<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
for the fiscal year ended March 28, 1998
or
[ ] Transition Report pursuant 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)
(978) 538-5000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None.
Securities registered pursuant to Section 12(g) of the Act:
6,000,000 shares of Common Stock ($.01 Par Value)
(Title of Class)
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 [ ]
Indicate by check mark if the disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by nonaffiliates of the
registrant was $76,536,075 as of June 24, 1998.
There were 3,318,264 shares of Common Stock issued and outstanding as of June
24, 1998.
- --------------------------------------------------------------------------------
DOCUMENTS INCORPORATED BY REFERENCE
(1) Registrant's Annual Report to Stockholders for the fiscal year ended March
28, 1998 (Items 5, 6, 7, 8 and 14 (a)(1))
(2) Proxy Statement for Registrant's Annual Meeting of Stockholders to be held
on August 11, 1998 (Items 10, 11, 12 and 13)
<PAGE>
BOSTON ACOUSTICS, INC.
<TABLE>
<CAPTION>
Securities and Exchange Commission
Item Number and Description Page
PART I
<S> <C> <C>
ITEM 1. Business 1
ITEM 2. Properties 7
ITEM 3. Legal Proceedings 7
ITEM 4. Submission of Matters to a Vote of Security Holders 7
PART II
ITEM 5. Market for Registrant's Common Equity
and Related Stockholder Matters 8
ITEM 6. Selected Financial Data 8
ITEM 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
ITEM 8. Financial Statements and Supplementary Data 8
ITEM 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 8
PART III
ITEM 10. Directors and Executive Officers of the Registrant 9
ITEM 11. Executive Compensation 9
ITEM 12. Security Ownership of Certain Beneficial
Owners and Management 9
ITEM 13. Certain Relationships and Related Transactions 9
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 10
SIGNATURES 13
INDEX TO FINANCIAL STATEMENT SCHEDULES F-1
</TABLE>
Inasmuch as the calculation of shares of the registrant's voting stock held by
non-affiliates requires a calculation of the number of shares held by
affiliates, such figure, as shown on the cover page hereof, represents the
registrant's best good faith estimate for purposes of this annual report on Form
10-K, and the registrant disclaims that such figure is binding for any other
purpose. The aggregate market value of Common Stock indicated is based upon
$35.00, the price at which the Common Stock was last sold on June 24, 1998 as
reported by The Nasdaq Stock Market. All outstanding shares beneficially owned
by executive officers and directors of the registrant or by any shareholder
beneficially owning more than 10% of registrant's Common Stock, as disclosed
herein, were considered for purposes of this disclosure to be held by
affiliates.
-i-
<PAGE>
Part I
Item 1. Business
Boston Acoustics, Inc. (the "Company") engineers, manufactures and markets
moderately-priced, high-quality loudspeaker systems for use in home audio and
video entertainment systems, in after-market automotive audio systems and in
multimedia computer environments. The Company believes that its products deliver
better sound quality than other comparably priced loudspeaker systems. Most of
the Company's products are assembled by the Company from purchased components,
although certain automotive speakers are manufactured by others according to
Company specifications. All of the Company's products and subassemblies,
including those supplied by outside sources, have been designed by the Company's
engineering department. Boston Acoustics' speakers are marketed nationwide
through selected audio and audio-video specialty dealers and through
distributors in certain foreign countries. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- International
Operations" which is included in the Company's 1998 Annual Report which is filed
as Exhibit 13 hereto.
The Company was organized as a Massachusetts corporation in 1979 by Andrew G.
Kotsatos and former CEO, Francis L. Reed, who passed away in November 1996. Its
principal executive offices and manufacturing facilities are located at 300
Jubilee Drive, Peabody, Massachusetts.
Products
The Company operates in one business industry segment and has distinct product
lines as discussed below.
The Home Loudspeaker line consists of five bookshelf models currently ranging
in price from $150 to $420 per pair, five floor-standing systems currently
priced from $700 to $1600 per pair, two three-piece subwoofer/satellite
systems currently priced at $400 and $800 per system, and three powered
subwoofers priced at $400, $600 and $1200. Additional products for the home
theater market include five different center-channel speakers currently
ranging in price from $130 to $600 each. The Company also produces
magnetically shielded versions of most of its models and produces three
indoor/outdoor speaker systems (Voyager-REGISTERED TRADEMARK-,
Runabout-REGISTERED TRADEMARK- I, and Runabout II) currently priced from $200
to $400 per pair. The Company also produces a complete THX-REGISTERED
TRADEMARK- Home Theater speaker system priced at $2,400.
The Designer Series line is a collection of speaker systems engineered for flush
mounting in the walls or ceilings of homes, businesses and recreational
vehicles. There are six models in the Designer Series line with prices currently
ranging from $130 to $500 per pair.
The Automotive Series consists of 39 models of automotive speakers with prices
currently ranging from $60 to $700 per pair. The automotive line includes
high-quality full-range replacement speakers, sophisticated component systems,
and subwoofers. The component systems permit flexible speaker
1
<PAGE>
placement and provide sound rivaling that of fine home speakers. The
automotive line includes the CX Series, the 700 Series of plate speakers, the
Boston Rally-TM- RC Series of component speakers, the Boston Rally RX Coaxial
Series, the Boston Rally RS Subwoofers and Band-Pass enclosure systems, the
Boston Rally RM Series, and the premium performance ProSeries Speaker Systems.
The Personal Desktop Audio-TM- Series currently consists of three high
performance powered subwoofer/satellite speaker systems for computing
environments priced from $99.95 to $299.95 per system.
New Products
During fiscal 1998 the Company added a number of new products, described below,
to supplement or replace those products which have matured, to increase
penetration of current markets, and to gain footholds in new markets.
During fiscal 1998 the Company introduced three models in the VR-REGISTERED
TRADEMARK- tower series. Its features include innovative built-in powered
subwoofers, and proprietary features and technologies such as the Lynnfield
VR tweeter, Magnaguard-REGISTERED TRADEMARK- magnetic shielding, DCD-TM- (Deep
Channel Design) bass and Active Bass Contour-TM-. The suggested retail
price for the three models range from $700 to $1,600 a pair.
During fiscal 1998 the Company introduced the SoundBar-TM- Cinema System.
With digital Dolby-REGISTERED TRADEMARK- Pro Logic-REGISTERED TRADEMARK-
decoding and Qsound-REGISTERED TRADEMARK- 3D image enhancement technology, it
is the first high-performance home theater sound system to eliminate the
complexity of conventional systems. The Soundbar module sits on top of the
TV, housing the left, center, and right channels, and the system's
electronics. The subwoofer and surround speakers round out the layout. The
system also includes a universal remote control that can operate the soundbar
as well as virtually all brands of TV's, VCR's and cable boxes. The suggested
retail price is $799.95.
During fiscal 1998 the Company introduced two products in the Personal
Desktop Audio Series. The MicroMedia-TM- system was the Company's first
three-piece speaker system capable of reproducing the entire bandwidth of
sound for music, games and multimedia applications. MicroMedia is a
subwoofer/satellite speaker system consisting of a pair of miniature desktop
speakers and a separate subwoofer with a three-channel amplifier to power the
whole system. The MicroMedia suggested retail price is $149.95. The Company
also introduced the MediaTheater-TM- system, the world's first multimedia
sound system utilizing Virtual Dolby surround sound technology. MediaTheater
creates the effect of a full five-speaker surround sound system--with only
two satellite speakers and a subwoofer. The satellites sit by the monitor,
and the subwoofer is small enough to fit easily under the desk. The power
amplifier and signal processing circuitry are housed within the subwoofer,
while system controls are located in one of the satellites. MediaTheater is a
high-performance system that takes advantage of new technologies in both
digital signal processing and in speaker construction. MediaTheater suggested
retail price is $299.95.
In June 1996, the Company acquired the business of Snell-REGISTERED
TRADEMARK- Acoustics (Snell), a manufacturer of high-quality speaker systems
for traditional audio and home theater use. Snell specializes in creating
furniture-quality speakers for discriminating customers. During fiscal 1998,
Snell enhanced it line of speakers which now include products in four ranges -
compact speaker systems, floorstanding systems, in-wall speaker systems and
THX home theater systems. Products range from $450 per pair for small
bookshelf speakers, to $45,000 per system for a complete 7-speaker THX
theater system with state-of-the-art digital room correction.
2
<PAGE>
Engineering and Development
The Company's engineering and development department is actively engaged in
the development of new products and manufacturing processes, the improvement
of existing products and the research of new materials for use in the
Company's products. The Company has designed all of its products and
subassemblies, including those supplied by outside sources.
The Company's engineering and development staff includes 50 full-time
employees and three outside consultants. During fiscal years 1996, 1997 and
1998 the Company spent approximately $2,497,000, $3,187,000, and $3,513,000,
respectively, for engineering and development.
Marketing
The Company employs 20 salespersons and retains 10 manufacturer's
representatives who service the Company's dealer network. Boston Acoustics'
loudspeaker systems are distributed in the United States and Canada through
approximately 372 selected home dealers (some of whom have multiple outlets)
which are typically audio or audio-video specialty retailers. The Company
sells its automotive products through approximately 316 dealers located in
the United States and Canada including automotive sound specialty retailers
and many of the Company's home audio dealers. The Company's Designer Series
speakers are sold by many of its home audio dealers. The Company's dealers
usually stock and sell a broad variety of audio components including, in most
cases, competing loudspeaker lines. The Company seeks dealers who emphasize
quality products and who are knowledgeable about home and automotive
entertainment products. The Company's Personal Desktop Audio Series of
products are sold through an OEM agreement with a major computer manufacturer
and through Boston Acoustics' retailers, as well as a recently launched
direct sales program. During the fiscal year ended March 28, 1998 one
customer accounted for 34% of net sales.
Boston Acoustics' product lines are also exported to dealers in Canada and
through exclusive distributors in certain foreign countries, primarily in
Western Europe, Asia Pacific and South/Central America. Export sales
accounted for approximately 20% of net sales in fiscal 1996, 21% in fiscal
1997, and 19% in fiscal 1998. See also Note 7 to Consolidated Financial
Statements incorporated herein by reference, pursuant to Part II, Item 8.
The Company emphasizes the high performance-to-price ratio of its speakers in
its advertising and promotion. Boston Acoustics believes that specialty
retailers can be effective in introducing retail customers to the high dollar
value of the Company's products. The Company directly supports its dealer
network with a cooperative advertising program and by providing Company
prepared advertisements and detailed product literature. In addition, the
Company advertises in national magazines including Stereo Review, Audio, Car
Audio & Electronics, Car Stereo Review, Video, Home Theater and Audio Video
International. During fiscal 1998 the Company spent approximately $1,964,000
(2.4% of net sales) for advertising.
Competition
The Company competes primarily on the basis of product performance, price and
the strength of its dealer organization.
The market for branded loudspeaker systems is served by many manufacturers,
both foreign and domestic. Many products are available over a broad price
range, and the market is highly fragmented and competitive. The Company
distributes its products primarily through specialty retailers where it
competes directly for space with other branded speaker manufacturers.
Loudspeaker systems
3
<PAGE>
produced by many of the Company's competitors can be purchased by consumers
through mass merchandisers, department stores, mail-order merchants, and
catalogue showrooms. The Company believes it is more advantageous to distribute
through specialty retailers who provide sales support and service to consumers.
Boston Acoustics competes with a substantial number of branded speaker
manufacturers, including Bose Corporation, Infinity and JBL (divisions of Harman
International Industries), Advent (division of Recoton, Inc.), Polk Audio, Inc.,
and Klipsch and Associates, Inc. Some of these competitors have greater
technical and financial resources than the Company and may have broader brand
recognition than Boston Acoustics.
In addition to competition from branded loudspeaker manufacturers, the Company's
products compete indirectly with single name "rack systems". Rack systems
contain all the various components needed to form an audio system, and are sold
by Sony, Pioneer, Technics, Yamaha and many others. Rack systems are generally
sold through mass merchandisers and department stores, although many of the
Company's dealers also sell rack systems.
Manufacturing and Suppliers
Most of the Company's products are assembled by the Company from components
specially fabricated for the Company, although certain automotive speakers are
manufactured by others in certain foreign countries according to Company
specifications.
The Company purchases materials and component parts from approximately 219
suppliers located in the United States, Canada, Western Europe and the Far East.
Although Boston Acoustics relies on single suppliers for certain parts, the
Company could, if necessary, develop multiple sources of supply for these parts.
The Company does not have long-term or exclusive purchase commitments. The
Company does have a written agreement with one of its inventory suppliers, which
accounted for more than 10% of the Company's purchases during fiscal year 1998.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- International Operations" which is included in the Company's 1998
Annual Report which is filed as Exhibit 13 hereto.
Seasonality and Consumer Discretion
The home and automotive audio markets are both somewhat seasonal, with a
majority of home speaker retail sales normally occurring in the period October
through March and a majority of automotive speaker retail sales normally
occurring in the period April through October.
The Company's sales and earnings can also be affected by changes in the general
economy since purchases of home entertainment and automotive audio products,
including loudspeakers, are discretionary for consumers.
Patents and Trademarks
Boston Acoustics holds nine United States patents and numerous international
patents, which relate to certain speaker technologies, assemblies and cabinet
design. The Company also has several registered trademarks including
Boston-REGISTERED TRADEMARK-, Boston Acoustics-REGISTERED TRADEMARK-,
Varimount-REGISTERED TRADEMARK-, Magnaguard-REGISTERED TRADEMARK-,
PowerVent-REGISTERED TRADEMARK-, Tempo-REGISTERED TRADEMARK-,
Voyager-REGISTERED TRADEMARK-, and Runabout-REGISTERED TRADEMARK-. Trademarks
used by the Snell subsidiary include Snell Acoustics, Snell Multimedia, Snell
Music & Cinema and Room Ready-REGISTERED TRADEMARK-. The Company believes
that its growth, competitive position and success in the marketplace are more
dependent on its technical and marketing skills and expertise than upon the
ownership of patent and trademark rights. There can be no assurance that any
patent or trademark would ultimately be proven valid if challenged.
4
<PAGE>
Significant Customers
A significant portion of the Company's sales currently are to Gateway 2000, Inc.
("Gateway") pursuant to contracts that run through June 1999. Since these
contracts do not contain schedules with which Gateway must comply in placing
orders, orders by Gateway may fluctuate significantly from quarter to quarter
over the terms of the contracts. Assuming Gateway places orders under the terms
of the contracts by June 1999, a substantial portion of the Company's revenues
for fiscal year 1999 is expected to be derived from its contracts with Gateway.
The loss of Gateway as a customer or any significant portion of orders from
Gateway could have a material adverse affect on the Company's business, results
of operation and financial condition. In addition, the Company also could be
materially adversely affected by any substantial work stoppage or interruption
of production at Gateway or if Gateway were to reduce or cease conducting
operations.
Backlog
The Company currently has no significant backlog. The Company's policy is to
maintain sufficient inventories of finished goods to fill all orders within two
business days of receipt.
Warranties
Boston Acoustics warrants its home speakers to be free from defects in materials
and workmanship for a period of five years, its Designer Series speakers and its
automotive speakers for one year and its multimedia audio speaker systems for a
period of three years. Warranty costs during fiscal 1998 were not significant.
Employees
As of June 24, 1998, the Company had 310 full-time employees who were engaged as
follows: 203 in production and materials management; 50 in engineering and
development; 36 in marketing and sales support; and 21 in administration.
None of the Company's employees are represented by a collective bargaining
agreement and the Company believes that its relations with its employees are
satisfactory.
5
<PAGE>
Executive Officers of the Registrant
There is incorporated herein by reference the information concerning Andrew G.
