<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- -----
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED
JANUARY 28, 1996
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 0-11062
ANDROS INCORPORATED
(Exact name of registrant as specified in its charter)
DELAWARE 94-1674541
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
2332 FOURTH STREET
BERKELEY, CALIFORNIA 94710-2402
(Address of principal executive offices)
(Zip code)
TELEPHONE: (510) 849-5700
(Registrant's telephone number, including area code)
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 such filing
requirements for the past 90 days.
Yes XX No
---- ----
APPLICABLE ONLY TO CORPORATE ISSUERS: Number of shares of Common Stock, $.01 par
value outstanding as of January 28, 1996 was 4,628,100.
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION PAGE
<S> <C>
Item 1: Financial Statements
Condensed Consolidated Balance Sheet
January 28, 1996 3
July 30, 1995 3
Condensed Consolidated Income Statement
Quarter and Six Months Ended January 28, 1996 4
Quarter and Six Months Ended January 29, 1995 4
Condensed Consolidated Statement of Cash Flows
Six Months Ended January 28, 1996 5
Six Months Ended January 29, 1995 5
Notes to Condensed Consolidated Financial Statements 6-7
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations 8-11
PART II OTHER INFORMATION
Item 1: Legal Proceedings 12
Item 6: Exhibits and Reports on Form 8-K 13
Signatures 14
</TABLE>
2
<PAGE> 3
PART I
Item 1
ANDROS INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
January 28, 1996 July 30,1995
---------------- ------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,532,600 $ 9,612,000
Short-term investments, available-for-sale 23,680,800 16,400,300
Accounts receivable, net 11,959,500 8,231,800
Inventories 15,194,900 16,772,500
Prepaid expenses 343,100 839,400
----------- -----------
Total current assets 54,710,900 51,856,000
Plant and equipment, net 4,992,100 5,298,800
Goodwill, other intangibles and other assets, net 6,386,300 6,715,700
----------- -----------
$66,089,300 $63,870,500
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,952,300 $ 3,725,200
Accrued liabilities 1,037,000 1,397,200
Income taxes payable 693,900 0
----------- -----------
Total current liabilities 5,683,200 5,122,400
Deferred income taxes 221,800 379,900
----------- -----------
Total liabilities 5,905,000 5,502,300
----------- -----------
Shareholders' equity:
Common shares - $.01 par value, 10,000,000
shares authorized; outstanding 4,628,100
and 4,568,400 34,678,400 33,946,700
Retained earnings 25,505,900 24,421,500
----------- -----------
Total shareholders' equity 60,184,300 58,368,200
----------- -----------
$66,089,300 $63,870,500
=========== ===========
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
3
<PAGE> 4
ANDROS INCORPORATED
CONDENSED CONSOLIDATED INCOME STATEMENT
(Unaudited)
<TABLE>
<CAPTION>
Quarter ended Six months ended
------------- ----------------
1/28/96 1/29/95 1/28/96 1/29/95
------- ------- ------- -------
<S> <C> <C> <C> <C>
Sales $ 11,630,000 $ 12,465,000 $ 20,850,700 $ 24,312,200
Cost of sales 7,399,500 7,337,700 13,382,900 14,049,400
------------ ------------ ------------ ------------
Gross profit 4,230,500 5,127,300 7,467,800 10,262,800
------------ ------------ ------------ ------------
Expenses and other income:
Research and development 1,260,500 1,199,800 2,572,400 2,485,100
Marketing, general
and administrative 1,959,800 2,387,600 3,938,400 4,835,400
Interest and other income, net (347,300) (368,100) (637,800) (709,800)
------------ ------------ ------------ ------------
2,837,000 3,219,300 5,873,000 6,610,700
------------ ------------ ------------ ------------
Income before income taxes 1,357,500 1,908,000 1,594,800 3,652,100
Income tax provision 434,500 571,100 510,400 1,129,300
------------ ------------ ------------ ------------
Net income $ 923,000 $ 1,336,900 $ 1,084,400 $ 2,522,800
============ ============ ============ ============
Earnings per share
of common stock $ .19 $ .28 $ .22 $ .52
============ ============ ============ ============
Weighted average common and
common equivalent shares 4,824,000 4,800,700 4,849,800 4,814,200
============ ============ ============ ============
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
4
<PAGE> 5
ANDROS INCORPORATED
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six months ended
----------------
January 28, 1996 January 29, 1995
---------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,084,400 $ 2,522,800
Adjustments to reconcile net income to
net cash flows from operating activities:
Depreciation and amortization 1,111,300 1,186,100
Deferred income taxes (158,100) (400,000)
Changes in assets and liabilities:
Accounts receivable, net (3,727,700) (1,010,100)
Inventories 1,577,600 (1,750,300)
Prepaid expenses 496,300 (284,800)
Accounts payable and accrued liabilities (133,100) 826,600
Income taxes payable 693,900 (195,000)
----------- -----------
Net cash flows from operating activities 944,600 895,300
----------- -----------
Cash flows from investing activities:
