<PAGE>
UNITED STATES
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: September 30, 1999
------------------------------------------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the transition period from ________ to _________
Commission File Number: 0-22752
--------------------------------------------------------
MIKOHN GAMING CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Nevada 88-0218876
- ------------------------------------------------------------- --------------------------------------
(State or other jurisdiction of incorporation or organization) (IRS Employer Identification Number)
</TABLE>
1045 Palms Airport Drive, P.O. Box 98686, Las Vegas, NV 89193-8686
- --------------------------------------------------------------------------------
(Address of principal executive office and zip code)
(702) 896-3890
----------------------------------------------------
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by a 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 _____
-----
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock as the latest practicable date:
10,763,692 as of October 27, 1999
- -------------------------- ----------------------
(Amount Outstanding) (Date)
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MIKOHN GAMING CORPORATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Part I FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets at September 30, 1999
and December 31, 1998 2
Condensed Consolidated Statements of Operations for the
Three and Nine Months Ended September 30, 1999 and 1998 3
Condensed Consolidated Statements of Cash Flows for the Nine
Months Ended September 30, 1999 and 1998 4
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11
Part II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 22
Item 6. Exhibits and Reports on Form 8-K 22
</TABLE>
1
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<TABLE>
<CAPTION>
MIKOHN GAMING CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands) September 30, December 31,
1999 1998
---- ----
<S> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents $ 2,211 $ 3,732
Accounts receivable, net 28,800 28,783
Installment sales receivable, current portion 1,085 1,387
Inventories, net 30,136 25,251
Prepaid expenses 6,885 4,611
Deferred tax asset 884 884
------------------- --------------------
Total current assets 70,001 64,648
Installment sales receivable, net of current portion 847 860
Property and equipment, net 23,207 22,625
Intangible assets 14,390 13,651
Goodwill 41,565 39,916
Other assets 8,756 8,453
Deferred tax asset 3,079 3,079
------------------- --------------------
Total assets $ $161,845 $ 153,232
=================== ====================
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Current portion of long-term debt and notes payable $ 994 $ 2,122
Trade accounts payable 12,942 9,098
Customer deposits 3,677 4,675
Accrued and other current liabilities 7,814 5,729
------------------- --------------------
Total current liabilities 25,427 21,624
------------------- --------------------
Long-term debt, net of current portion 85,864 84,881
------------------- --------------------
Stockholders' equity:
Preferred stock, $.10 par value, 5,000 shares authorized,
none issued and outstanding
Common stock, $.10 par value, 20,000 shares authorized,
10,756 and 10,681 shares issued and outstanding 1,076 1,068
Additional paid-in capital 51,937 51,618
Foreign currency translation (874) (1,018)
Accumulated deficit (1,357) (4,713)
------------------- --------------------
Subtotal 50,782 46,955
Less treasury stock, 19 shares, at cost (228) (228)
------------------- --------------------
Total stockholders' equity 50,554 46,727
------------------- --------------------
Total liabilities and stockholders' equity $ 161,845 $ 153,232
=================== ====================
See notes to condensed consolidated financial statements
</TABLE>
2
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MIKOHN GAMING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three and Nine Months Ended September 30, 1999 and 1998
<TABLE>
<CAPTION>
(Amounts in thousands except per share amounts) Three Months Ended Nine Months Ended
September 30, September 30,
------------ -------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales $ 27,322 $ 20,209 $ 81,507 $ 67,609
Cost of sales 14,120 13,267 41,618 41,893
----------- ------------ ----------- -----------
Gross profit 13,202 6,942 39,889 25,716
Selling, general and administrative expenses 9,677 11,547 29,069 28,459
Write-off of assets and other 4,895 4,895
----------- ------------ ----------- -----------
Operating income (loss) 3,525 (9,500) 10,820 (7,638)
Interest expense (2,290) (1,239) (6,484) (2,974)
Other income 338 38 581 170
----------- ------------ ----------- -----------
Income (loss) before income tax provision
(benefit) 1,573 (10,701) 4,917 (10,442)
Income tax (provision) benefit (311) 3,660 (1,561) 3,546
----------- ------------ ----------- -----------
Income (loss) from continuing operations
before extraordinary item 1,262 (7,041) 3,356 (6,896)
----------- ------------ ----------- -----------
Extraordinary item:
Loss on early extinguishment of debt (2,662) (2,662)
Tax benefit 910 904
----------- ------------ ----------- -----------
Extraordinary loss - (1,752) - (1,758)
----------- ------------ ----------- -----------
Net income (loss) $ 1,262 $ (8,793) $ 3,356 $ (8,654)
=========== ============ =========== ===========
Weighted average common shares:
Basic 10,730 10,626 10,704 10,485
=========== ============ =========== ===========
Diluted 10,747 10,626 10,722 10,485
=========== ============ =========== ===========
Earnings (loss) per share information:
Basic:
Income (loss) from continuing operations
before extraordinary item $ 0.12 $ (0.66) $ 0.31 $ (0.66)
Extraordinary loss - (0.17) - (0.17)
----------- ------------ ----------- -----------
Net income (loss) $ 0.12 $ (0.83) $ 0.31 $ (0.83)
=========== ============ =========== ===========
Diluted:
Income (loss) from continuing operations
before extraordinary item $ 0.12 $ (0.66) $ 0.31 $ (0.66)
Extraordinary loss - (0.17) - (0.17)
----------- ------------ ----------- -----------
Net income (loss) $ 0.12 $ (0.83) $ 0.31 $ (0.83)
=========== ============ =========== ===========
</TABLE>
See notes to condensed consolidated financial statements
3
<PAGE>
MIKOHN GAMING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 1999 and 1998
<TABLE>
<CAPTION>
(Amounts in thousands)
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 3,356 $ (8,654)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation 3,671 2,889
Amortization 2,566 1,723
Write-off of assets 3,424
Provision for bad debts 40 1,525
Change in exchange rate variance 144 (222)
Extraordinary loss, net of tax 1,758
Changes in assets and liabilities:
Accounts receivable (57) (544)
Installment sales receivable 315 (807)
Inventories (4,885) (2,472)
Prepaid expenses and other assets (2,577) (6,213)
Intangible assets (4,954) (1,247)
Trade accounts payable 3,844 1,978
Accrued and other current liabilities 2,085 (3,684)
Customer deposits (998) (815)
-------- ---------
Net cash provided by (used in) operating activities 2,550 (11,361)
-------- ---------
Cash flows from investing activities:
Purchase of business operations (39,147)
Purchase of property and equipment (2,508) (2,846)
Gaming equipment leased to others (2,634) (2,662)
Proceeds from sales of property and equipment 889 15
-------- ---------
Net cash used in investing activities (4,253) (44,640)
-------- ---------
Cash flows from financing activities:
Proceeds from long-term debt and notes payable 2,426 51,807
Principal payments on notes payable and long-term debt (2,571) (140)
Proceeds from sale of common stock 327 1,316
-------- ---------
Net cash provided by financing activities 182 52,983
-------- ---------
Decrease in cash and cash equivalents (1,521) (3,018)
Cash and cash equivalents, beginning of period 3,732 4,896
-------- ---------
Cash and cash equivalents, end of period $ 2,211 $ 1,878
======== =========
</TABLE>
See notes to condensed consolidated financial statements
4
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MIKOHN GAMING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 1999 and 1998
<TABLE>
<CAPTION>
(Amounts in thousands) 1999 1998
---- ----
<S> <C> <C>
Supplemental Disclosure of Cash Flow Information:
Acquisition of Progressive Games, Inc.
