The Rohe acquisition has given Allen majority ownership in the Rohe Manufacturing Company, Ltd. (Romaco) of England. Sales have increased satisfactorily since entry into the market two years ago, and the company is the leading factor in the English market.

In France, Rohe owns 60 per cent of S.P.E.C. (Société de Promotion et d'Exploitation de California), the leading distributor in the French car wash equipment market. Sales in 1970 exceeded $2 million, up almost tenfold from the first year of operations in 1968, and management has set a goal of doubling this level in the next two years.

## Africa

Rohe has reached an agreement in principle to acquire a majority position in Carvalette Services of South Africa, a distributor of California car wash equipment for Rohe. It is anticipated that manufacturing operations will begin in the first half of 1971. Carvalette has a major share of the market in South Africa.

## Australia

As a result of the Rohe acquisition, Allen has acquired a majority position in Universal Car Wash and Machine Product (Pty.), Sydney, a new company established in 1969. Sales have been sufficiently rapid to warrant an expansion of manufacturing capacity.

## North America—Canada

In Canada, Allen's sales effort has been primarily directed to oil companies and has resulted in Allen capturing a substantial share of the market. Manufacturing operations are carried on in Toronto. The company's history has been marked by a growth rate in excess of 40 per cent a year since 1966. The company is one of the leaders in the Canadian market.

## United States

In the United States, manufacturing and marketing activities are carried out by California Car Wash, which commands a proportionately smaller share of the United States market than its foreign affiliates do of theirs. Nevertheless, California Car Wash is highly regarded (especially in the eyes of the larger oil companies), by virtue of its long-established history ... the large number of existing California installations ... the high quality of its equipment ... its strong international connections ... and the substantial financial capabilities provided by

Allen.

In 1970, California Car Wash redirected its marketing efforts to penetrate the oil company car wash market. Equipment design and manufacturing quality were improved to meet oil company requirements and pollution control restrictions. A new direct sales team was assembled, capable of selling the systems to major accounts. The distributor sales organization was revamped to stress reliability and modified to include only independent distributors with a high degree of financial stability and a record of excellent service. Most important, a national service team was developed to design and build, install and service car wash facilities for national accounts.

These new programs have received a favorable response from oil company customers. California Car Wash's sales to oil companies in 1970 quadrupled over 1969. Recently, the first multiple unit sales contract was signed with a major oil company providing a number of Mini-Mitters®, or in-bay, roll-over units, for existing service stations. So that operating systems can be further developed as part of the "soft-ware" package, California Car Wash expects to participate this year in pilot operations of gasoline-car wash stations with a major oil company.

## Japan

At present, Allen does not participate directly in the car wash market in the Far East, but Takeuchi, Ltd., with sales in excess of $6 million, accounts for approximately half of the Japanese market. It is the leading car wash equipment manufacturer in Asia, and has made the "California" brand name the best known in that part of the world.

## Summary

Allen believes that it brings to the car wash equipment market some unique advantages. Among them are the Allen/Rohe total systems approach to generating profits (including increased gasoline gallonage), for its customers through engineering... service... operating systems... quality hardware... turnkey installations... and financing. Allen also has the backup capability through its managerial and financial resources.

Most significantly, however, the Company is able to draw on the creativity of its people in the United States and abroad who have made important contributions to the technology of their industry, an industry with a particularly bright future.

# A PERSPECTIVE OF CHANGE

## 1969-1971

The Allen story is a story of change. It is a story about a management team that is building a foundation for growth in the years ahead. The Allen story is also about discovery—the discovery of new things about established markets that can be converted into exciting profit growth, as well as the discovery of new markets themselves.

To gain a true perspective of Allen and the changes that its new management has introduced, it is necessary to remember that by mid 1969 the concentration of corporate management attention on external growth had resulted in Allen's involvement in 26 separate businesses.

The management team carefully assessed the 26 operations and their markets and concluded that a number could not meet the criteria for growth and market leadership that had been established for the Company. As a result, eight businesses were liquidated or sold, even though they represented about $18,000,000 in sales. At the same time the Company's marginal participation in two promising markets was significantly expanded through acquisitions and new internal programs. The reduction in the number of business commitments and the addition of new management personnel achieved a more effective balance between Allen's management resources and the demands of its operations. The outcome of these programs has been a dramatic shift in the major sources of Allen's sales and a significant increase in the operating efficiency of Allen's operations, reflected in a 39 per cent rise in return on equity, a 33 per cent increase in return on assets, and a 45 per cent rise in return on sales.

As 1971 gets under way, it is now apparent where Allen's concentration lies. There are five business commitments referred to as "building blocks": Car wash equipment manufacturing; automotive radiators; truck cabs and vans; automotive accessories; and automotive test and service equipment. In these areas Allen has grown rapidly both internally and through acquisitions from a $75 million annual sales rate during the first half of 1969 to $102 million of sales in 1970 with a goal for 1971 of about $120 million. Simultaneously, Allen has quadrupled its international commitment between 1969 and projected 1971.

Allen's management holds a deep conviction as to what the Company is and what it will become. It maintains that it will participate only in markets where there is a real potential for leadership without unduly taxing the corporation's financial and management resources. Structurally, it views Allen as a decentralized organization in which operating managers can function with the necessary authority and independence to achieve their goals. At the same time, however, corporate management acknowledges its responsibility to actively participate in the planning process of business activities and to review progress in the accomplishment of mutually agreed upon objectives.

It would be futile for us to expect very much without the right people to lead and build your Company. We have placed great stress on seeking out the very best people through active recruitment, management development and, in some instances, by acquisition. We have attempted to relate achievement to reward—both tangible and intangible—and we will continue to strive to provide the incentives and stimulating environment that will encourage superior performance.

# Table of Contents

## Section I—Introduction

<table><tr><td>Financial Highlights</td><td>4</td></tr><tr><td>The Major Events of 1970</td><td>5</td></tr><tr><td>Chairman's Letter to the Shareholders</td><td>6</td></tr><tr><td>President's Letter to the Shareholders</td><td>8</td></tr><tr><td>Management by Objectives</td><td>11</td></tr></table>

## Section II—Building a Foundation for Future Growth

<table><tr><td>The Strategic Transformation of Allen</td><td>14</td></tr><tr><td>Transformation of International Position</td><td>16</td></tr><tr><td>Financial Transformation</td><td>17</td></tr><tr><td>Allen's Management Philosophy</td><td>18</td></tr></table>

## Section III—Building Blocks

<table><tr><td>Car Wash Group</td><td>20</td></tr><tr><td>Heat Transfer Group</td><td>22</td></tr><tr><td>Orion Industries, Inc.</td><td>23</td></tr><tr><td>Crown Group</td><td>24</td></tr><tr><td>Allen's Test, Service, Control & Communications Group</td><td>26</td></tr></table>

## Section IV—Financial Report

<table><tr><td>Sources of Sales and Income</td><td>28</td></tr><tr><td>Consolidated Statements of Income</td><td>29</td></tr><tr><td>Consolidated Balance Sheets</td><td>30</td></tr><tr><td>Consolidated Statements of Source and Application of Funds</td><td>32</td></tr><tr><td>Consolidated Statements of Retained Earnings</td><td>33</td></tr><tr><td>Notes to Consolidated Financial Statements</td><td>33</td></tr><tr><td>Accountants' Report</td><td>35</td></tr><tr><td>Financial Summary</td><td>36</td></tr></table>

2

Financial Highlights

For the Years Ended December 31, 1970 and 1969 (In Thousands)

<table><thead><tr><th></th><th>1970</th><th>1969</th></tr></thead><tbody><tr><td>Net Sales</td><td>$114,339</td><td>$117,955</td></tr><tr><td>Income Before Extraordinary Items and Cumulative Effect of 1969 Accounting Principle Change</td><td>3,335</td><td>2,340</td></tr><tr><td>Net Income (Loss)</td><td>3,079</td><td>(470)</td></tr><tr><td>Per Share:</td><td></td><td></td></tr><tr><td>Income Before Extraordinary Items and Cumulative Effect of 1969 Accounting Principle Change</td><td>1.17</td><td>.85</td></tr><tr><td>Net Income (Loss)</td><td>1.08</td><td>(.17)</td></tr></tbody></table>

PRO FORMA AMOUNTS ASSUMING RETROACTIVE APPLICATION OF 1969 ACCOUNTING PRINCIPLE CHANGE:

<table><tbody><tr><td>Income Before Extraordinary Items</td><td>$3,335</td><td>$2,340</td></tr><tr><td>Net Income</td><td>3,079</td><td>2,125</td></tr><tr><td>Per Share:</td><td></td><td></td></tr><tr><td>Income Before Extraordinary Items</td><td>1.17</td><td>.85</td></tr><tr><td>Net Income</td><td>1.08</td><td>.77</td></tr></tbody></table>

RETURN* ON:

<table><tbody><tr><td>Sales</td><td>2.9%</td><td>2.0%</td></tr><tr><td>Assets**</td><td>4.0%</td><td>3.0%</td></tr><tr><td>Shareholders Equity**</td><td>8.5%</td><td>6.1%</td></tr></tbody></table>

*Based on income before extraordinary items.

**Average

4

The Major Events of 1970

☐ Improved the Company's returns on sales by 45 per cent to 2.9 per cent, on assets by 33 per cent to 4.0 per cent and on stockholders' equity by 39 per cent to 8.5 per cent, primarily through improved efficiency and effectiveness.

☐ Achieved profitable operations in almost all of the Company's profit centers and instituted plans to convert the remaining loss operations into profitable operations in 1971.

☐ Acquired the Rohe group in West Germany to become an international leader in car wash equipment and achieved or instituted negotiations for broader equity positions in the Australian, Canadian, English, French and South African markets.

☐ Completed the acquisitions of G & O and Strangi Manufacturing, integrated the activities of the existing Pathfinder Radiator Division and achieved a leading position in the market for automotive replacement radiators.

☐ Sold three businesses which did not measure up to Allen's standards for potential building blocks for the future and which contributed $6,900,000 in sales and resulted in $360,000 of pretax operating losses in 1970.

☐ Made organizational changes to place the Company's operations under six vice presidents, four of whom joined the Company in 1970. Developed a corporate financial and administrative staff and added experienced operating and financial personnel throughout the Company.

☐ Instituted a management incentive system providing for meaningful bonus awards to line managers based on their contribution to attaining profit objectives. Received stockholder approval for new stock option and stock purchase financing plans to provide meaningful incentives to top management as a means of attracting high caliber executives.

☐ Inaugurated Allen's first formal three-year profit plan and identified key objectives at all levels of the Company.

☐ Developed financial planning and cash control systems, including regular review of inventory and receivable positions.

☐ Developed a program to stimulate potentially profitable investment in new capital equipment through a decentralized capital budgeting system.

☐ Provided for financial needs of the Company over the next few years through the arrangement of a $6 million, five-year Eurodollar credit line and the establishment of a $6 million domestic line of credit. At the end of 1970, $10.5 million of these combined lines were still available for future utilization by the Company, and the Company's cash position exceeded $7 million.

☐ Repurchased 156,285 shares of Allen's common stock for cash and other assets.

5

CHAIRMAN'S LETTER TO THE SHAREHOLDERS

Dear Shareholder:

Allen's activities from 1963 to 1969, during which
period I served as Chief Executive Officer, reflected
the spirit and opportunities of the times. A number
of businesses were assembled to achieve a signif-
icant base in both financial and operating terms
and the Company grew rapidly, largely as a result
of this aggressive acquisition program. On balance,
the choices we made were good ones and Allen
found itself in early 1969 with a number of strong
businesses, a role in several potentially rewarding
markets, and the size and financial resources
needed to make its presence felt.

At this point the changing economic environment
and the circumstances of the Company suggested
that our future emphasis should be on stressing the
growth of existing operations. I therefore, together
with the Board of Directors, made the decision to
have Mr. Walter B. Kissinger succeed me as Presi-
dent and Chief Executive Officer of Allen Electric.
Since that time, he has had our full support in
carrying out his programs.

Events have borne out the wisdom of the Board's
action, as will be obvious to our shareholders after
reading this annual report. The restructuring of
Allen to focus on a more limited number of mar-
kets and the expansion of the Company's interests
in these areas have already brought about a signif-
icant improvement in profitability. Particularly
pleasing to me has been the establishment of an
effective balance between the disciplines of finan-
cial control and management by objectives and the
creative drive that is associated with entrepre-
neurial endeavor. I am confident that there is a
bright future ahead for Allen Electric.

Henry Kohorn
Chairman of the Board

6

PRESIDENT'S LETTER TO THE SHAREHOLDERS

Dear Shareholder:

Our Annual Report last year covered in some
depth the transition being effected at Allen as
a function of a new management approach
and concentrated on the many changes that
were in process throughout the organization.
After an eventful and rewarding year, we can
now devote this Annual Report to an analysis
of the foundation developed for your Com-
pany's future growth and to an assessment of
the financial results of the first full year under
the new management team.

In my judgment the important financial com-
parison is the increase in operating income
before minority interests and extraordinary
charges from $2,395,000 in 1969 to $3,614,-
000 in 1970—an increase of 51 per cent. The
bulk of this improvement stems from in-
creased efficiency and effectiveness in our
five main business areas which constitute the
building blocks for Allen's future. The oper-
ating improvements resulted not only in
higher earnings but also in improved cash
flow that has reduced financing needs.

