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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE
REQUIRED]
For the fiscal year ended February 28, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from __________ to __________
Commission File Number 0-1460
ANDERSEN GROUP, INC.
(Exact name of Registrant as specified in its charter)
Connecticut
06-0659863
(State or other jurisdiction of incorporation or organization) (I.R.S
Employer Identification No.)
1280 Blue Hills Avenue, Bloomfield, Connecticut 06002-1374
(Address of principal executive offices)
(Zip Code)
Registrant's telephone number, including area code: (860) 242-0761
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of
the Act:
Common Stock Without Par Value
(Title of Class)
10-1/2% Convertible Subordinated Debentures Due 2002
(Title of Class)
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. [ X ]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant based upon the average bid and asked prices of the Common Stock on
May 9, 1997, as reported on the NASDAQ National Market System, was approximately
$5,310,000. 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 9, 1997, there were 1,934,478 shares of Common Stock,
without par value, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Parts I and III: Portions of the Registrant's
Proxy Statement for its 1997 Annual Meeting
of Shareholders The exhibit index is
located on page E-1
PART I
ITEM 1. BUSINESS.
1 (a) Introduction. (i) 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.
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.
Since 1991 the Registrant's primary investment has been The J. M. Ney Company
(Ney) which operated in two industry segments: Electronics, consisting of Ney's
electronics and ultrasonics divisions, and Dental. In November 1995, Ney sold
the assets and certain liabilities of the Dental segment. In 1997 the
ultrasonics division of Ney was classified as a separate industry segment
(Ultrasonic Cleaning Equipment). In addition to the investment in Ney, since
April 1993, the Registrant held an investment in Digital GraphiX, Incorporated
(DGI), a video graphics company. As discussed in more detail below, under the
heading "Other Investments", DGI sold substantially all of its assets in April
1997 and is currently in the process of winding up its affairs.
As part of a strategic reorganization of the Company, effective June 1, 1997
Oliver R. Grace, Jr., the Company's Chairman, will become President and Francis
E. Baker, the Company's President, will become Chairman. It is anticipated that
the Company's principal executive offices will be relocated to New York, New
York, and that the Company will increasingly make minority, non-controlling
investments in operating companies.
1 (b) Industry Segment Information. Financial information regarding the
Company's industry segments is contained in Note 16 to the Registrant's
Consolidated Financial Statements for the fiscal year ended February 28, 1997
contained in Item 8 herein.
1 (c) Narrative Description of Business. During the fiscal year ended February
28, 1997, the Registrant held investments in companies that operated in two
business segments, Electronics and Ultrasonics. In addition, the Registrant held
interests in a video graphics company and in a company with plans to develop
data transmission networks throughout the Commonwealth of Independent States.
The Company also holds a portfolio of marketable securities comprised primarily
of the common stock of certain financial institutions.
Electronic Segment
The Electronics segment, which consists of the operations of Ney, is a
full-service, precious metal and parts supplier to automotive, medical,
industrial electronics, military and semi-conductor manufacturers. The fully
integrated approach of Ney includes fabrication and manufacture of its precious
metal alloys, as well as design, engineering and metallurgical support. The
fabrication capabilities include stamping, wire drawing, rolling from ingot to
foil, precision turning, injection and insert molding, and refining.
Ney specializes in the engineering and manufacturing of precious metal alloy
contacts and contact assemblies aimed at low amperage applications. Electrical
contacts made of 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
assembly, 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. Ney designs and builds the necessary molds and
tools as well as designs and manufactures the end product. By controlling the
total process Ney has a competitive advantage over other companies in
technology, cost and response time. Ney has attained ISO 9001 certification for
the manufacture of its products as well as approval by the Japanese Industrial
Standards (JIS) and the United States Food and Drug Administration. In addition,
QS9000 certification was received in May, 1997.
In connection with the sale of the assets and liabilities of the Company's
Dental segment in November, 1995, Ney entered into a three year manufacturing
agreement to alloy and fabricate precious metals for Ney Dental International,
Inc. (NDI), the purchaser of Ney's dental business. As part of this agreement,
the Company agreed, for a ten-year period, not to sell alloys, equipment or
merchandise into the dental market that NDI serves. The Company is, however,
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.
Ney's business has limited direct competition with regard to the manufacture of
low amperage precious contacts and contact assemblies due to the 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 vertical
integration to compete across the entire spectrum of products. Ney faces
indirect competition from companies such as Engelhard Corporation and Johnson
Matthey, Inc., which have significantly greater resources and which are involved
in higher volume production of more standard precious metal alloys.
Ney sells to more than 800 customers, with approximately 85% of its sales being
made to customers in the United States. Ney's sales are made domestically
through both field sales and manufacturers' representatives located in key
geographic markets. Internationally, Ney sells through manufacturers'
representatives, independent distributors and original equipment manufacturers.
No customer in the Electronics segment accounted for more than 10% of the
Registrant's consolidated sales in fiscal 1997.
Ultrasonics Segment
The Ultrasonics segment, which consists of Ney's majority owned subsidiary, Ney
Ultrasonics Inc. (Ney Ultrasonics), has focused on working with high-end
electronic, semi-conductor, disk-drive, medical and aerospace customers to
provide the advanced capabilities of patented ultrasonic cleaning technology and
to increase its market penetration. Ney Ultrasonics' products have become the
preferred choice in ultrasonics for numerous OEM system integrators and
fabricators.
Ney's EnviroSONIK(TM) and Torrent(TM) cleaning systems continue to replace
equipment and processes that use ozone-depleting chemicals which are being
phased out under mandates of provisions in the Clean Air Act of 1990. Ney
Ultrasonics is the exclusive licensee, pursuant to a license agreement, of the
patented ultrasonic technology used in its products. These products are capable
of cavitating some of the newer replacement chemistries and also incorporate
technologies that eliminate damage to microminiature components typically caused
by ultrasonic equipment produced by other manufacturers.
Ney Ultrasonics competes with a number of national and regional companies on the
basis of cleaning performance, price and delivery. Ney Ultrasonic's generators
carry a three-year general warranty which is not generally offered by its
competitors.
No customers in the Ultrasonics segment accounted for more than 10% of the
Registrant's consolidated sales in fiscal 1997.
Other Investments
During fiscal 1997 the Company increased its interest in DGI, a video graphics
company, by acquiring additional Common Stock, and by converting a note from DGI
into shares of DGI's Series A Preferred Stock. DGI was formerly wholly owned and
comprised the Company's Video Products segment from April 1993 to May 2, 1995.
In April 1997 DGI sold substantially all of its assets and received the approval
of its shareholders to liquidate. Also in April 1997, as part of the plan of
liquidation, DGI redeemed the shares of its Series A Preferred Stock held by the
Company. The liquidation will occur during fiscal 1998 and be completed by
February 1998. For further information on the Registrant's investment in DGI,
see Note 17 to the Company's Consolidated Financial Statements for the fiscal
year ended February 28, 1997 contained in Item 8 herein, and Certain
Relationships and Related Transactions in Item 13.
The Company also holds an investment in Treglos Investments, LTD, a joint
venture which is investing in a Russian telecommunications company that has
agreements to develop a data transmission network throughout the Commonwealth of
Independent States. The joint venture owns approximately 6% of the Institute for
Automated Systems. Among the joint venture partners are the Company's Chairman
and another Director. See Note 17 to the Company's Consolidated Financial
Statements for the fiscal year ended February 28, 1997 contained in Item 8
herein, and Certain Relationships and Related Transactions in Item 13.
Research and Development
During fiscal years 1997, 1996, and 1995, research and development expenditures
totaled approximately $1,472,000, $1,683,000 and $2,587,000, respectively.
Sources and Availability of Raw Materials and Components
The Company 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. The Company
believes that its sources of supply are adequate for its continuing needs.
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, 1997, the Registrant, including all subsidiaries, had 193
full-time employees and 1 part-time employee. None of these employees are
represented by a labor union, and the Registrant is not aware of any organizing
activities. Neither the Registrant nor any of its subsidiaries has experienced
any significant work stoppage due to any labor problems. The Registrant
considers its employee relations to be satisfactory.
Executive Officers of the Registrant
The Executive Officers of the Company and certain significant employees of its
subsidiaries are as follows:
Officer
Name Age Position Since
- ------------------------------- -------- ----------------------------------------------------------- -----------------
Oliver R. Grace, Jr. 43 Chairman 1990
Francis E. Baker 67 President and Secretary 1959
Robert P. Belcher 48 Treasurer and Chief Financial Officer 1996
Bernard F. Travers, III 39 Assistant Secretary 1993
Ronald N. Cerny 45 President, The J.M. Ney Company 1993
Andrew M. O'Shea 38 Treasurer and Chief Financial Officer,
The J.M. Ney Company 1995
Eugene Phaneuf 50 Vice President - Operations,
The J.M. Ney Company 1995
- ------------------------------- -------- ----------------------------------------------------------- -----------------
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. None of the executive officers of the Company
are related to any of the Directors.
Mr. Grace, Jr. has been a Director of the Company since 1986 and Chairman since
March 29, 1990. 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., the Company's
Chairman, is the brother of John S. Grace, a member of the Company's Board of
Directors. Effective June 1, 1997, Oliver R. Grace, Jr. will become President of
the Company and Mr. Baker will become Chairman.
Mr. Baker has been a Director of the Company and President of the Company since
1959. In May 1997, Mr. Baker became Secretary of the Company. Effective June 1,
1997, Mr. Baker will become Chairman and Secretary of the Company.
Mr. Belcher joined the Company in August 1996 as Treasurer and Chief Financial
Officer. From December 1996 to May 1997, Mr. Belcher was also the Company's
Secretary. From July 1994 to July 1996 Mr. Belcher was a Principal at the
management firm of Booz-Allen & Hamilton, Inc. From 1988 to 1994 Mr. Belcher was
the Executive Vice-President of Trinity Capital Corporation, a venture
capital/investment company.
Mr. Travers, III joined the Company in 1983. He was promoted to Assistant
Secretary in June 1993. From 1990 through the present he has also served as the
Company's Director of Law and Taxation. Mr. Travers is an attorney and a
Certified Public Accountant.
Mr. Cerny has served as president of Ney since November 16, 1995. From April
1993 to November 1995, Mr. Cerny was the General Manager of Ney's Electronics
Division. From 1988 until joining 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 Ney. 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 Vice-President, Finance and Administration. Mr.
O'Shea is a Certified Public Accountant
Mr. Phaneuf joined Ney in 1990. He was promoted to Vice President-Operations of
Ney in March 1996. From April 1994 to February 1996, Mr. Phaneuf was 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 Ney's
Manager of Engineering and Manufacturing.
ITEM 2. PROPERTIES. The Company's principal executive offices are currently
located in a 108,000 square foot building in Bloomfield, Connecticut. The
Registrant leases portions of this facility to its subsidiary, Ney Ultrasonics
and its former subsidiaries, NDI and DGI, as well as to third parties. See Note
10 to the Company's Consolidated Financial Statements for the fiscal year ending
February 28, 1997, contained in Item 8, for a discussion of the indebtedness
related to this property. The Company anticipates that during the fiscal year
ended February 28, 1998 it will relocate its principal executive offices to
leased space in New York, New York. Ney owns a 100,000 square foot facility
within a 16.5 acre industrial park in Bloomfield, Connecticut. This site
contains the principal operations of the Electronics segment and Ney's 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. As previously reported in the Company's Form 10-Q for
the quarter ended August 31, 1996, in July 1996, two companion lawsuits were
filed in the United States District Court for the district of New Jersey, MORTON
INTERNATIONAL, INC. V. A.E. STALEY MFG. CO. ET AL, and VELSICOL CHEMICAL CORP.
