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, 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 October 29, 1996:
Class A - Voting 84,984 shares
Class B - Non-voting 1,243,333 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, 1996 and 1995
Consolidated Condensed Balance Sheets at September 30, 1996
and December 31, 1995
Consolidated Condensed Statements of Cash Flows for the nine
months ended September 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 6.Exhibits and Reports on Form 8-K
Signatures
Exhibit
<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 9 Months Ended:
9/30/96 9/30/95 9/30/96 9/30/95
Net Sales $8,985,238 $7,694,648 $26,363,056 $21,677,748
Cost and expenses
Costs of sales 6,138,645 5,230,489 17,193,168 14,657,845
Selling, general and
administrative 1,474,311 1,198,548 4,509,307 3,298,596
Research and development 632,148 410,738 1,975,991 729,420
Total Costs and
Expenses 8,245,104 6,839,775 23,678,466 18,685,861
Income from operations 740,134 854,873 2,684,590 2,991,887
Other Income and (Expense)
Interest and other
income 397,752 466,511 1,441,245 1,482,385
Interest expense (1,706) (17,404) (10,309) (17,404)
Minority interests in
net loss of consolidated
subsidiaries 27,780 16,363 82,391 16,363
Total Other Income and
Expense 423,826 465,470 1,513,327 1,481,344
Income before taxes on
income 1,163,960 1,320,343 4,197,917 4,473,231
Provision for taxes on
income 400,000 442,000 1,447,000 1,592,000
Net Income $763,960 $878,343 $2,750,917 $2,881,231
Earnings per share $0.58 $0.64 $2.05 $2.11
Shares used in per share
calculation 1,344,314 1,367,068 1,344,314 1,367,068
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 1996 1995
(Unaudited) (Audited)
Current Assets
Cash $1,173,752 $ 196,100
Investments Including Accrued Interest 28,154,682 30,766,266
Accounts Receivable 5,448,372 4,431,499
Inventories:
Raw Materials 6,462,220 6,788,504
Work in Process 6,043,347 5,658,610
Finished Goods 1,524,490 981,471
Total Inventories 14,030,057 13,428,585
Prepaid Income Taxes 48,914 856,630
Prepaid Expenses 255,503 103,420
Total Current Assets 49,111,280 49,782,500
Property, Plant and Equipment 17,404,334 17,057,373
Less Accumulated Depreciation (9,742,918) (9,278,875)
Total Property, Plant and Equipment 7,661,416 7,778,498
Other Assets
Prepaid Pension Costs 951,312 1,021,517
Inventory Held for Future Service 1,241,949 1,219,872
Note Receivable 163,148 122,586
Cash Value of Life Insurance 851,611 629,481
Intangible and Other Assets 3,776,803 4,744,972
Total Other Assets 6,984,823 7,738,428
Total Assets $63,757,519 $65,299,426
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Current Liabilities
Current Portion of Long Term Debt $ -- $ 347,000
Accounts Payable 579,965 535,276
Deferred Income Taxes 64,322 64,322
Other Accrued Expenses 620,530 1,691,328
Customer Deposits 962,730 463,019
Total Current Liabilities 2,227,547 3,100,945
Noncurrent Liabilities
Deferred Liabilities 835,433 841,687
Long Term Debt, Net of Current Portion -- 1,388,000
Total Noncurrent Liabilities 835,433 2,229,687
Total Liabilities 3,062,980 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 2,750,917 4,015,105
Dividends - Cash 1996 and 1995 (524,454) (753,084)
Balance, End 52,012,626 49,786,163
Unrealized Gain (Loss) on Investments 93,218 94,136
Minority Interest 126,177 313,941
Treasury Stock
1996 - 43,120 Class A shares
166,556 Class B shares (5,834,085) --
1995 - 43,120 Class A shares
131,835 Class B shares -- (4,522,049)
Total Stockholders' Equity 60,694,539 59,968,794
Total Liabilities and Stockholders' Equity $63,757,519 $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 9 Months
Ended: Ended:
9/30/96 9/30/95 9/30/96 9/30/95
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income $763,960 $878,343 $2,750,917 $2,881,231
Adjustments to reconcile net
income to net cash provided by
operating activities
Depreciation and amortization 204,938 163,057 617,181 426,415
Minority interest in net loss
of consolidated subsidiaries (27,780) (16,363) (82,391) (16,363)
Change in assets and liabilities
(Increase) Decrease in
