<PAGE>
_______________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 28, 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 NO. 33-9875
--------------
BOSTON ACOUSTICS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MASSACHUSETTS 04-2662473
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR IDENTIFICATION NO.)
ORGANIZATION)
300 JUBILEE DRIVE
PEABODY, MASSACHUSETTS 01960
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(508) 538-5000
(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.
Yes [X] No []
There were 4,408,701 shares of Common Stock issued and outstanding as of
November 1, 1996.
_______________________________________________________________________________
<PAGE>
Boston Acoustics, Inc.
INDEX
PAGE
Part I: Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets (Unaudited)-
March 30, 1996 and September 28, 1996 4
Consolidated Statements of Income (Unaudited)-
Three months and Six months ended September 23, 1995
and September 28, 1996 6
Consolidated Statements of Cash Flows (Unaudited)-
Six months ended September 23, 1995 and
September 28, 1996 7
Notes to Unaudited Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
Part II: Other Information
Items 1 through 6 11
Signatures 12
2
<PAGE>
PART I: FINANCIAL INFORMATION
Item 1: Financial Statements
3
<PAGE>
Boston Acoustics, Inc. and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
MARCH 30, 1996 SEPTEMBER 28, 1996
-------------- ------------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 4,702,299 $ 2,517,939
Short-term investments 6,678,735 4,848,705
Accounts receivable, net of allowance
for doubtful accounts of approximately
$307,000 and $366,000 respectively 8,401,038 9,102,819
Inventories 8,458,593 9,203,635
Deferred income taxes 730,000 805,000
Prepaid expenses 343,066 398,866
------------ ------------
Total current assets 29,313,731 26,876,964
------------ ------------
Property and Equipment, at cost:
Land 1,433,365 1,433,365
Building 6,762,323 6,990,387
Machinery and equipment 6,344,220 7,149,819
Office equipment and furniture 1,448,950 1,571,514
Motor vehicles 373,177 373,177
------------ ------------
16,362,035 17,518,262
Less-accumulated depreciation
and amortization 5,665,178 6,450,660
------------ ------------
10,696,857 11,067,602
------------ ------------
Other Assets:
Long-term investment securities, at cost 2,305,992 2,016,020
Other assets 807,012 2,679,471
------------ ------------
Total other assets 3,113,004 4,695,491
------------ ------------
$43,123,592 $42,640,057
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
Boston Acoustics, Inc. and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
MARCH 30, 1996 SEPTEMBER 28, 1996
-------------- ------------------
<S> <C> <C>
Current Liabilities:
Accounts payable $ 1,167,933 $ 1,723,600
Accrued payroll and payroll-
related expenses 1,078,186 1,117,750
Dividends payable 551,088 534,538
Other accrued expenses 350,031 579,091
Accrued income taxes 83,617 48,774
-------------- -------------
Total current liabilities 3,230,855 4,003,753
-------------- -------------
Commitments
Shareholders' Equity:
Common stock, $.01 par value
Authorized -- 6,000,000 shares
Issued -- 4,602,621 at
March 30, 1996 and September 28, 1996 46,026 46,026
Additional paid-in capital 4,966,918 4,966,918
Retained earnings 34,963,583 36,406,075
-------------- -------------
39,976,527 41,419,019
Less-Treasury stock, 193,920 shares
at March 30, 1996 and 326,320 shares
at September 28, 1996, at cost 83,790 2,782,715
-------------- -------------
Total shareholders' equity 39,892,737 38,636,304
-------------- -------------
$43,123,592 $42,640,057
-------------- -------------
-------------- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
Boston Acoustics, Inc. and Subsidiaries
Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ----------------
September 23, September 28, September 23, September 28,
1995 1996 1995 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales $ 11,647,894 $ 12,199,188 $21,509,735 $23,251,045
Cost of goods sold 6,599,421 7,172,450 12,087,827 13,449,191
------------ ------------ ------------ -----------
Gross profit 5,048,473 5,026,738 9,421,908 9,801,854
------------ ------------ ------------ -----------
Selling and
marketing expenses 1,414,984 1,789,233 2,722,643 3,359,305