V. A.E. STALEY MFG. CO. ET AL, in which Morton and Velsicol assert cost recovery
and contribution claims pursuant to the Comprehensive Environmental Response,
Compensation and Liability Act (CERCLA) against approximately 95 companies
relating to the Ventron/Velsicol Superfund Site located in Wood Ridge and
Carlstadt, New Jersey (Site). On December 31, 1996, Morton and Velsicol filed a
First Amended Complaint, alleging an alternative basis for liability under the
Resource Conservation and Recovery Act (RCRA). Specifically, the plaintiffs
allege that Ney is a generator of hazardous substances which were ultimately
processed at the Site and contributed to the alleged contamination at the Site.
The suits, which duplicate each other, in all material aspects, seek to recover
the plaintiff's unspecified past and future costs of remediation of the Site.
The investigation at the Site to determine the extent of contamination has not
been completed and no plan for remediation has been developed. The plaintiffs
have not been able to provide the defendants with any confirmed figures with
respect to past costs and no figures at all for its future costs. On January 3,
1997, the defendants, including Ney, filed a Motion to Dismiss both Morton's and
Velsicol's Complaints based upon the statue of limitations and the New Jersey
doctrine of entire controversy. On April 15,1997, the Court denied the motion of
the defendants to dismiss the case. Initial disclosure of information relating
to the claims asserted in the complaints were made by plaintiffs and defendants
in January, 1997. In addition, two depositions of former employees of the
operators of the Site were taken earlier this year. Based on this preliminary
information, Ney is one of the smaller parties to have had any transactions with
one of the plaintiff's predecessors in interest. However, at this time, there is
insufficient information to determine the appropriate allocation of costs as
between or among the defendants group, if liability to the generator defendants
is ultimately proven. 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. 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. During the fiscal year ended February 28, 1997, the
Company settled a lawsuit with one of its business partners in connection with
the unauthorized transfer of shares in a Russian telecommunications company
held, indirectly by the Company through intermediary companies. The Settlement
Agreement requires the return of shares in the Russian telecommunications
company held by one of the intermediary companies. ITEM 4. SUBMISSION OF MATTERS
TO A VOTE OF SECURITY HOLDERS. On December 5, 1996, the Company paid off the
remaining outstanding principal balance of its 1979 Industrial Development Bonds
(IDBs) thereby allowing the waivers which had been received, as described in the
following paragraph, to become effective. In November 1996, the Company received
the consent of the holders of its 1983 IDBs and of the holders of its 10.5%
Convertible Subordinated Debentures due 2002 (Debentures) to waive compliance by
the Company with certain covenants contained in the indentures applicable to the
1983 IDBs and to the Debentures. The waivers received permit the Company to (1)
purchase from time to time, from or through brokers or dealers, through direct
negotiated transactions, in the open market, in block transactions, by tender
offer or otherwise, shares of (a) the Company's Series A Cumulative Convertible
Preferred Stock, without par value (Preferred Stock), and (b) (i) if no shares
of the Preferred Stock are outstanding, shares of the Company's Common Stock,
without par value (Common Stock), or (ii) if any shares of the Preferred Stock
are outstanding, shares of the Common Stock with the consent of the holders of
the Preferred Stock; in each case for such purchase prices as determined by the
Company, but not to exceed $6.0 million in the aggregate for all such purchases,
and (2) make payments for any shares of capital stock so purchased. A majority
of the non-affiliated holders of the Debentures (approximately $3,100,000) gave
their consent to the waiver. There was approximately $4,531,000 principal amount
of the non-affiliated holders of the Debentures outstanding at the time of the
consent solicitation.
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 and beneficial holders of the
Registrant's Common Stock on May 9, 1997 was 700 and 1100, respectively. During
fiscal year 1997 the Registrant did not pay any cash dividends. The Company's
high and low 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 28, High Low
1997
First Quarter $ 6 1/2 $ 3 3/4
Second Quarter 7 5 1/4
Third Quarter 7 3 1/4
Fourth Quarter 6 1/2 5
Year ended High Low
February 29, 1996
First Quarter $ 6 1/4 $3
Second Quarter 6 1/4 4 3/4
Third Quarter 5 1/4 3
Fourth Quarter 6 1/2 3 3/4
The Indenture relating to the Company's 10 1/2% Convertible Subordinated
Debentures contains a covenant which restricts payment of dividends on, or
repurchases or redemptions of, the Company's capital stock. See discussion of
the Restrictive Covenants under the heading - Liquidity and Capital Resources
contained in Management's Discussion and Analysis of Financial Condition and
Results of Operations in Item 7 herein, and Notes 9 and 10 of the Registrant's
Consolidated Financial Statements for the fiscal year ended February 28, 1997
contained in Item 8.
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 for the fiscal year ended February 28, 1997 contained
in Item 8, (amounts in thousands, except per share data).
- ------------------------------------ ---------------- ---------------- -------------- ---------------- ----------------
Years ended February 1997 1996 1995 1994 1993
- ------------------------------------ ---------------- ---------------- -------------- ---------------- ----------------
Revenues1 $24,375 $24,048 $28,866 $21,015 $15,629
- ------------------------------------ ---------------- ---------------- -------------- ---------------- -----------------
Income (loss) from continuing
Operations 299 (2,270) (1,159) (1,634) (1,474)
- ------------------------------------ ---------------- ---------------- -------------- ---------------- -----------------
Net Income (loss) 299 1,933 (388) (868) (2,685)
- ------------------------------------ ---------------- ---------------- -------------- ---------------- -----------------
Income (loss) applicable to
Common shares 22 2,389 (975) (1,468) (3,355)
- ------------------------------------ ---------------- ---------------- -------------- ---------------- -----------------
Income (loss) from continuing
Operations per common share .01 (.94) (.90) (1.22) (2.45)
- ------------------------------------ ---------------- ---------------- -------------- ---------------- -----------------
Income (loss) per common
Share, primary .01 1.23 (.50) (0.80) (1.89)
- ------------------------------------ ---------------- ---------------- -------------- ---------------- -----------------
Depreciation, amortization
and accretion 1,419 1,887 2,329 3,368 3,287
- ------------------------------------ ---------------- ---------------- -------------- ---------------- -----------------
Total assets 37,677 38,798 43,679 48,590 52,337
- ------------------------------------ ---------------- ---------------- -------------- ---------------- -----------------
Total debt 10,119 8,485 12,328 16,371 17,723
- ------------------------------------ ---------------- ---------------- -------------- ---------------- -----------------
Redeemable preferred stock 4,891 5,280 10,593 10,494 10,684
- ------------------------------------ ---------------- ---------------- -------------- ---------------- -----------------
- ------------------------------------ ---------------- ---------------- -------------- ---------------- -----------------
Common and other stockholders'
equity 13,647 13,625 9,913 10,837 11,482
- ------------------------------------ ---------------- ---------------- -------------- ---------------- -----------------
Book value per common share 7.05 7.04 5.13 5.62 6.46
- ------------------------------------ ---------------- ---------------- -------------- ---------------- -----------------
1 The results of Digital GraphiX are included in 1994, 1995 and two months of
1996. Net sales and revenues, and income (loss) from continuing operations
for FY 1996 exclude the results of operations of the Company's Dental
segment as a result of its sale in November 1995.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
YEAR ENDED FEBRUARY 28, 1997 VS YEAR ENDED FEBRUARY 29, 1996
Revenues
Total revenues of $24,375,000 during the fiscal year ended February 28, 1997
(FY97) represent an increase of 1.4% from the $24,048,000 recorded during the
year ended February 29, 1996 (FY96). This modest increase represents the
combination of increased sales from the Electronics segment, losses sustained
from investments in Phoenix Shannon, p.l.c. and the absence of sales from the
Company's formerly consolidated Video Products segment.
Sales from the Electronics segment totaled $20,643,000 during FY97, which
represents a 24.8% increase over the $16,544,000 recorded during FY96. Increased
sales in medical, automotive and other industrial markets, which resulted from
expansion of capabilities and effective marketing efforts, coupled with sales
from fabrication services to the Company's former Dental segment, produced the
sales growth. Sales from the Ultrasonics segment during FY97 of $3,874,000
represents a 16.0% decrease from the prior year. A slowdown in the semiconductor
industry resulted in fewer shipments in the third and fourth quarters, although
bookings strengthened for the segment in the fourth quarter. Sales from the
formerly consolidated Video Products segment totaled $2,080,000 during the first
two months of FY96. Due to an offering of the common stock of Digital GraphiX,
Incorporated (DGI), the Company's ownership was diluted, and its results beyond
that date were not consolidated with those of the Company. Accordingly, during
FY97, this segment did not generate any reportable sales for the Company.
Investment and other income produced a net loss of $142,000 during FY97, versus
income of $813,000 in the prior fiscal year. A significant decline in the market
value of Phoenix Shannon common stock resulted in a complete writeoff of
$2,175,000 of the Company's investment in Phoenix Shannon, including a $1
million note receivable. During FY96, the Company absorbed a $525,000 loss on
Phoenix Shannon's common stock due to a decline in its market value.
Gains from common stocks, which primarily comprise investments in certain
financial institutions, produced net investment gains of $1,032,000 during FY97,
while these investment activities yielded $585,000 of net gains during FY96. In
addition, rental income increased from $281,000 in FY96 to $342,000 in FY97.
Interest income of $342,000 in FY97 was 27.1% lower than the $469,000 recorded
in FY96 primarily due to reduced interest related to the Company's note
receivable from DGI, which was partially offset by increased interest on excess
cash balances. The DGI note was partially converted to preferred stock during
the year, and no accruals of dividend income were recorded. In addition,
management fees received constitutes $200,000 of other income in FY97.
Cost of Sales
Cost of sales totaled $15,469,000 in FY97, an increase of 0.5% from FY96. Cost
of sales represented 63.1% and 66.3% of net sales for FY97 and FY96,
respectively. The 3.2% improvement in gross margin rates is attributable to a
16.3% improvement in rates within the Ultrasonics segment and a 1.5% improvement
within the Electronics segment.
Selling, General and Administrative Expenses
Selling, general and administrative expenses of $7,249,000 during FY97 were
20.9% lower than the $9,166,000 of such expenses reported for FY96. The
writedown in FY96 of $1 million of the Company's investment in DGI and
approximately $950,000 of legal and settlement costs relating to a suit filed
against the Company's former subsidiary, Seratronics, Inc., which has since been
liquidated, account for most of the higher costs in FY96. Selling, general and
administrative expenses totaled 29.7% of revenues in FY97 versus 38.1% in FY96.
Research and Development Expenses
Research and development expenses decreased from $1,683,000 in FY96 to
$1,472,000 in FY97. Without the expenses from the former Video Products segment
for two months in FY96, the current year amount would have represented an
increase of 10.2%. Such expenses represented 6.0% of net sales in FY97, versus
7.2% for FY96, due primarily to the relatively higher level of these expenses
within the Video Products segment.
Interest Expense
Interest expense of $790,000 during FY97, represents a 36.1% decrease from the
interest expense of $1,237,000 incurred during FY96. Principal payments in both
years on long-term obligations, including prepayments made during FY97 to obtain
consents to implement a Capital Stock Purchase Program, along with lower average
outstanding amounts under revolving credit agreements, resulted in lower
interest expense in FY97.
