<PAGE>
UNITED STATES 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 [FEE REQUIRED]
For the fiscal year ended February 28, 1995 or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from __________ to __________
Commission File Number 0-1460
ANDERSEN GROUP, INC.
(Exact name of Registrant as specified in its charter)
Connecticut 06-0659863
(State or other jurisdiction of (I.R.S Employer
incorporation or organization) Identification No.)
Ney Industrial Park, Bloomfield, Connecticut 06002-3690
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203) 242-0761
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock Without Par Value
(Title of Class)
10-1/2% Convertible Subordinated Debentures Due 2002
(Title of Class)
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, and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements. [ X ]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant based upon the closing sale price of the Common Stock on May 19,
1995, as reported on the NASDAQ National Market System, was approximately
$7,622,328. Shares of Common Stock held by each officer and director and by each
person who owns 5% or more of the outstanding Common Stock have been excluded in
that such persons may be deemed to be affiliates. This determination of
affiliate status is not necessarily a conclusive determination for other
purposes. As of May 19, 1995, there were 1,934,205 shares of Common Stock,
without par value, outstanding.
DOCUMENTS INCORPORATED BY REFERENCES: NONE
The exhibit index is located on page 51.
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PART I
------
ITEM 1 - BUSINESS
- - -----------------
GENERAL
-------
Andersen Group, Inc. is referred to herein as the "Company" or the "Registrant".
The Registrant was incorporated under the laws of the State of Connecticut in
1951.
AGI historically has conducted operations in several, highly diverse segments.
These segments have included dental distribution and manufacture and electronics
manufacturing and supply businesses, communications electronics, medical
products and services and video products.
Following the divestiture of the Registrant's medical products and services
operation in February 1990, the Registrant established a formal plan to divest
its remaining communications electronics operation, Microtime, Inc., presently
known as AGI Technology, Inc. (Microtime). Microtime was carried as a
discontinued operation in the Company's Consolidated Financial Statements from
fiscal 1990 until its assets and liabilities were sold in October 1992 to
Digital F/X, Inc. (DF/X) at their book value for consideration consisting of
preferred stock and subordinated notes of DF/X. On February 28, 1991, the
Registrant acquired The J.M. Ney Company (Ney) by merging Ney into a
wholly-owned subsidiary of the Registrant. Ney, which is the Company's primary
operating subsidiary, operates in the dental and electronics industry segments.
During fiscal 1994, Ney created two new subsidiaries, Ney Dental International,
Inc. and Ney Ultrasonics Inc. to hold the businesses associated with Ney's
dental and ultrasonics divisions, respectively.
In April 1993, the Company, through a newly formed subsidiary, New Microtime
Inc. (New Microtime), signed a Participation and Option Agreement with DF/X to
manage and reacquire certain assets and liabilities of its former subsidiary
Microtime, as well as certain assets and liabilities of the Broadcast Division
of DF/X (into which DF/X had placed the assets of Microtime). In September
1993, prior to a bankruptcy filing by DF/X, New Microtime exercised its option
to purchase all of the Broadcast Division assets of DF/X and entered into an
agreement which was approved by the U.S. Bankruptcy Court in December 1993.
In October 1994, New Microtime acquired certain assets of the Graphics Systems
Division (GSD) of The Grass Valley Group, Inc. (Grass Valley). The acquired
product lines were integrated with the other products sold by New Microtime.
The combined entity began operating under the name Digital GraphiX, Incorporated
(DGI) in January 1995. On May 2, 1995, DGI issued an additional 64,800 shares
of common stock to certain DGI employees and securityholders of the Company at
$5.00 per share. As a result of this offering, the Company's equity interest in
DGI has been reduced to 19%. The financial impact of these transactions is
described further in Items 7 and 8 below and in Note 17 to the Company's
Consolidated Financial Statements for the fiscal year ended February 28, 1995.
The Company's Consolidated Financial Statements include the operating results of
DGI from the date of its inception in April 1993 through February 28, 1995.
However, as a result of the sale of DGI stock, at February 28, 1995, the DGI
balance sheet has not been consolidated. As of February 28, 1995, the
activities of DGI are being accounted for in the Company's video segment.
The Registrant operates in three business segments: Dental, Electronics and
Video products. Each of these segments is discussed more fully below.
DENTAL SEGMENT
--------------
Ney Dental International, Inc. (NDI), a wholly owned subsidiary of Ney,
develops, manufactures and distributes a range of materials, equipment and
merchandise for distribution and sale to the dental laboratory health care
market. NDI's principal product line is precious metal casting alloys which are
sold to dentists and dental laboratories for use in the fabrication of crowns,
bridges and other restorative forms used in the restoration and reconstruction
of teeth. Precious metal alloys are preferred for certain dental crown and
bridge applications because they are easy to shape, biocompatible, strong, and
do not corrode or crack. Although various less costly alternatives exist,
acceptance of
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such alternatives has been slow due to concerns regarding the reliability of
such products. NDI's product line consists of over 30 different alloys such as
Option, Ultima Lite, Bio Ney and Ney-Oro B-2 that are manufactured by Ney's
electronics division according to specific formulas that include precious metals
such as gold, platinum, palladium and silver. NDI maintains an active
metallurgical research and development effort. In the past fiscal year, NDI
introduced a palladium-free alloy with a high precious metal content to meet a
growing European demand. Further, alloys which have been designed to meet the
Japanese Industrial Standard (JIS) have resulted in increased penetration of the
Japanese market.
NDI's strategy has been to offer a complete line of products to dental
laboratories. As a result, NDI manufactures, develops and sells equipment,
including vacuum porcelain and bench-top burnout furnaces, dental laboratory
handpieces and commercial ultrasonic cleaners for use in dental, scientific and
industrial laboratories and the jewelry manufacturing industry. Merchandise and
supplies, such as surveyors and Neyvest, which are manufactured by outside
suppliers, are also sold to dental laboratories. ISO 9001 certification, the
international quality standard, was achieved in June 1993 for the manufacture
of the equipment product line. This certification has helped NDI increase its
market share.
NDI sells to approximately 3,500 customers throughout the United States and
foreign countries. Sales in the United States of precious metal alloys are made
through a field sales force and telemarketing staff, while equipment is sold
primarily through dealers. Export sales account for approximately 45% of total
sales. Most export sales are made in Europe through Neyco Dental A.G., an
affiliated subsidiary.
No customer in the Dental segment accounted for more than 10% of the Company's
sales in fiscal 1995.
NDI presently holds 16 patents and is also licensed under a number of patents.
The Registrant believes that neither the possible denial of any patent
applications, the possible determination that any of the patents which have been
granted to NDI could be invalid, or the possible cancellation of any of its
existing license agreements would have a material adverse effect on NDI.
Trademarks of NDI include Ney, Ney-Oro, SMG, Option, Lunar, Bio Ney, Ultima
Lite, Acclaim, Radiant, Sequel, Centurion, Ovation and Neyvest. In all, NDI
maintains approximately 25 U.S. and foreign trademarks related to precious metal
alloys.
The products of NDI are normally shipped directly from inventory within two days
and, accordingly, backlog is not meaningful.
NDI operates in a highly competitive marketplace with a number of substantial
domestic competitors, including Argen, Williams Dental Company, Inc. (a
subsidiary of Ivoclar Dental Anstelt, based in Liechtenstein); Jeneric/Pentron,
Inc. (a subsidiary of Customedix Corporation); and J.F. Jelenko & Company. The
largest foreign supplier is Degussa A.G., which is based in Frankfurt, Germany.
Although some of its competitors have significantly greater resources than NDI,
the Company believes that it competes favorably with its competitors on the
terms of quality, delivery, service and price.
ELECTRONICS SEGMENT
-------------------
The Company's electronics industry segment is comprised of Ney's electronics
division (the Electronics Division) and Ney Ultrasonics Inc., a manufacturer
of industrial ultrasonic cleaning equipment which is a wholly owned subsidiary
of Ney (collectively, the Electronics Segment).
Electronics Division
--------------------
The Electronics Division is a full-service, precious metal and parts supplier
to automotive, medical, industrial electronics, military and semi-conductor
manufacturers. The fully integrated approach of the Electronics Division
includes fabrication and manufacture of its precious metal alloys, design,
engineering and metallurgical support.
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The metallurgical capabilities include stamping, wire drawing, rolling from
ingot to foil, precision turning, injection and insert molding, and refining.
The Electronics Division specializes in the engineering and manufacture of
precious metal alloy contacts and contact assemblies aimed at low amperage
applications. Electrical contacts made of precious metals are considered
extremely dependable as the materials are inert and highly resistant to
corrosion and wear. In developing a finished contact or assembly, the
Electronics Division's technical staff works closely with its customer,
typically on an engineer-to-engineer level, in order to design a product that
meets all of the metallurgical, electronic, thermodynamic and other
performance specifications required by the customer's applications. The
Electronics Division designs and builds the necessary molds and tools as well
as designs and manufactures the end product. By controlling the total process
the Division is allowed a competitive advantage over other companies in
technology, cost and response time. The Electronics Division carries the ISO
9001 certification for manufacture of its products, including those which are
sold to NDI.
The Electronics Division business has limited direct competition with regard
to the manufacture of low amperage precious contacts and contact assemblies
due to the inherent risks which accompany the engineering and manufacture of
precious metals (high start-up and inventory costs, theft, etc.). While some
facilities offer similar products, the Company believes that these operations
lack the vertical integration to compete across the entire spectrum of
products. The Electronics Division also faces indirect competition from
companies such as Engelhard Corporation and Johnson Matthey, Inc., companies
with significantly greater resources, which are involved in higher volume
production of standard precious metal alloys.
Ney Ultrasonics Inc.
--------------------
Ney Ultrasonics Inc. has focused on working with high-end electronic,
semi-conductor and computer customers to validate the advanced capabilities
of patented ultrasonic cleaning technology and to obtain increased market
penetration.
The U.S. Clean Air Act of 1990 mandated the phase-out of the use of
ozone-depleting solvents by January 1996. Historically, these solvents have
been extensively used by industry for precision cleaning. As a result, Ney
Ultrasonics now faces growth prospects during the next few years as its
ultrasonic cleaners are used to replace existing equipment which utilize ozone
depleting chemicals. Ney Ultrasonics is the exclusive licensee, pursuant to a
license agreement which expires in 2005, of the patented ultrasonic technology
used in its products, EnviroSONIK/TM/ and SweepSONIK2/TM/, which the Company
believes are at a competitive advantage to other ultrasonic equipment.
Ney Ultrasonics competes with a number of national and regional companies on
the basis of cleaning performance, price and delivery.
The Electronics Segment sells to more than 800 customers, with approximately 88%
of its sales being made to customers in the United States. The Electronics
Segment sales are made domestically through both field sales and manufacturer's
representatives located in key geographic markets. Internationally, the Segment
sells through independent distributors and original equipment manufacturers.
The Electronics Segment's backlog at April 30, 1995 and April 30, 1994 was
approximately $4,224,000 and $4,160,000, respectively. Although a portion of
the orders included in the backlog are ultimately not released for manufacture
and delivery, due to cancellations, the Company anticipates, based on prior
experience, that the entire backlog at April 30, 1995, less cancelled orders,
will be realized in the next twelve months.
No customer in the Electronics segment accounted for more than 10% of the
Company's sales in fiscal 1995.
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VIDEO SEGMENT
-------------
As discussed above under Item 1, Business-General, the Company's equity interest
in DGI was reduced to 19% from 100% on May 2, 1995.
DGI (formerly known as New Microtime Inc.) designs, manufactures and distributes
graphics systems equipment, digital video effects equipment (DVE), compositing
and graphics workstations and video signal processing equipment for use in live
broadcast, cable, industrial and post production markets.
DGI has a direct sales force, which is augmented by various distribution
channels that sells all products except the GSD products. The GSD products are
sold by Grass Valley, the Company's non-exclusive worldwide distributor pursuant
to a two year Distribution Agreement. Export sales account for approximately
18% of the DGI sales. During fiscal 1995 approximately 40% of DGI's sales
were made to Grass Valley.
DGI owns several patents related to its products and both licenses others and is
licensed under a number of patents. Additionally, several patents are pending
with the U.S. and foreign patent offices related to its IMPACT system and
Composium II workstation.
The Registrant believes that because of the rapid pace of technological change
in the industry, legal protection of its proprietary information is less
significant to the competitive position of DGI than such factors as DGI's
strategy, knowledge, ability and experience of its personnel, new product
development, market recognition and ongoing product maintenance and support.
Without legal protection, however, it may be possible for unauthorized third
parties to copy aspects of DGI products or technology or to obtain and use
information that DGI regards as proprietary, In addition, the laws of some
foreign countries do not protect proprietary rights in products and technology
to the same extent as do the laws of the United States. Although DGI continues
to implement protective measures and intends to defend its proprietary rights
vigorously, there can be no assurance that these efforts will be successful. The
failure or inability of DGI to protect effectively its proprietary information
could have a material adverse effect on its business.
DGI currently holds certain U.S. and foreign trademarks, including the marks
IMPACT, Graphics Factory and Composium.
Backlog at April 30, 1995 and 1994 was approximately $1,126,000 and $642,000,
respectively. The increase in backlog is attributable to the GSD products which
were acquired in October 1994. Although a portion of the orders included in the
backlog is ultimately not released for manufacture and delivery, due to
cancellations, DGI anticipates that the entire backlog less the portion relating
to canceled orders at April 30, 1995 will be realized in the next twelve months.
DGI products are sold in a highly competitive marketplace with a substantial
number of domestic competitors. The chief competitors to DGI's GSD products
(GF-Halo, TypeDeko, Presto and Pronto) are products sold by Chyron, Abekas and
ASTON. Although Grass Valley also has the capability of competing with the GSD
products, it has agreed to limit its competition until October 1996 pursuant to
a non-competition agreement.
For the DVE and composition products (IMPACT and Composium II), DGI's chief
competitors are Abekas, Sony Pinnacle, Quantel and Grass Valley. Competing
products to Composium II are sold by Quantel, a U.K. based company, SoftImage
and Discreet Logic (with its "Flame" product). Although some of its competitors
have significantly greater resources than DGI, the Company believes that DGI
competes favorably in terms of price, service and product performance. See
Business - General above for discussion of transactions involving this business
during the fiscal year 1995.
See Note 16 to the Company's Consolidated Financial Statements contained in Item
8 for the fiscal year ended February 28, 1995, for information about the
operations of the Registrant's business segments and the Registrant's foreign
operations.
5
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OTHER BUSINESSES OF THE REGISTRANT
- - ----------------------------------
On May 10, 1994, the Company's subsidiary, Clear Cellular Holdings, Inc.
(Clear), sold its 34% interest in a partnership which owned a cellular
communications license to Centennial Cellular Corporation (Centennial). The
partnership interest was sold for a combination of cash and Centennial stock.
In addition, on August 23, 1994, the Company sold its general partnership
interest in MidSouth Cellular L.P. (MidSouth), a nonwireline cellular telephone
franchise, to Centennial for Centennial stock. Oliver R. Grace, Jr., Chairman
and Director of the Company, also owned an investment in the partnership. See
Item 7 and 13 below for further discussion of the terms of these transactions
and for a description of Mr. Grace, Jr.'s interest in this transaction.
The Registrant also owns substantially all of the common stock of Seratronics,
Inc. of Nevada (Seratronics), an unconsolidated subsidiary. Seratronics is
located in Walnut Creek, California and is in the business of manufacturing,
marketing and selling dialyzer rinse and re-use machines for use in the end
stage renal disease market. The Registrant's investment in Seratronics, as
recorded on its books, is de minimis. Seratronics is presently a defendant in
litigation with Althin CD Medical, Inc. See Item 3 below and Note 18 to the
Registrant's Consolidated Financial Statements contained in Item 8 for further
discussion.
RESEARCH AND DEVELOPMENT
- - ------------------------
During fiscal years 1995, 1994, and 1993, research and development expenditures
totaled approximately $3,545,000 and $3,167,000, and $2,590,000, respectively.
SOURCES AND AVAILABILITY OF RAW MATERIALS AND COMPONENTS
- - --------------------------------------------------------
The Company purchases its raw materials and the components used in the
manufacture of its products from a number of domestic suppliers and generally is
not dependent upon any single supplier. The Company believes that its sources
of supply are adequate for its continuing needs.
COMPLIANCE WITH ENVIRONMENTAL PROTECTION LAWS
- - ---------------------------------------------
Management of the Company believes that the Company and its operating
subsidiaries are in material compliance with applicable federal, state and local
environmental regulations. Compliance with these regulations has not in the past
had any material effect on the Company's capital expenditures, consolidated
statements of operations or competitive position, nor does the Company
anticipate that compliance with existing regulations will have any such effect
in the near future.
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EMPLOYEES
- - ---------
As of April 28, 1995, the Registrant, including all subsidiaries, had 376
full-time employees and 9 part-time employees, including 62 full time employees
and 3 part time employees of DGI. Subsequent to the sale of DGI Common Stock on
May 2, 1995, the Company had 314 full time and 6 part time employees. None of
these employees are represented by a labor union, and the Registrant is not
aware of any organizing activities. Neither the Registrant nor any of its
subsidiaries has experienced any significant work stoppage due to any labor
problems. The Registrant considers its employee relations to be satisfactory.
EXECUTIVE OFFICERS OF THE REGISTRANT
- - ------------------------------------
The Executive Officers of the Company and certain significant employees of its
subsidiaries are as follows:
<TABLE>
<CAPTION>
Officer
Name Age Position Since
---- --- -------- -----
<S> <C> <C> <C>
Oliver R. Grace, Jr. 41 Chairman 1990
Francis E. Baker 65 President and Chief Executive Officer 1959
Jack E. Volinski 35 Chief Financial Officer 1993
Elmer J. Dahl 63 Secretary 1968
Bernard F. Travers, III 37 Assistant Secretary 1993
H. George Wolfe, Jr. 48 President, Ney Dental International, 1987
Inc.
