SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15 (d) of
the Securities Exchange Act of 1934
For Quarter Ended September 30, 2001 | Commission File Number | |
1-13906 |
BALLANTYNE OF OMAHA, INC.
(Exact name of Registrant as specified in its charter)
Delaware | ||||
(State or other jurisdiction of Incorporation or organization) | 47-0587703 (IRS Employer Identification Number) | |||
4350 McKinley Street, Omaha, Nebraska 68112 (Address of principal executive offices including zip code) |
4350 McKinley Street, Omaha, Nebraska 68112(Address of principal executive offices including zip code)
Registrant's telephone number, including area code:
(402) 453-4444
Indicate by check mark whether Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X/x/ No / /
Indicate the number of shares outstanding of each of the Registrant's classes of common stock as of the latest practicable date:
Class | Outstanding as of October 31, 2001 | ||||
---|---|---|---|---|---|
Common Stock, $.01 | |||||
par value | 12,512,672 shares |
BALLANTYNE OF OMAHA, INC. AND SUBSIDIARIES
Index
Part I. FINANCIAL INFORMATION
Page | |||||
---|---|---|---|---|---|
Item 1. Financial Statements | |||||
Consolidated Balance | 2 | ||||
Consolidated Statements of | 3 | ||||
Consolidated Statements of Cash | 4 | ||||
Notes to Consolidated Financial Statements | 5 | ||||
Item 2. Management's Discussion and Analysis of Financial Condition | |||||
and Results of Operations | 11 | ||||
Item 3. Quantitative and Qualitative Disclosures About Market Risk | 18 | ||||
Part II. OTHER INFORMATION | |||||
Item 6. Exhibits and Reports on Form 8-K | |||||
Signatures |
1
Item 1. Financial Statements
Ballantyne of Omaha, Inc. and Subsidiaries
Consolidated Balance Sheets
| | June 30, 2001 | December 31, 2000 | | September 30, 2001 | December 31, 2000 | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | (Unaudited) | | | (Unaudited) | | |||||||||||||
Assets | Assets | Assets | |||||||||||||||||
Current assets: | Current assets: | Current assets: | |||||||||||||||||
Cash and cash equivalents | $ | 744,860 | $ | 2,220,983 | Cash and cash equivalents | $ | 1,519,572 | $ | 2,220,983 | ||||||||||
Accounts receivable (less allowance for doubtful accounts of $1,183,340 in 2001 and $1,034,989 in 2000) | 9,856,739 | 8,447,856 | Accounts receivable (less allowance for doubtful accounts of $658,065 in 2001 and $1,034,989 in 2000) | 9,938,205 | 8,447,856 | ||||||||||||||
Inventories | 18,005,888 | 22,720,499 | Inventories | 15,261,060 | 22,720,499 | ||||||||||||||
Recoverable income taxes | 1,649,049 | 1,554,853 | Recoverable income taxes | 601,417 | 1,554,853 | ||||||||||||||
Deferred income taxes | 2,203,472 | 1,875,194 | Deferred income taxes | 2,236,143 | 1,875,194 | ||||||||||||||
Other current assets | 83,516 | 29,572 | Other current assets | 140,919 | 29,572 | ||||||||||||||
Total current assets | 32,543,524 | 36,848,957 | Total current assets | 29,697,316 | 36,848,957 | ||||||||||||||
Plant and equipment, net | Plant and equipment, net | 11,501,475 | 12,324,366 | Plant and equipment, net | 10,952,230 | 12,324,366 | |||||||||||||
Other assets, net | Other assets, net | 2,815,422 | 2,952,617 | Other assets, net | 2,878,229 | 2,952,617 | |||||||||||||
Total assets | $ | 46,860,421 | $ | 52,125,940 | Total assets | $ | 43,527,775 | $ | 52,125,940 | ||||||||||
Liabilities and Stockholders' Equity | Liabilities and Stockholders' Equity | Liabilities and Stockholders' Equity | |||||||||||||||||
Current liabilities: | Current liabilities: | Current liabilities: | |||||||||||||||||
Notes payable to bank | $ | 4,622,016 | $ | 8,870,000 | Current portion of long-term debt | $ | 375,000 | $ | 8,870,000 | ||||||||||
Accounts payable | 2,640,230 | 2,289,111 | Accounts payable | 2,519,139 | 2,289,111 | ||||||||||||||
Accrued expenses | 4,179,640 | 4,052,836 | Accrued expenses | 3,960,896 | 4,052,836 | ||||||||||||||
Total current liabilities | 11,441,886 | 15,211,947 | Total current liabilities | 6,855,035 | 15,211,947 | ||||||||||||||
Deferred income taxes | Deferred income taxes | 812,838 | 905,007 | Deferred income taxes | 780,096 | 905,007 | |||||||||||||
Long-term debt | Long-term debt | 2,133,380 | — | ||||||||||||||||
Stockholders' equity: | Stockholders' equity: | Stockholders' equity: | |||||||||||||||||
Preferred stock, par value $.01 per share; authorized 1,000,000 shares, none outstanding | — | — | Preferred stock, par value $.01 per share; authorized 1,000,000 shares, none outstanding | — | — | ||||||||||||||
Common stock, par value $.01 per share; authorized 25,000,000 shares; issued 14,610,477 shares in 2001 and 2000 | 146,105 | 146,105 | Common stock, par value $.01 per share; authorized 25,000,000 shares; issued 14,610,477 shares in 2001 and 2000 | 146,105 | 146,105 | ||||||||||||||
Additional paid-in capital | 31,734,787 | 31,734,787 | Additional paid-in capital | 31,734,787 | 31,734,787 | ||||||||||||||
Retained earnings | 18,040,259 | 19,443,548 | Retained earnings | 17,193,826 | 19,443,548 | ||||||||||||||
49,921,151 | 51,324,440 | 49,074,718 | 51,324,440 | ||||||||||||||||
Less 2,097,805 common shares in treasury, at cost | Less 2,097,805 common shares in treasury, at cost | (15,315,454 | ) | (15,315,454 | ) | Less 2,097,805 common shares in treasury, at cost | (15,315,454 | ) | (15,315,454 | ) | |||||||||
Total stockholders' equity | 34,605,697 | 36,008,986 | Total stockholders' equity | 33,759,264 | 36,008,986 | ||||||||||||||
Total liabilities and stockholders' equity | $ | 46,860,421 | $ | 52,125,940 | Total liabilities and stockholders' equity | $ | 43,527,775 | $ | 52,125,940 | ||||||||||
See accompanying notes to consolidated financial statements.
2
Ballantyne of Omaha, Inc. and Subsidiaries
Consolidated Statements of Operations
Three and SixNine Months Ended JuneSeptember 30, 2001 and 2000
(Unaudited)
| | Three Months Ended June 30 | Six Months Ended June 30 | | Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 2001 | 2000 | 2001 | 2000 | | 2001 | 2000 | 2001 | 2000 | |||||||||||||||||||||
Net revenues | Net revenues | $ | 10,378,487 | $ | 15,298,514 | $ | 21,965,334 | $ | 27,148,100 | Net revenues | $ | 10,977,920 | $ | 10,362,348 | $ | 32,943,254 | $ | 37,510,448 | |||||||||||||
Cost of revenues | Cost of revenues | 9,273,598 | 13,042,688 | 19,305,538 | 22,414,394 | Cost of revenues | 10,021,909 | 8,737,884 | 29,327,447 | 31,152,278 | |||||||||||||||||||||
Gross profit | 1,104,889 | 2,255,826 | 2,659,796 | 4,733,706 | Gross profit | 956,011 | 1,624,464 | 3,615,807 | 6,358,170 | ||||||||||||||||||||||
Operating expenses: | Operating expenses: | Operating expenses: | |||||||||||||||||||||||||||||
Selling | 973,299 | 1,172,702 | 1,866,752 | 2,548,176 | Selling | 904,958 | 1,143,117 | 2,771,710 | 3,691,293 | ||||||||||||||||||||||
General and administrative | 1,424,446 | 1,884,007 | 2,662,241 | 3,981,678 | General and administrative | 1,282,154 | 1,720,778 | 3,944,395 | 5,702,456 | ||||||||||||||||||||||
Total operating expenses | 2,397,745 | 3,056,709 | 4,528,993 | 6,529,854 | Total operating expenses | 2,187,112 | 2,863,895 | 6,716,105 | 9,393,749 | ||||||||||||||||||||||
Loss from operations | (1,292,856 | ) | (800,883 | ) | (1,869,197 | ) | (1,796,148 | ) | Loss from operations | (1,231,101 | ) | (1,239,431 | ) | (3,100,298 | ) | (3,035,579 | ) | ||||||||||||||
Interest income | Interest income | 4,434 | 2,481 | 17,318 | 8,782 | Interest income | 227 | 6,942 | 17,545 | 15,724 | |||||||||||||||||||||
Interest expense | Interest expense | (141,188 | ) | (303,580 | ) | (262,307 | ) | (548,054 | ) | Interest expense | (45,941 | ) | (248,410 | ) | (308,248 | ) | (796,464 | ) | |||||||||||||
Net interest expense | (136,754 | ) | (301,099 | ) | (244,989 | ) | (539,272 | ) | Net interest expense | (45,714 | ) | (241,468 | ) | (290,703 | ) | (780,740 | ) | ||||||||||||||
Loss before income taxes | (1,429,610 | ) | (1,101,982 | ) | (2,114,186 | ) | (2,335,420 | ) | Loss before income taxes | (1,276,815 | ) | (1,480,899 | ) | (3,391,001 | ) | (3,816,319 | ) | ||||||||||||||
Income tax benefit | Income tax benefit | 490,394 | 432,019 | 710,897 | 856,518 | Income tax benefit | 430,382 | 413,962 | 1,141,279 | 1,270,480 | |||||||||||||||||||||
Net loss | $ | (939,216 | ) | $ | (669,963 | ) | $ | (1,403,289 | ) | $ | (1,478,902 | ) | Net loss | $ | (846,433 | ) | $ | (1,066,937 | ) | $ | (2,249,722 | ) | $ | (2,545,839 | ) | ||||||
Net loss per share: | Net loss per share: | Net loss per share: | |||||||||||||||||||||||||||||
Basic | $ | (0.08 | ) | $ | (0.05 | ) | $ | (0.11 | ) | $ | (0.12 | ) | Basic | $ | (0.07 | ) | $ | (0.09 | ) | $ | (0.18 | ) | $ | (0.20 | ) | ||||||
Diluted | $ | (0.08 | ) | $ | (0.05 | ) | $ | (0.11 | ) | $ | (0.12 | ) | Diluted | $ | (0.07 | ) | $ | (0.09 | ) | $ | (0.18 | ) | $ | (0.20 | ) | ||||||
Weighted average shares: | Weighted average shares: | Weighted average shares: | |||||||||||||||||||||||||||||
Basic | 12,512,672 | 12,461,187 | 12,512,672 | 12,460,255 | Basic | 12,512,672 | 12,480,192 | 12,512,672 | 12,466,949 | ||||||||||||||||||||||
Diluted | 12,512,672 | 12,461,187 | 12,512,672 | 12,460,255 | Diluted | 12,512,672 | 12,480,192 | 12,512,672 | 12,466,949 | ||||||||||||||||||||||
See accompanying notes to consolidated financial statements.