Income Tax Benefit
An income tax benefit of $904,000 was recorded during FY97 due to the operating
loss and to the favorable settlement of a state income tax audit relating to
prior years which was the primary factor that enabled the Company to reverse
approximately $546,000 of accrued income taxes. A tax benefit of $1,166,000
relating to the loss from continuing operations was recorded in FY96.
Preferred Dividends
The preferred dividend requirement, including the amortization of the issuance
discount, totaled $411,000 in FY97 versus $559,000 in FY96. The decrease relates
to fewer preferred shares outstanding due to purchases in the fourth quarters of
both FY96 and FY97. Dividends per preferred share, which are based on the
consolidated operating income (as defined) of The J. M. Ney Company, increased
from $.78 in FY96 to $1.24 in FY97 due to improvement in the operating
performance of the Electronics and Ultrasonics segments.
Net Income
For FY97, the Company reported net income of $299,000. After preferred dividends
and the reversal of preferred dividends due to the repurchase of shares, net
income was $22,000 or $.01 per share, versus a net loss from continuing
operations applicable to common shareholders of $1,814,000, or $0.94 per share,
in FY96. The FY 96 results also benefitted from a gain on the sale of the Dental
segment and the results of operations from that segment for approximately nine
months. These factors added $4,203,000 or $2.17 per share, of income to make net
income for FY96 total $2,389,000, or $1.23 per share.
YEAR ENDED FEBRUARY 29, 1996 VS. YEAR ENDED FEBRUARY 28, 1995
Revenues
Total revenues of $24,048,000 during the fiscal year ended February 29, 1996
(FY96) declined by 16.7% from the $28,866,000 recorded during the year ended
February 28, 1995 (FY95). This decline represents the combination of sales
growth in the Electronics segment, the removal of the results of the Video
Products segment from consolidation during FY96, and lower levels of investment
income.
Sales from the Electronics segment totaled $16,544,000 during FY96, which
represented a 17.5% increase over the $14,079,000 of sales recorded during FY95.
Growth came from utilization of increased machining capabilities and successful
sales and marketing efforts. Sales from the Ultrasonics segment totaled
$4,611,000 during FY96, a 6.1% increase over the previous year's sales totals.
Sales from the Video Products segment totaled $2,080,000 for the first two
months of FY96; after which its operations ceased to be consolidated due to a
dilution of ownership from an offering of its common stock. During FY95, the
activities of the Video Products segment were consolidated with the Company for
the entire fiscal year and $6,998,000 of sales was recorded.
Investment and other income totaled $813,000 during FY96, primarily from
$281,000 of rental income, $585,000 of gains on marketable securities, and
$469,000 of interest income on excess cash, from a note receivable from DGI, and
from a note receivable which was received as part of the proceeds of the sale of
the Company's Dental segment. These sources of income were then reduced by a
$525,000 decline in the value of the Company's common stock investment in
Phoenix Shannon. During FY95, investment and other income totaled $3,443,000
primarily from gains totaling $3,223,000 from the sales of the Company's
investments in two cellular telephone partnerships and $212,000 of rental
income.
Cost of Sales
Cost of sales totaled $15,398,000 in FY96, a decline of 11.5% from the FY95
level. Cost of sales represented 66.3% and 68.4% of net sales for FY96 and FY95,
respectively. The 2.1% increase in gross margin rates resulted from improved
absorption of fixed manufacturing costs within the Electronics segment, and the
reduction of direct manufacturing costs from improved manufacturing efficiencies
in the Ultrasonics segment resulting from refocused marketing strategies.
Selling, General and Administrative Expenses
Selling, general and administrative expenses of $9,166,000 during FY96 were 2.6%
lower than the $9,413,000 reported for FY95. The absence of ten months of
operating expenses from the Video Products segment resulted in a $2,453,000
decrease, but was nearly offset by $950,000 of legal and settlement costs
relating to a lawsuit filed by Althin Medical, Inc. against the Company's former
subsidiary, Seratronics, Inc. and a $1,000,000 writedown of the Company's
investment in DGI. Selling general and administrative expenses totaled 38.1% of
revenue in FY96, versus 32.6% in FY95.
Research and Development Expenses
Research and development expenses decreased from $2,587,000 in FY95 to
$1,683,000 in FY96 due primarily to a $978,000 decrease relative to the absence
of the Video Products segment for the last ten months of FY96.
Interest Expense
Interest expense totaled $1,237,000 during FY96, which is a 14.5% decrease from
the $1,447,000 of interest expense incurred during FY95. The repayment of the
revolving line of credit at the end of the third quarter of FY96, concurrent
with the sale of the net assets of the Dental segment, and principal payments on
long-term indebtedness resulted in the lower interest cost.
Income Tax Benefit
For FY1996, the income tax benefit attributable to the loss from continuing
operations totaled $1,166,000, or an effective tax benefit rate of 33.9%, versus
a tax benefit of $812,000, or a rate of 41.2% in FY95.
Discontinued Operations
During FY96, the Company sold the net assets of the Dental segment and recorded
a net gain of $3,790,000, or $1.96 per share, including a curtailment gain of
$519,000 related to the overfunded defined benefit retirement plan. For the
nine-month period in FY96 prior to the sale, these operations earned $413,000
net of tax, or $0.21 per share, versus net income of $792,000, or $0.41 per
share, for FY95. Such results were based upon historical allocations of
administrative expenses, and net of apportioned income taxes.
Preferred Dividends
The preferred dividend requirement, including the amortization of the issuance
discount, totaled $559,000 in FY96, versus $587,000 for FY95. The decrease is
primarily related to the fourth quarter FY96 purchase of 299,561 shares of the
redeemable preferred stock.
As a result of this purchase, $1,015,000 of previously accrued but unpaid
dividends and accreted discounts were reversed and added to income application
to common shares. An additional $1,324,000 was recorded to additional paid-in
capital as a result of the price paid being below the original issue price.
Net Income (Loss)
For FY96, the Company reported net loss from continuing operations in the amount
of $2,270,000. After the impact of the preferred dividend requirement and the
reversal of previously accrued preferred dividends, the net loss from continuing
operations applicable to common shareholders was $1,814,000, or $0.94 per share.
In addition, the operations of the discontinued Dental segment and the gain from
its sale produced total income of $4,203,000, or $2.17 per share, to produce net
income applicable to common shares of $2,389,000,or $1.23 per share for FY96.
For FY95, the net loss from continuing operations totaled $1,159,000. After an
extraordinary loss of $21,000 from the early extinguishment of debt and
preferred dividends, the net loss from continuing operations applicable to
common shareholders was $1,767,000, or $0.91 per share. The operations of the
discontinued Dental segment produced net income of $792,000 or $0.41 per share,
bringing the loss attributable to common shares to $975,000, or $0.50 per share
for FY95.
LIQUIDITY AND CAPITAL RESOURCES
At February 28, 1997, the Company's cash, short-term investments and marketable
securities totaled $8,564,000, which is an increase of $639,000 from the
February 29, 1996 total of $7,925,000. The marketable securities are comprised
of the common stock of certain financial institutions and of Centennial Cellular
Corporation, non-investment grade high-yield bonds and short-term instruments
being held in escrow until November 1997 pursuant to the sale of the net assets
of the Dental segment.
During FY97, The J. M. Ney Company, the Company's primary operating subsidiary,
closed on a $6,000,000 Revolving Credit and Deferred Payment Sales Agreement
with two banks under which it can borrow funds or acquire precious metals on a
deferred payment basis. This revolving credit agreement contains restrictive
covenants including those that limit the transfer of cash or other resources
from Ney to the Company. The Company believes that these limitations will not
restrict it from meeting its obligations or from continuing with its business
plans.
During FY97, the Company secured the consent of a majority of the non-affiliated
holders of its outstanding 10.5% Convertible Subordinated Debentures and one of
its Senior Lenders, and reached agreement with another Senior Lender to permit
the Company to use up to $6.0 million to repurchase shares of the Company's
Capital Stock (the Capital Stock Purchase Program). The first phase of the
Capital Stock Purchase Program resulted in the repurchase of 24,283 shares of
the Company's Series A Cumulative Convertible Preferred Stock.
Subsequent to February 28, 1997, DGI entered into an agreement to sell
substantially all of its assets. Accordingly, the Company expects to realize the
value of this investment during the first half of FY98.
At February 28, 1997, the Company's net worth totaled $13,647,000
or $7.05 per share, which is essentially unchanged from the prior year's
equity position.
The Indenture relating to the Company's 10.5% Convertible Subordinated
Debentures contains a covenant restricting the payment of dividends, on or
repurchases or redemptions of, the Company's capital stock. As the result of
preferred stock repurchases and losses incurred in recent years, the Company is
currently prohibited by such covenant (except as provided by the Capital Stock
Purchase Program) from making such payments on the Preferred Stock or the Common
Stock until such time as the sum of (i) the aggregate cumulative consolidated
net income; (ii) the aggregate net cash proceeds received by the Company from
sales of shares of its capital stock for cash; and (iii) the aggregate net cash
proceeds received by the Company from the sales of indebtedness of the Company
convertible into stock of the Company, to the extent such stock has been
converted into stock of the Company (collectively, Consolidated Net Income)
exceeds the sum of the aggregate amount of all dividends declared and all such
other payments and distributions on account of the purchase, redemption or other
retirement of any shares of stock of the Company (collectively, Distributions).
As of February 28, 1997, Distributions exceeded Consolidated Net Income by
approximately $4,282,000.
The Company believes that funds generated from operations, sale of existing
investments or businesses, and potential future refinancings will be sufficient
to meet its anticipated working capital and debt service requirements for the
foreseeable future, but there can be no assurance as to the availability of
future financing or the terms thereof.
Forward Looking Statements
This report contains forward looking statements which are subject to a number of
risks and uncertainties that may cause actual results to differ materially from
expectations. These uncertainties include, but are not limited to, general
economic conditions, competitive conditions in markets served by the Company,
political developments in countries where the Company conducts business and
market conditions for precious metals and equity securities.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statement schedules are filed as part of Part IV, Item 14, of this
Annual Report on Form 10-K.
The Registrant's Consolidated Financial Statements for the fiscal year ended
February 28, 1997 are set forth below.
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 for the fiscal year ended February 28, 1997 contained in this Item
(amounts in thousands, except per share data).
