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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, 1997
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 23, 1998:
Class A - Voting 84,112 Class B - Non-voting 1,096,606
ALLEN ORGAN COMPANY
INDEX
PART I
1. Business
- General developments of business
- Industry Segments
- Description of business
- Financial information about foreign operations and export sales
2. Properties
3. Legal Proceedings
4. Submission of Matters to a Vote of Security Holders
PART II
5. Market for the Registrants Common Stock and
Related Security Holder Matters
6. Selected Financial Data
7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
8. Financial Statements
9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
PART III
10. Directors and Executive Officers of the Registrant
11. Executive Compensation
12. Security Ownership of Certain Beneficial Owners and Management
13. Certain Relationships and Related Transactions
PART IV
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
Signatures
Exhibit
PART I
Item 1. Business
General developments of business.
Incorporated in Pennsylvania in 1945, Allen Organ Company
and Subsidiaries ("Company") operate in four industry segments:
musical instruments, data communications, electronic
assemblies, and audio equipment.
Industry segments.
The Company operates in four industry segments: musical
instruments, data communications, electronic assemblies, and
audio equipment. For financial information concerning the
segments, see Note 14 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 58%,
69% and 81% of revenue in 1997, 1996 and 1995 respectively.
The principal market for the musical instruments segment
are institutions, primarily churches. Sales to the home market
make up a smaller portion of the segment's sales. The segment's
musical instruments are distributed mostly through dealers,
primarily independent retail music stores throughout the United
States, with a lesser percentage distributed through dealers
internationally. The segment's business is not seasonal.
The principal raw materials used in the segment's products
are electronic components and wood, all of which are readily
available from various sources without undue difficulty.
The segment does not engage in any significant amounts of
consignments, extended payment terms, or lease guarantees. The
Company is contingently liable in connection with certain
customers' financing arrangements. See Note 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 1998 and 1997 was $4.4 million and $2.9 million
respectively. Approximately $4.0 million of these orders will
be filled in the current year with the remaining $400,000
to be filled in the following year.
The electronic organ industry is competitive involving at
least five (5) domestic and foreign companies. In addition,
there are many small pipe organ companies in the institutional
organ market. The organ market consists of two basic
divisions, institutional (primarily churches) and home or
entertainment. The Company believes it has a major position in
the institutional market because of product performance and
competitive prices, and a smaller percentage of the home or
entertainment market.
Data Communications.
The data communications segment began during 1995 with the
acquisition discussed in Note 2 to the financial statements.
This segment accounted for 22%, 21% and 9% of revenues in 1997,
1996 and for the 5 month period from acquisition through
December 31, 1995 respectively.
Data communications products are sold primarily to
wholesale and retail distributors worldwide. The segment
maintains an inventory of in-process and finished goods to
allow for rapid fulfillment of customer orders which is
expected in the industry.
The principal raw material used in the data communications
products are electronic components, which are readily available
from various sources without undue difficulty.
The data communications segment derived 12% and 14% of its
1997 and 1996 revenue from one customer.
The segment operates through three majority owned
subsidiaries:
VIR, Inc. (VIR) and Linear Switch Corporation (LSC) During
1997, these two companies combined their marketing and
research & development functions under the name of "VIR Linear
Switch". The companies design, manufacture, and market a
number of data communication products including patch and
testing equipment, often referred to as tech control products,
test access equipment and a matrix switch which can transport
high-speed digital signals and allow "any-to-any" connectivity
between and among connections. The products are of varying
complexity and are used to connect, switch, test and trouble
shoot data lines in large computer installations.
The companies compete in a relatively mature field
producing high quality products at competitive prices. The
companies have approximately four major competitors all of
which are larger than VIR/LSC. Since the acquisition,
management has been implementing more aggressive sales and
marketing programs.
With the need for higher speed and more reliable
communications circuits increasing, VIR/LSC has introduced a
new family of products to provide the ability to access and
configure these circuits for various test procedures. In
April of 1997, Thomas Infantino was named President of
VIR/LSC. Tom brings over 25-years experience in the field
including positions at T-Bar, Inc., Dynatech Communications,
and Hadax Electronics, Inc.
The dollar amount of unshipped order backlog at the end of
February, 1998 and 1997 was $555,000 and $234,000 respectively.
All orders are expected to be filled in the current year.
Eastern Research, Inc. (ERI) Designs and markets data
inter-networking products. These products include direct
access equipment that allow users to utilize a broad range of
services offered by the telephone companies.
The company competes in a market that is in excess of $20
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 that
is dominated by several large data communications companies,
such as Cisco Systems, Inc., Paradyne and ADC Kentrox. The
company's strategy has been to target existing, yet still
growing, markets with products that provide new features and
packaging with attractive pricing.
The company initially built its business in the CSU/DSU
market and has also developed router technology products,
sometimes referred to as "box" products. These products are
relatively inexpensive and easy to manufacture, thus this is a
competitive field where margins can erode as new products
emerge. More recently this company has introduced a Digital
Access Cross-connect Switch (DACS), a systems product called
DNX (Digital Exchange Network). The DNX is beginning to
contribute to revenues and is expected to become ERI's
flagship product. The company is integrating additional
technologies including its router technology, along with xDSL
(Digital Subscriber Line) technology, into the DNX. In order
to properly capitalize on this market's opportunities, ERI is
implementing a more aggressive marketing strategy and is also
increasing product development work. This will require
further investment through the coming year. In May 1997,
Michael Doyle became ERI's President. Michael Doyle has 20-
years experience in the industry including positions at
Infotron Systems Inc., Dowty Communications, Inc., Teleos
Communications, Inc., and Madge Networks, Inc.
The dollar amount of unshipped order backlog at the end of
February, 1998 and 1997 was $1.2 million and $376,000
respectively. All orders are expected to be filled in the
current year.
Electronic Assemblies.
Allen Integrated Assemblies (AIA), a division of the Allen
Organ Company, provides subcontract manufacture of electronic
assemblies for outside customers. The electronic assemblies
segment is an outgrowth of the technical skills and
manufacturing capabilities developed by the Company in its
musical instruments business. This segment accounted for 15%,
10% and 10% of revenue in 1997, 1996, and 1995 respectively.
AIA derived 55%, 85% and 90% of its revenues from one customer
in 1997, 1996 and 1995 respectively.
The electronic assemblies segment is very competitive with
numerous manufacturers capable of producing such 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 1998 and 1997 was $3.0 million
and $764,000 respectively. All orders are expected to be
filled in the current year.
Audio Equipment.
The Audio Equipment segment began on April 1, 1997 with the
acquisition of Legacy Audio, Inc. (LAI) discussed in Note 2 of
the Financial Statements. LAI designs, manufactures and
markets high-quality audio speaker cabinets for hi-fi stereo
and home theater applications. It also markets electronic
audio equipment amplifiers that are manufactured to its
specifications by third party suppliers. This segment
accounted for 5% of revenues for the 9 month period from
acquisition to December 31, 1997.
The principal market for the audio equipment segment is
individual consumers for home use. The segment's products are
primarily distributed directly to the customer with a lesser
percentage distributed through dealer audition sites. This
segment's business is not seasonal.
LAI's manufacturing facility is currently operating near
its full capacity. Many of their manufacturing needs are
similar to those required in the musical instruments segment.
The Company has begun building some of LAI's speaker cabinets
at its Macungie, PA facility.
The principal raw materials used in the segment's products
are audio speakers, electronic components and wood, all of
which are readily available from various sources without undue
difficulty.
The company competes with several other high-end audio
speaker cabinet manufacturers including Martin-Logan, Thiel,
B&W, Celestion, and others.
