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 November 30, 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
ANDERSEN GROUP, INC.
(State or other jurisdiction of (I.R.S.
Employer incorporation or organization)
Identification No.)
CONNECTICUT 06-0659863
(Address of Principal Executive Offices)
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 ____
There were 1,935,478 shares of the Registrant's Common Stock, no par value,
outstanding as of January 14, 1998.
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ANDERSEN GROUP, INC.
FORM 10-Q
TABLE OF CONTENTS
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Page No.
Part I - Financial Information
Consolidated Balance Sheets
November 30, 1997 and February 28, 1997 3
Consolidated Statements of Operations for the
Three and Nine Months Ended November 30, 1997 and 1996 4
Consolidated Statements of Cash Flows for the
Nine Months Ended November 30, 1997 and 1996 5
Notes to Consolidated Financial Statements 6
Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
Part II - Other Information
Item 1 - Legal Proceedings 11
Item 3 - Defaults Upon Senior Securities 12
Item 6 - Exhibits and Reports on Form 8-K 12
Signatures 13
Exhibit Index 14
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Part I. Financial Information
Item 1. Financial Statements
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ANDERSEN GROUP, INC.
Consolidated Balance Sheets
(In thousands)
November 30,1997 February 28, 1997
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 1,639 $ 3,219
Marketable securities 10,246 5,345
Accounts and other receivables, less
allowances of $234 and $190 4,308 2,773
Inventories 9,554 9,040
Prepaid expenses and other assets 186 516
------- -------
Total current assets 25,933 20,893
------- -------
Property, plant and equipment 21,800 20,946
Accumulated depreciation (12,597) (11,610)
------- -------
Property, plant and equipment, net 9,203 9,336
------- -------
Prepaid pension expense 4,525 4,274
Investment in Digital GraphiX - 1,346
Investment in Institute for Automated Systems 892 835
Other assets 2,014 993
------- -------
$ 42,567 $ 37,677
======== ========
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED
STOCK AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 990 $ 773
Short-term debt 5,305 2,305
Accounts payable 702 1,398
Other current liabilities 5,384 4,234
-------- -------
Total current liabilities 12,381 8,710
-------- -------
Commitments and contingencies
Long term-debt, less current maturities 5,986 7,041
Other long-term obligations 1,631 1,121
Deferred income taxes 2,286 2,267
Redeemable convertible Preferred Stock 4,760 4,891
-------- -------
Stockholders' Equity:
Common stock 2,103 2,103
Additional paid-in capital 3,248 3,248
Retained earnings 10,262 8,386
Treasury stock (90) (90)
-------- -------
Total stockholders' equity 15,523 13,647
-------- -------
$ 42,567 $ 37,677
======== ========
See accompanying notes to consolidated financial statements.
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ANDERSEN GORUP, INC.
Consolidated Statements of Operations
(In thousands, except per share data)
(unaudited)
Three months ended Nine months ended
November November November November
30, 1997 30, 1996 30, 1997 30, 1996
Sales and revenues:
Net sales $ 8,360 $ 5,920 $22,724 $19,253
Investment and other
income (loss) (458) (1,119) 3,560 (860)
------- ------- ------- -------
7,902 4,801 26,284 18,393
------- ------- ------- -------
Costs and expenses:
Cost of sales 5,426 3,860 14,645 12,452
Selling, general and
administrative 2,058 1,844 5,949 5,310
Research and development 439 378 1,259 1,103
Interest expense 283 198 772 599
------- ------- ------- -------
8,206 6,280 22,625 19,464
------- ------- -------- -------
Income (loss)
before income taxes (304) (1,479) 3,659 (1,071)
Income tax (expense)
benefit 121 538 (1,464) 375
------- -------- ------- -------
Net income (loss) (183) (941) 2,195 (696)
Reversal of preferred
dividends - - 37 -
Preferred dividend
requirement (122) (86) (356) (328)
------- ------- ------- -------
Income (loss) applicable
to common shares ($ 305) ($1,027) $1,876 ($1,024)
======= ======= ======= =======
Earnings (loss) per common share:
Primary ($0.16) ($0.53) $0.96 ($0.53)
------- ------- ------- -------
Fully diluted ($0.16) - $0.88 -
======== ======= ======= =======
Weighted average common
and common equivalent
shares outstanding 1,964,974 1,946,051 1,958,293 1,946,051
See accompanying notes to consolidated financial statements.
