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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 [FEE REQUIRED]
For the fiscal year ended February 29, 1996 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 (I.R.S Employer Identification No.)
incorporation or organization)
Ney Industrial Park, Bloomfield, Connecticut 06002-3690
(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 closing sale price of the Common Stock on April 26,
1996, as reported on the NASDAQ National Market System, was $5,621,075.
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 April 26, 1996, there were 1,934,205 shares of Common Stock, without par
value, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Parts III: Portions of the Registrant's Proxy Statement for its 1996
Annual Meeting of Shareholders
PART I
ITEM 1 BUSINESS
--------
GENERAL
- -------
Andersen Group, Inc. is referred to herein as the "Company" or the "Registrant".
The Registrant was incorporated under the laws of the State of Connecticut in
1951.
The Company historically has conducted operations in several, highly diverse
segments. These segments have included dental distribution and manufacture,
electronics manufacturing and supply businesses, communications electronics,
medical products and services and video products.
In February 1990, the Registrant established a formal plan to divest its
remaining communications electronics operation, Microtime, Inc., presently known
as AGI Technology, Inc. (Microtime). Microtime was carried as a discontinued
operation in the Company's Consolidated Financial Statements from fiscal 1990
until its assets and liabilities were sold in October 1992 to Digital F/X, Inc.
(DF/X) at their book value for consideration consisting of preferred stock and
subordinated notes of DF/X.
On February 28, 1991, the Registrant acquired The J.M. Ney Company (Ney) by
merging Ney into a wholly-owned subsidiary of the Registrant. Ney, which is the
Company's primary operating subsidiary, operates in the electronics industry
segment. Ney's electronics industry segment is comprised of Ney's electronics
division and Ney Ultrasonics, Inc., a majority owned subsidiary of Ney (Ney
Ultrasonics). Until November 28, 1995, Ney also operated in the dental industry
segment, through its wholly owned subsidiary Ney Dental International, Inc.
(NDI). As discussed in more detail below, under the heading "Dental Segment" and
in Items 7 and 8 and in Note 4 to the Company's Consolidated Financial
Statements for the fiscal year ended February 29, 1996, the assets and certain
liabilities of the dental segment were sold in November 1995, and the segment
has been classified as a discontinued operation.
In April 1993, the Company, through a newly formed subsidiary, New Microtime
Inc. (New Microtime), signed a Participation and Option Agreement with DF/X to
manage and reacquire certain assets and liabilities of the Broadcast Division of
DF/X (into which DF/X had placed the assets of Microtime). In September 1993,
prior to a bankruptcy filing by DF/X, New Microtime exercised its option to
purchase all of the Broadcast Division assets of DF/X and entered into an
agreement which was approved by the U.S. Bankruptcy Court in December 1993. In
October 1994, New Microtime acquired certain assets of the Graphics Systems
Division (GSD) of The Grass Valley Group, Inc. (Grass Valley). The acquired
product lines were integrated with the other products sold by New Microtime. The
combined entity began operating under the name Digital GraphiX, Incorporated
(DGI) in January 1995. On May 2, 1995, DGI issued an additional 64,800 shares of
common stock at $5.00 per share to certain DGI employees and securityholders of
the Company. As a result of this stock sale, the Company's equity interest in
DGI was reduced to 19%. The financial impact of these transactions is described
further in Items 7 and 8 below and in Notes 2 and 17 to the Company's
Consolidated Financial Statements for the
2
fiscal year ended February 29, 1996. The Company's Consolidated Financial
Statements include the operating results of DGI from the date of its inception
in April 1993 through May 2, 1995. As of February 29, 1996 and February 28,
1995, the Company has recorded its investment in DGI as a separate component
of its consolidated balance sheet. The activities of DGI are accounted for in
the Company's Video Products segment.
During the fiscal year ended February 29, 1996 and after giving effect to the
sale of the assets and certain liabilities of NDI in November 1995, the
Registrant operated in two business segments: Electronics, and for two months,
Video Products. Each of these segments is discussed more fully below.
ELECTRONICS SEGMENT
- -------------------
The Company's electronics industry segment is comprised of Ney's electronics
division (Electronics Division) and Ney Ultrasonics, a majority owned subsidiary
of Ney, which manufactures industrial ultrasonic cleaning equipment
(collectively, the Electronics Segment).
Electronics Division
--------------------
The Electronics Division is a full-service, precious metal and parts
supplier to automotive, medical, industrial electronics, military and
semi-conductor manufacturers. The fully integrated approach of the
Electronics Division includes fabrication and manufacture of its precious
metal alloys, design, engineering and metallurgical support. The
metallurgical capabilities include stamping, wire drawing, rolling from
ingot to foil, precision turning, injection and insert molding, and
refining.
The Electronics Division 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 are
considered extremely dependable as the materials are inert and highly
resistant to corrosion and wear. In developing a finished contact or
assembly, the Electronics Division'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, thermodynamic
and other performance specifications required for the customer's
applications. The Electronics Division designs and builds the necessary
molds and tools as well as designs and manufactures the end product.
By controlling the total process, the Division believes it has a
competitive advantage over other companies in technology, cost and
response time. The Electronics Division has attained ISO 9001
certification for manufacture of its products as well as approval by the
Japanese Industrial Standards (JIS) and the United States Food and Drug
Administration.
In connection with the sale of NDI's assets and liabilities, the
Electronics Division entered into a two year manufacturing agreement to
alloy and fabricate precious metals for NDI. Also, as part of this
agreement, the Company has agreed, for a ten-year period, not to sell
alloys, equipment or merchandise into the dental market that NDI exited.
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.
The Electronics Division business has limited direct competition with
regard to the manufacturing 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
3
Company believes that these operations lack the vertical integration to
compete across the entire spectrum of products. The Electronics Division
also 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 standard
precious metal alloys.
Ney Ultrasonics
---------------
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 market penetration. Ney Ultrasonics' products have become the
preferred choice in ultrasonics for numerous large OEM systems integrators
and fabricators.
Ney Untrasonics' EnviroSONIK(TM) and Torrent(TM) cleaning systems
continue to replace equipment and processes that used ozone-depleting
chemicals and are mandated for phase out by the Clean Air Act of 1990. Ney
Ultrasonics is the exclusive licensee, pursuant to a license agreement
which expires in 2005, of the patented ultrasonic technology used in its
products. These products are capable of cavitating some of the newer
replacement chemistries. The Company believes this patented technology
has a competitive advantage over ultrasonic equipment manufactured by its
competitors.
Ney Ultrasonics competes with a number of national and regional companies
on the basis of cleaning performance, price and delivery. Ney Ultrasonic's
products carry a three year generator warranty which is not offered by its
competitors.
The Electronics Segment sells to more than 800 customers, with approximately 85%
of its sales being made to customers in the United States. The Electronics
Segment sales are made domestically through both field sales and manufacturer's
representatives located in key geographic markets. Internationally, the Segment
sells through manufacturer's representatives, independent distributors and
original equipment manufacturers.
The Electronics Segment's backlog at April 26, 1996 and April 30, 1995 was
approximately $5,260,000 and $4,224,000, respectively. Although a small portion
of the orders included in the backlog are ultimately not released for
manufacture and delivery, due to cancellations, the Company anticipates, based
on prior experience, that the entire backlog at April 26, 1996, less canceled
orders, will be realized in the next twelve months.
No customer in the Electronics Segment accounted for more than 10% of the
Company's sales in fiscal 1996.
DENTAL SEGMENT
- --------------
On November 28, 1995, the Registrant sold the assets and certain liabilities of
NDI, which assets and liabilities composed the Company's Dental Segment, to
Phoenix Shannon p.l.c. of Shannon County Clare, Ireland.
4
NDI had been in the business of developing, manufacturing and distributing a
range of materials, equipment and merchandise for distribution and sale to the
dental laboratory health care market. NDI's principal product line was precious
metal casting alloys which were sold to dentists and dental laboratories for use
in the fabrication of crowns, bridges and other restorative forms used in the
restoration and reconstruction of teeth. Precious metal alloys are preferred for
certain dental crown and bridge applications because they are easy to shape,
biocompatible, strong, and do not corrode or crack. Although various less costly
alternatives exist, acceptance of such alternatives was slow due to concerns
regarding the reliability of such products. NDI's product line consisted of over
30 different alloys such as Option, Ultima Lite, Bio Ney, Ney-Oro B-2 and a
palladium-free alloy with a high precious metal content which had been recently
introduced to meet a growing European demand. These alloys were manufactured by
Ney's Electronics Division according to specific formulas that included precious
metals such as gold, platinum, palladium and silver. NDI maintained an active
metallurgical research and development effort.
NDI manufactured, developed and sold equipment, including vacuum porcelain and
bench-top burnout furnaces, dental laboratory handpieces and commercial
ultrasonic cleaners for use in dental, scientific and industrial laboratories
and the jewelry manufacturing industry. Merchandise and supplies, such as
surveyors and Neyvest, which were manufactured by outside suppliers, were also
sold to dental laboratories.
NDI sold to customers throughout the United States and foreign countries. Sales
in the United States of precious metal alloys were made through a field sales
force and telemarketing staff, while equipment was sold primarily through
dealers. NDI sales for the nine months ended November 30, 1995 were
approximately $29,628,000. Its sales for the fiscal years ended February 28,
1995 and 1994 were approximately $37,984,000 and $35,014,000, respectively.
Export sales accounted for approximately 40-50% of total sales during these
periods. Most export sales were made in Europe through NDI's subsidiary Neyco
Dental A.G.
NDI held several patents and was licensed under a number of patents. NDI
maintained several U.S. and foreign trademarks related to precious metal alloys.
VIDEO SEGMENT
- -------------
As discussed above under Item 1, Business-General, the Company's equity interest
in DGI was reduced to 19% from 100% on May 2, 1995. Accordingly, DGI's results
of operations are only included in the Company's Consolidated Financial
Statements and segment information through May 2, 1995.
