-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EFhayx7r7TWNDg6k58GHigF+i8qk2O0AlBbBp+WXMmzrEx8usuCkvZCDW/+xVDQW k7CHkdAHKheLWfeQjQYKsw== 0000891020-97-000410.txt : 19970327 0000891020-97-000410.hdr.sgml : 19970327 ACCESSION NUMBER: 0000891020-97-000410 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970326 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: MACKIE DESIGNS INC CENTRAL INDEX KEY: 0000946815 STANDARD INDUSTRIAL CLASSIFICATION: RADIO & TV BROADCASTING & COMMUNICATIONS EQUIPMENT [3663] IRS NUMBER: 911432133 STATE OF INCORPORATION: WA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-26524 FILM NUMBER: 97563626 BUSINESS ADDRESS: STREET 1: 16220 WOOD RED RD NE CITY: WOODINVILLE STATE: WA ZIP: 98072 BUSINESS PHONE: 2064874333 MAIL ADDRESS: STREET 1: 16220 WOOD RED ROAD NE CITY: WOODINVILLE STATE: WA ZIP: 98072 10-K 1 FORM 10-K FOR THE FISCAL YEAR ENDED 12/31/96 1 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 ----------------- MACKIE DESIGNS INC. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Washington 91-1432133 - -------------------------------------------------------------------------------- (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) (206) 487-4333 - -------------------------------------------------------------------------------- (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 - ------------------------------- ------------------------------------------ None None Securities registered pursuant to Section 12(g) of the Act: Common Stock - no par value - -------------------------------------------------------------------------------- (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 ----- ----- 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. 2 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. 2 3 "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. 3 4 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 4 5 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 5 6 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 6 7 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. 7 8 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 8 9 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. 9 10 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:
1. Consolidated Financial Statements: Annual Report Page Number ----------- 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
10 11 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
2. Financial Statement Schedules: Form 10-K Page Number ----------- Schedule II - Valuation and Qualifying Accounts............................ 13
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. 11 12 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.
SIGNATURE TITLE - --------- ----- /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
12 13 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS MACKIE DESIGNS INC.
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 ----------- --------- --------- --------- --------- 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
(1) Uncollectible accounts written off, net of recoveries 13 14 INDEX TO EXHIBITS
SEQUENTIALLY EXHIBITS DESCRIPTION NUMBERED PAGE - -------- ----------- ------------- 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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
14 15 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
15 16 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 . . . . . . . . . . . . . . . . .
16 17 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -----------
______________________________ * Filed herewith 17 EX-10.1 2 AMENDED AND REVISED 1995 STOCK OPTION PLAN 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 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 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; 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:
NUMBER OF YEARS PERCENTAGE OF FOLLOWING DATE OF GRANT TOTAL OPTION VESTED ----------------------- ------------------- One 25% Two 50% Three 75% Four 100%
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 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; 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 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 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. 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 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 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 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. EX-11.1 3 COMPUTATION OF NET INCOME PER SHARE 1 EXHIBIT 11.1 COMPUTATION OF NET INCOME PER SHARE MACKIE DESIGNS INC.