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ANDERSEN GROUP, INC.
Consolidated Statements of Cash Flows
(In thousands)
(unaudited)
Nine months ended November 30,
1997 1996
Cash flows from operating activities:
Net income (loss) $2,099 ($696)
Adjustments to reconcile net income (loss)
to net cash provided by (used for) operating
activities:
Depreciation, amortization and accretion 1,099 1,004
Deferred income taxes 1,015 (258)
Pension income (251) (185)
Net realized and unrealized gains from
marketable securities and investments (2,945)
1,580
Purchases of marketable securities (2,128)
(1,124)
Sales of marketable securities - 437
Changes in operating assets and liabilities:
Accounts and notes receivable (1,535) 573
Inventories (514) 1,094
Prepaid expenses and other assets 91 (878)
Accounts payable (986) (2,266)
Accrued expenses and other long-term
obligations 227 (529)
--------- --------
Net cash used for operating activities (3,732) (1,248)
------ - -------
Cash flows from investing activities:
Purchases of property and equipment (1,368) (1,053)
Proceeds from sale of property, plant
and equipment - 28
Investments in other assets - (105)
Proceeds from collection of investment
in Digital GraphiX 1,518 -
------ -------
Net cash provided by (used for) investing
activities 150 (1,130)
------ ------
Cash flows from financing activities:
Principal payments on long-term debt (838) (698)
Issuance of short-term debt, net 3,000 1,028
Redemption of Preferred Stock (160) -
Capitalized lease obligations incurred - 407
--------- -------
Net cash provided by financing activities 2,002 737
---------- -------
Net decrease in cash and cash equivalents (1,580) (1,641)
Cash and cash equivalents - beginning of period 3,219 4,116
------ -------
Cash and cash equivalents - end of period $1,639 $ 2,475
====== =======
See accompanying notes to consolidated financial statements.
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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 fiscal 1997 and the nine months ended
November 30, 1997, the Company invested a total of $2,083,000 in a portfolio of
Eastern European equity securities. Of this amount, $1,450,000 was invested in
Russian equity securities managed by a third party advisor. At November 30, 1997
the reported market value of this portfolio was approximately $4,401,000.
However, due to concerns, regarding the volatility of these securities markets
and liquidity issues, the Company has recorded these investments net of an
$880,000 reserve, for a net carrying value of approximately $3,521,000.
Accordingly, the Company has recorded a writedown in the value of this portfolio
of $1,190,000 for the three months ended November 30, 1997, while the net
appreciation related to this portfolio recorded during the nine months ended
November 30, 1997, is approximately $1,438,000.
(3) Inventories
Inventories consisted of the following:
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(In thousands)
November 30, February 28,
1997 1997
Raw materials $ 4,861 $ 3,111
Work in process 4,709 3,877
Finished goods 1,909 2,955
--------- ---------
11,479 9,943
LIFO reserve (1,925) ( 903)
--------- ---------
$ 9,554 $ 9,040
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(4) Income Taxes
Income tax (expense) benefit represents an estimate of the effective
income tax rate for the current fiscal year.
(5) Dividends
The Company's Series A Redeemable Cumulative Convertible Preferred
Stock (the "Preferred Stock") is entitled to accrue quarterly dividends ranging
from $.1875 to $.4375 per share, based upon the consolidated 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 or nine month
periods ended November 30, 1997, although they were accrued at the rate of
$0.4375 and $1.2513 per share, respectively. Under the terms of the Company's
10.5% 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. Through November 30, 1997, approximately
$1,224,000 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 Financial Condition and Results of Operations, and
also Part II, Item 3 -Defaults Upon Senior Securities).
