EVEREST & JENNINGS INTERNATIONAL LTD. AND SUBSIDIARIES
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 SEPTEMBER 30, 1995
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.)
4203 EARTH CITY EXPRESSWAY, EARTH CITY, MISSOURI 63045
(Address of principal executive offices)
Registrant's telephone number, including area code: 314-512-7000
1100 CORPORATE SQUARE DRIVE, ST. LOUIS, MISSOURI 63132
(Former address if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
the filing requirements for the past 90 days: Yes X No
Shares of Common Stock outstanding as of November 10, 1995: 72,266,185
<PAGE>
QUARTERLY REPORT ON FORM 10-Q
SEPTEMBER 30, 1995
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 18
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 22
Item 2. Changes in Securities 22
Item 3. Defaults upon Senior Securities 22
Item 4. Submission of Matters to a Vote of Security Holders 22
Item 5. Other Information 22
Item 6. Exhibits and Reports on Form 8-K 22
SIGNATURE 23
<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 results for the interim periods presented herein in
accordance with generally accepted accounting principles for interim
financial information have been made (however, the consolidated financial
statements included herewith do not include any adjustments that might
result from the Company's inability to emerge from or complete its ongoing
restructuring activities and continue as a going concern -- see Note 1 to
these Unaudited Consolidated Financial Statements). 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, 1994.
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands except per-share data)
Three Months Ended Sept. 30
---------------------------
1995 1994
-------- --------
(Unaudited)
Revenues $19,346 $19,829
Cost of sales 15,220 15,155
______ ______
Gross profit 4,126 4,674
Selling expenses 2,755 3,596
General and administrative expenses 1,318 1,174
______ ______
Total operating expenses 4,073 4,770
______ ______
Income (loss) from operations 53 (96)
Interest expense, BIL (Note 4) 431 263
Interest expense, other 485 424
______ ______
Loss before income taxes (863) (783)
Income tax provisions 61 114
______ ______
Net loss $ (924) $ (897)
Loss per share (Note 6) $(.01) $(.01)
Weighted average number of Common
Shares outstanding 72,266,185 72,199,612
The accompanying Notes are an integral part of these
Consolidated Financial Statements
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands except per-share data)
Nine Months Ended Sept. 30
--------------------------
1995 1994
-------- --------
(Unaudited)
Revenues $56,308 $60,188
Cost of sales 43,571 46,777
_______ _______
Gross profit 12,737 13,411
Selling expenses 8,936 10,912
General and administrative expenses 3,964 4,020
_______ _______
Total operating expenses 12,900 14,932
_______ _______
Loss from operations (163) (1,521)
Interest expense, BIL (Note 4) 1,179 592
Interest expense, other 1,539 1,126
_______ _______
Loss before income taxes (2,881) (3,239)
Income tax provisions 73 271
_______ _______
Net loss $(2,954) $(3,510)
Loss per share (Note 6) $(.04) $(.05)
Weighted average number of Common
Shares outstanding 72,265,559 72,199,612
The accompanying Notes are an integral part of these
Consolidated Financial Statements
<PAGE>
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
ASSETS
Sept. 30 Dec. 31
1995 1994
-------- -------
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 236 $ 513
Accounts receivable, less allowance
for doubtful accounts of $1,607
in 1995 and $2,088 in 1994 17,587 18,894
Inventories (Note 7) 18,885 20,449
Assets held for sale (Notes 1 and 5) -- 11,289
Other current assets 1,784 1,444
______ ______
Total current assets 38,492 52,589
______ ______
PROPERTY, PLANT AND EQUIPMENT:
Land 263 237
Buildings and improvements 4,593 4,056
Machinery and equipment 15,078 14,636
______ ______
19,934 18,929
Less accumulated depreciation
and amortization (12,577) (10,994)
______ ______
Property, plant and equipment, net 7,357 7,935
INTANGIBLE ASSETS, NET 479 710
OTHER ASSETS 2,821 335
______ ______
TOTAL ASSETS $49,149 $61,569
The accompanying Notes are an integral part of these
Consolidated Financial Statements
<PAGE>
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
LIABILITIES AND STOCKHOLDERS' DEFICIT
Sept. 30 Dec. 31
1995 1994
-------- -------
(Unaudited)
