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, 1999 1-13906
BALLANTYNE OF OMAHA, INC.
-------------------------
(Exact name of Registrant as specified in its charter)
Delaware 47-0587703
- ------------------------------- ----------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
4350 McKinley Street, Omaha, Nebraska 68112
-------------------------------------------
(Address of principal executive offices including zip code)
Registrant's telephone number, including area code:
(402) 453-4444
Indicate by check mark whether Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock as of the latest practicable date:
Class Outstanding as of July 30, 1999
- ------------------
Common Stock, $.01
par value 12,574,053 shares
BALLANTYNE OF OMAHA, INC. AND SUBSIDIARIES
INDEX
Part I. Financial Information
Page
----
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets-June 30, 1999 and December 31, 1998......................2
Consolidated Statements of Income- Three and Six Months Ended
June 30, 1999 and 1998...........................................................3
Consolidated Statements of Stockholders' Equity-
Six Months Ended June 30, 1999....................................................4
Consolidated Statements of Cash Flows- Six Months Ended
June 30, 1999 and 1998............................................................5
Notes to Consolidated Financial Statements
Six Months Ended June 30, 1999....................................................6
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition...................................................11
Part II. Other Information.......................................................................17
1
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Ballantyne of Omaha, Inc. and Subsidiaries
Consolidated Balance Sheets
June 30, December 31,
1999 1998
----------- ------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 680,805 $ 594,686
Accounts receivable (less allowance for doubtful
accounts of $532,910 in 1999 and $396,785 in 1998) 16,889,918 17,255,221
Inventories 24,287,746 21,434,395
Deferred income taxes 1,071,035 864,568
Other current assets 540,852 43,611
------------ ------------
Total current assets 43,470,356 40,192,481
Plant and equipment, net 13,555,945 12,695,989
Other assets, net 3,524,998 3,664,710
------------ ------------
Total assets $ 60,551,299 $ 56,553,180
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 6,616,434 $ 5,936,825
Accrued expenses 2,410,077 2,500,614
Income taxes payable 864,395 752,809
------------ ------------
Total current liabilities 9,890,906 9,190,248
Deferred income taxes 610,634 471,319
Long-term debt 58,127 47,372
Notes payable to bank 12,684,000 12,229,000
Stockholders' equity:
Preferred stock, par value $.01 per share;
authorized 1,000,000 shares, none outstanding - -
Common stock, par value $.01 per share;
authorized 25,000,000 shares; issued
14,486,813 shares in 1999 and 14,450,702
shares in 1998 144,868 144,507
Additional paid-in capital 31,309,523 31,211,329
Retained earnings 19,270,255 15,610,511
------------ ------------
50,724,646 46,966,347
Less cost of common shares in treasury, at cost
(1,913,383 shares in 1999 and 1,801,800 in 1998) (13,417,014) (12,351,106)
------------ ------------
Total stockholders' equity 37,307,632 34,615,241
------------ ------------
Total liabilities and stockholders' equity $ 60,551,299 $ 56,553,180
------------ ------------
------------ ------------
See accompanying notes to consolidated financial statements.
2
Ballantyne of Omaha, Inc. and Subsidiaries
Consolidated Statements of Income
Three and Six Months Ended June 30, 1999 and 1998
(Unaudited)
Three Months Ended Six Months Ended
June 30 June 30
-------------------- --------------------
1999 1998 1999 1998
---- ---- ---- ----
Net revenues $21,303,110 $15,412,796 $41,500,130 $32,684,683
Cost of revenues 15,103,080 10,644,092 29,120,413 22,607,557
----------- ----------- ----------- -----------
Gross profit 6,200,030 4,768,704 12,379,717 10,077,126
Operating expenses:
Selling 1,197,932 964,794 2,289,477 1,827,029
General and administrative 1,874,316 1,583,389 3,752,557 3,154,062
----------- ----------- ----------- -----------
Total operating expenses 3,072,248 2,548,183 6,042,034 4,981,091
----------- ----------- ----------- -----------
Income from operations 3,127,782 2,220,521 6,337,683 5,096,035
Interest income 5,117 13,399 7,994 86,569
Interest expense (192,420) (8,464) (427,461) (12,654)
----------- ----------- ----------- -----------
Net interest income (expense) (187,303) 4,935 (419,467) 73,915
----------- ----------- ----------- -----------
Income before income taxes 2,940,479 2,225,456 5,918,216 5,169,950
Income taxes 1,117,287 799,724 2,258,472 1,842,800
----------- ----------- ----------- -----------
Net income $ 1,823,192 $ 1,425,732 $ 3,659,744 $ 3,327,150
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Net income per share:
Basic $ 0.14 $ 0.10 $ 0.29 $ 0.23
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Diluted $ 0.14 $ 0.09 $ 0.28 $ 0.22
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Weighted average shares:
Basic 12,644,264 14,519,121 12,647,681 14,375,107
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Diluted 13,218,712 15,220,926 13,268,561 15,073,047
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
See accompanying notes to consolidated financial statements.
