<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
September 30, 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 October 15, 1999
- ----------------
Common Stock, $.01 12,426,115 shares
par value
<PAGE>
BALLANTYNE OF OMAHA, INC. AND SUBSIDIARIES
INDEX
Part I. Financial Information
Item 1. Consolidated Financial Statements PAGE
----
Consolidated Balance Sheets-September 30, 1999 and
December 31, 1998 2
Consolidated Statements of Income- Three and Nine
months ended September 30, 1999 and 1998 3
Consolidated Statements of Stockholders' Equity-
Nine months ended September 30, 1999 4
Consolidated Statements of Cash Flows- Nine months ended-
September 30, 1999 and 1998 5
Notes to Consolidated Financial Statements-
Nine months ended September 30, 1999 6
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition 11
Item 3. Quantitative and Qualitative Disclosures About Market Price 16
Part II. Other Information
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Ballantyne of Omaha, Inc. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------ ------------
(Unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,099,842 $ 594,686
Accounts receivable (less allowance for doubtful
accounts of $695,531 in 1999 and $396,785 in 1998) 15,745,961 17,255,221
Inventories 25,743,029 21,434,395
Deferred income taxes 952,280 864,568
Other current assets 516,780 43,611
----------- ------------
Total current assets 44,057,892 40,192,481
Plant and equipment, net 13,324,443 12,695,989
Other assets, net 3,432,655 3,664,710
------------ -----------
Total assets $ 60,814,990 $56,553,180
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 6,309,117 $ 5,936,825
Accrued expenses 3,258,321 2,500,614
Income taxes payable 506,365 752,809
------------ -----------
Total current liabilities 10,073,803 9,190,248
Deferred income taxes 586,743 471,319
Long-term debt 63,501 47,372
Notes payable to bank 11,041,000 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
14,523,279 shares in 1999 and 14,450,702
shares in 1998 145,233 144,507
Additional paid-in capital 31,406,540 31,211,329
Retained earnings 20,915,184 15,610,511
------------ -----------
52,466,957 46,966,347
Less cost of common shares in treasury, at cost
(1,913,383 shares in 1999 and 1,801,800 in 1998) (13,417,014) (12,351,106)
---------- ----------
Total stockholders' equity 39,049,943 34,615,241
------------ -----------
Total liabilities and stockholders' equity $ 60,814,990 $56,553,180
------------ -----------
------------ -----------
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
Ballantyne of Omaha, Inc. and Subsidiaries
Consolidated Statements of Income
Three and Nine Months Ended September 30, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net revenues $21,623,624 $20,852,022 $63,123,754 $53,536,705
Cost of revenues 15,308,309 14,281,629 44,428,722 36,889,186
---------- ---------- ---------- ----------
Gross profit 6,315,315 6,570,393 18,695,032 16,647,519
Operating expenses:
Selling 1,220,993 991,503 3,510,470 2,818,532
General and administrative 2,279,029 1,822,095 6,031,586 4,976,157
---------- ---------- ---------- ----------
Total operating expenses 3,500,022 2,813,598 9,542,056 7,794,689
---------- ---------- ---------- ----------
Income from operations 2,815,293 3,756,795 9,152,976 8,852,830
Interest income 4,608 7,382 12,602 93,951
Interest expense (227,755) (8,529) (655,216) (21,183)
---------- ---------- ---------- ----------
Net interest income (expense) (223,147) (1,147) (642,614) 72,768
---------- ---------- ---------- ----------
Income before income taxes 2,592,146 3,755,648 8,510,362 8,925,598
Income taxes 947,217 1,337,607 3,205,689 3,180,407
---------- ---------- ---------- ----------
Net income $1,644,929 $2,418,041 $5,304,673 $5,745,191
========== ========== ========== ==========
Net income per share:
Basic $ 0.13 $ 0.17 $ 0.42 $ 0.40
========== ========== ========== ==========
Diluted $ 0.13 $ 0.16 $ 0.40 $ 0.38
========== ========== ========== ==========
Weighted average shares:
Basic 12,582,675 14,479,272 12,629,403 14,410,853
========== ========== ========== ==========
Diluted 13,130,106 15,095,197 13,225,717 15,099,681
========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
Ballantyne of Omaha, Inc. and Subsidiaries
