-----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, V8ruQhYkf9BUkodSu6x56BkBbgqbaNJHVxcMPVaPk1rO4brxzv2wnCItE7cpR9iL xWj1whW3IlPs24pby9w1/g== 0001047469-98-031529.txt : 19980817 0001047469-98-031529.hdr.sgml : 19980817 ACCESSION NUMBER: 0001047469-98-031529 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980627 FILED AS OF DATE: 19980814 SROS: NASD 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: SEC FILE NUMBER: 000-15193 FILM NUMBER: 98689136 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 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 27, 1998 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 3,318,264 shares of Common Stock issued and outstanding as of August 12, 1998. - -------------------------------------------------------------------------------- Boston Acoustics, Inc. Index -----
Page ---- Part I: Financial Information Item 1. Financial Statements Consolidated Balance Sheets (Unaudited)- March 28, 1998 and June 27, 1998 4 Consolidated Statements of Income (Unaudited)- Three months ended June 28, 1997 and June 27, 1998 6 Consolidated Statements of Cash Flows (Unaudited)- Three months ended June 28, 1997 and June 27, 1998 7 Notes to Unaudited Consolidated Financial Statements 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 Part II: Other Information Items 1 through 6 13 Signatures 14
2 PART I: FINANCIAL INFORMATION Item 1: Financial Statements 3 Boston Acoustics, Inc. and Subsidiaries Consolidated Balance Sheets (Unaudited) Assets ------
March 28, 1998 June 27, 1998 -------------- ------------- Current Assets: Cash and cash equivalents $ 3,870,569 $ 3,339,148 Accounts receivable, net of reserve of approximately $402,000 and $382,000, respectively 11,439,178 10,550,950 Inventories 12,617,077 13,577,249 Deferred income taxes 1,092,000 1,092,000 Prepaid expenses and other current assets 395,087 399,222 ----------- ----------- Total current assets 29,413,911 28,958,569 ----------- ----------- Property and Equipment, at cost: Land 1,433,365 1,433,365 Building and improvements 7,061,479 7,078,094 Machinery and equipment 8,667,671 9,164,652 Office equipment and furniture 1,847,326 2,151,261 Motor vehicles 288,948 288,978 ----------- ----------- 19,298,789 20,116,350 Less-accumulated depreciation and amortization 8,005,621 8,394,023 ----------- ----------- 11,293,168 11,722,327 ----------- ----------- Other Assets: Other assets, net 1,792,125 1,641,305 ----------- ----------- $42,499,204 $42,322,201 ----------- ----------- ----------- -----------
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 28, 1998 June 27, 1998 -------------- ------------- Current Liabilities: Accounts payable $ 3,224,208 $ 5,254,542 Accrued payroll and payroll- related expenses 1,392,171 1,221,408 Dividends payable 414,287 414,783 Other accrued expenses 922,216 1,204,807 Accrued income taxes 142,075 645,056 Current maturity of line of credit 3,000,000 3,000,000 ----------- ----------- Total current liabilities 9,094,957 11,740,596 ----------- ----------- Line of credit, net of current portion (Note 4) 9,500,000 5,000,000 ----------- ----------- Commitments Shareholders' Equity: Common stock, $.01 par value - Authorized -- 6,000,000 shares Issued -- 4,624,218 and 4,628,185 shares at March 28, 1998 and June 27, 1998, respectively 46,242 46,282 Additional paid-in capital 5,854,845 5,927,994 Retained earnings 46,245,277 47,849,446 ----------- ----------- 52,146,364 53,823,722 Less--Treasury stock, 1,309,921 shares at March 28, 1998 and June 27, 1998, at cost 28,242,117 28,242,117 ----------- ----------- Total shareholders' equity 23,904,247 25,581,605 ----------- ----------- $42,499,204 $42,322,201 ----------- ----------- ----------- -----------
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 28, 1997 June 27, 1998 ------------- -------------- Net sales $ 12,415,276 $ 21,499,964 Cost of goods sold 6,974,138 13,989,938 ------------ ------------ Gross profit 5,441,138 7,510,026 ------------ ------------ Selling and marketing expenses 1,803,669 2,040,291 General and administrative expenses 918,005 1,002,533 Engineering and development expenses 976,300 1,097,503 ------------ ------------ Total expenses 3,697,974 4,140,327 ------------ ------------ Income from operations 1,743,164 3,369,699 Interest income 96,914 31,759 Interest expense (66,844) (196,506) ------------ ------------ Income before provision for income taxes 1,773,234 3,204,952 Provision for income taxes 639,000 1,186,000 ------------ ------------ Net income $ 1,134,234 $ 2,018,952 ------------ ------------ ------------ ------------ Basic earnings per share $ .28 $ .61 ------------ ------------ ------------ ------------ Diluted earnings per share $ .27 $ .58 ------------ ------------ ------------ ------------ Weighted average common shares outstanding Basic 4,029,774 3,316,316 Diluted 4,134,626 3,473,408 Dividends per share $ .125 $ .125 ------------ ------------ ------------ ------------