Two nonoperating items have caused income
before extraordinary charges on a per share
basis to grow at a lower rate—from $.85 to
$1.17 or 38 per cent. The major reason for
this difference was the increase in minority
interest stemming from the sale of a portion
of the shares of Orion Industries, Inc., to the
public late in 1969. Another factor was the
increase in the number of shares of Allen
common stock deemed outstanding under
"earn-out" arrangements due to the lower
average market price for such shares in 1970
as compared with 1969.

As I stated in my letter to you last year, the
Company's first objective in 1970 was to con-
tinue to refine the basic definition of our busi-
ness and to drive hard towards the elimina-

8

tion of all marginal product lines. In the pur-
suit of this objective, we divested ourselves
of three additional business operations as de-
scribed in a profile mailed to shareholders last
month. Primarily as a result of these divest-
ments the Company incurred an extraordi-
nary charge against income which exceeded
the reserve established at the end of 1969 by
$256,000 or $.09 per share.

Sales in 1970 were $114 million compared to
$118 million in 1969 after restatement for the
inclusion of the Rohe acquisition on a part
purchase and part pooling of interests basis.
The decrease in sales is a consequence of the
Company's divestment program which is dis-
cussed in some detail in this report and tends
to disguise the growth that has actually taken
place.

In 1969, our Annual Report showed sales of
$111 million. Of this amount, about $18 mil-
lion were from operations that are no longer
part of Allen, and almost $14 million repre-
sented sales of the two radiator companies
acquired in early 1970. Some measurement
of the real progress of your Company can be
made by comparing the $79 million of on-
going business that was actually part of the
Company in 1969 with our sales goal of $120-
$130 million for 1971. We believe that half of
the growth represented by this goal will be
achieved by the automotive radiator and car
wash acquisitions made last year and that the
balance will result through internal growth of
these and other operations.

During 1970 we placed strong emphasis on
the development of our financial planning
capability and on control and judicious allo-
cation of our financial resources. Conse-
quently, your Company finished 1970 in a
very strong financial position, despite the dif-
ficult money market and economic condi-
tions that prevailed during most of the year.

Our year-end working capital was in excess
of $30,000,000 of which more than $7,400,-
000 was represented by cash and short-term
investments. In addition, $10,500,000 re-
mained undrawn on firm lines of credit ar-
ranged this year with a group of U.S. com-
mercial banks and their European branches.
Long-term debt at year-end was less than half
of total shareholders' equity. During the
course of the year, we elected to raise $1,-
500,000 from the sale-leaseback of three
buildings because of a conviction that our
funds can be better applied other than in
brick and mortar. During the year the Com-
pany availed itself of the opportunity to ac-
quire a block of its common stock when the
market price was considerably below book
value and repurchased 67,300 Allen shares for
$813,000. These shares, together with shares
received as part of the proceeds of certain
divestments, are being held as treasury stock.

Last year, in my letter to our stockholders, I
outlined the prime corporate objectives
which we would pursue in 1970. These ob-
jectives are reviewed in the next section
"Management by Objectives." In keeping
with the practice established last year, I am
again outlining the Company's primary goals
for 1971.

1. To continue our efforts to improve op-
erating performance with the ultimate
objective of achieving a 10 per cent re-
turn on assets and a 5 per cent return
on sales in each of our profit centers.

2. To complete the management organiza-
tion of the Company.

3. To establish management depth and suc-
cession at all levels to provide for the
continuous growth of our business.

4. To implement the steps necessary to
make Allen the world leader in the car
wash industry.

9

5. To broaden the marketing and product base of our test and service equipment business.

6. To continue to refine the management tools of planning and control throughout the Company.

7. To continue to increase the stature and scope of Allen's international position.

8. To use to greater advantage the strong management and manufacturing capability of our Crown Group as a resource upon which other Allen operations can draw.

9. To establish programs which will increase employee identification with the Company on all levels, and to provide incentives and rewards for contributions to Allen's success.

10. To play our part in the furtherance of national and social objectives with specific and meaningful programs and to be good citizens in the communities wherein we are an important factor.

11. To fully communicate the Allen story to the financial community.

In my view, the real strength of any company is its people... their approach to business... their motivation... the way they organize to work together... and the manner in which their efforts are planned, directed and rewarded. These are the really important strengths of any company and throughout this report we attempt to relate them to our goals. It is in this area that we made the most dramatic progress in 1970. The real potential of this intangible remains to be realized in future years.

It is appropriate that I express my tribute to the many people who have assisted me in a very difficult year—to our stockholders first of all, who overwhelmingly had the patience during the disappointment of a general economic

decline to give us an opportunity to establish the basis of a new record; to Henry Kohorn, the Chairman of the Board, who built the base of this Company from very modest beginnings and had the perception and insight to recognize the value of a different emphasis and direction; to the members of the Board for their vision and courage in facing some very difficult decisions with me; to the officers of Allen for the commitment and accomplishment; to our new international associates for their enthusiasm and understanding and most particularly to Adam Rohe who will play a pivotal role in our international development; to the operating management who accepted some very tough challenges; to a dedicated group of young men who worked endless hours to increase my effectiveness; and to the thousands of employees of our Company who are helping us build for the future of Allen.

The foundation which we have built in 1970 affords your Company an exciting opportunity for growth. It is my conviction that many of the positive steps taken in the course of 1970 have not yet been reflected in our financial results. We look with great confidence to substantial progress in 1971 and the years thereafter.

Sincerely,

Walter B. Kissinger, President
and Chief Executive Officer

10

MANAGEMENT BY OBJECTIVES

One of the important management techniques that has been made a part of Allen's way of conducting business is the setting of specific management objectives throughout the Company for the year. In the President's letter to shareholders in the 1969 Annual Report he outlined nine goals, delineating the basic direction of the Company in 1970. Just as we review divisional objectives among ourselves, so we review with our shareholders in this report how well the Company's 1970 objectives were achieved.

**GOAL 1**—TO CONTINUE TO REFINE THE BASIC DEFINITION OF OUR BUSINESS FOR FUTURE GROWTH AND TO DRIVE HARD TOWARD THE ELIMINATION OF ALL MARGINAL PRODUCT LINES. A CONTINUING AND INTENSIVE MARKET STUDY IS UNDER WAY TO HELP GUIDE US IN THE FORMULATION OF MARKET STRATEGY.

**PERFORMANCE:**

In the course of the year, Allen sold three businesses (P. G. Assco Corp., Conveyor Engineering, and Air Traffic Control Systems) whose positions within their industries could not be expected to become basic building blocks for your Company's future growth. As part of its three-year business plan, each division reviewed its product lines and either eliminated marginal items or developed plans to improve performance.

**GOAL 2**—TO CONTINUE TO STIMULATE AN INTEREST AND CONCERN FOR BUSINESS PLANNING AND CONTROL AND TO ESTABLISH IT AS A WAY OF DOING BUSINESS ON THE OPERATING LEVEL.

**PERFORMANCE:**

In 1970 we inaugurated the Company's first formal three-year planning program in which each division defined, subject to corporate review, the basic direction for its future development and set specific goals and objectives for 1971. Our control procedures have been strengthened by the formation of a capable staff at the corporate level and by the addition of experienced financial personnel throughout the Company.

**GOAL 3**—TO COMPLETE THE STRUCTURE OF OUR ORGANIZATION GEARED TO RESPOND FULLY TO THE OPPORTUNITIES OF THE BUILDING BLOCKS WHICH WE HAVE DEFINED AND TO ASSURE THE MOST DYNAMIC LEADERSHIP.

**PERFORMANCE:**

In 1970 we continued to make organizational changes to improve the quality of our management leadership. With two exceptions, all of the Company's operations are grouped under six vice presidents, four of whom were appointed in 1970.

**GOAL 4**—TO RECOGNIZE THE GREAT ENTREPRENEURIAL TALENT IN THIS COMPANY BY DEVELOPING, IN THE COURSE OF THIS YEAR, A MEANINGFUL PROGRAM OF INCENTIVES WHICH PROPERLY RELATES REWARD TO ACHIEVEMENT.

**PERFORMANCE:**

We have developed a company-wide program covering all key management personnel that provides an opportunity to achieve significant bonuses depending on the individual's contribution to the profitable growth of his business. In December, shareholders approved a new stock option plan and a stock purchase financing program to provide meaningful incentives for senior management.

**GOAL 5**—TO MEET THE OPPORTUNITIES WHICH WE SEE IN THE CAR WASH INDUSTRY, AS CREATED BY THE ENTRY OF THE MAJOR OIL COMPANIES, BOTH BY STRENGTHENING OUR POSITION IN NORTH AMERICA AND BY CEMENTING OUR INTERNATIONAL CONNECTIONS.

**PERFORMANCE:**

A. Rohe GmbH, our former European licensee, was acquired in September 1970. New manufacturing facilities were established at Rohe's Australian subsidiary; majority ownership of our car wash equipment distributor in France was purchased; and a letter of intent for majority ownership and new manufacturing facilities was signed with the former Rohe distributor in South Africa. At the present time negotiations are under way for

11

a larger Allen role in the Canadian and English markets. Our United States company quadrupled its volume of business with major oil companies and signed its first multiple sales contract with American Oil Company.

**GOAL 6**—TO FULLY RESOLVE OUR OPERATING PROBLEMS IN THE TEST EQUIPMENT AREA AND TO ESTABLISH A BROADER BASE AND STRONGER DISTRIBUTION THROUGH INTERNAL DEVELOPMENTS AND EXTERNAL GROWTH.

**PERFORMANCE:**

Although the rate of loss incurred in this area was substantially reduced in 1970, progress was not rapid enough to satisfy group and corporate management. Therefore, management changes were made at the divisional level. Once a profitable base of operations has been established in 1971, we expect this area to be a major contributor to future growth. Opportunities in Western Europe, where we have recently reorganized our marketing program, are particularly attractive.

**GOAL 7**—TO CONSOLIDATE OUR RECENTLY ESTABLISHED POSITION OF LEADERSHIP IN THE FIELD OF AUTOMOTIVE REPLACEMENT RADIATORS AND TO FULLY EXPLOIT OUR UNIQUE POSITION OF NATIONAL DISTRIBUTION.

**PERFORMANCE:**

The G&O and Strangi acquisitions were completed in March 1970, and G&O's President, Geoffrey Etherington, was elected Vice President of the Allen Radiator group. Despite a down turn in the special OEM portion of our radiator business, the group's after tax profits advanced because of continued growth in the radiator replacement market. Marketing strategies have been developed that will combine the strength of G&O and Strangi to increase the group's penetration of the replacement market in 1971 and to establish national distribution.

**GOAL 8**—TO ESTABLISH AN ORGANIZATIONAL BASE FOR INTERNATIONAL OPERATIONS IN ORDER TO CAPITALIZE ON THE VAST POTENTIAL AVAILABLE TO US ABROAD.

**PERFORMANCE:**

The Rohe acquisition provides Allen with an important base of operations in Europe and in other international markets. More than 25 per cent of Allen's sales and earnings in 1971 will be generated from operations located outside of the United States.

**GOAL 9**—TO FULLY COMMUNICATE THE DEVELOPING ALLEN STORY—A COMPANY IN A MAJOR TRANSITION—TO YOU AND THE FINANCIAL COMMUNITY.

**PERFORMANCE:**

The uncertainty that developed in financial markets in 1970 as a consequence of the state of the economy, the sharp decline in the stock market, and the failure of a number of Wall Street firms persuaded your management that intensive efforts at communicating the Allen story in 1970 would have been ineffectual. Accordingly we did not make a major effort at communication last year. This has been re-established as a key objective for 1971, and shareholders have already received four new "Profiles," corporate publications that describe the Company's activities in detail.

12

# THE STRATEGIC TRANSFORMATION OF ALLEN

"Our objective for the short term will be to build a solid foundation from which to thrust forward...to disengage from peripheral or marginal businesses...to put the primary emphasis on internal growth opportunities by supporting and encouraging that which makes sense and remedying that which is weak or inadequate."

—Walter B. Kissinger
 letter to management, July 18, 1969, shortly
 after assuming Presidency of the Company).

## DISENGAGEMENT

Allen's divestment program identified operations which would impose an inordinate drain on the Company's financial and management resources. The products of the eight divested businesses ranged from prefabricated buildings to sophisticated conveyor equipment, from portable generators to portable air traffic control towers. Although technologically weak, these businesses were competing with much larger organizations with greater resources. Unprofitable at the time of divestment, they resulted in pre-tax operating losses of almost $1 million in the years of their respective divestments.

In eliminating these businesses, Allen sustained nonrecurring losses of approximately $825,000 (net of taxes), but received proceeds in the form of cash, notes, Allen common stock, and other assets amounting to more than $4,000,000. The redeployment of assets from these unprofitable operations into other areas of greater promise is of great significance to the Company's long-term growth and development.

## PROFIT IMPROVEMENT

The focus of management attention on internal growth, the institution of more sophisticated planning and control techniques and the addition of new management talent have

brought about a dramatic increase in Allen's profitability. The areas of most notable improvement are the Crown group, the automotive test equipment group and the domestic car wash equipment company, with smaller increases in other operations.

Those operations that were Allen's in 1969 and remain in 1971 contributed $1.3 million to after tax operating income in 1969 on $79 million of sales—a 1.7 per cent return. In 1970 these same operations contributed $2.4 million to after tax operating income on $83 million of sales—a 2.9 per cent return.

These improvements were accomplished notwithstanding poor economic conditions, particularly for businesses associated with the automotive industry. Despite the improvement in 1970, overall performance fell short of management's expectations, but we look forward to further progress in 1971.

