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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, 1995
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 18, 1996:
Class A - Voting 84,984 Class B - Non-voting 1,267,948
ALLEN ORGAN COMPANY
INDEX
Item Page No.
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
Signatures
Exhibit
PART I
Item 1. Business
General developments of business.
Incorporated in Pennsylvania in 1945, Allen Organ Company
and Subsidiaries ("Company") operate in three industry
segments: musical instruments, data communications and
electronic assemblies.
On August 1, 1995, the Company acquired the assets of three
companies in the data communications industry. For more
information on the acquisition, see Note 2 to the financial
statements.
Industry segments.
The Company operates in three industry segments: musical
instruments, data communications and electronic assemblies.
For financial information concerning the segments, see Note 16
to the financial statements.
Description of business.
Musical Instruments.
Allen Organ Company and its wholly owned subsidiary Rocky
Mount Instruments is a leading manufacturer of electronic
keyboard musical instruments, primarily digital electronic
church organs and accessories. This segment accounted for 81%,
87% and 89% of revenue in 1995, 1994 and 1993 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 internationally.
The principal raw materials used in the segment's products
are electronic components and wood, both of which are readily
available from various sources without undue difficulty.
Although the segment has two major selling cycles, peaking
at Easter and Christmas, the difference between these periods
and the rest of the fiscal year sales is not significant enough
for the segment 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 segment
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 9 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 1996 and 1995 was $3.2 million and $2.8
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 at
competitive prices, and a smaller percentage of the home or
entertainment market which is dominated by special marketing
techniques.
Data Communications.
The data communications segment began during 1995 with the
acquisition discussed in Note 2 to the financial statements.
This segment for the 5 month period from acquisition through
December 31, 1995 accounted for 9% of 1995 revenues.
Data communications products are sold primarily to
wholesale and retail distributors worldwide.
The principal raw material used in the data communications
products are electronic components, which are readily available
from various sources without undue difficulty.
The data communications 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 segment operates through three majority owned
subsidiaries:
VIR, Inc. (VIR) Designs, manufactures, and markets a
number of data communication products including patch and
testing equipment, often referred to as tech control products.
The products are of varying complexity and are used to
connect, test and trouble shoot data lines in large computer
installations.
The company competes in a relatively mature field. The
company has approximately four major competitors all of which
are larger than VIR. The company has not been aggressive in
its marketing efforts in the past and has maintained it's
market share by having a reputation for producing high quality
products at competitive prices. Since the acquisition,
management has begun work on implementing a more aggressive
sales and marketing program.
The dollar amount of unshipped order backlog at the end of
February, 1996 was $324,000. 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.
The company competes in a market which is in excess of $3
billion. However, the company's current and projected product
lines and sales programs are targeted at only a fraction of
that market. There are many competitors in this market. The
market is dominated by several large data communications
companies, such as Cisco Systems, Inc., AT&T Paradyne and ADC
Kentrox. The company's strategy has been to target existing,
yet still growing, markets with new products that provide new
features and packaging with attractive pricing. Direct access
products are relatively inexpensive and easy to manufacture,
thus this is a competitive field where margins can erode as
new products emerge.
The dollar amount of unshipped order backlog at the end of
February, 1996 was $69,000. All orders are expected to be
filled in the current year.
Linear Switch Corporation (LSC) Company has developed a
matrix switch which can transport high-speed digital signals
and allow "any-to-any" connectivity between and among
connections.
The company competes with approximately five other
companies in the matrix switch market. This market is
dominated by General Signal Networks. The Company's product
targets applications which require a relatively small matrix
switch whose cost per port is low. The Company has recently
begun a formal marketing program. Potential customers include
government agencies and large companies.
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 own
musical instruments business. This segment accounted for 10%,
13% and 11% of revenue in 1995, 1994, and 1993 respectively.
AIA receives a majority of its business from one customer.
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 dollar amount of the segment's unshipped order backlog
at the end of February 1996 and 1995 was $551,000 and $303,000
respectively. All orders are expected to be filled in the
current year.
General.
The Company spent $612,631, $625,190, and $1,307,691
annually in 1993, 1994, and 1995 respectively on research and
development. The majority of the 1995 increase in research and
development expense relates to the amounts expended by the data
communications segment acquired in 1995.
The Company and its subsidiaries employ approximately 525
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 15 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.
Effective January 3, 1994, the Company 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.
Rocky Mount, North Carolina 70,000 Manufacturing and sales
facility. Owned by Rocky
Mount Instruments. Operating
at approximately 85%
capacity.
Data Communications:
Southampton, Pennsylvania 22,000 Administrative, research
and manufacturing facility.
