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 June 30, 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 July 31, 1996
Par value $1.00 per share 26,635,309
Exhibit Index is on page 15 of this report.
Page 1 of 17 Pages.
THE ALLEN GROUP INC.
TABLE OF CONTENTS
Page
No.
PART I. Financial Information:
Item 1 - Financial Statements:
Consolidated Condensed Balance Sheets -
June 30, 1996 and December 31, 1995 3
Consolidated Statements of Income -
Three Months and Six Months Ended
June 30, 1996 and 1995 4
Consolidated Condensed Statements of
Cash Flows - Six Months Ended
June 30, 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 - 11
PART II. Other Information:
Item 4 - Submission of Matters to a
Vote of Security Holders 12
Item 6 - Exhibits and Reports on Form 8-K 13
Signatures 14
Exhibit Index 15
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
ITEM I - FINANCIAL STATEMENTS
THE ALLEN GROUP INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Amounts in Thousands)
June 30, December 31,
1996 1995
(Unaudited)
<S> <C> <C>
ASSETS:
Current Assets:
Cash and equivalents $ 11,707 $ 15,706
Accounts receivable (less allowance
for doubtful accounts of $1,724
and $1,232, respectively) 95,916 82,015
Inventories: Raw materials 44,275 36,809
Work in process 17,398 21,310
Finished goods 12,874 12,033
74,547 70,152
Other current assets 3,301 9,941
Total current assets 185,471 177,814
Property, plant and equipment, net 74,140 77,124
Excess of cost over net assets of
businesses acquired 71,768 68,310
Other assets 48,965 40,317
TOTAL ASSETS $380,344 $363,565
LIABILITIES:
Current Liabilities:
Notes payable and current maturities
of long-term obligations $ 11,701 $ 8,741
Accounts payable 38,195 34,299
Accrued expenses 24,687 25,444
Income taxes payable 11,830 10,163
Deferred income taxes 5,290 5,796
Total current liabilities 91,703 84,443
Long-term debt 47,419 47,058
Other liabilities and deferred credits 21,262 21,687
TOTAL LIABILITIES 160,384 153,188
STOCKHOLDERS' EQUITY
Common stock 29,611 29,595
Paid-in capital 169,329 168,632
Retained earnings 43,490 34,948
Translation adjustments (379) 102
Less: Treasury stock (at cost) (18,524) (18,746)
Unearned compensation (3,207) (3,794)
Minimum pension liability adjustment (360) (360)
TOTAL STOCKHOLDERS' EQUITY 219,960 210,377
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $380,344 $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, Except Per Share Data)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Sales $ 93,547 $ 83,880 $183,417 $143,145
Costs and expenses:
Cost of sales (61,562) (51,152) (121,747) (87,604)
Selling, general and
administrative expenses (15,049) (14,857) (29,638) (26,339)
Research and development
and product engineering
costs (5,139) (5,261) (9,759) (8,846)
Interest and financing
expenses:
Interest Expense (1,284) (803) (2,755) (1,684)
Interest Income 167 408 396 1,096
Income before taxes and
minority interest 10,680 12,215 19,914 19,768
Provision for income taxes (4,401) (4,841) (8,318) (7,648)
Income before minority
interests 6,279 7,374 11,596 12,120
Minority interests (1,142) (870) (2,214) (929)
Income from continuing
operations 5,137 6,504 9,382 11,191
Income from discontinued
automotive and truck
products operations (Note 4) - 2,886 - 5,255
Net Income $ 5,137 $ 9,390 $ 9,382 $ 16,446
Earnings per common share
(Primary and fully diluted):
Income from continuing
operations $.19 $.24 $.35 $.42
Income from discontinued
automotive and truck
products operations (Note 4) - .11 - .20
Net Income $.19 $.35 $.35 $.62
Average common and common
equivalent shares
outstanding 27,198 26,779 27,075 26,670
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)
Six Months Ended
June 30,
1996 1995
<S> <C> <C>
Continuing Operations:
Cash provided (used) by operating
activities of continuing operations $ 15,367 $(20,833)
Cash flows from investing activities:
Capital expenditures ( 8,585) (8,333)
Sales and retirements of fixed assets 38 94
Centralized emissions inspection programs:
Program expenditures (2,946) (5,025)
Program payment received 1,161 -
Capitalized software product costs (2,199) (1,474)
Acquisition of businesses, net of
cash acquired (11,094) (382)
Cash used by investing activities (23,625) (15,120)
Cash flows from financing activities:
Net proceeds (repayments) of long-term debt 3,227 (1,937)
