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 September 30, 1995
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:
Outstanding at
Class of Common Stock October 31, 1995
Par value $1.00 per share 26,463,969
Exhibit Index is on page 19 of this report.
Page 1 of 21 Pages.
THE ALLEN GROUP INC.
TABLE OF CONTENTS
Page
No.
PART I. Financial Information:
Item 1 - Financial Statements:
Consolidated Condensed Balance Sheets -
September 30, 1995 and December 31, 1994 3
Consolidated Statements of Income -
Three Months and Nine Months Ended
September 30, 1995 and 1994 4
Consolidated Condensed Statements of
Cash Flows - Nine Months Ended
September 30, 1995 and 1994 5
Notes to Consolidated Condensed
Financial Statements 6 - 11
Item 2 - Management's Discussion and
Analysis of Financial Condition and
Results of Operations 12 - 16
PART II. Other Information:
Item 6 - Exhibits and Reports on Form 8-K 17
Signatures 18
Exhibit Index 19
<TABLE>
PART I - FINANCIAL INFORMATION
ITEM I - FINANCIAL STATEMENTS
THE ALLEN GROUP INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Amounts in Thousands)
<CAPTION>
September 30, December 31,
1995 1994
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and equivalents $ 11,005 $ 55,240
Accounts receivable, net (Note 2) 88,166 63,117
Receivable from joint venture - 857
Inventories (Note 3) 68,345 58,316
Other current assets 5,172 661
Total current assets 172,688 178,191
Property, plant and equipment, net 56,958 56,860
Net investments in and advances to
joint venture (Note 6) - 24,411
Investment in FOR.E.M. S.p.A. (Note 7) - 8,458
Excess of cost over net assets of
businesses acquired 68,555 56,525
Other assets 38,094 33,271
TOTAL ASSETS $336,295 $357,716
LIABILITIES
Current Liabilities:
Notes payable and current maturities
of long-term obligations $ 8,155 $ 154
Accounts payable 35,436 26,568
Accrued expenses 28,847 37,955
Income taxes payable 11,679 2,675
Deferred income taxes 3,221 2,899
Total current liabilities 87,338 70,251
Long-term debt (Note 8) 30,961 44,910
Other liabilities and deferred credits 17,171 18,374
TOTAL LIABILITIES 135,470 133,535
STOCKHOLDERS' EQUITY
Common stock 29,508 29,146
Paid-in capital 167,503 161,644
Retained earnings (Note 6) 27,185 56,902
Translation adjustments (181) 23
Less: Treasury stock (at cost) (18,847) (17,479)
Unearned compensation (3,420) (4,310)
Minimum pension liability adjustment (923) (1,745)
TOTAL STOCKHOLDERS' EQUITY 200,825 224,181
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $336,295 $357,716
See accompanying notes to the Consolidated Condensed Financial Statements.
</TABLE>
<TABLE>
THE ALLEN GROUP INC.
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in Thousands, Except Per Share Data)
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Sales $ 88,300 $ 55,230 $231,445 $156,498
Costs and expenses:
Cost of sales (54,712) (32,572) (142,316) (92,378)
Selling, general and
administrative expenses (14,173) (12,180) (40,513) (34,966)
Research and development
and product engineering
costs (3,632) (1,671) (12,478) (6,180)
Interest and financing expenses:
Interest Expense (984) (757) (2,667) (2,464)
Interest Income 328 478 1,424 1,314
Income before taxes and
minority interest 15,127 8,528 34,895 21,824
Provision for income taxes (6,442) (2,984) (14,090) (7,890)
Income before minority
interests 8,685 5,544 20,805 13,934
Minority interests (1,077) (99) (2,006) (412)
Income from continuing
operations 7,608 5,445 18,799 13,522
Discontinued operations (Note 6):
Income from discontinued
automotive and truck
products operations 2,286 3,123 7,852 6,908
Spin-off transaction costs (422) - (733) -
Net Income $ 9,472 $ 8,568 $ 25,918 $ 20,430
Earnings per common share (Note 4):
Income from continuing
operations $.28 $.21 $.70 $.52
Discontinued operations (Note 6):
Income from discontinued
automotive and truck
products operations .09 .12 .30 .27
Spin-off transaction costs (.02) - (.03) -
Net Income $.35 $.33 $.97 $ .79
Average common and common
equivalent shares
outstanding 27,174 26,092 26,838 25,996
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>
Nine Months Ended
September 30,
1995 1994
<S> <C> <C>
Continuing Operations:
Cash (used) provided by operating
activities of continuing operations $(16,217) $ 31,174
Cash flows from investing activities:
Capital expenditures (13,125) (4,436)
Sales and retirements of fixed assets 96 24
Capital expenditures and start-up costs
relating to centralized emissions
