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, 1996
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 April 30, 1996
Par value $1.00 per share 26,597,663
Exhibit Index is on page 13 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, 1996 and December 31, 1995 3
Consolidated Statements of Income -
Three Months March 31, 1996 and 1995 4
Consolidated Condensed Statements of
Cash Flows - Three Months Ended
March 31, 1996 and 1995 5
Notes to Consolidated Condensed
Financial Statements 6 - 7
Item 2 - Management's Discussion and
Analysis of Financial Condition and
Results of Operations 8 - 10
PART II. Other Information:
Item 6 - Exhibits and Reports on Form 8-K 11
Signatures 12
Exhibit Index 13
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
ITEM I - FINANCIAL STATEMENTS
THE ALLEN GROUP INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Amounts in Thousands)
March 31, December 31,
1996 1995
(Unaudited)
<S> <C> <C>
ASSETS:
Current Assets:
Cash and equivalents $ 21,307 $ 15,706
Accounts receivable (less allowance
for doubtful accounts of $1,477
and $1,232, respectively) 87,933 82,015
Inventories: Raw materials 43,931 36,809
Work in process 16,771 21,310
Finished goods 12,326 12,033
73,028 70,152
Other current assets 3,706 9,941
Total current assets 185,974 177,814
Property, plant and equipment, net 72,456 77,124
Excess of cost over net assets of
businesses acquired 67,718 68,310
Other assets 47,580 40,317
TOTAL ASSETS $373,728 $363,565
LIABILITIES:
Current Liabilities:
Notes payable and current maturities
of long-term obligations $ 10,524 $ 8,741
Accounts payable 36,164 35,072
Accrued expenses 22,451 25,444
Income taxes payable 7,071 10,163
Deferred federal income taxes 8,326 5,796
Total current liabilities 84,536 85,216
Long-term debt 52,712 47,058
Other liabilities and deferred credits 22,491 21,687
TOTAL LIABILITIES 159,739 153,961
STOCKHOLDERS' EQUITY
Common stock 29,598 29,595
Paid-in capital 168,883 168,632
Retained earnings 38,337 34,175
Translation adjustments (277) 102
Less: Treasury stock (at cost) (18,556) (18,746)
Unearned compensation (3,636) (3,794)
Minimum pension liability adjustment (360) (360)
TOTAL STOCKHOLDERS' EQUITY 213,989 209,604
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $373,728 $363,565
See accompanying notes to the Consolidated Condensed Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
THE ALLEN GROUP INC.
CONSOLIDATED STATEMENTS OF INCOME
(Amounts In Thousands)
(Unaudited)
Three Months Ended
March 31,
1996 1995
<S> <C> <C>
SALES $ 89,870 $ 59,265
Costs and Expenses:
Cost of Sales (60,185) (36,452)
Selling, General and
Administrative Expenses (14,589) (11,482)
Research and Development
and New Product Engineering
Costs (4,620) (3,585)
Interest and Financing Expenses:
Interest Expense (1,471) (682)
Interest Income 229 489
Income before Taxes and
Minority Interest 9,234 7,553
Provision for Income Taxes (3,917) (2,807)
Income before Minority
Interests 5,317 4,746
Minority Interests (1,072) (59)
Income from Continuing
Operations 4,245 4,687
Income from Discontinued
Truck Products Business - 2,369
NET INCOME $ 4,245 $ 7,056
EARNINGS PER COMMON SHARE (Primary
and Fully Diluted):
Income from Continuing
Operations $.16 $.18
Income from Discontinued
Truck Products Business - .09
NET INCOME $.16 $.27
Average Common and Common Equivalent
Shares Outstanding 26,952 26,561
See accompanying notes to the Consolidated Condensed Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
THE ALLEN GROUP INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Amounts In Thousands)
(Unaudited)
Three Months Ended
March 31,
1996 1995
<S> <C> <C>
Continuing Operations:
Cash provided (used) by operating
activities of continuing operations $ 3,208 $ (5,132)
Cash flows from investing activities:
Capital expenditures ( 3,776) (3,814)
Sales and retirements of fixed assets 7 18
Centralized emissions inspection programs:
Program expenditures (1,861) (6,260)
Program payment received 1,161 -
Capitalized software product costs (973) (864)
Acquisition of business, net of
cash acquired - (610)
Cash used by investing activities (5,442) (11,530)
Cash flows from financing activities:
Net proceeds (repayments) of long-term debt 7,391 (88)