LAI is not dependent on any single, or small group, of
customers. The dollar amount of the segment's unshipped order
backlog at the end of February 1998 was $579,000.
All orders are expected to be filled in the current year.
General.
The Company's working capital is sufficient to meet the
normal expansion of inventory and receivables.
The Company spent $2,654,662, $2,786,390, and $1,307,691
annually in 1997, 1996, and 1995 respectively on research and
development. The decrease in the 1997 expense relates
primarily to the combining of the research and development
efforts of VIR and LSC. The majority of the 1996 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 580
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 13 to the financial
statements, for additional information on export sales.
Export sales are all made in US dollars and for the most
part are made under Letter of Credit or on a prepaid basis.
The Company has established a Foreign Sales Corporation
within the meaning of the Internal Revenue Code of 1986. This
wholly-owned subsidiary is Allen Organ International, Inc., a
Virgin Islands corporation.
Item 2. Properties
The following sets forth the location, approximate square
footage and use of the Company's operating locations segregated
by segment. The Company believes that its facilities are
generally suitable and adequate for its needs.
Approximate
Location Square Footage Use
Musical Instruments and Electronic Assemblies:
Macungie, Pennsylvania 242,000 Administrative, research and
manufacturing facility.
Owned by Allen Organ Company.
Operating at approximately
90% capacity.
Macungie, Pennsylvania 27,000 International sales,
exhibition center, museum
and teaching facility.
Owned by Allen Organ Company.
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 16,800 Administrative, sales and
research facility. Leased
until February, 2001.
Audio Equipment:
Springfield, Illinois 15,000 Administrative, research
and manufacturing facility.
Owned by Legacy Audio, Inc.
Operating at approximately
95% capacity.
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 1997.
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:
1997 High Low
First Quarter 41 38 1/2
Second Quarter 41 1/4 39
Third Quarter 40 1/2 38 7/8
Fourth Quarter 44 3/4 39 3/4
1996 High Low
First Quarter 43 1/2 35 1/2
Second Quarter 40 1/2 35 3/4
Third Quarter 40 1/8 37 3/4
Fourth Quarter 39 15/16 38 1/2
The Company has 9 Class A Shareholders and 362 Class B
Shareholders of record as of March 23, 1998.
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 1997
Record Date Payable Amount
Cash 2/21/97 3/7/97 $.14
Cash 5/23/97 6/6/97 $.14
Cash 8/22/97 9/5/97 $.14
Cash 11/21/97 12/5/97 $.14
Record of Quarterly Dividends Paid in 1996
Record Date Payable Amount
Cash 2/16/96 3/1/96 $.13
Cash 5/17/96 5/31/96 $.13
Cash 8/16/96 8/30/96 $.13
Cash 11/15/96 11/29/96 $.16
Item 6. Selected Financial Data
Years Ended December 31,
1997 1996 1995 1994 1993
Net Sales $40,348,084 $36,715,128 $30,024,761 $28,842,789 $26,477,983
Net Income $ 3,512,142 $ 3,865,876 $ 4,015,105 $ 4,449,703 $ 3,456,154
Earnings per share$ 2.79 $ 2.88 $ 2.94 $ 3.25 $ 2.48
Cash dividends
per share $ .56 $ .55 $ .55 $ .55 $ .50
At Year End
Total Assets $62,562,004 $63,966,646 $65,299,426 $58,464,695 $55,752,570
Long-Term Debt,
net of current
portion $ 0 $ 0 $ 1,388,000 $ 0 $ 0
The 1997 results of operations include the audio equipment segment acquired
April 1, 1997. The 1997, 1996 and 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,
1997 1996
Working Capital $42,445,212 $47,511,096
Current Ratio 15 to 1 29 to 1
Debt to Equity Ratio .06 to 1 .04 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 during 1997
compared to 1996 primarily due to increased working capital
requirements, particularly accounts receivable and inventory. These
increases are due primarily to new product introductions and higher
order volumes in most segments. Accounts receivable increased
approximately $500,000 and $400,000 in the Data Communications and
Electronic Assemblies segments respectively. Inventory increased
approximately $900,000, $800,000 and $1,500,000 respectively in the
Musical Instruments, Data Communications and Electronic Assemblies
segments during 1997. Cash flows provided by operating activities
increased during 1996 when compared to 1995 primarily from an
approximately $1,000,000 contribution to the company pension plans
made in 1995.
During 1997 and 1996, cash flows from investing activities were
used primarily to fund the purchase of treasury shares. Cash flows
from investing activities were also used to fund the acquisition of
Legacy Audio, Inc. in April, 1997. During 1997, the company increased
its expenditures for property and equipment including approximately
$700,000 additional automated equipment and building improvements to
enhance its electronics manufacturing capabilities used in the musical
instruments and electronic assemblies segments.
During 1997 the Company began implementing new information systems
and has invested nearly $500,000 in software and computer equipment as
part of this project which the Company estimates will require another
$300,000 to complete. The Company has undertaken this implementation
as part of a business improvement program initiated to up-grade
production and product planning processes. While these business
improvement programs have and will continue to involve additional
expense through 1998, it is anticipated that these improvements will
provide long-term benefits in all areas of the Company.
See Note 1 to the consolidated financial statements regarding new
accounting standards.
Results of Operations:
Sales and Operating Income
Consolidated net sales increased $3,632,956 (10%) during 1997
as compared to 1996 primarily due to sales from the audio equipment
segment which was acquired in April, 1997 and increased sales in
the data communications segment resulting from additional sales and
marketing efforts initiated since the acquisition. In 1996, sales
increased $6,690,367 (22%) as compared to 1995 primarily due to
sales from the data communications segment which was acquired in
August, 1995.
December 31,
1997 1996 1995
Net Sales
Musical Instruments
Domestic $18,918,509 $19,824,334 $18,913,194
Export 4,432,974 5,594,286 5,408,720
Total 23,351,483 25,418,620 24,321,914
Data communications
Domestic 6,933,787 6,229,961 1,634,036
Export 2,103,734 1,417,636 1,027,826
Total 9,037,521 7,647,597 2,661,862
Electronic Assemblies
Domestic 5,935,381 3,648,911 3,040,985
Audio Equipment
Domestic 1,812,138 -- --
Export 211,561 -- --
Total 2,023,699 -- --
Total $40,348,084 $36,715,128 $30,024,761
Income (Loss) from Operations
Musical instruments $ 2,718,085 $ 3,634,901 $ 3,332,103
Data communications (1,069,165) (349,785) 122,417
Electronic assemblies 631,521 520,602 457,167
Audio Equipment 337,495 -- --
Total $ 2,617,936 $ 3,805,718 $ 3,911,687
Musical Instruments Segment
The 1997 decrease in domestic sales reflects lower order rates
during the early part of the year. New orders in the fourth
quarter of 1997 were approximately $500,000 ahead of the same
period in 1996. However, the product mix of these orders required
production lead times beyond year end and increased the order
backlog at year end by approximately $900,000 when compared to
1996.
The 1996 increase in domestic sales reflected slight increases
in selling prices and product mix changes. Sales in 1996 included
more larger models and custom organs. These types of variations,
to a large extent, are unpredictable from one year to the next.
Export sales decreased in 1997 primarily from changes in
economic conditions in certain world markets, particularly Far East
countries. Export sales increased in 1996 due to the 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 28.1%, 31.8% and 32.8% for
the three years ended December 31, 1997. The decrease in the 1997
gross profit margin is a result of start-up expenses of new organ
models introduced in May, 1997, increases in overhead costs and
lower sales over which to absorb fixed costs. The decrease in the
1996 gross profit margin reflects slight increases in the direct
material and labor costs used in the company's products.
