-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Eoq5/x/bzbksZsGmYq6cLKVYgC7Bss4Vyoc9arUuzOrkT8G1kEeYhIXuNePMda4E LX45dXr4VwREAzcq1nkNdQ== 0000927016-01-501742.txt : 20010702 0000927016-01-501742.hdr.sgml : 20010702 ACCESSION NUMBER: 0000927016-01-501742 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20010331 FILED AS OF DATE: 20010629 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BOSTON ACOUSTICS INC CENTRAL INDEX KEY: 0000805268 STANDARD INDUSTRIAL CLASSIFICATION: HOUSEHOLD AUDIO & VIDEO EQUIPMENT [3651] IRS NUMBER: 042662473 STATE OF INCORPORATION: MA FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-15193 FILM NUMBER: 1671929 BUSINESS ADDRESS: STREET 1: 300 JUBILEE DRIVE STREET 2: P O BOX 6015 CITY: PEABODY STATE: MA ZIP: 01961-6015 BUSINESS PHONE: 5085385000 MAIL ADDRESS: STREET 1: 300 JUBILEE DRIVE STREET 2: P O BOX 6015 CITY: PEABODY STATE: MA ZIP: 01961-6015 10-K 1 d10k.txt FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------- FORM 10-K (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED MARCH 31, 2001 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 ---------------------- 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 Organization) Identification No.) 300 Jubilee Drive PEABODY, MASSACHUSETTS 01960 (Address of Principal Executive Offices) (Zip Code) (978) 538-5000 (Registrant's Telephone Number,Including Area Code) SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: None. SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: 8,000,000 shares of Common Stock ($.01 Par Value) (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [_] Indicate by check mark if the disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [_] The aggregate market value of the voting stock held by non-affiliates of the registrant was $33,353,957 as of June 27, 2001. There were 4,929,295 shares of Common Stock issued and outstanding as of June 27, 2001. - ------------------------------------------------------------------------------- DOCUMENTS INCORPORATED BY REFERENCE (1) Registrant's Annual Report to Stockholders for the fiscal year ended March 31, 2001 (Part II, Items 5, 6, 7, 8 and Part III, 14 (a)(1)) (2) Proxy Statement for Registrant's Annual Meeting of Stockholders to be held on August 14, 2001 (Part IV, Items 10, 11, 12 and 13) BOSTON ACOUSTICS, INC.
Securities and Exchange Commission Item Number and Description Page - ------------------------------------ ---- PART I ITEM 1. Business 1 ITEM 2. Properties 8 ITEM 3. Legal Proceedings 8 ITEM 4. Submission of Matters to a Vote of Security Holders 8 PART II ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters 9 ITEM 6. Selected Financial Data 9 ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 ITEM 8. Financial Statements and Supplementary Data 9 ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 9 PART III ITEM 10. Directors and Executive Officers of the Registrant 10 ITEM 11. Executive Compensation 10 ITEM 12. Security Ownership of Certain Beneficial Owners and Management 10 ITEM 13. Certain Relationships and Related Transactions 10 PART IV ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 11 SIGNATURES 14 INDEX TO FINANCIAL STATEMENT SCHEDULES F-1
Inasmuch as the calculation of shares of the registrant's voting stock held by non-affiliates requires a calculation of the number of shares held by affiliates, such figure, as shown on the cover page hereof, represents the Registrant's best good faith estimate for purposes of this Annual Report on Form 10-K, and the Registrant disclaims that such figure is binding for any other purpose. The aggregate market value of Common Stock indicated is based upon $10.210, the price at which the Common Stock was last sold on June 27, 2001 as reported by The Nasdaq Stock Market. All outstanding shares beneficially owned by executive officers and directors of the registrant or by any shareholder beneficially owning more than 10% of registrant's Common Stock, as disclosed herein, were considered for purposes of this disclosure to be held by affiliates. -i- PART I ITEM 1. BUSINESS Boston Acoustics, Inc. (the "Company") engineers, manufactures and markets moderately-priced, high-quality audio systems for use in home audio and video entertainment systems, in after-market automotive audio systems and in multimedia computer environments. The Company believes that its products deliver better sound quality than other comparably priced audio systems. Most of the Company's products are assembled by the Company from purchased components, although certain automotive speakers are manufactured by others according to Company specifications. All of the Company's products and subassemblies, including those supplied by outside sources, have been designed by the Company's engineering department. Boston Acoustics' speakers are marketed nationwide through selected audio and audio-video specialty dealers and through distributors in many foreign countries. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- International Operations" which is included in the Company's 2001 Annual Report which is filed as Exhibit 13 hereto. The Company was organized as a Massachusetts corporation in 1979 by Andrew G. Kotsatos and former Chief Executive Officer, Francis L. Reed, who passed away in November 1996. Its principal executive offices and manufacturing facilities are located at 300 Jubilee Drive, Peabody, Massachusetts. PRODUCTS The Company has determined it has two reportable business industry segments: Core, and original equipment manufacturer (OEM) and Multimedia. Prior to Fiscal 1998, the Company operated as a single segment. The Company's reportable segments are strategic business units that sell the Company's products to distinct distribution channels. Both segments derive their revenues from the sale of audio systems. They are managed separately because each segment requires distinct selling and marketing strategies, as the class of customers within each segment is different. Each business segment has distinct product lines as discussed below. The Home Loudspeaker line consists of four bookshelf models currently ranging in price from $150 to $400 per pair, four floor-standing systems currently priced from $500 to $1,600 per pair, two home theater subwoofer/satellite systems currently priced at $700 and $1,000 per system, and four powered subwoofers priced at $300, $450, $700, and $1,200. Additional products for the home theater market include five different center-channel speakers currently ranging in price from $200 to $600 each and three diffuse-field surround speakers ranging in price from $200 to $800 per pair. The Company also produces magnetically shielded versions of most of its models and produces four indoor/outdoor speaker systems (Voyager(R) Voyager 2, Voyager Pro, and Grand Voyager) priced from $220 to $700 per pair. The Company also produces the DigitalTheater(TM) 6000 and DigitalTheater(TM) 7000, complete digital home theater sound systems priced at $600 and $1,000 respectively. 1 The Designer Series line is a collection of speaker systems engineered for flush mounting in the walls or ceilings of homes, businesses and recreational vehicles. There are eleven models in the Designer Series line with prices currently ranging from $130 to $500 per pair. The Automotive Series consists of 45 models of after-market automotive speakers with prices currently ranging from $70 to $750 per pair. The automotive line includes high-quality full-range replacement speakers, sophisticated component systems, and subwoofers. The component systems permit flexible speaker placement and provide sound rivaling that of fine home speakers. The automotive line includes the FS Series, the FX Series, the Boston Rally(R) RC Series of component speakers, the Boston Rally RX Coaxial Series, the Competitor Series subwoofer and enclosure systems, the Generator Series subwoofers, the Boston Rally RM Series, and the premium performance ProSeries speaker systems. The Multimedia category of products which are sold through the Company's independent retailers, through business arrangements with several leading distributors and computer retailers, and via a direct Internet-based sales channel currently consists of five high performance powered subwoofer/satellite speaker systems for computing environments and are priced from $30 to $300 per system. The OEM sales of Multimedia speaker systems sold to Gateway, Inc. ("Gateway"), a leading global direct marketer of PC products, include the BA65 powered two-piece system, the Digital BA735 subwoofer/satellite system and the BA7500 thin panel audio system designed for desktop theater applications such as DVDs and PC games. These products are available either as a component of certain pre-configured computer systems offered by Gateway, or as an upgrade option on those configurations that do not include Boston Acoustics' products as standard. NEW PRODUCTS In Fiscal 2001, as in previous years, Boston met the challenges of the changing marketplace with new systems for all of our target markets. These new products, described below, are intended to supplement or replace those products which have matured, to increase penetration into current markets, and to gain footholds in new markets. Fiscal 2001 saw the Company's introduction of four, 5x7" after-market automotive speaker models, the RC820, FS80, RX87 and FX8. The RC820 two-way component system features a 1-inch Kortec(TM) Neo 3r tweeter, a system-specific crossover, and a heat sink-cooled woofer. With a suggested retail of $330 per pair, RC820s are perfectly suited for 5x7" factory cutouts, custom installations, or as a premium upgrade path for existing car audio systems. In addition to the RC820, the Company also introduced three, two-way systems, RC620, RC520 and RC420 with 6.5-inch, 5-inch and 4-inch woofers respectively. They are priced as follows: $300 per pair for the RC620 and the RC520 and $280 per pair for the RC420. Boston Rally systems come with upgrade capability built into their design. Also new from Boston Acoustics, the Neo 3r Ambient Tweeter System (available separately, $140 per pair) can be added to any of the new Boston Rally component systems to further improve the imaging and sound stage. Along with the introduction of the FS80, 5x7" speaker, the Company introduced two additional FS component speakers, the FS60 and FS50. Priced at $230 per pair, the FS80 with a 5x7-inch elliptical woofer, offers considerably more SPL- pushing surface area than a standard 6-inch cone. Its pair of FS Kortec tweeters provides smooth, clean highs. The FS60 is a 2-way component set-up with 3/4-inch Kortec tweeters and 6-inch woofers that retails at $220 per pair. The FS50, a 5- inch FS component system, with dual 3/4-inch Kortec tweeters also retails at $220 per pair. 2 The RX87, 5x7" speaker, priced at $160 per pair utilizes the same magnet structure as the RC820 component series woofer with a centrally mounted 3/4" copolymer tweeter. In addition to the FX8, 5x7" speaker, the Company introduced an entire line of FX coaxial speakers: FX3, FX4, FX5, FX6, FX7, FX7e, FX9/2/ and FX9/3/. The FX8, priced at $120 per pair, offers a powerful woofer with a large motor structure, copolymer cones and butyl rubber surrounds, and a 3/4" copolymer tweeter with a neodymium magnet and ferrofluid cooling. With copolymer cones, rubber butyl surrounds, and 3/4" tweeters, the FX coaxials deliver the Boston Sound in a simple "drop-in" design for any make and model. The FX series is priced as follows: FX3 (3 1/2-inch), $70 per pair; FX4 (4-inch), $80 per pair; FX5 (5- inch), $100 per pair; FX6 (6-inch), $120 per pair; FX7 (4x6-inch), $80 per pair; FX7e (4x6-inch DIN size), $80 per pair; FX9/2/ (two-way, 6x9-inch), $120 per pair and FX9/3/ (three-way, 6x9-inch), $140 per pair. Boston's award-winning CR series also received attention this year with the introduction of its completely redesigned bookshelf speakers. The CR85, CR75, CR65, CR55 and the CRC center channel were designed for use in a multitude of locations in the home. Every CR speaker features a rigid cabinet designed with interlocking polymer posts that reduce cabinet vibrations and improve sonic performance. The CR85 retails at $400 per pair; CR75, $300 per pair; CR65, $200 per pair; CR55, $150 per pair, and the CRC retails at $200. The Company added three new products to its highly regarded reference line of home products. The new VR-MC center channel, VR-MX surround channels and VR-M/EX rear center channel complete the package for home theatre speakers. The VR-MC center channel with its accurate, wide-range response delivers clear dialog and dynamic on-screen sound effects with unmatched clarity and articulation and retails for $600. The VR-MX, voiced to match all VR-M and VR systems, retails at $800 per pair. The VR-M/EX rear center speaker, with dual VR tweeters and active 5 1/4-inch bass drivers retails for $430. During Fiscal 2001, the Company also launched its first entry-level speaker system for computers. The BA65 is a powered two-piece system that performs nearly as well as our more expensive multimedia products but sells for only $30. The Company now offers a complete line of "good, better and best" multimedia products for OEM and retail channels. 