<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
----------------------------------
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________________ to ___________________
Commission File Number: 0-26524
-----------------------------------------
MACKIE DESIGNS INC.
- -------------------------------------------------------------------------------
(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
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(425) 487-4333
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year,
if changed since last report)
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
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Common Stock, no par value 12,554,850
- -------------------------- ----------------------------
Class Number of Shares Outstanding
(as of November 12, 1998)
<PAGE>
MACKIE DESIGNS INC.
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1998
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated balance sheets - September 30, 1998 and
December 31, 1997
Consolidated statements of income - Three months and nine
months ended September 30, 1998 and 1997
Consolidated statements of cash flows - Nine months ended
September 30, 1998 and 1997
Notes to consolidated financial statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
EXHIBITS
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MACKIE DESIGNS INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,126,610 $ 975,180
Marketable securities 9,487,637 10,864,401
Accounts receivable, less allowance for
doubtful accounts 32,395,046 10,614,515
Inventories 35,611,548 17,761,462
Prepaid expenses and other current assets 2,269,581 1,287,311
Deferred taxes 1,825,042 670,000
------------ -----------
Total current assets 83,715,464 42,172,869
Property, plant and equipment, net of
accumulated depreciation 23,049,470 10,605,164
Goodwill, net of accumulated amortization 7,498,601 --
Bonds and other assets 6,479,733 594,390
------------ -----------
Total assets $120,743,268 $53,372,423
------------ -----------
------------ -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 13,929,703 $ 3,822,239
Bank line of credit and other short-term debt 11,505,005 --
Commissions payable 1,958,019 664,983
Accrued payroll and related taxes 2,272,281 785,530
Other accrued liabilities 3,363,324 596,227
Income taxes payable 2,684,430 348,173
Current portion of long-term debt 3,541,643 --
------------ -----------
Total current liabilities 39,254,405 6,217,152
Long-term debt 24,804,169 --
Employee severance and agent termination liabilities 4,058,587 --
Deferred taxes 3,171,415 596,000
Other deferred items 234,500 81,250
Minority interest 103,859 --
Shareholders' equity:
Common stock 28,451,991 29,657,210
Retained earnings 21,051,023 16,820,811
Foreign currency translation (386,681) --
------------ -----------
Total shareholders' equity 49,116,333 46,478,021
------------ -----------
Total liabilities and shareholders' equity $120,743,268 $53,372,423
------------ -----------
------------ -----------
</TABLE>
SEE ACCOMPANYING NOTES.
3
<PAGE>
MACKIE DESIGNS INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
-------------------------- --------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $30,546,143 $21,595,485 $66,117,081 $57,047,825
Cost of goods sold 18,564,110 13,745,739 40,376,706 35,685,130
----------- ----------- ----------- -----------
Gross profit 11,982,033 7,849,746 25,740,375 21,362,695
Operating expenses:
Marketing and sales 4,096,603 2,587,487 9,359,414 7,456,055
Administrative 3,342,243 1,371,567 6,568,069 3,686,222
Research and development 1,375,869 1,458,759 3,432,818 4,392,662
----------- ----------- ----------- -----------
Total operating expenses 8,814,715 5,417,813 19,360,301 15,534,939
----------- ----------- ----------- -----------
Operating income 3,167,318 2,431,933 6,380,074 5,827,756
Interest income 234,433 202,788 574,610 624,693
Interest expense (779,841) -- (804,911) --
Other income (expense) 68,465 -- 46,605 (7,061)
----------- ----------- ----------- -----------
Income before income taxes and minority interest 2,690,375 2,634,721 6,196,378 6,445,388
Income tax provision 888,766 816,700 1,940,566 2,074,200
----------- ----------- ----------- -----------
Income before minority interest 1,801,609 1,818,021 4,255,812 4,371,188
Minority interest (25,600) -- (25,600) --
----------- ----------- ----------- -----------
Net income $ 1,776,009 $ 1,818,021 $ 4,230,212 $ 4,371,188
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Basic income per share $ 0.14 $ 0.14 $ 0.33 $ 0.34
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Diluted income per share $ 0.14 $ 0.13 $ 0.33 $ 0.33
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
SEE ACCOMPANYING NOTES.
