SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X Annual Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 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 (IRS Employer Identification No.)
of incorporation or organization)
1100 Corporate Square Drive, St. Louis, Missouri 63132
(Address of principal executive offices)
Registrant's telephone number, including area code: (314) 995-7000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock; par value: $.01 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___
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X
As of March 27, 1995, there were 72,257,812 shares of Common Stock
outstanding. The market price of the Common Stock was $0.50 per share, and
the aggregate market value of Common Stock held by nonaffiliates was
$7,229,230 on that date. For this reporting purpose, all shares held by
executive officers, directors, 5% stockholders and their respective
affiliates are considered to be held by affiliates, but neither the
registrant nor such persons concede that they are affiliates of the
registrant.
Portions of the Company's definitive proxy materials to be filed in
connection with the 1995 annual meeting are incorporated by reference into
Part III.
The Exhibit Index is located on pages 60 - 63.
INDEX TO ANNUAL REPORT
ON FORM 10-K
Page
PART I
Item1. Business 3
Item2. Properties 8
Item3. Legal Proceedings 8
Item4. Submission of Matters to a Vote of Security Holders 9
Executive Officers of the Company 9
PART II
Item5. Market for the Registrant's Common Stock and Related
Stockholder Matters 10
Item6. Selected Financial Data 11
Item7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
Item8. Financial Statements and Supplementary Data 21
Item9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 52
PART III
Item10. Directors and Executive Officers of the Registrant 52
Item11. Executive Compensation 52
Item12. Security Ownership of Certain Beneficial Owners
and Management 52
Item13. Certain Relationships and Related Transactions 52
PART IV
Item14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 52
Signatures 57
Financial Statement Schedule 58
PART I
ITEM 1. BUSINESS
General Development of Business and Company Strategy
Everest & Jennings International Ltd. ("E&J" or the "Company") through
its subsidiaries manufactures wheelchairs and homecare, nursing home and
hospital beds and institutional casegoods. Effective in the fourth quarter
of 1993, the Company adopted a plan to dispose of the hospital and nursing
home bed and institutional casegoods businesses (the "Institutional
Business") of its wholly-owned subsidiary, Smith & Davis Manufacturing
Company ("Smith & Davis"), and recorded a reserve of $13 million to write
down the assets of the Institutional Business to their estimated net
realizable values and for the estimated operating losses during the phase
out period and the estimated costs of disposition. See Note 2 -
Restructuring Expenses and Note 4 - Assets Held for Sale of the Notes to
the Consolidated Financial Statements included in Item 8 of this Form 10-K.
Pursuant to an Asset Purchase Agreement dated February 15, 1995, the
Company has agreed to sell the Institutional Business. Smith & Davis also
holds a small position in the oxygen therapy market, and the Company is
also currently in the process of disposing of this product line.
After the sale of its Institutional Business and disposal of the oxygen
therapy product line, the Company will be comprised of two principal
product groups: wheelchairs and homecare beds. The Company is one of the
larger manufacturers of wheelchairs in the United States and, with its
Canadian and Mexican subsidiaries, holds a material share of the North
American market. If the sale of the Institutional Business is completed,
the Company expects to enter into an agreement with the purchaser to supply
the Company's requirements for homecare bed products.
Since 1989 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 to date 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 1992 the
Company relocated its corporate headquarters and principal wheelchair
manufacturing operations from California to Missouri. The relocation
facilitated the consolidation of corporate offices and other key
administrative, sales/marketing, and technical functions with existing
Company operations in the St. Louis area. In October, 1993, the Company
transferred its data operations from California to Missouri, which
represented the final step in the Company's relocation. The process of
lowering costs is ongoing as the Company intends to increase the
outsourcing of product parts and components and further consolidate its
manufacturing and distribution facilities. The Company is striving to
become a low cost producer with respect to all of its products, while
maintaining its reputation for well-engineered, quality products.
Background
The Company is a Delaware corporation, formed in 1987 by the
reincorporation of Everest & Jennings International, a California
corporation formed in 1967 for the purpose of acquiring and holding all of
the stock of Everest & Jennings, Inc. and the stock of certain subsidiary
companies. Everest & Jennings, Inc., the Company's principal subsidiary,
was formed in 1946 through the incorporation of a partnership originally
established in 1932 by Herbert A. Everest and Harry C. Jennings, Sr.
Messrs. Everest and Jennings pioneered the design and production of folding
wheelchairs.
The Company had its initial public offering of common stock in 1968.
Its common stock was traded on the NASDAQ National Market System until 1980
when the common stock became listed on the American Stock Exchange.
In a series of transactions since 1991, BIL (Far East Holdings) Limited
(collectively, with its affiliates, "BIL") has acquired control of the
Company through the acquisition, on a fully diluted basis, of approximately
85.54% of the voting securities of the Company. As of March 30, 1995, BIL
beneficially owned the following securities of the Company:
Class Number of Shares Percent
----- ---------------- -------
Common Stock 57,799,352 80.05%
Series A Preferred Stock 7,218,204 100%
Series B Preferred Stock 786,357 100%
Series C Preferred Stock 20,000,000 100%
Each share of the Series A, B and C Preferred Stock is convertible into
one share of Common Stock and is entitled to vote with the Common Stock on
an as converted basis. See Note 6 - Debt Restructuring and Conversion,
Note 7 - Debt and Note 10 - Common and Preferred Stock of the Notes to the
Consolidated Financial Statements included in Item 8 of this Form 10-K
The Company's principal subsidiaries include Everest & Jennings, Inc.
located in St. Louis, Missouri; Everest & Jennings Canadian Limited located
in Toronto, Canada; Everest & Jennings de Mexico, S.A. de C.V. located in
Guadalajara, Mexico; and Smith & Davis Manufacturing Company, which is also
located in St. Louis, Missouri. Each of the Company's subsidiaries
manufactures wheelchairs and wheelchair parts, with the exception of Smith
& Davis. Following the sale of the Institutional Business, the Company
will continue to sell homecare beds. The Company owns a 30% interest in a
joint venture in Indonesia. An affiliate of the joint venture partner
supplies wheelchair parts and components to the Company for assembly into
finished products in the United States.
Industry Overview
All of the Company's products can be characterized as durable medical
equipment. Third party reimbursement through private or government
insurance programs impacts a significant component of the Company's
business, and the market for and the pricing of wheelchairs and beds is
influenced by such programs. As a result, reductions or cutbacks in
Medicare, state reimbursement or private insurance programs for the
purchase or rental of durable medical equipment may adversely affect the
Company's business. However, the Company's business is favorably impacted
by medical progress in rehabilitating the seriously injured and disabled
and by the demographics of longer life spans.
Wheelchairs
The Company designs, manufactures and markets wheelchairs in North
America. The wheelchair market is divided into two primary categories --
rehabilitation and homecare.
The rehabilitation market is characterized by individual needs, ongoing
product innovation and government reimbursement levels. Rehabilitation
products are more sophisticated, command higher prices and support a higher
price margin structure. Most rehabilitation chairs are sold through a core
group of 400 "Rehab" dealers working in conjunction with therapists who
prescribe the products for end users.
The homecare market is characterized by lower priced, commodity
products and includes significant institutional sales. Typically, end
users are geriatrics, those temporary disabled or individuals with limited
access to funding. The Company's homecare chairs are sold directly through
approximately 4,000 homecare dealers as well as selected distributors.
The Company continues to invest in the development of its
rehabilitation wheelchair lines, both power and manual, with primary focus
on products that are well matched to user needs and reimbursement levels
and are easier to manufacture and support. The Company places an emphasis
on innovation and improvement of its power driven wheelchair products,
specifically through design and reliability enhancements and ease of
operation. In January, 1994, the Company completed its acquisition of
Medical Composite Technology, Inc. ("MCT") with an effective date of
December 31, 1993. MCT develops, designs, manufactures and markets state-
of-the-art wheelchairs included in the Company's Vision(R) product line.
The acquisition of MCT enabled the Company to expand its product line into
the ultra-lightweight wheelchair market.
The Company is continuously looking for distribution partners who make
specialized rehab products and could benefit from the Company's sales and
distribution system. This is a continuation of the Company's strategic
plan to expand as "The Rehab Source."
Market Information -- Management estimates that the aggregate domestic
wheelchair market approximates $400 million with the total North American
market slightly larger at approximately $500 million. The Company believes
it has a material share of these combined markets.
Competition -- The Company, Invacare Corporation and Sunrise Medical
Inc. are the primary competitors in the wheelchair business. In addition,
there are a range of smaller competitors. Competition for sales of
wheelchairs is intense and is based on a number of factors including
quality, reliability, price, financing programs, delivery and service. The
Company believes its products' quality, reputation and recent technological
advances are favorable factors in competing with other manufacturers.
Homecare Beds
Homecare beds are sold to the same homecare dealer network that
purchases homecare wheelchairs. A patient who is discharged from a
hospital or other institution may rent a homecare bed to aid in their
recovery. Accordingly, dealers primarily retain homecare beds in a rental
fleet.
Market Information -- Management estimates that the aggregate domestic
market for homecare beds is approximately $60 million. The Company
believes it has a material share of the domestic homecare bed market.
Competition -- The Company, Invacare Corporation and Sunrise Medical,
Inc. are the largest suppliers of homecare beds to the industry.
Competition for sales of homecare beds is intense and is based primarily on
price.
International Operations
The Canadian market is served through the Company's Canadian subsidiary,
while the Central and South American markets are served through Everest &
Jennings de Mexico. The Company has not placed great emphasis on expanding
its markets beyond North America. Substantially all export sales of the
Company's products manufactured in the United States are denominated in
United States dollars although such sales are immaterial to consolidated
revenues.
Sales and Distribution
The Company's homecare products are marketed in the United States and
Canada by approximately 4,000 non-exclusive dealers and national accounts
who, in turn, sell the products to consumers. The support and servicing of
these dealers and national accounts are the responsibility of the Company's
trained sales staff operating within the United States and Canada. The
Company also uses manufacturer's representatives and distributors in
selected geographic areas and market segments as appropriate. The Company
also sells directly to government agencies, such as the Department of
Veterans Affairs.
In Mexico, the Company's products are marketed through its own dealer
network system as well as through independent non-exclusive dealers. No
dealer or distributor domestically or internationally represents more than
10% of the Company's total sales.
The Company's rehab sales representatives conduct training activities
for the benefit of its dealers and their personnel. This training is
primarily concerned with the features and benefits of the Company's rehab
products, and the training also covers the proper fitting and use of
wheelchairs and related equipment. Training classes are also offered to
physical and occupational therapists.
Brochures, point-of-sale display materials, and similar advertising and
merchandising aids are supplied to dealers. The Company advertises in
trade publications and its representatives attend trade shows and similar
conventions as a method of displaying product lines to doctors, therapists
and others.
Finished goods inventories are maintained in several public warehouses
strategically located throughout the United States. The Company
manufactures its basic homecare products for stock and maintains
inventories at such warehouses and its St. Louis manufacturing facility for
sale; however, a substantial portion of the Company's rehab wheelchair
products are built-to-order and are not maintained as stock.
Raw Materials
The Company purchases a variety of raw materials and components, and
has entered into supply agreements to purchase certain of these items from
single suppliers. The Company believes that numerous alternative supply
sources are available for all such materials.
Product Development, Engineering and Patents
The Company continuously seeks to improve the quality, performance and
reliability of its products to enhance its competitive position in its
industry and to develop new products to meet the needs of its customer
base. With the acquisition of MCT, the Company acquired a design staff and
has merged its research and development ("R&D") organization with the core
R&D staff from MCT. As a result, the Everest & Jennings Design Center has
been instituted in northern California. This Center is responsible for new
product design for the Company. Along with the internal development
programs, the Company plans to actively pursue distribution agreements with
companies possessing innovative products that fit the Company's areas of
focus. During the years ended December 31, 1994, 1993 and 1992, the
Company spent $1.9 million, $10.8 million and $1.2 million, respectively,
on Company sponsored research and development activities.
Employees
As of March 31, 1995, the Company had 735 full-time and full-time
equivalent employees, comprised of 502 in manufacturing, 28 in research and
development, 131 in sales and customer service, and 74 in general and
administrative functions. A total of 281 of the Company's employees
located in Missouri, Canada and Mexico are covered by collective bargaining
agreements. The Company considers its labor relations to be satisfactory.
Financial Information
The Company's operations consist of the manufacture and sale of durable
medical equipment. Sales and losses from continuing operations of this
single industry segment for each of the three years ended December 31, 1994
are set forth in Note 3 - Industry Segment to the Consolidated Financial
Statements of the Company included in Item 8 of this Annual Report on Form
10-K.
The percentage of the Company's consolidated revenues contributed by
each class of similar products which accounted for ten percent or more of
such consolidated revenues in any of the last three fiscal years is as
follows:
Years Ended December 31
-----------------------
1994 1993 1992
---- ---- ----
Wheelchairs 80% 65% 61%
Institutional beds and furniture -0- 18% 20%
Homecare beds 11% 12% 11%
ITEM 2. PROPERTIES
The Company owns or leases manufacturing facilities located in the
United States, Canada and Mexico. The Company believes that these
facilities are generally adequate for its operations and are in reasonably
good operating condition. The Company's principal wheelchair manufacturing
operations are located in a 147,000 square foot leased facility in St.
Louis, Missouri. The Company's principal bed manufacturing operations were
located in a 170,000 square foot owned facility in Wright City, Missouri.
As noted in Item 1 above, the Company has agreed to sell the Institutional
Business of its Smith & Davis subsidiary, including the Company's principal
bed manufacturing operations located in the Wright City, Missouri facility
along with its nursing home furniture manufacturing locations.
Owned Leased
----- ------
(Square footage)
Everest & Jennings, Inc.:
St. Louis, Missouri -- 197,000
Other locations -- 12,000
Smith & Davis Manufacturing Co.:
Wright City, Missouri 170,000* --
Other locations 115,000* 25,000*
Everest & Jennings Canadian Ltd.:
Toronto, Canada 67,000 3,000
Other locations -- 13,000
Everest & Jennings de Mexico
S.A. de C.V.:
Guadalajara, Mexico 63,000 --
Other locations -- 15,000
------- -------
415,000 265,000
* Discontinued operations
ITEM 3. LEGAL PROCEEDINGS
The Company and its subsidiaries are parties to various lawsuits and
other proceedings, including a stockholder class action which seeks
unspecified damages for alleged non-disclosure and misrepresentation
concerning the Company in violation of federal securities laws, various
environmental lawsuits and proceedings and various product liability and
other lawsuits and proceedings arising out of the Company's businesses.
Although the ultimate outcome of these actions cannot be determined with
certainty at this time, the Company has provided for those actions deemed
by management to be most likely of potential adverse disposition. Although
further liabilities of indeterminate amounts may be imposed against the
Company, after considering the relevant facts and the opinions of outside
counsel, it is the opinion of management of the Company that the ultimate
resolution of such lawsuits and proceedings will not in the aggregate have
a material adverse effect on the Company's consolidated financial position
or results of operations.
See Note 13 - Contingent Liabilities to the Notes to the Consolidated
Financial Statements in Item 8 of this Form 10-K for a description of
certain pending lawsuits and proceedings.
Pursuant to a Settlement Agreement dated as of December 16, 1994, a
$1.3 million judgment in favor of ICF Kaiser Engineers, Inc. ("Kaiser")
entered on July 26, 1994 in the Superior Court of the State of California
for the Courts of Los Angeles (Case No. BS029010), pursuant to an
arbitration award for breach of contract, was finally discharged upon
payment by the Company to Kaiser of $1.0 million.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted during the fourth quarter of the fiscal year
covered by this report to a vote of security holders.
EXECUTIVE OFFICERS OF THE COMPANY
The following information is furnished pursuant to General Instruction
G(3) of Form 10-K with respect to the executive officers of the Company:
Positions or Offices Position With the
Name Age With the Company Company Since
---- --- -------------------- -----------------
Bevil J. Hogg 46 President and 1994
Chief Executive Officer
Timothy W. Evans 44 Vice President, 1994
Chief Financial Officer
and Secretary
The following are brief summaries of the business experience during the
past five years of each of the executive officers:
Bevil J. Hogg joined the Company as Executive Vice President on January
14, 1994 following the Company's acquisition of MCT and was elected
President and Chief Executive Officer on January 21, 1994. He served
as chief executive officer of MCT from December, 1992 until its
acquisition by the Company, and as chief executive officer of Cycle
Composite, Inc. from 1986 to December, 1992.
