UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(Mark One)
(X) Annual Report Pursuant to Section 13 or 15(d) of The Securities
Exchange Act of 1934 For the Fiscal Year Ended December 31, 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) (IRS 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
Securities registered pursuant to section 12 (b) of the Act:
None
Securities registered pursuant to section 12 (g) of the Act:
Class B Common Shares, par value $1 per share
(Title of Class)
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
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment of this Form 10-K. ( X )
The Class A voting stock of the registrant is not registered pursuant to
the Securities Exchange Act of 1934, is not publicly traded, and,
therefore, no market value information exists for such stock held by non-
affiliates.
The number of shares outstanding of each of the Registrant's classes of
common stock, as of the close of business on March 17, 1997:
Class A - Voting 84,984 Class B - Non-voting 1,238,715
<PAGE>
ALLEN ORGAN COMPANY
INDEX
PART I
1. Business
- General developments of business
- Industry Segments
- Description of business
- Financial information about foreign operations
and export sales
2. Properties
3. Legal Proceedings
4. Submission of Matters to a Vote of Security Holders
PART II
5. Market for the Registrants Common Stock and
Related Security Holder Matters
6. Selected Financial Data
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
8. Financial Statements
9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
PART III
10. Directors and Executive Officers of the Registrant
11. Executive Compensation
12. Security Ownership of Certain Beneficial Owners
and Management
13. Certain Relationships and Related Transactions
PART IV
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
Signatures
<PAGE>
PART I
Item 1. Business
General developments of business.
Incorporated in Pennsylvania in 1945, Allen Organ Company
and Subsidiaries ("Company") operate in three industry
segments: musical instruments, data communications and
electronic assemblies.
Industry segments.
The Company operates in three industry segments: musical
instruments, data communications and electronic assemblies.
For financial information concerning the segments, see Note 16
to the financial statements.
Description of business.
Musical Instruments.
Allen Organ Company and its wholly owned subsidiary Rocky
Mount Instruments is a leading manufacturer of electronic
keyboard musical instruments, primarily digital electronic
church organs and accessories. This segment accounted for 69%,
81% and 87% of revenue in 1996, 1995 and 1994 respectively.
The principal market for the musical instruments segment
are institutions, primarily churches. Sales to the home market
make up a smaller portion of the segment's sales. The segment's
musical instruments are distributed mostly through dealers,
primarily independent retail music stores throughout the United
States, with a lesser percentage distributed internationally.
The segment's business is not seasonal.
The principal raw materials used in the segment's products
are electronic components and wood, both of which are readily
available from various sources without undue difficulty.
The Company's working capital is sufficient to meet the
normal expansion of inventory and receivables. No excessive
inventories are required to meet rapid delivery. The segment
does not engage in any significant amounts of consignments,
extended payment terms, or lease guarantees of its customers as
are utilized by the industry. The Company has entered into
product repurchase agreements concerning certain customers'
financing arrangements. See Note 9 to the financial
statements. The dollar amounts and number of times the Company
has had to honor these repurchase agreements are negligible.
The musical instruments segment is not dependent on any
single, or small group of customers, the loss of which would
have a material adverse effect on the business. The dollar
amount of the segment's unshipped order backlog at the end of
February 1997 and 1996 was $2.9 million and $3.2 million
respectively. All orders are expected to be filled in the
current year.
The electronic organ industry is competitive involving at
least five (5) domestic and foreign companies. In addition,
there are many small pipe organ companies in the institutional
organ market. The organ market consists of two basic
divisions, institutional (primarily churches) and home or
entertainment. The Company believes it has a major position in
the institutional market because of product performance at
competitive prices, and a smaller percentage of the home or
entertainment market.
Data Communications.
The data communications segment began during 1995 with the
acquisition discussed in Note 2 to the financial statements.
This segment accounted for 21% of 1996 revenues and for the 5
month period from acquisition through December 31, 1995
accounted for 9% of 1995 revenues.
Data communications products are sold primarily to
wholesale and retail distributors worldwide.
The principal raw material used in the data communications
products are electronic components, which are readily available
from various sources without undue difficulty.
The data communications segment derived 14% of its 1996
revenue from one customer.
The segment operates through three majority owned
subsidiaries:
VIR, Inc. (VIR) Designs, manufactures, and markets a
number of data communication products including patch and
testing equipment, often referred to as tech control products.
The products are of varying complexity and are used to
connect, test and trouble shoot data lines in large computer
installations.
The company competes in a relatively mature field producing
high quality products at competitive prices. The company has
approximately four major competitors all of which are larger
than VIR. The company has not been aggressive in its
marketing efforts in the past and since the acquisition,
management has been implementing a more aggressive sales and
marketing program.
The dollar amount of unshipped order backlog at the end of
February, 1997 and 1996 was $234,000 and $324,000
respectively. All orders are expected to be filled in the
current year.
Eastern Research, Inc. (ERI) Designs and markets data
inter-networking products. These products include direct
access equipment that allow users to utilize a broad range of
services offered by the telephone companies.
The company has recently introduced a network switching
platform. This systems type product combines circuit and
packet switching with state of the art band width. The
products modular architecture accommodates expansion and
migration to higher speed technologies. The company is also
proceeding with a number of related new product development
efforts.
The company competes in a market which is in excess of $20
billion. However, the company's current and projected product
lines and sales programs are targeted at only a fraction of
that market. There are many competitors in this market,
dominated by several large data communications companies, such
as Cisco Systems, Inc., AT&T Paradyne and ADC Kentrox. The
company's strategy has been to target existing, yet still
growing, markets with products that provide new features and
packaging with attractive pricing. The company also
manufactures direct access products which are relatively
inexpensive and easy to manufacture, thus this is a
competitive field where margins can erode as new products
emerge.
The dollar amount of unshipped order backlog at the end of
February, 1997 and 1996 was $376,000 and $69,000 respectively.
All orders are expected to be filled in the current year.
Linear Switch Corporation (LSC) Company has developed a
matrix switch which can transport high-speed digital signals
and allow "any-to-any" connectivity between and among
connections.
During 1996 the company finalized a contract with an
international telecommunications company. Although shipments
will begin in 1997, it is not possible to determine the amount
of business that will result from this contract.
The company competes with approximately five other
companies in the matrix switch market, dominated by General
Signal Networks. The Company's product targets applications
which require a relatively small matrix switch whose cost per
port is low. Potential customers include government agencies
and large companies.
Electronic Assemblies.
Allen Integrated Assemblies (AIA), a division of the Allen
Organ Company, provides subcontract manufacture of electronic
assemblies for outside customers. The electronic assemblies
segment is an outgrowth of the technical skills and
manufacturing capabilities developed by the Company in its own
musical instruments business. This segment accounted for 10%,
10% and 13% of revenue in 1996, 1995, and 1994 respectively.
AIA receives a majority of its business from one customer.
The electronic assemblies segment is very competitive with
numerous manufacturers capable of producing these products.
Customers are generally obtained from a geographic area close
to the manufacturer.
