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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [Fee Required]
For the fiscal year ended December 31, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [No Fee Required]
For the transition period from ______________________ to _______________________
Commission File Number: 0-26524
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MACKIE DESIGNS INC.
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(Exact name of registrant as specified in its charter)
Washington 91-1432133
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
16220 Wood-Red Road, N.E., Woodinville, Washington 98072
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(Address of principal executive offices) (Zip Code)
(206) 487-4333
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock - no par value
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(Title of each class)
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
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of March 17, 1997, the aggregate market value of the Registrant's
Common Stock held by nonaffiliates of the Registrant was $19,128,750 based on
the closing sales price of the Registrant's Common Stock on the Nasdaq National
Market. On that date, there were 12,885,000 shares of Common Stock
outstanding.
Portions of the Registrant's 1996 Annual Report to Shareholders are
incorporated by reference into Parts II and IV hereof, and portions of the
Registrant's definitive Proxy Statement for its 1997 Annual Meeting of
Shareholders are incorporated by reference into Part III hereof.
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PART I
ITEM 1. BUSINESS
INTRODUCTION
Mackie Designs Inc. ("Mackie" or the "Company") develops,
manufactures, sells and supports high quality, reasonably priced professional
audio equipment. The Company's products are used in a wide variety of sound
applications including home and commercial recording studios, multimedia and
video production, compact disc, read-only memory ("CD-ROM") authoring, live
performances, and public address systems. The Company offers a range of
products at suggested retail prices from approximately $400 to $9,000, which
generally represents the mid-range price points within the professional audio
market. Mackie distributes its products through a network of independent
representatives to over 1,000 retail dealers of professional audio equipment in
the U.S. and offers its products through local distributors in over 100 other
countries.
The Company's primary products are mixers and mixer-related products.
A mixer serves as the central component of any professional audio system by
electronically blending, routing and enhancing sound sources, such as voices,
musical instruments, sound effects and audio tape, video tape and other
pre-recorded material. For example, using a mixer, a vocalist may be heard
above the accompaniment, background singers are combined, and individual
instruments are blended into the overall mix. The musician or sound technician
accomplishes this task by using the mixer controls to adjust the relative
volume of each sound source.
Audio mixers are a necessary component of any recording system,
whether the system is being used to produce an audio tape, compact disc ("CD"),
video soundtrack or multimedia CD-ROM. A mixer is used not only to balance
sound inputs when recording initial tracks, but is also often used to further
process and edit the tracks prior to duplication and distribution of the
recording. Mixers are used in recording applications by commercial and home
studios, in film and video post-production, in business presentations and
teleconferencing, in the production of television and radio programming and in
multimedia productions such as CD-ROM and on-line authoring.
Mixers are also used to control relative audio levels in live
presentations at locations such as auditoriums, ballrooms, theaters and sports
arenas. For example, a typical performing group uses from six to 24
microphones and electronic inputs. Large concert tours and musical road
productions often have 60 or more sound inputs, which may include pre-recorded
music and sound effects. Many churches use multiple microphones for spoken
word and music during their services.
In 1996, the Company introduced power amplifiers, its first line of
products that are not directly related to mixers. Power amplifiers are used to
amplify the output signals from mixers to a level sufficient to drive
loudspeakers. Amplifiers are used with mixers and loudspeakers in a variety of
applications, such as private and touring sound reinforcement systems,
permanent industrial and commercial installations, recording studios, and
theatre/cinema and broadcast facilities. The power amplifier line and future
products will be distributed through the same channels as the mixers.
Mackie was incorporated in Washington in 1988. The Company's
executive offices and manufacturing facilities are located at 16220 Wood- Red
Road N.E., Woodinville, Washington 98072, and its telephone number is (206)
487-4333.
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"MACKIE," the running figure and all of the Company's product names
are registered trademarks or trademarks of the Company. This document also
contains names and marks of other companies.
PRODUCTS
The Company currently offers professional audio mixers and related
accessories in four main mixer product lines: compact mixers, 8oBus consoles,
SR series mixers, and automation systems. The Company also began offering its
line of Fast Recovery Series(TM) power amplifiers in December 1996.
Compact Mixers. Compact mixers were the Company's first products and
are designed to be mounted in 19-inch equipment racks, which are the standard
housings for professional audio and video components. The Company offers four
basic compact mixers: the CR1604-VLZ, the MS1402- VLZ, the MS1202-VLZ and the
LM-3204.
The CR1604-VLZ, introduced in February 1996, is a 16-channel mixer
that has received wide acceptance for its low noise and high headroom (ability
to mix very loud signals without distortion or quiet signals without noise).
Applications include recording in project studios, live presentations by major
touring bands, video post-production and multimedia. The CR1604-VLZ has been
used to produce major label CDs, soundtracks for major motion pictures and
on-stage musical instrument mixing for network television shows. The
CR1604-VLZ features a two- part design that allows the mixer to be rack-mounted
in order to conserve space or to be configured for desk-top use for easy access
to the controls. The Company also offers the MixerMixer, an add-on product
that expands the capabilities of the CR1604-VLZ and other mixers, by allowing
the combination of up to 12 outputs from any three mixers without loss of
channels or functionality.
The MS1402-VLZ is a 14-channel mixer that the Company introduced in
January 1996. It has the same electronic specifications as the CR1604-VLZ but
has two fewer channels. It is designed for many of the same applications as
the CR1604-VLZ as well as the MS1202-VLZ.
The MS1202-VLZ is a 12-channel mixer that occupies less than one
square foot of workspace. Designed to be used alone or as a subcomponent of a
larger mixing system, the MS1202-VLZ has the same electronic specifications as
the CR1604-VLZ and the MS1402-VLZ, but has fewer channels. The success of the
product and its predecessor, the MS1202, has been in part due to its relatively
low price, flexibility and rugged construction (including solid steel chassis,
sealed rotary controls and built-in power supply). This mixer is used for
small home studios, on-stage mixing by small lounge acts, off-line video
production, multimedia authoring, audiophile acoustic recordings and electronic
news gathering and as a supplemental mixer in conjunction with large
non-portable studio recording consoles.
The LM-3204 is a 32-channel mixer with 16 stereo channels in a compact
chassis that occupies just five standard rack spaces. Besides providing all of
the control features of the CR1604-VLZ, it includes additional monitor and
mixing circuitry that optimizes the mixer's utility for both recording and live
presentation applications. The LM-3204 is designed for applications requiring
control of a large number of line level inputs such as keyboard submixing,
computer sequencing and electronic percussion mixing in stage, sound
reinforcement and project studio environments, as well as sound mixing in
auditoriums, exhibit halls and other permanent installations. The LM-3204's
two microphone preamplifiers extend the mixer's applications to small
performing groups such as nightclub single and duo acts and commercial
production work where announcer voiceovers are required. The LM-3204 is
expandable with one or more optional LM-3204Es, each of which adds 16 stereo
channels.
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8oBus Series. The 8oBus is a larger mixer console designed for
multitrack recording and live presentation applications. The Company
introduced 8oBus mixers in 1993. At suggested retail prices from approximately
$3,000 to $5,000, the 8oBus consoles have opened the market to many new users
and replaced many larger systems offered by competitors that typically cost
over $50,000. The console is available in three basic models: the 32-channel
32o8, the 24-channel 24o8 and the 16-channel 16o8. Each version includes eight
submix buses, as well as more elaborate equalization (tone control), signal
routing and monitoring capabilities than are found in compact mixers. The
8oBus console's applications include pre-production and recording of albums for
major artists and groups, on-line video production, movie soundtrack mixdown,
television dialog editing, on-stage mixing and live sound reinforcement used by
touring musical groups, theaters, concert halls, clubs and churches. The 32-
and 24-channel versions of the Company's 8oBus can be expanded with one or more
24-Channel Expander Consoles, each of which adds 24 additional channels. The
Company also offers MBo32, MBo24 and MBo16 meter bridges for the 32-channel,
24-channel and 16-channel 8oBus consoles, respectively; these bridges extend
across the width of the mixer and provide a bar-graph meter for each channel
strip of the console.
SR Series. The SR (Sound Reinforcement) Series are intended as
high-quality, low-cost 24-, 32-, 40-, or 56-channel audio mixers for live music
applications that compete with consoles selling for several times their retail
price. The first product in this line, the SR24o4, was introduced in May 1995,
followed by the SR32o4 in August 1995. These retail for approximately $1,600
to $2,300. In December 1996, Mackie introduced the SR40o8, a 40-channel
large-format sound reinforcement console, with the SR56o8, a 56-channel
console, planned for addition to the line in 1997. The large-format consoles
retail for approximately $9,000 to $12,600. The SR24o4 and SR32o4 are larger
than a compact mixer but significantly smaller than Mackie's 8oBus consoles,
and include features necessary for use with digital multitrack recorders. They
incorporate much of the advanced technology first introduced in the 8oBus
series, including very-low-impedance circuitry, wide-band equalization and
highly sensitive signal presence indicators. The large-format 40o8
incorporates these features plus an UltraMute(TM) computerized system for group
and individual sound muting., a built-in meter bridge, and left, right and
center master faders. The SR24o4 and 32o4 Series mixers are targeted at bands
and other touring musical groups, audio/video rental services and permanent
sound reinforcement venues, including churches, clubs, small theaters and
auditoriums. The SR40o8 and SR56o8 large-format consoles are intended for use
as installed equipment in venues such as churches, auditoriums, or sporting
facilities.
UltraMix(R) Universal Automation System. Because many mixing systems
involve controlling specific audio levels on over 100 channels, there is a need
for an add-on product to automatically retain and recall a particular range of
settings. In September 1995, the Company introduced a digitally controlled
automation system to address this need. The Company's UltraMix(R) Universal
Automation System, which has a suggested retail price of approximately $2,800,
consists of the Ultra-34, a 34-channel external volume control system; the
UltraPilot, an external control surface; and UltraMix(R) Pro automation
software. These components, when used in conjunction with a personal computer
equipped with Microsoft's Windows 95 or with Apple Computer, Inc.'s Macintosh
computer, provide a solution to complex mixing tasks. As with the Company's
other products, the UltraMix(R) is designed to provide much of the
functionality of systems prohibitively expensive to all but a limited group of
users at a price point attractive to a wide range of potential users.
Fast Recovery Series(TM) Power Amplifier. Use of a high-quality,
professional amplifier is necessary to retain sound integrity in audio
production. The Company's FR Series(TM) Power Amplifier is Mackie's first
non-mixer related product and became available in December 1996. The Mo1200
and Mo1400, which are the first models to be released, are designed to keep
sound quality intact when pushed
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to extreme levels. Most power amplifiers use technology that can result in
distortion from internal feedback. The designs of the Mo1200 and Mo1400
minimize feedback while improving delivery through the use of high-speed
digital circuitry. The Mo1200 and Mo1400, at suggested retail prices of
approximately $600 and $700, respectively, are competitively priced and
incorporate the high performance capabilities of the Company's mixer lines.
DISTRIBUTION AND SALES
In the U.S., the Company uses a network of representatives to sell to
over 1,000 retail dealers, some of which have several outlets. In other
countries, the Company sells through approximately 70 local distributors, who
in turn sell to dealers. Until November 1, 1995, the Company used exclusively
the services of MMS, International ("MMS"), a manufacturer's representative, to
sell to distributors outside the U.S. and Canada, for which MMS received a
commission. Since November 1, 1995, the Company has supervised the
international marketing and sales of its products internally. Sales to
customers outside of the United States accounted for approximately 38%, 34% and
36% of the Company's net sales in 1996, 1995 and 1994, respectively. In
consultation with its representatives, the Company is currently evaluating
options to expand its distribution channels beyond musical instrument dealers.
In particular, the Company is reviewing the extent to which its musical
instrument dealers will be able to address the needs of video customers and
installed sound contractors and the extent to which the Company will instead
rely on audio/video supply houses, certain professional audio sales, direct
sales to contractors and broadcast supply houses to meet the needs of such
customers. These other channels currently do not represent a significant
portion of the Company's sales.
The Company carefully selects and reviews its representatives and
dealers, including mail order outlets. Representatives and domestic dealers
enter into agreements with the Company that govern the terms under which they
may sell the Company's products. Agreements with dealers and distributors
define an approved territory and set forth the products to be sold. These
agreements are reviewed on a six-month basis, and decisions to renew are based
on several factors, including sales performance and adequate representation of
the Company and its products. The Company's representatives are paid on a
commission basis. Dealers retain the difference between their cost and the
sale price of products sold.
International distributors are selected on the basis of criteria
established by the Company. International distributors retain the difference
between their cost and the sale price of products sold.
In the U.S., the Company's products are sold in musical instrument
stores, pro audio outlets and several mail order outlets. Musical instrument
stores range from small operations that sell a variety of instruments and
equipment to large outlets specializing in rock music equipment such as
electric guitars, synthesizers, mixers, drums, amplifiers and speakers. Top
U.S. retail dealers include Guitar Center, Sam Ash Music, Sweetwater Sound,
West LA Music, Washington Music, Manny's Music, Thoroughbred Music, Ace Music,
Musician's Friend and Full Compass Systems. These 10 dealers represented
approximately 32% of the Company's net sales in the U.S. in 1996. Guitar
Center accounted for approximately 11% of domestic net sales in 1996; no other
dealer accounted for more than 10% of domestic net sales in this period.
Internationally, the Company has distribution in over 100 countries.
The top international distributors include Musik & Technik Marbury (Germany),
SF Marketing Inc. (Canada), Key Audio Systems (United Kingdom), Korg Import
Division (Japan), Manny's International (Brazil), Entel s.r.l. (Italy),
Audio-Land Distribution (France), A&T Trade, Inc. (former Soviet Union),
Australian Audio Supplies (Australia) and Hermes International (Mexico). These
10 distributors represented
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approximately 62% of the Company's international net sales in 1996. Musik &
Technik Marbury accounted for approximately 11% of international net sales in
1996; no other distributor accounted for more than 10% of international net
sales in this period.
MARKETING
The Company's marketing strategy is designed to communicate with
end-users directly and to educate them about its products. The Company's
in-house marketing and design department creates all its advertising,
brochures, video, multimedia and trade show materials. Materials are provided
by its marketing department to representatives, distributors and dealers,
worldwide, as part of the Company's overall sales strategy. Owner's manuals
and sales literature are currently produced in five foreign languages. These
materials are provided as a complement to the Company's direct advertising and
customer support follow-up program. To further enhance customer awareness and
understanding of its products, the Company advertises in leading trade
publications, provides ongoing technical training and education for
representatives and distributors, and participates in the primary industry
trade shows for the musical instrument, video, recording studio, permanent
installation and multimedia markets. Mackie has won several national
advertisement awards as a result of this commitment to detail and excellence.
CUSTOMER SUPPORT
The Company's customer support program is designed to enhance loyalty
by building customer understanding of product use and capabilities. The
customer service and support operation also provides the Company with a means
of understanding customer requirements for future product enhancements. This
understanding comes through direct customer contact, as well as through close
analysis of warranty card responses. To encourage return of warranty cards
relating to its compact mixers, the Company has established a policy of
extending the warranty period from one year to three years to customers
returning completed warranty cards.
The Company maintains a staff of product support specialists at its
headquarters to provide direct technical support. Telephone support through a
toll-free number is provided during scheduled business hours. Although most
calls involve troubleshooting with owners of Mackie products, product support
specialists also field calls from inquiring purchasers and thereby may assist
in making sales.
The Company also relies on its international distributors to support
its products in foreign countries. These distributors are responsible for the
costs of carrying inventory required to meet customer needs.
Service and repairs on Mackie's products sold in the U.S., except
8oBus and SR40o8 products, are performed at its headquarters; 8oBus and SR40o8
products, which are larger and heavier than the Company's other mixer models,
are serviced at authorized warranty service centers. There are currently
approximately 100 8oBus and SR40o8 service centers, all of which are located in
the U.S. Multiple locations are necessary to minimize shipping costs for the
8oBus and SR40o8 consoles. All products shipped outside of the U.S. are
serviced by the Company's international distributors.
RESEARCH AND DEVELOPMENT
The Company's research and development strategy is to develop
affordable, high-quality products and related accessories for its targeted
markets. In 1996, Mackie created specific Acoustic, Analog and Digital
Engineering groups for product development. On December 31, 1996, the
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Company's research and development staff consisted of 28 individuals, in
addition to Mr. Mackie, who engineer and design all aspects of the Company's
new products. The Company's research and development expenses were
approximately $3.6 million in 1996, $1.2 million in 1995 and $1.1 million in
1994.
COMPETITION
The market for professional audio systems in general is highly
competitive. The Company must compete with several professional audio
manufacturers who have significantly greater development, sales and financial
resources than the Company. The Company's major competitors in the mixer
market are subsidiaries of Harman International (including Soundcraft Ltd.,
Allen & Heath Brenell Ltd. and DOD Electronics Corp.), Sony Corporation, Yamaha
Corporation, Peavey Electronics Corporation, Teac America, Inc. (Tascam),
SoundTracs PLC and Behringer Spezielle Studiotechnik GmbH. Competitors in the
amplifier market include Peavey Electronics Corporation, Crown International,
QSC Audio Products, Inc. and Crest Audio Inc. Competing speaker manufacturers
include Genelec, Inc., Event Electronics, Inc. and Alesis Corporation. The
Company competes primarily on the basis of product quality and reliability,
price, ease of use, brand name recognition and reputation, ability to meet
customers' changing requirements and customer service and support.
In order to remain competitive, the Company substantially increased
its research and development expenditures in 1996. The Company is currently
developing new products incorporating digital technology, new power amplifier
products, and new live-sound and recording studio speaker products. However,
there can be no assurance that the Company will be successful in developing and
marketing, on a timely basis, product modifications or enhancements or new
products that respond effectively to technological advances by others.
PROPRIETARY TECHNOLOGY
The Company does not generally rely on proprietary rights associated
with its technology. However, the Company has filed for patent protection on
the design of the FR Series(TM) Mo1200, the 24o8, the 32o8, the SR40o8, the
SR24o4, the CR1604-VLZ, the MS1402-VLZ, the MS1202- VLZ and a new digital mixer
in the U.S. and in certain foreign countries where the Company's products are
distributed. Substantially all of the technology incorporated in the Company's
products is available to third parties, making replication by competitors
possible. However, the Company believes that its manufacturing capabilities,
affordable, high-quality products, brand name recognition, ability to quickly
introduce new products, and direct marketing efforts will continue to be
factors in the Company's ability to compete.
