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 June 30, 1996
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 August 6, 1996:
Class A - Voting 84,984 shares
Class B - Non-voting 1,251,208 shares
<PAGE>
ALLEN ORGAN COMPANY
INDEX
Part I Financial Information
Item 1. Financial Statements
Consolidated Condensed Statements of Income for the six months
ended June 30, 1996 and 1995
Consolidated Condensed Balance Sheets at June 30, 1996 and
December 31, 1995
Consolidated Condensed Statements of Cash Flows for the six
months ended June 30, 1996 and 1995
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 4. Submission of Matters to a Vote of Security Holders
Item 5. 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 Ended: For the 6 Months Ended:
6/30/96 6/30/95 6/30/96 6/30/95
Net Sales $ 8,928,612 $ 7,484,775 $ 17,377,818 $ 13,983,100
Cost and expenses
Costs of sales 5,659,230 4,994,920 11,054,523 9,427,356
Selling, general and
administrative 1,557,709 1,087,428 3,034,996 2,100,048
Research and
development 682,334 158,078 1,343,843 318,682
Total Costs and
Expenses 7,899,273 6,240,426 15,433,362 11,846,086
Income from operations 1,029,339 1,244,349 1,944,456 2,137,014
Other Income (Expense)
Interest and other
income 421,238 609,167 1,043,493 1,015,874
Interest expense -- -- (8,603) --
Minority interests in
consolidated susidiaries 32,392 -- 54,611 --
Total Other Income and
Expense 453,630 609,167 1,089,501 1,015,874
Income before taxes on
income 1,482,969 1,853,516 3,033,957 3,152,888
Provision for taxes on
income 505,000 675,000 1,047,000 1,150,000
Net Income $ 977,969 $ 1,178,516 $ 1,986,957 $ 2,002,888
Earnings per share $0.73 $0.86 $1.47 $1.47
Shares used in per
share calculation 1,350,739 1,363,895 1,350,739 1,363,895
Dividends per share -
Cash $0.13 $0.13 $0.26 $0.26
See accompanying notes.
<PAGE>
ALLEN ORGAN COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
June 30, 1996 Dec. 31, 1995
ASSETS (Unaudited) (Audited)
Current Assets
Cash $ 670,176 $ 196,100
Investments Including Accrued Interest 29,911,612 30,766,266
Accounts Receivable 4,414,774 4,431,499
Inventories:
Raw Materials 5,854,510 6,788,504
Work in Process 6,513,649 5,658,610
Finished Goods 1,540,598 981,471
Total Inventories 13,908,757 13,428,585
Prepaid Income Taxes -- 856,630
Prepaid Expenses 221,118 103,420
Total Current Assets 49,126,437 49,782,500
Property, Plant and Equipment 17,291,511 17,057,373
Less Accumulated Depreciation (9,581,553) (9,278,875)
Total Property, Plant and Equipment 7,709,958 7,778,498
Other Assets
Prepaid Pension Costs 1,013,937 1,021,517
Inventory Held for Future Service 1,213,516 1,219,872
Note Receivable 122,586 122,586
Cash Value of Life Insurance 629,481 629,481
Intangible and Other Assets 3,811,429 4,744,972
Total Other Assets 6,790,949 7,738,428
Total Assets $63,627,344 $65,299,426
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Current Liabilities
Current Portion of Long Term Debt $ -- $ 347,000
Accounts Payable 633,898 535,276
Accrued Income Taxes 62,190 --
Deferred Income Taxes 64,322 64,322
Other Accrued Expenses 813,859 1,691,328
Customer Deposits 920,250 463,019
Total Current Liabilities 2,494,519 3,100,945
Noncurrent Liabilities
Deferred Liabilities 781,911 841,687
Long Term Debt, Net of Current Portion -- 1,388,000
Total Noncurrent Liabilities 781,911 2,229,687
Total Liabilities 3,276,430 5,330,632
STOCKHOLDERS' EQUITY
Common Stock 1996 1995
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 12,758,610
Retained Earnings
Balance, Beginning 49,786,163 46,524,142
Net Income 1,986,957 4,015,105
Dividends - Cash 1996 and 1995 (351,763) (753,084)
Balance, End 51,421,357 49,786,163
Unrealized Gain on Investments 12,135 94,136
Minority Interest 157,529 313,941
Treasury Stock
1996 - 43,120 Class A shares
158,681 Class B shares (5,536,710) --
1995 - 43,120 Class A shares
131,529 Class B shares -- (4,522,049)
Total Stockholders' Equity 60,350,914 59,968,794
Total Liabilities and Stockholders' Equity $63,627,344 $65,299,426
See accompanying notes.