The dollar amount of the segment's unshipped order backlog
at the end of February 1997 and 1996 was $764,000 and $551,000
respectively. All orders are expected to be filled in the
current year.
General.
The Company spent $2,786,390, $1,307,691, and $625,190
annually in 1996, 1995, and 1994 respectively on research and
development. The majority of the 1996 and 1995 increase in
research and development expense relates to the amounts
expended by the data communications segment acquired in 1995.
The Company and its subsidiaries employ approximately 525
persons.
The Company is not aware of any problem in complying with
applicable federal, state, or local provisions with regard to
the environment. The manufacturing requirements do not require
any special expenditures to meet environmental compliance.
Financial information about foreign operations and export sales.
The Company does not own manufacturing or sales facilities
in any foreign countries. See Note 15 to the financial
statements, for additional information on export sales.
Export sales are all made in US dollars and for the most
part are made under Letter of Credit or on a prepaid basis.
Effective January 3, 1994, the Company established a
Foreign Sales Corporation within the meaning of the Internal
Revenue Code of 1986. This wholly-owned subsidiary is Allen
Organ International, Inc., a Virgin Islands corporation.
Item 2. Properties
The following sets forth the location, approximate square
footage and use of the Company's operating locations segregated
by segment. The Company believes that its facilities are
generally suitable and adequate for its needs.
Approximate
Location Square Footage Use
Musical Instruments and Electronic Assemblies:
Macungie, Pennsylvania 242,000 Administrative, research and
manufacturing facility.
Owned by Allen Organ Company.
Operating at approximately
90% capacity.
Macungie, Pennsylvania 27,000 International sales,
exhibition center, museum
and teaching facility.
Owned by Allen Organ Company.
Rocky Mount, North Carolina 70,000 Manufacturing and sales
facility. Owned by Rocky
Mount Instruments. Operating
at approximately 85%
capacity.
Data Communications:
Southampton, Pennsylvania 22,000 Administrative, research and
manufacturing facility.
Leased until July, 2000.
Operating at approximately
80% capacity.
Moorestown, New Jersey 11,000 Sales and research facility.
Leased until October, 1997.
Item 3. Legal Proceedings
There is no litigation requiring disclosure pursuant to
Item 103 of regulation S-K.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders
during the fourth quarter of fiscal year 1996.
PART II
Item 5. Market for the Registrant's Common Stock and Related Security
Holder Matters
The Company's Class A voting shares are not registered pursuant
to the Securities Exchange Act of 1934 and are not publicly
traded. The Company's Class B non-voting stock trades on the
NASDAQ National Market tier of The NASDAQ Stock Market under
the symbol AORGB.
The high and low bid quotations for each quarter during the
last two years as reported by NASDAQ Market Information System
is as follows:
1995 High Low
First Quarter 42 35 1/2
Second Quarter 44 1/2 41
Third Quarter 48 41
Fourth Quarter 45 3/4 40 3/4
1996 High Low
First Quarter 43 1/2 35 1/2
Second Quarter 40 1/2 35 3/4
Third Quarter 40 1/8 37 3/4
Fourth Quarter 39 15/16 38 1/2
The Company has 10 Class A Shareholders and 441 Class B
Shareholders of record as of March 17, 1997.
During the past two fiscal years, the Company has declared
dividends on both it's class A and B shares as follows:
Record of Quarterly Dividends Paid in 1995
Record Date Payable Amount
Cash 2/17/95 3/3/95 $.13
Cash 5/19/95 6/2/95 $.13
Cash 8/18/95 9/1/95 $.13
Cash11/17/95 12/1/95 $.16
Record of Quarterly Dividends Paid in 1996
Record Date Payable Amount
Cash 2/16/96 3/1/96 $.13
Cash 5/17/96 5/31/96 $.13
Cash 8/16/96 8/30/96 $.13
Cash11/15/96 11/29/96 $.16
Item 6. Selected Financial Data
Years Ended December 31,
1996 1995 1994 1993 1992
Net Sales $36,715,128 $30,024,761 $28,842,789 $26,477,983 $26,238,092
Net Income $ 3,865,876 $ 4,015,105 $ 4,449,703 $ 3,456,154 $ 3,397,045
Earnings per share$ 2.88 $ 2.94 $ 3.25 $ 2.48 $ 2.41
Cash dividends
per share $ .55 $ .55 $ .55 $ .50 $ .50
At Year End
Total Assets $63,966,646 $65,299,426 $58,464,695 $55,752,570 $53,581,050
Long-Term Debt,
net of current
portion $ 0 $ 1,388,000 $ 0 $ 0 $ 0
The 1996 and 1995 results of operations include the data communications
segment acquired August 1, 1995. See Note 2 of the financial statements
for additional information.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources:
The Company continues to maintain a strong financial position
and high level of liquidity which enables it to generate funds
internally to meet operating needs, capital expenditures and short-
term obligations. Key indicators of the Company's liquidity are
presented below:
December 31,
1996 1995
Working Capital $47,511,096 $46,681,555
Current Ratio 29 to 1 16 to 1
Debt to Equity Ratio .04 to 1 .09 to 1
The Company's ratio of debt to equity has remained very low
because of management's continuing policy of financing expansion
with internally generated funds. This policy has enabled the
Company to maintain its competitive advantage without incurring the
costs associated with borrowed funds.
Cash flows provided by operating activities increased during
1996 when compared to 1995. Increases in working capital
requirements in the data communication segment, particularly
inventory and accounts receivable, continue to reduce operating
cash flows. During 1995 cash flows provided by operating
activities declined from 1994 primarily due to increases in
inventory levels in the musical instruments and electronic
assemblies segments, and from an approximately $1 million
contribution to the company pension plans, which was allowed by
changes in the tax code, related to a previous plan amendment.
During 1996, cash flows from investing activities were used
primarily to fund the purchase of treasury shares. During 1995,
cash flows from investing activities were used to fund the
acquisition of the data communications segment and repurchase of
treasury shares. During both periods the company increased its
expenditures for property and equipment primarily related to the
enhancement of its electronics manufacturing capabilities. The
Company presently has no major commitments for capital expenditures
which would require significant capital resources.
Results of Operations:
Sales and Operating Income
Consolidated net sales increased $6,690,367 (22%) and
$1,181,972 (4.1%) during 1996 and 1995 primarily due to sales from
the data communications segment which was acquired in August, 1995.
December 31,
1996 1995 1994
Net Sales
Musical Instruments
Domestic $19,824,334 $18,913,194 $19,772,391
Export 5,594,286 5,408,720 5,398,667
25,418,620 24,321,914 25,171,058
Data communications
Domestic 6,229,961 1,634,036 --
Export 1,417,636 1,027,826 --
7,647,597 2,661,862 --
Electronic Assemblies
Domestic 3,648,911 3,040,985 3,671,731
$36,715,128 $30,024,761 $28,842,789
Income from Operations
Musical instruments $ 3,634,901 $ 3,332,103 $ 4,356,912
Data communications (349,785) 122,417 --
Electronic assemblies 520,602 457,167 892,493
$ 3,805,718 $ 3,911,687 $ 5,249,405
Musical Instruments Segment
The 1996 increase in domestic sales reflects slight increases
in selling prices and product mix changes. Sales in 1996 included
more larger models and custom organs. These types of variations, to
a large extent, are unpredictable from one year to the next.