Timothy W. Evans joined the Company in 1993 as its Controller and was
elected Vice President, Chief Financial Officer and Secretary on
September 20, 1994. Prior to joining the Company, Mr. Evans spent over
ten years in various financial functions with Chromolloy America
Corporation, a large diversified company.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
The following table sets forth the high and low sales prices of the
Company's Class A and Class B Common Stock and, after November 18, 1993,
single class Common Stock for each quarter in the two-year period ended
December 31, 1994. The Company's Common Stock is listed on the American
Stock Exchange under the symbol of EJ. Discussions between the Company and
The American Stock Exchange as to the continued listing are ongoing.
Class A Class B Single Class
Common Stock* Common Stock* Common Stock**
------------- ------------- --------------
High Low High Low High Low
---- --- ---- --- ---- ---
Fiscal year ended 12/31/94
1st Quarter N/A N/A N/A N/A 1 7/16 5/8
2nd Quarter N/A N/A N/A N/A 1 3/16 7/8
3rd Quarter N/A N/A N/A N/A 1 5/8
4th Quarter N/A N/A N/A N/A 13/16 7/16
Fiscal year ended 12/31/93
1st Quarter 1 3/4 1 1/4 2 1 7/16 N/A N/A
2nd Quarter 2 1 3/16 1 7/8 1 5/8 N/A N/A
3rd Quarter 2 1 1/4 2 1 3/8 N/A N/A
4th Quarter 1 3/4 1 7/16 1 3/4 1 1/2 1 11/16 1 1/8
* Prior to November 19, 1993
** After November 18, 1993
On March 17, 1992, the stockholders of the Company approved a proposal
whereby the Class A Common Stock and the Class B Common Stock were
reclassified into the new single class of Common Stock (see Note 10 to the
Consolidated Financial Statements in Item 8 of this Form 10-K). The
reclassification occurred at the close of business on November 18, 1993.
As of March 17, 1995, there were approximately 2,650 stockholders of
record of the Company's Common Stock, and the closing price of the Common
Stock was $9/16 on that date.
No dividends on the Company's Common Stock were paid in either 1994 or
1993. Management does not currently anticipate paying cash dividends on
its Common Stock in the foreseeable future. The determination of future
cash dividends to be declared and paid on the Common Stock, if any, will
depend upon the Company's financial condition, earnings and cash flow from
operations, the level of its capital expenditures, its future business
prospects and other factors that the Board of Directors deems relevant.
The Company is currently prohibited from paying cash dividends on its
Common Stock under covenants contained in the debt agreements with its
principal lenders.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data below should be read in conjunction with
the Consolidated Financial Statements and Notes thereto included in Item 8
of this Annual Report on Form 10-K. The following information should not
be deemed indicative of future operating results of the Company.
YEAR ENDED DECEMBER 31(c)(d)(f)
------------------------------------------
1994(f) 1993 1992 1991 1990
------- ---- ---- ---- ----
(Dollars in thousands, except per-share amounts)
STATEMENT OF OPERATIONS DATA:
Revenues $79,438 $94,459 $107,115 $118,924 $209,711
Cost of sales 65,888 83,825 89,816 89,937(d)166,931
------- ------- ------- ------- -------
Gross profit 13,550 10,634 17,299 28,987 42,780
Selling expenses 14,333 29,541(a) 18,302 16,414 29,376
General and administrative
expenses 6,519 16,441 9,275 14,638 22,653
Restructuring expenses(b) -- 15,104 5,150 18,524 33,953
------- ------- ------- ------- -------
Total operating
expenses 20,852 61,086 32,727 49,576 85,982
------- ------- ------- ------- -------
Operating loss from
continuing operations (7,302) (50,452) (15,428) (20,589) (43,202)
------- ------- ------- ------- -------
Other income(expense):
Interest expense, net (2,619) (5,072) (4,981) (3,887) (8,870)
Earnings in European
operations -- -- -- 1,189 --
Gain(loss) on sale of
European operations -- -- (240) 6,600 --
------- ------- ------- ------- -------
Other income(expense), net (2,619) (5,072) (5,221) 3,902
(8,870)
Loss from continuing
operations before
income taxes (9,921) (55,524) (20,649) (16,687) (52,072)
Income tax provisions
(benefits) (162) 173 (1,737)(e) 377 (356)
------- ------- ------- ------- -------
Net loss from continuing
operations (9,759) (55,697) (18,912) (17,064) (51,716)
------- ------- ------- ------- -------
Discontinued operations:
Loss on disposal of
discontinued operations -- -- -- -- (1,410)
------- ------- ------- ------- -------
Loss from discontinued
operations -- -- -- -- (1,410)
------- ------- ------- ------- -------
Net loss $(9,759) $(55,697) $(18,912) $(17,064) $(53,126)
LOSS PER SHARE:
From continuing
operations $(0.14) $(5.96) $(2.07) $(1.87) $(5.65)
From discontinued
operations -- -- -- -- (.16)
------- ------- ------- ------- -------
$(0.14) $(5.96) $(2.07) $(1.87) $(5.81)
Weighted average number
of Common Shares
outstanding 72,201,207(g) 9,343,868 9,146,000 9,146,000 9,146,000
BALANCE SHEET DATA(at December 31):
Total assets $61,569 $59,217 $69,459 $82,921 $112,662
Total debt 42,626 30,296 58,555 54,168 65,036
Total stockholders'
deficit (16,181) (7,008) (30,798) (21,453) (1,909)
(a) Includes $9,764 of in-process research and development expense
related to the acquisition of Medical Composite Technology, Inc. See
Note 5 -- Acquisition of the Notes to the Consolidated Financial
Statements in Item 8.
(b) As more fully explained in Note 2 -- Restructuring Expenses of the
Notes to the Consolidated Financial Statements in Item 8 of this Form 10-
K, the Company recorded $15,104 as a restructuring charge in 1993 for
the consolidation of manufacturing and distribution facilities in the
United States and Canada and for the sale or other disposition of the
Smith & Davis Institutional Business. The Company recorded a $5,150
restructuring charge in 1992 to provide for additional costs associated
with the consolidation of its domestic manufacturing and corporate
headquarters, including the closure and relocation of the Company's
principal domestic wheelchair manufacturing operation and international
headquarters from California to Missouri. In 1991, the Company
originally recorded a restructuring charge of $18,524 for this purpose.
The Company recorded a $33,953 charge in 1990 to provide for costs
associated with restructuring its domestic operations, including a
provision to write down its Camarillo manufacturing facility and related
machinery to net realizable value.
(c) Effective December 31, 1990, the European subsidiaries were
designated as subsidiaries held for sale. Accordingly, their results of
operations were consolidated in 1988 through 1990 and have been
reflected on the equity method in 1991. See Note 3 -- Summary of
Significant Accounting Policies of the Notes to the Consolidated
Financial Statements in Item 8 of this Form 10-K.
(d) In 1991, the Company changed from the LIFO (last-in, first-out)
method of valuing inventory to the FIFO (first-in, first-out) method for
inventory at its Everest & Jennings, Inc. subsidiary as the Company
believes that the FIFO method of accounting for such inventories results
in a more appropriate presentation of financial position and results of
operations. As a result of this change in accounting principle,
inventories and retained earnings were increased by $4,002 in 1990. The
impact of the change on previously reported net loss and loss per share
was $848 and $.09 in 1990.
(e) During 1992 the Company resolved certain disputed issues with the
California Franchise Tax Board for the years 1975 through 1983. As a
result of agreements reached, assessments including related accrued
interest in the aggregate amount of $1.8 million were withdrawn and
credited to the income tax provision.
(f) Revenues of the Institutional Business and related costs were
included in the consolidated results of operations of the Company in
years prior to 1994. At December 31, 1993 the related assets of the
Institutional Business were classified as held for sale and the results
of its operations for 1994 were aggregated and charged to accrued
restructuring expenses in the consolidated balance sheet. By Agreement
dated February 15, 1995, the Company has agreed to sell the
Institutional Business.
(g) See Note 6 - Debt Restructuring and Conversion of the Notes to the
Consolidated Financial Statements included in Item 8 of this Form 10-K.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
In recent years, the Company has undergone an extensive restructuring
of its operations with the objective of improving its competitive position
within the durable medical equipment industry. The restructuring was
designed to reduce costs and the eliminate excess manufacturing capacity.
Asset sales were undertaken to generate cash to partially finance
restructuring activities and reduce debt levels. Credit facilities were
modified or expanded as needed to partially fund the overall restructuring,
in addition to contributing to the funding of the Company's operations.
A major element of the restructuring was the sale in October, 1991 of
the Company's former European subsidiary, Ortopedia GmbH for approximately
$19.6 million. At the time, the Company retained a 15% interest in
Ortopedia Holding GmbH, the new parent of Ortopedia GmbH. In December
1992, the Company sold its remaining 15% interest in Ortopedia Holding GmbH
for $1.5 million.
In early 1992 the Company announced its intention to consolidate its
domestic wheelchair manufacturing operations and corporate headquarters by
relocating its California-based manufacturing and corporate offices to
Missouri by the end of 1992. This decision was made in light of the higher
cost of manufacturing in Southern California and the opportunity to further
reduce costs through the consolidation of administrative and support
functions with existing operations in Missouri. The relocation from
California was begun in the second quarter of 1992, and, except for data
operations, was largely completed by the end of 1992. In October, 1993,
the Company transferred its data operations from California to Missouri,
which represented the final step in the Company's relocation.
As a result of the relocation, the Company experienced major start-up
problems in wheelchair production due primarily to computer system failures
and related parts shortages, and to manufacturing delays and inefficiencies
attributable generally to the commencement of relocated manufacturing
operations and specifically to the need to train a large number of new
employees. These start-up problems impacted most severely the Company's
high margin power and rehab wheelchair products, and the resulting
reduction in sales and cash flow hindered the Company's ability to keep
vendors current and to otherwise implement corrective measures quickly and
effectively.
Shipment delays caused a substantial build-up in back-ordered power and
rehab wheelchair products in the second half of 1992 and the first half of
1993, which the Company reduced over time. Customer confidence and
frustration resulting from such delays combined to increase the order
cancellation rate and to decrease the incoming order rate, particularly for
the affected wheelchairs. As a result, orders and market share decreased,
and manufacturing activity generally shifted disproportionately to lower
margin manual and commodity wheelchairs. Incoming orders, product backlog
and timely shipments were improved during the second half of 1993 and
during 1994. However, the Company believes order rates, margins and market
share must continue to improve and customer confidence must be further
reinforced if the Company is to generate the cash flow necessary to fund
its operations on a continuing basis and to achieve profitability.
Additionally, certain production rationalizations are in process which are
designed to improve the Company's operating efficiencies and cost structure
by reducing duplicate overhead costs.
Production and delivery of all of the Company's homecare bed products
were unaffected by the production problems that occurred in the relocation
of the wheelchair manufacturing facility to St. Louis. The Company has
continued to deliver homecare bed products in a timely manner and
management believes that market share can be maintained and slightly
increased in these product lines. It is not expected that the sale of the
Institutional Business will adversely affect homecare bed sales.
Effective in the fourth quarter of 1993, the Company adopted a plan to
dispose of Smith & Davis' hospital and nursing home bed and institutional
casegoods businesses (the "Institutional Business") and recorded a reserve
of $13 million to write down the assets of the Institutional Business to
their estimated net realizable values and for the estimated operating
losses during the phase out period and the estimated costs of disposition.
See Note 2 - Restructuring Expenses and Note 4 - Assets Held for Sale of
the Notes to the Consolidated Financial Statements included in Item 8 of
this Form 10-K. By Agreement dated February 15, 1995, the Company has
agreed to sell the Institutional Business.
In the domestic market, the Company's durable medical equipment
products are sold primarily through homecare and medical equipment dealers,
as well as national accounts. Consumers and dealers are reimbursed through
federal, state and private insurer reimbursement programs. The Company
recognizes the need to counteract the impact of cutbacks in such programs
on its results of operations and cash flow through the benefits of a
reduced cost structure and by targeting new market segments.
During fiscal 1994 and 1993, the Company required approximately $13.7
million and $45.8 million, respectively, of additional financing from BIL
to fund its operating requirements and accrued restructuring expenses, and
the amount of outstanding advances owing to BIL at December 31, 1994
totaled $18.5 million (see Note 6 - Debt Restructuring and Conversion and
Note 7 - Debt of the Notes to the Consolidated Financial Statements
included in Item 8 of this Form 10-K). The Company is currently exploring
alternative financing from outside sources as a fallback should additional
financing be needed for 1995. It is anticipated that proceeds from the
sale of the Institutional Business will be used primarily to reduce debt.
In 1994, based on predominant industry practice, the Company changed
its method of classification of shipping and distribution costs in the
statement of operations. Such costs are now presented in cost of sales
versus operating expenses in prior years. For purposes of the following
discussion of results of operations, affected amounts for all years have
been reclassified to conform to the current year's classification.
RESULTS OF OPERATIONS
Revenues
Substantially all of the Company's revenues for each of the three years
ended December 31, 1994 were from products manufactured in North America.
1994 versus 1993
Revenues in 1994 declined $15 million, or 16% versus 1993, due
primarily to the exclusion of the Institutional Business.
Revenues of the Institutional Business and related costs were included
in the consolidated results of operations of the Company in both 1992 and
1993 but not 1994, as the related assets were classified as held for sale
at December 31, 1993 and the 1994 results of operations were aggregated and
charged against accrued restructuring expenses for purposes of the
consolidated financial statements. If the 1994 revenues of the
Institutional Business ($21.2 million) had been included in the
Consolidated results for 1994, revenues would have been increased by $6.2
million or 7%. 1993 wheelchair sales and operations were negatively
impacted by the relocation of the Company's primary domestic manufacturing
facility from California to Missouri. Delivery delays caused by the 1992
move have decreased and lead times have now been brought more in line with
historic levels.
1993 versus 1992
Revenues in 1993 decreased $13 million, or 12%, versus 1992, primarily
due to increased price competition, reduced sales of wheelchairs, and lower
homecare, hospital and nursing home bed revenues. Wheelchair sales were
adversely affected by competition and the factory relocation in 1992, the
effects of which continued into 1993. Hospital and nursing home bed sales
were adversely affected by price competition and market uncertainty
associated with national health care reform. Lower homecare bed revenues
reflected the impact of increased price competition.
Operating Results
For the periods indicated, the following table summarizes operating results
of the Company (dollars in millions):
Year Ended December31
-----------------------------------------
1993 1992 1991
Amount % Amount % Amount %
------ --- ------ --- ------ ---
Revenues $79.4 100 $94.5 100 $107.1 100
Cost of sales 65.8 83 83.8 89 89.8 84
---- ---- ---- ---- ---- ----
Gross profit 13.6 17 10.7 11 17.3 16
Operating expenses 20.8 26 46.0 48 27.5 25
---- ---- ---- ---- ---- ----
Operating loss before
restructuring expenses (7.3) (9) (35.3)(37) (10.2) (9)
Restructuring expenses -- -- 15.1 16 5.2 5
---- ---- ---- ---- ---- ----
Operating loss (7.3) (9) (50.4)(53) (15.4) (14)
Interest expense, BIL (0.9) (1) (2.6) (3) (2.3) (2)
Interest expense, other (1.7) (2) (2.5) (3) (2.7) (3)
Gain (loss) on sale of
European operations -- -- -- -- (0.2) --
---- ---- ---- ---- ---- ----
Loss before income taxes (9.9)(12) (55.5)(59) (20.6) (19)
Income tax provisions
(benefits) 0.1 -- .2 -- (1.7) (1)
---- ---- ---- ---- ---- ----
Net loss $(9.8)(12) $(55.7)(59) $(18.9) (18)
1994 versus 1993
Wheelchair and accessory sales of $65.7 million in 1994 increased $3.9
million or 6% from 1993. The 1992 relocation of the Company's primary
domestic manufacturing facility from California to Missouri and the related
production and delivery problems negatively affected sales during 1993.
Shipments during 1993 were further negatively impacted by complications
arising out of a major computer system implementation which occurred in
October, 1993. The majority of the problems associated with the computer
system conversion have since been rectified. The domestic wheelchair order
rate demonstrated improvement throughout 1994 as operations in Missouri
stabilized..
Sales of Smith & Davis homecare beds of $10.7 million in 1994 decreased
$0.7 million or 6% from 1993; due primarily to increased competition and
price erosion. Sales of the Institutional Business for 1993 approximated
$17 million. This business was not included in the Company's consolidated
results of operations for 1994.