Ronald N. Cerny 43 General Manager, The J.M. Ney Company 1993
</TABLE>
Except as set forth below, all of the officers have been associated with the
Company in their present positions for more than the past five years. None of
the executive officers of the Company are related to any of the Directors.
Mr. Grace, Jr. is the brother of John S. Grace and Gwendolyn Grace, each of whom
are members of the Company's Board of Directors.
Mr. Grace, Jr. has been a Director of the Company since 1986 and Chairman since
March 1990. He has also been President of AG Investors, Inc., one of the
Company's subsidiaries, since 1992. Mr. Grace, Jr. is a general partner of The
Anglo American Security Fund L.P., and serves as a director of Republic
Automotive Parts, Inc.
Mr. Volinski joined Ney in June 1990 as Controller. He was promoted to
Treasurer of Ney in May 1991 and was promoted to Chief Financial Officer of the
Company in June 1993. From June 1989 until joining Ney, Mr. Volinski served as
corporate Controller for SecurityLink, a security alarm company. From 1986
through 1989, Mr. Volinski was an Audit Manager for Coopers & Lybrand.
Mr. Travers, III joined the Company in 1983. He was promoted to Assistant
Secretary in June 1993. From 1990 until being promoted to Assistant Secretary
he was the Company's Director of Law and Taxation. From 1986 to 1990 he was
Assistant Controller for the Company.
Mr. Wolfe, Jr. was named President of NDI in 1994. Since October 1987,
Mr. Wolfe, Jr. served as Vice President of Ney's Dental Division.
Mr. Cerny has served as General Manager of Ney's Electronics division since
joining the Company in April 1993. From 1988 until joining Ney, Mr. Cerny
served as Director of Operations (1990-1993) and Director of Sales & Marketing
(1988 to 1990) for the Materials Technology Division of Johnson Matthey, Inc.,
a precious metals fabricator.
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ITEM 2 - PROPERTIES
- - -------------------
The Company moved its administrative offices to the headquarters of Ney in 1992.
Ney owns two buildings, totaling 100,000 square feet within a 19 acre industrial
park in Bloomfield, Connecticut. This site contains the principal operations
of the Electronics Division and Ney's general administrative offices. Ney also
owns a 50,000 square foot building in Yucaipa, California, on 7.5 acres. This
building contains the manufacturing operations for dental equipment, including
vacuum porcelain furnaces, burnout ovens, handpeices and commercial ultrasonic
cleaners.
The Company also owns a 108,000 square foot building located in Bloomfield,
Connecticut. The Registrant leases portions of this facility to its
subsidiaries NDI, Ney Ultrasonics and its former subsidiary, Digital GraphiX, as
well as to third parties. See Note 9 to the Company's Consolidated Financial
Statements contained in Item 8 for a discussion of the indebtedness related to
this property. The Registrant believes that its plants and properties, and the
production capacities thereof, are suitable and adequate for its business needs
of the present and immediately foreseeable future.
ITEM 3 - LEGAL PROCEEDINGS
- - --------------------------
ANLAB Matter
- - ------------
As previously reported, the Company's subsidiary, ANLAB, Inc. (ANLAB) (formerly
known as Andersen Laboratories, Inc.) brought suit in Connecticut Superior Court
in the Judicial District of Hartford/New Britain in February 1993 against
Andersen Laboratories, Inc. (Andersen Laboratories) (formerly known as ALIOC,
Inc.) to collect on a Promissory Note (Note) in the stated principal amount of
$500,000. This Note, which had been issued by Andersen Laboratories to ANLAB as
partial consideration for the sale of the ANLAB assets to Andersen Laboratories
in January 1989, accrued interest on the unpaid balance at the rate of 10.5% per
year. Andersen Laboratories filed its answer, special defenses and
counterclaims on August 13, 1993 alleging that, among other things, ANLAB had
breached certain representations and warranties contained in that certain asset
sale and purchase agreement by and among ALIOC, Inc., Andersen Laboratories,
Inc. and Andersen Group, Inc. dated as of August 29, 1988 (the Asset Sale and
Purchase Agreement) thereby making the Note unenforceable against Andersen
Laboratories and making ANLAB liable to Andersen Laboratories for money damages
of an unspecified amount.
On September 14, 1993 Andersen Laboratories filed a motion to implead the
Company as a party to the action, which was opposed by ANLAB. After briefing
and argument, on December 7, 1993 the Court denied Andersen Laboratories' motion
to implead the Company as a party to the action. As a result, Andersen
Laboratories commenced an action against the Company in Connecticut Superior
Court in the Judicial District of Hartford/New Britain which alleged, among
other things, that the Company had breached certain representations and
warranties contained in the Asset Sale and Purchase Agreement and thereby made
the Company liable to Andersen Laboratories for money damages of an unspecified
amount.
On December 15, 1994, ANLAB settled its dispute with Andersen Laboratories.
Andersen Laboratories paid $540,000 to ANLAB for cancellation of the Note and
all parties exchanged mutual releases and withdrew the pending actions.
Seratronics Matter
- - ------------------
Althin CD Medical, Inc. (Althin) filed a complaint against the Company's
subsidiary Seratronics in August 1992, that was substantially amended in January
1995, in the U.S. District Court for the Southern District of Florida, asserting
various claims, including breach of contract for failure to pay royalties
arising out of a License Agreement with Althin's predecessor, CD Medical, Inc.,
and claims arising out of the management of Seratronics' business by Fresenius
U.S.A., Inc. Althin has claimed money damages of not less than $300,000.
Seratronics has denied all claims and has filed counterclaims against Althin
alleging misuse by Althin of know-how and technology licensed exclusively to
Seratronics and breach of Althin's covenant of good faith and fair dealing with
Seratronics. The case is presently in the discovery phase. Seratronics intends
to strongly defend these claims and to vigorously assert its counterclaims. The
ultimate outcome of the litigation discussed above or the necessity for any
provision for liability
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which may result cannot presently be determined. See Note 18 to the Company's
Consolidated Financial Statements for the fiscal year ended February 28, 1995
contained in Item 8.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- - ------------------------------------------------------------
None.
PART II
-------
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
- - ----------------------------------------------------
The Registrant's Common Stock is traded on The Nasdaq Stock Market under the
symbol (ANDR) with quotes supplied by the National Market System of the National
Association of Securities Dealers, Inc. (NASDAQ).
The number of record holders of the Registrant's Common Stock on May 19, 1995
was 754. During fiscal year 1995 the Registrant did not pay any cash dividends.
The Company's high and low sales prices for the common equity, for each full
quarterly period within the two most recent fiscal years, is included below.
The stock prices shown were obtained from NASDAQ. They represent prices between
dealers and do not include retail markups, markdowns or commissions and may not
necessarily represent actual transactions.
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
1995
First Quarter $7 1/2 $4 1/4
Second Quarter 7 1/2 4
Third Quarter 5 3/4 3 1/2
Fourth Quarter 4 2 3/4
1994
First Quarter $8 1/4 $6 1/4
Second Quarter 7 3/4 5
Third Quarter 5 1/4 3 3/4
Fourth Quarter 5 1/2 3 3/4
</TABLE>
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The Indenture relating to the Company's 10 1/2% Convertible Subordinated
Debentures contains a covenant which restricts payment of dividends on, or
repurchases or redemptions of, the Company's capital stock (Restrictive
Covenants). As a result of the losses incurred in fiscal years 1993, 1994 and
1995 and redemptions or repurchases of the Company's Series A Cumulative
Convertible Preferred Stock (Preferred Stock) in fiscal 1992 and 1993, the
Company has been precluded from paying dividends on its capital stock since
approximately April 15, 1993, by the Restrictive Covenants. In light of recent
operating results, the Company believes that it is doubtful that it will be able
to generate sufficient earnings to permit the Company to pay dividends on or to
redeem (on a mandatory or voluntary basis) or repurchase shares of the Company's
common or Preferred Stock unless the Company realizes a significant gain from
one or more sales of all or a portion of its assets.
ITEM 6 - SELECTED FINANCIAL DATA
- - --------------------------------
The following table summarizes certain financial data with respect to the
Company and is qualified in its entirety by the Consolidated Financial
Statements of the Company for the fiscal year ended February 28, 1995 contained
in Item 8.
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
- - --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales and revenues/1,2/ $66,850 $56,029 $47,091 $44,031 $ 4,767
- - --------------------------------------------------------------------------------------
Income (loss) from continuing
operations (367) (983) (476) 856 489
- - --------------------------------------------------------------------------------------
Net income (loss) (388) (868) (2,685) 931 520
- - --------------------------------------------------------------------------------------
Income (loss) applicable to
common shares (975) (1,468) (3,355) 139 520
- - --------------------------------------------------------------------------------------
Income (loss) from continuing
operations per common share (0.49) (0.86) (0.65) 0.04 0.27
- - --------------------------------------------------------------------------------------
Income (loss) per common share,
primary (0.50) (0.80) (1.89) 0.08 0.29
- - --------------------------------------------------------------------------------------
Depreciation, amortization and
accretion 2,329 3,368 3,287 3,014 461
- - --------------------------------------------------------------------------------------
Total assets 43,679 48,590 52,337 59,917 77,232
- - --------------------------------------------------------------------------------------
Total debt and redeemable
preferred stock 22,921 26,865 28,407 28,765 29,604
- - --------------------------------------------------------------------------------------
Common and other stockholders'
equity 9,913 10,837 11,482 14,024 13,962
- - --------------------------------------------------------------------------------------
Book value per common share 5.13 5.62 6.46 7.94 7.90
- - --------------------------------------------------------------------------------------
</TABLE>
/1/ The Company acquired The J.M. Ney Company on February 28, 1991 and as such
its results have been included in net sales for years 1992-1995.
/2/ Included in 1994 and 1995 are the results of Digital GraphiX.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- - ---------------------------------------------------------
RESULTS OF OPERATIONS
- - ---------------------
1995 vs. 1994
- - -------------
For the year ended February 28, 1995, the Company's net sales totaled
$63,407,000, an increase of $8,937,000 or 16.4% from $54,470,000 for the year
ended February 28, 1994.
In 1995, net sales for the Company's Dental segment were $37,984,000, an
increase of $2,970,000, or 8.5%, from $35,014,000 in 1994. The growth in sales
principally reflects strong results in the Company's domestic market, which
increased by $1,839,000 and in the international markets which increased by
$1,131,000. Domestic and international unit alloy sales increased by 10.2% and
4.3%, respectively, from the prior year. Also, a significant portion of the
Company's dental products has a large precious metal component, principally gold
and palladium. During the year, the price of palladium increased, with a
corresponding increase in average selling prices (ASPs). Sales of dental
equipment increased 8.3% over the prior year due primarily to the continued
growth in shipments of the Company's Centurion vacuum porcelain furnace.
10
<PAGE>
The Electronics Segment, which consists of the Electronics Division and Ney
Ultrasonics, and includes electronic connectors and components, precious metal
materials and industrial ultrasonic cleaners, had net sales in 1995 of
$18,425,000, a 21.8% increase from $15,126,000 in the prior year. The
Electronics Division sales increased approximately $2,944,000, or 26.4%, to
$14,079,000. While sales to each of five markets of the Electronics Division
grew by at least 10%, the medical market expanded by approximately $1.5 million
or 175%. Precious metal materials and parts supplied to the dental implant
industry is responsible for most of this growth. Sales of industrial ultrasonic
cleaners increased 8.9% to $4,346,000. The phase in of federal requirements to
eliminate the use of ozone-depleting chemicals, has caused the growth of this
product line.
Sales in the Company's Video segment were $6,998,000, a 59.0% increase from the
prior year. On October 19, 1994 the Company's video products subsidiary
acquired the Graphics Systems Division of The Grass Valley Group, Inc. (see
Liquidity and Capital Resources below and Item 1; Business - General). The
current year operating results include $2,793,000 of sales which are related to
this newly acquired product line. Offsetting these additional sales was a
slight reduction in sales of certain previously existing products resulting from
a decrease in demand due to continued competition and technological advances in
the marketplace.
Investment and other income for 1995 totaled $3,443,000, an increase of
$1,884,000, or 120.8%, from the prior year. The results for the current year
include a one-time gain of $3,223,000 from the sale of the Company's investments
in two cellular telephone partnerships. However, during the prior year the
Company generated approximately $610,000 more of capital gains on sales of
portfolio securities and $305,000 of additional rental income from its 1280 Blue
Hills Avenue, Bloomfield, Connecticut facility.
On May 10, 1994 the Company sold its 34% partnership interest in the nonwireline
cellular telephone license in the North Carolina 3 Rural Service Area to
Centennial Cellular Corporation (Centennial) for a combination of cash and
Centennial Common Stock. All of the Centennial Common stock acquired by the
Company in the transaction was immediately sold. The Company recognized a gain
of $1,316,000 on this sale from its original investment of $2,090,000 made in
August 1991. On August 23, 1994 the Company sold its 9.6% general partnership
interest in MidSouth Cellular L.P. (MidSouth), a nonwireline cellular telephone
franchise to Centennial for a combination of cash and stock. Under terms of the
sale agreement, the cash consideration received by the Company was utilized to
satisfy certain liabilities of MidSouth. A portion of the Company's share of
the common stock received was sold on the open market; however, the Company
continues to hold 40,113 shares. The Company recognized a gain of $1,907,000 on
the sale of its MidSouth interest which had been acquired in 1992 for
approximately $2.7 million.
Cost of sales, as a percentage of net sales, was 70.2% for 1995, as compared to
69.0% for 1994. The Dental segment's cost of sales increased to 71.8% from
71.3% in 1994. The increase in palladium prices and a corresponding increase in
ASPs resulted in lower gross margin percentages for the segment's precious
metal-based products, contributing, in part, to the increase of cost of sales.
In addition, continued competition in the segment's domestic markets has
resulted in pressure on ASPs and gross margins.
The Electronics Segment's cost of sales, as a percentage of net sales, decreased
to 69.8% for 1995, as compared to 71.2% in the prior year. Increased sales of
precious metal materials helped absorb fixed overhead costs and decreased the
cost of goods sold percentage.
The Video segment's cost of sales as a percentage of net sales at 63.9%
increased from 42% for the prior year. Included in the prior year were sales of
consignment inventory obtained at a reduced cost from DF/X (See Discontinued
Operation below for a further discussion).
Selling, general and administrative expenses for 1995 totaled $17,991,000, an
increase of $1,207,000 from $16,784,000 in 1994. As a percentage of net sales,
these expenses decreased to 28.4% in 1995 from 30.8% in 1994. The Company has
been able to maintain its administrative cost level while continuing to increase
its sales.
11
<PAGE>
Research and development expenses for 1995 were $3,545,000, as compared to
$3,167,000 in 1994. The Company's commitment to product development in its
Electronics, Dental and Video segments will likely result in keeping future
research and development expenditures at nearly 6.0% of sales.
Interest expense decreased to $1,447,000 in 1995 from $1,463,000 in 1994. The
slight decrease reflects reduced interest expense associated with the repayment
of $4,042,000 in outstanding indebtedness in 1995. This was substantially
offset by a three percentage point increase in short-term borrowing rates.
For 1995, the loss from continuing operations before income taxes and
extraordinary gain was $651,000, a decrease of $2,307,000 from a loss of
$2,958,000 in fiscal 1994. This was primarily attributable to the gains on the
sale of the cellular investments which were offset by additional losses from the
Video segment.
For 1995, the Company had an income tax benefit from continuing operations of
$284,000, as compared to a benefit of $1,975,000 in 1994. The decreased benefit
primarily reflects lower operating losses in 1995. The income tax benefit
represents the effective income tax rate for the fiscal year, including
adjustments to the Company's deferred income tax liability for prior years'
taxes.
Loss from continuing operations before extraordinary items for 1995 was
$367,000, a reduction of $616,000 from the loss of $983,000 in 1994.
During fiscal 1993, the Company recorded a loss from discontinued operations,
net of an income tax benefit, of $2,342,000 (see Discontinued Operation below).
During 1995, the Company retired $823,000 of the Company's 10 1/2% Convertible
Subordinated Debentures and the remaining $2,976,000 of the Company's 11%
Subordinated Notes, which resulted in an extraordinary after-tax loss of
$21,000. In 1994, after-tax gains totaled $115,000.
Net loss for 1995 was $388,000, as compared to net loss of $868,000 in 1994, a
decrease of $480,000 which is principally attributable to the reasons discussed
above.
Preferred stock dividends, including accretion, decreased to $587,000 in 1995,
as compared to $600,000 in 1994, as the result of stock conversions during the
past two years.
For 1995, loss applicable to common shares was $975,000, as compared to a loss
of $1,468,000 in 1994.
1994 vs. 1993
- - -------------
For the year ended February 28, 1994, the Company's net sales totaled
$54,470,000, an increase of $8,967,000 from $45,503,000 for the year ended
February 28, 1993. Included in net sales for fiscal 1994 is $4,400,000 of
commission and sales revenue from the Company's Video segment.
In 1994, net sales for the Company's Dental segment were $35,014,000, an
increase of $3,552,000, or 11.3%, from $31,462,000 in 1993. The growth in sales
principally reflects strong results in the Company's domestic markets, which
increased by $2,203,000 and in the international markets which increased by
$1,349,000. An increase in gold and palladium prices led to a corresponding
increase in average selling prices (ASPs). Worldwide, unit alloy sales were
consistent with the prior year. Sales of dental equipment increased $787,000
over the prior year due primarily to the introduction of the Company's new
Centurion vacuum porcelain furnace.