Dividends paid - (1,312)
Exercise of stock options 23 5
Treasury stock sold to employee
benefit plans 421 250
Cash provided (used) by financing activities 7,835 (1,145)
Discontinued Operations:
Net cash provided by discontinued
automotive and truck products
business - 4,264
Net cash provided (used) 5,601 (13,543)
Cash at beginning of year 15,706 55,240
Cash at end of period $ 21,307 $ 41,697
Supplemental cash flow data:
Depreciation and amortization included
in "Cash provided (used) by operating
activities of continuing operations" $ 5,050 $ 2,839
Cash paid during the period for:
Interest paid 1,607 1,290
Interest capitalized - 93
Income taxes (refunded) paid (1,605) 1,819
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, 1996 and the results of
its operations and cash flows for the periods ended March 31, 1996 and
1995. The results of operations for such interim periods are not
necessarily indicative of the results for the full year. The year-end
1995 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, 1995.
Certain reclassifications have been made to the financial statements to
conform to the 1996 method of presentation. In the first quarter of
1996, the Company retroactively adjusted retained earnings in the amount
of $773,000 with an equal and offsetting adjustment to accounts payable.
Such adjustment was required to amend the dividend recorded in connection
with the spin-off distribution of TransPro, Inc. in 1995.
2. Earnings Per Common Share:
The primary earnings per common share calculations are based upon the
weighted average number of common 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 calculations of fully diluted earnings per common share begin with
the primary calculation but further reflect, if dilutive, the conversion
of the then outstanding convertible debentures (redeemed 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 March 31, 1996 and 1995,
respectively.
3. Acquisitions (Subsequent Events):
In April 1996, the Company signed an agreement to acquire a 64% interest
in Tekmar Sistemi S.r.l. ("Tekmar"), an Italian company that produces
fiber optic modules used predominately in the wireless telecommunications
and cable television markets. The purchase agreement is subject to
certain pre-closing conditions and is expected to take place before the
end of the second quarter of 1996. The management of Tekmar will own the
remaining 36% interest; however, the Company will have the right,
pursuant to certain put and call options, to acquire the remaining
minority interest of Tekmar over a five-year period.
On May 7, 1996, the Company acquired the remaining 20% minority interest
of Grayson Electronics Company ("Grayson") from Grayson's minority
shareholders. The Company previously acquired its initial 80% ownership
interest in Grayson on August 10, 1990.
4. Disposition:
On September 29, 1995, the Company completed the spin-off distribution
(the "Distribution") of 100% of the common shares of its wholly owned
subsidiary, TransPro, Inc. to the Company's common stockholders. In
connection with the Distribution, the Company has presented the spun-off
automotive and truck products business as a discontinued operation in the
comparative results of operations for the period ended March 31, 1995.
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, 1996 and 1995, The Allen Group Inc.
("the Company") reported income from continuing operations of $4.2 million
($.16 per common share) and $4.7 million ($.18 per common share),
respectively. The 1995 results exclude sales and earnings from the Company's
automotive and truck products businesses which were spun-off to the Company's
stockholders on September 29, 1995. Accordingly, such results have been
reported as income from discontinued operations at March 31, 1995.
The decline in income from continuing operations is attributable to the
impact of lower margins on domestic site management and systems product sales
(offset, in part by strong base station antenna margins and international
sales), increased spending on research and development by the mobile
communications segment offset, in part, by the inclusion of the operating
results of its European based subsidiary FOR.E.M. S.p.A. as discussed below.
