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. During October 1998, the Company announced its plans to permanently close its manufacturing plant in Rocky Mount, NC. Rocky Mount Instruments, Inc. (RMI) manufactured small organs and sub-assemblies for the Company's Musical Instruments segment. In December 1998, the Company established Allen Diversified, Inc. as a wholly owned subsidiary of Allen Organ Company to hold and manage the Company's investment in its subsidiary Companies. The Company is developing a line of Public Address System products, which it demonstrated at an industry trade show in January 1999. The Mixer portion of these products utilizes Digital Signal Processor (DSP) technology also used in the Allen digital organs. The speaker technology was developed in conjunction with the Company's subsidiary, Legacy Audio. The product line will initially be targeted at small to mid- sized churches, auditoriums and the like. The Company expects to begin shipping these products in the second half of 1999.
Industry segments.
The Company operates in four industry segments: musical instruments, data communications, electronic assemblies, and audio equipment. For financial information concerning the segments, see Note 15 to the financial statements.
Description of business.
Musical Instruments.
Allen Organ Company is a leading manufacturer of electronic keyboard musical instruments, primarily digital electronic church organs and accessories. This segment accounted for 57%, 58% and 69% of revenue in 1998, 1997 and 1996 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 10 to the financial statements. The dollar amounts and number of times the Company has had to honor these repurchase agreements are negligible. The musical instruments segment is not dependent on any single or small group of customers, the loss of which would have a material adverse effect on the business. The dollar amount of the segment's unshipped order backlog at the end of February 1999 and 1998 was $6.3 million and $4.4 million respectively. Approximately $5.7 million of these orders will be filled in the current year with the remaining $600,000 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 operates through three majority owned subsidiaries, VIR, Inc., Linear Switch Corporation and Eastern Research, Inc. This segment accounted for 27%, 22% and 21% of revenues in 1998, 1997 and 1996 respectively. Data communications products are sold primarily to wholesale and retail distributors worldwide and under OEM agreements with several of its customers. The segment maintains an inventory of in-process and finished goods to allow for rapid fulfillment of customer orders which is expected in the industry. The principal raw material used in the data communications products are electronic components, which are readily available from various sources without undue difficulty. The data communications segment derived 13% and 12% of its 1998 and 1997 revenue from one customer. VIR, Inc. (VIR) and Linear Switch Corporation (LSC) During 1997, these two companies combined their marketing and research & development functions under the name of "VIR Linear Switch". The companies design, manufacture, and market a number of data communication products including patch and testing equipment, often referred to as tech control products, test access equipment and a matrix switch which can transport high-speed digital signals and allow "any-to-any" connectivity between and among connections. The products are of varying complexity and are used to connect, switch, test and trouble shoot data lines in large computer installations. The companies compete in a relatively mature field, producing high quality products at competitive prices. The companies have approximately four major competitors, all of which are larger than VIR/LSC. With the need for higher speed and more reliable communications circuits increasing, VIR/LSC introduced in 1998, a new family of products to provide the ability to access and configure these higher speed circuits for various test procedures. Management is pursuing strategic customer relationships in an effort to expand distribution of its products. The dollar amount of unshipped order backlog at the end of February 1999 and 1998 was $56,000 and $555,000 respectively. All orders are expected to be filled in the current year. Eastern Research, Inc. (ERI) Designs and markets data inter- networking products. These products include direct access equipment that allow users to utilize a broad range of services offered by the telephone companies. ERI competes in a growing market that is in excess of $10 billion. However, the company's current and projected product lines and sales programs are targeted at only a fraction of that market. There are many competitors in this market that is dominated by several large data communications companies, such as Cisco Systems, Inc., Paradyne, Premisys and ADC Kentrox. The company's strategy has been to target existing, yet still growing, market niches with products that provide new features and packaging with attractive pricing. ERI initially built its business in the CSU/DSU market and has also developed router technology products. These products are relatively inexpensive and easy to manufacture. Thus, this is a competitive field where margins can erode as new products emerge. During 1998, the company introduced a Frame Aware CSU/DSU that it developed in conjunction with an OEM agreement with one of its customers. ERI is focusing on its DNX (Digital Exchange Network) product line, a narrowband DACS (Digital Access Cross-connect Switch) capable of access speeds from subrate to DS3. The DNX revenues have increased as a percentage of sales and is considered ERI's flagship product. 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 continue to require further investment through the coming year. ERI has been able to increase sales by working with, and developing strategic customer relationships to expand distribution of its products. One such relationship, which ERI entered into, is an OEM agreement to supply Lucent Technologies with its DACS product line. The dollar amount of unshipped order backlog at the end of February, 1999 and 1998 was $3.0 million and $1.2 million respectively. All orders are expected to be filled in the current year.
Electronic Assemblies.
Allen Integrated Assemblies (AIA), a division of the Allen Organ Company, provides subcontract manufacture of electronic assemblies for outside customers. The electronic assemblies segment is an outgrowth of the technical skills and manufacturing capabilities developed by the Company in its musical instruments business. This segment accounted for 10%, 15% and 10% of revenue in 1998, 1997, and 1996 respectively. AIA derived 68% of its revenues from three customers in 1998 and 55% and 85% of its revenues from one customer in 1997 and 1996 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. In order to improve its contract manufacturing capabilities, the segment is upgrading its manufacturing systems and increasing its sales and marketing efforts. The dollar amount of the segment's unshipped order backlog at the end of February 1999 and 1998 was $2.6 million and $3.0 million 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 6% of revenue in 1998 and 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 distributed directly to the customer and through Dealer Audition Sites. This segment's business is not seasonal. LAI's manufacturing facility is currently operating near full capacity. Many of their manufacturing needs are similar to those required in the Company's musical instruments segment. The Company is now 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 1999 and 1998 was $246,000 and $579,000 respectively. 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 $3,478,775, $2,654,662, and $2,786,390 annually in 1998, 1997, and 1996 respectively on research and development. The increase in 1998 is a result of the Company's ongoing commitment to new product development and support, primarily at Eastern Research. The decrease in the 1997 expense relates primarily to the combining of the research and development efforts of VIR and LSC. The Company and its subsidiaries employ approximately 544 persons. The Company is not aware of any problem in complying with applicable federal, state, or local provisions with regard to the environment. The manufacturing requirements do not require any special expenditures to meet environmental compliance.
Financial information about foreign operations and export sales.
The Company does not own manufacturing or sales facilities in any foreign countries. See Note 14 to the financial statements, for additional information on export sales. Export sales are all made in US dollars and for the most part are made under Letter of Credit or on a prepaid basis. The Company has established a Foreign Sales Corporation within the meaning of the Internal Revenue Code of 1986. This wholly-owned subsidiary is Allen Organ International, Inc., a Virgin Islands corporation.
Item 2.
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 30% capacity. Operation will be closed during 1999 and the property will be marketed for sale.
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.
Item 3. Legal Proceedings
There is no litigation requiring disclosure pursuant to Item 103 of regulation S-K.
Item 4.
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 1998.