<PAGE>
ALLEN ORGAN COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
For the 3 Months For the 6 Months
Ended: Ended:
6/30/96 6/30/95 6/30/96 6/30/95
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income $977,969 $1,178,516 $1,986,957 $2,002,888
Adjustments to reconcile net
income to net cash provided by
operating activities
Depreciation and amortization 199,711 132,944 412,243 263,358
Minority interest in
consolidated subsidiaries (32,392) --- (54,611) ---
Change in assets and liabilities
(Increase) Decrease in
accounts receivable 61,679 219,777 16,725 (1,640)
(Increase) Decrease in
inventories (584,434) (115,615) (1,104,701) (747,287)
(Increase) Decrease in prepaid
income taxes 316,630 --- 856,630 276,580
(Increase) Decrease in prepaid
expenses 53,488 (94,830) (117,698) (182,321)
(Increase) Decrease in prepaid
pension costs (112,420) --- 7,580 ---
(Increase) Decrease in
deferred income tax benefits --- 12,685 --- 67,420
(Decrease) Increase in
accounts payable (5,797) 36,434 98,622 85,480
(Decrease) Increase in accrued
income taxes 62,190 (574) 62,190 144,934
(Decrease) Increase in accrued
expenses (1,042,861) (77,078) (1,203,934) (50,943)
(Decrease) Increase in
customer deposits 240,048 55,953 457,231 74,132
(Decrease) Increase in other
noncurrent liabilities (17,865) 26,373 (59,776) 109,098
Net Cash Provided by
Operating Activities
Activities 115,946 1,374,585 1,357,458 2,041,699
CASH FLOW FROM INVESTING
ACTIVITIES
Net additions to plant and
equipment (157,705) (112,266) (274,451) (167,381)
Purchase of minority
shareholders' interest in
subsidiary ---- ---- (20,000) ----
Net sale (or purchase) of
short term investments 1,063,987 (188,797) 772,653 (127,774)
Net Cash Provided by (Used
In) Investing Activities 906,282 (301,063) 478,202 (295,155)
CASH FLOWS FROM FINANCING
ACTIVITIES
Reacquired Class B common
shares (620,281) (22,722) (1,014,661) (47,665)
Dividends paid in cash (174,581) (177,284) (351,763) (354,589)
Subsidiary company stock issued
to minority shareholder 4,840 ---- 4,840 ----
Net Cash Used In Financing
Activities (790,022) (200,006) (1,361,584) (402,254)
NET INCREASE IN CASH 232,206 873,516 474,076 1,344,290
CASH, BEGINNING 437,970 575,841 196,100 105,067
CASH, ENDING $670,176 $1,449,357 $670,176 $1,449,357
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION
Cash paid for:
Income Taxes 293,338 667,737 293,338 755,682
Interest ---- ---- 51,616 ----
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES
Purchase price adjustment of
August 1, 1995 acquisition:
Decrease in accrued liability $ --- $ --- $630,885 $ ---
incurred to purchase inventory
Decrease in long term debt --- --- 1,735,000 ---
Decrease in minority interest --- --- 86,641 ---
Decrease in inventory --- --- (630,885) ---
Decrease in intangible assets
(Goodwill) --- --- (864,291) ---
Increase in current accrued
liabilities --- --- (957,350) ---
Total $ --- $ --- $ --- $ ---
See accompanying notes.
<PAGE>
ALLEN ORGAN COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. 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 1995 Annual Report on Form 10-K.
2. Purchase Price Adjustment of August 1, 1995 Acquisition
On May 10, 1996, the Company entered into an agreement with the seller
of the three data communications companies acquired on August 1, 1995,
to settle an indemnity claim against the seller by adjusting the
purchase price and payment terms for the acquired companies.
The terms of the agreement provided for the $880,885 balance due on the
obligation incurred to purchase some of the inventory to be satisfied
by the payment of $250,000. Further, the Note Payable of $1,735,000
issued as part of the purchase price has been canceled in exchange for
a current payment of $900,000 and a contingent annual payment for five
years, effective January 1, 1996, of 4.5% of the acquired companies
annual sales exceeding $7,000,000 (the acquired companies proforma net
sales were $7,397,472 and $5,208,003 in 1995 and 1994 respectively).
The agreement provides that the total of the contingent payments shall
not exceed $2,000,000. The employment agreement between VIR and its
President (majority owner of the selling companies) has been modified
so that he shall now be a consultant to the companies, with payment
based on the number of hours worked at the request of the companies.
3. 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 6 Months
Ended Ended
6/30/95 6/30/95
Net Sales $10,036,253 $18,330,142
Net Income 1,324,029 2,237,706
Net Income Per Share $0.97 $1.64
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS.
Sales and Operating Income
For the 3 Months For the 6 Months
Ended: Ended:
6/30/96 6/30/95 6/30/96 6/30/95
Net Sales
Musical Instruments $5,972,198 $6,360,489 $11,855,591 $12,294,650
Data Communications 1,864,383 -- 3,493,954 --
Electronic Assemblies 1,092,031 1,124,286 2,028,273 1,688,450
Total $8,928,612 $7,484,775 $17,377,818 $13,983,100
Income (loss) from operations
Musical Instruments $929,340 $1,081,924 $1,668,711 $1,896,076
Data Communications (57,065) -- (15,558) --
Electronic Assemblies 157,064 162,425 291,303 240,938
Total $1,029,339 $1,244,349 $1,944,456 $2,137,014
Musical Instruments Segment
Sales decreased $388,291 and $439,059 respectively for the three and six
months ended June 30, 1996 when compared to the same period in 1995 due to
a change in the product mix of orders requiring a longer production time.
