<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
June 30, 2000 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 August 4, 2000
----------------
Common Stock, $.01 12,480,192 shares
par value
<PAGE>
BALLANTYNE OF OMAHA, INC. AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Item 1. Consolidated Financial Statements Page
----
<S> <C>
Consolidated Balance Sheets-June 30, 2000 and December 31, 1999..................... 2
Consolidated Statements of Operations- Three and Six Months Ended
June 30, 2000 and 1999........................................................... 3
Consolidated Statements of Cash Flows- Six Months Ended
June 30, 2000 and 1999........................................................... 4
Notes to Consolidated Financial Statements
Three and Six Months Ended June 30, 2000......................................... 5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................................10
Item 3. Quantitative and Qualitative Disclosures About Market Risk..............................16
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.....................................17
Item 5. Other Information.......................................................................17
Item 6. Exhibits and Reports on Form 8-K........................................................17
Signatures.......................................................................................18
</TABLE>
1
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
Ballantyne of Omaha, Inc. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
---- ----
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 906,104 $ 857,089
Accounts receivable 13,938,964 15,510,265
Recoverable income taxes 445,716 -
Inventories 24,821,709 26,210,431
Deferred income taxes 1,336,592 1,039,733
Other current assets 12,058 523,841
---------- ----------
Total current assets 41,461,143 44,141,359
Plant and equipment, net 13,004,673 13,319,706
Other assets, net 3,095,387 3,295,165
---------- ----------
Total assets $ 57,561,203 $ 60,756,230
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt $ - $ 20,000
Notes payable to bank-short term 12,042,000 -
Accounts payable 3,228,341 6,063,078
Accrued expenses 3,130,290 3,437,885
Income taxes payable - 219,499
---------- ----------
Total current liabilities 18,400,631 9,740,462
Deferred income taxes 724,682 735,271
Long-term debt - 48,877
Notes payable to bank - 10,369,000
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 14,577,997 shares in 2000
and 14,557,128 shares in 1999 145,780 145,571
Additional paid-in capital 31,715,006 31,663,043
Retained earnings 21,890,558 23,369,460
---------- ----------
53,751,344 55,178,074
Less cost of 2,097,805 common shares in treasury, at cost (15,315,454) (15,315,454)
---------- ----------
Total stockholders' equity 38,435,890 39,862,620
---------- ----------
Total liabilities and stockholders' equity $ 57,561,203 $ 60,756,230
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
Ballantyne of Omaha, Inc. and Subsidiaries
Consolidated Statements of Operations
Three and Six Months Ended June 30, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
------- -------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net revenues $ 15,298,514 $ 21,303,110 $ 27,148,100 $ 41,500,130
Cost of revenues 13,042,688 15,103,080 22,414,394 29,120,413
---------- ---------- ---------- ----------
Gross profit 2,255,826 6,200,030 4,733,706 12,379,717
Operating expenses:
Selling 1,172,702 1,197,932 2,548,176 2,289,477
General and administrative 1,372,263 1,874,316 2,959,543 3,752,557
Personnel reduction expense - - 510,391 -
Reserve for term loan 511,744 - 511,744 -
---------- ---------- ---------- ----------
Total operating expenses 3,056,709 3,072,248 6,529,854 6,042,034
---------- ---------- ---------- ----------
Income (loss) from operations (800,883) 3,127,782 (1,796,148) 6,337,683
Interest income 2,481 5,117 8,782 7,994
Interest expense (303,580) (192,420) (548,054) (427,461)
---------- ---------- ---------- ----------
Net interest expense (301,099) (187,303) (539,272) (419,467)
---------- ---------- ---------- ----------
Income (loss) before income taxes (1,101,982) 2,940,479 (2,335,420) 5,918,216
Income tax benefit (expense) 432,019 (1,117,287) 856,518 (2,258,472)
---------- ---------- ---------- ----------
Net income (loss) $ (669,963) $ 1,823,192 $ (1,478,902) $ 3,659,744
========== ========== ========== ==========
Net income (loss) per share:
Basic $ (0.05) $ 0.14 $ (0.12) $ 0.29
========== ========== ========== ==========
Diluted $ (0.05) $ 0.14 $ (0.12) $ 0.28
========== ========== ========== ==========
Weighted average shares:
Basic 12,461,187 12,644,264 12,460,255 12,647,681
========== ========== ========== ==========
Diluted 12,461,187 13,218,712 12,460,255 13,268,561
========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
Ballantyne of Omaha, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Six Months Ended June 30, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (1,478,902) $ 3,659,744