Leased until July, 2000.
Operating at approximately
80% capacity.
Moorestown, New Jersey 11,000 Sales and research facility.
Leased until October, 1997.
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 1995.
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 National Market tier of 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:
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
1995 High Low
First Quarter 42 35 1/2
Second Quarter 44 1/2 41
Third Quarter 48 41
Fourth Quarter 45 3/4 40 3/4
The Company has 10 Class A Shareholders and 403 Class B
Shareholders of record as of March 18, 1996.
During the past two fiscal years, the Company has declared
dividends on both it's class A and B shares as follows:
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
Record of Quarterly Dividends Paid in 1995
Record Date Payable Amount
Cash 2/17/95 3/3/95 $.13
Cash 5/19/95 6/2/95 $.13
Cash 8/18/95 9/1/95 $.13
Cash11/17/95 12/1/95 $.16
Item 6. Selected Financial Data
Years Ended December 31,
1995 1994 1993 1992 1991
Net Sales $30,024,761 $28,842,789 $26,477,983 $26,238,092 $25,276,374
Net Income $4,015,105 $4,449,703 $3,456,154 $3,397,045 $3,689,207
Earnings per share $ 2.94 $ 3.25 $ 2.48 $ 2.41 $ 2.55
Cash dividends
per share $ .55 $ .55 $ .50 $ .50 $ .48
At Year End
Total Assets $65,299,426 $58,464,695 $55,752,570 $53,581,050 $51,115,657
Long-Term Debt,
net of current
portion $1,388,000 $ 0 $ 0 $ 0 $ 0
The 1995 results of operations include the data communications segment
acquired August 1, 1995. See Note 2 of the financial statements for
additional information.
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,
1995 1994
Working Capital $46,681,555 $47,937,778
Current Ratio 16 to 1 39.6 to 1
Debt to Equity Ratio .09 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.
Cash flows provided by operating activities declined in 1995
primarily due to increases in inventory levels in the musical
instruments and electronic assemblies segments, and from an
approximately $1 million contribution to the company pension plans,
which was allowed by changes in the tax code, related to a previous
plan amendment.
Cash flows from investing activities were used to fund the
acquisition of the data communications segment and repurchase of
treasury shares in 1995. The company increased its expenditures
for property and equipment primarily related to the enhancement of
its electronics manufacturing capabilities. The Company presently
has no major commitments for capital expenditures which would
require significant capital resources.
Results of Operations:
Sales and Operating Income
Consolidated net sales increased $1,181,972 (4.1%) during 1995
as compared to 1994 primarily due to sales from the data
communications segment which was acquired in August, 1995. In 1994
sales increased $2,364,806 (8.9%) from 1993.
December 31,
1995 1994 1993
Net Sales:
Musical Instruments
Domestic $18,913,194 $19,772,391 $18,916,491
Export 5,408,720 5,398,667 4,607,680
Total 24,321,914 25,171,058 23,524,171
Data communications
Domestic 1,634,036 -- --
Export 1,027,826 -- --
Total 2,661,862 -- --
Electronic Assemblies
Domestic 3,040,985 3,671,731 2,953,812
Total Net Sales $30,024,761 $28,842,789 $26,477,983
Income from Operations:
Musical instruments $3,332,103 $4,356,912 $3,812,323
Data communications 122,417 -- --
Electronic assemblies 457,167 892,493 737,660
Total $3,911,687 $5,249,405 $4,549,983
Musical Instruments Segment
The 1995 decrease in domestic sales was primarily due to
variations in product mix, offset some what by slight increases in
selling prices. Sales in 1994 included more large organ models
than 1995. These types of variations to a large extent are
unpredictable from one year to the next.
The 1994 increase in domestic sales 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.
Export sales increased in 1995 and 1994 due to the continuing
relative weakness of the US dollar in relation to foreign
currencies. Economic changes in foreign countries and foreign
exchange rates may affect future export sales.
Gross profit margins on sales were 30.9%, 32.3% and 31.4% for
the three years ended December 31, 1995. The decrease in the 1995
gross profit margin reflects variations in product mix and slight
increases in some overhead costs. The increase in the 1994 gross
profit margin when compared to 1993 reflects increased sales
levels, favorable product mix including several large organ sales,
and production efficiencies.
Selling, administrative and other expenses declined slightly
from 1994 when they increased compared to 1993 primarily due to
higher selling expenses related to large organ sales.
Data Communications
Domestic and export sales for the 5 months ended December 31,
1995 were approximately equal when compared to the same period in
1994. Each of the companies are implementing or increasing sales
and marketing efforts throughout 1996 which management believes
should positively affect future sales.
