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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, 1994
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
Securities registered pursuant to section 12 (b) of the Act:
Name of each exchange
Title of each class on which registered
None Not applicable
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 issuer's classes of common
stock, as of the latest practical date March 10, 1995:
Class A - Voting 84,984 Class B - Non-voting 1,278,903
ALLEN ORGAN COMPANY
INDEX
Item
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
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
PART I
Item 1. Business
General developments of business.
Incorporated in Pennsylvania in 1945, Allen Organ Company
("Company") designs, manufacturers and markets electronic
musical instruments, primarily digital computer organs and
related accessories. The Company's Allen Integrated Assemblies
division designs and manufacturers electronic assemblies for
outside customers.
Industry segments.
The Company conducts business in two industry segments.
The primary business is electronic keyboard musical instruments
and accessories. The secondary business provides subcontract
design and manufacture of electronic assemblies for outside
customers. For financial information concerning the segments,
see Note 14 to the financial statements.
Description of business.
The Company has manufacturing, research, and sales
facilities at its Macungie, Pennsylvania headquarters; and a
wholly-owned subsidiary, Rocky Mount Instruments, Inc., a North
Carolina corporation, has a manufacturing and sales facility at
Rocky Mount, North Carolina. The principal source of the
Company's musical instruments sales are through dealers,
primarily independent retail music stores throughout the United
States, with a lesser percentage distributed internationally.
The electronic assemblies segment is an outgrowth of the
technical skills and manufacturing capabilities developed by
the Company in its own musical instruments business. This
segment accounted for 13%, 11% and 9% of revenue in 1994, 1993,
and 1992 respectively.
The principal raw materials used in the Company's products
are electronic components and wood, both of which are readily
available from various sources without undue difficulty.
Although the Company has two major selling cycles, peaking
at Easter and Christmas, the difference between these periods
and the rest of the Company's fiscal year sales is not
significant enough for the Company to deem its business as
seasonal.
The Company's working capital is sufficient to meet the
normal expansion of inventory and receivables. No excessive
inventories are required to meet rapid delivery. The Company
does not engage in any significant amounts of consignments,
extended payment terms, or lease guarantees of its customers as
are utilized by the industry. The Company has entered into
product repurchase agreements concerning certain customers'
financing arrangements. See Note 7 to the financial
statements. The dollar amounts and number of times the Company
has had to honor these repurchase agreements are negligible.
The Company is not dependent on any single, or small group
of customers the loss of which would have a material adverse
effect on the Company's business in connection with its
principal business segment of electronic musical instruments.
The second segment of manufacture of electronic assemblies for
outside customers receives a majority of its business from one
customer.
The dollar amount of order backlog believed to be firm at
the end of the year was 3.9 million for 1993 and 3.3 million
for 1994. 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 at
competitive prices and a smaller percentage of the home or
entertainment market which is dominated by special marketing
techniques.
The electronic assemblies segment is very competitive with
numerous manufacturers capable of producing these products.
Customers are generally obtained from a geographic area close
to the manufacturer.
The Company spent $668,552, $612,631, and $625,190 annually
in 1992, 1993, and 1994 respectively on research and
development.
The Company and its subsidiaries employ approximately 450
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 compliances.
Financial information about foreign operations and export
sales.
International export sales have been $4,786,299 in 1992,
$4,607,680 in 1993, and $5,398,667 in 1994. The Company does
not own manufacturing or sales facilities in any foreign
countries.
Effective January 3, 1994, 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 Company believes that its facilities are generally
suitable and adequate for its administrative, sales, research,
and manufacturing functions. The Company is reviewing a
potential need to upgrade or expand its current production
facilities. All land and buildings are owned by the Company,
except number 4 which is currently owned by Rocky Mount
Instruments.
(1) One-story masonry manufacturing building,
about 222,000 square feet, plus a two-story 20,000
square foot technical headquarters, located on 20
acres in Macungie, Lehigh County, Pennsylvania.
(2) 160 acre tract of unimproved land adjacent
to property (1) above.
(3) An international sales and exhibition
center including a 500 seat auditorium and a 12,500
square foot museum and teaching facility on 17
acres, having an approximately 200 foot common
boundary with Company owned land described above.
(4) One-story masonry manufacturing building,
about 70,000 square feet, located on 47 acres in
Rocky Mount, Nash County, North Carolina
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 1994.
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 trade price information for each quarter during
the last two years as reported by NASDAQ Market Information
System is as follows:
1993 High Low
First Quarter 34 29
Second Quarter 30 3/4 28 1/2
Third Quarter 32 29 1/4
Fourth Quarter 34 29 3/4
1994 High Low
First Quarter 34 29 1/2
Second Quarter 39 31 1/2
Third Quarter 41 1/2 36 1/2
Fourth Quarter 39 35
The Company has 9 Class A Shareholders and 432 Class B
Shareholders of record as of March 10, 1995.
