SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1994
or
Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _____ to _____
Commission File Number: 0-3585
________________________
EVEREST & JENNINGS INTERNATIONAL LTD.
(Exact name of registrant as specified in its charter)
DELAWARE 95-2536185
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1100 CORPORATE SQUARE DRIVE, ST. LOUIS, MISSOURI 63132
(Address of principal executive offices)
Registrant's telephone number, including area code: 314-995-7000
NOT APPLICABLE
(Former name, former address and former fiscal year,
if changed since last report)
________________________
Securities registered pursuant to Section 12(b) of the Act:
Number of shares
issued and outstanding Name of exchange
Title of each class as of August 15, 1994 on which registered
___________________ __________________ ___________________
Common Stock;
par value: $.01 72,199,612 American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
the filing requirements for the past 90 days: Yes X No
<PAGE>
QUARTERLY REPORT ON FORM 10-Q
JUNE 30, 1994
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements..................................... 3
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................. 20
PART II. OTHER INFORMATION
Item 1. Legal Proceedings....................................... 26
Item 2. Changes in Securities................................... 28
Item 3. Defaults upon Senior Securities ....................... 28
Item 4. Submission of Matters to a Vote of Security Holders..... 28
Item 5. Other Information....................................... 28
Item 6. Exhibits and Reports on Form 8-K........................ 28
SIGNATURE ............................................................ 29
<PAGE>
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The consolidated financial statements included herein have been
prepared by the management of Everest & Jennings International Ltd. (the
"Company") without audit pursuant to the rules and regulations of the
Securities and Exchange Commission. In the opinion of management, all
adjustments (consisting only of normal recurring accruals) necessary to
state fairly the data included herein in accordance with generally accepted
accounting principles for interim financial information have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. Management believes that the disclosures are adequate to make
the information presented not misleading. It is suggested that these
consolidated financial statements be read in conjunction with the
consolidated financial statements and the notes thereto included in the
Company's latest Annual Report on Form 10-K for the fiscal year ended
December 31, 1993.
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands except per-share data)
Three Months Ended June 30
--------------------------
1994 1993
-------- --------
(Unaudited)
Revenues $20,146 $23,524
Cost of sales 13,995 18,631
_______ _______
Gross profit 6,151 4,893
Selling expenses 5,115 6,525
General and administrative expenses 1,312 4,335
_______ _______
Total operating expenses 6,427 10,860
_______ _______
Loss from operations (276) (5,967)
Interest expense, BIL (Note 5) 216 359
Interest expense 352 1,411
_______ _______
Loss before income taxes (844) (7,737)
Income tax provisions 96 100
_______ _______
Net loss $( 940) $(7,837)
Loss per share (Note 7) $(.01) $(.86)
Weighted average number of Common
Shares outstanding 72,199,612 9,146,000
The accompanying Notes are an integral part of these
Consolidated Financial Statements
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands except per-share data)
Six Months Ended June 30
--------------------------
1994 1993
-------- --------
(Unaudited)
Revenues $40,359 $48,276
Cost of sales 28,601 36,080
_______ _______
Gross profit 11,758 12,196
Selling expenses 10,337 12,037
General and administrative expenses 2,846 7,437
_______ _______
Total operating expenses 13,183 19,474
_______ _______
Loss from operations (1,425) (7,278)
Interest expense, BIL (Note 5) 329 551
Interest expense 702 2,794
_______ _______
Loss before income taxes (2,456) (10,623)
Income tax provisions 157 191
_______ _______
Net loss $(2,613) $(10,814)
Loss per share (Note 7) $(.04) $(1.18)
Weighted average number of Common
Shares outstanding 72,199,612 9,146,000
The accompanying Notes are an integral part of these
Consolidated Financial Statements
<PAGE>
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
ASSETS
June 30 December 31
1994 1993
-------- -----------
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $214 $ 1,872
Accounts receivable, less allowance
for doubtful accounts of $2,287
in 1994 and $2,956 in 1993 18,769 15,677
Inventories (Note 9) 15,033 15,289
Assets held for sale (Notes 1 and 6) 12,313 14,609
Other current assets 1,501 1,494
______ ______
Total current assets 47,830 48,941
______ ______
PROPERTY, PLANT AND EQUIPMENT:
Land 145 150
Buildings and improvements 3,620 3,597
Machinery and equipment 12,950 12,410
______ ______
16,715 16,157
Less accumulated depreciation
and amortization (9,732) (9,105)
______ ______
Property, plant and equipment, net 6,983 7,052
INTANGIBLE ASSETS, NET 858 1,007
OTHER ASSETS 500 515
______ ______
TOTAL ASSETS $56,171 57,515
The accompanying Notes are an integral part of these
Consolidated Financial Statements
<PAGE>
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
LIABILITIES AND STOCKHOLDERS' DEFICIT
June 30 December 31
1994 1993
-------- -----------
(Unaudited)
CURRENT LIABILITIES:
Short-term borrowings and current installments
of long-term debt of $1,559 in 1994
and $1,562 in 1993 (Note 5) $19,936 $20,897
Accounts payable 6,564 8,099
Accrued payroll costs 7,683 9,360
Accrued interest, BIL (Note 5) 514 185
Accrued expenses 11,890 10,863
Accrued restructuring expenses (Note 1) 4,947 6,292
______ ______
Total current liabilities 51,534 55,696
______ ______
LONG-TERM DEBT, NET OF CURRENT PORTION
(Note 5) 3,372 3,622
LONG-TERM BORROWINGS FROM BIL (Note 5) 11,152 4,802
OTHER LONG-TERM LIABILITIES 376 403
COMMITMENTS AND CONTINGENCIES (Note 11)
STOCKHOLDERS' DEFICIT: (Notes 4 and 10)
Series A Convertible Preferred Stock 11,089 11,089
Series B Convertible Preferred Stock 1,317 1,317
Series C Convertible Preferred Stock 20,000 20,000
Common Stock, par value: $.01;
authorized 120,000,000 shares 722 722
Additional paid-in capital 105,578 105,578
Accumulated deficit (145,557) (142,449)
Minimum pension liability adjustment (2,606) (2,606)
Cumulative translation adjustments (806) (659)
______ ______
Total stockholders' deficit (10,263) (7,008)
______ ______
TOTAL LIABILITIES AND STOCKHOLDERS'
DEFICIT $56,171 $57,515
The accompanying Notes are an integral part of these
Consolidated Financial Statements
