-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JblOYlZswYFCKiCk8yBGB3mqryQ5EHw33vT5jV8XA1MOXPp1qj8SRcREBBT3hEPb EkXtBybZDNuNGtVminNlbQ== 0000003753-96-000002.txt : 19960321 0000003753-96-000002.hdr.sgml : 19960321 ACCESSION NUMBER: 0000003753-96-000002 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960320 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALLEN ORGAN CO CENTRAL INDEX KEY: 0000003753 STANDARD INDUSTRIAL CLASSIFICATION: MUSICAL INSTRUMENTS [3931] IRS NUMBER: 231263194 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-00275 FILM NUMBER: 96536612 BUSINESS ADDRESS: STREET 1: 150 LOCUST ST STREET 2: PO BOX 36 CITY: MACUNGIE STATE: PA ZIP: 18062 BUSINESS PHONE: 2159662200 MAIL ADDRESS: STREET 1: 150 LOCUST STREET STREET 2: PO BOX 36 CITY: MACUNGIE STATE: PA ZIP: 18062-0036 10-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-K (Mark One) (X) Annual Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 For the Fiscal Year Ended December 31, 1995 OR ( ) Transition Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 Commission File Number 0-275 Allen Organ Company (Exact name of registrant as specified in its charter) Pennsylvania 23-1263194 (State of Incorporation) (IRS Employer Identification No.) 150 Locust Street, P. O. Box 36, Macungie, Pennsylvania 18062-0036 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code 610-966-2200 Securities registered pursuant to section 12 (b) of the Act: None Securities registered pursuant to section 12 (g) of the Act: Class B Common Shares, par value $1 per share (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment of this Form 10-K. ( X ) The Class A voting stock of the registrant is not registered pursuant to the Securities Exchange Act of 1934, is not publicly traded, and, therefore, no market value information exists for such stock held by non- affiliates. The number of shares outstanding of each of the Registrant's classes of common stock, as of the close of business on March 18, 1996: Class A - Voting 84,984 Class B - Non-voting 1,267,948 ALLEN ORGAN COMPANY INDEX Item Page No. PART I 1. Business - General developments of business - Industry Segments - Description of business - Financial information about foreign operations and export sales 2. Properties 3. Legal Proceedings 4. Submission of Matters to a Vote of Security Holders PART II 5. Market for the Registrants Common Stock and Related Security Holder Matters 6. Selected Financial Data 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 8. Financial Statements 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure PART III 10. Directors and Executive Officers of the Registrant 11. Executive Compensation 12. Security Ownership of Certain Beneficial Owners and Management 13. Certain Relationships and Related Transactions PART IV 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K Signatures Exhibit PART I Item 1. Business General developments of business. Incorporated in Pennsylvania in 1945, Allen Organ Company and Subsidiaries ("Company") operate in three industry segments: musical instruments, data communications and electronic assemblies. On August 1, 1995, the Company acquired the assets of three companies in the data communications industry. For more information on the acquisition, see Note 2 to the financial statements. Industry segments. The Company operates in three industry segments: musical instruments, data communications and electronic assemblies. For financial information concerning the segments, see Note 16 to the financial statements. Description of business. Musical Instruments. Allen Organ Company and its wholly owned subsidiary Rocky Mount Instruments is a leading manufacturer of electronic keyboard musical instruments, primarily digital electronic church organs and accessories. This segment accounted for 81%, 87% and 89% of revenue in 1995, 1994 and 1993 respectively. The principal market for the musical instruments segment are institutions, primarily churches. Sales to the home market make up a smaller portion of the segment's sales. The segment's musical instruments are distributed mostly through dealers, primarily independent retail music stores throughout the United States, with a lesser percentage distributed internationally. The principal raw materials used in the segment's products are electronic components and wood, both of which are readily available from various sources without undue difficulty. Although the segment has two major selling cycles, peaking at Easter and Christmas, the difference between these periods and the rest of the fiscal year sales is not significant enough for the segment to deem its business as seasonal. The Company's working capital is sufficient to meet the normal expansion of inventory and receivables. No excessive inventories are required to meet rapid delivery. The segment does not engage in any significant amounts of consignments, extended payment terms, or lease guarantees of its customers as are utilized by the industry. The Company has entered into product repurchase agreements concerning certain customers' financing arrangements. See Note 9 to the financial statements. The dollar amounts and number of times the Company has had to honor these repurchase agreements are negligible. The musical instruments segment is not dependent on any single, or small group of customers, the loss of which would have a material adverse effect on the business. The dollar amount of the segment's unshipped order backlog at the end of February 1996 and 1995 was $3.2 million and $2.8 million respectively. All orders are expected to be filled in the current year. The electronic organ industry is competitive involving at least five (5) domestic and foreign companies. In addition, there are many small pipe organ companies in the institutional organ market. The organ market consists of two basic divisions, institutional (primarily churches) and home or entertainment. The Company believes it has a major position in the institutional market because of product performance at competitive prices, and a smaller percentage of the home or entertainment market which is dominated by special marketing techniques. Data Communications. The data communications segment began during 1995 with the acquisition discussed in Note 2 to the financial statements. This segment for the 5 month period from acquisition through December 31, 1995 accounted for 9% of 1995 revenues. Data communications products are sold primarily to wholesale and retail distributors worldwide. The principal raw material used in the data communications products are electronic components, which are readily available from various sources without undue difficulty. The data communications segment is not dependent on any single, or small group of customers the loss of which would have a material adverse effect on the business. The segment operates through three majority owned subsidiaries: VIR, Inc. (VIR) Designs, manufactures, and markets a number of data communication products including patch and testing equipment, often referred to as tech control products. The products are of varying complexity and are used to connect, test and trouble shoot data lines in large computer installations. The company competes in a relatively mature field. The company has approximately four major competitors all of which are larger than VIR. The company has not been aggressive in its marketing efforts in the past and has maintained it's market share by having a reputation for producing high quality products at competitive prices. Since