Selected Quarterly Financial Data
1997 Quarterly Financial Data May 31 August 31 November 30 February 28
- --------------------------------------------------- ------------------ ---------------- ------------------- --------------------
Net sales and revenues $8,050 $5,542 $4,801 $5,982
Gross profit 2,733 2,008 2,060 2,247
Net income (loss) 619 (374) (941) 995
Income (loss) applicable to common shares 477 (474) (1,027) 1,046
- --------------------------------------------------- ------------------ ---------------- ------------------- --------------------
Earnings (Loss) Per Common Share:
Net income (loss) 0.25 (0.25) (0.53) 0.54
Share Price:
High 6 1/2 7 7 6 1/2
Low 3 3/4 5 1/4 3 1/4 5
- --------------------------------------------------- ------------------ ---------------- ------------------- --------------------
1996 Quarterly Financial Data May 31 August 31 November 30 February 29
- --------------------------------------------------- ------------------ ---------------- ------------------- --------------------
Net sales and revenues1 $7,199 $5,835 $5,516 $5,498
Gross profit 2,269 1,798 1,968 1,802
Loss from continuing operations (319) (278) (333) (1,340)
Net income (loss) (220) (8) 3,451 (1,290)
Income (loss) applicable to common shares (367) (157) 3,304 (391)
- --------------------------------------------------- ------------------ ---------------- ------------------- --------------------
Earnings (Loss) Per Common Share:
Continuing operations (.24) (.22) (.25) (.23)
Net income (loss) (.19) (.08) 1.71 (.21)
Share price:
High 6 1/4 6 1/4 5 1/4 6 1/2
Low 3 4 3/4 3 3 3/4
- --------------------------------------------------- ------------------ ---------------- ------------------- --------------------
1 The results of Digital GraphiX are included for the first two months of 1996
only. Net sales and revenues, and income (loss) from continuing operations
for FY 1996 exclude the results of operations of the Company's Dental
segment as a result of its sale in November 1995.
ANDERSEN GROUP, INC.
Consolidated Balance Sheets February 28, 1997 and February 29, 1996 (in
thousands, except share data)
Assets 1997 1996
Current assets:
Cash and cash equivalents $3,219 $4,116
Marketable securities 5,345 3,809
Accounts and other receivables, less allowance for doubtful
accounts of $190 in 1997 and $124 in 1996 2,773 4,337
Inventories 9,040 8,612
Prepaid expenses and other assets 516 92
- ------------------------------------------------------------------------- ------------------------ ----------------
Total current assets 20,893 20,966
- ------------------------------------------------------------------------- ------------------------ ----------------
Property, plant and equipment, net 9,336 9,116
Prepaid pension expense 4,274 4,027
Investment in Digital GraphiX 1,346 1,259
Other assets 1,828 3,430
- ------------------------------------------------------------------------- ------------------------ ----------------
$37,677 $38,798
- ------------------------------------------------------------------------- ------------------------ -----------------
Liabilities, Redeemable Convertible Preferred Stock and Common and
Other Stockholders' Equity
Current liabilities:
Current maturities of long-term debt $ 773 $1,136
Short-term debt 2,305
-
Accounts payable 1,398 2,923
Accrued liabilities 3,670 4,578
Deferred income taxes 564 567
- ------------------------------------------------------------------------- ------------------------ -----------------
Total current liabilities 8,710 9,204
- ------------------------------------------------------------------------- ------------------------ -----------------
Long-term debt, less current maturities 7,041 7,349
Other long-term obligations 1,121 1,143
Deferred income taxes 2,267 2,197
Commitments and contingencies (Notes 7 and 15)
Redeemable cumulative convertible preferred
stock, no par value; authorized 800,000 shares;
issued 789,628 shares; outstanding shares 265,192 in 1997
and 289,475 in 1996; unamortized discount of $81 in 1997
and $148 in 1996; liquidation preference $18.75 per share 4,891 5,280
- ------------------------------------------------------------------------- ------------------------ -----------------
Common and other stockholders' equity: Preferred stock, no par value; authorized
200,000 shares Common stock, no par value; authorized 6,000,000 shares,
issued 1,958,478 shares in 1997 and 1,958,205 shares in 1996 2,103 2,103
Additional paid-in capital 3,248 3,248
Retained earnings 8,386 8,364
- ------------------------------------------------------------------------- ------------------------ -------------------------
13,737 13,715
Treasury stock, at cost, 24,000 shares (90) (90)
- ------------------------------------------------------------------------- ------------------------ -------------------------
Total common and other stockholders' equity 13,647 13,625
- ------------------------------------------------------------------------- ------------------------ -------------------------
$37,677 $38,798
- ------------------------------------------------------------------------- ------------------------ -------------------------
See accompanying notes to consolidated financial statements.
ANDERSEN GROUP, INC.
Consolidated Statements of Operations
Years ended February 28, 1997,
February 29, 1996 and February 28, 1995
(in thousands, except per share data)
1997 1996 1995
- ------------------------------------------------------- --------------------- ---------------------- -----------------------
Revenues:
Net sales $ 24,517 $23,235 $ 25,423
Investment and other income (loss) (142) 813 3,443
- ------------------------------------------------------- --------------------- --------------------- ------------------------
24,375 24,048 28,866
- ------------------------------------------------------- --------------------- ---------------------- -----------------------
Costs and expenses:
Cost of sales 15,469 15,398 17,390
Selling, general and administrative 7,249 9,166 9,413
Research and development 1,472 1,683 2,587
Interest expense 790 1,237 1,447
- ------------------------------------------------------- --------------------- ---------------------- -----------------------
24,980 27,484 30,837
- ------------------------------------------------------- --------------------- ---------------------- -----------------------
Loss from continuing operations
Before income taxes and extraordinary item (605) (3,436) (1,971)
Income tax benefit 904 1,166 812
- ------------------------------------------------------- --------------------- ---------------------- -----------------------
Income (loss) from continuing operations
Before extraordinary item 299 (2,270) (1,159)
Income from discontinued operations, net of
income tax of $170 and $528,in
1996 and 1995, respectively - 413
792
Gain on sale of discontinued segment, net of
income taxes of $2,041 - 3,790 -
- ------------------------------------------------------- --------------------- ---------------------- -----------------------
Income (loss) before extraordinary item 299 1,933 (367)
Extraordinary loss from early
extinguishment of debt, net of income tax
benefit of $10 - -
(21)
- ------------------------------------------------------- --------------------- ---------------------- -----------------------
Net income (loss) 299 1,933 (388)
Preferred dividend requirement (411) (559) (587)
Reversal of preferred dividends 134 1,015
-
- ------------------------------------------------------- --------------------- ---------------------- -----------------------
Income (loss) applicable to common shares $ 22 $ 2,389 $ (975)
- ------------------------------------------------------- --------------------- ---------------------- -----------------------
Earnings (loss) per common share:
Continuing operations $.01 $ (.94) $ (.90)
Discontinued operations - .21 . 41
Gain on sale of discontinued segment - 1.96
-
Extraordinary item - - (.01)
- ------------------------------------------------------- --------------------- ---------------------- -----------------------
Income (loss) per common share $.01 $1.23 $ (.50)
- ------------------------------------------------------- --------------------- ---------------------- -----------------------
See accompanying notes to consolidated financial statements.
ANDERSEN GROUP, INC.
Consolidated Statements of Common and Other Stockholders' Equity
Years ended February 28, 1997,
February 29, 1996 and February 28, 1995
(in thousands, except share data)
Common Common Additional
Stock Stock Paid-In Retained Treasury
Shares Amount Capital Earnings Stock Total
- --------------------------- ----------------- ---------------- ----------------- --------------- --------------- -----------------
Balance, February 28, 1994 1,952,798 $2,103 $1,873 $6,950 $(90) $ 10,836
Preferred stock dividends
and accretion - - - (587) - (587)
Conversion of preferred 5,407 51 - - 51
stock -
Net loss - - - (388) - (388)
- --------------------------- ----------------- ---------------- ----------------- --------------- --------------- -----------------
Balance, February 28, 1995 1,958,205 2,103 1,924 5,975 (90) 9,912
Preferred stock dividends
and accretion - - - (559) - (559)
Gain on redemption
of - - 1,324 1,015 - 2,339
redeemable preferred stock
Net income - - - 1,933 - 1,933
- --------------------------- ----------------- ---------------- ----------------- --------------- --------------- -----------------
Balance, February 29, 1996 1,958,205 2,103 3,248 8,364 (90) 13,625
Shares from prior
conversion of 273 - - - - -
preferred stock
Preferred stock dividends
and accretion - - - (411) - (411)
Gain on redemption of -
Redeemable preferred - - 134 - 134
stock
Net income - - - 299 - 299
- --------------------------- ----------------- ---------------- ----------------- --------------- --------------- -----------------
Balance, February 28, 1997 1,958,478 $2,103 $3,248 $8,386 $(90) $13,647
- --------------------------- ----------------- ---------------- ----------------- --------------- --------------- -----------------
See accompanying notes to consolidated financial statements.
ANDERSEN GROUP, INC.
Consolidated Statements of Cash Flows
Years ended February 28, 1997,
February 29, 1996 and February 28, 1995
(in thousands)
1997 1996 1995
- ----------------------------------------------------------- ------------- -------------- ---------------
Cash flows from operating activities:
Net income (loss) $299 $1,933 $(388)
Adjustments to reconcile net income (loss) to net cash
used for operating activities:
Depreciation, amortization and accretion 1,419 1,887 2,329
Deferred income taxes 67 (479) (414)
Gain on sale of Dental segment - (3,790) -
Gain on sale of cellular investments - - (3,223)
Losses (gains) from securities 1,149 (46) (186)
Purchases of securities (1,625) (3,576) (3,031)
Proceeds from sales of securities 526 1,893 2,213
Loss on redemptions of long-term debt - - 31
Pension (income) expense (247) 8 (148)
Loss (gain) on disposal of property, plant and equipment 58 1 (62)
Investment in Digital GraphiX (87) 543 2,014
Changes in operating assets and liabilities, net of
changes from sale of Dental segment in 1996:
Accounts and notes receivable 1,564 (1,205) (645)
Inventories (428) (2,941) (1,096)
Prepaid expenses and other assets (339) (806) 667
Accounts payable (1,799) 2,006 (144)
Accrued liabilities and other long-term obligations (930) (2,022) 398
- ----------------------------------------------------------- ------------- -------------- ---------------
Net cash used for operating activities (373) (6,594) (1,685)
- ----------------------------------------------------------- ------------- -------------- ---------------
Cash flows from investing activities:
Proceeds from sale of property, plant and equipment 4 256 337
Purchase of property, plant and equipment (1,191) (1,503) (1,436)
Proceeds from sale of Dental segment, net of cash sold - 16,848 -
Proceeds from sale of cellular partnerships - - 7,511
- ----------------------------------------------------------- ------------- -------------- ---------------
Net cash (used for) provided by investing activities (1,187) 15,601 6,412
- ----------------------------------------------------------- ------------- -------------- ---------------
Cash flows from financing activities:
Principal payments on long-term debt (1,250) (642) (4,042)
Redemptions of preferred stock (392) (3,758) -
Proceeds (payment) of short-term debt, net 2,305 (3,200) (37)
- ----------------------------------------------------------- ------------- -------------- ---------------
Net cash provided by (used for) financing activities 663 (7,600) (4,079)
- ----------------------------------------------------------- ------------- -------------- ---------------
Net (decrease) increase in cash and cash equivalents (897) 1,407 648
Cash and cash equivalents, beginning of year 4,116 2,709 2,061
- ----------------------------------------------------------- ------------- -------------- ---------------
Cash and cash equivalents, end of year $3,219 $4,116 $2,709
- ----------------------------------------------------------- ------------- -------------- ---------------
Supplemental disclosure of cash flow information:
Cash paid for:
Interest $ 863 $1,203 $1,503
Income taxes, net $ 85 $1,410 $ 166
- ----------------------------------------------------------- ------------- -------------- ---------------
See accompanying notes to consolidated financial statements.
