<PAGE>
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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 24, 2000
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 4,908,245 shares of Common Stock issued and outstanding as of August
7, 2000.
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<PAGE>
Boston Acoustics, Inc.
INDEX
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Part I: Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets (Unaudited)-
March 25, 2000 and June 24, 2000 4
Consolidated Statements of Income (Unaudited)-
Three months ended June 26, 1999 and June 24, 2000 6
Consolidated Statements of Cash Flows (Unaudited)-
Three months ended June 26, 1999 and June 24, 2000 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)
<TABLE>
<CAPTION>
ASSETS
MARCH 25, 2000 JUNE 24, 2000
-------------- -------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 1,506,741 $ 1,632,826
Accounts receivable, net of reserve of
approximately $345,000
and $335,000, respectively 12,632,632 11,599,958
Inventories 19,333,515 21,417,769
Deferred income taxes 1,545,000 1,545,000
Prepaid expenses and other current assets 1,151,536 1,111,145
----------- -----------
Total current assets 36,169,424 37,306,698
----------- -----------
Property and Equipment, at cost:
Land 1,815,755 1,815,755
Building and improvements 7,925,701 8,697,769
Machinery and equipment 13,517,432 14,387,494
Office equipment and furniture 4,131,718 4,338,919
Motor vehicles 259,319 244,040
----------- -----------
27,649,925 29,483,977
Less-accumulated depreciation
and amortization 12,035,891 12,797,086
----------- -----------
15,614,034 16,686,891
----------- -----------
Other Assets 1,080,569 1,082,018
----------- -----------
$52,864,027 $55,075,607
=========== ===========
</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 25, 2000 JUNE 24, 2000
-------------- --------------
<S> <C> <C>
Current Liabilities:
Accounts payable $ 6,002,158 $ 7,043,815
Accrued payroll and payroll-
related expenses 2,148,272 2,228,650
Dividends payable 417,201 417,201
Other accrued expenses 1,171,200 1,156,114
Accrued income taxes -- 691,134
Current maturity of line of credit 1,602,287 1,533,499
----------- -----------
Total current liabilities 11,341,118 13,070,413
----------- -----------
Line of credit, net of current portion 4,850,000 4,600,000
----------- -----------
Shareholders' Equity:
Common stock, $.01 par value -
Authorized -- 8,000,000 shares
Issued -- 5,080,764 shares 50,807 50,807
Additional paid-in capital 918,534 918,534
Retained earnings 38,131,912 38,864,197
----------- -----------
39,101,253 39,833,538
Less-Treasury stock, 172,500 shares, at cost 2,428,344 2,428,344
----------- -----------
Total shareholders' equity 36,672,909 37,405,194
----------- -----------
$52,864,027 $55,075,607
=========== ===========
</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 26, 1999 JUNE 24, 2000
------------ ------------
<S> <C> <C>
Net sales $ 21,845,332 $ 22,823,028
Cost of goods sold 14,805,224 15,558,859
------------ ------------
Gross profit 7,040,108 7,264,169
------------ ------------
Selling and marketing expenses 2,521,173 2,708,739
General and administrative expenses 1,099,823 1,254,393
Engineering and development expenses 1,400,131 1,375,650
------------ ------------
Total operating expenses 5,021,127 5,338,782
------------ ------------
Income from operations 2,018,981 1,925,387
Interest income 24,316 19,217
Interest expense (195,854) (105,120)
------------ ------------
Income before provision
for income taxes 1,847,443 1,839,484
Provision for income taxes 708,000 690,000
------------ ------------
Net income $ 1,139,443 $ 1,149,484
============ ============
Net income per share
Basic $ .23 $ .23
============ ============
Diluted $ .21 $ .23
============ ============
Weighted average common shares outstanding
Basic 5,012,689 4,908,245
Diluted 5,348,744 4,914,654
Dividends per share $ .085 $ .085
============ ============
</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 26, 1999 JUNE 24, 2000
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,139,443 $ 1,149,484
Adjustments to reconcile net income to net cash
provided by operating activities-
Depreciation and amortization 747,409 762,200
Changes in assets and liabilities, net of acquisition--
Accounts receivable 702,459 1,032,674
Inventories 356,378 (2,084,254)
Prepaid expenses and other current assets 80,713 40,391
Accounts payable 448,246 1,041,657
Accrued payroll and other accrued expenses (6,003) 65,292
Accrued income taxes (179,818) 691,134
----------- -----------
Net cash provided by operating activities 3,288,827 2,698,578
----------- -----------
Cash flows from investing activities:
Purchases of property and equipment, net (1,263,159) (1,834,052)
Increase in other assets (229,827) (2,452)
----------- -----------
Net cash used in investing activities (1,492,986) (1,836,504)
----------- -----------
Cash flows from financing activities:
Dividends paid (425,968) (417,201)
Repayments of line of credit (2,055,555) (318,788)
Proceeds from exercise of stock options 126,667 --
----------- -----------
Net cash used in financing activities (2,354,856) (735,989)
----------- -----------
Increase (decrease) in cash and cash equivalents (559,015) 126,085
Cash and cash equivalents, beginning of period 2,096,246 1,506,741
----------- -----------
Cash and cash equivalents, end of period $ 1,537,231 $ 1,632,826
=========== ===========
Supplemental Disclosure of NonCash Financing Activities:
Dividends payable $ 426,843 $ 417,201
=========== ===========
Supplemental Disclosure of Cash Flow Information:
Cash paid for income taxes $ 880,500 $ --
=========== ===========
Cash paid for interest $ 194,426 $ 111,887
=========== ===========
</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 24, 2000 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 25, 2000.
