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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
For the fiscal year ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission File No. 1-13906
BALLANTYNE OF OMAHA, INC.
-------------------------
(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
Securities registered pursuant to Section 12(b) of the Act: COMMON STOCK,
$0.01 PAR VALUE
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 23, 1999, 12,664,371 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
NYSE) was approximately $68,335,000.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's Annual Report to Shareholders for the fiscal year
ended December 31, 1998 (the "Annual Report") are incorporated by reference in
Parts I and II, and portions of the Company's Proxy Statement for it's Annual
Meeting of Shareholders to be held on May 18, 1999 (the "Proxy Statement") are
incorporated by reference in Part III.
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PART I
ITEM 1. BUSINESS
GENERAL
Ballantyne of Omaha, Inc. and its subsidiaries (the "Company") is a
developer, manufacturer and distributor of commercial motion picture equipment
and long-range follow spotlights in the U.S. and abroad. The Company also
manufactures, rents and leases specialty entertainment lighting products used at
arenas, television and motion picture production studios, theme parks and
architectural sites. The Company primarily operates within three business
segments; 1) theatre, 2) entertainment lighting and 3) restaurant equipment.
The Company's business was founded in 1932. Since that time, the Company
has manufactured and supplied equipment and services to the commercial motion
picture projection industry and to sports and concert arenas and theme parks. In
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. The Company further expanded its
commercial motion picture projection equipment business with the 1993
acquisition of the business of the Cinema Products Division of Optical Radiation
Corporation. That division manufactured the Century(R) projector and distributed
ISCO-Optic lenses to the theatre and audio visual industries in North America.
ISCO-Optic is a trademark of ISCO-Optic GmbH. In December 1994, the Company
increased its presence in the international marketplace with the acquisition of
Westrex Company, Asia ("Westrex"), which provides the Company with a strategic
Far Eastern location and greater access to the expanding economies of the
Pacific Rim. In April 1998, the Company vertically integrated their motion
picture projection business with the acquisition of Design & Manufacturing, Ltd.
("Design"). Design is a leading supplier of film platter systems to the motion
picture exhibition industry.
The Company also manufactures customized motion picture projection
equipment for use in special venues, such as large screen format presentations
and other forms of motion picture-based entertainment requiring visual and
multimedia special effects. These customers include Imax Corporation, The Walt
Disney Company and Universal Studios. The Company helped pioneer the special
venue market more than 20 years ago by working with its customers to design and
build customized projection systems featuring special effects. During 1998, the
Company and MegaSystems, Inc., a full service provider of products and services
for the large-format film industry, collaborated on a large format projection
system that will be exclusively manufactured by the Company and distributed by
MegaSystems, Inc.
The Company's long-range follow spotlights are used for both permanent
installations and touring applications. During 1997, the Company complemented
its long-range follow spotlights product line with the acquisition of
substantially all of the net assets of Xenotech, Inc. ("Xenotech") and
Sky-Tracker of America, Inc. ("Sky-Tracker"). Xenotech is a leading manufacturer
and supplier of high intensity searchlights and computer-based lighting systems
for the motion picture production, television, live entertainment, theme park
and architectural industries. Sky-Tracker sells and rents computer and manually
operated high intensity searchlights. Sky-Tracker and Xenotech were merged
together and operate a sales and rental office out of a facility in North
Hollywood, California. During January 1998, the Company further complemented its
lighting segment with the acquisition of Sky-Tracker of Florida, Inc., a rental
agent and distributor of high intensity promotional searchlights.
The Company also manufactures commercial food service equipment, which is
sold to convenience store and fast food restaurant operators and to equipment
suppliers for resale on a private label basis.
During 1998, the Company established an audio visual division in Orlando,
Florida called Strong Communications. The scope of services that Strong
Communications provides are design consulting,
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rental services and equipment sales in the audio visual industry. By year-end,
additional offices were established in Fort Lauderdale and Tampa, Florida.
The Company's product lines are distributed on a worldwide basis through a
network of over 200 domestic and international dealers to major movie
exhibitors, ride simulation operators and sports arena and amusement park
operators. The Company's broad range of both standard and custom-made equipment
can completely outfit and automate a motion picture projection booth and is
currently being used by major motion picture exhibitors such as AMC
Entertainment, Inc., Regal Cinemas, Inc. and Loews Cineplex. As a major supplier
of motion picture equipment to the theatre exhibitors, the Company has benefited
directly from both the domestic and international growth in motion picture
screens.
The Company believes that its position as a fully-integrated equipment
manufacturer enables it to be more responsive to its customers' specific design
requirements, thereby giving it a competitive advantage over other manufacturers
who rely more on outsourcing components. In addition, the Company believes its
expertise in engineering, manufacturing, prompt order fulfillment, delivery,
after-sale technical support and emergency service have allowed the Company to
build and maintain strong customer relationships.
The Company's principal objective is to increase its U.S. market share and
its established international presence in its three business segments. In order
to achieve this objective, the Company is pursuing a number of strategies
including (i) expanding its presence outside the U.S. by leveraging its
relationships with domestic customers who are aggressively expanding
internationally and building relationships with international theatre
exhibitors, (ii) developing and maintaining strong customer relationships
through fully understanding customer needs and furnishing value-added services,
(iii) leveraging its manufacturing expertise, (iv) making strategic acquisitions
of complementary or related niche market products, (v) expanding the special
venue business and (vi) expanding the entertainment lighting segment.
MOTION PICTURE EXHIBITION INDUSTRY OVERVIEW
The motion picture theatre industry has experienced competition from
in-home sources of entertainment in recent years, forcing theatre exhibitors to
build higher quality theatres with more screens per location in order to lure
consumers to theatres. As a result, U.S. theatre exhibitors have begun
developing multiple screen theatres to provide a more consumer friendly
destination and a wider range of film choices than traditional single screen
theatres. More recently, domestic theatre exhibitors have accelerated the
addition of new screens and in many cases, have begun developing "multiplex" or
"megaplex" theatres which have an even larger number of screens per location
(sometimes as many as 30 screens). Coupled with wide body seats and stadium
seating, these new generation theatres offer patrons a new and invigorating
moviegoing experience. The Company believes the outlook for such multiplexing
and megaplexing remains promising as many domestic markets still lack modern,
high quality theatre complexes and commercial real estate developers
increasingly view such facilities as attractive anchor tenants that enhance
consumer traffic.
Domestically, the theatre exhibitors' strategy is to focus on growth and
increased market share by building new, multiplex theatres in their key markets,
while expanding and refurbishing their existing high traffic locations.
Management believes that the trend toward multiplexing or megaplexing is also
accelerating internationally as the international marketplace is one, which has
historically been underserved. U.S.-based theatre exhibitors are entering the
international markets with plans to build modern multiplexes and megaplexes in
response to increased movie theatre attendance. International exhibitors, faced
with this increased competition, are expected to respond by becoming more
aggressive in building these new multiplexes. According to GLOBAL FILM
EXHIBITION AND DISTRIBUTION (C) 1998), published by Baskerville, a media and
communications market research firm, there will be an estimated
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108,800 screens in the world at the end of 1998 and this number is expected to
increase by approximately 24,000 net new screens through the year 2007.
BUSINESS STRATEGY
The Company's principal objective is to increase its U.S. market share
and its established international presence. The Company's strategy combines
the following key elements:
EXPAND INTERNATIONAL PRESENCE. As rapid construction of new multiple
screen motion picture theatres has extended to the international market, sales
of the Company's products to international end users are becoming increasingly
important to the Company. Net sales to foreign customers, primarily of theatre
products, increased from $11.3 million or 29.4% of consolidated net revenues in
1995 to $22.0 million or 29.3% of consolidated net revenues in 1998 including
sales by Westrex. The Company believes that its smaller international market
share represents an attractive growth opportunity, as the Company intends to
seek a greater market share for its products internationally by working with
its domestic dealers and U.S.-based motion picture exhibitor customers as they
expand abroad. In addition, the Company is seeking to continue to strengthen and
develop its international presence through its international dealer network and
the Company's sales force will continue to travel extensively worldwide to
market the Company's products. The Company believes that as a result of these
efforts, it is well-positioned to expand its brand name recognition and
international market share.
EMPHASIZE CUSTOMER SERVICE. The Company seeks to develop and maintain
strong customer relationships by offering a wide variety of standardized
commercial theatre and restaurant equipment, working closely with its customers
to fully understand their needs and furnishing value-added services such as (i)
expertise in engineering and manufacturing high-quality, reliable and innovative
products (often designed to customer specifications), (ii) prompt order
fulfillment and delivery and (iii) after-sale technical support and emergency
service. The Company further supports its products through its replacement parts
business, which represents an additional source of recurring income that is less
dependent on new screen construction. The Company believes that one of its
competitive advantages is its superior customer service, which has resulted in
strong, long-lasting customer relationships.
LEVERAGE MANUFACTURING EXPERTISE. The Company's position as a fully
integrated manufacturer enables it to develop, design and customize its products
to meet customer specifications and to respond quickly to customers' requests
for replacement parts and repair. The Company believes that its integrated
manufacturing capabilities allow it to rapidly increase its manufacturing
capacity, thereby providing it with a competitive advantage in meeting its
customers' accelerating delivery schedules. In addition, its manufacturing
capabilities, combined with its emphasis on customer service, have contributed
to retaining strong customer relationships and developing new business
opportunities and products in both the traditional theatre equipment market and
the special venue market.
EXPLORE STRATEGIC ACQUISITIONS. The Company has historically been
successful in identifying and acquiring complementary businesses, which have
been profitable for its core operations. The Company plans to continue to
explore opportunities to acquire companies which complement its sales and
marketing and manufacturing expertise, as well as companies which provide
opportunities for geographical expansion of its dealer network and product line
expansion.
EXPAND SPECIAL VENUE BUSINESS. The Company believes that there is
increasing consumer demand for large screen format presentations and other forms
of motion picture-based entertainment which use visual and multimedia special
effects. Although sales of special venue products currently represent only a
small percentage of the Company's net sales, the Company believes that
increasing public demand for such products and the increased publicity generally
associated with special venue products create an attractive opportunity for
future growth.
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EXPAND ENTERTAINMENT LIGHTING SEGMENT. The Company intends to consolidate
the fragmented specialty entertainment lighting industry through complementary
acquisitions. In addition, the Company expects to leverage its existing customer
and distribution network to grow this division internally.
PRODUCTS
MOTION PICTURE PROJECTION EQUIPMENT
The Company is a leading developer, manufacturer and distributor of
commercial motion picture projection equipment in the U.S. and abroad. 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 industrywide recognized trademarks of
Strong(TM), Simplex(TM), Century(R), Optimax(R), and Ballantyne(TM). The
Company's commercial motion picture projection equipment may be sold
individually or as an integrated system with other components manufactured by
the Company. The Company's commercial motion picture projection equipment can
fully outfit and automate a motion picture projection booth.
The Company's lamphouse consoles are unique to the industry in that they
incorporate a 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-deck 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 the need for an
operator to change reels during the showing of the motion picture.
Pursuant to a distribution agreement with ISCO-Optic GmbH of Germany, the
Company has the exclusive right to distribute ISCO-Optic lenses in North
America. Under the distribution agreement, the Company's exclusive right
continues through April 30, 2006, subject to the attainment of minimum sales
quotas (which the Company has historically exceeded), 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. In addition to incorporating the ISCO-Optic lenses into
its own equipment, the Company distributes ISCO-Optic lenses to customers with
operations in the theatre and audio visual industries. ISCO-Optic lenses have a
leading market share in the U.S. commercial motion picture projector lens market
and have won two Academy Awards for technical achievement. The Company does not
have any similar right outside of North America.
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.
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REPLACEMENT PARTS
The Company has a significant installed base of motion picture projectors.
Although these projectors have an average useful life in excess of 20 years,
periodic replacement of components is required as a matter of routine
maintenance, in most cases with parts manufactured by the Company. The Company
believes that growth in the installed base of commercial motion picture
projectors should result in increased net sales of replacement parts for the
Company's commercial motion picture projection equipment. Replacement part sales
represent a recurring revenue source for the Company, which is less dependent on
new screen construction. Net sales of the Company's replacement parts were $7.3
million, $7.3 million and $6.1 million for 1998, 1997 and 1996, respectively.
Sales of replacement parts fluctuate from quarter to quarter and are not
directly related to the volume of projection equipment sold but are more a
function of the needs of current customers which have projection systems
previously purchased from the Company.
SPECIAL VENUE PRODUCTS
The Company has sold customized commercial motion picture equipment
directly to special venue customers such as Imax Corporation, The Walt Disney
Company and Electrosonic Systems, Inc. for use at special venue sites such as
the Magic Kingdom, EPCOT Center, IMAX Ridefilms Simulators, Universal Studios
and Busch Gardens. The Company works closely with its customers to develop,
design and engineer customized projection equipment to accommodate various
formats required for the special venue industry. The Company manufacturers 4, 5,
8 and 10 perforation 35mm and 70mm projection systems for large-screen,
simulation ride and planetarium applications and for other venues that require
special effects. The Company's ability as a fully integrated manufacturer
enables it to work closely with its customers from initial concept and design
through manufacturing to the customers' specifications. The Company believes
that its reputation for quality and responsiveness and its collaboration with
MegaSystems, Inc. provides a competitive advantage in these markets.
SPOTLIGHT AND OTHER ILLUMINATION PRODUCTS
The Company is a leading developer, manufacturer and distributor of
long-range follow spotlights in the U.S. and abroad. These 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
light beam as it is narrowed from flood to spot. The Company's long-range follow
spotlights are marketed under the Strong(TM) trademark under recognized brand
names such as Super Trouper(R), Gladiator(TM) and Roadie(TM).
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 RCA Dome in Indianapolis,
the Continental Airlines Arena in the New Jersey Meadowlands and Sheffield Arena
in the United Kingdom, as well as at special venue sites such as the 1996 Summer
Olympics and in world tours by, among others, the Rolling Stones, R.E.M. and
Pink Floyd.
The Company, through its wholly-owned subsidiary, Xenotech Strong, Inc.
("Xenotech") is a manufacturer and supplier (through both rental and outright
sale) of high intensity searchlights and computer-based lighting systems for the
motion picture production, television, live entertainment, theme park and
architectural industries. The Company's computer-based lighting systems are
marketed under the Xenotech(TM) and Britelights(R) trademarks, while the high
intensity searchlights are marketed under the Sky-Tracker(TM) trademark.
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Xenotech's and Britelight's specialty illumination products have been used
in numerous feature films including BATMAN, TERMINATOR I, TERMINATOR II and
INDEPENDENCE DAY and have also been used at live performances such as the Super
Bowl half-time shows and are currently illuminating such venues as the Luxor
Hotel Casino and the Stratosphere Hotel and Casino in Las Vegas, Nevada. These
products are marketed directly to customers in North America, Europe, South
America and the Pacific Rim.
Sky-Tracker's products have been used at Walt Disney World, Universal
Studios, various Olympic Games, grand openings and also have been used by
touring musical acts such as The Rolling Stones, and Van Halen.
The Company believes that it can expand Xenotech's and Sky-Tracker's sales
without incurring significant additional expense by utilizing the Company's
existing domestic and international dealer network to sell these products and
reducing manufacturing costs for previously outsourced products. To achieve this
goal, the Company began manufacturing substantially all of the components for
these specialty lights during the fourth quarter of 1998.
RESTAURANT PRODUCTS
The Company's restaurant product line consists of commercial food service
equipment, principally pressure fryers and barbecue/slow roast ovens. The
Company's pressure fryers account for the majority of its commercial food
service equipment net sales. The Company's restaurant product line is marketed
under the Flavor-Crisp(R) and Flavor-Pit(R) trademarks. The Company's commercial
food service equipment is supplemented by seasonings, marinades and barbecue
sauces manufactured to the Company's specifications by various food product
contractors, and by mesquite and hickory woods, paper serving products and point
of purchase displays.
The Company sells its restaurant product line through dealers, who sell
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 and Wal-Mart
for use in their delicatessens and sit-down eateries.
SALES, MARKETING AND CUSTOMER SERVICE
The Company markets and sells its product primarily through a network of
over 200 domestic and international dealers to major movie exhibitors, sports
arenas and amusement park operators. The Company also sells directly to end
users. The Company services its customers in large part through this dealer
network, however, the Company does have technical support personnel to provide
necessary assistance to the end user or to assist the dealer network. Sales and
marketing professionals principally develop business by maintaining regular
personal customer contact, including conducting site visits, while customer
service and technical support functions are primarily centralized and dispatched
when needed. During 1998, the Company relocated one sales professional to Asia
and added another in Germany as the Company executes its international sales
plan. In addition, the Company markets its products in trade publications such
as Film Journal and Box Office and by participating in annual major industry
trade shows such as ShowWest in Las Vegas, ShowEast in Atlantic City, CineAsia
in Asia and Cinema Expo in Europe.
The Company's sales and marketing professionals in all three business
segments have extensive experience with the Company's product lines and have
long-term relationships with many current and potential customers. By virtue of
these relationships, the Company can anticipate marketplace demand, and alter
its production schedule accordingly. The Company believes that its continuing
sales and marketing focus on anticipating and addressing customer needs and
providing consistent, high-level service has enabled it to become the industry
market leader in the theatre segment.
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For the years ended December 31, 1998, 1997 and 1996, sales to a customer
represented approximately 15%, 20% and 16% of consolidated net revenues,
respectively. For the year ended December 31, 1998, sales to another customer
represented approximately 14% of consolidated net revenues.
BACKLOG
At December 31, 1998 and 1997, the Company had backlogs of $16.6 million
and $12.7 million, respectively. Such backlogs mainly consisted of orders
received with a definite shipping date within twelve months. These backlogs
typically increase during the year to reflect increases in the construction of
new motion picture screens in anticipation of the holiday movie season. Backlog
figures are not necessarily indicative of sales or income for any full
twelve-month period.
MANUFACTURING
The Company's manufacturing operations are primarily conducted at its
Omaha, Nebraska manufacturing facility and the manufacturing facility in Fisher,
Illinois acquired with the purchase of Design & Manufacturing, Ltd. during 1998.
The Company's manufacturing operations at both locations consist primarily of
engineering, quality control, testing, material planning, machining,
fabricating, assembly and packaging and shipping. The Company believes that
Omaha's and Fisher's central location has and will serve to reduce the Company's
transportation costs and delivery times of products to the East and West Coasts
of the U.S. The Company's manufacturing strategy is to (i) minimize costs
through manufacturing efficiencies, (ii) employ flexible assembly processes that
allow the Company to customize certain of its products and adjust the relative
mix of products to meet demand, (iii) reduce labor costs through the increased
use of computerized numerical control machines for the machining of products and
(iv) use outside contractors as necessary to meet increased customer demand.
The Company currently manufactures the majority of the components used in
its products. The Company believes that its integrated manufacturing operations
help maintain the high quality of its products and its ability to customize
products to customer specifications. 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 intermittent movement components and lenses
for its commercial motion picture projection equipment lenses and aluminum
kettles for its pressure fryers. Although the Company has not to-date
experienced a 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.
QUALITY CONTROL
The Company believes that its design standards, quality control
procedures, and the quality standards for the materials and components used in
its products have contributed significantly to the reputation of its products
for high performance and reliability. The Company has implemented a quality
control program for its theatre, lighting and restaurant product lines which is
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.
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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.
RESEARCH AND DEVELOPMENT
The Company's ability to compete successfully depends, in part, upon its
continued close work with its existing and new customers. The Company focuses
its research and development efforts on the development of new products based on
its customers' requirements, including the development of products used for
special venues. The Company believes that the introduction of more special venue
products will provide opportunity for further growth, both domestically and
internationally. Research and development costs charged to operations amounted
to approximately $746,000, $647,000 and $485,000 for the years ended December
31, 1998, 1997 and 1996, respectively.
COMPETITION
Although the Company has a leading position in the domestic motion picture
projection equipment market, the domestic and international markets for
commercial motion picture projection equipment are highly competitive. Major
competitors for the Company's motion picture projection equipment include
Christie Electric Corporation, Cinemeccanica SpA and Kinoton GmbH. In addition
to existing motion picture equipment manufacturers, the Company may also
encounter competition from new competitors, as well as from the development of
new technology for alternative means of motion picture presentation. No
assurance can be given that the equipment manufactured by the Company will not
become obsolete as technology advances. Certain of the Company's competitors for
its motion picture projection equipment have significantly greater resources
than the Company. The Company competes in the commercial motion picture
projection equipment industry primarily on the basis of quality, fulfillment and
delivery, price, after-sale technical support and product customization
capabilities.
The markets for the Company's long-range follow spotlight, other
illumination and restaurant products are also highly competitive. The Company
competes in the illumination industry primarily on the basis of quality, price
and product line variety. The Company competes in the restaurant products
industry primarily on the basis of price and equipment design. Certain of the
Company's competitors for its long-range follow spotlights, other illumination
and restaurant products have significantly greater resources than the Company.
PATENTS AND TRADEMARKS
The Company owns or otherwise has rights to numerous trademarks used in
conjunction with the sale of its products. The Company believes that its success
will not be dependent upon patent protection, but rather upon its scientific and
engineering "know-how" and research and production techniques.
EMPLOYEES
As of March 1, 1999 the Company had a total of 386 employees. The Company
is not a party to any collective bargaining agreement and believes that its
relationship with its employees is good.
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ENVIRONMENTAL MATTERS
The Company's operations involve the handling and use of substances that
are subject to Federal, state and local environmental laws and regulations that
impose limitations on the discharge of pollutants into the soil, air and water
and establish standards for their storage and disposal. A risk of environmental
liabilities is inherent in manufacturing activities. The Company believes that
it is in material compliance with environmental laws, but there can be no
assurance that future additional environmental compliance or remediation
obligations will not arise or that such operations could not have a material
adverse effect on the Company. The Company does not anticipate any material
capital expenditures for environmental matters during 1999.
ITEM 2. PROPERTIES
The Company's headquarters and main manufacturing facility is located at
4350 McKinley Street, Omaha, Nebraska, where it owns a building consisting of
approximately 160,000 square feet on approximately 12.0 acres. The premises are
used for offices and for the manufacture, assembly and distribution of its
products, other than those for one of its wholly-owned subsidiaries, Design and
Manufacturing, Inc. ("Design"). The Design subsidiary is located in Fisher,
Illinois on 2 acres and has one building, with 31,600 square feet under roof.
The Company also leases a sales and rental facility for its new audio visual
division in Orlando and Ft. Lauderdale, Florida. The Company also leases a sales
and service facility in Hong Kong.
Through its wholly-owned subsidiary, Xenotech Strong, Inc., the Company
leases a 24,500 square foot sales and rental facility in North Hollywood,
California for the sale and rental of its specialty lighting products.
Xenotech Strong, Inc. also leases a sales and rental facility in Orlando,
Florida and one in Atlanta, Georgia.
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. Management believes that the
ultimate resolution of all pending litigation will not have a material adverse
effect on the Company's financial statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of fiscal 1998, no issues were submitted to a
vote of stockholders.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER'S
MATTERS
The Common Stock is listed and traded on the NYSE under the symbol "BTN".
Prior to December 5, 1997, the Company was listed on the American Stock Exchange
(the "AMEX"). The following table sets forth the high and low per share sale
price for the Common Stock as reported by the NYSE and the AMEX for the periods
indicated (rounded to the nearest 1/8)
HIGH LOW
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1998
First Quarter 11 1/8 9 1/8
Second Quarter 13 1/8 6 1/4
Third Quarter 8 5/8 6 3/8
Fourth Quarter 8 3/8 5 1/2
1997
First Quarter 10 3/8 7 3/4
Second Quarter 11 5/8 8 7/8
Third Quarter 14 1/4 10 7/8
Fourth Quarter 12 1/2 9 1/2
1996
First Quarter 3 7/8 3
Second Quarter 7 1/2 3 5/8
Third Quarter 6 7/8 4 5/8
Fourth Quarter 8 3/8 5 7/8
On March 23, 1999 the last reported per share sale price for the Common
Stock was $7.25. At March 23, 1999, there were 205 holders of record of the
Common Stock and the Company had 12,664,371 shares of Common Stock outstanding.
DIVIDEND POLICY
The Company intends to retain its earnings to assist in financing its
business and does not anticipate paying any cash dividends on its Common Stock
in the foreseeable future. The declaration and payment of dividends by the
Company are also subject to the discretion of the Board. The Company's line of
credit contains certain prohibitions on the payment of cash dividends. Any
determination by the Board as to the payment of dividends in the future will
depend upon, among other things, business conditions and the Company's financial
condition and capital requirements, as well as any other factors deemed relevant
by the Board.
ITEM 6. SELECTED FINANCIAL DATA
Incorporated by reference to the Company's Annual Report as set forth on
page 15.
11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Incorporated by reference to the Company's Annual Report as set forth on pages
10 through 15.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has evaluated its exposure to fluctuation in the interest rate
and foreign currency environment and has concluded that its exposure to these
fluctuations would not be material to the consolidated financial statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements called for by this item are hereby incorporated by
reference to the Company's Annual Report as set forth on pages 17 through 35,
together with the independent auditor's report on page 16. The supplemental
quarterly financial information is incorporated herein by reference to page 35
of the Company's Annual Report.
INDEPENDENT AUDITORS' REPORT ON
CONSOLIDATED FINANCIAL STATEMENT SCHEDULE
Board of Directors and Shareholders
Ballantyne of Omaha, Inc.
We have audited the consolidated financial statements of Ballantyne of Omaha,
Inc. and Subsidiaries (the Company) as of December 31, 1998 and 1997 and for the
three-year period ended December 31, 1998, and have issued our report thereon
dated January 18, 1999; such consolidated financial statements and report are
included in the 1998 Annual Report to Shareholders of the Company and are
incorporated herein by reference. Our audits also included the consolidated
financial statement schedule of the Company for the three-year period ended
December 31, 1998 listed in Item 14 of this Form 10-K. This consolidated
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion based on our audits. In our opinion,
such consolidated financial statement schedule, when considered in relation to
the 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 18, 1999
12
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated by reference from the Ballantyne of Omaha, Inc. Proxy
Statement for the Annual Meeting of Stockholders to be held May 18, 1999, 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 the Annual Meeting of Stockholders to be held May 18, 1999, under
the caption REPORT ON EXECUTIVE COMPENSATION.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference from the Ballantyne of Omaha, Inc. Proxy
Statement for the Annual Meeting of Stockholders to be held May 18, 1999, 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 the Annual Meeting of Stockholders to be held May 18, 1999, under
the caption CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
13
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:
The following consolidated financial statements of Ballantyne of
Omaha, Inc. and subsidiaries have been incorporated by reference
to pages 16 through 35 of the Company's Annual Report to
Shareholders for the year ended December 31, 1998:
Independent Auditor's Report - Three-Year Period Ended December
31, 1998.
Consolidated Balance Sheets - December 31, 1998 and 1997.
Consolidated Statements of Income - Three-Year Period Ended
December 31, 1998.
Consolidated Statements of Stockholders' Equity - Three-Year
Period Ended December 31, 1998.
Consolidated Statements of Cash Flows - Three-Year Period Ended
December 31, 1998.
Notes to Consolidated Financial Statements - Three-Year Period
Ended December 31, 1998.
Consolidated Financial Statement Schedule - Three-Year Period
Ended December 31, 1998.
SCHEDULE II - Valuation and Qualifying Accounts
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.
Separate financial statements of the Registrant have been
omitted because the Registrant meets the requirement which
permit omission.
b. Reports on Form 8-K filed for the three months ended December 31, 1998:
1. None
14
Page No.
--------
c. Exhibits (Numbered in accordance with Item 601 of Regulation S-K):
2.5 Asset Purchase Agreement dated April 1, 1997 between the Company
and Xenotech, Inc. (incorporated by reference to Exhibit 2.5 to
the Form 10-Q for the quarter ended June 30, 1997)
2.6 Asset Purchase Agreement dated September 8, 1997 between the
Company and Sky-Tracker of America, Inc. (incorporated by
reference to Exhibit 2.6 to the Form 10-Q for the quarter ended
September 30, 1997)
2.7 Asset Purchase Agreement dated January 29, 1998 between the
Company and Sky-Tracker of Florida, Inc. (incorporated by
reference to Exhibit 2.7 to the Form 10-K for the year ended
December 31, 1997) (the "1997 10-K")
2.8 Asset Purchase Agreement between the Company and Design and
Manufacturing, Ltd. (incorporated by reference to Exhibit 2.8 to
the Form 10-Q for the quarter ended March 31, 1998)
2.9 Asset Purchase Agreement between the Company and ARC, EFX,
Inc...................................................................21
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")
3.1.1 Amendment to the Certificate of Incorporation (incorporated by
reference to Exhibit 3.1.1 to Form 10-Q for the quarter ended
June 30, 1997)
3.2 Bylaws of the Company as amended through August 24, 1995
(incorporated by reference to Exhibit 3.2 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 "1995 Form
10-K")
4.3 Second Amendment to Loan Agreement dated August 30, 1995 between
the Company and Norwest Bank Nebraska, N.A. dated August 29,
1997 (incorporated by reference to Exhibit 4.3 to the Form 10-Q
for the quarter ended September 30, 1997)
4.4 Third Amendment to Loan Agreement dated August 30, 1995 between
the Company and Norwest Bank, N.A. dated December 1, 1998.............31
15
Page No.
--------
10.17 Amendment to the Company's 1995 Stock Option Plan (incorporated
by reference to Exhibit 10.17 to the Form 10-Q for the quarter
ended June 30, 1998)
10.18 Amendment to the Company's 1995 Outside Directors Stock Option
Plan (incorporated by reference to Exhibit 10.18 to the Form
10-Q for the quarter ended June 30, 1998)
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) *
10.3.2 Employment Agreement between the Company and John Wilmers dated
January 1, 1997 (incorporated by reference to the 1996 Form
10-K) *
10.3.3 Employment Agreement between the Company and Ray F. Boegner
dated November 20, 1996 (incorporated by reference to Exhibit
10.3.3 to the Form 10-Q for the quarter ended March 31, 1997) *
10.3.4 Employment Agreement between the Company and Richard Hart dated
April 1, 1997 (incorporated by reference to Exhibit 10.3.4 to
the Form 10-Q for the quarter ended June 30, 1997) *
10.3.5 Non-competition Agreement between the Company and Richard Hart
(incorporated by reference to Exhibit 10.3.5 to the Form 10-Q
for the quarter ended June 30, 1997) *
10.3.6 Consulting Agreement between the Company and Marlowe A. Pichel
(incorporated by reference to Exhibit 10.3.6 to Form 10-Q for
the quarter ended September 30, 1997) *
10.3.7 Non-competition Agreement between the Company and Marlowe A.
Pichel (incorporated by reference to Exhibit 10.3.7 to Form 10-Q
for the quarter ended September 30, 1997) *
10.3.8 Employment Agreement dated May 1, 1998 between the Company and
Brad French (incorporated by reference to Exhibit 10.36 to the
Form 10-Q for the quarter ended June 30, 1998) *
10.3.9 Consulting Agreement between the Company and Arnold S. Tenney
dated January 1, 1999.................................................37
10.6 Distributorship Agreement dated as of March 1, 1992 between
ISCO-Optic GmbH and the Company (incorporated by reference to
Exhibit 10.6 to the Form S-1)
16
Page No.
