"6.23 VOTE REQUIRED. The affirmative vote of a majority of the
votes cast by the holders of the outstanding shares of Buyer
Capital Stock entitled to vote and voting as a single class is
the only vote of the holders of any class or series of capital
stock of Buyer required to approve the issuance of shares of
Buyer Common Stock pursuant to the Merger (including the
shares to be issued in connection with the performance of the
obligations set forth in Section 3.5), as and to the extent
required by Law, by the provisions of any governing
instruments, or by the rules of the NYSE."
2. The fourth sentence of Section 8.1 of the Merger Agreement is hereby
deleted and replaced in its entirety with the following:
"Buyer shall call a Stockholders' Meeting, to be held as soon
as reasonably practicable after the Registration Statement is
declared effective by the SEC, for the purpose of voting upon
the issuance of shares of Buyer Common Stock pursuant to the
Merger, and such other related matters as it deems appropriate
(including, without limitation, the adoption of an amendment
to increase the number of shares that may be issued under the
Buyer's Incentive Program by 1,500,000)."
3. The second sentence of Section 9.1(a) of the Merger Agreement is
hereby deleted and replaced in its entirety with the following:
"The stockholders of Buyer shall have approved the issuance of
shares of Buyer Common Stock pursuant to the Merger (including
the shares to be issued in connection with the performance of
the obligations set forth in Section 3.5), as and to the
extent required by Law, by the provisions of any governing
instrument, or by the rules of the NYSE."
<PAGE> 2
4. Section 11.1(b) of the Merger Agreement is amended to delete the
term "Buyer Plan Amendment" and the related reference in Section 11.1(b) to
Section 8.1.
5. This Amendment may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
6. This Amendment shall be governed by and construed in accordance with
the Laws (as such term is defined in the Merger Agreement) of the State of
Delaware, without regard to any applicable conflicts of Laws.
7. Except as specifically amended hereby, the Merger Agreement shall
remain in full force and effect and is hereby ratified and confirmed.
IN WITNESS WHEREOF, each of Buyer, Sub and Target has caused this
Amendment to be executed on its behalf by its duly authorized officers as of the
day and year first above written.
GRAHAM-FIELD HEALTH PRODUCTS, INC.
By: s/s Irwin Selinger
-----------------------------------------------------
Chairman of the Board and Chief Executive Officer
GFHP ACQUISITION CORP.
By: s/s Irwin Selinger
-----------------------------------------------------
Chairman of the Board and Chief Executive Officer
FUQUA ENTERPRISES, INC.
By: s/s J. Rex Fuqua
-----------------------------------------------------
Chairman of the Board
<PAGE> 1
EXHIBIT 10
September 5, 1997
Graham-Field Health Products, Inc.
400 Rabro Drive East
Hauppage, New York 11788
Ladies and Gentlemen:
Reference is made to that certain Agreement and Plan of Merger, dated
of even date herewith (the "Merger Agreement"), by and among Graham-Field Health
Products, Inc. ("Buyer"), GFHP Acquisition Corp. ("Sub") and Fuqua Enterprises,
Inc. ("Target"). In the event that the transactions contemplated under the
Merger Agreement shall have been consummated and the Effective Time shall have
occurred, the following is our understanding of the relative rights and
obligations with respect to the use of the Fuqua Marks, as defined below. Unless
otherwise defined herein, capitalized terms used herein shall have the meaning
set forth in the Merger Agreement.
1. From the Effective Time until the second anniversary of the
Effective Time, Mr. J. B. Fuqua and Mr. J. Rex Fuqua will, and will cause their
affiliates to, refrain from using any designation, business name, tradename,
trademark, servicemark or logo (the "Marks") which contain the word "Fuqua" in
connection with the manufacture, distribution or sale of medical products in the
medical, surgical and healthcare industries throughout the world.
2. From the Effective Time until the first anniversary of the Effective
Time, Mr. J. B. Fuqua and Mr. J. Rex Fuqua will, and will cause their affiliates
to, refrain from using any Marks which contain the word "Fuqua" in connection
with the manufacture and sale of leather and tanned goods in the United States.
3. Immediately following the Effective Time, Buyer, Sub, Target and
their affiliates (collectively, "GFI") will refrain from using any Marks which
contain the word "Fuqua."
4. Messrs. Fuqua shall retain all intellectual property rights to the
Fuqua Marks during the term of this Agreement.
5. GFI shall promptly notify Messrs. Fuqua of any infringements or
potential infringements, imitations by others, or any other violation of,
challenge to, or claim to the Fuqua Marks by any person ("Infringements") of
which it has actual knowledge. Messrs. Fuqua shall have the sole right to
determine what action, if any, shall be taken on account of such Infringements.
Messrs. Fuqua may commence or prosecute any
<PAGE> 2
claims or suits in their own name, whether collectively or individually, or in
any other manner they choose. GFI shall not share in any proceeds received by
Messrs. Fuqua (by settlement or otherwise) in connection with any formal or
informal action brought by Messrs. Fuqua hereunder. GFI will provide reasonable
cooperation with respect to the prosecution of any such claim.
6. This Agreement shall be governed by, construed and enforced in
accordance with the laws of the State of Georgia, and the parties hereto agree
to submit to the jurisdiction of the courts of the State of Georgia, County of
Fulton, in connection with any dispute arising out of this Agreement.
7. This Agreement is the entire contract between the parties with
respect to the subject matter hereof.
