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 June 30, 1995
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 1-6856
ANDAL CORP.
(Exact name of registrant as specified in its charter)
New York 13-2571394 (State or other jurisdiction of incorporation or
organization)(IRS Emp. ID no.)
909 Third Avenue, New York, New York 10022
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (212) 376-5545
Not Applicable
(Former Name, Former Address, and Former Fiscal Year, if Changed Since Last
Report)
Indicate by check (x) 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
The number of shares outstanding of the registrant's common stock as of July 31,
1995 was 329,859.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ANDAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In thousands of dollars)
ASSETS
June 30, September 30,
1995 1994
(Unaudited)
Current assets:
Cash $ 393 $ 1,143
Accounts receivable 4,321 4,028
Inventories 1,507 1,254
Other current assets 758 533
Total current assets 6,979 6,958
Investments in affiliates 1,565 1,235
Property and equipment 9,590 9,732
Loans due from Multi-Arc Inc. management 1,000 0
Other assets 1,501 2,532
$20,635 $20,457
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Short-term borrowings, including
current portion of long-term debt $ 1,394 $ 1,425
Current portion of debt due
shareholders 1,000 750
Accounts payable 1,142 1,764
Other accrued expenses 4,567 5,834
Total current liabilities 8,103 9,773
Long-term debt 7,329 6,952
Debt due shareholders 6,614 7,364
Other deferred income 978 1,527
Convertible subordinated debentures 2,575 1,825
Minority interest in Multi-Arc Inc. 243 0
Shareholders' equity:
Common shares, par value $20
per share, 1,500,000 authorized
and 370,496 issued 7,410 7,410
Paid-in-capital 31,625 31,625
Deficit (38,581) (40,358)
Less 40,637 common shares held in
treasury, at cost (5,661) (5,661)
Total shareholders' equity
(deficit) (5,207) (6,984)
$20,635 $20,457
See accompanying notes to consolidated financial statements.
<PAGE>
ANDAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited and in thousands of dollars,
except per share amounts)
Three Months Nine Months
Ended Ended
June 30, June 30,
1995 1994 1995 1994
Operating revenues:
Trade sales $7,679 $6,851 $22,400 $20,344
Royalties and commissions 74 91 264 328
7,753 6,942 22,664 20,672
Operating costs and expenses:
Cost of revenues 4,122 3,343 11,673 10,273
Depreciation expense 472 563 1,450 1,688
Selling, general, and
admin. expenses 2,617 2,535 7,653 7,085
7,211 6,441 20,776 19,046
Income from operations 542 501 1,888 1,626
Other income (expense):
Gain on sale of minority interest
in Multi-Arc Inc. 188 0 188 0
Minority interest in net income
of Multi-Arc Inc. (31) 0 (59) 0
Gain from initial public offering of
Multi-Arc India Ltd. 0 0 85 0
Investment and other
income, net 3 14 21 30
Interest expense (445) (404) (1,335) (1,185)
(285) (390) (1,100) (1,155)
Income from continuing operations
before income taxes 257 111 788 471
(Provision) for income taxes (16) 0 (33) 0
Income from continuing
operations 241 111 755 471
Income (loss) from discontinued
operations 1,032 (20) 1,022 (342)
Net income $1,273 $ 91 $ 1,777 $ 129
Income (loss) per common share:
Income from continuing operations $ .73 $ .34 $2.29 $ 1.43
Income (loss) from
discontinued operations 3.13 (.06) 3.10 (1.04)
Net income $3.86 $ .28 $5.39 $ .39
See accompanying notes to consolidated financial statements.
