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 September 30, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________ to _________________
Commission File No. 0-21754
SODAK GAMING, INC.
(Exact name of registrant as specified in its charter)
SOUTH DAKOTA 46-0407053
(State of Incorporation) (I.R.S. Employer Identification No.)
5301 S. Highway 16
Rapid City, South Dakota 57701
(Address of principal executive offices)
(605) 341-5400
(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 ______
At September 30, 1997, there were outstanding 22,758,408 shares of the Company's
common stock.
Page 1 of 23
Exhibit Index Page 22
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Sodak Gaming, Inc.
INDEX
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Page
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PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Statements of Earnings for the three months ended
September 30, 1997 and 1996 3
Consolidated Statements of Earnings for the nine months ended
September 30, 1997 and 1996 4
Consolidated Balance Sheets as of September 30, 1997 and December 31, 1996 5
Consolidated Statements of Cash Flows for the nine months ended
September 30, 1997 and 1996 7
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9
PART II. OTHER INFORMATION
Item 1. Legal proceedings 19
Item 2. Changes in Securities 20
Item 3. Defaults Upon Senior Securities 20
Item 4. Submission of Matters to a Vote of Security Holders 20
Item 5. Other Information 20
Item 6. Exhibits and Reports on Form 8-K 20
SIGNATURES 21
EXHIBIT INDEX 22
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Sodak Gaming, Inc.
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended September 30,
-------------------------------
1997 1996
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<S> <C> <C>
Revenue:
Product sales $ 15,157,022 $ 45,492,183
Gaming operations 15,043,824 13,873,296
Wide area progressive systems 3,956,329 2,287,516
Financing income on notes receivable and
other financing arrangements 1,478,993 1,448,928
------------- -------------
Total revenue 35,636,168 63,101,923
------------- -------------
Costs and expenses:
Cost of product sales 11,675,522 36,028,977
Gaming operations 13,082,754 11,281,012
Selling, general and administrative 4,235,626 6,838,635
Interest and financing costs 1,001,154 699,942
------------- -------------
Total costs and expenses 29,995,056 54,848,566
------------- -------------
Income from operations 5,641,112 8,253,357
Other income (expense), net 34,494 (29,206)
------------- -------------
Earnings before income taxes 5,675,606 8,224,151
Provision for income taxes 2,116,196 3,004,528
------------- -------------
Net earnings $ 3,559,410 $ 5,219,623
============= =============
Earnings per common and common equivalent share $ 0.16 $ 0.23
============= =============
Weighted average number of common and common
equivalent shares outstanding 22,882,130 23,083,239
============= =============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
Sodak Gaming, Inc.
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1997 1996
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<S> <C> <C>
Revenue:
Product sales $ 40,824,201 $ 86,070,431
Gaming operations 42,832,610 23,112,335
Wide area progressive systems 9,869,684 5,900,626
Financing income on notes receivable and
other financing arrangements 4,547,966 4,351,793
------------- -------------
Total revenue 98,074,461 119,435,185
------------- -------------
Costs and expenses:
Cost of product sales 31,650,331 67,322,385
Gaming operations 39,529,610 15,762,567
Selling, general and administrative 13,309,682 15,769,659
Interest and financing costs 2,624,356 1,667,169
------------- -------------
Total costs and expenses 87,113,979 100,521,780
------------- -------------
Income from operations 10,960,482 18,913,405
------------- -------------
Other income:
Gain on sale of receivables 536,527 0
Other, net 62,229 1,602
------------- -------------
Total other income 598,756 1,602
------------- -------------
Earnings before income taxes 11,559,238 18,915,007
Provision for income taxes 4,293,136 6,916,332
------------- -------------
Net earnings $ 7,266,102 $ 11,998,675
============= =============
Earnings per common and common equivalent share $ 0.32 $ 0.52
============= =============
Weighted average number of common and common
equivalent shares outstanding 22,911,488 22,946,429
============= =============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
Sodak Gaming, Inc.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996 *
-------------- --------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3,575,868 $ 4,077,107
Receivables:
Trade accounts, net of allowance for doubtful accounts 15,215,664 20,258,980
Short-term notes receivable 12,988,083 391,018
Notes receivable, current maturities 18,656,907 23,197,351
Accrued interest 1,038,055 570,024
Inventories:
Gaming machines 22,300,686 16,410,597
Parts and other gaming accessories 3,170,379 4,225,674
Prepaid expenses 1,597,899 1,674,172
Refundable income taxes 0 875,000
Deferred income taxes 913,000 553,000
-------------- --------------
Total current assets 79,456,541 72,232,923
-------------- --------------
Property and equipment:
Land and improvements 1,549,011 1,357,616
Buildings and improvements 20,002,686 17,758,478
Leasehold improvements 1,595,558 1,083,466
Riverboat 13,687,115 13,687,115
Gaming operations equipment 23,766,455 23,314,614
Office furniture and equipment 2,801,087 2,496,142
Transportation equipment 2,313,027 2,150,488
Shop equipment 521,843 503,652
Systems, in progress 2,154,753 0
-------------- --------------
68,391,535 62,351,571
Less accumulated depreciation and amortization (7,008,712) (4,410,249)
-------------- --------------
Total property and equipment, net 61,382,823 57,941,322
-------------- --------------
Other assets:
Notes receivable, net of current maturities 23,467,764 26,657,133
Real estate held for sale 566,658 596,658
Goodwill, net 7,734,827 8,155,401
Other assets, net 7,176,377 4,697,196
-------------- --------------
Total other assets 38,945,626 40,106,388
-------------- --------------
$ 179,784,990 $ 170,280,633
============== ==============
</TABLE>
* From audited financial statements.
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
Sodak Gaming, Inc.
