EVEREST & JENNINGS INTERNATIONAL LTD. AND SUBSIDIARIES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1995
or
Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _____ to _____
Commission File Number: 0-3585
________________________
EVEREST & JENNINGS INTERNATIONAL LTD.
(Exact name of registrant as specified in its charter)
DELAWARE 95-2536185
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1100 CORPORATE SQUARE DRIVE, ST. LOUIS, MISSOURI 63132
(Address of principal executive offices)
Registrant's telephone number, including area code: 314-995-7000
NOT APPLICABLE
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
the filing requirements for the past 90 days: Yes X No
Shares of Common Stock outstanding as of May 12, 1995: 72,266,185
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements 3
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 2. Changes in Securities 19
Item 3. Defaults upon Senior Securities 19
Item 4. Submission of Matters to a Vote of Security Holders 19
Item 5. Other Information 19
Item 6. Exhibits and Reports on Form 8-K 19
SIGNATURE 20
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The consolidated financial statements included herein have been
prepared by the management of Everest & Jennings International Ltd. (the
"Company") without audit pursuant to the rules and regulations of the
Securities and Exchange Commission. In the opinion of management, all
adjustments (consisting only of normal recurring accruals) necessary to
state fairly the results for the interim periods presented herein in
accordance with generally accepted accounting principles for interim
financial information have been made (however, the consolidated financial
statements included herewith do not include any adjustments that might
result from the Company's inability to emerge from or complete its ongoing
restructuring activities and continue as a going concern -- see Note 1 to
these Unaudited Consolidated Financial Statements). Certain information
and footnote disclosures normally included in financial statements prepared
in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. Management
believes that the disclosures are adequate to make the information
presented not misleading. It is suggested that these consolidated
financial statements be read in conjunction with the consolidated financial
statements and the notes thereto included in the Company's latest Annual
Report on Form 10-K for the fiscal year ended December 31, 1994.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands except per-share data)
Three Months Ended March 31
---------------------------
1995 1994
-------- --------
(Unaudited)
Revenues $18,513 $20,213
Cost of sales 14,306 16,133
______ ______
Gross profit 4,207 4,080
Selling expenses 3,056 3,695
General and administrative expenses 1,426 1,534
______ ______
Total operating expenses 4,482 5,229
______ ______
Loss from operations (275) (1,149)
Interest expense, BIL (Note 3) 375 113
Interest expense 506 350
______ ______
Loss before income taxes (1,156) (1,612)
Income tax provisions 14 61
______ ______
Net loss $(1,170) $(1,673)
Loss per share (Note 5) $(.02) $(.02)
Weighted average number of Common
Shares outstanding 72,264,718 72,199,612
The accompanying Notes are an integral part of these
Consolidated Financial Statements
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
ASSETS
March 31 December 31
1995 1994
-------- -----------
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 522 $ 513
Accounts receivable, less allowance
for doubtful accounts of $2,038
in 1995 and $2,088 in 1994 17,649 18,894
Inventories (Note 6) 18,771 20,449
Assets held for sale (Notes 1 and 4) 11,689 11,289
Other current assets 1,336 1,444
______ ______
Total current assets 49,967 52,589
______ ______
PROPERTY, PLANT AND EQUIPMENT:
Land 238 237
Buildings and improvements 4,111 4,056
Machinery and equipment 14,671 14,636
______ ______
19,020 18,929
Less accumulated depreciation
and amortization (11,250) (10,994)
______ ______
Property, plant and equipment, net 7,770 7,935
INTANGIBLE ASSETS, NET 633 710
OTHER ASSETS 334 335
______ ______
TOTAL ASSETS $58,704 $61,569
The accompanying Notes are an integral part of these
Consolidated Financial Statements
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
LIABILITIES AND STOCKHOLDERS' DEFICIT
March 31 December 31
1995 1994
-------- -----------
(Unaudited)
CURRENT LIABILITIES:
Short-term borrowings and current installments
of long-term debt of $1,923 in 1995
and $1,984 in 1994 (Note 3) $13,111 $11,155
Short-term borrowing from BIL (Note 3) --- 6,503
Accounts payable 9,661 11,958
