-----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, LF/yK20++on3Fyxop8wVYKX1CehGC2HntSq4cySbO5OthCH1IRti6WIbhJZ1R/3d ZyYFB2tzvzqDOP7VcXYe6A== 0000927016-01-502473.txt : 20010815 0000927016-01-502473.hdr.sgml : 20010815 ACCESSION NUMBER: 0000927016-01-502473 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010630 FILED AS OF DATE: 20010814 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-15193 FILM NUMBER: 1711791 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-Q 1 d10q.txt FORM 10-Q - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------- FORM 10-Q (MARK ONE) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 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 identification no.) organization) 300 JUBILEE DRIVE PEABODY, MASSACHUSETTS 01960 (Address of Principal Executive Offices) (Zip Code) (978) 538-5000 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] There were 4,927,795 shares of Common Stock issued and outstanding as of August 13, 2001. - -------------------------------------------------------------------------------- Boston Acoustics, Inc. Index ----- Page ---- Part I: Financial Information Item 1. Financial Statements Consolidated Balance Sheets (Unaudited)- March 31, 2001 and June 30, 2001 4 Consolidated Statements of Income (Unaudited)- Three months ended June 24, 2000 and June 30, 2001 6 Consolidated Statements of Cash Flows (Unaudited)- Three months ended June 24, 2000 and June 30, 2001 7 Notes to Unaudited Consolidated Financial Statements 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11 Part II: Other Information Items 1 through 6 14 Signatures 15 2 PART I: FINANCIAL INFORMATION Item 1: Financial Statements 3 Boston Acoustics, Inc. and Subsidiaries Consolidated Balance Sheets (Unaudited) Assets ------ March 31, 2001 June 30, 2001 -------------- ------------- Current Assets: Cash and cash equivalents $ 2,785,846 $ 4,109,521 Accounts receivable, net of reserve of approximately $385,000 and $430,000, respectively 11,426,411 11,277,823 Inventories 24,622,417 19,177,276 Deferred income taxes 2,044,000 2,044,000 Prepaid expenses and other current assets 747,844 807,875 ----------- ----------- Total current assets 41,626,518 37,416,495 ----------- ----------- Property and Equipment, at cost: Land 1,815,755 1,815,755 Building and improvements 8,816,515 8,824,787 Machinery and equipment 15,132,205 15,297,212 Office equipment and furniture 4,907,967 4,945,685 Motor vehicles 253,164 253,164 ----------- ----------- 30,925,606 31,136,603 Less-accumulated depreciation and amortization 15,533,147 16,204,115 ----------- ----------- 15,392,459 14,932,488 ----------- ----------- Other Assets 1,012,671 1,014,164 ----------- ----------- $58,031,648 $53,363,147 =========== =========== The accompanying notes are an integral part of these consolidated financial statements. 4 Boston Acoustics, Inc. and Subsidiaries Consolidated Balance Sheets (Unaudited) Liabilities and Shareholders' Equity ------------------------------------ March 31, 2001 June 30, 2001 -------------- -------------- Current Liabilities: Accounts payable $ 2,743,371 $ 3,304,045 Accrued payroll and payroll- related expenses 1,779,942 1,659,502 Dividends payable 418,990 418,863 Other accrued expenses 2,682,654 1,715,310 Accrued income taxes --- 73,365 Current maturity of line of credit 1,500,000 1,500,000 ----------- ----------- Total current liabilities 9,124,957 8,671,085 ----------- ----------- Line of credit, net of current portion 10,000,000 6,000,000 ----------- ----------- Minority interest in joint venture 27,325 41,405 ----------- ----------- Shareholders' Equity: Common stock, $.01 par value - Authorized -- 8,000,000 shares Issued -- 5,101,814 and 5,100,314 shares at March 31 and June 30, 2001 respectively 51,018 51,003 Additional paid-in capital 1,191,973 1,191,988 Subscriptions receivable (292,417) (272,917) Retained earnings 40,357,136 40,108,927 ----------- ----------- 41,307,710 41,079,001 Less-Treasury stock, 172,500 shares, at cost 2,428,344 2,428,344 ----------- ----------- Total shareholders' equity 38,879,366 38,650,657 ----------- ----------- $58,031,648 $53,363,147 =========== =========== The accompanying notes are an integral part of these consolidated financial statements. 