<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 DECEMBER 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.
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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
February 3, 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>
December 29, March 31,
Assets 1996 1996
------ (Unaudited)
------------ -----------
<S> <C> <C>
Current assets:
Cash and short-term investments $ 392,516 184,118
Trade accounts receivable, net of allowance
for doubtful accounts of $303,187 at
December 29 and $170,396 at March 31 11,995,712 15,660,909
Inventories:
Finished goods 4,586,749 3,579,287
Work-in-process 1,156,943 596,436
Raw materials and supplies 4,394,332 3,752,715
----------- -----------
Total inventories 10,138,024 7,928,438
----------- -----------
Deferred income taxes 469,000 469,000
Prepaid expenses and other current assets 741,676 298,831
----------- -----------
Total current assets 23,736,928 24,541,296
Property and equipment, at cost less accumulated
depreciation and amortization 4,428,847 4,626,848
Other assets 436,680 262,775
Notes receivable-officers 225,946 224,237
Deferred income taxes 536,000 536,000
----------- -----------
Total assets $ 29,364,401 30,191,156
=========== ===========
<CAPTION>
Liabilities and Stockholders' Equity
------------------------------------
<S> <C> <C>
Current liabilities:
Accounts payable, trade $ 4,372,407 4,666,043
Bank overdraft -- 450,336
Income taxes payable 71,739 228,445
Accrued expenses and other current liabilities 2,131,031 2,429,938
Current portion of long-term debt 400,000 400,000
Current portion of accrued product warranty 311,363 290,000
----------- -----------
Total current liabilities 7,286,540 8,464,762
Long-term debt, net of current portion 5,275,848 6,055,149
Accrued product warranty, less current portion 273,799 235,000
----------- -----------
Total liabilities 12,836,187 14,754,911
----------- -----------
Stockholders' equity:
Common stock, par value $.01 per share. Authorized
20,000,000 shares; issued 1,820,035 shares. 18,200 17,970
Additional paid-in-capital 1,398,758 1,253,489
Foreign currency translation adjustment (133,242) (55,373)
Note receivable-stock (822,250) (814,500)
Retained earnings 16,066,748 15,034,659
----------- -----------
Total stockholders' equity 16,528,214 15,436,245
----------- -----------
Total liabilities and stockholders' equity $ 29,364,401 30,191,156
=========== ===========
</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 Nine months ended
------------------------- -----------------------
Dec. 29, Dec. 31, Dec. 29, Dec. 31,
1996 1995 1996 1995
(13-Weeks) (13-Weeks) (39-Weeks) (40-Weeks)
------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $15,456,015 13,120,046 41,219,310 34,102,080
Cost of Goods Sold 8,568,035 7,138,436 23,416,622 19,130,708
------------- ----------- ----------- -----------
Gross profit 6,887,980 5,981,610 17,802,688 14,971,372
Selling, research, general
and administrative expenses 5,881,847 5,180,043 15,798,990 14,060,602
------------- ----------- ----------- -----------
Operating income 1,006,133 801,567 2,003,698 910,770
------------- ----------- ----------- -----------
Other income (expense):
Interest income 166 (8,020) 3,582 30,820
Other, net 5,997 11,845 8,716 5,083
Interest expense (106,142) (103,822) (282,823) (218,888)
------------- ----------- ----------- -----------
Total other expense (99,979) (99,997) (270,525) (182,985)
------------- ----------- ----------- -----------
Earnings before income
taxes 906,154 701,570 1,733,173 727,785
Income taxes 362,462 285,000 701,084 296,000
------------- ----------- ----------- -----------
Net earnings 543,692 416,570 1,032,089 431,785
Retained earnings at beginning
of period 15,523,056 13,876,163 15,034,659 13,860,948
------------- ----------- ----------- -----------
Retained earnings at end of
period $16,066,748 14,292,733 16,066,748 14,292,733
============= =========== =========== ===========
Earnings per share $.30 .25 .56 .26
====== ===== ===== =====
</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>
Nine months ended
--------------------------
Dec. 29, Dec. 31,
1996 1995
(39-Weeks) (40-Weeks)
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 1,032,089 431,785
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 1,607,075 1,457,829
Gain on sale of fixed assets (34,462) (11,630)
Increase (decrease) from changes in:
Accounts receivable 3,665,197 (1,499,830)
Inventories (2,209,587) (1,816,388)
Income taxes recoverable or payable (156,706) 66,293
Prepaid expenses and other current assets (605,845) (337,989)
Accounts payable, trade (295,345) 3,032,838
Accrued product warranty 60,162 34,503
Accrued expenses and other current
liabilities (298,907) (639,705)
------------ -----------
Net cash provided by operating
activities 2,763,671 717,706
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Cash flows from investing activities:
Purchases of property and equipment (1,409,074) (2,831,769)
(Increase) decrease in other assets (10,905) 80,532
Proceeds from sale of property and equipment 34,462 11,630
Repayments of notes receivable -- 85,443
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Net cash used in investing
activities (1,385,517) (2,654,164)
------------ -----------
Cash flows from financing activities:
Decrease in bank overdraft (450,336) --
Payments on long-term notes payable (779,301) (1,000,000)
Increases in long-term notes payable -- 2,858,000
Proceeds from exercise of stock options 137,750 --
------------ -----------
Net cash provided by (used in) financing
activities (1,091,887) 1,858,000
------------ -----------
Net increase (decrease) in cash and cash
equivalents 286,267 (78,458)
Effect of exchange rate changes on cash (77,869) 25,709