3
Ballantyne of Omaha, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
Six Months Ended June 30, 1999
(Unaudited)
Additional Total
Preferred Common Paid-in- Retained Treasury Stockholders'
Stock Stock Capital Earnings Stock Equity
-----------------------------------------------------------------------------------------
Balance at December 31, 1998 $ - 144,507 31,211,329 15,610,511 (12,351,106) 34,615,241
Net income - - - 3,659,744 - 3,659,744
Issuance of 36,111 shares of
common stock upon exercise of
stock options - 361 98,194 - - 98,555
Purchase of Treasury Stock - - - - (1,065,908) (1,065,908)
-----------------------------------------------------------------------------------------
Balance at June 30, 1999 $ - 144,868 31,309,523 19,270,255 (13,417,014) 37,307,632
-----------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
4
Ballantyne of Omaha, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Six Months Ended June 30, 1999 and 1998
(Unaudited)
1999 1998
---- ----
Cash flows from operating activities:
Net income $ 3,659,744 $ 3,327,150
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization 1,316,568 760,210
Changes in assets and liabilities, net of assets acquired:
Accounts receivables 365,303 543,421
Inventories (2,853,351) (5,057,755)
Other current assets (497,241) (9,586)
Accounts payable 679,609 (3,201,890)
Accrued expenses (90,537) (24,593)
Income taxes 44,434 692,096
Other assets (35,408) (310,675)
----------- -----------
Net cash provided by (used in)
operating activities 2,589,121 (3,281,622)
----------- -----------
Cash flows from investing activities:
Acquisitions, net of cash acquired - (3,811,922)
Capital expenditures (1,990,649) (1,044,118)
----------- -----------
Net cash used in investing
activities (1,990,649) (4,856,040)
----------- -----------
Cash flows from financing activities:
Repayments of long-term debt - (50,000)
Net proceeds from note payable to bank 455,000 893,000
Proceeds from exercise of stock options 98,555 86,100
Purchase of Treasury Stock (1,065,908) -
----------- -----------
Net cash provided by (used in) financing
activities (512,353) 929,100
----------- -----------
Net increase (decrease) in cash
and cash equivalents 86,119 (7,208,562)
Cash and cash equivalents at beginning of period 594,686 7,701,507
----------- -----------
Cash and cash equivalents at end of period $ 680,805 $ 492,945
----------- -----------
----------- -----------
See accompanying notes to consolidated financial statements.
5
Ballantyne of Omaha, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Six Months Ended June 30, 1999
(Unaudited)
1. Company
Ballantyne of Omaha, Inc., a Delaware corporation ("Ballantyne" or the
"Company"), and its wholly-owned subsidiaries, Strong Westrex, Inc., Design &
Manufacturing, Inc., Xenotech Rental Corp. and Xenotech Strong, Inc., design,
develop, manufacture and distribute commercial motion picture equipment,
lighting systems and restaurant equipment. The Company's products are
distributed worldwide through a domestic and international dealer network and
are sold to major movie exhibition companies, sports arenas, auditoriums,
amusement parks, special venues, restaurants, supermarkets and convenience
food stores. Approximately 25.8% 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.