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(6) Earnings Per Share
Earnings per share is computed based on the weighted average number of
common and common equivalent shares outstanding. Fully 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
anti-dilutive. (For the current fiscal year, see Exhibit 11 - Statement re
Computation of Per Share Earnings.) The effect of the assumed conversion of
convertible securities was anti-dilutive in the prior fiscal year.
In February 1997, the Financial Accounting 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 three and nine month periods ended
November 30, 1997, basic EPS would not be materially different from that which
is presented as primary EPS, while diluted EPS would have been unchanged from
that which is presented as fully diluted EPS.
(7) Subsequent Events
In December 1997, Ney entered into a seven-year $7.5 million
subordinated loan agreement with its commercial bank. Under the loan agreement,
which calls for quarterly interest-only payments at the rate of 10.26% per
annum, Ney issued warrants to purchase 40,000 shares of Ney common stock at an
average exercise price of $2.35 per share.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
For the three months ended November 30, 1997, the Company recorded a
net loss applicable to common shares of $305,000, or $0.16 per share, as
compared to a net loss of $1,027,000, or $0.53 per share, for the comparable
quarter in the prior fiscal year.
For the nine months ended November 30, 1997, the Company recorded net
income applicable to common shares of $1,876,000, or $0.96 per share, primary
and $0.88 per share, fully diluted. This compares with a net loss of $1,024,000,
or $0.53 per share for the nine months ended November 30, 1996.
REVENUES
Revenues for the three months ended November 30, 1997 totaled
$7,902,000, which is a 64.6% increase from the revenues reported for the prior
fiscal year's third quarter. This increase represents the combination of a 41.2%
increase in sales and a decrease of $661,000 in investment and other income
(loss). Through the nine-month period ended November 30, 1997, revenues totaled
$26,284,000, or an increase of 42.9% over the prior year's comparable nine-month
total. Sales increases of 18.0% and an increase of $4,420,000 in investment and
other income produced the year-over-year revenue growth.
During the three months ended November 30, 1997, the Company recorded
net investment losses of $1,190,000 relating to both realized and changes in
unrealized investment gains and losses from a portfolio of Russian and Eastern
European marketable equity securities. For the nine months ended November 30,
1997, such net investment gains totaled $1,438,000. The three and nine month
reported gains and losses have been reflected net of a decrease of $139,000 in a
valuation allowance for the three months then ended, and a net increase of
$880,000 of such valuation allowance for the nine months then ended. At November
30, 1997, this portfolio of investments was recorded at $3,521,000, net of the
aforementioned $880,000 valuation allowance.
Additionally, increases in unrealized gains from a portfolio of common
stocks, primarily comprised of financial institutions, produced increases in
unrealized gains of $517,000 and $1,312,000, respectively, for the three and
nine-month periods ended November 30, 1997. In the prior fiscal year, these
investments produced investment gains of $468,000 and $594,000, respectively,
during the comparable three and nine month periods. During the prior fiscal
year's first nine months, the Company also recorded a $954,000 writedown in the
market value of its common stock investment in Phoenix Shannon, p.l.c. This
entire investment, along with a $1 million note receivable from Phoenix Shannon
was written off in the third quarter of the prior fiscal year.
The sales growth reflects three and nine month growth rates for the
J.M. Ney Company ("J.M. Ney") of 35.5% and 13.8%, respectively, and three and
nine month growth rates of 75.3% and 41.0%, respectively, for Ney Ultrasonics
Inc. ("Ney Ultrasonics"). The continued expansion of J.M. Ney's manufacturing
platform has supported growth in a few key customer relationships. Ney
Ultrasonics continues to experience sales growth as further evidence of market
acceptance of its products. At November 30, 1997, sales backlog for this
division was a record $2.2 million.
