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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
(Mark One)
[x] Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
for the quarterly period ended June 28, 1997
or
[ ] Transition Report pursuant Section 13 or 15 (d)
of the Securities Exchange Act of 1934
for the transition period from __________ to __________
Commission File No. 33-9875
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BOSTON ACOUSTICS, INC.
(Exact name of registrant as specified in its charter)
Massachusetts 04-2662473
(State or other jurisdiction (I.R.S. employer
of incorporation or identification no.)
organization)
300 Jubilee Drive
Peabody, Massachusetts 01960
(Address of Principal Executive Offices) (Zip Code)
(508) 538-5000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [x] No [ ]
There were 3,304,366 shares of Common Stock issued and outstanding as of August
8, 1997.
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Boston Acoustics, Inc.
INDEX
PAGE
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Part I: Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets (Unaudited)-
March 29, 1997 and June 28, 1997......................................................................... 4
Consolidated Statements of Income (Unaudited)-
Three months ended June 29, 1996 and June 28, 1997....................................................... 6
Consolidated Statements of Cash Flows (Unaudited)-
Three months ended June 29, 1996 and June 28, 1997....................................................... 7
Notes to Unaudited Consolidated Financial Statements..................................................... 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................................................................ 10
Part II: Other Information
Items 1 through 6........................................................................................ 13
Signatures............................................................................................... 14
2
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
3
Boston Acoustics, Inc. and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
ASSETS
MARCH 29, 1997 JUNE 28, 1997
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Current Assets:
Cash and cash equivalents....................................................... $ 4,937,232 $ 2,856,796
Short-term investments.......................................................... 2,594,454 2,587,186
Accounts receivable, net of reserves of approximately $411,000 and $409,000,
respectively................................................................... 9,328,881 9,351,778
Inventories..................................................................... 9,540,757 11,260,974
Deferred income taxes........................................................... 791,000 791,000
Prepaid expenses and other current assets....................................... 809,761 357,304
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Total current assets......................................................... 28,002,085 27,205,038
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Property and Equipment, at cost:
Land............................................................................ 1,433,365 1,433,365
Building........................................................................ 7,012,347 7,012,347
Machinery and equipment......................................................... 7,414,269 7,542,535
Office equipment and furniture.................................................. 1,597,499 1,633,704
Motor vehicles.................................................................. 373,177 267,551
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17,830,657 17,889,502
Less-accumulated depreciation and amortization.................................... 6,936,205 7,121,335
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10,894,452 10,768,167
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Other Assets:
Long-term investments........................................................... 1,022,164 656,122
Other assets.................................................................... 2,311,411 2,163,579
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Total other assets.......................................................... 3,333,575 2,819,701
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$ 42,230,112 $ 40,792,906
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The accompanying notes are an integral part of these consolidated financial
statements.
4
Boston Acoustics, Inc. and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
MARCH 29, 1997 JUNE 28, 1997
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Current Liabilities:
Accounts payable.................................................................. $ 1,020,146 $ 1,816,175
Accrued payroll and payroll-related expenses...................................... 1,210,101 1,049,437
Dividends payable................................................................. 523,279 411,421
Current maturity of line of credit................................................ -- 2,825,000
Other accrued expenses............................................................ 499,446 545,677
Accrued income taxes.............................................................. 68,135 298,554
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Total current liabilities..................................................... 3,321,107 6,946,264
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Line of credit (Note 4)........................................................... -- 18,000,000
Commitments
Shareholders' Equity:
Common stock, $.01 par value
Authorized--6,000,000 shares
Issued--4,602,954 and 4,606,287 shares at March 29, 1997 and June 28, 1997,
respectively................................................................. 46,029 46,063
Additional paid-in capital........................................................ 4,973,409 5,036,496
Retained earnings................................................................. 38,322,082 39,111,200
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43,341,520 44,193,759
Less--Treasury stock, 416,720 and 1,314,921 shares at March 29, 1997 and June 28,
1997, respectively, at cost..................................................... 4,432,515 28,347,117
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Total shareholders' equity.................................................... 38,909,005 15,846,642
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$ 42,230,112 $ 40,792,906
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The accompanying notes are an integral part of these consolidated financial
statements.
