Graham-Field Health Products, Inc. Announces Agreement in Principle To Settle Securities Class Action, Financial Results for Quarter Ended June 30, 1999, and Amended Credit Agreement
BAY SHORE, N.Y., Aug. 13 /PRNewswire/ -- Graham-Field Health Products,
Inc. (OTC Bulletin Board: GFIH), a manufacturer and supplier of healthcare
products, reported financial results for the second quarter ended
June 30, 1999, and that it has reached an agreement in principle to settle the
securities class action, subject to certain contingencies described below. In
addition, the Company announced that it has entered into an amended credit
agreement with its existing lenders to provide additional liquidity of
approximately $6 million.
Under the terms of the agreement in principle, the securities class action
would be settled for a payment of $20 million, of which $10 million would be
funded by the Company's insurance carrier and $10 million by the Company. The
agreement in principle contemplates that the Company's $10 million
contribution would be paid either from the proceeds of the sale of the Company
or, at the Company's option, from funds otherwise available. In the event the
shares of the common stock of the Company are sold for an amount in excess of
$3 per share pursuant to a definitive sale/merger agreement, the shareholder
class would also be entitled to 25% of the premium in excess of $3 per share
upon certain terms and conditions to be agreed upon between the parties. The
plaintiffs may terminate the settlement if the Company does not enter into a
definitive sale/merger agreement on or before December 31, 1999, unless the
Company has funded its $10 million contribution to the settlement prior to an
election to terminate the settlement by the plaintiffs. The Company recorded
a $10 million provision during the second quarter of 1999 reflecting the
Company's share of the proposed settlement. The agreement in principle is
subject to Board approval, the execution of definitive documentation and
subsequent court approval. Accordingly, there can be no assurance that the
settlement will be consummated.
For the quarter ended June 30, 1999, the Company reported revenues of
$74.5 million and a net loss of $20.3 million, which includes a charge of
$10 million related to the proposed settlement for the securities class action
and $1.3 million of non-recurring expenses for severance and professional fees
associated with the previously announced accounting restatements. Excluding
these items, the net loss for the second quarter of 1999 was $9 million. The
Company reported revenues of $160 million for the six months ended
June 30, 1999, and a net loss of $27.7 million, which includes the $10 million
charge for the proposed settlement of the securities class action, and
approximately $5 million of expenses for non-recurring professional and
advisory fees. For the quarter and six months ended June 30, 1998, the
Company reported revenues of $97.7 and $196.1 million, respectively, and a net
loss of $2.3 million and $4.0 million, respectively. The decrease in revenue
in 1999 is primarily attributable to the implementation of more stringent
credit policies, intense competition in the healthcare industry, the effect of
product rationalization programs to eliminate unprofitable product lines, the
negative impact of certain customers experiencing financial difficulty and
general market concerns regarding the future direction of the Company.
"Following an evaluation of our strategic options, the Company retained
Warburg Dillon Read LLC to pursue the sale of all or parts of the Company.
This sale process has elicited interest from potential purchasers," said
John G. McGregor, President and Chief Executive Officer. "We are presently in
discussions with these potential purchasers."
The Company's gross profit margin was 29.6% and 29.9% for the quarter and
six month period ended June 30, 1999, as compared to 30.8% and 31% for the
same periods in the prior year. The gross margin decline is the result of
competitive industry pressures and lower factory utilization.
The Company's selling, general and administrative expenses for the first
half of 1999 were essentially the same as the prior year period. Cost savings
initiatives from distribution center closures earlier this year and lower
personnel costs were offset by non-recurring accounting, audit and other
professional expenses associated with the accounting investigation conducted
by the Company's Audit Committee relating to the restatement of the Company's
financial results for 1996 and 1997, consulting fees incurred in connection
with the initial implementation of the Company's strategic and operating
business plan, higher bad debt expense, and the costs related to the services
rendered by Jay Alix & Associates, turnaround managers hired in March 1999.
The Company has amended its existing credit facility to provide a new term
loan of $4.5 million with a maturity date of May 31, 2000. The amendment has
reduced the Company's line of credit from $50 million to $35 million, however,
the Company's current borrowing availability has increased by approximately
$6 million after giving effect to the new term loan and a reduction of certain
borrowing base reserves. After giving effect to the amendment, the Company
had unused availability under its credit facility of approximately $10 million
as of August 11, 1999. Under the terms of the amendment, certain financial
covenants were revised and the interest rate on borrowings was increased from
the bank's prime rate (7.75% at June 30, 1999) plus one percent to the bank's
prime rate plus two percent. The Company has decreased its outstanding loan
balance under its credit facility from $32.4 million as of March 31, 1999 to
$23.1 million as of June 30, 1999. The improved cash position is primarily
the result of working capital improvements. |
