UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
(X) Quarterly Report Under Section 13 or 15(D) of The Securities Exchange
Act of 1934 For Quarter Ended September 30, 1995
OR
( ) Transition Report Pursuant to Section 13 or 15(d) of The Securities
Exchange Act of 1934
Commission File Number 0-275
Allen Organ Company
(Exact name of registrant as specified in its charter)
Pennsylvania 23-1263194
(State of Incorporation) (I.R.S. Employer Identification No.)
150 Locust Street, P. O. Box 36, Macungie, Pennsylvania 18062-0036
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 610-966-2200
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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No _____
Number of shares outstanding of each of the issuer's classes of common
stock, as of November 9, 1995:
Class A - Voting 84,984 shares
Class B - Non-voting 1,278,200 shares
<PAGE>
ALLEN ORGAN COMPANY
INDEX
Part I Financial Information
Item 1.Financial Statements
Consolidated Condensed Statements of Income for the nine months
ended September 30, 1995 and 1994
Consolidated Condensed Balance Sheets
at September 30, 1995 and December 31, 1994
Consolidated Condensed Statements of Cash Flows for the nine
months ended September 30, 1995 and 1994
Notes to Consolidated Condensed Financial Statements
Item 2.Management's Discussion and Analysis of Financial Condition and
Results of Operations
Part II Other Information
Item 6.Exhibits and Reports on Form 8-K
Signatures
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1.FINANCIAL STATEMENTS
ALLEN ORGAN COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
For the 3 Months For the 9 Months
Ended: Ended:
9/30/95 9/30/94 9/30/95 9/30/94
Net Sales $7,694,648 $7,423,909 $21,677,748 $21,668,633
Cost and expenses
Costs of sales 5,230,489 4,732,127 14,657,845 14,377,994
Selling, general and
administrative 1,198,548 968,748 3,298,596 3,047,646
Research and
development 410,738 156,348 729,420 464,374
Total Costs and
Expenses 6,839,775 5,857,223 18,685,861 17,890,014
Income from operations 854,873 1,566,686 2,991,887 3,778,619
Other Income and (Expense)
Interest and other
income 466,511 384,128 1,482,385 1,065,835
Interest expense (17,404) -- (17,404) --
Minority interests in
net loss of consolidated
subsidiaries 16,363 -- 16,363 --
Total Other Income and
Expense 465,470 384,128 1,481,344 1,065,835
Income before taxes on
income 1,320,343 1,950,814 4,473,231 4,844,454
Provision for taxes on
income 442,000 790,000 1,592,000 1,940,000
Net Income $878,343 $1,160,814 $2,881,231 $2,904,454
Earnings per share $0.64 $0.85 $2.11 $2.12
Shares used in per share
calculation 1,367,068 1,371,631 1,367,068 1,371,631
Dividends per share -
Cash $0.13 $0.13 $0.39 $0.39
See accompanying notes.