5
Boston Acoustics, Inc. and Subsidiaries
Consolidated Statements of Income
(Unaudited)
THREE MONTHS ENDED
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JUNE 29, 1996 JUNE 28, 1997
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Net sales.......................................................................... $ 11,051,857 $ 12,415,276
Cost of goods sold................................................................. 6,276,741 6,974,138
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Gross profit.................................................................... 4,775,116 5,441,138
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Selling and marketing expenses..................................................... 1,570,072 1,803,669
General and administrative expenses................................................ 584,217 918,005
Engineering and development expenses............................................... 732,092 976,300
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Total expenses.................................................................. 2,886,381 3,697,974
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Income from operations.......................................................... 1,888,735 1,743,164
Interest income, net............................................................... 141,610 30,070
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Income before provision for income taxes........................................ 2,030,345 1,773,234
Provision for income taxes......................................................... 711,000 639,000
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Net income....................................................................... $ 1,319,345 $ 1,134,234
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Net income per common share........................................................ $ .30 $ .28
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Weighted average number of common shares outstanding............................... 4,398,481 4,029,774
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Dividends per share................................................................ $ .125 $ .125
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The accompanying notes are an integral part of these consolidated financial
statements.
6
Boston Acoustics, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
THREE MONTHS ENDED
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JUNE 29, 1996 JUNE 28, 1997
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Cash flows from operating activities:
Net income....................................................................... $ 1,319,345 $ 1,134,234
Adjustments to reconcile net income to net cash provided by operating activities-
Depreciation and amortization.................................................... 345,032 408,316
Changes in assets and liabilities, net of acquisition of Snell Acoustics-
Accounts receivable.............................................................. 397,527 (22,897)
Inventories...................................................................... (282,087) (1,720,217)
Prepaid expenses and other current assets........................................ 4,364 452,457
Accounts payable................................................................. 90,236 796,029
Accrued payroll and other accrued expenses....................................... (180,921) (114,433)
Accrued income taxes............................................................. 436,443 230,419
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Net cash provided by operating activities...................................... 2,129,939 1,163,908
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Cash flows from investing activities:
Acquisition of Snell Acoustics................................................... (2,564,749) --
Purchases of property and equipment, net......................................... (515,636) (58,845)
Purchase of held-to-maturity investments......................................... (1,195,684) --
Purchase of available-for-sale investments....................................... (250,000) --
Proceeds from sale of available-for-sale investments............................. 575,857 --
Proceeds from sale of held-to-maturity investments............................... 1,783,722 373,310
Increase in other assets......................................................... (11,019) (2,589)
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Net cash provided by (used in) investing activities............................ (2,177,509) 311,876
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Cash flows from financing activities:
Dividends paid................................................................... (551,088) (523,279)
Purchase of treasury stock....................................................... (933,550) (23,914,602)
Proceeds from line of credit..................................................... -- 20,825,000
Proceeds from exercise of stock options.......................................... -- 56,661
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Net cash used in financing activities.......................................... (1,484,638) (3,556,220)
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Decrease in cash and cash equivalents............................................... (1,532,208) (2,080,436)
Cash and cash equivalents, beginning of period...................................... 4,702,299 4,937,232
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Cash and cash equivalents, end of period............................................ $ 3,170,091 $ 2,856,796
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Supplemental Disclosure of NonCash Financing Activities:
Dividends payable................................................................ $ 545,538 $ 411,421
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Supplemental Disclosure of Cash Flow Information:
Cash paid for income taxes....................................................... $ 250,733 $ 408,582
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Cash paid for interest........................................................... $ 5,007 $ 66,844
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The accompanying notes are an integral part of these consolidated financial
statements.
7
BOSTON ACOUSTICS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
The unaudited consolidated financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission and include, in the opinion of
management, all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of interim period results. Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. The Company believes, however,
that its disclosures are adequate to make the information presented not
misleading. The results for the three-month period ended June 28, 1997 are not
necessarily indicative of results to be expected for the full fiscal year. These
financial statements should be read in conjunction with the Company's Annual
Report included in its Form 10-K filed on June 20, 1997.
(2) INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or market
and consist of the following:
MARCH 29, 1997 JUNE 28,1997
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Raw materials and work-in process................................................. $ 5,889,305 $ 6,637,363
Finished goods.................................................................... 3,651,452 4,623,611
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$ 9,540,757 $ 11,260,974
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Work-in-process and finished goods inventories consist of materials, labor
and manufacturing overhead.