2. Summary of Significant Accounting Policies
The principal accounting policies upon which the accompanying consolidated
financial statements are based are summarized as follows:
a. Basis of Presentation
The consolidated financial statements include the accounts of the Company and
its subsidiaries. All significant intercompany balances and transactions have
been eliminated in consolidation. The consolidated financial statements have
been prepared in conformity with generally accepted accounting principles and
include all adjustments which are, in the opinion of management, necessary
for a fair presentation of the results for the periods presented. All such
adjustments are, in the opinion of management, of a normal, recurring nature.
While the Company believes that the disclosures presented are adequate to
make the information not misleading, it is suggested that these consolidated
financial statements be read in conjunction with the consolidated financial
statements and related notes included in the Company's latest annual report
on Form 10-K.
b. Stock Dividend and Split
The Company's Board of Directors declared a 5% stock dividend of the
Company's common stock on January 28, 1999. The stock dividend was payable
March 1, 1999 to shareholders of record on February 15, 1999. The stock
dividend resulted in the issuance of 601,455 shares of common stock. The
dividend has been accounted for as if it occurred on December 31, 1998.
The Company's Board of Directors declared a 3-for-2 stock split of the
Company's common stock on April 21, 1998. The stock split was in the form of
a 50% common stock dividend payable June 12, 1998 to shareholders of record
on May 29, 1998. Share and per share data have been restated to reflect the
stock split as of the earliest period presented.
c. Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market
and include appropriate elements of material, labor and manufacturing
overhead.
6
Ballantyne of Omaha, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Six Months Ended June 30, 1999
(Unaudited)
d. Plant and Equipment
Significant expenditures for the replacement or expansion of plant and
equipment are capitalized. Depreciation of plant and equipment is provided
over the estimated useful lives of the respective assets using the
straight-line method. Estimated useful lives range from 3 to 20 years.
e. Revenue Recognition
The Company recognizes revenue from product sales upon shipment to the
customer. Revenues related to equipment rental and services are recognized as
earned over the terms of the contracts.
f. Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these consolidated financial
statements in conformity with generally accepted accounting principles.
Actual results could differ from those estimates.
g. Net Income Per Common Share
Net income per share - basic has been computed on the basis of the weighted
average number of shares of common stock outstanding. Net income per share -
diluted has been computed on the basis of the weighted average number of
shares of common stock outstanding after giving effect to potential common
shares from dilutive stock options. Net income per share - diluted includes
an increase in the weighted average shares outstanding for dilutive stock
options of 574,448 and 620,880 for the three and six months ended June 30,
1999, respectively and 701,805 and 697,940 for the three and six months ended
June 30, 1998, respectively.
3. Inventories
Inventories consist of the following:
June 30, December 31,
1999 1998
----------- ------------
Raw materials and supplies $17,966,196 $16,404,416
Work in process 3,707,326 3,115,163
Finished goods 2,614,224 1,914,816
----------- -----------
$24,287,746 $21,434,395
----------- -----------
----------- -----------
7
Ballantyne of Omaha, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Six Months Ended June 30, 1999
(Unaudited)
4. Acquisitions
During January of 1998, the Company purchased substantially all of the net
assets of Sky-Tracker of Florida, Inc. ("Sky-Tracker of Florida") for cash of
$575,000. Sky-Tracker of Florida is a rental agent and distributor of high
intensity promotional searchlights.
Effective April 1, 1998, the Company purchased substantially all of the net
assets of Design and Manufacturing, Ltd. ("Design") for cash and stock of
approximately $5.5 million. The Company also assumed liabilities of
approximately $207,000. The cash portion of the purchase price was financed
through operating cash flows. In connection with the acquisition, goodwill of
approximately $2.5 million was recorded and will be amortized over 15 years.
Design is a leading supplier of film platter systems to the motion picture
exhibition industry and was a vendor of the Company. In a related transaction
in May 1998, the Company purchased land and a building for $500,000 from the
former owner of Design.
During June of 1998, the Company purchased substantially all of the assets of
a distributor of follow spotlights for a purchase price of $125,000.
