<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 JUNE 29, 1997
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or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
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Commission File Number: 0-14729
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POLK AUDIO, INC.
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(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
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(Address and principal executive offices) (Zip code)
(410) 358-3600
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(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 August 08,
1997: 1,823,035 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>
June 29, March 30,
1997 1997
Assets (Unaudited)
------ ------------ ----------
<S> <C> <C>
Current assets:
Cash and short-term investments $ 96,759 422,043
Trade accounts receivable, net of allowance
for doubtful accounts of $455,322 at
June 29 and $385,107 at March 30 7,204,179 9,510,232
Inventories:
Finished goods 4,785,341 4,109,323
Work-in-process 1,037,300 804,199
Raw materials and supplies 3,072,782 2,985,000
------------ ----------
Total inventories 8,895,423 7,898,522
------------ ----------
Income Taxes Recoverable 325,295 53,184
Deferred income taxes 795,000 784,000
Prepaid expenses and other current assets 1,075,470 671,769
------------ ----------
Total current assets 18,392,126 19,339,750
Property and equipment, at cost less accumulated
depreciation and amortization 4,846,125 4,299,000
Other assets 380,741 382,686
Notes receivable-officers 225,946 225,946
Deferred income taxes 750,000 750,000
------------ ----------
Total assets $ 24,594,938 24,997,382
============ ==========
<CAPTION>
Liabilities and Stockholders' Equity
------------------------------------
<S> <C> <C>
Current liabilities:
Accounts payable, trade $ 3,454,712 2,758,117
Bank overdraft -- 44,126
Accrued expenses and other current liabilities 1,563,520 2,302,394
Current portion of long-term debt 400,000 400,000
Current portion of accrued product warranty 270,000 267,000
------------ ----------
Total current liabilities 5,688,232 5,771,637
Long-term debt, net of current portion 2,365,064 2,346,795
Accrued product warranty, less current portion 344,000 335,000
------------ ----------
Total liabilities 8,397,296 8,453,432
------------ ----------
Stockholders' equity:
Common stock, par value $.01 per share. Authorized
20,000,000 shares; issued 1,823,035 shares. 18,230 18,230
Additional paid-in-capital 1,586,478 1,586,478
Foreign currency translation adjustment (22,608) (24,896)
Note receivable-stock (822,250) (822,250)
Retained earnings 15,437,792 15,786,388
------------ ----------
Total stockholders' equity 16,197,642 16,543,950
------------ ----------
Total liabilities and stockholders' equity $ 24,594,938 24,997,382
============ ==========
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE> 3
POLK AUDIO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS AND RETAINED EARNINGS
(Unaudited)
<TABLE>
<CAPTION>
Quarter ended
------------------------
June 29, June 30,
1997 1996
------------------------
<S> <C> <C>
Net sales $9,752,202 11,283,956
Cost of goods sold 5,976,889 6,512,478
------------ -----------
Gross profit 3,775,313 4,771,478
Selling, research, general and
administrative expenses 4,377,512 4,637,066
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Operating income (loss) (602,199) 134,412
------------ -----------
Other income (expense):
Interest income 14,456 760
Other, net 35,000 2,607
Interest expense (36,853) (79,595)
------------ -----------
Total other income (expense) 12,603 (76,228)
------------ -----------
Earnings (loss) before income
taxes (benefit) (589,596) 58,184
Income taxes (benefit) (241,000) 23,500
------------ -----------
Net earnings (loss) (348,596) 34,684
Retained earnings at beginning
of period 15,786,388 15,034,659
------------ -----------
Retained earnings at end of
period $15,437,792 15,069,343
============ ===========
Earnings (loss) per share $(.19) .02
===== ===
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE> 4
POLK AUDIO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
------------------------
June 29, June 30,
1997 1996
------------------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ (348,596) 34,684
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 462,156 474,914
Gain on sale of fixed assets (1,500) (1,050)
Increase (decrease) from changes in:
Accounts receivable 2,306,053 4,909,813
Inventories (996,901) (932,128)
Income taxes recoverable or payable (283,112) (269,949)
Prepaid expenses and other current assets (403,700) (104,740)
Accounts payable, trade 696,595 (726,394)
Accrued product warranty 12,000 21,214
Accrued expenses and other current
liabilities (738,874) (285,843)
----------- -----------
Net cash provided by operating
activities 704,121 3,120,521
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Cash flows from investing activities:
Purchases of property and equipment (1,009,281) (420,984)
(Increase) decrease in other assets 1,946 (802)
Proceeds from sale of property and equipment 1,500 --
Repayments of notes receivable -- 1,050
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Net cash used in investing
activities (1,005,835) (420,736)
----------- -----------
Cash flows from financing activities:
Decrease in bank overdraft (44,126) (450,336)
Payments on long-term notes payable 18,269 (2,340,375)
Proceeds from exercise of stock options -- 7,750
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Net cash provided by (used in) financing
Activities (25,857) (2,782,961)
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Net decrease in cash and
cash equivalents (327,571) (83,176)
Effect of exchange rate changes on cash 2,287 31,038
Cash and cash equivalents, beginning of period 422,043 184,118
----------- -----------
Cash and cash equivalents, end of period $ 96,759 131,980
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
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<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 30, 1997.