DGI (formerly known as New Microtime Inc.) has concentrated on providing devices
with real-time performance, including character generators for the production of
titles and credits for television programs as well as a range of real-time
digital video effects (DVE) systems. DGI sells into the professional broadcast
market including national broadcasters, cable television providers, and the
post-production industry.
During fiscal 1996, DGI focused its attention on the launch of the New TypeDeko
character generator into the professional sector of the broadcast video market.
The Company has delivered
5
a substantial quantity of TypeDeko units to date, with approximately half of the
units being sold to international customers. The TypeDeko system has beeen well
received, as a result of the use of a standard platform (Pentium PC) open system
(Microsoft Windows NT) approach. The use of standard components has reduced the
initial cost of the products' operator training, and longer-term maintenance
costs.
See Note 16 to the Company's Consolidated Financial Statements for the fiscal
year ended February 29, 1996 contained in Item 8, for information about the
operations of the Registrant's business segments and foreign operations.
OTHER BUSINESSES OF THE REGISTRANT
- ----------------------------------
In December 1995, the Registrant merged its unconsolidated, majority owned
subsidiary, Seratronics, Inc. of Nevada (Seratronics), into it. The Company
continues to operate Seratronics business as a division through a third party
manager. Seratronics is located in Walnut Creek, California and is in the
business of manufacturing, marketing and selling dialyzer rinse and re-use
machines for use in the end stage renal disease market. Significant trademarks
include Seratronics and Seratron. See Item 3 below for discussion of a legal
proceeding related to Seratronics.
The Company also holds an investment of approximately $640,000 in a joint
venture formed in late 1995 which is investing in a Russian telecommunications
company that has agreements to develop a data transmission network throughout
the Commonwealth of Independent States.
RESEARCH AND DEVELOPMENT
- ------------------------
During fiscal years 1996, 1995, and 1994, research and development expenditures
related to continuing operations totaled $1,683,025, $2,586,651 and $2,348,347,
respectively.
SOURCES AND AVAILABILITY OF RAW MATERIALS AND COMPONENTS
- --------------------------------------------------------
The Company purchases its raw materials 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.
6
EMPLOYEES
- ---------
As of April 26, 1996, the Registrant, including all subsidiaries, had 178
full-time employees and 3 part-time employees. 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. 42 Chairman 1990
Francis E. Baker 66 President and Chief Executive Officer 1959
Andrew M. O'Shea 37 Principal Financial Officer, and 1995
Treasurer and Chief Financial Officer,
The J.M. Ney Company
Susan B. Logie 52 Secretary 1995
Bernard F. Travers, III 38 Assistant Secretary 1993
Ronald N. Cerny 44 President, The J.M. Ney Company 1993
Eugene Phaneuf 49 Vice-President Operations, 1995
The J.M. Ney Company
======================================================================================================================
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 except that Mr. Grace, Jr. is the brother
of John S. Grace, a member of the Company's Board of Directors.
Oliver R. Grace, Jr., has been a Director of the Company since 1986 and Chairman
since March 29, 1990, He 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.
Francis E. Baker, has been a Director of the Company and President and Chief
Executive Officer of the Company since 1959.
Mr. O'Shea joined the Company in December 1995 as Treasurer and Chief Financial
Officer of The J.M. Ney Company. Mr. O'Shea also serves as Principal Financial
Officer for the Company. 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 with his most recent position being that of Senior
Vice-President, Finance and Administration. Mr. O'Shea is a Certified
Public Accountant.
Ms. Logie joined the Company in 1987. She became Secretary of the Company in
November 1995. From 1987 to 1995, Ms. Logie was the Executive Assistant to the
Registrant's President and Chief Executive Officer.
Mr. Travers, III joined the Company in 1983. He was promoted to Assistant
Secretary in June 1993. From 1990 until being promoted to Assistant Secretary,
he was the Company's Director of Law and Taxation. From 1986 to 1990, he was
Assistant Controller for the Company. Mr. Travers is an attorney and a Certified
Public Accountant.
7
Mr. Cerny has served as President of The J.M. Ney Company 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. Phaneuf joined The J.M. Ney Company in 1990. He was promoted to
Vice-President, Operations of The J.M. Ney Company in March 1996. From April
1994 to February 1996, Mr. Phaneuf was Ney's Director of Operations. He has also
been Acting General Manager of Ney Ultrasonics since April 1995. From 1990 to
1994, Mr. Phaneuf was Ney's Manager of Engineering and Manufacturing.
ITEM 2 PROPERTIES
----------
The Company moved its administrative offices to the headquarters of Ney in 1992.
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 Division and Ney's general administrative offices.
The Company also owns a 108,000 square foot building located in Bloomfield,
Connecticut. The Registrant leases portions of this facility to its subsidiary
Ney Ultrasonics and its former subsidiaries, Ney Dental International, Inc. and
Digital GraphiX, as well as to third parties. See Note 10 to the Company's
Consolidated Financial Statements for the fiscal year ended February 29, 1996,
contained in Item 8, for a discussion of the indebtedness related to this
property. 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
-----------------
Seratronics Matter
- ------------------
As previously reported, Althin CD Medical, Inc. (Althin) filed a complaint
against the Company's subsidiary Seratronics in August 1992 in the U.S. District
Court for the Southern District of Florida. The complaint, which was
substantially amended in January 1995, asserted various claims, including breach
of contract for failure to pay royalties arising out of a License Agreement with
Althin's predecessor, CD Medical, Inc., and claims arising out of the management
of Seratronics' business by Fresenius U.S.A., Inc. Althin claimed money damages
of not less than $300,000. Seratronics denied all claims and filed
counterclaims against Althin alleging misuse by Althin of know-how and
technology licensed exclusively to Seratronics and breach of Althin's covenant
of good faith and fair dealing with Seratronics.
On November 28, 1995, Seratronics settled its dispute with Althin by paying
Althin $250,000 and agreeing to pay royalties on sales of certain products until
the year 2000. See Management's Discussion and Analysis of Financial Condition
and Results of Operations, contained in Item 7, for further discussion.
8
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
On January 12, 1996, the Company received the written consent of the holders of
a majority in principal amount (approximately $4,000,000) of the Company's
10 1/2% Convertible Subordinated Debentures due 2002 (Debentures), to waive
compliance by the Company with that certain covenant (Restrictive Covenant) set
forth in Section 5-8 of the General Provision of the Indenture (Indenture) dated
as of October 15, 1982 relating to the Debentures. Such written consent
permitted the Company to purchase, redeem or retire up to 300,000 shares of the
Company's Preferred Stock prior to January 15, 1996 and without regard to the
Restrictive Convenant. The Restrictive Covenant would have precluded the Company
from purchasing, redeeming or retiring all of the shares of Preferred Stock
tendered pursuant to the Company's outstanding offer to purchase for cash any
and all of its outstanding shares of Preferred Stock for a purchase price of
$12.25 per share net to the seller which commenced in June 1995. A total of
approximately $6,505,000 principal amount of Debenture was outstanding at the
time of the written consent.
9
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 automated quotes supplied by the National Market System
of the National Association of Securities Dealers, Inc. (NASDAQ).
The number of record holders of the Registrant's Common Stock on April 26, 1996
was 716. During fiscal year 1996, 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, is included below. The
stock prices shown were obtained from NASDAQ. They represent prices between
dealers and do not include retail markups, markdowns or commissions and may not
necessarily represent actual transactions.
========================================================================
1996 High Low
========================================================================
First Quarter $6 1/4 $3
Second Quarter 6 1/4 4 3/4
Third Quarter 5 1/4 3
Fourth Quarter 6 3 3/4
========================================================================
========================================================================
1995 High Low
========================================================================
First Quarter $7 1/2 $4 1/4
Second Quarter 7 1/2 4
Third Quarter 5 3/4 3 1/2
Fourth Quarter 4 2 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 (Restrictive
Covenants). As a result of the losses incurred in fiscal years 1993, 1994 and
1995, and redemptions or repurchases of the Company's Series A Cumulative
Convertible Preferred Stock (Preferred Stock) in fiscal 1992, 1993 and in
January 1996 when the Company purchased approximately 300,000 shares of its
Preferred Stock, the Company has been precluded from paying dividends on its
capital stock by the Restrictive Covenants. The Company will only be permitted
to pay dividends on or redeem its capital stock to the extent by which
cumulative consolidated net income (as defined in the Restrictive Covenants)
earned after February 29, 1996 exceeds $4,190,000. For further discussion,
see Item 7, and Notes 9 and 10 to the Registrant's Consolidated Financial
Statements contained in Item 8.
10
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 as of and for the fiscal year ended February 29, 1996
contained in Item 8, (dollars in thousands, except per share data).
=======================================================================================================================
Years ended February 28/29 1996 1995 1994 1993 1992
=======================================================================================================================
Revenues(1) $24,048 $28,866 $21,015 $15,629 $15,574
- ------------------------------------ ---------------- --------------- --------------- ----------------- ---------------
Loss from continuing
operations (2,270) (1,160) (1,634) (1,474) (310)
- ------------------------------------ ---------------- --------------- --------------- ----------------- ---------------
Net income (loss) 1,933 (388) (868) (2,685) 931
- ------------------------------------ ---------------- --------------- --------------- ----------------- ---------------
Income (loss) applicable to
common shares 2,389 (975) (1,468) (3,355) (139)
- ------------------------------------ ---------------- --------------- --------------- ----------------- ---------------
Loss from continuing
operations per common share (.94) (.90) (1.22) (2.45) (.58)
- ------------------------------------ ---------------- --------------- --------------- ----------------- ---------------
Income (loss) per common
share, primary 1.23 (.50) (0.80) (1.89) .08
- ------------------------------------ ---------------- --------------- --------------- ----------------- ---------------
Depreciation, amortization
and accretion 1,887 2,329 3,368 3,287 3,014
- ------------------------------------ ---------------- --------------- --------------- ----------------- ---------------
Total assets 38,798 43,679 48,590 52,337 59,917
- ------------------------------------ ---------------- --------------- --------------- ----------------- ---------------
Total debt 8,485 12,328 16,371 17,723 15,210
- ------------------------------------ ---------------- --------------- --------------- ----------------- ---------------
Redeemable preferred stock 5,280 10,593 10,494 10,684 13,555
- ------------------------------------ ---------------- --------------- --------------- ----------------- ---------------
Common and other stockholders'
equity 13,626 9,913 10,837 11,482 14,024
- ------------------------------------ ---------------- --------------- --------------- ----------------- ---------------
Book value per common share 7.04 5.13 5.62 6.46 7.94
=======================================================================================================================
(1) The results of Digital GraphiX are included in 1994, 1995 and two
months of 1996.