Consolidated Statement of Stockholders' Equity
Nine Months Ended September 30, 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 - - - 5,304,673 - 5,304,673
Issuance of 72,595 shares of
common stock upon exercise of
stock options - 726 195,211 - - 195,937
Purchase of treasury stock - - - - (1,065,908) (1,065,908)
------------------------------------------------------------------------------------------
Balance at September 30, 1999 $ - 145,233 31,406,540 20,915,184 (13,417,014) 39,049,943
------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
Ballantyne of Omaha, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 5,304,673 $ 5,745,191
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization 2,040,218 1,313,536
Changes in assets and liabilities, net of assets acquired:
Accounts receivables 1,509,260 (2,795,524)
Inventories (4,308,634) (3,148,920)
Other current assets (473,169) 16,267
Accounts payable 372,292 (3,510,297)
Accrued expenses 757,707 801,279
Income taxes (218,732) 1,323,459
Other assets (70,793) (226,215)
------------ -------------
Net cash provided by (used in)
operating activities 4,912,822 (481,224)
------------ -------------
Cash flows from investing activities:
Acquisitions, net of cash acquired - (3,811,922)
Capital expenditures (2,349,695) (1,824,685)
------------ -------------
Net cash used in investing
activities (2,349,695) (5,636,607)
------------ -------------
Cash flows from financing activities:
Repayments of long-term debt - (220,000)
Net repayments of note payable to bank (1,188,000) -
Proceeds from exercise of stock options 195,937 86,100
Purchase of treasury stock (1,065,908) (735,498)
------------ -------------
Net cash used in financing activities
(2,057,971) (869,398)
------------ -------------
Net increase (decrease) in cash
and cash equivalents 505,156 (6,987,229)
Cash and cash equivalents at beginning of period 594,686 7,701,507
------------ -------------
Cash and cash equivalents at end of period $ 1,099,842 $ 714,278
============ =============
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
Ballantyne of Omaha, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Nine Months Ended September 30, 1999
(Unaudited)
1. Company
Ballantyne of Omaha, Inc., a Delaware corporation ("Ballantyne" or the
"Company"), and its wholly-owned subsidiaries, Strong Westrex, Inc., Xenotech
Strong, Inc., Xenotech Rental Corp. and Design and Manufacturing, 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 26.0% 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 and have been prepared by the Company without audit. 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. These
consolidated financial statements should be read in conjunction with the
consolidated financial statements and related notes included in the Company's
latest annual report on Form 10-K.
b. Stock Dividend and Splits
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 this
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
Nine Months Ended September 30, 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 547,431 and 596,314 for the three and nine months ended September
30, 1999, respectively and 615,925 and 688,828 for the three and nine months
ended September 30, 1998, respectively.
3. Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------ --------------
<S> <C> <C>
Raw materials and supplies $18,533,943 $16,404,416
Work in process 3,832,430 3,115,163
Finished goods 3,376,656 1,914,816
------------ -------------
$25,743,029 $21,434,395
------------ -------------
------------ -------------
</TABLE>
7
<PAGE>
Ballantyne of Omaha, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Nine Months Ended September 30, 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. The purchase price was
assigned to the assets acquired and liabilities assumed based upon the fair
market value of such assets and liabilities. 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 1999, the Company repurchased 87,583 shares issued in connection
with the purchase of Design for approximately $902,000. Subsequent to
September 30, 1999, the Company purchased the remaining 184,422 shares for
approximately $1,900,000. The amounts paid for the stock equaled the value of
the stock at the date of the closing of the acquisition.