## NEW COMMITMENTS

In the past 18 months your Company has completed two major acquisitions — the acquisition of G&O in the spring of 1970 and Rohe in September 1970. These key acquisitions, in combination with other programs, including purchase of Strangi Manufacturing, have transformed Allen's participation in the car wash equipment and automotive replacement radiator manufacturing businesses from a marginal status to positions of prominence in the two markets. Allen is now the largest world-wide manufacturer of car wash equipment, with plants in four countries and under construction in two.

*The Company has available on request a more detailed study on this subject.*

14

TRANSFORMATION OF INTERNATIONAL POSITION

The expansion of our international
position involves the introduction
overseas of the product, sales and
servicing know-how we have devel-
oped within the United States. This
process of broader international
use of our established product and
sales capability will continue. We
are also reaching a stage where
there is a stronger degree of tech-
nical feedback from our interna-
tional associates that will enrich
our domestic operation.

Our overall corporate business is
tied in, with only minor exceptions,
to the number of vehicles on the
road. The number of vehicles, par-
ticularly passenger cars, is growing
in other key economic areas of the
world at far faster rates than in the
United States.

The European car market, second
only to the United States, is grow-
ing at a rate of 7 per cent a year
as compared to the United States'
2½ per cent a year. In Japan, the
next largest vehicle market in the
free world, new car registrations are
increasing each year at a rate of
over 25 per cent. Allen's response
to these international opportunities
can best be shown by selected spe-
cific examples of Allen's actions in
the international market.

California Car Wash Systems, Inc.

This Allen subsidiary pioneered in
the automated car wash industry in
the United States and is a strong
technical leader in its field. Its tech-
nical knowledge and experience
were first introduced internation-
ally in a manufacturing subsidiary
in Toronto, Canada. California Car
Wash has achieved an estimated 30
to 40 per cent share in the rapidly
expanding Canadian market.

In 1970, Allen acquired its key
European licensee, A. Rohe GmbH
of Offenbach, West Germany. Allen
also gained control of the Rohe
subsidiaries in the United Kingdom,
France and Australia. Agreement in
principle has been reached to ac-
quire a sales subsidiary and plans
are under way to open a manufac-
turing facility in South Africa in
1971.

The "California" name is now esti-
mated to account for approximately
20 per cent of world-wide sales of
automated car wash equipment.

Allen intends to further expand its
international position by way of
internal growth, acquisitions or
joint ventures.

Allen's Automotive Diagnostic
and Service Equipment Group

This group stands at a somewhat
different stage of international de-
velopment. The Allen Testproducts
Division was a pioneer in the devel-
opment of sophisticated oscillo-
scope testing equipment for auto-
motive ignition systems. Its first
step outside the United States was
the establishment of a wholly
owned sales, distribution and ser-
vicing subsidiary in Toronto, Can-
ada, to cover the Canadian market.
Then, as vehicle markets began to
develop and expand in other eco-
nomically advanced areas such as
Western Europe and the United
Kingdom, Allen answered the de-
mand for vehicle maintenance and
test equipment by appointing ex-
clusive sales and service agents in
those areas, as well as in Latin
America.

The accelerating growth of the
Western European passenger car
market has been accompanied by
an expanding demand for special-
ized technical equipment for the
European automobile. Allen's re-
sponse is the organization of its
own representation and technical
guidance staff in the key European

market of Western Germany and
exclusive sales and service agencies
with clearly defined country-by-
country objectives in Europe, there-
by assuring effective exploitation of
each market's individual opportu-
nities.

Also, steps are being taken to
strengthen the Allen name in test
equipment with key European
automobile manufacturers and to
develop the means necessary to en-
able Allen to respond promptly and
efficiently to such special product
requirements as may develop in
Europe. New distribution and man-
ufacturing opportunities are also
being sought in other expanding
automotive markets such as Japan.
Australia and certain areas of Latin
America.

National Rubber Company, Ltd.

A third example of Allen's interna-
tional effort is our Canadian sub-
sidiary, National Rubber Company,
Ltd. Its primary product line in
North America comprises rubber
products used in the manufacture
of automotive and agricultural ve-
hicles. Its second product line, tire
service equipment and supplies,
has been the key element in de-
veloping a well established, broadly
distributed export market in
Europe, Latin America, Africa, the
Middle East and the Far East, which
now furnishes about 15 per cent of
National Rubber's total sales.

INTERNATIONAL SALES

*Before pooling of interests treatment of Rohe, G&O, and Strangi acquisitions.

16

FINANCIAL TRANSFORMATION

The many programs undertaken at Allen since mid 1969 have resulted in a major transformation of the Company's financial structure and practices. Most of these programs are mentioned elsewhere in this report in other contexts; however, since the ultimate test of any program is its financial impact, it is useful to review these programs in terms of their relationship to Allen's financial position.

The change in Allen's financial structure has taken place on three basic levels:

* Improvement in the utilization of assets in order to generate higher returns on the capital employed in the business and hence on shareholders' equity.

* Improvement in the utilization of cash resources so as to provide the financial strength needed for the future growth of the Company.

* Improvement in the Company's control and planning systems to make possible intelligent choices between financial alternatives and to establish management priorities in the financial area.

The improvement in the Company's utilization of assets has been dramatic. In mid 1969, 28 per cent of Allen's total assets were committed to business areas which provided negative returns and a further 16 per cent were involved in areas which provided returns of less than 4 per cent. Almost 45 per cent of Allen's assets were thus unproductive. In 1969 the Company's overall return on assets, before recognizing the "pooling" treatment of Strangi, G&O and Rohe was only 1.9 per cent. As a result of the disengagement from eight marginal businesses and redeployment of the assets derived therefrom, of the expansion of Allen's commitments in the car wash and radiator fields, and of the many successful profit improvement programs instituted in other areas of the Company,* the return on assets increased to 4.0 per cent in 1970 and the return on shareholder equity rose from 3.8 per cent to 8.5 per cent.

The concept of the effective utilization of assets is also evident in the Company's programs for cash

control and cash generation where Allen's objective is to generate internally the largest possible portion of the financing required to support the Company's growth programs. Asset utilization was improved by the sale and leaseback of three plants, turning $1.5 million of "brick and mortar" into cash. Tighter controls on working capital, including regular review of inventory and receivable levels, created an awareness throughout the Company of the importance of minimizing idle working capital so as to provide resources for Allen's expansion programs. A new capital appropriation system that directs attention to the economic returns on proposed capital investments and an allocation system for corporate overhead based on operating company working capital levels were also important elements in directing attention to the effective use of cash resources.

While these steps have also had an impact on the improved return on the Company's assets, their effect is most apparent in the improvement of the Company's current financial position. At the end of 1970 Allen had cash and liquid investments of 7.4 million, approximately equal to the 1969 amount, and long and short-term debt in 1970 of $21.4 million, versus $18.8 million in 1969, despite the creation of more than $3 million of debt and payment of $1 million in cash in connection with the Rohe acquisition and the major demands for cash resulting from the Company's expansion programs, and the repurchase of $813,000 of common stock.

The introduction of new planning and control systems and the addition of experienced financial personnel throughout the Company in 1970 have put Allen in a position where its financial requirements can be controlled, analyzed and projected so that intelligent decisions can be made. In 1970 a corporate controller was recruited and a staff assembled to handle the functions of financial control, internal audit, and tax planning. Group controllers were newly appointed or recruited in four of the Company's major business areas.

Allen's increased emphasis on business planning, while primarily directed at laying out business objectives and strategies, also provided the financial data needed to prepare a three-year financial plan.

As a result the Company developed new arrangements with its commercial bankers, including a $6 million Eurodollar revolving credit agreement and a $6 million domestic line of credit designed to provide for financial needs over the next few years. Of the total amount of $12 million, $10.5 million was still available to Allen at the end of 1970. The awareness of the Company's financial position resulting from the emphasis on planning and control places Allen in a good position to evaluate financing opportunities, the level of capital spending programs, and the terms of any future acquisitions.

*These programs are discussed in detail in Allen's Profile V which is available on request.

Based on income before extraordinary items. 1969 excludes pooling of G&O, Strangi and Rohe.

17

ALLEN'S MANAGEMENT PHILOSOPHY

The transition which has taken
place over the past 18 months,
resulting in the identification of
five basic "building blocks" for
future growth, was not the re-
sult of a preconceived "master
plan." Instead, it reflects the ap-
plication to Allen's particular
circumstances of the deeply
held convictions of Allen's man-
agement group. The transition
is, in effect, the outgrowth of a
management philosophy.

One tenet of this philosophy is
that achievement of leadership
in each of the Company's mar-
kets must be Allen's first objec-
tive. Our desire is to be the trend
setter whose operations are em-
ulated by competitors. We are
convinced that the pursuit of
leadership positions will be
both materially rewarding for
our shareholders and psychical-
ly rewarding for our manage-
ment and employees.

Allen's present structure and its
activities during the past 18
months reflect this point of
view. Wherever the Company
has made a commitment in a
market, it has sought through
internal development and ac-
quisition the best management
talent, the firmest technological
base, and the leading market
position. Where these elements
were not present or could not
be accomplished without a dis-
proportionate investment of
management and financial re-
sources, the Company disen-
gaged itself from the market.

A second tenet of manage-
ment's philosophy is that peo-
ple are the Company's most im-
portant asset and that Allen's
future success depends upon its
ability to attract and retain ca-
pable individuals.

The improvement in your Com-
pany's operating performance
in the past 18 months has not
been a result of good fortune
or better business environment
—it has been the product of the
individual efforts of many peo-
ple throughout the Company.

In this transition period Allen
has made many significant man-
agement changes some of which
were reported in last year's an-
nual report. In 1970 your Com-
pany added four new Vice Pres-
idents: Paul D. Gilliland, Group
Vice President, Crown Group;
Geoffrey Etherington, Group
Vice President, Heat Transfer
Group; Adam Rohe, Vice Pres-
ident, A. Rohe GmbH; Edward
G. Simonsen, Vice President, In-
ternational Operations.

These men have attracted other
capable people to their areas
and a corporate staff has been
organized, making the new
management organization al-
most complete.

The third tenet of Allen's philo-
ophy is the knowledge that sim-

ply attracting capable people is
not enough to obtain results.
These people must be moti-
vated so that their personal
goals are directly related to Al-
len's success. This is why Allen's
management strongly believes
in meaningful incentive plans
for people who have a direct
impact on profits, including a
profit-based bonus plan for op-
erating personnel and a new
stock option plan, recently ap-
proved by stockholders, which
closely aligns the individual
manager's objectives and re-
wards with those of the stock-
holder. Managers are further
motivated by Allen's policy of
decentralization of operating
responsibility which enhances
each man's creativity and sense
of challenge.

Allen also instituted an em-
ployee stock purchase plan in
1970 to enable eligible employ-
ees to conveniently invest in
their Company. This participa-
tion in ownership will enable
the employee to identify his
interests with those of Allen.

Some of the Allen management group and representatives of its consulting services are shown here. From left to right they are (first row): Bart Von Ribbentrop, Deutsche Bank; Nathaniel Towle, Allen; Geoffrey Etherington, Vice President, Heat Transfer; Phillip Colburn, President, Orion Industries; Sheldon Gross, Vice President, National Rubber; Albert Strangi, Strangi Manufacturing; James Wipper, Allen Controller; Walter Kissinger, Allen President; Harry Cook, Allen Director of Manufacturing; Adam Rohe, Vice President, Allen; Robert E. Lee, General Manager, California Car Wash; Joe Spivak, Consultant to Antenna Specialists; Paul Gilliland, Vice President, Crown; Henry Keller, Kidder, Peabody; Robert Sullivan, President, Wilson Engineering; Edward Simonsen, Vice President, International Operations; George Sbordone, Vice President, Test Products; James O'Brien, Personnel Consultant; Robert Paul, Allen; John McNiff, Allen; Al Kraus, President-Antenna Specialists.

18

CAR WASH GROUP

Assembly line production capacity for "combi" roll over units was raised to 200 per month by a recent addition at Rohe's West German plant.

A key to successful car wash equipment sales is strong service and systems capability which Allen is rapidly developing.

In mid 1969 Allen's participation in the car wash equipment industry was through a small company in the United States and part ownership of an even smaller Canadian-based company whose combined volume was less than $5 million a year. The domestic operation imposed a serious drain on management and financial resources and was the source of a significant portion of the special operating write-offs incurred in 1969.

From this modest beginning Allen has risen to a position where, by the end of 1971, it can realistically plan to be the world's largest producer and marketer of car wash equipment, with sales targeted at five times the 1969 level.

This transformation was the result of three major programs conceived in the second half of 1969 and implemented in 1970.

The first program involved the introduction of new management personnel and better controls in the domestic company, and a more sophisticated approach to marketing that emphasizes sales to major oil companies, improved manufacturing quality and superior after sales service. Indications that the future of the car wash market will be shaped by the major oil companies (which are attracted to car wash because of its stimulus to gasoline sales) caused California Car Wash to focus its sales efforts on the major petroleum producers. A new direct-sales team was assembled and a national service team developed

This combined car wash and gasoline operation in Los Angeles is typical of the concept which Allen believes will lead to explosive developments in car wash equipment sales.

20

to design, install and service car wash facilities, and the distributor sales organization was reorganized to improve service capability. Results for 1970 show a four-fold increase in domestic sales to oil companies and an increase in operating efficiency in a business that is now close to the break-even point.