CURRENT LIABILITIES:
Short-term borrowings and current install-
ments of long-term debt of $380
in 1995 and $1,984 in 1994 (Note 4) $8,668 $11,155
Short-term borrowing from BIL (Note 4) --- 6,503
Accounts payable 6,407 11,958
Accrued payroll costs 6,207 7,900
Accrued interest, BIL (Note 4) 2,139 960
Accrued expenses 8,811 9,697
Accrued restructuring expenses (Notes 1, 5) 749 4,476
______ ______
Total current liabilities 32,981 52,649
______ ______
LONG-TERM DEBT, NET OF
CURRENT PORTION (Note 4) 12,298 12,968
LONG-TERM BORROWINGS FROM BIL (Note 4) 23,603 12,000
OTHER LONG-TERM LIABILITIES 60 133
COMMITMENTS AND CONTINGENCIES (Note 9)
STOCKHOLDERS' DEFICIT: (Notes 1, 4 and 8)
Series A Convertible Preferred Stock 12,087 12,087
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 105,598 105,595
Accumulated deficit (156,993) (153,228)
Minimum pension liability adjustment (1,812) (1,812)
Cumulative translation adjustments (712) (862)
______ ______
Total stockholders' deficit (19,793) (16,181)
______ ______
TOTAL LIABILITIES AND STOCKHOLDERS'
DEFICIT $49,149 $61,569
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
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995
(Dollars in thousands)
(unaudited)
<CAPTION>
Series A Series B Series C
Convertible Convertible Convertible
Preferred Stock Preferred Stock Preferred Stock Common Stock
--------------- --------------- --------------- ------------
SharesAmount Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C>
<C> <C> <C> <C>
Balance at December 31, 1994 7,218,204 $12,087 786,357 $1,317 20,000,000 $20,000 72,257,812 $722
Common Stock Issued for
Exercised Options -- -- -- -- -- -- 8,373 --
Accrued Dividends on Series A
Convertible Preferred Stock -- -- -- -- -- -- -- --
Net loss -- -- -- -- -- -- -- --
Translation adjustments -- -- -- -- -- -- -- --
_________ _______ _______ ______ __________ _______ __________ ____
Balance at September 30, 1995 7,218,204 $12,087 786,357 $1,317 20,000,000 $20,000 72,266,185 $722
</TABLE>
<PAGE>
<TABLE>
EVEREST & JENNINGS INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995
(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, 1994 $105,595 $(153,228) $(1,812) $(862) $(16,181)
Common Stock Issued for
Exercised Options 3 -- -- -- 3
Accrued Dividends on Series A
Convertible Preferred Stock -- (811) -- -- (811)
Net loss -- (2,954) -- -- (2,954)
Translation adjustments -- -- -- 150 150
______ ________ ______ ____ ______
Balance at September 30, 1995 $105,598 $(156,993) $(1,812) $(712) $(19,793)
The accompanying Notes are an integral part of this Consolidated Financial
Statement
</TABLE>
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Nine Months Ended Sept. 30
--------------------------
1995 1994
-------- --------
(Unaudited)
Cash flows from operating activities:
Net loss $(2,954) $(3,510)
Adjustment to reconcile net loss to
cash used in operating activities:
Depreciation and amortization 1,812 1,268
Changes in operating assets and liabilities:
Accounts receivable 1,991 (1,144)
Inventories 2,247 (3,026)
Accounts payable (3,321) (34)
Accrued interest, BIL 1,179 592
Accrued payroll costs, expenses and
income taxes (2,916) (2,653)
Accrued restructuring expenses (3,727) (1,670)
Other, net (126) (925)
______ ______
Cash used in operating activities (5,815) (11,102)
______ ______
Cash flows from investing activities:
Capital expenditures (1,003) (617)
Proceeds from disposition of assets
held for sale 4,518 --
______ ______
Cash provided by (used in)
investing activities 3,515 (617)
______ ______
Cash flows from financing activities:
Advances from BIL 5,100 14,802
(Decrease) in short-term and
long-term borrowings, net (3,157) (4,367)
Proceeds from exercise of stock options 3 --
Changes in other long-term liabilities (73) (42)
______ ______
Cash provided by financing activities 1,873 10,393
______ ______
Effect of exchange rate changes on cash flow 150 (55)
______ ______
Decrease in cash balance (277) (1,381)
Cash and cash equivalents balance at
beginning of year 513 1,872
______ ______
Cash and cash equivalents balance
at end of period $ 236 $ 491
Supplemental disclosures of cash flow
information:
Cash paid for interest $1,584 $1,106
Cash paid for income taxes $ 159 $ 203
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 improving its
competitive position within the durable medical equipment industry.