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 and Nine Months Ended September 30, 1999
(Unaudited)
SUMMARY BY BUSINESS SEGMENTS
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
------------ ------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net revenue
Theatre $ 18,357,749 $ 18,204,086 $ 54,164,533 $ 46,736,005
Restaurant 490,184 643,818 1,739,239 1,752,981
Lighting 2,775,691 2,004,118 7,219,982 5,047,719
------------ ------------ ------------ ------------
Total $ 21,623,624 $ 20,852,022 $ 63,123,754 $ 53,536,705
Gross profit
Theatre $ 5,636,727 $ 5,819,079 $ 16,466,419 $ 14,572,156
Restaurant 131,437 153,154 401,216 456,208
Lighting 547,151 598,160 1,827,397 1,619,155
------------ ------------ ------------ ------------
Total 6,315,315 6,570,393 18,695,032 16,647,519
Corporate overhead (3,500,022) (2,813,598) (9,542,056) (7,794,689)
------------ ------------ ------------ ------------
Operating income 2,815,293 3,756,795 9,152,976 8,852,830
Net interest income (expense) (223,147) (1,147) (642,614) 72,768
------------ ------------ ------------ ------------
Income before income taxes $ 2,592,146 $ 3,755,648 $ 8,510,362 $ 8,925,598
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Identifiable assets
Theatre $ 50,686,540 $ 45,593,597 $ 50,686,540 $ 45,593,597
Restaurant 885,448 844,469 885,448 844,469
Lighting 9,243,002 6,563,445 9,243,002 6,563,445
------------ ------------ ------------ ------------
Total $ 60,814,990 $ 53,001,511 $ 60,814,990 $ 53,001,511
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Expenditures on capital equipment
Theatre $ 206,476 $ 236,542 $ 1,327,894 $ 765,101
Restaurant - - - -
Lighting 152,570 544,025 1,021,801 1,059,584
------------ ------------ ------------ ------------
Total $ 359,046 $ 780,567 $ 2,349,695 $ 1,824,685
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Depreciation and amortization
Theatre $ 406,085 $ 373,258 $ 1,193,090 $ 947,345
Restaurant - - - -
Lighting 317,565 180,068 847,128 366,191
------------ ------------ ------------ ------------
Total $ 723,650 $ 553,326 $ 2,040,218 $ 1,313,536
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
9
<PAGE>
Ballantyne of Omaha, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Three and Nine Months Ended September 30, 1999
(Unaudited)
SUMMARY BY GEOGRAPHICAL AREA:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
------------ ------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net revenue
United States $17,290,744 $14,474,036 $52,507,724 $ 39,525,187
Canada 2,013,109 2,434,054 3,748,906 4,737,920
Asia 970,088 1,250,394 2,650,058 3,150,782
Mexico 431,450 235,326 957,978 1,139,299
Europe 665,458 1,581,937 2,703,211 3,545,949
Other 252,775 876,275 555,877 1,437,568
----------- ------------ ----------- -----------
Total $21,623,624 $20,852,022 $63,123,754 $53,536,705
----------- ------------ ----------- -----------
----------- ------------ ----------- -----------
Identifiable assets
United States $59,783,153 $52,238,774 $59,783,153 $52,238,774
Asia 1,031,837 762,737 1,031,837 762,737
----------- ------------ ----------- -----------
Total $60,814,990 $53,001,511 $60,814,990 $53,001,511
----------- ------------ ----------- -----------
----------- ------------ ----------- -----------
</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 June 24, 1999, the Company advanced $500,000 to the Chairman of the Board
of the Company under a term loan agreement. The loan bears interest, payable
monthly, at 1% above the current rate on the Company's revolving credit
facility. At September 30, 1999, the unpaid balance on the loan was $500,000
and is due on June 24, 2000. In conjunction with the agreement, the Chairman
has entered into an agreement with ARC International Corporation ("ARC") to
loan the proceeds from this note to ARC under similar terms.
7. Notes Payable to Bank
On August 10, 1999, the Company's revolving credit facility was amended to
extend the maturity date to May 31, 2001. As such the unpaid balance of the
facility is included in long term liabilities on the balance sheet at
September 30,1999.
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
10-Q. 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 SEPTEMBER 30, 1999 COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 30, 1998
Net revenues for the three months ended September 30, 1999 (the "1999 Period")
increased $0.8 million or 3.7% to $21.6 million from $20.8 million for the three
months ended September 30, 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 SEPTEMBER 30,
-----------------------------------
1999 1998
----- ------
<S> <C> <C>
Theatre $ 18,357,749 $ 18,204,086
Lighting 2,775,691 2,004,118
Restaurant 490,184 643,818
------------- ---------------
Total net revenues $ 21,623,624 $ 20,852,022
------------- ---------------
------------- ---------------
</TABLE>
The increase in total net revenues reflects higher sales of theatre products
mainly due to higher sales of commercial motion picture projection equipment
("projection equipment"), which rose $0.1 million or 0.81% from $14.8 million
in the 1998 Period to $14.9 million in the 1999 Period. While sales of
projection equipment to domestic customers rose during the 1999 Period
compared to the prior year, the increase was offset by lower sales to foreign
customers during the period. In particular, the Company saw a reduction in
sales to Canada, Asia, Europe and Latin America due to a slowdown in theatre
construction in these areas. Replacement part sales for the theatre segment
also contributed to the increase in theatre sales during the 1999 Period
increasing $0.6 million or 39.5% from the 1998 Period. Sales of ISCO-Optic
lenses were lower in the 1999 Period decreasing $0.5 million to $1.4 million
in the 1999 Period from $1.9 million in 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 $2.8 million in sales and rentals, an increase of $0.8
million over the $2.0 million contributed in the 1998 Period. The increase
was mainly due to higher sales and rentals of the Sky-Tracker product line
and to the contribution of the Company's AV rental and sales division in
Florida, which did not start operations until May of 1998.
