SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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, 1997 1-13906
BALLANTYNE OF OMAHA, INC.
-------------------------
(Exact name of Registrant as specified in its charter)
Delaware 47-0587703
------------------------------ ---------------
(State or other jurisdiction of (I.R.S. 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 July 31, 1997
- ----------------- 9,016,319
Common Stock, $.01
par value
BALLANTYNE OF OMAHA, INC. AND SUBSIDIARIES
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INDEX
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Page No.
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Part I. Financial Information
Item I. Financial Statements
Consolidated Balance Sheets as of
June 30, 1997 and December 31, 1996 2 - 3
Consolidated Statements of Income
for the Three Months and Six Months
Ended June 30, 1997 and 1996 4
Consolidated Statements of Stockholders' Equity
for the Six Months Ended June 30, 1997 5
Consolidated Statements of Cash Flows
for the Six Months Ended
June 30, 1997 and 1996 6 - 7
Notes to Consolidated Financial
Statements 8 - 10
Item 2. Management's Discussion and Analysis
of Results of Operations and
Financial Condition 11 - 14
Part II. Other Information
Item 4. Submission of matters to a vote of
Security Holders 15
Item 6. Exhibits and Reports on Form 8-K 16
Page 1
BALLANTYNE OF OMAHA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
A S S E T S
June 30, December 31,
1997 1996
------------ -----------
(Unaudited)
Current
Cash $5,685,071 6,042,593
Accounts receivable (less
allowance of $157,850
at June 30, 1997 and
$143,000 at December 31, 1996) 9,913,411 9,090,616
Inventories 15,467,712 11,901,123
Deferred income taxes 596,915 501,025
Other current assets 157,926 103,702
------------ -----------
Total current assets 31,821,035 27,639,059
Net property, plant and equipment 5,418,430 3,863,809
Goodwill, other intangibles and
other assets, net 1,087,695 959,352
------------ -----------
$38,327,160 32,462,220
------------ -----------
------------ -----------
See accompanying notes to consolidated financial statements.
Page 2
BALLANTYNE OF OMAHA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
1997 1996
------------ -----------
(Unaudited)
LIABILITIES:
Current:
Due to Canrad $152,629 93,140
Current installments of long-term debt 50,000 308,107
Accounts payable 6,621,739 5,759,722
Accrued expenses 1,695,708 1,655,883
Income taxes 487,839 79,754
------------ -----------
Total current liabilities 9,007,915 7,896,606
Deferred income taxes 399,322 386,472
Long-term debt, excluding current portion 151,219 150,195
------------ -----------
9,558,456 8,433,273
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STOCKHOLDERS' EQUITY:
Preferred stock, par value
$.01 per share; authorized
1,000,000 shares - -
Common stock, par value
$.01 per share; authorized
25,000,000 shares; 8,892,519 shares
issued and outstanding at June 30, 1997
and 8,569,769 at December 31, 1996 88,927 85,698
Additional paid-in capital 20,219,632 18,906,556
Retained earnings 8,460,145 5,036,693
------------ -----------
28,768,704 24,028,947
------------ -----------
$38,327,160 32,462,220
------------ -----------
------------ -----------
See accompanying notes to consolidated financial statements.
Page 3
BALLANTYNE OF OMAHA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- ------------------------
1997 1996 1997 1996
------------ ------------ ----------- -----------
Net sales $16,348,995 12,495,223 31,073,809 23,857,860
Cost of sales 11,416,489 8,900,770 21,785,256 17,075,185
------------ ------------ ----------- -----------
Gross profit 4,932,506 3,594,453 9,288,553 6,782,675
Total operating expenses 2,140,526 1,578,922 4,081,292 3,152,602
------------ ------------ ----------- -----------
Income from operations 2,791,980 2,015,531 5,207,261 3,630,073
Net interest income (expense) 51,593 (195,666) 104,773 (381,771)
------------ ------------ ----------- -----------
Income before taxes 2,843,573 1,819,865 5,312,034 3,248,302
Income taxes 988,323 714,757 1,888,582 1,281,020
------------ ------------ ----------- -----------
Net income $ 1,855,250 1,105,108 3,423,452 1,967,282
------------ ------------ ----------- -----------
------------ ------------ ----------- -----------
Net income per share .20 .15 .36 .27
------------ ------------ ----------- -----------
------------ ------------ ----------- -----------
Weighted average shares
outstanding 9,388,926 7,171,977 9,392,082 7,171,977
------------ ------------ ----------- -----------
------------ ------------ ----------- -----------
See accompanying notes to consolidated financial statements.