3 ENGINEERING AND DEVELOPMENT The Company's engineering and development department is actively engaged in the development of new products and manufacturing processes, the improvement of existing products and the research of new materials for use in the Company's products. The Company designs all of its products and subassemblies, including those supplied by outside sources. The Company's engineering and development staff includes 53 full-time employees and three outside consultants. During fiscal years 1999, 2000 and 2001, the Company spent approximately $5,106,000, $5,936,000 and $5,316,000 respectively, for engineering and development. MARKETING The Company employs 25 salespersons and retains 18 manufacturer's representatives who service the Company's dealer network. In addition, the Company retains the services of two freelance public relations consultants (one in the United States, one in Europe) to assist in the professional promotion of the Company and its products. Boston Acoustics' home audio, Designer Series (in wall/in ceiling models) and outdoor speaker products are distributed in the United States and Canada through approximately 605 selected audio or audio specialist retailers, some of whom have multiple outlets. The Company's car audio products are sold through approximately 403 similarly specialized retailers, some of whom also sell the Company's home audio products. The Company's dealers usually stock and sell a broad range of audio products including, in most cases, the Company's competitor's products. The Company seeks dealers who emphasize quality products and who are knowledgeable about the products they sell. The Company's Multimedia products are sold through an OEM agreement with Gateway, through the Company's retailers, through business arrangements with several leading distributors and computer retailers, and via a direct Internet-based sales channel (www.bostonacoustics.com). During the fiscal year ended March 31, 2001, one customer accounted for 46% of net sales. Boston Acoustics' products are also exported to dealers in Canada and sold through exclusive distributors in over 50 foreign countries, primarily in Europe, Asia/Pacific and South/Central America. Export sales accounted for approximately 14% of net sales in Fiscal 1999, 17% in Fiscal 2000 and 17% in Fiscal 2001. See also Note 6 to Consolidated Financial Statements incorporated herein by reference, pursuant to Part II, Item 8. The Company emphasizes the high performance-to-price ratio of its products in its advertising and promotion. Boston Acoustics believes that specialty retailers can be effective in introducing retail customers to the high dollar value of the Company's products. The Company directly supports its domestic dealers and international distributors via a cooperative advertising program, prepared advertisements, detailed product literature and point of purchase materials. The Company also regularly advertises in national specialist magazines including Sound and Vision, Car Audio and Electronics, Max Power, Audio Video Interiors, Home Theater, Mobile Entertainment, Super Street, Sport Compact Car, Sport Truck and Audio Video International. During Fiscal 2001, the Company spent approximately $3,702,000 (3.1% of net sales) for advertising. 4 COMPETITION The Company competes primarily on the basis of product performance, price and the strength of its dealer organization. The market for branded loudspeaker systems is served by many manufacturers, both foreign and domestic. Many products are available over a broad price range, and the market is highly fragmented and competitive. The Company distributes its products primarily through specialty retailers where it competes directly for space with other branded speaker manufacturers. Audio systems produced by many of the Company's competitors can be purchased by consumers through mass merchandisers, department stores, mail-order merchants, and catalogue showrooms. The Company believes it is more advantageous to distribute through specialty retailers who provide sales support and service to consumers. Boston Acoustics competes with a substantial number of branded speaker manufacturers, including Bose Corporation, Infinity and JBL (divisions of Harman International Industries), Advent (division of Recoton Corp.), Polk Audio, Inc., and Klipsch and Associates, Inc. Some of these competitors have greater technical and financial resources than the Company and may have broader brand recognition than Boston Acoustics. In addition to competition from branded loudspeaker manufacturers, the Company's products compete indirectly with single name "rack systems". Rack systems contain all the various components needed to form an audio system, and are sold by Sony, Pioneer, Technics, Yamaha and many others. Rack systems are generally sold through mass merchandisers and department stores, although many of the Company's dealers also sell rack systems. MANUFACTURING AND SUPPLIERS Most of the Company's products are assembled by the Company from components specially fabricated for the Company, although certain loudspeaker models and multimedia audio systems are manufactured by others in certain foreign countries according to Company specifications. The Company purchases materials and component parts from approximately 225 suppliers located in the United States, Canada, Europe and the Far East. Although Boston Acoustics relies on single suppliers for certain parts, the Company could, if necessary, develop multiple sources of supply for these parts. The Company does not have long-term or exclusive purchase commitments. The Company does have a written agreement with one of its inventory suppliers, which accounted for more than 10% of the Company's purchases during fiscal year 2001. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- International Operations" which is included in the Company's 2001 Annual Report which is filed as Exhibit 13 hereto. SEASONALITY AND CONSUMER DISCRETION The home and automotive audio markets are both somewhat seasonal, with a majority of home speaker retail sales normally occurring in the period October through March and a majority of automotive speaker retail sales normally occurring in the period April through October. The Company's sales and earnings can also be affected by changes in the general economy since purchases of home entertainment and automotive audio products, including loudspeakers, are discretionary for consumers. 5 PATENTS AND TRADEMARKS Boston Acoustics holds eight United States patents and numerous international patents, which relate to certain audio technologies, assemblies and cabinet design. The Company also currently has several registered trademarks including Boston(R), Boston Acoustics(R), PowerVent(R), Tempo(R), BassTrac(R), MagnaGuard(R), Voyager(R), Runabout(R), SoundBar(R) and Boston Rally(R). Trademarks used by the Snell subsidiary include Snell Acoustics, Snell Multimedia, Snell Music & Cinema and Room Ready(R). The Company believes that its growth, competitive position and success in the marketplace are more dependent on its technical and marketing skills and expertise than upon the ownership of patent and trademark rights. There can be no assurance that any patent or trademark would ultimately be proven valid if challenged. SIGNIFICANT CUSTOMERS The Company's financial results for the fiscal year ended March 31, 2001 include significant OEM sales of multimedia speaker systems to Gateway. The terms of these sales are governed by the Master Supply Agreement between Gateway and the Company which defines such issues as ordering and invoicing procedures, shipping charges, warranties, repair service support, product safety requirements, etc. This Master Supply Agreement with Gateway does not contain minimum or scheduled purchase requirements; therefore, purchase orders by Gateway may fluctuate significantly from quarter to quarter. Based on information currently available from our OEM customer, the Company anticipates that our OEM sales should decrease during the fiscal year ending March 30, 2002. The loss of Gateway as a customer or any significant portion of orders from Gateway could have a material adverse effect on the Company's business, results of operations and financial condition. In addition, the Company also could be materially adversely affected by any substantial work stoppage or interruption of production at Gateway or if Gateway were to reduce or cease conducting operations. BACKLOG The Company currently has no significant backlog. The Company's policy is to maintain sufficient inventories of finished goods to fill all orders within two business days of receipt. WARRANTIES Boston Acoustics warrants its home speakers to be free from defects in materials and workmanship for a period of five years, its Designer Series speakers and its automotive speakers for one year and its multimedia audio speaker systems for a period of three years. During the years ended March 31, 2001, March 25, 2000 and March 27, 1999, warranty costs recorded by the Company were approximately $270,000, $221,000 and $241,000, respectively. EMPLOYEES As of June 9, 2001, the Company had 309 full-time employees who were engaged as follows: 176 in production and materials management; 53 in engineering and development; 51 in marketing and sales support; and 29 in administration. None of the Company's employees are represented by a collective bargaining agreement and the Company believes that its relations with its employees are satisfactory. 6 EXECUTIVE OFFICERS OF THE REGISTRANT Information concerning Andrew G. Kotsatos, who is Chairman of the Board, Chief Executive Officer and Treasurer of the Company, and Moses A. Gabbay, who is President and Chief Operating Officer of the Company, is incorporated herein by reference from the Company's definitive Proxy Statement for its Annual Meeting of Stockholders to be held on August 14, 2001, under the headings "Proposal No. 1 -- Election of Directors" and "Board of Directors." Information concerning the Company's other executive officers as of June 27, 2001 is set forth below. Name Age Title - ------------------------ --- -------------------------------------------- Michael B. Chass 31 Vice President - Multimedia Products Group Martin J. Harding 40 Vice President - International Sales Paul F. Reed 37 Vice President - Administrative Services Debra A. Ricker-Rosato 45 Vice President - Finance Michael J. Rudd 56 Vice President - New Technology Robert L. Spaner 41 Executive Vice President - Sales & Marketing Michael B. Chass was named Vice President - Multimedia Products Group in August 1999. He joined the Company in 1994 as an account manager. In 1996 he became a Sales Manager and in 1998 became a Director of Sales. Mr. Chass was formerly employed by C.P.S. Marketing as an Assistant Director of Sales and Marketing. He holds a BSBA in Marketing from the University of Missouri. Martin J. Harding was named Vice President - International Sales in November 1998. He joined the Company in 1996 as International Sales Manager. In 1997 he became Director of International Sales and Marketing. Mr. Harding previously held positions specializing in international sales and marketing with Casio, Celestion and NAD Electronics. Paul F. Reed was named Vice President - Administrative Services in May 1993. He has been with the Company since its inception in 1979. From production and shipping, Mr. Reed moved to sales in 1986 and, in 1989, became a Regional Sales Manager. He was named Director of Administrative Services in 1990. Debra A. Ricker-Rosato was named Vice President - Finance in May 1993. Prior to joining the Company in October 1986 as Controller, Ms. Ricker-Rosato was employed by Babco-Textron from 1975, a manufacturer of small aircraft engine components. Her last position with Babco-Textron was that of Assistant Controller. She holds a MSF degree from Bentley College. Michael J. Rudd was named Vice President - New Technology in January 2000. He joined the Company in 1995 as a product manager. In 1997, he became Manager of New Technology - Engineering. Prior to joining the Company, Mr. Rudd worked as a consultant specializing in acoustic arrays. Mr. Rudd previously held positions with Atlantic Applied Research, Bolt Beranek and Newman and New York University. Mr. Rudd holds a PhD in Physics from the University Cambridge, England. Robert L. Spaner was named Executive Vice President - Sales and Marketing in August 2000. He joined the Company in 1987 as a regional sales manager. In 1990, he became National Sales Manager and in 1993 became Vice President - Sales. Mr. Spaner was formerly employed by Kloss Video as Western Regional Manager and worked six years in retail sales at Tweeter, Etc. 7 Each executive officer is elected for a term scheduled to expire at the meeting of Directors following the Annual Meeting of Stockholders or until a successor is duly chosen and qualified. There are no arrangements or understandings pursuant to which any executive officer was or is to be selected for election or reelection. There are no family relationships among any Directors or executive officers, except that Paul F. Reed, an executive officer, and Lisa M. Mooney, a director, are brother and sister. ITEM 2. PROPERTIES The Company owns its principal executive offices and manufacturing facilities which sits on 15 acres of land at 300 Jubilee Drive, Peabody, Massachusetts. Snell Acoustics ("Snell"), a subsidiary of the Company, leases all of the properties used in its business. Snell maintains its principal executive offices and manufacturing facilities at 143 Essex Street, Haverhill, Massachusetts. A total of 65,090 square feet of space is leased from an unrelated party under an operating lease which expires in September 2001. ITEM 3. LEGAL PROCEEDINGS There are no material legal proceedings affecting the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of shareholders during the fourth quarter of Fiscal 2001. 