SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________________
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from Not Applicable to
Commission file number 1-6016
THE ALLEN GROUP INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 38-0290950
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
25101 Chagrin Boulevard, Suite 350, Beachwood, Ohio 44122
(Address of Principal Executive Offices) (Zip Code)
(Registrant's Telephone Number, Including Area Code) 216-765-5818
NOT APPLICABLE
Former Name, Former Address and Former Fiscal Year, if Changed Since
Last Report
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 the number of shares outstanding of each of the issuer's
classes of common stock, as of April 30, 1993.
Outstanding at
Class of Common Stock April 30, 1994
Par value $1.00 per share 26,024,019
Exhibit Index is on page 14 of this report.
Page 1 of 15 Pages.
THE ALLEN GROUP INC.
TABLE OF CONTENTS
Page
No.
PART I. Financial Information:
Item 1 - Financial Statements:
Consolidated Condensed Balance Sheets -
March 31, 1994 and December 31, 1993 3
Consolidated Statements of Income
- Three Months Ended March 31, 1994
and 1993 4
Consolidated Condensed Statements of
Cash Flows - Three Months Ended
March 31, 1994 and 1993 5
Notes to Consolidated Condensed
Financial Statements 6 - 8
Item 2 - Management's Discussion and
Analysis of Financial Condition and
Results of Operations 9 - 11
PART II. Other Information:
Item 6 - Exhibits and Reports on Form 8-K 12
Signatures 13
Exhibit Index 14
<TABLE>
PART I - FINANCIAL INFORMATION
ITEM I - FINANCIAL STATEMENTS
THE ALLEN GROUP INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Amounts in Thousands)
<CAPTION>
March 31, December 31,
1994 1993
(Unaudited)
<S> <C> <C>
ASSETS:
Current Assets:
Cash and equivalents $ 9,549 $ 11,173
Accounts receivable (Note 6) 54,927 54,721
Receivable from joint venture 551 242
Note receivable (Note 6) 19,737 6,579
Inventories (Note 3) 57,192 56,828
Prepaid expenses 1,119 1,021
Other current assets 5,738 -
Total current assets 148,813 130,564
Property, plant and equipment, net 52,122 51,898
Net investments in and advances to
joint venture 22,350 23,042
Excess of cost over net assets of
businesses acquired 59,168 59,578
Long-term portion of note
receivable (Note 6) - 13,158
Other assets 40,428 46,398
TOTAL ASSETS $322,881 $324,638
LIABILITIES:
Current Liabilities:
Notes payable and current maturities
of long-term obligations $ 1,554 $ 839
Accounts payable 16,832 20,180
Accrued expenses 30,749 32,697
Income taxes payable 5,871 5,040
Total current liabilities 55,006 58,756
Long-term debt 49,931 51,758
Other liabilities and deferred credits 18,696 18,963
TOTAL LIABILITIES 123,633 129,477
STOCKHOLDERS' EQUITY
Common stock 29,100 29,058
Paid-in capital 160,280 159,989
Retained earnings 36,201 32,671
Translation adjustments (20) (90)
Less: Treasury stock (common, at cost) (17,838) (17,916)
Unearned compensation (6,116) (6,192)
Minimum pension liability adjustment (2,359) (2,359)
TOTAL STOCKHOLDERS' EQUITY 199,248 195,161
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $322,881 $324,638
See accompanying notes to the Consolidated Condensed Financial Statements.
</TABLE>
<TABLE>
THE ALLEN GROUP INC.
CONSOLIDATED STATEMENTS OF INCOME
(Amounts In Thousands)
(Unaudited)
<CAPTION>
Three Months Ended March 31,
1994 1993
Pro
Actual Forma
(Note 1)
<S> <C> <C> <C>
SALES $ 76,942 $ 66,027 $ 66,027
Costs and Expenses:
Cost of Sales (54,249) (45,080) (45,080)
Selling, General and Admin-
istrative Expenses (12,485) (11,494) (11,494)
Equity in Loss of Joint Venture (694) (801) (801)
Interest and Financing Expenses (546) (1,005) (1,005)
INCOME BEFORE TAXES 8,968 7,647 7,647
Provision for Income Taxes (Note 4) (3,578) (878) (3,051)
INCOME FROM CONTINUING OPERATIONS 5,390 6,769 4,596
Loss from Discontinued Operations
(Note 6): - (1,746) (1,050)
Cumulative Effect of Change in
Accounting for Income Taxes - 2,102 2,102
NET INCOME $ 5,390 $ 7,125 $ 5,648
NET INCOME APPLICABLE TO COMMON
STOCK $ 5,390 $ 6,119 $ 4,642
EARNINGS PER COMMON SHARE (NOTE 5):
Primary:
Income from Continuing Operations $.21 $.29 $.18
Loss from Discontinued Operations - (.08) (.05)
Cumulative Effect of Change in
Accounting for Income Taxes - .10 .10
Net Income $.21 $.31 $.23
Fully Diluted:
Income from Continuing Operations $.21 $.27 $.18
Loss from Discontinued Operations - (.07) (.04)
Cumulative Effect of Change in
Accounting for Income Taxes - .08 .08
Net Income $.21 $.28 $ .22
See accompanying notes to the Consolidated Condensed Financial Statements.
