CIK: 0000313867
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
X Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended December 31, 1995.
OR
___ Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
Commission File Number 0-9505
Triad Systems Corporation
-------------------------
(Exact name of registrant as specified in its charter)
Delaware 94-2160013
-------- ----------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
3055 Triad Drive, Livermore, CA 94550
---------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code: (510) 449-0606
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
--- ---
As of December 31, 1995, the registrant had outstanding 17,402,000
shares of common stock with $.001 par value.
Triad Systems Corporation
QUARTERLY REPORT FORM 10-Q
Index
Page
Part I. Financial Information
Item I. Financial Statements
Consolidated Balance Sheets at December 31, 1995 and
September 30, 1995 1
Consolidated Statements of Income for the Three Month Periods
Ended December 31, 1995 and 1994 2
Consolidated Statements of Cash Flows for the Three Month Periods
Ended December 31, 1995 and 1994 3
Notes to Consolidated Financial Statements 4-5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6-8
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 9-10
Signatures 11
Exhibit 11.1 Computation of Earnings Per Share 12
Exhibit 27 Financial Data Schedule 13
PART I FINANCIAL INFORMATION
Triad Systems Corporation
CONSOLIDATED BALANCE SHEETS
At December 31, 1995 and September 30, 1995
December 31, September 30,
(Amounts in thousands except share data) 1995 1995
----------- ------------
(Unaudited)
Assets
Current assets
Cash and equivalents $ 6,485 $ 7,263
Trade receivables 14,188 13,175
Investment in leases 2,333 2,001
Inventories 7,046 5,636
Prepaid expenses and other current assets 7,725 6,702
--------- ---------
Current assets 37,777 34,777
Service parts 3,510 3,316
Property, plant and equipment, net 26,774 27,017
Long-term investment in leases 12,970 16,540
Land for resale 25,288 25,250
Capitalized software and intangible assets 17,731 16,222
Other assets 9,592 9,587
--------- ---------
Assets $133,642 $132,709
======== ========
Liabilities
Current liabilities
Notes payable and current portion of
long-term debt $ 2,840 $ 3,032
Accounts payable 10,263 9,373
Accrued employee compensation 7,085 7,908
Deferred income taxes 3,388 3,338
Other current liabilities and
accrued expenses 9,509 9,695
--------- ---------
Current liabilities 33,085 33,346
Long-term debt 51,995 52,577
Deferred income taxes 26,802 26,176
Other liabilities 5,980 6,389
--------- ---------
Liabilities 117,862 118,488
--------- ---------
Stockholders' Equity
Common stock
$.001 par value; authorized
50,000,000 shares; issued 18,002,000
shares at December 31, 1995 and
17,969,000 shares at September 30, 1995 18 18
Treasury stock
599,000 shares at December 31, 1995
and September 30, 1995 (3,204) (3,204)
Capital in excess of par 28,317 28,201
Accumulated deficit (9,351) (10,794)
--------- ---------
Stockholders' equity 15,780 14,221
--------- ---------
Liabilities and stockholders' equity $133,642 $132,709
======== ========
The accompanying notes are an integral part of these financial statements.
Triad Systems Corporation
CONSOLIDATED STATEMENTS OF INCOME
For the Three Month Periods Ended December 31
(Unaudited)
(Amounts in thousands except per share data) 1995 1994
------ ------
Revenues
Automotive $23,810 $27,796
Hardlines & lumber 15,681 12,602
Other 1,359 1,571
------- -------
Total revenues 40,850 41,969
------- -------
Cost of sales 21,433 21,326
------- -------
Gross margin 19,417 20,643
------- -------
Marketing 11,181 11,141
Product development 1,914 2,100
General & administrative and other expenses 2,340 3,115
------- -------
Operating Income 3,982 4,287
------- -------
Interest and other expenses 1,586 1,734
------- -------
Income before income taxes and
extraordinary charge 2,396 2,553
Provision for income taxes 910 970
------- -------
Income before extraordinary charge 1,486 1,583
Extraordinary charge on repurchase of debt,
net of taxes -- 153
------- -------
Net income $ 1,486 $ 1,430
======= =======
Earnings per share
Primary
Income before extraordinary charge $ 0.09 $ 0.09
Net income $ 0.09 $ 0.08
Weighted average shares 17,380 17,831
Fully diluted
Income before extraordinary charge $ 0.09 $ 0.09
Net income $ 0.09 $ 0.08
Weighted average shares 17,380 17,921
====== ======
The accompanying notes are an integral part of these financial statements.