During the past two fiscal years, the Company has declared
dividends as follows:
Record of Quarterly Dividends Paid in 1993
Record Date Payable Amount
Cash 2/19/93 3/05/93 $.12
Cash 5/21/93 6/04/93 $.12
Cash 8/20/93 9/03/93 $.12
Cash11/19/93 12/03/93 $.14
Record of Quarterly Dividends Paid in 1994
Record Date Payable Amount
Cash 2/18/94 3/04/94 $.13
Cash 5/20/94 6/03/94 $.13
Cash 8/19/94 9/02/94 $.13
Cash11/18/94 12/02/94 $.16
Item 6. Selected Financial Data
Years Ended December 31,
1994 1993 1992 1991 1990
Net Sales $28,842,789 $26,477,983 $26,238,092 $25,276,374 $25,720,937
Net Income $4,449,703 $3,456,154 $3,397,045 $3,689,207 $4,688,719
Earnings per share $ 3.25 $ 2.48 $ 2.41 $ 2.55 $ 3.18
Cash dividends
per share $ .55 $ .50 $ .50 $ .48 $ .48
At Year End
Total Assets $58,464,695 $55,752,570 $53,581,050 $51,115,657 $49,666,906
Long-Term Liabilities
Liabilities $ 0 $ 0 $ 0 $ 0 $ 0
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,
1994 1993
Working Capital $47,937,778 $45,033,700
Current Ratio 39.6 to 1 29.6 to 1
Debt to Equity Ratio .05 to 1 .05 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. The Company presently has no
major commitments for capital expenditures which would require
significant capital resources.
Results of Operations:
Sales and Net Income
Net sales increased $2,364,806 (8.9%) during 1994 as compared
to 1993 when sales increased $239,891 (1.0%) from 1992. Domestic
and export sales by industry segment for the last three years are
summarized below:
December 31,
1994 1993 1992
Musical Instruments
Organ Products - Domestic $19,772,391 $18,916,491 $18,984,935
Organ Products - Export 5,398,667 4,607,680 4,786,299
Subtotal 25,171,058 23,524,171 23,771,234
Electronic Assemblies -
Domestic 3,671,731 2,953,812 2,466,858
Total $28,842,789 $26,477,983 $26,238,092
The 1994 increase in domestic sales of organ products resulted
from a higher volume of incoming orders, a reduction of the order
backlog and from modest increases in selling prices. During 1994
new organ models were introduced in the majority of the Company's
product line. These new models were very well received by both the
Company's dealers and customers.
Continued increases in domestic interest rates may have an
adverse affect on the Company's future operating results.
The 1993 domestic sales of organ products was virtually
unchanged from 1992, reflecting the limited changes in the economic
climate.
Organ products export sales increased in 1994 due to the
relative weakness of the U. S. dollar in relation to foreign
currencies. Economic changes in foreign countries and foreign
exchange rates may affect future export sales.
Additional marketing efforts and production capabilities have
contributed to the sales increases in the Company's electronic
assemblies segment.
Gross profit margins on sales were 32.3%, 31.4% and 31.0% for
the three years ended December 31, 1994. The increase in the 1994
gross profit margin when compared to 1993 and 1992 reflects
increased sales levels and continued improvement in production
efficiencies, despite continued rising costs.
Income from Operations
Operating income in the Company's musical instruments segment
increased $544,589 (14.3%) in 1994, and $242,036 (6.8%) in 1993.
These increases in operating income are attributable to higher
sales over which to absorb fixed costs and continued efforts to
improve production efficiencies by employing some of the latest
technology in the manufacture of the Company's products.
Operating income from the Company's electronic assemblies
segment has increased primarily due to increases in sales volume.
Other Income
The variations in interest income in 1994, 1993, and 1992 are
primarily attributable to the yields available on short-term
investments and the amounts of principal invested.
During 1994 the Company settled a lawsuit for wrongful
prosecution brought against the attorneys for one of the Company's
competitors. This resulted from a lawsuit the Company settled with
its competitor in 1992.
Other income-net for 1994 and 1992 includes $385,000 and
$200,000 respectively, less legal expenses related to these
settlements.
Selling, Administrative and Other Expenses
Selling, administrative and other expenses increased by
$283,228 (7.5%) in 1994 due to higher variable sales expenses
related to the higher sales volume, while in 1993 these expenses
decreased by $236,179 (5.9%), primarily due to lower advertising
and legal costs.
Income Taxes
The effective tax rate decreased in 1994, primarily due to the
formation of Allen Organ International, a Foreign Sales
Corporation, and higher tax-free non-operating investment income.