PART II
Item 5.
Item 5. Market for the Registrant's Common Stock and Related Security Holder Matters
The Company's Class A voting shares are not registered pursuant to the Securities Exchange Act of 1934 and are not publicly traded. The Company's Class B non-voting stock trades on The NASDAQ Stock Market under the symbol AORGB.
The high and low bid quotations for each quarter during the last two years as reported by NASDAQ Market Information System is as follows:
1998 High Low
First Quarter 43 38 Second Quarter 42 1/2 37 Third Quarter 40 1/2 35 Fourth Quarter 39 33
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
The Company has 8 Class A Shareholders and 340 Class B Shareholders of record as of March 15, 1999.
During the past two fiscal years, the Company has declared dividends on both its class A and B shares as follows:
Record of Quarterly Dividends Paid in 1998
Record Date Payable Amount
Cash 2/20/98 3/6/98 $.14 Cash 5/22/98 6/5/98 $.14 Cash 8/21/98 9/4/98 $.14 Cash 11/20/98 12/4/98 $.14
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
Item 6.
Item 6. Selected Financial Data
Years Ended December 31, 1998 1997 1996 1995 1994
Net Sales $44,966,075 $40,348,084 $36,715,128 $30,024,761 $28,842,789
Net (Loss) Income $ (616,711) $ 3,512,142 $ 3,865,876 $ 4,015,105 $ 4,449,703
Earnings (Loss) per share $ (0.52) $ 2.79 $ 2.88 $ 2.94 $ 3.25
Cash dividends per share $ .56 $ .56 $ .55 $ .55 $ .55
At Year End
Total Assets $61,989,953 $62,562,004 $63,966,646 $65,299,426 $58,464,695
Long-Term Debt, net of current portion $ 0 $ 0 $ 0 $ 1,388,000 $ 0
The 1998 and 1997 results of operations include the audio equipment segment acquired April April 1, 1997. The 1998, 1997, 1996 and 1995 results of operations include the data communications segment acquired August 1, 1995.
Item 7.
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, 1998 1997 Working Capital $39,994,941 $42,445,212 Current Ratio 10 to 1 15 to 1 Debt to Equity Ratio .08 to 1 .06 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 increased during 1998 as compared to 1997 primarily due to reductions in inventory in the Musical Instruments and Electronic Assemblies segments. These decreases are the result of improvements in manufacturing methods and inventory management discussed further below. Inventory decreased approximately $3.2 million and $600,000 in the Musical Instruments and Electronic Assemblies segments, respectively, and increased slightly in the Data Communications and Audio Equipment segments. The Company does not expect that inventory levels will change significantly during 1999. 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 were due primarily to new product introductions and higher order volumes in most segments. The Company expects that approximately $2,000,000 will be required in 1999 to fund increases in working capital, primarily related to the growth of its subsidiary Eastern Research. Cash flows used in investing activities during 1998 were used to purchase approximately $925,000 in machinery and equipment to be used in the Musical Instruments and Electronic Assemblies segments including approximately $200,000 for hardware and software related to new information systems. The Data Communications segment used approximately $552,000 primarily related to computer, office and test equipment purchased to support the growth of Eastern Research. To continue Eastern Research's growth through 1999, the Company estimates that capital expenditures will approximate $1,500,000. 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 December 1998, the Company engaged an outside contractor to upgrade the air handling systems in the wood and metal finishing area of its Macungie, PA plant. This addition is being made to improve product quality for the Company's musical instruments and Legacy speaker cabinet production. The total cost of this project will be approximately $950,000 of which $177,000 has been paid through December 31, 1998. During 1997 the Company began implementing new information systems which will be in place by mid 1999. Through December 31, 1998 the Company has invested nearly $850,000 in software and computer equipment as part of this project. The Company has undertaken this implementation as part of a business improvement program initiated to up-grade production and product planning processes. 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 $4,617,991 (11%) during 1998 as compared to 1997 primarily due to increased sales in the Musical Instruments segment related to higher order volume and changes in product mix and from the Data Communications segment resulting from additional sales and marketing efforts initiated since the acquisition. In 1997, sales increased $3,632,956 (10%) 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. December 31, 1998 1997 1996
Net Sales Musical Instruments Domestic $21,748,131 $18,918,509 $19,824,334 Export 3,676,981 4,432,974 5,594,286 Total 25,425,112 23,351,483 25,418,620 Data Communications Domestic 11,036,926 6,933,787 6,229,961 Export 1,261,029 2,103,734 1,417,636 Total 12,297,955 9,037,521 7,647,597 Electronic Assemblies Domestic 4,727,975 5,935,381 3,648,911 Audio Equipment Domestic 2,422,507 1,812,138 0 Export 92,526 211,561 0 Total 2,515,033 2,023,699 0
Total $44,966,075 $40,348,084 $36,715,128
Income (Loss) from Operations Musical Instruments $ 795,773 $ 2,718,085 $ 3,634,901 Data Communications (3,397,020) (1,069,165) (349,785) Electronic Assemblies 326,609 631,521 520,602 Audio Equipment (9,846) 337,495 0 Total $(2,284,484) $ 2,617,936 $ 3,805,718
Musical Instruments Segment
The 1998 increase in domestic sales reflects continuing customer acceptance of the Company's Renaissance product line. The 1998 order rate exceeded 1997 resulting in an increase in the order backlog at year end of approximately $1,400,000 when compared to 1997. 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. Export sales decreased in 1998 and 1997, primarily from changes in economic conditions in certain world markets, particularly Far East countries. Continuing economic troubles in foreign countries and foreign exchange rate fluctuations may affect future export sales. Gross profit margins on sales were 24.6%, 28.1% and 31.8% for the three years ended December 31, 1998. The decrease in the 1998 gross profit margin is primarily due to additional costs incurred as part of a business improvement program initiated to up-grade production and product planning processes. As part of this program the Company is implementing new information systems, the majority of which will be in place by mid 1999. The Company at the same time has been improving manufacturing methods and inventory management, which has resulted in a reduction in inventory of approximately $3,200,000 in this segment during 1998. During this process, and in reducing its work-in-process and finished goods inventories, the segment incurred approximately $1,100,000 in additional overheads and expenses related to unapplied labor and related overhead as it trained its work force. By the end of 1997, manufacturing improvements enabled the Company to stop organ production at its North Carolina facility leaving only subassembly production there, consolidating all organ production at the main manufacturing facility in Macungie, PA. The North Carolina plant's remaining production of subassemblies will be phased out in 1999. Increased capabilities at the Macungie, PA facility will allow the Company to meet demand for organs and electronic assemblies. It is anticipated that these business improvements programs will provide long-term benefits to the Company. 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. Selling, administrative, and other expenses increased approximately $230,000 in 1998 due to increased selling costs associated with higher sales volume and implementation and training costs related to the new information systems. Selling, administrative and other expenses increased approximately $200,000 in 1997 as a result of marketing and advertising of new products. Research and development expenses increased approximately $147,000 and $40,000 in 1998 and 1997 respectively. These increases are primarily due to increases in personnel to continue new product development.
