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, 1996
------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
--------------- -----------------
Commission file number 0-1460
------
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, CT 06002-3690
----------------------------------------------
(Address of principal executive offices, including zip code)
(860) 242-0761
--------------
(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
---- ----
On June 20, 1996, 1,934,478 shares of the issuer's no par value common stock
were outstanding.
<PAGE>
ANDERSEN GROUP, INC.
FORM 10-Q
TABLE OF CONTENTS
Page No.
--------
Part I - Financial Information
- ------------------------------
Consolidated Balance Sheets
May 31, 1996 and February 29, 1996 3
Consolidated Statements of Operations for the
Three Months Ended May 31, 1996 and 1995 4
Consolidated Statements of Cash Flows for the
Three Months Ended May 31, 1996 and 1995 5
Notes to Consolidated Financial Statements 6
Management's Discussion and Analysis of
Results of Operations and Financial Condition 7
Part II - Other Information
- ---------------------------
Item 3 - Defaults Upon Senior Securities 10
Item 6 - Exhibits and Reports on Form 8-K 10
Signatures 11
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
ANDERSEN GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
May 31, Feb. 29,
1996 1996
- ------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $2,977 $4,116
Marketable securities 4,798 3,809
Accounts and other receivables less
allowances of $176 and $124 5,017 4,337
Inventories 7,019 8,612
Prepaid expenses and other assets 133 92
- ------------------------------------------------------------------------------------------------
Total current assets 19,944 20,966
- ------------------------------------------------------------------------------------------------
Property, plant and equipment 17,188 16,770
Accumulated depreciation (7,955) (7,654)
- ------------------------------------------------------------------------------------------------
Property, plant and equipment, net 9,233 9,116
- ------------------------------------------------------------------------------------------------
Prepaid pension expense 4,089 4,027
Investment in Digital GraphiX 1,259 1,259
Other assets 3,716 3,430
- ------------------------------------------------------------------------------------------------
$38,241 $38,798
================================================================================================
LIABILITIES, REDEEMABLE CONVERTIBLE
PREFERRED STOCK AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $1,181 $2,923
Current maturities of long-term debt 1,136 1,136
Other current liabilities 5,660 5,145
- ------------------------------------------------------------------------------------------------
Total current liabilities 7,977 9,204
- ------------------------------------------------------------------------------------------------
7,531 7,349
Long-term debt, less current maturities
Other liabilities 1,139 1,143
Deferred income taxes 2,197 2,197
Redeemable convertible preferred stock 5,295 5,280
- ------------------------------------------------------------------------------------------------
Stockholders' equity:
Common stock 2,103 2,103
Additional paid-in capital 3,248 3,248
Retained earnings 8,841 8,364
Treasury stock, at cost (90) (90)
- ------------------------------------------------------------------------------------------------
Total stockholders' equity 14,102 13,625
- ------------------------------------------------------------------------------------------------
$38,241 $38,798
- ------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
ANDERSEN GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended May 31,
1996 1995
- ----------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
Revenues:
Net sales $7,389 $6,851
Investment and other income 661 348
- ----------------------------------------------------------------------------------------------
8,050 7,199
- ----------------------------------------------------------------------------------------------
Costs and expenses:
Cost of sales 4,656 4,582
Selling, general and administrative 1,804 2,124
Research and development 361 664
Interest expense 198 296
- ----------------------------------------------------------------------------------------------
7,019 7,666
- ----------------------------------------------------------------------------------------------
Income (loss) from continuing operations
before income taxes 1,031 (467)
Income tax expense (benefit) 412 (148)
- ----------------------------------------------------------------------------------------------
Income (loss) from continuing operations 619 (319)
Income from discontinued operations, net
of income taxes - 99
- ----------------------------------------------------------------------------------------------
Net income (loss) 619 (220)
Preferred dividend requirement (142) (147)
- ----------------------------------------------------------------------------------------------
Income (loss) applicable to common
shares $477 ($367)
- ----------------------------------------------------------------------------------------------
Earnings (loss) per common share:
Continuing operations $0.25 ($0.24)
Discontinued operations - 0.05
- ----------------------------------------------------------------------------------------------
Income (loss) per common share $0.25 ($0.19)
- ----------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
ANDERSEN GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Three months ended May 31,
1996 1995
- --------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $477 $(220)
Adjustments to reconcile net income (loss) to net
cash provided by (used for) operating activities:
Depreciation, amortization and accretion 385 575
Pension income (62) (36)
Net gains from marketable securities (429) (64)
Purchases of marketable securities (695) (827)
Sales of marketable securities 135 1,055
Changes in operating assets and liabilities:
Accounts and notes receivable (680) (1,621)
Inventories 1,593 (686)
Prepaid expenses and other assets (339) 170
Accounts payable (1,742) (423)
Accrued expenses and other long-term
obligations 511 40
- --------------------------------------------------------------------------------------------------------
Net cash used by operating activities (846) (2,037)
- --------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchase of property, plant and
equipment, net (475) (308)
- --------------------------------------------------------------------------------------------------------
Net cash used for investing activities (475) (308)
- --------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Principal payments on long-term debt (29) (31)
Issuance of short term debt, net - 2,450
Capitalized lease obligations incurred 211 -
- ---------------------------------------------------------------- --------------------- --------------------
Net cash provided by financing activities 182 2,419
- --------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash
equivalents (1,139) 74
Cash and cash equivalents - beginning of
period 4,116 2,709
- --------------------------------------------------------------------------------------------------------
Cash and cash equivalents - end of period $2,977 $2,783
- --------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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 29, 1996. 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 and the restatement of the
Statement of Operations to reflect the sale of the Company's Dental segment,
have been made to the prior period financial information so that it conforms to
the current period presentation.
(2) Inventories
-----------
Inventories consisted of the following:
<TABLE>
<CAPTION>
(In thousands)
May 31, February 29,
1996 1996
---------------------- ---------------------
<S> <C> <C>
Raw materials $ 2,185 $ 3,147
Work in process 2,789 3,413
Finished goods 3,391 3,398
------- -------
8,365 9,958
LIFO Reserve (1,346) (1,346)
------- -------
$ 7,019 $ 8,612
======= =======
</TABLE>
(3) Income Taxes
------------
Income tax expense (benefit) represents an estimate of the effective income tax
rate for the current fiscal year.
(4) Dividends
---------
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. Due to restrictions in the Company's
debt covenants as discussed below, no dividends were declared on the Preferred
Stock during the three months ended May 31, 1996, although they were earned at
the rate of $.4375 per share.
Under the terms of the Company's 10 1/2% convertible subordinated debentures,
the Company has been restricted from paying dividends on its capital stock since
April 1993 and will continue to be restricted until such time as the Company's
cumulative consolidated earnings, as defined, reach specified amounts.
6
<PAGE>
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 May 31, 1996, approximately $786,683 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).
(5) Earnings Per Share
------------------
Earnings per share is computed based on the weighted average number of common
and common equivalent shares outstanding. Full diluted net income (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 antidilutive.
For the three month periods ended May 31, 1996 and 1995, the effect has been
antidilutive.
Item 2: Management's Discussion and Analysis of Results of
Operations and Financial Condition
For the quarter ended May 31, 1996, the Company recorded net income applicable
to common shares of $477,000 on revenues of $8,050,000, versus a net loss
applicable to common shares of $367,000 on revenues of $7,199,000 for the
quarter ended May 31, 1995. The current quarter's net income represents earnings
per share of $0.25, versus the loss per share of $0.19 during the prior year's
first quarter.
Net sales grew by 7.8% to $7,389,000 as a result of 54.8% increase in sales from
the Electronics segment, which was partially offset by the absence of revenue
from the Company's former Video Products segment. This segment is no longer
consolidated in the Company's results due to the May 1995 sale of the common
stock of Digital GraphiX, Incorporated (DGI) which reduced the Company's
ownership of DGI to 19%. During the first two months of the prior fiscal year,
DGI recorded $2,079,000 of sales which was included in the Company's
consolidated statement of operations.