The decrease in 1993, when compared to 1992, was primarily due
to an increase in tax exempt income generated by a larger portion
of the company's assets being invested in tax exempt municipal
bonds throughout 1993.
In 1992, the Financial Accounting Standards Board issued the
Financial Accounting Standard No. 109 - Accounting for Income
Taxes. The Corporation adopted the new standard effective January
1992. The cumulative effect of this change in accounting for
income taxes was to reduce the Corporation's deferred tax liability
by $22,025 and also resulted in a one time increase in net income
for 1992 in the same amount.
Item 8. Financial Statements
See Item 14 for index.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None
CONCANNON, GALLAGHER, MILLER & COMPANY, P.C.
CERTIFIED PUBLIC ACCOUNTANTS
Michael J. Gallagher, CPA
Michael R. Miller, CPA
William C. Mason, CPA
Dale E. Grate, CPA
E. Barry Hetzel, CPA
Edward J. Quigley, Jr., CPA
John G. Estock, CPA
Howard D. Gneiding, CPA
Robert A. Oster, CPA
Robert E. Vitale, CPA
John F. Sharkey, Jr., CPA
Victor J. Meyer, CPA
David C. Gehringer, CPA
Gerard D. Stanus, CPA
Robert M. Caster, CPA
INDEPENDENT AUDITORS' REPORT
The Board of Directors
and Shareholders
Allen Organ Company
We have audited the accompanying consolidated balance sheets of Allen
Organ Company and Subsidiaries as of December 31, 1994 and 1993 and the
related consolidated statements of income and retained earnings, and cash
flows for each of the three years in the period ended December 31, 1994.
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 consolidated financial
position of Allen Organ Company and Subsidiaries at December 31, 1994 and
1993 and the consolidated results of their operations and their cash flows
for each of the three years in the period ended December 31, 1994, in
conformity with generally accepted accounting principles.
Concannon, Gallagher, Miller and Company, P.C.
Allentown, PA
January 27, 1995
Member of AICPA Division for CPA Firms SEC and Private Companies Practice
Sections
ALLEN ORGAN COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
ASSETS 1994 1993
CURRENT ASSETS
Cash $105,067 $456,433
Investments, including accrued interest 36,783,908 34,960,608
Accounts receivable 3,052,683 3,050,496
Inventories 8,794,765 7,872,339
Prepaid income taxes 276,580 101,063
Prepaid expenses 98,903 157,068
Deferred income tax benefits 67,420 8,439
Total Current Assets 49,179,326 46,606,446
PROPERTY, PLANT AND EQUIPMENT, AT COST,
LESS ACCUMULATED DEPRECIATION 7,163,476 7,329,495
OTHER ASSETS
Intangible pension asset 443,273 517,263
Inventory held for future service 1,145,511 1,098,861
Deferred income tax benefits 43,116 0
Cash value of life insurance 408,138 200,505
Note receivable 81,855 0
Total Other Assets 2,121,893 1,816,629
Total Assets $58,464,695 $55,752,570
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $171,791 $191,562
Accrued taxes on income 0 60,983
Accrued salaries and commissions 308,941 274,331
Other accrued expenses 314,159 150,478
Customer deposits 446,657 895,392
Total Current Liabilities 1,241,548 1,572,746
NONCURRENT LIABILITIES
Deferred liabilities 77,917 233,128
Accrued pension cost 1,374,007 1,076,870
Total Noncurrent Liabilities 1,451,924 1,309,998
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common stock, par value $1 per share
Authorized
Class A shares - 400,000 in 1994 and 1993
Class B shares - 3,600,000 in 1994 and 1993
Issued
Class A shares (voting)
- 128,104 in 1994 and 1993 128,104 128,104
Class B shares (nonvoting)
- 1,409,889 in 1994 and 1993 1,409,889 1,409,889
Total Common Stock 1,537,993 1,537,993
Capital in excess of par value 12,610,377 12,610,377
Retained earnings 46,524,142 42,828,013
Unrealized loss on investments (98,399) (11,612)
Pension liability adjustment (489,823) (256,740)
Subtotal 60,084,290 56,708,031
Less cost of common shares in treasury
1994 - 43,120 Class A shares and
130,336 Class B shares 4,313,067
1993 - 43,120 Class A shares and
115,890 Class B shares 3,838,205
Total Shareholders' Equity 55,771,223 52,869,826
Total Liabilities and
Shareholders' Equity $58,464,695 $55,752,570
The accompanying notes are an integral part of the consolidated
financial statements.