Kotsatos, who is Chairman of the Board, Chief Executive Officer and Treasurer of
the Company, and Fred E. Faulkner, Jr., who is President and Chief Operating
Officer of the Company, from the Company's definitive Proxy Statement for its
Annual Meeting of Stockholders to be held on August 11, 1998, under the headings
"Proposal No. 1 -- Election of Directors" and "Board of Directors." Information
concerning the Company's other executive officers as of June 24, 1998 is set
forth below.
<TABLE>
<CAPTION>
Name Age Title
<S> <C> <C>
Moses A. Gabbay 53 Vice President - Engineering
Paul F. Reed 34 Vice President - Administrative Services
Debra A. Ricker-Rosato 42 Vice President - Finance
Robert L. Spaner 37 Vice President - Sales
</TABLE>
Moses A. Gabbay has been Vice President - Engineering since joining the Company
in 1981. Mr. Gabbay was previously Director of Engineering at Avid Corporation
and an acoustic engineer for Teledyne Acoustic Research.
Paul F. Reed was named Vice President - Administrative Services in May 1993. He
has been with the Company since its inception in 1979. From production and
shipping, Mr. Reed moved to sales in 1986 and, in 1989, became a Regional Sales
Manager. He was named Director of Administrative Services in 1990.
Debra A. Ricker-Rosato was named Vice President - Finance in May 1993. Prior to
joining the Company in October 1986 as Controller, Ms. Ricker-Rosato was
employed by Babco-Textron from 1975, a manufacturer of small aircraft engine
components. Her last position with Babco-Textron was that of Assistant
Controller. She holds an MSF degree from Bentley College.
Robert L. Spaner was named Vice President - Sales in May 1993. He joined the
Company in 1987 as a regional sales manager. In 1990 he became National Sales
Manager. Mr. Spaner was formerly employed by Kloss Video as Western Regional
Manager and worked six years in retail sales at Tweeter, Etc.
Each executive officer is elected for a term scheduled to expire at the meeting
of Directors following the Annual Meeting of Stockholders or until a successor
is duly chosen and qualified. There are no arrangements or understandings
pursuant to which any executive officer was or is to be selected for election or
reelection. There are no family relationships among any Directors or executive
officers, except that Paul F. Reed, an executive officer, and Lisa M. Mooney, a
director, are brother and sister.
6
<PAGE>
Item 2. Properties
The Company owns its principal executive offices and manufacturing facilities
which sits on 11 acres of land at 300 Jubilee Drive, Peabody, Massachusetts.
Snell Acoustics (Snell), a subsidiary of the Company, leases all of the
properties used in its business. Snell maintains its principal executive offices
and manufacturing facilities at 143 Essex Street, Haverhill, Massachusetts. A
total of 65,090 square feet of space is leased from an unrelated party under an
operating lease which expires in March 1999.
Item 3. Legal Proceedings
There are no material legal proceedings affecting the Company.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of shareholders during the fourth
quarter of fiscal 1998.
7
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters
The information required by this item is incorporated by reference to the
section entitled "Stock Market Activity" on page 16 in the Registrant's 1998
Annual Report to Stockholders, which is filed herewith as Exhibit 13.
Item 6. Selected Financial Data
The information required by this item is incorporated by reference to the
section entitled "Selected Financial Data" on page 15 in the Registrant's 1998
Annual Report to Stockholders, which is filed herewith as Exhibit 13.
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
The information required by this item is incorporated by reference to the
section entitled "Management's Discussion and Analysis of Financial Condition
and Results of Operations" on pages 5 through 7 in the Registrant's 1998 Annual
Report to Stockholders, which is filed herewith as Exhibit 13.
Item 8. Financial Statements and Supplementary Data
The information required by this item is incorporated by reference to the
Consolidated Financial Statements at March 28, 1998 and notes thereto on pages 8
through 14 in the Registrant's 1998 Annual Report to Stockholders, which is
filed herewith as Exhibit 13.
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
None.
8
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
Pursuant to General Instruction G (3) of Form 10-K and Instruction 3 to Item
401(b), the information required by this item concerning executive officers,
including certain information incorporated herein by reference to the
information appearing in the Company's definitive Proxy Statement for its Annual
Meeting of Stockholders to be held on August 11, 1998 concerning Andrew G.
Kotsatos, who is the Chairman of the Board, Chief Executive Officer and
Treasurer of the Company, and Fred E. Faulkner, Jr., who is President and Chief
Operating Officer of the Company, is set forth in Part I, Item 1, hereof, under
the heading "Executive Officers of the Registrant" and information concerning
Directors, including Messrs. Kotsatos and Faulkner, is incorporated by reference
to the sections entitled "Proposal No. 1 -- Election of Directors", "Board of
Directors" and "Compensation Interlocks and Insider Participation" in the
Registrant's definitive Proxy Statement for its Annual Meeting of Stockholders
to be held August 11, 1998.
There is incorporated herein by reference to the discussion under "Compliance
with Section 16(a) of the Securities Exchange Act of 1934" in the Company's
definitive Proxy Statement for its Annual Meeting of Stockholders to be held
August 11, 1998 the information with respect to delinquent filings of reports
pursuant to Section 16(a) of the Securities Exchange Act of 1934.
Item 11. Executive Compensation
The information required by this item is incorporated by reference to the
sections entitled "Executive Compensation" in the Registrant's definitive Proxy
Statement for its Annual Meeting of Stockholders to be held August 11, 1998.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
The information required by this item is incorporated by reference to the
section entitled "Principal and Management Stockholders" in the Registrant's
definitive Proxy Statement for its Annual Meeting of Stockholders to be held
August 11, 1998.
Item 13. Certain Relationships and Related Transactions
The information required by this item is incorporated by reference to the
section entitled "Certain Relationships and Transactions" in the Registrant's
definitive Proxy Statement for its Annual Meeting of Stockholders to be held
August 11, 1998.
9
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K.
(a) The following documents are included as part of this report:
(1) Financial Statements
The following consolidated financial statements are incorporated by
reference to the Registrant's 1998 Annual Report to Stockholders:
Report of Independent Public Accountants.
Consolidated Balance Sheets as of March 28, 1998 and March 29, 1997.
Consolidated Statements of Income for the three years ended March 28,
1998.
Consolidated Statements of Shareholders' Equity for the three years
ended March 28, 1998.
Consolidated Statements of Cash Flows for the three years ended March
28, 1998.
Notes to Consolidated Financial Statements.
(2) Financial Statement Schedules
The following financial statement schedules are filed as part of this
report and should be read in conjunction with the consolidated
financial statements:
Report of Independent Public Accountants on Schedules
Schedule II -- Valuation and Qualifying Accounts
Other financial schedules have been omitted because they are not
required or because the required information is given in the
Consolidated Financial Statements or notes thereto.
10
<PAGE>
(3) Listing of Exhibits
Exhibits
<TABLE>
<S> <C>
3.A. - Articles of Organization (1)
3.B. - Amendment to Articles of Organization (1)
3.C. - Second Amendment to Articles of Organization (1)
3.D. - Bylaws (1)
4.A. - Specimen Share Certificate (1)
10.A.+ - 1996 Stock Plan adopted by Boston Acoustics, Inc.
on February 20, 1996, as amended (3)
10.B.+ - 1986 Incentive Stock Option Plan adopted by Boston
Acoustics, Inc. on October 15, 1986, as amended (2)
10.C.*+ - 1997 Stock Plan adopted by Boston Acoustics, Inc. on
May 28, 1997.
10.E.# - Purchase Agreement dated March 27, 1997 by and between
Gateway 2000, Inc. and Boston Acoustics, Inc. (3)
10.F. - Boston Acoustics, Inc. Warrant naming Gateway 2000, Inc.
as registered holder. (3)
10.G.# - Letter of Agreement dated January 14, 1997 by and
between Gateway 2000, Inc. and Boston Acoustics,
Inc. (3)
10.H. - Loan Agreement dated as of June 13, 1997 between Boston
Acoustics, Inc. and State Street Bank and Trust
Company. (4)
10.I. - Revolving Credit Note dated as of June 13, 1997 in the
amount of $25,000,000 made by Boston Acoustics, Inc.
payable to the order of State Street Bank and Trust
Company. (5)
10.J. - Stock Redemption Agreement dated as of June 13, 1997 by
and among Boston Acoustics, Inc. and Valerie R. Cohen,
Lisa M. Mooney and Paul F. Reed as Executors of the
Estate of Francis L. Reed and the Estate of Dorothea T.
Reed (6)
10.K.^ - Letter of Agreement dated December 22, 1997 by and
between Gateway 2000, Inc. and Boston Acoustics, Inc.
(7)
10.L.*^ - Letter of Agreement dated May 14, 1998 by and between
Gateway 2000, Inc. and Boston Acoustics, Inc.
13. * - 1998 Annual Report to Shareholders
21. - Subsidiaries of the Registrant (3)
23. * - Consent of Independent Public Accountants
27. * - Financial Data Schedule
99. - "Safe Harbor" Statement under Private Securities
Litigation Reform Act of 1995 (8)
</TABLE>
* Indicates an exhibit which is filed herewith.
+ Indicates an exhibit which constitutes an executive compensation plan.
# Indicates that portions of the exhibit have been omitted pursuant to an order
granting a request for confidential treatment.
^ Indicates that portions of the exhibit have been omitted pursuant to a
request for confidential treatment.
- -------------------
(1) Incorporated by reference to the similarly numbered exhibits in Part II of
File No. 33-9875.
(2) Incorporated by reference to the similarly numbered exhibit in Item 14 of
the Company's Annual Report on Form 10-K for the year ended March 27, 1993.
(3) Incorporated by reference to the similarly numbered exhibit in Item 14 of
the Company's Annual Report on Form 10-K for the fiscal year ended March 29,
1997.
11
<PAGE>
(4) Incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report
on Form 10-Q for fiscal quarter ended June 28, 1997.
(5) Incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report
on Form 10-Q for the fiscal quarter ended June 28, 1997.
(6) Incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report
on Form 10-Q for the fiscal quarter ended June 28, 1997.
(7) Incorporated by reference to Exhibit 10.A. to the Company's Quarterly Report
on Form 10-Q for the fiscal quarter ended December 27, 1997.
(8) Incorporated by reference to the similarly numbered exhibit in Item 14 of
the Company's Annual Report on Form 10-K for the fiscal year ended March 30,
1996.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed by the Registrant during the last quarter
covered by this report, and no other such reports were filed subsequent to March
28, 1998 through the date of this report.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, in the City of Peabody,
Commonwealth of Massachusetts, on the 24th day of June 1998.
BOSTON ACOUSTICS, INC.
(Registrant)
BY: s/Andrew G. Kotsatos
----------------------------
Andrew G. Kotsatos
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Capacities Date
<S> <C> <C>
s/Andrew G. Kotsatos 6/24/98
- ------------------------ Director, Chief Executive ------------
Andrew G. Kotsatos Officer and Treasurer
s/Fred E. Faulkner, Jr. 6/24/98
- ------------------------ Director, President and ------------
Fred E. Faulkner, Jr. Chief Operating Officer
s/Debra A. Ricker-Rosato 6/24/98
- ------------------------ Vice President and ------------
Debra A. Ricker-Rosato Chief Accounting Officer
s/George J. Markos 6/24/98
- ------------------------ Director ------------
George J. Markos
s/Lisa M. Mooney 6/24/98
- ------------------------ Director ------------
Lisa M. Mooney
s/Gerald Walle 6/24/98
- ------------------------ Director ------------
Gerald Walle
</TABLE>
13
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
To Boston Acoustics, Inc.:
We have audited, in accordance with generally accepted auditing standards,
the consolidated financial statements included in Boston Acoustics, Inc. and
subsidiaries' annual report to shareholders, incorporated by reference in
this Form 10-K, and have issued our report thereon dated May 12, 1998. Our
audits were made for the purpose of forming an opinion on those statements
taken as a whole. The schedule listed in the index is the responsibility of
the Company's management and is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
consolidated financial statements. This schedule has been subjected to the
auditing procedures applied in the audits of the basic consolidated financial
statements and, in our opinion, fairly states, in all material respects, the
financial data required to be set forth therein, in relation to the basic
consolidated financial statements taken as a whole.
Boston, Massachusetts
May 12, 1998
F-1
<PAGE>
SCHEDULE II
BOSTON ACOUSTICS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
-----------------------------Allowance for Doubtful Accounts----------------------
Balance, Charged to
Beginning of Costs and Other Balance, End
For the fiscal years ended- Year Expenses Additions(1) Deductions(2) of Year
- --------------------------- ------------ ---------- ----------- ------------- ------------
<S> <C> <C> <C> <C> <C>
March 28, 1998 $ 411,000 $ 36,000 $ $ (45,000) $ 402,000
------------ ---------- ----------- ------------- -------------
------------ ---------- ----------- ------------- -------------
March 29, 1997 $ 307,000 $ 84,000 $ 60,000 $ (40,000) $ 411,000
------------ ---------- ----------- ------------- -------------
------------ ---------- ----------- ------------- -------------
March 30, 1996 $ 207,000 $ 134,000 $ $ (34,000) $ 307,000
------------ ---------- ----------- ------------- -------------
------------ ---------- ----------- ------------- -------------
(1) Addition arising through the acquisition of Snell Acoustics, Inc.
(2) Amounts deemed uncollectible net of recoveries of previously reserved amounts.
</TABLE>
F-2
<PAGE>
Exhibit 10(c)
BOSTON ACOUSTICS, INC.
(MASSACHUSETTS CORPORATION)
1997 STOCK PLAN
1. Purpose. The purpose of this plan (the "Plan") is to secure for
Boston Acoustics, Inc. (the "Company") and its shareholders the benefits arising
from capital stock ownership by employees, officers and directors and
consultants of the Company and its parent and subsidiary corporations who are
expected to contribute to the Company's future growth and success. This Plan is
intended to provide incentives: (i) to employees, officers, directors and
consultants of the Company by providing them with opportunities to purchase
shares of the Company's Common Stock, $0.01 par value ("Common Stock"), pursuant
to options granted hereunder ("Options") and (ii) to directors of the Company by
providing them with the opportunity to purchase shares of Common Stock directly
from the Company ("Purchases"). Except where the context otherwise requires, the
term "Company" shall include the parent and all present and future subsidiaries
of the Company as defined in Sections 424(e) and 424(f) of the Internal Revenue
Code of 1986, as amended or replaced from time to time (the "Code"). Those
provisions of the Plan which make express reference to Section 422 shall apply
only to ISOs (as that term is defined in the Plan).
2. Administration and Types of Options.
(a) Administration. Except as otherwise provided in Section
24, the Plan shall be administered by a compensation committee (the
"Committee") of not less than two directors of the Company appointed by
the Board of Directors of the Company (the "Board") each of whom is not
an employee of the Company and who qualifies as a "disinterested
person" within the meaning of Rule 16b-3(c)(2)(i) promulgated under the
Securities Exchange Act of 1934, as amended (the "Act"). Subject to
ratification of the grant or authorization of each Option by the Board
(if so required by applicable state law), and subject to the terms of
the Plan, the Committee, shall have the authority to (i) determine the
employees of the Company (from among the class of employees eligible
under Section 3 to receive ISOs (as such term is defined below)) to
whom ISOs may be granted, and to determine (from among the class of
individuals and entities eligible under Section 3 to receive
Non-Qualified Options(as such term is defined below)) to whom
Non-Qualified Options may be granted; (ii) determine the time or times
at which Options may be granted; (iii) determine the option price of
shares subject to each Option, which price shall not be less than the
minimum price specified in Section 6(a); (iv) determine whether each
Option granted shall be an ISO or a Non-Qualified Option; (v) determine
(subject to Section 8) the time or times when each Option shall become
exercisable and the duration of the exercise period; (vi) determine
whether restrictions such as repurchase options are to be imposed on
shares subject to Options and the nature of such restrictions, if any,
and (vii) interpret the Plan and prescribe and rescind rules and
regulations relating to it. If the Committee determines to issue a
Non-Qualified Option, it shall take whatever actions it deems
necessary, under Section 422 of the
<PAGE>
Code and the regulations promulgated thereunder, to ensure that such
Option is not treated as an ISO. The interpretation and construction by
the Committee of any provisions of the Plan or of any Option granted
under it shall be final unless otherwise determined by the Board. The
Committee may from time to time adopt such rules and regulations for
carrying out the Plan as it may deem best. No member of the Board or
the Committee shall be liable for any action or determination made in
good faith with respect to the Plan or any Option or any Purchase
granted under it.