3
Ballantyne of Omaha, Inc. and Subsidiaries
Consolidated Statements of Cash FlowsSixNine Months Ended JuneSeptember 30, 2001 and 2000
(Unaudited)
| | 2001 | 2000 | | 2001 | 2000 | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Cash flows from operating activities: | Cash flows from operating activities: | Cash flows from operating activities: | |||||||||||||||||
Net loss | $ | (1,403,289 | ) | $ | (1,478,902 | ) | Net loss | $ | (2,249,722 | ) | $ | (2,545,839 | ) | ||||||
Adjustments to reconcile net loss to net cash provided by operating activities | Adjustments to reconcile net loss to net cash provided by operating activities | ||||||||||||||||||
Depreciation and amortization | 1,505,690 | 1,516,574 | Depreciation and amortization | 2,268,979 | 2,284,171 | ||||||||||||||
Provision for doubtful accounts | 127,942 | 293,998 | Provision for doubtful accounts | 191,790 | 543,997 | ||||||||||||||
Gain on sale of fixed assets | (96,012 | ) | (28,958 | ) | Gain on sale of fixed assets | (96,012 | ) | (28,354 | ) | ||||||||||
Reserve for term loan | — | 511,744 | Reserve for term loan | — | 511,744 | ||||||||||||||
Changes in assets and liabilities: | Changes in assets and liabilities: | ||||||||||||||||||
Accounts receivable | (1,536,825 | ) | 1,277,303 | Accounts receivable | (1,682,139 | ) | 2,847,319 | ||||||||||||
Inventories | 4,714,611 | 1,388,722 | Inventories | 7,459,439 | 1,829,080 | ||||||||||||||
Other current assets | (53,944 | ) | 39 | Other current assets | (111,347 | ) | (7,735 | ) | |||||||||||
Accounts payable | 351,119 | (2,834,737 | ) | Accounts payable | 230,028 | (3,226,140 | ) | ||||||||||||
Accrued expenses | 126,804 | (307,595 | ) | Accrued expenses | (91,940 | ) | (440,511 | ) | |||||||||||
Income taxes | (514,643 | ) | (972,663 | ) | Income taxes | 467,576 | (1,417,126 | ) | |||||||||||
Other assets | (26,719 | ) | (75,811 | ) | Other assets | (171,483 | ) | (62,595 | ) | ||||||||||
Net cash provided by (used in) operating activities | 3,194,734 | (710,286 | ) | Net cash provided by operating activities | 6,215,169 | 288,011 | |||||||||||||
Cash flows from investing activities: | Cash flows from investing activities: | Cash flows from investing activities: | |||||||||||||||||
Proceeds from sales of fixed assets | 184,342 | 55,525 | Proceeds from sales of fixed assets | 184,342 | 113,570 | ||||||||||||||
Capital expenditures | (607,215 | ) | (952,519 | ) | Capital expenditures | (739,302 | ) | (1,543,569 | ) | ||||||||||
Net cash used in investing activities | (422,873 | ) | (896,994 | ) | Net cash used in investing activities | (554,960 | ) | (1,429,999 | ) | ||||||||||
Cash flows from financing activities: | Cash flows from financing activities: | Cash flows from financing activities: | |||||||||||||||||
Repayments of long-term debt | — | (68,877 | ) | Proceeds from long-term debt | 1,875,000 | — | |||||||||||||
Net proceeds (payments) on note payable to bank | (4,247,984 | ) | 1,673,000 | Payments of long-term debt | (31,250 | ) | (68,877 | ) | |||||||||||
Proceeds from exercise of stock options | — | 52,172 | Net proceeds (payments) on revolving credit facility | (8,205,370 | ) | 949,000 | |||||||||||||
Proceeds from exercise of stock options | — | 52,172 | |||||||||||||||||
Net cash provided by (used in) financing activities | (4,247,984 | ) | 1,656,295 | ||||||||||||||||
Net cash provided by (used in) financing activities | (6,361,620 | ) | 932,295 | ||||||||||||||||
Net increase (decrease) in cash and cash equivalents | (1,476,123 | ) | 49,015 | ||||||||||||||||
Net decrease in cash and cash equivalents | (701,411 | ) | (209,693 | ) | |||||||||||||||
Cash and cash equivalents at beginning of period | Cash and cash equivalents at beginning of period | 2,220,983 | 857,089 | Cash and cash equivalents at beginning of period | 2,220,983 | 857,089 | |||||||||||||
Cash and cash equivalents at end of period | Cash and cash equivalents at end of period | $ | 744,860 | $ | 906,104 | Cash and cash equivalents at end of period | $ | 1,519,572 | $ | 647,396 | |||||||||
See accompanying notes to consolidated financial statements.
4
Ballantyne of Omaha, Inc. and Subsidiaries
Notes to Consolidated Financial StatementsSixNine Months Ended JuneSeptember 30, 2001
(Unaudited)
Ballantyne of Omaha, Inc., a Delaware corporation ("Ballantyne" or the "Company"), and its wholly-owned subsidiaries Strong Westrex, Inc., Design & Manufacturing, Inc., Xenotech Rental Corp. and Xenotech Strong, Inc., design, develop, manufacture and distribute commercial motion picture equipment, lighting systems, audiovisual equipment 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. During May 2001, BalCo Holdings L.L.C., ("BalCo Holdings") an affiliate of the McCarthy Group, Inc., an Omaha-based merchant banking firm, purchased 3,238,845 shares, or a 26% stake in Ballantyne from GMAC Financial Services, which obtained the block of shares from Ballantyne's former parent company, Canrad of Delaware, Inc. ("Canrad"), a subsidiary of ARC International Corporation.
The principal accounting policies upon which the accompanying consolidated financial statements are based are summarized as follows:
The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America and include all normal and recurring adjustments which are, in the opinion of management, necessary for a fair presentation of the results for the periods presented. While the Company believes that the disclosures presented are adequate to make the information not misleading, it is suggested that these consolidated financial statements be read in conjunction with the consolidated financial statements and related notes included in the Company's latest annual report on Form 10-K. The results of operations for the three and sixnine month periods ended JuneSeptember 30, 2001 are not necessarily indicative of the operating results for the full year.
Inventories are stated at the lower of cost (first-in, first-out) or market and include appropriate elements of material, labor and manufacturing overhead.
Significant expenditures for the replacement or expansion of plant and equipment are capitalized. Depreciation of plant and equipment is provided over the estimated useful lives of the respective assets using the straight-line method. Estimated useful lives range from 3 to 20 years.
The Company recognizes revenue from product sales upon shipment to the customer. Revenues related to equipment rental and services are recognized as earned over the terms of the contracts.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that effect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
5
Net loss per share—basic has been computed on the basis of the weighted average number of shares of common stock outstanding. Net loss per share—diluted has been computed on the basis of the weighted average number of shares of common stock outstanding after giving effect to potential common shares from dilutive stock options. Because the Company reported net losses for the three and sixnine months ended JuneSeptember 30, 2001 and 2000, respectively, the calculation of net loss per share—diluted excludes potential common shares from stock options, as they are anti-dilutive and would result in a reduction of loss per share. If the Company had reported net income for the three and sixnine months ended JuneSeptember 30, 2001, there would have been 80,65875,711 and 74,07573,990 additional shares in the calculation of net income per share—diluted. If the Company had reported net income for the three and sixnine months ended JuneSeptember 30, 2000, there would have been 4,59213,233 and 303,358113,205 additional shares in the calculation of net income per share—diluted.
All highly liquid financial instruments with maturities of three months or less from date of purchase are classified as cash equivalents in the consolidated balance sheets and statements of cash flows.
As permitted under SFAS No. 123, "Accounting for Stock-Based Compensation", the Company elected to account for its stock based compensation plans under the provisions of Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees", and related interpretations.
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. Based on the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies, management believes it is more likely than not that the Company will realize the benefits of deferred tax assets as of September 30, 2001.