<PAGE>
<TABLE>
EVEREST & JENNINGS INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE SIX MONTHS ENDED JUNE 30, 1994
(Dollars in thousands)
(unaudited)
<CAPTION>
Series A Series B Series C
Convertible Convertible Convertible
Preferred Stock Preferred Stock Preferred Stock Common Stock
--------------- --------------- --------------- ------------
Shares Amount Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993 6,622,206 $11,089 786,357 $1,317 20,000,000 $20,000 72,199,612 $722
Accrued Dividends on Series A
Convertible Preferred Stock -- -- -- -- -- -- -- --
Net loss -- -- -- -- -- -- -- --
Translation adjustments of
consolidated subsidiaries -- -- -- -- -- -- -- --
_________ _______ _______ ______ __________ _______ __________ ____
Balance at March 31, 1994 6,622,206 $11,089 786,357 $1,317 20,000,000 $20,000 72,199,612 $722
</TABLE>
<PAGE>
<TABLE>
EVEREST & JENNINGS INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE SIX MONTHS ENDED JUNE 30, 1994
(Dollars in thousands)
(unaudited)
(continued)
<CAPTION>
Minimum
Additional Accumu- Pension Cumulative
Paid-in lated Liability Translation
Capital Deficit Adjustment Adjustments Total
---------- ------- ---------- ----------- -----
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993 $105,578 $(142,449) $(2,606) $(659) $(7,008)
Accrued Dividends on Series A
Convertible Preferred Stock -- (495) -- -- (495)
Net loss -- (2,613) -- -- (2,613)
Translation adjustments -- -- -- (147) (147)
______ ________ ______ ____ ______
Balance at March 31, 1994 $105,578 $(145,557) $(2,606) $(806) $(10,263)
The accompanying Notes are an integral part of this Consolidated Financial Statement
</TABLE>
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Six Months Ended June 30
----------------------
1994 1993
-------- --------
(Unaudited)
Cash flows from operating activities:
Net loss $(2,613) $(10,814)
Adjustment to reconcile net loss to
cash used in operating activities:
Depreciation and amortization 778 1,479
Changes in operating assets and liabilities:
Accounts receivable (3,092) (2,197)
Inventories 256 (2,505)
Accounts payable (1,535) (4,583)
Accrued payroll costs, expenses and
interest, BIL (321) (376)
Accrued restructuring expenses (1,345) (3,470)
Other, net (502) 384
______ ______
Cash used in operating activities (8,374) (22,082)
______ ______
Cash flows from investing activities:
Capital expenditures (558) (2,862)
Changes in Assets held for sale 2,296 ---
Changes in other long-term assets and
liabilities, net (14) (57)
______ ______
Cash provided by (used in) investing activities1,724 (2,919)
______ ______
Cash flows from financing activities:
Advances from BIL 6,350 23,800
Increase (decrease) in short-term and
long-term borrowings, net (1,211) 1,189
______ ______
Cash provided by financing activities 5,139 24,989
______ ______
Effect of exchange rate changes on cash flow (147) (76)
______ ______
Decrease in cash balance (1,658) (88)
Cash and cash equivalents balance at
beginning of year 1,872 145
______ ______
Cash and cash equivalents balance at end
of the six-month period $214 $ 57
Supplemental disclosures of cash flow information:
Cash paid for interest $ 708 $ 1,181
Cash paid for income taxes $ 132 $ 373
The accompanying Notes are an integral part of these
Consolidated Financial Statements
<PAGE>
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per-share data)
NOTE 1 -- CORPORATE RESTRUCTURING
The Company has incurred substantial financial losses in a continuing
effort to restructure its operations with the objective of becoming a
stronger long-term competitor in the durable medical equipment industry.
Restructuring activities have included asset sales, significant reductions
in headcount, salaries and fringe benefits, plant closures and
consolidations, product line rationalization, debt to equity conversion and
outsourcing of manufacturing operations. In addition to the foregoing, the
Company is pursuing the sale or other disposition of the Smith & Davis
institutional business and Everest & Jennings de Mexico.
The accompanying consolidated financial statements have been prepared
under the going concern concept. The going concern concept anticipates an
entity will continue in its present form and, accordingly, uses the
historical cost basis to prepare financial statements. The Company has
incurred substantial restructuring expenses and recurring operating losses
and has a net capital deficiency at June 30, 1994. No assurance can be
made that the Company will successfully emerge from or complete its
restructuring activities.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Significant accounting policies followed for the three month period and
six month period ended June 30, 1994 are the same as those disclosed in the
Notes to the Company's December 31, 1993 Consolidated Financial Statements,
which were included in the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1993. All dollar amounts in these Notes to
Unaudited Consolidated Financial Statements are in thousands except per-
share data or as otherwise specified. In the opinion of management, all
adjustments, consisting of normal recurring adjustments necessary for a
fair presentation of (a) the consolidated results of operations for the
three month periods and six month periods ended June 30, 1994 and 1993; (b)
the consolidated financial position at June 30, 1994 and December 31, 1993;
and (c) the consolidated cash flows for the six month periods ended June
30, 1994 and 1993 have been made. Certain reclassifications have been made
to prior period financial statements to conform with current period
presentation.
NOTE 3 -- ACQUISITION
In January, 1994, the Company completed the acquisition (the
"Acquisition") of Medical Composite Technology, Inc. ("MCT"). The $10.6
million purchase price consisted of the issuance of 8,000,000 shares of
Common Stock, $2 million in the form of pre-closing cash advances, and the
assumption of $0.6 million of net liabilities. Additionally, the Company
assumed the equivalent of 107,614 unvested stock options for the purchase
of the Company's Common Stock.
The Acquisition was accounted for as a purchase. Of the $10.6 million
purchase price, $9.7 million was attributable to in-process research and
development, and was expensed in 1993. The balance of the purchase price
over the fair value of assets acquired, $0.9 million, was allocated to
goodwill and is being amortized over a period of three years.
For purposes of consolidated financial statement presentation, the
Acquisition was accounted for as if it was completed on December 31, 1993.
Accordingly, the Company's consolidated financial statements as of June 30,
1994 and December 31, 1993 include the assets and liabilities of MCT.