Accrued payroll costs 7,095 7,900
Accrued interest, BIL (Note 3) 1,335 960
Accrued expenses 9,253 9,697
Accrued restructuring expenses (Notes 1, 4) 4,284 4,476
______ ______
Total current liabilities 44,739 52,649
______ ______
LONG-TERM DEBT, NET OF CURRENT PORTION
(Note 3) 12,780 12,968
LONG-TERM BORROWINGS FROM BIL (Note 3) 18,503 12,000
OTHER LONG-TERM LIABILITIES 90 133
COMMITMENTS AND CONTINGENCIES (Note 8)
STOCKHOLDERS' DEFICIT: (Notes 1, 3 and 7)
Series A Convertible Preferred Stock 12,087 12,087
Series B Convertible Preferred Stock 1,317 1,317
Series C Convertible Preferred Stock 20,000 20,000
Common Stock, par value: $.01;
authorized 120,000,000 shares 722 722
Additional paid-in capital 105,598 105,595
Accumulated deficit (154,667) (153,228)
Minimum pension liability adjustment (1,812) (1,812)
Cumulative translation adjustments (653) (862)
______ ______
Total stockholders' deficit (17,408) (16,181)
______ ______
TOTAL LIABILITIES AND STOCKHOLDERS'
DEFICIT $58,704 $61,569
The accompanying Notes are an integral part of these
Consolidated Financial Statements
EVEREST & JENNINGS INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1995
(Dollars in thousands)
(unaudited)
Series A Series B Series C
Convertible Convertible Convertible
Preferred Stock Preferred Stock Preferred Stock Common Stock
--------------- --------------- --------------- ------------
Shares Amount Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------ ------ ------
Balance at December 31, 1994 7,218,204 $12,087 786,357 $1,317 20,000,000 $20,000 72,257,812 $722
Common Stock Issued for
Exercised Options -- -- -- -- -- -- 8,373 --
Accrued Dividends on Series A
Convertible Preferred Stock -- -- -- -- -- -- -- --
Net loss -- -- -- -- -- -- -- --
Translation adjustments -- -- -- -- -- -- -- --
_________ _______ _______ ______ __________ _______ __________ ____
Balance at March 31, 1995 7,218,204 $12,087 786,357 $1,317 20,000,000 $20,000 72,266,185 $722
EVEREST & JENNINGS INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1995
(Dollars in thousands)
(unaudited)
(continued)
Minimum
Additional Accumu- Pension Cumulative
Paid-in lated Liability Translation
Capital Deficit Adjustment Adjustments Total
---------- ------- ---------- ----------- -----
Balance at December 31, 1994 $105,595 $(153,228) $(1,812) $(862) $(16,181)
Common Stock Issued for
Exercised Options 3 -- -- -- 3
Accrued Dividends on Series A
Convertible Preferred Stock -- (269) -- -- (269)
Net loss -- (1,170) -- -- (1,170)
Translation adjustments -- -- -- 209 209
______ ________ ______ ____ ______
Balance at March 31, 1995 $105,598 $(154,667) $(1,812) $(653) $(17,408)
The accompanying Notes are an integral part of this Consolidated
Financial Statement
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Three Months Ended March 31
-------------------------
1995 1994
-------- --------
(Unaudited)
Cash flows from operating activities:
Net loss $(1,170) $(1,673)
Adjustment to reconcile net loss to
cash used in operating activities:
Depreciation and amortization 466 301
Changes in operating assets and liabilities:
Accounts receivable 1,754 (2,475)
Inventories 591 1,985
Accounts payable (2,297) (507)
Accrued interest, BIL 375 113
Accrued payroll costs, expenses and
income taxes (1,518) (1,659)
Accrued restructuring expenses (192) 413
Other, net 287 (809)
______ ______
Cash used in operating activities (1,704) (4,311)
______ ______
Cash flows from investing activities:
Capital expenditures (224) (274)
______ ______
Cash used in investing activities (224) (274)
______ ______
Cash flows from financing activities:
Advances from BIL -- 4,250
Increase (decrease) in short-term and
long-term borrowings, net 1,768 (1,344)
Dividends/changes in Equity 3 --
Changes in other long-term liabilities (43) (18)
______ ______
Cash provided by financing activities 1,728 2,888
______ ______
Effect of exchange rate changes on cash flow 209 (131)
______ ______
Increase (decrease) in cash balance 9 (1,828)
Cash and cash equivalents balance at
beginning of year 513 1,872
______ ______
Cash and cash equivalents balance
at end of period $ 522 $ 44
Supplemental disclosures of cash flow information:
Cash paid for interest $646 $195
Cash paid for income taxes $43 $106
The accompanying Notes are an integral part of these
Consolidated Financial Statements
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per-share data)
NOTE 1 -- CORPORATE RESTRUCTURING
The Company has incurred substantial financial losses in a continuing
effort to restructure its operations with the objective of improving its
competitive position within the durable medical equipment industry.