COST OF SALES
Cost of sales for the three months ended November 30, 1997, reflects
margins of 35.1% versus margins for the prior year's third quarter of 34.8%.
Year-to-date margins are 35.6%, versus 35.3% for the first three-quarters of the
prior fiscal year. The short-term impact of rapid increases in the costs of
palladium and platinum during the nine months ended November 30, 1997 had the
effect of reducing margin improvements that would have been otherwise more
significant.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the three months ended
November 30, 1997 totaled $2,058,000, or 11.6% greater than the costs incurred
during the comparable period in the prior fiscal year. Year-to-date, such costs
totaled $5,949,000, or 12.0% greater than the prior fiscal year's nine months
year-to-date totals. Increased personnel recruitment expenses, costs relating to
a new software implementation process and increased costs at Ney Ultrasonics due
to staff additions, have contributed to these expenses increasing these costs.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development costs increased 16.1% and 14.1%, respectively,
during the three-month and nine-month periods ended November 30, 1997 over the
comparable periods in the prior fiscal year. Such increases primarily reflect
increased sales activity and the continued commitment to support future sales
growth.
INTEREST EXPENSE
Interest expense during the three months ended November 30, 1997
totaled $283,000, or 42.9% greater than interest expense incurred in the third
quarter of the prior fiscal year. For the nine-month period ended November 30,
1997, the increase in interest expense over the prior year totaled $173,000 or
28.9%. Increased borrowings at J.M. Ney to support its working capital growth
needs, as well as those of Ney Ultrasonics, to fund facility expansion and
capital expenditures, as well as significant increases in the borrowing rates
related to a financing program for palladium and platinum, offset the lower
interest costs associated with the reduction of the outstanding principal amount
of the Company's 10.5% Convertible Subordinated Debentures. Although borrowing
rates for palladium and platinum have come down from peak levels noted in June
and July 1997, they remain at relatively high levels of approximately 10% per
annum. J.M. Ney utilizes such programs primarily to hedge its exposure on its
precious metal refining activities, and has instituted additional charges to its
customers to reflect these market conditions.
INCOME TAXES
Income taxes have been accrued at rates which the Company estimates
will approximate its effective income tax rate for the year. Estimates of timing
differences between financial reporting and income tax reporting have been made
and reflected in changes to the deferred income tax liability accounts.
PREFERRED DIVIDENDS
Preferred dividends, including the amortization of issuance discounts,
totaled $122,000 for the quarter ended November 30, 1997, versus $86,000 for the
prior year's third fiscal quarter. This increase reflects the net of improved
operating income of J.M. Ney and Ney Ultrasonics, on which the dividend
calculation is based, and fewer preferred shares outstanding, due to purchases
of Preferred Stock in both the fourth quarter of the prior fiscal year and the
second quarter of this year.
Such dividends total $356,000 for the nine months ended November 30,
1997, versus $328,000 for the first nine months of the prior fiscal year. Per
share dividend accruals have increased from approximately $0.9822 per preferred
share for the nine months ended November 30, 1996 to approximately $1.2513 for
the current fiscal year's first nine months, however, fewer outstanding
preferred shares have resulted in the smaller year over year increase.
During the previous quarter, the Company purchased 8,744 shares of the
Preferred Stock resulting in a reversal of previously accrued dividends and
accreted discounts of $37,000.
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LIQUIDITY AND CAPITAL RESOURCES
At November 30, 1997, the Company's cash, cash equivalents and
marketable securities totaled $11,885,000, an increase of 38.8% over the total
of $8,564,000 recorded at February 28, 1997. The increase is the result of
$2,751,000 of recorded appreciation of securities within the Company's
investment portfolio of securities of Russian and Eastern European equity
securities and common stock investments in financial institutions and Centennial
Cellular (the purchaser of the Company's former cellular operations). This
appreciation has been recorded net of a valuation reserve of $880,000 relating
to the Russian and Eastern European investments. At November 30, 1997, the net
carrying value of the total Eastern European portfolio was $3,521,000, while the
portfolio of financial institutions was valued at $5,184,000. Additional
liquidity was also generated from the receipt of two liquidating dividends and
principal payments on a note receivable from Digital GraphiX, which is now in
the final stages of its liquidation.
