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, 1997 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 N
--- ---
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 31, 1997
------------------
Common Stock, $.01 9,025,819
par value
Page 1
BALLANTYNE OF OMAHA, INC. AND SUBSIDIARIES
INDEX
Page No.
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets as of
September 30, 1997 and December 31, 1996 . . . . . . . . . . 3 - 4
Consolidated Statements of Income
for the Three Months and Nine Months
Ended September 30, 1997 and 1996. . . . . . . . . . . . . . . . 5
Consolidated Statements of Stockholders' Equity
for the Nine Months Ended September 30, 1997 . . . . . . . . . . 6
Consolidated Statements of Cash Flows
for the Nine Months Ended
September 30, 1997 and 1996. . . . . . . . . . . . . . . . . 7 - 8
Notes to Consolidated Financial
Statements . . . . . . . . . . . . . . . . . . . . . . . . .9 - 11
Item 2. Management's Discussion and Analysis
of Results of Operations and
Financial Condition. . . . . . . . . . . . . . . . . . . . 12 - 16
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . .17
Page 2
BALLANTYNE OF OMAHA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
A S S E T S
SEPTEMBER 30, DECEMBER 31,
1997 1996
---- ----
(Unaudited)
Current
Cash $ 6,636,141 6,042,593
Accounts receivable (less
allowance of $206,962
at September 30, 1997 and
$143,000 at December 31, 1996) 10,473,480 9,090,616
Inventories 16,270,800 11,901,123
Deferred income taxes 596,915 501,025
Other current assets 140,621 103,702
----------- -----------
Total current assets 34,117,957 27,639,059
Net property, plant and equipment 6,182,972 3,863,809
Goodwill, other intangibles and
other assets, net 1,339,544 959,352
----------- -----------
$41,640,473 32,462,220
=========== ===========
See accompanying notes to Consolidated Financial Statements.
Page 3
BALLANTYNE OF OMAHA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, DECEMBER 31,
1997 1996
---- ----
(Unaudited)
LIABILITIES:
Current:
Due to Canrad $ 161,802 93,140
Current installments of long-term debt 50,000 308,107
Accounts payable 6,507,114 5,759,722
Accrued Expenses 2,365,991 1,655,883
Income taxes 681,285 79,754
----------- -----------
Total current liabilities 9,766,192 7,896,606
Deferred income taxes 249,518 386,472
Long-term debt, excluding current portion 186,487 150,195
----------- -----------
10,202,197 8,433,273
----------- -----------
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; 9,018,319 shares
issued and outstanding at September 30, 1997
and 8,569,769 at December 31, 1996 90,185 85,698
Additional paid-in capital 20,835,115 18,906,556
Retained earnings 10,512,976 5,036,693
----------- -----------
31,438,276 24,028,947
----------- -----------
$41,640,473 32,462,220
=========== ===========
See accompanying notes to Consolidated Financial Statements.
Page 4
BALLANTYNE OF OMAHA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1997 1996
---- ---- ---- ----
Net sales $17,378,858 12,637,047 48,452,667 36,494,907
Cost of sales 12,231,360 8,695,855 34,016,616 25,771,040
----------- ----------- ----------- -----------
Gross profit 5,147,498 3,941,192 14,436,051 10,723,867
Total operating expenses 2,106,225 1,798,294 6,187,517 4,950,896
----------- ----------- ----------- -----------
Income from operations 3,041,273 2,142,898 8,248,534 5,772,971
Net interest income (expense) 69,698 (42,405) 174,471 (424,176)
----------- ----------- ----------- -----------
Income before taxes 3,110,971 2,100,493 8,423,005 5,348,795
Income taxes 1,058,140 828,432 2,946,722 2,109,452
----------- ----------- ----------- -----------
Net income $ 2,052,831 1,272,061 5,476,283 3,239,343
=========== =========== =========== ===========
Net income per share .22 .15 .58 .43
=========== =========== =========== ===========
Weighted average shares
outstanding 9,499,450 8,315,399 9,491,132 7,586,927
=========== =========== =========== ===========
See accompanying notes to Consolidated Financial Statements.
Page 5
BALLANTYNE OF OMAHA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 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 - - - 5,476,283 5,476,283
Issuance of 448,550 shares
of Common Stock upon
exercise of options - 4,487 1,928,559 - 1,933,046
-----------------------------------------------------------------------
Balance at September 30, 1997 - 90,185 20,835,115 10,512,976 31,438,276
=======================================================================
See accompanying notes to Consolidated Financial Statements.