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 28,1997 June 27, 1998 ------------ ------------- Cash flows from operating activities: Net income $ 1,134,234 $ 2,018,952 Adjustments to reconcile net income to net cash provided by operating activities- Depreciation and amortization 408,316 538,297 Changes in assets and liabilities, net of acquisition-- Accounts receivable (22,897) 888,228 Inventories (1,720,217) (960,172) Prepaid expenses and other current assets 452,457 (4,135) Accounts payable 796,029 2,030,334 Accrued payroll and other accrued expenses (114,433) 111,828 Accrued income taxes 230,419 502,981 ------------ ----------- Net cash provided by operating activities 1,163,908 5,126,313 ------------ ----------- Cash flows from investing activities: Purchases of property and equipment, net (58,845) (817,561) Proceeds from sale of held-to-maturity investments 373,310 -- Increase in other assets (2,589) 925 ------------ ----------- Net cash provided by (used in) investing activities 311,876 (816,636) ------------ ----------- Cash flows from financing activities: Dividends paid (523,279) (414,287) Purchase of treasury stock (23,914,602) -- Proceeds from line of credit 20,825,000 -- Repayments of line of credit -- (4,500,000) Proceeds from exercise of stock options 56,661 73,189 ------------ ----------- Net cash used in financing activities (3,556,220) (4,841,098) ------------ ----------- Decrease in cash and cash equivalents (2,080,436) (531,421) Cash and cash equivalents, beginning of period 4,937,232 3,870,569 ------------ ----------- Cash and cash equivalents, end of period $ 2,856,796 $ 3,339,148 ------------ ----------- ------------ ----------- Supplemental Disclosure of NonCash Financing Activities: Dividends payable $ 411,421 $ 414,783 ------------ ----------- ------------ ----------- Supplemental Disclosure of Cash Flow Information: Cash paid for income taxes $ 408,582 $ 683,008 ------------ ----------- ------------ ----------- Cash paid for interest $ 66,844 $ 235,347 ------------ ----------- ------------ -----------
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 27, 1998 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 28, 1998. (2) Inventories Inventories are stated at the lower of cost (first-in, first-out) or market and consist of the following:
March 28, 1998 June 27,1998 -------------- ------------ Raw materials and work-in process $ 7,473,368 $ 8,456,667 Finished goods 5,143,709 5,120,582 ----------- ------------ $12,617,077 $13,577,249 ----------- ------------ ----------- ------------
Work-in-process and finished goods inventories consist of materials, labor and manufacturing overhead. (3) Net Income Per Common Share In February 1997, the Financial Accounting Standards Board issued SFAS No. 128, Earnings per Share. SFAS No. 128 establishes standards for computing and presenting earnings per share (EPS) and applies to entities with publicly held common stock or potential common stock. During the three-month period ending December 27, 1997 the Company adopted SFAS No. 128 and is now required to report both basic and diluted earnings per share. The Company has restated earnings per share for the comparative period for fiscal 1999 as required by SFAS No. 128. 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 and warrants). For the periods ended June 28, 1997 and June 27, 1998, there were no antidilutive shares for purposes of earnings per share. 8 Basic and diluted income per share, as required by SFAS No. 128, is as follows:
For the three months ended June 28, 1997 June 27, 1998 ------------- ------------- Net Income $1,134,234 $2,018,952 ---------- ---------- ---------- ---------- Basic weighted average common shares outstanding 4,029,774 3,316,316 Dilutive effect of assumed exercise of stock options and warrant 104,852 157,092 ---------- ---------- Weighted average common shares outstanding assuming dilution 4,134,626 3,473,408 ---------- ---------- ---------- ---------- Basic net income per share $ .28 $ .61 ---------- ---------- ---------- ---------- Diluted net income per share $ .27 $ .58 ---------- ---------- ---------- ----------
(4) Stock Options The following is a summary of stock option activity:
Weighted Number of Price Average Options Range Price - -------------------------------------------------------------------------------- Outstanding at March 28, 1998 334,569 $17.00 - $29.84 $22.28 Options granted -- -- -- Options exercised (3,967) $17.00 - $19.50 $18.45 -------------------------------------------------------------------------- Outstanding at June 27, 1998 330,602 $17.00 - $29.84 $22.33 -------------------------------------------------------------------------- -------------------------------------------------------------------------- Exercisable at June 27, 1998 102,149 $17.50 - $22.00 $20.57 -------------------------------------------------------------------------- --------------------------------------------------------------------------
9 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations The following table sets forth the results of operations for the three-month period ended June 28, 1997 and June 27, 1998 expressed as percentages of net sales.
