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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended February 29, 2000 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: 0-1460
ANDERSEN GROUP, INC.
(Exact name of Registrant as specified in its charter)
Delaware 06-0659863
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
515 Madison Avenue, New York, New York 10022
(Address of principal executive offices) (Zip Code)
(212) 826-8942
Registrant's telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Name
of Each exchange
Title of each class on which registered
------------------- ----------------------
Common Stock, $.01 par value The NASDAQ Stock Market
10 1/2% Convertible Subordinated Debentures Due 2007
Indicate by check mark 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, and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
-----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the Common Stock, $.01 par value, held by
non-affiliates of the Registrant based upon the average bid and asked prices on
May 18, 2000, as reported on The NASDAQ Stock Market, was approximately
$12,239,000. Shares of Common Stock held by each officer and director and by
each person who owns 5% or more of the outstanding Common Stock have been
excluded in that such persons may be deemed to be affiliates. This determination
of affiliate status is not necessarily a conclusive determination for other
purposes.
As of May 16, 2000, there were 2,051,947 shares of Common Stock, $.01 par value,
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
The exhibit index is located on page E-1
ANDERSEN GROUP, INC.
FORM 10-K
TABLE OF CONTENTS
PART I.
Item 1. Business.........................................................3
Item 2. Properties.......................................................8
Item 3. Legal Proceedings................................................8
Item 4. Submission of Matters to a Vote of Security Holders.............10
PART II.
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters..........................................................10
Item 6. Selected Financial Data........................................10
Item 7. Management's Discussion and Analysis of Financial Condition and
Results ofOperations..............................................11
Item 7a. Quantitative and Qualitative Disclosures about Market Risk.......18
Item 8. Financial Statements and Supplementary Data.......................20
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure..............................................41
PART III.
Item 10. Directors and Executive Officers of the Registrant...............41
Item 11. Executive Compensation...........................................42
Item 12. Security Ownership of Certain Beneficial Owners and Management...47
Item 13. Certain Relationships and Related Transactions...................50
PART IV.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K..52
Signatures.................................................................55
PART I
ITEM 1. BUSINESS.
General
Andersen Group, Inc., referred to herein as the "Company" or the
"Registrant", was incorporated under the laws of the State of Connecticut in
1951. On April 24, 1998, the Company re-incorporated to the State of Delaware.
The Company has historically made investments in companies that operated in
several highly diverse segments, and which required extensive management
participation in operation and restructure. These segments have included dental
distribution and manufacture, electronics manufacturing and supply businesses,
ultrasonic cleaning equipment, communications electronics, medical products and
services and video products. Recently, the Company also made investments that do
not require extensive management participation. These passive investments have
included investments in certain U.S.- based financial institutions and in the
securities of Russian and Eastern European companies. During the fiscal year
ended February 29, 2000 ("FY2000") the Company sold its entire portfolio of
U.S.- based financial institutions and certain of its Eastern European
securities.
Since 1991 the Registrant's primary investment, currently comprising
approximately 70% of the Company's total consolidated assets, has been The J.M.
Ney Company ("JM Ney"), which historically operated in three industry segments:
Electronics, Ultrasonic Cleaning Equipment and Dental. In November 1995, JM Ney
sold the assets and certain liabilities of the Dental segment. Effective
February 28, 1998, substantially all of the assets of the Ultrasonic Cleaning
Equipment segment were sold.
During the fiscal year ended February 29, 1996, the Company acquired a 50%
ownership interest in ABC Moscow Broadband Communication Ltd. ("Moscow
Broadband"), formerly known as Treglos Investments Limited, a Cyprus-based
company which had a 6% ownership interest in the Institute for Automated Systems
("IAS"), a Russian telecommunications company which had plans to develop a data
transmission network through the Commonwealth of Independent States ("CIS").
During the fiscal year ended February 28, 1999, as a result of the collapse in
the market value for Russian securities, this investment in Moscow Broadband was
written down to $84,000, which was 10% of its then carrying value.
During FY2000, Moscow Broadband, through the efforts of the Company, developed
the opportunity to participate with OAO Moskovskaya Telecommunikatsionnaya
Corporatisiya ("Moscow Telecommunications Company", or "COMCOR") in the
ownership, funding and operation of ZAO ComCor-TV ("ComCor-TV") for the purpose
of delivering cable television, high-speed data transmission and Internet
access, and IP telephony to up to 1,500,000 homes and businesses throughout the
Moscow, Russia region.
In connection therewith, the Company invested an additional $4,000,000 in cash
into a private placement of Moscow Broadband common stock and was credited with
$500,000 for costs incurred from FY96 through FY00, which it converted into an
additional 500 shares of Moscow Broadband common stock. As a result of this
private placement, the Company's ownership percentage in Moscow Broadband was
diluted from 50% to 25%, but the Company has received irrevocable proxies from a
majority of the voting shares to control Moscow Broadband shareholder voting
matters until February 2, 2001.
Industry Segment Information
Financial information regarding the Company's industry segments is contained in
Note 19 to the Registrant's Consolidated Financial Statements contained in Item
8 herein.
Description of Business
During FY2000, the Company operated in two business segments, Electronics and
Corporate. The Electronics segment is comprised of the activities of JM Ney.
Corporate activities are comprised of investment activities. As previously
noted, the Ultrasonic Cleaning Equipment segment was sold effective February 28,
1998, and has been treated as a discontinued operation in the Company's
Consolidated Financial Statements.
Electronics Segment
Products. The Electronics segment is a full-service, materials and parts
supplier to various automotive, medical, industrial electronics,
telecommunications and military market segments. JM Ney's fully integrated
approach includes not only the manufacture of metal alloys, specializing in
various trademarked precious metal alloys, but also the design, engineering and
fabrication of custom precision products. The fabrication capabilities include
wire drawing, rolling from ingot to foil, precision turning, stamping, injection
and insert molding, as well as complex tool making.
JM Ney specializes in the custom engineering, design and manufacturing of
precision metal contacts and insert molded contact assemblies and connectors
aimed at low amperage applications. Electrical contacts made utilizing precious
metals, including gold, platinum, palladium and silver, are considered extremely
dependable as the materials are inert and highly resistant to corrosion and
wear. In developing a finished contact or connector assembly, JM Ney's technical
staff works closely with customers, typically on an engineer-to-engineer level,
in order to design a product that meets all of the metallurgical, electronic,
dynamic and other performance specifications required for the customer's
applications. JM Ney designs and builds the necessary molds and tools, and
designs and manufactures the end product. By controlling the total process, JM
Ney believes it has a competitive advantage over other companies in technology,
cost and response time. JM Ney has attained ISO 9001 certification and QS9000
certification for the manufacture of its products, as well as approval by the
Japanese Industrial Standards (JIS) and meets "Good Manufacturing Practices" of
the United States Food and Drug Administration.
In connection with the sale of the assets and liabilities of the Company's
Dental segment in November, 1995, JM Ney (and the Company, solely for purposes
of a non-competition covenant) entered into a three-year manufacturing agreement
to alloy and fabricate precious metals for Ney Dental International, Inc. (NDI),
a successor company to the purchaser of JM Ney's dental business. As part of
this agreement, JM Ney and the Company agreed, for a ten-year period, not to
sell alloys, equipment or merchandise into the dental market that NDI serves. JM
Ney, however, is permitted to continue producing, selling and marketing precious
metal copings and other machined and molded parts and material for use in the
dental implant industry. Although this three-year manufacturing agreement
expired in November 1998, JM Ney still manufactures products for NDI's
successor, but at significantly reduced levels.
Competition. JM Ney's business has direct competition from a limited number of
companies with regard to the manufacture of low amperage metal contacts, contact
assemblies, and molded connectors due to the extreme high precision and inherent
risks which accompany the engineering and manufacture of precious metals (i.e.,
high start-up and inventory costs, theft, etc.). While some competitors offer
similar products, the Company believes that these operations lack the degree of
vertical integration to compete effectively across the entire spectrum of
products. JM Ney faces competition from companies such as Polymetallurgical,
Cendres and Metaux, MicroContacts, and Brainin Advance Industries.
Sales and Marketing. JM Ney sells to more than 800 customers, with approximately
79% of its sales being made to customers in the United States. JM Ney's domestic
sales force includes both direct field sales and manufacturers' representatives
located in key geographic markets. Internationally, JM Ney sells through
manufacturers' representatives, independent distributors and original equipment
manufacturers.
During FY2000, sales to First Inertia, Inc. comprised 17.7% of total net sales.
No other single customer accounted for more than 10% of the Company's net sales.
At February 29, 2000, JM Ney had booked firm orders for future shipments
totaling $7,172,000, which is a 39.3% increase over the backlog of $5,148,000
recorded as of February 28, 1999.
Research and Development. During fiscal years 2000, 1999, and 1998, research and
development expenses from continuing operations totaled approximately,
$2,203,000, $1,888,000 and $1,444,000, respectively.
Sources and Availability of Raw Materials and Components. JM Ney purchases its
raw materials, including precious metals, and the components used in the
manufacture of its products from a number of domestic suppliers, and generally
is not dependent upon any single supplier. JM Ney utilizes Russian palladium in
the manufacture of many of its products, and despite recent publicized events
regarding availability of palladium shipments from Russia to the world market,
the Company believes that its sources of supply are adequate for its continuing
needs.
Corporate Segment
The Corporate Segment is comprised of the Company's investment and
administrative activities. This includes the management of the Company's trading
portfolios and long-term investments, as described below. This segment also
includes the operations of Andersen Realty, Inc., which holds a 108,000 square
foot office building in Bloomfield, Connecticut, and the monitoring of the
Company's continuing interest in the ultrasonic cleaning technology sold during
the fiscal year ended February 28, 1998. Such continuing interest is represented
by royalties received pursuant to a technology assignment agreement, as amended,
which was entered into with the buyer of the former Ultrasonics Cleaning
Equipment segment. During FY2000, the Company recognized $42,000 of royalty
revenue pursuant to this agreement.
Trading Portfolio. At February 29, 2000, the Company had a portfolio of
short-term investments with a carrying value of $926,000. The reported amount is
reflected net of a $213,000 valuation reserve to provide for volatility and
liquidity concerns relating to marketable investments in the Ukraine and Russia.
These investments include an investment in the FM Emerging Russia Fund with a
net recorded value of $660,000, a portfolio of common stocks of companies based
in the Ukraine, with a net recorded value of $191,000 and JM Ney's investment in
a Russian bond fund with a fair value of $75,000. JM Ney expects to realize this
investment during the next 12 months through the receipt of periodic liquidating
distributions. A portfolio of common stocks of domestic savings banks and
certain Eastern European common stocks were sold during the most recent fiscal
year, thus significantly reducing the Company's overall trading portfolio.
See Note 3 to the Company's Consolidated Financial Statements contained in Item
8 herein.
Moscow Broadband Communication Ltd.
Prior to the fourth quarter of FY2000, the Company held a 50% investment in
Moscow Broadband whose primary asset was a 6% investment interest in the
Institute for Automated Systems ("IAS"). This investment was recorded at
approximately $84,000 due to a prior fiscal year writedown due to an other than
temporary impairment in its value reflecting the collapse in the market value
for Russian securities. During FY2000, Moscow Broadband entered into an
agreement with Moscow Telecommunications Company to jointly own, finance and
operate ComCor-TV delivering cable television, data transmission and Internet
access, and IP telephony throughout the Moscow, Russia region. Moscow Broadband
raised $18 million in cash in a private placement of its stock in which the
Company participated by investing $4 million. To fund this investment, the
Company used the proceeds from the sales of certain common stocks of U.S.- based
savings bank institutions, and a $1 million loan from Oliver R. Grace, Jr., the
Company's President.
During FY2000, the Company and the holders of the other 50% of Moscow Broadband
each contributed $300,000 to fund expenses incurred by Moscow Broadband. The
Company expensed its contributions during FY2000. The $300,000 includes $39,000
of allocated salaries of Company employees who contributed time to assist in the
due diligence procedures for the ComCor-TV transaction. As a result of these
expenses, and costs incurred and expensed in prior years in connection with the
Moscow Broadband private placement, the Company was credited with an additional
$500,000 worth of Moscow Broadband stock.
The other original shareholders of Moscow Broadband, which include entities
formed for the benefit of Oliver R. Grace, Jr., John S. Grace or their families,
also received a total of $500,000 worth of Moscow Broadband common stock.
Messrs. Grace, Jr. and Grace are both employees and directors of the Company.
As a result of this investment, the Company presently owns 25% of the
outstanding common stock of Moscow Broadband. Each of the Company's Directors or
members of their families, and one of its non-director officers invested in the
Moscow Broadband private placement.
See Note 7 to the Company's Consolidated Financial Statements contained in Item
8 herein, and Certain Relationships and Related Transactions in Item 13.
VSMPO
During FY2000, the Company sold its investment in VSMPO, a Russian-based
producer and processor of titanium, for net proceeds of approximately $317,000.
These securities, which had a cost basis of approximately $1,225,000 had been
written down in the prior fiscal year to $122,500 due to an other than temporary
impairment in its value reflecting the collapse in the market value for Russian
securities. A lawsuit against the Company and its Chairman was also withdrawn in
connection with the sale. See Note 8 to the Company's Consolidated Financial
Statements contained in Item 8 herein, and Certain Relationships and Related
Transactions in Item 13.
Discontinued Ultrasonic Cleaning Equipment Segment
Effective February 28, 1998, the Company sold the net assets of Ney Ultrasonics
Inc. (Ney Ultrasonics) which until that date comprised the Company's Ultrasonic
Cleaning Equipment segment. The Company received $2.4 million at closing while
additional consideration was dependent on the finalization of FY98 financial
information. The determination of the purchase price remained in dispute until a
settlement agreement was reached in February 1999, resulting in $400,000 of
additional consideration being paid to the Company. The Company expects to
receive further consideration during the next several years based on growth of
sales of certain products by the purchasers of this business. See Note 5 to the
Company's Consolidated Financial Statements contained in Item 8 herein.
Compliance with Environmental Protection Laws
Management of the Company believes that the Company and its operating
subsidiaries are in material compliance with applicable federal, state and local
environmental regulations. Compliance with these regulations has not in the past
had any material effect on the Company's capital expenditures, consolidated
statements of operations or competitive position, nor does the Company
anticipate that compliance with existing regulations will have any such effect
in the near future.
Employees
As of April 30, 2000, the Company, including all subsidiaries, had 188 full-time
employees and two part-time employees. None of these employees is represented by
a labor union, and the Company is not aware of any organizing activities.
Neither the Company nor any of its subsidiaries has experienced any significant
work stoppage due to any labor problems. The Company considers its employee
relations to be satisfactory.
Executive Officers of the Company
The Executive Officers of the Company and certain significant employees of its
subsidiaries are as follows:
- ------------------------------- -------- ----------------------------------------------------------- -----------------
Officer
Name Age Position Since
- ------------------------------- -------- ----------------------------------------------------------- -----------------
- ------------------------------- -------- ----------------------------------------------------------- -----------------
Francis E. Baker 70 Chairman and Secretary 1959
- ------------------------------- -------- ----------------------------------------------------------- -----------------
- ------------------------------- -------- ----------------------------------------------------------- -----------------
Oliver R. Grace, Jr. 46 President and Chief Executive Officer 1997
- ------------------------------- -------- ----------------------------------------------------------- -----------------
- ------------------------------- -------- ----------------------------------------------------------- -----------------
Ronald N. Cerny 48 President, The J.M. Ney Company 1993
- ------------------------------- -------- ----------------------------------------------------------- -----------------
- ------------------------------- -------- ----------------------------------------------------------- -----------------
Andrew M. O'Shea 41 Chief Financial Officer; and Chief Financial Officer and
Secretary, The J.M. Ney Company 1995
- ------------------------------- -------- ----------------------------------------------------------- -----------------
- ------------------------------- -------- ----------------------------------------------------------- -----------------
Eugene E. Phaneuf 53 Vice President - Engineering and New Projects, The J.M.
Ney Company 1996
- ------------------------------- -------- ----------------------------------------------------------- -----------------
Except as set forth below, all of the officers and significant employees of its
subsidiaries have been associated with the Company in their present positions
for more than the past five years.
Mr. Grace, Jr. has been a Director of the Company since 1986 and President
and Chief Executive Officer since June 1, 1997. Mr. Grace, Jr. was Chairman of
the Company from March 1990 to May 1997. Mr. Grace, Jr. has also been President
of AG Investors, Inc., one of the Company's subsidiaries, since 1992. Mr. Grace,
Jr. is a General Partner of The Anglo American Security Fund L.P. Mr. Grace,
Jr., is the brother of John S. Grace, a member of the Company's Board of
Directors.
Mr. Baker became Chairman on June 1, 1997. He has been a Director of the
Company since 1959 and was President and Chief Executive Officer from 1959 until
May 1997. Mr. Baker is also the Secretary of the Company, a position he has held
since May 1997. Mr. Baker is also President of Moscow Broadband Communication.
Mr. Cerny has served as President of JM Ney since November 1995. From April
1993 to November 1995, Mr. Cerny was the General Manager of JM Ney's Electronics
Division. From 1988 until joining JM Ney, Mr. Cerny served as Director of
Operations (1990-1993) and Director of Sales & Marketing (1988 to 1990) for the
Materials Technology Division of Johnson Matthey, Inc., a precious metals
fabricator.
Mr. O'Shea joined the Company in December 1995 as Treasurer and Chief
Financial Officer of JM Ney. In November 1997 he was also appointed JM Ney's
Secretary, and in December 1999, he was appointed as the Company's Chief
Financial Officer. From 1994 until joining the Company, Mr. O'Shea was
Vice-President of Finance and Administration for the WorldCrisa Corporation.
From 1990 to 1994, Mr. O'Shea worked for Buxton Co. in various financial
management capacities, including Senior Vice-President, Finance and
Administration. Mr. O'Shea is a Certified Public Accountant.
Mr. Phaneuf joined JM Ney in 1990. He was promoted to Vice
President-Operations of JM Ney in March 1996 and to Vice President- Engineering
and New Projects in December 1999. From April 1994 to February 1996, Mr. Phaneuf
was JM Ney's Director of Operations. He was also Acting General Manager of Ney
Ultrasonics from April 1995 through December 1996. From 1990 to 1994, Mr.
Phaneuf was JM Ney's Manager of Engineering and Manufacturing.
ITEM 2. PROPERTIES.
The Company's principal executive offices have been located in New York, New
York since May 1998. The Company subleases office space from an entity owned by
Oliver R. Grace, Jr., the Company's President and Chief Executive Officer, at
lease rates that approximate market.
The Company's subsidiary, Andersen Realty, Inc., owns a 108,000 square foot
building located in Bloomfield, Connecticut. Portions of this facility are
leased to the present owner of its former Ultrasonic Cleaning Equipment segment,
as well as to third parties.
