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, 1999
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 7, 1999:
Class A - Voting 84,002 shares
Class B - Non-voting 1,086,709 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, 1999 and 1998
Consolidated Condensed Balance Sheets at March 31, 1999 and
December 31, 1998
Consolidated Condensed Statements of Cash Flows for the three
months ended
March 31, 1999 and 1998
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:
3/31/99 3/31/98
Net Sales $11,699,573 $10,227,291
Costs and Expenses
Costs of sales 8,062,214 6,884,622
Selling, general and
administrative 3,117,433 2,735,359
Research and development 984,383 785,166
Total Costs and Expenses 12,164,030 10,405,147
Loss from Operations (464,457) (177,856)
Other Income and (Expense)
Interest and other income 250,466 228,530
Minority interests in
consolidated subsidiaries 10,360 54,894
Total Other Income and
Expense 260,826 283,424
(Loss) Income Before Taxes (203,631) 105,568
Provision for Taxes (67,000) 5,000
Net (Loss) Income $ (136,631) $ 100,568
Basic and Diluted (Loss)
Earnings Per Share $ (0.12) $ 0.09
Shares Used in Per Share
Calculation 1,170,743 1,180,718
Dividends Per Share - Cash $ 0.14 $ 0.14
Total Comprehensive
(Loss) Income $ (184,226) $ 283,610
See accompanying notes.
<PAGE>
ALLEN ORGAN COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
March 31, Dec 31,
ASSETS 1999 1998
(Unaudited) (Audited)
Current Assets
Cash $ 1,472,213 $ 1,727,554
Investments Including Accrued Interest 18,215,022 19,988,346
Accounts Receivable 7,834,650 7,068,588
Inventories:
Raw Materials 6,407,553 6,916,909
Work in Process 5,090,001 4,932,978
Finished Goods 2,668,718 2,631,290
Total Inventories 14,166,272 14,481,177
Prepaid Income Taxes 372,518 422,656
Prepaid Expenses 652,577 511,954
Deferred Income Tax Benefits 388,461 306,812
Total Current Assets 43,101,713 44,507,087
Property, Plant and Equipment 22,413,778 21,415,237
Less Accumulated Depreciation (11,763,391) (11,503,600)
Total Property, Plant and Equipment 10,650,387 9,911,637
Other Assets
Prepaid Pension Costs 599,493 642,609
Inventory Held for Future Service 1,221,915 1,242,754
Note Receivable 1,071,088 659,886
Cash Value of Life Insurance 1,400,334 1,400,334
Intangible and Other Assets, net 3,820,517 3,625,646
Total Other Assets 8,113,347 7,571,229
Total Assets $61,865,447 $61,989,953
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Current Liabilities
Accounts Payable $ 1,541,664 $ 1,562,432
Other Accrued Expenses 1,693,649 1,422,285
Customer Deposits 1,435,818 1,527,429
Total Current Liabilities 4,671,131 4,512,146
Noncurrent Liabilities
Deferred Liabilities 359,458 280,504
Total Liabilities 5,030,589 4,792,650
Minority Interests 278,247 288,607
STOCKHOLDERS' EQUITY
Common Stock 1999 1998
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 54,448,760 55,725,180
Net Loss (136,631) (616,711)
Dividends - Cash 1999 and 1998 (163,900) (659,709)
Balance, End 54,148,229 54,448,760
Accumulated other comprehensive income:
Unrealized Gain on Investments 86,741 134,336
Treasury Stock
1999-43,230 Class A shares;324,052 Class B shares(11,974,962) --
1998 43,120 Class A shares;324,052 Class B shares -- (11,971,003)
Total Stockholders' Equity 56,556,611 56,908,696
Total Liabilities and Stockholders' Equity $61,865,447 $61,989,953
See accompanying notes.