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
------------------------------------------------
RESULTS OF OPERATIONS
- ---------------------
Years ended February 29, 1996 vs. Year ended February 28, 1995
- --------------------------------------------------------------
For the year ended February 29, 1996 (1996), the Company's net sales from
continuing operations totaled $23,235,000, which represents an 8.6% decrease
from the $25,423,000 of sales from continuing operations recorded for the year
ended February 28, 1995 (1995). Discounting the effect of the accounting
treatment for the Company's investment in Digital GraphiX (DGI) because of the
removal of its results of operations from consolidation after two months as
explained later, sales volume improved 14.8% during 1996. In addition,
investment and other income totaled $813,400 during 1996, a decrease of
approximately $2,629,000 from 1995, primarily due to non-recurring revenue in
1995 from the sale of two cellular partnership investments. Other sources of
investment and other income include rental income of $281,000 and $220,000 for
1996 and 1995, respectively, and net gains from marketable securities of
$46,000 and $186,000 during 1996 and 1995, respectively. The 1996 securities
gains are net of a $525,000 decline in the market value of the Company's
investment in Phoenix Shannon stock. As of April 26, 1996, the value of this
stock had recovered $300,000 of the 1996 decline. Investment and other income
for 1996 also includes interest on the note receivable from DGI which was
offset by a provision for uncollectibility, and interest income from the
investment of proceeds of the sale of the Company's Dental segment and from a
note receivable in connection with this sale.
11
During 1996, net sales from the Electronics Division of the Company's
Electronics segment, which manufactures electronic connectors and components and
precious metals material, totaled $16,544,000, an increase of 17.5% over the
$14,079,000 of sales recorded in 1995. Gross margins of 34.6% of sales in 1996
improved from 33.7% of sales in 1995 primarily due to improved absorption of
fixed manufacturing costs.
During 1996, Ney Ultrasonics, which makes industrial ultrasonic cleaning systems
and components, increased sales by 6.1% over 1995 sales levels by recording
$4,611,000 of revenues. Gross margins generated from 1996 sales increased 36% as
the margin rates improved from 21.4% of sales in 1995 to 26.7% in 1996. Direct
manufacturing costs were reduced, as improved sales and marketing focus
allowed for manufacturing efficiencies to be realized.
Reported sales, from the Video Products segment (Video segment) decreased from
$6,998,000 in 1995 to $2,079,000 in 1996 because, effective with the May 1995
sale of common stock of DGI which reduced the Company's ownership to 19%, these
operations were no longer consolidated with those of the remainder of the
Company. Thus, 1996 has only two months of revenue from this segment.
Selling, general and administrative expenses during 1996 totaled $9,166,000,
which represents a 2.6% decrease from $9,413,000 recorded in 1995. Increased
expenses, including $950,000 of legal and settlement costs relating to a lawsuit
filed by Althin Medical, Inc. against the Company's subsidiary, Seratronics,
Inc., and a $1,000,000 write-down of the Company's investment in Digital
GraphiX, were more than offset by the absence of ten months of operating
expenses from the formerly consolidated Video segment. Selling, general and
administrative expenses totaled 38.1% of revenues in 1996 versus 32.6% in 1995.
Research and development expenses totaled $1,683,000 in 1996. This represents a
decrease of 34.9% from the $2,587,000 recorded in 1995. This decrease is
primarily due to a decrease of $978,300 of such expenses relating to the Video
segment which, since May 1995, is no longer being consolidated in the Company's
results of operations.
Interest expense during 1996 totaled $1,237,000, which is a 14.5% decrease from
1995 when $1,447,000 of interest expense was incurred. The repayment of the
revolving line of credit at the end of the third quarter, concurrent with the
sale of the net assets of the Dental segment, coupled with additional principal
payments of term debt, resulted in the lower interest cost.
Exclusive of income taxes attributable to discontinued operations and to the
gain on the sale of the Dental segment, the tax benefit from continuing
operations in 1996 was $1,166,000 versus a tax benefit of $812,000 in 1995.
During 1996, the Company incurred a net loss from continuing operations of
$2,270,000, a significant portion of which can be attributed to the write-down
of the Company's investment in DGI, the settlement of the Althin litigation and
the market valuation decline of the Phoenix Shannon investment. In 1995, the net
loss from continuing operations totaled $1,160,000.
On November 28, 1995, the Company sold the net assets and operations of the
Dental segment. Through that date, the segment had earned $413,000 net of tax,
or $.21 per share, versus net
12
income of $792,000, or $.41 per share, for the entire prior fiscal year. Such
results are based on historical allocations of administrative expenses, and net
of income taxes.
The Company recorded an after tax gain of $3,790,000 or $1.96 per share on the
sale of this segment. Included in this gain is a $519,000 curtailment gain
related to the Company's defined benefit pension plan.
Preferred stock dividends and discount accretions decreased from $587,000 in
1995 to $560,000 during 1996 due to the purchase of 299,561 shares of the
redeemable preferred stock in the fourth quarter pursuant to a voluntary tender
offer. As a result of the purchase, $1,015,000 of previously accrued but unpaid
dividends and accreted discounts were reversed and added to income applicable to
common shares. An additional $1,324,000 was added directly to additional paid-in
capital as a gain relating to the difference between the purchase price of the
shares and their original issue price.
For 1996, net income applicable to common shares was $2,389,000, or $1.23 per
share, which compares favorably to the $975,000 loss, or $(.50) per share
recorded in 1995.
Year ended February 28, 1995 vs. Year ended February 28, 1994
- -------------------------------------------------------------
For the year ended February 28, 1995(1995), the Company's net sales from
continuing operations totaled $25,423,000, which represents a 30.7% increase
from the $19,455,000 of sales recorded for the year ended February 28, 1994
(1994).
The Electronics division of the Electronics segment had net sales in 1995 of
$14,079,000, a 26.4% increase from sales of $11,135,000 in 1994. Sales in each
of its five primary markets grew in excess of 10%, including sales to the
medical market which grew by $1.5 million or 175% as a result of increased
material and parts sales to the dental implant industry. Gross margins for this
segment improved from 28.8% of sales to 30.2% of sales as a result of the
increased volumes which served to improve the absorption of the fixed component
of manufacturing costs.
Sales in the Ultrasonics division increased 8.9% from $3,991,000 in 1994 to
$4,346,000 in 1995. Federal requirements to eliminate the use of ozone-
depleting chemicals have contributed to growth in this market. Gross margins
rates, however, slipped slightly from 23.2% in 1994 to 21.4% in 1995 due to
increased production costs.
Sales in the Company's Video segment totaled $6,998,000, a 59.0% increase from
the prior year. This increase is due to $2,793,000 of sales related to a product
line acquired from the Grass Valley Group, Inc. This acquired product line is
subject to a non-compete agreement with Grass Valley through October 1996.
Somewhat offsetting these additional sales was a slight decrease in demand of
previously existing products due to continued competition and technological
advances in the market. Gross margins from this segment declined from 58% to
36.1% due to the sale in 1994 of consignment inventory obtained at a reduced
cost.
Investment and other income for 1995 totaled $3,443,000, an increase of
$1,884,000, or 120.8% from 1994. The results for 1995 year include gains of
$3,223,000 from the sale of the Company's investments in two cellular telephone
partnerships. In May 1994, the Company sold its 34% partnership interest in the
nonwireline cellular telephone license in the North Carolina 3
13
Rural Service Area to Centennial Cellular Corporation (Centennial) for a
combination of cash and Centennial Stock. All of the Centennial stock was
immediately remarketed in a block transaction. The Company recognized a gain of
$1,316,000 on this sale from its original investment of $2,090,000 made in
August 1991. In August, 1994, the Company sold its 9.6% general partnership
interest in MidSouth Cellular L.P. (MidSouth), a nonwireline cellular telephone
franchise, to Centennial for a combination of cash and stock. Under terms of the
sale agreement, the cash consideration was utilized to satisfy certain
liabilities of MidSouth. A portion of the Company's share of the common stock
received was sold on the open market; however, the Company continues to hold
23,086 shares. The Company recognized a gain of $1,907,000 on the sale of its
MidSouth interest which had been acquired in 1992 for approximately $2.7
million. During 1995 the Company generated approximately $186,000 of net capital
gains on sales of portfolio securities and $220,000 of rental income from its
1280 Blue Hills Avenue facility, versus $787,000 and $517,000, respectively, of
such revenue sources in 1994.
Selling, general and administrative expenses for 1995 totaled $9,413,000, an
11.6% increase from $8,434,000 in 1994. As a percentage of revenues, these
expenses decreased to 32.6% in 1995 from 40.1% in 1994.
Research and development expenses for 1995 were $2,587,000, a 10.2% increase
from $2,348,000 of such expenses in 1994.
Interest expense decreased to $1,447,000 in 1995 from $1,463,000 in 1994. The
slight decrease reflects reduced interest expense associated with the repayment
of $4,042,000 in outstanding indebtedness in 1995. This was mostly offset by a
three percentage point increase in short-term borrowing rates.
For 1995, the loss from continuing operations before income taxes and
extraordinary gain was $1,972,000, a decrease of $2,071,000 from a loss of
$4,043,000 in fiscal 1994. The improvement was primarily attributable to the
gains on the sale of the cellular investments, offset somewhat by additional
losses from the Video segment.
For 1995, the Company had an income tax benefit from continuing operations of
$812,000, as compared to a benefit of $2,409,000 in 1994. The decreased benefit
primarily reflects lower operating losses in 1995. The income tax benefit
represents the effective income tax rate for the fiscal year, including
adjustments to the Company's accrual for prior years' taxes.
