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, 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 August 4, 2000:
Class A - Voting 84,002 shares
Class B - Non-voting 1,086,613 shares
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, 2000 and 1999.
Consolidated Condensed Balance Sheets at June 30, 2000 and
December 31, 1999
Consolidated Condensed Statements of Cash Flows for the three
and six months ended June 30, 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 4.Submission of Matters to a Vote of Security Holders
Item 6.Exhibits and Reports on Form 8-K
Signatures
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:
6/30/2000 6/30/1999 6/30/2000 6/30/1999
Net Sales $18,931,735 $13,887,775 $35,739,767 $25,587,348
Cost and Expenses
Costs of sales 11,180,040 9,008,843 21,034,444 17,071,057
Selling, general and
administrative 4,186,916 3,402,701 8,443,633 6,520,134
Research and
development 1,777,753 1,140,203 3,464,808 2,124,586
Total Costs and
Expenses 17,144,709 13,551,747 32,942,885 25,715,777
Income (Loss) from
Operations 1,787,026 336,028 2,796,882 (128,429)
Other income (expense)
Interest and other
income 255,519 216,832 517,414 465,858
Gain on sale of
property, plant and
equipment 2,748 1,062,101 8,248 1,063,541
Minority interests in
consolidated subsidiaries (98) 11,985 34,503 22,345
Total Other Income and
Expense 258,169 1,290,918 560,165 1,551,744
Income Before Taxes 2,045,195 1,626,946 3,357,047 1,423,315
Provision for Taxes 689,000 582,000 1,131,000 515,000
Net Income $ 1,356,195 $ 1,044,946 $ 2,226,047 $ 908,315
Basic and Diluted
Earnings Per Share $1.16 $0.89 $1.90 $0.78
Shares Used in Per
Share Calculation 1,170,621 1,170,727 1,170,621 1,170,727
Dividends Per Share-Cash $0.14 $0.14 $0.28 $0.28
Total Comprehensive
Income $ 1,234,119 $ 1,038,994 $ 2,203,536 $ 854,768
See accompanying notes.
ALLEN ORGAN COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
June 30, Dec 31,
ASSETS 2000 1999
(Unaudited) (Audited)
Current Assets
Cash $ 1,455,407 $ 209,277
Investments Including Accrued Interest 18,301,176 19,649,433
Accounts Receivable, net of reserves of
$384,597 and $300,823 respectively 7,535,742 10,444,430
Inventories:
Raw Materials 6,506,226 5,996,302
Work in Process 5,674,196 4,803,969
Finished Goods 7,464,560 5,915,057
Total Inventories 19,644,982 16,715,328
Prepaid Expenses 510,466 287,138
Deferred Income Tax Benefits 658,869 658,869
Total Current Assets 48,106,642 47,964,475
Property, Plant and Equipment 24,723,256 23,113,797
Less Accumulated Depreciation (12,395,536) (11,684,624)
Total Property, Plant and Equipment 12,327,720 11,429,173
Other Assets
Deferred Income Taxes 83,486 122,742
Prepaid Pension Costs 417,904 470,154
Inventory Held for Future Service 703,775 733,301
Note Receivable 1,516,759 1,111,147
Cash Value of Life Insurance 1,721,497 1,721,497
Goodwill, net 4,117,285 3,872,441
Other Assets 41,140 41,140
Total Other Assets 8,601,846 8,072,422
Total Assets $69,036,208 $67,466,070
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Current Liabilities
Accounts Payable $ 3,259,684 $ 3,593,708
Accrued Taxes on Income 338,432 683,133
Other Accrued Expenses 2,204,788 1,927,156
Customer Deposits 1,717,873 1,585,196
Total Current Liabilities 7,520,777 7,789,193
Noncurrent Liabilities
Deferred and Other Noncurrent Liabilities 180,941 179,915
Total Liabilities 7,701,718 7,969,108
Minority Interests 140,768 175,271
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 2,226,047 2,884,488
Dividends - Cash (327,773) (655,598)
Balance, End 58,575,924 56,677,650
Accumulated Other Comprehensive Income:
Unrealized Gain on Investments 299,889 322,400
Sub-total 73,172,416 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 61,193,722 59,321,691
Total Liabilities and Stockholders' Equity $69,036,208 $67,466,070
See accompanying notes.
ALLEN ORGAN COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
For the 3 Months Ended: For the 6 Months Ended:
6/30/2000 6/30/1999 6/30/2000 6/30/1999
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income $1,356,195 $1,044,946 $2,226,047 $ 908,315
Adjustments to reconcile net
income to net cash provided by
operating activities
Depreciation and amortization 488,639 419,077 1,008,810 824,212
Minority interest in
consolidated subsidiaries 98 (11,985) (34,503) (22,345)
(Gain) Loss on sale of
property, plant and equipment (2,748)(1,062,101) (8,248) (1,063,541)
Change in assets and liabilities
Accounts receivable (207,973) (930,808) 2,908,688 (1,696,870)
Inventories (987,162) (37,297) (2,900,128) 298,447
Prepaid income taxes -- 372,518 -- 422,656
Prepaid expenses (143,331) (337,285) (223,328) (477,908)
Prepaid pension costs 9,137 43,113 52,250 86,229
Other assets (3,640) -- -- --
Deferred income tax benefits -- 24,999 -- (30,831)
Accounts payable 83,399 987,803 (334,024) 967,035
Accrued taxes on income (631,750) 81,983 (344,701) 81,983
Accrued expenses (159,155) (204,660) 277,632 66,704
Customer deposits 254,610 331,815 132,677 240,204
Deferred and other noncurrent
liabilities (31,499) 46,625 1,026 125,579
Net Cash Provided by
Operating Activities 24,820 768,743 2,762,198 729,869
CASH FLOW FROM INVESTING
ACTIVITIES
Increase in note receivable -- -- (405,612) (411,202)
Proceeds from sale of
property, plant and equipment 13,406 1,375,940 18,906 1,382,717
Purchases of plant and
equipment (694,909) (857,047) (1,611,431) (1,876,885)
Additions to goodwill (273,624) 37,253 (551,428) (287,002)
Net sale (or purchase) of
short term investments (529,303) (967,790) 1,365,002 732,120
Net Cash Used In Investing
Activities (1,484,430) (411,644) (1,184,563) (460,252)
CASH FLOWS FROM FINANCING
ACTIVITIES
Reacquired Class B common
shares -- -- (3,732) --
Reacquired Class A common
shares -- -- -- (3,959)
Dividends paid in cash (163,886) (163,899) (327,773) (327,799)
Subsidiary stock reacquired
from minority shareholder -- (13,238) -- (13,238)
Net Cash Used In Financing
Activities (163,886) (177,137) (331,505) (344,996)
NET (DECREASE) INCREASE IN CASH (1,623,496) 179,962 1,246,130 (75,379)
CASH, BEGINNING 3,078,903 1,472,213 209,277 1,727,554
CASH, ENDING $1,455,407 $1,652,175 $1,455,407 $1,652,175
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION
Cash paid for:
Income Taxes $1,322,750 $ 104,000 $1,492,500 $ 166,400
Interest $ -- $ -- $ -- $ --
See accompanying notes.
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.
2 Financing
On June 30, 2000 Eastern Research, Inc. (ERI), a subsidiary of the
Company, entered into a Loan and Security Agreement with a bank. The
agreement provides ERI with two credit facilities. The first is a term
loan in the amount of $7,000,000 due on July 1, 2001, interest only
payable monthly at the LIBOR Market Index Rate plus 1.25%. The
proceeds of the term loan were received early in July 2000 and all were
used to repay a portion of the inter-company loans due to Allen Organ
Company. The second facility is a $5,000,000 revolving line of credit,
due on July 1, 2001, interest payable monthly at the LIBOR Market Index
Rate plus 1.50%. The line of credit has been obtained to provide ERI
with future working capital. Both credit facilities have been
guaranteed by Allen Diversified, Inc. and Allen Organ Company.
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 six months
ended June 30, 2000 when compared to the same period in 1999, primarily due
to increases in operating income in the Musical Instruments segment
resulting from higher sales volume. Cash flows from operations decreased
during the three months ended June 30, 2000 compared to the same period in
1999 primarily due to increases in inventory in the Data Communications
segment.
Cash flows from investing activities were used to purchase property and
equipment including approximately $600,000 and $1,238,000 respectively
during the three and six months ended June 30, 2000 for new computer,
office and test equipment to support the growth of the Data Communications
segment.
As indicated in Note 2 above, Eastern Research, Inc. has obtained bank
financing to provide them with future working capital as well as funds to
repay a portion of ERI's inter-company loans due to Allen Organ Company.
These financing facilities have been obtained to begin to provide ERI with
financial autonomy as the Company considers strategic alternatives for ERI.
Results of Operations:
Sales and Operating Income
For the 3 Months Ended: For the 6 Months Ended:
6/30/2000 6/30/1999 6/30/2000 6/30/1999
Net Sales to
Unaffiliated Customers
Musical Instruments $ 7,837,715 $ 6,062,268 $14,509,062 $12,276,826
Data Communications 7,772,309 6,142,961 15,830,398 9,876,970
Electronic Assemblies 2,409,061 1,312,392 3,912,916 2,525,138
Audio Equipment 912,650 370,154 1,487,391 908,414
Total $18,931,735 $13,887,775 $35,739,767 $25,587,348
Intersegment Sales
Musical Instruments $ 105,948 $ 21,189 $ 179,990 $ 46,501
Data Communications -- 43,385 -- 44,235
Electronic Assemblies -- -- 15,577 37,742
Audio Equipment 5,750 12,304 6,932 43,385
Total $ 111,698 $ 76,878 $ 202,499 $ 171,863
Income from operations
Musical Instruments $ 1,858,932 $ 181,019 $ 2,929,557 $ 620,661
Data Communications (563,261) 200,020 (503,429) (736,877)
Electronic Assemblies 472,033 55,293 599,458 147,122
Audio Equipment 19,322 (100,304) (228,704) (159,335)
Total $ 1,787,026 $ 336,028 $ 2,796,882 $ (128,429)
Musical Instruments Segment
Sales increased $1,775,447 and $2,232,236 respectively, for the three
and six months ended June 30, 2000 when compared to the same periods in
1999 due to higher shipments which decreased the order backlog and changes
in product mix to include the shipment of larger organ models.
The gross profit percentage increased to 41% and 39% respectively,
in the three and six months ended June 30, 2000 from 25% and 27%
respectively in the same periods in 1999. This increase is due to higher
sales volume over which to absorb fixed costs, changes in product mix,
savings realized in connection with closing the Rocky Mount, NC plant on
March 31, 1999, as well as other operational improvements.
Selling, general and administrative, research and development expenses
increased slightly during the three and six months ended June 30, 2000 when
compared to the same periods in 1999.
Data Communications Segment
Sales increased $1,629,348 and $5,953,428 respectively, for the three
and six months ended June 30, 2000 when compared to the same periods in
1999. Eastern Research, Inc. (ERI) sales increased approximately
$1,248,000 and $4,595,000 to $6,825,000 and $13,234,000 respectively,
during the three and six months ended June 30, 2000, when compared to the
same periods in 1999 due to higher incoming order volume through an
expanded customer base. VIR Linear Switch (VIR) sales increased
approximately $336,000 and $1,313,000 to $947,000 and $2,596,000
respectively during the three and six months ended June 30, 2000 when
compared to the same periods in 1999 primarily due to higher sales of its
new TAS DS1 and DS3 products.
Gross profit margins increased to 47.9% in the first six months of 2000
from 45.3% in the same period of 1999 due to higher sales of ERI's DNX
product line and VIR's TAS DS1 and DS3 products. The current quarter gross
margin was 45.9% compared to 49.2% in the second quarter of 1999 due to
production start-up costs related to new products.
Sales and marketing expenditures, primarily at ERI, increased
approximately $517,000 (36%) and $1,307,000 (51%) respectively for the
three and six months ended June 30, 2000 when compared to the same periods
in 1999. This was primarily due to continued efforts to promote the ERI's
products, obtain additional market share and develop new channels of
distribution.
General and administrative expenses increased approximately $200,000
(36%) and $386,000 (35%) respectively for the three and six months ended
June 30, 2000 when compared to the same periods in 1999, primarily related
to additional management and administrative personnel added at Eastern
Research to support its growth.
Research and development expenditures, primarily at ERI, increased
approximately $574,000 (67%) and $1,167,000 (74%) respectively for the
three and six months ended June 30, 2000 when compared to the same periods
in 1999. These expenditures will continue to increase in the future
reflecting the commitment to new product development.
Electronic Assemblies Segment
Sales increased $1,096,669 and $1,387,778 respectively for the three and
six months ended June 30, 2000 when compared to the same periods in 1999.
Gross profit percentages for the three and six months ended increased to
approximately 20% as compared to 15% during the same periods in 1999.
These increases are due to higher order volume.
Selling, general and administrative expenses for the first six
months of 2000 were approximately equal to the same period in 1999.
Audio Equipment Segment
Sales increased $542,496 and $578,977 for the three and six months ended
June 30, 2000 when compared to the same periods in 1999. Gross profit
margins decreased to 38% in the first six months of 2000 as compared to 40%
in 1999.
Selling, general and administrative costs increased during the first six
months of 2000 when compared to the same period in 1999 from higher sales
and marketing expenditures.
Other Income and Expense
Investment income increased slightly during the three and six months
ended June 30, 2000 when compared to the same period in 1999 due to higher
returns on invested funds.
Gain on Sale of Property, Plant & Equipment for the three and six months
ended June 30, 1999 includes approximately $1,068,000 of gains related to
the sale of the Rocky Mount, NC facility which was closed on March 31,
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
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 20, 2000
(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 1999 and
all contracts, agreements, and employments by the Board of
Directors and officers since the previous annual meeting in
April 1999. 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, 2000.
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 4, 2000 /s/ STEVEN MARKOWITZ
Steven Markowitz, President and
Chief Executive Officer
Date: August 4, 2000 /s/ NATHAN S. ECKHART
Nathan S. Eckhart, Treasurer,
Secretary and Principal
Accounting Officer