Selling, administrative and other expenses increased
approximately $200,000 in 1997 as a result of marketing and
advertising of new products. 1996 expenses were approximately
equal to 1995.
Research and development expenses increased approximately
$40,000 in 1997 related to the new organ models introduced in
during 1997.
Data Communications Segment
Domestic sales in each of the last two years have increased as
a result of additional sales and marketing efforts initiated since
the acquisition.
International sales for 1997 increased as compared to 1996
primarily due to additional sales and marketing efforts in those
markets. International sales for 1996 decreased when compared to
1995 primarily due to a large order in 1995 which was not repeated
in 1996.
Each of the companies increased their sales and marketing
efforts throughout 1997 and 1996 and expects to continue to do so
throughout 1998, which management believes should positively affect
future sales and operating results.
Gross profit margins were 46% in 1997 compared to 52% in 1996
from competitive pressures on selling prices and variations in
product mix. 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 expenses increased approximately $500,000 and $600,000
in 1997 and 1996 respectively, reflecting the additional sales and
marketing efforts. Selling expenses will continue to increase in
the future as sales and marketing programs and personnel are added
to further promote the segment's products and obtain additional
market share.
Administrative expenses increased approximately $550,000 and
$650,000 in 1997 and 1996 respectively, resulting from additional
management and support personnel added to promote and oversee the
segment.
Research and development expenses were $1,799,665 and
$1,972,167 for the years ended December 31, 1997 and 1996,
respectively and $637,468 for the five months ended December 31,
1995. The 1997 decrease is attributed to the combining of the
research and development efforts of VIR, Inc. and Linear Switch
Corporation. The segment is committed to new product development
and support and expects to increase these expenditures by 30% to
50% during 1998.
Electronic Assemblies Segment
Sales increased during 1997 and 1996 from higher order volume
from existing customers and orders received from several new
customers.
Gross profit margins were 14.5%, 20.0% and 21.0% for the three
years ended December 31, 1997. The decrease is related to
competitive pressures common in the industry and higher production
costs related to inefficiencies in production scheduling caused by
rapid growth in sales.
Selling, general and administrative expenses have remained
approximately the same in each of the last three year periods. The
segment continues its marketing efforts and has begun to diversify
its customer base. The Company continues to improve its production
capabilities to offer state of the art manufacturing services to
its customers.
Audio Equipment Segment
Sales for the nine months ended December 31, 1997 increased
approximately 40% when compared to the same period in 1996 on a pro
forma basis. This increase is a result of increased awareness of
the Company through both increased marketing and sales efforts, and
positive product reviews in several trade publications during the
year. The Company will continue to promote awareness of its
products through increased marketing efforts which management
believes will continue to positively affect future sales.
Gross profit margins were 48.3% in 1997.
Selling, general and administrative costs increased
approximately $300,000 during 1997 as compared to the same period
in 1996 resulting from increased sales and marketing efforts and
additional administrative personnel added to support the company's
growth.
Other Income (Expense)
The variations in interest income in 1997, 1996, and 1995 are
primarily attributable to the yields available on short-term
investments, realized gains, and the amounts of principal invested.
The 1997, 1996, and 1995 amounts include $765,109, $287,982 and
$295,560 of realized capital gains respectively.
Interest expense represents interest on the notes payable
issued in connection with the acquisition discussed in Note 2 to
the financial statements.
Income Taxes
The decrease in the 1997 tax provision is attributable to a
decrease in the estimated effective tax rate for the current and
prior tax year resulting from a change in state revenue
allocations. The effective tax rate increased in 1996 due to a
lower amount of tax-free non-operating investment income.
Factors that May Affect Operating Results
The statements contained in this report on Form 10-K that are
not purely historical are forward looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section
21E of the Securities Exchange Act of 1934, including statements
regarding the Company's expectations, hopes, intentions or
strategies regarding the future. Forward looking statements
include: statements regarding future products or product
development; statements regarding future research and development
spending and the Company's marketing and product development
strategy, statements regarding future production capacity. All
forward looking statements included in this document are based on
information available to the Company on the date hereof, and the
Company assumes no obligation to update any such forward looking
statements. Readers are cautioned not to place undue reliance on
these forward looking statements, which reflect management's
opinions only as of the date hereof. Readers should carefully
review the risk factors described in other documents the Company
files from time to time with the Securities and Exchange
Commission, including the Quarterly Reports on Form 10-Q to be
filed by the Company in fiscal year 1998. It is important to note
that the Company's actual results could differ materially from
those in such forward looking statements. Some of the factors that
could cause actual results to differ materially are set forth
below.
The Company has experienced and expects to continue to
experience fluctuations in its results of operations. Factors that
affect the Company's results of operations include the volume and
timing of orders received, changes in the mix of products sold,
market acceptance of the Company's and its customer's products,
competitive pricing pressures, global currency valuations, the
Company's ability to meet increasing demand, the Company's ability
to introduce new products on a timely basis, the timing of new
product announcements and introductions by the Company or its
competitors, changing customer requirements, delays in new product
qualifications, the timing and extent of research and development
expenses and fluctuations in manufacturing yields. As a result of
the foregoing or other factors, there can be no assurance that the
Company will not experience material fluctuations in future
operating results on a quarterly or annual basis, which would
materially and adversely affect the Company's business, financial
condition and results of operations.
See Note 1 to the financial statements for information
concerning the effects of new accounting standards and Year 2000
issues.
Item 8. Financial Statements
See Item 14 for index.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
The information required by Item 304(a) of Regulation S-K was
previously reported in a Current Report on Form 8-K (items 4 and 7)
dated July 31, 1997 to report a change in the Company's independent
accountants.
There were no reportable events as described in Item
304(b).
KPMG Peat Marwick LLP
4905 Tilghman Street
Allentown, PA 18104
Independent Auditors' Report
The Board of Directors
Allen Organ Company:
We have audited the accompanying consolidated balance sheet of Allen Organ
Company and Subsidiaries as of December 31, 1997, and the related consolidated
statements of income, stockholders' equity and cash flows for the year then
ended. 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 audit.
We conducted our audit 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 audit
provides 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 as of December 31, 1997,
and the consolidated results of their operations and their cash flows for
the year then ended in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
KPMG Peat Marwick LLP
Allentown, PA
January 30, 1998
CONCANNON, GALLAGHER, MILLER & COMPANY, P.C.
CERTIFIED PUBLIC ACCOUNTANTS
AND BUSINESS CONSULTANTS
Michael J. Gallagher, CPA
Michael R. Miller, CPA
William C. Mason, 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
Anthony M. Bragano, CPA
INDEPENDENT AUDITORS' REPORT
The Board of Directors
and Shareholders
Allen Organ Company
We have audited the accompanying consolidated balance sheet of Allen
Organ Company and Subsidiaries as of December 31, 1996 and the related
consolidated statements of income and retained earnings, and cash flows
for each of the two years in the period ended December 31, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
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, 1996 and
the consolidated results of their operations and their cash flows for each
of the two years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles.
CONCANNON, GALLAGHER, MILLER AND COMPANY, P.C.