The Company has trademark protection on various marks including
"MACKIE(R)," the running man, "VLZ(R)" and "UltraMix(R)" in the U.S. and in
certain foreign countries where the Company's products are distributed.
Registered trademark status has been obtained for these marks in the United
States, and trademark status obtained in certain countries. However, there can
be no assurance that trademark protection will be granted in all of the
countries in which applications are currently pending, or granted on the
breadth of the current description of goods or use of the marks.
The Company has never conducted a comprehensive patent search relating
to the technology used in its products. The Company believes that its products
do not infringe the proprietary rights of others. There can be no assurance,
however, that others will not assert infringement claims against the Company in
the future or that claims will not be successful.
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MANUFACTURING
The Company manufactures its mixer and power amplifier products in its
facility near Seattle, Washington. Nearly all of the Company's products share
many components, which allows for integrated manufacturing of several distinct
products and in certain cases significant part purchase volume discounts. Much
of the Company's mixer console and power amplifier assembly work is performed
on automated component-insertion machines. Currently, the assembly of most of
the parts in a circuit board is automated.
The Company relies on several vendors to support its product
manufacturing and attempts, if possible, to purchase certain materials from
multiple sources to allow for competitive pricing and to avoid reliance on one
or only a few vendors. The Company relies almost exclusively on one vendor for
its potentiometers, but is in contact with other potentiometer manufacturers
regularly. Interruption in, or cessation of, the supply of potentiometers from
this supplier could adversely affect the Company's production capability, as
the qualification process for another manufacturer, from sample submission to
production quality and quantity delivery, could take several months.
BACKLOG
The Company does not generally track backlog. Generally, orders are
shipped within two weeks after receipt. In the case of new product
introductions or periods where product demand exceeds production capacity, the
Company allocates products to customers on a monthly basis until demand is met.
EMPLOYEES
At December 31, 1996, the Company had 337 full-time equivalent
employees, including 37 in marketing, sales and customer support, 28 in
research and development, 250 in manufacturing and manufacturing support (which
includes manufacturing engineering) and 22 in administration and finance. None
of the Company's employees is represented by a labor union, and the Company has
never experienced a work stoppage.
ITEM 2. PROPERTIES
The Company's headquarters near Seattle, Washington house its
manufacturing, administrative, sales and marketing, research and development
and customer support operations. The building, which is occupied pursuant to a
lease through December 31, 2004, is a 89,000 square foot manufacturing and
office facility, the construction of which was substantially completed in
December 1994. The monthly rent, based in part on an analysis by an
independent appraiser, is $56,613, adjusted annually for changes in the
consumer price index. The Company leases its facility from Mackie Holdings,
LLC, an entity owned by three significant shareholders and directors of the
Company, on terms the Company believes are at least as favorable to the Company
as might have been obtained from unaffiliated parties.
In November 1995, the Company entered into a 10-year lease, with an
option to extend for an additional 10 years, covering property that is adjacent
to the Company's existing facility. The building is approximately 81,250
square feet. The Company is using the building for product shipping,
additional vertical integration of manufacturing processes, and products under
development from the Company's
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new Acoustic Product Group. Initial base monthly rent for the entire building
is $43,063; after five years, the base rent increases to $49,563 per month.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information required by this Item is included on page 30 of the
Company's Annual Report to Shareholders for the fiscal year ended December 31,
1996 under the heading "Common Stock Information and Dividend Policy" and is
incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this Item is included on the inside of the
front cover of the Company's Annual Report to Shareholders for the fiscal year
ended December 31, 1996 under the heading "Financial Highlights" and is
incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information required by this Item is included on pages 17 to 20 of
the Company's Annual Report to Shareholders for the fiscal year ended December
31, 1996 under the heading "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and is incorporated herein by reference.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The report of independent auditors, consolidated financial statements
and other information required by this Item are included on pages 21 to 29 of
the Company's Annual Report to Shareholders for the fiscal year ended December
31, 1996 and are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item is included in the Company's
definitive Proxy Statement for its 1997 Annual Meeting of Shareholders under
the heading "Proposal 1: Election of Directors" and is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is included in the Company's
definitive Proxy Statement for its 1997 Annual Meeting of Shareholders under
the heading "Executive Compensation" and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is included in the Company's
definitive Proxy Statement for its 1997 Annual Meeting of Shareholders under
the heading "Principal Shareholders" and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is included in the Company's
definitive Proxy Statement for its 1997 Annual Meeting of Shareholders under
the heading "Certain Transactions" and is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report:
<TABLE>
<CAPTION>
1. Consolidated Financial Statements: Annual Report
Page Number
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<S> <C> <C>
A. Consolidated Balance Sheets as of December 31, 1996 and
December 31, 1995................................................... 21
B. Consolidated Statements of Income for each of the years ended
December 31, 1996, December 31, 1995 and December 31,
1994................................................................ 22
C. Consolidated Statements of Shareholders' Equity for each of the
years ended December 31, 1996, December 31, 1995 and
December 31, 1994................................................... 23
</TABLE>
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<TABLE>
<S> <C> <C>
D. Consolidated Statements of Cash Flows for each of the years ended
December 31, 1996, December 31, 1995 and December 31,
1994................................................................ 24
E. Notes to Consolidated Financial Statements............................ 25-28
F. Report of Independent Auditors........................................ 29
</TABLE>
<TABLE>
<CAPTION>
2. Financial Statement Schedules: Form 10-K
Page Number
-----------
<S> <C>
Schedule II - Valuation and Qualifying Accounts............................ 13
</TABLE>
The independent auditor's report with respect to the
financial statement schedule appears in the exhibits
to this report (Exhibit 23.1). All other financial
statement schedules not listed are omitted either
because they are not applicable, not required, or the
required information is included in the consolidated
financial statements or notes thereto.
3. Exhibits: See Index to Exhibits on page 14.
(b) Reports on Form 8-K: None.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
MACKIE DESIGNS INC.
By: /s/ Greg C. Mackie
------------------------------------
Greg C. Mackie
Chairman of the Board, President
and Chief Executive Officer
Date: March 25, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on March 25, 1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE
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<S> <C>
/s/ Greg C. Mackie Chairman of the Board, President and Chief
- --------------------------------- Executive Officer
Greg C. Mackie (Principal Executive Officer)
/s/ Thomas M. Elliott Vice President - Finance and Chief Financial Officer
- --------------------------------- (Principal Financial and Accounting Officer)
Thomas M. Elliott
/s/ David M. Tully Treasurer and Director
- ---------------------------------
David M. Tully
/s/ Raymond B. Ferguson Director
- ---------------------------------
Raymond B. Ferguson
/s/ Walter Goodman Director
- ---------------------------------
Walter Goodman
/s/ C. Marcus Sorenson Director
- ---------------------------------
C. Marcus Sorenson
</TABLE>
12
<PAGE> 13
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
MACKIE DESIGNS INC.
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
------ --------- --------- --------- ---------
Additions
Balance at Charged to Balance at
Beginning Costs and Deductions End of
Description of Period Expenses Describe(1) Period
----------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1996:
Reserve and allowances deducted from asset accounts
Allowance for uncollectible accounts $ 514,000 $ 471,000 $ 177,000 $ 808,000
Reserve for inventories $ 154,000 $ 478,000 $ - $ 632,000
Reserve and allowances added to liability accounts
Reserve for warranty expenses $ 60,000 $ 120,000 $ - $ 180,000
YEAR ENDED DECEMBER 31, 1995:
Reserve and allowances deducted from asset accounts
Allowance for uncollectible accounts $ 367,000 $ 196,000 $ 49,000 $ 514,000
Reserve for inventories $ - $ 154,000 $ - $ 154,000
Reserve and allowances added to liability accounts
Reserve for warranty expenses $ 50,000 $ 10,000 $ - $ 60,000
YEAR ENDED DECEMBER 31, 1994:
Reserve and allowances deducted from asset accounts
Allowance for uncollectible accounts $ 68,000 $ 304,850 $ 5,850 $ 367,000
Reserve for inventories $ - $ - $ - $ -
Reserve and allowances added to liability accounts
Reserve for warranty expenses $ - $ 50,000 $ - $ 50,000
</TABLE>
(1) Uncollectible accounts written off, net of recoveries
13
<PAGE> 14
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBITS DESCRIPTION NUMBERED PAGE
- -------- ----------- -------------
<S> <C> <C>
3.1 Restated Articles of Incorporation. Incorporated by reference to Exhibit 3.1 to
Registrant's Registration Statement filed under the Securities Act of 1933 on Form S-1,
as amended, Registration No. 33-93514. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.2 Restated Bylaws. Incorporated by reference to Exhibit 3.2 to Registrant's Registration
Statement filed under the Securities Act of 1933 on Form S-1, as amended,
Registration No. 33-93514 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.1 See Articles II, III and IV of Exhibit 3.1 and Sections 1, 5 and 9 of Exhibit 3.2
confirming the rights of the holders of Common Stock . . . . . . . . . . . . . . . . . . . . . . .
*10.1 Mackie Designs Inc. Amended and Revised 1995 Stock Option Plan, as amended on March 11, 1997 . . .
-----------
10.2 Employment Agreement dated April 1, 1995 between Mackie Designs Inc. and Thomas M. Elliott.
Incorporated by reference to Exhibit 10.2 to Registrant's Registration Statement filed under
the Securities Act of 1933 on Form S-1, as amended, Registration No. 33-93514 . . . . . . . . . .
10.3 Industrial Lease, dated December 15, 1994, by and between Mackie Holdings, L.L.C. and Mackie
Designs Inc. Incorporated by reference to Exhibit 10.3 to Registrant's Registration Statement
filed under the Securities Act of 1933 on Form S-1, as amended, Registration No. 33-93514 . . . .
10.4 Industrial Real Estate Lease, dated April 28, 1995, by and between Intrawest Properties
Partnership U.S. and Mackie Designs Inc. Incorporated by reference to Exhibit 10.4
to Registrant's Registration Statement filed under the Securities Act of 1933 on Form S-1,
as amended, Registration No. 33-93514 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10.5 Exhibit C to Industrial Real Estate Lease, dated April 28, 1995, by and between Intrawest
Properties Partnership U.S. and Mackie Designs Inc. Incorporated by reference to
Exhibit 10.4A to Registrant's Registration Statement filed under the Securities Act of 1933
on Form S-1, as amended, Registration No. 33-93514 . . . . . . . . . . . . . . . . . . . . . . . .
10.6 Mackie Sales Representative Agreement, dated January 24, 1994, by and between Mackie Designs
Inc. and C.M. Sorenson Co. dba Calwest Marketing So. Incorporated by reference to Exhibit 10.5
to Registrant's Registration Statement filed under the Securities Act of 1933 on Form S-1,
as amended, Registration No. 33-93514. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
</TABLE>
14
<PAGE> 15
<TABLE>
<S> <C> <C>
10.7 Exhibit C to Mackie Sales Representative Agreement, dated January 24, 1994, by and
between Mackie Designs Inc. and C. M. Sorenson Co. dba Calwest Marketing So. Incorporated
by reference to Exhibit 10.5A to Registrant's Registration Statement filed under the
Securities Act of 1933 on Form S-1, as amended, Registration No. 33-93514 . . . . . . . . . . . .
10.8 Business Loan Agreement, dated April 30, 1995, by and between U.S. Bank of Washington,
National Association, and Mackie Designs Inc. Incorporated by reference to Exhibit 10.6 to
Registrant's Registration Statement filed under the Securities Act of 1933 on Form S-1,
as amended, Registration No. 33-93514 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10.9 First Amendment, dated June 8, 1995 to Business Loan Agreement, dated April 30, 1995, by and
between U.S. Bank of Washington, National Association, and Mackie Designs Inc. Incorporated
by reference to Exhibit 10.6A to Registrant's Registration Statement filed under the
Securities Act of 1933 on Form S-1, as amended, Registration No. 33-93514 . . . . . . . . . . . .
10.10 Promissory Note made by Mackie Designs Inc. to the order of U.S. Bank of Washington,
National Association, in the principal amount of $4,000,000.00 dated April 25, 1995.
Incorporated by reference to Exhibit 10.7 to Registrant's Registration Statement filed
under the Securities Act of 1933 on Form S-1, as amended, Registration No. 33-93514 . . . . . . .
10.11 Promissory Note made by Mackie Designs Inc. to the order of U.S. Bank of Washington,
National Association, in the principal amount of $5,000,000.00 dated April 30, 1995.
Incorporated by reference to Exhibit 10.8 to Registrant's Registration Statement filed
under the Securities Act of 1933 on Form S-1, as amended, Registration No. 33-93514 . . . . . . .
10.12 Promissory Note made by Mackie Designs Inc. to the order of U.S. Bank of Washington,
National Association, in the principal amount of $544,582.23 dated April 30, 1995.
Incorporated by reference to Exhibit 10.9 to Registrant's Registration Statement filed
under the Securities Act of 1933 on Form S-1, as amended, Registration No. 33-93514 . . . . . . .
10.13 Business Loan Agreement, dated November 3, 1995, by and between U.S. Bank of Washington,
National Association, and Mackie Designs Inc. Incorporated by reference to Exhibit 10.13 to
Registrant's Annual Report on Form 10-K for the Year Ended December 31, 1995 . . . . . . . . . . .
10.14 Promissory Note made by Mackie Designs Inc. to the order of U.S. Bank of Washington,
National Association, in the principal amount of $5,000,000.00 dated November 3, 1995.
Incorporated by reference to
</TABLE>
15
<PAGE> 16
<TABLE>
<S> <C> <C>
Exhibit 10.14 to Registrant's Annual Report on Form 10-K for the Year Ended
December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10.15 Demand Promissory Note made by Mackie Designs Inc. to the order of Greg C. Mackie in the
principal amount of $4,319,348.00 dated April 3, 1995. Incorporated by reference to
Exhibit 10.10 to Registrant's Registration Statement filed under the Securities Act of 1933
on Form S-1, as amended, Registration No. 33-93514 . . . . . . . . . . . . . . . . . . . . . . . .
10.16 Demand Promissory Note made by Mackie Designs Inc. to the order of David M. Tully in the
principal amount of $2,032,634.00 dated April 3, 1995. Incorporated by reference to
Exhibit 10.11 to Registrant's Registration Statement filed under the Securities Act of 1933
on Form S-1, as amended, Registration No. 33-93514 . . . . . . . . . . . . . . . . . . . . . . . .
10.17 Demand Promissory Note made by Mackie Designs Inc. to the order of C. Marcus Sorenson and
Judith B. Sorenson in the principal amount of $2,117,327.00 dated April 3, 1995.
Incorporated by reference to Exhibit 10.12 to Registrant's Registration Statement filed
under the Securities Act of 1933 on Form S-1, as amended, Registration No. 33-93514 . . . . . . .
10.18 Form of Authorized Dealer Agreement. Incorporated by reference to Exhibit 10.13 to
Registrant's Registration Statement filed under the Securities Act of 1933 on Form S-1,
as amended, Registration No. 33-93514 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10.19 Form of Sales Representative Agreement. Incorporated by reference to Exhibit 10.14 to
Registrant's Registration Statement filed under the Securities Act of 1933 on Form S-1,
as amended, Registration No. 33-93514 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10.20 Mackie Designs Inc. 401(k) Profit Sharing Plan dated December 20, 1993. Incorporated by
reference to Exhibit 10.15 to Registrant's Registration Statement filed under the
Securities Act of 1933 on Form S-1, as amended, Registration No. 33-93514. . . . . . . . . . . . .
10.21 Agreement between A&R Technology and Mackie Designs Inc. for the Development and Publishing
of MIDI Mix Automation Software dated December 5, 1993, as amended on August 16, 1994 and
June 14, 1995. Incorporated by reference to Exhibit 10.16 to Registrant's Registration
Statement filed under the Securities Act of 1933 on Form S-1, as amended, Registration
No. 33-93514 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10.22 Software License Agreement among Alexander Hopmann, Robert Tudor and Mackie Designs Inc.
dated February 9, 1996. Incorporated by reference to Exhibit 10.22 to Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1995 . . . . . . . . . . . . . . . . .
</TABLE>
16
<PAGE> 17
<TABLE>
<S> <C> <C>
10.23 Mackie Designs Inc. Management Incentive Plan. Incorporated by reference to Exhibit 10.17
to Registrant's Registration Statement filed under the Securities Act of 1933 on Form S-1,
as amended, Registration No. 33-93514 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10.24 Amendment to Mackie Designs Inc. Management Incentive Plan, dated January 1, 1996.
Incorporated by reference to Exhibit 10.24 to Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . .
*11.1 Computation of net income per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
-----------
*13.1 Annual Report to Shareholders of Mackie Designs Inc. for the fiscal year ended
December 31, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
-----------
*21.1 Subsidiaries of Mackie Designs Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
-----------
*23.1 Consent of Ernst & Young LLP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
-----------
*27.1 Financial Data Schedule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
-----------
</TABLE>
______________________________
* Filed herewith
17
<PAGE> 1
EXHIBIT 10.1
MACKIE DESIGNS INC.
AMENDED AND RESTATED 1995 STOCK OPTION PLAN
1. PURPOSES. The purposes of this Mackie Designs Inc. Amended
and Restated 1995 Stock Option Plan ("Plan") are to:
1.1 Closely associate interests of the management of
Mackie Designs Inc. ("Company") with the shareholders by reinforcing
the relationship between participants' rewards and shareholder gains;
1.2 Provide management with an equity ownership in the
Company commensurate with the Company's performance as reflected in
increased value of its common shares;
1.3 Maintain competitive compensation levels;
1.4 Provide a means whereby the Company can continue to
attract, motivate, and retain key employees who can contribute
materially to the Company's growth and success; and
1.5 Provide a means whereby the Company can continue to
attract, motivate and retain the services of selected non-employee
agents, consultants, advisors, persons involved in the sale or
distribution of the Company's products and independent contractors of
the Company.
2. ADMINISTRATION. This Plan shall be administered by the Board
of Directors of the Company ("Board") or, in the event the Board shall appoint
and/or authorize a committee to administer this Plan, by a committee of the
Board consisting of at least two (2) non-employee directors ("Committee"). The
administrator of this Plan, whether the Board or Committee, shall hereinafter
be referred to as the "Plan Administrator." The Plan Administrator shall
administer the Plan in accordance with the following:
2.1 Incapacity of Plan Administrator. No member of the
Board or the Committee shall vote with respect to the granting of an
option created under this Plan ("Option(s)") to himself or herself.
