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 March 31, 1998
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 May 8, 1998:
Class A - Voting 84,112 shares
Class B - Non-voting 1,096,136 shares
<PAGE>
ALLEN ORGAN COMPANY
INDEX
Part I Financial Information
Item 1.Financial Statements
Consolidated Condensed Statements of Income for the three months
ended March 31, 1998 and 1997
Consolidated Condensed Balance Sheets at March 31, 1998 and
December 31, 1997
Consolidated Condensed Statements of Cash Flows for the three
months ended March 31, 1998 and 1997
Notes to Consolidated Condensed Financial Statements
Item 2.Management's Discussion and Analysis of Financial Condition and
Results of Operations
Part II Other Information
Item 6.Exhibits and Reports on Form 8-K
Signatures
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1.FINANCIAL STATEMENTS
ALLEN ORGAN COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
For the 3 Months
Ended:
3/31/98 3/31/97
Net Sales $10,227,291 $ 8,878,959
Costs and Expenses
Costs of sales 6,884,622 5,873,259
Selling, general and
administrative 2,735,359 1,753,184
Research and development 785,166 609,620
Total Costs and Expenses 10,405,147 8,236,063
(Loss) Income from Operations (177,856) 642,896
Other Income and (Expense)
Interest and other income 228,530 412,178
Minority interests in
consolidated subsidiaries 54,894 8,650
Total Other Income and
Expense 283,424 420,828
Income Before Taxes on Income 105,568 1,063,724
Provision for Taxes on Income 5,000 371,000
Net Income $ 100,568 $ 692,724
Basic and Diluted Earnings
Per Share $0.09 $0.52
Shares Used in Per Share
Calculation 1,180,718 1,323,883
Dividends Per Share - Cash $0.14 $0.14
Total Comprehensive Income $ 283,610 $ 529,473
See accompanying notes.
<PAGE>
ALLEN ORGAN COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
March 31, Dec 31,
ASSETS 1998 1997
(Unaudited) (Audited)
Current Assets
Cash $ 1,386,653 $ 1,020,348
Investments Including Accrued Interest 19,047,484 20,040,334
Accounts Receivable 5,671,621 5,732,432
Inventories:
Raw Materials 8,897,149 8,532,962
Work in Process 7,420,305 7,343,590
Finished Goods 2,497,314 2,046,835
Total Inventories 18,814,768 17,923,387
Prepaid Income Taxes 270,437 232,895
Prepaid Expenses 648,595 483,300
Total Current Assets 45,839,558 45,432,696
Property, Plant and Equipment 20,349,046 20,084,544
Less Accumulated Depreciation (10,803,642) (10,569,532)
Total Property, Plant and Equipment 9,545,404 9,515,012
Other Assets
Prepaid Pension Costs 735,107 795,107
Inventory Held for Future Service 1,232,059 1,260,346
Note Receivable 203,557 203,557
Cash Value of Life Insurance 1,122,495 1,122,495
Intangible and Other Assets, net 4,128,868 4,232,791
Total Other Assets 7,422,086 7,614,296
Total Assets $62,807,048 $62,562,004
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Current Liabilities
Accounts Payable $ 841,977 $ 913,110
Deferred Income Taxes 179,167 74,091
Other Accrued Expenses 914,133 692,282
Customer Deposits 1,235,711 1,308,001
Total Current Liabilities 3,170,988 2,987,484
Noncurrent Liabilities
Deferred Liabilities 719,389 721,264
Total Liabilities 3,890,377 3,708,748
Minority Interests 266,530 321,424
STOCKHOLDERS' EQUITY
Common Stock 1998 1997
Class A 127,232 shares; 127,232 shares 127,232 127,232
Class B 1,410,761 shares; 1,410,761 shares 1,410,761 1,410,761
Capital in Excess of Par Value 12,758,610 12,758,610
Retained Earnings
Balance, Beginning 55,725,180 52,915,056
Net Income 100,568 3,512,142
Dividends - Cash 1998 and 1997 (165,301) (702,018)
Balance, End 55,660,447 55,725,180
Accumulated other comprehensive income:
Unrealized Gain on Investments 311,516 128,474
Treasury Stock
1998 - 43,120 Class A shares;
314,155 Class B shares (11,618,425) --
1997 - 43,120 Class A shares;
314,155 Class B shares -- (11,618,425)
Total Stockholders' Equity 58,650,141 58,531,832
Total Liabilities and Stockholders' Equity $62,807,048 $62,562,004
See accompanying notes.