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996 *
-------------- --------------
(Unaudited)
<S> <C> <C>
Current liabilities:
Accounts payable $ 32,561,123 $ 28,328,425
Current maturities of long-term debt 3,116,000 1,751,000
Income taxes payable 1,387,395 161,615
Accrued liabilities 5,539,471 4,263,912
-------------- --------------
Total current liabilities 42,603,989 34,504,952
-------------- --------------
Long-term debt, net of current maturities 20,064,803 27,188,869
-------------- --------------
Deferred income taxes 2,924,000 1,350,000
-------------- --------------
Shareholders' equity:
Preferred stock at $0.001 par value, 25,000,000 shares
authorized, none issued and outstanding 0 0
Common stock at $0.001 par value, 75,000,000 shares authorized,
22,758,408 and 22,757,688 shares issued and outstanding
at September 30, 1997 and December 31, 1996, respectively 22,758 22,758
Additional paid-in capital 64,078,355 64,072,273
Retained earnings 51,033,980 43,767,878
Cumulative translation adjustment (942,895) (626,097)
-------------- --------------
Total shareholders' equity 114,192,198 107,236,812
-------------- --------------
$ 179,784,990 $ 170,280,633
============== ==============
</TABLE>
* From audited financial statements.
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
Sodak Gaming, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months ended September 30,
--------------------------------
1997 1996
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<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 7,266,102 $ 11,998,675
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 4,762,419 2,197,199
Provision for doubtful accounts 575,363 2,318,668
Deferred income taxes 1,214,000 348,000
Gain on sale of receivables (536,527) 0
Loss on sale of property and equipment 0 51,347
Changes in operating assets and liabilities:
Trade receivables 3,499,922 (29,586,628)
Notes receivable relating to financed sales 1,243,297 1,121,942
Inventories (9,836,275) (9,932,175)
Prepaid expenses 76,273 (485,852)
Accounts payable 3,988,759 29,167,605
Accrued liabilities 1,275,559 1,053,705
Income taxes payable, net of refundable income taxes 2,100,780 (178,213)
------------- -------------
Net cash provided by operating activities 15,629,672 8,074,273
------------- -------------
Cash flows from investing activities:
Cash advanced on notes receivable (3,877,036) (5,195,703)
Payments received on notes receivable 4,048,433 3,918,024
Purchases of property and equipment (7,723,071) (8,910,662)
Proceeds from sale of property and equipment 0 501,801
Increase in amounts due from riverboat lessee, prior to acquitision 0 (2,630,945)
Principal payments received on direct financing-type lease 0 338,057
Purchase of Gamblers Supply Management Company,
net of cash acquired 0 237,571
Increase in other assets (2,786,942) (2,632,223)
------------- -------------
Net cash used in investing activities (10,338,616) (14,374,080)
------------- -------------
Cash flows from financing activities:
Proceeds from long-term borrowings 23,750,000 27,250,000
Principal repayments of long-term debt (37,049,067) (18,666,646)
Proceeds from sale leaseback transaction 7,540,000 0
Net proceeds from exercise of stock options 6,082 260,512
------------- -------------
Net cash provided by (used in) financing activities (5,752,985) 8,843,866
------------- -------------
Effect of exchange rate changes on cash and cash equivalents (39,310) 0
------------- -------------
Net increase (decrease) in cash and cash equivalents (501,239) 2,544,059
Cash and cash equivalents, beginning of period 4,077,107 974,221
------------- -------------
Cash and cash equivalents, end of period $ 3,575,868 $ 3,518,280
============= =============
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 2,497,173 $ 1,350,578
Cash paid during the period for income taxes $ 978,424 $ 6,771,941
Supplemental schedule of noncash investing activity:
Gaming machine inventory transferred to
gaming operations equipment $ 0 $ 3,135,349
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
Sodak Gaming, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997
(Unaudited)
Note 1 - Unaudited Consolidated Financial Statements
The accompanying unaudited consolidated financial statements of Sodak
Gaming, Inc. and its consolidated subsidiaries have been prepared by the Company
in accordance with generally accepted accounting principles for interim
financial information, pursuant to the rules and regulations of the Securities
and Exchange Commission. Pursuant to such rules and regulations, certain
financial information and footnote disclosures normally included in the
consolidated financial statements have been condensed or omitted. The results
for the periods indicated are unaudited, but reflect all adjustments (consisting
only of normal recurring adjustments) which management considers necessary for a
fair presentation of operating results.
Results of operations for interim periods are not necessarily indicative of
a full year of operations.
These condensed consolidated financial statements should be read in
conjunction with the 1996 consolidated financial statements and notes thereto.
Certain 1996 amounts have been reclassified to conform to the 1997
presentation.
Note 2 - Recent Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board (FASB) issued
SFAS No. 128, Earnings Per Share. This statement establishes standards for
computing and presenting earnings per share and is effective for financial
statements issued for periods ending after December 15, 1997. Earlier
application of this statement is not permitted and upon adoption requires
restatement (as applicable) of all prior-period earnings per share data
presented. Management believes that the implementation of this standard will not
have a significant effect on earnings per share.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
GENERAL
After its inception in 1989, the Company's sole line of business was the
marketing and distribution of gaming equipment to Native American casinos. Since
1993, a part of the Company's business strategy has been to diversify its
revenue base and has focused on the development of gaming opportunities that
generate recurring revenue sources.
As part of this strategy, the Company implemented the first interstate wide
area progressive systems and has entered the Iowa riverboat casino market and
emerging gaming markets in Latin America, where it develops, equips and operates
gaming halls and routes and a casino. In 1996, the Company acquired the
operating company of the MISS MARQUETTE riverboat casino, Gamblers Supply
Management Company (GSMC), and assumed full operational responsibility of the
casino entertainment facility, which also includes a restaurant, lounge, marina
and hotel. The Company also began a casino operation in Ecuador and a video
bingo gaming hall in Brazil. In addition, the Company entered into an agreement
with the Confederacao Brasileira de Futebol (CBF, or the Brazilian Soccer
Federation) to own and operate linked progressive video gaming systems in
Brazil. In January 1997, the Company entered into a joint venture agreement with
IGT and Dreamport (a wholly-owned subsidiary of GTECH Holdings) to proceed with
the development and operations of this system. The three companies will share
equally in the investment funding, expenses and profits or losses of the CBF
project.
RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30, 1997
COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 1996
Net earnings for the three months ended September 30, 1997 decreased 32% to
$3.6 million, or $0.16 per share, compared to net earnings of $5.2 million, or
$0.23 per share, for the three months ended September 30, 1996. The primary
factors causing the decrease in net earnings were decreased product sales and
lower margins in gaming operations. Total revenue decreased 44% to $35.7 million
in 1997, compared to $63.1 million in 1996. Total costs and expenses decreased
45% to $30.0 million in 1997, compared to $54.8 million in 1996. Earnings before
interest, taxes, depreciation and amortization (EBITDA) decreased 21% to $8.2
million in 1997 compared to $10.3 million in 1996. EBITDA is a commonly used
calculation to measure operating performance. The Company includes EBITDA in its
results of operations to assist interpretation of financial performance;
however, the Company's principal financial measures are net earnings and
earnings per share.
PRODUCT SALES
Revenue from product sales decreased 67% to $15.2 million in 1997 compared
to $45.5 million in 1996. The decrease in 1997 was due to a 61% decrease in
machine sales revenue to $12.4 million in 1997 compared to $31.6 million in 1996
and an 80% decrease in ancillary gaming and non-gaming product sales revenue to
$2.8 million in 1997 compared to $13.9 million in 1996. In 1997, the Company is
continuing its strategy of being a full-service provider to its customers by
expanding its product line to include additional gaming and non-gaming products
and supplies.
New gaming machine shipments decreased 66% to approximately 1,780 machines
in 1997 compared to approximately 5,230 machines in 1996. In 1997, 80% of the
new machine shipments were to casinos in Arizona, Louisiana and North Carolina.
Growth of gaming in Native American jurisdictions is outside the
<PAGE>
control of the Company and is influenced by the legal, electoral and regulatory
processes of those jurisdictions.
The cost of product sales decreased 68% to $11.7 million in 1997, from
$36.0 million in 1996. This decrease was attributable to the decreased sales
volume of new machines and ancillary gaming and non-gaming products. The gross
margin on product sales increased to 23.0% in 1997 as compared to 20.8% in 1996.
The improvement in the gross margin was primarily due to a decrease in the
percentage of sales qualifying for cash discounts.
The Company does not anticipate that new machine shipments in calendar year
1997 will attain last year's record level. The third quarter of 1996 recorded
the highest amount of product sales revenue in the Company's history due
primarily to shipments to two large casinos.
GAMING OPERATIONS
Gaming operations revenue increased 8% or $1.1 million to $15.0 million in
1997, from $13.9 million in 1996. This increase was primarily attributable to an
increase in revenue earned from the MISS MARQUETTE and the growth of gaming
operations in Latin America. Direct costs of gaming operations increased 16% or
$1.8 million to $13.1 million in 1997, compared to $11.3 million in 1996.
DOMESTIC GAMING OPERATIONS
MISS MARQUETTE. GSMC, the management company of the MISS MARQUETTE, was
acquired on July 1, 1996. The acquisition was accounted for using the purchase
method of accounting. Accordingly, the operations of the MISS MARQUETTE since
July 1, 1996, are included in the consolidated statements of earnings. The
riverboat casino and entertainment facility had 698 machines and 36 table games
at September 30, 1997. It is located on the Mississippi River at Marquette,
Iowa.
Revenue from the MISS MARQUETTE amounted to $9.1 million in 1997 compared
to $8.3 million in 1996. Direct operating costs were $7.8 million in 1997 and
$6.9 million in 1996. Management is implementing measures to improve operating
performance. However, there can be no assurance that such improvement will be
realized due to the public's acceptance of gaming and other factors affecting
performance.
PARTICIPATION WITH HARRAH'S. The Company recognized revenue of $0.4 million
in both 1997 and 1996 as its share of Harrah's Entertainment, Inc.'s (Harrah's)
management fee from the Harrah's Phoenix Ak-Chin casino located near Phoenix,
Arizona (Harrah's is a 14% shareholder of the Company).
INTERNATIONAL GAMING OPERATIONS
As part of its strategy to increase its recurring revenue sources, in 1996
the Company expanded its operation of gaming halls and routes in Peru,
established a gaming hall in Brazil, and established a casino in Ecuador.
PERU. The Company operates gaming halls and route operations in Peru. In
the fall of 1996, the Peruvian government announced that it would implement
regulatory changes in conjunction with the transfer of gaming regulatory
authority to the federal government and imposed a 200% increase in the
per-machine tax which became effective in October 1996. Among other regulatory
changes announced in January 1997 were (i) minimum machine requirements at
gaming halls - in Lima, gaming halls must have at least 120 machines per
location and gaming halls in other cities must have at least 80 machines per
location; and (ii) a requirement that machine refurbishments must be certified
by manufacturers. The
<PAGE>
Company continues its efforts to comply with these requirements and expects to
be in full compliance within the time frame allowed by the regulators.
Revenue decreased 8% to $3.5 million in 1997 compared to $3.8 million in
1996. This resulted primarily from a decrease in the number of machines in
operation due to the closing of certain locations where the Company determined
that compliance with new regulations was not cost-effective. Direct operating
costs increased 8% to $3.2 million in 1997 compared to $3.0 million in 1996 as a
result of the increase in the gaming tax, increased advertising and promotion,
increased administrative and reorganization costs relating to regulatory
changes, and carrying costs associated with certain locations whose openings
were affected by regulatory and licensing delays. The number of machines in
operation at September 30, 1997 was approximately 830 at 12 locations. Three
locations were opened in late October 1997 bringing the total number of machines
in operation to approximately 1,120 at 15 locations. Approximately 1,150
machines at 20 locations were in operation at September 30, 1996.