Total Company gross profit increased $2.9 million or 27% from $10.7
million in 1993 to $13.6 million in 1994. The increase in gross profit
reflected manufacturing efficiencies experienced in the wheelchair
operations as operations stabilized subsequent to the 1992 relocation of
wheelchair manufacturing to Missouri. Gross profit was adversely affected
during the fourth quarter of 1994 by a $3.0 million charge to reserves for
product liability, workers' compensation claims and inventory cost
adjustments. As a percentage of sales, gross profit increased from 11% in
1993 to 17% in 1994.
Operating expenses decreased $25.2 million from $46.0 million in 1993
to $20.8 million in 1994. This decrease is primarily due to a $9.7 million
charge relating to in-process research and development expenses (selling
expenses) recorded during 1993 pursuant to the Company's acquisition of
Medical Composite Technology, Inc., a $2.0 million charge recorded during
1993 for anticipated costs of environmental remediation, and a $2.4 million
charge recorded during 1993 for severance obligations and other cost
reductions implemented during 1994. Additionally, during 1994 $1.7 million
was charged to restructuring reserves relating to General and
Administrative expenses allocated to the Institutional Business.
Restructuring expenses recorded during 1993 of $15.1 million primarily
relate to losses anticipated on the disposition of the Company's
Institutional Business.
Interest expense decreased to $2.6 million in 1994 from $5.1 million in
1993 due primarily to the fourth quarter 1993 conversion of $75 million of
debt and accrued interest to equity. See Note 6 -- Debt Restructuring and
Conversion of the Notes to the Consolidated Financial Statements included
in Item 8 of this Form 10-K.
1993 versus 1992
1993 revenues decreased $12.6 million or 12% to $94.5 million from
$107.1 million in 1992. Wheelchair and accessory sales of $61.8 million in
1993 decreased $3.6 million or 6% from 1992. The relocation of the
Company's primary domestic manufacturing facility from California to
Missouri and the related production and delivery problems and declining
orders negatively affected sales from mid-1992 forward. Shipments during
1993 were further negatively impacted by complications arising out of a
major computer system implementation which occurred in October, 1993. The
majority of the problems associated with the relocation and the computer
system conversion have since been rectified.
Sales of Smith & Davis homecare beds in 1993 decreased $0.2 million or
2% from 1992; sales of institutional beds and accessories in 1993 decreased
$6.7 million or 28% from 1992, for an aggregate decrease in bed and
accessory sales of $6.9 million for 1993 or 19% from the prior year. In
management's opinion, the decrease in Smith & Davis' institutional bed and
related equipment sales as compared to 1992 was representative of
conditions in the institutional durable medical equipment market as a
whole. 1993 sales of Smith & Davis oxygen concentrators and other products
decreased $2.1 million or 38% compared to the prior year due principally to
a reduction in purchases by the largest oxygen concentrator customer.
Total Company gross profit decreased $6.6 million or 38% from $17.3
million in 1992 to $10.7 million in 1993. The decrease in gross profit
reflected the decrease in sales, manufacturing inefficiency experienced in
the wheelchair operations, and continued price competition in the markets
for the Company's wheelchairs and bed products. Gross profit was also
adversely affected by a $1.0 million charge to reserves for excess and
obsolete inventory, which arose due to the Company discontinuing certain
wheelchair models. As a percentage of sales, gross profit decreased from
16% in 1992 to 11% in 1993. This decrease reflects increased price
competition and production problems experienced since mid-1992.
Operating expenses increased $18.5 million from $27.5 million in 1992
to $46.0 million in 1993. This increase is primarily due to a $9.7 million
charge relating to in-process research and development expenses (selling
expenses) recorded during 1993 pursuant to the Company's acquisition of
Medical Composite Technology, Inc., a $2.0 million charge recorded during
1993 for anticipated costs of environmental remediation, and a $2.4 million
charge recorded during 1993 for severance obligations. Restructuring
expenses recorded during 1993 of $15.1 million primarily relate to losses
anticipated on the disposition of the Company's Institutional Business.
Interest expense increased to $5.1 million in 1993 from $5.0 million in
1992 due to increased borrowings during 1993. Such borrowings were
substantially reduced due to the fourth quarter conversion of $75 million
of debt and accrued interest to equity. See Note 6 -- Debt Restructuring
and Conversion of the Notes to the Consolidated Financial Statements
included in Item 8 of this Form 10-K.
During 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 a material impact on the consolidated financial statements.
The income tax benefits of $1.7 million in 1992 reflected the
settlement of certain disputed items with the California Franchise Tax
Board.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity are cash provided from
operations and borrowings. At December 31, 1994, the Company had $0.5
million in cash or $1.4 million less than the $1.9 million in cash at
December 31, 1993. At December 31, 1994, total debt of $42.6 million was
$12.3 million higher than the $30.3 million in debt at December 31, 1993.
The debt conversion transaction in 1993 resulted in conversion of $75
million of indebtedness and accrued interest to $55 million of Common Stock
and $20 million of Series C Preferred Stock. Prior to such debt conversion
transaction, the indebtedness had increased during 1993 due to advances
from BIL in the amount of $37.8 million, which were used to fund operating
losses and previously accrued restructuring expenses and to repay $5.7
million to The Hongkong and Shanghai Banking Corporation Limited -- Chicago
Branch ("HSBC"). During 1994 BIL advanced the Company an additional $13.7
million, which was used to fund operating losses and previously accrued
restructuring expenses.
On September 30, 1992 the Company entered into a $20 million Revolving
Credit Agreement with HSBC. Proceeds from this credit facility were used
to repay $11 million of existing loans, to fund restructuring expenses, to
replace existing letters of credit and for working capital purposes. 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. According to its original terms, the
total amount available under the facility was to reduce from $20 million to
$15 million on March 31, 1993. Pursuant to an amendment dated as of March
30, 1993, HSBC agreed to maintain the total amount available under the
facility at $20 million through the expiration date of the facility,
September 30, 1993. 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 (see Note 6 -- Debt Restructuring and
Conversion, and Note 7 -- Debt of the Notes to the Consolidated Financial
Statements included in Item 8 of this Form 10-K). Furthermore, as of
September 30, 1994, HSBC and E&J Inc. agreed to amend the HSBC facillity
and extend its term for approximately two years. 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. On October 8, 1993,
E&J Inc. repaid a $10 million loan from Mercantile Bank by utilizing $10
million of cash advances from the HSBC facility. The Mercantile Bank loan
had been collateralized by a $10 million letter of credit issued by HSBC as
part of the original $20 million credit facility.
At December 31, 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.
12/31/94 12/31/93
Balance Balance
Debt Agreement $ Millions $ Millions Repayment Date
-------------- ---------- ---------- --------------
Revolving Promissory Note 18.5 4.8(1) Revolving
to BIL Promissory Note
matures June 30,
1995 & thereafter
HSBC Revolving Credit Agreement (2)10.0 10.0 September 30, 1996
Accrued, unpaid interest due BIL 1.0 0.2
----- -----
TOTAL $29.5 $15.0
(1)Effective September 30, 1993, substantial portions of the debt
to BIL were restructured by the Company issuing the following
notes:
9/30/93 Balance 12/31/93 Balance
$ millions $ millions
--------------- ----------------
Common Stock Note 45.0 $ --
Preferred Stock Note 20.0 --
Revolving Promissory Note 6.8 4.8
----- -----
TOTAL $71.8 $4.8
The balance of the Revolving Promissory Note increased to $14.8
million in the fourth quarter of 1993, and $10 million was
transferred to the Common Stock Note. The Common Stock Note and
the Preferred Stock Note were each converted into Common Stock
and Series C Preferred Stock, respectively, as of December 31,
1993. See Note 6 - Debt Restructuring and Conversion of the
Notes to the Consolidated Financial Statements included in Item 8
of this Form 10-K.
(2)Excludes approximately $5.1 million and $3.7 million committed
with respect to outstanding letters of credit at December 31,
1994 and December 31, 1993, respectively.
The Company entered into a debt conversion agreement as of September
30, 1993 with BIL whereby $65 million of the indebtedness due BIL 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 the Company's revolving promissory note with
BIL. See Note 6 -- Debt Restructuring and Conversion of the Notes to the
Consolidated Financial Statements in Item 8 of this Form 10-K for a
discussion of the debt conversion transaction.
BIL agreed, upon stockholder approval of the debt conversion
transaction and related recapitalization proposals, to advance to E&J Inc.
an additional $10 million. Such advance by BIL to E&J Inc. resulted in an
increase in the principal amount of the Common Stock Note from $45 million
to $55 million and a decrease in the balance of BIL's revolving promissory
note to $4.8 million effective as of December 31, 1993.
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 BIL's revolving promissory note. As of December
31, 1994, this facility was completely utilized and an additional $6.0
million had been advanced to the Company and E&J Inc. by BIL under such
note. BIL has agreed to extend the due date of $12.0 million of such debt
to September 30, 1996. Accordingly, $6.5 million is due BIL on June 30,
1995. It is anticipated that proceeds from the sale of the Institutional
Business will be used primarily to reduce debt. The Company is currently
exploring alternative financing from outside sources as a fallback should
additional financing be needed for 1995.
In July, 1991, the Company obtained a three-year $13 million secured
credit line for its Smith & Davis subsidiary which is secured by
substantially all of the subsidiary's assets. In February, 1993 this
credit line was amended to increase the availability of funding to the
Company and reduce the borrowing costs thereunder. At December 31, 1994
Smith & Davis had borrowed $4.1 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, of which $4.2 million was borrowed as of
December 31, 1994. During June, 1994 the Company's Mexican subsidiary
obtained a credit facility in the aggregate of $1.5 million, on which $0.9
million was borrowed as of December 31, 1994.
At December 31, 1994 the Company owed $21.4 million to banks and other
commercial lenders, $2.7 million under capitalized lease obligations, and
$18.5 million to BIL.
The Company's 1994 and 1993 revenues and operating results were
negatively impacted by ongoing price competition, liquidity constraints and
the relocation in 1992 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, computer system problems and inventory imbalances in the
wheelchair manufacturing operations adversely impacted revenues, operating
income and cash flow throughout 1994. Management continues to address the
Company's problems with manufacturing and shipment delays. Additionally,
the Company has addressed the rationalization of the its production
facilities and the increased outsourcing of products and product
components, which the Company expects will lower its production costs.
Order rates, margins and market share must increase, production and
operating costs must be further reduced and customer confidence must
continue to be restored if the Company is to generate the cash flow
necessary to fund its debt service and operations on a continuing basis and
to achieve profitability. Although the Company has programs in place which
are designed to address these issues, there is no assurance that such
programs will achieve their objectives.
With respect to its wheelchair and homecare bed products, the Company
anticipates severe price and product competition for the foreseeable
future.
Management believes that the Company's domestic and international
manufacturing capacity is sufficient to meet anticipated demand for the
foreseeable future. Capital expenditures of approximately $1.4 million are
projected for 1995 versus actual expenditures of $1.5 million in 1994. The
Mexican peso has resulted in lower manufacturing costs for the Company's
Mexico subsidiary. Although this operation is immaterial at this time, the
Company plans to take advantage in the future of this lower cost source of
production for domestic operations.
No dividends on the Company's Common Stock were paid in either 1994 or
1993. Management does not currently anticipate paying cash dividends on
its Common Stock in the foreseeable future. The determination of future
cash dividends to be declared and paid on the Common Stock, if any, will
depend upon the Company's financial condition, earnings and cash flow from
operations, the level of its capital expenditures, its future business
prospects and other factors that the Board of Directors deems relevant.
The Company is currently prohibited from paying cash dividends on its
Common Stock under covenants contained in the debt agreements with its
principal lenders.
Net Operating Loss Carryforwards
The Company and certain subsidiaries file consolidated federal income
and combined state tax returns. For federal income tax purposes, as of
December 31, 1994, the Company has net operating loss (NOL) carryforwards
of approximately $113 million and tax credit carryforwards of approximately
$1 million that expire in 1997 through 2009. In accordance with the
Internal Revenue Code, when certain changes in company ownership occur,
utilization of NOL carryforwards is limited. The Company has determined
that there has been a change in ownership due to the various debt and
equity transactions consummated with BIL as described in Note 7 -- Debt of
the Notes to the Consolidated Financial Statements. As a result,
approximately $88.5 million of the Company's NOL carryforwards are subject
to an annual limitation of approximately $3 million. If the full amount of
that limitation is not used in any year, the amount not used increases the
allowable limit in the subsequent year.
In addition, there are approximately $7 million and $6 million,
respectively, of preacquisition NOL carryforwards generated by Smith &
Davis and MCT with expiration dates through 2004. Annual utilization of
these NOLs is limited to $0.6 million for Smith & Davis and $0.5 million
for MCT to reduce that entity's future contribution to consolidated taxable
income.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT ACCOUNTANTS
To The Board of Directors and Stockholders
of Everest & Jennings International Ltd.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of stockholders' deficit and
of cash flows present fairly, in all material respects, the financial
position of Everest & Jennings International Ltd. and its subsidiaries at
December 31, 1994 and 1993, and the results of their operations and their
cash flows for the three years ended December 31, 1994, in conformity with
generally accepted accounting principles. These consolidated financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these consolidated financial
statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the consolidated financial statements, assessing
the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion
expressed above.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed
in Note 1 to the consolidated financial statements, the Company has
suffered recurring losses from operations and has a net capital deficiency
that raise substantial doubt about its ability to continue as a going
concern. Management's plans in regard to these matters are also described
in Note 1. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
As discussed in Note 13 to the consolidated financial statements, the
Company is a defendant in a class action lawsuit alleging federal
securities laws violations. The suit had previously been dismissed;
however, the matter is currently under appeal with the final resolution
pending. The ultimate outcome of the lawsuit cannot presently be
determined.
