<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 SEPTEMBER 29, 1996
--------------------------
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
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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 October
31, 1996: 1,802,035 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>
Assets September 29, March 31,
------ 1996 1996
(Unaudited)
------------- ------------
<S> <C> <C>
Current assets:
Cash and short-term investments $ 350,862 184,118
Trade accounts receivable, net of allowance
for doubtful accounts of $168,499 at
September 29 and $170,396 at March 31 12,845,046 15,660,909
Inventories:
Finished goods 4,599,555 3,579,287
Work-in-process 1,228,911 596,436
Raw materials and supplies 5,188,075 3,752,715
----------- -----------
Total inventories 11,016,541 7,928,438
----------- -----------
Deferred income taxes 469,000 469,000
Prepaid expenses and other current assets 475,242 298,831
----------- -----------
Total current assets 25,156,691 24,541,296
Property and equipment, at cost less accumulated
depreciation and amortization 4,469,745 4,626,848
Other assets 262,378 262,775
Notes receivable-officers 225,946 224,237
Deferred income taxes 536,000 536,000
----------- -----------
Total assets $ 30,650,760 30,191,156
=========== ===========
<CAPTION>
Liabilities and Stockholders' Equity
------------------------------------
<S> <C> <C>
Current liabilities:
Accounts payable, trade $ 5,849,988 4,666,043
Bank overdraft -- 450,336
Income taxes payable 222,911 228,445
Accrued expenses and other current liabilities 2,217,577 2,429,938
Current portion of long-term debt 400,000 400,000
Current portion of accrued product warranty 304,864 290,000
----------- -----------
Total current liabilities 8,995,340 8,464,762
Long-term debt, net of current portion 5,424,359 6,055,149
Accrued product warranty, less current portion 261,799 235,000
----------- -----------
Total liabilities 14,681,498 14,754,911
----------- -----------
Stockholders' equity:
Common stock, par value $.01 per share. Authorized
20,000,000 shares; issued 1,802,035 shares. 18,020 17,970
Additional paid-in-capital 1,284,439 1,253,489
Foreign currency translation adjustment (34,003) (55,373)
Note receivable-stock (822,250) (814,500)
Retained earnings 15,523,056 15,034,659
----------- -----------
Total stockholders' equity 15,969,262 15,436,245
----------- -----------
Total liabilities and stockholders' equity $ 30,650,760 30,191,156
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
page 2
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POLK AUDIO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS AND RETAINED EARNINGS
(Unaudited)
<TABLE>
<CAPTION>
Quarter ended Six months ended
------------------------------ --------------------------------
Sept. 29, Oct. 1, Sept. 29, Oct. 1,
1996 1995 1996 1995
(13-Weeks) (13-Weeks) (26-Weeks) (27-Weeks)
------------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Net sales $14,479,339 11,239,712 25,763,295 20,982,033
Cost of Goods Sold 8,336,109 6,422,386 14,848,587 11,992,272
------------ ----------- ----------- -----------
Gross profit 6,143,230 4,817,326 10,914,708 8,989,761
Selling, research, general and
administrative expenses 5,280,078 4,567,216 9,917,144 8,880,560
------------ ----------- ----------- -----------
Operating income 863,152 250,110 997,564 109,201
------------ ----------- ----------- -----------
Other income (expense):
Interest income 2,657 15,928 3,416 38,840
Other, net 112 (2,144) 2,719 (6,762)
Interest expense (97,086) (60,877) (176,680) (115,064)
------------ ----------- ----------- -----------
Total other expense (94,317) (47,093) (170,545) (82,986)
------------ ----------- ----------- -----------
Earnings before income
taxes 768,835 203,017 827,019 26,215
Income taxes 315,122 83,000 338,622 11,000
------------ ----------- ----------- -----------
Net earnings 453,713 120,017 488,397 15,215
Retained earnings at beginning
of period 15,069,343 13,756,146 15,034,659 13,860,948
------------ ----------- ----------- -----------
Retained earnings at end of
period $15,523,056 13,876,163 15,523,056 13,876,163
============ =========== =========== ===========
Earnings per share $.25 .07 .27 .01
====== ==== ==== ====
</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
---------------------------------
Sept. 29, Oct. 1,
1996 1995
