SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report under section 13 or 15 (d) of the Securities Exchange
Act of 1934 for the quarterly period ended December 31, 1995
[ ] Transition Report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934 for the transition period from to .
Commission File Number 0-16154
AUDIO KING CORPORATION
(Exact name of registrant as specified in its charter)
Minnesota 41-1565405
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
3501 South Highway 100
Minneapolis, Minnesota 55416
(Address of principal executive office)
(612) 920-0505
(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 ___
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the last practicable date.
Class Outstanding at February 12, 1996
Common Stock, $.001 par value 2,772,223
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
AUDIO KING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
(Unaudited)
<TABLE>
<CAPTION>
December 31, 1995 June 30, 1995
------------ ------------
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 20,248 $ 28,629
Vendor and other accounts receivable,
net of allowance of $156,211 and $105,472 5,536,681 2,953,338
Inventories 10,601,235 8,398,227
Prepaid income taxes and other 552,548 422,525
------------ ------------
Total current assets 16,710,712 11,802,719
------------ ------------
PROPERTY AND EQUIPMENT, at cost:
Furniture, fixtures, and equipment 3,412,601 2,948,868
Leasehold improvements 4,613,741 3,515,677
Building and equipment under capital leases 1,262,163 1,195,486
Construction work in progress 214,174 --
Accumulated depreciation and amortization (2,993,855) (2,335,410)
------------ ------------
Net property and equipment 6,508,824 5,324,621
------------ ------------
OTHER ASSETS, principally goodwill 1,255,545 1,270,271
------------ ------------
$ 24,475,081 $ 18,397,611
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
AUDIO KING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' INVESTMENT
(Unaudited)
<TABLE>
<CAPTION>
December 31, 1995 June 30, 1995
----------- -----------
CURRENT LIABILITIES:
<S> <C> <C>
Vendor and other accounts payable $ 5,660,146 $ 3,999,408
Checks issued not yet presented for payment 599,391 172,338
Current portion of long-term obligations 52,001 102,223
Accrued liabilities 1,570,852 894,213
Income taxes payable 118,738 22,690
Deferred revenue related to extended service
program 24,804 24,804
Total current liabilities 8,025,932 5,215,676
----------- -----------
LONG-TERM OBLIGATIONS, less current portions 8,832,415 6,201,105
LONG-TERM LIABILITIES,
primarily deferred lease incentives 446,670 270,111
----------- -----------
SHAREHOLDERS' INVESTMENT:
Preferred stock, 6,000,000 shares authorized;
no shares issued and outstanding -- --
Common stock, $.001 par, 20,000,000 shares authorized;
2,721,729 and 2,713,329 issued and outstanding 2,721 2,713
Additional paid-in capital 4,452,664 4,440,720
Retained earnings 2,714,679 2,267,286
----------- -----------
Total shareholders' investment 7,170,064 6,710,719
----------- -----------
$24,475,081 $18,397,611
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
AUDIO KING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended December 31, Six Months Ended December 31,
1995 1994 1995 1994
--------- --------- -------- ---------
<S> <C> <C> <C> <C>
NET SALES $ 19,660,671 $ 17,503,738 $ 34,996,362 $ 29,846,184
COST OF MERCHANDISE SOLD 12,138,661 11,470,792 21,785,345 19,168,977
---------- ---------- ---------- ----------
Gross Profit 7,522,010 6,032,946 13,211,017 10,677,207
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 6,621,526 5,104,650 12,200,295 9,509,799
--------- --------- ---------- ---------
Operating Income 900,484 928,296 1,010,722 1,167,408
INTEREST EXPENSE, net 137,012 68,063 239,335 126,228
Income before income taxes 763,472 860,233 771,387 1,041,180
INCOME TAX PROVISION 320,700 361,000 324,000 437,000
NET INCOME $ 442,772 $ 499,233 $ 447,387 $ 604,180
======= ======= ======= =======
NET INCOME PER SHARE $ .16 $ .18 $ .16 $ .21
======== ======= ======= ========
Weighted average shares of common
stock outstanding for three and
six months ended December 31, 1995
and 1994 2,779,678 2,823,113 2,770,649 2,826,676
======= ======= ======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements
<PAGE>
AUDIO KING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1995 AND 1994
(Unaudited)
<TABLE>
<CAPTION>
OPERATING ACTIVITIES: 1995 1994
------ ------
<S> <C> <C>
Net income $ 447,387 $ 604,180
Adjustments required to reconcile net income
to net cash provided or (used) by operating activities:
Depreciation and amortization 654,130 385,065
Changes in other operating items:
Vendor and other accounts receivable (2,583,343) (1,257,434)
Inventories (2,203,008) (1,496,666)
Prepaid income taxes and other (130,012) 36,319
Checks issued not yet presented for payment 376,831 725,336
Vendor and other accounts payable 1,660,738 1,911,334
Income taxes payable 96,048 312,011
Accrued liabilities 676,639 261,949
Deferred lease incentives 176,559 31,959
Other (4,814) (13,727)
----------- -----------
Net cash provided by or
(used for) operating activities (832,845) 1,420,522
----------- -----------
INVESTING ACTIVITIES:
Purchases of property and equipment (1,604,629) (160,764)
Deposits on construction work in progress (214,174) (93,931)
----------- -----------
Net cash used for investing activities (1,818,803) (254,695)
----------- -----------
FINANCING ACTIVITIES:
Net borrowings (repayments)
under line-of-credit agreement 2,575,000 (1,175,000)
Net borrowings (repayments)
under capital lease obligations 56,310 (29,544)
Sale of common stock 11,957 53,293
----------- -----------
Net cash provided by (used for) financing activities 2,643,267 (1,151,251)
----------- -----------
NET INCREASE (DECREASE) IN CASH (8,381) 14,576
CASH, beginning of period 28,629 17,224