Any Option granted to a director for his or her services as such shall
not be effective until approved by the full Board.
2.2 Registration Under The Securities Act. If the
Company registers any of its equity securities pursuant to Section
12(b) or 12(g) of the Securities Exchange Act of 1934, as amended
("Exchange Act") and any officers or directors are eligible to receive
Options, the following provisions shall apply to the administration of
this Plan with respect to grants made to directors, officers or other
Optionees (as hereinafter defined) affected by Section 16(b) of the
Exchange Act. The Plan Administrator shall be constituted at all
times so as to meet the requirements of Section 16(b) of the Exchange
Act, as amended from time to time. The members of any committee
serving as Plan Administrator shall be appointed by the Board for such
term as the Board may determine. The Board may from time to time
remove members from, or add members to, the committee. Vacancies on
the committee, however caused, may be
<PAGE> 2
filled by the Board. Currently, the Plan Administrator is a
Committee, of which all members are disinterested. If, at any time,
an insufficient number of disinterested non-employee directors is
available to serve on such committee, interested non-employee
directors may serve on the committee; however, during such time, no
Options shall be granted to any person if the granting of such Option
would not meet the requirements of Section 16(b) of the Exchange Act.
For purposes of this Section 2, a disinterested director shall be a
member of the Board who meets the definition of "disinterested person"
as set forth in the rules and regulations promulgated under Section
16(b) of the Exchange Act, as amended from time to time (the "16(b)
Rules"). Currently, a disinterested director for purposes of this
Section 2 is a member of the Board who for one (1) year prior to
service as an administrator of this Plan has not been (and during
service as a Plan Administrator, will not be) granted or awarded
equity securities, including options for equity securities pursuant to
this Plan or any other plan of the Company or its affiliates, except
for certain exclusions described in Rule 16b-3. For purposes of this
Section 2, a non-employee director shall be a member of the Board who
meets the definition of "non-employee director" as set forth in the
16(b) Rules. Currently, a non-employee director is a member of the
Board who (i) is not currently an officer of the Company or a parent
or subsidiary of the Company, or otherwise currently employed by the
Company or a parent or subsidiary of the Company; (ii) does not
receive compensation, either directly or indirectly, from the Company
or a parent or subsidiary of the Company, for services rendered as a
consultant or in any capacity other than as a director, except for an
amount that does not exceed the dollar amount for which disclosure
would be required pursuant to Item 404(a) of Regulation S-K
promulgated under the Exchange Act (("S-K"); (iii) does not possess an
interest in any other transaction for which disclosure would be
required pursuant to Item 404(b) of S-K; and (iv) is not engaged in a
business relationship for which disclosure would be required pursuant
to Item 404(b) of S-K.
2.3 Procedures. The Board may designate one of the
members of the Plan Administrator as chairman. The Plan Administrator
may hold meetings at such times and places as it shall determine. The
acts of a majority of the members of the Plan Administrator present at
meetings at which a quorum exists, or acts reduced to or approved in
writing by all Plan Administrator members, shall be valid acts of the
Plan Administrator.
2.4 Responsibilities. Except for the terms and
conditions explicitly set forth in this Plan, the Plan Administrator
shall have the authority, in its discretion, to determine all matters
relating to the Options, including selection of the individuals to be
granted Options, the number of shares to be subject to each Option,
the exercise price for such Option ("Exercise Price"), and all other
terms and conditions of the Options. The interpretation and
construction by the Plan Administrator of any terms or provisions of
this Plan or any Option, or of any rule or regulation promulgated in
connection with this Plan, shall be conclusive and binding on all
interested parties, so long as such interpretation and construction
with respect to incentive stock options correspond to the requirements
of Section 422 of the Internal Revenue Code of 1986, as amended
("Code"), and the regulations issued thereunder, and any amendment or
successor sections or regulations.
2.5 Section 16(b) Compliance and Bifurcation of Plan.
If the Company registers any of its equity securities pursuant to
Sections 12(b) and 12(g) of the Exchange Act, it is the intention of
the Company that this Plan then comply in all respects with Rule 16b-3
under the Exchange Act and, if any Plan provision is later found not
to be in compliance with such Section, the provision shall be deemed
null and void. In all events, the Plan shall be construed in favor of
its meeting the requirements of Rule 16b-3. Notwithstanding anything
in the Plan to the
<PAGE> 3
contrary, the Board, in its absolute discretion, may bifurcate the
Plan so as to restrict, limit or condition the use of any provision of
the Plan to participants who are officers and directors subject to
Section 16(b) of the Exchange Act without so restricting, limiting or
conditioning the Plan with respect to other participants.
3. STOCK SUBJECT TO THIS PLAN. The stock subject to this Plan
shall be the Company's common stock ("Common Stock"). The Company shall have
authorized and have in reserve for issuance at the time of exercise of any
Option a sufficient number of shares of Common Stock to meet the Company's
obligation. The maximum number of shares of Common Stock which may be issued
under the Plan shall be three million (3,000,000). If any Option expires or is
surrendered, exchanged for another Option, cancelled or terminated for any
reason without having been exercised in full, the unpurchased shares subject to
such Option shall again be available for purposes of this Plan, including for
replacement Options which may be granted in exchange for such expired,
exchanged, surrendered, cancelled or terminated Options.
4. ELIGIBILITY. An incentive stock option in accordance with
Section 422 of the Code ("Incentive Option") may be granted only to an
individual who, at the time the option is granted, is an employee of the
Company and who the Plan Administrator may from time to time select for
participation in this Plan. Members of the Board shall not be eligible for
grants of Incentive Options unless they are also employees of the Company. At
the discretion of the Plan Administrator, employees, officers, directors of the
Company (including non-employee directors), selected non-employee agents,
consultants, advisors, persons involved in the sale or distribution of the
Company's products and independent contractors of the Company also may receive
stock options which are not qualified under Section 422 of the Code
("Nonqualified Option") (Qualified and Nonqualified Options are included
collectively within the term "Options" as used in this Plan). Any party to
whom an Option is granted shall be referred to as an "Optionee."
5. TERMS AND CONDITIONS OF OPTIONS. Options granted under this
Plan shall be evidenced by written agreements which shall contain such terms,
conditions, limitations and restrictions as the Plan Administrator shall deem
advisable and which are not inconsistent with this Plan. Notwithstanding the
foregoing, Option agreements shall include or incorporate by reference the
following terms and conditions:
5.1 Number of Shares. Each Option agreement shall state
the number of shares of stock subject to the Option;
5.2 Option Price. The Option agreement shall state the
Exercise Price per share, and the Plan Administrator shall act in good
faith to establish the Exercise Price as follows:
5.2.1 Incentive Options. Subject to subsection
5.2.3, the Exercise Price of Incentive Options shall be not
less than the fair market value per share of the Common Stock
at the time the Incentive Option is granted;
5.2.2 Incentive Options to Greater than 10%
Shareholders. With respect to Incentive Options granted to
shareholders then holding greater than ten percent (10%) of
the then-issued and outstanding shares of voting stock of the
Company, the Exercise Price shall be as required by Section 6;
<PAGE> 4
5.2.3 Fair Market Value. With respect to
Incentive Options, the fair market value per share of the
Common Stock shall be determined by the Plan Administrator in
good faith at the time the Incentive Option is granted.
5.2.4 Nonqualified Options. The Exercise Price of
Nonqualified Options shall be as is determined by the Plan
Administrator in good faith at the time of their issuance.
5.3 Term, Maturity and Vesting. Subject to the
restrictions contained in Sections 5.8 and 6, the term of each
Incentive Option shall be ten (10) years from the date it is granted
unless a shorter period of time is established by the Plan
Administrator, but in no event shall the term of any Incentive Option
exceed ten (10) years. The term of each Nonqualified Option shall
also be ten (10) years from the date it is granted unless a shorter
period of time is established by the Plan Administrator. The Plan
Administrator shall specify which Options granted hereunder are
Incentive Options and which are Nonqualified Options.
No Option shall be exercisable until it has vested. The
vesting schedule for each Option shall be specified by the Plan
Administrator at the time of grant; provided, that if no vesting
schedule is specified at the time of grant, the Option shall vest
according to the following schedule:
<TABLE>
<CAPTION>
NUMBER OF YEARS PERCENTAGE OF
FOLLOWING DATE OF GRANT TOTAL OPTION VESTED
----------------------- -------------------
<S> <C>
One 25%
Two 50%
Three 75%
Four 100%
</TABLE>
The Plan Administrator may specify a vesting schedule for all
or any portion of an Option based on the achievement of performance
objectives established in advance of the commencement by the Optionee
of services related to the achievement of the performance objectives.
Performance objectives shall be expressed in terms of one or more of
the following: return on equity, return on assets, share price,
market share, sales, earnings per share, costs, net earnings, net
worth, inventories, cash and cash equivalents, gross margin or the
Company's performance relative to its internal business plan.
Performance objectives may be in respect of the performance of the
Company as a whole (whether on a consolidated or unconsolidated
basis), a related corporation, or a subdivision, operating unit,
product or product line of either of the foregoing. Performance
objectives may be absolute or relative and may be expressed in terms
of a progression or a range. An option which is exercisable (in whole
or in part) upon the achievement of one or more performance objectives
may be exercised only following written notice to the Optionee and
the Company by the Plan Administrator that the performance objective
has been achieved.
5.4 Exercise. Subject to the limitations on exercise
described in subsection 5.3 above and any additional holding period
required by applicable law, each Option may be exercised in whole or
in part; provided, however, that only whole shares will be issued
pursuant to the exercise of any Option. During an Optionee's
lifetime, any Options granted under this
<PAGE> 5
Plan are personal to him or her and are exercisable solely by such
Optionee. Options shall be exercised by delivery to the Company of a
written notice of the number of shares with respect to which the
Option is to be exercised, together with payment of the Exercise Price
in accordance with Section 5.5.
5.5 Payment of Exercise Price. Payment of the Exercise
Price shall be made in full at the time the written notice of exercise
of an Option is delivered to the Company, and shall be in cash, bank
certified or cashier's check or personal check (unless at the time of
exercise the Plan Administrator in a particular case determines not to
accept a personal check) for the Common Stock being purchased. The
Plan Administrator can determine in its discretion (i) at the time an
Incentive Option is granted, or (ii) at any time before exercise of
Nonqualified Options, that additional forms of payment will be
permitted, including installment payments on such terms and over such
period as the Plan Administrator may determine. To the extent
permitted by the Plan Administrator and applicable laws and
regulations (including, but not limited to, federal tax and securities
laws and regulations and state corporate law), an option may be
exercised by:
5.5.1 Delivery of Common Stock. Delivery of
shares of Common Stock held by an Optionee having a fair
market value equal to the Exercise Price, such fair market
value to be determined in good faith by the Plan
Administrator;
5.5.2 Delivery of Promissory Note. Delivery of a
full-recourse promissory note executed by the Optionee;
provided that (i) such note if delivered in connection with an
Incentive Option shall, and such note if delivered in
connection with a Nonqualified Option may, bear interest at a
rate specified by the Plan Administrator, but in no case less
than the rate required to avoid imputation of interest (taking
into account any exceptions to the imputed interest rules) for
federal income tax purposes; (ii) the Plan Administrator shall
specify the term and other provisions of such note at the time
an Incentive Option is granted or at any time prior to
exercise of a Nonqualified Option; (iii) the Plan
Administrator may require that the Optionee pledge the
Optionee's shares to the Company for the purpose of securing
the payment of such note, and may require that the certificate
representing such shares be held in escrow to perfect the
Company's security interest; (iv) the note provides that
ninety (90) days following the Optionee's termination of
employment with the Company or a related Corporation, the
entire outstanding balance under the note shall become due and
payable, if not previously due and payable; and (v) the Plan
Administrator in its sole discretion may at any time after
granting an Option restrict or rescind the right to pay using
a promissory note upon written notification to any Optionee;
5.5.3 Delivery of Sale Proceeds. Delivery of a
properly executed written exercise notice, together with
irrevocable instructions to a broker, all in accordance with
the regulations of the Federal Reserve Board, to promptly
deliver to the Company the amount of sale or loan proceeds to
pay the exercise price and any federal, state or local
withholding tax obligations that may arise in connection with
the exercise; provided, that the Plan Administrator may at any
time determine that this section 5.5.3, to the extent the
instructions to the broker call for an immediate sale of the
shares, shall not be available to any Optionee who is subject
to Section 16(b) of the Exchange Act if such transaction would
result in a violation of Section 16(b), or if such Optionee is
not an employee at the time of exercise;
<PAGE> 6
5.5.4 Delivery of Withholding Notice. Delivery of
a properly executed written exercise notice together with
instructions to the Company to withhold upon exercise, from
the shares that would otherwise be issued, that number of
shares having a fair market value equal to the Exercise Price.
5.6 Withholding Tax Requirement. The Company or any
related entity shall have the right to retain and withhold from any
payment of cash or Common Stock under this Plan the amount of taxes
required by any government to be withheld or otherwise deducted and
paid with respect to such payment. At its discretion, the Company may
require an Optionee receiving shares of Common Stock to reimburse the
Company for any such taxes required to be withheld by the Company, and
may withhold any distribution in whole or in part until the Company is
so reimbursed. In lieu of such withholding or reimbursement, the
Company shall have the right to withhold from any other cash amounts
due or to become due from the Company to the Optionee an amount equal
to such taxes or to retain and withhold a number of shares having a
market value not less than the amount of such taxes required to be
withheld by the Company to reimburse the Company for any such taxes
and cancel (in whole or in part) any such shares so withheld. If
required by Section 16(b) of the Exchange Act, the election to pay
withholding taxes by delivery of shares held by any person who at the
time of exercise is subject to Section 16(b) of the Exchange Act,
shall be made during the quarterly 10-day window period required under
Section 16(b) of the Exchange Act for exercises of stock appreciation
rights.
5.7 Non-assignability of Option. Options and the rights
and privileges conferred by this Plan shall not be transferred,
assigned or pledged in any manner (whether by operation of law or
otherwise) other than (i) by will or by the applicable laws of descent
and distribution, or (ii) by gift to members of the Optionee's family,
including grandparents, parents, spouses, siblings, children,
grandchildren and great-grandchildren, or trusts for the benefit of
such family members, or to charitable organizations, and shall not be
subject to execution, attachment or similar process. Any attempt to
transfer, assign, pledge or otherwise dispose of any Option or of any
right or privilege conferred by this Plan, contrary to the Code or to
the provisions of this Plan, or the sale or levy or any attachment or
similar process upon the rights and privileges conferred by this Plan
shall be null and void. Notwithstanding the foregoing, an Optionee
may, during the Optionee's lifetime, designate a person who may
exercise the Option after the Optionee's death by giving written
notice of such designation to the Plan Administrator. Such
designation may be changed from time to time by the Optionee giving
written notice to the Plan Administrator revoking any earlier
designation and making a new designation. In the event that no such
designation is made, the executor or personal representative of the
Optionee's estate shall have any rights then remaining to the Optionee
or his estate under this Plan.
5.8 Duration of Option. Vested Options shall terminate,
to the extent not previously exercised, upon the occurrence of the
first of the following events: (i) the expiration of the Option, as
designated by the Plan Administrator in accordance with Section 5.3
above; (ii) the date of an Optionee's termination of employment with
the Company or any related corporation for cause (as determined in the
sole discretion of the Plan Administrator); (iii) the expiration of
ninety (90) days from the date of an Optionee's termination of
employment with the Company or any related corporation for any reason
whatsoever other than cause, death or Disability (as defined below)
unless the exercise period is extended by the Plan Administrator until
a date not later than the expiration date of the Option; or (iv) the
expiration of one year from (A) the date of death of the Optionee or
(B) cessation of an Optionee's employment by reason of Disability (as
<PAGE> 7
defined below) unless, the exercise period is extended by the Plan
Administrator until a date not later than the expiration date of the
Option. If an Optionee's employment is terminated by death, any
Option held by the Optionee shall be exercisable only by the person or
persons to whom such Optionee's rights under such Option shall pass by
the Optionee's will or by the laws of descent and distribution of the
state or county of the Optionee's domicile at the time of death. For
purposes of the Plan, unless otherwise defined in the Agreement,
"Disability" shall mean any physical, mental or other health condition
which substantially impairs the Optionee's ability to perform his or
her assigned duties for one hundred twenty (120) days or more in any
two hundred forty (240) day period or that can be expected to result
in death. The Plan Administrator shall determine whether an Optionee
has incurred a Disability on the basis of medical evidence acceptable
to the Plan Administrator. Upon making a determination of Disability,
the Plan Administrator shall, for purposes of the Plan, determine the
date of an Optionee's termination of employment.
Unless accelerated in accordance with Section 7, unvested
Options shall terminate immediately upon termination of employment of
the Optionee by the Company for any reason whatsoever, including death
or Disability. For purposes of this Plan, transfer of employment
between or among the Company and/or any related corporation shall not
be deemed to constitute a termination of employment with the Company
or any related corporation. For purposes of this subsection with
respect to Incentive Stock Options, employment shall be deemed to
continue while the Optionee is on military leave, sick leave or other
bona fide leave of absence (as determined by the Plan Administrator).
The foregoing not withstanding, employment shall not be deemed to
continue beyond the first ninety (90) days of such leave, unless the
Optionee's re-employment rights are guaranteed by statute or by
contract.
5.9 Status of Shareholder. Neither the Optionee nor any
party to which the Optionee's rights and privileges under the Option
may pass shall be, or shall have any of the rights or privileges of, a
shareholder of the Company with respect to any of the shares issuable
upon the exercise of any Option unless and until such Option has been
exercised.
5.10 Right to Terminate Employment. Nothing in this Plan
or in any Option shall confer upon any Optionee any right to continue
in the employ of the Company or of a related entity, or to interfere
in any way with the right of the Company or of any related corporation
to terminate, at will, his or her employment or other relationship
with the Company at any time.
5.11 Modification and Amendment of Option. Subject to
the requirements of Code Section 422 with respect to Incentive Options
and to the terms, conditions and limitations of this Plan, the Plan
Administrator may modify or amend outstanding Options. The
modification or amendment of an outstanding Option shall not, without
the consent of the Optionee, impair or diminish any of his or her
rights or any of the obligations of the Company under such Option.
