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 September 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 November 2, 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 nine months
ended September 30, 2000 and 1999
Consolidated Condensed Balance Sheets
at September 30, 2000 and December 31, 1999
Consolidated Condensed Statements of Cash Flows for the nine
months ended September 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 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 9 Months Ended:
9/30/2000 9/30/1999 9/30/2000 9/30/1999
Net Sales $17,850,297 $15,590,813 $53,590,064 $41,178,161
Cost and Expenses
Costs of sales 10,958,677 9,483,652 31,993,121 26,554,709
Selling, general and
administrative 4,393,068 3,793,895 12,836,701 10,314,029
Research and
development 1,883,479 1,422,583 5,348,287 3,547,169
Total Costs and
Expenses 17,235,224 14,700,130 50,178,109 40,415,907
Income from Operations 615,073 890,683 3,411,955 762,254
Other Income and (Expense)
Interest and other income 522,804 228,704 1,040,218 694,562
Interest expense (153,261) -- (153,261) --
Gain (loss) on sale of
property,plant and
equipment (562) -- 7,686 1,063,541
Minority interests in
consolidated subsidiaries 8,474 36,331 42,977 58,676
Total Other Income and
Expense 377,455 265,035 937,620 1,816,779
Income Before Taxes 992,528 1,155,718 4,349,575 2,579,033
Provision for Taxes 334,000 414,000 1,465,000 929,000
Net Income $ 658,528 $ 741,718 $ 2,884,575 $ 1,650,033
Basic and Diluted
Earnings Per Share $0.56 $0.63 $2.46 $1.41
Shares Used in Per
Share Calculation 1,170,619 1,170,721 1,170,619 1,170,721
Dividends Per Share-Cash $0.14 $0.14 $0.42 $0.42
Total Comprehensive
Income $ 558,461 $ 708,258 $ 2,761,997 $ 1,563,026
See accompanying notes.
ALLEN ORGAN COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
September 30, Dec 31,
ASSETS 2000 1999
(Unaudited) (Audited)
Current Assets
Cash $ 1,522,367 $ 209,277
Investments Including Accrued Interest 25,018,346 19,649,433
Accounts Receivable, net of reserves of
$416,994 and $300,823 respectively 7,815,479 10,444,430
Inventories:
Raw Materials 7,385,397 5,996,302
Work in Process 5,808,795 4,803,969
Finished Goods 6,663,318 5,915,057
Total Inventories 19,857,510 16,715,328
Prepaid Expenses 393,617 287,138
Deferred Income Tax Benefits 734,478 658,869
Total Current Assets 55,341,797 47,964,475
Property, Plant and Equipment 25,505,467 23,113,797
Less Accumulated Depreciation (12,864,063) (11,684,624)
Total Property, Plant and Equipment 12,641,404 11,429,173
Other Assets
Deferred Income Taxes 122,742 122,742
Prepaid Pension Costs 425,755 470,154
Inventory Held for Future Service 674,655 733,301
Note Receivable 1,516,759 1,111,147
Cash Value of Life Insurance 2,068,347 1,721,497
Goodwill, net 4,250,781 3,872,441
Other Assets 18,592 41,140
Total Other Assets 9,077,631 8,072,422
Total Assets $77,060,832 $67,466,070
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Current Liabilities
Notes Payable - Bank $ 8,000,000 $ --
Accounts Payable 2,855,858 3,593,708
Accrued Taxes on Income 161,902 683,133
Other Accrued Expenses 2,417,617 1,927,156
Customer Deposits 1,627,373 1,585,196
Total Current Liabilities 15,062,750 7,789,193
Noncurrent Liabilities
Deferred and Other Noncurrent Liabilities 277,491 179,915
Total Liabilities 15,340,241 7,969,108
Minority Interests 132,294 175,271
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 2,884,575 2,884,488
Dividends - Cash (491,659) (655,598)
Balance, End 59,070,566 56,677,650
Accumulated other comprehensive income:
Unrealized Gain on Investments 199,822 322,400
Sub-total 73,566,991 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 61,588,297 59,321,691
Total Liabilities and Stockholders' Equity $77,060,832 $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 9 Months Ended:
9/30/2000 9/30/1999 9/30/2000 9/30/1999
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income $ 658,528 $ 741,718 $2,884,575 $1,650,033
Adjustments to reconcile net
income to net cash provided by
operating activities
Depreciation and amortization 701,991 614,817 1,710,801 1,439,029
Minority interest in
consolidated subsidiaries (8,474) (36,331) (42,977) (58,676)
(Gain) Loss on sale of
property, plant and equipment 562 -- (7,686) (1,063,541)
Change in assets and liabilities
Accounts receivable (279,737) (1,820,476) 2,628,951 (3,517,346)
Inventories (183,408) (938,038) (3,083,536) (639,591)
Prepaid income taxes -- -- -- 422,656