New orders have increased over 1995 and the musical instruments backlog is
higher when compared to the same period in 1995. The gross profit
percentage decreased to 33% in the first six months of 1996 compared to 34%
in the same period last year. The current quarter gross profit percentage
was 35% compared to 38% in the second quarter of 1995. These declines are
due to increases in overhead costs and lower sales over which to absorb
fixed costs. Selling, general and administrative expenses for the three
and six months ended June 30, 1996 remained approximately the same as the
same period in 1995.
Data Communications Segment
Sales increased from the preceding quarter ended March 31, 1996 from
increased order volume. This increase is attributable to the increased
sales and marketing effort initiated since the acquisition. Gross profit
margins decreased to 56% of sales from 60.6% in the preceding quarter ended
March 31, 1996 from variations in product mix. Selling, general and
administrative expenses increased slightly from the preceding quarter ended
March 31, 1996 primarily due to higher sales and marketing costs. Research
and development expenses were $1,049,684 for the six months ended June 30,
1996. The current quarter research and development expenditures were
$489,519 an increase of $26,998, when compared to the preceding quarter
ended March 31, 1996. These expenditures, which the company plans to
continue at a similar rate in the future, reflects the segments commitment
to new product development and support. For information pertaining to an
agreement affecting the data communications segments, see note 2 to the
Consolidated Condensed Financial Statements.
Electronic Assemblies Segment
Sales for the 6 month period ended June 30, 1996 increased $339,823 when
compared to the same period in 1995 from increased order volume. Operating
income increased proportionally with the increase in sales volume. Sales
and operating income for the current quarter remained approximately equal
to the second quarter of 1995.
Other Income and Expense
Interest and other income for the six months ended June 30, 1996 was
approximately the same as the same period in 1995. The second quarter of
1995 included realized gains from investments which contributed to higher
income in that quarter.
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) Annual Meeting: May 24, 1996
(b) Election of the following directors for a one-year term:
Steven Markowitz, Eugene Moroz, Leonard Helfrich, Martha
Markowitz, Orville Hawk, and Albert Schuster
(c) In addition to the election of directors and the waiver
of reading of the minutes of the prior meeting, the
shareholders ratified charitable deductions made in 1995 and
all contracts, agreements, and employment's by the Board of
Directors and officers since the previous annual meeting in
May, 1995. All resolutions were adopted by the vote of all
shareholders present, in person or proxy.
Item 5. Other Information
On July 26, 1996 the Board of Directors elected Jeffrey
L. Schucker, President and Managing Director of Middle Market
Capital Advisors, L.L.C., an investment banking firm, as a
member of the Board to fill a newly created seat. Prior to
joining Middle Market Capital Advisors, Mr. Schucker was Vice-
President of Corporate Finance for Meridian Capital Markets.
He has had past experience in the commercial loan and asset
based sectors of the Bank of Pennsylvania, Hamilton Bank and
Meridian Bank, as well as having been a Vice President of
Investment Banking at Hopper Soliday & Co. He is a graduate
of Pennsylvania State University and resides in Reading, Pa.
Item 6. Exhibits and Reports on Form 8-K
(b) No reports on Form 8-K were filed during the quarter ended
June 30, 1996.
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: August 6, 1996 STEVEN MARKOWITZ
Steven Markowitz, President and
Chief Executive Officer
Date: August 6, 1996 LEONARD W. HELFRICH
Leonard W. Helfrich, Vice President-
Finance and Principal
Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
JUNE 30, 1996 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 670,176
<SECURITIES> 29,911,612
<RECEIVABLES> 4,414,774
<ALLOWANCES> 0
<INVENTORY> 13,908,757
<CURRENT-ASSETS> 49,126,437
<PP&E> 17,291,511
<DEPRECIATION> (9,581,553)
<TOTAL-ASSETS> 63,627,344
<CURRENT-LIABILITIES> 2,494,519
<BONDS> 0
<COMMON> 1,537,993
0
0
<OTHER-SE> 58,812,921
<TOTAL-LIABILITY-AND-EQUITY> 63,627,344
<SALES> 17,377,818
<TOTAL-REVENUES> 17,377,818
<CGS> 11,054,523
<TOTAL-COSTS> 11,054,523
<OTHER-EXPENSES> 4,378,839
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,603
<INCOME-PRETAX> 3,033,957
<INCOME-TAX> 1,047,000
<INCOME-CONTINUING> 1,986,957
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<NET-INCOME> 1,986,957
<EPS-PRIMARY> 1.47
<EPS-DILUTED> 1.47
</TABLE>