Dividends paid - (2,634)
Exercise of stock options 199 143
Treasury stock sold to employee
benefit plans 833 563
Assets held for distribution - (2,503)
Cash provided (used) by financing activities 4,259 (6,368)
Discontinued Operations:
Net cash provided by discontinued
automotive and truck products
business - 7,055
Net cash used (3,999) (35,266)
Cash at beginning of year 15,706 55,240
Cash at end of period $ 11,707 $ 19,974
Supplemental cash flow data:
Depreciation and amortization included
in "Cash provided (used) by operating
activities of continuing operations" $ 10,188 $ 6,516
Cash paid during the period for:
Interest paid 2,255 2,279
Interest capitalized - 221
Income taxes paid 656 13,232
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 June 30, 1996 and the results of
its operations and cash flows for the periods ended June 30, 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.
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 June 30, 1996 and 1995,
respectively.
3. Acquisitions:
In May 1996, the Company acquired a 64.3% 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. Management of Tekmar owns the remaining 35.7%
interest. In addition, 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. This acquisition has been accounted
for under the Purchase method; accordingly, the consolidated condensed
balance sheet of the Company as of June 30, 1996 reflects the inclusion
of Tekmar. Tekmar will be included in the Company's consolidated
condensed financial statements on a two-month delayed basis; therefore,
Tekmar's results of operations will be included in the consolidated
condensed results of operations starting in the third quarter of 1996.
This acquisition resulted in $3,004,000 of excess of cost over net assets
acquired (goodwill). Further, in May 1996, the Company acquired the
remaining 20% minority interest of Grayson Electronics Company.
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 June 30, 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 June 30, 1996 and 1995, The Allen Group Inc.
("the Company") reported income from continuing operations of $5.1 million
($.19 per common share) and $6.5 million ($.24 per common share),
respectively. For the six months ended June 30, 1996 and 1995, the Company
reported income from continuing operations of $9.4 million ($.35 per common
share) and $11.2 million ($.42 per common share), respectively. The 1995
results exclude sales and earnings from the Company's automotive and truck
products business spun-off to the Company's stockholders on September 29,
1995. Accordingly, such results have been reported as income from
discontinued operations for the applicable 1995 periods.
The decline in income from continuing operations for the three months
ended June 30, 1996 is attributable to the impact of lower sales and margins
relating to the domestic cellular market, particularly for the Company's site
management and systems products, as well as higher interest expense. These
income declines were partially offset by increased sales of products relating
to the Personal Communications Systems ("PCS") market, particularly base
station antennas and frequency planning and systems design as well as
international site management product sales. The decline in income from
continuing operations for the six months ended June 30, 1996 was impacted by
these factors as well as the impact of the inclusion of the profitable
operations of FOR.E.M. S.p.A. ("FOREM") and MIKOM G.m.b.H. ("MIKOM") for a
full six month period in 1996 as compared with only the second quarter in
1995.
Sales:
Consolidated sales from continuing operations by industry segment are:
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
June 30, June 30,
($ Millions)
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Mobile Communications $88.4 $81.6 $172.9 $140.1
Centralized Automotive
Emissions Testing 5.1 2.3 10.5 3.0
$93.5 $83.9 $183.4 $143.1
</TABLE>
For the three months and six months ended June 30, 1996, Mobile
Communications sales increased over the prior year periods by $6.8 million
(8.3%) and $32.8 million (23.4%), respectively. Sales for the three month
period ending June 30, 1996 exceeded the prior year period principally due to
higher sales of PCS related products and services ($10.2 million), and higher
demand for international site management products.
