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 26, 2004
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 of incorporation or organization) |
(I.R.S. employer identification no.) | |
| 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 ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes ¨ No x
There were 4,166,845 shares of Common Stock issued and outstanding as of August 10, 2004.
Index
| Page | ||||||
| Part I: Financial Information |
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| Item 1. | ||||||
| Consolidated Balance Sheets - March 27, 2004 and June 26, 2004 (Unaudited) |
4 | |||||
| Consolidated Statements of Income (Unaudited) - Three months ended June 28, 2003 and June 26, 2004 |
6 | |||||
| 7 | ||||||
| 8 | ||||||
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
12 | ||||
| Item 3. | 16 | |||||
| Item 4. | 16 | |||||
| Part II: Other Information |
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| 17 | ||||||
| 18 | ||||||
| Exhibits |
19 | |||||
| Exhibits 31.1 and 31.2 Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
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| Exhibits 32.1 and 32.2 Certifications pursuant to 18 U.S.C Section 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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2
3
Boston Acoustics, Inc. and Subsidiaries
Consolidated Balance Sheets
Assets
| March 27, 2004 |
June 26, 2004 | |||||
| Current Assets: |
||||||
| Cash and cash equivalents |
$ | 7,552,054 | $ | 7,517,713 | ||
| Accounts receivable, net of allowance for doubtful accounts of approximately $582,000 and $586,000 at March 27, 2004 and June 26, 2004, respectively |
8,202,044 | 8,434,948 | ||||
| Inventories |
12,240,838 | 11,705,370 | ||||
| Deferred income taxes |
2,492,000 | 2,492,000 | ||||
| Prepaid income taxes |
480,000 | 471,000 | ||||
| Prepaid expenses and other current assets |
956,142 | 831,070 | ||||
| Total current assets |
31,923,078 | 31,452,101 | ||||
| Property and Equipment, at Cost: |
||||||
| Machinery and equipment |
17,429,279 | 17,625,006 | ||||
| Building and improvements |
8,795,567 | 8,795,567 | ||||
| Office equipment and furniture |
5,902,487 | 5,911,806 | ||||
| Land |
1,815,755 | 1,815,755 | ||||
| Motor vehicles |
209,950 | 209,950 | ||||
| 34,153,038 | 34,358,084 | |||||
| Less-Accumulated depreciation and amortization |
23,278,695 | 23,809,256 | ||||
| 10,874,343 | 10,548,828 | |||||
| Other Assets, Net |
||||||
| Other assets, net |
754,710 | 757,209 | ||||
| Deferred income taxes |
406,000 | 406,000 | ||||
| $ | 43,958,131 | $ | 43,164,138 | |||
The accompanying notes are an integral part of these consolidated financial statements.
4
Boston Acoustics, Inc. and Subsidiaries
Consolidated Balance Sheets
Liabilities and Stockholders’ Equity
| March 27, 2004 |
June 26, 2004 | |||||
| Current Liabilities: |
||||||
| Accounts payable |
$ | 7,322,535 | $ | 6,769,811 | ||
| Accrued payroll and payroll-related expenses |
523,234 | 684,366 | ||||
| Accrued income taxes |
649,512 | 477,617 | ||||
| Dividends payable |
354,182 | 354,182 | ||||
| Other accrued expenses |
1,081,361 | 1,044,227 | ||||
| Current maturity of line of credit |
309,394 | 9,477 | ||||
| Total current liabilities |
10,240,218 | 9,339,680 | ||||
| Stockholders’ Equity: |
||||||
| Common stock, $.01 par value - Authorized — 8,000,000 shares Issued — 5,161,514 shares |
51,615 | 51,615 | ||||
| Additional paid-in capital |
1,789,689 | 1,789,689 | ||||
| Retained earnings |
43,409,158 | 43,515,703 | ||||
| 45,250,462 | 45,357,007 | |||||
| Less-Treasury stock, 994,650 shares, at cost |
11,532,549 | 11,532,549 | ||||
| Total stockholders’ equity |
33,717,913 | 33,824,458 | ||||
| $ | 43,958,131 | $ | 43,164,138 | |||
The accompanying notes are an integral part of these consolidated financial statements.