PRICE WATERHOUSE LLP
St. Louis, Missouri
March 17, 1995
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands except per-share data)
Year Ended December 31
----------------------
1994 1993 1992
---- ---- ----
Revenues $79,438 $94,459 $107,115
Cost of sales 65,888 83,825 89,816
_______ _______ _______
Gross profit 13,550 10,634 17,299
_______ _______ _______
Selling expenses 12,448 18,777 17,135
General and administrative expenses 6,519 16,441 9,275
Research & development expenses
(Note 5) 1,885 10,764 1,167
Restructuring expenses (Note 2) -- 15,104 5,150
_______ _______ _______
Total operating expenses 20,852 61,086 32,727
_______ _______ _______
Loss from operations (7,302) (50,452) (15,428)
_______ _______ _______
Other expense:
Interest expense, BIL (Note 7) (897) (2,585) (2,272)
Interest expense, other (1,722) (2,487) (2,709)
Loss on sale of European
operations (Note 3) -- -- (240)
_______ _______ _______
Other expense, net (2,619) (5,072) (5,221)
_______ _______ _______
Loss from operations before
income taxes (9,921) (55,524) (20,649)
Income tax provisions (benefits)
(Note 8) (162) 173 (1,737)
_______ _______ _______
Net loss $ (9,759) $(55,697) $(18,912)
Loss per share $(0.14) $(5.96) $(2.07)
Weighted average number of
Common Shares outstanding 72,201,207 9,343,868 9,146,000
The accompanying Notes are an integral part of these
Consolidated Financial Statements
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
ASSETS
December 31 December 31
1994 1993
----------- ----------
CURRENT ASSETS:
Cash and cash equivalents $ 513 $ 1,872
Accounts receivable, less allowance
for doubtful accounts of $2,088
in 1994 and $1,506 in 1993 (Note 4) 18,894 15,820
Inventories (Notes 4 and 9) 20,449 17,691
Assets held for sale (Notes 1 and 4) 11,289 12,186
Other current assets 1,444 1,621
______ ______
Total current assets 52,589 49,190
______ ______
PROPERTY, PLANT AND EQUIPMENT (Note 4):
Land 237 279
Buildings and improvements 4,056 4,138
Machinery and equipment 14,636 13,661
______ ______
18,929 18,078
Less accumulated depreciation and
amortization (10,994) (9,573)
______ ______
Property, plant and equipment, net 7,935 8,505
INTANGIBLE ASSETS, NET (Note 3) 710 1,007
OTHER ASSETS 335 515
______ ______
TOTAL ASSETS $61,569 $59,217
The accompanying Notes are an integral part of these
Consolidated Financial Statements
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands except per-share data)
LIABILITIES AND STOCKHOLDERS' DEFICIT
December 31 December 31
1994 1993
----------- ----------
CURRENT LIABILITIES:
Short-term borrowings and current
installments of long-term debt of
$1,984 in 1994 and $1,562 in 1993
(Note 7) $11,155 $21,683
Short-term borrowings from BIL (Note 7) 6,503 --
Accounts payable 11,958 8,259
Accrued payroll costs 7,900 9,775
Accrued interest, BIL (Note 7) 960 185
Accrued expenses 9,697 10,871
Accrued restructuring expenses
(Notes 1 and 2) 4,476 6,292
______ ______
Total current liabilities 52,649 57,065
______ ______
LONG-TERM DEBT, NET OF CURRENT PORTION
(Note 7) 12,968 3,811
LONG-TERM BORROWINGS FROM BIL (Note 7) 12,000 4,802
OTHER LONG-TERM LIABILITIES 133 547
COMMITMENTS AND CONTINGENCIES (Note 13)
STOCKHOLDERS' DEFICIT (Notes 6 and 10):
Series A Convertible Preferred Stock 12,087 11,089
Series B Convertible Preferred Stock 1,317 1,317
Series C Convertible Preferred Stock 20,000 20,000
Single Class Common Stock, par value:
$.01; authorized 120,000,000 shares 722 722
Additional paid-in capital 105,595 105,578
Accumulated deficit (153,228) (142,449)
Minimum pension liability adjustment (1,812) (2,606)
Cumulative translation adjustments (862) (659)
______ ______
Total stockholders' deficit (16,181) (7,008)
______ ______
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $61,569 $59,217
The accompanying Notes are an integral part of these
Consolidated Financial Statements
EVEREST & JENNINGS INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE THREE-YEAR PERIOD ENDED DECEMBER 31, 1994
(Dollars in thousands)
Series A Series B
Convertible Convertible Class A Class B
Preferred Stock Preferred Stock Common Stock Common Stock
Shares Amount Shares Amount Shares Amount Shares Amount
Balance at December 31, 1991 -- $ -- -- $ -- 6,792,852 $68 2,353,427 $24
Series A Convertible Preferred
Stock issued upon conversion
of a convertible note payable 5,850,380 9,797 -- -- -- -- -- --
Pay-in-kind dividends on Series A
Convertible Preferred Stock 225,039 377 -- -- -- -- -- --
Reclassification of value of
Series B Convertible Preferred
Stock as of December 31, 1991 -- -- 759,542 1,272 -- -- -- --
Adjustment to actual number of
shares of Series B Convertible
Preferred Stock issued -- -- 26,815 45 -- -- -- --
Net loss -- -- -- -- -- -- -- --
Translation adjustments -- -- -- -- -- -- -- --
-------- ------ ------ ----- -------- --- -------- ---
Balance at December 31, 1992 6,075,419 $10,174 786,357 $1,317 6,792,852 $68 2,353,427 $24
The accompanying Notes are an integral part of these Consolidated
Financial Statements
EVEREST & JENNINGS INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE THREE-YEAR PERIOD ENDED DECEMBER 31, 1994
(Dollars in thousands)
(continued)
Additional Accumu- Cumulative
Paid-in lated Translation
Capital Deficit Adjustments Total
Balance at December 31, 1991 $44,980 $(66,296) $(229) $(21,453)
Series A Convertible Preferred
Stock issued upon conversion
of a convertible note payable -- -- -- 9,797
Pay-in-kind dividends on Series A
Convertible Preferred Stock -- (377) -- --
Reclassification of value of
Series B Convertible Preferred
Stock as of December 31, 1991 (1,272) -- -- --
Adjustment to actual number of
shares of Series B Convertible
Preferred Stock issued -- -- -- 45
Net loss -- (18,912) -- (18,912)
Translation adjustments -- -- (275) (275)
------ ------- ----- ------
Balance at December 31, 1992 $43,708 $(85,585) $(504) $(30,798)
The accompanying Notes are an integral part of these Consolidated
Financial Statements
EVEREST & JENNINGS INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE THREE-YEAR PERIOD ENDED DECEMBER 31, 1994
(Dollars in thousands)
(continued)
Series A Series B Series C
Convertible Convertible Convertible Class A(1) Class B(1)
Preferred Stock Preferred Stock Preferred Stock Common Stock Common Stock
Shares Amt Shares Amt Shares Amt Shares Amt Shares Amt
Balance at December 31, 1992 6,075,419 $10,174 786,357 $1,317 -- $ -- 6,792,852 $68 2,353,427 $24
Common Stock Issued -- -- -- -- -- -- 53,333 -- -- --
Reclassification of Common
Stock (1) -- -- -- -- -- 2,353,427 24 (2,353,427) (24)
Preferred Stock Issued --
Debt Conversion -- -- -- -- 20,000,000 20,000 -- -- -- --
Common Stock Issued --
Debt Conversion -- -- -- -- -- -- 55,000,000 550
Stock Issuance Costs --
Debt Conversion -- -- --
Common Stock Issued --
MCS Acquisition -- -- -- 8,000,000 80
Pay-in-kind dividends on Series
A Convertible Preferred Stock 546,787 915 -- -- -- -- -- --
Net loss -- -- -- -- -- --
Adjustment for Pension Liability -- -- -- -- -- --
Translation adjustments -- -- -- -- -- --
--------- ------- ------- ------ --------- ------- ---------- --- ---- ---
Balance at December 31, 1993 6,622,206 $11,089 786,357 $1,317 20,000,000 $20,000 72,199,612 $722 -0- -0-
<FN>
(1) Effective November 18, 1993, Class A Common Stock and Class B Common
Stock were combined into a single class Common Stock
</FN>
The accompanying Notes are an integral part of these Consolidated Financial
Statements
EVEREST & JENNINGS INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE THREE-YEAR PERIOD ENDED DECEMBER 31, 1994
(Dollars in thousands)
(continued)
Minimum
Additional Accumu- Pension Cumulative
Paid-in lated Liability Translation
Capital Deficit Adjustments Adjustments Total
Balance at December 31, 1992 $43,708 $(85,585) -- $(504) $(30,798)
Common Stock Issued -- -- -- -- --
Reclassification of Common Stock (1) -- -- -- -- --
Preferred Stock Issued --
Debt Conversion -- -- -- -- 20,000
Common Stock Issued --
Debt Conversion 54,450 -- -- -- 55,000
Stock Issuance Costs --
Debt Conversion (500) -- -- -- (500)
Common Stock Issued --
MCS Acquisition 7,920 -- -- -- 8,000
Pay-in-kind dividends on Series A
Convertible Preferred Stock -- (1,167) -- -- (252)
Net loss -- (55,697) -- -- (55,697)
Adjustment for Pension Liability -- -- (2,606) -- (2,606)
Translation adjustments -- -- -- (155) (155)
------ -------- ------- ----- -----
Balance at December 31, 1993 $105,578 $(142,449) $(2,606) $(659) $(7,008)
<FN>
(1) Effective November 18, 1993, Class A Common Stock and Class B Common
Stock were combined into a single class Common Stock
</FN>
The accompanying Notes are an integral part of these Consolidated
Financial Statements
EVEREST & JENNINGS INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE THREE-YEAR PERIOD ENDED DECEMBER 31, 1994
(Dollars in thousands)
(continued)
Series A Series B Series C
Convertible Convertible Convertible
Preferred Stock Preferred Stock Preferred Stock Common Stock
Shares Amt Shares Amt Shares Amt Shares Amt
Balance at December 31, 1993 6,622,206 $11,089 786,357 $1,317 20,000,000 $20,000 72,199,612 $722
Common Stock Issued for
Exercised Stock Options -- -- -- -- -- -- 58,200 --
Pay-in-kind dividends on
Series A Convertible
Preferred Stock 595,998 998 -- -- -- -- -- --
Net loss -- -- -- -- -- --
Adjustment for Pension Liability -- -- -- -- -- --
Translation adjustments -- -- -- -- -- --
--------- ------- ------- ------ --------- ------- ---------- ---
Balance at December 31, 1994 7,218,204 $12,087 786,357 $1,317 20,000,000 $20,000 72,257,812 $722
The accompanying Notes are an integral part of these Consolidated Financial
Statements
EVEREST & JENNINGS INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE THREE-YEAR PERIOD ENDED DECEMBER 31, 1994
(Dollars in thousands)
(continued)
Minimum
Additional Accumu- Pension Cumulative
Paid-in lated Liability Translation
Capital Deficit Adjustments Adjustments Total
Balance at December 31, 1993 $105,578 $(142,449) $(2,606) $(659) $(7,008)
Common Stock Issued for
Exercised Stock Options 17 -- -- -- 17
Pay-in-kind dividends on Series A
Convertible Preferred Stock -- (1,020) -- -- (22)
Net loss -- (9,759) -- -- (9,759)
Adjustment for Pension Liability -- -- 794 -- 794
Translation adjustments -- -- -- (203) (203)
------ -------- ------- ----- -----
Balance at December 31, 1994 $105,595 $(153,228) $(1,812) $(862) $(16,181)
The accompanying Notes are an integral part of these Consolidated
Financial Statements
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Year Ended December 31
----------------------
1994 1993 1992
---- ---- ----
Cash flows from operating activities:
Net loss $ (9,759) $(55,697) $(18,912)
Adjustments to reconcile net loss to
cash used in operating activities:
Depreciation and amortization 1,978 2,637 2,736
Charge for in-process R&D on MCT
acquisition -- 9,764 --
Restructuring expenses (Note 2):
Reserve on disposition of Smith &
Davis institutional business -- 13,000 --
Net increase (decrease) in certain
accrued expenses (2,262) 245 (8,048)
Loss on sale of certain fixed assets -- -- 356
Loss on sale of European operations (
Note 3) -- -- 240
Loss on sale of assets held for sale -- -- 127
Changes in operating assets and
liabilities net of effects of
the 1993 MCT acquisition (Note 5):
Accounts receivable (1,800) (1,652) 1,245
Inventories (2,329) 2,336 (507)
Accounts payable 3,699 (9,268) (709)
Accrued interest, BIL 775 2,409 1,820
Accrued expenses and income taxes (2,277) 1,421 (2,623)
Other, net (140) 817 (759)
______ ______ ______
Cash used in operating activities (12,115) (33,988) (25,034)
______ ______ ______
Cash flows from investing activities:
Capital expenditures (1,463) (955) (3,364)
MCT acquisition, net of cash acquired -- (1,833) --
Proceeds from sale of European operations,
net of expenses and settlement of
intercompany accounts (Note 3) -- -- 1,544
Proceeds from sale of assets held for sale -- -- 12,633
Proceeds from sale of certain fixed assets -- -- 38
______ ______ ______
Cash used in investing activities (1,463) (2,788) 10,851
______ ______ ______
Cash flows from financing activities:
Advances from BIL (Note 7) 13,701 45,795 24,000
Repayments to BIL (Note 7) -- -- (22,082)
Decrease in short-term
and long-term borrowings, net (1,371) (6,326) 11,479
Costs pertaining to equity conversion -- (500) --
Issuance of Common Stock 17 -- --
Changes in other long-term liabilities -- (311) (66)
______ ______ ______
Cash provided by financing activities 12,347 38,658 13,331
______ ______ ______
Effect of exchange rate changes on
cash flows (128) (155) (135)
______ ______ ______
Increase (decrease) in cash balance (1,359) 1,727 (987)
Cash and cash equivalents at beginning
of year 1,872 145 1,132
______ ______ ______
Cash and cash equivalents at end of year $ 513 $ 1,872 $ 145
Supplemental cash flow information:
Cash paid for interest $1,675 $2,611 $2,128
Cash paid for income taxes 142 164 55
The accompanying Notes are an integral part of these
Consolidated Financial Statements
Supplemental information for noncash financing and investing activities:
As of March 17, 1992, $9,797 of debt and accrued interest was converted
by BIL into 5,850,380 shares of Series A Convertible Preferred Stock.
Effective as of December 31, 1993, the Common Stock Note in the
principal amount of $55,000 was converted into 55,000,000 shares of Common
Stock and the Preferred Stock Note in the principal amount of $20,000 was
converted into 20,000,000 shares of Series C Convertible Preferred Stock.
In accordance with SFAS No. 87, the Company recorded an additional
minimum pension liability for underfunded plans of $2,606 at December 31,
1993 (Note 11). This amount was adjusted to $1,812 at December 31, 1994.
During 1993, the Company entered into new capital lease agreements of
$2,465 for a new computer and phone system.
The accompanying Notes are an integral part of these
Consolidated Financial Statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except as noted and per-share data)
NOTE 1 -- CORPORATE RESTRUCTURING
Everest & Jennings International Ltd. ("E&J" or the "Company") through
its subsidiaries manufactures wheelchairs and homecare, nursing home and
hospital beds and institutional casegoods. Effective in the fourth quarter
of 1993, the Company adopted a plan to dispose of Smith & Davis' hospital
and nursing home bed and institutional casegoods businesses (the
"Institutional Business") and recorded a reserve of $13 million to write
down the assets of the Institutional Business to their estimated net
realizable values and for the estimated operating losses during the phase
out period and the estimated costs of disposition. See Note 2 -
Restructuring Expenses and Note 4 - Assets Held for Sale of the Notes to
the Consolidated Financial Statements. Pursuant to an Asset Purchase
Agreement dated February 15, 1995, the Company has agreed to sell the
Institutional Business. Subsequent thereto, the Company will be comprised
of two principal products groups: wheelchairs and homecare beds.
Since 1989 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 to date 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 1992 the
Company relocated its corporate headquarters and principal wheelchair
manufacturing operations from California to Missouri. The relocation
facilitated the consolidation of corporate offices and other key
administrative, sales/marketing, and technical functions with existing
Company operations in the St. Louis area. In October, 1993, the Company
transferred its data operations from California to Missouri, which
represented the final step in the Company's relocation. Additionally, the
Company continues to analyze its cost structure and operating efficiencies
for potential savings.
At January 1, 1992, the Company owed Security Pacific National Bank
(the "Bank") approximately $22.7 million ("Bank Loan") under a First
Amended and Restated Credit Agreement (the "Agreement") dated August 30,
1991. In order to facilitate the relocation process to Missouri, on
February 21, 1992, BIL (Far East Holdings) Limited ("BIL"), currently the
Company's majority stockholder, acquired all of the Bank's rights ("Bank
Interest") in the Agreement. In connection with the acquisition by BIL of
the Bank Interest, BIL agreed (a) to permit the Company to consolidate its
U.S. manufacturing facilities, corporate headquarters and administrative
functions in Missouri, (b) to permit the Company to borrow additional funds
and to obtain letters of credit from a lender other than BIL as necessary
for consolidation and for working capital, and (c) to release or
subordinate its security interests under the Agreement to allow the Company
to obtain financing from a third party lender for working capital and to
effect and facilitate the consolidation of operations and corporate
headquarters in Missouri.
In anticipation of the Company receiving additional financing from a
third party lender, BIL advanced the Company $18 million through October 1,
1992. These funds were used by the Company to finance, in part, the
relocation and the restructuring as well as for working capital purposes.
On September 30, 1992, the Company finalized a $20 million revolving
credit facility with The Hongkong and Shanghai Banking Corporation Limited
- Chicago Branch ("HSBC"). The repayment of the HSBC facility has been
guaranteed by Brierley Investments Limited, an affiliate of BIL. From the
proceeds of the HSBC facility, $11 million was utilized to repay advances
(described in the preceding paragraph) made by BIL during the second and
third quarters of 1992. The remaining proceeds were used to fund
restructuring expenses, to replace existing letters of credit and for
working capital purposes.
Through September 30, 1993, BIL provided the Company with $43.3 of
additional funding beyond the amounts available under the HSBC credit line.
As of September 30, 1993, the Company and BIL entered into a Debt
Conversion Agreement, which provided, in part, for the conversion of
$75,000,000 of short-term indebtedness and accrued interest into equity.
See Note 6 -- Debt Restructuring and Conversion. From October 1, 1993 to
December 31, 1994, BIL advanced $21.8 million to the Company to fund
operating losses and previously accrued restructuring charges. See Note 7
-- Debt for details as to the Company's indebtedness to BIL and other
lenders. At December 31, 1994, the total amount of outstanding advances
from BIL was $18.5.
