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, 2000
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)
DELAWARE 06-0659863
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
515 Madison Avenue, New York, New York 10022
(Address of principal executive offices) (Zip Code)
(212) 826-8942
(Registrant's telephone number, including area code)
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 ____
As of July 7, 2000, there were 2,054,509 shares of the Registran's $.01
par value common stock outstanding.
Title Outstanding
Common Stock, $0.01 par value per share Authorized 6,000,000 shares;
Issued 2,059,863
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Part I. Financial Information
Item 1. Financial Statements
ANDERSEN GROUP, INC.
Consolidated Balance Sheets
(In thousands)
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May 31, 2000 February 29, 2000
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 1,255 $ 1,854
Marketable securities 980 926
Accounts and other receivables less
allowances of $123 and $111 5,855 4,657
Inventories 5,891 8,019
Prepaid expenses and other assets 278 468
Total current assets 14,259 15,924
Property, plant and equipment, net 10,016 10,148
Prepaid pension expense 4,932 4,917
Investments in Moscow Broadband Communication Ltd. 3,969 4,084
Other assets 2,163 2,045
$35,339 $37,118
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 521 $ 521
Short-term borrowings 1,760 3,054
Accounts payable 677 1,015
Other current liabilities 1,516 1,674
Deferred income taxes 456 456
Total current liabilities 4,930 6,720
Long-term debt, less current maturities 3,166 3,190
Notes payable to officer, net of unamortized discount 1,128 933
Subordinated note payable, net of unamortized discount 7,366 7,358
Other liabilities 1,906 1,973
Deferred income taxes 1,641 1,682
Total liabilities 20,137 21,856
Commitments and contingencies
Stockholders' equity:
Cumulative convertible preferred stock 3,799 4,033
Common stock 21 20
Treasury stock (102) (276)
Additional paid-in capital 6,342 6,141
Retained earnings 5,142 5,344
Total stockholders' equity 15,202 15,262
$35,339 $37,118
See accompanying notes to consolidated financial statements.
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ANDERSEN GROUP, INC.
Consolidated Statements of Operations
(In thousands, except per share data)
(unaudited)
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Three months ended
May 31, 2000 May 31, 1999
Revenues:
Net sales $ 9,466 $ 7,298
Investment and other income 139 903
9,605 8,201
Costs and expenses:
Cost of sales 6,962 4,953
Selling, general and administrative 1,509 1,696
Research and development 624 572
Interest expense 589 388
9,684 7,609
(Loss) income before equity in losses of Moscow Broadband
Communication Ltd. and income taxes (79) 592
Equity in losses of Moscow Broadband Communication Ltd. (115) -
Net (loss) income before income taxes (194) 592
Income tax (benefit) expense (68) 236
Net (loss) income (126) 356
Preferred dividends (76) (96)
(Loss) income applicable to common shares $ (202) $ 260
Earnings (loss) per common share:
Basic $ (0.10) $ 0.13
Diluted $ (0.10) $ 0.13
See accompanying notes to consolidated financial statements.
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ANDERSEN GROUP, INC.
Consolidated Statements of Cash Flows
(In thousands)
(unaudited)
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May 31, 2000 May 31, 1999
Cash flows from operating activities:
Net (loss) income $ (126) $ 356
Adjustments to reconcile net (loss) income to net cash
provided by (used in) operating activities:
Equity in losses of Moscow Broadband Communication Ltd. 115 -
Depreciation, amortization and accretion 324 358
Deferred income taxes (41) 303
Pension income (15) (25)
Net gains from marketable securities
and investments (77) (645)
Purchases of marketable securities - (113)
Proceeds from sales of marketable securities 23 390
Changes in operating assets and liabilities:
Accounts and other receivables (1,198) (522)
Inventories 2,128 1,326
Prepaid expenses and other assets 201 (66)
Accounts payable (338) 821
Accrued liabilities and other long-term obligations (160) (241)
Net cash provided by operating activities 836 1,942
Cash flows from investing activities:
Purchases of property and equipment (364) (244)
Net cash used in investing activities (364) (244)
Cash flows from financing activities:
Principal payments on long-term debt (24) (29)
Proceeds from issuance of secured note to officer 200 -
Borrowings, net (1,294) (1,003)
Stock options exercised 74 -
Net sale of treasury stock 49 14
Preferred dividends paid (76) (96)
Net cash used in financing activities (1,071) (1,114)
Net (decrease) increase in cash and cash equivalents (599) 584
Cash and cash equivalents - beginning of period 1,854 2,541
Cash and cash equivalents - end of period $1,255 $ 3,125
See accompanying notes to consolidated financial statements.