Restructuring activities have included asset sales, significant reductions
in headcount, plant closures and consolidations, product line
rationalization, debt to equity conversion and outsourcing of manufacturing
operations. In addition to the foregoing, the Company sold the Smith &
Davis Institutional Business effective April 4, 1995 (see Note 5--Assets
Held for Sale).
The Company's 1995 revenues and operating results have been negatively
impacted by ongoing price competition, liquidity constraints and loss of
market share due to the relocation of the Company's primary domestic
wheelchair manufacturing facility from California to Missouri. Management
is implementing plans which are intended to address the Company's problems
with manufacturing and shipment delays. The plans also 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.
The accompanying consolidated financial statements have been prepared
under the going concern concept, which 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 September 30, 1995. 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 and nine
month periods ended September 30, 1995 are the same as those disclosed in
the Notes to the Company's December 31, 1994 Consolidated Financial
Statements, which were included in the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1994. 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 and nine month periods ended September 30,
1995 and 1994; (b) the consolidated financial position at September 30,
1995 and December 31, 1994; and (c) the consolidated cash flows for the
nine month periods ended September 30, 1995 and 1994 have been made.
However, the consolidated financial statements included herewith do not
include any adjustments that might result from the Company's inability to
emerge from or complete its ongoing restructuring activities and continue
as a going concern -- See Note 1 to the Unaudited Consolidated Financial
Statements.
NOTE 3 -- OWNERSHIP
80% of the Company's common shares and all of the Company's Series A, B
and C Preferred shares are owned by a wholly-owned subsidiary of Brierley
Investments Ltd ("BIL"), a New Zealand investment firm.
NOTE 4 -- DEBT
The Company's debt as of September 30, 1995 and December 31, 1994 is as
follows:
Sept. 30 December 31
1995 1994
-------- -----------
Revolving Promissory Note to BIL $23,603 $18,503
Loans payable to HSBC 10,000 10,000
Other domestic debt 5,004 8,913
Foreign debt 5,962 5,210
______ ______
Total debt 44,569 42,626
Less short-term borrowings and current
installments of long-term debt 8,668 17,658
______ ______
Long-term debt, net of current
portion, including Revolving
Promissory Note to BIL $35,901 $24,968
On September 30, 1992 E&J Inc., a wholly-owned subsidiary of the
Company, entered into a $20 million Revolving Credit Agreement with The
Hongkong and Shanghai Banking Corporation Limited ("HSBC"). Advances under
the Revolving Credit Agreement bear interest at the prime rate as announced
by Marine Midland Bank, N.A. from time to time. As of September 30, 1993,
HSBC and E&J Inc. agreed to amend the Revolving Credit Agreement and extend
its term to September 30, 1996. 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. Such cash advances have been
fully utilized since October, 1993. Repayment of existing debt with BIL is
subordinated to the HSBC debt, and an affiliate of BIL has guaranteed
repayment of the HSBC debt.