Page 6
BALLANTYNE OF OMAHA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Nine Months Ended September 30, 1997 and 1996
1997 1996
---- ----
Cash flows from operating activities:
Net income $ 5,476,283 3,239,343
Depreciation and amortization 685,275 442,169
Changes in assets and liabilities:
Trade receivables (939,986) (1,992,082)
Other current assets (24,918) 9,459
Inventories (3,451,340) (1,682,048)
Accounts payable 225,288 626,427
Accrued expenses 467,236 420,084
Income taxes 382,879 (856,106)
Goodwill, other intangibles
and other assets (47,978) (9,935)
----------- -----------
Net cash provided by operating activities 2,772,739 197,311
----------- -----------
Cash flow from investing activities:
Capital expenditures (2,198,046) (578,821)
Purchase of net assets (1,150,000) -
----------- -----------
Net cash used in investing activities (3,348,046) (578,821)
----------- -----------
Cash flows from financing activities:
Change in due to Canrad 68,662 14,766
Repayment of long-term debt (832,853) (7,923,912)
Net proceeds from Equity Offering - 13,660,330
Proceeds from exercise of options 1,933,046 -
----------- -----------
Net cash provided by financing activities 1,168,855 5,751,184
----------- -----------
Page 7
BALLANTYNE OF OMAHA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)
1997 1996
---- ----
Net increase in cash 593,548 5,369,674
Cash at beginning of year 6,042,593 204,172
----------- -----------
Cash at end of period 6,636,141 5,573,846
=========== ===========
Supplemental disclosure of
cash flow information:
Interest payments 10,753 424,176
=========== ===========
Income tax payments(net of refunds) 2,479,616 2,965,558
=========== ===========
Other non-cash activities in 1996 included approximately $382,300 of additional
capital lease obligations in exchange for equipment.
Other non-cash activities during 1997 include recording the present value of
non-compete agreements for approximately $248,000.
See accompanying notes to Consolidated Financial Statements.
Page 8
BALLANTYNE OF OMAHA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
September 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. 22.8% 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:
SEPTEMBER 30, DECEMBER 31,
1997 1996
---- ----
Raw Material $12,004,597 8,888,123
Work-in-process 2,658,552 2,184,945
Finished goods 1,607,651 828,055
----------- -----------
$16,270,800 11,901,123
=========== ===========
Page 9
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 coverage's and other matters. Fees
charged for these services amounted to $187,500 and $225,000 for the nine
month periods ended September 30, 1997 and 1996, respectively.
5. ACQUISITIONS
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-competition 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 agreement has been recorded at the present value of the non-
competition payments in the financial statements.
Page 10
During September of 1997, The Company acquired certain assets of Skytracker
of America, Inc. ("Skytracker") for a purchase price of approximately
$400,000. In connection with the purchase, the Company recorded $150,000 of
goodwill which will be amortized over 5 years. In addition, the Company
entered into a 3 year non-competition agreement with the owner of
Skytracker. The agreement is for a total of $60,000 payable in equal
installments and is included in the financial statements at its present
value.
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 11
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.
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1996
Net sales for the nine months ended September 30, 1997 (the "1997 Period")
increased $12.0 million or 32.8 % to $48.5 million from $36.5 million for
the nine months ended September 30, 1996 (the "1996 Period"). The
following table sets forth comparative consolidated net sales of theatre
products and restaurant products for the respective periods.
NINE MONTHS ENDED
SEPTEMBER 30,
1997 1996
---- ----
Theatre Products $46,505,519 34,723,472
Restaurant Products 1,947,148 1,771,435
----------- -----------
$48,452,667 36,494,907
=========== ===========
Net sales of theatre products increased $11.8 million or 33.9% for the 1997
Period as compared to the 1996 Period. Net sales of commercial motion
picture projection equipment ("Motion picture projection equipment")
increased $10.0 million or 30.2 % and net sales of follow spotlights and
other lighting equipment ("lighting equipment") increased $1.8 million or
108.6%. The majority of the increase in net sales of motion picture
projection equipment was attributable to sales to domestic customers with
the remaining increase pertaining to sales to foreign customers. The
increase in lighting equipment was mainly due to the acquisition of
Xenotech. Net sales of replacement parts increased $971,654 or 21.9% to
$5.4 million for the 1997 Period from $4.4 million in the 1996 Period. This
increase is due to the Company having more projection equipment in service
compared to the prior year.
Net sales of restaurant products increased by $175,713 or 9.9% over the
same period in 1996. The increase was mainly due to an increase in sales of
pressure fryers.
Page 12
Gross profit as a percentage of net sales increased to 29.8% for the 1997
Period from 29.4% 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 $1.2 million or 25% for the 1997 Period to
$6.2 million from $5.0 million for the 1996 Period. As a percentage of net
sales, operating expenses decreased to 12.8% for the 1997 Period from 13.6%
for the 1996 Period, as a result of a greater increase in net sales without
a proportional increase in selling and general and administrative expenses.