The Electronics division recorded sales of $6,033,000 during the current quarter
which represents an increase in sales of 48.5% from the $4,063,000 of sales
which were recorded during the first quarter of the prior fiscal year. The
Ultrasonic Cleaning Products division of this segment recorded sales of
$1,356,000 which was 72% more than the $788,000 of sales recorded during the
quarter ended May 31, 1995. Gross margins for the Electronics segment improved
from 28.4% of sales in the prior fiscal year to 37.0% in the current quarter due
to improved absorption of fixed overhead in both divisions as a result of the
increased volumes.
Investment and other income increased by 89.9% from $348,000 for the quarter
ended May 31, 1995 to $661,000 during the current
7
<PAGE>
fiscal quarter. A $350,000 recovery in the market value of the common shares of
Phoenix Shannon p.l.c., which had been purchased in November 1995 in connection
with the sale of the net assets of the Company's former Dental division,
contributed to the increase. Interest income from a note received from Phoenix
Shannon, from the receivable from Phoenix Shannon related to the post closing
purchase price adjustment, from restricted cash held in escrow also related to
the Dental segment sale, and from the investment of excess cash in short term
instruments all contributed to the increase in investment income. Securities
gains from investments in financial institutions produced $104,000 of income
during the quarter versus $223,000 of this source of investment income during
last prior year's first quarter. Rental income increased approximately $37,000
over prior year due to income from entities no longer consolidated with the
Company but which remain as tenants in the Company's building investment.
Selling general and administrative expenses during the current quarter were
lower than those recorded in the prior year's first quarter by $320,000, or 15%,
due to the absence of such expenses from DGI as a result of its no longer being
consolidated into the Company's results. During the quarter ended May 31, 1995,
such expenses for DGI were approximately $715,500. Without these expenses,
selling, general and administrative expenses of $1,804,000 during the current
quarter were 28% higher than those recorded in the prior year due to higher
sales volume and to certain administrative expenses being absorbed by the Dental
segment in the prior year's quarter.
Research and development costs were $303,000 lower in the current quarter than
in the prior year's first quarter, but without the impact of DGI's expenses,
these expenses were 8% higher than the prior year.
Interest expense for the quarter ended May 31, 1996 of $198,000 was 33.1% lower
than the prior year's first quarter primarily due to the absence of short term
revolving debt in the current year.
The Company recorded an income tax expense from continuing operations of
$412,000 versus a tax benefit of $148,000 in the first quarter of fiscal 1996 as
a result of the operating profits of $1,031,000. This was an improvement of
nearly $1.5 million over the first quarter pre-tax loss from continuing
operations of $467,000 in the prior fiscal year.
During the prior year's first quarter, the Company's former Dental segment
produced an operating profit of $99,000, net of income taxes on sales of
$10,418,000. The results have been reported as income from discontinued
operations due to the sale of the net assets of this segment in the third
quarter of the prior fiscal year.
The preferred dividend requirement of $142,000 during the current quarter was
only marginally lower than the $147,000 recorded during the prior year's
comparable quarter despite the redemption of 299,561 shares, or over 50% of the
shares outstanding, during
8
<PAGE>
the prior fiscal year's fourth quarter. The operating income, as defined, of The
J.M. Ney Company during the current quarter reached levels that caused the
accrual of a participating dividend of $72,000 above the minimum required
dividend. The prior year's dividend accrual reflects the defined minimum
dividend based on the then outstanding shares of the preferred stock.
LIQUIDITY AND CAPITAL RESOURCES
At May 31, 1996, the Company's cash, short term investments and marketable
securities totaled $7,775,000, a decrease of $150,000 from the February 29, 1996
balance. The effects of higher accounts receivable balances and the reduction of
accounts payable more than offset the cash flow contributions of lower inventory
levels.
During the quarter ended May 31, 1996, the Company entered into a new lease line
of credit of $1.5 million of which $211,000 was utilized during the quarter. The
Company anticipates to finalize a revolving line of credit during the second
fiscal quarter to provide an additional source of liquidity and working capital
financing.