Except as otherwise provided in this Plan, no outstanding Option shall
be terminated without the consent of the Optionee. Unless the
Optionee agrees otherwise, any changes or adjustments made to
outstanding Incentive Options shall be made in such a manner so as not
to constitute a "modification" as defined in Code Section 424(h) and
so as not to cause any Incentive Option to fail to continue to qualify
as an "incentive stock option" as defined in Code Section 422(b).
5.12 Limitation on Value for Incentive Options. As to
all Incentive Options, to the extent that the aggregate fair market
value of the Common Stock with respect to which Incentive Options are
exercisable for the first time by the Optionee during any calendar
year (under this
<PAGE> 8
Plan and all other incentive stock option plans of the Company, a
related corporation or a predecessor corporation) exceeds $100,000,
those Options (or the portion of an Option) beyond the $100,000
threshold shall be treated as Nonqualified Options. If the Internal
Revenue Service publicly rules, issues a private ruling to the
Company, any Optionee, or any legatee, personal representative or
distributee of an Optionee or issues regulations changing or
eliminating such annual limit, the dollar limitation in the preceding
sentence shall be adjusted correspondingly.
6. GREATER THAN 10% SHAREHOLDERS. In the case of Incentive
Options granted to employees who own at the time of their grant ten percent
(10%) or more of the then-issued and outstanding voting stock of the Company,
the following rules shall apply:
6.1 Exercise Price and Term of Incentive Options. If
Incentive Options are granted to employees who own more than ten
percent (10%) of the total combined voting power of all classes of
stock of the Company or any related corporation, the term of such
individual's Incentive Options shall not exceed five (5) years and the
Exercise Price shall be not less than one hundred ten percent (110%)
of the fair market value of the Common Stock at the time the Incentive
Option is granted. This provision shall control notwithstanding any
contrary terms contained in an Option agreement or any other document.
6.2 Attribution Rule. For purposes of subsection 6.1,
in determining stock ownership, an employee shall be deemed to own
such shares as are owned by those persons or entities defined in Code
Section 424. For purposes of this Section 6, stock owned by an
employee shall include all stock actually issued and outstanding
immediately before the grant of the Incentive Option to the employee.
7. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. The aggregate
number and class of shares for which Options may be granted under this Plan,
the number and class of shares covered by each outstanding Option and the
Exercise Price per share thereof (but not the total price), and each such
Option, shall all be proportionately adjusted for any increase or decrease in
the number of issued shares of Common Stock of the Company resulting from a
split-up or consolidation of shares or any like capital adjustment, or the
payment of any stock dividend.
7.1 Effect of Liquidation, Reorganization or Change in
Control.
7.1.1 Cash, Stock or Other Property for Stock.
Except as provided in subsection 7.1.2, upon a merger (other
than a merger of the Company in which the holders of Common
Stock immediately prior to the merger have the same
proportionate ownership of Common Stock in the surviving
corporation immediately after the merger), consolidation,
acquisition of property or stock, separation, reorganization
(other than a mere reincorporation or the creation of a
holding company) or liquidation of the Company, as a result of
which the shareholders of the Company receive cash, stock or
other property in exchange for or in connection with their
shares of Common Stock, any Option granted under this Plan
shall terminate, but the Optionee shall have the right
immediately prior to any such merger, consolidation,
acquisition of property or stock, separation, reorganization
or liquidation to exercise such Option in whole or in part, to
the extent the vesting requirements set forth in the Option
agreement have been satisfied, unless stated otherwise in the
Optionee's individual Option agreement.
<PAGE> 9
7.1.2 Conversion of Options on Stock for Stock
Exchange. If the shareholders of the Company receive capital
stock of another corporation ("Exchange Stock") in exchange
for their shares of Common Stock in any transaction involving
a merger (other than a merger of the Company in which the
holders of Common Stock immediately prior to the merger have
the same proportionate ownership of Common Stock in the
surviving corporation immediately after the merger),
consolidation, acquisition of property or stock, separation or
reorganization (other than a mere reincorporation or the
creation of a holding company), all Options granted under this
Plan shall be converted into options to purchase shares of
Exchange Stock unless the Company and the Corporation issuing
the Exchange Stock, in their sole discretion, determine that
any or all such Options shall not be converted into options to
purchase shares of Exchange Stock, but instead shall terminate
in accordance with the provisions of subsection 7.1.1. The
amount and price of converted options shall be determined by
adjusting the amount and price of the Options in the same
proportion as used for determining the number of shares of
Exchange Stock the holders of the Common Stock receive in such
merger, consolidation, acquisition of property or stock,
separation or reorganization. Unless accelerated by the
Board, the exercise limitations set forth in the Option
agreement and the Plan shall continue to apply for the
Exchange Stock.
7.1.3 Change in Control. In the event of a
"Change in Control", as defined below, of the Company, unless
otherwise determined by the Board prior to the occurrence of
such Change in Control, any Options or portions of such
Options outstanding as of the date such Change in Control is
determined to have occurred that are not yet fully vested on
such date shall become immediately exercisable in full.
7.1.4 Definition of "Change in Control". For
purposes of this Plan, a "Change in Control" shall mean (a)
the first approval by the Board or by the stockholders of the
Company of an Extraordinary Event, (b) a Purchase, or (c) a
Board Change. For purposes of the Plan such terms shall have
the following meanings:
7.1.4.1 an "Extraordinary Event" shall mean
any of the following actions: (i) any consolidation
or merger of the Company in which the Company is not
the continuing or surviving corporation or pursuant
to which shares of Common Stock would be converted
into cash, securities or other property, other than a
merger of the Company in which the holders of Common
Stock immediately prior to the merger have the same
proportionate ownership of common stock of the
surviving corporation immediately after the merger;
(ii) any sale, lease, exchange or other transfer (in
one transaction or a series of related transactions)
of all, or substantially all, the assets of the
Company; or, (iii) the adoption of any plan or
proposal for liquidation or dissolution of the
Company.
7.1.4.2 a "Purchase" shall mean the
acquisition by any person (as such term is defined in
Section 13(d) of the Exchange Act) of any shares of
Common Stock or securities convertible into Common
Stock without the prior approval of a majority of the
Continuing Directors (as defined below) of the
Company, if after making such acquisition such person
is the beneficial owner (as such term is defined in
Rule 13d-3 under the Exchange Act) directly or
indirectly of Securities of the Company representing
twenty percent (20%) or more of the
<PAGE> 10
combined voting power of the Company's then
outstanding securities (calculated as provided in
paragraph (d) of such Rule 13d-3).
7.1.4.3 a "Board Change" shall have occurred
if individuals who constitute the Board of the
Company at the time of adoption of this Plan (the
"Continuing Directors") cease for any reason to
constitute at least a majority of the Board, provided
that any person becoming a Director subsequent to the
date of adoption of this Plan whose nomination for
election was approved by a vote of at least a
majority of the Continuing Directors (other than a
nomination of an individual whose initial assumption
of office is in connection with an actual threatened
election contest relating to the election of the
Directors of the Company, as such terms are used in
Rule 14a-11 of Regulation 14A under the Exchange Act)
shall be deemed to be a Continuing Director.
7.2 Fractional Shares. In the event of any adjustment
in the number of shares covered by any Option, any fractional shares
resulting from such adjustment shall be disregarded and each such
Option shall cover only the number of full shares resulting from such
adjustment.
7.3 Determination of Board to Be Final. All Section 7
adjustments shall be made by the Board, and its determination as to
what adjustments shall be made, and the extent of such adjustments,
shall be final, binding and conclusive. Unless an Optionee agrees
otherwise, any change or adjustment to an Incentive Option shall be
made in such a manner so as not to constitute a "modification" as
defined in Code Section 424(h) and so as not to cause his or her
Incentive Option to fail to continue to qualify as an incentive stock
option as defined in Code Section 422(b).
8. SECURITIES REGULATION. Shares shall not be issued with
respect to an Option unless the exercise of such Option and the issuance and
delivery of such shares pursuant to the exercise of such Option shall comply
with all relevant provisions of law, including, without limitation, any
applicable state securities laws, the Securities Act of 1933, as amended, the
Exchange Act, the rules and regulations promulgated thereunder, and the
requirements of any stock exchange upon which the shares may then be listed,
and shall be further subject to the approval of counsel for the Company with
respect to such compliance, including the availability of an exemption from
registration for the issuance and sale of any shares under this Plan.
Inability of the Company to obtain from any regulatory body having
jurisdiction, the authority deemed by the Company's counsel to be necessary for
the lawful issuance and sale of any shares under this Plan or the
unavailability of an exemption from registration for the issuance and sale of
any shares under this Plan shall relieve the Company of any liability in
respect of the non-issuance or sale of such shares as to which such requisite
authority shall not have been obtained.
As a condition to the exercise of any Option, the Company may require
the Optionee to represent and warrant at the time of any such exercise that the
shares are being purchased only for investment and without any present
intention to sell or distribute such shares if, in the opinion of counsel for
the Company, such a representation is required by any relevant provision of the
aforementioned laws. At the option of the Company, a stop-transfer order
against any shares of stock may be placed on the official stock books and
records of the Company, and a legend indicating that the stock may not be
pledged, sold or otherwise transferred unless an opinion of counsel is provided
(concurred in by counsel for the Company) stating that such transfer is not in
violation of any applicable law or regulation, may be stamped on stock
certificates in order to assure exemption from registration. The Plan
Administrator may also require such other action or agreement by the Optionees
as may from time to time be necessary
<PAGE> 11
to comply with the federal and state securities laws. THIS PROVISION SHALL NOT
OBLIGATE THE COMPANY TO UNDERTAKE REGISTRATION OF THE OPTIONS OR STOCK
HEREUNDER. Should any of the Company's capital stock of the same class as the
stock subject to Options be listed on a national securities exchange, all stock
issued under this Plan if not previously listed on such exchange shall be
authorized by that exchange for listing on such exchange prior to the issuance
of such stock.
9. AMENDMENT AND TERMINATION. This Plan may be amended from
time to time as follows:
9.1 Board Action. The Board may at any time suspend,
amend or terminate this Plan; provided, that except as set forth in
Section 7, the approval of the Company's shareholders is necessary
within twelve (12) months before or after the adoption by the Board of
any amendment which will:
9.1.1 increase the number of shares which are to be
reserved for the issuance of Options;
9.1.2 permit the granting of stock options to a
class of persons other than those presently permitted to
receive Options; or,
9.1.3 require shareholder approval under applicable
law, including Section 16(b) of the Exchange Act.
Any amendment made to this Plan which would constitute a
"modification" to Incentive Options outstanding on the date of such
amendment, shall not be applicable to such outstanding Incentive
Options, but shall have prospective effect only, unless the Optionee
agrees otherwise.
9.2 AUTOMATIC TERMINATION. Unless sooner terminated by
the Board, this Plan shall terminate ten (10) years from the earlier
of (i) the date on which this Plan is adopted by the Board or (ii) the
date on which this Plan is approved by the shareholders of the
Company. No Option may be granted after such termination or during
any suspension of this Plan. The amendment or termination of this
Plan shall not, without the consent of the option holder, alter or
impair any rights or obligations under any option previously granted
under this Plan.
10. EFFECTIVENESS OF THIS PLAN. This Plan shall become effective
upon adoption by the Board so long as it is approved by the Company's
shareholders any time within twelve (12) months before or after the adoption of
this Plan.
MACKIE DESIGNS INC.
AMENDED AND RESTATED 1995 STOCK OPTION PLAN
AMENDMENT ADOPTED BY THE BOARD OF DIRECTORS MARCH 11, 1997
Section 5.7 is replaced in its entirety by the following:
5.7 Non-assignability of Option. Options and the rights and
privileges conferred by this Plan shall not be transferred, assigned or pledged
in any manner (whether by operation of law or
<PAGE> 12
otherwise) other than by will or by the applicable laws of descent and
distribution, except that the Plan Administrator may also in its discretion
allow transferability of Nonqualified Options only by gift to members of the
Optionee's family, including grandparents, parents, spouses, siblings,
children, grandchildren and great-grandchildren, or trusts or partnerships for
the benefit of such family members, or to charitable organizations. Options
and the rights and privileges conferred by this Plan shall not be subject to
execution, attachment or similar process. Any attempt to transfer, assign,
pledge or otherwise dispose of any Option or of any right or privilege
conferred by this Plan, contrary to the Code or to the provisions of this Plan,
or the sale or levy or any attachment or similar process upon the rights and
privileges conferred by this Plan shall be null and void. Notwithstanding the
foregoing, an Optionee may, during the Optionee's lifetime, designate a person
who may exercise the Option after the Optionee's death by giving written notice
of such designation to the Plan Administrator. Such designation may be changed
from time to time by the Optionee giving written notice to the Plan
Administrator revoking any earlier designation and making a new designation.
In the event that no such designation is made, the executor or personal
representative of the Optionee's estate shall have any rights then remaining to
the Optionee or his estate under this Plan.
<PAGE> 1
EXHIBIT 11.1
COMPUTATION OF NET INCOME PER SHARE
MACKIE DESIGNS INC.
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Weighted average common shares outstanding 12,881,038 11,038,356 10,000,000
Net effect of dilutive stock equivalents based on the
treasury stock method using greater of average or ending
market price 770,875 990,934 948,526
Sale of common stock from the initial public offering
assumed to repay amounts due to pre-IPO shareholders for
undistributed S Corporation earnings - 715,175 1,139,907
----------- ----------- -----------
Total weighted shares outstanding 13,651,913 12,744,465 12,088,433
=========== =========== ===========
Net income $ 7,420,659
===========
Net income per share $ 0.54
===========
Pro forma data:
Pro forma net income $ 9,026,345 $ 7,555,508
=========== ===========
Pro forma net income per share $ 0.71 $ 0.63
=========== ===========
</TABLE>
<PAGE> 1
EXHIBIT 13.1
NEW MARKETS
NEW PRODUCTS
NEW OPPORTUNITIES
96
MACKIE DESIGNS INC.
ANNUAL REPORT 1996
<PAGE> 2
FINANCIAL HIGHLIGHTS
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE DATA)
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended Year Ended Year Ended
12/31/96 12/31/95 12/31/94 12/31/93 12/31/92
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF
INCOME DATA
- ----------------------------------------------------------------------------------------------------------------------------------
Net Sales $ 73,236 $ 63,919 $ 49,907 $ 21,934 $ 12,386
- ----------------------------------------------------------------------------------------------------------------------------------
Gross Profit $ 28,025 $ 27,163 $ 21,887 $ 9,610 $ 5,624
- ----------------------------------------------------------------------------------------------------------------------------------
Operating Expenses $ 17,784 $ 13,627 $ 10,388 $ 5,881 $ 3,203
- ----------------------------------------------------------------------------------------------------------------------------------
Pro Forma Net Income (a) $ 7,421 $ 9,026 $ 7,555 $ 2,437 $ 1,577
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA
- ----------------------------------------------------------------------------------------------------------------------------------
Working Capital $ 32,020 $ 30,154 $ 7,004 $ 2,850 $ 1,527
- ----------------------------------------------------------------------------------------------------------------------------------
Total Assets $ 46,256 $ 38,046 $ 13,592 $ 6,552 $ 3,521
- ----------------------------------------------------------------------------------------------------------------------------------
Long-Term Debt $ 0 $ 0 $ 383 $ 82 $ 0
- ----------------------------------------------------------------------------------------------------------------------------------
Shareholders' Equity $ 42,283 $ 34,807 $ 8,244 $ 3,624 $ 2,150
- ----------------------------------------------------------------------------------------------------------------------------------
PER COMMON SHARE DATA
- ----------------------------------------------------------------------------------------------------------------------------------
Earnings Per Share $ 0.54 $ 0.71 $ 0.63 $ 0.20 $ 0.13
- ----------------------------------------------------------------------------------------------------------------------------------
Net Cash Flow From Operating Activities $ 0.50 $ 0.50 $ 0.51 $ 0.21 $ 0.13
- ----------------------------------------------------------------------------------------------------------------------------------
Book Value $ 3.10 $ 2.73 $ 0.68 $ 0.30 $ 0.18
- ----------------------------------------------------------------------------------------------------------------------------------
Shares Used In Pro Forma Net Income
Per Share 13,651,913 12,744,465 12,088,433 12,088,433 12,088,433
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Through 8/16/95, the Company was taxed as an S Corporation and therefore was
not subject to income taxes. The pro forma income statement data includes
certain adjustments to reflect a provision for income taxes as if the Company
had been subject to income taxes as a C Corporation.
Product and award photography by Dave Crosier.
People and facilities photography by Richard McNamee.
The following are registered trademarks or trademarks of Mackie Designs Inc.:
"MACKIE.", the "Running Man" figure, UltraMix, VLZ, FR Series, HR Series, HUI,
UltraMix Pro, Ultra-34, UltraMute, UltraPilot, V-Pot, V-Strip. This document
also contains names and marks of other Companies.
(INSIDE FRONT COVER)
<PAGE> 3
Company Profile
Mackie Designs Inc. has produced professional audio mixing systems since
1989. Used in virtually all live and recorded sound applications, mixers combine
sound sources, such as voices, musical instruments, or sound effects, into a
finished audio blend.
Mackie maintains a strong position in the professional audio market and has
an exceptionally loyal brand following earned through the company's reputation
for quality, value, and design reliability.
In 1996, Mackie Designs expanded its product line to include large-format
concert/theatrical mixing consoles and introduced a new line of power
amplifiers, the first in a series of non-mixer-related professional audio
products.
Mackie products are distributed globally by independent distributors and
manufacturers' representatives through a well-established network of retail and
specialty dealers in over 100 countries.
To achieve our corporate goals of high quality, low manufacturing costs,
and production flexibility, Mackie stresses vertical integration. Our
160,000-square-foot facility in Woodinville, Washington includes on-site sheet
metal production, a paint facility, and printed circuit board assembly.
Considered within the electronics industry to be a state-of-the-art
manufacturer, Mackie employs production methods that are environmentally
friendly and that allow maximum control over critical aspects of product
quality.
Markets for mixing systems include commercial and home recording studios,
motion picture productions, television and radio stations, churches, schools,
theaters, and auditoriums. Opportunities are also expanding in the multimedia
production market, which is growing at a yearly rate of approximately 25%.
As the information and media markets continue to grow at rapid rates, the
potential market for mixers and other professional audio products is also
steadily increasing. Current composite growth in our core markets is
accelerating at a phenomenal rate.
Mackie Designs has a significant share of the low to mid-priced mixer
market. We believe that this success will be leveraged as we enter additional,
closely-related professional audio markets.