Notes to Consolidated Financial Statements
Years ended February 28, 1997, February 29,
1996 and February 28, 1995
(1) Nature of Business
Andersen Group, Inc. (the Company) is a diversified holding company. Its
subsidiaries manufacture electronic connectors, components and precious metal
materials and industrial ultrasonic cleaners 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 generally accepted accounting principles 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. As a
result of the partial spin-off of Digital GraphiX, Incorporated (DGI) as
described in Note 17, the consolidated financial statements include the
operating results of DGI through May 2, 1995. As of both February 28, 1997 and
February 29, 1996, DGI's balance sheet has not been consolidated. 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). Any changes in the valuation of the portfolio are
reflected in the accompanying Consolidated Statements of Operations. At February
28, 1997, marketable securities consisted of $3,771,000 of equity investments
and $1,574,000 of debt securities, while at February 29, 1996, marketable
securities comprised $3,063,000 of equity investments and $746,000 of debt
securities. 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 10-50 years
Machinery and equipment 5-10 years
Furniture and fixtures 3-10 years
Unamortized Discounts
Unamortized discounts on redeemable convertible cumulative preferred stock and
subordinated notes payable are accreted using the effective interest method.
Income Taxes
Income taxes are determined using the asset and liability approach in accordance
with the provisions set forth in SFAS No. 109, Accounting for Income Taxes. This
method gives consideration to the future tax consequences of temporary
differences between the carrying amounts and the tax bases of assets and
liabilities at currently enacted tax rates.
Earnings Per Share
Earnings per share is computed based on the weighted average number of common
and common equivalent shares outstanding. Fully diluted net income (loss) per
share assumes full conversion of all convertible securities into common stock at
the later of the beginning of the year or date of issuance, unless antidilutive.
For the years ended February 28, 1997, February 29, 1996 and February 28,1995,
the effects have been antidilutive.
Off-Balance Sheet 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.
Financial Statement Presentation
Certain reclassifications have been made to the 1996 and 1995 financial
statements in order to conform with the 1997 presentation.
(3) Inventories
Inventories consist of the following (in thousands):
February 28, 1997 February 29, 1996
----------------------------------------- -------------------------- --------------------------
Raw Material $3,111 $3,147
Work in Process 3,877 3,413
Finished Goods 2,955 3,398
----------------------------------------- -------------------------- --------------------------
9,943 9,958
LIFO Reserve 903 1,346
----------------------------------------- -------------------------- --------------------------
$9,040 $8,612
----------------------------------------- -------------------------- --------------------------
At February 28, 1997 and February 29, 1996, inventories valued at LIFO
cost comprised 64% and 56% of total inventories, respectively.
(4) Sale of Dental Segment
On November 28, 1995, the Company sold the assets and certain liabilities of its
Dental segment to Phoenix Shannon p.l.c. of Shannon, County Clare, Ireland and
recorded a gain of $3,790,000, net of expenses, and income taxes of $2,041,000.
The Company received $18.5 million in cash, part of which, under the terms of
the sale, was used to purchase 200,000 Phoenix Shannon Ordinary Shares; a
two-year, interest-bearing note for $1 million and additional conditional
consideration subject to the determination of defined contingencies. Included in
the gain on sale is an increase of $519,000 in prepaid pension expense from a
curtailment gain which arose as a result of the transfer of the employees of the
Dental segment to the new employer.
During the year ended February 28, 1997, the $1 million note and the remaining
value of the Phoenix Shannon ordinary shares were written off, resulting in
charges to investment income totaling $2,175,000.
The assets and liabilities sold are presented below (in thousands):
Cash $ 552
Accounts receivable 5,476
Inventories 7,019
Other current assets 415
Property, plant and equipment, net 1,752
Other assets 21
------------------------------------------------- ----------------------------------
Total assets 15,235
------------------------------------------------- ----------------------------------
Accounts payable 1,203
Other current liabilities 259
------------------------------------------------- ----------------------------------
Total liabilities 1,462
------------------------------------------------- ----------------------------------
Net assets sold $13,773
------------------------------------------------- ----------------------------------
The results of operations of the Dental segment have been presented as
discontinued operations. Revenue from this segment totaled approximately $29.6
million, and $38.0 million during 1996 and 1995, respectively.
(5) Sale of Cellular Partnership Interests
In May 1994, the Company's subsidiary, Clear Cellular Holdings, Inc. (Clear),
sold its interest in a partnership which owned a cellular communications license
to Centennial Cellular Corporation (Centennial) for a combination of cash and
Centennial stock. The Centennial stock was immediately remarketed in an open
market block transaction. Overall, Clear received $3,472,000 in net proceeds
from the partnership interest sale.
In August 1994, the Company sold its general partnership interest in MidSouth
Cellular L.P., a nonwireline cellular telephone franchise, to Centennial in
exchange for 281,507 shares of Centennial stock, of which 241,395 shares were
sold at average proceeds of $16.67 per share. The Company continues to hold
23,086 shares of Centennial common stock.
During the years ended 1996 and 1995, the Company recorded gains from the sales
of these cellular partnership interests totaling $65,000 and $3,223,000,
respectively, which are included in investment and other income.
(6) Property, Plant and Equipment
Property, plant and equipment consists of the following (in thousands):
February 28, 1997 February 29, 1996
- ------------------------------------------------------ ------------------------------ ------------------------------
Land and improvements $ 1,054 $1,054
Buildings and improvements 8,783 8,610
Machinery and equipment 10,188 9,287
Furniture and fixtures 921 907
- ------------------------------------------------------ ------------------------------ -------------------------------
20,946 19,858
Less accumulated depreciation and amortization 11,610 10,742
- ------------------------------------------------------ ------------------------------ -------------------------------
$ 9,336 $ 9,116
- ------------------------------------------------------ ------------------------------ -------------------------------
Depreciation and amortization expense was $1,393,000, $1,797,000 and
$1,977,000 in 1997, 1996 and 1995, respectively.
At February 28, 1997 and February 29, 1996, property, plant and equipment
includes $1,146,000 and $567,000, respectively of machinery and equipment
acquired under capital leases, which expire through the fiscal year ending
February 28, 2002, with a related allowance for depreciation of $493,000 and
$439,000, respectively.
(7) Short-term Debt
The Company's primary operating subsidiary, The J.M. Ney Company (Ney), has a
$6.0 million demand revolving credit and deferred payment sales agreement with
two commercial banks. At February 28, 1997, $2,305,000 was outstanding and
$500,000 was committed through a standby letter of credit. The facility is
secured by substantially all of Ney's assets. At Ney's discretion, interest is
charged at the bank's prime rate, which was 8.25% at February 28, 1997, or at
LIBOR plus 2.50% if borrowing is fixed for a period time, or at 2.50% 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 Ney to the Company and
which require Ney to maintain a specified amount of Stockholders' equity. At
February 28, 1997 the amount of assets which Ney was restricted from
distributing to the Company totaled approximately $11,655,000.
(8) Accrued Liabilities
Accrued liabilities consist of the following (in thousands):
February 28, 1997 February 29, 1996
- --------------------------------------- ------------------------------------ ----------------------------------------
Employee compensation $ 628 $594
Accrued dividends 934 660
Income taxes 51 849
Other 2,057 2,475
- --------------------------------------- ------------------------------------ ----------------------------------------
$3,670 $4,578
- --------------------------------------- ------------------------------------ ----------------------------------------
(9) Redeemable Cumulative Convertible Preferred Stock
During 1997 and 1996, the Company purchased 24,283 and 299,561 shares,
respectively, of its redeemable cumulative convertible preferred stock
(Preferred Stock) at $16.15 per share in 1997, and at $12.25 per share in 1996.
The 1997 purchases were part of a repurchase program, while in 1996 purchases
were made under terms of a voluntary tender offer. As a result of the purchases,
the Company reversed $134,000 and $1,015,000 in 1997 and 1996, respectively, of
accrued dividends and accreted discounts. In addition, in 1996, $1,324,000 of
additional paid-in capital was recorded to reflect the discount of the total
purchase cost, including expenses, from the original issue cost of the shares
purchased.
The Preferred Stock is subject to annual mandatory redemption from legally
available funds of 160,000 shares at $18.75 per share, or $3,000,000, commencing
in March 1996. Purchases of Preferred Stock to date have satisfied this
requirement through February 1999.
Quarterly dividend payments, ranging from $.1875 to $.4375 per share, are
accrued based upon the operating income of Ney, as defined. Approximately $1.24,
$.78 and $.75 per preferred share of dividends were accrued during 1997, 1996
and 1995, respectively. As discussed in Note 10, the Company has been restricted
from paying dividends since April 15, 1993 until cumulative consolidated net
income (as defined) earned after February 28, 1997 exceeds approximately
$4,282,000. At February 28, 1997 and February 29, 1996 the Company had accrued
$934,000 and $660,000, respectively, for payment of prior dividends.
The preferred shares increase in carrying value at a rate of approximately $.26
per share per year and, as such, approximately $58,000, $137,500, and $150,000
of accretion has been recorded as part of the preferred dividend requirement for
1997, 1996 and 1995, respectively.
The preferred shares are convertible into the Company's common stock at any time
at a rate of 1.935 shares of common stock for each preferred share. The original
conversion rate of 1.875 has been increased to 1.935 after giving effect to the
issuance of common stock in fiscal 1994. At February 28, 1997, 513,147 shares of
common stock have been reserved for conversion.
(10) Long-term Debt
Long-term debt consists of the following (in thousands):
February 28, 1997 February 29, 1996
---------------------- ----------------------
Mortgage note payable due June 2001; interest at varying
rates from 60-68% of the prime rate, as defined, 5.4%
at both February 28, 1997 and February 29, 1996,
respectively, payable semi-annually; semi-annual
principal payments in escalating amounts from $59
in 1997 to $78 at maturity; secured further by
certain personal property $575 $ 928
Mortgage note payable; interest at 7.75% - 599
Convertible subordinated debentures, due October 2002;
Interest at 10.5%, payable semi-annually; annual principal
payments in varying amounts through maturity; unsecured 6,287 6,505
Other 952 453
---------------------- ----------------------
7,814 8,485
Less current maturities 773 1,136
---------------------- ----------------------
$7,041 $7,349
---------------------- ----------------------
The terms of the convertible subordinated debentures call for the annual
redemption of $834,000 face value of debentures, either through open market
purchases or mandatory sinking fund payments. The Company may also make an
additional optional sinking fund payment of $834,000. 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 28, 1997, 388,806 shares of common stock were
reserved for conversion.
Certain of the debt agreements contain restrictive covenants which limit, among
other things, mergers or consolidations, sales of assets, additional long-term
debt, payments of dividends and stock repurchases. Under the terms of the 10.5%
Convertible Subordinated Debentures, the Company had been restricted from
repurchasing stock or paying dividends since April 15, 1993 until such time as
the Company's cumulative earnings, as defined, reach specified amounts. During
1997, the Company obtained the consent of a majority of the holders of these
debentures to repurchase up to $6,000,000 of its capital stock.
