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, 2002
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 April 24, 2002:
Class A - Voting 83,864 shares
Class B - Non-voting 1,086,457 shares
ALLEN ORGAN COMPANY
INDEX
Part I Financial Information
Item 1.Financial Statements
Consolidated Condensed Statements of Income for the three months
ended March 31, 2002 and 2001
Consolidated Condensed Balance Sheets at March 31, 2002 and
December 31, 2001
Consolidated Condensed Statements of Cash Flows for the three
months ended March 31, 2002 and 2001
Notes to Consolidated Condensed Financial Statements
Item 2.Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item 3.Quantitative and Qualitative Disclosures About Market Risk
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:
3/31/2002 3/31/2001
Net Sales $15,977,488 $13,259,398
Costs and Expenses
Costs of sales 9,349,060 9,877,547
Selling, general and administrative 3,509,633 4,300,272
Research and development 1,967,117 2,196,308
Impairment of VIR, Inc. goodwill and
intangibles -- 1,400,000
Total Costs and Expenses 14,825,810 17,774,127
Income (Loss) from Operations 1,151,678 (4,514,729)
Other Income and (Expense)
Interest and other income 141,861 354,143
Interest expense -- (151,029)
Minority interests in
consolidated subsidiaries -- 50,123
Total Other Income and Expense 141,861 253,237
Income (Loss) Before Taxes 1,293,539 (4,261,492)
Income Tax Provision (Benefit) 362,000 (1,636,000)
Net Income (Loss) $ 931,539 $(2,625,492)
Basic and Diluted Earnings (Loss) Per Share $0.80 $(2.24)
Shares Used in Per Share Calculation 1,170,321 1,170,592
Dividends Per Share - Cash $0.14 $0.14
Total Comprehensive Income (Loss) $ 922,233 $(2,726,504)
See accompanying notes.
ALLEN ORGAN COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
March 31, 2002 Dec 31,2001
ASSETS (Unaudited) (Audited)
Current Assets
Cash $ 5,686,644 $ 4,449,998
Investments Including Accrued Interest 11,696,735 11,609,416
Accounts Receivable, net of reserves of
$414,796 and $350,492, respectively 8,852,653 9,947,842
Inventories:
Raw Materials 5,433,885 5,515,815
Work in Process 6,537,130 6,249,775
Finished Goods 5,039,761 4,720,318
Total Inventories 17,010,776 16,485,908
Income Taxes Prepaid and Receivable 859,394 1,106,214
Prepaid Expenses 592,939 386,421
Deferred Income Tax Benefits 1,560,454 1,561,138
Total Current Assets 46,259,595 45,546,937
Property, Plant and Equipment 26,882,133 26,600,965
Less Accumulated Depreciation (15,657,110) (15,109,416)
Total Property, Plant and Equipment 11,225,023 11,491,549
Other Assets
Inventory Held for Future Service 819,187 811,249
Note Receivable from Related Party 2,397,291 1,997,107
Cash Value of Life Insurance 2,173,566 2,173,566
Deferred Income Tax Benefits 2,022,725 2,022,725
Goodwill, net 194,523 194,523
Intangible Assets, net 2,053,032 2,218,504
Other Assets 16,092 16,092
Total Other Assets 9,676,416 9,433,766
Total Assets $67,161,034 $66,472,252
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Current Liabilities
Accounts Payable $ 2,594,927 $ 2,750,251
Other Accrued Expenses 2,204,072 1,973,154
Customer Deposits 2,870,571 2,978,023
Total Current Liabilities 7,669,570 7,701,428
Noncurrent Liabilities
Deferred and Other Noncurrent Liabilities 788,023 707,769
Accrued Pension Costs 1,627,997 1,748,040
Total Noncurrent Liabilities 2,416,020 2,455,809
Total Liabilities 10,085,590 10,157,237
STOCKHOLDERS' EQUITY
Common Stock 2002 2001
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 12,905,650 12,903,610
Retained Earnings
Balance, Beginning 55,237,713 59,977,002
Net Income (Loss) 931,539 (4,083,810)
Dividends - Cash 2002 and 2001 (163,845) (655,479)
Balance, End 56,005,407 55,237,713
Accumulated Other Comprehensive Income (1,383,605) (1,374,300)
Sub-total 69,065,445 68,305,016
Treasury Stock
2002-43,368 Class A shares
324,304 Class B shares (11,990,001) --
2001-43,368 Class A shares
324,304 Class B shares -- (11,990,001)
Total Stockholders' Equity 57,075,444 56,315,015
Total Liabilities and Stockholders' Equity $67,161,034 $66,472,252
See accompanying notes.