8 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The information required by this item is incorporated by reference to the section entitled "Stock Market Activity" on page 25 in the Registrant's 2001 Annual Report to Stockholders, which is filed herewith as Exhibit 13. ITEM 6. SELECTED FINANCIAL DATA The information required by this item is incorporated by reference to the section entitled "Selected Financial Data" on page 24 in the Registrant's 2001 Annual Report to Stockholders, which is filed herewith as Exhibit 13. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information required by this item is incorporated by reference to the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 6 through 11 in the Registrant's 2001 Annual Report to Stockholders, which is filed herewith as Exhibit 13. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The information required by this item is incorporated by reference to the section entitled "Quantitative and Qualitative Disclosures about Market Risk" on page 10 in the Registrant's 2001 Annual Report to Stockholders, which is filed herewith as Exhibit 13. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information required by this item is incorporated by reference to the Consolidated Financial Statements at March 31, 2001 and notes thereto on pages 12 through 22 in the Registrant's 2001 Annual Report to Stockholders, which is filed herewith as Exhibit 13. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 9 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Pursuant to General Instruction G (3) of Form 10-K and Instruction 3 to Item 401(b), the information required by this item concerning executive officers, including certain information incorporated herein by reference to the information appearing in the Company's definitive Proxy Statement for its Annual Meeting of Stockholders to be held on August 14, 2001 concerning Andrew G. Kotsatos, who is the Chairman of the Board, Chief Executive Officer and Treasurer of the Company, and Moses A. Gabbay, President and Chief Operating Officer of the Company, is set forth in Part I, Item 1, hereof, under the heading "Executive Officers of the Registrant". Information concerning Directors, including Messrs. Kotsatos and Gabbay, is incorporated by reference to the sections entitled "Proposal No. 1 -- Election of Directors", "Board of Directors" and "Compensation Interlocks and Insider Participation" in the Registrant's definitive Proxy Statement for its Annual Meeting of Stockholders to be held August 14, 2001. There is incorporated herein by reference to the discussion under "Compliance with Section 16(a) of the Securities Exchange Act of 1934" in the Company's definitive Proxy Statement for its Annual Meeting of Stockholders to be held August 14, 2001 the information with respect to delinquent filings of reports pursuant to Section 16(a) of the Securities Exchange Act of 1934. ITEM 11. EXECUTIVE COMPENSATION The information required by this item is incorporated by reference to the sections entitled "Executive Compensation" in the Registrant's definitive Proxy Statement for its Annual Meeting of Stockholders to be held August 14, 2001. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item is incorporated by reference to the section entitled "Principal and Management Stockholders" in the Registrant's definitive Proxy Statement for its Annual Meeting of Stockholders to be held August 14, 2001. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item is incorporated by reference to the section entitled "Certain Relationships and Transactions" in the Registrant's definitive Proxy Statement for its Annual Meeting of Stockholders to be held August 14, 2001. 10 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (a) The following documents are included as part of this report: (1) FINANCIAL STATEMENTS The following consolidated financial statements are incorporated by reference to the Registrant's 2001 Annual Report to Stockholders: Report of Independent Public Accountants. Consolidated Balance Sheets as of March 25, 2000 and March 31, 2001. Consolidated Statements of Income for the three years ended March 31, 2001. Consolidated Statements of Shareholders' Equity for the three years ended March 31, 2001. Consolidated Statements of Cash Flows for the three years ended March 31, 2001. Notes to Consolidated Financial Statements. (2) FINANCIAL STATEMENT SCHEDULES The following financial statement schedules are filed as part of this report and should be read in conjunction with the consolidated financial statements: Report of Independent Public Accountants. Schedule I -- Valuation and Qualifying Account. Other financial schedules have been omitted because they are not required or because the required information is included in the Consolidated Financial Statements or notes thereto. 11 (3) LISTING OF EXHIBITS
Exhibits --------------------------------------- 3.1. Articles of Organization (1) 3.2. Amendment to Articles of Organization (1) 3.3. Second Amendment to Articles of Organization (1) 3.4. Bylaws (1) 4.1. Specimen Share Certificate (1) 10.1.+ 1996 Stock Plan adopted by Boston Acoustics, Inc. on February 20, 1996, as amended (3) 10.2.+ 1986 Incentive Stock Option Plan adopted by Boston Acoustics, Inc. on October 15, 1986, as amended (2) 10.3.+ 1997 Stock Plan adopted by Boston Acoustics, Inc. on May 28, 1997. (9) 10.4.# Purchase Agreement dated March 27, 1997 by and between Gateway 2000, Inc. and Boston Acoustics, Inc. (3) 10.5.# Letter of Agreement dated January 14, 1997 by and between Gateway 2000, Inc. and Boston Acoustics, Inc. (3) 10.6.# Master Supply Agreement dated July 19, 1999 by and between Gateway, Inc. and Boston Acoustics, Inc. (4) 10.7. Loan Agreement dated as of June 13, 1997 between Boston Acoustics, Inc. and State Street Bank and Trust Company. (5) 10.8. 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. (6) 10.9.# Letter of Agreement dated December 22, 1997 by and between Gateway 2000, Inc. and Boston Acoustics, Inc. (7) 10.10.# Letter of Agreement dated May 14, 1998 by and between Gateway 2000, Inc. and Boston Acoustics, Inc. (10) 13. * 2001 Annual Report to Shareholders 21. Subsidiaries of the Registrant (3) 23. * Consent of Independent Public Accountants 99. "Safe Harbor" Statement under Private Securities Litigation Reform Act of 1995 (8)
* Indicates an exhibit which is filed herewith. + Indicates an exhibit which constitutes an executive compensation plan. # Indicates that portions of the exhibit have been omitted pursuant to an order granting a request for confidential treatment. ___________________ (1) Incorporated by reference to the similarly numbered exhibits in Part II of File No. 33-9875. (2) Incorporated by reference to the similarly numbered exhibit in Item 14 of the Company's Annual Report on Form 10-K for the year ended March 27, 1993. (3) Incorporated by reference to the similarly numbered exhibit in Item 14 of the Company's Annual Report on Form 10-K for the fiscal year ended March 29, 1997. 12 (4) Incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for fiscal quarter ended September 25, 1999. (5) Incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for fiscal quarter ended June 28, 1997. (6) Incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended June 28, 1997. (7) Incorporated by reference to Exhibit 10.A. to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended December 27, 1997. (8) Incorporated by reference to the similarly numbered exhibit in Item 14 of the Company's Annual Report on Form 10-K for the fiscal year ended March 30, 1996. (9) Incorporated by reference to Exhibit 10.C. to the Company's Annual Report on Form 10-K for the fiscal year ended March 28, 1998. (10) Incorporated by reference to Exhibit 10.L. to the Company's Annual Report on Form 10-K for the fiscal year ended March 28, 1998. (b) REPORTS ON FORM 8-K: No reports on Form 8-K were filed by the Registrant during the last quarter covered by this report, and no other such reports were filed subsequent to March 31, 2001 through the date of this report. 13 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Peabody, Commonwealth of Massachusetts, on the 27th day of June 2001. BOSTON ACOUSTICS, INC. (Registrant) BY: /s/ Andrew G. Kotsatos ---------------------------- Andrew G. Kotsatos Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signatures Capacities Date /s/ Andrew G. Kotsatos 6/27/01 - ---------------------------- Director, Chief Executive ------- Andrew G. Kotsatos Officer and Treasurer /s/ Moses A. Gabbay 6/27/01 - ---------------------------- Director, President and ------- Moses A. Gabbay Chief Operating Officer /s/ Debra A. Ricker-Rosato 6/27/01 - ---------------------------- Vice President and ------- Debra A. Ricker-Rosato Chief Accounting Officer /s/ Alexander E. Aikens, III 6/27/01 - ---------------------------- Director ------- Alexander E. Aikens, III /s/ George J. Markos 6/27/01 - ---------------------------- Director ------- George J. Markos /s/ Lisa M. Mooney 6/27/01 - ---------------------------- Director ------- Lisa M. Mooney /s/ Fletcher H. Wiley 6/27/01 - ---------------------------- Director ------- Fletcher H. Wiley
14 INDEX TO FINANCIAL STATEMENT SCHEDULES Schedule I Valuation and Qualifying Accounts F-1 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SUPPLEMENTARY SCHEDULE To Boston Acoustics, Inc. and Subsidiaries: We have audited, in accordance with auditing standards generally accepted in the United States, the consolidated financial statements included in Boston Acoustics, Inc. and subsidiaries' annual report to shareholders, incorporated by reference in this Form 10-K, and we have issued our report thereon, dated May 11, 2001. Our audits were made for the purpose of forming an opinion on those financial statements taken as a whole. The schedule listed in the index is the responsibility of the Company's management and is presented for the purpose of complying with the Securities and Exchange Commission's rules and is not part of the basic consolidated financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic consolidated financial statements and, in our opinion, fairly states, in all material respects, the financial data required to be set forth therein in relation to the basic consolidated financial statements taken as a whole. /s/ Arthur Andersen, LLP Boston, Massachusetts May 11, 2001 BOSTON ACOUSTICS, INC. AND SUBSIDIARIES Schedule I Valuation and Qualifying Accounts
Allowance for Doubtful Accounts ---------------------------------------------------------------------------- BALANCE, BEGINNING CHARGED TO COSTS DEDUCTIONS(1) BALANCE, END OF OF YEAR AND EXPENSES YEAR For the fiscal year ended- March 31, 2001 $345,000 $ 61,000 $ (21,000) $385,000 ======== ======== ========= ======== March 25, 2000 $463,000 $ 7,000 $(125,000) $345,000 ======== ======== ========= ======== March 27, 1999 $402,000 $163,000 $(102,000) $463,000 ======== ======== ========= ========
(1) Amounts deemed uncollectible net of recoveries of previously reserved amounts.