5. Business Segment Information
The Company's operations are conducted principally through three business
segments: Theatre, Lighting and Restaurant. Theatre operations include the
design, manufacture, assembly and sale of motion picture projectors, xenon
lamphouses and power supplies, sound systems and the sale of film handling
equipment and lenses for the theatre exhibition industry. The lighting
segment operations include the sale and rental of follow spotlights,
stationary searchlights and computer operated lighting systems for the motion
picture production, television, live entertainment, theme parks and
architectural industries. The restaurant segment includes the design,
manufacture, assembly and sale of pressure fryers, smoke ovens and
rotisseries and the sale of seasonings, marinades and barbecue sauces,
mesquite and hickory woods and point of purchase displays.
The Company allocates resources to business segments and evaluates the
performance of these segments based upon reported segment gross profit.
However, certain key operations of a particular segment are tracked on the
basis of operating profit. There are no significant intersegment sales. All
intersegment transfers are recorded at historical cost. Prior year amounts
have been presented to conform with the current year presentation.
8
Ballantyne of Omaha, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Three and Six Months Ended June 30, 1999
(Unaudited)
SUMMARY BY BUSINESS SEGMENTS
Three Months Ended Six Months Ended
June 30 June 30
------- -------
1999 1998 1999 1998
---- ---- ---- ----
Net revenue
Theatre $18,206,766 $13,534,837 $35,806,784 $28,531,919
Restaurant 735,127 577,323 1,249,055 1,109,163
Lighting 2,361,217 1,300,636 4,444,291 3,043,601
----------- ----------- ----------- -----------
Total $21,303,110 $15,412,796 $41,500,130 $32,684,683
Gross profit
Theatre $ 5,405,266 $ 4,202,371 $10,829,692 $ 8,753,077
Restaurant 159,885 144,327 269,779 303,054
Lighting 634,879 422,006 1,280,246 1,020,995
----------- ----------- ----------- -----------
Total 6,200,030 4,768,704 12,379,717 10,077,126
Corporate overhead (3,072,248) (2,548,183) (6,042,034) (4,981,091)
----------- ----------- ----------- -----------
Operating income 3,127,782 2,220,521 6,337,683 5,096,035
Net interest income (expense) (187,303) 4,935 (419,467) 73,915
----------- ----------- ----------- -----------
Income before income taxes $ 2,940,479 $ 2,225,456 $ 5,918,216 $ 5,169,950
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Identifiable assets
Theatre $52,102,950 $43,697,079 $52,102,950 $43,697,079
Restaurant 867,039 780,624 867,039 780,624
Lighting 7,581,310 6,580,448 7,581,310 6,580,448
----------- ----------- ----------- -----------
Total $60,551,299 $51,058,151 $60,551,299 $51,058,151
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Expenditures on capital equipment
Theatre $ 628,232 $ 231,761 $ 1,121,418 $ 528,559
Restaurant - - - -
Lighting 468,104 375,389 869,231 515,559
----------- ----------- ----------- -----------
Total $ 1,096,336 $ 607,150 $ 1,990,649 $ 1,044,118
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Depreciation and amortization
Theatre $ 389,314 $ 339,068 $ 787,005 $ 574,087
Restaurant - - - -
Lighting 263,398 100,482 529,563 186,123
----------- ----------- ----------- -----------
Total $ 652,712 $ 439,550 $ 1,316,568 $ 760,210
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
9
Ballantyne of Omaha, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Three and Six Months Ended June 30, 1999
(Unaudited)
SUMMARY BY GEOGRAPHICAL AREA:
Three Months Ended Six Months Ended
June 30 June 30
1999 1998 1999 1998
---- ---- ---- ----
Net revenue
United States $18,048,640 $11,450,364 $35,216,980 $25,051,151
Canada 637,381 939,118 1,735,797 2,303,866
Asia 767,462 1,182,617 1,679,970 1,900,388
Mexico 452,182 786,149 526,528 903,973
Europe 1,268,331 21,208 2,037,753 1,964,012
Other 129,114 1,033,340 303,102 561,293
----------- ----------- ----------- -----------
Total $21,303,110 $15,412,796 $41,500,130 $32,684,683
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Identifiable assets
United States $59,569,243 $50,260,410 $59,569,243 $50,260,410
Asia 982,056 797,741 982,056 797,741
----------- ----------- ----------- -----------
Total $60,551,299 $51,058,151 $60,551,299 $51,058,151
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Net revenues by business segment are to unaffiliated customers. Net sales by
geographical area are based on destination of sales. Identifiable assets by
geographical area are based on location of facilities.