[SIGNATURE PAGE FOLLOWS]
-2-
<PAGE> 3
Very truly yours,
By: s/s J. B. Fuqua
-------------------------------
J. B. Fuqua
By: s/s J. Rex Fuqua
-------------------------------
J. Rex Fuqua
Receipt Acknowledged and Terms
Herein Accepted
GRAHAM-FIELD HEALTH PRODUCTS, INC.
By: s/s Irwin Selinger
----------------------------------
Name: Irwin Selinger
---------------------------------
Title: Chairman of the Board & CEO
-----------------------------------
GFHP ACQUISITION CORP.
By: s/s Irwin Selinger
----------------------------------
Name: Irwin Selinger
---------------------------------
Title: Chairman of the Board and
-----------------------------------
Chief Executive Officer
--------------------------------
FUQUA ENTERPRISES, INC.
By: s/s J. Rex Fuqua
----------------------------------
Name: J. Rex Fuqua
---------------------------------
Title: Chairman of the Board
-----------------------------------
-3-
<PAGE> 1
EXHIBIT 11
FUQUA ENTERPRISES, INC.
NUMBER OF SHARES USED IN COMPUTING EARNINGS PER SHARE
SEPTEMBER 30, 1997
PRIMARY EARNINGS PER SHARE:
TREASURY STOCK METHOD:
<TABLE>
<CAPTION>
NUMBER OF
TRADING TOTAL TOTAL
MONTH DAYS HIGH LOW
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
July 22 $ 479.563 $ 471.625
August 21 463.125 453.000
September 21 623.500 613.563
-- ---------- ----------
64 $1,566.188 $1,538.188 $3,104.376
== ========== ========== ==========
<CAPTION>
AVERAGE: $3,104.376 divided by 64 divided by 2 = $24.253
=====================================================================================================
OPTIONS OPTION
OUTSTANDING SHARES PRICE EXTENSION
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
26,500 $ 21.188 $ 561,469
4,000 18.875 75,500
117,400 21.250 2,494,750
23,000 20.375 468,625
0 24.500 0
5,000 21.000 105,000
15,000 20.625 309,375
4,000 18.625 74,500
150,000 20.500 3,075,000
100,000 18.375 1,837,500
74,500 22.125 1,648,312
------- -----------
Total 519,400 $10,650,031
======= ===========
- -----------------------------------------------------------------------------------------------------
<CAPTION>
Third
Quarter
-------
<S> <C>
Average Price (above) $ 24,253
----------
Total Option Extension Divided by Average Price 439,123
Options Outstanding 521,400
----------
Common Stock Equivalents - Dilutive (anti-dilutive) 80,277
Average Shares Outstanding (see page 2) 4,482,709
----------
Use for Primary Earnings Per Share 3rd Quarter 4,562,986
----------
Use for Primary Earnings Per Share Nine-month period
(Average for 1st, 2nd and 3rd Quarters) 4,530,113
----------
- -----------------------------------------------------------------------------------------------------
</TABLE>
-continued-
1
<PAGE> 2
FULLY DILUTED EARNINGS PER SHARE:
AVERAGE NUMBER OF SHARES OUTSTANDING:
<TABLE>
<CAPTION>
BEGINNING ENDING NUMBER SHARES
DATE OF DAYS OUTSTANDING EXTENSION
- ------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C>
7-1-97 7-31-97 31 4,482,709 138,963,979
8-1-97 8-31-97 31 4,482,709 138,963,979
9-1-97 9-30-97 30 4,482,709 134,481,270
-- -----------
92 412,409,228
== ===========
<CAPTION>
Average Number of Shares Outstanding:
Third Quarter (Extension Divided by Number of Days) 4,482,709
- ------------------------------------------------------------------------------------------------------------
THIRD
QUARTER
-------
<S> <C>
Closing Price - 9-30-97 $ 30,813
----------
Total Option Extension (from page 1) Divided by Closing Price 345,640
Options Outstanding 519,400
----------
Common Stock Equivalents 173,760
Average Shares Outstanding (from above) 4,482,709
----------
Fully Diluted Shares 4,656,469
Less Primary Shares (from page 1) 4,562,986
----------
Additional Shares 93,483
----------
Percentage 2.05%
(Note: Less than 3.0%; no fully diluted presentation required.)
- ------------------------------------------------------------------------------------------------------------
</TABLE>
2
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
SEPTEMBER 30, 1997 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF FUQUA
ENTERPRISES, INC. INCLUDED IN FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 2,072
<SECURITIES> 0
<RECEIVABLES> 42,419
<ALLOWANCES> (600)
<INVENTORY> 46,433
<CURRENT-ASSETS> 99,320
<PP&E> 52,710
<DEPRECIATION> (18,546)
<TOTAL-ASSETS> 176,522
<CURRENT-LIABILITIES> 27,494
<BONDS> 54,444
0
0
<COMMON> 11,322
<OTHER-SE> 83,262
<TOTAL-LIABILITY-AND-EQUITY> 176,522
<SALES> 178,701
<TOTAL-REVENUES> 178,888
<CGS> 141,655
<TOTAL-COSTS> 168,637
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 176
<INTEREST-EXPENSE> 2,307
<INCOME-PRETAX> 7,944
<INCOME-TAX> 2,682
<INCOME-CONTINUING> 5,262
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,262
<EPS-PRIMARY> 1.16
<EPS-DILUTED> 0
</TABLE>
