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, 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 (973) 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
July 31, 1997 was 447,360.
<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
June 30, September 30,
1997 1996
(Unaudited)
Current assets:
Cash $ 678 $ 552
Accounts receivable 5,824 5,252
Inventories 2,068 1,553
Other current assets 1,154 857
--------- ---------
Total current assets 9,724 8,214
Investments in affiliates 2,117 1,621
Property and equipment 14,457 12,278
Loans due from Multi-Arc Inc. management 1,000 1,000
Deferred taxes 2,400 2,400
Other assets 1,323 1,683
--------- ---------
$ 31,021 $ 27,196
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term borrowings, including
current portion of long-term debt $ 1,673 $ 1,434
Current portion of convertible debentures 1,825 1,825
Accounts payable 2,546 1,667
Other accrued expenses 5,046 5,619
--------- ---------
Total current liabilities 11,090 10,545
Long-term debt 10,742 8,671
Other deferred income 667 925
Convertible subordinated debentures 1,510 1,510
Minority interest in Multi-Arc Inc. 780 690
Shareholders' equity:
Common shares, par value $20 per share,
1,500,000 authorized and 447,360 issued 8,947 8,947
Paid-in-capital 25,995 25,995
Deficit (28,710) (30,087)
--------- ---------
Total shareholders' equity 6,232 4,855
--------- ---------
$ 31,021 $ 27,196
========= =========
See accompanying notes to consolidate 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,
1997 1996 1997 1996
Operating revenues:
Trade sales $8,993 $7,779 $25,777 $22,790
Royalties and commissions 88 137 357 336
Equity in net income of
foreign joint ventures 35 36 106 96
------- ------- -------- --------
9,116 7,952 26,240 23,222
------- ------- -------- --------
Operating costs and expenses:
Cost of revenues 4,798 3,881 13,593 11,374
Depreciation expense 573 546 1,694 1,586
Selling, general, and
administrative expenses 3,006 2,854 8,550 8,473
------- ------- -------- --------
8,377 7,281 23,837 21,433
------- ------- -------- --------
Income from operations 739 671 2,403 1,789
Other income (expense):
Minority interest in net income
of Multi-Arc Inc. (26) (51) (90) (139)
Investment and other income, net 54 60 107 152
Interest expense (351) (477) (988) (1,394)
------- ------- -------- --------
(323) (468) (971) (1,381)
------- ------- -------- --------
Income from continuing operations
before income taxes 416 203 1,432 408
Provision for income taxes (28) (39) (65) (48)
------- ------- -------- --------
Income from continuing operations 388 164 1,367 360
Income from discontinued operations 10 0 10 238
------- ------- -------- --------
Net income $ 398 $ 164 $ 1,377 $ 598
======= ======= ======== ========
Income per common share:
Income from continuing operations $.87 $.50 $3.06 $1.09
Income from discontinued operations .02 0 .02 .72
---- ---- ----- -----
Net income $.89 $.50 $3.08 $1.81
==== ==== ===== =====
Average number of common
shares outstanding (000) 447 330 447 330
=== === === ===
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,
1997 1996
Cash provided by operating activities:
Income before income taxes $ 1,432 $ 408
Adjustments to reconcile income to net cash
provided by operating activities:
Depreciation 1,694 1,586
Minority interest in net income of Multi-Arc Inc. 90 139
Amortization of patents, trademarks,
and license rights 117 132
Deferred income accrued 0 62
Amortization of deferred income (126) (156)
Equity in net income of foreign joint ventures (106) (96)
Cash (used) provided by discontinued operations (3) 170
Income taxes paid (80) (41)
Other, net 128 97
Change in operating assets and liabilities:
(Increase) in accounts receivable (547) (68)
(Increase) in inventories (550) (602)
(Increase) in other current assets (216) (77)
Increase in accounts payable and accrued liabilities 313 93
-------- --------
Net cash provided by operating activities 2,146 1,647
-------- --------
Cash flows from financing activities:
Proceeds from long-term debt 3,240 4,800
Proceeds from sale of common stock in
and debentures of Multi-Arc Inc. 0 375
Reductions of long-term debt (1,005) (1,149)
Decrease in debt due within one year 0 (8)
-------- --------
Net cash provided by financing activities 2,235 4,018
-------- --------
Cash flows from investing activities:
Gross additions to property and equipment (3,904) (2,786)
Purchase of 61st Street Property 0 (3,227)
Reductions of (investment in) joint ventures (390) 49
Other, net 39 (146)
-------- --------
Net cash (used) by investing activities (4,255) (6,110)
-------- --------
Increase (decrease) in cash 126 (445)
Cash at beginning of period 552 850
-------- --------
Cash at end of period $ 678 $ 405
======== ========
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, 1996.
(2) The Company has entered into an Agreement with a subsidiary of Saurer
AG, a Swiss company, for the purchase of the Company's principal operating
subsidiary, Multi-Arc Inc. The purchase price for all of the outstanding
shares of Multi-Arc is $29.2 million in cash. On a fully diluted basis,
Andal owns approximately 82% of Multi-Arc. Portions of the purchase price
will be used to pay the sellers' expenses for this transaction, as well as to
establish escrows required under the Agreement. The closing of the
transaction is subject to a number of conditions, including reaching an
acceptable agreement with Multi-Arc's principal financial lender. This
transaction will be submitted to shareholders of Andal Corp. for their
approval. Shareholders holding a sufficient number of shares to approve the
transaction have already agreed to vote their shares in favor of such approval.
