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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(Mark One)
(X) Annual Report Pursuant to Section 13 or 15(d) of The Securities
Exchange Act of 1934
For the Fiscal Year Ended December 31, 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) (IRS 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
Securities registered pursuant to section 12 (b) of the Act:
None
Securities registered pursuant to section 12 (g) of the Act:
Class B Common Shares, par value $1 per share
(Title of Class)
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
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment of this Form 10-K. ( X )
The Class A voting stock of the registrant is not registered pursuant to
the Securities Exchange Act of 1934, is not publicly traded, and,
therefore, no market value information exists for such stock held by non-
affiliates.
The number of shares outstanding of each of the Registrant's classes of
common stock, as of the close of business on March 10, 2000:
Class A - Voting 84,002 Class B - Non-voting 1,086,709
ALLEN ORGAN COMPANY
INDEX
PART I
1. Business
- General developments of business
- Industry Segments
- Description of business
- Financial information about foreign operations and export sales
2. Properties
3. Legal Proceedings
4. Submission of Matters to a Vote of Security Holders
PART II
5. Market for the Registrants Common Stock and
Related Security Holder Matters
6. Selected Financial Data
7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
7A.Quantitative and Qualitative Disclosures About Market Risk
8. Financial Statements
9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
PART III
10. Directors and Executive Officers of the Registrant
11. Executive Compensation
12. Security Ownership of Certain Beneficial Owners and Management
13. Certain Relationships and Related Transactions
PART IV
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
Signatures
Exhibit
PART I
Item 1. Business
General developments of business.
Incorporated in Pennsylvania in 1945, Allen Organ Company
and Subsidiaries ("Company") operate in four industry segments:
Musical Instruments, Data Communications, Electronic Assemblies,
and Audio Equipment.
On March 7, 2000 the Company announced that it is exploring
strategic alternatives for its subsidiary Eastern Research, Inc.
(ERI). These alternatives include a public offering by the
Company or ERI, divestiture, merger or other options, which would
provide ERI with resources to continue its growth. The Company
is weighing various alternatives for ERI and has not decided on
what course of action is in the Company's best interest nor when
this evaluation will be completed.
Industry segments.
The Company operates in four industry segments: Musical
Instruments, Data Communications, Electronic Assemblies, and
Audio Equipment. For financial information concerning the
segments, see Note 15 to the financial statements.
Description of business.
Musical Instruments.
Allen Organ Company is a leading manufacturer of electronic
keyboard musical instruments, primarily digital electronic church
organs and accessories. This segment accounted for 47%, 57%
and 58% of revenue in 1999, 1998 and 1997 respectively.
The principal market for the Musical Instruments segment are
institutions, primarily churches. Sales to the home market make
up a smaller portion of the segment's sales. The segment's
musical instruments are distributed mostly through dealers,
primarily independent retail music stores throughout the United
States, with a lesser percentage distributed through dealers
internationally. The segment's business is not seasonal.
The principal raw materials used in the segment's products
are electronic components and wood, all of which are readily
available from various sources without undue difficulty. Certain
electronic components have been placed on allocation by the
suppliers and order lead times have been significantly increased
for numerous electronic components. At the present time the
Company does not expect this to significantly affect future
product shipments.
The segment does not engage in any significant amounts of
consignments, extended payment terms, or lease guarantees. The
Company is contingently liable in connection with certain
customers' financing arrangements. See Note 10 to the financial
statements. The dollar amounts and number of times the Company
has had to honor these repurchase agreements are negligible.
The Musical Instruments segment is not dependent on any
single or small group of customers, the loss of which would have
a material adverse effect on the business. The dollar amount of
the segment's unshipped order backlog at the end of February 2000
and 1999 was $7.0 million and $6.3 million respectively. All
orders are expected to be filled in the current year.
The electronic organ industry is competitive involving at
least five (5) domestic and foreign companies. In addition,
there are many small pipe organ companies in the institutional
organ market. The organ market consists of two basic divisions,
institutional (primarily churches) and home or entertainment.
The Company believes it has a major position in the institutional
market because of product performance and competitive prices, and
a smaller percentage of the home or entertainment market.
Data Communications.
The Data Communications segment operates through three
majority owned subsidiaries, VIR, Inc., Linear Switch Corporation
and Eastern Research, Inc. This segment accounted for 40%, 27%
and 22% of revenues in 1999, 1998 and 1997 respectively.
Data communications products are sold primarily to wholesale
and retail distributors worldwide and under OEM agreements with
several of its customers. The segment maintains an inventory of
in-process and finished goods to allow for rapid fulfillment of
customer orders which is expected in the industry.
The principal raw material used in the data communications
products are electronic components, which are readily available
from various sources without undue difficulty. Certain
electronic components have been placed on allocation by the
suppliers and order lead times have been significantly increased
for numerous electronic components. At the present time the
Company does not expect this to significantly affect future
product shipments.
The data communications segment derived 52% of its 1999
revenue from three customers and 13% and 12% of its 1998 and 1997
revenues from one customer.
VIR, Inc. (VIR) and Linear Switch Corporation (LSC) During
1997, these two companies combined their marketing and research &
development functions under the name of "VIR Linear Switch". The
companies design, manufacture, and market a number of data
communication products including patch and testing equipment,
often referred to as tech control products, test access equipment
and a matrix switch which can transport high-speed digital
signals and allow "any-to-any" connectivity between and among
connections. The products are of varying complexity and are used
to connect, switch, test and trouble shoot data lines in large
computer installations.
The Companies compete in a relatively mature field,
producing high quality products at competitive prices. The
Companies have approximately four major competitors, all of which
are larger than VIR/LSC.
With the need for higher speed and more reliable
communications circuits increasing, VIR/LSC introduced in 1998, a
new family of products (TAS DS1 and DS3) to provide the ability
to access and configure these higher speed circuits for various
test procedures. These products require long sales cycles.
During the second half of 1999 VIR/LSC began delivering products
to Competitive Local Exchange Carriers (CLEC), which is one of
the targeted markets for these products.
The dollar amount of unshipped order backlog at the end of
February 2000 and 1999 was $955,000 and $56,000 respectively.
All orders are expected to be filled in the current year.
Eastern Research, Inc. (ERI) Designs and markets data inter-
networking products. These products include direct access
equipment that allow users to utilize a broad range of services
offered by the telephone companies.
ERI competes in a growing market that is in excess of $10
billion. However, the Company's current and projected product
lines and sales programs are targeted at only a fraction of that
market. The customer base includes major end-user corporations,
public carriers, Internet Service Providers and systems
integrators. There are many competitors in this market that is
dominated by several large data communications companies, such as
Cisco Systems, Tellabs and Alcatel. The Company's strategy has
been to target existing, yet still growing, market niches with
products that provide new features and packaging with attractive
pricing.
ERI initially built its business in the CSU/DSU market and
also developed router technology products. These products are
relatively inexpensive and easy to manufacture. Thus, this is a
competitive field where margins erode as new products emerge.
ERI is focusing on its DNX (Digital Exchange Network)
product line, a narrowband DACS (Digital Access Cross-connect
Switch) capable of access speeds from subrate to DS3. The DNX
revenues have significantly increased as a percentage of sales
and is ERI's flagship product. In order to properly capitalize
on this market's opportunities, ERI is continuing to implement
more aggressive marketing strategies and is also increasing
product development work. This will continue to require further
investment through the coming year.
ERI has been able to increase sales by working with, and
developing strategic customer relationships to expand
distribution of its products. One such relationship, which ERI
entered into, is an OEM agreement to supply Lucent Technologies
with its DACS product line.
The dollar amount of unshipped order backlog at the end of
February, 2000 and 1999 was $2.0 million and $3.0 million
respectively. All orders are expected to be filled in the
current year.
Electronic Assemblies.
Allen Integrated Assemblies (AIA), a division of the Allen
Organ Company, provides subcontract manufacture of electronic
assemblies for outside customers. The Electronic Assemblies
segment is an outgrowth of the technical skills and manufacturing
capabilities developed by the Company in its musical instruments
business. This segment accounted for 10%, 10% and 15% of revenue
in 1999, 1998, and 1997 respectively. AIA derived 68% of its
revenues from three customers in 1999 and 1998, and 55% of its
revenues from one customer in 1997.
The Electronic Assemblies segment is very competitive with
numerous manufacturers offering such services. Customers are
generally obtained from a geographic area close to the
manufacturer. In order to improve its contract manufacturing
capabilities, the segment is upgrading its manufacturing systems
and increasing its sales and marketing efforts.