BRAZIL. The Company established a gaming hall with 200 machines in the
Arpoador district of Rio de Janeiro in June 1996. Revenue was $1.5 million in
1997 compared to $1.1 million in 1996. Direct costs were $1.4 million in 1997
compared to $1.0 million in 1996. Management is implementing measures to improve
operating performance. However, there can be no assurance that such improvement
will be realized due to the regulatory nature of gaming, the public's acceptance
of gaming and other factors affecting performance.
In 1996, the Company entered into an agreement with the CBF to provide and
operate a video gaming system in Brazil. In January 1997, the Company entered
into a joint venture agreement with IGT and Dreamport to proceed with the
development and operations of this system. Pursuant to the agreement, the three
companies would share equally in the investment funding, expenses and profits or
losses of the CBF project. Among other provisions, the joint venture agreement
provides for early termination, upon written notice, if a minimum of 1,000 video
gaming machines are not linked to a central computer system operated by the
joint venture by January 27, 1998.
The operation of the system is subject to the CBF obtaining regulatory
approval in each state where the proposed system is to be offered. The agreement
provides for systems to be operational no later than 180 days after regulatory
authorization is obtained by the CBF. Project documentation and requests for
regulatory authorization have been submitted for approval in four states or
jurisdictions: Rio de Janeiro, Goias, the Federal District of Brasilia, and
Minas Gerais. In addition, regulatory approval is being pursued in the states of
Sao Paulo and Rio Grande de Sul. However, there can be no assurance that such
approvals will be obtained or that systems will become operational.
ECUADOR. The Company established a casino operation in Quito, Ecuador, in
March 1996. The casino is located in the Crowne Plaza Hotel and has 150 machines
and 13 table games. Revenue in 1997 was $0.5 million compared to $0.3 in 1996.
Direct costs associated with the operation were $0.6 million in 1997 compared to
$0.4 million in 1996.
WIDE AREA PROGRESSIVE SYSTEMS
Wide area progressive systems revenue increased 73% to $4.0 million in 1997
compared to $2.3 million in 1996. This resulted from the increase in the number
of machines on the systems. Comparing September 30, 1997 to September 30, 1996,
the Company implemented systems in two additional states, Minnesota and
<PAGE>
Kansas; three new systems became operational, WHEEL OF FORTUNE, WHEEL OF GOLD
and HIGH ROLLERS; and the number of machines on the systems increased to
approximately 1,560 from approximately 1,100 at the end of the third quarter of
1996. At September 30, 1997, the Company offered wide area progressive systems
in Arizona (which permits the operation of intrastate systems in lieu of
interstate systems), Connecticut, Iowa, Kansas, Louisiana, Michigan, Minnesota,
New Mexico, North Dakota, Oregon, South Dakota and Wisconsin. At September 30,
1997, 12 systems were in operation: MEGABUCKS (one interstate and one
intrastate), DOLLARS DELUXE, FABULOUS 50'S, QUARTERMANIA (one interstate and two
intrastate), NICKELMANIA, WHEEL OF FORTUNE (which began interstate operations in
March 1997 and intrastate operations in September 1997), WHEEL OF GOLD (which
began operating in July 1997) and HIGH ROLLERS (which began operating in August
1997).
Based on current market trends, the Company anticipates increased revenue
from its wide area progressive systems as it proceeds with its strategy to place
additional systems and machines in jurisdictions currently permitting the
operation of wide area progressive systems. However, there can be no assurance
that such additional systems or machines will be placed due to the public's
acceptance of these systems or the entry of competing systems of other gaming
companies.
FINANCING
Financing income on notes receivable and other financing arrangements
increased 2% to $1.5 million in 1997, compared to $1.4 million in 1996.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses decreased 38% to $4.2 million
in 1997, from $6.8 million in 1996. The decrease is primarily attributable to a
$2 million charge taken in the third quarter of 1996 as a result of a $2.7
million write off of receivables relating to the development of a television
video bingo lottery system in the Czech Republic.
INTEREST AND FINANCING COSTS
Interest and financing costs increased 43% to $1.0 million in 1997, from
$0.7 million in 1996. The increase in interest and financing costs was primarily
the result of increased borrowings during 1997 to fund working capital needs.
The Company believes that interest and financing costs will continue to increase
in future years as the Company pursues its growth strategy.
INCOME FROM OPERATIONS
The cumulative effect of the above described changes resulted in a 32%
decrease in income from operations to $5.7 million in 1997, from $8.3 million in
1996. As a percentage of revenue, income from operations increased to 15.8% in
1997, from 13.1% in 1996. The increase in the operating margin was primarily the
result of the increase in wide area progressive systems revenue (which has a
higher margin than other revenue sources) and the decrease in selling, general
and administrative expenses.
OTHER
Earnings before income taxes decreased 31% to $5.7 million in 1997,
compared to $8.2 million in 1996. Provision for income taxes was $2.1 million in
1997, compared to $3.0 million in 1996, representing 37.3% and 36.5% of earnings
before income taxes for 1997 and 1996, respectively.
<PAGE>
RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 1997
COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 1996
Net earnings for the nine months ended September 30, 1997 decreased 39% to
$7.3 million, or $0.32 per share, compared to net earnings of $12.0 million, or
$0.52 per share, for the nine months ended September 30, 1996. The primary
factors causing the decrease in net earnings were decreased product sales and
lower margins in gaming operations. Total revenue decreased 18% to $98.1 million
in 1997, compared to $119.4 million in 1996. Total costs and expenses decreased
13% to $87.1 million in 1997, compared to $100.5 million in 1996. EBITDA
decreased 17% to $18.9 million in 1997 compared to $22.8 million in 1996. EBITDA
is a commonly used calculation to measure operating performance. The Company
includes EBITDA in its results of operations to assist interpretation of
financial performance; however, the Company's principal financial measures are
net earnings and earnings per share.
