<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
/X/ Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the period ended OCTOBER 1, 1995
-------------------
or
/ / Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
---------------- ----------------
Commission File Number: 0-14729
---------------
POLK AUDIO, INC.
----------------------------------------------------------
(Exact name of the registrant as specified in its charter)
MARYLAND 52-0954180
- ------------------------------ -------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5601 METRO DRIVE, BALTIMORE, MARYLAND 21215
-------------------------------------------------------
(Address and principal executive offices) (Zip code)
(410) 358-3600
----------------------------------------------------
(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.
/X/ Yes / / No
Number of shares of common stock of the registrant outstanding as of
November 14, 1995: 1,632,035 SHARES.
page 1
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PART I. FINANCIAL INFORMATION
Item 1. Financial statements
POLK AUDIO, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
October 1, March 26,
Assets 1995 1995
------ (Unaudited)
----------- -----------
<S> <C> <C>
Current assets:
Cash and short-term investments $ -- 615,150
Trade accounts receivable, net of allowance
for doubtful accounts of $154,954 at
October 1 and $160,287 at March 26 10,224,786 8,599,560
Inventories:
Finished goods 3,523,552 4,019,699
Work-in-process 488,230 882,336
Raw materials and supplies 3,677,383 3,127,715
----------- -----------
Total inventories 7,689,165 8,029,750
----------- -----------
Note receivable -- 85,443
Deferred income taxes 470,000 470,000
Prepaid expenses and other current assets 1,081,951 456,003
----------- -----------
Total current assets 19,465,902 18,255,906
Property and equipment, at cost less accumulated
depreciation and amortization 4,418,125 3,045,095
Other assets 335,265 644,612
Deferred income taxes 278,000 278,000
----------- -----------
Total assets $ 24,497,292 22,223,613
=========== ===========
<CAPTION>
Liabilities and Stockholders' Equity
------------------------------------
<S> <C> <C>
Current liabilities:
Current portion of long-term debt $ 400,000 400,000
Accounts payable, trade 4,336,223 2,522,595
Current portion of accrued product warranty 256,702 249,700
Accrued expenses and other current liabilities 1,520,795 2,221,577
----------- -----------
Total current liabilities 6,513,720 5,393,872
Long-term debt, net of current portion 3,500,000 2,400,000
Accrued product warranty, less current portion 208,300 193,300
Pension liability 83,836 83,836
----------- -----------
Total liabilities 10,305,856 8,071,008
----------- -----------
Stockholders' equity:
Common stock, par value $.01 per share. Authorized
20,000,000 shares; issued 1,632,035 shares. 16,317 16,320
Additional paid-in-capital 302,514 302,514
Foreign currency translation adjustment (3,558) (27,177)
Retained earnings 13,876,163 13,860,948
----------- -----------
Total stockholders' equity 14,191,436 14,152,605
----------- -----------
Total liabilities and stockholders' equity $ 24,497,292 22,223,613
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
page 2
<PAGE> 3
POLK AUDIO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS AND RETAINED EARNINGS
(Unaudited)
<TABLE>
<CAPTION>
Quarter ended Six Months Ended
------------------------ -----------------------
Oct 1, Sept 25, Oct 1, Sept 25,
1995 1994 1995 1994
(13-Weeks) (13-Weeks) (27-Weeks) (26-Weeks)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $11,239,712 10,280,382 20,982,033 16,975,813
Cost of goods sold 6,422,386 5,653,720 11,992,272 9,656,771
----------- ---------- ---------- ----------
Gross profit 4,817,326 4,626,662 8,989,761 7,319,042
Selling, research, general and
administrative expenses 4,567,216 3,860,260 8,880,560 7,102,230
----------- ---------- ---------- ----------
Operating income 250,110 766,402 109,201 216,812
Other income (expense):
Interest income 15,928 6,810 38,840 14,136
Other, net (2,144) 17,796 (6,762) 21,820
Interest expense (60,877) (2,500) (115,064) (2,500)
------------ ----------- ----------- -----------
Total other income(expense) (47,093) 22,106 (82,986) 33,456
------------ ----------- ---------- ----------
Earnings before
income taxes 203,017 788,508 26,215 250,268
Income taxes 83,000 287,000 11,000 89,016
--------- ----------- ---------- ----------
Net earnings 120,017 501,508 15,215 161,252
Retained earnings at beginning
of period 13,756,146 12,068,756 13,860,948 12,409,012
----------- ---------- ---------- ----------
Retained earnings at end of
period $13,876,163 12,570,264 13,876,163 12,570,264
=========== ========== ========== ==========
Earnings per share $.07 $.30 $.01 $.10
====== ====== ====== ======
(note 2)
</TABLE>
See accompanying notes to consolidated financial statements.
