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, 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 1-6856
ANDAL CORP.
(Exact name of registrant as specified in its charter)
New York 13-2571394
(State or other jurisdiction of incorporation or (I. R. S. Employer ID no.)
organization)
200 Roundhill Drive, Rockaway, New Jersey 07866
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (201) 625-3400
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 No X
The number of shares outstanding of the registrant's common stock as of
April 30, 1997 was 447,359.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ANDAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In thousands of dollars,
except share and per share amounts)
ASSETS
March 31, September 30,
1997 1996
(Unaudited)
Current assets:
Cash $ 750 $ 552
Accounts receivable 5,841 5,252
Inventories 2,103 1,553
Other current assets 1,119 857
--------- ---------
Total current assets 9,813 8,214
Investments in affiliates 2,031 1,621
Property and equipment 13,603 12,278
Loans due from Multi-Arc Inc. management 1,000 1,000
Deferred taxes 2,400 2,400
Other assets 1,420 1,683
--------- ---------
$ 30,267 $ 27,196
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term borrowings, including
current portion of long-term debt $ 1,448 $ 1,434
Current portion of convertible debentures 1,825 1,825
Accounts payable 2,425 1,667
Other accrued expenses 5,529 5,619
--------- ---------
Total current liabilities 11,227 10,545
Long-term debt 10,212 8,671
Other deferred income 730 925
Convertible subordinated debentures 1,510 1,510
Minority interest in Multi-Arc Inc. 754 690
Shareholders' equity:
Common shares, par value $20 per share,
1,500,000 authorized and 447,359 issued 8,947 8,947
Paid-in-capital 25,995 25,995
Deficit (29,108) (30,087)
--------- ---------
Total shareholders' equity 5,834 4,855
--------- ---------
$ 30,267 $ 27,196
========= =========
<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,
1997 1996 1997 1996
Operating revenues:
Trade sales $8,972 $7,550 $16,784 $15,011
Royalties and commissions 166 121 269 199
Equity in net income of foreign joint
Ventures 36 30 71 60
------- ------- -------- --------
9,174 7,701 17,124 15,270
Operating costs and expenses:
Cost of revenues 4,698 3,722 8,795 7,493
Depreciation expense 532 503 1,121 1,040
Selling, general, and administrative
expenses 2,791 2,861 5,544 5,619
------- ------- -------- --------
8,021 7,086 15,460 14,152
Income from operations 1,153 615 1,664 1,118
Other income (expense):
Minority interest in net income of
Multi-Arc Inc. (49) (48) (64) (88)
Investment and other income, net 6 42 53 92
Interest expense (340) (452) (637) (917)
------- ------- -------- --------
(383) (458) (648) (913)
Income from continuing operations
before income taxes 770 157 1,016 205
Provision for income taxes (13) (3) (37) (9)
------- ------- -------- --------
Income from continuing operations 757 154 979 196
Income from discontinued operations 0 238 0 238
------- ------- -------- --------
Net income $ 757 $ 392 $ 979 $ 434
======= ======= ======== ========
Income per common share:
Income from continuing operations $1.69 $ .47 $2.19 $ .60
Income from discontinued operations 0.00 .72 0.00 .72
----- ----- ----- -----
Net income $1.69 $1.19 $2.19 $1.32
===== ===== ===== =====
Average number of common shares
outstanding (000) 447 330 447 330
=== === === ===
<PAGE>
ANDAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited and in thousands of dollars)
Six Months Ended
March 31,
1997 1996
Cash provided by operating activities:
Income before income taxes $ 1,016 $ 205
Adjustments to reconcile income to net cash
provided by operating activities:
Depreciation 1,121 1,040
Minority interest in net income of
Multi-Arc Inc. 64 88
Amortization of patents, trademarks,
and license rights 79 81
Deferred income accrued 0 62
Amortization of deferred income (64) (145)
Equity in net income of
foreign joint ventures (71) (60)
Cash (used) provided by discontinued
operations (8) 79
Income taxes paid (52) (10)
Other, net 85 12
Change in operating assets and liabilities:
(Increase) in accounts receivable (553) (57)
(Increase) in inventories (577) (477)
(Increase) in other current assets (233) (119)
Increase in accounts payable
and accrued liabilities 670 299
-------- --------
Net cash provided by operating activities 1,477 998
Cash flows from financing activities:
Proceeds from long-term debt 2,150 750
Proceeds from sale of common stock in
and debentures of Multi-Arc Inc. 0 279
Reductions of long-term debt (670) (850)
Decrease in debt due within one year 0 (8)
-------- --------
Net cash provided by financing activities 1,480 171
-------- --------
Cash flows from investing activities:
Gross additions to property and equipment (2,490) (1,591)
Reductions of (investment in) joint
ventures (339) 49
Other, net 70 40
-------- --------
Net cash (used) by investing activities (2,759) (1,502)
-------- --------
Increase (decrease) in cash 198 (333)
Cash at beginning of period 552 850
-------- --------
Cash at end of period $ 750 $ 517
======== ========
<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, 1996.
(2) The Company is presently in negotiations with a much larger company for
the sale of the Company's principal operating subsidiary, Multi-Arc Inc. No
definitive agreement has been reached. Important factors which could
interfere with the completion of this transaction are the ability of the
parties to reach a definitive agreement as to price and structure or other
details of the transaction, condition of Multi-Arc's assets, and Multi-Arc's
prospects for future earnings. There can be no assurance that these
negotiations will result in any transaction.