4
<PAGE>
MACKIE DESIGNS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine months ended September 30,
-------------------------------
1998 1997
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 4,230,212 $ 4,371,188
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 3,274,512 2,340,650
Loss on asset dispositions 21,860 --
Increase in minority interest 25,600 --
Deferred income taxes (221,778) 102,000
Changes in operating assets and liabilities:
Increase in accounts receivable (6,040,639) (4,732,936)
Increase in inventory (2,049,092) (5,502,817)
Decrease in income taxes receivable -- 182,627
(Increase) decrease in prepaid expenses and other
current assets 316,955 (374,658)
Increase in other assets (1,396,509) (59,927)
Increase in accounts payable and accrued expenses 964,005 3,406,469
Increase in commissions payable 55,591 154,000
Increase in income taxes payable 1,011,064 818,573
Increase in severance and termination liabilities 278,089 --
Increase in other deferred items 27,126 29,250
------------ ------------
Net cash provided by operating activities 496,996 734,419
INVESTING ACTIVITIES
Acquisition of business, net of cash acquired (14,476,482) --
Purchases of marketable securities (13,033,718) (13,374,389)
Proceeds from sales of marketable securities 2,207,885 4,690,275
Proceeds from maturities of marketable securities 12,202,597 9,909,414
Purchases of furniture and equipment (2,959,413) (2,419,394)
Proceeds from asset dispositions 5,064 --
------------ ------------
Net cash used in investing activities (16,054,067) (1,194,094)
FINANCING ACTIVITIES
Proceeds from bank loan 18,974,858 --
Payments on bank loans (197,014) --
Net payments on bank line of credit and other
short-term debt (477,443) --
Repurchase and retirement of common stock (1,260,719) (936,825)
Net proceeds from exercise of stock options 55,500 149,688
------------ ------------
Net cash provided by (used in) financing activities 17,095,182 (787,137)
------------ ------------
Translation adjustments (386,681) --
------------ ------------
Net increase (decrease) in cash and cash equivalents 1,151,430 (1,246,812)
Cash and cash equivalents at beginning of period 975,180 2,366,184
------------ ------------
Cash and cash equivalents at end of period $ 2,126,610 $ 1,119,372
------------ ------------
------------ ------------
SUPPLEMENTAL DISCLOSURES
Cash paid for interest $ 856,446 $ --
------------ ------------
------------ ------------
Cash paid for income taxes $ 1,454,500 $ 971,000
------------ ------------
------------ ------------
</TABLE>
SEE ACCOMPANYING NOTES.
5
<PAGE>
MACKIE DESIGNS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared by Mackie
Designs Inc. (the "Company") in accordance with generally accepted accounting
principles for interim financial statements and with the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and disclosures required by generally accepted accounting
principles for complete financial statements. In the opinion of the Company's
management, all adjustments (consisting of normal recurring accruals) necessary
for a fair presentation have been included. The results of operations for the
three month and nine month periods ended September 30, 1998 are not necessarily
indicative of future financial results. For further information, refer to the
financial statements and footnotes thereto for the year ended December 31, 1997
included in the Company's Form 10-K filed with the Securities and Exchange
Commission.
2. ACQUISITION
On June 29, 1998, the Company, through a wholly owned subsidiary, acquired 100%
of the capital stock of Radio Cine Forniture (RCF) S.p.A. ("RCF"), an Italian
corporation. RCF is a manufacturer of audio speakers and speakers components
based in Reggio Emilia, Italy. The acquisition was accounted for under the
purchase method of accounting. The aggregate purchase price, plus related
acquisition costs, was approximately $15 million. The excess of the purchase
price over the fair value of net assets acquired is included in goodwill. The
results of operations of RCF have been included in the Company's consolidated
results of operations beginning on July 1, 1998.
The following table presents unaudited pro forma consolidated financial
information for the nine months ended September 30, 1998 and 1997 as if the
acquisition of RCF had occurred on January 1 of those years:
<TABLE>
<CAPTION>
Nine months ended
September 30,
----------------------------------
1998 1997
----------- -----------
<S> <C> <C>
Net sales $91,049,000 $88,544,000
----------- -----------
----------- -----------
Net income $ 3,948,000 $ 3,525,000
----------- -----------
----------- -----------
Diluted income per share $ 0.30 $ 0.26
----------- -----------
----------- -----------
</TABLE>
The unaudited pro forma financial information is presented for informational
purposes only and is not necessarily indicative of the operating results that
would have occurred had the acquisition taken place on the basis assumed above.