The second key program was the acquisition of A. Rohe GmbH, one of the leading manufacturers of car wash equipment in Western Europe. A licensee of California Car Wash, the Rohe organization had surpassed its "parent" concern in every dimension — manufacturing capability, technology and marketing know-how, and in a period of five years grew to more than three times the size of the U.S. operation.

The third program, still in progress, is to build on our position of prominence in the international car wash equipment industry. The Company has acquired or is negotiating for majority interests in our Canadian distributor and in Rohe distributors in France, England, Australia and South Africa.

The close association of car wash services with gasoline retailing is much further advanced in international markets than it is in the United States, where car washing developed as an independent industry in which the vast majority of car wash operators do not sell gasoline. Of approximately 18,000 car wash installations in the United States, the Company estimates that fewer than 25 per cent sell gas-

oline and that many of the other installations use outdated equipment that is not competitive with the more advanced systems on the market today. Although there are more than 220,000 gas stations in the United States, the penetration of the gasoline station market by car wash equipment approximates two per cent.

In striking contrast, Western Europe, with approximately 145,000 gas stations, has more than 14,000 car wash facilities, most of which have been installed in the last five years and are closely connected with gasoline retailing. In Europe the penetration of the gasoline station market is between 8 and 10 per cent. The greatest degree of penetration has been achieved in Japan, where more than 25 per cent of the 35,000 gas stations have automatic car-wash facilities.

Allen estimates that world-wide sales of automatic car wash equipment were $100 to $125 million in 1970, and that the market has grown at the annual rate of 25 per cent in recent years. This market includes only car wash equipment, exclusive of waxes and detergents, and does not include the actual washing of the car which was a $1.3 billion business in the United States alone in 1970. The United States is the largest equipment market with an estimated annual volume of approximately $60-65 million; Western Europe is second with $25-30 million; the Far East, primarily Japan, accounts for $10-15 million;

and all other areas about $10 million.

The industry world-wide includes a large number of marginal manufacturers and a few companies now emerging as sophisticated producers. The leading manufacturers, including Allen's Rohe subsidiary, had growth rates exceeding 35 per cent annually in the past four years.

Because of the more aggressive activity of the major oil companies in markets outside of the United States, the international market has grown more rapidly than in the United States. It is in the international market that Allen is strongest and the Company expects the major portion of its growth to take place there during the next few years. On the other hand, there are indications that the domestic oil companies may move more aggressively in car wash services as an adjunct to their gasoline marketing programs. Allen now has car wash equipment test programs with a number of the major oil companies and is confident that the growth potential of the U.S. market will be realized in this decade.

The significant world-wide position which Allen has already achieved substantiates management's belief that the Company will be one of the manufacturers who will account for the major share of this growing industry.

All California Car Wash systems throughout the world are designed for maximum cleaning efficiency.

Allen's car wash equipment manufacturing (■), sales companies (▲), and licensees (●) are strategically located throughout the world.

21

HEAT TRANSFER GROUP

Late in 1969 Allen began to convert its marginal position in the replacement radiator business to one of national prominence. It first reached an agreement to acquire the G&O Manufacturing Company of New Haven, Connecticut, a 50-year-old company with an excellent reputation throughout the industry and a distribution network covering a large part of the United States. Shortly thereafter, it acquired Strangi Manufacturing Company of Dallas, Texas. This company, marketing under the Mangum name and under the resourceful leadership of Albert Strangi, was a strong competitor in the southeastern and southwestern regions of the United States and had a consistent record of increased sales and profits in recent years.

The addition of these two companies to Allen's own Eureka Radiator Division made the Company a leading factor in the aftermarket radiator business.

Basic market studies reveal that the replacement radiator market consists of many small geographically fragmented manufacturers supplying numerous smaller local radiator repair shops. Extreme importance is placed on fast service and shipment so that customer vehicle and equipment down-time can be minimized. In many cases the required radiator is of an unusual size, necessitating custom manufacture of the radiator core termed "a special" by the industry.

This need for the ability to produce "one-at-a-time" radiators on short notice, the high cost of carrying large inventories, and the need for fast delivery have resulted in the industry being composed of many small manufacturers.

Allen believes that by combining its three heat transfer companies and adding the necessary financial and management resources, the Company can achieve leadership in this particular industry, expand its business to that of national scope and, by keeping in the forefront of product engineering and production, establish its product as the engineering standard of the replacement radiator market.

Under the direction of Geoffrey Etherington, Group Vice President, the Company has nearly attained

national distribution with plants in Illinois, Connecticut, Mississippi, Texas and Georgia. Additional warehouses and key distributors located in most of the other areas of the United States augment this large manufacturing capability in providing widespread service.

An overall marketing plan for the radiator group was developed during 1970 so as to achieve national distribution in 1971. Because of the number of manufacturing points now represented by the group, the number of additional plants needed to reach full national distribution is not large. Moreover, the better service provided by many plants has enabled Allen to increase its market penetration.

During 1970 considerable success was achieved in the consolidation and combination of the engineering, purchasing, marketing and finance functions of the three companies. Allen strengthened its Mangum and Eureka operations with the engineering capabilities of G & O.

This engineering talent had developed a computer-operated wind tunnel facility in New Haven, a significant step in increasing research efficiency. Various heat transfer specifications of the Group's products are programmed on the computer so that the tedious hours of radiator design can now be accomplished in a matter of minutes. Thus Allen is able to standardize radiator design for use in various applications, maximizing efficiency and lowering cost.

Allen also found that considerable savings for the three companies were achieved in the purchasing area by applying to the other two companies the more sophisticated purchasing techniques that G & O had developed as an OEM source. Allen supplies OEM customers with radiators for large heavy-duty trucks, locomotives and stationary engines, as well as some specialty heat exchangers. Allen's OEM customers require large radiators or unusual cooling capabilities and demand a supplier strong in engineering and production technology. Because of its wide distribution, extensive engineering and research capabilities, improved purchasing and the number of production plants, Allen will be able to give the customer better radiators and better service at competitive prices. In the years to come, Allen expects its radiator business to grow at a greater rate than the market's.

*The Company is preparing a study on its commitment to the heat transfer industry which will be available later in 1971.*

The market for the heat transfer group spans all vehicles on the road today.

Sophisticated technology and engineering enable Allen's heat transfer operations to maximize efficiency through lower costs.

National distribution in areas of maximum population and vehicular concentration.

22

ORION INDUSTRIES, INC.

Unlike Allen's automatic car wash and heat transfer groups which moved from marginal positions in 1969 to major portions of Allen's business in 1970, the automotive accessories group has experienced sustained growth over a longer period. In 1968 and 1969 the automotive accessories business contributed the major portion of Allen's profits.

In December 1968, the majority of Allen's operations in this market were consolidated into a single subsidiary, Orion Industries, Inc., under the direction of Philip W. Colburn, President of Orion since its inception. In October 1969, Allen arranged a secondary public offering of a portion of Allen's shares in Orion to increase public recognition and knowledge of this important segment of Allen's operations. Allen continues to own 81 per cent of Orion's outstanding stock.

Orion markets one of the broadest lines of automobile accessories and is considered a leader in the industry. Its line includes customizing products and paints, consumer convenience items not normally found as original equipment, do-it-yourself repair and replacement tools, replacement lights and mirrors, automotive test instruments and gauges and tachometers. These Orion products are distributed through major automotive distributors and jobbers, mass merchandisers and other consumer outlets.

Orion believes that there are several basic keys to success in this particular market. New product development and new product introduction has been the major source of Orion's growth. Products are not developed by chance, but are the result of careful market analysis of customer demands as well as internal development programs to pinpoint trends in the automotive aftermarket accessory field, followed by a period of market testing.

A second key element in Orion's success is its ability to attractively package and merchandise its products. The pace at which products move off retail store shelves depends largely on the manufacturer's

ability to communicate directly to the ultimate consumer through packaging, displays, literature and other techniques.

In 1970, significant changes took place in Orion. Allen sold the lamp and mirror division of its Pathfinder Company to Orion, because of the similarity of distribution and marketing between the Pathfinder and Orion products. Orion also broadened its product line by acquiring Rovtar Tool and Die Manufacturing Co., a 20-year-old, Chicago-based company manufacturing and marketing small wrenches and other items in the same marketing channels as Orion. Rovtar's product line has now been completely integrated with the products of Matco, Inc., one of Orion's subsidiaries.

Growth in Orion's market may be attributed to such factors as the interest of many young adults in enhancing the performance, appearance and convenience features of their automobiles, the increase in the number of do-it-yourself mechanics and the continued success of imported car sales and the rise in sales of U.S. compact cars. Most of these small cars offer few options to the buyer and Orion has now designed custom products to fill this need. Even when buying an inexpensive auto, the average American has a strong impulse to individualize his car.

Orion has a potential for increased profits due to turn-around situations in two of its divisions. Although significant progress was made in 1970 in solving the operating problems in these divisions and some signs of improvement were noted last year, the results of the operational changes made in 1970 are expected to be more impressive in 1971. The increased emphasis on planning and control will better enable Orion to monitor progress at the two loss divisions and allow management to respond quickly to problems that may arise in other divisions.

As about 18 per cent of Orion Industries is publicly owned, Orion publishes its own *Annual Report*, which is available upon request.

Orion markets one of the broadest lines of automobile accessories in the country including consumer convenience items and do-it-yourself repair tools.

Packaging is a major factor in Orion's ability to assure retailers rapid turnover.

23

CROWN GROUP

Allen's Crown Group operates in four major product areas:

☐ Fabrication and assembly of custom-built metal cabs for new heavy-duty trucks and construction equipment

☐ Design and manufacture of van interiors and special utility truck bodies for both original and replacement sales

☐ Manufacture of fiber glass cabs and cab components for heavy-duty trucks

☐ Fabrication of custom sheet metal products

Last year was a period of consolidation and change at Crown, headed by Group Vice President Paul D. Gilliland. A strong management team was formed which improved the Group's operations and increased its profitability. Services such as accounting, engineering, purchasing and marketing were centralized. To aid these functions, standard cost and computer systems were installed.

Despite a generally depressed market aggravated by the General Motors' strike, sales of the Crown Group increased and profits almost doubled. Receivables and inventory levels were reduced dramatically and, as a result, return on

assets employed in the business improved from 2.8 to 6.2 per cent, despite increased capital expenditures.

Allen's Crown Group has long been recognized as one of the largest independent manufacturers of completely assembled custom-built truck cabs for the OEM market. Manufacturing plants are located in Ohio and Ontario, Canada with the capability of working in steel, aluminum and fiber glass.

Of approximately 240,000 heavy-duty truck cabs estimated by industry sources to have been manufactured in 1970, 20 per cent or about 50,000 cabs were custom-built and nearly one third of these were built by Crown. The share of heavy-duty truck cabs were built by the custom cab manufacturers is expected to increase to an estimated 35 per cent by 1985 with the growing demand for short-haul specialized trucks. Crown intends to remain a leader in this anticipated $250 million custom-built cab market.

Coupled with this trend toward custom-built cabs are industry predictions that truck sales of all types will increase to $3.2 billion by 1980, with heavy-duty trucks accounting

for the fastest growing segment of this market. According to industry sources, the sale of heavy-duty trucks is expected to increase from 240,000 units in 1970 to 680,000 units by 1980, providing the basis for Crown's goal of a growth rate in excess of 12 to 15 per cent a year.

In addition to heavy-duty truck cabs, Crown presently supplies over 50 per cent of the six-man crew cabs to the OEM market. Crown also builds cabs for "off highway equipment" and this industry is rapidly moving to design and build equipment that is easier, safer and more comfortable to operate with air conditioning, cab pressurization and air filtration systems. Federal agencies are establishing safety standards for off-highway cabs which include such items as seat-belts and rollbars. All these changes will mean additional business for manufacturers such as Crown.

Construction equipment represents the largest portion of this "off highway" market. During the past decade, construction equipment sales doubled and in 1970 construction equipment manufacturers had their biggest year in history with more than $4 billion in sales. In addition, farm equipment such as large trac-

Crown's facilities encompass 740,000 square feet, and are located in Ohio, Michigan and Canada.

Last year 36,000,000 pounds of steel were used in Crown's production of custom built metal cabs & van interiors.

24

tors, self-propelled combines and self-propelled corn pickers require an estimated 15,000 cabs annually. Crown anticipates a total market for off-highway, custom-built cabs of $20-25 million by 1975 and in 1971 will seek to develop this market through national OEM presentations.

Crown is a leading supplier of van interior equipment for both the OEM and aftermarkets. It supplies large service fleets such as Sears, Montgomery Ward and RCA. Crown also furnishes van interior materials to communication companies such as Western Electric and Automatic Electric. The aftermarket segment offers the best potential for growth and the company has been able to substantially increase its sales in this market in each of the last few years.

Industry sources indicate that the van interior market will increase by an estimated 15-20 per cent annually over the next few years. This market is constantly growing as fleets and individuals seek new ways to solve their storage and service problems, as well as to find more efficient and economical interior combinations which will al-

low their workers to perform more effectively.

Another major growth area for Crown is the manufacture of fiber glass for use in truck cab construction. The use of fiber glass formed parts allows for consolidation of numerous smaller parts into a single unit, providing fewer joints and permitting easier and cheaper assembly plus uninterrupted body lines, and its lighter weight affords numerous cost savings. These features should result in a greater use of fiber glass in cab construction.

The Company is preparing a study on its commitment to the truck cab and van industry which will be available later in 1971.

The use of fiber glass in truck cab construction is a major growth area for Crown.

An important part of Crown's business is the customizing of fleet trucks with tailor-made interiors.