Data Communications Segment
Domestic sales in each of the last two years have increased as a result of additional sales and marketing efforts initiated since the acquisition. International sales for 1998 decreased primarily from changes in economic conditions in certain world markets, particularly Far East countries. The Company has significantly increased its investment in the sales and marketing effort at Eastern Research and will continue to do so in 1999. These additional efforts are focused on expanding channels of distribution and targeting markets for the Company's products. The segment is developing strategic relationships with customers to expand their channels of distribution. One such relationship, which Eastern Research has entered into in February 1999, is an OEM agreement to supply Lucent Technologies with its DACS product line. These relationships could provide additional sales volume in 1999. This segment will continue to invest in sales and marketing programs. Gross profit margins were 41% in 1998 compared to 46% in 1997, a result of competitive pressures on selling prices and variations in product mix. While Eastern Research's gross profit margins have increased during 1998, this increase was offset by lower gross profits at VIR Linear Switch due to lower sales volume. While the companies strive to maintain profit margins by developing products that offer more features, the industry is competitive which often results in pricing changes to obtain and maintain market share. Selling expenses increased approximately $2,000,000 and $500,000 in 1998 and 1997 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 $518,000 and $550,000 in 1998 and 1997 respectively, resulting from additional management and support personnel added to promote and oversee the segment. Research and development expenses were $2,464,808, $1,799,665 and $1,972,167 for the years ended December 31, 1998, 1997 and 1996, respectively. 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 these expenditures to continue to increase during 1999.
Electronic Assemblies Segment
Sales decreased $1,207,000 during 1998 from lower incoming orders. Sales increased during 1997 and 1996 from higher order volume from existing customers and orders received from several new customers. Gross profit margins were 13.6%, 14.5% and 20.0% for the three years ended December 31, 1998. The decrease is related to competitive pressures common in the industry and the segment's efforts to restructure operations along with the Musical Instruments segment. Selling, general and administrative expenses have increased approximately $86,000 in 1998 as compared to 1997. The segment continues its marketing efforts and has begun to diversify its customer base. The Company continues to improve its production capabilities to offer state of the art manufacturing services to its customers.
Audio Equipment Segment
Sales for the year ended December 31, 1998 increased approximately 7% when compared to 1997 on a pro forma basis. This increase is a result of greater awareness of the Company through both increased marketing and sales efforts, establishment of Dealer Audition Sites in several markets and positive product reviews in several industry publications during the year. The Company will continue to promote awareness of its products through increased marketing efforts. Gross profit margins were 39.6% and 49.7% for the year ended December 31, 1998 and the nine month period ended 1997, respectively. This decrease is attributable to changes in distribution in certain areas from direct marketing to Dealer Audition Sites. Selling, general and administrative costs increased approximately $360,000 during 1998 as compared to 1997 resulting from increased sales and marketing efforts and additional administrative personnel added to support the company's growth.
Other Income (Expense)
The decrease in investment income during 1998 is due to lower invested balances, as well as gains on investments recognized in 1997 not recurring in 1998. The variations in investment income in 1997 and 1996 are primarily attributable to the yields available on short-term investments, realized gains, and the amounts of principal invested. The 1998, 1997, and 1996 amounts include $242,227, $765,109 and $287,982 of realized capital gains respectively. Interest expense represents interest on the notes payable issued in connection with the acquisition of VIR, Inc. and Eastern Research, Inc.
Income Taxes
The increase in the effective tax rate related to the 1998 tax benefit is due to higher effective state tax rates applicable to the Data Communications segments which incurred losses during 1998. 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.
Factors that May Affect Operating Results
The statements contained in this report on Form 10-K that are not purely historical are forward looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including statements regarding the Company's expectations, hopes, intentions or strategies regarding the future. Forward looking statements include: statements regarding future products or product development; statements regarding future research and development spending and the Company's marketing and product development strategy, statements regarding future production capacity. All forward looking statements included in this document are based on information available to the Company on the date hereof, and the Company assumes no obligation to update any such forward looking statements. Readers are cautioned not to place undue reliance on these forward looking statements, which reflect management's opinions only as of the date hereof. Readers should carefully review the risk factors described in other documents the Company files from time to time with the Securities and Exchange Commission, including the Quarterly Reports on Form 10-Q to be filed by the Company in fiscal year 1999. It is important to note that the Company's actual results could differ materially from those in such forward looking statements. Some of the factors that could cause actual results to differ materially are set forth below. The Company has experienced and expects to continue to experience fluctuations in its results of operations. Factors that affect the Company's results of operations include the volume and timing of orders received, changes in the mix of products sold, market acceptance of the Company's and its customer's products, competitive pricing pressures, global currency valuations, the Company's ability to meet increasing demand, the Company's ability to introduce new products on a timely basis, the timing of new product announcements and introductions by the Company or its competitors, changing customer requirements, delays in new product qualifications, the timing and extent of research and development expenses and fluctuations in manufacturing yields. As a result of the foregoing or other factors, there can be no assurance that the Company will not experience material fluctuations in future operating results on a quarterly or annual basis, which would materially and adversely affect the Company's business, financial condition and results of operations. See Note 1 to the financial statements for information concerning the effects of changes in and new accounting standards and Year 2000 issues.
Item 8.
Item 8. Financial Statements See Item 14 for index.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure There were no reportable events as described in Item 304(b).
KPMG
4905 Tilghman Street Allentown, PA 18104
Independent Auditors' Report
The Board of Directors and Stockholders Allen Organ Company:
We have audited the accompanying consolidated balance sheets of Allen Organ Company and Subsidiaries as of December 31, 1998 and 1997, and the related consolidated statements of income, stockholders' equity and cash flows for the years 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 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 as of December 31, 1998 and 1997, and the consolidated results of their operations and their cash flows for the years then ended in conformity with generally accepted accounting principles.
/s/ KPMG LLP
Allentown, PA January 29, 1999
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 Kenneth P. Harmony, Jr., 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, stockholders' equity and cash flows for the year then ended. 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 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 at December 31, 1996 and the consolidated results of their operations and their cash flows for the year then ended in conformity with generally accepted accounting principles.