the acquisition, management has begun work on implementing a more aggressive sales and marketing program. The dollar amount of unshipped order backlog at the end of February, 1996 was $324,000. All orders are expected to be filled in the current year. Eastern Research, Inc. (ERI) Designs and markets data inter-networking products. These products include direct access equipment that allow users to utilize a broad range of services offered by the telephone companies. The company competes in a market which is in excess of $3 billion. However, the company's current and projected product lines and sales programs are targeted at only a fraction of that market. There are many competitors in this market. The market is dominated by several large data communications companies, such as Cisco Systems, Inc., AT&T Paradyne and ADC Kentrox. The company's strategy has been to target existing, yet still growing, markets with new products that provide new features and packaging with attractive pricing. Direct access products are relatively inexpensive and easy to manufacture, thus this is a competitive field where margins can erode as new products emerge. The dollar amount of unshipped order backlog at the end of February, 1996 was $69,000. All orders are expected to be filled in the current year. Linear Switch Corporation (LSC) Company has developed a matrix switch which can transport high-speed digital signals and allow "any-to-any" connectivity between and among connections. The company competes with approximately five other companies in the matrix switch market. This market is dominated by General Signal Networks. The Company's product targets applications which require a relatively small matrix switch whose cost per port is low. The Company has recently begun a formal marketing program. Potential customers include government agencies and large companies. Electronic Assemblies. Allen Integrated Assemblies (AIA), a division of the Allen Organ Company, provides subcontract manufacture of electronic assemblies for outside customers. The electronic assemblies segment is an outgrowth of the technical skills and manufacturing capabilities developed by the Company in its own musical instruments business. This segment accounted for 10%, 13% and 11% of revenue in 1995, 1994, and 1993 respectively. AIA receives a majority of its business from one customer. The electronic assemblies segment is very competitive with numerous manufacturers capable of producing these products. Customers are generally obtained from a geographic area close to the manufacturer. The dollar amount of the segment's unshipped order backlog at the end of February 1996 and 1995 was $551,000 and $303,000 respectively. All orders are expected to be filled in the current year. General. The Company spent $612,631, $625,190, and $1,307,691 annually in 1993, 1994, and 1995 respectively on research and development. The majority of the 1995 increase in research and development expense relates to the amounts expended by the data communications segment acquired in 1995. The Company and its subsidiaries employ approximately 525 persons. The Company is not aware of any problem in complying with applicable federal, state, or local provisions with regard to the environment. The manufacturing requirements do not require any special expenditures to meet environmental compliance. Financial information about foreign operations and export sales. The Company does not own manufacturing or sales facilities in any foreign countries. See Note 15 to the financial statements, for additional information on export sales. Export sales are all made in US dollars and for the most part are made under Letter of Credit or on a prepaid basis. Effective January 3, 1994, the Company established a Foreign Sales Corporation within the meaning of the Internal Revenue Code of 1986. This wholly-owned subsidiary is Allen Organ International, Inc., a Virgin Islands corporation. Item 2. Properties The following sets forth the location, approximate square footage and use of the Company's operating locations segregated by segment. The Company believes that its facilities are generally suitable and adequate for its needs. Approximate Location Square Footage Use Musical Instruments and Electronic Assemblies: Macungie, Pennsylvania 242,000 Administrative, research and manufacturing facility. Owned by Allen Organ Company. Operating at approximately 90% capacity. Macungie, Pennsylvania 27,000 International sales, exhibition center, museum and teaching facility. Owned by Allen Organ Company. Rocky Mount, North Carolina 70,000 Manufacturing and sales facility. Owned by Rocky Mount Instruments. Operating at approximately 85% capacity. Data Communications: Southampton, Pennsylvania 22,000 Administrative, research and manufacturing facility. Leased until July, 2000. Operating at approximately 80% capacity. Moorestown, New Jersey 11,000 Sales and research facility. Leased until October, 1997. Item 3. Legal Proceedings There is no litigation requiring disclosure pursuant to Item 103 of regulation S-K. Item 4. Submission of Matters to a Vote of Security Holders No matters were submitted to a vote of security holders during the fourth quarter of fiscal year 1995. PART II Item 5. Market for the Registrant's Common Stock and Related Security Holder Matters The Company's Class A voting shares are not registered pursuant to the Securities Exchange Act of 1934 and are not publicly traded. The Company's Class B non-voting stock trades on the NASDAQ National Market tier of The NASDAQ Stock Market under the symbol AORGB. The high and low bid quotations for each quarter during the last two years as reported by NASDAQ Market Information System is as follows: 1994 High Low First Quarter 34 29 1/2 Second Quarter 39 31 1/2 Third Quarter 41 1/2 36 1/2 Fourth Quarter 39 35 1995 High Low First Quarter 42 35 1/2 Second Quarter 44 1/2 41 Third Quarter 48 41 Fourth Quarter 45 3/4 40 3/4 The Company has 10 Class A Shareholders and 403 Class B Shareholders of record as of March 18, 1996. During the past two fiscal years, the Company has declared dividends on both it's class A and B shares as follows: Record of Quarterly Dividends Paid in 1994 Record Date Payable Amount Cash 2/18/94 3/04/94 $.13 Cash 5/20/94 6/03/94 $.13 Cash 8/19/94 9/02/94 $.13 Cash11/18/94 12/02/94 $.16 Record of Quarterly Dividends Paid in 1995 Record Date Payable Amount Cash 2/17/95 3/3/95 $.13 Cash 5/19/95 6/2/95 $.13 Cash 8/18/95 9/1/95 $.13 Cash11/17/95 12/1/95 $.16 Item 6. Selected Financial Data Years Ended December 31, 1995 1994 1993 1992 1991 Net Sales $30,024,761 $28,842,789 $26,477,983 $26,238,092 $25,276,374 Net Income $4,015,105 $4,449,703 $3,456,154 $3,397,045 $3,689,207 Earnings per share $ 2.94 $ 3.25 $ 2.48 $ 2.41 $ 2.55 Cash dividends per share $ .55 $ .55 $ .50 $ .50 $ .48 At Year End Total Assets $65,299,426 $58,464,695 $55,752,570 $53,581,050 $51,115,657 Long-Term Debt, net of current portion $1,388,000 $ 0 $ 0 $ 0 $ 0 The 1995 results of operations include the data communications segment acquired August 1, 1995. See Note 2 of the financial statements for additional information. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources: The Company continues to maintain a strong financial position and high level of liquidity which enables it to generate funds internally to meet operating needs, capital expenditures and short- term obligations. Key indicators of the Company's liquidity are presented below: December 31, 1995 1994 Working Capital $46,681,555 $47,937,778 Current Ratio 16 to 1 39.6 to 1 Debt to Equity Ratio .09 to 1 .05 to 1 The Company's ratio of debt to equity has remained very low because of management's continuing policy of financing expansion with internally generated funds. This policy has enabled the Company to maintain its competitive advantage without incurring the costs associated with borrowed funds. Cash flows provided by operating activities declined in 1995 primarily due to increases in inventory levels in the musical instruments and electronic assemblies segments, and from an approximately $1 million contribution to the company pension plans, which was allowed by changes in the tax code, related to a previous plan amendment. Cash flows from investing activities were used to fund the acquisition of the data communications segment and repurchase of treasury shares in 1995. The company increased its expenditures for property and equipment primarily related to the enhancement of its electronics manufacturing capabilities. The Company presently has no major commitments for capital expenditures which would require significant capital resources. Results of Operations: Sales and Operating Income Consolidated net sales increased $1,181,972 (4.1%) during 1995 as compared to 1994 primarily due to sales from the data communications segment which was acquired in August, 1995. In 1994 sales increased $2,364,806 (8.9%) from 1993. December 31, 1995 1994 1993 Net Sales: Musical Instruments Domestic $18,913,194 $19,772,391 $18,916,491 Export 5,408,720 5,398,667 4,607,680 Total 24,321,914 25,171,058 23,524,171 Data communications Domestic 1,634,036 -- -- Export 1,027,826 -- -- Total 2,661,862 -- -- Electronic Assemblies Domestic 3,040,985 3,671,731 2,953,812 Total Net Sales $30,024,761 $28,842,789 $26,477,983 Income from Operations: Musical instruments $3,332,103 $4,356,912 $3,812,323 Data communications 122,417 -- -- Electronic assemblies 457,167 892,493 737,660 Total $3,911,687 $5,249,405 $4,549,983 Musical Instruments Segment The 1995 decrease in domestic sales was primarily due to variations in product mix, offset some what by slight increases in selling prices. Sales in 1994 included more large organ models than 1995. These types of variations to a large extent are unpredictable from one year to the next. The 1994 increase in domestic sales resulted from a higher volume of incoming orders, a reduction of the order backlog and from modest increases in selling prices. During 1994 new organ models were introduced in the majority of the Company's product line. These new models were very well received by both the Company's dealers and customers. Export sales increased in 1995 and 1994 due to the continuing relative weakness of the US dollar in relation to foreign currencies. Economic changes in foreign countries and foreign exchange rates may affect future export sales. Gross profit margins on sales were 30.9%, 32.3% and 31.4% for the three years ended December 31, 1995. The decrease in the 1995 gross profit margin reflects variations in product mix and slight increases in some overhead costs. The increase in the 1994 gross profit margin when compared to 1993 reflects increased sales levels, favorable product mix including several large organ sales, and production efficiencies. Selling, administrative and other expenses declined slightly from 1994 when they increased compared to 1993 primarily due to higher selling expenses related to large organ sales. Data Communications Domestic and export sales for the 5 months ended December 31, 1995 were approximately equal when compared to the same period in 1994. Each of the companies are implementing or increasing sales and marketing efforts throughout 1996 which management believes should positively affect future sales. Gross profit margins were 55% in 1995. While the companies strive to maintain profit margins by trying to develop products which offer more features at competitive prices, the industry is competitive which often results in pricing changes to obtain and maintain market share. Selling, administrative and other expenses were comparable to the same period last year. Selling expenses will increase in the future as sales and marketing programs and personnel are added to further promote the segment's products and obtain additional market share. Research and development expenses for the five months ended December 31, 1995 were $637,468. These expenditures, which the company plans to continue at a similar pace in the future, represent the segment's commitment to new product development and support. Electronic Assemblies Sales and operating income declined in 1995 from 1994 when they increased over 1993, primarily due to a special project for one customer. The segment continues its marketing efforts and has begun to diversify its customer base. The company continues to improve its production capabilities to offer state of the art manufacturing services to its customers. Other Income (Expense) The variations in interest income in 1995, 1994, and 1993 are primarily attributable to the yields available on short-term investments and the amounts of principal invested. The 1995 amounts include $295,560 of realized capital gains. During 1994 the Company settled a lawsuit for wrongful prosecution brought against the attorneys for one of the Company's competitors. This resulted from a lawsuit the Company settled with its competitor in 1992. Other income for 1994 includes $385,000, less legal expenses, related to the settlement. Interest expense represents accrued interest for the five months ended December 31, 1995, on the notes payable issued in connection with the acquisition discussed in Note 2 to the financial statements. Income Taxes The effective tax rate decreased in 1995 and 1994, primarily due to lower state tax rates, the formation of Allen Organ International, a Foreign Sales Corporation, and higher tax-free non- operating investment income. Item 8. Financial Statements See Item 14 for index. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None CONCANNON, GALLAGHER, MILLER & COMPANY, P.C. Michael J. Gallagher, CPA CERTIFIED PUBLIC ACCOUNTANTS Michael R. Miller, CPA William C. Mason, CPA Dale E. Grate, CPA E. Barry Hetzel, CPA Edward J. Quigley, Jr., CPA John G. Estock, CPA Howard D. Gneiding, CPA Robert A. Oster, CPA Robert E. Vitale, CPA John F. Sharkey, Jr., CPA Victor J. Meyer, CPA David C. Gehringer, CPA Gerard D. Stanus, CPA Robert M. Caster, CPA INDEPENDENT AUDITORS' REPORT The Board of Directors and Shareholders Allen Organ Company We have audited the accompanying consolidated balance sheets of Allen Organ Company and Subsidiaries as of December 31, 1995 and 1994 and the related consolidated statements of income and retained earnings, and cash flows for each of the three years in the period ended December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Allen Organ Company and Subsidiaries at December 31, 1995 and 1994 and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. CONCANNON, GALLAGHER, MILLER AND COMPANY, P.C. Allentown, PA February 9, 1996 Member of AICPA Division for CPA Firms SEC and Private Companies Practice Sections ALLEN ORGAN COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, ASSETS 1995 1994 CURRENT ASSETS Cash $196,100 $105,067 Investments, including accrued interest 30,766,266 36,783,908 Accounts receivable 4,431,499 3,052,683 Inventories 13,428,585 8,794,765 Prepaid income taxes 856,630 276,580 Prepaid expenses 103,420 98,903 Deferred income tax benefits -- 67,420 Total Current Assets 49,782,500 49,179,326 PROPERTY, PLANT