Gross profit margins were 55% in 1995. While the companies
strive to maintain profit margins by trying to develop products
which offer more features at competitive prices, the industry is
competitive which often results in pricing changes to obtain and
maintain market share.
Selling, administrative and other expenses were comparable to
the same period last year. Selling expenses will 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.
Research and development expenses for the five months ended
December 31, 1995 were $637,468. These expenditures, which the
company plans to continue at a similar pace in the future,
represent the segment's commitment to new product development and
support.
Electronic Assemblies
Sales and operating income declined in 1995 from 1994 when they
increased over 1993, primarily due to a special project for one
customer.
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.
Other Income (Expense)
The variations in interest income in 1995, 1994, and 1993 are
primarily attributable to the yields available on short-term
investments and the amounts of principal invested. The 1995
amounts include $295,560 of realized capital gains.
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 for 1994 includes $385,000,
less legal expenses, related to the settlement.
Interest expense represents accrued interest for the five
months ended December 31, 1995, on the notes payable issued in
connection with the acquisition discussed in Note 2 to the
financial statements.
Income Taxes
The effective tax rate decreased in 1995 and 1994, primarily
due to lower state tax rates, the formation of Allen Organ
International, a Foreign Sales Corporation, and higher tax-free non-
operating investment income.
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.
Michael J. Gallagher, CPA CERTIFIED PUBLIC ACCOUNTANTS
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, 1995 and 1994 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, 1995.
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, 1995 and
1994 and the consolidated results of their operations and their cash flows
for each of the three years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles.
CONCANNON, GALLAGHER, MILLER AND COMPANY, P.C.
Allentown, PA
February 9, 1996
Member of AICPA Division for CPA Firms SEC and Private Companies Practice
Sections
ALLEN ORGAN COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
ASSETS 1995 1994
CURRENT ASSETS
Cash $196,100 $105,067
Investments, including accrued interest 30,766,266 36,783,908
Accounts receivable 4,431,499 3,052,683
Inventories 13,428,585 8,794,765
Prepaid income taxes 856,630 276,580
Prepaid expenses 103,420 98,903
Deferred income tax benefits -- 67,420
Total Current Assets 49,782,500 49,179,326
PROPERTY, PLANT AND EQUIPMENT, AT COST,
LESS ACCUMULATED DEPRECIATION 7,778,498 7,163,476
OTHER ASSETS
Prepaid pension costs 1,021,517 --
Intangible pension asset -- 443,273
Inventory held for future service 1,219,872 1,145,511
Deferred income tax benefits -- 43,116
Goodwill, net 4,227,600 --
Cash value of life insurance 629,481 408,138
Note receivable 122,586 81,855
Intangible and other assets, net 517,372 --
Total Other Assets 7,738,428 2,121,893
Total Assets $65,299,426 $58,464,695
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long term debt $347,000 $ --
Accounts payable 535,276 171,791
Deferred income taxes 64,322 --
Other accrued expenses 1,691,328 623,100
Customer deposits 463,019 446,657
Total Current Liabilities 3,100,945 1,241,548
NONCURRENT LIABILITIES
Deferred liabilities 841,687 77,917
Accrued pension cost -- 1,374,007
Long term debt, net of current portion 1,388,000 --
Total Noncurrent Liabilities 2,229,687 1,451,924
Total Liabilities 5,330,632 2,693,472
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common stock, par value $1 per share
Authorized
Class A shares - 400,000 in 1995 and 1994
Class B shares - 3,600,000 in 1995 and 1994
Issued
Class A shares (voting) - 128,104 in
1995 and 1994 128,104 128,104
Class B shares (nonvoting) - 1,409,889 in
1995 and 1994 1,409,889 1,409,889
Total Common Stock 1,537,993 1,537,993
Capital in excess of par value 12,758,610 12,610,377
Retained earnings 49,786,163 46,524,142
Unrealized gain (loss) on investments 94,136 (98,399)
Pension liability adjustment -- (489,823)
Minority interest 313,941 --
Sub-total 64,490,843 60,084,290
Less cost of common shares in treasury
1995 - 43,120 Class A shares and
131,835 Class B shares 4,522,049
1994 - 43,120 Class A shares and
130,336 Class B shares 4,313,067