During the first nine months of the current fiscal year, the Company
repurchased $622,000 principal amount of its 10.5% Convertible Subordinated
Debentures. Accordingly, the sinking fund requirements of the issue have been
fulfilled for the current fiscal year, and a credit of $165,000 has been
generated towards next year's requirement of $834,000.
On January 12, 1998 the Company announced the commencement of an
Exchange Offer for its 10.5% Convertible Subordinated Debentures due 2002 (the
"Debentures"). The Exchange Offer will expire at 5:00 p.m., Eastern Standard
Time, on Tuesday, February 19, 1998, unless extended (the "Expiration Date").
Pursuant to the terms of the Exchange Offer, the Company offers to exchange
$1,000.00 principal amount of 10.5% Convertible Subordinated Debentures due 2007
(the "New Debentures") and $10.00 cash (the "Cash Payment") for each $1,000.00
principal amount of the Debentures.
In the event that at least 66 2/3% in aggregate principal amount of the
outstanding Debentures are tendered for exchange pursuant to the Exchange Offer,
the Company shall (i) exchange the Debentures properly tendered to it pursuant
to the Exchange Offer and, except as provided in the next paragraph, (ii) have
the right, but not the obligation, to purchase and redeem all Debentures which
have not been so tendered pursuant to the terms of the Debentures at a
redemption price of 100% of the principal amount thereof plus accrued interest
to the date of redemption.
In addition, as part of an overall program to restructure the Company's
financial structure, if at least 66 2/3% of outstanding Debentures are tendered
as described above, and certain other conditions are met, as described herein,
the Company shall, in addition to exchanging the Debentures properly tendered to
it, purchase and redeem all Debentures which have not been so tendered pursuant
to the terms of the Debentures at a redemption price of 100% of the principal
amount thereof plus accrued interest to the date of redemption. The Exchange
Offer is conditioned on the approval of a proposal to amend the Company's
Certificate of Incorporation ("Certificate") by the requisite percentages of
each class of equity stockholders entitled to vote thereon at a Special Meeting
("Meeting") which the Company intends to call on or about February 25, 1998. At
this Meeting, the Company's Common Stockholders and Series A Preferred
Stockholders will be asked to approve an amendment to the Certificate which
eliminates certain restrictions on the payment of dividends on the Company's
Common Stock and on the Series A Preferred Stock and which makes certain other
changes in the redemption provisions of the Series A Preferred Stock. For
purposes of this Special Meeting, the Company will implement the proposal if
more than fifty percent of the Common Stockholders voting at the Meeting
approve, and if eighty-five percent or more of the Series A Preferred
Stockholders entitled to vote thereat approve the proposal.
In the event that less than 66 2/3% in aggregate principal amount of
the outstanding Debentures are tendered for exchange pursuant to the Exchange
Offer, the Company has the right, but not the obligation, to (i) exchange the
Debentures properly tendered to it pursuant to the Exchange Offer and/or (ii)
purchase and redeem all Debentures which have not been so tendered pursuant to
the terms of the Debentures at a redemption price of 100% of the principal
amount thereof plus accrued interest to the date of redemption.
The Exchange Offer is also subject to certain customary conditions, any
or all of which may be waived by the Company.
Certain affiliates of the Company have agreed to tender all Debentures
they beneficially own pursuant to the Exchange Offer. As of December 31, 1997,
these Debentureholders beneficially owned in the aggregate $2,274,000 principal
amount of Debentures, representing approximately 40.14% of the aggregate
principal amount of the Debentures.
