<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 December 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 (of which 222,800 are
treasury stock shares) as of February 7, 1997.
- ------------------------------------------------------------------------------
<PAGE>
Boston Acoustics, Inc.
Index
Page
----
Part I: Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets (Unaudited)-
March 30, 1996 and December 28, 1996 4
Consolidated Statements of Income (Unaudited)-
Three months and Nine months ended December 30, 1995
and December 28, 1996 6
Consolidated Statements of Cash Flows (Unaudited)-
Nine months ended December 30, 1995 and
December 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
------
March 30, 1996 December 28, 1996
-------------- -----------------
Current Assets:
Cash and cash equivalents $ 4,702,299 $ 1,707,700
Short-term investments 6,678,735 3,243,480
Accounts receivable, net of
allowance for doubtful accounts
of approximately $307,000 and
$435,000, respectively 8,401,038 11,076,157
Inventories 8,458,593 9,709,904
Deferred income taxes 730,000 730,000
Prepaid expenses 343,066 373,082
----------- -----------
Total current assets 29,313,731 26,840,323
----------- -----------
Property and Equipment, at cost:
Land 1,433,365 1,433,365
Building and improvements 6,762,323 7,009,761
Machinery and equipment 6,344,220 7,386,522
Office equipment and furniture 1,448,950 1,626,472
Motor vehicles 373,177 373,177
----------- -----------
16,362,035 17,829,297
Less-accumulated depreciation
and amortization 5,665,178 6,846,731
----------- -----------
10,696,857 10,982,566
----------- -----------
Other Assets:
Long-term investment securities,
at cost 2,305,992 1,391,578
Other assets, net 807,012 2,650,288
----------- -----------
Total other assets 3,113,004 4,041,866
----------- -----------
$43,123,592 $41,864,755
----------- -----------
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
------------------------------------
March 30, 1996 December 28, 1996
-------------- -----------------
Current Liabilities:
Accounts payable $ 1,167,933 $ 1,607,850
Accrued payroll and payroll-
related expenses 1,078,186 961,849
Dividend payable 551,088 523,238
Other accrued expenses 350,031 506,356
Accrued income taxes 83,617 7,474
----------- -----------
Total current liabilities 3,230,855 3,606,767
----------- -----------
Commitments
Shareholders' Equity:
Common stock, $.01 par value
Authorized -- 6,000,000 shares
Issued -- 4,602,621 at
March 30, 1996 and
December 28, 1996 46,026 46,026
Additional paid-in capital 4,966,918 4,966,918
Retained earnings 34,963,583 37,677,559
----------- -----------
39,976,527 42,690,503
Less-Treasury stock, 193,920 shares,
at March 30, 1996 and 416,720 shares
at December 28, 1996, at cost 83,790 4,432,515
----------- -----------
Total shareholders' equity 39,892,737 38,257,988
----------- -----------
$43,123,592 $41,864,755
----------- -----------
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 Nine Months Ended
------------------ -----------------
December 30, December 28, December 30, December 28,
1995 1996 1995 1996
(14 weeks) (13 weeks) (40 weeks) (39 weeks)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $13,557,816 $14,778,732 $35,067,551 $38,029,777
Cost of goods sold 7,751,217 8,320,461 19,839,044 21,769,652
----------- ----------- ----------- -----------
Gross profit 5,806,599 6,458,271 15,228,507 16,260,125
----------- ----------- ----------- -----------
Selling and
marketing expenses 1,558,890 2,078,761 4,281,533 5,438,066
General and
administrative expenses 657,247 892,384 1,777,087 2,204,394
Engineering and
development expenses 647,828 807,389 1,811,542 2,309,532
----------- ----------- ----------- -----------
Total expenses 2,863,965 3,778,534 7,870,162 9,951,992
----------- ----------- ----------- -----------
Income from operations 2,942,634 2,679,737 7,358,345 6,308,133
Interest income 207,449 82,984 604,199 335,155
----------- ----------- ----------- -----------
Income before provision
for income taxes 3,150,083 2,762,721 7,962,544 6,643,288
Provision for income taxes 1,030,000 968,000 2,588,000 2,326,000
----------- ----------- ----------- -----------
Net income $ 2,120,083 $ 1,794,721 $ 5,374,544 $ 4,317,288
----------- ----------- ----------- -----------
Net income per common share $ .49 $ .42 $ 1.24 $ 1.00
----------- ----------- ----------- -----------
Weighted average number
of common shares