Allentown, PA
January 30, 1997
Member of AICPA Division for CPA Firms SEC and Private Companies Practice
Sections
ALLEN ORGAN COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
ASSETS 1997 1996
CURRENT ASSETS
Cash $ 1,020,348 $ 781,202
Investments including accrued interest 20,040,334 29,016,935
Accounts receivable 5,732,432 4,817,939
Inventories 17,923,387 14,072,147
Prepaid income taxes 232,895 397,404
Prepaid expenses 483,300 142,769
Total Current Assets 45,432,696 49,228,396
PROPERTY, PLANT AND EQUIPMENT, NET 9,515,012 7,847,515
OTHER ASSETS
Prepaid pension costs 795,107 889,206
Inventory held for future service 1,260,346 1,237,986
Note receivable 203,557 163,148
Cash value of life insurance 1,122,495 858,217
Goodwill, net 3,755,483 3,278,114
Intangible and other assets, net 477,308 464,064
Total Other Assets 7,614,296 6,890,735
Total Assets $62,562,004 $63,966,646
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 913,110 $ 396,173
Deferred income taxes 74,091 60,033
Other accrued expenses 692,282 499,355
Customer deposits 1,308,001 761,739
Total Current Liabilities 2,987,484 1,717,300
NONCURRENT LIABILITIES
Deferred liabilities 721,264 782,189
Total Liabilities 3,708,748 2,499,489
MINORITY INTERESTS 321,424 157,826
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, par value $1 per share
Authorized
Class A Shares - 400,000 in 1997 and 1996
Class B Shares - 3,600,000 in 1997 and 1996
Issued
Common Stock 1997 1996
Class A 127,232 shares; 128,104 shares 127,232 128,104
Class B 1,410,761 shares; 1,409,889 shares 1,410,761 1,409,889
Total Common Stock 1,537,993 1,537,993
Capital in excess of par value 12,758,610 12,758,610
Retained earnings 55,725,180 52,915,056
Unrealized gain on investments, net 128,474 89,380
Sub-total 70,150,257 67,458,865
Less cost of common shares in treasury
1997 - 43,120 Class A shares and
314,155 Class B shares (11,618,425) --
1996 - 43,120 Class A shares and
170,636 Class B shares -- (5,991,708)
Total Stockholders' Equity 58,531,832 61,309,331
Total Liabilities and Stockholders' Equity $62,562,004 $63,966,646
See accompanying notes to Consolidated Financial Statements.
ALLEN ORGAN COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31,
1997 1996 1995
NET SALES $40,348,084 $36,715,128 $30,024,761
COSTS AND EXPENSES
Cost of sales 26,785,916 23,789,872 20,109,427
Selling, administrative and 8,289,570 6,333,148 4,695,956
other expenses
Research and development 2,654,662 2,786,390 1,307,691
Total Costs and Expenses 37,730,148 32,909,410 26,113,074
INCOME FROM OPERATIONS 2,617,936 3,805,718 3,911,687
OTHER INCOME (EXPENSE)
Investment income 2,114,722 2,025,024 2,115,551
Other income, net 14,443 24,621 26,810
Interest expense -- (10,309) (42,856)
Minority interests in
consolidated subsidiaries 6,041 55,822 23,913
Total Other Income (Expense) 2,135,206 2,095,158 2,123,418
INCOME BEFORE TAXES ON INCOME 4,753,142 5,900,876 6,035,105
TAXES ON INCOME
Current 1,296,000 2,087,000 1,559,000
Deferred (55,000) (52,000) 461,000
Total Taxes on Income 1,241,000 2,035,000 2,020,000
NET INCOME $ 3,512,142 $ 3,865,876 $ 4,015,105
BASIC AND DILUTED EARNINGS
PER SHARE $ 2.79 $ 2.88 $ 2.94
See accompanying notes to Consolidated Financial Statements.
ALLEN ORGAN COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Common Stock Capital
in
Class A Class B Excess of
Shares Amount Shares Amount Par Value
Balance-December 31,1994 128,104 $128,104 1,409,889 $1,409,889 $12,610,377
Reissued Class B Shares 148,233
Balance-December 31,1995 128,104 $128,104 1,409,889 $1,409,889 $12,758,610
Balance-December 31,1996 128,104 $128,104 1,409,889 $1,409,889 $12,758,610
Exchange Class A Shares
for Class B Shares (872) (872) 872 872
Balance-December 31,1997 127,232 $127,232 1,410,761 $1,410,761 $12,758,610
Unrealized Pension
Retained Gain(Loss)on Liability Treasury Stock
Earnings Investments Adjustment Shares Amount
Balance-December 31,1994 $46,524,142 $(98,399) $(489,823) 173,456 $4,313,067
Net Income 4,015,105
Reacquired Class B Shares 25,889 1,060,749
Reissued Class B Shares (24,390) (851,767)
Change in unrealized gain
on securities available
for sale 192,535
Pension liability
adjustment 489,823
Cash dividend paid
($.55 per share) (753,084)
Balance-December 31,1995 $49,786,163 $ 94,136 $ -- 174,955 $4,522,049
Net Income 3,865,876
Reacquired Class B Shares 38,801 1,469,659
Change in unrealized gain
on securities available
for sale (4,756)
Cash dividend paid
($.55 per share) (736,983)
Balance-December 31,1996 $52,915,056 $ 89,380 $ -- 213,756 $5,991,708
Net Income 3,512,142
Reacquired Class B Shares 143,519 5,626,717
Change in unrealized gain
on securities available
for sale 39,094
Cash dividend paid
($.56 per share) (702,018)
Balance-December 31,1997 $55,725,180 $128,474 $ -- 357,275$11,618,425
See accompanying notes to Consolidated Financial Statements.
ALLEN ORGAN COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31,
1997 1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 3,512,142 $ 3,865,876 $ 4,015,105
Adjustments to reconcile net income
to net cash provided by operating
activities
Depreciation and amortization 1,114,639 815,277 636,777
Minority interest in consolidated
subsidiaries (6,041) (55,822) (23,913)
Amortization of bond premiums -- 4,349 58,918
Gain (Loss) on sale of property,
plant and equipment (3,984) 5,692 (437)
Gain on sale of investments (765,110) (287,982) (295,560)
Change in assets and liabilities (net
of acquisition effects)
Accounts receivable (914,493) (386,440) 120,141
Inventories (3,188,750) (1,292,561) (2,014,580)
Prepaid income taxes 164,509 459,226 (580,050)
Prepaid expenses (328,631) (39,349) (4,517)
Deferred income tax benefits -- -- 110,536
Prepaid pension costs 94,099 132,311 (1,109,038)
Accounts payable 498,632 (139,103) (267,387)
Other accrued expenses 192,927 (1,518,438) (325,032)
Customer deposits 546,262 298,720 16,362
Deferred liabilities (32,217) (59,500) 474,702
Net Cash Provided by Operating
Activities 883,984 1,802,256 812,027
CASH FLOWS FROM INVESTING ACTIVITIES
Cash proceeds from maturity of investments
classified as held to maturity -- -- 54,960,373
Cash paid for purchase of investments
classified as held to maturity -- -- (21,631,598)
Cash proceeds from sale of investments
classified as available for sale 30,263,188 38,938,452 3,520,772
Cash paid for purchase of investments
classified as available for sale (20,497,033) (36,914,531) (30,402,728)
Increase in cash value of life insurance (264,278) (228,736) (221,343)
Increase in note receivable (40,409) (40,562) (40,731)
Payment for acquisition, net of cash
acquired (1,512,000) -- (3,639,338)
Additions to intangible and other assets (211,690) -- (533,084)
Purchase of minority stockholders'
interest in subsidiary -- (20,000) --
Cash proceeds from sale of property,
plant and equipment 7,841 10,000 500
Cash paid for purchase of property,
plant and equipment (2,046,097) (761,483) (940,689)
Net Cash Provided by
Investing Activities 5,699,522 983,140 1,072,134
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid in cash (702,018) (736,983) (753,084)
Reacquired Class B common shares (5,626,717) (1,469,659) (1,060,749)
Subsidiary company stock reacquired
from minority stockholders (15,625) (3,572) --
Subsidiary company stock issued to
minority stockholders -- 9,920 20,705
Net Cash Used in Financing Activities (6,344,360) (2,200,294) (1,793,128)
NET INCREASE IN CASH 239,146 585,102 91,033
CASH, JANUARY 1 781,202 196,100 105,067
CASH, DECEMBER 31 $ 1,020,348 $ 781,202 $ 196,100
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION
Cash paid for income taxes $ 1,758,833 $ 1,793,338 $ 2,142,682
Cash paid for interest $ -- $ 53,322 $ --
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
Purchase price adjustment of
August 1,1995 acquisition
Decrease of accrued liability to
purchase inventory $ -- $ 630,885 $ --
Decrease in long term debt -- 1,735,000 --
Decrease in minority interest -- 86,641 --
Decrease in inventory -- (630,885) --
Decrease in intangible assets (Goodwill) -- (864,291) --
Increase in current accrued liabilities -- (957,350) --
Total $ -- $ -- $ --
See accompanying notes to Consolidated Financial Statements.