6. Related Party Transaction
On June 24, 1999, the Company advanced $500,000 to the Chairman of the Board
of the Company under a term loan agreement. The unpaid balance on the loan
bears interest at 1% above the current rate on the Company's revolving credit
facility. The terms of the loan have been amended eliminating the provisions
granting the Company a security interest and the right to apply payments from
the borrower's consulting agreement. In conjunction with the agreement, the
Chairman has entered into an agreement with ARC International Corporation
("ARC") to loan the proceeds from this note to ARC under similar terms.
7. Notes Payable to Bank
On August 10, 1999, the Company's revolving credit facility was amended to
extend the maturity date to May 31, 2001. As such the unpaid balance of the
facility is included in long term liabilities on the balance sheet at June 30,
1999.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
consolidated financial statements and notes thereto appearing elsewhere in
this 10-Q. Management's Discussion and Analysis contains forward-looking
statements that involve risks and uncertainties, including but not limited
to, quarterly fluctuations in results; customer demand for the Company's
products; the development of new technology for alternate means of motion
picture presentation; failure of the Company's computer systems or that of
any of its suppliers, and/or products manufactured and sold by the Company,
resulting from the year 2000 problem; domestic and international economic
conditions; the management of growth; and, other risks detailed from time to
time in the Company's other Securities and Exchange Commission filings.
Actual results may differ materially from management expectations.
THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THE THREE MONTHS ENDED JUNE 30,
1998
Net revenues for the three months ended June 30, 1999 (the "1999 Period")
increased $5.9 million or 38.2% to $21.3 million from $15.4 million for the
three months ended June 30, 1998 (the "1998 Period"). The following table
shows comparative net revenues of theatre, lighting and restaurant products
for the respective periods:
Three Months Ended June 30,
----------------------------
1999 1998
---- ----
Theatre $18,206,766 $13,534,837
Lighting 2,361,217 1,300,636
Restaurant 735,127 577,323
----------- -----------
Total net revenues $21,303,110 $15,412,796
----------- -----------
----------- -----------
The increase in total net revenues primarily reflects higher sales of theatre
products. The increase in theatre products relates to higher sales of
commercial motion picture projection equipment ("projection equipment"),
which rose $4.4 million or 41.6% from $10.5 million in the 1998 Period to
$14.9 million in the 1999 Period. This reflects increased sales of projection
equipment to domestic customers as motion picture exhibitors continue to
build new multi-screen theatre complexes. Replacement part sales for the
theatre segment were also higher in the 1999 Period increasing $0.4 million
from the 1998 Period. Sales of ISCO-Optic lenses were lower in the 1999
Period decreasing $0.2 million to $1.3 million in the 1999 Period from
$1.5 million in the 1998 Period. Sales of ISCO-Optic lenses and replacement
parts fluctuate from quarter to quarter and are not directly related to the
volume of projection equipment sold, but are more a reflection of the needs
of current customers which have projection systems previously purchased from
the Company.
Lighting segment revenue also contributed to the increase in total net
revenues, contributing $2.4 million in sales and rentals, an increase of
$1.1 million over the $1.3 million contributed in the 1998 Period. The
increase was mainly due to higher sales and rentals of the Sky-Tracker
product line and to the contribution of the Company's AV rental and sales
division in Florida which did not start operations until May of 1998.
Restaurant sales rose $.16 million to $.74 million compared to $.58 million a
year ago.
11
Overall, consolidated net revenues from domestic customers increased
$6.5 million to $18.0 million in the 1999 Period from $11.5 million in the
1998 Period. Net revenues from foreign customers decreased $.7 million or
18.0% to $3.3 million from $4.0 million in the 1998 Period. This decrease was
attributable to lower sales in Asia, Canada and Mexico compared to the prior
year.
Gross profit increased $1.4 million in the 1999 Period to $6.2 million, but
as a percent of revenue decreased to 29.1% from 30.9% in the 1998 Period.