<PAGE>
ALLEN ORGAN COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
September 30, Dec 31,
ASSETS 1995 1994
(Unaudited) (Audited)
Current Assets
Cash $ 598,525 $ 105,067
Investments Including Accrued Interest 32,516,558 36,783,908
Accounts Receivable 4,427,098 3,052,683
Inventories:
Raw Materials 5,626,032 3,460,015
Work in Process 6,033,660 4,884,735
Finished Goods 1,086,841 450,015
Total Inventories 12,746,533 8,794,765
Prepaid Income Taxes 78,330 276,580
Prepaid Expenses 186,624 98,903
Deferred Income Tax Benefits -- 67,420
Total Current Assets 50,553,668 49,179,326
Property, Plant and Equipment 16,594,118 15,877,987
Less Accumulated Depreciation (9,112,458) (8,714,511)
Total Property, Plant and Equipment 7,481,660 7,163,476
Other Assets
Inventory Held for Future Service 1,222,968 1,145,511
Intangible Pension Asset 443,273 443,273
Deferred Income Tax Benefits 43,116 43,116
Note Receivable 122,586 81,855
Cash Value of Life Insurance 623,987 408,138
Intangible and Other Assets 4,645,899 --
Total Other Assets 7,101,829 2,121,893
Total Assets $65,137,157 $58,464,695
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Current Liabilities
Current Portion of Long Term Debt $ 347,000 $ --
Accounts Payable 588,151 171,791
Other Accrued Expenses 1,849,012 623,100
Customer Deposits 630,430 446,657
Total Current Liabilities 3,414,593 1,241,548
Noncurrent Liabilities
Deferred Liabilities 173,868 77,917
Accrued Pension Cost 1,549,699 1,374,007
Long Term Debt, Net of Current Portion 1,388,000 --
Total Noncurrent Liabilities 3,111,567 1,451,924
Total Liabilities 6,526,160 2,693,472
STOCKHOLDERS' EQUITY
Common Stock 1995 1994
Class A 128,104 shares; 128,104 shares 128,104 128,104
Class B 1,409,889 shares;1,409,889 shares 1,409,889 1,409,889
Capital in Excess of Par Value 12,758,610 12,610,377
Retained Earnings
Balance, Beginning 46,524,142 42,828,013
Net Income 2,881,231 4,449,703
Dividends - Cash 1995 and 1994 (534,975) (753,574)
Balance, End 48,870,398 46,524,142
Unrealized Gain (Loss) on Investments 148,611 (98,399)
Pension Liability Adjustment (489,823) (489,823)
Minority Interest 300,786 --
Treasury Stock 1995 1994
Class A 43,120 shares; 43,120 shares (451,436) (451,436)
Class B 131,689 shares;115,890 shares (4,064,142) (3,861,631)
Total Treasury Stock (4,515,578) (4,313,067)
Total Stockholders' Equity 58,610,997 55,771,223
Total Liabilities and Stockholders' Equity $65,137,157 $58,464,695
See accompanying notes.
<PAGE>
ALLEN ORGAN COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
For the 3 Months For the 9 Months
Ended: Ended:
9/30/95 9/30/94 9/30/95 9/30/94
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income $878,343 $1,160,814 $2,881,231 $2,904,454
Adjustments to reconcile net
income to net cash provided
by operating activities
Depreciation and amortization 163,057 142,525 426,415 427,582
Minority interest in net loss
of consolidated subsidiaries (16,363) -- (16,363) --
Change in assets and liabilities
(Increase) Decrease in
accounts receivable 126,182 163,060 124,542 (386,293)
(Increase) Decrease in
inventories (588,337) (51,353)(1,335,624) (872,845)
(Increase) Decrease in prepaid
income taxes (78,330) 7,024 198,250 101,063
(Increase) Decrease in prepaid
expenses 94,600 (120,820) (87,721) (209,757)
(Increase) Decrease in
deferred income tax benefits -- 14,837 67,420 (13,450)
(Decrease) Increase in
accounts payable (299,992) 143,802 (214,512) 167,612
(Decrease) Increase in accrued
taxes (144,934) 144,276 -- 83,293
(Decrease) Increase in accrued
expenses (116,405) (144,211) (167,348) 275,577
(Decrease) Increase in
customer deposits 109,641 (165,084) 183,773 (380,403)
(Decrease) Increase in other
noncurrent liabilities 162,545 (72,197) 271,643 (61,971)
Net Cash Provided by
Operating Activities 290,007 1,222,673 2,331,706 2,034,862
CASH FLOW FROM INVESTING
ACTIVITIES
Payment for acquisition, net
of cash acquired (3,639,338) -- (3,639,338) --
Increase in other assets (393,888) -- (393,888) --
Net additions to plant and
equipment (306,168) (126,953) (473,549) (345,716)
Increase in cash value of
life insurance (215,849) (126,198) (215,849) (126,198)
Increase in note receivable (40,731) (42,805) (40,731) (83,790)
Net sale (or purchase) of
investments 4,642,134 (626,118) 4,514,360 (316,143)
Net Cash Used In Investing
Activities 46,160 (922,074) (248,995) (871,847)
CASH FLOWS FROM FINANCING
ACTIVITIES
Reacquired Class B common
shares (1,006,613) -- (1,054,278) (370,462)
Dividends paid in cash (180,386) (177,766) (534,975) (534,784)
Net Cash Used In Financing
Activities (1,186,999) (177,766)(1,589,253) (905,246)
NET INCREASE (DECREASE) IN CASH (850,832) 122,833 493,458 257,769
CASH, BEGINNING 1,449,357 591,369 105,067 456,433
CASH, ENDING $598,525 $714,202 $598,525 $714,202
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION
Cash paid for:
Income Taxes $642,000 $636,772 $1,397,682 $1,663,275
Interest -- -- -- --
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES
Accrued liability incurred to
purchase inventory in
connection with acquisition $1,243,601 -- $1,243,601 --
Long term debt incurred in
connection with asset
acquisition $1,735,000 -- $1,735,000 --
See accompanying notes.