ALLEN ORGAN COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 Significant Accounting Policies
Background:
Allen Organ Company and Subsidiaries operate in four industry
segments: musical instruments, data communications, electronic
assemblies, and audio equipment. See note 14 for additional information
on the operating activities of each segment.
Principles of Consolidation:
The consolidated financial statements include the accounts of the
Allen Organ Company and the following subsidiaries. All material
intercompany transactions have been eliminated.
Subsidiary Name Ownership %
Rocky Mount Instruments, Inc. 100.00%
Allen Organ International, Inc. 100.00%
VIR, Inc. 98.09%
Eastern Research, Inc. 92.52%
Linear Switch Corporation 92.20%
Legacy Audio, Inc. 75.00%
Reclassifications:
Certain amounts in the 1996 and 1995 financial statements have been
reclassified to conform to the 1997 presentation.
Off-Balance Sheet Risk:
Financial instruments that potentially subject the Company to credit
risk consist principally of short-term investments and trade receivables.
The Company places substantially all of its investments in mutual funds
holding federal, state and local government obligations and, by policy,
limits the amount of credit exposure in any one investment. The Company
sells most of 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.
Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reported period. Actual results could differ from those
estimates.
Investments:
The Company accounts for its short-term investments in accordance with
Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities". Management determines
the appropriate classification of its investments in debt and equity
securities at the time of purchase and reevaluates such determination at
each balance sheet date.
Inventories:
Inventories are valued at the lower of cost or market. Cost is
determined using the first-in, first- out (FIFO) method for substantially
all inventories.
Property, Plant and Equipment:
Property, plant and equipment are stated at cost. Depreciation is
computed over estimated useful asset lives using both straight-line and
accelerated methods for financial reporting and accelerated methods for
tax reporting.
Goodwill and Intangibles:
Goodwill represents the excess of cost over the net assets of acquired
subsidiaries. Goodwill is amortized on a straight-line basis over various
periods from 3 - 20 years and is presented net of accumulated amortization
of $348,862 and $129,696 at December 31, 1997 and 1996 respectively. The
carrying value of goodwill for each business is continually reviewed to
assess its recoverability from future operations of the acquired
subsidiaries, based on future cash flows (undiscounted) expected to be
generated by such operations. Any impairment in value indicated by the
assessment would be charged against current operations.
During 1997 the Company re-evaluated the useful life of goodwill
acquired through business acquisitions and began amortizing the goodwill
associated with acquisitions over useful lives of 3 - 20 years.
Previously, goodwill was being amortized over 40 years. This change in
the estimated life of the goodwill had the effect of decreasing net income
for 1997 by approximately $60,000 ($0.05 per share).
Intangible assets consist of organization costs which are stated at
cost and amortized using the straight-line method over ten years.
Intangible assets are presented net of accumulated amortization of
$134,225 and $75,520 at December 31, 1997 and 1996, respectively.
Income Taxes:
Income taxes are provided for the tax effects of transactions reported
in the financial statements and consist of taxes currently due plus
deferred taxes. Deferred taxes are recognized for differences between the
basis of assets and liabilities for financial statement and income tax
purposes.
Research and Development:
Research and development expenditures are charged to expense as
incurred.
Stock-Based Compensation:
The Company accounts for its stock-based compensation plans using the
accounting prescribed by Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees. Since the Company is not
required to adopt the fair value based recognition provisions prescribed
under Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation, it has elected only to comply with the
disclosure requirements set forth in the Statement. (See Note 17.)
Year 2000:
The Company has taken actions to make its systems, products and
infrastructure Year 2000 compliant. The Company began work several years
ago to prepare its products and its financial information and other
computer-based systems for the Year 2000, including replacing and/or
updating existing legacy systems. Allen continues to evaluate the
estimated costs associated with these efforts based on actual experience.
While these efforts will involve additional costs, the Company believes,
based on available information, that it will be able to manage its total
Year 2000 transition without any material adverse effect on its business
operations, products or financial prospects.
New Accounting Standards:
The Financial Accounting Standards Board has issued the following new
Statements, all of which are effective for financial statements for
periods beginning after December 15, 1997.
SFAS 130, Reporting Comprehensive Income - establishes standards
for reporting and display of comprehensive income and its
components in a full set of general purpose financial statements.
SFAS 131, Disclosures about Segments of an Enterprise and Related
Information - establishes standards for reporting selected
information about operating segments in interim financial reports.
It also establishes standards for related disclosures about
products and services.
SFAS 132, Employers' Disclosures about Pensions and Other Post
Retirement Benefits - revises disclosures about pensions and other
post retirement benefit plans.
The Company will implement these standards during 1998 and believes
that they will not have a material effect on the Company's financial
statements.
NOTE 2 Business Acquisitions
Legacy Audio:
On April 1, 1997 the Company purchased a 75% interest in Legacy Audio
in exchange for $1,512,000 in cash. In connection with the acquisition,
the company established a new subsidiary, Legacy Audio, Inc. (LAI), to
acquire the assets of the seller. A founding owner of the seller
contributed the remaining 25% of the assets of the seller to the new
company in exchange for a 25% interest in LAI. Additionally, this
founding owner has been named the President and Chief Designer of LAI.
The acquisition has been accounted for as a purchase. The results of
operations of LAI have been included in the Company's consolidated
financial statements from the date of acquisition. Assets and liabilities
have been recorded at their estimated fair market values with the excess
being recorded as goodwill which will be amortized over periods from 10 -
20 years.
VIR, Inc., Eastern Research, Inc., Linear Switch Corporation:
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.
On September 7, 1995, the Company 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.
On May 10, 1996, the Company entered into an agreement with the seller
of the three data communications companies acquired on August 1, 1995, to
settle an indemnity claim against the seller by adjusting the purchase
price and payment terms for the acquired companies.
The terms of the agreement provided for the $880,885 balance due on
the obligation incurred to purchase some of the inventory to be satisfied
by the payment of $250,000. Further, the Note Payable of $1,735,000
issued as part of the purchase price has been canceled in exchange for a
current payment of $900,000 and a contingent annual payment for five
years, effective January 1, 1996, of 4.5% of the acquired companies annual
sales exceeding $7,000,000. The total contingent payment for 1997 and
1996 amounted to $92,432 and $29,142, respectively. The agreement
provides that the total of the contingent payments shall not exceed
$2,000,000. The employment agreement between VIR and its President
(majority owner of the selling companies) has been modified so that he
shall now be a consultant to the companies, with payment based on the
number of hours worked at the request of the companies.
