SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(MARK ONE)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 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) (I. R. S. Employer 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 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 No
The number of shares outstanding of the registrant's common stock
as of April 30, 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
March 31, September 30,
1995 1994
(Unaudited)
Current assets:
Cash $ 448 $ 1,143
Accounts receivable 4,122 4,028
Inventories 1,647 1,254
Prepaid expenses 528 317
Other current assets 285 216
Total current assets 7,030 6,958
Investments in affiliates 1,573 1,235
Property and equipment 9,648 9,732
Loans due from Multi-Arc Inc. management 1,000 0
Other assets 2,428 2,532
$21,679 $20,457
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Short-term borrowings, including
current portion of long-term debt$ 1,421 $ 1,425
Current portion of debt due
shareholders 1,000 750
Accounts payable 1,389 1,764
Other accrued expenses 5,723 5,834
Total current liabilities 9,533 9,773
Long-term debt 7,381 6,952
Debt due shareholders 6,864 7,364
Other deferred income 2,056 1,527
Convertible subordinated debentures 2,325 1,825
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 (39,854) (40,358)
Less 40,637 common shares held in
treasury, at cost (5,661) (5,661)
Total shareholders' equity
(deficit) (6,480) (6,984)
$21,679 $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 Six Months
Ended Ended
March 31, March 31,
1995 1994 1995 1994
Operating revenues:
Trade sales $8,284 $7,653 $14,721 $13,493
Royalties and commissions 120 180 190 237
8,404 7,833 14,911 13,730
Operating costs and expenses:
Cost of revenues 4,320 3,958 7,551 6,930
Depreciation expense 469 564 978 1,125
Selling, general, and
admin. expenses 2,546 2,333 5,036 4,550
7,335 6,855 13,565 12,605
Income from operations 1,069 978 1,346 1,125
Other income (expense):
Gain from initial public
offering of
Multi-Arc India Ltd. 0 0 85 0
Investment and other
income, net (5) 5 (10) 16
Interest expense (452) (392) (890) (781)
(457) (387) (815) (765)
Income (loss) from
continuing operations
before income taxes 612 591 531 360
(Provision) for income taxes (17) 0 (17) 0
Income (loss) from continuing
operations 595 591 514 360
Income (loss) from discontinued
operations 101 0 (10) (322)
Net income (loss) $ 696 $ 591 $ 504 38
Income (loss) per common share:
Income (loss) from continuing
operations $1.80 $1.79 $1.56 $1.09
Income (loss) from discontinued
operations .31 0 (.03) (.98)
Net income (loss) $2.11 $1.79 $1.53 $ .11
See accompanying notes to consolidated financial statements.
<PAGE>
ANDAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited and in thousands of dollars)
Six Months Ended
March 31,
1995 1994
Cash (used) provided by operating activities:
Income (loss) from continuing operations
before income taxes $ 531 $ 360
Adjustments to reconcile income (loss) from
continuing operations to net cash
provided by operating activities:
Depreciation 978 1,125
Amortization of patents, trademarks,
and license rights 93 96
Deferred income accrued 0 39
Amortization of deferred income (41) (51)
Gain from initial public offering of
Multi-Arc India Ltd. (85) 0
Other, net 16 10
Cash (used) by discontinued operations (23) (44)
Income taxes paid (83) (7)
Change in operating assets and liabilities:
(Increase) decrease in
accounts receivable (88) 594
(Increase) in inventories (393) (339)
(Increase) in other current assets (280) (71)
(Decrease) in accounts payable
and accrued liabilities (407) (122)
Net cash provided by operating
activities 218 1,590
Cash flows from financing activities:
Proceeds from long-term debt 1,200 27
Loans to Multi-Arc management (1,000) 0
Proceeds from sale of common stock
and debentures of Multi-Arc 1,000 0
Deferred financing costs (59) 0
Reductions of long-term debt (950) (821)
(Decrease) in debt due within one year (75) (64)
Net cash provided (used) by
financing activities 116 (858)
Cash flows from investing activities:
Gross additions to property
and equipment (897) (717)
Reductions of (investment in) affiliates (176) 97
Other, net 44 23
Net cash (used) by
investing activities (1,029) (597)
(Decrease) increase in cash (695) 135
Cash at beginning of period 1,143 477
Cash at end of period $ 448 $ 612
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 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. Andal has also, in principle, agreed to an
additional $3.5 million of stock sales and $3.5 million of Multi-
Arc debenture issuances to Multi-Arc management and licensees, to
be funded by independent sources, under the same terms and
conditions, so long as such sales and issuances occur on or before
June 15, 1995. There is no guarantee that the aforementioned
transactions 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 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 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) 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
$360,000 has been deferred until such time as the management loans
are repaid.