The New Debentures contain essentially the same terms and conditions as
the Debentures, except that the New Debentures (i) mature five years later than
the Debentures, (ii) do not impose covenants on the Company which restrict the
payment of dividends on, or repurchases of, its capital stock and (iii) are not
subject to optional redemption by the Company.
Both the Debentures and the New Debentures are convertible into the
Company's Common Stock at any time prior to maturity, unless redeemed, at $16.17
per share, subject to adjustment under certain conditions.
The Exchange Offer will not have a material effect on the Company's
Consolidated Statements of Operations. However, the Exchange Offer could have a
material effect on the Company's cash if the Company is required to redeem, or
elects to redeem, the Debentures which have not been tendered. Assuming that the
Company has to purchase and redeem up to 33 1/3% in aggregate principal amount
of the outstanding Debentures, on a pro forma and forward looking basis, the
total cash requirements of the Exchange Offer will be approximately $2.5
million, as detailed below:
(i) the Company will have to pay approximately $456,000 to purchase and
retire certain long-term debt, which is senior to the Debentures
(ii) the Company will have to pay up to approximately $1.9 million to
purchase and redeem up to 33 1/3% of the Debentures; and
(iii) the Company will have to pay the Cash Payment and the expenses to
be incurred in the Exchange Offer of approximately $115,000.
In addition, if the restrictive covenants, contained in the indenture
to the Debentures, are eliminated, the Company will have to pay the accrued
dividend arrearage on the Preferred Stock of approximately $1.2 million.
The Company intends to fund these cash requirements with its available
cash. In the event that its available cash is not sufficient to cover this
requirement, the Company intends to sell some of its marketable securities to
satisfy any shortage. The amount of the cash requirement will be decreased to
the extent that more than 66 2/3% in aggregate principal amount of Debentures
outstanding are tendered for exchange pursuant to the Exchange Offer.
In December 1997, J.M. Ney borrowed $7.5 million under a seven-year
subordinated note. Proceeds of this borrowing have been used to reduce J.M.
Ney's borrowing under its revolving line of credit and to pay intercompany
dividends to the Company. Future uses of these remaining funds from this
borrowing may include, among other things, capital expenditures to support
planned growth. The Company is not a guarantor of either the seven-year
subordinated note or J.M. Ney's revolving line of credit facility.
The Company believes that, for the foreseeable future, the working capital
and debt serving requirements of its operating subsidiaries can be sufficiently
met through availability under J.M. Ney's line of credit, available lease lines
and from its operations.The Company also believes that its own working capital
and debt service requirements can be met through existing cash resources,
defined payments from J.M. Ney, sales or leveraging of investments or from its
investment income.
The indenture relating to the Company's 10.5% Convertible Subordinated
Debentures contains a covenant 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 covenant (except as provided by a Capital Stock
Purchase Program, which has been approved by a majority in principal amount 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 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, the
"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, the "Distributions"). At November 30, 1997, Distributions
exceeded Consolidated Net Income by approximately $2,247,000 and the Company had
utilized approximately $550,000 of the $6.0 million available pursuant to the
Capital Stock Purchase program to purchase shares of the Preferred Stock.
FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements, estimates or plans,
which involve known and unknown risks, uncertainties and other factors which may
cause the actual results, performance or achievements of the Company to be
materially different from results or plans expressed or implied by such
forward-looking statements.
Part II. Other Information
Item 1. Legal Proceedings
As previously reported in the Company's Form 10-Q for the Quarter ended
August 31, 1997, in August 1997, The J.M. Ney Company ("Ney") was included as a
defendant in an asbestos related civil action for negligence and product
liability filed in the Court of Common Pleas of Allegheny County, Pennsylvania
entitled, JAMES S. CATHERS AND SYLVIA JEAN CATHERS, HIS WIFE (collectively, the
"Plaintiffs") v. KERR CORPORATION, WHIP-MIX CORPORATION, THE J.M. NEY COMPANY
AND DENTSPLY CORPORATION, INC. (collectively, the "Defendants"), in which the
Plaintiffs claim damages in excess of $30,000 (the jurisdictional limit) from
being exposed to asbestos and asbestos products alleged to have been
manufactured and supplied by the Defendants, including Ney's former Dental
Division, while one of the Plaintiffs worked in a dental lab from 1960 to 1986.
