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, 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.)
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)
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 July 31, 1995: 72,266,185
<PAGE>
QUARTERLY REPORT ON FORM 10-Q
JUNE 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 23
Item 6. Exhibits and Reports on Form 8-K 23
SIGNATURE 24
<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 June 30
---------------------------
1995 1994
-------- --------
(Unaudited)
Revenues $18,449 $20,146
Cost of sales 14,045 15,489
______ ______
Gross profit 4,404 4,657
Selling expenses 3,125 3,621
General and administrative expenses 1,220 1,312
______ ______
Total operating expenses 4,345 4,933
______ ______
Income (Loss) from operations 59 (276)
Interest expense, BIL (Note 4) 373 113
Interest expense, other 548 455
______ ______
Loss before income taxes (862) (844)
Income tax provisions (2) 96
______ ______
Net loss $ (860) $ (940)
Loss per share (Note 6) $(.01) $(.01)
Weighted average number of Common
Shares outstanding 72,265,185 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)
Six Months Ended June 30
--------------------------
1995 1994
-------- --------
(Unaudited)
Revenues $36,962 $40,359
Cost of sales 28,351 31,622
_______ _______
Gross profit 8,611 8,737
Selling expenses 6,181 7,316
General and administrative expenses 2,646 2,846
_______ _______
Total operating expenses 8,827 10,162
_______ _______
Loss from operations (216) (1,425)
Interest expense, BIL (Note 4) 748 330
Interest expense, other 1,054 701
_______ _______
Loss before income taxes (2,018) (2,456)
Income tax provisions 12 157
_______ _______
Net loss $(2,030) $(2,613)
Loss per share (Note 6) $(.03) $(.04)
Weighted average number of Common
Shares outstanding 72,266,456 72,199,612
The accompanying Notes are an integral part of these
Consolidated Financial Statements
<PAGE>
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
ASSETS
June 30 December 31
1995 1994
-------- -----------
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 97 $ 513
Accounts receivable, less allowance
for doubtful accounts of $1,815
in 1995 and $2,088 in 1994 17,080 18,894
Inventories (Note 7) 18,890 20,449
Assets held for sale (Notes 1 and 5) 948 11,289
Other current assets 2,030 1,444
______ ______
Total current assets 39,467 52,589
______ ______
PROPERTY, PLANT AND EQUIPMENT:
Land 240 237
Buildings and improvements 4,573 4,056
Machinery and equipment 15,005 14,636
______ ______
19,818 18,929
Less accumulated depreciation
and amortization (12,061) (10,994)
______ ______
Property, plant and equipment, net 7,757 7,935
INTANGIBLE ASSETS, NET 556 710
OTHER ASSETS 2,312 335
______ ______
TOTAL ASSETS $49,655 $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
June 30 December 31
1995 1994
-------- -----------
(Unaudited)
CURRENT LIABILITIES:
Short-term borrowings and current install-
ments of long-term debt of $510
in 1995 and $1,984 in 1994 (Note 4) $9,061 $11,155
Short-term borrowing from BIL (Note 4) --- 6,503
Accounts payable 7,795 11,958
Accrued payroll costs 6,386 7,900
Accrued interest, BIL (Note 4) 1,709 960
Accrued expenses 8,839 9,697
Accrued restructuring expenses (Notes 1, 5) 1,253 4,476
______ ______
Total current liabilities 35,043 52,649
______ ______
LONG-TERM DEBT, NET OF
CURRENT PORTION (Note 4) 12,530 12,968
LONG-TERM BORROWINGS FROM BIL (Note 4) 20,603 12,000
OTHER LONG-TERM LIABILITIES 81 133
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 (155,798) (153,228)
Minimum pension liability adjustment (1,812) (1,812)
Cumulative translation adjustments (716) (862)
______ ______
Total stockholders' deficit (18,602) (16,181)
______ ______
TOTAL LIABILITIES AND STOCKHOLDERS'
DEFICIT $49,655 $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 SIX MONTHS ENDED JUNE 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 March 31, 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 SIX MONTHS ENDED JUNE 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 -- (540) -- -- (540)
Net loss -- (2,030) -- -- (2,030)
Translation adjustments -- -- -- 146 146
______ ________ ______ ____ ______
Balance at March 31, 1995 $105,598 $(155,798) $(1,812) $(716) $(18,602)
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
-------------------------
1995 1994
-------- --------
(Unaudited)
Cash flows from operating activities:
Net loss $(2,030) $(2,613)
Adjustment to reconcile net loss to
cash used in operating activities:
Depreciation and amortization 1,221 776
Changes in operating assets and liabilities:
Accounts receivable 2,396 (1,662)