The Company's comprehensive income consists solely of net loss. The Company had no other comprehensive income for the three and sixnine months ended JuneSeptember 30, 2001 and 2000.
6
Inventories consist of the following:
| June 30, 2001 | December 31, 2000 | September 30, 2001 | December 31, 2000 | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
| (Unaudited) | | (Unaudited) | | ||||||||
Raw materials and component parts | $ | 14,035,734 | $ | 17,511,888 | $ | 12,250,022 | $ | 17,511,888 | ||||
Work in process | 1,600,148 | 1,895,789 | 1,624,952 | 1,895,789 | ||||||||
Finished goods | 2,370,006 | 3,312,822 | 1,386,086 | 3,312,822 | ||||||||
$ | 18,005,888 | $ | 22,720,499 | $ | 15,261,060 | $ | 22,720,499 | |||||
On May 26, 2000 the Board of Directors of the Company adopted a Stockholder Rights Plan (the "Plan"). Under terms of the Plan, which expires June 9, 2010, the Company declared a distribution of one right for each outstanding share of common stock. The rights become exercisable only if a person
6
or group (other than certain exempt persons, as defined) acquires 15 percent or more of Ballantyne common stock or announces a tender offer for 15 percent or more of Ballantyne's common stock. Under certain circumstances, the Plan allows stockholders, other than the acquiring person or group, to purchase the Company's common stock at an exercise price of half the market price. See Note 7 for a further discussion of the Plan.
On June 24, 2000 the former Chairman of the Board of the Company (the "Former Chairman") defaulted on a term loan from the Company. The Company is vigorously pursuing collection of the defaulted loan and expects to receive a favorable court judgment in the state of Nebraska. However, since the Former Chairman is a resident of Canada there may be some uncertainty as to whether a Canadian court would enforce such a judgment. Additionally, no assurances can be given that the Former Chairman has sufficient assets to comply with such a judgment. Due to the uncertainty regarding the ultimate recovery of the note, the Company recorded a charge in the amount of $511,644$511,744 during the quarter ended June 30, 2000, which included unpaid principal and interest at that time.
In October 2000,On August 30, 2001, the Company was notified that it was in technical default under its $20 millionentered into a revolving credit facility and term loan arrangement with General Electric Capital Corporation ("GE Capital"). The new credit facility replaces a previous lending arrangement with Wells Fargo Bank Nebraska, N.A. ("Wells Fargo") for failing to maintain its required leverage ratio and failing to achieve the appropriate interest ratio coverage. In a letter received from Wells Fargo in October 2000, the Company was informed that Wells Fargo would temporarily defer taking any action except to reduce the aggregate amount outstanding on the credit facility to $11.5 million.
On December 29, 2000 the Company entered into a "Loan Repayment Agreement" with Wells Fargo which restructured theThe revolving credit facility by reducing the aggregate amount outstanding(the "Revolver") provides for borrowings up to the lesser of $9.5$8.0 million or such amounts as determined by an asset-based lending formula and allowed the bank to reaffirm various guarantees and collateral positions. The interest rate was changed to be the prime rate, as defined. This agreement expired on January 31, 2001 at which time the Company entered into an "Extension Agreement" with essentially the same terms, expiring March 15, 2001.
On March 15, 2001, the Company entered into a "Second Extension Agreement" with Wells Fargo expiring April 30, 2001. The terms of the Second Extension Agreement were altered to change the interest rate, effective March 16, 2001, to 1.0% in excess of the prime rate, as defined. Additionally, the credit limit of the credit facility was reduced to the lesser of $7.5 million or such amounts as determined by an asset-based lending formula, as defined.
On April 27, 2001,defined (approximately $1.5 million was available for borrowings under the Revolver as of September 30, 2001). The Company pays interest on the Revolver at a rate equal to the latest rate for 30-day dealer placed commercial paper determined on the last business day of each month (the "Index Rate") plus 3.375% (6.85% at September 30, 2001). The Company also pays a fee of .25% on the unused portion of the Revolver. The Revolver matures on August 30, 2003 with the Company entered intohaving two one-year renewal options.
The $1,875,000 term loan provides for equal monthly principal payments of $31,250, with a "Third Extension Agreement" with Wells Fargo expiring Juneballoon payment due on August 30, 2001.2003 and provides for interest at the Index Rate plus 3.625% (7.10% at September 30, 2001). The terms of the Third Extension Agreement were essentially the same as the previous extension except the credit limit of the credit facility was reducedfacilities contain restrictive covenants relating to the lesser of $6.5 million or such amounts as determined by an asset-based lending formula, as defined. On June 15, 2001, the Company was notified that it was in technical default under the terms of the Third Extension Agreement due to the failure to provide a signed commitment letter from a "reputable commercial lending company" by June 15, 2001. The Company subsequently signed a "First Amendment to Third Extension Agreement" extending the provision for a signed commitment letter to June 30, 2001.
On June 28, 2001, the Company entered into a "Fourth Extension Agreement" with Wells Fargo expiring August 14, 2001. The terms of the Fourth Extension Agreement were altered to change the interest rate, effective July 1, 2001, to 2.0% in excess of the prime rate, as defined. Additionally, the credit limit of the credit facility was reduced to the lesser of $5.5 million or such amounts as determined by an asset-based lending formula, as defined.restrictions on capital
7
On August 10,expenditures and also require that a "Fixed Charge Coverage Ratio" be above a certain percentage as defined. The Company is currently in compliance with these covenants. The majority of the Company's assets secure the credit facilities. As of September 30, 2001, the Company entered into a "Fifth Extension Agreement" with Wells Fargo expiring August 31, 2001. The terms ofhad outstanding borrowings on the Third Extension Agreement were essentially the same as the previous extension.
As of June 30, 2001, the amount outstanding under the credit facility was $4.6 millionRevolver and the interest rate was the prime rate plus 1% (8.0%). AsTerm Loan of August 10, 2001, the amount outstanding under the credit facility was approximately $1.5 million$664,630 and the interest rate was the prime rate plus 2% (8.75%). Additionally, the credit limit, as determined by the asset-based lending formula, was $3.4 million as of August 10, 2001.
On June 25, 2001, the Company signed a Commitment Letter with General Electric Capital Corporation ("GE Capital") to refinance the Company's existing credit facility with Wells Fargo. GE Capital has agreed to provide up to $11.4 million of financing subject to certain conditions, including, but not limited to, the completion of due diligence procedures. The Company expects the new credit facility to close in late August, although there can be no assurances that a successful final negotiation of the new credit facility will be achieved. However, the Company believes that if the closing of the new credit facility is delayed or is unsuccessful, additional extensions will be received from Wells Fargo until a long-term credit facility is secured.$1,843,750, respectively.
During May 2001, BalCo Holdings L.L.C., ("BalCo Holdings") an affiliate of the McCarthy Group, Inc., an Omaha-based merchant banking firm, purchased 3,238,845 shares, or a 26% stake in Ballantyne from GMAC Financial Services, which obtained the block of shares from Ballantyne's former parent company, Canrad of Delaware, Inc. ("Canrad"), a subsidiary of ARC International Corporation. Ballantyne amended its Stockholder Rights Plan (the "Plan") to exclude the purchase from operation of the Plan. As permitted under a Letter Agreement between BalCo Holdings andOn October 3, 2001, Ballantyne BalCo Holdings has requestedannounced that Ballantyne amend the plan to permit a resalecertain affiliates of shares to a third party acceptable to the Ballantyne Board of Directors. Ballantyne did not issue any new shares pursuant to, nor did it receive any proceeds from, the McCarthy Group-GMAC transaction.Group Inc. purchased an additional 678,181 shares in Ballantyne bringing their total holding to 3,917,026 shares or a 31% stake in Ballantyne. The Plan was amended to exclude the October 3, 2001 purchase from triggering operation of the Plan.
The presentation of segment information reflects the manner in which management organizes segments for making operating decisions and assessing performance.
The Company's operations are conducted principally through three business segments: Theatre, Lighting and Restaurant. Theatre operations include the design, manufacture, assembly and sale of motion picture projectors, xenon lamphouses and power supplies, sound systems and the sale of film handling equipment, xenon bulbs and lenses for the theatre exhibition industry. The lighting segment operations include the sale and rental of follow spotlights, stationary searchlights and computer operated lighting systems for the motion picture production, television, live entertainment, theme parks and architectural industries, as well as the sale and rental of audiovisual products. The restaurant segment includes the design, manufacture, assembly and sale of pressure and open fryers, smoke ovens and the sale of seasonings, marinades and barbeque sauces, mesquite and hickory woods and point of purchase displays.
The Company allocates resources to business segments and evaluates the performance of these segments based upon reported segment gross profit. However, certain key operations of a particular segment are tracked on the basis of operating profit. There are no significant intersegment sales. All intersegment transfers are recorded at historical cost.