Sales:
Consolidated sales from continuing operations by industry segment are:
<TABLE>
<CAPTION>
Three Months
Ended
March 31,
($ Millions)
1996 1995
<S> <C> <C>
Mobile Communications $ 84.5 $ 58.6
Centralized Automotive
Emissions Testing 5.4 .7
$ 89.9 $ 59.3
</TABLE>
For the three months ended March 31, 1996, Mobile Communications sales
increased over the prior year period by $25.9 million (44%), primarily due to
the initial full consolidation of the Company's 80% owned Italian subsidiary,
FOR.E.M S.p.A., and its majority owned German subsidiary, MIKOM G.m.b.H.
(collectively, both companies referred to herein as "FOREM"), commencing in
the second quarter 1995. Domestic sales for systems and site management
products for the first quarter 1996 have declined compared to the same period
in 1995 due to the slowdown in equipment sales to the existing cellular
telephone network and continued delays in infrastructure deployment for
Personal Communication Systems ("PCS"). This decline, however, is more than
offset by strong base station antenna sales, and increased engineering and
consulting revenues from the Company's Comsearch division.
Centralized Automotive Emissions Testing sales consist of revenues from
the Company's MARTA Technologies, Inc. ("MARTA") subsidiary. MARTA's sales
grew by $4.7 million for the three months ended March 31, 1996 compared to
the same period last year, due to the start-up of the emission testing
programs for the State of Maryland on May 1, 1995 and the Cincinnati region
of Ohio on January 1, 1996.
As previously reported by the Company, MARTA's El Paso, Texas program was
officially terminated in January 1996. The Company is formally proceeding
with the settlement and damage provisions set forth in its contract with the
State of Texas and has filed a claim with the State. The Company believes
that its contract provides for appropriate compensation and will pursue all
remedies available to protect its interest regarding its investment in the
program. The recorded carrying value of its investment in the El Paso
program is approximately $7.9 million. Although MARTA continues to incur
certain costs (in particular, interest on the carrying value of its
investment), these costs are, for financial reporting purposes, being
expensed as incurred and have been included in the claim. At this time, it
is not possible to predict the ultimate outcome of the settlement process or
the timing of the receipt of any funds related thereto which would be subject
to appropriation by the State of Texas. It is likely that this process will
continue into fiscal year 1997 before a resolution is reached.
The industry continues to be hampered by an unsettled climate, which has
delayed the bidding and awarding of new programs. Even with respect to
MARTA's existing operations in Jacksonville, Florida, Maryland and
Cincinnati, Ohio, there exists proposed legislation, or the discussion of
legislation, to change, amend or cancel such programs. However, several
states once again have begun to review their requirements which may lead to
program proposals in the near term.
Operating Income: Overall, gross margins on product sales approximated
33% and 38% for the three months ended March 31, 1996 and 1995, respectively.
The decline in gross margins is attributable to pricing pressures and changes
in the product mix for the Company's site management and systems products.
Selling, general and administrative expenses increased by $3.1 million
for the three months ended March 31, 1996 compared to the same period in 1995
due primarily to the inclusion of FOREM on a consolidated basis at March 31,
1996. Selling, general and administrative expenses represent 16.2% of sales
through three months ended March 31, 1996 compared to 19.4% for the same
period in 1995. The lower percentage of sales is due to the spreading of
fixed expenses over higher sales.
Research and development and new product engineering costs for the three
months ended March 31, 1996 increased by $1.1 million (29%) over the
comparable 1995 period and is attributable to the Company's Mobile
Communications segment. Such expenses represent 5.1% and 6.1% of sales for
the three months ended March 31, 1996 and 1995, respectively. The Company
expects research and development costs to continue at these increased levels
in 1996.
Interest and financing costs: Interest expense increased for the three
months ended March 31, 1996 compared to the same period 1995, due to the
inclusion of FOREM, interest payments on MARTA's capital lease related to the
Cincinnati, Ohio emissions inspection program, which commenced in the first
quarter 1996, and lower investment income.
Income Taxes: The Company's effective income tax rate on continuing
operations for the three months ended March 31, 1996 and 1995 was 42.4% and
37.2%, respectively. The higher effective tax rate in 1996 reflects the
higher proportion of foreign income (primarily due to FOREM) taxed at a
higher rate than the combined U.S. Federal and state income tax rates.