The 1995 decrease in domestic sales was primarily due to
variations in product mix, offset some what by slight increases in
selling prices. Sales in 1995 included less large organ models
than 1994 or 1996.
Export sales increased in 1996 and 1995 due to the continuing
relative weakness of the US dollar in relation to foreign
currencies. Economic changes in foreign countries and foreign
exchange rates may affect future export sales.
Gross profit margins on sales were 30.4%, 30.9% and 32.3% for
the three years ended December 31, 1996. The decrease in the 1996
gross profit margin reflects slight increases in the direct
material and labor costs used in the company's products. The 1995
decrease in gross profit margin reflects variations in product mix
and slight increases in some overhead costs.
Selling, administrative and other expenses were approximately
equal to 1995 when they declined slightly from 1994.
Data Communications
Domestic sales for 1996 were higher than the same period in
1995, primarily from increased sales of ERI's products.
International sales for 1996 decreased when compared to 1995
primarily due to a large order in 1995 which was not repeated in
1996.
Domestic and export sales for the 5 months ended December 31,
1995 were approximately equal when compared to the same period in
1994.
Each of the companies increased their sales and marketing
efforts throughout 1996 and expect to do so throughout 1997, which
management believes should positively affect future sales.
Gross profit margins were 52% in 1996 compared to 55% in 1995.
This decrease reflects changes in product mix and decreases in
selling prices of ERI's products caused by competitive pressures in
the market place. While the companies strive to maintain profit
margins by trying to develop products which offer more features at
competitive prices, the industry is competitive which often results
in pricing changes to obtain and maintain market share.
Selling expenses for 1996 increased when compared to 1995
reflecting the increased sales and marketing effort deployed
throughout 1996. Administrative and other expenses for 1996 were
comparable to 1995. Selling, administrative and other expenses for
1995 were comparable to the same period in 1994. Selling expenses
will increase in the future as sales and marketing programs and
personnel are added to further promote the segment's products and
obtain additional market share.
Research and development expenses were $1,972,167 and $637,468
for the year ended December 31, 1996 and the five months ended
December 31, 1995 respectively. These expenditures, which the
company plans to continue at a similar pace in the future,
represent the segment's commitment to new product development and
support.
Electronic Assemblies
Sales increased for 1996 when compared to 1995 from higher
order volume from existing customers and orders received from
several new customers.
Sales and operating income declined in 1995 from 1994,
primarily due to a special project for one customer in 1994 which
was not repeated in 1995.
The segment continues its marketing efforts and has begun to
diversify its customer base. The company continues to improve its
production capabilities to offer state of the art manufacturing
services to its customers.
Other Income (Expense)
The variations in interest income in 1996, 1995, and 1994 are
primarily attributable to the yields available on short-term
investments and the amounts of principal invested. The 1996 and
1995 amounts include $287,982 and $295,560 of realized capital
gains respectively.
During 1994 the Company settled a lawsuit for wrongful
prosecution brought against the attorneys for one of the Company's
competitors. This resulted from a lawsuit the Company settled with
its competitor in 1992. Other income for 1994 includes $385,000,
less legal expenses, related to the settlement.
Interest expense represents interest on the notes payable
issued in connection with the acquisition discussed in Note 2 to
the financial statements.
Income Taxes
The effective tax rate increased in 1996 due to a lower amount
of tax-free non-operating investment income. The effective tax
rate decreased in 1995 primarily due to lower state tax rates, the
formation of Allen Organ International, a Foreign Sales
Corporation, and higher tax-free non-operating investment income.
Item 8. Financial Statements
See Item 14 for index.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None
<PAGE>
CONCANNON, GALLAGHER, MILLER & COMPANY, P.C.
CERTIFIED PUBLIC ACCOUNTANTS
Michael J. Gallagher, CPA
Michael R. Miller, CPA
William C. Mason, CPA
Dale E. Grate, CPA
E. Barry Hetzel, CPA
Edward J. Quigley, Jr., CPA
John G. Estock, CPA
Howard D. Gneiding, CPA
Robert A. Oster, CPA
Robert E. Vitale, CPA
John F. Sharkey, Jr., CPA
Victor J. Meyer, CPA
David C. Gehringer, CPA
Gerard D. Stanus, CPA
Robert M. Caster, CPA
INDEPENDENT AUDITORS' REPORT
The Board of Directors
and Shareholders
Allen Organ Company
We have audited the accompanying consolidated balance sheets of Allen
Organ Company and Subsidiaries as of December 31, 1996 and 1995 and the
related consolidated statements of income and retained earnings, and cash
flows for each of the three years in the period ended December 31, 1996.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated financial
position of Allen Organ Company and Subsidiaries at December 31, 1996 and
1995 and the consolidated results of their operations and their cash flows
for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.
CONCANNON, GALLAGHER, MILLER AND COMPANY, P.C.