8
Summary by Business Segments
| | Three Months Ended June 30 | Six Months Ended June 30 | | Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 2001 | 2000 | 2001 | 2000 | | 2001 | 2000 | 2001 | 2000 | ||||||||||||||||||||||
Net revenue | Net revenue | Net revenue | ||||||||||||||||||||||||||||||
Theatre | $ | 7,729,618 | $ | 12,485,156 | $ | 15,971,426 | $ | 21,381,122 | ||||||||||||||||||||||||
Lighting | Theatre | $ | 8,221,762 | $ | 7,658,270 | $ | 24,193,188 | $ | 29,039,392 | |||||||||||||||||||||||
Sales | 1,251,699 | 1,125,080 | 2,524,606 | 2,189,364 | Lighting | |||||||||||||||||||||||||||
Rental | 991,675 | 1,173,951 | 2,724,884 | 2,621,109 | Sales | 1,776,684 | 1,220,669 | 4,301,290 | 3,410,033 | |||||||||||||||||||||||
Rental | 462,486 | 1,040,128 | 3,187,370 | 3,661,237 | ||||||||||||||||||||||||||||
Total lighting | 2,243,374 | 2,299,031 | 5,249,490 | 4,810,473 | ||||||||||||||||||||||||||||
Restaurant | 405,495 | 514,327 | 744,418 | 956,505 | Total lighting | 2,239,170 | 2,260,797 | 7,488,660 | 7,071,270 | |||||||||||||||||||||||
Restaurant | 516,988 | 443,281 | 1,261,406 | 1,399,786 | ||||||||||||||||||||||||||||
Total | $ | 10,378,487 | $ | 15,298,514 | $ | 21,965,334 | $ | 27,148,100 | ||||||||||||||||||||||||
Total revenue | $ | 10,977,920 | $ | 10,362,348 | $ | 32,943,254 | $ | 37,510,448 | ||||||||||||||||||||||||
Gross profit | Gross profit | Gross profit | ||||||||||||||||||||||||||||||
Theatre | $ | 810,200 | $ | 1,751,474 | $ | 1,559,481 | $ | 3,444,529 | Theatre | $ | 759,121 | $ | 1,283,096 | $ | 2,318,602 | $ | 4,727,625 | |||||||||||||||
Lighting | Lighting | |||||||||||||||||||||||||||||||
Sales | 246,387 | 179,566 | 473,534 | 412,008 | Sales | 543,757 | 121,387 | 1,017,291 | 533,395 | |||||||||||||||||||||||
Rental | 40,249 | 260,834 | 590,612 | 724,781 | Rental | (457,427 | ) | 115,917 | 133,185 | 840,698 | ||||||||||||||||||||||
Total lighting | 286,636 | 440,400 | 1,064,146 | 1,136,789 | Total lighting | 86,330 | 237,304 | 1,150,476 | 1,374,093 | |||||||||||||||||||||||
Restaurant | 8,053 | 63,952 | 36,169 | 152,388 | Restaurant | 110,560 | 104,064 | 146,729 | 256,452 | |||||||||||||||||||||||
Total | 1,104,889 | 2,255,826 | 2,659,796 | 4,733,706 | Total gross profit | 956,011 | 1,624,464 | 3,615,807 | 6,358,170 | |||||||||||||||||||||||
Corporate overhead | Corporate overhead | (2,397,745 | ) | (3,056,709 | ) | (4,528,993 | ) | (6,529,854 | ) | Corporate overhead | (2,187,112 | ) | (2,863,895 | ) | (6,716,105 | ) | (9,393,749 | ) | ||||||||||||||
Loss from operations | (1,292,856 | ) | (800,883 | ) | (1,869,197 | ) | (1,796,148 | ) | Loss from operations | (1,231,101 | ) | (1,239,431 | ) | (3,100,298 | ) | (3,035,579 | ) | |||||||||||||||
Net interest expense | Net interest expense | (136,754 | ) | (301,099 | ) | (244,989 | ) | (539,272 | ) | Net interest expense | (45,714 | ) | (241,468 | ) | (290,703 | ) | (780,740 | ) | ||||||||||||||
Loss before income taxes | $ | (1,429,610 | ) | $ | (1,101,982 | ) | $ | (2,114,186 | ) | $ | (2,335,420 | ) | Loss before income taxes | $ | (1,276,815 | ) | $ | (1,480,899 | ) | $ | (3,391,001 | ) | $ | (3,816,319 | ) | |||||||
Expenditures on capital equipment | Expenditures on capital equipment | Expenditures on capital equipment | ||||||||||||||||||||||||||||||
Theatre | $ | 95,436 | $ | 196,559 | $ | 149,221 | $ | 447,491 | Theatre | $ | 93,402 | $ | 363,523 | $ | 242,623 | $ | 811,014 | |||||||||||||||
Lighting | 162,786 | 182,323 | 457,994 | 505,028 | Lighting | 38,685 | 227,527 | 496,679 | 732,555 | |||||||||||||||||||||||
Restaurant | — | — | — | — | Restaurant | — | — | — | — | |||||||||||||||||||||||
Total | $ | 258,222 | $ | 378,882 | $ | 607,215 | $ | 952,519 | Total | $ | 132,087 | $ | 591,050 | $ | 739,302 | $ | 1,543,569 | |||||||||||||||
Depreciation and amortization | Depreciation and amortization | Depreciation and amortization | ||||||||||||||||||||||||||||||
Theatre | $ | 399,095 | $ | 414,700 | $ | 798,228 | $ | 903,204 | Theatre | $ | 409,383 | $ | 409,791 | $ | 1,207,611 | $ | 1,312,995 | |||||||||||||||
Lighting | 353,729 | 303,724 | 707,462 | 613,370 | Lighting | 353,906 | 357,806 | 1,061,368 | 971,176 | |||||||||||||||||||||||
Restaurant | — | — | — | — | Restaurant | — | — | — | — | |||||||||||||||||||||||
Total | $ | 752,824 | $ | 718,424 | $ | 1,505,690 | $ | 1,516,574 | Total | $ | 763,289 | $ | 767,597 | $ | 2,268,979 | $ | 2,284,171 | |||||||||||||||
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| June 30, 2001 | December 31, 2000 | | | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Identifiable assets | ||||||||||||
Theatre | $ | 36,956,264 | $ | 43,497,441 | ||||||||
Lighting | 8,596,126 | 7,430,070 | ||||||||||
Restaurant | 1,308,031 | 1,198,429 | ||||||||||
Total | $ | 46,860,421 | $ | 52,125,940 | ||||||||
Summary by Business Segments (continued):
| September 30, 2001 | December 31, 2000 | ||||||
---|---|---|---|---|---|---|---|---|
Identifiable assets | ||||||||
Theatre | $ | 35,421,746 | $ | 43,497,441 | ||||
Lighting | 6,700,604 | 7,430,070 | ||||||
Restaurant | 1,405,425 | 1,198,429 | ||||||
Total | $ | 43,527,775 | $ | 52,125,940 | ||||
Summary by Geographical Area:
| Three Months Ended June 30 | Six Months Ended June 30 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2001 | 2000 | 2001 | 2000 | ||||||||||
Net revenue | ||||||||||||||
United States | $ | 6,679,483 | $ | 11,469,028 | $ | 15,214,193 | $ | 19,337,258 | ||||||
Canada | 149,909 | 608,058 | 303,671 | 2,197,660 | ||||||||||
Asia | 1,372,793 | 1,165,593 | 2,267,919 | 2,265,598 | ||||||||||
Mexico | 301,837 | 310,676 | 1,185,204 | 575,339 | ||||||||||
Europe | 783,178 | 1,457,261 | 1,674,937 | 2,191,073 | ||||||||||
Other | 1,091,287 | 287,898 | 1,319,410 | 581,172 | ||||||||||
Total | $ | 10,378,487 | $ | 15,298,514 | $ | 21,965,334 | $ | 27,148,100 | ||||||
| June 30, 2001 | December 31, 2000 | | | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Identifiable assets | ||||||||||||
United States | $ | 45,940,239 | $ | 50,994,142 | ||||||||
Asia | 920,182 | 1,131,798 | ||||||||||
Total | $ | 46,860,421 | $ | 52,125,940 | ||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2001 | 2000 | 2001 | 2000 | ||||||||||
Net revenue | ||||||||||||||
United States | $ | 8,175,630 | $ | 6,592,122 | $ | 23,389,823 | $ | 25,929,380 | ||||||
Canada | 245,589 | 651,393 | 549,260 | 2,849,053 | ||||||||||
Asia | 794,164 | 1,618,696 | 3,062,083 | 3,884,294 | ||||||||||
Mexico | 219,160 | 62,275 | 1,404,364 | 637,614 | ||||||||||
Europe | 725,971 | 1,109,606 | 2,400,908 | 3,300,679 | ||||||||||
Other | 817,406 | 328,256 | 2,136,816 | 909,428 | ||||||||||
Total | $ | 10,977,920 | $ | 10,362,348 | $ | 32,943,254 | $ | 37,510,448 | ||||||
| September 30, 2001 | December 31, 2000 | ||||||
---|---|---|---|---|---|---|---|---|
Identifiable assets | ||||||||
United States | $ | 42,618,895 | $ | 50,994,142 | ||||
Asia | 908,880 | 1,131,798 | ||||||
Total | $ | 43,527,775 | $ | 52,125,940 | ||||
Net revenues by business segment are to unaffiliated customers. Net sales by geographical area are based on destination of sales. Identifiable assets by geographical area are based on location of facilities.
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Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this document. Management's discussion and analysis contains forward-looking statements that involve risks and uncertainties, including but not limited to, quarterly fluctuations in results; customer demand for the Company's products; the development of new technology for alternate means of motion picture presentation; domestic and international economic conditions in the theatre exhibition industry; the achievement of lower costs and expenses; the continued availability of financing in the amounts and on the terms required to support the Company's future business; credit concerns in the theatre exhibition industry; and other risks detailed from time to time in the Company's other Securities and Exchange Commission filings. Actual results may differ materially from management expectations.