These sales increases were partially offset by weaker demand for the
domestic cellular market, particularly for site management products. The
increase in sales for the six month period ended June 30 was attributable to
these same factors, as well as the inclusion of the Company's FOREM and MIKOM
subsidiaries in its operating results for the full six month period in 1996
as compared with only the second quarter 1995.
Centralized Automotive Emissions Testing sales consist of revenues from
the Company's MARTA Technologies, Inc. ("MARTA") subsidiary. MARTA's sales
grew by $2.8 million for the three months ended June 30, 1996 and $7.5
million for the six months ended June 30, 1996 compared to the same periods
last year, due to the start-up of the emissions testing programs for 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.
Operating Income: Overall, gross margins on product sales approximated
34% and 39% for both the three and six months ended June 30, 1996 and 1995,
respectively. The decline in gross margins is attributable to pricing
pressures, excess capacity and changes in the product mix for the Company's
site management and systems products.
Selling, general and administrative expenses increased by $192,000 and
$3,299,000 for the three months and six months ended June 30, 1996,
respectively, compared to the same periods in 1995 due primarily to the
inclusion of FOREM and MIKOM on a consolidated basis starting in the second
quarter of 1995. Selling, general and administrative expenses represent
16.1% and 16.2% of sales through three months and six months ended June 30,
1996, respectively, compared to 17.7% and 18.4% for the same periods 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 decreased by
$122,000 for the three months ended June 30, 1996 and increased by $913,000
(10.3%) for the six months ended June 30, 1996 over the comparable 1995
periods and is attributable to the Company's Mobile Communications segment.
Research and development and new product engineering costs represent 5.5% and
6.3% of sales for the three months ended June 30, 1996 and 1995,
respectively, and 5.3% and 6.2% of sales for the six months ended June
30,1996 and 1995, respectively. These expenses are a lower percentage of
sales in 1996 compared with 1995 due to the spreading of such expenses over
higher sales.
Interest and financing costs: Interest expense increased for the three
months and six months ended June 30, 1996 compared to the 1995 periods due to
the inclusion of FOREM and MIKOM, interest payments on MARTA's capital lease
related to the Cincinnati, Ohio emissions inspection program (which commenced
in the first quarter of 1996) and acquisition payments relating to FOREM.
Income Taxes: The Company's effective income tax rate on continuing
operations for the three months ended June 30, 1996 and 1995 was 41.2% and
39.6%, respectively, and for the six months ended June 30, 1996 and 1995 was
41.8% and 38.7%, respectively. Higher effective tax rates in 1996 reflect
the higher proportion of foreign income taxed at higher rates than at
combined U.S. Federal and state income tax rates.
Minority interests: The increase in minority interest for the three
months and six months ended June 30, 1996 compared to the same periods in
1995, is due primarily to the minority share portion of related earnings
growth of FOREM and MIKOM.
LIQUIDITY AND CAPITAL RESOURCES
As set forth in the Consolidated Condensed Statements of Cash Flows, the
Company generated $15.4 million in cash from continuing operations for the
six months ended June 30, 1996 compared to cash used by continuing operations
of $20.8 million for the same period in 1995. The increase in cash flow from
operations, despite lower earnings, is due principally to a lower rate of
increase in inventory and receivables, in support of increasing sales levels
which increased $32 million in the first six months of 1995 as compared with
a $17 million increase in 1996. The first six months of 1996 also includes
an $8 million refund of income tax payments made in 1995. In addition, the
Company has, over the course of the last six months, made certain business
acquisitions which required cash outlays of approximately $11 million.
The Company continues to utilize internally generated cash resources to
fund its operating and investing activities. At June 30, 1996, cash and
equivalents totalled $11.7 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 $72.7 million, as well as
unused credit lines for MARTA of $60 million, will provide sufficient
liquidity to fund future growth, expansion and 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 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Stockholders of the Company held on April 23,
1996, two proposals were voted upon by the Company's stockholders. A brief
description of each proposal voted upon at the Annual Meeting and the number
of votes cast for, against and withheld, as well as the number of abstentions
and broker non-votes as to each such proposal, are set forth below.