Reserve for Off-Invoice Allowances(2) ---------------------------------------------------------------------------- Balance, Beginning CHARGED TO COSTS DEDUCTIONS BALANCE, END OF of Year AND EXPENSES YEAR For the fiscal year ended- March 31, 2001 $2,563,000 $13,581,000 $(13,433,000) $2,711,000 ========== =========== ============ ========== March 25, 2000 $2,102,000 $11,715,000 $(11,254,000) $2,563,000 ========== =========== ============ ========== March 27, 1999 $1,660,000 $10,411,000 $ (9,969,000) $2,102,000 ========== =========== ============ ==========
(2) Amounts are net against accounts receivable and include allowances for volume rebates, timely pay discounts and freight rebates EX-13 2 dex13.txt 2001 ANNUAL REPORT Boston Acoustics --------------------------------- BOSTON ACOUSTICS, INC. 2001 ANNUAL REPORT --------------------------------- [Picture Appears Here] [Picture Appears Here] Boston Acoustics builds world class audio products that people enjoy owning and recommend to others. We strive to earn the respect and support of our customers and firmly believe that the best relationships are long term. [Picture Appears Here] Andrew G. Kotsatos Chairman and Chief Executive Officer Moses A. Gabbay President and Chief Operating Officer [Picture appears here] To Our Shareholders Net sales for Fiscal 2001 were $117.7 million, nine percent higher than last year. Net income was $3.9 million, 41% less than Fiscal 2000's $6.6 million. Diluted earnings were $.79 per share, 37% less than last year's $1.25 per share. SOLVING TEMPORARY SYSTEM PROBLEMS Early in the year, we ran into problems using some elements of a new ERP software system we installed in Fiscal 2000 to handle all our business and manufacturing needs. While restructuring system setups and re-training users to solve these problems, we had to deal with inventory control issues and double-digit increases in product demand at the same time. The results were transitory inventory imbalances that ultimately led to excessive scrap and rework costs, write-offs, and unusual expenses for overtime and temporary contract labor. These costs, and larger than expected foreign currency translation costs, contributed to our decline in net earnings. 1 [Picture Appears Here] NEW PRODUCTS We continued to introduce new products for home, auto and multimedia applications, strengthening our offerings with a focus on meeting the evolving needs of our markets. . We filled out our VR-M reference line of home products with the VR-MC center channel and VR-MX surround channel models. The VR-M line now meets the need for complete, matched home theater speaker systems that deliver high performance in elegantly designed packages. . We introduced a completely redesigned CR series of bookshelf speakers. Along with a center channel speaker, the series includes four compact speaker models that can be used anywhere in the home as pairs of stereo speakers or as components of complete home theater systems. . We launched our first entry-level speaker system for computers. The BA65 is a powered two-piece system that performs nearly as well as our more expensive multimedia products but sells for only $29.95. We now offer a complete line of "good, better and best" multimedia audio products for OEM and retail channels. . We introduced two new lines of entry-level automotive speakers. FX coaxials replace our CX line, and FS components make our highly respected component expertise available to a broader range of customers. Both lines deliver sound quality that's far superior to standard factory speakers, in vehicles ranging from compact sports cars to the biggest SUVs. . Each year since 1997, Ford Motor Company has sold hundreds of vehicles with factory cutouts for 5x7" loudspeakers. To take advantage of the market created by these cutouts, we introduced four easy to install 5x7" speaker models, the RC820, FS80, RX87 and FX8. We believe we now offer the widest selection of 5x7" automotive speakers in the industry. Innovation [Picture Appears Here] AWARDS In our industry, awards are a measure of how products are perceived by people who recognize and appreciate excellence. They are third-party endorsements that enhance the confidence in our quality for sales people as well as buyers. We were particularly pleased with the diversity of the Boston products that were Fiscal 2001 award winners. It is a demonstration of the broad base that we've built in the markets we serve. HERE ARE SOME EXAMPLES: The Consumer Electronics Show's prestigious Innovations awards are based on value, aesthetics and contribution to user's quality of life, as well as on innovation. The judges are prominent consumer electronics experts, including industrial designers, engineers and members of the trade press. We had three Innovations winners this year: . The Lynnfield VR965 speaker system, three-way, three-driver with integral 80 watt subwoofer . The PowerVent PV1000 high output powered subwoofer . The VR-M80 two-way floor standing speaker AudioVideo International's Grand Prix awards are based on professional assessments of quality, design engineering, craftsmanship, and price/performance relationship. We took six awards in the 22nd annual competition. Our winners and their categories were: . VR950 (Mid Size Floor Standing Speakers) . CR8 (Bookshelf Speakers) . PV600 (Under 12" Subwoofers) . System 10k (Surround Satellite Speakers) . Grand Voyager (Outdoor Speakers) . DT6000 (Home Theater in a Box Systems) 3 [Picture Appears Here] Criteria for the Autosound Grand Prix awards include sound reproduction quality, engineering, reliability, craftsmanship, product integrity and price-to-value relationship. Four of the award winners in the 19th annual competition were Boston automotive products. The winners and their categories were: . RM9 (6x9" Speakers) . RM6 (6.5/5.25" Speakers) . Pro 6.5 (Component Speaker Systems) . Pro 10.5 (10" Subwoofers) STRENGTHENING MANAGEMENT In August, Chief Operating Officer Moses A. Gabbay was elected President of the Company. Moses has been with Boston Acoustics for 20 years and has played a pivotal role in our growth and technological evolution. Since being elected, he has streamlined operations in our core business. Were it not for the slowing economy the results of these changes would be more evident. MEETING BOTTOM LINE CHALLENGES We are aggressively pursuing ways to improve our margins and increase profitability. We've sharpened our procurement policies and procedures to cut raw material and parts costs. We've reduced manufacturing costs by increasing efficiencies and offering incentives to minimize scrap and rework. Because we're able to operate more efficiently, we have been able to trim expenses and increase our effectiveness at the same time. For example: . Since January we have reduced our workforce by 25%. . We vacated 40,000 square feet of leased warehouse space at the end of March and will vacate another 18,000 square feet of warehouse and office space in July. When that happens, we will have everybody under one roof again, further increasing efficiencies. Stay Tuned [Picture Appears Here] IDENTIFYING AND PURSUING MARKET OPPORTUNITIES We are also aggressively pursuing market opportunities. For example, the custom installation market is growing and moving upscale. To take better advantage of resulting opportunities, we have created a dedicated custom installation product development team, and we are introducing a range of new products aimed at the growing high end of the market. We also have a wide range of other new products in the pipeline. We now have skill sets that we didn't have a few years ago. We intend to use them to add new growth, to strengthen our positions in existing markets, and to reach new markets with new kinds of products. LOOKING AHEAD Sales ran well ahead of expectations for the first eight months of Fiscal 2001, driven by the robust economy and - in the home entertainment market - by the exploding popularity of DVD players. Then, in December, the slowing economy caught up with us and the rest of our industry. The slowdown has persisted. The only sure thing about Fiscal 2002 is that it will be a challenge. As we've discussed in the previous paragraphs, we are doing many things to meet that challenge. We have made notable progress in the past few months and expect to do more in the coming year to cut costs, increase efficiencies and improve our margins. We have significantly enhanced our ability to deliver the right products at the right times - and at the right costs. Stay tuned. /s/ Andrew G. Kotsatos /s/ Moses A. Gabbay Andrew G. Kotsatos Moses A. Gabbay Chairman and President and Chief Executive Officer Chief Operating Officer 5 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 years ended March 31, 2001, March 25, 2000, and March 27, 1999 expressed as percentages of net sales.
---------- March 31, March 25, March 27, 2001 2000 1999 For the Year Ended (53 weeks) (52 weeks) (52 weeks) - -------------------------------------------------------------------------------- Net sales 100.0% 100.0% 100.0% Cost of goods sold 73.5 68.8 66.8 ----------------------------------------------- Gross profit 26.5 31.2 33.2 Selling and marketing expenses 10.8 10.3 8.7 General and administrative expenses 4.6 4.7 4.2 Engineering and development expenses 4.5 5.5 4.3 ----------------------------------------------- Total operating expenses 19.9 20.5 17.2 ----------------------------------------------- Income from operations 6.6 10.7 16.0 Interest income (expense), net (0.5) (0.6) (0.6) Other expense (0.4) (0.1) - Income before provision for income taxes 5.7 10.0 15.4 Provision for income taxes 2.4 3.9 5.9 ----------------------------------------------- Net income 3.3% 6.1% 9.5% -----------------------------------------------
FISCAL 2001 COMPARED WITH FISCAL 2000 Net Sales increased 9%, from approximately $108.0 million in Fiscal 2000 to $117.7 million in Fiscal 2001. Because the Company works on a 5-4-4 week quarter, there is an extra week every five years. The second quarter of Fiscal 2001 represents 14 weeks of sales and earnings compared to 13 weeks during the second quarter of Fiscal 2000. Fiscal 2001, therefore, represents 53 weeks of sales and earnings compared to 52 weeks during Fiscal 2000. The overall sales increase was due to increases in both business segments during the first eight months of the fiscal year offset by the slowing economy and industry-wide decline in U.S. retail sales that began impacting the Core segment in December 2000. Although the OEM and Multimedia segment reflected an increase over the corresponding period a year ago, the increase was lower than originally expected. The overall sales increase in the OEM and Multimedia segment resulted primarily from sales of the BA65, the Company's first entry-level speaker system for computers. The BA65, a powered two-piece speaker system that offers performance similar to Boston's more expensive multimedia products was introduced in June 2000 and was made available through our OEM customer, Gateway, Inc. ("Gateway"), a leading global direct marketer of PC products. In addition, the Company experienced increased sales of its retail range of multimedia speaker systems offered through Multimedia retail and distribution channels. New product introductions in the Core home entertainment product categories during the second and third quarters of Fiscal 2001 contributed to the overall results of the Core segment. The VR-MC center channel speaker system and the VR-MX surround speaker were introduced to compliment the VR-M50 and VR-M60 Monitor bookshelf speaker systems introduced last fiscal year. The VR-MC with a suggested retail of $600 each and the VR-MX with a suggested retail of $800 per pair are both available in cherry or black ash real wood veneer. The Lynnfield VR910 and VR920 high performance center channel speaker systems with suggested retails of $350 and $600, respectively, have end caps shaped and colored to match the design of our Lynnfield VR900 Series of floorstanding speakers. These models were introduced during the first quarter of Fiscal 2001. Sales of the PowerVent(R) powered subwoofer systems introduced last fiscal year continued to augment the Core business and offer high-quality bass reproduction for home entertainment systems. The CX line of after-market automotive speakers was replaced by the FX Series during the third quarter of Fiscal 2001. The new FX Series includes nine models ranging from $70 per pair to $140 per pair MRSP. In addition, during the last half of the year, the Company introduced a new entry-level line of component automotive systems, the FS Series. The FS50 and FS60 with suggested retails of $220 each and the FS80 with a suggested retail of $230 deliver high quality sound and broaden our product range of after-market automotive speaker systems. The Company's gross margin decreased as a percentage of net sales from 31.2% in Fiscal 2000 to 26.5% in Fiscal 2001 due to increased production expenses including those associated with the Company's efforts to complete the fulfillment of back orders experienced during the first quarter of Fiscal 2001. These expenses included the hiring of temporary contract labor, increased overtime and rework, as well as higher scrap, freight, and warehousing costs as compared to the same period a year ago. Gross margins were also negatively impacted by the sales mix of the OEM/Multimedia segment of sales, which have lower gross margins and represented a larger portion of total net sales in Fiscal 2001 as compared to Fiscal 2000. During the fourth quarter of Fiscal 2001, the Company's gross margin was affected by the write-offs for obsolete and slow-moving inventory, rework of specific finished goods inventory, and restructuring charges related to the cutbacks of personnel in both January and March of 2001. During Fiscal 2001, total operating expenses increased in absolute dollars but decreased as a percentage of net sales from 20.5% to 19.9%. Selling and marketing expenses have increased in both absolute dollars and as a percentage of net sales primarily due to increased salaries and benefits