accounts receivable (1,033,598) 126,182 (1,016,873) 124,542
(Increase) Decrease in
inventories (149,733) (588,337) (1,254,434) (1,335,624)
(Increase) Decrease in prepaid
income taxes (48,914) (78,330) 807,716 198,250
(Increase) Decrease in prepaid
expenses (34,385) 94,600 (152,083) (87,721)
(Increase) Decrease in prepaid
pension costs 62,625 -- 70,205 --
(Increase) Decrease in deferred
income tax benefits -- -- -- 67,420
(Decrease) Increase in accounts
payable (53,933) (299,992) 44,689 (214,512)
(Decrease) Increase in accrued
taxes (62,190) (144,934) -- --
(Decrease) Increase in accrued
expenses (193,329) (116,405) (1,397,263) (167,348)
(Decrease) Increase in customer
deposits 42,480 109,641 499,711 183,773
(Decrease) Increase in other
noncurrent liabilities 53,522 162,545 (6,254) 271,643
Net Cash Provided by (Used
in) Operating Activities
Activities (476,337) 290,007 881,121 2,331,706
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 (121,770) (306,168) (396,221) (473,549)
Increase in cash value of life
insurance (222,130) (215,849) (222,130) (215,849)
Increase in note receivable (40,562) (40,731) (40,562) (40,731)
Purchase of minority
shareholders' interest in
subsidiary -- -- (20,000) --
Net sale (or purchase) of
investments 1,838,013 4,642,134 2,610,666 4,514,360
Net Cash Provided by (Used in)
Investing Activities 1,453,551 46,160 1,931,753 (248,995)
CASH FLOWS FROM FINANCING
ACTIVITIES
Reacquired Class B common shares (297,375)(1,006,613) (1,312,036) (1,054,278)
Dividends paid in cash (172,691) (180,386) (524,454) (534,975)
Subsidiary company stock issued
to minority shareholders -- -- 4,840 --
Subsidiary company stock
reacquired from minority
shareholders (3,572) -- (3,572) --
Net Cash Used In Financing
Activities (473,638)(1,186,999) (1,835,222) (1,589,253)
NET INCREASE (DECREASE) IN CASH 503,576 (850,832) 977,652 493,458
CASH, BEGINNING 670,176 1,449,357 196,100 105,067
CASH, ENDING $1,173,752 $598,525 $1,173,752 $598,525
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION
Cash paid for:
Income Taxes $530,000 $642,000 $823,338 $1,397,682
Interest $ 1,706 $ -- $ 53,322 $ --
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES
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
Purchase price adjustment of
August 1, 1995 acquisition
Decrease of accrued liability
incurred to purchase inventory $ -- $ -- $630,885 $ --
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 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 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 Ended For the 9 Months Ended
9/30/95 9/30/95
Net Sales $ 8,083,216 $26,413,358
Net Income 951,658 3,189,364
Net Income Per Share $0.70 $2.33
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS.
Sales and Operating Income
For the 3 Months Ended For the 9 Months Ended
9/30/96 9/30/95 9/30/96 9/30/95
Net Sales
Musical Instruments $6,065,251 $5,764,615 $17,920,842 $18,059,265
Data Communications 2,111,289 1,041,653 5,605,243 1,041,653
Electronic Assemblies 808,698 888,380 2,836,971 2,576,830
Total $8,985,238 $7,694,648 $26,363,056 $21,677,748
Income (loss) from operations
Musical Instruments $635,556 $676,251 $2,304,267 $2,572,327
Data Communications (10,777) 49,171 (26,335) 49,171
Electronic Assemblies 115,355 129,451 406,658 370,389
Total $740,134 $854,873 $2,684,590 $2,991,887
Musical Instruments Segment
Sales increased $300,636 for the three months ended September 30, 1996 when
compared to the same period in 1995 due to a increase in incoming orders and
change in the product mix of instruments shipped. Sales for the 9 months ended
September 30, 1996 have remained relatively equal to the same period in 1995.
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 31% in the first nine months of 1996 compared to 33% in the same
period last year. The current quarter gross profit percentage was 27%
compared to 30% in the second quarter of 1995. These declines are due to
increases in direct costs and indirect overhead costs. Selling, general and
administrative expenses for the three and nine months ended September 30, 1996
remained approximately the same as the same period in 1995.