Adjustments to reconcile net income (loss) to
net cash provided by operating
activities:
Depreciation and amortization 1,516,574 1,316,568
Provision for doubtful accounts 293,998 102,000
Gain on sale of fixed assets (28,958) -
Reserve for term loan 511,744 -
Changes in assets and liabilities:
Accounts receivable 1,277,303 263,303
Inventories 1,388,722 (2,853,351)
Other current assets 39 (497,241)
Accounts payable (2,834,737) 679,609
Accrued expenses (307,595) (90,537)
Income taxes (972,663) 44,434
Other assets (75,811) (35,408)
--------- ----------
Net cash provided by (used in)
operating activities (710,286) 2,589,121
--------- ----------
Cash flows from investing activities:
Proceeds from sales of fixed assets 55,525 -
Capital expenditures (952,519) (1,990,649)
--------- ----------
Net cash used in investing
activities (896,994) (1,990,649)
--------- ----------
Cash flows from financing activities:
Repayments of long-term debt (68,877) -
Net proceeds from note payable to bank 1,673,000 455,000
Proceeds from exercise of stock options 52,172 98,555
Purchase of Treasury Stock - (1,065,908)
--------- ----------
Net cash provided by (used in) financing activities 1,656,295 (512,353)
--------- ----------
Net increase in cash and cash equivalents 49,015 86,119
Cash and cash equivalents at beginning of period 857,089 594,686
--------- ----------
Cash and cash equivalents at end of period $ 906,104 $ 680,805
========= ==========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
Ballantyne of Omaha, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Three and Six Months Ended June 30, 2000
(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 26% 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 normal and recurring adjustments which are, in the opinion of
management, necessary for a fair presentation of the results for the periods
presented. 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 conjunction with the consolidated
financial statements and related notes included in the Company's latest annual
report on Form 10-K.
The results of operations for the three and six months periods ended June 30,
2000 are not necessarily indicative of the operating results for the full year.
b. 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.
c. 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.
5
<PAGE>
Ballantyne of Omaha, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Three and Six Months Ended June 30, 2000
(Unaudited)
d. 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.
e. Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
effect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
f. Net Income (Loss) Per Common Share
Net income (loss) per share - basic has been computed on the basis of the
weighted average number of shares of common stock outstanding. Net income (loss)
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 (loss) per share - diluted
includes an increase in the weighted average shares outstanding for dilutive
stock options of 574,448 and 620,880 for the three and six months ended June 30,
1999, respectively. Given the net losses for the three and six months ended June
30, 2000, the diluted weighted average shares calculation excludes stock
options, because inclusion thereof would be anti-dilutive.
3. Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
---- ----
<S> <C> <C>
Raw materials and supplies $ 19,023,277 $ 20,041,081
Work in process 2,603,406 3,564,972
Finished goods 3,195,026 2,604,378
----------- ------------
$ 24,821,709 $ 26,210,431
=========== ============
</TABLE>
4. Comprehensive Income
The Company's comprehensive income consists solely of net income (loss). The
Company had no other comprehensive income for the three and six months ended
June 30, 2000 and 1999.
6
<PAGE>
Ballantyne of Omaha, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Three and Six Months Ended June 30, 2000
(Unaudited)
5. Stockholder Rights Plan
On May 26, 2000 the Board of Directors of the Company adopted a Stockholder
Rights Plan (the "Plan"). Under terms of the Plan, which expires June 9, 2010,
the Company declared a distribution of one right for each outstanding share of
common stock. The rights become exercisable only if a person or group (other
than certain exempt persons as defined) acquires 15 percent or more of
Ballantyne common stock or announces a tender offer for 15 percent or more of
Ballantyne's common stock. Under certain circumstances, the Plan allows
stockholders, other than the acquiring person or group to purchase the Company's
common stock at an exercise price of half the market price.
6. Related Party Transaction
On June 24, 2000 a term loan to the former Chairman of the Board of the Company
went into default. Due to the uncertainty regarding the ultimate recovery of the
note, the Company recorded a reserve in the amount of $511,644, which included
the remaining principal and interest balance on June 30, 2000.