The Electronics Segment had net sales in 1994 of $15,126,000, a 7.9% increase
from $14,019,000 in the prior year. Sales of electronic connectors and
components increased approximately $130,000, or 1.2%, to $11,135,000. An
increase in medical and automotive market sales more than offset the continued
decline in military and defense-related sales.
12
<PAGE>
Sales of industrial ultrasonic cleaners increased 32.4% to $3,991,000. Market
acceptance of the Company's EnviroSONIK product line, coupled with ongoing
federal regulation and market requirements to eliminate the use of
ozone-depleting chemicals, accounted for the increase.
Investment and other income for 1994 totaled $1,559,000, a decrease of $29,000,
or 1.8%, from the prior year. During the year, the Company's total cash and
marketable securities declined by $4,986,000 to $2,625,000, with an associated
decrease in investment income. However, during the year the Company generated
approximately $800,000 of capital gains on sales of portfolio securities to
offset decreased investment income.
Cost of sales, as a percentage of net sales, was 69.0% for 1994, as compared to
68.5% for 1993. The Dental segment's cost of sales increased to 71.3% from
70.2% in 1993. The increase in precious metal prices and a corresponding
increase in ASPs resulted in lower gross margin percentages for the segment's
precious metal-based products, contributing, in part, to the increase in cost of
sales. International sales, which typically result in higher gross margins,
constitute a smaller percentage of the segment's total sales in 1994. In
addition, continued competition in the segment's domestic markets resulted in
pressure on ASPs and gross margins.
The Electronics Segment's cost of sales, as a percentage of net sales, increased
to 71.2% for 1994, as compared to 64.8% in the prior year. To gain further
market acceptance, the EnviroSONIK product line was sold at prices generating
low gross margin percentages. This strategy was found necessary due to the
softening and delay of government regulations regarding the use of
ozone-depleting chemicals.
The Video segment's cost of sales as a percentage of sales was 42%. Through
December 1993 the segment was selling consignment inventory obtained at a
reduced cost from DF/X (See Discontinued Operation below).
Selling, general and administrative expenses for 1994 totaled $16,784,000, an
increase of $3,370,000 from $13,414,000 in 1993. As a percentage of net sales,
these expenses increased to 30.8% in 1994 from 29.5% in 1993. In addition to
the inclusion of the Video segment, the Company initiated numerous sales and
marketing programs, primarily in the international dental market, which
contributed to this increase. Higher legal costs due to a settled lawsuit were
also responsible for this change.
Research and development expenses for 1994 were $3,167,000, as compared to
$2,590,000 in 1993. As a percentage of net sales, these expenses increased to
5.8% in 1994 from 5.7% in 1993. The Company's commitment to product development
in its Electronics, Dental and Video segments will likely result in keeping
future research and development expenditures at this level.
Interest expense decreased to $1,463,000 in 1994 from $1,641,000 in 1993. The
decrease reflects reduced interest expense associated with the repayment of
$1,258,000 in outstanding indebtedness in 1994.
For 1994, the loss from continuing operations before income taxes and
extraordinary gain was $2,958,000, an increase of $827,000 from a loss of
$2,131,000 in fiscal 1993.
For 1994, the Company had an income tax benefit from continuing operations of
$1,975,000, as compared to a benefit of $1,655,000 in 1993. The increased
benefit primarily reflects higher operating losses in 1994.
Loss from continuing operations before extraordinary item for 1994 was $983,000,
an increase of $507,000 from the loss of $476,000 in 1993.
During fiscal 1993, the Company recorded a loss from discontinued operations,
net of an income tax benefit, of $2,342,000 (See Discontinued Operation below).
During 1994, the Company retired $1,160,000 of the Company's 10 1/2% Convertible
Subordinated Debentures, which resulted in an extraordinary after-tax gain of
$115,000. In 1993, similar after-tax gains totaled $133,000.
Net loss for 1994 was $868,000, as compared to net loss of $2,685,000 in 1993.
13
<PAGE>
Preferred stock dividends, including accretion, decreased to $600,000 in 1994,
as compared to $670,000 in 1993, as the result of redemptions in 1993 and
conversions in 1994 and 1993.
For 1994, loss applicable to common shares was $1,468,000, as compared to a loss
of $3,355,000 in 1993.
LIQUIDITY AND CAPITAL RESOURCES
- - -------------------------------
At February 28, 1995, the Company's cash, short-term investments and marketable
securities totaled $4,889,000, an increase of $2,264,000 from $2,625,000 at
February 28, 1994. The marketable securities were invested principally in
non-investment grade, high-yield municipal bonds, Centennial common stock and
the common stock of certain financial institutions. During the fiscal year ended
February 28, 1995, the Company sold its two investments in cellular telephone
partnerships in exchange for proceeds of $7,511,000 and 40,113 shares of
Centennial Common stock. As discussed below, a portion of the proceeds was
utilized to repay indebtedness and to increase the working capital of the Dental
and Electronics segments. The increase in cash, short-term investments and
marketable securities is attributable to the remaining proceeds from the sale of
the Company's cellular investments.
The Company utilized $3,706,000 of the proceeds from the cellular sales to
redeem a portion of its long-term indebtedness. In the second quarter, the
Company repurchased $823,000 of its 10 1/2% convertible subordinated debentures
for approximately $744,000 and $131,000 of its 11% subordinated notes payable,
at approximately 95% of face value, in open market transactions. On September
26, 1994 the Company redeemed the remainder of its outstanding 11% subordinated
notes payable in the principal amount of $2,838,000. At February 28, 1995, the
Company's outstanding indebtedness and redeemable cumulative convertible
preferred stock totaled $22,921,000, as compared to $26,865,000 at the end of
fiscal 1994.
On October 19, 1994 New Microtime acquired certain assets of the Graphics
Systems Division (GSD) of The Grass Valley Group, Inc. (Grass Valley) in
exchange for three year 7.5% promissory notes totalling $2,035,000 and a minimum
royalty fee of $600,000 payable over three years. The acquired product lines
were integrated with other products sold by New Microtime. In January 1995, the
combined entity began operating under the name Digital GraphiX (DGI). Grass
Valley is continuing to sell its former GSD products as DGI's worldwide
non-exclusive master distributor.
At February 28, 1995 Ney had $3,200,000 in outstanding borrowings against its
$8.5 million demand revolving credit facility. The proceeds from this facility
have been utilized primarily to fund inventories and receivables. This facility
is secured by certain of Ney's receivables and precious metal inventories.
The Indenture relating to the Company's 10 1/2% Convertible Subordinated
Debentures contains covenants restricting payment of dividends on or repurchases
or redemptions of the Company's capital stock. As the result of the losses
incurred in fiscal years 1993, 1994 and 1995, the Company is currently
prohibited by such covenants from making payments on its common or Preferred
Stock. The Company will only be permitted to pay dividends on or redeem the
Preferred Stock or the common stock to the extent cumulative "consolidated net
income" (as defined) earned after the 1995 fiscal year exceeds $2,452,674.
Further, the Company is prohibited under the Indenture relating to its 1979 and
1983 Industrial Development Bonds (IDB Indenture) from issuing additional
"long-term debt" with certain exceptions (as defined in the IDB Indenture),
unless (1) its average annual "pre-tax income" for the three preceding fiscal
years (as defined in the IDB Indenture), shall have equaled at least 1.6 times
the sum of the annual "interest charges" (as defined in the IDB Indenture) or
(2) its pre-tax income for a twelve calendar month period, ended not more than
six months prior to the issuance of the additional long-term debt, shall have
equaled at least three times the sum of the annual interest charges on such
long-term debt. As a consequence of the losses in previous years, this
prohibition will remain in effect until sufficient income is generated to
satisfy the test.
Additional financings or restructurings of existing financing obligations will
be necessary to fund the Company's capital and financial commitments in future
periods. The Company believes that funds from operations, sale of existing
investments or businesses and potential future refinancings will be sufficient
to meet its anticipated working capital and debt service requirements for the
foreseeable future, but there can be no assurance as to the consumation of
these future events or the terms thereof.
14
<PAGE>
DISCONTINUED OPERATION
- - ----------------------
In fiscal 1993 the Company sold its digital video effects subsidiary at book
value for preferred stock and notes issued by the buyer, Digital F/X, Inc.
(DF/X). The Company recorded a pre-tax charge of $1,220,000 for severance,
legal and shut down costs at the time of sale and in April 1993 established a
reserve of $3,000,000 against its investment in DF/X as a consequence of
deteriorating operations at DF/X.
In January 1994, in conjunction with a filing by DF/X for protection under
Chapter 11 of the United States Bankruptcy Code and a settlement of pending
litigation between DF/X and the Company, the Company's New Microtime Inc.
subsidiary acquired the Broadcast Division of DF/X, including the assets of its
former video effects subsidiary, and made a $470,000 payment to the bankruptcy
estate of DF/X. The Company's investment in DF/X preferred stock and notes and
the $470,000 payment, an aggregate of $4,280,163 at February 28, 1994, has been
allocated to the acquired assets, and New Microtime's results of operations have
been consolidated in the Company's fiscal 1994 Consolidated Financial
Statements. As discussed above, New Microtime acquired the Graphics System
Division of Grass Valley on October 19, 1994 and changed its name to Digital
GraphiX in January 1995. On May 2, 1995 DGI completed the sale of 64,800 shares
of its stock which reduced AGI's ownership in DGI to 19%; as such its assets and
liabilities are shown as Investment in Digital GraphiX in the Company's
Consolidated Financial Statements for the fiscal year ended February 28, 1995.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- - ----------------------------------------------------
The financial statement schedules are filed as part of Part IV, Item 14, of this
Annual Report on Form 10-K.
The Registrant's consolidated financial statements are set forth below.
The following table summarizes certain financial data with respect to the
Company and is qualified in its entirety by the Company's Consolidated Financial
Statements for the fiscal year ended February 28, 1995 contained in this Item.
<TABLE>
<CAPTION>
Selected Quarterly Financial Data
1995 May 31 August 31 November 30 February 28
- - -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales and revenues $17,570 $16,459 $16,106 $16,715
Income (loss) from continuing operations 780 528 (452) (1,223)
Net income (loss) 781 566 (512) (1,223)
Income (loss) applicable to common shares 633 418 (655) (1,371)
- - -------------------------------------------------------------------------------------------------------
Earnings (loss) per common share:
Continuing operations 0.33 0.19 (0.31) (0.70)
Income (loss) per common share 0.33 0.21 (0.34) (0.70)
- - -------------------------------------------------------------------------------------------------------
<CAPTION>
1994 May 31 August 31 November 30 February 28
- - -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales and revenues/1/ $13,683 $14,178 $14,233 $13,935
Income (loss) from continuing operations 129 (125) (194) (793)
Net income (loss) 165 (60) (181) (792)
Income (loss) applicable to common shares 12 (210) (331) (939)
- - -------------------------------------------------------------------------------------------------------
Earnings (loss) per common share:
Continuing operations (0.01) (0.16) (0.18) (0.51)
Income (loss) per common share 0.01 (0.12) (0.18) (0.51)
- - -------------------------------------------------------------------------------------------------------
</TABLE>
/1/ Net sales and revenues for 1994 has been revised to reflect the operations
of Digital GraphiX, which had previously been reflected as a discontinued
operation. See Note 17 to the Company's Consolidated Financial Statements
for the fiscal year ended February 28, 1995 contained in this Item.
15
<PAGE>
ANDERSEN GROUP, INC.
Consolidated Statements of Operations
Years ended February 28, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
- - ------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Net sales $63,407,440 $54,469,822 $45,503,282
Investment and other income 3,442,558 1,559,440 1,588,047
- - ------------------------------------------------------------------------------
66,849,998 56,029,262 47,091,329
- - ------------------------------------------------------------------------------
Costs and expenses:
Cost of sales 44,517,925 37,573,656 31,166,289
Selling, general and
administrative 17,991,117 16,784,178 13,413,724
Research and development 3,544,978 3,166,804 2,590,096
Restructuring charge - - 949,795
Gain on post-retirement plan
change - - (538,596)
Interest expense 1,447,315 1,462,525 1,640,805
- - ------------------------------------------------------------------------------
67,501,335 58,987,163 49,222,113
- - ------------------------------------------------------------------------------
Loss from continuing operations
before income taxes and
extraordinary item (651,337) (2,957,901) (2,130,784)
Income tax benefit 283,931 1,974,618 1,654,803
- - ------------------------------------------------------------------------------
Loss from continuing operations
before extraordinary item (367,406) (983,283) (475,981)
Loss from discontinued operation,
net of income tax benefit of
$1,883,007 - - (2,341,918)
- - ------------------------------------------------------------------------------
Loss before extraordinary item (367,406) (983,283) (2,817,899)
Extraordinary gain (loss) from
early extinguishment of debt, net of
income taxes (20,546) 114,963 133,218
- - ------------------------------------------------------------------------------
Net loss (387,952) (868,320) (2,684,681)
Preferred dividend requirement (586,936) (599,872) (669,821)
- - ------------------------------------------------------------------------------
Loss applicable to common shares $ (974,888) $(1,468,192) $(3,354,502)
- - ------------------------------------------------------------------------------
Earnings (loss) per common share:
Continuing operations $ (.49) $ (.86) $ (.65)
Discontinued operations - - (1.32)
Extraordinary item (.01) .06 .08
- - ------------------------------------------------------------------------------
Loss per common share $ (.50) $ (.80) $ (1.89)
- - ------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
16
<PAGE>
ANDERSEN GROUP, INC.
Consolidated Balance Sheets
Years Ended February 28, 1995 and 1994
<TABLE>
<CAPTION>
Assets 1995 1994
- - -------------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,708,926 $ 2,061,220
Marketable securities 2,180,153 564,072
Accounts and other receivables, less allowance
for doubtful accounts of $359,714 in 1995
and $426,459 in 1994 7,921,364 8,828,232
Inventories 12,690,154 13,550,704
Prepaid expenses and other assets 519,553 692,921
- - ------------------------------------------------------------------------------
Total current assets 26,020,150 25,697,149
- - ------------------------------------------------------------------------------
Investments in cellular partnerships - 4,760,966
Property, plant and equipment, net 11,417,762 12,679,835
Prepaid pension expense 3,516,685 3,369,157
Investment in Digital GraphiX 1,801,351 -
Other assets 922,725 2,082,910
- - ------------------------------------------------------------------------------
$43,678,673 $48,590,017
- - ------------------------------------------------------------------------------
<CAPTION>
Liabilities, Redeemable Convertible Preferred
Stock and Common and Other Stockholders' Equity
- - ------------------------------------------------------------------------------
<S> <C> <C>
Current liabilities:
Current maturities of long-term debt $ 343,285 $ 1,532,611
Short-term debt 3,200,000 3,237,093
Accounts payable 2,119,216 2,525,301
Accrued liabilities 5,190,547 4,566,411
Deferred income taxes 93,726 516,160
- - ------------------------------------------------------------------------------
Total current liabilities 10,946,774 12,377,576
- - ------------------------------------------------------------------------------
Long-term debt, less current maturities 8,784,011 11,601,148
Other long-term obligations 1,160,142 1,007,028
Deferred income taxes 2,281,380 2,273,461
Commitments and contingencies (Notes 14, 18)
Redeemable cumulative convertible preferred
stock, no par value; authorized 800,000
shares; issued 789,628 shares; outstanding
shares of 589,036 in 1995 and 591,920 in 1994;
net of unamortized discount of $450,872 in 1995
and $604,106 in 1994; liquidation preference
$18.75 per share 10,593,440 10,494,281
- - ------------------------------------------------------------------------------
Common and other stockholders' equity:
Preferred stock, no par value; authorized
200,000 shares
Common stock, no par value; authorized
6,000,000 shares, issued 1,958,205 shares in 1995
and 1,952,798 in 1994 2,103,204 2,103,150
Additional paid-in capital 1,924,385 1,873,148
Retained earnings 5,975,337 6,950,225
- - ------------------------------------------------------------------------------
10,002,926 10,926,523
Treasury stock, at cost, 24,000 shares (90,000) (90,000)
- - ------------------------------------------------------------------------------
Total common and other stockholders' equity 9,912,926 10,836,523
- - ------------------------------------------------------------------------------
$43,678,673 $48,590,017
- - ------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
17
<PAGE>
ANDERSEN GROUP, INC.