Allentown, PA
January 30, 1997
Member of AICPA Division for CPA Firms SEC and Private Companies Practice
Sections
<PAGE>
ALLEN ORGAN COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
ASSETS 1996 1995
CURRENT ASSETS
Cash $ 781,202 $ 196,100
Investments, including accrued interest 29,016,935 30,766,266
Accounts receivable 4,817,939 4,431,499
Inventories 14,072,147 13,428,585
Prepaid income taxes 397,404 856,630
Prepaid expenses 142,769 103,420
Total Current Assets 49,228,396 49,782,500
PROPERTY, PLANT AND EQUIPMENT, AT COST,
LESS ACCUMULATED DEPRECIATION 7,847,515 7,778,498
OTHER ASSETS
Prepaid pension costs 889,206 1,021,517
Inventory held for future service 1,237,986 1,219,872
Goodwill, net 3,278,114 4,227,600
Cash value of life insurance 858,217 629,481
Note receivable 163,148 122,586
Intangible and other assets, net 464,064 517,372
Total Other Assets 6,890,735 7,738,428
Total Assets $63,966,646 $65,299,426
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long term debt $ -- $ 347,000
Accounts payable 396,173 535,276
Deferred income taxes 60,033 64,322
Other accrued expenses 499,355 1,691,328
Customer deposits 761,739 463,019
Total Current Liabilities 1,717,300 3,100,945
NONCURRENT LIABILITIES
Deferred liabilities 782,189 841,687
Long term debt, net of current portion -- 1,388,000
Total Noncurrent Liabilities 782,189 2,229,687
Total Liabilities 2,499,489 5,330,632
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common stock, par value $1 per share
Authorized
Class A shares - 400,000 in 1996 and 1995
Class B shares - 3,600,000 in 1996 and 1995
Issued
Class A shares (voting) -
128,104 in 1996 and 1995 128,104 128,104
Class B shares (nonvoting) -
1,409,889 in 1996 and 1995 1,409,889 1,409,889
Total Common Stock 1,537,993 1,537,993
Capital in excess of par value 12,758,610 12,758,610
Retained earnings 52,915,056 49,786,163
Unrealized gain on investments 89,380 94,136
Minority interest 157,826 313,941
Sub-total 67,458,865 64,490,843
Less cost of common shares in treasury
1996 - 43,120 Class A shares and
170,636 Class B shares 5,991,708 --
1995 - 43,120 Class A shares and
131,835 Class B shares -- 4,522,049
Total Shareholders' Equity 61,467,157 59,968,794
Total Liabilities and
Shareholders' Equity $63,966,646 $65,299,426
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE>
ALLEN ORGAN COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
Years Ended December 31,
1996 1995 1994
NET SALES $36,715,128 $30,024,761 $28,842,789
COSTS AND EXPENSES
Cost of sales 23,789,872 20,109,427 18,910,136
Selling, administrative and
other expenses 6,333,148 4,695,956 4,058,058
Research and development 2,786,390 1,307,691 625,190
Total Cost and Expenses 32,909,410 26,113,074 23,593,384
INCOME FROM OPERATIONS 3,805,718 3,911,687 5,249,405
OTHER INCOME (EXPENSE)
Investment income 2,025,024 2,115,551 1,436,182
Other, net 24,621 26,810 265,116
Interest expense (10,309) (42,856) --
Minority interests in
consolidated subsidiaries 55,822 23,913 --
Total Other Income (Expense) 2,095,158 2,123,418 1,701,298
INCOME BEFORE TAXES ON INCOME 5,900,876 6,035,105 6,950,703
TAXES ON INCOME
Current 2,087,000 1,559,000 2,525,000
Deferred (52,000) 461,000 (24,000)
Total Taxes on Income 2,035,000 2,020,000 2,501,000
NET INCOME 3,865,876 4,015,105 4,449,703
RETAINED EARNINGS
Balance, January 1 49,786,163 46,524,142 42,828,013
Deduct cash dividends
(1996-$.55, 1995-$.55, 1994-$.55) (736,983) (753,084) (753,574)
Balance, December 31 $52,915,056 $49,786,163 $46,524,142
EARNINGS PER SHARE $ 2.88 $ 2.94 $ 3.25
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE>
ALLEN ORGAN COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31,
1996 1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 3,865,876 $ 4,015,105 $ 4,449,703
Adjustments to reconcile net income
to net cash provided by operating
activities
Minority interest in consolidated
subsidiaries (55,822) (23,913) --
Depreciation and amortization 815,277 636,777 562,241
Amortization of bond premiums 4,349 58,918 218,519
Loss (Gain) on sale of property,
plant and equipment 5,692 (437) 43,829
Loss (Gain) on sale of investments (287,982) (295,560) 1,853
Change in assets and liabilities
Accounts receivable (386,440) 120,141 (2,187)
Inventories (1,292,561) (2,014,580) (969,076)
Prepaid income taxes 459,226 (580,050) (175,517)
Prepaid expenses (39,349) (4,517) 58,165
Deferred income tax benefits -- 110,536 64,729
Prepaid pension costs 132,311 (1,109,038) --
Accounts payable (139,103) (267,387) (19,771)
Accrued taxes on income -- -- (60,983)
Other accrued expenses (1,518,438) (325,032) 198,291
Customer deposits 298,720 16,362 (448,735)
Deferred income taxes and liabilities (59,500) 474,702 (155,211)
Other noncurrent liabilities -- -- (28,782)
Net Cash Provided by Operating
Activities 1,802,256 812,027 3,737,068
CASH FLOWS FROM INVESTING ACTIVITIES
Cash proceeds from maturity of investments
classified as held to maturity -- 54,960,373 40,285,010
Cash paid for purchase of investments
classified as held to maturity -- (21,631,598) (40,883,194)
Cash proceeds from sale of investments
classified as available for sale 38,938,452 3,520,772 --
Cash paid for purchase of investments
classified as available for sale (36,914,531) (30,402,728) (1,532,275)
Increase in cash value of life insurance (228,736) (221,343) (207,633)
Increase in note receivable (40,562) (40,731) (81,855)
Payment for acquisition, net of cash
acquired -- (3,639,338) --
Increase in intangible and other assets -- (533,084) --
Purchase of minority shareholders'
interest in subsidiary (20,000) -- --
Cash proceeds from sale of property,
plant and equipment 10,000 500 100
Cash paid for purchase of property,
plant and equipment (761,483) (940,689) (440,151)
Net Cash Provided by (Used in)
Investing Activities 983,140 1,072,134 (2,859,998)
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid in cash (736,983) (753,084) (753,574)
Reacquired Class B common shares (1,469,659) (1,060,749) (474,862)
Subsidiary company stock reacquired
from minority shareholders (3,572) -- --
Subsidiary company stock issued to
minority shareholders 9,920 20,705 --
Net Cash Used in Financing Activities (2,200,294) (1,793,128) (1,228,436)
NET INCREASE (DECREASE) IN CASH 585,102 91,033 (351,366)
CASH, JANUARY 1 196,100 105,067 456,433
CASH, DECEMBER 31 $ 781,202 $ 196,100 $ 105,067
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION
Cash paid for income taxes $ 1,793,338 $ 2,142,682 $ 2,767,260
Cash paid for interest $ 53,322 $ -- $ --
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES
Liability incurred to purchase
inventory in connection with
acquisition $ -- $ 1,243,601 $ --
Long term debt incurred in connection
with asset acquisition $ -- $ 1,735,000 $ --
Purchase price adjustment of
August 1, 1995 acquisition
Decrease of accrued liability 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) -- --
$ -- $ -- $ --
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE>
ALLEN ORGAN COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 Significant Accounting Policies
Allen Organ Company and Subsidiaries' operations are
classified into three industry segments: musical
instruments, data communications and electronic assemblies.
See note 16 for additional information on the operating
activities of each segment.
The consolidated financial statements include the
accounts of the Allen Organ Company and the following
subsidiaries. All material intercompany transactions have
been eliminated.
Subsidiary Name Ownership %
Rocky Mount Instruments, Inc. 100.00%
Allen Organ International, Inc. 100.00%
VIR, Inc. 97.60%
Eastern Research, Inc. 92.68%
Linear Switch Corporation 90.93%
Certain amounts in the 1995 and 1994 financial
statements have been reclassified to conform to the 1996
presentation.
Financial instruments that potentially subject the
Company to credit risk consist principally of short-term
investments and trade receivables. The Company places
substantially all of its investments in mutual funds holding
federal, state and local government obligations and, by
policy, limits the amount of credit exposure in any one
investment. The Company sells its products through
established dealer networks. The credit risk associated
with related receivables is limited due to the large number
of dealers and their geographic dispersion.
The preparation of financial statements in conformity
with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues
and expenses during the reported period. Actual results
could differ from those estimates.
Inventories are valued at the lower of cost or market.
Cost is determined using the first-in, first- out (FIFO)
method for substantially all inventories.
Property, plant and equipment are stated at cost. D
epreciation is computed over estimated useful asset lives
using both straight-line and accelerated methods for
financial reporting and accelerated methods for tax
reporting.