You hear Mackie Designs products from the time you wake up until the time you go
to bed.
-
You hear us when you listen to AM or FM radio. When you watch broadcast or cable
television.
-
When you listen to a compact disc or a cassette tape.
-
When you watch a videotape, access a multimedia CD-ROM, or receive audio over
the Internet.
-
Every Sunday, we're a part of the worship service at thousands of churches;
during the week, we play a key role in conference, presentation, and trade show
audio systems.
-
We're on Billboard magazine's Top 100 Albums Chart, on Broadway, and on the
field at NFL football games.
-
We're there when CNN reports live from the scene of a major news event.
-
And when top-rated television shows are taped.
-
In short, we're an indispensable part of every facet of audio production. And a
key player in the $4 billion dollar professional audio and music equipment
market.
1
<PAGE> 4
a) photo of Greg Mackie
Greg C. Mackie, Founder, Chairman and CEO
b) photo of SR40-8 console
SR40-8 Large-Format Live Sound Console, Mackie's debut in this market, which
includes large-scale theaters and churches, touring sound companies, and
permanent installations. The SR40-8 will be joined by the 56-channel SR56-8 in
1997.
TO OUR SHAREHOLDERS:
1996 was both a landmark year and a challenging year for Mackie Designs. We
continued to grow at a rapid rate. We developed, matured, and moved closer to
our goal of being the world's leading designer, manufacturer, and marketer of
professional audio products.
In keeping with Mackie's open, candid corporate culture, I want to first
address the one shadow in an otherwise bright year. To put it bluntly, delays in
shipping several new products adversely affected our 1996 revenue results.
In reviewing the circumstances surrounding these delays, I hope to give our
shareholders insight into how Mackie ultimately achieves an extraordinarily high
rate of product success -- as well as the measures we've taken to prevent
similar problems in the future.
QUALITY AND PROFITABILITY.
My vision since founding the company has focused on producing high quality
affordable professional audio equipment. Accordingly, Mackie Designs has set the
industry standard for reliable, ergonomic designs that boost productivity and
creativity.
Our superb reputation has also positioned us to capitalize on our
reputation by expanding into associated professional audio markets where the
same values -- high quality, affordability, and reliability -- are critical to
product acceptance.
Last year, we announced several lines of new products including power
amplifiers, studio monitor loudspeakers, large-format mixing consoles, and
digital interfaces. As prototypes of these products were debuted at major trade
shows, it became clear that we had correctly assessed the needs of the market.
Acceptance among dealers and customers was extremely positive and we booked an
impressive number of advance orders.
2
<PAGE> 5
Part of the challenge of growth into new markets is anticipating product
development schedules and release dates. Based on the enthusiastic reception
given our new products, we took an aggressive approach toward product release
timelines. Unfortunately, these accelerated, optimistic deadlines collided with
our dedication to product quality and manufacturing economy.
Let me explain.
To our customers, the products we make are not luxuries; they are
indispensable tools of the trade, used day in and day out to earn a living.
In the market, that means a Mackie Designs professional audio product must
perform flawlessly under any working condition and be a superb value.
Internally, it means that we would rather delay a product introduction until it
is both reliable and economical to produce, rather than compromising on quality
or long-term profit margins.
In the case of our power amplifiers and large-format sound reinforcement
consoles, reconciling these goals simply took longer than expected. We shipped
before the end of the year, but not in quantities that met our 1996 projections.
Increased production of quality product.
We have now taken steps to insure that future new products stay on
schedule. First, we've substantially increased our R&D staffing. We've
reorganized our Product Development department and given its product teams
greater levels of incentive and autonomy. We've also made significant changes in
the organization of our manufacturing work flow to implement new production
lines more rapidly.
In keeping with our philosophy of vertical integration, we've brought
on-line many manufacturing processes that went through installation and
shakedown during 1996. We are now taking full advantage of our two adjacent
facilities that total over 160,000 square feet.
a) photo of SR24-4 console
SR24-4 SR Series Sound Reinforcement Console Designed for use in live situations
of all kinds, especially night clubs, theaters, churches, and auditoriums, the
SR24-4 (and 32-channel SR32-4) provide maximum flexibility and durability at
affordable prices.
b) photo of award
Mackie Designs' CR1604-VLZ(R) was the first audio hardware product to ever win
AV Video magazine's coveted Platinum Award for innovation in technology.
c) photo of award
Videomaker magazine has bestowed Mackie with a number of honors, including the
1996 Best Product of the Year Award for the MS1402-VLZ(R).
3
<PAGE> 6
a) photo of MS1202-VLZ mixer
MS1202-VLZ(R) Compact Mic/Line Mixer Descendant of the original MS1202, this
small mixer is big on features and sonic performance. That's why they're found
in the setups of bands, home recording studios, video post and multimedia
suites, broadcast facilities, schools, and more.
b) photo of two awards
c) photo of award
Testament to Mackie's award-winning products. The 1996 TEC Award for the SR24-4
(top); The 1997 Music & Sound Retailer Award for the M-1200 power amplifier;
(below) New Media magazine's 1996 Hyper Award for MS1202-VLZ.
In addition to in-house metal fabrication, we have installed a
state-of-the-art coating and screening facility. As compared to outsourcing,
these on-site installations produce measurable cost savings per unit and allow
us to maintain a high product quality. They also give us an added measure of
flexibility. For example, reconfiguring our paint system to begin processing a
different model mixer or power amplifier chassis can be accomplished in a very
short time. This ability to "turn on a dime" lets us quickly adjust to market
demands without depending on the production schedules and lead times of outside
suppliers.
This kind of equipment is an investment in our future and we believe that
it will significantly enhance company performance.
KEY ADDITIONS TO OUR EXECUTIVE STAFF
The management team at Mackie has been strengthened by the addition of two
new talented leaders. I am proud to announce the appointment of Roy Wemyss as
Chief Operating Officer and Patric Wiesmann as Vice President of Marketing and
Business Development.
d) photo of Patric Wiesmann and Roy Wemyss
Patric Wiesmann (left), VP Marketing and Business Development, and Roy Wemyss,
Chief Operating Officer.
Roy Wemyss acted as interim COO for the Company from November 1996 through
February 1997, after which he was appointed Mackie's Chief Operating Officer.
Mr. Wemyss has over 25 years of broad business experience in domestic and
international manufacturing and distribution, and has implemented successful
sales and marketing strategies for global companies.
Patric Wiesmann, Mackie's Vice President of Marketing and Business
Development, has expertise and over 10 years of experience in strategic planning
and business development. Mr. Wiesmann has been responsible in prior positions
for tactical planning in marketing and sales, and has experience with marketing
and distribution channels for worldwide companies.
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Roy and Patric join a dynamic, enthusiastic group of seasoned management
and operations veterans, many of whom have years of tenure with Mackie and all
of whom have strong track records in other pro audio companies. Collectively, we
are working toward our common goal of producing the best-quality and best-value
professional audio products in the world.
Our dedication to that vision has made us successful in the past. We have
earned our reputation component by component, shipment by shipment. Looking
forward, I believe that we will experience continued growth as we apply our
vision toward additional product categories and technological enhancements to
our core product lines. This, together with our strong distributor, field
representative, and retail network, will strengthen our position in the global
professional audio marketplace.
1996 was a year in which we invested in future growth. We anticipate
reaping the benefits of this investment in 1997 and beyond.
Sincerely,
/s/ Greg C. Mackie
Greg C. Mackie
Founder and CEO
a) photo of awards
Musician magazine gave the CR1604-VLZ their 1997 Editor's Pick award (top), and
Music & Sound Retailer gave it their 1997 award (above).
b) photo of CR1604-VLZ mixer
CR1604-VLZ(R) Mic/Line Mixer A successful follow-up to the original CR-1604, the
CR1604-VLZ adds a wealth of features suggested by owners of the original, who
use their 1604s in home project studios, for live sound, and in video/multimedia
suites. CR1604-VLZs can also be found in permanent installations in churches,
auditoriums, and conference facilities.
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<PAGE> 8
a) photo of engineers
b) photo of engineers
c) photo of M-1400 power amp
d) photo of engineers
Mackie's product development engineering expanded greatly in 1996. Our
acoustic, analog, and digital engineers are working to make the company's
diversification a success. The introduction of products such as the HR824 active
near-field studio monitor, the FR Series(TM) power amplifiers, and the HUI(TM)
and Digital 8-Bus will poise Mackie for continued success. As we take advantage
of these new markets and opportunities, the engineering team will be
increasingly called on to provide the ideas and direction to move Mackie into
the 21st century.
M-1400 Fast Recovery Series Power Amplifier Along with the
M-1200, the FR Series(TM) power amplifiers offer premium power, features, and
durability at prices musicians can afford. You'll find the M-1400 in live sound
setups, studios, and permanent installations.
STRENGTH IN OUR CORE MARKETS FUELS A MAJOR R&D INITIATIVE.
If you ask leading industry observers, they'll tell you that Greg's first
Mackie Designs product, the CR-1604, not only redefined the pro audio industry
but actually helped create a completely new market: home hobbyist recording
studios.
In the past five years, the CR-1604 has been joined by nine other mixer
models, several of which have also become industry standards. In 1996, we
achieved one of the most difficult product marketing transitions: upgrading a
very successful model to achieve even greater user satisfaction. This new
version was introduced into the highly competitive retail market without
disrupting sales of other Mackie Designs mixing systems. The new "improved"
CR-1604 is outselling the old model by a wide margin.
Increased sales of our highest-volume compact mixer model, as well as the
addition of a new mid-line compact mixer, has caused our compact systems to
steadily increase in sales volume.
Much of Mackie's past growth has come from new products. 1996 saw us
significantly increase our investment in Research and Development by expanding
Product Development Engineering resources. This positions Mackie for major
growth in three extremely important markets: Acoustic, Analog, and Digital.
The Acoustic Group's first new product is an active studio reference
monitor. These small loudspeakers are used for critical listening in all
recording studios and video production facilities. Recent electronic and
transducer technology has created a new generation of monitors called active
(powered) monitors. However, until the debut of our new HR824, these active
monitors, which contain one or more power amplifiers and signal-processing
electronics, have been extremely expensive. Our new model rivals the best on the
market, yet is priced significantly lower.
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The Analog Group developed new power amplifier designs, one of which, the
M-1400, targets our growing international market. In keeping with our "more for
your money" approach, each amplifier model contains signal processing circuitry
that is not standard in competitive products.
In addition, the Analog Group completed development of our landmark SR40-8,
a large-format console for sound reinforcement applications.
The first product from our Digital Group will be HUI(TM), a Human User
Interface to be used with Digidesign(R) Pro Tools(R) 4.0 and other digital audio
workstations. Previewed in November at the 101st Audio Engineering Society
Convention, HUI enhances the mixing capabilities of Pro Tools, the world's
best-selling digital audio workstation software. HUI provides a
productivity-boosting hands-on interface for professionals in the motion
picture, broadcast, recording, and video production industries.
These products are just the beginning.
In January of 1997, at our industry's primary annual U.S. trade show, we
debuted the culmination of over eighteen months of intense work by the Digital
Group: the Mackie Digital 8-Bus. It combines our expertise in mixer ergonomics
with the latest digital technology, including on-board computer processing, hard
disk, SVGA monitor card, and high-speed modem for Internet access -- giving us a
strong introductory position in a high-potential product category.
a) photo of Human User Interface
[HUMAN USER INTERFACE (TM) LOGO]
HUI(TM) Human User Interface Designed for use with Digidesign(R)'s Pro Tools(R)
4.0, HUI allows users of digital audio workstations to mix sound in a more
familiar, tactile manner, rather than with a computer keyboard and mouse. Video
post editing and multimedia suites with digital audio workstations will
appreciate the creativity and ease-of-use provided by HUI.
b) photo of Digital Group
The Digital Group flanking one of their latest creations.
c) photo of HR824 studio monitor
HR824 Active Near-Field Studio Monitor. While mixers are important for putting
together sounds, having an accurate means of playback is equally critical. The
HR824 takes advantage of advances in active monitor technology to provide an
affordable high-quality studio monitor for use in project studios, larger
recording studios, video post and multimedia suites, and more.
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a) photo of paint facility
Overseeing the operation of the automated paint line.
<PAGE> 11
BUILDING A LOYAL FOLLOWING... THE HUMAN ELEMENT.
Audio mixing systems look complicated and intimidating.
a) photo of compact mixer users
Mackie mixers are so intuitive, people of all ages have learned to mix on them.
This segment of the market was largely created by our line of compact mixers.
b) photo of Mackie receptionists
When Mackie users call with tech support questions or requests for literature,
they don't have to suffer through an endless voice-mail maze.
c) photo of assembly line
One of the main reasons for Mackie's success is the people who work here.
From the people who put together the products to those who help sell and
publicize them to the folks who get them ready for shipment, it is the work of a
dedicated team that has made Mackie pro audio systems respected all over the
world.
We are looking forward to the challenges ahead in 1997 as Mackie adds a
number of new products to its roster. As a team, we will come together to repeat
our past successes.
d) photo of Mackie employee
e) photo of Mackie employee
f) photo of warehouse activities
At the company's inception, when we first targeted home hobbyists as well
as seasoned professionals, we knew that user friendliness would be a prime
selling point. Unlike many of our competitors, we have gone to great lengths to
make our products -- and Mackie Designs -- accessible, unintimidating, and
downright friendly to users of pro audio products.
At the product level, this was done by eliminating unnecessary
complication, adding clear labeling, intuitive ergonomics, and owner's manuals
so informative and fun to read that over 20% of warranty card comments include
compliments on the documentation.
Through our in-house marketing and advertising department, we've maintained
a friendly, approachable tone in everything from our shipping cartons to our
long-copy tabloid style brochures, award-winning videos, and extensive print
advertising.
Even more important, we follow through on our friendly, personal
communications with what many consider to be the best customer service in the
professional audio industry.
Instead of an automated phone "merry-go-round," live receptionists greet
callers and transfer them to our highly trained
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a) photo of warehouse
A tour of Mackie's spacious campus in Woodinville, WA shows a wealth of
creative, enthusiastic employees dedicated to producing top-quality pro audio
products. The modern, 160,000-square-foot facility occupies two-plus buildings
and is stocked with the tools and materials necessary for each employee to
succeed in a job well-done.
b) photo of Mackie employee
With the right people in place and the proper tools to do the job, Mackie is
headed in the right direction for 1997 and beyond.
c) photo of Executive staff
Mackie Executive Staff (Top row, left to right) Patric Wiesmann, Roy Wemyss, Tom
Elliott; (Bottom row) Janet Narduzzi, Greg Mackie, and Dave Firestone.
d) photo of technical support staff
Mackie's knowledgable technical support crew is readily available to handle any
problem.
e) photo of sales administration staff
Mackie's cheerful sales administration staff, including representatives for both
domestic and international sales.
Technical Support and Service staff. Each member of the Mackie support team has
many years of hands-on experience with professional audio equipment and is
equipped with a wide variety of representative sound systems for "remote"
problem solving. Our Tech Support Department is so much more easily accessed
than that of our competition that Mackie personnel often answer questions that
pertain to other brands as well -- a service that has gained us much
word-of-mouth praise among our customers.
Mackie's Service Department offers turnaround times that are legendary in
the industry. In an industry where professionals' livelihood often depends on
having a working audio mixer, this level of support has gained us a very loyal
following.
Finally, because there is a proven correlation between product knowledge on
the retail floor and increased sales, we created a Product Training Center. By
converting a block of previously unused space into a dedicated sound recording
training facility, we created a resource center where sales people and
technicians from our distributors, representatives, and dealers can receive
advanced hands-on product training.
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INDISPENSABLE TOOLS FOR EVERY KIND OF AUDIO PRODUCTION -- AND REPRODUCTION.
a) photo of MS1402-VLZ mixer
MS1402-VLZ(R) Compact Mic/Line Mixer. Big brother of the MS1202, the MS1404-VLZ
has six microphone inputs and faders on all channels for easier mixdown. This
compact workhorse can be found in TV newsrooms, on-stage with major touring
acts, and recording dialog for major motion pictures.
COMPACT MIXERS like the MS1202-VLZ(R), MS1402-VLZ(R), and CR1604-VLZ(R) are
used by individual musicians, hobbyists, and production teams. These general
purpose mixing systems are found in nightclubs, radio and TV stations, corporate
boardrooms, meeting facilities, multimedia companies, video production
companies, film sound facilities, rehearsal halls, and on-stage with performing
acts of all sizes. Because of their wealth of features, small size, and low
cost, Mackie compact mixers are found just about everywhere.
MID-SIZED MACKIE DESIGNS CONSOLES are used where more inputs and signal
routing flexibility are required. Our SR (Sound Reinforcement) Series is
designed primarily for use in locations that mix live sound, such as clubs,
churches, and performing arts theaters. The 8-Bus Series is so ubiquitous that
it has actually spawned an aftermarket for 8-Bus accessories such as
wood-paneled stands and enclosures. It is currently an industry standard for
commercial project studios and "in-house studios of the stars." Such major
recording acts as BoyzIIMen, Metallica, Queensryche, Dweezil Zappa, Bryan Adams,
Yes, k.d. lang, The Presidents of the United States of America, Blues Traveller,
and Earth, Wind and Fire have produced portions of current albums on Mackie
8-Bus consoles.
LARGE-FORMAT SR40-8 AND SR 56-8 CONSOLES are used in complex live mixing
situations such as major concerts, television
b) photo of 8-Bus console
8-Bus Recording Consoles Available in 16, 24, and 32 channel versions, the 8-Bus
has been used to record top-selling albums, major movie soundtracks, and
television commercials. The optional 24-E Expander allows even more channels,
and optional accessories such as The Stand and The SideCar make the 8-Bus the
perfect recording studio centerpiece.
c) photo of Mackie mixer user
You don't have to look very hard to find Mackie Designs pro audio products.
In all kinds of places our mixers, amplifiers, and other products are doing all
kinds of things.
ROB POTTORF designs music and sound effects for the rides, attractions, and
live shows at Paramount Parks. His 8-Bus recording console allows him the
flexibility and maximum inputs it takes to make one of these experiences come to
life.
d) photo of Mackie mixer user
Meanwhile, KEVIN CASTRO uses his 8-Bus to mix sound for the daily skits
presented on The Tonight Show. Kevin's harried work -- skits are typically shot,
mixed, and aired the same day -- leaves him no time for mixers with complicated
user interfaces. He says using the 8-Bus has made his video sound-editing gig a
lot easier.