Page 4
BALLANTYNE OF OMAHA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 1997
Additional
Preferred Common Paid-In Retained
Stock Stock Capital Earnings Total
----------- ---------- ---------- ---------- -----------
Balance at December 31, 1996 - 85,698 18,906,556 5,036,693 24,028,947
Net Income 3,423,452 3,423,452
Issuance of 322,750 shares of Common Stock
upon exercise of options - 3,229 1,313,076 1,316,305
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Balance at June 30, 1997 - 88,927 20,219,632 8,460,145 28,768,704
-----------------------------------------------------------------------
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See accompanying notes to consolidated financial statements.
Page 5
BALLANTYNE OF OMAHA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Six Months Ended June 30, 1997 and 1996
1997 1996
----------- ----------
Cash flows from operating activities:
Net income $3,423,452 1,450,831
Depreciation and amortization 435,333 291,362
Changes in assets and liabilities
Trade receivables (415,599) (1,808,909)
Other current assets (42,223) (54,170)
Inventories (2,745,958) (103,372)
Accounts payable 339,913 833,961
Accrued expenses (203,046) 64,403
Income taxes 339,237 (16,839)
Goodwill, other intangibles
and other assets (16,506) 22,963
----------- ----------
Net cash provided by operating activities 1,114,603 680,230
----------- ----------
Cash flow from investing activities:
Capital expenditures (1,287,858) (107,033)
Purchase of net assets (750,000) -
----------- ----------
Net cash used in investing activities (2,037,858) (107,033)
----------- ----------
Cash flows from financing activities:
Change in due to Canrad 59,489 (34,406)
Proceeds from long-term debt 1,896 -
Repayment of long-term debt (811,957) (485,943)
Proceeds from exercise of options 1,316,305 -
----------- ----------
Net cash provided by (used in)
financing activities 565,733 (520,349)
----------- ----------
Page 6
BALLANTYNE OF OMAHA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)
1997 1996
----------- ----------
Net (decrease) increase in cash (357,522) 52,848
Cash at beginning of year 6,042,593 260,006
----------- ----------
Cash at end of period 5,685,071 312,854
----------- ----------
----------- ----------
Supplemental disclosure of
cash flow information:
Interest payments 11,012 22,193
----------- ----------
----------- ----------
Income tax payments 1,480,497 401,551
----------- ----------
----------- ----------
Other noncash activities in 1996 included approximately $382,300 of additional
capital lease obligations in exchange for equipment.
Other noncash activities in the second quarter of 1997 include recording the
present value of a noncompete agreement for approximately $197,000.
See accompanying notes to consolidated financial statements.
Page 7
BALLANTYNE OF OMAHA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June 30, 1997
1. THE COMPANY
Ballantyne of Omaha Inc. ("Ballantyne" or the "Company") and its
subsidiaries Strong International Inc., Ballantyne Fabricators, Inc.,
Xenotech Rental Corp. and Flavor-Crisp of America Inc., develop,
manufacture and distribute commercial motion picture projection
equipment, follow spotlights, computer operated 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. 23.1% 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.
The consolidated financial statements include the accounts of the
Company and its wholly-owned 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.
2. INVENTORIES
Inventories consist of the following:
June 30, December 31,
1997 1996
----------- ------------
Raw Material $11,354,902 8,888,123
Work-in-process 2,254,141 2,184,945
Finished goods 1,858,669 828,055
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$15,467,712 11,901,123
----------- ------------
----------- ------------
Page 8
3. NET INCOME PER SHARE
Net income per share is based on the weighted average number of common
shares outstanding. The effects of the assumed exercise of
outstanding stock options and warrants have been included in the
income per share calculation for the period that the shares were
assumed issued using the treasury stock method.
