<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For Quarter Ended Commission File Number
March 31, 1999 1-13906
BALLANTYNE OF OMAHA, INC.
-------------------------
(Exact name of Registrant as specified in its charter)
Delaware 47-0587703
- ------------------------------- ----------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
4350 McKinley Street, Omaha, Nebraska 68112
-------------------------------------------
(Address of principal executive offices including zip code)
Registrant's telephone number, including area code:
(402) 453-4444
Indicate by check mark whether 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 the number of shares outstanding of each of the
Registrant's classes of common stock as of the latest practicable date:
Class Outstanding as of April 28, 1999
- ----------------
Common Stock, $.01
par value 12,640,994 shares
<PAGE>
BALLANTYNE OF OMAHA, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
Part I. Financial Information
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets-March 31, 1999 and December 31, 1998..... 2
Consolidated Statements of Income-Three Months Ended
March 31, 1999 and 1998........................................... 3
Consolidated Statements of Stockholders' Equity-
Three Months Ended March 31, 1999................................. 4
Consolidated Statements of Cash Flows-Three Months Ended
March 31, 1999 and 1998........................................... 5
Notes to Consolidated Financial Statements-
Three Months Ended March 31, 1999................................. 6
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition................................ 11
Part II. Other Information....................................................... 15
</TABLE>
1
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Ballantyne of Omaha, Inc. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
---- ----
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,092,428 $ 594,686
Accounts receivable (less allowance for doubtful
accounts of $450,168 in 1999 and $396,785 in 1998) 16,229,111 17,255,221
Inventories 23,348,695 21,434,395
Deferred income taxes 1,010,917 864,568
Other current assets 29,831 43,611
------------ ------------
Total current assets 41,710,982 40,192,481
Plant and equipment, net 13,019,434 12,695,989
Other assets, net 3,604,589 3,664,710
------------ ------------
Total assets $ 58,335,005 $ 56,553,180
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,746,217 $ 5,936,825
Accrued expenses 2,384,688 2,500,614
Income taxes payable 1,755,833 752,809
------------ ------------
Total current liabilities 9,886,738 9,190,248
Deferred income taxes 472,947 471,319
Long-term debt 52,750 47,372
Notes payable to bank 11,427,000 12,229,000
Stockholders' equity:
Preferred stock, par value $.01 per share;
authorized 1,000,000 shares, none outstanding - -
Common stock, par value $.01 per share;
authorized 25,000,000 shares; issued
14,466,171 shares in 1999 and 14,450,702
shares in 1998 144,662 144,507
Additional paid-in capital 31,254,951 31,211,329
Retained earnings 17,447,063 15,610,511
------------ ------------
48,846,676 46,966,347
Less cost of 1,801,800 common shares in treasury, at cost (12,351,106) (12,351,106)
------------ ------------
Total stockholders' equity 36,495,570 34,615,241
------------ ------------
Total liabilities and stockholders' equity $ 58,335,005 $ 56,553,180
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
Ballantyne of Omaha, Inc. and Subsidiaries
Consolidated Statements of Income
Three Months Ended March 31, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Net revenues $ 20,197,020 $ 17,271,887
Cost of revenues 14,017,333 11,963,465
------------ ------------
Gross profit 6,179,687 5,308,422
Operating expenses:
Selling 1,091,545 862,235
General and administrative 1,878,241 1,570,673
------------ ------------
Total operating expenses 2,969,786 2,432,908
------------ ------------
Income from operations 3,209,901 2,875,514
Interest income 2,877 73,170
Interest expense (235,041) (4,190)
------------ ------------
Net interest income (expense) (232,164) 68,980
------------ ------------
Income before income taxes 2,977,737 2,944,494
Income taxes 1,141,185 1,043,076
------------ ------------
Net income $ 1,836,552 $ 1,901,418
============ ============
Net income per share:
Basic $ 0.14 $ 0.13
============ ============
Diluted $ 0.14 $ 0.13
============ ============
Weighted average shares outstanding:
Basic 12,677,434 14,232,543
============ ============
Diluted 13,328,863 14,948,489
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
Ballantyne of Omaha, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
Three Months Ended March 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
Additional Total
Preferred Common Paid-in- Retained Treasury Stockholders'