The dollar amount of the segment's unshipped order backlog
at the end of February 2000 and 1999 was $1.6 million and $2.6
million respectively. All orders are expected to be filled in
the current year.
Audio Equipment.
The Audio Equipment segment operates through two
subsidiaries, Legacy Audio, Inc and Allen Audio, Inc. This
segment accounted for 3% and 6% of revenue in 1999 and 1998
respectively, and 5% of revenues for the 9 month period from
acquisition to December 31, 1997.
The principal raw materials used in the segment's products
are audio speakers, electronic components and wood, all of which
are readily available from various sources without undue
difficulty.
The Audio Equipment segment is not dependent on any single
or small group of customers, the loss of which would have a
material adverse effect on the business
Legacy Audio, Inc. (LAI) Designs, manufactures and markets
high-quality audio speaker cabinets for hi-fi stereo and home
theater applications. It also markets electronic audio equipment
amplifiers that are manufactured to its specifications by third
party suppliers.
The principal market for LAI's products are consumers for
home use. The segment's products are distributed directly to the
customer and through Dealer Audition Sites. This segment's
business is not seasonal.
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.
LAI's manufacturing facility is currently operating near
full capacity. Many of their manufacturing needs are similar to
those required in the Company's Musical Instruments segment. The
Company is building some of LAI's speaker cabinets at its
Macungie, PA facility.
The Company competes with several other high-end audio
speaker cabinet manufacturers including Martin-Logan, Thiel, B&W,
Celestion, and others.
LAI is not dependent on any single, or small group, of
customers. The dollar amount of the segment's unshipped order
backlog at the end of February 2000 and 1999 was $674,000 and
$246,000 respectively. All orders are expected to be filled in
the current year.
Allen Audio, Inc. (AAI) Designs, manufactures and markets
Public Address System products.
AAI has developed a PA System mixer utilizing Digital Signal
Processor (DSP) technology also used in the Allen digital organs.
AAI has also developed a line of speakers for the PA field. The
Company began marketing these PA Systems to mid-sized churches,
auditoriums and the like during 1999. These products are being
distributed through dealers primarily in the sound reinforcement
business. AAI began shipping products primarily for dealer
inventory during the second half of 1999.
General.
The Company's working capital is sufficient to meet the
normal expansion of inventory and receivables.
The Company spent $4,910,278, $3,478,775, and $2,654,662
annually in 1999, 1998, and 1997 respectively on research and
development. The increases are a result of the Company's ongoing
commitment to new product development and support, primarily at
Eastern Research.
The Company and its subsidiaries employ approximately 567
persons.
The Company is not aware of any problem in complying with
applicable federal, state, or local provisions with regard to the
environment. The manufacturing requirements do not require any
special expenditures to meet environmental compliance.
Financial information about foreign operations and export sales.
The Company does not own manufacturing or sales facilities
in any foreign countries. See Note 14 to the financial
statements, for additional information on export sales.
Export sales are all made in US dollars and for the most
part are made under Letter of Credit or on a prepaid basis.
The Company has established a Foreign Sales Corporation
within the meaning of the Internal Revenue Code of 1986. This
wholly-owned subsidiary is Allen Organ International, Inc., a
Virgin Islands corporation.
Item 2. Properties
The following sets forth the location, approximate square
footage and use of the Company's operating locations segregated
by segment. The Company believes that its facilities are
generally suitable and adequate for its needs.
Approximate
Location Square Footage Use
Musical Instruments and Electronic Assemblies:
Macungie, Pennsylvania 242,000 Administrative, research and
manufacturing facility.
Owned by Allen Organ Company.
Operating at approximately
90% capacity.
Macungie, Pennsylvania 27,000 International sales,
exhibition center, museum
and teaching facility. Owned
by Allen Organ Company.
Data Communications:
Southampton, Pennsylvania 22,000 Administrative, research
and manufacturing facility.
Leased until July, 2000.
Operating at approximately
80% capacity.
Moorestown, New Jersey 29,000 Administrative, sales and
research facility. Leased
until September, 2002.
Audio Equipment:
Springfield, Illinois 15,000 Administrative, research
and manufacturing facility.
Owned by Legacy Audio, Inc.
Operating at approximately
95% capacity.
In April 1999, the Company sold its manufacturing and sales
facility located in Rocky Mount, North Carolina. See Note 3 to
the financial statements, for additional information.
Item 3. Legal Proceedings
There is no litigation requiring disclosure pursuant to Item
103 of regulation S-K.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders
during the fourth quarter of fiscal year 1999.
PART II
Item 5. Market for the Registrant's Common Stock and Related Security
Holder Matters
The Company's Class A voting shares are not registered
pursuant to the Securities Exchange Act of 1934 and are not
publicly traded. The Company's Class B non-voting stock trades
on The NASDAQ Stock Market under the symbol AORGB.
The high and low bid quotations for each quarter during the
last two years as reported by NASDAQ Market Information System is
as follows:
1999 High Low
First Quarter 41 1/8 33
Second Quarter 39 33 1/2
Third Quarter 40 1/2 35 1/4
Fourth Quarter 39 3/4 37
1998 High Low
First Quarter 43 38
Second Quarter 42 1/2 37
Third Quarter 40 1/2 35
Fourth Quarter 39 33
The Company has 8 Class A Shareholders and 325 Class B
Shareholders of record as of March 10, 2000.
During the past two fiscal years, the Company has declared
dividends on both its class A and B shares as follows:
Record of Quarterly Dividends Paid in 1999
Record Date Payable Amount
Cash 2/19/99 3/5/99 $.14
Cash 5/23/99 6/6/99 $.14
Cash 8/20/99 9/3/99 $.14
Cash 11/19/99 12/3/99 $.14
Record of Quarterly Dividends Paid in 1998
Record Date Payable Amount
Cash 2/20/98 3/6/98 $.14
Cash 5/22/98 6/5/98 $.14
Cash 8/21/98 9/4/98 $.14
Cash 11/20/98 12/4/98 $.14
Item 6. Selected Financial Data
Years Ended December 31,
1999 1998 1997 1996 1995
Net Sales $58,018,742 $44,966,075 $40,348,084 $36,715,128 $30,024,761
Net Income
(Loss) $ 2,884,488 $ (616,711) $ 3,512,142 $ 3,865,876 $ 4,015,105
Earnings (Loss)
per share $ 2.46 $ (0.52) $ 2.79 $ 2.88 $ 2.94
Cash dividends
per share $ .56 $ .56 $ .56 $ .55 $ .55
At Year End
Total Assets $67,466,070 $61,989,953 $62,562,004 $63,966,646 $65,299,426
Long-Term Debt,
net of current
portion $ 0 $ 0 $ 0 $ 0 $ 1,388,000
The 1999, 1998 and 1997 results of operations include the Audio
Equipment segment acquired April 1, 1997.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources:
The Company continues to maintain a strong financial position and
high level of liquidity, which enables it to generate funds internally
to meet operating needs, capital expenditures and short-term
obligations. Key indicators of the Company's liquidity are presented
below:
December 31,
1999 1998
Working Capital $40,175,282 $39,994,941
Current Ratio 6 to 1 10 to 1
Debt to Equity Ratio .13 to 1 .08 to 1
The Company's ratio of debt to equity has remained very low
because of management's continuing policy of financing expansion with
internally generated funds. This policy has enabled the Company to
maintain its competitive advantage without incurring the costs
associated with borrowed funds.
Cash flows provided by operating activities decreased during 1999
as compared to 1998 primarily due to a 3,075,000 increase in accounts
receivable and $2,800,000 increase in inventory at Eastern Research,
Inc. as a result of that subsidiaries growth. Cash flows provided by
operating activities increased during 1998 compared to 1997 primarily
due to $3,200,000 and $600,000 reduction in inventory levels in the
Musical Instruments and Electronic Assemblies segments' respectively.
The Company expects that cash flows from operating activities will be
sufficient to fund expected increases in working capital during 2000.
Cash flows used in investing activities during 1999 were used to
purchase approximately $3,260,000 in plant and equipment 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 $1,567,000 in the Data Communications segment are
primarily related to leasehold improvements, new computers, office and
test equipment to support the growth of Eastern Research. To continue
Eastern Research's growth through 2000, the Company estimates that
capital expenditures will approximate $1,700,000.
Cash flows used in investing activities during 1998 were used to
purchase approximately $925,000 in machinery and equipment to be used
in the Musical Instruments and Electronic Assemblies segments
including approximately $200,000 for hardware and software related to
new information systems. The Data Communications segment used
approximately $552,000 primarily related to computer, office and test
equipment purchased to support the growth of Eastern Research.