Consolidated Statements of Cash Flows
Years ended February 28, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
- - ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (387,952) $ (868,320) $(2,684,681)
Adjustments to reconcile net loss to
net cash used for operating activities:
Depreciation, amortization and
accretion 2,329,428 3,367,519 3,287,416
Deferred income taxes (414,515) (2,007,395) (3,331,523)
Gain on sale of cellular investments (3,223,076) - -
Loss (gain) on redemptions of
long-term debt 31,129 (174,185) (157,505)
Pension income (147,528) (194,276) (306,416)
Gain on disposal of property, plant
and equipment (62,150) - -
Gain on post-retirement plan change - - (538,596)
Net assets of discontinued operation - - 3,698,468
Investment in Digital GraphiX 2,014,184 - -
Changes in operating assets and
liabilities, net of changes from sale
of subsidiary in 1993:
Account and notes receivable (644,870) (2,090,181) (345,357)
Inventories (1,095,910) (2,605,979) (255,725)
Prepaid expenses and other assets 667,215 2,009,065 879,164
Accounts payable (144,233) (396,883) 563,138
Accrued expenses and other long-term
obligations 397,609 502,303 (1,339,553)
- - ---------------------------------------------------------------------------------
Net cash used for operating
activities (680,669) (2,458,332) (531,170)
- - ---------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from sale of property, plant
and equipment 337,153 - -
Purchase of property, plant and
equipment (1,436,372) (1,112,157) (2,305,901)
Sale (purchase) of marketable
securities (1,004,380) 4,901,658 3,937,242
Proceeds from sale of cellular
partnerships 7,511,068 - -
Investments in cellular partnerships - (40,707) (1,980,065)
Purchase of Microtime assets - (470,000) -
- - ---------------------------------------------------------------------------------
Net cash provided by (used for)
investing activities 5,407,469 3,278,794 (348,724)
- - ---------------------------------------------------------------------------------
Cash flows from financing activities:
Principal payments on long-term debt (4,042,001) (1,257,874) (1,377,266)
Redemptions of preferred stock - (119,158) (2,143,887)
Dividends paid - (114,642) (618,100)
Proceeds from issuance of short-term
debt, net (37,093) (12,907) 3,250,000
Proceeds from capital lease obligations - - 682,633
Issuance of common stock - 599,999 -
- - ---------------------------------------------------------------------------------
Net cash used for financing
activities (4,079,094) (904,582) (206,620)
- - ---------------------------------------------------------------------------------
Net increase (decrease) in cash and
cash equivalents 647,706 (84,120) (1,086,514)
Cash and cash equivalents,
beginning of year 2,061,220 2,145,340 3,231,854
- - ---------------------------------------------------------------------------------
Cash and cash equivalents, end of
year $ 2,708,926 $ 2,061,220 $ 2,145,340
- - ---------------------------------------------------------------------------------
Supplemental disclosure of cash flow
information:
Cash paid for:
Interest $ 1,503,148 $ 1,404,555 $ 1,542,533
Income taxes, net $ 165,677 $ 114,832 $ 207,499
- - ---------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
18
<PAGE>
ANDERSEN GROUP, INC.
Consolidated Statements of Common and Other Stockholders' Equity
Years ended February 28, 1995, 1994 and 1993
<TABLE>
<CAPTION>
Additional
- Common Stock - Paid-In Retained Treasury
Shares Amount Capital Earnings Stock Total
- - ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, February 29, 1992 1,791,165 $2,101,533 $ 151,196 $11,861,277 $(90,000) $14,024,006
Preferred stock dividends
and accretion - - - (669,821) - (669,821)
Common stock dividends - - - (88,358) - (88,358)
Gain on redemption of redeemable
preferred stock - - 817,617 - - 817,617
Conversion of preferred stock 8,915 89 82,679 - - 82,768
Net loss - - - (2,684,681) - (2,684,681)
- - ------------------------------------------------------------------------------------------------------------
Balance, February 28, 1993 1,800,080 2,101,622 1,051,492 8,418,417 (90,000) 11,481,531
Preferred stock dividends
and accretion - - - (599,872) - (599,872)
Gain on redemption of redeemable
preferred stock - - 41,147 - - 41,147
Conversion of preferred stock 19,385 194 181,844 - - 182,038
Common stock issuance 133,333 1,334 598,665 - - 599,999
Net loss - - - (868,320) - (868,320)
- - ------------------------------------------------------------------------------------------------------------
Balance, February 28, 1994 1,952,798 2,103,150 1,873,148 6,950,225 (90,000) 10,836,523
Preferred stock dividends
and accretion - - - (586,936) - (586,936)
Conversion of preferred stock 5,407 54 51,237 - - 51,291
Net loss - - - (387,952) - (387,952)
- - ------------------------------------------------------------------------------------------------------------
Balance, February 28, 1995 1,958,205 $2,103,204 $1,924,385 $ 5,975,337 $(90,000) $ 9,912,926
- - ------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
19
<PAGE>
ANDERSEN GROUP, INC.
Notes to Consolidated Financial Statements
Years ended February 28, 1995, 1994 and 1993
(1) Nature of Business
------------------
Andersen Group, Inc. (the Company) is a diversified holding company.
Its subsidiaries manufacture dental alloys and equipment, electronic
components, industrial ultrasonic cleaners and digital video effects
and graphics equipment.
(2) Summary of Significant Accounting Policies
------------------------------------------
Principles of Consolidation
---------------------------
The Company's financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany
transactions and balances have been eliminated in consolidation.
Cash and Cash Equivalents
-------------------------
Cash and cash equivalents include funds held in investments with an
original maturity of three months or less.
Marketable Securities
---------------------
The Company accounts for its investment portfolio in accordance with
Statement of Financial Accounting Standards No. 115, Accounting for
Certain Investments in Debt and Equity Securities (SFAS 115). The
effect of adopting SFAS 115 in 1994 was not material. Investments are
categorized as trading, available-for-sale or held-to-maturity.
Unrealized gains and losses on trading and available-for-sale
securities are recorded in the statement of operations and
stockholders' equity, respectively. Held-to-maturity investments are
recorded as amortized costs. The investment portfolios of February 28,
1995 and 1994 have been categorized as trading securities. The
February 28, 1995 investments consist of approximately $1.52 million of
marketable securities and $.68 million of debt securities. The
February 28, 1994 investments consist primarily of debt securities.
Inventories
-----------
Inventories are stated at the lower of cost or market. Cost is
determined using the last-in, first-out (LIFO) method for precious
metals and at standard costs which approximate the first-in, first-out
(FIFO) and average cost methods for the balance of the inventories.
Property, Plant and Equipment
-----------------------------
Property, plant and equipment, including capital leases, are stated at
cost and depreciated using the straight-line method over the estimated
useful life of the respective assets, as follows:
Buildings and improvements 10 - 50 years
Machinery and equipment 5 - 10 years
Furniture and fixtures 3 - 10 years
Unamortized Discounts
---------------------
Unamortized discounts on redeemable convertible cumulative preferred
stock and subordinated notes payable are accreted using the effective
interest method.
20
<PAGE>
Income Taxes
------------
In February 1992, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 109, Accounting for
Income Taxes (SFAS 109). Under the asset and liability method utilized
under SFAS 109, deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities
and their respective tax values. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected
to be recovered or settled. Under SFAS 109, the effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income
in the period that includes the enactment date.
The Company adopted SFAS 109 during fiscal 1993. The effect of
adopting this new standard was not material.
Earnings Per Share
------------------
Earnings per share is computed based on the weighted average number of
common and common equivalent shares outstanding. Fully diluted net
loss per share assumes full conversion of all convertible securities
into common stock at the later of the beginning of the year or date of
issuance, unless anti-dilutive. For 1995, 1994 and 1993, the effect
has been anti-dilutive.
Off-Balance Sheet Hedging
-------------------------
The Company has entered into foreign currency and precious metal
forward contracts as a hedge against foreign currency exposures and
precious metal fluctuations for firm price deliveries, respectively.
These contracts limit the Company's exposure to both favorable and
unfavorable currency or precious metals price fluctuations.
Financial Statement Reclassifications
-------------------------------------
Certain reclassifications have been made to the 1994 and 1993 financial
statements in order to conform with the 1995 presentation.
(3) Inventories
-----------
Inventories consist of the following:
<TABLE>
<CAPTION>
1995 1994
-----------------------------------------------------
<S> <C> <C>
Raw material $ 949,992 $ 2,528,861
Work in process 2,732,345 2,840,311
Finished goods 10,374,045 8,961,113
-----------------------------------------------------
14,056,382 14,330,285
LIFO Reserve 1,366,228 779,581
-----------------------------------------------------
$12,690,154 $13,550,704
-----------------------------------------------------
</TABLE>
At February 28, 1995 and 1994, inventories valued at LIFO cost
comprised 54% and 47% of total inventories, respectively.
(4) Sale of Cellular Partnership Interests
--------------------------------------
On May 10, 1994 the Company's subsidiary, Clear Cellular Holdings, Inc.
("Clear") sold its interest in a partnership which owned a cellular
communications license to Centennial Cellular Corporation (Centennial).
The partnership interest was sold for a combination of cash and
Centennial stock. The Centennial stock was immediately remarketed in
an open market block transaction. Overall, Clear
21
<PAGE>
received $3,316,075 in net proceeds from the partnership interest sale
and has an additional $170,000 in escrow subject to a post close
review.
On August 23, 1994 the Company sold its general partnership interest in
MidSouth Cellular L.P. (MidSouth), a nonwireline cellular telephone
franchise to Centennial. The Company received 281,507 shares of
Centennial stock, of which 222,895 shares were sold for $16.69 per
share in an open market block transaction and 18,500 shares were sold
at $16.48 per share. The Company continues to hold 40,112 shares of
Centennial common stock of which 6,845 shares remain in escrow subject
to a post close review.
Excluding the remaining amounts in escrow, the Company has recorded
gains from the sale of these cellular partnership interests totalling
$3,223,076, which is included in investment and other income.
(5) Property, Plant and Equipment
-----------------------------
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
1995 1994
---------------------------------------------------------
<S> <C> <C>
Land and improvements $ 1,667,622 $ 1,844,814
Buildings and improvements 10,560,166 10,454,410
Machinery and equipment 8,320,096 8,089,876
Furniture and fixtures 1,800,255 1,749,251
---------------------------------------------------------
22,348,139 22,138,351
Less accumulated depreciation
and amortization 10,930,377 9,458,516
---------------------------------------------------------
$11,417,762 $12,679,835
---------------------------------------------------------
</TABLE>
Depreciation and amortization expense was $1,976,751, $3,164,966, and
$3,098,146 in 1995, 1994 and 1993, respectively.
At February 28, 1995 and 1994, property, plant and equipment includes
assets acquired under a capital lease, which will expire in 1998, for
certain machinery and equipment of $567,106 with a related allowance
for depreciation of $325,815 and $212,394, respectively.
(6) Short-term Debt
---------------
The Company's major subsidiary, The J.M. Ney Company ("Ney"), has an
$8.5 million demand revolving credit facility with a commercial bank of
which $3,200,000 was outstanding at February 28, 1995. The facility is
secured by certain of Ney's receivables and precious metal inventories.
Interest is at the bank's prime rate, 9% at February 28, 1995 or at
LIBOR plus 1.75% if the borrowing level is fixed for a period of time.
The facility contains covenants which establish certain minimum
financial operating ratios for Ney and a specified equity level for the
Company.
(7) Accrued Liabilities
-------------------
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
1995 1994
-----------------------------------------------
<S> <C> <C>
Employee compensation $ 626,757 $ 543,247
Accrued dividends 883,554 447,068
Income taxes 1,634,228 1,692,455
Other 2,046,008 1,883,641
-----------------------------------------------
$5,190,547 $4,566,411
-----------------------------------------------
</TABLE>
22
<PAGE>
(8) Redeemable Cumulative Convertible Preferred Stock
-------------------------------------------------
Redeemable cumulative convertible preferred stock is subject to annual
mandatory redemption from legally available funds of 160,000 shares at
$18.75 per share, or $3,000,000, commencing in March 1996. At the
Company's option, shares may be redeemed beginning in March 1993
through February 1996 at escalating prices from $17.75 to $18.75 per
share. The Company may make open market purchases, however, it is
currently precluded from doing so as discussed below and in Note 9.
Quarterly dividend payments, ranging from $.1875 to $.4375 per share,
are paid based upon the operating income of Ney, as defined. As
discussed in Note 9, the Company continues to be restricted from paying
dividends since April 15, 1993 until specified cumulative earnings are
reached. At February 28, 1995 and 1994 the Company had accrued
approximately $884,000 and $447,000, respectively, for payment of prior
dividends.
The preferred shares increase in carrying value at a rate of $.26 per
share per year and, as such, approximately $150,000, $153,000 and
$173,000 of accretion has been recorded as part of the preferred
dividend requirement in the Consolidated Statements of Operations for
1995, 1994 and 1993, respectively.
The preferred shares are convertible into the Company's common stock at
any time at a rate of 1.875 shares of common stock for each preferred
share. At February 28, 1995, 1,104,443 shares of common stock have
been reserved for conversion.
(9) Long-term Debt
--------------
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1995 1994
----------------------------------------------------------------
<S> <C> <C>
Mortgage note payable, due November
1999; interest at 7.75%; annual
principal and interest payments of
$179,937; secured by certain real
and personal property $ 723,193 $ 838,171
Mortgage note payable due December
2003; interest at varying rates
from 60-68% of the prime rate, as
defined (5.8% and 4.1% at February 28,
1995 and February 28, 1994,
respectively), payable semi-annually;
semi-annual principal payments in
escalating amounts from $49,705 in 1996
to $101,061 at maturity; secured by
certain personal property 1,303,790 1,396,882
Convertible subordinated debentures,
due October 2001; interest at 10.5%,
payable semi-annually; annual
principal payments in varying amounts
through maturity; unsecured 6,548,000 7,371,000
Subordinated notes payable, due
February 1998; interest at 11%,
payable quarterly; net of unamortized
discount of $126,431 at February 28,
1994, unsecured - 2,849,737
Other 552,313 677,969
----------------------------------------------------------------
9,127,296 13,133,759
Less current maturities 343,285 1,532,611
----------------------------------------------------------------
$8,784,011 $11,601,148
----------------------------------------------------------------
</TABLE>
23
<PAGE>
On September 26, 1994 the Company redeemed all $2,838,000 of its
outstanding principal amount 11% subordinated notes payable, due
February 1998 at their face value.
The Company has a master lease line of credit totaling $1,500,000 of
which $567,106 has been utilized and $273,300 and $455,000 remained
outstanding at February 28, 1995 and 1994, respectively. The line is
secured by the underlying leased equipment. Interest is at rates
ranging from 8.2% to 8.5%. Repayments are on a monthly basis with
interest through 1998.
The terms of the convertible subordinated debentures call for the
annual liquidation of $834,000 face value of debentures, either through
open market purchases or mandatory sinking fund payments. Such open
market purchases have reduced mandatory sinking fund payments to
$19,000 for fiscal 1996. The Company may make an additional optional
sinking fund payment of $834,000.
The debentures are convertible into common stock of the Company at any
time prior to maturity, unless previously redeemed, at $16.17 per
share, subject to adjustment under certain conditions. At February 28,
1995, 404,948 shares of common stock were reserved for conversion.
Certain of the debt agreements contain restrictive covenants which
establish minimum tangible net worth requirements and limit, among
other things, mergers or consolidations, sales of assets, additional
long term debt, payments of dividends and stock repurchases. Under the
terms of one of the agreements, the Company has been restricted from
repurchasing stock or paying dividends since April 15, 1993 until such
time as the Company's cumulative earnings, as defined, reach specified
amounts.
Maturities of long-term debt for each of the five years ending
February 28/29 are as follows:
<TABLE>
<S> <C>
1996 $ 343,285
1997 1,160,469
1998 1,187,610
1999 1,157,227
2000 1,153,460
Thereafter 4,125,245
</TABLE>
(10) Income Taxes
------------
Income tax benefit (expense) consists of the following:
<TABLE>
<CAPTION>
1995 1994 1993
----------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ (20,000) $ 0 $ 346,000
State (100,000) (92,000) (164,000)
Deferred 414,515 2,007,395 3,331,523
----------------------------------------------------------------------
$ 294,515 $1,915,395 $3,513,523
----------------------------------------------------------------------
</TABLE>
The difference between the actual income tax benefit (expense) and the
income tax benefit (expense) computed by applying the statutory Federal
income tax rate of 34% to loss before taxes is attributable to the
following:
<TABLE>
<CAPTION>
1995 1994 1993
----------------------------------------------------------------------
<S> <C> <C> <C>
Income tax benefit $199,313 $ 946,463 $2,107,389
State income taxes, net of
Federal benefit (66,000) (60,720) (108,240)
Adjustment of accrual for prior
years' taxes 161,202 1,029,652 1,479,337
Foreign income - - 64,108
Expenses for which no tax
benefits recorded - - (29,071)
----------------------------------------------------------------------
$294,515 $1,915,395 $3,513,523
----------------------------------------------------------------------
</TABLE>
24
<PAGE>
A deferred income tax (expense) benefit results from temporary
differences in the recognition of income and expense for income tax and
financial reporting purposes. The principal components of the net
deferred asset (liability) which give rise to this deferred income tax
(expense) benefit for the years ended February 28, 1995 and 1994 are as
follows:
<TABLE>
<CAPTION>
1995 1994
----------------------------------------------------------------------
<S> <C> <C>
Deferred tax liabilities:
Fixed asset basis differences $(2,018,085) $(2,126,552)
Inventory (1,111,498) (1,278,198)
Pension (1,301,527) (1,236,452)
Write-off of certain assets (560,049) (928,000)
Cellular partnership's basis differences - (515,910)
----------------------------------------------------------------------
Total deferred tax liabilities (4,991,159) (6,085,112)
----------------------------------------------------------------------
Deferred tax assets:
Post-retirement benefits other than pensions 337,200 291,600
Capital loss carryforwards - 530,141
Note receivable 200,000 -
Federal operating loss carryforwards 1,241,850 1,462,000
Federal credit carryforwards 537,278 572,000
State operating loss carryforwards 294,537 653,000
Other 488,536 244,750
----------------------------------------------------------------------
3,099,401 3,753,491
Valuation allowance for deferred tax assets (483,348) (458,000)
----------------------------------------------------------------------
Net deferred tax assets 2,616,053 3,295,491
----------------------------------------------------------------------
Net deferred tax liabilities $(2,375,106) $(2,789,621)
----------------------------------------------------------------------
</TABLE>
At February 28, 1995 and 1994 the Company's valuation allowance is
primarily attributable to State operating loss carryforwards that
expire in 1998 and 1999. These allowances reflect uncertainties as to
the realization of sufficient income and income tax in the future upon
which the State operating loss carryforwards may be utilized. The
Company has not established a valuation reserve for its Federal
operating loss and credit carryforwards, and reasonably expects that
the sale of certain assets, investment securities and certain real
property, will generate sufficient income to fully utilize the Federal
operating loss and credit carryforwards.