Theatre segment gross profit as a percentage of net revenues decreased to
29.7% from 31.1% in the 1998 Period due to certain pricing concessions with a
major customer and due to a product mix that included more lower margin items
such as consoles. Gross margin as a percentage of net revenues in the
lighting segment decreased from 32.5% in the 1998 Period to 26.9% in the 1999
Period. This decline was due to lower rental revenues as a percentage of
total revenues and lower rental revenues compared to the 1998 Period. Rental
revenue generally carries a higher margin than product sales. Restaurant
margins as a percentage of sales declined from 25.0% to 21.7% in the 1999
Period due to a different product mix compared to prior year.
Operating expenses in the 1999 Period increased approximately $.5 million or
20.6% from the 1998 Period. As a percentage of net revenues, such expenses
decreased to 14.4% for the 1999 Period from 16.5% for the 1998 Period. The
decrease mainly related to sales during the 1998 Period being below those
originally forecasted. Had the sales been higher, the percentage would be
similar to the 1999 Period, as these sales would have occurred without
additional operating expenses.
Net interest expense was $187,303 in the 1999 Period compared to net interest
income of $4,935 in the 1998 Period. The change from the prior year reflects
lower cash on hand and higher interest expense due to borrowings on the
Company's line of credit with Norwest Bank. These borrowings were
necessitated due to the repurchase of 1.8 million shares of common stock
during the third and fourth quarters of 1998.
The Company's effective tax rate for the 1999 Period was 38.0% compared to
35.9% in the 1998 Period. The increase reflects higher state taxes related to
the Company having operations in more states than the prior year. The
difference between the Company's effective tax rate and the Federal statutory
rate of 34% reflects the non-deductibility of certain intangible assets,
principally goodwill and the impact of state income taxes.
For the reasons outlined above, net income increased $.4 million or 27.9% to
$1.8 million in the 1999 Period from $1.4 million in the 1998 Period. Net
income per share - basic and diluted was $0.14 per share, respectively for
the 1999 Period while net income per share - basic for the 1998 period was
$0.10 and net income per share - diluted was $0.09 per share for the same
period.
12
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1998
Net revenues for the six months ended June 30, 1999 (the "1999 Period")
increased $8.8 million or 27.0% to $41.5 million from $32.7 million for the
six months ended June 30, 1998 (the "1998 Period"). The following table shows
comparative net revenues of theatre, lighting and restaurant products for the
respective periods:
Six Months Ended June 30,
---------------------------
1999 1998
---- ----
Theatre $35,806,784 $28,531,919
Lighting 4,444,291 3,043,601
Restaurant 1,249,055 1,109,163
----------- -----------
Total net revenues $41,500,130 $32,684,683
----------- -----------
----------- -----------
The increase in total net revenues primarily reflects higher sales of theatre
products. The increase in theatre products relate to higher sales of
commercial motion picture projection equipment ("projection equipment"),
which rose $6.7 million or 30.0% from $22.3 million in the 1998 Period to
$29.0 million in the 1999 Period. This reflects increased sales of projection
equipment to domestic customers as motion picture exhibitors continue to
build new multi-screen theatre complexes. Also contributing to the increase
in theatre products were higher sales of replacement parts and ISCO-Optic
lenses. Replacement parts sales increased $.3 million from the prior period
while sales of ISCO-Optic lenses rose $.2 million from the same period a year
ago. ISCO-Optic is a trademark of ISCO-Optic GmbH. Sales of ISCO-Optic lenses
and replacement parts fluctuate from quarter to quarter and are not directly
related to the volume of projection equipment sold, but are more a reflection
of the needs of current customers which have projection systems previously
purchased from the Company.
Lighting segment revenue also contributed to the increase in total net
revenues, contributing $4.4 million in sales and rentals, an increase of
$1.4 million over the 1998 Period. The increase was mainly due to higher
sales and rentals of the Sky-Tracker product line and to the new AV operating
division in Florida which contributed $1.2 million in sales and rentals
during the 1999 Period.
Restaurant sales rose $.2 million to $1.3 million from $1.1 million in the
1998 period.
Overall, consolidated net revenues from domestic customers increased
$10.1 million to $35.2 million in the 1999 Period from $25.1 million in the
1998 Period. Net revenues from foreign customers decreased $1.3 million or
17.7% to $6.3 million from $7.6 million in the 1998 Period. This decrease was
attributable to decreased sales in Asia, Canada and Mexico.