(3) Inventories are summarized as follows:
March 31, September 30,
1997 1996
(In thousands of dollars)
Raw materials and supplies $2,099 $1,126
Work-in-process 4 427
------ ------
$2,103 $1,553
====== ======
(4) 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, 1996, the Company had net operating loss carry forwards
("NOL's") for federal income tax purposes of approximately $30.3 million which
expire in varying amounts through 2010. In addition, the Company's subsidiary
in the United Kingdom had unrelieved corporation tax losses of approximately
$1.8 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 a substantial portion of the net
deferred tax assets will not be realized.
(5) Income (loss) per common share for all periods was computed based on the
average number of shares outstanding during each of the respective periods.
The effects of stock options are not material and have not been included in
the computations. No fully diluted per share amounts are shown for any period
as the effects would be anti-dilutive.
(6) The Company is aware of certain 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.
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 $9.2 million and $17.1 million,
respectively, for the three months and six months ended March 31, 1997 were
$1.5 million and $1.9 million, or 19% and 12% higher than the revenue for the
comparable periods of the prior year. Revenues from the Company's coating
services business rose $1.1 million, or 8% in the six month period over the
prior year, due to continued penetration of the Company's served markets, with
particular strength in the industrial tool sector. Equipment sales increased
$656,000 due to the delivery of two coating systems in the current year,
compared with one small system in the prior year, and increased spare parts
sales. Royalties and commissions increased $70,000 due to commissions on
sales of equipment by a Japanese licensee.
Income from continuing operations before income taxes was $770,000 and
$1.0 million, respectively, for the three months and six months ended March
31, 1997, compared with $157,000 and $205,000 in the comparable periods of the
prior year. Income from operations for the six months ended March 31, 1997
increased $546,000 over the prior year, due to increased gross profits from
the higher revenues, offset in part by costs from having opened a coating
service center in Columbus, Ohio in July 1996. This latter factor, together
with relatively higher equipment sales, accounted for a decline in gross
margin percentages. Depreciation expense increased from the prior year which
reflects the recent increased levels of capital spending. Selling, general,
and administrative expenses have decreased from the prior year, as the final
effects of Multi-Arc's field sales force and sales management augmentation
were more than offset by savings from having ceased the Company's New York
office operations.
Interest expense for the three months and six months ended March 31,
1997 declined from the prior year which reflects significantly lower debt
levels as a result of the cancellation of UBC Lender debt in connection with
the Company's sale of a parcel of real estate in New York City and the
retirement of Fleet Assignee debt in exchange for common stock in August 1996.
LIQUIDITY AND CAPITAL RESOURCES
Cash increased $198,000 during the six months ended March 31, 1997 as
cash provided by operating activities of $1.5 million and cash provided by
financing activities of $1.5 million were offset by cash used by investing
activities of $2.8 million.
Cash flow provided by operating activities of $1,477,000 compared with
cash provided of $998,000 in the comparable period of the prior year. The
increase was principally due to higher income from continuing operations
offset in part by increased receivables related directly to machine deliveries
in March 1997. Increased levels of accounts payable financed growth in
inventory which is also due to a higher level of activity in the Equipment
Division. The Company's operating results continue to reflect a very high
level of depreciation expense.
Cash provided by financing activities includes additional borrowings of
$1.6 million from Multi-Arc's revolving credit facility and $550,000 from an
equipment line of credit, each with First Union National Bank, principally to
finance capital expenditures, offset by scheduled repayments of $670,000 of
long term debt, also to First Union.
Cash used by investing activities includes $2.5 million for capital
expenditures of the Multi-Arc business, principally for capacity expansion.
In addition, in October 1996, Multi-Arc (UK) Ltd. acquired a 33% interest in
Preci-Coat S. A., a joint venture in Switzerland, for $399,000 in cash and
bank guarantees of $1.6 million.
The Company believes that current financial resources, including the
available borrowing capacity under its various loan agreements, will be
adequate to meet cash requirements for capital spending and debt repayments in
the near term. The Company plans to continue to use its revolving credit
arrangement to finance interim working capital needs. Also, see Note 2 of the
Notes to Consolidated Financial Statements, included elsewhere herein, as to
the Company's negotiations for the sale of Multi-Arc Inc.
NEW ACCOUNTING PRONOUNCEMENT
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings per Share," which is required to be adopted in
the Company's first quarter in fiscal 1998. At that time, the Company will be
required to change the method currently used to compute earnings per share and
to restate all prior periods. The impact of Statement No. 128 on the
calculation of primary and fully diluted earnings per share is not expected to
be material.<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 March 31, 1997.
<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 14, 1997 By: /s/ Peter D. Flood
Peter D. Flood
Chairman of the Board,
Chief Executive Officer,
and President
DATE: May 14, 1997 By: /s/ Walter N. Kreil, Jr.
Walter N. Kreil, Jr.
Senior Vice President, and
Chief Financial Officer
<TABLE> <S> <C>
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<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> MAR-31-1997
<CASH> 750
<SECURITIES> 0
<RECEIVABLES> 5,934
<ALLOWANCES> 93
<INVENTORY> 2,103
<CURRENT-ASSETS> 9,813
<PP&E> 30,981
<DEPRECIATION> 17,378
<TOTAL-ASSETS> 30,267
<CURRENT-LIABILITIES> 11,227
<BONDS> 11,722
0
0
<COMMON> 8,947
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<SALES> 16,784
<TOTAL-REVENUES> 17,124
<CGS> 8,795
<TOTAL-COSTS> 15,460
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<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 637
<INCOME-PRETAX> 1,016
<INCOME-TAX> 37
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 979
<EPS-PRIMARY> 2.19
<EPS-DILUTED> 2.19
</TABLE>