Prepaid expenses 116,849 362,005 (106,479) (115,903)
Prepaid pension costs (7,851) 43,113 44,399 129,342
Other assets 22,548 -- 22,548 --
Deferred income tax benefits -- 24,999 -- (5,832)
Accounts payable (403,826) 342,207 (737,850) 1,309,242
Accrued taxes on income (176,530) 488,951 (521,231) 570,934
Accrued expenses 212,829 356,473 490,461 423,177
Customer deposits (90,500) 134,552 42,177 374,756
Deferred and other noncurrent
liabilities 96,550 59,625 97,576 185,204
Net Cash Provided by
Operating Activities 659,531 373,615 3,421,729 1,103,484
CASH FLOW FROM INVESTING
ACTIVITIES
Proceeds from the sale of
property, plant and equipment 7,800 -- 26,706 1,382,717
Additions to goodwill (286,788) (252,849) (838,216) (539,851)
Increase in note receivable -- (40,059) (405,612) (451,261)
Purchases of plant and
equipment (870,745) (755,911) (2,482,176) (2,632,796)
Increase in cash value of
life insurance (346,850) (293,063) (346,850) (293,063)
Net sale (or purchase) of
short-term investments (6,932,102) 577,569 (5,567,100) 1,309,689
Net Cash Used in Investing
Activities (8,428,685) (764,313) (9,613,248) (1,224,565)
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds from bank loans 8,000,000 -- 8,000,000 --
Reacquired Class A common shares -- -- -- (3,959)
Reacquired Class B common shares -- -- (3,732) --
Dividends paid in cash (163,886) (163,900) (491,659) (491,699)
Subsidiary company stock
reacquired from minority
shareholders -- -- -- (13,238)
Net Cash Provided By (Used In)
Financing Activities 7,836,114 (163,900) 7,504,609 (508,896)
NET INCREASE (DECREASE) IN CASH 66,960 (554,598) 1,313,090 (629,977)
CASH, BEGINNING 1,455,407 1,652,175 209,277 1,727,554
CASH, ENDING $1,522,367 $1,097,577 $1,522,367 $1,097,577
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION
Cash paid for:
Income Taxes $ 510,811 $ 360,000 $2,003,311 $ 526,400
Interest $ 153,261 $ -- $ 153,261 $ --
See accompanying notes.
ALLEN ORGAN COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED 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% (7.8675% at September 30, 2000). The
proceeds of the term loan were received 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%
(8.1175% at September 30, 2000). The line of credit has been obtained to
provide ERI with future working capital. Outstanding borrowings under the
line of credit were $1,000,000 at September 30, 2000. 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 nine months ended
September 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 and operational improvements.
Cash flows from investing activities were used to purchase property and
equipment including approximately $575,000 and $1,735,000 respectively during
the three and nine months ended September 30, 2000 for new computer, office
and test equipment to support the growth of Eastern Research, Inc.
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 $7,000,000 of ERI's inter-company loans due to Allen Organ Company. The
proceeds of the term loan were invested in the Company's short-term investment
accounts. 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 9 Months Ended
9/30/2000 9/30/1999 9/30/2000 9/30/1999
Net Sales to
Unaffiliated Customers
Musical Instruments $ 6,786,023 $ 7,361,100 $21,295,085 $19,637,926
Data Communications 8,280,161 6,395,441 24,110,559 16,272,411
Electronic Assemblies 2,335,438 1,484,956 6,248,354 4,010,094
Audio Equipment 448,675 349,316 1,936,066 1,257,730
Total $17,850,297 $15,590,813 $53,590,064 $41,178,161
Intersegment Sales
Musical Instruments $ 68,022 $ 9,716 $ 248,012 $ 56,217
Data Communications 57,330 127,069 57,330 171,304
Electronic Assemblies -- -- 15,577 37,742
Audio Equipment 10,224 1,931 17,156 45,316
Total $ 135,576 $ 138,716 $ 338,075 $ 310,579
Income (Loss) from Operations
Musical Instruments $ 1,090,758 $ 1,108,392 $ 4,020,315 $ 1,729,053
Data Communications (786,980) (74,875) (1,290,409) (811,752)
Electronic Assemblies 376,931 116,315 976,389 263,437
Audio Equipment (65,636) (259,149) (294,340) (418,484)
Total $ 615,073 $ 890,683 $ 3,411,955 $ 762,254
Musical Instruments Segment
Sales decreased $575,077 for the three months ended September 30, 2000 when
compared to the same period in 1999. Sales increased $1,657,159 for the nine
months ended September 30, 2000, when compared to the same period in 1999, due
to improvements in operations that lead to higher shipments which decreased
the order backlog.