AND EQUIPMENT, AT COST, LESS ACCUMULATED DEPRECIATION 7,778,498 7,163,476 OTHER ASSETS Prepaid pension costs 1,021,517 -- Intangible pension asset -- 443,273 Inventory held for future service 1,219,872 1,145,511 Deferred income tax benefits -- 43,116 Goodwill, net 4,227,600 -- Cash value of life insurance 629,481 408,138 Note receivable 122,586 81,855 Intangible and other assets, net 517,372 -- Total Other Assets 7,738,428 2,121,893 Total Assets $65,299,426 $58,464,695 LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Current portion of long term debt $347,000 $ -- Accounts payable 535,276 171,791 Deferred income taxes 64,322 -- Other accrued expenses 1,691,328 623,100 Customer deposits 463,019 446,657 Total Current Liabilities 3,100,945 1,241,548 NONCURRENT LIABILITIES Deferred liabilities 841,687 77,917 Accrued pension cost -- 1,374,007 Long term debt, net of current portion 1,388,000 -- Total Noncurrent Liabilities 2,229,687 1,451,924 Total Liabilities 5,330,632 2,693,472 COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY Common stock, par value $1 per share Authorized Class A shares - 400,000 in 1995 and 1994 Class B shares - 3,600,000 in 1995 and 1994 Issued Class A shares (voting) - 128,104 in 1995 and 1994 128,104 128,104 Class B shares (nonvoting) - 1,409,889 in 1995 and 1994 1,409,889 1,409,889 Total Common Stock 1,537,993 1,537,993 Capital in excess of par value 12,758,610 12,610,377 Retained earnings 49,786,163 46,524,142 Unrealized gain (loss) on investments 94,136 (98,399) Pension liability adjustment -- (489,823) Minority interest 313,941 -- Sub-total 64,490,843 60,084,290 Less cost of common shares in treasury 1995 - 43,120 Class A shares and 131,835 Class B shares 4,522,049 1994 - 43,120 Class A shares and 130,336 Class B shares 4,313,067 Total Shareholders' Equity 59,968,794 55,771,223 Total Liabilities and Shareholders' Equity $65,299,426 $58,464,695 The accompanying notes are an integral part of the consolidated financial statements. ALLEN ORGAN COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS Years Ended December 31, 1995 1994 1993 NET SALES $30,024,761 $28,842,789 $26,477,983 COSTS AND EXPENSES Cost of sales 20,109,427 18,910,136 17,540,539 Selling, administrative and other expenses 4,695,956 4,058,058 3,774,830 Research and development 1,307,691 625,190 612,631 Total Costs and Expenses 26,113,074 23,593,384 21,928,000 INCOME FROM OPERATIONS 3,911,687 5,249,405 4,549,983 OTHER INCOME (EXPENSE) Investment income 2,115,551 1,436,182 1,108,957 Other, net 26,810 265,116 (6,786) Interest expense (42,856) -- -- Minority interests in consolidated subsidiaries 23,913 -- -- Total Other Income (Expense) 2,123,418 1,701,298 1,102,171 INCOME BEFORE TAXES ON INCOME 6,035,105 6,950,703 5,652,154 TAXES ON INCOME Current 1,559,000 2,525,000 2,228,000 Deferred 461,000 (24,000) (32,000) Total Taxes on Income 2,020,000 2,501,000 2,196,000 NET INCOME 4,015,105 4,449,703 3,456,154 RETAINED EARNINGS Balance, January 1 46,524,142 42,828,013 40,067,860 Deduct cash dividends (1995 - $.55, 1994 - $.55, 1993 - $.50) (753,084) (753,574) (696,001) Balance, December 31 $49,786,163 $46,524,142 $42,828,013 EARNINGS PER SHARE $ 2.94 $ 3.25 $ 2.48 The accompanying notes are an integral part of the consolidated financial statements. ALLEN ORGAN COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended December 31, 1995 1994 1993 CASH FLOWS FROM OPERATING ACTIVITIES Net income $4,015,105 $4,449,703 $3,456,154 Adjustments to reconcile net income to net cash provided by operating activities Minority interest in consolidated subsidiaries (23,913) -- -- Depreciation and amortization 636,777 562,241 594,144 Amortization of bond premiums 58,918 218,519 252,278 Loss (Gain) on sale of property, plant and equipment (437) 43,829 7,654 Loss (Gain) on sale of investments (295,560) 1,853 (1,530) Loss on sale of other assets -- -- 1,831 Change in assets and liabilities Accounts receivable 120,141 (2,187) (44,205) Inventories (2,014,580) (969,076) (880,826) Prepaid income taxes (580,050) (175,517) (62,787) Prepaid expenses (4,517) 58,165 43,682 Deferred income tax benefits 110,536 64,729 (8,439) Prepaid pension costs (1,109,038) -- -- Accounts payable (267,387) (19,771) (2,955) Accrued taxes on income -- (60,983) 28,983 Other accrued expenses (325,032) 198,291 73,967 Customer deposits 16,362 (448,735) 285,847 Deferred income taxes and liabilities 474,702 (155,211) (38,500) Other noncurrent liabilities -- (28,782) 418 Net Cash Provided by Operating Activities 812,027 3,737,068 3,705,716 CASH FLOWS FROM INVESTING ACTIVITIES Cash proceeds from maturity of investments classified as held to maturity 54,960,373 40,285,010 52,777,125 Cash paid for purchase of investments classified as held to maturity (21,631,598)(40,883,194)(52,589,537) Cash proceeds from sale of investments classified as available for sale 3,520,772 -- -- Cash paid for purchase of investments classified as available for sale (30,402,728) (1,532,275) (1,868,470) Increase in cash value of life insurance (221,343) (207,633) (121,474) Increase in note receivable (40,731) (81,855) -- Payment for acquisition, net of cash acquired (3,639,338) -- -- Increase in intangible and other assets (533,084) -- -- Cash proceeds from sale of other assets -- -- 7,830 Cash proceeds from sale of property, plant and equipment 500 100 27,410 Cash paid for purchase of property, plant and equipment (940,689) (440,151) (438,843) Net Cash Provided by (Used in) Investing Activities 1,072,134 (2,859,998) (2,205,959) CASH FLOWS FROM FINANCING ACTIVITIES Dividends paid in cash (753,084) (753,574) (696,001) Reacquired Class B common shares (1,060,749) (474,862) (850,791) Subsidiary company stock issued to minority shareholders 20,705 -- -- Net Cash Used in Financing Activities (1,793,128) (1,228,436) (1,546,792) NET INCREASE (DECREASE) IN CASH 91,033 (351,366) (47,035) CASH, JANUARY 1 105,067 456,433 503,468 CASH, DECEMBER 31 $196,100 $105,067 $456,433 SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION Cash paid for income taxes $2,142,682 $2,767,260 $2,240,173 Cash paid for interest $ -- $ -- $ -- SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES Liability incurred to purchase inventory in connection with acquisition $1,243,601 $ -- $ -- Long term debt incurred in connection with asset acquisition $1,735,000 $ -- $ -- The accompanying notes are an integral part of the consolidated financial statements. ALLEN ORGAN COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 Significant Accounting Policies Allen Organ Company and Subsidiaries' operations are classified into three industry segments: musical instruments, data communications and electronic assemblies. See note 16 for additional information on the operating activities of each segment. The consolidated financial statements include the accounts of the Allen Organ Company and the following subsidiaries. All material intercompany transactions have been eliminated. Subsidiaries Name Ownership % Rocky Mount Instruments, Inc. 100.00% Allen Organ International, Inc. 100.00% VIR, Inc. 97.60% Eastern Research, Inc. 90.53% Linear Switch Corporation 83.17% Certain amounts in the 1994 and 1993 financial statements have been reclassified to conform to the 1995 presentation. Financial instruments that potentially subject the Company to credit risk consist principally of short-term investments and trade receivables. The Company places substantially all of its investments in federal, state and local government obligations and, by policy, limits the amount of credit exposure in any one investment. The Company sells its products through established dealer networks. The credit risk associated with related receivables is limited due to the large number of dealers and their geographic dispersion. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates. Inventories are valued at the lower of cost or market. Cost is determined using the first-in, first- out (FIFO) method for substantially all inventories. Property, plant and equipment are stated at cost. Depreciation is computed over estimated useful asset lives using both straight-line and accelerated methods for financial reporting and accelerated methods for tax reporting. Goodwill represents the excess of cost over the net assets acquired in the acquisition discussed in Note 2. Goodwill is amortized on a straight-line basis over forty years and is presented net of accumulated amortization of $44,501 at December 31, 1995. The carrying value of goodwill for each business is continually reviewed to assess its recoverability from future operations of the acquired subsidiaries, based on future cash flows (undiscounted) expected to be generated by such operations. Any impairment in value indicated by the assessment would be charged against current operations. Intangible assets consist of organization costs which are stated at cost and amortized using the straight-line method over ten years. Income taxes are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due plus deferred taxes. Deferred taxes are recognized for differences between the basis of assets and liabilities for financial statement and income tax purposes. The Company accounts for its short-term investments in accordance with Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities". Management determines the appropriate classification of its investments in debt and equity securities at the time of purchase and reevaluates such determination at each balance sheet date. Research and development expenditures are charged to expense as incurred. NOTE 2 Acquisition of Assets On August 1, 1995, the Company acquired the assets of VIR, Inc. (VIR), Eastern Research, Inc. (ERI) and Linear Switch Corporation (LSC), three related companies which were under common control, for $7,653,234. The purchase price was made up of 24,390 shares of Allen Organ stock valued at approximately $1,000,000, notes and liabilities totaling $2,978,601 and $3,674,633 in cash. Under the terms of an employment agreement with the seller, LSC is required to pay seller 4% of sales through July 31, 2000. On September 7, 1995, the Company agreed to and has repurchased the Allen Organ Company stock issued in connection with the asset acquisition for $1,000,000. The Securities Restriction Agreement dated August 1, 1995 was terminated along with the stock repurchase. In connection with the acquisition, the Company established three new subsidiary companies to acquire the assets of sellers. As additional consideration, the new subsidiaries issued shares of their stock to minority employee shareholders equivalent to their interest in the selling companies. The minority interest in each of the three new acquisition companies is 2.4% in VIR, 9.47% in ERI and 16.83% in LSC. Additional shares of ERI will be issued over the next year to employees, approximating a 1% interest in ERI. The acquisitions have been accounted for as purchases. The results of operations of VIR, ERI, and LSC have been included in the Company's consolidated financial statements from the date of acquisition through December 31, 1995. Assets and liabilities have been recorded at their estimated fair market values with the excess being recorded as goodwill which will be amortized over 40 years. Organizational costs have been capitalized in connection with the acquisition and will be amortized over 10 years. NOTE 3 Investments The cost and fair value of investments in debt and equity securities are as follows: Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value December 31, 1995 Available for sale Equity securities $376,030 $66,104 $ -- $442,134 Mutual Funds 4,264,521 92,352 -- 4,356,873 U.S. Treasury Bills 20,456,336 -- -- 20,456,336 Federal Agency and Municipal Bonds 5,510,923 -- -- 5,510,923 Totals $30,607,810 $158,456 $ -- $30,766,266 December 31, 1994 Available for sale Equity securities $435,462 $ -- $27,257 $408,205 Mutual Funds 2,959,627 14,169 152,732 2,821,064 Held to maturity U.S. Treasury Bills 18,478,846 -- -- 18,478,846 Municipal Bonds 14,560,581 -- 235,510 14,325,071 Federal Agency Bonds 515,212 -- 31,977 483,235 Totals $36,949,728 $14,169 $447,476 $36,516,421 Marketable debt securities have an average contractual maturity of approximately 1 year or less. Proceeds from the sale of assets classified as available for sale were $3,520,772 during 1995, resulting in a gain of $295,560 based on original cost of these investments determined using a first-in, first-out method. The change in net unrealized holding gains (losses) on securities available for sale in the amount of $324,273 and ($145,769), net of deferred tax expense (benefits) of $131,738 and ($58,982) has been charged to shareholders' equity for the years ended December 31, 1995 and 1994 respectively. NOTE 4 Inventories December 31, 1995 1994 Finished goods $ 981,471 $ 450,015 Work in process 5,658,610 4,884,735 Raw materials 6,788,504 3,460,015 Total $13,428,585 $8,794,765 The Company maintains an inventory of various parts to be used to service musical instruments as future needs arise. This inventory, $1,219,872 and $1,145,511 at December 31, 1995 and 1994, respectively, is reported as a noncurrent asset. NOTE 5 Property, Plant and Equipment December 31, 1995 1994 Land and improvements $2,407,579 $2,405,086 Buildings and improvements 7,445,965 7,161,749 Machinery and equipment 5,977,260 5,280,722 Office furniture and equipment 1,018,947 858,745 Vehicles 207,622 171,685 Sub-total 17,057,373 15,877,987 Less accumulated depreciation 9,278,875 8,714,511 Property, plant and equipment net of accumulated depreciation $7,778,498 $7,163,476 NOTE 6 Note Receivable The Company has entered into a Split-Dollar Life Insurance agreement with its President who is the insured and owner of the policy. The policy owner shall pay the portion of the premium equal to the value of the economic benefit determined in accordance with applicable IRS Revenue Rulings. The Company shall pay the balance of the net premiums which shall approximate $40,000 annually. The agreement provides that the Company shall be entitled to recover the amount of premiums paid out of the built up cash value upon termination of the agreement or out of the proceeds upon the death of the insured. As security for repayment the Company is a collateral assignee of the policy to the extent of any such unreimbursed premium. NOTE 7 Income Taxes The provision for income taxes consists of the following: 1995 1994 1993 Currently Currently Currently Payable Deferred Payable Deferred Payable Deferred Federal $1,300,000 $380,000 $1,958,000 $(17,000) $1,705,000 $(24,000) State 259,000 81,000 567,000 (7,000) 523,000 (8,000) Total $1,559,000 $461,000 $2,525,000 $(24,000) $2,228,000 $(32,000) A reconciliation of the provision for income taxes with the statutory rate follows: 1995 1994 1993 Statutory provision for federal income tax $2,044,000 34.0% $2,363,000 34.0% $1,922,000 34.0% State taxes, net of federal tax benefits 224,000 3.7 370,000 5.3 340,000 6.0 Tax credits (8,000) (0.1) (22,000) (0.3) (9,000) (0.2) Other items, net (240,000) (4.0) (210,000) (3.0) (57,000) (1.0) Total $2,020,000 33.6% $2,501,000 36.0% $2,196,000 38.8% The following temporary differences give rise to the net deferred tax liability at December 31, 1995 and 1994. 