11
<PAGE>
Restaurant sales decreased $0.15 million to $0.49 million compared to $0.64
million a year ago. This decrease is mainly related to fewer sales of
replacement parts compared to the prior year.
Overall, consolidated net revenues from domestic customers increased $2.8
million to $17.3 million in the 1999 Period from $14.5 million in the 1998
Period while net revenues from foreign customers decreased $2.1 million or 32.1%
to $4.3 million from $6.4 million in the 1998 Period. As discussed earlier, the
decrease in revenues from foreign customers relates to lower sales of projection
equipment to customers in Canada, Asia, Europe and Latin America. The slowdown
was due to various reasons such as fallout from the Asian economic crisis,
currency concerns in Latin America and due to higher revenues during the 1998
Period from one particular customer in Canada who slowed construction during
1999. The slowdown in Asia and Latin America is expected to rebound during the
fourth quarter of 1999 and into Fiscal 2000.
Gross profit decreased $0.26 million in the 1999 Period to $6.3 million, and
as a percent of revenue decreased to 29.2% from 31.5% in the 1998 Period.
Theatre segment gross profit as a percentage of net revenues decreased to
30.7% from 32.0% in the 1998 Period due to certain pricing concessions with a
major customer and due to a product mix that included more lower margin items
such as consoles. Gross margin as a percentage of net revenues in the
lighting segment decreased from 29.8% in the 1998 Period to 19.7% 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. In addition,
the rental business carries a high level of fixed costs such as rental
technician salaries and depreciation on the rental equipment. Therefore, when
rental revenue is lower, these costs are not being covered in an efficient
manner and gross margins on rentals are impacted. Restaurant margins as a
percentage of sales increased from 23.8% in the 1998 Period to 26.8% in the
1999 Period due to a different product mix compared to prior year.
Operating expenses in the 1999 Period increased approximately $0.7 million or
24.4% from the 1998 Period. As a percentage of net revenues, such expenses
increased to 16.2% for the 1999 Period from 13.5% for the 1998 Period. The
increase mainly related to sales during the 1999 Period being below those
originally forecasted and due to certain acquisition costs relating to an
acquisition attempt during the 1999 Period of approximately $0.4 million.
Backing off these acquisition expenses, operating expenses as a percentage of
revenue would have still been higher than 1998, however, had sales been at
those originally forecasted, the percentage would have been similar to the
1998 Period, as these sales would have occurred without additional operating
expenses.
Net interest expense was $223,147 in the 1999 Period compared to $1,147 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. In addition, a $4.3 million increase in inventory since year-end has
contributed to the Company carrying more debt on the line of credit than was
expected.
The Company's effective tax rate for the 1999 Period was 36.5% compared to
35.6% 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.
12
<PAGE>
For the reasons outlined above, net income decreased $0.8 million or 31.9% to
$1.6 million in the 1999 Period from $2.4 million in the 1998 Period. Net
income per share - basic and diluted was $0.13 per share, respectively for
the 1999 Period while net income per share - basic for the 1998 period was
$0.17 and net income per share - diluted was $0.16 per share for the same
period.
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1998
Net revenues for the nine months ended September 30, 1999 (the "1999 Period")
increased $9.6 million or 17.9% to $63.1 million from $53.5 million for the
nine months ended September 30, 1998 (the "1998 Period"). The following table
shows comparative net revenues of theatre, lighting and restaurant products
for the respective periods:
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------
1999 1998
------ ------
<S> <C> <C>
Theatre $ 54,164,533 $ 46,736,005
Lighting 7,219,982 5,047,719
Restaurant 1,739,239 1,752,981
------------- ---------------
Total net revenues $ 63,123,754 $ 53,536,705
------------- ---------------
------------- ---------------
</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 $6.8 million or 18.3% from $37.0 million in the 1998 Period to
$43.8 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 despite a slight slowdown during the
third quarter. The increase was also offset somewhat by lower sales to
foreign customers, which decreased $3.4 million during the 1999 Period. Also
contributing to the increase in theatre products were higher sales of
replacement parts which increased $0.9 million from the prior period. Sales
of ISCO-Optic lenses decreased $0.3 million from the same period a year ago.