Total Shareholders' Equity 59,968,794 55,771,223
Total Liabilities and Shareholders' Equity $65,299,426 $58,464,695
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,
1995 1994 1993
NET SALES $30,024,761 $28,842,789 $26,477,983
COSTS AND EXPENSES
Cost of sales 20,109,427 18,910,136 17,540,539
Selling, administrative and
other expenses 4,695,956 4,058,058 3,774,830
Research and development 1,307,691 625,190 612,631
Total Costs and Expenses 26,113,074 23,593,384 21,928,000
INCOME FROM OPERATIONS 3,911,687 5,249,405 4,549,983
OTHER INCOME (EXPENSE)
Investment income 2,115,551 1,436,182 1,108,957
Other, net 26,810 265,116 (6,786)
Interest expense (42,856) -- --
Minority interests in
consolidated subsidiaries 23,913 -- --
Total Other Income (Expense) 2,123,418 1,701,298 1,102,171
INCOME BEFORE TAXES ON INCOME 6,035,105 6,950,703 5,652,154
TAXES ON INCOME
Current 1,559,000 2,525,000 2,228,000
Deferred 461,000 (24,000) (32,000)
Total Taxes on Income 2,020,000 2,501,000 2,196,000
NET INCOME 4,015,105 4,449,703 3,456,154
RETAINED EARNINGS
Balance, January 1 46,524,142 42,828,013 40,067,860
Deduct cash dividends
(1995 - $.55, 1994 - $.55,
1993 - $.50) (753,084) (753,574) (696,001)
Balance, December 31 $49,786,163 $46,524,142 $42,828,013
EARNINGS PER SHARE $ 2.94 $ 3.25 $ 2.48
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,
1995 1994 1993
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $4,015,105 $4,449,703 $3,456,154
Adjustments to reconcile net income to net
cash provided by operating activities
Minority interest in consolidated
subsidiaries (23,913) -- --
Depreciation and amortization 636,777 562,241 594,144
Amortization of bond premiums 58,918 218,519 252,278
Loss (Gain) on sale of property,
plant and equipment (437) 43,829 7,654
Loss (Gain) on sale of investments (295,560) 1,853 (1,530)
Loss on sale of other assets -- -- 1,831
Change in assets and liabilities
Accounts receivable 120,141 (2,187) (44,205)
Inventories (2,014,580) (969,076) (880,826)
Prepaid income taxes (580,050) (175,517) (62,787)
Prepaid expenses (4,517) 58,165 43,682
Deferred income tax benefits 110,536 64,729 (8,439)
Prepaid pension costs (1,109,038) -- --
Accounts payable (267,387) (19,771) (2,955)
Accrued taxes on income -- (60,983) 28,983
Other accrued expenses (325,032) 198,291 73,967
Customer deposits 16,362 (448,735) 285,847
Deferred income taxes and liabilities 474,702 (155,211) (38,500)
Other noncurrent liabilities -- (28,782) 418
Net Cash Provided by Operating Activities 812,027 3,737,068 3,705,716
CASH FLOWS FROM INVESTING ACTIVITIES
Cash proceeds from maturity of
investments classified as held to
maturity 54,960,373 40,285,010 52,777,125
Cash paid for purchase of investments
classified as held to maturity (21,631,598)(40,883,194)(52,589,537)
Cash proceeds from sale of investments
classified as available for sale 3,520,772 -- --
Cash paid for purchase of investments
classified as available for sale (30,402,728) (1,532,275) (1,868,470)
Increase in cash value of life insurance (221,343) (207,633) (121,474)
Increase in note receivable (40,731) (81,855) --
Payment for acquisition, net of
cash acquired (3,639,338) -- --
Increase in intangible and other assets (533,084) -- --
Cash proceeds from sale of other assets -- -- 7,830
Cash proceeds from sale of property,
plant and equipment 500 100 27,410
Cash paid for purchase of property,
plant and equipment (940,689) (440,151) (438,843)
Net Cash Provided by (Used in)
Investing Activities 1,072,134 (2,859,998) (2,205,959)
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid in cash (753,084) (753,574) (696,001)
Reacquired Class B common shares (1,060,749) (474,862) (850,791)
Subsidiary company stock issued to
minority shareholders 20,705 -- --
Net Cash Used in Financing Activities (1,793,128) (1,228,436) (1,546,792)
NET INCREASE (DECREASE) IN CASH 91,033 (351,366) (47,035)
CASH, JANUARY 1 105,067 456,433 503,468
CASH, DECEMBER 31 $196,100 $105,067 $456,433
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION
Cash paid for income taxes $2,142,682 $2,767,260 $2,240,173
Cash paid for interest $ -- $ -- $ --
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES
Liability incurred to purchase inventory
in connection with acquisition $1,243,601 $ -- $ --
Long term debt incurred in connection
with asset acquisition $1,735,000 $ -- $ --
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
Allen Organ Company and Subsidiaries' operations are
classified into three industry segments: musical
instruments, data communications and electronic assemblies.