<PAGE>
ANDAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited and in thousands of dollars)
Nine Months Ended
June 30,
1995 1994
Cash provided by operating activities:
Income from continuing operations
before income taxes $ 788 $ 471
Adjustments to reconcile income from
continuing operations to net cash
provided by operating activities:
Depreciation 1,450 1,688
Gain on sale of minority interest in
Multi-Arc Inc. (188) 0
Minority interest in net income of
Multi-Arc Inc. 59 0
Amortization of patents, trademarks,
and license rights 152 134
Deferred income accrued 0 39
Amortization of deferred income (63) (66)
Gain from initial public offering of
Multi-Arc India Ltd. (85) 0
Cash (used) by discontinued operations (32) (110)
Income taxes paid (116) (6)
Other, net 49 30
Change in operating assets and liabilities:
(Increase) decrease in
accounts receivable (306) 882
(Increase) in inventories (253) (785)
(Increase) in other current assets (225) (1)
(Decrease) in accounts payable
and accrued liabilities (704) (10)
Net cash provided by operating
activities 526 2,266
Cash flows from financing activities:
Proceeds from long-term debt 1,500 77
Loans to Multi-Arc management (1,000) 0
Proceeds from sale of common stock in
and debentures of Multi-Arc Inc. 1,500 0
Deferred financing costs (107) 0
Reductions of long-term debt (1,552) (1,217)
(Decrease) in debt due within one year (102) (164)
Net cash provided (used) by
financing activities 239 (1,304)
Cash flows from investing activities:
Gross additions to property
and equipment (1,312) (978)
Reductions of (investment in)
affiliates (168) 132
Other, net (35) (34)
Net cash (used) by investing
activities (1,515) (880)
(Decrease) increase in cash (750) 82
Cash at beginning of period 1,143 477
Cash at end of period $ 393 $ 559
See accompanying notes to consolidated financial statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) The accompanying unaudited interim consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and include all adjustments which, in the opinion
of management, are necessary to present fairly the results for such periods.
These interim financial statements do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements and should be read in conjunction with the consolidated
financial statements and notes thereto included in Andal Corp.'s ("Andal" or the
"Company") annual report on Form 10-K for the year ended September 30, 1994.
The accompanying consolidated financial statements have been prepared on a
going concern basis which contemplates the realization of assets and the
liquidation of liabilities in the ordinary course of business. The Company's
only source of operating cash flow, other than from the sale of capital assets,
is its subsidiary, Multi-Arc Inc. ("Multi-Arc"). Pursuant to the terms of
Multi-Arc's term loan and revolving credit facility with First Fidelity Bank, N.
A., Multi-Arc is not permitted to pay dividends or make loans to Andal, except
that Multi-Arc is permitted to pay cash to Andal to the extent that it utilizes
any of Andal's federal, state, and local net operating loss carryforwards for
income tax purposes. However, such payments cannot exceed $1 million per year
for fiscal 1995 and 1996, after which no further payments are permitted. Andal's
fiscal 1995 operating cash needs, including cash required for debt service, are
anticipated to aggregate approximately $3.3 million. To partially make up the
shortfall, in December 1994 and June 1995 Andal sold, for an aggregate of
$750,000, approximately 3.7% of the common stock of Multi-Arc to Multi-Arc's
management (see Note 3) and certain other investors; and Multi-Arc issued
$750,000 of convertible subordinated debentures (convertible into approximately
3% of Multi-Arc common stock) to such management and certain other investors,
the proceeds of which were remitted to Andal as a return of capital. Certain
additional investors have indicated a willingness to purchase an additional
$1,500,000 aggregate amount of Multi-Arc common stock and debentures. However,
there can be no guarantee that such additional sales will, in fact, occur. Andal
could also raise cash by making sales of the remaining stock it owns of Steve's
Homemade Ice Cream, Inc., as market conditions permit.
In accordance with the terms of the $2,043,203 loan outstanding between the
Company and certain of its directors and a stockholder who was formerly a
director, the Company is obligated to prepay the loan to the extent that it
receives cash from the sale of any of its capital assets or distributions from
its subsidiaries, including the aforementioned Multi-Arc stock and debenture
sales. The lenders have agreed to waive such requirement with respect to
$500,000 of cash received by the Company from such transactions during the
period June 1, 1995 through December 31, 1995, in return for which the Company
has agreed to an increase in the interest rate on the loan from the prime rate
of interest to 1% above the prime rate.
In addition to its regular operating cash needs, Andal may also require
cash to fund litigation costs related to its discontinued operations and/or to
make payments to creditors who have yet to make payment demands. For the longer
term, even if the aforementioned additional Multi-Arc stock and debenture
transactions are consummated, the Company's cash sources may not be sufficient,
in which case a further restructuring of its indebtedness to its shareholders
will be required. Should the Company be unable to accomplish such a
restructuring, there may be no alternative other than to enter into bankruptcy
proceedings. The accompanying consolidated financial statements do not include
any adjustments relating to the possible effect on the recoverability and
classification of assets or the amounts and classification of liabilities that
may be necessary should the Company be unable to continue as a going concern.