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 $7.2 million in sales and rentals, an increase of $2.2
million over the 1998 Period. The increase was mainly due to higher sales and
rentals of the Sky-Tracker product line and to the new AV operating division
in Florida, which contributed $1.9 million in sales and rentals during the
1999 Period.
Restaurant sales were flat at $1.7 million in the 1999 and 1998 periods.
Overall, consolidated net revenues from domestic customers increased $13.0
million to $52.5 million in the 1999 Period from $39.5 million in the 1998
Period. Net revenues from foreign customers decreased $3.4 million or 24.2%
to $10.6 million from $14.0 million in the 1998 Period. This decrease was
attributable to decreased sales in Asia, Canada, Mexico, Europe and Latin
America due to a temporary slowdown in theatre construction in these areas.
13
<PAGE>
Gross profit decreased to 29.6% as a percentage of net revenues from 31.1% in
the 1998 Period. Theatre segment gross profit as a percentage of net revenues
decreased from 31.2% in the 1998 Period to 30.4% in the 1999 Period due to
certain pricing concessions with a major customer and due to more lower
margin console sales during the 1999 Period. Lighting segment gross margins
as a percentage of net revenue also declined from 32.1% in the 1998 Period to
25.3% in the 1999 Period. This decrease was mainly due to lower rental
revenue as a percentage of net revenues compared to the prior year. The
decrease in lighting gross margins is also due to certain fixed costs such as
rental technician salaries and depreciation on the rental equipment.
Therefore, when rental revenue is lower, these costs are not being covered in
an efficient manner and gross margins are negatively impacted. Restaurant
margins decreased to 23.1% in the 1999 Period from 26.0% in the 1998 Period
due to a change in the product mix from the prior period.
Operating expenses in the 1999 Period increased approximately $1.7 million
from the 1998 Period. As a percentage of net revenues, such expenses
increased to 15.1% compared to 14.6% a year ago. Backing off certain costs
relating to an attempted acquisition during the third quarter of
approximately $400,000, the percentage would have been consistent with prior
years despite an increase in operating expenses in the third quarter.
Net interest expense was $642,614 for the 1999 Period compared to net
interest income of $72,768 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
primarily due to the repurchase of 1.8 million shares of common stock during
the third and fourth quarters of 1998. In addition, a $4.3 million increase
in inventory since year-end has contributed to carrying more debt on the
Company's line of credit than was expected.
The Company's effective tax rate for the 1999 Period was 37.7% compared to
35.6% in the 1998 Period. The increase reflects higher state taxes related to
the Company having operations in more states. 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 $0.4 million or 7.7% to
$5.3 million in the 1999 Period from $5.7 million in the 1998 Period. Net
income per share - basic was $0.42 per share and $0.40 per share for the nine
months ended September 30, 1999 and 1998, respectively while net income per
share -diluted was $0.40 per share and $0.38 per share for the nine months
ended September 30, 1999 and 1998, respectively.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1999, the Company maintained a $20 million line of credit
with Norwest Bank Nebraska, N.A. (the "Norwest Facility"). At September 30,
1999, approximately $8.9 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% (7.5% at September 30,
1999). All of the Company's assets secure the Norwest Facility. The Company
was in compliance with all restrictive covenants at September 30, 1999 and
1998.
14
<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 $4.9 million for the nine months ended September 30,
1999 compared to cash used in operating activities of $0.5 million for the same
period a year ago. The increase in operating cash flow was due to the timing of
payments to vendors compared to 1998, a reduction in accounts receivable due to
more accounts being collected and due to more profit before such non-cash
expenses as depreciation expense.
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 and 2000 capital expenditures and to pursue opportunities to expand
its markets and businesses.
Net cash used in investing activities was $2.3 million and $5.6 million for the
nine months ended September 30, 1999 and 1998, 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. and Design and Manufacturing Ltd. along with capital expenditures of $1.8
million.