Goodwill represents the excess of cost over the net
assets acquired. Goodwill is amortized on a straight-line
basis over forty years and is presented net of accumulated
amortization of $129,696 and $44,501 at December 31, 1996
and 1995 respectively. The carrying value of goodwill for
each business is continually reviewed to assess its
recoverability from future operations of the acquired
subsidiaries, based on future cash flows (undiscounted)
expected to be generated by such operations. Any impairment
in value indicated by the assessment would be charged
against current operations.
Intangible assets consist of organization costs which
are stated at cost and amortized using the straight-line
method over ten years.
Income taxes are provided for the tax effects of
transactions reported in the financial statements and
consist of taxes currently due plus deferred taxes.
Deferred taxes are recognized for differences between the
basis of assets and liabilities for financial statement and
income tax purposes.
The Company accounts for its short-term investments in
accordance with Statement of Financial Accounting Standards
No. 115, "Accounting for Certain Investments in Debt and
Equity Securities". Management determines the appropriate
classification of its investments in debt and equity
securities at the time of purchase and reevaluates such
determination at each balance sheet date.
Research and development expenditures are charged to
expense as incurred.
NOTE 2 Business Acquisitions
On August 1, 1995, the Company acquired the assets of
VIR, Inc. (VIR), 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 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.
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
total contingent payment for 1996 amounted to $29,142. 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.
In connection with the acquisition, the Company
established three new subsidiary companies to acquire the
assets of sellers. As additional consideration, the new
subsidiaries issued shares of their stock to minority
employee shareholders equivalent to their interest in the
selling companies. Additional shares of ERI will be issued
over the next year to employees, approximating a 1% 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 financial statements
from the date of acquisition through December 31, 1996.
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.
NOTE 3 Investments
The cost and fair value of investments in debt and equity
securities are as follows:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
December 31, 1996
Available for sale
Equity securities $ 288,981 $ -- $ 21,298 $ 267,683
Mutual Funds
Short Term Gov't Funds 11,925,188 40,000 -- 11,965,188
Municipal Bond Funds 5,957,538 -- 12,847 5,944,691
Corporate Bond Funds 1,609,509 37,795 -- 1,647,304
Equity Funds 2,968,685 101,386 -- 3,070,071
U.S. Treasury Bills 5,889,064 -- -- 5,889,064
Federal Agency Bonds 228,560 4,374 -- 232,934
Totals $ 28,867,525 $ 183,555 $ 34,145 $ 29,016,935
December 31, 1995
Available for sale
Equity securities $ 376,030 $ 66,104 $ -- $ 442,134
Mutual Funds 4,264,521 92,352 -- 4,356,873
U.S. Treasury Bills 20,456,336 -- -- 20,456,336
Federal Agency and
Municipal Bonds 5,510,923 -- -- 5,510,923
Totals $ 30,607,810 $ 158,456 $ -- $ 30,766,266
Marketable debt securities have an average contractual
maturity of approximately 1 year or less.
Proceeds from the sale of assets classified as available
for sale were $38,938,452 during 1996, resulting in a gain
of $287,982 based on original cost of these investments
determined using a first-in, first-out method.
The change in net unrealized holding gains (losses) on
securities available for sale in the amount of $(9,046),
$324,273, and $(145,769) net of deferred tax expense
(benefits) of $(4,290), $131,738, and $(58,982) has been
charged to shareholders' equity for the years ended December
31, 1996, 1995, and 1994, respectively.
NOTE 4 Inventories
December 31,
1996 1995
Finished goods $ 1,709,962 $ 981,471
Work in process 5,912,456 5,658,610
Raw materials 6,449,729 6,788,504
Total Inventory $14,072,147 $13,428,585
The Company maintains an inventory of various parts to be
used to service musical instruments as future needs arise. This
inventory, $1,237,986 and $1,219,872 at December 31, 1996 and
1995, respectively, is reported as a noncurrent asset.
NOTE 5 Property, Plant and Equipment
December 31,
1996 1995
Land and improvements $ 2,407,579 $ 2,407,579
Buildings and improvements 7,585,667 7,445,965
Machinery and equipment 6,379,116 5,977,260
Office furniture and equipment 1,191,378 1,018,947
Vehicles 177,391 207,622
Sub-Total 17,741,131 17,057,373
Less accumulated depreciation 9,893,616 9,278,875
Property, plant and equipment
net of accumulated depreciation $ 7,847,515 $ 7,778,498
NOTE 6 Note Receivable
The Company has entered into a Split-Dollar Life
Insurance agreement with its President who is the insured
and owner of the policy. The policy owner shall pay the
portion of the premium equal to the value of the economic
benefit determined in accordance with applicable IRS
Revenue Rulings. The Company shall pay the balance of
the net premiums which shall approximate $40,000
annually.
The agreement provides that the Company shall be
entitled to recover the amount of premiums paid out of
the built up cash value upon termination of the agreement
or out of the proceeds upon the death of the insured. As
security for repayment the Company is a collateral
assignee of the policy to the extent of any such
unreimbursed premium.
NOTE 7 Income Taxes
The provision for income taxes consists of the
following:
1996 1995 1994
Currently Currently Currently
Payable Deferred Payable Deferred Payable Deferred
Federal $1,620,000 $ 59,000 $1,300,000 $ 380,000 $1,958,000 $ (17,000)
State 467,000 (111,000) 259,000 81,000 567,000 (7,000)
Total $2,087,000 $ (52,000) $1,559,000 $ 461,000 $2,525,000 $ (24,000)
A reconciliation of the provision for income taxes
with the statutory rate follows:
1996 1995 1994
Statutory provision for
federal income tax $1,987,000 34.0% $2,044,000 34.0% $2,363,000 34.0%
State taxes, net of
federal tax benefits 235,000 4.0 224,000 3.7 370,000 5.3
Tax credits (60,000) (1.0) (8,000) (0.1) (22,000) (0.3)
Other items, net (127,000) (2.2) (240,000) (4.0) (210,000) (3.0)
Total $2,035,000 34.8 $2,020,000 33.6% $2,501,000 36.0%
The following temporary differences give rise to the net
deferred tax liability at December 31, 1996 and 1995.
1996 1995
Deferred Tax Liabilities
Excess of tax depreciation/amortization
over book depreciation/amortization $ (487,166) $ (412,499)
Excess of pension expense for tax
purposes over book (359,646) (413,356)
Unrealized gain not recognized for
tax purposes (60,033) (64,322)
Total Deferred Tax Liabilities (906,845) (890,177)
Deferred Tax Assets
Deferred compensation not recognized
for tax purposes 25,540 28,585
State net operating loss carry forwards 102,000 26,000
Total Deferred Tax Assets 127,540 54,585
Net Deferred Tax Liability $ (779,305) $ (835,592)
Deferred taxes are presented in the company's financial
statements as follows:
1996 1995
Current deferred tax liability $ (60,033) $ (64,322)
Non-current deferred tax liability (719,272) (771,270)
Net deferred tax liability $ (779,305) $ (835,592)
NOTE 8 Other Accrued Expenses
December 31,
1996 1995
Accrued salaries and commissions $ 302,223 $ 379,566
Accrued interest -- 43,014
Liability for inventory purchased
in connection with acquisition -- 1,036,334
Other 197,132 232,414
Total $ 499,355 $1,691,328
NOTE 9 Commitments and Contingencies
As of December 31, 1996, the Company is contingently
liable for a maximum amount of approximately $1,394,182 in
connection with the financing arrangements of certain
customers.