Minority interests: The increase in minority interest at March 31, 1996
compared to the same period in 1995, is due to the inclusion of the minority
interest of FOREM.
LIQUIDITY AND CAPITAL RESOURCES
As set forth in the Consolidated Condensed Statements of Cash Flows, the
Company generated $3.2 million in cash from continuing operations for the
three months ended March 31, 1996 compared to cash used by continuing
operations of $5.1 million for the three months ended March 31, 1995. The
increase in cash flow from operations, despite lower earnings is due
principally to higher non-cash depreciation and amortization included in
earnings and a refund of income taxes relating to 1995 in the first quarter
of 1996.
The Company continues to utilize internally generated cash resources to
fund its operating and investing activities. At March 31, 1996, cash and
equivalents totalled $21.3 million as compared with $15.7 million at December
31, 1995. 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).
The Company believes that continued profitability, cash and short-term
investments and available unused credit lines of $69.6 million, as well as
unused credit lines for MARTA of $60 million, will provide sufficient
liquidity to fund future growth, expansion and acquisitions. In the second
quarter of 1996, the Company anticipates expending approximately $7.9 million
to acquire interests in two companies. See Note 3 of Notes to
Consolidated Condensed Financial Statements for additional information
regarding these acquisitions.
_____ _____
Statements included in this Quarterly Report on Form 10-Q which are not
historical in nature are forward-looking statements. Such forward-looking
statements are made pursuant to the safe harbor provisions of the Private
Securities Reform Act of 1995. Forward-looking statements regarding the
Company's future performance and financial results are subject to certain
risks and uncertainties that could cause actual results to differ materially
from those set forth in the forward-looking statements due to a variety of
factors, including, besides those mentioned herein, those factors listed in
the Company's 1995 Annual Report on Form 10-K.
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
(11) Statement re computation of earnings per common share.
(27) Financial Data Schedule.
(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 14, 1996 By: /s/ Robert A. Youdelman
Robert A. Youdelman
Senior Vice President-Finance
(Chief Financial Officer)
Date: May 14, 1996 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:
(11) Statement re computation of earnings per
common share....................................... 14
(27) Financial Data Schedule ........................... 15
<TABLE>
EXHIBIT 11
<CAPTION>
THE ALLEN GROUP INC.
STATEMENT RE COMPUTATION OF
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:
Ended
March 31,
1996 1995
<S> <C> <C>
Income:
Net income applicable to
common stock - primary $ 4,245 $ 7,056
Adjustment for fully diluted:
Convertible debenture
interest - 74
Net income applicable to
common stock - fully
diluted $ 4,245 $ 7,130
Common Shares:
Weighted average outstanding
common shares 26,384 25,909
Shares issuable upon assumed exer-
cise of stock options 568 652
Common shares - primary 26,952 26,561
Adjustment for full dilution:
Common shares issuable for:
Incremental stock options 2 29
Convertible securities 1 351
Common shares - fully diluted 26,955 26,941
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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 21,307
<SECURITIES> 0
<RECEIVABLES> 89,410
<ALLOWANCES> (1,477)
<INVENTORY> 73,028
<CURRENT-ASSETS> 185,974
<PP&E> 96,362
<DEPRECIATION> (23,906)
<TOTAL-ASSETS> 373,728
<CURRENT-LIABILITIES> 84,536
<BONDS> 52,712
29,598
0
<COMMON> 0
<OTHER-SE> 184,391
<TOTAL-LIABILITY-AND-EQUITY> 373,728
<SALES> 89,870
<TOTAL-REVENUES> 89,870
<CGS> (60,185)
<TOTAL-COSTS> (60,185)
<OTHER-EXPENSES> (19,149)
<LOSS-PROVISION> (60)
<INTEREST-EXPENSE> (1,242)
<INCOME-PRETAX> 9,234
<INCOME-TAX> (3,917)
<INCOME-CONTINUING> 4,245
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,245
<EPS-PRIMARY> .16
<EPS-DILUTED> 0
</TABLE>
