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, 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 November 4, 1999:
Class A - Voting 84,002 shares
Class B - Non-voting 1,086,709 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, 1999 and 1998
Consolidated Condensed Balance Sheets at September 30, 1999
and December 31, 1998
Consolidated Condensed Statements of Cash Flows for the nine
months ended September 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 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:
9/30/99 9/30/98 9/30/99 9/30/98
Net Sales $15,590,813 $11,812,748 $41,178,161 $32,607,958
Cost and Expenses
Costs of sales 9,483,652 9,049,514 26,554,709 23,373,332
Selling, general and
administrative 3,793,895 2,938,614 10,314,029 8,607,726
Research and
development 1,422,583 881,845 3,547,169 2,502,382
Total Costs and
Expenses 14,700,130 12,869,973 40,415,907 34,483,440
Income (Loss) from
Operations 890,683 (1,057,225) 762,254 (1,875,482)
Other Income (Expense)
Interest and other
income 228,704 248,472 694,562 714,833
Gain (loss) on sale of
property, plant and
equipment -- 3,812 1,063,541 (3,593)
Minority interests in
consolidated subsidiaries 36,331 (44,760) 58,676 52,466
Total Other Income and
Expense 265,035 207,524 1,816,779 763,706
Income (Loss) Before Taxes 1,155,718 (849,701) 2,579,033 (1,111,776)
Provision for Taxes 414,000 (250,000) 929,000 (332,000)
Net Income (Loss) $ 741,718 $ (599,701) $ 1,650,033 $ (779,776)
Basic and Diluted Earnings
(Loss) Per Share $0.63 $(0.51) $1.41 $(0.66)
Shares Used in Per
Share Calculation 1,170,721 1,179,170 1,170,721 1,179,170
Dividends Per Share-Cash $0.14 $0.14 $0.42 $0.42
Total Comprehensive
Income (Loss) $ 708,258 $ (774,412) $ 1,563,026 $ (778,023)
See accompanying notes.
ALLEN ORGAN COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
September 30, Dec 31,
ASSETS 1999 1998
(Unaudited) (Audited)
Current Assets
Cash $ 1,097,577 $ 1,727,554
Investments Including Accrued Interest 18,544,440 19,988,346
Accounts Receivable 10,585,934 7,068,588
Inventories:
Raw Materials 6,477,561 6,916,909
Work in Process 4,189,024 4,932,978
Finished Goods 4,516,322 2,631,290
Total Inventories 15,182,907 14,481,177
Prepaid Income Taxes -- 422,656
Prepaid Expenses 627,857 511,954
Deferred Income Tax Benefits 359,854 306,812
Total Current Assets 46,398,569 44,507,087
Property, Plant and Equipment 22,485,923 21,415,237
Less Accumulated Depreciation (11,323,466) (11,503,600)
Total Property, Plant and Equipment 11,162,457 9,911,637
Other Assets
Prepaid Pension Costs 513,267 642,609
Inventory Held for Future Service 1,180,615 1,242,754
Note Receivable 1,111,147 659,886
Cash Value of Life Insurance 1,693,397 1,400,334
Intangible and Other Assets, net 3,802,149 3,625,646
Total Other Assets 8,300,575 7,571,229
Total Assets $65,861,601 $61,989,953
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Current Liabilities
Accounts Payable $ 2,871,674 $ 1,562,432
Accrued Taxes on Income 570,934 --
Other Accrued Expenses 1,845,462 1,422,285
Customer Deposits 1,902,185 1,527,429
Total Current Liabilities 7,190,255 4,512,146
Noncurrent Liabilities
Deferred Liabilities 465,708 280,504
Total Liabilities 7,655,963 4,792,650
Minority Interests 229,574 288,607
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) 1,650,033 (616,711)
Dividends - Cash 1999 and 1998 (491,699) (659,709)
Balance, End 55,607,094 54,448,760
Accumulated other comprehensive income:
Unrealized Gain (Loss) on Investments 47,329 134,336
Treasury Stock
1999-43,230 Class A shares;324,052 Class B shares(11,974,962) --
1998-43,120 Class A shares;315,703 Class B shares -- (11,971,003)