(2) Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market and consist of the following:
<TABLE>
<CAPTION>
MARCH 25, 2000 JUNE 24, 2000
-------------- -------------
<S> <C> <C>
Raw materials and work-in process $10,547,363 $12,070,530
Finished goods 8,786,152 9,347,239
-------------- --------------
$19,333,515 $21,417,769
============== ==============
</TABLE>
Work-in-process and finished goods inventories consist of materials,
labor and manufacturing overhead.
(3) Net Income Per Common Share
The Company follows the provisions of 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. 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 three-month period ended June 24, 2000, there were 510,140
shares that have been excluded from the weighted average number of common and
dilutive potential shares outstanding as their effect would be anti-dilutive.
For the three-month period ended June 26, 1999, there were 208,600 antidilutive
shares that have been excluded for purposes of earnings per share.
8
<PAGE>
A reconciliation of the number of shares used in the calculation of basic
and diluted income per share, is as follows:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
JUNE 26, 1999 JUNE 24, 2000
<S> <C> <C>
Basic weighted average common
shares outstanding 5,012,689 4,908,245
Dilutive effect of assumed exercise
of stock options and warrant 336,055 6,409
--------- ---------
Weighted average common shares
outstanding assuming dilution 5,348,744 4,914,654
========= =========
</TABLE>
(4) Segment Reporting
The Company has two reportable segments: 1) Core, and 2) Original
Equipment Manufacturer (OEM) and Multimedia.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. The Company does not allocate
operating expenses between its two reportable segments. Accordingly, the
Company's measure of profit for each reportable segment is based on gross
profit.
<TABLE>
<CAPTION>
OEM AND
THREE MONTHS ENDED JUNE 24, 2000 CORE MULTIMEDIA TOTAL
-------------------------------- -------------- ------------ -----------
<S> <C> <C> <C>
Net Sales $ 13,411,332 $ 9,411,696 $22,823,028
============== ============ ===========
Gross profit $ 4,825,776 $ 2,438,393 $ 7,264,169
============== ============ ===========
</TABLE>
<TABLE>
<CAPTION>
OEM AND
THREE MONTHS ENDED JUNE 26, 1999 CORE MULTIMEDIA TOTAL
-------------------------------- -------------- ------------ -----------
<S> <C> <C> <C>
Net Sales $ 12,907,480 $ 8,937,852 $21,845,332
============== ============ ===========
Gross profit $ 5,184,637 $ 1,855,471 $ 7,040,108
============== ============ ===========
</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 26, 1999 and June 24, 2000 expressed as percentages of net
sales.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------
JUNE 26, 1999 JUNE 24, 2000
------------- -------------
<S> <C> <C>
Net sales 100.0 % 100.0 %
Cost of goods sold 67.8 68.2
------- -------
Gross profit 32.2 31.8
------- -------
Selling and marketing expenses 11.6 11.9
General & administrative expenses 5.0 5.5
Engineering & development expenses 6.4 6.0
------- -------
23.0 23.4
------- -------
Income from operations 9.2 8.4
Interest income, net (.8) (.4)
------- -------
Income before provision for
income taxes 8.4 8.0
Provision for income taxes 3.2 3.0
------- -------
Net income 5.2 % 5.0 %
======= =======
</TABLE>
Net sales increased approximately 5 percent, from $21,845,342 during the first
quarter of Fiscal 2000 to $22,823,028 during the first quarter of Fiscal 2001.