7. Notes Payable to Bank
The Company's revolving credit facility maturity date is May 31, 2001. As such,
the unpaid balance of the facility is included in current liabilities on the
balance sheet at June 30, 2000. The Company expects to renew or replace the
credit facility prior to the maturity date.
8. 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, promotional lighting
and architectural industries. The lighting segment also includes the sale and
rental of audio visual products. 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.
7
<PAGE>
Ballantyne of Omaha, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Three and Six Months Ended June 30, 2000
(Unaudited)
SUMMARY BY BUSINESS SEGMENTS
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
------- -------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net revenue
Theatre $ 12,485,156 $ 18,206,766 $ 21,381,122 $ 35,806,784
Lighting
Sales 1,125,080 1,347,610 2,189,364 2,516,063
Rental 1,173,951 1,013,607 2,621,109 1,928,228
---------- ---------- ---------- ----------
Total lighting 2,299,031 2,361,217 4,810,473 4,444,291
Restaurant 514,327 735,127 956,505 1,249,055
---------- ---------- ---------- ----------
Total $ 15,298,514 $ 21,303,110 $ 27,148,100 $ 41,500,130
Gross profit
Theatre $ 1,751,474 $ 5,405,266 $ 3,444,529 $ 10,829,692
Lighting
Sales 179,566 461,604 412,008 927,458
Rental 260,834 173,275 724,781 352,788
---------- ---------- ---------- ----------
Total lighting 440,400 634,879 1,136,789 1,280,246
Restaurant 63,952 159,885 152,388 269,779
---------- ---------- ---------- -----------
Total 2,255,826 6,200,030 4,733,706 12,379,717
Corporate overhead (3,056,709) (3,072,248) (6,529,854) (6,042,034)
---------- ---------- ---------- -----------
Income (loss) from operations (800,883) 3,127,782 (1,796,148) 6,337,683
Net interest expense (301,099) (187,303) (539,272) (419,467)
---------- ---------- ---------- -----------
Income(loss) before income taxes $ (1,101,982) $ 2,940,479 $ (2,335,420) $ 5,918,216
========== ========== ========== ===========
Expenditures on capital equipment
Theatre $ 196,559 $ 628,232 $ 447,491 $ 1,121,418
Lighting 182,323 468,104 505,028 869,231
Restaurant - - - -
---------- ---------- ---------- -----------
Total $ 378,882 $ 1,096,336 $ 952,519 $ 1,990,649
========== ========== ========== ===========
Depreciation and amortization
Theatre $ 414,700 $ 389,314 $ 903,204 $ 787,005
Lighting 303,724 263,398 613,370 529,563
Restaurant - - - -
---------- ---------- ---------- -----------
Total $ 718,424 $ 652,712 $ 1,516,574 $ 1,316,568
========== ========== ========== ===========
</TABLE>
8
<PAGE>
Ballantyne of Omaha, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Three and Six Months Ended June 30, 2000
(Unaudited)
SUMMARY BY BUSINESS SEGMENTS (CONTINUED)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
---- ----
<S> <C> <C>
Identifiable assets
Theatre $ 47,134,169 $ 52,100,915
Lighting 9,052,835 7,258,787
Restaurant 1,374,199 1,396,528
---------- ----------
Total $ 57,561,203 $ 60,756,230
========== ==========
</TABLE>
SUMMARY BY GEOGRAPHICAL AREA:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
------- -------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net revenue
United States $ 11,469,028 $ 18,048,640 $ 19,337,258 $ 35,216,980
Canada 608,058 637,381 2,197,660 1,735,797
Asia 1,165,593 767,462 2,265,598 1,679,970
Mexico 310,676 452,182 575,339 526,528
Europe 1,457,261 1,268,331 2,191,073 2,037,753
Other 287,898 129,114 581,172 303,102
----------- ----------- ---------- ----------
Total $ 15,298,514 $ 21,303,110 $ 27,148,100 $ 41,500,130
========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
---- ----
<S> <C> <C>
Identifiable assets
United States $ 56,549,762 $ 59,912,380
Asia 1,011,441 843,850
---------- ----------
Total $ 57,561,203 $ 60,756,230
========== ==========
</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.