In addition, the pro forma results are not intended to be a projection of the
future results and do not reflect any synergies that might have been achieved
from the combined operations.
6
<PAGE>
3. INVENTORIES
Inventories at September 30, 1998 and December 31, 1997 consisted of the
following:
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
----------- -----------
<S> <S> <S>
Raw materials $13,087,569 $10,987,890
Work in process 5,454,352 2,901,785
Finished goods 17,069,627 3,871,787
----------- -----------
$35,611,548 $17,761,462
----------- -----------
----------- -----------
</TABLE>
4. RECENTLY ISSUED ACCOUNTING STANDARDS
As of January 1, 1998, the Company adopted Financial Accounting Standards Board
("FASB") Statement No. 130, "Reporting Comprehensive Income." Statement 130
establishes new rules for the reporting and display of comprehensive income or
loss and its components; however, the adoption of this Statement had no impact
on the Company's operating results or shareholders' equity. Statement 130
requires foreign currency translation adjustments, which include transactions
that are of a long-term investment nature, to be included in other
comprehensive income or loss.
Components of comprehensive net income are as follows:
<TABLE>
<CAPTION>
Three months ended September 30,
--------------------------------
1998 1997
---------- ----------
<S> <C> <C>
Net income $1,776,009 $1,818,021
Foreign currency translation adjustments (386,681) --
---------- ----------
Comprehensive net income $1,389,328 $1,818,021
---------- ----------
---------- ----------
</TABLE>
<TABLE>
<CAPTION>
Nine months ended September 30,
-------------------------------
1998 1997
---------- ----------
<S> <C> <C>
Net income $4,255,812 $4,371,188
Foreign currency translation adjustments (386,681) --
---------- ----------
Comprehensive net income $3,869,131 $4,371,188
---------- ----------
---------- ----------
</TABLE>
In 1997, the FASB issued Statement No. 131, "Disclosures about Segments of an
Enterprise and Related Information," which is required to be adopted for
periods beginning after December 15, 1997. The new Statement supersedes FASB
Statement No. 14, "Financial Reporting for Segments of a Business Enterprise."
Companies will be required to report each operating segment and related
information, as defined in Statement 131, in the notes to financial statements.
The Company plans to adopt the new Statement in 1998. Statement 131 is not
required to be applied to interim financial statements in the initial year of
adoption.
7
<PAGE>
ITEM 2. 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 ability to integrate the operations of RCF, its limited protection of
technology and trademarks, various factors that impact the Company's
international operations including economic conditions in various countries,
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,
speakers 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. 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 also 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. These discounts are given because the international distributor
typically incurs certain expenses, including technical support, product service
and in-country advertising, that the Company normally incurs for domestic
sales. The Company offered its international distributors a weighted average
discount of approximately 8.1% in 1995, 12.7% in 1996, 14.8% in 1997, and 15.5%
in the first nine months of 1998. The increase in discounts is attributable to
the fact that the Company increased its discounts to international distributors
after it terminated the services of its exclusive representative for sales to
international distributors in 1995 and began supervising international
marketing and sales internally. The increase in discounts in 1997 and 1998 is
also attributable to additional discounts offered on certain products. In
conjunction with the increase in discounts, the Company also eliminated the
commissions it was paying to its international representative. While the
Company has eliminated these commissions, the Company has incurred and will
continue to incur additional expenses associated with managing the
international marketing and sales of its products. Sales outside the U.S.
represented approximately 34%, 38%, 38%, and 37% of the Company's net sales in
1995, 1996, 1997 and the first nine months of 1998, respectively.
The Company's gross margins are also affected by the purchase of some
components outside of the United States and Italy. As a result of fluctuations
in the value of local currencies relative to the U.S. dollar and Italian lira,
some of the Company's international component suppliers have increased prices
and may further increase prices. The Company employs foreign exchange hedging
strategies for certain currencies to help mitigate the effect of currency
fluctuations.
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
8
<PAGE>
which the Company is not familiar. This could result in lower margins as the
Company becomes more familiar with new manufacturing procedures.