Stock Stock Capital Earnings Stock Equity
----------- ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998 $ - 144,507 31,211,329 15,610,511 (12,351,106) 34,615,241
Net income - - - 1,836,552 - 1,836,552
Issuance of 15,469 shares of common stock
upon exercise of stock options - 155 43,622 - - 43,777
----------- ----------- ----------- ----------- ----------- -----------
Balance at March 31,1999 $ - 144,662 31,254,951 17,447,063 (12,351,106) 36,495,570
=========== =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
Ballantyne of Omaha, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Three Months Ended March 31, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,836,552 $ 1,901,418
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization 663,856 320,660
Changes in assets and liabilities, net of assets acquired:
Accounts receivables 1,026,110 421,381
Inventories (1,914,300) (1,963,514)
Other current assets 13,780 29,453
Accounts payable (190,608) (3,141,291)
Accrued expenses (115,926) (166,058)
Income taxes 858,303 1,041,531
Other assets (27,489) (215,343)
----------- -----------
Net cash provided by (used in)
operating activities 2,150,278 (1,771,763)
----------- -----------
Cash flows from investing activities:
Business combination - (575,000)
Capital expenditures (894,313) (436,968)
----------- -----------
Net cash used in investing
activities (894,313) (1,011,968)
----------- -----------
Cash flows from financing activities:
Repayments of long-term debt and
revolving credit facility (802,000) (50,000)
Proceeds from exercise of stock options 43,777 33,490
----------- -----------
Net cash used in financing activities (758,223) (16,510)
----------- -----------
Net increase (decrease) in cash
and cash equivalents 497,742 (2,800,241)
Cash and cash equivalents at beginning of period 594,686 7,701,507
----------- -----------
Cash and cash equivalents at end of period $ 1,092,428 $ 4,901,266
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
Ballantyne of Omaha, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Three Months Ended March 31, 1999
(Unaudited)
1. Company
Ballantyne of Omaha Inc., a Delaware corporation ("Ballantyne" or the
"Company"), and its wholly-owned subsidiaries, Strong Westrex, Inc., Design &
Manufacturing, Inc., Xenotech Rental Corp. and Xenotech Strong, Inc., design,
develop, manufacture and distribute commercial motion picture equipment,
lighting systems and restaurant equipment. The Company's products are
distributed worldwide through a domestic and international dealer network and
are sold to major movie exhibition companies, sports arenas, auditoriums,
amusement parks, special venues, restaurants, supermarkets and convenience food
stores. Approximately 25.6% of the Company's common stock is owned by Canrad of
Delaware, Inc. ("Canrad") which is an indirect wholly-owned subsidiary of ARC
International Corporation.
2. Summary of Significant Accounting Policies
The principal accounting policies upon which the accompanying consolidated
financial statements are based are summarized as follows:
a. Basis of Presentation
The consolidated financial statements include the accounts of the Company and
its subsidiaries. All significant intercompany balances and transactions have
been eliminated in consolidation. The consolidated financial statements have
been prepared in conformity with generally accepted accounting principles and
include all adjustments which are, in the opinion of management, necessary
for a fair presentation of the results for the periods presented. All such
adjustments are, in the opinion of management, of a normal, recurring nature.
While the Company believes that the disclosures presented are adequate to
make the information not misleading, it is suggested that these consolidated
financial statements be read in connection with the consolidated financial
statements and related notes included in the Company's latest annual report
on Form 10-K.
b. Stock Dividend and Split
The Company's Board of Directors declared a 5% stock dividend of the Company's
common stock on January 28, 1999. The stock dividend was payable March 1, 1999
to shareholders of record on February 15, 1999. The stock dividend resulted in
the issuance of 601,455 shares of common stock. The dividend has been accounted
for as if it occurred on December 31, 1998.
The Company's Board of Directors declared a 3-for-2 stock split of the Company's
common stock on April 21, 1998. The stock split was in the form of a 50% common
stock dividend payable June 12, 1998 to shareholders of record on May 29, 1998.
Share and per share data have been restated to reflect the stock split as of the
earliest period presented.
c. Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market and
include appropriate elements of material, labor and manufacturing overhead.