Gross profit decreased to 29.8% as a percentage of net revenues from 30.8% in
the 1998 Period. Theatre segment gross profit as a percentage of net revenues
decreased from 30.7% in the 1998 Period to 30.2% in the 1999 Period due to
certain pricing concessions with a major customer and due to more lower
margin console sales during the 1999 period. Lighting segment gross margins
as a percentage of net revenue also declined from 33.5% in the 1998 Period to
28.8% in the 1999 Period. This decrease was mainly due to lower rental
revenue as a percentage of net revenues compared to the prior year.
Restaurant margins decreased to 21.6% in the 1999 Period from 27.3% in the
1998 Period due to a change in the product mix from the prior period.
13
Operating expenses in the 1999 Period increased approximately $1.1 million
from the 1998 Period. As a percentage of net revenues, such expenses
decreased to 14.6% compared to 15.2% a year ago. The decrease was mainly
attributed to the second quarter of 1998, where sales were lower than
forecasted levels. As such, the sales did not cover certain fixed overhead
costs. If the sales had been closer to the 1999 levels, operating expenses as
a percentage of revenues would have been more comparable.
Net interest expense was $419,467 for the 1999 Period compared to net
interest income of $73,915 in the 1998 Period. The change from the prior year
reflects lower cash on hand and higher interest expense due to borrowings on
the Company's line of credit with Norwest Bank. These borrowings were
primarily due to the repurchase of 1.8 million shares of common stock during
the third and fourth quarters of 1998.
The Company's effective tax rate for the 1999 Period was 38.2% compared to
35.6% in the 1998 Period. The increase reflects higher state taxes related to
the Company having operations in more states. The difference between the
Company's effective tax rate and the Federal statutory rate of 34% reflects
the non-deductibility of certain intangible assets, principally goodwill and
the impact of state income taxes.
For the reasons outlined above, net income increased $.3 million or 10.0% to
$3.6 million in the 1999 Period from $3.3 million in the 1998 Period. Net
income per share - basic was $0.29 per share and $.23 per share for the six
months ended June 30, 1999 and 1998, respectively while net income per share -
diluted was $.28 per share and $.22 per share for the six months ended June 30,
1999 and 1998, respectively.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1999, the Company maintained a $20 million line of credit with
Norwest Bank Nebraska, N.A. (the "Norwest Facility"). At June 30, 1999,
$7.3 million of the Norwest Facility was unused. Borrowings outstanding under
the Norwest Facility bear interest, payable monthly, at a rate equal to the
Prime Rate less 0.5% (7.0% at June 30, 1999). All of the Company's assets
secure the Norwest Facility. The Company was in compliance with all
restrictive covenants at June 30, 1999 and 1998.
Historically the Company has funded its working capital requirements through
cash flow generated by its operations. Net cash provided by operating
activities ("operating cash flow") was $2.6 million for the six months ended
June 30, 1999 compared to cash used in operating activities of $3.3 million
for the same period a year ago. The increase in operating cash flow was due
to the timing of payments to vendors compared to 1998, a $.37 million
decrease in accounts receivable and due to net income before depreciation and
amortization being higher than the prior year by $.56 million.
The Company anticipates that internally generated funds and borrowings
available under the Norwest Facility will be sufficient to meet its working
capital needs, planned 1999 capital expenditures and to pursue opportunities
to expand its markets and businesses.
Net cash used in investing activities was $2.0 million and $4.9 million for
the six months ended June 30, 1999 and 1998, respectively. Investing
activities in the 1999 Period reflect capital expenditures while investing
activities in the 1998 Period reflect the acquisition of Sky-Tracker of
Florida, Inc. and Design and Manufacturing Ltd. along with capital
expenditures of $1.0 million.
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Net cash used in financing activities was $.5 million for the 1999 Period
compared to net cash provided by financing activities of $.9 million in the
1998 Period. The reason for the change from period to period primarily
reflects the purchase of common stock for treasury for $1.1 million in the
1998 Period, and due to less borrowings on the Company's line of credit.
The Company does not engage in any hedging activities, including currency
hedging activities, in connection with its foreign operations and sales. To
date, all of the Company's international sales have been denominated in
U.S. Dollars, exclusive of Strong Westrex, Inc. sales, which are denominated in
Hong Kong dollars.