Loss from continuing operations before extraordinary item for 1995 was
$1,160,000, a reduction of $474,000 from the loss of $1,634,000 in 1994.
During 1995, the Company retired $823,000 of the Company's 10.5% Convertible
Subordinated Debentures and the remaining $2,976,000 of the Company's 11%
Subordinated Notes, which resulted in an extraordinary after-tax loss of
$21,000. In 1994, after-tax gains related to retirement of this debt totaled
$115,000.
The discontinued Dental segment earned $792,000 net of income taxes, or $.41 per
share during 1995 versus net income of $651,000 or $.36 per share during 1994.
Such results reflect historical administrative expense allocations, and the
application of income taxes at statutory rates.
14
Net loss for 1995 was $388,000 as compared to a net loss of $868,000 in 1994.
Preferred stock dividends, including accretion, decreased to $587,000 in 1995,
from $600,000 in 1994, as the result of stock conversions during each of those
years. For 1995, the loss applicable to common shares was $975,000 or $(.50) per
share, as compared to a loss of $1,468,000 or $(.80) per share in 1994.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
At February 29, 1996, the Company's cash, short-term investments and marketable
securities totaled $7,925,000, an increase of $3,036,000 from the February 28,
1995 total of $4,889,000. The marketable securities are comprised of
non-investment grade, high-yield municipal bonds, the common stock of certain
financial institutions, and common stock investments in Phoenix Shannon, p.l.c.
and Centennial Cellular Corporation.
During the year the Company completed its sale of its Dental segment which
provided the Company with approximately $17,400,000 of cash. Portions of the
proceeds were utilized to purchase stock of Phoenix Shannon, pay down debt, pay
income taxes and transaction costs, repurchase preferred stock, support the
working capital requirements of Ney Electronics and Ney Ultrasonics, and make
additional investments in equity securities. The Company anticipates receiving
an accrued post-closing purchase price adjustment, related to the sale of the
Dental Segment, of approximately $600,000 by the end of May 1996.
In conjunction with the sale of Dental segment, the Company repaid the
outstanding balance of $6,825,000 plus accrued interest on Ney's revolving
credit agreement. Ney anticipates that it will secure adequate financing
arrangements during the first half of fiscal 1997 to meet its working capital
and capital expenditure requirements.
As noted, the Company used a portion of the proceeds from the sale of the Dental
segment to repurchase preferred stock. In total, 299,561 shares were repurchased
at a total cost of $3,758,000, including transaction costs of the tender offer.
The carrying value of the shares at date of purchase was approximately
$6,097,000, including accrued dividends. Accordingly, the Company recognized a
benefit of $2,399,000 which was accounted for as $1,015,000 of preferred
dividend reversals and $1,324,000 as an increase to additional paid-in capital.
Accordingly, at February 29, 1996, the Company's net worth totaled $13,626,000
or $7.04 per share, an increase of 37.5% from $9,913,000 or $5.13 per share at
February 28, 1995.
Net current assets decreased by $3,311,000 during 1996 due to funds being
applied to purchase preferred stock and reduce long-term debt; to income which
has been realized through increases in prepaid pension expense, and in other
assets in the form of restricted cash and a two-year note received from the sale
of the Dental segment; and to debt that will mature in 1997, thus increasing
current portion of long-term debt.
The Indenture relating to the Company's 10.5% Convertible Subordinated
Debentures contains covenants 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 convenants from making such payments on the
Preferred Stock or the Common Stock. The Company will only be permitted to pay
dividends on or redeem
15
the Preferred Stock or the Common Stock to the extent by which cumulative
consolidated net income (as defined) earned after the 1996 fiscal year exceeds
$4,190,000.
Additional financings or restructurings of existing financing obligations may
be necessary to fund the Company's capital and financial commitments in future
periods. The Company believes that funds from operations, sale of existing
investments or businesses and potential future refinancing 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.
16
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 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 29, 1996 contained in this Item.
Selected Quarterly Financial Data
1996 May 31 August 31 November 30 February 29
================================================================================================================================
Net sales and revenues(1) $7,199 $5,835 $5,516 $5,498
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)
Income (loss) (.19) (.08) 1.71 (.21)
Share price:
High 6 1/4 6 1/4 5 1/4 6
Low 3 4 3/4 3 3 3/4
================================================================================================================================
1995 May 31 August 31 November 30 February 28
================================================================================================================================
Net sales and revenues(1) $7,527 $7,610 $6,475 $7,254
Income (loss) from continuing operations 548 349 (669) (1,388)
Net income (loss) 781 566 (512) (1,223)
Income (loss) applicable to common shares 633 418 (655) (1,371)
- --------------------------------------------------------------------------------------------------------------------------------
Earnings (loss) per common share:
Continuing operations .19 .12 (.42) (.79)
Income (loss) .33 .21 (.34) (.70)
Share price:
High 7 1/2 7 1/2 5 3/4 4
Low 4 1/4 4 3 1/2 2 3/4
================================================================================================================================
(1) Net sales and revenues, and income (loss) from continuing operations
for both 1996 and 1995 exclude the results of operations of the
Company's Dental segment as a result of its sale in November 1995. See
Note 4 to the Registrant's Consolidated Financial Statements for the
fiscal year ending February 29, 1996, contained in this Item for
further discussion. Sales and revenue relating to Digital GraphiX are
included for 1995 and for two months of 1996. See Notes 16 and 17 to
the Registrant's Consolidated Financial Statements for the fiscal year
ending February 29, 1996, contained in this Item for further
discussion.
17
ANDERSEN GROUP, INC.
Consolidated Statements of Operations
Years ended February 29, 1996 and
February 28, 1995 and 1994
1996 1995 1994
========================================================================================================================
Revenues:
Net sales $23,234,639 $25,422,966 $19,455,481
Investment and other income 813,435 3,442,558 1,559,440
- ------------------------------------------------------------------------------------------------------------------------
24,048,074 28,865,524 21,014,921
- ------------------------------------------------------------------------------------------------------------------------
Costs and expenses:
Cost of sales 15,398,539 17,390,136 12,813,184
Selling, general and administrative 9,166,317 9,413,019 8,433,731
Research and development 1,683,025 2,586,651 2,348,347
Interest expense 1,236,590 1,447,315 1,462,525
- ------------------------------------------------------------------------------------------------------------------------
27,484,471 30,837,121 25,057,787
- ------------------------------------------------------------------------------------------------------------------------
Loss from continuing operations
before income taxes and extraordinary item (3,436,397) (1,971,597) (4,042,866)
Income tax benefit 1,166,331 812,035 2,408,604
- ------------------------------------------------------------------------------------------------------------------------
Loss from continuing operations
before extraordinary item (2,270,066) (1,159,562) (1,634,262)
Income from discontinued operations, net of
income tax of $169,862, $528,104 and
$433,886 in 1996, 1995 and 1994,
respectively 413,042 792,156 650,979
Gain on sale of discontinued segment, net of
income taxes of $2,040,974 3,790,379 - -
- -----------------------------------------------------------------------------------------------------------------------
Income (loss) before extraordinary item 1,933,355 (367,406) (983,283)
Extraordinary gain (loss) from early
extinguishment of debt, net of income tax
benefit (expense) of $10,584 and ($59,323) in 1995
and 1994, respectively - (20,546) 114,963
- ------------------------------------------------------------------------------------------------------------------------
Net income (loss) 1,933,355 (387,952) (868,320)
Preferred dividend requirement (559,626) (586,936) (599,872)
Reversal of preferred dividends 1,015,011 - -
- ------------------------------------------------------------------------------------------------------------------------
Income (loss) applicable to common shares $2,388,740 $(974,888) $(1,468,192)
========================================================================================================================
Earnings (loss) per common share:
Continuing operations $(.94) $(.90) $(1.22)
Discontinued operations .21 .41 .36
Gain on sale of discontinued segment 1.96 - -
Extraordinary item - (.01) .06
- ------------------------------------------------------------------------------------------------------------------------
Income (loss) per common share $1.23 $(.50) $(.80)
========================================================================================================================
See accompanying notes to consolidated financial statements.
18
ANDERSEN GROUP, INC.
Consolidated Balance Sheets
February 29, 1996 and February 28, 1995
1996 1995
========================================================================================================================
Assets
Current assets:
Cash and cash equivalents $4,115,809 $2,708,926
Marketable securities 3,808,829 2,180,153
Accounts and other receivables, less allowance for doubtful accounts of
$123,657 in 1996 and $359,714 in 1995 4,337,108 7,921,364
Inventories 8,611,808 12,690,154
Prepaid expenses and other assets 92,288 519,553
- ------------------------------------------------------------------------------------------------------------------------
Total current assets 20,965,842 26,020,150
- ------------------------------------------------------------------------------------------------------------------------
Property, plant and equipment, net 9,115,382 11,417,762
Prepaid pension expense 4,027,384 3,516,685
Investment in Digital GraphiX 1,258,849 1,801,351
Other assets 3,430,072 922,725
- ------------------------------------------------------------------------------------------------------------------------
$38,797,529 $43,678,673
========================================================================================================================
Liabilities, Redeemable Convertible Preferred Stock and Common and
Other Stockholders' Equity
Current liabilities:
Current maturities of long-term debt $1,135,783 $343,285
Short-term debt - 3,200,000
Accounts payable 2,922,593 2,119,216
Accrued liabilities 4,578,419 5,190,547
Deferred income taxes 566,711 93,726
- ------------------------------------------------------------------------------------------------------------------------
Total current liabilities 9,203,506 10,946,774
- ------------------------------------------------------------------------------------------------------------------------
Long-term debt, less current maturities 7,349,427 8,784,011
Other long-term obligations 1,142,446 1,160,142
Deferred income taxes 2,196,656 2,281,380
Commitments and contingencies (Note 15)
Redeemable cumulative convertible preferred
stock, no par value; authorized 800,000 shares; issued 789,628 shares;
outstanding shares 289,475 in 1996 and 589,036 in 1995; unamortized discount of
$147,715 in 1996 and $450,872 in 1995; liquidation preference $18.75 per share 5,279,828 10,593,440
- ------------------------------------------------------------------------------------------------------------------------
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 1,958,205 shares in 1996 and 1995 2,103,204 2,103,204
Additional paid-in capital 3,248,385 1,924,385
Retained earnings 8,364,077 5,975,337
- ------------------------------------------------------------------------------------------------------------------------
13,715,666 10,002,926
Treasury stock, at cost, 24,000 shares (90,000) (90,000)
- ------------------------------------------------------------------------------------------------------------------------
Total common and other stockholders' equity 13,625,666 9,912,926
========================================================================================================================
$38,797,529 $43,678,673
========================================================================================================================
See accompanying notes to consolidated financial statements.