The Plaintiffs allege that this exposure to asbestos and asbestos products
caused one of the Plaintiffs to develop mesothelioma. The Plaintiffs have not
provided any specific allegations of facts as to which Defendants may have
manufactured or supplied asbestos and asbestos products which are alleged to
have caused the injury.
The Company is investigating whether any liability 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. Accordingly, the Company intends to
vigorously defend the lawsuit.
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,
including The J.M. Ney Company ("Ney"), 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 was among a
group of companies that were generators 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 respects, 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 remediation 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 made
by plaintiffs and defendants Ney is one of the smaller parties to have had any
transactions with one of the plaintiff's predecessors in interest. However, at
this time, there is insufficient information to determine the appropriate
allocation of costs between or among the defendants, if liability to the
generator defendants is ultimately proved.
The Company is investigating 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.
Accordingly, the Company intends to vigorously defend the lawsuit.
<PAGE>
Item 3. Defaults Upon Senior Securities
As discussed in Note 5 to Consolidated Financial Statements, Dividends,
and in Management's Discussion and Analysis of Results of Operations and
Financial Condition - Liquidity and Capital Resources, 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, 1995, 1996 and 1997,
respectively, and is precluded from paying the Preferred Stock dividends earned
for each of the three quarters ended November 30, 1997. These dividends are
ordinarily payable within 45 days after the end of the quarter. Therefore, while
the quarterly fiscal 1994 through August 31, 1997 dividends are in arrears, the
dividend for the quarter ended November 30, 1997, which was in the amount of
$.4375 per share, will be in arrears on January 16, 1998. The aggregate
arrearage for all dividends (including that payable on January 15, 1998) is
$1,224,000.
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 January
14, 1998, 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 11.1 Statement re Computation of Per Share Earnings for the
three months ended November 30, 1997.
Exhibit 11.2 Statement re Computation of Per Share Earnings for the
nine months ended November 30, 1997.
Exhibit 27.1 Financial Data Schedule for the nine months ended November
30, 1997.
Exhibit 27.2 Restated Financial Data Schedule for the nine months ended
November 30, 1996.
(b) Reports on Form 8-K
There were no Form 8-Ks filed by the Company during the period ended
November 30, 1997; however, on December 30, 1997, the Company filed a
Current Report on Form 8-K to disclose a change of its independent
accounting firm. In addition, on January 12, 1998, the Company filed
Amendment No. 1 to its Current Report on Form 8-K, dated December 23,
1997, attaching as Exhibit 16 to such filing a letter from its former
independent accountants in which they stated their agreement with the
disclosures contained in Item 4 to Form 8-K.
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ANDERSEN GROUP, INC.
By: /s/ Oliver R. Grace, Jr.
Oliver R. Grace, Jr.
President and Chief Executive Officer
Date: January 14, 1998
By: /s/ Andrew M. O'Shea
Andrew M. O'Shea
Treasurer
Date: January 14, 1998
<PAGE>
EXHIBIT INDEX
<TABLE>
<S><C> <C> <C>
EXHIBIT PAGE NO.
NO. DESCRIPTION
11.1 Statement re Computation of Per Share Earnings for the Three Months 15
Ended November 30, 1997
11.2 Statement re Computation of Per Share Earnings for the Nine Months 16
Ended November 30, 1997
27.1 Financial Data Schedule for the Nine Month Period Ending 17
November 30, 1997
27.2 Restated Financial Data Schedule for the Nine Month Period Ending 18
November 30, 1996
</TABLE>
Exhibit 11.1
ANDERSEN GROUP, INC.
