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, 2000
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 1, 2000:
Class A - Voting 84,002 shares
Class B - Non-voting 1,086,613 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, 2000 and 1999
Consolidated Condensed Balance Sheets at March 31, 2000 and
December 31, 1999
Consolidated Condensed Statements of Cash Flows for the three
months ended March 31, 2000 and 1999
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 5 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:
3/31/2000 3/31/1999
Net Sales $16,808,032 $11,699,573
Costs and Expenses
Costs of sales 9,854,404 8,062,214
Selling, general and
administrative 4,256,717 3,117,433
Research and development 1,687,055 984,383
Total Costs and Expenses 15,798,176 12,164,030
Income (Loss) from Operations 1,009,856 (464,457)
Other Income and (Expense)
Interest and other income 267,395 250,466
Minority interests in
consolidated subsidiaries 34,601 10,360
Total Other Income and Expense 301,996 260,826
Income (Loss) Before Taxes 1,311,852 (203,631)
Provision for Taxes 442,000 (67,000)
Net Income (Loss) $ 869,852 $ (136,631)
Basic and Diluted Earnings
(Loss) Per Share $ 0.74 $ (0.12)
Shares Used in Per Share Calculation 1,170,627 1,170,743
Dividends Per Share - Cash $0.14 $0.14
Total Comprehensive Income (Loss) $ 969,417 $ (184,226)
See accompanying notes.
<PAGE>
ALLEN ORGAN COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
March 31, Dec 31,
ASSETS 2000 1999
(Unaudited) (Audited)
Current Assets
Cash $ 3,078,903 $ 209,277
Investments Including Accrued Interest 17,893,949 19,649,433
Accounts Receivable, net of reserves of
$343,097 and $300,823, respectively 7,327,769 10,444,430
Inventories:
Raw Materials 6,435,860 5,996,302
Work in Process 5,755,164 4,803,969
Finished Goods 6,448,975 5,915,057
Total Inventories 18,639,999 16,715,328
Prepaid Expenses 367,135 287,138
Deferred Income Tax Benefits 658,869 658,869
Total Current Assets 47,966,624 47,964,475
Property, Plant and Equipment 24,006,175 23,113,797
Less Accumulated Depreciation (12,027,359) (11,684,624)
Total Property, Plant and Equipment 11,978,816 11,429,173
Other Assets
Deferred Income Taxes 83,486 122,742
Prepaid Pension Costs 427,041 470,154
Inventory Held for Future Service 721,596 733,301
Note Receivable 1,516,759 1,111,147
Cash Value of Life Insurance 1,721,497 1,721,497
Goodwill, net 3,996,953 3,872,441
Other Assets 37,500 41,140
Total Other Assets 8,504,832 8,072,422
Total Assets $68,450,272 $67,466,070
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Current Liabilities
Accounts Payable $ 3,176,285 $ 3,593,708
Accrued Income Taxes 970,182 683,133
Other Accrued Expenses 2,363,943 1,927,156
Customer Deposits 1,463,263 1,585,196
Total Current Liabilities 7,973,673 7,789,193
Noncurrent Liabilities
Deferred and Other Noncurrent Liabilities 212,440 179,915
Total Liabilities 8,186,113 7,969,108
Minority Interests 140,670 175,271
STOCKHOLDERS' EQUITY
Common Stock 2000 1999
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 56,677,650 54,448,760
Net Income 869,852 2,884,488
Dividends - Cash 2000 and 1999 (163,887) (655,598)
Balance, End 57,383,615 56,677,650
Accumulated other comprehensive income:
Unrealized Gain on Investments 421,965 322,400
Sub-total 57,805,580 71,296,653
Treasury Stock
2000-43,230 Class A shares;324,148 Class B shares(11,978,694) --
1999-43,230 Class A shares;324,052 Class B shares -- (11,974,962)
Total Stockholders' Equity 60,123,489 59,321,691
Total Liabilities and Stockholders' Equity $68,450,272 $67,466,070
See accompanying notes.
<PAGE>
ALLEN ORGAN COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
For the 3 Months Ended:
3/31/2000 3/31/1999
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 869,852 $ (136,631)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities
Depreciation and amortization 520,171 405,135
Minority interest in consolidated subsidiaries (34,601) (10,360)
Change in assets and liabilities
Accounts receivable 3,116,661 (766,062)
Inventories (1,912,966) 335,744
Prepaid income taxes -- 50,138
Prepaid expenses (79,997) (140,623)
Prepaid pension costs 43,113 43,116
Deferred income tax benefits -- (55,830)
Other assets 3,640 --
Accounts payable (417,423) (20,768)
Accrued income taxes 287,049 --
Accrued expenses 436,787 271,364
Customer deposits (121,933) (91,611)
Deferred and other noncurrent liabilities 32,525 78,954
Net Cash Provided by (Used In)
Operating Activities 2,742,878 (37,434)
CASH FLOW FROM INVESTING ACTIVITIES
Increase in note receivable (405,612) (411,202)
Net additions to plant and equipment (916,522) (1,014,501)
Additions to goodwill (277,804) (324,255)
Net sale of short term investments 1,894,305 1,699,910
Net Cash Provided by (Used In)
Investing Activities 294,367 (50,048)
CASH FLOWS FROM FINANCING ACTIVITIES
Reacquired Class A common shares -- (3,959)
Reacquired Class B common shares (3,732) --
Dividends paid in cash (163,887) (163,900)
Net Cash Used In Financing Activities (167,619) (167,859)
NET INCREASE (DECREASE) IN CASH 2,869,626 (255,341)
CASH, BEGINNING 209,277 1,727,554
CASH, ENDING $3,078,903 $1,472,213
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION
Cash paid for:
Income Taxes $ 169,750 $ 62,400
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 1999 Annual Report on Form 10-K.