1995 1994 Deferred Tax Liabilities Excess of tax depreciation/amortization over book depreciation/amortization $(412,499) $(381,000) Excess of pension expense for tax purposes over book (413,356) -- Unrealized gain not recognized for tax purposes (64,322) -- Total Deferred Tax Liabilities (890,177) (381,000) Deferred Tax Assets Deferred compensation not recognized for tax purposes 28,585 32,659 State net operating loss carry forwards 26,000 -- Pension liability adjustment not recognized for tax purposes -- 353,419 Excess of pension expense for book purposes over tax -- 38,038 Unrealized loss not recognized for tax purposes -- 67,420 Total Deferred Tax Assets 54,585 491,536 Net Deferred Tax (Liability) Asset $(835,592) $110,536 Deferred taxes are presented in the company's financial statements as follows: 1995 1994 Current deferred tax asset $ -- $67,420 Non-current deferred tax asset -- 43,116 Current deferred tax liability (64,322) -- Non-current deferred tax liability (771,270) -- Net deferred tax asset (liability) $(835,592) $110,536 NOTE 8 Other Accrued Liabilities December 31, 1995 1994 Accrued salaries and commissions $379,566 $308,941 Accrued interest 43,014 -- Liability for inventory purchased in connection with acquisition 1,036,334 -- Other 232,414 314,159 Total $1,691,328 $623,100 NOTE 9 Commitments and Contingencies As of December 31, 1995, the Company is contingently liable for a maximum amount of approximately $1,214,772 in connection with the financing arrangements of certain customers. Under the terms of an agreement with the wife of the late Chairman and principal shareholder, the Company may be required to purchase within eight months of her death, at the option of her personal representative, certain Class B Common Shares then owned by her or includable in her estate for Federal Estate Tax purposes, subject to the limitations of Section 303 of the Internal Revenue Code. At December 31, 1995, the shareholder owned or would have includable in her estate 258,950 shares of Class B Common Stock. The Company has purchased life insurance on the life of the shareholder with a face value of $6,000,000. Management believes that the insurance proceeds would be sufficient to substantially fund this possible future commitment and that any excess would not have a material effect on the financial condition of the Company. The Company's data communications segment leases its offices and production facility under non-cancelable operating leases which expire at various dates through July, 2000. Rent expense for August 1 (inception) to December 31, 1995 was $70,233. Minimum annual rent payments for the operating leases for each of the next five years are as follows: 1996 $ 155,866 1997 153,067 1998 92,400 1999 92,400 2000 53,900 Total $ 547,633 NOTE 10 Retirement Plans The Company sponsors two noncontributory pension plans which cover substantially all of its employees. Salaried plan benefits are generally based on the employee's years of service and compensation levels. Hourly plan benefits are based on various monthly amounts for each year of credited service. The Company's funding policy is to contribute amounts to the plans sufficient to meet the minimum funding requirements set forth in the Employee Retirement Income Security Act of 1974, plus such additional amounts as the Company may determine to be appropriate from time to time. Plan assets are comprised principally of cash equivalents, U.S. Government obligations, fixed income securities, and equity securities. A summary of the components of net periodic pension cost for the plans is as follows: 1995 1994 1993 Service cost - benefits earned during the period $279,432 $274,987 $281,265 Interest cost on projected benefit obligations 887,261 839,838 802,143 Return on assets Actual (1,772,567) 27,301 (771,932) Deferred gain (loss) 978,678 (834,046) 16,014 Amortization of net loss from prior periods 48,463 8,649 2,010 Amortization of unrecognized prior service cost 73,990 73,990 73,990 Amortization of initial unrecognized net asset (72,008) (72,008) (72,008) Net Pension Cost $423,249 $318,711 $331,482 The funded status of the Company's pension plans at December 31, 1995 and 1994 is as follows: 1995 1994 Plans Whose Plan Whose Plan Whose Assets Assets Accumulated Exceed Exceed Plan Accumulated Accumulated Benefits Plan Plan Exceed Benefits Benefits Assets Actuarial present value of benefit obligations: Vested benefits $(11,358,778) $(5,052,381) $(5,827,204) Nonvested benefits (52,759) (19,778) (27,906) Accumulated benefit obligation (11,411,537) (5,072,159) (5,855,110) Effect of assumed increase in compensation levels for salaried plan (1,039,398) (955,449) -- Projected benefit obligations for service rendered to date (12,450,935) (6,027,608) (5,855,110) Plan assets at fair value 12,788,615 5,507,072 4,639,396 Plan assets in excess of (less than) projected benefit obligation 337,680 (520,536) (1,215,714) Unrecognized prior service cost 369,283 -- 443,273 Unrecognized net asset at transition (432,052) (452,052) (52,008) Unrecognized net loss 746,606 814,295 895,221 Adjustment to recognize minimum liability -- -- (1,286,486) Prepaid (Accrued) Pension Cost $1,021,517 $(158,293) $(1,215,714) Statement of financial Accounting Standards No. 87, "Employers' Accounting for Pensions" requires the recognition of an additional minimum liability for defined benefit plans for which the accumulated benefit obligation exceeds plan assets. This amount $1,286,486 in 1994, had been recorded as a noncurrent liability with an offsetting intangible asset amounting to $443,273. Because the asset recognized may not exceed the amount of unrecognized prior service cost, the balance of $843,213, net of tax benefits of $353,390, were reported as a separate reduction of shareholders' equity. During 1995 the Company contributed $1,532,287 to the pension plans which increased the plans funded status eliminating the need to recognize an additional liability at December 31, 1995. The projected benefit obligation for the plans was determined using an assumed discount rate of 7.5%. An assumed long-term compensation increase rate of 7% was used for the salaried plan. The assumed long-term rate of return on plan assets was 8%. The Company provides 401(k) deferred compensation and profit sharing plans for the benefit of eligible employees. The plans allow eligible employees to defer a portion of their annual compensation, pursuant to Section 401(k) of the Internal Revenue Code. Company profit- sharing contributions to the plans are discretionary as determined by the Company's board of directors. The Company contributions were $157,483 and $136,501 to the plan in 1995 and 1994. NOTE 11 Other Deferred Liabilities December 31, 1995 1994 Deferred compensation expense $ 70,417 $ 77,917 Deferred income taxes 771,270 -- Total $ 841,687 $ 77,917 NOTE 12 Long-Term Debt Notes payable, interest at 5.95% payable semi-annually, principal payable in annual installments of $347,000 $1,735,000 Current portion (347,000) Long-term debt $1,388,000 NOTE 13 Common Stock, Capital in Excess of Par Value and Treasury Stock Common Stock Capital In Class A Class B Excess of Treasury Stock Shares Amount Shares Amount Par Value Shares Amount Balance, December 31, 1992 128,104 $128,104 1,409,889 $1,409,889 $12,610,377 130,404 $2,987,414 Reacquired Class B Shares 28,606 850,791 1993 