Three Months Ended JuneSeptember 30, 2001 Compared to the Three Months Ended JuneSeptember 30, 2000
Revenues
Net revenues for the three months ended JuneSeptember 30, 2001 decreased $4.9increased $0.6 million or 32.2%5.9% to $10.4$11.0 million from $15.3$10.4 million for the three months ended JuneSeptember 30, 2000. As discussed in further detail below, the majority of the decreaseincrease relates to lowerhigher sales of theatre products. The following table shows comparative net revenues of theatre, lighting and restaurant products for the respective periods:
| | Three Months Ended June 30, | | Three Months Ended September 30, | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 2001 | 2000 | | 2001 | 2000 | ||||||||
Theatre | Theatre | $ | 7,729,618 | $ | 12,485,156 | Theatre | $ | 8,221,762 | $ | 7,658,270 | ||||
Lighting | Lighting | 2,243,374 | 2,299,031 | Lighting | 2,239,170 | 2,260,797 | ||||||||
Restaurant | Restaurant | 405,495 | 514,327 | Restaurant | 516,988 | 443,281 | ||||||||
Total net revenues | $ | 10,378,487 | $ | 15,298,514 | Total net revenues | $ | 10,977,920 | $ | 10,362,348 | |||||
Theatre Segment
As stated above, the decreaseincrease in consolidated net revenues primarily related to lowerhigher sales of theatre products, which decreased $4.8increased $0.5 million or 38.1%7.3% from $12.5$7.7 million in 2000 to $7.7$8.2 million in 2001. In particular, sales of projection equipment decreased $3.9increased $0.6 million from $9.6$5.7 million in 2000 to $5.7$6.3 million in 2001. This decrease resulted from a continued2001 as the theatre segment downturn intemporarily leveled off during the construction of new theatres in North America.quarter. The North American theatre exhibition industry has beenis currently experiencing poor operating results due to numerous factors including, but not limited to, over construction in certain areas of the country coupled with the difficulty in closing obsolete theatres, deteriorating credit ratings in the industry and lower theatre attendance. In particular, some theatre exhibition companies have either filed for or are considering protection under federal bankruptcy laws. To date,During 2001, the Company has only been slightlywrote off approximately $500,000 of receivables from two theatre companies that had previously filed for bankruptcy causing the "allowance for doubtful accounts" balance to decrease to $0.7 million at September 31, 2001 compared to $1.0 million at December 31, 2000. The bankruptcy of one or more of the Company's major customers could have a material adverse effect on the Company's business, financial condition and results of operations. The liquidity problems of the theatre exhibition industry result in continued exposure to the Company. This exposure is in the form of receivables from those exhibitors and continued depressed revenue levels if the industry cannot build new theatres.
Sales of theatre replacement parts were also impacted by the downturn in the theatre exhibition industry decreasing from $1.6 million in 2000 to $1.2 million in 2001. In particular, theatre exhibition
11
companies are closing older theatres, which creates two problems from the Company's perspective. First, the theatre companies are scrapping older projectors that normally require more repair than the newer ones in service and second, there are fewer projectors in service due to these bankruptcies however,closings. The Company is also experiencing more competition than ever before as manufacturing companies tied to the theatre exhibition industry try to find alternative revenue sources. Sales of lenses decreased $0.04 million from $0.36 million in 2000 to $0.32 million in 2001. Lens sales do not always fluctuate with the volume of projection equipment sold as the lens can be sold individually. The Company also began selling xenon bulbs in late 2000 when an agreement was entered into to be the exclusive distributor for Lighting Technologies International, a lighting company that manufactures specialty light sources and related lighting systems. For the three months ended September 30, 2001, the Company sold $0.4 million of this product.
Foreign sales (mainly theatre products) were lower in 2001 decreasing $1.0 million from $3.8 million in 2000 to $2.8 million in 2001. A portion of this decrease related to lower shipments to Canada as the problems in the theatre exhibition industry discussed earlier are being felt throughout North America. Additionally, sales in Europe and Asia were lower than the same period one year ago.
Lighting Segment
Sales and rentals in the lighting segment decreased slightly from $2.3 million in 2000 to $2.2 million in 2001. Sales and rentals generated from the Company's audiovisual division in Florida ("Strong Communications") were lower than anticipated and came in at $0.5 million for the quarter compared to $0.8 million during the same period in 2000. The majority of the decrease can be attributed to softer sales and rentals of audiovisual equipment as the slowing economy and the events of September 11, 2001 affected the convention and hotel industry in Ft. Lauderdale and Orlando, Florida. Hotel chains and convention centers are the primary customers who rent audiovisual equipment from Strong Communications. Sales and rentals of entertainment, promotional and architectural lighting products increased $0.9 million to $1.8 million in 2001 from $0.9 million in 2000 due to a $1.2 million sale of specialty lights to be deployed at the Kennedy Space Center in Cape Canaveral, Florida. Without this large transaction, sales and rentals of these products would have been lower by $0.3 million as sales and rentals continued to be soft in the Hollywood and Los Angeles areas. This particular product line is being adversely affected by the motion picture production downturn in these areas and the after affects of the September 11, 2001 attacks.
Restaurant Segment
Restaurant sales increased $0.07 million to $0.5 million in 2001 compared to $0.43 million in 2000 due to improved sales of pressure fryers.
Gross Profit
Overall, consolidated gross profit decreased $0.6 million to $1.0 million in 2001 from $1.6 million in 2000 and as a percentage of net revenues ("gross margin") decreased to 8.7% compared to 15.7% during the third quarter of 2000. The decrease relates to the theatre segment where gross profit decreased $0.5 million compared to 2000. Additionally, the gross margin in the theatre segment decreased from 16.8% to 9.2% during 2001, due in part to a change in product mix as theatre revenues for the quarter ended September 30, 2001 consisted of fewer replacement part sales that generally carry a higher margin than projector sales. Additionally, the Company is now selling xenon bulbs that carry a low margin. The Company did not sell any of these bulbs until the fourth quarter of 2000. Contributing to both the lower gross profit and gross margin were negative manufacturing variances created by less volume through the Company's manufacturing facilities. Additionally, the amount of sales coupled with current inventory levels has caused plant labor utilization to drop considerably leading to manufacturing inefficiencies. To correct these problems, the Company is in the process of reducing its cost structure,
12
lowering inventory and bringing custom manufacturing work into its plants to increase labor utilization and absorb more manufacturing overhead.
Gross profit in the lighting segment decreased to $0.09 million compared to $0.2 million for the same period one year ago. The decrease can be attributed to the same manufacturing inefficiencies discussed previously and to the lack of sufficient rental revenues to cover fixed rental expenses in the Company's rental operations in California and Florida. Restaurant margins remained flat during the quarter.
Operating Expenses
Operating expenses for the three months ended September 30, 2001 decreased approximately $0.7 million compared to the three months ended September 30, 2000, and as a percentage of net revenues decreased to 19.9% in 2001 from 27.6% in 2000. This decrease has come from cost reductions, including personnel reductions and lower selling costs. The Company is continually aligning operating costs with projected future revenue and will continue this process until the appropriate levels have been achieved.
Other Financial Items
Net interest expense was approximately $0.05 million in 2001 compared to $0.2 million in 2000 due to lower outstanding borrowings on the Company's line of credit.
The Company's effective tax rate for 2001 was 33.7% compared to 28.0% in 2000. The change in the tax rate resulted from the differing impact of permanent differences compared to a year ago. Net deferred tax assets were $1.5 million as of September 30, 2001. 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 that the Company will realize the benefits of deferred tax assets as of September 30, 2001.
For the reasons outlined above, the Company experienced a net loss for the three months ended September 30, 2001 of approximately $0.9 million compared to a net loss of $1.1 million for the three months ended September 30, 2000. This translated into a net loss per share—basic and diluted of $0.07 per share in 2001 compared to a net loss per share—basic and diluted of $0.09 per share in 2000.
Nine Months Ended September 30, 2001 Compared to the Nine Months Ended September 30, 2000
Revenues
Net revenues for the nine months ended September 30, 2001 decreased $4.5 million or 12.2% to $33.0 million from $37.5 million for the nine months ended September 30, 2000. As discussed in further detail below, the majority of the decrease relates to lower sales of theatre products. The following table shows comparative net revenues of theatre, lighting and restaurant products for the respective periods:
| Nine Months Ended September 30, | ||||||
---|---|---|---|---|---|---|---|
| 2001 | 2000 | |||||
Theatre | $ | 24,193,188 | $ | 29,039,392 | |||
Lighting | 7,488,660 | 7,071,270 | |||||
Restaurant | 1,261,406 | 1,399,786 | |||||
Total net revenues | $ | 32,943,254 | $ | 37,510,448 | |||
13
Theatre Segment
As stated above, the decrease in consolidated net revenues primarily related to lower sales of theatre products, which decreased $4.8 million or 16.7% from $29.0 million in 2000 to $24.2 million in 2001. In particular, sales of projection equipment decreased $4.0 million from $21.9 million in 2000 to $17.9 million in 2001. This decrease resulted from a continued downturn in the construction of new theatres in North America. The North American theatre exhibition industry is currently experiencing poor operating results due to numerous factors including, but not limited to, over construction in certain areas of the country coupled with the difficulty in closing obsolete theatres, deteriorating credit ratings in the industry and lower theatre attendance. In particular, some theatre exhibition companies have either filed for or are considering protection under federal bankruptcy laws. During 2001, the Company wrote off approximately $500,000 of receivables from two theatre companies that had previously filed for bankruptcy causing the "allowance for doubtful accounts" balance to decrease to $0.7 million at September 31, 2001 compared to $1.0 million at December 31, 2000. The bankruptcy of one or more of the Company's major customers could have a material adverse effect on the Company's business, financial condition and results of operations. The liquidity problems of the theatre exhibition industry result in continued exposure to the Company. This exposure is in the form of receivables from those exhibitors and continued depressed revenue levels if the industry cannot build new theatres. The Company anticipates the depressed theatre sales to continue into the third and fourth quarters, however, the Company expects the decreases to level off as the year progresses as theatre companies continue to pull themselves through the downturn.quarter.