inspection programs (8,137) (27,556)
Capitalized software product costs (3,128) (1,585)
Acquisition of business, net of
cash acquired (Note 7) (382) -
Proceeds from sale of automotive
diagnostics and lease financing
business - 19,737
Investments in Telecommunications
ventures (1,000) (212)
Cash used by investing activities (25,676) (14,028)
Cash flows from financing activities:
Net repayments of long-term debt (5,015) (1,830)
Dividends paid (3,942) (3,126)
Cash included with spin-off distri-
bution (Notes 5 and 6) (4,002) -
Exercise of stock options 256 69
Treasury stock sold to employee
benefit plans 1,171 517
Cash used by financing activities (11,532) (4,370)
Discontinued Operations:
Net cash provided by discontinued
automotive and truck products
business 9,190 1,804
Net cash (used) provided (44,235) 14,580
Cash at beginning of year 55,240 11,173
Cash at end of period $ 11,005 $ 25,753
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 September 30, 1995 and the
results of its operations and cash flows for the periods ended September
30, 1995 and 1994. The results of operations for such interim periods
are not necessarily indicative of the results for the full year. The
year-end 1994 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, 1994.
Certain reclassifications have been made to the financial statements to
conform to the 1995 method of presentation.
2. Accounts Receivable:
Accounts receivable are net of the following allowances for doubtful
accounts (amounts in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
<S> <C> <C>
Allowance for doubtful
accounts $ 1,464 $ 1,684
</TABLE>
3. Inventories:
Inventories consisted of the following (amounts in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
<S> <C> <C>
Raw Materials $37,167 $29,581
Work-In-Process 16,050 19,433
Finished Goods 15,128 9,302
$68,345 $58,316
</TABLE>
4. Earnings Per Common Share:
The primary earnings per common share calculations 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 stock options, assuming the proceeds are used to
repurchase outstanding common shares at the average market price during
the period.
The calculation of fully diluted earnings per common share begins with
the primary calculation but further reflects, if dilutive, the conversion
of the then outstanding convertible debentures (see Note 8 concerning the
debenture redemption in May, 1995) into common shares at the beginning of
the period and such incremental stock option shares should the market
price of the Company common stock at period end exceed the average price.
This calculation resulted in no reportable dilution for the periods ended
September 30, 1995 and 1994, respectively.
5. Supplemental Cash Flow Disclosures:
Depreciation and amortization expense, included in "Cash (used) provided
by operating activities," in the Consolidated Condensed Statements of
Cash Flows amounted to $10,435,000 and $6,591,000 for the periods ended
September 30, 1995 and 1994, respectively.
On September 29, 1995, the Company completed the largely non-cash spin-
off distribution of its Truck Products business and investment in GO/DAN
Industries. See Note 6 for a summary of the assets and liabilities
distributed which included $4,002,000 of cash.
Information with respect to cash paid during the periods for interest and
income taxes is as follows (amounts in thousands):
<TABLE>
<CAPTION>
Nine Months
Ended
September 30,
1995 1994
<S> <C> <C>
Interest paid $ 3,426 $ 3,225
Interest capitalized 297 509
Income taxes paid 16,962 177
</TABLE>
6. Discontinued Operations:
On September 8, 1995 the Company's Board of Directors declared a spin-off
distribution of 100% of the common shares of its wholly owned subsidiary,
TransPro, Inc. ("TransPro") to the Company's common stock shareholders of
record at the close of business on September 29, 1995. Common shares
were distributed on the basis of one share of TransPro common stock for
every four shares of the Company's common stock. Prior to the
distribution, the Company contributed to TransPro cash, the ownership
interests in the net assets and liabilities of its Crown and G&O
Manufacturing Company divisions and the stock of AHTP II, Inc. and Allen
Heat Transfer Products, Inc., which owned the Company's 50% partnership
joint venture interest in GO/DAN Industries ("GDI"). These entities
comprised the Company's Truck Products Business (the "Business").
Following the distribution, TransPro became an independent, publicly
traded corporation.