(b) Compensation Committee. The Committee may select one of
its members as its chairman, and shall hold meetings at such times and
places as it may determine. Acts by a majority of the Committee, or
acts reduced to or approved in writing by a majority of the members of
the Committee, shall be valid acts of the Committee.
(c) Applicability of Rule 16b-3. Those provisions of the Plan
which make express reference to Rule 16b-3 shall apply only to such
persons as are required to file reports under Section 16(a) of the
Exchange Act (a "Reporting Person").
(d) Types of Options. Options granted pursuant to the Plan may
be either incentive stock options ("ISOs") meeting the requirements of
Section 422 of the Code or non-qualified stock options ("Non-Qualified
Options") which are not intended to meet the requirements of Section
422 of the Code.
3. Eligibility.
(a) Options. ISOs may be granted to any employee of the
Company. Those officers and directors of the Company who are not
employees of the Company may not be granted ISOs under the Plan.
Non-Qualified Options may be granted to any director, officer, employee
or consultant of the Company. The Committee may take into consideration
a recipient's individual circumstances in determining whether to grant
an ISO or a Non-Qualified Option. Granting an Option to any individual
or entity shall neither entitle that individual or entity to, nor
disqualify him, her or it from, participation in any other grant of an
Option.
(b) Purchases. Eligibility for Purchases under the Plan shall
be determined in accordance with Section 24 of the Plan.
4. Stock Subject to Plan.
(a) Options. Subject to adjustment as provided in Section 15
below, the maximum number of shares of Common Stock of the Company
which may be issued and sold pursuant to Options issued under the Plan
is 300,000 shares. The shares may be authorized, but unissued, or
reacquired Common Stock. If an Option granted under the Plan shall
expire or terminate for any reason without having been exercised
2
<PAGE>
in full, the unpurchased shares subject to such Option shall again be
available for subsequent Option grants under the Plan. No shares issued
upon exercise of any Option shall be returned to the Plan nor become
available under the Plan for future distribution.
(b) Purchases. Subject to adjustment as provided in Section 15
below, the maximum number of shares of Common Stock of the Company
which may be issued and sold under Section 24 of the Plan is 20,000
shares. The shares may be authorized, but unissued, or reacquired
Common Stock. No shares issued and sold under Section 24 of the Plan
shall be returned to the Plan nor become available under the Plan for
future distribution.
5. Forms of Option Agreements. As a condition to the grant of an Option
under the Plan, each recipient of an Option shall execute an option agreement in
such form not inconsistent with the Plan as may be approved by the Committee.
Such option agreements may differ among recipients.
6. Exercise Price.
(a) General. The price per share of stock deliverable upon the
exercise of an Option shall be determined by the Committee, but it
shall not be less than the par value per share of the stock; provided,
that in the case of an ISO, the exercise price shall not be less than
100% of the fair market value of such stock, as determined by the
Committee, at the time of grant of such Option, or less than 110% of
such fair market value in the case of Options described in Section
11(b).
(b) Fair Market Value. If, at the time an Option is granted
under the Plan or Common Stock is delivered to the Company, the
Company's Common Stock is publicly traded, the "fair market value"
shall be determined as of the last business day for which the prices or
quotes discussed in this sentence are available prior to the date such
Option is granted or Common Stock is delivered to the Company and shall
mean (i) the last reported sale price (on that date) of the Common
Stock on the principal national securities exchange on which the Common
Stock is traded, if the Common Stock is then traded on a national
securities exchange; or (ii) the last reported sale price (on that
date) of the Common Stock on the NASDAQ National Market System, if the
Common Stock is not then traded on a national securities exchange; or
(iii) the closing bid price (or average of bid prices) last quoted (on
that date) by an established quotation service for over-the-counter
securities, if the Common Stock is not reported on the NASDAQ National
Market System. However, if the Common Stock is not publicly traded at
the time an Option is granted or the Common Stock is delivered, the
"fair market value" shall be deemed to be the fair market value of the
Common Stock as determined by the Committee after it takes into
consideration all factors which it deems appropriate.
3
<PAGE>
(c) Payment of Exercise Price. Payment of the exercise price
of Options granted under the Plan may be made (i) by delivery of cash
or a check to the order of the Company in an amount equal to the
exercise price of such Options, (ii) if authorized by the applicable
option agreement or at the discretion of the Committee, by delivery to
the Company of shares of Common Stock of the Company beneficially owned
by the optionee for more than six months and which the optionee may
freely transfer having a fair market value equal in amount to the
exercise price of the options being exercised, (ii) by any other means
(including, without limitation, by delivery of a promissory note of the
optionee payable on such terms as are specified by the Committee) which
the Committee determines are consistent with the purpose of the Plan
and with then applicable laws and regulations (including, without
limitation, the provisions of Rule 16b-3, to the extent that the Common
Stock is registered under the Exchange Act, and Regulation T
promulgated by the Federal Reserve Board) or (iii) by any combination
of such methods of payment. The fair market value of any shares of the
Company's Common Stock or other non-cash consideration which may be
delivered upon exercise of an Option shall be determined by the
Committee.
7. Option Period. Each Option and all rights thereunder shall expire on
such date as shall be set forth in the applicable option agreement, except that,
in the case of an ISO, such date shall not be later than ten years after the
date on which the Option is granted and, in all cases, Options shall be subject
to earlier termination as provided in the Plan.
8. Exercise of Options. Each Option granted under the Plan shall be
exercisable either in full or in installments at such time or times and during
such period as shall be set forth in the agreement evidencing such option,
subject to the provisions of the Plan. Notwithstanding the foregoing, Options
granted under the Plan to the Reporting Persons shall not be exercisable in any
part until at least six months after the date of grant.
9. Nontransferability.
(a) Nontransferability of Options. ISOs and Non-Qualified
Options granted to Reporting Persons shall not be assignable or
transferable by the person to whom they are granted, either voluntarily
or by operation of law, except by will or the laws of descent and
distribution, and, during the life of the optionee, shall be
exercisable only by the optionee; provided, that Non-Qualified Options
held by Reporting Persons may be transferred pursuant to a qualified
domestic relations order (as defined in Rule 16b-3). Non-Qualified
Options held by persons other than Reporting Persons shall be subject
to restrictions on transferability in the Plan or provided in the
applicable option agreement.
(b) Nontransferability of Rights Under Purchase Elections. Any
right under a Purchase Election shall not be assignable or transferable
by the director who made such Purchase Election, either voluntarily or
by operation of law, except by will or the laws of descent and
distribution or pursuant to a qualified domestic relations
4
<PAGE>
order (as defined in Rule 16b-3).
10. Effect on Option of Termination of Employment or Other
Relationship. Except as provided in Section 11(d) with respect to ISOs, and
subject to the provisions of the Plan, the Committee shall determine the period
of time during which an optionee may exercise an Option following (i) the
termination of the optionee's employment or other relationship with the Company
or (ii) the death or disability of the optionee. Such periods shall be set forth
in the agreement evidencing such Option.
11. ISOs. Options granted under the Plan which are intended to be ISOs
shall be subject to the following additional terms and conditions:
(a) Express Designation. All under the Plan
shall, at the time of grant, be specifically designated as such in the
option agreement covering such ISOs.
(b) 10% Shareholder. If any employee to whom an ISO is to be
granted under the Plan is, at the time of the grant of such Option, the
owner of stock possessing more than 10% of the total combined voting
power of all classes of stock of the Company (after taking into account
the attribution of stock ownership rules of Section 424(d) of the
Code), then the following special provisions shall be applicable to the
ISO granted to such individual:
(i) the purchase price per share of the Common
Stock subject to such ISO shall not be less
than 110% of the fair market value of one
share of Common Stock at the time of grant;
and
(ii) the exercise period of such ISO shall not
exceed five years from the date of grant.
(c) Dollar Limitation. For so long as the Code shall so
provide, Options granted to any employee under the Plan (and any other
stock option plans of the Company) which are intended to constitute
ISOs shall not constitute ISOs to the extent that such options, in the
aggregate, become exercisable for the first time in any one calendar
year for shares of Common Stock with an aggregate fair market value
(determined as of the respective date or dates of grant) of more than
$100,000.
(d) Termination of Employment, Death or Disability. No ISO may
be exercised unless, at the time of such exercise, the optionee is, and
has been continuously since the date of grant of his or her Option,
employed by the Company, except that:
(i) an ISO may be exercised within the period of
three months after the date the optionee
ceases to be an employee of the
5
<PAGE>
Company (or within such lesser period as may
be specified in the applicable option
agreement); provided that the agreement with
respect to such Option may designate a
longer exercise period and that the exercise
after such three-month period shall be
treated as the exercise of a Non-Qualified
Option under the Plan;
(ii) if the optionee dies while in the employ of
the Company, or within three months after
the optionee ceases to be such an employee,
the ISO may be exercised by the person to
whom it is transferred by will or the laws
of descent and distribution within the
period of one year after the date of death
(or within such lesser period as may be
specified in the applicable option
agreement); and
(iii) if the optionee becomes disabled (within the
meaning of Section 22(e)(3) of the Code or
any successor provision thereto) while in
the employ of the Company, the ISO may be
exercised within the period of one year
after the date the optionee ceases to be
such an employee because of such disability
(or within such lesser period as may be
specified in the applicable option
agreement).
For all purposes of the Plan and any Option granted hereunder,
"employment" shall be defined in accordance with the provisions of Section
1.421-7(h) of the Income Tax Regulations (or any successor regulations).
Notwithstanding the foregoing provisions, no ISO may be exercised after its
expiration date.
12. Additional Option Provisions
(a) Additional Option Provisions. The Committee may, in its
sole discretion, include additional provisions in Option agreements
covering options granted under the Plan, including without limitation
restrictions on transfer, repurchase rights, commitments to pay cash
bonuses, to make, arrange for or guaranty loans or to transfer other
property to optionees upon exercise of Options, or such other
provisions as shall be determined by the Committee; provided that such
additional provisions shall not be inconsistent with any other term or
condition of the Plan and such additional provisions shall not cause
any ISO granted under the Plan to fail to qualify as an ISO within the
meaning of Section 422 of the Code.
(b) Option Acceleration, Extension, Etc. The Committee may, in
its sole discretion, (i) accelerate the date or dates on which all or
any particular Option or Options granted under the Plan may be
exercised or (ii) extend the dates during which all, or any particular,
Option or Options granted under the Plan may be exercised;
6
<PAGE>
provided that no such extension shall be permitted if it would cause
the Plan to fail, to comply with Section 422 of the Code or with Rule
16b-3 as then in effect, to the extent that the Common Stock is
registered under the Exchange Act.
13. General Restrictions.
(a) Investment Representations. The Company may require any
person to whom an Option is granted or shares are to be sold hereunder,
as a condition of exercising such Option or purchasing shares pursuant
to Section 24, to give written assurances in substance and form
satisfactory to the Company to the effect that such person is acquiring
the Common Stock for his or her own account for investment and not with
any present intention of selling or otherwise distributing the same,
and to such other effect as the Company deems necessary or appropriate
in order to comply with federal and applicable state securities laws,
or with covenants or representations made by the Company in connection
with any public offering of its Common Stock.
(b) Compliance with Securities Laws. Each Option shall be
subject to the requirement that if, at any time, counsel to the Company
shall determine that the listing, registration or qualification of the
shares subject to such Option upon any securities exchange or under any
state or federal law, or the consent or approval of any governmental or
regulatory body, or that the disclosure of non-public information or
the satisfaction of any other condition is necessary as a condition of,
or in connection with, the issuance or purchase of shares thereunder,
such Option may not be exercised, in whole or in part, unless such
listing, registration, qualification, consent or approval, or
satisfaction of such condition shall have been effected or obtained on
conditions acceptable to the Committee. Nothing herein shall be deemed
to require the Company to apply for or to obtain such listing,
registration or qualification, or to satisfy such condition.
14. Rights as a Shareholder. Neither a holder of an Option nor a
director having made a Purchase Election shall have any rights as a shareholder
with respect to any shares covered by the Option or Purchase Election
(including, without limitation, any rights to receive dividends or non-cash
distributions with respect to shares subject thereto) until the date of issue of
a stock certificate to him or her for such shares. No adjustment shall be made
for dividends or other rights for which the record date is prior to the date
such stock certificate is issued.
15. Adjustment Provisions for Recapitalizations and Related
Transactions.
(a) Adjustments Relating to Options. If, through or as a
result of any merger, consolidation, sale of all or substantially all
of the assets of the Company, reorganization, recapitalization,
reclassification, stock dividend, stock split, reverse stock split or
other similar transaction, (i) the outstanding shares of Common Stock
are increased, decreased or exchanged for a different number or kind of
shares or
7
<PAGE>
other securities of the Company, or (ii) additional shares or new or
different shares or other securities of the Company or other
non-cash assets are distributed with respect to such shares of
Common Stock or other securities, an appropriate and proportionate
adjustment may be made in (x) the maximum number and kind of shares
reserved for issuance pursuant to Options issued under the Plan, (y)
the number and kind of shares or other securities subject to any
then outstanding Options under the Plan, and (z) the price for each
share subject to any then outstanding Options, without changing the
aggregate purchase price as to which such Options remain
exercisable. Notwithstanding the foregoing, no adjustment shall be
made pursuant to this Section 15 to the extent such adjustment would
cause any ISO issued under the Plan to fail to comply with Section
422 of the Code or the Plan to fail to comply with Rule 16b-3 as
then in effect, to the extent that the Common Stock is registered
under the Exchange Act.
(b) Committee Authority to Make Adjustments. Any adjustments
under Section 15(a) will be made by the Committee, whose determination
as to what adjustments, if any, will be made and the extent thereof
will be final, binding and conclusive. No fractional shares will be
issued under the Plan on account of any such adjustments.
(c) Adjustments Relating to Purchasers. If, through or as a
result of any merger, consolidation, sale of all or substantially all
of the assets of the Company, reorganization, recapitalization,
reclassification, stock dividend, stock split, reverse stock split or
other similar transaction, (i) the outstanding shares of Common Stock
are increased, decreased or exchanged for a different number or kind of
shares or other securities of the Company, or (ii) additional shares or
new or different shares or other securities of the Company or other
non-cash assets are distributed with respect to such shares of Common
Stock or other securities, an appropriate and proportionate adjustment
may be made in (x) the maximum number and kind of shares reserved for
issuance pursuant to Section 24 of the Plan, (y) the number and kind of
shares or other securities subject to any then outstanding Purchase
Elections, and (z) the price for each share subject to any then
outstanding Purchase Election, without changing the aggregate purchase
price as to such Purchases which have not yet occurred. Notwithstanding
the foregoing, no adjustment shall be made pursuant to this Section
15(c) to the extent such adjustment would cause any ISO issued under
the Plan to fail to comply with Section 422 of the Code or the Plan to
fail to comply with Rule 16b-3 as then in effect, to the extent that
the Common Stock is registered under the Exchange Act.
(d) Board Authority to Make Adjustments. Any adjustment under
Section 15(c) will be made by the Board, whose determination as to what
adjustments, if any, will be made and the extent thereof will be final,
binding and conclusive. No fractional shares will be issued under the
Plan on account of any such adjustments.