(3) 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.
(4) Inventories are summarized as follows:
March 31, September 30,
1995 1994
(In thousands of dollars)
Raw materials and supplies $1,341 $1,198
Work-in-process 306 56
$1,647 $1,254
(5) Convertible subordinated debt at March 31, 1995 consists of
$1,825,000 of Andal's 5 1/2% convertible subordinated debentures
due in 1997 and $500,000 of Multi-Arc's 6% convertible subordinated
debentures due in 2004.
(6) Andal and its subsidiaries file a consolidated federal income
tax return, and state and local tax returns are generally filed on
a combined basis.
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.
(7) 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 various other lawsuits, claims, and
administrative proceedings 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.
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 $8.4 million and $14.9
million for the three months and six months ended March 31, 1995
were $570,000 and $1.2 million higher than the revenues for the
comparable periods of the prior year. Operating revenues have
improved over the prior year entirely as the result of an aggregate
10% growth in coating services revenue due to improved economic
conditions in the United States, Canada, and, especially, the
United Kingdom where revenues have grown 26%.
Income (loss) from continuing operations before income taxes
was $612,000 and $531,000 for the three months and six months ended
March 31, 1995, compared with $591,000 and $360,000 in the
comparable periods of the prior year. Income (loss) from
continuing 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 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.
The income (loss) from discontinued operations in the 1995
periods includes $141,000 of income from settlement of a claim
during the three months ended March 31, 1995, offset by legal
expenses incurred relating to discontinued construction and real
estate operations. The 1994 periods, in addition to legal
expenses, include $200,000 of expense for settlement of a
litigation.
LIQUIDITY AND CAPITAL RESOURCES
During the six months ended March 31, 1995, cash decreased by
$695,000. This decrease was accounted for by funds used for
investing activities of $1,029,000, principally for capital
expenditures of $897,000, offset by cash provided by operating
activities of $218,000 and by cash provided by financing activities
of $116,000. Cash used by operating activities includes cash used
by discontinued operations of $164,000 for legal expenses of the
Company's discontinued construction and real estate operations and
includes $141,000 of cash received from the settlement of a claim.
The Company's operating cash flow continues to reflect a high level
of non-cash charges for depreciation and amortization. Operating
activities also includes $673,000 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.
Financing activities include $1.2 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 2) and the balance for working
capital purposes. During the six months ended March 31, 1995,
$1,025,000 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, 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. Andal has also, in principle, agreed to an
additional $3.5 million of stock sales and $3.5 million of Multi-
Arc debenture issuances to Multi-Arc management and licensees, to
be funded by independent sources, under the same terms and
conditions, so long as such sales and issuances occur on or before
June 15, 1995. There is no guarantee that the aforementioned
transactions 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 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.
PART II. OTHER INFORMATION
ITEM 3. EXHIBITS AND REPORT ON FORM 8-K
No reports on Form 8-K were filed by the Company during the
quarter ended March 31, 1995.
<PAGE>
EXHIBIT INDEX
Exhibit 27 Financial Data Schedule
<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: May 8, 1995 By:/s/ Michael S. Huber
Michael S. Huber
Senior Vice President,
Chief Financial Officer,
and Treasurer
DATE: May 8, 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
SECOND QUARTER 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH 10-Q.
</LEGEND>
<CIK> 0000070262
<NAME> ANDAL CORP
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