JM Ney owns a 100,000 square foot facility within a 16.5-acre industrial park in
Bloomfield, Connecticut. This site contains JM Ney's principal operations and
general administrative offices. The Registrant believes that its plants and
properties, and the production capacities thereof, are suitable and adequate for
its business needs of the present and immediately foreseeable future.
ITEM 3. LEGAL PROCEEDINGS.
Morton International, Inc. v. A.E. Staley Mfg. Co. et al. and Velsicol
Chemical Corp. v. A.E. Staley Mfg. Co. et al.
As originally reported in the Company's Form 10-K for the year ended February
28, 1997, in July 1996, two companion lawsuits were filed in the United States
District Court for the District of New Jersey, by various owners and operators
of the Ventron-Velsicol Superfund Site (Site). The lawsuits, which were
subsequently consolidated, were filed under the Comprehensive Environmental
Resource Compensation and Liability Act (CERCLA), the Resource Conservation and
Recovery Act, the New Jersey Spill Act and New Jersey common law, alleging that
the defendants (over 100 companies, including JM Ney) were generators of certain
wastes allegedly processed at the site. The lawsuits seek recovery of costs
incurred and a declaration of future liability for costs to be incurred by the
owners and operators in studying and remediating the Site.
Based on preliminary disclosure of information relating to the claims made by
plaintiffs and defendants, JM Ney, which produced and refined precious metals
used in dental amalgams, is one of the smaller parties to have had any
transactions with one of the plaintiff's predecessors in interest. However,
under both CERCLA and the New Jersey Spill Act, a party is jointly and severally
liable, unless there is a basis for divisibility. At this time, there is
insufficient information to determine the appropriate allocation of costs as
between or among the defendant group, if liability to the generator defendants
is ultimately proven. Moreover, because of the incomplete status of discovery,
the Company is unable to predict the probable outcome of the lawsuit, whether
favorable or unfavorable, and has no basis to ascertain a range of loss, should
any occur, with respect to an outcome that might be characterized as
unfavorable.
The Company continues to investigate whether any liability, which may accrue at
some future date, may be subject to reimbursement in whole or in part from
insurance proceeds. The Company intends to continue to vigorously defend the
lawsuit.
James S. Cathers and Sylvia Jean Cathers, his wife v. Kerr Corporation,
Whip-Mix Corporation, The J.M. Ney Company and Dentsply Corporation, Inc.
As originally reported in the Company's Form 10-Q for the Quarter ended August
31, 1997, in August 1997, JM Ney was included as a defendant in an asbestos
related civil action for negligence and product liability filed in the Court of
Common Pleas of Allegheny County, Pennsylvania, in which the Plaintiffs claim
damages in excess of $30,000 (the jurisdictional limit) from being exposed to
asbestos and asbestos products alleged to have been manufactured and supplied by
the defendants, including Ney's former Dental Division, while one of the
Plaintiffs worked in a dental lab from 1960 to 1986 at an unspecified location
in Pittsburgh, Pennsylvania. The Plaintiffs allege that this exposure to
asbestos and asbestos products caused the wrongful death of one of the
Plaintiffs from cancer (mesothelioma). The Plaintiffs have not provided any
specific allegations of facts as to which defendants may have manufactured or
supplied asbestos and asbestos products which are alleged to have caused the
injury.
The Company has determined that it has insurance that potentially covers this
claim and has called upon the insurance carriers to provide reimbursement of
defense costs and liability, should any arise. As of this date, the Company has
no basis to conclude that the litigation may be material to the Company's
financial condition or business. The Company intends to vigorously defend the
lawsuit.
Avisma Titano - Magnesium Kombinat v. Dart Management, Inc., Andersen
Group, Inc., Francis E. Baker et al.
On August 18, 1999, Avisma Titano - Magnesium Kombinat ("Avisma"), an industrial
company located in Berezniki, Sverdlovsk, Russian Federation, and organized
under the laws of the Russian Federation, filed suit in the United States
District Court in New Jersey against numerous shareholder parties, including,
among others, the Company and the Company's Chairman, Francis E. Baker. On
December 10, 1999, Avisma filed an amended Complaint in which, among other
things, the Company was dropped from the lawsuit and is thus no longer a party
defendant. On February 28, 2000, the suit against Mr. Baker was dismissed.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
----------------------------------------------------
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS.
The Registrant's Common Stock is traded on The NASDAQ Stock Market under the
symbol (ANDR) with quotes supplied by the National Market System of the National
Association of Securities Dealers, Inc. (NASDAQ).
The approximate number of record holders of the Registrant's Common Stock on May
16, 2000 was 570. The Company's high, low and closing sales prices for the
common equity, for each full quarterly period within the two most recent fiscal
years, are included below. The stock prices shown, which were obtained from
NASDAQ, represent prices between dealers and do not include retail markups,
markdowns or commissions and may not necessarily represent actual transactions.
- ---------------------------------------------- --------------------- ------------------------ ----------------------
Year ended February 29, 2000 High Low Close
- ---------------------------------------------- --------------------- ------------------------ ----------------------
First Quarter 8 1/2 2 5/8 7 1/4
Second Quarter 7 3/4 5 1/8 7 3/8
Third Quarter 7 3/8 3 3/4 5 3/8
Fourth Quarter 40 4 1/4 17 1/8
- ---------------------------------------------- --------------------- ------------------------ ----------------------
- ---------------------------------------------- --------------------- ------------------------ ----------------------
Year ended February 28, 1999 High Low Close
- ---------------------------------------------- --------------------- ------------------------ ----------------------
First Quarter 9 1/4 5 3/4 7 1/2
Second Quarter 9 4 5/8 4 5/8
Third Quarter 4 9/16 2 5/8 3 5/8
Fourth Quarter 7 5/8 2 11/16 4
- ---------------------------------------------- --------------------- ------------------------ ----------------------
The Company has not paid dividends on its common stock since the fiscal year
ended February 28, 1993, and it does not anticipate paying any dividends in the
foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA.
The following table summarizes certain financial data with respect to the
Company and is qualified in its entirety by the Consolidated Financial
Statements of the Company contained in Item 8 herein, (amounts in thousands,
except per share data).
- ---------------------------------------------- ---------------- ----------------- -------------- --------------- ---------------
Years Ended February 2000 1999 1998 1997 1996
- ---------------------------------------------- ---------------- ----------------- -------------- --------------- ---------------
Revenues1 $30,311 $23,600 $28,868 $20,501 $19,437
(Loss) income from continuing
operations1 (987) (2,964) 1,770 334 (1,921)
Net (loss) income (987) (3,080) 2,212 299 1,933
(Loss) income applicable to
common shareholders (1,349) (3,465) 1,772 22 2,389
(Loss) income from continuing
operations per common share,
diluted (0.70) (1.74) .68 .03 (.76)
(Loss) income per common share,
diluted (0.70) (1.80) .91 .01 1.23
Depreciation, amortization and
accretion 1,466 1,434 1,480 1,419 1,887
Total assets 37,118 37,119 44,771 37,677 38,798
Total debt 15,056 13,857 14,537 10,119 8,485
Redeemable preferred stock - - - 4,891 5,280
Common and other stockholders'
equity2 15,262 16,429 20,196 13,647 13,625
Book value per common share 5.59 6.18 7.97 7.05 7.04
- ---------------------------------------------- ---------------- ----------------- -------------- --------------- ---------------
1 Revenues and (loss) income from continuing operations, exclude the results of
operations of the Company's Ultrasonic Cleaning Equipment and Dental segments as
a result of their sales in February 1998 and November 1995, respectively. 2
2000, 1999 and 1998 amounts include preferred stock as a result of the
elimination of its mandatory redemption provisions.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
2000 VS. 1999
For the year ended February 29, 2000 (FY00), the Company incurred a net loss
applicable to common shareholders of $1,349,000, or $(0.70) per share, basic and
diluted. During the fiscal year ended February 28, 1999 (FY99), the Company
reported net loss applicable to common shareholders of $3,465,000, or ($1.80)
per share basic and diluted.
Revenues
Total revenues of $30,311,000 for FY00 were 28.4% higher than total revenues for
FY99. The increase was due to a $4,705,000 improvement in Investment Income
(Loss) and Other Income, and a 7.5% increase in net sales from The J.M. Ney
Company (JM Ney).
During FY00, JM Ney's sales of $28,844,000 represent an increase of $2,006,000
over the sales levels reached in FY99. Such sales increase primarily reflected
the pass-through effect of increased selling prices for products containing
palladium as a result of higher market prices for this particular precious
metal. During FY00, the average market value for palladium was approximately
$392 per troy ounce, compared to approximately $302 per troy ounce during FY99.
During each of the last three years, the market price for palladium has been
both volatile and generally increasing. During FY00, the products sold by JM Ney
contained approximately 23,300 troy ounces of palladium as compared to
approximately 24,000 ounces shipped in products for FY99.
Fabrication sales during FY00 to JM Ney's former Dental affiliate were $650,000
lower than FY99 as a result of the expiration of an exclusive manufacturing
agreement entered into in connection with the November 1995 sale of the net
assets of the former Dental segment. Such fabrication sales generally involve
much lower material components of cost of sales, and thus have a higher
proportional contribution to absorbing fixed manufacturing overhead costs.
Activities which comprise Investment Income (Loss) and Other Income produced a
net gain of $1,467,000 during FY00, as compared to a net loss of $3,238,000
which was incurred during FY99, as follows (in thousands):
FY00 FY99
Net loss from domestic investment portfolio $(605) $ (725)
Net gain (loss) from Russian and Eastern European portfolio 680 (2,213)
Realized gain (write-down) of long-term Russian investments 195 (1,609)
Interest and dividends 277 349
Rental income 376 482
Ultrasonic royalty revenue 42 60
Other, net 502 418
--------- ---------
$1,467 $(3,238)
====== =======
The domestic portfolio loss in FY00 is comprised of net realized losses of
$610,000 from the Company's portfolio of savings bank stocks, $5,000 of realized
gains from JM Ney's purchase and sale of two securities. The sale of investments
in a Polish-based bank, appreciation in the value of a portfolio of Ukrainian
securities, and the increase in value of a Russian equity fund contributed to
the gains in the Russian and Eastern European portfolio. The Company sold its
investment in VSMPO, which resulted in the realization of a gain from the prior
year's recorded value.
During FY99, the market value for Russian securities decreased significantly
resulting in an unrealized decline of 78% in the Company's portfolio of Russian,
Ukrainian and Polish trading investments. In addition, a JM Ney investment in a
Russian bond fund declined in value by approximately $299,000, or 60% of the
original investment. The Company also wrote down the value of its long-term
investments in IAS and VSMPO due to the Russian market conditions, and the
perceived impact on the Company's ability to realize value from these
investments in the near term.
Cost of Sales
Cost of sales during FY00 totaled $21,181,000, or 73.4% of net sales, as
compared to $18,255,000, or 68.0% of net sales in FY99. The decline in gross
margins from 32.0% to 26.6% was the result of the previously noted higher
palladium prices which were passed through to customers in the form of higher
selling prices without a commensurate margin markup. Gross margins from sales
totaled $7,663,000, which is $920,000 less than the gross margins reported for
the prior year. This decrease of $920,000 consisted of $1,237,000 of losses due
to the combination of higher precious metal acquisition prices and increased
pension costs compared to prior year, net of an increase in margins from
operations of $317,000.
Due to rapidly escalating palladium prices during the final few weeks and
days of FY00, JM Ney's metals management strategies were re-focused with the aim
of controlling cash flow. Accordingly, cost of sales includes two components
that management associates with metals management rather than operating
performance- a LIFO gain of $1.4 million resulting from reductions in inventory
quantities which were recorded at prices substantially less than the current
prevailing prices as required by the LIFO method of accounting; and additional
charges to cost of sales totaling $1.8 million consisting of managed changes in
the LIFO reserve from higher current precious metal prices and expenses relating
to the precious metals hedging program. In FY99, JM Ney recognized $349,000 of
LIFO gains from a decrease in its palladium inventory levels. For FY00, JM Ney
would have recognized a net gain of $952,000 from these activities, except that
a net expense of approximately $1,356,000 was created during the during the last
week of the fiscal year when 2,000 ounces of palladium consignment borrowings
were paid down and 800 ounces of platinum were purchased, each by using the
deferred payment metal loan feature of the revolving credit agreement JM Ney has
with its primary lender. The value of such deferred payment obligations varies
with the market price of the underlying metals on which the loan is based, and
is reflected as a liability in the Consolidated Balance Sheet. These
transactions lowered the amount of the LIFO gains that would have otherwise been
recognized by approximately $522,000, and created an additional expense of
$834,000 based upon the market price for the metals in relation to the standard
price of the metals as of the beginning of the fiscal year. These transactions
did not change JM Ney's net economic exposure to price fluctuations in these
metals, so this increased expense is indirectly reflected within the increased
LIFO reserve at February 29, 2000.
Cost of sales was also affected in FY00 by $116,000 of pension expense, as
compared to pension income of $368,000 that was recorded for FY99. This negative
swing of $484,000, or 1.7% in margin rate, was caused by actuarial assumption
changes and investment losses incurred by the Company's overfunded defined
benefit plan.
During FY00, sales of precious metal materials in the form of wire, strip and
rod, represented 30.4% of sales, as compared to 33.1% for FY99. Material
products generally have lower average gross margins, due to the commodity nature
of this product class, versus highly engineered parts and components, which
involve more value-added processing and higher gross billing margins.
Selling, General and Administrative Expenses
Selling, general and administrative expenses of $6,815,000 during FY00
represents a 10.5% increase from the costs of $6,170,000 incurred in the prior
fiscal year. Corporate level costs increased primarily as a result of $300,000
of expenses incurred to support the negotiation of the joint venture arrangement
with Moscow Telecommunications Company (COMCOR) and Moscow Broadband, of which
the Company is currently a 25% shareholder, and related travel cost. In
addition, JM Ney's expenses increased by approximately 7.5%, much of which was
relating to higher sales and marketing costs.
Research and Development Expenses
Research and development expenses increased 16.7% to $2,203,000, or 7.6% of net
sales, compared to $1,888,000, or 7.0% of net sales in FY99. The increase was
attributable to effort expended to develop new alloys and expand JM Ney's
technical competencies in meeting the changing requirements of its target
markets, and to approximately $240,000 of costs that were formerly allocated to
product costs.
Interest Expense
Interest expense of $1,725,000 during FY00 was slightly lower than the
$1,735,000 of interest expense incurred during FY99. JM Ney incurred increased
interest expense on increased outstandings on its consignments borrowings, which
also resulted in higher interest costs due to the increase in both the price and
the lease rates for these borrowings. Corporate level interest cost declined
primarily as a result of lower average principal outstandings on the 10 1/2%
subordinated debentures.
Income Taxes
An income tax benefit of $626,000 was recorded for FY00 which represents an
effective tax rate of 38.8%, as compared to an income tax benefit of $1,484,000
for FY99, which represents an effective income tax benefit rate of 33.4%. The
increase in the effective tax rate was primarily due to utilization of tax
credits.
Preferred Dividends
During FY00, the Company incurred $362,000 of preferred dividends as compared to
$385,000 which were incurred in the prior fiscal year. The decline was primarily
due to conversions of preferred shares into common shares in the fourth quarter.
1999 vs. 1998
For the year ended February 28, 1999 (FY99), the Company incurred a net loss
applicable to common shareholders of $3,465,000, or $(1.80) per share, basic and
diluted. During the prior fiscal year, the Company reported net income
applicable to common shareholders of $1,772,000, or $.92 per share basic and
$.91 diluted.
Revenues
Total revenues of $23,600,000 for FY99 were 18.2% lower than total revenues from
continuing operations reported for the fiscal year ended February 28, 1998
(FY98). The decline was due to a $6,709,000 decrease in Investment Income (Loss)
and Other Income, which was partially offset on a 5.7% increase in net sales
from The J.M. Ney Company (JM Ney).
During FY99, JM Ney's sales increased by $1,441,000. Such sales increase
primarily reflected the pass-through effect of increased selling prices for
products containing palladium as a result of higher market prices for this
particular precious metal. During FY99, the average market value for palladium
was approximately $302 per troy ounce, compared to approximately $198 per troy
ounce during FY98. During each of the last two years, the market for palladium
has been both volatile and generally increasing. During FY99, the products sold
by JM Ney contained approximately 24,000 troy ounces of palladium.
Overall sales growth was hampered by (i) the General Motors labor strike, which
reduced demand for many of JM Ney's products that are sold to the automotive
industry; (ii) the expiration of an exclusive manufacturing contract with the
Company's former Dental segment which resulted in a sales decline of $280,000;
and (iii) delays in the implementation of several sales programs to customers
who had purchased the required tooling from JM Ney but did not request the
anticipated level of parts production.
Activities which comprise Investment Income (Loss) and Other Income produced a
net loss of $3,238,000 during FY99, versus income of $3,471,000 during FY98 as
follows (in thousands):
FY99 FY98
---- ----
Net (loss) gain from domestic investment portfolio $ (725) $1,759
Net (loss) gain from Russian and Eastern European
Portfolio (2,213) 665
Write-down of long-term Russian investments (1,609) -
Interest and dividends 349 228
Rental income 482 376
Ultrasonic royalty revenue 60 -
Gain from Digital GraphiX 24 196
Other, net 394 247
--------- ----------
$(3,238) $3,471
======== =========
The domestic portfolio loss is comprised of net realized and unrealized losses
of $861,000 from the Company's portfolio of savings bank stocks, $4,000 of
losses from the sale of municipal bonds and a net gain of $140,000 from the sale
of the Company's investment in Centennial Cellular. During FY99, the market
value for Russian securities decreased significantly resulting in an unrealized
decline of 78% in the Company's portfolio of Russian, Ukrainian and Polish
trading investments. In addition, a JM Ney investment in a Russian bond fund
declined in value by approximately $299,000, or 60% of the original investment.
The Company also wrote down the value of its long-term investments in IAS and
VSMPO due to the Russian market conditions, and the perceived impact on the
Company's ability to realize value from these investments in the near term.
During FY98, increases in both the domestic and Eastern European markets
resulted in unrealized appreciation in the value of the Company's investment
portfolio.
Cost of Sales
Cost of sales totaled $18,255,000, or 68.0% of net sales, compared to
$17,040,000, or 67.1% of net sales in FY98. The decline in gross margins from
32.9% to 32.0% was the result of the previously noted higher palladium prices
which were passed on in the form of higher selling prices without a commensurate
margin markup.
During FY99, sales of precious metal materials in the form of wire, strip and
rod, represented 33.1% of sales, as compared to 31.8% for FY98. Material
products generally have lower average gross margins, due to the commodity nature
of this product class, versus highly engineered parts and components, which
involve more value-added processing and higher gross billing margins. This sales
mix, and the resultant underabsorption of operating expenses, contributed to
lower average gross margins during FY99 compared to the prior year.