The Company's 1994 and 1993 revenues and operating results were
negatively impacted by ongoing price competition, liquidity constraints and
the relocation in 1992 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, computer system problems and inventory imbalances in
manufacturing operations adversely impacted revenues, operating income and
cash flow throughout 1994. Management continues to address the Company's
problems with manufacturing and shipment delays. Additionally, the Company
has addressed the rationalization of its production facilities and the
increased outsourcing of products and product components, which the Company
expects will lower its production costs. Order rates, margins and market
share must increase, production and operating costs must be further reduced
and customer confidence must continue to be restored if the Company is to
generate the cash flow necessary to fund its debt service and operations on
a continuing basis and to achieve profitability. Although the Company has
programs in place which are designed to address these issues, there is no
assurance that such programs will achieve their objectives.
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 December 31, 1994. No assurance can be
made that the Company will successfully emerge from or complete its
restructuring activities.
NOTE 2 -- RESTRUCTURING EXPENSES
As disclosed in Note 1, the Company has agreed to sell the
Institutional Business. At December 31, 1993 the Company had prepared
estimates of the net realizable value of related assets to be sold (see
Note 4 -- Assets Held for Sale) and other costs directly associated with
the decision to dispose of such business along with incurred operating
losses until the business was sold. No additional provision was required
to the amount discussed below which was recorded in 1993 relative to the
disposal of the Institutional Business. It is anticipated that proceeds
from the sale of the Institutional Business will be used primarily to
reduce debt.
During the fourth quarter of 1993, the Company recorded $15.1 million
in connection with the consolidation of manufacturing and distribution
facilities in the United States and Canada ($2.1 million) and the sale of
the Smith & Davis Institutional Business ($13 million). The charge with
respect to the manufacturing and distribution facilities primarily relates
to the termination of various facilities leases. The amount recorded for
the sale of the Institutional Business is as follows:
Reduction of assets to estimated
net realizable values $10.0 million
Estimated operating losses during
phase-out period 1.3 million
Disposal costs, including
transaction costs 1.7 million
-------------
$13.0 million
The reduction of assets to estimated net realizable value is mainly
attributable to intangible assets and property, plant and equipment.
During 1992 the Company recorded charges of $5.2 million in connection
with the restructuring and relocation process. This charge was related and
incremental to the $18.5 million recorded in 1991. It reflected higher
than originally anticipated costs primarily in the areas of 1) duplication
of employees and facilities in both California and Missouri during the
relocation process; 2) production inefficiencies in California operations
due to the loss of skilled employees after the relocation announcement and
the subsequent hiring of temporary employees as replacements; 3) production
and startup inefficiencies in the St. Louis facility due to the large
number of new and temporary employees hired and trained; 4) interest
expense of $0.5 million on incremental borrowings required to finance the
relocation and related inventory buildup; and 5) provision for potential
scrap and physical inventory losses related to the relocation. A portion
of the original restructuring reserve not utilized for other purposes was
also allocated to provide for the termination of the contracts between the
Company and certain independent manufacturer's representative
organizations.
NOTE 3 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include
the accounts of the Company and its subsidiaries. The Company's principal
subsidiaries include Everest & Jennings, Inc. located in St. Louis,
Missouri; Everest & Jennings Canadian Limited located in Toronto, Canada;
Everest & Jennings de Mexico, S.A. de C.V. located in Guadalajara, Mexico;
and Smith & Davis Manufacturing Company, which was acquired by the Company
in 1990 and is also located in St. Louis, Missouri. All significant
intercompany accounts and transactions have been eliminated.
CASH AND CASH EQUIVALENTS: The Company considers all highly liquid short-
term investments with original maturities of three months or less to be
cash equivalents and, therefore, includes such investments as cash and cash
equivalents in its consolidated financial statements.
VALUATION OF INVENTORIES: Inventories are stated at the lower of cost,
determined by the first-in, first-out (FIFO) method, or market. Inventory
costs consist of material cost, labor cost and manufacturing overhead.
PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment are carried
at cost except for certain assets held for sale which have been written
down in value in anticipation of being sold (see Note 2 -- Restructuring
Expenses). Provisions for depreciation and amortization are determined
using the straight-line method based upon the estimated useful life of the
asset, with asset lives ranging from one to twenty years. Leasehold
improvements are amortized over the life of the related lease.
INVESTMENT IN JOINT VENTURE: On August 15, 1990, the Company entered into
a joint venture agreement with an Indonesian company. The Company
contributed fixed assets valued at $300 to the joint venture in exchange
for 30% of the joint venture's outstanding common stock. Due to continued
losses experienced by the joint venture, the Company wrote off this
investment in 1993.
EXCESS OF INVESTMENT OVER NET ASSETS ACQUIRED: Intangible assets, net,
includes primarily the excess of cost over net assets acquired (goodwill)
of Medical Composite Technology, Inc. of $900, which is being amortized
using the straight-line method over a period of three years. Goodwill
related to the 1990 acquisition of Smith & Davis Manufacturing Company,
which was being amortized over 30 years, was written off at December 31,
1993 due to the decision to dispose of the Institutional Business.
INCOME TAXES: As of January 1, 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 due 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 material impact on the consolidated financial statements of the
Company.
LOSS PER SHARE: Loss per share for each of the years in the three-year
period ended December 31, 1994 is calculated based on the weighted average
number of the combined shares of both Class A and Class B Common Stock
outstanding during the periods, and the weighted average number of shares
of single class Common Stock outstanding after November 18, 1993.
CONCENTRATION OF CREDIT RISK: The Company sells its products to customers
in the healthcare industry, primarily in North America. Third party
reimbursement through private or governmental insurance programs impacts a
significant component of the Company's business. Concentration of credit
risk with respect to trade receivables is limited due to the size of the
customer base and its dispersion. The Company performs on-going credit
evaluations of its customers and generally does not require collateral.
The Company maintains reserves for potential credit losses and such losses
have been within management's expectations.
Year Ended December 31,
-----------------------
1994 1993 1992
---- ---- ----
Net sales, durable medical products:
Wheelchairs $ 63,819 $ 61,750 $ 65,420
Beds and Accessories 9,098 29,266 36,125
Other 6,521 3,443 5,570
_______ _______ _______
$ 79,438 $ 94,459 $107,115
Export sales to unaffiliated customers by domestic operations in the
United States are not significant. No single customer accounts for 10% or
more of the consolidated revenues.
FOREIGN CURRENCY TRANSLATION: The financial statements of the Company's
foreign subsidiaries are translated into U.S. dollars in accordance with
the provisions of SFAS No. 52, "Foreign Currency Translation." Assets and
liabilities are translated at year-end exchange rates. Revenues and
expenses are translated at the average exchange rate for each year. The
resulting translation adjustments for each year are recorded as a separate
component of stockholders' equity. All foreign currency transaction gains
and losses are included in the determination of income and are not
significant.
CHANGE IN FISCAL YEAR END: The Company elected in December 1992 to change
its fiscal year end from the period ending Sunday nearest December 31 to a
calendar year end.
SALE OF EUROPEAN OPERATION: In 1991, the Company sold its wholly owned
German subsidiary, Ortopedia GmbH, for approximately $19.6 million
recording a $6.6 million gain while retaining a 15% interest in Ortopedia
Holding GmbH, the new parent of Ortopedia GmbH. In 1992 the Company sold
its remaining 15% interest in Ortopedia Holding GmbH for $1.5 million, at a
loss of $240.
RECLASSIFICATION: Certain reclassifications including the reclassification
of shipping and distribution costs from operating expenses to cost of sales
have been made to prior period consolidated financial statements to conform
with current period presentation. The reclassifications have no effect on
loss from operations and net loss as previously reported.
NOTE 4 -- ASSETS HELD FOR SALE
As more fully described in Notes 1 and 2, the Company has agreed to
sell the Institutional Business. Assets held for sale consist of the
following at December 31, 1994 and 1993, stated at estimated net realizable
values:
December 31, December 31,
1994 1993
------------ ------------
Institutional Business:
Accounts receivable $ 4,099 $ 4,999
Inventories 4,298 4,401
Land and buildings 1,350 1,490
Machinery & equipment 1,200 1,100
Other assets 342 196
______ ______
Total assets held for sale $11,289 $12,186
Revenues of the Institutional Business and related costs were included
in the consolidated results of the Company in years prior to 1994. The
1993 restructuring provision included an estimate of losses to be incurred
during the phase-out period. As a result, the results of operations for
1994 were aggregated and charged to accrued restructuring expenses in the
consolidated balance sheets. Revenues and net loss from operations
(unaudited) for the Institutional Business for the years ended December 31,
1994 and 1993 were as follows:
1994 1993
---- ----
Revenues $21,220 $17,335
Net loss $(1,400) $(17,310)
NOTE 5 -- 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 107,614 unvested stock options; such options are for the purchase
of the Company's Common Stock. MCT develops, designs, manufactures and
markets state-of-the-art durable medical equipment, including wheelchairs
and other medical mobility products and assistive devices.
The Acquisition was accounted for as a purchase. Of the $10.6 million
purchase price, $9.7 million of the purchase price is attributable to in-
process research and development which was expensed in the fourth quarter
of 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 has been accounted for as if it was completed on December 31,
1993. Accordingly, the Company's consolidated balance sheet as of December
31, 1994 and 1993 include the assets and liabilities of MCT. MCT's results
of operations are included in the consolidated financial statements from
the date of acquisition.
Pro forma combined results of operations (unaudited) of the Company and
MCT for the year ended December 31, 1993 are presented 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).
Net sales $ 95.4
Net loss from continuing operations (60.1)
Net loss per share (17,343,868 shares) (3.47)
NOTE 6 -- 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. to BIL pursuant to
the Agreement (as defined in Note 7), the Amended 10.5% Note (as defined in
Note 7), and the Interim Loans (as defined in Note 7). Pursuant to the
Debt Conversion Transaction, (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 lent 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 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 by HSBC 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 an 8% revolving credit facility (the "Revolving Promissory Note"); (g)
BIL and the Company and E&J Inc. entered into a 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. E&J Inc. used
$10 million under the Revolving Credit Agreement to repay a $10 million
loan from Mercantile Bank on October 8, 1993. This loan had been
collateralized by a $10 million letter of credit issued by HSBC under the
Revolving Credit Agreement. Due to such loan repayment, E&J Inc. had no
further cash availability under the Revolving Credit Agreement.
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. would result
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 scheduled to mature on March 31, 1994, bear
interest at the rate of 8% per annum from and after March 31, 1994, and was
secured by a lien on and security interest in all assets of the Company and
E&J Inc. on a pari passu basis with the repayment and other obligations of
the Company and E&J Inc. under the Preferred Stock Note, the Revolving
Promissory Note and the Indemnification Obligation. Both the Common Stock
Note and the Preferred Stock Note were subordinated to all debt borrowed by
the Company or E&J Inc. from, or the payment of which had been guaranteed
by the Company or E&J Inc. to, HSBC, the Pension Benefit Guaranty
Corporation, Congress Financial Corporation and any other financial
institution constituting a principal lender to the Company and/or E&J Inc.
The Preferred Stock Note was scheduled to mature on March 31, 1994,
bear interest at the rate of 8% per annum from and after March 31, 1994,
and was secured by a lien on and security interest in all assets of the
Company and E&J Inc. on a pari passu basis with the repayment and other
obligations of the Company and E&J Inc. under the Common Stock Note, the
Revolving Promissory Note and the Indemnification Obligation.
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 Preferred Stock Note was convertible into
a number of shares of Series C Preferred Stock (the "Series C Preferred
Stock") equal to the outstanding principal balance of that 7% 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 Common Stock Note
and 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 Recapitalization Proposals by the stockholders
of the Company; (c) the filing and effectiveness of an amendment to the
Company's Certificate of Incorporation to effect the Recapitalization
Proposals; (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; (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, accordingly, the
Common Stock Note converted into 55 million shares of Common stock and the
Preferred Stock Note converted into 20 million shares of Series C
Convertible Preferred Stock on January 12, 1994.
The effects of the conversions of both the Common Stock Note and the
Preferred Stock Note have been reflected in the consolidated financial
statements as of December 31, 1994 and 1993. No gain or loss was
recognized as a result of the Debt Conversion Transaction.
NOTE 7 -- DEBT
The Company's debt as of December 31, 1994 and 1993 is as follows:
1994 1993
---- ----
Revolving Promissory Note to BIL $ 6,503 $ 4,802
Loans payable to HSBC 10,000 10,000
Other domestic debt 8,913 10,844
Foreign debt 5,210 4,650
Long-term loan payable to BIL 12,000 --
------- -------
Total debt 42,626 30,296
Less short-term debt and current
installments of long-term debt 17,658 21,683
------- -------
Long-term debt, net of current
installments, including
Revolving Promissory Note to BIL $24,968 $ 8,613
Aggregate long-term debt maturities during each of the next five fiscal
years is as follows:
1995 $17,658
1996 23,028
1997 1,134
1998 706
1999 100
-------
$42,626
The weighted average interest rate at December 31, 1994 on outstanding
short-term borrowings of $15,058 was approximately 8%. The short-term
borrowings at December 31, 1994 are as follows:
Revolving Promissory Note to BIL $ 6,503
Congress Financial Corporation 4,072
Foreign Debt 4,407
Other Short-term Debt 76
On August 30, 1991, the Company executed a First Amended and Restated
Credit Agreement (the "Agreement") concerning the restructuring of its debt
("the Bank Loan") with Security Pacific National Bank (the "Bank"). Under
the provisions of the Agreement the payment of cash dividends to common
stockholders was prohibited. The Bank Loan was secured by essentially all
tangible and intangible assets of the Company, its principal subsidiary,
Everest & Jennings, Inc., and the stock of the Company's other
subsidiaries. On October 4, 1991, the Company sold Ortopedia GmbH and
repaid the Bank $8.3 million of its indebtedness. In November, 1991,
certain provisions of the Agreement with the Bank were amended. The
amended Agreement obligated the Company to repay its indebtedness to the
Bank by March 31, 1993. Additionally, if this indebtedness was reduced to
$13 million or less by March 31, 1993, the payment of interest at the rate
of 2.25% over prime would be waived from April 1, 1992 through March 31,
1993. The Company agreed to issue a new class of voting convertible
preferred stock to the Bank representing approximately 5% of the voting
stock of the Company. In order to facilitate the relocation process by the
Company from California to Missouri, on February 21, 1992, BIL acquired all
of the Bank's rights (the "Bank Interest") in the Agreement. The
acquisition of the Bank Loan by BIL resulted in BIL acquiring the new class
of voting Series B Convertible Preferred Stock (786,000 shares). As a
condition of the HSBC Revolving Credit Agreement, BIL subordinated the
repayment of the Bank Loan and the Amended 10.5% Note (as defined below) to
the repayment of the HSBC debt. As of March 31, 1993, BIL extended the
March 31, 1993 Bank Loan due date to June 30, 1993. As of June 30, 1993,
BIL agreed to extend the due date of the Bank Loan to September 30, 1993.
As of September 30, 1993, the Bank Loan was restructured as part of the
Debt Conversion Transaction.
In 1990 the Company borrowed $14.1 million from BIL for working capital
purposes and to complete the acquisition of five wholly-owned subsidiaries
(collectively, "Smith & Davis") of HUNTCO Manufacturing, Inc. On August
30, 1991, the Company entered into an agreement with BIL (the "Debt
Restructure Agreement") to restructure this indebtedness. The
restructuring combined the principal, accrued unpaid interest and certain
expenses into two new notes, the first (which was unsecured) in the
principal amount of $9.2 million at 9% interest (the "Amended 9% Note"),
and the second (which was secured) in the principal amount of $6.9 million
at 10.5% interest (the "Amended 10.5% Note"). In accordance with the Debt
Restructure Agreement, on October 4, 1991 the Company sold Ortopedia GmbH
and repaid BIL $3.0 million of the Amended 10.5% Note, reducing the balance
to $3.9 million. On March 17, 1992, the Company's stockholders approved
the conversion of the Amended 9% Note, including accrued interest, into
approximately 5.9 million shares of 9% Series A Voting Convertible
Preferred Stock, thereby repaying the Amended 9% Note in its entirety. The
remaining $3.9 million balance of the Amended 10.5% Note, plus accrued
interest, was required by the terms of the Debt Restructure Agreement to be
repaid by the earlier of April 1, 1993 or the date on which the Camarillo
property was sold.
On October 9, 1992 the Company sold its facility in Camarillo,
California. Under the terms of the Debt Restructure Agreement, the Company
was obligated to utilize the proceeds from this sale to repay $3 million of
the Amended 10.5% Note with the balance to be applied against the Bank
Loan. Accordingly, $3.0 million and $8.1 million, respectively, were
repaid, leaving a balance of $0.9 million on the Amended 10.5% Note and a
balance of $14.6 million on the Bank Loan. The due date of the Amended
10.5% Note was extended by BIL to June 30, 1993, and then subsequently to
September 30, 1993. As of September 30, 1993, the Amended 10.5% Note was
restructured as part of the Debt Conversion Transaction.