Restructuring activities have included asset sales, significant reductions
in headcount, plant closures and consolidations, product line
rationalization, debt to equity conversion and outsourcing of manufacturing
operations. In addition to the foregoing, pursuant to an Asset Purchase
Agreement dated February 15, 1995, the Company sold the Smith & Davis
Institutional Business effective April 4, 1995 (see Note 4--Assets Held for
Sale).
The Company's 1995 year to date revenues and operating results have
been negatively impacted by ongoing price competition, liquidity
constraints and loss of market share due to the relocation of the Company's
primary domestic wheelchair manufacturing facility from California to
Missouri. The loss of customer confidence stemming from long lead times
and shipping delays due to start-up inefficiencies, computer system
problems and inventory imbalances in the Missouri manufacturing operations
is expected to adversely impact revenues, operating income and cash flow at
least through the end of 1995. Management is implementing plans which are
intended to address the Company's problems with manufacturing and shipment
delays. The plans also address the rationalization of the Company's
production facilities and the increased outsourcing of products and product
components, the effects of which will be to lower the Company's production
costs. Order rates, margins and market share must increase, production and
operating costs must be reduced and customer confidence must be restored in
the very near term if the Company is to generate the cash flow necessary to
fund its operations on a continuing basis and to achieve profitability.
The accompanying consolidated financial statements have been prepared
under the going concern concept, which anticipates an entity will continue
in its present form and, accordingly, uses the historical cost basis to
prepare financial statements. The Company has incurred substantial
restructuring expenses and recurring operating losses and has a net capital
deficiency at March 31, 1995. No assurance can be made that the Company
will successfully emerge from or complete its restructuring activities.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Significant accounting policies followed for the three month period
ended March 31, 1995 are the same as those disclosed in the Notes to the
Company's December 31, 1994 Consolidated Financial Statements, which were
included in the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1994. All dollar amounts in these Notes to Unaudited
Consolidated Financial Statements are in thousands except per-share data or
as otherwise specified. In the opinion of management, all adjustments,
consisting of normal recurring adjustments necessary for a fair
presentation of (a) the consolidated results of operations for the three
month periods ended March 31, 1995 and 1994; (b) the consolidated financial
position at March 31, 1995 and December 31, 1994; and (c) the consolidated
cash flows for the three month periods ended March 31, 1995 and 1994 have
been made. However, the consolidated financial statements included
herewith do not include any adjustments that might result from the
Company's inability to emerge from or complete its ongoing restructuring
activities and continue as a going concern -- See Note 1 to the Unaudited
Consolidated Financial Statements. Certain reclassifications have been
made to prior period financial statements to conform with current period
presentation.