The FY99 margin decline was somewhat offset through expanded metals purchasing
programs that included forward purchases of palladium and sales of put options
for the purchase of palladium as a hedge against JM Ney's manufacturing
requirements. In addition, JM Ney reduced its inventory of palladium by
approximately 2,600 troy ounces which resulted in a LIFO gain of approximately
$349,000 when measured against the beginning of the fiscal year palladium
prices. Pension income component of cost of sales resulted in income of $368,000
of income in FY99, as compared to $391,000 of such income for FY98. One further
element contributing to offsetting narrower margins was a reclassification of
approximately $240,000 in engineering costs to more properly reflect
management's analysis of costs that related to the manufacture of its products.
Selling, General and Administrative Expenses
Selling, general and administrative expenses of $6,170,000 during FY99 represent
a modest decline from the costs incurred in the prior fiscal year. The Company
incurred costs in FY99 totaling $481,000 to convert JM Ney's primary operating
software to be Y2K compliant; $128,000 of such costs incurred in FY98. Lower
legal fees and corporate level compensation expense contributed to the overall
decline in these costs.
Research and Development Expenses
Research and development expenses increased 30.7% to $1,888,000, or 7.0% of net
sales, compared to $1,444,000, or 5.7% of net sales in FY98. The increase was
attributable to effort expended to develop new alloys and expand JM Ney's
technical competencies in meeting the changing requirements of its target
markets, and to approximately $240,000 of costs that were formerly allocated to
product costs.
Interest Expense
Interest expense of $1,735,000 during FY99 was 49.2% higher than the $1,163,000
of interest expense incurred during FY98. Most of the increase relates to a full
year of interest on a $7.5 million subordinated note which JM Ney issued during
the fourth quarter of FY98. In addition, JM Ney incurred increased interest
expense on high interest rate palladium leases which served to hedge market
risk, primarily attributable to its refining operations. Such interest costs
were offset by charges to JM Ney's refining customers that were included in
Other Income.
Income Taxes
An income tax benefit from continuing operations of $1,484,000 was recorded for
FY99 which represents an effective tax rate of 33.4%. The $4,547,000 of net
capital losses during FY99 was comprised of $482,000 of realized investment
gains and $5,029,000 of net change in unrealized losses. As a result, $1,076,000
of the tax benefit is being deferred.
Discontinued Operations
In February 1999, the Company reached a settlement agreement with the buyer of
the net assets of its Ultrasonics segment which it had sold as of February 28,
1998. Under the terms of this settlement, the Company received $400,000 of
previously escrowed funds in addition to the $2.4 million it had received at the
closing. In addition, the Company also granted the buyer certain allowances
against current-year and future royalty payments. As a result of the settlement
and costs incurred leading to the agreement, the Company recognized a net loss
from the sale of this segment of $116,000, net of $71,000 of income tax
benefits.
In the prior year, the Company had recorded a gain of $97,000 on this sale, net
of $84,000 of income taxes.
Preferred Dividends
During FY99, the Company incurred $385,000 of preferred dividends based upon the
revised terms of $1.50 per share. During FY98, a total of $477,000 in dividends
and discount accretion were accrued based on former terms under which the
preferred dividends were linked to the operating results of JM Ney.
LIQUIDITY AND CAPITAL RESOURCES
At February 29, 2000, consolidated cash and marketable securities totaled
$2,780,000, which is a decrease of $5,775,000, or 67.5%, from February 28, 1999.
During FY00, the Company used the proceeds from the sales of marketable
securities and long-term investments to make additional investments in Moscow
Broadband, for the purpose of funding the operations of ComCor-TV, which is a
Moscow-based company that is jointly owned by Moscow Broadband and COMCOR. In
addition, JM Ney's capital expenditures of $2,118,000 utilized cash during the
year.
Under the terms of its $7.5 million subordinated note agreement and revolving
credit agreement with a commercial bank, JM Ney is restricted from making
payments to the Company except as defined. The defined payments are subject to
JM Ney's meeting certain financial covenants. At February 29, 2000,
approximately $573,000 of such payments were restricted from being made under
such provisions of the loan agreements. At February 29, 2000, JM Ney's working
capital was approximately $6,810,000 or 74.0% of consolidated net current
assets, and its net worth, net of net liabilities to the Company, including a $4
million subordinated note payable, totaled $6,540,000, or 42.9% of the Company's
consolidated total shareholders' equity.
The Company is dependent upon defined payments from JM Ney, which in FY00
totaled $347,000, net of restrictions, to meet its debt service and preferred
dividend obligations. Going forward, the Company believes it can meet these
requirements from future payments from JM Ney, and from the proceeds of
liquidations of existing investments, although there can be no assurance that JM
Ney will be able to make payments, or a sufficient level of payments, nor of the
Company's ability to sell and receive sufficient proceeds from the sale of
investments. In April 2000, the Company borrowed a total of $250,000 from its
Chairman and its President under both secured and unsecured agreements to meet
its preferred dividend and interest payment requirements.
During FY00, the prices of the precious metals that JM Ney utilizes in the
alloying and manufacturing of its products again experienced significant
volatility. Primarily as a net result of an increase of approximately $330 per
ounce of the palladium content of its inventory, JM Ney's LIFO reserve increased
by $1,890,000, net of the liquidation of LIFO layers. This adjustment allows JM
Ney to maintain the net recorded value of these inventories at their historical
values for both financial reporting and tax reporting purposes.
In June 1998, SFAS No. 133 "Accounting for Derivative Instruments and Hedging
Activities" was issued. SFAS No. 133 requires an entity to recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. Gains and losses resulting
from changes in the values of those derivatives would be recognized immediately
or deferred depending on the use of the derivative and if the derivative is a
qualifying hedge. The effective date of SFAS No. 133 was subsequently delayed
and is now effective for fiscal years beginning after June 15, 2000. The Company
plans to adopt SFAS No. 133 by May 31, 2001, as required. The Company is
currently assessing the impact of this statement on the Company's consolidated
financial statements.
Forward-looking Statements
Statements contained in this Form 10-K that are not historical facts are
forward-looking statements made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. In addition, words such as
"believes," "anticipates," "expects" and similar expressions are intended to
identify forward-looking statements. The Company cautions that a number of
important factors could cause actual results for fiscal 2001 and beyond to
differ materially from those expressed in any forward-looking statements made by
or on behalf of the Company. Such statements contain a number of risks and
uncertainties, including, but not limited to (i) economic and political
developments in Russia and Eastern Europe; (ii) the ability of ComCor-TV to
successfully implement its business plans, including the build-out of the
network to access cable TV and Internet subscribers, and its ability to sign up
such subscribers at or near planned levels, (iii) changes in technology that
would affect JM Ney's products, or affect the value of the ultrasonic cleaning
technology on which contingent consideration is based; (iv) acceptance of new
product developments and (v) the price and volatility of precious metals. The
Company cannot assure that it will be able to anticipate or respond timely to
changes which could adversely affect its operating results in one or more fiscal
quarters. Results of operations in any past period should not be considered
indicative of results to be expected in future periods. Fluctuations in
operating results may result in fluctuations in the price of the Company's
common stock.
Year 2000
Over the past two years, the Company formalized and implemented a comprehensive
plan to address the Year 2000 problem which stems primarily from two-digit date
storage that does not facilitate proper calculations of date sensitive
information when the year changed to 2000. The Company expended approximately
$653,000 in this process, including approximately $45,000 during the fiscal year
ended February 29, 2000. These amounts exclude the cost of system upgrades that
were required to be made to meet other operational requirements. No material
problems resulting from Year 2000 issues occurred at or subsequent to January 1,
2000.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK.
The Company and JM Ney are exposed to market risk from changes in certain
commodity prices, primarily those of precious metals, from changes in interest
rates, and from factors that affect equity investment in Russia and the Ukraine.
Foreign Investment Risk
The Company has a trading portfolio of Russian and Ukraine investments with a
net reported value at February 29, 2000 of $851,000 and a longer-term indirect
investment in ComCor-TV, a Russian company, through its investment in Moscow
Broadband with a reported value of $4,084,000. In addition, JM Ney has an
investment in a Russian bond fund with a reported value of $75,000. The
realizable value of these investments, particularly Russian components, is
subject to currency fluctuations, illiquid markets and political risks. The
Company has no derivative financials instruments to hedge the risks associated
with these investments.
Commodity Price Risk
JM Ney utilizes significant amounts of precious metals in the products it
manufactures and sells. Significant increases in the market value of these
metals, palladium, gold and platinum, in particular, may affect the demand for
its products. JM Ney generally adjusts the selling prices of its products if
market prices change significantly, or it hedges fixed selling price programs.
Accordingly, while a change in precious metals prices may affect cost of sales,
such impact is generally met with an approximately equivalent charge in sales,
so that the impact on earnings is minimal or not present. Significant
fluctuations and volatility in precious metal price creates risk that purchases
of precious metals may not be efficiently coordinated with sales. While JM Ney
believes it has the programs in place to limit this risk, there can be no
assurance that volatility in price does not result in unintended profits or
losses. Also, while increases or decreases in precious metal prices affect the
economic value of JM Ney's inventory, such changes are generally reflected with
a corresponding change in the LIFO reserve and do not affect the net reported
value of its inventory.
As more fully discussed later, changes in the prices of commodities being
borrowed under consignment lease or deferred payment borrowing arrangements can
significantly affect JM Ney's interest costs, as interest on these arrangements
is charged based upon the market value of the underlying metal and the lease
rate for that metal. Lease rates for palladium have fluctuated significantly in
each of the last three fiscal years.
Interest Rate Risk
JM Ney has a revolving line of credit which bears interest at floating rates as
described in Note 9 to the Company's consolidated financial statements. Neither
the Company nor JM Ney hedges its interest rate risk, including the note
associated with precious metal consignment arrangements which are tied to
precious metal leasing.
Based upon JM Ney's year-end balances, a 1% change in interest rates would
affect its interest cost of its short-term cash borrowings by approximately
$11,000. However, during most of FY00, JM Ney did not have outstanding cash
borrowings on its revolving line of credit, thus a 1% change in interest rates
would have a minimal impact on reported interest expense. Most of JM Ney's usage
of its credit line is in the form of consignment or deferred payment borrowings
of precious metals, some of which hedge precious metals inventory represented by
scrap metal of its refining operations. Based upon year end balances and metals
prices, a 1% change in precious metal leasing rates would affect JM Ney's
interest cost by approximately $86,000. Such leasing costs are also affected by
changes in the market prices for the precious metals being leased.
During FY00 the leasing rates and market prices for palladium fluctuated
significantly. Leasing costs ranged from a high of 21.25% per annum to a low of
5.0%, with an unweighted average of approximately 9.2%. Market prices for
palladium contracts ranged from $285 per troy ounce to $785 per troy ounce. As a
result, daily lease costs for palladium ranged from approximately $0.043 per
ounce to approximately $0.361 per ounce. At February 29, 2000, JM Ney had a
total of 11,167 ounces of palladium, 850 ounces of platinum, 400 ounces of gold
and 4,000 ounces of silver borrowed under consignment or deferred pricing
contracts. In addition, it had an outstanding forward sale of 2,000 ounces of
palladium, which also has an implied interest factor built into the pricing.
During FY00, JM Ney reduced certain of its precious metal inventory levels. At
February 29, 2000, some of this reduction was replenished, resulting in metals
losses totaling approximately $1,804,000. Much of this "loss" is included in the
increased LIFO reserve and was the result of metals management and cash flow
strategies implemented. In addition, declines in the value of liabilities under
deferred pricing loans, and the equity value of forward sale contracts resulted
in income of approximately $336,000 being recognized in the first two months of
FY01. Also, at February 29, 2000, J M Ney had open contracts for put options and
call options which it had sold to hedge certain fiscal year end metal positions.
These contracts expired out of the money, enabling JM Ney to recognize an
additional $24,000 of income in FY01.
The Company passed a portion of these metal fluctuations and market sensitive
lease costs to its refining customers, in the form of charges that are included
in Other Income. However, during FY00 the net impact of such fluctuations was
less significant to the Company's consolidated results of operations than it was
during FY99. Due to the interest risk of financing and managing precious metals
inventory, there can be no assurance that changes in either or both precious
metals prices or leasing rates will not continue to have a material affect on
future results of operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The following table summarizes certain financial data with respect to the
Company and is qualified in its entirety by the Company's Consolidated Financial
Statements contained in this Item (amounts in thousands, except per share data).
Selected Quarterly Financial Data
2000 Quarterly Financial Data May 31 August 31 November 30 February 29
- -------------------------------------------------- ------------------ ------------------ ------------------ ------------------
Net sales and revenues $8,201 $7,309 $6,545 $8,256
Gross profit 2,345 2,107 1,940 $1,271
Net income (loss) 356 (127) (348) (868)
Income (loss) applicable to common shares 260 (223) (445) (941)
- -------------------------------------------------- ------------------ ------------------ ------------------ ------------------
Earnings (Loss) Per Common Share1: $(0.12) $(0.48)
$0.13 $(0.23)
- -------------------------------------------------- ------------------ ------------------ ------------------ ------------------
- -------------------------------------------------- ------------------ ------------------ ------------------ ------------------
- -------------------------------------------------- ------------------ ------------------ ------------------ ------------------
May 31 August 31 November 30 February 28
1999 Quarterly Financial Data
- -------------------------------------------------- ------------------ ------------------ ------------------ ------------------
Net sales and revenues from continuing
operations $7,831 $1,116 $7,842 $6,811
Gross profit 2,515 2,086 2,215 1,767
Income (loss) from continuing operations 53 (3,351) 611 (277)
Net income (loss) 53 (3,351) 611 (393)
Income (loss) applicable to common shares (50) (3,447) 515 (483)
- -------------------------------------------------- ------------------ ------------------ ------------------ ------------------
Earnings (Loss) Per Common Share1:
Continuing operations $(.03) $ (1.77) $0.27 $(0.25)
Net income (loss) $(.03) $ (1.77) $0.27 $(0.25)
- -------------------------------------------------- ------------------ ------------------ ------------------ ------------------
1 The sum of earnings per share for the four quarters may not equal earnings per
share for the total year due to certain items in the diluted earnings per share
calculation for an individual quarter that were anti-dilutive for the total
year.
ANDERSEN GROUP, INC.
Consolidated Balance Sheets February 29, 2000 and February 28, 1999 (in
thousands, except share data)
2000 1999
- --------------------------------------------------------------------------------- ----------------------- -----------------------
Assets
Current assets:
Cash and cash equivalents $ 1,854 $ 2,541
Marketable securities 926 6,014
Accounts and other receivables, less allowance for doubtful
accounts of $111 in 2000, and $110 in 1999 4,657 4,098
Inventories 8,019 7,821
Prepaid expenses and other current assets 468 100
- --------------------------------------------------------------------------------- ----------------------- -----------------------
Total current assets 15,924 20,574
Property, plant and equipment, net 10,148 9,305
Prepaid pension expense 4,917 5,033
Investment in Moscow Broadband Communication Ltd. 4,084 84
Other investments - 122
Other assets 2,045 2,001
- --------------------------------------------------------------------------------- ----------------------- -----------------------
$37,118 $37,119
- --------------------------------------------------------------------------------- ----------------------- -----------------------
Liabilities and Stockholders' Equity
Current liabilities:
Current maturities of long-term debt $ 521 $ 443
Short-term borrowings 3,054 2,356
Accounts payable 1,015 659
Accrued liabilities 1,674 1,501
Deferred income taxes 456 582
- --------------------------------------------------------------------------------- ----------------------- -----------------------
Total current liabilities 6,720 5,541
Long-term debt, less current maturities 3,190 3,729
Note payable to officer, net of unamortized discount 933 -
Subordinated note payable, net of unamortized discount 7,358 7,329
Other long-term obligations 1,973 1,902
Deferred income taxes 1,682 2,189
- --------------------------------------------------------------------------------- ----------------------- -----------------------
Total liabilities 21,856 20,690
- --------------------------------------------------------------------------------- ----------------------- -----------------------
Commitments and contingencies
Stockholders' equity:
Cumulative convertible preferred stock, no par value; authorized 800,000 shares,
outstanding 216,864 shares in 2000,
256,416 shares in 1999; liquidation preference $18.75 per share 4,033 4,769
Common stock, $.01 par value; authorized 6,000,000 shares,
issued 2,035,364 shares in 2000, and 1,958,478 shares in 1999 20 20
Treasury stock, at cost, 28,002 shares in 2000, and 30,549
shares in 1999 (276) (142)
Receivable from officer - (250)
Additional paid-in capital 6,141 5,339
Retained earnings 5,344 6,693
- --------------------------------------------------------------------------------- ----------------------- -----------------------
- --------------------------------------------------------------------------------- ----------------------- -----------------------
Total stockholders' equity 15,262 16,429
- --------------------------------------------------------------------------------- ----------------------- -----------------------
$37,118 $37,119
- --------------------------------------------------------------------------------- ----------------------- -----------------------
See accompanying notes to consolidated financial statements.
ANDERSEN GROUP, INC.
Consolidated Statements of Operations Years ended February 29, 2000, February
28, 1999 and 1998 (in thousands, except per share data)
- ------------------------------------------------------- -------------------------- ------------------------- -----------------------
2000 1998
1999
- -------------------------------------------------------
- -------------------------------------------------------
Revenues:
- -------------------------------------------------------
Net sales $28,844 $26,838 $25,397
- -------------------------------------------------------
Investment income (loss) and other income 1,467 (3,238) 3,471
- ------------------------------------------------------- -------------------------- ------------------------- -----------------------
30,311 23,600 28,868
- -------------------------------------------------------
- ------------------------------------------------------- -------------------------- ------------------------- -----------------------
Costs and expenses:
- -------------------------------------------------------
- -------------------------------------------------------
Cost of sales 21,181 18,255 17,040
- -------------------------------------------------------
Selling, general and administrative 6,815 6,170 6,260
- -------------------------------------------------------
Research and development 2,203 1,888 1,444
- -------------------------------------------------------
Interest expense 1,725 1,735 1,163
- ------------------------------------------------------- -------------------------- ------------------------- -----------------------
31,924 28,048 25,907
- ------------------------------------------------------- -------------------------- ------------------------- -----------------------
(Loss) income from continuing operations
before income taxes (1,613) (4,448) 2,961
- -------------------------------------------------------
Income tax (benefit) expense (626) (1,484) 1,191
- ------------------------------------------------------- -------------------------- ------------------------- -----------------------
(Loss) income from continuing operations (987) (2,964) 1,770
- -------------------------------------------------------
Income from discontinued Ultrasonics
segment operations, net of income tax
expense of $221 - - 345
- -------------------------------------------------------
(Loss) gain on sale of discontinued Ultrasonics
segment, net of income tax (benefit) expense of
($71) and $84, respectively - (116) 97
- ------------------------------------------------------- -------------------------- ------------------------- -----------------------
Net (loss) income (987) (3,080) 2,212
- -------------------------------------------------------
Preferred dividends (362) (385) (477)
- -------------------------------------------------------
Reversal of preferred dividends - - 37
- ------------------------------------------------------- -------------------------- ------------------------- -----------------------
(Loss) income applicable to common
shareholders $(1,349) $(3,465) $ 1,772
- -------------------------------------------------------
- ------------------------------------------------------- -------------------------- ------------------------- -----------------------
Earnings (loss) per common share:
- -------------------------------------------------------
- -------------------------------------------------------
BASIC
- -------------------------------------------------------
Continuing operations $ (0.70) $ (1.74) $ .69
- -------------------------------------------------------
Discontinued operations - - .18
- -------------------------------------------------------
(Loss) gain on sale of discontinued segment - (.06) .05
- ------------------------------------------------------- -------------------------- ------------------------- -----------------------
(Loss) income per common share, basic $ (0.70) $ (1.80) $ .92
- ------------------------------------------------------- -------------------------- ------------------------- -----------------------
DILUTED
- -------------------------------------------------------
Continuing operations $ (0.70) $ (1.74) $ .68
- -------------------------------------------------------
Discontinued operations - - .18
- -------------------------------------------------------
(Loss) gain on sale of discontinued segment - (.06) .05
- ------------------------------------------------------- -------------------------- ------------------------- -----------------------
(Loss) income per common share, diluted $ (0.70) $ (1.80) $ .91
- ------------------------------------------------------- -------------------------- ------------------------- -----------------------
See accompanying notes to consolidated financial statements.