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 June
29, 1997 and June 30, 1996 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
1,823,035 in fiscal 1998 and 1,828,370 in fiscal 1997. Dilutive stock options
granted to employees are treated as common stock equivalents.
page 5
<PAGE> 6
PART I. FINANCIAL INFORMATION (CONTINUED)
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
For the first quarter of fiscal 1998, net losses were $(348,596) or $(0.19)
per share, compared with net earnings of $34,684, or $0.02 per share, for the
first quarter of fiscal 1997. The following table presents the components of
net earnings (loss) as a percentage of net sales for the periods indicated.
<TABLE>
<CAPTION>
Quarter ended
-----------------------------
June 29, June 30,
1997 1996
(Unaudited)
-----------------------------
<S> <C> <C>
Net sales 100.0% 100.0%
Cost of goods sold (61.3) (57.7)
-------- --------
Gross profit 38.7 42.3
Selling, research, general
& administrative expenses (44.9) (41.1)
-------- --------
Operating income (loss) (6.2) 1.2
Other income (expense), net 0.2 (0.7)
-------- --------
Earnings (loss) before
income taxes (benefit) (6.0) 0.5
Income taxes (benefit) 2.4 (0.2)
-------- --------
Net earnings (loss) (3.6)% 0.3%
======== ========
</TABLE>
NET SALES AND GROSS PROFIT MARGIN
Net sales decreased 13.6% to $9,752,202 for the first quarter of fiscal 1998
as compared to the first quarter of fiscal 1997. The decrease in net sales
resulted from decreased demand for both home theater and after-market car
products related to the continued soft retail electronics market, certain price
reductions resulting from market pressures and sales of less profitable
products in the overall sales mix.
While there were no significant changes in the cost components, gross profit
decreased to 38.7% for the first quarter of fiscal 1998 from 42.3% for the
first quarter of fiscal 1997. The decrease in gross profit primarily resulted
from the sales pressures discussed earlier coupled with higher and
underabsorbed manufacturing overhead expenses.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS, CONTINUED
SELLING, RESEARCH, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, research, general and administrative (SRG&A) expenses decreased
5.6% to $4,377,512 for the first quarter of fiscal 1998 as compared to the
first quarter of fiscal 1997. As a percentage of net sales, SRG&A expenses
increased to 44.9% for the first quarter of fiscal 1998 from 41.1% for the
first quarter of fiscal 1997. The dollar decrease in SRG&A expenses resulted
primarily from decreased variable selling costs related to the lower sales
coupled with reductions in fixed selling, general and administrative and R&D
expenses during the quarter relative to the prior year.
OTHER INCOME (EXPENSE) AND INCOME TAXES
Other income was $12,603 for the first quarter of fiscal 1998 as compared to
other expense of $(76,228) for the first quarter of fiscal 1997. The change in
other income (expense) was a result of interest costs incurred on lower bank
loan borrowings as compared with the same quarter last year, partially offset
by royalty income received on the new licensing agreement between Polk Audio
and Hewlett-Packard. Income taxes, as a percentage of earnings before income
taxes, were 40.9% for the first quarter of fiscal 1998 compared to 40.4% for
the first quarter of fiscal 1997.
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.
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 quarter of fiscal
1997 was $704,121. As of June 29, 1997, the Company's working capital was
$12,703,894 and its current ratio was 3.23 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
$4,835,000 was available at June 29,1997, and an unsecured five-year term loan
agreement with the same bank for $2,000,000, of which $1,100,000 was
outstanding at June 29, 1997. The Company 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 1998.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS, CONTINUED
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
At the Company's Annual Stockholders' Meeting held on July 28, 1997 the
stockholders elected directors to a one-year term as follows: George M. Klopfer
(1,549,748 shares voted for, 1,799 shares voted against), Matthew S. Polk, Jr.
(1,549,748 shares voted for, 1,799 shares voted against), Craig C. Georgi
(1,549,735 shares voted for, 1,812 shares voted against), Wilbert H. Sirota
(1,549,748 shares voted for, 1,799 shares voted against) and Robert B.
Barnhill, Jr. (1,549,748 shares voted for, 1,799 shares voted against).
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
None.
(b) Reports on Form 8-K:
None.
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<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)
August 08, 1997 /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
<RESTATED>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-29-1998
<PERIOD-START> MAR-31-1997
<PERIOD-END> JUN-29-1997
<CASH> 96,759
<SECURITIES> 0
<RECEIVABLES> 7,659,501
<ALLOWANCES> 455,322
<INVENTORY> 8,895,423
<CURRENT-ASSETS> 18,392,126
<PP&E> 11,168,088
<DEPRECIATION> 6,321,963
<TOTAL-ASSETS> 24,594,938
<CURRENT-LIABILITIES> 5,688,232
<BONDS> 0
0
0
<COMMON> 18,230
<OTHER-SE> 16,179,412
<TOTAL-LIABILITY-AND-EQUITY> 24,594,938
<SALES> 9,752,202
<TOTAL-REVENUES> 9,752,202
<CGS> 5,976,889
<TOTAL-COSTS> 10,354,401
<OTHER-EXPENSES> (12,603)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 36,853
<INCOME-PRETAX> (589,596)
<INCOME-TAX> (241,000)
<INCOME-CONTINUING> (348,596)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (348,596)
<EPS-PRIMARY> (0.19)
<EPS-DILUTED> (0.19)
</TABLE>