ALLEN ORGAN COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
Years Ended December 31,
1994 1993 1992
NET SALES $28,842,789 $26,477,983 $26,238,092
COSTS AND EXPENSES
Cost of sales 19,535,326 18,153,170 18,102,730
Selling, administrative and
other expenses 4,058,058 3,774,830 4,011,009
Total Costs and Expenses 23,593,384 21,928,000 22,113,739
INCOME FROM OPERATIONS 5,249,405 4,549,983 4,124,353
OTHER INCOME
Interest income 1,355,304 1,074,100 1,202,927
Other income, net 345,994 28,071 278,740
Total Other Income 1,701,298 1,102,171 1,481,667
INCOME BEFORE TAXES ON INCOME AND
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE 6,950,703 5,652,154 5,606,020
TAXES ON INCOME
Current 2,525,000 2,228,000 2,261,000
Deferred (24,000) (32,000) (30,000)
Total Taxes on Income 2,501,000 2,196,000 2,231,000
INCOME BEFORE CUMULATIVE EFFECT
OF CHANGE IN ACCOUNTING PRINCIPLE 4,449,703 3,456,154 3,375,020
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE 0 0 22,025
NET INCOME 4,449,703 3,456,154 3,397,045
RETAINED EARNINGS
Balance, January 1 42,828,013 40,067,860 37,376,135
Deduct cash dividends (1994 - $.55,
1993 - $.50, 1992 - $.50) 753,574 696,001 705,320
Balance, December 31 $46,524,142 $42,828,013 $40,067,860
EARNINGS PER SHARE BEFORE
CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING PRINCIPLE $ 3.25 $ 2.48 $ 2.39
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE -- -- .02
EARNINGS PER SHARE $ 3.25 $ 2.48 $ 2.41
The accompanying notes are an integral part of the consolidated
financial statements.
ALLEN ORGAN COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31,
1994 1993 1992
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $4,449,703 $3,456,154 $3,397,045
Adjustments to reconcile net
income to net cash provided
by operating activities
Cumulative effect of change in
accounting principle 0 0 (22,025)
Depreciation and amortization 562,241 594,144 628,688
Amortization of bond premiums 218,519 252,278 56,142
Loss (Gain) on sale of property,
plant and equipment 43,829 7,654 (974)
Loss (Gain) on sale of investments 1,853 (1,530) (268)
Loss on sale of other assets 0 1,831 0
Change in assets and liabilities
Accounts receivable (2,187) (44,205) 737,464
Inventories (969,076) (880,826) 194,573
Prepaid income taxes (175,517) (62,787) 545,188
Prepaid expenses 58,165 43,682 (29,962)
Deferred income tax benefits 64,729 (8,439) 115,303
Accounts payable (19,771) (2,955) (76,458)
Accrued taxes on income (60,983) 28,983 8,934
Accrued salaries and commissions 34,610 34,269 (139,686)
Other accrued expenses 163,681 39,698 69,688
Customer deposits (448,735) 285,847 244,338
Deferred taxes and liabilities (155,211) (38,500) (152,803)
Other noncurrent liabilities (28,782) 418 21,774
Net Cash Provided by
Operating Activities 3,737,068 3,705,716 5,596,961
CASH FLOWS FROM INVESTING ACTIVITIES
Cash proceeds from maturity of
investments classified as
held to maturity 40,285,010 52,777,125 69,620,665
Cash paid for purchase of
investments classified as
held to maturity (40,883,194) (52,589,537) (73,873,342)
Cash paid for purchase of
investments classified as
available for sale (1,532,275) (1,868,470) 0
Cash proceeds from sale of
other assets 0 7,830 0
Increase in cash value of
life insurance (207,633) (121,474) (79,031)
Increase in note receivable (81,855) 0 0
Cash proceeds from sale of
property, plant and equipment 100 27,410 1,355
Cash paid for purchase of
property, plant and equipment (440,151) (438,843) (321,599)
Net Cash Used in Investing
Activities (2,859,998) (2,205,959) (4,651,952)
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid in cash (753,574) (696,001) (705,320)
Reacquired Class A and B
common shares (474,862) (850,791) (103,924)
Net Cash Used in Financing
Activities (1,228,436) (1,546,792) (809,244)
NET (DECREASE) INCREASE IN CASH (351,366) (47,035) 135,765
CASH, JANUARY 1 456,433 503,468 367,703
CASH, DECEMBER 31 $105,067 $456,433 $503,468
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION
CASH PAID DURING THE YEAR
FOR INCOME TAXES $2,767,260 $2,240,173 $1,727,427
The accompanying notes are an integral part of the consolidated
financial statements.
ALLEN ORGAN COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 Significant Accounting Policies
The consolidated financial statements include the
accounts of the Company and its subsidiaries. All
significant intercompany transactions have been
eliminated.
Effective January 3, 1994, 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.