Assets Acquired $ - $5,960
====== ======
Liabilities Assumed $2,643 $ 828
====== ======
</TABLE>
See the accompanying notes to condensed consolidated financial statements.
5
<PAGE>
MIKOHN GAMING CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - GENERAL
These condensed unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Rule 10-01 of Regulation
S-X. Accordingly, they do not include all of the information and notes required
by generally accepted accounting principles for complete financial statements.
These statements should be read in conjunction with the audited financial
statements and notes thereto included in the Company's Annual Report on Form 10-
K for the year ended December 31, 1998.
In the opinion of the Company, the accompanying unaudited financial statements
contain all adjustments (consisting only of normal accruals) necessary to
present fairly the financial position of the Company at September 30, 1999, the
results of its operations for the three and nine months ended September 30, 1999
and 1998 and cash flows for the nine months ended September 30, 1999 and 1998.
The results of operations for the three and nine months ended September 30, 1999
are not necessarily indicative of the results to be expected for the entire
year.
All amounts reported in this section are rounded to the nearest thousand
unless otherwise stated. Amounts previously reported have been reclassed to be
consistent with the Company's current reporting.
NOTE 2 - RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133 - Accounting for Derivative
Instruments and Hedging Activities. SFAS 133 standardizes the accounting for
derivative instruments, including certain derivative instruments embedded in
other contracts. Under the standard, entities are required to carry all
derivative instruments in the statement of financial position at fair value.
SFAS 133 is effective for all fiscal years beginning after June 15, 2000, which
for the Company will be the year beginning on January 1, 2001. The Company has
not yet determined the impact that SFAS 133 will have on its financial
statements but believes that any such impact will not be material.
NOTE 3 - ACQUISITION - PROGRESSIVE GAMES, INC.
In September 1998, the Company contemporaneously acquired all of the
outstanding stock of Progressive Games, Inc. ("PGI") the developer of Caribbean
Stud(R), for an aggregate cash consideration of $35,847 as well as the two
exclusive distributors of Caribbean Stud in Mississippi and Louisiana, P&S
Leasing Corporation, Inc. and P&S Leasing LLC (collectively referred to as P&S
Leasing) for an aggregate cash consideration of $3,300. All of the outstanding
stock of PGI was acquired from Donald W. Jones. In addition to Caribbean Stud
and certain other proprietary games, the assets of PGI include equipment and
other physical property used in the manufacture and distribution of these games.
All of the outstanding stock / equity of P&S Leasing was acquired from Bertrand
F. Hull and William S. Parrish.
6
<PAGE>
The purchase method of accounting for business combinations was applied to the
PGI and P&S Leasing acquisitions. Accordingly, the total purchase prices of
$35,847 and $3,300 for PGI and P&S Leasing, respectively, were allocated based
on the fair values of all their assets and liabilities at the date of
acquisition. The excess of the purchase price over the net assets acquired in
these acquisitions totaled $33,113. This goodwill amount is being amortized in a
straight line manner over a 40 year period. These acquisitions were financed
with funds from the private placement of long-term debt the Company consummated
in September 1998. The acquisitions and the private placement of long-term debt
closed simultaneously. The results of both PGI and P&S Leasing since the
acquisition are included in the Condensed Consolidated Statement of Operations
for the three months and nine months ended September 30, 1999. Proforma
condensed summary information for the three and nine month ended September 30,
1999 and 1998 as if the acquisitions of PGI and P&S Leasing occurred on January
1, 1998 follows:
<TABLE>
<CAPTION>
September 30,
-------------
3 Months 9 Months
-------- --------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales $ 27,322 $ 21,653 $ 81,507 $ 77,080
========= ========= ========= =========
Net income (loss) $ 1,262 $ (7,468) $ 3,356 $ (7,022)
========= ========= ========= =========
EPS (basic and diluted) $ 0.12 $ (0.71) $ 0.31 $ (0.67)
========= ========= ========= =========
</TABLE>
Upon the acquisition of PGI in September 1998, the Company also acquired a
number of pending lawsuits charging infringement of various patents owned by
PGI. The largest of these lawsuits involves the "Let It Ride - Tournament" game
and the "Let It Ride - Bonus" game (collectively the "LIRB Game") marketed by
Shuffle Master Gaming (the "Shuffle Master Lawsuit"). The Shuffle Master Lawsuit
includes a number of separate lawsuits filed by PGI against Shuffle Master and
numerous casinos offering the LIRB Game in Connecticut, Indiana, Illinois,
Mississippi, Missouri, Nevada and New Jersey, all of which have been
consolidated for pre-trial purposes by the Judicial Panel on Multi-District
Litigation before the United States District Court in Mississippi. In the
Shuffle Master Lawsuit, PGI has claimed that the LIRB Game infringes seven
separate patents owned by PGI. Shuffle Master has raised defenses of non-
infringement, patent invalidity and inequitable conduct and has asserted
counterclaims alleging antitrust violations and unfair competition. Discovery is
currently stayed; no trial date has been set. Management believes that the
Company will prevail in the Shuffle Master lawsuit.