Triad Systems Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Month Periods Ended December 31
(Unaudited)
(Amounts in thousands) 1995 1994
------ ------
Cash flows from operating activities
Income before extraordinary charge $1,486 $1,583
Adjustments to reconcile income before
extraordinary charge to net cash provided
by operating activities
Extraordinary charge on repurchase of
debt, net of taxes - (153)
Depreciation and amortization 1,874 2,083
Receivable and inventory loss provisions 2,223 1,733
Gains from lease discounting (1,927) (1,292)
Other (1,244) (552)
Changes in assets and liabilities
Trade accounts receivable (1,847) (1,597)
Investment in leases 4,668 2,529
Inventories (1,483) (1,558)
Deferred income taxes 676 639
Prepaid expenses and other current assets (1,023) (803)
Accounts payable 890 (939)
Accrued employee compensation (823) (538)
Other current liabilities and accrued expenses (186) 525
------- -------
Net cash provided by operating activities 3,284 1,660
Cash flows from investing activities
Capitalized software and databases (1,957) (1,489)
Investment in property, plant and equipment (600) (399)
Investment in service parts (485) (496)
Other (354) (252)
------- -------
Net cash used in investing activities (3,396) (2,636)
Cash flows from financing activities
Issuance of debt 14,340 15,150
Repayment of debt (15,122) (18,678)
Proceeds from sale of common stock 116 667
Purchase of treasury stock - (391)
Dividends paid - (200)
Net cash used in investing activities (666) (3,452)
Net decrease in cash and equivalents (778) (4,428)
Beginning cash and equivalents 7,263 7,963
------- -------
Ending cash and equivalents $6,485 $3,535
======= =======
Supplemental disclosures of cash flow information
Cash paid during the period for
Interest $ 675 $1,088
Income taxes 282 68
======= =======
The accompanying notes are an integral part of these financial statements.
Triad Systems Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995 and 1994
(Unaudited)
1. In the opinion of the Registrant, the consolidated financial
statements contain all adjustments (consisting of only normal recurring
adjustments) necessary to present fairly the financial position as of
December 31, 1995 and the results of operations and cash flows for the
three month periods ended December 31, 1995 and 1994. The results of
operations for the three month periods ended December 31, 1995 and 1994
are not necessarily indicative of the results to be expected for the
full year. The Balance Sheet does not include all disclosure
requirements under GAAP and should be read in conjunction with the
September 30, 1995 audited financial statements and notes thereto.
2. The consolidated financial statements include the accounts of Triad
Systems Corporation and its wholly-owned subsidiaries, including Triad
Systems Financial Corporation ("Triad Financial"), after elimination of
intercompany accounts and transactions. Financial information relating
to the Company's combined leasing operations is presented in Note 6.
3. Trade accounts receivable at December 31,1995 and September 30,1995
include allowances for doubtful accounts of $1,338,000 and $1,420,000,
respectively.
4. Inventories are stated at the lower of cost (first-in, first-out
method) or market and include amounts which ultimately may be
capitalized as equipment or service parts.