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 federal, state
and local government obligations and, by policy, limits
the amount of credit exposure in any one investment. The
Company sells its products through an established dealer
network. The credit risk associated with related
receivables is limited due to the large number of dealers
and their geographic dispersion.
Inventories are valued at the lower of cost or ma
rket. Cost is determined using the first-in, first- out
(FIFO) method for substantially all inventories.
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.
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. The differences relate
primarily to depreciable assets (use of different
depreciation methods and lives for financial statement
and income tax purposes), additional pension liability
and unrealized losses on investments not recognized for
tax purposes. The deferred tax assets and liabilities
represent the future tax consequences of those
differences, which will either be taxable or deductible
when the assets and liabilities are recovered or settled.
During 1993, the Company adopted Statement of
Financial Accounting, Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," which
requires the company to classify its investments in
marketable debt and equity securities as "held to
maturity" if it has the positive intent and ability to
hold the securities to maturity. All other marketable
debt and equity securities are classified as "available
for sale." Securities classified as "available for sale"
are carried in the financial statements at fair value.
Realized gains and losses, determined using the first-in,
first-out (FIFO) method, are included in earnings;
unrealized holding gains and losses are reported as a
separate component of stockholders' equity net of
deferred tax benefit or liability. Securities classified
as held to maturity are carried at amortized cost.
NOTE 2 Investments
The cost and fair value of investments in debt and equity
securities are as follows:
Gross Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
December 31, 1994
Available for sale
Equity securities $435,462 $ $27,257 $408,205
Mutual Funds 2,959,627 14,169 152,732 2,821,064
Held to maturity
U.S. Treasury Bills 18,478,846 18,478,846
Municipal Bonds 14,560,581 235,510 14,325,071
Federal Agency Bonds 515,212 31,977 483,235
Totals $36,949,728 $14,169 $447,476 $36,516,421
December 31, 1993
Available for sale
Equity securities $ 29,310 $ $ $ 29,310
Mutual Funds 1,839,495 20,051 1,819,444
Held to maturity
U.S. Treasury Bills 22,138,695 22,138,695
Municipal Bonds 10,973,159 79,419 11,052,578
Totals $34,980,659 $79,419 $20,051 $35,040,027
Marketable debt securities classified as held to
maturity have an average contractual maturity of
approximately 1 year or less.
The change in net unrealized holding losses on
securities available for sale in the amount of $145,769
and $20,051, net of deferred tax benefits of $58,982 and
$8,439 has been charged to shareholders' equity for the
years ended December 31, 1994 and 1993 respectively.
NOTE 3 Inventories
December 31,
1994 1993
Finished goods $ 450,015 $ 770,514
Work in process 4,884,735 4,361,553
Raw materials 3,460,015 2,740,272
Total $8,794,765 $7,872,339
The Company maintains an inventory of various parts to be
used to service organs as future needs arise. This inventory,
$1,145,511 and $1,098,861 at December 31, 1994 and 1993,
respectively, is reported as a noncurrent asset.
NOTE 4 Property, Plant and Equipment
December 31,
1994 1993
Land and improvements $2,405,086 $2,353,086
Buildings and improvements 7,161,749 7,138,927
Machinery and equipment 5,280,722 5,432,881
Office furniture and equipment 858,745 834,732
Vehicles 171,685 167,442
Subtotal 15,877,987 15,927,068
Less accumulated depreciation 8,714,511 8,597,573
Total $7,163,476 $7,329,495
NOTE 5 Note Receivable
The Company has entered into a Split-Dollar Life
Insurance agreement with its President who is the insured
and owner of the policy. The policy owner shall pay the
portion of the premium 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 $40,000
annually.
The agreement provides 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 premium.
NOTE 6 Income Taxes
The provision for income taxes consists of the
following:
1994 1993 1992
Currently Currently Currently
Payable Deferred Payable Deferred Payable Deferred
Federal $1,958,000 $ (17,000) $1,705,000 $(24,000) $1,717,000 $ (22,000)
State 567,000 (7,000) 523,000 (8,000) 544,000 (8,000)
Total $2,525,000 $ (24,000) $2,228,000 $(32,000) $2,261,000 $ (30,000)
A reconciliation of the provision for income taxes with the
statutory rate follows:
1994 1993 1992
Statutory provision for
federal income tax $2,363,000 34.0% $1,922,000 34.0% $1,906,000 34.0%
State taxes, net of
federal tax benefits 370,000 5.3 340,000 6.0 353,000 6.3
Tax credits (22,000)(0.3) (9,000)(0.2) (16,000)(0.3)
Other items, net (210,000)(3.0) (57,000)(1.0) (12,000)(0.2)
Total $2,501,000 36.0% $2,196,000 38.8% $2,231,000 39.8%
The following temporary differences give rise to the net
deferred tax liability at December 31, 1994 and 1993.