As a result of the PGI acquisition, the Company has exposure to potential
additional international withholding taxes on payments remitted to the U.S. to
the previous owner of PGI, estimated at $2,000. The Company has provided to the
former owner a Power of Attorney with which to handle the withholding tax
issues. To the extent that the Company does not prevail, any payments made in
excess of $250 would be charged back to the previous owner under the terms of
the Stock Purchase Agreement for the acquisition of PGI. In order to adhere to
accounting guidelines, which require that adjustments to acquisition goodwill be
made prior to the one-year anniversary of the acquisition date, the Company has
made an adjustment to goodwill for an estimated potential liability in the
amount of $2,649. This estimate includes coverage for the potential
international withholding tax liabilities mentioned above as well as estimated
costs to be incurred in upgrading the PGI table games to be Year 2000 compliant.
The former owner of PGI warranted that the PGI table games were Year 2000
compliant and it is Management's intention to pursue recovery of these expenses
as well. Litigation is pending against the former owner of PGI to recover the
potential international tax liabilities and the costs to the Company of bringing
7
<PAGE>
the PGI table games into compliance with Year 2000 requirements.
NOTE 4 - INVENTORIES
Inventories at September 30, 1999 and December 31, 1998 consist of the
following:
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
---- ----
<S> <C> <C>
Raw materials $ 15,578 $ 13,776
Finished goods 6,874 5,304
Work-in-progress 7,684 6,171
--------- ---------
Total $ 30,136 $ 25,251
========= =========
</TABLE>
NOTE 5 - SEGMENT REPORTING
In 1998, the Company adopted SFAS No. 131 - Disclosures about Segments of
an Enterprise and Related Information ("SFAS 131"). SFAS 131 established
standards for reporting information about operating segments in annual financial
statements and requires selected information about operating segments in interim
financial reports issued to stockholders. It also established standards for
related disclosures about products and services and geographic areas. Operating
segments are defined as components of an enterprise about which separate
financial information is available that is evaluated regularly by the chief
operating decision maker, or decision making group, in deciding how to allocate
resources and in assessing performance. The Company's chief operating decision
group is the Operations Committee, which is comprised of the Chairman and each
of the Executive Vice-Presidents of Finance, Operations and Sales / Product
Development.
The Company operates in three business segments: Signs, Gaming Products and
Gaming Operations. The Signs segment designs, manufactures and installs interior
visual displays. It also, designs, manufactures, installs and maintains exterior
signage. The Gaming Products segment manufactures progressive jackpot systems
and develops, markets and installs automated data collection systems for player
tracking and accounting for gaming machines and table games. It also
manufactures and sells oversized gaming machines and touch-screen multi-game
video machines. The Gaming Operations segment leases, licenses and places
proprietary games on lease, structured participation or license arrangements. It
owns or licenses the rights to several categories of proprietary games,
including progressive jackpot table games, coin-push gaming machines, oversized
gaming machines and touch-screen multi-game video gaming machines. These table
games and gaming machines produce recurring revenue through lease, participation
or licensing arrangements. The Company does not allocate general and
administrative expenses to the business segments.
8
<PAGE>
Business segment information for the three and nine months ended September
30, 1999 and 1998 consist of:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------ ------------
Business segments: 1999 1998 1999 1998
- ------------------ ---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales:
- ------
Signs $ 12,867 $ 10,627 $ 37,247 $ 35,762
Gaming products 8,071 6,606 25,884 25,725
Gaming operations 6,384 2,976 18,376 6,122
---------- ---------- --------- ---------
$ 27,322 $ 20,209 $ 81,507 $ 67,609
========== ========== ========= =========
Gross profit:
- -------------
Signs $ 3,966 $ 3,009 $ 13,263 $ 10,924
Gaming products 3,765 1,380 10,574 9,505
Gaming operations 5,471 2,553 16,052 5,287
---------- ---------- --------- ---------
$ 13,202 $ 6,942 $ 39,889 $ 25,716
========== ========== ========= =========
Operating income (loss):
- ------------------------
Signs $ 2,098 $ 1,608 $ 8,421 $ 7,338
Gaming products 3,213 (154) 8,462 5,850
Gaming operations 4,218 1,965 12,411 3,705
Corporate (6,004) (12,919) (18,474) (24,531)
---------- ---------- --------- ---------
$ 3,525 $ (9,500) $ 10,820 $ (7,638)
========== ========== ========= =========
Net income (loss) before taxes and extraordinary item:
- ------------------------------------------------------
Signs $ 1,522 $ 1,132 $ 6,251 $ 6,108
Gaming products 2,369 (639) 6,152 4,853
Gaming operations 3,685 1,665 10,887 2,950
Corporate (6,003) (12,859) (18,373) (24,353)
---------- ========== --------- ---------
$ 1,573 $ (10,701) $ 4,917 $(10,442)
========== ========== ========= =========
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------ ------------
Geographic operations 1999 1998 1999 1998
- --------------------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales:
- ------
North America $ 22,257 $ 16,050 $ 66,602 $ 55,517
Australia 2,270 1,121 5,866 4,348
Europe 2,296 2,573 7,617 6,491
South America 499 465 1,422 1,253
---------- ---------- --------- ---------
$ 27,322 $ 20,209 $ 81,507 $ 67,609
========== ========== ========= =========
Gross profit:
- -------------
North America $ 11,784 $ 5,618 $ 35,594 $ 21,674
Australia 738 356 1,712 1,418
Europe 519 715 1,953 2,021
South America 161 253 630 603
---------- ---------- --------- ---------
$ 13,202 $ 6,942 $ 39,889 $ 25,716
========== ========== ========= =========
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------ ------------
Geographic operations 1999 1998 1999 1998
- --------------------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Operating income (loss):
- ----------------------
North America $ 3,419 $ (9,730) $ 10,236 $ (8,960)
Australia 67 (88) (55) 268
Europe 275 237 681 811
South America (236) 81 (42) 243
---------- ---------- --------- ----------
$ 3,525 $ (9,500) $ 10,820 $ (7,638)
========== ========== ========= ==========
Net income (loss) before taxes and extraordinary item:
- -----------------------------------------------------
North America $ 1,788 $(10,730) $ 5,208 $(11,257)
Australia (115) (293) (551) (76)
Europe 168 194 390 702
South America (268) 128 (130) 189
---------- ---------- --------- ----------
$ 1,573 $(10,701) $ 4,917 $(10,442)
========== ========== ========= ==========
</TABLE>
10
<PAGE>
MIKOHN GAMING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CAUTIONARY NOTICE
This report contains forward-looking statements in which management shares
its knowledge and judgment about factors that it believes may materially affect
Company performance in the future. Terms expressing future expectations,
enthusiasm or caution about future potential and anticipated growth in sales,
revenues and earnings and like expressions typically identify such statements.