ANDERSEN GROUP, INC.
Consolidated Statements of Changes in Stockholders' Equity Years ended February
29, 2000, February 28, 1999 and 1998 (in thousands, except share data)
2000 1999 1998
Outstanding Outstanding Outstanding
Shares Amount Shares Amount Shares Amount
- ---------------------------------------- -------------- --------------- -------------- ------------- ---------------- --------------
Preferred Stock
Beginning balance 256,416 $4,769 256,416 $ 4,769 - -
Reclassification due to removal of
redemption provisions of preferred - - - - 256,416 $ 4,769
stock
Shares tendered for conversion to
common (39,552) (736) - - - -
stock
- ---------------------------------------- -------------- --------------- -------------- ------------- ---------------- -------------
- ---------------------------------------- -------------- --------------- -------------- ------------- ---------------- -------------
216,864 $4,033 256,416 $ 4,769 256,416 $ 4,769
- ---------------------------------------- -------------- --------------- -------------- ------------- ---------------- --------------
Common Stock
Beginning balance 1,958,478 $20 1,958,478 $ 2,103 1,958,478 $ 2,103
Shares issued from
conversion of preferred stock 76,886 - - - - -
Adjustment to reflect redomestication
and - - - (2,083) - -
new par value for common shares
- ---------------------------------------- -------------- --------------- -------------- ------------- ---------------- -------------
2,035,364 $20 1,958,478 $ 20 1,958,478 $ 2,103
- ---------------------------------------- -------------- --------------- -------------- ------------- ---------------- --------------
Additional Paid-in Capital
Beginning balance $5,339 $ 3,248 $ 3,248
Adjustment to reflect redomestication
and - 2,083 -
new par value for common shares
Conversion of preferred stock 736 - -
Conversion of 10 1/2% notes 12 - -
Value of warrants issued 67 - -
Net (loss) gain on sales of treasury
shares and subsidiary transactions (13) 8 -
- ---------------------------------------- -------------- --------------- -------------- ------------- ---------------- --------------
$6,141 $ 5,339 $ 3,248
- ---------------------------------------- -------------- --------------- -------------- ------------- ---------------- --------------
Retained Earnings
Beginning balance $6,693 $10,158 $ 8,386
Net (loss) income (987) (3,080) 2,212
Preferred stock dividends and (362) (385) (477)
accretion
Reversal of preferred dividends and - - 37
accretion
- ---------------------------------------- -------------- --------------- -------------- ------------- ---------------- --------------
$5,344 $ 6,693 $10,158
- ---------------------------------------- -------------- --------------- -------------- ------------- ---------------- --------------
Receivable from Officer
Beginning balance $(250) - -
Receivable pursuant to officer's
purchase of - $ ( 250) -
common stock
Repayment in cash 50 - -
Repayment in common stock 200 - -
- ---------------------------------------- -------------- --------------- -------------- ------------- ---------------- --------------
$ - $ ( 250) -
- ---------------------------------------- -------------- --------------- -------------- ------------- ---------------- --------------
Treasury Stock
Beginning balance 30,549 $(142) 21,800 $ 24,000 $ (90)
(82)
Shares sold (12,393) 62 (20,772) (2,200) 8
78
Shares issued from conversion of notes (988) 4 - - - -
Shares issued to officer - - (62,500) 250 - -
Shares tendered to repay loan 10,834 (200) - - - -
Shares purchased - - 92,021 (388) - -
- ---------------------------------------- -------------- --------------- -------------- ------------- ---------------- --------------
28,002 $(276) 30,549 $ (142) 21,800 $ (82)
- ---------------------------------------- -------------- --------------- -------------- ------------- ---------------- --------------
- ---------------------------------------- -------------- --------------- -------------- ------------- ---------------- --------------
Total stockholders' equity $15,262 $16,429 $20,196
- ---------------------------------------- -------------- --------------- -------------- ------------- ---------------- --------------
See accompanying notes to consolidated financial statements.
ANDERSEN GROUP, INC.
Consolidated Statements of Cash Flows
Years ended February 29, 2000, February 28, 1999 and 1998
(in thousands)
2000 1999 1998
- -------------------------------------------------------------------- ---------------------- ----------------------- ----------------
Cash flows from operating activities:
Net (loss) income $(987) $(3,080) $ 2,212
Adjustments to reconcile net (loss) income to net cash provided by (used in)
operating activities:
Depreciation, amortization and accretion 1,466 1,434 1,480
Deferred income taxes (633) (1,076) 1,016
Loss (gain) on sale of Ney Ultrasonics - 116 (97)
(Gains) losses from securities and investments (270) 4,547 (2,619)
Purchases of securities (196) (1,836) (2,218)
Proceeds from sales of securities 5,359 1,885 1,230
Pension expense (income) 116 (368) (391)
Gain on disposal of property, plant and equipment - (25) -
Changes in operating assets and liabilities, net of changes from sale of Ney
Ultrasonics in 1998:
Accounts and other receivables (559) (228) (2,048)
Inventories (198) 255 (386)
Prepaid expenses and other assets (456) 57 (97)
Accounts payable 356 (292) 507
Accrued liabilities and other long-term obligations 169 (1,273) (1,105)
- -------------------------------------------------------------------- ---------------------- ----------------------- ---------------
Net cash provided by (used in) operating activities 4,167 116 (2,516)
- -------------------------------------------------------------------- ---------------------- ----------------------- ---------------
Cash flows from investing activities:
Proceeds from sale of Ultrasonics segment - 2,800 -
Proceeds from sale of property, plant and equipment - 223 -
Purchase of property, plant and equipment (2,138) (1,702) (1,740)
Investment in Moscow Broadband Communication Ltd. (4,000) - -
Purchase of investments - - (1,225)
Proceeds from sales of investments 317 - 1,542
- -------------------------------------------------------------------- ---------------------- ----------------------- ----------------
Net cash (used in) provided by investing activities (5,828) 1,321 (1,423)
- -------------------------------------------------------------------- ---------------------- ----------------------- ----------------
Cash flows from financing activities:
Principal payments on long-term debt (445) (882) (2,760)
Proceeds from issuance of secured note 1,000 - -
Proceeds from issuance of subordinated debt - - 7,500
Redemptions of preferred stock - - (160)
Proceeds (payment) of short-term borrowings, net 698 173 (122)
Stock options exercised 10 50 -
Treasury shares sold (purchased), net 39 (352) -
Officer loan repaid 50 - -
Preferred dividends paid (385) (401) (1,222)
- -------------------------------------------------------------------- ---------------------- ----------------------- ----------------
Net cash provided by (used in) financing activities 967 (1,412) 3,236
- -------------------------------------------------------------------- ---------------------- ----------------------- ----------------
Net (decrease) increase in cash and cash equivalents (687) 25 (703)
Cash and cash equivalents, beginning of year 2,541 2,516 3,219
- -------------------------------------------------------------------- ---------------------- ----------------------- ----------------
Cash and cash equivalents, end of year $ 1,854 $ 2,541 $ 2,516
- -------------------------------------------------------------------- ---------------------- ----------------------- ----------------
See accompanying notes to consolidated financial statements.
Andersen Group, Inc.
Notes to Consolidated Financial Statements Years ended February 29, 2000,
February 28, 1999 and 1998
(1) Nature of Business
Andersen Group, Inc. (the Company) is a diversified holding company which
invests in both marketable and other securities of domestic and foreign-based
companies. It also owns a consolidated subsidiary, The J.M. Ney Company (JM
Ney), which manufactures electronic connectors, components and precious metal
materials for sale to the automotive, defense, semiconductor, and medical and
dental markets.
(2) Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those estimates.
Principles of Consolidation
The Company's financial statements include the accounts of the Company and its
wholly owned subsidiaries. All significant intercompany transactions and
balances have been eliminated in consolidation.
Cash and Cash Equivalents
Cash and cash equivalents include funds held in investments with an original
maturity of three months or less.
Marketable Securities
The Company's marketable securities are carried as trading securities at market
value in accordance with Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" (SFAS 115).
The Company has established a valuation allowance to provide for volatility and
liquidity concerns relating to its investments in Russia and other Eastern
European countries. Any changes in the valuation of the portfolio are reflected
in the accompanying Consolidated Statements of Operations.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined using
the last-in, first-out (LIFO) method for precious metals and at standard costs
which approximate the first-in, first-out (FIFO) and average cost methods for
the balance of the inventories.
Property, Plant and Equipment
Property, plant and equipment, including capital leases, are stated at cost and
depreciated using the straight-line method over the estimated useful life of the
respective assets, as follows:
Buildings and improvements 10-30 years
Machinery and equipment 5-10 years
Furniture and fixtures 3-10 years
Investment in Moscow Broadband Communication Ltd.
The Company has a 25% ownership interest in Moscow Broadband Communication Ltd.
(Moscow Broadband) which is carried at its historical cost basis, as adjusted
for an other than temporary decline in the investment prior to the announcement
of Moscow Broadband's agreement with ComCor-TV, as more fully explained in Note
7. This carrying value will be adjusted to reflect the Company's equity in the
earnings and losses of Moscow Broadband.
Unamortized Discounts
Unamortized discounts on subordinated notes payable and note payable to officer
are accreted using the effective interest method.
Revenue
Sales are recognized when products are shipped. Investment income (loss) and
other income is recognized based on changes in the fair value of marketable
securities and realized gains and losses.
Income Taxes
Income taxes are determined using the asset and liability approach. This method
gives consideration to the future tax consequences of temporary differences
between the carrying amounts and the tax basis of assets and liabilities at
currently enacted tax rates.
Earnings Per Share
In accordance with Statement of Financial Accounting Standards No. 128 -
"Earnings Per Share" (SFAS 128), basic earnings per share is computed based upon
the weighted average number of common shares outstanding during the period.
Diluted earnings per share is computed based upon the weighted average number of
common shares plus the assumed issuance of common shares for all potentially
dilutive securities. See Note 14 for additional information and a reconciliation
of the basic and diluted earnings per share computations.
Inventory Hedging
The Company has entered into precious metal forward contracts as a hedge against
precious metal fluctuations for firm price deliveries. These contracts limit the
Company's exposure to both favorable and unfavorable precious metals price
fluctuations. Gains or losses on these contracts are recognized when the product
deliveries being hedged have been made. The Company also utilizes precious
metals leasing and deferred payment purchases of precious metals to manage the
price exposure of certain components of its inventory.
Financial Statement Presentation
Certain reclassifications have been made to the prior years' financial
statements in order to conform with the FY00 presentation.
(3) Marketable Securities
Marketable securities consist of the following (in thousands):
February 29, 2000 February 28, 1999
- --------------------------------------------------------------- ------------------------- -------------------------- --
Common stock of savings banks $ - $5,362
FM Emerging Russia Fund 825 294
Portfolio of Ukraine stocks 239 108
Common stock of Bank Handlowey - 217
Renaissance Russia Bond Fund 75 98
Valuation reserve - foreign investments (213) (65)
- --------------------------------------------------------------- ------------------------- -------------------------- --
$926 $6,014
- --------------------------------------------------------------- ------------------------- -------------------------- --
(4) Inventories
Inventories consist of the following (in thousands):
February 29, 2000 February 28, 1999
--------------------------------------------------------------- ------------------------- --------------------------
Raw materials $2,999 $ 3,498
Work in process 3,929 4,661
Finished goods 6,029 2,710
------------------------------------------------------------ ------------------------- --------------------------
12,957 10,869
Less LIFO Reserve 4,938 3,048
------------------------------------------------------------ ------------------------- --------------------------
$8,019 $ 7,821
------------------------------------------------------------ ------------------------- --------------------------
At February 29, 2000 and February 28, 1999, inventories valued at LIFO cost
comprised 67% and 76% of total inventories, respectively. At February 29, 2000,
inventories valued at LIFO consisted of 9,431 troy ounces of gold, 10,197 troy
ounces of silver, 3,105 troy ounces of platinum and 8,687 troy ounces of
palladium. At February 28, 1999, inventories valued at LIFO consisted of 9,565
troy ounces of gold, 11,817 troy ounces of silver, 3,396 troy ounces of platinum
and 14,086 troy ounces of palladium. Such quantities of precious metals are
presented net of precious metals held by JM Ney subject to leasing arrangements
with JM Ney's primary bank. During FY00 and FY99, JM Ney recognized LIFO gains
of approximately $1,400,000 and 349,000, respectively, from decreases in certain
precious metal LIFO layers.
(5) Discontinued Operations
Ney Ultrasonics Inc.
Effective February 28, 1998, the Company sold the net assets of Ney Ultrasonics
Inc. for an amount which at February 28, 1998 was estimated to be approximately
$3,521,000. As a result, during FY98 the Company recorded a gain of $97,000, net
of expenses relating to the transaction and net of income taxes of $84,000.
During FY99, the Company and the purchaser of the business reached a settlement
agreement to resolve disputes relating to the determination of the purchase
price. Under this settlement, the Company received $400,000 of additional
consideration beyond the $2,400,000 it had received at closing. This settlement,
net of expenses incurred in excess of previous accruals, resulted in a loss of
$187,000 in FY99 before related tax benefits. The Company also expects to
receive additional consideration, which is contingent on the growth of the sales
of products and technology transferred as part of the sale. During FY00 and
FY99, the Company recognized royalty revenue of approximately $42,000 and
$60,000, respectively.
Ney Ultrasonics' results of operations have been presented as discontinued
operations. Revenue from the segment totaled approximately $5,713,000 in FY98.
(6) Property, Plant and Equipment
>
Property, plant and equipment consist of the following (in thousands):
February 29, 2000 February 28, 1999
- ------------------------------------------------------- ---------------------------- ----------------------------
Land and improvements $ 550 $ 550
Buildings and improvements 10,229 9,814
Machinery and equipment 13,245 11,494
Furniture and fixtures 888 873
- ------------------------------------------------------- ---------------------------- ----------------------------
24,912 22,731
Less accumulated depreciation and
amortization 14,764 13,426
- ------------------------------------------------------- ---------------------------- ----------------------------
$10,148 $ 9,305
- ------------------------------------------------------- ---------------------------- ----------------------------
Depreciation and amortization expense was $1,380,000, $1,350,000, and $1,405,000
in FY00, FY99, and FY98, respectively.
At February 29, 2000 and February 28, 1999, property, plant and equipment
includes $579,000 of machinery and equipment acquired under capital leases,
which expire through FY02, with related accumulated amortization of $354,000 and
$268,000, respectively.
(7) Investment in Moscow Broadband Communication Ltd.
-------------------------------------------------
During FY00, the Company invested $4,000,000 into an $18,000,000 private
placement of the common stock of Moscow Broadband, formerly known as Treglos
Investments Limited, and was credited with an additional $500,000 of common
stock in recognition of funds that it and the other founding shareholders had
put into Moscow Broadband from FY96 through FY00, including $300,000 of
contributions made (prior to the private placement) during FY00 which were
expensed for financial reporting purposes. As a result of the private placement,
the Company's ownership of Moscow Broadband was diluted from 50% to 25%. Prior
to the FY00 investment, the Company had a 50% ownership interest in Moscow
Broadband with a carrying value of $84,000.
For the majority of FY00, Moscow Broadband's primary asset was a 6% ownership in
the Institute for Automated Systems (IAS), a Russian telecommunications company.
On January 31, 2000, Moscow Broadband became party to an agreement under which
it would acquire up to 50% of ComCor-TV, a Moscow-based company, which is
co-owned by Moscow Telecommunications Company (ComCor), for the purpose of
developing the distribution network and the services to provide cable television
and Internet access to up to 1,500,000 homes and businesses in the Moscow
region. As part of the agreement, Moscow Broadband agreed to contribute its
shares of IAS and up to $34 million over a period of approximately 15 months.
The following presents summarized financial information for Moscow Broadband as
of February 29, 2000 (in thousands) (unaudited):
Current assets $12,791
Total assets $13,791
Current liabilities $ 377
Stockholders' equity, net of subscriptions
receivable $13,414
During the period ended February 29, 2000, all of Moscow Broadband's activities
consisted of professional and administrative costs, most of which were incurred
in connection with developing the agreement with ComCor. Through December 31,
1999, such amounts were paid by the Company and the other founding shareholders
which the Company expensed in its Consolidated Statement of Operations. For the
two months ended February 29, 2000, Moscow Broadband's expenses, net of interest
income from the investment of proceeds of its private placement totaled
approximately $423,000.
Subsequent to February 29, 2000, Moscow Broadband completed the private
placement of 19,000 shares of its common stock, including 1,000 shares issued to
original shareholders from the conversion of accounts payable, for which it
received gross cash proceeds of $18,000,000. At February 29, 2000, the Company
owned 5,000 shares of Moscow Broadband with a carrying value of $4,084,000.
(8) Investment in VSMPO
During FY98, the Company invested approximately $1,225,000 in the common stock
of AVISMA, a Russian titanium producer which was subsequently merged into VSMPO,
a Russian titanium processing company. During FY99, this investment was written
down to reflect an other than temporary impairment in its value. During FY00,
the Company received net proceeds of approximately $317,000 from the sale of the
investment and realized a gain of $195,000 on the adjusted carrying value. Three
of the Company's directors and an investment fund controlled by one of these
directors were also investors in VSMPO.