General and
administrative expenses 578,570 727,793 1,119,840 1,312,010
Engineering and
development expenses 585,620 770,051 1,163,714 1,502,143
------------ ------------ ------------ -----------
Total expenses 2,579,174 3,287,077 5,006,197 6,173,458
------------ ------------ ------------ -----------
Income from operations 2,469,299 1,739,661 4,415,711 3,628,396
Interest income, net 190,169 110,561 396,750 252,171
------------ ------------ ------------ -----------
Income before provision
for income taxes 2,659,468 1,850,222 4,812,461 3,880,567
Provision for income taxes 869,000 647,000 1,558,000 1,358,000
------------ ------------ ------------ -----------
Net income $ 1,790,468 $ 1,203,222 $ 3,254,461 $ 2,522,567
------------ ------------ ------------ -----------
------------ ------------ ------------ -----------
Net income per common share $ .41 $ .28 $ .75 $ .58
------------ ------------ ------------ -----------
------------ ------------ ------------ -----------
Weighted average number
of common shares
outstanding 4,327,482 4,313,499 4,326,272 4,355,990
------------ ------------ ------------ -----------
------------ ------------ ------------ -----------
Dividends per share $ .125 $ .125 $ .25 $ .25
------------ ------------ ------------ -----------
------------ ------------ ------------ -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE>
Boston Acoustics, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------
SEPTEMBER 23, 1995 SEPTEMBER 28, 1996
------------------ ------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 3,254,461 $ 2,522,567
Adjustments to reconcile net income
to net cash provided by operating
activities-
Depreciation and amortization 491,196 785,482
Changes in assets and liabilities, net of acquisition
of Snell Acoustics-
Accounts receivable (422,134) (348,827)
Inventories (501,086) (202,925)
Prepaid expenses 174,261 ( 18,500)
Accounts payable 656,893 329,994
Accrued expenses 200,048 3,992
Accrued income taxes (331,125) (34,843)
------------- ------------
Net cash provided by
operating activities 3,522,514 3,036,940
------------- ------------
Cash flows from investing activities:
Acquisition of Snell Acoustics --- (2,602,475)
Purchase of property and equipment, net (2,119,611) (927,961)
Purchase of investments (2,226,279) (1,854,391)
Proceeds from sale and maturity of investments 4,247,883 3,974,393
Increase in other assets (23,941) (15,316)
------------- ------------
Net cash used in investing
activities (121,948) (1,425,750)
------------- ------------
Cash flows from financing activities:
Dividends paid (1,081,389) (1,096,625)
Purchase of common stock for treasury --- (2,698,925)
Exercise of stock options 63,363 ---
------------- ------------
Net cash used in financing
activities (1,018,026) (3,795,550)
------------- ------------
Increase (decrease) in cash and cash equivalents 2,382,540 (2,184,360)
Cash and cash equivalents, beginning
of period 3,570,790 4,702,299
------------- ------------
Cash and cash equivalents, end of
period $ 5,953,330 $ 2,517,939
------------- ------------
------------- ------------
Items not affecting cash flows:
Dividends payable $ 541,438 $ 534,538
------------- ------------
------------- ------------
Supplemental Disclosure:
Cash paid for income taxes $ 1,889,125 $ 1,444,020
------------- ------------
------------- ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
7
<PAGE>
Boston Acoustics, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(1) Basis of Presentation
The unaudited consolidated financial statements included herein have
been prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission and include, in the
opinion of management, all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of interim period results.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations. The
Company believes, however, that its disclosures are adequate to make the
information presented not misleading. The results for the three and six-month
periods ended September 28, 1996 are not necessarily indicative of results to be
expected for the full fiscal year. These financial statements should be read in
conjunction with the Company's Annual Report included on Form 10-K filed on June
28, 1996 including its Annual Report to Stockholders and other exhibits thereto.