NOTE 3 -- DEBT
The Company's debt as of March 31, 1995 and December 31, 1994 is as
follows:
March 31 December 31
1995 1994
-------- -----------
Revolving Promissory Note to BIL $18,503 $18,503
Loans payable to HSBC 10,000 10,000
Other domestic debt 9,843 8,913
Foreign debt 6,048 5,210
______ ______
Total debt 44,394 42,626
Less short-term debt and current
installments of long-term debt 13,111 17,658
______ ______
Long-term debt, net of current
installments, including Revolving
Promissory Note to BIL $31,283 $24,968
On September 30, 1992, E&J Inc. entered into a $20 million unsecured
Revolving Credit Agreement with The Hongkong and Shanghai Banking
Corporation Limited ("HSBC"). Advances under the Revolving Credit
Agreement bear interest at the prime rate as announced by Marine Midland
Bank, N.A. from time to time. As of September 30, 1993, HSBC and E&J Inc.
agreed to amend the Revolving Credit Agreement and extend its term to
September 30, 1996. The HSBC facility, as amended, provides up to $6
million for letter of credit availability and, additionally, cash advances
of up to $10 million to E&J Inc. Such cash advances have been fully
utilized since October, 1993. Repayment of existing debt with BIL is
subordinated to the HSBC debt, and Brierley Investments Limited, an
affiliate of BIL, has guaranteed its repayment.
As part of a debt conversion transaction as described in Note 7 hereto,
BIL agreed to provide to the Company and E&J Inc. a revolving credit
facility of up to $12.5 million. Such revolving credit facility was
subsequently amended to allow advances up to $18.5 million. At March 31,
1995 and December 31, 1994 this facility has been fully utilized. The BIL
revolving credit facility has been extended to September 30, 1996, bears
interest at the rate of 8% per annum, and is secured by a lien on and
security interest in all assets of the Company and E&J Inc. The BIL
revolving credit facility is subordinated to the HSBC Revolving Credit
Agreement. As of March 31, 1995, $1.3 million of accrued, unpaid interest
was due BIL under the BIL revolving credit facility .
In July, 1991, the Company obtained a credit facility for its Smith &
Davis subsidiary which has been amended twice. This facility now extends
through December 31, 1995, bears interest at prime plus 2% and as of April
4, 1995 allows for advances of up to $5.0 million. The facility is secured
by substantially all of the assets of Smith & Davis. At March 31, 1995,
the Company had borrowed $5.8 million under this credit facility. On April
4, 1995 approximately $4.5 million of this balance was repaid with proceeds
from the sale of the Smith & Davis Institutional Business. See Note 4--
Assets Held for Sale.
The Company's Canadian subsidiary has credit facilities in the
aggregate of $5.4 million, of which $5.1 million was borrowed as of March
31, 1995 at interest rates ranging from prime plus 1/2% to prime plus 3/4%.
The loans are secured by the assets of the Canadian subsidiary.
The Company's Mexico subsidiary has a credit facility in the aggregate
of $0.9 million, which was fully utilized as of March 31, 1995 at interest
rates approximating 13%. The loan is secured by the assets of the Mexico
subsidiary.
At March 31, 1995, the Company was contingently liable under existing
letters of credit in the aggregate amount of approximately $5.9 million.
NOTE 4 -- ASSETS HELD FOR SALE
Pursuant to an Asset Purchase Agreement dated February 15, 1995, the
Company agreed to sell the Smith & Davis Institutional Business. This
transaction was finalized effective April 4, 1995.
Net assets held for sale of the Company's Smith & Davis Institutional
Business consist of the following as of March 31, 1995 and December 31,
1994 (stated at estimated net realizable values). Such values approximate
the net proceeds from the sale of the Institutional Business on April 4,
1995. The proceeds consisted of approximately $4.5 million in cash (which
was used to repay debt), $3.3 million in assumption of liabilities, and
notes valued at approximately $2.1 million.
March 31 December 31
1995 1994
-------- -----------
Smith & Davis:
Accounts receivable $3,590 $ 4,099
Inventories 5,385 4,298
Land and buildings 1,350 1,350
Machinery & equipment 1,200 1,200
Other assets 164 342
______ ______
Total assets held for sale $11,689 $11,289
Results of operations for the Smith & Davis Institutional Business for
the three month period ended March 31, 1995 and March 31, 1994 were as
follows:
Three Months Ended March 31
---------------------------
1995 1994
------------ ------------
Revenues $5,508 $5,082
Cost of sales 3,940 3,601
_____ _____
Gross profit 1,568 1,481
Operating expenses 1,279 1,629
Interest expense 160 113
_____ _____
Net income (loss) $ 129 $ (261)
During the phase out period through the disposal date, the results of
the Smith & Davis Institutional Business are being included as a component
of Accrued restructuring expenses on the consolidated balance sheet.