(9) Short-term Borrowings
J.M. Ney has a $6.0 million revolving credit and deferred payment sales
agreement with a commercial bank which is secured by substantially all of JM
Ney's assets. Due to escalating prices for palladium, the bank waived the credit
line limit and permitted the total outstanding under this line to total
approximately $9,692,000. At February 29, 2000, JM Ney did not meet certain
financial covenants of the revolving credit agreement. The bank has agreed to
waive these violations through FY01. At JM Ney's discretion, interest is charged
at the bank's prime rate, which was 8.75% and 7.75% at February 29, 2000 and
February 28, 1999, respectively, or at LIBOR plus 2.00% if the borrowing is
fixed for a period of time, or at 2.00% over the bank's precious metals leasing
rate if the borrowing is represented by deferred payment purchases of precious
metals. A fee of 0.25% is charged on the unused balance of the facility. This
agreement includes restrictive covenants that limit the amount of dividends and
distributions from JM Ney to the Company and which require JM Ney to maintain a
specified amount of stockholder's equity. At February 29, 2000, the amount of
net assets which JM Ney was restricted from distributing to the Company totaled
approximately $10,540,000, including a $4,000,000 subordinated loan payable to
the Company.
At February 28, 1999, the Company had a $1,392,000 demand loan, which was
secured by a portion of the Company's portfolio of marketable securities. This
borrowing was repaid during FY00 with the proceeds from sales of marketable
securities.
(10) Accrued Liabilities
Accrued liabilities consist of the following (in thousands):
February 29, 2000 February 28, 1999
- ---------------------------------------- ------------------------------------ -------------------------------------
Employee compensation $ 447 $ 430
Accrued dividends 74 96
Income taxes 80 -
Accrued interest 336 276
Deferred hedging gains 10 165
Other 727 534
- ---------------------------------------- ------------------------------------ -------------------------------------
$1,674 $1,501
- ---------------------------------------- ------------------------------------ -------------------------------------
(11) Long-term Debt and Subordinated Notes Payable
Long-term debt and subordinated notes payable consist of the following (in thousands):
February 29, February
2000 28,
1999
- ---------------------------------------------------------------------------- ---------------------- ---------------------- ---
Convertible subordinated debentures, due October 2007; interest at 10.5%,
payable semi-annually; annual principal payments in varying amounts
through maturity; unsecured $3,435 $ 3,759
Subordinated note payable of JM Ney due
December 2004; unsecured; quarterly interest
payments at 10.26% 7,500 7,500
Secured note payable to officer, due August 2001; interest at 8.5%
payable quarterly, secured by a lien on real estate 1,000 -
Other 276 413
- ---------------------------------------------------------------------------- ---------------------- ---------------------- ---
12,211 11,672
Less unamortized discounts on notes payable 209 171
- ---------------------------------------------------------------------------- ---------------------- ---------------------- ---
12,002 11,501
Less current maturities 521 443
- ---------------------------------------------------------------------------- ---------------------- ---------------------- ---
$11,481 $11,058
- ---------------------------------------------------------------------------- ---------------------- ---------------------- ---
The terms of the 2007 convertible subordinated debentures call for the annual
redemption of approximately $431,000 of principal. The debentures are
convertible into common stock of the Company at any time prior to maturity at
$16.17 per share, subject to adjustment under certain conditions. At February
29, 2000, 212,430 shares of common stock were reserved for conversion.
In connection with the issuance of the subordinated note payable, JM Ney issued
warrants to the lender to acquire 34,000 shares of its common stock at an
exercise price of $1.00 per share, and warrants to acquire 6,000 shares at an
exercise price of $10.00 per share. The value of these warrants is being
amortized over the life of the note. The lender has an option to put these
warrants back to JM Ney at the earlier of December 2002, or the date of an
initial public offering of JM Ney's Common Stock on terms as defined in the
agreement.
In connection with a loan to the Company from a director/officer, the Company
issued warrants as detailed in Note 24. The value of these warrants is being
amortized over the life of the loan. Maturities of long-term debt for each of
the next five fiscal years and thereafter are as follows (in thousands):
2001 $ 521
2002 1,535
2003 448
2004 440
2005 7,940
Thereafter 1,327
----------
$ 12,211
(12) Income Taxes
For FY00, FY99 and FY98, income tax (benefit) expense consists of the following (in thousands):
2000 1999 1998
- ------------------------------------------------------------ ---------------- ------------------- ------------------------
Current Federal $ (141) $ (377) $ 350
Current State 148 (102) 130
Deferred Federal (563) (977) 940
Deferred State (70) (99) 76
- ------------------------------------------------------------ ---------------- ------------------- ------------------------
$ (626) $ (1,555) $ 1,496
- ------------------------------------------------------------ ---------------- ------------------- ------------------------
The difference between the actual income tax (benefit) expense and the income
tax (benefit) expense computed by applying the statutory Federal income tax rate
of 34% to income (loss) before income taxes is attributable to the following (in
thousands):
1998
2000 1999
- --------------------------------------------------------- ----------------- ---------------------- -------------------
Income tax (benefit) expense $ (549) $ (1,576) $ 1,261
State income taxes, net of Federal benefit 51 (132) 206
Tax credits (355) - -
Valuation allowance 267 - -
Other (40) 153 29
- --------------------------------------------------------- ----------------- ---------------------- -------------------
$ (626) $ (1,555) $ 1,496
- --------------------------------------------------------- ----------------- ---------------------- -------------------
The principal components of the net deferred tax asset (liability) are as
follows (in thousands):
February 29, February 28,
1999
------------ -----------------
2000
----
Deferred tax liabilities:
Fixed asset basis differences $(1,224) $(1,273)
Inventory (1,634) (1,314)
Pension (1,895) (1,940)
- ------------------------------------------------------------- -------------------------- -----------------------------
Total deferred tax liabilities (4,753) (4,527)
- ------------------------------------------------------------- -------------------------- -----------------------------
Deferred tax assets:
Post-retirement benefits other than pensions 395 406
Unrealized losses on marketable securities, net 384 361
Allowance for uncollectible receivables 42 42
Accrued vacation 93 -
Federal credit carry-forwards 940 618
Federal and State net operating loss carry-
forwards 755 -
Valuation allowance (267) -
Other 273 329
- ------------------------------------------------------------- -------------------------- -----------------------------
Total deferred tax assets 2,615 1,756
- ------------------------------------------------------------- -------------------------- -----------------------------
Net deferred tax liabilities $(2,138) $(2,771)
- ------------------------------------------------------------- -------------------------- -----------------------------
At February 29, 2000, the Company had $940,000 of Federal credit carry-forwards,
$406,000 of which were attributable to the alternative minimum tax that have no
expiration date. The remaining general business credits, totaling $534,000
expire from 2000 through 2002. A valuation allowance of $267,000 has been
established at February 29, 2000 against the general business credits to the
extent it is more likely than not that these credits will not be realized. The
Company has $2,070,000 of Federal net operating loss carry forwards which expire
in the fiscal year ending February, 2020.
(13) Series A Cumulative Convertible Preferred Stock
During February 1998, the Company amended its Certificate of Incorporation to
modify the terms of the Company's Series A Preferred Stock (Preferred Stock) to
provide for a fixed annual dividend rate of $1.50 per preferred share and to
eliminate the mandatory redemption feature of the Preferred Stock. Prior to this
modification, quarterly dividend payments, ranging from $.1875 to $.4375 per
share, were accrued based upon the operating income of JM Ney, as defined.
Approximately $1.69 of dividends per preferred share were accrued during FY98.
During FY98, the Company purchased 8,776 shares of its Preferred Stock at
$18.25. As a result of the purchases, the Company reversed accrued dividends and
accreted discounts of $37,000. During FY98 approximately $40,000 of the
accretion of a discount was recorded as part of the preferred dividend
requirement.
The Preferred Stock is convertible into the Company's common stock at any time
at a rate of 1.944 shares of common stock for each share of Preferred Stock. At
February 29, 2000, 421,584 shares of common stock have been reserved for
conversion.
(14) (Loss) Earnings Per Share
The computation of basic and diluted (loss) earnings per share is as follows (in
thousands, except per share amounts):
2000 1999 1998
- ---------------------------------------------------------------- ------------------ ------------------ -----------------
Numerator for basic and diluted earnings per share:
(Loss) income applicable to common shareholders $(1,349) $(3,465) $ 1,772
- ---------------------------------------------------------------- ------------------ ------------------ -----------------
Denominator for basic earnings per share:
Weighted average shares 1,932 1,928 1,935
Effect of dilutive securities - stock options - - 18
- ---------------------------------------------------------------- ------------------ ------------------ -----------------
Denominator for diluted earnings per share 1,932 1,928 1,953
- ---------------------------------------------------------------- ------------------ ------------------ -----------------
Basic earnings per share $(0.70) $ (1.80) $ .92
Diluted (loss) earnings per share $(0.70) $ (1.80) $ .91
- ---------------------------------------------------------------- ------------------ ------------------ -----------------
For FY00 and FY99, the net addition of 16,777 and 12,835 common share
equivalents, respectively, from the assumed exercise price of stock options
using the treasury method have been excluded, because of their antidilutive
effects.
For each of FY00, FY99 and FY98, the effects of the conversion of the Preferred
Stock and the 10 1/2% Debentures have been excluded because the impacts of such
conversions would have been antidilutive.
(15) Stock Option Plans
The Company's and JM Ney's incentive stock option plans provide for option
grants to directors and key employees at prices equal to at least 100% of the
stock's fair market value at date of grant. The Company did not grant any stock
options during FY00. The per share weighted average fair value of stock options
granted during FY99 and FY98 under these plans were $4.06 and $6.22,
respectively, using the Black Scholes option pricing model with the following
weighted average assumptions: expected dividend yield of 0%; risk-free interest
rates of 6.0%, and 6.5% for FY99 and FY98, respectively; expected life of five
to seven years; and expected volatility of 33.3%.
The Company has adopted the disclosure provisions of SFAS No. 123, "Accounting
for Stock-Based Compensation". Accordingly, no compensation expense has been
recognized for the stock option plans. Had compensation cost for the Company's
stock option plans, including the JM Ney plan, been determined based on the fair
value on the grant date for awards during FY00, FY99 and FY98 consistent with
the provisions of SFAS No. 123, the Company's net earnings (loss) applicable to
common shares, and earnings (loss) per share would have adjusted to the pro
forma amounts indicated below (amounts in thousands, except per share data):
2000 1999 1998
---- ---- ----
(Loss) income applicable to common shareholders:
As reported $(1,349) $(3,465) $ 1,772
Pro forma $(1,521) $(3,695) $ 1,581
(Loss) earnings per share - diluted:
As reported $ (0.70) $ (1.80) $ .91
Pro forma $ (0.79) $ (1.92) $ .81
The Company has reserved 139,000 shares of common stock for the exercise of
stock options. At February 29, 2000, the Company's plan had expired, and
accordingly, no shares were available for issuance. JM Ney has reserved 150,000
shares of its common stock for the exercise of stock options, of which 13,700
were available for issuance at February 29, 2000.
Activity under the Company's plan, which excludes J.M. Ney's plan, was as
follows:
Number Weighted Average Range of
Outstanding Options Of Shares Exercise Price Exercise Prices
- ------------------------------------------ ------------------- ------------------------------ ------------------------
- ------------------------------------------ ------------------- ------------------------------ ------------------------
Balance at February 28, 1997 101,700 $5.02 $3.81 - $8.38
Exercised (2,200) $3.81 $3.81
Canceled (20,300) $5.43 $3.81 - $7.00
- ------------------------------------------ ------------------- ------------------------------ ------------------------
- ------------------------------------------ ------------------- ------------------------------ ------------------------
Balance at February 28, 1998 79,200 $5.02 $3.81 - $8.38
Granted 37,000 $6.30 $6.25 - $6.44
Exercised (10,700) $4.54 $3.81 - $5.38
Canceled (11,500) $6.76 $3.81 - $7.50
- ------------------------------------------ ------------------- ------------------------------ ------------------------
- ------------------------------------------ ------------------- ------------------------------ ------------------------
Balance at February 28, 1999 94,000 $5.31 $3.81 - $8.38
Exercised (2,600) $3.81 $3.81
Canceled (10,700) $6.27 $3.81 - $6.44
- ------------------------------------------ ------------------- ------------------------------ ------------------------
Balance as of February 29, 2000 80,700 $5.23 $3.81 - $8.38
At February 29, 2000, the range of exercise prices and the weighted average
remaining contractual life of the options was as follows:
Options Outstanding Options Exercisable
Weighted Average Weighted
Range of Exercise Weighted Average Remaining Average
Prices Number Exercise Price Contractual Life Number Exercise Price
Outstanding Exercisable
- ---------------------- ----------------- ------------------ --------------------- ----------------- ----------------
$8.38 6,000 $8.38 1.3 years 6,000 $8.38
$6.44 - $6.13 36,000 $6.22 6.7 years 36,000 $6.22
$3.81 38,700 $3.81 6.1 years 38,700 $3.81
- ---------------------- ----------------- ------------------ --------------------- ----------------- ----------------
80,700 $5.23 6.0 years 80,700 $5.23
- ---------------------- ----------------- ------------------ --------------------- ----------------- ----------------
Also, during FY99 and FY98, options to purchase 4,250 and 16,800 shares of JM
Ney, at average exercise prices of $11.47 and $10.86 per share, respectively,
were issued. During FY00, FY99 and FY98, options to acquire 6,500, 7,750 and 500
shares, respectively, of JM Ney were forfeited. During FY00, options to acquire
9,750 shares were exercised, and the resultant shares immediately called. At
February 29, 2000, 113,050 of the 126,550 total outstanding JM Ney options were
exercisable. At February 29, 2000, the Company owned all 850,000 outstanding
shares of JM Ney. There presently is no public market for JM Ney's common stock.
(16) Retirement Plans
The Company maintains a noncontributory defined benefit and a defined
contribution plan, which collectively cover substantially all full-time
employees. The defined contribution plan is funded through contributions in
amounts that can be deducted for Federal income tax purposes. Benefits payable
under all plans are based upon years of service and compensation levels.
The following table sets forth the changes in benefit obligations, changes in
fair value of plan assets, funded status and net amounts recognized in the
Consolidated Balance Sheets for the defined benefit plan (in thousands).
February 29, February 28, February 28,
2000 1999 1998
- ---------------------------------------------------------- -------------------- -------------------- -------------------------
Changes in Benefit Obligations
Benefit obligation at beginning of year $11,663 $10,212 $10,021
Service cost 397 240 234
Interest cost 791 781 736
Experience loss 138 842 243
Distributions (971) (2,885) (1,022)
Effect of curtailment - (64) -
Effect of early retirement program settlement - 511 -
Effect of assumption changes (1,017) 2,026 -
- ---------------------------------------------------------- -------------------- -------------------- -------------------------
Benefit obligation end of year 11,001 11,663 10,212
- ---------------------------------------------------------- -------------------- -------------------- -------------------------
Change in Fair Value of Plan Assets
Fair value of plan assets at beginning of year 14,530 18,087 16,815
Actual return on assets 510 (672) 2,294
Benefits paid (971) (2,885) (1,022)
- ---------------------------------------------------------- -------------------- -------------------- -------------------------
Fair value of plan assets at end of year 14,069 14,530 18,087
- ---------------------------------------------------------- -------------------- -------------------- -------------------------
Funded status 3,068 2,867 7,875
Unrecognized net actuarial loss (gain) 1,953 2,277 (3,079)
Unrecognized past service cost (104) (111) (131)
- ---------------------------------------------------------- -------------------- -------------------- -------------------------
Prepaid pension expense $ 4,917 $ 5,033 $ 4,665
- ---------------------------------------------------------- -------------------- -------------------- -------------------------
For FY00, FY99 and FY98, the projected benefit obligations and pension income
were determined using the following assumptions:
2000 1999 1998
--------------------
- ------------------------------------------------------------------ --------------------- --------------------
Discount rate 7.75% 7.00% 7.50%
Future compensation growth rate 5.00% 5.00% 5.50%
Long-term rate of return on plan assets 8.00% 8.00% 8.00%
Net pension expense (income) for the Company's funded defined benefit plan for
FY00, FY99 and FY98 includes the following components (in thousands):
2000 1999 1998
- ---------------------------------------------------------------- -------------------- -------------------- ------------------
Service cost of benefits accrued $ 397 $ 240 $ 234
Interest cost on projected benefit obligations 791 781 736
Expected return on plan assets (1,124) (1,413) (2,294)
Unrecognized net gain (loss) 52 (42) 933
Effect of early retirement program - 139 -
Effect of Ultrasonics curtailment - (73) -
- ---------------------------------------------------------------- -------------------- -------------------- ------------------
Pension expense (income) $ 116 $ (368) $ (391)
- ---------------------------------------------------------------- -------------------- -------------------- ------------------
Pension expense for the defined contribution plan totaled $208,000, $189,000,
and $122,000 in FY00, FY99, and FY98, respectively.
(17) Post-retirement Benefit Obligations
The Company's cost of its unfunded retiree health care plan for FY00, FY99, and
FY98 was approximately $7,000, $18,000, and $56,000, respectively, including
interest. At February 29, 2000 and February 28, 1999, the accumulated benefit
obligation for post-retirement benefits was approximately $736,000 and $769,000,
respectively. At February 29, 2000, 35 retirees and spouses were receiving
benefits under this plan.
The accumulated benefit obligation was determined using the unit credit method
and assumed discount rates of 7.25% at February 29, 2000 and February 28, 1999
and 1998. At February 29, 2000 and February 28, 1999 and 1998, the accumulated
benefit obligation was compiled using assumed health care cost trend rates of
7%, 8%, and 9%, respectively, gradually declining to 6% for the remainder of the
projected payout period of the benefits.
The estimated effect on the present value of the accumulated benefit obligation
at March 1, 2000 of a 1% increase each year in the health care cost trend rate
used would result in an estimated increase of approximately $3,000 in the
service and interest cost, and approximately $29,000 in the accumulated benefit
obligation. A 1% decrease each year in the health care trend rate would result
in a decrease of approximately $3,000 in the service and interest costs, and a
decrease of approximately $26,000 in the accumulated benefit obligation.
(18) Leases
The Company leases various manufacturing and office facilities and equipment
under operating lease agreements expiring through December 2005. In addition,
the Company earns rental income from office space leased to tenants under
operating leases expiring through November 2000. Lease expense was $382,000,
$299,000, and $264,000 for FY00, FY99, and FY98, respectively, while rental
income totaled $376,000, $482,000, and $376,000 for FY00, FY99, and FY98,
respectively.
Future minimum lease payments and rental income under the terms of the leases
for each of the next five years and thereafter, are as follows (in thousands):
Lease Payments Rental Income
2001 $ 296 $ 179
2002 281 126
2003 273 83
2004 166 80
2005 101 -
Thereafter 7 -
(19) Business Segments and Export Sales
During FY00, the Company operated in two continuing segments, Electronics, which
comprises the operations of JM Ney, and Corporate, which includes the Company's
investment, real estate and corporate administrative activities. Ney Ultrasonics
was discontinued in FY98. Operating income (loss) consists of revenues, less all
non-interest costs and expenses directly allocated to the industry segments.