See note 16 for additional information on the operating
activities of each segment.
The consolidated financial statements include the
accounts of the Allen Organ Company and the following
subsidiaries. All material intercompany transactions have
been eliminated.
Subsidiaries Name Ownership %
Rocky Mount Instruments, Inc. 100.00%
Allen Organ International, Inc. 100.00%
VIR, Inc. 97.60%
Eastern Research, Inc. 90.53%
Linear Switch Corporation 83.17%
Certain amounts in the 1994 and 1993 financial
statements have been reclassified to conform to the 1995
presentation.
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 established dealer
networks. The credit risk associated with related
receivables is limited due to the large number of dealers
and their geographic dispersion.
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.
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 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 represents the excess of cost over the net
assets acquired in the acquisition discussed in Note 2.
Goodwill is amortized on a straight-line basis over forty
years and is presented net of accumulated amortization of
$44,501 at December 31, 1995. 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.
Intangible assets consist of organization costs which
are stated at cost and amortized using the straight-line
method over ten years.
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 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.
Research and development expenditures are charged to
expense as incurred.
NOTE 2 Acquisition of Assets
On August 1, 1995, the Company acquired the assets of
VIR, Inc. (VIR), Eastern Research, Inc. (ERI) and Linear
Switch Corporation (LSC), three related companies which were
under common control, for $7,653,234. The purchase price
was made up of 24,390 shares of Allen Organ stock valued at
approximately $1,000,000, notes and liabilities totaling
$2,978,601 and $3,674,633 in cash. Under the terms of an
employment agreement with the seller, LSC is required to pay
seller 4% of sales through July 31, 2000.
On September 7, 1995, the Company agreed to and has
repurchased the Allen Organ Company stock issued in
connection with the asset acquisition for $1,000,000. The
Securities Restriction Agreement dated August 1, 1995 was
terminated along with the stock repurchase.
In connection with the acquisition, the Company
established three new subsidiary companies to acquire the
assets of sellers. As additional consideration, the new
subsidiaries issued shares of their stock to minority
employee shareholders equivalent to their interest in the
selling companies. The minority interest in each of the
three new acquisition companies is 2.4% in VIR, 9.47% in ERI
and 16.83% in LSC. Additional shares of ERI will be issued
over the next year to employees, approximating a 1% interest
in ERI.
The acquisitions have been accounted for as purchases.
The results of operations of VIR, ERI, and LSC have been
included in the Company's consolidated financial statements
from the date of acquisition through December 31, 1995.
Assets and liabilities have been recorded at their estimated
fair market values with the excess being recorded as
goodwill which will be amortized over 40 years.
Organizational costs have been capitalized in connection
with the acquisition and will be amortized over 10 years.
NOTE 3 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, 1995
Available for sale
Equity securities $376,030 $66,104 $ -- $442,134
Mutual Funds 4,264,521 92,352 -- 4,356,873
U.S. Treasury Bills 20,456,336 -- -- 20,456,336
Federal Agency and
Municipal Bonds 5,510,923 -- -- 5,510,923
Totals $30,607,810 $158,456 $ -- $30,766,266
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
Marketable debt securities have an average contractual
maturity of approximately 1 year or less.
Proceeds from the sale of assets classified as available
for sale were $3,520,772 during 1995, resulting in a gain of
$295,560 based on original cost of these investments
determined using a first-in, first-out method.
The change in net unrealized holding gains (losses) on
securities available for sale in the amount of $324,273 and
($145,769), net of deferred tax expense (benefits) of
$131,738 and ($58,982) has been charged to shareholders'
equity for the years ended December 31, 1995 and 1994
respectively.
NOTE 4 Inventories
December 31,
1995 1994
Finished goods $ 981,471 $ 450,015
Work in process 5,658,610 4,884,735
Raw materials 6,788,504 3,460,015
Total $13,428,585 $8,794,765
The Company maintains an inventory of various parts to be
used to service musical instruments as future needs arise. This
inventory, $1,219,872 and $1,145,511 at December 31, 1995 and
1994, respectively, is reported as a noncurrent asset.