RESULTS OF OPERATIONS
QUARTER ENDED SEPTEMBER 30, 1998 AS COMPARED WITH QUARTER ENDED SEPTEMBER 30,
1997
Net sales increased 41.4% to $30.5 million in the third quarter of 1998 from
$21.6 million in the third quarter of 1997. The increase was attributable to
the inclusion of sales by the Company's newly acquired subsidiary, RCF,
beginning July 1, 1998. RCF's net sales for the quarter ended September 30,
1998 were $10.0 million. Sales outside the United States increased to 47% of
the Company's total net sales in the third quarter of 1998 from 39% in the
third quarter of 1997. The increase was attributable to the inclusion of
sales by RCF beginning July 1, 1998 whose sales outside the U.S. were 89% of
its total net sales during the third quarter of 1998.
Gross margin increased to 39.2% in the third quarter of 1998 from 36.3% in the
third quarter of 1997. The increase in gross margin percentage was due
primarily to a difference in product mix for the third quarter of 1998 compared
with the third quarter of 1997 as sales of certain product lines provided
higher gross margins than other product lines.
Marketing and sales expenses increased to $4.1 million in the third quarter of
1998 from $2.6 million in the corresponding period of 1997. The increase was
primarily attributable to the inclusion of marketing and sales expenses for RCF
beginning July 1, 1998. As a percentage of net sales, marketing and sales
expenses increased to 13.4% in the third quarter of 1998 from 12.0% in the
corresponding period of 1997.
Administrative expenses increased to $3.3 million for the third quarter of 1998
from $1.2 million for the corresponding period of 1997. The increase was
primarily attributable to the inclusion of administrative expenses for RCF
beginning July 1, 1998. This increase was also due to increased legal expenses
due to the lawsuit filed by the Company against certain parties alleging
infringement of its intellectual property rights (see Part II, Item 1, "Legal
Proceedings" in this Form 10-Q). As a percentage of net sales, these expenses
increased to 10.9% in the third quarter of 1998 compared with 6.4% in the
corresponding period of 1997.
Research and development expenses decreased to $1.4 million in the third
quarter of 1998 from $1.5 million in the corresponding period of 1997. As a
percentage of net sales, these expenses decreased to 4.5% in the third quarter
of 1998 from 6.8% in the corresponding period of 1997. This decrease was due
primarily to decreases in prototype and other expenditures. Historically, RCF
has incurred a lower percentage of R&D expenses as a percentage of net sales
when compared to Mackie Designs Inc.
Interest income increased to $234,000 in the third quarter of 1998 compared
with $203,000 in the third quarter of 1997 due to the inclusion of interest
income for RCF beginning July 1, 1998. Interest expense increased to $780,000
in the third quarter of 1998 compared with none in the third quarter of 1997
due to borrowings related to the acquisition of RCF and to interest-bearing
debt carried by RCF.
The provision for income taxes for the third quarter of 1998 of $889,000 is
based upon an expected overall effective rate for 1998 of 31%. The provision
for income taxes for the third quarter of 1997 of $817,000 was based upon an
expected overall effective rate for 1997 of 32%. The decrease in the expected
overall effective rate in 1998 compared with 1997 is due to the increased
benefits provided by the Company's foreign sales corporation and the research
and development tax credit.
9
<PAGE>
NINE MONTHS ENDED SEPTEMBER 30, 1998 AS COMPARED WITH NINE MONTHS ENDED
SEPTEMBER 30, 1997
Net sales increased 15.9% to $66.1 million in the first nine months of 1998
from $57.0 million in the first nine months of 1997. The increase was
attributable to the inclusion of sales by the Company's newly acquired
subsidiary, RCF, beginning July 1, 1998. RCF's net sales for the quarter
ended September 30, 1998 were $10.0 million. Sales outside the United States
decreased to 37% of the Company's total net sales in the first nine months of
1998 from 39% in the first nine months of 1997. This decrease was primarily
due to economic conditions and competitive pressures in certain parts of the
world.
Gross margin increased to 38.9% in the first nine months of 1998 from 37.4% in
the first nine months of 1997. The increase in gross margin percentage was due
primarily to a difference in product mix for the first nine months of 1998
compared with the first nine months of 1997 as sales of certain product lines
provided higher gross margins than other product lines.
Marketing and sales expenses increased to $9.4 million in the first nine months
of 1998 from $7.5 million in the corresponding period of 1997. The increase
was primarily attributable to the inclusion of marketing and sales expenses for
RCF beginning July 1, 1998. As a percentage of net sales, marketing and sales
expenses increased to 14.2% in the first nine months of 1998 from 13.1% in the
corresponding period of 1997.