19
ANDERSEN GROUP, INC.
Consolidated Statements of Cash Flows
Years ended February 29, 1996 and
February 28, 1995 and 1994
1996 1995 1994
==========================================================================================================================
Cash flows from operating activities:
Net income (loss) $1,933,355 $(387,952) $(868,320)
Adjustments to reconcile net income (loss) to net cash used
for operating activities:
Depreciation, amortization and accretion 1,886,741 2,329,428 3,367,519
Deferred income taxes (478,713) (414,515) (2,007,395)
Gain on sale of Dental segment (3,790,379) - -
Gain on sale of cellular investments - (3,223,076) -
Gains from marketable securities (45,735) (186,139) (787,302)
Purchases of marketable securities (3,575,846) (3,031,219) (2,547,987)
Operating Sales of marketable securities 1,892,905 2,212,978 8,236,947
Loss (gain) on redemptions of long-term debt - 31,129 (174,286)
Pension expense (income) 8,313 (147,528) (194,276)
Loss (gain) on disposal of property, plant and equipment 446 (62,150) -
Investment in Digital GraphiX 542,502 2,014,184 -
Changes in operating assets and liabilities, net of
changes from sale of Dental segment in 1996:
Accounts and notes receivable (1,204,466) (644,870) (2,090,181)
Inventories (2,941,324) (1,095,910) (2,605,979)
Prepaid expenses and other assets (805,863) 667,215 2,009,166
Accounts payable 2,006,196 (144,233) (396,883)
Accrued liabilities and other long-term obligations (2,022,267) 397,609 502,303
- --------------------------------------------------------------------------------------------------------------------------
Net cash (used for) provided by operating activities (6,594,135) (1,685,049) 2,443,326
- --------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from sale of property, plant and equipment 256,310 337,153 -
Purchase of property, plant and equipment (1,503,623) (1,436,372) (1,112,157)
Proceeds from sale of Dental segment, net of cash sold 16,848,160 - -
Proceeds from sale of cellular partnerships - 7,511,068 -
Investments in cellular partnerships - - (40,707)
Purchase of Video Products segment assets - - (470,000)
- --------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used for) investing activities 15,600,847 6,411,849 (1,622,864)
- --------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Principal payments on long-term debt (642,086) (4,042,001) (1,257,874)
Redemptions of preferred stock (3,757,743) - (119,158)
Dividends paid - - (114,642)
Payment of short-term debt, net (3,200,000) (37,093) (12,907)
Issuance of common stock - - 599,999
- --------------------------------------------------------------------------------------------------------------------------
Net cash used for financing activities (7,599,829) (4,079,094) (904,582)
- --------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 1,406,883 647,706 (84,120)
Cash and cash equivalents, beginning of year 2,708,926 2,061,220 2,145,340
- --------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $4,115,809 $2,708,926 $2,061,220
==========================================================================================================================
Supplemental disclosure of cash flow information:
Cash paid for:
Interest $1,203,330 $1,503,148 $1,404,555
Income taxes, net $1,410,312 $165,677 $114,832
==========================================================================================================================
See accompanying notes to consolidated financial statements.
20
ANDERSEN GROUP, INC.
Consolidated Statements of Common and Other Stockholders' Equity
Years ended February 29, 1996 and
February 28, 1995 and 1994
Common Common Additional
Stock Stock Paid-In Retained Treasury
Shares Amount Capital Earnings Stock Total
===============================================================================================================================
Balance, February 28, 1993 1,800,080 $2,101,622 $1,051,492 $8,418,417 $(90,000) $11,481,531
Preferred stock dividends
and accretion - - - (599,872) - (599,872)
Gain on redemption of
redeemable preferred stock - - 41,147 - - 41,147
Conversion of preferred stock 19,385 194 181,844 - - 182,038
Common stock issuance 133,333 1,334 598,665 - - 599,999
Net loss - - - (868,320) - (868,320)
- --------------------------------------------------------------------------------------------------------------------------------
Balance, February 28, 1994 1,952,798 2,103,150 1,873,148 6,950,225 (90,000) 10,836,523
Preferred stock dividends
and accretion - - - (586,936) - (586,936)
Conversion of preferred stock 5,407 54 51,237 - - 51,291
Net loss - - - (387,952) - (387,952)
- --------------------------------------------------------------------------------------------------------------------------------
Balance, February 28, 1995 1,958,205 2,103,204 1,924,385 5,975,337 (90,000) 9,912,926
Preferred stock dividends
and accretion - - - (559,626) - (559,626)
Gain on redemption of
redeemable preferred stock - - 1,324,000 1,015,011 - 2,339,011
Net income - - - 1,933,355 - 1,933,355
================================================================================================================================
Balance February 29, 1996 1,958,205 $2,103,204 $3,248,385 $8,364,077 $(90,000) $13,625,666
================================================================================================================================
See accompanying notes to consolidated financial statements.
21
Notes to Consolidated Financial Statements
Years ended February 29, 1996, and
February 28, 1995 and 1994
(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 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 repurchase and subsequent partial
spin-off of Digital GraphiX, Incorporated (DGI) as described in Note 17, the
consolidated financial statements include the operating results of DGI from
April 1993 through May 2, 1995. As of both February 29, 1996 and February 28,
1995, 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). The
effect of adopting SFAS 115 in 1994 was not material. Any changes in the
valuation of the portfolio are reflected in the accompanying Consolidated
Statements of Operations. At February 29, 1996, investments consisted of
$3,063,000 of equity investments and $746,000 of debt securities, while at
February 28, 1995, investments comprised $1,523,000 of equity investments and
$657,000 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.
22
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 29, 1996 and February 28, 1995 and 1994 the effect
has 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, and the restatement of the Statements of Operations
to reflect the sale of the Company's Dental segment, have been made to the 1995
and 1994 financial statements in order to conform with the 1996 presentation.
(3) Inventories
-----------
Inventories consist of the following:
February 29, February 28,
1996 1995
---------------------------------------------------------------
Raw material $3,147,540 $949,992
Work in process 3,412,641 2,732,345
Finished goods 3,397,570 10,374,045
---------------------------------------------------------------
9,957,751 14,056,382
LIFO Reserve 1,345,943 1,366,228
---------------------------------------------------------------
$8,611,808 $12,690,154
---------------------------------------------------------------
At February 29, 1996 and February 28, 1995, inventories valued at LIFO cost
comprised 56% and 54% of total inventories, respectively.
23
(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 $3,790,379, net of expenses, and income taxes of $2,040,974.
The Company received $17.4 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 a review of net assets as of the closing date and the
determination of other defined contingencies. Included in the gain on sale is an
increase of $519,012 in prepaid pension expense as a curtailment gain which
arose as a result of the transfer of the employees of the dental division to the
new employer.
The assets and liabilities sold are presented below:
Cash $551,840
Accounts receivable 5,475,722
Inventories 7,019,670
Other current assets 414,746
- ---------------------------------------------------------
Property, plant and equipment, net 1,752,492
Other assets 21,049
- ---------------------------------------------------------
Total assets 15,235,519
- ---------------------------------------------------------
Accounts payable 1,202,819
Other current liabilities 259,461
- ---------------------------------------------------------
Total liabilities 1,462,280
- ---------------------------------------------------------
Net assets sold $13,773,239
- ---------------------------------------------------------
The results of operations of the Dental segment have been presented as
discontinued operations. Revenue from this segment totaled approximately $29.6
million, $38.0 million and $35.0 million during 1996, 1995 and 1994,
respectively.
Included in other assets at February 29, 1996 is $1,064,000 of restricted cash,
which will be held in escrow until November 1998, and the $1 million note
receivable from Phoenix Shannon.
(5) Sale of Cellular Partnership Interests
--------------------------------------
On May 10, 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). The partnership interest was
sold for a combination of cash and Centennial stock. The Centennial stock was
immediately remarketed in an open market block transaction. Overall, Clear
received $3,471,753 in net proceeds from the partnership interest sale.
On August 23, 1994 the Company sold its general partnership interest in MidSouth
Cellular L.P. (MidSouth), a nonwireline cellular telephone franchise, to
Centennial. The Company received 281,507 shares of Centennial stock, of which
222,895 shares were sold for $16.69 per share in an open market block
transaction. An additional 18,500 shares were sold at $16.48 per share. The
Company continues to hold 23,086 shares of Centennial common stock of which
3,086 shares remain in escrow subject to a post close settlement.
During the years ended February 29, 1996 and February 28, 1995, the Company
recorded gains from the sales of these cellular partnership interests totaling
$64,953 and $3,223,076, respectively, which is included in investment and other
income.
24
(6) Property, Plant and Equipment
-----------------------------
Property, plant and equipment consists of the following:
February 29, February 28,
1996 1995
- -------------------------------------------------------------------------------------
Land and improvements $1,469,383 $1,667,622
Buildings and improvements 8,468,240 10,560,166
Machinery and equipment 5,534,684 8,320,096
Furniture and fixtures 1,297,546 1,800,255
- ------------------------------------------------------------------------------------
16,769,853 22,348,139
- ------------------------------------------------------------------------------------
Less accumulated depreciation
and amortization 7,654,471 10,930,377
- ------------------------------------------------------------------------------------
$9,115,382 $11,417,762
- ------------------------------------------------------------------------------------
Depreciation and amortization expense was $1,796,755, $1,976,751 and $3,164,966
in 1996, 1995 and 1994, respectively.