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ANDERSEN GROUP, INC.
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, 2000. 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
Marketable securities consisted of the following (in thousands):
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May 31, 2000 February 29, 2000
F M Emerging Russia Fund $898 $825
Portfolio of Ukraine stocks 262 239
Renaissance Russian Bond Fund 52 75
Valuation reserve - foreign investments (232) (213)
$980 $926
(3) Inventories
Inventories consisted of the following (in thousands):
May 31, 2000 February 29, 2000
Raw material $ 3,287 $ 5,727
Work in process 6,471 8,153
Finished goods 5,551 6,029
Consignment leases (4,480) (6,952)
10,829 12,957
LIFO Reserve 4,938 4,938
$ 5,891 $ 8,019
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At May 31, 2000, the precious metal inventory levels of The J.M. Ney
Company, which are valued on a LIFO basis, were lower than the prior fiscal
year-end levels. Due to the interim nature of these financial statements, no
adjustment of the LIFO reserve has been recognized in the Consolidated Statement
of Operations. Had such inventory levels been determined to be permanent in
nature, at May 31, 2000 there would have been a decrease in the LIFO reserve of
approximately $556,000 and a corresponding decrease to cost of sales.
(4) Investment in Moscow Broadband Communication Ltd. The Company records
its investment in Moscow Broadband Communication Ltd. ("Moscow Broadband") using
the equity method of accounting, which is at cost as adjusted for its
proportionate share of the equity in the earnings and losses of Moscow
Broadband. For the three months ended May 31, 2000 the Company recorded a loss
of $115,000 which represents its 25% interest in Moscow Broadband's three month
losses of $460,000, which in turn, include Moscow Broadband's 50% equity
interest in the losses of ComCor TV.
At May 31, 2000, the carrying value of the Company's investment in Moscow
Broadband was $3,969,000, and the Company's 25% equity in the net assets of
Moscow Broadband was $4,515,000. The $546,000 difference is due to a previous
write down of this investment and the purchase of shares of Moscow Broadband
during the prior fiscal year, using credited accounts receivable for amounts
previously expensed.
(5) Short-Term Borrowings
At May 31, 2000, J.M. Ney did not meet certain financial covenants
contained within its revolving credit and deferred payment sales agreement with
its bank. The bank had has granted JM Ney the necessary waivers relating to the
effects of these specific violations.
(6) Income Taxes
Income tax expense represents an estimate of the effective income tax rate
for the current fiscal year.
(7) (Loss) Earnings Per Share
(Loss) earnings per share are computed based on the weighted average number
of common and common equivalent shares outstanding. Diluted earnings 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 period ended May 31, 2000, the effect of such conversions was
antidilutive.
(8) Business Segments and Export Sales
During the three months ended May 31, 2000, the Company operated in two
segments, Electronics, which comprises the operations of The J.M. Ney Company
("J.M. Ney"), and Corporate, which includes the Company's investments, real
estate and corporate administrative activities. Operating income consists of net
sales, investment and other income, less cost of sales and selling, general and
administrative expenses directly allocated to the industry segments. Corporate
revenues consist of investment and other income not attributable to J.M. Ney.
Corporate identifiable assets include marketable securities and assets not
directly attributable to J.M. Ney.