Maturities of long-term debt for each of the next five fiscal years and
thereafter are as follows (in thousands):
1998 $ 773
1999 1,130
2000 1,112
2001 1,097
2002 996
Thereafter 2,706
---------------------------------
$7,814
---------------------------------
(11) Income Taxes
For 1997, 1996 and 1995, income tax benefit (expense) consists of the following
(in thousands):
1997 1996 1995
--------------------- --------------------- ---------------------
Current:
Federal $410 $(360) $ (20)
State 561 (296) (100)
Deferred (67) (389) 414
--------------------- --------------------- ---------------------
$904 $(1,045) $294
--------------------- --------------------- ---------------------
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 taxes is attributable to the following (in
thousands):
1997 1996 1995
---------------------- --------------------- ---------------------
Income tax benefit (expense) $206 ($1,012) $199
State income taxes, net of Federal benefit (107) (196) (66)
Change in enacted tax rates 264 - -
Change in valuation allowance - 483 -
Adjustment of accrual for prior years' taxes 546 (319) 161
Other (5) (1) -
- -------------------------------------------------- ---------------------- --------------------- ---------------------
$904 $(1,045) $294
- -------------------------------------------------- ---------------------- --------------------- ---------------------
During 1997, the Company settled a State income tax audit covering 1989 through
1996. This settlement is the primary reason for the $546,000 benefit adjustment
of accrual for prior years' taxes reported in the above reconciliation.
A deferred income tax (expense) benefit results from temporary differences in
the recognition of income and expense for income tax and financial reporting
purposes. The principal components of the net deferred tax asset (liability)
which give rise to this deferred income tax (expense) benefit as of February 28,
1997 and February 29, 1996 are as follows (in thousands):
1997 1996
-------------------------- --------------------------
Deferred tax liabilities:
Fixed asset basis differences $(1,288) $ (1,580)
Inventory (1,443) (1,476)
Pension (1,581) (1,491)
Installment sale (207) -
- --------------------------------------------------------------- -------------------------- --------------------------
Total deferred tax liabilities (4,519) (4,547)
- --------------------------------------------------------------- -------------------------- --------------------------
Deferred tax assets:
Post-retirement benefits other than pensions 415 337
Unrealized gains/losses on marketable securities, net 177 132
Allowance for uncollectable receivables 440 50
Federal credit carryforwards 302 753
Other 354 511
- --------------------------------------------------------------- -------------------------- --------------------------
Total deferred tax assets 1,688 1,783
- --------------------------------------------------------------- -------------------------- --------------------------
Net deferred tax liabilities $(2,831) $(2,764)
- --------------------------------------------------------------- -------------------------- --------------------------
At February 28, 1997 the Company had no valuation allowance. The Company
reasonably expects that the sale of certain assets, investment securities and
certain real property, will generate sufficient income to fully utilize its
deferred tax assets. At February 28, 1997 the Company had $302,000 of Federal
credit carryforwards, $55,000 of which were attributable to the alternative
minimum tax and have no expiration date. The remaining credits, totaling
$247,000, expire from 1999 through 2002.
(12) Stock Option Plans
The Company's incentive stock option plan provides 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. In addition, during 1997, a stock option plan was
put into effect under which options to acquire shares of The J. M. Ney Company
were granted. The per share weighted average fair value of stock options granted
in 1997 under the Company and Ney plans were $2.08 and $4.95, respectively on
the dates of grant using the Black Scholes option pricing model with the
following weighted average assumptions: expected dividend yield of 0%; risk-free
interest rate of 6.5%; expected life of seven years; and expected volatility of
33.3%.
The Company has adopted the disclosure only 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 Ney plan, been determined based on
the fair
value on the grant date for awards during 1997 consistent with the
provisions of SFAS No. 123, the Company's net earnings applicable to common
shares, and earnings per share would have been reduced to the proforma amounts
indicated below (amounts in thousands, except per share data):
1997
---------------------------------------------------------
Net income (loss) applicable to common shares:
As reported: $ 22
Pro forma $(68)
Earnings (loss) per share:
As reported $ .01
Pro forma $(.03)
The assumption regarding the stock options issued during 1997 was that such
options vest over periods ranging from one to three years. Proforma net income
reflects only options granted in 1997. Therefore, the full impact of calculating
compensation cost for stock options under SFAS No. 123 is not reflected in the
proforma amounts because the compensation cost for options granted prior to 1997
is not considered.
The Company reserved 162,200 shares of common stock for the exercise of stock
options. At February 28, 1997, the Company had 60,500 options available for
issuance under the plan. The J. M. Ney Company has reserved 150,000 shares of
its common stock for the exercise of stock options. At February 28, 1997, Ney
had 20,000 options available for issuance under its plan.
Activity under the Company's plans, including an expired plan, was as follows:
Number Weighted Average Range of
Outstanding Options of Shares Exercise Price Exercise Prices
- ---------------------------------------- ------------------------- ------------------------ -------------------------
Balance at February 28, 1994 77,600 $8.39 $6.00 - $9.50
Canceled (300) $7.00 $7.00
- ---------------------------------------- ------------------------- ------------------------ -------------------------
Balance at February 28, 1995 77,300 $8.40 $6.50 - $9.50
Canceled (37,600) $9.06 $7.00 - $9.00
- ---------------------------------------- ------------------------- ------------------------ -------------------------
Balance at February 29, 1996 39,700 $7.77 $6.50 - $9.375
Granted 75,000 $4.29 $3.813- $6.125
Canceled (13,000) $7.50 $3.813- $9.375
- ---------------------------------------- ------------------------- ------------------------ -------------------------
Balance at February 28, 1997 101,700 $5.02 $3.813 - $8.375
- ---------------------------------------- ------------------------- ------------------------ -------------------------
At February 28, 1997, the range of exercise prices and the weighted average
remaining contractual life of the options was as follows:
Options Outstanding Options Exercisable
- -------------------------------------------------------------------------------------------------------------------
Weighted
Weighted Average Average
Range of Exercise Number Weighted Average Remaining Number Exercise
- ----------------- ------------------ ------------------ ----------------- -------------- -----------
$8.375 - $7.75 8,000 $8.22 4.0 years 8,000 $8.22
$7.00 - $5.375 33,200 $6.46 5.3 years 19,200 $6.90
$3.813 60,500 $3.81 9.1 years - -
- ------------------ ------------------ ------------------ ----------------- -------------- -----------
101,700
- ------------------ ------------------ ------------------ ----------------- -------------- -----------
Also, during 1997, options to purchase 130,000 shares of Ney, at an exercise
price of $10.00 per share, were issued to key management of Ney. None of these
options was exercisable at February 28, 1997, as they are subject to a three
year vesting provision. At February 28, 1997, the Company owned all 850,000
shares of Ney. There presently is no public market for Ney's common stock.
(13) Retirement Plans
The Company maintains both noncontributory defined benefit and defined
contribution plans, which collectively cover substantially all full-time
employees. The defined contribution plans are funded annually 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 plan assets, which are managed by third-party trustees, include equity
securities, government and corporate debt securities and other fixed income
obligations.
The following table sets forth the actuarially determined funded status of the
Company's defined benefit plan and amounts recognized in the Company's
Consolidated Balance Sheets (in thousands):
February 28, 1997 February 29, 1996
- --------------------------------------------------------------- -------------------------- --------------------------
Actuarial present value of benefit obligations:
Vested $8,970 $9,092
Non-vested 68 63
- --------------------------------------------------------------- -------------------------- --------------------------
Accumulated benefit obligation 9,038 9,155
Effect of projected compensation increases 983 907
- --------------------------------------------------------------- -------------------------- --------------------------
Projected benefit obligation 10,021 10,062
Plan assets at fair value 16,815 15,642
- --------------------------------------------------------------- -------------------------- --------------------------
Plan assets in excess of projected benefit obligation 6,794 5,580
Unrecognized prior service cost (141) (151)
Unrecognized net gain on plan assets (2,379) (1,402)
- --------------------------------------------------------------- -------------------------- --------------------------
Prepaid pension expense $4,274 $4,027
- --------------------------------------------------------------- -------------------------- --------------------------
For 1997, 1996 and 1995, the projected benefit obligations and pension income
were determined using the following components:
1997 1996 1995
-------------------- ------------------- --------------------
Discount rate 7.5% 7.5% 7.5%
Future compensation growth rate 5.5% 5.5% 5.5%
Long-term rate of return on plan assets 8.0% 8.0% 8.5%
Net pension expense (income) for the Company's funded defined benefit plan
for 1997, 1996 and 1995 includes the following components:
1997 1996 1995
------------------- -------------------- --------------------
Service cost of benefits accrued $ 253 $ 341 $286
Interest cost on projected benefit obligations 723 806 784
Return on plan assets (2,190) (2,130) (1,196)
Unrecognized net gain (loss) 967 991 (22)
- ------------------------------------------------------- ------------------- -------------------- --------------------
Pension (income) expense $(247) $ 8 $(148)
- ------------------------------------------------------- ------------------- -------------------- --------------------
In addition, as discussed in Note 4, during 1996 prepaid pension expense
increased by $519,000 as a result of the curtailment gain recorded in connection
with the sale of the net assets of the Dental segment.
The Company also has a supplemental defined benefit plan which covers a former
senior executive of Ney. There are no assets held by the plan. At February 28,
1997 and February 29, 1996, the actuarially determined status of the plan and
the amount recognized in the balance sheet was a vested accumulated and
projected benefit obligation of approximately $314,400 and $319,550,
respectively. For each of the fiscal years 1997, 1996 and 1995, a discount rate
of 7.5% was used for determining the projected benefit obligation.
Pension expense for all defined contribution plans totaled $121,000,
$143,000 and $157,000 in 1997, 1996 and 1995, respectively.
(14) Post-Retirement Benefit Obligations
During 1993, the Company amended its retiree health care plan to include only
those retirees currently in the plan and discontinued the benefit for current
employees. The Company's cost of its unfunded retiree health care plan for 1997,
1996 and 1995 was approximately $53,000, $55,000 and $56,000, respectively,
including interest. At February 28, 1997 and February 29, 1996, the accumulated
benefit obligation for post-retirement benefits was approximately $823,000 and
$843,000, respectively. At February 28, 1997, 32 retirees were receiving
benefits under this plan.
The accumulated estimated benefit obligation was determined using the unit
credit method and assumed discount rates of 7.25% at both February 28, 1997 and
February 29, 1996, respectively. At February 28, 1997 and February 29, 1996, the
accumulated benefit obligation was compiled using assumed health care cost trend
rates of 9.0% and 10%, gradually declining to 5% in the year 2001 and thereafter
over the projected payout period of the benefits.
The estimated effect on the present value of the accumulated benefit obligation
at March 1, 1997 of a 1% increase each year in the health care cost trend rate
used would result in an estimated increase of approximately $63,000 in the
obligation.
(15) Leases
During 1997, the Company incurred capital lease obligations totaling $579,000 in
connection with lease agreements to acquire equipment. This non-cash financing
activity has been excluded from the 1997 Consolidated Statement of Cash Flows.
The Company leases various manufacturing and office facilities and equipment
under operating lease agreements expiring through January 2004. In addition, the
Company earns rental income from office space leased to tenants under operating
leases expiring through February 28, 1999. Lease expense was $209,000, $240,000
and $349,000 for 1997, 1996 and 1995, respectively, while rental income totaled
$342,000, $281,000 and $212,000 for 1997, 1996 and 1995, respectively.
Future minimum lease payments and rental income under the terms of the leases
for each of the years ending February 28, are as follows (in thousands):
Lease Expense Rental Income
1998 $ 162 $276
1999 152 132
2000 115 -
2001 38 -
2002 38 -
Thereafter 23 -
------------------ ------------------------------ ------------------------------
(16) Business Segments and Export Sales
During 1997, the Company operated in two business segments: Electronics and
Ultrasonics. Operating income consists of net sales, less cost of sales and
selling, general and administrative expenses directly allocated to the industry
segments. Corporate expenses consist of administrative costs and interest
expense. Corporate revenues consist of investment and other income not
attributable to a specific segment. Corporate identifiable assets include
marketable securities and short-term investments, and assets not directly
attributable to a specific segment.
