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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended November 30, 1996
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 1-6675
THE ARLEN CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
New York 13-2668657
------------------------ ------------------------------
State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
505 Eighth Avenue, New York, New York 10018
- --------------------------------------- ---------------
Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 736-8100
Not Applicable
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(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (l) has filed all reports required
to be filed by Section l3 or l5(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 / /
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Common Stock, $1 par value - 30,770,307 shares outstanding as of January 6,
1997
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THE ARLEN CORPORATION AND SUBSIDIARIES
INDEX
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<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated balance sheet -- November 30, 1996
(unaudited) 4
Consolidated balance sheet -- February 29, 1996
(unaudited) 5
Consolidated statements of operations -- Nine and
three months ended November 30, 1996 and 1995 (unaudited) 6
Consolidated statements of cash flows -- Nine
months ended November 30, 1996 and 1995 (unaudited) 7-8
Notes to consolidated financial statements 9-10
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11-12
PART II. OTHER INFORMATION 13
SIGNATURES 14
</TABLE>
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PART I - FINANCIAL INFORMATION
Item 1
Financial Statements
3
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<TABLE>
<CAPTION>
THE ARLEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
November 30, 1996
($000s Omitted)
(UNAUDITED)
- ---------------------------------------------------------------------------------------------------------------
ASSETS
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 12
Note receivable,
net of unamortized discount of $52 984
---------
TOTAL CURRENT ASSETS 996
PROPERTY AND EQUIPMENT, net 56
OTHER ASSETS, including amounts due from
former subsidiaries (Note 3) 465
---------
TOTAL ASSETS $1,517
=========
LIABILITIES AND CAPITAL DEFICIT
CURRENT LIABILITIES:
Notes payable $ 137
Accrued interest payable 200
Accrued expenses, fees and other (Note 4) 7,298
Current portion of long-term obligations (including $33
due to related parties) 283
---------
TOTAL CURRENT LIABILITIES 7,918
LONG-TERM OBLIGATIONS DUE TO RELATED PARTIES 549
AMOUNTS DUE TO RELATED PARTIES 130,877
---------
TOTAL LIABILITIES 139,344
COMMITMENTS AND CONTINGENCIES (Note 4)
CAPITAL DEFICIT (137,827)
---------
TOTAL LIABILITIES AND CAPITAL DEFICIT $1,517
=========
</TABLE>
See notes to consolidated financial statements.
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<TABLE>
<CAPTION>
THE ARLEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
February 29, 1996
($000s Omitted)
(UNAUDITED)
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ASSETS
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 10
Note receivable - current portion,
net of unamortized discount of $117 883
---------
TOTAL CURRENT ASSETS 893
PROPERTY AND EQUIPMENT, net 72
OTHER ASSETS, including amounts due from
former subsidiaries (Note 3) 469
NOTE RECEIVABLE, less current portion, net of
unamortized discount of $33 717
---------
TOTAL ASSETS $ 2,151
=========
LIABILITIES AND CAPITAL DEFICIT
CURRENT LIABILITIES:
Notes payable $ 137
Accrued interest payable (including $4 due to related parties) 179
Accrued expenses, fees and other (Note 4) 7,019
Current portion of long-term obligations
due to related parties 299
---------
TOTAL CURRENT LIABILITIES 7,634
LONG-TERM OBLIGATIONS DUE TO RELATED PARTIES 575
AMOUNTS DUE TO RELATED PARTIES 124,389
---------
TOTAL LIABILITIES 132,598
COMMITMENTS AND CONTINGENCIES (Note 4)
CAPITAL DEFICIT (130,447)
---------
TOTAL LIABILITIES AND CAPITAL DEFICIT $2,151
=========
</TABLE>
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<TABLE>
<CAPTION>
THE ARLEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
($000s Omitted)
(UNAUDITED)
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Nine months ended Three months ended
November 30, November 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
GENERAL & ADMINISTRATIVE
EXPENSES $ (1,039) $ (810) $ (459) $ (271)
OTHER (EXPENSES) INCOME:
Interest expense, net (including related
party interest of $6,397 and
$2,125 in 1996 and $7,348 and $2,450
in 1995) (6,731) (7,649) (2,236) (2,548)
Other income, net 390 - 247 -
-------- -------- -------- ---------
Loss from continuing operations
before discontinued operations (7,380) (8,459) (2,448) (2,819)
DISCONTINUED OPERATIONS:
Income from discontinued operations (Note 2) - 2,990 - 221
-------- -------- -------- --------
Net loss $(7,380) $(5,469) $(2,448) $(2,598)
======== ======== ======== ========
LOSS PER COMMON SHARE FROM
CONTINUED OPERATIONS $ (0.23) $ (0.27) $ (0.07) $ (0.09)
INCOME PER COMMON SHARE FROM
DISCONTINUED OPERATIONS (Note 2) - 0.09 - 0.01
-------- -------- -------- ---------
LOSS PER COMMON SHARE $ (0.23) $ (0.18) $ (0.07) $ (0.08)
======== ======== ======== =========