</TABLE>
<TABLE>
THE ALLEN GROUP INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Amounts In Thousands)
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
1994 1993
<S> <C> <C>
Cash provided by operating
activities $ 5,653 $ 3,639
Cash flows from investing activities:
Capital expenditures (2,741) (1,912)
Sales and retirements of fixed assets 40 119
Centralized emissions inspection
programs (2,153) -
Capitalized software product costs (409) (577)
Cash (used) by investing activities (5,263) (2,370)
Cash flows from financing activities:
Net (repayments) proceeds of
long-term debt (1,112) 4,288
Dividends paid (1,041) (1,617)
Dividends received from discontinued
lease financing operations - 1,593
Exercise of stock options 13 670
Treasury stock sold to employee
benefit plans 126 147
Cash (used) provided by financing
activities (2,014) 5,081
Net cash (used) provided (1,624) 6,350
Net cash provided by discontinued lease
financing operations (Note 6) - 2,919
Total Company (decrease) increase in cash (1,624) 9,269
Cash at beginning of period 11,173 4,425
Cash at end of period $ 9,549 $13,694
See accompanying notes to the Consolidated Condensed Financial Statements.
</TABLE>
THE ALLEN GROUP INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. General:
In the opinion of management of The Allen Group Inc. (the
"Company"), the accompanying unaudited consolidated condensed
interim financial statements reflect all adjustments necessary to
present fairly the financial position of the Company as of March 31,
1994 and the results of its operations and cash flows for the three
months ended March 31, 1994 and 1993. The results of operations for
such interim periods are not necessarily indicative of the results
for the full year. Pro forma results of operations for the three
months ended March 31, 1993 reflect the results of operations as if
the Company had provided for income taxes at the comparable
effective tax rate of 39.9% recorded in 1994. The effective rate
for income taxes actually incurred in 1993 (11.5%) is lower than the
1994 rate due to the recognition of U.S. net operating loss
carryforwards to reduce income tax expense. The Company fully
recognized all available deductions and carryforward losses in 1993,
resulting in the higher effective tax rate in 1994. Such pro forma
information is presented for comparative information purposes only.
The year-end 1993 consolidated condensed balance sheet was derived
from audited financial statements, but does not include all
disclosures required by generally accepted accounting principles.
For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1993.
2. Accounts Receivable:
Accounts receivable are net of the following allowances for doubtful
accounts (amounts in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1994 1993
<S> <C> <C>
Allowance for doubtful
accounts $1,366 $1,270
3. Inventories:
Inventories consisted of the following (amounts in thousands):
March 31, December 31,
1994 1993
Raw Materials $35,711 $33,541
Work-In-Process 12,757 14,191
Finished Goods 8,724 9,096
$57,192 $56,828
</TABLE>
4. Income Taxes:
A reconciliation of the provision for income taxes at the Federal
statutory rates to the reported tax provision is as follows (amounts
in thousands):
<TABLE>
<CAPTION>
Three Months
Ended
March 31
1994 1993
<S> <C> <C>
Provision computed at the U.S. Federal
statutory rate $ 3,139 $ 2,600
State and local income taxes, net of
Federal income tax benefit 312 182
Net impact of tax rates on foreign income 11 (234)
Tax benefit from recognition of U.S. net
operating loss carryforward to reduce
income tax expense - (1,670)
Other 116 -
$ 3,578 $ 878
</TABLE>
5. Earnings Per Common Share:
The primary earnings per common share calculations are determined
after deducting dividends on outstanding preferred stock (prior to
redemption in July 1993) and are based upon the weighted average
number of common and common equivalent shares outstanding during
each period. The calculations also include, if dilutive, the
incremental number of common shares issuable on a pro forma basis
upon exercise of employee stock options, assuming the proceeds are
used to repurchase outstanding common shares at the average market
price during the period. The number of shares used in these
calculations approximated 25,934,000 for the quarter ended March 31,
1994 and 20,324,000 for the quarter ended March 31, 1993. The
higher amount of average primary shares in the first quarter of
1994, as compared with 1993, is a result of the conversion of the
Company's convertible preferred stock and a portion of its
convertible debentures into common shares during 1993. Prior to
conversion, such convertible securities were and, to the extent any
convertible debentures remain outstanding, are included only in the
computation of fully diluted earnings per common share.
