-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SZ3/Zs6uiYYEEwUN/9k+TP7amzdt5JGd8iYExk1ZiiTEbHnb891bvGvHe6bBNooI 1tqxJ36GOzz8dTkC5Td7+A== 0000950144-97-002690.txt : 19970327 0000950144-97-002690.hdr.sgml : 19970327 ACCESSION NUMBER: 0000950144-97-002690 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970321 DATE AS OF CHANGE: 19970326 SROS: CSX SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FUQUA ENTERPRISES INC CENTRAL INDEX KEY: 0000088190 STANDARD INDUSTRIAL CLASSIFICATION: 3100 IRS NUMBER: 131988043 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-10583 FILM NUMBER: 97560874 BUSINESS ADDRESS: STREET 1: ONE ATLANTIC CENTER STE 5000 STREET 2: 1201 W PEACHTREE ST NW CITY: ATLANTA STATE: GA ZIP: 30309 BUSINESS PHONE: 4048152000 MAIL ADDRESS: STREET 1: ONE ATLANTIC CENTER STREET 2: 1201 W PEACHTREE ST NW STE 5000 CITY: ATLANTA STATE: GA ZIP: 30309 FORMER COMPANY: FORMER CONFORMED NAME: VISTA RESOURCES INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: SEAGRAVE CORP /DE/ DATE OF NAME CHANGE: 19801108 10-K405 1 FUQUA ENTERPRISES FORM 10-K405 1 FORM 10-K SECURITIES & EXCHANGE COMMISSION WASHINGTON, D.C. 20549 (MARK ONE) [x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED, EFFECTIVE OCTOBER 7, 1996). FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996 ----------------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) FOR THE TRANSITION FROM TO --------------- ------------------- Commission File Number 0-10583 ------- 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 or 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 ------------ SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED ---------------------------------- ------------------------------- Common Stock, $2.50 par value New York Stock Exchange, Inc. SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: None 2 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 and (2) has been subject to such filing requirements for the past 90 days. Yes x No ------- -------- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ x ] The aggregate market value of the voting stock of the registrant (based upon the closing price on March 14, 1997 on the NYSE) held by non-affiliates was $54,269,752. The number of shares of Common Stock outstanding as of March 14, 1997 was 4,478,847. - - -------------------------------------------------------------------------------- DOCUMENTS INCORPORATED BY REFERENCE Certain portions of the registrant's definitive Proxy Statement to be filed in connection with the Annual Meeting of Stockholders to be held on May 3, 1997 (the "Proxy Statement") are incorporated by reference into Part III of this Report. ii 3 FUQUA ENTERPRISES, INC. INDEX TO REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1996
Page No. ---- PART I Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Medical Products Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Leather Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Discontinued Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . 6 Executive Officers of the Registrant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 PART II Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters . . . . . . . . 7 Item 6. Selected Consolidated Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations . . 8 Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . 11 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . 12 PART III Item 10. Directors and Executive Officers of the Registrant . . . . . . . . . . . . . . . . . . . 12 Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Item 12. Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . . 12 Item 13. Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . . . . 12 PART IV Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K . . . . . . . . . . . . . 13 OTHER SECTIONS Section F Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . F-1/15 Section S Financial Statement Schedule - Item 14(a) . . . . . . . . . . . . . . . . . . . . . . . . S-1
iii 4 PART I ITEM 1. BUSINESS Fuqua Enterprises, Inc. ("Fuqua"), formerly Vista Resources, Inc., was founded in 1881 and was incorporated in 1900 under the laws of West Virginia. In 1965, it was reincorporated under Delaware law. Fuqua's principal executive offices are located at One Atlantic Center, Suite 5000, 1201 W. Peachtree Street, N.W., Atlanta, Georgia 30309. Fuqua, through its subsidiaries, is a manufacturer of a variety of products, including beds, patient aids, specialty seating, bathroom safety, mobility products, vacuum systems, therapeutic support systems and heat and cold packs for the acute, long-term and home health care markets and also produces a broad line of leathers that are sold to manufacturers of shoes, handbags, personal leather goods and furniture in both the United States and foreign markets. FOR FINANCIAL INFORMATION REGARDING INDUSTRY SEGMENTS AND FOREIGN AND DOMESTIC SALES, SEE NOTE 10 TO FUQUA'S CONSOLIDATED FINANCIAL STATEMENTS. During 1995, Fuqua acquired Basic American Medical Products, Inc. ("Basic"), and sold its insurance subsidiary, American Southern Insurance Company ("American Southern"). In January 1996, Fuqua made the decision to discontinue the operations of Kroy Tanning Company, Incorporated ("Kroy"), which had historically been unprofitable. In April 1996, Fuqua acquired the medical products operations of Lumex, Inc. (the "Lumex Division"). The Lumex Division develops and markets a wide range of health care products including specialty seating, bathroom safety, mobility products, health care beds and therapeutic support systems. In February 1997, Fuqua acquired 100% of the common stock and warrants of Prism Enterprises, Inc. ("Prism"). Prism, whose 1996 net sales were approximately $12,000,000, is a manufacturer of therapeutic heat and cold packs for medical and consumer use and vacuum systems for obstetrical and other applications. MEDICAL PRODUCTS OPERATIONS Fuqua acquired Basic in November 1995 and the Lumex Division in April 1996 which together represent Fuqua's Medical Products Operations through 1996. The Medical Products Operations' business description which follows is before the acquisition of Prism in February 1997. Prism's business is described separately herein under "Acquisition of Prism". The Medical Products Operations manufacture electric and manual acute and long-term care beds and patient-room furniture, equipment and furnishings at their facilities located in the United States and sell the majority of these products directly to owners of acute and long-term care facilities. Additionally, the Medical Products Operations manufacture home care beds at facilities located in the United States which are sold principally through independent dealers and distributors. The Medical Products Operations manufacture, as well as import and assemble, specialty seating products, wheelchairs, patient aids, bathroom safety and mobility products for the health care markets. The Medical Products Operations' sales are principally to customers within the United States. Management believes that the Medical Products Operations are the leading supplier of long-term care facility beds and specialty seating for dialysis clinics and that they have a relatively small share of the acute care and home health care markets. The Medical Products Operations encounter significant competition from a number of manufacturers in each of their product lines and they compete on the basis of product features and performance, on their ability to provide a full range of products and design services for owners of long-term care facilities, and their ability to deliver products and services at competitive prices. The Medical Products Operations' business is not seasonal. The Medical Products Operations' manufacturing processes include fabrication, assembly and quality assurance. They purchase raw materials, principally aluminum, steel and wood from a number of different vendors. Additionally, they purchase electric motors and electronic controls from independent third parties. The Medical Products Operations are not dependent on any one vendor for their supply of raw materials. The impact of unfavorable raw material price fluctuations on the Medical Products Operations is reduced by their ability to pass along increases to their customers and the relatively short time required to design, produce and deliver the order to a long-term care facility, or to manufacture and deliver to independent dealers and home health care providers. 1 5 The Medical Products Operations conduct product research and development at their manufacturing facilities. Amounts expended in 1996 were $592,000 and in 1995 were $0 (during the two month period included in Fuqua's Consolidated Results of Operations). Patents and trademarks are important to the business of the Medical Products Operations including the trademarks of Simmons(R), Lumex(R), Akros(R), Easy Living(R), Orthobiotic(R) and Posture Glide(R) which have been, and will continue to be, aggressively defended by the Medical Products Operations. Government regulations which affect the health care industry affect Fuqua's Medical Products Operations. Medicare and Medicaid provide reimbursement for the cost of medical equipment, beds and furnishings acquired by owner/operators of acute care and long-term care facilities and by home health care providers. Accordingly, changes to or delays in Medicare and Medicaid reimbursement can affect the timing of payment received by the Medical Products Operations from their customers and can exert downward pressure on prices which the Medical Products Operations charge their customers for their products. Management believes that recent changes and improvements in health care cost containment and the current growth in managed care favor the Medical Products Operations as a provider to the growing long-term care and home health care markets. The United States Food and Drug Administration (the "FDA") regulates the manufacture and sale of medical devices. The Medical Products Operations' products are classified as Class I and Class II devices. In general Class I devices must comply with certain general controls and with certain labeling and record keeping requirements. Class II devices must comply with general controls and certain performance standards and must receive pre-market approval from the FDA. Management believes that the Medical Products Operations are presently in material compliance with all applicable regulations promulgated by the FDA and relevant state agencies. The Medical Products Operations funded their working capital needs in 1996 through cash flow from operations and through borrowings under Fuqua's Revolving Credit Facility, which Management believes will continue to be adequate to cover working capital needs. Acquisition of Prism: In February 1997, Fuqua acquired 100% of the common stock and warrants of Prism. Prism manufactures therapeutic heat and cold packs at its facility located in San Antonio, Texas and sells these products through independent representatives to acute and long-term care markets. Prism also manufactures vacuum systems for obstetrical use which are sold through third-party distributors to acute care markets and manufactures vacuum systems for consumer use at its facility located in Rancho Cucamonga, California, which are sold through manufacturer representatives to automotive warehouse distributors and international and independent retail customers. Prism is the leading supplier of obstetrical vacuum systems and has a significant market share of the heat and cold packs for acute and long-term care markets. Prism encounters competition from a number of manufacturers in each of its product lines and competes principally on the basis of product features and performance at competitive prices. Prism's medical products are not seasonal; however, sales of their consumer products, such as hand warmers and cold packs and vacuum systems for non-medical use, are seasonal. Prism's manufacturing processes include fabrication, assembly and quality assurance. Prism purchases raw materials, principally sodium acetate and nylon and vinyl bags, for heat and cold packs and purchases gauges and plastic resin for the vacuum systems from a few large suppliers. Management believes that there are alternative suppliers of all of its raw materials at competitive prices. Prism hires third-party contractors to perform its product research and development; however, amounts incurred have not historically been significant. Patent and trademarks are important to Prism's business, including Mityvac(R), ZapPac(R), EZ Heat(R) and Aqua Cool(R). Management has in the past, and will continue to aggressively defend its rights to these and other of its patents and trademarks. Prism's heat and cold packs are Class I devices and its vacuum systems for obstetrical use are Class II devices regulated by the FDA. Management believes that Prism is presently in material compliance with all applicable regulations promulgated by the FDA and relevant state agencies. 2 6 Prior to the acquisition by Fuqua, Prism financed its working capital needs through cash flow from operations and through bank financing. Fuqua intends to finance Prism's working capital needs through Fuqua's Revolving Credit Facility. LEATHER OPERATIONS Fuqua's leather business is conducted through Irving Tanning Company and its subsidiaries. In March 1996, Fuqua entered into an agreement to acquire a 70% interest in a joint venture which acquired a 50% interest in a tannery in the People's Republic of China. In November 1996, Fuqua's interest in the joint venture was reduced to 60% as a result of admitting a new venture partner. Fuqua's investment and advances related to the joint venture at December 31, 1996 were approximately $1,967,000. Through its joint venture, Irving Tanning Company produces leathers in China and markets the products throughout China and Southeast Asia. The joint venture, together with Irving Tanning Company and its subsidiaries, make up Fuqua's leather business (the "Leather Operations"). Tanned leathers are manufactured in a wide variety of textures, colors and styles. Products are manufactured to customers' orders which avoids the necessity of maintaining a large inventory of finished goods. The Leather Operations sell directly to manufacturers, using independent agents and their own sales force. Until 1990, cowhides were purchased in the raw condition, and all tanning and other processes necessary to produce the finished leather were performed by the Leather Operations. In 1990, the Leather Operations began buying hides that had already undergone the initial chrome tanning process from one principal supplier, although alternate sources at competitive prices are available. Costs of hides can vary substantially from year to year and within a year due to supply and demand. The Leather Operations implemented a modernization and expansion program, expending over $13,850,000 during the five years from 1990 through 1994 for new buildings, new equipment and improvement of the production facilities. This program has produced greater efficiencies, better yields, higher and more consistent quality, reduced manufacturing cycle times and lower inventories than would otherwise have been achieved. Capital expenditures incurred in 1995 of $1,508,000 and in 1996 of $1,594,000 were at levels consistent with the requirements of normal operations and were less than the depreciation expense recorded in these respective years. Patents, trademarks, licenses and franchises are not considered important to the Leather Operations' business. Additionally the business is not regarded as highly seasonal, although sales are generally lower in the first and fourth quarters. Research and development expenditures amounted to approximately $830,000 in 1996, $802,000 in 1995 and $800,000 in 1994. The tanning industry, like many others in the United States, faces ever-changing government standards and both state and Federal licensing procedures. The changing licensing requirements necessitate updating that is technically complex, and meeting the changing requirements could be costly and time-consuming. The Town of Hartland, Maine charges the Leather Operations for approximately 95% of the costs to operate the Town's water treatment facility and landfill. These expenditures include amounts required to maintain state and Federal water quality and environmental standards, which historically have not been significant. Expenditures for environmental control purposes with respect to Fuqua's continuing Leather Operations are not expected to be material in 1997. Management believes that its continuing Leather Operations are operating in substantial compliance with all relevant environmental regulations. In 1996, sales to one customer amounted to $15,722,000 and to another $15,506,000. In 1995, sales to one customer amounted to $23,662,000 and sales to another $15,938,000. In 1994, sales to one customer amounted to $20,007,000 and to another $17,426,000. The Leather Operations' business is not dependent upon a single customer or a few customers; however, loss of one or both of the Leather Operations' largest customers could have a material adverse affect on future earnings. Foreign operations were not significant in 1996, but about 35% of the Leather Operations' 1996 sales were to customers in foreign countries, compared to 27% in 1995 and 29% in 1994. 