All forward-looking statements, although made in good faith, are subject to
the uncertainties inherent in predicting the future. They are necessarily
speculative, and unforeseen factors such as unusual production problems,
competitive pressures, failure to gain the acceptance of regulatory authorities
and other adverse government action, customer resistance, delay in the
introduction of new products, the expiration or termination of rights to use key
intellectual property, adverse court decisions and general deterioration in
economic conditions may cause results to be materially poorer than any that may
be projected. Forward-looking statements speak only as of the date they are
made, and readers are warned that the Company undertakes no obligation to update
or revise such statements to reflect new circumstances or unanticipated events
as they occur.
Readers are urged to carefully review and consider disclosures made by the
Company in this and other reports that discuss factors germane to the Company's
business. See particularly the Company's reports on Forms 10-K, 10-Q and 8-K
filed with the Securities and Exchange Commission.
CHANGES IN REPORTING
As the Company has realigned the reporting of its business units to conform
with revised FASB reporting requirements, certain items of prior year revenue
and expense have been reclassified to follow the Company's current reporting
practice. Additionally, all intercompany activity has been eliminated. Amounts
reported in 1998 have been adjusted to be consistent with the Company's current
reporting of intercompany activity. All amounts reported in this section are
rounded to the nearest thousand unless otherwise stated. All percentages
reported are based on those rounded numbers.
11
<PAGE>
RESULTS OF OPERATIONS
Nine Months Ended September 30, 1999 and 1998
- ---------------------------------------------
SALES
<TABLE>
<CAPTION>
Change
------------------------
Business Segment: 1999 1998 Amount % Comment
- ----------------- ---- ---- ------ - -------
<S> <C> <C> <C> <C> <C>
Revenues:
Signs $ 37,247 $ 35,762 $ 1,485 4.2% 1
Gaming products 25,884 25,725 159 0.6% 2
Gaming operations 18,376 6,122 12,254 200.2% 3
--------- --------- ----------
$ 81,507 $ 67,609 $ 13,898 20.6%
========= ========= ==========
Percentage to total revenues:
Signs 45.7% 52.9%
Gaming products 31.8% 38.0%
Gaming operations 22.5% 9.1%
--------- ---------
100.0% 100.0%
========= =========
</TABLE>
1. This increase of $1,485 is due to: (i) an increase in interior visual
display sales of $129, (ii) an increase in exterior sign sales of $612 and
(iii) an increase in slot glass sales of $744.
2. This increase of $159 is due primarily to: (i) a decrease in gaming machine
sales of $2,824, (ii) a decrease in sales of electronics products of $1,609
and (iii) an offsetting increase in electronic systems sales of $4,592. The
decrease in gaming machine sales reflect lower sales of our MiniBertha(TM)
gaming machine product. The decrease in electronics product revenue
reflects lower sales of electronic meters to original equipment
manufacturers. Additionally, electronic display product revenue was lower
due to a delay of a new product introduction in Australia. The increase in
electronic system revenues reflects strong growth in international markets
including Europe, Australia and Canada as well as the introduction of our
TableLink(TM) product line.
3. This increase of $12,254 is due primarily to: (i) an increase in slot route
revenue of $1,382 and (ii) an increase in table game revenue of $10,566.
The overall increase in slot route revenue reflects a larger number of
MoneyTime(TM) gaming machines on route during the current period as
compared to the previous period. The increase in table game revenue is due
to the acquisitions of PGI and P&S Leasing on September 2, 1998, which
resulted in an increased number of table games under license during the
most recent period, as well as our successful effort to expand the number
of table games under license agreements since the acquisitions.
As of September 30, 1999, the Company had a backlog of orders believed to
be firm of $16,803. As of September 30, 1998 and December 31, 1998, the
Company's backlogs were $18,171 and $22,024, respectively. Management expects
that the backlog of orders at September 30, 1999, will be filled within 120
days.
12
<PAGE>
GROSS PROFIT
<TABLE>
<CAPTION>
Change
------
Business Segment: 1999 1998 Amount % Comment
- ----------------- ---- ---- ------ - -------
<S> <C> <C> <C> <C> <C>
Gross profit:
Signs $ 13,263 $ 10,924 $ 2,339 21.4% 1
Gaming products 10,574 9,505 1,069 11.2% 2
Gaming operations 16,052 5,287 10,765 203.6% 3
--------- --------- ----------
Total $ 39,889 $ 25,716 $ 14,173 55.1%
========= ========= ==========
Gross profit margin:
Signs 35.6% 30.5%
Gaming products 40.9% 36.9%
Gaming operations 87.4% 86.4%
Total 48.9% 38.0%
</TABLE>
1. This increase of $2,339 is primarily due to improved margins in domestic
interior visual displays, slot glass, and service. Profit margins in
domestic interior visual displays increased from 37.6% to 41.8% between the
periods as a result of manufacturing consolidation and efficiency efforts.
