UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended May 31, 1997
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
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
CONNECTICUT 06-0659863
ANDERSEN GROUP, INC.
1280 Blue Hills Avenue, Bloomfield, CT 06002-1374
(860) 242-0761
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ____
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes ____ No ____
As of June 30, 1997, there were 1,934,478 shares of the Registrants no par
value common stock outstanding.
Title Outstanding
Common Stock, no par value Authorized 6,000,000 shares; Issued 1,958,478
<PAGE>
ANDERSEN GROUP, INC.
FORM 10-Q
TABLE OF CONTENTS
Page No.
Part I - Financial Information
Item 1 Financial Statements:
Consolidated Balance Sheets
May 31, 1997 and February 28, 1997 3
Consolidated Statements of Operations for the
Three Months Ended May 31, 1997 and 1996 4
Consolidated Statements of Cash Flows for the
Three Months Ended May 31, 1997 and 1996 5
Notes to Consolidated Financial Statements 6-7
Managements Discussion and Analysis of
Financial Condition and Results of Operations 7-8
Part II - Other Information
Item 1 - Legal Proceedings 8-9
Item 3 - Defaults Upon Senior Securities 9
Item 6 - Exhibits and Reports on Form 8-K 9
Signatures 10
<PAGE>
Part I. Financial Information
Item 1. Financial Statements
ANDERSEN GROUP, INC.
Consolidated Balance Sheets
(In thousands)
<TABLE>
<CAPTION>
May 31, February 28,
1997 1997
ASSETS
<S>
(Unaudited)
<C> <C>
Current assets:
Cash and cash equivalents $ 2,866 $ 3,219
Marketable securities 5,935 5,345
Accounts and other receivables less
allowances of $218 and $190 3,829 2,773
Inventories 9,578 9,040
Prepaid expenses and other assets 174 516
--- ---
Total current assets 22,382 20,893
------ ------
Property, plant and equipment 21,660 20,946
Accumulated depreciation (11,988) (11,610)
-------- -------
9,672 9,336
----- -----
Prepaid pension expense 4,335 4,274
Investment in Digital GraphiX 280 1,346
Investment in Institute for Automated Systems 869 835
Other assets 1,304 993
----- ---
$38,842 $37,677
------- -------
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED
STOCK AND COMMON AND OTHER STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of long term debt 778 773
Short term debt 2,815 2,305
Accounts Payable 1,619 1,398
Other current liabilities and deferred income
taxes 4,238 4,234
----- -----
Total current liabilities 9,450 8,710
----- -----
Long term debt, less current maturities 6,931 7,041
Other long term obligations 1,481 1,121
Deferred income taxes 2,290 2,267
Commitments and contingencies (Note 6)
Redeemable cumulative convertible preferred
4,902 4,891
stock
Common and Other Stockholders' equity:
Common stock 2,103 2,103
Additional paid-in capital 3,248 3,248
Retained earnings 8,527 8,386
Treasury stock (90) (90)
--- ---
Total common and other stockholders' equity 13,788 13,647
------ -------
$38,842 $37,677
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
ANDERSEN GROUP, INC.
Consolidated Statements of Operations
(In thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three months ended May 31,
1997 1996
Revenues:
<S> <C> <C>
Net sales $7,468 $7,389
Investment and other income 290 661
--- ---
7,758 8,050
----- -----
Costs and expenses:
Cost of sales 4,803 4,656
Selling, general and administrative 1,877 1,804
Research and development 417 361
Interest expense 228 198
--- ---
7,325 7,019
----- -----
Income before income taxes 433 1,031
Income tax expense 166 412
--- ---
Net income 267 619
Preferred dividend requirement (126) (142)
---- ----
Income applicable to common shares $ 141 $ 477
===== =====
Earnings per common share:
Income per common share $ 0.07 $ 0.25
====== ======
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
ANDERSEN GROUP, INC.
Consolidated Statements of Cash Flows
(In thousands)
(unaudited)
<TABLE>
<CAPTION>
Three months ended May 31,
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net income $ 267 $ 619
Adjustments to reconcile net income
to net cash used for operating activities
Depreciation, amortization and accretion 384 370
Deferred income taxes 23 -
Pension income (61) (62)
Net gains from marketable securities
and investments (78) (429)
Purchases of marketable securities (512) (695)
Sales of marketable securities - 135
Proceeds from redemption of Digital GraphiX
investment 1,066 -
Changes in operating assets and liabilities:
Accounts and notes receivable (1,056) (680)
Inventories (538) 1,593
Prepaid expenses and other assets 354 (339)
Accounts payable 106 (1,742)
Accrued expenses and other long term
obligations 1 384
- ---
Net cash used for operating activities (44) (846)
--- ----
Cash flows from investing activities
Purchases of property, plant and equipment, net (714) (475)
---- ----
Net cash used for investing activities (714) (475)
---- ----
Cash flows from financing activities:
Principal payments on long term debt (105) (29)
Issuance of short term debt, net 510 -
Capitalized lease obligations incurred - 211
- ---
Net cash provided by financing activities 405 182
--- ---
Net decrease in cash and cash
equivalents (353) (1,139)
Cash and cash equivalents - beginning of
period 3,219 4,116
----- ------
Cash and cash equivalents - end of period $2,866 $2,977
====== ======
See accompanying notes to consolidated financial statements.