Summarized financial information for business segments is as follows (in
thousands):
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Three months ended: May 31, 2000 May 31, 1999
Revenues:
Electronics $9,473 $7,366
Corporate 132 835
$9,605 $8,201
Operating income (loss):
Electronics $ 731 $ 686
Corporate (221) 294
$ 510 $ 980
Interest expense:
Electronics $ 474 $ 269
Corporate 115 119
$ 589 $ 388
Depreciation, amortization and accretion:
Electronics $ 276 $ 328
Corporate 48 30
$ 324 $ 358
Capital expenditures:
Electronics $ 364 $ 244
Corporate - -
$ 364 $ 244
As of: May 31, 2000 February 29, 2000
Identifiable assets:
Electronics $25,952 $27,835
Corporate 9,387 9,283
$35,339 $37,118
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Export sales for the three months ended May 31, 2000 and 1999 were
$1,781,000 and $1,165,000 respectively. Such sales were made primarily to
customers in Europe and the Pacific Rim.
During the three months ended May 31, 2000 and 1999, sales to a customer
accounted for 14.8% and 19.1% of net sales, respectively. Also, sales to another
customer during the three months ended May 31, 2000 accounted for 13.7% of net
sales.
(9) Related Party Transactions
In April 2000, the Company borrowed $200,000 from its President in exchange
for a secured note bearing interest at the annual rate of 8.5% and a warrant to
purchase 5,393 shares of the Company's stock at $11.13 per share through April
2003. Also, in April 2000, the Company received $50,000 from its Chairman in
exchange for an unsecured demand note bearing interest at the annual rate of
10.0%. This loan and related interest was repaid in May 2000.
(10) Supplemental Disclosure of Cash Flow Information
During the three months ended May 31, 2000, the Company issued 24,499
shares of its common stock from the conversion of 12,603 shares of its
cumulative convertible preferred stock.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
For the three months ended May 31, 2000, the Company recorded net loss
applicable to common shareholders of $202,000, or ($0.10) per share, basic and
diluted. During the prior fiscal year's first quarter, the Company reported net
income applicable to common shareholders of $260,000, or $0.13 per share, basic
and diluted.
REVENUES Total revenues for the quarter ended May 31, 2000 of $9,605,000
represents a 17.1% increase over revenues for the comparable period in the prior
fiscal year. This increase was due to a $2,168,000 increase in net sales from
The J.M. Ney Company (JM Ney) which was partly offset by lower investment and
other income.
Net sales for the three months ended May 31, 2000 totaled $9,466,000, which
is a 29.7% increase from the prior fiscal year's first quarter sales levels.
Much of the increase is due to the pass through effect of higher palladium
prices. During the most recent quarter, the price of palladium averaged
approximately $603 per troy ounce as compared to $314 per troy ounce in the
prior fiscal year's first quarter. During the three months ended May 31, 2000,
products sold by J.M. Ney contained approximately 5,800 ounces of palladium.
Investment and other income totaled $139,000 for the three months ended May
31, 2000, as compared to $903,000 of such income for the quarter ended May 31,
1999. Significant components of this income during each period were as follows
(in thousands):
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For Three Months Ended
May 31, 2000 May 31, 1999
Net gains from domestic investment portfolio $ - $ 379
Net gains from Russian and
Eastern European portfolio 77 266
Interest and dividends 11 43
Rental income 108 116
Ultrasonic royalty 8 -
Other, net (65) 99
$ 139 $ 903
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COST OF SALES Cost of sales during the three months ended May 31, 2000
represented 73.5% of net sales, versus costs of sales during the prior fiscal
year's first quarter which were 67.9% of net sales. The decline in the gross
margin from 32.1% to 26.5% was the result of significantly higher palladium
prices, which were passed on in the form of higher selling prices, but without
the same degree of mark-up. Total gross margin dollars during the quarter were
6.8% higher than the prior fiscal year's first quarter primarily due to precious
metals gains from closing out forward sales, deferred pricing loans and put
options. Such gains were partially offset by lower pension income and lower
margins from refining transactions.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and
administrative expenses for the three months ended May 31, 2000 totaled
$1,509,000, which is a decrease of 11.0% from the prior fiscal year's first
quarter. The decrease reflects the absence of amounts being directly expensed to
support Moscow Broadband's due diligence efforts with respect to its investment
in ComCor-TV. In addition, reduced Corporate headcount continued to the decine
in these costs.