Pro forma combined results of operations (unaudited) of the Company and
MCT for the six month and three month periods ended June 30, 1993 are shown
below. Pro forma results of operations are not necessarily indicative of
the results of operations if the companies had constituted a single entity
during the period combined (dollars in millions except per share data):
Six Months Three Months
Ended Ended
June 30, 1993 June 30, 1993
-------------- --------------
Net sales $48.7 $23.6
Net loss from continuing
operations (22.1) (8.8)
Net loss per share (1.29) (.51)
NOTE 4 -- DEBT RESTRUCTURING AND CONVERSION
As of September 30, 1993, the Company, Everest & Jennings, Inc. ("E&J
Inc."), Jennings Investment Co. and BIL entered into a Debt Conversion
Agreement to provide for the conversion (the "Debt Conversion Transaction")
of approximately $75 million in principal and accrued, unpaid interest (the
"Converted BIL Debt"), owed by the Company and E&J Inc. Pursuant to the
Debt Conversion Agreement, (a) the Company and E&J Inc. issued to BIL a
Convertible Promissory Note -- Common Stock (the "Common Stock Note") in
the initial principal amount of $45 million and a Convertible Promissory
Note -- Preferred Stock (the "Preferred Stock Note") in the original
principal amount of $20 million; (b) BIL agreed to lend to E&J Inc. $5.7
million to allow E&J Inc. to repay the outstanding balance of cash advances
owed by E&J Inc. to the Hongkong & Shanghai Banking Corporation ("HSBC")
under the terms of a Revolving Credit Agreement dated as of September 30,
1992, as amended (the "Revolving Credit Agreement"), between E&J Inc. and
HSBC; (c) Brierley Investments Limited, an affiliate of BIL, agreed to
guarantee a letter of credit facility ("Letter of Credit Facility") between
E&J Inc. and HSBC (or an alternative commercial lending institution) in an
amount not exceeding $6 million through and including June 30, 1995; (d)
BIL, as guarantor of the obligations of E&J Inc. under the Revolving Credit
Agreement, agreed to an amendment of the Revolving Credit Agreement whereby
cash advances of up to $10 million were made available for E&J Inc.'s
working capital needs; (e) the Company and E&J Inc. agreed to indemnify
(the "Indemnification Obligation") BIL from and against any and all losses
arising out of BIL's guarantee of the Letter of Credit Facility and the
Revolving Credit Agreement; (f) BIL agreed to lend to the Company and E&J
Inc. up to $12.5 million pursuant to the terms of the Revolving Promissory
Note; (g) BIL and the Company and E&J Inc. entered into a Security
Agreement (the "Security Agreement") pursuant to which the Company and E&J
Inc. granted a security interest in all of their assets to BIL to secure on
a pari passu basis the obligations of the Company and E&J Inc. to BIL under
the Common Stock Note, the Preferred Stock Note, the Revolving Promissory
Note and the Indemnification Obligation; and (h) the Company and BIL
entered into a Registration Rights Agreement pursuant to which the Company
granted to BIL registration rights with respect to shares of Common Stock
held as of the date of the Registration Rights Agreement and shares of
Common Stock obtained by BIL as a result of the conversion of the Common
Stock Note and Series C Preferred Stock issuable upon conversion of the
Promissory Stock Note.
The Company held a Special Meeting of Stockholders on December 31,
1993, to ratify and approve the Debt Conversion Transaction. Concurrent
with ratification and approval of the Debt Conversion Transaction, the
Company's stockholders approved and adopted amendments to the Company's
Certificate of Incorporation to increase the number of authorized shares of
Common Stock from 25,000,000 to 120,000,000 and to increase the number of
authorized shares of Preferred Stock from 11,000,000 to 31,000,000 (the
"Recapitalization Proposals").
BIL had agreed, upon stockholder approval of the Debt Conversion
Transaction and the Recapitalization Proposals, to advance E&J Inc. $10
million to pay HSBC the cash advance it made to E&J Inc. under the
Revolving Credit Agreement. Such advance by BIL to E&J Inc. which has
resulted in an increase in the principal amount of the Common Stock Note
from $45 million to $55 million. However, subsequent to the Special
Meeting of Stockholders, BIL and E&J Inc. agreed to transfer $10 million
from the Revolving Promissory Note to the Common Stock Note, thus
increasing the balance of the Common Stock Note to $55 million.
The Common Stock Note was convertible into that number of shares of
Common Stock equal to the outstanding principal balance of that Note at
conversion divided by a stated conversion price ($1.00 per share, subject
to antidilution adjustment).
The Common Stock Note automatically converted in full upon satisfaction
of all of the following conditions: (a) ratification of the Debt
Conversion Transaction by the stockholders of the Company; (b) approval and
adoption of the Common Stock Amendment and the Preferred Stock Amendment by
the stockholders of the Company; (c) the filing and effectiveness of an
amendment to the Company's Certificate of Incorporation to effect the
Common Stock Amendment and the Preferred Stock Amendment; (d) adoption by
the Board of Directors of resolutions to designate the Series C Preferred
Stock and the filing and effectiveness of a Certificate of Designations of
the Series C Preferred Stock (the "Series C Certificate of Designations");
(e) reservation of a sufficient number of shares of Series C Preferred
Stock for issuance on conversion of the Preferred Stock Note;
(f) reservation of a sufficient number of Common shares for issuance on
conversion of the Common Stock Note and the Series C Preferred Stock issued
on conversion of the Preferred Stock Note; and (g) approval for listing on
the American Stock Exchange of the Common shares issuable on conversion of
the Common Stock Note and the Series C Preferred Stock issued on conversion
of the Preferred Stock Note. BIL waived condition (g), and the Common
Stock Note converted into 55 million shares of Common stock on January 12,
1994.
The Preferred Stock Note was convertible into that number of shares of
Series C Preferred Stock equal to the outstanding principal balance of that
Note at conversion divided by a stated conversion price ($1.00 per share,
subject to antidilution adjustment). The Series C Preferred Stock is
convertible into shares of Common Stock on a one-for-one basis.
The Preferred Stock Note automatically converted in full upon
satisfaction of all of the following conditions: (a) ratification of the
Debt Conversion Transaction by the stockholders of the Company;
(b) approval and adoption of the Common Stock Amendment and the Preferred
Stock Amendment by the stockholders of the Company; (c) the filing and
effectiveness of an amendment to the Company's Certificate of Incorporation
to effect the Common Stock Amendment and the Preferred Stock Amendment;
(d) adoption by the Board of Directors of resolutions to designate the
Series C Preferred Stock and the filing and effectiveness of the Series C
Certificate of Designations; (e) reservation of a sufficient number of
shares of Series C Preferred Stock for issuance on conversion of the
Preferred Stock Note; (f) reservation of a sufficient number of Common
shares for issuance on conversion of the Common Stock Note and the Series C
Preferred Stock issued on conversion of the Preferred Stock Note; and
(g) approval for listing on the American Stock Exchange of the Common
shares issuable on conversion of the Common Stock Note and the Series C
Preferred Stock issued on conversion of the Preferred Stock Note. BIL
waived condition (g), and the Preferred Stock Note converted into 20
million shares of Series C Convertible Preferred Stock on January 12, 1994.