/s/ 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 1998 1997 CURRENT ASSETS Cash $ 1,727,554 $ 1,020,348 Investments including accrued interest 19,988,346 20,040,334 Accounts receivable 7,068,588 5,732,432 Inventories 14,481,177 17,923,387 Prepaid income taxes 422,656 232,895 Prepaid expenses 511,954 483,300 Deferred income tax benefits 306,812 -- Total Current Assets 44,507,087 45,432,696
PROPERTY, PLANT AND EQUIPMENT, NET 9,911,637 9,515,012
OTHER ASSETS Prepaid pension costs 642,609 795,107 Inventory held for future service 1,242,754 1,260,346 Note receivable 659,886 203,557 Cash value of life insurance 1,400,334 1,122,495 Goodwill, net 3,619,147 3,755,483 Intangible and other assets, net 6,499 477,308 Total Other Assets 7,571,229 7,614,296 Total Assets $61,989,953 $62,562,004
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES Accounts payable $ 1,562,432 $ 913,110 Deferred income taxes -- 74,091 Other accrued expenses 1,422,285 692,282 Customer deposits 1,527,429 1,308,001 Total Current Liabilities 4,512,146 2,987,484 NONCURRENT LIABILITIES Deferred liabilities 280,504 721,264 Total Liabilities 4,792,650 3,708,748
MINORITY INTERESTS 288,607 321,424
COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY Common stock, par value $1 per share Authorized Class A Shares - 400,000 in 1998 and 1997 Class B Shares - 3,600,000 in 1998 and 1997 Issued Common stock 1998 1997 Class A 127,232 shares; 127,232 shares 127,232 127,232 Class B 1,410,761 shares; 1,410,761 shares 1,410,761 1,410,761 Total Common Stock 1,537,993 1,537,993 Capital in excess of par value 12,758,610 12,758,610 Retained earnings 54,448,760 55,725,180 Accumulated other comprehensive income: Unrealized gain on investments, net 134,336 128,474 Sub-total 68,879,699 70,150,257 Less cost of common shares in treasury 1998 - 43,120 Class A shares and 324,052 Class B shares (11,971,003) -- 1997 - 43,120 Class A shares and 314,155 Class B shares -- (11,618,425) Total Stockholders' Equity 56,908,696 58,531,832 Total Liabilities and Stockholders' Equity $61,989,953 $62,562,004
See accompanying notes to Consolidated Financial Statements.
ALLEN ORGAN COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 1998 1997 1996
NET SALES $44,966,075 $40,348,084 $36,715,128
COSTS AND EXPENSES Cost of sales 31,870,469 26,785,916 23,789,872 Selling, administrative and other expenses 11,486,315 8,289,570 6,333,148 Research and development 3,478,775 2,654,662 2,786,390 Costs to close Rocky Mount plant 415,000 -- -- Total Costs and Expenses 47,250,559 37,730,148 32,909,410
(LOSS) INCOME FROM OPERATIONS (2,284,484) 2,617,936 3,805,718
OTHER INCOME (EXPENSE) Investment income 1,223,699 2,114,722 2,025,024 Other income, net 12,925 14,443 24,621 Interest expense -- -- (10,309) Minority interests in consolidated subsidiaries 61,958 6,041 55,822 Total Other Income (Expense) 1,298,582 2,135,206 2,095,158
(LOSS) INCOME BEFORE TAXES (985,902) 4,753,142 5,900,876
PROVISION FOR TAXES Current (11,000) 1,296,000 2,087,000 Deferred (646,000) (55,000) (52,000) Total Provision For Taxes (657,000) 1,241,000 2,035,000
NET (LOSS) INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE $ (328,902) $ 3,512,142 $ 3,865,876
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE (net of income tax benefit of $183,000) (287,809) -- --
NET (LOSS) INCOME $ (616,711) $ 3,512,142 $ 3,865,876
OTHER COMPREHENSIVE INCOME, NET OF TAX Unrealized gains on investments: Unrealized gains arising during period $ 162,874 $ 525,168 $ 166,334 Less: reclassified adjustment for gains included in income (157,012) (486,074) (171,090) Other comprehensive income 5,862 39,094 (4,756) COMPREHENSIVE (LOSS) INCOME $ (610,849) $ 3,551,236 $ 3,861,120
BASIC AND DILUTED EARNINGS PER SHARE: Net (loss) income before cumulative effect of change in accounting principle $ (0.28) $ 2.79 $ 2.88 Cumulative effect of change in accounting principle (0.24) -- --
NET (LOSS) INCOME $ (0.52) $ 2.79 $ 2.88
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, 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
Balance-December 31, 1998 127,232 $127,232 1,410,761 $1,410,761 $12,758,610
Accumulated Other Retained Comprehensive Treasury Stock Earnings Income Shares Amount
Balance-December 31, 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 $11,618,425
Net Loss (616,711) Reacquired Class B Shares 9,897 352,578 Change in unrealized gain on securities available for sale 5,862 Cash dividend paid ($.56 per share) (659,709)
Balance-December 31, 1998 $54,448,760 $134,336 367,172 $11,971,003
See accompanying notes to Consolidated Financial Statements.
ALLEN ORGAN COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended December 31, 1998 1997 1996 CASH FLOWS FROM OPERATING ACTIVITIES Net (loss) income $ (616,711) $ 3,512,142 $ 3,865,876 Adjustments to reconcile net (loss) income to net cash provided by operating activities Depreciation and amortization 1,478,379 1,114,639 815,277 Minority interest in consolidated subsidiaries (61,958) (6,041) (55,822) Amortization of bond premiums -- -- 4,349 Cumulative effect of change in accounting principle (excluding income tax effects) 470,809 -- -- Loss (Gain) on sale of property, plant and equipment 8,153 (3,984) 5,692 Gain on sale of investments (242,227) (765,110) (287,982) Change in assets and liabilities (net of acquisition effects) Accounts receivable (1,336,156) (914,493) (386,440) Inventories 3,459,802 (3,188,750) (1,292,561) Prepaid income taxes (189,761) 164,509 459,226 Prepaid expenses (28,654) (328,631) (39,349) Deferred income tax benefits (306,812) -- -- Prepaid pension costs 152,498 94,099 132,311 Accounts payable 649,322 498,632 (139,103) Other accrued expenses 730,003 192,927 (1,518,438) Customer deposits 219,428 546,262 298,720 Deferred liabilities (514,851) (32,217) (59,500) Net Cash Provided by Operating Activities 3,871,264 883,984 1,802,256 CASH FLOWS FROM INVESTING ACTIVITIES Cash proceeds from sale of investments classified as available for sale 2,526,721 30,263,188 38,938,452 Cash paid for purchase of investments classified as available for sale (2,226,644) (20,497,033) (36,914,531) Increase in cash value of life insurance (277,839) (264,278) (228,736) Increase in note receivable (456,329) (40,409) (40,562) Payment for acquisition, net of cash acquired -- (1,512,000) -- Additions to intangible and other assets (238,534) (211,690) -- Purchase of minority stockholders' interest in subsidiary -- -- (20,000) Cash proceeds from sale of property, plant and equipment 28,170 7,841 10,000 Cash paid for purchase of property, plant and equipment (1,477,340) (2,046,097) (761,483) Net Cash (Used In) Provided by Investing Activities (2,121,795) 5,699,522 983,140 CASH FLOWS FROM FINANCING ACTIVITIES Dividends paid in cash (659,709) (702,018) (736,983) Reacquired Class B common shares (352,578) (5,626,717) (1,469,659) Subsidiary company stock reacquired from minority stockholders (29,976) (15,625) (3,572) Subsidiary company stock issued to minority stockholders -- -- 9,920 Net Cash Used in Financing Activities (1,042,263) (6,344,360) (2,200,294) NET INCREASE IN CASH 707,206 239,146 585,102
CASH, JANUARY 1 1,020,348 781,202 196,100
CASH, DECEMBER 31 $1,727,554 $ 1,020,348 $ 781,202
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION
Cash paid for income taxes $ 167,050 $ 1,758,833 $ 1,793,338 Cash paid for interest $ -- $ -- $ 53,322
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES Purchase price adjustment of August 1,1995 acquisition $ -- $ -- $ 630,885 Decrease of accrued liability to purchase inventory -- -- 1,735,000 Decrease in long term debt -- -- 86,641 Decrease in minority interest -- -- (630,885) Decrease in inventory -- -- (864,291) Decrease in intangible assets (Goodwill) -- -- (957,350) Increase in current accrued liabilities $ -- $ -- $ --
See accompanying notes to Consolidated Financial Statements.