</TABLE>
<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 28, 1997. 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) Marketable Securities
During the fourth quarter of the prior fiscal year and the three months
ended May 31, 1997, the Company invested a total of $1,000,000 in a portfolio of
Russian equity securities managed by a third party investment advisor. The
reported market value of these securities at May 31, 1997 was approximately
$1,672,000. However, due to concerns regarding the volatility of the Russian
market and liquidity issues, the Company has recorded these securities, net of a
reserve, at a value of approximately $1,070,000. This reserve will be evaluated
periodically and adjusted based upon an assessment of the market conditions and
the composition of the investments within the portfolio.
(3) Inventories
Inventories consisted of the following:
<TABLE>
<CAPTION>
(In thousands)
May 31, February 28,
1997 1997
---- ----
<S> <C> <C>
Raw materials $ 2,830 $ 3,111
Work in process 4,006 3,877
Finished goods 3,645 2,955
_____ ______
10,481 9,943
LIFO Reserve 903 903
--- ---
$ 9,578 $ 9,040
======= =======
</TABLE>
(3) Income Taxes
Income tax expense represents an estimate of the effective income tax rate
for the current fiscal year.
(4) Dividends
The Companys cumulative convertible preferred stock (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 Companys debt
covenants as discussed below, no dividends were declared on the Preferred Stock
during the three month period ended May 31, 1997, although they were accrued at
the rate of $.4375 per share.
Under the terms of the Indenture applicable to the Companys 10 1/2%
Convertible Subordinated Debentures, the Company has been restricted from paying
dividends on its capital stock since April 1993 and the Company anticipates that
it will be precluded from paying the quarterly Preferred Stock dividend for the
foreseeable future. Through May 31, 1997, approximately $1,050,000 has been
accrued for this arrearage. (For further information concerning the Companys
ability to pay dividends on or purchase or redeem its capital stock,see the
Liquidity and Capital Resources Section of Managements Discussion and Analysis
of Results of Operations and Financial Condition and Part II, Item 3--Defaults
Upon Senior Securities, below).
(5) Earnings Per Share
Earnings per share are computed based on the weighted average number of
common and common equivalent shares outstanding. Fully diluted net income 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 months ended May 31, 1997, the effect of such conversions has been
antidilutive.
In February 1997, the Financial Standards Board issued Statement of
Financial Accounting Standards No. 128, Earnings Per Share (SFAS 128), effective
for periods ending after December 15, 1997. This statement will replace the
presentation of primary earnings per share (EPS) with basic EPS, and fully
diluted EPS with diluted EPS. For the quarter ended May 31, 1997, basic EPS
would have been unchanged from that which is presented as primary EPS.
(6) Contingencies
Ney is contingently liable under a $500,000 standby letter of credit issued
by its primary lending bank.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
REVENUES. Revenues for the three months ended May 31, 1997 totaled
$7,758,000, which was 3.6% lower than total revenues recorded during the
comparable period in the prior fiscal year. This net decrease represents the net
of a 1.1% increase in sales and a $371,000 decline in investment and other
income.
Sales were only modestly higher as the Electronics segment had sales equal
to last years record sales level, while the Ultrasonics segment recovered from
the impact of a slowdown in the semiconductor industry that had dampened its
sales in the third and fourth quarters of the prior fiscal year, and generated
sales during the fiscal quarter that were 4.7% higher than the record sales
levels of last years first quarter.
Investment and other income during the quarter was 56.1% lower than the
prior year primarily due to modest declines in the values of the investment in
certain financial institutions, and to prior year appreciation of $350,000 in
the value of Phoenix Shannon common stock. The prior years gain later proved to
be temporary, as the entire Phoenix Shannon investment was written off in last
years second and third quarters.