Year ended December 31, --------------------------------------------- 1996 1995 1994 ----------- ----------- ----------- 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 =========== ===========
EX-13.1 4 ANNUAL REPORT TO THE SHAREHOLDERS 1 EXHIBIT 13.1 NEW MARKETS NEW PRODUCTS NEW OPPORTUNITIES 96 MACKIE DESIGNS INC. ANNUAL REPORT 1996 2 FINANCIAL HIGHLIGHTS (IN THOUSANDS, EXCEPT PER SHARE AND SHARE DATA)
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 - ---------------------------------------------------------------------------------------------------------------------------------- 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 - ----------------------------------------------------------------------------------------------------------------------------------
(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) 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 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 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 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. 4 7 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. 5 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. 6 9 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. 7 10 a) photo of paint facility Overseeing the operation of the automated paint line. 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 9 12 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. 10 13 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 11 14 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. 12 15 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 13 16 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. 14 17 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. 15 18 a) Mackie display at NAMM As usual, Mackie creates a splash at NAMM '96, Anaheim, CA. 16 19 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. 17 20 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 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 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 23 CONSOLIDATED BALANCE SHEETS
December 31, 1996 1995 ----------------------- 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 ==============================
See accompanying notes. 21 24 CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1996 1995 1994 ------------------------------------------------------ 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 =================================
See accompanying notes. 22 25 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Common Stock ------------ Retained Shares Amount Earnings Total --------------------------------------------------------------------------- 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 ===========================================================================
See accompanying notes. 23 26
CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31, OPERATING ACTIVITIES 1996 1995 1994 ----------------------------------------------------- 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 $ -- =====================================================
See accompanying notes. 24 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 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:
DECEMBER 31, 1996 1995 ------------------ 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 -------------------------
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:
DECEMBER 31, 1996 1995 --------------------------- 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 ---------------------------
4. FURNITURE AND EQUIPMENT Furniture and equipment consisted of the following:
DECEMBER 31, 1996 1995 ---------------------------- 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 ----------------------------
5. INCOME TAXES Deferred tax assets and liabilities consisted of the following at December 31, 1996 and 1995:
DECEMBER 31, 1996 1995 --------------------------- 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 ---------------------------
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:
YEAR ENDED AUG. 17, 1995 TO DEC. 31, 1996 DEC. 31, 1995 ------------------------------- 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% -------------------------------
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:
YEAR ENDED DECEMBER 31, 1995 1994 -------------------------------- 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% --------------------------------
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 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:
Year Ended December 31, 1996 1995 1994 ---------------------------- Commissions expense $371,968 $379,632 $322,030 ---------------------------- Commissions payable at end of year $ 35,102 $ 31,823 $ 56,748 ----------------------------
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:
1996 1995 -------------------------- 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
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:
WEIGHTED SHARES SUBJECT OPTION AVERAGE TO OPTION PRICE RANGE EXERCISE PRICE --------------------------------------------- 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 -----------------------------------------------
Options Outstanding
WEIGHTED WEIGHTED RANGE OF OPTIONS AVERAGE REMAINING AVERAGE EXERCISE PRICE OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE ------------------------------------------------------------------- $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 -------------------------------------------------------------------
Options Exercisable
WEIGHTED RANGE OF OPTIONS AVERAGE EXERCISE PRICE EXERCISABLE EXERCISE PRICE ----------------------------------------------------------- $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 -----------------------------------------------------------
At December 31, 1996, 989,300 shares of common stock were available for future grants. 27 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:
YEAR 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 -----------
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)
First Second Third Fourth ------------------------------------------------- (In thousands, except per share data) 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 ---------------------------------------------------------------------------------------
28 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 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
COMMON STOCK HIGH LOW 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 - ------------------------------------------------------------------------------------------------------------------
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 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: mackie@mackie.com 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: alisa@mackie.com NOTICE OF ANNUAL MEETING: April 30, 1997, 10:00 am Bellevue Club 11200 Southeast 6th Street Bellevue, Washington 31 34 [GRAPHIC] 32 EX-21.1 5 SUBSIDIARIES OF MACKIE DESIGNS 1 EXHIBIT 21.1 SUBSIDIARIES OF MACKIE DESIGNS INC. AS OF DECEMBER 31, 1996
State of Incorporation or Subsidiary Country in which Organized - ------------------------ -------------------------- Mackie Sales Corporation Barbados
EX-23.1 6 CONSENT OF ERNST & YOUNG LLP 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 EX-27.1 7 FINANCIAL DATA SCHEDULE
5 YEAR DEC-31-1996 JAN-01-1996 DEC-31-1996 2,366,184 11,688,513 10,501,035 (808,000) 10,316,940 35,605,884 13,709,339 (3,463,221) 46,255,950 3,585,710 0 0 0 30,998,830 11,284,160 46,255,950 73,235,925 73,235,925 45,210,585 17,313,495 11,104 471,000 0 11,092,259 3,671,600 7,420,659 0 0 0 7,420,659 .55 .54
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