ALLEN ORGAN COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 Significant Accounting Policies Background: Allen Organ Company and Subsidiaries operate in four industry segments: musical instruments, data communications, electronic assemblies, and audio equipment. See note 15 for additional information on the operating activities of each segment.
Principles of Consolidation: The consolidated financial statements include the accounts of the Allen Organ Company and the following subsidiaries. All material intercompany transactions have been eliminated. Subsidiary Name Ownership % Allen Diversified, Inc. 100.00% Rocky Mount Instruments, Inc. 100.00% Allen Organ International, Inc. 100.00% VIR, Inc. 98.59% Eastern Research, Inc. 92.52% Linear Switch Corporation 92.20% Legacy Audio, Inc. 75.00% In December 1998 the Company established Allen Diversified, Inc. to hold and manage the Company's investments in its subsidiaries.
Reclassifications: Certain amounts in the 1997 and 1996 financial statements have been reclassified to conform to the 1998 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 $782,850 and $348,862 at December 31, 1998 and 1997 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 consisted of organization costs (presented net of accumulated amortization of $134,225 at December 31, 1997) which are stated at cost and amortized using the straight-line method over ten years. Inaccordance with the AICPA Accounting Standards Executive Committee Statement of Position, 98-5, Reporting on the Costs of Start-up Activities, the net book value of these organizational costs was expensed in 1998, as acumulative effect of a change in accounting principle.
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 Year 2000 issue relates to the ability of computer systems, microprocessors and other electronic devices to deal appropriately with dates on or after January 1, 2000. The effect of the Year 2000 issue may include computer failures and business interruption. The Company has taken action 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 systems. Internally the Company is in the process of implementing new, Year 2000 compliant, information systems that are expected to be in place by mid 1999. Externally, the Company has surveyed its suppliers, financial institutions, and other organizations that may impact the Company's operation to assess their level of Year 2000 compliance. The Company will continue to monitor its Year 2000 compliance program, address any material issues and develop contingency plans, as it deems appropriate. While the Company has and will take steps to address material Year 2000 issues, the failure to identify or correct a material internal or external Year 2000 problem could result in an interruption in the Company's business operations. While these Year 2000 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 condition.
Change in Accounting Policies: Effective January 1, 1998, the Company adopted the AICPA Accounting Standards Executive Committee Statement of Position, 98-5, Reporting on the Costs of Start-up Activities, (SOP 98-5). In accordance with SOP 98-5, costs associated with start-up activities, including organizational costs, should be expensed as incurred. The effect of the change resulted in a decrease to net income of $287,809 (net of taxes of $183,000). These amounts were a result of unamortized organizational costs associated with the acquisitions of the Data Communications and Audio Equipment segments. During 1998, the Company also adopted the following new Statements issued by the Financial Accounting Standards Board. These Statements did not have a material effect on the Company's financial Statements. 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.
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. The following pro forma financial information has been prepared giving effect to the acquisition of Legacy Audio, Inc. 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, 1997 1996 Pro forma Net Sales $40,809,887 $38,681,238 Pro forma Net Income 3,490,772 3,889,960 Pro forma Net Income Per Share $2.77 $2.90
NOTE 3 Plant Closing In October 1998 the Company announced plans to permanently close its manufacturing plant in Rocky Mount, NC. Rocky Mount Instruments, Inc. (RMI) manufactured small organs and sub-assemblies for the Company's Musical Instruments segment. The Company expects to terminate a total of 60 people by June 30, 1999. 28 employees had been terminated as of December 31, 1998. The Company estimates the termination costs (including employee severance and benefits) related to this closure to total approximately $415,000, which is included in the operating results for the year ended December 31, 1998. $110,569 of termination costs were paid as of December 31, 1998, the balance of $304,431 is included in other accrued expenses at December 31, 1998. The Company does not expect to incur losses on the disposition of the plant assets.
NOTE 4 Investments The cost and fair value of investments in debt and equity securities are as follows:
Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value
December 31, 1998 Available for sale Equity securities $ 181,473 $ 42 $ 139,696 $ 41,819 Mutual Funds Short Term Gov't Funds 10,331,781 135,266 -- 10,467,047 Municipal Bond Funds 6,066,165 112,575 -- 6,178,740 Equity Funds 2,779,074 118,495 14,829 2,882,740 U.S. Treasury Bills 418,000 -- -- 418,000 Totals $19,776,493 $366,378 $ 154,525 $19,988,346
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
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 1998, 1997 and 1996, sales proceeds and gross realized gains and losses on securities classified as available for sales were:
1998 1997 1996
Sales proceeds $2,526,721 $30,263,188 $38,938,452
Gross realized losses $ -- $ 44,448 $ 9,100
Gross realized gains $ 242,227 $ 809,558 $ 297,082
The change in net unrealized holding gains (losses) on securities available for sale in the amount of $8,697, $53,746, and $(9,046) net of deferred tax expense (benefits) of $2,835, $14,650, and $(4,290) has been included in other comprehensive income in stockholders' equity for the years ended December 31, 1998, 1997, and 1996, respectively.
NOTE 5 Inventories December 31, 1998 1997 Finished goods $ 2,631,290 $ 2,046,835 Work in process 4,932,978 7,343,590 Raw materials 6,916,909 8,532,962 Totals $14,481,177 $17,923,387
The Company maintains an inventory of various parts to be used to service musical instruments as future needs arise. This inventory, $1,242,754 and $1,260,346 at December 31, 1998 and 1997, respectively, is reported as a noncurrent asset.
NOTE 6 Property, Plant and Equipment Estimated December 31, Useful 1998 1997 Lives Land and improvements $ 2,445,579 $2,445,579 10 yrs Buildings and improvements 8,250,158 8,100,068 10-40 yrs Machinery and equipment 8,385,676 7,751,766 5-10 yrs Office furniture and equipment 2,109,192 1,545,262 3-8 yrs Vehicles 224,632 241,869 4 yrs Sub-total 21,415,237 20,084,544 Less accumulated depreciation 11,503,600 10,569,532 Property, plant and equipment net of accumulated deprecitation $ 9,911,637 $9,515,012
Depreciation expense charged to operations was $1,044,393, $836,769 and $676,775 in 1998, and 1997 and 1996 respectively.