9
<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
document. 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; 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 JUNE 30, 2000 COMPARED TO THE THREE MONTHS ENDED
JUNE 30, 1999
REVENUES
CONSOLIDATED
Net revenues for the three months ended June 30, 2000 (the "2000 Period")
decreased $6.0 million or 28.2% to $15.3 million from $21.3 million for the
three months ended June 30, 1999 (the "1999 Period"). Consolidated domestic net
revenues decreased $6.6 million to $11.5 million in the 2000 Period from $18.1
million in the 1999 Period due to the reasons described in each segment below,
while foreign revenues increased $0.6 million or 17.7% to $3.8 million from $3.2
million in the 1999 Period. This increase was attributable to higher sales in
Europe and Asia. The Company expects foreign sales to continue to increase as
the year progresses due to increased theatre construction but not at sufficient
levels to offset the domestic shortfall. The following table shows comparative
net revenues of theatre, lighting and restaurant products for the respective
periods:
<TABLE>
<CAPTION>
Three Months Ended June 30,
---------------------------
2000 1999
---- ----
<S> <C> <C>
Theatre $ 12,485,156 $ 18,206,766
Restaurant 514,327 735,127
Lighting 2,299,031 2,361,217
--------- ---------
Total net revenues $ 15,298,514 $ 21,303,110
========== ==========
</TABLE>
THEATRE SEGMENT
The decrease in consolidated net revenues primarily related to lower sales of
theatre products which decreased $5.7 million or 31.4% from $18.2 million in the
1999 Period to $12.5 million in the 2000 Period. In particular, sales of
projection equipment decreased $5.2 million from $14.8 million in the 1999
Period to $9.6 million in the 2000 Period. The Company also experienced softer
sales of lenses, which decreased $0.5 million to $0.8 million in the 2000 Period
from $1.3 million in the 1999 Period. Replacement part sales remained flat at
approximately $2.1 million for the 1999 and 2000 Periods. Replacement part sales
are not directly related to the volume of projection equipment sold, but are
more a reflection of the needs of current customers that have projection
equipment previously purchased from the Company.
The lower projection equipment and lens sales were mainly due to less theatre
construction which was a result of over construction in certain areas of the
country, rising interest rates and reduced attendance at
10
<PAGE>
older theatres. All of this has negatively impacted the Company's customers in
the form of reduced operating margins and higher financial leverage causing them
to build fewer theatres. The Company expects the curtailed theatre growth to
continue for the rest of the year.
LIGHTING SEGMENT
Sales and rentals in the lighting segment decreased slightly to $2.3 million in
the 2000 Period from $2.4 million in the 1999 Period despite a substantial
increase in revenues from the Company's audio visual products, where revenue
increased $0.6 million to $1.2 million in the 2000 Period from $0.6 million in
the 1999 Period. The increase in audio visual revenues resulted from the
continued growth in business in the Orlando and Fort Lauderdale, Florida area.
Offsetting the growth in audio visual revenues were softer sales and rentals of
entertainment, promotional and architectural lighting products where revenues
decreased $0.7 million from $1.8 million in the 1999 Period to approximately
$1.1 million in the 2000 Period. In particular, revenue from entertainment
lighting products continued to be weak in the Los Angeles and Hollywood areas.
RESTAURANT SEGMENT
Restaurant sales decreased $0.2 million to $0.5 million in the 2000 Period from
$0.7 million in the 1999 Period due to softer sales of gas and pressure fryers.
GROSS PROFIT
Overall, consolidated gross profit decreased $3.9 million to $2.3 million in the
2000 Period from $6.2 million in the 1999 Period. The decrease relates to the
theatre segment where gross profit decreased $3.7 million compared to the 1999
Period. Additionally, gross profit in the theatre segment as a percentage of net
revenues decreased from 29.7% to 14.0% in the 2000 Period. The decreases
resulted from two main items, the first of which were lower revenues, which
resulted in lost gross profit of approximately $1.7 million. Also contributing
to the lost gross profit and margin were negative manufacturing variances
created by less volume through the Company's two main manufacturing plants which
resulted in the levels of sales not being sufficient to fully absorb the
Company's manufacturing overhead. Additionally, the amount of sales coupled with
current inventory levels caused plant labor utilization to drop considerably. To
offset these negative trends, the Company is taking steps to reduce its cost
structure, lower inventory and bring in custom manufacturing work into its plant
facilities to increase labor utilization and absorb more manufacturing overhead.