relating to additional personnel hired in the beginning of the fiscal year and increased advertising and related expenditures associated with both the Core and Multimedia product categories. General and administrative expenses have increased in absolute dollars while decreasing slightly as a percentage of net sales. The increase is attributable to increases in payroll-related costs, insurance expenses, and the write down of the goodwill associated with the acquisition of the Company's German subsidiary in Fiscal 1999. Engineering and development expenses decreased in both absolute dollars and as a percentage of net sales primarily due to lower consulting fees and lower outside services as compared to the same period a year ago. Net interest expense for the fiscal year decreased in both absolute dollars and as a percentage of net sales compared to the corresponding period a year ago, due to lower borrowing rates, despite an increase in the Company's line of credit borrowings during the second fiscal quarter of approximately $5 million. Other expenses for Fiscal 2001 include a charge of approximately $434,000 for foreign currency translation losses related to the strength of the USD and its effect on the Company's foreign subsidiaries. The Company's effective income tax rate increased during Fiscal 2001 from 38.6% to 42.4% primarily as a result of the inability to benefit losses sustained by the Company's subsidiaries outside the U.S., including the foreign currency translation charge recorded in the fourth quarter and higher state tax liabilities as compared to a year ago. Net income decreased 41% to approximately $3.9 million, while diluted earnings per share decreased 37% to $0.79 per share as compared to the same period a year ago. The decrease in net income for Fiscal 2001 is primarily the result of the increases in production expenses during the year, inventory rework and write-downs during the fourth quarter, a change in the product mix in the OEM and Multimedia business segment resulting in lower gross margins, and higher foreign currency translation costs as compared to the same period a year ago. 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FISCAL 2000 COMPARED WITH FISCAL 1999 Net Sales decreased 8%, from approximately $118.0 million to $108.0 million. The overall sales decrease was due to a $14.4 million decrease in the OEM sales of multimedia speaker systems to Gateway. This decrease was partially offset by increased sales of our core products and sales that resulted from our entry into the Multimedia retail and distribution channels during the latter part of the fiscal year. OEM sales to Gateway included the Digital BA735 subwoofer/satellite system introduced in the first quarter of Fiscal 2000, the Digital MediaTheater(TM) three-piece system, the DigitalTheater(TM) 6000, a complete Dolby(R) Digital 5.1 Channel Home Theater System and the BA7500 thin panel audio system designed for desktop theater applications such as DVDs and PC games. These products are available either as a component of certain pre-configured computer systems offered by Gateway, or as an upgrade option on those configurations that do not include Boston Acoustics' products as standard. The quantity of product sold as an upgrade option could fluctuate significantly from quarter to quarter and have an impact on the unit volume of OEM multimedia products. During the fiscal year, growth in the Company's core business sales was primarily the result of successful new product introductions. The VR-M50 and VR-M60 Monitor speaker systems with suggested retail prices per pair of $700 and $1,000 are the Company's first real wood bookshelf speakers. Four new PowerVent(R) powered subwoofer systems contributed to the overall sales increase by addressing the consumer's desire for physically smaller high performance subwoofers. With suggested retail prices ranging from $300 to $1,200, they replaced three discontinued models. The new Competitor Series and Generator Series of subwoofers for the automotive audio aftermarket were introduced during Fiscal 2000. The Competitor Series subwoofers are available in 15-inch, 12-inch, 10-inch and 8-inch sizes and are priced between $280 and $200 each MRSP. The Generator Series are high performance units with retail prices from $120 to $180. During the fiscal year, the Company enlarged its offering of audio systems with the DigitalTheater(TM) 7000. Retailing for $1,000, this six-piece Dolby(R) Digital system provides cinema quality sound and easy setup. The Company also introduced new multimedia products to its retail offerings. The BA4800 is an analog five-piece, 4-channel surround speaker system ideal for 4-channel PC gaming or any enhanced audio application at the desktop. Retailing for $200, the BA4800 provides theater-like thunder at a reasonable price. The Company's gross margin decreased as a percentage of net sales from 33.2% to 31.2% due to a combination of increased manufacturing overhead expenses associated with new product introductions, additional rent expense associated with temporary offsite warehouse space during the fiscal year, along with planned closeout sales of discontinued models. Total operating expenses increased as a percentage of net sales from 17.2% to 20.5% during Fiscal 2000. Selling and marketing expenses have increased in absolute dollars primarily due to increased salaries and benefits relating to additional personnel and increased licensed royalty fees. General and administrative expenses have increased in both absolute dollars and as a percentage of net sales primarily due to the $500,000 charge recorded as a result of the resignation of the Company's former President/COO effective April 3, 2000. Engineering and development expenses increased in absolute dollars primarily due to increased salaries and benefits relating to additional personnel and increased expenses associated with new product development. Net interest expense for the fiscal year remained stable as a percentage of net sales compared to the corresponding period a year ago, primarily due to the utilization of working capital and repayments of a certain portion of the Company's line of credit obligations. The Company's effective income tax rate increased slightly during the twelve- month period ended March 25, 2000 from 38.2% to 38.6% primarily due to a smaller proportion of the Company's income being derived outside the USA thereby reducing the tax benefits associated with the Company's foreign sales corporation. Net income decreased 41% to approximately $6.6 million, while diluted earnings per share decreased 42% to $1.25 per share for the same period a year ago. The decrease in net income is primarily the result of the decrease in net sales and gross profit and the increase in operating expenses as compared to the same period a year ago. LIQUIDITY AND CAPITAL RESOURCES During Fiscal 2001 and 2000, the Company financed its growth with cash generated from operations and bank borrowings. As of March 31, 2001, the Company's working capital was approximately $32,502,000, an increase of approximately $7,800,000 from March 25, 2000. The increase in working capital was primarily due to increases in inventory and an increase in cash and cash equivalents, as well as, a decrease in accounts payable and accrued payroll and related expenses. At March 31, 2001, the Company's inventory increased by approximately $5,289,000 compared to March 25, 2000 levels, primarily as a result of disappointing fourth quarter sales in both the Core and OEM segments of the business. Cash and cash equivalents increased by approximately $1,279,000, compared to levels at the end of Fiscal 2000 primarily due to accounts receivable payments during the last week of the fiscal year and increased borrowings on the Company's line of credit during the fiscal year. Current liabilities decreased by approximately $2,216,000 to approximately $9,125,000 primarily as a result of decreases in accounts payable and accrued payroll expenses offset by increases in accrued inventory rework and warranty costs and advertising expenses. Long-term debt increased by $5,150,000 as a result of borrowings against the Company's line of credit during Fiscal 2001. The Company has two lines of credit with two banking institutions totaling $26,500,000. At March 31, 2001, the Company had borrowings totaling $11,500,000 under its $25 million revolving credit agreement. Net cash increased in Fiscal 2001 by $1,279,000 and decreased in Fiscal 2000 and 1999 by $590,000 and $1,774,000, respectively. Net cash provided by operating activities in fiscal years 2001, 2000 and 1999 was approximately $1,117,000, $15,187,000, and $3,282,000, respectively. Differences in cash flows from operating activities over this three-year period were primarily related to significant year-to-year changes in net income, accounts receivable, inventories and accounts payable. Net cash used in investing activities for fiscal years 2001, 2000 and 1999 was approximately $3,323,000, $4,483,000, and $4,439,000, respectively. Net cash used in investing activities in Fiscal 2001 and Fiscal 2000 were for improvements to the existing facility and purchases of property and equipment. Net cash used in investing activities in Fiscal 1999 was due to purchases of property and equipment relating to production tooling and computer equipment. Net cash provided by (used in) financing activities in fiscal years 2001, 2000 and 1999 was approximately $3,485,000, ($11,294,000), and ($617,000), respectively. In Fiscal 2001, net cash provided by financing was the result of net borrowings under one of the Company's line of credit of approximately $5,048,000. In Fiscal 2000, net cash used in financing activities included $7,313,000 of net repayments of borrowings under one of the Company's credit facilities. In addition, during Fiscal 2000, the Company repurchased 172,500 shares of common stock for $2,428,344. The Company believes that its current resources are adequate to meet its requirements for working capital and capital expenditures at least through Fiscal 2002. 9 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS NEW ACCOUNTING STANDARDS In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities. The statement, as amended by SFAS No. 137, Deferral of the Effective Date of the FASB Statement No. 133, and SFAS No. 138, Accounting for Certain Derivative Investments and Certain Hedging Activities - An Amendment of FASB Statement No. 133, is effective for all fiscal quarters of all fiscal years beginning after June 15, 2000. SFAS No. 133 establishes accounting and reporting disclosure standards for derivative instruments including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities. The Company does not expect adoption of this statement to have a material impact on its consolidated financial position or results of operations. The Securities and Exchange Commission issued Staff Accounting Bulletin (SAB) No. 101, Revenue Recognition, in December 1999. The Company adopted the provisions of SAB No. 101 during the fourth quarter of Fiscal 2001. The adoption of SAB No. 101 did not have a material impact on the Company's financial position or results of operations. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK a. Derivative Financial Instruments, Other Financial Instruments, and Derivative Commodity Instruments As of March 31, 2001, the Company did not participate in any derivative financial instruments, or other financial and commodity instruments for which fair value disclosure would be required under SFAS No. 107. All of the Company's investments are considered cash equivalents money market accounts that are carried on the Company's books at amortized cost, which approximates fair market value. Accordingly, the Company has no quantitative information concerning the market risk of participating in such investments. b. Primary Market Risk Exposures The Company's primary market risk exposures are in the areas of interest rate risk and foreign currency exchange rate risk. The Company's investment portfolio of cash equivalents is subject to interest rate fluctuations, but the Company believes this risk is immaterial due to the short-term nature of these investments. For the year ended March 31, 2001, foreign currency translation losses were approximately $434,000 and were the result of a strong USD as compared to the foreign currencies of the Company's subsidiaries. As of March 31, 2001 the Company had not engaged in any foreign currency hedging activities. SIGNIFICANT CUSTOMERS The Company's financial results for the fiscal year ended March 31, 2001 include significant OEM sales of multimedia speaker systems to Gateway. During Fiscal 2001, Gateway accounted for 46% of the Company's net sales. The terms of these sales are governed by the Master Supply Agreement between Gateway and the Company which defines such issues as ordering and invoicing procedures, shipping charges, warranties, repair service support, product safety requirements, etc. This Master Supply Agreement with Gateway does not contain minimum or scheduled purchase requirements; therefore, purchase orders by Gateway may fluctuate significantly from quarter to quarter. Based on information currently available from our OEM customer, the Company anticipates that our OEM sales should decrease during the fiscal year ending March 30, 2002. The loss of Gateway as a customer or any significant portion of orders from Gateway could have a material adverse effect on the Company's business, results of operations and financial condition. In addition, the Company also could be materially adversely affected by any substantial work stoppage or interruption of production at Gateway or if Gateway were to reduce or cease conducting operations. INTERNATIONAL OPERATIONS Export sales accounted for approximately 17% of the Company's net sales during Fiscal 2001 and 2000, respectively, and 14% during Fiscal 1999 with sales concentrations in Europe, Asia and Canada. The Company also distributes its products through its three foreign subsidiaries. The Company obtains a substantial supply of inventory from manufacturers located in foreign countries. The Company has no long-term, fixed price contracts or arrangements for inventory supplied by such foreign manufacturers. The Company could readily obtain such inventory from other sources, but there can be no assurance that it would not be at some delay. Any substantial delay in obtaining inventory from another supplier could have an adverse effect on the Company's business, results of operations and financial condition. A number of factors beyond the control of the Company, including, but not limited to, changes in world politics, unstable governments in foreign customer and manufacturer nations and inflation, may affect the operations or financial condition of the Company's foreign customers and manufacturers, as well as the timing of orders and deliveries of Boston Acoustics' products by such customers and manufacturers. 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, 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: 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. The words "believe," "expect," "anticipate," "intend" and "plan" and similar expressions identify forward- looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date the statement was made. 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 Form 8-K filed on July 18, 1996. 11 CONSOLIDATED BALANCE SHEETS