<PAGE>
ALLEN ORGAN COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
For the 3 Months
Ended:
3/31/98 3/31/97
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 100,568 $ 692,724
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation and amortization 378,539 226,930
Minority interest in consolidated
subsidiaries (54,894) (8,650)
Change in assets and liabilities
Accounts receivable 60,811 (88,121)
Inventories (863,094) (1,202,223)
Prepaid income taxes (37,542) 146,865
Prepaid expenses (165,295) (74,356)
Prepaid pension costs 60,000 67,497
Accounts payable (71,133) 288,860
Accrued expenses 221,851 249,876
Customer deposits (72,290) (178,959)
Other noncurrent liabilities (1,875) (1,875)
Net Cash (Used In) Provided by
Operating Activities (444,354) 118,568
CASH FLOW FROM INVESTING ACTIVITIES
Net additions to plant and equipment (288,525) (471,664)
Additions to intangibles and other
assets (16,483) --
Net sale (or purchase) of short term
investments 1,280,968 585,276
Net Cash Provided by (Used In)
Investing Activities 975,960 113,612
CASH FLOWS FROM FINANCING ACTIVITIES
Reacquired Class B common shares -- (28,888)
Dividends paid in cash (165,301) (185,318)
Subsidiary company stock reacquired from
minority shareholders -- (14,675)
Subsidiary company stock issued to
minority shareholders -- 18,382
Net Cash Used In Financing Activities (165,301) (210,499)
NET INCREASE IN CASH 366,305 21,681
CASH, BEGINNING 1,020,348 781,202
CASH, ENDING $1,386,653 $ 802,883
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION
Cash paid for:
Income Taxes $ 22,050 $ 224,000
Interest $ -- $ --
See accompanying notes.
<PAGE>
ALLEN ORGAN COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED 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 1997 Annual Report on Form 10-K.
2. Pro Forma Financial Information
The following pro forma financial information has been prepared giving
effect to the acquisition of Legacy Audio, Inc. 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
acquisition been consummated at the beginning of the applicable period
or which may be attained in the future.
For the 3 Months
Ended:
3/31/97
Net Sales $9,340,762
Net Income 671,354
Net Income Per Share $0.51
3. Comprehensive Income
In 1998, the Company adopted Statement of Financial Accounting Standard
("SFAS") No. 130 on "Reporting Comprehensive Income". SFAS 130
establishes new rules for the reporting of comprehensive income and its
components; however the adoption of SFAS 130 had no impact on the
Company's net income or stockholder's equity. SFAS 130 requires
unrealized gains or losses on the Company's available-for-sale
securities to be included in other comprehensive income. These amounts
were reported in stockholder's equity prior to the adoption of SFAS
130. Prior year financial statements have been reclassified to conform
to the requirements of SFAS 130.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS.
Liquidity and Capital Resources:
Cash flows from operating activities decreased during the three month
period ended March 31, 1998, primarily due to increased working capital
requirements, particularly inventory. Inventory increased approximately
$700,000, $170,000 and $224,000 respectively in the Data Communications,
Electronic Assemblies, and Audio Equipment segments during the three months
ended March 31, 1998. Inventory decreased approximately $231,000 in the
Musical Instruments segment. The Data Communication segment's inventory
increase is primarily due to increased order backlog and changes in product
mix to system level products which are more complex and require longer lead
times for manufacture and pre-shipment testing. The increases in the
Electronic Assemblies and Audio Equipment segments are due to higher order
volumes.
Cash flows from investing activities reflects the Company's sale of
short-term investments.
Sales and Operating Income
For the 3 Months
Ended:
3/31/98 3/31/97
Net Sales to Unaffiliated Customers
Musical Instruments $ 6,260,509 $ 5,527,463
Data Communications 2,153,213 2,153,386
Electronic Assemblies 1,148,357 1,198,110
Audio Equipment 665,212 0
Total $10,227,291 $ 8,878,959
Intersegment Sales
Musical Instruments $ 41,169 $ 0
Data Communications 62,172 243,701
Electronic Assemblies 247,965 52,398
Audio Equipment 23,855 0
Total $ 375,161 $ 296,099
Income (Loss) from Operation
Musical Instruments $ 769,826 $ 546,991
Data Communications (1,037,812) (51,229)
Electronic Assemblies 118,667 147,134
Audio Equipment (28,537) 0
Total $ (177,856) $ 642,896
Musical Instruments Segment
Sales increased $733,046 in the first quarter of 1998 when compared to
the same period in 1997. This increase is due to increased incoming
orders, reduction in the order back-log since December 31, 1997 and changes
in product mix.
Gross profit margins increased to 32.3% of sales in the first quarter of
1998 from 30.0% in the same period in 1997. This increase is primarily due
to a change in product mix which consisted of more larger models in the
first quarter of 1998 when compared to the same period in 1997.
Selling, general and administrative expenses increased slightly when
compared to the same period in 1997.
Research and development expenditures increased approximately $40,000 in
the first quarter of 1998 when compared to the same period in 1997 due to
new product development.
Data Communications Segment
Sales in the first quarter of 1998 were approximately equal when
compared to the same period in 1997. During the prior quarter the Company
began to increase its investment in the sales and marketing effort at
Eastern Research. These additional efforts are focused on expanding
channels of distribution and targeting markets for the company's DACS
system products. The Company has increased its incoming order volume
however, the sales cycle for the sale of these more complex system products
are generally in excess of 6 months.