3 7 The backlog of the Leather Operations' unshipped orders has historically increased each year, however, the backlog has not proven to be an accurate predictor of subsequent sales due to the negative impact of competitive pricing pressures and the rapid changes in retail demand which affect the Leather Operations' customers. Fuqua's Leather Operations compete on the basis of quality, price, service and product performance with many domestic and international producers of natural leather and, to a lesser extent, synthetic materials used instead of leather. Foreign competition is intense for the Leather Operations as well as for other domestic tanneries, in part because foreign tanneries are allowed to buy United States raw hides, but foreign countries normally do not permit their raw hides to be exported. Lower labor costs and less stringent environmental regulations overseas are factors in heightened competition. The Leather Operations benefit from a dependable water supply and a loyal and stable labor force. The Leather Operations fund their working capital needs through cash flow from operations and through borrowings under Fuqua's Revolving Credit Facility which Management believes is adequate to cover the working capital needs of the Leather Operations. DISCONTINUED OPERATIONS Fuqua sold its insurance subsidiary, American Southern, in December 1995 and, as a result, Fuqua no longer has any continuing insurance operations. American Southern was a multi-line property and casualty company primarily engaged in the sale of automobile insurance. Additionally, in January 1996, Fuqua made the decision to discontinue the operations of Kroy, its tanning operation located in East Wilton, Maine. Separate and distinct from Fuqua's continuing leather business, Kroy produced sheep skin and deer skin leathers which were sold principally to garment manufacturers. The results of operations and the estimated loss on disposal of Kroy and American Southern have been reflected in the 1995 financial statements as discontinued operations. In connection with Fuqua's decision to discontinue the operations of Kroy, $4,800,000, before the benefit of income taxes, was accrued in 1995 to write down assets to their net estimated realizable values and to pay for obligations, including environmental costs, which may arise in connection with the wind down of operations and the closing of Kroy's facility in East Wilton, Maine. SEE NOTE 3 TO FUQUA'S CONSOLIDATED FINANCIAL STATEMENTS FOR A FURTHER DESCRIPTION OF DISCONTINUED OPERATIONS. EMPLOYEES As of December 31, 1996, Fuqua and its subsidiaries employed 1,154 people. 4 8 ITEM 2. PROPERTIES The principal manufacturing and distribution facilities of the Leather Operations, Medical Products Operations (including Prism) and Fuqua's corporate office, substantially all of which are fully utilized (except as otherwise indicated) and suitable for the purpose intended, are as follows:
========================================================================================================== LOCATION SQUARE FEET LEASE EXPIRATION CHARACTER OF USE DATE ========================================================================================================== ========================================================================================================== Atlanta, Georgia 11,783 4-30-2000 Corporate Office Atlanta, Georgia 50,000 Owned Medical Products Operations' Office and Showroom Bay Shore, New York 130,000 Owned Medical Products Operations' Manufacturing Bay Shore, New York 170,000 Owned For Sale Downey, California 23,000 1-31-2000 Medical Products Operations' Warehouse and Distribution Ellsworth, Maine(1) 76,000 Owned Idle - For Sale East Wilton, Maine(2) 54,100 Owned Idle - For Sale Fond du Lac, Wisconsin 133,000 Owned Medical Products Operations' Manufacturing Hartland, Maine 444,000 Owned Leather Operations' Tannery & Fabrication Johnstown, New York 42,000 12-1-2010 Medical Products Operations' Manufacturing Lancaster, Pennsylvania(3) 191,000 5-31-2000 Idle - For Sublease Lawrenceville, Georgia 50,000 Owned Medical Products Operations' Manufacturing Memphis, Tennessee 21,000 Month-to-Month Medical Products Operations' Warehouse and Distribution Rancho Cucamonga, Medical Products Operations' Manufacturing California 24,000 12-31-97 Medical Products Operations' Office and San Antonio, Texas 23,000 2-28-98 Manufacturing Toccoa, Georgia(2) 35,000 Owned Idle- For Sale Tupelo, Mississippi 45,000 Month-to-month Medical Products Operations' Manufacturing ==========================================================================================================
(1) Operations at this plant have been suspended for a number of years. (2) The decision was made to discontinue operations at this facility during 1996. (3) The decision was made to exit activity at this facility in connection with Fuqua's acquisition of the Lumex Division. ITEM 3. LEGAL PROCEEDINGS Environmental Contingency: In March 1994, the office of the District Attorney of Suffolk County, Long Island, New York initiated an investigation to determine whether regulated substances had been discharged from one of the Lumex Division's Bay Shore facilities in excess of permitted levels. 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. At December 31, 1996, the Lumex Division had $1,713,000 in reserves for remediation costs, including 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 parties nor has the Lumex Division discounted any of its cost estimates, although a portion of the remediation work plan will be performed over a period of years. The amounts 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. The estimate of the costs, which are not probable but for which there exists at least a reasonable possibility of occurrence, exceeds the reserves recorded by the Lumex Division at December 31, 1996 by $1,600,000. 5 9 Arbitration of Purchase Price: In connection with Fuqua's acquisition of the Lumex Division, the purchase price is subject to a final adjustment as provided for in the asset sale agreement between Fuqua and Cybex International, Inc. (formerly known as Lumex, Inc.) (the "Seller"). The Seller has been notified that Fuqua disagrees with the Seller's proposed purchase price adjustment and that the dispute will be resolved through arbitration. The ultimate outcome in arbitration will change the purchase price and the allocation thereof by Fuqua to the net assets acquired. The amount of such adjustment is not presently determinable but could be significant. SEE NOTE 2 TO FUQUA'S CONSOLIDATED FINANCIAL STATEMENTS. Other: 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 an 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matter was submitted to a vote of security holders during the three months ended December 31, 1996. EXECUTIVE OFFICERS OF THE REGISTRANT The executive officers of Fuqua as of the date hereof elected to serve until the next annual meeting of the Board of Directors of Fuqua are as follows:
============================================================================================================== POSITION HELD NAME AGE OFFICE SINCE ============================================================================================================== J. B. Fuqua 78 Chairman of the Board April 1989 J. Rex Fuqua 47 Vice Chairman of the Board August 1995 Lawrence P. Klamon 60 President and Chief Executive Officer August 1995 John J. Huntz, Jr. 46 Executive Vice President and Chief August 1995 Operating Officer Brady W. Mullinax, Jr. 43 Vice President-Finance, Treasurer and Chief March 1994 Financial Officer ==============================================================================================================
J. Rex Fuqua, Vice Chairman of the Board, is the son of J. B. Fuqua, the Chairman of the Board. From July 1989 to March 199l, Mr. J. B. Fuqua served as Senior Chairman of Fuqua Industries, Inc.; prior to that he was the founder, Chairman of the Board and Chief Executive Officer of Fuqua Industries, Inc. from September 1965 to July 1989. Since 1985, Mr. J. Rex Fuqua has served as President and Chief Executive Officer of Realan Capital Corporation, a privately-held investment corporation located in Atlanta, Georgia. From 1991 to July 1995, Mr. Klamon served as Senior Counsel of Alston & Bird, a prominent Atlanta law firm; prior to that, from 1968 to 1991, he was associated with Fuqua Industries, Inc., a diversified holding company, rising from General Counsel to President and Chief Executive Officer and a member of the Board of Directors. From February 1994 to July 1995, Mr. Huntz served as Senior Vice President of Fuqua; from September 1989 to January 1994, Mr. Huntz served as the Managing Partner of Noble Ventures International, Inc., a venture investment and advisory firm, located in Atlanta, Georgia; prior to that, from October 1984 to September 1989, he served as Director of Capital Resources of Arthur Young & Company, an accounting firm. From January 1994 to March 1994, Mr. Mullinax served as a financial consultant to Fuqua; and prior to that, from July 1987 to June 1993, he was a partner with Price Waterhouse, an accounting firm. 6 10 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS (a) Principal Market Fuqua's Common Stock is traded on the New York Stock Exchange (symbol FQE). (b) Stock Price and Dividend Information The following table summarizes the high and low market price for 1996 and 1995 as reported in The Wall Street Journal. The closing price of the Common Stock on March 14, 1997 was $22.25.
======================================================================================== MARKET PRICE OF COMMON STOCK QUARTER 1996 1995 ENDED HIGH LOW HIGH LOW ======================================================================================== March 31 $25.875 $18.25 $24.50 $20.00 June 30 29.50 25.625 23.375 18.75 September 30 28.875 22.875 24.75 20.125 December 31 24.625 23.375 24.125 18.25 ========================================================================================
Fuqua has not paid cash dividends since 1988, and the Board of Directors does not anticipate that cash dividends will be paid in the foreseeable future. Fuqua's Revolving Credit Facility also restricts the amount of dividends which can be paid. SEE NOTE 8 TO FUQUA'S CONSOLIDATED FINANCIAL STATEMENTS. (c) Approximate Number of Holders of Common Stock: As of March 14, 1997, there were 782 stockholders of record of Fuqua's Common Stock. ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
- - -------------------------------------------------------------------------------------------------------------------------- Year ended December 31, (Dollars in thousands, except share data) 1996(4) 1995(1) 1994 1993 1992 - - -------------------------------------------------------------------------------------------------------------------------- CONTINUING OPERATIONS(2) Net sales $ 181,543 $ 117,128 $ 118,011 $ 105,785 $ 76,226 Income from continuing operations 7,273 5,250 5,822(3) 3,775 1,030 Per share: Income from continuing operations $ 1.60 $ 1.32 $ 1.51(3) $ .98 $ .27 - - -------------------------------------------------------------------------------------------------------------------------- YEAR-END DATA Total assets $ 151,411 $ 136,762 $ 158,101 $ 140,299 $ 127,227 Long-term debt obligations 30,686 22,041 14,445 11,639 10,808 Stockholders' equity 89,280 81,888 64,322 57,378 48,665 Stockholders' equity per share $ 19.93 $ 18.43 $ 17.10 $ 15.31 $ 13.10 Common shares outstanding 4,478,847 4,442,174 3,762,424 3,748,374 3,713,870 - - --------------------------------------------------------------------------------------------------------------------------
Note: 1. Includes Basic for the two month period ended December 31, 1995. 2. See footnotes to Consolidated Financial Statements for information on discontinued operations. 3. Includes $544 ($.14 per share) for favorable adjustment of income tax contingencies. 4. Includes the Lumex Division for the nine month period ended December 31, 1996. 7 11 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS ACQUISITIONS: In November 1995, Fuqua acquired 100% of the common stock of Basic American Medical Products, Inc. ("Basic"). Basic, through its divisions, Simmons Healthcare, Omni Manufacturing and SSC Medical, is a manufacturer and distributor of medical equipment and furnishings for the acute, long-term and home health care markets. Basic's results of operations were included in the consolidated results of Fuqua for the last two months of 1995. On April 3, 1996, Fuqua acquired the medical products operations of Lumex, Inc. (the "Lumex Division") for approximately $40,750,000. As provided in the asset sale agreement, the purchase price is subject to a final adjustment, the amount of which is in dispute and is being resolved by arbitration. The Lumex Division develops and markets a wide range of health care products including specialty seating, bathroom safety, mobility products, health care beds and therapeutic support systems. The Lumex Division is headquartered in Bay Shore, Long Island, New York and markets the majority of its products to the home health care market and the remainder to institutional markets, including acute care and extended care facilities and dialysis clinics. The Lumex Division's results of operations have been included in the consolidated results of Fuqua for the last nine months of 1996. On February 26, 1997, Fuqua acquired 100% of the common stock and warrants of Prism Enterprises, Inc. ("Prism") for approximately $19,500,000. Prism, whose 1996 net sales were approximately $12,000,000, is a manufacturer of therapeutic heat and cold packs for medical and consumer use and vacuum systems for obstetrical and other applications. Prism's operating facilities are located in San Antonio, Texas and Rancho Cucamonga, California. In March 1996, Fuqua, through its Leather Operations, entered into an agreement to acquire 70% of a joint venture which acquired a 50% interest in a tannery in the People's Republic of China. In November 1996, the Leather Operations' interest in the joint venture was reduced to 60% as a result of admitting a new venture partner. Investment and advances related to the joint venture at December 31, 1996 were $1,967,000. Through its joint venture, the Leather Operations produce leather in China and market the products throughout China and Southeast Asia. MEDICAL PRODUCTS OPERATIONS: Net sales for the Medical Products Operations were $73,711,000 for 1996 and $5,198,000 for 1995. Gross profit margins were 29.9% in 1996 and 27.4% in 1995 and net profit margins were 6.4% in 1996 and 7.7% in 1995. However, the results of Basic are included only for two months in 1995 and the results of the Lumex Division are included only for nine months in 1996. As a result the increases in net sales and the changes in margin percentages are not comparable. LEATHER OPERATIONS: Net sales of the Leather Operations were 3.7% lower in 1996 than in 1995; 1995 net sales were 5.1% lower in 1995 than in 1994. The decreases in net sales from 1995 to 1996 and from 1994 to 1995 reflected volume declines which could not be offset by price increases. During much of 1996 and 1995, the demand for leather was adversely affected by weak retail sales of shoes and other leather products. Additionally, hide prices during the last half of 1995 and the first half of 1996 were unusually low which resulted in lower prices charged to customers in these periods. Sales to customers in foreign countries were $38,294,000 in 1996 as compared to $30,662,000 in 1995 and $34,516,000 in 1994. Sales to customers in foreign countries represented 35.5%, 27.4% and 29.3% of the Leather Operations' net sales. The increases in foreign sales from 1995 to 1996 reflect principally the growth in foreign markets and the success of the Leather Operations' marketing efforts. The gross profit margin percentage was 17.4% in 1996, 15.5% in 1995 and 14.9% in 1994. The increase in 1995 and 1996 reflects the favorable impact of falling hide prices during the last half of 1995 which continued during the first half of 1996 and improvements in operational efficiencies from 1994 through 1996. The increase in selling and administrative expenses of the Leather Operations from $6,580,000 in 1994, $6,926,000 in 1995 and $7,831,000 in 1996 was almost entirely related to expansion of the sales effort and higher levels of selling costs on export sales during the periods from 1994 to 1996. Net profit margin as a percentage of sales was 10.1% in 1996 and 9.3% in 1995 and 1994. 