NOTE 5 Property, Plant and Equipment
December 31,
1995 1994
Land and improvements $2,407,579 $2,405,086
Buildings and improvements 7,445,965 7,161,749
Machinery and equipment 5,977,260 5,280,722
Office furniture and equipment 1,018,947 858,745
Vehicles 207,622 171,685
Sub-total 17,057,373 15,877,987
Less accumulated depreciation 9,278,875 8,714,511
Property, plant and equipment
net of accumulated depreciation $7,778,498 $7,163,476
NOTE 6 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 7 Income Taxes
The provision for income taxes consists of the
following:
1995 1994 1993
Currently Currently Currently
Payable Deferred Payable Deferred Payable Deferred
Federal $1,300,000 $380,000 $1,958,000 $(17,000) $1,705,000 $(24,000)
State 259,000 81,000 567,000 (7,000) 523,000 (8,000)
Total $1,559,000 $461,000 $2,525,000 $(24,000) $2,228,000 $(32,000)
A reconciliation of the provision for income taxes
with the statutory rate follows:
1995 1994 1993
Statutory provision for
federal income tax $2,044,000 34.0% $2,363,000 34.0% $1,922,000 34.0%
State taxes, net of
federal tax benefits 224,000 3.7 370,000 5.3 340,000 6.0
Tax credits (8,000) (0.1) (22,000) (0.3) (9,000) (0.2)
Other items, net (240,000) (4.0) (210,000) (3.0) (57,000) (1.0)
Total $2,020,000 33.6% $2,501,000 36.0% $2,196,000 38.8%
The following temporary differences give rise to the net
deferred tax liability at December 31, 1995 and 1994.
1995 1994
Deferred Tax Liabilities
Excess of tax depreciation/amortization
over book depreciation/amortization $(412,499) $(381,000)
Excess of pension expense for tax
purposes over book (413,356) --
Unrealized gain not recognized for
tax purposes (64,322) --
Total Deferred Tax Liabilities (890,177) (381,000)
Deferred Tax Assets
Deferred compensation not recognized
for tax purposes 28,585 32,659
State net operating loss carry forwards 26,000 --
Pension liability adjustment not
recognized for tax purposes -- 353,419
Excess of pension expense for book
purposes over tax -- 38,038
Unrealized loss not recognized for
tax purposes -- 67,420
Total Deferred Tax Assets 54,585 491,536
Net Deferred Tax (Liability) Asset $(835,592) $110,536
Deferred taxes are presented in the company's financial
statements as follows:
1995 1994
Current deferred tax asset $ -- $67,420
Non-current deferred tax asset -- 43,116
Current deferred tax liability (64,322) --
Non-current deferred tax liability (771,270) --
Net deferred tax asset (liability) $(835,592) $110,536
NOTE 8 Other Accrued Liabilities
December 31,
1995 1994
Accrued salaries and commissions $379,566 $308,941
Accrued interest 43,014 --
Liability for inventory purchased
in connection with acquisition 1,036,334 --
Other 232,414 314,159
Total $1,691,328 $623,100
NOTE 9 Commitments and Contingencies
As of December 31, 1995, the Company is contingently
liable for a maximum amount of approximately $1,214,772 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, 1995, 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.
Management believes that the insurance proceeds would be
sufficient to substantially fund this possible future
commitment and that any excess would not have a material effect
on the financial condition of the Company.
The Company's data communications segment leases its
offices and production facility under non-cancelable operating
leases which expire at various dates through July, 2000. Rent
expense for August 1 (inception) to December 31, 1995 was
$70,233. Minimum annual rent payments for the operating leases
for each of the next five years are as follows:
1996 $ 155,866
1997 153,067
1998 92,400
1999 92,400
2000 53,900
Total $ 547,633
NOTE 10 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:
1995 1994 1993
Service cost - benefits earned
during the period $279,432 $274,987 $281,265
Interest cost on projected benefit
obligations 887,261 839,838 802,143
Return on assets
Actual (1,772,567) 27,301 (771,932)
Deferred gain (loss) 978,678 (834,046) 16,014
Amortization of net loss from
prior periods 48,463 8,649 2,010
Amortization of unrecognized prior
service cost 73,990 73,990 73,990
Amortization of initial
unrecognized net asset (72,008) (72,008) (72,008)
Net Pension Cost $423,249 $318,711 $331,482
The funded status of the Company's pension plans at
December 31, 1995 and 1994 is as follows:
1995 1994
Plans Whose Plan Whose Plan Whose
Assets Assets Accumulated
Exceed Exceed Plan
Accumulated Accumulated Benefits
Plan Plan Exceed
Benefits Benefits Assets
Actuarial present value of
benefit obligations:
Vested benefits $(11,358,778) $(5,052,381) $(5,827,204)
Nonvested benefits (52,759) (19,778) (27,906)
Accumulated benefit obligation (11,411,537) (5,072,159) (5,855,110)
Effect of assumed increase in
compensation levels for
salaried plan (1,039,398) (955,449) --
Projected benefit obligations for
service rendered to date (12,450,935) (6,027,608) (5,855,110)
Plan assets at fair value 12,788,615 5,507,072 4,639,396
Plan assets in excess of (less
than) projected benefit
obligation 337,680 (520,536) (1,215,714)
Unrecognized prior service cost 369,283 -- 443,273
Unrecognized net asset at
transition (432,052) (452,052) (52,008)
Unrecognized net loss 746,606 814,295 895,221
Adjustment to recognize
minimum liability -- -- (1,286,486)
Prepaid (Accrued) Pension Cost $1,021,517 $(158,293) $(1,215,714)
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, had been recorded as a noncurrent liability with
an offsetting intangible asset amounting to $443,273.