<PAGE>
ALLEN ORGAN COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
For the 3 Months Ended:
3/31/99 3/31/98
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income $ (136,631) $ 100,568
Adjustments to reconcile net (loss)
income to net cash provided
by operating activities
Depreciation and amortization 405,135 378,539
Minority interest in consolidated
subsidiaries (10,360) (54,894)
Change in assets and liabilities
Accounts receivable (766,062) 60,811
Inventories 335,744 (863,094)
Prepaid income taxes 50,138 (37,542)
Prepaid expenses (140,623) (165,295)
Prepaid pension costs 43,116 60,000
Deferred income tax benefits (55,830) --
Accounts payable (20,768) (71,133)
Accrued expenses 271,364 221,851
Customer deposits (91,611) (72,290)
Other noncurrent liabilities 78,954 (1,875)
Net Cash Used In Operating Activities
Activities (37,434) (444,354)
CASH FLOW FROM INVESTING ACTIVITIES
Increase in note receivable (411,202) --
Net additions to plant and equipment (1,014,501) (288,525)
Additions to intangibles and
other assets (324,255) (16,483)
Net sale of short term investments 1,699,910 1,280,968
Net Cash (Used In) Provided by
Investing Activities (50,048) 975,960
CASH FLOWS FROM FINANCING ACTIVITIES
Reacquired Class A common shares (3,959) --
Dividends paid in cash (163,900) (165,301)
Net Cash Used In Financing Activities (167,859) (165,301)
NET (DECREASE) INCREASE IN CASH (255,341) 366,305
CASH, BEGINNING 1,727,554 1,020,348
CASH, ENDING $ 1,472,213 $1,386,653
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION
Cash paid for:
Income Taxes $ 62,400 $ 22,050
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 1998 Annual Report on Form 10-K.
2. Subsequent Event
In April 1999 the Company sold its manufacturing plant located in Rocky
Mount, North Carolina for $1,450,000 and will recognize a gain on the
sale of approximately $1,100,000 which will be included in the
Company's financial statements for the three and six months ended June
30, 1999. The Company announced the closing of this facility in
October 1998 and ceased operations there effective March 31, 1999. The
Company has consolidated all of its Musical Instruments production into
its manufacturing facility in Macungie, PA.
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, 1999, due to increased working capital requirements,
primarily related to increases in accounts receivable in the Musical
Instruments segment. Inventory decreased approximately $146,000, $78,000
and $101,000 respectively in the Musical Instruments, Data Communications
and Audio Equipment segments during the three months ended March 31, 1999.
Cash flows from investing activities were used to purchase approximately
$1.0 million in machinery and equipment during the three months ended March
31, 1999, including $150,000 for a new automated router in the woodworking
area and a $550,000 payment for a new air handling system in the wood and
metal finishing area of the Macungie, PA plant. The total cost of the air
handling system project is estimated to be $950,000 of which $727,000 has
been paid through March 31, 1999. Equipment purchases of approximately
$250,000 in the Data Communications segment primarily related to new
computer, office, and test equipment to support the growth of Eastern
Research. The Company estimates that Eastern Research will require an
additional $1,500,000 in capital expenditures to continue its growth
through 1999.
Results of Operations:
Sales and Operating Income
For the 3 Months Ended:
3/31/99 3/31/98
Net Sales to Unaffiliated Customers
Musical Instruments $ 6,214,558 $ 6,260,509
Data Communications 3,734,009 2,153,213
Electronic Assemblies 1,212,746 1,148,357
Audio Equipment 538,260 665,212
Total $11,699,573 $10,227,291
Intersegment Sales
Musical Instruments $ 25,312 $ 41,169
Data Communications 850 62,172
Electronic Assemblies 37,742 247,965
Audio Equipment 31,081 23,855
Total $ 94,985 $ 375,161
Income (Loss) from Operations
Musical Instruments $ 439,642 $ 769,826
Data Communications (936,897) (1,037,812)
Electronic Assemblies 91,829 118,667
Audio Equipment (59,031) (28,537)
Total $ (464,457) $ (177,856)
Musical Instruments Segment
Sales decreased $45,951 in the first quarter of 1999 when compared to
the same period in 1998. This decrease is due to delays in the production
process caused by operational changes being implemented in the
manufacturing areas of the Macungie, PA plant including implementation of
new manufacturing information systems. The backlog of organ orders
continues to remain higher than the same period in 1998.