8
<PAGE>
16. Merger, Consolidation, Asset Sale, Liquidation, etc.
(a) Options. In the event of a consolidation or merger or sale
of all or substantially all of the assets of the Company in which
outstanding shares of Common Stock are exchanged for securities, cash
or other property of any other corporation or business entity or in the
event of a liquidation of the Company, the Committee, or the board of
directors of any corporation assuming the obligations of the Company
may in its discretion, take any one or more of the following actions,
as to outstanding Options: (i) provide that such Options shall be
assumed, or equivalent options shall be substituted, by the acquiring
or succeeding corporation (or an affiliate thereof), provided that any
such options substituted for ISOs shall meet the requirements of
Section 424(a) of the Code, (ii) upon written notice to the optionees,
provide that all unexercised Options will terminate immediately prior
to the consummation of such transaction unless exercised by the
optionee within a specified period following the date of such notice,
(iii) in the event of a merger under the terms of which holders of the
Common Stock of the Company will receive upon consummation thereof a
cash payment for each share surrendered in the merger (the "Merger
Price"), make or provide for a cash payment to the optionees equal to
the difference between (A) the Merger Price times the number of shares
of Common Stock subject to such outstanding Options (to the extent then
exercisable at prices not in excess of the Merger Price) and (B) the
aggregate exercise price of all such outstanding Options in exchange
for the termination of such options, and (iv) provide that all or any
outstanding Options shall become exercisable in full immediately prior
to such event; provided that notwithstanding anything to the contrary
in this Section 16(a), any action taken by the Committee hereunder
shall be in compliance with Rule 16b-3 as in effect at the time of such
action and the conditions thereof necessary to maintain qualification
of the Plan under Rule 16b-3, to the extent that the Common Stock is
registered under the Exchange Act. In the case of any Option which by
the terms of the grant thereof (or the agreement or instrument
governing such grant) or pursuant to a decision by the Committee under
this Section 16(a) provides for such option becoming exercisable in
full upon a Change in Control or otherwise under this Section 16, such
option shall be deemed vested on the day immediately prior to the day
on which such Change in Control occurs and such optionee shall be given
prior written notice of such Change in Control sufficient to permit
such optionee to exercise such Options. For purposes of this Plan, a
"Change in Control" occurs if the Company (i) ceases operations; (ii)
merges or consolidates with another entity and is not the surviving
entity; (iii) sells or otherwise transfers all or substantially all of
its operating assets; or (iv) if more than 50% of the capital stock of
the Company is transferred in a single transaction or in a series of
related transactions other than a public offering of stock of the
Company to a single person, entity or group of persons acting in
concert.
(b) Substitute Options. The Company may grant Options under
the Plan in substitution for options held by employees of another
corporation who become employees of the Company, or of a subsidiary of
the Company, as the result of a
9
<PAGE>
merger or consolidation of the employing corporation with the Company
or a subsidiary of the Company, or as a result of the acquisition by
the Company, or one of its subsidiaries, of property or stock of the
employing corporation. The Company may direct that substitute Options
be granted on such terms and conditions as the Committee considers
appropriate in the circumstances.
(c) Purchases. In the event of a consolidation or merger or
sale of all or substantially all of the assets of the Company in which
outstanding shares of Common Stock are exchanged for securities, cash
or other property of any other corporation or business entity or in the
event of a liquidation of the Company, any election to Purchase shares
of Common Stock pursuant to Section 24 of the Plan shall automatically
be cancelled and any Fee Deductions shall be paid to the appropriate
directors promptly, together with interest on such Fee Deductions,
calculated in accordance with Section 24(e) of the Plan.
17. No Special Employment Rights. Nothing contained in the Plan or in
any Option shall confer upon any optionee any right with respect to the
continuation of his or her employment by the Company or interfere in any way
with the right of the Company at any time to terminate such employment or to
increase or decrease the compensation of the optionee.
18. Other Employee Benefits. Except as to plans which by their terms
include such amounts as compensation, the amount of any compensation deemed to
be received by an employee as a result of the exercise of an Option or the sale
of shares received upon such exercise will not constitute compensation with
respect to which any other employee benefits of such employee are determined,
including, without limitation, benefits under any bonus, pension,
profit-sharing, life insurance or salary continuation plan, except as otherwise
specifically determined by the Committee or required by law.
19. Amendment of the Plan.
(a) The Board of Directors may at any time, and from time to
time, modify or amend the Plan in any respect, except that if at any
time the approval of the shareholders of the Company is required under
Section 422 of the Code or any successor provision with respect to
ISOs, or under Rule 16b-3 as then in effect, to the extent that the
Common Stock is registered under the Exchange Act, the Board of
Directors may not effect such modification or amendment without such
approval.
(b) The termination or any modification or amendment of the
Plan shall not, without the consent of an optionee, affect his or her
rights under an Option previously granted to him or her. With the
consent of the optionee affected, the Board of Directors may amend
outstanding option agreements in a manner not inconsistent with the
Plan. The Board of Directors shall have the right to amend or modify
(i) the terms and provisions of the Plan and of any outstanding ISOs
granted
10
<PAGE>
under the Plan to the extent necessary to qualify any or all such
Options for such favorable federal income tax treatment (including
deferral of taxation upon exercise) as may be afforded incentive stock
options under Section 422 of the Code and (ii) the terms and provisions
of the Plan and of any outstanding option to the extent necessary to
ensure the qualification of the Plan under Rule 16b-3 as then in
effect, to the extent that the Common Stock is registered under the
Exchange Act.
20. Withholding.
(a) The Company shall have the right to deduct from payments
of any kind otherwise due to the optionee any federal, state or local
taxes of any kind required by law to be withheld with respect to any
shares issued upon exercise of Options under the Plan. Subject to the
prior approval of the Company, which may be withheld by the Company in
its sole discretion, the optionee may elect to satisfy such
obligations, in whole or in part, (i) by causing the Company to
withhold shares of Common Stock otherwise issuable pursuant to the
exercise of an option or (ii) by delivering to the Company shares of
Common Stock already owned by the optionee. The shares so delivered or
withheld shall have a fair market value equal to such withholding
obligation. The fair market value of the shares used to satisfy such
withholding obligation shall be determined by the Company as of the
date that the amount of tax to be withheld is to be determined. Such
determination of the fair market value shall be made in accordance with
Section 6(b). An optionee who has made an election pursuant to this
Section 20(a) may only satisfy his or her withholding obligation with
shares of Common Stock which are not subject to any repurchase,
forfeiture, unfulfilled vesting or other similar requirements.
(b) Notwithstanding the foregoing, in the case of a Reporting
Person, no election to use shares for the payment of withholding taxes
shall be effective unless made in compliance with any applicable
requirements of Rule 16b-3 as then in effect.
21. Cancellation and New Grant of Options, etc. The Board of Directors
shall have the authority to effect, at any time and from time to time, with the
consent of the affected optionees, (i) the cancellation of any or all
outstanding Options under the Plan or the Company's 1986 Incentive Stock Option
Plan and the grant in substitution therefor of new Options under the Plan
covering the same or different numbers of shares of Common Stock and having an
exercise price per share which may be lower or higher than the exercise price
per share of the cancelled Options or (ii) the amendment of the terms of any and
all outstanding Options under the Plan to provide an exercise price per share
which is higher or lower than the then current exercise price per share of such
outstanding Options.
22. Effective Date and Duration of the Plan.
(a) Effective Date. The Plan shall become effective when
adopted by the Board of Directors, but no ISO granted under the Plan
shall become exercisable unless
11
<PAGE>
and until the Plan shall have been approved by the Company's
shareholders. If such shareholder approval is not obtained within
twelve months after the date of the Board's adoption of the Plan, no
Options previously granted under the Plan shall be deemed to be ISOs
and no ISOs shall be granted thereafter. Amendments to the Plan not
requiring shareholder approval shall become effective when adopted by
the Board of Directors; amendments requiring shareholder approval (as
provided in Section 19) shall become effective when adopted by the
Board of Directors, but no ISO granted after the date of such amendment
shall become exercisable (to the extent that such amendment to the Plan
was required to enable the Company to grant such ISO to a particular
optionee) unless and until such amendment shall have been approved by
the Company's shareholders. If such shareholder approval is not
obtained within twelve months of the Board's adoption of such
amendment, any ISOs granted on or after the date of such amendment
shall terminate to the extent that such amendment to the Plan was
required to enable the Company to grant such Option to a particular
optionee. Subject to this limitation, Options may be granted under the
Plan at any time after the effective date and before the date fixed for
termination of the Plan.
(b) Termination. Unless sooner terminated in accordance with
Section 16, the Plan shall terminate, with respect to ISOs, upon the
earlier of (i) the close of business on the day next preceding the
tenth anniversary of the date of its adoption by the Board of
Directors, or (ii) the date on which all shares available for issuance
pursuant to Options issued under the Plan shall have been issued
pursuant to the exercise or cancellation of Options granted under the
Plan. Unless sooner terminated in accordance with Section 16, the Plan
shall terminate with respect to Non-Qualified Options on the date
specified in (ii) above and with respect to Purchases on the date on
which all shares available for issuance pursuant to Section 24 of the
Plan shall have been issued. If the date of termination is determined
under (i) above, then Options outstanding on such date shall continue
to have force and effect in accordance with the provisions of the
instruments evidencing such Options.
23. Provision for Foreign Participants. The Board of Directors may,
without amending the Plan, modify awards or options granted to participants who
are foreign nationals or employed outside the United States to recognize
differences in laws, rules, regulations or customs of such foreign jurisdictions
with respect to tax, securities, currency, employee benefit or other matters.
24. Purchases of Stock by Directors Who are not Officers or Employees.
(a) The Company will issue shares of Common Stock on the last
day of the fiscal year (the "Purchase Date") to any director of the
Company who is not an officer or an employee of the Company (an
"Eligible Director") and has made a then effective Purchase Election
pursuant Section 24(b).
(b) An Eligible Director may elect to purchase shares (a
"Purchase Election") by
12
<PAGE>
submitting an election form to the Vice President-Finance on or before
the 20th of August in the fiscal year in which he or she intends to
participate. On such election form, a director shall (i) state the
percentage to be deducted from the fee earned by such Eligible Director
for service as a director of the Company (a "Fee"), (ii) authorize the
purchase of Common Stock for him or her in accordance with the terms of
the Plan, (iii) agree to hold any shares of Common Stock purchased
pursuant to this Section 24 for at least six months from the date of
acquisition and (iv) consent to the placement of a stop order on the
books of the Company with regard to such shares for a period of at
least six months from the date of acquisition.
(c) Unless an Eligible Director files a new election form
which either changes the rate of deduction from his or her Fee or
indicates his or her withdrawal from the Plan, his or her deductions
and purchases will continue at the same rate, provided he or she
remains an Eligible Director. During a fiscal year, an Eligible
Director may change the rate of deduction from his or her Fee or
withdraw from the Plan at any time prior to the last Saturday in
September. Any change or withdrawal indicated on a new election form
received by the Vice President-Finance on or after the last Saturday in
September will be effective as of the first day of the following fiscal
year.
(d) On the date on which cash payments of Fees are made, or
would have been made (the "Deduction Date"), the Company will deduct
from cash payments of Fees to each Eligible Director such amount
indicated on his or her then effective Purchase Election, if any (a
"Fee Deduction"). Any Fee Deduction made pursuant to this Section 24
will be held in the general funds of the Company. The maximum amount an
Eligible Director may have deducted in a fiscal year is $8,500.
(e) All Fee Deductions shall accrue interest at the prime rate
reported in the Wall Street Journal at the Deduction Date from the
Deduction Date through the last day of the Company's fiscal year.
(f) Each Eligible Director who has elected to participate
pursuant to a then effective Purchase Election and is a director of the
Company as of the last day of the fiscal year shall acquire from the
Company such whole number of shares of Common Stock which his or her
Fee Deductions during the fiscal year and interest accrued thereon will
purchase at the Purchase Price (as such term is defined below). Any
balance of the Fee Deductions and interest accrued thereon will be
refunded to the Eligible Director promptly.
(g) The purchase price (the "Purchase Price") of Common Stock
to be issued to any Eligible Director pursuant to this Section 24 shall
be the fair market value of the Common Stock on the Purchase Date.
"Fair market value" shall mean (i) the last reported sale price of the
Common Stock on the Purchase Date on the principal national securities
exchange on which the Common Stock is traded, if the
13
<PAGE>
Common Stock is then traded on a national securities exchange; or (ii)
the last reported sale price on the Purchase Date of the Common Stock
on the NASDAQ National Market System, if the Common Stock is not then
traded on a national securities exchange; or (iii) the closing bid
price (or average of bid prices) last quoted on the Purchase Date by an
established quotation service for over-the-counter securities, if the
Common Stock is not reported on the NASDAQ National Market System. If
no prices or quotes discussed in the preceding sentence are available
on the Purchase Date, such quotes or prices shall be determined as of
the last business day for which such prices or quotes are available
prior to the Purchase Date. However, if the Common Stock is not
publicly traded at the Purchase Date, the "fair market value" shall be
deemed to be the fair market value of the Common Stock as determined by
the Board of Directors after it takes into consideration all factors
which it deems appropriate.
(h) Purchases pursuant to this Section 24 shall be generally
administered by the Board of Directors. The provisions of this Section
24 are to be construed as a "formula plan" as defined by Rule 16b-3. As
such, the provision of Section 24 shall not be amended more than once
every six (6) months, other than to comply with changes in the Code,
the Employee Retirement Income Security Act, or the rules thereunder.
Adopted by the Board of Directors on
May 28, 1997
14
<PAGE>
Exhibit 10(l)
*= THE MATERIAL HAS BEEN OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT AND SUCH MATERIAL HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION.
[GATEWAY 2000, INC. LETTERHEAD]
May 14, 1998
Michael Chass
Boston Acoustics
300 Jubilee Dr.
Peabody, MA 01960
This Letter of Agreement ("LOA") will confirm the understanding and intent of
Boston Acoustics and Gateway 2000, Inc., and it's subsidiaries and affiliates
("Gateway"), to enter into an Agreement for the provision of services and
products by Boston Acoustics to Gateway worldwide. The agreement will be
established under terms and conditions set forth in the signed definitive
written agreement dated March 17, 1997. This LOA supersedes the previous LOA
in regards to the BA 635 product dated December 22nd, 1997.
If Boston Acoustics makes a change to BA 635, Gateway reserves the right to
upgrade to that change with no liability to Gateway as long as there is a
program in effect with Boston Acoustic to cover like volumes and both
parties agree to new pricing based on the change.
Gateway hereby agrees to commit to purchase, worldwide, from Boston Acoustics
the stated products at the stated quantity over a 12 month delivery schedule:
<TABLE>
<CAPTION>
Description Quantity Price
- ----------- -------- -----
<S> <C> <C>
BA 635 for first * $ *
BA 635 for next * $ *
BA 635 for next * $ *
BA 635 for next * $ *
</TABLE>
This commitment is conditional upon the following:
1. Gateway's specification being met
2. The agreed upon delivery dates being met
3. Gateway is responsible for * and *
4. Gateway will pay * in * cost.
Boston Acoustics and Gateway acknowledge, that while this LOA sets forth
their intentions, this LOA does not contain all matters upon which agreement
must be reached in order to proceed. All other items and conditions as
specified in the Purchase Order to be issued by Gateway will remain intact.
All information exchanged to date and hereafter between the parties is
proprietary to the party submitting the information and shall be held in the
strictest confidence between the parties.
Please indicate your acceptance of and agreement to this letter of Agreement
by Signing below.