page 3
<PAGE> 4
POLK AUDIO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six months ended
--------------------------
Oct 1, Sept 24,
1995 1994
(27-Weeks) (26-Weeks)
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 15,215 161,252
Adjustments to reconcile net earnings to net
cash provided by (used in) operating activities:
Depreciation and amortization 985,301 684,879
Gain on sale of fixed assets (9,880) (6,000)
Increase (decrease) from changes in:
Accounts receivable (1,625,226) (1,613,465)
Inventories 340,585 (1,576,499)
Income taxes recoverable or payable (148,313) 24,150
Prepaid expenses and other current assets (477,634) (234,215)
Accounts payable, trade 1,813,628 1,312,308
Accrued product warranty 22,002 5,000
Accrued expenses and other current
liabilities (700,783) 354,839
Other -- (34,622)
----------- ----------
Net cash provided by (used in)operating
activities 214,895 (922,373)
---------- ----------
Cash flows from investing activities:
Decrease in notes receivable 85,443 --
Purchases of property and equipment (2,358,331) (764,720)
(Increase) decrease in other assets 309,347 (97,603)
Proceeds from sale of property and equipment 9,880 6,000
----------- ---------
Net cash used in investing
activities (1,953,661) (856,323)
----------- ----------
Cash flows from financing activities:
Increases in long-term notes payable 2,100,000 750,000
Payments on long-term notes payable (1,000,000) --
----------- ----------
Net cash provided by financing
activities 1,100,000 750,000
----------- ----------
Net decrease in cash and cash
equivalents (638,766) (1,028,696)
Effect of exchange rate changes on cash 23,616 --
Cash and cash equivalents, beginning of period 615,150 1,028,696
------------ ----------
Cash and cash equivalents, end of period $ -- --
============ ==========
</TABLE>
See accompanying notes to consolidated financial statements.
page 4
<PAGE> 5
POLK AUDIO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) Consolidated financial statements
The consolidated financial statements included herein do not include
all information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles. For further information, such as the significant accounting
policies followed by the Company, refer to the Notes to Financial Statements
set forth in the Company's Annual Report on Form 10-K for the fiscal year ended
March 26, 1995.
In the opinion of management, the consolidated financial statements
include all necessary adjustments (consisting of normal recurring accruals) for
a fair presentation of the financial position, results of operations and cash
flows for the interim periods presented.
The results of operations and cash flows for the periods ended October
1, 1995 and September 25, 1994 are not necessarily indicative of the results to
be expected for the full fiscal year.
(2) Earnings per share
Earnings per share are based on the weighted average number of shares of
common stock and common stock equivalents outstanding during each period. The
number of shares used in the computations for the six month periods were
1,710,861 in fiscal 1996 and 1,659,954 in fiscal 1995. Dilutive stock options
granted to employees are treated as common stock equivalents.
page 5
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PART I. FINANCIAL INFORMATION (CONTINUED)
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net earnings of $120,017 or $.07 per share, for the second quarter of fiscal
1996 decreased from $501,508, or $.30 per share, for the second quarter of
fiscal 1995. Net earnings of $15,215, or $.01 per share, for the first six
months of fiscal 1996 decreased from $161,252, or $.10 per share, for the first
six months of fiscal 1995. The following table presents the components of net
earnings as a percentage of net sales for the periods indicated.
<TABLE>
<CAPTION>
Quarter ended Six months ended
--------------------- ---------------------
Oct. 1, Sept. 25, Oct. 1, Sept. 25,
1995 1994 1995 1994
(13 weeks) (13 weeks) (27 weeks) (26 weeks)
(Unaudited) (Unaudited)
--------------------- ----------------------
<S> <C> <C> <C> <C>
Net sales 100.0 % 100.0 % 100.0 % 100.0 %
Cost of goods sold (57.2) (55.0) (57.2) (56.9)
------ ------ ------ ------
Gross profit 42.8 45.0 42.8 43.1
Selling, research, general
& administrative expenses (40.6) (37.6) (42.3) (41.8)
------ ------ ------ ------
Operating income 2.2 7.4 0.5 1.3
Other income, net (0.4) 0.3 (0.4) 0.2
------ ------ ------ ------
Earnings before income
taxes 1.8 7.7 0.1 1.5
Income taxes (0.7) (2.8) (0.0) (0.5)
------ ------ ------ ------
Net earnings 1.1 % 4.9 % 0.1 % 1.0 %
====== ====== ====== ======
</TABLE>
NET SALES AND COST OF GOODS SOLD
Net sales increased 9.3% to $11,239,712 for the second quarter of fiscal
1996 as compared to the second quarter of fiscal 1995, and increased 23.6% to
$20,982,033 for the first six months of fiscal 1996 as compared to the first
six months of fiscal 1995. The increase in net sales resulted from higher
demand experienced primarily in the domestic markets with contributing
increased demand in the export markets. This increased demand is related to
several new product introductions throughout fiscal 1996 coupled with increased
distribution. Although net sales increased as compared to the prior year, net
sales fell short of budgeted sales as a result of late introductions of new
products.
page 6
<PAGE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS, CONTINUED
Cost of goods sold, as a percentage of net sales, increased to 57.2% for the
second quarter of fiscal 1996 from 55.0% for the second quarter of fiscal 1995,
and increased to 57.2% for the first six months of fiscal 1996 from 56.9% for
the first six months of fiscal 1995. The increase in cost of goods sold, as a
percentage of net sales, primarily resulted from increases in direct material
costs partially offset by decreases in direct labor costs.