5
Boston Acoustics, Inc. and Subsidiaries
Consolidated Statements of Income
| Three Months Ended |
||||||||
| June 28, 2003 |
June 26, 2004 |
|||||||
| Net sales |
$ | 12,597,197 | $ | 12,619,951 | ||||
| Cost of goods sold |
8,017,458 | 7,131,958 | ||||||
| Gross profit |
4,579,739 | 5,487,993 | ||||||
| Selling and marketing expenses |
2,141,390 | 2,619,638 | ||||||
| General and administrative expenses |
1,111,307 | 1,030,172 | ||||||
| Engineering and development expenses |
1,119,561 | 1,206,654 | ||||||
| Total operating expenses |
4,372,258 | 4,856,464 | ||||||
| Income from operations |
207,481 | 631,529 | ||||||
| Interest income |
23,043 | 13,887 | ||||||
| Interest expense |
(7,937 | ) | (7,986 | ) | ||||
| Other income |
92,200 | 46,297 | ||||||
| Income before provision for income taxes |
314,787 | 683,727 | ||||||
| Provision for income taxes |
99,000 | 223,000 | ||||||
| Net income |
$ | 215,787 | $ | 460,727 | ||||
| Net income per share |
||||||||
| Basic |
$ | .05 | $ | .11 | ||||
| Diluted |
$ | .05 | $ | .11 | ||||
| Weighted-average common shares outstanding (Note 4): |
||||||||
| Basic |
4,400,276 | 4,166,845 | ||||||
| Diluted |
4,400,372 | 4,190,446 | ||||||
| Dividends per share |
$ | .085 | $ | .085 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
6
Boston Acoustics, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
| Three Months Ended |
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| June 28, 2003 |
June 26, 2004 |
|||||||
| Operating activities |
||||||||
| Net income |
$ | 215,787 | $ | 460,727 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
| Depreciation and amortization |
573,212 | 530,561 | ||||||
| Charge related to conversion of full recourse notes and forgiveness of subscription receivable |
29,042 | — | ||||||
| Provision for bad debt |
27,349 | 2,753 | ||||||
| Changes in assets and liabilities: |
||||||||
| Accounts receivable |
(1,475,586 | ) | (235,657 | ) | ||||
| Inventories |
1,831,218 | 535,468 | ||||||
| Prepaid expenses and other current assets |
25,349 | 134,072 | ||||||
| Accounts payable |
(706,722 | ) | (552,724 | ) | ||||
| Accrued payroll and other accrued expenses |
(160,035 | ) | (47,897 | ) | ||||
| Net cash provided by operating activities |
359,614 | 827,303 | ||||||
| Investing activities |
||||||||
| Purchases of property and equipment |
(338,579 | ) | (205,046 | ) | ||||
| Increase in other assets |
(12,751 | ) | (2,499 | ) | ||||
| Net cash used in investing activities |
(351,330 | ) | (207,545 | ) | ||||
| Financing activities |
||||||||
| Net payments on line of credit |
— | (299,917 | ) | |||||
| Dividends paid |
(374,136 | ) | (354,182 | ) | ||||
| Net cash used in financing activities |
(374,136 | ) | (654,099 | ) | ||||
| Net decrease in cash and cash equivalents |
(365,852 | ) | (34,341 | ) | ||||
| Cash and cash equivalents, beginning of period |
6,941,222 | 7,552,054 | ||||||
| Cash and cash equivalents, end of period |
$ | 6,575,370 | $ | 7,517,713 | ||||
| Supplemental Disclosure of Noncash Financing and Investing Activities |
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| Dividends payable |
$ | 373,286 | $ | 354,182 | ||||
| Partial forgiveness of recourse notes |
$ | 90,443 | $ | — | ||||
| Conversion of recourse notes into non-recourse notes |
$ | 140,474 | $ | — | ||||
| Decrease in minority interest in foreign subsidiary |
$ | (13,329 | ) | $ | — | |||
| Supplemental Disclosure of Cash Flow Information |
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| Cash paid for income taxes |
$ | 912 | $ | 255,250 | ||||
| Cash paid for interest |
$ | 7,937 | $ | 7,986 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
7
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 Boston Acoustics, Inc. and subsidiaries (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 accounting principles generally accepted in the United States 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 26, 2004 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 27, 2004.
(2) Stock-Based Compensation
The Company follows Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25) and related interpretations, in accounting for its stock-based compensation plans, rather than the alternative fair value accounting method provided for under Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation. Under APB 25, when the exercise price of options granted under these plans equals the market price of the underlying stock on the date of grant, no compensation expense is required. In accordance with Emerging Issues Task Force (EITF) 96-18, the Company records compensation expense equal to the fair value of options and warrants granted to non-employees over the vesting period, which is generally the period of service.
The following tables illustrate the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of SFAS No. 123 to stock-based employee compensation. The Company has computed the pro forma disclosures required under SFAS No. 123 and Statement of Financial Accounting Standards No. 148 (SFAS 148), Accounting for Stock-Based Compensation—Transition and Disclosure for all stock options granted to employees of the Company for the three-month periods ended June 28, 2003 and June 26, 2004, respectively, using the Black-Scholes option-pricing model prescribed by SFAS No. 123.
8
Pro forma disclosure. The pro forma effect on the Company’s financial statements of applying SFAS No. 123 for all options to purchase common stock of the Company would be as follows:
| For the three months ended | |||||||
| June 28, 2003 |
June 26, 2004 | ||||||
| Net income, as reported |
$ | 215,787 | $ | 460,727 | |||
| Less: fair value of employee stock-based compensation awards |
228,903 | 90,192 | |||||
| Pro forma net income (loss) |
$ | (13,116 | ) | $ | 370,535 | ||
| Basic and diluted net income per share: |
|||||||
| As reported |
$ | 0.05 | $ | 0.11 | |||
| Pro forma |
$ | — | $ | 0.09 | |||
(3) Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market and consist of the following:
| March 27, 2004 |
June 26, 2004 | |||||
| Raw materials |
$ | 2,017,295 | $ | 2,421,571 | ||
| Work-in-process |
1,244,599 | 999,534 | ||||
| Finished goods |
8,978,944 | |||||