Profit margins in the slot glass and service divisions increased from 37.0%
to 48.3% and from 7.5% to 29.3% respectively.
2. This increase of $1,069 is primarily due to: (i) an increase in electronic
system gross profit of $3,246 (ii) a decrease in gaming machine sales
gross profit of $1,284 and (iii) a decrease in electronics gross profit of
$893. Although the variances in gross profit for these product lines are
primarily related to the changes in their respective sales levels, the
gaming machine sales profit margin also decreased from 41.0% in the prior
period to 32.6% in the current period as a result of the lower volume and
higher levels of discounting during the current period. In addition, the
prior period included $903 of inventory reserves as opposed to $120 for the
current period.
3. This increase of $10,765 is primarily due to: (i) an increase in slot route
gross profit of $999 and (ii) an increase in table game gross profit of
$9,460. The increase in slot route gross profit reflects the increased
number of MoneyTime gaming machines during the most recent period. The
increase in table game gross profit is directly attributable the
acquisition of PGI and P&S Leasing on September 2, 1998 and the increased
number of table games under license during this most recent period.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the nine months ended
September 30, 1999 increased by 2% or $610, from $28,459 for the nine months
ended September 30, 1998 to $29,069 for the nine months ended September 30,
1999. Significant factors affecting this increase are the following:
Selling, product development and marketing expenses for the nine months
ended September 30, 1999 decreased by 2% or $221, from $10,570 for the nine
months ended September 30, 1998 to $10,349 for the nine months ended September
30, 1999.
13
<PAGE>
General and administrative expenses for the nine months ended September 30,
1999 decreased by 11% or $867, from $8,978 for the nine months ended September
30, 1998 to $8,111 for the nine months ended September 30, 1999. The significant
reason for this decrease was the one time write-off of bad debts of $1,400 in
the prior period. Offsetting this decrease was an increase resulting from
additional administrative expenses associated with the larger gaming machine and
table game route we own and operate as well as increased expenses attributable
to our efforts to expand and improve the product development function in the
current period.
Research and development expenses for the nine months ended September 30,
1999 increased by 2% or $73, from $4,299 for the nine months ended September 30,
1998 to $4,372 for the nine months ended June 30, 1999. This increase is due to
increased expenses for the development of new slot machine and table game
products.
For the nine months ended September 30, 1999, the Company capitalized
certain costs related to software development of new products that have achieved
technological feasibility. Capitalized software development costs for the nine
months ended September 30, 1999 increased by 125% or $222, from $177 for the
nine months ended September 30, 1998 to $399 for the nine months ended September
30, 1999.
Depreciation expense for the nine months ended September 30, 1999 increased
by 27% or $782, from $2,889 for the nine months ended September 30, 1998 to
$3,671 for the nine months ended September 30, 1999. This increase is due
primarily to: (i) increased depreciation associated with capitalized investment
in recurring revenue games, including MoneyTime and (ii) increased depreciation
related to the assets acquired from PGI.
Amortization expense for the nine months ended September 30, 1999 increased
by 49% or $843, from $1,723 for the nine months ended September 30, 1998 to
$2,566 for the nine months ended September 30, 1999. This increase is primarily
due to: (i) increased goodwill amortization related to the acquisitions of PGI
and P&S Leasing and (ii) the amortization of the capitalized patent costs
acquired in connection with the acquisitions of PGI and P&S Leasing.
INTEREST EXPENSE
Interest expense for the nine months ended September 30, 1999 increased by
118% or $3,510, from $2,974 for the nine months ended September 30, 1998 to
$6,484 for the nine months ended September 30, 1999. Included in this interest
expense is the amortization of loan costs of $662 and $291 for the nine months
ended September 30, 1999 and September 30, 1998, respectively. This increase in
interest expense is due to the increased debt related to the acquisitions of PGI
and P&S Leasing. The average interest rate on outstanding debt for the nine
months ended September 30, 1999 was 8.9% as compared to 10.2% for the nine
months ended September 30, 1998.
OTHER INCOME AND EXPENSE
Other income and expense for the nine months ended September 30, 1999
increased by 295% or $469, from an expense of $159 for the nine months ended
September 30, 1998 to income of $310 for the nine months ended September 30,
1999. This increase is due primarily to
14
<PAGE>
the sale of our manufacturing facility in Gulfport, Mississippi to the National
Guard. We will continue to lease the facility for the next nine months while
alternatives are being considered.
Interest income for the nine months ended September 30, 1999 decreased by
18% or $58, from $329 for the nine months ended September 30, 1998 to $271 for
the nine months ended September 30, 1999.
INCOME TAX (PROVISION) BENEFIT
Income taxes for the nine months ended September 30, 1999 were $1,561 or an
effective tax rate of 31.7% as compared to a tax benefit of $3,546 and effective
rate of 34.0% for the nine months ended September 30, 1998. The change in tax
rates between the periods is primarily due to a research and development tax
credit taken during the current period versus a tax loss in the prior period.
EARNINGS (LOSS) PER SHARE
Basic and diluted earnings per share for the nine months ended September
30, 1999 were $0.31 on both basic and diluted weighted average common shares
outstanding of 10,704 and 10,722, respectively. For the nine months ended
September 30, 1998 the basic and diluted loss per share was $(0.83) on 10,485
basic and diluted weighted average common shares outstanding.