(2) The Company, through a wholly-owned subsidiary, owns an option to purchase a
parcel of real estate located on 61st Street and First Avenue in New York City
(the "Option"), which Option has been carried on the books of the Company at nil
value for many years. The Option grants the Company, through a wholly-owned
subsidiary, the right to purchase the real estate for approximately $3 million
in cash and is exercisable only after the death of the later to die of two of
the principals of the corporation that granted the Option. The Option expires 91
(ninety-one) days after the Company has been given formal notice of such death
by the Optionor. The Company is aware that such death occurred in June 1995 but
has yet to receive the formal notice required to begin the 91-day exercise
period. The Optionor has informed the Company that its present intention is not
to issue such notice until late in 1995 or in calendar year 1996.
In 1990, the Company borrowed an aggregate of $5 million from Messrs. Alan
N. Cohen, President and a Director of the Company, Paul Milstein, who was then a
Director of the Company, and Frankhill Associates, a limited partnership of
which Andrew J. Frankel, Chairman of the Board and a Director of the Company, is
a general partner (collectively, in such capacity, the "UBC Lenders"). The loan
was and is secured by a pledge of the capital stock of the subsidiary which owns
the Option.
As of June 30, 1995, the principal balance of the loan, after adjustment
for a restructuring of the loan in 1992, is $5,571,285 which is due and payable
on the earlier of March 31, 1997, or the day after certain other indebtedness to
shareholders of the Company, including the individuals mentioned above, has been
paid in full. In addition, the loan is required to be prepaid in the event of a
sale of the Company's interest in the Option. Under the terms of the loan, the
Company is obligated to exercise the Option within 45 days of its expiration and
to make the required $3 million purchase price payment within 15 days after
exercise.
The Company does not have the $3 million of cash that will be required to
exercise the Option, and it does not believe that it will be able to raise such
a sum through borrowings from unrelated parties or through the sale of assets
other than the Option. In addition, there can be no assurance that a sale of the
Option could be made prior to the time that the Option will be required to be
exercised. Accordingly, the Company's failure to exercise the Option and to pay
the $3 million purchase price will result in an event of default under the loan,
which will give the UBC lenders the right to exercise the Option on the
Company's behalf and to declare the loan immediately due and payable, including
all sums advanced by the UBC Lenders in exercising the Option. In addition, the
UBC Lenders will have all of the remedies available to them under applicable law
for secured lenders, including, without limitation, the public or private sale
of the real estate acquired by exercise of the Option.
(3) In December 1994, Andal sold, for $500,000, approximately 2 1/2% of the
common stock of Multi-Arc to Multi-Arc's management; and Multi-Arc issued
$500,000 of convertible subordinated debentures (convertible into approximately
2% of Multi-Arc common stock) to such management, the proceeds of which were
remitted to Andal as a return of capital. Both the sale of the common stock and
the issuance of the debentures were funded through non-recourse loans of $1
million made to its management by Multi-arc using Multi-Arc's revolving credit
facility with First Fidelity Bank. Because of the non-recourse nature of the
loans to management, the gain on the sale of Multi-Arc common stock of
approximately $378,000 has been deferred until such time as the management loans
are repaid.
(4) In November 1994, Multi-Arc India Ltd. ("India") completed an initial public
offering on the Bombay Stock Exchange which reduced the Company's interest in
India from 40% to 21%. Andal recorded a pretax gain of $85,000 as a result of
this sale.
(5) Inventories are summarized as follows:
June 30, September 30,
1995 1994
(In thousands of dollars)
Raw materials and supplies $1,425 $1,198
Work-in-process 82 56
$1,507 $1,254
(6) Convertible subordinated debt at June 30, 1995 consists of $1,825,000 of
Andal's 5 1/2% convertible subordinated debentures due in 1997 and $750,000 of
Multi-Arc's 6% convertible subordinated debentures due in 2004.
(7) Andal and its subsidiaries file a consolidated federal income tax return,
and state and local tax returns are generally filed on a combined basis.
On June 30, 1995, an appeals tribunal dismissed a claim against the Company
by a local taxing authority for income taxes relating to certain of its
discontinued operations. Income from discontinued operations for the three
months ended June 30, 1995 includes the reversal of a reserve for income taxes,
plus accrued interest, in the aggregate amount of $996,000.