A vote by ballot was taken at the Annual Meeting for the election of 10
Directors of the Company to hold office until the next Annual Meeting of
Stockholders of the Company and until their respective successors shall have
been duly elected and qualified. The aggregate numbers of shares of Common
Stock (a) voted in person or by proxy for each nominee, or (b) with respect
to which proxies were withheld for each nominee, together with (c) the number
of broker non-votes as to each nominee, were as follows:
<TABLE>
<CAPTION>
Broker
Nominee For Withheld Non-Votes
<S> <C> <C> <C>
George A. Chandler 19,279,209 874,196 0
Philip Wm. Colburn 19,259,926 893,479 0
Jill K. Conway 19,280,419 872,986 0
Albert H. Gordon 19,244,559 908,846 0
William O. Hunt 19,261,434 891,971 0
J. Chisholm Lyons 19,259,748 893,657 0
John F. McNiff 19,281,033 872,372 0
Robert G. Paul 19,260,988 892,417 0
Charles W. Robinson 19,267,855 885,550 0
William M. Weaver, Jr. 19,267,672 885,733 0
</TABLE>
A vote by ballot was taken at the Annual Meeting on the proposal to
ratify the appointment of Coopers & Lybrand L.L.P. as auditors for the
Company for the fiscal year ending December 31, 1996. The aggregate numbers
of shares of Common Stock in person or by proxy which: (a) voted for, (b)
voted against or (c) abstained from the vote on such proposal, together with
(d) the number of broker non-votes on such proposal, were as follows:
Broker
For Against Abstain Non-Votes
20,111,290 26,354 15,761 0
The foregoing proposals are described more fully in the Company's
definitive proxy statement dated March 15, 1996, filed with the Securities
and Exchange Commission pursuant to Section 14(a) of the Securities Act of
1934, as amended, and the rules and regulations promulgated thereunder.
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: August 13, 1996 By: /s/ Robert A. Youdelman
Robert A. Youdelman
Senior Vice President-Finance
(Chief Financial Officer)
Date: August 13, 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....................................... 16
(27) Financial Data Schedule ........................... 17
<TABLE>
<CAPTION>
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:
Three Months Six Months
Ended Ended
June 30, June 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Income:
Net income applicable to
common stock - primary $ 5,137 $ 9,390 $ 9,382 $16,446
Adjustments for fully diluted:
Convertible debenture
interest - 35 - 108
Net income applicable to
common stock - fully
diluted $ 5,137 $ 9,425 $ 9,382 $16,554
Common Shares:
Weighted average outstanding
common shares 26,419 26,118 26,401 26,013
Common stock equivalents 779 661 674 657
Common shares - primary 27,198 26,779 27,075 26,670
Common shares issuable for:
Stock options - 135 1 82
Conversion of debentures - 147 - 249
Common shares - fully diluted 27,198 27,061 27,076 27,001
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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 11,707
<SECURITIES> 0
<RECEIVABLES> 97,640
<ALLOWANCES> (1,724)
<INVENTORY> 74,547
<CURRENT-ASSETS> 185,471
<PP&E> 101,382
<DEPRECIATION> (27,242)
<TOTAL-ASSETS> 380,344
<CURRENT-LIABILITIES> 91,703
<BONDS> 47,419
0
0
<COMMON> 29,611
<OTHER-SE> 190,349
<TOTAL-LIABILITY-AND-EQUITY> 380,344
<SALES> 183,417
<TOTAL-REVENUES> 183,417
<CGS> (121,747)
<TOTAL-COSTS> (121,747)
<OTHER-EXPENSES> (39,252)
<LOSS-PROVISION> (145)
<INTEREST-EXPENSE> (2,359)
<INCOME-PRETAX> 19,914
<INCOME-TAX> (8,318)
<INCOME-CONTINUING> 9,382
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,382
<EPS-PRIMARY> .35
<EPS-DILUTED> 0
</TABLE>