</TABLE>
See notes to consolidated financial statements
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<TABLE>
<CAPTION>
THE ARLEN CORPORATION AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
($000s Omitted)
(UNAUDITED)
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Nine months ended
November 30,
1996 1995
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($7,380) ($5,469)
--------- ---------
Adjustments to reconcile net loss to cash
provided by operating activities:
Depreciation and amortization 16 456
Amortization on note discount (98) -
Provisions for losses on accounts
receivable - (470)
Increase in amounts due related
parties 7,575 7,102
Changes in assets and liabilities
(Increase) decrease in assets:
Accounts receivable - 1,406
Inventories - (640)
Other current assets - 61
Other assets 4 (1,070)
Increase (decrease) in liabilities:
Accounts payable - (1,499)
Accrued interest payable 21 228
Accrued state income taxes - (93)
Accrued other liabilities 279 639
--------- ---------
Total adjustments 7,797 6,120
--------- ---------
Net cash provided by operating activities 417 651
--------- ---------
</TABLE>
See notes to consolidated financial statements
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<TABLE>
<CAPTION>
THE ARLEN CORPORATION AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
($000s Omitted)
(UNAUDITED)
(Continued)
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Nine months ended
November 30,
1996 1995
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<S> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in certificates of deposit - (561)
Investment in capital assets - (298)
Acquisition of new automotive aftermarket
business, net of cash acquired - (54)
-------- ---------
Net cash used in investing activities - (913)
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds on notes receivable 714 -
Payments on revolving credit line - (13,424)
Proceeds from revolving credit line - 13,982
Payments on amounts due to related parties (1,087) -
Principal payments on short-term borrowings - (622)
Principal payments on long-term borrowings (42) (362)
-------- ---------
Net cash provided by financing activities (415) (426)
-------- ---------
NET INCREASE IN CASH AND
CASH EQUIVALENTS 2 (688)
CASH AND CASH EQUIVALENTS, at
February 29, 1996 and 1995 10 1,192
-------- ---------
CASH AND CASH EQUIVALENTS, at
November 30, 1996 and 1995 $ 12 $ 504
======== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the nine months ended
November 30, 1996 and 1995 for interest $ 1,092 $ 372
======= =========
</TABLE>
See notes to consolidated financial statements
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THE ARLEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(November 30, 1996)
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NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of The
Arlen Corporation (the "Company") have been prepared in accordance with
generally accepted accounting principles for interim financial information in
accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, the financial statements do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three and nine months ended November
30, 1996 are not necessarily indicative of the results that may be expected for
the fiscal year ending February 28, 1997. For further information, reference is
made to the Company's Consolidated Financial Statements and Notes to
Consolidated Financial Statements included in the Company's Annual Report on
Form 10-K for the fiscal year ended February 29, 1996.
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial statements and
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
The accompanying unaudited consolidated financial statements of the
Company have been prepared on the basis that the Company will continue as a
going concern, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. At November 30,
1996, the Company had a working capital deficiency of $6,922,000 and a capital
deficit of $137,827,000. Currently, the Company has no operations (see Note 2)
but intends to seek new business opportunities, though there can be no
assurance that it will be successful in achieving this objective.
NOTE 2 - DISCONTINUED OPERATIONS
The operations of the Company's former operating subsidiaries, which
ceased to be owned by the Company on February 6, 1996, have been reclassified as
discontinued operations.
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THE ARLEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(November 30, 1996)
================================================================================
NOTE 3 - OTHER ASSETS
Other assets include amounts due from former subsidiaries (see Note 2)
and certain non-negotiable promissory notes (the "Mortgage Notes") assumed by
related parties. Due to the uncertainty of the timing of the collection of
interest on the Mortgage Notes, for financial statement purposes the Company
records interest income from the Mortgage Notes when received.
NOTE 4 - COMMITMENTS AND CONTINGENCIES
The Company is the sponsor of a defined benefit pension plan (the
"Plan") which was frozen in 1981. The actuarial valuation of the Plan as of
March 1, 1991 (the latest Plan valuation) indicated that the unfunded actuarial
accrued liability was approximately $850,000.