At February 29, 1996 and February 28, 1995 property, plant and equipment
includes $567,106 of machinery and equipment acquired under a capital lease,
which expires in 1998, with a related allowance for depreciation of $439,237 and
$325,815, respectively.
(7) Short-term Debt
---------------
The Company's primary subsidiary, The J.M. Ney Company (Ney), had an $8.5
million demand revolving credit facility with a commercial bank of which
$3,200,000 was outstanding at February 28, 1995. The facility was secured by
certain of Ney's receivables and precious metal inventories. This facility was
paid in full concurrent with the sale of the net assets of the Dental segment
(Note 4).
(8) Accrued Liabilities
-------------------
Accrued liabilities consist of the following:
February 29, February 28,
1996 1995
- -----------------------------------------------------------------------
Employee compensation $593,930 $626,757
Accrued dividends 660,038 883,554
Income taxes 848,837 1,634,228
Other 2,475,614 2,046,008
- -----------------------------------------------------------------------
$4,578,419 $5,190,547
- -----------------------------------------------------------------------
(9) Redeemable Cumulative Convertible Preferred Stock
-------------------------------------------------
In January 1996, the Company purchased 299,561 shares of its redeemable
cumulative convertible preferred stock (Preferred Stock) at $12.25 per share,
net, under the terms of a voluntary tender offer. As a result of the purchase,
the Company reversed $1,015,000 of accrued dividends and accreted discounts, and
recorded $1,324,000 of additional paid-in capital, net of expenses of the
transaction, to reflect the discount of the purchase from the original issue
cost of the shares.
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 March 1998. The Company may make open market purchases,
however, it is currently precluded from doing so as discussed below and in Note
10.
Quarterly dividend payments, ranging from $.1875 to $.4375 per share, are
accrued based upon the operating income of Ney, as defined. Approximately $.78,
$.75 and $.75 of dividends per share were accrued during 1996, 1995 and 1994,
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
25
29, 1996 exceeds approximately $4,190,000. At February 29, 1996 and February 28,
1995 the Company had accrued $660,038 and $883,554, 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 $137,500, $150,000, and $153,000
of accretion has been recorded as part of the preferred dividend requirement in
the Consolidated Statements of Operations for 1996, 1995 and 1994, 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 29, 1996, 560,134 shares of
common stock have been reserved for conversion.
(10) Long-term Debt
---------------
Long-term debt consists of the following:
February 29, February 28,
1996 1995
- ---------------------------------------------------------------------------------------------------------------
Mortgage note payable, due November
1999; interest at 7.75%; annual
principal and interest payments of
$179,937; secured by certain real
and personal property $599,304 $723,193
Mortgage note payable due December
2003; interest at varying rates
from 60-68% of the prime rate, as
defined, (5.4% and 5.8% at February 29,
1996 and February 28, 1995, respectively),
payable semi-annually; semi-annual
principal payments in escalating
amounts from $53,747 in 1996 to
$101,061 at maturity; secured by
certain personal property 927,552 1,303,790
Convertible subordinated debentures,
due October 2002; interest at 10.5%,
payable semi-annually; annual
principal payments in varying amounts
through maturity; unsecured 6,505,000 6,548,000
Other 453,354 552,313
- --------------------------------------------------------------------------------------------------------------
8,485,210 9,127,296
Less current maturities 1,135,783 343,285
- --------------------------------------------------------------------------------------------------------------
$7,349,427 $8,784,011
- --------------------------------------------------------------------------------------------------------------
The Company has a master lease line of credit totaling $1,500,000 of which
$567,106 has been utilized and $182,181 and $273,300 remained outstanding at
February 29, 1996 and February 28, 1995, respectively. The line is secured by
the underlying leased equipment. Interest is at rates ranging from 8.2% to 8.5%.
Repayments are on a monthly basis with interest through August 1998.
The terms of the convertible subordinated debentures call for the annual
liquidation 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 29, 1996, 402,288 shares of common stock were
reserved for conversion.
26
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 one of the
10.5% Convertible Subordinated Debentures, the Company has 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.
Maturities of long-term debt for each of the five years ending February 28/29
are as follows:
1997 $1,135,783
1998 1,187,610
1999 1,157,227
2000 1,153,466
2001 999,345
Thereafter 2,851,779
(11) Income Taxes
------------
Income tax benefit (expense) consists of the following:
1996 1995 1994
- ---------------------------------------------------------------------------
Current:
Federal $(360,000) $(20,000) $ 0
State (296,244) (100,000) (92,000)
Deferred (388,261) 414,515 2,007,395
- ---------------------------------------------------------------------------
$(1,044,505) $294,515 $1,915,395
- ---------------------------------------------------------------------------
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:
1996 1995 1994
- -----------------------------------------------------------------------------------------------------------
Income tax benefit (expense) $(1,012,472) $199,313 $946,463
State income taxes, net of Federal benefit (195,521) (66,000) (60,720)
Change in valuation allowance 483,348 - -
Adjustment of accrual for prior years' taxes (319,010) 161,202 1,029,652
Other (850) - -
- -------------------------------------------------------------------------------------------------------------
$(1,044,505) $294,515 $1,915,395
- -------------------------------------------------------------------------------------------------------------
27
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 asset (liability) which
give rise to this deferred income tax (expense) benefit for the years ended
February 29, 1996 and February 28, 1995 are as follows:
1996 1995
- ---------------------------------------------------------------------------------------------------------
Deferred tax liabilities:
Fixed asset basis differences $(1,579,708) $(2,018,085)
Inventory (1,476,392) (1,111,498)
Pension (1,491,175) (1,301,527)
Write-off of certain assets - (560,049)
- ---------------------------------------------------------------------------------------------------------
Total deferred tax liabilities (4,547,275) (4,991,159)
- ---------------------------------------------------------------------------------------------------------
Deferred tax assets:
Post-retirement benefits other than pensions 337,200 337,200
Unrealized gains/losses on marketable
securities, net 131,888 -
Note receivable - 200,000
Federal operating loss carry forwards - 1,241,850
Federal credit carry forwards 753,323 537,278
State operating loss carry forwards - 294,537
Other 561,497 488,536
- --------------------------------------------------------------------------------------------------------
1,783,908 3,099,401
Valuation allowance for deferred tax assets - (483,348)
- --------------------------------------------------------------------------------------------------------
Net deferred tax assets 1,783,908 2,616,053
- --------------------------------------------------------------------------------------------------------
Net deferred tax liabilities $(2,763,367) $(2,375,106)
- --------------------------------------------------------------------------------------------------------
At February 29, 1996 the Company had no valuation allowance. At February 28,
1995 the Company's valuation allowance was primarily attributable to State
operating loss carryforwards. 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 29, 1996
the Company had $753,323 of Federal credit carryforwards; $216,295 of which were
attributable to the alternative minimum tax and have no expiration date.
The remaining credits, totaling $537,028, expire in 1999 through 2002.
(12) Stock Option Plan
-----------------
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. Options are generally exercisable one year after
grant. The Company has reserved 150,000 shares of common stock for the exercise
of stock options. At February 29, 1996, the Company had 110,300 options
available for issuance under the plan.
Activity under the plan is as follows:
Number Price
Outstanding options of shares per share
- -------------------------------------------------------------------------------------
Balance at February 28, 1993 92,200 $7.00-9.50
Granted 7,000 6.50-6.825
Canceled (21,600) 7.00-8.375
- -------------------------------------------------------------------------------------
Balance at February 28, 1994 77,600 6.50-9.50
Canceled (300) 7.00
- -------------------------------------------------------------------------------------
Balance at February 28, 1995 77,300 6.50-9.50
Canceled (37,600) 7.00-9.50
- -------------------------------------------------------------------------------------
Balance of February 29, 1996 39,700 $6.50-9.375
- -------------------------------------------------------------------------------------
At February 29, 1996, 39,700 options were exercisable.
28
(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:
1996 1995
- ----------------------------------------------------------------------------------------------------------
Actuarial present value of
benefit obligations:
Vested $9,091,728 $10,314,808
Non-vested 63,443 275,901
- ----------------------------------------------------------------------------------------------------------
Accumulated benefit obligation 9,155,171 10,590,709
Effect of projected compensation increases 906,697 498,089
- ----------------------------------------------------------------------------------------------------------
Projected benefit obligation 10,061,868 11,088,798
Plan assets at fair value 15,641,999 14,480,654
- ----------------------------------------------------------------------------------------------------------
Plan assets in excess of projected benefit obligation 5,580,131 3,391,856
Unrecognized prior service cost (150,892) (222,461)
Unrecognized net (gain) loss on plan assets (1,401,855) 347,290
- ----------------------------------------------------------------------------------------------------------
Prepaid pension expense $4,027,384 $3,516,685
- ----------------------------------------------------------------------------------------------------------
For fiscal years 1996, 1995 and 1994, the projected benefit obligations and
pension income were determined using the following components:
1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------
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% 8.5% 8.5%
- ----------------------------------------------------------------------------------------------------------------
Net pension expense (income) for the Company's funded defined benefit plan for
1996, 1995 and 1994 includes the following components:
1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------
Service cost of benefits accrued $340,890 $285,748 $313,849
Interest cost on projected benefit obligations 806,257 783,725 756,519
Return on plan assets (2,130,484) (1,195,727) (1,199,647)
Unrecognized net gain (loss) 991,650 (21,274) (64,997)
- ---------------------------------------------------------------------------------------------------------------
Pension expense (income) $8,313 $(147,528) $(194,276)
- ----------------------------------------------------------------------------------------------------------------
In addition, as discussed in Note 4, prepaid pension expenses increased by
$519,012 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 29,
1996 and February 28, 1995, the actuarially determined status of the plan and
the amount recognized in the balance sheet was a vested accumulated and
projected benefit obligation of $319,550 and $307,142, respectively. For each of
the fiscal years 1996, 1995 and 1994, a discount rate of 7.5% was used for
determining the projected benefit obligation.
