<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 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
---------
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
February 9, 1998: 1,849,035 SHARES.
page 1
<PAGE> 2
PART I. FINANCIAL INFORMATION
Item 1. Financial statements
POLK AUDIO, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 28, March 30,
Assets 1997 1997
------ (Unaudited)
------------ ----------
<S> <C> <C>
Current assets:
Cash and short-term investments $ 614,845 422,043
Trade accounts receivable, net of allowance
for doubtful accounts of $365,830 at
December 28 and $385,107 at March 30 7,995,319 9,510,232
Inventories:
Finished goods 4,903,855 4,109,323
Work-in-process 697,948 804,199
Raw materials and supplies 4,517,624 2,985,000
------------ ----------
Total inventories 10,119,427 7,898,522
------------ ----------
Income taxes recoverable 149,605 53,184
Deferred income taxes 795,000 784,000
Prepaid expenses and other current assets 1,033,763 671,769
------------ ----------
Total current assets 20,707,959 19,339,750
Property and equipment, at cost less accumulated
depreciation and amortization 5,098,567 4,299,000
Other assets 836,851 382,686
Notes receivable-officers 251,473 225,946
Deferred income taxes 950,000 750,000
------------ ----------
Total assets $ 27,844,850 24,997,382
============ ==========
<CAPTION>
Liabilities and Stockholders' Equity
------------------------------------
<S> <C> <C>
Current liabilities:
Accounts payable, trade $ 4,495,960 2,758,117
Bank overdraft -- 44,126
Accrued expenses and other current liabilities 1,730,638 2,302,394
Current portion of long-term debt 400,000 400,000
Current portion of accrued product warranty 276,000 267,000
------------ ----------
Total current liabilities 6,902,598 5,771,637
Other non-current liabilities 20,155 --
Long-term debt, net of current portion 4,137,928 2,346,795
Accrued product warranty, less current portion 362,000 335,000
------------ ----------
Total liabilities 11,422,681 8,453,432
------------ ----------
Stockholders' equity:
Common stock, par value $.01 per share. Authorized
20,000,000 shares; issued 1,849,035 shares. 18,490 18,230
Additional paid-in-capital 1,721,209 1,586,478
Foreign currency translation adjustment 53,309 (24,896)
Note receivable-stock (942,250) (822,250)
Retained earnings 15,571,411 15,786,388
------------ ----------
Total stockholders' equity 16,422,169 16,543,950
------------ ----------
Total liabilities and stockholders' equity $ 27,844,850 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 Nine months ended
----------------------- ----------------------
Dec. 28, Dec. 29, Dec. 28, Dec. 29,
1997 1996 1997 1996
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales $12,952,611 15,456,015 32,979,964 41,219,310
Cost of goods sold 7,809,892 8,568,035 20,266,856 23,416,622
----------- ---------- ---------- ----------
Gross profit 5,142,719 6,887,980 12,713,108 17,802,688
Selling, research, general and
administrative expenses 4,570,908 5,881,847 13,219,511 15,798,990
----------- ---------- ---------- ----------
Operating income (loss) 571,811 1,006,133 (506,403) 2,003,698
----------- ---------- ---------- ----------
Other income (expense):
Interest income 184 166 16,507 3,582
Royalty income 145,000 -- 315,903 --
Other, net (6,393) 5,997 (6,393) 8,716
Interest expense (86,070) (106,142) (187,591) (282,823)
----------- ---------- ---------- ----------
Total other income (expense) 52,721 (99,979) 138,426 (270,525)
----------- ---------- ---------- ----------
Earnings (loss) before
income taxes 624,532 906,154 (367,977) 1,733,173
Income taxes 253,000 362,462 (153,000) 701,084
----------- ---------- ---------- ----------
Net earnings (loss) 371,532 543,692 (214,977) 1,032,089
Retained earnings at beginning
of period 15,199,879 15,523,056 15,786,388 15,034,659
----------- ---------- ---------- ----------
Retained earnings at end of
period $15,571,411 16,066,748 15,571,411 16,066,748
=========== ========== ========== ==========