The Company's Board of Directors declared a 3-for-2 stock split of the
Company's common stock on January 29, 1997. The stock split was in
the form of a 50% common stock dividend payable March 5, 1997 to
stockholders of record on February 10, 1997. The Company's Board of
Directors declared a 10% stock distribution on January 23, 1996, which
was issued on March 8, 1996, to shareholders of record on February 9,
1996. This stock distribution resulted in the issuance of 600,000
shares of common stock. The stock distribution is not considered a
distribution of earnings except to the extent that the Company has
retained earnings, but rather had the effect of increasing the number
of outstanding shares.
Per share data have been restated for these stock transactions as of
the earliest period presented.
4. RELATED PARTY TRANSACTIONS
The Company is a party to a management agreement with Canrad, Inc.
Pursuant to the terms of the agreement, Canrad, Inc. provides certain
services to the Company. Such services include strategic planning,
acquisition assistance, procurement of capital and debt arrangements,
securing health and business insurance coverages and other matters.
Fees charged for these services amounted to $150,000 for the six month
periods ended June 30, 1997 and 1996.
5. ACQUISITION
On April 30, 1997, the Company purchased certain net assets, primarily
accounts receivable, inventories and fixed assets of Xenotech Inc.
("Xenotech") for a purchase price of approximately $1,000,000. The
purchase, which was effective as of April 1, 1997, was paid for
through cash flow from operations. The purchase price has been
assigned to the assets acquired based upon the fair market value of
such assets. No goodwill was recorded in connection with the
acquisition. Xenotech produces, sells and rents a complete line of
stationary searchlights and computer operated lighting systems for the
motion picture production, television, live entertainment, theme parks
and architectural industries.
In addition, the Company entered into a five-year non-compete
agreement with Richard Hart, Xenotech's founder and sole proprietor.
The agreement is for a total of $250,000 payable by the Company in
equal installments of $50,000. The present value of the noncompete
payments has been included as part of the total purchase price.
Page 9
6. RECLASSIFICATIONS
Certain 1996 amounts have been reclassified to conform to the 1997
presentation.
7. COMMON STOCK
On June 30, 1997, the Company completed a public offering pursuant to
a registration statement on Form S-3 (The "Offering"). Pursuant to
the Offering, Canrad sold 1,932,860 shares of Ballantyne common stock
to the public at the price of $16.875 per share. In addition, Canrad
granted the underwriters an option to purchase an aggregate of up to
333,729 additional shares of common stock at $16.875 per share less
underwriting discounts and commissions to cover over allotments, if
any. The underwriters purchased all 333,729 shares.
While the Company did not offer any shares or pay any expenses
incurred in the offering, the Company did receive $1,146,000 from the
exercise of a warrant and certain stock options, which in aggregate
totaled 280,750 shares and were sold in connection with the Offering.
On June 10, 1997, the stockholders of the Company approved an
amendment to the Company's Certificate of Incorporation to increase
the authorized common stock from 10,000,000 shares to 25,000,000 shares.
The stockholders of the Company also approved an amendment to the 1995
stock option plan to increase the number of shares that may be issued
under the plan from 660,000 shares to 1,060,000 shares.
Page 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction
with the accompanying unaudited consolidated financial statements and presents a
current assessment of material changes in financial condition and results of
operations. A detailed discussion and analysis for the preceding years appears
in the Registrant's December 31, 1996 Annual Report to Stockholders.
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1996
Net sales for the six months ended June 30, 1997 (the "1997 Period")
increased $7.2 million or 30.3% to $31.1 million from $23.9 million for the six
months ended June 30, 1996 (the "1996 Period"). The following table sets forth
comparative consolidated net sales of theatre products and restaurant products
for the respective periods.
Six Months Ended
June 30,
1997 1996
------------- -----------
Theatre Products $29,768,600 22,698,900
Restaurant Products 1,305,200 1,159,000
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$31,073,800 23,857,900
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------------- -----------
Net sales of theatre products increased $7.1 million or 31.1% for the
1997 Period as compared to the 1996 Period. Net sales of commercial motion
picture projection equipment ("Motion picture projection equipment") increased
$6.2 million or 28.7% and net sales of follow spotlights and other lighting
equipment ("lighting equipment") increased $846,000 or 81.5%. The majority of
the increase in net sales of motion picture projection equipment was
attributable to increased sales to domestic customers while the increase in
lighting equipment was due to the acquisition of Xenotech. Net sales of
replacement parts increased $619,760 or 21.8% to $3.5 million for the 1997
Period from $2.8 million in the 1996 Period.