outstanding 4,345,166 4,241,914 4,332,885 4,317,965
----------- ----------- ----------- -----------
Dividends per share $ .125 $ .125 $ .375 $ .375
----------- ----------- ----------- -----------
</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)
Nine Months Ended
-----------------
December 30, 1995 December 28, 1996
----------------- -----------------
Cash flows from operating activities:
Net income $ 5,374,544 $ 4,317,288
Adjustments to reconcile net income
to net cash provided by operating
activities-
Depreciation and amortization 745,820 1,263,622
Changes in assets and liabilities, net of
acquisition of Snell Acoustics-
Accounts receivable (1,281,866) (2,322,165)
Inventories (193,391) (709,194)
Prepaid expenses (48,498) 82,284
Accounts payable 292,299 214,244
Accrued expenses (21,863) (224,644)
Accrued income taxes (270,125) (76,143)
----------- -----------
Net cash provided by
operating activities 4,596,920 2,545,292
----------- -----------
Cash flows from investing activities:
Acquisition of Snell Acoustics --- (2,615,675)
Purchase of property and equipment, net (6,257,852) (1,238,996)
Purchase of investments (2,207,145) (2,013,980)
Proceeds from sale and maturity of
investments 6,118,821 6,363,649
Increase in other assets (26,371) (55,001)
----------- -----------
Net cash used in investing
activities (2,372,547) 439,997
----------- -----------
Cash flows from financing activities:
Dividends paid (1,622,827) (1,631,163)
Purchase of common stock for treasury --- (4,348,725)
Exercise of stock options 234,426 ---
----------- -----------
Net cash used in financing
activities (1,388,401) (5,979,888)
----------- -----------
Increase (decrease) in cash and cash equivalents 835,972 (2,994,599)
Cash and cash equivalents, beginning
of period 3,570,790 4,702,299
----------- -----------
Cash and cash equivalents, end of
period $ 4,406,762 $ 1,707,700
----------- -----------
Items not affecting cash flows:
Dividends payable $ 546,617 $ 523,238
----------- -----------
Supplemental Disclosure:
Cash paid for income taxes $ 2,858,125 $ 2,378,320
----------- -----------
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 nine-month periods ended December 28, 1996 are not necessarily
indicative of results to be expected for the full fiscal year.
(2) Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market and consist of the following:
March 30, 1996 December 28, 1996
-------------- -----------------
Raw materials and work-in process $ 4,518,656 $ 7,017,153
Finished goods 3,939,937 2,692,751
------------ -----------
$ 8,458,593 $ 9,709,904
------------ -----------
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
nine-month periods ended December 30, 1995 and December 28, 1996 expressed as
percentages of net sales.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------ -----------------
December 30, December 28, December 30, December 28,
1995 1996 1995 1996
(14 weeks) (13 weeks) (40 weeks) (39 weeks)
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Net sales 100.0 % 100.0 % 100.0 % 100.0 %
Cost of goods sold 57.2 56.3 56.6 57.2
----- ----- ----- -----
Gross profit 42.8 43.7 43.4 42.8
----- ----- ----- -----
Selling and marketing
expenses 11.5 14.1 12.2 14.3
General & administrative
expenses 4.8 6.0 5.1 5.8
Engineering & development
expenses 4.8 5.5 5.1 6.1
----- ----- ----- -----
21.1 25.6 22.4 26.2
----- ----- ----- -----
Income from operations 21.7 18.1 21.0 16.6
Interest income 1.5 0.6 1.7 0.9
----- ----- ----- -----
Income before provision for
income taxes 23.2 18.7 22.7 17.5
Provision for income taxes 7.6 6.6 7.4 6.1
----- ----- ----- -----
Net income 15.6 % 12.1 % 15.3 % 11.4 %
----- ----- ----- -----
</TABLE>
Net sales increased 9 percent, from approximately $13,558,000 during the
third quarter of fiscal 1996 to approximately $14,779,000 during the third
quarter of fiscal 1997. For the nine months ended December 28, 1996 net
sales increased 8% from approximately $35,068,000 to approximately
$38,030,000. The results for the three-month period ended December 28, 1996
represents 13 weeks of sales and earnings compared to 14 weeks for the same
period a year ago. During the quarter, the Company completed its
introduction of the new Micro Reference (MR) category of products. The
models include the MR80 and MR90 3-piece systems with suggested retails of
$400 and $800, respectively and the MR90t 4-piece theater system with a
suggested retail of $1,000.