Basic earnings (loss) per
Share $0.20 0.30 (0.12) 0.57
===== ==== ===== ====
Diluted earnings (loss) per
Share $0.20 0.29 (0.12) 0.56
===== ==== ===== ====
</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. 28, Dec. 29,
1997 1996
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ (214,977) 1,032,089
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 1,657,165 1,607,075
Deferred income taxes (211,000) --
Gain on sale of fixed assets (1,500) (34,462)
Increase (decrease) from changes in:
Accounts receivable 1,514,913 3,665,197
Inventories (2,220,905) (2,209,587)
Income taxes recoverable or payable (96,421) (156,706)
Prepaid expenses and other current assets (361,993) (605,845)
Accounts payable, trade 1,737,843 (295,345)
Accrued product warranty 36,000 60,162
Accrued expenses and other current
liabilities (571,756) (298,907)
------------ -----------
Net cash provided by operating
activities 1,267,369 2,763,671
------------ -----------
Cash flows from investing activities:
Purchases of property and equipment (2,456,741) (1,409,074)
(Increase)decrease in other assets 45,835 (10,905)
Proceeds from sale of property and equipment 1,500 34,462
Securities purchased (500,000) --
Repayments of notes receivable (145,527) --
------------ -----------
Net cash used in investing
activities (3,054,933) (1,385,517)
------------ -----------
Cash flows from financing activities:
Decrease in bank overdraft (44,126) (450,336)
Payments on long-term notes payable (300,000) (779,301)
Increases in long-term notes payable 2,111,287 --
Proceeds from exercise of stock options 135,000 137,750
------------ -----------
Net cash provided by (used in) financing
activities 1,902,161 (1,091,887)
------------ -----------
Net decrease in cash and cash
equivalents 114,597 286,267
Effect of exchange rate changes on cash 78,205 (77,869)
Cash and cash equivalents, beginning of period 422,043 184,118
------------ -----------
Cash and cash equivalents, end of period $ 614,845 392,516
============ ===========
</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 December
28, 1997 and December 29, 1996 are not necessarily indicative of the results to
be expected for the full fiscal year.
(2) EARNINGS PER SHARE
Effective December 28, 1997, the Company adopted the Statement of Financial
Accounting Standards No. 128, Earnings Per Share (SFAS No. 128). This standard
replaces the presentation of primary EPS with a presentation of basic EPS. It
also requires dual presentation of basic and diluted EPS on the face of the
income statement for all entities with complex capital structures and requires a
reconciliation of the numerator and denominator of the basic EPS computation to
the numerator and denominator of the diluted EPS computation. The table below
illustrates the reconciliation of the numerators and denominators of the basic
and diluted EPS calculations.
<TABLE>
<CAPTION>
Quarter ended Nine months ended
--------------------- ----------------------
Dec. 28, Dec. 29, Dec. 28, Dec. 29,
1997 1996 1997 1996
--------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Net earnings (loss)-basic and diluted $ 371,532 $ 543,692 $(214,977) $1,032,089
========= ========= ========== ==========
Weighted average # of shares - basic 1,843,435 1,819,343 1,834,156 1,816,786
Effect of dilutive stock options 14,458 36,914 9,639 39,807
---------- --------- --------- ---------
Weighted average # of shares - diluted 1,857,893 1,856,257 1,843,795 1,856,593
========= ========= ========= ==========
</TABLE>
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 third quarter of fiscal 1998, net earnings were $371,532 or
$0.20 per share, compared with net earnings of $543,692, or $0.30 per share, for
the third quarter of fiscal 1997. For the first nine months, net loss was
$214,977 or $0.12 per share as compared to net earnings of $1,032,089 or $0.57
per share. The following table presents the components of net earnings (loss) as
a percentage of net sales for the periods indicated.