Summarized financial information for business segment is as follows (in
thousands):
1997 1996 1995
Net Sales and revenues:
Electronics $20,643 $16,544 $14,079
Ultrasonics 3,874 4,611 4,346
Video Products - 2,080 6,998
Corporate (142) 813 3,443
--------------------- --------------------- -----------------
$24,375 $24,048 $28,866
--------------------- --------------------- -----------------
Operating income (loss):
Electronics $2,598 $1,612 $1,113
Ultrasonic (57) (563) (1,287)
Video Products - (177) (1,876)
Corporate (3,146) (4,308) 79
--------------------- --------------------- -----------------
$(605) $(3,436) $(1,971)
--------------------- --------------------- -----------------
Identifiable assets:
Dental - - $14,789
Electronics $22,467 $20,886 12,842
Ultrasonics 1,798 1,911 2,458
Corporate 13,412 16,001 13,590
--------------------- --------------------- -----------------
$37,677 $38,798 $43,679
--------------------- --------------------- -----------------
Depreciation, amortization & accretion:
Electronics $1,142 $1,363 $1,057
Ultrasonics 95 76 54
Video Products - - 350
Corporate 240 230 627
--------------------- --------------------- -----------------
$1,477 $1,669 $2,088
--------------------- --------------------- -----------------
Capital expenditures:
Electronics $1,512 $1,239 $649
Ultrasonics 234 66 78
Video Products - - 507
Corporate 24 123 168
--------------------- --------------------- -----------------
$1,770 $1,428 $1,402
- ------------------------------------------------- --------------------- --------------------- -----------------
Export sales for 1997, 1996 and 1995 were $3,475,000, $2,658,000 and $2,262,000,
respectively. Such sales were made primarily to customers in Europe and the
Pacific Rim.
(17) Investments
Digital GraphiX, Incorporated
During May 1995, DGI issued additional shares of common stock for $324,000
before transaction costs, thus diluting the Company's ownership to approximately
19%. The Company did not recognize any gain related to this transaction. In
January 1995, the Company converted its receivable from DGI to a $2.9 million
note receivable at 7.5% interest, which, when discounted to reflect a market
rate of interest, and coupled with a reduction of approximately $500,000 of net
liabilities to DGI, resulted in a carrying value of $1.8 million at February 28,
1995.
Prior to May 1995, the Company reduced intercompany liabilities and increased
its investment in DGI to nearly $2.3 million. As of February 29, 1996, the
Company reduced the carrying value of its investment to approximately $1.26
million, and in doing so, formally discharged DGI of its obligation to pay $2.2
million. With this forgiveness of debt, the Company has realized an income tax
benefit in 1996.
During 1997, the Company converted $1,047,000 of the debt portion of this
investment into an equal amount of DGI's convertible preferred stock.
Additionally, the Company invested $250,000 to purchase 83,334 shares of DGI's
common stock to bring its total common stock investment in DGI to 235,334
shares. Subsequent to February 28, 1997, DGI sold substantially all its assets,
which will enable it to repay its notes and redeem its preferred stock. Future
liquidations of remaining assets are expected to allow DGI to pay its common
shareholders approximately $1.00 per share. The Company expects to fully realize
its entire recorded investment as a result of these events.
The Company's Chairman and President are also directors and stockholders of DGI.
Institute for Automated Systems
Included in other assets at February 28, 1997 is an investment of approximately
$835,000 in a joint venture which is investing in the Institute for Automated
Systems, a Russian telecommunications company that has plans to develop a data
transmission network throughout Russia.
The Company's Chairman and another Director are also among a group of investors
in the joint venture.
(18) Estimated Fair Value of Financial Instruments
The carrying amount of cash and cash equivalents, accounts receivable, 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. The
fair value of the investment in DGI, which is comprised of notes receivable,
preferred stock and common stock, is estimated to approximate the carrying
amount based upon the announcement of the sale of certain of DGI's assets as
described in Note 17. The note receivable and Phoenix Shannon common stock
received in connection with the sale of the Dental segment have been written off
to no value which approximates fair value as estimated, based on factors
affecting Phoenix Shannon's ability to repay such note.
At February 28, 1997, the Company had futures contracts to purchase 12,500
ounces of palladium through June 1997 at aggregate prices approximating market.
The Company has not been subject to material gains or losses from theses
contracts as they have generally been offset by the transactions being hedged.
Realized market gains and losses on such contracts are also included in cost of
sales.
The carrying value of short-term debt equals fair value as it reflects the
market value of the corresponding precious metals in which the liability is
denominated.
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.
It is not practicable to estimate a fair value for the redeemable preferred
stock due to the terms of this security, including the cumulative nature of
dividends, the right to convert the preferred shares to common shares, the
possibility for increased dividends based upon the earnings of Ney, and the
right for preferred stockholders as a group to elect a representative to the
Company's Board of Directors. Current limitations relating to the payment of
dividends and the redemption of shares also factor into the inability to
reasonably estimate a fair value for this security.
Independent Auditors' Report
KPMG Peat Marwick LLP Letterhead
The Stockholders and Board of Directors
Andersen Group, Inc.:
We have audited the accompanying consolidated balance sheets of Andersen Group,
Inc. and subsidiaries as of February 28, 1997 and February 29, 1996 and the
related consolidated statements of operations, common and other stockholders'
equity and cash flows for each of the years in the three-year period ended
February 28, 1997. 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 generally accepted auditing
standards. 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, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Andersen Group, Inc.
and subsidiaries at February 28, 1997 and February 29, 1996, and the results of
their operations and their cash flows for each of the years in the three-year
period ended February 28, 1997 in conformity with generally accepted accounting
principles.
/s/ KPMG Peat Marwick LLP
Hartford, Connecticut
April 8, 1997
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
Certain information required by Part III is omitted from this Report in that the
Registrant has filed a definitive proxy statement pursuant to Regulation 14A not
later than 120 days after the end of the fiscal year covered by this Report and
certain information included therein is incorporated herein by reference.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this Item is incorporated by reference to the
Registrant's 1997 Proxy Statement for Annual Meeting of Shareholders, and is
incorporated by reference to the Section in Part I hereof entitled, Executive
Officers of the Registrant.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this Item is incorporated by reference to the
Registrant's 1997 Proxy Statement for Annual Meeting of Shareholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT.
The information required by this Item is incorporated by reference to the
Registrant's 1997 Proxy Statement for Annual Meeting of Shareholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this Item is incorporated by reference to the
Registrant's 1997 Proxy Statement for Annual Meeting of Shareholders.
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:
Consolidated Balance Sheets Pages
as of February 28, 1997 and February 29, 1996 18
Consolidated Statements of Operations
for the years ended February 28, 1997, February 29, 1996 and
February 28, 1995 19
Consolidated Statements of Common and Other Stockholders' Equity
for the years ended February 28, 1997, February 29, 1996
and February 28, 1995 20
Consolidated Statements of Cash Flows
for the years ended February 28, 1997, February 29, 1996
and February 28, 1995 21
Notes to Consolidated Financial Statements 22-32
Independent Auditor's Report 33
(a)2. Consolidated Financial Statement Schedules:
Schedule
I Condensed Financial Information F-1 to F-5
II Valuation and Qualifying Accounts F-6
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 Amendedand Restated Certificate of Incorporation of the Registrant,
incorporated herein by reference to Exhibit 3.1 to the Registrant's
Annual Report on Form 10-K for the year ended February 29, 1992
(Commission File No. 0-1460).
3.2 Amended and Restated By-Laws of the Registrant as of April 18, 1997.*
4.1 Indenture, dated as of October 15, 1982, between the Registrant and
Hartford National Bank and Trust Company (predecessor to Fleet National
Bank, N.A., The Connecticut National Bank and Shawmut Bank, N.A.),
as Trustee, in respect of $10,000,000, aggregate principal amount,
10-1/2% Convertible Subordinated Debentures Due 2002,
incorporated
herein by reference to Exhibit 4.8 to the Registrant's Registration
Statement on Form S-4
(Commission File No. 33-38646) effective January 31, 1991.
10.1 Guaranty and Indemnification Agreement, dated as of November 1, 1979,
between the Registrant and American Re-Insurance Company incorporated
herein by reference to the Exhibit filed with the Registrant's Quarterly
Report on Form 10-Q for the quarter ended November 25, 1979 (Commission
File No. 0-1460).
10.2 Loan Agreement, dated December 20, 1983, between the Connecticut
Development Authority and the Registrant, incorporated herein by
reference to Exhibit 10.10 to the Registrant's Registration Statement on
Form S-4 (File No. 33-38646) effective January 31, 1991.
10.3 Security Agreement, dated December 20, 1983, between the Registrant and
the Connecticut Development Authority, incorporated herein by reference
to Exhibit 10.11 to the Registrant's Registration Statement on Form S-4
(File No. 33-38646) effective January 31, 1991.
10.4 Construction and Open-End Mortgage Deed from the Registrant to the
Connecticut Development Authority and assigned to the Connecticut
National Bank, dated December 20, 1983, incorporated herein by reference
to Exhibit 10.12 to the Registrant's Registration Statement on Form S-4
(File No. 33-38646) effective January 31, 1991.
10.5 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.
10.6 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.
10.7 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).
10.8 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).
10.9 Letter Agreements, dated February 23, 1995 and March 20, 1995, between
the Registrant and Ronald N. Cerny.
10.10 Asset Purchase Agreement among Phoenix Shannon p.l.c., Andersen Group,
Inc., The J.M. Ney Company and Ney Dental International, Inc. dated as
of August 10, 1995, incorporated herein by reference to Exhibit 10.1
to the Registrant's Quarterly Report on Form 10-Q for the quarter ending
August 31, 1995 (Commission file No. 0-1460).
10.11 Amendment No. 1 to Asset Purchase Agreement by and among Phoenix
Shannon p.l.c., The J.M. Ney Company, Andersen Group, Inc. and Ney
Dental International, Inc. made as of October 30, 1995, incorporated
herein by reference to Exhibit 10.1 to the Registrant's current
report on Form 8-K dated December 13, 1995 (Commission file No. 0-1460).
10.12 Amendment No. 2 to Asset Purchase Agreement by and among Phoenix
Shannon p.l.c., The J. M. Ney Company, Andersen Group, Inc., and Ney
Metals, Inc.(f/k/a Ney Dental International, Inc.) made as of
October 30, 1995, incorporated herein by reference to Exhibit 10.2
to the Registrant's current report on Form 8-K dated December 13, 1995
(Commission file No. 0-1460).
10.13 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*
21. Subsidiaries of the Registrant. *
23. Accountant's Consent.*
27.1 Financial Data Schedule. *
27.2 Restated Financial Data Schedule. *
(b) Reports on Form 8-K.
None.
*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.
ANDERSEN GROUP, INC. ANDERSEN GROUP, INC.
Registrant Registrant
/s/ Francis E. Baker /s/ Robert P. Belcher
Francis E. Baker Robert P. Belcher, Treasurer
President and Chief Financial Officer
May 28, 1997 May 28, 1997
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.