1994 1993
Deferred Tax Liability
Excess of tax depreciation over
book depreciation $(381,000) $(420,529)
Deferred Tax Assets
Deferred compensation not recognized
for tax purposes 32,659 35,947
Pension liability adjustment not
recognized for tax purposes 353,419 186,564
Excess of pension expense for book
purposes over tax 38,038 50,307
Unrealized loss not recognized for
tax purposes 67,420 8,439
Total Deferred Tax Assets 491,536 281,257
Net Deferred Tax Asset (Liability) $110,536 $(139,272)
Deferred taxes are presented in the company's financial
statements as follows:
1994 1993
Current deferred tax asset $67,420 $8,439
Non-current deferred tax asset 43,116 0
Non-current deferred tax liability 0 (147,711)
Net deferred tax asset (liability) $110,536 $(139,272)
Effective January 1, 1992, the Company adopted SFAS No.
109 and recorded a tax credit of $22,025 or $.02 per share,
which amount represents the net decrease to the deferred tax
liability as of that date. Such amount has been reflected in
the consolidated statements of income as the cumulative effect
of an accounting change. The effect of the change on 1992 net
income, excluding the cumulative effect upon adoption, was not
significant.
NOTE 7 Commitments and Contingencies
As of December 31, 1994, the Company is contingently
liable for a maximum amount of approximately $1,145,525 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, certain Class B Common Shares then
owned by her or includable in her estate for Federal Estate Tax
purposes, subject to the limitations of Section 303 of the
Internal Revenue Code. At December 31, 1994, the shareholder
owned or would have includable in her estate 258,950 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
to assist in funding possible future liability under the terms
of the agreement.
NOTE 8 Retirement Plans
The Company sponsors two noncontributory 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.
A summary of the components of net periodic pension
cost for the plans is as follows:
1994 1993 1992
Service cost - benefits earned
during the period $274,987 $281,265 $275,000
Interest cost on projected
benefit obligations 839,838 802,143 705,000
Return on assets
Actual 27,301 (771,932) (670,000)
Deferred gain (loss) (834,046) 16,014 (56,000)
Amortization of net loss from
prior periods 8,649 2,010
Amortization of unrecognized
prior service cost 73,990 73,990 74,000
Amortization of initial
unrecognized net asset (72,008) (72,008) (72,000)
Net Pension Cost $318,711 $331,482 $256,000
The funded status of the Company's pension plans at December
31, 1994 and 1993 is as follows:
1994 1993
Plans Whose Plans Whose Plans Whose Plan Whose
Assets Accumulated Assets Accumulated
Exceed Plan Exceed Plan
Accumulated Benefits Accumulated Benefits
Plan Exceed Plan Exceed
Benefits Assets Benefits Assets
Actuarial present value of
benefit obligations:
Vested benefits $(5,052,381) $(5,827,204) $(4,542,394) $(5,637,291)
Nonvested benefits (19,778) (27,906) (130,055) (40,732)
Accumulated benefit
obligation (5,072,159) (5,855,110) (4,672,449) (5,678,023)
Effect of assumed
increase in compensation
levels for salaried plan (955,449) - (981,359) -
Projected benefit
obligations for service
rendered to date (6,027,608) (5,855,110) (5,653,808) (5,678,023)
Plan assets at fair value 5,507,072 4,639,396 5,588,195 4,755,402
Plan assets in excess of
(less than) projected
benefit obligation (520,536) (1,215,714) (65,613) (922,621)
Unrecognized prior
service cost - 443,273 - 517,263
Unrecognized net asset at
transition (452,052) (52,008) (516,630) (59,438)
Unrecognized net loss 814,295 895,221 427,994 502,742
Adjustment to recognize
minimum liability - (1,286,486) - (960,567)
Accrued Pension Cost $(158,293) $(1,215,714) $ (154,249) $ (922,621)
Statement of Financial Accounting Standards No. 87,
"Employers' Accounting for Pensions" requires the
recognition of an additional minimum liability for
defined benefit plans for which the accumulated benefit
obligation exceeds plan assets. This amount, $1,286,486
in 1994 and $960,567 in 1993, has been recorded as a
noncurrent liability with an offsetting intangible asset
amounting to $443,273 in 1994 and $517,263 in 1993.
Because the asset recognized may not exceed the amount of
unrecognized prior service cost, the balance of $843,213
in 1994 and $443,304 in 1993, net of tax benefits of
$353,390 in 1994 and $186,564 in 1993, is reported as a
separate reduction of shareholders' equity.