Under the terms of an agreement with the wife of the late
Chairman and principal shareholder, the Company may be required
to purchase within eight months of her death, at the option of
her personal representative, an amount of Class B Common Shares
then owned by her or includable in her estate for Federal
Estate Tax purposes sufficient to pay estate taxes and costs,
subject to the limitations of Section 303 of the Internal
Revenue Code. At December 31, 1996, the shareholder owned or
would have includable in her estate 261,072 shares of Class B
Common Stock. The Company has purchased life insurance on the
life of the shareholder with a face value of $6,000,000.
Management believes that the insurance proceeds would be
sufficient to substantially fund this possible future
commitment and that any excess would not have a material effect
on the financial condition of the Company.
The Company's data communications segment leases its
offices and production facility under non-cancelable operating
leases which expire at various dates through July, 2000. These
leases include renewal options for periods ranging from two to
fifteen years with increases of lease payments based on changes
in the Consumer Price Index. Rent expense was $169,493 for
1996 and $70,233 for the period from August 1 (inception) to
December 31, 1995. Minimum annual rent payments for the
operating leases are as follows:
1997 $ 165,200
1998 92,400
1999 92,400
2000 53,900
Total $ 403,900
NOTE 10 Retirement Plans
The Company sponsors two noncontributory pension plans
which cover substantially all of its employees. Salaried plan
benefits are generally based on the employee's years of service
and compensation levels. Hourly plan benefits are based on
various monthly amounts for each year of credited service. The
Company's funding policy is to contribute amounts to the plans
sufficient to meet the minimum funding requirements set forth
in the Employee Retirement Income Security Act of 1974, plus
such additional amounts as the Company may determine to be
appropriate from time to time. Plan assets are comprised
principally of cash equivalents, U.S. Government obligations,
fixed income securities, and equity securities.
A summary of the components of net periodic pension
cost for the plans is as follows:
1996 1995 1994
Service cost - benefits
earned during the period $ 282,303 $ 279,432 $ 274,987
Interest cost on projected
benefit obligations 952,301 887,261 839,838
Return on assets
Actual (1,544,571) (1,772,567) 27,301
Deferred gain (loss) 554,953 978,678 (834,046)
Amortization of net loss from
prior periods 9,513 48,463 8,649
Amortization of unrecognized
prior service cost 73,990 73,990 73,990
Amortization of initial
unrecognized net asset (72,008) (72,008) (72,008)
Net Pension Cost $ 256,481 $ 423,249 $ 318,711
The funded status of the Company's pension plans is
as follows:
December 31,
1996 1995
Actuarial present value of
benefit obligations:
Vested benefits $(11,768,830) $(11,358,778)
Nonvested benefits (60,134) (52,759)
Accumulated benefit obligation (11,828,964) (11,411,537)
Effect of assumed increase in
compensation levels for
salaried plan (1,423,492) (1,039,398)
Projected benefit obligations for
service rendered to date (13,252,456) (12,450,935)
Plan assets at fair value 13,641,779 12,788,615
Plan assets in excess of
projected benefit obligation 389,323 337,680
Unrecognized prior service cost 295,293 369,283
Unrecognized net asset at transition (360,044) (432,052)
Unrecognized net loss 564,634 746,606
Prepaid Pension Cost $ 889,206 $ 1,021,517
The projected benefit obligation for the plans was
determined using an assumed discount rate of 7.5%. An
assumed long-term compensation increase rate of 7% was
used for the salaried plan. The assumed long-term rate
of return on plan assets was 8%.
The Company provides 401(k) deferred compensation and
profit sharing plans for the benefit of eligible
employees. The plans allow eligible employees to defer a
portion of their annual compensation, pursuant to Section
401(k) of the Internal Revenue Code. Company profit-
sharing contributions to the plans are discretionary as
determined by the Company's board of directors. The
Company contributions were $139,732, $157,483 and
$136,501 to the plans in 1996, 1995 and 1994
respectively.
NOTE 11 Deferred Liabilities
December 31,
1996 1995
Deferred compensation expense $ 62,917 $ 70,417
Deferred income taxes 719,272 771,270
Total deferred liabilities $ 782,189 $ 841,687
NOTE 12 Long-Term Debt
December 31,
1996 1995
Notes payable, obligation satisfied in
connection with settlement agreement
discussed in Note 2 $ -- $ 1,735,000
Current portion -- (347,000)
Long-term debt $ -- $ 1,388,000
NOTE 13 Common Stock, Capital in Excess of Par Value and Treasury Stock
Common Stock Capital In
Class A Class B Excess of Treasury Stock
Shares Amount Shares Amount Par Value Shares Amount
Balance
December
31,1993 128,104 $128,104 1,409,889 $1,409,889 $12,610,377 159,010 $3,838,205
Reacquired
Class B
Shares 14,446 474,862
Balance
December
31, 1994 128,104 128,104 1,409,889 1,409,889 12,610,377 173,456 4,313,067
Reacquired
Class B
Shares 25,889 1,060,749
Reissued
Class B
Shares 148,233 (24,390) (851,767)
Balance
December
31, 1995 128,104 128,104 1,409,889 1,409,889 12,758,610 174,955 4,522,049
Reacquired
Class B
Shares 38,801 1,469,659
Balance
December
31, 1996 128,104 $128,104 1,409,889 $1,409,889 $12,758,610 213,756 $5,991,708
NOTE 14 Earnings Per Share
Earnings per share were computed using 1,340,047
shares in 1996, 1,366,076 shares in 1995, and 1,370,486
shares in 1994, the weighted average number of shares
outstanding during each year.
NOTE 15 Export Sales
In 1996, 1995 and 1994, net sales by the musical
instruments segment include export sales, principally to
Canada, Europe and the Far East of $5,594,286,
$5,408,720, and $5,398,667, respectively. Net sales by
the data communications segment include export sales
principally to Europe and the Far East of $1,417,636 for
1996 and $1,027,826 for the five months ended December
31, 1995.
NOTE 16 Industry Segment Information
The Company's operations are classified into three
industry segments: musical instruments, data
communications and electronic assemblies. The musical
instruments segment is comprised of operations
principally involved in the design, manufacture, sale and
distribution of electronic keyboard musical instruments,
primarily digital computer organs and related
accessories. Musical instruments are sold primarily to
retail distributors worldwide.
The data communications segment began during 1995
with the acquisition discussed in Note 2. The segment is
involved in the design, manufacture, sale and
distribution of data communications equipment. Data
communications products are sold primarily to wholesale
and retail distributors worldwide.