As part of a debt conversion transaction described in Note 8 hereto,
BIL agreed to provide to the Company a revolving credit facility of up to
$12.5 million. Such revolving credit facility was amended to allow
advances up to $23.6 million. At September 30, 1995 and December 31, 1994
this facility has been fully utilized to the extent of advances. The BIL
revolving credit facility has been extended to September 30, 1996, 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. As of
September 30, 1995, $2.1 million of accrued, unpaid interest was due BIL
under the BIL revolving credit facility .
In July, 1991, the Company obtained a credit facility for its Smith &
Davis subsidiary which has been amended three times. This facility now
extends through December 31, 1995, bears interest at prime plus 2% and as
of April 4, 1995 allows for advances of up to $3.5 million. The facility
is secured by substantially all of the remaining assets of Smith & Davis,
consisting primarily of receivables and finished goods inventory. At
September 30, 1995, the Company had borrowed $2.1 million under this credit
facility.
The Company's Canadian subsidiary has credit facilities in the
aggregate of $5.4 million, of which $5.1 million was borrowed as of
September 30, 1995 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 $0.9 million, which was fully utilized as of September 30, 1995 at
interest rates approximating 15%. The loan is secured by the assets of the
Mexican subsidiary.
At September 30, 1995, the Company was contingently liable under
existing letters of credit in the aggregate amount of approximately $5.4
million.
NOTE 5 -- ASSETS HELD FOR SALE
Pursuant to an Asset Purchase Agreement dated February 15, 1995, the
Company sold the Smith & Davis Institutional Business. This transaction
was finalized effective April 4, 1995. The proceeds consisted of
approximately $4.5 million in cash (which was used to repay debt), $2.7
million in assumption of liabilities, and notes valued at approximately
$2.1 million, which are included in other assets in the accompanying
financial statements. The reduction in accrued restructuring expense since
December 31, 1994 primarily reflects changesin estimates, adjustments and
the payment of disposal costs related to the sale.
Net assets held for sale of the Company's Smith & Davis Institutional
Business consisted of the items in the following table as of December 31,
1994 (stated at estimated net realizable values). Such values approximated
the net proceeds from the sale of the Institutional Business on April 4,
1995.
December 31
1994
-----------
Smith & Davis:
Accounts receivable $ 4,099
Inventories 4,298
Land and buildings 1,350
Machinery & equipment 1,200
Other assets 342
_______
Total assets held for sale $11,289
Pursuant to an Asset Purchase Agreement dated July 24, 1995, the Company
sold the Smith & Davis Oxycon line of oxygen concentrator products. This
transaction was finalized effective August 9, 1995. The proceeds from the
sale consisted of a note valued at $0.6 million, which is included in other
assets in the accompanying financial statements. This transaction did not
result in a material gain or loss.
Results of operations for the Smith & Davis Institutional Business for
the nine month periods ended September 30, 1995 (through the April 4, 1995
disposition date) and 1994 were as follows:
Nine Months Ended September 30
------------------------------
1995 1994
------ ------
Revenues $5,508 $15,488
Cost of sales 3,940 11,139
_____ _____
Gross profit 1,568 4,349
Operating expenses 1,279 5,019
Interest expense 160 387
_____ _____
Net income (loss) $ 129 $(1,057)
During the phase out period commencing January 1, 1994 through the
disposal date (April 4, 1995), the results of the Smith & Davis
Institutional Business were included as a component of accrued
restructuring expenses on the consolidated balance sheet.
NOTE 6 -- LOSS PER SHARE
Loss per share for the three month and nine month periods ended
September 30, 1995 and 1994 is calculated based on the weighted average
number of shares of Common Stock outstanding during the periods.