(Amounts in thousands) December 31, 1995 September 30, 1995
----------------- ------------------
Purchased Parts $2,366 $2,189
Work in process 812 391
Finished Goods 3,868 3,056
-------- --------
Inventories $7,046 $5,636
5. Property, plant and equipment at December 31, 1995 and September 30,
1995 includes accumulated depreciation and amortization of $31,695,000
and $30,768,000, respectively.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
6. Triad Financial is a wholly-owned subsidiary which purchases Triad
systems and other products and leases those products to third parties
under full-payout, direct financing leases. Summarized financial
information of the Company's combined leasing operations, included in
the Consolidated Financial Statements, is as follows:
CONDENSED COMBINED BALANCE SHEETS
At December 31, 1995 and September 30, 1995
December 31, September 30,
(Amounts in thousands) 1995 1995
----------- ------------
(Unaudited)
Assets
Cash $ 99 $ 5
Net investment in leases 15,303 18,541
Residual value retained on leases discounted 6,641 6,452
Receivable from parent company 54,049 50,262
Other assets 3,769 3,652
------- -------
Assets $79,861 $78,912
======= =======
Liabilities and Stockholders' Equity
Other liabilities and accrued expenses $ 7,626 $ 8,367
Deferred income 2,428 2,337
Debt 12,784 13,033
Stockholders' equity 57,023 55,175
------- -------
Liabilities and stockholders' equity $79,861 $78,912
======= =======
CONDENSED COMBINED STATEMENTS OF INCOME
For the Three Month Periods Ended December 31
(Unaudited)
(Amounts in thousands) 1995 1994
------- ------
Revenues $2,645 $2,380
Selling and administrative expenses 450 455
Provision for doubtful accounts 1,052 603
------- -------
Operating income 1,143 1,322
Interest expense (255) (41)
Intercompany income 1,888 1,197
------- -------
Income before income taxes 2,776 2,478
Provision for income taxes 937 1,044
------- -------
Net Income $1,839 $1,434
====== ======
Triad Systems Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
First Quarter F/Y 1996 compared to First Quarter F/Y 1995
Results of Operations
Summary
Revenues of $40.9 million for the period were down 3% from the $42.0
million of one year ago, the result of a 14% drop in Automotive
Aftermarket revenues to $23.8 million from $27.8 million. Hardlines and
Lumber revenues were a first-quarter record $15.7 million, a 24%
improvement over one year ago. Operating income was $4.0 million, or 10%
of revenues, compared to $4.3 million, or 10% of revenues, in 1995.
Earnings per share were 9 cents compared to 8 cents in the same period
of 1995, which included a $153,000 charge related to the early
retirement of debt.
Automotive Aftermarket Revenues
The Automotive Aftermarket consists of warehouse distributors, parts
stores and service dealers. Revenues are primarily derived from the sale
and financing of systems and from information and support services
related to those systems.
Systems sales decreased to $6.1 million from $10.2 million in the first
quarter of 1995, reflecting a widespread and extended softness in the
market that caused customers and potential customers to defer major
purchases. A controlled rollout of the second phase of the Triad Prism
jobber system also contributed to the revenue decline as the company
addressed software performance issues.
Customer support revenues of $8.9 million were $.5 million below a year
ago, reflecting lower priced service offerings related to more reliable
technology, and a reduced customer base.
Information Services revenues increased 9% to $7.2 million, including a
9% improvement in database sales to $7.0 million as the number of
customers applying Triad's parts and labor estimating system continued
to steadily increase.
Triad Systems Financial Corporation ("Triad Financial," a wholly-owned
subsidiary) revenues related to the Automotive Aftermarket were
consistent with a year ago at $1.7 million. An increase of 31% to $1.2
million in discounted lease gains was partially offset by a decline in
lease income from a reduced portfolio.
Hardlines & Lumber Market Revenue
First quarter revenues from the sale and financing of systems, support
and information to hardware stores and home centers, lumber and building
supply outlets and paint and decorating retailers increased to $15.7
million from $12.6 million one year ago.
Systems sales rose $1.8 million or 29% to $8.2 million, reflecting a
growing awareness of the competitive benefits of automation, along with
a more stable and productive sales force. A significant reduction in
sales specialist turnover resulted in a 41% productivity improvement
over the first quarter of 1995. The company's efforts to become more
closely affiliated with major co-ops and wholesale distributors has also
positively impacted revenues.