PRODUCT SALES
Revenue from product sales decreased 53% to $40.8 million in 1997 compared
to $86.1 million in 1996. The decrease in 1997 was due to a 50% decrease in
machine sales revenue to $31.0 million in 1997 compared to $61.8 million in 1996
(including $5.3 million and $0.7 million of used machines sales in 1997 and
1996, respectively) and a 60% decrease in ancillary gaming and non-gaming
product sales revenue to $9.8 million in 1997 compared to $24.2 million in 1996.
In 1997, the Company is continuing its strategy of being a full-service provider
to its customers by expanding its product line to include additional gaming and
non-gaming products and supplies.
New gaming machine shipments decreased 62% to approximately 3,870 machines
in 1997 compared to approximately 10,100 machines in 1996. In 1997, 66% of the
new machine shipments were to casinos in Arizona, Kansas, Louisiana, Michigan
and North Carolina. Product sales also included the sale of approximately 1,820
used machines in 1997 compared to approximately 200 used machines in 1996.
Growth of gaming in Native American jurisdictions is outside the control of the
Company and is influenced by the legal, electoral and regulatory processes of
those jurisdictions.
The cost of product sales decreased 53% to $31.7 million in 1997, from
$67.3 million in 1996. This decrease was attributable to the decreased sales
volume of new machines and ancillary gaming and non-gaming products. The gross
margin on product sales increased to 22.5% in 1997 as compared to 21.8% in 1996.
The improvement in the gross margin was primarily due to a decrease in the
percentage of sales qualifying for cash discounts.
The Company does not anticipate that new machine shipments in calendar year
1997 will attain last year's record level. The second and third quarters of 1996
recorded the two highest quarterly amounts of product sales revenue in the
Company's history due primarily to shipments to three large casinos.
GAMING OPERATIONS
Gaming operations revenue increased 85% or $19.7 million to $42.8 million
in 1997, from $23.1 million in 1996. This increase was primarily attributable to
the July 1, 1996 acquisition of GSMC and the growth of gaming operations in
Latin America. Direct costs of gaming operations increased 151% or $23.7 million
to $39.5 million in 1997, compared to $15.8 million in 1996.
<PAGE>
DOMESTIC GAMING OPERATIONS
MISS MARQUETTE. GSMC, the management company of the MISS MARQUETTE, was
acquired on July 1, 1996. The acquisition was accounted for using the purchase
method of accounting. Accordingly, the operations of the MISS MARQUETTE since
July 1, 1996, are included in the consolidated statements of earnings. The
riverboat casino and entertainment facility had 698 machines and 36 table games
at September 30, 1997. It is located on the Mississippi River at Marquette,
Iowa.
Revenue from the MISS MARQUETTE amounted to $24.6 million in 1997 compared
to $8.3 million in 1996. Direct operating costs were $22.8 million in 1997 and
$6.9 million in 1996. Prior to its acquisition, the Company leased the riverboat
vessel to GSMC, providing the Company $3.3 million in lease revenue in 1996.
Management is implementing measures to improve operating performance. However,
there can be no assurance that such improvement will be realized due to the
public's acceptance of gaming and other factors affecting performance.
PARTICIPATION WITH HARRAH'S. The Company recognized revenue of $1.5 million
in 1997 and $1.2 million in 1996 as its share of Harrah's management fee from
the Harrah's Phoenix Ak-Chin casino located near Phoenix, Arizona (Harrah's is a
14% shareholder of the Company).
INTERNATIONAL GAMING OPERATIONS
As part of its strategy to increase its recurring revenue sources, in 1996
the Company expanded its operation of gaming halls and routes in Peru,
established a gaming hall in Brazil, and established a casino in Ecuador.
PERU. The Company operates gaming halls and route operations in Peru. In
the fall of 1996, the Peruvian government announced that it would implement
regulatory changes in conjunction with the transfer of gaming regulatory
authority to the federal government and imposed a 200% increase in the
per-machine tax which became effective in October 1996. Among other regulatory
changes announced in January 1997 were (i) minimum machine requirements at
gaming halls - in Lima, gaming halls must have at least 120 machines per
location and gaming halls in other cities must have at least 80 machines per
location; and (ii) a requirement that machine refurbishments must be certified
by manufacturers. The Company continues its efforts to comply with these
requirements and expects to be in full compliance within the time frame allowed
by the regulators.
Revenue increased 33% or $2.8 million to $11.1 million in 1997 compared to
$8.3 million in 1996. The increase is primarily the result of an increase in the
average number of machines in operation. Direct operating costs increased 63% or
$4.3 million to $11.2 million in 1997 compared to $6.9 million in 1996 as a
result of an increase in the average number of machines in operation, the
increase in the gaming tax, increased advertising and promotion, the expensing
of leasehold improvements and pre-opening costs at locations where leases were
terminated in order to comply with new regulations, increased administrative and
reorganization costs relating to regulatory changes, and carrying costs
associated with certain locations whose openings were affected by regulatory and
licensing delays.
The Company determined that compliance with new regulations in certain
locations was not cost-effective and subsequently closed them. The number of
machines in operation at September 30, 1997 was approximately 830 at 12
locations. Three locations were opened in late October 1997 bringing the total
number in operation to approximately 1,100 at 15 locations. Approximately 1,150
machines at 20
<PAGE>
locations and 1,300 machines at 21 locations were in operation at September 30,
1996 and December 31, 1996, respectively. The changes in the number of machines
and locations are a result of the Company's compliance with new regulations.
BRAZIL. The Company established a gaming hall with 200 machines in the
Arpoador district of Rio de Janeiro in June 1996. Revenue was $4.2 million in
1997 and $1.4 million in 1996. Direct costs were $4.1 million in 1997 and $1.2
million in 1996. Management is implementing measures to improve operating
performance. However, there can be no assurance that such improvement will be
realized due to the regulatory nature of gaming, the public's acceptance of
gaming and other factors affecting performance.
In 1996, the Company entered into an agreement with the CBF to provide and
operate a video gaming system in Brazil. In January 1997, the Company entered
into a joint venture agreement with IGT and Dreamport to proceed with the
development and operations of this system. Pursuant to the agreement, the three
companies would share equally in the investment funding, expenses and profits or
losses of the CBF project. Among other provisions, the joint venture agreement
provides for early termination, upon written notice, if a minimum of 1,000 video
gaming machines are not linked to a central computer system operated by the
joint venture by January 27, 1998.
