UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
(X) Quarterly Report Under Section 13 or 15(D) of The Securities Exchange
Act of 1934 For Quarter Ended June 30, 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 August 9, 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 and
six months ended June 30, 1999 and 1998
Consolidated Condensed Balance Sheets at June 30, 1999 and
December 31, 1998
Consolidated Condensed Statements of Cash Flows for the three
and six months ended June 30, 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 4.Submission of Matters to a Vote of Security Holders
Item 6.Exhibits and Reports on Form 8-K
Signatures
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1.FINANCIAL STATEMENTS
ALLEN ORGAN COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
For the 3 Months Ended: For the 6 Months Ended:
6/30/99 6/30/98 6/30/99 6/30/98
Net Sales $13,887,775 $10,567,919 $25,587,348 $20,795,210
Cost and Expenses
Costs of sales 9,008,843 7,439,196 17,071,057 14,323,818
Selling, general and
administrative 3,402,701 2,933,753 6,520,134 5,669,112
Research and
development 1,140,203 835,371 2,124,586 1,620,537
Total Costs and
Expenses 13,551,747 11,208,320 25,715,777 21,613,467
Income (Loss) from
Operations 336,028 (640,401) (128,429) (818,257)
Other Income (Expense)
Interest and other
income 216,832 233,268 465,858 466,361
Gain (loss) on sale of
property,plant and
equipment 1,062,101 (2,842) 1,063,541 (7,405)
Minority interests in
consolidated subsidiaries 11,985 42,332 22,345 97,226
Total Other Income and
Expense 1,290,918 272,758 1,551,744 556,182
Income (Loss) Before Taxes 1,626,946 (367,643) 1,423,315 (262,075)
Provision for Taxes 582,000 (87,000) 515,000 (82,000)
Net Income (Loss) $ 1,044,946 $ (280,643) $ 908,315 $ (180,075)
Basic and Diluted Earnings
(Loss) Per Share $0.89 $(0.24) $0.78 $(0.15)
Shares Used in Per
Share Calculation 1,170,727 1,180,554 1,170,727 1,180,554
Dividends Per Share-Cash $0.14 $0.14 $0.28 $0.28
Total Comprehensive
Income (Loss) $ 1,038,994 $ (287,221) $ 854,768 $ (3,611)
See accompanying notes.
<PAGE>
ALLEN ORGAN COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
June 30, Dec 31,
ASSETS 1999 1998
(Unaudited) (Audited)
Current Assets
Cash $ 1,652,175 $ 1,727,554
Investments Including Accrued Interest 19,173,630 19,988,346
Accounts Receivable 8,765,458 7,068,588
Inventories:
Raw Materials 6,558,053 6,916,909
Work in Process 4,386,933 4,932,978
Finished Goods 3,280,252 2,631,290
Total Inventories 14,225,238 14,481,177
Prepaid Income Taxes -- 422,656
Prepaid Expenses 989,862 511,954
Deferred Income Tax Benefits 366,692 306,812
Total Current Assets 45,173,055 44,507,087
Property, Plant and Equipment 21,730,218 21,415,237
Less Accumulated Depreciation (10,824,872) (11,503,600)
Total Property, Plant and Equipment 10,905,346 9,911,637
Other Assets
Prepaid Pension Costs 556,380 642,609
Inventory Held for Future Service 1,200,246 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 3,665,317 3,625,646
Total Other Assets 7,893,365 7,571,229
Total Assets $63,971,766 $61,989,953
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Current Liabilities
Accounts Payable $ 2,529,467 $ 1,562,432
Accrued Taxes on Income 81,983 --
Other Accrued Expenses 1,488,989 1,422,285
Customer Deposits 1,767,633 1,527,429
Total Current Liabilities 5,868,072 4,512,146
Noncurrent Liabilities
Deferred Liabilities 406,083 280,504
Total Liabilities 6,274,155 4,792,650
Minority Interests 265,905 288,607
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 Income (Loss) 908,315 (616,711)
Dividends - Cash 1999 and 1998 (327,799) (659,709)
Balance, End 55,029,276 54,448,760
Accumulated Other Comprehensive Income:
Unrealized Gain on Investments 80,789 134,336
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 57,431,706 56,908,696
Total Liabilities and Stockholders' Equity $63,971,766 $61,989,953
See accompanying notes.