Fleets of utility trucks are shown here at Crown's facility in Lorain, Ohio, where they are undergoing custom fitting.

25

ALLEN'S TEST, SERVICE CONTROL & COMMUNICATIONS GROUP

More than a half-century ago, Allen pioneered the de-
velopment of automotive test and service equipment.
Today Allen markets some of the best-known lines of
test and service equipment for automobiles and trucks.
These products include engine analyzers, compression
testers, vacuum and fuel pump testers and chargers and
other diagnostic equipment for internal combustion en-
gines and electrical systems. The equipment ranges from
hand-held instruments costing less than $100 to com-
plete test stands with oscilloscope displays costing $4,-
000 and more.

In 1970 Allen developed a program for broadening its
test product line. A carbon monoxide-hydrocarbon
(CO-HC) exhaust analyzer, which is being introduced
to the trade in early 1971, analyzes engine performance
by accurately measuring auto exhaust emissions. Man-
agement anticipates that, as state and federal regulations
controlling exhaust emissions become effective, Allen's
CO-HC analyzer also will be able to satisfy government
requirements for an accurate, reliable measuring device.
A low cost dynamometer will be added later in 1971.

Allen's automotive diagnostic markets include service
stations, auto service centers with repair and test facili-
ties and vehicle fleets. Allen markets through automo-
tive wholesalers, warehouse distributors and directly to
national accounts.

Present strategy calls for continued broadening of the
test product line through 1971 with the ultimate ob-
jective of marketing a complete package for "in-bay"
testing as a means of generating profits for the service
station operator.

Although diagnostic products operations remained un-
profitable in 1970, operating losses were substantially
reduced compared with 1969.

For the original equipment market, Allen's Wilson
Engineering division designs and manufactures highly
sophisticated systems for production line testing and
assembly of mass produced products. Despite its strong
automotive orientation, where industry conditions were
very unfavorable, Wilson's capable management and
strong technological position resulted in an 18 per cent
rise in 1970 profits on a 13 per cent sales increase.

In the auto tire service area, Allen manufactures tire re-
pair equipment and materials and holds a leading posi-
tion in the Canadian market for such products. It also
exports to more than 40 countries.

Allen also manufactures timing and control devices us-
ing proprietary circuits developed by Tempo Instru-
ments.

Allen participates in the communications market
through its Antenna Specialists Division, which manu-
factures and markets communications antennas and ac-
cessories. The Company supplies a majority of the an-
tennas used in citizen's band radios and is among the
leaders in furnishing antennas to other mobile commu-
nications markets. A significant development in 1970
was entry into the marine antenna product market with
a corrosion-proof fiberglass antenna, made possible by
the development of an in-house fiberglass capability.

Allen's Wilson Engineering Division manufactures com-
plex test systems for in-line quality control checks by
major automotive producers.

The complexities of automotive engine performance
have created an increased demand for sophisticated
diagnostic equipment of which Allen is a leader.

Allen manufactures tire repair equipment through its
Canadian company, National Rubber.

Law enforcement agencies are only one of the many
mobile communications markets of Antenna Specialists.

26

For the Years Ended December 31, 1970 and 1969 (Amounts in Thousands)

<table><thead><tr><th></th><th colspan="2">1970</th><th colspan="2">1969<br>As Restated (Note 1)</th></tr><tr><th></th><th>Amount</th><th>Per Share*</th><th>Amount</th><th>Per Share*</th></tr></thead><tbody><tr><td>Net sales</td><td>$114,339</td><td></td><td>$117,955</td><td></td></tr><tr><td>Cost of sales (Note 10)</td><td>83,516</td><td></td><td>86,798</td><td></td></tr><tr><td>Gross profit</td><td>30,823</td><td></td><td>31,157</td><td></td></tr><tr><td>Operating expenses (Note 10)</td><td>22,200</td><td></td><td>24,393</td><td></td></tr><tr><td>Income from operations</td><td>8,623</td><td></td><td>6,764</td><td></td></tr><tr><td>Other deductions, principally interest-net</td><td>1,217</td><td></td><td>1,637</td><td></td></tr><tr><td></td><td>7,406</td><td></td><td>5,127</td><td></td></tr><tr><td>Provision for taxes on income:</td><td></td><td></td><td></td><td></td></tr><tr><td>Currently payable (Note 10)</td><td>3,261</td><td></td><td>2,732</td><td></td></tr><tr><td>Deferred</td><td>531</td><td></td><td>—</td><td></td></tr><tr><td></td><td>3,792</td><td></td><td>2,732</td><td></td></tr><tr><td>Income before charges below</td><td>3,614</td><td>$1.26</td><td>2,395</td><td>$ .87</td></tr><tr><td>Minority interest</td><td>(279)</td><td>(.09)</td><td>(55)</td><td>(.02)</td></tr><tr><td>Income before extraordinary items and cumulative<br>effect of 1969 accounting principle change</td><td>3,335</td><td>1.17</td><td>2,340</td><td>.85</td></tr><tr><td>Extraordinary items-net (Note 10)</td><td>(256)</td><td>(.09)</td><td>(215)</td><td>(.08)</td></tr><tr><td>Cumulative effect on prior years of retroactive application<br>of 1969 accounting principle change (Note 11)</td><td>—</td><td>—</td><td>(2,595)</td><td>(.94)</td></tr><tr><td>Net Income (Loss)</td><td>$ 3,079</td><td>$1.08</td><td>$ (470)</td><td>$ (.17)</td></tr><tr><td colspan="5">Pro Forma amounts, assuming retroactive application<br>of 1969 accounting principle change:</td></tr><tr><td>Income before extraordinary items</td><td>$ 3,335</td><td>$1.17</td><td>$ 2,340</td><td>$ .85</td></tr><tr><td>Net Income</td><td>$ 3,079</td><td>$1.08</td><td>$ 2,125</td><td>$ .77</td></tr></tbody></table>

Depreciation (straight-line method) amounted to
$1,971,000 in 1970 and $2,088,000 in 1969.

*See Note 12.

See accompanying notes.

29

# Consolidated Balance Sheets

## Assets

<table><thead><tr><th></th><th>1970</th><th>1969<br>As Restated<br>(Note 1)</th></tr></thead><tbody><tr><td colspan="3"><strong>CURRENT ASSETS:</strong></td></tr><tr><td>Cash and short-term investments (Note 2)</td><td>$ 7,396</td><td>$ 7,411</td></tr><tr><td>Accounts receivable, less allowance for doubtful accounts—1970, $574,000; 1969, $581,000</td><td>17,047</td><td>18,659</td></tr><tr><td>Inventories, at lower of cost (principally first-in, first-out) or market</td><td>24,870</td><td>25,852</td></tr><tr><td>Prepaid expenses</td><td>568</td><td>737</td></tr><tr><td><strong>Total current assets</strong></td><td><strong>49,881</strong></td><td><strong>52,659</strong></td></tr><tr><td colspan="3"><strong>PROPERTY, PLANT AND EQUIPMENT, at cost:</strong></td></tr><tr><td>Land and land improvements</td><td>1,812</td><td>1,931</td></tr><tr><td>Buildings</td><td>7,065</td><td>6,897</td></tr><tr><td>Machinery and equipment</td><td>16,405</td><td>17,083</td></tr><tr><td>Leasehold improvements</td><td>980</td><td>1,193</td></tr><tr><td></td><td>26,262</td><td>27,104</td></tr><tr><td>Less accumulated depreciation and amortization</td><td>8,059</td><td>9,168</td></tr><tr><td></td><td>18,203</td><td>17,936</td></tr><tr><td><strong>EXCESS OF PURCHASE PRICE over carrying value of assets acquired</strong></td><td><strong>9,984</strong></td><td><strong>6,739</strong></td></tr><tr><td><strong>OTHER ASSETS (Note 3)</strong></td><td><strong>2,730</strong></td><td><strong>1,522</strong></td></tr><tr><td><strong>DEFERRED CHARGES (Note 3)</strong></td><td><strong>2,092</strong></td><td><strong>3,086</strong></td></tr><tr><td></td><td><strong>$82,890</strong></td><td><strong>$81,942</strong></td></tr></tbody></table>

See accompanying notes.

30

## Liabilities and Shareholders' Equity

<table><thead><tr><th></th><th>1970</th><th>1969<br>As Restated<br>(Note 1)</th></tr></thead><tbody><tr><td colspan="3"><strong>CURRENT LIABILITIES:</strong></td></tr><tr><td>Notes payable, including current maturities of long-term debt (Note 4)</td><td>$ 4,101</td><td>$ 2,505</td></tr><tr><td>Accounts payable and accrued liabilities</td><td>14,269</td><td>16,350</td></tr><tr><td>Income taxes</td><td>1,209</td><td>534</td></tr><tr><td>Total current liabilities</td><td>19,579</td><td>19,389</td></tr><tr><td><strong>DEFERRED FEDERAL INCOME TAXES</strong></td><td>155</td><td>494</td></tr><tr><td><strong>LONG-TERM DEBT</strong> (exclusive of convertible subordinated debentures),<br>less current maturities (Note 4)</td><td>17,339</td><td>16,338</td></tr><tr><td><strong>MINORITY INTEREST</strong></td><td>1,847</td><td>2,284</td></tr><tr><td><strong>CONVERTIBLE SUBORDINATED DEBENTURES</strong> (Note 4)</td><td>4,444</td><td>4,444</td></tr><tr><td colspan="3"><strong>SHAREHOLDERS' EQUITY:</strong></td></tr><tr><td>Preferred stock, no par value; authorized 3,000,000 shares; issued and<br>outstanding, 213,229 shares (Notes 5 and 8)</td><td>135</td><td>135</td></tr><tr><td>Common stock, par value $1; authorized 10,000,000 shares; issued and<br>outstanding-1970, 2,558,840 shares; 1969, 2,418,505 shares<br>(Notes 6, 7 and 8)</td><td>2,559</td><td>2,419</td></tr><tr><td>Additional paid-in capital (Note 6)</td><td>22,606</td><td>22,184</td></tr><tr><td>Retained earnings (Note 4)</td><td>16,250</td><td>14,255</td></tr><tr><td></td><td>41,550</td><td>38,993</td></tr><tr><td>Less treasury stock—common (156,285 shares), at cost</td><td>2,024</td><td>—</td></tr><tr><td></td><td>39,526</td><td>38,993</td></tr><tr><td></td><td><strong>$82,890</strong></td><td><strong>$81,942</strong></td></tr></tbody></table>

31

<table><thead><tr><th></th><th style="text-align: right;">1970</th><th style="text-align: right;">1969<br>As Restated<br>(Note 1)</th></tr></thead><tbody><tr><td>CASH AND SHORT-TERM INVESTMENTS-Beginning of Year</td><td style="text-align: right;">$ 7,411</td><td style="text-align: right;">$ 4,624</td></tr><tr><td colspan="3">FUNDS WERE PROVIDED FROM</td></tr><tr><td>OPERATIONS:</td><td></td><td></td></tr><tr><td style="padding-left: 20px;">Net Income (Loss)</td><td style="text-align: right;">3,079</td><td style="text-align: right;">(470)</td></tr><tr><td style="padding-left: 20px;">Depreciation and amortization</td><td style="text-align: right;">2,090</td><td style="text-align: right;">2,173</td></tr><tr><td style="padding-left: 20px;">Write-off of deferred research and development expense-net</td><td style="text-align: right;">-</td><td style="text-align: right;">2,595</td></tr><tr><td style="padding-left: 20px;">Deferred income taxes</td><td style="text-align: right;">531</td><td style="text-align: right;">-</td></tr><tr><td></td><td style="text-align: right; border-top: 1px solid black;">5,700</td><td style="text-align: right; border-top: 1px solid black;">4,298</td></tr><tr><td>LONG-TERM FINANCING</td><td style="text-align: right;">4,018</td><td style="text-align: right;">13,697</td></tr><tr><td>WORKING CAPITAL CHANGES:</td><td></td><td></td></tr><tr><td style="padding-left: 20px;">Decrease in other current assets (principally accounts receivable)</td><td style="text-align: right;">2,763</td><td style="text-align: right;">-</td></tr><tr><td style="padding-left: 20px;">Increase in short-term loans and current maturities of long-term debt</td><td style="text-align: right;">1,596</td><td style="text-align: right;">697</td></tr><tr><td style="padding-left: 20px;">Increase in income taxes payable</td><td style="text-align: right;">675</td><td style="text-align: right;">-</td></tr><tr><td style="padding-left: 20px;">Increase in accounts payable and accrued liabilities</td><td style="text-align: right;">-</td><td style="text-align: right;">6,762</td></tr><tr><td></td><td style="text-align: right; border-top: 1px solid black;">5,034</td><td style="text-align: right; border-top: 1px solid black;">7,459</td></tr><tr><td>OTHER SOURCES:</td><td></td><td></td></tr><tr><td style="padding-left: 20px;">Sale of common stock and common stock purchase warrants</td><td style="text-align: right;">-</td><td style="text-align: right;">1,487</td></tr><tr><td style="padding-left: 20px;">Increase in minority interest</td><td style="text-align: right;">-</td><td style="text-align: right;">2,284</td></tr><tr><td></td><td style="text-align: right; border-top: 1px solid black;">-</td><td style="text-align: right; border-top: 1px solid black;">3,771</td></tr><tr><td></td><td style="text-align: right; border-top: 1px solid black; border-bottom: 1px solid black;">22,163</td><td style="text-align: right; border-top: 1px solid black; border-bottom: 1px solid black;">33,849</td></tr><tr><td colspan="3">FUNDS WERE APPLIED TO</td></tr><tr><td>PROPERTY, PLANT AND EQUIPMENT:</td><td></td><td></td></tr><tr><td style="padding-left: 20px;">Capital expenditures</td><td style="text-align: right;">5,802</td><td style="text-align: right;">6,418</td></tr><tr><td style="padding-left: 20px;">Less: divestments</td><td style="text-align: right;">(3,564)</td><td style="text-align: right;">(724)</td></tr><tr><td></td><td style="text-align: right; border-top: 1px solid black;">2,238</td><td style="text-align: right; border-top: 1px solid black;">5,694</td></tr><tr><td>LONG-TERM DEBT REPAYMENTS OR REFINANCINGS</td><td style="text-align: right;">3,017</td><td style="text-align: right;">11,688</td></tr><tr><td>WORKING CAPITAL CHANGES:</td><td></td><td></td></tr><tr><td style="padding-left: 20px;">Increase in other current assets (principally inventories)</td><td style="text-align: right;">-</td><td style="text-align: right;">6,939</td></tr><tr><td style="padding-left: 20px;">Decrease in income taxes</td><td style="text-align: right;">-</td><td style="text-align: right;">1,007</td></tr><tr><td style="padding-left: 20px;">Decrease in accounts payable and accrued liabilities</td><td style="text-align: right;">2,081</td><td style="text-align: right;">-</td></tr><tr><td></td><td style="text-align: right; border-top: 1px solid black;">2,081</td><td style="text-align: right; border-top: 1px solid black;">7,946</td></tr><tr><td>OTHER APPLICATIONS:</td><td></td><td></td></tr><tr><td style="padding-left: 20px;">Decrease in minority interest</td><td style="text-align: right;">437</td><td style="text-align: right;">-</td></tr><tr><td style="padding-left: 20px;">Increase in excess of purchase price over carrying value of net assets</td><td style="text-align: right;">3,245</td><td style="text-align: right;">-</td></tr><tr><td style="padding-left: 20px;">Acquisition of treasury shares</td><td style="text-align: right;">2,024</td><td style="text-align: right;">-</td></tr><tr><td style="padding-left: 20px;">Other, net</td><td style="text-align: right;">1,725</td><td style="text-align: right;">1,110</td></tr><tr><td></td><td style="text-align: right; border-top: 1px solid black;">7,431</td><td style="text-align: right; border-top: 1px solid black;">1,110</td></tr><tr><td></td><td style="text-align: right; border-top: 1px solid black; border-bottom: 1px solid black;">14,767</td><td style="text-align: right; border-top: 1px solid black; border-bottom: 1px solid black;">26,438</td></tr><tr><td>CASH AND SHORT-TERM INVESTMENTS-End of Year</td><td style="text-align: right; border-top: 1px solid black; border-bottom: 3px double black;">$ 7,396</td><td style="text-align: right; border-top: 1px solid black; border-bottom: 3px double black;">$ 7,411</td></tr></tbody></table>