At September 30, 1994, the Company had net operating loss carryforwards
("NOL's") for federal income tax purposes of approximately $33 million which
expire in varying amounts in years 1995 through 2008. In addition, the Company's
subsidiary in the United Kingdom had unrelieved corporation tax losses of
approximately $3.6 million.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The Company has provided
a valuation allowance against net deferred tax assets because it is more likely
than not that the net deferred tax assets will not be realized.
(8) See the Company's Form 10-Q report for the quarter ended December 31, 1994
for information concerning the settlement of litigation between National States
Electric Corp., an inactive subsidiary of the Company, and LFO Construction
Corp.
The Company is aware of certain other lawsuits and claims which are pending
involving it and its subsidiaries. In the opinion of the Company's management,
these matters will not result in any material adverse effect on the Company's
consolidated financial position, results of operations, or liquidity.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company, through its subsidiary, Multi-Arc Inc. ("Multi-Arc"), is
engaged in surface enhancement, the business of coating materials, primarily
metals. Multi-Arc is also engaged in the design, manufacture, assembly, and sale
of proprietary coating equipment systems.
Consolidated operating revenues of $7.8 million and $22.7 million for the
three months and nine months ended June 30, 1995 were $811,000 and $2.0 million
higher than the revenues for the comparable periods of the prior year. Operating
revenues have improved over the prior year principally as the result of an
aggregate 8% (approximately $1.5 million) growth in coating services revenue due
to improved economic conditions in the United States, Canada, and, especially,
the United Kingdom where revenues have grown 27%. For the nine months, sales of
proprietary equipment increased $561,000 entirely due to export sales.
Income from continuing operations before income taxes was $257,000 and
$788,000 for the three months and nine months ended June 30, 1995, compared with
$111,000 and $471,000 in the comparable periods of the prior year. Income from
operations improved over the prior year as a result of increased gross profits,
principally related to the higher revenues, in part offset by higher selling,
general and administrative costs which primarily reflect increased personnel and
commission costs.
In June 1995, Andal sold, for an aggregate $250,000, approximately 1.2% of
the common stock of Multi-Arc to certain investors; and Multi-Arc issued
$250,000 of convertible subordinated debentures (convertible into approximately
1% of Multi-Arc common stock) to such investors, the proceeds of which were
remitted to Andal as a return of capital. The Company recognized a gain of
$188,000 on this transaction. In addition, the Company recorded a charge of
$59,000 related to that portion of Multi-Arc's net income attributable to the
new investors.
In November 1994, Multi-Arc India Ltd. ("India") completed an initial
public offering on the Bombay Stock Exchange which reduced the Company's
interest in India from 40% to 21%. Andal recorded a pretax gain of $85,000 as a
result of this sale.
Interest expense has increased entirely as a result of higher interest
rates as debt levels have been decreased.
On June 30, 1995, an appeals tribunal dismissed a claim against the Company
by a local taxing authority for income taxes relating to certain of its
discontinued operations. Income from discontinued operations for the three
months ended June 30, 1995 includes the reversal of a reserve for income taxes,
plus accrued interest, in the aggregate amount of $996,000. Also, in June 1995,
the Company recorded $53,000 of income related to the partial recovery of a note
receivable. The income from discontinued operations in the 1995 periods includes
$141,000 of income from settlement of a claim, offset by legal expenses incurred
The 1994 periods, in addition to legal expenses, include $200,000 of expense for
settlement of a litigation.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
During the nine months ended June 30, 1995, cash decreased by
$750,000. This decrease was accounted for by funds used for investing activities
of $1,515,000, principally for capital expenditures of $1,312,000 and
investments in foreign joint ventures of $168,000, offset by cash provided by
operating activities of $526,000 and by cash provided by financing activities of
$239,000. Cash provided by operating activities includes cash used by
discontinued operations of $32,000 for $273,000 of legal expenses, offset by
$141,000 of cash received from the settlement of a claim and $100,000 collected
on the partial recovery of a note receivable. Higher receivables, inventories,
and other current assets used an aggregate of $784,000 of cash due to higher
sales volume and seasonal effects. Operating activities also includes $704,000
of cash used to decrease accounts payable and accrued liabilities which was
primarily related to seasonal payments of additional payroll and year-end bonus
and profit sharing at Multi-Arc as well as a reduction of trade payables,
principally legal expenses. The Company's operating cash flow continues to
reflect a high level of non-cash charges for depreciation and amortization.