Customer support revenues continued to increase with the customer base
growth, improving $.7 million or 12% to $6.1 million.
The Company's new point of sale (POS) businesses generated the majority
of the $.3 million increase in Information Services revenues to $.5
million, while catalog sales also showed improvement.
Triad Financial revenues related to the Hardlines and Lumber Market rose
46% to $1.0 million and gains from the discounting of leases increased
94% to $.7 million. Increased systems sales have resulted in the lease
portfolio remaining consistent with a year ago despite increased
discounting, and lease income from the portfolio remained at $.2
million.
Cost of Systems and Services
Both markets experienced an increase in the costs of systems and
services for the period. The combined costs of systems and services for
both markets, as a percentage of revenue, increased 2% to 53% when
compared to the first quarter of last year. This increase was attributed
to a heavy volume of hardware related add-ons, which typically has lower
margins, in the product mix when compared to the same period last year.
Expenses
Marketing expense remained consistent with last year at $11.2 million. A
planned decrease in the Company's sales force was offset by increased
staffing in the third-party lease business and by increased lease
losses.
Product development expenses, after capitalization of software
development, decreased 9% to $1.9 million compared to a year ago. New
product development in the POS and Hardlines and Lumber market resulted
in higher capitalization than a year ago.
General, administrative and other operating expenses were $2.3 million
for the period, a reduction of $.8 million from a year ago and flat with
last quarter. This is primarily attributed to a reduction in
compensation expenses and operating costs when compared to last year.
Additionally, litigation expense was $142,000 for the period, less than
half when compared to a year ago. The Company also benefited from a
reduction in its accruals needed for future tax liabilities.
Interest and other expense decreased by $.1 million to $1.6 million for
the period. This cost reduction is primarily attributed to the Company's
reduction of debt in 1995. In 1995, the Company also refinanced $11.8
million in floating rate notes at a lower interest cost.
In October of 1994, $2.9 million of senior fixed rate notes were retired
early. This generated an extraordinary charge of $153,000 ($.01 per
share) that included a premium of $198,000, unamortized debt costs of
$49,000, less taxes of $94,000.
Future Operating Results
The Company's future operating results will depend upon conditions in
its markets that may affect demand for its products, and upon the
Company's ability to introduce products and enhancements on a timely
basis. Results will also be affected by seasonal changes in product
demand, market acceptance of new products and enhancements, the size and
experience of the sales force and the mix of products sold. All could
cause operating results to fluctuate, especially on a quarterly basis.
Liquidity and Capital Resources
Management believes available cash resources, primarily generated from
operations, lease discounting and credit lines, will provide adequate
funds to finance foreseeable operating needs. The Company has available
$15.3 million in a bank line of credit and there were no borrowings at
December 31, 1995.
Triad Financial financed the majority of Triad's domestic business
systems sales during the period, as well as $3.5 million in non-Triad
equipment through client lease programs. Triad Financial received $18.6
million of proceeds from discounting leases during the period.
Limited and full-recourse discounting agreements are maintained with
banks and lending institutions. Discounting agreements contain certain
restrictive covenants that allow Triad Financial to discount only
while in compliance with such covenants. In the event of non-compliance,
the banks and lending institutions could assume administrative control
of the Company's lease portfolio and prohibit further discounting under
the available credit facilities. The Company is in compliance with the
restrictive covenants and management believes that it will maintain
compliance with such covenants in the foreseeable future. Under the
discounting agreements, Triad Financial is contingently liable for
losses in the event of lessee nonpayment. The agreements provide for
limited recourse of up to 15% or full recourse at 100% of discounting
proceeds, depending on the credit risk associated with specific leases.
At December 31, 1995, the portfolio available for discounting was $15.3
million and commitments for $38.6 million in discounting lines were
available.
Capital equipment expenditures, excluding capitalized leases, were $.6
million during the period.
