<PAGE>
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------
FORM 10-Q
(Mark One)
/X/ Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
for the quarterly period ended June 27, 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)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes /X/ No /_/
There were 3,318,264 shares of Common Stock issued and outstanding as of August
12, 1998.
- --------------------------------------------------------------------------------
<PAGE>
Boston Acoustics, Inc.
Index
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<TABLE>
<CAPTION>
Page
----
<S> <C>
Part I: Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets (Unaudited)-
March 28, 1998 and June 27, 1998 4
Consolidated Statements of Income (Unaudited)-
Three months ended June 28, 1997 and June 27, 1998 6
Consolidated Statements of Cash Flows (Unaudited)-
Three months ended June 28, 1997 and June 27, 1998 7
Notes to Unaudited Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
Part II: Other Information
Items 1 through 6 13
Signatures 14
</TABLE>
2
<PAGE>
PART I: FINANCIAL INFORMATION
Item 1: Financial Statements
3
<PAGE>
Boston Acoustics, Inc. and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
Assets
------
<TABLE>
<CAPTION>
March 28, 1998 June 27, 1998
-------------- -------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 3,870,569 $ 3,339,148
Accounts receivable, net of reserve of
approximately $402,000
and $382,000, respectively 11,439,178 10,550,950
Inventories 12,617,077 13,577,249
Deferred income taxes 1,092,000 1,092,000
Prepaid expenses and other current assets 395,087 399,222
----------- -----------
Total current assets 29,413,911 28,958,569
----------- -----------
Property and Equipment, at cost:
Land 1,433,365 1,433,365
Building and improvements 7,061,479 7,078,094
Machinery and equipment 8,667,671 9,164,652
Office equipment and furniture 1,847,326 2,151,261
Motor vehicles 288,948 288,978
----------- -----------
19,298,789 20,116,350
Less-accumulated depreciation
and amortization 8,005,621 8,394,023
----------- -----------
11,293,168 11,722,327
----------- -----------
Other Assets:
Other assets, net 1,792,125 1,641,305
----------- -----------
$42,499,204 $42,322,201
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
Boston Acoustics, Inc. and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
Liabilities and Shareholders' Equity
------------------------------------
<TABLE>
<CAPTION>
March 28, 1998 June 27, 1998
-------------- -------------
<S> <C> <C>
Current Liabilities:
Accounts payable $ 3,224,208 $ 5,254,542
Accrued payroll and payroll-
related expenses 1,392,171 1,221,408
Dividends payable 414,287 414,783
Other accrued expenses 922,216 1,204,807
Accrued income taxes 142,075 645,056
Current maturity of line of credit 3,000,000 3,000,000
----------- -----------
Total current liabilities 9,094,957 11,740,596
----------- -----------
Line of credit, net of current portion (Note 4) 9,500,000 5,000,000
----------- -----------
Commitments
Shareholders' Equity:
Common stock, $.01 par value -
Authorized -- 6,000,000 shares
Issued -- 4,624,218
and 4,628,185 shares at
March 28, 1998 and
June 27, 1998, respectively 46,242 46,282
Additional paid-in capital 5,854,845 5,927,994
Retained earnings 46,245,277 47,849,446
----------- -----------
52,146,364 53,823,722
Less--Treasury stock, 1,309,921
shares at March 28, 1998 and
June 27, 1998, at cost 28,242,117 28,242,117
----------- -----------
Total shareholders' equity 23,904,247 25,581,605
----------- -----------
$42,499,204 $42,322,201
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
Boston Acoustics, Inc. and Subsidiaries
Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
------------------
June 28, 1997 June 27, 1998
------------- --------------
<S> <C> <C>
Net sales $ 12,415,276 $ 21,499,964
Cost of goods sold 6,974,138 13,989,938
------------ ------------
Gross profit 5,441,138 7,510,026
------------ ------------
Selling and marketing expenses 1,803,669 2,040,291
General and administrative expenses 918,005 1,002,533
Engineering and development expenses 976,300 1,097,503
------------ ------------
Total expenses 3,697,974 4,140,327
------------ ------------
Income from operations 1,743,164 3,369,699
Interest income 96,914 31,759
Interest expense (66,844) (196,506)
------------ ------------
Income before provision
for income taxes 1,773,234 3,204,952
Provision for income taxes 639,000 1,186,000
------------ ------------