Way up north in Seattle, TOM MCGURK spends all his time at Bad Animals
recording studio. There he concocts Emmy(R) award-winning sound for the highly
trumpeted children's science TV show, BILL NYE THE SCIENCE GUY. His trusty
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8-bus and LM-3204 line-mixer deliver what he calls "awesome sounding results."
There's more to television sound than studio recording. Major broadcast
networks from around the world, such as CNN, NBC, and more, count on Mackie
mixers to deliver clean audio for their global satellite broadcasts.
At the 1996 SUMMER OLYMPICS in Atlanta, PETE ADDAMS and his crew used a
number of compact Mackies for microphone feeds to send out the ultra-clean
signal to various networks across the planet.
a) photo of Mackie users
Our compact CR1604-VLZ, MS1402-VLZ, and MS1202-VLZ mixers have also been used
for successive Super Bowl broadcasts, NBA games, and countless other events.
Of course, musicians, producers, and engineers also rely on Mackie mixers for
clean, crisp sound in their recording studios and out on tour.
Famous guitarist (not to mention famed guitarist's son) DWEEZIL ZAPPA has an
old Neve recording console a few feet away from his bedroom. Unfortunately, this
very expensive mixer is kept busy with the unreleased work of his dad, Frank. So
Dweezil bought himself a sonically uncompromising 8-bus and some digital
multitrack recorders to get on with his latest project, What the Hell Was I
Thinking?
b) photo of Mackie user
productions, and large churches and auditoriums. The SR40-8 represents the first
live console priced under $10,000 to meet or exceed the capabilities of
competitive products costing significantly more. For example, one of the first
SR40-8s arrived at The Nashville Network just thirty minutes before a major live
concert taping session. The staff not only got their new SR40-8 connected and
functioning before air time, but created a sound mix so much clearer than had
been possible with the previous console that they received a standing ovation.
c) photo of UltraMix(R) Universal Automation System
Ultra Mix* Universal Automation System. Designed to work with any mixer,
UltraMix gives the user a way of automating tricky time-consuming mix
procedures. It also makes automation affordable to home project studios,
video/multimedia suites, and more.
If a mixer is a typewriter, then a mixer with Mackie's ULTRAMIX(R)
UNIVERSAL AUTOMATION SYSTEM becomes a computerized word processor. UltraMix
brings digital control -- including the ability to dynamically record levels,
edit, store, and recall files -- to any existing mixing console. A combination
of hardware control box, UltraPilot(TM) hands-on interface, and Windows(R) 95 or
Macintosh(R) computer software, UltraMix can be retrofitted to any existing
mixer of any brand, for full control of up to 130 channels. Because of its
affordable price tag, UltraMix brings the ease and creativity of automation to
practically any facility, including commercial recording studios and project
studios, and television and radio audio production suites.
STUDIO MONITORS are a critical part of every commercial and home audio
production facility. In effect, they're the only part of hundreds of thousands
of dollars worth of
d) graphic of cutaway view of inside an HR824 studio monitor
"Cutaway" view of the inside of an HR824 Active Studio Monitor.
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equipment that the engineer and producer actually hear. Thus professional audio
monitors must be unflinchingly accurate. Within the last five years, a new
generation of monitors with active internal electronics and amplification have
increased sound fidelity dramatically. However, their price has kept them out of
reach for all but the biggest-budget studios. In typical Mackie fashion, our new
HR824 High-Resolution Studio Reference Monitors provide the audible benefits of
active circuitry (including internal FR Series-based amplifiers) at a
significantly lower price than our imported competition.
a) photo of cutaway view of M-1400 power amplifier
"Cutaway" view of the inside of an M-1400 FR Series(TM) power amplifier.
POWER AMPLIFIERS boost a mixer's output to the high levels required for
sound reinforcement loudspeakers. Applications range from touring sound systems
used for pop concerts and touring Broadway productions to fixed installations in
theaters, large churches, auditoriums, DJ/dance systems, and sports arenas. Our
FR Series(TM) M-1200 and M-1400 provide exceptional sound quality and
durability... even when pushed to extremely high levels. They also include
numerous sound-enhancing circuits that are often expensive add-ons in
competitive amplifiers.
Digital audio workstations (DAWs) combine the flexibility of a computer
interface and the superb sonic quality of digital hard disk recording. However,
by their very nature, DAWs substitute virtual screen images (accessible only
with a mouse) for the hands-on faders and knobs that sound engineers are used to
manipulating. Our HUI(TM) HUMAN USER INTERFACE DAW CONTROLLER will provide an
ergonomic human interface that can significantly improve workstation ease-of-
use and productivity. Initially developed to directly interface with
market-leader Digidesign(R)'s Pro Tools(R) 4.0, HUI will eventually be
compatible with other DAWs as well. The Human User Interface will enable Mackie
to capitalize on the $1.3 billion yearly digital audio
b) photo of HUI(TM) Human User Interface
HUI(TM) Human User Interface.
The album features practically every great guitarist on the planet.
Like Dweezil, JON ANDERSON needs no introduction. As the vocalist and
songwriting frontman for YES, his ethereal voice can be heard on classic rock
stations all over the world. Jon has recorded solo albums, Irish music albums,
and even the latest Yes project with help from various Mackie mixers and
UltraMix automation.
c) photo of Mackie users
MARC RAMAER, too, can afford higher-priced mixers. He is, among other things,
K.D. Lang's right-hand man when it comes to sound. He designed her studio around
a Mackie 8-bus system and helps her track and mix her dazzling records,
including her 1996 big-seller, All You Can Eat. One listen to the work he does
is the best compliment we can get -- he chose Mackie consoles because of their
superlative transparent sound and excellent headroom.
The sonic quality and affordability of Mackie mixers is appreciated by
musicians and engineers of all levels. JEFF THOMAS, an engineer for the DAVE
MATTHEWS BAND, one of the year's biggest new acts, gets to listen to the band
perform almost every night. He records their performances on digital multitrack
recorders via four Mackie CR-1604 compact mixers. Dave Matthews' bass player,
STEPHANE LESSARD, uses his 8-bus recording console for writing and producing
side projects.
d) photo of Mackie user
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a) photo of Mackie users
CHRIS BALLEW and DAVE DEDERER recorded "demo" versions of THE PRESIDENTS OF
THE UNITED STATES OF AMERICA's recent Columbia LP, II, on an MS1202-VLZ compact
mixer, and then added two CR1604-VLZ mixers to their home studios. There they'll
be recording B-sides for singles off their second CD and demos for future
albums.
No matter what the application, no matter what level of musician, Mackie's
complete line of recording, live sound, and compact mixers can be found doing
the job every day of the year. It's because of their reliability, superb sound
quality, ergonomic design, and affordability. And probably good word-of-mouth.
b) photo of SR40-8 console
workstation market by providing a tool that many professionals will incorporate
into their multimedia, film, and video post-production tasks.
Our new DIGITAL 8-BUS was termed by one leading industry trade editor,
"...the overwhelming high point" of the recent 1997 National Association of
Music Merchants (NAMM) convention. While this product is not slated to ship
until mid-1997, we feel that it is important to include the Digital 8-Bus in
this report because the bulk of its development was accomplished during 1996 by
our Digital Group. As our banners stated at the recent NAMM trade show, "We
didn't do digital first. We did digital right." We believe that the Digital
8-Bus will be a significant source of revenue in 1997 and beyond.
c) digital graphic
d) photo of Mackie retailer
Retailers all over the world use eye-catching displays
to show Mackie pro audio products. Pictured here is
Guitar Center in Hollywood, CA.
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LEVERAGING MACKIE
BRAND EQUITY WORLDWIDE.
Currently estimated at $815 million per year, the worldwide mixer market
continues to grow at a rate of approximately 11% annually. We believe that this
steady expansion of mixer use reflects the general public's increasing
sophistication and expectation of audio quality. While analog mixers will remain
a strong category for decades to come, digital mixing systems are gaining market
share. Our 1997 digital mixer product introductions are intended to firmly
position us for long-term future growth as this product segment grows.
The overall global pro audio and musical instrument markets are estimated
at over $4 billion. Because a significant share of this sum is sales of power
amplifiers, sound reinforcement loudspeakers and non-mixer digital products, we
believe that there is enormous growth potential for Mackie in other professional
audio product categories.
a) world graphic
With established distribution in over 100 countries, Mackie's international
business has been expanding at a steady rate and continues to be our biggest
opportunity for revenue growth. By the end of 1996, international sales of
Mackie Designs products had grown to 38% of our overall business. During 1996,
Mackie added an International Sales Manager and support personnel, strengthened
our relationships with current distributors, developed new ones in the few
countries into which we don't already sell, and addressed international
customers' country-specific voltage and safety requirements. We now create
owner's manuals and sales literature in many languages, provide translated
product training videos and print advertisements for use by our distributors,
and we are coordinating our public relations and artist relations promotions to
target global markets.
b) photo of sales representatives
International sales representatives attended
Mackie 1996 Post-NAMM invitational, where they
were given tours of the Mackie facilities and a
chance to learn more about selling our products.
c) photos of Mackie advertisements
An assortment of international advertisements
shows Mackie's commitment to global markets.
d) photo of salespeople
Attendance at international trade shows give us
the chance to meet customers and sales people
from all corners of the globe.
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a) Mackie display at NAMM
As usual, Mackie creates a splash at NAMM '96, Anaheim, CA.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The following information contains certain forward-looking statements that
anticipate future trends or events. These statements are based on certain
assumptions that may prove to be erroneous and are subject to certain risks
including, but not limited to, the Company's ability to introduce new products,
the concentration of the Company's current products in a relatively narrow
segment of the professional audio market, technological change and increased
competition in the industry, the Company's ability to manage its rapid growth,
its limited protection of technology and trademarks, various factors that impact
the Company's international operations including custom and tariff regulations,
currency fluctuations and lower gross margins, the Company's dependence on a
limited number of suppliers and on its network of representatives and
distributors, and its dependence on certain key personnel within the Company.
Accordingly, actual results may differ, possibly materially, from the
predictions contained herein.
The Company derives its operating revenue from worldwide sales of audio
mixers and other professional audio equipment. Sales outside the U.S. account
for a significant portion of the Company's total sales. International sales
volumes have historically been affected by foreign currency fluctuations
relative to the U.S. dollar. The Company prices its products in U.S. dollars
worldwide. When weaknesses of local currencies have made the Company's products
more expensive, sales to those countries have declined.
The Company's gross margins are affected by its international sales.
Typically, gross margins from exported products are lower than from those sold
in the U.S. due to discounts offered to the Company's international
distributors. The Company offered its international distributors a weighted
average discount of approximately 12.7% in 1996, 8.1% in 1995 and 7.7% in 1994.
The increase in 1996 was attributable to the fact that the Company increased its
discounts to foreign distributors after it terminated the services of its
exclusive representative for sales to foreign distributors in 1995 and began
supervising international marketing and sales internally. Sales outside the U.S.
represented approximately 38%, 34% and 36% of the Company's net sales in 1996,
1995 and 1994, respectively. The Company expects to increase the percentage of
sales to its international markets. This trend is expected to have a negative
effect on gross margins. While the Company has eliminated the commissions it was
paying to its international representative, the Company has incurred and will
continue to incur additional expenses associated with managing international
marketing and sales internally. This is expected to result in a net decrease in
sales and marketing expenses as a percentage of net sales. The Company also
plans to increase its advertising efforts in international markets which will
increase sales and marketing expenses.
The Company's gross margins are also affected by the purchase of some
components abroad. As a result of fluctuations in the value of local currencies
relative to the U.S. dollar, some of the Company's foreign component suppliers
have increased prices and may further increase prices. The Company currently
does not employ any foreign exchange hedging strategies, but may employ such
strategies in the future.
The Company does not generally track backlog. Generally, orders are shipped
within two weeks after receipt. In the case of new product introductions or
periods where product demand exceeds production capacity, the Company allocates
products to customers on a monthly basis until demand is met.
The Company's gross margins have fluctuated from time to time due primarily
to inefficiencies related to the introduction and manufacturing of new products
and inefficiencies associated with integrating new equipment into the Company's
manufacturing processes. Historically, fluctuations have also resulted from
increases in overhead associated with each of the Company's several relocations,
varying prices of components and competitive pressures.
The Company plans to introduce new products and product revisions at a more
rapid rate than it has in the past. Some anticipated new products will require
the implementation of manufacturing practices with which the Company is not
familiar. This could result in lower margins as the Company becomes more
familiar with new manufacturing procedures.
As a result of its election to be treated as an S Corporation, the Company
was exempt from the payment of federal income taxes through August 16, 1995.
Accordingly, the Company's financial statements do not contain a provision for
income tax expense for periods through that date. Pro forma income statement
information is provided to reflect a provision for income taxes as if the
Company had been subject to federal income taxes as a C Corporation for all
periods presented.
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Results of Operations
Year Ended December 31, 1996
as Compared with
Year Ended December 31, 1995
NET SALES
The Company's net sales increased 14.6% to $73.2 million in 1996 from $63.9
million in 1995. The increase in sales was primarily attributable to an increase
in sales of two product lines: compact mixers and the SR Series mixers. Sales of
compact mixers increased to 53% of net sales in 1996 from 35% in 1995. Sales of
the SR Series mixers increased to 20% of net sales in 1996 from 17% in 1995.
Sales outside the U.S. represented 38% and 34% of the Company's net sales in
1996 and 1995, respectively.
COST OF SALES
Gross profit was $28.0 million in 1996 compared with $27.2 million in 1995.
Gross profit as a percentage of net sales decreased to 38.3% in 1996 from 42.5%
in 1995. The decrease was due to increases in discounts offered to international
distributors following the Company's decision, effective November 1, 1995, to
terminate the services of its exclusive representative for sales to distributors
outside the U.S. and Canada. Since then, the Company has supervised the
international marketing and sales of its products internally. The decrease in
gross margin percentage was also due to a difference in product mix in 1996
compared with 1995 as sales of the MS1202-VLZ (introduced in the fourth quarter
of 1995 as the successor to the MS-1202) and the CR1604-VLZ (introduced in the
first quarter of 1996 as the successor to the CR-1604) provided lower gross
margin percentages than their predecessors. As the Company has introduced new
versions of existing products, it has added more features to them without
significant price increases. Additionally, the gross margin decreased due to
labor and overhead inefficiencies caused by a lower than anticipated sales
volume in the third and fourth quarters of 1996.
MARKETING AND SALES
Marketing and sales expenses increased to $9.2 million in 1996 from $9.0
million in 1995. The increase was due primarily to increases in marketing staff.
The primary components of marketing and sales expenses include salaries ($1.7
million in 1996 and $1.2 million in 1995), independent representatives'
commissions ($2.9 million in 1996 and $3.9 million in 1995), and advertising
($2.7 million in 1996 and $2.6 million in 1995). Marketing and sales expenses as
a percentage of net sales were 12.6% in 1996 compared with 14.1% in 1995.
ADMINISTRATIVE
Administrative expenses increased to $5.0 million in 1996 from $3.4 million
in 1995. Administrative expenses as a percentage of net sales were 6.8% in 1996
compared with 5.3% in 1995. The increase was due to an increase in staff and
expenditures related to the Company's increased business volume and various
expenses associated with being a publicly held company.
RESEARCH AND DEVELOPMENT
Research and development expenses increased to $3.6 million in 1996 from
$1.2 million in 1995. As a percentage of net sales, these expenses increased to
4.9% in 1996 from 1.9% in 1995. The increase was due primarily to increases in
R&D staff and expenditures related to the creation of two new engineering groups
(Digital Product Group and Acoustic Product Group) as the Company expanded its
product line into other professional audio categories.
INTEREST INCOME, INTEREST EXPENSE
AND OTHER INCOME
Interest income increased to $863,000 in 1996 from $346,000 in 1995 due to
higher overall cash balances stemming from the Company's initial public offering
of common stock ("IPO") in August 1995. Interest expense decreased to zero in
1996 compared with $318,000 in 1995 due to the repayment of all interest-bearing
debt following the IPO. The interest expense in 1995 was related primarily to
shareholder notes entered into in April 1995. These notes, which represented the
undistributed S Corporation earnings as of December 31, 1994 that had not been
paid as of April 3, 1995, were paid in full following the IPO. Other expense of
$11,000 in 1996 (compared with other income of $70,000 in 1995) resulted
primarily from losses on the sale of capital equipment.
INCOME TAX PROVISION
The provision for income taxes for 1996 of $3,672,000 was based upon the
overall effective rate of 33.1%. The income tax provision for 1995 of $1,973,000
was based upon the overall effective rate for the year applied to pre-tax income
from August 17, 1995 (the first day following the termination of the Company's S
Corporation status) through December 31, 1995. The pro forma provision for
income taxes for 1995 reflects the federal income tax expense the Company would
have recognized had the Company been subject to income taxes for the year ended
December 31, 1995. The pro forma income tax provision for 1995 was based upon an
overall effective rate of 33.8%. The decrease in the expected overall effective
rate in 1996 from 1995 was due to the benefit provided by the Company's foreign
sales corporation formed in September 1995.
18
<PAGE> 21
YEAR ENDED DECEMBER 31, 1995
AS COMPARED WITH
YEAR ENDED DECEMBER 31, 1994
NET SALES
The Company's net sales increased 28.1% to $63.9 million in 1995 from $49.9
million in 1994. The increase in sales was primarily attributable to the success
of two SR Series mixers which were introduced in May 1995 (SR24-4) and August
1995 (SR32-4) and due to increased sales among other product lines. Sales of the
SR Series mixers accounted for 17% of net sales in 1995. Sales outside the
United States represented 34% and 36% of the Company's net sales in 1995 and
1994, respectively.
COST OF SALES
Gross profit was $27.2 million in 1995 compared with $21.9 million in 1994.
Gross profit as a percentage of net sales decreased to 42.5% in 1995 from 43.9%
in 1994. The decrease was due to startup costs associated with the initial
production of the SR24-4, the SR32-4 and the UltraMix(TM) Universal Automation
System series (which was introduced in September 1995). In addition, there was a
difference in product mix in 1995 compared with 1994 as sales of the SR24-4
provided a slightly lower gross margin percentage.