Three Months Ended September 30, 1999 and 1998
- ----------------------------------------------
SALES
<TABLE>
<CAPTION>
Change
------------------------------
Business Segment: 1999 1998 Amount % Comment
- ----------------- ---- ---- ------ - -------
<S> <C> <C> <C> <C> <C>
Revenues:
Signs $ 12,867 $ 10,627 $ 2,240 21.1% 1
Gaming products 8,071 6,606 1,465 22.2% 2
Gaming operations 6,384 2,976 3,408 114.5% 3
-------- --------- ----------
$ 27,322 $ 20,209 $ 7,113 35.2%
======== ========= ==========
Percentage to total revenues:
Signs 47.1% 52.6%
Gaming products 29.5% 32.7%
Gaming operations 23.4% 14.7%
-------- ---------
100.0% 100.0%
======== =========
</TABLE>
1. This increase of $2,240 is due to: (i) an increase in domestic and
international interior visual display sales of $286 and $767, respectively,
(ii) an increase in exterior signs sales of $784, (iii) a decrease in
service sales of $146 and (iv) an increase in slot glass sales of $549.
15
<PAGE>
2. This increase of $1,465 is due to: (i) an increase in electronic
systems sales of $1,768, (ii) an increase in electronics sales
of $170 and (iii) an offsetting decrease in gaming machine sales of $473.
The decrease in gaming machine sales reflect lower sales of our MiniBertha
gaming machine product. The decrease in electronic display product revenue
reflects a delay in a new product introduction in Australia. The increase
in electronic system revenues reflect strong growth in international
markets including Europe, Australia and Canada as well as the introduction
of our TableLink product line in the United States.
3. This increase of $3,408 is due primarily to: (i) an increase in slot route
revenue of $411 and (ii) an increase in table game revenue of $2,925. The
increase in slot route revenue reflects a larger number of MoneyTime gaming
machines on route during the current period compared to the previous
period. The increase in table game revenue is due to the acquisitions of
PGI and P&S Leasing on September 2, 1998, which resulted in an increased
number of table games under license during the most recent period, as well
as our successful efforts to expand the number of table games under license
agreements since the acquisitions.
GROSS PROFIT
<TABLE>
<CAPTION>
Change
------
Business Segment: 1999 1998 Amount % Comment
- ----------------- ---- ---- ------ - -------
<S> <C> <C> <C> <C> <C>
Gross profit:
Signs $ 3,966 $3,009 $ 957 31.8% 1
Gaming products 3,765 1,380 2,385 172.8% 2
Gaming operations 5,471 2,553 2,918 114.3% 3
-------- ------- -------
Total $13,202 $6,942 $6,260 90.2%
======== ======= =======
Gross profit margin:
Signs 30.8% 28.3%
Gaming products 46.6% 20.9%
Gaming operations 85.7% 85.8%
Total 48.3% 34.4%
</TABLE>
1. This increase of $957 is primarily due to: (i) an increase in domestic and
international interior visual display gross profit of $260 and $232
respectively, (ii) an increase in service gross profit of $86 and (iii) an
increase in slot glass gross profit of $542.
2. This increase of $2,385 is primarily due to: (i) an increase in electronic
systems gross profit of $1,853 and (ii) an increase in electronics gross
profit of $267. Domestic and international electronic systems gross profit
margins increased from 7.1% to 52.4% and from 16.5% to 34.1%,
respectfully. Reflected in this increase are increased sales of software
products with higher margin levels. Electronics gross margins increased
despite lower sales volume during the 1999 period. Domestic electronics
gross margin increased from 27.9% to 48.7%. In addition, the prior period
included $794 of inventory reserves that were not included in the current
period.
3. This increase of $2,918 is primarily due to: (i) an increase in slot route
gross profit of $390 and (ii) an increase in table game gross profit of
$2,456. The increase in slot route gross profit reflects the larger number
of gaming machines under license agreements during the
16
<PAGE>
most recent period. The increase in table game gross profit is directly
attributable to the acquisition of PGI and P&S Leasing on September 2, 1998
and the increased number of table games under license during the current
period.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the three months ended
September 30, 1999 decreased by 16% or $1,870, from $11,547 for the three months
ended September 30, 1998 to $9,677 for the three months ended September 30,
1999. Significant factors affecting this decrease are the following:
Selling, product development and marketing expenses for the three months
ended September 30, 1999 decreased by 11% or $454, from $3,989 for the three
months ended September 30, 1998 to $3,535 for the three months ended September
30, 1999.
General and administrative expenses for the three months ended September
30, 1999 decreased by 40% or $1,684, from $4,190 for the three months ended
September 30, 1998 to $2,506 for the three months ended September 30, 1999. The
significant reason for this decrease was the one time write-off of bad debts of
$1,400 in the prior period. Offsetting this decrease was an increase resulting
from additional administrative expenses associated with the larger gaming
machine and table game route we own and operate as well as increased expenses
relating to our efforts to expand and improve the product development function
in the current period.
Research and development expenses for the three months ended September 30,
1999 decreased by 5% or $77, from $1,581 for the three months ended September
30, 1998 to $1,504 for the three months ended September 30, 1999. This decrease
reflects a larger capitalized software amount for the most recent period.
For the three months ended September 30, 1999, the Company capitalized
certain costs related to software development of new products that have achieved
technological feasibility. Capitalized software development costs for the three
months ended September 30, 1999 increased by 100% or $125. During the three
months ended September 30, 1998 we did not capitalize any software development
costs.
Depreciation expense for the three months ended September 30, 1999
increased by 19% or $201, from $1,066 for the three months ended September 30,
1998 to $1,267 for the three months ended September 30, 1999. This increase is
due primarily to: (i) increased depreciation associated with capitalized
recurring revenue games, including MoneyTime and (ii) increased depreciation
related to the acquisition of the assets of PGI.
Amortization expense for the three months ended September 30, 1999
increased by 20% or $144, from $721 for the three months ended September 30,
1998 to $865 for the three months ended September 30, 1999. This increase is
primarily due to: (i) increased goodwill amortization related to the
acquisitions of PGI and P&S Leasing and (ii) amortization of the capitalized
patent costs acquired from PGI and P&S Leasing.