COST OF SALES. Cost of sales during the three months ended May 31, 1997
were 3.2% higher than those recorded during the same period in the prior fiscal
year. Such costs represent a decline in gross margin from 37.0% to 35.7%. Prior
years margins were unusually high due to favorable purchase prices for certain
precious metals, while the current years expenses reflect costs incurred to
accommodate anticipated future growth.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for the three-month period ended May 31, 1997 increased
by 4.0% over the prior year which is consistent with general cost increases in
certain elements of these costs.
RESEARCH AND DEVELOPMENT EXPENSES. During the three month period ended May
31, 1997, research and development costs totaled 5.6% of sales, versus an
expense level of 4.9% during the prior fiscal quarter. On an absolute basis,
these costs increased 15.5% from the prior years three-month period consistent
with the Company's objectives.
INTEREST EXPENSE. Interest expense of $228,000 during the three months
ended May 31, 1997 was 15.2% higher than interest recorded in the comparable
period of the prior fiscal year. Reductions in term debt in the prior year's
third and fourth quarters were offset by borrowings under the revolving credit
facility which Ney utilizes to fund working capital. Financings of precious
metals represented a portion of these borrowings. During the first quarter, the
effective borrowing costs on palladium and platinum increased reflecting market
conditions caused by the absence of shipments of these metals to the world
market from Russia.
INCOME TAX EXPENSE. Income taxes have been accrued based on estimated
effective tax rates ranging from 38 to 40%.
PREFERRED DIVIDEND REQUIREMENT. The preferred dividend requirement for the
three month periods ended May 31, 1997 and 1996 each reflect the accrual at the
maximum rate of $.4375 per preferred share. Due to preferred stock purchases in
the fourth quarter of the prior fiscal year, fewer shares were outstanding in
the current year, which resulted in a lower dividend accrual and a lower
accretion of the issuance discount.
LIQUIDITY AND CAPITAL RESOURCES. At May 31, 1997, the Company's cash, cash
equivalents and marketable securities totaled $8,801,000, which is an increase
of $237,000 from the February 28, 1997 balance. During the quarter the Company
received payment for the preferred stock portion of its investment in Digital
GraphiX, Incorporated, which was partially offset by higher receivable and
inventory levels. Certain aspects of working capital growth and capital
expenditures, including expenditures to accommodate the expansion of Ney's
tooling capabilities, were financed by short-term borrowing. During May and June
1997, the market prices and financing rates for platinum and palladium increased
significantly due to shortages resulting from an absence of shipments of theses
metals to the world market from Russia. This market condition has affected Ney's
cost of these raw materials, including increased procurement premiums,
purchasing terms and financing costs, particularly as it relates to hedging
metals acquired by Ney's Refining operations. While Ney believes its ability to
pass on these increased costs, coupled with other hedging programs, will limit
the impact of these market conditions, there can be no assurances that future
periods will not be affected. Ney believes that the continuation of the market
conditions will not adversely affect the demand for its products in the near
term, but may result in increased competition for substitute products longer
term.
The Company believes that funds from operations, sales 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 a covenant restricting the payment of dividends, on or
repurchases or redemption 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 covenant (except as provided by a Capital Stock
Purchase Program which had been approved by a majority of the non-affiliated
bondholders that solely permits the Company to purchase up to $6.0 million of
capital stock) from making such payments on the Preferred Stock or the Common
Stock until such time as the sum of (i) the aggregate cumulative consolidated
net income; (ii) the aggregate net cash proceeds received by the Company from
sales of shares of its capital stock for cash; and (iii) the aggregate net cash
proceeds received by the Company from the sales of indebtedness of the Company
convertible into stock of the Company, to the extent such stock has been
converted into stock of the Company (collectively, Consolidated Net Income)
exceeds the sum of the aggregate amount of all dividends declared and all such
other payments and distributions on account of the purchase, redemption or other
retirement of any shares of stock of the Company (collectively, Distributions).
As of May 31, 1997, Distributions exceeded Consolidated Net Income by
approximately $4,015,000.
Part II. Other Information
Item 1. Legal Proceedings
As previously reported in the Company's Annual Report on Form 10-K for the
year ended February 28, 1997, in July 1996 two lawsuits were filed in the United
States District Court for the District of New Jersey, MORTON INTERNATIONAL, INC.