RESEARCH AND DEVELOPMENT EXPENSES Research, development and engineering
expenses during the three months ended May 31, 2000 totaled $624,000, which
represents a 9.1% increase from the prior year. Additional engineering positions
to expand JM Ney's technical capabilities contributed to the overall increase.
INTEREST EXPENSE Interest expense during the three months ended May 31,
2000 totaled $589,000, which is 51.8% higher than the costs incurred during the
first quarter of the prior fiscal year. This increase is primarily due to the
high cost of palladium leases and deferred pricing borrowings which resulted
from increased borrowing levels, higher palladium prices and higher lease rates
as compared to the prior year.
INCOME TAX EXPENSE Income taxes have been accrued based upon estimated
effective tax rates for the fiscal year.
LIQUIDITY AND CAPITAL RESOURCES At May 31, 2000, the Company's consolidated
cash and marketable securities totaled $2,235,000, which is a $545,000 decrease
from increase from the February 29, 2000 levels. Payments to reduce short-term
borrowings offset by cash provided by operating activities contributed to the
overall decrease.
As a result of covenants contained in its borrowing agreements, JM Ney is
restricted from paying dividends or otherwise transferring funds to the Company
outside the ordinary course of business except as defined in certain covenants.
At May 31, 2000, JM Ney's working capital was $7,263,000 or 77.9% of
consolidated net current assets, and its net worth, net of a $4 million
subordinated note payable to the Company, totaled $6,546,000 or 43.1% of the
Company's consolidated total.
FORWARD-LOOKING STATEMENTS This report contains forward-looking statements,
which are subject to a number of risks and uncertainties that may cause actual
results to differ materially from expectations. Those uncertainties include, but
are not limited to the following:
The Company has expanded its investment and business development activities
in Russia and Eastern Europe. Economic and political developments in these
countries could significantly impact both the return on and the return of
capital employed in these regions. The price and volatility of precious metals,
particularly palladium and gold, could impact the market for many of JM Ney's
products, as users substitute less expensive materials.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company and JM Ney are exposed to market risk from changes in equity
security prices, certain commodity prices, interest rates and from factors that
impact equity investments in Russia, the Ukraine and Poland, as discussed in the
Company's Annual Report on Form 10-K for the year ended February 29, 2000. The
following information is presented to update the status of the identified risks.
FOREIGN INVESTMENT RISK The Company has an investment in Moscow Broadband
with a carrying value of $3,969,000. Moscow Broadband's primary asset is an
investment in ComCor TV, a Moscow, Russian based broadband cable operator
licensed to provide video, Internet and telephoning to up to 1.5 million homes
and businesses in Moscow. The Company also has a trading portfolio of Russian
and Ukrainian investments with market values totaling $1,160,000 and a net
reported value of $928,000. In addition, as a result of the receipt of an
additional in a series of anticipated liquidating distributions, JM Ney's
investment in a Russian bond fund has been reduced to approximately $52,000. All
such investments bear the specific economic, currently and political risks of
this region.
COMMMODITY RATE RISK During the quarter ended May 31, 2000, the market
price for gold declined from $287 per troy ounce to $268 per troy ounce. At the
same time, the market price of palladium declined from $722 per troy ounce to
$568 per troy ounce, but it has subsequently been as much as $100 per troy ounce
higher. Such fluctuations impact selling prices and can affect reported
profitability.
INTEREST RATE RISK The interest cost of JM Ney's precious metal borrowings
in the form of consignment leases or deferred pricing borrowing in recent years
has experienced significant fluctuations. During the first quarter, the interest
costs of such arrangements fell from 18% per annum to approximately 9% per
annum. During the quarter, JM Ney reduced the number of ounces of palladium
leased or borrowed from 11,166 troy ounces to 6,042 troy ounces. These
reductions reduce J.M. Ney's exposure to the effects of such leasing cost
volatility.