SELLING, RESEARCH, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, research, general and administrative (SRG&A) expenses increased
18.3% to $4,567,216 for the second quarter of fiscal 1996 as compared to the
second quarter of fiscal 1995, and increased 25.0% to $8,880,560 for the first
six months of fiscal 1996 as compared to the first six months of fiscal 1995.
As a percentage of net sales, SRG&A expenses increased to 40.6% for the second
quarter of fiscal 1996 from 37.6% for the second quarter of fiscal 1995, and
increased to 42.3% for the first six months of fiscal 1996 from 41.8% for the
same period of fiscal 1995. The increase in SRG&A expenses resulted primarily
from higher variable selling and shipping costs, higher marketing and
promotion costs, as well as higher research and development costs.
OTHER INCOME AND EXPENSE AND INCOME TAXES
Other income (expense) was $(47,093) for the second quarter of fiscal 1996
as compared to $22,106 for the second quarter of fiscal 1995. Other income
(expense) was $(82,986) for the first six months of fiscal 1996 as compared to
$33,456 for the first six months of fiscal 1995. The change in other income
(expense) was mainly a result of interest costs incurred on higher bank loan
borrowings during the quarter when compared to the prior year. Income taxes,
as a percentage of earnings before income taxes, were 40.9% for the second
quarter of fiscal 1996 and 42.0% for the first six months of fiscal 1996
compared to 36.4% for the second quarter of fiscal 1995 and 35.6% for the first
six months of fiscal 1995. The increase in income taxes, as a percentage of
earnings before income taxes, is primarily a result of higher state income
taxes coupled with an increase in the federal tax rate.
SEASONALITY
The home audio market is somewhat seasonal, with the majority of the
Company's sales and earnings occurring historically in the quarters ending
December and March.
page 7
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS, CONTINUED
Liquidity and Capital Resources
The Company has historically financed its operations through cash generated
by operations, term loan borrowings, revolving credit line borrowings and
normal trade credit extended by its suppliers.
Net cash provided by operating activities during the first six months of
fiscal 1996 was $214,895. As of October 1, 1995, the Company's working capital
was $12,952,182 and its current ratio was 3.0 to 1. In addition, the Company
presently has an unsecured revolving credit agreement with a commercial bank
providing for maximum borrowings of $6,500,000, of which $4,300,000 was
available at October 1, 1995. The Company also has an unsecured five-year term
loan agreement with the same bank for $2,000,000, $1,700,000 was outstanding at
October 1, 1995. The Company believes working capital and temporary borrowings
from its credit agreement will be sufficient to meet its current operating
needs and anticipated capital expenditures for the remainder of fiscal 1996.
Part II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
At the Company's Annual Stockholders' Meeting held on July 31, 1995 the
stockholders elected directors to a one-year term as follows: George M.
Klopfer (1,550,452 shares voted for, 10,284 shares voted against, 81,583 shares
withheld), Matthew S. Polk, Jr. (1,550,452 shares voted for, 10,284 shares
voted against, 81,583 shares withheld), Craig C. Georgi (1,550,452 shares voted
for, 10,284 shares voted against, 81,583 shares withheld), Wilbert H. Sirota
(1,550,452 shares voted for, 10,284 shares voted against, 81,583 shares
withheld), and Robert B. Barnhill, Jr. (1,550,452 shares voted for, 10,284
shares voted against, 81,583 shares withheld).
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
None
(b) Reports on Form 8-K:
None.
page 8
<PAGE> 9
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
POLK AUDIO, INC.
----------------
(Registrant)
November 14, 1995 /S/ George M. Klopfer
-------------------------------
George M. Klopfer
President & CEO
/S/ Gary B. Davis
-------------------------------
Gary B. Davis
Chief Financial Officer
page 9
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> MAR-27-1995
<PERIOD-END> OCT-01-1995
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 10,386,464
<ALLOWANCES> 154,954
<INVENTORY> 7,689,165
<CURRENT-ASSETS> 1,551,951
<PP&E> 10,288,041
<DEPRECIATION> 5,869,916
<TOTAL-ASSETS> 24,497,292
<CURRENT-LIABILITIES> 6,513,720
<BONDS> 0
<COMMON> 16,317
0
0
<OTHER-SE> 14,175,119
<TOTAL-LIABILITY-AND-EQUITY> 24,497,292
<SALES> 20,982,033
<TOTAL-REVENUES> 20,982,033
<CGS> 11,992,272
<TOTAL-COSTS> 11,992,272
<OTHER-EXPENSES> 8,880,560
<LOSS-PROVISION> 60,000
<INTEREST-EXPENSE> 115,064
<INCOME-PRETAX> 26,215
<INCOME-TAX> 11,000
<INCOME-CONTINUING> 15,215
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,215
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