ALLEN ORGAN COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
For the 3 Months Ended:
3/31/2002 3/31/2001
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 931,539 $(2,625,492)
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities
Depreciation and amortization 715,946 795,812
Loss from impairment of VIR, Inc. goodwill and
intangibles, included in operating expenses -- 1,400,000
Minority interest in consolidated subsidiaries -- (50,123)
Change in assets and liabilities
Accounts receivable 1,095,189 2,761,029
Inventories (532,806) (1,218,259)
Income taxes prepaid and receivable 246,820 (1,481,743)
Prepaid expenses (206,518) (389,907)
Prepaid pension costs -- (28,576)
Deferred income tax benefits 684 44,000
Accounts payable (155,324) (346,090)
Accrued expenses 230,918 (953,518)
Customer deposits (107,452) 18,834
Additional Pension Liability (120,043) --
Deferred and other noncurrent liabilities 80,254 34,853
Net Cash Provided by (Used In)
Operating Activities 2,179,207 (2,039,180)
CASH FLOW FROM INVESTING ACTIVITIES
Increase in note receivable (400,184) (399,058)
Net additions to plant and equipment (281,168) (630,634)
Additions to goodwill and intangible assets (2,780) --
Net (purchase) sale of short term investments (96,624) (19,971)
Net Cash (Used In) Provided by
Investing Activities (780,756) (1,049,663)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from bank loans -- 2,200,000
Proceeds from sale of subsidiary stock 2,040 96,333
Reacquired Class B common shares -- (5,735)
Dividends paid in cash (163,845) (163,886)
Net Cash (Used In) Provided by
Financing Activities (161,805) 2,126,712
NET INCREASE (DECREASE) IN CASH 1,236,646 (962,131)
CASH, BEGINNING 4,449,998 2,712,368
CASH, ENDING $5,686,644 $ 1,750,237
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION
Cash paid for:
Income Taxes $ 115,180 $ 94,000
Interest $ -- $ 151,029
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 2001 Annual Report on Form 10-K.
2. New Accounting Standards
Effective January 1, 2002, the Company adopted the following Statements
issued by the Financial Accounting Standards Board neither of which had
a material affect on the Company's financial statements.
SFAS 142, "Goodwill and Other Intangible Assets" - replaces the
requirement to amortize intangible assets with indefinite lives and
goodwill with a requirement for an impairment test. The amount of
goodwill amortization included in the operating expenses for the
three months ended March 31, 2001 was $32,407.
SFAS 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets" - Establishes one accounting model, used for long-lived
assets to be held and used, disposed of by sale or otherwise
disposed.
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, 2002, primarily due to higher operating income in
the Musical Instruments and Data Communications segments and a decrease in
accounts receivable primarily in the Data Communications segment.
Sales and Operating Income
For the 3 Months Ended:
3/31/2002 3/31/2001
Net Sales to Unaffiliated Customers
Musical Instruments $ 6,306,201 $ 5,923,121
Data Communications 8,666,294 3,600,016
Electronic Assemblies 585,855 3,293,360
Audio Equipment 419,138 442,901
Total $15,977,488 $13,259,398
Intersegment Sales
Musical Instruments $ 72,409 $ 16,291
Data Communications -- 132,126
Electronic Assemblies 75,861 --
Audio Equipment 42,397 10,127
Total $ 190,667 $ 158,544
Income (Loss) from Operations
Musical Instruments $ 823,910 $ 414,141
Data Communications 699,852 (5,005,185)
Electronic Assemblies (237,802) 287,388
Audio Equipment (134,282) (211,073)
Total $ 1,151,678 $(4,514,729)
Musical Instruments Segment
Sales increased $383,080 in the first quarter of 2002 when compared to
the same period in 2001. While the order rate and number of units shipped
in the first quarter of 2002 was approximately equal to 2001, the first
quarter of 2002 sales were higher due the shipment of models that have
higher average selling prices.
Gross profit margins increased to 32.8% of sales in the first quarter of
2002 from 29.1% in the same period in 2001. This increase is due to
changes in product mix and the increased sales level.
Selling, general and administrative expenses and research and
development expenditures were approximately equal to the same period in
2001.
Data Communications Segment
This segment's sales in the first quarter of 2002 increased $5,066,278
when compared to the same period in 2001. The 2002 sales increased due to
new product introductions and from the redirection of the Company's sales
and marketing efforts away from CLECs to other Data Communications markets.