Sales of theatre replacement parts were also impacted by the downturn in the theatre exhibition industry decreasing from $2.1$5.7 million in 2000 to $1.2$4.2 million in 2001. Replacement part salesIn particular, customers are not directly relatedclosing older theatres, which creates two problems from the Company's perspective. First, the theatre companies are scrapping older projectors which normally require more repair than the newer ones in service and second, there are fewer projectors in service due to the volume of projection equipment sold, but aretheatre closings. The Company is also experiencing more a reflection ofcompetition as manufacturing companies tied to the needs of
11
customers who have previously purchased projection equipment from the Company.theatre exhibition industry try to find alternative revenue sources. Sales of lenses decreasedwere also impacted by the theatre industry downturn decreasing approximately $0.3 million from $0.8$1.4 million in 2000 to $0.5$1.1 million in 2001. Lens sales do not always fluctuate withAs stated during the volumediscussion of projection equipment sold as the lens can be sold individually. Theresults for the three months ended September 30, 2001, the Company also began selling xenon bulbs in late 2000 when an agreement was entered into to be2000. During the exclusive distributor for Lighting Technologies International, a company that manufactures specialty light sources and related lighting systems. For the threenine months ended JuneSeptember 30, 2001 the Company sold $0.3$1.0 million of this product.these were sold.
Foreign sales (mainly theatre sales) were flatalso lower in 2001 decreasing $0.1$2.0 million from $3.8$11.6 million in 2000 to $3.7$9.6 million in 2001. This decrease related to lower shipments to Canada as the problems in the theatre exhibition industry discussed earlier are beingwere felt throughout North America. Additionally,Sales to European companies were also lower in the second and third quarters of 2001, which contributed to year-to-date European sales in Europe werebeing lower by approximately $0.5 million compared to 2000. Sales to Asia have also been lower than expected. Some of the same period one year ago.lost sales can be attributed to less demand however; most are due to the strength of the dollar versus the particular foreign currency making it more expensive to buy U.S. goods in certain areas of Europe and Asia. This in turn creates more competition from local manufacturers in these countries.
Lighting Segment
Sales and rentals in the lighting segment decreased $0.1increased $0.4 million from $2.3$7.1 million in 2000 to $2.2$7.5 million in 2001. Sales and rentals generatedof audiovisual products decreased $0.2 million from the Company's audiovisual division in Florida were lower than anticipated generating $0.8 million for the quarter compared to $1.2 million during the same period a year ago as the slowing economy and the events of September 11, 2001 affected the convention and hotel industry in 2000. The majority ofFt. Lauderdale and Orlando, Florida. Hotel chains and convention centers are the decrease can be attributed to softer sales ofprimary customers who rent audiovisual equipment. Sales and rentals of entertainment, promotional and architectural lighting products decreased $0.1 million to $0.6 million in 2001 fromincreased $0.7 million compared to 2000 helped by a $1.2 million sale of architectural lights to be used at the Kennedy Space Center in Cape Canaveral, Florida. Without this large sale, revenues for this product line would have decreased $0.5 million compared to 2000 as sales and rentals from the Company's unit in the Los Angeles area North Hollywood, California
14
continued to be lower than anticipated. Spotlight sales increaseddisappointing. This particular product line is being adversely affected by the motion picture production downturn in the Hollywood and Los Angeles areas and with the after affects of the September 11, 2001 attacks. Sales of spotlights were flat compared to $0.8 million in 2001 from $0.4 million in 2000 due to increased replacement part sales.the prior year.
Restaurant Segment
Restaurant sales decreased $0.1 million to $0.4$1.3 million in 2001 compared to $0.5$1.4 million in 2000 due to softer sales of pressure fryers.replacement parts.
Gross Profit
Overall, consolidated gross profit decreased $1.2$2.8 million to $1.1$3.6 million in 2001 from $2.3$6.4 million in 2000 and as a percentage of net revenues ("gross margin") decreased to 10.6%11.0% compared to 14.7% during the second quarter of17.0% in 2000. The decrease relates to the theatre segment where gross profit decreased $0.9$2.4 million compared to 2000. Additionally, the gross margin in the theatre segment decreased from 14.0%16.3% to 10.5%9.6% during 2001.2001 due in part to a change in product mix as theatre revenues for 2001 consisted of fewer replacement part sales that generally carry a higher margin than projector sales. Contributing to the lower gross profit were lower theatre revenues that resulted in lost gross profit of approximately $1.4 million. Contributing to both the lower gross profit and gross margin were negative manufacturing variances created by less volume through the Company's manufacturing facilities. This has resulted in the level of sales not being sufficient to fully absorb the Company's manufacturing overhead. Additionally, the amount of sales coupled with current inventory levels has caused plant labor utilization to drop considerably leading to manufacturing inefficiencies. To correct these problems, the Company is in the process of reducing its cost structure, lowering inventory and bringing custom manufacturing work into its plants to increase labor utilization and absorb more manufacturing overhead.
Gross profit in the lighting segment decreased to $0.3was lower by approximately $0.2 million compared to $0.4 million for the same period one year ago. The decrease can be attributed2000 due to the same manufacturing inefficiencies discussed previously andlower margins from rental activities related to thea lack of sufficient rental revenues to cover certain fixed rental expenses, in the form ofmainly salaries and depreciation.
Restaurant margins also decreased in 2001 from $64,000$0.3 million in 2000 to $8,000$0.15 million in 2001 due to the same manufacturing inefficiencies discussed earlier.previously.
Operating Expenses
Operating expenses for the threenine months ended JuneSeptember 30, 2001 decreased approximately $0.7$2.7 million compared to the threenine months ended JuneSeptember 30, 2000 butand as a percentage of net revenues,
12
increased decreased to 23.1%20.4% in 2001 from 19.9%25.0% in 2000. This increase was due to a decline in revenues without a proportional decrease in expenses, mainly related to certain fixed costs. Included in the 2000 expenses was a reservewere restructuring charges of approximately $0.5 million takenrelating to the Company reducing its workforce during the first quarter of 2000 and $0.5 million relating to a reserve set up for the default in repayment of a term loan made by the Company to a former Chairman of the Board.Board during the second quarter of 2000. The remaining decrease in operating expenses has come from cost reductions across the board, including personnel reductions and lower selling costs. The Company is continually aligning operating costs with projected future revenue and will continue this process until the appropriate levels have been achieved.
Other Financial Items
Net interest expense was approximately $0.1$0.3 million in 2001 compared to $0.3$0.8 million in 2000 due to lower outstanding borrowings on the Company's line of credit.credit facilities.
The Company's effective tax rate for 2001 was 34.3%33.7% compared to 39.2%33.3% in 2000. The change in the tax rate resulted from the differing impact of permanent differences compared to a year ago. Net deferred tax assets were $1.4$1.5 million as of JuneSeptember 30, 2001. Based upon the scheduled reversal of
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deferred tax liabilities, projected future taxable income and tax planning strategies, management believes it is more likely than not that the Company will realize the benefits of deferred tax assets as of JuneSeptember 30, 2001.
For the reasons outlined above, the Company experienced a net loss for the threenine months ended JuneSeptember 30, 2001 of approximately $0.9$2.3 million compared to a net loss of $0.7$2.6 million for the three months ended JuneSeptember 30, 2000. This translated into a net loss per share—basic and diluted of $0.08$0.18 per share in 2001 compared to a net loss per share—basic and diluted of $0.05 per share in 2000.
Six Months Ended June 30, 2001 Compared to the Six Months Ended June 30, 2000
Revenues
Net revenues for the six months ended June 30, 2001 decreased $5.2 million or 19.1% to $22.0 million from $27.2 million for the six months ended June 30, 2000. As discussed in further detail below, the majority of the decrease relates to lower sales of theatre products. The following table shows comparative net revenues of theatre, lighting and restaurant products for the respective periods:
| Six Months Ended June 30, | ||||||
---|---|---|---|---|---|---|---|
| 2001 | 2000 | |||||
Theatre | $ | 15,971,426 | $ | 21,381,122 | |||
Lighting | 5,249,490 | 4,810,473 | |||||
Restaurant | 744,418 | 956,505 | |||||
Total net revenues | $ | 21,965,334 | $ | 27,148,100 | |||
Theatre Segment
As stated above, the decrease in consolidated net revenues primarily related to lower sales of theatre products, which decreased $5.4 million or 25.3% from $21.4 million in 2000 to $16.0 million in 2001. In particular, sales of projection equipment decreased $4.2 million from $16.2 million in 2000 to $12.0 million in 2001. This decrease resulted from a continued downturn in the construction of new theatres in North America. The North American theatre exhibition industry is currently experiencing poor operating results due to numerous factors including, but not limited to, over construction in certain areas of the country coupled with the difficulty in closing obsolete theatres, deteriorating credit ratings in the industry and lower theatre attendance. In particular, some theatre exhibition companies have either filed for or are considering protection under federal bankruptcy laws. To date, the Company has only been slightly impacted by these bankruptcies however, the bankruptcy of one or more of the
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Company's major customers could have a material adverse effect on the Company's business, financial condition and results of operations. The liquidity problems of the theatre exhibition industry result in continued exposure to the Company. This exposure is in the form of receivables from those exhibitors and continued depressed revenue levels if the industry cannot build new theatres. The Company anticipates the depressed theatre sales to continue into the third and fourth quarters, however, the Company expects the decreases to level off as the year progresses as theatre companies continue to pull themselves through the downturn.