ACCEPTED AND AGREED: ACCEPTED AND AGREED
Boston Acoustics Gateway 2000
By: /s/ Andy Kotsatos By: /s/ Dave Russell
------------------------------- -------------------------------
Name: Andy Kotsatos Name: Dave Russell
----------------------------- -----------------------------
Title: CEO Title: Director
---------------------------- ----------------------------
Date: 5/14/98 Date: 5/14/98
----------------------------- -----------------------------
<PAGE>
Boston Acoustics
1998
ANNUAL
REPORT
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
NET SALES
(Amounts in Thousands)
'94 '95 '96 '97 '98
$34,488 $41,046 $46,325 $50,309 $82,399
NET INCOME
(Amounts in Thousands)
'94 '95 '96 '97 '98
$4,682 $5,949 $6,631 $5,485 $9,576
</TABLE>
<PAGE>
[PHOTO OMITTED]
Andrew G. Kotsatos
Chairman and
Chief Executive Officer
[PHOTO OMITTED]
Fred E. Faulkner, Jr.
President and
Chief Operating Officer
- --------------------------------------------------------------------------------
TO THE SHAREHOLDERS:
- --------------------------------------------------------------------------------
Fiscal 1998 was our nineteenth straight year of record sales, and a year of
record earnings as well.
Net sales for the year increased 64%--from $50.3 million to $82.4 million.
Net income increased 75%--from $5.5 million to $9.6 million.
Earnings per diluted share increased by 112%, from $1.23 to $2.61.
It was a very good year.
In the face of tough times for the consumer electronics business, we
posted modest increases in all our traditional product categories and we did
well internationally. The big story, however, was our success in an audio market
that didn't even exist a few years ago--multimedia speakers.
PERSONAL DESKTOP AUDIO(TM)
Two and a half years ago, we set out to develop and implement a strategy
that would bring the company to $100 million and beyond.
Expanding the distribution network for our core products was one
possibility, but we felt it would be counter-productive to our long-term growth
strategies.
Finding new markets for new products offered much greater potential.
Our acquisition of Snell Acoustics was a first step. While it has not yet
turned profitable, Snell offers us the opportunity to address a new segment of
our core business markets--high-end audiophile systems.
Computer audio was another possibility. More than 75 million personal
computers were sold in 1997; virtually all of them capable of producing high-
quality sound--with the right speakers. Computer audio has become a very big,
and growing, market.
[GRAPHIC OMITTED]
By sticking with what we do best--producing high quality audio systems at
value-driven prices--we felt we could do well in the multimedia audio market.
Our strategic partnership with Gateway was the initial result. Gateway has been
unique among computer makers in its commitment to high quality sound.
- --
2
- --
<PAGE>
The partnership put us in the multimedia audio business and introduced us
to the highly competitive and very demanding OEM world.
[PHOTO OMITTED]
[CAPTION: MICROMEDIA]
We've responded very well to the new set of challenges. Since we began
shipments in the first quarter of the fiscal year, we have successfully met
Gateway's delivery, reliability and quality goals.
Our initial OEM product, the MicroMedia(TM), received rave reviews,
enhancing Gateway's multimedia leadership. We followed MicroMedia with
MediaTheater(TM), the world's first multimedia sound system utilizing Virtual
Dolby(R) surround sound technology. MediaTheater creates the effect of a full
five-speaker surround sound system--with only two satellite speakers and a
subwoofer. The satellites sit by the monitor, and the subwoofer is small enough
to fit easily under the desk. The power amplifier and signal processing
circuitry are housed in the subwoofer; system controls are located in one of the
satellites.
MediaTheater is a high performance system that takes advantage of new
technologies in both digital signal processing and in speaker construction. It
is available through Gateway and from retailers, at a suggested retail price of
$299.95.
A NEW FLAGSHIP LINE
[PHOTO OMITTED]
[CAPTION: VR2000]
While we are entering new markets and exploring new ways of selling new
products, we have not lost sight of the importance of our home and auto core
markets, or of the quality-conscious dealers who sell our products. We will
continue to develop new products for these markets and to do all we can to
maintain the best of relationships with the dealers who serve them.
In that context, we introduced a new flagship line of high-performance
floor-standing speaker systems in Fiscal 98. Designed to satisfy the most
demanding music and video fans, the new Lynnfield VR(R) Series builds on
technologies that previously proved their worth in our VR Series. Its features
include innovative built-in powered subwoofers, and proprietary features and
technologies such as the Lynnfield VR tweeter, MagnaGuard(R) magnetic
shielding, DCD(TM) (Deep Channel Design) bass and Active Bass Contour(TM).
The suggested retail prices for the three models in the series range from
$700 to $1,600 a pair.
The top of the line VR970 received a prestigious Innovations `98 award for
outstanding design and engineering at the Consumer Electronics Show in Las
Vegas.
THE SOUNDBAR(TM) CINEMA
The SoundBar Cinema System is another innovation introduced in Fiscal
1998. With digital Dolby Pro Logic(R) decoding and QSound(R) 3D image
enhancement technology, it is the first high-performance home theater sound
system to eliminate the complexity of conventional systems. It's simple, easy to
set up and use, and it takes up little space.
The SoundBar module sits on top of the TV, housing the left, center and
right channels, and the system's electronics. The subwoofer and surround
speakers round out the layout. The system also includes a universal remote
control that operates the SoundBar as well as virtually all brands of TVs, VCRs
and cable boxes. Suggested retail price is $799.95.
[PHOTO OMITTED]
[CAPTION: VR970 WITH INTEGRATED POWERED SUBWOOFER]
MORE AWARDS
The Innovations `98 award for the VR970 was just one of many we
accumulated during the year. Once again, we enjoyed
--
3
--
<PAGE>
favorable recognition from reviewers and audio professionals.
For example, we received more Hi-Fi Grand Prix Awards than any other US
speaker maker in AudioVideo International's 19th annual competition.
Our home audio products were honored in seven categories: Full-Size
Floorstanding Speakers; Under 12" Subwoofers; A/V Surround Speaker Systems
(THX); 3-piece Sub/sat Speaker Systems; Surround Satellite Speakers; In-Wall
Speakers; and Outdoor Speakers.
Our auto products took honors in six of AudioVideo International's
AutoSound Grand Prix 98 competition categories.
They included AutoSound Grand Prix awards for 6"x 9" Speakers, Flush Mount
Speakers, Tweeters, and Midrange/Midbass Speaker Separates; and special
recognition in the Speaker Boxes/Passive Subwoofers, and Component Speaker
Systems categories.
PRODUCTS IN THE PIPELINE
Our long-term success has been based on our ability to replace existing
products when they've passed their peak, and to develop new products using
new technology to create new capabilities for new as well as existing
markets. As communication and entertainment media converge, more and more
resources are needed to create innovations. The world is changing, and we are
changing with it. Anticipating new realities, electronic engineers are
playing increasingly important roles in our product development programs. The
unique qualities of the powered MediaTheater, the SoundBar and the Lynnfield
VR. Series are examples of the results.
In Fiscal 1999, we'll be introducing more innovative new products.
We've already started with the three-piece BA635 system that sells for only
$99.95. It's a computer speaker that offers full range performance not
previously possible at such a low price.
In the first quarter of Fiscal 1999, we plan to introduce a new
ProSeries .5 line of component loudspeakers and subwoofers for high-end
automotive applications. In their sound quality, ease of installation and
looks, they'll break new ground in auto sound component systems.
We also expect to augment our popular Designer Series in-wall and
in-ceiling speakers with models designed to meet growing demands for home
theater and multi-room systems. Buyers will be able to configure high
performance, decor-friendly sound systems for any application.
OUR ONLINE STORE
Appropriately, we'll be selling our Personal Desktop Audio(TM) systems on
the Worldwide Web. By logging on to our new online store at
www.bostondirect.com, shoppers can order MediaTheater, MicroMedia or BA635
systems.
We'll also be selling these systems by direct mail and by toll-free
telephone at 1-877-333-4001.
THE YEAR AHEAD
While it will be difficult to duplicate this year's growth percentages,
we anticipate that Fiscal 1999 will be another excellent year. With new and
established products for both our core markets and for personal desktop
audio, we should see continued growth.
[PHOTO OMITTED]
3
[CAPTION: PROSERIES 6.4 SYSTEM]
Sincerely,
/s/ Andrew G. Kotsatos
Andrew G. Kotsatos
Chairman and
Chief Executive Officer
/s/ Fred E. Faulkner, Jr.
Fred E. Faulkner, Jr.
President and
Chief Operating Officer
- --
4
- --
<PAGE>
- --------------------------------------------------------------------------------
MANAGEMENT'S DICUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION
- --------------------------------------------------------------------------------
RESULTS OF OPERATIONS
The following table sets forth the results of operations for the years
ended March 28, 1998, March 29, 1997, and March 30, 1996 expressed as
percentages of sales.
<TABLE>
<CAPTION>
For the Year Ended
March 28, March 29, March 30,
1998 1997 1996
(53 wks)
<S> <C> <C> <C>
- --------------------------------------------------------------------------------
Net Sales 100.0% 100.0% 100.0%
Cost of goods sold 61.1 57.4 57.1
- --------------------------------------------------------------------------------
Gross profit 38.9 42.6 42.9
Selling and marketing
expenses 9.9 14.4 12.6
General & administrative
expenses 4.8 5.9 5.5
Engineering & development
expenses 4.3 6.3 5.4
- --------------------------------------------------------------------------------
19.0 26.6 23.5
- --------------------------------------------------------------------------------
Income from operations 19.9 16.0 19.4
Interest income(expense), net (1.0) .8 1.7
- --------------------------------------------------------------------------------
Income before provision for
income taxes 18.9 16.8 21.1
Provision for income taxes 7.3 5.9 6.8
- --------------------------------------------------------------------------------
Net income 11.6% 10.9% 14.3%
- --------------------------------------------------------------------------------
</TABLE>
FISCAL 1998 COMPARED WITH FISCAL 1997
Net sales increased 64% from approximately $50.3 million to $82.4
million. The overall sales increase was primarily due to OEM sales of the
Company's MicroMedia(TM) and MediaTheater(TM) speaker systems to Gateway.
Continued sales growth within our traditional home, Designer Series and
automotive speaker business also contributed to the sales increase during the
fiscal year ended March 28, 1998.
During the fiscal year, the Company launched two products in the
Personal Desktop Audio(TM) category of speaker systems. The MicroMedia system
was the Company's first three-piece powered sub/satellite speaker system
capable of reproducing the entire bandwidth of sound for music, games and
multimedia applications. The suggested retail price of the MicroMedia is
$149.95. The MediaTheater system was the first multimedia sound system
utilizing Virtual Dolby(R) surround sound technology. MediaTheater creates
the effect of a full five-speaker surround sound system with only two
satellite speakers and a subwoofer. The suggested retail price of the
MediaTheater is $299.95. Additionally, the Company introduced its new
top-of-the-line VR Tower speaker line. The VR950, VR960 and VR970 are
floorstanding loudspeakers incorporating technology from the previous VR
Series with added features like the powered subwoofers found in the VR960 and
VR970 models. Suggested retail prices are $700, $1,000, and $1,600 per pair,
respectively. During the fiscal year, the Company introduced the SoundBar(TM)
Cinema Home Theater System. It is the first high-performance home theater
sound system to eliminate the complexity of conventional systems. The
SoundBar uses just three components, connected by three wires, to reproduce
the movie soundtrack. It has a suggested retail price of $799.95.
The Company's gross margin increased in absolute dollars from
approximately $21,433,000 to $32,055,000 but decreased from 42.6% to 38.9% as a
percentage of net sales due primarily to a shift in the sales mix to loudspeaker
models with slightly lower margins, particularly OEM sales of the Company's
multimedia speaker systems.
Total operating expenses increased in absolute dollars from
approximately $13,372,000 to $15,645,000 but decreased as a percentage of net
sales from 26.6% to 19.0% during Fiscal 1998. Selling and marketing expenses
have increased in absolute dollars primarily due to increased salaries and
benefits relating to additional personnel. General and administrative
expenses increased in absolute dollars due primarily to costs associated with
the operating results of the Snell Acoustics subsidiary. Engineering and
development expenses increased in absolute dollars primarily due to increased
salaries and benefits relating to additional personnel, as well as increased
expenses relating to new product development.
Net interest income of a year ago was replaced by net interest expense
during the twelve-month period ended March 28, 1998 primarily due to the
utilization of working capital and borrowings under the Company's line of credit
in conjunction with the common stock repurchase in June 1997.
The Company's effective income tax rate increased from 35.3% in Fiscal
1997 to 38.5% in Fiscal 1998 primarily due to (1) the Company being subject to a
higher tax rate (35%), (2) a decrease in tax-free instruments held by the
Company and (3) a smaller proportion of the Company's income being derived
outside the US thereby reducing the tax benefits associated with the Company's
foreign sales corporation.
Net income increased 75% from approximately $5.5 million to $9.6 million,
while diluted earnings per share increased 112% from $1.23 to $2.61. The
increase in net income is primarily the result of the increased sales growth,
which was offset by the decrease in interest income and the operating loss by
the Snell Acoustics (Snell) subsidiary included in the consolidated results of
operations.
The Company's financial results for the twelve-month period ended March
28, 1998 includes significant OEM sales of multimedia speaker systems to
Gateway. These sales are pursuant to various contracts that currently run
through June 1999. Since these contracts do not contain schedules with which
Gateway must comply in placing orders, orders by Gateway may fluctuate
significantly from quarter to quarter over the terms of the contracts. Assuming
Gateway places orders in the quantities required under the terms of the
contracts by June 1999, a substantial portion of the Company's revenues for
Fiscal 1999 is expected to be derived from its contracts with Gateway.
FISCAL 1997 COMPARED WITH FISCAL 1996
Operating results for Fiscal 1997 represented 52 weeks of sales and
earnings compared to 53 weeks during Fiscal 1996. Fiscal 1997 included the
results of operations of Snell since June 1, 1996 as a result of the acquisition
of the business of Snell, a manufacturer of high-end loudspeaker systems.
--
5
--
<PAGE>
Net sales increased 9% from approximately $46.3 million to $50.3 million.
New product introductions in both the home and automotive loudspeaker categories
contributed to the overall sales increase during the twelve-month period ended
March 29, 1997.
Leading the increase in home sales was the introduction of the
MicroReference (Micro) category of products, replacements for the SubSat
Series. The models include the Micro80 and Micro90, 3-piece systems with
suggested retails of $400 and $800, respectively, and the Micro90t, a 4-piece
theater system with a suggested retail of $1,000. The Company also introduced
two new THX-certified front speaker systems. The Lynnfield VR35 front tower
speaker and the Lynnfield VRl4 horizontal center channel, with suggested
retails of $650 and $600, respectively, can be used in many combinations to
fit a variety of applications.
The Company continued to extend its offering of automotive products.
The ProSeries 6.4^3 system is a premium performance three-way component
speaker system with a suggested retail of $700. The Boston Rally(TM) RX47 is
a 4-inch two-way coaxial speaker system retailing for $139.95 per pair.
During the fourth quarter of Fiscal 1997 the Company launched the Boston
Rally RM Series of component speakers and four new Boston Rally Balanced
Band-Pass Subwoofer Systems. The RM9 and RM6 have suggested retails of
$299.95 and $249.95, respectively, and the RS1l0B, RS112, RS208B, and RS2lOB
have suggested retails ranging from $299.95 to $499.95 per system.
The Company's gross margin decreased slightly from 42.9% to 42.6%
primarily due to production inefficiencies associated with new product
introductions, increased freight costs associated with raw material purchases
and lower margins corresponding with products sold by the Company's subsidiary,
Snell.
Total operating expenses increased both in absolute dollars and as a
percentage of net sales during Fiscal 1997. Selling and marketing expenses have
increased from 12.6% of net sales to 14.4% of net sales primarily due to
increased advertising and literature expenditures associated with new product
introductions and increased international sales related expenses. General and
administrative expenses have increased due primarily to costs associated with
the acquisition of Snell, and the related amortization of goodwill acquired.