----------- -----------
CASH, end of period $ 20,248 $ 31,800
=========== ===========
Additional supplementary cash flow information is as follows:
Interest paid $ 239,000 $ 126,000
Income taxes paid, net of refunds received 120,000 300,000
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
AUDIO KING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) Nature of Business
The condensed consolidated financial statements have been prepared by
Audio King Corporation, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. The information
furnished in the condensed consolidated financial statements includes
normal recurring adjustments and reflects all adjustments which are, in
the opinion of management, necessary for a fair presentation of such
financial statements. 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. Although the Company believes
that the disclosures are adequate to make the information presented not
misleading, it is suggested that these condensed consolidated financial
statements be read in conjunction with the consolidated financial
statements for the year ended June 30, 1995 and the related notes thereto
included in the Company's latest Annual Report on Form 10-K.
Operating results for the interim periods may not be necessarily
indicative of the operating results to be expected for the full fiscal
year, since the Company's business is seasonal with higher net sales
occurring in the fourth calendar quarter.
(2) Earnings Per Share
Earnings per common and common stock equivalent share are calculated by
dividing net earnings applicable to common stock by the weighted average
of common and common stock equivalent shares outstanding, computed using
the treasury stock method.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
Net sales for the three-month period ended December 31, 1995 were approximately
$19,661,000, an increase of 12.3% from net sales of approximately $17,504,000
for the same period in the prior year. Net sales for the six-month period ended
December 31, 1995 were approximately $34,996,000, an increase of 17.3% from net
sales of approximately $29,846,000 for the same period in the prior year.
Management believes the sales increase was a result of its promoting specialist
retail strategy, which utilizes increased advertising, product assortment and
larger stores to increase store traffic, as well as extended consumer credit
offers and trained salespeople to produce increased sales. Management also
believes that the increase was largely due to an increased volume of goods sold
rather than increases in price.
Net sales for the three months ended December 31 historically has represented
the strongest sales quarter of the year. The weakest demand sales quarter has
historically been the first quarter which ends September 30. Seasonality is a
factor in the Company's results of operations.
Gross profit for the three-month period ended December 31, 1995 increased 24.7%
to approximately $7,522,000 from approximately $6,033,000 for the corresponding
period of the prior year. Gross profit, as a percent of net sales, was 38.3% for
the three-month period ended December 31, 1995 compared to 34.5% for the
corresponding period of the prior year. For the six-month period ended December
31, 1995, gross profit increased 23.7% to approximately $13,211,000 from
approximately $10,677,000 for the corresponding period of the prior year. As a
percent of net sales for the six-month period ended December 31, 1995, gross
profit was 37.7% compared to 35.8% for the corresponding period of the prior
year. The increase in gross margin percentage was due to growth as a percent of
total sales in accessories and home audio components which typically carry a
higher gross margin .
Selling, general, and administrative expenses increased as a percent of net
sales to 33.7% for the quarter ended December 31, 1995 from 29.2% for the
comparable three-month period of the preceding year. The increase in selling,
general, and administrative expenses is a result of certain costs, such as rent
and certain salaries, relating to revenue increasing faster than and
disproportionately to, sales. Selling, general, and administrative expenses for
the three-month period ended December 31, 1995 increased approximately
$1,517,000 or 29.7%, over the comparable prior period. The increases for the
three-month period are due primarily to increased sales commissions, benefits,
salaries and contract labor of approximately $687,000, increased consumer
financing and promotional expense of approximately $178,000 and increased
occupancy, insurance and depreciation costs of approximately $501,000, including
a one-time charge of $192,000 for the write off of leasehold improvements
related to the Edina store relocation.
For the six months ended December 31, 1995, selling, general, and administrative
expenses increased as a percent of net sales to 34.9% from 31.9% for the
comparable six-month period of the preceding year. As in the three-month period
ended December 31, 1995, the increase in selling, general, and administrative
expenses in the six-month period ended December 31, 1995 is a result of certain
costs, such as rent and certain salaries, relating to revenue increasing faster
than and disproportionately to, sales. Selling, general, and administrative
expenses for the six-month period ended December 31, 1995 increased
approximately $2,690,000 or 28.3%, over the comparable prior period. The
increases for the six-month period are due primarily to increased sales
commissions, benefits, salaries and contract labor of approximately $1,283,000,
increased consumer financing and promotional expense of approximately $432,000
and increased occupancy, insurance and depreciation costs of approximately
$689,000, including a one-time charge of $192,000 for the write off of leasehold
improvements related to the Edina store relocation.