Change in short-term investments (7,280,500) (1,866,500)
Capital expenditures (487,400) (630,900)
Change in goodwill, other intangibles and other assets 12,200 0
----------- -----------
Net cash flows from investing activities (7,755,700) (2,497,400)
----------- -----------
Cash flows from financing activities:
Proceeds from issuance of common stock, net 731,700 147,000
Repayment of shareholder note receivable 0 22,500
----------- -----------
Net cash flows from financing activities 731,700 169,500
----------- -----------
Net change in cash and cash equivalents (6,079,400) (1,432,600)
Cash and cash equivalents at beginning of period 9,612,000 3,431,700
----------- -----------
Cash and cash equivalents at end of period $ 3,532,600 $ 1,999,100
=========== ===========
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
5
<PAGE> 6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1
The accompanying unaudited condensed consolidated financial statements should be
read in conjunction with the Registrant's Annual Report on Form 10-K for the
year ended July 30, 1995. In the opinion of the Registrant, the accompanying
unaudited condensed consolidated financial statements contain all adjustments,
consisting only of normal recurring entries, necessary to present fairly its
financial position as of January 28, 1996 and its income and cash flows for the
periods presented. Registrant operates on a 52-53 week fiscal year ending the
last Sunday in July. The results of operations for the three and six month
periods ended January 28, 1996 and January 29, 1995 are not necessarily
indicative of the results to be expected for the entire year.
NOTE 2
<TABLE>
<CAPTION>
January 28, 1996 July 30, 1995
---------------- -------------
(unaudited)
<S> <C> <C>
Inventories:
Raw material $11,757,200 $14,243,000
Work in process 2,957,900 1,977,800
Finished goods 479,800 551,700
----------- -----------
$15,194,900 $16,772,500
=========== ===========
</TABLE>
NOTE 3
STOCK-BASED COMPENSATION
In October 1995, the Financial Accounting Standards Board issued Statement of
Accounting Standards No. 123 (SFAS 123) "Accounting for Stock-Based
Compensation". Under the new standard, companies will be encouraged, but not
required, to adopt a new method of accounting for stock-based compensation
awards based on estimated fair value at the date the awards are granted.
Companies that continue to follow existing standards, which measure compensation
cost as the excess, if any, of the quoted market price of the stock at grant
date or other measurement date over the amount an employee must pay to acquire
the stock, will be required to disclose in a note to the financial statements
the effect on net income had the company recognized expense for stock options
based on SFAS 123. The requirements of this Statement are effective for
financial statements for fiscal years beginning after December 15, 1995.
The Company plans to implement the provisions of SFAS 123 during its fiscal year
ending July 27, 1997, and has not yet determined the method of adoption or its
financial statement effect.
6
<PAGE> 7
NOTE 4
SUBSEQUENT EVENT
On February 14, 1996, Genstar Capital Partners II, L.P. and Andros entered into
a definitive merger agreement pursuant to which Andros' stockholders will
receive $18.00 per share in cash for each share of Andros' common stock. The
total value of the transaction, which includes the cash-out of substantially all
existing stock options, is approximately $87.5 million. Pursuant to the merger
agreement, which was approved by Andros' Board of Directors, Genstar Capital
commenced a tender offer for all outstanding shares of common stock of Andros on
February 21, 1996. Upon completion of the tender offer, the merger agreement
provides that shares of Andros not tendered will be acquired in a merger at the
same price per share in cash. The merger agreement also provides that Andros
will pay Genstar a fee of $3.1 million in certain circumstances.
7
<PAGE> 8
PART I
Item 2 Management's Discussion And Analysis Of Financial Condition And
Results Of Operations
GENERAL
The industry in which the Company competes, as well as the markets that it
serves, may be characterized by cyclical market patterns as a consequence of,
among other things, business cycles, regulatory changes or general economic
conditions affecting the timing of orders from major customers. Substantial
variations in the operations of the Company's customers or in the demand for
their products has in the past and may in the future cause substantial
variations in sales and profitability from quarter to quarter. The Company's
sales may also be adversely affected by competition from third parties,
including customers that may elect to develop internally products comparable to
those of the Company. In addition, demand for the Company's automotive and
spectrum analysis instrumentation may be substantially affected by the
enactment, timing, extent and severity of state, federal and foreign laws
governing inspection of automotive emissions and levels of lead contaminants.