Engineering and development expenses 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 in both absolute dollars and as a percentage
of net sales 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 and the acquisition of the business of Snell during Fiscal 1997.
The Company's effective income tax rate increased from 32% in Fiscal 1996
to 35.3% in Fiscal 1997 primarily as a result of non-recurring tax credits
realized in Fiscal 1996 in connection with capital expenditures.
Net income decreased 17% to $5.5 million from $6.6 million and earnings
per share decreased 19% from $1.52 per share to $1.23 per share.
LIQUIDITY AND CAPITAL RESOURCES
During Fiscal 1996 and 1997, the Company financed, its growth primarily
with cash generated from operations. During Fiscal 1998, the Company financed
its growth with cash generated from operations and bank borrowings. As of
March 28, 1998, the Company's working capital was approximately $20,319,000, a
decrease of approximately $4,362,000 since the end of Fiscal 1997. The decrease
in working capital was primarily due to the repurchase of common stock in June
1997 and increased expenses related to increased sales in the Company's OEM
business. At March 28, 1998 the Company's accounts receivables and inventory
increased by approximately $2,110,000 and $3,076,000, respectively, compared to
March 29, 1997 levels. Cash and cash equivalents and short-term investments
decreased by approximately $1,067,000 and $2,594,000, respectively, compared to
levels at the end of Fiscal 1997. Current indebtedness increased by
approximately $5,774,000 to approximately $9,095,000 primarily as a result of
increases in accounts payable and outstanding amounts maturing under one of its
credit facilities. The Company has two lines of credit with two banking
institutions totaling $26,500,000. At March 28, 1998 the Company had borrowings
totaling $12,500,000 under one line of credit. At June 24, 1998, the Company
had $8,000,000 outstanding under its $25 million revolving credit agreement.
Net cash increased (decreased) in Fiscal 1998, 1997 and 1996 by
($1,067,000), $235,000 and $1,132,000, respectively. Net cash provided by
operating activities in Fiscal 1998, l997 and 1996 was approximately
$9,710,000, $5,174,000 and $7,498,000, respectively. Differences in cash
flows from operating activities over this three-year period were primarily
related to significant year-to-year changes in accounts receivable,
inventories and accounts payable. Net cash flows from investing activities
for Fiscal 1998, 1997 and 1996 were approximately $2,002,000, $1,558,000 and
($4,585,000), respectively. Net cash provided by investing activities in
Fiscal 1998 and 1997 was primarily the result of the sale of investments held
to maturity. In Fiscal 1997, net cash provided by investing activities was
partially offset by the purchase of Snell Acoustics. In Fiscal 1996, net cash
used by investing activities was primarily the result of the construction of
the Company's principal executive offices and manufacturing facilities. Net
cash used in financing activities in Fiscal 1998, 1997 and 1996 was
approximately $12,779,000, $6,497,000 and $1,781,000, respectively, and was
primarily the result of the repurchase of common stock and the payment of
dividends. In Fiscal 1998, net cash used in financing activities was
partially offset by borrowings under one of the Company's credit facilities
incurred in connection with the repurchase of common stock, a portion of
which was repaid within the fiscal year.
- --
6
- --
<PAGE>
On June 13, 1997 the Company announced the redemption of an aggregate of
898,201 shares of its common stock from the estates of its co-founder, Francis
L. Reed, and his wife, Dorothea T. Reed. The shares were repurchased at $26 5/8
per share. Funds to complete the redemption were obtained from an unsecured
$25.0 million revolving credit agreement with a bank.
The Company believes that its current resources are adequate to meet its
requirements for working capital and capital expenditures through Fiscal 1999.
SIGNIFICANT CUSTOMERS
A significant portion of the Company's sales are currently to Gateway
2000, Inc. ("Gateway") pursuant to contracts that run through June 1999. Since
these contracts do not contain schedules with which Gateway must comply in
placing orders, orders by Gateway may fluctuate significantly from quarter to
quarter over the terms of the contracts. Assuming Gateway places orders under
the terms of the contracts by June 1999, a substantial portion of the Company's
revenues for Fiscal 1999 is expected to be derived from its contracts with
Gateway. The loss of Gateway as a customer or any significant portion of orders
from Gateway could have a material adverse affect on the Company's business,
results of operation and financial condition. In addition, the Company also
could be materially adversely affected by any substantial work stoppage or
interruption of production at Gateway or if Gateway were to reduce or cease
conducting operations.
INTERNATIONAL OPERATIONS
Export sales accounted for approximately 19%, 21% and 20% of the
Company's net sales during fiscal 1998, 1997 and 1996, respectively, with
sales concentrations in Europe, Asia and Canada. The Company also distributes
its products through a foreign subsidiary. The Company obtains a substantial
supply of inventory from manufacturers located in foreign countries. The
Company has no long-term, fixed price contracts or arrangements for inventory
supplied by such foreign manufacturers. The Company could readily obtain such
inventory from other sources, but there can be no assurance that it would not
be at some delay. Any substantial delay in obtaining inventory from another
supplier could have an adverse effect on the Company's business, results of
operation and financial condition. A number of factors beyond the control of
the Company, including, but not limited to, changes in world politics,
unstable governments in foreign customer and manufacturer nations and
inflation, may affect the operations or financial condition of the Company's
foreign customers and manufacturers, as well as the timing of orders and
deliveries of Boston Acoustics' products by such customers and manufacturers.
See Note 7 to the Notes to Consolidated Financial Statements.
YEAR 2000 COMPLIANCE
The Company is in the process of updating its computer systems to ensure
that they are Year 2000 compliant and to improve the Company's overall
manufacturing, planning and inventory related systems. In Fiscal 1999, the
Company plans to invest in its computer systems and applications to ensure that
the Company is Year 2000 compliant. The Company believes that the Company's
computer system will be Year 2000 compliant. The financial impact to the Company
of its Year 2000 compliance programs has not been and is not anticipated to be
material to its financial position or results of operations in any given year.
While the Company does not believe it will suffer any major effects from the
Year 2000 issue, it is possible that such effects could materially impact future
financial results, or cause reported financial information not to be necessarily
indicative of future operating results or future financial condition. In
addition, if any of the Company's significant customers or suppliers do not
successfully and timely achieve Year 2000 compliance, the Company's business
could be materially affected.
NEW ACCOUNTING STANDARDS
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive
Income. SFAS No. 130 requires disclosure of all components of comprehensive
income on an annual and interim basis. Comprehensive income is defined as the
change in equity of a business enterprise during a period from transactions and
other events and circumstances from nonowner sources. SFAS No. 130 is effective
for fiscal years beginning after December 15, 1997. The Company will adopt this
statement for its fiscal year ending March 1999.
In July 1997, the FASB issued SFAS No. 131, Disclosures About Segments of
an Enterprise and Related Information. SFAS No. 131 requires certain financial
and supplementary information to be disclosed on an annual and interim basis
for each reportable segment of an enterprise. SFAS No. 131 is effective for
fiscal years beginning after December 15, 1997. Unless impracticable, companies
would be required to restate prior period information upon adoption. The Company
will adopt this statement for its fiscal year ending March 1999.
INFLATION
Inflation has not had a material adverse impact on the Company's cost of
doing business. Management attempts to protect the Company by adjusting prices
where market conditions permit and by reviewing and improving production
processes where possible. There can be no assurance that the Company's business
will not be affected by inflation.
CAUTIONARY STATEMENTS
The Private Securities Litigation Reform Act of 1995 contains certain
safe harbors regarding forward-looking statements. From time to time,
information provided by the Company or statements made by its directors,
officers, or employees may contain "forward-looking" information which
involve risk and uncertainties. Any statements in this report that are not
statements of historical fact are forward-looking statements (including, but
not limited to, statements concerning the characteristics and growth of the
Company's market and customers, the Company's objectives and plans for future
operations, and the Company's expected liquidity and capital resources). Such
forward-looking statements are based on a number of assumptions and involve a
number of risks and uncertainties, and accordingly, actual results could
differ materially. Factors that may cause such differences include, but are
not limited to: the continued and future acceptance of the Company's
products, the rate of growth in the audio industry; the presence of
competitors with greater technical marketing and financial resources; the
Company's ability to promptly and effectively respond to technological change
to meet evolving consumer demands; capacity and supply constraints or
difficulties; and the Company's ability to successfully integrate new
operations. For a further discussion of these and other significant factors
to consider in connection with forward-looking statements concerning the
Company, reference is made to Exhibit 99 of the Company's Annual Report on
Form 10-K for fiscal year March 30, 1996.
--
7
--
<PAGE>
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS March 28, 1998 March 29, 1997
- ----------------------------------------------------------------------------------------
Current Assets:
<S> <C> <C>
Cash and cash equivalents $ 3,870,569 $ 4,937,232
Short-term investments -- 2,594,454
Accounts receivable, net of reserve of approximately
$402,000 and $411,000, respectively 11,439,178 9,328,881
Inventories 12,617,077 9,540,757
Deferred income taxes 1,092,000 791,000
Prepaid expenses and other current assets 395,087 809,761
- ----------------------------------------------------------------------------------------
Total current assets 29,413,911 28,002,085
- ----------------------------------------------------------------------------------------
Property and Equipment, at cost:
Land 1,433,365 1,433,365
Building and improvements 7,061,479 7,012,347
Machinery and equipment 8,667,671 7,414,269
Office equipment and furniture 1,847,326 1,597,499
Motor vehicles 288,948 373,177
- ----------------------------------------------------------------------------------------
19,298,789 17,830,657
Less--Accumulated depreciation and amortization 8,005,621 6,936,205
- ----------------------------------------------------------------------------------------
11,293,168 10,894,452
Other Assets:
Long-term investments -- 1,022,164
Other assets, net 1,792,125 2,311,411
- ----------------------------------------------------------------------------------------
Total other assets 1,792,125 3,333,575
- ----------------------------------------------------------------------------------------
$42,499,204 $42,230,112
========================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
- ----------------------------------------------------------------------------------------
Current Liabilities:
- ----------------------------------------------------------------------------------------
$ 3,224,208 $ 1,020,146
Accrued payroll and payroll-related expenses 1,392,171 1,210,101
Dividends payable 414,287 523,279
Other accrued expenses 922,216 499,446
Accrued income taxes 142,075 68,135
Current maturity of line of credit 3,000,000 --
- ----------------------------------------------------------------------------------------
Total current liabilities 9,094,957 3,321,107
- ----------------------------------------------------------------------------------------
Line of Credit, net of current portion 9,500,000 --
Commitments (note 9)
Shareholders Equity:
Common stock, $.01 par value-
Authorized - 6,000,000 shares
Issued - 4,624,218 and 4,602,954 shares in 1998
and 1997, respectively 46,242 46,029
Additional paid-in capital 5,854,845 4,973,409
Retained earnings 46,245,277 38,322,082
- ----------------------------------------------------------------------------------------
52,146,364 43,341,520
Less--Treasury stock, 1,309,921 and 416,720 shares in 1998
and 1997, respectively, at cost 28,242,117 4,432,515
- ----------------------------------------------------------------------------------------
Total shareholders' equity 23,904,247 38,909,005
- ----------------------------------------------------------------------------------------
$42,499,204 $42,230,112
========================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
- --
8
- --
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Years Ended March 28, 1998 March 29, 1997 March 30, 1996
--------------------------------------------------
<S> <C> <C> <C>
Net Sales $82,399,284 $50,308,962 $46,324,791
Cost of Goods Sold 50,344,605 28,875,471 26,468,207
- ---------------------------------------------------------------------------------------------
Gross profit 32,054,679 21,433,491 19,856,584
- ---------------------------------------------------------------------------------------------
Selling and Marketing Expenses 8,144,786 7,219,881 5,833,300
General and Administrative Expenses 3,986,437 2,965,267 2,552,389
Engineering and Development Expenses 3,513,321 3,187,131 2,496,523
- ---------------------------------------------------------------------------------------------
Total expenses 15,644,544 13,372,279 10,882,212
- ---------------------------------------------------------------------------------------------
Income from operations 16,410,135 8,061,212 8,974,372
Interest Income 220,430 438,509 777,204
Interest Expense (1,059,330) (21,629)
- ---------------------------------------------------------------------------------------------
Income before provision for income taxes 15,571,235 8,478,092 9,751,576
Provision for Income Taxes 5,995,000 2,993,000 3,121,000
- ---------------------------------------------------------------------------------------------
Net income $9,576,235 $5,485,092 $6,630,576
=============================================================================================
Net Income per Share
Basic $2.75 $1.28 $1.52
=============================================================================================
Diluted $2.61 $1.23 $1.52
=============================================================================================
Weighted Average Common Shares Outstanding
(Note 2): Basic 3,488,287 4,284,974 4,353,032
=============================================================================================
(Note 2): Diluted 3,674,786 4,456,182 4,354,630
=============================================================================================
Dividends per Share $.50 $.50 $.50
=============================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Common Stock
---------------------- Additional Total
Number of $.01 Par Paid-in Retained Treasury Shareholders'
Shares Value Capital Earnings Stock Equity
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, March 25, 1995 4,518,324 $ 45,183 $ 3,739,101 $ 31,353,474 $ (83,790) $ 35,053,968
Exercise of stock options 124,400 1,244 1,189,819 -- -- 1,191,063
Purchase and retirement
of common stock (40,103) (401) (60,818) (840,485) -- (901,704)
Income tax benefits
of stock options -- -- 98,816 -- -- 98,816
Dividends -- -- -- (2,179,982) -- (2,179,982)
Net income -- -- -- 6,630,576 -- 6,630,576
- --------------------------------------------------------------------------------------------------------------------------
Balance, March 30, 1996 4,602,621 46,026 4,966,918 34,963,583 (83,790) 39,892,737
Exercise of stock options 333 3 6,491 -- -- 6,494
Purchase of 222,800 shares
of common stock -- -- -- -- (4,348,725) (4,348,725)
Dividends -- -- -- (2,126,593) -- (2,126,593)
Net income -- -- -- 5,485,092 -- 5,485,092
- --------------------------------------------------------------------------------------------------------------------------
Balance, March 29, 1997 4,602,954 46,029 4,973,409 38,322,082 (4,432,515) 38,909,005
Exercise of stock options 21,264 213 397,436 -- -- 397,649
Purchase of 898,201 shares
of common stock -- -- -- -- (23,914,602) (23,914,602)
Issuance of restricted
common stock -- -- -- -- 105,000 105,000
Dividends -- -- -- (1,653,040) -- (1,653,040)
Issuance of common
stock warrants -- -- 484,000 -- -- 484,000
Net income -- -- -- 9,576,235 -- 9,576,235
- --------------------------------------------------------------------------------------------------------------------------
Balance, March 28, 1998 4,624,218 $ 46,242 $ 5,854,845 $ 46,245,277 $(28,242,117) $ 23,904,247
==========================================================================================================================
</TABLE>
--
9
--
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Years Ended
--------------------------------------------------------
March 28,1998 March 29, 1997 March 30, 1996
- --------------------------------------------------------------------------------------------------------------------------
Cash Flows from Operating Activities:
<S> <C> <C> <C>
Net income $ 9,576,235 $ 5,485,092 $ 6,630,576
Adjustments to reconcile net income to net cash provided
by operating activities-
Depreciation and amortization 1,779,143 1,377,766 1,195,993
Deferred income taxes (345,000) (37,000) 18,000
Compensation expense related to issuance of
restricted stock and warrants 589,000 -- --
Changes in assets and liabilities, net of acquisition
of Snell Acoustics in 1997--
Accounts receivable (2,110,297) (585,615) (641,162)
Inventories (3,076,320) (540,047) 268,351
Prepaid expenses and other current assets 414,674 (365,693) 131,026
Accounts payable 2,204,062 (373,461) 291,902
Accrued payroll and other accrued expenses 604,840 228,070 161,304
Accrued income taxes 73,940 (15,482) (557,941)
- --------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 9,710,277 5,173,630 7,498,049
- --------------------------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities:
Acquisition of Snell Acoustics -- (2,818,925) --
Purchases of property and equipment, net (1,578,291) (1,240,356) (9,062,407)
Purchase of held-to-maturity investments -- (2,012,856) (3,793,876)
Purchase of available-for-sale investments -- -- (400,OO0)
Proceeds from sale of available-for-sale investments -- 1,274,734 1,202,465
Proceeds from sale of held-to-maturity investments 3,616,618 6,106,231 7,447,430
Decrease (increase) in other assets (36,282) 249,108 21,117
- --------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities 2,002,045 1,557,936 (4,585,271)
- --------------------------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities:
Proceeds from exercise of stock options 397,649 6,494 1,191,063
Income tax benefit from stock options -- -- 98,816
Proceeds from line of credit 21,675,000 -- --
Repayments of line of credit (9,175,000) -- --
Purchase of treasury stock (23,914,602) (4,348,725) (901,704)
Dividends paid (1,762,032) (2,154,402) (2,169,444)
- --------------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (12,778,985) (6,496,633) (1,781,269)
- --------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents (1,066,663) 234,933 1,131,509
Cash and Cash Equivalents, beginning of year 4,937,232 4,702,299 3,570,790
- --------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents, end of year $ 3,870,569 $ 4,937,232 $ 4,702,299
==========================================================================================================================
Supplemental Disclosure of NonCash Financing Activities:
Dividends payable $ 414,287 $ 523,279 $ 551,088
==========================================================================================================================
Supplemental Disclosure of Cash Flow Information:
Cash paid for income taxes $ 6,265,799 $ 3,045,742 $ 3,562,125
==========================================================================================================================
Cash paid for interest $ 1,059,330 $ 21,629 $ --
==========================================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
- --
10
- --
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 28, 1998
- --------------------------------------------------------------------------------
OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
Boston Acoustics, Inc. and subsidiaries (the Company) engineers,
manufactures and markets home loudspeakers, [Illegible] speakers and speakers
for multimedia environments. The Company's products are principally marketed in
the United States, Canada, Europe and Asia through selected audio and
audio-video specialty dealers and distributors.