SIGNATURE TITLE DATE
Chairman
/s/ Oliver R. Grace, Jr. and May 28, 1997
- ---------------------
Oliver R. Grace, Jr. Director
President, Chief
/s/ Francis E. Baker Executive Officer May 28, 1997
Francis E. Baker and Director
/s/ Peter N. Bennett May 27, 1997
Peter N. Bennett Director
/s/ John S. Grace May 28, 1997
John S. Grace Director
/s/ Louis A. Lubrano May 28, 1997
Louis A. Lubrano Director
/s/James J. Pinto May 27, 1997
- --------------------
James J. Pinto Director
KPMG Peat Marwick, LLP Letterhead
INDEPENDENT AUDITORS' REPORT
The Stockholders and Board of Directors
Andersen Group, Inc.:
Under date of April 8, 1997, we reported on the consolidated balance sheets of
Andersen Group, Inc. and subsidiaries as of February 28, 1997 and February 29,
1996 and the related consolidated statements of operations, common and other
stockholders' equity and cash flows for each of the years in the three-year
period ended February 28, 1997, which are included in the Annual Report on Form
10-K for the year 1997. In connection with our audits of the aforementioned
consolidated financial statements, we also audited the related consolidated
financial statement schedules as listed in the accompanying index under Part IV,
Item 14. The financial statement schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion on the
financial statement schedules 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, presents
fairly, in all material respects, the information set forth therein.
/s/ KPMG Peat Marwick LLP
Hartford, Connecticut
April 8, 1997
ANDERSEN GROUP, INC.
Schedule I - Condensed Financial Information
of the Registrant
Consolidated Balance Sheet
February 28, 1997
(amounts in thousands)
- ------------------------------------------------------------------------- ------------------------------
Assets
Current assets:
Cash and cash equivalents $2,304
Marketable securities 5,345
Accounts and other receivables,
less allowance for doubtful accounts 53
Prepaid expenses and other assets 390
- ------------------------------------------------------------------------- ------------------------------
Total current assets 8,092
- ------------------------------------------------------------------------- ------------------------------
Investment in The J. M. Ney Company 15,107
Investment in Digital GraphiX, Incorporated 1,346
Property, plant and equipment, net 2,748
Other assets 1,225
- ------------------------------------------------------------------------- ------------------------------
$28,518
- ------------------------------------------------------------------------- ------------------------------
Liabilities, Redeemable Convertible Preferred
Stock and Common and Other Stockholders' Equity
Current liabilities:
Current maturities of long-term debt $ 586
Accounts payable 101
Due to The J. M. Ney Company 316
Accrued liabilities 1,765
Deferred income taxes 564
- ------------------------------------------------------------------------- ------------------------------
Total current liabilities 3,332
- ------------------------------------------------------------------------- ------------------------------
Long-term debt, less current maturities 6,540
Deferred income taxes 108
Commitments and contingencies
Redeemable cumulative convertible preferred
Stock, no par value; authorized 800,000 shares;
issued 789,628 shares; outstanding 265,192
shares;liquidation preference $18.75 per share 4,891
- ------------------------------------------------------------------------- ------------------------------
Common and other stockholders' equity: Preferred stock,
no par value; authorized 200,000 shares Common stock,
no par value; authorized 6,000,000 shares, issued 1,958,478 shares 2,103
Additional paid-in capital 3,248
Retained earnings 8,386
- ------------------------------------------------------------------------- ------------------------------
13,737
Treasury stock, at cost, 24,000 shares (90)
- ------------------------------------------------------------------------- ------------------------------
Total common and other stockholders' equity 13,647
- ------------------------------------------------------------------------- ------------------------------
$28,518
- ------------------------------------------------------------------------- ------------------------------
See accompanying notes to condensed financial information.
F-1
ANDERSEN GROUP, INC.
Schedule I Condensed Financial Information
Of the Registrant
Condensed Statement of Operations
Year ended February 28, 1997
(amounts in thousands, except per share data)
- ------------------------------------------------------- -----------------------------------
Revenues:
Investment and other income $ 267
Equity in earnings of The J. M. Ney Company 1,311
- ------------------------------------------------------- -----------------------------------
1,578
- ------------------------------------------------------- -----------------------------------
Costs and expenses:
General and administrative 2,280
Interest expense 777
- ------------------------------------------------------- -----------------------------------
3,057
- ------------------------------------------------------- -----------------------------------
Loss from continuing operations
Before income taxes (1,479)
Income tax benefit 1,778
- ------------------------------------------------------- -----------------------------------
Net income 299
Preferred dividend requirement (411)
Reversal of preferred dividend 134
- ------------------------------------------------------- -----------------------------------
Income applicable to common shares $ 22
- ------------------------------------------------------- ----------------------------------
Earnings per share $0.01
- ------------------------------------------------------- ----------------------------------
See accompanying notes to condensed financial information.
F-2
ANDERSEN GROUP, INC.
Schedule I - Condensed Financial Information of the Registrant
Condensed Statement of Cash Flows
Year ended February 28, 1996
(amounts in thousands)
- ----------------------------------------------------------- -----------------------------------
Cash flows from operating activities:
Net income $299
Adjustments to reconcile net income to net cash used for operating activities:
Equity in earnings of The J. M. Ney Company (1,311)
Depreciation, amortization and accretion 167
Deferred income taxes 105
Net (gains) losses from securities 1,149
Purchases of securities (1,625)
Proceeds from sales of securities 526
Investment in Digital GraphiX (87)
Changes in operating assets and liabilities
Accounts and notes receivable 652
Prepaid expenses and other assets (184)
Accounts payable, accrued liabilities and other
long-term obligations (654)
- ----------------------------------------------------------- ------------------------------------
Net cash used for operating activities (963)
- ----------------------------------------------------------- ------------------------------------
Cash flows from investing activities:
Purchase of property, plant and equipment (7)
- ----------------------------------------------------------- ------------------------------------
Net cash used for investing activities (7)
- ----------------------------------------------------------- ------------------------------------
Cash flows from financing activities:
Principal payments on long-term debt (1,178)
Redemptions of preferred stock (392)
Dividends received from The J. M. Ney Company 1,150
- ----------------------------------------------------------- ------------------------------------
Net cash used for financing activities (420)
- ----------------------------------------------------------- ------------------------------------
Net decrease in cash and cash equivalents (1,390)
Cash and cash equivalents, beginning of year 3,964
- ----------------------------------------------------------- -----------------------------------
Cash and cash equivalents, end of year $2,304
- ----------------------------------------------------------- -----------------------------------
Supplemental disclosure of cash flow information
Cash paid for:
Interest $ 803
Income taxes, net $ 85
- ----------------------------------------------------------- -----------------------------------
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 28, 1997
NOTE 1 - GENERAL
The Condensed Financial Information presented herein is required for 1997 only
because the Registrant's majority owned subsidiary, The J. M. Ney Company (Ney),
entered into a Revolving Credit and Deferred Payment Sales Agreement with two
banks in October 1996, which contained covenants that limit the transfer of cash
and other resources from 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 include the accounts of two
wholly owned subsidiaries which are immaterial to the Registrant's Condensed
Financial Information.
NOTE 2 - TRANSACTIONS WITH AFFILIATES
The Registrant and its majority 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 provided to the
Registrant by Ney: maintenance, accounting, human resources, management
information systems and the rental of office space in Ney's facility. Services
provided by the Registrant to Ney include the following: legal, tax, and the
rental of manufacturing and office space in the Registrant's principal executive
offices. In addition, during 1997 Ney paid the Registrant interest for the cost
of capital used by Ney.
In connection with Ney entering into the Revolving Credit and Deferred Payment
Sales Agreement referred to above, the Registrant and Ney entered into a Tax
Sharing Agreement, effective as of March 1, 1996, which requires 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 Ney or any of its subsidiaries would
have been liable for in the particular year. The Tax Sharing Agreement does not
require any adjustments to be made for deferred taxes and no such adjustments
were made for the fiscal year ending February 28, 1997. The Registrant files a
consolidated Federal income tax return with its subsidiaries.
NOTE 3 - LONG TERM DEBT
Long-term debt consists of the following (in thousands):
February 28, 1997
Mortgage note payable due June 2001; Interest at Varying rates from 60-68% of
the prime rate, as defined, 5.4% at February 28, 1997, payable semi
-annually; semi-annual principal payments in escalating amounts from $59 in
1997 to $78 at maturity; further secured by personal property $ 575
Convertible subordinated debentures, due October 2002;
Interest at 10.5%, payable semi-annually; annual principal payments in
varying amounts through majority, unsecured 6,287
Other 264
-------
7,126
Less current maturities 586
--------
$6,540
--------
F-4
The terms of the convertible subordinated debentures call for the annual
redemption of $834,000 face value of debentures, either through open market
purchases or mandatory sinking fund payments. The Company may also make an
additional optional sinking fund payment of $834,000. 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 28, 1997, 388,806 shares of common stock were
reserved for conversion.
Certain of the debt agreements contain restrictive covenants which limit, among
other things, mergers or consolidations, sales of assets, additional long term
debt, payments of dividends and stock repurchases. Under the terms of the10.5%
Convertible Subordinated Debentures, the Company had been restricted from
repurchasing stock or paying dividends since April 15, 1993 until such time as
the
Company's cumulative earnings, as defined, reach specified amounts. During 1997,
the Company obtained the consent of a majority of the holders of these
debentures to repurchase up to $6,000,000 of its capital stock.
Maturities of long-term debt for each of the next five fiscal years are as
follows (in thousands):
1998 $586
1999 974
2000 986
2001 999
2002 876
Thereafter 2,705
----------
$7,126
----------
NOTE 4 - REDEEMABLE CUMULATIVE CONVERTIBLE PREFERRED STOCK
See Note 9 to the Registrant's Consolidated Financial Statements for the fiscal
year ended February 28, 1997 contained in Item 8 herein.
NOTE 5 - CASH DIVIDENDS
The amount of cash dividends paid to the Registrant by Consolidated Subsidiaries
during fiscal 1997 was approximately $1,150,000.
F-5
Andersen Group, Inc.
Schedule II - Valuation and Qualifying Accounts
(Amounts in thousands)
-----Additions-----------
Balance Charged to Charged Balance
beginning costs and to other end
Description of year expenses account Deductions of year
February 28, 1997
Allowance for doubtful
accounts $124 76 (10))a) $190
Reserve for returns $0 95 $ 95
Warranty reserve $100 (30) $ 70
- ------------------------------------------------------------------------------------------------------------------------------
February 29, 1996
Allowance for doubtful
accounts $360 97 (287)(c) (46)(a) $124
Warranty reserve $ 65 35 $100
Discontinued operation $63 (63)(d) $0
Deferred income tax
valuation allowance $483 (483) $0
- ------------------------------------------------------------------------------------------------------------------------------
February 28, 1995
Allowance for doubtful
accounts $427 47 (31) (83)(a) $360
Warranty reserve $0 65 $65
Discontinued operation $0 41 31 (9)(a) $63
Deferred income tax
valuation allowance $458 25 $483
- ------------------------------------------------------------------------------------------------------------------------------
(a) Write offs net of recoveries.
(b) Offset of discontinued operation losses.
(c) Transferred in connection with sale of certain assets of Dental Segment.
(d) Eliminated in connection with reduction in stock ownership of DGI in May
1995.
F-6
EXHIBIT INDEX
No. Description Page No.
3.2 Amended and Restated By-Laws. E-2
10.13 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. E-3
21. Subsidiaries of the Registrant. E-4
23. Accountant's Consent. E-5
27.1 Financial Data Schedule. E-6
27.2 Restated Financial Data Schedule. E-7
E-1