<PAGE>
ALLEN ORGAN COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Interim Financial Statements
The results of operations for the interim periods shown in this
report are not necessarily indicative of results to be expected for
the fiscal year. In the opinion of management, the information
contained herein reflects all adjustments necessary to make the
results of operations for the interim periods a fair statement of
such operations. All such adjustments are of a normal recurring
nature.
Certain notes and other information have been condensed or omitted
from the interim financial statements presented in the Quarterly
Report on Form 10-Q. Therefore, these financial statements should be
read in conjunction with the company's 1994 Annual Report on Form 10-
K.
2. Significant Accounting Policies
The consolidated financial statements include the accounts of the
Allen Organ Company and the following subsidiaries. All material
intercompany transactions have been eliminated.
Subsidiaries Name Ownership %
Rocky Mount Instruments, Inc. 100.00%
Allen Organ International, Inc. 100.00%
VIR, Inc. 97.60%
Eastern Research, Inc. 91.62%
Linear Switch Corporation 82.75%
Certain amounts in the 1994 financial statements have been
reclassified to conform to the 1995 presentation.
3. Acquisition of Assets
On August 1, 1995, the company acquired the assets of VIR, Inc.,
Eastern Research, Inc. (ERI) and Linear Switch Corporation (LSC),
three related companies which were under common control, for
$7,653,234. The purchase price was made up of 24,390 shares of Allen
Organ stock valued at approximately $1,000,000, notes and liabilities
totaling $2,978,601 and $3,674,633 in cash.
On September 7, 1995, the company agreed to and has repurchased the
Allen Organ Company stock issued in connection with the asset
acquisition for $1,000,000. The Securities Restriction Agreement
dated August 1, 1995 was terminated along with the stock repurchase.
In connection with the acquisition, the company established three new
subsidiary companies to acquire the assets of the sellers. As
additional consideration the new subsidiaries issued shares of their
stock to minority employee shareholders equivalent to their interest
in the selling companies. The minority interest in each of the three
new acquisition companies is 2.4% in VIR, 8.38% in ERI and 17.25% in
LSC. Additional shares of ERI will be issued over the next year to
employees approximating a 3% interest in the company.
The acquisitions have been accounted for as purchases. The results
of operations of VIR, ERI, and LSC have been included in the
company's consolidated condensed financial statements from the date
of acquisition through September 30, 1995. Assets and liabilities
have been recorded at their estimated fair market values with the
excess being recorded as goodwill which will be amortized over 40
years. Organizational costs have been capitalized in connection with
the acquisition and will be amortized over 10 years.
4. Long-Term Debt
Note Payable, interest at 5.95% payable semi-annually,
principal payable in annual installments of $347,000 $1,735,000
5. Pro Forma Financial Information
The following pro forma financial information has been prepared
giving effect to the acquisition of VIR, ERI and LSC as if the
transaction had taken place at the beginning of the applicable
period. The pro forma financial information is not necessarily
indicative of the results of operations which would have been
attained had the acquisitions been consummated on any of the
foregoing dates or which may be attained in the future.