8 12 CORPORATE OFFICE OPERATIONS: Investment income in 1996 was $1,939,000 as compared to $828,000 in 1995 and $541,000 in 1994. The increases in investment income resulted from higher amounts invested in 1996 and 1995 as compared to 1994. Additionally, the higher amounts of investment income in 1996 reflect the return on the proceeds from the sale of Fuqua's insurance subsidiary on December 31, 1995. Capital losses, net of gains, of $54,000 were included as a reduction in investment income in 1996. Capital gains, net of losses, included in investment income were $42,000 in 1995 and $0 in 1994. General and administrative expenses for corporate office activities were $804,000 higher in 1996 than in 1995 and 1995 amounts were $492,000 higher than in 1994. The increases during the periods from 1994 to 1996 have been primarily the result of increased corporate development activity. INTEREST EXPENSE: Interest expense in 1996 was $1,576,000 higher than 1995 and the 1995 amount was $169,000 higher than in 1994. These increases principally reflect higher levels of borrowings associated with acquisitions in 1995 and 1996. In June 1996, Fuqua amended its Revolving Credit Facility to expand the maximum borrowing capacity from $60,000,000 to $100,000,000 and to add an additional bank to the Revolving Credit Facility. The interest expense under the Revolving Credit Facility is based on matrix pricing which ranges from LIBOR plus 40 basis points to LIBOR plus 100 basis points. INCOME TAXES RELATING TO CONTINUING OPERATIONS: The provision for income taxes in 1996, 1995 and 1994 includes both Federal and state income taxes. The combined Federal and state effective tax rate in 1996 was 36.7%, in 1995 was 33.9% and was 31.4% in 1994. The effective tax rate in 1994 was favorably impacted by an adjustment ($544,000 or $.14 per share) for amounts that were no longer considered necessary for loss contingencies for income taxes. Fuqua's effective tax rates are consistently below the statutory rates due primarily to significant sources of investment income that are exempt or substantially excluded from income taxes and due to favorable tax planning benefits related to foreign sales. DIVIDENDS: Fuqua paid no dividends in 1996, 1995 or 1994. At this time, Fuqua intends to retain all earnings for investments in its current business and for corporate development opportunities. Additionally, Fuqua's Revolving Credit Facility restricts the amount of dividends which can be paid. DISCONTINUED OPERATIONS: During December 1995, Fuqua sold its insurance subsidiary, American Southern Insurance Company ("American Southern") for $34,000,000 to Atlantic American Corporation ("Atlantic American"), an Atlanta, Georgia based publicly traded insurance company. The proceeds from the sale included cash of $22,648,000 and a note receivable from the purchaser of $11,352,000. The note accrued interest at prime, half of which was payable quarterly and the other half of which was paid, together with principal, in October 1996. The term and amount of the note receivable was the same as the note payable which arose in connection with Fuqua's acquisition of American Southern in 1991. In October 1996, the proceeds from Atlantic American's payment of the note receivable were used to repay this note payable. The sale of American Southern resulted in the earnings of American Southern being reclassified as discontinued operations and in a loss on disposal from the sale of $900,000 (net of taxes). The loss on disposal arose principally from the increased cost basis which Fuqua had in the stock as a result of American Southern's earning more than it paid in dividends since it was acquired by Fuqua in 1991. During 1996, interest charges of $662,000 were incurred and offset against the accrual established in 1995 to provide for the loss on disposal of American Southern. In January 1996, Fuqua made the decision to discontinue the operations of Kroy Tanning Company, Incorporated, ("Kroy"), which historically had been unprofitable. In accordance with generally accepted accounting principles (Emerging Issues Task Force No. 95-18), Kroy was treated as a discontinued operation in the December 31, 1995 consolidated financial statements. In connection with Fuqua's decision to discontinue the operations of Kroy, $4,800,000 (before the benefit of income taxes) was accrued at December 31, 1995 to write down assets to their net realizable values and to pay for obligations, including environmental costs, in connection with the wind down of operations and the closing of Kroy's facility in East Wilton, Maine. During 1996, $3,080,000 (before the benefit of income taxes) of such costs were charged against this accrual. Operations at the East Wilton facility ceased in the fourth quarter of 1996. SEE NOTE 3 TO FUQUA'S CONSOLIDATED FINANCIAL STATEMENTS FOR A FURTHER DESCRIPTION OF THE RESULTS OF DISCONTINUED OPERATIONS. 9 13 ACCOUNTING PRONOUNCEMENTS: Effective January 1, 1996, Fuqua adopted Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121"), which required impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. SFAS 121 also addressed the accounting for long-lived assets that are expected to be disposed of. The adoption of SFAS 121 had no effect on Fuqua's Consolidated Financial Statements. Effective January 1, 1996, Fuqua adopted Statement of Financial Accounting Standards No. 123, "Accounting for Stock- Based Compensation" ("SFAS 123"), which encouraged companies to recognize expense for stock-based awards based on their fair market values on the dates of grant. As an alternative provided for in SFAS 123, Fuqua has elected to account for its stock options in accordance with APB Opinion No. 25 and related Interpretations. The disclosures required by SFAS 123 are included in NOTE 9 TO FUQUA'S CONSOLIDATED FINANCIAL STATEMENTS. Effective January 1, 1994, Fuqua adopted Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" ("SFAS 115"). In accordance with SFAS 115, prior period financial statements have not been restated to reflect the change in accounting principle. The cumulative effect on net income as of January 1, 1994 of adopting SFAS 115 for investments which previously were classified as held to maturity which were then classified as trading securities was immaterial. The balance of stockholders' equity as of January 1, 1994 was increased by $1,238,000, net of income taxes, to reflect the net unrealized gains on investments previously classified as held to maturity which are now classified as available for sale. FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES At December 31, 1996, Fuqua had $4,616,000 in cash and cash equivalents and over $50,000,000 in unused borrowing capacity under Fuqua's Revolving Credit Facility, after considering the amounts borrowed subsequent to December 31, 1996 to acquire Prism. In the event circumstances warrant, such as a large acquisition, Fuqua may look to additional outside sources for funds. MEDICAL PRODUCTS OPERATIONS: Inventories for the Medical Products Operations were $17,279,000 at December 31, 1996 and $5,267,000 at December 31, 1995. Accounts receivable were $16,870,000 at December 31, 1996 and were $5,740,000 at December 31, 1995. Lease receivables at December 31, 1996 were $4,650,000 and were $0 at December 31, 1995. These increases are due principally to the acquisition of the Lumex Division. Capital expenditures for the Medical Products Operations were $1,313,000 in 1996 and there were no capital expenditures incurred in 1995. Depreciation and amortization was $2,274,000 for 1996 and $87,000 for 1995. These increases are due to the acquisition of the companies included in Fuqua's Medical Products Operations and the timing thereof. LEATHER OPERATIONS: Accounts receivable increased 21.2% to $15,803,000 in 1996 and decreased 8.5% to $13,043,000 at December 31, 1995. Year-to-year increases in inventories were 50.8% in 1996, rising to $24,780,000 and .8% in 1995, rising to $16,428,000. Fuqua's Leather Operations began a plant modernization program in 1990 which was completed in 1994. This program required capital expenditures aggregating $13,850,000. Capital expenditures for 1996 were $1,594,000 and for 1995 were $1,508,000, and were less than the depreciation expense recorded in these respective years. ENVIRONMENTAL CONTINGENCIES: In March 1994, the office of the District Attorney of Suffolk County, Long Island, New York initiated an investigation to determine whether regulated substances had been discharged from one of the Lumex Division's Bay Shore facilities in excess of permitted levels. 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. At December 31, 1996, the Lumex Division had $1,713,000 in reserves for remediation costs, including 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 10 14 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 parties nor has the Lumex Division discounted any of its cost estimates although a portion of the remediation work plan will be performed over a period of years. The amounts of these 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. The estimate of the costs, which are not probable but for which there exists at least a reasonable possibility of occurrence, exceeds the reserves recorded by the Lumex Division at December 31, 1996 by $1,600,000. In past years, certain of Fuqua's subsidiaries involved in the tanning of leather ceased operations and were required to conduct environmental clean up procedures under supervision of state environmental agencies. Additionally, certain of Fuqua's subsidiaries, which were in businesses no longer conducted by Fuqua, were named as Potentially Responsible Parties for sites where these subsidiaries allegedly delivered waste products. The costs attributable to these matters have not been material to Fuqua's results of operations or financial position and Management does not expect that future amounts to be incurred will materially exceed amounts already accrued or paid. The tanning industry, like many others in the United States, faces ever-changing government standards and both state and Federal licensing procedures. The changing licensing requirements may necessitate updating equipment and processes that are technically complex, and meeting the changing requirements could be costly and time consuming. The Town of Hartland, Maine charges the Leather Operations for approximately 95% of the costs to operate the water treatment facility and landfill. These expenditures include amounts required to maintain state and Federal water quality and environmental standards, which historically have not been significant. Expenditures for environmental control purposes with respect to Fuqua's continuing Leather Operations are not expected to be material in 1997. Fuqua's management believes that its continuing Leather Operations are operating in substantial compliance with all relevant environmental regulations. INFLATION, TRENDS AND RISK FACTORS: Fuqua's consolidated financial statements are prepared on the basis of historical cost. While it is difficult to measure the impact of inflation, Management believes that the effects of inflation on Fuqua have not been significant. However, the Leather Operations can be affected by the volatility of hide prices. Costs of hides can vary substantially from year to year and within a year due to supply and demand. In periods in which hide prices rise rapidly and are above the Leather Operations' average cost of hides in raw material stocks or work in process, the Leather Operations' gross profit margins benefit. Conversely, the opposite impact occurs, in periods in which hide prices fall quickly and are below the average cost of the hides in stock. Otherwise, to the extent that inflationary pressures have an adverse effect through higher raw material and asset replacement costs, Fuqua attempts to minimize these effects through cost reductions and productivity improvements as well as price increases. Management is unaware of any trends or conditions that could have a material adverse effect on Fuqua's consolidated financial position, future results of operations or liquidity. However, investors should also be aware of factors which could have a negative impact on prospects and the consistency of progress. These include political, economic or other factors such as inflation rates, recessionary or expansive trends, taxes and regulations and laws affecting business in each of Fuqua's markets; competitive product, advertising, promotional and pricing activity, dependence on the rate of development and degree of acceptance of new product introductions into the marketplace, and the difficulty of forecasting sales at certain times in certain of Fuqua's markets. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Reference is made to the consolidated financial statements of Fuqua and its subsidiaries, consisting of the Consolidated Balance Sheets as of December 31, 1996 and 1995 and the related Consolidated Statements of Income, Consolidated Statements of Cash Flows, and Consolidated Statements of Stockholders' Equity for each of the three years in the period ended December 31, 1996, together with the Notes to Consolidated Financial Statements. SEE SECTION F, OF THIS REPORT, WHICH INFORMATION IS INCORPORATED INTO THIS ITEM 8 BY REFERENCE. 11 15 Reference is also made to information set forth in the section entitled "Summary of Quarterly Data". SEE SECTION F, PAGE F-15 OF THIS REPORT, WHICH INFORMATION IS INCORPORATED INTO THIS ITEM 8 BY REFERENCE. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. (a) Identification of Directors The information regarding directors of Fuqua is set forth under the section "Election of Directors" and in the first paragraph of "Other Matters" in Fuqua's definitive Proxy Statement to be filed with the Securities and Exchange Commission in connection with the Annual Meeting of Stockholders pursuant to Regulation 14A of the Securities Exchange Act of 1934 (the "Proxy Statement"), which sections are incorporated herein by reference. (b) Identification of Executive Officers The information regarding executive officers of the Registrant is included in Part I of this report under the caption "Executive Officers of the Registrant", which information is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION. Reference is made to the information set forth under the caption "Executive Compensation and Other Information" and "Election of Directors - Fees for Directors" in the Proxy Statement, which information is incorporated herein by reference; provided that in no event shall the information set forth under the caption "Executive Compensation and Other Information - Report on Executive Compensation" be incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. Reference is made to the information set forth under the caption "Ownership of Common Stock" in the Proxy Statement, which information is incorporated herein by reference. Fuqua does not know of any contractual arrangements which may at a subsequent date result in a change in control of Fuqua. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. Reference is made to the information set forth under the caption "Executive Compensation and Other Information - Transactions with Management" in the Proxy Statement which information is incorporated herein by reference. 12 16 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a)(1) Financial Statements The response to this portion of Item 14 is submitted as a separate section of this report, such section being incorporated herein by reference. (See Section F) (a)(2) Schedules The response to this portion of Item 14 is submitted as a separate section of this report, such section being incorporated herein by reference. (See Section S) (a)(3) Listing of Exhibits