See accompanying notes.

32

# Consolidated Statements of Retained Earnings

## For the Years Ended December 31, 1970 and 1969 (In Thousands)

<table><thead><tr><th></th><th>1970</th><th>1969</th></tr></thead><tbody><tr><td>Balance, beginning of year, as restated for poolings of interests (Note 1)</td><td>$ 14,255</td><td>$ 16,333</td></tr><tr><td>Adjustment due to inclusion of pooled companies for twelve month periods ended March 31, 1970 and 1969 (Note 1)</td><td>(70)</td><td>(121)</td></tr><tr><td>Net income (loss) for the year</td><td>3,079</td><td>(470)</td></tr><tr><td>3% common stock dividend</td><td>(843)</td><td>(1,487)</td></tr><tr><td>Cash dividend on Series A Preferred stock</td><td>(171)</td><td>—</td></tr><tr><td>Balance, end of year (Note 4)</td><td>$ 16,250</td><td>$ 14,255</td></tr></tbody></table>

See accompanying notes.

# Notes To Consolidated Financial Statements

## Note 1—Principles of Consolidation

The consolidated financial statements include the accounts of the Company and all subsidiaries. Foreign currencies have been translated at appropriate rates of exchange; amounts included (other than Canadian) are as follows:

<table><tbody><tr><td>Current Assets</td><td>$ 3,685,000</td></tr><tr><td>Current Liabilities</td><td>3,551,000</td></tr><tr><td>Net Assets</td><td>2,221,000</td></tr><tr><td>Net Sales</td><td>10,588,000</td></tr><tr><td>Net Income</td><td>590,000</td></tr></tbody></table>

Effective April 1, 1970, the Company acquired all the outstanding stock of A. Rohe GmbH, a German corporation, in exchange for cash and notes aggregating $4,000,000 and 100,000 shares of common stock of the Company (subject to issuance of additional shares of common stock, contingent upon future earnings of Rohe and common stock market price fluctuations). The transaction has been accounted for as a part purchase, part pooling of interests and, accordingly, the consolidated financial statements for 1970 and 1969 (restated) include the accounts of Rohe at December 31, 1970 and March 31, 1970 and for the respective 12 month periods then ended. Income of Rohe prior to April 1, 1970, applicable to the purchased portion, is excluded from results of operations.

## Note 2—Short-Term Investments

Short-term investments, at cost, which approximates market, amounted to $1,860,000 and $3,428,000 at December 31, 1970 and 1969, respectively.

## Note 3—Other Assets and Deferred Charges

At December 31, 1970, other assets and deferred charges consisted of the following:

<table><tbody><tr><td>Other Assets:</td><td></td></tr><tr><td>Installment notes receivable</td><td>$1,555,000</td></tr><tr><td>Miscellaneous assets</td><td>1,175,000</td></tr><tr><td></td><td>$2,730,000</td></tr></tbody></table>

<table><tbody><tr><td>Deferred Charges:</td><td></td></tr><tr><td>Debt discount and expense</td><td>$1,173,000</td></tr><tr><td>Discount applicable to sales of restricted stock</td><td>641,000</td></tr><tr><td>Other</td><td>278,000</td></tr><tr><td></td><td>$2,092,000</td></tr></tbody></table>

## Note 4—Long-Term Debt

At December 31, 1970, long-term debt consisted of the following:

<table><thead><tr><th></th><th>Current</th><th>Noncurrent</th></tr></thead><tbody><tr><td>6½% Senior Notes, due April 1, 1984</td><td>$ —</td><td>$12,000,000</td></tr><tr><td>Promissory Notes, due January 15, 1971 to 1973</td><td>1,000,000</td><td>2,000,000</td></tr><tr><td>6% Promissory Notes, due December 17, 1972</td><td>524,000</td><td>524,000</td></tr><tr><td>Promissory Notes, due April 1, 1974</td><td>188,000</td><td>625,000</td></tr><tr><td>Miscellaneous obligations</td><td>562,000</td><td>2,190,000</td></tr><tr><td></td><td>2,274,000</td><td>17,339,000</td></tr><tr><td>6% Convertible Subordinated Debentures, due July 1, 1987</td><td>—</td><td>4,444,000</td></tr><tr><td></td><td>$2,274,000</td><td>$21,783,000</td></tr></tbody></table>

The 6½% Senior Notes are payable in annual installments of $1,000,000 commencing April 1, 1973. The Company may prepay the notes, in whole or in part, at a premium.

The Promissory Notes due January 15, 1971 to 1973 were issued in the Rohe acquisition and are payable in equal annual installments of $1,000,000 (subject to exchange rate fluctuations). Interest is payable at the lower of the U.S. prime rate or 8%.

The Promissory Notes due April 1, 1974 bear interest at ¾% above the prime rate, and are due in quarterly installments of $63,000.

Miscellaneous obligations are payable in varying installments from 1971 to 1989 and bear interest at rates ranging from 5% to 9%; $357,000 of such obligations are non-interest bearing.

The 6% Convertible Subordinated Debentures are convertible into common stock of the Company at a price of $31.19 per share. The debentures are payable through annual sinking fund payments not to exceed $200,000 from July 1, 1972 through July 1, 1978 and $350,000 from July 1, 1979 through July 1, 1986, with the final payment due on July 1, 1987. Credits arising from conversions are available to offset such annual payments through 1978. The debentures may be redeemed at the Company's option, in whole or in part, at a declining premium through July 1, 1981 and thereafter at par.

33

Notes To Consolidated Financial Statements (Cont.)

Certain agreements relating to long-term debt contain, among other things, various restrictions on the activities of the Company as to amount and type of indebtedness, maintenance of working capital, acquisition or disposition of shares or assets of other companies and disposition of assets of the Company. The agreements also contain restrictions relating to the purchase or redemption of the Company's common stock and the payment of dividends, other than stock dividends. At December 31, 1970, $578,000 of retained earnings was free of such restrictions.

### Note 5—Preferred Stock

The Company is authorized to issue 3,000,000 shares of preferred stock without par value, in one or more series. Pursuant thereto, an initial series, consisting of 365,990 shares, designated as $1.00 Cumulative Convertible Preferred Stock, Series A, was created in 1969. The Series A stock is convertible into common stock of the Company at the rate of 1.168 shares of common for each share of preferred. The shares have a liquidation preference of $25 per share and may be redeemed at the option of the Company after December 31, 1974, in whole or in part, at a redemption price of $25 per share.

### Note 6—Common Stock and Additional Paid-In Capital

Changes in common stock and additional paid-in capital during 1970 were as follows:

<table><thead><tr><th rowspan="2"></th><th colspan="2">Common Stock</th><th>Additional Paid-In Capital</th></tr><tr><th>Number of Shares</th><th>Amount</th><th>Amount</th></tr></thead><tbody><tr><td>Balance, December 31, 1969, as restated (Note 1)</td><td>2,418,505</td><td>$2,418,505</td><td>$22,184,000</td></tr><tr><td>3% stock dividend</td><td>70,975</td><td>70,975</td><td>763,000</td></tr><tr><td>Additional shares under acquisition agreements</td><td>69,231</td><td>69,231</td><td>(69,000)</td></tr><tr><td>Expenses in connection with pooled acquisitions</td><td>—</td><td>—</td><td>(147,000)</td></tr><tr><td>Repurchase of restricted stock</td><td>—</td><td>—</td><td>(127,000)</td></tr><tr><td>Exercise of stock options</td><td>129</td><td>129</td><td>2,000</td></tr><tr><td>Balance, December 31, 1970</td><td>2,558,840</td><td>$2,558,840</td><td>$22,606,000</td></tr></tbody></table>

The 156,285 shares of treasury stock were acquired for cash and other assets.

### Note 7—Stock Options

At December 31, 1970, stock options granted under employees' stock option plans were outstanding for the purchase of 314,166 shares of common stock.

On December 4, 1970, the stockholders approved the 1970 Non-Qualified Stock Option Plan which did not increase the number of shares previously reserved for the granting of stock options. Certain employees have been granted both non-qualified and qualified options which are related in that the exercise of non-qualified options will void a pro-rata portion of qualified options held and vice versa. The 314,166 shares represent the maximum number of shares which may be purchased under options outstanding at December 31, 1970.

All non-qualified options granted to December 31, 1970 contain a provision which permits the Company, at its election upon receiving notice of exercise, to purchase the exercised options at a price equal to the difference between the option price and the fair market value of

the shares covered by the exercised option, in lieu of consummating the sale of shares covered by the notice of exercise.

Additionally, in connection with the non-qualified plan, the Company may extend credit (or arrange for the extension of credit) to each optionee who exercises an option, in an amount equal to the greater of the option price or 75% of the market value of the stock on the date of notice of exercise.

Stock option activity for 1970 is summarized as follows:

<table><thead><tr><th></th><th>Number of Shares</th><th>Option Price</th></tr></thead><tbody><tr><td>Outstanding, December 31, 1969</td><td>216,044</td><td>$12.58 to $58.80</td></tr><tr><td>Granted</td><td>260,107</td><td>12.26 to 24.03</td></tr><tr><td>Exercised</td><td>(129)</td><td>12.96</td></tr><tr><td>Terminated or cancelled</td><td>(161,856)</td><td>12.96 to 58.80</td></tr><tr><td>Outstanding, December 31, 1970, exercisable at various dates through 1980</td><td>314,166</td><td>12.26 to 41.53</td></tr></tbody></table>

At December 31, 1970, options to purchase 23,665 shares were exercisable, and 110,404 shares were reserved for the granting of future options. The number of shares and option prices have been adjusted, where applicable, for the 3% stock dividend in 1970.

### Note 8—Common Shares Reserved

At December 31, 1970, shares of common stock were reserved for the following:

<table><thead><tr><th></th><th>Number of Shares</th></tr></thead><tbody><tr><td>Contingent issuances under acquisition agreements</td><td>375,044</td></tr><tr><td>Stock purchase warrants:</td><td></td></tr><tr><td>$16.75 and $22.42 per share, expiring July 16, 1981</td><td>46,694</td></tr><tr><td>$30.82 per share, expiring April 1, 1980</td><td>165,741</td></tr><tr><td>Employee stock options</td><td>424,570</td></tr><tr><td>Conversion of 6% Convertible Subordinated Debentures</td><td>142,482</td></tr><tr><td>Conversion of Series A Preferred Stock (including contingent issuances)</td><td>427,484</td></tr><tr><td></td><td>1,582,015</td></tr></tbody></table>

Common shares to be issued under acquisition agreements, based upon 1970 earnings, are reflected in shares issued and outstanding at December 31, 1970. At December 31, 1970, 152,761 Series A Preferred shares were reserved for contingent issuance pursuant to an acquisition agreement with G&O Corp.