The Company has experienced fluctuations in sales of such products as well as in
demand for particular product enhancements as a result of actual or perceived
changes in regulatory requirements. Legislation or regulations resulting in
stricter enforcement of, or more stringent specifications for, testing of
automotive emissions has resulted in periodic increases in sales and the
development of enhanced new products. Conversely, decreases in sales have
resulted, and may result in the future, from actual or perceived delays in or
weakening of enforcement standards. The Company expects such fluctuations to
continue in the future. In particular, state programs related to inspection of
automotive emissions have recently been subject to reconsideration in a number
of states where legislators are seeking to reduce regulation and otherwise
weaken these programs. If these efforts are successful, the Company's sales
would be adversely affected.
In addition, because Andros' products are sold primarily to OEM customers for
incorporation into their end user products, the volume and timing of the
Company's sales are largely dependent on the volume and timing of sales by the
Company's customers. Delays in release of orders or failure to place new orders
could have a substantial impact on the Company's results of operations from
quarter to quarter.
On February 14, 1996, Genstar Capital Partners II, L.P. and Andros entered into
a definitive merger agreement pursuant to which Andros' stockholders will
receive $18.00 per share in cash for each share of Andros' common stock. The
total value of the transaction, which includes the cash-out of substantially all
existing stock options, is approximately $87.5 million. Pursuant to the merger
agreement, which was approved by Andros' Board of Directors, Genstar Capital
commenced a tender offer for all outstanding shares of common stock of Andros on
February 21, 1996. Upon completion of the tender offer, the merger agreement
provides that shares of Andros not tendered will be acquired in a merger at the
same price per share in cash. The merger agreement also provides that Andros
will pay Genstar a fee of $3.1 million in certain circumstances.
8
<PAGE> 9
RESULTS OF OPERATIONS
The Company's sales for the second quarter and first six months of fiscal 1996
decreased 7% to $11,630,000 and 14% to $20,850,700, respectively, over the
comparable periods in fiscal 1995. This decrease in sales resulted primarily
from lower sales of automotive gas analyzers in the U.S., offset in part by
increased worldwide medical sales, and higher sales of automotive exhaust
analyzers in Europe.
U.S. automotive sales decreased 88% and 87% to $554,300 and $964,000,
respectively, for the second quarter and first six months of fiscal 1996 over
the same periods last year due to delays in implementation of the IM 240
program. Management believes that the sales decrease was also attributable to
customer uncertainty with respect to implementation or potential weakening of
government-mandated automotive emission inspection programs in different states.
Worldwide medical sales increased 87% to $5,080,600 for the second quarter of
fiscal 1996 over the comparable quarter last year. The increase is primarily due
to an increase in sales of the Model 4700 Anesthesia Monitoring System. Sales
decreased 19% to $6,398,200 for the first six months of fiscal 1996 compared to
the same period last year due to changes in order patterns of customers in the
U.S., Europe and the Far East as they continue to bring their inventories in
line with expected revenues, offset in part by increased sales of the Model 4700
Anesthesia Monitoring System.
International automotive sales increased 28% and 83% to $4,234,300 and
$9,955,400, respectively, for the second quarter and first six months of fiscal
1996 over the same periods last year. The increase in sales is mainly related to
the now ongoing United Kingdom MOT program.
Scitec sales decreased 8% and 18% to $844,400 and $1,613,800, respectively, for
the second quarter and first six months of fiscal 1996 over the same period last
year. The second quarter sales decrease is mainly due to a 53% decrease in MAP 3
rental and training revenue partially offset by 16% increase in sales of the MAP
product. The decrease in sales for the first six months of fiscal 1996 is
primarily due to the delay of volume shipments of the MAP 4 product. The volume
shipments of the MAP 4 product began in December 1995.
Automotive service sales decreased 8% to $916,400 for the second quarter due to
lower sales of spare parts and services, and increased 16% to $1,919,300 for the
first six months of fiscal 1996 over the same periods last year due primarily to
increased sales of spare parts in the first quarter of fiscal 1996.
Gross margins for the second quarter and first six months of fiscal 1996 were
36.4% and 35.8%, respectively, compared to 41.1% and 42.2%, respectively, for
the same periods a year ago mainly due to increased material costs and
variations in the sales mix.
Research and development expenses increased 5% and 4%, respectively, in the
second quarter and first six months of fiscal 1996 over the same periods a year
ago, due primarily to significant efforts to developing gas related products.
Marketing, general and administrative expenses were down 18% and 19%,
respectively, for the second quarter and first six months of fiscal 1996
compared to the same periods a year ago mainly due to tighter control over
operating expenses.
9
<PAGE> 10
Interest and other income was down 6% and 10%, respectively, in the second
quarter and first six months of fiscal 1996 compared to the same periods last
year due mostly due to the lower average investment balance and lower interest
rates.