6
<PAGE>
Ballantyne of Omaha, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Three Months Ended March 31, 1999
(Unaudited)
d. Plant and Equipment
Significant expenditures for the replacement or expansion of plant and equipment
are capitalized. Depreciation of plant and equipment is provided over the
estimated useful lives of the respective assets using the straight-line method.
Estimated useful lives range from 3 to 20 years.
e. Revenue Recognition
The Company recognizes revenue from product sales upon shipment to the customer.
Revenues related to equipment rental and services are recognized as earned over
the terms of the contracts.
f. Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these consolidated financial
statements in conformity with generally accepted accounting principles.
Actual results could differ from those estimates.
g. Net Income Per Common Share
Net income per share - basic has been computed on the basis of the weighted
average number of shares of common stock outstanding. Net income per share -
diluted has been computed on the basis of the weighted average number of shares
of common stock outstanding after giving effect to potential common shares from
dilutive stock options. Net income per share - diluted includes an increase in
the weighted average shares outstanding for dilutive stock options of 651,429
and 715,946 for the three months ended March 31, 1999 and 1998, respectively.
All share and per share data have been restated to reflect the stock dividend
and stock split as of the earliest period presented.
h. Reclassifications
Certain of the 1998 amounts have been reclassified to conform with the 1999
presentation.
3. Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
---- ----
<S> <C> <C>
Raw materials and supplies $16,777,339 $16,404,416
Work in process 3,791,721 3,115,163
Finished goods 2,779,635 1,914,816
----------- -----------
$23,348,695 $21,434,395
=========== ===========
</TABLE>
7
<PAGE>
Ballantyne of Omaha, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Three Months Ended March 31, 1999
(Unaudited)
4. Acquisitions
During January of 1998, the Company purchased substantially all of the net
assets of Sky-Tracker of Florida, Inc. ("Sky-Tracker of Florida") for cash of
$575,000. Sky-Tracker of Florida is a rental agent and distributor of high
intensity promotional searchlights.
Effective April 1, 1998, the Company purchased substantially all of the net
assets of Design and Manufacturing, Ltd. ("Design") for cash and stock of
approximately $5.5 million. The Company also assumed liabilities of
approximately $207,000. The common stock issued in this acquisition is subject
to a one-year lock-up agreement. The cash portion of the purchase price was
financed through operating cash flows. In connection with the acquisition,
goodwill of approximately $2.5 million was recorded and is being amortized over
15 years. Design is a leading supplier of film platter systems to the motion
picture exhibition industry and was a vendor of the Company. In a related
transaction in May 1998, the Company purchased land and a building for $500,000
from the former owner of Design.
During June of 1998, the Company purchased substantially all of the assets of a
distributor of follow spotlights for a purchase price of $125,000.
5. Business Segment Information
The Company's operations are conducted principally through three business
segments: Theatre, Lighting and Restaurant. Theatre operations include the
design, manufacture, assembly and sale of motion picture projectors, xenon
lamphouses and power supplies, sound systems and the sale of film handling
equipment and lenses for the theatre exhibition industry. The lighting segment
operations include the sale and rental of follow spotlights, stationary
searchlights and computer operated lighting systems for the motion picture
production, television, live entertainment, theme parks and architectural
industries. The restaurant segment includes the design, manufacture, assembly
and sale of pressure fryers, smoke ovens and rotisseries and the sale of
seasonings, marinades and barbecue sauces, mesquite and hickory woods and point
of purchase displays.
The Company allocates resources to business segments and evaluates the
performance of these segments based upon reported segment gross profit. However,
certain key operations of a particular segment are tracked on the basis of
operating profit. There are no significant intersegment sales. All intersegment
transfers are recorded at historical cost. Prior year amounts have been
presented to conform with the current year presentation.