NOTE 5 -- LOSS PER SHARE
Loss per share for the three month periods ended March 31, 1995 and
1994 is calculated based on the weighted average number of shares of Common
Stock outstanding during the periods.
NOTE 6 -- INVENTORIES
Inventories at March 31, 1995 and December 31, 1994 consist of the
following:
March 31 December 31
1995 1994
-------- -----------
Raw materials $ 8,911 $ 10,249
Work-in-process 5,420 5,585
Finished goods 4,440 4,615
______ ______
$18,771 $20,449
NOTE 7 -- COMMON STOCK
On March 17, 1992, the stockholders of the Company approved a Plan of
Reclassification. Under the Plan of Reclassification, the Certificate of
Incorporation of the Company was amended to replace the Company's
authorized Class A Common Stock and Class B Common Stock with a new single
class of Common Stock having 25,000,000 authorized shares, and reclassified
each outstanding Class A Common share and each outstanding Class B Common
share into one share of such new single class of Common Stock. The Plan of
Reclassification became effective as of the close of business on November
18, 1993.
On December 31, 1993, the Company's stockholders approved a debt
conversion transaction, which resulted in the issuance of 55 million shares
of Common Stock and 20 million shares of 7% Series C Convertible Preferred
Stock. See the notes to the Consolidated Financial Statements included in
the Company's annual report filed on Form 10-K for the year ended December
31, 1994 for further information.
On December 31, 1993, the Company issued 8 million shares of Common
Stock to the stockholders of MCT.
NOTE 8 -- CONTINGENT LIABILITIES
In July, 1990, a class action suit was filed in the United States
District Court for the Central District of California by a stockholder of
the Company against the Company and certain of its present and former
directors and officers. The suit seeks unspecified damages for alleged non-
disclosure and misrepresentation concerning the Company in violation of
federal securities laws. The Company twice moved to dismiss the complaint
on various grounds. After the first such motion was granted, plaintiff
filed a first amended complaint, which subsequently was dismissed by order
filed on September 20, 1991. Plaintiff then notified the court that it did
not intend to further amend the complaint, and an order dismissing the
complaint was entered in November 1991. Plaintiff filed a notice of appeal
to the Court of Appeals for the Ninth Circuit on December 23, 1991. The
case was briefed and oral argument heard in June, 1993. On January 18,
1994, the Ninth Circuit ordered that the plaintiff's submission be vacated
pending the outcome of a petition for rehearing in another case that
addresses a similar procedural issue that was argued on appeal in that
case. The Ninth Circuit issued its decision in that other case on December
9, 1994. By an order dated January 17, 1995, the Ninth Circuit directed
Plaintiff and the Company to address the effect of the decision in the
other case on this case. The parties did so by supplemental letter briefs
in February 1995. The Company is now awaiting a decision from the Ninth
Circuit. The Company continues to believe the case is without merit and
intends to contest the asserted complaints vigorously. The ultimate
liability, if any, cannot be determined at this time.
Die Cast Products, Inc. ("Die Cast Products"), a former subsidiary of
the Company, has been named as a defendant in a lawsuit filed by the State
of California pursuant to the Comprehensive Environmental Response,
Compensation and Liability Act 42 U.S.C. para 9601 et sec. The Company was
originally notified of this action on December 10, 1992. The lawsuit seeks
to recover response and remediation costs in connection with the release or
threatened release of hazardous substances at 5619-21 Randolph Street, in
the City of Commerce, California ("Randolph Street Site"). It is alleged
that the Randolph Street Site was used for the treatment, storage and
disposal of hazardous substances. The Company anticipates being named as a
defendant as a result of its former ownership of Die Cast Products, which
allegedly disposed of hazardous waste materials at the Randolph Street
Site. Investigation with respect to potential liability of the Company is
in the early stages. Issues to be addressed include whether the Company
has any responsibility for the alleged hazardous waste disposals of its
former subsidiary, whether the subsidiary actually sent hazardous waste
materials to the Randolph Street Site; the nature, extent and costs of the
ultimate cleanup required by the State of California; the share of that
cleanup which may ultimately be allocated to the Company's former
subsidiary and/or the Company; and the extent to which insurance coverage
may be available for any costs which may eventually be assigned to the
Company. Remedial investigations performed on behalf of the State of
California at the Randolph Street Site have disclosed soil and groundwater
contamination. The Company recorded a reserve of $1.0 million for this
matter in 1993. This site continues under investigation by the State of
California. No charges to operations were made during 1994 or 1995
pursuant to this site.