The overall sales increase during the three-month period ended June 24, 2000 was
primarily due to increases in both the Core and Multimedia segments of our
business. During the quarter the Company introduced the BA265, the Company's
first entry-level speaker system for computers. The BA265 is a powered two-piece
speaker system that offers performance similar to Boston's more expensive
multimedia products but at an entry-level price and is currently available
through our OEM customer, Gateway, Inc. ("Gateway"). Core sales for the
three-month period ended June 24, 2000 were stimulated by the increasing sales
of DVD players and the success of new products introduced during the last fiscal
year which have been received very well, and as a result, the Company ended the
quarter with $1.2 million in backorders.
The Company's gross margin for the three-month period ended June 24, 2000
decreased as a percentage of net sales from 32.2% to 31.8% due primarily to
increased manufacturing overhead expenses for the Company's core products
compared to the same period a year ago, including higher personnel costs, scrap
and rework, incoming air freight, overtime and temporary warehouse costs. The
increase in the OEM and
10
<PAGE>
Multimedia gross profit this year reflects the contribution of the Company's
Multimedia retail sales versus high start-up expenses a year ago for new OEM
products.
Total operating expenses increased in absolute dollars while remaining
relatively stable as a percentage of net sales during the three-month period
ended June 24, 2000 as compared to the corresponding period a year ago. Selling
and marketing expenses have increased primarily due to increased salaries and
benefits relating to additional personnel and increased corporate advertising
expenses compared to the same period a year ago. General and administrative
expenses have also increased slightly due to increased salaries and benefits
relating to additional personnel compared to the same three-month period a year
ago. Engineering and development expenses have remained relatively stable in
absolute dollars while decreasing as a percentage of net sales primarily due to
lower consulting and outside service expenses during the period ended June 24,
2000.
Net interest expense has decreased in absolute dollars during the three-month
period ended June 24, 2000 primarily due to a reduction in the Company's line of
credit borrowings from $6.25 million to $6.0 million.
The Company's effective income tax rate decreased from 38.3% for the three-month
period ended June 26, 1999 to 37.5% for the three-month period ended June 24,
2000 due to lower state income taxes.
Net income for the three-month period ended June 24, 2000 increased slightly
from approximately $1,139,000 to $1,149,000 while diluted earnings per share
increased from $.21 to $.23 per diluted share. The increase was primarily the
result of the modest sales increase, as compared to the same period a year ago.
Liquidity and Capital Resources
During the first three months of Fiscal 2001, the Company financed its growth
with cash generated by operations. As of June 24, 2000 the Company's working
capital was approximately $24,236,000, a decrease of $592,000 since the end of
Fiscal 2000. The decrease in working capital was primarily due to the repayment
made on the Company's line of credit borrowings, as well as increases in
accounts payable relating to inventory purchases. The Company's cash and cash
equivalents were approximately $1,633,000 at June 24, 2000, an increase of
$126,000 since March 25, 2000. Current liabilities increased by approximately
$1,729,000 due to increases in accounts payable relating to the timing of
payments and increased accrued income taxes. The Company has two lines of credit
with two banking institutions totaling $26,500,000. At June 24, 2000 the Company
had borrowings totaling $6,000,000 under its $25 million revolving credit
agreement.
The Company believes that its current resources are adequate to meet its
requirements for working capital and capital expenditures through Fiscal 2001.
Significant Customers
The Company's financial results for the three-month period ending June 24, 2000
include significant OEM sales of multimedia speaker systems to Gateway. The
terms of these sales are governed by a Master Supply Agreement between Gateway
and the Company dated July 19, 1999. This Master Supply Agreement with Gateway
does not contain minimum or scheduled purchase requirements; therefore, purchase
orders by Gateway may fluctuate significantly from quarter to quarter over the
terms of the agreement.
Based on information currently available from our OEM customer, the Company
anticipates that our OEM sales should increase slightly during the fiscal year
ending March 31, 2001. 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 operations 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.
11
<PAGE>
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 and the Company's ability and
the Company's suppliers' and customers' ability to replace, modify or upgrade
computer programs in ways to adequately address the Year 2000 issue). 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. The words "believe," "expect,"
"anticipate," "intend" and "plan" and similar expressions identify
forward-looking statements. Readers are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of the date the statement
was made. 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 24, 2000.
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 7, 2000 By: s/ANDREW G. KOTSATOS
--------------------
Andrew G. Kotsatos
Director, Chief Executive Officer
and Treasurer
Date: August 7, 2000 By: s/MOSES A. GABBAY
-----------------
Moses A. Gabbay
Director and Chief Operating Officer
Date: August 7, 2000 By: s/DEBRA A. RICKER-ROSATO
------------------------
Debra A. Ricker-Rosato
Vice President and
Chief Accounting Officer
14