Net sales of restaurant products increased by $146,200 or 12.6% over
the same period in 1996. The increase was mainly due to an increase in sales of
pressure fryers.
Gross profit as a percentage of net sales increased to 29.9% for the
1997 Period from 28.4% for the 1996 Period. The increases were attributable to
improved efficiencies realized by purchasing and manufacturing due to an
increase in production volume.
Operating expenses increased $928,690 or 29.5% for the 1997 Period to
$4,081,292 from $3,152,602 for the 1996 Period. As a percentage of net sales,
operating expenses decreased to 13.1%
Page 11
for the 1997 Period from 13.2% for the 1996 Period, as a result of a greater
increase in net sales without a proportional significant increase in selling
and general and administrative expenses.
Net interest income was $104,773 for the six months ended June 30,
1997 as compared to net interest expense of $381,771 for the same period in
1996. The decrease in interest expense reflects the repayment of the
Company's Industrial Development Revenue Bonds (the "IDRBs") in March 1997
and the absence of borrowings under the Company's line of credit facility
with Norwest Bank (the "Norwest Facility").
The effective tax rate was 35.6% for the 1997 Period as compared to
the statutory rate of 34%. The difference relates to the effects of state
income taxes and the non-deductibility of certain intangible expenses,
principally goodwill.
QUARTER ENDED JUNE 30, 1997 COMPARED TO THE QUARTER ENDED JUNE 30, 1996
Net sales for the quarter ended June 30, 1997 (the "1997 Period")
increased $3.9 million or 30.8% to $16.3 million from $12.5 million for the
quarter ended June 30, 1996 (the "1996 Period"). The following table sets forth
comparative consolidated net sales of theatre products and restaurant products
for the respective periods:
Three Months Ended
June 30,
1997 1996
------------- ------------
Theatre Products $15,656,500 11,819,500
Restaurant Products 692,500 675,700
------------- ------------
$16,349,000 12,495,200
------------- ------------
------------- ------------
Net sales of theatre products increased $3.8 million or 32.5% for the
1997 Period as compared to the 1996 Period. Net sales of commercial motion
picture projection equipment ("motion picture projection equipment") increased
$3.1 million or 27.6%, while net sales of follow spotlights and other lighting
equipment ("lighting equipment") increased $732,400. The majority of the
increase in net sales of motion picture projection equipment was attributable to
increased sales of such equipment to domestic customers while the increase in
lighting equipment was due to the acquisition of Xenotech. Net sales of
replacement parts increased $473,600 or 34.6% to $1.8 million for the 1997
Period from $1.4 million in the 1996 Period.
Net sales of restaurant products increased by $16,800 or 2.5%, mainly
due to an increase in sales of pressure fryers.
Gross profit as a percentage of net sales increased to 30.2% for the
1997 Period from 28.8% for the 1996 Period. The increase was attributable to
improved efficiencies realized by
Page 12
purchasing and manufacturing due to an increase in production volume.
Operating expenses increased $561,604 for the 1997 Period as compared
to the 1996 Period. As a percentage of net sales, operating expenses increased
to 13.1% for the 1997 Period from 12.6% for the 1996 Period, as a result of the
acquisition of Xenotech.
Net interest income was $51,593 for the 1997 Period as compared to
interest expense of $195,666 for the 1996 Period. The decrease in interest
expense reflects the repayment of the Company's Industrial Development
Revenue Bonds in March 1997 and the absence of borrowings under the Norwest
Facility.
The effective tax rate was 34.8% for the 1997 Period as compared to
the statutory rate of 34.0%. The difference relates to the effects of state
income taxes and the non-deductibility of certain intangible expense,
principally goodwill.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1997, the Company had $151,219 of long-term debt. The
debt relates entirely to a non-compete agreement with Richard Hart, the former
owner of Xenotech, Inc., which was entered into when the Company purchased
substantially all of the net assets of Xenotech in April 1997.