NOTE 7 Note Receivable The Company has entered into two Split-Dollar Life Insurance agreements with its President who is the insured and owner of the policies. The policy owner shall pay the portion of the premiums equal to the value of the economic benefit determined in accordance with applicable IRS Revenue Rulings. The Company shall pay the balance of the net premiums which shall approximate $450,000 annually. The agreements provide that the Company shall be entitled to recover the amount of premiums paid out of the built up cash value upon termination of the agreement or out of the proceeds upon the death of the insured. As security for repayment the Company is a collateral assignee of the policy to the extent of any such unreimbursed premiums. The Company is also secured by the personal obligation of its President. The note receivable exceeds the cash surrender value of these policies by approximately $340,000 at December 31, 1998.
NOTE 8 Income Taxes The provision for income taxes consists of the following: 1998 1997 1996 Currently Currently Currently Payable Deferred Payable Deferred Payable Deferred
Federal $(151,000) $(420,000) $1,270,000 $ 73,000 $1,620,000 $59,000 State 125,000 (394,000) 26,000 (128,000) 467,000 (111,000) Total $ (26,000) $(814,000) $1,296,000 $ (55,000) $2,087,000 $(52,000)
The total 1998 tax benefit of $840,000 is included in current and deferred taxes on income and in the tax effect of the cumulative effect of change in accounting principle on the consolidated statements of income.
A reconciliation of the provision for income taxes with the statutory rate follows: 1998 1997 1996 Statutory provision for federal income tax $(516,000) 34.0% $1,614,000 34.0% $1,987,000 34.0% State taxes, net of federal tax benefits (177,000) 11.7 81,000 1.6 235,000 4.0 Tax credits -- -- (60,000) (1.3) (60,000) (1.0) Tax-exempt income (97,000) 6.4 (110,000) (2.3) (65,000) (1.1) Exempt income of foreign sales corporation (61,000) 4.0 (101,000) (2.1) (104,000) (1.8) Other items, net 11,000 (0.7) (38,000) (0.8) (42,000) (0.7) 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 $(840,000) 55.4% $1,241,000 26.1% $2,035,000 34.8%
The following temporary differences give rise to the net deferred tax liability at December 31, 1998 and 1997. 1998 1997 Deferred Tax Liabilities Excess of tax depreciation/amortization over book depreciation/amortization $ (359,778) $ (533,989) Excess of pension expense for tax purposes over book (224,910) (288,801) Unrealized gain not recognized for tax purposes (74,522) (74,091) Total Deferred Tax Liabilities (659,210) (896,881) Deferred Tax Assets Deferred compensation not recognized for tax purposes 16,856 20,211 State net operating loss carry forwards 383,516 185,716 Accrued expenses to close Rocky Mount plant 112,652 -- Reserve for Bad Debts 70,702 11,383 Inventory Reserve 243,709 23,633 Sub-total 827,435 240,943 Valuation Allowance (94,000) (84,000) Total Deferred Tax Assets 733,435 156,943 Net Deferred Tax Asset (Liability) $ 74,225 $ (739,938)
Deferred taxes are included in the company's financial statements as follows: 1998 1997 Current deferred tax asset (liability) $ 306,812 $ (74,091) Non-current deferred tax liability (232,587) (665,847) Net deferred tax asset (liability) $ 74,225 $ (739,938)
The Company has available at December 31, 1998, approximately $6,400,000 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 2008. At December 31, 1998 and 1997 the Company recorded a valuation allowance of $94,000 and $84,000, respectively against the deferred tax assets relating to uncertainty of realizing state net operating loss carry forwards.
NOTE 9 Other Accrued Expenses December 31, 1998 1997 Accrued salaries and commissions $ 552,099 $ 385,176 Accrued plant closing costs 304,431 -- Other 565,756 307,106 Total $1,422,286 $ 692,282
NOTE 10 Commitments and Contingencies As of December 31, 1998, the Company is contingently liable for a maximum amount of approximately $1,821,332 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, 1998, 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. During December 1998, the Company engaged an outside contractor to upgrade the air handling systems in the wood and metal finishing area of its Macungie, PA plant. This addition is being made to improve product quality for the Company's musical instruments and Legacy speaker cabinet production. The total cost of this project will be approximately $950,000 of which $177,000 has been paid through December 31, 1998. In connection with the purchase of VIR, Eastern Research and Linear Switch, the Company agreed to pay a contingent purchase price equal to 4.5% of the sales of these Companies in excess of $7,000,000 per year through December 2000. The total contingent payment for 1998, 1997 and 1996 amounted to $238,535, $92,432 and $29,142, respectively. The agreement provides that the total of the contingent payments shall not exceed $2,000,000. The Company's data communications segment leases its offices and production facility under non-cancelable operating leases which expire at various dates through 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 $230,447, $179,765 and $169,493 for 1998, 1997 and 1996, respectively. Minimum annual rent payments for the operating leases are as follows:
1999 $ 236,320 2000 199,220 2001 24,220 Total $ 459,760
NOTE 11 Retirement Plans The Company sponsors two noncontributory defined benefit pension plans which cover substantially all of its employees. Salaried plan benefits are generally based on the employee's years of service and compensation levels. Hourly plan benefits are based on various monthly amounts for each year of credited service. The Company's funding policy is to contribute amounts to the plans sufficient to meet the minimum funding requirements set forth in the Employee Retirement Income Security Act of 1974, plus such additional amounts as the Company may determine to be appropriate from time to time. Plan assets are comprised principally of cash equivalents, U.S. Government obligations, fixed income securities, and equity securities. Following are reconciliations of the pension benefit obligation and the value of plan assets:
1998 1997 1996 Pension benefit obligation Balance, beginning of year $13,222,392 $13,252,456 $12,450,935 Service cost 310,909 299,166 282,303 Interest cost 983,147 953,842 952,301 Benefits paid to participants (792,052) (757,090) (815,577) Gain (loss) on updated data/assumptions 1,198,922 (525,982) 382,494 Balance, end of year $14,923,318 $13,222,392 $13,252,456
Plan assets Fair value, beginning of year $14,764,799 $13,641,779 $12,788,615 Actual investment returns 1,639,203 1,750,515 1,544,571 Company contributions -- 129,595 124,170 Benefits paid to participants (792,052) (757,090) (815,577) Fair value, end of year $15,611,950 $14,764,799 $13,641,779
The Funded status of the plans were as follows: December 31, 1998 1997 1996 Excess of the value of plan assets over the benefit obligation $ 688,632 $ 1,542,407 $ 389,323 Unrecognized prior service cost 147,313 221,303 295,293 Unrecognized net transition liability (asset) (216,028) (288,036) (360,044) Unrecognized net actuarial loss 22,692 (680,567) 564,634 Prepaid benefit cost $ 642,609 $ 795,107 $ 889,206
The following weighted-average rates were used:
Discount rate on the benefit obligation 6.75% 7.5% 7.5% Rate of return on plan assets 8.0% 8.0% 8.0% Rate of long-term compensation increase 6.0% 6.5% 7.0%
Pension expense is comprised as follows: 1998 1997 1996
Service cost $ 310,909 $ 299,166 $ 282,303 Interest cost 983,147 953,842 952,301 Expected return on plan assets (1,143,540) (1,031,296) (989,618) Amortization of net loss from prior periods -- -- 9,513 Amortization of unrecognized prior service cost 73,990 73,990 73,990 Amortization of transition asset (72,008) (72,008) (72,008) Net Pension Cost $ 152,498 $ 223,694 $ 256,481
The foregoing net amounts regarding the pension benefit obligation and the value of plan assets are based on a combination of both overfunded and underfunded plans. The aggregate amounts relating to underfunded plans are as follows:
December 31, 1998 1997 1996 Projected benefit obligation $ 7,798,136 $ -- $7,068,885 Accumulated benefit obligation 6,708,396 -- 5,645,393 Fair value of plan assets 7,707,085 -- 6,663,437
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 $112,981, $147,160 and $139,732 to the plans in 1998, 1997 and 1996 respectively.