(2) Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market and consist of the following:
MARCH 30, 1996 SEPTEMBER 28,1996
-------------- -----------------
Raw materials and work-in process $ 4,518,656 $ 6,405,632
Finished goods 3,939,937 2,798,003
----------- -----------
$ 8,458,593 $ 9,203,635
----------- -----------
----------- -----------
Work-in-process and finished goods inventories consist of materials, labor
and manufacturing overhead.
(3) Net Income Per Common Share
Net income per common share is computed using the weighted average number
of shares of common stock outstanding during each period. Common equivalent
shares (stock options) have not been considered in the calculation of earnings
per share as their effect would not be significant. Fully diluted earnings per
share have not been presented as the amounts would not differ significantly from
primary earnings per share.
(4) Acquisition of Snell Acoustics, Inc.
Effective June 1, 1996, the Company acquired all of the assets and the
business and assumed certain liabilities of Snell Acoustics, Inc. (Snell).
Snell manufactures high-end home loudspeaker systems for the audiophile market
at its factory in Haverhill, Massachusetts. The acquisition, which was financed
with available cash, was accounted for as a purchase, and the results of
operations of Snell have been included in the consolidated operating results
since June 1, 1996. The excess of the purchase price over the fair value of the
net assets acquired was allocated to goodwill and will be charged to operations
over fifteen years. Unaudited pro forma results of operations to reflect the
Snell acquisition have not been presented as they are not material.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
The following table sets forth the results of operations for the three-month and
six-month periods ended September 23, 1995 and September 28, 1996 expressed as
percentages of net sales.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ -----------------
September 23, September 28, September 23, September 28,
1995 1996 1995 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 56.7 58.8 56.2 57.8
---- ---- ---- ----
Gross profit 43.3 41.2 43.8 42.2
---- ---- ---- ----
Selling and marketing
expenses 12.1 14.6 12.7 14.5
General & administrative
expenses 5.0 6.0 5.2 5.6
Engineering & development
expenses 5.0 6.3 5.4 6.5
---- ---- ---- ----
22.1 26.9 23.3 26.6
---- ---- ---- ----
Income from operations 21.2 14.3 20.5 15.6
Interest income, net 1.6 0.9 1.8 1.1
---- ---- ---- ----
Income before provision for
income taxes 22.8 15.2 22.3 16.7
Provision for income taxes 7.5 5.3 7.2 5.9
---- ---- ---- ----
Net income 15.3% 9.9% 15.1% 10.8%
---- ---- ---- ----
---- ---- ---- ----
</TABLE>
Net sales increased 5 percent, from approximately $11,648,000 during the second
quarter of fiscal 1996 to approximately $12,199,000 during the second quarter of
fiscal 1997. For the six months ended September 28, 1996 net sales increased
approximately 8% from $21,510,000 to approximately $23,251,000.
The new MicroReference product line, replacements for the SubSat series, were
originally scheduled for July 1996 introduction but were not available until the
last week of the quarter and then only for partial shipments. The Company ended
the second quarter with slightly over $1 million in backorders for the new
9
<PAGE>
MicroReference (MR) models. The models include the MR80 and MR90 3-piece
systems and the MR90t, a 4-piece theater system.
The Company's gross margin for the three-month and six-month periods ended
September 28, 1996 decreased as a percentage of net sales due primarily to a
shift in the sales mix to loudspeaker models with slightly lower margins in
addition to production inefficiencies associated with new product introductions
and increased freight costs associated with raw material purchases.