Data Communications Segment
Sales increased from the preceding quarter ended June 30, 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 51% of sales from 55% in the preceding quarter ended June 30,
1996 from variations in product mix. Selling, general and administrative
expenses increased slightly from the preceding quarter ended June 30, 1996
primarily due to higher sales and marketing costs. Research and development
expenses were $1,399,814 for the nine months ended September 30, 1996. These
expenditures, which the company plans to continue at a similar or increasing
rate in the future, reflect 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 9 month period ended September 30, 1996 increased $260,141
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 declined when compared to
the same period in 1995 due to lower shipments.
Other Income and Expense
Interest and other income for the three and nine months ended September 30,
1996 declined when compared to the same period in 1995 due to lower levels of
invested funds and lower rates of return available on those funds.
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description
10 Executive Incentive Plan (Supercedes the
Officers Bonus Plan as amended December 2, 1991)
(b) No reports on form 8-K were filed during the quarter ended
September 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: October 30, 1996 STEVEN MARKOWITZ
Steven Markowitz, President and
Chief Executive Officer
Date: October 30, 1996 LEONARD W. HELFRICH
Leonard W. Helfrich, Vice President-
Finance and Principal Accounting Officer
EXHIBIT NO. 10
ALLEN ORGAN COMPANY
EXECUTIVE INCENTIVE PLAN
EFFECTIVE CALENDAR YEAR 1996
Adopted by the Board of Directors on October 24, 1996
1. The company desires to provide incentive and reward to the executives
for their individual effort and productivity on a measurable basis.
2. Definitions
Participants - those officers of the corporation as designated by the
Board of Directors.
Date of Incentive Determination - the last calendar day of the fiscal
year for which the incentive is being computed.
Non-Operating Gains or Losses - infrequent and unusual results as
determined by the Board of Directors not normally a part of the annual
pre-tax income.
3. The total incentive payment shall be calculated as 1.0% of the
consolidated company pre-tax income for the subject fiscal year after
elimination of the incentive accrual and Non-Operating Gains or Losses.
4. The plan will divide the participants into two categories for
calculation of individual incentive payments.
(a). Group 1 shall constitute executives named as officers of Allen
Organ Company prior to 1990. Group 1 participants will receive a total
75% (3/4) of the total incentive payment as calculated from item 3.
(b). Group 2 shall constitute all executives named as officers of Allen
Organ Company since 1991. Group 2 participants will receive a total
25% (1/4) of the total incentive payment as calculated from item 3.
5. The total incentive payment calculated from the formula will be
distributed to each participant in each group in a proportion equal to
each participants annual salary payment in relation to the total annual
salary of all participants included within that group. The annual
salary shall be the weekly rate in effect at the date of calculation
paid on a fifty-two week payment schedule, thus eliminating extra
payments for unused vacations or personal days.
6. To participate in the plan for the fiscal year for which the incentive
payment is being computed, a participant must be employed by the
company on the last day of the fiscal year for which the payment is
being computed and have worked a minimum of thirty (30) average hours
per week for the fiscal year.
7. The incentive payment is to be calculated upon completion of the fiscal
year audit by the company's certified accountants. All figures used in
the calculations, other than the individual payment amounts, shall be
rounded to the nearest one thousand ($1,000) dollars. The incentive is
to be accrued in the fiscal year for which the calculation is made and
paid in cash to the participants within sixty (60) days after the close
of the fiscal year.
8. This plan is instituted for the fiscal year ended December 31, 1996 and
shall continue for each fiscal year thereafter subject to amendment or
revocation by the Board of Directors.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
SEPTEMBER 30, 1996 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-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 1,173,752
<SECURITIES> 28,154,682
<RECEIVABLES> 5,448,372
<ALLOWANCES> 0
<INVENTORY> 14,030,057
<CURRENT-ASSETS> 49,111,280
<PP&E> 17,404,334
<DEPRECIATION> (9,742,918)
<TOTAL-ASSETS> 63,757,519
<CURRENT-LIABILITIES> 2,227,547
<BONDS> 0
<COMMON> 1,537,993
0
0
<OTHER-SE> 59,156,546
<TOTAL-LIABILITY-AND-EQUITY> 63,757,519
<SALES> 26,363,056
<TOTAL-REVENUES> 26,363,056
<CGS> 17,193,168
<TOTAL-COSTS> 17,193,168
<OTHER-EXPENSES> 6,485,298
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,309
<INCOME-PRETAX> 4,197,917
<INCOME-TAX> 1,447,000
<INCOME-CONTINUING> 2,750,917
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,750,917
<EPS-PRIMARY> 2.05
<EPS-DILUTED> 2.05
</TABLE>