During 1992 BIL advanced the Company $25 million, of which $11 million
was repaid from the proceeds of the HSBC loan, leaving a net balance of $14
million as of December 31, 1992. An additional $31.1 million was advanced
on various dates through September 30, 1993, with a maturity date of one
year after the date of each respective advance. The indebtedness to BIL
carried an interest rate of 6.5% and was evidenced by various Promissory
Notes. The first $15 million of these Promissory Notes provided for
repayment upon the Company obtaining new financing. However, as noted
earlier, only $11 million of this amount was repaid and BIL amended the
terms of the $4 million balance to provide for a September 30, 1993
repayment date. The due date had previously been extended to June 30,
1993. The remaining $41.1 million of Promissory Notes outstanding at
September 30, 1993 generally had a one year term and matured on various
dates through September 30, 1994. The advances described above in this
paragraph are hereinafter referred to as "Interim Loans". As of September
30, 1993, the Interim Loans were restructured as part of the Debt
Conversion Transaction.
As of September 30, 1993, the Company entered into the Debt Conversion
Agreement with BIL whereby $75 million of the indebtedness represented by
the Bank Loan, the Amended 10.5% Note and the Interim Loans (collectively,
the "Converted BIL Debt") was restructured by the issuance of the Common
Stock Note and the Preferred Stock Note (see Note 6). 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.
During the fourth quarter of 1993, the Company additionally borrowed $8
million under the Revolving Promissory Note, bringing the total borrowings
under such Note to $14.8 million. Of these borrowings, $10 million was
transferred from the Revolving Promissory Note to the Common Stock Note,
thus leaving the Revolving Promissory Note with a balance of $4.8 million
at December 31, 1993.
During 1992 and the first nine months of 1993, the Company accrued
interest in the amount of $1.3 million and $0.8 million, respectively, on
the Bank Loan in anticipation of not being able to reduce the balance of
the Bank Loan below $13 million by the original and extended due dates.
Additionally, $0.4 million was accrued on the Amended 10.5% Note through
September 30, 1993, and $2.0 million was accrued on the Interim Loans, for
total accrued interest due BIL as of September 30, 1993 of $4.5 million.
The accrued interest due to BIL was included in the Debt Conversion
Transaction as described in Note 6.
On September 30, 1992, E&J Inc. entered into the $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. Ten million dollars of the
agreement was designated as a letter of credit to secure a 3.5% loan from
Mercantile Bank under the State of Missouri MoBucks program, which loan was
due in October, 1993 ("MoBucks Loan"). The proceeds from the MoBucks Loan
were used to reduce debt to BIL. Additionally, the HSBC facility was used
to replace then existing letters of credit, fund restructuring expenses and
for working capital purposes.
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 advance under the Revolving Credit
Agreement to repay the $10 million loan from Mercantile Bank, resulting in
no further cash availability under the Revolving Credit Agreement. As of
September 30, 1994, the term of the HSBC facility was extended for two
years.
BIL had agreed, upon stockholder approval of the Debt Conversion
Transaction and the Recapitalization Proposals, to advance to E&J Inc. $10
million to pay HSBC the cash advance made by it under the Revolving Credit
Agreement. Such advance by BIL to E&J Inc. would result in an increase in
the principal amount of the Common Stock Note from $45 million to $55
million. Subsequent to the stockholders' approval of the Debt Conversion
Transaction and the Recapitalization Proposals, BIL and E&J Inc. agreed to
transfer $10 million from the Revolving Promissory Note to the Common Stock
Note, thereby increasing the balance of the Common Stock Note to $55
million.
In connection with the MCT acquisition, a total of $2.0 million was
advanced by the Company to MCT prior to the closing of the transaction in
January, 1994. These advances have been treated as part of the purchase
price for the MCT acquisition. The advances were funded to the Company by
BIL and constituted borrowings under the Revolving Promissory Note.
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. At December 31,
1994, this facility was completely utilized. Additionally, BIL had
advanced the Company an additional $6.0 million under the Revolving
Promissory Note, bringing the total outstanding advances from BIL to the
Company at December 31, 1994 to $18.5 million. The Revolving Promissory
Note and other advances mature on June 30, 1995, except for $12.0 million
of these advances which matures on September 30, 1996, bear interest at the
rate of 8% per annum, and are secured by a lien on and security interest in
all assets of the Company and E&J Inc. on a pari passu basis with the
repayment and other obligations of the Company and E&J Inc. under the
Common Stock Note, the Preferred Stock Note and the Indemnification
Obligation. The Revolving Promissory Note is subordinated to all debt
borrowed by the Company or E&J Inc. from, or the payment of which has been
guaranteed by the Company or E&J Inc. to, HSBC, the Pension Benefit
Guaranty Corporation, Congress Financial Corporation and any other
financial institution constituting a principal lender to the Company and/or
E&J Inc. As of December 31, 1994, $1.0 million was the outstanding
accrued, unpaid interest balance due BIL under the Revolving Promissory
Note.
In July, 1991, the Company obtained a three-year secured credit
facility in the amount of up to $13 million at an interest rate of prime
plus 3% for its Smith & Davis subsidiary. The facility is secured by
substantially all of the assets of Smith & Davis. In February, 1993 this
credit line was amended to increase the availability of funding to the
Company, reduce the borrowing cost to prime plus 2% and extend the term to
December 31, 1995. At December 31, 1994, the Company had borrowed $4.1
million under this line. Additionally, Smith & Davis had other borrowings
primarily consisting of amounts owed under certain industrial revenue bonds
totaling $0.9 million at December 31, 1994, with interest rates ranging
from 8% to prime plus 3%. These amounts are due at various semi-annual
intervals through 1996. It is anticipated proceeds from the sale of the
Institutional Business will be used primarily to reduce debt.
During May, 1992, the Company's Canadian subsidiary renewed existing
credit facilities in the aggregate of $4.7 million, on which $4.2 million
was borrowed as of December 31, 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 Canadian subsidiary was in technical default of
certain of its debt covenants at December 31, 1994. Accordingly, this debt
is classified in current installments of long-term debt.
During June, 1994 the Company's Mexican subsidiary obtained a credit
facility in the aggregate of $1.5 million, on which $0.9 million was
borrowed as of December 31, 1994 at interest rates approximating 13%. The
loans are secured by the assets of the Mexican subsidiary.
At December 31, 1994, the Company was contingently liable under
existing letters of credit in the aggregate amount of approximately $5.1
million.
Accordingly, at December 31, 1994 the Company owed $21.4 million to
banks and other commercial lenders, $2.7 million under capitalized lease
obligations, and $18.5 million to BIL.
NOTE 8 -- INCOME TAXES
The components of income tax provision (benefit) from operations for each
of the years in the three year period ended December 31, 1994 are as
follows:
1994 1993 1992
---- ---- ----
Current:
Federal $ -- $ -- $ --
Foreign 97 197 107
State -- -- (1,786)
Deferred:
Federal -- -- --
Foreign (259) (24) (58)
State -- -- --
----- ----- -----
$(162) $173 $(1,737)
A reconciliation of the provision (benefit) for taxes on loss from
operations and the amount computed using the statutory federal income tax
rate of 34% for each of the years in the three year period ended December
31, 1994 is as follows:
1994 1993 1992
---- ---- ----
Computed "expected" tax
(benefit) $(3,373) $(18,878) $(7,021)
Increases (reductions) due to:
State taxes, net of
federal benefit -- -- (1,786)
Foreign subsidiaries
with different tax rates 52 319 (60)
Domestic losses with no
tax benefit 3,159 18,732 7,130
----- ------ -----
$(162) $173 $(1,737)
During 1992 the Company resolved certain disputed issues raised by the
California Franchise Tax Board for the years 1975 through 1983. As a
result of the agreement reached, assessments, including related accrued
interest in the aggregate amount of approximately $1.8 million, were
withdrawn by the Franchise Tax Board. Accordingly, this amount has been
reflected as a credit to the 1992 income tax provision.
The Company and certain subsidiaries file consolidated federal income
and combined state tax returns. For federal income tax purposes, as of
December 31, 1994, the Company has net operating loss (NOL) carryforwards
of approximately $113 million and tax credit carryforwards of approximately
$1 million that expire in 1997 through 2009. In accordance with the
Internal Revenue Code, when certain changes in company ownership occur,
utilization of NOL carryforwards is limited. The Company has determined
that there has been a change in ownership due to the various debt and
equity transactions consummated with BIL as described in Note 7 -- Debt.
As a result, approximately $88.5 million of the Company's NOL carryforwards
are subject to an annual limitation of approximately $3 million. If the
full amount of that limitation is not used in any year, the amount not used
increases the allowable limit in the subsequent year.
In addition, there are approximately $7 million and $6 million,
respectively, of preacquisition NOL carryforwards generated by Smith &
Davis and MCT with expiration dates through 2004. Annual utilization of
these NOLs is limited to $0.6 million for Smith & Davis and $0.5 million
for MCT to reduce that entity's future contribution to consolidated taxable
income.
The Company's foreign source income is not material.
NOTE 9 -- INVENTORIES
Inventories at December 31, 1994 and 1993 consist of the following:
1994 1993
---- ----
Raw materials $10,249 $ 8,374
Work-in-process 5,585 4,365
Finished goods 4,615 4,952
------- -------
$20,449 $17,691
NOTE 10 -- COMMON AND PREFERRED 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 were 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.
At the March 17, 1992 meeting, the stockholders also approved a
resolution to authorize a new class of preferred stock. Thereafter,
approximately 5.9 million shares of 9% Series A Convertible Preferred Stock
were issued for conversion of BIL debt and accrued interest as discussed in
Note 7. Such preferred shares are redeemable into common stock on a one-
for-one basis at the Company's option until the second anniversary of
conversion of the debt, and thereafter at the holder's option until the
seventh anniversary of conversion of the debt except for any in-kind
dividends which would be redeemable at 150% of the market price at the time
of conversion. The preferred shares are also redeemable for cash at the
Company's option at a price of $1.67458437 per share until the second
anniversary of conversion of the debt and thereafter the seventh
anniversary of conversion to cash at a price of $1.67458437 per share
except for in-kind dividends which would be redeemable at an amount equal
to 150% of market price of the common stock as of the redemption date.
Upon notice of redemption, the holder(s) of the preferred shares can
convert such shares into shares of common stock on a one-for-one basis.
Also as discussed in Note 7, a second series of preferred stock (Series B,
consisting of 786,000 shares) was issued to BIL, which is redeemable at the
Company's option into Common Stock on a one-for-one basis (except for any
unpaid interest owed) at any time prior to the seventh anniversary of the
issuance date of said preferred shares.
Resolutions approved by the stockholders on March 17, 1992, resulted in
an increase in the total shares outstanding, on a fully diluted basis, to
15.7 million and increased the percentage ownership of the Company by BIL
and its affiliates from approximately 31% at December 31, 1991 to
approximately 60% at December 31, 1992.
On December 31, 1993, the Company's stockholders approved the Debt
Conversion Transaction (see Note 6), which resulted in the issuance of 55
million shares of Common Stock and 20 million shares of 7% Series C
Convertible Preferred Stock upon conversion of the Common Stock Note and
the Preferred Stock Note, respectively. The Debt Conversion Transaction
resulted in an increase in the total shares outstanding, on a fully diluted
basis, to 99.6 million (including shares issued for the MCT acquisition),
and increased the percentage ownership of the Company by BIL and its
affiliates from approximately 60% at December 31, 1992 to approximately 85%
at December 31, 1993.
As of December 31, 1993, the Company issued 8 million shares of Common
Stock to the stockholders of MCT (see Note 5).
The Company has three employee stock option plans that provide for the
grant to eligible employees of stock options to purchase shares of Common
Stock. The Everest & Jennings International Ltd. 1981 Employees Stock
Option Plan expired in 1991. Options are exercisable over a ten-year
period. Stock options were granted at prices which represent the fair
market value of the Common Stock on the date of grant. The changes in this
stock option plan in each of the years in the three year period ended
December 31, 1994 are summarized as follows:
Year Ended December 31
----------------------
1994 1993 1992
---- ---- ----
Outstanding, beginning of year 102,450 234,371 398,910
Granted -- -- --
Exercised -- -- --
Cancelled (46,000) (131,921) (164,539)
------- ------- -------
Outstanding, end of year 56,450 102,450 234,371
Exercisable, end of year 56,450 102,450 221,045
Options outstanding as of December 31, 1994 were granted at prices
ranging from $1.88 to $12.75 per share. As of December 31, 1994, 56,450
shares were exercisable in the price range of $1.88 to $12.75 per share.
The Company also has an Omnibus Incentive Plan, which was adopted by
the Board of Directors during 1990. Options are exercisable on a ten-year
period, and were granted at prices which represent the fair market value of
the Common Stock on the date of grant. The changes in the Omnibus
Incentive Plan in each of the years in the three year period ended December
31, 1994 are summarized as follows:
Year Ended December 31
----------------------
1994 1993 1992
---- ---- ----
Outstanding, beginning of year 549,058 725,000 606,000
Granted -- 219,000 227,000
Exercised -- -- --
Cancelled (329,366) (394,942) (108,000)
------- ------- -------
Outstanding, end of year 219,692 549,058 725,000
Exercisable, end of year 200,906 307,944 259,219
At December 31, 1994, 800,000 shares have been reserved for issuance
pursuant to this plan, and 219,692 options were outstanding which were
granted at prices ranging from $1.25 to $2.38.
Effective April 25, 1994, the Company adopted the 1994 Everest &
Jennings Stock Option Plan (the "1994 Plan"), providing for the granting of
nonqualified stock options to purchase up to 4,412,000 shares of the
Company's Common Stock to selected full time employees of the Company.
Under the 1994 Plan, options become exercisable in 50% increments when the
Company achieves certain performance goals and are automatically
exercisable five years after the grant date, assuming continuous employment
with the Company. Option activity in the 1994 Plan is as follows:
Year Ended December 31, 1994
----------------------------
Granted 3,682,000
Exercised --
Cancelled (530,000)
---------
Outstanding, end of year 3,152,000
Options outstanding as of December 31, 1994 were granted at $0.85,
which approximates the fair market value of the Company's common stock at
the date of grant. No options were exercisable at December 31, 1994
pursuant to this Plan. At December 31, 1994 1,260,500 shares were
available for the granting of additional options.
As part of the MCT acquisition, the Company assumed 107,614 unvested
stock options at exercise prices ranging from $0.06 to $0.28. These
options are for the acquisition of the Company's Common Stock. During
1994, 58,200 of the options were exercised.
NOTE 11 -- EMPLOYEE BENEFIT PLANS
The Company has a non-contributory defined benefit pension plan
covering substantially all employees of its primary domestic subsidiary,
Everest & Jennings, Inc. and two non-contributory defined benefit pension
plans for the non-bargaining unit salaried employees ("Salaried Plan") and
employees subject to collective bargaining agreements ("Hourly Plan") at
its Smith & Davis subsidiary. The total pension expense (income) under
these plans was $(15), $40 and $233 for 1994, 1993 and 1992, respectively.
The following table sets forth the status of these plans and the
amounts recognized in the Company's consolidated financial statements:
1994 1993 1992
---- ---- ----
Actuarial present value of benefit
obligations:
Vested benefit obligation $15,612 $17,695 $15,813
Accumulated benefit obligation $15,621 $17,816 $15,978
Projected benefit obligation for
services rendered to date $15,621 $17,816 $16,285
Plan assets at fair value,
primarily listed stocks,
bonds and investment funds 12,100 12,763 12,926
------ ------ ------
Projected benefit obligation
in excess of plan assets (3,521) (5,053) (3,359)
Unrecognized transition amount (98) (85) (134)
Unrecognized loss from change in
discount rate 1,960 3,043 --
Unrecognized net gain/(loss) from
past experience different from
that assumed -- -- 410
------ ------ ------
Pension liability included in
Accrued payroll costs $(1,659) $(2,095) $(3,083)
The pension cost relating to these plans
is comprised of the following:
Pension expense:
Service cost -- benefits earned
during period $-- $-- $135
Interest cost on projected
benefit obligation 1,263 1,295 1,330
Actual return on plan assets (378) (872) (771)
Net amortization and deferral (900) (223) (461)
Curtailment gain -- (160) --
------ ------ ------
Net periodic pension cost $(15) $40 $233
Effective May 1, 1991, the Company froze the accruing of benefits under
the Everest & Jennings, Inc. Pension Plan. Due to a reduction in its
weighted-average discount rate, and in accordance with the provisions of
SFAS No. 87, "Employees' Accounting for Pensions", an additional minimum
funding liability, representing the excess of accumulated plan benefits
over plan assets and accrued pension costs of $2,606 was recorded for the
Everest & Jennings, Inc. Pension Plan as an increase in stockholders'
deficit for the year ended December 31, 1993. As of December 31, 1994,
stockholders' deficit was credited for $794 to reduce the minimum liability
to $1,812.