Three Months Ended ------------------ June 28, 1997 June 27, 1998 ------------- ------------- Net sales 100.0% 100.0% Cost of goods sold 56.2 65.1 ----- ----- Gross profit 43.8 34.9 ----- ----- Selling and marketing expenses 14.5 9.5 General & administrative expenses 7.4 4.7 Engineering & development expenses 7.9 5.1 ----- ----- 29.8 19.3 ----- ----- Income from operations 14.0 15.6 Interest income, net .3 (.7) ----- ----- Income before provision for income taxes 14.3 14.9 Provision for income taxes 5.2 5.5 ----- ----- Net income 9.1% 9.4% ----- ----- ----- -----
Net sales increased 73 percent, from approximately $12,415,000 during the first quarter of fiscal 1998 to approximately $21,500,000 during the first quarter of fiscal 1999. The overall sales increase during the three-month period ended June 27, 1998 was primarily due to the OEM deliveries of multimedia speaker systems to Gateway, Inc. ("Gateway"), a leading global direct marketer of PC products. These products included the MediaTheater(TM) three-piece system, the BA635 three-piece system which replaced the original MicroMedia(TM) system, and the new DigitalTheater(TM) 6000, a complete, compact Dolby(R) Digital 5.1 sound system for use with computing and home theater systems. In addition, during June 1998, the Company began initial deliveries of a new generation of its flagship ProSeries automotive component speaker systems. The Company's gross margin for the three-month period ended June 27, 1998 increased in absolute dollars but decreased as a percentage of net sales from 43.8% to 34.9% due primarily to a shift in the sales mix to loudspeaker models with lower margins, particularly the Company's OEM multimedia speaker systems. 10 Total operating expenses increased in absolute dollars but decreased as a percentage of net sales during the three-month period ended June 27, 1998 as compared to the corresponding period a year ago. Selling and marketing expenses have increased in absolute dollars primarily due to increased salaries and benefits relating to additional personnel and increased marketing expenses associated with the new direct-to-consumer sales program for the Company's Personal Desktop Audio(TM) products. General and administrative expenses have remained relatively stable in absolute dollars, and as a result have decreased as a percentage of net sales for the three-month period ended June 27, 1998. Engineering and development expenses have increased in absolute dollars primarily due to increased salaries and benefits relating to additional personnel, as well as increased expenses relating to new product development. Net interest income of a year ago was replaced by net interest expense during the three-month period ended June 27, 1998 primarily due to the utilization of working capital and borrowings under the Company's line of credit in conjunction with the common stock repurchase in June 1997. The Company's effective income tax rate increased from 36% for the three-month period ended June 28, 1997 to 37% for the three-month period ended June 27, 1998. The increase is primarily due to (1) the Company being subject to a higher federal statutory tax rate (35%), (2) a decrease in tax-free instruments held by the Company and (3) a smaller proportion of the Company's income being derived outside the U.S. thereby reducing the tax benefits associated with the Company's foreign sales corporation. Net income for the first quarter of fiscal 1998 increased 78%, from approximately $1,134,000 to $2,019,000 in fiscal 1999. This increase was primarily the result of the increased sales growth, which was partially offset by the decrease in interest income. Diluted earnings per share increased 115% from $.27 to $.58 per diluted share for the three-month period ended June 27, 1998. Liquidity and Capital Resources During the first three months of fiscal 1999, the Company financed its growth with cash generated by operations. As of June 27, 1998 the Company's working capital was approximately $17,218,000, a decrease of $3,101,000 since the end of Fiscal 1998. The decrease in working capital was primarily due to the repayment made on the Company's line of credit borrowing. The Company's cash and cash equivalents were approximately $3,339,000. The Company's cash and cash