The electronic assemblies segment is involved in the
manufacture, sale and distribution of electronic
assemblies for outside customers used primarily as
control devices and other circuitry in their products.
Subcontract assembly services are provided primarily to
industrial concerns in Pennsylvania and New Jersey.
Following is a summary of segmented information for
1996, 1995 and 1994.
December 31,
1996 1995 1994
Net Sales to Unaffiliated Customers
Musical instruments $ 25,418,620 $ 24,321,914 $ 25,171,058
Data communications 7,647,597 2,661,862 --
Electronic assemblies 3,648,911 3,040,985 3,671,731
Total $ 36,715,128 $ 30,024,761 $ 28,842,789
Income from Operations
Musical instruments $ 3,634,901 $ 3,332,103 $ 4,356,912
Data communications (349,785) 122,417 --
Electronic assemblies 520,602 457,167 892,493
Total $ 3,805,718 $ 3,911,687 $ 5,249,405
Identifiable Assets
Musical instruments $ 20,790,307 $ 20,505,183 $ 18,827,345
Data communications 8,937,839 9,181,209 --
Electronic assemblies 2,600,627 2,108,721 1,329,090
Sub-total 32,328,773 31,795,113 20,156,435
General corporate assets 31,637,873 33,504,313 38,308,260
Total $ 63,966,646 $ 65,299,426 $ 58,464,695
Capital Expenditures
Musical instruments $ 530,624 $ 903,737 $ 440,151
Data communications 230,859 36,952 --
Total $ 761,483 $ 940,689 $ 440,151
Depreciation and Amortization
Musical instruments $ 580,090 $ 557,052 $ 562,241
Data communications 235,187 79,725 --
Total $ 815,277 $ 636,777 $ 562,241
Identifiable assets by segment are those assets that
are used in the Company's operations within that segment.
General corporate assets consist principally of cash and
short-term investments.
NOTE 17 Legal Settlement
During 1994 the Company settled a lawsuit for
wrongful prosecution brought against the attorneys for
one of the Company's competitors. This resulted from a
lawsuit the Company settled with its competitor in 1992.
Other income for 1994 includes $385,000 less legal
expenses related to this settlement.
NOTE 18 Investment Income
December 31,
1996 1995 1994
Interest Income $ 1,382,301 $ 1,712,340 $ 1,355,304
Dividend Income 354,741 107,651 82,731
Gain (Loss) on Sale of Investments 287,982 295,560 (1,853)
Total $ 2,025,024 $ 2,115,551 $ 1,436,182
NOTE 19 Pro Forma Financial Information
The following pro forma financial information has
been prepared giving effect to the acquisition of VIR,
ERI and LSC (including settlement agreement dated May 10,
1996) as if the transaction had taken place at the
beginning of the respective year. 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.
Years Ended December 31,
1995
Net Sales $34,760,371
Net Income 4,309,302
Net Income Per Share $3.15
NOTE 20 Stock Option Plan
During December, 1996, Eastern Research, Inc. (ERI)
adopted a non-qualified stock option plan to assist the
Company in attracting and retaining personnel. The
maximum number of shares that may be issued under the
plan approximates a 10% interest in ERI. Stock options
will be awarded beginning in 1997, will vest over a four
year period and have a term of six years.
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant.
(a) Identification of Directors
Time Period
Date Term Position
Name Expires Age Position Held
Steven Markowitz Next Annual 43 Director Since 1980
Meeting in 1997
Eugene Moroz Next Annual 73 Director Since 1968
Meeting in 1997
Leonard W. Helfrich Next Annual 67 Director 1964 - 1968 and
Meeting in 1997 1972 to present
Orville G. Hawk Next Annual 79 Director Since 1989
Meeting in 1997
Albert F. Schuster Next Annual 77 Director Since 1989
Meeting in 1997
Martha Markowitz Next Annual 75 Director Since 1991
Meeting in 1997
Jeffrey L. Schucker Next Annual 42 Director Since July 1996
Meeting in 1997
(b) Identification of Executive Officers. All have served
in executive capacities for at least five years.
Time Period
Date Term Position
Name Expires Age Position Held
Steven Markowitz Next Annual 43 President 1990 to
Meeting in 1997 present
Eugene Moroz Next Annual 73 Vice President Since 1965
Meeting in 1997
Leonard W. Helfrich Next Annual 67 Vice President,* 1958 - 1968
Meeting in 1997 Secretary and 1971 to
present
Barry J. Holben Next Annual 44 Vice President October 1995
Meeting in 1997 to present
Dwight A. Beacham Next Annual 50 Vice President October 1995
Meeting in 1997 to present
Nathan S. Eckhart Next Annual 33 Treasurer,** Since 1996
Meeting in 1997 Assistant Secretary
* Leonard W. Helfrich was elected Vice President at the Annual
Meeting on May 24, 1996. He previously was Treasurer since 1990.
** Nathan S. Eckhart was elected Treasurer and Assistant Secretary at
the Annual Meeting on May 24, 1996. He previously was Controller
since 1993.
(c) Identification of Certain Significant Employees.
Not required to be answered.
(d) Family Relationships.
Except for Martha Markowitz and Steven Markowitz,
who are mother and son, there is no family relationship
between any officers or directors of the Company.
(e) Business Experience.
(1) Steven Markowitz, Eugene Moroz, Leonard W. Helfrich
and Dwight Beacham, have been employees of
the Company in executive capacities for at least the
last five years. Mr. Holben has been employed by
the Company since 1989, spending two years in
product development and then more recently as
Foreign Sales Manager. Mr. Eckhart has been
employed by the Company since 1993 as Controller and
prior to that time was a manager for a public
accounting firm. Mr. Hawk who has been retired more
than five (5) years was formerly Chairman of the
Board and President of First National Bank of
Allentown. Mr. Schuster is a church director of
music and prior to his retirement more than five (5)
years ago was a supervisor at Bethlehem Steel
Corporation. Mr. Schucker is currently President of
Middle Market Capital Advisors, L.L.C. and formerly
a Vice President of Meridian Capital Markets. Mrs.
Markowitz is the widow of Jerome Markowitz, the
Company's founder, and represents the family
interests.
(f) Involvement in Certain Legal Proceedings by
Directors or Officers.
None.
(g) Compliance with Section 16(a) of the Exchange Act.
No transaction required to be reported.
Item 11. Executive Compensation.
Deleted paragraphs and/or columns are not required to be answered.
(b) SUMMARY COMPENSATION TABLE:
Annual Compensation All Other
Salary Bonus Compensation *
Name and Principal Position Year $ $ $
Steven A. Markowitz, President 1996 96,547 22,865 30,766
(Chief Executive Officer) 1995 93,010 20,125 31,537
1994 90,607 22,105 32,249
Leonard W. Helfrich, 1996 88,113 21,385
Vice President - Finance 1995 84,746 19,005
(Secretary) 1994 82,722 20,875
*Value of Split Dollar Life Insurance. See Note 6 to the accompanying
consolidated financial statements for additional information on this
arrangement.
(f) Defined Benefit or Actuarial Plan Disclosure.
