Polk Audio Inc. Announces Second Quarter Results

Business Wire, Oct 28, 1997

BALTIMORE--(BUSINESS WIRE)--Oct. 28, 1997--Polk Audio Inc. (AMEX:PKA) announced Tuesday sales and earnings for the second quarter ended Sept. 28, 1997.

Net sales for the second quarter were $10,275,151 in 1997 compared with $14,479,339 in 1996, a decrease of 29%. For the second quarter, the net loss was $(237,913) in 1997 compared with net income of $453,713 in 1996. The loss per share for the second quarter was $(0.13) in 1997 compared with an income per share of $0.25 in 1996.

Net sales for the six month period were $20,027,353 in 1997 compared with $25,763,295 in 1996, a decrease of 22%. For the six months ended Sept. 29, 1996, the net loss was $(586,509) compared with net income of $488,397 in 1996. The loss per share for the first six months was $(0.32) in 1997 compared with earnings per share of $0.27 in 1996.

George M. Klopfer, CEO, commented on these results as follows:

"While we are disappointed with these results, we believe there is some cause for optimism about improving results in the near future.

"Sales for the September 1997 quarter were unusually depressed because of the coincidence of a number of adverse factors, including substantial destocking by many Polk retailers in anticipation of the rollout of the new RT HT series on which we commenced deliveries in the last week of the quarter, as well as delays in that rollout caused by unanticipated production problems.

"The decline in revenues was further aggravated by a suspension of deliveries to certain other major Polk customers because of a desire on our part to substantially decrease our credit exposure to them, as well as by a major destocking program at Best Buy Company which adversely affected deliveries of Eosone products.

"We ended the quarter with a meaningful backlog of undelivered orders which we expect to bolster our results for the December quarter.

"I am also happy to be able to report that the new RT HT models have received a very favorable initial response from the dealers who have received them and they appear to be selling through at a better rate than the models they replaced. Our manufacturing margins on these models also are expected to be better than the margins on the old models they replaced.

"Moreover, because of our recent performance and the generally depressed conditions in our markets in the USA and abroad, we have taken steps to cut our fixed expenses and lower our breakeven point. The effects of these reductions are expected to become fully visible in the current (December 1997) quarter.

"During the quarter we also saw the first meaningful deliveries of products under the previously announced licensing program with Hewlett Packard Company, and we expect increases in royalty income from this program in the next few quarters as additional HP models come on line.

"During the September 1997 quarter we also concluded a licensing agreement with Korea Electronics Parts, a prime supplier to Samsung, which will start to produce royalty revenues during the December 1997 quarter.

"In the meanwhile, despite the losses we have incurred we have maintained adequate liquidity and both inventories and receivables are under very good control. While calendar 1997 will certainly go down as our most difficult period ever in terms of profitability, we believe that we will start seeing some positive effects from the various measures which have been implemented, in the next two quarters."

Polk Audio Inc. is a manufacturer of high-quality loudspeaker systems based in Baltimore, Md. -0-

                                  Three Months Ended
                               Sept. 28,      Sept. 29,
                                 1997           1996
                               ---------      ---------

Net sales                   $ 10,275,151    $ 14,479,339

Operating earnings
 (loss) before interest
 and taxes                      (476,015)        863,152

Net earnings (loss)             (237,913)        453,713

Earnings (loss) per share          (0.13)           0.25

Weighted average
 shares outstanding            1,843,610       1,819,792


                                   Six Months Ended
                               Sept. 28,      Sept. 29,
                                 1997           1996
                              ---------       --------


Net sales                   $ 20,027,353    $ 25,763,295

Operating earnings
 (loss) before interest
 and taxes                    (1,063,858)        997,564

Net earnings (loss)             (586,509)        488,397

Earnings (loss) per share          (0.32)           0.27

Weighted average
 shares outstanding            1,841,653       1,820,001


                               Sept. 28,         Sept. 29,
Balance Sheet Data:              1997              1996
------------------             ---------         --------

Current Assets               $19,624,320     $25,491,636
Total Assets                  26,156,637      30,750,759

Current liabilities            6,034,138       9,104,340
Long-term debt                 4,115,046       5,424,359
Total Liabilities             10,149,184      14,790,498

Stockholders' equity          16,007,453      15,969,261