29
Pension expense for all defined contribution plans totaled $143,353, $157,077,
and $121,322, in 1996, 1995, and 1994, respectively.
(14) Post-Retirement Benefit Obligations
-----------------------------------
The Company's cost of its unfunded retiree health care plan for 1996, 1995 and
1994 was approximately $55,000, $56,000 and $59,500, respectively, including
interest. At February 29, 1996 and February 28, 1995, the accumulated benefit
obligation for post-retirement benefits was approximately $843,000. At February
29, 1996, 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% and 7.5% at February 29, 1996
and February 28, 1995, respectively. At February 29, 1996 and February 28, 1995,
the accumulated benefit obligation was compiled using assumed health care cost
trend rates of 10% and 11%, 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, 1996 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
------
The Company leases various manufacturing and office facilities and equipment
under lease agreements expiring through January 2000. The leases are accounted
for as operating leases. In addition, the Company earns rental income from
office space leased to tenants under operating leases expiring through February
28, 1999.
Future minimum lease payments and rental income under the terms of the leases
for each of the years ending February 28/29, are as follows:
Lease Rental
Expense Income
- -----------------------------------------------
1997 $112,921 $280,794
1998 60,488 57,924
1999 24,800 57,924
2000 3,480 -
Lease expense and rental income are as follows:
Lease Rental
Expense Income
- -----------------------------------------------
1996 $240,713 $280,638
1995 349,055 211,767
1994 317,418 516,805
(16) Business Segments and Export Sales
----------------------------------
During 1996, the Company operated in two business segments: Electronics, which
includes the Ultrasonics division, and, for two months, Video Products.
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 not directly attributable to
a specific industry segment 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.
30
Summarized financial information for business segment is as follows:
1996 1995 1994
- -------------------------------------------------------------------------------------------------------------
Net sales and revenues:
Electronics $21,155,167 $18,424,785 $15,125,798
Video Products 2,079,472 6,998,181 4,399,716
Corporate 813,435 3,442,558 1,489,407
- -------------------------------------------------------------------------------------------------------------
$24,048,074 $28,865,524 $21,014,921
- -------------------------------------------------------------------------------------------------------------
Operating income (loss):
Electronics $536,794 $(174,422) $(1,165,675)
Video Products (177,018) (1,876,231) (18,200)
Corporate (3,796,173) 79,056 (2,858,991)
- --------------------------------------------------------------------------------------------------------------
$(3,436,397) $(1,971,597) $(4,042,866)
- --------------------------------------------------------------------------------------------------------------
Identifiable assets:
Dental - $14,788,626 $15,384,373
Electronics $22,796,264 15,300,391 11,216,447
Video Products - - 4,280,163
Corporate 16,001,265 13,589,656 17,709,034
- -------------------------------------------------------------------------------------------------------------
$38,797,529 $43,678,673 $48,590,017
- -------------------------------------------------------------------------------------------------------------
Depreciation, amortization and accretion:
Electronics $1,439,042 $1,110,524 $1,267,103
Video Products - 349,893 29,552
Corporate 229,704 627,193 906,974
- -------------------------------------------------------------------------------------------------------------
$1,668,746 $2,087,610 $2,203,629
- -------------------------------------------------------------------------------------------------------------
Capital expenditures:
Electronics $1,304,414 $727,242 $371,454
Video Products - 506,679 102,087
Corporate 123,093 168,094 236,219
- -------------------------------------------------------------------------------------------------------------
$1,427,507 $1,402,015 $709,760
- -------------------------------------------------------------------------------------------------------------
Export sales for the years ended February 29, 1996 and February 28, 1995, 1994
were $2,658,000, $2,262,000 and $1,577,000, respectively. Such sales were made
primarily to customers in Europe and the Pacific Rim.
(17) Investments
-----------
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 the issuance of stock in 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 it its current taxes payable.
The Company's Chairman and President are also directors and stockholders of DGI.
Included in other assets at February 29, 1996 is an investment or approximately
$640,000 in 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 Company's Chairman and another Director are also among a group of investors
in the joint venture.
31
(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 on 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 and
common stock, is estimated to approximate the carrying amount given factors that
include evaluation of the interest rate, DGI's credit worthiness, and the
liquidity of the market for DGI's common stock. The carrying value of the note
receivable and restricted cash received in connection with the sale of the
Dental segment, approximates fair value as estimated, based on stated interest
rates, terms of repayment and credit worthiness of the debtor.
At February 29, 1996, the Company had contracts to purchase 1,700 ounces of gold
and 17,500 ounces of palladium through June 1996 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 long-term debt issued by banks approximates 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 market 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.
32
Independent Auditors' Report
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 29, 1996 and February 28, 1995, 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 29, 1996. 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 29, 1996 and February 28, 1995, and the results of
their operations and their cash flows for each of the years in the three-year
period ended February 29, 1996, in conformity with generally accepted accounting
principles.
/s/ KPMG PEAT MARWICK LLP
Hartford, Connecticut
April 23, 1996
33
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 1996 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 1996 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 1996 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 1996 Proxy Statement for Annual Meeting of Shareholders.
34
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
---------------------------------------------------------------
(a)1. Consolidated Financial Statements applicable to the Registrant
contained in Item 8:
Pages
-----
Consolidated Statements of Operations
for the years ended February 29, 1996 and February 28, 1995 and 1994 18
Consolidated Balance Sheets
as of February 29, 1996 and February 28, 1995 19
Consolidated Statements of Cash Flows
for the years ended February 29, 1996 and February 28, 1995 and 1994 20
Consolidated Statements of Common and Other Stockholders' Equity
for the years ended February 29, 1996 and February 28, 1995 and 1994 21
Notes to Consolidated Financial Statements 22 - 32
Independent Auditors' Report 33
(a)2. Consolidated Financial Statement Schedule:
Schedule II-Valuation and Qualifying Accounts 43
---------------------------------------------
Note: Schedules other than that 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:
35
Exhibit
No. Description
- ------- -----------
3.1 Amended and Restated Certificate of Incorporation and by-laws 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).
4.1 Indenture of Trust dated as of November 1, 1979 between the Connecticut
Development Authority and the Hartford National Bank and Trust Company
(predecessor to The Connecticut National Bank and Shawmut Bank, N.A.),
as Trustees 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 Number 0-1460).
4.2 Indenture, dated as of October 15, 1982, between the Registrant and
Hartford National Bank and Trust Company (predecessor to 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).
10.1 Letter Agreement, dated as of February 17, 1981, between the Registrant
and L.F. Rothschild, Unterberg, Towbin incorporated herein by reference
to Exhibit A to the Registrant's current report on Form 8-K filed with
the Commission on March 4, 1981 (Commission File Number 0-1460).
10.2 Group Annuity Contract, dated as of January 1, 1975, between Travelers
Insurance Company and the Registrant relating to retirement benefits
incorporated herein by reference to Exhibit 10.3 of the Registrant's
Annual Report on Form 10-K for the year ended February 28, 1981
(Commission File Number 0-1460).
10.3 Andersen Group Individual Retirement Plan, January 1, 1989, as amended,
incorporated herein by reference to Exhibit 10.3 to the Registrant's
Registration Statement on Form S-4 (File No. 33-38646) effective January
31, 1991.
10.3a Amendment 1992-1 to the Andersen Group Individual Retirement Plan
referred to in Exhibit 10.3 hereof, incorporated herein by reference to
Exhibit 10.3a to the Registrant's Annual Report on Form 10-K for the
year ended February 28, 1993 (Commission File No. 0-1460).
10.4 Money Purchase Pension Plan Agreement, dated as of February 25, 1979,
between the Registrant and the Andersen Group, Inc. Pension Plan (Trust)
incorporated herein by reference to Exhibit 10.3 of the Registrant's
Annual Report on Form 10-K for the year ended February 28, 1981
(Commission File Number 0-1460).
10.5 Amendments to the Money Purchase Pension Plan Agreement referred to in
Exhibit 10.4 hereof, incorporated herein by reference to Exhibit 10.5 to
the Registrant's Registration Statement on Form S-4 (File No.
33-38646) effective January 31, 1991.
36
Exhibit
No. Description
- ------- -----------
10.5a Amendments 1993-1 and 1991-1 to the Money Purchase Pension Plan
Agreement, incorporated herein by reference to Exhibit 10.5a of the
Registrant's Annual Report on Form 10-K for the year ended February 28,
1993 (Commission File No. 0-1460).
10.6 Loan Agreement dated as of November 1, 1979, between the Registrant and
the Connecticut Development Authority 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).
10.7 Security Agreement, dated as of November 9, 1979, between the Registrant
and the Connecticut Development Authority 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).
10.8 Mortgage Deed, dated as of November 9, 1979 between the Registrant and
the Connecticut Development Authority 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).
10.9 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).
10.10 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.
10.11 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.
10.12 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.
10.13 Incentive and Non-Qualified Stock Option Plan adopted December 14, 1988,
incorporated herein by reference to Exhibit 10.17 to the Registrant's
Registration Statement on Form S-4 (File No. 33-38646) effective January
31, 1991.
37
Exhibit
No. Description
- ------- -----------
10.14 Agreement and Plan of Merger, dated as of November 30, 1990, by and
among Andersen Group, Inc., Ney Acquisition, Inc. and The J.M. Ney
Company, incorporated herein by reference, filed as Exhibit 2.1 to the
Registrant's Registration Statement on Form S-4 (File No. 33-38646)
effective January 31, 1991.
10.15 Agreement of Purchase and Sale of Assets dated October 5, 1992 among
Microtime, Inc., Digital F/X Inc. and Andersen Group, Inc., incorporated
by reference, filed as Exhibit 2.1 to the Registrant's Form 8-K dated
October 6, 1992 (Commission File No. 0-1460).
10.16 Amendment to Agreement of Purchase and Sale of Assets dated
January 14, 1993 among AGI Technology, Inc. (f/k/a Microtime, Inc.),
Andersen Group, Inc. and Digital F/X Inc. referred to in Exhibit 10.16
hereof, incorporated herein by reference to Exhibit 10.22a to the
Registrant's Annual Report on Form 10-K for the year ended February 28,
1993 (Commission File No. 0-1460).