<PAGE>
ALLEN ORGAN COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
For the 3 Months Ended: For the 6 Months Ended:
6/30/99 6/30/98 6/30/99 6/30/98
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income (loss) $1,044,946 $ (280,643) $ 908,315 $ (180,075)
Adjustments to reconcile net
income (loss) to net
cash provided by operating
activities
Depreciation and amortization 419,077 389,374 824,212 767,913
Minority interest in (11,985) (42,332) (22,345) (97,226)
consolidated subsidiaries
(Gain) Loss on sale of
property, plant and equipment (1,062,101) 2,842 (1,063,541) 7,405
Change in assets and liabilities
Accounts receivable (930,808) (358,437) (1,696,870) (297,626)
Inventories (37,297) 613,030 298,447 (250,064)
Prepaid income taxes 372,518 (116,000) 422,656 (153,542)
Prepaid expenses (337,285) (58,010) (477,908) (223,305)
Prepaid pension costs 43,113 16,250 86,229 76,250
Deferred income tax benefits 24,999 -- (30,831) --
Accounts payable 987,803 (115,127) 967,035 (186,260)
Accrued taxes on income 81,983 -- 81,983 --
Accrued expenses (204,660) 120,080 66,704 341,931
Customer deposits 331,815 321,878 240,204 249,588
Other noncurrent liabilities 46,625 (1,875) 125,579 (3,750)
Net Cash Provided by
Operating Activities 768,743 491,030 729,869 51,239
CASH FLOW FROM INVESTING
ACTIVITIES
Increase in note receivable -- (416,670) (411,202) (416,670)
Proceeds from sale of property,
plant and equipment 1,375,940 375 1,382,717 2,325
Purchases of plant and
equipment (857,047) (396,595) (1,876,885) (691,633)
Additions to intangibles and
other assets 37,253 (5,348) (287,002) (21,831)
Net sale (or purchase) of
short term investments (967,790) 894,913 732,120 2,175,881
Net Cash (Used In) Provided
by Investing Activities (411,644) 76,675 (460,252) 1,048,072
CASH FLOWS FROM FINANCING
ACTIVITIES
Reacquired Class B common shares -- (20,554) -- (20,554)
Reacquired Class A common shares -- -- (3,959) --
Dividends paid in cash (163,899) (165,234) (327,799) (330,535)
Subsidiary stock reacquired
from minority shareholder (13,238) (29,976) (13,238) (29,976)
Net Cash Used In Financing
Activities (177,137) (215,764) (344,996) (381,065)
NET INCREASE (DECREASE) IN CASH 179,962 351,941 (75,379) 718,246
CASH, BEGINNING 1,472,213 1,386,653 1,727,554 1,020,348
CASH, ENDING $1,652,175 $1,738,594 $1,652,175 $1,738,594
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION
Cash paid for:
Income Taxes 104,000 14,000 166,400 36,050
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. Sale of Manufacturing Facility
In April 1999 the Company sold its manufacturing plant located in Rocky
Mount, North Carolina for $1,360,000 (net of selling expenses) and
recognized a gain on the sale of approximately $1,068,000 which is
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 at which time the Company accrued termination
costs of $415,000 of which approximately $370,000 has been paid as of
June 30, 1999. The Company believes that the remaining $45,000 of
accrued termination costs is adequate to cover the estimated remaining
expenditures. The Company ceased operations at this facility effective
March 31, 1999 and 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 increased during the three and six
months ended June 30, 1999 when compared to the same periods in 1998,
primarily due to increases in operating income in the Data Communications
segment resulting from increased sales.