Exhibits Incorporated Herein by Reference -------------------------------------------------------------- Designation Document with Which Exhibit Designation of Such of Exhibit in Description of Was Previously Filed with Exhibit in That This Form 10-K Exhibits Commission Document - - -------------- ------------------------------------- -------------------------------- ---------------------- 2(a) Stock Purchase Agreement among Fuqua, Interim Report on Form 8-K dated Exhibit 2(i) Concorde Finance & Investment, Inc. October 11, 1991 InterRedec, Inc, InterRedec Southern Company, Inc. and American Southern dated September 17,1991 2(b) Agreement and Plan of Merger By and Quarterly Report on Form 10-Q Exhibit 2(a) Among Basic American Medical Products, for the three months ended Inc., BA Acquisition Corporation and September 30, 1995 Fuqua and with respect to Articles 7, 12 and 13 thereof, Gene J. Minotto dated as of October 6, 1995 2(c) Stock Purchase Agreement between Quarterly Report on Form 10-Q Exhibit 2(b) Atlantic American Corporation and for the three months ended Fuqua dated as of October 16, 1995 September 30, 1995 2(d) Asset Sale Agreement By and Between Annual Report on Form 10-K Exhibit 2(d) Lumex, Inc., MUL Acquisition Corp. I, for the year ended December 31, MUL Acquisition Corp. II, and Fuqua 1995 dated March 13, 1996 (Fuqua agrees to furnish a copy of any omitted schedule to the Commission upon request) 2(e) Stock Purchase Agreement dated as of Interim Report on Form 8-K dated Exhibit 2 February 26, 1997, between Fuqua and February 26, 1997. the persons listed as Sellers on the signature pages of the Stock Purchase Agreement. (Fuqua agrees to supple- mentally furnish a copy of any omitted schedules and exhibits to the Commission upon request.) 3(a) Amended and Restated Certificate of Registration Statements on Form S-8, Exhibit 4(a) Incorporation of Fuqua Nos. 333-05461 and 333-05485, dated June 7, 1996 3(b) Bylaws of Fuqua Registration Statements on Form S-8, Exhibit 4(b) Nos. 333-05461 and 333-05485, dated June 7, 1996
13 17
Exhibits Incorporated Herein by Reference -------------------------------------------------------------- Designation Document with Which Exhibit Designation of Such of Exhibit in Description of Was Previously Filed with Exhibit in That This Form 10-K Exhibits Commission Document - - -------------- ------------------------------------- -------------------------------- ---------------------- 4(a) Agreement between Town of Hartland, Quarterly Report on Form 10-Q Exhibit 4(d) Maine and Irving Tanning Company for the three months ended dated September 26, 1994 related to September 30, 1994 General Obligations Bonds 10(a) Management Agreement between Annual Report on Form 10-K Exhibit 10(b) Fuqua and Fuqua National Corporation for the year ended December 31, dated April 10, 1989 1989 10(b) Assignment to Fuqua Capital Corpo- Annual Report on Form 10-K Exhibit 10(b)(1) ration of the Management Agreement for the year ended December 31, between Fuqua and Fuqua National 1990 Corporation 10(c) First Amendment to Management Agree- Quarterly Report on Form 10-Q Exhibit 10(b)(2) ment between Fuqua Capital Corpo- for the three months ended ration and Fuqua dated September 14, September 30, 1994 1994 10(d)* 1989 Stock Option Plan of Fuqua Annual Report on Form 10-K Exhibit 10(c) for the year ended December 31, 1989 10(e)* 1992 Stock Option Plan of Fuqua Registration Statement on Form Exhibit 28 S-8 (Registration No. 33-54164) 10(f)* 1995 Long-Term Incentive Plan of Proxy Statement dated April 16, Exhibit A Fuqua 1996 10(g)* 1995 Stock Option Plan for Outside Proxy Statement dated April 16, Exhibit B Directors of Fuqua 1996 10(h) Lease Agreement between Fuqua (Lessee) Annual Report on Form 10-K Exhibit 10(f) and Sumitomo Life Realty (N.Y.) Inc. for the year ended December 31, (Lessor) dated January 17, 1990 1990 10(i) First Amendment to the Lease Agreement Annual Report on Form 10-K Exhibit 10(g) between Fuqua (Lessee) and Sumitomo for the year ended December 31, Life Realty (N.Y.) Inc. (Lessor) 1990 dated September 6, 1990 10(j) Second Amendment to Lease Agreement Annual Report on Form 10-K Exhibit 10(p) between Fuqua (Lessee) and Sumitomo for the year ended December 31, Life Realty (N.Y.) Inc. (Lessor) 1991 dated February 21, 1992 10(k) Third Amendment to Lease Agreement Quarterly Report on Form 10-Q Exhibit 10(i)(1) between Fuqua (Lessee) and Sumitomo for the three months ended Life Realty (N.Y.) Inc. (Lessor) September 30, 1994 dated October 28, 1994 10(l) Sublease Agreement between Fuqua Annual Report on Form 10-K Exhibit 10(l) and Fuqua Capital Corporation, for the year ended December 31, dated October 31, 1994 1994
14 18
Exhibits Incorporated Herein by Reference -------------------------------------------------------------- Designation Document with Which Exhibit Designation of Such of Exhibit in Description of Was Previously Filed with Exhibit in That This Form 10-K Exhibits Commission Document - - -------------- ------------------------------------- -------------------------------- ---------------------- 10(m) Lease Agreement between Empire State Annual Report on Form 10-K Exhibit 10(q) Building Company (Lessor) and Fuqua for the year ended December 31, (Lessee) dated March 1, 1993 along 1993 with Lease Modification Agreement and Space Deletion Agreement dated February 18, 1994 10(n) Registration Rights Agreement between Quarterly Report on Form 10-Q Exhibit 10(a) Fuqua and Gene J. Minotto dated for the three months ended November 8, 1995 September 30, 1995 10(o) Unconditional Guarantee of Performance Annual Report on Form 10-K Exhibit 10(s) of Fuqua in favor of Super Sagless, Inc. for the year ended December 31, dated November 15, 1995 1995 10(p) Covenant Not to Compete by and Interim Report on Form 8-K/A dated Exhibit 10(a) among Lumex, Inc., Lumex Medical April 3, 1996 Products, Inc., MUL Acquisition Corp. and Fuqua, dated April 3, 1996 10(q) Collective Bargaining Agreement dated Quarterly Report on Form 10-Q Exhibit 10(b) January 31, 1996, between Local 422-S, for the three months ended Production Service and Sales District June 30, 1996 Council, IUC, AFL-CIO, which was assigned to Lumex Medical Products, Inc. in the Asset Sale Agreement by and between Lumex, Inc., Lumex Medical Products, Inc., MUL Acquisi- tion Corp. II and Fuqua dated March 13, 1996 10(r)* Fuqua Enterprises, Inc. Savings and Retire- Interim Report on Form 8-K dated Exhibit 10(a) ment Plan and Trust effective April 3, 1996 April 3, 1996 (a tax-qualified 401(k) plan) with SunTrust Bank, Atlanta, serving as Trustee 10(s) Fuqua Enterprises, Inc. Savings and Retire- Interim Report on Form 8-K dated Exhibit 10(b) ment Plan and Trust for Union Employees April 3, 1996 effective April 3, 1996 (a tax-qualified 401(k) plan) with SunTrust Bank, Atlanta, serving as Trustee 10(t) Amended and Restated Credit Agreement Quarterly Report on Form 10-Q Exhibit 10(a) between SunTrust Bank, Atlanta, as Agent, for the three months ended June 30, SunTrust Bank, Atlanta, Wachovia Bank of 1996 Georgia, N.A., Fleet Bank of Maine, First Union National Bank of Georgia and Fuqua dated as of June 28, 1996 10(u) Term Loan Agreement by and among Annual Report on Form 10-K Exhibit 4(b) SunTrust Bank, Atlanta, Fuqua and Basic for the year ended December 31, dated January 18, 1996 (Fuqua agrees to 1995 furnish a copy of any omitted schedules to the Commission upon request)
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Exhibits Incorporated Herein by Reference -------------------------------------------------------------- Designation Document with Which Exhibit Designation of Such of Exhibit in Description of Was Previously Filed with Exhibit in That This Form 10-K Exhibits Commission Document - - -------------- ------------------------------------- -------------------------------- ---------------------- 10(v) Letter of Credit Agreement between Quarterly Report on Form 10-Q for Exhibit 10(a) SunTrust Bank, Atlanta and Fuqua dated the three months ended September 30, as of November 8, 1996 (Fuqua agrees to 1996 furnish a copy of any omitted schedule to the Commission upon request) 10(w) Escrow Agreement dated as of February 26, Interim Report on Form 8-K dated Exhibit 99 1997, by and among BT Capital Partners, February 26, 1997 Inc. ("BT"), Merle M. Smith, (individually and, together with BT, "Sellers"), Merle M. Smith in the capacity as agent for Sellers, Fuqua and Texas Commerce Bank National Association. 10(x) Line of Credit Agreement by and among SunTrust Bank, Atlanta, as Agent, SunTrust Bank, Atlanta, Wachovia Bank of Georgia, N.A., Fleet Bank of Maine, First Union National Bank of Georgia and Fuqua dated as of January 27, 1997 11 Statement of Computation of Earnings per share 21 Subsidiaries of Fuqua 23 Consent of Ernst & Young LLP 24 Powers-of-Attorney and Certified Copy of resolution of the Board of Directors dated March 12, 1997 27 Financial Data Schedule (for SEC use only) Article 5
- - -------------------------------------- (b) Reports on Form 8-K During the three months ended December 31, 1996, Fuqua did not file any report on Form 8-K. In February 1997, Fuqua filed a Form 8-K related to the acquisition of Prism Enterprises, Inc. In March 1997, Fuqua filed a Form 8-K/A, Amendment No. 2 amending its April 3, 1996 filing on Form 8-K related to the acquisition of the Lumex Division. (c) Exhibits The response to this portion of Item 14 is submitted as a separate section of this report. (d) Financial Statement Schedule The response to this portion of Item 14 is submitted as a separate section of this report. - - -------------------------------------- * Management contract or compensatory plan required to be filed pursuant to Item 14(c) of this report. 16 20 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. FUQUA ENTERPRISES, INC. By: /s/ Brady W. Mullinax, Jr. ------------------------------------ Vice President-Finance, Treasurer and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) Dated: March 21, 1997 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE ---------------------------------- ------------------------------------------- ------------------------- J. B. FUQUA* Chairman of the Board March 21, 1997 J. REX FUQUA* Vice Chairman of the Board March 21, 1997 W. CLAY HAMNER* Director March 21, 1997 FRANK W. HULSE IV* Director March 21, 1997 RICHARD C. LAROCHELLE* Director March 21, 1997 GENE J. MINOTTO* Director March 21, 1997 CLARK L. REED* Director March 21, 1997 D. RAYMOND RIDDLE* Director March 21, 1997 LAWRENCE P. KLAMON* President and Chief Executive Officer March 21, 1997 (Principal Executive Officer) and Director BRADY W. MULLINAX, JR.* Vice President-Finance, Treasurer, and March 21, 1997 Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)
FUQUA ENTERPRISES, INC. *By: /s/ Mildred H. Hutcheson ----------------------------------- Mildred H. Hutcheson Attorney-in-fact 17 21 FUQUA ENTERPRISES, INC. ANNUAL REPORT ON FORM 10-K YEAR ENDED DECEMBER 31, 1996 ITEM 8 REPORT OF INDEPENDENT AUDITORS FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA SECTION F 22 FORM 10-K FUQUA ENTERPRISES, INC. AND SUBSIDIARIES YEAR ENDED DECEMBER 31, 1996 ITEM 8 LIST OF CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page No. ---- Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1 Consolidated Balance Sheets as of December 31, 1996 and 1995 . . . . . . . . . . . . . . . . . . . F-2 Consolidated Statements of Income for the years ended December 31, 1996, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . F-4 Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . F-5 Consolidated Statements of Stockholders' Equity for the years ended December 31, 1996, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . F-6 Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-7 Summary of Quarterly Data (Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-15
******* The financial statement schedule under Item 14(a) may be found under Section S of this report. (i) 23 REPORT OF INDEPENDENT AUDITORS To the Board of Directors and Stockholders of Fuqua Enterprises, Inc. We have audited the accompanying consolidated balance sheets of Fuqua Enterprises, Inc. as of December 31, 1996 and 1995, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1996. Our audits also included the financial statement schedule referred to in the Index at Item 14(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Fuqua Enterprises, Inc. at December 31, 1996 and 1995, and the consolidated results of its operations and cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. As discussed in Note 1 to the consolidated financial statements, in 1994, the Company changed its method of accounting for certain investments in debt and equity securities to comply with Statement of Financial Accounting Standards No. 115. /s/ Ernst & Young LLP ---------------------------- ERNST & YOUNG LLP Atlanta, Georgia February 20, 1997, except for the last paragraph of Note 2, as to which the date is February 26, 1997 F-1 24 CONSOLIDATED BALANCE SHEETS Fuqua Enterprises, Inc. and Subsidiaries
December 31, (Dollars in thousands) 1996 1995 - - ---------------------------------------------------------------------------------------------------------------------- ASSETS Cash and cash equivalents $ 4,616 $ 29,000 Investments available for sale - 12,550 Receivables - Trade accounts, less allowance of $250 (1995, $200) 33,871 19,102 Note receivable from sale of subsidiary - 11,352 Lease receivables, less allowance of $350 (1995, $0) 1,147 - Inventories 42,059 21,695 Prepaid expenses and other assets 2,620 910 Deferred income taxes 3,477 3,614 ---------------------------------- Total Current Assets 87,790 98,223 ---------------------------------- Property, plant and equipment 48,927 32,303 Less accumulated depreciation (15,166) (10,841) ---------------------------------- Net Property, Plant and Equipment 33,761 21,462 ---------------------------------- Intangible assets, less accumulated amortization of $399 (1995, $25) 20,014 5,013 Lease receivables 3,503 - Deferred income taxes - 1,066 Other assets 1,408 95 ---------------------------------- Total Assets of Continuing Operations 146,476 125,859 Total Assets of Discontinued Operations 4,935 10,903 ---------------------------------- Total Assets $ 151,411 $ 136,762 ==================================
See accompanying Notes to Consolidated Financial Statements. F-2 25 CONSOLIDATED BALANCE SHEETS - continued Fuqua Enterprises, Inc. and Subsidiaries
December 31, (Dollars in thousands, except share data) 1996 1995 - - ----------------------------------------------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY Notes payable $ - $ 2,064 Accounts payable and accrued expenses 29,992 18,800 Long-term liabilities due within one year 1,453 11,668 ---------------------------------- Total Current Liabilities 31,445 32,532 Long-term debt obligations 30,686 22,041 ---------------------------------- Total Liabilities of Continuing Operations 62,131 54,573 Total Liabilities of Discontinued Operations - 301 ---------------------------------- Total Liabilities 62,131 54,874 ---------------------------------- 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 4,523,669 shares; (1995, 4,443,169 shares) 11,309 11,108 Additional paid-in capital 24,847 24,074 Retained earnings 53,971 46,698 Unrealized gains (losses) on investments - 28 ---------------------------------- 90,127 81,908 Treasury stock, at cost: 44,822 shares; (1995, 995 shares) (847) (20) ---------------------------------- Total Stockholders' Equity 89,280 81,888 ---------------------------------- Total Liabilities and Stockholders' Equity $ 151,411 $ 136,762 ==================================