Administrative expenses increased to $6.6 million for the first nine months of
1998 from $3.7 million for the corresponding period of 1997. The increase was
primarily attributable to the inclusion of administrative expenses for RCF
beginning July 1, 1998. This increase was also due to increased legal expenses
due to the lawsuit filed by the Company against certain parties alleging
infringement of its intellectual property rights (see Part II, Item 1, "Legal
Proceedings" in this Form 10-Q). As a percentage of net sales, these expenses
were 9.9% in the first nine months of 1998 compared with 6.5% in the
corresponding period of 1997.
Research and development expenses decreased to $3.4 million in the first nine
months of 1998 from $4.4 million in the corresponding period of 1997. As a
percentage of net sales, these expenses decreased to 5.2% in the first nine
months of 1998 from 7.7% in the corresponding period of 1997. This decrease
was due primarily to decreases in prototype and other expenditures.
Historically, RCF has incurred a lower percentage of R&D expenses as a
percentage of net sales when compared to Mackie Designs Inc.
Interest income decreased to $575,000 in the first nine months of 1998 compared
with $625,000 in the first nine months of 1997 due to a lower average cash
balance. Interest expense increased to $805,000 in the first nine months of
1998 compared with none in the first nine months of 1997 due to borrowings
related to the acquisition of RCF and to interest-bearing debt carried by RCF.
The provision for income taxes for the first nine months of 1998 of $1,941,000
is based upon an expected overall effective rate for 1998 of 31%. The
provision for income taxes for the first nine months of 1997 of $2,074,000 was
based upon an expected overall effective rate for 1997 of 32%. The decrease in
the expected overall effective rate in 1998 compared with 1997 is due to the
increased benefits provided by the Company's foreign sales corporation and the
research and development tax credit.
LIQUIDITY AND CAPITAL RESOURCES
During the first nine months of 1998, the Company's operating activities
generated cash of $497,000. Accounts receivable, net of allowances, increased
$6.0 million at September 30, 1998 due to an increase in days' sales
outstanding and an increase in net sales in the third quarter of 1998 compared
with the fourth quarter of 1997. Inventory levels increased $2.0 million at
September 30, 1998 due to an inventory build-up related to increased sales in
the third quarter of 1998. Net cash used by investing activities totaled $16.1
million during this period, due principally to the acquisition of RCF and
purchases of furniture and equipment. Net cash provided by financing
activities totaled $17.1 million during this
10
<PAGE>
period due principally to proceeds from bank credit facilities used for the
acquisition of RCF. During this same period, the Company repurchased 188,800
shares of its own stock at a total cost of $1,261,000.
In June 1998, the Company entered into a credit agreement with a bank to
provide certain credit facilities to the Company, including a $14.0 million
loan for the acquisition of RCF of which $12.8 million was outstanding at
September 30, 1998. Unused amounts under the loan may be used for general
corporate purposes. The loan, which is secured by all of the Company's assets,
bears interest at the bank's prime rate, or at a specified LIBOR rate plus a
specified margin, whichever the Company chooses. Interest under the loan is
payable monthly. Principal is payable in installments equal to 1/7 of the
amount borrowed on September 30 of each year commencing September 30, 1999.
All outstanding principal and interest amounts are due on September 30, 2003.
The agreement also provides a $5.0 million unsecured line of credit to finance
any unexpected working capital requirements. The line of credit bears interest
at the same rate as the acquisition loan. 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. At September 30, 1998, there was $100,000
outstanding on the $5.0 million line of credit and there were no outstanding
balances on the other credit lines. These credit facilities (excluding the
acquisition loan) expire April 30, 2000. Under the terms of the credit
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.
RCF has entered into agreements with several banks that provide short-term
credit facilities totaling approximately $18 million. These credit facilities,
which bear interest at rates from 6% to 10%, are secured by RCF's receivables.
At September 30, 1998, there was approximately $11.4 million outstanding under
these facilities. RCF also has various loans outstanding at September 30 1998,
totaling approximately $15.5 million, which bear interest at rates from 3% to
12%. These loans mature at varying dates up to 2004 and are secured by various
assets of RCF.
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.
11
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In June 1997, the Company filed a lawsuit against certain parties, including
one of the Company's major competitors and a major dealer of the Company's
products, alleging infringement of its intellectual property rights.