Net income decreased 31% and 57%, respectively, for the second quarter and first
six months of fiscal 1996 over the same periods last year, mainly due to the
decreases in sales and interest and other income, as well as the increases in
research and development expenses, offset in part by decreases in marketing and
general administrative expenses. As a result, earnings per share decreased 32%
and 58%, respectively, for these same periods last year.
FINANCIAL CONDITION
The Company's January 28, 1996 balance sheet reflected a current ratio of 9.6:1,
working capital of $49 million and shareholders' equity of $60.2 million. Cash
and cash equivalents and short-term investments increased 5% to $27,213,400 at
January 28, 1996 as compared to $26,012,300 on July 30, 1995. This increase
resulted primarily from cash flows from operations.
Management believes that the cash and cash equivalents and short-term
investments on hand at January 28, 1996, together with the cash flows
anticipated from operations and the availability of a bank line of credit, will
be sufficient to meet the Company's working capital and capital expenditure
needs for the next twelve months.
Accounts receivable increased 45% mainly due to sales related to the MOT U.K.
program. The customers in Europe generally enjoy longer payment terms.
<TABLE>
<CAPTION>
January 28, 1996 July 30, 1995
---------------- -------------
(unaudited)
<S> <C> <C>
Current ratio (:1) 9.6 10.1
Working capital $49,027,700 $46,733,600
Shareholders' equity $60,184,300 $58,368,200
Cash and cash equivalents
and short-term investments $27,213,400 $26,012,300
</TABLE>
NEW ACCOUNTING PRONOUNCEMENTS
In October 1995, the Financial Accounting Standards Board issued Statement of
Accounting Standards No. 123 (SFAS 123) "Accounting for Stock-Based
Compensation". Under the new standard, companies will be encouraged, but not
required, to adopt a new method of accounting for stock-based compensation
awards based on estimated fair value at the date the awards are granted.
Companies that continue to follow existing standards, which measure compensation
cost as the excess, if any, of the quoted market price of the stock at grant
date or other measurement date over the amount an employee must pay to acquire
the stock, will be required to disclose in a note to the financial statements
the effect on net income had the company recognized expense for stock options
based on SFAS 123. The requirements of this Statement are effective for
financial statements for fiscal years beginning after December 15, 1995.
10
<PAGE> 11
The Company plans to implement the provisions of SFAS 123 during its fiscal year
ending July 27, 1997, and has not yet determined the method of adoption or its
financial statement effect.
11
<PAGE> 12
PART II
Item 1 Legal Proceedings
On March 4, 1996 the Company was served with a Class Action Complaint in an
action entitled IRA FBO Daniel W. Krasner, DLISC as custodian v. Andros
Incorporated, et al., Civil Action No. 14872, filed in the Delaware Chancery
Court for New Castle County. Named as defendants are the Company and directors
Dane Nelson, John M. Huneke, Eugene Kleiner, Dr. Karl H. Schimmer and Robert C.
Wilson. Plaintiff, who purports to represent a class consisting of shareholders
of the Company, alleges that the defendants have breached fiduciary duties to
the Company's shareholders by, inter alia, failing to maximize shareholder value
in the sale of the Company and failing to make full disclosure in connection
with the announced tender offer. Plaintiff purports to seek a preliminary and
permanent injunction preventing the consummation of the transaction and
requiring supplemental disclosure, and also seeks unspecified money damages,
costs and attorney's fees. No discovery has yet taken place, and no motion for
injunctive relief has been filed.
12
<PAGE> 13
PART II
Item 6 Other information
Exhibits and Reports on Form 8-K
None.
13
<PAGE> 14
SIGNATURE PAGE
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:
Dated: March 12, 1996
ANDROS INCORPORATED
(Registrant)
/s/ WILLIAM W. WEISS
---------------------
William W. Weiss
Acting Chief Financial Officer
and Controller
14
<PAGE> 15
EXHIBIT INDEX
Exhibit
No. Description
- ------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-28-1996
<PERIOD-START> JUL-31-1995
<PERIOD-END> JAN-28-1996
<CASH> 3532600
<SECURITIES> 23680800
<RECEIVABLES> 12522900
<ALLOWANCES> 563400
<INVENTORY> 15194900
<CURRENT-ASSETS> 54710900
<PP&E> 19601700
<DEPRECIATION> 14609600
<TOTAL-ASSETS> 66089300
<CURRENT-LIABILITIES> 5683900
<BONDS> 0
0
0
<COMMON> 34678400
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 66089300
<SALES> 20850700
<TOTAL-REVENUES> 20850700
<CGS> 13382900
<TOTAL-COSTS> 13382900
<OTHER-EXPENSES> 5873000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1594800
<INCOME-TAX> 510400
<INCOME-CONTINUING> 1084400
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1084400
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