On September 29, immediately prior to the distribution, the Company
caused GDI to redeem the remaining ownership interest from the Company's
other joint venture partner, Handy & Harman, thereby making GDI an
indirect, wholly owned partnership of the Company. Handy & Harman
received $24,750,000 in cash consideration from TransPro for its
interests in GDI, which Transpro financed through borrowings under the
term loan portion of its new credit facility.
In connection with the spin-off distribution, the Company has presented
the Business as a discontinued operation in the Consolidated Statements
of Income for the three and nine-month periods ended September 30, 1995.
The Company charged the net assets transferred to TransPro (which
includes GDI on a fully consolidated basis as a result of the
aforementioned redemption on September 29, 1995) against its retained
earnings. A summary of the net assets distributed is as follows
(amounts in thousands):
Cash $ 4,002
Accounts receivable 41,650
Inventories 46,963
Other current assets 3,726
Property, plant and equipment 36,186
Other assets 7,590
Accounts payable and accrued
expenses (35,552)
Long-term debt (45,666)
Other liabilities (8,250)
$50,649
Summarized income statement information relating to the Business' results
of operations for the previous four years (as reported in discontinued
operations) is as follows (amounts in thousands, except per share data):
<TABLE>
<CAPTION>
For the Years Ended December 31,
1994 1993 1992 1991
<S> <C> <C> <C> <C>
Sales $115,039 $ 93,660 $ 83,874 $ 70,973
Operating income 16,113 9,442 5,045 932
Equity income (loss)
in joint venture 1,368 407 (3,646) (1,149)
Net income (loss) 9,983 6,061 (3,673) (952)
Income (loss) per common
share .38 .26 (.19) (.05)
</TABLE>
Summarized quarterly income statement information for 1994 and 1995
relating to the Business is as follows (amounts in thousands, except per
share data):
<TABLE>
<CAPTION>
For the Three Months Ended
December September June March
31 30 30 31
<S> <C> <C> <C> <C>
1994:
Sales $ 28,340 $ 29,250 $ 29,702 $ 27,747
Operating income 4,705 3,665 4,421 3,023
Equity income (loss)
in joint venture 569 1,693 99 (694)
Net income 3,075 3,123 2,655 1,130
Income per common share .11 .12 .10 .05
1995:
Sales $ 27,381 $ 32,739 $ 32,813
Operating income 1,257 4,066 4,403
Equity income (loss)
in joint venture 2,044 581 (406)
Net income(a) 2,286 3,197 2,369
Income per common share .09 .12 .09
</TABLE>
For the three months ended June 30, 1995 and September 30, 1995,
discontinued operations also includes transaction costs related to the
distribution of the Business of $311,000 (pretax - $500,000) and $422,000
(pretax - $700,000), respectively.
7. Acquisition:
On March 17, 1995, the Company acquired an additional 40% interest in
FOR.E.M. S.p.A. ("FOREM") located in Milan, Italy; the Company had
previously acquired an initial 40% of FOREM in December 1994. The
purchase price for the 80% ownership interest aggregated approximately
$16,800,000 in cash, and includes costs of acquisition. In addition, the
Company recorded an additional $3,500,000 in purchase price (resulting in
an increase in related goodwill) during the third quarter 1995 pursuant
to an earn out arrangement included in the acquisition agreement, which
specifies that the former shareholders of FOREM may earn such additional
purchase price based upon the earnings of FOREM. This additional
purchase price is expected to be paid in the fourth quarter of 1995. The
remaining 20% of FOREM's outstanding stock is subject to certain put/call
arrangements between the Company and the sellers. The purchase price for
this remaining 20% ownership interest is based upon a formula relative to
the future earnings of FOREM.
This acquisition has been accounted for under the purchase method of
accounting; accordingly, results of operations include those of FOREM
subsequent to the acquisition date. Results of operations for FOREM
prior to the March 1995 share acquisition (reported under the equity
method of accounting) were not significant. To facilitate preparation of
financial statements on a timely basis, FOREM's financial position and
results of operations are reported and included in the Company's
consolidated financial statements on a two-month delayed basis.
The Company has made its best estimate, based on information available at
the present time, to allocate the purchase price based on the fair market
value of the assets and liabilities acquired. Certain estimates inherent
in these valuations are likely to change or have not been completed or
formalized at this time and may result in some adjustment of the recorded
assets and liabilities acquired, including the excess of cost over net
assets acquired. Such excess is being amortized over a 20-year period.