MARKETING AND SALES
Marketing and sales expenses increased to $9.0 million in 1995 from $7.0
million in 1994. The increase was due primarily to increases in marketing staff,
increased commission payments to independent representatives and increased
expenditures in advertising creation and placements. The primary components of
marketing and sales expenses include salaries ($1.2 million in 1995 and $824,000
in 1994), independent representatives' commissions ($3.9 million in 1995 and
$3.4 million in 1994), and advertising ($2.6 million in 1995 and $1.4 million in
1994). Marketing and sales expenses as a percentage of net sales were 14.1% in
1995 compared with 13.9% in 1994.
ADMINISTRATIVE
Administrative expenses increased to $3.4 million in 1995 from $2.3 million
in 1994. Administrative expenses as a percentage of net sales were 5.3% in 1995
compared with 4.6% in 1994. The increase was due to an increase in staff and
expenditures related to the Company's increased business volume and increased
rent for a new facility. The increase in 1995 was also due to various expenses
associated with being a publicly held company.
RESEARCH AND DEVELOPMENT
Research and development expenses increased to $1.2 million in 1995 from
$1.1 million in 1994. As a percentage of net sales, these expenses decreased to
1.9% in 1995 from 2.3% in 1994. The decrease was due to the shift of certain
costs to manufacturing overhead due to the reassignment of employees to a newly
created manufacturing support function.
INTEREST INCOME, INTEREST EXPENSE
AND OTHER INCOME
Interest income increased to $346,000 in 1995 from $23,000 in 1994 due to
higher overall cash balances stemming from the IPO in August 1995. Interest
expense increased to $318,000 in 1995 compared with $42,000 in 1994, primarily
due to interest related to shareholder notes entered into in April 1995. These
notes, which represent the undistributed S Corporation earnings as of December
31, 1994 that had not been paid as of April 3, 1995, were paid in full following
the IPO. Other income of $70,000 in 1995 (compared with none in 1994) resulted
primarily from gains on the sale of capital equipment.
INCOME TAX PROVISION
The income tax provision for 1995 of $1,973,000 was based upon the overall
effective rate for the year applied to pre-tax income from August 17, 1995 (the
first day following the termination of the Company's S Corporation status)
through December 31, 1995. The pro forma provision for income taxes reflects the
federal income tax expense the Company would have recognized had the Company
been subject to income taxes for the years ended December 31, 1995 and 1994. The
pro forma income tax provision was based on an overall effective rate of 33.8%
for 1995 compared with 34.2% for 1994. The decrease in the expected overall
effective rate in 1995 from 1994 was due to the benefit provided by the
Company's foreign sales corporation formed in September 1995.
LIQUIDITY AND CAPITAL RESOURCES
To finance its operations during 1996, the Company used internally generated
cash. In 1995, the Company financed its operations using the net proceeds of its
August 1995 IPO, short-term bank borrowings and internally generated cash. The
Company's operating activities generated cash of $6.9 million in 1996 and $6.4
million in 1995. Accounts receivable, net of allowances, remained virtually
unchanged at December 31, 1996 at $9.7 million. Inventory levels increased to
$10.3 million at December 31, 1996 from $7.6 million at December 31, 1995 due to
a lower than anticipated sales volume in the fourth quarter of 1996 and
increased inventory quantities for new products.
Net cash used in investing activities decreased to $8.4 million in 1996 from
$14.8 million in 1995, due to a decrease in net purchases of marketable
securities, partially offset by an increase in capital expenditures. Net capital
expenditures totaled $7.5 million in 1996, an increase of $3.5 million from
1995. The increase was due primarily to expanded business operations and the
purchase of equipment related to the Company's continued efforts to
19
<PAGE> 22
vertically integrate its manufacturing operations. The Company had no
significant capital expenditure commitments at December 31, 1996. The Company
intends to finance its 1997 capital expenditures from cash provided by
operations and current cash reserves.
The Company generated $55,000 in cash from financing activities during 1996
compared with $11.9 million in 1995. The cash from financing activities in 1995
was due primarily to proceeds of $31.6 million from the Company's IPO. In 1995,
the Company made dividend payments to S Corporation shareholders totaling $9.9
million and also repaid promissory notes of $9.2 million issued to shareholders
for dividends which represented undistributed S Corporation earnings.
In November 1995, the Company entered into a business loan agreement with a
bank. The agreement provides three credit facilities to the Company including a
$5.0 million unsecured line of credit to finance any unexpected working capital
requirements. The line of credit bears interest at the bank's prime rate or at a
specified IBOR rate plus 1.5%, whichever the Company chooses. The agreement also
provides a $2.5 million credit facility for capital equipment purchases or
general corporate purposes. Certain terms under this facility such as interest
rate, repayment period and collateral will be determined at the time advances
are made to the Company. The Company also has a $1.75 million line of credit for
the purchase of foreign exchange contracts. There were no borrowings outstanding
on any of the bank credit facilities at December 31, 1996. These credit
facilities expire October 31, 1997. Under the terms of the business loan
agreement, the Company must maintain certain financial ratios and tangible net
worth. The Company is in compliance with all such covenants. The agreement also
provides, among other matters, restrictions on additional financing, dividends,
mergers and acquisitions. The agreement also imposes an annual capital
expenditure limit of $10 million.
The Company has granted options to various individuals to purchase shares of
the Company's common stock. As of December 31, 1996, options to purchase
2,000,700 shares of common stock at exercise prices of $5.55 per share to $13.88
per share were outstanding and 1,723,700 of these options were immediately
exercisable. The exercise of these options would provide additional cash to the
Company.
The Company believes that existing cash and cash equivalent balances
together with cash generated from operations and cash available from credit
facilities will be sufficient to finance the Company's operations at least
through 1997.
Although the Company cannot accurately anticipate the effects of inflation,
the Company does not believe inflation has had or is likely to have a material
effect on its results of operations or liquidity.
The Company's present policy is to retain earnings to finance the Company's
business. Any future dividends will be dependent upon the Company's financial
condition, results of operations, current and anticipated cash requirements,
acquisition plans and plans for expansion, and any other factors which the
Company's Board of Directors deems relevant. Under its bank loan agreement, the
Company is prohibited from paying any dividends. The Company has no present
intention of paying dividends on its common stock in the foreseeable future.
20
<PAGE> 23
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
1996 1995
-----------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,366,184 $ 3,857,185
Securities available-for-sale (Note 2) 11,688,513 10,775,942
Accounts receivable, less allowance
of $808,000 in 1996 and $514,000 in 1995 9,693,035 9,703,927
Inventories (Note 3) 10,316,940 7,642,892
Income taxes receivable 182,627 379,100
Deferred taxes 685,000 315,000
Prepaid expenses and other current assets 673,585 607,847
------------------------------
Total current assets 35,605,884 33,281,893
Furniture and equipment, net (Note 4) 10,246,118 4,651,271
Other assets 403,948 112,893
------------------------------
Total assets $46,255,950 $38,046,057
==============================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,053,079 $ 1,468,066
Commissions payable 627,374 737,190
Accrued salaries and bonus 226,498 425,474
Accrued vacation 217,097 162,891
Accrued warranty 180,000 60,000
Other accrued liabilities 281,662 274,605
------------------------------
Total current liabilities 3,585,710 3,128,226
Deferred rent 42,250 --
Deferred taxes 345,000 111,000
Commitment (Note 10)
Shareholders' equity:
Preferred stock, no par value:
Authorized shares -- 5,000,000
Outstanding shares -- none
Common stock, no par value:
Authorized shares -- 40,000,000
Issued and outstanding shares -- 12,885,000
& 12,875,000 in 1996 & 1995, respectively 30,998,830 30,943,330
Retained earnings 11,284,160 3,863,501
------------------------------
Total shareholders' equity 42,282,990 34,806,831
------------------------------
Total liabilities and shareholders' equity $46,255,950 $38,046,057
==============================
</TABLE>
See accompanying notes.
21
<PAGE> 24
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1995 1994
------------------------------------------------------
<S> <C> <C> <C>
Net sales $ 73,235,925 $ 63,918,999 $ 49,907,109
Cost of sales 45,210,585 36,755,638 28,020,072
------------------------------------------------------
Gross profit 28,025,340 27,163,361 21,887,037
Operating expenses:
Marketing and sales 9,202,448 9,021,819 6,957,949
Administrative 4,979,320 3,400,355 2,291,766
Research and development 3,602,727 1,204,739 1,137,983
------------------------------------------------------
Total operating expenses 17,784,495 13,626,913 10,387,698
------------------------------------------------------
Operating income 10,240,845 13,536,448 11,499,339
Interest income 862,518 346,494 23,438
Interest expense -- (318,038) (42,469)
Other income (expense) (11,104) 70,141 --
------------------------------------------------------
Income before income taxes 11,092,259 13,635,045 11,480,308
Provision for income taxes 3,671,600 1,972,700 --
------------------------------------------------------
Net income $ 7,420,659 $ 11,662,345 $ 11,480,308
======================================================
Net income per share $ 0.54
============
Weighted average shares outstanding 13,651,913
============
Pro forma data (unaudited) (Note 5) :
Income before pro forma provision
for income taxes $ 13,635,045 $ 11,480,308
Pro forma provision
for income taxes 4,608,700 3,924,800
---------------------------------
Pro forma net income $ 9,026,345 $ 7,555,508
=================================
Pro forma net income per share $ 0.71 $ 0.63
=================================
Shares used in computation of
pro forma net income per share 12,744,465 12,088,433
=================================
</TABLE>
See accompanying notes.
22
<PAGE> 25
CONSOLIDATED
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock
------------
Retained
Shares Amount Earnings Total
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at January 1, 1994 10,000,000 $ 29,781 $ 3,593,962 3,623,743
Net income -- -- 11,480,308 11,480,308
Dividends declared -- -- (6,860,373) (6,860,373)
---------------------------------------------------------------------------
Balance at December 31, 1994 10,000,000 29,781 8,213,897 8,243,678
Recognition of deferred
tax assets (Note 1) -- 335,800 -- 335,800
Reclassification of
accumulated deficit
due to termination of
S Corporation status (Note 1) -- (1,012,039) 1,012,039 --
Issuance of common shares
in initial public offering,
net of issuance costs
of $705,212 2,875,000 31,589,788 -- 31,589,788
Net income -- -- 11,662,345 11,662,345
Dividends declared -- -- (17,024,780) (17,024,780)
---------------------------------------------------------------------------
Balance at December 31, 1995 12,875,000 30,943,330 3,863,501 34,806,831
Issuance of common
shares upon exercise
of stock options 10,000 55,500 -- 55,500
Net income -- -- 7,420,659 7,420,659
---------------------------------------------------------------------------
Balance at December 31, 1996 12,885,000 $ 30,998,830 $ 11,284,160 $ 42,282,990
===========================================================================
</TABLE>
See accompanying notes.
23
<PAGE> 26
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
OPERATING ACTIVITIES 1996 1995 1994
-----------------------------------------------------
<S> <C> <C> <C>
Net income $ 7,420,659 $ 11,662,345 $11,480,308
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 1,969,131 1,051,086 535,939
(Gain) loss on asset dispositions 11,104 (65,407) 32,200
Deferred income taxes (136,000) 131,800 --
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable 10,892 (2,841,481) (3,487,259)
(Increase) decrease in due from
related parties -- 1,020,174 (1,020,174)
Increase in inventories (2,674,048) (3,971,395) (2,268,023)
(Increase) decrease in income
taxes receivables 196,473 (379,100) --
(Increase) decrease in prepaid expenses
and other current assets (65,738) (499,178) 32,900
Increase in other assets (341,059) (112,893) --
Increase in accounts payable and
accrued expenses 567,300 185,690 778,737
Increase (decrease) in commissions payable (109,816) 235,694 63,066
Increase in deferred rent 42,250 -- --
-----------------------------------------------------
Net cash provided by operating activities 6,891,148 6,417,335 6,147,694
INVESTING ACTIVITIES
Purchases of securities (45,287,047) (22,040,686) --
Proceeds from sales of securities 6,362,768 4,522,137 --
Proceeds from maturities of securities 38,011,708 6,742,607
Purchases of equipment (7,611,708) (4,090,447) (1,505,242)
Proceeds from asset dispositions 86,630 75,797 140,000
-----------------------------------------------------
Net cash used in investing activities (8,437,649) (14,790,592) (1,365,242)
FINANCING ACTIVITIES
Net proceeds from sale of common stock 55,500 31,589,788 --
Payments on notes payable to related parties -- (9,150,586) --
Proceeds from long-term debt and note payable -- -- 648,740
Payments on long-term debt and capital leases -- (643,490) (180,991)
Payments of dividends -- (9,872,488) (5,749,780)
-----------------------------------------------------
Net cash provided by (used in)
financing activities 55,500 11,923,224 (5,282,031)
-----------------------------------------------------
Net increase (decrease) in cash
and cash equivalents (1,491,001) 3,549,967 (499,579)
Cash and cash equivalents at
beginning of year 3,857,185 307,218 806,797
-----------------------------------------------------
Cash and cash equivalents at end of year $ 2,366,184 $ 3,857,185 $ 307,218
=====================================================
SUPPLEMENTAL DISCLOSURES
Noncash financing and investing activities:
Dividends paid in exchange
for shareholders' notes $ -- $ 8,469,309 $ 669,560
=====================================================
Dividends declared but not paid $ -- $ -- $1,317,017
=====================================================
Cash paid for interest $ -- $ 329,755 $ 30,751
=====================================================
Cash paid for income taxes $ 3,611,127 $ 2,220,000 $ --
=====================================================
</TABLE>
See accompanying notes.
24
<PAGE> 27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Mackie Designs Inc. (the Company) develops, manufactures, sells, and
supports high-quality, reasonably priced professional audio equipment. The
Company operates as a single business segment.
The Company sells to retailers and distributors throughout the world,
generally on open credit terms. Sales to distributors outside of the United
States approximated 38%, 34% and 36% of net sales in 1996, 1995 and 1994,
respectively.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary, Mackie Sales Corporation. All significant
intercompany accounts and transactions have been eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
REVENUE RECOGNITION
Generally, revenues from sales of products are recognized when products are
shipped.
CASH EQUIVALENTS
The Company considers all highly-liquid investments purchased with an
initial maturity of three months or less to be cash equivalents.
INVENTORIES
Inventories are carried at the lower of cost, using the first-in, first-out
method, or market.
FURNITURE AND EQUIPMENT
Furniture and equipment are stated at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets of three
to seven years.
INCOME TAXES
The shareholders of the Company elected to be treated until August 16, 1995
as an S Corporation under the Internal Revenue Code. As a result, taxable income
until that date was included in the taxable income of the individual
shareholders and no income tax provision was recorded. As an S Corporation, it
was the Company's practice to make cash distributions to shareholders in amounts
sufficient for them to meet their personal income tax obligations resulting from
the Company's S Corporation status.
The Company terminated its S Corporation status on August 16, 1995 and
implemented Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes," upon becoming a taxable entity. Under SFAS No.
109, deferred tax assets and liabilities are determined based on the differences
between financial reporting and tax bases of assets and liabilities and are
measured using the tax rates that will be in effect when the differences are
expected to reverse. A deferred tax asset of $335,800 was recorded for the
temporary differences between recognition of income and expense for financial
reporting and tax as of August 16, 1995.
On the date of termination of the Company's S Corporation status, S
Corporation distributions in excess of financial reporting income were
reclassified on the accompanying balance sheet to common stock.
A pro forma income tax adjustment has been included in the statements of
income as if the Company had been a taxable entity during those periods
presented.
WARRANTY COSTS
The Company provides an accrual for future warranty costs at the time of
sale of products. The warranty for the Company's products generally covers
defects in materials and workmanship for a period of one to three years.
STOCK-BASED COMPENSATION
In October 1995, the Financial Accounting Standards Board issued Statement
No. 123, "Accounting for Stock-Based Compensation." The Statement is effective
for fiscal years beginning after December 15, 1995. Under Statement No. 123,
stock-based compensation expense is measured using either the intrinsic-value
method as prescribed by Accounting Principles Board Opinion No. 25 or the fair
value method described in Statement No. 123. The Company has chosen to use the
intrinsic-value method and has disclosed the pro forma impact of the fair value
method on net income and earnings per share.
FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash and cash equivalents,
securities available-for-sale, accounts receivable and payable, and long- and
short-term borrowings. The fair value of these instruments approximates their
recorded value. The Company does not have financial instruments with
off-balance-sheet risk.
NET INCOME PER SHARE
In 1996, net income per share is based on the weighted average number of
common and common equivalent shares outstanding. Common equivalent shares
include the effect of all outstanding stock options. Common equivalent shares
are not included in the per share calculations where the effect of their
inclusion would be antidilutive.
Pro forma net income per share is computed based on the weighted average
number of common shares outstanding and gives effect to the following
adjustments:
- In accordance with the Securities and Exchange Commission requirements,
common and common equivalent shares issued during the 12-month period prior
to the filing of an initial public offering have been included in the
calculation as if they were outstanding for all periods presented prior to
the initial public offering using the treasury stock method and the initial
public offering price of $12 per share.
- The net proceeds from the sale of 1,139,907 shares of common stock from the
Company's initial public offering were assumed to repay the shareholder
notes and were used to pay distributions to existing shareholders equal to
the Company's undistributed S Corporation earnings
25
<PAGE> 28
through the termination of the Company's S Corporation status on August 16,
1995. These shares have been included in the calculation as if they were
outstanding for all periods presented prior to the initial public offering
Historical net income per share is not considered meaningful; accordingly,
such per share information is not presented for 1995 and 1994.
2. SECURITIES AVAILABLE-FOR-SALE
The amortized cost of securities available-for-sale approximated fair market
value and was as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
------------------
<S> <C> <C>
U.S. CORPORATE
SECURITIES $ 7,618,609 $ 2,793,410
U.S. GOVERNMENT
SECURITIES 4,069,904 2,914,151
BANKERS' ACCEPTANCES -- 4,568,381
OTHER DEBT SECURITIES -- 500,000
-------------------------
$11,688,513 $10,775,942
-------------------------
</TABLE>
As of December 31, 1996, the securities available-for-sale have contractual
maturities of less than one year.
3. INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
---------------------------
<S> <C> <C>
RAW MATERIALS $ 8,003,941 $ 5,170,726
WORK IN PROCESS 1,331,199 345,512
FINISHED GOODS 981,800 2,126,654
---------------------------
$ 10,316,940 $ 7,642,892
---------------------------
</TABLE>
4. FURNITURE AND EQUIPMENT
Furniture and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
----------------------------
<S> <C> <C>
MACHINERY & EQUIPMENT $ 8,667,873 $ 3,821,609
FURNITURE AND FIXTURES 3,666,366 2,236,938
LEASEHOLD IMPROVEMENTS 1,375,100 290,845
----------------------------
13,709,339 6,349,392
----------------------------
LESS ACCUMULATED
DEPRECIATION &
AMORTIZATION 3,463,221 1,698,121
----------------------------
$ 10,246,118 $ 4,651,271
----------------------------
</TABLE>
5. INCOME TAXES
Deferred tax assets and liabilities consisted of the following at December
31, 1996 and 1995:
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
---------------------------
<S> <C> <C>
DEFERRED TAX LIABILITIES:
DEPRECIATION $ (345,000) $ (111,000)
---------------------------
TOTAL DEFERRED TAX
LIABILITIES (345,000) (111,000)
DEFERRED TAX ASSETS:
ACCRUED EXPENSES 382,000 190,000
INVENTORY 287,000 119,000
OTHER 16,000 6,000
---------------------------
TOTAL DEFERRED TAX ASSETS 685,000 315,000
---------------------------
NET DEFERRED TAX ASSETS $ 340,000 $ 204,000
---------------------------
</TABLE>
The provision for income taxes as of December 31, 1995 represents taxes on
earnings for the period subsequent to August 16, 1995 (termination of S
Corporation status) through December 31, 1995, which earnings aggregated
$5,866,201.
Significant components of the provision are as follows:
<TABLE>
<CAPTION>
YEAR ENDED AUG. 17, 1995 TO
DEC. 31, 1996 DEC. 31, 1995
-------------------------------
<S> <C> <C>
FEDERAL INCOME TAXES:
CURRENT PROVISION $ 3,807,600 $1,840,900
DEFERRED PROVISION (136,000) 131,800
-------------------------------
$ 3,671,600 $1,972,700
-------------------------------
EFFECTIVE TAX RATE 33.1% 33.6%
-------------------------------
</TABLE>
S CORPORATION TAX ADJUSTMENT (UNAUDITED)
As a result of terminating its S Corporation election, the Company became
subject to corporate federal income taxes subsequent to August 16, 1995. The
statements of operations present, on a pro forma basis, the impact on net income
and net income per share as if the Company had been subject to federal income
taxes for all of 1995 and 1994.
The pro forma tax provisions are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1994
--------------------------------
<S> <C> <C>
INCOME BEFORE PRO
FORMA PROVISION
FOR INCOME TAXES $ 13,635,045 $11,480,308
--------------------------------
CURRENT PRO FORMA
INCOME TAX PROVISION $ 4,300,800 $ 4,008,900
DEFERRED PRO FORMA
INCOME TAX
(BENEFIT) PROVISION 307,900 (84,100)
--------------------------------
PRO FORMA PROVISION
FOR INCOME TAXES $ 4,608,700 $ 3,924,800
--------------------------------
EFFECTIVE TAX RATE 33.8% 34.2%
--------------------------------
</TABLE>
6. BANK LOAN AGREEMENT
In November 1995, the Company entered into a business loan agreement with a
bank. The agreement provides three credit facilities to the Company including a
$5.0 million unsecured line of credit to finance any unexpected working capital
requirements. The line of credit bears interest at the bank's prime rate or at a
specified IBOR rate plus 1.5%, whichever the Company chooses. The agreement also
provides a $2.5 million credit facility for capital equipment purchases or
general corporate purposes. Certain terms under this facility, such as interest
rate, repayment period and collateral will be determined at the time advances
are made to the Company. The Company also has a $1.75 million line of credit for
the purchase of foreign exchange contracts. There were no borrowings outstanding
on any of the bank credit facilities at December 31, 1996. These credit
facilities expire October 31, 1997. Under the terms of the business loan
agreement, the Company must maintain certain financial ratios and tangible net
worth. The Company is in compliance with all such covenants. The agreement also
provides, among other matters, restrictions on additional financing, dividends,
mergers and acquisitions. The agreement also imposes an annual capital
expenditure limit of $10 million.
26
<PAGE> 29
7. RELATED-PARTY TRANSACTIONS
The Company has an agreement to receive marketing and sales services from an
entity affiliated with a shareholder of the Company. Transactions are summarized
as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994
----------------------------
<S> <C> <C> <C>
Commissions
expense $371,968 $379,632 $322,030
----------------------------
Commissions
payable at
end of year $ 35,102 $ 31,823 $ 56,748
----------------------------
</TABLE>
8. EMPLOYEE BENEFIT PLANS
The Company has a qualified profit-sharing plan (the Plan) under the
provisions of Internal Revenue Code Section 401(k). The Plan is available to all
employees meeting the eligibility requirements. Contributions by the Company are
based on a matching formula as defined in the Plan. Additional contributions are
at the discretion of the Board of Directors. The Company made contributions of
$32,000, $28,000 and $37,000 to the Plan in 1996, 1995 and 1994, respectively.
The Company insures health care costs for its eligible employees and
dependents. The Company has obtained an insurance policy to cover claims
incurred during the policy year in excess of $30,000 per person. Estimated costs
of all incurred claims that are not covered by insurance are recognized in the
financial statements.
9. SHAREHOLDERS' EQUITY
STOCK OPTIONS
In April 1995, the Company established a stock option plan for the granting
of qualified and non-qualified stock options (the Plan). The exercise price of
qualified stock options granted under the Plan may not be less than the fair
market value of the common stock on the date of grant. The exercise price of
non-qualified stock options granted under the Plan may be greater or less than
the fair market value of the common stock on the date of grant, as determined by
the stock option committee of the Company's Board of Directors in its
discretion. The Company has reserved 3,000,000 shares of common stock for
issuance under the Plan. The options vest over a period determined by the Plan
administrator and expire no later than 10 years after the date of grant.
The Company has adopted the disclosure-only provisions of the Financial
Accounting Standards Board statement No. 123, "Accounting for Stock-Based
Compensation." Accordingly, no compensation cost has been recognized for options
issued under the Plan. Had compensation costs been recognized based on the fair
value at the date of grant for options awarded under the plan, the pro forma
amounts of the Company's net income and net income per share for the years ended
December 31, 1996 and 1995 would have been as follows:
<TABLE>
<CAPTION>
1996 1995
--------------------------
<S> <C> C>
Net income - as reported $7,420,659 $9,026,345
Net income - pro forma $7,157,908 $5,236,709
Net income
per common share
- as reported $ 0.54 $ 0.71
Net income
per common share
- pro forma $ 0.52 $ 0.41
</TABLE>
The fair value of each option grant was estimated using the Black-Scholes
option-pricing model with the following weighted average assumptions: risk-free
interest rates of 5.0% to 7.2%; expected option life of three years for
qualified options and six years for non-qualified stock options; expected
volatility of .48%; and no expected dividends. The weighted-average fair value
of options granted during the years 1996 and 1995 was $3.46 and $3.68,
respectively.
Information with respect to the Plan follows:
<TABLE>
<CAPTION>
WEIGHTED
SHARES SUBJECT OPTION AVERAGE
TO OPTION PRICE RANGE EXERCISE PRICE
---------------------------------------------
<S> <C> <C> <C>
Options
outstanding at
Jan. 1, 1995 -- --
Granted 1,784,700 $5.55 - 13.88 $5.64
-------------------------------------------
Options
outstanding at
Dec. 31, 1995 1,784,700 $5.55 - 13.88 $5.64
-------------------------------------------
Granted 367,000 $6.63 - 10.00 $8.78
Canceled (141,000) $5.55 - 10.00 $8.24
Exercised (10,000) $5.55 $5.55
-------------------------------------------
Options
outstanding at
Dec. 31, 1996 2,000,700 $5.55 - 13.88 $6.04
-----------------------------------------------
</TABLE>
Options Outstanding
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
RANGE OF OPTIONS AVERAGE REMAINING AVERAGE
EXERCISE PRICE OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE
-------------------------------------------------------------------
<S> <C> <C> <C>
$5.55 -- 8.00 1,753,700 8.27 $5.59
$8.01 -- 13.88 247,000 9.03 $9.17
-------------------------------------------------------------------
$5.55 -- 13.88 2,000,700 8.37 $6.04
-------------------------------------------------------------------
</TABLE>
Options Exercisable
<TABLE>
<CAPTION>
WEIGHTED
RANGE OF OPTIONS AVERAGE
EXERCISE PRICE EXERCISABLE EXERCISE PRICE
-----------------------------------------------------------
<S> <C> <C>
$5.55 -- 8.00 1,718,700 $ 5.55
$8.01 -- 13.88 5,000 $13.88
-----------------------------------------------------------
$5.55 -- 13.88 1,723,700 $ 5.57
-----------------------------------------------------------
</TABLE>
At December 31, 1996, 989,300 shares of common stock were available for
future grants.
27
<PAGE> 30
INITIAL PUBLIC OFFERING
On June 14, 1995, the Company's shareholders adopted Restated Articles of
Incorporation and Restated Bylaws affecting shareholders' equity, including
increasing the number of shares of authorized common stock to 40,000,000 shares;
authorizing 5,000,000 shares of preferred stock; and authorizing a 100:1 stock
split of the issued and outstanding shares of common stock. The number of common
shares presented in the accompanying financial statements has been restated to
reflect the stock split.
On August 18, 1995, the Company sold 2,500,000 shares of its common stock in
an initial public offering at a price of $12 per share. In addition, the
underwriters of the IPO exercised an option to purchase 375,000 additional
shares of the Company's common stock at the same price per share.
10. COMMITMENT
In December 1994, the Company entered into a lease for office and
manufacturing facilities with Mackie Holdings, LLC, an entity owned by three
significant shareholders and directors of the Company. The lease commenced on
December 31, 1994 and expires December 31, 2004. The monthly rent under this
lease is $56,613, adjusted annually for changes in the Consumer Price Index.
Taxes, insurance, utilities and maintenance are the responsibility of the
Company. Future minimum rental payments under this lease and two additional
leases for manufacturing facilities are as follows:
<TABLE>
<CAPTION>
YEAR
<S> <C>
1997 $ 1,259,000
1998 1,196,000
1999 1,196,000
2000 1,203,000
2001 1,274,000
THEREAFTER 4,368,000
-----------
$10,496,000
-----------
</TABLE>
Total rent expense for the years ended December 31, 1996, 1995 and 1994 was
$1,313,000, $833,000 and $272,000, respectively.
11. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
First Second Third Fourth
-------------------------------------------------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
1996
---------------------------------------------------------------------------------------
Net sales $19,504 $20,779 $16,093 $16,861
---------------------------------------------------------------------------------------
Gross profit $ 7,784 $ 7,993 $ 5,978 $ 6,269
---------------------------------------------------------------------------------------
Net income $ 2,315 $ 2,443 $ 1,346 $ 1,316
---------------------------------------------------------------------------------------
Net income per share $ .17 $ .18 $ .10 $ .10
---------------------------------------------------------------------------------------
1995
---------------------------------------------------------------------------------------
Net sales $14,270 $16,084 $16,897 $16,668
---------------------------------------------------------------------------------------
Gross profit $ 6,437 $ 6,690 $ 7,037 $ 6,999
---------------------------------------------------------------------------------------
Net income $ 3,398 $ 3,019 $ 2,877 $ 2,368
---------------------------------------------------------------------------------------
Pro forma net income $ 2,236 $ 1,986 $ 2,436 $ 2,368
---------------------------------------------------------------------------------------
Pro forma net income per share $ .18 $ .16 $ .19 $ .17
---------------------------------------------------------------------------------------
1994
---------------------------------------------------------------------------------------
Net sales $10,244 $12,941 $12,975 $13,747
---------------------------------------------------------------------------------------
Gross profit $ 4,552 $ 5,589 $ 5,761 $ 5,985
---------------------------------------------------------------------------------------
Net income $ 2,458 $ 3,157 $ 3,015 $ 2,850
---------------------------------------------------------------------------------------
Pro forma net income $ 1,618 $ 2,078 $ 1,984 $ 1,876
---------------------------------------------------------------------------------------
Pro forma net income per share $ .13 $ .17 $ .16 $ .16
---------------------------------------------------------------------------------------
</TABLE>
28
<PAGE> 31
REPORT OF ERNST & YOUNG LLP
INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Mackie Designs Inc.
We have audited the accompanying consolidated balance sheets of Mackie Designs
Inc. as of December 31, 1996 and 1995, and the related consolidated statements
of income, shareholders' equity, and cash flows for each of the three years in
the period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Mackie Designs
Inc. at December 31, 1996 and 1995, and the consolidated results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
Seattle, Washington
February 10, 1997
/s/ Ernst & Young LLP
---------------------
29
<PAGE> 32
COMMON STOCK INFORMATION
AND DIVIDEND POLICY
Since its initial public offering, which commenced on August 18, 1995, the
Company's Common Stock has been traded on the NASDAQ National Market System
under the symbol "MKIE." The following table sets forth the high and low sale
prices as reported on NASDAQ for the periods indicated. These prices do not
include retail markups, markdowns or commissions.
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
COMMON STOCK
HIGH LOW
<S> <C> <C>
THIRD QUARTER (COMMENCING AUGUST 18, 1995) $ 16.25 $ 13.50
- ------------------------------------------------------------------------------------------------------------------
FOURTH QUARTER $ 14.75 $ 11.00
- ------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1996
FIRST QUARTER $ 12.25 $ 7.00
- ------------------------------------------------------------------------------------------------------------------
SECOND QUARTER $ 12.75 $ 9.75
- ------------------------------------------------------------------------------------------------------------------
THIRD QUARTER $ 11.75 $ 6.39
- ------------------------------------------------------------------------------------------------------------------
FOURTH QUARTER $ 8.88 $ 6.00
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
As of March 6, 1997, there were 12,885,000 shares of Common Stock
outstanding held by approximately 80 holders of record. The number of holders
does not include individual participants in security position listings.
The Company's present policy is to retain earnings to finance the Company's
business. Any future dividends will be dependent upon the Company's financial
condition, results of operations, current and anticipated cash requirements,
acquisition plans and plans for expansion, and any other factors that the
Company's Board of Directors deems relevant. Under its bank loan agreement, the
Company is prohibited from paying any dividends. The Company has no present
intention of paying dividends on its common stock in the foreseeable future.
Prior to August 16, 1995, the date upon which the Company terminated its S
Corporation status, the Company, with the consent of its shareholders, was taxed
as an S Corporation under the Internal Revenue Code. As a result, the Company
was not subject to corporate income tax and the shareholders were separately
responsible for reporting their pro rata share of the Company's income on their
personal income tax returns. Prior to August 16, 1995, the Company made
quarterly distributions to the shareholders that enabled them to pay taxes on
the undistributed earnings, and in 1995 declared and paid dividends equaling the
undistributed S Corporation earnings through August 16, 1995. The Company made
distributions to its shareholders totaling approximately $5.7 million in 1994
and $19.3 million (which amount included interest) in 1995.
30
<PAGE> 33
BOARD OF DIRECTORS
GREG C. MACKIE DAVID M. TULLY
Chairman of the Board Secretary/Treasurer
and Chief Executive Officer President, SMB Corporation
Issaquah, Washington
RAYMOND B. FERGUSON WALTER GOODMAN
Consultant Consultant
Seattle, Washington Great Neck, New York
C. MARCUS SORENSON
Partner, Blacker Sorenson Audio Group
Los Alamitos, California
CORPORATE OFFICERS
ROY D. WEMYSS THOMAS M. ELLIOTT
Chief Operating Officer Vice President Finance
and Chief Financial Officer
PATRIC L. WIESMANN DAVID E. FIRESTONE
Vice President Marketing Vice President
and Business Development Product Development
JANET L. NARDUZZI
Vice President Administration
MACKIE DESIGNS INC.
16220 Wood-Red Road NE
Woodinville, WA 98072
phone: 206/487-4333
fax: 206/487-4337
e-mail: [email protected]
Internet: www.mackie.com
COMMON STOCK SYMBOL
MKIE (NASDAQ National Market)
INDEPENDENT AUDITORS
Ernst & Young LLP, Seattle, Washington
CORPORATE COUNSEL
Weiss, Jensen, Ellis & Howard
Seattle, Washington and Portland, Oregon
TRANSFER AGENT
ChaseMellon Shareholder Services, LLC
Shareholder Relations
800/522-6645
TTD (for the hearing impaired) 800/231-5469
INVESTOR RELATIONS
Contact: Alisa Bell
Phone 206/402-6169
Fax 206/487-4337
e-mail: [email protected]
NOTICE OF ANNUAL MEETING:
April 30, 1997, 10:00 am
Bellevue Club
11200 Southeast 6th Street
Bellevue, Washington
31
<PAGE> 34
[GRAPHIC]
32
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF MACKIE DESIGNS INC.
AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
State of Incorporation or
Subsidiary Country in which Organized
- ------------------------ --------------------------
<S> <C>
Mackie Sales Corporation Barbados
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report
(Form 10-K) of Mackie Designs Inc. of our report dated February 10, 1997
included in the 1996 Annual Report to Shareholders of Mackie Designs Inc., and
we consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 33-98720) pertaining to the 1995 Stock Option Plan of Mackie
Designs Inc.
Our audits also included the financial statement schedule of Mackie
Designs Inc. listed in Item 14(a). This schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits. In our opinion, the financial statement schedule referred to above,
when considered in relation to the basic consolidated financial statements
taken as a whole, presents fairly in all material respects the information set
forth therein.
ERNST & YOUNG LLP
Seattle, Washington
March 25, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 2,366,184
<SECURITIES> 11,688,513
<RECEIVABLES> 10,501,035
<ALLOWANCES> (808,000)
<INVENTORY> 10,316,940
<CURRENT-ASSETS> 35,605,884
<PP&E> 13,709,339
<DEPRECIATION> (3,463,221)
<TOTAL-ASSETS> 46,255,950
<CURRENT-LIABILITIES> 3,585,710
<BONDS> 0
0
0
<COMMON> 30,998,830
<OTHER-SE> 11,284,160
<TOTAL-LIABILITY-AND-EQUITY> 46,255,950
<SALES> 73,235,925
<TOTAL-REVENUES> 73,235,925
<CGS> 45,210,585
<TOTAL-COSTS> 17,313,495
<OTHER-EXPENSES> 11,104
<LOSS-PROVISION> 471,000
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 11,092,259
<INCOME-TAX> 3,671,600
<INCOME-CONTINUING> 7,420,659
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,420,659
<EPS-PRIMARY> .55
<EPS-DILUTED> .54
</TABLE>