Because the asset recognized may not exceed the amount of
unrecognized prior service cost, the balance of $843,213,
net of tax benefits of $353,390, were reported as a
separate reduction of shareholders' equity. During 1995
the Company contributed $1,532,287 to the pension plans
which increased the plans funded status eliminating the
need to recognize an additional liability at December 31,
1995.
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%.
The Company provides 401(k) deferred compensation and
profit sharing plans for the benefit of eligible
employees. The plans allow 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 plans are discretionary as
determined by the Company's board of directors. The
Company contributions were $157,483 and $136,501 to the
plan in 1995 and 1994.
NOTE 11 Other Deferred Liabilities
December 31,
1995 1994
Deferred compensation expense $ 70,417 $ 77,917
Deferred income taxes 771,270 --
Total $ 841,687 $ 77,917
NOTE 12 Long-Term Debt
Notes payable, interest at 5.95% payable
semi-annually, principal payable in annual
installments of $347,000 $1,735,000
Current portion (347,000)
Long-term debt $1,388,000
NOTE 13 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,
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
Reacquired
Class B
Shares 25,889 1,060,749
Reissued
Class B
Shares 148,233 (24,390) (851,767)
1995 128,104 $128,104 1,409,889 $1,409,889 $12,758,610 174,955 $4,522,049
NOTE 14 Earnings Per Share
Earnings per share were computed using 1,366,076
shares in 1995, 1,370,486 shares in 1994, and 1,392,119
shares in 1993, the weighted average number of shares
outstanding during each year.
NOTE 15 Export Sales
In 1995, 1994 and 1993, net sales by the musical
instruments segment include export sales, principally to
Canada, Europe and the Far East of $5,408,720, $5,398,667
and $4,607,680, respectively. For the five months ended
December 31, 1995, net sales by the data communications
segment include export sales principally to Europe and
the Far East of $1,027,826.
NOTE 16 Industry Segment Information
The Company's operations are classified into three
industry segments: musical instruments, data
communications 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. Musical instruments are sold primarily to
retail distributors worldwide.
The data communications segment began during 1995
with the acquisition discussed in Note 2. The 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.
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.
Following is a summary of segmented information for
1995, 1994 and 1993.
December 31,
1995 1994 1993
Net Sales to Unaffiliated Customers
Musical instruments $24,321,914 $25,171,058 $23,524,171
Data communications 2,661,862 -- --
Electronic assemblies 3,040,985 3,671,731 2,953,812
Total $30,024,761 $28,842,789 $26,477,983
Income from Operations
Musical instruments $3,332,103 $4,356,912 $3,812,323
Data communications 122,417 -- --
Electronic assemblies 457,167 892,493 737,660
Total $3,911,687 $5,249,405 $4,549,983
Identifiable Assets
Musical instruments $20,505,183 $18,827,345 $18,319,110
Data communications 9,181,209 -- --
Electronic assemblies 2,108,721 1,329,090 1,032,081
Sub-total 31,795,113 20,156,435 19,351,191
General corporate assets 33,504,313 38,308,260 36,401,379
Total $65,299,426 $58,464,695 $55,752,570
Capital Expenditures
Musical instruments $ 903,737 $ 440,151 $ 438,843
Data communications 36,952 -- --
Total $ 940,689 $ 440,151 $ 438,843
Depreciation and Amortization
Musical instruments $ 557,052 $ 562,241 $ 594,144
Data communications 79,725 -- --
Total $ 636,777 $ 562,241 $ 594,144
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 and data communications
segments are not dependent on any single customer.
NOTE 17 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 for 1994 includes $385,000 less legal
expenses related to this settlement.