8. Redemption of Convertible Debentures:
In May 1995, the Company called for redemption of the remaining
$4,917,000 of Convertible Subordinated Debentures, Series A and B, due
July 30, 1999, which were issued in 1992 in connection with the Company's
acquisition of Alliance Telecommunications Corporation. Subsequent
thereto, holders of these debentures converted such debentures into a
total of 351,834 shares of the Company's common stock.
9. Additional Information:
Consolidated Statements of Income restated for, and excluding, the
discontinued automotive and truck products business (as described in Note
6) for each of the last four years and quarterly results for 1994 and
1995 are as follows (amounts in thousands, except per share data):
<TABLE>
<CAPTION>
For the Years Ended December 31,
1994 1993 1992 1991
<S> <C> <C> <C> <C>
Sales $216,313 $186,371 $129,079 $ 80,559
Costs and expenses:
Cost of sales (129,085) (110,943) (66,686) (40,813)
Selling, general and
administrative
expenses (46,362) (40,710) (31,045) (27,603)
Research and development
and product engineering
costs (8,865) (7,886) (4,487) (2,611)
Equity in loss of joint
venture - - (96) (250)
Interest and financing
expenses (1,294) (2,190) (1,165) (666)
Income before taxes and
minority interest 30,707 24,642 25,600 8,616
Provision for income taxes (10,973) (661) (1,279) (1,605)
Income before minority
interests 19,734 23,981 24,321 7,011
Minority interests (523) (518) (608) (201)
Income from continuing
operations $ 19,211 $ 23,463 $ 23,713 $ 6,810
Income per common share $.74 $.93 $1.00 $.15
</TABLE>
9. Additional Information, Continued:
<TABLE>
<CAPTION>
For the Three Months Ended
1995 1994
Mar 31 Dec 31 Sept 30 June 30 Mar 31
<S> <C> <C> <C> <C> <C>
Sales $59,265 $59,815 $55,230 $52,072 $49,196
Costs and expenses:
Cost of sales (36,452) (36,707) (32,572) (30,002) (29,804)
Selling, general and
administrative
expenses (11,482) (11,396) (12,180) (12,670) (10,116)
Research and develop-
ment and product
engineering costs (3,585) (2,685) (1,671) (2,570) (1,939)
Interest and financing
expenses (193) (144) (279) (526) (345)
Income before taxes and
minority interest 7,553 8,883 8,528 6,304 6,992
Provision for income
taxes (2,807) (3,083) (2,984) (2,326) (2,580)
Income before minority
interests 4,746 5,800 5,544 3,978 4,412
Minority interests (59) (111) (99) (161) (152)
Income from continuing
operations 4,687 5,689 5,445 3,817 4,260
Income from discontinued
operations 2,369 3,075 3,123 2,655 1,130
Net Income $ 7,056 $ 8,764 $ 8,568 $ 6,472 $ 5,390
Earnings per common share:
Income from continuing
operations $.18 $.22 $.21 $.15 $.16
Income from discontinued
operations .09 .11 .12 .10 .05
Net Income $.27 $.33 $.33 $.25 $.21
Average common and common
equivalent shares
outstanding 26,561 26,298 26,092 25,966 25,934
</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 and nine months ended September 30, 1995, The Allen Group
Inc. ("the Company") reported income from continuing operations of $7.6
million ($.28 per common share) and $18.8 million ($.70 per common share),
respectively, compared to $5.4 million ($.21 per common share) and $13.5
million ($.52 per common share), respectively, during the comparable 1994
periods. The increase in income from continuing operations is due, in large
part, to the initial inclusion of the operating results of the Company's 80%
owned Italian subsidiary, FOR.E.M. S.p.A. ("FOREM") and its majority owned
German subsidiary, MIKOM G.m.b.H. ("MIKOM") in the Company's 1995 results of
operations, as well as continued strong sales by the Company's existing
telecommunications business. The increase in operating income, however, has
been tempered by higher spending by the Company on research and development
for the Mobile Communications product lines, which is expected to continue at
an increased level through the balance of the year.