(26-Weeks) (27-Weeks)
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 488,397 15,215
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 1,041,893 985,301
Gain on sale of fixed assets (4,963) (9,880)
Increase (decrease) from changes in:
Accounts receivable 2,815,863 (1,625,226)
Inventories (3,088,103) 340,585
Income taxes recoverable or payable (5,534) (148,313)
Prepaid expenses and other current assets (176,411) (477,634)
Accounts payable, trade 1,182,236 1,813,628
Accrued product warranty 41,663 22,002
Accrued expenses and other current
liabilities (212,361) (700,783)
------------ ------------
Net cash provided by operating
activities 2,082,680 214,895
------------ ------------
Cash flows from investing activities:
Purchases of property and equipment (884,791) (2,358,331)
Decrease in other assets 397 309,347
Proceeds from sale of property and equipment 4,963 9,880
Repayments of notes receivable -- 85,443
------------ ------------
Net cash used in investing
activities (879,431) (1,953,661)
------------ ------------
Cash flows from financing activities:
Decrease in bank overdraft (450,336) --
Payments on long-term notes payable (630,790) (1,000,000)
Increases in long-term notes payable -- 2,100,000
Proceeds from exercise of stock options 23,250 --
------------ ------------
Net cash provided by (used in) financing
activities (1,057,876) 1,100,000
------------ ------------
Net decrease in cash and cash
equivalents 145,373 (638,766)
Effect of exchange rate changes on cash 21,371 23,616
Cash and cash equivalents, beginning of period 184,118 615,150
------------ ------------
Cash and cash equivalents, end of period $ 350,862 --
============ ============
</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 31, 1996.
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 September
29, 1996 and October 1, 1995 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 three month periods were
1,828,370 in fiscal 1997 and 1,632,035 in fiscal 1996. 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
For the second quarter of fiscal 1997, net earnings were $453,713 or $0.25
per share, compared with a net profit of $120,017, or $0.07 per share, for the
second quarter of fiscal 1996, and were $488,397 or $0.27 per share for the
first six months of fiscal 1997 as compared to $15,215 or $0.01 per share for
the first six months of fiscal 1996. The following table presents the
components of net earnings as a percentage of net sales for the periods
indicated.
<TABLE>
<CAPTION>
Sept. 29, Oct. 1, Sept. 29, Oct. 1,
1996 1995 1996 1995
(13 Weeks) (13 Weeks) (26 Weeks) (27 Weeks)
(Unaudited)
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales 100.0 % 100.0 % 100.0 % 100.0 %
Cost of goods sold 57.6 57.2 57.6 57.2
---------- ---------- ---------- ----------
Gross profit 42.4 42.8 42.4 42.8
Selling, research, general
& administrative expenses 36.5 40.6 38.5 42.3
---------- ---------- ---------- ----------
Operating income 5.9 2.2 3.9 0.5
Other expense, net 0.6 0.4 0.7 0.4
---------- ---------- ---------- ----------
Earnings before income taxes 5.3 1.8 3.2 0.1
Income taxes 2.2 0.7 1.3 0.0
---------- ---------- ---------- ----------
Net earnings 3.1 % 1.1 % 1.9 % 0.1 %
========== ========== ========== ==========
</TABLE>
NET SALES AND COST OF GOODS SOLD
Net sales increased 28.8% to $14,479,339 for the second quarter of fiscal
1997 as compared to the second quarter of fiscal 1996, and increased 22.8% to
$25,763,295 for the first six months of fiscal 1997 as compared to the first
six months of fiscal 1996. The increase in net sales resulted from Eosone home
product sales that were not in existence during the second quarter of fiscal
1996, coupled with increased overall demand for Polk home products including
the R Series and RT20 Powered Tower products introduced during the quarter.
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 57.6% for
the second quarter of fiscal 1997 from 57.2% for the second quarter of fiscal
1996 and increased to 57.6% for the first six months of fiscal 1997 from 57.2%
for the first six months of fiscal 1996. The increase in cost of goods sold,
as a percentage of net sales, resulted from sales of certain discontinued
products during the quarter at lower margins coupled with promotional Eosone
sales at lower margins, partially offset by lower direct labor costs during the
quarter compared with the prior year.