Net income $ 1,134,234 $ 2,018,952
------------ ------------
------------ ------------
Basic earnings per share $ .28 $ .61
------------ ------------
------------ ------------
Diluted earnings per share $ .27 $ .58
------------ ------------
------------ ------------
Weighted average common shares outstanding
Basic 4,029,774 3,316,316
Diluted 4,134,626 3,473,408
Dividends per share $ .125 $ .125
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE>
Boston Acoustics, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
------------------
June 28,1997 June 27, 1998
------------ -------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,134,234 $ 2,018,952
Adjustments to reconcile net income to net cash
provided by operating activities-
Depreciation and amortization 408,316 538,297
Changes in assets and liabilities, net of acquisition--
Accounts receivable (22,897) 888,228
Inventories (1,720,217) (960,172)
Prepaid expenses and other current assets 452,457 (4,135)
Accounts payable 796,029 2,030,334
Accrued payroll and other accrued expenses (114,433) 111,828
Accrued income taxes 230,419 502,981
------------ -----------
Net cash provided by operating activities 1,163,908 5,126,313
------------ -----------
Cash flows from investing activities:
Purchases of property and equipment, net (58,845) (817,561)
Proceeds from sale of held-to-maturity investments 373,310 --
Increase in other assets (2,589) 925
------------ -----------
Net cash provided by (used in) investing activities 311,876 (816,636)
------------ -----------
Cash flows from financing activities:
Dividends paid (523,279) (414,287)
Purchase of treasury stock (23,914,602) --
Proceeds from line of credit 20,825,000 --
Repayments of line of credit -- (4,500,000)
Proceeds from exercise of stock options 56,661 73,189
------------ -----------
Net cash used in financing activities (3,556,220) (4,841,098)
------------ -----------
Decrease in cash and cash equivalents (2,080,436) (531,421)
Cash and cash equivalents, beginning of period 4,937,232 3,870,569
------------ -----------
Cash and cash equivalents, end of period $ 2,856,796 $ 3,339,148
------------ -----------
------------ -----------
Supplemental Disclosure of NonCash Financing Activities:
Dividends payable $ 411,421 $ 414,783
------------ -----------
------------ -----------
Supplemental Disclosure of Cash Flow Information:
Cash paid for income taxes $ 408,582 $ 683,008
------------ -----------
------------ -----------
Cash paid for interest $ 66,844 $ 235,347
------------ -----------
------------ -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
7
<PAGE>
Boston Acoustics, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(1) Basis of Presentation
The unaudited consolidated financial statements included herein have
been prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission and include, in the
opinion of management, all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of interim period results.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. The Company believes, however, that its disclosures are adequate
to make the information presented not misleading. The results for the
three-month period ended June 27, 1998 are not necessarily indicative of
results to be expected for the full fiscal year. These financial statements
should be read in conjunction with the Company's Annual Report included in
its Form 10-K for fiscal year ended March 28, 1998.
(2) Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market and consist of the following:
<TABLE>
<CAPTION>
March 28, 1998 June 27,1998
-------------- ------------
<S> <C> <C>
Raw materials and work-in process $ 7,473,368 $ 8,456,667
Finished goods 5,143,709 5,120,582
----------- ------------
$12,617,077 $13,577,249
----------- ------------
----------- ------------
</TABLE>
Work-in-process and finished goods inventories consist of materials, labor
and manufacturing overhead.
(3) Net Income Per Common Share
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, Earnings per Share. SFAS No. 128 establishes standards for computing and
presenting earnings per share (EPS) and applies to entities with publicly held
common stock or potential common stock. During the three-month period ending
December 27, 1997 the Company adopted SFAS No. 128 and is now required to report
both basic and diluted earnings per share. The Company has restated earnings per
share for the comparative period for fiscal 1999 as required by SFAS No. 128.