At February 28, 1995, the Company had $3,652,500 of Federal operating
loss carryforwards and $537,278 of Federal credit carryforwards which
expire in the years 2009, and 1999 through 2002, respectively. In
addition, the Company has State operating loss carryforwards of
$4,909,958, which expire in the years 1998 and 1999.
(11) Stock Option Plan
-----------------
The Company's incentive stock option plan provides for option grants to
directors and key employees at prices equal to at least 100% of the
stock's fair market value at date of grant. Options are generally
exercisable one year after grant. The Company has reserved 150,000
shares of common stock for the exercise of stock options. At February
28, 1995, the Company had 72,700 options available for issue under the
plan.
25
<PAGE>
Activity under the plan is as follows:
<TABLE>
<CAPTION>
Number Price
of shares per share
Outstanding options -----------------------------
<S> <C> <C>
-------------------------------------------------------------------------
Balance at February 29, 1992 128,044 $7.00-10.625
Canceled (35,844) 7.00-10.625
-------------------------------------------------------------------------
Balance at February 28, 1993 92,200 7.00-9.50
Granted 7,000 6.50-6.825
Canceled (21,600) 7.00-8.375
-------------------------------------------------------------------------
Balance at February 28, 1994 77,600 6.50-9.50
Canceled (300) 7.00
-------------------------------------------------------------------------
Balance at February 28, 1995 77,300 $ 6.50-9.50
-------------------------------------------------------------------------
</TABLE>
At February 28, 1995, 77,300 options were exercisable.
(12) Retirement Plans
----------------
The Company maintains both noncontributory defined benefit and
defined contribution plans, which collectively cover substantially
all full-time employees. The defined contribution plans are funded
annually through contributions in amounts that can be deducted for
Federal income tax purposes. Benefits payable under all plans are
based upon years of service and compensation levels.
The plan assets, which are managed by third-party trustees, include
equity securities, government and corporate debt securities and other
fixed income obligations.
The following table sets forth the actuarially determined funded
status of the Company's defined benefit plan and amounts recognized
in the Company's consolidated balance sheets:
<TABLE>
<CAPTION>
1995 1994
-------------------------------------------------------------------------
<S> <C> <C>
Actual present value of
benefit obligations:
Vested $10,314,808 $ 9,289,101
Non-vested 275,901 153,253
-------------------------------------------------------------------------
Accumulated benefit obligation 10,590,709 9,442,354
Effect of projected compensation
increases 498,089 1,358,577
-------------------------------------------------------------------------
Projected benefit obligation 11,088,798 10,800,931
Plan assets at fair value 14,480,654 14,519,638
-------------------------------------------------------------------------
Plan assets in excess of projected
benefit obligation 3,391,856 3,718,707
Unrecognized prior service cost (222,461) (115,772)
Unrecognized net gain (loss) on plan assets 347,290 (233,778)
-------------------------------------------------------------------------
Prepaid pension expense $ 3,516,685 $ 3,369,157
-------------------------------------------------------------------------
</TABLE>
For fiscal years 1995, 1994 and 1993, the projected benefit
obligations and pension income were determined using the following
components:
<TABLE>
<CAPTION>
1995 1994 1993
- - -------------------------------------------------------------------------------
<S> <C> <C> <C>
Discount rate 7.5% 7.5% 8.5%
- - -------------------------------------------------------------------------------
Future compensation growth rate 5.5% 5.5% 6.5%
- - -------------------------------------------------------------------------------
Long-term rate of return on plan assets 8.5% 8.5% 8.5%
- - -------------------------------------------------------------------------------
</TABLE>
26
<PAGE>
Net pension income for the Company's funded defined benefit plan for
1995, 1994 and 1993 includes the following components:
<TABLE>
<CAPTION>
1995 1994 1993
- - ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost of benefits accrued $ 285,748 $ 313,849 $ 284,588
Interest cost on projected
benefit obligations 783,725 756,519 717,883
Return on plan assets (1,195,727) (1,199,647) (776,805)
Unrecognized net gain (21,274) (64,997) (532,082)
- - ---------------------------------------------------------------------------------
Pension income $ (147,528) $ (194,276) $(306,416)
- - ---------------------------------------------------------------------------------
</TABLE>
The Company also has a supplemental defined benefit plan which covers a
former senior executive of Ney. There are no assets held by the plan.
The Company's policy is to contribute amounts to the plan as needed to
fund benefit payments to the participant. Benefits are based upon
years of service, compensation levels and benefits earned under the
company-wide defined benefit plan. At February 28, 1995 and 1994, the
actuarially determined status of the plan and the amount recognized in
the balance sheet was a vested accumulated and projected benefit
obligation of $307,142 and $331,172, respectively.
For fiscal years 1995, 1994 and 1993, respective discount rates of
7.5%, 7.5% and 8.5% were used for determining the projected benefit
obligation.
Pension expense for Ney's supplemental defined benefit plan includes
the following components:
<TABLE>
<CAPTION>
1995 1994 1993
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost of benefits accrued $ - $ - $10,757
Interest cost in projected benefit obligations 24,670 25,452 14,099
--------------------------------------------------------------------------------
Pension expense $24,670 $25,452 $24,856
--------------------------------------------------------------------------------
</TABLE>
Pension expense for all defined contribution plans totaled $157,077,
$121,322, and $233,268 in 1995, 1994 and 1993, respectively.
(13) Post-Retirement Benefit Obligations
-----------------------------------
During 1993, the Company amended its retiree health care plan to
include only those retirees currently in the plan and discontinued the
benefit for current employees. This change resulted in a reduction in
the liability and recognition of a gain of $538,596 in the year ended
February 28, 1993.
The Company's cost of its unfunded retiree health care plan for 1995
and 1994 was approximately $56,000 and $59,500, respectively, including
interest. At February 28, 1995 and 1994, the accumulated benefit
obligation for post-retirement benefits was approximately $792,000 and
$843,000, respectively. At February 28, 1995, 32 retirees were
receiving benefits under this plan.
The accumulated estimated benefit obligation was determined using the
unit credit method and an assumed discount rate of 7.5% at February 28,
1995 and 1994. At February 28, 1995 and 1994, the accumulated benefit
obligation was compiled using an assumed health care cost trend rate of
11%, gradually declining to 6% in the year 2000 and thereafter over the
projected payout period of the benefits.
The estimated effect on the present value of the accumulated benefit
obligation at March 1, 1995 of a 1% increase each year in the health
care cost trend rate used would result in an estimated increase of
approximately $53,000 in the obligation.
(14) Leases
------
The Company leases various manufacturing and office facilities and
equipment under lease agreements
27
<PAGE>
expiring through August 1998. The leases are accounted for as
operating leases. In addition, the Company earns rental income from
office space leased to tenants under operating leases expiring through
August 1996.
Future minimum lease payments and rental income under the terms of the
leases for each of the years ending February 28/29, are as follows:
<TABLE>
<CAPTION>
Lease Rental
Expense Income
--------------------------------------------------------------
<S> <C> <C>
1996 $263,915 $188,460
1997 137,517 83,599
1998 77,729 --
1999 34,880 --
</TABLE>
Lease expense and rental income are as follows:
<TABLE>
<CAPTION>
Lease Rental
Expense Income
--------------------------------------------------------------
<S> <C> <C>
1995 $349,055 $211,767
1994 317,418 516,805
1993 229,469 698,218
</TABLE>
(15) Restructuring Charge
--------------------
During 1993, the Company restructured the management of the operations
of its subsidiaries, resulting in the payment of severance and related
benefits to former employees. This management restructuring resulted
in a pre-tax charge of $949,795.
(16) Business Segments and Export Sales
----------------------------------
In 1995, the Company operates in three business segments: Dental,
Electronic and Video. Operating income consists of net sales, less cost
of sales and selling, general and administrative expenses directly
allocated to the industry segments. Corporate expenses consist of
administrative costs not directly attributable to a specific industry
segment and interest expense. Corporate revenues consist of investment
and other income not attributable to a specific industry segment.
Corporate identifiable assets include marketable securities and
short-term investments, and assets not directly attributable to a
specific industry segment.
28
<PAGE>
Summarized financial information for each business segment is as
follows:
<TABLE>
<CAPTION>
1995 1994 1993
------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales and revenues:
Dental $37,984,474 $35,014,340 $31,461,611
Electronics 18,424,785 15,125,798 14,019,173
Video 6,998,181 4,399,716 -
Corporate 3,442,558 1,489,408 1,610,545
------------------------------------------------------------------------
$66,849,998 $56,029,262 $47,091,329
------------------------------------------------------------------------
Operating income (loss):
Dental $ 1,213,980 $ 772,564 $ 449,313
Electronics (174,422) (1,165,675) (650,412)
Video (1,876,231) (18,200) -
Corporate 185,336 (2,546,590) (1,929,685)
------------------------------------------------------------------------
$ (651,337) $(2,957,901) $(2,130,784)
------------------------------------------------------------------------
Identifiable assets:
Dental $14,788,626 $15,384,373 $15,591,399
Electronics 15,300,391 11,216,447 11,248,527
Video 7,040,377 4,280,163 -
Corporate 6,549,279 17,709,034 25,496,954
------------------------------------------------------------------------
$43,678,673 $48,590,017 $52,336,880
------------------------------------------------------------------------
Depreciation, amortization and
accretion:
Dental $ 392,268 $ 1,316,693 $ 1,298,922
Electronics 1,110,524 1,267,103 1,277,179
Video 349,893 29,552 -
Corporate 627,193 906,974 884,359
------------------------------------------------------------------------
$ 2,479,878 $ 3,520,322 $ 3,460,460
------------------------------------------------------------------------
Capital expenditures:
Dental $ 280,242 $ 402,397 $ 326,474
Electronics 727,242 371,454 1,443,870
Video 506,679 102,087 -
Corporate 168,094 236,219 535,557
------------------------------------------------------------------------
$ 1,682,257 $ 1,112,157 $ 2,305,901
------------------------------------------------------------------------
</TABLE>
Export sales for the years ended February 28, 1995, 1994, and 1993 were
$20,662,000, $19,650,000 and $16,371,000, respectively.
(17) Investment in Digital GraphiX - Subsequent Event
------------------------------------------------
On May 2, 1995, Digital GraphiX, Incorporated (DGI) (formerly New
Microtime Inc.), previously a wholly owned subsidiary of the Company,
issued an additional 64,800 shares of common stock to certain employees
and securityholders of the Company at $5.00 per share. As a result of
this offering, the Company's interest has been reduced to 19%. DGI
will utilize the proceeds from the offering for working capital
purposes.
The Company's consolidated financial statements include the operating
results of DGI from the date of inception in April, 1993 through
February 28, 1995. As of February 28, 1995 the DGI balance sheet has
not been consolidated. The investment in DGI at February 28, 1995 is
comprised of a 7.5% $2.9 million note receivable, discounted to $2.3
million to reflect a market rate interest, representing the
inter-company balance reduced by $.5 million of net liabilities of DGI
resulting in a net balance of $1.8 million. Interest is payable
monthly with the principal due October, 1997. The Company has not
29
<PAGE>
recorded any gain related to the May 2, 1995 sale of stock by the
subsidiary, which will be considered along with the discount in the
Company's future valuation of the note receivable and equity interest.
DGI was formed in April 1993 as a wholly owned subsidiary. Andersen
Group had previously been in the video graphics marketplace for nearly
twenty years with its majority-owned subsidiary, Microtime, Inc., which
sold video signal processing equipment, including time base correctors,
frame synchronizers and, later, digital video effects equipment. The
Microtime, Inc. assets were sold to Digital F/X, Inc. (DF/X) in October
1992 for a combination of subordinated notes and preferred stock. The
assets which DF/X bought from AGI were put into the DF/X Broadcast
Division. When this Division did not perform financially as well as
expected, AGI reached an agreement with DF/X to manage its Broadcast
Division through AGI's wholly-owned subsidiary, New Microtime. The
management arrangement included an option by New Microtime to purchase
the DF/X Broadcast Division assets under certain conditions. This
option was exercised in September, 1993 prior to DF/X's bankruptcy
filing.
This Agreement, which was approved by the U.S. Bankruptcy Court in
December 1993, confirmed the transfer of title of the DF/X Broadcast
assets free and clear of all liens, claims and encumbrances arising out
of DF/X's operation of the division, including claims of DF/X trade and
other creditors, for forgiveness of debt and an additional payment of
$470,000 to the debtor's estate. The net assets acquired were valued
at approximately $2.4 million and consisted primarily of inventory,
equipment, licenses, patents and trademarks.
On October 19, 1994 New Microtime acquired certain assets of the
Graphics Systems Division (GSD) of The Grass Valley Group, Inc. (Grass
Valley) in exchange for three year 7.5% promissory notes totalling
$2,035,000 and a minimum royalty of $600,000 payable over three years.
The acquired product lines were integrated with the other products sold
by New Microtime. The combined entity began operating under the name
Digital GraphiX in January, 1995. Grass Valley is continuing to sell
its former GSD products as DGI's worldwide non-exclusive master
distributor.
(18) Contingencies
-------------
Althin CD Medical, Inc. (Althin) has filed a complaint against the
Company's subsidiary Seratronics, Inc. of Nevada in the U.S. District
Court for the Southern District of Florida, asserting various claims
including breach of contract for failure to pay royalties arising out
of a License Agreement with Althin's predecessor, CD Medical, and
claims arising out of the management of Seratronics' business by
Fresenius U.S.A., Inc. Althin has claimed money damages of at least
$300,000. Seratronics has denied all claims or owing any additional
liability for royalties and has filed counterclaims against Althin
alleging misuse by Althin of know-how and technology licensed
exclusively to Seratronics and breach of Althin covenants of good faith
and fair dealings with Seratronics. The case is presently in the
discovery phase. Seratronics intends to strongly defend these claims
and to vigorously assert its counterclaims. The ultimate outcome of
the litigation discussed above or the necessity for any provision for
liability which may result cannot presently be determined.
30
<PAGE>
KPMG Peat Marwick LLP
Independent Auditors' Report
The Stockholders and Board of Directors
Andersen Group, Inc.:
We have audited the accompanying consolidated balance sheets of Andersen
Group, Inc. and subsidiaries as of February 28, 1995 and 1994, and the
related consolidated statements of operations, common and other
stockholders' equity and cash flows for each of the years in the three-year
period ended February 28, 1995. 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 in accordance with generally accepted auditing
standards. Those standards 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 financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Andersen Group, Inc. and subsidiaries at February 28, 1995 and 1994, and
the results of their operations and their cash flows for each of the years
in the three-year period ended February 28, 1995, in conformity with
generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
Springfield, Massachusetts
May 3, 1995
31
<PAGE>
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
- - ------------------------------------------------------
None.
PART III
--------
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- - ------------------------------------------------------------
The information required by this Item for Directors is set forth below. The
information required for Executive Officers is incorporated by reference to the
section in Part I, Item 1-Business, entitled "Executive Officers of the
Registrant."
OLIVER R. GRACE, JR., age 41, has been a Director of the Company since 1986 and
Chairman since March 29, 1990. He has also been President of AG Investors,
Inc., one of the Company's subsidiaries, since 1992. Mr. Grace, Jr. is a
General Partner of The Anglo American Security Fund L.P., and serves as a
Director of Republic Automotive Parts, Inc. Mr. Grace, Jr. is the brother of
John S. Grace and Gwendolyn Grace.
FRANCIS E. BAKER, age 65, has been a Director of the Company and President and
Chief Executive Officer of the Company since 1959. Mr. Baker also serves as a
Director of Connecticut Water Services, Inc. and Fresenius USA, Inc.
PETER N. BENNETT, age 59, has been a Director of the Company since 1992. He is
a private investor and financial consultant.
EDWARD K. CONKLIN, age 53, has been a Director of the Company since 1991. He is
Chairman of the Board and Vice President of Forth, Inc.
JOSEPH F. ENGELBERGER, age 69, has been a Director of the Company since 1975.
He has been Chairman of Transitions Research Corporation since 1984. Mr.
Engelberger serves as a Director of Information International, Inc. and EDO
Corporation.
RICHARD H. GORDON, age 53, has been a Director of the Company since 1990. He is
the President of Richard Gordon Interests, a Director of Northeast Savings,
F.A., and a Director of the International Tennis Hall of Fame. Mr. Gordon
serves as a Trustee for Avon Old Farms School, Connecticut College and Ohio
Wesleyan University.
JOHN S. GRACE, age 37, has been a Director of the Company since 1990. He is the
Chairman of Sterling Grace Corporation, and a General Partner of The Anglo
American Security Fund L.P. John S. Grace is the brother of Oliver R. Grace,
Jr. and Gwendolyn Grace.
GWENDOLYN GRACE, age 43, was appointed to the Board of Directors in 1992. She is
a private investor. Gwendolyn Grace is the sister of Oliver R. Grace, Jr. and
John S. Grace.
LOUIS A. LUBRANO, age 61, has been a Director of the Company since 1983 and is
currently Managing Director of Stires and Company, Inc., a position he has held
since 1991. Mr. Lubrano was previously the Director of the NASDAQ Forum from
March 1990 to March 1991, Managing Director of Home Group Capital Markets, Inc.
from February 1989 to February 1990, and President of the investment banking
firm of Gabelli & Company, Inc. from April 1986 to February 1989. Mr. Lubrano
also serves as a Director of Graham-Field Health Products, Inc.
JAMES J. PINTO, age 43, has been a Director of the Company since 1988. He is
currently Chairman and a Director of National Capital Management Corporation, a
position he has held since 1989. Mr. Pinto also serves as a Director of
Biscayne Holdings, Inc.
32
<PAGE>
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more than ten percent of its Common
Stock (Insiders), to file reports of ownership and changes in ownership with
the Commission and the National Association of Securities Dealers, Inc.