During fiscal 1994, the Company established a Stock Ownership By
Management policy to further align the executive officers' interests
with those of the Corporation's stockholders. The stock ownership
equivalent is based upon 1993 compensation, ranging from 100% of base
compensation to 200% of total compensation, depending upon the position
held within the Company. Each officer must meet their respective stock
ownership level within a three to five year period. Eight of the current
executive officers are required to meet the stock ownership target by
October 1, 1996. As of December 31, 1995, five have already achieved the
target.
During October 1995, the Financial Accounting Standards Board issued
Statement No. 123(SFAS No. 123), "Accounting for Stock-Based
Compensation." This standard, which establishes a fair value-based
method of accounting for stock-based compensation plans also permits an
election to continue, following the requirements of APB Opinion No. 25,
"Accounting for Stock Issued to Employees" with disclosures of pro forma
net income and earnings per share under the new method. The Company is
reviewing the alternatives under SFAS No. 123 but does not expect there
will be any effect on the financial condition and results of operations
of the Company. Disclosure requirements of SFAS No. 123 will be
effective for the Company's fiscal year 1997.
PART II OTHER INFORMATION
Item 1-5 Not applicable
Item 6 No reports on Form 8-K were filed during the quarter ended
December 31, 1995.
Sequentially
Exhibit numbered
Number pages
- ------- ------------
* 10.1 Triad Systems Corporation Amended and Restated
1982 Stock Option Plan as amended on October 22, 1993,
incorporated by reference from Exhibit 10.1 to the
Company's Annual Report on Form 10-K for the fiscal
year ended September 30, 1993.
10.2 Form of Indemnification Agreement, incorporated by
reference from Exhibit 10.4 to the Company's
Registration Statement on Form S-2 (File No. 33-2966)
filed July 3, 1989 (the "1989 Form-2 Registration
Statement").
* 10.3 Nonqualified Stock Option Agreement between the Company
and James R. Porter dated January 13, 1987,
incorporated by reference from Exhibit 10.5 to the 1987
Form S-2 Registration Statement, (File No. 33-13599)
(the "1987 Company's Form S-2 Registration Statement").
10.4 Mortgage between Variable Annuity Life Insurance
Company and 3055 Triad Drive dated August 23, 1988,
incorporated by reference from Exhibit 10.6 to the
Company's Annual Report on Form 10-K for the fiscal
year ended September 30, 1988 (the "1988 Form 10-K").
* 10.5 Nonqualified Stock Option Agreement between the
Company and James R. Porter dated as of February 17,
1987, incorporated by reference from Exhibit 10.7 of
the 1988 Form 10-K.
* 10.6 Nonqualified Stock Option Agreement between the
Company and James R. Porter dated November 12, 1988,
incorporated by reference from Exhibit 10.8 of the
1988 Form 10-K.
* 10.7 Triad Systems Corporation 1990 Stock Option Plan as
amended on October 22, 1993, incorporated by reference
from Exhibit 10.9 to the Company's Annual Report on
Form 10-K for the fiscal year ended September 30, 1993.
* 10.8 Triad Systems Corporation Amended and Restated
Outside Directors Stock Option Plan, incorporated by
reference from Exhibit 10.10 to the Company's Annual
Report on Form 10-K for the fiscal year ended
September 30, 1991.
10.9 Revolving Credit Loan Agreement dated as of June 30,
1992, as amended, between the Company and Plaza Bank
of Commerce, incorporated by reference from Exhibit 10.3
to the Company's Current Report on Form 8-K filed
August 17, 1992.
10.10 Unit Purchase Agreement dated as of July 2, 1992,
between the Company, Richard C. Blum & Associates, Inc.
and certain purchasers, together with the First Amendment
to Unit Purchase Agreement dated as of August 3, 1992,
and the form of irrevocable Proxy, incorporated by
reference from Exhibit 10.4 to the Company's Current
Report on Form 8-K filed August 17, 1992.