Additionally, during 1991 the Company froze the Smith & Davis Hourly
Plan and purchased participating annuity contracts to cover accumulated and
projected benefit obligations. The Company has also frozen the Salaried
Plan effective January 1, 1993. Participants in the plan are eligible to
participate in the Company's 401(k) Savings and Investment Plan, as
discussed below. There was no material impact on the consolidated
financial statements as a result of these changes.
The following assumptions were used to determine the projected benefit
obligations and plan assets:
Everest & Jennings, Inc. Smith & Davis
Plan Plans
-------------------- ---------------------
1994 1993 1992 1994 1993 1992
---- ---- ---- ---- ---- ----
Weighted-average discount
rate 8.5% 7.5% 8.5% 8.5% 7.5% 8.5% -9.0%
Expected long-term rate of
return on assets 9.0% 9.0% 9.0% 9.0% 8.5% 10.0%
Long-term rate for
compensation increases -- -- 5.0% -- -- 6.0%
In 1994 and 1993, no long term rates for compensation increases were
assumed for the deferred benefit plans, as all participants are inactive
and the plans are frozen.
The Company also sponsored a 401(k) Savings and Investment Plan (the
"401(k) plan") covering all full-time non-union employees of Everest &
Jennings, Inc. The 401(k) plan was extended as of January 1, 1993 to
include participants in the Smith & Davis Salaried Plan. Contributions
made by the Company to the 401(k) plan are based on a specified percentage
of employee contributions up to 6% of base salary. As of March 1, 1994,
the Company suspended its contribution to the 401(k) Plan for all non-
bargaining unit employees. Employees may contribute between 1% and 15% of
base salary. Expense recorded for the 401(k) plan totaled approximately
$35 in 1994, $134 in 1993 and $99 in 1992.
NOTE 12 -- LEASE COMMITMENTS
The Company is a party to a number of noncancelable lease agreements
involving buildings and equipment. The leases extend for varying periods
up to eight years and generally provide for the payment of taxes, insurance
and maintenance by the lessee. Certain of these leases have purchase
options at varying rates.
The Company's property held under capital leases, included in Property,
plant and equipment, at December 31, 1994 and 1993 consists of the
following:
December 31 December 31
1994 1993
----------- -----------
Machinery and equipment $2,784 $2,621
Less accumulated amortization (1,168) (502)
------ ------
$1,616 $2,119
Minimum future lease obligations on long-term noncancelable leases in
effect at December 31, 1994 are as follows:
Capital Operating
------- ---------
1995 $ 786 $1,530
1996 970 786
1997 933 702
1998 469 572
1999 -- 572
Thereafter -- 1,498
----- -----
Net minimum lease payments 3,158 $5,660
Less amount representing interest (488)
-----
Present value of minimum
lease payments 2,670
Less current portion (616)
-----
$2,054
Rental expense for operating leases amounted to approximately $2,122,
$1,913 and $2,416 in 1994, 1993 and 1992, respectively.
Certain of the operating lease obligations relate to facilities which
have been or will be vacated in conjunction with the Company's
consolidation of its manufacturing and distribution operations as discussed
in Note 2.
NOTE 13 -- 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.
In December, 1992 ICF Kaiser Engineers, Inc. ("ICF Kaiser") filed a
Demand for Arbitration (the "Demand") against the Company before the
American Arbitration Association in Los Angeles, California. ICF Kaiser in
its demand claims breach of contract between the parties for consulting and
clean up work by ICF Kaiser at E&J's former facilities located at 3233 East
Mission Oaks Boulevard, Camarillo, California. The Arbitration Demand was
in the sum of $1.1 million. In January, 1993 an answer and counter-claim
were filed on behalf of the Company. The answer denied breach of the
contract and disputed the monetary claim asserted in the Demand. In the
counterclaim, the Company asserted that ICF Kaiser breached the contract,
above referenced, by inter alia failing to perform the services required
under the Agreement in a reasonably cost effective manner and in accordance
with the terms and conditions of the Agreement. In February, 1993 E&J made
a payment without prejudice to ICF Kaiser in the sum of approximately $0.6
million. This payment, together with prior payments, brought the total
paid to date by the Company to ICF Kaiser to approximately $0.7 million.
During June 1994 the Arbitrator ruled in favor of ICF Kaiser against the
Company in the amount of $1.3 million. This case was settled during the
fourth quarter of 1994 by payment to ICF Kaiser of $1.0 million, and such
payment was charged against existing Company reserves.
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. paragraphs 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 has recorded a reserve of $1.0
million for this matter, which is included in the consolidated statements
of operations for 1993. This site continues under investigation by the
State of California. No charges to operations were made during 1994
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 has been recorded, which is included in the
Consolidated Statements of Operations for 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 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,
and a briefing schedule has been indicated by the Appellate Court. It is
anticipated the appeal will be heard in the fall of 1995. E&J Inc.
believes that 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.
NOTE 14 -- QUARTERLY FINANCIAL INFORMATION
The following chart sets forth the highlights of the quarterly
consolidated results of operations in fiscal years 1994, 1993 and 1992:
Three Months Ended (Unaudited)(a)
--------------------------------------------
Mar. 31 June 30 Sept. 30 Dec. 31 Year
------- ------- -------- ------- ------
Fiscal year 1994:
Revenues $20,213 $20,146 $19,829 $19,250 $79,438
Gross profit 4,080 4,657 4,674 139(b) 13,550
Net loss (1,673) (940) (897) (6,249) (9,759)
Loss per share (.02) (.01) (.01) (.10) (.14)
Fiscal year 1993:
Revenues $24,752 $23,524 $23,458 $22,725 $94,459
Gross profit 5,839 2,784 3,993 (1,982) 10,634
Net loss (2,977) (7,837) (5,236) (39,647)(c) (55,697)(c)
Loss per share (.33) (.86) (.57) (4.20) (5.96)
Fiscal year 1992:
Revenues $29,713 $30,492 $22,742 $24,168 $107,115
Gross profit 5,824 6,836 3,229 1,410 17,299
Net loss (2,077) (639)(5,461)(d) (10,735)(e) (18,912)
(d,e)
Loss per share (.23) (.07) (.60) (1.17) (2.07)
(a)In the fourth quarter of 1994, based on predominant industry
practice, the Company changed its method of classification of
shipping and distribution costs in the statement of operations.
Such costs are now presented in cost of sales versus operating
expenses in prior years. For purposes of quarterly financial
information all gross profit amounts presented have been revised to
reflect such reclassification.
(b)Gross profit was adversely affected during the fourth quarter of
1994 by a $3.0 million charge to reserves for product liabillity,
workers' compensation claims and inventory cost adjustments.
(c)Includes charges of $13 million for the Institutional Business
disposition, $2.1 million for the consolidation of manufacturing
and distribution facilities, and $9.7 million for MCT in-process
R&D.
(d)Includes a $2.5 million restructuring charge for incremental costs
associated with the relocation of manufacturing operations from
California to Missouri in 1992.
(e)Includes an additional $2.7 million restructuring charge for
incremental costs associated with the relocation of manufacturing
operations from California to Missouri in 1992 and approximately
$1.3 million of accrued interest recorded in anticipation of not
being able to reduce the balance of the Bank Loan below $13 million
by March 31, 1993, as subsequently extended to September 30, 1993
(see Note 7 -- Debt).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
PART III
ITEMS 10 THROUGH 13.
The Company intends to file with the Securities and Exchange Commission
a definitive proxy statement pursuant to Regulation 14A involving the
election of directors not later than 120 days after the end of its fiscal
year ended December 31, 1994. Accordingly, except to the extent included
in Part I under the caption "Executive Officers of the Company", the
information required by Part III (Items 10, 11, 12 and 13) is incorporated
herein by reference to such definitive proxy statement in accordance with
General Instruction G(3) to Form 10-K.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements:
The following consolidated financial statements of Everest & Jennings
International Ltd. and subsidiaries are included in this Annual Report
on Form 10-K:
- Report of Independent Accountants.
- Consolidated Statements of Operations - For each of the
years in the three-year period ended December 31, 1994.
- Consolidated Balance Sheets - As of December 31, 1994 and
1993.
- Consolidated Statements of Stockholders' Deficit - For each
of the years in the three-year period ended December 31, 1994.
- Consolidated Statements of Cash Flows - For each of the
years in the three-year period ended December 31, 1994.
- Notes to Consolidated Financial Statements.
2. Financial Statement Schedule:
The following Financial Statement Schedule is included in this Annual
Report on Form 10-K.
- Report of Independent Accountants on Financial Statement Schedule.
- Schedule VIII- Valuation and Qualifying Accounts.
Other schedules are omitted because they are either inapplicable, not
required under the instructions to Annual Report on Form 10-K, or the
required information is included in the Consolidated Financial Statements
and Notes thereto.
(b) Reports on Form 8-K:
Date of Report Item(s) Reported Statements Filed
-------------- ---------------- ----------------
1. January 5, 1994 5 (relating to debt None
conversion transaction and
recapitalization proposals)
2. January 14, 1994 2, 7 (relating to acquisition See following
or disposition of assets)
Financial Statements filed in Form 8-K dated January 14, 1994:
Relating to Medical Composite Technology, Inc.:
Report of Certified Public Accountants
Audited Balance Sheets for Fiscal Years ended December 31, 1991 and
December 31, 1992
Audited Statements of Operations for the Fiscal Years ended December
31, 1991 and December 31, 1992 and the Cumulative Period from April 7,
1989 (date of inception) to December 31, 1992
Audited Statements of Shareholders' Equity for the Cumulative Period
from April 7, 1989 (date of inception) to December 31, 1992
Audited Statements of Cash Flows for the Fiscal Years ended December
31, 1991 and December 31, 1992 and the Cumulative Period from April 7,
1989 (date of inception) to December 31, 1992
Notes to Financial Statements
Unaudited Statement of Operations for the Nine-Month Period ended
September 30, 1993
Unaudited Balance Sheet as of September 30, 1993
Unaudited Statement of Cash Flows for the Nine-Month Period ended
September 30, 1993
Notes to Financial Statements
Everest & Jennings International Ltd./Medical Composite Technology,
Inc. Pro Forma Financial Information:
Notes to Condensed Pro Forma Financial Statements
Pro Forma Unaudited Consolidated Statement of Operations for the
Fiscal Year Ended December 31, 1992
Pro Forma Unaudited Consolidated Statement of Operations for the Nine
Month Period Ended September 30, 1993
Pro Forma Unaudited Consolidated Balance Sheet as of September 30,
1993
Management's Discussion and Analysis of Financial Condition and
Results of Operations at December 31, 1992
Management's Discussion and Analysis of Financial Condition and
Results of Operations at September 30, 1993
(c) Exhibits:
2(a) Debt Conversion Agreement dated as of September 30, 1993 by and
among the Company, E&J Inc., BIL and the Jennings Investment Co,
filed as Exhibit 10(es) to Quarterly Report on Form 10-Q for the
Quarterly Period Ended September 30, 1993, is hereby incorporated
herein by reference.
(b) Exchange Agreement and Plan of Merger, dated as of October 23,
1993, by and among Medical Composite Technology, Inc. ("MCT"),
certain stockholders of MCT, Everest & Jennings International
Ltd., BIL (Far East Holdings) Limited, and MCT Acquisition Corp.,
which was filed as Exhibit 2(a) to Form 8-K filed on January 14,
1994, is hereby incorporated herein by reference.
(c) Plan of Merger, dated as of January 14, 1994, by and between MCT
Acquisition Corp. and Medical Composite Technology, Inc., which
was filed as Exhibit 2(b) to Form 8-K filed on January 14, 1994,
is hereby incorporated herein by reference.
(d)* Asset Purchase Agreement dated February 15, 1995 by and among
A.H. Acquisition, Inc., Smith & Davis Manufacturing Company and
Everest & Jennings International Ltd. (the Exhibits and Schedules
listed in said Agreement are omitted pursuant to Item 601(b)(2)
of Regulation S-K; the Company hereby agrees to furnish
supplentally a copy of any omitted Exhibit of Schedule to the
Securities and Exchange Commission upon request).
3(a)(i) Certificate of Incorporation, which was filed as Exhibit 3(a) to
Annual Report on Form 10-K filed on March 27, 1992, is hereby
incorporated herein by reference.
(ii) Certificate of Amendment of Certificate of Incorporation, dated
January 11, 1994, filed as Exhibit 3(c) to Annual Report on Form
10-K dated March 30, 1994, is hereby incorporated herein by
reference.
(b) Bylaws, which were filed as Exhibit 3(b) to Annual Report on Form
10-K filed on March 27, 1992, is hereby incorporated herein by
reference.
4(a)(i) First Amended and Restated Credit Agreement between the Company
and BIL, as assignee of Security Pacific National Bank, by
agreement, dated February 21, 1992 ("First Amended and Restated
Credit Agreement"), which was filed as Exhibit 10(aq) to Annual
Report on Form 10-K dated March 27, 1992, is hereby incorporated
herein by reference.
(ii) Amendment No. 1 to First Amended and Restated Credit Agreement,
which was filed as Exhibit 10(ar) to Annual Report on Form 10-K
dated March 27, 1992, is hereby incorporated herein by reference.
(iii) Amendment No. 2 to First Amended and Restated Credit Agreement,
which was filed as Exhibit 10(as) to Annual Report on Form 10-K
dated March 27, 1992, is hereby incorporated herein by reference.
(iv) Amendment No. 3 to First Amended and Restated Credit Agreement,
dated March 29, 1993 and filed as Exhibit 10(ea) to Annual Report
on Form 10-K dated April 9, 1993, is hereby incorporated herein
by reference.
(v) Amendment No. 4 to First Amended and Restated Credit Agreement,
dated June 30, 1993, filed as Exhibit 10(el) to Quarterly Report
on Form 10-Q for the Quarterly Period Ended June 30, 1993, is
hereby incorporated herein by reference.
(b)(i) Debt Restructure Agreement, dated August 30, 1991, with Security
Pacific National Bank ("Debt Restructure Agreement"), which was
filed as Exhibit 10(bi) to Annual Report on Form 10-K dated March
27, 1992, is hereby incorporated herein by reference.
(ii) Amendment No. 1 to Debt Restructure Agreement, which was filed as
Exhibit 10(bj) to Annual Report on Form 10-K dated March 27,
1992, is hereby incorporated herein by reference.
(iii) Supplement to Debt Restructure Agreement, which was filed as
Exhibit 10(bk) to Annual Report on Form 10-K dated March 27,
1992, is hereby incorporated herein by reference.
(c)(i) Revolving Credit Agreement dated September 30, 1992 between
Everest & Jennings, Inc. and The Hongkong and Shanghai Banking
Corporation Limited and filed as Exhibit 10(dd) to Annual Report
on Form 10-K dated April 9, 1993, is hereby incorporated herein
by reference.
(ii) First Amendment dated February 5, 1993 to Revolving Credit
Agreement between Everest & Jennings, Inc. and The Hongkong and
Shanghai Banking Corporation Limited and filed as Exhibit 10(dp)
to Annual Report on Form 10-K dated April 9, 1993, is hereby
incorporated herein by reference.
(iii) Second Amendment dated March 30, 1993 to Revolving Credit
Agreement between Everest & Jennings, Inc. and The Hongkong and
Shanghai Banking Corporation Limited and filed as Exhibit 10(dw)
to Annual Report on Form 10-K dated April 9, 1993, is hereby
incorporated herein by reference.
(iv) Third Amendment to Revolving Credit Agreement dated September 30,
1993 by and between E&J Inc. and The Hongkong and Shanghai
Banking Corporation Limited, filed as Exhibit 10(er) to Quarterly
Report on Form 10-Q for the Quarterly Period Ended September 30,
1993, is hereby incorporated herein by reference.
(v) Fourth Amendment to Revolving Credit Agreement dated October 8,
1993 by and between E&J Inc. and The Hongkong and Shanghai
Banking Corporation Limited, filed as Exhibit 10(ey) to Quarterly
Report on Form 10-Q for the Quarterly Period Ended September 30,
1993, is hereby incorporated herein by reference.