Gross profit in the lighting segment decreased $0.2 million during the quarter
and as a percentage of gross revenue decreased to 19.2% in the 2000 Period from
26.9% in the 1999 Period. The decrease related in part to poor margins generated
from the Company's rental operations in California, where the rental revenue
generated was not sufficient to cover certain fixed costs. Additionally, margins
on spotlight sales were lower due to the manufacturing inefficiencies discussed
in the preceding paragraph as the impact of lower theatre volume impacted all
product lines manufactured.
Restaurant gross profit and margins were lower due to the same manufacturing
inefficiencies and less sales compared to the 1999 Period.
11
<PAGE>
OPERATING EXPENSES
Operating expenses were approximately $3.1 million for the 2000 and 1999 Periods
but as a percentage of net revenues, increased to 20.0% for the 2000 Period from
14.4% for the 1999 Period. Included in operating expenses for the quarter was a
reserve of approximately $0.5 million taken for the default in repayment of a
term loan due June 24, 2000, made by the Company to the former Chairman of the
Board. Even though the Company intends to vigorously pursue collection of the
defaulted loan, the Company could not predict its outcome with any reasonable
degree of certainty and, accordingly recorded the reserve. If this reserve is
not considered, operating expenses actually decreased for the quarter due to
decreases in bonus and cash discount expenses. The increase in operating
expenses as a percentage of revenues relates to lower sales volume as a large
percentage of the Company's operating expenses are fixed in the short-term.
OTHER ITEMS
Net interest expense was approximately $0.3 million for the 2000 Period compared
to $0.2 million in the 1999 Period due to higher average borrowings on the
Company's line of credit, along with an increase in the Company's interest rate.
The Company's effective tax (benefit) rate for the 2000 Period was (39.2%)
compared to 38.0% in the 1999 Period. 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 reasons outlined above, the Company experienced a net loss for the 2000
Period of approximately $0.7 million compared to net income of $1.8 million in
the 1999 Period. This translated into a net loss per share - basic and diluted
of $0.05 per share in the 2000 Period compared to net income per share - basic
and diluted of $0.14 per share in the 1999 Period.
SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1999
REVENUES
CONSOLIDATED
Net revenues for the six months ended June 30, 2000 (the "2000 Period")
decreased $14.4 million or 34.6% to $27.1 million from $41.5 million for the
six months ended June 30, 1999 (the "1999 Period"). Consolidated domestic net
revenues decreased $15.9 million to $19.3 million in the 2000 Period from
$35.2 million in the 1999 Period due to the reasons described in each segment
below. Foreign sales increased $1.5 million or 24.3% to $7.8 million from
$6.3 million in the 1999 Period due to higher sales in Canada, Asia and
Europe. The Company expects foreign sales to continue to increase as the year
progresses. The following table shows comparative net revenues of theatre,
lighting and restaurant products for the respective periods:
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------
2000 1999
---- ----
<S> <C> <C>
Theatre $ 21,381,122 $ 35,806,784
Lighting 4,810,473 4,444,291
Restaurant 956,505 1,249,055
---------- ----------
Total net revenues $ 27,148,100 $ 41,500,130
========== ==========
</TABLE>
12
<PAGE>
REVENUES
THEATRE SEGMENT
The decrease in net revenues primarily relates to lower sales of theatre
products, which decreased $14.4 million or 40.3% from $35.8 million in the 1999
Period to $21.4 million in the 2000 Period. In particular, sales of projection
equipment decreased $12.8 million from $28.8 million in the 1999 Period to $16.0
million in the 2000 Period. The Company also experienced softer sales of lenses,
which decreased $1.9 million to $1.1 million in the 2000 Period from $3.0
million in the 1999 Period. Replacement parts in the theatre segment rose $0.3
million or 8.6% to $4.3 million in the 2000 Period from $4.0 million in the 1999
Period reflecting a higher installed base of projection equipment. Replacement
part sales are not directly related to the volume of projection equipment sold,
but are more a reflection of the needs of current customers that have projection
equipment previously purchased from the Company.
The lower projection equipment and lens sales were mainly due to less theatre
construction, which was a result of over construction in certain areas of the
country, rising interest rates and reduced attendance at older theatres. All of
this has negatively impacted the Company's customers in the form of reduced
operating margins and higher financial leverage causing them to build fewer
theatres.