The conversions of both the Common Stock Note and the Preferred Stock Note
were reflected in the consolidated financial statements as of December 31,
1993. No gain or loss was recognized as a result of the Debt Conversion
Transaction.
NOTE 5 -- DEBT
The Company's debt as of June 30, 1994 and December 31, 1993 is as
follows:
June 30 December 31
1994 1993
-------- -----------
Revolving Promissory Note to BIL $11,152 $ 4,802
Loans payable to HSBC 10,000 10,000
Other domestic debt 9,116 10,844
Foreign debt 4,192 3,675
______ ______
Total debt 34,460 29,321
Less short-term debt and current installments
of long-term debt 19,936 20,897
______ ______
Long-term debt, net of current
installments, including Revolving
Promissory Note to BIL $14,524 $ 8,424
On September 30, 1992, E&J Inc. entered into a $20 million unsecured
Revolving Credit Agreement with HSBC. Advances under the Revolving Credit
Agreement bear interest at the prime rate announced by Marine Midland Bank,
N.A. from time to time. Repayment of existing debt with BIL is
subordinated to the HSBC debt, and Brierley Investments Limited, an
affiliate of BIL, has guaranteed its repayment.
In September, 1993, the outstanding HSBC loan balance of $5.7 million
was repaid utilizing a cash advance provided by BIL under the Revolving
Promissory Note. Furthermore, as of September 30, 1993, HSBC and E&J Inc.
agreed to amend the Revolving Credit Agreement and extend its term for
approximately one year. The HSBC facility, as amended, provides up to $6
million for letter of credit availability and, additionally, cash advances
of up to $10 million to E&J Inc.
On October 8, 1993, E&J Inc. fully utilized the $10 million in cash
advances under the Revolving Credit Agreement to repay a $10 million loan
from Mercantile Bank, resulting in no further cash availability under the
Revolving Credit Agreement.
As of September 30, 1993, the Company entered into the Debt Conversion
Agreement with BIL whereby $75 million of indebtedness was restructured by
the issuance of the Common Stock Note and the Preferred Stock Note (see
Note 4). The balance of the indebtedness owed BIL ($6.8 million) which was
not converted into the Common Stock Note and the Preferred Stock Note was
treated as advances under the Revolving Promissory Note.
As part of the Debt Conversion Transaction, BIL agreed to provide the
Company and E&J Inc. a revolving credit facility of up to $12.5 million, as
evidenced by the Revolving Promissory Note. At June 30, 1994, $11.2
million had been advanced to the Company and E&J Inc. by BIL under the
Revolving Promissory Note. The Revolving Promissory Note matures on June
30, 1995, bears interest at the rate of 8% per annum, and is secured by a
lien on and security interest in all assets of the Company and E&J Inc.
The Revolving Promissory Note is subordinated to all other secured debt
borrowed or guaranteed by the Company or E&J Inc. As of June 30, 1994, $0.5
million of accrued, unpaid interest was due BIL under the Revolving
Promissory Note.
The Company's Smith & Davis subsidiary has a credit facility in the
amount of $13 million (based on asset levels) secured by substantially all
of the assets of Smith & Davis. This line of credit bears interest at
prime plus 2%. At June 30, 1994, the Company had borrowed $4.7 million
under this credit facility and had $2.2 million available under this credit
facility. Additionally, Smith & Davis had other borrowings primarily
consisting of amounts owed under certain industrial revenue bonds totaling
$1.2 million at June 30, 1994, with interest rates ranging from 8% to prime
plus 3%. These amounts are due at various semi-annual intervals through
1996.
At June 30, 1994, the Company was contingently liable under existing
letters of credit in the aggregate amount of approximately $3.5 million.
The Company's Canadian subsidiary has credit facilities in the
aggregate of $4.7 million, of which $3.2 million was borrowed as of June
30, 1994 at interest rates ranging from prime plus 1/2% to prime plus 3/4%.
The loans are secured by the assets of the Canadian subsidiary.
The Company's Mexican subsidiary has a credit facility in the aggregate
of $1.5 million, of which $1.0 million was borrowed at June 30, 1994 at
interest rates approximating 13%. The loans are secured by the assets of
the Mexican subsidiary.
NOTE 6 -- ASSETS HELD FOR SALE
Net assets held for sale for the disposition of the Company's Smith &
Davis institutional business and Mexican subsidiary consist of the
following as of June 30, 1994 and December 31, 1993, and are stated at net
realizable values:
June 30 December 31
1994 1993
-------- -----------
Smith & Davis:
Accounts receivable $3,569 $ 4,999
Inventories 5,967 6,146
Land and buildings 1,000 1,490
Machinery & equipment 1,100 1,100
Other assets --- 196
______ ______
11,636 13,931
Everest & Jennings de Mexico:
Net assets 677 678
______ ______
Total assets held for sale $12,313 $14,609
Results of operations for the Smith & Davis institutional business for
the six month and three month periods ended June 30, 1994 were as follows:
Six Months Three Months
Ended Ended
June 30, 1994 June 30, 1994
-------------- --------------
Revenues $10,473 $ 5,391
Cost of sales 7,540 3,939
_____ _____
Gross profit 2,933 1,452
Operating expenses 3,485 1,856
Interest expense 227 114
_____ _____
Net loss $ (779) $ (518)
During the phase out period through the disposal date, the results of
the Smith & Davis institutional business are being included as a component
of Accrued restructuring expenses on the consolidated balance sheet. The
operating results of the Company's Mexican subsidiary for the three month
period ended June 30, 1994 and the six month period ended June 30, 1994
were not material.
NOTE 7 -- LOSS PER SHARE
Loss per share for the three and six month periods ended June 30, 1994
and 1993 is calculated based on the weighted average number of shares of
Common Stock during the periods.