Corporate revenues consist of investment income (loss) and other income not
attributable to a specific segment. Corporate identifiable assets include assets
not directly attributable to JM Ney, or a specific segment.
Summarized financial information by business segment is as follows (in
thousands):
FY00 FY99 FY98
---- ---- ----
Net sales and revenues:
Electronics $29,049 $26,837 $25,397
Corporate 1,262 (3,237) 3,471
------------------ ------------------- -------------------
$30,311 $23,600 $28,868
------------------ ------------------- -------------------
Operating income (loss):
Electronics $ 1,305 $ 2,558 $ 2,860
Corporate (1,193) (5,271) 1,264
-------------------
------------------ -------------------
$ 112 $ (2,713) $ 4,124
------------------ -------------------
-------------------
Interest expense:
Electronics $ 1,300 $ 1,228 $ 468
Corporate 425 507 695
-------------------
------------------ -------------------
$ 1,725 $ 1,735 $ 1,163
------------------ ------------------- -------------------
Identifiable assets:
Electronics $27,835 $25,900 $25,337
Corporate 9,283 11,219 19,434
------------------ ------------------- -------------------
$37,118 $37,119 $44,771
------------------ ------------------- -------------------
Depreciation, amortization and accretion:
Electronics $ 1,316 $ 1,277 $ 1,126
Ultrasonics - - 139
Corporate 150 157 215
------------------ ------------------- -------------------
$ 1,466 $ 1,434 $ 1,480
------------------ ------------------- -------------------
Capital expenditures:
Electronics $ 2,118 $ 1,680 $ 1,597
Ultrasonics - - 109
Corporate 20 22 34
------------------ ------------------- -------------------
$ 2,138 $ 1,702 $ 1,740
------------------ ------------------- -------------------
Export sales for FY00, FY99, and FY98 were $5,941,000, $4,303,000, and
$4,370,000, respectively. Such sales were made primarily to customers in Europe
and the Pacific Rim.
During FY00, FY99 and FY98 sales to one customer accounted for 17.7%, 16.1% and
14.9% of net sales, respectively. At February 29, 2000, accounts receivable from
this customer represented 19.1% of consolidated net accounts receivable. Sales
to one other customer accounted for 13.9% and 12.6% of net sales during FY99 and
FY98, respectively.
(20) Estimated Fair Value of Financial Instruments
The carrying amount of cash and cash equivalents, accounts receivable, short
term borrowings, accounts payable and other accrued liabilities are reasonable
estimates of their fair value based upon their current maturities. The carrying
value of marketable securities approximates fair value as determined by quoted
market prices less any reserves for liquidity and volatility concerns.
At February 29, 2000, gains totaling $10,000 from expired or sold palladium
futures contracts have been deferred from income recognition until the
underlying orders for which the futures contracts served as a hedge have been
shipped. At February 29, 2000, JM Ney had open futures contracts to purchase 500
ounces of palladium at an average price of $395 per ounce, which had a fair
value of $159,000. The value of these contracts has not been recorded as they
were purchased to hedge firm price orders. At February 29, 2000, JM Ney also had
an open contract to sell 2,000 ounces of palladium for $670 an ounce which at
February 29, 2000 had negative equity value of $104,000.
The carrying values of long-term debt issued by banks and capital lease
obligations approximate fair value based on interest rate and repayment terms,
and the extent to which the individual debts are secured. The fair value of the
Company's 10.5% convertible debentures approximates carrying value based upon
market interest rates, its subordinated status, and the market value of the
Company's common stock in relation to the conversion feature of the debt.
(21) Litigation
The Company is involved in various legal proceedings generally incidental to its
business. While the results of any litigation or regulatory issues contain an
element of uncertainty, management believes that the outcome of any known,
pending or threatened legal proceeding, or all of them combined, will not have a
material adverse effect on the Company's financial position or results of
operations.
(22) New Accounting Standards
In June 1998, SFAS No. 133 "Accounting for Derivative Instruments and Hedging
Activities" was issued. SFAS No. 133 requires an entity to recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. Gains and losses resulting
from changes in the values of those derivatives would be recognized immediately
or deferred depending on the use of the derivative and if the derivative is a
qualifying hedge. The effective date of SFAS No. 133 was subsequently delayed,
and is now effective for fiscal years beginning after June 15, 2000. The Company
plans to adopt SFAS No. 133 by May 31, 2001, as required. The Company is
currently assessing the impact of this statement on the Company's consolidated
financial statements.
(23) Supplemental Disclosure of Cash Flow Information
The information below supplements the cash flow data presented in the Company's
Consolidated Statements of Cash Flows (in thousands):
2000 1999 1998
---- ---- ----
Cash paid (received) for:
Interest $ 1,692 $ 1,702 $1,129
Income taxes, net $ (140) $ (210) $ 360
During FY00, the Company issued 76,886 and 988 shares of its common stock from
the conversion of its preferred stock and 10 1/2% convertible notes,
respectively.
During FY98, the Company exchanged $4,311,000 of its convertible subordinated
debentures due October 2002 for an equal amount of convertible subordinated
debentures due 2007. In addition to the extended average maturity of the notes,
the new notes do not contain the restrictive covenants that were present in the
original issue. Interest and conversion terms of the old notes remain the same
in the new notes.
(24) Related Party Transactions
During FY00, the Company borrowed $1,000,000 from its President. This borrowing,
which is secured by a first mortgage on real estate owned by a subsidiary of the
Company, bears interest at the annual rate of 8.5% and matures in August 2001.
In connection with this transaction, the Company's President also received a
warrant to purchase 18,706 shares of the Company's common stock at an exercise
price of $16.04 per share. This warrant can be exercised at anytime through
February 2003. The proceeds of this note were used by the Company to purchase
shares of Moscow Broadband as part of that company's private placement.
During FY99 the Company accepted a $200,000 two-year 7% note receivable and a
$50,000 demand note from an executive officer for the purchase of 62,500 shares
of the Company's common stock. During FY00, the $50,000 demand note was paid in
cash, while the $200,000 note receivable was satisfied through the receipt of
10,834 shares of the Company's common stock in accordance with the terms of the
note.
(25) Subsequent Events
During April 2000, the Company received $200,000 from its President in exchange
for a secured note bearing interest at the annual rate of 8.5%, and a warrant to
purchase 5,393 shares of the Company's stock at $11.13 per share through April
2003. Also in April 2000, the Company received $50,000 from its Chairman in
exchange for an unsecured demand note bearing interest at the annual rate of
10%.
During March 2000, 12,603 shares of the Company's Preferred Stock were converted
by their holders into 24,499 shares of Common Stock.
INDEPENDENT AUDITORS' REPORT
The Stockholders and Board of Directors
Andersen Group, Inc.
New York, NY
We have audited the accompanying consolidated balance sheets of Andersen Group,
Inc. and subsidiaries as of February 29, 2000 and February 28, 1999 and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended February 29, 2000. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Andersen Group, Inc.
and subsidiaries at February 29, 2000 and February 28, 1999, and the results of
their operations and their cash flows for the each of the three years in the
period ended February 29, 2000 in conformity with accounting principles
generally accepted in the United States of America.
/s/ Deloitte & Touche LLP
Hartford, Connecticut
May 3, 2000
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
As of May 16, 2000, the Company has seven members of its Board of Directors. The
names of and certain information with respect to the persons presently serving
as directors are as follows:
OLIVER R. GRACE, JR., age 46, has been a Director of the Company since
1986, President and Chief Executive Officer since 1997, and was Chairman from
1990 to 1997. He has also been President and a Director of AG Investors, Inc.,
one of the Company's subsidiaries, since 1992 and a Director of the Company's
wholly-owned subsidiary, The J. M. Ney Company, since February 1997. Mr. Grace,
Jr. is a General Partner of The Anglo American Security Fund L.P. and a Director
of Take Two Interactive Software, Inc. Mr. Grace, Jr. is the brother of Director
John S. Grace. He also serves on the Board of Directors of ComCor-TV.
FRANCIS E. BAKER, age 70, has been Chairman and Secretary of the Company
since 1997, a Director since 1959, and President and Chief Executive Officer of
the Company from 1959 to 1997. Mr. Baker also serves as a Director of the
Company's wholly-owned subsidiary, The J.M. Ney Company. He also serves on the
Board of Directors of ComCor-TV.
PETER N. BENNETT, age 63, has been a Director of the Company since 1992. He
is a private investor and financial consultant.
JOHN S. GRACE, age 42, has been a Director of the Company since 1990. He is
the Chairman of Sterling Grace Corporation, a General Partner of The Anglo
American Security Fund L.P. and a Director of Annaly Mortgage Management, Inc.
Mr. Grace has been an employee of AG Investors, Inc., one of the Company's
subsidiaries, since 1992. John S. Grace is the brother of Oliver R. Grace, Jr.
LOUIS A. LUBRANO, age 66, has been a Director of the Company since 1983.
Mr. Lubrano is currently with Herzog, Heine, Geduld, Inc., members of the New
York Stock Exchange. Mr. Lubrano was formerly a Managing Director of Stires and
Company, Inc. from 1991 to 1996, and also serves as a Director of Graham Field
Health Products, Inc., a manufacturer and distributor of medical products.
THOMAS MCPARTLAND, age 41, has been a Director of the Company since April
2000. He is founder and majority shareholder of Convergence Media, Ltd., a
consulting and investment company and former President and CEO of TCI Music now
known as Liberty Digital. Mr. McPartland sits on the advisory boards of Dauphine
Capital Partners, inVentures, a U.K. based investment fund centering its
attention on the European marketplace and on the board of Music.com a privately
held music and entertainment portal.
JAMES J. PINTO, age 49, has been a Director of the Company since 1988. He
is President of the Private Finance Group Corp., a merchant and venture capital
firm, and a position he has held since 1990. Mr. Pinto also serves as a Director
of Empire of Carolina, Inc. and Fragrence Net.
The information required by this Item with respect to the Executive Officers of
the Registrant is included in Part I of this filing under the section entitled
Executive Officers of the Company.
ITEM 11. EXECUTIVE COMPENSATION.
The following information is provided regarding the annual and long-term
compensation paid or to be paid to the Chief Executive Officer and the three
other most highly compensated executive officers of the Company with respect to
the fiscal years 2000, 1999 and 1998.
SUMMARY COMPENSATION TABLE
Long Term
Compensation
-----------------
Annual Awards
Compensation
----------------------------------------- -----------------
Securities All Other
Name and Underlying Compensation(3)
Principal Position Options/SARs(2)
Fiscal Salary (1) Bonus
(#) ($)
- ------------------------------------
Oliver R. Grace, Jr............. 2000 60,446 - - 2,017
President and Chief Executive 1999 85,000 - - 2,550
Officer 1998 85,000 50,000(4) - 1,665
Francis E. Baker............... 2000 98,000 - - -
Chairman and Secretary 1999 120,000 15,000 20,000 -
1998 75,000 75,000 - 875
Ronald N. Cerny............... 2000 171,473 - - 5,030
President, The J.M. Ney Company 1999 164,808 10,000 5,000 4,987
1998 155,000 40,000 - 2,673
Andrew M. O'Shea............ 2000 120,513 10,000 - 3,959
Chief Financial Officer, and 1999 112,209 6,680 - 4,283
Chief Financial Officer of The J. 1998 104,904 31,000 - 2,301
M. Ney Company
- ------------------------------------------------------------------------------------------------------------------------------------
(1) Includes amounts of compensation deferred by the employee pursuant to the Company's 401(k) plan.
(2) During fiscal year 1998, Messrs. Cerny and O'Shea received options to acquire shares of The J. M. Ney Company.
These grants are excluded from this table.
(3) Consists of contributions made by the Company in respect of its 401(k) plan.
(4) At Mr. Grace, Jr.'s election, this bonus was treated as deferred compensation and paid into the Company's Rabbi Trust
for his benefit.
No stock options were issued by the Company or by The J.M. Ney Company during
fiscal year 2000.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION/SAR VALUES
The following table sets forth certain information with respect to options/SARs
exercised during fiscal year 2000 by the individuals named in the Summary
Compensation Table and unexercised options to purchase Andersen Group, Inc.
Common Stock granted under the Incentive Stock Option Plan to the individuals
named in the Summary Compensation Table.
Number of Securities Value of Unexercised
Underlying Unexercised In-the- Money
Options/SARs at Fiscal Options/SARs at
Shares Acquired On Value Realized Year End(#) Fiscal Year End($)
- - Exercise Exercisable/ Exercisable/
Unexercisable Unexercisable
Name (#) ($)
Oliver R. Grace, Jr........ - - 9,500/0 $117,344/$0
Francis E. Baker........... - - 20,000/0 $217,500/$0
Ronald N. Cerny........... - - 8,000/0 $94,313/$0
Andrew M. O'Shea........ - - 10,000/0 $153,125/$0
Pension Benefits
The following table sets forth the estimated aggregate annual benefit
payable upon retirement or at normal retirement age for each level of
remuneration specified at the listed years of service in accordance with the
Company's defined benefit plan. The pension benefits are based on calendar year
earnings and are payable in the form of a life annuity. For calendar 2000, the
maximum annual compensation limit for determining pension benefits is $170,000.
Pension Plan Table
Years of Service
------------- ------------- ------------- ------------- ------------- -------------
Remuneration 5 10 15 20 25 30
------------- ------------ ------------- ------------- ------------ -------------
$100,000 $ 4,450 $ 8,900 $13,350 $17,800 $22,250 $26,700
125,000 6,013 12,025 18,038 24,050 30,063 36,075
150,000 7,575 15,150 22,725 30,300 37,875 45,450
170,000 8,825 17,650 26,475 35,300 44,125 52,950
An individual's pension benefits are equal to the greater of the following two
calculations: (A) .75% of final average earnings (average annual earnings for
the five consecutive years of highest earnings in the employee's last 10 years
of employment) plus .50% of final average earnings in excess of covered
compensation (covered compensation equals the average of the Social Security
wage base for the individual based upon his/her age) multiplied by the
employee's years of service as a qualified employee (up to a maximum of 40
years), or (B) the sum of the individual's accrued pension benefit at December
31, 1993 calculated pursuant to (A) plus the individual's average compensation
for the years since December 31, 1993 (average compensation equals the highest
average annual earnings for the five consecutive years since December 31, 1993,
up to a maximum of $160,000) multiplied by the percentages in (A), multiplied by
the number of years of service since 12/31/93. Pension benefits payable upon
retirement are increased by a late retirement factor due to the delay in receipt
of benefits if the employee continues to work after attaining the age of 65.
Pension benefits are not reduced on account of social security benefits received
by the employee. Average earnings is the sum of the amounts shown in the columns
labeled "Salary" and "Bonus" in the Summary Compensation Table. For purposes of
the Pension Plan Table, the amount used for covered compensation is the average
of the covered compensation for each of the individuals named in the Summary
Compensation Table. The executive officers named in the Summary Compensation
Table have the following years of credited service for pension plan purposes
under the Table: Mr. Grace, Jr. 7 years; Mr. Cerny 6 years; and Mr. O'Shea 4
years. Mr. Baker's pension benefits have been computed in accordance with (B) of
the above formula and have been enhanced by the late retirement factor pursuant
to the Plan. The estimated aggregate annual benefit being paid to Mr. Baker from
the Company's defined benefit pension plan is approximately $33,000.
Employment Agreements
Mr. Cerny has an employment agreement which, among other things, provides for
severance pay in the event of involuntary termination for other than cause. In
such case, the Company, at its option, will provide Mr. Cerny with twelve months
of notice or salary and fringe benefits or any combination thereof. In the event
of a change in control of The J.M. Ney Company, the Company has agreed to
provide Mr. Cerny with two years severance including fringe benefits.
Board Compensation Committee Report on Executive Compensation
The Compensation Committee of the Board is responsible for reviewing the
Company's executive compensation program and policies each year and determining
the compensation of the Company's senior executive officers. The Committee's
determination on compensation of the Company's Chief Executive Officer and other
executive officers is reviewed with and approved by the entire Board.
The Compensation Committee of the Board was comprised of Messrs. James J.
Pinto and Louis A. Lubrano, independent directors.
The fiscal year 2000 base pay of each of the Company's executive officers was
determined on the basis of the individual's responsibilities and performance and
a comparison with salaries paid by competitors of the Company. The bonus
component of executive compensation is directly related to corporate and
business unit performance. The Committee's overall policy regarding compensation
of the Company's executive officers is to provide competitive salary levels and
compensation incentives that attract and retain individuals of outstanding
ability in key positions that recognize individual performance and the
performance of the Company relative to the performance of other companies of
comparable size, complexity and quality, and that support both the short-term
and long-term goals of the Company. The executive compensation program includes
elements which, taken together, constitute a flexible and balanced method of
establishing total compensation for senior management.
Compensation paid to the Company's executive officers for fiscal year 2000
consisted primarily of salary, bonus and contributions made by the Company in
respect of its 401(k) Plan.
For fiscal 2000, the Committee established the compensation of Oliver R.
Grace, Jr., the President and Chief Executive Officer of the Company, using the
same criteria used to determine compensation for other executive officers. Mr.
Grace, Jr.'s fiscal 2000 base pay was based upon a voluntary salary reduction
and the Committee's overall assessment of Mr. Grace, Jr.'s performance and upon
market data.
For fiscal 2000, the Committee established the compensation of Francis E. Baker,
the Company's Chairman and Secretary, using the same criteria used to determine
compensation for other executive officers. As Chairman, Mr. Baker received a fee
of $98,000.
It is the opinion of the Committee that the aforementioned compensation
structures provide features which properly align the Company's executive
compensation with corporate performance and the interests of its stockholders
and which offer competitive opportunities in the marketplace.
Under Section 162(m) of the Internal Revenue Code and the regulations
promulgated thereunder, deductions for employee remuneration in excess of $1
million which is not performance based are disallowed for publicly traded
companies. The Committee has determined that it is unnecessary at this time to
seek to qualify the components of its compensation program within the meaning of
Section 162(m).
The foregoing report has been approved by all members of the Compensation
Committee
James J. Pinto, Chairman Louis A. Lubrano
Performance Graph
The following graph compares the performance of the Company for the periods
indicated with the performance of the National Association of Securities Dealers
Automated Quotation ("NASDAQ") Composite Stock Index (the "NASDAQ Composite")
and the performance of the NASDAQ Industrial Composite Stock Index (the "Peer
Group"). The comparative five-year total returns assume a $100 investment made
on February 28, 1995 with dividends reinvested. The stockholder return shown for
Andersen Group, Inc. ("AGI") on the following graph is not necessarily
indicative of future stock performance.