Estimated Annual Benefit obtained from 1996 Actuarial
Valuation Report:
Steven A. Markowitz $54,943. Age 43.
Leonard W. Helfrich $31,502. Age 67.
Amount shown is calculated from prior compensation to date
and estimated compensation to normal retirement age (65).
(g) Compensation of Directors:
Non-employee Directors receive $250 for each Board and
committee meeting attended plus reasonable expenses in
connection with attendance. Employee Directors receive
no additional compensation for their services as a Director.
(h) Employment Contracts and Termination of
Employment and Change in Control Arrangements:
There are no employment contracts between the Company and
any of the Company's Executive Officers. Mr. Markowitz,
Mr. Helfrich, Mr. Beacham, Mr. Holben and Mr. Eckhart
participate in an Executive Incentive Plan whereby a bonus
is distributed to each participant executive in proportion
to the annual salary of the participants. The bonus pool
is 1% of consolidated pre-tax profit for the fiscal year
after elimination of bonus accrual and non-operating
extraordinary gains or losses as determined by the Board
of Directors.
(j) Additional Information with Respect to Compensation Committee
Interlocks and Insider Participation in Compensation Decisions:
(1) Leonard W. Helfrich, Vice President, Secretary, and
Director of the Company, is the sole member of the
Compensation Committee of the Board of Directors whose
function is to set the compensation of the President.
The compensation of all other employees is set by or
at the direction of the President.
Item 12. Security Ownership of Certain Beneficial Owners and Management
(a) Voting securities of the registrant owned of record or
beneficially by each person who owns of record, or is known by
the registrant to own beneficially, more than 5 per cent of
any class of such securities. Class A Common Shares
constitute the only securities with voting rights.
Information as of February 28, 1997.
Amount and
Nature of
Names and Title of Beneficial % of
Addresses Class Ownership Class
Jerome Markowitz A 81,531 95.9%
Trust (2) (1)
821 N. 30th St.
Allentown, PA
(1) Sole voting and investment power
(2) The shares are held by Trustees under an Inter Vivos
Trust established by Mr. Markowitz, who died in February,
1991, for the benefit of his family, principally his widow,
Martha Markowitz. The Trustees are Steven Markowitz,
President and a Director of the Company, and Martha
Markowitz, a Director of the Company.
(b) Each class of equity securities of the registrant or any
of its parents or subsidiaries, other than directors'
qualifying shares, beneficially owned directly or indirectly by
all directors naming them and directors and officers of the
registrant, as a group, without naming them. Information as
of December 31, 1996.
Percent Percent
Nature of of of
Class Class Beneficial Class Class
Directors A B Ownership A B
Steven Markowitz 58 (1) (3) .07 %
13,562 (1) (3) 1.09 %
81,531* (2) (4) 95.94 %
242,016* (2) (4) 19.53 %
Eugene Moroz 799 (1) (3) as
to 799
11,691 (2) (4) as
to 11,691 .94 %
Leonard W. Helfrich 328 (2) (4) .03 %
Orville G. Hawk 50 (2) (4) .004%
Martha Markowitz 19,056 (1) (3) 1.53 %
81,531* (2) (4) 95.94 %
242,016* (2) (4) 19.53 %
Percent Percent
All Directors of of
and Officers Class Class Class Class
as a Group A B A B
7 81,589** 287,502** 96.01 %** 23.20 %
(1) Sole voting power
(2) Shared voting power
(3) Sole investment power
(4) Shared investment power
* Shares owned by the Jerome Markowitz Trust for
which Martha Markowitz and Steven Markowitz, Co-
Trustees, have shared voting and investment power and of
which Martha Markowitz is the primary beneficiary and
Steven Markowitz, one of the residuary beneficiaries.
** The shares held by the Jerome Markowitz Trust are not
duplicated in the totals for the Class A and Class B Shares.
(c) Changes in Control. Not required to be answered.
Item 13. Certain Relationships and Related Transactions
See Note 9 to Financial Statements, concerning an agreement
between the Company and Martha Markowitz, a Director of the
Company.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) (1) Financial Statements
The following consolidated financial statements of Allen
Organ Company and its subsidiaries are included in
Part II, Item 8:
Independent Auditors' Report.
Consolidated Balance Sheets as of December 31, 1996 and 1995.
Consolidated Statements of Income and Retained Earnings for
the years ended December 31, 1996, 1995, and 1994.
Consolidated Statements of cash flows for the years
ended December 31, 1996, 1995, and 1994.
Notes to Consolidated Financial Statements.
The individual financial statements of the Registrant's
subsidiaries have been omitted, as they are all included in
the consolidated financial statements referred to above.
(a) (2) Financial Statement Schedules
Financial schedules are omitted as not applicable.
(a) (3) Exhibits
Exhibit No. Description
2(4) Plan of acquisition
3.1(1) Articles of Incorporation as amended
3.2(2) Bylaws, as amended
10.1(2) Executive Incentive Plan adopted October 24, 1996
10.2(3) Agreement of Amendment between the Company
and Martha Markowitz
21(5) Subsidiaries of the registrant
1. Incorporated by reference to the exhibit
filed with the Registrants Annual Report on Form 10-K
for the year ended December 31, 1984.
2. Incorporated by reference to the exhibit
filed with the Registrants Quarterly Report on Form
10-Q for the period ended September 30, 1996.
3. Incorporated by reference to the exhibit
filed with the Registrants Annual Report on Form 10-K
for the year ended December 31, 1992.
4. Incorporated by reference to the exhibit
filed with the Registrants Current Report on form 8-K
dated August 1, 1995.
5. Incorporated by reference to the exhibit
filed with the Registrants Annual Report on Form 10-K
for the year ended December 31, 1995.
(b) Reports on Form 8-K. None filed during fourth
quarter of 1996.
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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
Date: March 20, 1997 STEVEN A. MARKOWITZ
Steven A. Markowitz
President and Director
Date: March 20, 1997 LEONARD W. HELFRICH
Leonard W. Helfrich
Vice President - Finance, and Director,
Chief Financial Officer
Date: March 20, 1997 MARTHA MARKOWITZ
Martha Markowitz
Director
Date: March 20, 1997 ALBERT F. SCHUSTER
Albert F. Schuster
Director
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
DECEMBER 31, 1996 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 781,202
<SECURITIES> 29,016,935
<RECEIVABLES> 4,817,939
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<INVENTORY> 14,072,147
<CURRENT-ASSETS> 49,228,396
<PP&E> 17,741,131
<DEPRECIATION> 9,893,616
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<COMMON> 1,537,993
0
0
<OTHER-SE> 59,929,164
<TOTAL-LIABILITY-AND-EQUITY> 63,966,646
<SALES> 36,715,128
<TOTAL-REVENUES> 36,715,128
<CGS> 23,789,872
<TOTAL-COSTS> 23,789,872
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<INTEREST-EXPENSE> 10,309
<INCOME-PRETAX> 5,900,876
<INCOME-TAX> 2,035,000
<INCOME-CONTINUING> 3,865,876
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<NET-INCOME> 3,865,876
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