The projected benefit obligation for the plans was
determined using an assumed discount rate of 7.5%. An
assumed long-term compensation increase rate of 7% was
used for the salaried plan. The assumed long-term rate
of return on plan assets was 8%.
In November 1994, the Company established a 401(k)
deferred compensation and profit sharing plan for the
benefit of all 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 contributed $136,501 to
the plan in 1994.
NOTE 9 Other Deferred Liabilities
December 31,
1994 1993
Deferred compensation expense $ 77,917 $ 85,417
Deferred income taxes 0 147,711
Total $ 77,917 $ 233,128
NOTE 10 Common Stock, Capital in Excess of Par Value and
Treasury Stock
Common Stock Capital In
Class A Class B Excess of Treasury Stock
Shares Amount Shares Amount Par Value Shares Amount
Balance,
December 31,
1991 128,104 $128,104 1,409,889 $1,409,889 $12,610,377 126,604 $2,883,490
Reacquired
Class B
shares 3,800 103,924
1992 128,104 128,104 1,409,889 1,409,889 12,610,377 130,404 2,987,414
Reacquired
Class B
Shares 28,606 850,791
1993 128,104 128,104 1,409,889 1,409,889 12,610,377 159,010 3,838,205
Reacquired
Class B
Shares 14,446 474,862
1994 128,104 $128,104 1,409,889 $1,409,889 $12,610,377 173,456 $4,313,067
NOTE 11 Earnings Per Share
Earnings per share were computed using 1,370,486
shares in 1994, 1,392,119 shares in 1993, and 1,410,373
shares in 1992, the weighted average number of shares
outstanding during each year.
NOTE 12 Export Sales
In 1994, 1993 and 1992, net sales by the musical
instruments segment include export sales, principally to
Canada, Europe and the Far East of $5,398,667, $4,607,680
and $4,786,299, respectively.
NOTE 13 Research and Development Expense
Research and development expenditures are charged to
expense as incurred. During 1994, 1993 and 1992, research
and development expenditures aggregated $625,190,
$612,631 and $688,552, respectively.
NOTE 14 Industry Segment Information
The Company's operations are classified into two
industry segments: musical instruments and electronic
assemblies. 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. The electronic assemblies
segment is involved in the design, manufacture, sale and
distribution of electronic assemblies for outside
customers used primarily as control devices and other
circuitry in their products.
Following is a summary of segmented information for
1994, 1993 and 1992.
December 31,
1994 1993 1992
Net Sales to Unaffiliated Customers
Musical instruments $25,171,058 $23,524,171 $23,771,234
Electronic assemblies 3,671,731 2,953,812 2,466,858
Total $28,842,789 $26,477,983 $26,238,092
Income from Operations
Musical instruments $4,356,912 $3,812,323 $3,570,287
Electronic assemblies 892,493 737,660 554,066
Total $5,249,405 $4,549,983 $4,124,353
Identifiable Assets
Musical instruments $18,827,345 $18,319,110 $17,793,018
Electronic assemblies 1,329,090 1,032,081 823,507
Subtotal 20,156,435 19,351,191 18,616,525
General corporate assets 38,308,260 36,401,379 34,964,525
Total $58,464,695 $55,752,570 $53,581,050
Capital Expenditures
Musical instruments $ 440,151 $ 438,843 $ 321,599
Depreciation
Musical instruments $ 562,241 $ 594,144 $ 628,688
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 Company's electronic assemblies segment derived
the majority of its revenues from one customer. The
Company's musical instrument segment is not dependent on
any single customer.
NOTE 15 Legal Settlement
During 1994 the Company settled a lawsuit for
wrongful prosecution brought against the attorneys for
one of the Company's competitors. This resulted from a
lawsuit the Company settled with its competitor in 1992.
Other income-net for 1994 includes $385,000 less
legal expenses related to this settlement.
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 41 Director Since 1980
Meeting in 1995
Eugene Moroz Next Annual 71 Director Since 1968
Meeting in 1995
Leonard W. Helfrich Next Annual 65 Director 1964 - 1968 and
Meeting in 1995 1972 to present
Orville G. Hawk Next Annual 77 Director Since 1989
Meeting in 1995
Albert F. Schuster Next Annual 75 Director Since 1989
Meeting in 1995
Martha Markowitz Next Annual 73 Director Since 1991
Meeting in 1995
(b) Identification of Executive Officers. All have served
in executive capacities for at least five years.
Time Period
Date Term Position
Name Expires Age Position Held
Steven Markowitz Next Annual 41 President* 1990 to
Meeting in 1995 present
Eugene Moroz Next Annual 71 Vice President, Since 1965
Meeting in 1995 Assistant
Secretary
Leonard W. Helfrich Next Annual 65 Secretary, 1958 - 1968
Meeting in 1995 Treasurer** and 1971 to
present
William H. Kemmler Next Annual 67 Vice President May, 1991
Meeting in 1995 to present
Dwight A. Beacham Next Annual 48 Assistant Vice May, 1991
Meeting in 1995 President to present
* Steven Markowitz was elected President at the annual meeting on
May 22, 1990. He previously was Vice President--International
Operations.