The operation of the system is subject to the CBF obtaining regulatory
approval in each state where the proposed system is to be offered. The agreement
provides for systems to be operational no later than 180 days after regulatory
authorization is obtained by the CBF. Project documentation and requests for
regulatory authorization have been submitted for approval in four states or
jurisdictions: Rio de Janeiro, Goias, the Federal District of Brasilia, and
Minas Gerais. In addition, regulatory approval is being pursued in the states of
Sao Paulo and Rio Grande de Sul. However, there can be no assurance that such
approvals will be obtained or that systems will become operational.
ECUADOR. The Company established a casino operation in Quito, Ecuador, in
March 1996. The casino is located in the Crowne Plaza Hotel and has 150 machines
and 13 table games. Revenue in 1997 was $1.5 million compared to $0.5 million in
1996. Direct costs associated with the operation were $1.4 million in 1997
compared to $0.7 million in 1996.
WIDE AREA PROGRESSIVE SYSTEMS
Wide area progressive systems revenue increased 67% to $9.9 million in 1997
compared to $5.9 million in 1996. This resulted from the increase in the number
of machines on the systems. Comparing September 30, 1997 to September 30, 1996,
the Company implemented systems in two additional states, Minnesota and Kansas;
three new systems became operational, WHEEL OF FORTUNE, WHEEL OF GOLD and HIGH
ROLLERS; and the number of machines on the systems increased to approximately
1,560 from approximately 1,100 at the end of the third quarter of 1996. At
September 30, 1997, the Company offered wide area progressive systems in Arizona
(which permits the operation of intrastate systems in lieu of interstate
systems), Connecticut, Iowa, Kansas, Louisiana, Michigan, Minnesota, New Mexico,
North Dakota, Oregon, South Dakota and Wisconsin. At September 30, 1997, 12
systems were in operation: MEGABUCKS (one interstate and one intrastate),
DOLLARS DELUXE, FABULOUS 50'S, QUARTERMANIA (one interstate and two intrastate),
NICKELMANIA, WHEEL OF FORTUNE (which began interstate operations in March 1997
and intrastate operations in September 1997), WHEEL OF GOLD (which began
operating in July 1997) and HIGH ROLLERS (which began operating in August 1997).
<PAGE>
Based on current market trends, the Company anticipates increased revenue
from its wide area progressive systems as it proceeds with its strategy to place
additional systems and machines in jurisdictions currently permitting the
operation of wide area progressive systems. However, there can be no assurance
that such additional systems or machines will be placed due to the public's
acceptance of these systems or the entry of competing systems of other gaming
companies.
FINANCING
Financing income on notes receivable and other financing arrangements
increased 5% to $4.5 million in 1997, compared to $4.3 million in 1996.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses decreased 16% to $13.3 million
in 1997, from $15.8 million in 1996. The decrease is primarily attributable to a
$2 million charge taken in the third quarter of 1996 as a result of a $2.7
million write off of receivables relating to the development of a television
video bingo lottery system in the Czech Republic.
INTEREST AND FINANCING COSTS
Interest and financing costs increased 57% to $2.6 million in 1997, from
$1.7 million in 1996. The increase in interest and financing costs was primarily
attributable to increased borrowings during 1997 for working capital needs and
the assumption of debt in connection with the acquisition of GSMC. The Company
believes that interest and financing costs will continue to increase in future
years as the Company pursues its growth strategy.
INCOME FROM OPERATIONS
The cumulative effect of the above described changes resulted in a 42%
decrease in income from operations to $11.0 million in 1997, from $18.9 million
in 1996. As a percentage of revenue, income from operations decreased to 11.2%
in 1997, from 15.8% in 1996. The decrease in the operating margin was primarily
the result of decreased product sales (which have higher margins than gaming
operations) and lower margins in gaming operations.
OTHER
Other income includes $0.5 million of income recognized as a result of the
sale of receivables at a premium in 1997. Earnings before income taxes decreased
39% to $11.6 million in 1997, compared to $18.9 million in 1996. Provision for
income taxes was $4.3 million in 1997, compared to $6.9 million in 1996,
representing 37.1% and 36.6% of earnings before income taxes for 1997 and 1996,
respectively.
LIQUIDITY AND CAPITAL RESOURCES
WORKING CAPITAL
Working capital decreased $0.9 million to $36.9 million during the nine
months ended September 30, 1997. This decrease is due to a $7.2 million increase
in current assets and an $8.1 million increase in current liabilities.
CASH FLOWS
During the nine months ended September 30, 1997, the Company's cash and
cash equivalents decreased $0.5 million to $3.6 million. Cash provided by
operating activities was $15.6 million in 1997
<PAGE>
compared to $8.1 million provided in 1996. The cash flows from operations for
1997 were primarily affected by net income, depreciation and amortization, and
changes in receivables, inventories, accounts payable and income taxes.
Cash used in investing activities amounted to $10.3 million in 1997 and
$14.4 million in 1996. Cash used in investing activities consisted primarily of
$3.9 million and $5.2 million advanced on notes receivable for customer
financing in 1997 and 1996, respectively; $7.7 million and $8.9 million used to
purchase property and equipment in 1997 and 1996, respectively; $2.8 million and
$2.6 million increase in other assets in 1997 and 1996, respectively; and $2.6
million increase in amounts due from riverboat lessee, prior to the acquisition
of GSMC, in 1996. The 1997 property and equipment purchases were primarily
attributable to a building addition to the corporate facility, progress costs
for purchase of hardware and software and implementation of a new corporate
information system and gaming operations equipment. The increase in other assets
during 1997 was primarily due to capitalizing start-up costs associated with the
CBF project. Cash used in investing activities was partially offset by $4.0
million and $3.9 million in payments received on notes receivable from customer
financing in 1997 and 1996, respectively.