NOTE 8 -- INCOME TAXES
In January 1993, the Company adopted SFAS 109, "Accounting for Income
Taxes". SFAS 109 utilizes an asset and liability approach in accounting
for income taxes and requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that have
been recognized in the Company's consolidated financial statements or tax
returns. Since it is unlikely that the Company will realize the future tax
benefits of the deferred tax asset related to its substantial net operating
losses, a valuation allowance has been established for the full amount and
thus the adoption of SFAS 109 had no impact on the consolidated financial
statements of the Company.
The Company's foreign source income is not material.
NOTE 9 -- INVENTORIES
Inventories at June 30, 1994 and December 31, 1993 consist of the
following:
June 30 December 31
1994 1993
-------- -----------
Raw materials $7,151 $ 8,219
Work-in-process 4,389 4,131
Finished goods 3,493 2,939
______ ______
$15,033 $15,289
NOTE 10 -- COMMON STOCK
On March 17, 1992, the stockholders of the Company approved a Plan of
Reclassification. Under the Plan of Reclassification, the Certificate of
Incorporation of the Company was amended to replace the Company's
authorized Class A Common Stock and Class B Common Stock with a new single
class of Common Stock having 25,000,000 authorized shares, and reclassified
each outstanding Class A Common share and each outstanding Class B Common
share into one share of such new single class of Common Stock. The Plan of
Reclassification became effective as of the close of business on November
18, 1993.
On December 31, 1993, the Company's stockholders approved the Debt
Conversion Transaction (see Note 4), which resulted in the issuance of 55
million shares of Common Stock and 20 million shares of 7% Series C
Convertible Preferred Stock for conversion of the Common Stock Note and the
Preferred Stock Note, respectively.
On December 31, 1993, the Company issued 8 million shares of Common
Stock to the stockholders of MCT (see Note 3).
NOTE 11 -- CONTINGENT LIABILITIES
In June, 1994 an Arbitrator ruled in favor of ICF Kaiser Engineers,
Inc. ("ICF Kaiser") against the Company relating to a Demand for
Arbitration (the "Demand") against the Company before the American
Arbitration Association in Los Angeles, California. In the Demand, ICF
Kaiser claimed breach of contract between the parties for consulting and
clean up work by ICF Kaiser at E&J's former facilities located in
Camarillo, California. The Arbitration Award is in the sum of $1.2
million. The Company is currently considering its options related to this
matter, and has recorded an appropriate reserve in its consolidated
financial statements to reflect this matter.
In 1990, a class action suit was filed by a stockholder of the Company
against the Company and certain of its present and former directors and
officers seeking unspecified damages for alleged non-disclosure and
misrepresentation concerning the Company in violation of federal securities
laws. The Company twice moved to dismiss the complaint on various grounds.
After the first such motion was granted, plaintiff filed a first amended
complaint, which subsequently was dismissed by order filed in September,
1991. Plaintiff then notified the court that it did not intend to further
amend the complaint, and an order dismissing the complaint was entered in
November, 1991. Plaintiff filed a notice of appeal to the Court of Appeals
in December, 1991. The case was briefed and oral argument heard in June,
1993. In January, 1994, the Court of Appeals ordered that the plaintiff's
submission be vacated pending the outcome of a petition for rehearing in
another case that addresses a similar procedural issue that was argued on
appeal in that case. The Company continues to believe the case is without
merit and intends to contest the asserted complaints vigorously. The
ultimate liability, if any, cannot be determined at this time.
The Company has been named as a defendant in a lawsuit filed by the
State of California pursuant to the Comprehensive Environmental Response,
Compensation and Liability Act 42 U.S.C. par.9601 et sec ("CERCLA"). The
Company was originally notified of this action in December, 1992. The
lawsuit seeks to recover response and remediation costs in connection with
the release or threatened release of hazardous substances at 5619-5621
Randolph Street, in the City of Commerce, California ("Randolph Street
Site"). It is alleged the Randolph Street Site was used for the treatment,
storage and disposal of hazardous substances. Investigation with respect
to potential liability of the Company is in the early stages. Issues to be
addressed include the extent the Company actually sent hazardous waste
materials to the Randolph Street Site; the nature, extent and costs of the
ultimate cleanup required by the State of California; the share of that
cleanup which may ultimately be allocated to the Company; and the extent to
which insurance coverage may be available for any costs which may
eventually be assigned to the Company. Remedial investigations performed
on behalf of the State of California at the Randolph Street Site have
disclosed soil and groundwater contamination. The Company has recorded a
reserve of $1.0 million for this matter, which was included in the
Consolidated Statements of Operations for 1993.
In March, 1993, Everest & Jennings, Inc. ("EJI") received a notice from
the United States Environmental Protection Agency ("EPA") regarding an
organizational meeting of generators with respect to the Casmalia Resources
Hazardous Waste Management Facility ("Casmalia Site") in Santa Barbara
County, California. The EPA alleges that the Casmalia Site is an inactive
hazardous waste treatment, storage and disposal facility which accepted
large volumes of commercial and industrial wastes from 1973 until 1989. In
late 1991, the Casmalia Site owner/operator abandoned efforts to actively
pursue site permitting and closure and is currently conducting only minimal
maintenance activities. The EPA estimates the Casmalia Site's closure
trust fund, approximately $10 million, is substantially insufficient to
cover cleanup and closure of the site. Since August, 1992, the EPA has
undertaken certain interim stabilization actions to control actual or
threatened releases of hazardous substances at the Casmalia Site. The EPA
is seeking cooperation from generators to assist in the cleaning up, and
closing of, the Casmalia Site. EJI and 64 other entities were invited to
the organizational meeting. The EPA has identified EJI as one of the
larger generators of hazardous wastes transported to the Casmalia Site.
EJI is a member of a manufacturers' group of potentially responsible
parties which has investigated the site and proposed a remediation plan to
the EPA. To reflect EJI's estimated allocation of costs thereunder, a
reserve of $1.0 million has been recorded, which was included in the
Consolidated Statements of Operations for 1993.
In 1989, a patent infringement case was initiated against EJI and other
defendants. EJI prevailed at trial with a directed verdict of patent
invalidity and non-infringement. The plaintiff filed an appeal with the
U.S. Court of Appeals for the Federal Circuit. In June, 1993, the Court of
Appeals vacated the District Court's decision and remanded the case for
trial. Impacting the retrial of this litigation was a re-examination
proceeding before the Board of Patent Appeals with respect to the subject
patent. A ruling was rendered in November, 1993 sustaining the claim of
the patent which EJI has been charged with infringing. Upon the issuance
of a patent re-examination certificate by the U.S. Patent Office, it is
anticipated that the plaintiff will present a motion to the District Court
for an early retrial of the case. EJI believes that this case is without
merit and intends to contest it vigorously. The ultimate liability of EJI,
if any, cannot be determined at this time.