Comparative Five-Year Total Returns
Andersen Group, Inc., NASDAQ Composite and Peer Group
(Performance results through February 29, 2000)
---------------------------------------------------------------------------------------------------------
1995 1996 1997 1998 1999 2000
AGI $100.00 $125.00 $183.33 $196.00 $133.33 $570.83
NASDAQ Composite $100.00 $140.08 $166.69 $225.46 $291.36 $598.08
Peer Group $100.00 $129.51 $141.14 $168.70 $167.82 $337.68
---------------------------------------------------------------------------------------------------------
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT.
PRINCIPAL STOCKHOLDERS AND SECURITY
OWNERSHIP OF MANAGEMENT OF THE COMPANY
The following table sets forth information regarding the beneficial ownership of
Common Stock, as of May 17, 2000 by each director, by each named executive
officer of the Company described in "Executive Compensation", by persons who
beneficially own 5% or more of the outstanding shares of Common Stock, and by
all directors and executive officers of the Company as a group. The beneficial
ownership information described and set forth below is based on information
furnished by the specified persons and is determined in accordance with Rule
13d-3 under the Securities Exchange Act of 1934, as amended. It does not
constitute an admission of beneficial ownership for any other purpose.
Amount and Nature of
Beneficial Ownership Percent of Class
Name and Address of Beneficial Owner
Preferred Common Preferred Common
Francis E. Baker(1).............................. 0 207,735 0 10.0
8356 Sego Lane
Vero Beach, Florida
Estate of Oliver R. Grace, Sr.(2).............. 0 156,360 0 7.6
c/o Lorraine G. Grace, Executrix
49 Cove Neck Road
Oyster Bay, New York
Lorraine G. Grace(3).............................. 0 183,790 0 8.9
49 Cove Neck Road
Oyster Bay, New York
Oliver R. Grace, Jr. (4)........................... 6,000 293,321 2.9 13.4
55 Brookville Road
Glen Head, New York
John S. Grace(5).................................. 22,571 125,556 11.1 5.8
55 Brookville Road
Glen Head, New York
Peter N. Bennett(6)............................... 52,487 105,034 25.7 4.9
6 Batersea High St.
London SW11 3RA, England
The Bank of Butterfield(7)....................... 16,863 331,826 8.0 15.9
Rose Bank Centre
14 Bermudiana Road
Hamilton, Bermuda
First United Securities Limited(8)............. 0 135,924 0 6.6
Exchange House
P.O. Box 16, 54-58 Athol Street
Douglas, Isle of Man
Louis A. Lubrano(9)............................... 0 8,000 0 (14)
James J. Pinto(10)................................. 0 61,515 0 3.0
Thomas McPartland(11).......................... 0 0 0 0
Ronald N. Cerny(12).............................. 0 8,884 0 (14)
Andrew M. O'Shea(13)........................... 0 12,401 0 (14)
All directors and executive officers as a
group (3 (Preferred) and 8 (Common)
persons including certain of the above-
named individuals)............................ 81,058 774,580 39.7 32.5
(1) Francis E. Baker has beneficial ownership of an aggregate of 207,735
shares of Common Stock and no shares of Preferred Stock. Of the Common
Stock amount 125,001 shares are owned directly. The figure set forth in
the table includes 58,900 shares of Common Stock with respect to which
Mr. Baker has shared voting power as co-trustee under the Oliver R.
Grace Grandchildren Trust U/R dated December 27, 1976 and 3,834 shares
which such Trust owns by virtue of its ability to convert $62,000
principal amount of the Company's 10.5% Convertible Subordinated
Debentures due 2007 (the "Debentures") to Common Stock within a 60-day
period. Mr. Baker also holds a stock option to acquire an additional
20,000 shares of Common Stock which may be issued to him within a 60-day
period. Mr. Baker disclaims beneficial ownership of such shares held in
trust. In addition to the shares reported in the table, Mr. Baker is the
settlor of four irrevocable trusts dated March 31, 1970 created for the
benefit of certain of his children. Fleet National Bank acts as trustee
under each of these trusts, which hold an aggregate of 34,006 shares of
Common Stock. Mr. Baker does not exercise any control over these four
trusts and disclaims beneficial ownership.
(2) The Estate of Oliver R. Grace, Sr., c/o Lorraine G. Grace, Executrix,
has direct beneficial ownership of an aggregate of 156,360 shares of Common
Stock and no shares of Preferred Stock.
(3) Lorraine G. Grace has beneficial ownership of 183,790 shares of Common
Stock and no shares of Preferred Stock. Of the Common Stock amount, 13,638
shares are held by Mrs. Grace directly; 2,475 shares are held by Mrs. Grace, as
trustee of a trust for the benefit of her children; 11,317 shares are held by
virtue of the ability of Mrs. Grace to convert $183,000 principal amount of the
Debentures to Common Stock within a 60-day period; and 156,360 shares are held
by virtue of Mrs. Grace's appointment as executrix of the Estate of Oliver R.
Grace, Sr. Lorraine G. Grace is the mother of Directors Oliver R. Grace, Jr. and
John S. Grace.
(4) Oliver R. Grace,
Jr. has beneficial ownership of an aggregate of 193,266 shares of Common Stock
and 6,000 shares of Preferred Stock. Of the Common Stock amount, 62,528 shares
are held by Oliver R. Grace, Jr. directly, including 33,828 shares by virtue of
Mr. Grace, Jr.'s ability to convert $547,000 principal amount of the Debentures
to Common Stock within a 60-day period; 11,664 shares are held by virtue of Mr.
Grace, Jr.'s ability, as custodian for the benefit of his children, to convert
6,000 shares of the Company's Preferred Stock to Common Stock within a 60-day
period; 6,107 shares are held by Carolyn Grace, the spouse of Oliver R. Grace,
Jr., of which 5,627 shares are held by Mrs. Grace by virtue of her ability to
convert $91,000 principal amount of the Debentures to Common Stock within a
60-day period; 47,866 shares are held by virtue of the ability of The Anglo
American Security Fund L.P. (of which Oliver R. Grace, Jr. is a general partner)
to convert $774,000 principal amount of the Debentures to Common Stock within a
60-day period; 37,000 shares are held by a corporation owned by members of Mr.
Grace, Jr.'s family and 94,556 shares are held in an individual retirement
account for the benefit of Mr. Grace, Jr.. Mr. Grace, Jr. also holds stock
options to acquire an additional 9,500 shares of Common Stock which may be
issued to him within a 60-day period. Mr. Grace, Jr. also holds stock warrants
to acquire an additional 18,706 shares and 5,393 shares expiring March 2003 and
April 2003 respectively. Oliver R. Grace, Jr. disclaims beneficial ownership of
all shares owned by his spouse, by him as trustee for the benefit of family
members, by his children, and by The Anglo American Security Fund, L.P.
described herein.
(5) John S. Grace has beneficial ownership of 125,556 shares
of Common Stock and 22,571 shares of Preferred Stock. Of the Common Stock
amount, 17,272 shares are owned by John S. Grace directly, including 1,422
shares held by virtue of Mr. Grace's ability to convert $23,000 principal amount
of the Debentures to Common Stock within a 60-day period; 47,866 shares are held
by virtue of the ability of The Anglo American Security Fund L.P. (of which John
S. Grace is a general partner) to convert $774,000 principal amount of the
Debentures to Common Stock within a 60-day period; 1,484 shares are held by
virtue of the ability of Florida & Asia Consulting, Inc. (Lola Grace, the spouse
of John S. Grace, is the sole stockholder of Florida & Asia Consulting, Inc.) to
convert $24,000 principal amount of the Debentures to Common Stock within a
60-day period; 43,878 shares are held by virtue of the ability of Sterling Grace
Capital Management, L.P. (John S. Grace is Chairman of Sterling Grace
Corporation, the general partner of Sterling Grace Capital Management, L.P.) to
convert 22,571 shares of the Preferred Stock to Common Stock within a 60-day
period and 9,055 shares are held in an individual retirement account for Mr.
Grace's benefit. Mr. Grace also holds stock options to acquire an additional
6,000 shares of Common Stock. John S. Grace disclaims beneficial ownership of
all shares held by trustees for the benefit of members of his family and The
Anglo American Security Fund L.P.
(6) Peter N. Bennett has beneficial ownership of 105,034 shares of Common
Stock and 52,487 shares of Preferred Stock. The figure set forth in the table
includes shares held by virtue of the ability of Mr. Bennett to convert 52,487
shares of the Preferred Stock to 102,034 shares of Common Stock within a 60-day
period. Also included in the figure set forth in the table are 3,000 shares of
Common Stock which may be issued to Mr. Bennett within 60 days hereof upon the
exercise of his existing exercisable stock option.
(7) The Bank of Butterfield (the "Bank") has beneficial ownership of an
aggregate 331,826 shares of Common Stock and 16,863 shares of Preferred Stock as
trustee of various trusts. Of the Common Stock amount 32,781 shares are held by
virtue of the Bank's ability, as trustee, to convert 16,863 shares of the
Preferred Stock to Common Stock within a 60-day period.
(8) First United Securities Limited ("FUSL") has beneficial ownership of an
aggregate of 135,924 shares of Common Stock, as trustee of various trusts, and
no shares of Preferred Stock. Of the Common Stock amount 9,214 shares are held
by virtue of the ability of FUSL to convert $149,000 principal amount of the
Debentures to Common Stock within a 60-day period.
(9) Louis A. Lubrano has beneficial ownership of 8,000 shares of Common
Stock and no shares of Preferred Stock. Mr. Lubrano's ownership is represented
by stock options to acquire 8,000 shares of Common Stock within a 60-day period.
(10) James J. Pinto has beneficial ownership of 61,515 shares of Common Stock
and no shares of Preferred Stock. Of the Common Stock amount, 53,515 shares are
held directly. Also included in the figure set forth in the table are stock
options to acquire 8,000 shares of Common Stock within a 60-day period.
(11) Thomas McPartland holds non-qualified stock options to acquire 20,000
shares of Common Stock. These options are not exercisable until April 2001.
(12)Ronald N. Cerny has beneficial ownership of 8,884 shares of Common
Stock and no shares of Preferred Stock. Of the Common Stock amount, 3,000 shares
are held directly and 884 shares are held in the Company's 401(k) Plan. Also
included in the figure set forth in the table are stock options to acquire 5,000
shares of Common Stock within a 60-day period.
(13) Andrew M. O'Shea has beneficial ownership of 12,401 shares of Common
Stock and no shares of Preferred Stock. Of the Common Stock amount, 11,000
shares are held directly, 901 shares are held in the Company's 401(k) Plan and
500 shares are held by Moira L. O'Shea, the spouse of Andrew M. O'Shea.
(14) Represents less than one percent (1%) of the Common Stock.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Moscow Broadband Communication Ltd.
At February 28, 1999, the Company owned 50% of Treglos Investments
Limited ("Treglos") which owned an investment in the Institute for Automated
Systems ("IAS"), a Russian telecommunications company. At that date, Oliver R.
Grace, Jr., the Company's President and Chief Executive Officer, and his brother
John S. Grace, a Director of the Company, each owned directly and indirectly
approximately 22% of Treglos. Treglos has since changed its name to Moscow
Broadband Communication LTD (Moscow Broadband).
During the period from March 1, 1999 through December 31, 1999, the
Company invested an additional $300,000, including $39,000 of allocated
salaries, in Moscow Broadband which was matched equally by the other Moscow
Broadband shareholders. These funds were used primarily to pay expenses relating
to developing an agreement with Moscow Telecommunications Company (COMCOR) to
own and operate ComCor-TV, which has undertaken to deliver cable television,
data transmission and Internet access and IP telephony throughout the Moscow,
Russia region.
During January 2000 through March 2000, Moscow Broadband conducted a
private placement of its common stock in which it raised $18,000,000 in gross
cash proceeds. The Company invested $4,500,000 in this private placement,
including the conversion of $500,000 of unrecorded accounts receivable from
Moscow Broadband into Moscow Broadband stock. In addition, entities formed for
the benefit of Oliver R. Grace, Jr. and John S. Grace, or their families,
invested $6,090,000, including the conversion of $475,000 of receivables from
Moscow Broadband into Moscow Broadband stock. Francis E. Baker, the Company's
Chairman, invested $500,000, Thomas McPartland, a Director invested $500,000,
James J. Pinto, a Director, directly and indirectly invested $600,000, Peter N.
Bennett, a Director invested $200,000 and Andrew M. O'Shea, the Company's Chief
Financial Officer, invested $10,000. Also, Ann Marie Lubrano, the daughter of
Louis A. Lubrano, a Director, invested $100,000.
The accounts receivable to the Company and the Grace-controlled
interests, as well as to one other investor, represented a portion of amounts
paid into Moscow Broadband from 1995 through 1999.
During January and February 2000, the Company allocated $46,833 of
expenses to Moscow Broadband for administrative and due diligence services. At
February 29, 2000, the Company had recorded a receivable of $91,747 for such
allocated costs and for expenses paid on Moscow Broadband's behalf which was
subsequently paid.
During fiscal 2000, Oliver R. Grace, Jr., President and Chief Executive
Officer, extended the Company a $1,000,000 loan for the purpose of increasing
the Company's investment in Moscow Broadband. This loan which bears interest at
the annual rate of 8.5% to be paid quarterly, matures in August 2001 and is
secured by a first lien on real estate owned by a wholly-owned subsidiary of the
Company. In connection with the loan, Mr. Grace, Jr. also received a warrant to
purchase 18,706 shares of the Company's stock at an exercise price of $16.04 per
share.
VSMPO
During fiscal 1998, the Company purchased shares of the common stock of
Avisma, a Russian titanium producer, for approximately $2,000,000, for its own
account and on behalf of certain members of the Company's Board of Directors.
Avisma was subsequently merged into VSMPO, a Russian titanium processing
company. The Company's portion of the original investment was $1,225,000. Shares
owned by the Company in a Rabbi Trust for the benefit of Oliver R. Grace, Jr.,
as well as shares held for Messrs. Francis E. Baker and James J. Pinto, and for
entities formed for the benefit of Mr. Grace, Jr. and John S. Grace, and their
families, were held by the Company for administrative convenience. The entire
investment was sold during fiscal 2000 and the proceeds received were
proportionally distributed to the beneficial owners as follows- the Company
$317,000, Mr. Baker $26,000, Mr. Pinto, $32,000, Rabbi Trust for Mr. Grace, Jr.
$26,000, entities formed for the benefit of Mr. Grace, Jr. and Mr. Grace
$117,000.
Other
Francis E. Baker, the Company's Chairman and Secretary, is indebted to
the Company in the amount of $223,487. Mr. Baker purchased the Company's
interest in a split dollar life insurance policy, insuring Mr. Baker's life, and
for which the Company was the beneficiary, in exchange for Mr. Baker's
non-interest bearing promissory note in the principal amount of $223,487, due
December 2000. The note is secured by a pledge of shares of the Company's Common
Stock owned by Mr. Baker that had a market value of approximately $856,250 at
February 29, 2000. The consideration represented by the promissory note
approximated the cash surrender value of the policy and equaled the Company's
book value at the date of the transaction.
During April 2000, the Company borrowed an additional $200,000 from Mr.
Grace, Jr. in exchange for a 8.5% secured note and a warrant to purchase 5,393
shares of the Company's common stock at $11.13 per share. Also, in April 2000,
the Company borrowed $50,000 from Francis E. Baker, Chairman, in exchange for an
unsecured demand note which bears interest at the rate of 10% per annum. These
amounts were borrowed to enable the Company to meet its preferred dividend and
interest payment requirements. These transactions were authorized by the Board's
Executive Committee subject to approval of the Board.
The Company leases office space from a company owned by Oliver R.
Grace, Jr., President and Chief Executive Officer, for which it paid $71,605
during the fiscal year ended February 29, 2000.
During the prior fiscal year, Peter R. Barker, the Company's former
Vice President and Chief Financial Officer, became indebted to the Company in
the aggregate amount of $250,000, in the form of a two-year promissory note due
January 2001, with interest payable at 7%, and a $50,000 demand note. Mr. Barker
repaid the demand note in cash, and repaid the two-year promissory note by
tendering 10,834 shares of the Company's common stock under provisions of his
employment agreement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K.
(a)1. Consolidated Financial Statements applicable to the Registrant
contained in Item 8:
Pages
Consolidated Balance Sheets
as of February 29, 2000 and February 28, 1999 21
Consolidated Statements of Operations
for the years ended February 29, 2000 and February 28, 1999 and 1998 22
Consolidated Statements of Changes in Stockholders' Equity
for the years ended February 29, 2000 and February 28, 1999 and 1998 23
Consolidated Statements of Cash Flows
for the years ended February 29, 2000 and February 28, 1999 and 1998 24
Notes to Consolidated Financial Statements 25
Independent Auditors' Consent E-3
(a)2. Consolidated Financial Statement Schedules:
Schedule
I Condensed Financial Information F-1 to F-4
II Valuation and Qualifying Accounts F-5
Note: Schedules other than those listed above, are omitted as not applicable,
not required, or the information is included in the Consolidated Financial
Statements or notes thereto.
(a)3. Exhibits required by Item 601 of Regulation S-K:
Exhibit
No. Description
3.1 Second Amended and Restated Certificate of Incorporation of the
Registrant.
3.11 Amended and Restated By-Laws of the Registrant as of April 18, 1997,
incorporated herein by reference to Exhibit 3.2 to the Registrant's Annual
Report on Form 10-K for the year ended February 28, 1997 (Commission File No.
0-1460).
3.2 Restated By-laws for the State of Delaware.
4.1 Indenture, dated as of February 26, 1998, between the Registrant and
The Chase Manhattan Bank, as Trustee, in respect of $4,311,000, aggregate
principal amount, 10 1/2% Convertible Subordinated Debentures Due 2007.
10.1 Andersen Group, Inc. Incentive Stock Option Plan incorporated herein
by reference to Appendix A to the Registrant's Post-Effective Amendment No. 1 to
Form S-8 (File No. 333-17659) filed February 27, 1997.
10.2 Andersen Group, Inc. Incentive and Non-Qualified Stock Option Plan
incorporated herein by reference to Appendix B to the Registrant's
Post-Effective Amendment No. 1 to Form S-8 (File No. 333-17659) filed February
27, 1997.
10.3. Deferred Compensation Agreement, entered into as of September 30,
1992, by and between the Registrant and Francis E. Baker, incorporated herein by
reference to Exhibit 10.26 of the Registrant's Annual Report on Form 10-K for
the year ended February 28, 1995 (Commission File No. 0-1460).
10.4 Letter Agreement, dated March 7, 1993, between the Registrant and
Ronald N. Cerny, incorporated herein by reference to Exhibit 10.30 to the
Registrant's Annual Report on Form 10-K for the year ended February 28, 1995
(Commission File No. 0-1460).
10.5 Letter Agreements, dated February 23, 1995 and March 20, 1995, between
the Registrant and Ronald N. Cerny.
10.6 Revolving Credit and Deferred Payment Sales Agreement by and among The
J. M. Ney Company, Bank of Boston Connecticut and Rhode Island Hospital Trust
National Bank made as of the 8th day of October 1996, incorporated herein by
reference to exhibit 10.13 of the Registrant's Annual Report on Form 10-K for
the year ended February 28, 1997.