Financing activities used $5.8 million cash in 1997 compared to $8.8
million provided in 1996. Cash used in financing activities in 1997 consisted
primarily of principal repayments of long-term borrowings under a revolving
credit facility, while cash provided in 1996 was primarily a result of net
proceeds of long-term borrowings under the revolving credit facility. The
reduction of debt since December 31, 1996 was primarily a result of cash flows
from operations.
INDEBTEDNESS/LINES OF CREDIT
The Company had $23.2 million of debt outstanding at September 30, 1997. Of
that amount, $11.5 million was borrowed under a long-term revolving credit
facility from a syndicate of banks. The revolving line has two components, a $20
million tranche (Tranche A) to be used for general corporate purposes and a $30
million tranche (Tranche B) for acquisitions and major capital equipment
expenditures. The amount available under Tranche B is reduced by $1.875 million
quarterly beginning in June 1997. As a result, the maximum credit amount under
the revolving credit facility was $46.25 million at September 30, 1997. Tranche
A matures in February 1999, plus two one-year renewal options subject to bank
approval, and Tranche B matures in February 2001. The unused portion of the
revolving credit facility is subject to a commitment fee, based upon a
calculation as defined in the revolving credit agreement. Interest is payable
based on variable rates which, at the Company's option, are based on the prime
rate, federal funds rate plus 1% or a Eurodollar rate plus an applicable margin.
Amounts borrowed are secured by substantially all Company assets, excluding real
estate, but including a first preferred ship mortgage on the MISS MARQUETTE
riverboat.
During 1997, the Company entered into a sale-leaseback arrangement
involving the sale of certain MISS MARQUETTE furniture and equipment for $7.5
million which approximated book value. The transaction was accounted for as a
financing, whereby the property remains on the books and continues to be
depreciated. A financing obligation representing the proceeds was recorded and
is reduced based on payments made under the arrangement. As of September 30,
1997, approximately $7.3 million related to this financing obligation is
included in debt outstanding. The financing arrangement has a term of four years
and requires monthly payments of approximately $233,000. Upon expiration of the
arrangement, the Company will own the furniture and equipment.
<PAGE>
Of the remaining $4.4 million of debt, $2.8 million relates to debt payable
to the former shareholders of GSMC, $1.1 million relates to various other debt
secured by certain property of the MISS MARQUETTE riverboat casino and $0.5
million is secured by certain transportation equipment.
CAPITAL COMMITMENTS
During 1994, the Company assisted a casino management company in acquiring
$8 million in financing from a financial institution. The Company also
guaranteed the $8 million debt and in return receives a loan guarantee fee based
on a percentage of the outstanding loan balance. As of November 11, 1997, the
outstanding loan balance was approximately $1.0 million. The loan guarantee
agreement allows the management company to borrow back prepaid amounts. At
November 11, 1997, up to $1.5 million was available under the borrow-back
provision.
During 1996, the Company entered into an agreement with the CBF to own and
operate, on behalf of the CBF, linked progressive video gaming systems in
Brazil. In January 1997, the Company, IGT and Dreamport formed a joint venture
for purposes of development and operation of the CBF project under which equity,
loans, and profits or losses will be shared equally. Under the terms of the
joint venture agreement, the Company has committed to provide initial equity and
loans of up to $4 million. In addition, as of September 30, 1997, the Company
has incurred start-up costs associated with the CBF project of approximately
$5.4 million which are included in other assets in the consolidated balance
sheets.
On October 23, 1997, the Company announced that it was investing in a
riverboat casino, hotel and retail complex in Shreveport, Louisiana, through a
joint venture with Hollywood Casino Corporation (Nasdaq: HWCC) and New Orleans
Paddlewheels. The proposed $137.5 million project, to be managed by Hollywood
Casino, is pending regulatory approval by the Louisiana Gaming Control Board
(LGCB). The project is to be financed by an equity investment from each of the
joint venture partners of $12.5 million and by arranging debt financing for the
remaining amount of approximately $100 million, which is being pursued. The
Company's participation in the project is contingent upon 1) obtaining
regulatory approval of the project by the LGCB; 2) the Company's obtaining a
gaming license in Louisiana; and 3) the joint venture's obtaining necessary debt
financing.
INTERNATIONAL OPERATIONS
Approximately 17% of total revenue for the nine months ended September 30,
1997 was derived outside of the United States, compared to 9% in 1996.
International operations are subject to certain risks, including but not limited
to unexpected changes in regulatory requirements, fluctuations in exchange
rates, tariffs and other barriers, and political and economic instability. There
can be no assurance that these factors will not have an adverse impact on the
Company's operating results. To date, the Company has not experienced
significant translation or transaction losses related to foreign exchange
fluctuations due to the limited size of its international operations. As the
Company continues to expand its international operations, exposure to gains and
losses on foreign currency transactions may increase. The Company has not yet
engaged, but may in the future engage, in currency hedging transactions intended
to reduce the effect of fluctuations in foreign currency exchange rates.
<PAGE>
IMPACT OF INFLATION
Inflation did not have a significant effect on the Company's operations
during the nine months ended September 30, 1997.
CAUTIONARY NOTICE
This report contains forward-looking statements reflecting the Company's
expectations or beliefs concerning future events which could materially affect
Company performance in the future. Terms indicating future expectation, optimism
about future potential, anticipated growth in revenue, earnings of the Company's
business lines and like expressions typically identify such statements. Actual
results and events may differ significantly from those discussed in
forward-looking statements.
All forward-looking statements are subject to the risks and uncertainties
inherent with predictions and forecasts. They are necessarily speculative
statements, and unforeseen factors, such as competitive pressures, changes in
regulatory structure, failure to gain the approval of regulatory authorities,
changes in customer acceptance of gaming, general risks associated with the
conduct of international business (such as foreign currency exchange rate
fluctuation, changes of governmental control or laws, changes in relations
between the United States and other countries, or changes in economic
conditions) could cause results to differ materially from any that may be
expected.