The accompanying consolidated financial statements reflect the operations
of the Company and its wholly owned subsidiaries, BA Acquisition Corp. d/b/a
Snell Acoustics, Boston Acoustics Securities Corporation (a Massachusetts
securities corporation), Boston Acoustics Foreign Sales Corporation and Boston
Acoustics Italia, SRL (an Italian corporation). All significant intercompany
amounts have been [Illegible] in consolidation.
The accompanying consolidated financial statements reflect the application
of the following significant accounting policies.
Revenue Recognition
Revenue is recognized when products are shipped to customers.
Cash and Cash Equivalents
The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents.
Short-Term and Long-Term Investments
The Company accounts for its investments in accordance with Statement of
Financial Accounting Standards (SFAS) No. [Illegible] , Accounting for Certain
Investments in Debt and Equity Securities. As of March 28, 1998, the Company has
no short-term or long-term investments. As of March 29, 1997, the Company's
Investments were classified as held-to-maturity (recorded at amortized cost) and
as available-for-sale (recorded fair market value).
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market and consist of the following:
March 28, 1998 March 29. 1997
- --------------------------------------------------------------------------------
Raw materials and work-in-process $7,473,368 $5,889,305
Finished goods 5,143,709 3,651,452
- --------------------------------------------------------------------------------
$12,617,077 $9,540,757
================================================================================
Work-in-process and finished goods inventories consist of materials, labor
and manufacturing overhead.
Depreciation and Amortization
The Company provides for depreciation and amortization using both the
straight-line and accelerated methods by charges to operations in amounts
estimated to allocate the cost of the assets over their estimated useful lives
as follows:
Asset Classification Estimated Useful Life
- --------------------------------------------------------------------------------
[Illegible] and improvements 39 years
Machinery and equipment 3-5 years
[Illegible] equipment and furniture 3-5 years
F. Warranty Costs
Warranty costs are recorded when incurred by the Company. During the
three-year period ended March 28, 1998, warranty costs were not significant, and
future warranty costs are not expected to be significant.
G. Foreign Currency Translation
Boston Acoustics Italia, SRL, the Company's wholly owned subsidiary, is an
Italian corporation that distributes product for the Company in Italy. In
accordance with SFAS No. 52, Foreign Currency Translation, the Company has
determined that the functional currency of this entity is the U.S. dollar.
Accordingly, all monetary assets and liabilities for that entity are translated
at year-end exchange rates while non-monetary items are translated at historical
rates. Income and expense accounts are translated at the average rates in effect
during the year, except for depreciation and cost of product sales, which are
translated at historical rates. Gains or losses from changes in exchange rates
are recognized in consolidated income in the year of occurrence.
H. Income Taxes
The Company provides for income taxes in accordance with SFAS No. 109,
Accounting for Income Taxes. SFAS No. 109 requires the recognition of deferred
tax assets and liabilities for the expected future tax consequences of temporary
differences between the financial reporting and tax bases of assets and
liabilities.
I. Postretirement and Postemployment Benefits
The Company has no obligation for postretirement or postemployment
benefits.
J. Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
K. Concentration of Credit Risk
SFAS No. 105, Disclosure of Information About Financial Instruments with
Off-Balance-Sheet Risk and Financial Instruments with Concentrations of Credit
Risk, requires disclosure of any significant off-balance-sheet and credit risk
concentrations. The Company has no significant off-balance-sheet concentration
of credit risk such as foreign exchange contracts, option contracts or other
foreign hedging arrangements. The Company maintains the majority of its cash
balances with three financial institutions. The Company's accounts receivable
credit risk is not concentrated within any geographic area and does not
represent a significant credit risk to the Company. During Fiscal 1998 and 1997,
one customer represented 34% and 11%, respectively, of the Company's net sales.
As of March 28, 1998 four customers represented 20%, 15%, 12% and 12% of
--
11
--
<PAGE>
L. Financial Instruments
SFAS No. 107, Disclosures About Fair Value of Financial Instruments,
requires disclosure about fair value of financial instruments. Financial
instruments consist of cash equivalents, marketable securities, accounts
receivable, accounts payable and debt. The estimated fair value of these
financial instruments approximates their carrying value and, except for accounts
receivable and accounts payable, is based primarily on market quotes. The
Company's cash equivalents and marketable securities are generally obligations
of the federal government or investment-grade corporate or municipal issuers.
The Company, by policy, limits the amount of credit exposure to any one
financial institution.
M. Impairment of Long-Lived Assets
The Company follows the provisions of SFAS No. 121. Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets To Be Disposed Of
SFAS No. 121 addresses accounting and reporting requirements for impairment of
long-lived assets based on their fair market values. The carrying value of
intangible assets, principally goodwill, is periodically reviewed by the Company
based on the expected future undiscounted operating cash flows of the related
business unit. Based on its most recent analysis, the Company believes that no
material impairment of intangible assets exists as of March 28, 1998.
N. Recently Issued Accounting Standards
In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS
No. 130, Reporting Comprehensive Income, and SFAS No. 131, Disclosures About
Segments of an Enterprise and Related Information. Both SFAS No. 130 and 131 are
effective for Fiscal years beginning after December 15, 1997. The Company
believes that the adoption of these new accounting standards will not have a
material impact on the Company's financial statements.
2. NET INCOME PER SHARE
In February 1997, the FASB issued SFAS No. 128, Earnings per Share. This
standard is effective for Fiscal periods ending after December 15, 1997 and
requires presentation of both basic and diluted earnings per share on the face
of the statements of income. These financial statements have been prepared and
presented based on the new standard. Prior period amounts have been restated to
conform to the current year presentation. For the year ended March 28. 1998,
1,286 antidilutive shares have been excluded from the weighted average number of
common and dilutive potential shares outstanding. For the years ended March 29,
1997 and March 30. 1996, no antidilutive shares have been excluded from the
weighted average number of common and dilutive potential common shares
outstanding.
Basic and diluted income per share, as required by SFAS No. 128, is as
follows:
For The Years Ended March 28, March 29, March 30,
1998 1997 1996
-------------------------------------
Net Income $9,576,235 $5,485,092 $6,630,57
================================================================================
Basic weighted average common
shares outstanding 3,488,287 4,284,974 4,353,03
- --------------------------------------------------------------------------------
Dilutive effect of assumed exercise
of stock options and warrant 186,499 171,208 1,598
- --------------------------------------------------------------------------------
Weighted average common shares
outstanding assuming dilution 3,674,786 4,456,182 4,354,63
================================================================================
Basic net income per share $2.75 $1.28 $1.52
================================================================================
Diluted net income per share $2.61 $1.23 $1.52
================================================================================
3. INVESTMENTS
The Company's portfolio of investments at March 29, 1997 consists of
marketable securities classified as available for-sale and held-to-maturity. The
Company held no investments in debt or equity securities at March 28, 1998.
Investments held at March 29, 1997 are presented below.
<TABLE>
<CAPTION>
March 29, 1997
--------------------------------
Amortized Market
Cost Value
<S> <C> <C>
- --------------------------------------------------------------------------------
Short-term Investments--
Available-for-sale--
Money market and equity securities $ -- $ --
Held-to-maturity--
U.S. Treasury Notes and state
and municipal general obligation
and revenue bonds 2,594,454 2,595,400
- --------------------------------------------------------------------------------
Total short-term Investments $2,594,454 $2,595,400
================================================================================
Long-term Investments
(one-to-two-year maturity--
Held-to-maturity--
State and municipal general
Obligation and revenue bonds $1,022,164 $1,021,543
================================================================================
Realized gains and losses on sales of marketable securities for each of
the three years in the period ended March 28, 1998 were not material to the
Company's results of operations.
4. INCOME TAXES
The components of deferred tax assets consist of the tax effects of
temporary differences between the financial reporting and tax bases of assets
and liabilities. A valuation allowance has not been provided, as the Company
expects to realize all deferred tax amounts.
The approximate tax effect of each temporary difference is as follows:
March 28, 1998 March 29, 1997
- --------------------------------------------------------------------------------
Current deferred tax assets-
Accruals not currently deductible $ 363,000 $ 320,000
Receivable reserves 404,000 286,000
Inventory reserves 325,000 185,000
- --------------------------------------------------------------------------------
1,092,000 791,000
Noncurrent deferred tax assets-
Depreciation 237,000 243,000
- --------------------------------------------------------------------------------
Total deferred tax assets $1,379,000 $1,034,000
================================================================================
</TABLE>
The noncurrent deferred income taxes are included in other assets in the
accompanying consolidated balance sheet.
- --
12
- --
<PAGE>
The components of the provision for income taxes shown the accompanying
consolidated statements of income consist of the following:
<TABLE>
<CAPTION>
March 28, March 29, March 30,
1998 1997 1996
<S> <C> <C> <C>
- --------------------------------------------------------------------------------
Current
Federa1 $4,776,000 $2,402,000 $2,800,000
State 1,564,000 628,000 303,000
- --------------------------------------------------------------------------------
$6,340,000 $3,030,000 $3,103,000
================================================================================
Deferred
Federa1 (297,000) (29,000) 23,000
State (48,000) (8,000) (5,000)
- --------------------------------------------------------------------------------
(345,000) (37,000) 18,000
- --------------------------------------------------------------------------------
Provision for Income taxes $5,995,000 $2,993,000 $3,121,000
================================================================================
</TABLE>
The effective income tax rate varies from the amount computed using the
statutory U.S. income tax rate as follows:
<TABLE>
<CAPTION>
March 28, March 29, March 30,
1998 1997 1996
<S> <C> <C> <C>
- --------------------------------------------------------------------------------
Federal statutory rate 34.3% 34.0% 34.0%
[Illegible] in taxes resulting from
State income taxes, net of
Federal income tax benefit 5.0 4.9 2.0
Municipal bond interest (.2) (1.3) (1.7)
Foreign sales corporation (1.5) (2.7) (2.2)
[Illegible] .9 .4 (.1)
- --------------------------------------------------------------------------------
38.5% 35.3% 32.0%
================================================================================
</TABLE>
SHAREHOLDERS' EQUITY
Stock Options
The Company maintained an incentive stock option plan (the 1986 Plan),
which expired in October 1996. The Company has 43,069 options outstanding under
the 1986 Plan of March 28, 1998. In February 1996, the Board of Directors
approved a new incentive stock option plan (the 1996 Plan) authorizing options
for 200,000 shares of common stock. The 1996 Plan is administered by the Board
of Directors, and Options are granted at not less than the fair market value of
the Company's common stock on the date of grant. In July 1996, the Board of
Directors amended the 1996 Plan to permit the granting of nonqualified stock
options and to allow the purchase of up to 20,000 shares of common stock by a
director who is not an officer or employee of the Company. As of March 28, 1998,
the Company has 192,000 options outstanding under the 1996 Plan.
In May 1997, the Board of Directors approved a new stock option plan (the
1997 Plan) authorizing options for 300,000 shares of common stock. The 1997 Plan
permits the granting of nonqualified stock options and incentive stock options.
As of March 28, 1998, the Company has 99,500 options outstanding under the 1997
Plan.
The following is a summary of all stock option activity:
<TABLE>
<CAPTION>
Weighted
Average
Number of Price Exercise
Options Range Price
<S> <C> <C> <C>
- --------------------------------------------------------------------------------
Outstanding at March 25, 1995 134,400 $8.875 - $17.00 $10.11
Granted 62,000 18.50 - 19.50 19.32
Exercised (124,400) 8.875 - 9.90 9.57
- --------------------------------------------------------------------------------
Outstanding at March 30, 1996 72,000 17.00 - 19.50 19.00
Granted 98,000 17.50 - 19.25 18.21
Exercised (333) 19.50 19.50
Canceled (11,000) 17.00 - 19.50 18.36
- --------------------------------------------------------------------------------
Outstanding at March 29. 1997 158,667 17.00 - 19.50 $18.55
Granted 202,500 22.00 - 29.84 24.73
Exercised (21,264) 17.00 - 19.50 18.70
Canceled (5,334) 17.50 - 19.50 18.50
- --------------------------------------------------------------------------------
Outstanding at March 28, 1998 334,569 $17.00 - $29.84 $22.28
- --------------------------------------------------------------------------------
Exercisable at March 28, 1998 75,813 $17.00 - $22.00 $19.89
================================================================================
</TABLE>
In October 1995, the FASB issued SFAS No. 123, Accounting for Stock-Based
Compensation, which requires the measurement of the fair value of stock options
and warrants to be included in the statement of income or disclosed in the notes
to the financial statements. The Company has determined that it will continue to
account for stock-based compensation for employees under Accounting Principles
Board Opinion No.25 and elect the disclosure-only alternative under SFAS No. 123
for options granted after January 1, 1996 using the Black-Scholes option pricing
model prescribed by SFAS No. 123. The weighted average assumptions are as
follows:
<TABLE>
<CAPTION>
March 28, March 29, March 30,
1998 1997 1996
<S> <C> <C> <C>
- --------------------------------------------------------------------------------
Risk-free interest rate 6.15% 6.33% 6.38%
Expected dividend yield,
per share $.50 $.50 $.50
Expected lives, in years 5-10 5 5
Expected volatility 26% 42% 42%
</TABLE>
The weighted average grant date fair value of options granted during the
years ended March 28, 1998, March 29, 1997 and March 30, 1996 under these plans
is $8.58, $5.26 and $6.76, respectively.
As of March 28, 1998, March 29, 1997 and March 30, 1996, the weighted
average remaining contractual life of outstanding options under these plans is
7.25, 7.21 and 4.36 years, respectively.