During 1997, cash flows from investing activities were used
primarily to fund the purchase of treasury shares. Cash flows from
investing activities were also used to fund the acquisition of Legacy
Audio, Inc. in April, 1997. During 1997, the company increased its
expenditures for property and equipment including approximately
$700,000 additional automated equipment and building improvements to
enhance its electronics manufacturing capabilities used in the musical
instruments and electronic assemblies segments.
Results of Operations:
Sales and Operating Income
Consolidated net sales increased $13,052,667 (29%) during 1999 as
compared to 1998 primarily due to higher sales at Eastern Research,
Inc (ERI) as well as in the Musical Instruments segment. ERI
increased its incoming order volume, expanded its customer base, and
shipped products under OEM agreements with other data communication
equipment companies. In 1998, sales increased $4,617,991 (11%) as
compared to 1997 primarily due to increased sales in the Musical
Instruments segment related to higher order volume and changes in
product mix and from the Data Communications segment resulting from
additional sales and marketing efforts initiated since the
acquisition.
December 31,
1999 1998 1997
Net Sales
Musical Instruments
Domestic $23,769,362 $21,748,131 $18,918,509
Export 3,563,383 3,676,981 4,432,974
Total 27,332,745 25,425,112 23,351,483
Data Communications
Domestic 22,149,842 11,036,926 6,933,787
Export 1,146,137 1,261,029 2,103,734
Total 23,295,979 12,297,955 9,037,521
Electronic Assemblies
Domestic 5,650,917 4,727,975 5,935,381
Audio Equipment
Domestic 1,651,566 2,422,507 1,812,138
Export 87,535 92,526 211,561
Total 1,739,101 2,515,033 2,023,699
Total $58,018,742 $44,966,075 $40,348,084
Income (Loss) from Operations
Musical Instruments $ 2,950,251 $ 795,773 $ 2,718,085
Data Communications (805,738) (3,397,020) (1,069,165)
Electronic Assemblies 430,031 326,609 631,521
Audio Equipment (761,688) (9,846) 337,495
Total $ 1,812,856 $(2,284,484) $ 2,617,936
Musical Instruments Segment
The 1999 and 1998 increase in domestic sales reflects
continuing customer acceptance of the Company's products based on
Renaissance technology. In addition, churches, which are the
primary customer for the segments products, have also been the
beneficiary of the strong US economy and financial markets, which
has increased the segments order volume during these same periods.
Export sales decreased in 1999, 1998 and 1997, primarily from
changes in economic conditions in certain world markets,
particularly Far East countries. The order volume from certain
foreign markets improved during 1999.
Gross profit margins on sales were 30.5%, 24.6% and 28.1% for
the three years ended December 31, 1999. The increase in the 1999
gross profit is a result of higher sales volume and the business
improvement programs, which negatively affected the 1998 gross
profit. These programs included, implementation of new information
systems, up-graded production and product planning processes and
the closure of the North Carolina production facility and
consolidated of all organ production at the Macungie, PA facility.
Selling, administrative, and other expenses increased
approximately $200,000 and $230,000 in 1999 and 1998 respectively,
due to increased selling costs associated with the higher sales
volume.
Research and development expenses increased approximately
$151,000 and $147,000 in 1999 and 1998 respectively. These
increases are primarily due to increases in personnel to continue
new product development.
Data Communications Segment
Domestic sales in each of the last two years have increased as
a result of additional sales and marketing efforts initiated since
the acquisition. International sales in 1999 and 1998 decreased
primarily from changes in economic conditions in certain world
markets, particularly Far East countries.
The Company has significantly increased its investment in the
sales, marketing and research and development efforts at Eastern
Research and will continue to do so in the future. These
additional efforts are focused on expanding channels of
distribution and targeting markets for the Company's products. The
segment is developing strategic relationships with customers to
expand their channels of distribution. One such relationship,
which Eastern Research has entered into in February 1999, is an OEM
agreement to supply Lucent Technologies with its DACS product line.
Gross profit margins were 48%, 41% and 46% for the three years
ended December 31, 1999. The 1999 increase is due to higher sales
of VIR's DS3/DS1 Test Access Systems and ERI's DNX product line.
1998 gross profits were lower due to variations in product mix.
While the companies strive to maintain profit margins by developing
products that offer more features, the industry is competitive
which often results in pricing changes to obtain and maintain
market share.
Selling expenses increased approximately $2,200,000 and
$2,000,000 in 1999 and 1998 respectively, reflecting the additional
sales and marketing efforts. Selling expenses will continue to
increase in the future as sales and marketing programs and
personnel are added to further promote the segment's products and
obtain additional market share.
Administrative expenses remained approximately equal in 1999
and 1998.
Research and development expenses were $3,759,183, $2,464,808
and $1,799,665 for the years ended December 31, 1999, 1998 and
1997, respectively. The segment is committed to new product
development and support and expects these expenditures to continue
to increase the future.
Electronic Assemblies Segment
Sales increased during 1999 from higher incoming order volume.
Gross profit margins were 15.2%, 13.6% and 14.5% for the three
years ended December 31, 1999. The 1999 increase is due to changes
in product mix. The 1998 decrease was related to the segment's
efforts to restructure operations along with the Musical
Instruments segment.
Selling, general and administrative expenses increased
approximately $115,000 in 1999 when compared to 1998. The segment
continues its marketing efforts and has begun to diversify its
customer base. The Company continues to improve its production
capabilities to offer state of the art manufacturing services to
its customers.
Audio Equipment Segment
Sales for the year ended December 31, 1999 decreased
approximately $775,000 when compared to 1998.
Gross profit margins were 38.1%, 39.6% and 49.7% for the years
ended December 31, 1999 and 1998, and the nine month period ended
1997, respectively. This decrease is attributable to lower sales
volume and changes in distribution in certain areas from direct
marketing to Dealer Audition Sites.
Selling, general and administrative costs increased
approximately $390,000 during 1999 as compared to 1998 resulting
from increased sales and marketing efforts and additional
administrative personnel added to support the company's growth.
As previously discussed, 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
shipping units in the second half of 1999 and began to incur
expenses associated with the initiation of its sales and marketing
efforts during 1999.
Other Income (Expense)
The decrease in investment income during 1999 and 1998 is due
to lower invested balances. The 1999, 1998, and 1997 amounts
include $67,244, $242,227 and $765,109 of realized capital gains
respectively.
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
Income Taxes
The 1999 effective tax rate was 30.6%, which is net of the
benefits of tax credits and tax exempt income. The 1998 effective
rate was 55.4%, this increase related primarily to the effect of
tax exempt income.
Factors that May Affect Operating Results
The statements contained in this report on Form 10-K 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 Quarterly Reports on Form 10-Q to be
filed by the Company in fiscal year 1999. 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.
See Note 1 to the financial statements for information
concerning the effects of changes in accounting policies.
Item 7A Quantitative and Qualitative Disclosures About Market Risk.
Financial instruments that potentially subject the Company to
market and/or credit risk consist principally of short-term
investments and trade receivables. The Company places
substantially all of its investments in mutual funds holding
federal, state and local government obligations and, by policy,
limits the amount of credit exposure in any one investment. The
Company's Musical Instruments segment sells most of its products
through established dealer networks. The Data Communications
segment sells most of their products to wholesale and retail
distributors worldwide and under OEM agreements with other data
communications companies. The market and credit risk associated
with related receivables is limited due to the large number of
dealers and distributors and their geographic dispersion. The
Company has no other material exposure to market risk.
Item 8. Financial Statements
See Item 14 for index.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
There were no reportable events as described in Item 304(b).
KPMG
4905 Tilghman Street
Allentown, PA 18104
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Allen Organ Company
We have audited the accompanying consolidated balance sheets of Allen
Organ Company and Subsidiaries as of December 31, 1999 and 1998, and the
related consolidated statements of income, stockholders' equity and cash
flows for each of the years in the three year period ended December 31,
1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
Allen Organ Company and Subsidiaries as of December 31, 1999 and 1998, and
the results of their operations and their cash flows for each of the years
in the three year period ended December 31, 1999 in conformity with
generally accepted accounting principles.