10.17 Limited Partnership Agreement of Midsouth Cellular L.P. dated as
of November 18, 1992, incorporated herein by reference to Exhibit 10.23
of the Registrant's Annual Report on Form 10-K for the year ended
February 28, 1993 (Commission File No. 0-1460).
10.18 Investment Agreement by and among Media/Communications Partners II
Limited Partnership, Kilby Capital Company, Inc., Chestnut Street
Partners, Inc. and Media/Communications Investors Limited Partnership;
Midsouth Management Investors Corp.; Midsouth Cellular Corp.; and
Midsouth Cellular L.P. dated as of November 18, 1992, incorporated
herein by reference to Exhibit 10.24 of the Registrant's Annual Report
on Form 10-K for the year ended February 28, 1993 (Commission File No.
0-1460).
10.19 Securityholders' Agreement by and among Midsouth Cellular Corp.;
Midsouth Cellular L.P.; Media/Communications Partners II Limited
Partnership, Kilby Capital Company, Inc., Chestnut Street Partners, Inc.
and Media/Communications Investors Limited Partnership; Midsouth
Management Investors Corp.; George D. Crowley, Jr., Brian McTernan, John
D. Fuji, James J. Walter, Jr. and Janice P. Mercer, Andersen Group,
Inc.; Iowa Cellular Corporation; Louisiana Cellular Corporation; and
Oliver R. Grace, Jr., dated as of November 18, 1992, incorporated herein
by reference to Exhibit 10.25 of the Registrant's Annual Report on Form
10-K for the year ended February 28, 1993 (Commission File No. 0-1460).
10.20 Capital Contribution Agreement dated as of December 11, 1992,
between Louisiana Cellular Corporation, Iowa Cellular Corporation,
Andersen Group, Inc., Oliver R. Grace, Jr., Midsouth Cellular L.P. and
Midsouth Cellular Corp., incorporated herein by reference to Exhibit
10.26 of the Registrant's Annual Report on Form 10-K for the year ended
February 28, 1993 (Commission File No. 0-1460).
38
Exhibit
No. Description
- ------- -----------
10.21 Agreement for Confirmatory Acquisition and for settlement by and
between Digital F/X, Inc. and New Microtime Inc. dated as of November 9,
1993, incorporated herein by reference to Exhibit 10.22 of the
Registrant's Annual Report on Form 10-K for the year ended February 28,
1995 (Commission File No. 0-1460).
10.22 Purchase Agreement by and among Centennial Cellular Corp., Clear
Communications Partnership, Clear Communications Systems, Inc. and Clear
Cellular Holdings, Inc. dated as of February 28, 1994, incorporated
herein by reference to Exhibit 10.23 of the Registrant's Annual Report
on Form 10-K for the year ended February 28, 1995 (Commission File No.
0-1460).
10.23 The Ney Profit Sharing Savings Plan, January 1, 1993, as amended,
incorporated herein by reference to Exhibit 10.24 of the Registrant's
Annual Report on Form 10-K for the year ended February 28, 1995
(Commission File No. 0-1460).
10.24 Retirement Plan for Employees of The J.M. Ney Company, October 1, 1991,
incorporated herein by reference to Exhibit 10.25 of the Registrant's
Annual Report on Form 10-K for the year ended February 28, 1995
(Commission File No. 0-1460).
10.25 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).
10.26 Employment Agreement, dated as of March 28, 1994, between The J.M. Ney
Company and H. George Wolfe, Jr., incorporated herein by reference to
Exhibit 10.29 of the Registrant's Annual Report on Form 10-K for the
year ended February 28, 1995 (Commission File No. 0-1460).
10.27 Letter Agreement, dated March 7, 1993, between the Registrant and Ronald
N. Cerny, incorporated herein by reference to Exhibit 10.30 of the
Registrant's Annual Report on Form 10-K for the year ended February 28,
1995 (Commission File No. 0-1460).
10.28 LA3, LA4, Miss 8 Systems Agreement, incorporated herein by reference to
Exhibit 10.1 of the Registrant's Quarterly Report on Form 10-Q for the
Quarter ended August 31, 1994 (Commission File No. 0-1460).
10.30 LA3, LA4, Miss 8 Partnership Interest Purchase Agreement, incorporated
herein by reference to Exhibit 10.2 of the Registrant's Quarterly Report
on Form 10-Q for the Quarter ended August 31, 1994 (Commission File No.
0-1460).
10.31 LA3, LA4, Miss 8 Stock Purchase Agreement, incorporated herein by
reference to Exhibit 10.3 of the Registrant's Quarterly Report on Form
10-Q for the Quarter ended August 31, 1994 (Commission File No.
0-1460).
39
Exhibit
No. Description
- ------- -----------
10.32 Acquisition Agreement by and among The Grass Valley Group, Inc.,
Tektronix, Inc., New Microtime Inc. and Andersen Group, Inc. dated as of
September 9, 1994, incorporated herein by reference to Exhibit 10.1 of
the Registrant's Quarterly Report on Form 10-Q for the Quarter ended
November 30, 1994 (Commission File No. 0-1460).
10.33 First Amendment to the Agreement by and among The Grass Valley
Group, Inc., Tektronix, Inc., New Microtime Inc. and Andersen Group,
Inc. dated as of September 9, 1994, incorporated herein by reference to
Exhibit 10.2 of the Registrant's Quarterly Report on Form 10-Q for the
Quarter ended November 30, 1994 (Commission File No. 0-1460).
10.34 Letter Agreements, dated February 23, 1995 and March 20, 1995,
between the Registrant and Ronald N. Cerny.
10.35 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 of the Registrant's Quarterly Report on Form 10-Q for the quarter
ending August 31, 1995 (Commission file No. 0-1460).
10.36 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 of the Registrant's current report
on Form 8-K dated December 13, 1995 (Commission file No. 0-1460).
10.37 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
Metal, Inc. (f/k/a Ney Dental International, Inc.) made as of October
30, 1995. Incorporated herein by reference to Exhibit 10.2 of the
Registrant's current report on Form 8-K dated December 13, 1995
(Commission file No. 0-1460).
21. Subsidiaries of the Registrant.*
27. Financial Data Schedule.*
(b) Reports on Form 8-K.
A report on Form 8-K was filed by the Company on December 13, 1995,
reporting the sale of the Company's Dental segment. Included in the
Form 8-K were the following unaudited pro-forma financial statements:
Consolidated Balance Sheet as of August 31, 1995
Consolidated Statements of Operations for the six months ended August
31, 1995 and for the year ended February 28, 1995
*Filed herein
40
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. Date: May 17, 1996
- --------------------
Registrant
/s/ Francis E. Baker /s/ Andrew M. O'Shea
- ----------------------- ----------------------------
Francis E. Baker Andrew M. O'Shea
President Principal Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- --------- ----- -----
Chairman
/s/ Oliver R. Grace, Jr. and Date: May 29, 1996
- ----------------------------------- Director
Oliver R. Grace, Jr.
President, Chief
/s/ Francis E. Baker Executive Officer Date: May 17, 1996
- ----------------------------------- and Director
Francis E. Baker
/s/ Peter N. Bennett Date: May 20, 1996
- -----------------------------------
Peter N. Bennett Director
/s/ John S. Grace Date: May 22, 1996
- -----------------------------------
John S. Grace Director
/s/ Louis A. Lubrano Date: May 22, 1996
- -----------------------------------
Louis A. Lubrano Director
/s/James J. Pinto Date: May 20, 1996
- -----------------------------------
James J. Pinto Director
INDEPENDENT AUDITORS' REPORT
The Stockholders and Board of Directors
Andersen Group, Inc.:
Under date of April 23, 1996, we reported on the consolidated balance sheets of
Andersen Group, Inc. and subsidiaries as of February 29, 1996 and February 28,
1995, 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 29, 1996, which are included in the Annual Report on Form
10-K for the year 1996. In connection with our audits of the aforementioned
consolidated financial statements, we also audited the related consolidated
financial statement schedule as listed in the accompanying index under Part IV,
Item 14. This financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion on this
financial statement schedule based on our audits.
In our opinion, such financial statement schedule, 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 23, 1996
Andersen Group, Inc.
Schedule II - Valuation and Qualifying Accounts
---------------------Additions----------------
Balance Charged to Charged Balance
Beginning costs and to other End
Description of Year expenses account Deductions of year
- ------------------------------------------------------------------------------------------------------------------------------
February 29, 1996
- ------------------------------------------------------------------------------------------------------------------------------
Allowance for doubtful
accounts $359,714 97,208 (286,813) (c) (46,452) (a) $123,657
Discontinued operation $62,607 (62,607) (b) $0
Deferred income tax
valuation allowance $483,348 (483,348) $0
- ------------------------------------------------------------------------------------------------------------------------------
February 28, 1995
- ------------------------------------------------------------------------------------------------------------------------------
Allowance for doubtful
accounts $426,459 47,390 (31,000) (83,135) (a) $359,714
Discontinued operation $0 41,000 31,000 (9,393) (a) $62,607
Deferred income tax
valuation allowance $458,000 25,348 $483,348
- ------------------------------------------------------------------------------------------------------------------------------
February 28, 1994
- ------------------------------------------------------------------------------------------------------------------------------
Allowance for doubtful
accounts $306,038 102,421 98,048 (80,048) (a) $426,459
Discontinued operation $924,132 (98,048) (826,084) (a) $0
Deferred income tax
valuation allowance $1,526,567 (1,068,567) $458,000
- ------------------------------------------------------------------------------------------------------------------------------
(a) Write-offs net of recoveries.
(b) Eliminated in connection with reduction in stock ownership of DGI in
May 1995.
(c) Includes amounts eliminated in connection with sale of certain assets of
Dental Segment.
EXHIBIT INDEX
Exhibit
No. Description Page No.
- ------- ----------- --------
21. Subsidiaries of the Registrant. 45
27.1 Financial Data Schedule 1996. 46
27.2 Financial Data Schedule 1995. 47