See accompanying Notes to Consolidated Balance Sheet F-3 26 CONSOLIDATED STATEMENTS OF INCOME Fuqua Enterprises, Inc. and Subsidiaries
Year ended December 31, (Dollars in thousands, except per share data) 1996 1995 1994 - - ----------------------------------------------------------------------------------------------------------------------- REVENUES: Net sales $181,543 $117,128 $118,011 Investment income 1,939 828 541 ----------------------------------------------------------- Total revenues 183,482 117,956 118,552 ----------------------------------------------------------- COSTS AND EXPENSES: Cost of sales 140,773 98,356 100,446 Selling, general and administrative expenses 28,757 10,757 8,897 Interest expense 2,470 894 725 ----------------------------------------------------------- Total costs and expenses 172,000 110,007 110,068 ----------------------------------------------------------- INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 11,482 7,949 8,484 INCOME TAXES 4,209 2,699 2,662 ----------------------------------------------------------- INCOME FROM CONTINUING OPERATIONS 7,273 5,250 5,822 ----------------------------------------------------------- DISCONTINUED OPERATIONS: Income from discontinued operations (Net of income taxes (benefits) of 0, ($103) and $1,215, respectively) - 1,160 3,751 Loss on disposal of discontinued operations including earnings net of taxes during the phase out period (Net of income tax benefits of $2,753) - (3,900) - ----------------------------------------------------------- - (2,740) 3,751 ----------------------------------------------------------- NET INCOME $ 7,273 $ 2,510 $ 9,573 =========================================================== PER SHARE: Income from Continuing Operations $ 1.60 $ 1.32 $ 1.51 ----------------------------------------------------------- Net Income $ 1.60 $ .63 $ 2.48 -----------------------------------------------------------
See accompanying Notes to Consolidated Financial Statements. F-4 27 CONSOLIDATED STATEMENTS OF CASH FLOWS Fuqua Enterprises, Inc. and Subsidiaries
Year ended December 31, (Dollars in thousands) 1996 1995 1994 - - -------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Income from continuing operations $ 7,273 $ 5,250 $ 5,822 Adjustments: Depreciation and amortization 4,196 1,931 1,603 Deferred income taxes 1,203 464 (88) Loss on sales of available for sale investments 54 - - Changes in Assets and Liabilities: Trade accounts receivables (4,485) 886 (716) Lease receivables 1,551 - - Prepaid expenses (1,134) - - Inventories (7,736) (130) (1,889) Other assets (1,078) (225) 39 Income taxes - (1,112) (724) Payables, accrued expenses, and other liabilities (5,010) (1,624) (3,628) ---------------------------------------------------------- Net cash provided by (used in) continuing operations (5,166) 5,440 419 ---------------------------------------------------------- Income from discontinued operations - 1,160 3,751 Loss on disposal of discontinued operations - (3,900) - Net items providing cash from discontinued operations 4,160 (194) 583 ---------------------------------------------------------- Net cash provided by (used in) discontinued operations 4,160 (2,934) 4,334 ---------------------------------------------------------- Net cash provided by (used in) all operations (1,006) 2,506 4,753 ---------------------------------------------------------- INVESTING ACTIVITIES: Proceeds from the sale of discontinued operations 11,352 22,648 - Purchase of business, net of cash acquired (7,743) (2,263) - Sales of available for sale investments 32,798 3,306 100 Purchases of available for sale investments (20,302) (5,272) (6,630) Sales of property, plant and equipment - - 31 Purchases of property, plant and equipment (2,996) (1,509) (4,024) Total from discontinued operations - - (4,525) ---------------------------------------------------------- Net cash provided by (used in) investing activities 13,109 16,910 (15,048) ---------------------------------------------------------- FINANCING ACTIVITIES: Net increase (decrease) in notes payable (2,064) (11,750) 5,750 Payment of long-term liabilities (34,570) (3,521) (1,273) Additional long-term liabilities - 19,615 3,079 Exercise of stock options 974 1,009 248 Acquired shares for treasury (827) - (190) ---------------------------------------------------------- Net cash provided by (used in) financing activities (36,487) 5,353 7,614 ---------------------------------------------------------- Increase (Decrease) in Cash and Cash Equivalents (28,544) 24,769 (2,681) Increase in Cash and Cash Equivalents from discontinued operations 4,160 - 2,445 Cash and cash equivalents at beginning of year 29,000 4,231 4,467 ---------------------------------------------------------- Cash and cash equivalents at end of the year 4,616 $ 29,000 $ 4,231 ========================================================================================================================== CASH PAID DURING THE YEAR FOR: Interest $ 2,975 $ 2,116 $ 1,185 Income taxes 3,506 4,515 5,266 NON-CASH INVESTING AND FINANCING ACTIVITIES: Contingent payment related to meeting certain earn out objectives (American Southern) - - 1,000 Issuance of stock or debt in connection with acquisitions 33,000 11,550 - Assumption of note receivable from sale of American Southern - 11,352 - - - --------------------------------------------------------------------------------------------------------------------------
See accompanying Notes to Consolidated Financial Statements. F-5 28 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Fuqua Enterprises, Inc. and Subsidiaries
UNREALIZED ADDITIONAL GAINS COMMON PAID-IN RETAINED (LOSSES) ON TREASURY (Dollars in thousands) STOCK CAPITAL EARNINGS INVESTMENTS STOCK TOTAL - - ---------------------------------------------------------------------------------------------------------------------- BALANCE, DECEMBER 31, 1993 $ 9,510 $ 14,075 $ 34,615 $ 218 $ (1,040) $ 57,378 Net income - - 9,573 - - 9,573 Exercise of stock options 69 299 - - (120) 248 Acquired shares for treasury - - - - (190) (190) Adjustment to beginning balance for change in accounting method, net of tax - - - 1,238 - 1,238 Unrealized losses on investments - - - (3,925) - (3,925) - - ---------------------------------------------------------------------------------------------------------------------- BALANCE, DECEMBER 31, 1994 9,579 14,374 44,188 (2,469) (1,350) 64,322 Net income - - 2,510 - - 2,510 Exercise of stock options 205 871 - - (67) 1,009 Issuance of stock in connection with acquisition 1,324 8,829 - - 1,397 11,550 Unrealized gains on investments - - - 2,497 - 2,497 - - ---------------------------------------------------------------------------------------------------------------------- BALANCE, DECEMBER 31, 1995 11,108 24,074 46,698 28 (20) 81,888 Net income - - 7,273 - - 7,273 Exercise of stock options 201 773 - - - 974 Acquired shares for treasury - - - - (827) (827) Unrealized losses on investments - - - (28) - (28) - - ---------------------------------------------------------------------------------------------------------------------- BALANCE, DECEMBER 31, 1996 $ 11,309 $ 24,847 $ 53,971 $ - $ (847) $ 89,280 ======================================================================================================================
See accompanying Notes to Consolidated Financial Statements. F-6 29 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Fuqua Enterprises, Inc. and Subsidiaries 1. SIGNIFICANT ACCOUNTING POLICIES BUSINESS: Fuqua Enterprises, Inc. ("Fuqua") is a manufacturer of a variety of products, including beds, patient aids, specialty seating, bathroom safety, mobility products and therapeutic support systems for the acute, long-term and home health care markets. Additionally, Fuqua produces a broad line of leathers that are sold to manufacturers of shoes, handbags, personal leather goods and furniture in both the United States and foreign markets. Fuqua sold its insurance subsidiary, American Southern Insurance Company ("American Southern") during 1995 and, in January 1996, made the decision to discontinue the operations of Kroy Tanning Company, Incorporated ("Kroy"), which historically had been unprofitable. Additionally, Fuqua acquired Basic American Medical Products, Inc. ("Basic") in November 1995 and the medical products division of Lumex, Inc. (the "Lumex Division") in April 1996 (together, the "Medical Products Operations"). PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the accounts of Fuqua and all of its wholly and majority owned subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation. ACCOUNTING CHANGES: Effective January 1, 1996, Fuqua adopted Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121"), which requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amounts. SFAS 121 also addresses the accounting for long-lived assets that are expected to be disposed of. The adoption of SFAS 121 had no effect on Fuqua's Consolidated Financial Statements. Effective January 1, 1996, Fuqua adopted Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), which encouraged companies to recognize expense for stock-based awards based on their fair market values on the dates of grant. As an alternative provided for in SFAS 123, Fuqua has elected to account for its stock options in accordance with APB Opinion No. 25 and related Interpretations ("APB 25"). The disclosures required by SFAS 123 are included in Note 9 to the Consolidated Financial Statements. Effective January 1, 1994, Fuqua adopted Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" ("SFAS 115"). In accordance with SFAS 115, prior period financial statements were not restated to reflect the change in accounting principle. The cumulative effect on net income as of January 1, 1994 of adopting SFAS 115 for investments which previously were classified as held to maturity and which were then classified as trading securities was immaterial. The balance of stockholders' equity as of January 1, 1994 was increased by $1,238,000, net of income taxes, to reflect the net unrealized gains on investments previously classified as held to maturity which were reclassified as available for sale. INCOME PER SHARE: Income per share is based upon 4,554,276 shares in 1996, 3,962,876 in 1995 and 3,860,324 in 1994, representing the weighted-average number of shares outstanding during the year, plus common stock equivalents. Common stock equivalents include option shares granted under Fuqua's stock option plans. FINANCIAL INSTRUMENTS: Financial instruments which potentially subject Fuqua to concentrations of credit risk are primarily cash equivalents and short-term investments in investment grade, short-term debt instruments and preferred stocks. Concentrations of credit risk with respect to trade accounts receivable and lease receivables are limited due to the large number of customers in Fuqua's customer base and their dispersion across different geographic areas. Fuqua maintains an allowance for doubtful accounts based upon the expected collectibility of its trade accounts and lease receivables. ADVERTISING COSTS: Fuqua, through its subsidiaries, expenses advertising costs when incurred. The amounts of such costs were insignificant in 1996, 1995 and 1994. CASH AND CASH EQUIVALENTS: For purposes of the consolidated balance sheets and statements of cash flows, Fuqua considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents (1996 - - - $4,616,000, 1995-$29,000,000). The cash proceeds of $22,648,000 from the sale of American Southern on December 31, 1995 were invested in cash equivalents collateralized by U.S. Treasury obligations. The carrying amounts reported in the balance sheets for cash and cash equivalents approximate their fair values. INVENTORIES: Inventories are stated at the lower of cost or market. Cost is determined as follows: raw materials and supplies-first-in, first-out; work in process and finished goods-average. F-7 30 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Fuqua Enterprises, Inc. and Subsidiaries PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment to be used in operations are stated at cost. Depreciation is provided principally by the straight-line method over estimated useful lives which range as follows: buildings and improvements: 10-40 years; machinery and office equipment: 5-15 years; and automobiles and trucks: 5-10 years. REVENUE RECOGNITION: Sales are recorded when goods are shipped and the customers are obligated to pay. RESEARCH AND DEVELOPMENT: Research and development costs are expensed as incurred and were $1,422,000, $802,000 and $800,000 in 1996, 1995 and 1994, respectively. SHORT-TERM BORROWINGS: The weighted average interest rate on short-term borrowings was 7.4% and 6.8% during 1995 and 1994, respectively. There were no short-term borrowings in 1996. USE OF ESTIMATES: The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results inevitably will differ from those estimates, and such differences may be material to the financial statements. 2. ACQUISITIONS On November 8, 1995, Fuqua acquired Basic. Basic, whose divisions include Simmons Healthcare, Omni Manufacturing and SSC Medical, is a manufacturer and distributor of medical equipment and furnishings for the acute, long-term and home health care markets. The purchase price consisted of $2,500,000 in cash and 600,000 shares of Fuqua's common stock. The shares issued were not registered under the Securities Act of 1933 and, accordingly, are restricted as to resale. Under the terms of the acquisition, there are demand and "piggyback" registration rights with respect to these shares. The transaction was accounted for using the purchase method; accordingly, the assets and liabilities of Basic have been recorded at their estimated fair values at the date of acquisition. The excess of purchase price over the net assets acquired of $5,038,000 has been assigned to goodwill and is being amortized on a straight-line basis over 30 years. On April 3, 1996, Fuqua acquired the Lumex Division. The Lumex Division is a manufacturer of medical equipment, including beds, specialty seating products, patient aids, bathroom safety, mobility products and therapeutic support surfaces for the acute, long-term and home health care markets. The purchase price for the Lumex Division was $40,750,000, subject to a final purchase price adjustment as provided in the asset sale agreement. The final purchase price adjustment is in dispute and is currently being resolved through arbitration. The ultimate outcome in arbitration of the purchase price adjustment will change the final purchase price and the allocation thereof to the net assets acquired. The purchase price paid by Fuqua for the Lumex Division was financed with internal funds and borrowings of $33,000,000 under Fuqua's Revolving Credit Facility. The excess of purchase price over the net assets acquired of $15,375,000 was assigned to goodwill and is being amortized on a straight-line basis over 30 years. Included in the purchase price allocation were accruals of $2,300,000 for exiting activities, consisting principally of future lease costs for duplicate facilities. The results of operations of Basic have been included in the Consolidated Financial Statements for the two month period since the date of acquisition in 1995 and for the full year in 1996. The results of operations of the Lumex Division have been included in the Consolidated Financial Statements for the nine month period since the date of acquisition in 1996. The following unaudited pro forma summary presents Fuqua's consolidated results from continuing operations as if the acquisitions had occurred on the first day of the full year preceding their respective acquisition dates. 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 that date or of results which may occur in the future.