(vi) Fifth Amendment to Revolving Credit Agreement dated September 1,
1994 by and between Everest & Jennings, Inc. and The Hongkong and
Shanghai Banking Corporation Limited, filed as Exhibit 10(fb) to
Quarterly Report on Form 10-Q for the Quarterly Period Ended
September 30, 1994, is hereby incorporated herein by reference.
(d) First Amendment to Accounts Financing Agreement (Security
Agreement) dated January 29, 1993 between Smith & Davis
Manufacturing Company and Congress Financial Corporation and
filed as Exhibit 10(dn) to Annual Report on Form 10-K dated April
9, 1993, is hereby incorporated herein by reference.
(e) Promissory Note dated January 29, 1993 between the Company and
the Retirement Plan for Employees of Everest & Jennings
International Ltd. and filed as Exhibit 10(do) to Annual Report
on Form 10-K dated April 9, 1993, is hereby incorporated herein
by reference.
(f) Certain instruments with respect to the long-term debt of the
Company and its consolidated subsidiaries are omitted pursuant to
Item 601(b)(4)(iii) of Regulation S-K since the amount of debt
authorized under each omitted instrument does not exceed ten
percent of the total assets of the Company and its subsidiaries
on a consolidated basis. The Company hereby agrees to furnish a
copy of any such instrument to the Securities and Exchange
Commission upon request.
10(a)(i) Retirement Plan for Employees of Everest & Jennings International
Ltd., effective as of January 1, 1981, which was filed as Exhibit
10(e) to Annual Report on Form 10-K filed on March 25, 1988, is
hereby incorporated herein by reference.
(ii) Amendment to Retirement Plan for Employees of Everest & Jennings
International Ltd., dated July 6, 1983, which was filed as
Exhibit 10(f) to Annual Report on Form 10-K filed on March 25,
1988, is hereby incorporated herein by reference.
(iii) Amendment No. 2 to Retirement Plan for Employees of Everest &
Jennings International Ltd. dated October 14, 1985, which was
filed as Exhibit 10(g) to Annual Report on Form 10-K filed on
March 25, 1988, is hereby incorporated herein by reference.
(iv) Amendment No. 3 to Retirement Plan for Employees of Everest &
Jennings International Ltd. dated May 10, 1988, which was filed
as Exhibit 10(i) to Annual Report on Form 10-K dated March 17,
1989, is hereby incorporated herein by reference.
(v) Amendment No. 4 to Retirement Plan for Employees of Everest &
Jennings International Ltd. dated July 22, 1988, which was filed
as Exhibit 10(j) to Annual Report on Form 10-K dated March 17,
1989, is hereby incorporated herein by reference.
(vi) Amendment No. 5 to the Retirement Plan for Employees of Everest &
Jennings International Ltd., which was filed as Exhibit 10(ao) to
Annual Report on Form 10-K dated March 27, 1992, is hereby
incorporated herein by reference.
(b) Description of Retirement Plan for Non-Employee Directors,
effective June 1, 1987, which was filed as Exhibit 10(h) to
Annual Report on Form 10-K filed on March 25, 1988, is hereby
incorporated herein by reference.
(c) 1990 Omnibus Stock Incentive Plan of Everest & Jennings
International Ltd. dated November 2, 1990, which was filed as
Exhibit 10(an) to Annual Report on Form 10-K dated March 27,
1992, is hereby incorporated herein by reference.
(e) Everest & Jennings International Ltd. Stock Option Plan dated
April 25, 1994 and related form of Stock Option Agreement dated
as of August 1, 1994, filed as Exhibit 10(fa) to Quarterly Report
on Form 10-Q for the Quarterly Period Ended September 30, 1994,
is hereby incorporated herein by reference.
21* Subsidiaries of the Registrant.
23(a) Consent of Price Waterhouse dated March 30, 1994 with respect to
S-8 Registration Statement, filed as Exhibit 24(f) to Annual
Report on Form 10-K dated March 30, 1994, is hereby incorporated
herein by reference.
(b)* Consent of Price Waterhouse dated March 30, 1995 with respect to
S-8 Registration Statement.
* Filed herewith in this Annual Report on Form 10-K
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
and Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
EVEREST & JENNINGS INTERNATIONAL LTD.
(Registrant)
Date: March 31, 1995 By (TIMOTHY W. EVANS)
Timothy W. Evans
Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
(RODNEY F. PRICE) Chairman of the Board March 31, 1995
Rodney F. Price
(BEVIL J. HOGG) President & CEO, Director March 31, 1995
Bevil J. Hogg
(SANDRA L. BAYLIS) Director March 31, 1995
Sandra L. Baylis
(DIANNE J. JENNINGS) Director March 31, 1995
Dianne J. Jennings
(ROBERT C. SHERBURNE) Director March 31, 1995
Robert C. Sherburne
(CHARLES D. YIE) Director March 31, 1995
Charles D. Yie
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To The Board of Directors and Stockholders
of Everest & Jennings International Ltd.
Our audits of the consolidated financial statements referred to in our
report dated March 17, 1995 appearing on page 21 of this Annual Report on
Form 10-K, which report includes explanatory paragraphs describing
uncertainties with respect to the Company's ability to continue as a going
concern and the outcome of litigation, also included audits of the
Financial Statement Schedule for the three years ended December 31, 1994
listed in Item 14 (a) of this Form 10-K. In our opinion, this Financial
Statement Schedule presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements.
PRICE WATERHOUSE LLP
St. Louis, Missouri
March 17, 1995
SCHEDULE VIII -- VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
Charged
Balance at to Costs Balance
Beginning and at End of
For the Year Ended of Period Expenses Deductions Period
------------------ --------- -------- ---------- --------
December 31, 1994:
Allowance for doubtful
accounts $ 1,506 $ 1,630 $ 1,048 $ 2,088
Accrued restructuring
expenses 6,292 -o- 1,816 4,476
December 31, 1993:
Allowance for doubtful
accounts $ 3,505 $ 1,515 $ 3,514(a) $ 1,506
Accrued restructuring
expenses 6,047 5,074(b)(c) 4,829 6,292
December 31, 1992:
Allowance for doubtful
accounts $ 6,658 $ 204 $ 3,357 $ 3,505
Accrued restructuring
expenses 14,095 1,871 (b) 9,919 6,047
(a) This includes amount related to the accounts of the Institutional
Business which have been reclassified as Assets Held for Sale.
(b) Accrued restructuring expenses include costs incurred in the process of
relocating the Company's primary domestic wheelchair manufacturing
facility from California to Missouri. $10,030 and $2,079 of
restructuring expenses were charged to other balance sheet accounts for
1993 and 1992, respectively.
(c) Accrued restructuring expenses include costs related to the disposition
of the Institutional Business.
INDEX TO EXHIBITS
Page
----
54 2(a) Debt Conversion Agreement dated as of
September 30, 1993 by and among the Company, E&J Inc., BIL
and the Jennings Investment Co, filed as Exhibit 10(es) to
Quarterly Report on Form 10-Q for the Quarterly Period
Ended September 30, 1993, is hereby incorporated herein by
reference.
54 (b) Exchange Agreement and Plan of Merger, dated
as of October 23, 1993, by and among Medical Composite
Technology, Inc. ("MCT"), certain stockholders of MCT,
Everest & Jennings International Ltd., BIL (Far East
Holdings) Limited, and MCT Acquisition Corp., which was
filed as Exhibit 2(a) to Form 8-K filed on January 14,
1994, is hereby incorporated herein by reference.
54 (c) Plan of Merger, dated as of January 14, 1994,
by and between MCT Acquisition Corp. and Medical Composite
Technology, Inc., which was filed as Exhibit 2(b) to Form
8-K filed on January 14, 1994, is hereby incorporated
herein by reference.
64 (d)* Asset Purchase Agreement dated February 15,
1995 by and among A.H. Acquisition, Inc., Smith & Davis
Manufacturing Company and Everest & Jennings International
Ltd. (the Exhibits and Schedules listed in said Agreement
are omitted pursuant to Item 601(b)(2) of Regulation S-K;
the Company hereby agrees to furnish supplentally a copy
of any omitted Exhibit of Schedule to the Securities and
Exchange Commission upon request).
54 3(a)(i) Certificate of Incorporation, which was
filed as Exhibit 3(a) to Annual Report on Form 10-K filed
on March 27, 1992, is hereby incorporated herein by
reference.
54 (ii) Certificate of Amendment of Certificate of
Incorporation, dated January 11, 1994, filed as Exhibit
3(c) to Annual Report on Form 10-K dated March 30, 1994,
is hereby incorporated herein by reference.
54 (b) Bylaws, which were filed as Exhibit 3(b) to
Annual Report on Form 10-K filed on March 27, 1992, is
hereby incorporated herein by reference.
54 4(a)(i) First Amended and Restated Credit
Agreement between the Company and BIL, as assignee of
Security Pacific National Bank, by agreement, dated
February 21, 1992 ("First Amended and Restated Credit
Agreement"), which was filed as Exhibit 10(aq) to Annual
Report on Form 10-K dated March 27, 1992, is hereby
incorporated herein by reference.
54 (ii) Amendment No. 1 to First Amended and
Restated Credit Agreement, which was filed as Exhibit
10(ar) to Annual Report on Form 10-K dated March 27, 1992,
is hereby incorporated herein by reference.
54 (iii) Amendment No. 2 to First Amended and
Restated Credit Agreement, which was filed as Exhibit
10(as) to Annual Report on Form 10-K dated March 27, 1992,
is hereby incorporated herein by reference.
54 (iv) Amendment No. 3 to First Amended and
Restated Credit Agreement, dated March 29, 1993 and filed
as Exhibit 10(ea) to Annual Report on Form 10-K dated
April 9, 1993, is hereby incorporated herein by reference.
55 (v) Amendment No. 4 to First Amended and Restated
Credit Agreement, dated June 30, 1993, filed as Exhibit
10(el) to Quarterly Report on Form 10-Q for the Quarterly
Period Ended June 30, 1993, is hereby incorporated herein
by reference.
55 (b)(i) Debt Restructure Agreement, dated August
30, 1991, with Security Pacific National Bank ("Debt
Restructure Agreement"), which was filed as Exhibit 10(bi)
to Annual Report on Form 10-K dated March 27, 1992, is
hereby incorporated herein by reference.
55 (ii) Amendment No. 1 to Debt Restructure
Agreement, which was filed as Exhibit 10(bj) to Annual
Report on Form 10-K dated March 27, 1992, is hereby
incorporated herein by reference.
55 (iii) Supplement to Debt Restructure Agreement,
which was filed as Exhibit 10(bk) to Annual Report on Form
10-K dated March 27, 1992, is hereby incorporated herein
by reference.
55 (c)(i) Revolving Credit Agreement dated September
30, 1992 between Everest & Jennings, Inc. and The Hongkong
and Shanghai Banking Corporation Limited and filed as
Exhibit 10(dd) to Annual Report on Form 10-K dated April
9, 1993, is hereby incorporated herein by reference.
55 (ii) First Amendment dated February 5, 1993 to
Revolving Credit Agreement between Everest & Jennings,
Inc. and The Hongkong and Shanghai Banking Corporation
Limited and filed as Exhibit 10(dp) to Annual Report on
Form 10-K dated April 9, 1993, is hereby incorporated
herein by reference.
55 (iii) Second Amendment dated March 30, 1993 to
Revolving Credit Agreement between Everest & Jennings,
Inc. and The Hongkong and Shanghai Banking Corporation
Limited and filed as Exhibit 10(dw) to Annual Report on
Form 10-K dated April 9, 1993, is hereby incorporated
herein by reference.
55 (iv) Third Amendment to Revolving Credit
Agreement dated September 30, 1993 by and between E&J Inc.
and The Hongkong and Shanghai Banking Corporation Limited,
filed as Exhibit 10(er) to Quarterly Report on Form 10-Q
for the Quarterly Period Ended September 30, 1993, is
hereby incorporated herein by reference.
55 (v) Fourth Amendment to Revolving Credit Agreement
dated October 8, 1993 by and between E&J Inc. and The
Hongkong and Shanghai Banking Corporation Limited, filed
as Exhibit 10(ey) to Quarterly Report on Form 10-Q for the
Quarterly Period Ended September 30, 1993, is hereby
incorporated herein by reference.
55 (vi) Fifth Amendment to Revolving Credit
Agreement dated September 1, 1994 by and between Everest &
Jennings, Inc. and The Hongkong and Shanghai Banking
Corporation Limited, filed as Exhibit 10(fb) to Quarterly
Report on Form 10-Q for the Quarterly Period Ended
September 30, 1994, is hereby incorporated herein by
reference.
55 (d) First Amendment to Accounts Financing
Agreement (Security Agreement) dated January 29, 1993
between Smith & Davis Manufacturing Company and Congress
Financial Corporation and filed as Exhibit 10(dn) to
Annual Report on Form 10-K dated April 9, 1993, is hereby
incorporated herein by reference.
55 (e) Promissory Note dated January 29, 1993 between
the Company and the Retirement Plan for Employees of
Everest & Jennings International Ltd. and filed as Exhibit
10(do) to Annual Report on Form 10-K dated April 9, 1993,
is hereby incorporated herein by reference.
56 (f) Certain instruments with respect to the long-
term debt of the Company and its consolidated subsidiaries
are omitted pursuant to Item 601(b)(4)(iii) of Regulation
S-K since the amount of debt authorized under each omitted
instrument does not exceed ten percent of the total assets
of the Company and its subsidiaries on a consolidated
basis. The Company hereby agrees to furnish a copy of any
such instrument to the Securities and Exchange Commission
upon request.
56 10(a)(i) Retirement Plan for Employees of Everest &
Jennings International Ltd., effective as of January 1,
1981, which was filed as Exhibit 10(e) to Annual Report on
Form 10-K filed on March 25, 1988, is hereby incorporated
herein by reference.
56 (ii) Amendment to Retirement Plan for Employees
of Everest & Jennings International Ltd., dated July 6,
1983, which was filed as Exhibit 10(f) to Annual Report on
Form 10-K filed on March 25, 1988, is hereby incorporated
herein by reference.
56 (iii) Amendment No. 2 to Retirement Plan for
Employees of Everest & Jennings International Ltd. dated
October 14, 1985, which was filed as Exhibit 10(g) to
Annual Report on Form 10-K filed on March 25, 1988, is
hereby incorporated herein by reference.
56 (iv) Amendment No. 3 to Retirement Plan for
Employees of Everest & Jennings International Ltd. dated
May 10, 1988, which was filed as Exhibit 10(i) to Annual
Report on Form 10-K dated March 17, 1989, is hereby
incorporated herein by reference.
56 (v) Amendment No. 4 to Retirement Plan for
Employees of Everest & Jennings International Ltd. dated
July 22, 1988, which was filed as Exhibit 10(j) to Annual
Report on Form 10-K dated March 17, 1989, is hereby
incorporated herein by reference.
56 (vi) Amendment No. 5 to the Retirement Plan for
Employees of Everest & Jennings International Ltd., which
was filed as Exhibit 10(ao) to Annual Report on Form 10-K
dated March 27, 1992, is hereby incorporated herein by
reference.
56 (b) Description of Retirement Plan for Non-
Employee Directors, effective June 1, 1987, which was
filed as Exhibit 10(h) to Annual Report on Form 10-K filed
on March 25, 1988, is hereby incorporated herein by
reference.
56 (c) 1990 Omnibus Stock Incentive Plan of Everest &
Jennings International Ltd. dated November 2, 1990, which
was filed as Exhibit 10(an) to Annual Report on Form 10-K
dated March 27, 1992, is hereby incorporated herein by
reference.
56 (e) Everest & Jennings International Ltd. Stock
Option Plan dated April 25, 1994 and related form of Stock
Option Agreement dated as of August 1, 1994, filed as
Exhibit 10(fa) to Quarterly Report on Form 10-Q for the
Quarterly Period Ended September 30, 1994, is hereby
incorporated herein by reference.
133 21* Subsidiaries of the Registrant.
56 23(a) Consent of Price Waterhouse dated March 30,
1994 with respect to S-8 Registration Statement, filed as
Exhibit 24(f) to Annual Report on Form 10-K dated March
30, 1994, is hereby incorporated herein by reference.
134 (b)* Consent of Price Waterhouse dated March 30,
1995 with respect to S-8 Registration Statement.
* Filed herewith in this Annual Report on Form 10-K