Gross profit margins in the first quarter of 1998 were approximately
equal to the preceding quarter ended December 31, 1997 and decreased to
36.9% of sales from 50.0% when compared to the same period in 1997 due to
changes in product mix and continued competitive pressures on selling
prices. The segment is focusing its attention on more sophisticated high
end products which generally have higher gross margins.
Sales and marketing expenditures increased approximately $380,000 (89%)
in the first quarter of 1998 when compared to the same period in 1997
reflecting the additional sales and marketing efforts initiated to further
promote the segments products, obtain additional market share and develop
new channels of distribution.
General and administrative expenses increased approximately $180,000
(58%) in the first quarter of 1998 when compared to the same period in 1997
resulting from management and support personnel added to promote and
oversee the segment.
Research and development expenses increased approximately $140,000 (34%)
in the first quarter of 1998 when compared to the same period in 1997.
These expenditures have and will continue to increase in the future
reflecting the commitment to new product development and support.
Electronic Assemblies Segment
Sales for the first quarter of 1998 declined $49,753 over the same
period in 1997 from changes in product mix and customer delivery
requirements. The gross profit percentage was 14.1% and 14.3% in the first
quarter of 1998 and 1997 respectively. Selling, general and administrative
expenses increased slightly in the first quarter of 1998 when compared to
the same period in 1997.
Audio Equipment Segment
Sales for the first quarter of 1998 increased approximately $200,000
when compared to the same period in 1997 on a pro forma basis. Gross
profit margins in the first quarter of 1998 remained approximately equal to
the same period in 1997. Selling, general and administrative costs for the
period increased in the first quarter of 1998 when compared to the same
period in 1997 from increased sales and marketing efforts and additional
administrative personnel added to support the company's growth.
Other Income and Expense
Investment income decreased due to lower 1998 invested balances, as well
as gains on investments recognized in the first quarter of 1997 which did
not recur in 1998.
Provision for Taxes on Income
The decrease in the 1998 effective tax rate is attributable to changes
in effective state tax rates.
Factors that May Affect Operating Results
The statements contained in this report on Form 10-Q that are not purely
historical are forward looking statements within the meaning of Section 27A
of the Securities Act of 1933 and Section 21E of the Securities Exchange
Act of 1934, including statements regarding the Company's expectations,
hopes, intentions or strategies regarding the future. Forward looking
statements include: statements regarding future products or product
development; statements regarding future research and development spending;
the Company's marketing and product development strategy and statements
regarding future production capacity. All forward looking statements
included in this document are based on information available to the Company
on the date hereof, and the Company assumes no obligation to update any
such forward looking statements. It is important to note that the
Company's actual results could differ materially from those in such forward
looking statements. Some of the factors that could cause actual results to
differ materially are set forth below.
The Company has experienced and expects to continue to experience
fluctuations in its results of operations. Factors that affect the
Company's results of operations include the volume and timing of orders
received, changes in the mix of products sold, market acceptance of the
Company's and its customer's products, competitive pricing pressures,
global currency valuations, the Company's ability to meet increasing
demand, the Company's ability to introduce new products on a timely basis,
the timing of new product announcements and introductions by the Company or
its competitors, changing customer requirements, delays in new product
qualifications, the timing and extent of research and development expenses
and fluctuations in manufacturing yields. As a result of the foregoing or
other factors, there can be no assurance that the Company will not
experience material fluctuations in future operating results on a quarterly
or annual basis, which would materially and adversely affect the Company's
business, financial condition and results of operations.
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(b) No reports on Form 8-K were filed during the quarter ended
March 31, 1998.
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: May 11, 1998 STEVEN MARKOWITZ
Steven Markowitz, President and
Chief Executive Officer
Date: May 11, 1998 LEONARD W. HELFRICH
Leonard W. Helfrich, Vice President-
Finance, Chief Financial and Principal
Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE MARCH
31, 1998 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 1,386,653
<SECURITIES> 19,047,484
<RECEIVABLES> 5,671,621
<ALLOWANCES> 0
<INVENTORY> 18,814,768
<CURRENT-ASSETS> 45,839,558
<PP&E> 20,349,046
<DEPRECIATION> (10,803,642)
<TOTAL-ASSETS> 62,807,048
<CURRENT-LIABILITIES> 3,170,988
<BONDS> 0
<COMMON> 1,537,993
0
0
<OTHER-SE> 57,112,148
<TOTAL-LIABILITY-AND-EQUITY> 62,807,048
<SALES> 10,227,291
<TOTAL-REVENUES> 10,227,291
<CGS> 6,884,622
<TOTAL-COSTS> 6,884,622
<OTHER-EXPENSES> 3,520,525
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 105,568
<INCOME-TAX> 5,000
<INCOME-CONTINUING> 100,568
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 100,568
<EPS-PRIMARY> .09
<EPS-DILUTED> .09
</TABLE>