(3) NET INCOME PER COMMON SHARE
Net income per common share is computed using the weighted average number of
shares of common stock outstanding during each period. Common equivalent shares
(stock options) have not been considered in the calculation of earnings per
share as their effect would not be significant. Fully diluted earnings per share
have not been presented as the amounts would not differ significantly from
primary earnings per share. On March 31, 1997, the Financial Accounting
Standards Board issued SFAS No. 128, Earnings per Share. SFAS No. 128
establishes standards for computing and presenting earnings per share and
applies to entities with publicly held common stock or potential common stock.
SFAS No. 128 is effective for fiscal years ending after December 15, 1997, and
early adoption is not permitted. When adopted by the Company, SFAS No. 128 will
require restatement of prior year's earnings per share. The Company believes
that the adoption of SFAS No. 128 will not have a material effect on its
financial statements.
(4) REDEMPTION OF COMMON STOCK AND LINE OF CREDIT
On June 13, 1997, the Company repurchased an aggregate of 898,201 shares of
its common stock from the estates of its co-founder, Francis L. Reed, and his
wife, Dorothea T. Reed. The shares were repurchased at $26 5/8 per share or a
total of approximately $23,915,000. Funds to complete the repurchase were
8
obtained from an unsecured $25 million revolving line of credit agreement
with a bank. At June 28, 1997 the Company had drawn down approximately $20.8
million on this line of credit.
(5) STOCK OPTIONS
The following is a summary of stock option activity:
WEIGHTED
NUMBER OF PRICE AVERAGE
OPTIONS RANGE PRICE
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Outstanding at March 29, 1997........................................... 158,667 $ 17.00--$19.50 $ 18.55
Options granted......................................................... 100,000 $ 21.00 $ 21.00
Options exercised....................................................... (3,333) $ 17.00 $ 17.00
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Outstanding at June 28, 1997............................................ 255,334 $ 17.00--$21.00 $ 19.54
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Exercisable at June 28, 1997............................................ 55,416 $ 17.00--$21.00 $ 18.92
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9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth the results of operations for the three-month
period ended June 29, 1996 and June 28, 1997 expressed as percentages of net
sales.
THREE MONTHS ENDED
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JUNE 29, 1996 JUNE 28, 1997
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Net sales........................................................................... 100.0% 100.0%
Cost of goods sold.................................................................. 56.8 56.2
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Gross profit....................................................................... 43.2 43.8
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Selling and marketing expenses...................................................... 14.2 14.5
General & administrative expenses................................................... 5.3 7.4
Engineering & development expenses.................................................. 6.6 7.9
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26.1 29.8
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Income from operations............................................................. 17.1 14.0
Interest income, net................................................................ 1.2 .3
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Income before provision for income taxes........................................... 18.3 14.3
Provision for income taxes.......................................................... 6.4 5.2
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Net income......................................................................... 11.9% 9.1%
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Net sales increased 12 percent, from approximately $11,052,000 during the
first quarter of fiscal 1997 to approximately $12,415,000 during the first
quarter of fiscal 1998. The overall sales increase during the three-month period
ended June 28, 1997 was primarily due to increases of sales in both the home and
automotive loudspeaker categories, particularly to international distributors.
In addition, the Company began shipments of its new MicroMedia-TM- speaker
systems to Gateway 2000, Inc. The MicroMedia system is a high performance
system, consisting of a pair of miniature desktop speakers and a separate
subwoofer containing a three-channel amplifier that powers the whole system. It
is capable of producing true high fidelity sound for music, games and
multi-media applications.
The Company's gross margin for the three-month period ended June 28, 1997
increased slightly as a percentage of net sales from 43.2% to 43.8% due
primarily to a shift in the sales mix to loudspeaker models
10
with slightly higher margins and the improvement in manufacturing
efficiencies compared to the same period a year ago.
Total operating expenses increased both in absolute dollars and as a
percentage of net sales during the three-month period ended June 28, 1997 as
compared to the corresponding period in fiscal 1997. Selling and marketing
expenses have increased primarily due to increased salaries and expenses
associated with additional personnel affiliated with increased international
sales volume. General and administrative expenses have increased due primarily
to costs associated with operating results of the Snell Acoustics subsidiary,
expenses resulting from the Gateway 2000 agreement and the costs associated with
the redemption of the Company's outstanding common stock from the estates of its
co-founder Francis L. Reed and his wife Dorothea T. Reed. Engineering and
development expenses have increased primarily due to start-up expenses relating
to fulfilling the Gateway 2000 orders.