NOTE 7 -- INVENTORIES
Inventories at September 30, 1995 and December 31, 1994 consist of the
following:
Sept. 30 Dec. 31
1995 1994
-------- --------
Raw materials $8,901 $ 10,249
Work-in-process 5,722 5,585
Finished goods 4,262 4,615
______ ______
$18,885 $20,449
NOTE 8 -- COMMON STOCK
On December 31, 1993, the Company's stockholders approved a debt
conversion transaction, which resulted in the issuance of 55 million shares
of Common Stock and 20 million shares of 7% Series C Convertible Preferred
Stock. See the notes to the Consolidated Financial Statements included in
the Company's Annual Report filed on Form 10-K for the year ended December
31, 1994 for further information.
NOTE 9 -- CONTINGENT LIABILITIES
In July, 1990, a class action was filed by a stockholder of the Company
(Glenn Freedman) in the United States District Court for the Central
District of California, Case No. 90-3741 RSWL. The suit is against the
Company and certain of its present and former directors and officers and
seeks unspecified damages for alleged non-disclosures and
misrepresentations by the Company in violation of federal securities laws
between the time of its 1988 and 1989 10-K reports. The Company
successfully moved to dismiss the complaint for failure to plead securities
fraud properly under the applicable rules. The order dismissing the
complaint was entered in November 1991. Because of the dismissal, the
district court took no action on whether to certify the case to proceed as
a class action. Plaintiff appealed the dismissal to the United States
Court of Appeals for the Ninth Circuit on December 23, 1991. The case was
briefed and oral argument heard in June, 1993. Because of the precedent
set by a Ninth Circuit decision in another case which was decided after the
district court's order of dismissal but before the Ninth Circuit decided
plaintiff's appeal, the Ninth Circuit reversed the district court's
dismissal of the case and remanded the case to the district court for
further proceedings in an opinion handed down by the Ninth Circuit on
August 24, 1995. The district court must now resolve whether the case
should be certified to proceed as a class action, and it has directed
plaintiff to file a new motion seeking such certification. The Company
expects to oppose that motion when it is filed.
Die Cast Products, Inc. ("Die Cast Products"), a former subsidiary of
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. PP 9601 et sec. The Company was
originally notified of this action on December 10, 1992. The lawsuit seeks
to recover response and remediation costs in connection with the release or
threatened release of hazardous substances at 5619-21 Randolph Street, in
the City of Commerce, California ("Randolph Street Site"). It is alleged
that the Randolph Street Site was used for the treatment, storage and
disposal of hazardous substances. The Company anticipates being named as a
defendant as a result of its former ownership of Die Cast Products, which
allegedly disposed of hazardous waste materials at the Randolph Street
Site. Investigation with respect to potential liability of the Company is
in the early stages. Issues to be addressed include whether the Company
has any responsibility for the alleged hazardous waste disposals of its
former subsidiary, whether the subsidiary 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's former
subsidiary and/or 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 recorded a reserve of $1.0 million for this
matter in 1993. This site continues under investigation by the State of
California. No charges to operations were made during 1994 or 1995
pursuant to this site.
In March, 1993, E&J Inc. 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 that 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. E&J Inc. and 64 other entities were invited to the
organizational meeting. The EPA has identified E&J Inc. as one of the
larger generators of hazardous wastes transported to the Casmalia Site.
E&J Inc. 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 E&J Inc.'s estimated allocation of costs thereunder, a
reserve of $1.0 million was recorded in 1993. During 1994 a proposal by
the manufacturing group to the EPA and State of California was made which
would result in the Company obtaining a release from further prosecution
for 30 years. No charges to operations were made during 1994 or 1995
pursuant to such settlement offer.