Insiders are required by the regulations of the Commission to furnish the
Company with copies of all Section 16(a) forms that they file.
Based solely on its review of the copies of such forms received by it or
written representations from certain reporting persons that no such forms were
required for those persons, the Company believes that during fiscal year 1995
all filing requirements applicable to insiders were complied with.
ITEM 11 - EXECUTIVE COMPENSATION
- - --------------------------------
The following information is given regarding the annual and long-term
compensation paid or to be paid to the Chief Executive Officer and the four
other most highly compensated executive officers of the Company with respect to
the fiscal years 1995, 1994 and 1993. Pursuant to the Securities and Exchange
Commission (Commission) regulations, information is also provided with respect
to Mr. Acker, who served as President of Digital GraphiX, Incorporated
(f/k/a New Microtime Inc.) for the first seven months of fiscal 1995.
33
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term Compensation
----------------------
Annual Compensation Awards Payouts
------------------- -------- -------
Securities
Underlying LTIP All Other
Name and Fiscal Salary/(a)/ Bonus Options/SAR Payouts Compensation/(b)/
Principal Position Year ($) ($) (#) ($) ($)
------------------ ---- ------- ------- ------- ------- ------------
<S> <C> <C> <C> <C> <C> <C>
Francis E. Baker 1995 235,978 - - - 51,352/(c)/
President and Chief 1994 243,665 - - - 53,164/(c)/
Executive Officer 1993 255,673 - - - 15,914
Oliver R. Grace, Jr. 1995 98,750 - - - 145
Chairman of the Board and 1994 149,037 - - - 1,921
President of AG Investors, Inc. 1993 150,963 - - - -
H. George Wolfe, Jr. 1995 124,324 6,000 - - 1,780
President, 1994 108,105 13,390 - - 1,293
Ney Dental International, Inc. 1993 100,002 12,500 - - 1,795
Ronald N. Cerny/(d)/ 1995 108,718 21,000 - - 729
General Manager 1994 94,620 10,000 5,000 - 41,944
The J.M. Ney Company 1993 - - - - -
Jack E. Volinski/[e]/ 1995 98,521 4,969 - - 1,229
Chief Financial Officer 1994 93,872 4,778 - - 1,171
Andersen Group, Inc. 1993 77,925 7,375 - - 1,250
David E. Acker/(f)/ 1995 95,873 - - - 75,505
President, 1994 114,675 - - - -
Digital GraphiX, Incorporated 1993 - - - - -
</TABLE>
- - -----------------------
(a) Includes amounts of compensation deferred, at the employees option, pursuant
to the Company's 401(k) plan.
(b) Consists of contributions made by the Company in respect of its money
purchase pension plan, 401(k) plan and The J.M. Ney Company Profit Sharing
Plan. For 1995 and 1994, no contributions were made by the Company in
respect of the Money Purchase Pension Plan. In 1993 the Company made a
contribution to the Money Purchase Plan for the benefit of Mr. Baker in the
amount of $13,732. Contributions by the Company in respect of its 401(k)
plan for 1995, 1994 and 1993, respectively, were: $1,352, $3,164 and $2,182
for Mr. Baker; $145, $1,921 and $0 for Mr. Grace, Jr.; $1,780, $1,293 and
$1,409 for Mr. Wolfe, Jr.; $729, $0 and $0 for Mr. Cerny; $1,229, $1,171
and $1,078 for Mr. Volinski and none for Mr. Acker. For 1995 and 1994, no
contributions were made by the Company in respect of The J.M. Ney Company
Profit Sharing Plan. In 1993 the Company made a contribution of $386 to the
J.M. Ney Company Profit Sharing Plan for the benefit of Mr. Wolfe, Jr. and
$172 for Mr. Volinski.
(c) Includes a contribution made by the Company in respect of a Special
Executive Retirement Plan in the amount of $50,000.
(d) Mr. Cerny joined the Company on April 23, 1993. All Other Compensation for
Mr. Cerny in 1994 includes $39,379 of relocation expenses and $2,565 for
personal use of a Company provided automobile.
(e) Mr. Volinski was appointed Chief Financial Officer of the Company on June
24, 1993. Previously, he was Chief Financial Officer for The J.M. Ney
Company.
(f) Mr. Acker joined the Company on May 10, 1993. He was terminated in
September 1994. All Other Compensation for Mr. Acker in 1995 consists of
six months of severance pay pursuant to his employment agreement.
34
<PAGE>
OPTIONS GRANTED IN FISCAL 1995
No stock options were granted in fiscal 1995 to the individuals named in the
Summary Compensation Table.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Unexercised In-The-Money
Options At Options At
Fiscal Year Fiscal Year
Shares End (#) End ($)
Acquired On Value Realized Exercisable/ Exercisable/
Name Exercise (#) ($) Unexercisable Unexercisable
---- ------------ -------------- ------------- -------------
<S> <C> <C> <C> <C>
Francis E. Baker - - 30,000/0 -
Oliver R. Grace, Jr. - - 5,000/0 -
H. George Wolfe, Jr. - - 1,000/0 -
Ronald N. Cerny - - 1,667/3333/[1]/ -
Jack E. Volinski - - 1,000/0 -
David E. Acker - - - -
</TABLE>
(1) The shares underlying the unexercised options become exercisable on
April 27, 1995 and 1996 in the amounts of 1,667 and 1,666 shares, respectively.
Pension Benefits
The following tables set forth the estimated aggregate annual benefit
payable upon retirement or at normal retirement age for each level of
remuneration specified at the listed years of service. The pension benefits are
based on calendar year earnings and are payable in the form of a life annuity.
For calendar 1994, the maximum annual compensation limit for determining pension
benefits was $150,000.
Table I is applicable only to employees of The J.M. Ney Company (Ney) who
had made prior contributions to the pension plan and were considered active
participants prior to February 28, 1991.
Table II is applicable to all other employees of the Company and its
subsidiaries including employees of Ney who had not made prior contributions to
the pension plan and were not considered active participants prior to February
28, 1991.
<TABLE>
<CAPTION>
TABLE I
Years of Service
-----------------------------------------------------
Remuneration 5 10 15 20 25 30
- - ------------ ------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
$100,000 $ 6,250 $12,500 $18,750 $25,000 $31,250 $ 37,500
125,000 7,813 15,625 23,438 31,250 39,063 46,875
150,000 9,375 18,750 28,125 37,500 46,875 56,250
175,000 12,813 23,750 34,688 45,625 56,563 67,500
200,000 14,375 26,875 39,375 51,875 64,375 76,875
225,000 15,938 30,000 44,063 58,125 72,188 86,250
250,000 17,500 33,125 48,750 64,375 80,000 95,625
275,000 19,063 36,250 53,438 70,625 87,813 105,000
</TABLE>
35
<PAGE>
An individual's pension benefits are equal to the greater of the following two
calculations: (A) 1.25% of final average earnings (average annual earnings for
the five consecutive years of highest earnings in the employee's last 10 years
of employment), determined on the earlier of February 29, 1996 or the date of
such member's termination of employment, or (B) the sum of the individual's
accrued pension benefit at 12/31/93 calculated pursuant to (A) above and the
individual's compensation for the year (up to a maximum of $150,000) multiplied
by 1.25% multiplied by the number of years of service since 12/31/93.
For calendar year 1994, compensation taken into account under the qualified
pension plan for any individual in any year was limited to $150,000.
Pension benefits are not reduced on account of social security benefits received
by the employee. Average earnings is the sum of the amounts shown in the
columns labeled "Salary" and "Bonus" in the Summary Compensation Table. The
executive officers named in the Summary Compensation Table have the following
years of credited service for pension plan purposes: Mr. Wolfe, Jr. - 9 years.
<TABLE>
<CAPTION>
TABLE II
Years of Service
----------------------------------------------------
Remuneration 5 10 15 20 25 30
- - ------------ ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
$100,000 $ 5,170 $10,340 $15,510 $20,680 $25,850 $31,020
125,000 6,733 13,465 20,198 26,930 33,663 40,395
150,000 8,295 16,590 24,885 33,180 41,475 49,770
175,000 11,517 21,374 31,232 41,089 50,947 60,804
200,000 13,079 24,499 35,919 47,339 58,759 70,179
225,000 14,642 27,624 40,607 53,589 66,572 79,554
250,000 16,204 30,749 45,294 59,839 74,384 88,929
275,000 17,767 33,874 49,982 66,089 82,197 98,304
</TABLE>
An individual's pension benefits are equal to the greater of the following two
calculations: (A) .75% of final average earnings (average annual earnings for
the five consecutive years of highest earnings in the employee's last 10 years
of employment), plus .50% of final average earnings in excess of covered
compensation (average of Social Security wage base) multiplied by the employee's
years of service as a qualified employee (up to a maximum of 40 years), or (B)
the sum of the individual's accrued pension benefit at 12/31/93, calculated
pursuant to (A) above, and the individual's compensation for the year (up to a
maximum of $150,000) multiplied by the percentages in (A) above multiplied by
the number of years of service since 12/31/93.
During calendar year 1994, compensation taken into account under the qualified
pension plan for any individual in any year was limited to $150,000.
Pension benefits are not reduced on account of social security benefits received
by the employee. Average earnings is the sum of the amounts shown in the
columns labeled "Salary" and "Bonus" in the Summary Compensation Table. For
purposes of this table, the amount used for covered compensation is the average
of the covered compensation for each of the individuals named in the Summary
Compensation Table. The executive officers named in the Summary Compensation
Table have the following years of credited service for pension plan purposes:
Mr. Baker - 9 years; Mr. Grace, Jr. - 2 years; Mr. Volinski - 4 years; Mr. Cerny
- - - 1 year; Mr. Acker - none.
Director Compensation
All non-employee directors receive $6,000 per year, $500 for attendance at
each Board meeting and reimbursement of expenses. Additionally, John S. Grace
receives compensation of $15,000 annually as a member of the Executive
Committee, and Louis A. Lubrano receives compensation of $2,000 for serving as
Chairman of the Audit Committee.
Employment Agreements
Messrs. Wolfe, Jr. and Cerny have employment agreements which, among other
things, provide for severance pay in the event of involuntary termination.
Mr. Wolfe, Jr. is entitled to six months severance in the event of termination
of Mr. Wolfe's employment for any reason other than cause as such term is
defined in the agreement. In addition, Mr. Wolfe, Jr. was granted the right to
receive a stock option equal to one percent (1%) of the outstanding stock of Ney
Dental International, Inc. on March 1,
36
<PAGE>
1994. To date, the stock option has not been granted because the terms of the
stock option plan, including the price of the option, have not been established.
The Company may, however, at its option, provide equivalent benefits to Mr.
Wolfe, Jr. in the form of non-equity compensation.
Mr. Cerny's employment agreement provides that in the event of termination for
other than cause, the Company, at its option, will provide Mr. Cerny with twelve
months of notice or salary and fringe benefits or any combination thereof. In
the event of a change in control of The J.M. Ney Company, the Company has agreed
to provide Mr. Cerny with one year severance including fringe benefits.
Report of Compensation Committee
The Compensation Committee of the Board, consisting of Messrs. Engelberger
(Chairman), Gordon, Lubrano and Pinto, each of whom are independent,
non-employee directors, is responsible for reviewing the Company's executive
compensation program and policies each year and determining the compensation of
the senior executive officers. The Committee's determination on compensation of
the Chief Executive Officer and other executive officers is reviewed with and
approved by the entire Board.
The fiscal 1995 base pay of the Company's executive officers was determined
primarily on the basis of the Committee's overall assessment of the executive
officer's performance and competitive market data on salary levels. The
Committee's overall policy regarding compensation of the Company's executive
officers is to provide competitive salary levels and compensation incentives
that attract and retain individuals of outstanding ability in key positions that
recognize individual performance and the performance of the Company relative to
the performance of other companies of comparable size, complexity and quality,
and that support both the short-term and long-term goals of the Company. The
executive compensation program includes elements which, taken together,
constitute a flexible and balanced method of establishing total compensation for
senior management.
Compensation paid to the Company's executive officers for fiscal year 1995
consisted primarily of salary, contributions made by the Company in respect of
its 401(k) Plan and, with respect to Mr. Baker, a contribution made by the
Company in respect of a Special Executive Retirement Plan. Each executive
officer's salary is determined on the basis of the individual's responsibilities
and performance and a comparison with salaries paid by competitors of the
Company, the other primary components of executive compensation are directly
related to corporate and business unit performance. In light of the Committee's
increasing emphasis on performance-related compensation and the failure of the
Company to reach certain predetermined performance goals, no stock option grants
were awarded in fiscal year 1995.
The Committee established the compensation of Francis E. Baker, the President
and Chief Executive Officer of the Company, for fiscal 1995 using the same
criteria used to determine compensation for other executive officers. Mr.
Baker's fiscal year 1995 base pay was determined based upon the Committee's
overall assessment of Mr. Baker's performance and competitive market data on
salary levels. Again, using competitive market data, the Committee agreed to
make a payment of $50,000 to Mr. Baker's Special Executive Retirement Plan.
Because of the Company's financial performance, Mr. Baker's annual salary was
reduced to $200,000 from $220,000 effective January 1, 1995. In addition, the
salary and Director's fee for the Company's Chairman, Mr. Oliver R. Grace, Jr.,
was also reduced effective January 1, 1995 to $85,000 from $100,000.
Mr. Baker's incentive compensation was to be determined by reference to the
Company's fiscal year 1995 audited earnings before provision for interest,
taxes, depreciation and amortization, as reduced by certain adjustments. In
light of the Company's financial performance during fiscal year 1995, no
incentive compensation payment was made to Mr. Baker.
It is the opinion of the Committee that the aforementioned compensation
structures provide features which properly align the Company's executive
compensation with corporate performance and the interests of its shareholders
and which offer competitive opportunities in the marketplace.
The Compensation Committee
37
<PAGE>
J.F. Engelberger, Chairman
R.H. Gordon
L.A. Lubrano
J.J. Pinto
Performance Graph
The following graph compares the performance of the Company for the periods
indicated with the performance of the National Association of Securities Dealers
Automated Quotation (NASDAQ) Composite Stock Index (NASDAQ Composite) and the
performance of the NASDAQ Industrial Composite Stock Index (Peer Group). The
comparative five year total returns assume a $100 investment made on February
28, 1990 with dividends reinvested. The Andersen Group, Inc. stockholder return
shown on the following graph is not necessarily indicative of future stock
performance.
[GRAPH APPEARS HERE]
COMPARATIVE FIVE YEAR TOTAL RETURNS
AMONG ANDERSEN GROUP INC., NASDAQ COMPOSITE AND PEER GROUP (NASDAQ INDUSTRIALS)
<TABLE>
<CAPTION>
Measurement period ANDERSEN NASDAQ PEER
(Fiscal Year Covered) GROUP COMPOSITE GROUP
- - --------------------- -------- --------- -----
<S> <C> <C> <C>
Measurement PT -
02/28/90 $ 100.00 $ 100.00 $ 100.00
FYE 02/28/91 $ 101.37 $ 106.39 $ 117.41
FYE 02/28/92 $ 76.71 $ 148.75 $ 167.86
FYE 02/28/93 $ 76.71 $ 157.51 $ 162.11
FYE 02/28/94 $ 46.58 $ 186.10 $ 194.07
FYE 02/28/95 $ 32.88 $ 186.39 $ 180.66
</TABLE>
38
<PAGE>
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- - ------------------------------------------------------------------------
The following table sets forth information regarding the beneficial
ownership of Common Stock, as of May 8, 1995 by each director, by each named
executive officer of the Company described in "Executive Compensation", by
persons who beneficially own 5% or more of the outstanding shares of Common
Stock, and by all directors and officers of the Company as a group. The
beneficial ownership information described and set forth below is based on
information furnished by the specified persons and is determined in accordance
with Rule 13d-3 under the Securities Exchange Act of 1934, as amended. It does
not constitute an admission of beneficial ownership for any other purpose.
<TABLE>
<CAPTION>
Number of Shares
and Nature of
Name Beneficial Ownership Percent of Class
- - -----------------------------------------------------------------------------------
<S> <C> <C>
Francis E. Baker 45,038 /(1)/ 2.3
Karen Baker 120,001 6.2
8356 Sego Lane
Vero Beach, Florida
Estate of Oliver R. Grace, Sr. 101,596 /(2)/ 5.3
49 Cove Neck Road
Oyster Bay, New York
Lorraine G. Grace 131,317 /(3)/ 6.7
49 Cove Neck Road
Oyster Bay, New York
Oliver R. Grace, Jr. 168,743 /(4)/ 8.0
32 Wellington Road
Locust Valley, New York
John S. Grace 126,736 /(5)/ 6.2
55 Brookville Road
Glen Head, New York
Gwendolyn Grace 8,235 /(6)/
Peter N. Bennett 159,956 /(7)/ 7.6
6 Battersea High St.
London SW11 3RA, England
The Ney Profit Sharing Savings Plan Trust 183,333 /(8)/ 9.5
c/o Fleet Bank, N.A, Trustees
One Constitution Plaza
Hartford, Connecticut
Estate of Paul S. Ney 142,987 /(9)/ 6.9
c/o Richard C. Hannan, Jr., Esq.