In connection with the spin-off distribution of its Automotive and Truck
Products Business to its stockholders, the Company reported the operating
results of such business as discontinued operations. Accordingly, the
Company reported income from discontinued operations (excluding the related
transaction costs) for the three and nine months ended September 30, 1995 of
$2,286 ($.09 per common share) and $7,852 ($.30 per common share),
respectively, versus $3,123 ($.12 per common share) and $6,908 ($.27 per
common share) for the comparable 1994 periods. For further information
regarding this transaction, see Note 6 of Notes to Consolidated Condensed
Financial Statements.
Sales:
Consolidated sales from continuing operations by industry segment are:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
September 30, September 30,
($ Millions) ($ Millions)
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Mobile Communications $85.4 $54.5 $225.4 $154.4
Centralized Automotive
Emissions Testing 2.9 .7 6.0 2.1
$88.3 $55.2 $231.4 $156.5
</TABLE>
Mobile Communications sales increased over the prior year periods by
$30.9 million (57%) and $71.0 million (46%) for the three and nine months
ended September 30, 1995, respectively. A major reason for this growth was
due to the initial full consolidation of the Company's FOREM subsidiary and
its German subsidiary, MIKOM, in 1995, contributing 62% and 50% of the sales
increase of $19.1 million for the three months ended September 30, 1995 and
$35.7 million for the nine months ended September 30, 1995, respectively. In
addition, sales of site management products, base station antennas and
frequency planning services from the Company's domestic Mobile Communications
segment continue to contribute to the remaining sales growth of this segment.
Centralized Automotive Emissions Testing sales consist of revenues from
the Company's MARTA Technologies, Inc. ("MARTA") subsidiary. MARTA's sales
grew by $2.2 million and $3.9 million for the three-month and nine-month
periods ended September 30, 1995 over the same periods in 1994 and is
primarily attributed to the start-up of the Maryland emission testing program
on May 1, 1995.
This industry has been hampered by an unsettled political climate that
delayed programs previously awarded and the bidding and awarding of new
programs; however, several states once again have begun to review their
requirements which may lead to program proposals in the near term.
As previously reported by the Company, MARTA's El Paso, Texas program has
been suspended, along with similar programs for another contractor in Dallas
and Houston, and it continues to remain unclear how, or with what type of
program, the State will proceed with meeting the U.S. Federal Environmental
Protection Agency ("EPA") requirements. It is highly probable that MARTA's
centralized program will not be implemented, or may be implemented in a
significantly reduced version. Pursuant to the terms of its Contract, MARTA
is in the preliminary phases of the dispute procedure requirements as called
for under the Contract. The Company continues to believe that its Contract
provides for appropriate compensation should such changes occur, subject to
the appropriation of funds by the State of Texas. Although the Company
continues to incur certain costs (particularly interest on the carrying cost
of its investment), these costs are, for financial reporting purposes, being
expensed as incurred. Marta will pursue all remedies available to protect
its interests regarding its contract with the State of Texas. The recorded
carrying value of its investment in the El Paso program is approximately $7.8
million.
MARTA's Cincinnati, Ohio program is expected to commence full revenue
generating operations in early 1996. MARTA's Northern Kentucky program,
originally scheduled to begin January 1, 1996, has been delayed as the State
of Kentucky reviews the effect of the EPA's changing mandates on planned and
implemented programs. Earlier in 1995, Kentucky had requested MARTA to limit
its activities to the search for suitable test station locations, but not to
enter into any contractual arrangements to lease or purchase property. In
the third quarter of 1995, Kentucky and MARTA re-initiated negotiations for
a nine to ten-year program, commencing on approximately October 1, 1996.
These negotiations are continuing.
Operating Income: Overall, gross margins on product sales approximated
38% and 41% for the three-month periods ended September 30, 1995 and 1994,
respectively, and 39% and 41% for the nine-month periods ended September 30,
1995 and 1994, respectively. The decline in gross margins between periods is
primarily attributable to the change in sales mix in the Mobile
Communications segment offset, in part, by the inclusion of FOREM and MIKOM
commencing with the second quarter of 1995.
Selling, general and administrative expenses increased by $2.0 million
and $5.5 million, respectively, for the three months and nine months ended
September 30, 1995, respectively, compared to the same periods in 1994. The
increase is primarily due to the inclusion of FOREM and MIKOM and to the
start-up of the Maryland emissions testing program, both of which occurred in
the second quarter of 1995. Selling, general and administrative expenses
represent 16.1% and 17.5% of sales, respectively, for the three and
nine-month periods ended September 30, 1995, respectively, as compared to
22.1% and 22.3% for the respective periods in 1994. The lower percentage of
sales is due to the spreading of fixed expenses over higher sales as a result
of the initial inclusion of FOREM and MIKOM as well as continued sales growth
from the Company's existing telecommunications products.