The calculation of fully diluted earnings per common share begins
with the primary calculation but further reflects, if dilutive, the
conversion of the preferred stock and convertible debentures into
common shares at the beginning of the period. This calculation
resulted in no dilution for the period ended March 31, 1994.
6. Notes Receivable:
At March 31, 1994, the Company held an 8% Subordinated Note
Receivable dated June 11, 1993 (the "Note"), in the amount of
$19,737,000 received in connection with the sale of its automotive
diagnostic and emission test equipment business and related Lease
Finance operation in 1993. The Note originally provided for the
payment of three equal annual installments of $6,579,000, plus
interest, on June 11 of 1994, 1995 and 1996. However, on May 4,
1994 the Company was paid the full amount of the Note pursuant to an
existing prepayment option. Accordingly, the full amount of the
Note was recorded as a current asset at March 31, 1994. The results
of operations for the three months ended March 31, 1993 have been
restated to reflect the aforementioned disposed product lines as
discontinued operations.
7. Supplemental Cash Flow Disclosures:
Depreciation expense, from continuing operations, included in "Cash
provided (used) by operating activities" amounted to $1,731,000 and
$1,724,000 for the three months ended March 31, 1994 and 1993,
respectively.
Information with respect to cash paid (refunded) during the periods
for interest and income taxes is as follows:
<TABLE>
<CAPTION>
Three Months
Ended
March 31
1994 1993
<S> <C> <C>
Interest paid $ 1,190 $ 2,080
Interest capitalized 64 -
Income taxes paid (refunded) (288) 936
</TABLE>
THE ALLEN GROUP INC.
ITEM 2 - MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Summary:
For the three months ended March 31, 1994, The Allen Group Inc. (the
"Company") reported income from continuing operations (before
discontinued operations and the cumulative effect of accounting changes)
of $5,390,000 ($.21 per common share) compared to $6,769,000 ($.29 per
common share) for the comparable 1993 period. The decline in income
from continuing operations is due solely to an increased provision for
income taxes as a result of the Company's recognition of its remaining
tax loss carryforwards in 1993 and its resultant accrual of a full
effective tax rate in 1994. In order to demonstrate the impact upon
operations of this increase in effective tax rate, the Company has
included a pro forma presentation of results of operations in the
Condensed Consolidated Statements of Income for the three months ended
March 31, 1993, on the assumption that the Company had provided for
income taxes at the comparable effective tax rate of 39.9% recorded in
1994. Under this pro forma presentation, income from continuing
operations would have been $4,596,000, or $.18 per common share. Income
before taxes increased 17% over the prior year principally due to the
continued strong performance of the Mobile Communications segment and
improved earnings in the Truck Products segment.
Sales:
Consolidated sales from continuing operations by industry segment
were:
<TABLE>
<CAPTION>
Three Months
Ended
March 31,
($ Millions)
1994 1993
<S> <C> <C>
Mobile Communications $48.5 $42.2
Truck Products 27.7 23.1
Centralized Automotive
Emissions Testing .7 .7
$76.9 $66.0
</TABLE>
Mobile Communications sales increased by $6.3 million for the three
months ended March 31, 1994 over the comparable period in 1993,
principally due to strong demand for microcells and Extend-A-Cells, and
increased sales of base station antennas.
Truck Products sales increased by $4.6 million for the three-month
period ended March 31, 1994 over the comparable 1993 period due to
higher sales of manufactured truck cabs and radiators, resulting from
increased production rates by original equipment manufacturers which
form the major customer base of this business.
Centralized Automotive Emissions Testing sales consist of revenues
from the Company's MARTA Technologies, Inc. ("MARTA") subsidiary. In
1993, MARTA was awarded the centralized emissions testing contracts for
the State of Maryland (a three-year program with two one-year options by
the State) and the El Paso, Texas region (a seven-year program).
Revenues from these programs, however, will not impact operating results
until 1995 because of the lead time involved in building facilities and
establishing such programs. In addition, MARTA has bids outstanding for
three New York State regional testing programs as well as programs in
Virginia, Georgia, Western Michigan and three programs in Ohio, and is
preparing a bid for a portion of New Hampshire. MARTA intends to
continue its bidding efforts as emissions testing programs are placed
for bid. The award of these and other programs is dependent upon
legislative activity within each state.
Operating Income: Overall gross margins on product sales
approximated 29.5% and 31.7% of sales in the three months ended March
31, 1994 and 1993, respectively. The lower gross margins reflect start-
up costs relating to the Crew Cab program in Louisville, Kentucky as
well as higher engineering costs in the Mobile Communications segment
due to new product development. Selling, general and administrative
expenses were 16.2% and 17.4% of product sales for the three months
ended March 31, 1994 and 1993, respectively. The improvement results
principally from the spreading of fixed costs on higher sales. However,
the improvement is offset, in part, by spending increases related to
international marketing development costs in the Mobile Communications
segment.