8
<PAGE>
Ballantyne of Omaha, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Three Months Ended March 31, 1999
(Unaudited)
SUMMARY BY BUSINESS SEGMENTS
<TABLE>
<CAPTION>
March 31, March 31,
1999 1998
---- ----
<S> <C> <C>
Net revenue
Theatre $ 17,600,018 $ 14,997,082
Lighting 2,083,074 1,742,965
Restaurant 513,928 531,840
------------ ------------
Total $ 20,197,020 $ 17,271,887
Gross profit
Theatre $ 5,424,426 $ 4,550,706
Lighting 645,367 598,989
Restaurant 109,894 158,727
------------ ------------
Total 6,179,687 5,308,422
Corporate overhead (2,969,786) (2,432,908)
------------ ------------
Operating income 3,209,901 2,875,514
Net interest income (expense) (232,164) 68,980
------------ ------------
Income before income taxes $ 2,977,737 $ 2,944,494
============ ============
Identifiable assets
Theatre $ 49,884,233 $ 50,352,313
Lighting 7,597,511 5,401,462
Restaurant 853,261 799,405
------------ ------------
Total $ 58,335,005 $ 56,553,180
============ ============
Expenditures on capital equipment
Theatre $ 493,186 $ 296,798
Lighting 401,127 140,170
Restaurant - -
------------ ------------
Total $ 894,313 $ 436,968
============ ============
Depreciation and amortization
Theatre $ 397,691 $ 235,019
Lighting 266,165 85,641
Restaurant - -
------------ ------------
Total $ 663,856 $ 320,660
============ ============
</TABLE>
9
<PAGE>
Ballantyne of Omaha, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Three Months Ended March 31, 1999
(Unaudited)
SUMMARY BY GEOGRAPHICAL AREA:
<TABLE>
<CAPTION>
March 31, March 31,
1999 1998
---- ----
<S> <C> <C>
Net revenue
United States $17,168,340 $13,600,787
Canada 1,098,416 1,364,748
Asia 912,508 717,771
Mexico 74,346 117,824
Europe 769,422 888,256
Other 173,988 582,501
----------- -----------
Total $20,197,020 $17,271,887
=========== ===========
Identifiable assets
United States $57,499,702 $55,741,472
Canada - -
Asia 835,303 811,708
Mexico - -
Europe - -
Other - -
----------- -----------
Total $58,335,005 $56,553,180
=========== ===========
</TABLE>
Net revenues by business segment are to unaffiliated customers. Net sales by
geographical area are based on destination of sales. Identifiable assets by
geographical area are based on location of facilities.
6. Related Party Transaction
On April 14, 1999, the Company entered into a term loan agreement with the
Chairman of the Board of the Company. Under the terms of the agreement, the
Company is obligated to advance $500,000 to the Chairman upon written request
to do so. The Chairman concurrently entered into an agreement with Arc
International Corporation ("Arc") to loan the proceeds from this note to Arc
under similar terms. The unpaid balance on the term loan bears interest at 1%
above the current interest rate on the Company's revolving credit facility.
As of the date of this 10Q, no amounts have been advanced.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
consolidated financial statements and notes thereto appearing elsewhere in this
10Q. Management's Discussion and Analysis contains forward-looking statements
that involve risks and uncertainties, including but not limited to, quarterly
fluctuations in results; customer demand for the Company's products; the
development of new technology for alternate means of motion picture
presentation; failure of the Company's computer systems or that of any of its
suppliers, and/or products manufactured and sold by the Company, resulting from
the year 2000 problem; domestic and international economic conditions; the
management of growth; and, other risks detailed from time to time in the
Company's other Securities and Exchange Commission filings. Actual results may
differ materially from management expectations.
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THE THREE MONTHS ENDED MARCH 31,
1998
Net revenues for the three months ended March 31, 1999 (the "1999 Period")
increased $2.9 million or 16.9% to $20.2 million from $17.3 million for the
three months ended March 31, 1998 (the "1998 Period"). The following table shows
comparative net revenues of theatre, lighting and restaurant products for the
respective periods:
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1999 1998
---- ----
<S> <C> <C>
Theatre $17,600,018 $14,997,082
Lighting 2,083,074 1,742,965
Restaurant 513,928 531,840
----------- -----------
Total net revenues $20,197,020 $17,271,887
=========== ===========
</TABLE>
The increase in total net revenues primarily reflects higher sales of theatre
products. The increase in theatre products relate to higher sales of commercial
motion picture projection equipment ("projection equipment"), which rose $2.2
million or 18.9% from $11.8 million in the 1998 Period to $14.0 million in the
1999 Period. This reflects increased sales of projection equipment to domestic
customers as motion picture exhibitors continue to build new multi-screen
theatre complexes. Also contributing to the increase in sales of theatre
products were higher sales of ISCO-Optic lenses which increased approximately
$.4 million to $1.8 million in the 1999 Period from $1.4 million in the 1998
Period. ISCO-Optic is a trademark of ISCO-Optic GmbH. Replacement part sales for
the theatre segment were lower in the 1999 Period decreasing $0.04 million from
the 1998 Period. Sales of ISCO-Optic lenses and replacement parts fluctuate from
quarter to quarter and are not directly related to the volume of projection
equipment sold, but are more a reflection of the needs of current customers
which have projection systems previously purchased from the Company.
