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<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 28, 1997
-------------------------
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
-------------------------------------------------------------------
(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 November
11, 1997: 1,843,035 SHARES.
page 1
<PAGE> 2
PART I. FINANCIAL INFORMATION
Item 1. Financial statements
POLK AUDIO, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 28, March 30,
Assets 1997 1997
------ (Unaudited)
------------- -------------
<S> <C> <C>
Current assets:
Cash and short-term investments $ 246,786 422,043
Trade accounts receivable, net of allowance
for doubtful accounts of $399,909 at
September 28 and $385,107 at March 30 8,253,263 9,510,232
Inventories:
Finished goods 4,341,709 4,109,323
Work-in-process 804,335 804,199
Raw materials and supplies 3,935,440 2,985,000
----------- -----------
Total inventories 9,081,484 7,898,522
----------- -----------
Income taxes recoverable 399,138 53,184
Deferred income taxes 795,000 784,000
Prepaid expenses and other current assets 848,649 671,769
----------- -----------
Total current assets 19,624,320 19,339,750
Property and equipment, at cost less accumulated
depreciation and amortization 4,997,403 4,299,000
Other assets 338,212 382,686
Notes receivable-officers 246,702 225,946
Deferred income taxes 950,000 750,000
----------- -----------
Total assets $ 26,156,637 24,997,382
=========== ===========
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Accounts payable, trade $ 3,659,702 2,758,117
Bank overdraft -- 44,126
Accrued expenses and other current liabilities 1,701,436 2,302,394
Current portion of long-term debt 400,000 400,000
Current portion of accrued product warranty 273,000 267,000
------- -----------
Total current liabilities 6,034,138 5,771,637
Other non-current liabilities 31,903 --
Long-term debt, net of current portion 3,730,143 2,346,795
Accrued product warranty, less current portion 353,000 335,000
----------- -----------
Total liabilities 10,149,184 8,453,432
----------- -----------
Stockholders' equity:
Common stock, par value $.01 per share. Authorized
20,000,000 shares; issued 1,843,035 shares. 18,430 18,230
Additional paid-in-capital 1,691,279 1,586,478
Foreign currency translation adjustment 25,115 (24,896)
Note receivable-stock (927,250) (822,250)
Retained earnings 15,199,879 15,786,388
----------- -----------
Total stockholders' equity 16,007,453 16,543,950
----------- -----------
Total liabilities and stockholders' equity $ 26,156,637 24,997,382
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
page 2
<PAGE> 3
POLK AUDIO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(Unaudited)
<TABLE>
<CAPTION>
Quarter ended Six months ended
------------------------------- -------------------------------
Sept. 28, Sept. 29, Sept. 28, Sept. 29,
1997 1996 1997 1996
------------- ------------ ------------ --------------
<S> <C> <C> <C> <C>
Net sales $10,275,151 14,479,339 20,027,353 25,763,295
Cost of Goods Sold 6,480,075 8,336,109 12,456,964 14,848,587
------------- ------------ ------------ --------------
Gross profit 3,795,076 6,143,230 7,570,389 10,914,708
Selling, research, general and
administrative expenses 4,271,091 5,280,078 8,648,603 9,917,144
------------- ------------ ------------ --------------
Operating income (loss) (476,015) 863,152 (1,078,214) 997,564
------------- ------------ ------------ --------------
Other income (expense):
Interest income 1,867 2,657 16,323 3,416
Royalty income 135,903 -- 170,903 --
Other, net -- 112 -- 2,719
Interest expense (64,668) (97,086) (101,521) (176,680)
------------- ------------ ------------ --------------
Total other income (expense) 73,102 (94,317) 85,705 (170,545)
------------- ------------ ------------ --------------
Earnings (losses) before
income taxes (402,913) 768,835 (992,509) 827,019
Income taxes (165,000) 315,122 (406,000) 338,622
------------- ------------ ------------ --------------
Net earnings (loss) (237,913) 453,713 (586,509) 488,397
Retained earnings at beginning
of period 15,437,792 15,069,343 15,786,388 15,034,659
------------- ------------ ------------ --------------
Retained earnings at end of
period $15,199,879 15,523,056 15,199,879 15,523,056
============= ============ ============ ==============
Earnings (loss) per share $(.13) .25 (.32) .27
======= ====== ======= ======