In March, 1993, E&J Inc. received a notice from the United States
Environmental Protection Agency ("EPA") regarding an organizational meeting
of generators with respect to the Casmalia Resources Hazardous Waste
Management Facility ("Casmalia Site") in Santa Barbara County, California.
The EPA alleges that the Casmalia Site is an inactive hazardous waste
treatment, storage and disposal facility which accepted large volumes of
commercial and industrial wastes from 1973 until 1989. In late 1991, the
Casmalia Site owner/operator abandoned efforts to actively pursue site
permitting and closure and is currently conducting only minimal maintenance
activities. The EPA estimates that the Casmalia Site's closure trust fund,
approximately $10 million, is substantially insufficient to cover cleanup
and closure of the site. Since August, 1992, the EPA has undertaken
certain interim stabilization actions to control actual or threatened
releases of hazardous substances at the Casmalia Site. The EPA is seeking
cooperation from generators to assist in the cleaning up, and closing of,
the Casmalia Site. E&J Inc. and 64 other entities were invited to the
organizational meeting. The EPA has identified E&J Inc. as one of the
larger generators of hazardous wastes transported to the Casmalia Site.
E&J Inc. is a member of a manufacturers' group of potentially responsible
parties which has investigated the site and proposed a remediation plan to
the EPA. To reflect E&J Inc.'s estimated allocation of costs thereunder, a
reserve of $1.0 million was recorded in 1993. During 1994 a proposal by
the manufacturing group to the EPA and State of California was made which
would result in the Company obtaining a release from further prosecution
for 30 years. No charges to operations were made during 1994 or 1995
pursuant to such settlement offer.
In 1989, a patent infringement case was initiated against E&J Inc. and
other defendants in the U.S. District Court, Central District of
California. E&J Inc. prevailed at trial with a directed verdict of patent
invalidity and non-infringement. The plaintiff filed an appeal with the
U.S. Court of Appeals for the Federal Circuit. On March 31, 1993, the
Court of Appeals vacated the District Court's decision and remanded the
case for trial. Impacting the retrial of this litigation was a re-
examination proceeding before the Board of Patent Appeals with respect to
the subject patent. A ruling was rendered November 23, 1993 sustaining the
claim of the patent which E&J Inc. has been charged with infringing. Upon
the issuance of a patent re-examination certificate by the U.S. Patent
Office, the plaintiff presented a motion to the District Court requesting a
retrial of the case. The Company presented a Motion for Summary Judgment
of Noninfringement based in part upon the November 23, 1993 decision of the
Board of Patent Appeals. The Motion was granted in follow-up conferences
and an official Judgment was entered November 17, 1994. No written opinion
has yet been issued, but the Court indicated in conferences that one might
be rendered. The plaintiff filed a Notice of Appeal on November 23, 1994,
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.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1994
The following table summarizes operating results of the Company for the
three months ended March 31, 1995 and 1994 (dollars in millions):
Three Months Ended March 31
---------------------------
1995 1994
------------ ------------
Amount % Amount %
------ --- ------ ---
Revenue $18.5 100 $20.2 100
Cost of sales 14.3 77 16.1 80
______ ____ ______ ____
Gross profit 4.2 23 4.1 20
Operating expenses 4.5 25 5.2 26
______ ____ ______ ____
Operating loss (0.3) (2) (1.1) (6)
Interest expense 0.9 4 0.5 2
______ ____ ______ ____
Loss before income taxes (1.2) (6) (1.6) (7)
Income tax provisions -- -- 0.1 1
______ ____ ______ ____
Net loss $(1.2) (6) $(1.7) (8)
First quarter 1995 revenues of $18.5 million decreased $1.7 million, or
8%, from 1994, due primarily to increased sales during 1994 resulting from
substantial reductions of domestic wheelchair backlog carried over from
1993. Domestic sales decreased by $1.3 million from 1994 to 1995.
However, the order rate decreased by only $0.4 million.