Interest income, net decreased during the three-month period ended June 28,
1997 due primarily to the utilization of working capital and borrowings under
the Company's line of credit in conjunction with the common stock repurchase.
The Company's effective income tax rate increased slightly from 35% for the
three-month period ended June 29, 1996 to 36% for the three-month period ended
June 28, 1997. The increase is primarily due to the decrease in investments in
tax-free instruments which resulted in a reduction of tax benefits derived by
the Company's Massachusetts securities corporation.
Net income for the first quarter of fiscal 1998 decreased 14% from
approximately $1,319,000 in fiscal 1997 to $1,134,000 in fiscal 1998. Earnings
per share decreased 7% from $.30 to $.28 per share for the three-month period
ended June 28, 1997. This decrease was primarily the result of the increase in
operating expenses, a decrease in interest income and an operating loss by the
Snell subsidiary included in the consolidated results of operations.
LIQUIDITY AND CAPITAL RESOURCES
During the first three months of fiscal 1998, the Company financed its
growth with cash generated by operations. As of June 28, 1997 the Company's
working capital was approximately $20,259,000. The Company's cash and cash
equivalents were approximately $2,857,000, short-term investments were
approximately $2,587,000, and long-term investments were approximately $656,000.
The Company's cash and cash equivalents at June 28, 1997 decreased by
approximately $2,080,000 from March 29, 1997 primarily as a result of the
repurchase of common stock during the quarter. The Company has two lines of
credit with two banking institutions totaling $26,500,000. At June 28, 1997 the
Company had borrowings totaling $20,825,000 under one line of credit.
The Company believes that its resources are adequate to meet its
requirements for working capital and capital expenditures through the next
twelve months.
CAUTIONARY STATEMENTS
The Private Securities Litigation Reform Act of 1995 contains certain safe
harbors regarding forward-looking statements. From time to time, information
provided by the Company or statements made by its directors, officers, or
employees may contain "forward-looking" information which involve risk and
uncertainties. Any statements in this report that are not statements of
historical fact are forward-looking statements (including, but not limited
to, statements concerning the characteristics and growth of the Company's
market and customers, the Company's objectives and plans for future
operations, possible acquisitions, and the Company's expected liquidity and
capital resources). Such forward-looking statements are based on a number of
assumptions and involve a number of risks and uncertainties, and accordingly,
actual results could differ materially. Factors that may cause such
differences include, but are not limited to:
11
the continued and future acceptance of the Company's products, the rate of
growth in the audio industry; the presence of competitors with greater
technical marketing and financial resources; the Company's ability to
promptly and effectively respond to technological change to meet evolving
consumer demands; capacity and supply constraints or difficulties; and the
Company's ability to successfully integrate new operations. For a further
discussion of these and other significant factors to consider in connection
with forward-looking statements concerning the Company, reference is made to
Exhibit 99 of the Company's Annual Report on Form 10-K for fiscal year March
30, 1996.
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PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
NONE
ITEM 2. CHANGES IN SECURITIES
NONE
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE
ITEM 5. OTHER INFORMATION
NONE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits required by Item 601 of Regulation S-K
Exhibit 10.1--Loan Agreement dated as of June 13, 1997 between Boston
Acoustics, Inc. and State Street Bank and Trust Company.
Exhibit 10.2--Revolving Credit Note dated as of June 13, 1997 in the
amount of $25,000,000 made by Boston Acoustics, Inc. payable to the
order of State Street Bank and Trust Company.
Exhibit 10.3--Stock Redemption Agreement dated as of June 13, 1997
by and among Boston Acoustics, Inc. and Valerie R. Cohen, Lisa M.
Mooney and Paul F. Reed as Executors of the Estate of Francis L.
Reed and the Estate of Dorothea T. Reed.
Exhibit 27.--Financial Data Schedule
b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
June 28, 1997.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Boston Acoustics, Inc.
Registrant
Date: August 8, 1997 By: s/Andrew G. Kotsatos
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Andrew G. Kotsatos
Director, Chief Executive Officer
and Treasurer
Date: August 8, 1997 By: s/Fred E. Faulkner, Jr.
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Fred E. Faulkner, Jr.
President and Chief
Operating Officer
14