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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [Fee Required]
For the fiscal year ended December 31, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [No Fee Required]
For the transition period from to
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Commission File No. 1-13906
BALLANTYNE OF OMAHA, INC.
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(Exact name of Registrant as specified in its charter)
DELAWARE 47-0587703
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(State of incorporation) (I.R.S. Employer Identification No.)
4350 MCKINLEY STREET, OMAHA, NEBRASKA 68112
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(Address of principal executive offices)
Registrant's telephone number, including area code: (402) 453-4444
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Securities registered pursuant
to Section 12(b) of the Act: COMMON STOCK, $0.01 PAR VALUE
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Securities registered pursuant
to Section 12(g) of the Act: NONE
----------------------------------------
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
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
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As of March 14, 1997, 8,569,785 shares of Common Stock of Ballantyne of
Omaha, Inc., were outstanding and the aggregate market value of such Common
Stock held by nonaffiliates (based upon the closing price of the stock on the
American Stock Exchange) was approximately $61,526,525.
DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement for Annual Meeting of Stockholders to be held June 10, 1997 -
Part III.
PART I
ITEM 1. BUSINESS
GENERAL
Ballantyne of Omaha, Inc. (the "Company") manufactures capital equipment
for the theatre and restaurant industries. The Company's product lines are
distributed on a worldwide basis principally through a domestic and
international dealer network.
The Company's theatre product line consists of commercial motion picture
projection equipment and long-range follow spotlights. The Company is a leading
manufacturer of commercial motion picture projection equipment. The Company's
broad range of commercial motion picture projection equipment is capable of
fully outfitting and automating a motion picture projection booth. The
Company's commercial motion picture projection equipment is currently used by
major movie exhibition companies such as AMC Entertainment, Cineplex Odeon and
Regal Cinemas. The Company also manufactures, assembles and distributes
customized commercial motion picture projection equipment for use in special
venues, such as motion simulation rides, large screen format presentations and
other forms of entertainment which employ visual special effects. Special venue
customers currently using the Company's customized equipment include The Walt
Disney Company, Imax Corporation and Iwerks Entertainment, Inc. for use at
special venue sites such as the Magic Kingdom, EPCOT Center, IMAX theatres,
Universal Studios and Busch Gardens.
The Company's long-range follow spotlights are high-intensity general
illumination products designed for both permanent installations and touring
applications. The Company's long-range follow spotlights are used in, among
other venues, the Toronto SkyDome, the United Center in Chicago, the Hoosier
Dome, the Continental Air Arena in the New Jersey Meadowlands and the Sheffield
Arena in the United Kingdom. The Company's long-range follow spotlights have
also been employed at special venue events such as the 1996 Summer Olympics in
Atlanta, Georgia and world tours by the Rolling Stones, R.E.M. and Pink Floyd.
The Company's restaurant product line consists of commercial foodservice
equipment, principally pressure fryers, barbecue/slow roasting cooking ovens and
its recently introduced rotisserie ovens. This equipment is complemented by
related items, such as seasonings and marinades, paper serving products and
point of purchase displays, thereby offering customers a complete food
preparation, serving and merchandising program. The Company's restaurant
product line is sold primarily through its dealer network to independent
convenience store/fast food restaurant operators. The Company also sells its
pressure fryers to equipment suppliers directly, on a private label basis, for
resale to major chains such as Pathmark, Winn Dixie and Wal-Mart for use in
their delicatessens and sit-down eateries.
The Company believes that it has a competitive edge as a result of its
ability to meet each individual customer's needs (whether for individual
components or complete systems) by offering a wide variety of products (often
designed to customer specifications) that are high quality, reliable and
innovative, and complemented by value-added services related thereto.
-2-
RECENT CORPORATE DEVELOPMENTS
On January 29, 1997, the Board of Directors declared a 3-for-2 split of its
Common Stock. The stock split was in the form of a 50% Common Stock dividend
payable March 5, 1997 to shareholders of record on February 10, 1997.
On August 1, 1996, the Company completed an offering of its shares of
capital stock pursuant to a Registration Statement on Form S-1 ("the Offering").
Pursuant to the Offering , the Company sold 1,100,000 shares of Common Stock to
the public at the price of $12.125 per share. In addition, the Company granted
the Underwriters an option, exercisable until August 31, 1996 to purchase an
aggregate of up to 165,000 additional shares of Common Stock at $12.125 price
per share less underwriting discounts and commissions, to cover over-allotments,
if any. The underwriters purchased all 165,000 shares on August 16, 1996. The
net proceeds to the Company from the Offering were $13,650,787.
On January 23, 1996, the Board of Directors declared a 10% stock
distribution, payable March 8, 1996, to stockholders of record on February 9,
1996.
On September 6, 1995, the Company completed an initial public offering of
shares of its Common Stock. Pursuant to the public offering, 1,380,000 shares
of Common Stock were sold. The stock was sold by Canrad of Delaware Inc.
Canrad of Delaware Inc. is a wholly owned subsidiary of Canrad Inc., a Delaware
corporation, which in turn is a wholly owned subsidiary of ARC U.S.A.
Corporation, a Delaware corporation. ARC U.S.A. Corporation is a wholly owned
subsidiary of ARC International, a corporation headquartered in Toronto, Canada
and listed on the American Stock Exchange. The Common Stock of the Company is
also traded on the American Stock Exchange.
HISTORY
The Company's business was founded in 1932. From that time, the Company
has manufactured and supplied equipment and services to the commercial motion
picture projection industry. The origins of the Company's long-range follow
spotlight products began when Strong Electric Corporation of Toledo, Ohio
("Strong") introduced its first lamphouse. From that time, Strong has been a
leading developer of state-of-the-art lamphouses for commercial motion picture
projectors and long-range follow spotlights.
In 1976, Strong and the Company's other operations were acquired by Canrad
Inc. as a means of vertically integrating Canrad Inc.'s other product lines
which included the manufacture and sale of xenon short arc bulbs as the light
source for commercial motion picture projection equipment and long-range follow
spotlights. As a result of these acquisitions, Canrad Inc. was able to offer a
complete commercial motion picture projection system. In order to further
realize manufacturing efficiencies from related technologies and markets, the
operations of Strong were integrated into the Company at the end of 1983. In
addition, during 1983, the Company acquired the assets of the Simplex Projector
Division of the National Screen Services Corporation, thereby expanding its
commercial motion picture projection equipment business.
-3-
The Company further expanded its motion picture projection business with
the 1993 acquisition of the business of the Cinema Products Division of Optical
Radiation Corporation ("ORC"). This division designs, manufactures and sells
commercial motion picture projection equipment on a worldwide basis and
distributes ISCO-Optic lenses to the theatre and audio visual industries in
North America.
In December 1994, the Company increased its presence in the international
marketplace with the acquisition of the business of Westrex Company Asia from
Litton Systems, Inc. ("Westrex"). The Westrex acquisition provides the Company
with a strategic location in the Far East and further access to the expanding
economies of the Pacific Rim. The export market is becoming increasingly more
significant to the Company's business. Net export sales have grown to
approximately $11,304,800 or 22% of total net sales for the year ended December
31, 1996 as compared to approximately $6,150,800 or 21% of total net sales for
the year ended December 31, 1994. Such net sales do not include sales of
products to domestic dealers of both theatre and restaurant equipment and
theatre chains which are ultimately exported.
The Company's restaurant product line was initiated in the 1960s with the
development of a pressure fryer for use in snack stands of drive-in theatres.
The use of pressure fryers grew thereafter with the advent of fast food
restaurants, convenience food stores and the expansion of precooked product
offerings by delicatessens and sit-down eateries of chains such as Pathmark,
Winn Dixie and Wal-Mart. The Company's commercial foodservice equipment product
line has expanded to include a barbecue smoker/slow cooking oven and a
rotisserie oven. This equipment is complemented by related items such as
seasonings and marinades, paper serving products and point of purchase displays.
BUSINESS STRATEGY
The Company's business strategy is to continue its historical focus on (i)
manufacturing capital equipment for the theatre and restaurant industries by
maintaining and expanding the markets for existing product lines and
diversifying into complementary new markets; and (ii) maintaining or achieving a
leading or significant market presence in the principal industries in which it
competes. Key elements of the Company's strategy include:
- CUSTOMER RELATIONS. The Company develops and maintains strong
customer relationships by offering a wide variety of standardized,
commercial equipment; working closely with its customers to fully
understand their needs; and furnishing value-added services such as
(i) design and engineering expertise to develop products (often
designed to customer specifications) that are high-quality, reliable
and innovative; (ii) prompt delivery; and (iii) after-sale technical
support.
- EXPANDING INTERNATIONAL PRESENCE. The importance of the export market
to the Company's product lines is significant. Net export sales as a
percentage of total sales increased from 21% in 1994 to 22% in 1996.
The Company's sales force travels extensively worldwide in the
marketing of the Company's products. The acquisition of the business
of Westrex is expected to further expand the Company's international
-4-
presence by providing the Company with a strategic location in the Far
East and further access to the many expanding economies of the Pacific
Rim. The Company also provides strategic support services to its
domestic distributors planning to export the Company's products to
markets located outside of the United States.
- ACQUISITION GROWTH. The Company has recently expanded its commercial
motion picture projection equipment operations through the Cinema
Products Division of ORC and Westrex acquisitions. The Company will
continue to seek to expand all of its operations through acquisitions
of complementary or related niche market products. These acquisitions
will potentially enable the Company to further capitalize upon its
distribution channels, low cost manufacturing capabilities and
experience and expertise in the theatre and restaurant industries.
Given the highly fragmented nature of the entertainment lighting and
restaurant industry sectors in which the Company operates, future
acquisitions may primarily involve these industry sectors.
- CONTROL OF COSTS. The Company has historically controlled the cost of
manufacturing and selling its products by increasing throughput and
updating component designs with the goal of reducing assembly time
without affecting product quality. In addition, selling, general and
administrative expenses as a percentage of net sales have decreased
from 15.5% in 1994 to 13.6% in 1996. Through ongoing efforts to
reduce labor costs, rationalize manufacturing and assembly processes
and take advantage of certain efficiencies which occur as throughput
increases, the Company will seek to continue to be a low cost
producer.
- REPLACEMENT PARTS. The Company benefits from its substantial
installed base of commercial motion picture projection equipment and
to a lesser extent from its installed base of long-range follow
spotlights and specialty restaurant equipment. Many of the Company's
products require periodic replacement of components under routine
maintenance procedures. Net sales of replacement parts by the Company
increased from approximately $4,717,000 in 1994 to approximately
$6,132,000 in 1996.
-5-
INDUSTRY
THEATRE PRODUCTS LINE
The motion picture theatre industry celebrated its 100th anniversary in
1995. Management believes that the emergence of new forms of delivery systems,
such as home video and network, syndicated and pay television, have not
adversely affected attendance at motion picture theatres because the public
continues to recognize the advantages of viewing a movie on a large screen with
superior audio-visual quality. Moreover, increases in motion picture ticket
prices have historically been below the annual increases in the overall cost of
living and the movie going experience continues to remain an inexpensive form of
entertainment relative to other out-of-home entertainment options. Management
believes such continued viewing preference will account for a proliferation of
new screens. The motion picture theatre industry has also recently introduced
innovative techniques designed to enhance the movie going experience, an
experience which cannot be duplicated at home. Many large single screen
theatres have been replaced by multiplex theatres providing a wide range of film
choices and have renovated their lobby and concession areas into restaurants and
coffee bars in order to provide for all of a customer's evening entertainment
needs. Multiplexes are also introducing forms of motion picture based
entertainment not available on other forms of delivery systems such as 3-D and
360 degree films on large screens and motion simulation rides, which require new
forms of commercial motion picture projection equipment manufactured by the
Company and others. Management believes that there is a strong direct
correlation between the motion picture theatre industry growth and the Company's
net sales of commercial motion picture projection equipment. In order for a
motion picture theatre operator to exhibit a motion picture, either the
Company's or a competitor's commercial motion picture projection equipment must
be used.
According to data published by the National Association of Theatre Owners
("NATO"), the domestic theatre exhibition industry is comprised of approximately
400 exhibitors and approximately 29,000 screens. Since 1986, there has been a
consolidation within the industry. Currently, the top ten theatre chains
account for approximately 50% of the market and the top fifty chains account for
approximately 80% of the market. These chains have expanded through the
multiplexing concept and the refurbishing of existing theatres. Such expansion
is expected to continue as regional theatre chains evolve into nationwide
chains.
The domestic theatre industry continues to be the primary initial
distribution channel for new motion picture releases. Management believes that
production of domestic feature films will continue to increase as a result of
increasing demand for film product. Increasing demand is evidenced by the
growth of the theatre exhibition industry outside of the United States and
Canada. Since NATO began tracking motion picture revenues, 1994 marked the
first time that the majority of theatrical revenues came from the export of
American film products. Expanding economies in Latin America, Eastern Europe
and parts of Asia will mean that more people in these areas will have both the
leisure time and resources to spend on entertainment.
The increased demand for film product is currently being met by an increase
in production of feature films by the major studios. Moreover, management
believes the emergence of stronger
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and better capitalized independent producers and distributors should strengthen
the film production industry. Management believes that an increased supply of
feature films should positively affect the need for additional screens and
commercial motion picture projection equipment.
Management believes the entertainment lighting industry is highly
fragmented and includes all forms of illumination from large wattage follow
spotlights to smaller wattage fixed studio lights. The Company has concentrated
on the long-range follow spotlight industry. The Company anticipates modest
growth in the long-range follow spotlight market through the turn of the
century. This is due to the growth of the large venue entertainment and sports
industries in Asia, Africa, South America and the Middle East, as well as
continued growth of such venues in Europe. New venues such as the Manchester
Arena in the United Kingdom and anticipated projects in China, India, Egypt and
Malaysia will all require long-range follow spotlights. Additionally, the
rapidly changing demands of the entertainment lighting industry will force
long-range follow spotlight users to replace existing equipment as newer,
technologically advanced equipment becomes available.
RESTAURANT PRODUCTS LINE
The broad variety of foodservice equipment lends itself to specialization
and one-product shops resulting in a commercial foodservice equipment industry
that is highly fragmented. Management believes the highly fragmented nature of
this industry provides excellent acquisition opportunities for the Company. The
Company will seek acquisition opportunities that broaden its commercial
foodservice equipment products line in order to strengthen its competitive
position and enable it to enter new markets domestically and abroad.
Management believes construction of new food establishments has been fueled
in large part by the increasing introduction of new food concepts such as
rotisserie chicken. Additionally, the market for the Company's commercial
foodservice equipment has expanded through an increase in the number of foreign
restaurants. The Company is currently seeking to capitalize on these trends
through its Westrex acquisition, which provides the Company with a strategic
location in the Far East and the expanding economies of the Pacific Rim, and the
introduction of its rotisserie oven.
Foodservice establishment expansion is being undertaken by, among others,
many supermarkets which are seeking to draw sales away from fast food
restaurants and convenience stores by expanding their delicatessen sections to
offer a selection of prepared foods cooked on-site. Although there can be no
assurance, management believes the potential exists for increased net sales of
its pressure fryers to this market.
Management believes the potential for growth in the Company's net sales
also exists in the renovation and refitting of foodservice establishment
kitchens that is on the increase as these establishments attempt to accommodate
new commercial foodservice equipment that is more automatic, more efficient, and
smaller. Such renovations reduce the need for the establishments to hire more
cooks or expand their kitchens in order to prepare a wider variety of meals.
The Company's commercial foodservice equipment fit these criteria.
-7-
The expected lives of pressure fryers and other highly used commercial
foodservice equipment is approximately seven years. The Company derives the
majority of its commercial foodservice equipment net sales from sales of
replacement equipment and parts thereof to independent convenience store/fast
food restaurant operators.
MANUFACTURING PROCESS
The manufacturing operations of the Company for both product lines, which
are conducted in Omaha, Nebraska, consist of machining, fabricating, assembly,
and packaging and shipping. Omaha's central location has served to reduce the
Company's transportation costs and delivery times of products to the East and
West Coasts of the United States. The Company's manufacturing strategy is to
increase cost efficiencies by operating its manufacturing facility at maximum
capacity, employing flexible assembly processes that allow the Company to
customize certain of its products, reducing labor costs through the increased
use of computerized numerical control machines for the machining of products and
using outside contractors as necessary to meet increased customer demand.
The Company's machining operations generally run one 12-hour shift seven
days a week and one 8-hour shift five days a week. The Company's fabrication
and assembly operations generally run five days a week with one 9-hour shift
each of those days.
The principal raw materials and components used in the Company's
manufacturing processes include aluminum, solid state electronic sub-assemblies
and sheet metal. The Company utilizes a single contract manufacturer for each
of its film platters and intermittent movement components for its commercial
motion picture projection equipment and aluminum kettles for its pressure
fryers. Although the Company has not to date experienced any significant
difficulty in obtaining these components, no assurance can be given that
shortages will not arise in the future. The loss of any one or more of such
contract manufacturers could have a short-term adverse effect on the Company
until alternative manufacturing arrangements were secured. The Company is not
dependent upon any one contract manufacturer or supplier for the balance of its
raw materials and components. The Company believes that there are adequate
alternative sources of such raw materials and components of sufficient quantity
and quality.
PRODUCTS AND MARKETING
THEATRE PRODUCTS LINE
The Company is a leading manufacturer of commercial motion picture
projection equipment. The Company's commercial motion picture projection
equipment is used by major movie exhibition companies such as AMC Entertainment,
Cineplex Odeon and Regal Cinemas.
-8-
MOTION PICTURE PROJECTION EQUIPMENT
The Company's commercial motion picture projection equipment consists of
35mm and 70mm motion picture projectors, combination 35/70mm projectors, xenon
lamphouses and power supplies, a console system combining a lamphouse and power
supply into a single cabinet, soundhead reproducers, and related products such
as film handling equipment and sound systems. The Company's commercial motion
picture projection equipment is marketed under the industry-wide recognized
trademarks of Strong-TM-, Simplex-TM-, Century-Registered Trademark-,
Optimax-Registered Trademark- and Ballantyne-TM-. The Company's commercial
motion picture projection equipment may be sold with other components of the
Company as an integrated system or individually. The Company's commercial
motion picture projection equipment is capable of fully outfitting and
automating a motion picture projection booth.
The Company's lamphouse consoles are unique to the industry in that they
incorporate a single solid state power supply which allows for a broader range
of wattages, thereby reducing operating costs as compared to inefficient copper
and iron power transformers. The Company's lamphouse consoles incorporate all
elements required for quality film presentations while requiring minimum booth
floor space.
The Company's film handling equipment consists of either a three- or
five-deck platter and a make-up table which allows the reels of a full-length
motion picture to be spliced together, thereby eliminating operator reel
changing during the showing of the motion picture and the re-winding of film
reels subsequent to showing.
The Company, pursuant to a distribution agreement with IscoOptic GmbH of
Germany, has the exclusive right to distribute ISCO-Optic lenses in North
America. Under the distribution agreement, the Company's exclusive right
continues, subject to the attainment of minimum sales quotas, through 2002 and
thereafter is automatically renewed for successive two-year periods until
terminated by either party upon 12 months' prior notice. ISCO-Optic lenses have
developed a reputation for delivering high image quality and resolution over the
entire motion picture screen. The Company distributes ISCO-Optic lenses to
customers with operations in the theatre and audio visual industries.
ISCO-Optic lenses have won two Academy Awards for technical achievement.
The Company does not manufacture sound processors, but rather integrates
sound processors manufactured by others, such as Dolby and Ultrastereo, into its
projection consoles. In addition, the Company distributes the DSS Cinema Sound
Processor (the "DSS System"), which is designed to be a low-cost, full-featured
backup system for digital sound processors. The DSS System operates with all
digital sound processors, thereby providing an analog default backup. The
Company believes that the DSS System provides more features at a lower cost than
competitive models.
REPLACEMENT PARTS
The Company has a significant number of motion picture projectors installed
worldwide. Although these projectors have an average useful life in excess of
20 years, periodic replacement of components contained therein is required as a
matter of routine maintenance. The Company believes that continued growth in
the motion picture theatre industry should result in increased net sales of
-9-
replacement parts for the Company. Net sales of replacement parts were
approximately $6,132,000, $4,879,000 and $4,717,000 for the years ended December
31, 1996, 1995 and 1994 respectively.
RECENT MOTION PICTURE PRODUCT DEVELOPMENTS
The Company is becoming increasingly involved in the development of
projection equipment for incorporation into special venue market products such
as virtual reality motion simulation rides. The Company has sold customized
commercial motion picture projection equipment directly to special venue
customers such as The Walt Disney Company, Imax Corporation and Iwerks
Entertainment, Inc. for use at special venue sites such as the Magic Kingdom,
EPCOT Center, IMAX Theatres, Universal Studios and Busch Gardens. The Company
is working in conjunction with several of its customers to further develop
special venue projection equipment. Another area of recent product development
for the Company is the continuous loop projection system. This system uses a
projector, power supply, loop platter, a mirror and a rear projection screen to
project images. The system is designed to take advantage of normally unused
space within a theatre lobby and projection room. The system projects feature
film, theatre policy and concession trailers onto a screen facing prominently
towards the lobby area. The system is a low-cost, low maintenance alternative
to video systems and provides the theatre owner an opportunity to provide
previews of coming attractions and to advertise items available from the
concession stand for patrons as they wait to enter the theatre.
SPOTLIGHTS
The Company's long-range follow spotlights are high-intensity general use
illumination products designed for both permanent installations and touring
applications. The Company's long-range follow spotlights consist of eight basic
models ranging in output from 400 watts to 3,000 watts. The Company's 400 watt
spotlight model, which has a range of 20 to 150 feet, is compact, portable and
appropriate for small venues and truss mounting. The Company's 3,000 watt
spotlight model, which has a range of 300 to 600 feet, is a high-intensity xenon
light spotlight appropriate for large theatres, arenas and stadiums. All of the
Company's long-range follow spotlights employ a variable focal length lens
system which increases the intensity of the beam of light as it is narrowed from
flood to spot. The Company's long-range follow spotlights are marketed under
the Strong-TM- trademark.
The Company sells its long-range follow spotlights through dealers to
equipment rental companies, arenas, stadiums, theme parks, theatres and
auditoriums. The Company's spotlight products are used in, among other venues,
the Toronto SkyDome, the United Center in Chicago, the Hoosier Dome, the
Continental Air Arena in the New Jersey Meadowlands and the Sheffield Arena in
the United Kingdom. The Company's long-range follow spotlights have been
employed at special venue events such as the 1996 Summer Olympics in Atlanta,
Georgia and world tours by the Rolling Stones, R.E.M. and Pink Floyd.
-10-
RESTAURANT PRODUCTS LINE
The Company's restaurant product line consists of commercial foodservice
equipment, principally pressure fryers, barbecue/slow roast ovens and rotisserie
ovens. The Company's rotisserie oven is a new product which was introduced in
December 1994. This equipment is complemented by related items such as
seasonings and marinades, paper serving products and point of purchase displays.
The Company's restaurant product line is marketed under the Flavor
Crisp-Registered Trademark- and Flavor Pit-Registered Trademark- trademarks.
The Company's pressure fryers account for the majority of its commercial
foodservice equipment net sales. The pressure fryers consist of electric and
gas-fired models with product capacities ranging from six to fifteen pounds.
They are designed to pressure fry chicken pieces and other foods such as pork,
veal or lamb chops, potatoes and other vegetables, fish and onion rings.
Certain of the electric pressure fryers feature heating elements cast directly
into the wall of the cooking pot which provides the user with several
advantages, including lower energy consumption, extended cooking oil life and
reduced cleanup time. These advantages reduce the operating costs of the user
while still providing a high quality cooked product. The electric pressure
fryers also feature an optional self-enclosed, self-venting exhaust hood which
permits operation of the pressure fryer without needing to vent exhaust cooking
vapors to the outside.
The Company's other commercial foodservice equipment are the barbecue/slow
cooking oven and the rotisserie oven. The barbecue/slow cooking ovens, which
feature programmable controls for easy use and efficient operation, have product
capacities ranging from 24 pounds of hamburger to 140 pounds of beef roast. The
barbecue/slow cooking ovens slowly roast ribs, roasts, briskets, fish and
poultry using either mesquite or hickory woods. The slow roasting process
imparts a naturally smoked hickory or mesquite flavor to the food product with a
minimum of shrinkage. This process also serves to extend the "shelf life" of
the food product.
The Company recently introduced its rotisserie oven which is capable of
roasting chicken or other rotisserie foods. In addition to roasting the
product, the rotisserie oven displays the product as it is roasting which serves
as a counter top point of sale display. The rotisserie oven employs a vertical
design which enables it to fit in a limited amount of kitchen or counter top
space.
The Company's gas-fired pressure fryers comply with the requirements of the
American Gas Association and its electric pressure fryers and barbecue/slow
cooking ovens comply with the requirements of Underwriters Laboratory.
The Company's commercial foodservice equipment is supplemented by
seasonings, marinades and barbecue sauces manufactured to the Company's
specifications by Golden Dipt Company and other food product contractors,
mesquite and hickory woods, paper serving products and point of purchase
displays. By offering a complete line of commercial foodservice equipment, such
as pressure fryers, and related items, such as seasonings and marinades, and
paper serving products, the Company is able to provide customers with a complete
merchandising program which includes food preparation, presentation, promotion
and packaging. The Company has found that
-11-
certain of its customers value the opportunity to source all of their food
preparation product needs from one supplier.
The Company sells its restaurant product line through dealers primarily to
independent convenience store/fast food restaurant operators. The Company also
sells its pressure fryers to equipment suppliers directly, on a private label
basis, for resale to major chains such as Pathmark, Winn Dixie and Wal-Mart for
use in their delicatessens and sit-down eateries.
QUALITY CONTROL
The Company has implemented a quality control program for both of its
product lines designed to ensure compliance with the Company's manufacturing and
assembly specifications and the requirements of its customers. Essential
elements of this program are the inspection of materials and components received
from suppliers and the monitoring and testing of all of the Company's products
during various stages of production and assembly.
WARRANTY POLICY
The Company provides a warranty to end users of substantially all of its
products, which generally covers a period of 12 months, but may be extended
under certain circumstances and for certain products. Under the Company's
warranty policy, the Company will repair or replace defective products or
components at its election. Costs of warranty service and product replacements
have not been material to the Company's consolidated financial position and
consolidated results of operations.
SALES AND MARKETING
The Company's commercial motion picture projection equipment is marketed
under the direction of the Senior Vice President of Sales and four salesmen.
This equipment is sold domestically principally through a group of approximately
30 dealers.
Spotlight products are marketed under the direction of a national sales
manager. Spotlight products are sold domestically through a group of
approximately 70 dealers who do not handle the Company's other theatre products.
The domestic dealers for commercial motion picture equipment and spotlights
generally handle competing products.
Restaurant products are marketed in the United States and Canada under the
direction of a Vice President of Sales. These products are sold through a group
of approximately 40 authorized dealers who handle noncompeting products.
The Company's products are distributed internationally through
approximately 200 dealers. Historically, the Company has distributed only its
theatre product line through Westrex. It is
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expected that in the future, Westrex will also offer the Company's spotlight and
restaurant products in Hong Kong and the Far East.
In 1996 one customer accounted for approximately 16% of the Company's
consolidated net sales. In 1995 one customer accounted for approximately 10% of
the Company's consolidated net sales. In 1994 no one customer accounted for
more than 10% of the Company's consolidated net sales.
Export sales principally to customers in Canada, Mexico, Europe and Asia
were approximately $11,304,800, $8,390,200 and $6,150,800 for the calendar years
1996, 1995 and 1994, respectively. Such amounts do not include sales of
products to domestic dealers of both theatre and restaurant products and theatre
chains which are ultimately exported.
At December 31, 1996 and December 31, 1995, the Company had backlogs of
approximately $10,029,000 and $4,900,000, respectively. Such backlogs consisted
of orders received with a definite shipping date. The backlog is not seasonal
in nature. Backlog figures are not necessarily indicative of sales or income
for any full 12-month period.
COMPETITION
The market for motion picture projection equipment is highly competitive.
Major competitors for the Company's theatre products include Christie Electric
Corporation, Cinemeccanica and Kinoton. In addition to existing motion picture
equipment manufacturers, the Company may also encounter competition from new
competitors, as well as from new types of equipment. The Company competes in
the commercial motion picture projection equipment industry primarily on the
basis of price, quality and product line variety.
The markets for the Company's long-range follow spotlights and restaurant
products are highly competitive. The Company competes in the long-range follow
spotlight industry primarily on the basis of price, quality and product line
variety. The Company competes in the restaurant products industry primarily on
the basis of price and equipment design. Competitors for the Company's
long-range follow spotlight products include Lycian, Ushio, Pani and Kupo. The
Company's restaurant products compete with Henny Penny Corp., BBQ King, the
Broaster Company and Chester Fried Chicken. Certain of these competitors have
significantly greater financial resources than the Company which may impede the
ability of the Company to compete effectively.
PATENTS, TRADEMARKS AND LICENSES
The Company owns or otherwise has rights to trademarks used in conjunction
with the sale of its products. The following trademarks are considered
significant in terms of the current and contemplated operations of the Company:
"Strong-TM-," "Simplex-TM-," "Century-Registered Trademark-,"
"Optimax-Registered Trademark-," "Ballantyne-TM-," "Flavor Crisp-Registered
Trademark-," and "Flavor Pit-Registered Trademark-". These trademarks are
protected by registration or common law widely throughout the world. The
Company's registered trademarks expire between the years 2002 and 2008.
ISCO-Optic-TM- is a trademark of IscoOptic GmbH.
-13-
The Company believes that its success will not be dependent upon patent
protection, but rather upon the scientific and engineering "know-how" and
research and production techniques. To the knowledge of the Company, there are
no claims or suits threatened, pending or contemplated against it for
infringement of any patents or trademarks.
EMPLOYEES
As of March 15, 1997, the Company had a total of 241 employees of which 3
were executive officers, 15 were managerial or supervisory personnel, 123 were
manufacturing or production personnel, 15 were product engineering, design and
development personnel and 85 were administrative, sales, service or warehousing
and shipping employees. The Company is not a party to any collective bargaining
agreement and believes its relationship with its employees to be good.
ENVIRONMENTAL MATTERS
The Company believes that it is in compliance with Federal, state and local
provisions regulating the discharge of materials into the environment or
otherwise relating to protection of the environment. The Company believes that
continued compliance will not have a material effect upon the future capital
expenditures, earnings or competitive position of the Company. The Company does
not estimate any material capital expenditures for environmental control
facilities during 1997.
ITEM 2. PROPERTIES
PROPERTIES
The Company's headquarters and manufacturing facility are located at 4350
McKinley Street, Omaha, Nebraska, where it owns a building consisting of
approximately 140,000 square feet on approximately 10.5 acres. The premises are
used for offices and for the manufacture, assembly and distribution of its
products. The Company's manufacturing facility was financed by industrial
development revenue bonds ("IRBs") in the principal amount of $1,500,000. The
IRBs are repayable over a ten-year period in monthly installments of
approximately $19,000, including principal and interest, which commenced in
October 1989. At December 31, 1996, the outstanding principal balance on the
IRBs was approximately $361,200. The IRBs are secured by the Company's
manufacturing facility and a letter of credit which reduces in amount coincident
with reductions in outstanding principal. The annual fee on the letter of
credit is equal to 1.375% of the average outstanding balance. The IRBs and the
letter of credit securing the IRBs contain certain restrictive covenants which
include, among other things, requirements relating to working capital, net
worth, maintenance of debt-to-equity, interest coverage and current ratios and a
restriction on the payment of cash dividends.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved from time to time in litigation arising out of its
operations in the normal course of business. As of March 15, 1997, there were
no material pending legal proceedings to which the Company was a party or to
which any of its properties were subject.
-14-
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of fiscal 1996, no issues were submitted to a
vote of stockholders.
-15-
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER'S
MATTERS
COMMON STOCK DATA: On March 14, 1997, the Company had 8,569,785 shares of
common stock outstanding and 92 stockholders of record.
MARKET: American Stock Exchange. SYMBOL: BTN.
STOCK PRICE: The high and low sales prices of the Common Stock for each
quarter of 1996 and 1995 are shown below:
COMMON STOCK PRICE RANGE
------------------------
1996 1995
-------------------- ------------------
HIGH LOW HIGH LOW
---- --- ---- ---
First Quarter $ 9.20 6.82 - -
Second Quarter $18.38 8.50 - -
Third Quarter $16.50 10.00 7.16 6.19
Fourth Quarter $20.32 13.63 7.73 5.91
DIVIDENDS: The Company has not paid any cash dividends to its public
stockholders. On January 29, 1997, the Board of Directors declared a 3-for-2
split of its common stock. 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. This table reflects the 10% stock distribution issued March 8, 1996 and
does not reflect the 3-for-2 stock split payable March 5, 1997.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected consolidated financial data for the
Company as of and for each of the years in the five-year period ended December
31, 1996.
-16-
Amounts in thousands except per share data.
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
FISCAL YEAR ENDING DECEMBER 31,
----------------------------------------------------------------------------
1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------------------
For the fiscal year:
- -----------------------------------------------------------------------------------------------------------------------------------
Net sales $51,754 $38,441 $28,758 $22,631 $18,214
Cost of sales 36,397 27,451 20,127 15,864 13,363
Gross profit 15,357 10,990 8,631 6,767 4,851
Selling, general and
administrative expenses 7,047 5,681 4,442 3,823 3,020
Income from operations 8,310 5,309 4,189 2,944 1,831
Interest Expense 364 277 239 406 316
Income Before Income Taxes 7,946 5,032 3,950 2,538 1,515
Income Taxes 2,909 1,992 1,595 1,038 639
Net income 5,037 $3,040 $2,355 $1,500 $876
Net income per share (1) (2) .62 .42 .30
- -----------------------------------------------------------------------------------------------------------------------------------
At fiscal year-end:
- -----------------------------------------------------------------------------------------------------------------------------------
Working capital $19,742 $8,625 $7,079 $4,773 $3,827
Total assets 32,462 19,828 16,674 15,919 11,127
Loan from parent 93 136 693 2,248 1,368
Intercompany payable to parent 458 8,059 1,607 2,317 1,160
Stockholders' equity 24,029 5,055 10,015 7,660 6,160
Weighted average shares
outstanding(2) 8,094 6,654 6,600
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
(1) See Note 12 to Notes to Consolidated Financial Statements for description
of net income per share calculation.
(2) Adjusted for 10% stock distribution on March 8, 1996 and 3-for-2 stock
split March 5, 1997.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE
CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO CONTAINED AS ITEM 8 HEREIN.
GENERAL
The Company, founded in 1932, manufactures capital equipment for the
theatre and restaurant industries. The Company's theatre products segment
consists of commercial motion picture projection equipment and long-range follow
spotlights. The Company's restaurant products segment consists of commercial
foodservice equipment, principally pressure fryers, barbecue/slow cooking ovens
and rotisserie ovens. This equipment is complemented by related items, such as
seasonings and marinades, paper serving products and point of purchase displays.
-17-
The Company was acquired by Canrad Inc. in 1976 as a means of vertically
integrating Canrad Inc.'s other product segments which included the manufacture
and sale of xenon short arc bulbs as the light source for motion picture
projection equipment and long-range follow spotlight industries.
RECENT ACQUISITIONS
On December 2, 1994, the Company acquired certain net assets, primarily
accounts receivable, inventories and the business of Westrex, a wholly owned
subsidiary of Litton Systems Inc. for a purchase price of approximately
$576,200. The purchase was paid for with $100,000 and a promissory note of the
Company in the amount of approximately $476,200. From its location in Hong
Kong, Westrex sells and services theatre equipment in Hong Kong and other
countries located in the Pacific Rim. The Company expects to sell its
spotlights and restaurant products in Hong Kong and the Far East through
Westrex.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996 COMPARED TO THE YEAR ENDED DECEMBER 31, 1995
Net sales increased by $13,312,500 or 34.6% for the year ended December 31,
1996 as compared to the year ended December 31, 1995. The following table shows
comparative net sales of Theatre Products and Restaurant Products for the
respective periods:
YEAR ENDED DECEMBER 31,
-------------------------
1996 1995
---- ----
Theatre Products $49,387,700 $35,440,400
Restaurant Products 2,366,200 3,001,000
---------- ----------
$51,753,900 $38,441,400
---------- ----------
---------- ----------
Net sales of Theatre Products increased by $13,947,300 or 39.4% for the
twelve months ended December 31, 1996 as compared to the same period of the
prior year. Within the segment, net sales of commercial motion picture
projection equipment increased by approximately $13,763,400 or 41.1% and follow
spotlights increased approximately $183,900 or 9.3%. The gain was attributable
to increased sales of commercial motion picture projection systems, including
projectors, soundhead reproducers, consoles, platters, lenses and replacement
parts. The majority of the increase is attributable to net sales of commercial
motion picture products to foreign customers and to domestic customers for end
users expanding into foreign markets, an area where net export sales of Theatre
Products increased by $2,915,000 or 35% from 1995. Net sales of replacement
parts increased from approximately $4,879,000 in 1995 to approximately
$6,131,500 in 1996.
Net sales of Restaurant Products decreased by approximately $634,800. This
decrease is due in part to a loss of two customer accounts, one major customer
in the domestic market and a saturation of one foreign customer.
-18-
Gross profit as a percentage of net sales increased from 28.6% in 1995 to
29.7% in 1996. The increase is attributable to increased sales volume and
throughput in manufacturing.
Selling, general and administrative expenses increased approximately
$1,366,000 for the year ended December 31, 1996 as compared to the same period
of 1995. However, as a percentage of net sales, selling, general and
administrative expenses decreased to 13.6% from 14.8% of net sales. In terms of
the dollar increase, 1996 includes amounts paid under the Company's profit
sharing plan which is reflective of the increased operating results and
additional expenses incurred for a full year operating as a public company. The
decrease as a percentage of sales resulted from the fact that the additional
Theatre Products sales were generated without a significant increase in selling
costs, including advertising, travel and the number of employees. Operating
expenses include a management fee in the amount of approximately $300,000 for
both periods.
Interest expense amounted to approximately $363,500 for 1996 as compared to
approximately $277,300 for 1995. Included in interest expense is interest
incurred from the Norwest Bank revolving credit facility.
The actual income tax expense amounted to approximately 37% as compared to
a statutory rate of 34%. The difference relates to the effects of state income
taxes and the non-deductibility of certain intangible expenses, principally
goodwill.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO THE YEAR ENDED DECEMBER 31, 1994
Net sales increased by $9,683,000 or 33.7% for the year ended December 31,
1995 as compared to the year ended December 31, 1994. The following table shows
comparative net sales of Theatre Products and Restaurant Products for the
respective periods:
YEAR ENDED DECEMBER 31,
----------------------------------
1995 1994
---- ----
Theatre Products. . . . . . . . $35,440,400 $25,731,200
Restaurant Products . . . . . . 3,001,000 3,027,200
---------- ----------
$38,441,400 $28,758,400
---------- ----------
---------- ----------
Net Sales of Theatre Products increased by $9,709,200 or 37.7% for the
twelve months ended December 31, 1995 as compared to the same period of the
prior year. Within the segment, net sales of commercial motion pictures
projection equipment increased by approximately $10,194,200 or 43.8% and follow
spotlights decreased approximately $485,000 or 20%. The gain in commercial
motion projection equipment was attributable to increased sales of commercial
motion picture projection systems, including projectors, soundhead reproducers,
consoles, platters, lenses and replacement parts. The majority of the increase
is attributable to net sales of commercial motion picture products to foreign
customers and to domestic customers for end users expanding into foreign
markets, an area where net export sales of Theatre Products increased by
$2,239,400 or 36% from 1994. Net sales of replacement parts increased from
approximately $4,716,700 in 1994 to approximately $4,879,000 in 1995. Net Sales
of Theatre Products in 1995 includes a full year of net sales of Westrex which
was acquired on December 2, 1994.
-19-
Net sales of Restaurant Products remained relatively consistent between the
respective periods, which is in part due to the Company's historical focus on
the growth of the Theatre Products segment.
Gross profit as a percentage of net sales decreased from 30% in 1994 to
28.6% in 1995. The decrease is primarily due to a full year of sales of Westrex
which has a lower percentage of gross profit.
Selling, general and administrative expenses increased approximately
$1,239,000 for the period ended December 31, 1995 as compared to the same period
of 1994. However, as a percentage of net sales, selling, general and
administrative expenses decreased to 14.8% from 15.4% of net sales. In terms of
the dollar increase, 1995 includes a full twelve months of operating expenses of
Westrex, and includes amounts paid under the Company's profit sharing plan which
is reflective of the increased operating results. The decrease as a percentage
of sales resulted from the fact that the additional Theatre Product sales were
generated without a significant increase in selling costs, including
advertising, travel and the number of employees. Operating expenses include
corporate overhead in the amount of approximately $300,000 for 1995 and $241,200
for 1994.
Interest expense amounts to approximately $277,300 for 1995 as compared to
approximately $238,700 for 1994. Included in interest expense in 1994 is an
allocation of corporate interest relating to the Collar Agreement which expired
on October 2, 1994, in the amount of approximately $129,700. Non-allocated
interest expense increased to $277,300 for the year ended December 31, 1995 from
approximately $109,000 for the year ended December 31, 1994. This increase
resulted from the indebtedness incurred in connection with the revolving credit
agreement with Norwest Bank.
The actual income tax expense amounted to approximately 40% as compared to
a statutory rate of 34%. The difference relates to the effects of state income
taxes and the non-deductibility of certain intangible expenses, principally
goodwill.
-20-
LIQUIDITY AND CAPITAL RESOURCES
The Company has entered into a revolving credit agreement with Norwest
Bank, Nebraska, N.A. ("Norwest Facility"). The Norwest Facility initially
provides for a borrowing commitment of up to $10,000,000. The commitment will
reduce by $500,000 on the first and second anniversary dates of such facility
and $1,000,000 on the third and fourth anniversary dates thereof. The entire
amount outstanding under the Norwest Facility will mature on August 30, 2000. At
December 31, 1996, $9,500,000 was available for reborrowing under the Norwest
Facility. Amounts repaid under the Norwest Facility will be available for
reborrowing. Borrowings outstanding under the Norwest Facility will bear
interest, payable monthly, at a rate equal to Norwest Bank's National Money
Market Rate, as announced from time to time (8.25% at March 1, 1997). As of
March 1, 1997, there were no borrowings under this facility.
All of the Company's assets have been used to 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 service coverage and total debt to
tangible net worth ratios and tangible net worth. The IRBs, the letter of
credit securing the IRBs and the Underwriting Agreement with J. W. Charles/CSG
and the other underwriters of the Company's Offering also contain certain
restrictive covenants which include, among other things, a prohibition on the
payment of cash dividends.
Long-term indebtedness, including the current portion, decreased during
1996 by approximately $7,601,000 to approximately $458,300 at
December 31, 1996. Such long-term indebtedness at December 31, 1996, was
comprised as follows:
$361,200 outstanding pursuant to the 7.9% IRBs
$ 97,100 non-compete agreement payable to ORC with imputed interest
of 10% maturing in March 1997
The principal reason for the net decrease in outstanding borrowings during
1996 was the payoff of $7,090,000 from borrowings under the Norwest Facility and
capital lease payoffs of manufacturing equipment in the amount of $215,000
through the use of proceeds from the August 1, 1996 equity offering. Also a
payment of $91,800 pursuant to a non-compete agreement with Optical Radiation
Corporation and $195,000 of payments made pursuant to the 7.9% Industrial
Development Revenue Bond.
Cash provided by operating activities decreased in 1996 by approximately
$1,869,000.
The Company anticipates that internally generated funds and borrowings
under its new operating loan facility will be sufficient to meet its working
capital needs. The Company expects that it will have capital expenditures of
approximately $1,740,000 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.
-21-
OTHER
Accrued expenses at December 31, 1995 amounted to approximately $1,444,900.
Such accrued expenses were approximately $1,655,900 at December 31, 1996. The
increase was primarily attributable to increased profit sharing of approximately
$365,400, resulting from the increase in operating results in 1996 over those
attained in 1995.
INFLATION
The Company believes that the relatively moderate rates of inflation in
recent years have not had a significant impact on its net sales or
profitability. Historically, the Company has been able to offset any
inflationary effects by either increasing prices or improving cost efficiencies.
-22-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITORS' REPORT
Board of Directors
Ballantyne of Omaha, Inc.
We have audited the accompanying consolidated financial statements of
Ballantyne of Omaha, Inc. and subsidiaries as listed in the accompanying index.
In connection with our audits of the consolidated financial statements, we have
also audited the financial statement schedule as listed in the accompanying
index. These consolidated financial statements and financial statement schedule
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements and financial
statement schecule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Ballantyne
of Omaha, Inc. and subsidiaries at December 31, 1996 and 1995, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1996, in conformity with generally accepted accounting
principles. Also, in our opinion the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.
KPMG PEAT MARWICK LLP
Omaha, Nebraska
January 10, 1997
-23-
BALLANTYNE OF OMAHA, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets--December 31, 1996 and 1995 . . . . . . . . . . 25
Consolidated Statements of Income-Years ended December
31, 1996, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . 27
Consolidated Statements of Stockholders' Equity-
Years ended December 31, 1996, 1995 and 1994. . . . . . . . . . . . . . . 28
Consolidated Statements of Cash Flows--Years ended
December 31, 1996, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . 29
Notes to Consolidated Financial Statements
Years ended December 31, 1996, 1995 and 1994. . . . . . . . . . . . . . . 31
Financial Statement Schedule Supporting
Consolidated Financial Statements
Schedule - Valuation and Qualifying Accounts . . . . . . . . . . . . . . 43
All other schedules have been omitted as the required information
is inapplicable or the information is included in the
consolidated financial statements or related notes.
-24-
Ballantyne of Omaha, Inc.
and Subsidiaries
Consolidated Balance Sheets
DECEMBER 31,
1996 1995
---- ----
Assets
Current assets:
Cash $ 6,042,593 204,172
Trade receivables, less
allowance for doubtful
receivables of $143,000 in
1996 and $118,003 in 1995 9,090,616 5,713,141
Inventories 11,901,123 9,306,157
Deferred income taxes 501,025 515,926
Other current assets 103,702 51,873
---------- ----------
Total current assets 27,639,059 15,791,269
---------- ----------
Property, plant and
equipment, at cost:
Land 313,500 313,500
Buildings and improvements 1,958,772 1,596,281
Machinery and equipment 4,230,702 3,193,963
---------- ----------
6,502,974 5,103,744
Less accumulated depreciation 2,639,165 2,169,125
---------- ----------
Net property, plant
and equipment 3,863,809 2,934,619
Goodwill, other intangibles and
other assets, net 959,352 1,102,314
---------- ----------
$32,462,220 19,828,202
---------- ----------
---------- ----------
(Continued)
-25-
Ballantyne of Omaha, Inc.
and Subsidiaries
Consolidated Balance Sheets, Continued
DECEMBER 31,
1996 1995
---- ----
Liabilities and Stockholders'
Equity
Current liabilities:
Intercompany payable to parent $ 93,140 135,588
Current installments of
long-term debt 308,107 839,508
Accounts payable 5,759,722 3,680,020
Accrued expenses 1,655,883 1,444,937
Income taxes payable 79,754 1,066,532
---------- ----------
Total current liabilities 7,896,606 7,166,585
---------- ----------
Deferred income taxes 386,472 386,472
Long-term debt, excluding current
installments 150,195 7,219,930
Stockholders' equity:
Preferred stock, par value $.01
per share; authorized 1,000,000 shares - -
Common stock, par value $.01
per share; authorized 10,000,000
shares; issued and outstanding
8,569,785 shares in 1996
and 6,599,993 shares in 1995 85,698 66,000
Additional paid-in capital 18,906,556 4,989,215
Retained earnings 5,036,693 -
---------- ----------
Total stockholders' equity 24,028,947 5,055,215
---------- ----------
Commitments and contingencies - -
32,462,220 19,828,202
---------- ----------
---------- ----------
See accompanying notes to consolidated financial statements.
-26-
Ballantyne of Omaha, Inc.
and Subsidiaries
Consolidated Statements of Income
YEAR ENDED DECEMBER 31,
1996 1995 1994
---- ---- ----
Net sales $51,753,864 38,441,396 28,758,446
Cost of sales 36,396,527 27,450,688 20,127,039
---------- ---------- ----------
15,357,337 10,990,708 8,631,407
Selling expenses 2,711,744 2,401,337 2,298,961
General and
administrative expenses 4,035,709 2,979,738 1,902,137
Management fee charged
by affiliate 300,000 300,000 241,188
---------- ---------- ----------
Income from operations 8,309,884 5,309,633 4,189,121
Interest expense 363,508 277,323 108,977
Interest expense charged
by affiliate - - 129,690
---------- ---------- ----------
Income before
income taxes 7,946,376 5,032,310 3,950,454
Income taxes 2,909,683 1,991,985 1,595,614
---------- ---------- ----------
Net income 5,036,693 3,040,325 2,354,840
Net income per share $ .62 .42 .30
---------- ---------- ----------
---------- ---------- ----------
See accompanying notes to consolidated financial statements.
-27-
Ballantyne of Omaha, Inc.
and Subsidiaries
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1996, 1995 and 1994
Preferred Common Additional Retained
Stock Stock Paid-In-Capital Earnings Total
----- ----- --------------- -------- -----
Balance at December 31, 1993 - $60,000 $3,602,714 $3,997,336 $7,660,050
Net income - - - 2,354,840 2,354,840
--- ------- ----------- ---------- -----------
Balance at December 31, 1994 - 60,000 3,602,714 6,352,176 10,014,890
Cash dividend paid - - - (8,000,000) (8,000,000)
Net income - - - 3,040,325 3,040,325
Issuance of 10% stock distribution declared
January 23, 1996, payable March 8, 1996 - 6,000 1,386,501 (1,392,501) -
--- ------- ----------- ---------- -----------
Balance at December 31, 1995 - 66,000 4,989,215 - 5,055,215
Issuance of 1,897,500 shares of common stock
August 1, 1996, net of offering expenses - 18,975 13,631,812 - 13,650,787
Issuance of 57,750 shares of common stock upon
exercise of stock options - 578 226,922 - 227,500
Issuance of 14,543 shares of Common Stock under
the Employees Stock Purchase Plan - 145 58,607 - 58,752
Net Income - - - 5,036,693 5,036,693
--- ------- ----------- ---------- -----------
Balance at December 31, 1996 - $85,698 $18,906,556 $5,036,693 $24,028,947
--- ------- ----------- ---------- -----------
--- ------- ----------- ---------- -----------
See accompanying notes to consolidated financial statements.
-28-
Ballantyne of Omaha, Inc.
and Subsidiaries
Consolidated Statements of Cash Flows
YEAR ENDED DECEMBER 31,
1996 1995 1994
---- ---- ----
Cash flows from
operating activities:
Net income $5,036,693 3,040,325 2,354,840
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation of plant
and equipment 470,040 371,818 344,434
Other amortization 137,080 139,919 186,909
Deferred income
taxes 14,901 (172,189) (86,821)
Changes in assets
and liabilities net
of assets acquired:
Trade receivables (3,377,475) (1,720,755) 276,012
Inventories (2,594,966) (1,443,621) (175,335)
Other current assets (51,829) 2,499 9,502
Accounts payable 2,083,256 1,210,988 21,135
Accrued expenses 207,392 118,227 492,813
Income taxes payable (986,778) 882,015 10,076
Other assets 5,882 (7,039) (15,918)
--------- --------- ---------
Net cash provided by
operating activities 944,196 2,422,187 3,417,647
--------- --------- ---------
-29-
Ballantyne of Omaha, Inc.
and Subsidiaries
Consolidated Statements of Cash Flows,
Continued
YEAR ENDED DECEMBER 31,
-----------------------
1996 1995 1994
---- ---- ----
Cash flows from investing
activities:
Purchase of net assets - - (100,000)
Capital expenditures (1,016,930) (244,108) (246,784)
---------- --------- ---------
Net cash used in
investing activities (1,016,930) (244,108) (346,784)
---------- --------- ---------
Cash flows from financing
activities:
Repayments of long-
term debt and revolving
credit facility (7,983,436) (1,676,635) (1,282,960)
Cash dividend paid - (8,000,000) -
Proceeds from revolving
credit facility - 8,000,000 -
Net proceeds from
equity offering 13,650,787 - -
Proceeds from employee
stock purchase 58,752 - -
Proceeds from exercise
of options 227,500 - -
Change in intercompany
payable to parent (42,448) (557,278) (1,555,048)
---------- --------- ---------
Net cash used in
financing activities 5,911,155 (2,233,913) (2,838,008)
---------- --------- ---------
Net increase (decrease)
in cash 5,838,421 (55,834) 232,855
Cash at beginning
of period 204,172 260,006 27,151
---------- --------- ---------
Cash at end of period $6,042,593 204,172 260,006
---------- --------- ---------
---------- --------- ---------
See accompanying notes to consolidated financial statements.
-30-
Ballantyne of Omaha, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Years Ended December 31, 1996, 1995 and 1994
1. The Company
Ballantyne of Omaha Inc., a Delaware corporation ("Ballantyne" or the
"Company"), and its wholly-owned, subsidiaries Strong International Inc.,
Westrex and Flavor Crisp of America Inc., design, develop, manufacture and
distribute commercial motion picture equipment, follow spotlights 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. A majority (50.4%) 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.
b. Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market and
include appropriate elements of material, labor and manufacturing overhead.
c. Goodwill and Other Intangibles
The excess of cost over the fair value of assets of business acquired is stated
at cost less accumulated amortization and is being amortized on a straight-line
basis over the expected periods to be benefited, 5 to 25 years. Accumulated
amortization as of December 31, 1996 and 1995 amounted to $632,983 and $584,875,
respectively. The Company assesses and would recognize any deficiency of the
recoverability of this intangible asset by determining whether the amortization
of the asset balance over its remaining life can be recovered through
undiscounted future operating cash flows of the acquired operations.
-31-
Other intangibles, including a noncompete agreement, are stated at cost less
accumulated amortization and are amortized on a straight-line basis over the
estimated useful lives or stated contract terms which include periods ranging
from 4 to 17 years. Accumulated amortization as of December 31, 1996 and 1995
amounted to $419,559 and $324,705, respectively,
d. Depreciation
Depreciation of plant and equipment is provided over the estimated useful lives
of the respective assets using the straight-line method. Charges are made to
operations in amounts sufficient to write off the cost of such assets over their
estimated useful lives.
e. Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carry forwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
f. Revenue Recognition
The Company recognizes revenue from product sales upon shipment to the customer.
g. Research and Development
Research and development costs are charged to operations in the period incurred.
Such costs charged to operations amounted to $484,527, $362,690, and $326,338
for the years ended December 31, 1996, 1995 and 1994, respectively.
h. Fair Value of Financial Instruments
Statement of Financial Accounting Standards SFAS No. 107 "Disclosure about
Fair Value of Financial Instruments," defines the fair value of a financial
instrument as the amount at which the instruments could be exchanged into a
current transaction between willing parties. Cash, trade receivables,
intercompany payable to parent, debt and accounts payable reported in the
consolidated balance sheet equal or approximate fair values.
I. 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 financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
-32-
3. Common Stock
a. Equity Offering
On August 1, 1996, the Company completed an offering of its shares of
capital stock pursuant to a Registration Statement on Form S-1 ("the
Offering"). Pursuant to the Offering, the Company sold 1,100,000 shares of
Common Stock to the public at the price of $12.125 per share. In addition,
the Company granted the Underwriters an option, exercisable until August
31, 1996 to purchase an aggregate of up to 165,000 additional shares of
Common Stock at $12.125 price per share less underwriting discounts and
commissions, to cover over-allotments, if any. The underwriters purchased
all 165,000 shares on August 16, 1996. The net proceeds to the Company
from the Offering were $13,650,787.
b. Initial Public Offering
On September 6, 1995, the Company completed the initial public offering of
its shares of capital Stock pursuant to its Registration Statement on Form
S-1 (the "IPO"). Pursuant to the IPO, Canrad of Delaware Inc., ("Canrad"),
the holder of record of all of the outstanding shares of capital stock of
Ballantyne, sold 1,200,000 shares of Ballantyne common stock to the public
at an IPO price of $6.50. In connection with the IPO, on June 30, 1995,
the Company effected a 400,000-to-1 stock exchange which has been given
retroactive effect in the accompanying consolidated statements of
stockholders' equity. The authorized common stock of Ballantyne was
increased from 100,000 shares to 10,000,000 shares and the 10 issued shares
increased to 4,000,000 shares. As a result, $40,000 was transferred from
additional paid-in capital to common stock. In addition, the Company is
authorized to issue up to 1,000,000 shares of preferred stock, $.01 per
value.
On October 2, 1995, an additional 180,000 shares of Ballantyne were sold by
Canrad at the IPO price of $6.50.
Share information and per share prices have not been adjusted for the stock
distribution or stock split for the above offerings.
-33-
4. Inventories
Inventories consist of the following:
DECEMBER 31
-----------------------------------
1996 1995
Raw materials and supplies $ 8,888,123 6,708,016
Work in process 2,184,945 1,167,433
Finished goods 828,055 1,430,708
---------- ---------
$11,901,123 9,306,157
---------- ---------
---------- ---------
5. Long-term Debt
Long-term debt consists of the following:
DECEMBER 31
-----------------------------------
1996 1995
Industrial Development Revenue Bonds,
bearing interest at 7.9%, due in monthly
installments of $19,336 including principal
and interest, maturing October 1998. The
bonds are secured by the Company's facility
and letters of credit $ 361,193 556,194
$10,000,000 revolving credit facility
with Norwest Bank Nebraska, N.A,
bearing interest at prime (8.25% at
December 31, 1996) due September 30,
2000. The credit facility is secured
by all of the Company's assets. Paid in full. - 7,090,000
Capital lease obligations bearing interest rates
ranging from 8.125% to 8.9%. Paid in full. - 225,229
Note payable to Optical Radiation Corporation,
with imputed interest of 10%, payable in annual
installments of $100,000 including principal and
interest, maturing March 1997 97,109 188,015
------- ---------
Total long-term debt 458,302 8,059,438
Less current installments of long-term debt 308,107 839,508
------- ---------
Long-term debt, excluding current installments $150,195 7,219,930
------- ---------
------- ---------
-34-
The Norwest Bank Nebraska, N.A. (Norwest Bank) revolving credit facility
initially provides for a borrowing commitment of up to $10,000,000. The
commitment will reduce by $500,000 on the first and second anniversary dates of
such facility and $1,000,000 on the third and fourth anniversary dates thereof.
The entire amount outstanding under the Norwest Bank revolving credit facility
will mature on August 30, 2000. At December 31, 1996, $9,500,000 was available
for borrowing under the Norwest Facility. Amounts repaid under the Norwest Bank
revolving credit facility are available for reborrowing. The Company initially
borrowed $8,000,000 under the facility for a dividend payment to Canrad of
Delaware Inc. The Norwest Bank revolving credit facility contains certain
restrictive covenants which include, among other matters, a prohibition on the
payment of dividends and requirements relating to working capital, current
ratios, debt service ratios, total debt to tangible net worth ratios and
tangible net worth. At December 31, 1996, the Company was in compliance with
the covenants.
The Industrial Development Revenue Bonds agreement and the letter of credit
securing the agreement contain certain restrictive covenants which include,
among other matters, requirements relating to working capital, net worth,
maintenance of debt-to-equity, interest coverage and current ratios and a
restriction on the payment of cash dividends. The Company was in compliance
with such covenants. The letter of credit is for approximately $603,324 at
December 31, 1996. Such amount reduces as monthly payments are made. The
annual commission with respect to the letter of credit is 1.375% of the average
outstanding balance.
Annual maturities of long-term debt are as follow: 1997 - $308,107 and 1998
$150,195.
6. Income Taxes
The provision for income taxes consists of:
YEARS ENDED DECEMBER 31,
------------------------
1996 1995 1994
---- ---- ----
Current:
Federal $2,623,375 1,846,255 1,350,460
State 267,400 292,639 331,975
Foreign 4,007 25,280 -
Deferred - Federal 14,901 (172,189) (86,821)
--------- --------- ---------
$2,909,683 1,991,985 1,595,614
--------- --------- ---------
--------- --------- ---------
-35-
Actual tax expense differs from the "expected" tax expense (computed by applying
the U.S. Federal corporate tax rate of 34% to income before income taxes) as
follows:
YEARS ENDED DECEMBER 31,
------------------------
1996 1995 1994
---- ---- ----
Computed "expected"
tax expense $2,701,768 1,710,985 1,343,154
State income taxes, net
of Federal benefit 176,484 193,142 219,105
Goodwill and other non-
deductible amortization 16,356 16,356 33,355
Other 15,075 71,502 -
--------- --------- ---------
$2,909,683 1,991,985 1,595,614
--------- --------- ---------
--------- --------- ---------
The deferred tax liability and deferred tax assets were comprised of the
following:
DECEMBER 31
-----------------------------------
1996 1995
---- ----
Deferred tax liability -
Depreciation $386,472 386,472
Deferred tax assets:
Inventory reserves 299,025 326,641
Accounts receivable reserve 48,620 40,131
Other 153,380 149,154
------- -------
501,025 515,926
------- -------
Net deferred tax asset $114,553 129,454
------- -------
------- -------
There was no valuation allowance for deferred tax assets of December 31, 1996 or
1995. Based upon the scheduled reversal of deferred tax liabilities, projected
future taxable income and tax planning strategies, management believes it is
more likely than not the Company will realize the benefits of deferred tax
assets as of December 31, 1996.
-36-
7. Supplemental Cash Flow Information
Supplemental disclosures to the consolidated statements of cash flows are as
follows:
YEARS ENDED DECEMBER 31,
------------------------
1996 1995 1994
---- ---- ----
Interest paid $ 353,039 225,773 238,667
--------- --------- ---------
--------- --------- ---------
Income taxes paid $3,878,500 1,282,159 1,578,104
--------- --------- ---------
--------- --------- ---------
Other noncash activities in 1996 included approximately $382,300 of additional
capital lease obligations in exchange for equipment. Other noncash activities
in 1995 included approximately $129,400 of additional capital lease obligations
in exchange for equipment. Other noncash activities in 1994 included the
incurrence of approximately $476,200 of long-term debt for the purchase of
Westrex. In addition, the Company incurred approximately $96,000 of additional
capital lease obligations in exchange for equipment.
8. Retirement Plans
The Company sponsors a defined contribution plan (the "Plan") for all employees.
Pursuant to the provisions of the Plan, employees may defer up to 6% of their
compensation. The Company will match 50% of the amount deferred. An additional
amount of up to 9% of the employee's compensation for the year may also be
deferred with no matching contribution by the Company. The contributions made
to the Plan by the Company for the years ended December 31, 1996, 1995 and 1994
amounted to $99,826, $91,984 and $83,625, respectively.
9. Related Party Transactions
The following amounts were charged to operations of Ballantyne by Canrad:
YEARS ENDED DECEMBER 31,
------------------------
1996 1995 1994
---- ---- ----
Management fees $300,000 300,000 241,188
---------- --------- ---------
---------- --------- ---------
Interest expense $ - - 129,690
---------- --------- ---------
---------- --------- ---------
Federal and Nebraska
state income taxes $ - 1,225,211 1,553,639
---------- --------- ---------
---------- --------- ---------
One of the Board of Directors, who was appointed during 1995, serves as General
Counsel for the Company. Fees paid to the Board Member's firm in 1996 and 1995
were not significant.
-37-
10. Acquisitions
Purchase of Westrex Company, Asia
On December 2, 1994, the Company acquired certain assets, primarily accounts
receivable and inventories, of Westrex Company, Asia (Westrex), a wholly owned
subsidiary of Litton Systems Inc. (Litton), for a purchase price of
approximately $576,200. The purchase was made for $100,000 in cash and a note
in the amount of approximately $476,200 to Litton. From its Hong Kong location,
Westrex sells and services theater equipment in Hong Kong and other countries of
the Pacific Rim. Annual revenues of Westrex are approximately $2,800,000. No
goodwill was recorded in connection with the acquisition. This acquisition has
been treated as a purchase and, accordingly, the Company's consolidated
financial statements reflect the operations of Westrex beginning December 1,
1994.
11. Industry Segment Information
The Company's operations are conducted principally through two segments:
Theatre and Restaurant. Theatre operations include the design, manufacture,
assembly and sale of motion picture projectors, xenon lamphouses and power
supplies, sound systems, follow spotlights and the sale of film handling
equipment and lenses. Restaurant includes the design, manufacture, assembly and
sale of pressure fryers, smoke ovens and rotisseries and sale of seasonings,
marinades and barbeques sauces, mesquite and hickory woods and point of purchase
displays.
Export sales principally to customers in Mexico, Canada, Europe and Asia were
$11,304,800, $8,390,200 and $6,150,800 for 1996, 1995 and 1994, respectively.
Sales to one customer represented approximately sixteen percent (16%) of
consolidated net sales in the year ended December 31, 1996. The balance in
trade accounts receivable owed by this customer was $1,062,100 at December 31,
1996. For the year ended December 31, 1995 sales to one customer represented
approximately ten percent (10%) of consolidated net sales. The balance in trade
accounts receivables owed by this customer was $957,000 at December 31, 1995.
No one customer represented more than 10% of consolidated net sales for the year
ended December 31, 1994. Financial instruments which potentially expose the
Company to a concentration of credit risk principally consist of accounts
receivable. The Company sells products to a large number of customers in many
different geographic regions. To minimize credit concentration risk, the
Company performs ongoing credit evaluations of its customers' financial
condition.
It should be noted that industry segment information may be of limited
usefulness in comparing an industry segment of the Company with a similar
industry segment of another enterprise.
Selected information by major industry segment is summarized below for the year
ended 1994: The restaurant segment does not represent ten percent of combined
revenue, operating profit or identifiable assets in 1996 or 1995.
-38-
DECEMBER 31, 1994 THEATRE RESTAURANT TOTAL
- ----------------- ------- ---------- -----
Net sales $ 25,731,253 3,027,193 28,758,446
----------- --------- ----------
----------- --------- ----------
Operating income $ 4,123,846 65,275 4,189,121
----------- --------- ----------
----------- --------- ----------
Interest expense 238,667
Income before
income taxes $ 3,950,454
-----------
Depreciation and amortization:
Plant and equipment $ 309,991 34,443 344,434
Other 181,677 5,232 186,909
----------- --------- ----------
----------- --------- ----------
Identifiable assets $ 14,915,128 1,759,273 16,674,401
----------- --------- ----------
----------- --------- ----------
Capital expenditures $ 212,502 34,282 246,784
----------- --------- ----------
----------- --------- ----------
12. Capital Stock
a. Option Plans
The Company has adopted a 1995 Incentive and Non-Incentive Stock Option Plan and
a 1995 Non-Employee Directors Non-Incentive Stock Option Plan (the "Plans"). A
total of 825,000 shares of Ballantyne common stock have been reserved for
issuance pursuant to these Plans. The 1995 Stock Option Plan provides for the
granting of incentive and non-incentive stock options. The 1995 Outside
Directors Stock Option Plan provides for the granting of non-incentive stock
options only. The per share exercise price of incentive stock options may not
be less than 100% of the fair market value of a share of Ballantyne common stock
on the date of grant (110% of fair market value in the case of an incentive
stock option granted to any person who, at the time the incentive stock option
is granted, owns (or is considered as owning within the meaning of Section 424
(d) of the Internal Revenue Code of 1986, as amended) stock possessing more than
10% of the total combined voting powers of all classes of stock of the Company
or any parent or subsidiary). With respect to non-incentive stock options, the
per share exercise price may not be less than 85% of the fair market value of a
share of Ballantyne common stock on the date of grant.
-39-
Information as to shares subject to Stock Option Plans is as follows:
Weighted
average
Number of Exercise price exercise
Option per option price
------ ---------- -----
Options outstanding at December 31, 1994 - - -
Granted 750,750 $3.94-4.39 $4.01
------- --------- ----
Options outstanding at December 31, 1995 750,750 3.94-4.39 4.01
Granted 24,750 4.85 4.85
Exercised (57,750) 3.94 3.94
------- --------- ----
Options outstanding at December 31, 1996 717,750 3.94-4.85 4.04
------- --------- ----
Exercisable options at December 31, 1996 717,750 3.94-4.85 4.04
------- --------- ----
The Company has also adopted the 1995 Employee Stock Purchase Plan. The
Employee Stock Purchase Plan provides for the purchase of shares of Ballantyne
common stock by eligible employees at a per share purchase price equal to 85% of
the fair market value of a share of Ballantyne common stock at either the
beginning or end of the offering period, as defined, whichever is lower.
Purchases are made through payroll deductions of up to 10% of each participating
employee's salary and participants are limited to purchasing 1,000 shares of
Ballantyne common stock in any offering period. 150,000 shares of Ballantyne
common stock have been reserved pursuant to the Employee Stock Purchase Plan.
The Company applies APB Opinion No. 25 and related Interpretations in accounting
for its plan and the exercise price of all options issued have equaled the
market value of the stock on the date of grant. Accordingly, no compensation
cost has been recognized for any of the aforementioned stock compensation plans.
Had compensation cost for the Company's stock compensation plans been determined
consistent with FASB Statement No. 123, the Company's net income and earnings
per share would have been reduced to the pro forma amounts indicated below:
-40-
1996 1995
---- ----
Net income As Reported $5,036,693 $3,040,325
Pro forma $3,059,454 $2,062,200
Primary earnings As Reported $0.62 $0.42
per share
Pro forma $0.29 $0.19
The fair value of each option grant is estimated on the date of grant using
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1996 and 1995: dividend yield of 0.0 percent;
expected volatility of 75 percent; risk-free interest rate of 6.15 percent; and
expected lives of ten years for the 1995 Stock Option Plan options and three to
five years for the other stock compensation plans.