First quarter 1995 revenues in the Everest & Jennings' Canadian and
Mexican subsidiaries were down $0.4 million or 10%, due primarily to
unfavorable Canadian and Mexican exchange rates.
Total Company first quarter gross profit increased $0.1 million from
$4.1 million in 1994 to $4.2 million in 1995, due primarily to the
implementation of cost reductions throughout 1994 at the Company's primary
domestic wheelchair manufacturing facility. As a percentage of sales,
margins increased from 20% during 1994 to 23% during 1995. To continue the
improvement in the Company's operating efficiencies and reduction in cost
structure, additional production relocation and facility rationalizations
are planned during 1995.
Total Company first quarter operating expenses decreased $0.7 million
from $5.2 million in 1994 to $4.5 million in 1995 due primarily to reduced
spending levels and headcount reductions. Spending reductions included a
reduction in research and development spending of $0.2 million from $0.5
million during 1994 to $0.3 million during 1995. The Company's
restructuring and headcount reductions have begun to produce more favorable
operating results.
Interest expense of $0.9 million in the first quarter of 1995 increased
from the comparable period in the prior year due to increased borrowing
throughout 1994.
Neither the results of the first quarter 1995 nor 1994 include the
results of the Smith & Davis Institutional Business, which are instead
reflected in the restructuring reserve. See Note 4--Assets Held for Sale.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity are cash provided from
operations, borrowings and cash on hand. At March 31, 1995 and December
31, 1994, the Company had $0.5 million in cash. At March 31, 1995, total
debt of $44.4 million was $1.8 million higher than the $42.6 million in
debt at December 31, 1994. The increase was due to increases in foreign
debt and domestic borrowing under the Smith & Davis credit facility. See
Note 3--Debt of the Notes to the Unaudited Consolidated Financial
Statements included in Item 1 of this Form 10-Q.
Pursuant to an Asset Purchase Agreement dated February 15, 1995, the
Company agreed to sell the Smith & Davis Institutional Business. This
transaction was finalized effective April 4, 1995.
The Company's 1995 year to date revenues and operating results have
been negatively impacted by ongoing price competition, liquidity
constraints and loss of market share due to the relocation of the Company's
primary domestic wheelchair manufacturing facility from California to
Missouri. The loss of customer confidence stemming from long lead times
and shipping delays due to start-up inefficiencies, computer system
problems and inventory imbalances in the Missouri manufacturing operations
is expected to adversely impact revenues, operating income and cash flow at
least through the end of 1995. Management is implementing plans which are
intended to address the Company's problems with manufacturing and shipment
delays. The plans also address the rationalization of the Company's
production facilities and the increased outsourcing of products and product
components, the effects of which will be to lower the Company's production
costs. Order rates, margins and market share must increase, production and
operating costs must be reduced and customer confidence must be restored in
the very near term if the Company is to generate the cash flow necessary to
fund its operations on a continuing basis and to achieve profitability.
Management believes that the Company's domestic and international
manufacturing capacity is sufficient to meet anticipated demand for the
foreseeable future.
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Note 8--Contingent Liabilities to the Notes to the Unaudited
Consolidated Financial Statements in Item 1 of this Form 10-Q for a
description of certain pending lawsuits and proceedings.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS:
None
REPORTS ON FORM 8-K:
Financial
Date of Report Item(s) Reported Statements Filed
-------------- ---------------- ----------------
1. April 4, 1995 2, 7 (relating to the None
disposition of assets)
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
Date: May 15, 1995 EVEREST & JENNINGS INTERNATIONAL LTD.
(Registrant)
By (TIMOTHY W. EVANS)
Timothy W. Evans
Vice President and
Chief Financial Officer
By (BEVIL J. HOGG)
Bevil J. Hogg
President and
Chief Executive Officer