LIGHTING SEGMENT
Sales and rentals in the lighting segment increased slightly from $4.4 million
in the 1999 Period to $4.8 million in the 2000 Period, mainly due to the
Company's audio visual products, where revenue increased $1.1 million from the
prior year to $2.2 million in the 2000 Period. Revenues from entertainment,
promotional and architectural lighting products offset the increase in audio
visual product revenues decreasing $0.7 million to $2.6 million in the 2000
Period from $3.3 million in the 1999 Period as entertainment lighting products
continued to be disappointing in the Los Angeles and North Hollywood areas.
RESTAURANT SEGMENT
Restaurant sales decreased $0.3 million in the 2000 Period from $1.3 million in
the 1999 Period to $1.0 million in the 2000 Period as sales of gas and pressure
fryers were softer.
GROSS PROFIT
Overall, consolidated gross profit decreased $7.7 million to $4.7 million in the
2000 Period from $12.4 million in the 1999 Period. The decrease mainly relates
to the theatre segment where gross profit decreased $7.4 million compared to the
1999 Period. Additionally, gross profit in the theatre segment as a percentage
of net revenues decreased from 30.2% to 16.1% in the 2000 Period. As with the
quarter, the decreases resulted from two main items, the first of which were
lower revenues in the theatre segment, which resulted in lost gross profit of
approximately $4.2 million. Also contributing to the lost gross profit were
negative manufacturing variances created by less volume through the Company's
two main manufacturing plants which resulted in the levels of sales not being
sufficient to fully absorb the Company's manufacturing overhead. Additionally,
the level of sales coupled with increased inventory caused plant labor
utilization to drop considerably. To offset these negative trends, the Company
is actively taking steps to reduce its cost structure, lower inventory and bring
in custom manufacturing work into its plant facilities to increase labor
utilization and absorb more manufacturing overhead.
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Gross profit in the lighting segment rose slightly during the year, but as a
percentage of gross revenue decreased to 23.6% in the 2000 Period from 28.8% in
the 1999 Period. As with the quarter ending June 30, 2000, the decrease is
related to soft sales and rentals in California along with lower margins on
spotlight sales related to the same manufacturing variances discussed in the
theatre segment.
Restaurant gross profit and margins were also lower due to the manufacturing
inefficiencies discussed above.
OPERATING EXPENSES
Operating expenses in the 2000 Period increased approximately $0.5 million or
8.1% from the 1999 Period and as a percentage of net revenues, increased to
24.1% for the 2000 Period from 14.6% for the 1999 Period. Included in operating
expenses for the 2000 Period were charges of approximately $0.5 million relating
to the Company reducing its workforce in the first quarter and a $0.5 million
reserve relating to the default of a term loan made to the former Chairman of
the Board. This reserve is discussed in further detail earlier in this document
in Management's Discussion and Analysis for the quarter ended June 30, 2000. The
increase in operating expenses as a percentage of revenues was mainly due to
lower sales volume in the theatre segment as a large percentage of the Company's
operating expenses are fixed in the short-term.
OTHER ITEMS
Net interest expense was approximately $0.5 million for the 2000 Period compared
to $0.4 million in the 1999 Period due to higher borrowings on the Company's
line of credit, coupled with an increase in the interest rate. As discussed
earlier, the borrowings resulted from less operating cash flow.
The Company's effective tax (benefit) rate for the 2000 Period was (36.7%)
compared to 38.1% in the 1999 Period. The decline from 1999 reflects certain
state tax credits and the benefit of the new foreign sales corporation. 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 reasons outlined above, the Company experienced a net loss for the 2000
Period of approximately $1.5 million compared to net income of $3.7 million
in the 1999 Period. This translated into a net loss per share - basic and
diluted of $0.12 per share in the 2000 Period compared to net income per
share - basic of $0.29 per share and net income per share - diluted of $0.28
per share in the 1999 Period, respectively.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2000, the Company maintained a $20 million line of credit with
Wells Fargo Bank (the "Credit Facility"). At June 30, 2000, $7.9 million of the
Credit Facility was available. Borrowings outstanding under the Credit Facility
bear interest, payable monthly, at a rate equal to the Prime Rate less 0.75%
(8.75% at June 30, 2000). All of the Company's assets secure the Credit
Facility. The Company was in compliance with all restrictive covenants at June
30, 2000 and 1999. The Company expects to renew or replace the Credit Facility
prior to the maturity date of May 31, 2001.