NOTE 12 Deferred Liabilities December 31, 1998 1997 Deferred compensation expense $ 47,917 $ 55,417 Deferred income taxes 232,587 665,847 Total $ 280,504 $ 721,264
NOTE 13 Earnings Per Share Earnings per share were computed using 1,178,064 shares in 1998, 1,258,966 shares in 1997, and 1,340,047 shares in 1996, the weighted average number of shares outstanding during each year. The Company does not have any dilutive equity instruments.
NOTE 14 Export Sales In 1998, 1997 and 1996, net sales by the musical instruments segment include export sales, principally to Canada, Europe and the Far East of $3,676,981, $4,432,974, and $5,594,286, respectively. Net sales by the data communications segment include export sales principally to Europe and the Far East of $1,261,029 for 1998, $2,103,734 for 1997, and $1,417,636 for 1996. Net sales by audio equipment segment include export sales principally to Europe and the Far East of $92,526 for 1998 and $211,561 for the nine months ended December 31, 1997.
NOTE 15 Industry Segment Information The Company's operations are classified into four industry segments: musical instruments, data communications, electronic assemblies, and audio equipment. The musical instruments segment is comprised of operations principally involved in the design, manufacture, sale and distribution of electronic keyboard musical instruments, primarily digital computer organs and related accessories. Musical instruments are sold primarily to retail distributors worldwide. The data communications segment is involved in the design, manufacture, sale and distribution of data communications equipment. Data communications products are sold primarily to wholesale and retail distributors worldwide and under OEM agreements with several of its customers. The electronic assemblies segment is involved in the manufacture, sale and distribution of electronic assemblies for outside customers used primarily as control devices and other circuitry in their products. Subcontract assembly services are provided primarily to industrial concerns in Pennsylvania and New Jersey. The audio equipment segment began in 1997 with the acquisition 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 1998, 1997 and 1996. December 31, 1998 1997 1996 Net Sales to Unaffiliated Customers Musical instruments $25,425,112 $23,351,483 $25,418,620 Data communications 12,297,955 9,037,521 7,647,597 Electronic assemblies 4,727,975 5,935,381 3,648,911 Audio equipment 2,515,033 2,023,699 0 Total $44,966,075 $40,348,084 $36,715,128
Intersegment Sales Musical Instruments $ 136,123 $ 5,252 $ 0 Data Communications 594 84,939 125,288 Electronic Assemblies 495,266 938,479 296,132 Audio Equipment 148,573 52,244 0 Total $ 780,556 $ 1,080,914 $ 421,420
Income (Loss) from Operations Musical instruments $ 795,773 $ 2,718,085 $ 3,634,901 Data communications (3,397,020) (1,069,165) (349,785) Electronic assemblies 326,609 631,521 520,602 Audio equipment (9,846) 337,495 0 Total $(2,284,484) $ 2,617,936 $ 3,805,718
Identifiable Assets Musical instruments $19,777,418 $22,669,782 $20,790,307 Data communications 11,532,523 10,294,411 8,937,839 Electronic assemblies 3,501,492 4,422,908 2,600,627 Audio equipment 2,259,185 2,153,922 0 Sub-total 37,070,618 39,541,023 32,328,773 General corporate assets 24,919,335 23,020,981 31,637,873 Total $61,989,953 $62,562,004 $63,966,646
Capital Expenditures Musical instruments $ 926,718 $ 1,574,743 $ 530,624 Data communications 542,030 386,308 230,859 Audio equipment 8,592 85,046 0 Total $ 1,477,340 $ 2,046,097 $ 761,483
Depreciation and Amortization Musical instruments $ 786,582 $ 657,686 $ 580,090 Data communications 618,380 392,108 235,187 Audio equipment 73,417 64,845 0 Total $ 1,478,379 $ 1,114,639 $ 815,277
Intersegment sales are generally priced at cost plus a percentage mark-up, and are generally thought to be marginally less than prices which would be charged for the same product to unaffiliated customers. Intersegment sales are excluded from net sales reported in the accompanying consolidated income statements. Identifiable assets by segment are those assets that are used in the Company's operations within that segment. General corporate assets consist principally of cash and short-term investments. The electronic assemblies segment derived 68% of its revenues from three customers in 1998, and 55% and 85% of its revenues from one customer in 1997 and 1996 respectively. The data communications segment derived 13%, 12% and 14% of its revenue from one customer in 1998, 1997 and 1996, respectively. The Company's musical instrument and audio equipment segments are not dependent on any single customer.
NOTE 16 Investment Income
December 31, 1998 1997 1996
Interest Income $ 887,338 $1,198,362 $1,382,301 Dividend Income 94,134 151,250 354,741 Gain on Sale of Investments 242,227 765,110 287,982 Total $1,223,699 $2,114,722 $2,025,024
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. 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 10% and 11%, respectively, of the shares currently outstanding. Vested options consist of 2% and 3% of the currently outstanding shares of VIR and ERI, respectively. No compensation expense was recognized for these plans in 1998 and 1997. Had compensation cost been determined pursuant to FASB Statement No. 123, net income (loss) and earnings per share would have been:
1998 1997 Net (loss) income $(686,811) $3,431,897 Earnings per share $(0.58) $2.73
PART III
Item 10.
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 45 Director Since 1980 Meeting in 1999 Eugene Moroz Next Annual 75 Director Since 1968 Meeting in 1999 Leonard W. Helfrich (1) Next Annual 69 Director 1964-1968 and Meeting in 1999 1972 to present Orville G. Hawk (1) Next Annual 81 Director Since 1989 Meeting in 1999 Albert F. Schuster (1) Next Annual 79 Director Since 1989 Meeting in 1999 Martha Markowitz Next Annual 77 Director Since 1991 Meeting in 1999 Jeffrey L. Schucker (1) Next Annual 44 Director Since July 1996 Meeting in 1999 Ernest Choquette Next Annual 45 Director Since April 1998 Meeting in 1999
(1) Audit Committee member.