/s/ KPMG LLP
Allentown, PA
February 2, 2000
ALLEN ORGAN COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31
ASSETS 1999 1998
CURRENT ASSETS
Cash $ 209,277 $ 1,727,554
Investments including accrued interest 19,649,433 19,988,346
Accounts receivable, net of allowance for
doubtful accounts of $300,823 in 1999
and $191,057 in 1998 10,444,430 7,068,588
Inventories 16,715,328 14,481,177
Prepaid income taxes -- 422,656
Prepaid expenses 287,138 511,954
Deferred income tax benefits 658,869 306,812
Total Current Assets 47,964,475 44,507,087
PROPERTY, PLANT AND EQUIPMENT, NET 11,429,173 9,911,637
OTHER ASSETS
Prepaid pension costs 470,154 642,609
Inventory held for future service 733,301 1,242,754
Note receivable 1,111,147 659,886
Cash value of life insurance 1,721,497 1,400,334
Deferred income tax benefits 122,742 --
Goodwill, net 3,872,441 3,619,147
Other assets 41,140 6,499
Total Other Assets 8,072,422 7,571,229
Total Assets $67,466,070 $61,989,953
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 3,593,708 $ 1,562,432
Accrued income taxes 683,133 --
Other accrued expenses 1,927,156 1,422,285
Customer deposits 1,585,196 1,527,429
Total Current Liabilities 7,789,193 4,512,146
NONCURRENT LIABILITIES
Deferred liabilities 179,915 280,504
Total Liabilities 7,969,108 4,792,650
MINORITY INTERESTS 175,271 288,607
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, par value $1 per share
Authorized
Class A Shares - 400,000 in 1999 and 1998
Class B Shares - 3,600,000 in 1999 and 1998
Issued 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
Total Common Stock 1,537,993 1,537,993
Capital in excess of par value 12,758,610 12,758,610
Retained earnings 56,677,650 54,448,760
Accumulated other comprehensive income:
Unrealized gain on investments, net 322,400 134,336
Sub-total 71,296,653 68,879,699
Less cost of common shares in treasury
1999 - 43,230 Class A shares and
324,052 Class B shares (11,974,962) --
1998 - 43,120 Class A shares and
324,052 Class B shares -- (11,971,003)
Total Stockholders' Equity 59,321,691 56,908,696
Total Liabilities and Stockholders' Equity $67,466,070 $61,989,953
See accompanying notes to Consolidated Financial Statements.
ALLEN ORGAN COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31,
1999 1998 1997
NET SALES $58,018,742 $44,966,075 $40,348,084
COSTS AND EXPENSES
Cost of sales 36,793,515 31,870,469 26,785,916
Selling, administrative and
other expenses 14,502,093 11,486,315 8,289,570
Research and development 4,910,278 3,478,775 2,654,662
Costs to close Rocky Mount plant -- 415,000 --
Total Costs and Expenses 56,205,886 47,250,559 37,730,148
INCOME (LOSS) FROM OPERATIONS 1,812,856 (2,284,484) 2,617,936
OTHER INCOME (EXPENSE)
Investment income 1,128,524 1,223,699 2,114,722
Gain (loss) on sale of property,
plant and equipment 1,063,722 (8,153) 3,984
Other income (expense), net (9,593) 21,078 10,459
Minority interests in
consolidated subsidiaries 112,979 61,958 6,041
Total Other Income 2,295,632 1,298,582 2,135,206
INCOME (LOSS) BEFORE TAXES 4,108,488 (985,902) 4,753,142
PROVISION FOR TAXES
Current 2,030,000 (11,000) 1,296,000
Deferred (806,000) (646,000) (55,000)
Total Provision for Taxes 1,224,000 (657,000) 1,241,000
NET INCOME (LOSS) BEFORE CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE $ 2,884,488 $ (328,902) $ 3,512,142
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE (net of
income tax benefit of $183,000) -- (287,809) --
NET INCOME (LOSS) $ 2,884,488 $ (616,711) $ 3,512,142
OTHER COMPREHENSIVE INCOME, NET OF TAX
Unrealized gains on investments:
Unrealized gains arising $ 230,132 $ 162,874 $ 525,168
during period
Less: reclassified adjustment
for gains included in income (42,068) (157,012) (486,074)
Other comprehensive income 188,064 5,862 39,094
COMPREHENSIVE INCOME (LOSS) $ 3,072,552 $ (610,849) $ 3,551,236
BASIC AND DILUTED EARNINGS PER SHARE:
Net income (loss) before cumulative
effect of change in accounting
principle $ 2.46 $ (0.28) $ 2.79
Cumulative effect of change in
accounting principle -- (0.24) --
NET INCOME (LOSS) $ 2.46 $ (0.52) $ 2.79
See accompanying notes to Consolidated Financial Statements.
ALLEN ORGAN COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Common Stock Capital
in
Class A Class B Excess of
Shares Amount Shares Amount Par Value
Balance-December 31, 1996 128,104 $128,104 1,409,889 $1,409,889 $12,758,610
Exchange Class A Shares
for Class B Shares (872) (872) 872 872
Balance-December 31, 1997 127,232 $127,232 1,410,761 $1,410,761 $12,758,610
Balance-December 31, 1998 127,232 $127,232 1,410,761 $1,410,761 $12,758,610
Balance-December 31, 1999 127,232 $127,232 1,410,761 $1,410,761 $12,758,610
Accumulated
Other
Retained Comprehensive Treasury Stock
Earnings Income Shares Amount
Balance-December 31, 1996 $52,915,056 $ 89,380 213,756 $ 5,991,708
Net Income 3,512,142
Reacquired Class B Shares 143,519 5,626,717
Change in unrealized gain
on securities available
for sale 39,094
Cash dividend paid
($.56 per share) (702,018)
Balance-December 31, 1997 $55,725,180 $128,474 357,275 $11,618,425
Net Loss (616,711)
Reacquired Class B Shares 9,897 352,578
Change in unrealized gain
on securities available
for sale 5,862
Cash dividend paid
($.56 per share) (659,709)
Balance-December 31, 1998 $54,448,760 $134,336 367,172 $11,971,003
Net Income 2,884,488
Reacquired Class A Shares 110 3,959
Change in unrealized gain
on securities available
for sale 188,064
Cash dividend paid
($.56 per share) (655,598)
Balance-December 31, 1999 $56,677,650 $322,400 367,282 $11,974,962
See accompanying notes to Consolidated Financial Statements.
ALLEN ORGAN COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31,
1999 1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $2,884,488 $ (616,711) $3,512,142
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities
Depreciation and amortization 1,916,970 1,478,379 1,114,639
Minority interest in consolidated
subsidiaries (112,979) (61,958) (6,041)
Cumulative effect of change in
accounting principle (excluding
income tax effects) -- 470,809 --
(Gain) Loss on sale of property,
plant and equipment (1,063,722) 8,153 (3,984)
Gain on sale of investments (67,244) (242,227) (765,110)
Change in assets and liabilities (net
of acquisition effects)
Accounts receivable (3,375,842) (1,336,156) (914,493)
Inventories (1,724,698) 3,459,802 (3,188,750)
Prepaid income taxes 422,656 (189,761) 164,509
Prepaid expenses 224,816 (28,654) (328,631)
Deferred income tax benefits (474,799) (306,812) --
Prepaid pension costs 172,455 152,498 94,099
Other assets (34,641) -- --
Accounts payable 2,031,276 649,322 498,632
Accrued income taxes 683,133 -- --
Other accrued expenses 504,871 730,003 192,927
Customer deposits 57,767 219,428 546,262
Deferred liabilities (100,589) (514,851) (32,217)
Net Cash Provided by Operating
Activities 1,943,918 3,871,264 883,984
CASH FLOWS FROM INVESTING ACTIVITIES
Cash proceeds from sale of investments
classified as available for sale 5,993,248 2,526,721 30,263,188
Cash paid for purchase of investments
classified as available for sale (5,399,027) (2,226,644) (20,497,033)
Increase in cash value of life
insurance (321,163) (277,839) (264,278)
Increase in note receivable (451,261) (456,329) (40,409)
Payment for acquisition, net of cash
acquired -- -- (1,512,000)
Additions goodwill (733,194) (238,534) (211,690)
Cash proceeds from sale of property,
plant and equipment 1,382,716 28,170 7,841
Cash paid for purchase of property,
plant and equipment (3,260,719) (1,477,340) (2,046,097)
Net Cash (Used In) Provided by
Investing Activities (2,789,400) (2,121,795) 5,699,522
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid in cash (655,598) (659,709) (702,018)
Reacquired Class B common shares -- (352,578) (5,626,717)
Subsidiary company stock reacquired
from minority stockholders (13,238) (29,976) (15,625)
Reacquired Class A common shares (3,959) -- --
Net Cash Used in Financing Activities (672,795) (1,042,263) (6,344,360)
NET (DECREASE) INCREASE IN CASH (1,518,277) 707,206 239,146
CASH, JANUARY 1 1,727,554 1,020,348 781,202
CASH, DECEMBER 31 $ 209,277 $1,727,554 $1,020,348
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION
Cash paid for income taxes $1,625,400 $ 167,050 $1,758,833
See accompanying notes to Consolidated Financial Statements.