The Company and its subsidiaries are parties to other lawsuits and
other proceedings arising out of the conduct of its ordinary course of
business, including those relating to product liability and the sale and
distribution of its products. While the results of such lawsuits and other
proceedings cannot be predicted with certainty, management does not expect
that the ultimate liabilities, if any, will have a material adverse effect
on the consolidated financial position or results of operations of the
Company.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1994
The following table summarizes operating results of the Company for the
three months ended June 30, 1994 and 1993 (dollars in millions):
Three Months Ended June 30
---------------------------
1994 1993
------------ ------------
Amount % Amount %
------ --- ------ ---
Revenue $20.1 100 $23.5 100
Cost of sales 14.0 70 18.6 79
______ ____ ______ ____
Gross profit 6.1 30 4.9 21
Operating expenses 6.4 32 10.8 46
______ ____ ______ ____
Operating loss (0.3) (2) (5.9) (25)
Interest expense 0.5 2 1.8 8
______ ____ ______ ____
Loss before income taxes (0.8) (4) (7.7) (33)
Income tax provisions 0.1 -- 0.1 --
______ ____ ______ ____
Net loss $(0.9) ( 4) $(7.8) (33)
Second quarter 1994 revenues of $20.1 million decreased $3.4 million,
or 14%, from 1993, due primarily to exclusion of the Smith & Davis
institutional business. Revenues of this business and related costs were
included in the consolidated results of operations of the Company for 1993
but not 1994. If the 1994 second quarter revenues of the Smith & Davis
institutional business ($5.4 million) had been included in the consolidated
results, revenues would have increased by $2.0 million or 9% from 1993
levels. Second quarter 1993 wheelchair sales and operations were
negatively impacted by the relocation of the Company's primary domestic
manufacturing facility from Camarillo, California to St. Louis, Missouri
which occurred during 1992. Delivery delays caused by the 1992 move have
decreased and lead times have been brought into line with historic levels.
To improve the Company's operating efficiencies and cost structure, certain
production relocation and facility rationalizations are planned during
1994.
Second quarter 1994 revenues in the Everest & Jennings' Canadian and
Mexican subsidiaries were down $0.3 million or 7%, due primarily to an
unfavorable Canadian exchange rate change.
Total Company second quarter gross profit increased $1.2 million from
$4.9 million in 1993 to $6.1 million in 1994. Additionally, the Smith &
Davis institutional business gross profit ($1.5 million) was excluded from
the Company's 1994 operating results. Operating results of the Company's
primary domestic manufacturing facility, which was relocated from
Camarillo, California to St. Louis, Missouri during 1992, continue to
improve as computer systems are brought on line and cost reductions are put
in place to improve the Company's operating efficiencies and cost
structure. Additionally, 1993 results were adversely affected by a $1.0
million charge to reserves for excess and obsolete inventory. These cost
reductions have been partially offset by increases in sales to distributors
during 1994 of lower margin private label wheelchairs.
Total Company second quarter operating expenses decreased $4.4 million
from $10.8 million in 1993 to $6.4 million in 1994 due primarily to
exclusion of the Smith & Davis institutional business operating expenses
($1.9 million) from the Company's 1994 operating results and reduced
general and administrative spending levels, particularly in the data
processing area where duplicate facilities were operated during 1993.
These reductions were partially offset by increases in research and
development spending of $0.2 million from $0.3 million during 1993 to $0.5
million during 1994.
Interest expense of $0.5 million in the second quarter of 1994
decreased from the comparable period in the prior year due to the
conversion of $75 million of debt to equity which occurred during the
fourth quarter of 1993.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1994
The following table summarizes operating results of the Company for the
six months ended June 30, 1994 and 1993 (dollars in millions):
Six Months Ended June 30
---------------------------
1994 1993
------------ ------------
Amount % Amount %
------ --- ------ ---
Revenue $40.4 100 $48.3 100
Cost of sales 28.6 71 36.1 75
______ ____ ______ ____
Gross profit 11.8 29 12.2 25
Operating expenses 13.2 32 19.5 40
______ ____ ______ ____
Operating loss (1.4) (3) (7.3) (15)
Interest expense 1.0 3 3.3 7
______ ____ ______ ____
Loss before income taxes (2.4) (6) (10.6) (22)
Income tax provisions 0.2 -- 0.2 --
______ ____ ______ ____
Net loss $(2.6) (6) $(10.8) (22)
Revenues for the six months ended June 30, 1994 of $40.4 million
decreased $7.9 million, or 16%, from 1993, due primarily to exclusion of
the Smith & Davis institutional business. Revenues of this business and
related costs were included in the consolidated results of operations of
the Company for 1993 but not 1994. If the revenues for the six months
ended June 30, 1994 of the Smith & Davis institutional business ($10.5
million) had been included in the consolidated results, revenues would have
increased by $2.6 million or 5% from 1993 levels. 1993 wheelchair sales
and operations were negatively impacted by the relocation of the Company's
primary domestic manufacturing facility from Camarillo, California to St.
Louis, Missouri which occurred during 1992. Delivery delays caused by the
1992 move have decreased and lead times have been brought into line with
historic levels. To improve the Company's operating efficiencies and cost
structure, certain production relocation and facility rationalizations are
planned during 1994.
Revenues for the six months ended June 30, 1994 in the Everest &
Jennings' Canadian and Mexican subsidiaries were down $0.4 million or 5%,
due primarily to an unfavorable Canadian exchange rate change.
Total Company gross profit for the six months ended June 30, 1994
decreased $0.4 million from $12.2 million in 1993 to $11.8 million in 1994,
due primarily to exclusion of the Smith & Davis institutional business
gross profit ($3.0 million) from the Company's 1994 operating results.
Operating results of the Company's primary domestic manufacturing facility,
which was relocated from Camarillo, California to St. Louis, Missouri
during 1992, continue to improve as computer systems are brought on line
and cost reductions are put in place to improve the Company's operating
efficiencies and cost structure. Additionally, 1993 results were adversely
affected by a $1.0 million charge to reserves for excess and obsolete
inventory. These gains have been partially offset by increases in sales to
distributors during 1994 of lower margin private label wheelchairs.