Interest expense for the three-month period ended December 31, 1995 was
approximately $137,000 compared to approximately $68,000 for the corresponding
period in 1994. Interest expense for the six-month period ended December 31,
1995 was approximately $239,000 compared to approximately $126,000 for the
corresponding period in 1995. The higher interest expense was a result of higher
borrowing levels.
The Company earned net income per share of $.16 for the three-month period ended
December 31, 1995 as compared to net income per share of $.18 for the
corresponding period in 1994.
<PAGE>
Financial Condition
During the six-month period ended December 31, 1995, cash of approximately
$864,000 was used for operations compared to approximately $1,421,000 provided
by operating activities in the comparable period the prior year. The cash was
used primarily for increased inventories necessary for overall sales increases
and the display requirements of the relocated Edina store and expanded Roseville
store along with a one time $192,000 charge for the write off of leasehold
improvements related to the relocation of the Edina store. Capital expenditures
for the six months totaled approximately $1,686,000, principally for the
purchase of leasehold improvements, furniture and fixtures, and other equipment.
The Company has total capital expenditures of approximately $750,000 planned for
the remainder of fiscal 1996, primarily for the completion of the remodeling of
the Roseville store.
Working capital at December 31, 1995 was $8,685,000 as compared to $6,587,000 at
June 30, 1995. The current ratio was 2.1 to 1 as of December 31, 1995 and 2.3 to
1 as of June 30, 1995. The increase in working capital was attributable to
increased inventories related to the store expansions and to increased
receivables related to holiday consumer financing offered by third parties.
Inventories increased to $10,601,000 at December 31, 1995 from $8,398,000 at
June 30, 1995 in order to support overall increased sales and the display
requirements of the relocated Edina store and the remodeled Roseville store.
The Company expects that cash generated from operations and increased borrowings
under its bank line of credit will be sufficient to fund its anticipated working
capital requirements and expected capital expenditures.
The Company maintains a working capital line of credit which provides for up to
$11,000,000 from October 1 of any one year through February 15 of the succeeding
year at which time available borrowings are reduced to $8,000,000. The credit
facility bears interest at the bank's reference rate or at the adjusted
certificate of deposit rate plus 2%, at the Company's option.
The borrowings under this agreement are collateralized by inventories, accounts
receivable, and fixed assets. The Company is in compliance with all of its line
of credit agreement covenants.
<PAGE>
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a vote of Security Holders
(a) The Company held its Annual Meeting on November 15, 1995.
(b) Proxies for the Annual Meeting were solicited pursuant to Regulation
14 under the Securities Exchange Act of 1934. There was no
solicitation in opposition to management's nominees as listed on the
proxy statement, and all of such nominees were elected.
(c) By a vote of 2,342,629 share in favor, with 4,000 shares against and
4,308 abstaining, the shareholders set the number of directors to be
elected at five (5).
(d) The following persons were elected to serve as directors of the
Company until the next annual meeting of shareholders by the votes
indicated:
Nominee Number of Votes For Number of Votes Withheld
Randel S. Carlock 2,343,509 7,428
Henry G. Thorne 2,347,009 3,928
Sherman A. Swenson 2,346,909 4,028
Barry R. Rubin 2,346,009 4,928
Gary S. Kohler 2,347,009 3,928
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibit No. Description
27 Financial Data Schedule
(filed with electronic version only)
(b) Reports on Form 8-K - the Company filed no reports on Form 8-K during
the quarter ended December 31, 1995.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the undersigned on behalf of the registrant and in the
capacities and on the date indicated.
Dated: February 12, 1996 AUDIO KING CORPORATION
By: /s/ H.G. Thorne
H.G. Thorne
President, Chief Executive Officer,
and Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1
<CASH> 20,248
<SECURITIES> 0
<RECEIVABLES> 5,692,892
<ALLOWANCES> 156,211
<INVENTORY> 10,601,235
<CURRENT-ASSETS> 16,710,712
<PP&E> 9,502,679
<DEPRECIATION> 2,993,855
<TOTAL-ASSETS> 24,475,081
<CURRENT-LIABILITIES> 8,025,932
<BONDS> 0
0
0
<COMMON> 2,721
<OTHER-SE> 7,167,343
<TOTAL-LIABILITY-AND-EQUITY> 24,475,081
<SALES> 34,996,362
<TOTAL-REVENUES> 34,996,362
<CGS> 21,785,345
<TOTAL-COSTS> 12,200,295
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 87,000
<INTEREST-EXPENSE> 239,335
<INCOME-PRETAX> 771,387
<INCOME-TAX> 324,000
<INCOME-CONTINUING> 447,387
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 447,387
<EPS-PRIMARY> .16
<EPS-DILUTED> .16
</TABLE>
