<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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 JUNE 29, 1996
OR
/ / TRANSITION REPORT PURSUANT SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
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COMMISSION FILE NO. 33-9875
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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 August
5, 1996.
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Boston Acoustics, Inc.
INDEX
Page
Part I: Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets (Unaudited)-
March 30, 1996 and June 29, 1996 4
Consolidated Statements of Income (Unaudited)-
Three months ended June 24, 1995 and June 29, 1996 6
Consolidated Statements of Cash Flows (Unaudited)-
Three months ended June 24, 1995 and June 29, 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
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PART I: FINANCIAL INFORMATION
Item 1: Financial Statements
3
<PAGE>
Boston Acoustics, Inc. and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
ASSETS
March 30, 1996 June 29, 1996
-------------- -------------
Current Assets:
Cash and cash equivalents $ 4,702,299 $ 3,170,091
Short-term investments 6,678,735 4,924,005
Accounts receivable, net of allowance
for doubtful accounts of approximately
$307,000 and $296,000 respectively 8,401,038 8,356,465
Inventories 8,458,593 9,282,797
Deferred income taxes 730,000 730,000
Prepaid expenses 343,066 451,002
----------- -----------
Total current assets 29,313,731 26,914,360
----------- -----------
Property and Equipment, at cost:
Land 1,433,365 1,433,365
Building 6,762,323 6,855,456
Machinery and equipment 6,344,220 6,900,238
Office equipment and furniture 1,448,950 1,543,701
Motor vehicles 373,177 373,177
----------- -----------
16,362,035 17,105,937
Less-accumulated depreciation
and amortization 5,665,178 6,010,210
----------- -----------
10,696,857 11,095,727
----------- -----------
Other Assets:
Long-term investment securities, at cost 2,305,992 3,146,827
Other assets 807,012 2,637,448
----------- -----------
Total other assets 3,113,004 5,784,275
----------- -----------
$43,123,592 $43,794,362
----------- -----------
The accompanying notes are an integral part of these consolidated financial
statements.
4
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Boston Acoustics, Inc. and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
March 30, 1996 June 29, 1996
-------------- -------------
Current Liabilities:
Accounts payable $ 1,167,933 $ 1,483,842
Accrued payroll and payroll-
related expenses 1,078,186 863,582
Dividends payable 551,088 545,538
Other accrued expenses 350,031 648,346
Accrued income taxes 83,617 520,060
----------- -----------
Total current liabilities 3,230,855 4,061,368
----------- -----------
Commitments
Shareholders' Equity:
Common stock, $.01 par value
Authorized -- 6,000,000 shares
Issued -- 4,602,621 at
March 30, 1996 and
June 29, 1996 46,026 46,026
Additional paid-in capital 4,966,918 4,966,918
Retained earnings 34,963,583 35,737,390
----------- -----------
39,976,527 40,750,334
Less--Treasury stock, 193,920 shares
at March 30, 1996 and 238,320 shares
at June 29, 1996 83,790 1,017,340
----------- -----------
Total shareholders' equity 39,892,737 39,732,994
----------- -----------
$43,123,592 $43,794,362
----------- -----------
----------- -----------
The accompanying notes are an integral part of these consolidated financial
statement.
5
<PAGE>
Boston Acoustics, Inc. and Subsidiaries
Consolidated Statements of Income
(Unaudited)
Three Months Ended
------------------
June 24, 1995 June 29, 1996
-------------- -------------
Net sales $ 9,861,841 $ 11,051,857
Cost of goods sold 5,488,406 6,276,741
----------- -----------
Gross profit 4,373,435 4,775,116
----------- -----------
Selling and marketing expenses 1,307,659 1,570,072
General and administrative expenses 541,270 584,217
Engineering and development expenses 578,094 732,092
----------- -----------
Total expenses 2,427,023 2,886,381
----------- -----------
Income from operations 1,946,412 1,888,735
Interest income, net 206,581 141,610
----------- -----------
Income before provision
for income taxes 2,152,993 2,030,345
Provision for income taxes 689,000 711,000
----------- -----------
Net income $ 1,463,993 $ 1,319,345
----------- -----------
----------- -----------
Net income per common share $ .34 $ .30
----------- -----------
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Weighted average number of common
shares outstanding 4,325,061 4,398,481
----------- -----------
----------- -----------
Dividends per share $ .125 $ .125
----------- -----------
----------- -----------
The accompanying notes are an integral part of these consolidated financial
statements.