(b) Identification of Executive Officers. Time Period Date Term Position Name Expires Age Position Held Steven Markowitz Next Annual 45 President 1990 to Meeting in 1999 present Leonard W. Helfrich Next Annual 69 Vice President, 1958 - 1968 Meeting in 1999 Secretary and 1971 to present Barry J. Holben Next Annual 46 Vice President October 1995 Meeting in 1999 to present Dwight A. Beacham Next Annual 52 Vice President October 1995 Meeting in 1999 to present Nathan S. Eckhart Next Annual 35 Treasurer, May 1996 Meeting in 1999 Assistant Secretary to present
(c) Identification of Certain Significant Employees.
Not required to be answered.
(d) Family Relationships.
Except for Martha Markowitz and Steven Markowitz, who are mother and son, there is no family relationship between any officers or directors of the Company.
(e) Business Experience.
(1) Steven Markowitz, , Leonard W. Helfrich and Dwight Beacham, have been employees of the Company in executive capacities for at least the last five years. Mr. Holben has been employed by the Company since 1989, spending two years in product development and then serving in various sales capacities. Mr. Eckhart has been employed by the Company since 1993, previously serving as Controller. Prior to that time he was a manager for a public accounting firm. Mr. Moroz was employed by the Company for over 50 years, having last held the position of Vice President. He retired from active employment in May 1998 and continues to serve on the Board of Directors. Mr. Hawk who has been retired more than five (5) years was formerly Chairman of the Board and President of First National Bank of Allentown. Mr. Schuster is a church director of music and prior to his retirement more than five (5) years ago was a supervisor at Bethlehem Steel Corporation. Mr. Schucker is currently President of Middle Market Capital Advisors, L.L.C. and formerly a Vice President of Meridian Capital Markets. Mr. Choquette has been a member of the law firm of Stevens & Lee, Reading PA, for almost 20 years and currently serves as Co-Chairman of their Corporate Group. Mrs. Markowitz is the widow of Jerome Markowitz, the Company's founder, and represents the family interests.
(f) Involvement in Certain Legal Proceedings by Directors or Officers.
None.
(g) Compliance with Section 16(a) of the Exchange Act.
No transaction required to be reported.
Item 11.
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 1998 105,115 17,000 35,558 (Chief Executive Officer) 1997 100,090 18,598 30,650 1996 96,547 22,865 30,766
Leonard W. Helfrich, 1998 95,065 16,000 Vice President - Finance 1997 93,624 17,402 (Secretary) 1996 88,113 21,385
*Value of Split Dollar Life Insurance. See Note 7 to the accompanying consolidated financial statements for additional information on this arrangement.
(f) Defined Benefit or Actuarial Plan Disclosure.
Estimated Annual Benefit obtained from 1998 Actuarial Valuation Report:
Steven A. Markowitz $57,354 Age 45. (1) Leonard W. Helfrich $39,817 Age 69. (2)
(1) Amount shown is calculated from prior compensation to date and estimated compensation to normal retirement age (65). (2) Amount shown is calculated from prior compensation to current age.
(g) Compensation of Directors:
Non-employee Directors receive $350 for each Board and committee meeting attended plus reasonable expenses in connection with attendance. Employee Directors receive no additional compensation for their services as a Director.
(h) Employment Contracts and Termination of Employment and Change in Control Arrangements:
There are no employment contracts between the Company and any of the Company's Executive Officers. The Company has discontinued the Executive Incentive Plan adopted October 24, 1996. The Company is presently evaluating its executive compensation plans with assistance from outside consultants and will implement appropriate plans during 1999.
(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. Thecompensation of all other employees is set by or at the direction of the President.
Item 12.
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 97.06% Trust (2) (1) 821 N. 30th St. Allentown, PA
(1) Sole voting and investment power
(2) The shares are held by Trustees under an Inter Vivos Trust established by Mr. Markowitz, who died in February, 1991, for the benefit of his family, principally his widow, Martha Markowitz. The Trustees are Steven Markowitz, President and a Director of the Company, and Martha Markowitz, a Director of the Company.
(b) Each class of equity securities of the registrant or any of its parents or subsidiaries, other than directors' qualifying shares, beneficially owned directly or indirectly by all directors naming them and directors and officers of the registrant, as a group, without naming them. Information as of December 31, 1998.
Percent Percent Nature of of of Class Class Beneficial Class Class Directors A B Ownership A B
Steven Markowitz 58 (1) (3) .07 % 13,562 (1) (3) 1.25% 81,531* (2) (4) 97.06 % 242,016* (2) (4) 22.27%
Eugene Moroz 6,290 (1) (3) as to 6,290 6,000 (2) (4) as to 6,000 1.13%
Leonard W. Helfrich 278 (2) (4) .03%
Orville G. Hawk 50 (2) (4) .005%
Martha Markowitz 19,056 (1) (3) 1.75% 81,531* (2) (4) 97.06 % 242,016* (2) (4) 22.27%
Percent Percent All Directors of of and Officers Class Class Class Class as a Group A B A B
7 81,589** 287,252** 97.13%** 26.43%
(1) Sole voting power (2) Shared voting power (3) Sole investment power (4) Shared investment power
* Shares owned by the Jerome Markowitz Trust for which Martha Markowitz and Steven Markowitz, Co- Trustees, have shared voting and investment power and of which Martha Markowitz is the primary beneficiary and Steven Markowitz, one of the residuary beneficiaries.
** The shares held by the Jerome Markowitz Trust are not duplicated in the totals for the Class A and Class B Shares.
(c) Changes in Control. Not required to be answered.
Item 13.
Item 13. Certain Relationships and Related Transactions
See Note 10 to Financial Statements, concerning an agreement between the Company and Martha Markowitz, a Director of the Company.
PART IV
Item 14.
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, 1998 and 1997.
Consolidated Statements of Income for the years ended December 31, 1998, 1997, and 1996.
Consolidated Statement of Changes in Stockholders' Equity for the years ended December 31, 1998, 1997, and 1996.
Consolidated Statements of cash flows for the years ended December 31, 1998, 1997, and 1996.
Notes to Consolidated Financial Statements.
The individual financial statements of the Registrant's subsidiaries have been omitted, as they are all included in the consolidated financial statements referred to above.
(a) (2) Financial Statement Schedules
Financial schedules are omitted as not applicable.
(a) (3) Exhibits Exhibit No. Description 2(4) Plan of acquisition 3.1(1) Articles of Incorporation as amended 3.2(2) Bylaws, as amended 10.2(3) Agreement of Amendment between the Company and Martha Markowitz 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 1998.
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 17, 1999 /s/ STEVEN A. MARKOWITZ Steven A. Markowitz Chief Executive Officer, President and Director
Date: March 17, 1999 /s/ LEONARD W. HELFRICH Leonard W. Helfrich Vice President-Finance, and Director, Chief Financial and Principal Accounting Officer
Date: March 17, 1999 /s/ MARTHA MARKOWITZ Martha Markowitz Director
Date: March 17, 1999 /s/ JEFFREY L. SCHUCKER Jeffrey L. Schucker Director