Lighting segment revenue also contributed to the increase in total net revenues,
contributing $2.1 million in sales and rentals, an increase of $.4 million over
the $1.7 million contributed in the 1998 Period. The increase was mainly due to
higher sales and rentals of the Sky-Tracker product line.
Restaurant sales were flat at $.5 million for the 1999 and 1998 periods.
11
<PAGE>
Overall, consolidated net revenues from domestic customers increased $3.6
million to $17.2 million in the 1999 Period from $13.6 million in the 1998
Period. Net revenues from foreign customers decreased $.6 million or 16.7% to
$3.0 million from $3.6 million in the 1998 Period. This decrease was
attributable to lower sales in Canada, Europe, and Latin America, however, sales
were higher in Asia compared to the prior year.
Gross profit increased $.9 million in the 1999 Period to $6.2 million, but as a
percent of revenue decreased to 30.6% from 30.7% in the 1998 Period. Theatre
segment gross profit as a percentage of net revenues rose slightly to 30.8% from
30.3% in the 1998 Period as certain pricing concessions were offset by
manufacturing synergies. Gross margin as a percentage of net revenues in the
lighting segment decreased from 34.4% in the 1998 Period to 31.0% in the 1999
Period. This decline was due to lower rental revenues as a percentage of total
revenues and lower rental revenues compared to the 1998 Period. Rental revenue
generally carries a higher margin than product sales. Restaurant margins as a
percentage of sales declined from 29.8% to 21.4% in the 1999 Period due to lower
revenues and a different product mix compared to prior year.
Operating expenses in the 1999 Period increased approximately $.5 million or
22.1% from the 1998 Period. As a percentage of net revenues, such expenses
increased to 14.7% for the 1999 Period from 14.1% for the 1998 Period. The
increase can be attributed to the acquisition of Design and to costs related to
the lighting segment. Operating expenses as a percentage of revenue are
relatively high for Design because a majority of Design's sales are eliminated
in consolidation. This impact is offset by Design's ability to produce a
low-cost product for the Company and thus increase gross margins. The reason for
the increased operating expenses in the lighting segment relates to the Company
making a concerted effort to grow this segment but has not yet seen the revenue
growth that was anticipated.
Net interest expense was $232,164 in the 1999 Period compared to net interest
income of $68,980 in the 1998 Period. The change from the prior year reflects
lower cash on hand and higher interest expense due to borrowings on the
Company's line of credit with Norwest Bank. These borrowings were necessitated
due to the repurchase of 1.8 million shares of common stock during the third and
fourth quarters of 1998.
The Company's effective tax rate for the 1999 Period was 38.3% compared to 35.4%
in the 1998 Period. The increase reflects higher state taxes related to the
Company having operations in more states than the prior year. The difference
between the Company's effective tax rate and the Federal statutory rate of 34%
reflects the non-deductibility of certain intangible assets, principally
goodwill and the impact of state income taxes.
For the reasons outlined above, net income decreased $0.06 million or 3.4% to
$1.84 million in the 1999 Period from $1.9 million in the 1998 Period. Net
income per share - basic and diluted were $0.14 per share and $0.13 per share
for the 1999 and 1998 Periods, respectively.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1999, the Company maintained a $20 million line of credit with
Norwest Bank Nebraska, N.A. (the "Norwest Facility"). At March 31, 1999, $8.6
million of the Norwest Facility was unused. Borrowings outstanding under the
Norwest Facility bear interest, payable monthly, at a rate equal to the Prime
Rate less 0.5% (7.25% at March 31, 1999). All of the Company's assets secure the
Norwest Facility. The Company was in compliance with all restrictive covenants
at March 31, 1999 and 1998.