Basic EPS is computed by dividing net income by the weighted average number of
common shares outstanding for the period. Diluted EPS reflects the potential
dilution from common stock equivalents (stock options and warrants). For the
periods ended June 28, 1997 and June 27, 1998, there were no antidilutive shares
for purposes of earnings per share.
8
<PAGE>
Basic and diluted income per share, as required by SFAS No. 128, is as
follows:
<TABLE>
<CAPTION>
For the three months ended
June 28, 1997 June 27, 1998
------------- -------------
<S> <C> <C>
Net Income $1,134,234 $2,018,952
---------- ----------
---------- ----------
Basic weighted average common
shares outstanding 4,029,774 3,316,316
Dilutive effect of assumed exercise
of stock options and warrant 104,852 157,092
---------- ----------
Weighted average common shares
outstanding assuming dilution 4,134,626 3,473,408
---------- ----------
---------- ----------
Basic net income per share $ .28 $ .61
---------- ----------
---------- ----------
Diluted net income per share $ .27 $ .58
---------- ----------
---------- ----------
</TABLE>
(4) Stock Options
The following is a summary of stock option activity:
<TABLE>
<CAPTION>
Weighted
Number of Price Average
Options Range Price
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding at March 28, 1998 334,569 $17.00 - $29.84 $22.28
Options granted -- -- --
Options exercised (3,967) $17.00 - $19.50 $18.45
--------------------------------------------------------------------------
Outstanding at June 27, 1998 330,602 $17.00 - $29.84 $22.33
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Exercisable at June 27, 1998 102,149 $17.50 - $22.00 $20.57
--------------------------------------------------------------------------
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</TABLE>
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
The following table sets forth the results of operations for the three-month
period ended June 28, 1997 and June 27, 1998 expressed as percentages of net
sales.
<TABLE>
<CAPTION>
Three Months Ended
------------------
June 28, 1997 June 27, 1998
------------- -------------
<S> <C> <C>
Net sales 100.0% 100.0%
Cost of goods sold 56.2 65.1
----- -----
Gross profit 43.8 34.9
----- -----
Selling and marketing expenses 14.5 9.5
General & administrative expenses 7.4 4.7
Engineering & development expenses 7.9 5.1
----- -----
29.8 19.3
----- -----
Income from operations 14.0 15.6
Interest income, net .3 (.7)
----- -----
Income before provision for
income taxes 14.3 14.9
Provision for income taxes 5.2 5.5
----- -----
Net income 9.1% 9.4%
----- -----
----- -----
</TABLE>
Net sales increased 73 percent, from approximately $12,415,000 during the
first quarter of fiscal 1998 to approximately $21,500,000 during the first
quarter of fiscal 1999. The overall sales increase during the three-month
period ended June 27, 1998 was primarily due to the OEM deliveries of
multimedia speaker systems to Gateway, Inc. ("Gateway"), a leading global
direct marketer of PC products. These products included the MediaTheater(TM)
three-piece system, the BA635 three-piece system which replaced the original
MicroMedia(TM) system, and the new DigitalTheater(TM) 6000, a complete,
compact Dolby(R) Digital 5.1 sound system for use with computing and home
theater systems. In addition, during June 1998, the Company began initial
deliveries of a new generation of its flagship ProSeries automotive component
speaker systems.
The Company's gross margin for the three-month period ended June 27, 1998
increased in absolute dollars but decreased as a percentage of net sales from
43.8% to 34.9% due primarily to a shift in the sales mix to loudspeaker
models with lower margins, particularly the Company's OEM multimedia speaker
systems.
10
<PAGE>
Total operating expenses increased in absolute dollars but decreased as a
percentage of net sales during the three-month period ended June 27, 1998 as
compared to the corresponding period a year ago. Selling and marketing expenses
have increased in absolute dollars primarily due to increased salaries and
benefits relating to additional personnel and increased marketing expenses
associated with the new direct-to-consumer sales program for the Company's
Personal Desktop Audio(TM) products. General and administrative expenses have
remained relatively stable in absolute dollars, and as a result have decreased
as a percentage of net sales for the three-month period ended June 27, 1998.