Total Stockholders' Equity 57,976,064 56,908,696
Total Liabilities and Stockholders' Equity $65,861,601 $61,989,953
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:
9/30/99 9/30/98 9/30/99 9/30/98
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income (loss) $ 741,718 $ (599,701) $1,650,033 $ (779,776)
Adjustments to reconcile net
income to net cash provided by
operating activities
Depreciation and amortization 614,817 392,718 1,439,029 1,160,631
Minority interest in
consolidated subsidiaries (36,331) 44,760 (58,676) (52,466)
(Gain) Loss on sale of
property, plant and equipment -- (3,812) (1,063,541) 3,593
Change in assets and liabilities
Accounts receivable (1,820,476) (633,476) (3,517,346) (931,102)
Inventories (938,038) 2,295,422 (639,591) 2,045,358
Prepaid income taxes -- (334,000) 422,656 (487,542)
Prepaid expenses 362,005 67,572 (115,903) (155,733)
Prepaid pension costs 43,113 38,124 129,342 114,374
Deferred income tax benefits 24,999 -- (5,832) --
Accounts payable 342,207 339,834 1,309,242 153,574
Accrued taxes on income 488,951 -- 570,934 --
Accrued expenses 356,473 (21,077) 423,177 320,854
Customer deposits 134,552 (18,026) 374,756 231,562
Other noncurrent liabilities 59,625 (1,875) 185,204 (5,625)
Net Cash Provided by
Operating Activities 373,615 1,566,463 1,103,484 1,617,702
CASH FLOW FROM INVESTING
ACTIVITIES
Proceeds from the sale of
property, plant and equipment -- 4,900 1,382,717 7,225
Additions to intangibles and
other assets (252,849) (110,276) (539,851) (132,107)
Increase in note receivable (40,059) -- (451,261) (416,670)
Purchases of plant and
equipment (755,911) (379,801) (2,632,796) (1,071,434)
Increase in cash value of
life insurance (293,063) (244,130) (293,063) (244,130)
Net sale (or purchase) of
short-term investments 577,569 (875,701) 1,309,689 1,300,180
Net Cash Provided by (Used in)
Investing Activities (764,313) (1,605,008) (1,224,565) (556,936)
CASH FLOWS FROM FINANCING
ACTIVITIES
Reacquired Class A common shares -- -- (3,959) --
Reacquired Class B common shares -- (38,285) -- (58,839)
Dividends paid in cash (163,900) (165,210) (491,699) (495,745)
Subsidiary company stock
reacquired from minority
shareholders -- -- (13,238) (29,976)
Net Cash Used In Financing
Activities (163,900) (203,495) (508,896) (584,560)
NET (DECREASE) INCREASE IN CASH (554,598) (242,040) (629,977) 476,206
CASH, BEGINNING 1,652,175 1,738,594 1,727,554 1,020,348
CASH, ENDING $1,097,577 $1,496,554 $1,097,577 $1,496,554
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION
Cash paid for:
Income Taxes $ 360,000 $ 84,000 $ 526,400 $ 120,050
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 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 nine months ended
September 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 September 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 decreased during the nine month period
ended September 30, 1999, primarily due to a $2,800,000 increase in accounts
receivable and $1,700,000 increase in inventory related to the growth of
Eastern Research, Inc. Inventory decreased by $1,000,000 in the Musical
Instrument segment.
Cash flows from investing activities were used to purchase approximately
$2,633,000 in plant and equipment during the nine months ended September 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. Plant and equipment purchases of approximately
$1,300,000 in the Data Communications segment are primarily related to
leasehold improvements, new computers, office and test equipment to support
the growth of Eastern Research. The Company estimates that Eastern Research
will require an additional $400,000 in capital expenditures to continue its
growth in 1999.