All per share and number of share information have been adjusted for the 10%
stock distribution as well as the 3-for-2 stock split.
b. Warrants
The Company has granted Merita Bank Ltd., the primary lending bank of Canrad, a
warrant to purchase 323,400 shares of Ballantyne common stock. The warrant is
exercisable at a per share price of $3.94. All shares subject to the warrant
are exercisable at December 31, 1996. The number of shares under warrant and
the per share price have been adjusted for the effect of the 10% stock
distribution issued on March 8, 1996 and the 3-for-2 stock split issued March 5,
1997.
c. Change of Control
A substantial portion of the shares of Ballantyne common stock owned by Canrad
are pledged to secure Canrad's obligation under a credit facility provided by
Merita Bank Ltd. During the period, if any, that one or more events of default
shall have occurred and are continuing under such credit facility, Merita Bank
Ltd. shall have the right to sell all or any portion of such pledged shares at
one or more public or private sales called and conducted in any manner permitted
by the New York Uniform Commercial Code. The sale of all or a substantial
portion of such pledged shares could result in a change of control of
Ballantyne.
13. 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. Net
income per share also reflects the effect of the assumed interest expense less
related tax effects of the $8,000,000 borrowing pursuant to the Norwest Bank
revolving credit facility which is assumed to be outstanding as of the beginning
of the earliest period presented, with no repayment being made during 1995 and
1994.
-41-
Weighted average shares outstanding amounted to 8,094,417 for the year ended
December 31, 1996, 6,654,344 for the year ended December 31, 1995 and,
6,600,000 for the year ended December 31, 1994.
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 shareholders of record on
February 10, 1997. As a result of the stock split, Ballantyne's outstanding
shares of common stock increased to approximately 8,569,785 at December 31,
1996. Per share data have been restated to reflect this stock split as of the
earliest period presented. 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. Per share data have been
restated to reflect these stock distributions as of the earliest period
presented. 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.
14. Commitments and Contingencies
The Company has in place a profit sharing plan for key management employees.
Amounts due pursuant to the plan are based upon the attainment of specific
operating levels that are established by the Board of Directors. Amounts
charged to operations pursuant to the profit sharing plan amounted to $913,676,
$538,247 and $425,052 for 1996, 1995 and 1994, respectively. The amounts
payable of $913,676 at December 31, 1996 and $538,247 at December 31, 1995 are
included in accrued expenses in the accompanying consolidated balance sheets.
During 1994, the Company entered into a deferred compensation agreement with its
President and Chief Executive Officer providing for monthly payments of $5,000
commencing with his date of retirement or death and continuing for twenty four
months thereafter. Deferred compensation expense was approximately $24,000 for
the year ended December 31, 1996 and $48,000 for the years ended December 31,
1995 and 1994, respectively. No amounts payable under the agreement are vested.
-42-
SCHEDULE
Ballantyne Of Omaha, Inc.
and Subsidiaries
Valuation and Qualifying Accounts
Balance at Charged to Amounts Balance
beginning costs and written at end
of year expenses off(1) of year
------- -------- ------ -------
Year ended December 31, 1996 -
Allowance for doubtful accounts $118,003 63,995 38,998 143,000
------- ------ ------ -------
------- ------ ------ -------
Year ended December 31, 1995 -
Allowance for doubtful accounts $100,000 21,600 3,567 118,003
------- ------ ------ -------
------- ------ ------ -------
Year ended December 31, 1994 -
Allowance for doubtful accounts $107,827 14,442 22,269 100,000
------- ------ ------ -------
------- ------ ------ -------
(1) The deductions from reserves are net of recoveries.
-43-
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated by reference from the Ballantyne of Omaha, Inc. Proxy
Statement for Annual Meeting of Stockholders to be held June 10, 1997, under the
captions ELECTION OF DIRECTORS, LIST OF CURRENT EXECUTIVE OFFICERS OF THE
COMPANY, and ADDITIONAL INFORMATION - Compliance with Section 16(a) of the
Securities Exchange Act of 1934.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference from the Ballantyne of Omaha, Inc. Proxy
Statement for Annual Meeting of Stockholders to be held June 10, 1997, under the
caption EXECUTIVE COMPENSATION.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference from the Ballantyne of Omaha, Inc. Proxy
Statement for Annual Meeting of Stockholders to be held June 10, 1997, under the
captions GENERAL and ELECTION OF DIRECTORS.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference from the Ballantyne of Omaha, Inc. Proxy
Statement for Annual Meeting of Stockholders to be held June 10, 1997, under the
caption RELATED PARTY TRANSACTIONS.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
a. The following documents are filed as part of this report: Page No.
--------
1. Financial Statements:
An Index to the Financial Statements filed as a part
of this report is contained in Item 8
Financial Statements of the Registrant's subsidiaries
are omitted because the Registrant is primarily an
operating company and the subsidiaries are wholly owned
-44-
b. Reports on Form 8-K filed for the three months ended
December 31, 1996
1. None
c. Exhibits (Numbered in accordance with Item 601 of
Regulation S-K):
3.1 Certificate of Incorporation as amended through
July 20, 1995 (incorporated by reference to
Exhibits 3.1 and 3.3 to the Registration Statement
on Form S-1, File No. 33-93244) (the "Form S-1")
3.2 Bylaws as amended through August 24, 1995
(incorporated by reference to Exhibit 3.2 to
the Form S-1)
4.1 Trust Indenture dated as of September 1, 1988 by and
between the County of Douglas, Nebraska and FirsTier
Bank, National Association, Omaha (incorporated by
reference to Exhibit 4.1 to the Form S-1)
4.2 Loan Agreement dated August 30, 1995, as amended
November 24, 1995 between the Company and Norwest
Bank, N.A. (incorporated by reference to Exhibit 4.2
to the Company's Annual Report on Form 10-K filed
for the year ended December 31, 1995)(the "Form 10-K")
10.1 Employment Agreement between the Company and Ronald H.
Echtenkamp dated October 1, 1991 (incorporated by
reference to Exhibit 10.1 to the Form S-1)
10.1.1 Amendment to Employment Agreement between the
Company and Ronald H. Echtenkamp dated March 18,
1994 (incorporated by reference to Exhibit 10.2
to the Form S-1)
10.1.2 Second Amendment dated July 20, 1995 to Employment
Agreement between the Company and Ronald H. Echtenkamp
(incorporated by reference to Exhibit 10.12 to the
Form S-1)
10.1.3 Third Amendment dated January 20,1997 to Employment
Agreement between the Company and Ronald H. Echtenkamp...........49
10.1.4 Consulting Agreement dated March 3, 1997 between the
Company and Ronald H. Echtenkamp.................................50
-45-
10.3 Employment Agreement between the Company and John
Wilmers dated October 15, 1991 (incorporated by
reference to Exhibit 10.3 to the Form S-1)
10.3.1 Extension to Employment Agreement between the Company
and John Wilmers dated July 8, 1996 (incorporated by
reference to Exhibit 10.16 to the Form 10-Q for the
quarter ended June 30, 1996) (the "Form 10-Q")
10.3.2 Employment Agreement between the Company and John
Wilmers dated January 1, 1997....................................53
10.4 Lease and Agreement dated September 1, 1988 by
and between County of Douglas, Nebraska and the
Company (incorporated by reference to Exhibit 10.4
to the Form S-1)
10.5 Guaranty Agreement dated September 1, 1988 between
the Company and FirsTier Bank, National Association,
Omaha (incorporated by reference to Exhibit 10.5 to
the Form S-1)
10.6 Distributorship Agreement dated as of March 1, 1992
between IscoOptic Gmbh and the Company (incorporated
by reference to Exhibit 10.6 to the Form S-1)
10.7 Form of 1995 Stock Option Plan (incorporated by
reference to Exhibit 10.7 to the Form S-1)
10.8 Form of 1995 Outside Directors Stock Option Plan
(incorporated by reference to Exhibit 10.8 to the
Form S-1)
10.8.1 Amendment to 1995 Outside Directors Stock Option Plan,
as amended through July 8, 1996 (incorporated by
reference to exhibit 10.8 to the Form 10-Q)
10.9 Form of 1995 Employee Stock Purchase Plan
(incorporated by reference to Exhibit 10.9 to
the Form S-1)
10.9.1 Amendment to the 1995 Employee Stock Purchase Plan...............61
-46-
10.10 Form of Management Services Agreement by and between
the Company and Canrad, Inc. (incorporated by reference
to Exhibit 10.10 to the Form S-1)
10.11 Profit Sharing Plan (incorporated by reference to Exhibit
10.11 to the Form S-1)
10.11.1 Amendment to the Profit Sharing Plan.............................62
10.13 Letter of Engagement dated December 22, 1995 between
the Company and Geller & Friend Capital Partners, Inc.,
including 50,000 share stock option (incorporated by
reference to Exhibit 10.13 to the Form 10-K)
10.14 Stock Option Agreement dated as of September 19, 1995
between the Company and Jaffoni & Collins Incorporated
(incorporated by reference to Exhibit 10.14 to the
Form 10-Q)
11 Computation of net earnings per share (included in
Financial Statements)
21 Registrant owns 100% of the outstanding capital
stock of the following subsidiaries:
a. Strong International Inc.
b. Arnold's, Inc.
23 Consent of KPMG Peat Marwick LLP.................................63
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
BALLANTYNE OF OMAHA, INC.
By: /s/ John Wilmers By: /s/ Brad French
------------------------------------ -------------------------
John Wilmers, President, Brad French, Secretary,
Chief Executive Officer, and Director Treasurer, and
Chief Financial Officer
Date: March 27, 1997 Date: March 27, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
By: /s/ Arnold S. Tenney By: /s/ Ronald H. Echtenkamp
------------------------------ ------------------------------
Arnold S. Tenney, Chairman and Ronald H. Echtenkamp,
Director Vice-Chairman and Director
Date: March 27, 1997 Date: March 27, 1997
By: /s/ Jeffrey D. Chelin By: /s/ Colin G. Campbell
------------------------------ ------------------------------
Jeffrey D. Chelin, Director Colin G. Campbell, Director
Date: March 27, 1997 Date: March 27, 1997
By: /s/ Yale Richards By: /s/ Marshall Geller
------------------------------ -----------------------------
Yale Richards, Director Marshall Geller, Director
Date: March 27, 1997 Date: March 27, 1997
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