ALLEN ORGAN COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 Significant Accounting Policies
Background:
Allen Organ Company and Subsidiaries operate in four industry
segments: Musical Instruments, Data Communications, Electronic
Assemblies, and Audio Equipment. See Note 15 for additional information
on the operating activities of each segment.
Principles of Consolidation:
The consolidated financial statements include the accounts of the
Allen Organ Company and the following subsidiaries. All material
intercompany transactions have been eliminated.
Subsidiary Name Ownership %
Allen Audio, Inc. 100.00%
Allen Diversified, Inc. 100.00%
Allen Organ International, Inc. 100.00%
Eastern Research, Inc. 92.52%
Legacy Audio, Inc. 75.00%
Linear Switch Corporation 92.20%
Rocky Mount Instruments, Inc. 100.00%
VIR, Inc. 98.59%
Off-Balance Sheet Risk:
Financial instruments that potentially subject the Company to credit
risk consist principally of short-term investments and trade receivables.
The Company places substantially all of its investments in mutual funds
holding federal, state and local government obligations and, by policy,
limits the amount of credit exposure in any one investment. The Company's
Musical Instruments segment sells most of its products through established
dealer networks. The Data Communications segment sells most of their
products to wholesale and retail distributors worldwide and under OEM
agreements with other data communications companies. The credit risk
associated with related receivables is limited due to the large number of
dealers and distributors and their geographic dispersion.
Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reported period. Actual results could differ from those
estimates.
Investments:
The Company accounts for its short-term investments in accordance with
Statement of Financial Accounting Standards No. 115, Accounting for
Certain Investments in Debt and Equity Securities. Management determines
the appropriate classification of its investments in debt and equity
securities at the time of purchase and reevaluates such determination at
each balance sheet date.
Inventories:
Inventories are valued at the lower of cost or market. Cost is
determined using the first-in, first- out (FIFO) method for substantially
all inventories.
Property, Plant and Equipment:
Property, plant and equipment are stated at cost. Depreciation is
computed over estimated useful asset lives using both straight-line and
accelerated methods for financial reporting and accelerated methods for
tax reporting.
Goodwill:
Goodwill represents the excess of cost over the net assets of acquired
subsidiaries. Goodwill is amortized on a straight-line basis over various
periods from 3 - 20 years and is presented net of accumulated amortization
of $1,275,630 and $782,850 at December 31, 1999 and 1998 respectively.
The carrying value of goodwill for each business is continually reviewed
to assess its recoverability from future operations of the acquired
subsidiaries, based on future cash flows (undiscounted) expected to be
generated by such operations. Any impairment in value indicated by the
assessment would be charged against current operations.
Income Taxes:
Income taxes are provided for the tax effects of transactions reported
in the financial statements and consist of taxes currently due plus
deferred taxes. Deferred taxes are recognized for differences between the
basis of assets and liabilities for financial statement and income tax
purposes.
Research and Development:
Research and development expenditures are charged to expense as
incurred.
Stock-Based Compensation:
The Company accounts for its stock-based compensation plans using the
accounting prescribed by Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees. Since the Company is not
required to adopt the fair value based recognition provisions prescribed
under Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation, it has elected only to comply with the
disclosure requirements set forth in the Statement. (See Note 18.)
Change in Accounting Policies:
Effective January 1, 1998, the Company adopted the AICPA Accounting
Standards Executive Committee Statement of Position, 98-5, Reporting on
the Costs of Start-up Activities, (SOP 98-5). In accordance with SOP 98-
5, costs associated with start-up activities, including organizational
costs, should be expensed as incurred. The effect of the change resulted
in a decrease to net income for the year ended December 31, 1998 of
$287,809 (net of taxes of $183,000). These amounts were a result of
unamortized organizational costs associated with the subsidiaries in the
Data Communications and Audio Equipment segments.
NOTE 2 Business Acquisitions
Legacy Audio:
On April 1, 1997 the Company purchased a 75% interest in Legacy Audio
in exchange for $1,512,000 in cash. In connection with the acquisition,
the company established a new subsidiary, Legacy Audio, Inc. (LAI), to
acquire the assets of the seller. A founding owner of the seller
contributed the remaining 25% of the assets of the seller to the new
company in exchange for a 25% interest in LAI. Additionally, this
founding owner has been named the President and Chief Designer of LAI.
The acquisition has been accounted for as a purchase. The results of
operations of LAI have been included in the Company's consolidated
financial statements from the date of acquisition. Assets and liabilities
have been recorded at their estimated fair market values with the excess
being recorded as goodwill, which is being amortized over a 20 year
period.
NOTE 3 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. 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 December 31, 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.
NOTE 4 Investments
The cost and fair value of investments in debt and equity securities
are as follows:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
December 31, 1999
Available for sale
Equity securities $ 129,311 $ 218 $ 88,966 $ 40,563
Mutual Funds
Short Term Gov't Funds 9,854,584 -- 97,841 9,756,743
Municipal Bond Funds 5,873,745 -- 211,713 5,662,032
Equity Funds 2,211,262 895,833 -- 3,107,095
U.S. Treasury Bills 1,083,000 -- -- 1,083,000
Totals $19,151,902 $896,051 $398,520 $19,649,433
December 31, 1998
Available for sale
Equity securities $ 181,473 $ 42 $139,696 $ 41,819
Mutual Funds
Short Term Gov't Funds 10,331,781 135,266 -- 10,467,047
Municipal Bond Funds 6,066,165 112,575 -- 6,178,740
Equity Funds 2,779,074 118,495 14,829 2,882,740
U.S. Treasury Bills 418,000 -- -- 418,000
Totals $19,776,493 $366,378 $154,525 $19,988,346
Marketable debt securities have an average contractual maturity of
approximately 1 year or less.
Realized gains and losses are determined based on the original cost of
these investments using a first-in, first-out method. During 1999, 1998
and 1997, sales proceeds and gross realized gains and losses on securities
classified as available for sales were:
1999 1998 1997
Sales proceeds $5,993,248 $2,526,721 $30,263,188
Gross realized losses $ 60,606 $ -- $ 44,448
Gross realized gains $ 127,850 $ 242,227 $ 809,558
The change in net unrealized holding gains (losses) on securities
available for sale in the amount of $285,677, $8,697, and 53,746 net of
deferred tax expense (benefits) of $97,613, $2,835, and $14,650 has been
included in other comprehensive income in stockholders' equity for the
years ended December 31, 1999, 1998, and 1997, respectively.
NOTE 5 Inventories
December 31,
1999 1998
Finished goods $ 5,915,057 $ 2,631,290
Work in process 4,803,969 4,932,978
Raw materials 5,996,302 6,916,909
Totals $16,715,328 $14,481,177
The Company also maintains an inventory of various parts to be used
to service musical instruments as future needs arise which are reported
as a noncurrent asset.
NOTE 6 Property, Plant and Equipment
Estimated
December 31, Useful
1999 1998 Lives
Land and improvements $ 2,369,994 $ 2,445,579 10 yrs
Buildings and improvements 8,636,998 8,250,158 10-40 yrs
Machinery and equipment 8,629,366 8,385,676 5-10 yrs
Office furniture and equipment 3,283,352 2,109,192 3-8 yrs
Vehicles 194,087 224,632 4 yrs
Sub-total 23,113,797 21,415,237
Less accumulated depreciation 11,684,624 11,503,600
$11,429,173 $ 9,911,637
Depreciation expense charged to operations was $1,424,189,
$1,044,393 and $836,769 in 1999, and 1998 and 1997 respectively.
NOTE 7 Note Receivable
The Company has entered into two Split-Dollar Life Insurance
agreements with its President who is the insured and owner of the
policies. The policy owner shall pay the portion of the premiums equal
to the value of the economic benefit determined in accordance with
applicable IRS Revenue Rulings. The Company shall pay the balance of
the net premiums, which shall approximate $450,000 annually.
The agreements provide that the Company shall be entitled to
recover the amount of premiums paid out of the built up cash value upon
termination of the agreement or out of the proceeds upon the death of
the insured. As security for repayment the Company is a collateral
assignee of the policy to the extent of any such unreimbursed premiums.
The Company is also secured by the personal obligation of its
President. The note receivable exceeds the cash surrender value of
these policies by approximately $415,000 and $340,000 at December 31,
1999 and 1998, respectively.