Defendants include Behringer Spezielle Studio-Technick GmbH ("Behringer"),
Ulrich Bernard Behringer, Sam Ash Music Corporation, Samson Technologies
Corporation ("Samson"), Richard Ash and Scott Goodman. The suit claims
damages in the amount of $327 million. Cases are pending in the United
States District Court for the Western District of Washington, the Eastern
District of New York, and a local court in the United Kingdom. On April 22,
1998, Samson lodged two counterclaims. The first counterclaim seeks a
declaration that Samson has not infringed the Company's trademarks and that
such trademarks are invalid. The second counterclaim seeks in excess of $10
million in damages for alleged defamation of Samson by the Company. While
the Company intends to vigorously prosecute its claims and defend against
counterclaims, there can be no assurance that the Company will prevail in any
of these actions.
The Company is also involved in various legal proceedings and claims that
arise in the ordinary course of business. Management currently believes that
these matters will not have a material adverse impact on the Company's
financial position, liquidity or results of operations.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
Exhibit No. Description
----------- -----------
*11 Computation of Net Income Per Share
*27 Financial Data Schedule
________________
*Filed herewith
(b) REPORTS ON FORM 8-K
The Company filed the following current reports on Forms 8-K and 8-K/A
under Item 2: Acquisition or Disposition of Assets.
12
<PAGE>
<TABLE>
<CAPTION>
Form Date of Filing Date of Report Topic
---- -------------- -------------- -----
<S> <S> <S>
8-K July 14, 1998 June 29, 1998 Acquisition of Radio Cine
Forniture (RCF) S.p.A.
8-K/A September 15, 1998 June 29, 1998 Acquisition of Radio Cine
Forniture (RCF) S.p.A.
</TABLE>
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MACKIE DESIGNS INC.
---------------------------------------------
(Registrant)
Dated: November 12, 1998 By: /s/ William A. Garrard
---------------------------------------------
William A. Garrard
VICE PRESIDENT, FINANCE AND CHIEF FINANCIAL
OFFICER
(Principal Financial and Accounting Officer)
14
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<S> <C>
11 Computation of Net Income Per Share
27 Financial Data Schedule
</TABLE>
15
<PAGE>
EXHIBITS
EXHIBIT 11 - COMPUTATION OF NET INCOME PER SHARE
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------------- -------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Numerator:
Numerator for basic and diluted income per share
- net income $ 1,776,009 $ 1,818,021 $ 4,230,212 $ 4,371,188
----------- ----------- ----------- -----------
Denominator:
Denominator for basic income per share - weighted
average common shares 12,583,654 12,806,047 12,656,366 12,847,587
Effect of dilutive securities:
Stock options, net 333,193 792,458 350,416 547,803
----------- ----------- ----------- -----------
Denominator for diluted income per share 12,916,847 13,598,505 13,006,782 13,395,390
----------- ----------- ----------- -----------
Basic income per share $ 0.14 $ 0.14 $ 0.33 $ 0.34
=========== =========== =========== ===========
Diluted income per share $ 0.14 $ 0.13 $ 0.33 $ 0.33
=========== =========== =========== ===========
</TABLE>
17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MACKIE
DESIGNS INC.'S CONSOLIDATED BALANCE SHEETS AND RELATED CONSOLIDATED STATEMENTS
OF INCOME AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 2,126,610
<SECURITIES> 9,487,637
<RECEIVABLES> 33,829,202
<ALLOWANCES> (1,434,156)
<INVENTORY> 35,611,548
<CURRENT-ASSETS> 83,715,464
<PP&E> 32,711,275
<DEPRECIATION> (9,661,805)
<TOTAL-ASSETS> 120,743,268
<CURRENT-LIABILITIES> 39,254,405
<BONDS> 24,804,169
0
0
<COMMON> 28,451,991
<OTHER-SE> 20,664,342
<TOTAL-LIABILITY-AND-EQUITY> 120,743,268
<SALES> 66,117,081
<TOTAL-REVENUES> 66,117,081
<CGS> 40,376,706
<TOTAL-COSTS> 40,376,706
<OTHER-EXPENSES> 19,360,301
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (804,911)
<INCOME-PRETAX> 6,196,378
<INCOME-TAX> 1,940,566
<INCOME-CONTINUING> 4,230,212
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,230,212
<EPS-PRIMARY> 0.33
<EPS-DILUTED> 0.33
</TABLE>