In 1989, a patent infringement case was initiated against E&J Inc. and
other defendants in the U.S. District Court, Central District of
California. E&J Inc. 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. On March 31, 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 November 23, 1993 sustaining the
claim of the patent which E&J Inc. has been charged with infringing. Upon
the issuance of a patent re-examination certificate by the U.S. Patent
Office, the plaintiff presented a motion to the District Court requesting a
retrial of the case. The Company presented a Motion for Summary Judgment
of Noninfringement based in part upon the November 23, 1993 decision of the
Board of Patent Appeals. The Motion was granted in follow-up conferences
and an official Judgment was entered November 17, 1994. No written opinion
has yet been issued, but the Court indicated in conferences that one might
be rendered. The plaintiff filed a Notice of Appeal on November 23, 1994,
which was heard in August 1995. E&J Inc. believes this case is without
merit and intends to contest it vigorously. The ultimate liability of E&J
Inc., 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 SEPTEMBER 30, 1995
The following table summarizes operating results of the Company for the
three months ended September 30, 1995 and 1994 (dollars in millions):
Three Months Ended September 30
---------------------------
1995 1994
------------ ------------
Amount % Amount %
------ --- ------ ---
Revenue $19.3 100 $19.8 100
Cost of sales 15.2 79 15.1 76
______ ____ ______ ____
Gross profit 4.1 21 4.7 24
Operating expenses 4.1 21 4.8 24
______ ____ ______ ____
Operating loss -- -- (0.1) --
Interest expense 0.9 5 0.7 4
______ ____ ______ ____
Loss before income taxes (0.9) (5) (0.8) (4)
Income tax provisions -- -- 0.1 (1)
______ ____ ______ ____
Net loss $(0.9) (5) $(0.9) (5)
Third quarter 1995 revenues of $19.3 million decreased $0.5 million, or
3%, from 1994. Third quarter revenues during 1995 for the Company's
domestic operations increased slightly from 1994's revenue levels.
Third quarter 1995 revenues in the Everest & Jennings' Canadian and
Mexican subsidiaries were down $0.6 million or 11%, due primarily to
unfavorable Canadian and Mexican exchange rates and a substantial slowdown
in the Mexican economy.
Total Company third quarter gross profit decreased $0.6 million from
$4.7 million in 1994 to $4.1 million in 1995. As a percentage of sales,
margins decreased from 24% during 1994 to 21% during 1995, due primarily to
increased sales of low margin products to distributors during the quarter.
To continue the improvement in the Company's operating efficiencies and
reduction in cost structure, additional production relocation and facility
rationalizations are planned during 1995 and beyond.
Total Company third quarter operating expenses decreased $0.7 million
from $4.8 million in 1994 to $4.1 million in 1995 due primarily to reduced
spending levels and headcount reductions. Spending reductions included a
reduction in research and development spending of $0.1 million from $0.4
million during 1994 to $0.3 million during 1995. The Company's
restructuring and headcount reductions have begun to produce more favorable
operating results.
Interest expense of $0.9 million in the third quarter of 1995 increased
from the comparable period in the prior year due to increases in the
average outstanding debt during the period.
The results of the third quarter 1995 and 1994 do not include the
results of the Smith & Davis Institutional Business, which are instead
reflected in accrued restructuring expenses in the consolidated balance
sheet. See Note 5--Assets Held for Sale.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995
The following table summarizes operating results of the Company for the
nine months ended September 30, 1995 and 1994 (dollars in millions):
Nine Months Ended September 30
------------------------------
1995 1994
------------ ------------
Amount % Amount %
------ --- ------ ---
Revenue $56.3 100 $60.2 100
Cost of sales 43.6 77 46.8 78
______ ____ ______ ____
Gross profit 12.7 23 13.4 22
Operating expenses 12.9 23 14.9 25
______ ____ ______ ____
Operating loss (0.2) -- (1.5) (3)
Interest expense 2.7 5 1.7 2
______ ____ ______ ____
Loss before income taxes (2.9) (5) (3.2) (5)
Income tax provisions (1) -- 0.3 (1)
______ ____ ______ ____
Net loss $(3.0) (5) $(3.5) (6)
Revenues for the first nine months of 1995 of $56.3 million decreased
$3.9 million, or 6%, from 1994, due primarily to increased sales during
1994 resulting from substantial reductions of domestic wheelchair backlog
carried over from 1993. Additionally, oxygen concentrator sales decreased
$0.6 million from 1994 to 1995. In total, domestic sales decreased by $2.7
million from 1994 to 1995.