Sales of theatre replacement parts were also impacted by the downturn in the theatre exhibition industry decreasing from $4.1 million in 2000 to $2.6 million in 2001. Replacement part sales are not directly related to the volume of projection equipment sold, but are more a reflection of the needs of customers who have previously purchased projection equipment from the Company. Sales of lenses decreased approximately $0.3 million from $1.1 million in 2000 to $0.8 million in 2001. Lens sales do not always fluctuate with the volume of projection equipment sold as the lens can be sold individually. As stated during the discussion of the results for the three months ended June 30, 2001, the Company began selling xenon bulbs in late 2000. During the six months ended June 30, 2001 sales of these bulbs were approximately $0.6 million.
Foreign sales were flat in 2001 decreasing $1.0 million from $7.8 million in 2000 to $6.8 million in 2001. This decrease related to lower shipments to Canada as the problems in the theatre exhibition industry discussed earlier were felt throughout North America. Sales to European companies were also lower in the second quarter of 2001, which contributed to year-to-date European sales being lower by approximately $0.5 million compared to 2000.
Lighting Segment
Sales and rentals in the lighting segment increased $0.4 million from $4.8 million in 2000 to $5.2 million in 2001. The increase mainly relates to higher sales of spotlights, which rose $0.5 million from $0.9 million in 2000 to $1.4 million in 2001. Sales and rentals of audiovisual products also increased $0.2 million from the same period a year ago despite revenues being lower than anticipated during the second quarter. Since the audiovisual location was established in Orlando and Ft. Lauderdale, Florida in 1998, the Company has been slowly increasing the product line's infrastructure to achieve slow, but steady growth. Sales and rentals of entertainment, promotional and architectural lighting products decreased $0.3 million to $1.4 million in 2001 from $1.7 million in 2000, as sales and rentals in the Los Angeles area continued to be lower than anticipated.
Restaurant Segment
Restaurant sales decreased $0.2 million to $0.9 million in 2001 compared to $0.7 million in 2000 due to softer sales of pressure fryers.
Gross Profit
Overall, consolidated gross profit decreased $2.0 million to $2.7 million in 2001 from $4.7 million in 2000 and as a percentage of net revenues ("gross margin") decreased to 12.1% compared to 17.4% in 2000. The decrease relates to the theatre segment where gross profit decreased $1.9 million compared to 2000. Additionally, the gross margin in the theatre segment decreased from 16.1% to 9.8% during 2001. Contributing to the lower gross profit were lower theatre revenues that resulted in lost gross profit of approximately $1.3 million. Contributing to both the lower gross profit and gross margin were negative manufacturing variances created by less volume through the Company's manufacturing facilities. This has resulted in the level of sales not being sufficient to fully absorb the Company's manufacturing overhead. Additionally, the amount of sales coupled with current inventory levels has caused plant labor utilization to drop considerably leading to manufacturing inefficiencies. To
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correct these problems, the Company is in the process of reducing its cost structure, lowering inventory and bringing custom manufacturing work into its plants to increase labor utilization and absorb more manufacturing overhead.
Gross profit in the lighting segment was lower by approximately $0.1 million compared to 2000 due to lower margins from rental activities due to a lack of sufficient rental revenues to cover certain fixed rental expenses, mainly salaries and depreciation.
Restaurant margins also decreased in 2001 from $0.15 million in 2000 to $0.04 million in 2001 due to the same manufacturing inefficiencies discussed previously.
Operating Expenses
Operating expenses for the six months ended June 30, 2001 decreased approximately $2.0 million compared to the six months ended June 30, 2000 and as a percentage of net revenues, decreased to 20.6% in 2001 from 24.1% in 2000. Included in the 2000 expenses were restructuring charges of approximately $0.5 million relating to the Company reducing its workforce during the first quarter of 2000 and $0.5 million relating to a reserve set up for the default of a term loan made by the Company to a former Chairman of the Board. The remaining decrease in operating expenses has come from cost reductions across the board, including personnel reductions and lower selling costs. The Company is continually aligning operating costs with projected future revenue and will continue this process until the appropriate levels have been achieved.
Other Financial Items
Net interest expense was approximately $0.2 million in 2001 compared to $0.5 million in 2000 due to lower borrowings on the Company's line of credit.
The Company's effective tax rate for 2001 was 33.6% compared to 36.7% in 2000. The change in the tax rate resulted from the differing impact of permanent differences compared to a year ago. Net deferred tax assets were $1.4 million as of June 30, 2001. 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 that the Company will realize the benefits of deferred tax assets as of June 30, 2001.
For the reasons outlined above, the Company experienced a net loss for the six months ended June 30, 2001 of approximately $1.4 million compared to a net loss of $1.5 million for the three months ended June 30, 2000. This translated into a net loss per share—basic and diluted of $0.11 per share in 2001 compared to a net loss per share—basic and diluted of $0.12$0.20 per share in 2000.
Liquidity and Capital Resources
In October 2000,On August 30, 2001, the Company was notified that it was in technical default under its $20 millionentered into a revolving credit facility and term loan arrangement with General Electric Capital Corporation ("GE Capital"). The new credit facility replaces a previous lending arrangement with Wells Fargo Bank Nebraska, N.A. ("Wells Fargo") for failing to maintain its required leverage ratio and failing to achieve the appropriate interest ratio coverage. In a letter received from Wells Fargo in October 2000, the Company was informed that Wells Fargo would temporarily defer taking any action except to reduce the aggregate amount outstanding on the credit facility to $11.5 million.
On December 29, 2000 the Company entered into a "Loan Repayment Agreement" with Wells Fargo which restructured theThe revolving credit facility by reducing the aggregate amount outstanding(the "Revolver") provides for borrowings up to the lesser of $9.5$8.0 million or such amounts as determined by an asset-based lending formula and allowed the bank to reaffirm various guarantees and collateral positions. The interest rate was changed to be the prime rate, as defined. This agreement expired on January 31, 2001 at which time the
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Company entered into an "Extension Agreement" with essentially the same terms, expiring March 15, 2001.
On March 15, 2001, the Company entered into a "Second Extension Agreement" with Wells Fargo expiring April 30, 2001. The terms of the Second Extension Agreement were altered to change the interest rate, effective March 16, 2001, to 1.0% in excess of the prime rate, as defined. Additionally, the credit limit of the credit facility was reduced to the lesser of $7.5 million or such amounts as determined by an asset-based lending formula, as defined.defined (approximately $1.5 million was available for borrowings under the Revolver as of September 30, 2001). The Company pays interest on the Revolver at a rate equal to the latest rate for 30-day dealer placed commercial paper determined on the last business day of each month (the "Index Rate") plus 3.375% (6.85% at September 30, 2001). The Company also pays a fee of .25% on the unused portion of the Revolver. The Revolver matures on August 30, 2003 with the Company having two one-year renewal options.
On April 27,The $1,875,000 term loan provides for equal monthly principal payments of $31,250, with a balloon payment due on August 30, 2003 and provides for interest at the Index Rate plus 3.625% (7.10% at September 30, 2001). The credit facilities contain restrictive covenants relating to restrictions on capital expenditures and also require that a "Fixed Charge Coverage Ratio" be above a certain percentage as defined. The Company is currently in compliance with these covenants. The majority of the Company's assets secure the credit facilities. As of September 30, 2001, the Company entered into a "Third Extension Agreement" with Wells Fargo expiring June 30, 2001. The terms ofhad outstanding borrowings on the Third Extension Agreement were essentially the same as the previous extension except the credit limit of the credit facility was reduced to the lesser of $6.5 million or such amounts as determined by an asset-based lending formula, as defined. On June 15, 2001, the Company was notified that it was in technical default under the terms of the Third Extension Agreement due to the failure to provide a signed commitment letter from a "reputable commercial lending company" by June 15, 2001. The Company subsequently signed a "First Amendment to Third Extension Agreement" extending the provision for a signed commitment letter to June 30, 2001.
On June 28, 2001, the Company entered into a "Fourth Extension Agreement" with Wells Fargo expiring August 14, 2001. The terms of the Fourth Extension Agreement were altered to change the interest rate, effective July 1, 2001, to 2.0% in excess of the prime rate, as defined. Additionally, the credit limit of the credit facility was reduced to the lesser of $5.5 million or such amounts as determined by an asset-based lending formula, as defined.
On August 10, 2001, the Company entered into a "Fifth Extension Agreement" with Wells Fargo expiring August 31, 2001. The terms of the Third Extension Agreement were essentially the same as the previous extension.
As of June 30, 2001, the amount outstanding under the credit facility was $4.6 millionRevolver and the interest rate was the prime rate plus 1% (8.0%). Asterm loan of August 10, 2001, the amount outstanding under the credit facility was approximately $1.5 million$664,630 and the interest rate was the prime rate plus 2% (8.75%). Additionally, the credit limit, as determined by the asset-based lending formula, was $3.4 million as of August 10, 2001.
On June 25, 2001, the Company signed a Commitment Letter with General Electric Capital Corporation ("GE Capital") to refinance the Company's existing credit facility with Wells Fargo. GE Capital has agreed to provide up to $11.4 million of financing subject to certain conditions, including, but not limited to, the completion of due diligence procedures. The Company expects the new credit facility to close in late August, although there can be no assurances that a successful final negotiation of the new credit facility will be achieved. However, the Company believes that if the closing of the new credit facility is delayed or is unsuccessful, additional extensions will be received from Wells Fargo until a long-term credit facility is secured.$1,843,750, respectively.