The gross profit percentage increased to 34% and 37% respectively, in the
three and nine months ended September 30, 2000 from 33% and 29% respectively
in the same periods in 1999. This increase is due to higher sales volume over
which to absorb fixed costs during the nine months, 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
remained approximately the same for the three and nine months ended September
30, 2000 when compared to the same periods in 1999.
Data Communications Segment
Sales increased $1,884,720 and $7,838,148 respectively, for the three and
nine months ended September 30, 2000 when compared to the same periods in
1999. Eastern Research, Inc. (ERI) sales increased approximately $2,027,000
and $6,622,000 to $7,638,000 and $20,872,000 respectively, during the three
and nine months ended September 30, 2000, when compared to the same periods in
1999, due to higher incoming order volume. ERI continues to add new customers
and has also begun to penetrate certain international markets.
VIR Linear Switch (VIR) sales decreased $212,000 during the three months
ended and increased approximately $1,101,000 during the nine months ended
September 30, 2000 to $699,000 and $3,295,000 respectively, when compared to
the same periods in 1999. The increase for the first nine months of 2000 was
primarily due to higher sales of its new TAS DS1 and DS3 products. The
decrease for the third quarter of 2000 as compared to the same period of 1999
was mainly a result of long sales cycles for the TAS DS1 and DS3 products.
Gross profit margins were 46.0% and 47.3% respectively for the three and
nine months ended September 30, 2000, as compared to 50.9% and 47.5% in the
same periods in 1999. Gross profit margins during the three months ended
September 30, 2000 decreased due to production start-up costs and charges
incurred to expedite certain electronic component purchases.
Sales and marketing expenditures increased approximately $655,000 (39%) and
$1,962,000 (46%) respectively for the three and nine months ended September
30, 2000 when compared to the same periods in 1999. This was primarily due to
continued efforts to promote ERI's products, obtain additional market share
and develop new channels of distribution.
General and administrative expenses increased approximately $164,000 (27%)
and $551,000 (32%) respectively for the three and nine months ended September
30, 2000 when compared to the same periods in 1999, primarily relating to
additional management and administrative personnel added at ERI to support its
growth.
Research and development expenditures, primarily at ERI, increased
approximately $405,000 (35%) and $1,573,000 (58%) respectively for the three
and nine months ended September 30, 2000 when compared to the same periods in
1999. These expenditures will continue to increase in the future reflecting
the company's commitment to new product development.
Some of VIR and ERI products are sold to carriers including Competitive
Local Exchange Carriers (CLEC). The financial markets have recently lowered
the valuations for these types of companies, some of which require continued
funding to build out their networks and deliver services. VIR has experienced
some delays in completing sales to this sector. ERI has not yet experienced
any negative affects, however, future sales to some of these customers may be
negatively affected by their ability to raise capital.
In March of 2000 the Company announced that it was exploring strategic
alternatives for ERI. The recent volatility in the technology sector of the
financial markets may affect alternatives available and timing for this
process.
Electronic Assemblies Segment
Sales increased $850,482 and $2,238,260 respectively for the three and nine
months ended September 30, 2000 when compared to the same periods in 1999, due
to increased orders from current customers and the addition of new customers.
Gross profit percentages for the three and nine months ended increased to
approximately 20% as compared to 15% and 14% respectively during the same
periods in 1999 due to higher order volume over which to spread fixed costs
and operational improvements.
Selling, general and administrative expenses for the three and nine months
ended September 30, 2000 were approximately equal to the same periods in 1999.
Audio Equipment Segment
Sales increased $99,359 and $678,336 for the three and nine months ended
September 30, 2000 when compared to the same periods in 1999, the result of
increased incoming orders and operational improvements. Gross profit margins
increased to 42% during the nine months ended September 30, 2000 as compared
to 40% in the same period in 1999 due to the increased sales.
Selling, general and administrative costs increased during the nine months
ended September 30, 2000 when compared to the same period in 1999 from higher
sales and marketing expenditures.
Other Income and Expense
Investment income increased during the three and nine months ended
September 30, 2000 when compared to the same period in 1999 due to higher
returns, gains recognized on investments and higher invested balances.
Gain on Sale of Property, Plant & Equipment for the nine months ended
September 30, 1999 includes approximately $1,068,000 of gains related to the
sale of the Rocky Mount, NC facility that 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 global economics and financial markets, changes in the mix of
products sold, market acceptance of the Company's and its customer's products
or services, competitive pricing pressures, global currency valuations, the
availability of electronic components that the Company purchases from
suppliers, 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
September 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: November 2, 2000 /s/ STEVEN MARKOWITZ
Steven Markowitz, President and
Chief Executive Officer
Date: November 2, 2000 /s/ NATHAN S. ECKHART
Nathan S. Eckhart, Treasurer, Secretary
and Principal Accounting Officer