SEASONALITY
Generally, the Company's business exhibits a moderate level of seasonality as
sales of theatre products typically increase during the third and fourth
quarters. The Company believes that such increased sales reflect seasonal
increases in the construction of new motion picture screens in anticipation
of the Christmas movie season.
INFLATION
The Company believes that the relatively moderate rates of inflation in
recent years have not had a significant impact on its net revenues or
profitability. Historically, the Company has been able to offset any
inflationary effects by either increasing prices or improving cost
efficiencies.
YEAR 2000
The Company has developed a plan to deal with the year 2000 problem in
connection with its systems and began converting its systems to be year 2000
compliant. The plan provides for the conversions to be completed and tested
before the 1999 year-end. The year 2000 problem, frequently referred to as
the "millennium bug", results from the fact that computer programs in the
past have been written using only two digits to identify a year, rather than
four digits. Because of this, the computer would not recognize years
commencing with the digits "20", instead of "19", and could produce erroneous
calculations resulting in interruptions and crashes in business operating
systems. The Company's information technology systems contain inventory and
accounting systems, electronic data interchange, and mechanical systems
affecting machinery and equipment.
There are four phases involved in assessing the year 2000 problem described
by the Company as follows:
AWARENESS Identify all data-impacted systems and products; contact product
vendors concerning compliance status and plans.
ASSESSMENT Identify compliance status of all data-impacted systems and
equipment; prioritize systems and equipment based on business risk; estimate
cost and feasibility of repairing and replacing each non-compliant system and
product and finally, establish a testing approach.
IMPLEMENTATION Repair or replace each non-compliant system and product; build
contingency plans.
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TESTING Test the Company's systems and products to gain assurance that the
year 2000 problem is fixed.
The information technology systems are currently in the implementation phase.
The Company expects the implementation and testing phase to be completed by
the end of the third quarter. Year 2000 issues relating to third parties
relate to the automated equipment which the Company sells its customers.
While the Company is currently assessing the impact to these products, it
believes that the equipment already complies with the year 2000 requirements.
The Company has currently incurred an inconsequential amount of costs
relating to the year 2000 problem and believes that the overall costs will be
inconsequential. The Company could incur substantial liabilities and
potential losses if the Company's conversion efforts or the conversion
efforts of any of its suppliers do not adequately solve all potential
problems, or if the automation products which the Company sells do not
operate satisfactorily because of the "millennium bug." This represents the
Company's most reasonable worst case, year 2000 scenario.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards for derivatives and hedging. It requires that all
derivatives be recognized as either assets or liabilities at fair value and
establishes specific criteria for the use of hedging accounting. The
Company's required adoption date is January 1, 2001. SFAS No. 133 is not to
be applied retroactively to financial statements of prior periods and as of
June 30, 1999, the Company had no derivatives or hedging activities.
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PART II. OTHER INFORMATION
ITEM 14. SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS.
The Company's regular Annual Meeting of Stockholders was held on
May 18, 1999 for the purpose of electing two nominees as directors and
approving an amendment to the Company's 1995 Stock Option Plan. The Amendment
to the 1995 Stock Option Plan fixed the maximum number of shares at 200,000
for which options can be granted to any participant in any calendar year.
With respect to the election of directors, both were re-elected. The
following table summarizes the results of the voting with respect to the
amendment to the 1995 Stock Option plan:
For 10,531,615
Against 782,121
Abstain 37,840
Broker Non-Vote -
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ITEM 16. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
4.5 Fourth Amendment to Loan Agreement dated August 29, 1997
10.18 Amendment to the Company's 1995 Stock Option Plan
10.4.1 Term promissory note between the Company and Arnold S. Tenney
dated June 24, 1999
11 Computation of net income per share
27 Financial Data Schedule (for SEC information only)
(b) Reports on Form 8-K filed for the three months ended June 30, 1999
No reports on Form 8-K were filed during the three months ended June 30,
1999.
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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 11, 1999 Date: August 11, 1999
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