Cash flows from investing activities were used to purchase approximately
$1,877,000 in machinery and equipment during the six months ended June 30,
1999 including $775,000 for a new air handling system in the wood and metal
finishing area and $150,000 for a new automated router in the woodworking
area of the Macungie, PA plant. Equipment purchases of approximately
$730,000 in the Data Communications segment are 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 $1,000,000 in capital expenditures to continue its growth in
1999.
Results of Operations:
Sales and Operating Income
For the 3 Months Ended: For the 6 Months Ended:
6/30/99 6/30/98 6/30/99 6/30/98
Net Sales to
Unaffiliated Customers
Musical Instruments $ 6,062,268 $ 5,647,106 $12,276,826 $11,907,615
Data Communications 6,142,961 2,793,461 9,876,970 4,946,674
Electronic Assemblies 1,312,392 1,444,435 2,525,138 2,592,792
Audio Equipment 370,154 682,917 908,414 1,348,129
Total $13,887,775 $10,567,919 $25,587,348 $20,795,210
Intersegment Sales
Musical Instruments $ 21,189 $ 46,943 $ 46,501 $ 88,112
Data Communications 43,385 -- 44,235 594
Electronic Assemblies -- 44,184 37,742 292,149
Audio Equipment 12,304 87,192 43,385 111,047
Total $ 76,878 $ 178,319 $ 171,863 $ 491,902
Income (loss) from operations
Musical Instruments $ 181,019 $ 204,360 $ 620,661 $ 974,186
Data Communications 200,020 (912,774) (736,877) (1,950,586)
Electronic Assemblies 55,293 108,501 147,122 227,168
Audio Equipment (100,304) (40,488) (159,335) (69,025)
Total $ 336,028 $ (640,401) $ (128,429) $ (818,257)
Musical Instruments Segment
Sales increased $415,162 and $369,211 respectively for the three and six
months ended June 30, 1999 when compared to the same periods in 1998 due to
higher order volume. The backlog of organ orders continues to remain
higher than the same period in 1998.
The gross profit percentage decreased to 27% in the first six months
of 1999 from 30% in the same period in 1998. The current quarter gross
profit percentage was 25% compared to 27% in the second quarter of 1998
due to changes in product mix and inefficiencies caused by the
implementation of new information systems and integration of production
from the RMI plant.
Selling, general and administrative expenses remained approximately
equal during the three and six months ended June 30, 1999 when compared to
the same period in 1998.
Research and development expenditures increased slightly during the
first six months of 1999 when compared to the same period in 1998 due to
continuing product development efforts.
Data Communications Segment
Sales increased $3,349,500 and $4,930,296, respectively, for the three
and six months ended June 30, 1999 when compared to the same periods 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 with other data communication
equipment companies.
Gross profit margins increased to 49.2% and 45.3% respectively for the
three and six months ended June 30, 1999 compared to 43.5% and 40.6% when
compared to the same periods in 1998 due to higher sales of ERI's DNX
product line. The segment will continue to focus its efforts on more
sophisticated high-end products which generally have higher gross margins.
Sales and marketing expenditures increased approximately $442,000 (44%)
and $769,000 (43%) respectively for the three and six months ended June 30,
1999 when compared to the same periods in 1998. This was primarily due to
the expansion of sales and marketing efforts to further promote the
segment's products, obtain additional market share and develop new channels
of distribution.
General and administrative expenses remained approximately the same for
the three and six months ended June 30, 1999 when compared to the same
periods in 1998.
Research and development expenditures increased approximately $249,000
(41%) and $414,000 (36%) respectively for the three and six months ended
June 30, 1999 when compared to the same periods in 1998. These
expenditures will continue to increase in the future reflecting the
commitment to new product development.