17
<PAGE>
INTEREST EXPENSE
Interest expense for the three months ended September 30, 1999 increased by
85% or $1,051, from $1,239 for the three months ended September 30, 1998 to
$2,290 for the three months ended September 30, 1999. Included in this interest
expense is the amortization of loan costs of $223 and $83 for the three months
ended September 30, 1999 and September 30, 1998, respectively. This increase in
interest expense is due to the increased debt related to the acquisitions of PGI
and P&S Leasing. The average interest rate on outstanding debt for the three
months ended September 30, 1999 was 9.6% compared to 10.3% for the three months
ended September 30, 1998.
OTHER INCOME AND EXPENSE
Other income for the three months ended September 30, 1999 increased by
$318, from an expense of $71 for the three months ended September 30, 1998 to an
income of $247 for the three months ended September 30, 1999. This increase is
due primarily to the sale of our manufacturing facility in Gulfport, Mississippi
to the National Guard. We will continue to lease the facility for the next nine
months while alternatives are being considered.
Interest income for the three months ended September 30, 1999 decreased by
17% or $18, from $109 for the three months ended September 30, 1998 to $91 for
the three months ended September 30, 1999.
INCOME TAX (PROVISION) BENEFIT
Income taxes for the three months ended September 30, 1999 equaled a
provision of $311 for an effective tax rate of 19.8% compared to a tax benefit
of $3,660 and effective rate of 34.2% for the three months ended September 30,
1998. The change in tax rates between the periods is primarily due to a research
and development tax credit taken during the current period versus a tax loss in
the prior period.
EARNINGS (LOSS) PER SHARE
Basic and diluted earnings per share for the three months ended September
30, 1999 were $0.12 on basic and diluted weighted average common shares
outstanding of 10,730 and 10,747, respectively. For the three months ended
September 30, 1998 the basic and diluted loss per share was $(0.83) on 10,626
basic and diluted weighted average common shares outstanding.
LIQUIDITY AND CAPITAL RESOURCES
For the nine months ended September 30, 1999, the Company had net income of
$3,356 as compared to a net loss of $8,654 for the nine months ended September
30, 1998.
Net cash provided by operating activities for the nine months ended
September 30,1999 amounted to $2,550. The major items reflected were: (i) an
increase in inventories of $4,885, (ii) an increase in intangible assets of
$4,954, (iii) a decrease in customer deposits of $998 and (iv) an increase in
prepaid expenses and other assets of $2,577. Offsetting these uses of cash were:
(i) accounts receivable and installment sales receivable decreased by $258, (ii)
trade accounts
18
<PAGE>
payable increased by $3,844 and (ii) accruals and other current liabilities
increased by $2,085. Net cash used in investing activities was $4,253 and cash
provided by financing activities amounted to $182.
The increase in inventory levels during the most recent period is
attributable to the Company's effort to manufacture games that will be
capitalized as gaming equipment leased to customers when placed at customer
sites under lease or license agreements. Net cash used in investing activities
consisted primarily of investments in property and equipment as well as
investments in gaming equipment leased to customers.
Cash balances as of September 30, 1999 were $2,211, down from $3,732 at
December 31, 1998. We expect that cash provided from operating activities, as
well as the available revolving line of credit, our ability to increase the
revolving line of credit by $5,000 and our ability to obtain other cash
financing allowed under the provisions of the Amended and Restated Credit
Agreement will be sufficient to meet our requirements during the remainder of
1999 and on into the year 2000. On November 3, 1999 we entered into an
agreement with TAB Limited, an Australian company based in New South Wales,
Australia, in which TAB Limited purchased a 50% equity position of Mikohn Gaming
Australasia Pty. Limited, our Australian subsidiary. We expect to receive net
proceeds of approximately $4,800 once regulatory approval is granted in New
South Wales. We expect to use a portion of these proceeds for general corporate
and working capital purposes with the remainder to be used to pay down long term
debt under the Amended and Restated Credit Agreement dated September 2, 1998.
On September 2, 1998, we completed the closing of an Amended and Restated
Credit Agreement. This agreement was funded by First Source Financial LLP and a
consortium of lenders and consisted of a $13,500 fixed rate term loan bearing
interest at 10.25% per annum; a $67,500 variable rate term loan bearing interest
at either prime plus 225 basis points or LIBOR plus 325 basis points; and a
$5,000 variable rate revolving line of credit which bears interest at either
prime plus 175 basis points or LIBOR plus 275 basis points. As part of this
Amended and Restated Credit Agreement the Company has agreed: (i) to maintain
certain financial ratios, (ii) to comply with certain financial covenants, (iii)
not to allow the incurrence of additional debt or the payment of cash dividends,
unless expressly permitted by the Amended and Restated Credit Agreement and (iv)
to adhere to a number of other financial restrictions. First Source Financial
LLP is acting as the lender's agent for this transaction. The term loans begin
maturing in April 2002 with equal 16.7% principal repayments due every six
months until complete maturity on October 24, 2004. The proceeds of this
placement were used to acquire PGI and P&S Leasing as well as provide additional
working capital. We have been in compliance with the covenants and terms of the
Amended and Restated Credit Agreement and believe we will remain in compliance.
As of the date of this filing, we have borrowed $2,250 of the funds available
under the revolving line of credit and have $2,750 available under this line.
Additionally, we have the ability to increase the revolving line of credit by
another $5,000.
YEAR 2000
The approach of the year 2000 poses problems for businesses utilizing
computers or embedded technology (such as micro controllers) in their
operations. Many computer programs and systems operating machinery and equipment
are date sensitive and will only recognize the last two digits of the year. Such
programs and systems may recognize the year 2000 as the year 1900 or not at all.
This problem is commonly described as the "Year 2000 Issue" or "Y2K" and it has
the potential to produce errors in information and system failures. Assessments
of the potential cost and effect of the Year 2000 Issue vary significantly among
businesses, and it is extremely difficult to predict the actual impact.
Recognizing this uncertainty, management has made and is continually updating
its comprehensive assessment of the Company's exposure to the Year 2000 Issue
and what is required to ensure that the Company is Year 2000 compliant.