Total Company operating expenses for the six months ended June 30, 1994
decreased $6.3 million from $19.5 million in 1993 to $13.2 million in 1994
due primarily to exclusion of the Smith & Davis institutional business
operating expenses ($3.5 million) from the Company's 1994 operating results
and reduced general and administrative spending levels, particularly in the
data processing area where duplicate facilities were operated during 1993.
These reductions were partially offset by increases in research and
development spending of $0.7 million from $0.4 million during 1993 to $1.1
million during 1994.
Interest expense of $1.0 million for the six months ended June 30, 1994
decreased from the comparable period in the prior year due to the
conversion of $75 million of debt to equity which occurred during the
fourth quarter of 1993.
In January 1993 the Company adopted the provisions of SFAS No. 109,
"Accounting for Income Taxes" ("SFAS 109"). The adoption of SFAS 109 did
not have an impact on the consolidated financial statements.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity are cash provided from
operations, borrowings and cash on hand. At June 30, 1994, the Company had
$0.2 million in cash or $1.7 million less than the $1.9 million in cash at
December 31, 1993. At June 30, 1994, total debt of $34.5 million was $5.2
million higher than the $29.3 million in debt at December 31, 1993. The
increase was due to advances from BIL in the amount of $6.4 million during
the first half of 1994 offset by a $1.2 million decrease in other debt.
On September 30, 1992 the Company entered into a $20 million Revolving
Credit Agreement with HSBC. The repayment of this facility was guaranteed
by Brierley Investments Limited, an affiliate of BIL. The facility would
not have been made available to the Company without such guaranty. As of
September 30, 1993, HSBC and E&J Inc. agreed to amend the Revolving Credit
Agreement and extend its term for approximately one year. The HSBC
facility, as amended, provides to E&J Inc. up to $6 million letter of
credit availability and up to $10 million of cash advances. The $10
million of cash advances has been fully utilized.
At June 30, 1994 and December 31, 1993, under the debt agreements with
BIL and HSBC, the Company was obligated to repay the following amounts at
the various dates listed below.
6/30/94 12/31/93
Balance Balance
Debt Agreement $ millions $ millions Repayment Date
-------------- ---------- ---------- --------------
Revolving Promissory Note 11.2 4.8 June 30, 1995
HSBC Revolving Credit
Agreement (1) 10.0 10.0 September 30, 1994
Accrued, unpaid interest
due BIL 0.5 0.2 -----
_____ _____
TOTAL $21.7 $15.0
(1) Excludes approximately $3.5 million and $3.7 million,
respectively, committed with respect to outstanding letters of
credit as of both June 30, 1994 and December 31, 1993.
As of September 30, 1993, the Company entered into the Debt Conversion
Agreement with BIL whereby $75 million of indebtedness was restructured by
the issuance of the Common Stock Note and the Preferred Stock Note. The
balance of the BIL indebtedness ($6.8 million) which was not converted into
the Common Stock Note and the Preferred Stock Note was treated as advances
under the Revolving Promissory Note. See Note 4 -- Debt Restructuring and
Conversion of the Notes to the unaudited Consolidated Financial Statements
for a discussion of the Debt Conversion Transaction.
As part of the Debt Conversion Transaction, BIL agreed to provide to
the Company and E&J Inc. a revolving credit facility of up to $12.5
million, as evidenced by the Revolving Promissory Note. As of June 30,
1994, $11.2 million had been advanced to the Company and E&J Inc. by BIL
under such Note, leaving an availability balance of $1.3 million.
The Company's Smith & Davis subsidiary has a $13 million (based on
asset levels) secured credit line for its Smith & Davis subsidiary which is
secured by substantially all of the subsidiary's assets. At June 30, 1994
Smith & Davis had borrowed $4.7 million under this line. The Company
expects to either extend this credit line in 1994 or terminate it upon the
sale or other disposition of the Smith & Davis institutional business.
The Company's Canadian subsidiary has existing credit facilities in the
aggregate of $4.7 million, on which $3.4 million was borrowed as of June
30, 1994.
During June, 1994 the Company's Mexican operation obtained a credit
facility in the aggregate of $1.5 million, on which $1.0 million was
borrowed as of June 30, 1994.
Accordingly, at June 30, 1994 the Company owed $20.3 million to banks
and other commercial lenders, $3.0 million under capitalized lease
obligations, and $11.2 million to BIL.
During the six months ended June 30, 1994, the Company required $6.4
million of additional financing to fund its operating requirements and
accrued restructuring expenses. This additional funding has been provided
to the Company by BIL, bringing the total advances under the Revolving
Promissory Note to $11.2 million as of June 30, 1994, out of an available
line of credit of $12.5 million. The Company expects to need additional
financing at least through the end of 1994, and will seek to amend the
Revolving Promissory Note with BIL to provide for such requirement.
The Company's 1994 year to date revenues and operating results have
been negatively impacted by ongoing price competition, liquidity
constraints and loss of market share during prior years. The loss of
customer confidence stemming from the relocation of the Company's primary
domestic wheelchair manufacturing facility from California to St. Louis,
Missouri, which resulted in long lead times, shipping delays, inventory
imbalances and production inefficiencies in the St. Louis manufacturing
operations, is expected to adversely impact revenues, operating income and
cash flow of the Company at least through the end of 1994. Management
continues to address the Company's problems with manufacturing and shipment
delays. Additionally, the Company plans to address the rationalization of
the Company's production facilities and the increased outsourcing of
products and product components, the effects of which will be to lower the
Company's production costs. Order rates, margins and market share must
increase, production and operating costs must be reduced and customer
confidence must be restored in the very near term if the Company is to
generate the cash flow necessary to fund its operations on a continuing
basis and to achieve profitability.
With respect to its bed and institutional products, the Company
anticipates, for the remainder of the year, severe price and product
competition; however, the market demand for these products may improve once
a national health care reform plan is enacted. The Company is pursuing the
sale or other disposition of (i) the Smith & Davis hospital bed and nursing
home bed and furniture business, and has retained an investment banker to
advise it on the various methods and means of implementing any such sale or
disposition; and (ii) Everest & Jennings de Mexico.
Management believes that the Company's domestic and international
manufacturing capacity is sufficient to meet anticipated demand for the
foreseeable future.