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 stockholders equivalent to their interest in the selling
companies.
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, 1997. Assets and liabilities have been recorded at their
estimated fair market values with the excess being recorded as goodwill
and is being amortized over periods from 3 - 20 years. Organizational
costs have been capitalized in connection with the acquisitions are being
amortized over 10 years.
NOTE 3 Investments
The cost and fair value of investments in debt and equity securities
are as follows:
Gross Gross Fair
Amortized Unrealized Unrealized Value
Cost Gains Losses
December 31, 1997
Available for sale
Equity securities $ 215,354 $ 82 $ 69,663 $ 145,773
Mutual Funds
Short Term Gov't Funds 10,268,613 -- 10,268,613
Municipal Bond Funds 5,725,690 111,096 -- 5,836,786
Equity Funds 2,071,521 169,121 7,480 2,233,162
U.S. Treasury Bills 1,556,000 -- -- 1,556,000
Totals $ 19,837,178 $ 280,299 $ 77,143 $ 20,040,334
December 31, 1996
Available for sale
Equity securities $ 288,981 $ -- $ 21,298 $ 267,683
Mutual Funds
Short Term Gov't Funds 11,925,188 40,000 -- 11,965,188
Municipal Bond Funds 5,957,538 -- 12,847 5,944,691
Corporate Bond Funds 1,609,509 37,795 -- 1,647,304
Equity Funds 2,968,685 101,386 -- 3,070,071
U.S. Treasury Bills 5,889,064 -- -- 5,889,064
Federal Agency Bonds 228,560 4,374 -- 232,934
Totals $ 28,867,525 $ 183,555 $ 34,145 $ 29,016,935
Marketable debt securities have an average contractual maturity of
approximately 1 year or less.
Realized gains and losses are determined based on the original cost of
these investments using a first-in, first-out method. During 1997, 1996
and 1995, sales proceeds and gross realized gains and losses on securities
classified as available for sales were:
1997 1996 1995
Sales proceeds $30,263,188 $38,938,452 $ 3,520,772
Gross realized losses $ 44,448 $ 9,100 $ 12,514
Gross realized gains $ 809,558 $ 297,082 $ 308,074
The change in net unrealized holding gains (losses) on securities
available for sale in the amount of $53,746, $(9,046), and $324,273 net of
deferred tax expense (benefits) of $14,650, $(4,290), and $131,738 has
been included in stockholders' equity for the years ended December 31,
1997, 1996 and 1995, respectively.
NOTE 4 Inventories
December 31,
1997 1996
Finished goods $ 2,046,835 $ 1,709,962
Work in process 7,343,590 5,912,456
Raw materials 8,532,962 6,449,729
Total Inventory $17,923,387 $14,072,147
The Company maintains an inventory of various parts to be used to
service musical instruments as future needs arise. This inventory,
$1,260,346 and $1,237,986 at December 31, 1997 and 1996, respectively,
is reported as a noncurrent asset.
NOTE 5 Property, Plant and Equipment
Estimated
December 31, Useful
1997 1996 Lives
Land and improvements $ 2,445,579 $ 2,407,579 10 yrs
Buildings and improvements 8,100,068 7,585,667 10 - 40 yrs
Machinery and equipment 7,751,766 6,379,116 5 - 10 yrs
Office furniture and equipment 1,545,262 1,191,378 3 - 8 yrs
Vehicles 241,869 177,391 4 yrs
Sub-Total 20,084,544 17,741,131
Less accumulated depreciation 10,569,532 9,893,616
Property, plant and equipment net
of accumulated depreciation $ 9,515,012 $ 7,847,515
Depreciation expense charged to operations was $836,769, $676,775
and $570,064 in 1997, 1996 and 1995 respectively.
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.
The note receivable does not materially exceed the cash surrender value
of this policy.
NOTE 7 Income Taxes
The provision for income taxes consists of the following:
1997 1996 1995
Currently Currently Currently
Payable Deferred Payable Deferred Payable Deferred
Federal $1,270,000 $ 73,000 $1,620,000 $ 59,000 $1,300,000 $ 380,000
State 26,000 (128,000) 467,000 (111,000) 259,000 81,000
Total $1,296,000 $ (55,000) $2,087,000 $ (52,000) $1,559,000 $ 461,000
A reconciliation of the provision for income taxes with the
statutory rate follows:
1997 1996 1995
Statutory provision for
federal income tax $1,614,000 34.0% $1,987,000 34.0% $2,044,000 34.0%
State taxes, net of
federal tax benefits 81,000 1.6 235,000 4.0 224,000 3.7
Tax credits (60,000) (1.3) (60,000) (1.0) (8,000) (0.1)
Tax-exempt income (110,000) (2.3) (65,000) (1.1) (161,000) (2.7)
Exempt income of foreign
sales corporation (101,000) (2.1) (104,000) (1.8) (82,000) (1.4)
Other items, net (38,000) (0.8) (42,000) (0.7) (3,000) (0.1)
Effect of change in
prior year's state tax
revenue allocations (229,000) (4.8) -- -- -- --
Effect of change in state
valuation allowance of
deferred tax asset 84,000 1.8 -- -- -- --
Total $1,241,000 26.1% $2,035,000 34.8% $2,020,000 33.6%
The decrease in the 1997 tax provision is attributable to a
decrease in the estimated effective tax rate for the current and prior
tax year resulting from a change in state tax revenue allocations.
The following temporary differences give rise to the net deferred
tax liability at December 31, 1997 and 1996.
1997 1996
Deferred Tax Liabilities
Excess of tax depreciation/amortization
over book depreciation/amortization $ (533,989) $ (487,166)
Excess of pension expense for tax
purposes over book (288,801) (359,646)
Unrealized gain not recognized
for tax purposes (74,091) (60,033)
Total Deferred Tax Liabilities (896,881) (906,845)
Deferred Tax Assets
Deferred compensation not recognized
for tax purposes 20,211 25,540
State net operating loss carry forwards 185,716 102,000
Reserve for Bad Debts 11,383 --
Inventory Reserve 23,633 --
Sub-total 240,943 127,540
Valuation Allowance (84,000) --
Total Deferred Tax Assets 156,943 127,540
Net Deferred Tax Liability $ (739,938) $ (779,305)
Deferred taxes are included in the company's financial
statements as follows:
1997 1996
Current deferred tax liability $ (74,091) $ (60,033)
Non-current deferred tax liability (665,847) (719,272)
Net deferred tax liability $ (739,938) $(779,305)
The Company has available at December 31, 1997, approximately
$3,250,000 of unused state net operating loss carry forwards that may be
applied against future taxable income and that expire in various years
from 2002 to 2004.
At December 31, 1997 the Company recorded a valuation allowance of
$84,000 against the deferred tax assets relating to uncertainty of
realizing state net operating loss carry forwards.
NOTE 8 Other Accrued Expenses
December 31,
1997 1996
Accrued salaries and commissions $ 385,176 $ 302,223
Other 307,106 197,132
Total $ 692,282 $ 499,355
NOTE 9 Commitments and Contingencies
As of December 31, 1997, the Company is contingently liable for a
maximum amount of approximately $1,472,107 in connection with the
financing arrangements of certain customers.