Due to the increasing significance of research and development and new
product engineering costs, the Company is now separately classifying this
item on its Consolidated Statements of Income and has reclassified prior
periods to conform to the new format. Spending for the three months and nine
months ended September 30, 1995 increased by $2.0 million (117%) and $6.3
million (102%), respectively over the comparable 1994 periods and is
attributable to the Company's Mobile Communications segment. Such expenses
represent 4.1% and 3.0% of sales for the three months ended September 30,
1995 and 1994, respectively, and 5.4% and 3.9% for the nine months ended
September 30, 1995 and 1994, respectively. The Company expects research and
development costs to continue at these increased levels through the end of
1995.
Interest and financing costs: For the three months and nine months ended
September 30, 1995, interest expense increased due to the inclusion of FOREM
and MIKOM commencing with the second quarter of 1995, and because of an
increase in the rates for the Company's industrial revenue bonds which are
marked-to-market on either a weekly or monthly basis, offset in part, by
lower long-term debt holdings. For the nine months ended September 30, 1995,
interest income reflects higher income from the investment of cash generated
from operations in short-term, tax-exempt securities, offset by lower
interest income earned on the proceeds of a note received in May 1994 from
the sale of the Company's automotive diagnostic equipment product line, which
occurred in 1993. Although year to date interest income is higher than the
comparable 1994 period, the Company's cash investments during the third
quarter 1995 declined, which accounted for the decrease in interest income
for the three months ended September 30, 1995 as compared to the 1994 period.
Income Taxes: The Company's effective income tax rate on continuing
operations for the three months ended September 30, 1995 and 1994 was 42.6%
and 35.0%, respectively, and 40.4% and 36.2% for the nine months ended
September 30, 1995 and 1994, respectively. The higher tax rates in 1995, and
in particular for the third quarter of 1995, reflect the higher proportion of
foreign income (FOREM and MIKOM) taxed at higher rates than the combined U.S.
Federal and state income tax rates.
Minority interests: The increase in minority interest in the 1995
periods, as compared to the comparable 1994 periods, is principally a result
of the inclusion of the minority interest of FOREM and MIKOM commencing with
the second quarter of 1995.
LIQUIDITY AND CAPITAL RESOURCES
As set forth in the Consolidated Condensed Statements of Cash Flows, the
Company used $16.2 million in cash from continuing operations for the nine
months ended September 30, 1995 compared to cash generated from continuing
operations of $31.2 million for the nine months ended September 30, 1994.
The significant decrease in cash flow from operations is principally due to
higher inventories levels and trade accounts receivable balances as a result
of the increased sales volume in 1995 and a higher level of estimated income
tax payments.
The Company has made significant capital investments in test equipment
and plant facilities for its Mobile Communications segment ($13.1 million)
and for the Ohio emissions testing program of its Centralized Automotive
Emissions Testing segment ($8.1 million). In addition, the Company acquired
an additional 40% interest in FOREM on March 17, 1995 for approximately $8.3
million in cash (with an additional $3.5 million in purchase price to be paid
to the former shareholders in the fourth quarter of 1995). All of these
actions were financed by internally generated funds.
The Company continues to utilize internally generated cash resources to
fund its operating and capital activities, and at September 30, 1995, cash
and equivalents totalled $11.0 million as compared with $55.2 million at
December 31, 1994. These balances were principally invested in money market
funds, bankers acceptances and Dutch auction, tax exempt securities (which
are afforded one of the two highest ratings by nationally recognized ratings
firms).
With respect to the spin-off of its automotive and truck products
business, the Company does not anticipate any significant impact on its
liquidity or capital resources. The spin-off will enable both the Company,
and TransPro to independently pursue their own respective strategies and
objectives.
The Company is currently employing a business strategy that involves,
among other things, the expansion of its telecommunications equipment
business, through both strategic acquisitions and internal development
programs. In its pursuit of strategic acquisitions, the Company believes
that the spin-off will enable it to use its common stock as an acquisition
currency to effectively reduce the cost of such acquisitions to the Company.
Further, in light of this strategy, the Company's Board of Directors has
decided to discontinue cash dividends for the foreseeable future after the
payment of the quarterly dividend of $.05 per common share declared on
September 14, 1995.