In November 1996, the United States Internal Revenue Service (the
"IRS") granted the Company's request for a waiver of the minimum funding
standard for the plan year ended February 29, 1996, conditioned upon (1) eight
quarterly payments by the Company to the Plan of $33,000 each beginning with
the calendar quarter ended December 31, 1996 (the first payment of which has
been made) and (2) a credit balance equal to the unamortized balance of the
waiver (estimated to be approximately $175,000) being maintained in the
Plan's funding standard account for each plan year commencing on or after
March 1, 1997.
After giving effect to the waiver granted by the IRS, management
believes that it has adequately provided in the Company's balance sheet (in
accrued expenses, fees and other) for the Plan's unfunded accrued liability.
NOTE 5 - LOSS PER COMMON SHARE
Loss per common share is computed by dividing the net loss, after
giving effect to dividends on preferred stock, by the weighted average number of
common shares and common share equivalents outstanding during each period.
Convertible securities that are deemed to be common share equivalents are
assumed to have been converted at the beginning of each period. The Company's
common share equivalents and convertible issues were anti-dilutive at
November 30, 1996 and 1995 and, therefore, were not included in the loss
per share computations for these periods. The weighted average number of
shares used to compute per share amounts was 32,690,000 for the nine and
three-month periods ended November 30, 1996 and 31,690,000 for the nine and
three-month periods ended November 30, 1995, inclusive of Class B shares.
10
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Item 2
Management's Discussion and Analysis of Financial Condition and Results
of Operations
11
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THE ARLEN CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL POSITION AND RESULTS OF OPERATIONS
(November 30, 1996)
================================================================================
The following discussion and analysis should be read in conjunction
with the Company's Consolidated Financial Statements and Notes to Consolidated
Financial Statements included in Item 1 of Part I of this Report:
LIQUIDITY AND CAPITAL RESOURCES
Prior to the current fiscal year, the ability of the Company to
continue as a going concern was threatened by the liquidity crises facing the
Company from an unsatisfied judgment, additional pending litigation and the
indebtedness due under certain promissory notes (the "Arlen Notes"). These
near-term threats to the Company's continued existence have been virtually
eliminated through the discharge of the unsatisfied judgment, the termination of
the pending litigation and the extension of the maturity date of the Arlen Notes
to December 28, 2033.
Although the Company's balance sheet at November 30, 1996 continues to
include the Arlen Notes as substantial liabilities (accounting for $130,877,000
of the Company's total liabilities of $139,344,000) and although the Arlen Notes
will continue to accrue substantial interest expense, the extension to
December 28, 2033 in the maturity date of the Arlen Notes and the virtual
elimination of the default provisions relating thereto create the practical
reality that the Arlen Notes should not pose a threat to the continued
existence of the Company for many years.
At the same time, the cash flow which the Company receives from the
note receivable reflected on the Company's balance sheet at November 30, 1996
included in Item 1 of Part I of this Report is expected to enable the Company
to meet its anticipated cash requirements through the current fiscal year and
into fiscal 1998. Thereafter, the Company's continued existence will depend
upon its ability to acquire new business operations or to otherwise generate
cash flow.
RESULTS OF OPERATIONS
The Company's net losses for the nine and three-month periods ended
November 30, 1996, representing reductions of 34.9% and 5.7%, respectively, over
the net losses for the comparable periods of the prior fiscal year, reflect
primarily the absence in the current fiscal year of any income from the
Company's discontinued operations. The 69.3% increase in general and
administrative expenses for the three months ended November 30, 1996 from such
expenses for the same period in the prior fiscal year is largely attributable to
increased professional fees incurred in the current year.
12
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PART II - OTHER INFORMATION
Not Applicable
13
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SIGNATURES
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.
THE ARLEN CORPORATION
(Registrant)
By: /s/ Allan J. Marrus
-------------------------------------
Allan J. Marrus, President
Date: January 17, 1997
By: /s/ David S. Chaiken
-------------------------------------
David S. Chaiken, Treasurer
Date: January 17, 1997
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EXHIBIT INDEX
Exhibit No. Description
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000007346
<NAME> ARLEN CORP.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-START> MAR-01-1996
<PERIOD-END> NOV-30-1996
<CASH> 12
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 996
<PP&E> 56
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,517
<CURRENT-LIABILITIES> 7,918
<BONDS> 131,426
0
1,992
<COMMON> 30,804
<OTHER-SE> (170,623)
<TOTAL-LIABILITY-AND-EQUITY> 1,517
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,039
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,731
<INCOME-PRETAX> (7,380)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,380)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,380)
<EPS-PRIMARY> (.23)
<EPS-DILUTED> (.23)
</TABLE>