12
<PAGE>
Historically the Company has funded its working capital requirements through
cash flow generated by its operations. Net cash provided by operating activities
("operating cash flow") was $2.2 million in the 1999 Period compared to cash
used in operating activities of $1.8 million in the 1998 Period. The increase in
operating cash flow was due to the timing of payments to vendors compared to the
1998 Period and also to a $1.0 million decrease in accounts receivable.
The Company anticipates that internally generated funds and borrowings available
under the Norwest Facility will be sufficient to meet its working capital needs,
planned 1999 capital expenditures and to pursue opportunities to expand its
markets and businesses.
Net cash used in investing activities was $.9 million and $1.0 million for the
1999 and 1998 Periods, respectively. Investing activities in the 1999 Period
reflect capital expenditures while investing activities in the 1998 Period
reflect the acquisition of Sky-Tracker of Florida, Inc. for $.58 million and
capital expenditures of $.4 million.
Net cash used in financing activities was $.8 million for the 1999 Period
compared to $.02 million in the 1998 Period. The increase in cash used relates
to the payments on the Company's line of credit.
The Company does not engage in any hedging activities, including currency
hedging activities, in connection with its foreign operations and sales. To
date, all of the Company's international sales have been denominated in U.S.
dollars, exclusive of Strong Westrex, Inc. sales, which are denominated in Hong
Kong dollars.
SEASONALITY
Generally, the Company's business exhibits a moderate level of seasonality as
sales of theatre products typically increase during the third and fourth
quarters. The Company believes that such increased sales reflect seasonal
increases in the construction of new motion picture screens in anticipation of
the Christmas movie season.
INFLATION
The Company believes that the relatively moderate rates of inflation in recent
years have not had a significant impact on its net revenues or profitability.
Historically, the Company has been able to offset any inflationary effects by
either increasing prices or improving cost efficiencies.
YEAR 2000
The Company has developed a plan to deal with the year 2000 problem in
connection with its systems and began converting its systems to be year 2000
compliant. The plan provides for the conversions to be completed and tested
before the 1999 year-end. The year 2000 problem, frequently referred to as the
"millennium bug", results from the fact that computer programs in the past have
been written using only two digits to identify a year, rather than four digits.
Because of this, the computer would not recognize years commencing with the
digits "20", instead of "19", and could produce erroneous calculations resulting
in interruptions and crashes in business operating systems. The company's
information technology systems contain inventory and accounting systems,
electronic data interchange, and mechanical systems affecting machinery and
equipment.
13
<PAGE>
There are four phases involved in assessing the year 2000 problem described by
the Company as follows:
AWARENESS Identify all data-impacted systems and products; contact product
vendors concerning compliance status and plans.
ASSESSMENT Identify compliance status of all data-impacted systems and
equipment; prioritize systems and equipment based on business risk; estimate
cost and feasibility of repairing and replacing each non-compliant system and
product and finally, establish a testing approach.
IMPLEMENTATION Repair or replace each non-compliant system and product; build
contingency plans.
TESTING Test the Company's systems and products to gain assurance that the year
2000 problem is fixed.
The information technology systems are currently in the implementation phase.
The Company expects the implementation and testing phase to be completed by the
end of the third quarter. Year 2000 issues relating to third parties relate to
the automated equipment which the Company sells its customers. While the Company
is currently assessing the impact to these products, it believes that the
equipment already complies with the year 2000 requirements. The Company has
currently incurred an inconsequential amount of costs relating to the year 2000
problem and believes that the overall costs will be inconsequential. The Company
could incur substantial liabilities and potential losses if the Company's
conversion efforts or the conversion efforts of any of its suppliers do not
adequately solve all potential problems, or if the automation products which the
Company sells do not operate satisfactorily because of the "millennium bug."