(3) On July 31, 1997, Multi-Arc redeemed the 5 1/2% convertible subordinated
debentures due September 15, 1997. Funding for this redemption was provided
by a time loan received from First Union National Bank. This time loan is
repayable in full on the earlier of October 30, 1997 or the date of the
consummation of the acquisition of Multi-Arc Inc. by Saurer AG. The time loan
bears interest at the prime rate plus 1/4 of 1%.
(4) Inventories are summarized as follows:
June 30, September 30,
1997 1996
(In thousands of dollars)
Raw materials and supplies $2,050 $1,126
Work-in-process 18 427
------ ------
$2,068 $1,553
====== ======
(5) 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.
(6) Income 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.
(7) 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.
<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 $9.1 million and $26.2 million,
respectively, for the three months and nine months ended June 30, 1997 were
$1.2 million and $3.0 million, or 15% and 13% higher than the revenue for the
comparable periods of the prior year. Revenues from the Company's coating
services business rose $1.6 million, or 7% in the nine 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 $1.4 million due to the delivery of three coating systems in the
current year, compared with one small system in the prior year, and increased
spare parts sales.
Income from continuing operations before income taxes was $416,000 and
$1.4 million, respectively, for the three months and nine months ended June
30, 1997, compared with $203,000 and $408,000 in the comparable periods of
the prior year. Income from operations for the nine months ended June 30,
1997 increased $614,000 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 in the current year, account for lower
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 increased slightly from the prior
year, as the final effects of Multi-Arc's field sales force and sales
management augmentation were substantially offset by savings from having
ceased the Company's New York office operations.
Interest expense for the three months and nine months ended June 30,
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 $126,000 during the nine months ended June 30, 1997 as
cash provided by operating activities of $2.1 million and cash provided by
financing activities of $2.2 million were offset by cash used by investing
activities of $4.2 million.
Cash flow provided by operating activities of $2,105,000 compared with
cash provided of $1,647,000 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 June 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
$2.0 million from Multi-Arc's revolving credit facility and $1.2 million from
an equipment line of credit, each with First Union National Bank, principally
to finance capital expenditures, offset by scheduled repayments of $1.0
million of long term debt, also to First Union.
Cash used by investing activities includes $3.9 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.
On July 31, 1997, Multi-Arc redeemed the 5 1/2% convertible subordinated
debentures due September 15, 1997. Funding for this redemption was provided
by a time loan received from First Union National Bank. This time loan is
repayable in full on the earlier of October 30, 1997 or the date of the
consummation of the acquisition of Multi-Arc Inc. by Saurer AG. The time loan
bears interest at the prime rate plus 1/4 of 1%.
The Company believes that current financial resources, including the
available borrowing capacity under Multi-Arc's various loan agreements, will
be adequate to meet cash requirements for capital spending and debt
repayments in the near term. Multi-Arc 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 10(r) Press Release #97-04 dated June 11, 1997.
Exhibit 27 Financial Data Schedule
No reports on Form 8-K were filed by the Company during the quarter
ended June 30, 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: August 13, 1997 By: /s/ Peter D. Flood
Peter D. Flood
Chairman of the Board,
Chief Executive Officer,
and President
DATE: August 13, 1997 By: /s/Walter N. Kreil,Jr.
Walter N. Kreil, Jr.
Senior Vice President, and
Chief Financial Officer
<PAGE>
EXHIBIT 10(r)
Andal Corp. For Immediate Release
200 Roundhill Drive #97-04
Rockaway, NJ 07866 Contact: Walter N. Kreil, Jr.
201.625.3400 201-625-3400
Fax 201.625.2244
ANDAL ANNOUNCES AGREEMENT
FOR SALE OF MULTI-ARC BUSINESS
------------------------------
ROCKAWAY, NJ, June 11, 1997--ANDAL CORP. (OTC-ADLN) announced today that
the Company has entered into an Agreement with a subsidiary of Saurer AG, a
Swiss company, for the purchase of Andal's principal operating subsidiary,
Multi-Arc Inc. The purchase price for all of the outstanding shares of Multi-
Arc is $29.2 million in cash. On a fully diluted basis, Andal owns
approximately 82% of Multi-Arc. Portions of the purchase price will be used
to pay the seller's expenses for this transaction, as well as to establish
escrows required under the Agreement. The closing of the transaction is
subject to a number of conditions, including compliance with the Hart-Scott-
Rodino Act and reaching an acceptable agreement with Multi-Arc's principal
financial lender. This transaction will be submitted to shareholders of Andal
Corp. for their approval. Shareholders holding a substantial number of shares
have already agreed to vote their shares in favor of such approval.
Peter D. Flood, Chairman and CEO of Andal Corp., noted that this
transaction had been negotiated by a special committee of the Board of
Directors and that neither he nor Walter N. Kreil, Jr., a Director and the
Company's Chief Financial Officer, were a member of this committee. Should
this transaction be consummated, Mr. Flood and Mr. Kreil will continue to hold
their positions as officers of Multi-Arc and will resign all of their positions
with Andal and its other subsidiaries.
Multi-Arc Inc. is engaged in surface enhancement as a leading provider of
thin film metal coating services and systems. It operates eight coating
service centers in the United States, one in Canada, and one in the United
Kingdom for the deposition of thin film coatings on various surfaces, including
titanium nitride on cutting tools to enhance their hardness, wear and corrosion
resistance, lubricity, and appearance. It also licenses its technology
throughout the world, principally through the ION BOND Network.
Andal is a reporting company under the Securities and Exchange Act of
1934, but its stock is not traded on any exchange and has not been traded in
the over-the-counter market since the summer of 1995.
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