128,104 128,104 1,409,889 1,409,889 12,610,377 159,010 3,838,205 Reacquired Class B Shares 14,446 474,862 1994 128,104 128,104 1,409,889 1,409,889 12,610,377 173,456 4,313,067 Reacquired Class B Shares 25,889 1,060,749 Reissued Class B Shares 148,233 (24,390) (851,767) 1995 128,104 $128,104 1,409,889 $1,409,889 $12,758,610 174,955 $4,522,049 NOTE 14 Earnings Per Share Earnings per share were computed using 1,366,076 shares in 1995, 1,370,486 shares in 1994, and 1,392,119 shares in 1993, the weighted average number of shares outstanding during each year. NOTE 15 Export Sales In 1995, 1994 and 1993, net sales by the musical instruments segment include export sales, principally to Canada, Europe and the Far East of $5,408,720, $5,398,667 and $4,607,680, respectively. For the five months ended December 31, 1995, net sales by the data communications segment include export sales principally to Europe and the Far East of $1,027,826. NOTE 16 Industry Segment Information The Company's operations are classified into three industry segments: musical instruments, data communications and electronic assemblies. The musical instruments segment is comprised of operations principally involved in the design, manufacture, sale and distribution of electronic keyboard musical instruments, primarily digital computer organs and related accessories. Musical instruments are sold primarily to retail distributors worldwide. The data communications segment began during 1995 with the acquisition discussed in Note 2. The segment is involved in the design, manufacture, sale and distribution of data communications equipment. Data communications products are sold primarily to wholesale and retail distributors worldwide. The electronic assemblies segment is involved in the manufacture, sale and distribution of electronic assemblies for outside customers used primarily as control devices and other circuitry in their products. Subcontract assembly services are provided primarily to industrial concerns in Pennsylvania and New Jersey. Following is a summary of segmented information for 1995, 1994 and 1993. December 31, 1995 1994 1993 Net Sales to Unaffiliated Customers Musical instruments $24,321,914 $25,171,058 $23,524,171 Data communications 2,661,862 -- -- Electronic assemblies 3,040,985 3,671,731 2,953,812 Total $30,024,761 $28,842,789 $26,477,983 Income from Operations Musical instruments $3,332,103 $4,356,912 $3,812,323 Data communications 122,417 -- -- Electronic assemblies 457,167 892,493 737,660 Total $3,911,687 $5,249,405 $4,549,983 Identifiable Assets Musical instruments $20,505,183 $18,827,345 $18,319,110 Data communications 9,181,209 -- -- Electronic assemblies 2,108,721 1,329,090 1,032,081 Sub-total 31,795,113 20,156,435 19,351,191 General corporate assets 33,504,313 38,308,260 36,401,379 Total $65,299,426 $58,464,695 $55,752,570 Capital Expenditures Musical instruments $ 903,737 $ 440,151 $ 438,843 Data communications 36,952 -- -- Total $ 940,689 $ 440,151 $ 438,843 Depreciation and Amortization Musical instruments $ 557,052 $ 562,241 $ 594,144 Data communications 79,725 -- -- Total $ 636,777 $ 562,241 $ 594,144 Identifiable assets by segment are those assets that are used in the Company's operations within that segment. General corporate assets consist principally of cash and short-term investments. The Company's electronic assemblies segment derived the majority of its revenues from one customer. The Company's musical instrument and data communications segments are not dependent on any single customer. NOTE 17 Legal Settlement During 1994 the Company settled a lawsuit for wrongful prosecution brought against the attorneys for one of the Company's competitors. This resulted from a lawsuit the Company settled with its competitor in 1992. Other income for 1994 includes $385,000 less legal expenses related to this settlement. NOTE 18 Investment Income December 31, 1995 1994 1993 Interest Income $1,712,340 $1,355,304 $1,074,100 Dividend Income 107,651 82,731 33,327 Gain (Loss) on Sale of Investments 295,560 (1,853) 1,530 Total $2,115,551 $1,436,182 $1,108,957 NOTE 19 Pro Forma Financial Information The following pro forma financial information has been prepared giving effect to the acquisition of VIR, ERI and LSC as if the transaction had taken place at the beginning of the respective year. The pro forma financial information is not necessarily indicative of the results of operations which would have been attained had the acquisitions been consummated on any of the foregoing dates or which may be attained in the future. Years Ended December 31, 1995 1994 Net Sales $34,760,371 $34,050,792 Net Income 4,290,293 4,461,192 Net Income Per Share $3.14 $3.26 PART III Item 10. Directors and Executive Officers of the Registrant. (a) Identification of Directors Time Period Date Term Position Name Expires Age Position Held Steven Markowitz Next Annual 42 Director Since 1980 Meeting in 1996 Eugene Moroz Next Annual 72 Director Since 1968 Meeting in 1996 Leonard W. Helfrich Next Annual 66 Director 1964 - 1968 Meeting in 1996 and 1972 to present Orville G. Hawk Next Annual 78 Director Since 1989 Meeting in 1996 Albert F. Schuster Next Annual 76 Director Since 1989 Meeting in 1996 Martha Markowitz Next Annual 74 Director Since 1991 Meeting in 1996 (b) Identification of Executive Officers. All have served in executive capacities for at least five years. Time Period Date Term Position Name Expires Age Position Held Steven Markowitz Next Annual 42 President 1990 to Meeting in 1996 present Eugene Moroz Next Annual 72 Vice President, Since 1965 Meeting in 1996 Assistant Secretary Leonard W. Helfrich Next Annual 66 Secretary, 1958 - 1968 Meeting in 1996 Treasurer and 1971 to present Barry J. Holben Next Annual 43 Vice President* October 1995 Meeting in 1996 to present Dwight A. Beacham Next Annual 49 Vice President**October 1995 Meeting in 1996 to present * Barry J. Holben was elected Vice President at a special meeting on October 23, 1995. He previously was an Assistant Vice President since the annual meeting on May 15, 1995. ** Dwight A. Beacham was elected Vice President at a special meeting on October 23, 1995. He previously was Assistant Vice President since May 1991. (c) Identification of Certain Significant Employees. Not required to be answered. (d) Family Relationships. Except for Martha Markowitz and Steven Markowitz, who are mother and son, there is no family relationship between any officers or directors of the Company. (e) Business Experience. (1) All officers and directors, except Barry Holben, Orville G. Hawk, Albert F. Schuster, and Martha Markowitz, have been employees of the Company in executive capacities for at least the last five years. Mr. Holben has been employed by the Company since 1989, spending two years in product development and then more recently as Foreign Sales Manager. Mr. Hawk who has been retired more than five (5) years was formerly Chairman of the Board and President of First National Bank of Allentown. Mr. Schuster is a church director of music and prior to his retirement more than five (5) years ago was a supervisor at Bethlehem Steel Corporation. Mrs. Markowitz is the widow of Jerome Markowitz, the Company's founder, and represents the family interests. (f) Involvement in Certain Legal Proceedings by Directors or Officers. None. (g) Compliance with Section 16(a) of the Exchange Act. No transaction required to be reported. Item 11. Executive Compensation. Deleted paragraphs and/or columns are not required to be answered. (b) SUMMARY COMPENSATION TABLE: Annual Compensation All Other Salary Bonus Compensation * Name and Principal Position Year $ $ $ Steven A. Markowitz, President 1995 93,010 20,125 31,537 (Chief Executive Officer) 1994 90,607 22,105 32,249 1993 86,944 19,225 32,905 Leonard W. Helfrich, Secretary 1995 84,746 19,005 (Treasurer) 1994 82,722 20,875 1993 80,288 18,155 *Value of Split Dollar Life Insurance. See Note 6 to the accompanying consolidated financial statements for additional information on this arrangement. (f) Defined Benefit or Actuarial Plan Disclosure. Estimated Annual Benefit obtained from 1995 Actuarial Valuation Report: Steven A. Markowitz $53,135. Age 42. Leonard W. Helfrich $28,163. Age 66. Amount shown is calculated from prior compensation to date and estimated compensation to normal retirement age (65). (g) Compensation of Directors: Non-employee Directors receive $250 for each Board and committee meeting attended plus reasonable expenses in connection with attendance. Employee Directors receive no additional compensation for their services as a Director. (h) Employment Contracts and Termination of Employment and Change in Control Arrangements: There are no employment contracts between the Company and any of the Company's Executive Officers. Mr. Markowitz, Mr. Moroz and Mr. Helfrich participate in an officer bonus plan whereby a bonus is distributed to each participant officer in proportion to the annual salary of all participants. The bonus pool is .9% of consolidated pre-tax profit for the fiscal year after elimination of bonus accrual, patent income, patent litigation, and non-operating extraordinary gains or losses. (j) Additional Information with Respect to Compensation Committee Interlocks and Insider Participation in Compensation Decisions: (1) Leonard W. Helfrich, Secretary, Treasurer, and Director of the Company, is the sole member of the Compensation Committee of the Board of Directors whose function is to set the compensation of the President. The compensation of all other employees is set by or at the direction of the President. Item 12. Security Ownership of Certain Beneficial Owners and Management (a) Voting securities of the registrant owned of record or beneficially by each person who owns of record, or is known by the registrant to own beneficially, more than 5 per cent of any class of such securities. Class A Common Shares constitute the only securities with voting rights. Information as of February 29, 1996. Amount and Nature of Names and Title of Beneficial % of Addresses Class Ownership Class Jerome Markowitz A 81,531 95.9% Trust (2) (1) 821 N. 30th St. Allentown, PA (1) Sole voting and investment power (2) The shares are held by Trustees under an Inter Vivos Trust established by Mr. Markowitz, who died in February, 1991, for the benefit of his family, principally his widow, Martha Markowitz. The Trustees are Steven Markowitz, President and a Director of the Company, and Martha Markowitz, a Director of the Company. (b) Each class of equity securities of the registrant or any of its parents or subsidiaries, other than directors' qualifying shares, beneficially owned directly or indirectly by all directors naming them and directors and officers of the registrant, as a group, without naming them. Information as of December 31, 1995. Percent Percent Nature of of of Class Class Beneficial Class Class Directors A B Ownership A B Steven Markowitz 58 (1) (3) .07 % 13,562 (1) (3) 1.06% 81,531* (2) (4) 95.94 % 242,016* (2) (4) 18.94% Eugene Moroz 799 (1) (3) as to 799 12,056 (2) (4) as to 12,156 1.01% Leonard W. Helfrich 328 (2) (4) .03% Orville G. Hawk 50 (2) (4) .004% Martha Markowitz 16,934 (1) (3) 1.32% 81,531* (2) (4) 95.94 % 242,016* (2) (4) 18.94% Percent Percent All Directors of of and Officers Class Class Class Class as a Group A B A B 6 81,589** 285,745** 96.01%** 22.36% (1) Sole voting power (2) Shared voting power (3) Sole investment power (4) Shared investment power * Shares owned by the Jerome Markowitz Trust for which Martha Markowitz and Steven Markowitz, Co- Trustees, have shared voting and investment power and of which Martha Markowitz is the primary beneficiary and Steven Markowitz, one of the residuary beneficiaries. ** The shares held by the Jerome Markowitz Trust are not duplicated in the totals for the Class A and Class B Shares. (c) Changes in Control. Not required to be answered. Item 13. Certain Relationships and Related Transactions See Note 9 to Financial Statements, concerning an agreement between the Company and Martha Markowitz, a Director of the Company. PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K (a) (1) Financial Statements The following consolidated financial statements of Allen Organ Company and its subsidiaries are included in Part II, Item 8: Independent Auditors' Report. Consolidated Balance Sheets as of December 31, 1995 and 1994. Consolidated Statements of Income and Retained Earnings for the years ended December 31, 1995, 1994, and 1993. Consolidated Statements of cash flows for the years ended December 31, 1995, 1994, and 1993. Notes to Consolidated Financial Statements. The individual financial statements of the Registrants subsidiaries have been omitted, as they are all included in the consolidated financial statements referred to above. (a) (2) Financial Statement Schedules Financial schedules are omitted as not applicable. (a) (3) Exhibits Exhibit No. Description 2(4) Plan of acquisition 3.1(1) Articles of Incorporation as amended 3.2(2) Bylaws, as amended 10.1(2) Officers Bonus Plan as amended December 2, 1991 10.2(3) Agreement of Amendment between the Company and Martha Markowitz 21 Subsidiaries of the registrant 1. Incorporated by reference to the exhibit filed with the Registrants Annual Report on Form 10-K for the year ended December 31, 1984. 2. Incorporated by reference to the exhibit filed with the Registrants Annual Report on Form 10-K for the year ended December 31, 1991. 3. Incorporated by reference to the exhibit filed with the Registrants Annual Report on Form 10-K for the year ended December 31, 1992. 4. Incorporated by reference to the exhibit filed with the Registrants Current Report on form 8-K dated August 1, 1995. (b) Reports on Form 8-K. None filed during fourth quarter of 1995. SIGNATURES Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ALLEN ORGAN COMPANY Date: March 20, 1996 STEVEN A. MARKOWITZ Steven A. Markowitz Chief Executive Officer, President and Director Date: March 20, 1996 LEONARD W. HELFRICH Leonard W. Helfrich Secretary, Treasurer, and Director, Principal Financial and Accounting Officer Date: March 20, 1996 EUGENE MOROZ Eugene Moroz Vice President and Director Date: March 20, 1996 MARTHA MARKOWITZ Martha Markowitz Director EX-21 2 ALLEN ORGAN COMPANY Exhibit 21 - Subsidiaries of the Registrant Subsidiaries Name State of Incorporation Rocky Mount Instruments, Inc. North Carolina Allen Organ International, Inc. US Virgin Islands VIR, Inc. Pennsylvania Eastern Research, Inc. New Jersey Linear Switch Corporation New Jersey All subsidiaries do business under their respective names listed above. EX-27 3
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE DECEMBER 31, 1995 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. YEAR DEC-31-1995 DEC-31-1995 196,100 30,766,266 4,431,499 0 13,428,585 49,782,500 17,057,373 9,278,875 65,299,426 3,100,945 0 1,537,993 0 0 58,430,801 65,299,426 30,024,761 30,024,761 20,109,427 20,109,427 6,003,647 0 42,856 6,035,105 2,020,000 4,015,105 0 0 0 4,015,105 2.94 2.94
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