### Note 9—Commitments and Contingencies

The Company and its subsidiaries are obligated as lessees under various leases for operating and warehousing facilities and equipment. The rentals paid under such leases in 1970, which are not expected to change significantly during the next three years, amounted to $1,134,000, exclusive of payments for real estate taxes, insurance and maintenance.

Some products of the Company and of certain of its subsidiaries are sold by their respective distributors under deferred payment plans. The Company or the subsidiary, as the case may be, assumes unconditional liability to the financing source for payment in the event of default by both the customer and the distributor. At December 31, 1970, this contingent liability amounted to approximately $760,000. Losses, if any,

34

## Notes To Consolidated Financial Statements (Cont.)

under these agreements are not expected to be significant.

A subsidiary of the Company is contingently liable for notes receivable discounted aggregating approximately $1,078,000.

Certain litigation against the Company exists at December 31, 1970. In the opinion of counsel, the outcome of such litigation will not have any material adverse effect upon the Company's financial condition.

The Company has various pension plans covering certain employees. Total pension expense for 1970 was approximately $319,000, which includes current costs and, as to certain of the plans, amortization of past service costs over periods ranging from 20 to 40 years. The Company's policy is to fund pension costs accrued. The actuarially computed value of vested benefits for two plans of a subsidiary exceeded the value of the total of the pension funds by $460,000 at December 31, 1970.

On December 4, 1970, the stockholders of the Company authorized the Board of Directors to extend credit to employees, with annual salaries of $50,000 or more, to finance purchases of common stock of the Company on the open market. The amount of credit extended may not exceed 500% of the employee's annual salary.

### Note 10—Operational Change Write-Offs and Extraordinary Items

Operational change write-offs in 1969, previously shown separately in the 1969 consolidated statement of income, have been reclassified to cost of sales ($221,000) and operating expenses ($1,294,000), with applicable adjustment to the provision for taxes on income ($800,000). During 1970, $734,000 of additional costs associated with these operational change programs were identified; this amount was charged to cost of sales ($321,000) and operating expenses ($413,000) in the 1970 consolidated statement of income, with the tax benefit ($373,000) reflected in the tax provision.

Extraordinary items (net of income taxes) consist of the following:

<table><thead><tr><th></th><th>1970</th><th>1969</th></tr></thead><tbody><tr><td>Losses on sale or abandonment of operating units, plant facilities and product lines</td><td>$328,000</td><td>$2,802,000</td></tr><tr><td>Terminated employment contracts</td><td>182,000</td><td>290,000</td></tr><tr><td>Gain on sale of partial interest in subsidiary</td><td>-</td><td>(1,607,000)</td></tr><tr><td></td><td>510,000</td><td>1,485,000</td></tr><tr><td>Less income tax effect</td><td>254,000</td><td>1,270,000</td></tr><tr><td></td><td>$256,000</td><td>$ 215,000</td></tr></tbody></table>

### Note 11—Change in Accounting Principle

Prior to January 1, 1969, the Company had followed the practice of deferring research and development costs, amortizing such costs over varying periods based upon sales of related products. Effective January 1, 1969, the Company adopted the policy of expensing all research and development costs as incurred. In connection therewith, the unamortized balance of deferred research and development expense at December 31, 1968, $2,595,000 (net of deferred federal income taxes of $2,818,000) was charged to 1969 income.

### Note 12—Earnings per Share

Earnings per share of common stock are based upon the weighted average number of common shares outstanding during each year (adjusted for stock dividends) after giving retroactive effect to shares issued in connection with poolings of interests (including equivalent common shares of the outstanding shares of Series A Preferred stock). Additionally included are the number of shares issuable under acquisition agreements on the basis of 1970 earnings and the common stock equivalents of options and warrants (after adjustment for assumed use of proceeds based upon the treasury stock method). There was no dilution of 1970 or 1969 earnings per share under the full dilution calculation.

## Accountants' Report

To the Board of Directors
and Stockholders of
Allen Electric and Equipment Company:

We have examined the consolidated balance sheet of ALLEN ELECTRIC AND EQUIPMENT COMPANY as of December 31, 1970 and the related consolidated statements of income, retained earnings, and source and application of funds for the year then ended. Our examination was made in accordance with generally accepted auditing standards, and accordingly included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances. We previously examined and reported upon the 1969 consolidated financial statements which have been restated to reflect the acquisition described in Note 1.

In our opinion, the aforementioned financial statements present fairly the consolidated financial position of Allen Electric and Equipment Company at December 31, 1970 and 1969 and the consolidated results of operations and source and application of funds for the years then ended, in conformity with generally accepted accounting principles applied on a consistent basis.

Lybrand, Ross Bros. & Montgomery
New York, February 19, 1971.

35

# Financial Summary

Five Years Ended December 31, 1970 (Amounts in Thousands)

## AS ADJUSTED FOR POOLINGS OF INTERESTS

### Operating Results:

<table><tr><td>Net Sales</td><td>$114,339</td><td>$117,955</td><td>$105,134</td><td>$86,341</td><td>$58,387</td></tr><tr><td>Income before extraordinary items and cumulative effect of 1969 accounting principle change</td><td>3,335</td><td>2,340</td><td>4,472</td><td>3,708</td><td>2,146</td></tr><tr><td>Net Income (Loss)</td><td>3,079</td><td>(470)</td><td>4,472</td><td>3,708</td><td>2,205</td></tr></table>

### Per Share:

<table><tr><td>Income before extraordinary items and cumulative effect of 1969 accounting principle change</td><td>$1.17</td><td>$.85</td><td>$1.77*</td><td>$1.57*</td><td>$1.23*</td></tr><tr><td>Net Income (Loss)</td><td>1.08</td><td>(.17)</td><td>1.77*</td><td>1.57*</td><td>1.27*</td></tr></table>

## PRO FORMA AMOUNTS ASSUMING RETROACTIVE APPLICATION OF 1969 ACCOUNTING PRINCIPLE CHANGE:

### Operating Results:

<table><tr><td>Income before extraordinary items</td><td>$3,335</td><td>$2,340</td><td>$3,242</td><td>$2,727</td><td>$1,554</td></tr><tr><td>Net Income</td><td>3,079</td><td>2,125</td><td>3,242</td><td>2,727</td><td>1,613</td></tr></table>

### Per Share:

<table><tr><td>Income before extraordinary items</td><td>$1.17</td><td>$.85</td><td>$1.28*</td><td>$1.15*</td><td>$.89*</td></tr><tr><td>Net Income</td><td>1.08</td><td>.77</td><td>1.28*</td><td>1.15*</td><td>.92*</td></tr></table>

## SUPPLEMENTARY DATA PRESENTING OPERATIONS OF ACQUIRED COMPANIES FROM DATES OF ACQUISITION (ASSUMING RETROACTIVE APPLICATION OF 1969 ACCOUNTING PRINCIPLE CHANGE):

### Operating Results:

<table><tr><td>Net Sales</td><td>$112,093</td><td>$97,684</td><td>$72,760</td><td>$35,552</td><td>$21,552</td></tr><tr><td>Income (Loss) before extraordinary items</td><td>3,156</td><td>1,395</td><td>1,724</td><td>(89)</td><td>236</td></tr><tr><td>Net Income (Loss)</td><td>2,900</td><td>1,180</td><td>1,724</td><td>(89)</td><td>236</td></tr></table>

### Per Share:

<table><tr><td>Income (Loss) before extraordinary items</td><td>$1.10</td><td>$.63</td><td>$.96*</td><td>$(.13)*</td><td>$.27*</td></tr><tr><td>Net Income (Loss)</td><td>1.01</td><td>.53</td><td>.96*</td><td>(.13)*</td><td>.27*</td></tr></table>

### Year-End Financial Position:

<table><tr><td>Working Capital</td><td>$30,302</td><td>$32,839</td><td>$24,755</td><td>$17,289</td><td>$ 6,999</td></tr><tr><td>Shareholders' Equity</td><td>39,526</td><td>38,487</td><td>29,215</td><td>19,573</td><td>6,728</td></tr><tr><td>Return on Sales</td><td>2.8%</td><td>1.4%</td><td>2.4%</td><td>—</td><td>1.1%</td></tr><tr><td>Return on Total Assets**</td><td>3.9%</td><td>2.1%</td><td>3.7%</td><td>—</td><td>1.9%</td></tr><tr><td>Return on Shareholders' Equity**</td><td>8.1%</td><td>4.1%</td><td>7.1%</td><td>—</td><td>4.3%</td></tr></table>

*After deduction for preferred stock dividends.

**Average

36

KISSINGER, HENRY A.

REMARKS BY WALTER KISSINGER
ANNUAL MEETING OF STOCKHOLDERS

APRIL 20, 1971

I would like to welcome you to this annual meeting. It is a pleasure to see an increasing attendance at each successive meeting, which I take as one expression of an increasing interest in Allen Electric.

The traditional President's speech focuses upon the developments of the preceding year. After having gone through many drafts of an annual report, in which we communicated in some depth the events of last year, I don't believe that I can improve upon this reporting.

Some of you may know that I returned last week from a four-week trip around the world which took me to Japan, Hong Kong, Australia, South Africa and Europe. I thought that it might be interesting to share with you some of my impressions and to relate them to some of the primary objectives that we have identified in our annual report.

As you know, among the principal thrusts of Allen Electric at this time are—

1) the achievement of a position of leadership in the car wash equipment field and

2) a major position in international markets.

The purpose of my trip was to develop further insights and to take certain concrete steps which would further these objectives.

Our interest in car wash is prompted by our conviction that we are looking here at a great opportunity in a vital growth area at a time when international oil companies are making major commitments to this field in connection with the retailing of gasoline. Our growth has already been evidenced by moving from a relatively marginal position with sales of $3 million in 1969 to approximately $12 million in 1970. Our goal is to double these sales this year and to double them again by 1973.

Last year, we took our first important new step in this area by acquiring the Rohe group of companies in Germany. Recently we concluded, and we are announcing today, a second series of steps in our program of becoming a world leader in car wash equipment through the conclusion of agreements with four companies which provide Allen with majority interests in manufacturing operations in the United Kingdom, South Africa and Australia and in a distribution company in France. This represents the implementation of a program which was alluded to in our annual report. At the information desk at the back of the room you will find a chart showing our international car wash group and the locations of our various companies.

The four newly acquired car wash equipment companies are small enterprises, but we expect their total sales in 1971 to approach $10 million. More significantly, each occupies a pivotal position in a market of great potential for rapid growth. In each of these areas there is already strong interest on the part of the major oil companies which are our key customers.

In the course of my trip, we concluded two of the acquisitions we are announcing today. Of greater importance, though, I formed some first-hand impressions of the opportunities that exist for Allen in these international markets which I would like to share with you.

Japan is by far the largest market and one which is growing rapidly. Vehicle registrations have been increasing in Japan at the rate of 20-25% per year as compared with about 3% in the United States. The Japanese automotive industry in ten years has matured from an infant to a giant, second only to the United States. In this market, our licensee has been very successful and occupies a leadership position in the car wash equipment field. Consequently, the "California" name is well known in Japan. The Allen name in general is also established because of our engine diagnostic equipment and there is a very real opportunity for us in the automotive aftermarket for this type of equipment. While we do not as yet have an equity interest in any company in Japan, we are investigating several possibilities and it is not unlikely that at next year's annual meeting I will be able to report differently.

Australia, though a much smaller economy than Japan, is one which is also rapidly growing and which offers considerable potential. Australia has over 20,000 gasoline stations and less than 40 automotive car wash installations, of which more than half are California systems. By way of contrast, Japan, with 35,000 gasoline stations, has 10,000 car wash units.

The Rohe Company began the development of the Australian market two years ago with export of equipment from Germany, but the market has now reached a point where local manufacturing is desirable. The major oil companies are now displaying strong interest in car wash and we expect an explosive development in the market over the next two or three years.

South Africa is a considerably smaller market but again it is one which is growing rapidly and in which the California brand name, by virtue of Rohe California's export activities, is very well entrenched. The establishment of local manufacturing will stimulate the growth of this market and strengthen our position.

While our immediate focus in each of these markets will be on the development of our car wash business, the aggregate potential for Allen is considerably broader. The vehicle population in each of these countries is growing at a much more rapid rate than the United States and consequently the automotive aftermarket in general is expanding at a multiple of the U. S. rate. This creates a market opportunity for many of Allen's products including auto accessories and diagnostic and service equipment.

The establishment of permanent bases of operations through the car wash program provides us with an entree to the local distribution system for these other products as well as with the nucleus for manufacturing and assembly operations. The high degree of synergism involved in this multi-national approach enhances our growth opportunities. I believe that this will prove to be a program of increasing significance and importance to Allen over the next five years.

Having shared with you some of our more long-range planning, I think it is only appropriate that I come back to the question of how we are doing now. We are releasing today our preliminary first quarter figures, which indicate 15% earnings improvement from 26¢ to 30¢ per share compared to last year. This increase is in the face of a 4% decline in our sales volume and represents a 19% improvement in the return on sales to a level of 3.1%.

The decline in sales is the result of the divestment of two companies which took place in the latter part of 1970 but whose sales were included in the 1970 first quarter. It also reflects the

(LO)

generally depressed economic conditions existing in January and February. By far the most substantial improvement in earnings growth was contributed by our car wash equipment operations, which more than offset the slowness in the capital goods and OEM portion of our automotive operations.