--------
10.6.1 First Amendment dated December 4, 1998, to Distributorship
Agreement dated as of March 1, 1992, between ISCO-Optic GmbH and
the Company...........................................................39
10.7 Form of 1995 Stock Option Plan (incorporated by reference to
Exhibit 10.7 to the Form S-1)
10.7.1 Amendment to Stock Option Agreement (incorporated by reference to
Exhibit 10.16 to the Form 10-Q for the quarter ended June 30,
1997)
10.8 Form of 1995 Outside Directors Stock Option Plan as amended as
of June 11, 1996 (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 for the quarter ended June 30,
1996)
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 (incorporated
by reference to Exhibit 10.9.1 to the 1996 Form 10-K)
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) *
10.10.1 Amendment to Management Services Agreement by and between the
Company and Canrad, Inc. dated July 1, 1997 (incorporated by
reference to the 1997 Form 10-K)*
10.10.2 Second Amendment to Management Services Agreement by and between
the Company and Canrad, Inc. dated January 1, 1999....................41
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 (incorporated by reference
to Exhibit 10.11.1 to the 1996 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 for the quarter
ended June 30, 1996)
17
13 Annual Report to
Shareholders..........................................................
11 Computation of net earnings per share.................................42
21 Registrant owns 100% of the outstanding capital stock of the
following subsidiaries:
Jurisdiction of
Name Incorporation
---- -------------
a. Strong Westrex, Inc. Nebraska
b. Xenotech Rental Corp. Nebraska
c. Design & Manufacturing, Inc. Nebraska
d. Xenotech Strong, Inc. Nebraska
23 Consent of KPMG Peat Marwick LLP...................................... 43
27 Financial Data Schedule (for SEC information only)
* Management contract or compensatory plan.
18
SCHEDULE II
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
--------- ------- ------- -------
ALLOWANCE FOR DOUBTFUL ACCOUNTS
Year ended December 31, 1998 -
Allowance for doubtful accounts $ 215,823 273,122 92,160 396,785
--------- ------- ------- -------
--------- ------- ------- -------
Year ended December 31, 1997 -
Allowance for doubtful accounts $ 143,000 187,110 114,287 215,823
--------- ------- ------- -------
--------- ------- ------- -------
Year ended December 31, 1996-
Allowance for doubtful accounts $ 118,003 63,995 38,998 143,000
--------- ------- ------- -------
--------- ------- ------- -------
INVENTORY RESERVES
Year ended December 31, 1998 -
Inventory reserves $ 957,683 293,503 147,191 1,103,995
--------- ------- ------- -------
--------- ------- ------- -------
Year ended December 31, 1997 -
Inventory reserves $ 879,486 601,201 523,004 957,683
--------- ------- ------- -------
--------- ------- ------- -------
Year ended December 31, 1996-
Inventory reserves $ 773,272 256,428 150,214 879,486
--------- ------- ------- -------
--------- ------- ------- -------
WARRANTY RESERVES
Year ended December 31, 1998 -
Warranty reserves $ 98,720 446,085 368,882 175,983
--------- ------- ------- -------
--------- ------- ------- -------
Year ended December 31, 1997 -
Warranty reserves $ 165,953 403,656 470,889 98,720
--------- ------- ------- -------
--------- ------- ------- -------
Year ended December 31, 1996-
Warranty reserves $ 149,137 380,000 363,184 165,953
--------- ------- ------- -------
--------- ------- ------- -------
(1)The deductions from reserves are net of recoveries
19
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, Treasurer,
Chief Executive Officer, and Director and Chief Financial Officer
Date: March 15, 1998 Date: March 15, 1998
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
Director
Date: March 15, 1998 Date: March 15, 1998
By: /s/ Jeffrey D. Chelin By: /s/ Colin G. Campbell
------------------------------------ ------------------------------------
Jeffrey D. Chelin, Director Colin G. Campbell, Director
Date: March 15, 1998 Date: March 15, 1998
By: /s/ Yale Richards By: /s/ Marshall Geller
------------------------------------ ------------------------------------
Yale Richards, Director Marshall Geller, Director
Date: March 15, 1998 Date: March 15, 1998
20