Electronic Assemblies Segment
Sales declined $132,043 and $67,654 respectively for the three and six
months ended June 30, 1999 when compared to the same period in 1998. Gross
profit percentages for the three and six months ended were approximately
equal to the same periods in 1998. The segment is focusing its marketing
efforts on customers that require more sophisticated assemblies that better
utilize the Companies strengths in this field.
Selling, general and administrative expenses increased in the first six
months of 1999 when compared to the same period in 1998 due to the addition
of sales and marketing personnel to grow the segment's sales and customer
base.
Audio Equipment Segment
Sales decreased $312,763 and $439,715 for the three and six months ended
June 30, when compared to the same periods in 1998. Gross profit margins
increased to 40% in the first six months of 1999 as compared to 35% in
1998. Selling, general and administrative costs remained approximately
equal during the first six months of 1999 when compared to the same period
in 1998.
The high-end audio market is going through significant changes as it
evolves from the traditional two-channel to the multi-channel market, which
is utilized in home theater applications. Legacy Audio is presently
developing products specifically for the home theater market.
As previously announced, the Company has developed a line of Public
Address System products and in connection therewith has formed Allen Audio,
Inc. to continue development, establish marketing and distribution for
these products. Allen Audio began to incur expenses associated with the
initiation of its sales and marketing efforts during the quarter ended June
30, 1999. Allen Audio began to establish a dealer network and shipped
several units for dealer stock during the second quarter.
Other Income and Expense
Investment income remained approximately the same for the six months
ended June 30, 1999 and was slightly lower in the current quarter due to
lower investment yields and differences in the invested balances.
Gain (Loss) on Sale of Property, Plant & Equipment includes
approximately $1,068,000 of gains related to the sale of the Rocky Mount,
NC facility.
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
and the Company's marketing and product development strategy, 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 4. Submission of Matters to a Vote of Security Holders
(a) Annual Meeting: April 29, 1999
(b) Election of the following directors for a one-year term:
Steven Markowitz, Eugene Moroz, Leonard Helfrich, Martha
Markowitz, Orville Hawk, Albert Schuster, Jeffrey Schucker
and Ernest Choquette.
(c) In addition to the election of directors and the waiver
of reading of the minutes of the prior meeting, the
shareholders ratified charitable deductions made in 1998 and
all contracts, agreements, and employments by the Board of
Directors and officers since the previous annual meeting in
April 1998. All resolutions were adopted by the vote of all
shareholders present, in person or proxy.
Item 6. Exhibits and Reports on Form 8-K
(b) No reports on Form 8-K were filed during the quarter
ended June 30, 1999.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Allen Organ Company
(Registrant)
Date: August 11, 1999 /s/ STEVEN MARKOWITZ
Steven Markowitz, President and
Chief Executive Officer
Date: August 11, 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 JUNE 30,
1999 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 1,652,175
<SECURITIES> 19,173,630
<RECEIVABLES> 8,765,458
<ALLOWANCES> 0
<INVENTORY> 14,225,238
<CURRENT-ASSETS> 45,173,055
<PP&E> 21,730,218
<DEPRECIATION> 10,824,872
<TOTAL-ASSETS> 63,971,766
<CURRENT-LIABILITIES> 5,868,072
<BONDS> 0
0
0
<COMMON> 1,537,993
<OTHER-SE> 55,893,713
<TOTAL-LIABILITY-AND-EQUITY> 63,971,766
<SALES> 25,587,348
<TOTAL-REVENUES> 25,587,348
<CGS> 17,071,057
<TOTAL-COSTS> 17,071,057
<OTHER-EXPENSES> 8,644,720
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,423,315
<INCOME-TAX> 515,000
<INCOME-CONTINUING> 908,315
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<EXTRAORDINARY> 0
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<NET-INCOME> 908,315
<EPS-BASIC> 0.78
<EPS-DILUTED> 0.78
</TABLE>