Financing activities include $1.5 million of new debt borrowed by Multi-Arc
under its revolving credit facility with First Fidelity Bank, N. A. of which $1
million was used to finance the loans to management (see Note 3) and the balance
for working capital purposes. During the nine months ended June 30, 1995,
$1,657,000 of borrowed funds were repaid.
The Company's only source of operating cash flow, other than from the sale
of capital assets, is Multi-Arc. Pursuant to the terms of the restructuring of
Multi-Arc and of Multi-Arc's term loan and revolving credit facility with First
Fidelity Bank, Multi-Arc is not permitted to pay dividends or make loans to
Andal, except that Multi-Arc is permitted to pay cash to Andal to the extent
that it utilizes any of Andal's federal, state, and local net operating loss
carryforwards for income tax purposes. However, such payments cannot exceed $1
million per year for fiscal 1995 and 1996, after which no further payments are
permitted. Andal's fiscal 1995 operating cash needs, including cash required for
debt service, are anticipated to aggregate approximately $3.3 million. To
partially make up the shortfall, in December 1994 and June 1995, Andal sold, for
an aggregate $750,000, approximately 3.7% of the common stock of Multi-Arc to
Multi-Arc's management (see Note 3) and certain other investors; and Multi-Arc
issued $750,000 of convertible subordinated debentures (convertible into
approximately 3% of Multi-Arc common stock) to such management and certain other
investors, the proceeds of which were remitted to Andal as a return of capital.
Certain additional investors have indicated a willingness to purchase an
additional $1,500,000 aggregate amount of Multi-Arc common stock and debentures.
However, there can be no guarantee that such additional sales will, in fact,
occur. Andal could also raise cash by making sales of the remaining Steve's
stock it owns, as market conditions permit.
In accordance with the terms of the $2,043,203 loan outstanding between the
Company and certain of its directors and a stockholder who was formerly a
director, the Company is obligated to prepay the loan to the extent that it
receives cash from the sale of any of its capital assets or distributions from
its subsidiaries, including the aforementioned Multi-Arc stock and debenture
sales. The lenders have agreed to waive such requirement with respect to
$500,000 of cash received by the Company from such transactions during the
period June 1, 1995 through December 31, 1995, in return for which the Company
has agreed to an increase in the interest rate on the loan from the prime rate
of interest to 1% above the prime rate.
In addition to its regular operating cash needs, Andal may also require
cash to fund litigation costs related to its discontinued operations and/or to
make payments to creditors who have yet to make payment demands. For the longer
term, even if the aforementioned Multi-Arc stock and debenture transactions are
consummated, the Company's cash sources may not be sufficient, in which case a
further restructuring of indebtedness to the UBC Lenders and Fleet Assignees
will be required. Should the Company be unable to accomplish such a
restructuring, there may be no alternative other than to enter into bankruptcy
proceedings.
<PAGE>
PART II. OTHER INFORMATION
ITEM 3. EXHIBITS AND REPORT ON FORM 8-K
Exhibit 27 Financial Data Schedule
No reports on Form 8-K were filed by the Company during the quarter ended
June 30, 1995.
<PAGE>
S I G N A T U R E
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.
ANDAL CORP.
DATE: August 1, 1995 By: /s/ Michael S. Huber
Michael S. Huber
Senior Vice President,
Chief Financial Officer,
and Treasurer
DATE: August 1, 1995 By: /s/ Walter N. Kreil, Jr.
Walter N. Kreil, Jr.
Vice President,
Chief Accounting Officer,
and Controller
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the Third
Quarter 10-Q and is qualified in its entirety by reference to such 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> JUN-30-1995
<CASH> 393
<SECURITIES> 0
<RECEIVABLES> 4,434
<ALLOWANCES> 113
<INVENTORY> 1,507
<CURRENT-ASSETS> 6,979
<PP&E> 27,671
<DEPRECIATION> 18,081
<TOTAL-ASSETS> 20,635
<CURRENT-LIABILITIES> 8,103
<BONDS> 16,518
<COMMON> 7,410
0
0
<OTHER-SE> (12,617)
<TOTAL-LIABILITY-AND-EQUITY> 20,635
<SALES> 22,400
<TOTAL-REVENUES> 22,664
<CGS> 11,673
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<OTHER-EXPENSES> 235
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<INTEREST-EXPENSE> 1,325
<INCOME-PRETAX> 788
<INCOME-TAX> 33
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