<TABLE>
<CAPTION>
Quarter Ended Nine months ended
--------------------------------------------------------------------------
Dec. 28, Dec. 29, Dec. 28, Dec. 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 60.3 55.4 61.5 56.8
----------- ------------- ----------- -----------
Gross profit 39.7 44.6 38.5 43.2
Selling, research, general
& administrative expenses 35.3 38.1 40.0 38.3
----------- ------------- ----------- -----------
Operating income (loss) 4.4 6.5 (1.5) 4.9
Other income (expense), net 0.4 (0.6) 0.4 (0.7)
----------- ------------- ----------- -----------
Earnings (loss) before income
taxes 4.8 5.9 (1.1) 4.2
Income taxes (1.9) (2.4) 0.4 (1.7)
----------- ------------- ----------- -----------
Net earnings (loss) 2.9 % 3.5 % (0.7) % 2.5 %
=========== ============= =========== ===========
</TABLE>
NET SALES AND COST OF GOODS SOLD
Net sales decreased 16.2% to $12,952,611 for the third quarter of
fiscal 1998 as compared to the third quarter of fiscal 1997, and decreased 20.0%
to $32,979,964 for the first nine months of fiscal 1998 as compared to the first
nine months of fiscal 1997. The decrease in net sales resulted from weakened
demand relating to a continued soft retail environment in domestic and export
markets, lower than anticipated sales to certain key customers relating in part
to credit concerns and certain price reductions resulting from market pressures
and discontinued 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 60.3%
for the third quarter of fiscal 1998 from 55.4% for the third quarter of fiscal
1997 and increased to 61.5% for the first nine months of fiscal 1998 from 56.8%
for the first nine months of fiscal 1997. The increase in cost of goods sold, as
a percentage of net sales, primarily resulted from a sales mix that included
higher sales of lower profit margin items coupled with higher and 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
22.3% to $4,570,908 for the third quarter of fiscal 1998 as compared to the
third quarter of fiscal 1997 and decreased 16.4% to $13,219,511 for the first
nine months of fiscal 1998 as compared to the first nine months of fiscal 1997.
As a percentage of net sales, SRG&A expenses decreased to 35.3% for the third
quarter of fiscal 1998 from 38.1% for the third quarter of fiscal 1997 and
increased to 40.0% for the first nine months of fiscal 1998 from 38.3% in the
first nine 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 $52,721 for the third quarter of fiscal 1998 as
compared to $(99,979) for the third quarter of fiscal 1997. Other income
(expense) was $138,426 for the first nine months of fiscal 1998 as compared to
$(270,525) for the first nine 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
nine months when compared with the prior year. Income taxes, as a percentage of
earnings before income taxes, were 40.5% and 40.0% for the third quarter of
fiscal 1998 and 1997, respectively and 41.6% and 40.5% for the first nine months
of 1998 and 1997, respectively.
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 third quarter of fiscal
1998 was $1,267,369. As of December 28, 1997, the Company's working capital was
$13,805,361 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 $8,500,000, of which approximately
$4,762,000 was available at December 28,1997, and an unsecured five-year term
loan agreement with the same bank for $2,000,000, of which $800,000 was
outstanding at December 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 December 23, 1997, the Company announced it has entered into an agreement
with Circuit City Stores, Inc. to sell a complete assortment of Polk Audio home
and car loudspeakers systems.
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 9, 1998 /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-29-1998
<PERIOD-START> MAR-31-1997
<PERIOD-END> DEC-28-1997
<CASH> 614,845
<SECURITIES> 0
<RECEIVABLES> 8,361,149
<ALLOWANCES> 365,830
<INVENTORY> 10,119,427
<CURRENT-ASSETS> 20,707,959
<PP&E> 12,253,805
<DEPRECIATION> 7,153,238
<TOTAL-ASSETS> 27,844,850
<CURRENT-LIABILITIES> 6,902,598
<BONDS> 0
0
0
<COMMON> 18,490
<OTHER-SE> 16,403,679
<TOTAL-LIABILITY-AND-EQUITY> 27,844,850
<SALES> 32,979,964
<TOTAL-REVENUES> 32,979,964
<CGS> 20,266,856
<TOTAL-COSTS> 33,486,367
<OTHER-EXPENSES> (138,426)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 187,591
<INCOME-PRETAX> (367,977)
<INCOME-TAX> (153,000)
<INCOME-CONTINUING> (214,977)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (214,977)
<EPS-PRIMARY> (0.12)
<EPS-DILUTED> (0.12)
</TABLE>