Joint Venture Operations: For the three months ended March 31,
1994, the Company reported an equity loss from its joint venture of
$694,000, compared to $801,000 for the comparable 1993 period. Equity
losses for the periods presented are attributable to GO/DAN Industries
("GDI"), a 50/50 partnership accounted for under the equity method.
Such losses are due to the seasonality of GDI's business which is
traditionally weakest in the first quarter. However, the improvement in
1994 compared to 1993 is attributable to higher sales, improved
economics and efficiencies.
Interest and Financing Expense: Interest and financing expense for
the three months ended March 31, 1994 has declined significantly over
the comparable 1993 period due to the conversion of approximately 70% of
the Company's convertible subordinated debentures into common stock of
the Company and to the investment of the cash proceeds and interest
earned on the Note received from the sale of the automotive diagnostic
and emission test equipment business and related Lease Finance
operations in June 1993.
Income Taxes: In 1994, the Company began accruing U.S. Federal
income taxes at the full statutory (35%) rate as a result of its
recognition of all remaining tax deductions and loss carryforwards in
1993. These events, in combination with the impact of state taxes,
results in an estimated effective tax rate of 39.9% as compared with
11.5% for the comparable 1993 period. This higher estimated effective
tax rate results in the significantly increased provision for income
taxes in the first quarter of 1994 (as well as that expected for the
balance of 1994) when compared with 1993. See Notes 1 and 4 of Notes to
Consolidated Condensed Financial Statements for additional information.
Discontinued Operations: On June 11, 1993, the Company completed
the sale of its Allen Testproducts division and related Lease Financing
operations to SPX Corporation ("SPX"); accordingly, the results of
operations for the three months ended March 31, 1993 have been restated
to reflect these product lines as discontinued operations.
Liquidity and Capital Resources
At March 31, 1994, the Company had $1.6 million of short-term debt
and $9.5 million of cash and equivalents. Subsequent to quarter end, on
May 4, 1994 the Company received $21.2 million (including accrued
interest) as a full prepayment of the subordinated note relating to the
divestiture of the Allen Testproducts division and related Lease
Financing operations as described in Note 6 to the Consolidated
Condensed Financial Statements. This cash is generally invested in
short-term obligations, which are accorded one of the two highest
ratings available from one of the nationally recognized credit rating
agencies. Management believes that the continued profitability of the
Company, a cash and short-term investment balance of $9.5 million, the
receipt of the $21.2 million, available unused commitments under its
long-term credit facilities of $92.7 million and unused credit
facilities and lines for MARTA of $97 million (the total availability
under the most restrictive financial covenant was be $137 million as of
March 31, 1994) provide sufficient liquidity to fund growth.
<PAGE>
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
(11) Statement re computation of earnings per common share.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the quarter for
which this report is filed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
The Allen Group Inc.
(Registrant)
Date: May 13, 1994 By: /s/ Robert A. Youdelman
Robert A. Youdelman
Senior Vice President-Finance
(Chief Financial Officer)
Date: May 13, 1994 By: /s/ James L. LePorte
James L. LePorte
Vice President and Controller
(Principal Accounting Officer)
THE ALLEN GROUP INC.
EXHIBIT INDEX
Page
(a) Exhibit Number:
(11) Statement re computation of earnings per
common share........................................... 15
EXHIBIT 11
THE ALLEN GROUP INC.
EARNINGS PER COMMON SHARE DATA
(Amounts in Thousands)
Net income and common shares used in the calculations of earnings per common
share were computed as follows:
<TABLE>
<CAPTION>
Three Months
Ended
March 31,
1994 1993
<S> <C> <C>
Income:
Net income $ 5,390 $ 7,125
Less: Preferred stock dividends - (1,006)
Net income applicable to
common stock - primary 5,390 6,119
Add: Preferred stock dividends - 1,006
Interest on convertible
debentures - 241
Net income applicable to
common stock - fully diluted $ 5,390 $ 7,366
Common Shares:
Weighted average outstanding common
shares 25,321 19,528
Common stock equivalents 613 796
Common shares - primary 25,934 20,324
Common shares issuable for:
Stock options - 92
Conversion of preferred stock - 4,600
Conversion of debentures - 1,258
Common shares - fully diluted 25,934 26,274
Note:
The assumed conversion of convertible debentures into common stock was not
dilutive for purposes of calculating fully diluted income per common share
for the period ended March 31, 1994. The Company's preferred stock was
called for redemption in July of 1993. However, prior to the redemption
date, all but a small fraction of shares were converted into common stock of
the Company.
</TABLE>