For the 3 Months For the 9 Months
Ended: Ended:
9/30/95 9/30/94 9/30/95 9/30/94
Net Sales $8,083,216 $8,770,514 $26,413,358 $25,691,277
Net Income 762,706 1,170,867 3,158,083 2,852,071
Net Income Per Share $0.56 $0.85 $2.31 $2.08
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS.
Results of Operations
Net income and earnings per share were comparable for the nine month periods
ended 1995 and 1994. Net income and earnings per share declined in the third
quarter of 1995 compared to the same period in 1994. Operating income
declined in the three and nine month periods when compared to 1994. These
declines are primarily due to lower sales in the musical instruments segment
and increased overheads and product development expenses.
The musical instruments segment sales decreased 4.2% and 6.6% for the nine and
three month periods in 1995, respectively, as compared to the same periods in
1994. Incoming orders for musical instruments for the first three quarters of
1995 are behind the comparable periods of 1994 and is mainly the result of
having more new model introductions in 1994. The gross profit percentage
decreased to 31.4% from 33.6% in the nine month period ended in 1995 compared
to the same period in 1994. The gross profit in the current quarter decreased
to 29% from 36.3% in the third quarter of 1994. These decreases are due to
lower sales over which to spread fixed costs, variations in product mix and
increases in overhead costs.
The data communications segment sales for the two month period August 1 (date
of acquisition) through September 30, 1995 were $1,041,653. The gross profit
percentage related to these sales was 51.4%.
The electronic assemblies segment sales declined 8.4% and 29.1% for the nine
and three month periods in 1995, respectively, as compared to the same periods
in 1994. The decrease in the nine month period in 1995 is primarily due to
lower incoming orders. The higher sales volume in the 1994 third quarter
represented shipments made against the order backlog that were delayed due to
customer design changes. The gross profit percentages are comparable to the
same periods in the prior year.
Selling, general and administrative costs increased 8.2% and 23.7% in the nine
and three month periods of 1995, respectively, as compared to the same periods
in 1994. These increases are primarily due to costs incurred in the data
communications segment which was acquired on August 1, 1995.
Other income increased in both the nine and three month periods in 1995, when
compared to 1994. This increase is primarily due to higher yields available
on invested funds.
The effective tax rates declined for the nine and three month periods of 1995
when compared to 1994 primarily due to the enactment of lower state tax rates
in effect for the majority of the companies operating locations.
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(b) Forms 8-K
1. The Company filed a Form 8-K, dated August 1, 1995
announcing the acquisition of the assets of VIR, Inc. and two
related companies.
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.
Allen Organ Company
(Registrant)
Date: November 9, 1995 STEVEN MARKOWITZ
Steven Markowitz, President and
Chief Executive Officer
Date: November 9, 1995 LEONARD W. HELFRICH
Leonard W. Helfrich, Treasurer and
Principal Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
SEPTEMBER 30, 1995 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 598,525
<SECURITIES> 32,516,558
<RECEIVABLES> 4,427,098
<ALLOWANCES> 0
<INVENTORY> 12,746,533
<CURRENT-ASSETS> 50,553,668
<PP&E> 16,594,118
<DEPRECIATION> (9,112,458)
<TOTAL-ASSETS> 65,137,157
<CURRENT-LIABILITIES> 3,414,593
<BONDS> 0
<COMMON> 1,537,993
0
0
<OTHER-SE> 57,073,004
<TOTAL-LIABILITY-AND-EQUITY> 65,137,157
<SALES> 21,677,748
<TOTAL-REVENUES> 21,677,748
<CGS> 14,657,845
<TOTAL-COSTS> 14,657,845
<OTHER-EXPENSES> 4,028,016
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</TABLE>