9
<PAGE>
The Company's gross margin for the three-month period ended December 28, 1996
increased as a percentage of net sales due primarily to a shift in the sales
mix to loudspeaker models with slightly higher margins, as well as
elimination of costs associated with additional offsite warehousing in fiscal
1996. The gross margin for the nine-month period ended December 28, 1996
decreased as a percentage of net sales due 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 December 28, 1996 as compared to
the corresponding periods in fiscal 1996. Selling and marketing expenses
have increased as a percentage of net sales primarily due to increased
advertising and literature expenditures as compared to the corresponding
three-month and nine-month periods in the preceding fiscal year. General and
administrative expenses have increased 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 as a percentage of net sales have
increased primarily due to increased salaries and benefits relating to
additional 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 and nine-month periods ended December 28, 1996
because of the utilization of certain investments for the construction of the
Company's new facility during fiscal 1996, the repurchase of 222,800 shares
of the Company's common stock under its Common Stock Repurchase Program
during fiscal 1997, and the acquisition of the business of Snell Acoustics.
The Company's effective income tax rate increased from 32.7% for the
three-month period ended December 30, 1995 and 32.5% for the nine-month
period ended December 30, 1995 to approximately 35% for both the three-month
and nine-month periods ended December 28, 1996, primarily as a result of
non-recurring tax credits realized in fiscal 1996 in connection with capital
expenditures.
Net income for the third quarter decreased 15%, from approximately $2,120,000
in fiscal 1996 to $1,795,000 in fiscal 1997 while earnings per share
decreased 14% from $.49 to $.42 per share. Net income for the nine-month
period ended December 28, 1996 decreased 20% from approximately $5,375,000 in
fiscal 1996 to approximately $4,317,000 in fiscal 1997, while earnings per
share for the nine-month period decreased 19% from $1.24 per share to $1.00
per share.
Liquidity and Capital Resources
During the first nine months of fiscal 1997, the Company financed its growth
with cash generated by operations. As of December 28, 1996 the Company's
working capital was approximately $23,234,000. The Company's cash and cash
equivalents were approximately $1,708,000, short-term investments were
approximately $3,243,000, and long-term investments were approximately
$1,392,000. 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
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
December 28, 1996.
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: February 7, 1997 By: s/Andrew G. Kotsatos
--------------------
Andrew G. Kotsatos
Director, Chief Executive Officer
and Treasurer
Date: February 7, 1997 By: s/Debra A. Ricker-Rosato
------------------------
Debra A. Ricker-Rosato
Vice President, Chief Accounting
Officer
12
<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: February 7, 1997 By: ______________________________
Andrew G. Kotsatos
Director, Chief Executive Officer
and Treasurer
Date: February 7, 1997 By: ___________________________
Debra A. Ricker-Rosato
Vice President, Chief Accounting
Officer
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 10Q FOR THE
QUARTERLY PERIOD ENDED DECEMBER 28, 1996 AND IS QUALIFIED IN ITS ENTIRETY TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000805268
<NAME> BOSTON ACOUSTICS, INC.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-29-1997
<PERIOD-END> DEC-28-1996
<CASH> 1,707,700
<SECURITIES> 3,243,480
<RECEIVABLES> 11,076,157
<ALLOWANCES> 435,000
<INVENTORY> 9,709,904
<CURRENT-ASSETS> 26,840,323
<PP&E> 17,829,297
<DEPRECIATION> 6,846,731
<TOTAL-ASSETS> 41,864,755
<CURRENT-LIABILITIES> 3,606,767
<BONDS> 0
0
0
<COMMON> 46,026
<OTHER-SE> 42,644,477
<TOTAL-LIABILITY-AND-EQUITY> 41,864,755
<SALES> 38,029,777
<TOTAL-REVENUES> 38,029,777
<CGS> 21,769,652
<TOTAL-COSTS> 9,951,992
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 6,643,288
<INCOME-TAX> 2,326,000
<INCOME-CONTINUING> 4,317,288
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,317,288
<EPS-PRIMARY> 1.00
<EPS-DILUTED> 1.00
</TABLE>