P.O. Box 68
Wallingford, Connecticut
Joseph F. Engelberger 7,475 /(10)/ /(6)/
Louis A. Lubrano 6,855 /(11)/ /(6)/
James J. Pinto 13,000 /(12)/ /(6)/
Richard H. Gordon 3,000 /(13)/ /(6)/
Edward K. Conklin 64,238 /(14)/ 3.2
H. George Wolfe, Jr. 1,750 /(15)/ /(6)/
Ronald N. Cerny 5,000 /(16)/ /(6)/
Jack E. Volinski 1,000 /(17)/ /(6)/
All directors and officers as a group
(17 Persons including certain of the
above-named individuals) 517,644 21.6
</TABLE>
- - ------------
(1) Francis E. Baker does not own any shares of Common Stock directly. The
figure set forth in the above table includes 10,400 shares of Common Stock
with respect to which Mr. Baker has shared voting power as co-trustee under
the Oliver Grace Grandchildren Trust U/R dated December 27, 1976 and 4,638
shares which such Trust owns by virtue of its ability to convert $75,000
principal amount of 10 1/2% convertible subordinated debentures
(Convertible Debentures) to Common Stock within a 60-day period. Mr. Baker
disclaims beneficial ownership of such shares held in trust. Also included
in the figure set forth in the above table are 30,000 shares of Common
Stock which may be issued to Mr. Baker within 60 days hereof upon the
exercise of his existing exercisable stock
39
<PAGE>
options. In addition to the shares reported above, Mr. Baker is the settlor
of four irrevocable trusts each dated March 31, 1970 and created for the
benefit of certain of his children. Shawmut Bank, N.A. acts as trustee
under each of these trusts, which hold an aggregate of 68,306 shares of
Common Stock. Mr. Baker does not exercise any control over these four
trusts and disclaims beneficial ownership.
(2) The Estate of Oliver R. Grace, Sr. (Estate) has direct beneficial ownership
of an aggregate of 101,596 shares of Common Stock.
(3) Lorraine G. Grace has beneficial ownership of 131,317 shares of Common
Stock. Of this amount, 13,638 shares are held by Mrs. Grace directly; 2,475
shares are held by Mrs. Grace, as trustee of a trust for the benefit of her
children; 13,608 shares are held by virtue of the ability of Mrs. Grace to
convert $220,000 principal amount of Convertible Debentures to Common Stock
within a 60-day period; and 101,596 shares are held by virtue of Mrs.
Grace's appointment as executrix of the Estate.
(4) Oliver R. Grace, Jr. has beneficial ownership of an aggregate of 168,743
shares of Common Stock. Of this amount, 55,686 shares are held by
Oliver R. Grace, Jr. directly, including 40,136 shares by virtue of
Mr. Grace's ability to convert $649,000 principal amount of Convertible
Debentures within a 60-day period and 11,250 shares by virtue of
Mr. Grace's ability to convert 6,000 shares of Series A Cumulative
Convertible Redeemable Preferred Stock of the Company, without par value
(Preferred Stock) to Common Stock within a 60-day period; 7,592 shares are
held by Carolyn Grace, the spouse of Oliver R. Grace, Jr., of which 7,112
shares are held by Mrs. Grace by virtue of her ability to convert $115,000
principal amount of Convertible Debentures within a 60-day period; 58,144
shares are held by virtue of the ability of The Anglo American Security
Fund L.P. (of which Oliver R. Grace, Jr. is a general partner) to convert
$940,000 principal amount of Convertible Debentures to Common Stock within
a 60-day period; and 42,321 shares are held by virtue of the ability of
Sterling Grace Capital Management, L.P. (of which Oliver R. Grace, Jr. is a
limited partner) to convert 22,571 shares of the Preferred Stock to Common
Stock within a 60-day period. Mr. Grace, Jr. has stock options to acquire
an additional 5,000 shares of Common Stock. Oliver R. Grace, Jr. disclaims
beneficial ownership of all shares owned by his spouse, by him as trustee
for the benefit of family members, by The Anglo American Security Fund,
L.P. and by Sterling Grace Capital Management, L.P. described herein.
(5) John S. Grace has beneficial ownership of 126,736 shares of Common Stock.
Of this amount, 15,850 are owned by John S. Grace directly; 58,144 shares
are held by virtue of the ability of The Anglo American Security Fund L.P.
(of which John S. Grace is a general partner) to convert $940,000 principal
amount of Convertible Debentures to Common Stock within a 60-day period;
7,421 shares are held by virtue of Mr. Grace's ability to convert $120,000
principal amount of Convertible Debentures to Common Stock within a 60-day
period; and 42,321 shares are held by virtue of the ability of Sterling
Grace Capital Management, L.P. (John S. Grace is Chairman of Sterling Grace
Corporation, General Partner of Sterling Grace Capital Management) to
convert 22,571 shares of the Preferred Stock to Common Stock within a
60-day period. Mr. Grace has a stock option to acquire an additional 3,000
shares of Common Stock. John S. Grace disclaims beneficial ownership of all
shares held by trustees for the benefit of members of his family and The
Anglo American Security Fund L.P.
(6) Represents less than one percent (1.0%) of the Common Stock.
(7) Peter N. Bennett owns 300 shares of Common Stock directly. The figure set
forth in the table includes the ability of Mr. Bennett to convert 85,150
shares the Preferred Stock to 159,656 shares of Common Stock within a
60-day period.
(8) The Ney Profit Sharing Savings Plan Trust owns 183,333 shares of Common
Stock directly.
(9) The Estate of Paul S. Ney does not own any shares of Common Stock directly.
The figure set forth in the table represents the ability of the Estate of
Paul S. Ney to convert 76,260 shares the Preferred Stock to 142,987 shares
of Common Stock within a 60-day period.
(10) Joseph F. Engelberger has beneficial ownership of 7,475 shares of Common
Stock of which 2,475 shares are held directly. Mr. Engelberger has stock
options to acquire 5,000 shares of Common stock within a 60-day period.
(11) Louis A. Lubrano has beneficial ownership of 6,855 shares of Common Stock
of which 1,855 shares are held by virtue of Mr. Lubrano's ability to
convert $30,000 principal amount of Convertible Debentures to Common Stock
within a 60-day period. Mr. Lubrano has stock options to acquire 5,000
shares of Common Stock within a 60-day period.
(12) James J. Pinto has beneficial ownership of 13,000 shares of Common Stock,
of which 8,000 shares are held directly. Mr. Pinto has stock options to
acquire 5,000 shares of Common Stock within a 60-day period.
(13) Richard H. Gordon does not own any shares of Common Stock directly. The
figure set forth in the table represents a stock option to acquire 3,000
shares of Common Stock within a 60-day period.
(14) Edward K. Conklin does not own any shares of Common Stock directly. The
figure set forth in the table above includes 11,250
40
<PAGE>
shares by virtue of his ability to convert 6,000 shares of the Preferred
Stock to Common Stock within a 60-day period, 49,988 shares by virtue of
the ability of Shawmut Bank, N.A., as trustees under the Edward K. Conklin
Trust for the benefit of Anne A. Conklin to convert 26,660 shares of the
Preferred Stock to common stock within a 60-day period, and 3,000 shares by
virtue of Mr. Conklin's right to exercise an option to acquire 3,000 shares
of Common Stock within a 60-day period.
(15) H. George Wolfe, Jr. does not own any shares of Common Stock directly. The
figure set forth in the table above includes 750 shares by virtue of his
ability to convert 400 shares of the Preferred Stock to Common Stock,
without par value, of the Company within a 60-day period, and 1,000 shares
by virtue of Mr. Wolfe's right to exercise an option to acquire 1,000
shares of Common Stock within a 60-day period.
(16) Ronald N. Cerny does not own any shares of Common Stock directly. The
figure set forth in the table represents a stock option to acquire 5,000
shares of Common Stock within a 60-day period.
(17) Jack E. Volinski does not own any shares of Common Stock directly. The
figure set forth in the table represents a stock option to acquire 1,000
shares of Common Stock within a 60-day period.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- - --------------------------------------------------------
Cellular Investments
- - --------------------
In May 1992, the Company made an investment in Cellular Holdings L.P.
(Cellular Holdings), a limited partnership which owns and operates three rural
nonwireline cellular telephone franchises in Louisiana and Mississippi. Oliver
R. Grace, Jr., Chairman and director of the Company, contributed all of the
assets and liabilities of two Louisiana franchises to Cellular Holdings in
exchange for approximately 65% of the partnership equity in Cellular Holdings
and 80% of the capital stock of its corporate general partner. Cellular
Holdings acquired the Mississippi franchise for $1,800,000 in cash, a $1,350,000
note of Cellular Holdings and approximately 20% of the partnership equity. The
Company provided $1,800,000 to Cellular Holdings for application to the purchase
price of the Mississippi franchise and start-up and operating costs in exchange
for approximately 15% of the partnership equity. In addition, the Company
advanced approximately $200,000 for costs related to the organization of
Cellular Holdings.
The relative equity in Cellular Holdings received by the Company and
Mr. Grace, Jr. was determined after negotiation by the Independent Committee of
the Company's Board. One of the cellular franchises contributed by Mr. Grace,
Jr. was acquired by him for $1,200,000 in July, 1991 and was valued by the
Independent Committee at that price for purposes of determining equity in
Cellular Holdings. Mr. Grace, Jr. was awarded the other franchise in the Federal
Communications Commission lottery of rural franchises. The Independent Committee
received three appraisals of the value of this franchise, ranging from
$4,400,000 to $8,900,000 from independent appraisers recognized in the cellular
telephone industry. The Independent Committee valued this franchise at
$6,500,000, which fell below the midpoint of the range of appraisals received.
The Independent Committee also considered that Mr. Grace, Jr. had advanced
approximately $800,000 toward construction and operating costs to the Louisiana
franchises which remained outstanding at the closing. The Committee further
considered the terms of the financing described below, which were set forth in a
nonbinding letter of intent at the time of the closing.
On December 11, 1992, Cellular Holdings, the Company and Mr. Grace, Jr.
entered into agreements with Media Communications Partners II Limited
Partnership and other investors (Investors) and MidSouth Management Investors
Corp. (MMI) providing for financing of up to $10,500,000 for construction and
operation of the cellular franchises and acquisition of additional cellular
franchises. Under the agreements, the Company's and Mr. Grace, Jr.'s limited
partnership interests in Cellular Holdings were contributed to MidSouth Cellular
L.P. (MidSouth) and Mr. Grace, Jr.'s interest in the general partner of Cellular
Holdings and certain receivables from Cellular Holdings to the Company and
Mr. Grace, Jr. were contributed to the General Partner of MidSouth. In exchange
for such contributions, the Company received limited partnership interests
providing for a preferred return of $2,566,710 plus distributions equal to 10%
per annum on such amount until repaid, and 9.6% of the remaining equity (Common
Equity) in MidSouth after payment of debt and the preferred interests and 12.47%
of the capital stock of the general partner of MidSouth; and Mr. Grace, Jr.
received limited partnership interests providing for a preferred return of
$7,934,353 plus distributions equal to 10% per annum on such amount until
repaid, and 29.75% of the Common Equity in MidSouth, and 38.53% of the capital
stock in the general partner of MidSouth. In addition, at the closing, Cellular
Holdings repaid to Mr. Grace, Jr. $202,143 in
41
<PAGE>
respect of advances previously made by Mr. Grace, Jr. for construction and
operating costs. The Investors and MMI provided initial financing aggregating
approximately $4,000,000 in the form of loans to MidSouth and its general
partner and purchases of the balance of the general partner's capital stock and
the balance of the Common Equity limited partnership interests in MidSouth.
MMI also entered into a management agreement to manage MidSouth and the cellular
franchises.
The Independent Committee reviewed the terms of the Midsouth financing
transaction in the Spring of 1992 and approved the final terms of the
transaction in December 1992. The Committee considered in particular that the
determination of the relative interests of the Company and Mr. Grace, Jr. in
Midsouth was made on the basis of the valuation of their respective investments
in Cellular Holdings (which was previously reviewed and approved by the
Committee) and cash advanced to Cellular Holdings for construction and operating
costs.
On August 23, 1994, the Company, Mr. Grace, Jr., the Investors and MMI sold
their respective interests in MidSouth, as well as their interests in the
general partner of MidSouth and Cellular Holdings, to Centennial Cellular Corp.
(Centennial) for an aggregate purchase price of $44,500,000, payable in cash and
shares of Centennial Class A Common Stock. The Company, Mr. Grace, Jr., the
Investors and MMI applied the purchase price to payment of indebtedness and
other obligations of MidSouth, its general partner and their subsidiaries, to
the payment of preferred equity plus accrued preferred return thereon and then
to distributions on the Common Equity of MidSouth and its general partner, all
in accordance with the terms of MidSouth's partnership agreement. In addition,
the Company and Mr. Grace, Jr., were each paid a fee by MidSouth equal to
$150,000 in connection with the early termination of the financing arrangements
with the Investors. The aggregate sale proceeds received by the Company was
$4,461,894, all paid in shares of Centennial Class A Common Stock. A portion of
such shares was sold by the Company on the open market on August 23, 1994,
however, the Company continues to hold approximately 40,113 of such shares. The
aggregate sale proceeds received by Mr. Grace, Jr., consisted of a cash payment
of $200,000 and an additional amount of $13,528,070 paid in shares of Centennial
Class A Common Stock. Mr. Grace's interest was transferred in a merger with a
Centennial subsidiary qualifying as a tax-free reorganization under the Internal
Revenue Code of 1986, as amended.
Digital GraphiX Offering
- - ------------------------
On February 27, 1995 the Company's subsidiary, Digital GraphiX, Incorporated
(formerly known as New Microtime Inc.) (DGI) offered for sale to certain
securityholders of the Company (AGI Securityholders) and to certain employees of
DGI 64,800 shares of DGI Common Stock (Offering), at a price of $5.00 per share
(Offering Price).
Consummation of the Offering to AGI Securityholders was conditioned upon the
purchase by DGI employees pursuant to the Offering of a minimum of 16,000 shares
of DGI common stock by the employees. In addition, three directors of the
Company, Francis E. Baker, Peter N. Bennett and Oliver R. Grace, Jr. (Standby
Parties) who are AGI Securityholders, agreed to purchase all shares offered
pursuant to the Offering and at the Offering Price which remained unsold at the
expiration date thereof. Francis E. Baker is the President and Chief Executive
Officer, and a director of the Company. Mr. Baker is also the Chairman of the
DGI Board of Directors. Peter N. Bennett is a director of the Company. Oliver
R. Grace, Jr. is Chairman of the Company's Board of Directors and a director of
DGI.
The Offering, closed on May 2, 1995, and was oversubscribed. As a result the
Standby Parties were not required to fulfill their standby commitment. Each,
however, was entitled to and did subscribe for DGI shares on the same basis as
the other AGI Securityholders.
At the completion of the Offering, Messrs. Baker, Bennett and Grace, Jr. own
3,581, 4,774 and 4,799 shares of DGI, respectively. Their ownership percentage
in DGI approximates 4.5%, 6.0% and 6.0%, respectively. As a result of the
Offering the Company's ownership percentage of DGI has been reduced from 100% to
19%.
The Boards of Directors of DGI and the Company determined the Offering Price
by relying, in part, on an opinion of The Barlow Company, Ltd., to the effect
that the Offering Price was fair from a financial point of view.
42
<PAGE>
PART IV
-------
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
- - -------------------------------------------------------------------------
(a) 1. Consolidated Financial Statements applicable to the Registrant contained
in Item 8:
<TABLE>
<CAPTION>
Pages
-----
<S> <C>
Consolidated Statements of Operations
for the years ended February 28, 1995, 1994
and 1993 16
Consolidated Balance Sheets
as of February 28, 1995 and 1994 17
Consolidated Statements of Cash Flows
for the years ended February 28, 1995, 1994
and 1993 18
Consolidated Statements of Common and Other
Stockholders' Equity
for the years ended February 28, 1995,
1994, and 1993 19
Notes to Consolidated Financial Statements 20 - 30
Independent Auditors' Report 31
<CAPTION>
(a) 2. Consolidated Financial Statement Schedules:
Schedule Page
-------- ----
<S> <C>
II Valuation and Qualifying Accounts 50
</TABLE>
Note: Schedules other than those listed above, are omitted as not
---- applicable, not required, or the information is included in the
consolidated financial statements or notes thereto.
(a) 3. Exhibits required by Item 601 of Regulation S-K:
43
<PAGE>
Exhibit
No. Description
- - ------- -----------
3.1 Amended and Restated Certificate of Incorporation and By-Laws of the
Registrant, incorporated herein by reference to Exhibit 3.1 to the
Registrant's Annual Report on Form 10-K for the year ended February 29,
1992 (Commission File No. 0-1460).
4.1 Indenture of Trust dated as of November 1, 1979 between the Connecticut
Development Authority and the Hartford National Bank and Trust Company
(predecessor to The Connecticut National Bank and Shawmut Bank, N.A.), as
Trustees incorporated herein by reference to the Exhibit filed with the
Registrant's Quarterly Report on Form 10-Q for the quarter ended November
25, 1979 (Commission File Number 0-1460).
4.2 Indenture, dated as of October 15, 1982, between the Registrant and
Hartford National Bank and Trust Company (predecessor to The Connecticut
National Bank and Shawmut Bank, N.A.), as Trustee, in respect of
$10,000,000, aggregate principal amount, 10-1/2% Convertible Subordinated
Debentures Due 2002, incorporated herein by reference to Exhibit 4.8 to
the Registrant's Registration Statement on Form S-4 (Commission
File No. 33-38646).
10.1 Letter Agreement, dated as of February 17, 1981, between the Registrant
and L.F. Rothschild, Unterberg, Towbin incorporated herein by reference to
Exhibit A to the Registrant's current report on Form 8-K filed with the
Commission on March 4, 1981 (Commission File Number 0-1460).
10.2 Group Annuity Contract, dated as of January 1, 1975, between Travelers
Insurance Company and the Registrant relating to retirement benefits
incorporated herein by reference to Exhibit 10.3 of the Registrant's
Annual Report on Form 10-K for the year ended February 28, 1981
(Commission File Number 0-1460).