Part II. Other Information
Item 1. Legal Proceedings
Morton International, Inc. v. A.E. Staley Mfg. Co. et al. and Velsicol
Chemical Corp. v. A.E. Staley Mfg. Co. et al
As originally reported in the Company's Form 10-K for the year ended
February 28, 1997, in July 1996, two companion lawsuits were filed in the United
States District Court for the District of New Jersey, by various owners and
operators of the Ventron-Velsicol Superfund Site (Site). The lawsuits, which
were subsequently consolidated, were filed under the Comprehensive Environmental
Resource Compensation and Liability Act (CERCLA), the Resource Conservation and
Recovery Act, the New Jersey Spill Act and New Jersey common law, alleging that
the defendants (over 100 companies, including J.M. Ney) were generators of
certain wastes allegedly processed at the site. The lawsuits seek recovery of
costs incurred and a declaration of future liability for costs to be incurred by
the owners and operators in studying and remediating the Site.
Based on preliminary disclosure of information relating to the claims made
by plaintiffs and defendants, J.M. Ney, which produced and refined precious
metals used in dental amalgams, is one of the smaller parties to have had any
transactions with one of the plaintiff's predecessors in interest. However,
under both CERCLA and the New Jersey Spill Act, a party is jointly and severally
liable, unless there is a basis for divisibility. At this time, there is
insufficient information to determine the appropriate allocation of costs as
between or among the defendant group, if liability to the generator defendants
is ultimately proven. Moreover, because of the incomplete status of discovery,
the Company is unable to predict the probable outcome of the lawsuit, whether
favorable or unfavorable, and has no basis to ascertain a range of loss, should
any occur, with respect to an outcome that might be characterized as
unfavorable.
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. The Company intends to continue to vigorously defend
the lawsuit.
James S. Cathers and Sylvia Jean Cathers, his wife v. Kerr Corporation,
Whip-Mix Corporation, The J.M. Ney Company and Dentsply Corporation, Inc.
As originally reported in the Company's Form 10-Q for the quarter ended
August 31, 1997, in August 1997, J.M. 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, in which the Plaintiffs
claim damages from being exposed to asbestos and asbestos products alleged to
have been manufactured and supplied by the defendants, including J.M. Ney's
former Dental Division. The Company intends to vigorously defend the lawsuit.
The Company has determined that it has insurance that potentially covers this
claim and has called upon the insurance carriers to provide reimbursement of
defense costs and liability, should any arise. 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 4. Submission of Matters to a Vote of Security Holders
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits required by Item 601 of Regulation S-K:
Exhibit Description
Exhibit 11 Statement re: Computation of Per Share Earnings.
Exhibit 27 Financial Data Schedule.
No reports on Form 8-K were filed during the quarter ended May 31, 2000.
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 17, 2000
By: /s/ Andrew M. O'Shea
Andrew M. O'Shea
Chief Financial Officer
Date: July 17, 2000
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Exhibit 11
ANDERSEN GROUP, INC.
Statement Re: Computation of Per Share Earnings
(In thousands, except per share data)
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Three Months Ended Three Months Ended
Calculation of basic earnings (loss) May 31, 2000 May 31, 1999
per share:
Numerator for basic and diluted earnings per share:
Net (loss) income $ (202) $ 260
Denominator for basic earnings (loss) per share:
Weighted average number of shares outstanding during
the period 2,043 1,930
Effect of dilutive securities 6
(a)
Denominator for diluted earnings per share 2,043 1,936
Basic (loss) earnings per share $(0.10) $0.13
Diluted (loss) earnings per share $(0.10) $0.13
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(a) For the three month period ended May 31, 2000, the effect of
outstanding stock options or the assumed conversion of subordinated convertible
notes or cumulative convertible preferred stock was antidilutive.
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:
Oliver R. Grace
President and Chief Executive Officer
Date: July 17, 2000
By:
Andrew M. O'Shea
Chief Financial Officer
Date: July 17, 2000