Forward-looking statements are made in the context of information available
as of the date stated. The Company undertakes no obligation to update or revise
such statements to reflect new circumstances or unanticipated events as they
occur.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On April 26, 1994, the Company was named as a defendant in a class action
filed in the United States District Court, Middle District of Florida, by
William A. Poulos and William Ahearn, respectively, each of whom asserted claims
on behalf of themselves and "all other similarly situated" parties (the
plaintiffs). The suit was filed against Sodak and approximately 41 other
defendants (the defendants). These initial two lawsuits were transferred to
Nevada and consolidated with a September 16, 1995 third lawsuit filed in the
United States District Court, District of Nevada, by Larry Schreier, which also
named the Company as a defendant, along with the same 41 other defendants.
Additionally, a class action was filed in the United States District Court,
Middle District of Florida, by William Poulos, against various cruise lines (the
"Cruise Ship" case). While the "Cruise Ship" case did not name the Company as a
defendant, it has been transferred to Nevada and consolidated with the above
named cases pursuant to an order issued by Judge David Ezra in December, 1996.
All of the above mentioned actions (the consolidated action) involve
defendants who are involved in the gaming business as either a gaming machine
manufacturer, distributor, casino operator, or cruise ship operator. The
consolidated action arises out of alleged fraudulent marketing and operation of
casino video poker machines and electronic slot machines. The plaintiffs allege
that the defendants have engaged in a course of fraudulent and misleading
conduct intended to induce people into playing their gaming machines based on a
false belief concerning how those machines actually operate as well as the
extent to
<PAGE>
which there is actually an opportunity to win on any given play. The plaintiffs
allege that the defendants' actions constitute violations of the Racketeer
Influenced and Corrupt Organizations Act (RICO) and give rise to claims of
common law fraud and unjust enrichment. The plaintiffs are seeking monetary
damages in excess of $1 billion and are asking that any damage awards be trebled
under applicable federal law.
In his consolidation order of December, 1996, Judge Ezra ordered the
plaintiffs to file a consolidated amended complaint. He also ordered that all
prior motions to dismiss be deemed withdrawn, with leave for the defendants to
refile them upon receipt of the consolidated amended complaint. He also ordered
that the consolidated amended complaint have no substantive changes from the
original complaints on file. Contrary to Judge Ezra's order, the consolidated
amended complaint was filed with many substantive changes, some of them directly
contradicting the order. Consequently, the defendants, through a "steering
committee" formed pursuant to the same order, filed a motion to strike the
consolidated amended complaint. The defendants, also through the steering
committee, filed motions to dismiss on the grounds of failure to state a claim
and failure to plead fraud with particularity.
The plaintiffs responded to defendants' motions of May 2, 1997 and the
defendants filed their replies on May 23, 1997. The motions are currently under
advisement and the parties are awaiting a ruling by the court. The Company
believes the Consolidated action is without merit. The Company intends to
vigorously pursue all legal defenses available to it and to participate in the
defense as fully as possible through the defendants' steering committee.
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
11.1 Calculation of Earnings Per Common and Common Equivalent Share.
b. Reports on Form 8-K
None.
<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.
Date: November 11, 1997
SODAK GAMING, INC.
By: \s\ David R. Johnson
---------------------------------
David R. Johnson
Chief Financial Officer
<PAGE>
EXHIBIT INDEX
Exhibit Sequentially
Number Numbered Page
- ------ -------------
11.1 Calculation of Earnings Per Common and Common Equivalent Share 23
27 Financial Data Schedule (submitted with the EDGAR filing only)
Exhibit 11.1
SODAK GAMING, INC.
CALCULATION OF EARNINGS PER COMMON
AND COMMON EQUIVALENT SHARE
(Unaudited)
<TABLE>
<CAPTION>
THREE THREE NINE NINE
MONTHS ENDED MONTHS ENDED MONTHS ENDED MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1997 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
SHARES OUTSTANDING
Weighted average common shares outstanding 22,758,408 22,742,114 22,758,112 22,730,828
Adjustments for common stock equivalents(1) 123,722 341,125 153,376 215,601
------------- ------------- ------------- -------------
WEIGHTED AVERAGE NUMBER OF COMMON AND
COMMON EQUIVALENT SHARES OUTSTANDING 22,882,130 23,083,239 22,911,488 22,946,429
============= ============= ============= =============
NET EARNINGS $ 3,559,410 $ 5,219,623 $ 7,266,102 $ 11,998,675
============= ============= ============= =============
EARNINGS PER COMMON AND
COMMON EQUIVALENT SHARE $ 0.16 $ 0.23 $ 0.32 $ 0.52
============= ============= ============= =============
</TABLE>
- -------------------------------------------------------------------------------
(1) Represents adjustment computed under the treasury stock method for stock
options granted at fair market value at date of grant.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF SODAK GAMING INC.'S FORM 10-Q AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 3,575,868
<SECURITIES> 0
<RECEIVABLES> 16,633,784
<ALLOWANCES> 1,418,120
<INVENTORY> 25,471,065
<CURRENT-ASSETS> 79,456,541
<PP&E> 68,391,535
<DEPRECIATION> 7,008,712
<TOTAL-ASSETS> 179,784,990
<CURRENT-LIABILITIES> 42,603,989
<BONDS> 23,180,803
0
0
<COMMON> 22,758
<OTHER-SE> 114,169,440
<TOTAL-LIABILITY-AND-EQUITY> 179,784,990
<SALES> 40,824,201
<TOTAL-REVENUES> 98,074,461
<CGS> 31,650,331
<TOTAL-COSTS> 87,113,979
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 575,363
<INTEREST-EXPENSE> 2,624,356
<INCOME-PRETAX> 11,559,238
<INCOME-TAX> 4,293,136
<INCOME-CONTINUING> 7,266,102
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,266,102
<EPS-PRIMARY> 0.32
<EPS-DILUTED> 0.32
</TABLE>