V. A.E. STALEY MFG. CO. ET AL, and VELSICOL CHEMICAL CORP. V. A.E. STALEY MFG.
CO. ET AL, in which Morton and Velsicol, assert a private right of action
pursuant to the Comprehensive Environmental Response, Compensation and Liability
Act (CERCLA) against approximately 95 companies relating to the Ventron/Velsicol
Superfund Site located in Wood Ridge and Carlstadt, New Jersey (the Site). In
addition in December 1996, Morton and Velsicol filed a First Amended Complaint,
alleging an alternative basis for liability under the Resource Conservation and
Recovery Act (RCRA). Specifically, the plaintiffs allege that Ney is a generator
of hazardous substances, which were ultimately processed at the Site and
contributed to the alleged contamination at the Site. The suits, which duplicate
each other in all material aspects, seek to recover the plaintiff's unspecified
past and future costs of remediation of the Site. The investigation at the Site
to determine the extent of contamination has not been completed and no plan for
redemediation has been developed. The plaintiffs have not been able to provide
the defendants with any confirmed figures with respect to past costs and no
figures at all for its future costs.
Based on preliminary disclosure of information relating to the claims
asserted in the complaints made by plaintiffs and defendants in January, 1997,
Ney is one of the smaller parties to have had any transactions with one of the
plaintiff's predecessors in interest. However, at the time, there is
insufficient information to determine the appropriate allocation of costs
between or among the defendants group, if liability to the generator defendants
is ultimately proved.
The Company continues to investigate whether any liability, which may
accrue at some future date, may be subject to reimbursement in whole or in part
from insurance proceeds. As of this date, the Company has no basis to conclude
that the litigation may be material to the Company's financial condition or
business.
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 any of its capital stock. As a result of this
restriction, the Company was precluded from paying the Preferred Stock dividends
earned for each of the four quarters in fiscal years 1994 through 1997,
respectively, and is precluded from paying the Preferred Stock dividends earned
for the quarter ended May 31, 1997. These dividends are ordinarily payable
within 45 days after the end of the quarter. Therefore, while the quarterly
dividends for fiscal 1994 through 1997 are in arrears, the dividend for the
quarter ended May 31, 1997, which was in the amount of $.4375 per share, will be
in arrears on July 16, 1997. The aggregate arrearage for all dividends
(including that payable on July 15, 1997) is approximately $1,050,000.
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 30, 1997, 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 Description
Exhibit 27 Financial Data Schedule.
Exhibit 27.1 Restated Financial Data Schedule Quarter
Ended May 31, 1996.
No reports on Form 8-K were filed during the quarter ended May 31, 1997.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ANDERSEN GROUP, INC.
By: /s/ Oliver R. Grace, Jr.
Oliver R. Grace, Jr.
President and Chief Executive Officer
Date: July 2, 1997
By: /s/ Andrew M. O'Shea
Andrew M. O'Shea
Treasurer
Date: July 2, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Exhibit 27
ANDERSEN GROUP, INC.
FINANCIAL DATA SCHEDULE
COMMERCIAL AND INDUSTRIAL COMPANIES
ARTICLE 5 OF REGULATION S-X
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S FORM 10-Q FOR THE QUARTERLY PERIOD ENDING MAY 31, 1997 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-28-1998
<PERIOD-START> MAR-01-1997
<PERIOD-END> MAY-31-1997
<CASH> 2,866
<SECURITIES> 5,935
<RECEIVABLES> 4,047
<ALLOWANCES> (218)
<INVENTORY> 9,578
<CURRENT-ASSETS> 22,382
<PP&E> 21,660
<DEPRECIATION> 11,988
<TOTAL-ASSETS> 38,842
<CURRENT-LIABILITIES> 9,450
<BONDS> 6,931
4,902
0
<COMMON> 2,103
<OTHER-SE> 11,685
<TOTAL-LIABILITY-AND-EQUITY> 38,842
<SALES> 7,468
<TOTAL-REVENUES> 7,758
<CGS> 4,803
<TOTAL-COSTS> 7,325
<OTHER-EXPENSES> 2,294
<LOSS-PROVISION> 28
<INTEREST-EXPENSE> 228
<INCOME-PRETAX> 433
<INCOME-TAX> 166
<INCOME-CONTINUING> 267
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 141
<EPS-PRIMARY> .07
<EPS-DILUTED> .07
<PAGE>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Exhibit 27.1
ANDERSEN GROUP, INC.
RESTATED FINANCIAL DATA SCHEDULE
COMMERCIAL AND INDUSTRIAL COMPANIES
ARTICLE 5 OF REGULATION S-X
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S FORM 10-Q FOR THE QUARTERLY PERIOD ENDING MAY 31, 1997 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> 7,019
<OTHER-EXPENSES> 2,165
<LOSS-PROVISION> 52
<INTEREST-EXPENSE> 198
<INCOME-PRETAX> 1,031
<INCOME-TAX> 412
<INCOME-CONTINUING> 619
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 477
<EPS-PRIMARY> .25
<EPS-DILUTED> .25
</TABLE>