Results of Operations:
Sales and Operating Income
For the 3 Months Ended: For the 9 Months Ended:
9/30/99 9/30/98 9/30/99 9/30/98
Net Sales to
Unaffiliated Customers
Musical Instruments $ 7,361,100 $ 6,824,925 $19,637,926 $18,732,540
Data Communications 6,395,441 3,271,863 16,272,411 8,218,537
Electronic Assemblies 1,484,956 1,123,344 4,010,094 3,716,136
Audio Equipment 349,316 592,616 1,257,730 1,940,745
Total $15,590,813 $11,812,748 $41,178,161 $32,607,958
Intersegment Sales
Musical Instruments $ 9,716 $ 15,922 $ 56,217 $ 104,034
Data Communic ations 127,069 -- 171,304 594
Electronic Assemblies -- 92,788 37,742 384,937
Audio Equipment 1,931 25,754 45,316 136,801
Total $ 138,716 $ 134,464 $ 310,579 $ 626,366
Income (Loss) from Operations
Musical Instruments $ 1,108,392 $ (124,768) $ 1,729,053 $ 849,418
Data Communications (74,875) (937,965) (811,752) (2,888,551)
Electronic Assemblies 116,315 (61,892) 263,437 165,276
Audio Equipment (259,149) 67,400 (418,484) (1,625)
Total $ 890,683 $(1,057,225) $ 762,254 $(1,875,482)
Musical Instruments Segment
Sales increased $536,175 and $905,386 respectively for the three and nine
months ended September 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 increased to 33% and 29% of sales respectively
for the three and nine months ended September 30, 1999 compared to 17% and 25%
in the same periods in 1998. The 1998 results were negatively
affected by additional costs related to the Company's operational
restructuring of manufacturing processes and the implementation of new
information systems.
Selling, general and administrative expenses remained approximately the
same for the three and nine months ended September 30, 1999 when compared to
the same periods in 1998.
Research and development expenditures increased approximately $128,000
during the nine months ended September 30, 1999 primarily due to new product
development.
Data Communications Segment
Segment sales increased $3,123,578 and $8,053,874 respectively for the
three and nine months ended September 30, 1999 when compared to the same
period in 1998 as a result of higher sales at Eastern Research, Inc. (ERI).
ERI increased its incoming order volume, expanded its customer base, and
shipped products under OEM agreements with other data communication equipment
companies.
Gross profit margins increased to 51% and 47% respectively for the three
and nine months ended September 30, 1999 when compared to 38% and 39% in the
same period in 1998 due to higher sales of ERI's DNX product line.
Sales and marketing expenditures increased approximately $704,000 (73%) and
$1,472,000 (53%) respectively for the three and nine months ended September
30, 1999 when compared to the same periods in 1998. This was primarily due to
the expansion of its 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 nine months ended September 30, 1999 when compared to the same
periods in 1998.
Research and development expenditures increased approximately $512,000
(81%) and $925,000 (52%) for the three and nine months ended September 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 increased $361,612 and $293,958 respectively for the three and nine
months ended September 30, 1999 when compared to the same period in 1998 from
increased incoming orders.
The gross profit percentage increased to 15% and 14% in the three and nine
months ending September 30, 1999 compared to 6% and 11% for the same periods
in 1998. The 1998 gross margins were negatively affected by the segments
restructuring of its operations along with the Musical Instruments segment.
Selling, general and administrative expenses increased approximately
$86,000 during the nine months ended September 30, 1999 when compared to the
same period in 1998 due to increased sales and marketing efforts.
Audio Equipment Segment
Sales decreased $243,300 and $683,015 for the three and nine months ended
September 30, 1999 when compared to the same periods in 1998.
The gross profit percentage decreased to 38% in the nine months ended
September 30, 1999 as compared to 40% in 1998. This decrease is attributable
to changes in distribution from direct marketing to dealer audition sites in
several markets. Selling, general and administrative expenses remained
approximately the same for the three and nine months ended September 30, 1999.
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 has recently developed
and has begun marketing 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 1999. Allen Audio has begun to establish a
dealer network and began shipping units for dealer stock.
Other Income and Expense
Investment income declined slightly during the three and nine months ended
September 30, 1999 due to lower invested balances. Gain (loss) on sale of
property, plant and equipment includes approximately $1,068,000 of gains
related to the sale of the Rocky Mount, North Carolina 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 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description
10.3 Executive Bonus Program and Endorsement Split Dollar
Life Insurance Agreements between the Company and Dwight
A. Beacham, Nathan S. Eckhart and Barry J. Holben
(b) No reports on Form 8-K were filed during the quarter ended
September 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: November 4, 1999 /s/ STEVEN MARKOWITZ
Steven Markowitz, President and
Chief Executive Officer
Date: November 4, 1999 /s/ LEONARD W. HELFRICH
Leonard W. Helfrich, Vice President-
Finance, Chief Financial
and Principal Accounting Officer