--
13
--
<PAGE>
Had compensation cost for these plans been determined consistent with SFAS
No. 123, the Company's net income and basic net income per share would have been
reduced to the following pro forma amounts:
<TABLE>
<CAPTION>
March 28, March 29, March 30,
1998 1997 1996
<S> <C> <C> <C>
- --------------------------------------------------------------------------------
Net income--
As reported $9,576,235 $5,485,092 $6,630,576
Pro forma 9,031,049 5,438,212 6,469,619
Net income per share. as reported--
Basic $2.75 $1.28 $1.52
Diluted 2.61 1.23 1.52
Net income per share pro formal--
Basic $2.59 $1.27 $1.49
Diluted 2.46 1.22 1.49
</TABLE>
B. Warrant
In connection with a supply agreement entered into in March 1997, the
Company granted a customer a warrant to purchase up to 100,000 shares of common
stock at an exercise price of $17.50 per share, which is fully exercisable at
March 28. 1998. The Company has the right to purchase any or all of the
unexercised warrants at a price of $7.00 per warrant if at any time after March
1999 the price of the Company's common stock exceeds $25.00 per share. The
warrants expire in March 2000. In accordance with SFAS 123, the Company has
calculated the value of these warrants at $484,000, which was charged to
operations during Fiscal 1998 as product was shipped to the customer.
C. Issuance of Restricted Stock
In July 1997, the Company issued 5,000 shares of restricted stock to an
officer at no cost. The shares vested immediately. The Company recorded the
issuance of the restricted stock as a charge to operations in Fiscal 1998.
D. Purchase of Common Stock
On June 13, 1997, the Company entered into an agreement with the estates
of its founder and former Chief Executive Officer and his spouse. Under the
terms of the agreement, the Company acquired approximately 898,000 shares of the
Company's common stock owned by the estate for approximately $23,915,000. The
Company has obtained a $25,000,000 unsecured line of credit with a bank to
finance this transaction (see Note 6).
6. LINE OF CREDIT
In June 1997, the Company entered into an unsecured revolving loan
agreement with a bank for $25,000,000. The loan matures on July 1, 2002.
Interest is charged at the LIBOR rate on the first day of the interest period
plus a fixed rate spread based on certain financial ratios (7.38% as of March
28, 1998). As of March 28, 1998, $12,500,000 was outstanding under this
revolving loan agreement, of which $3,000,000 has been classified as short-term
as the Company expects to repay this amount during Fiscal 1999. In connection
with this agreement, the Company must comply with certain of profitability. As
of March 28, 1998, the Company was in compliance with all covenants.
The Company also has a $1,500,000 unsecured line of credit with another
bank available for letters of credit, bankers' acceptances and direct advances.
Interest on letters of credit and bankers' acceptances is based on the
prevailing rate (1.5% at March 28, 1998). Direct advances accrue interest at the
bank's commercial base rate (8.5% at March 28, 1998) No amounts were outstanding
under the line of credit at March 28, 1998 and March 29, 1997.
7. EXPORT SALES
Export sales (primarily to Europe, Asia and Canada) accounted for
approximately 19%, 21% and 20% of net sales during Fiscal 1998, 1997 and 1996,
respectively.
8. EMPLOYEE BENEFIT PLAN
The Company has a 401(k) Retirement Plan (the 401(k) Plan). The 401(k)
Plan is a defined contribution plan established under the provisions of Section
401(k) of the Internal Revenue Code. The Company may make a matching
contribution of 25% of each participant's contribution, up to maximum of 5% of a
participant's compensation for the plan year. The Company contributed
approximately $58,000, $53,000 and $55,000 to the 401(k) Plan during Fiscal
1998, 1997 and 1996, respectively.
9. COMMITMENTS
The Company leases a facility, which is occupied by a subsidiary, under an
operating lease agreement that expires in Fiscal 1999. The lease requires annual
payments of approximately $143,000 through 1999. Rent expense for Fiscal 1998,
1997 and 1996 was $142,916, $130,972 and $892,708, respectively.
10. 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. The
acquisition, which was financed with available cash, was accounted for as a
purchase. Accordingly, the results of Snell since June 1, 1996 are included in
the accompanying consolidated statements of income.
The aggregate purchase price of $3,098,000 (which consisted of $720,000 in
cash, approximately $2,300,000 of assumed liabilities and $78,000 of direct
acquisition costs) was allocated based on the fair value of the tangible and
intangible assets acquired as follows:
<TABLE>
<CAPTION>
<S> <C>
Current assets $ 988,000
Property and equipment 228,000
Goodwill 1,882,000
- --------------------------------------------------------------------------------
$ 3,098,000
================================================================================
</TABLE>
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 four
years. Pro forma results of operations to reflect the Snell acquisition have not
been presented, as they are not materially different from the
- --
14
- --
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
To BOSTON ACOUSTICS, INC.:
We have audited the accompanying consolidated balance sheets of Boston
Acoustics, Inc. (a Massachusetts corporation) and subsidiaries as of March 28,
1998 and March 29, 1997, and the related consolidated statements of income,
shareholders' equity and cash flows for each of the three years in the period
ended March 28, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Boston Acoustics, Inc. and
subsidiaries as of March 28, 1998 and March 29, 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
March 28, 1998, in conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Boston Massachusetts
May 12, 1998
FIVE YEAR SELECTED FINANCIAL DATA (Amounts In Thousands Except Per Share Data)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Income Statement Data
Net Sales $82,399 $50,309 $46,325 $41,046 $34,488
Net Income 9,576 5,485 6,631 5,949 4,682
Basic Earnings Per Share 2.75 1.28 1.52 1.38 1.10
Diluted Earnings Per Share 2.61 1.23 1.52 1.37 1.09
Weighted Average Shares Outstanding
Basic 3,488 4,285 4,353 4,299 4,250
Diluted 3,675 4,456 4,355 4,350 4,301
Dividends Per Share $ .50 $ .50 $ .50 $ .425 $ .40
Balance Sheet Data
Working Capital $20,319 $24,681 $26,083 $25,924 $22,723
Total Assets 42,499 42,230 43,124 38,379 32,899
Shareholders' Equity 23,904 38,909 39,893 35,054 30,625
</TABLE>
QUARTERLY FINANCIAL DATA (Amounts In Thousands Except Per Share Data)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter Year
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year Ended March 28, 1998
Net Sales $ 12,415 $ 18,136 $ 27,187 $ 24,661 $ 82,399
Gross Profit 5,441 7,227 10,460 8,927 32,055
Net Income 1,134 1,976 3,613 2,853 9,576
Basic Earnings Per Share .28 .60 1.09 .86 2.75
Diluted Earnings Per Share .27 .58 1.05 .82 2.61
- --------------------------------------------------------------------------------------------
Year Ended March 29, 1997
- --------------------------------------------------------------------------------------------
Net Sales $ 11,052 $ 12,199 $ 14,779 $ 12,279 $ 50,309
Gross Profit 4.775 5.027 6,458 5,173 21,433
Net Income 1,319 1,203 1,795 1,168 5,485
Basic Earnings Per Share .30 .28 .42 .28 1.28
Diluted Earnings Per Share .30 .28 .42 .27 1.23
</TABLE>
--
15
--
<PAGE>
Boston Acoustics, Inc. encourages investors to become informed about its
business. Additional information, copies of this report and the Company's Form
10-K filed with the Securities and Exchange Commission may be obtained by
writing to Debra A. Ricker-Rosato, Vice President Finance.
In August of 1992 the Company authorized a 50% increase in its annual
dividend rate from $.20 to $.30 per share. In February 1993 the Company
authorized an increase to $.40 per share and a further increase to $.50 per
share was authorized in February 1995. Dividends are declared and paid
quarterly. Four quarterly dividends totaling $.50 were declared during Fiscal
1998.
The common stock of Boston Acoustics, Inc. has been listed on the NASDAQ
National Market System under the symbol BOSA since its initial public offering
on December 12, 1986. The following table sets forth high and low closing prices
by quarter reported by NASDAQ:
<TABLE>
<CAPTION>
Fiscal 1998 High Low
- --------------------------------------------------------------------------------
<S> <C> <C>
First Quarter 26 1/2 22 1/4
Second Quarter 24 1/4 21
Third Quarter 34 1/4 26 1/4
Fourth Quarter 31 30/32 25 7/8
Fiscal 1997 High Low
- --------------------------------------------------------------------------------
First Quarter 26 18 1/4
Second Quarter 23 3/4 19 1/2
Third Quarter 21 3/4 16 3/4
Fourth Quarter 30 3/4 16 3/4
</TABLE>
There were 126 shareholders of record as of March 28, 1998. Shareholders
who beneficially own common stock held in nominee of street name are not
included in the number of shareholders of record.
BOARD OF DIRECTORS
Andrew G. Kotsatos
Chairman, Chief Executive Officer
and Treasurer
Boston Acoustics, Inc.
Fred E. Faulkner, Jr.
President and Chief Operating
Officer
Boston Acoustics, Inc.
George J. Markos
Senior Vice President
and General Counsel
Yell-O-Glow Corporation
Lisa M. Mooney
George Walle
Vice President and General Manager
Millipore Corporation,
Microelectronics Divisions
EXECUTIVE OFFICERS
Andrew G. Kotsatos
Chairman, Chief Executive Officer
and Treasurer
Fred E. Faulkner, Jr.
President and Chief Operating
Officer
Moses A. Gabbay
Vice President Engineering
Paul F. Reed
Vice President Administrative
Services
Debra A. Ricker-Rosato
Vice President Finance
Robert L Spaner
Vice President Sales
CORPORATE INFORMATION
Corporate Headquarters
Boston Acoustics, Inc.
300 Jubilee Drive
Peabody, MA 01960
Telephone: (978) 538-5000
Fax: (978) 538-5091
Website: www.bostonacoustics.com
Auditors
Arthur Andersen LLP
Boston, Massachusetts
Legal Counsel
Peabody & Arnold LLP
Boston, Massachusetts
Transfer Agent
Bank of Boston
c/o Boston EquiServe, LP
Boston, Massachusetts
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our reports dated May 12, 1998 included in this annual report
on Form 10-K, into the Company's previously filed Registration Statement
No. 33-18793.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
June 26, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FINANCIAL STATEMENTS IN ITS ANNUAL REPORT TO SHAREHOLDERS FOR FISCAL
YEAR ENDED MARCH 28, 1998 WHICH ARE INCORPORATED BY REFERENCE INTO THE
COMPANY'S ANNUAL REPORT ON FORM 10-K FOR SUCH FISCAL YEAR AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000805268
<NAME> BOSTON ACOUSTICS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-28-1998
<PERIOD-END> MAR-28-1998
<CASH> 3870569
<SECURITIES> 0
<RECEIVABLES> 11439178
<ALLOWANCES> 402000
<INVENTORY> 13617077
<CURRENT-ASSETS> 29413911
<PP&E> 19298789
<DEPRECIATION> 8005621
<TOTAL-ASSETS> 42499204
<CURRENT-LIABILITIES> 9094957
<BONDS> 9500000
0
0
<COMMON> 46242
<OTHER-SE> 52100122
<TOTAL-LIABILITY-AND-EQUITY> 42499204
<SALES> 82399284
<TOTAL-REVENUES> 82399284
<CGS> 50344605
<TOTAL-COSTS> 15644544
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 938900
<INCOME-PRETAX> 15571235
<INCOME-TAX> 5995000
<INCOME-CONTINUING> 9576235
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9576235
<EPS-PRIMARY> 2.75
<EPS-DILUTED> 2.61
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<CIK> 0000805268
<NAME> BOSTON ACOUSTICS, INC.
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS YEAR
<FISCAL-YEAR-END> MAR-28-1998 MAR-28-1998 MAR-28-1998 MAR-28-1997
<PERIOD-END> JUN-28-1998 SEP-27-1997 DEC-27-1997 MAR-29-1997
<CASH> 2856796 980144 1562830 4937232
<SECURITIES> 2587186 675553 255196 2594454
<RECEIVABLES> 9351773 12916770 15489514 9328881
<ALLOWANCES> 409080 430000 477000 411000
<INVENTORY> 11260974 13352407 12265860 9540757
<CURRENT-ASSETS> 27205038 29078479 30600826 28002085
<PP&E> 17889502 18334092 18488561 17830657
<DEPRECIATION> 7121335 7445385 7760675 6936205
<TOTAL-ASSETS> 40792906 42007556 43221550 42230112
<CURRENT-LIABILITIES> 6946264 8799115 8797739 3321107
<BONDS> 18000000 15475000 13175000 0
0 0 0 0
0 0 0 0
<COMMON> 46063 46226 46209 46029
<OTHER-SE> 44147696 46032182 49547519 43295491
<TOTAL-LIABILITY-AND-EQUITY> 40792906 42007556 43221550 42230112
<SALES> 12415276 30551245 57738674 50308962
<TOTAL-REVENUES> 12415276 30551245 57738674 50308962
<CGS> 6974138 17883510 34611336 28875471
<TOTAL-COSTS> 3697974 7392363 11611089 13372279
<OTHER-EXPENSES> 0 0 0 0
<LOSS-PROVISION> 0 0 0 0
<INTEREST-EXPENSE> 66844 441404 789080 21629
<INCOME-PRETAX> 1773234 4976581 10895941 8478092
<INCOME-TAX> 639000 1866000 4173000 2993000
<INCOME-CONTINUING> 1134234 3110581 6722941 5485092
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 1134234 3110581 6722941 5485092
<EPS-PRIMARY> .28 .85 1.90 1.28
<EPS-DILUTED> .27 .83 1.85 1.23
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<CIK> 0000805268
<NAME> BOSTON ACOUSTICS, INC.
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS YEAR
<FISCAL-YEAR-END> MAR-29-1997 MAR-29-1997 MAR-29-1997 MAR-30-1996
<PERIOD-END> JUN-29-1996 SEP-28-1996 DEC-28-1996 MAR-30-1996
<CASH> 3,170,091 2,517,939 1,707,700 4,702,299
<SECURITIES> 4,924,005 4,848,705 3,243,480 6,678,735
<RECEIVABLES> 8,356,465 9,102,819 11,076,157 8,401,038
<ALLOWANCES> 296,000 366,000 435,000 307,000
<INVENTORY> 9,282,797 9,203,635 9,709,904 3,458,593
<CURRENT-ASSETS> 26,914,360 26,876,964 26,840,323 29,313,731
<PP&E> 17,105,937 17,518,262 17,829,297 16,362,035
<DEPRECIATION> 6,010,210 6,450,660 6,846,731 5,665,178
<TOTAL-ASSETS> 43,794,362 42,640,057 41,864,755 43,123,592
<CURRENT-LIABILITIES> 4,061,368 4,003,753 3,606,767 3,230,855
<BONDS> 0 0 0 0
0 0 0 0
0 0 0 0
<COMMON> 46,026 46,026 46,026 46,026
<OTHER-SE> 40,704,308 41,372,993 42,644,477 39,930,501
<TOTAL-LIABILITY-AND-EQUITY> 43,794,362 42,640,057 41,864,755 43,123,592
<SALES> 11,051,857 23,251,045 38,029,777 46,324,791
<TOTAL-REVENUES> 6,276,741 13,449,191 21,769,652 26,468,207
<CGS> 2,886,381 6,173,458 9,951,992 10,882,212
<TOTAL-COSTS> 0 0 0 0
<OTHER-EXPENSES> 0 0 0 0
<LOSS-PROVISION> 0 0 0 0
<INTEREST-EXPENSE> 0 0 0 0
<INCOME-PRETAX> 2,030,345 3,880,567 6,643,288 9,751,576
<INCOME-TAX> 711,000 1,358,000 2,326,000 3,121,000
<INCOME-CONTINUING> 1,319,345 2,522,567 4,317,288 6,630,576
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 1,319,345 2,522,567 4,317,283 6,630,576
<EPS-PRIMARY> .30 .58 1.00 1.52
<EPS-DILUTED> .30 .58 1.00 1.52
</TABLE>