10.10 Securities Purchase Agreement dated as of December 29, 1997 by and
between The J.M. Ney Company and BankBoston, N.A.
10.11 Asset Purchase Agreement made effective as of February 28, 1998 among
CAE U.S., Inc., Ney Ultrasonics Inc. and Andersen Group, Inc.
10.12 Amendment to Revolving Credit and Deferred Payment Sales Agreement by
and among The J.M. Ney Company, BankBoston and Rhode Island Hospital Trust
National Bank dated December 29, 1997.
10.13 Peter Barker Service Agreement effective January 11, 1999.
10.14 Settlement Agreement with between CAE (U.S.) Inc. ("CAE"); Ney
Technology, Inc. f/k/a Ney Ultrasonics, Inc.; and Andersen Group, Inc.
21. Subsidiaries of the Registrant.*
23. Consent of Deloitte & Touche LLP.*
27. Financial Data Schedule.*
(b) Reports on Form 8-K.
On February 2, 2000, the Company filed a Form 8-K to announce an
increase in its investment in Treglos Investments Limited
(Treglos) as part of a private placement of Treglos shares, and to
announce that Treglos had entered into an agreement with
Moskovskaya Telecommunikatsionnaya Corporatsiya (COMCOR), a
Moscow-based telecommunications company to operate ZAO ComCor-TV
(ComCor-TV). ComCor-TV will provide a wide range of
telecommunications services including cable television, high speed
Internet access and IP telephony to individual subscribers and
businesses throughout the Moscow region.
On February 22, 2000, the Company filed a Form 8-K which contained
the General Agreement dated January 31, 2000 among COMCOR, Treglos
and ComCor-TV and an amendment regarding the closing date, dated
February 15, 2000.
*Filed herein
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 on May 25, 2000.
ANDERSEN GROUP, INC. ANDERSEN GROUP, INC.
- -------------------- --------------------
Registrant Registrant
/s/ Oliver R. Grace, Jr. /s/ Andrew M. O'Shea
- ------------------------ --------------------
Oliver R. Grace, Jr. Andrew M. O'Shea
Principal Executive Officer Chief Financial Officer and
Principal Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated. NAME TITLE DATE
- ---- ----- ----
/s/ Francis E. Baker Chairman, Secretary and Director
- --------------------
Francis E. Baker May 25, 2000
/s/ Oliver R. Grace President, Chief Executive Officer
- -------------------
Oliver R. Grace and Director
May 25, 2000
/s/ Peter N. Bennett
Peter N. Bennett Director May 25, 2000
/s/ John S. Grace
John S. Grace Director May 25, 2000
/s/ Louis A. Lubrano
Louis A. Lubrano Director May 25, 2000
/s/ Thomas McPartland
Thomas McPartland Director May 25, 2000
/s/ James J. Pinto
James J. Pinto Director May 25, 2000
INDEPENDENT AUDITORS' REPORT The Stockholders and Board of Directors Andersen
Group, Inc.
New York, NY
We have audited the consolidated balance sheets of Andersen Group, Inc. and
subsidiaries as of February 29, 2000 and February 28, 1999 and the related
consolidated statemetns of opoerations, stockholders' equity and cash flows for
each of the thre years in the period ended February 29, 2000 for the years then
ended, and have issued our report thereon dated May 3, 2000; such report is
included elsewhere in this Form 10-K. Our audit also included the financial
statement schedules of Andersen Group, Inc. and subsidiaries, listed in Item 14.
These financial statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits. In
our opinion, such financial statement schedules, when considered in relation to
the basic consolidated financial statements taken as a whole, present fairly, in
all material respects, the information set forth therein.
/s/ Deloitte and Touche LLP
Hartford, Connecticut
May 3, 2000
ANDERSEN GROUP, INC.
Schedule I - Condensed Financial Information of the Registrant
Condensed Balance Sheets
February 29, 2000 and February 28, 1999
(amounts in thousands)
2000 1999
Assets
Current assets:
Cash and cash equivalents $ 1,194 $ 1,614
Marketable securities 851 5,916
Accounts and other receivables 194 230
Prepaid expenses and other assets 229 5
Deferred income taxes 400 546
Receivable from JM Ney Company 831 -
------ ------
Total current assets 3,699 8,311
Investment in The J. M. Ney Company 6,337 6,921
Subordinated note receivable from The J.M. Ney Company 4,000 4,000
Investment in Moscow Broadband Communication Ltd. 4,084 84
Investments - 122
Property, plant and equipment, net 2,190 2,308
Other assets 1,028 940
Deferred income taxes - 222
------ ------
$21,338 $22,908
------ ------
------ ------
Liabilities and Stockholders' Equity
Current liabilities:
Short-term borrowings $ - $ 1,392
Current maturities of long-term debt 421 316
Accounts payable 289 157
Accrued liabilities 595 449
----- ----
Total current liabilities 1,305 2,314
Long-term debt, less current maturities 3,086 3,522
Note payable to officer, net of unamortized discount 933 -
Other long-term liabilities 742 643
Deferred income taxes 10
-
------ ------
Total liabilities 6,076 6,479
Commitments and contingencies (Note 7)
Stockholders' equity:
Cumulative convertible preferred stock,
no par value; authorized 800,000 shares; ; outstanding 216,864 in
2000 and 256,416 shares in 1999; liquidation preference $18.75 per 4,033 4,769
share
Common stock, $.01 par value; authorized 6,000,000 shares,
issued 2,035,364 in 2000 and 1,958,478 shares in 1999 20 20
Additional paid-in capital 6,141 5,339
Treasury stock, at cost, 28,002 in 2000;30,549 shares in 1999; (276) (142)
Receivable from officer - (250)
Retained earnings 5,344 6,693
------ ------
Total stockholders' equity 15,262 16,429
------- ------
$21,338 $22,908
------- ------
------- ------
See accompanying notes to condensed financial information.
F-1
ANDERSEN GROUP, INC.
Schedule I - Condensed Financial Information of the Registrant
Condensed Statements of Operations
Years ended February 29, 2000, February 28, 1999 and 1998
(amounts in thousands, except per share data)
- ------------------------------------------------------------------- ---------------------- ------------------------ ----------------
2000 1999 1998
Revenues:
Investment income (loss) and other income $1,262 $(3,237) $3,471
Management fees and interest from The J.M. Ney Company 920 820 205
- ------------------------------------------------------------------ ----------------------- ------------------------ ----------------
2,182 (2,417) 3,676
- ------------------------------------------------------------------ ----------------------- ------------------------ ----------------
Costs and expenses:
General and administrative 2,455 2,039 2,207
Interest expense 425 503 695
- ------------------------------------------------------------------ ----------------------- ------------------------ ----------------
2,880 2,542 2,902
- ------------------------------------------------------------------ ----------------------- ------------------------ ----------------
(Loss) income from continuing operations before income taxes
and equity in earnings of The J.M. Ney Company (698) (4,959) 774
Income tax (benefit) expense (279) (1,678) 361
- ------------------------------------------------------------------ ----------------------- ------------------------ ----------------
Loss from continuing operations before equity in (loss)
earnings of The J.M. Ney Company (419) (3,281) 413
Equity in (loss) earnings of The J.M. Ney Company (568) 317 1,357
- ------------------------------------------------------------------ ----------------------- ------------------------ ----------------
(Loss) income from continuing operations (987) (2,964) 1,770
Income from discontinued operations, net of taxes - - 345
(Loss) gain on sale of discontinued segment, net of income taxes - (116) 97
- ------------------------------------------------------------------ ----------------------- ------------------------ ----------------
Net (loss) income (987) (3,080) 2,212
Preferred dividends (362) (385) (440)
- ------------------------------------------------------------------ ----------------------- ------------------------ ----------------
(Loss) income applicable to common shares $(1,349) $(3,465) $1,770
- ------------------------------------------------------------------ ----------------------- ------------------------ ----------------
(Loss) earnings per common share:
BASIC
Continuing operations $ (0.70) $( 1.74) $0.69
Discontinued operations - - 0.18
Loss on sale of discontinued segment - (.06) 0.05
- ------------------------------------------------------------------ ----------------------------- -------------------- --------------
(Loss) earnings per common share, basic $ (0.70) $ (1.80) 0.92
- ------------------------------------------------------------------ ----------------------------- -------------------- --------------
DILUTED
Continuing operations $ (0.70) $ (1.74) $0.68
Discontinued operations - - 0.18
Loss on sale of discontinued segment - (.06) 0.05
- ------------------------------------------------------------------ ----------------------------- -------------------- --------------
Loss per common share, diluted $ (0.70) $ (1.80) $0.91
- ------------------------------------------------------------------ ----------------------------- -------------------- --------------
See accompanying notes to condensed financial information.
F-2
ANDERSEN GROUP, INC.
Schedule I - Condensed Financial Information of the Registrant
Condensed Statements of Cash Flows
Years ended February 29, 2000, February 28, 1999 and 1998
(amounts in thousands)
2000 1999 1998
- ---------------------------------------------------------------- ---------------------- ------------------------- ------------------
Cash flows from operating activities:
Net loss $(987) $(3,080) $2,212
Adjustments to reconcile net (loss) to net cash provided by (used in) operating
activities:
Equity in loss (earnings) of The J. M. Ney Company 568 (317) (1,357)
Equity in earnings of Ney Ultrasonics - - (345)
Depreciation, amortization and accretion 150 157 216
Deferred income taxes 378 (1,280) 880
Loss (gain) on sale of Ney Ultrasonics - 116 (97)
Net (gains) losses from securities (268) 4,247 (2,619)
Purchases of securities (174) (1,336) (2,218)
Proceeds from sales of securities 5,312 1,783 1,230
Gain on sale of property - (25) -
Changes in operating assets and liabilities:
Accounts and notes receivable 36 (105) (72)
Receivable from The JM Ney Company (831) - -
Prepaid expenses and other assets (226) 1 372
Accounts payable, accrued liabilities and other
long-term obligations 302 (1,464) (409)
- ---------------------------------------------------------------- ---------------------- ------------------------- ------------------
Net cash provided by (used in) operating activities 4,260 (1,303) (2,207)
- ---------------------------------------------------------------- ---------------------- ------------------------- ------------------
Cash flows from investing activities:
Proceeds from sale of Ultrasonics segment - 2,800 -
Purchase of property, plant and equipment (20) (22) (34)
Proceeds from sale of property - 223 -
Proceeds from sale of investments 317 - 1,542
Investment in Moscow Broadband Communication Ltd. (4,000) - -
Investment in other assets - - (1,225)
- ---------------------------------------------------------------- ---------------------- ------------------------- ------------------
Net cash (used in) provided by investing activities (3,703) 3,001 283
- ---------------------------------------------------------------- ---------------------- ------------------------- ------------------
Cash flows from financing activities:
Principal payments on long-term debt (315) (727) (2,561)
(Repayments of) proceeds from short-term borrowings (1,392) (95) 1,486
Proceeds from issuance of secured note 1,000 - -
Stock options exercised 10 50 -
Treasury shares sold (purchased), net 55 (352) -
Officer load repaid 50 - -
Dividends paid (385) (401) (1,222)
Redemption of preferred stock - - (160)
Dividends received from The J.M. Ney Company - - 3.518
- ---------------------------------------------------------------- ---------------------- ------------------------- ------------------
Net cash (used in) provided by financing activities (977) (1,525) 1,061
- ---------------------------------------------------------------- ---------------------- ------------------------- ------------------
Net (decrease) increase in cash and cash equivalents (420) 173 (863)
Cash and cash equivalents, beginning of year 1,614 1,441 2,304
- ---------------------------------------------------------------- ---------------------- ------------------------- ------------------
Cash and cash equivalents, end of year $1,194 $ 1,614 $1,441
- ---------------------------------------------------------------- ---------------------- ------------------------- ------------------
Supplemental disclosure of cash flow information
Cash paid (received) for:
Interest $ 437 $ 538 $ 766
Income taxes, net $ (140) $ (210) $ 360
- ---------------------------------------------------------------- ---------------------- ------------------------- ------------------
See accompanying notes to condensed financial information.
F-3
ANDERSEN GROUP, INC
Schedule I - Condensed Financial Information
of the Registrant
Notes to Condensed Financial Information
February 29, 2000 and February 28, 1999
NOTE 1 - GENERAL
The Condensed Financial Information presented herein is required because the
Registrant's wholly owned subsidiary, The J. M. Ney Company (JM Ney), entered
into a Revolving Credit and Deferred Payment Sales Agreement with a commercial
bank in October 1996 which was subsequently amended December 30, 1997. This
agreement contains covenants that limit the transfer of cash and other resources
from JM Ney to the Registrant.
The Condensed Financial Information of the Registrant should be read in
conjunction with the Consolidated Financial Statements and the Notes to
Consolidated Financial Statements which are included in Item 8 herein. The
Condensed Financial Information of the Registrant includes the accounts of
several wholly owned subsidiaries which are immaterial to the Registrant's
Condensed Financial Information.
NOTE 2 - TRANSACTIONS WITH AFFILIATES
The Registrant and its wholly owned subsidiaries share certain administrative
services. The costs of these services are allocated to the entity which receives
the service. The following are among the types of services which have been
provided to the Registrant by JM Ney: maintenance, accounting, human resources,
and management information systems. Services provided by the Registrant to JM
Ney include the following: legal, tax, and business advisory services. During
FY98, JM Ney made a $4 million distribution to the Registrant in the form of an
8% junior subordinated note due January 31, 2005. Effective December 1997, the
Registrant and JM Ney also entered into a Financial, Investment Banking and
Professional Services Agreement under which, subject to JM Ney's compliance with
certain covenants, JM Ney will pay the Registrant fees for defined services. The
retainer for the first 15 months of this agreement was at the annual rate of
$500,000. Thereafter, the retainer will increase by $100,000 per year. The
agreement runs through November 30, 2002. During FY00 and FY99, JM Ney paid or
accrued to the Registrant a total of $920,000 and $820,000 , respectively under
these two agreements. At February 29, 2000, receivables from JM Ney totaling
$573,000 were restricted from being paid by JM Ney under provisions contained
within JM Ney's agreements with its primary bank.
In connection with JM Ney entering into the Revolving Credit and Deferred
Payment Sales Agreement referred to above, the Registrant and JM Ney entered
into a Tax Sharing Agreement, effective as of March 1, 1996, which requires JM
Ney to pay the Registrant an amount which may be equal to the maximum allowable
amount of any Federal and State income taxes for which JM Ney or any of its
subsidiaries would have been liable for in the particular year. The Registrant
files a consolidated Federal income tax return with its subsidiaries.
F-4
NOTE 3 - SHORT TERM BORROWINGS
At February 28, 1999, the Registrant had a $1,392,000 demand loan, which was
secured by a portion of the Company's portfolio of marketable securities. This
borrowing was repaid during FY00 with the proceeds from sales of marketable
securities.
NOTE 4 - LONG TERM DEBT
Long-term debt consists of the following (in thousands):
February 29, 2000 February 28, 1999
----------------- -----------------
Convertible subordinated debentures, due October 2007; interest at 10.5%,
payable semi-annually; Annual principal payments in varying amounts through
maturity, unsecured $3,435 $3,759
Secured note payable to officer, due August 2001,
interest at 8.5% payable quarterly, secured by a lien on
real estate 1,000 -
Other 72 79
--------- ---------
4,507 3,838
Less unamortized discount (67) -
--------- -----------
4,440 3,838
Less current maturities (421) 316
-------- --------
$4,019 $3,522
====== ======
The terms of the 2007 convertible subordinated debentures call for the annual
redemption of approximately $431,000 of principal The debentures are convertible
into common stock of the Company at any time prior to maturity, unless
previously redeemed, at $16.17 per share, subject to adjustment under certain
conditions. At February 29, 2000, 212,430 shares of common stock were reserved
for conversion.
Maturities of long-term debt for each of the next five fiscal years are as
follows (in thousands):
2001 $ 421
2002 1,439
2003 439
2004 440
2005 440
Thereafter 1,328
-----
$4,507
NOTE 5 - CUMULATIVE CONVERTIBLE PREFERRED STOCK
See Note 13 to the Registrant's Consolidated Financial Statements contained in
Item 8 herein.
F-5
NOTE 7 - LITIGATION
The Registrant is involved in various legal proceedings generally incidental to
its business. While the results of any litigation or regulatory issues contain
an element of uncertainty, management believes that the outcome of any known,
pending or threatened legal proceeding, or all of them combined, will not have a
material adverse effect on the Company's financial position or results of
operations.
F-6
ANDERSEN GROUP, INC.
Schedule II - Valuation and Qualifying Accounts
(Amounts in thousands)
Additions
Balance at Charged to Charged to
beginning costs and to other Balance at
Description of year expenses accounts Deductions end of year
February 29, 2000
- ----------------------- ----------------- ------------------ ------------------- ------------------- ------------------
Allowance for
doubtful account $110 1 - - $111
Reserve for returns
$80 - - - $80
February 28, 1999
- ----------------------- ----------------- ------------------ ------------------- ------------------- ------------------
Allowance for
doubtful accounts $130 (22) - 2(a) $110
Reserve for returns
$ 95 (15) - - $ 80
February 28, 1998
- ----------------------- ----------------- ------------------ ------------------- ------------------- ------------------
Allowance for
doubtful accounts $190 17 (36)(b) (41)(a) $130
Reserve for returns
$ 95 - - - $ 95
Warranty reserve $ 70 (30) (40)(b) - $ 0
(a)Write offs net of recoveries.
(b)Transferred in connection with sale of certain assets of Ultrasonics segment.
F-7
EXHIBIT INDEX
Exhibit
No. Description Page
21. Subsidiaries of the Registrant. E-2
23. Consent of Deloitte & Touche LLP. E-3
27. Financial Data Schedule. E-4
E-1
SUBSIDIARIES OF THE REGISTRANT
State or
Country of
Name or Organization Incorporation
AG Investors, Inc. Florida
AGI Technology, Inc. Connecticut
Andersen Realty, Inc. Delaware
Ney International, Inc. U.S. Virgin Islands
Ney Technology, Inc.
(f/k/a Ney Ultrasonics Inc.) Delaware
The J.M. Ney Company Delaware
New Jersey Precious Metals, Inc. Delaware
Garden State Refining, Inc. Delaware
ABC Moscow Broadband Communication Ltd. Cyprus
E-2
Exhibit 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Post Effective Amendment
No. 1 to Registration Statement No. 333-17659 of Andersen Group, Inc. and
subsidiaries on Form S-8 of our reports dated May 3, 2000, relating to the
consolidated financial statement and financial statements schedules appearing in
this Annual Report on Form 10-K of Andersen Group, Inc. and subsidiaries for the
year ended February 29, 2000.
/s/Deloitte & Touche LLP
Hartford, Connecticut
May 25, 2000