</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. 28, Sept. 29,
1997 1996
------------ --------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ (586,509) 488,397
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 944,869 1,041,893
Deferred income taxes (200,000)
Gain on sale of fixed assets (1,500) (4,963)
Increase (decrease) from changes in:
Accounts receivable 1,256,968 2,815,863
Inventories (1,182,962) (3,088,103)
Income taxes recoverable or payable (356,954) (5,534)
Prepaid expenses and other current assets (176,880) (176,411)
Accounts payable, trade 901,585 1,182,236
Accrued product warranty 24,000 41,663
Accrued expenses and other current
liabilities (600,958) (212,361)
----------- -------------
Net cash provided by operating
activities 21,659 2,082,680
----------- -------------
Cash flows from investing activities:
Purchases of property and equipment (1,643,270) (884,791)
Decrease in other assets 44,474 397
Proceeds from sale of property and equipment 1,500 4,963
Repayments of notes receivable (20,756) --
----------- -------------
Net cash used in investing
activities (1,618,052) (879,431)
----------- -------------
Cash flows from financing activities:
Decrease in bank overdraft (44,126) (450,336)
Payments on long-term notes payable -- (630,790)
Increases in long-term notes payable 1,415,251 --
Proceeds from exercise of stock options -- 23,250
----------- -------------
Net cash provided by (used in) financing
activities 1,371,125 (1,057,876)
----------- -------------
Net decrease in cash and cash
equivalents (225,268) 145,373
Effect of exchange rate changes on cash 50,011 21,371
Cash and cash equivalents, beginning of period 422,043 184,118
----------- -------------
Cash and cash equivalents, end of period $ 246,786 350,862
=========== =============
</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 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 September
28, 1997 and September 29, 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
1,836,002 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 second quarter of fiscal 1998, net losses were $237,913 or $0.13
per share, compared with a net profit of $453,713, or $0.25 per share, for
the second quarter of fiscal 1997. For the first six months, net losses were
$586,509 or $0.32 per share as compared to a net profit of $488,397 or $0.27 per
share. The following table presents the components of net earnings (losses) as
a percentage of net sales for the periods indicated.
<TABLE>
<CAPTION>
Sept. 28, Sept. 29, Sept. 28, Sept. 29,
1997 1996 1997 1996
(Unaudited)
-----------------------------------------------
<S> <C> <C> <C> <C>
Net sales 100.0 % 100.0 % 100.0 % 100.0 %
Cost of goods sold 63.0 57.6 62.2 57.6
---------- -------- -------- --------
Gross profit 37.0 42.4 37.8 42.4
Selling, research, general
& administrative expenses 41.6 36.5 43.1 38.5
---------- -------- -------- --------
Operating income (loss) (4.6) 5.9 (5.3) 3.9
Other income (expense), net 0.7 (0.6) 0.4 (0.7)
---------- -------- -------- --------
Earnings (loss) before income
taxes (3.9) 5.3 (4.9) 3.2
Income taxes 1.6 (2.2) 2.0 (1.3)
---------- -------- -------- --------
Net earnings (loss) (2.3) % 3.1 % (2.9) % 1.9 %
========== ======== ======== ========
</TABLE>
NET SALES AND COST OF GOODS SOLD
Net sales decreased 29.0% to $10,275,151 for the second quarter of fiscal
1997 as compared to the second quarter of fiscal 1997, and decreased 22.3% to
$20,027,353 for the first six months of fiscal 1998 as compared to the first
six months of fiscal 1997. The decrease in net sales resulted from weakened
demand relating to a continued soft retail environment, lower than anticipated
sales to certain key customers relating in part to credit concerns, certain
price reductions resulting from market pressures and discontinued products, and
to the later than planned introduction of the new RT Powered Tower product line
which began shipping late in the September, 1997 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 63.0% for the
second quarter of fiscal 1998 from 57.6% for the second quarter of fiscal 1997
and increased to 62.2% for the first six months of fiscal 1998 from 57.6% for
the first six months of fiscal 1997. The increase in cost of goods sold, as a
percentage of net sales, primarily resulted from price discounting coupled with
higher and significantly underabsorbed manufacturing overhead costs as compared
with the prior year.