5 Boston Acoustics, Inc. and Subsidiaries Consolidated Statements of Income (Unaudited) Three Months Ended ------------------ June 24, 2000 June 30, 2001 ------------- -------------- Net sales $22,823,028 $19,895,567 Cost of goods sold 15,558,859 14,385,137 ----------- ----------- Gross profit 7,264,169 5,510,430 ----------- ----------- Selling and marketing expenses 2,708,739 2,530,046 General and administrative expenses 1,234,186 1,155,093 Engineering and development expenses 1,375,650 1,324,256 ----------- ----------- Total operating expenses 5,318,575 5,009,395 ----------- ----------- Income from operations 1,945,594 501,035 Interest income 19,217 43,741 Interest expense (105,120) (160,028) Other expense (20,207) (11,094) ----------- ----------- Income before provision for income taxes 1,839,484 373,654 Provision for income taxes 690,000 203,000 ----------- ----------- Net income $ 1,149,484 $ 170,654 =========== =========== Net income per share Basic $ .23 $ .03 =========== =========== Diluted $ .23 $ .03 =========== =========== Weighted average common shares outstanding Basic 4,908,245 4,929,114 Diluted 4,914,654 4,941,282 Dividends per share $ .085 $ .085 =========== =========== The accompanying notes are an integral part of these consolidated financial statements. 6 Boston Acoustics, Inc. and Subsidiaries Consolidated Statements of Cash Flows (Unaudited)
Three Months Ended ------------------- June 24, 2000 June 30, 2001 ------------------- -------------- Cash flows from operating activities: Net income $ 1,149,484 $ 170,654 Adjustments to reconcile net income to net cash provided by operating activities- Depreciation and amortization 762,200 671,973 Changes in assets and liabilities, Accounts receivable 1,032,674 148,588 Inventories (2,084,254) 5,445,141 Prepaid expenses and other current assets 40,391 (60,031) Accounts payable 1,041,657 560,674 Accrued payroll and other accrued expenses 65,292 (1,087,784) Accrued income taxes 691,134 73,365 ----------- ----------- Net cash provided by operating activities 2,698,578 5,922,580 ----------- ----------- Cash flows from investing activities: Purchases of property and equipment, net (1,834,052) (210,997) Decrease (increase) in other assets (2,452) 11,582 ----------- ----------- Net cash used in investing activities (1,836,504) (199,415) ----------- ----------- Cash flows from financing activities: Dividends paid (417,201) (418,990) Repayments of line of credit (318,788) (4,000,000) Decrease in subscriptions receivable --- 19,500 ----------- ----------- Net cash used in financing activities (735,989) (4,399,490) ----------- ----------- Increase in cash and cash equivalents 126,085 1,323,675 Cash and cash equivalents, beginning of period 1,506,741 2,785,846 ----------- ----------- Cash and cash equivalents, end of period $ 1,632,826 $ 4,109,521 =========== =========== Supplemental Disclosure of NonCash Financing Activities: Dividends payable $ 417,201 $ 418,863 =========== =========== Minority interest in foreign subsidiary $ --- $ 14,080 =========== =========== Supplemental Disclosure of Cash Flow Information: Cash paid for income taxes $ --- $ 39,000 =========== =========== Cash paid for interest $ 111,887 $ 157,629 =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. 7 Boston Acoustics, Inc. and Subsidiaries Notes to Unaudited Consolidated Financial Statements (1) Basis of Presentation The unaudited consolidated financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission and include, in the opinion of management, all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of interim period results. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. The Company believes, however, that its disclosures are adequate to make the information presented not misleading. The results for the three-month period ended June 30, 2001 are not necessarily indicative of results to be expected for the full fiscal year. These financial statements should be read in conjunction with the Company's Annual Report included in its Form 10-K for fiscal year ended March 31, 2001. (2) Inventories Inventories are stated at the lower of cost (first-in, first-out) or market and consist of the following: March 31, 2001 June 30, 2001 -------------- ------------- Raw materials and work-in-process $ 8,374,305 $ 7,699,611 Finished goods 16,248,112 11,477,665 ----------- ----------- $24,622,417 $19,177,276 =========== =========== Work-in-process and finished goods inventories consist of materials, labor and manufacturing overhead. (3) Net Income Per Common Share The Company follows the provisions of Statement of Financial Accounting Standards (SFAS) No. 128, Earnings per Share. SFAS No. 128 establishes standards for computing and presenting earnings per share (EPS) and applies to entities with publicly held common stock or potential common stock. Basic EPS is computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution from common stock equivalents (stock options). For the three-month periods ended June 30, 2001 and June 24, 2000, there were 412,600 shares and 510,140 shares, respectively, that have been excluded from the weighted average number of common and dilutive potential shares outstanding as their effect would be anti-dilutive. 