10.11 Registration Rights Agreement between the Company and
certain purchasers under the Unit Purchase Agreement
dated as of August 3, 1992, incorporated by reference
from Exhibit 10.5 to the Company's Current Report on
Form 8-K filed August 17, 1992.
10.12 Grant Agreement between the Industrial Development
Authority and Triad Systems Ireland Limited, Triad
Systems Corporation and Tridex Systems Limited and
related agreements, incorporated by reference from
Exhibit 10.15 to the 1992 Form S-4 Registration
Statement.
10.13 Cancellation of Development Agreement between the
Company and the City of Livermore dated July 15, 1993,
incorporated by reference from Exhibit 10.16 to the
Company's Annual Report on Form 10-K for the fiscal
year ended September 30, 1993.
10.14 Amended and Restated Subdivision Improvement Agreement
between the Company and the City of Livermore dated
May 12, 1993, incorporated by reference from
Exhibit 10.17 to the Company's Annual Report on
Form 10-K for the fiscal year ended September 30, 1993.
* 10.15 Supplemental Deferred Compensation Plan between the
Company and a select group of Triad Key Employees and
their beneficiaries dated April 1, 1994, incorporated by
reference from Exhibit 10.18 to the Company's
Form 10-Q for the fiscal quarter ended June 30, 1994.
* 10.16 Amendment to the Amended and Restated 1982 Stock Option
Plan dated April 25, 1994, incorporated by reference from
Exhibit 10.19 to the Company's Form 10-Q for the fiscal
quarter ended June 30, 1994.
10.17 Amendment No. Three to Revolving Credit Loan Agreement
and Consent (to Exchange Agreement) between Triad
Systems Corporation, Triad Systems Financial Corporation
and Comerica Bank-California dated March 31, 1995,
incorporated by reference from Exhibit 6 to the
May 11, 1995 Form 8-K.
10.18 Exchange Agreement and Second Amendment to Unit Purchase
Agreement by and among Triad Systems Corporation,
Richard C. Blum & Associates, L.P. and certain holders
dated March 31, 1995, incorporated by reference from
Exhibit 1 to the Company's Current Report on Form 8-K
filed May 11, 1995.
10.19 Warehousing Credit Agreement between Triad Systems
Financial Corporation and the First National Bank of
Boston dated August 29, 1995.
11.1 Computation of Earnings per share.
27 Financial Data Schedules.
* Compensation or employment agreement.
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, a duly authorized officer of the Registrant.
Triad Systems Corporation
-------------------------
(Registrant)
Date: February 9, 1996 /s/ STANLEY F. MARQUIS
---------------- -----------------------
Stanley F. Marquis
Vice President, Finance
(Principal Financial Officer)
Exhibit 11.1
Triad Systems Corporation
COMPUTATION OF EARNINGS PER SHARE
For the Three Month Periods Ended December 31
(Amounts in thousands except per share data) 1995 1994
------- -------
Calculation of number of shares entering into computations
Weighted average shares outstanding 17,380 13,800
Assumed conversion of preferred stock and exercise
of warrants -- 3,137
------- -------
17,380 16,937
Net effect of dilutive stock options and warrants based
on the average stock price -- 894
------- -------
Average primary shares outstanding 17,380 17,831
Net effect of dilutive stock options and warrants based
on the ending stock price -- 90
------- -------
Average fully diluted shares outstanding 17,380 17,921
======= =======
Income before extraordinary charge $ 1,486 $ 1,583
Extraordinary charge on repurchase of debt, net
of taxes -- 153
------- -------
Adjusted net income $ 1,486 $ 1,430
======= =======
Earnings per share
Primary
Income before extraordinary charge $ 0.09 $ 0.09
Net income $ 0.09 $ 0.08
Fully diluted
Income before extraordinary charge $ 0.09 $ 0.09
Net income $ 0.09 $ 0.08
======= =======
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AT DECEMBER 31, 1995 AND CONSOLIDATED STATEMENT OF
INCOME AND STATEMENT OF CASH FLOW FOR THE THREE MONTHS ENDED DECEMBER 31, 1995
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
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