Total operating expenses increased as a percentage of net sales during both the
three-month and six-month periods ended September 28, 1996. Selling and
marketing expenses have increased primarily due to increased advertising and
literature costs associated with new product introductions including the
MicroReference products shipped the last week of the quarter. General and
administrative expenses have increased both in absolute dollars and as a
percentage of net sales due primarily to costs associated with the acquisition
of the business of Snell Acoustics, Inc. and related amortization of the
goodwill recorded. Engineering and development expenses have increased
primarily as a result of increased salaries and benefits relating to additional
personnel, as well as increased material and supplies relating to new product
development.
Interest income has decreased both in absolute dollars and as a percentage of
net sales for the three-month and six-month periods ended September 28, 1996
because of the utilization of certain investments for the construction of the
Company's new facility during fiscal 1996, the repurchase of 132,400 shares of
the Company's common stock under its Common Stock Repurchase Program, and the
acquisition of the business of Snell Acoustics.
The Company's effective income tax rate increased from 32% for both the
three-month and six-month periods ended September 23, 1995 to approximately 35%
in fiscal 1997, primarily as a result of non-recurring tax credits realized in
fiscal 1996 in connection with capital expenditures.
Net income for the second quarter decreased 33%, from approximately $1,790,000
in fiscal 1996 to $1,203,000 in fiscal 1997 while earnings per share decreased
from $.41 to $.28 per share. Net income for the six-month period ended
September 28, 1996 decreased 23% from approximately $3,254,000 in fiscal 1996 to
approximately $2,523,000 in fiscal 1997, while earnings per share for the
six-month period decreased from $.75 to $.58 per share. The decrease in net
income for the three and six-month periods ended September 28, 1996 is primarily
the result of the lower gross margins and the increased operating expenses as
outlined above.
Liquidity and Capital Resources
During the first half of fiscal 1997, the Company financed its growth with cash
generated by operations. As of September 28, 1996 the Company's working capital
was approximately $22,873,000. The Company's cash and cash equivalents were
approximately $2,518,000, short-term investments were approximately $4,849,000,
and long-term investments were approximately $2,016,000. The Company also has a
$1,500,000 unsecured bank line of credit. The Company has had no borrowings
under any line of credit since December 1985.
The Company believes that its resources are adequate to meet its requirements
for working capital and capital expenditures through the next twelve months.
10
<PAGE>
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 Annual Meeting of the Shareholders of the Company held on
August 13, 1996, shareholders acted affirmatively to elect nominees
for directors proposed by management. Each Director is to serve until
the next Annual Meeting of Shareholders and thereafter until his/her
successor is elected and qualified.
VOTES "FOR" VOTES "WITHHELD"
----------- ----------------
Francis L. Reed 4,087,123 16,800
Andrew G. Kotsatos 4,087,123 16,800
Fred E. Faulkner, Jr. 4,086,223 17,700
George J. Markos 4,084,287 19,636
Lisa M. Reed 4,083,598 20,325
Shareholders also approved the 1996 Stock Plan. A total of 4,004,798
votes were cast in favor of the proposal, 24,487 votes were cast against,
and there were 22,502 abstentions.
Shareholders also voted to ratify the action of the Directors in selecting
Arthur Andersen LLP as auditors of the Company. A total of 4,084,143 votes
were cast in favor of the proposal, 1,577 votes were cast against, and
there were 18,202 abstentions.
Item 5. OTHER INFORMATION
None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Reports on Form 8-K
During the quarter the Company filed a report on Form 8-K which
reported under Item 5 of Form 8-K the acquisition of the business of
Snell Acoustics, Inc. No financial statements were required to be
filed in connection with such report on Form 8-K.
11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Boston Acoustics, Inc.
----------------------
Registrant
Date: November 1, 1996 By: s/Francis L. Reed
-----------------
Francis L. Reed
Director, Chief Executive Officer
and Treasurer (Principal Financial
Officer)
Date: November 1, 1996 By: s/Andrew G. Kotsatos
--------------------
Andrew G. Kotsatos
Director, President and
Assistant Clerk
12