1995 revenues in the Everest & Jennings' Canadian and Mexican
subsidiaries were down $1.2 million or 10%, due primarily to unfavorable
Canadian and Mexican exchange rates and a substantial slowdown in the
Mexican economy.
Total Company gross profit for the period decreased $0.7 million from
$13.4 million in 1994 to $12.7 million in 1995. As a percentage of sales,
margins increased from 22% during 1994 to 23% during 1995, due primarily to
the implementation of cost reductions throughout 1995 at the Company's
primary domestic wheelchair manufacturing facility. To continue the
improvement in the Company's operating efficiencies and reduction in cost
structure, additional production relocation and facility rationalizations
are planned during 1995 and beyond.
Total Company operating expenses for the period decreased $2.0 million
from $14.9 million in 1994 to $12.9 million in 1995 due primarily to
reduced spending levels and headcount reductions. Spending reductions
included a reduction in research and development spending of $0.6 million
from $1.3 million during 1994 to $0.7 million during 1995. The Company's
restructuring and headcount reductions have begun to produce more favorable
operating results.
Interest expense of $7.7 million for the nine month period of 1995
increased from the comparable period in the prior year due to increased
levels of borrowing throughout 1994.
The results for the period during 1995 and 1994 do not include the
results of the Smith & Davis Institutional Business, which are instead
reflected in the restructuring reserve. See Note 5--Assets Held for Sale.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity are cash provided from
operations, borrowings from BIL and affiliates and cash on hand. At
September 30, 1995 the Company had $0.2 million in cash, and at December
31, 1994 the Company had $0.5 million in cash. At September 30, 1995,
total debt of $44.6 million was $2.0 million higher than the $42.6 million
in debt at December 31, 1994. The increase was due to increased borrowings
from BIL of approximately $5.1 million, offset by repayments of domestic
borrowing with the proceeds of the Institutional Sale. See Note 4--Debt of
the Notes to the Unaudited Consolidated Financial Statements included in
Item 1 of this Form 10-Q. The $5.1 million borrowed from BIL during 1995
was used to fund the Company's operations. The Company and BIL are
currently in negotiations with the Company's primary domestic bank to
substantially increase its available lines of credit.
The Company's 1995 revenues and operating results have been negatively
impacted by ongoing price competition, liquidity constraints and loss of
market share due to the relocation of the Company's primary domestic
wheelchair manufacturing facility from California to Missouri. Management
is implementing plans which are intended to address the Company's problems
with manufacturing and shipment delays. The plans also 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.
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
See Note 9--Contingent Liabilities to the Notes to the Unaudited
Consolidated Financial Statements in Item 1 of this Form 10-Q for a
description of certain pending lawsuits and proceedings.
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 nine months ended September 30, 1995, the Company borrowed a
total of $5.1 million from BIL as advances under its revolving credit
facility 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:
$2,100,000 June 20, 1995
$3,000,000 September 9, 1995
----------
$5,100,000 Total
The foregoing borrowings were treated as advances under the revolving
credit facility, which bears interest at 8.0% per annum and requires that
all principal and unpaid interest is due on September 30, 1996. Interest
has been accrued accordingly, with a balance of $2.1 million as of
September 30, 1995.
ITEM 6. EXHIBITS AND 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: November 13, 1995 EVEREST & JENNINGS INTERNATIONAL LTD.
(Registrant)
By /s/ Timothy W. Evans
Timothy W. Evans
Senior Vice President and
Chief Financial Officer
By /s/ Bevil J. Hogg
Bevil J. Hogg
President and
Chief Executive Officer
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