NOTE 8 Income Taxes
The provision for income taxes consists of the following:
1999 1998 1997
Currently Currently Currently
Payable Deferred Payable Deferred Payable Deferred
Federal $1,620,000 $(658,000) $(151,000) $(420,000) $1,270,000 $ 73,000
State 410,000 (148,000) 125,000 (394,000) 26,000 (128,000)
Total $2,030,000 $(806,000) $ (26,000) $(814,000) $1,296,000 $(55,000)
The total 1998 tax benefit of $840,000 is included in current and
deferred taxes on income and in the tax effect of the cumulative effect
of change in accounting principle on the consolidated statements of
income.
A reconciliation of the provision for income taxes with the
statutory rate follows:
1999 1998 1997
Statutory provision for
federal income tax $1,359,000 34.0% $ (516,000) 34.0% $1,614,000 34.0%
State taxes, net of
federal tax benefits 73,000 1.8 (177,000) 11.7 81,000 1.6
Tax credits (179,000) (4.5) -- -- (60,000) (1.3)
Tax-exempt income (110,000) (2.8) (97,000) 6.4 (110,000) (2.3)
Exempt income of foreign
sales corporation (77,000) (1.9) (61,000) 4.0 (101,000) (2.1)
Other items, net 58,000 1.5 11,000 (0.7) (38,000) (0.8)
Effect of change in
prior years state tax
revenue allocations -- -- -- -- (229,000) (4.8)
Effect of change in
state valuation allowance
of deferred tax asset 100,000 2.5 -- -- 84,000 1.8
Total $1,224,000 30.6% $ (840,000) 55.4% $1,241,000 26.1%
The following temporary differences give rise to the net deferred
tax asset at December 31, 1999 and 1998.
1999 1998
Deferred Tax Liabilities
Excess of tax depreciation/amortization
over book depreciation/amortization $ (389,932) $ (359,778)
Excess of pension expense for tax
purposes over book (172,872) (224,910)
Unrealized gain not recognized for
tax purposes (184,206) (74,522)
Total Deferred Tax Liabilities (747,010) (659,210)
Deferred Tax Assets
Deferred compensation not
recognized for tax purposes 66,612 16,856
Net operating loss carry forwards 740,368 383,516
Accrued expenses to close
Rocky Mount plant -- 112,652
Reserve for Bad Debts 113,714 70,702
Inventory Reserve 801,927 243,709
Sub-total 1,722,621 827,435
Valuation Allowance (194,000) (94,000)
Total Deferred Tax Assets 1,528,621 733,435
Net Deferred Tax Asset $ 781,611 $ 74,225
Deferred taxes are included in the Company's financial statements as
follows:
1999 1998
Current deferred tax asset $ 658,869 $ 306,812
Non-current deferred tax asset (liability) 122,742 (232,587)
Net deferred tax asset $ 781,611 $ 74,225
The Company has available at December 31, 1999, approximately
$756,000 of unused federal and $8,100,000 of unused state net operating
loss carry forwards that may be applied against future taxable income and
that expire in various years from 2002 to 2019.
At December 31, 1999 and 1998 the Company recorded a valuation
allowance of $194,000 and $94,000, respectively against the deferred tax
assets relating to the uncertainty of realizing state net operating loss
carry forwards.
NOTE 9 Other Accrued Expenses
December 31,
1999 1998
Accrued salaries and commissions $ 722,336 $ 552,099
Accrued additional purchase price 733,319 238,535
Accrued plant closing costs 44,588 304,431
Other 426,913 327,221
Total $1,927,156 $1,422,286
NOTE 10 Commitments and Contingencies
As of December 31, 1999, the Company is contingently liable for a
maximum amount of approximately $1,891,000 in connection with the
financing arrangements of certain customers.
Under the terms of an agreement with the wife of the late Chairman
and principal shareholder, the Company may be required to purchase within
eight months of her death, at the option of her personal representative,
an amount of Class B Common Shares then owned by her or includable in her
estate for Federal Estate Tax purposes sufficient to pay estate taxes and
costs, subject to the limitations of Section 303 of the Internal Revenue
Code. At December 31, 1999, the shareholder owned or would have
includable in her estate 261,072 shares of Class B Common Stock. The
Company has purchased life insurance on the life of the shareholder with
a face value of $6,000,000. While the potential obligation related to
this agreement is in large part dependent on the value placed on the
Company's stock for estate tax purposes, the Company believes that it
would have access to sufficient resources to fund this obligation if
necessary.
In connection with the purchase of VIR, Eastern Research and Linear
Switch, the Company agreed to pay a contingent purchase price equal to
4.5% of the sales of these Companies in excess of $7,000,000 per year
through December 2000. The total additional payment for 1999, 1998 and
1997 amounted to $733,319, $238,535 and $92,432, respectively. The
agreement provides that the total of these payments shall not exceed
$2,000,000.
The Company's Data Communications segment leases its offices and
production facility under non-cancelable operating leases which expire at
various dates through September 2002. These leases include renewal
options for periods ranging up to fifteen years with increases of lease
payments based on changes in the Consumer Price Index. Rent expense was
$321,368, $230,447and $179,765 for 1999, 1998 and 1997, respectively.
Minimum annual rent payments for the operating leases are as follows:
2000 $ 313,258
2001 305,040
2002 228,173
Total $ 846,471
NOTE 11 Retirement Plans
The Company sponsors two noncontributory defined benefit pension
plans, which cover substantially all of its employees. Salaried plan
benefits are generally based on the employee's years of service and
compensation levels. Hourly plan benefits are based on various monthly
amounts for each year of credited service. The Company's funding policy
is to contribute amounts to the plans sufficient to meet the minimum
funding requirements set forth in the Employee Retirement Income Security
Act of 1974, plus such additional amounts as the Company may determine to
be appropriate from time to time. Plan assets are comprised principally
of cash equivalents, U.S. Government obligations, fixed income
securities, and equity securities.
Following are reconciliations of the pension benefit obligation and
the value of plan assets:
1999 1998 1997
Pension benefit obligation
Balance, beginning of year $14,923,318 $13,222,392 $13,252,456
Service cost 380,650 310,909 299,166
Interest cost 999,772 983,147 953,842
Benefits paid to participants (812,359) (792,052) (757,090)
Gain (loss) on updated
data/assumptions (426,280) 1,198,922 (525,982)
Balance, end of year $15,065,101 $14,923,318 $13,222,392
Plan assets
Fair value, beginning of year $15,611,950 $14,764,799 $13,641,779
Actual investment returns 2,678,280 1,639,203 1,750,515
Company contributions -- -- 129,595
Benefits paid to participants (812,359) (792,052) (757,090)
Fair value, end of year $17,477,871 $15,611,950 $14,764,799
The Funded status of the plans were as follows:
December 31,
1999 1998 1997
Excess of the value of plan assets over
the benefit obligation $ 2,412,770 $ 688,632 $ 1,542,407
Unrecognized prior service cost 73,323 147,313 221,303
Unrecognized net transition
liability (asset) (144,020) (216,028) (288,036)
Unrecognized net actuarial
loss (gain) (1,871,919) 22,692 (680,567)
Prepaid benefit cost $ 470,154 $ 642,609 $ 795,107
The following weighted-average rates were used:
Discount rate on the benefit obligation 7.0% 6.75% 7.5%
Rate of return on plan assets 8.0% 8.0% 8.0%
Rate of long-term compensation increase 6.0% 6.0% 6.5%
Pension expense is comprised as follows:
1999 1998 1997
Service cost $ 380,650 $ 310,909 $ 299,166
Interest cost 999,772 983,147 953,842
Expected return on plan assets (1,209,949) (1,143,540) (1,031,296)
Amortization of unrecognized
prior service cost 73,990 73,990 73,990
Amortization of transition asset (72,008) (72,008) (72,008)
Net Pension Cost $ 172,455 $ 152,498 $ 223,694
The foregoing net amounts regarding the pension benefit obligation
and the value of plan assets are based on a combination of both
overfunded and underfunded plans. The aggregate amounts relating to
underfunded plans are as follows:
December 31,
1999 1998 1997
Projected benefit obligation $ -- $ 7,798,136 $ --
Accumulated benefit obligation -- 6,708,396 --
Fair value of plan assets -- 7,707,085 --
The Company provides a 401(k) deferred compensation and profit
sharing plan for the benefit of eligible employees. The plan allows
eligible employees to defer a portion of their annual compensation,
pursuant to Section 401(k) of the Internal Revenue Code. Company
profit-sharing contributions to the plan are discretionary as
determined by the Company's board of directors. The Company
contributions were $93,388, $112,981and $147,160 to the plans in 1999,
1998 and 1997 respectively.