Year Ended December 31, 1996 1995 1994 (Dollars in thousands, except per share date) - - --------------------------------------------------------- Net sales $195,113 $198,365 $141,263 Income from continuing operations 2,425 4,519 6,406 Per share: Income from continuing operations $ .53 $ 1.14 $ 1.44
F-8 31 In March 1996, Fuqua, through its Leather Operations, entered into an agreement to acquire a 70% interest in a joint venture which acquired a 50% interest in a tannery in the People's Republic of China. In November 1996, the Leather Operations' interest in the joint venture was reduced to 60% as a result of admitting a new venture partner. Investment and advances related to the joint venture at December 31, 1996 were $1,967,000. The results of operations of the joint venture were not significant to the 1996 Consolidated Financial Statements. SUBSEQUENT EVENT - ACQUISITION OF PRISM: 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 $12,000,000, 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 $19,500,000 and was financed with borrowings under Fuqua's Revolving Credit Facility. 3. DISCONTINUED OPERATIONS In December 1995, Fuqua sold its insurance subsidiary, American Southern, for $34,000,000 to Atlantic American Corporation, an Atlanta, Georgia based publicly traded insurance company. The proceeds from the sale included cash of $22,648,000 and a note receivable from the purchaser of $11,352,000. The note receivable accrued interest at F-9 32 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Fuqua Enterprises, Inc. and Subsidiaries prime, half of which was payable quarterly and half of which was paid, together with the principal, in October 1996. The note receivable had indemnification and certain offset rights which were similar to the provisions of the note payable issued to the seller when Fuqua acquired American Southern in 1991. In October 1996, the proceeds from Atlantic American's payment of the note receivable were used to repay this note payable. The sale transaction resulted in a pretax loss on disposal of $3,553,000, less earnings (net of taxes) during the phase out period of the fourth quarter of 1995 of $1,303,000 and less estimated tax benefits of $1,350,000. During 1996, interest charges of $662,000 were incurred and offset against the accrual established in 1995 to provide for the loss on disposal of American Southern. In January 1996, Fuqua made the decision to discontinue the operations of Kroy, which historically had been unprofitable. In accordance with generally accepted accounting principles (Emerging Issues Task Force No. 95-18), Kroy was treated as a discontinued operation in 1995 and preceding years' Consolidated Financial Statements. The pretax loss on disposal of Kroy was $4,800,000, less estimated tax benefits of $1,800,000. This accrual provided for reserves necessary to write down assets (consisting principally of receivables, inventory and property, plant and equipment) to their net realizable values and to pay for obligations, including environmental costs, required in connection with the wind down of operations. During 1996, $3,080,000 (before the benefit of income taxes) of such costs were charged against this accrual. Operations at the East Wilton facility ceased in the fourth quarter of 1996. Discontinued operations include estimates of the amounts expected to be realized from Kroy's assets and future obligations. While the amounts Fuqua will ultimately realize or be obligated for could differ from the amounts assumed in arriving at the loss on disposal of Kroy. Management believes that the reserves established at December 31, 1995, continue to appear reasonable. The results of operations of American Southern and its subsidiaries through September 30, 1995 and for Kroy through December 31, 1995 have been classified as income from discontinued operations as follows:
Year ended December 31, 1995 1994 (Dollars in thousands) - - --------------------------------------------------------- Revenues $45,932 $49,406 Costs and expenses 44,875 44,440 ------- ------- Income before income taxes 1,057 4,966 Income tax (benefit) provision (103) 1,215 ------- ------- Income from discontinued operations $ 1,160 $ 3,751 ======= =======
4. INVENTORIES Inventories consist of the following:
December 31, 1996 1995 (Dollars in thousands) - - --------------------------------------------------------- Finished goods $16,238 $ 6,598 Work in process 12,338 6,738 Raw materials and supplies 13,483 8,359 ------- ------- $42,059 $21,695 ======= =======
F-10 33 5. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consist of the following:
December 31, 1996 1995 (Dollars in thousands) - - ---------------------------------------------------------- Land and land improvements $ 664 $ 257 Buildings and improvements 18,753 12,803 Machinery and office equipment 23,386 18,399 Automobiles and trucks 1,044 844 Building held for sale 5,080 - ------- ------- $48,927 $32,303 ======= =======
6. LEASE RECEIVABLES The Lumex Division offered lease financing to distributors of its low air loss bed systems under the terms of either a fixed payment lease or shared revenue lease contract, both of which were accounted for as sales type leases. Standard lease contracts contained fixed monthly payments and were generally for 36-48 months, at which time title passes to the lessee. Under shared revenue lease contracts, the lessee paid the greater of: a fixed percentage of monthly revenue collected from rentals of the equipment or a minimum monthly payment. Shared revenue lease contracts were generally for 60 months, at which time title does not pass to the lessee. Leases are secured by the equipment leased including any revenues derived therefrom. Lease receivables were comprised of the following:
December 31, 1996 (Dollars in thousands) - - --------------------------------------------------------- Minimum lease payments receivable $ 6,491 Less unearned interest income (1,522) Less allowance for uncollectible accounts (319) Less current portion (1,147) ------- Non-current portion $ 3,503 =======
Minimum lease payments receivable are as follows:
Year ended December 31, (Dollars in thousands) Total - - --------------------------------------------------------- 1997 $1,147 1998 1,399 1999 1,377 2000 727 ------ $4,650 ======
F-11 34 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Fuqua Enterprises, Inc. and Subsidiaries 7. ACCOUNTS PAYABLE AND ACCRUED EXPENSES Accounts payable and accrued expenses consist of the following:
December 31, 1996 1995 (Dollars in thousands) - - ----------------------------------------------------------------- Accounts payable $10,916 $ 5,390 Accrued compensation 2,335 1,536 Accrued insurance 639 996 Accrued profit-sharing plan 511 381 Accrual for discontinued operations 2,405 6,147 Other accrued expenses 13,186 4,350 ------- ------- $29,992 $18,800 ======= =======
8. LONG-TERM DEBT OBLIGATIONS Long-term debt obligations consist of the following:
December 31, 1996 1995 (Dollars in thousands) - - ----------------------------------------------------------------- Revolving Credit Facility, interest at LIBOR + .5%, due in 1999 $28,000 $18,500 Industrial revenue obligations, secured by improvements, 4.5% to 6.9%, due to 2004 1,126 1,335 Step down revolver payable in monthly installments, interest at 8.75% through April 1997 when balance is due - 745 Master draw note with interest payable at 7.5% through April 1997 when balance is due - 937 Term loan, payable in monthly installments, interest at LIBOR +.55%, remaining principal due January 2001 1,535 - Term note, payable in monthly installments, interest at 8.75% through May 2000 - 120 Note payable in monthly installments, interest at 8% through June 2007, callable at the option of the lender within a 90-day period beginning July 1998, July 2001 or or July 2002 - 360 Liability for future payments under employ- ment contracts 25 44 ------- ------- $30,686 $22,041 ======= =======
On June 28, 1996, Fuqua amended its Revolving Credit Facility to expand the maximum borrowing amount from $60,000,000 to $100,000,000 and to add an additional bank to the facility. The Revolving Credit Facility has a three- year term and is to be used for working capital and to provide funds for corporate development activities. The interest rate under the Revolving Credit Facility is based on matrix pricing which ranges from LIBOR plus 40 basis points to LIBOR plus 100 basis points, plus a charge on the unused commitment of 12.5 basis points to 25 basis points. The Revolving Credit Facility includes normal and customary restrictive covenants regarding funded debt to capital, funded debt to cash flow, interest coverage, and dividend payments. Management believes that, at December 31, 1996, Fuqua is in compliance with the covenants of the Revolving Credit Facility and with the covenants of other Fuqua debt agreements. The aggregate maturity requirements for the next five years in respect to the current and non-current portions of long-term debt obligations at December 31, 1996 are as follows (dollars in thousands): 1997-$1,453; 1998-$290; 1999- $28,292; 2000-$295; 2001-$1,357; and thereafter $452. The carrying amounts of long-term liabilities approximate their fair values. F-12 35 9. STOCK OPTIONS On June 29, 1989, the Board of Directors approved a nonqualified stock option plan for key employees (the "1989 Plan"), reserving 300,000 shares of Common Stock for issuance under the 1989 Plan. The options are granted at prices and under terms determined by the Stock Option Committee of the Board of Directors. All options expired five years from the date of grant. On January 21, 1992, the Board of Directors approved a stock option plan (the "1992 Plan"), reserving 300,000 shares of Common Stock for issuance under the 1992 Plan. The 1992 Plan, which was approved by the stockholders on May 16, 1992, provides for the granting of options to officers, directors, key employees, consultants, advisors and others providing goods and services to Fuqua. The options are granted at prices and under terms determined by the Stock Option Committee of the Board of Directors. All options expire five to ten years from the date of grant. In November 1995, the Board of Directors approved the 1995 Long-Term Incentive Plan (the "Incentive Plan"), reserving 300,000 shares of Common Stock for issuance under the Incentive Plan. The Incentive Plan, which was approved by the stockholders on June 1, 1996, provides for the granting of awards to officers and key employees of Fuqua. The awards are granted at prices and under terms determined by the Stock Option Committee of the Board of Directors. All awards expire from five to ten years from the date of grant. Also in November 1995, the Board of Directors approved the 1995 Stock Option Plan for Outside Directors (the "Directors' Plan"), reserving 50,000 shares of Common Stock for issuance under the Directors' Plan. The options are automatically granted to directors annually. The Directors' Plan was approved by the stockholders on June 1, 1996. At December 31, 1996 and 1995, there were 217,600 and 364,000 shares of common stock, respectively, reserved for future grants in connection with Fuqua's stock option plans. F-13 36 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Fuqua Enterprises, Inc. and Subsidiaries A summary of stock option activity under the above-described plans is as follows:
Weighted- Price Average Shares Range Price - - ---------------------------------------------------------------------------- Balance at December 31, 1993 227,175 $8.50-$20.38 Granted 20,000 $20.38 Exercised (27,675) $8.50 Cancelled (2,000) $20.38 ------- Balance at December 31, 1994 217,500 $8.50-$21.00 $11.47 Granted 254,000 $18.38-$20.50 $19.63 Exercised (82,000) $8.50 $ 8.50 Cancelled (5,000) $20.38 $20.38 ------- Balance at December 31, 19953 384,500 $8.50-$21.00 $17.38 Granted 146,400 $21.25-$24.00 $21.72 Exercised (80,500) $8.50-$9.50 $ 9.01 ------- Balance at December 31, 1996 450,400 $9.50-$24.00 $20.29 -------
The following table summarizes information concerning currently outstanding and exercisable options at December 31, 1996:
Options Outstanding - - --------------------------------------------------------------------------- Range of Number of Weighted- Weighted- Exercise Options Average Average Price Outstanding Remaining Life Exercise Price - - --------------------------------------------------------------------------- $9.50 5,000 1 year $ 9.50 $18.38-$24.00 445,400 5 years $20.41 ------- 450,400 =======
Options Exercisable - - --------------------------------------------------------------------------- Range of Number of Weighted- Exercise Options Average Price Exercisable Exercise Price - - --------------------------------------------------------------------------- $9.50 5,000 $ 9.50 $18.38-$24.00 190,333 $20.09 ------- 195,333 =======
Fuqua elected to follow APB 25 in accounting for its stock options because, as discussed below, the alternative fair value accounting provided for under SFAS 123 requires use of option valuation models that were not developed for use in valuing employee stock options. Under APB 25, because the exercise price of Fuqua's stock options equals or exceeds the market price of the underlying stock on the date of grant, no compensation expense is recognized. Pro forma information regarding net income is required by SFAS 123, which also requires that the information be determined as if Fuqua has accounted for its employee stock options granted subsequent to December 31, 1994 under the fair value method. The fair value for these options was estimated at the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions. F-14 37
Assumptions 1996 1995 - - --------------------------------------------------------------------------- Risk free interest rates 5.91% 6.13% Dividend yield None None Market volatility factors .38 .37 Life of options 5 years 7 years