Cash and cash equivalents, beginning of period 184,118 615,150
------------ -----------
Cash and cash equivalents, end of period $ 392,516 562,401
============ ===========
</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 December
29, 1996 and December 31, 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
1,833,456 in fiscal 1997 and 1,674,647 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 third quarter of fiscal 1997, net earnings were $543,692 or $0.30
per share, compared with a net profit of $416,570, or $0.25 per share, for the
third quarter of fiscal 1996, and were $1,032,089 or $0.56 per share for the
first nine months of fiscal 1997 as compared to $431,785 or $0.26 per share or
the first nine 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>
Quarter Ended Nine months ended
----------------------------------------------------------------------------
Dec. 29, Dec. 31, Dec. 29, Dec.31,
1996 1995 1996 1995
(13 Weeks) (13 Weeks) (39 Weeks) (40 Weeks)
(Unaudited)
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales 100.0 % 100.0 % 100.0 % 100.0 %
Cost of goods sold 55.5 54.4 56.8 56.1
--------------- -------------- -------------- ---------------
Gross profit 44.5 45.6 43.2 43.9
Selling, research, general
& administrative expenses 38.0 39.5 38.3 41.2
--------------- -------------- -------------- ---------------
Operating income 6.5 6.1 4.9 2.7
Other expense, net 0.6 0.8 0.7 0.5
--------------- -------------- -------------- ---------------
Earnings before income taxes 5.9 5.3 4.2 2.2
Income taxes 2.3 2.1 1.7 0.9
--------------- -------------- -------------- ---------------
Net earnings 3.6 % 3.2 % 2.5 % 1.3 %
=============== ============== ============== ===============
</TABLE>
NET SALES AND COST OF GOODS SOLD
Net sales increased 17.8% to $15,456,015 for the third quarter of fiscal
1997 as compared to the third quarter of fiscal 1996, and increased 20.9% to
$41,219,310 for the first nine months of fiscal 1997 as compared to the first
nine months of fiscal 1996. The increase in net sales resulted from Eosone
home product sales that were not in existence during the third quarter of
fiscal 1996, coupled with increased overall demand for Polk home products
including the RT and PSW Series 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 55.5% for the
third quarter of fiscal 1997 from 54.4% for the third quarter of fiscal 1996
and increased to 56.8% for the first nine months of fiscal 1997 from 56.1% for
the first nine months of fiscal 1996. The increase in cost of goods sold, as a
percentage of net sales, resulted from higher sales of lower margin products
coupled with promotional Eosone sales at lower margins. These overages were
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
13.5% to $5,881,846 for the third quarter of fiscal 1997 as compared to the
third quarter of fiscal 1996 and increased 12.4% to $15,798,990 for the first
nine months of fiscal 1997 as compared to the first nine months of fiscal 1996.
As a percentage of net sales, SRG&A expenses decreased to 38.0% for the third
quarter of fiscal 1997 from 39.5% for the third quarter of fiscal 1996 and
decreased to 38.3% for the first nine months of fiscal 1997 from 41.2% in the
first nine 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. These overages partially offset by lower R&D expenses
resulting from the completed development of the Eosone line.
OTHER EXPENSE AND INCOME TAXES
Other expense was $99,979 for the third quarter of fiscal 1997 as compared
to $99,997 for the third quarter of fiscal 1996. Other expense was $270,525
for the first nine months of fiscal 1997 as compared to $182,985 for the first
nine months of fiscal 1996. The change in other expense was largely a result
of interest costs incurred on higher bank loan borrowings during the nine
months when compared with the prior year. Income taxes, as a percentage of
earnings before income taxes, were 40.0% for the third quarter of fiscal 1997
compared to 40.6% for the third quarter of fiscal 1996 and 40.5% for the first
nine months of fiscal 1997 as compared to 40.7% for the first nine 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 first nine months of
fiscal 1997 was $2,763,671. As of December 29, 1996, the Company's working
capital was $16,450,388 and its current ratio was 3.3 to 1. In addition, the
Company presently has an unsecured revolving credit agreement with a commercial
bank providing for maximum borrowings of $8,000,000, of which approximately
$3,624,000 was available at December 29,1996, and an unsecured five-year term
loan agreement with the same bank for $2,000,000, of which $1,300,000 was
outstanding at December 29, 1996. 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 1997.
Part II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
None.
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)
February 3, 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
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-30-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> DEC-29-1996
<CASH> 392,516
<SECURITIES> 0
<RECEIVABLES> 12,298,899
<ALLOWANCES> 303,187
<INVENTORY> 10,138,024
<CURRENT-ASSETS> 23,736,928
<PP&E> 10,475,867
<DEPRECIATION> 6,047,020
<TOTAL-ASSETS> 29,364,401
<CURRENT-LIABILITIES> 7,286,540
<BONDS> 0
0
0
<COMMON> 18,200
<OTHER-SE> 16,510,014
<TOTAL-LIABILITY-AND-EQUITY> 29,364,401
<SALES> 41,219,310
<TOTAL-REVENUES> 41,219,310
<CGS> 23,416,622
<TOTAL-COSTS> 39,215,612
<OTHER-EXPENSES> 270,524
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 282,822
<INCOME-PRETAX> 1,733,173
<INCOME-TAX> 701,084
<INCOME-CONTINUING> 1,032,089
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,032,089
<EPS-PRIMARY> 0.56
<EPS-DILUTED> 0.56
</TABLE>