This represents the Company's most reasonable worst case, year 2000 scenario.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards for derivatives and hedging. It requires that all
derivatives be recognized as either assets or liabilities at fair value and
establishes specific criteria for the use of hedging accounting. The Company's
required adoption date is January 1, 2000. SFAS No. 133 is not to be applied
retroactively to financial statements of prior periods and as of March 31, 1999,
the Company had no derivatives or hedging activities.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has evaluated its exposure to fluctuations in the
interest rate and foreign currency environment and has concluded that its
exposure to these fluctuations would not be material to the consolidated
financial statements.
14
<PAGE>
PART II. OTHER INFORMATION
ITEM 16. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
10.4 Term loan between the Company and Arnold S. Tenney dated April 14,
1999
11 Computation of net income per share
27 Financial Data Schedule (for SEC information only)
(b) Reports on Form 8-K filed for the three months ended March 31, 1999
No reports on Form 8-K were filed during the three months ended
March 31, 1999.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BALLANTYNE OF OMAHA, INC.
By: /s/ John Wilmers By: /s/ Brad French
------------------------------ ----------------------------------
John Wilmers, President, Brad French, Secretary, Treasurer,
Chief Executive Officer, and Chief Financial Officer
and Director
Date: May 11, 1999 Date: May 11, 1999
16
<PAGE>
Exhibit 10.4
ARC International Corporation
4000 Chesswood Drive
Downsview, Ontario
Canada M3J 2B9
April 14, 1999
Arnold S. Tenney
c/o ARC International Corporation
4000 Chesswood Drive
Downsview, Ontario
Canada M3J 2B9
John P. Wilmers
President
Ballantyne of Omaha, Inc.
4350 McKinley Street
Omaha, Nebraska 68112
Re: BALLANTYNE TERM LOAN/TENNEY TERM LOAN
Dear Arnold and John:
In order to, among other things, facilitate compliance by ARC International
Corporation, an Ontario, Canada corporation ("ARC"), and certain of its
affiliates with their respective ongoing obligations owing to Penfund Management
Limited, each of the undersigned hereby make the following irrevocable
agreements:
- - Ballantyne of Omaha, Inc., a Delaware corporation ("Ballantyne"), shall
make, upon the written request (the "Borrowing Notice") of Arnold S. Tenney
made no later than 1:00 p.m. (Omaha time) on January 15, 2000, a term loan
(the "Ballantyne Term Loan") to Mr. Tenney in immediately available funds
to such account as shall be specified by Mr. Tenney in the Borrowing Notice
in the amount of $500,000.00 (U.S.). The Ballantyne Term Loan shall be
evidenced by a promissory note from Mr. Tenney containing the terms
specified on SCHEDULE A attached hereto.
- - In the event that the Ballantyne Term Loan is made to Mr. Tenney, the
proceeds of such loan shall immediately be used by Mr. Tenney to make a
term loan (the "Tenney Term Loan") in the amount of $500,000.00 (U.S.) to
ARC. The Tenney Term Loan shall be evidenced by a promissory note from ARC
containing the terms specified on SCHEDULE B attached hereto.
- - In the event that the Tenney Term Loan is made to ARC, the proceeds of such
loan shall immediately be used by ARC to make a capital contribution to ARC
Sports Ltd., an Ontario, Canada corporation, in the amount of $500,000.00
(U.S.).
(Remainder of page left intentionally blank)
17
<PAGE>
Please confirm your agreement with the foregoing by countersigning
this letter agreement in the space provided below.
Very truly yours,
ARC International Corporation
By: /s/ Jeffrey D. Chelin
--------------------------------
Jeffrey D. Chelin
Vice President - Finance
Acknowledged and Agreed to:
Ballantyne of Omaha, Inc.
By: /s/ John P. Wilmers
------------------------------
John P. Wilmers
President
/s/ Arnold S. Tenney
------------------------------
Arnold S. Tenney
Individually
18
<PAGE>
SCHEDULE A
BALLANTYNE TERM LOAN
Lender: Ballantyne of Omaha, Inc.
Obligator: Arnold S. Tenney
Term: One year
Principal Payment
Date: At maturity
Interest Rate: One percent (1%) above the interest rate in
effect from time to time under Ballantyne of
Omaha, Inc.'s credit facility with Norwest
Bank Nebraska N.A.