Engineering and development expenses have 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 three-month period ended June 27, 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 36% for the three-month
period ended June 28, 1997 to 37% for the three-month period ended June 27,
1998. The increase is primarily due to (1) the Company being subject to a higher
federal statutory 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 U.S. thereby reducing the tax benefits associated with the Company's
foreign sales corporation.
Net income for the first quarter of fiscal 1998 increased 78%, from
approximately $1,134,000 to $2,019,000 in fiscal 1999. This increase was
primarily the result of the increased sales growth, which was partially offset
by the decrease in interest income. Diluted earnings per share increased 115%
from $.27 to $.58 per diluted share for the three-month period ended June 27,
1998.
Liquidity and Capital Resources
During the first three months of fiscal 1999, the Company financed its growth
with cash generated by operations. As of June 27, 1998 the Company's working
capital was approximately $17,218,000, a decrease of $3,101,000 since the end of
Fiscal 1998. The decrease in working capital was primarily due to the repayment
made on the Company's line of credit borrowing. The Company's cash and cash
equivalents were approximately $3,339,000. The Company's cash and cash
equivalents at June 27, 1998 decreased by approximately $532,000 from March 28,
1998 primarily due to increased inventory levels and increased property and
equipment relating to production tooling and computerized equipment partially
offset by payments received on accounts receivable. Current indebtedness
increased by approximately $2,646,000 primarily as a result of increases in
accounts payable and other accrued expenses. The Company has two lines of credit
with two banking institutions totaling $26,500,000. At June 27, 1998 the Company
had borrowings totaling $8,000,000 under its $25 million revolving credit
agreement.
The Company believes that its resources are adequate to meet its requirements
for working capital and capital expenditures through the next twelve months.
Significant Customers
The Company's financial results for the three-month period ending June 27, 1998
include 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. 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
11
<PAGE>
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.
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 the current fiscal year, the Company
is investing 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 in a timely manner achieve Year 2000 compliance, the Company's
business could be materially affected.
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 Form
8-K filed on July 18, 1996.
12
<PAGE>
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
Exhibit 27. - Financial Data Schedule
b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended June 27,
1998.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Boston Acoustics, Inc.
----------------------
Registrant
Date: August 12, 1998 By: s/Andrew G. Kotsatos
------------------------
Andrew G. Kotsatos
Director, Chief Executive Officer
and Treasurer
Date: August 12, 1998 By: s/Fred E. Faulkner, Jr.
------------------------
Fred E. Faulkner, Jr.
Director, President and
Chief Operating Officer
Date: August 12, 1998 By: s/Debra A. Ricker-Rosato
------------------------
Debra A. Ricker-Rosato
Vice President and
Chief Accounting Officer
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FINANCIAL STATEMENTS IN ITS QUARTERLY REPORT ON FORM 10Q FOR THE
QUARTERLY PERIOD ENDED JUNE 27, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000805268
<NAME> BOSTON ACOUSTICS, INC.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-27-1999
<PERIOD-END> JUN-27-1998
<CASH> 3339148
<SECURITIES> 0
<RECEIVABLES> 10550950
<ALLOWANCES> 382000
<INVENTORY> 13577249
<CURRENT-ASSETS> 28958569
<PP&E> 20116350
<DEPRECIATION> 8394023
<TOTAL-ASSETS> 42322201
<CURRENT-LIABILITIES> 11740596
<BONDS> 5000000
46282
0
<COMMON> 0
<OTHER-SE> 53777440
<TOTAL-LIABILITY-AND-EQUITY> 42322201
<SALES> 21499964
<TOTAL-REVENUES> 21499964
<CGS> 13989938
<TOTAL-COSTS> 4140327
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 196506
<INCOME-PRETAX> 3204952
<INCOME-TAX> 1186000
<INCOME-CONTINUING> 2018952
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2018952
<EPS-PRIMARY> 0.61
<EPS-DILUTED> 0.58
</TABLE>