The Company manufactures and sells a number of products that include
software components. As part of its overall assessment of the Year 2000 Issue,
the Company has
19
<PAGE>
identified products or product versions that require modification or other
remedial action and has developed and is implementing a plan to facilitate this
effort. The corrective action plan includes modifications, upgrades or
replacements of non-compliant software systems. The Company believes that the
required modifications, upgrades and replacements of software systems will most
likely be completed and approved by the various gaming jurisdictions during 1999
and that there will be enough time for additional testing, revisions and
installations before year end.
The Company believes that its corrective action plan is adequate and
realistic. Nevertheless, if one or more of the Company's systems has been
overlooked or if implementation of the corrective action plan fails to achieve
Year 2000 compliance for one or more software systems, there could be a material
adverse impact on the Company's business operations and/or financial
performance.
The Year 2000 readiness of the Company's customers varies. The Company is
encouraging its customers to evaluate their system requirements and needs.
Efforts by customers to address the Year 2000 Issue may affect the demand for
certain of the Company's products and services. However, to date the Company is
unable to determine what impact, if any, customer Y2K problems might have on its
revenue.
The Company has also assessed the Year 2000 readiness of its key suppliers
and business partners. The Year 2000 Issue presents a number of other risks and
uncertainties that could impact the Company, such as the ability of certain
governments and gaming commissions of the various jurisdictions where the
Company conducts business to timely act on updates to Company products,
including software, that require regulatory approval before the Company's
customers can lawfully use them.
The primary computer programs utilized in the Company's operations and
financial reporting systems have been acquired from independent software
vendors. All of these vendors have been formally contacted to determine whether
their systems are Year 2000 compliant. To the extent they are not, timelines
have been established as to when the Company will receive the required upgrades
to assure that these systems will be Year 2000 compliant. Maintenance or
modification of existing software is expensed as incurred, while the purchase of
new software will be capitalized and amortized over the software's useful life.
The Company does not expect to incur costs in connection with the Year 2000
Issue that would have a material impact on operations. Although the Company
believes that its computer software systems will be Year 2000 compliant, no
assurance can be given that all systems provided by software vendors will have
all modifications necessary to make them Year 2000 compliant on a timely basis.
The Year 2000 Issue has an impact on non-information technology systems
(i.e., embedded data) such as the Company's manufacturing systems and physical
facilities including, but not limited to, security systems and utilities. The
non-information technology system issues are more difficult to identify and
resolve. The Company is actively identifying non-technology Year 2000 Issues
concerning its products and services, as well as those that impact its physical
facility locations. As the various non-information technology systems are
identified, management is formulating action plans to ensure minimal disruption
of its business processes. Although management believes that its efforts will be
successful and the costs will not be material to its financial condition and
results of operations, it recognizes that any failure or delay could cause a
disruption in its business and might have a significant financial impact.
The Company has estimated total costs to achieve Year 2000 compliance on
its internal software and systems to be approximately $450. The Company expects
to capitalize costs that are planned system upgrades and expense costs that are
incurred only to make the software
20
<PAGE>
Y2K compliant. It has incurred costs of approximately $230 to date, $193 of
which was capitalized as part of the Company's internally used software upgrade
program and the remaining amount was expensed as incurred. Of the additional
estimated $270, the Company expects that most will be capitalized as part of
planned system upgrades.
The Company's current cost estimate for efforts associated with achieving
compliance with the products that it manufactures, markets, sells or otherwise
distributes to its customers is approximately $1,360. Of this amount, $950 is
related to the Company's Caribbean Stud product line and is the subject of
litigation seeking to recover this amount from the previous owner of PGI under
the terms and conditions of the Stock Purchase Agreement. The Company charged
the estimated cost to the goodwill account established during the acquisition of
PGI. See Footnote 3, above. The remaining $400 of costs are primarily related to
the Company's CasinoLink product line and are expensed as they are incurred.
The Company expects to fund these Year 2000 Issue costs from its operating
cash flows and does not believe the Year 2000 Issue will have a material impact
on the Company's cash resources or liquidity.
To minimize any potential unforeseen impact, the Company has developed a
contingency plan. Management will continue to formulate additional plans as
necessary based upon the results of further research and investigation. It is
the Company's intention to ensure that it has adequate resources and sources of
supplies to minimize any potential business interruptions. Although the Company
believes the Year 2000 Issue will not materially affect its consolidated
financial position or results of operations, it acknowledges that it cannot
state with certainty that the Year 2000 Issues will not, in some manner now
unforeseen, have an adverse impact upon it.
21
<PAGE>
MIKOHN GAMING CORPORATION
PART II - OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders
None
Item 6 - Exhibits and Reports on Form 8-K
A. Exhibits:
27 Financial Data Schedules
B. Reports on Form 8-K:
None
22
<PAGE>
SIGNATURE
---------
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 authorized.
MIKOHN GAMING CORPORATION, Registrant
BY: /S/ Donald W. Stevens
------------------------------------
Donald W. Stevens, Executive Vice
President, Treasurer, Principal
Financial Officer
Dated: November 8, 1999
23
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 2,192
<SECURITIES> 19
<RECEIVABLES> 29,737
<ALLOWANCES> 937
<INVENTORY> 30,136
<CURRENT-ASSETS> 70,001
<PP&E> 39,314
<DEPRECIATION> 16,107
<TOTAL-ASSETS> 161,845
<CURRENT-LIABILITIES> 25,427
<BONDS> 86,858
0
0
<COMMON> 1,076
<OTHER-SE> 49,478
<TOTAL-LIABILITY-AND-EQUITY> 161,845
<SALES> 81,507
<TOTAL-REVENUES> 81,507
<CGS> 41,618
<TOTAL-COSTS> 70,066
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 40
<INTEREST-EXPENSE> 6,484
<INCOME-PRETAX> 4,917
<INCOME-TAX> 1,561
<INCOME-CONTINUING> 3,356
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,356
<EPS-BASIC> .31
<EPS-DILUTED> .31
</TABLE>