For purposes of pro forma disclosures, the estimated fair values of the options are amortized to expense over the options' vesting periods. The weighted-average fair values of options granted during 1996 and 1995 equaled $9.93 and $9.25, respectively. Fuqua's pro forma net income information follows:
1996 1995 ---- ---- Pro Forma Net Income $6,942,000 $1,456,000 Pro Forma Net Income Per Share $ 1.52 $ .37
Since SFAS 123 is applicable only to options granted subsequent to December 31, 1994, its pro forma effect will not be fully reflected in Fuqua's historical results until 2000, the date through which options vest. 10. SALES AND SEGMENT INFORMATION Fuqua's foreign operations were not significant in 1996. Sales of the Leather Operations and Medical Products Operations to customers outside the United States, which have been classified by country where such amounts exceed 10% of net sales and otherwise geographically are as follows:
Year ended December 31, 1996 1995 1994 (Dollars in thousands) - - --------------------------------------------------------------------------- Hong Kong $22,281 $15,819 $16,457 North America 3,512 3,075 7,584 Europe 3,197 2,687 3,467 Asia, other than Hong Kong 7,390 5,148 6,773 Other 1,914 3,933 235 ------- ------- ------- $38,294 $30,662 $34,516 ======= ======= =======
In 1996, sales of leather to one customer amounted to $15,722,000 and to another $15,506,000. In 1995, sales of leather to one customer amounted to $23,662,000 and to another $15,938,000. In 1994, sales of leather to one customer amounted to $20,007,000 and to another $17,426,000. Beginning in 1990, the Leather Operations began buying hides, that had already undergone the initial chrome tanning process, from one principal supplier. Management believes that alternatives sources of supply at competitive prices are available. Fuqua's continuing operations are carried on through its subsidiaries which operate in two distinct business segments, Leather Operations and Medical Products Operations. The Medical Products Operations became part of Fuqua through the acquisition of Basic in November 1995 and the Lumex Division in April 1996. F-15 38 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Fuqua Enterprises, Inc. and Subsidiaries Operating results and other financial data are presented as follows for each business segment which, at December 31, 1996, remain as continuing operations of Fuqua:
Year ended December 31, 1996 1995 1994 (Dollars in thousands) - - ------------------------------------------------------------------------ Net sales: Leather Operations $ 107,832 $ 111,930 $ 118,011 Medical Products Operations 73,711 5,198 - --------- --------- --------- Consolidated $ 181,543 $ 117,128 $ 118,011 ========= ========= ========= Operating profit (loss): Leather Operations $ 10,914 $ 10,423 $ 10,985 Medical Products Operations 4,720 401 - Corporate (1,682) (1,981) (1,776) --------- --------- --------- Consolidated $ 13,952 $ 8,843 $ 9,209 ========= ========= ========= Identifiable assets: Leather Operations $ 57,163 $ 44,474 $ 44,724 Medical Products Operations 80,491 26,719 - Corporate 8,822 54,666 15,788 --------- --------- --------- Consolidated $ 146,476 $ 125,859 $ 60,512 ========= ========= ========= Capital expenditures: Leather Operations $ 1,594 $ 1,509 $ 4,024 Medical Products Operations 1,313 619 - Corporate 89 - - --------- --------- --------- Consolidated $ 2,996 $ 2,128 $ 4,024 ========= ========= ========= Depreciation and Amortization: Leather Operations $ 1,702 $ 1,582 $ 1,387 Medical Products Operations 2,274 113 - Corporate 220 236 216 --------- --------- --------- Consolidated $ 4,196 $ 1,931 $ 1,603 ========= ========= =========
There were no intersegment sales during 1996, 1995 or 1994. Operating profit (loss) by segment represents net sales less direct operating expenses. No allocation has been made for general corporate expenses, interest income from corporate investments or any foreign or domestic taxes. Identifiable assets are tangible and intangible assets used exclusively in the operations of each business segment. Corporate assets represent cash, investments and leasehold improvements, furniture and fixtures associated with Fuqua's corporate office. 11. GENERAL AND ADMINISTRATIVE EXPENSES In September 1994, Fuqua amended the Management Agreement ("Agreement") with Fuqua Capital Corporation ("Capital"), a corporation wholly-owned by J. B. Fuqua, Chairman of the Board, and J. Rex Fuqua, Vice Chairman of the Board. Under the Agreement, Capital provides investment services and performs certain managerial and administrative duties. The term of the Agreement is through June 1, 2000 and provides for a management fee of $360,000 for each year of the noncancellable term. In October 1994, Fuqua amended its lease for corporate office space to extend the term for five years. Concurrently, Fuqua entered into a new sublease with a similar five year term with Capital for the portion of space which Capital uses. The sublease provides that if Fuqua moves out of the space it shares with Capital, or there is a change in control of Fuqua, Capital has the option of taking over the area now occupied by Fuqua on terms favorable to Capital. F-16 39 12. RETIREMENT PLANS Fuqua adopted a qualified defined contribution plan, effective January 1, 1993, covering all of the employees of the parent company and the leather subsidiaries and incorporating the profit-sharing plans of the leather subsidiaries. This plan provided a profit-sharing component with contributions to each employee based on his or her compensation and with the total contribution determined annually by the Board of Directors. The plan also permitted employees to make tax-deferred contributions up to the maximum limits allowed by the Internal Revenue Code, with Fuqua matching a portion of the employee's contribution under a formula approved annually by the Board of Directors. In 1995, Basic had two defined contribution employee benefit plans for the employees at its manufacturing facility in Fond du Lac, Wisconsin. One plan allowed employees to make contributions by salary reduction pursuant to Section 401(k) of the Internal Revenue Code. The other plan was a money purchase plan which provides for employer contributions equal to 4% of eligible employee salaries. Employees became eligible to participate in the money purchase plan after 12 months of service. In 1995, employees at Basic's Georgia facilities participated in a profit sharing plan. This plan provided for discretionary annual contributions by Basic. Additionally, Basic adopted an employee benefit plan for its employees at the Georgia facilities which allowed eligible employees to make contributions by salary reduction pursuant to Section 401(k) of the Internal Revenue Code. On April 3, 1996, Fuqua adopted the Fuqua Enterprises, Inc. Savings and Retirement Plans and Trusts which provided for tax-qualified 401(k) plans for all of Fuqua's union and non-union employees (the "New Fuqua Plans"). The non-union employees of the Lumex Division became the first participants in the New Fuqua Plans concurrent with the acquisition of the Lumex Division in April 1996. All other Fuqua employees became participants in the New Fuqua Plans on July 1, 1996 or thereafter when the existing plans covering Basic, the Leather Operations and Fuqua's corporate office were merged into the New Fuqua Plans or when the union employees of the Lumex Division became eligible to participate. The New Fuqua Plans contain a profit-sharing component allowed by Internal Revenue Code Section 401(a), with tax-deferred contributions to each participant based on his or her compensation and with the total contribution determined annually by the Board of Directors. The New Fuqua Plans also permit employees to make tax-deferred contributions up to the maximum limits allowed by Internal Revenue Code Section 401(k), with Fuqua matching 50% of the first 4% of participants' contributions to the New Fuqua Plans. Total expense recognized under all of the above plans was 1996-$940,000, 1995-$309,000 and 1994-$372,000. F-17 40 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Fuqua Enterprises, Inc. and Subsidiaries 13. INCOME TAXES Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of Fuqua's deferred income tax liabilities and assets are as follows:
December 31, 1996 1995 (Dollars in thousands) - - ------------------------------------------------------------------------ Deferred income tax liabilities: Tax over book depreciation $ 1,540 $ 1,851 ------- ------- Deferred income tax liabilities $ 1,540 $ 1,851 ======= ======= Deferred income tax assets: Accrued liabilities $ 3,393 $ 3,243 Allowance for doubtful accounts 485 80 Accrual for discontinued operations 1,139 3,189 Unrealized investment losses - 19 ------- ------- Deferred income tax assets 5,017 6,531 ------- ------- Net deferred income tax assets $ 3,477 $ 4,680 ======= =======
Significant components of the provisions (benefits) for income taxes for continuing and discontinued operations are as follows:
Year ended December 31, 1996 1995 1994 (Dollars in thousands) - - ------------------------------------------------------------------------ Continuing Operations: Current: Federal $ 2,316 $ 2,016 $ 2,205 State 395 457 583 ------- ------- ------- $ 2,711 $ 2,473 $ 2,788 ======= ======= ======= Deferred: Federal $ 1,342 $ 184 $ (100) State 156 42 (26) ------- ------- ------- $ 1,498 $ 226 $ (126) ======= ======= ======= Discontinued Operations: $ - $(2,856) $ 1,215 ======= ======= =======
F-18 41 In 1994, Fuqua made a favorable adjustment for amounts that were no longer considered necessary for contingencies for income taxes resulting in a reduction in income tax expense of $544,000 ($0.14 per share). The provisions for income taxes for continuing operations differ from the amounts computed by applying the U.S. Federal income statutory tax rates as follows:
Year ended December 31, 1996 1995 1994 - - ------------------------------------------------------------------------ Statutory rate 35.0% 35.0% 35.0% State income taxes, net of federal tax benefit 3.2 4.0 4.2 Business tax credits - - (.2) Dividend credits (.1) (1.1) (1.0) Tax-exempt interest - (1.5) (.2) Write-off of intangibles - .2 - Foreign sales corporation benefit (2.0) (1.7) - Adjustment of estimated liabilities for prior years - - (6.4) Other .6 (1.0) - ---- ---- ---- 36.7% 33.9% 31.4% ==== ==== ====
The provisions (benefits) for income taxes for discontinued operations differ from those amounts computed by applying the U.S. Federal income statutory tax rates due principally to tax-free interest income at American Southern. 14. INVESTMENTS There were no investments at December 31, 1996. All investments at December 31, 1995 were classified as available for sale as follows:
December 31, 1995 Cost or Gross Gross Estimated (Dollars in Amortized Unrealized Unrealized Fair thousands) Cost Gains Losses Value - - ------------------------------------------------------------------------ Available for sale: Corporate Debt Securities $ 2,524 $ 7 $ (80) $ 2,451 Debt Securities issued by the U.S. Treasury 6,010 34 - 6,044 Preferred Stocks 3,964 119 (28) 4,055 --------- ------ ------- -------- $ 12,498 $ 160 $ (108) $ 12,550 ========= ====== ======= ========
The proceeds from sales of available for sales securities were $32,798,000 in 1996. In 1996, gross realized gains were $155,000 and gross realized losses were $209,000 on sales of available for sale securities. The proceeds from sales of available for sale securities were $3,306,000 during 1995. In 1995, gross realized gains were $53,000 and gross realized losses were $11,000 on available for sale investments. The proceeds from sales of available for sale securities were $100,000 for 1994. There were no gross realized gains or losses on sales of available for sale securities in 1994. Cost is determined by specific identification for purposes of calculating realized gains and losses. There were no transfers of securities to or from the available for sale or trading categories during 1996 and 1995. There were no sales of securities classified as held to maturity during 1996 and 1995. F-19 42 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Fuqua Enterprises, Inc. and Subsidiaries 15. ENVIRONMENTAL CONTINGENCY: In March 1994, the office of the District Attorney of Suffolk County, Long Island, New York initiated an investigation to determine whether regulated substances had been discharged from one of the Lumex Division's Bay Shore facilities in excess of permitted levels. 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. At December 31, 1996, the Lumex Division had $1,713,000 in reserves for remediation costs, including 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 parties nor has the Lumex Division discounted any of its cost estimates, although a portion of the remediation work plan will be performed over a period of years. The amounts 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. The estimate of the costs, which are not probable but for which there exists at least a reasonable possibility of occurrence, exceeds the reserves recorded by the Lumex Division at December 31, 1996 by $1,600,000. F-20 43 SUMMARY OF QUARTERLY DATA (Unaudited)
March June September December For the (Dollars in thousands, except per share amounts) 31 30(2) 30(2) 31(2) Year - - ----------------------------------------------------------------------------------------------------------------------------- 1996 Net sales $ 30,500 $ 46,898 $ 49,655 $ 54,490 $ 181,543 Income before interest and taxes 2,960 3,530 4,136 3,326 13,952 Income from continuing operations 1,600 1,838 2,087 1,748 7,273 Income from continuing operations per share 0.36 0.40 0.46 0.38 1.60 Net income per share 0.36 0.40 0.46 0.38 1.60 1995 Net sales $ 24,050 $ 33,692 $ 27,923 $ 31,463 $ 117,128 Income before interest and taxes 1,293 2,496 2,227 2,827 8,843 Income from continuing operations 662 1,349 1,321 1,918 5,250 Income from continuing operations per share 0.17 0.35 0.34 0.45 1.32 Net income (loss) per share 0.37 0.47 0.17 (0.33) 0.63