During 1999, the Company established supplemental executive
retirement plans for 3 of its officers. These plans provide for
discretionary company contributions, which vest over a 5 year period,
accrue interest at the prime rate, not to exceed 9%, and are payable
upon the executives death or retirement.
NOTE 12 Deferred Liabilities
December 31,
1999 1998
Deferred compensation expense $ 179,915 $ 47,917
Deferred income taxes -- 232,587
$ 179,915 $ 280,504
NOTE 13 Earnings Per Share
Earnings per share were computed using 1,170,719 shares in 1999,
1,178,064 shares in 1998, and 1,258,966 shares in 1997, the weighted
average number of shares outstanding during each year. The Company
does not have any dilutive equity instruments.
NOTE 14 Export Sales
In 1999, 1998 and 1997, net sales by the Musical Instruments
segment include export sales, principally to Canada, Europe and the Far
East of $3,563,383, $3,676,981, and $4,432,974, respectively. Net
sales by the Data Communications segment include export sales
principally to Europe and the Far East of $1,146,137 for 1999,
$1,261,029 for 1998, and $2,103,734 for 1997. Net sales by the Audio
Equipment segment include export sales principally to Europe and the
Far East of $87,535 for 1999, $92,526 for 1998 and $211,561 for the
nine months ended December 31, 1997.
NOTE 15 Industry Segment Information
The Company's operations are classified into four industry
segments: Musical Instruments, Data Communications, Electronic
Assemblies, and Audio Equipment. The Musical Instruments segment is
comprised of operations principally involved in the design,
manufacture, sale and distribution of electronic keyboard musical
instruments, primarily digital computer organs and related accessories.
Musical instruments are sold primarily to retail distributors
worldwide.
The Data Communications segment is involved in the design,
manufacture, sale and distribution of data communications equipment.
Data communications products are sold primarily to wholesale and retail
distributors worldwide and under OEM agreements with several customers.
The Electronic Assemblies segment is involved in the manufacture,
sale and distribution of electronic assemblies for outside customers
used primarily as control devices and other circuitry in their
products. Subcontract assembly services are provided primarily to
industrial concerns in Pennsylvania and New Jersey.
The Audio Equipment segment began in 1997 with the acquisition of
Legacy Audio discussed in Note 2. Legacy is involved in the design,
manufacture, sale and distribution of high quality speaker cabinets and
related equipment for hi-fi stereo and home theater applications.
Legacy's products are sold worldwide directly to individual customers
for home use with a lesser percentage distributed through dealer
audition sites. During 1999 the Company established the subsidiary
Allen Audio, Inc. and introduced a line of Public Address system
products, which have initially been targeted at small to mid-sized
churches, auditoriums and similar customers.
Following is a summary of segmented information for 1999, 1998 and
1997.
December 31,
1999 1998 1997
Net Sales to Unaffiliated Customers
Musical Instruments $27,332,745 $25,425,112 $23,351,483
Data Communications 23,295,979 12,297,955 9,037,521
Electronic Assemblies 5,650,917 4,727,975 5,935,381
Audio Equipment 1,739,101 2,515,033 2,023,699
Total $58,018,742 $44,966,075 $40,348,084
Intersegment Sales
Musical Instruments $ 109,667 $ 136,123 $ 5,252
Data Communications 174,516 594 84,939
Electronic Assemblies 37,742 495,266 938,479
Audio Equipment 58,253 148,573 52,244
Total $ 380,178 $ 780,556 $ 1,080,914
Income (Loss) from Operations
Musical Instruments $ 2,950,251 $ 795,773 $ 2,718,085
Data Communications (805,738) (3,397,020) (1,069,165)
Electronic Assemblies 430,031 326,609 631,521
Audio Equipment (761,688) (9,846) 337,495
Total $ 1,812,856 $(2,284,484) $ 2,617,936
Identifiable Assets
Musical Instruments $18,912,763 $19,777,418 $22,669,782
Data Communications 19,764,425 11,532,523 10,294,411
Electronic Assemblies 3,658,915 3,501,492 4,422,908
Audio Equipment 2,209,810 2,259,185 2,153,922
Sub-total 44,545,913 37,070,618 39,541,023
General corporate assets 22,920,157 24,919,335 23,020,981
Total $67,466,070 $61,989,953 $62,562,004
Capital Expenditures
Musical Instruments $ 1,268,726 $ 866,868 $ 1,070,108
Data Communications 1,908,323 542,030 386,308
Electronic Assemblies 5,670 59,850 504,635
Audio Equipment 78,000 8,592 85,046
Total $ 3,260,719 $ 1,477,340 $ 2,046,097
Depreciation and Amortization
Musical Instruments $ 697,587 $ 614,670 $ 518,144
Data Communications 992,933 618,380 392,108
Electronic Assemblies 145,948 171,912 139,542
Audio Equipment 80,502 73,417 64,845
Total $ 1,916,970 $ 1,478,379 $ 1,114,639
Intersegment sales are generally priced at cost plus a percentage
mark-up, and are generally thought to be marginally less than prices
which would be charged for the same product to unaffiliated customers.
Intersegment sales are excluded from net sales reported in the
accompanying consolidated income statements. Identifiable assets by
segment are those assets that are used in the Company's operations
within that segment. General corporate assets consist principally of
cash and short-term investments.
The Electronic Assemblies segment derived 68% of its revenues from
three customers in 1999 and 1998, and 55% of its revenues from one
customer in 1997. The Data Communications segment derived 52% of its
revenue from three customers in 1999 and 13% and 12% of its revenue
from one customer in 1998 and 1997, respectively. The Company's
Musical Instrument and Audio Equipment segments are not dependent on
any single customer.
NOTE 16 Investment Income
December 31,
1999 1998 1997
Interest Income $ 935,290 $ 887,338 $1,198,362
Dividend Income 125,990 94,134 151,250
Gain on Sale of Investments 67,244 242,227 765,110
Total $1,128,524 $1,223,699 $2,114,722
NOTE 17 Stock Option Plans
VIR, Inc. (VIR) and Eastern Research, Inc. (ERI) have established
employee stock-based compensation plans to assist them in attracting
and retaining personnel. The maximum number of these subsidiaries'
shares that may be issued under the plans approximates a 15% interest
in each of the respective companies. Options are issued at estimated
fair market value. The maximum term of the options is 6 years, and
they generally vest equally over 4 years.
As of December 31, 1999, total options issued for VIR and ERI
represent 9% and 12%, respectively, of the shares currently
outstanding. Vested options consist of 4% and 5% of the currently
outstanding shares of VIR and ERI, respectively.
No compensation expense was recognized for these plans. Had
compensation cost been determined pursuant to FASB Statement No. 123,
net income (loss) and earnings per share would have been:
1999 1998 1997
Net income (loss) $2,775,220 $(686,811) $3,431,897
Earnings per share $2.37 $(0.58) $2.73
PART III
Item 10. Directors and Executive Officers of the Registrant.
(a) Identification of Directors
Time Period
Date Term Position
Name Expires Age Position Held
Steven Markowitz Next Annual 46 Director Since 1980
Meeting in 2000
Eugene Moroz Next Annual 76 Director Since 1968
Meeting in 2000
Leonard W. Helfrich (1) Next Annual 70 Director 1964 - 1968 and
Meeting in 2000 1972 to present
Orville G. Hawk (1) Next Annual 82 Director Since 1989
Meeting in 2000
Albert F. Schuster (1) Next Annual 80 Director Since 1989
Meeting in 2000
Martha Markowitz Next Annual 78 Director Since 1991
Meeting in 2000
Jeffrey L. Schucker (1) Next Annual 45 Director Since July 1996
Meeting in 2000
Ernest Choquette Next Annual 46 Director Since April 1998
Meeting in 2000
(1) Audit Committee member.
(b) Identification of Executive Officers.
Time Period
Date Term Position
Name Expires Age Position Held
Steven Markowitz Next Annual 46 President 1990 to
Meeting in 2000 present
Leonard W. Helfrich Next Annual 70 Vice President, 1958 - 1968
Meeting in 2000 Secretary and 1971 to
present
Barry J. Holben Next Annual 47 Vice President October 1995
Meeting in 2000 to present
Dwight A. Beacham Next Annual 53 Vice President October 1995
Meeting in 2000 to present
Nathan S. Eckhart Next Annual 36 Treasurer, May 1996
Meeting in 2000 Assistant Secretary to present
(c) Identification of Certain Significant Employees.
Not required to be answered.
(d) Family Relationships.
Except for Martha Markowitz and Steven Markowitz,
who are mother and son, there is no family relationship
between any officers or directors of the Company.
(e) Business Experience.