Interest Payment
Dates: Monthly in arrears commencing on the first
business day of the month immediately
succeeding the month in which the Ballantyne
Term Loan is made
Collateral: All sums due and payable to Mr. Tenney under
his consulting agreement with Ballantyne
shall be retained by Ballantyne and applied
toward reduction of the principal amount of
the Ballantyne Term Note
Events of Default: (i) Failure to make any payment of interest
or principal within five business days after
the same shall have become due and payable
(ii) Personal bankruptcy of Mr. Tenney
(iii) Bankruptcy or insolvency of ARC
International Corporation
(iv) Failure of Mr. Tenney or ARC to comply
with the terms and conditions set forth in
the letter agreement to which this schedule
is attached
Remedy Upon
Event of Default: (i) Acceleration of outstanding principal and
interest
(ii) Principal and interest remaining overdue
after expiration of five business day grace
period shall bear interest at the rate of
twelve percent (12%) per annum until paid
Prepayment
Penalty: None
19
<PAGE>
SCHEDULE B
TENNEY TERM LOAN
Lender: Arnold S. Tenney
Obligator: ARC International Corporation
Term: One year
Principal Payment
Date: At maturity
Interest Rate: One percent (1%) above the interest rate in
effect from time to time under Ballantyne of
Omaha, Inc.'s credit facility with Norwest
Bank Nebraska N.A.
Interest Payment
Dates: Monthly in arrears commencing on the first
business day of the month immediately
succeeding the month in which the Tenney Term
Loan is made
Collateral: None
Events of Default: (i) Failure to make any payment of interest
or principal within five business days after
the same shall have become due and payable
(ii) Personal bankruptcy of Mr. Tenney
(iii) Bankruptcy or insolvency of ARC
International Corporation
(iv) Failure of Mr. Tenney or ARC to comply
with the terms and conditions set forth in
the letter agreement to which this schedule
is attached
Remedy Upon
Event of Default: (i) Acceleration of outstanding principal and
interest
(ii) Principal and interest remaining overdue
after expiration of five business day grace
period shall bear interest at the rate of
twelve percent (12%) per annum until paid
Prepayment
Penalty: None
20
<PAGE>
Exhibit 11
Ballantyne of Omaha, Inc. and Subsidiaries
Computation of Net Income Per Share of Common Stock
Three Months Ended March 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
BASIC EARNINGS
Earnings applicable to
common stock $ 1,836,552 $ 1,901,418
Weighted average common
shares outstanding * 12,677,434 14,232,543
----------- -----------
Basic earnings per share $ 0.14 $ 0.13
=========== ===========
DILUTED EARNINGS
Earnings applicable to
common stock $ 1,836,552 $ 1,901,418
Weighted average common
shares outstanding * 12,677,434 14,232,543
Assuming conversion
of options outstanding * 651,429 715,946
----------- -----------
Weighted average common
shares outstanding, as adjusted * 13,328,863 14,948,489
----------- -----------
Diluted earnings per share $ 0.14 $ 0.13
=========== ===========
</TABLE>
* Adjusted for 3-for-2 stock split effected June 12, 1998 and 5% stock dividend
effected March 1, 1999
21
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCED TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 1,092,428
<SECURITIES> 0
<RECEIVABLES> 16,679,279
<ALLOWANCES> (450,168)
<INVENTORY> 23,348,695
<CURRENT-ASSETS> 41,710,982
<PP&E> 18,423,984
<DEPRECIATION> (5,404,550)
<TOTAL-ASSETS> 58,335,005
<CURRENT-LIABILITIES> 9,886,738
<BONDS> 11,479,750
0
0
<COMMON> 144,662
<OTHER-SE> 36,350,908
<TOTAL-LIABILITY-AND-EQUITY> 58,335,005
<SALES> 20,197,020
<TOTAL-REVENUES> 20,197,020
<CGS> 14,017,333
<TOTAL-COSTS> 14,017,333
<OTHER-EXPENSES> 2,918,786
<LOSS-PROVISION> 51,000
<INTEREST-EXPENSE> 232,164
<INCOME-PRETAX> 2,977,737
<INCOME-TAX> 1,141,185
<INCOME-CONTINUING> 1,836,552
<DISCONTINUED> 1,836,552
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,836,552
<EPS-PRIMARY> $0.14
<EPS-DILUTED> $0.14
</TABLE>