As we move into the second quarter, we are enjoying continued improvement in the pace of operations. March was a strong month with sales over $10 million and April also appears to be strong. We foresee good earnings performance, both for the second quarter and for the balance of 1971. The first quarter is seasonally weak and we would normally expect it to provide less than 25% of the full year's business.

As an expression of the confidence which we feel, the Board of Directors, just prior to the convening of this meeting, met and declared a 4% stock dividend on our common stock payable on June 4, 1971, to shareholders of record on May 17, 1971.

As you know, Allen declared a 3% stock dividend in 1969 and again in 1970. While demands of our aggressive programs preclude the possibility of cash dividends for the time being, the improvement in the company's earnings and the outlook for the future warranted this larger dividend.

Finally, I believe shareholders will be pleased to know the New York Stock Exchange has agreed to accept our application for the listing of Allen common stock on the New York Stock Exchange. We are confident that the Exchange will act favorably on our application and that Allen's common stock will begin trading on the big board by early summer.

allen electric
and equipment
company

534 BROAD HOLLOW ROAD, MELVILLE, LONG ISLAND, NEW YORK 11746

TELEPHONE (516) 293-5500

news
release

ALLEN ELECTRIC AND EQUIPMENT COMPANY
HOLDS ANNUAL MEETING

- Estimates First Quarter Results

- Declares Stock Dividend

- Announces International Car Wash Expansion

- Seeks New York Stock Exchange Listing

MELVILLE, NEW YORK, APRIL 20, 1971. At the annual meeting of stockholders today, Walter B. Kissinger, President and Chief Executive Officer of Allen Electric and Equipment Company (AMEX) announced that Allen's income in the first quarter, on an estimated basis, exceeded last year's results by about 15%.

"While the figures are preliminary," he said, "we estimate that net income in the first three months of 1971 was $838,000 compared with $734,000 in the first quarter of 1970, on sales of $26.8 million versus $28.1 million a year ago. On a per share basis, income for the first quarter increased from 26¢ per share in 1970 to an estimated 30¢ per share in 1971."

In commenting on first quarter operations, Mr. Kissinger pointed out that the earnings gains were primarily attributable to a significant increase in Allen's car wash equipment operations and were achieved despite slowness in the company's truck cab and van business and in its Wilson Engineering Division which supplies automation and testing equipment primarily to automobile manufacturers.

-2-

Allen also announced to stockholders the conclusion of formal agreements for the acquisition of majority interest in car wash equipment companies in the United Kingdom and South Africa, having previously acquired majority interests in companies in Australia and France. In each instance, except that of the distributor in France, Allen has obtained an option to purchase the outstanding minority interests exercisable at a future date. All these subsidiaries, other than the French subsidiary, engage in both manufacturing and distribution operations.

Mr. Kissinger noted, "The present volume of these operations is not large but each is in a key position in a market with a large potential and has the opportunity to achieve a high growth rate over the next few years. Allen's combined car wash equipment sales, both domestic and foreign, including our U.S. and foreign operations, may well be in the $40-$50 million range by 1973."

Prior to the shareholders' meeting, the Board of Directors of Allen declared a 4% stock dividend on Allen's common stock payable on June 4, 1971 to stockholders of record on May 17, 1971. Allen paid 3% common stock dividends in 1969 and 1970. The Company indicated that its cash requirements for its aggressive growth programs precluded the payment of any cash dividends on common but that improved earnings warranted the payment of a larger stock dividend this year.

-3-

Allen also announced to shareholders that following discussions with the New York Stock Exchange, and with the Exchange's concurrence, Allen has decided to apply for listing of its common stock on the New York Exchange. Mr. Kissinger noted, "We expect that the Exchange will rule favorably on the application and that Allen's stock will be traded on the Big Board by early summer." Allen is currently listed on the American, Pacific Coast and Midwest Exchanges.

Commenting on the outlook for the balance of the year, Mr. Kissinger told shareholders that sales had accelerated rapidly during the latter part of the first quarter and that signs of improvement were being observed in the company's truck cab and OEM production test equipment. "We anticipate a strong second quarter", he said, "and the outlook for the balance of the year is good".

Allen is a diversified manufacturer of products for the automotive aftermarket including automotive test and service equipment, car wash equipment, replacement radiators and auto accessories, as well as of custom truck cabs, van interiors and production test equipment for original equipment automotive manufacturers.

KISSINGER, HENRY A. /KX

@

JL

# President's Letter

December 4, 1973

Dear Allen Stockholder:

It is a great pleasure to announce that the Board of Directors today declared a $.10 per share cash dividend on your common stock, payable December 31, 1973 to stockholders of record December 14, 1973. This change in policy from annual stock to quarterly cash dividends is a reflection of the Company's continuing progress and its sound financial position.

In recent weeks, common stock values of most U. S. corporations, including Allen, have declined sharply as a result of investor uncertainty concerning the "energy crisis" and economic levels of activity. It is ironic that, at a time when Allen's progress in business terms has never been so good, the market value of our stock has reached its lowest level in years.

While the energy shortage is a serious matter and may have some effect on certain of Allen's operations, we believe that the strong improvement in earnings that has become evident as this year unfolded will continue into 1974. We anticipate an uninterrupted earnings growth record of approximately 20% compounded for the five-year period ending 1973.

I know of no more tangible way to express our confidence in Allen's solid position and excellent growth prospects than to have begun the payment of cash dividends.

Sincerely,

Walter B. Kissinger

WBK: k

RECEIVED

JAN 2 1974

CENTRAL FILES

X

The Allen Group Inc. 534 Broad Hollow Road, Melville, Long Island, New York 11746/Telephone 516 293-5500

The Harvard

VOL. CXXXXIX, NO. 63

CAMBRIDGE, MASS., TUESDAY, APRIL 29, 1969

# FACULTY PLAYS POLITICS

By DAVID BLUMENTHAL

Of the many surprises of the last 19 days, none has been more unexpected than the Faculty's spectacular display of unity under the pressure of events.

In five crucial votes over the course of two weeks—on the original resolution establishing the new Faculty Committee, on election procedures for the Committee of 15, on the Wilson Report, on ROTC, on Black Studies—the Faculty spoke four times with a nearly unanimous voice.

Only in its consideration of the Afro proposal did the Faculty split, and even then, it made its decision by a margin of nearly 100 votes.

But the Faculty's unanimity was not all it appeared to be. Behind tranquil debates in the plushly upholstered Loeb Drama Center lay strongly held political differences and hectic Faculty efforts at reconciling groups which did not agree on how to respond to the crisis.

Two groups in particular posed the greatest threat to Faculty cooperation, but at the same time worked hardest to prevent a disastrous splintering of the Faculty. Widely termed the conservative and liberal caucuses, these two coalitions of like-minded Faculty members functioned throughout the crisis like combinations of political parties and traditional Faculty committees: sometimes campaigning actively among independent Faculty members in

support of a position, at other times simply discussing the issues and feeding resolutions onto the meeting floor.

Since together the caucuses never represented more than one-third of the Faculty, they could never determine together or separately the outcome of any votes. But in at least one instance—the formulation of election procedures for the Committee of 15—negotiations between the two caucuses prior to the Faculty vote proved crucial to the outcome.

The political differences between the two groups were real and dangerous. "They exhibit," muses Stanley Hoffmann, professor of Government and *de facto* leader of the liberals, "almost all the characteristics of the eternal left and the perpetual right."

But like all political coalitions, their differing politics stem at least in part from the differing temperaments of their members and their different histories.

Neither Faculty caucus took formal votes, and neither had elected leaders. But a leadership corps seemed to emerge in each case: among the liberals, Hoffmann and Michael L. Walzer, associate professor of Government; and for the conservatives, John T. Dunlop, Wells Professor of Political Economy; George B. Kistiakowsky, Abbot and James Lawrence Professor of Chemistry; Rob-

(Continued on Page Six)

live with both the city and a
States in 1962 Kozol settled
cation of Roxbury in Boston.
traveled full circle: Roxbury
, Oxford, Paris, and back to
relaxing for *Esquire* and other
in the fall of 1964, became a sub-
the Boston public school system.
down, overcrowded school in the
ghetto, he was dismissed in
because of "his persistent
urge of study." Two years
*at an Early Age*.

ation has changed little in
since his book appeared,
culum Guide for Elemen-
ence of the system's hypo-
pter of *Death at an Early*
artificially moralistic tone
edience. The most recent
ays the school board's re-
for inclusion of materials
in the general school cur-
page 81 can be found an
m about dreams by Lang-
cial value or significance,
ningless concession.

about the future, Kozol
for a peaceful settlement
pend on the "willingness
the system to listen to the
munity." Kozol himself
nal project where teachers
listen to those voices. That
center.

by a grant from the Per-
of Boston, attempts to de-
tive a desire for knowledge

Learning Center in June. "I live here, he says somewhat defiantly. "This is my community, and these children are my community's future. I have a special right to be involved in their education." Neither the parents nor the children involved in the Learning Center want him to leave, so he will probably stay after all.

Jonathan Kozol’s “thing” is the Learning Center. He is devoted to the education of its children— not because they are black (all of them are not), but because they are poor, and if it were not for people like himself—black and white—the existence of these children might be but a shadow. Make no mistake: this devotion is not derived from a sense of noblesse oblige. For Jonathan Kozol the learning process is a mutual one.

—LEE A. DANIELS

## The Operagoer

### Cosi fan tutti

at Leverett House last weekend

COSI FAN TUTTI, the least popular of Mozart's four operatic masterpieces, suffers in relative eclipse because it is the least heroic, profound, or mystifying. It is rather an expansive essay on the evanescence of sincerity, written in Mozart's mature style with an effortlessness perilously conducive to indifference. The delicate balance between humor and ridicule, dissimulation and mercurial poetry is dramatically expressed through irridescent, vaguely delineated characters. But the cynical Alfonso, idealistic Farrando, swaggering Guglielmo, resolute Fiodiligi, flirtatious Dorabella, and even the comic Despina, are all legitimate types and therefore not superficial. By the end of the opera we begin to realize that the wheeling moods of this liveried world are textured in both devotion and frailty.

The recent Leverett House production of *Cosi fan tutti* is generally delightful but hardly distinguished

HARVARD SQ.
4580

LAST TIMES TUESDAY!

Alan Arkin in
"THE HEART IS A
LONELY HUNTER"
1:45, 5:35, 9:30

plus Joanne Woodward in
Paul Newman's
"RACHEL, RACHEL"
3:50 and 7:40

Starting Wednesday:
"SHAME" and
"A FLEA IN HER EAR"

## BRATTLE SQ.

"Another of Kurosawa's relentless succession of masterpieces." —Time Magazine

"IKIRU"
Starring Takashi Shimura
Shows daily at
4:30, 7:00, 9:30

Starting Wednesday:
Kurosawa's "SANJURO

TR 6-4226

Cucina Pistoia

HARVARD UNIVERSITY

DEPARTMENT OF CHEMISTRY

12 Oxford Street
Cambridge, Massachusetts 02138
U.S.A.

PERSONAL

May 1, 1969

Dr. Henry A. Kissinger
White House
Washington, D. C.

Dear Henry:

I enjoyed very much my visit with you last Monday although on analyzing that event I realize you very neatly held the conversation largely to problems at Harvard and so left little time for other matters. The next time I will be smarter but in the meantime I enclose a clipping from the Harvard Crimson to prove to you that I am rated "a conservative".

About the other matter you spoke about. On recollecting how similar groups operated in the past I would like to make a suggestion that if you wish to have useful information from them in November or early December, let us say, you have got to organize them very soon. Most of these people are very busy and could not give to the activities you have in mind, more than a couple or three days a month. On the other hand the people whose names I will list below would like to understand the issues from a technical and somewhat broader point of view and, therefore, ask for a great deal more information than is given in typical briefings.

In other words they want several meetings and discussions before they make up their minds. If you start organizing this venture early next fall or late summer, the individuals will be heavily committed and nothing useful will happen in time.

Unfortunately the list I am giving you now contains very largely old graduates and alumni of PSAC. They are all experienced and some of them are really tough and analytical but almost all of them have the disadvantage, from your point of view, of being on the other side of the political fence and, therefore, probably unemployable. The list is divided into three parts according to the order of my and George Rathjens estimate of usefulness to you:

Dr. Henry A. Kissinger

- 2 -

May 1, 1969

GROUP I

Doty (Harvard)
Long (Cornell)
Panofsky (Stanford)
Ruina (M.I.T.)
York (U. Cal, San Diego)

GROUP II

Bethe (Cornell)
Brooks (Harvard)
Brown (Harold, Cal. Tech.)
Garvin (IBM)
Rathjens (M.I.T.)

GROUP III

Alexander (Ben, Gen.
Res. Corp.
Santa Barbara)
Goldberger (Princeton)
Ling (Bell Labs)
McMillan (Bell Labs)
Purcell (Harvard)
Scoville (Brookings
Inst.)
Townes (U.Cal.Berkeley)
Meselson (Harvard)

In a different class is Mr. André Barbeau now at IDA. I do not know him but George Rathjens gives him absolute top rating as a tough, critical, objective individual with extraordinary knowledge in strategic areas. His only weakness, according to George, is that he is a poor speaker. He might be had on a full time basis as he is quite unhappy where he is now.

If you want to make use of me you should put me in Group 3 and no higher. Needless to say none of these people are really competent in strictly budgetary and political areas and most of them, for instance, Bethe and Meselson, are useful only in limited technical areas.

With cordial regards.

GBK:es

enc: