<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
- - OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended May 31, 1995
------------
OR
__ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to _____________
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Commission file number 0-1460
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ANDERSEN GROUP, INC.
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(Exact name of registrant as specified in its charter)
CONNECTICUT 06-0659863
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Ney Industrial Park, Bloomfield, CT 06002-3690
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(Address of principal executive offices, including zip code)
(203) 242-0761
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(Registrant's telephone number, including area code)
______________________________________
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (l) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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On June 30, 1995, 1,934,205 shares of the issuer's no par value common stock
were outstanding.
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ANDERSEN GROUP, INC.
FORM 10-Q
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
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Part I - Financial Information
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<S> <C>
Consolidated Balance Sheets
May 31, 1995 and February 28, 1995 3
Consolidated Statements of Earnings for the
Three Months Ended May 31, 1995 and 1994 4
Consolidated Statements of Cash Flows
for the Three Months Ended May 31, 1995 and 1994 5
Notes to Consolidated Financial Statements 6
Management's Discussion and Analysis of
Results of Operations and Financial Condition 7 - 9
<CAPTION>
Part II - Other Information
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<S> <C>
Item 3 - Defaults Upon Senior Securities 9 - 10
Item 6 - Exhibits and Reports on Form 8-K 10
Signatures 11
</TABLE>
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PART 1: FINANCIAL INFORMATION
Item 1: Financial Statements
ANDERSEN GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
May 31, 1995 Feb. 28, 1995
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(unaudited) (audited)
ASSETS
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<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $2,783 $2,709
Marketable securities 2,016 2,180
Accounts and other receivables less
allowance for doubtful accounts of $440 and $360 9,542 7,921
Inventories 13,376 12,690
Prepaid expenses and other assets 308 520
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Total current assets 28,025 26,020
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Property, plant and equipment 22,508 22,348
Accumulated depreciation (11,334) (10,930)
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Property, plant and equipment, net 11,174 11,418
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Prepaid pension expense 3,553 3,517
Other assets 2,741 2,723
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$45,493 $43,678
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<CAPTION>
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED
STOCK AND COMMON AND OTHER STOCKHOLDERS' EQUITY
- ------------------------------------------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $1,696 $2,119
Short term debt 5,993 3,543
Other current liabilities 5,437 5,285
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Total current liabilities 13,126 10,947
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Long term debt, less current maturities 8,753 8,784
Other liabilities 1,156 1,160
Deferred income taxes 2,281 2,281
Redeemable cumulative convertible preferred stock 10,631 10,593
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STOCKHOLDERS' EQUITY:
Common stock 2,103 2,103
Additional paid-in capital 1,925 1,925
Retained earnings 5,608 5,975
Treasury stock, at cost (90) (90)
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Total stockholders' equity 9,546 9,913
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$45,493 $43,678
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</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
ANDERSEN GROUP, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended
(unaudited) May 31, 1995 May 31, 1994
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<S> <C> <C>
REVENUES:
Net sales $17,269 $16,137
Investment and other income 371 1,433
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17,640 17,570
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COSTS AND EXPENSES:
Cost of sales 12,101 11,164
Selling, general and administrative 4,566 4,332
Research and development 934 810
Interest expense 340 399
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17,941 16,705
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Income (loss) before income taxes
and extraordinary item (301) 865
Income tax expense (benefit) (81) 85
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Income (loss) before extraordinary item (220) 780
Extraordinary gain from early extinguishment
of debt, net of income tax expense - 1
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Net income (loss) (220) 781
Preferred dividend requirement (147) (148)
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Income (loss) applicable to common shares $(367) $633
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EARNINGS (LOSS) PER COMMON SHARE:
Continuing operations $(0.19) $0.33
Extraordinary item 0.00 0.00
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Income (loss) applicable to common shares $(0.19) $0.33
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DIVIDENDS DECLARED PER SHARE:
Preferred $0.00 $0.00
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Common $0.00 $0.00
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</TABLE>
See accompanying notes to consolidated financial statements.
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ANDERSEN GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Three months ended
(unaudited) May 31, 1995 May 31, 1994
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(220) $781
Adjustments to reconcile net income (loss) to net
cash provided by (used for) operating activities:
Depreciation, amortization and accretion 575 581
Gain on sale of cellular investment - (1,216)
Pension income (36) (36)
Changes in operating assets and liabilities:
Accounts and notes receivable (1,621) (1,261)
Inventories (686) (2,748)
Prepaid expenses and other assets 107 (296)
Accounts payable (423) 356
Accrued expenses and other long-term obligations 40 828
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Net cash used for operating activities (2,264) (3,011)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment, net (308) (167)
Proceeds from sale of cellular investment - 3,316
Investment in other assets 63 -
Sale (purchase) of marketable securities, net 164 (1,039)
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Net cash provided by (used for) investing activities (81) 2,110
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CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt (31) (34)
Issuance of short term debt, net 2,450 1,050
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Net cash provided for financing activities 2,419 1,016
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Net increase in cash and cash equivalents 74 115
Cash and cash equivalents - beginning of period 2,709 2,061
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Cash and cash equivalents - end of period $2,783 $2,176
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</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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(1) Accounting Policies
-------------------
The accompanying interim financial statements and related notes should be read
in conjunction with the Consolidated Financial Statements of Andersen Group,
Inc. and related notes as contained in the Annual Report on Form 10-K for the
fiscal year ended February 28, 1995. The interim financial statements include
all adjustments (consisting only of normal recurring adjustments) and accruals
necessary in the judgment of management for a fair presentation of such
statements. In addition, certain reclassifications have been made to the prior
period financial information so that it conforms to the current period
presentation.
(2) Inventories
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Inventories consisted of the following:
<TABLE>
<CAPTION>
(In thousands)
May 31, February 28,
1995 1995
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<S> <C> <C>
Raw materials $ 818 $ 950
Work in process 2,688 2,732
Finished goods 11,236 10,374
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14,742 14,056
LIFO Reserve (1,366) (1,366)
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$13,376 $12,690
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</TABLE>
(3) Income Taxes
------------
Income tax expense (benefit) represents an estimate of the effective income tax
rate for the current fiscal year including adjustments to the Company's deferred
income tax liability for prior years taxes.
(4) Dividends
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The Company's cumulative convertible preferred stock (the "Preferred Stock") is
entitled to accrue quarterly dividends ranging from $.1875 to $.4375 per share,
based upon the operating income (as defined) of The J.M. Ney Company ("Ney"), a
wholly-owned subsidiary of the Company. No dividends were declared on the
Preferred Stock during the period, although they were earned at the rate of
$.1875 per share, due to restrictions in the Company's debt covenants as
discussed below.
Under the terms of the Company's 10 1/2% convertible subordinated debentures,
the Company is restricted from paying dividends on its capital stock after April
14, 1993 until such time as the Company's cumulative consolidated earnings, as
defined, reach specified amounts.
Due to the above restriction, the Company anticipates that it will be precluded
from paying the quarterly Preferred Stock dividend for the foreseeable future.
Through the first quarter of fiscal 1996, approximately $994,000 has been
accrued for this arrearage (for further information concerning the Company's
ability to pay dividends on or purchase or redeem its capital stock see the
Liquidity and Capital Resources Section of Management's Discussion and Analysis
of Results of Operations and Financial Condition and Part II, Item 3 below).
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ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
For the quarter ended May 31, 1995 net sales totalled $17,269,000, an increase
of $1,132,000, or 7.0%, from the corresponding period in the prior fiscal year.
Net sales in the Company's Dental segment were $10,418,000, an increase of
$412,000, or 4.1%, from the corresponding period in the prior fiscal year.
Domestic sales increased by $441,000, or 8.3%, while international sales
decreased by $29,000, or 0.6%. A significant portion of the Company's
dental products have a large precious metal component, principally gold and
palladium. During the period, the price of palladium increased with a
corresponding increase in average selling prices ("ASPs"). Together with the
ASP increase, domestic precious metal unit sales volume increased from the
previous year's first quarter by 8%. These increases were somewhat offset by
discounting to large volume purchasers to match competitors prices. The small
decrease in international sales is attributable to slightly lower demand in
Germany. For information concerning the Company's potential divestiture of its
dental segment see discussion below under the caption Liquidity and Capital
Resources.
The Electronics segment's sales were $4,771,000, an increase of $157,000 or 3.3%
from the corresponding quarter in the prior fiscal year. This segment of the
business is comprised of the Company's Electronics and Ultrasonics business
units. The Electronics division experienced a 5% increase in sales, or
$188,000, due to an increase in sales of precious metal materials utilized in
copings for dental implants. Ultrasonics sales decreased 3.8% due to fewer
shipments of custom industrial ultrasonic cleaning systems.
Sales in the Company's Video Products segment were $2,079,000, a 37.0% increase
from the prior year's first quarter. Included in the current year are
approximately $1,050,000 of shipments of a product line acquired from The Grass
Valley Group in October, 1994. On May 2, 1995 the Company's Video Products
subsidiary, Digital GraphiX, Incorporated ("DGI") sold 81% of its outstanding
stock to its employees and to certain of the Company's securityholders thereby
reducing the Company's equity interest in DGI to 19% and removing the subsidiary
from full consolidation. As such, only two months of activity are included in
the current year, while three months of sales are included in the prior year.
Investment and other income totalled $371,000 for the quarter, a decrease of
$1,062,000, or 74.1%, from the corresponding period of the prior year. The
results for the prior year included a gain of $1,216,000 from the sale of the
Company's investment in a cellular nonwireline franchise in rural North
Carolina.
Cost of sales, as a percentage of net sales, was 70.1% for the quarter ended May
31, 1995, as compared to 69.2% for the corresponding period in the prior fiscal
year. The Dental segment's cost of sales decreased to 72.4% from 72.6% in the
corresponding quarter of the preceding fiscal year. This decrease was caused by
a reduction in the cost of manufacturing dental equipment.
The Electronics segment's cost of sales, as a percentage of net sales, increased
to 73.1% for the quarter, as compared to 66.8% in the prior year. The increase
in the cost of sales percentage is due to the additional sales volume of lower
margin precious metal materials, customer tooling sold at cost, and low sales
volume by the Ultrasonics business unit.
The Video Products segment's cost of sales, as a percentage of net sales, at
57.2% increased from 53.5% for the corresponding period in the prior fiscal
year. A shift in product mix to lower gross margin items is attributable to the
difference.
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<PAGE>
For the three months ended May 31, 1995, selling, general and administrative
expenses increased by $234,000 or 5.4% from the corresponding period of the
prior year. The prior year included an insurance recovery of $225,000 for
previously incurred costs.
Research and development expenses increased by $124,000, or 15.3%, to $934,000
for the three month period. The increase is substantially attributable to
additional development costs for new products in the Company's Video Products
segment.
Interest expense for the three months ended May 31, 1995 decreased to $340,000
from $399,000 in the corresponding period of the prior fiscal year. The
decrease reflects reduced interest expense associated with the second quarter
fiscal 1995 repayment of outstanding indebtedness. The repayments were funded
from a portion of the proceeds from the sales of the Company's cellular
telephone investments.
For the three months ended May 31, 1995, the (loss) before income taxes and
extraordinary item was ($301,000), a change of $(1,166,000) from income of
$865,000 for the same period of the prior fiscal year. Included in the prior
year is a gain of $1,216,000 from the sale of a cellular telephone partnership
interest in North Carolina.
For the three month period ended May 31, 1995, the Company had an income tax
benefit of $81,000. 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.
For the three month period ended May 31, 1995, the loss applicable to common
shares was $367,000, a decrease of $1,000,000 from $633,000 of income in the
same period of the prior fiscal year.
Liquidity and Capital Resources
- -------------------------------
At May 31, 1995, the Company's cash, short-term investments and marketable
securities totalled $4,799,000, a decrease of $90,000 from $4,889,000 at
February 28, 1995. At May 31, 1995, the marketable securities consisted of
investments in non-investment grade high-yield municipal bonds, and the common
stock of certain financial institutions and a cellular telecommunications
company.
At May 31, 1995, the Company's subsidiary, The J.M. Ney Company ("Ney") had
$5,650,000 in outstanding borrowings against its $8.5 million demand revolving
credit facility. The proceeds from this facility have been utilized primarily
to fund inventory and receivables growth in the Dental and Electronic segments.
The facility is secured by certain of Ney's receivables and precious metal
inventories.
On May 2, 1995 DGI completed the sale of 64,800 shares of its common stock to
employees of DGI and to various securityholders of the Company at a price per
share of $5.00. The Company retains a 19% interest in DGI.
On June 5, 1995 the Company commenced a tender offer on its own behalf to
purchase any and all shares of its Series A Cumulative Convertible Preferred
Stock at $12.25 per share, net. The offer, which was to have expired on July 7,
1995, has been extended to July 28, 1995 and may be further extended. The offer
is subject to a number of conditions, including there being properly tendered
and not withdrawn prior to the expiration date a minimum of 250,000 shares and
consummation of the divestiture of the Company's Dental segment. As of
July 11, 1995 the Company's exchange agent had received 235,150 shares.
As discussed above, the Company's offer to purchase the Preferred Stock is
conditioned upon consummation of the sale of its Dental segment in order to
generate sufficient funds to purchase tendered shares and to meet certain
existing financing covenants. The Company and representatives of prospective
buyers of the Dental Division have met from time to time. In the case of one
prospective buyer, the
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<PAGE>
parties are in the process of confirming due diligence information and
finalizing draft documentation. However, no definitive agreements have been
executed. The Company has advised the party with which it is negotiating that
the Company does not intend to sign a definitive agreement as to the sale of its
Dental Division unless and until the Company determines that a minimum of
250,000 shares of Preferred Stock have been tendered pursuant to the offer. The
Company has the right to reduce the minimum number of shares and to waive that
or any other condition of the offer.
A substantial amount of the products sold by the Company employ precious metals.
Prices of precious metals have been volatile in recent years. A substantial
change in the market price of these metals may affect the Company's revenues and
profits.
The Company believes that its existing cash and investment resources and
internally generated funds will be sufficient to meet its anticipated working
capital and debt service requirements through fiscal 1996. Additional
financing, investment liquidation or restructuring of existing financing
obligations may be necessary, however, to fund the Company's capital and
financial commitments in fiscal 1997 and beyond. The Company believes that
funds from operations, existing investments and potential future financing will
be sufficient to meet its requirements, but there can be no assurance as to the
availability of future financing or the terms thereof.
The Indenture relating to the Company's 10 1/2% convertible subordinated
debentures contains a covenant which restricts the payment of dividends on or
repurchases or redemptions of the Company's capital stock. As the result of
losses incurred in the past three fiscal years, the Company is prohibited by
this covenant from making such payments on the Preferred Stock. The Company is
only permitted to pay dividends on or redeem the Preferred Stock to the extent
by which cumulative consolidated net income (as defined) earned after the first
quarter of fiscal 1996 exceeds $2,673,000. Further, the Company is prohibited
under the Indenture relating to its 1979 and 1983 Industrial Development Bonds
from issuing additional long-term debt with certain exceptions (as defined),
unless (1) its average annual pre-tax income for the three preceding fiscal
years (as defined), shall have equaled at least 1.6 times the sum of the annual
interest charges (as defined) or (2) its pre-tax income (as defined) 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 (as defined) 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.
PART II: OTHER INFORMATION
- ----------------------------
ITEM 3: DEFAULTS UPON SENIOR SECURITIES
As discussed above in Note 4 and in Management's Discussion and
Analysis of Results of Operations and Financial Condition, the Company
is not permitted to pay dividends on or repurchase or redeem any of its
capital stock. As a result of this restriction, the Company was
precluded from paying the Preferred Stock dividend earned for each of
the four quarters in fiscal 1994 and 1995, respectively, and is
precluded from paying the Preferred Stock dividend earned for the
quarter ended May 31, 1995. These dividends are ordinarily payable
within 45 days after the end of the quarter. Therefore, while the
quarterly fiscal 1994 and 1995 dividends are in arrears, the dividend
for the quarter ended May 31, 1995, which was in the amount of $.1875
per share, will be in arrears on July 16, 1995. The aggregate arrearage
for all dividends (including that payable on July 16, 1995) is
approximately $994,000.
As of October 16, 1994, the Company was in arrears for six consecutive
quarters on the payment of the dividends on the Preferred Stock. The
terms of the Preferred Stock provide that once the Company is in
arrears on the payment of the dividends on the Preferred Stock for six
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<PAGE>
consecutive quarters, the holders of the Preferred Stock, voting
together as a class, are entitled to elect one additional director to
the Company's Board of Directors at any annual meeting of shareholders
or a special meeting held in place thereof, or at a special meeting of
the holders of the Preferred Stock. If and when the dividends which are
in arrears on the Preferred Stock shall have been paid or declared and
set apart for payment, the rights of the holders of the Preferred Stock
to elect such additional director shall cease (but always subject to
the same provisions for the vesting of such voting rights in the case
of any similar future arrearages in dividends), and the term of office
of any person elected director by the holders of the Preferred Stock
shall terminate. As of July 13, 1995, no special meeting of the
preferred stockholders has been held or scheduled.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required by Item 601 of Regulation S-K:
Exhibit Number Discription
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Exhibit 27 Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter ended May 31,
1995.
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<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ANDERSEN GROUP, INC.
---------------------------
(Registrant)
/s/Francis E. Baker
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Francis E. Baker
President
/s/Jack E. Volinski
--------------------------------------
Jack E. Volinski
Chief Financial Officer
July 13, 1995
--------------------------------------
Date
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S CONSOLIDATED STATEMENTS OF EARNINGS FOR THE THREE MONTHS ENDED
MAY 31, 1995 AND THE REGISTRANT'S CONSOLIDATED BALANCE SHEET AS OF MAY 31, 1995
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-28-1996
<PERIOD-START> MAR-01-1995
<PERIOD-END> MAY-31-1995
<CASH> 2,783
<SECURITIES> 2,016
<RECEIVABLES> 9,982
<ALLOWANCES> 440
<INVENTORY> 13,376
<CURRENT-ASSETS> 28,025
<PP&E> 22,508
<DEPRECIATION> 11,334
<TOTAL-ASSETS> 45,493
<CURRENT-LIABILITIES> 13,126
<BONDS> 8,753
<COMMON> 2,103
10,631
0
<OTHER-SE> 7,443
<TOTAL-LIABILITY-AND-EQUITY> 45,493
<SALES> 17,269
<TOTAL-REVENUES> 17,640
<CGS> 12,101
<TOTAL-COSTS> 12,144
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 30
<INTEREST-EXPENSE> 340
<INCOME-PRETAX> (301)
<INCOME-TAX> (81)
<INCOME-CONTINUING> (220)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (367)
<EPS-PRIMARY> (0.19)
<EPS-DILUTED> 0<F1>
<FN>
<F1>ANTI-DILUTE.
</FN>
</TABLE>