Historically, the Company has funded its working capital requirements through
cash flow generated by its operations. Net cash used in operating activities was
$0.7 million in the 2000 Period compared to cash provided by operating
activities of $2.6 million in the 1999 Period. The decrease in operating cash
flow
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was due to lower operating income coupled with a decrease in accounts payable
during the 2000 Period. The decrease in accounts payable was due to invoices
paid in 2000 related to raw material inventory purchased late in 1999 relating
to the buildup of inventory during that time. Since most of the raw material
inventory was paid for in the first quarter of 2000 and with the Company now
buying less inventory, cash flow from operations should increase in the second
half of the year.
The Company anticipates that internally generated funds and borrowings available
under the Credit Facility will be sufficient to meet its working capital needs,
planned 2000 capital expenditures and to pursue opportunities to expand its
markets and businesses.
Net cash used in investing activities was $0.9 million and $2.0 million for the
2000 and 1999 Periods, respectively. The large decrease relates to buying less
rental equipment at the Company's North Hollywood rental facility due to
disappointing operating results from that location. Investing activities in both
periods mainly reflect capital expenditures.
Net cash provided by financing activities was $1.7 million for the 2000 Period
compared to cash used in financing activities of $0.5 million in the 1999
Period. The change mainly represents draws on the Company's line of credit due
to the operating cash flow shortfalls discussed earlier.
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. Historically, the Hong Kong dollar has not experienced
large fluctuations compared to the U.S. dollar.
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 holiday 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 did not experience any significant malfunctions or errors in its
operating or business systems when the date changed from 1999 to 2000.
Additionally, the Company is not currently aware of any significant year 2000 or
similar problems that have arisen for its customers or suppliers. The Company
expended an immaterial amount to ready itself for the year 2000. Management does
not expect year 2000 issues to have a material adverse effect on the Company's
operations or financial results in 2000.
DIGITAL CINEMA UPDATE
The current motion picture exhibition industry is based on the use of film
technology to deliver motion pictures to the public. However, in the last few
years, there have been innovations in technology to show
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motion pictures digitally. While this technology is still in the prototypical
stage, the Company is currently in the process of weighing a number of
alternatives. The Company has started developing a proprietary digital projector
by partnering with Lumavision Display, Inc., however, that is only one of the
alternatives that the Company is currently considering. The Company has
committed initial funding to the project and approximately $0.4 million was
expensed during the 2000 Period. Although there can be no assurance that the
Company will participate in the digital cinema industry, the Company believes
that it is well positioned to maintain its current position as the industry's
leading supplier of motion picture projection equipment whether it be digital or
film.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has evaluated its exposure to fluctuation in the foreign currency
environment and has concluded that its exposure to fluctuation in the foreign
currency environment would not be material to the consolidated financial
statements. The Company has also evaluated its exposure to fluctuations in
interest rates and the corresponding effect on the rate of interest on the
Company's floating rate Credit Facility. Assuming amounts remain outstanding on
the Credit Facility, increases in interest rates would increase interest
expense. At current amounts outstanding on the Credit Facility, a one percent
increase in the interest rate would increase yearly interest expense by
approximately $141,000. The Company has not historically and is not currently
using derivative instruments to manage the above risks.
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PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company's regular Annual Meeting of Stockholders was held on June 21, 2000
for the purpose of electing two nominees as directors. For the Annual Meeting
there were 12,459,323 shares outstanding and eligible to vote of which 8,265,463
were present at the meeting or by proxy. The tabulations for the election of the
directors were as follows:
<TABLE>
<CAPTION>
For Withheld Abstain
--- -------- -------
<S> <C> <C> <C>
Ronald H. Echtenkamp 8,010,698 254,765 -
William F. Welsh II 7,954,993 310,470 -
</TABLE>
Following the election of these directors, The Board of Directors ("Board")
numbered five members.
ITEM 5. OTHER INFORMATION
On May 25, 2000 Arnold S. Tenney and Jeffrey D. Chelin resigned as directors of
the Company. Mr. Tenney was previously the Chairman of the Board, and as of yet
the Board has not named a replacement for that position. On June 2, 2000,
William F. Welsh II was named to the Board to replace Mr. Chelin. Additionally,
effective June 12, 2000, the Board named Lee J. Seidler to serve on the Board.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
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 June 30, 2000
On May 26, 2000 the Company filed a current report on Form 8-K pertaining
to a Shareholder Rights Agreement between the Company and Chase Mellon
Shareholders Services LLC dated May 25, 2000.
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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 Director and Chief Financial Officer
Date: August 4, 2000 Date: August 4, 2000
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