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 month
period ended March 31, 2000, due to higher net income and decreases in
accounts receivable primarily in the Data Communications segment.
Inventory increased approximately $731,000, $1,058,000 and $135,000
respectively in the Musical Instruments, Data Communications and Audio
Equipment segments during the three months ended March 31, 2000.
Cash flows from investing activities were used to purchase property and
equipment including approximately $625,000 in new computer, office and test
equipment to support the growth of the Data Communications segment during
the three months ended March 31, 2000.
Results of Operations:
Sales and Operating Income
For the 3 Months Ended:
3/31/2000 3/31/1999
Net Sales to Unaffiliated Customers
Musical Instruments $ 6,671,347 $ 6,214,558
Data Communications 8,058,089 3,734,009
Electronic Assemblies 1,503,855 1,212,746
Audio Equipment 574,741 538,260
Total $16,808,032 $11,699,573
Intersegment Sales
Musical Instruments $ 74,042 $ 25,312
Data Communications -- 850
Electronic Assemblies 15,577 37,742
Audio Equipment 1,182 31,081
Total $ 90,801 $ 94,985
Income (Loss) from Operations
Musical Instruments $ 1,070,625 $ 439,642
Data Communications 59,832 (936,897)
Electronic Assemblies 127,425 91,829
Audio Equipment (248,026) (59,031)
Total $ 1,009,856 $ (464,457)
Musical Instruments Segment
Sales increased $456,789 in the first quarter of 2000 when compared to
the same period in 1999. This increase is due to higher order volume and a
decrease in the order backlog. The order backlog continues to be higher
than the same period in 1999.
Gross profit margins increased to 37.1% of sales in the first quarter of
2000 from 27.9% in the same period in 1999. This increase is primarily due
to higher sales over which to absorb fixed costs and savings related to
the closure of the Rocky Mount, NC manufacturing plant, at which the
Company ceased operations on March 31, 1999.
Selling, general and administrative expenses and research and
development expenditures increased slightly when compared to the same
period in 1999.
Data Communications Segment
This segments sales in the first quarter of 2000 increased $4,324,080
when compared to the same period in 1999. Eastern Research, Inc. (ERI)
sales increased approximately $3,347,000 to $6,409,000 for the first
quarter of 2000. ERI increased its incoming order volume by expanding its
customer base and shipping products under OEM agreements with other data
communication equipment suppliers. VIR Linear Switch (VIR) sales increased
approximately $977,000 to $1,649,000 in the first quarter of 2000. VIR's
sales increased primarily due to higher sales of its new TAS DS1 and DS3
products.
Gross profit margins in the first quarter of 2000 increased to 49.8%
compared to 38.8% in the same period of 1999 due to higher sales of ERI's
DNX product line and VIR's TAS DS1 and DS3 products.
Sales and marketing expenditures increased approximately $790,000 (70%)
in the first quarter of 2000 when compared to the same period in 1999,
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 $187,000
(35%) in the first quarter of 2000 when compared to the same period in
1999, primarily related to additional management and support personnel
added at Eastern Research to support its growth.
Research and development expenses increased approximately $593,000 (83%)
in the first quarter of 2000 when compared to the same period in 1999.
These expenditures 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 2000 increased $291,109 over the same
period in 1999 from higher order volume. The gross profit percentage was
15% and 16.5% in the first quarter of 2000 and 1999 respectively. Selling,
general and administrative expenses decreased slightly when compared to the
same period in 1999.
Audio Equipment Segment
Sales for the first quarter of 2000 were approximately equal to the same
period in 1999. Gross profit margins in the first quarter of 2000
decreased to 37.1% as compared to 43.2% for the same period in 1999,
primarily due to additional costs associated with the start up of
production of Legacy Audio's new home theater product line introduced late
in 1999.
Selling, general and administrative costs for the period increased in
the first quarter of 2000 when compared to the same period in 1999 from
higher sales and marketing expenditures.
Other Income and Expense
Investment income for the three months ended March 31, 2000 was
approximately equal to the same period in 1999.
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 5. Other Information
Leonard W. Helfrich who has served as Vice-President and Secretary,
retired on March 31, 2000. He will continue to serve on the Board of
Directors.
Item 6. Exhibits and Reports on Form 8-K
(b) Forms 8-K
1. The Company filed a Form 8-K dated March 7, 2000
announcing that it is exploring strategic alternatives for its
subsidiary Eastern Research, Inc.
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 2, 2000 /s/ STEVEN MARKOWITZ
Steven Markowitz, President and
Chief Executive Officer
Date: May 2, 2000 /s/ NATHAN S. ECKHART
Nathan S. Eckhart, Treasurer,
Secretary and Principal
Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE MARCH
31, 2000 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-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 3,078,903
<SECURITIES> 17,893,949
<RECEIVABLES> 7,670,866
<ALLOWANCES> 343,097
<INVENTORY> 18,639,999
<CURRENT-ASSETS> 47,966,624
<PP&E> 24,006,175
<DEPRECIATION> 12,027,359
<TOTAL-ASSETS> 68,450,272
<CURRENT-LIABILITIES> 7,973,673
<BONDS> 0
0
0
<COMMON> 1,537,993
<OTHER-SE> 58,585,496
<TOTAL-LIABILITY-AND-EQUITY> 68,450,272
<SALES> 16,808,032
<TOTAL-REVENUES> 16,808,032
<CGS> 9,854,404
<TOTAL-COSTS> 9,854,404
<OTHER-EXPENSES> 5,943,772
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,311,852
<INCOME-TAX> 442,000
<INCOME-CONTINUING> 869,852
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 869,852
<EPS-BASIC> 0.74
<EPS-DILUTED> 0.74
</TABLE>