SELLING, RESEARCH, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, research, general and administrative (SRG&A) expenses decreased
19.1% to $4,271,091 for the second quarter of fiscal 1998 as compared to the
second quarter of fiscal 1997 and decreased 12.8% to $8,648,603 for the first
six months of fiscal 1998 as compared to the first six months of fiscal 1997.
As a percentage of net sales, SRG&A expenses increased to 41.6% for the second
quarter of fiscal 1998 from 36.5% for the second quarter of fiscal 1997 and
increased to 43.1% for the first six months of fiscal 1998 from 38.5% in the
first six months of fiscal 1997. The dollar decrease in SRG&A expenses, as
compared with the prior year, resulted primarily from decreased variable
selling costs related to the lower sales volume, lower sales promotion costs,
lower R&D expenses and lower general and administrative expenses.
OTHER INCOME (EXPENSE) AND INCOME TAXES
Other income (expense) was $73,102 for the second quarter of fiscal 1998 as
compared to $(94,317) for the second quarter of fiscal 1997. Other income
(expense) was $85,705 for the first six months of fiscal 1998 as compared to
$(170,545) for the first six months of fiscal 1997. The change in other income
(expense) was largely a result of royalty income earned coupled with lower
interest costs incurred on lower 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 1998
and fiscal 1997 and 40.9% for the first six months of 1998 and 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.
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 $21,659. As of September 28, 1997, the Company's working capital was
$13,590,182 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 $6,500,000, of which approximately
$3,370,000 was available at September 28,1997, and an unsecured five-year term
loan agreement with the same bank for $2,000,000, of which $1,000,000 was
outstanding at September 28, 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.
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:
On July 21, 1997 the Company announced a new licensing agreement with
Hewlett-Packard Company Home Products Division and on August 8, 1997 the
Company announced a licensing agreement with KEP, a Korean supplier of speakers
to Samsung Corporation.
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 11, 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> 6-MOS
<FISCAL-YEAR-END> MAR-29-1997
<PERIOD-START> MAR-31-1997
<PERIOD-END> SEP-29-1997
<CASH> 246,786
<SECURITIES> 0
<RECEIVABLES> 8,653,172
<ALLOWANCES> 399,909
<INVENTORY> 9,081,484
<CURRENT-ASSETS> 19,624,320
<PP&E> 11,733,249
<DEPRECIATION> 6,735,846
<TOTAL-ASSETS> 26,156,637
<CURRENT-LIABILITIES> 6,034,138
<BONDS> 0
0
0
<COMMON> 18,430
<OTHER-SE> 15,989,023
<TOTAL-LIABILITY-AND-EQUITY> 26,156,637
<SALES> 20,027,353
<TOTAL-REVENUES> 20,027,353
<CGS> 12,456,964
<TOTAL-COSTS> 21,105,567
<OTHER-EXPENSES> (85,705)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 101,521
<INCOME-PRETAX> (992,509)
<INCOME-TAX> (406,000)
<INCOME-CONTINUING> (586,509)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (586,509)
<EPS-PRIMARY> (0.32)
<EPS-DILUTED> (0.32)
</TABLE>
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