** Leonard Helfrich who was formerly Assistant Treasurer became
Treasurer at the annual meeting on May 22, 1990.
(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) All officers and directors, except Orville G. Hawk,
Albert F. Schuster, and Martha Markowitz, have
been employees of the Company in executive
capacities for at least the last five years. 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. 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 1994 90,607 22,105 32,249
(Chief Executive Officer) 1993 86,944 19,225 32,905
1992 78,956 17,780
Leonard W. Helfrich, Secretary 1994 82,722 20,875
(Treasurer) 1993 80,288 18,155
1992 73,650 17,255
*Value of Split Dollar Life Insurance. See Note 5 to the accompanying
consolidated financial statements for additional information on this
arrangement.
(f) Defined Benefit or Actuarial Plan Disclosure.
Estimated Annual Benefit obtained from 1994 Actuarial
Valuation Report:
Steven A. Markowitz $52,166. Age 41.
Leonard W. Helfrich $24,495. Age 65.
Amounts shown are calculated from prior compensation to date
and estimated compensation to normal retirement age (65).
(g) Compensation of Directors:
Non-employee Directors receive $250 for each Board and
committee meeting attended plus reasonable expenses in
connection with attendance. EmployeeDirectors 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. Mr. Markowitz,
Mr. Moroz and Mr. Helfrich participate in an officer
bonus plan whereby a bonus is distributed to each
participant officer in proportion to the annual
salary of all participants. The bonus pool is .9% of
consolidated pre-tax profit for the fiscal year after
elimination of bonus accrual, patent income, patent
litigation, and non-operating extraordinary gains or
losses.
(j) Additional Information with Respect to Compensation
Committee Interlocks and Insider Participation
in Compensation Decisions:
(1) Leonard W. Helfrich, Secretary, Treasurer, 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 per cent of
any class of such securities. Class A Common Shares
constitute the only securities with voting rights.
Information as of December 31, 1994.
Amount and
Nature of
Names and Title of Beneficial % of
Addresses Class Ownership Class
Jerome Markowitz A 81,531 95.9%
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, 1994.
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) 1.0 %
81,531* (2) (4) 95.9 %
242,016* (2) (4) 18.7 %
Eugene Moroz
799 (1) (3) as
to 799
12,156 (2) (4) as
to 12,156 1.0 %
Leonard W.
Helfrich 328 (2) (4) .03%
Orville G. Hawk
50 (2) (4) .004 %
Martha Markowitz
16,934 (1) (3) 1.3 %
81,531* (2) (4) 95.9 %
242,016* (2) (4) 18.7 %
Percent Percent
All Directors of of
and Officers Class Class Class Class
as a Group A B A B
6 81,589** 285,845** 95.97%** 22.12%
(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 7 to Financial Statements, Item 14(a)(1), incorporated
by reference hereto 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 Report.
Consolidated Balance Sheets as of December 31, 1994
and 1993.
Consolidated Statements of Income and Retained
Earnings for the years ended December 31, 1994, 1993, and
1992.
Consolidated Statements of cash flows for the years
ended December 31, 1994, 1993, and 1992.
Notes to Consolidated Financial Statements.
The individual financial statements of the Registrant
have been omitted since it is primarily an operating
company and all subsidiary companies are wholly owned.
(a) (2) Financial Statement Schedules
Financial schedules are omitted as not applicable.
(a) (3) Exhibits
Exhibit No. Description
3.1(1) Articles of Incorporation as amended
3.2(2) Bylaws, as amended
10.1(2) Officers Bonus Plan as amended December 2,
1991
10.2(3) Agreement of Amendment between the Company
and Martha Markowitz
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 Annual Report on Form 10-K
for the year ended December 31, 1991.
3. Incorporated by reference to the exhibit
filed with the Registrants Annual Report on Form 10-K
for the year ended December 31, 1992.
(b) Reports on Form 8-K. None filed during fourth
quarter of 1994.
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 10, 1995 STEVEN MARKOWITZ
Steven Markowitz
President and Director
Date: March 10, 1995 LEONARD HELFRICH
Leonard Helfrich
Secretary, Treasurer, and Director,
Principal Financial and Accounting Officer
Date: March 10, 1995 EUGENE MOROZ
Eugene Moroz
Vice President and Director
Date: March 10, 1995 MARTHA MARKOWITZ
Martha Markowitz
Director