--------- March 31, March 25, 2001 2000 - --------------------------------------------------------------------------------------------------------------- ASSETS Current Assets: Cash and cash equivalents $ 2,785,846 $ 1,506,741 Accounts receivable, net of allowance for doubtful accounts of approximately $385,000 and $345,000, respectively 11,426,411 12,632,632 Inventories 24,622,417 19,333,515 Deferred income taxes 2,044,000 1,545,000 Prepaid expenses and other current assets 747,844 1,024,869 ------------------------------------ Total current assets 41,626,518 36,042,757 ------------------------------------ Property and Equipment, at Cost: Machinery and equipment 15,132,205 13,517,432 Building and improvements 8,816,515 7,925,701 Office equipment and furniture 4,907,967 4,131,718 Land 1,815,755 1,815,755 Motor vehicles 253,164 259,319 ------------------------------------ 30,925,606 27,649,925 Less-Accumulated depreciation and amortization 15,533,147 12,035,891 ------------------------------------ 15,392,459 15,614,034 ------------------------------------ Other Assets, Net 1,012,671 1,080,569 ------------------------------------ $ 58,031,648 $ 52,737,360 ------------------------------------ LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable $ 2,743,371 $ 6,002,158 Accrued payroll and payroll-related expenses 1,779,942 2,148,272 Dividends payable 418,990 417,201 Other accrued expenses 2,682,654 1,171,200 Current maturity of line of credit 1,500,000 1,602,287 ------------------------------------ Total current liabilities 9,124,957 11,341,118 ------------------------------------ Line of Credit, Net of Current Maturity 10,000,000 4,850,000 ------------------------------------ Commitments (Note 9) Minority Interest in Joint Venture 27,325 - ------------------------------------ Shareholders' Equity: Common stock, $0.01 par value- Authorized-8,000,000 shares Issued-5,101,814 and 5,080,764 shares in 2001 and 2000, respectively 51,018 50,807 Additional paid-in capital 1,191,973 918,534 Subscriptions receivable (292,417) (126,667) Retained earnings 40,357,136 38,131,912 ------------------------------------ 41,307,710 38,974,586 Less-Treasury stock, 172,500 shares, at cost 2,428,344 2,428,344 ------------------------------------ Total shareholders' equity 38,879,366 36,546,242 ------------------------------------ $ 58,031,648 $ 52,737,360 ------------------------------------
The accompanying notes are an integral part of these consolidated financial statements. Consolidated Statements of Income ----------------------------
March 31, March 25, March 27, For the Year Ended 2001 2000 1999 - ---------------------------------------------------------------------------------------------------------- Net Sales $ 117,712,559 $ 107,997,650 $ 117,968,407 Cost of Goods Sold 86,469,935 74,248,866 78,787,500 ------------------------------------------------ Gross profit 31,242,624 33,748,784 39,180,907 ------------------------------------------------ Selling and Marketing Expenses 12,689,399 11,166,266 10,220,020 General and Administrative Expenses 5,470,738 5,116,648 4,958,064 Engineering and Development Expenses 5,316,005 5,935,690 5,106,001 ------------------------------------------------ Total operating expenses 23,476,142 22,218,604 20,284,085 ------------------------------------------------ Income from operations 7,766,482 11,530,180 18,896,822 Interest Income 120,241 111,941 89,012 Interest Expense (681,624) (754,982) (762,397) Other (Expense), Income (433,782) (65,622) 6,989 ------------------------------------------------ Income before provision for income taxes 6,771,317 10,821,517 18,230,426 Provision for Income Taxes 2,874,000 4,175,000 6,966,000 ------------------------------------------------ Net income $ 3,897,317 $ 6,646,517 $ 11,264,426 ------------------------------------------------ Net Income per Share: Basic $ 0.79 $ 1.32 $ 2.26 ------------------------------------------------ Diluted $ 0.79 $ 1.25 $ 2.14 ------------------------------------------------ Weighted Average Common Shares Outstanding (Note 2): Basic 4,914,206 5,016,954 4,987,730 ------------------------------------------------ Diluted 4,962,027 5,302,734 5,254,744 ------------------------------------------------ Dividends per Share $ 0.34 $ 0.34 $ 0.34 ------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements. 13 Consolidated Statements of Shareholders' Equity - ---------------------------------------------
Common Stock ---------------------------- Additional Total Number of $0.01 Par Paid-in Subscriptions Retained Treasury Shareholders' Shares Value Capital Receivable Earnings Stock Equity - ------------------------------------------------------------------------------------------------------------------------------------ Balance, March 28, 1998 6,936,328 $ 69,363 $ 5,831,724 $ _ $ 46,245,277 $ (28,242,117) $ 23,904,247 Exercise of stock options 40,254 403 392,126 - - - 392,529 Dividends - - - - (1,688,988) - (1,688,988) Retirement of treasury stock (1,964,882) (19,649) (5,587,269) - (22,635,199) 28,242,117 - Net income - - - - 11,264,426 - 11,264,426 --------------------------------------------------------------------------------------------------- Balance, March 27, 1999 5,011,700 50,117 636,581 - 33,185,516 - 33,872,214 Exercise of stock options and warrants 69,064 690 281,953 (126,667) - - 155,976 Dividends - - - - (1,700,121) - (1,700,121) Purchase of 172,500 shares of common stock - - - - - (2,428,344) (2,428,344) Net income - - - - 6,646,517 - 6,646,517 ----------------------------------------------------------------------------------------------------- Balance, March 25, 2000 5,080,764 50,807 918,534 (126,667) 38,131,912 (2,428,344) 36,546,242 Exercise of stock options 21,050 211 273,439 (209,950) - - 63,700 Repayment of subscriptions receivable - - - 44,200 - - 44,200 Dividends - - - - (1,672,093) - (1,672,093) Net income - - - - 3,897,317 - 3,897,317 ----------------------------------------------------------------------------------------------------- Balance, March 31, 2001 5,101,814 $ 51,018 $ 1,191,973 $ (292,417) $ 40,357,136 $ (2,428,344) $ 38,879,366 -----------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements. Consolidated Statements of Cash Flows ---------------------------
March 31, March 25, March 27, For the Year Ended 2001 2000 1999 - --------------------------------------------------------------------------------------------------------------- Cash Flows from Operating Activities: Net income $ 3,897,317 $ 6,646,517 $ 11,264,426 Adjustments to reconcile net income to net cash provided by operating activities- Depreciation and amortization 3,737,753 2,740,763 2,716,454 Deferred income taxes (597,000) (72,000) (377,000) Changes in assets and liabilities, net of acquisition- Accounts receivable 1,206,221 (45,713) (959,199) Inventories (5,288,902) 2,318,332 (8,673,052) Prepaid expenses and other current assets 277,025 (546,695) (6,069) Accounts payable (3,258,787) 3,536,957 (833,356) Accrued payroll and other accrued expenses 1,143,124 968,745 (34,825) Accrued income taxes - (359,689) 184,526 -------------------------------------------------------- Net cash provided by operating activities 1,116,751 15,187,217 3,281,905 --------------------------------------------------------- Cash Flows from Investing Activities: Purchases of property and equipment (3,275,681) (4,090,642) (4,356,459) Increase in other assets (47,274) (392,093) (82,384) --------------------------------------------------------- Net cash used in investing activities (3,322,955) (4,482,735) (4,438,843) --------------------------------------------------------- Cash Flows from Financing Activities: Proceeds from exercise of stock options 63,700 155,976 392,529 Net proceeds from (payments on) line of credit 5,047,713 (7,312,731) 667,393 Purchase of treasury stock - (2,428,344) - Dividends paid (1,670,304) (1,708,888) (1,677,307) Repayment of subscriptions receivable 44,200 - - --------------------------------------------------------- Net cash provided by (used in) financing activities 3,485,309 (11,293,987) (617,385) --------------------------------------------------------- Net Increase (Decrease) in Cash and Cash Equivalents 1,279,105 (589,505) (1,774,323) Cash and Cash Equivalents, beginning of year 1,506,741 2,096,246 3,870,569 --------------------------------------------------------- Cash and Cash Equivalents, end of year $ 2,785,846 $ 1,506,741 $ 2,096,246 --------------------------------------------------------- Supplemental Disclosure of Noncash Financing and Investing Activities: Dividends payable $ 418,990 $ 417,201 $ 425,967 --------------------------------------------------------- Retirement of Treasury stock $ - $ - $ 28,242,117 --------------------------------------------------------- Exercise of stock options through the issuance of subscriptions receivable $ 209,950 $ 126,667 $ - --------------------------------------------------------- Minority interest in foreign subsidiary $ 27,325 $ - $ - --------------------------------------------------------- Supplemental Disclosure of Cash Flow Information: Cash paid for income taxes $ 3,161,000 $ 5,446,130 $ 7,127,792 --------------------------------------------------------- Cash paid for interest $ 658,387 $ 768,878 $ 785,763 --------------------------------------------------------- Supplemental Disclosure of Noncash Items related to Acquisition of Boston Acoustics Deutschland: Fair value of assets acquired, excluding cash $ - $ - $ 639,750 --------------------------------------------------------- Post-acquisition adjustment to intangible assets $ - $ - $ 236,477 --------------------------------------------------------- Liabilities and debt assumed $ - $ - $ 876,227 ---------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements. 15 - -------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------- 1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES Boston Acoustics, Inc. and subsidiaries (the Company) engineers, manufactures and markets home loudspeakers, automotive speakers and speakers for multimedia environments. The Company's products are principally marketed in the United States, Canada, Europe and Asia through selected audio and audio-video specialty dealers and distributors. The accompanying consolidated financial statements reflect the operations of Boston Acoustics, Inc., its wholly-owned subsidiaries: BA Acquisition Corp. d/b/a Snell Acoustics; Boston Acoustics Securities Corporation (a Massachusetts securities corporation); Boston Acoustics Foreign Sales Corporation; Boston Acoustics Italia, S.r.l (an Italian corporation) and Boston Acoustics Deutschland, GmbH (a German corporation) and its majority-owned subsidiary Boston Acoustics UK, Ltd. (a United Kingdom corporation). During Fiscal 2001, the Company contributed approximately $27,000 to become a 51% owner of Boston Acoustics UK, Ltd. The Company has recorded the remaining 49% interest in Boston Acoustics UK, Ltd. (approximately $27,000) as a minority interest on the accompanying balance sheet. All significant intercompany amounts have been eliminated in consolidation. The accompanying consolidated financial statements reflect the application of the following significant accounting policies: a. Revenue Recognition Revenue is recognized when products are shipped to customers, provided that there are no uncertainties regarding customer acceptance, there is persuasive evidence of an arrangement, the sales price is fixed or determinable and collection of the related receivable is probable. b. Cash and Cash Equivalents The Company considers all highly liquid investments with original maturities of 90 days or less to be cash equivalents. c. Inventories Inventories are stated at the lower of cost (first-in, first-out) or market and consist of the following: March 31, March 25, 2001 2000 - ------------------------------------------------------------------------------- Raw materials and work-in-process $ 8,374,305 $ 10,547,363 Finished goods $ 16,248,112 $ 8,786,152 ------------------------- $ 24,622,417 $ 19,333,515 -------------------------- Work-in-process and finished goods inventories consist of materials, labor and manufacturing overhead. d. Reclassifications Certain amounts in the prior-period consolidated financial statements have been reclassified to conform to the current period's presentation. e. Depreciation and Amortization The Company provides for depreciation and amortization using both the straight-line and accelerated methods by charges to operations in amounts estimated to allocate the cost of the assets over their estimated useful lives, as follows: Asset Estimated Classification Useful Life - -------------------------------------------------------------------------------- Machinery and equipment 3-5 years Building and improvements 39 years Office equipment and furniture 3-5 years Motor vehicles 3 years f. Warranty Costs Warranty costs are estimated and recorded by the Company at the time of product shipment. During the years ended March 31, 2001, March 25, 2000 and March 27, 1999, warranty costs recorded by the Company were approximately $270,000, $221,000 and $241,000, respectively. g. Foreign Currency Translation In accordance with Statement of Financial Accounting Standards (SFAS) No. 52, Foreign Currency Translation, the Company has determined that the functional currency of its foreign subsidiaries is the U.S. dollar. Accordingly, all monetary assets and liabilities for these entities are translated at year-end exchange rates, while nonmonetary items are translated at historical rates. Income and expense accounts are translated at the average rates in effect during the year. Gains or losses from changes in exchange rates are recognized in consolidated income in the year of occurrence. During the years ended March 31, 2001, March 25, 2000 and March 27, 1999, foreign currency translation (losses) gains were approximately ($434,000), ($66,000) and $7,000, respectively, and were included in other expense in the accompanying consolidated statements of income. h. Income Taxes The Company provides for income taxes in accordance with SFAS No. 109, Accounting for Income Taxes. SFAS No. 109 requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities. i. Postretirement and Postemployment Benefits The Company has no obligation for postretirement or postemployment benefits. j. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. k. Concentration of Credit Risk SFAS No. 105, Disclosure of Information about Financial Instruments with Off- Balance-Sheet Risk and Financial Instruments with Concentrations of Credit Risk, requires disclosure of any significant off-balance-sheet and credit risk concentrations. The Company has no significant off-balance-sheet concentration of credit risk such as foreign exchange contracts, option contracts, or other foreign hedging arrangements. The Company maintains the majority of its cash balances with three financial institutions. The Company's accounts receivable credit risk is not concentrated within any geographic area and does not represent a significant credit risk to the Company. The Company maintains an allowance for potential credit losses, but historically it has not experienced any significant losses related to individual customers or groups of customers in any particular industry or geographic area. Significant customers with respect to accounts receivable and net sales are as follows: Net Sales for Accounts the Year Ended Receivable as of ------------------------------------------------------ March 31, March 25, March 27, March 31, March 25, 2001 2000 1999 2001 2000 - --------------------------------------------------------------- Customer A 46% 44% 53% 23% 19% Customer B 10% 10% * 12% 13% Customer C * * * 10% 11% * Customer does not exceed 10% of net sales. l. Financial Instruments SFAS No. 107, Disclosures about Fair Value of Financial Instruments, requires disclosure about the fair value of financial instruments. Financial instruments consist of cash equivalents, accounts receivable, accounts payable, subscriptions receivable and lines of credit. The estimated fair value of these financial instruments approximates their carrying value. The Company's cash equivalents are generally obligations of the federal government or investment-grade corporate or municipal issuers. The Company, by policy, limits the amount of credit exposure to any one financial institution. 17 - -------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------- m. Impairment of Long-Lived Assets The Company follows the provisions of SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. SFAS No. 121 addresses accounting and reporting requirements for impairment of long-lived assets based on their fair market values. The carrying value of long-lived assets are periodically reviewed by the Company based on the expected future undiscounted operating cash flows of the related business unit. During Fiscal 2001, the Company determined that goodwill of approximately $236,000 related to the acquisition of Boston Acoustics Deutschland, GmbH was impaired and as a result wrote it down to zero. This amount is included in general and administrative expenses in the accompanying consolidated statement of income for Fiscal 2001. Based on its most recent analysis, the Company believes that no other material impairment of long-lived assets exists as of March 31, 2001. n. Comprehensive Income The Company follows the provisions of SFAS No. 130, Reporting Comprehensive Income. There were no differences between net income and comprehensive income for any of the periods presented. o. Recent Accounting Pronouncements In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133 establishes accounting and reporting disclosure standards for derivative instruments including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities. SFAS No. 133, as amended by SFAS No. 137, Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133, and SFAS No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities - An Amendment of FASB Statement No. 133, is effective for all fiscal quarters of all fiscal years beginning after June 15, 2000. The Company does not expect adoption of this statement to have a material impact on its consolidated financial position or results of operations. The Securities and Exchange Commission issued Staff Accounting Bulletin (SAB) No. 101, Revenue Recognition, in December 1999. The Company adopted the provisions of SAB No. 101 during the fourth quarter of Fiscal 2001. The adoption of SAB No. 101 did not have a material impact on the Company's financial position or results of operations. 2. NET INCOME PER SHARE The Company follows the provisions of SFAS No. 128, Earnings per Share. This standard requires presentation of both basic and diluted earnings per share on the face of the consolidated statements of income. These financial statements have been prepared and presented based on this standard. The computation of basic and diluted shares outstanding, as required by SFAS No. 128, is as follows: March 31, March 25, March 27, For the Year Ended 2001 2000 1999 - ------------------------------------------------------------ Basic weighted average common shares outstanding 4,914,206 5,016,954 4,987,730 Dilutive effect of assumed exercise of stock options and warrant 47,821 285,780 267,014 -------------------------------- Weighted average common shares outstanding assuming dilution 4,962,027 5,302,734 5,254,744 ================================ For the years ended March 31, 2001 and March 25, 2000, 296,214 and 213,600 options, respectively, have been excluded from the weighted average number of common and dilutive potential shares outstanding, as their effect would be antidilutive. For the year ended March 27, 1999, no options and warrants have been excluded from the weighted average number of common and dilutive potential common shares outstanding. 3. INCOME TAXES The components of the Company's deferred tax assets consist of the tax effects of temporary differences between the financial reporting and tax bases of assets and liabilities and foreign net operating loss carryforwards. A valuation allowance has been provided for the portion of the deferred tax asset related to foreign net operating losses as the realizability of these losses is uncertain. The Company expects to realize the remaining deferred tax amounts. The components of the Company's net deferred tax assets are as follows: March 31, March 25, 2001 2000 - ----------------------------------------------------------------------------- Current deferred tax asset- Accrued expenses not currently deductible $ 905,000 $ 527,000 Receivable reserves 462,000 418,000 Inventory reserves 677,000 600,000 Foreign net operating losses 450,000 106,000 ------------------------- 2,494,000 1,651,000 Noncurrent deferred tax asset- Depreciation 381,000 283,000 ------------------------- Total deferred tax assets 2,875,000 1,934,000 Valuation allowance (450,000) (106,000) ------------------------- Net deferred tax assets $ 2,425,000 $ 1,828,000 ========================= The noncurrent deferred income taxes are included in other assets in the accompanying consolidated balance sheets. The components of the provision for income taxes shown in the accompanying consolidated statements of income consist of the following: March 31, March 25, March 27, 2001 2000 1999 - -------------------------------------------------------------------------------- Current- Federal $2,885,000 $3,467,000 $6,089,000 State 586,000 780,000 1,254,000 ------------------------------------- 3,471,000 4,247,000 7,343,000 ------------------------------------- Deferred- Federal (499,000) (60,000) (348,000) State (98,000) (12,000) (29,000) ------------------------------------- (597,000) (72,000) (377,000) ------------------------------------- Provision for income taxes $2,874,000 $4,175,000 $6,966,000 ===================================== The Company's effective income tax rate varies from the amount computed using the statutory U.S. income tax rate, as follows: March 31, March 25, March 27, 2001 2000 1999 - ------------------------------------------------------------------------------- Federal statutory rate 34.0% 34.1% 34.4% Increase in taxes resulting from state income taxes, net of federal income tax benefit 5.7 4.9 4.3 Foreign sales corporation (2.0) (1.1) (.7) Increase in valuation allowance related to losses of foreign subsidiaries 4.2 .5 - Other .5 .2 .2 ---------------------------------- 42.4% 38.6% 38.2% ================================== 4. SHAREHOLDERS' EQUITY a. Stock Split On August 17, 1998, the stockholders approved a three-for-two split of the Company's common stock, effected in the form of a stock dividend. The effect of the stock split has been retroactively reflected in the accompanying consolidated financial statements. b. Stock Options The Company maintained an incentive option plan (the 1986 Plan) that expired in October of 1996. The Company did not have any options outstanding under the 1986 Plan as of March 31, 2001. In February 1996, the Board of Directors approved a new incentive stock option plan (the 1996 Plan) authorizing the issuance of incentive stock options and nonqualified stock options for the purchase of up to 300,000 shares of common stock. The 1996 Plan is administered by the Board of Directors, and options are granted at not less than the fair market value of the Company's common stock on the date of grant. As of March 31, 2001, the Company has 243,250 options outstanding under the 1996 Plan. 19 - --------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - --------------------------------- In May 1997, the Board of Directors approved a new stock option plan (the 1997 Plan) authorizing the issuance of incentive stock options and nonqualified stock options for the purchase of up to 450,000 shares of common stock. The 1997 Plan permits the granting of nonqualified stock options and incentive stock options. As of March 31, 2001, the Company has 397,350 options outstanding under the 1997 Plan. The following is a summary of stock option activity under the 1986 Plan, the 1996 Plan and the 1997 Plan. Weighted Range of Average Number Exercise Exercise of Options Prices Price - --------------------------------------------------------------------- Outstanding at March 28, 1998 501,854 $11.33 - 19.89 $ 14.86 Granted 63,750 20.25 20.25 Exercised (40,254) 11.33 - 18.08 13.15 Canceled (1,100) 18.08 18.08 ------------------------------------ Outstanding at March 27, 1999 524,250 11.67 - 20.25 15.64 Granted 127,375 11.63 - 12.88 11.80 Exercised (11,500) 11.67 - 13.00 12.71 Canceled (4,492) 13.00 - 20.25 17.84 ------------------------------------ Outstanding at March 25, 2000 635,633 11.63 - 20.25 14.90 Granted 228,000 9.63 - 10.81 10.25 Exercised (21,050) 13.00 13.00 Canceled (201,983) 11.63 - 20.25 14.78 ------------------------------------ Outstanding at March 31, 2001 640,600 $ 9.63 - 20.25 13.35 ------------------------------------ Exercisable at March 31, 2001 277,221 $11.63 - 20.25 $ 15.12 ------------------------------------ Exercisable at March 25, 2000 359,164 $11.63 - 20.25 $ 14.68 ------------------------------------ Options available for future grant at March 31, 2001 80,100 -------------- The Company follows the provisions of SFAS No. 123, Accounting for Stock-Based Compensation, which requires the measurement of the fair value of stock options and warrants to be included in the statement of income or, for options to employees, to be disclosed in the notes to the financial statements. The Company has determined that it will continue to account for stock-based compensation for employees under Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and elect the disclosure-only alternative under SFAS No. 123 for options granted after January 1, 1996 using the Black-Scholes option pricing model prescribed by SFAS No. 123. The weighted average assumptions used are as follows: March 31, March 25, March 27, 2001 2000 1999 - -------------------------------------------------------------------------------- Risk-free interest rate 6.17-6.25% 6.03-6.78% 4.18% Expected dividend yield (per share) $0.34 $0.34 $0.34 Expected lives 5-10 years 5-10 years 5-7 years Expected volatility 56% 48% 52% The weighted average grant date fair value per share of options granted during the years ended March 31, 2001, March 25, 2000 and March 27, 1999 under these plans is $4.99, $5.02 and $9.23, respectively. As of March 31, 2001, March 25, 2000 and March 27, 1999, the weighted average remaining contractual life of outstanding options under these plans is 7.69 years, 6.09 years and 6.80 years, respectively. Had compensation cost for these plans been determined consistent with SFAS No. 123, the Company's net income and basic and diluted net income per share would have been reduced to the following pro forma amounts: March 31, March 25, March 27, 2001 2000 1999 - -------------------------------------------------------------------------------- Net income- As reported $3,897,317 $6,646,517 $11,264,426 Pro forma 3,199,827 5,795,414 10,455,893 Net income per share, as reported- Basic $ 0.79 $ 1.32 $ 2.26 Diluted 0.79 1.25 2.14 Net income per share, pro forma- Basic $ 0.65 $ 1.16 $ 2.10 Diluted 0.64 1.09 1.99 c. Warrant In connection with a supply agreement entered into in March 1997, the Company granted a customer a fully exercisable warrant to purchase up to 150,000 shares of common stock at an exercise price of $11.67 per share. In accordance with SFAS No. 123, the Company calculated the value of these warrants at $484,000, which was charged to operations during Fiscal 1998, as product was shipped to the customer. In July 1999, the customer exercised all outstanding warrants through a cashless exercise, resulting in the issuance of 57,564 shares of common stock. d. Subscriptions Receivable During Fiscal 2000 and 2001, the Company allowed certain of its employees to exercise options that were issued under certain stock option plans in exchange for the issuance of full recourse promissory notes. The notes bear interest at rates between 7.0%-7.5% per annum and are due and payable in full on maturity dates between June 18, 2002 and November 20, 2003. 