(1) Steven Markowitz, Leonard W. Helfrich and
Dwight Beacham, have been employees of the Company
in executive capacities for at least the last five
years.
Mr. Holben has been employed by the
Company since 1989, spending two years in product
development and then serving in various sales
capacities.
Mr. Eckhart has been employed by the
Company since 1993, previously serving as
Controller. Prior to that time he was a manager for
a public accounting firm.
Mr. Moroz was employed by the Company for
over 50 years, having last held the position of Vice
President. He retired from active employment in May
1998 and continues to serve on the Board of
Directors.
Mr. Hawk who has been retired more than
five (5) years was formerly Chairman of the Board
and President of First National Bank of Allentown.
Mr. Schuster is a church director of music
and prior to his retirement more than five (5) years
ago was a supervisor at Bethlehem Steel Corporation.
Mr. Schucker is currently President of
Middle Market Capital Advisors, L.L.C. and formerly
a Vice President of Meridian Capital Markets.
Mr. Choquette has been a member of the law
firm of Stevens & Lee, Reading PA, for almost 20
years and currently serves as Co-Chairman of their
Corporate Group.
Mrs. Markowitz is the widow of Jerome
Markowitz, the Company's founder, and represents the
family interests.
(f) Involvement in Certain Legal Proceedings by
Directors or Officers.
None.
(g) Compliance with Section 16(a) of the Exchange Act.
No transaction required to be reported.
Item 11. Executive Compensation.
Deleted paragraphs and/or columns are not required to be
answered.
(b) SUMMARY COMPENSATION TABLE:
Annual Compensation All Other
Salary Bonus Compensation
Name and Principal Position Year $ $ $
Steven A. Markowitz, President 1999 126,840 - 42,059 (1)
(Chief Executive Officer) 1998 105,115 17,000 35,558
1997 100,090 18,598 30,650
Leonard W. Helfrich, 1999 116,416 -
Vice President - Finance 1998 95,065 16,000
(Secretary) 1997 93,624 17,402
(1)-Value of Split Dollar Life Insurance. See Note 7 to the accompanying
consolidated financial statements for additional information on this
arrangement.
(f) Defined Benefit or Actuarial Plan Disclosure.
Estimated Annual Benefit obtained from 1999 Actuarial
Valuation Report:
Steven A. Markowitz $62,461 Age 46 (1)
Leonard W. Helfrich $42,415 Age 70 (2)
(1) Amount shown is calculated from prior compensation to date and
estimated compensation to normal retirement age (65).
(2) Amount shown is calculated from prior compensation to current age.
(g) Compensation of Directors:
Non-employee Directors receive $350 for
each Board and committee meeting attended plus reasonable
expenses in connection with attendance. Employee
Directors receive no additional compensation for their
services as a Director.
(h) Employment Contracts and Termination of
Employment and Change in Control Arrangements:
There are no employment contracts between
the Company and any of the Company's Executive Officers.
The Company has established an Executive Bonus Program in
the form of executive supplemental retirement plans for
the benefit of Mr. Beacham, Mr. Holben and Mr. Eckhart.
These plans provide for discretionary company
contributions, which vest over a 5 year period, accrue
interest at the prime rate, not to exceed 9%, and are
payable upon the executives death or retirement.
(j) Additional Information with Respect to Compensation Committee
Interlocks and Insider Participation in
Compensation Decisions:
(1) Leonard W. Helfrich, Vice President, Secretary, and
Director of the Company, is the sole member of the
Compensation Committee of the Board of Directors
whose function is to set the compensation of the
President. The compensation of all other employees
is set by or at the direction of the President.
Item 12. Security Ownership of Certain Beneficial Owners and Management
(a) Voting securities of the registrant owned of record or
beneficially by each person who owns of record, or is known by
the registrant to own beneficially, more than 5 percent of any
class of such securities. Class A Common Shares constitute
the only securities with voting rights. Information as of
February 29, 2000.
Amount and
Nature of
Names and Title of Beneficial % of
Addresses Class Ownership Class
Jerome Markowitz A 81,531 97.06%
Trust (2) (1)
821 N. 30th St.
Allentown, PA
(1) Sole voting and investment power
(2) The shares are held by Trustees under an Inter Vivos
Trust established by Mr. Markowitz, who died in February,
1991, for the benefit of his family, principally his widow,
Martha Markowitz. The Trustees are Steven Markowitz,
President and a Director of the Company, and Martha
Markowitz, a Director of the Company.
(b) Each class of equity securities of the registrant or any
of its parents or subsidiaries, other than directors'
qualifying shares, beneficially owned directly or indirectly by
all directors naming them and directors and officers of the
registrant, as a group, without naming them. Information as of
December 31, 1999.
Percent Percent
Nature of of of
Class Class Beneficial Class Class
Directors A B Ownership A B
Steven Markowitz 58 (1) (3) .07 %
13,562 (1) (3) 1.25%
81,531* (2) (4) 97.06 %
242,016* (2) (4) 22.27%
Eugene Moroz 6,290 (1) (3) as
to 6,290
6,000 (2) (4) as
to 6,000 1.13%
Leonard W. Helfrich 346 (2) (4) .03%
Orville G. Hawk 50 (2) (4) .005%
Martha Markowitz 19,056 (1) (3) 1.75%
81,531* (2) (4) 97.06 %
242,016* (2) (4) 22.27%
Percent Percent
All Directors of of
and Officers Class Class Class Class
as a Group A B A B
7 81,589** 287,320** 97.13%** 26.43%
(1) Sole voting power
(2) Shared voting power
(3) Sole investment power
(4) Shared investment power
* Shares owned by the Jerome Markowitz Trust for
which Martha Markowitz and Steven Markowitz, Co-
Trustees, have shared voting and investment power and of
which Martha Markowitz is the primary beneficiary and
Steven Markowitz, one of the residuary beneficiaries.
** The shares held by the Jerome Markowitz Trust are
not duplicated in the totals for the Class A and Class B
Shares.
(c) Changes in Control. Not required to be answered.
Item 13. Certain Relationships and Related Transactions
See Note 10 to Financial Statements, concerning an agreement
between the Company and Martha Markowitz, a Director of the
Company.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) (1) Financial Statements
The following consolidated financial statements of
Allen Organ Company and its subsidiaries are included in
Part II, Item 8:
Independent Auditors' Reports.
Consolidated Balance Sheets as of December 31, 1999
and 1998.
Consolidated Statements of Income for the years ended
December 31, 1999, 1998, and 1997.
Consolidated Statement of Changes in Stockholders'
Equity for the years ended December 31, 1999, 1998, and
1997.
Consolidated Statements of cash flows for the years
ended December 31, 1999, 1998, and 1997.
Notes to Consolidated Financial Statements.
The individual financial statements of the
Registrant's subsidiaries have been omitted, as they are
all included in the consolidated financial statements
referred to above.
(a) (2) Financial Statement Schedules
Financial schedules are omitted as not applicable.
(a) (3) Exhibits
Exhibit No. Description
2(4) Plan of acquisition
3.1(1) Articles of Incorporation as amended
3.2(2) Bylaws, as amended
10.2(3) Agreement of Amendment between the Company
and Martha Markowitz
10.3(5) Executive Bonus Program and
Endorsement Split Dollar Life Insurance
Agreements between the Company and Dwight
A. Beacham, Nathan S. Eckhart and Barry J.
Holben
21 Subsidiaries of the registrant
1. Incorporated by reference to the exhibit
filed with the Registrants Annual Report on
Form 10-K for the year ended December 31, 1984.
2. Incorporated by reference to the exhibit
filed with the Registrants Quarterly Report on
Form 10-Q for the period ended September 30,1996.
3. Incorporated by reference to the exhibit
filed with the Registrants Annual Report on
Form 10-K for the year ended December 31, 1992.
4. Incorporated by reference to the exhibit filed
with the Registrants Current Report on form 8-K
dated August 1, 1995.
5. Incorporated by reference to the exhibit filed
with the Registrants Quarterly Report on Form
10-Q for the period ended September 30, 1999.
(b) Reports on Form 8-K. None filed during fourth
quarter of 1999.
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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
Date: March 14, 2000 /s/ STEVEN A. MARKOWITZ
Steven A. Markowitz
Chief Executive Officer,
President and Director
Date: March 14, 2000 /s/ LEONARD W. HELFRICH
Leonard W. Helfrich
Vice President-Finance,
and Director, Chief
Financial and Principal
Accounting Officer
Date: March 14, 2000 /s/ MARTHA MARKOWITZ
Martha Markowitz
Director
Date: March 14, 2000 /s/ JEFFREY L. SCHUCKER
Jeffrey L. Schucker
Director