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In June, 1994 an Arbitrator ruled in favor of ICF Kaiser Engineers,
Inc. ("ICF Kaiser") against the Company relating to a Demand for
Arbitration (the "Demand") against the Company before the American
Arbitration Association in Los Angeles, California. In the Demand, ICF
Kaiser claimed breach of contract between the parties for consulting and
clean up work by ICF Kaiser at E&J's former facilities located in
Camarillo, California. The Arbitration Award is in the sum of $1.2
million. The Company is currently considering its options related to this
matter, and has recorded an appropriate reserve in its consolidated
financial statements to reflect this matter.
In 1990, a class action suit was filed by a stockholder of the Company
against the Company and certain of its present and former directors and
officers seeking unspecified damages for alleged non-disclosure and
misrepresentation concerning the Company in violation of federal securities
laws. The Company twice moved to dismiss the complaint on various grounds.
After the first such motion was granted, plaintiff filed a first amended
complaint, which subsequently was dismissed by order filed in September,
1991. Plaintiff then notified the court that it did not intend to further
amend the complaint, and an order dismissing the complaint was entered in
November, 1991. Plaintiff filed a notice of appeal to the Court of Appeals
in December, 1991. The case was briefed and oral argument heard in June,
1993. In January, 1994, the Court of Appeals ordered that the plaintiff's
submission be vacated pending the outcome of a petition for rehearing in
another case that addresses a similar procedural issue that was argued on
appeal in that case. The Company continues to believe the case is without
merit and intends to contest the asserted complaints vigorously. The
ultimate liability, if any, cannot be determined at this time.
The Company has been named as a defendant in a lawsuit filed by the
State of California pursuant to the Comprehensive Environmental Response,
Compensation and Liability Act 42 U.S.C. par.9601 et sec ("CERCLA"). The
Company was originally notified of this action in December, 1992. The
lawsuit seeks to recover response and remediation costs in connection with
the release or threatened release of hazardous substances at 5619-5621
Randolph Street, in the City of Commerce, California ("Randolph Street
Site"). It is alleged the Randolph Street Site was used for the treatment,
storage and disposal of hazardous substances. Investigation with respect
to potential liability of the Company is in the early stages. Issues to be
addressed include the extent the Company actually sent hazardous waste
materials to the Randolph Street Site; the nature, extent and costs of the
ultimate cleanup required by the State of California; the share of that
cleanup which may ultimately be allocated to the Company; and the extent to
which insurance coverage may be available for any costs which may
eventually be assigned to the Company. Remedial investigations performed
on behalf of the State of California at the Randolph Street Site have
disclosed soil and groundwater contamination. The Company has recorded a
reserve of $1.0 million for this matter, which was included in the
Consolidated Statements of Operations for 1993.
In March, 1993, Everest & Jennings, Inc. ("EJI") received a notice from
the United States Environmental Protection Agency ("EPA") regarding an
organizational meeting of generators with respect to the Casmalia Resources
Hazardous Waste Management Facility ("Casmalia Site") in Santa Barbara
County, California. The EPA alleges that the Casmalia Site is an inactive
hazardous waste treatment, storage and disposal facility which accepted
large volumes of commercial and industrial wastes from 1973 until 1989. In
late 1991, the Casmalia Site owner/operator abandoned efforts to actively
pursue site permitting and closure and is currently conducting only minimal
maintenance activities. The EPA estimates the Casmalia Site's closure
trust fund, approximately $10 million, is substantially insufficient to
cover cleanup and closure of the site. Since August, 1992, the EPA has
undertaken certain interim stabilization actions to control actual or
threatened releases of hazardous substances at the Casmalia Site. The EPA
is seeking cooperation from generators to assist in the cleaning up, and
closing of, the Casmalia Site. EJI and 64 other entities were invited to
the organizational meeting. The EPA has identified EJI as one of the
larger generators of hazardous wastes transported to the Casmalia Site.
EJI is a member of a manufacturers' group of potentially responsible
parties which has investigated the site and proposed a remediation plan to
the EPA. To reflect EJI's estimated allocation of costs thereunder, a
reserve of $1.0 million has been recorded, which was included in the
Consolidated Statements of Operations for 1993.
In 1989, a patent infringement case was initiated against EJI and other
defendants. EJI prevailed at trial with a directed verdict of patent
invalidity and non-infringement. The plaintiff filed an appeal with the
U.S. Court of Appeals for the Federal Circuit. In June, 1993, the Court of
Appeals vacated the District Court's decision and remanded the case for
trial. Impacting the retrial of this litigation was a re-examination
proceeding before the Board of Patent Appeals with respect to the subject
patent. A ruling was rendered in November, 1993 sustaining the claim of
the patent which EJI has been charged with infringing. Upon the issuance
of a patent re-examination certificate by the U.S. Patent Office, it is
anticipated that the plaintiff will present a motion to the District Court
for an early retrial of the case. EJI believes that this case is without
merit and intends to contest it vigorously. The ultimate liability of EJI,
if any, cannot be determined at this time.
The Company and its subsidiaries are parties to other lawsuits and
other proceedings arising out of the conduct of its ordinary course of
business, including those relating to product liability and the sale and
distribution of its products. While the results of such lawsuits and other
proceedings cannot be predicted with certainty, management does not expect
that the ultimate liabilities, if any, will have a material adverse effect
on the consolidated financial position or results of operations of the
Company.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
During the six months ended June 30, 1994, the Company borrowed a total
of $6.4 million from BIL as advances under the Revolving Promissory Note to
provide cash necessary for operations of the Company's headquarters and
manufacturing facility in St. Louis, Missouri and for accrued restructuring
expenses, as follows:
$1,500,000 January 31, 1994
1,100,000 March 14, 1994
400,000 March 28, 1994
1,250,000 March 31, 1994
1,300,000 April 25, 1994
800,000 June 30, 1994
_________
$6,350,000
Since June 30, 1994, the Company has borrowed an additional
$2.5 million from BIL for the same purposes, as follows:
$1,000,000 July 20, 1994
1,500,000 August 12, 1994
Each of the foregoing borrowings was treated as an advance under the
Revolving Promissory Note, which bears interest at 8.0% per annum and
requires that all principal and unpaid interest is due on June 30, 1995.
Interest has been accrued accordingly, with a balance of $0.5 million as of
June 30, 1994.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS: None
REPORTS ON FORM 8-K: None
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
Date: August 15, 1994 EVEREST & JENNINGS INTERNATIONAL LTD.
(Registrant)
By (TIMOTHY W. EVANS)
Timothy W. Evans
Vice President - Treasurer
By (BEVIL J. HOGG)
Bevil J. Hogg
President and
Chief Executive Officer