The Company believes that continued profitability, cash and short-term
investments and available unused credit lines of $98 million, as well as
unused credit lines for MARTA of $60 million, will provide sufficient
liquidity to fund future growth, expansion and acquisitions.
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
(10) Contribution Agreement, dated September 29, 1995, between The
Allen Group Inc. and TransPro, Inc.
(11) Statement re computation of earnings per common share.
(27) Financial Data Schedule.
(b) Reports on Form 8-K
The Company filed a Form 8-K Current Report dated September 8, 1995
in which it reported under Item 5 - "Other Events" that its Board of
Directors had declared a spin-off distribution, subject to the
satisfaction of certain regulatory approvals and other conditions, of
100% of the shares of a newly formed company to include Allen's Truck
Products divisions and GO/DAN Industries.
The Company filed a Form 8-K Current Report dated October 12, 1995 in
which it reported under Item 2 - "Acquisition or Disposition of
Assets" and Item 7 - "Financial Statements and Exhibits" that it had
effected the spin-off distribution, on a pro rata basis, of 100% of
the outstanding shares of common stock of the Company's wholly owned
subsidiary, TransPro, Inc., to holders of record of the Company's
common stock as of the close of business on September 29, 1995.
For additional information, see Note 6 of Notes to Consolidated
Condensed Financial Statements.
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: November 13, 1995 By: /s/ Robert A. Youdelman
Robert A. Youdelman
Senior Vice President-Finance
(Chief Financial Officer)
Date: November 13, 1995 By: /s/ James L. LePorte, III
James L. LePorte, III
Vice President, Treasurer
and Controller
(Principal Accounting Officer)
THE ALLEN GROUP INC.
EXHIBIT INDEX
Page
Exhibit Number:
(10) Contribution Agreement, dated September 29,
1995, between The Allen Group Inc. and
TransPro, Inc. (The schedules and exhibits
to the Contribution Agreement have been
omitted, but will be provided upon request.)
(filed as Exhibit 2.1 to Registrant's
Form 8-K dated October 12, 1995 (Commission
File Number 1-6016) and incorporated herein
by reference)...................................... -
(11) Statement re computation of earnings per
common share....................................... 20
(27) Financial Data Schedule ........................... 21
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 Nine Months
Ended Ended
September 30, September 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Income:
Net income applicable to
common stock - primary $ 9,472 $ 8,568 $25,918 $20,430
Adjustment for fully diluted:
Convertible debenture
interest - 47 80 137
Net income applicable to
common stock - fully
diluted $ 9,472 $ 8,615 $25,998 $20,567
Common Shares:
Weighted average outstanding
common shares 25,755 25,355 25,575 25,337
Common stock equivalents 1,419 737 1,263 659
Common shares - primary 27,174 26,092 26,838 25,996
Common shares issuable for:
Stock options 39 99 68 38
Conversion of debentures - 359 166 359
Common shares - fully diluted 27,213 26,550 27,072 26,393
The calculation of fully diluted earnings per common share is submitted in
accordance with Regulation S-K Item 601(b)(11) although not required for
income statement presentation because it results in dilution of less than 3
percent.
</TABLE>
EXHIBIT 27
FINANCIAL DATA SCHEDULE
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 11,005
<SECURITIES> 0
<RECEIVABLES> 89,630
<ALLOWANCES> (1,464)
<INVENTORY> 68,345
<CURRENT-ASSETS> 172,688
<PP&E> 76,449
<DEPRECIATION> (19,491)
<TOTAL-ASSETS> 336,295
<CURRENT-LIABILITIES> 87,338
<BONDS> 30,961
<COMMON> 29,508
0
0
<OTHER-SE> 171,317
<TOTAL-LIABILITY-AND-EQUITY> 336,295
<SALES> 231,445
<TOTAL-REVENUES> 231,445
<CGS> (142,316)
<TOTAL-COSTS> (142,316)
<OTHER-EXPENSES> (52,806)
<LOSS-PROVISION> (185)
<INTEREST-EXPENSE> (1,243)
<INCOME-PRETAX> 34,895
<INCOME-TAX> (14,090)
<INCOME-CONTINUING> 18,799
<DISCONTINUED> 7,119
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 25,918
<EPS-PRIMARY> .97
<EPS-DILUTED> 0
</TABLE>