Notes: 1. No cash dividends were paid in either year. In 1996 and 1995, per share amounts are calculated on a discrete quarterly basis and for the year are based on the weighted-average shares for the four quarters of the year. 2. Includes Basic for the two-month period ended December 31, 1995 and the Lumex Division for the nine-month period ended December 31, 1996. - - -------------------------------------------------------------------------------- F-21 44 FUQUA ENTERPRISES, INC. ANNUAL REPORT ON FORM 10-K YEAR ENDED DECEMBER 31, 1996 ITEM 14(A) FINANCIAL STATEMENT SCHEDULE SECTION S 45 FORM 10-K FUQUA ENTERPRISES, INC. AND SUBSIDIARIES YEAR ENDED DECEMBER 31, 1996 ITEM 14(A) LIST OF FINANCIAL STATEMENT SCHEDULES
PAGE NO. ---- Schedule II - Valuation and Qualifying Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1
All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are not applicable and, therefore, have been omitted. (i) 46 ITEM 14(A) SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS FUQUA ENTERPRISES, INC. AND SUBSIDIARIES
============================================================================================================== Col. A Col. B Col. C Col. D Col. E ============================================================================================================== Additions ------------------------ (1) (2) Balance at Charged to Charged to Balance at Beginning Costs and Other Close Description of Period Expenses Accounts Deductions of Period ============================================================================================================== Year ended December 31, 1996: Allowance for doubtful accounts: Trade accounts receivable $ 200,000 $ 98,005 $ - $ 48,005(a) $ 250,000 ========= ========= ========= ======== ========= Lease receivables - - 350,000(b) - $ 350,000 ========= ========= ========= ======== ========= Year ended December 31, 1995: Allowance for doubtful accounts: Trade accounts receivable $ 350,000 $ - - $150,000(a) $ 200,000 ========= ========= ========= ======== ========= Year ended December 31, 1994: Allowance for doubtful accounts: Trade accounts receivable $ 335,000 $ 74,483 - $ 59,483(a) $ 350,000 ========= ========= ========= ======== ========= ==============================================================================================================
(a) Write-off of uncollectible accounts, net of recoveries. (b) Recorded in the acquisition of the Lumex Division. S-1 EX-10.(X) 2 LINE OF CREDIT AGREEMENT 1 EXHIBIT 10(x) SunTrust Bank, Atlanta Post Office Box 4418 Atlanta, GA 30302-4418 January 22, 1997 Fuqua Enterprises, Inc. Suite 5000 One Atlantic Center 1201 W. Peachtree Street Atlanta, Georgia 30309-3424 Re: $5,000,000 Uncommitted Line of Credit from SunTrust Bank, Atlanta Ladies and Gentlemen: Reference is hereby made to that certain Uncommitted Line of Credit Promissory Note, dated as of November 6, 1995 (the "Note"), made by Fuqua Enterprises, Inc., a Delaware corporation (the "Borrower") in favor of SunTrust Bank, Atlanta (the "Lender") in the stated amount of $5,000,000. All terms used herein without definition shall have the meanings ascribed to such terms in the Note. The parties hereby agree to extend the final maturity date of the Note (subject to earlier demand by the Lender and automatic acceleration upon insolvency as set forth in the Note) until May 31, 1998. Except as expressly set forth herein, this letter agreement shall not be deemed to modify or amend any provisions of the Note, which the Borrower hereby confirms is in full force and effect. This letter agreement constitutes the entire understanding of the parties with respect to the subject matter hereof, and any other prior or contemporaneous agreements, whether written or oral, with respect thereto are expressly superseded hereby. This letter agreement is governed by the laws of the State of Georgia and shall inure to the benefit of, and be binding upon, the successors and assigns of the Lender and the Borrower. This letter agreement shall be deemed to effective when an executed counterpart is received by the Lender from the Borrower. Very truly yours, SUNTRUST BANK, ATLANTA By: /s/ R. Michael Dunlap ------------------------------------- Title: Vice President By: /s/ Jenna M. Hale ------------------------------------- Title: Assistant Vice President ACCEPTED AND AGREED: FUQUA ENTERPRISES, INC. By: /s/ Brady W. Mullinax, Jr. ---------------------------- Title: Vice President-Finance, Treasurer and CFO EX-11 3 STATEMENT OF COMPUTATION OF EARNINGS 1 EXHIBIT 11 FUQUA ENTERPRISES, INC. NUMBER OF SHARES USED IN COMPUTING EARNINGS PER SHARE DECEMBER 31, 1996 PRIMARY EARNINGS PER SHARE: TREASURY STOCK METHOD:
NUMBER OF TRADING TOTAL TOTAL MONTH DAYS HIGH LOW - - -------------------------------------------------------------------------------------------------------------------- October 23 $ 545.250 $ 544.000 November 20 483.375 482.125 December 19 462.000 459.375 -- --------- --------- 62 $ 1,490.625 $ 1,485.500 $2,976.125 == ========= ========= ========= AVERAGE: $2,976.125 divided by 62 divided by 2 = $24.001 ====================================================================================================================
OPTIONS OPTION OUTSTANDING SHARES PRICE EXTENSION - - -------------------------------------------------------------------------------------------------------------------- 5,000 $ 9.500 $ 47,500 25,000 20.375 509,375 121,400 21.250 2,579,750 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 25,000 24.00 600,000 ------- ----------- Total 450,400 $ 9,138,000 ======= =========== - - -------------------------------------------------------------------------------------------------------------------- Average Price (above) $ 24.001 ----------- Total Option Extension Divided by Average Price 380,734 Options Outstanding 450.400 ----------- Common Stock Equivalents 69,666 Average Shares Outstanding (see page 2) 4,478,847 ----------- Use for Primary Earnings Per Share 4th Quarter 4,548,513 Primary Shares 3rd Quarter 4,565,327 Primary Shares 2nd Quarter 4,603,552 Primary Shares 1st Quarter 4,499,711 ----------- Subtotal 18,217,103 ----------- Primary Shares Full Year (Average of Quarters) 4,554,276 - - --------------------------------------------------------------------------------------------------------------------
-continued- 1 2 FULLY DILUTED EARNINGS PER SHARE:
AVERAGE NUMBER OF SHARES OUTSTANDING: - - --------------------------------------------------------------------------------------------------------------- BEGINNING ENDING NUMBER SHARES DATE DATE OF DAYS OUTSTANDING EXTENSION - - --------------------------------------------------------------------------------------------------------------- 10-1-96 10-31-96 31 4,478,847 138,844,257 11-1-96 11-30-96 30 4,478,847 134,365,410 12-1-96 12-31-96 31 4,478,847 138,844,257 -- ----------- 92 412,053,924 == =========== Average Number of Shares Outstanding: Fourth Quarter (Extension Divided by Number of Days) 4,478,847 Fully Diluted Shares 3rd Quarter 4,478,847 Fully Diluted Shares 2nd Quarter 4,478,847 Fully Diluted Shares 1st Quarter 4,478,347 ---------- Subtotal 17,914,888 ---------- Fully Diluted Shares Full Year (Average of Quarters) 4,478,722 - - ---------------------------------------------------------------------------------------------------------------
FOURTH FULL QUARTER YEAR Closing Price - 12-31-96 $ 24.250 $ 24.250 ---------- ---------- Total Option Extension (from page 1) Divided by Closing Price 376,825 376,825 Options Outstanding 450,400 450,400 ---------- ---------- Common Stock Equivalents 73,575 73,575 Average Shares Outstanding (from above) 4,478,847 4,478,722 ---------- ---------- Fully Diluted Shares 4,552,422 4,552,297 Less Primary Shares (from page 1) 4,548,513 4,554,276 ---------- ---------- Additional Shares 3,909 (1,979) ---------- ---------- Percentage .09% (.04%) (Note: Anti-dilutive or less than 3.0%; no fully diluted presentation required.) - - ---------------------------------------------------------------------------------------------------------------
2 EX-21 4 SUBSIDIARIES OF FUQUA 1 EXHIBIT 21 FUQUA ENTERPRISES, INC. SUBSIDIARIES DECEMBER 31, 1996
Date of % of Name of Subsidiary Incorporated Incorporation Ownership - - --------------------------------------------- ---------------------------- ----------------- --------- Basic American Medical Products, Inc. Georgia 7-30-76 100% Basic American Sales and Distribution Co., Inc. Delaware 9-17-96 100% Hancock-Ellsworth Tanners, Inc.* Delaware 2-3-70 100% Irving Tanning Company Delaware 3-30-62 100% Irving Tanning Leather Co., Inc. Delaware 10-21-96 100% Vista Leather International Corp. Barbados 7-18-94 100% Kroy Tanning Company, Incorporated* Delaware 2-2-65 100% Lumex Medical Products, Inc. Delaware 3-7-96 100% Lumex Sales and Distribution Co., Inc. Delaware 9-17-96 100% Seagrave Leather Corporation* Maine 10-1-79 100% Wilton Tanning Company* Maine 6-29-59 100%
* Inactive EX-23 5 CONSENT OF ERNST & YOUNG 1 EXHIBIT 23 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statements (Form S-8 No. 33-36157, Form S-8 No. 33-54164, Form S-8 No. 333-05461 and Form S-8 No. 333-05485) pertaining to the stock option plans of Fuqua Enterprises, Inc. of our report dated February 20, 1997, except for the last paragraph of Note 2, as to which the date is February 26, 1997, with respect to the consolidated financial statements and schedule of Fuqua Enterprises, Inc. included in the Annual Report (Form 10-K) for the year ended December 31, 1996. /s/ Ernst & Young LLP ----------------------------------- ERNST & YOUNG LLP Atlanta, Georgia March 21, 1997 EX-24 6 POWERS OF ATTORNEY 1 EXHIBIT 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, That each of the undersigned, officers and/or directors of FUQUA ENTERPRISES, INC., a Delaware corporation (hereinafter called the "Corporation"), does hereby constitute and appoint Lawrence P. Klamon and Mildred H. Hutcheson, and each of them, his true and lawful attorneys and agents, with full power to act without the others, for him and in his name, place and stead, in any and all capacities, to do any and all acts and things, and execute in his name any and all instruments, which said attorneys and agents may deem necessary or advisable in order to enable the Corporation to comply with the Securities Exchange Act of 1934, and requirements of the Securities and Exchange Commission in respect thereof, in connection with the filing under said Act of the Corporation's Form 10-K Annual Report for the year ending December 31, 1996, including specifically power and authority to sign his name to said Form 10-K to be filed with the Securities and Exchange Commission and any amendments thereto, and to attest the seal of the Corporation thereon and to file the same with the Securities and Exchange Commission; and the undersigned does hereby ratify and confirm that said attorneys and agents, and each of them, shall have, andW may exercise, without the others, all the powers hereby confirmed. IN WITNESS WHEREOF, each of the undersigned has signed his name hereto on the 14th day of March, 1997. /s/ J. B. Fuqua /s/ J. Rex Fuqua - - ------------------------------------------------- ------------------------------------------------------------ J.B. Fuqua, Chairman of the Board of J. Rex Fuqua, Vice Chairman of the Board of Directors Directors /s/ L. P. Klamon /s/ Brady W. Mullinax, Jr. - - ------------------------------------------------- ------------------------------------------------------------ Lawrence P. Klamon, Director, President and Brady W. Mullinax, Jr., Vice President-Finance, and Chief Executive Officer (Principal Chief Financial Officer (Principal Financial Officer Executive Officer) and Principal Accounting Officer)
2 /s/ W. Clay Hamner /s/ Frank W. Hulse IV - - ------------------------------------------------- ------------------------------------------------------------ W. Clay Hamner, Director Frank W. Hulse IV, Director /s/ Richard C. Larochelle /s/ Gene J. Minotto - - ------------------------------------------------- ------------------------------------------------------------ Richard C. Larochelle, Director Gene J. Minotto, Director /s/ Clark L. Reed /s/ D. Raymond Riddle - - ------------------------------------------------- ------------------------------------------------------------ Clark L. Reed, Director D. Raymond, Riddle, Director
2 3 FUQUA ENTERPRISES, INC. CERTIFICATE I, John J. Huntz, Jr., hereby certify that I am a duly elected and acting Executive Vice President of Fuqua Enterprises, Inc., a Delaware corporation, and that attached hereto as Exhibit A is a true and correct copy of a resolution adopted by unanimous written consent of the Board of Directors of said corporation as of March 12, 1997, and that said resolution as of March 21, 1997 has not been rescinded, modified or amended and is in full force and effect on the date hereof. IN WITNESS WHEREOF, I have executed this certificate on behalf of Fuqua Enterprises, Inc. and attached the corporate seal this 21st day of March 1997. /s/ John J. Huntz,Jr. -------------------------------------- John J. Huntz, Jr. Executive Vice President (Corporate Seal) 3 4 EXHIBIT A RESOLVED, That Mildred H. Hutcheson, Corporate Secretary of this Corporation, be, and she hereby is, authorized and directed to sign this Corporation's Annual Report on Form 10-K under the Securities Exchange Act of 1934 for the fiscal year ended December 31, 1996, for filing with the Securities and Exchange Commission, on behalf of this Corporation, its Chief Executive Officer and its Chief Financial Officer. 4 EX-27 7 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE DECEMBER 31, 1996 CONSOLIDATED FINANCIAL STATEMENTS INCLUDED IN FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1000 YEAR DEC-31-1996 DEC-31-1996 4,616 0 35,368 (600) 42,059 87,790 48,927 (15,166) 151,411 31,445 30,686 0 0 11,309 77,971 151,411 181,543 183,482 140,773 169,530 0 98 2,470 11,482 4,209 7,273 0 0 0 7,273 1.60 0
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