6
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Boston Acoustics, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended
------------------
June 24, 1995 June 29, 1996
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Cash flows from operating activities:
Net income $ 1,463,993 $ 1,319,345
Adjustments to reconcile net income
to net cash provided by operating
activities-
Depreciation and amortization 237,304 345,032
Changes in assets and liabilities, net of acquisition
of Snell Acoustics-
Accounts receivable (56,303) 397,527
Inventories (678,774) (282,087)
Prepaid expenses (245,672) 4,364
Accounts payable 148,401 90,236
Accrued expenses 50,989 (180,921)
Accrued income taxes 98,875 436,443
------------ ------------
Net cash provided by
operating activities 1,018,813 2,129,939
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Cash flows from investing activities:
Acquisition of Snell Acoustics --- (2,564,749)
Purchases of property and equipment, net (618,293) (515,636)
Purchase of investments (1,968,679) (1,445,684)
Proceeds from sale and maturity of investments 1,980,229 2,359,579
Decrease (increase) in other assets 74 (11,019)
------------ ------------
Net cash used in investing
activities (606,669) (2,177,509)
------------ ------------
Cash flows from financing activities:
Dividends paid (540,550) (551,088)
Purchase of common stock for treasury --- (933,550)
Exercise of stock options 20,413 ---
------------ ------------
Net cash used in financing
activities (520,137) (1,484,638)
------------ ------------
Decrease in cash and cash equivalents (107,993) (1,532,208)
Cash and cash equivalents, beginning
of period 3,570,790 4,702,299
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Cash and cash equivalents, end of
period $ 3,462,797 $ 3,170,091
------------ ------------
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Items not affecting cash flows:
Dividends payable $ 540,838 $ 545,538
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Supplemental Disclosure:
Cash paid for income taxes $ 590,125 $ 250,733
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The accompanying notes are an integral part of these consolidated financial
statements.
7
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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-month period ended June 29,
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 in its Form 10-K filed on June 28, 1996.
(2) Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market and consist of the following:
March 30, 1996 June 29,1996
-------------- ------------
Raw materials and work-in process $ 4,518,656 $ 4,916,127
Finished goods 3,939,937 4,366,670
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$ 8,458,593 $ 9,282,797
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----------- ----------
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
period ended June 24, 1995 and June 29, 1996 expressed as percentages of net
sales.
Three Months Ended
------------------
June 24, 1995 June 29, 1996
------------- -------------
Net sales 100.0% 100.0%
Cost of goods sold 55.7 56.8
---- ----
Gross profit 44.3 43.2
---- ----
Selling and marketing expenses 13.3 14.2
General & administrative expenses 5.5 5.3
Engineering & development expenses 5.8 6.6
---- ----
24.6 26.1
---- ----
Income from operations 19.7 17.1
Interest income, net 2.1 1.2
---- ----
Income before provision for
income taxes 21.8 18.3
Provision for income taxes 7.0 6.4
---- ----
Net income 14.8% 11.9%
---- ----
---- ----
Operating results for the three-month period ended June 29, 1996 include the
June 1, 1996 acquisition of the business of Snell Acoustics, Inc. a manufacturer
of high-end loudspeaker systems.
Net sales increased 12 percent, from approximately $9,862,000 during the first
quarter of fiscal 1996 to approximately $11,052,000 during the first quarter of
fiscal 1997. Sales increases in the home and automotive loudspeaker categories,
both domestically and to international distributors, contributed to the overall
sales increase during the three-month period ended June 29, 1996.