8 A reconciliation of the number of shares used in the calculation of basic and diluted income per share, is as follows: For the three months ended June 24, 2000 June 30, 2001 ------------- ------------- Basic weighted average common shares outstanding 4,908,245 4,929,114 Dilutive effect of assumed exercise of stock options 6,409 12,168 --------- --------- Weighted average common shares outstanding assuming dilution 4,914,654 4,941,282 ========= ========= (4) Segment Reporting The Company has two reportable segments: 1) core, and 2) original equipment manufacturer (OEM) and multimedia. 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. OEM and Three months ended June 30, 2001 Core Multimedia Total -------------------------------- ----------- ---------- ----------- Net Sales $12,822,736 $7,072,831 $19,895,567 =========== ========== =========== Gross profit $ 4,584,778 $ 925,652 $ 5,510,430 =========== ========== =========== OEM and Three months ended June 24, 2000 Core Multimedia Total -------------------------------- ----------- ---------- ----------- Net Sales $13,411,332 $9,411,696 $22,823,028 =========== ========== =========== Gross profit $ 4,825,776 $2,438,393 $ 7,264,169 =========== ========== =========== (5) Significant Customers For the three-month periods ended June 30, 2001 and June 24, 2000, two customers represented approximately 46% and 49% of the Company's net sales, respectively. (6) International Operations The Company maintains sales concentrations in Europe, Asia, and Canada in addition to distributing product through three foreign subsidiaries. Export sales accounted for approximately 20% and 17% of net sales for the three-month periods ended June 30, 2001 and June 24, 2000, respectively. 9 (7) 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 adopted the provisions of SFAS No. 133 and SFAS No.138 during its first quarter ended June 30, 2001. The adoption of this statement did not 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. (8) Reclassifications Certain amounts in the prior-period consolidated financial statements have been reclassified to conform to the current period's presentation. 10 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations The following table sets forth the results of operations for the three-month period ended June 24, 2000 and June 30, 2001 expressed as percentages of net sales. Three Months Ended ------------------ June 24, 2000 June 30, 2001 ------------- ------------- Net sales 100.0% 100.0% Cost of goods sold 68.2 72.3 ------ ------ Gross profit 31.8 27.7 ------ ------ Selling and marketing expenses 11.9 12.7 General and administrative expenses 5.4 5.8 Engineering and development expenses 6.0 6.7 ------ ------ Total operating expenses 23.3 25.2 ------ ------ Income from operations 8.5 2.5 Interest income (expense), net (.4) (.5) Other expense (.1) (.1) ------ ------ Income before provision for income taxes 8.0 1.9 Provision for income taxes 3.0 1.0 ------ ------ Net income 5.0% 0.9% ====== ====== Net sales decreased approximately 13 percent, from $22,823,000 during the first quarter of Fiscal 2001 to $19,896,000 during the first quarter of Fiscal 2002. The overall reduction in sales is the result of the continuing downturn in the economy and its significant impact on the Company's business segments, particularly computer multimedia speaker sales. Sales of the Company's core products decreased approximately 4.5 percent compared to the same three-month period a year ago, while sales of the OEM and Multimedia Retail segment were down 25 percent. During June 2001, the Company made initial shipments of its new VR-M80 and VR-M90 floor standing speakers systems, complimenting the VR-M50 and VR-M60 bookshelf speaker systems. Also included in this product category are the VR-MC center channel speaker and the VR-MX surround speakers. The VR-M80 and the VR- M90 with suggested retails of $2,000 and $2,700 per pair, respectively, are available in cherry or black ash real wood veneer. 11 The Company's gross margin for the three-month period ended June 30, 2001 decreased as a percentage of net sales from 31.8% to 27.7% due primarily to the product mix of OEM/Multimedia sales resulting in lower margins for the quarter as compared to the same period a year ago. Gross margins on the core business segment remained relatively stable despite lower margin closeout sales of discontinued products which were offset by cost savings experienced in production scrap expenses and warehousing costs as compared to the same period a year ago. Total operating expenses decreased in absolute dollars during the three- month period ended June 30, 2001 reflecting Company-wide reduced spending. However, as a percentage of net sales, total