equivalents at June 27, 1998 decreased by approximately $532,000 from March 28, 1998 primarily due to increased inventory levels and increased property and equipment relating to production tooling and computerized equipment partially offset by payments received on accounts receivable. Current indebtedness increased by approximately $2,646,000 primarily as a result of increases in accounts payable and other accrued expenses. The Company has two lines of credit with two banking institutions totaling $26,500,000. At June 27, 1998 the Company had borrowings totaling $8,000,000 under its $25 million revolving credit agreement. The Company believes that its resources are adequate to meet its requirements for working capital and capital expenditures through the next twelve months. Significant Customers The Company's financial results for the three-month period ending June 27, 1998 include significant OEM sales of multimedia speaker systems to Gateway. These sales are pursuant to various contracts that currently run through June 1999. Since these contracts do not contain schedules with which Gateway must comply in placing orders, orders by Gateway may fluctuate significantly from quarter to quarter over the terms of the contracts. Assuming Gateway places orders in the quantities required under the terms of the contracts by June 1999, a substantial portion of the Company's revenues for fiscal 1999 is expected to be derived from its contracts with Gateway. 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 operation 11 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. Year 2000 Compliance The Company is in the process of updating its computer systems to ensure that they are Year 2000 compliant and to improve the Company's overall manufacturing, planning and inventory related systems. In the current fiscal year, the Company is investing in its computer systems and applications to ensure that the Company is Year 2000 compliant. The Company believes that the Company's computer system will be Year 2000 compliant. The financial impact to the Company of its Year 2000 compliance programs has not been and is not anticipated to be material to its financial position or results of operations in any given year. While the Company does not believe it will suffer any major effects from the Year 2000 issue, it is possible that such effects could materially impact future financial results, or cause reported financial information not to be necessarily indicative of future operating results or future financial condition. In addition, if any of the Company's significant customers or suppliers do not successfully and in a timely manner achieve Year 2000 compliance, the Company's business could be materially affected. 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. 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. 12 PART II: OTHER INFORMATION Item 1. Legal Proceedings None Item 2. Changes in Securities None Item 3. Defaults Upon Senior Securities None Item 4. Submission of Matters to a Vote of Security Holders None Item 5. Other Information None Item 6. Exhibits and Reports on Form 8-K a) Exhibits Exhibit 27. - Financial Data Schedule b) Reports on Form 8-K No reports on Form 8-K were filed during the quarter ended June 27, 1998. 13 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 12, 1998 By: s/Andrew G. Kotsatos ------------------------ Andrew G. Kotsatos Director, Chief Executive Officer and Treasurer Date: August 12, 1998 By: s/Fred E. Faulkner, Jr. ------------------------ Fred E. Faulkner, Jr. Director, President and Chief Operating Officer Date: August 12, 1998 By: s/Debra A. Ricker-Rosato ------------------------ Debra A. Ricker-Rosato Vice President and Chief Accounting Officer 14 EX-27 2 EX-27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S FINANCIAL STATEMENTS IN ITS QUARTERLY REPORT ON FORM 10Q FOR THE QUARTERLY PERIOD ENDED JUNE 27, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000805268 BOSTON ACOUSTICS, INC. 3-MOS MAR-27-1999 JUN-27-1998 3339148 0 10550950 382000 13577249 28958569 20116350 8394023 42322201 11740596 5000000 46282 0 0 53777440 42322201 21499964 21499964 13989938 4140327 0 0 196506 3204952 1186000 2018952 0 0 0 2018952 0.61 0.58
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