Net interest income was $174,471 for the nine months ended September 30,
1997 as compared to net interest expense of $424,176 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 35.0% 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 SEPTEMBER 30, 1997 COMPARED TO THE QUARTER ENDED SEPTEMBER
30, 1996
Net sales for the quarter ended September 30, 1997 (the "1997 Period")
increased $4.7 million or 37.5% to $17.4 million from $12.6 million for the
quarter ended September 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
SEPTEMBER 30,
1997 1996
---- ----
Theatre Products $16,736,898 12,024,569
Restaurant Products 641,960 612,478
----------- -----------
$17,378,858 12,637,047
=========== ===========
Page 13
Net sales of theatre products increased $4.7 million or 39.2% for the 1997
Period as compared to the 1996 Period. Net sales of commercial motion
picture projection equipment ("motion picture projection equipment")
increased $3.8 million or 33.0%, while net sales of follow spotlights and
other lighting equipment ("lighting equipment") increased $938,680. The
majority of the increase in net sales of motion picture projection
equipment was attributable to sales of such equipment to domestic customers
with the remaining increase pertaining to sales to foreign customers. The
increase in lighting equipment was due to the acquisition of Xenotech. Net
sales of replacement parts increased $351,897 or 21.9% to $2.0 million for
the 1997 Period from $1.6 million in the 1996 Period.
Net sales of restaurant products increased by $29,482 or 4.8%, mainly due
to an increase in sales of pressure fryers.
Gross profit as a percentage of net sales decreased to 29.6% for the 1997
Period from 31.2% for the 1996 Period. The decrease was due to a change in
the product mix from the 1996 period.
Operating expenses increased $307,931 for the 1997 Period as compared to
the 1996 Period. As a percentage of net sales, operating expenses
decreased to 12.1% for the 1997 Period from 14.2% for the 1996 Period. The
decrease was attributable to increased sales without a proportional
increase in selling and general and administrative expenses.
Net interest income was $69,698 for the 1997 Period as compared to interest
expense of $42,405 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 34.0% for the 1997 Period which approximates the
statutory rate.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1997, the Company had $186,487 of long-term debt. The
debt relates entirely to non-compete agreements set up to be paid in
installments.
Page 14
During August 1997, the Company amended it's line of credit with Norwest
Bank Nebraska N.A. (the "Norwest Facility"). The Norwest Facility was
initially for $10 million but was reduced by $500,000 on the first
anniversary date and then was to be reduced thereafter each year by either
$500,000 or $1,000,000 through the fourth anniversary date. The amended
agreement keeps the line of credit at $10 million until maturity.
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 September 30, 1997). Amounts repaid
under the Norwest Facility will be available for reborrowing. 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 nine months ended September 30, 1997 and 1996
was $2,772,739 and $197,311, respectively. The increase in net cash
provided by operating activities was due primarily to increases in net
income, income taxes payable, accounts payable and accrued expenses offset
by increases in trade receivables and inventories.
The Company anticipates that internally generated funds and borrowings
under the Norwest Facility will be sufficient to meet its working capital
needs. The Company initially expected that it would have capital
expenditures of $1.7 million in 1997, but due to its growth now expect
capital expenditures to be approximately $2.8 million.
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 dollars.
NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board ("FASB") 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 15
In June of 1997, the FASB issued Statement No. 130, "Reporting
Comprehensive Income" which establishes standards for the reporting and
display of comprehensive income and its components. The Statement requires
that all items that are required to be recognized under accounting
standards as components of comprehensive income be reported in the
financial statements and displayed with the same prominence as other
financial statements. This Statement is effective for fiscal years
beginning after December 15, 1997. The Company believes that the adoption
of the Statement will not have a significant effect on its financial
statements.
Also in June of 1997, the FASB issued Statement No. 131, "Disclosures about
Segments of an Enterprise and Related Information" which establishes
standards for the way that public business enterprises report information
about operating segments in annual financial statements and requires these
enterprises report selected information about operating segments in interim
financial reports issued to shareholders. It also establishes standards for
related disclosures about products and services, geographic areas, and
major customers. This statement is effective for financial statements for
periods beginning after December 15, 1997. In the initial year of
application, comparative information for earlier years is to be restated.
Page 16
PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a.) Exhibits
2.6 Asset Purchase Agreement dated September 8, 1997 between the
Company and Skytracker of America, Inc.
4.3 Amendment to Loan Agreement dated August 29, 1997 between the
Company and Norwest Bank Nebraska, N.A.
10.3.6 Consulting Agreement between the Company and Marlowe A Pichel.
10.3.7 Non-competition agreement between the Company and Marlowe A.
Pichel.
11 Computation of net earnings per share for the three and nine months
ended September 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 September 30,
1997.
Page 17
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: November 10, 1997 By: /s/ John Wilmers
--------------------------------
John Wilmers, President and
Chief Executive Officer
Date: November 10, 1997 By: /s/ Brad French
---------------------------------
Brad French, Secretary, Treasurer,
and Chief Financial Officer
Page 18