Under the terms of an agreement with the wife of the late Chairman
and principal shareholder, the Company may be required to purchase within
eight months of her death, at the option of her personal representative,
an amount of Class B Common Shares then owned by her or includable in her
estate for Federal Estate Tax purposes sufficient to pay estate taxes and
costs, subject to the limitations of Section 303 of the Internal Revenue
Code. At December 31, 1997, the shareholder owned or would have
includable in her estate 261,072 shares of Class B Common Stock. The
Company has purchased life insurance on the life of the shareholder with
a face value of $6,000,000. 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 February 2001. These leases include renewal
options for periods ranging from two to fifteen years with increases of
lease payments based on changes in the Consumer Price Index. Rent
expense was $179,765 and $169,493 for 1997 and 1996 and $70,233 for the
period from August 1 (inception) to December 31, 1995. Minimum annual
rent payments for the operating leases are as follows:
1998 $ 218,633
1999 236,320
2000 199,220
2001 24,220
Total $ 678,393
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:
1997 1996 1995
Service cost - benefits
earned during the period $ 299,166 $ 282,303 $ 279,432
Interest cost on projected
benefit obligations 953,842 952,301 887,261
Return on assets
Actual (2,057,294) (1,544,571) (1,772,567)
Deferred gain 1,025,998 554,953 978,678
Amortization of net loss
from prior periods -- 9,513 48,463
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 $ 223,694 $ 256,481 $ 423,249
The funded status of the Company's pension plans is as follows:
December 31,
1997 1996
Actuarial present value of
benefit obligations:
Vested benefits $(12,222,438) $(11,768,830)
Nonvested benefits (89,213) (60,134)
Accumulated benefit obligation (12,311,651) (11,828,964)
Effect of assumed increase in
compensation levels
for salaried plan (910,741) (1,423,492)
Projected benefit obligations
for service rendered to date (13,222,392) (13,252,456)
Plan assets at fair value 14,764,799 13,641,779
Plan assets in excess of
projected benefit obligation 1,542,407 389,323
Unrecognized prior service cost 221,303 295,293
Unrecognized net asset at transition (288,036) (360,044)
Unrecognized net (gain) loss (680,567) 564,634
Prepaid Pension Cost $ 795,107 $ 889,206
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 6% and 7% in 1997 and 1996, respectively, was used for
the salaried plan. The assumed long-term rate of return on plan assets
was 8%.
The Company provides a 401(k) deferred compensation and profit
sharing plan for the benefit of eligible employees. The plan allows
eligible employees to defer a portion of their annual compensation,
pursuant to Section 401(k) of the Internal Revenue Code. Company
profit-sharing contributions to the plan are discretionary as
determined by the Company's board of directors. The Company
contributions were $147,160, $139,732 and $157,483 to the plans in
1997, 1996 and 1995 respectively.
NOTE 11 Deferred Liabilities
December 31,
1997 1996
Deferred compensation expense $ 55,417 $ 62,917
Deferred income taxes 665,847 719,272
Total Deferred Liabilities $ 721,264 $ 782,189
NOTE 12 Earnings Per Share
Earnings per share were computed using 1,258,966 shares in 1997,
1,340,047 shares in 1996, and 1,366,076 shares in 1995, the weighted
average number of shares outstanding during each year. The Company
does not have any dilutive equity instruments.
NOTE 13 Export Sales
In 1997, 1996 and 1995, net sales by the musical instruments
segment include export sales, principally to Canada, Europe and the Far
East of $4,432,974, $5,594,286, and $5,408,720, respectively. Net
sales by the data communications segment include export sales
principally to Europe and the Far East of $2,103,734 for 1997,
$1,417,636 for 1996 and $1,027,826 for the five months ended December
31, 1995. Net sales by audio equipment segment include export sales
principally to Europe and the Far East of $211,561 for the nine months
ended December 31, 1997.
NOTE 14 Industry Segment Information
The Company's operations are classified into four industry
segments: musical instruments, data communications, electronic
assemblies, and audio equipment. The musical instruments segment is
comprised of operations principally involved in the design,
manufacture, sale and distribution of electronic keyboard musical
instruments, primarily digital computer organs and related accessories.
Musical instruments are sold primarily to retail distributors
worldwide.
The data communications segment 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.
The audio equipment segment began in 1997 with the acquisition
discussed in Note 2. The segment is involved in the design,
manufacture, sale and distribution of high quality speaker cabinets and
related equipment for hi-fi stereo and home theater applications. The
segment's products are sold worldwide directly to individual customers
for home use with a lesser percentage distributed through dealer
audition sites.
Following is a summary of segmented information for 1997,
1996 and 1995.
December 31,
1997 1996 1995
Net Sales to Unaffiliated Customers
Musical instruments $ 23,351,483 $ 25,418,620 $ 24,321,914
Data communications 9,037,521 7,647,597 2,661,862
Electronic assemblies 5,935,381 3,648,911 3,040,985
Audio equipment 2,023,699 -- --
Total $ 40,348,084 $ 36,715,128 $ 30,024,761
Intersegment Sales
Musical Instruments $ 5,252 $ -- $ --
Data Communications 84,939 125,288 --
Electronic Assemblies 938,479 296,132 --
Audio Equipment 52,244 -- --
Total $ 1,080,914 $ 421,420 $ --
Income (Loss) from Operations
Musical instruments $ 2,718,085 $ 3,634,901 $ 3,332,103
Data communications (1,069,165) (349,785) 122,417
Electronic assemblies 631,521 520,602 457,167
Audio equipment 337,495 -- --
Total $ 2,617,936 $ 3,805,718 $ 3,911,687
Identifiable Assets
Musical instruments $ 22,669,782 $ 20,790,307 $ 20,505,183
Data communications 10,294,411 8,937,839 9,181,209
Electronic assemblies 4,422,908 2,600,627 2,108,721
Audio equipment 2,153,922 -- --
Sub-total 39,541,023 32,328,773 31,795,113
General corporate assets 23,020,981 31,637,873 33,504,313
Total $ 62,562,004 $ 63,966,646 $ 65,299,426
Capital Expenditures
Musical instruments $ 1,574,743 $ 530,624 $ 903,737
Data communications 386,308 230,859 36,952
Audio equipment 85,046 -- --
Total $ 2,046,097 $ 761,483 $ 940,689
Depreciation and Amortization
Musical instruments $ 657,686 $ 580,090 $ 557,052
Data communications 392,108 235,187 79,725
Audio equipment 64,845 -- --
Total $ 1,114,639 $ 815,277 $ 636,777
Intersegment sales are generally priced at cost plus a percentage
mark-up, and are generally thought to be marginally less than prices
which would be charged for the same product to unaffiliated customers.
Intersegment sales are excluded from net sales reported in the
accompanying consolidated income statements. Identifiable assets by
segment are those assets that are used in the Company's operations
within that segment. General corporate assets consist principally of
cash and short-term investments.
The electronic assemblies segment derived 55%, 85% and 90% of its
revenues from one customer in 1997, 1996 and 1995 respectively. The
data communications segment derived 12% and 14% of its revenue from one
customer in 1997 and 1996, respectively. The Company's musical
instrument and audio equipment segments are not dependent on any single
customer.
NOTE 15 Investment Income
December 31,
1997 1996 1995
Interest Income $ 1,198,362 $ 1,382,301 $ 1,712,340
Dividend Income 151,250 354,741 107,651
Gain on Sale of Investments 765,110 287,982 295,560
Total $ 2,114,722 $ 2,025,024 $ 2,115,551
NOTE 16 Pro Forma Financial Information
The following pro forma financial information have been prepared
giving effect to the acquisitions of Legacy Audio, Inc., VIR, ERI and
LSC (including settlement agreement dated May 10, 1996) as if the
transactions had taken place at the beginning of the respective year
(1997 and 1996 for Legacy Audio and 1995 for all other). 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,
1997 1996 1995
Pro forma Net Sales $40,809,887 $38,681,238 $34,760,371
Pro forma Net Income 3,490,772 3,889,960 4,309,302
Pro forma Net Income Per Share $ 2.77 $ 2.90 $ 3.15
NOTE 17 Stock Option Plans
During 1997, VIR, Inc. (VIR) and Eastern Research, Inc. (ERI)
established employee stock-based compensation plans to assist them in
attracting and retaining personnel. The maximum number of these
subsidiaries' shares that may be issued under the plans approximates a
15% interest in each of the respective companies. Options are issued
at estimated fair market value and the Company has a right of first
refusal for any shares issued under these options. The maximum term of
the options is 6 years, and they generally vest equally over 4 years.