NOTE 18 Investment Income
December 31,
1995 1994 1993
Interest Income $1,712,340 $1,355,304 $1,074,100
Dividend Income 107,651 82,731 33,327
Gain (Loss) on Sale of Investments 295,560 (1,853) 1,530
Total $2,115,551 $1,436,182 $1,108,957
NOTE 19 Pro Forma Financial Information
The following pro forma financial information has
been prepared giving effect to the acquisition of VIR,
ERI and LSC as if the transaction had taken place at the
beginning of the respective year. The pro forma
financial information is not necessarily indicative of
the results of operations which would have been attained
had the acquisitions been consummated on any of the
foregoing dates or which may be attained in the future.
Years Ended December 31,
1995 1994
Net Sales $34,760,371 $34,050,792
Net Income 4,290,293 4,461,192
Net Income Per Share $3.14 $3.26
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 42 Director Since 1980
Meeting in 1996
Eugene Moroz Next Annual 72 Director Since 1968
Meeting in 1996
Leonard W. Helfrich Next Annual 66 Director 1964 - 1968
Meeting in 1996 and 1972 to
present
Orville G. Hawk Next Annual 78 Director Since 1989
Meeting in 1996
Albert F. Schuster Next Annual 76 Director Since 1989
Meeting in 1996
Martha Markowitz Next Annual 74 Director Since 1991
Meeting in 1996
(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 42 President 1990 to
Meeting in 1996 present
Eugene Moroz Next Annual 72 Vice President, Since 1965
Meeting in 1996 Assistant
Secretary
Leonard W. Helfrich Next Annual 66 Secretary, 1958 - 1968
Meeting in 1996 Treasurer and 1971 to
present
Barry J. Holben Next Annual 43 Vice President* October 1995
Meeting in 1996 to present
Dwight A. Beacham Next Annual 49 Vice President**October 1995
Meeting in 1996 to present
* Barry J. Holben was elected Vice President at a special meeting on
October 23, 1995. He previously was an Assistant Vice President
since the annual meeting on May 15, 1995.
** Dwight A. Beacham was elected Vice President at a special meeting
on October 23, 1995. He previously was Assistant Vice President
since May 1991.
(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 Barry
Holben, 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. Holben has been employed by the Company
since 1989, spending two years in product
development and then more recently as Foreign Sales
Manager. 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 1995 93,010 20,125 31,537
(Chief Executive Officer) 1994 90,607 22,105 32,249
1993 86,944 19,225 32,905
Leonard W. Helfrich, Secretary 1995 84,746 19,005
(Treasurer) 1994 82,722 20,875
1993 80,288 18,155
*Value of Split Dollar Life Insurance. See Note 6 to the accompanying
consolidated financial statements for additional information on this
arrangement.
(f) Defined Benefit or Actuarial Plan Disclosure.
Estimated Annual Benefit obtained from 1995 Actuarial
Valuation Report:
Steven A. Markowitz $53,135. Age 42.
Leonard W. Helfrich $28,163. Age 66.
Amount shown is 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. 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.
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 February 29, 1996.
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, 1995.
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) 1.06%
81,531* (2) (4) 95.94 %
242,016* (2) (4) 18.94%
Eugene Moroz
799 (1) (3) as
to 799
12,056 (2) (4) as
to 12,156 1.01%
Leonard W.
Helfrich 328 (2) (4) .03%
Orville G. Hawk
50 (2) (4) .004%
Martha Markowitz
16,934 (1) (3) 1.32%
81,531* (2) (4) 95.94 %
242,016* (2) (4) 18.94%
Percent Percent
All Directors of of
and Officers Class Class Class Class
as a Group A B A B
6 81,589** 285,745** 96.01%** 22.36%
(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 9 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' Report.
Consolidated Balance Sheets as of December 31, 1995
and 1994.
Consolidated Statements of Income and Retained
Earnings for the years ended December 31, 1995, 1994, and
1993.
Consolidated Statements of cash flows for the years
ended December 31, 1995, 1994, and 1993.
Notes to Consolidated Financial Statements.
The individual financial statements of the Registrants
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
10.1(2) Officers Bonus Plan as amended December 2, 1991
10.2(3) Agreement of Amendment between the Company
and Martha Markowitz
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 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.
4. Incorporated by reference to the exhibit filed
with the Registrants Current Report on form 8-K
dated August 1, 1995.
(b) Reports on Form 8-K. None filed during fourth
quarter of 1995.
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 20, 1996 STEVEN A. MARKOWITZ
Steven A. Markowitz
Chief Executive Officer, President
and Director
Date: March 20, 1996 LEONARD W. HELFRICH
Leonard W. Helfrich
Secretary, Treasurer, and Director,
Principal Financial and Accounting
Officer
Date: March 20, 1996 EUGENE MOROZ
Eugene Moroz
Vice President and Director
Date: March 20, 1996 MARTHA MARKOWITZ
Martha Markowitz
Director