SELLING, RESEARCH, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, research, general and administrative (SRG&A) expenses increased
15.6% to $5,280,078 for the second quarter of fiscal 1997 as compared to the
second quarter of fiscal 1996 and increased 11.7% to $9,917,144 for the first
six months of fiscal 1997 as compared to the first six months of fiscal 1996.
As a percentage of net sales, SRG&A expenses decreased to 36.5% for the second
quarter of fiscal 1997 from 40.6% for the second quarter of fiscal 1996 and
decreased to 38.5% for the first six months of fiscal 1997 from 42.3% in the
first six months of fiscal 1996. The dollar increase in SRG&A expenses
resulted primarily from increased variable selling costs related to the higher
sales volume, higher sales promotion costs and higher general and
administrative expenses, partially offset by lower R&D expenses resulting from
the completed development of the Eosone line.
OTHER EXPENSE AND INCOME TAXES
Other expense was $94,317 for the second quarter of fiscal 1997 as
compared to $47,093 for the second quarter of fiscal 1996. Other expense was
$170,545 for the first six months of fiscal 1997 as compared to $82,986 for the
first six months of fiscal 1996. The change in other expense was largely a
result of interest costs incurred on higher bank loan borrowings during the
quarter and six months when compared with the prior year. Income taxes, as a
percentage of earnings before income taxes, were 41.0% for the second quarter
of fiscal 1997 compared to 40.9% for the second quarter of fiscal 1996 and
40.9% for the first six months of fiscal 1997 as compared to 42.0% for the
first six months of fiscal 1996.
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 second quarter of fiscal
1997 was $2,082,682. As of September 29, 1996, the Company's working capital
was $16,161,351 and its current ratio was 2.8 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 approximately
$2,076,000 was available at September 29,1996, and an unsecured five-year term
loan agreement with the same bank for $2,000,000, of which $1,400,000 was
outstanding at September 29, 1996. The Company is currently negotiating to
increase the revolving credit agreement to $8,000,000 and believes working
capital and temporary borrowings from its credit agreements will be sufficient
to meet its current operating needs and anticipated capital expenditures for
the remainder of fiscal 1997.
Part II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
At the Company's Annual Stockholders' Meeting held on August 5, 1996 the
stockholders elected directors to a one-year term as follows: George M.
Klopfer (1,545,503 shares voted for, 82,082 shares voted against), Matthew S.
Polk, Jr. (1,545,403 shares voted for, 82,182 shares voted against), Craig C.
Georgi (1,545,390 shares voted for, 82,195 shares voted against), Wilbert H.
Sirota (1,545,503 shares voted for, 82,082 shares voted against), and Robert B.
Barnhill, Jr. (1,544,177 shares voted for, 83,408 shares voted against).
The stockholders also ratified and approved (1,053,114 shares voted for,
157,200 shares voted against and 5,200 abstentions) certain amendments to the
1986 Equity Participation Plan, previously approved by the Board of Directors
on March 26, 1996 and as more fully described in the Proxy Statement.
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)
October 31, 1996 /s/ George M. Klopfer
------------------------------
George M. Klopfer
Chief Executive Officer
/s/ Gary B. Davis
------------------------------
Gary B. Davis
Treasurer, Chief Financial
Officer and Chief
Accounting Officer
page 9
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-30-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> SEP-29-1996
<CASH> 350,862
<SECURITIES> 0
<RECEIVABLES> 13,013,545
<ALLOWANCES> 168,499
<INVENTORY> 11,016,541
<CURRENT-ASSETS> 25,156,691
<PP&E> 10,153,905
<DEPRECIATION> 5,684,164
<TOTAL-ASSETS> 30,650,760
<CURRENT-LIABILITIES> 8,995,340
<BONDS> 0
0
0
<COMMON> 18,020
<OTHER-SE> 15,951,242
<TOTAL-LIABILITY-AND-EQUITY> 30,650,760
<SALES> 25,763,295
<TOTAL-REVENUES> 25,763,295
<CGS> 14,848,587
<TOTAL-COSTS> 24,765,731
<OTHER-EXPENSES> 170,545
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 176,680
<INCOME-PRETAX> 827,019
<INCOME-TAX> 338,622
<INCOME-CONTINUING> 488,397
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 488,397
<EPS-PRIMARY> 0.27
<EPS-DILUTED> 0.27
</TABLE>