The Company's gross margin for the three-month period ended June 29, 1996
decreased as a percentage of net sales from 44.3% to 43.2% due primarily to
production inefficiencies as a result of the companies' move in late February
1996 to its new manufacturing facility.
9
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Total operating expenses increased both in absolute dollars and as a percentage
of net sales during the three-month period ended June 29, 1996 as compared to
the corresponding period in fiscal 1996. Selling and marketing expenses have
increased as a percentage of net sales primarily due to increased corporate
advertising and literature expenditures as compared to the three-month period
ended June 24, 1995. General and administrative expenses have remained
relatively stable in absolute dollars and as a result have decreased as a
percentage of net sales for the three-month period ended June 29, 1996.
Engineering and development expenses as a percentage of net sales and in
absolute dollars have increased primarily due to increased salaries and benefits
relating to additional engineering personnel, as well as increases in the cost
of materials 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 period ended June 29, 1996 due primarily to the
utilization of certain investments for the construction of the Company's new
facility during fiscal 1996.
The Company's effective income tax rate increased from 32% for the three-month
period ended June 24, 1995 to 35% for the three-month period ended June 29,
1996, primarily as a result of non-recurring tax credits realized in fiscal 1996
in connection with capital expenditures.
Net income for the first quarter of fiscal 1997 decreased 10% from approximately
$1,464,000 in fiscal 1996 to $1,319,000 in fiscal 1997 while earnings per share
decreased 12% from $.34 to $.30 per share. This decrease was primarily the
result of the increase in operating expenses, decrease in interest income and an
operating loss of Snell Acoustics which is included in the consolidated results
of operations.
Liquidity and Capital Resources
During the first three months of fiscal 1997, the Company financed its growth
with cash generated by operations. As of June 29, 1996 the Company's working
capital was approximately $22,853,000. The Company's cash and cash equivalents
were approximately $3,170,000, short-term investments were approximately
$4,924,000, and long-term investments were approximately $3,147,000. The
Company's cash and cash equivalents decreased by approximately $3,290,000 as
compared to the three-month period ended March 30, 1996 primarily as a result of
the acquisition of the business of Snell Acoustics and the purchase of common
stock for treasury during the quarter ended June 29, 1996. 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
None
Item 5. OTHER INFORMATION
None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits required by Item 601 of Regulation S-K
Exhibit 27. - Financial Data Schedule
b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
June 29, 1996. Subsequent to the end of the quarter for
which this report is filed, 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 filed in connection with such
report on Form 8-K.
11
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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: August 5, 1996 By: /s/Francis L. Reed
-------------------
Francis L. Reed
Director, Chief Executive
Officer and Treasurer (Principal
Financial Officer)
Date: August 5, 1996 By: /s/Andrew G. Kotsatos
-----------------------------
Andrew G. Kotsatos
Director, President and
Assistant Clerk
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FINANCIAL STATEMENTS IN ITS QUARTERLY REPORT ON FORM 10-Q FOR THE
QUARTERLY PERIOD ENDED JUNE 29, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-29-1997
<PERIOD-END> JUN-29-1996
<CASH> 3170091
<SECURITIES> 4924005
<RECEIVABLES> 8356465
<ALLOWANCES> 296000
<INVENTORY> 9282797
<CURRENT-ASSETS> 26914360
<PP&E> 17105937
<DEPRECIATION> 6010210
<TOTAL-ASSETS> 43794362
<CURRENT-LIABILITIES> 4061368
<BONDS> 0
0
0
<COMMON> 46026
<OTHER-SE> 40704308
<TOTAL-LIABILITY-AND-EQUITY> 43794362
<SALES> 11051857
<TOTAL-REVENUES> 11051857
<CGS> 6276741
<TOTAL-COSTS> 2886381
<OTHER-EXPENSES> 0
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