expenses increased due to the lower than expected sales level during the current three-month period. Selling and marketing expenses have decreased in absolute dollars primarily due to reductions in corporate advertising and related expenses compared to the same period a year ago. General and administrative expenses have also decreased in absolute dollars due to reductions in outside consulting services and insurance costs as compared to the same three-month period a year ago. Engineering and development expenses have decreased in absolute dollars reflecting the termination of offsite rented office space in August 2000 and reduced spending on supplies and outside services during the period ended June 30, 2001. Net interest expense increased in both absolute dollars and as a percentage of sales during the three-month period ended June 30, 2001. The increase is due to an increase in the Company's average quarterly outstanding line of credit balance for the period ended June 30, 2001 as compared to the period ended June 24, 2000. The increase was partially offset by lower borrowing rates as compared to the same three-month period a year ago and the repayment of $4 million of the Company's outstanding line of credit in June 2001. The Company's effective income tax rate decreased from 37.5% for the three- month period ended June 24, 2000 to 36.6% for the three-month period ended June 30, 2001 due to lower state income taxes and international sales representing a larger percentage of total sales for the current period. Net income for the three-month period ended June 30, 2001 decreased from approximately $1,149,000 to $171,000 while diluted earnings per share decreased from $.23 to $.03 per share. The decrease is primarily attributable to the overall decrease in sales, the low margin sales of discontinued products, and operating losses in the Company's European subsidiaries. Liquidity and Capital Resources As of June 30, 2001, the Company's working capital was approximately $28,745,000, a decrease of $3,756,000 since the end of Fiscal 2001. The decrease in working capital was primarily due to the repayments made on the Company's line of credit borrowings, as well as reductions in inventory balances. The Company's cash and cash equivalents were approximately $4,110,000 at June 30, 2001, an increase of $1,324,000 since March 31, 2001. Current liabilities decreased by approximately $454,000 due to decreases in accrued expenses partially offset by an increase in accounts payable. The Company has two lines of credit with two banking institutions totaling $26,500,000. At June 30, 2001, the Company had borrowings totaling $7,500,000 under its $25 million revolving credit agreement, and $0 outstanding under its $1.5 million revolving credit agreement. The Company believes that its current resources are adequate to meet its requirements for working capital and capital expenditures through at least Fiscal 2002. Significant Customers The Company's financial results for the three-month period ending June 30, 2001 include significant OEM sales of multimedia speaker systems to Gateway, Inc. ("Gateway"). The terms of these sales are governed by a 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. 12 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 as compared to Fiscal 2001. The loss of Gateway as a customer or any significant portion of orders from Gateway could have a material adverse affect on the Company's business, results of operations and financial position. In addition, the Company could also 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. 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. 13 PART II: OTHER INFORMATION Item 1. Legal Proceedings ----------------- None Item 2. Changes in Securities --------------------- None Item 3. Defaults Upon Senior Securities ------------------------------- None Item 4. Submission of Matters to a Vote of Security Holders --------------------------------------------------- None Item 5. Other Information ----------------- None Item 6. Exhibits and Reports on Form 8-K -------------------------------- No reports on Form 8-K were filed during the quarter ended June 30, 2001. 14 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Boston Acoustics, Inc. ---------------------- Registrant Date: August 13, 2001 By: /s/ Andrew G. Kotsatos ----------------------- Andrew G. Kotsatos Director, Chief Executive Officer and Treasurer Date: August 13, 2001 By: /s/ Moses A. Gabbay ------------------- Moses A. Gabbay Director, President and Chief Operating Officer Date: August 13, 2001 By: /s/ Debra A. Ricker-Rosato -------------------------- Debra A. Ricker-Rosato Vice President and Chief Accounting Officer 15 -----END PRIVACY-ENHANCED MESSAGE-----