Inventories 1,559 435
Accounts payable (1,933) (1,535)
Accrued interest, BIL 749 329
Accrued payroll costs, expenses and
income taxes (2,438) (1,145)
Accrued restructuring expenses (3,223) (855)
Other, net (448) 205
______ ______
Cash used in operating activities (4,147) (6,065)
______ ______
Cash flows from investing activities:
Capital expenditures (452) (558)
Proceeds from disposition of assets
held for sale 4,518 --
______ ______
Cash provided by (used in)
investing activities 4,066 (558)
______ ______
Cash flows from financing activities:
Advances from BIL 2,100 6,350
(Decrease) in short-term and
long-term borrowings, net (2,532) (1,211)
Proceeds from exercise of stock options 3 --
Changes in other long-term liabilities (52) (27)
______ ______
Cash provided by (used in) financing
activities (481) 5,112
______ ______
Effect of exchange rate changes on cash flow 146 (147)
______ ______
Decrease in cash balance (416) (1,658)
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(continued)
Six Months Ended June 30
-------------------------
1995 1994
-------- --------
(Unaudited)
Cash and cash equivalents balance at
beginning of year 513 1,872
______ ______
Cash and cash equivalents balance
at end of period $97 $214
Supplemental disclosures of cash flow
information:
Cash paid for interest $1,352 708
Cash paid for income taxes $172 $132
The accompanying Notes are an integral part of these
Consolidated Financial Statements
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, pursuant to an Asset Purchase
Agreement dated February 15, 1995, 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. The loss of
customer confidence stemming from long lead times and shipping delays due
to start-up inefficiencies and inventory imbalances in the Missouri
manufacturing operations is expected to adversely impact revenues,
operating income and cash flow at least through the end of 1995.
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. 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.
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 June 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 six
month periods ended June 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 six month periods ended June 30, 1995 and 1994; (b) the
consolidated financial position at June 30, 1995 and December 31, 1994; and
(c) the consolidated cash flows for the six month periods ended June 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. Certain reclassifications
have been made to prior period financial statements to conform with current
period presentation.
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 June 30, 1995 and December 31, 1994 is as
follows:
June 30 December 31
1995 1994
-------- -----------
Revolving Promissory Note to BIL $20,603 $18,503
Loans payable to HSBC 10,000 10,000
Other domestic debt 5,334 8,913
Foreign debt 6,257 5,210
______ ______
Total debt 42,194 42,626
Less short-term borrowings and current
installments of long-term debt 9,061 17,658
______ ______
Long-term debt, net of current
portion, including Revolving
Promissory Note to BIL $33,133 $24,968
On September 30, 1992, E&J Inc. 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 and E&J Inc. a revolving credit
facility of up to $12.5 million. Such revolving credit facility was
amended to allow advances up to $20.6 million. At June 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 June 30, 1995, $1.7 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.
At June 30, 1995, the Company had borrowed $2.4 million under this credit
facility.
The Company's Canadian subsidiary has credit facilities in the
aggregate of $5.4 million, of which $5.3 million was borrowed as of June
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 June 30, 1995 at interest
rates approximating 13%. The loan is secured by the assets of the Mexico
subsidiary.
At June 30, 1995, the Company was contingently liable under existing
letters of credit in the aggregate amount of approximately $15.8 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.
Net assets held for sale of the Company's Smith & Davis Institutional
Business consisted of the following 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. 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 on the
accompanying financial statements.
June 30 December 31
1995 1994
-------- -----------
Smith & Davis:
Accounts receivable $ -- $ 4,099
Inventories 948 4,298
Land and buildings -- 1,350
Machinery & equipment -- 1,200
Other assets -- 342
_____ _______
Total assets held for sale $ 948 $11,289
The remaining assets held for sale were sold on August 9, 1995.