Historically, the Company has funded its working capital requirements through cash flow generated by its operations and use of its line of credit. The Company anticipates that internally generated funds and borrowings available under the Company's line of credit facility with GE Capital will be sufficient to meet its working capital needs and planned 2001 and 2002 capital expenditures unless it is unable to negotiate adequate terms under a new long-term credit facility. See the prior paragraph for further discussion of the Company's revolving credit facility.expenditures. In the event that digital projection becomes a commercially viable product, the Company may need to raise additional funds other than those available under a revolvingthe Company's credit facility in order to fully develop such a product. If adequate funds are not available on acceptable terms, the Company may be unable to take advantage of future digital projection opportunities or respond to competitive pressures any of which could have a material adverse effect on the Company's business, financial condition and operating results. On June 6, 2001, the Company announced that it had
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suspended funding for a research and development project with Lumavision Display, Inc. ("Lumavision"). Lumavision was to develop a proprietary digital projector for exclusive use by the Company for the Digital Cinema market. The project was suspended due to unresolved differences between the parties concerning the original agreement. The Company felt it was not prudent to continue funding unless a new agreement could be negotiated. If a new agreement were entered into, the Company would consider continuing the financing. In accordance with the agreement, the funding since September 26, 2000 was in the form of notes receivable due from Lumavision. Through the date of suspension of the project, $400,000 of notes receivable is due from Lumavision. Due to the nature of Lumavision's business, the individual notes were reserved into expense for financial purposes, as there was uncertainty as to their ultimate collectibility. The expense was included as research and development expenses when the funds were transferred on each note. Since the inception of the project, a total of $0.9 million has beenwas expensed as research and development costs including the reserve for the notes discussed earlier. The Company
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continues to pursue other opportunities to have a commercially viable digital projection system available for the Digital Cinema market when it becomes acceptable to the motion picture industry. See page 4 in the "Business Strategy" section of the Company's Annual Report on Form 10-K under the caption "Explore Digital Cinema" for a further discussion of digital projectors.
Net cash provided by operating activities was $3.2$6.2 million for the sixnine months ended JuneSeptember 30, 2001 compared to net cash used in operating activities of $0.7$0.3 million for the sixnine months ended JuneSeptember 30, 2000. The increase in operating cash flow was due to cutbacks in inventory purchases as the Company is aggressively loweringand turning previously high inventory levels built up before the sharp downturninto cash as shown by a $7.5 million reduction in theatre sales during 2000 and 2001.inventory since December 31, 2000.
Net cash used in investing activities was $0.4$0.6 million for the sixnine months ended JuneSeptember 30, 2001 compared to $0.9$1.4 million a year ago. Investing activities in both periods mainly reflect capital expenditures, which have decreased due to fewer purchases of lighting equipment and a general reduction of capital expenditures as part of the Company's cost cutting program.
Net cash used in financing activities was $4.3$6.4 million for the sixnine months ended JuneSeptember 30, 2001 compared to cash provided by financing activities of $1.7$0.9 million a year ago. The change from year to year represents the fact that in 2000 the Company was borrowing funds on the line of credit, to pay for the inventory purchases discussed above, but during 2001, the Company has substantially reduced inventory purchaseslevels and is paying down debt.
The Company does not engage in any hedging activities, including currency-hedging activities, in connection with its foreign operations and sales. To date, all of the Company's international sales have been denominated in U.S. dollars, exclusive of Strong Westrex, Inc. sales, which are denominated in Hong Kong dollars.
Seasonality
Generally, the Company's business exhibits a moderate level of seasonality as sales of theatre products typically increase during the third and fourth quarters. The Company believes that such increased sales reflect seasonal increases in the construction of new motion picture screens in anticipation of the holiday movie season. However, the current state of the theatre exhibition industry has further moderated the level of seasonality.
Inflation
The Company believes that the relatively moderate rates of inflation in recent years have not had a significant impact on its net revenues or profitability. Historically, the Company has been able to offset any inflationary effects by either increasing prices or improving cost efficiencies.
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Recent Accounting Pronouncements
In June 2000, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 138,Accounting for Certain Derivative Investments and Certain Hedging Activities. The standard amends certain provisions of SFAS No. 133,Accounting for Derivative Investments and Hedging Activities, which was issued in June 1998 to establish accounting standards for derivative instruments and for hedging activities. The Company adopted these accounting pronouncements effective January 1, 2001. The adoption of these standards did not significantly impact the Company's consolidated financial statements.
TheIn June 2001, the Financial Accounting Standards Board has approved for issuanceissued SFAS No. 141,Business Combinations and No. 142Goodwill and Other Intangible Assets. SFAS No. 141 will require that the purchase method of accounting be used for all business combinations initiated after June 30, 2001 and that the use of the pooling-of-interest method is no longer allowed. SFAS No. 142 requires that upon adoption, amortization of goodwill and other intangible assets with indefinite lives will cease and instead, the carrying value of goodwill will be evaluated for impairment on an annual basis. Other identifiable intangible assets will continue to be amortized over their useful lives and reviewed for impairment in accordance with SFAS No. 121Accounting for the Impairment of Long-Lived Assets to be
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Disposed Of. SFAS No. 142 is effective for fiscal years beginning after December 15, 2001. The Company is evaluating the impact of the adoption of these standards and has not yet determined the effect of adoption on its financial position and results of operations.
During June 2001, the FASB issued Statement No. 143 (SFAS 143),Accounting for Asset Retirement Obligations. This Statement addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. SFAS 143 requires an enterprise to record the fair value of an asset retirement obligation as a liability in the period in which it incurs a legal obligation associated with the retirement of a tangible long-lived asset. SFAS 143 is effective for fiscal years beginning after June 15, 2002. The Company is currently evaluating the impact of the adoption of this standard and has not yet determined the effect of adoption on its financial position and results of operations.
On October 3, 2001, the FASB issued Statement No. 144 (SFAS 144),Accounting for the Impairment or Disposal of Long-Lived Assets, which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. While Statement No. 144 supersedes FASB Statement No. 121,Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, it retains many of the fundamental provisions of that Statement. SFAS 144 is effective for the fiscal years beginning after December 15, 2001. The Company is currently evaluating the impact of the adoption of this standard and has not yet determined the effect of adoption on its financial position and results of operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company markets its products throughout the United Sates and the world. As a result, the Company could be adversely affected by such factors as changes in foreign currency exchange rates and weak economic conditions. In particular, the Company can be and was impacted by the recent downturn in the North American theatre exhibition industry in the form of lost revenues. Additionally, as a majority of sales are currently denominated in U.S. dollars, a strengthening of the dollar can and sometimes has madeis making the Company's products less competitive in foreign markets. As stated above, the majority of the Company's foreign sales are denominated in U.S. dollars except for its subsidiary in Hong Kong.
The Company has also evaluated its exposure to fluctuations in interest rates and the corresponding effect on the rate of interest on the Company's floating rate line of credit.debt facilities. Assuming amounts remain outstanding on the line of credit,Company's debt instruments, increases in interest rates would increase interest expense. At current amounts outstanding on the line of credit,these instruments, a one percent increase in the interest rate would increase yearly interest expense by approximately $50,000.$25,000. The Company has not historically and is not currently using derivative instruments to manage the above risks.
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PART II. OTHER INFORMATIONOther Information
Item 4. Submission of Matters to a Vote of Security Holders
The Company's regular annual meeting of stockholders was held on May 23, 2001 for the purpose of electing one nominee as Director, approving an amendment to the Company's 1995 stock option plan increasing the total number of shares for which options can be granted under the plan and adopting the 2000 Employee Stock Purchase Plan. As there was not the requisite Quorum of shares represented in person or by proxy at the annual meeting (over 50% is required) the meeting was adjourned until June 1, 2001. The meeting was reconvened on that date, at which time the Quorum was obtained, ballots were cast and tabulations of the votes were performed. There were 12,512,672 shares outstanding and eligible to vote of which 6,852,882 were present at the June 1, 2001 meeting or by proxy.
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The tabulation for the election of the Director was as follows:
Director | For | Withheld | Abstain | |||
---|---|---|---|---|---|---|
John Wilmers | 6,106,067 | 746,815 | — | |||
Following the election of Mr. Wilmers, the Board of Directors numbered five members.
The tabulations for the amendment to the Company's 1995 stock option plan and adopting the 2000 Employee Stock Purchase plan were as follows:
| For | Against | Abstain | |||
---|---|---|---|---|---|---|
1995 Stock Option Plan | 5,815,727 | 1,022,481 | 14,674 | |||
2000 Employee Stock Purchase Plan | 6,514,245 | 326,425 | 12,212 | |||
The 2000 Employee Stock Purchase plan received sufficient votes for approval, however the 1995 Stock Option did not receive the necessary percentage of votes for approval and therefore was not adopted.
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Item 6. Exhibits and Reports on Form 8-K
First Amendment dated April 30, 2001 to | ||||
Second Amendment dated July 25, 2001 to | ||||
3.3.3 | Third Amendment dated October 2, 2001 to Rights Agreement dated as of May 25, 2001 between the Company and Mellon Investor Services, L.L.C., as Rights Agent. * | |||
4.1 | Loan Agreement dated August 30, 2001 between the Company and General Electric Capital Corporation.* | |||
10.5.1 | Option to purchase Common Stock of Ballantyne of Omaha, Inc. between the Company and William F. Welsh II in consideration of Mr. Welsh serving as Chairman of the Board. * | |||
10.8.2 | ||||
10.8.3 | ||||
10.8.4 | ||||
11 | Computation of net loss per share* | |||
* | Filed herewith | |||
20No reports on Form 8-K were filed during the three months ended September 30, 2001.
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Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
BALLANTYNE OF OMAHA, INC. | ||||||
By: | /s/ JOHN WILMERS John Wilmers, President, Chief Executive Officer and Director | By: | /s/ BRAD FRENCH Brad French, Secretary/Treasurer, Chief Financial Officer and Chief Operating Officer | |||
Date: | Date: |