10.3 Andersen Group Individual Retirement Plan, January 1, 1989, as amended,
incorporated herein by reference to Exhibit 10.3 to the Registrant's
Registration Statement on Form S-4 (File No. 33-38646) effective January
31, 1991.
10.3a Amendment 1992-1 to the Andersen Group Individual Retirement Plan
referred to in Exhibit 10.3 hereof, incorporated herein by reference to
Exhibit 10.3a to the Registrant's Annual Report on Form 10-K for the year
ended February 28, 1993 (Commission File No. 0-1460).
10.4 Money Purchase Pension Plan Agreement, dated as of February 25, 1979,
between the Registrant and the Andersen Group, Inc. Pension Plan (Trust)
incorporated herein by reference to Exhibit 10.3 of the Registrant's
Annual Report on Form 10-K for the year ended February 28, 1981
(Commission File Number 0-1460).
10.5 Amendments to the Money Purchase Pension Plan Agreement referred to in
Exhibit 10.4 hereof, incorporated herein by reference to Exhibit 10.5 to
the Registrant's Registration Statement on Form S-4 (File No. 33-38646)
effective January 31, 1991.
10.5a Amendments 1993-1 and 1991-1 to the Money Purchase Pension Plan
Agreement, incorporated herein by reference to Exhibit 10.5a of the
Registrant's Annual Report on Form 10-K for the year ended February 28,
1993 (Commission File No. 0-1460).
44
<PAGE>
Exhibit
No. Description
- - ------- -----------
10.6 Loan Agreement dated as of November 1, 1979, between the Registrant and
the Connecticut Development Authority incorporated herein by reference to
the Exhibit filed with the Registrant's Quarterly Report on Form 10-Q for
the quarter ended November 25, 1979 (Commission File No. 0-1460).
10.7 Security Agreement, dated as of November 9, 1979, between the Registrant
and the Connecticut Development Authority incorporated herein by reference
to the Exhibit filed with the Registrant's Quarterly Report on Form 10-Q
for the quarter ended November 25, 1979 (Commission File No. 0-1460).
10.8 Mortgage Deed, dated as of November 9, 1979 between the Registrant and the
Connecticut Development Authority incorporated herein by reference to the
Exhibit filed with the Registrant's Quarterly Report on Form 10-Q for the
quarter ended November 25, 1979 (Commission File No. 0-1460).
10.9 Guaranty and Indemnification Agreement, dated as of November 1, 1979,
between the Registrant and American Re-Insurance Company incorporated
herein by reference to the Exhibit filed with the Registrant's Quarterly
Report on Form 10-Q for the quarter ended November 25, 1979
(Commission File No. 0-1460).
10.10 Loan Agreement, dated December 20, 1983, between the Connecticut
Development Authority and the Registrant, incorporated herein by reference
to Exhibit 10.10 to the Registrant's Registration Statement on Form S-4
(File No. 33-38646) effective January 31, 1991.
10.11 Security Agreement, dated December 20, 1983, between the Registrant and
the Connecticut Development Authority, incorporated herein by reference to
Exhibit 10.11 to the Registrant's Registration Statement on Form S-4
(File No. 33-38646) effective January 31, 1991.
10.12 Construction and Open-End Mortgage Deed from the Registrant to the
Connecticut Development Authority and assigned to the Connecticut National
Bank, dated December 20, 1983, incorporated herein by reference to Exhibit
10.12 to the Registrant's Registration Statement on Form S-4 (File
No. 33-38646) effective January 31, 1991.
10.13 Incentive and Non-Qualified Stock Option Plan adopted December 14, 1988,
incorporated herein by reference to Exhibit 10.17 to the Registrant's
Registration Statement on Form S-4 (File No. 33-38646) effective January
31, 1991.
10.14 Agreement and Plan of Merger, dated as of November 30, 1990, by and among
Andersen Group, Inc., Ney Acquisition, Inc. and The J.M. Ney Company,
incorporated herein by reference, filed as Exhibit 2.1 to the Registrant's
Registration Statement on Form S-4 (File No. 33-38646) effective January
31, 1991.
10.15 Agreement of Purchase and Sale of Assets dated October 5, 1992 among
Microtime, Inc., Digital F/X Inc. and Andersen Group, Inc., incorporated
by reference, filed as Exhibit 2.1 to the Registrant's Form 8-K dated
October 6, 1992 (Commission File No. 0-1460).
45
<PAGE>
Exhibit
No. Description
- - ------- -----------
10.16 Amendment to Agreement of Purchase and Sale of Assets dated January 14,
1993 among AGI Technology, Inc. (f/k/a Microtime, Inc.), Andersen Group,
Inc. and Digital F/X Inc. referred to in Exhibit 10.16 hereof,
incorporated herein by reference to Exhibit 10.22a to the Registrant's
Annual Report on Form 10-K for the year ended February 28, 1993
(Commission File No. 0-1460).
10.17 Limited Partnership Agreement of Midsouth Cellular L.P. dated as of
November 18, 1992, incorporated herein by reference to Exhibit 10.23 of
the Registrant's Annual Report on Form 10-K for the year ended February
28, 1993 (Commission File No. 0-1460).
10.18 Investment Agreement by and among Media/Communications Partners II
Limited Partnership, Kilby Capital Company, Inc., Chestnut Street
Partners, Inc. and Media/Communications Investors Limited Partnership;
Midsouth Management Investors Corp.; Midsouth Cellular Corp.; and Midsouth
Cellular L.P. dated as of November 18, 1992, incorporated herein by
reference to Exhibit 10.24 of the Registrant's Annual Report on Form 10-K
for the year ended February 28, 1993 (Commission File No. 0-1460).
10.19 Securityholders' Agreement by and among Midsouth Cellular Corp.; Midsouth
Cellular L.P.; Media/Communications Partners II Limited Partnership, Kilby
Capital Company, Inc., Chestnut Street Partners, Inc. and
Media/Communications Investors Limited Partnership; Midsouth Management
Investors Corp.; George D. Crowley, Jr., Brian McTernan, John D. Fujii,
James J. Walter, Jr. and Janice P. Mercer, Andersen Group, Inc.; Iowa
Cellular Corporation; Louisiana Cellular Corporation; and Oliver R. Grace,
Jr., dated as of November 18, 1992, incorporated herein by reference to
Exhibit 10.25 of the Registrant's Annual Report on Form 10-K for the year
ended February 28, 1993 (Commission File No. 0-1460).
10.20 Capital Contribution Agreement dated as of December 11, 1992, between
Louisiana Cellular Corporation, Iowa Cellular Corporation, Andersen Group,
Inc., Oliver R. Grace, Jr., Midsouth Cellular L.P. and Midsouth Cellular
Corp., incorporated herein by reference to Exhibit 10.26 of the
Registrant's Annual Report on Form 10-K for the year ended February 28,
1993 (Commission File No. 0-1460).
10.21 Agreement for Confirmatory Acquisition and for settlement by and between
Digital F/X, Inc. and New Microtime Inc. dated as of November 9, 1993,
incorporated herein by reference to Exhibit 10.22 of the Registrant's
Annual Report on Form 10-K for the year ended February 28, 1995
(Commission File No. 0-1460).
10.22 Purchase Agreement by and among Centennial Cellular Corp., Clear
Communications Partnership, Clear Communications Systems, Inc. and Clear
Cellular Holdings, Inc. dated as of February 28, 1994, incorporated herein
by reference to Exhibit 10.23 of the Registrant's Annual Report on Form
10-K for the year ended February 28, 1995 (Commission File No. 0-1460).
10.23 The Ney Profit Sharing Savings Plan, January 1, 1993, as amended,
incorporated herein by reference to Exhibit 10.24 of the Registrant's
Annual Report on Form 10-K for the year ended February 28, 1995
(Commission File No. 0-1460).
10.24 Retirement Plan for Employees of The J.M. Ney Company, October 1, 1991,
incorporated herein by reference to Exhibit 10.25 of the Registrant's
Annual Report on Form 10-K for the year ended February 28, 1995
(Commission File No. 0-1460).
46
<PAGE>
Exhibit
No. Description
- - ------- -----------
10.25 Deferred Compensation Agreement, entered into as of September 30, 1992,
by and between the Registrant and Francis E. Baker, incorporated herein by
reference to Exhibit 10.26 of the Registrant's Annual Report on Form 10-K
for the year ended February 28, 1995 (Commission File No. 0-1460).
10.26 Employment Agreement, dated as of March 28, 1994, between The J.M. Ney
Company and H. George Wolfe, Jr., incorporated herein by reference to
Exhibit 10.29 of the Registrant's Annual Report on Form 10-K for the year
ended February 28, 1995 (Commission File No. 0-1460).
10.27 Letter Agreement, dated March 7, 1993, between the Registrant and
Ronald N. Cerny, incorporated herein by reference to Exhibit 10.30 of the
Registrant's Annual Report on Form 10-K for the year ended February 28,
1995 (Commission File No. 0-1460).
10.28 LA3, LA4, Miss 8 Systems Agreement, incorporated herein by reference to
Exhibit 10.1 of the Registrant's Quarterly Report on Form 10-Q for the
Quarter ended August 31, 1994 (Commission File No. 0-1460).
10.30 LA3, LA4, Miss8 Partnership Interest Purchase Agreement, incorporated
herein by reference to Exhibit 10.2 of the Registrant's Quarterly Report
on Form 10-Q for the Quarter ended August 31, 1994 (Commission File
No. 0-1460).
10.31 LA3, LA4, Miss8 Stock Purchase Agreement, incorporated herein by
reference to Exhibit 10.3 of the Registrant's Quarterly Report on Form
10-Q for the Quarter ended August 31, 1994 (Commission File No. 0-1460).
10.32 Acquisition Agreement by and among The Grass Valley Group, Inc.,
Tektronix, Inc., New Microtime Inc. and Andersen Group, Inc. dated as of
September 9, 1994, incorporated herein by reference to Exhibit 10.1 of the
Registrant's Quarterly Report on Form 10-Q for the Quarter ended November
30, 1994 (Commission File No. 0-1460).
10.33 First Amendment to the Agreement by and among The Grass Valley Group,
Inc., Tektronix, Inc., New Microtime Inc. and Andersen Group, Inc. dated
as of September 9, 1994, incorporated herein by reference to Exhibit 10.2
of the Registrant's Quarterly Report on Form 10-Q for the Quarter ended
November 30, 1994 (Commission File No. 0-1460).
10.34 Letter Agreements, dated February 23, 1995 and March 20, 1995, between
the Registrant and Ronald N. Cerny.*
21. Subsidiaries of the Registrant.*
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the last quarter
of the fiscal year ended February 28, 1995.
*Filed herein
47
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
ANDERSEN GROUP, INC. Date: May 19, 1995
- - --------------------
Registrant
/s/ Francis E. Baker /s/ Jack E. Volinski
- - ------------------------------- -------------------------------
Francis E. Baker Jack E. Volinski
President 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.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- - --------- -----
<S> <C> <C>
/s/ Oliver R. Grace, Jr. Chairman
- - -------------------------- and Date: May 22, 1995
Oliver R. Grace, Jr. Director
/s/ Francis E. Baker President, Chief
- - -------------------------- Executive Officer Date: May 19, 1995
Francis E. Baker and Director
/s/ Peter N. Bennett
- - -------------------------- Date: May 22, 1995
Peter N. Bennett Director
/s/ Edward K. Conklin
- - -------------------------- Date: May 22, 1995
Edward K. Conklin Director
/s/ Joseph F. Engelberger
- - -------------------------- Date: May 23, 1995
Joseph F. Engelberger Director
/s/ Richard H. Gordon
- - -------------------------- Date: May 22, 1995
Richard H. Gordon Director
/s/ John S. Grace
- - -------------------------- Date: May 23, 1995
John S. Grace Director
/s/ Gwendolyn Grace
- - -------------------------- Date: May 24, 1995
Gwendolyn Grace Director
/s/ Louis A. Lubrano
- - -------------------------- Date: May 24, 1995
Louis A. Lubrano Director
/s/James J. Pinto
- - -------------------------- Date: May 24, 1995
James J. Pinto Director
</TABLE>
48
<PAGE>
KPMG Peat Marwick LLP
Independent Auditors' Report
The Stockholders and Board of Directors
Andersen Group, Inc.:
Under date of May 3, 1995, we reported on the consolidated balance sheets of
Andersen Group, Inc. and subsidiaries as of February 28, 1995 and 1994, and the
related consolidated statements of operations, common and other stockholders'
equity, and cash flows for each of the years in the three-year period ended
February 28, 1995, which are included in the annual report on Form 10-K for the
year 1995. In connection with our audits of the aforementioned consolidated
financial statements, we also audited the related consolidated financial
statement schedule as listed in the accompanying index under Part IV, Item 14.
This financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion on this financial
statement schedule based on our audits.
In our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
/s/ KPMG Peat Marwick LLP
Springfield, Massachusetts
May 3, 1995
49
<PAGE>
- - --------------------------------------------------------------------------------
ANDERSEN GROUP, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
----------Additions----------
Balance Charged to Charged Balance
Beginning costs and to other End
Description of year expenses account Deductions of year
----------- ------- -------- ------- ---------- --------
February 28, 1995
- - -----------------
<S> <C> <C> <C> <C> <C>
Allowance for
doubtful accounts $426,459 47,390 (31,000) (83,135)(a) $359,714
Discontinued operation $0 41,000 31,000 (9,393)(a) $62,607
Deferred income tax
valuation allowance $458,000 25,348 $483,348
<CAPTION>
February 28, 1994
- - -----------------
<S> <C> <C> <C> <C> <C>
Allowance for
doubtful accounts $306,038 102,421 98,048 (80,048)(a) $426,459
Discontinued operation $924,132 (98,048) (826,084)(a) $0
Deferred income tax
valuation allowance $1,526,567 (1,068,567) $458,000
<CAPTION>
February 28, 1993
- - -----------------
<S> <C> <C> <C> <C> <C>
Allowance for
doubtful accounts $324,142 (42,685) 24,581 (a) $306,038
Discontinued operation $351,811 815,853 (243,532)(b) $924,132
Deferred income tax
valuation allowance $921,881 604,686 $1,526,567
</TABLE>
a) Write offs net of recoveries.
b) Offset of discontinued operation losses.
50
<PAGE>
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
Exhibit
No. Description Page No.
- - ------- ----------- --------
<C> <S> <C>
10.34 Letter Agreement dated February 23, 1995
between the Registrant and Ronald N. Cerny. 52
21. Subsidiaries of the Registrant. 53
27. Financial Data Schedule 54
</TABLE>
51
<PAGE>
Exhibit 10.34
[Andersen Group Inc. Letterhead]
February 23, 1995
Mr. Ronald N. Cerny
191 Cold Spring Road
Avon, CT 06001
Dear Ron:
This letter will replace the severance arrangements contained in your
Employment Letter of March 7, 1993.
In the event the Company declares your job redundant or eliminated, or if
the Company should terminate your services for its convenience, it will
provide twelve months of notice or salary (including fringe benefits) or
any combination thereof at the Company's option. Should notice be
elected, you will be permitted to solicit alternate employment on Company
time, including reasonable days off for travel.
In the event you wish to leave for personal reasons, you agree to give
sixty days notice.
If these arrangements are satisfactory, please sign a copy of this letter
and return it to me.
Yours very truly,
/s/ Francis E. Baker
Francis E. Baker
President
FEB:sl
cc: Franklin R. Stoner Accepted: /s/ Ronald N. Cerny
-------------------------------------
Ronald N. Cerny
Date: 3/22/95
-----------------------------------------
52
<PAGE>
Exhibit 21
SUBSIDIARIES OF THE REGISTRANT
------------------------------
State or
Country of
Incorporation
Name or Organization
---- ---------------
AG Investors, Inc. Florida
AGI Properties, Inc. Nevada
AGI Technology, Inc. Connecticut
ANLAB, Inc. Connecticut
Clear Cellular Holdings, Inc. Delaware
Digital GraphiX, Incorporated Delaware
(f/k/a New Microtime Inc.)
Ney International, Inc. U.S. Virgin Islands
Ney Dental International, Inc. Delaware
Ney Ultrasonics Inc. Delaware
Neyco Dental, A.G. Switzerland
Seratronics, Inc. of Nevada Nevada
The J.M. Ney Company Delaware
53
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF ANDERSEN GROUP, INC. FOR THE YEAR ENDED
FEBRUARY 28, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-28-1995
<PERIOD-START> MAR-01-1994
<PERIOD-END> FEB-28-1995
<EXCHANGE-RATE> 1
<CASH> 2,708,926
<SECURITIES> 2,180,153
<RECEIVABLES> 8,281,078
<ALLOWANCES> (359,714)
<INVENTORY> 12,690,154
<CURRENT-ASSETS> 26,020,150
<PP&E> 22,348,139
<DEPRECIATION> (10,930,377)
<TOTAL-ASSETS> 43,678,673
<CURRENT-LIABILITIES> 10,946,774
<BONDS> 8,784,011
<COMMON> 2,103,204
10,593,440
0
<OTHER-SE> 7,809,722
<TOTAL-LIABILITY-AND-EQUITY> 43,678,673
<SALES> 63,407,440
<TOTAL-REVENUES> 66,849,998
<CGS> 44,517,925
<TOTAL-COSTS> 44,687,534
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 47,390
<INTEREST-EXPENSE> 1,447,315
<INCOME-PRETAX> (651,337)
<INCOME-TAX> (283,931)<F1>
<INCOME-CONTINUING> (367,406)
<DISCONTINUED> 0
<EXTRAORDINARY> (20,546)
<CHANGES> 0
<NET-INCOME> (387,952)
<EPS-PRIMARY> $(.50)
<EPS-DILUTED> 0<F2>
<FN>
<F1>Represents Income Tax Benefit
<F2>ANTI-DILUTIVE
</TABLE>