Results of operations for the Smith & Davis Institutional Business for
the six month periods ended June 30, 1995 (through the April 4 disposition
date) and 1994 were as follows:
Six Months Ended June 30
---------------------------
1995 1994
------ ------
Revenues $5,508 $10,473
Cost of sales 3,940 7,540
_____ _____
Gross profit 1,568 2,933
Operating expenses 1,279 3,435
Interest expense 160 277
_____ _____
Net income (loss) $ 129 $ (779)
During the phase out period 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 six month periods ended June 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 June 30, 1995 and December 31, 1994 consist of the
following:
June 30 December 31
1995 1994
-------- -----------
Raw materials $8,611 $ 10,249
Work-in-process 5,607 5,585
Finished goods 4,672 4,615
______ ______
$18,890 $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 suit was filed in the United States
District Court for the Central District of California by a stockholder of
the Company against the Company and certain of its present and former
directors and officers. The suit seeks 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 on September 20, 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 for the Ninth Circuit on December 23, 1991. The
case was briefed and oral argument heard in June, 1993. On January 18,
1994, the Ninth Circuit 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 Ninth Circuit issued its decision in that other case on December
9, 1994. By an order dated January 17, 1995, the Ninth Circuit directed
Plaintiff and the Company to address the effect of the decision in the
other case on this case. The parties did so by supplemental letter briefs
in February 1995. The Company is now awaiting a decision from the Ninth
Circuit. 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.
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. par9601 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 will be 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 JUNE 30, 1995
The following table summarizes operating results of the Company for the
three months ended June 30, 1995 and 1994 (dollars in millions):
Three Months Ended June 30
---------------------------
1995 1994
------------ ------------
Amount % Amount %
------ --- ------ ---
Revenue $18.4 100 $20.1 100
Cost of sales 14.0 76 15.5 77
______ ____ ______ ____
Gross profit 4.4 24 4.6 23
Operating expenses 4.4 24 4.9 25
______ ____ ______ ____
Operating loss --- --- (0.3) (2)
Interest expense 0.9 5 0.5 2
______ ____ ______ ____
Loss before income taxes (0.9) (5) (0.8) (4)
Income tax provisions -- -- 0.1 --
______ ____ ______ ____
Net loss $(0.9) (5) $(0.9) (4)
Second quarter 1995 revenues of $18.4 million decreased $1.7 million,
or 8%, from 1994, due primarily to reduced domestic sales during 1995 of
homecare wheelchairs previously sold to distributors. During 1995 the
Company has shifted its homecare sales efforts away from distributors to
independent sales representatives to improve margins. Domestic sales
decreased by $1.4 million from 1994 to 1995.
Second quarter 1995 revenues in the Everest & Jennings' Canadian and
Mexican subsidiaries were down $0.3 million or 5%, due primarily to
unfavorable Canadian and Mexican exchange rates and a substantial slowdown
in the Mexican economy.
Total Company second quarter gross profit decreased $0.2 million from
$4.6 million in 1994 to $4.4 million in 1995. As a percentage of sales,
margins increased from 23% during 1994 to 24% during 1995, due primarily to
the implementation of cost reductions throughout 1994 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.
Total Company second quarter operating expenses decreased $0.5 million
from $4.9 million in 1994 to $4.4 million in 1995 due primarily to reduced
spending levels and headcount reductions. Spending reductions included a
reduction in research and development spending of $0.2 million from $0.4
million during 1994 to $0.2 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 second quarter of 1995
increased from the comparable period in the prior year due to increased
borrowing throughout 1994.
Neither the results of the second quarter 1995 nor 1994 include the
results of the Smith & Davis Institutional Business, which are instead
reflected in the restructuring reserve. See Note 5--Assets Held for Sale.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1995
The following table summarizes operating results of the Company for the
three months ended June 30, 1995 and 1994 (dollars in millions):
Six Months Ended June 30
---------------------------
1995 1994
------------ ------------
Amount % Amount %
------ --- ------ ---
Revenue $37.0 100 $40.4 100
Cost of sales 28.4 77 31.7 78
______ ____ ______ ____
Gross profit 8.6 23 8.7 22
Operating expenses 8.8 24 10.1 25
______ ____ ______ ____
Operating loss (0.2) (1) (1.4) (3)
Interest expense 1.8 4 1.1 3
______ ____ ______ ____
Loss before income taxes (2.0) (5) (2.5) (6)
Income tax provisions -- -- 0.1 --
______ ____ ______ ____
Net loss $(2.0) (5) $(2.6) (6)
Revenues for the first six months of 1995 of $37.0 million decreased
$3.4 million, or 8%, from 1994, due primarily to increased sales during
1994 resulting from substantial reductions of domestic wheelchair backlog
carried over from 1993. Additionally, during 1995 the Company has shifted
its homecare sales efforts away from distributors to independent sales
representatives to improve margins. This change has resulted in reduced
domestic wheelchair sales. Domestic sales decreased by $2.8 million from
1994 to 1995.