5. LOAN AGREEMENT AND LINES OF CREDIT In June 1997, the Company entered into an unsecured revolving loan agreement with a bank for $25,000,000. The loan matures on July 1, 2002. Interest is charged at LIBOR on the first day of the interest period plus a fixed-rate spread based on certain financial ratios (ranging from 5.31% to 5.43% as of March 31, 2001). As of March 31, 2001, $11,500,000 was outstanding under this revolving loan agreement, of which $1,500,000 has been classified as short-term, as the Company expects to repay this amount during Fiscal 2002. In connection with this agreement, the Company must comply with certain financial and restrictive covenants, including maintaining minimum levels of profitability. As of March 31, 2001, the Company was in compliance with all covenants. The Company also has a $1,500,000 unsecured line of credit with another bank available for letters of credit, bankers' acceptances and direct advances. Interest on letters of credit and bankers' acceptances is based on the prevailing rate (1.5% at March 31, 2001). Direct advances accrue interest at the banks' commercial base rate (8.0% at March 31, 2001). No amounts were outstanding under the line of credit at March 31, 2001 and March 25, 2000. The Company also has a DM 250,000 line of credit with a German bank. At March 31, 2001, there were no amounts outstanding under this line of credit. 6. SEGMENT REPORTING The Company has determined that it has two reportable segments: core, and original equipment manufacturer (OEM) and multimedia. The Company's reportable segments are strategic business units that sell the Company's products to distinct distribution channels. Both segments derive their revenues from the sale of audio systems. They are managed separately because each segment requires different selling and marketing strategies as the class of customers within each segment is different. The Company's disclosure of segment performance is based on the way that management organizes the segments within the enterprise for making operating decisions and assessing performance. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The Company does not allocate operating expenses between its two reportable segments. Accordingly, the Company's measure of profit for each reportable segment is based on gross profit. - --------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - --------------------------------- --------------------------------------------- OEM and 2001 Core Multimedia Total - ------------------------------------------------------------------------- Net sales $ 59,495,432 $ 58,217,127 $117,712,559 ---------------------------------------------- Gross profit $ 19,605,868 $ 11,636,756 $ 31,242,624 ---------------------------------------------- Depreciation and amortization $ 1,232,441 $ 871,292 $ 2,103,733 ---------------------------------------------- Capital expenditures $ 3,023,627 $ 252,054 $ 3,275,681 ---------------------------------------------- OEM and 2000 Core Multimedia Total - ------------------------------------------------------------------------- Net sales $ 58,797,803 $ 49,199,847 $107,997,650 ---------------------------------------------- Gross profit $ 21,633,212 $ 12,115,572 $ 33,748,784 ---------------------------------------------- Depreciation and amortization $ 988,573 $ 148,701 $ 1,137,274 ---------------------------------------------- Capital expenditures $ 3,466,081 $ 624,561 $ 4,090,642 ---------------------------------------------- OEM and 1999 Core Multimedia Total - ------------------------------------------------------------------------- Net sales $ 55,484,371 $ 62,484,036 $117,968,407 ---------------------------------------------- Gross profit $ 23,968,152 $ 15,212,755 $ 39,180,907 ---------------------------------------------- Depreciation and amortization $ 753,611 $ 58,236 $ 811,847 ---------------------------------------------- Capital expenditures $ 4,076,372 $ 280,087 $ 4,356,459 ---------------------------------------------- Total assets specifically identifiable within each reportable segment are listed in the table below. Assets included in the OEM and Multimedia segment consist of accounts receivable, inventories and fixed assets. March 31, March 25, 2001 2000 - ------------------------------------------------------------------------- Core $46,822,555 $45,682,255 OEM and Multimedia 11,209,093 7,055,105 ---------------------------- $58,031,648 $52,737,360 ============================ The following table identifies sales by geographic region. Sales are attributed to countries based on location of customer: For the March 31, March 25, March 27, Year Ended 2001 2000 1999 --------------------------------------------- United States $ 97,229,002 $ 89,638,049 $101,452,830 Other 20,483,557 18,359,601 16,515,577 - ------------------------------------------------------------------------- $117,712,559 $107,997,650 $117,968,407 ============================================= No individual country included in "Other" accounted for more than 10% of net sales for the fiscal years presented above. 7. OTHER ACCRUED EXPENSES Other accrued expenses consist of the following: March 31, March 25, 2001 2000 - ------------------------------------------------------------------------- Inventory rework and warranty $ 1,125,705 $ 205,971 Advertising 774,965 357,993 Other 781,984 607,236 ---------------------------- $ 2,682,654 $ 1,171,200 ============================ During Fiscal 2001, the Company recorded an accrued expense of $900,000 that represented the estimated cost of rework for specific finished goods products. The Company expects to complete the rework during Fiscal 2002. 8. EMPLOYEE BENEFIT PLAN The Company has a 401(k) Retirement Plan (the 401(k) Plan). The 401(k) Plan is a defined contribution plan established under the provisions of Section 401(k) of the Internal Revenue Code. The Company may make a matching contribution of 25% of each participant's contribution, up to a maximum of 5% of a participant's compensation for the plan year. The Company contributed approximately $90,000, $84,000 and $73,000 to the 401(k) Plan during fiscal years 2001, 2000 and 1999, respectively. 9. COMMITMENTS The Company has leased certain of its facilities under operating lease agreements that expire in Fiscal 2002. The leases require payments of approximately $114,000 through 2002. Total rent expense under these leases for Fiscal 2001, 2000 and 1999 was approximately $615,000, $388,000 and $218,000, respectively. --------------------------------------- REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS --------------------------------------- - -------------------------------------------------------------------------------- TO BOSTON ACOUSTICS, INC. AND SUBSIDIARIES: We have audited the accompanying consolidated balance sheets of Boston Acoustics, Inc. (a Massachusetts corporation) and subsidiaries (the Company) as of March 31, 2001 and March 25, 2000 and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended March 31, 2001. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Boston Acoustics, Inc. and subsidiaries as of March 31, 2001 and March 25, 2000 and the results of their operations and their cash flows for each of the three years in the period ended March 31, 2001 in conformity with accounting principles generally accepted in the United States. Arthur Andersen LLP Boston, Massachusetts May 11, 2001 23 - -------------------------------------------------------------------------------- - -------------------------------------- SELECTED FINANCIAL DATA - -------------------------------------- FIVE YEAR SELECTED FINANCIAL DATA
(Amounts in Thousands Except Per Share Data) 2001 2000 1999 1998 1997 - --------------------------------------------------------------------------------------------------------------- Income Statement Data Net Sales $ 117,713 $ 107,998 $ 117,968 $ 82,399 $ 50,309 Net Income 3,897 6,647 11,264 9,576 5,485 Basic Earnings Per Share 0.79 1.32 2.26 1.83 0.85 Diluted Earnings Per Share 0.79 1.25 2.14 1.74 0.82 Weighted Average Shares Outstanding Basic 4,914 5,017 4,988 5,232 6,427 Diluted 4,962 5,303 5,255 5,512 6,684 Dividends Per Share $ 0.34 $ 0.34 $ 0.34 $ 0.33 $ 0.33 Balance Sheet Data Working Capital $ 32,502 $ 24,702 $ 29,471 $ 20,319 $ 24,681 Total Assets 58,032 52,737 53,239 42,499 42,230 Shareholders' Equity 38,879 36,546 33,872 23,904 38,909 ---------
QUARTERLY FINANCIAL DATA (Unaudited)
First Second Third Fourth (Amounts in Thousands Except Per Share Data) Quarter Quarter Quarter Quarter Year - --------------------------------------------------------------------------------------------------------------- Year Ended March 31, 2001 -------------------------------------------------------- Net Sales $ 22,823 $ 34,584 $ 33,682 $ 26,624 $117,713 Gross Profit 7,264 9,711 9,529 4,739 31,243 Net Income (Loss) 1,149 2,238 1,831 (1,321) 3,897 Basic Earnings (Loss) Per Share 0.23 0.46 0.37 (0.27) 0.79 Diluted Earnings (Loss) Per Share 0.23 0.45 0.36 (0.27) 0.79 -------------------------------------------------------- Year Ended March 25, 2000 Net Sales $ 21,845 $ 28,680 $ 30,567 $ 26,906 $ 107,998 Gross Profit 7,040 8,638 10,409 7,662 33,749 Net Income 1,139 1,673 2,800 1,035 6,647 Basic Earnings Per Share 0.23 0.33 0.55 0.21 1.32 Diluted Earnings Per Share 0.21 0.31 0.51 0.19 1.25
------------------------------- SHAREHOLDER INFORMATION ------------------------------- Boston Acoustics, Inc. encourages investors to become informed about its business. Additional information, copies of this report and the Company's Form 10-K filed with the Securities and Exchange Commission may be obtained by writing to Debra A. Ricker-Rosato, Vice President - Finance. Dividend Policy In August of 1992 the Company authorized a 50% increase in its annual dividend rate from $.133 to $.20 per share. In February 1993 the Company authorized an increase to $.267 per share and in February 1995 authorized an increase to $.333 per share. In August 1998, after announcing a 3:2 stock split, the Company authorized an increase to $.34 per share. Dividends are declared and paid quarterly. Four quarterly dividends totaling $.34 were declared during Fiscal 2001. Stock Market Activity The common stock of Boston Acoustics, Inc. has been listed on the NASDAQ National Market System under the symbol BOSA since its initial public offering on December 12, 1986. The following table sets forth high and low closing prices by quarter reported by NASDAQ: - ----------------------------------------------------- Fiscal 2001 High Low - ----------------------------------------------------- First Quarter 12.438 9.125 Second Quarter 14.125 10.813 Third Quarter 15.688 12.375 Fourth Quarter 15.625 10.766 - ----------------------------------------------------- Fiscal 2000 High Low - ----------------------------------------------------- First Quarter 19.313 15.938 Second Quarter 23.625 14.750 Third Quarter 16.500 11.063 Fourth Quarter 15.250 11.875 There were 118 shareholders of record as of March 31, 2001. Shareholders who beneficially own common stock held in nominee of street name are not included in the number of shareholders of record. Auditors Arthur Andersen LLP Boston, Massachusetts Legal Counsel Peabody & Arnold LLP Boston, Massachusetts Transfer Agent EquiServe Trust Company Providence, Rhode Island Board of Directors Andrew G. Kotsatos Chairman, Chief Executive Officer and Treasurer Boston Acoustics, Inc. Moses A. Gabbay President and Chief Operating Officer Boston Acoustics, Inc. Alexander E. Aikens, III Professor Brandeis University Graduate School of International Economics and Finance George J. Markos Senior Vice President and General Counsel Yell-O-Glow Corporation Lisa M. Mooney Fletcher H. Wiley President and Chief Operating Officer PRWT Holdings Executive Officers Andrew G. Kotsatos Chairman, Chief Executive Officer and Treasurer Moses A. Gabbay President and Chief Operating Officer Michael B. Chass Vice President - Multimedia Products Group Martin J. Harding Vice President - International Sales Paul F. Reed Vice President - Administrative Services Debra A. Ricker-Rosato Vice President - Finance Michael J. Rudd Vice President - New Technology Robert L. Spaner Executive Vice President - Sales and Marketing BOSTON Boston Acoustics Boston Acoustics, Inc. 300 Jubilee Drive Peabody, MA 01960 fax (978) 538-5091 www.bostonacoustics.com tel (978) 538-5000 EX-23 3 dex23.txt CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS Exhibit 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference of our reports dated May 11, 2001 included in this annual report on Form 10-K, into the Company's previously filed Registration Statement No. 333-75559, No. 33-18793 and No. 333-62581. /s/ Arthur Andersen LLP Boston, Massachusetts June 27 , 2001 1 -----END PRIVACY-ENHANCED MESSAGE-----