The 2001 sales were negatively affected by the significant and overall
slowdown in the Data Communications market.
Gross profit margins in the first quarter of 2002 increased to 52.6%
compared to 30.1% in the same period of 2001 due to the higher sales volume
over which to absorb fixed costs and less discounting of selling prices.
The 2001 gross profit margins were negatively affected by $360,000 of
additional non-cash inventory valuation adjustments recorded at VIR, Inc.
for slow moving and obsolete inventory associated with discontinued product
lines.
Sales and marketing expenditures decreased approximately $327,000 (16%)
in the first quarter of 2002 when compared to the same period in 2001
primarily due to cost reduction programs implemented during 2001.
General and administrative expenses and research and development
expenses decreased approximately $358,000 (38%) and $184,000 (10%),
respectively in the first quarter of 2002 when compared to the same period
in 2001. These decreases are primarily related to cost savings related to
the combination of the VIR Linear Switch operations into Eastern Research,
Inc. (ERI) during 2001 and an overall reduction in the number of personnel
serving these functions, part of an expense reduction program implemented
to bring the Company's costs inline with business conditions.
The combination of increased sales, higher gross margins and lower
operating costs resulted in operating income of approximately $700,000 for
this segment in the first quarter of 2002 compared to a large operating
loss in the same period of 2001. The 2001 operating loss was also
negatively affected by inventory valuation adjustments and a charge to
write down the goodwill and intangible assets of VIR, Inc totaling
$1,760,000. While this segments order rate has stabilized, the Company
remains cautious, as future sales visibility is limited.
Electronic Assemblies Segment
Sales for the first quarter of 2002 decreased $2,707,505 when compared
to the same period in 2001 from lower order volume from the Company's
contract manufacturing customers, which have been affected by the economic
slowdown. The order rate is expected to continue at this lower level in
future quarters.
The gross profit margin was a loss of approximately $(154,000) (27%) in
the first quarter of 2002 primarily due to lower sales volume over which to
absorb fixed costs. The gross profit percentage was 12% in the first
quarter of 2001. Selling, general and administrative expenses decreased
slightly when compared to the same period in 2001.
Audio Equipment Segment
Sales for the first quarter of 2002 decreased slightly when compared to
the same period in 2001. Gross profit margins in the first quarter of 2002
decreased to 28.7% as compared to 31.7% for the same period in 2001,
primarily due to lower sales volume over which to absorb fixed costs and
lower margins on wholesale sales to dealers that made up a larger
percentage of sales in the first quarter of 2002.
Selling, general and administrative costs for the period decreased in
the first quarter of 2002 when compared to the same period in 2001.
Legacy Audio has historically sold its products through a direct
marketing program. The Company believes that this method of distribution
has limited its ability to penetrate the broader market. Legacy has begun
implementing plans to distribute its products through a more traditional
dealer network. The Company has added independent retail dealers and will
continue to do so in a conservative manner to build a quality dealer
network. During this period Legacy has been shifting marketing resources
to the new method of distribution. In addition, the general economic
slowdown has slowed the sales of consumer goods. This has resulted in a
sales decrease in direct sales that has not been entirely offset by dealer
sales.
Legacy's speaker cabinets are currently manufactured at both the
Company's Macungie PA plant, as well as a smaller facility in Springfield
IL. The Company plans to consolidate all Legacy production at the Macungie
plant by the third quarter of 2002. In Addition, Legacy's sales office
will be located in Macungie. The effect of this consolidation is expected
to be immaterial.
Other Income and Expense
Investment income for the three months ended March 31, 2002 was lower
than the same period in 2001 due to lower invested balances and lower rates
of return available on invested funds.
Income Taxes
The tax provision for the three months ended March 31, 2002 is based on
the estimated effective tax rate for the year, which is less than the
statutory rate due to tax credits and exempt income.
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. Readers are cautioned not to place undue
reliance on these forward looking statements, which reflect management's
opinions only as of the date hereof. Readers should carefully review the
risk factors described in other documents the Company files from time to
time with the Securities and Exchange Commission, including the Annual
Report on Form 10-K. 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, 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
No change from information disclosed in the Company's 2001 annual
report on form 10-K.
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 March 31, 2002.
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: April 25, 2002 /s/STEVEN MARKOWITZ
Steven Markowitz, President and Chief
Executive Officer
Date: April 25, 2002 /s/NATHAN S. ECKHART
Nathan S. Eckhart, Vice President-Finance,
Chief Financial and Principal Accounting
Officer