1995 revenues in the Everest & Jennings' Canadian and Mexican
subsidiaries were down $0.6 million or 8%, 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 $0.1 million from
$8.7 million in 1994 to $8.6 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 1994 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.
Total Company operating expenses for the period decreased $1.3 million
from $10.1 million in 1994 to $8.8 million in 1995 due primarily to reduced
spending levels and headcount reductions. Spending reductions included a
reduction in research and development spending of $0.5 million from $1.1
million during 1994 to $0.6 million during 1995. The Company's
restructuring and headcount reductions have begun to produce more favorable
operating results.
Interest expense of $1.8 million for the period during 1995 increased
from the comparable period in the prior year due to increased borrowing
throughout 1994.
Neither the results for the period during 1995 nor 1994 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 June
30, 1995 the Company had $0.1 million in cash, and at December 31, 1994 the
Company had $0.5 million in cash. At June 30, 1995, total debt of $42.2
million was $0.4 million lower than the $42.6 million in debt at December
31, 1994. The decrease was due to repayments of domestic borrowing with
the proceeds of the Institutional Sale, offset by increased borrowings from
BIL of approximately $2.1 million. See Note 4--Debt of the Notes to the
Unaudited Consolidated Financial Statements included in Item 1 of this Form
10-Q.
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. The loss of
customer confidence stemming from long lead times and shipping delays due
to start-up inefficiencies and inventory imbalances in the Missouri
manufacturing operations is expected to adversely impact revenues,
operating income and cash flow at least through the end of 1995.
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. 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.
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
(a) An annual meeting of shareholders was held at the Company's offices
on June 6, 1995.
(b) Proposal No. 1: The following were elected Directors: Sandra L.
Baylis, Bevil J. Hogg, Rodney F. Price, Robert C. Sherburne and Charles D.
Yie.
(c) Proposal No. 2: Whether to adopt the 1994 Everest & Jennings
International Ltd. Stock Option Plan.
Proposal No. 3: Whether to ratify the appointment of Price
Waterhouse LLP as independent accountants for the fiscal year ended
December 31, 1995.
Tabulations for the proposals voted at the annual meeting follow:
COMMON SHARES:
Broker
For Against/Withheld Abstain Non-votes
Directors:
Baylis 68,784,215 178,434 0 0
Hogg 66,782,824 179,825 0 0
Price 68,784,215 178,434 0 0
Sherburne 68,784,215 178,434 0 0
Yie 68,784,215 178,434 0 0
Proposal No. 2 64,697,805 257,346 91,523 84,701
Proposal No. 3 68,870,617 90,118 1,184 650
PREFERRED SHARES:
Broker
For Against/Withheld Abstain Non-votes
Directors:
Baylis 28,004,561 0 0 0
Hogg 28,004,561 0 0 0
Price 28,004,561 0 0 0
Sherburne 28,004,561 0 0
Yie 28,004,561 0 0 0
Proposal No. 2 28,004,561 0 0 0
Proposal No. 3 28,004,561 0 0 0
ITEM 5. OTHER INFORMATION
During the six months ended June 30, 1995, the Company borrowed a total
of $2.1 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
The foregoing borrowing was treated as an advance 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 $1.7 million as of June 30,
1995.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS:
None
REPORTS ON FORM 8-K:
Financial
Date of Report Item(s) Reported Statements Filed
-------------- ---------------- ----------------
1. April 4, 1995 2, 7 (relating to the None
disposition of assets)
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 14, 1995 EVEREST & JENNINGS INTERNATIONAL LTD.
(Registrant)
By /s/ Timothy W. Evans
Timothy W. Evans
Vice President and
Chief Financial Officer
By /s/ Bevil J. Hogg
Bevil J. Hogg
President and
Chief Executive Officer
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