As of December 31, 1997, total options issued for VIR and ERI
represent 12% and 10%, respectively, of the shares currently
outstanding. Vested options consist of 2% of the currently outstanding
shares of ERI.
No compensation expense was recognized for these plans in 1997.
Had compensation cost been determined pursuant to FASB Statement No.
123, net income and earnings per share would have been $3,431,897 and
$2.73, respectively.
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 44 Director Since 1980
Meeting in 1998
Eugene Moroz Next Annual 74 Director Since 1968
Meeting in 1998
Leonard W. Helfrich Next Annual 68 Director 1964 - 1968 and
Meeting in 1998 1972 to present
Orville G. Hawk Next Annual 80 Director Since 1989
Meeting in 1998
Albert F. Schuster Next Annual 78 Director Since 1989
Meeting in 1998
Martha Markowitz Next Annual 76 Director Since 1991
Meeting in 1998
Jeffrey L. Schucker Next Annual 43 Director Since July 1996
Meeting in 1998
(b) Identification of Executive Officers.
Time Period
Date Term Position
Name Expires Age Position Held
Steven Markowitz Next Annual 44 President 1990 to
Meeting in 1998 present
Eugene Moroz Next Annual 74 Vice President Since 1965
Meeting in 1998
Leonard W. Helfrich Next Annual 68 Vice President, 1958 - 1968
Meeting in 1998 Secretary and 1971 to
present
Barry J. Holben Next Annual 45 Vice President October 1995
Meeting in 1998 to present
Dwight A. Beacham Next Annual 51 Vice President October 1995
Meeting in 1998 to present
Nathan S. Eckhart Next Annual 34 Treasurer, Since 1996
Meeting in 1998 Assistant Secretary
(c) Identification of Certain Significant Employees.
Not required to be answered.
(d) Family Relationships.
Except for Martha Markowitz and Steven Markowitz,
who are mother and son, there is no family relationship
between any officers or directors of the Company.
(e) Business Experience.
(1) Steven Markowitz, Eugene Moroz, Leonard W.
Helfrich and Dwight Beacham, have been employees of
the Company in executive capacities for at least the
last five years. Mr. Holben has been employed by
the Company since 1989, spending two years in
product development and four years in various sales
capacities. Mr. Eckhart has been employed by the
Company from 1993 to 1996 as Controller and prior to
that time was a manager for a public accounting
firm. Mr. Hawk who has been retired more than five
(5) years was formerly Chairman of the Board and
President of First National Bank of Allentown. Mr.
Schuster is a church director of music and prior to
his retirement more than five (5) years ago was a
supervisor at Bethlehem Steel Corporation. Mr.
Schucker is currently President of Middle Market
Capital Advisors, L.L.C. and formerly a Vice
President of Meridian Capital Markets. 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 1997 100,090 18,598 30,650
(Chief Executive Officer) 1996 96,547 22,865 30,766
1995 93,010 20,125 31,537
Leonard W. Helfrich, 1997 93,624 17,402
Vice President - Finance 1996 88,113 21,385
(Secretary) 1995 84,746 19,005
*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 1997 Actuarial
Valuation Report:
Steven A. Markowitz $55,819. Age 44.
Leonard W. Helfrich $35,354. Age 68.
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 $350 for each Board
and committee meeting attended plus reasonable expenses
in connection with attendance. Employee Directors receive
no additional compensation for their services as a Director.
(h) Employment Contracts and Termination of Employment and
Change in Control Arrangements:
There are no employment contracts between the Company and
any of the Company's Executive Officers. Mr. Markowitz,
Mr. Helfrich, Mr. Beacham, Mr. Holben and Mr. Eckhart
participate in an Executive Incentive Plan whereby a
bonus is distributed to each participant executive
in proportion to the annual salary of the participants.
The bonus pool is 1% of consolidated pre-tax profit for
the fiscal year after elimination of bonus accrual and
non-operating extraordinary gains or losses as determined
by the Board of Directors.
(j) Additional Information with Respect to Compensation
Committee Interlocks and Insider Participation in
Compensation Decisions:
(1) Leonard W. Helfrich, Vice President, Secretary,
and Director of the Company, is the sole member of
the Compensation Committee of the Board of Directors
whose function is to set the compensation of the
President. The compensation of all other employees
is set by or at the direction of the President.
Item 12. Security Ownership of Certain Beneficial Owners and Management
(a) Voting securities of the registrant owned of record or
beneficially by each person who owns of record, or is known by
the registrant to own beneficially, more than 5 percent of
any class of such securities. Class A Common Shares
constitute the only securities with voting rights.
Information as of February 28, 1998.
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, 1997.
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) 1.09 %
81,531* (2) (4) 95.94 %
242,016* (2) (4) 19.53 %
Eugene Moroz 719 (1) (3) as
to 719
11,771 (2) (4) as
to 11,771 .94 %
Leonard W. Helfrich 328 (2) (4) .03 %
Orville G. Hawk 50 (2) (4) .004%
Martha Markowitz 19,056 (1) (3) 1.53 %
81,531* (2) (4) 95.94 %
242,016* (2) (4) 19.53 %
Percent Percent
All Directors of of
and Officers Class Class Class Class
as a Group A B A B
7 81,589** 287,502** 96.01 %** 23.20 %
(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' Reports.
Consolidated Balance Sheets as of December 31, 1997
and 1996.
Consolidated Statements of Income for the years ended
December 31,1997, 1996, and 1995.
Consolidated Statements of Changes in Stockholders' Equity
for the years ended December 31, 1997, 1996 and 1995.
Consolidated Statements of cash flows for the years
ended December 31, 1997, 1996, and 1995.
Notes to Consolidated Financial Statements.
The individual financial statements of the
Registrant's subsidiaries have been omitted, as they are
all included in the consolidated financial statements
referred to above.
(a) (2) Financial Statement Schedules
Financial schedules are omitted as not applicable.
(a) (3) Exhibits
Exhibit No. Description
2(4) Plan of acquisition
3.1(1) Articles of Incorporation as amended
3.2(2) Bylaws, as amended
10.1(2) Executive Incentive Plan adopted October 24, 1996
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 Quarterly Report on
Form 10-Q for the period ended September 30, 1996.
3. Incorporated by reference to the exhibit
filed with the Registrants Annual Report on Form
10-K for the year ended December 31, 1992.
4. Incorporated by reference to the exhibit
filed with the Registrants Current Report on form
8-K dated August 1, 1995.
(b) Reports on Form 8-K. None filed during fourth
quarter of 1997.
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 25, 1998 STEVEN A. MARKOWITZ
Steven A. Markowitz
Chief Executive Officer,
President and Director
Date: March 25, 1998 LEONARD W. HELFRICH
Leonard W. Helfrich
Vice President-Finance,
and Director, Chief
Financial and Principal
Accounting Officer
Date: March 25, 1998 MARTHA MARKOWITZ
Martha Markowitz
Director
Date: March 25, 1998 JEFFREY L. SCHUCKER
Jeffrey L. Schucker
Director