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
FOR THE THREE MONTHS ENDED NOVEMBER 30, 1997
(In thousands, except per share data)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
NUMBER OF SHARES
OF COMMON STOCK
AND COMMON STOCK
EQUIVALENTS
NET LOSS OUTSTANDING
Calculation of Primary Earnings Per Share:
Unadjusted amounts $(305) 1,934
Impact of exercise of stock options, net of
treasury shares that could be repurchased using
average price of common stock of $7.69 per
share - 31
------ --------
$(305) 1,965
------ --------
Primary Loss Per Common Share ($0.16)
</TABLE>
Exhibit 11.2
ANDERSEN GROUP, INC.
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
FOR THE NINE MONTHS ENDED NOVEMBER 30, 1997
(In thousands, except per share data)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
NUMBER OF SHARES
OF COMMON STOCK
AND COMMON STOCK
NET EQUIVALENTS
INCOME OUTSTANDING
Calculation of Primary Earnings Per Share:
Unadjusted amounts $1,876 1,934
Impact of exercise of stock options, net of
treasury shares that could be repurchased using
average price of common stock of $6.29 per
share - 24
------ ------
Primary Earnings Per Share $1,876 1,958 $0.96
====== ========= =====
Calculation of Fully Diluted Earnings Per Share:
Unadjusted amounts $1,876 1,934
Impact of conversion of 10.5%
Convertible Subordinated Debentures,
net of taxes 268 351
Impact of conversion of Preferred Stock 321 496
Impact of exercise of stock options, net of
Treasury shares that could be repurchased
using period end price of $7.625 per share - 26
------- --------
$2,465 $ 2,807
------- --------
Fully Diluted Earnings Per Common Share $0.88
=====
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
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 NINE-MONTH PERIOD ENDING NOVEMBER 30, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-START> MAR-01-1997
<PERIOD-END> NOV-30-1997
<CASH> 1,639
<SECURITIES> 10,246
<RECEIVABLES> 4,542
<ALLOWANCES> (234)
<INVENTORY> 9,554
<CURRENT-ASSETS> 25,933
<PP&E> 21,800
<DEPRECIATION> (12,597)
<TOTAL-ASSETS> 42,567
<CURRENT-LIABILITIES> 12,381
<BONDS> 5,986
4,760
0
<COMMON> 2,103
<OTHER-SE> 13,420
<TOTAL-LIABILITY-AND-EQUITY> 42,567
<SALES> 22,724
<TOTAL-REVENUES> 26,284
<CGS> 14,645
<TOTAL-COSTS> 22,625
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 44
<INTEREST-EXPENSE> 772
<INCOME-PRETAX> 3,659
<INCOME-TAX> 1,464
<INCOME-CONTINUING> 2,195
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,876
<EPS-PRIMARY> 0.96
<EPS-DILUTED> 0.88
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
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 NINE-MONTH PERIOD ENDING NOVEMBER 30, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-START> MAR-01-1996
<PERIOD-END> NOV-30-1996
<EXCHANGE-RATE> 1.00
<CASH> 2,475
<SECURITIES> 4,470
<RECEIVABLES> 3,963
<ALLOWANCES> (199)
<INVENTORY> 7,518
<CURRENT-ASSETS> 18,996
<PP&E> 20,463
<DEPRECIATION> (11,491)
<TOTAL-ASSETS> 35,786
<CURRENT-LIABILITIES> 7,807
<BONDS> 6,986
5,324
0
<COMMON> 2,103
<OTHER-SE> 10,498
<TOTAL-LIABILITY-AND-EQUITY> 35,786
<SALES> 19,253
<TOTAL-REVENUES> 18,393
<CGS> 12,452
<TOTAL-COSTS> 19,464
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 75
<INTEREST-EXPENSE> 599
<INCOME-PRETAX> (1071)
<INCOME-TAX> (375)
<INCOME-CONTINUING> (696)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (696)
<EPS-PRIMARY> (0.53)
<EPS-DILUTED> (0.53)
</TABLE>