In September 1995, the Company entered into the Norwest Facility with
Norwest Bank. The Norwest Facility initially provided for a borrowing
commitment of up to $10.0 million. The commitment reduced by $500,000 on the
first anniversary date of such facility and will reduce by $500,000, $1.0
million and $1.0 million on the second, third and fourth anniversary dates
thereof, respectively. The entire amount outstanding under the Norwest Facility
matures on August 30, 2000. At July 31, 1997, $9.5 million was available for
borrowing under the Norwest Facility. Amounts repaid under the Norwest Facility
will be available for reborrowing. Borrowings outstanding under the Norwest
Facility bear interest, payable monthly, at a rate equal to Norwest Bank's
National Money Market Rate as announced from time to time (8.5% at July 31,
1997). All of the Company's assets secure the Norwest Facility. The Norwest
Facility agreement contains certain restrictive covenants which include, among
other things, a prohibition on the payment of cash dividends and requirements
relating to current debt, current debt service coverage and total debt to
tangible net worth ratios and tangible net worth.
Historically the Company has funded its working capital requirements
through cash flow generated by its operations. Net cash provided by operating
activities for the six months ended June 30, 1997 and 1996 was $1,114,603 and
$680,230, respectively. The increase in net cash provided by operating
activities for the six months ended June 30, 1997 was due primarily to increases
in net income, income taxes payable and accounts payable offset by increases in
trade receivables and inventories.
Page 13
The Company anticipates that internally generated funds and borrowings
under the Norwest Facility will be sufficient to meet its working capital needs.
The Company expects that it will have capital expenditures of $1.7 million in
1997 which include manufacturing equipment and expansion of its current
facility.
The Company does not engage in any 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 Westrex
sales, which are denominated in Hong Kong Sales.
NEW ACCOUNTING PRONOUNCEMENT
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings per share" which revises the calculation and
presentation provisions of Accounting Principles Board Opinion 15 and related
interpretations. Statement No. 128 is effective for the Company's fiscal year
ending December 31, 1997. Retroactive application will be required. The
Company believes the adoption of Statement No. 128 will not have a significant
effect on its reported earnings per share.
Page 14
PART II. Other Information
Item 4. Submission of matter to a vote of security holders.
The Company's regular Annual Meeting of Stockholders was held on
June 10, 1997 for the purpose of electing three nominees as directors and
approving amendments to the Company's 1995 employee Stock Option Plan (the
"Stock Option Plan") and to the Certificate of Incorporation. The amendment
to the Stock Option Plan increased the number of shares that may be issued
under the plan from 660,000 shares to 1,060,000 shares. The amendment to the
Certificate of Incorporation increased the authorized Common Stock from
10,000,000 shares to 25,000,000 shares. With respect to the election of
directors, all three were re-elected. With respect to the amendments, the
following table summarizes the results of the voting.
Amendment to
Certificate of Incorporation Stock Option Plan
---------------------------- -----------------
For 7,554,066 6,258,107
Against 164,343 490,689
Abstain 70,045 74,917
Broker Non-Vote - 964,741
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--------- ---------
Page 15
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
2.5 Asset Purchase Agreement dated April 1, 1997, between the Company
and Xenotech, Inc.
3.1 Certificate of Incorporation (Incorporated by reference to Exhibits
3.1 and 3.3 to the Registration Statement on Form S-1, File
No. 33-93244 ("Form S-1").
3.1.1 Amendment to the Certificate of Incorporation.
3.2 By-Laws of the Company (Incorporated by reference to Exhibit 3.2 in
Form S-1).
10.15 Stock Option Agreement dated September 19, 1995 (Incorporated by
reference to Exhibit 10.7 in Form S-1).
10.16 Amendment to Stock Option Agreement adopted June 10, 1997.
10.3.4 Employment Agreement dated April 1, 1997 between the Company and
Richard Hart.
10.3.5 Non-competition Agreement dated April 1, 1997 between the Company
and Richard Hart.
11 Computation of net earnings per share for the three and six months
ended June 30, 1997 (included in financial statements)
27 Financial Data Schedule (for SEC information only)
(b) Reports on Form 8-K
No report on Form 8-K was filed during the quarter ended June 30, 1997.
Page 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be filed on its behalf by the
undersigned, thereunto duly authorized.
BALLANTYNE OF OMAHA, INC.
Date: August 12, 1997 By: /s/ John Wilmers
_______________________________
John Wilmers, President and
Chief Executive Officer
Date: August 12, 1997 By: /s/ Brad French
_______________________________
Brad French, Secretary, Treasurer,
and Chief Financial Officer
Page 17