Additional financings or restructurings of existing financing obligations may 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 refinancing 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 availability of
future financing or the terms thereof.
The Indenture relating to the Company's 10.5% Convertible Subordinated
Debentures contains covenants restricting the payment of dividends on or
repurchases or redemptions of the Company's capital stock. As the result of
preferred stock repurchases and losses incurred in recent years, the Company is
currently prohibited by such covenants from making such payments on the
Preferred Stock or the Common Stock. The Company will only be permitted to pay
dividends on or redeem the Preferred Stock or the Common Stock to the extent by
which cumulative consolidated net income (as defined) earned after May 31, 1996
exceeds $3,570,000.
9
<PAGE>
PART II: OTHER INFORMATION
- ----------------------------
Item 3: Defaults Upon Senior Securities
As discussed above in Note 4, Dividends, 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
years 1994, 1995, and 1996 respectively, and is precluded from paying the
Preferred Stock dividend earned for the quarter ended May 31, 1996. These
dividends are ordinarily payable within 45 days after the end of the quarter.
Therefore, while the quarterly fiscal 1994 through 1996 dividends are in
arrears, the dividend for the quarter ended May 31, 1996, which was in the
amount of $.4375 per share, will be in arrears on July 16, 1996. The aggregate
arrearage for all dividends (including that payable on July 15, 1996) is
approximately $786,683.
As of October 16, 1994, the Company was in arrears for six consecutive
quarters in 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 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 June 20, 1996, 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 No. Description
---------- -----------
Exhibit 27 Financial Data Schedule Quarter Ended
May 31, 1996
Exhibit 27.1 Restated Financial Data Schedule Quarter
Ended May 31, 1995
(b) No reports on Form 8-K were filed during the quarter ended May 31,
1996.
10
<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
-----------------------------
Francis E. Baker
President
/s/Andrew M. O'Shea
-----------------------------
Andrew M. O'Shea
Chief Financial Officer
The J.M. Ney Company
(Principal Financial Officer of the
Registrant)
June 20, 1996
-----------------------------
Date
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S FORM 10-Q FOR THE QUARTERLY PERIOD ENDING MAY 31, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-START> MAR-01-1996
<PERIOD-END> MAY-31-1996
<CASH> 2,977
<SECURITIES> 4,798
<RECEIVABLES> 5,193
<ALLOWANCES> (176)
<INVENTORY> 7,019
<CURRENT-ASSETS> 19,944
<PP&E> 17,188
<DEPRECIATION> (7,955)
<TOTAL-ASSETS> 38,241
<CURRENT-LIABILITIES> 7,977
<BONDS> 7,531
5,295
0
<COMMON> 2,103
<OTHER-SE> 11,999
<TOTAL-LIABILITY-AND-EQUITY> 38,241
<SALES> 7,389
<TOTAL-REVENUES> 8,050
<CGS> 4,656
<TOTAL-COSTS> 4,712
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 52
<INTEREST-EXPENSE> 198
<INCOME-PRETAX> 1,031
<INCOME-TAX> 412
<INCOME-CONTINUING> 619
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 619
<EPS-PRIMARY> 0.25
<EPS-DILUTED> 0<F1>
<FN>
<F1> ANTI-DILUTIVE
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S FORM 10-Q FOR THE QUARTERLY PERIOD ENDING MAY 31, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-29-1996
<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
10,631
0
<COMMON> 2,103
<OTHER-SE> 7,443
<TOTAL-LIABILITY-AND-EQUITY> 45,493
<SALES> 6,851
<TOTAL-REVENUES> 348
<CGS> 4,582
<TOTAL-COSTS> 4,625
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 30
<INTEREST-EXPENSE> 296
<INCOME-PRETAX> (467)
<INCOME-TAX> (148)
<INCOME-CONTINUING> (319)
<DISCONTINUED> 99
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (367)
<EPS-PRIMARY> (0.19)
<EPS-DILUTED> 0<F1>
<FN>
<F1> ANTI-DILUTIVE
</FN>
</TABLE>