Net cash used in financing activities was $2.1 million for the 1999 Period
compared to $0.9 million in the 1998 Period. The increase primarily reflects
repayments 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.
15
<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 implementation and testing phase will be completed by the end of the year.
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. SFAS No. 137
deferred the effective date of SFAS No. 133, according the Company's required
adoption date is January 1, 2001. SFAS No. 133 is not to be applied
retroactively to financial statements of prior periods and as of September 30,
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 fluctuation 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.
16
<PAGE>
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
On June 23, 1999, Yale Richards resigned from the Board of Directors stating
that, since he also serves as the Company's attorney, he wished to avoid the
possibility of a conflict of interest arising at some time in the future. As
of November 10, 1999, he has not been replaced.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
11 Computation of net earnings per share for the three and
nine months ended September 30, 1999 and 1998
27 Financial Data Schedule (for SEC information only)
(b) Reports on Form 8-K filed for the three months ended September 30, 1999
No reports on Form 8-K were filed during the three months ended
September 30, 1999.
17
<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,
Chief Executive Officer, Treasurer, and Chief
and Director Financial Officer
Date: November 10, 1999 Date: November 10, 1999
18
<PAGE>
Exhibit 11
Ballantyne of Omaha, Inc. and Subsidiaries
Computation of Earnings Per Share of Common Stock
Nine Months Ended September 30, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
BASIC EARNINGS
Earnings applicable to
common stock $ 5,304,673 $ 5,745,191
Weighted average common
shares outstanding * 12,629,403 14,410,853
---------- ----------
Basic earnings per share $ 0.42 $ 0.40
------ -----
------ -----
DILUTED EARNINGS
Earnings applicable to
common stock $ 5,304,673 $ 5,745,191
Weighted average common
shares outstanding * 12,629,403 14,410,853
Assuming conversion
of options outstanding * 596,314 688,828
------- -------
Weighted average common
shares outstanding, as adjusted * 13,225,717 15,099,681
---------- ----------
Diluted earnings per share $ 0.40 $ 0.38
------ -----
------ -----
</TABLE>
*Adjusted for 5% stock dividend paid March 1, 1999.
<PAGE>
Exhibit 11 continued...
Ballantyne of Omaha, Inc. and Subsidiaries
Computation of Earnings Per Share of Common Stock
Three Months Ended September 30, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
BASIC EARNINGS
Earnings applicable to
common stock $ 1,644,929 $ 2,418,041
Weighted average common
shares outstanding * 12,582,675 14,479,272
---------- ----------
Basic earnings per share $ 0.13 $ 0.17
------ -----
------ -----
DILUTED EARNINGS
Earnings applicable to
common stock $ 1,644,929 $ 2,418,041
Weighted average common
shares outstanding * 12,582,675 14,479,272
Assuming conversion
of options outstanding * 547,431 615,925
------- -------
Weighted average common
shares outstanding, as adjusted * 13,130,106 15,095,197
---------- ----------
Diluted earnings per share $ 0.13 $ 0.16
------ -----
------ -----
</TABLE>
* Adjusted for 5% stock dividend paid March 1, 1999.
<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 SEPTEMBER 30, 1999 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 1,099,842
<SECURITIES> 0
<RECEIVABLES> 16,441,492
<ALLOWANCES> 695,531
<INVENTORY> 25,743,029
<CURRENT-ASSETS> 44,057,892
<PP&E> 19,879,366
<DEPRECIATION> 6,554,923
<TOTAL-ASSETS> 60,814,990
<CURRENT-LIABILITIES> 10,073,803
<BONDS> 11,041,000
0
0
<COMMON> 145,233
<OTHER-SE> 38,904,710
<TOTAL-LIABILITY-AND-EQUITY> 60,814,990
<SALES> 63,123,754
<TOTAL-REVENUES> 63,123,754
<CGS> 44,428,722
<TOTAL-COSTS> 44,428,722
<OTHER-EXPENSES> 9,373,056
<LOSS-PROVISION> 169,000
<INTEREST-EXPENSE> (642,614)
<INCOME-PRETAX> 8,510,362
<INCOME-TAX> 3,205,689
<INCOME-CONTINUING> 5,304,673
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,304,673
<EPS-BASIC> 0.42
<EPS-DILUTED> 0.40
</TABLE>