Gross profit margins decreased to 27.9% of sales in the first quarter of
1999 from 32.3% in the same period in 1998. This decrease is primarily due
to the change in product mix. The first quarter of 1998 included a greater
number of larger Renaissance models than the same period in 1999.
Selling, general and administrative expenses decreased slightly when
compared to the same period in 1998.
Research and development expenditures increased approximately $34,000 in
the first quarter of 1999 when compared to the same period in 1998 due to
continuing product development efforts.
Data Communications Segment
Sales in the first quarter of 1999 increased $1,580,796 when compared to
the same period in 1998 as a result of higher sales at Eastern Research,
Inc. (ERI). ERI increased its incoming order volume, expanded its customer
base, and began shipping products under OEM agreements, which it recently
entered into with other data communication equipment suppliers.
Gross profit margins in the first quarter of 1999 increased to 38.8%
compared to 36.9% in the same period of 1998 due to higher sales of ERI's
DACS product line. At the same time, gross margins on ERI's Router and
CSU/DSU product lines declined as a result of competitive pressures. The
segment will continue to focus its attention on more sophisticated high end
products, which generally have higher gross margins.
Sales and marketing expenditures increased approximately $327,000
(40.6%) in the first quarter of 1999 when compared to the same period in
1998 reflecting additional sales and marketing efforts initiated to
continue to promote the segments products, obtain additional market share
and develop new channels of distribution.
General and administrative expenses increased approximately $37,000
(7.4%) in the first quarter of 1999 when compared to the same period in
1998, a result of additional management and support personnel for Eastern
Research to support its growth.
Research and development expenses increased approximately $165,000 (30%)
in the first quarter of 1999 when compared to the same period in 1998.
ERI's 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 1999 increased $64,389 over the same
period in 1998 from higher order volume and changes in product mix. The
gross profit percentage was 16.5% and 14.1% in the first quarter of 1999
and 1998 respectively. Selling, general and administrative expenses
increased when compared to the same period in 1998 due to the addition of
sales and marketing personnel added to grow the segments sales and customer
base.
Audio Equipment Segment
Sales for the first quarter of 1999 decreased approximately $126,952
when compared to the same period in 1998. Gross profit margins in the
first quarter of 1999 increased to 43.2% as compared to 36.1% for the same
period in 1998. Selling, general and administrative costs for the period
increased in the first quarter of 1999 when compared to the same period in
1998 from increased sales and marketing expenditures.
Other Income and Expense
Investment income for the three months ended March 31, 1999 was
approximately equal to the same period in 1998.
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) Forms 8-K
1. The Company filed a Form 8-K dated February 18, 1999
announcing that its Data Communications subsidiary Eastern
Research, Inc. has entered into an OEM agreement to supply Lucent
Technologies with its DACS product line.
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 7, 1999 /s/ STEVEN MARKOWITZ
Steven Markowitz, President and
Chief Executive Officer
Date: May 7, 1999 /s/ 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, 1999 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-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 1,472,213
<SECURITIES> 18,215,022
<RECEIVABLES> 7,834,650
<ALLOWANCES> 0
<INVENTORY> 14,166,272
<CURRENT-ASSETS> 43,101,713
<PP&E> 22,413,778
<DEPRECIATION> 11,763,391
<TOTAL-ASSETS> 61,865,447
<CURRENT-LIABILITIES> 4,671,131
<BONDS> 0
0
0
<COMMON> 1,537,993
<OTHER-SE> 55,018,618
<TOTAL-LIABILITY-AND-EQUITY> 61,865,447
<SALES> 11,699,573
<TOTAL-REVENUES> 11,699,573
<CGS> 8,062,214
<TOTAL-COSTS> 8,062,214
<OTHER-EXPENSES> 4,101,816
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (203,631)
<INCOME-TAX> (67,000)
<INCOME-CONTINUING> (136,631)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<NET-INCOME> (136,631)
<EPS-PRIMARY> (0.12)
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