-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, I2OomF777rBYsWODN/kT5xq4Zl9MvguSJQAC6PPDkN33E4yCx5T/Vx9Tyaki4RGd l2cRMsP24gV0LYBhOX3Vtw== 0000912057-97-011457.txt : 19970401 0000912057-97-011457.hdr.sgml : 19970401 ACCESSION NUMBER: 0000912057-97-011457 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970331 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: BALLANTYNE OF OMAHA INC CENTRAL INDEX KEY: 0000946454 STANDARD INDUSTRIAL CLASSIFICATION: PHOTOGRAPHIC EQUIPMENT & SUPPLIES [3861] IRS NUMBER: 470587703 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-13906 FILM NUMBER: 97571695 BUSINESS ADDRESS: STREET 1: 4350 MCKINLEY ST CITY: OMAHA STATE: NE ZIP: 68112 BUSINESS PHONE: 4024534444 MAIL ADDRESS: STREET 1: 4350 MCKINLEY ST CITY: OMAHA STATE: NE ZIP: 68112 10-K 1 FORM 10K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [Fee Required] For the fiscal year ended December 31, 1996 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [No Fee Required] For the transition period from to --------------- --------------- Commission File No. 1-13906 BALLANTYNE OF OMAHA, INC. --------------------------------------------------------- (Exact name of Registrant as specified in its charter) DELAWARE 47-0587703 - ------------------------- -------------------------------------- (State of incorporation) (I.R.S. Employer Identification No.) 4350 MCKINLEY STREET, OMAHA, NEBRASKA 68112 --------------------------------------------- (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 ---- ---- As of March 14, 1997, 8,569,785 shares of Common Stock of Ballantyne of Omaha, Inc., were outstanding and the aggregate market value of such Common Stock held by nonaffiliates (based upon the closing price of the stock on the American Stock Exchange) was approximately $61,526,525. DOCUMENTS INCORPORATED BY REFERENCE Proxy Statement for Annual Meeting of Stockholders to be held June 10, 1997 - Part III. PART I ITEM 1. BUSINESS GENERAL Ballantyne of Omaha, Inc. (the "Company") manufactures capital equipment for the theatre and restaurant industries. The Company's product lines are distributed on a worldwide basis principally through a domestic and international dealer network. The Company's theatre product line consists of commercial motion picture projection equipment and long-range follow spotlights. The Company is a leading manufacturer of commercial motion picture projection equipment. The Company's broad range of commercial motion picture projection equipment is capable of fully outfitting and automating a motion picture projection booth. The Company's commercial motion picture projection equipment is currently used by major movie exhibition companies such as AMC Entertainment, Cineplex Odeon and Regal Cinemas. The Company also manufactures, assembles and distributes customized commercial motion picture projection equipment for use in special venues, such as motion simulation rides, large screen format presentations and other forms of entertainment which employ visual special effects. Special venue customers currently using the Company's customized equipment include The Walt Disney Company, Imax Corporation and Iwerks Entertainment, Inc. for use at special venue sites such as the Magic Kingdom, EPCOT Center, IMAX theatres, Universal Studios and Busch Gardens. The Company's long-range follow spotlights are high-intensity general illumination products designed for both permanent installations and touring applications. The Company's long-range follow spotlights are used in, among other venues, the Toronto SkyDome, the United Center in Chicago, the Hoosier Dome, the Continental Air Arena in the New Jersey Meadowlands and the Sheffield Arena in the United Kingdom. The Company's long-range follow spotlights have also been employed at special venue events such as the 1996 Summer Olympics in Atlanta, Georgia and world tours by the Rolling Stones, R.E.M. and Pink Floyd. The Company's restaurant product line consists of commercial foodservice equipment, principally pressure fryers, barbecue/slow roasting cooking ovens and its recently introduced rotisserie ovens. This equipment is complemented by related items, such as seasonings and marinades, paper serving products and point of purchase displays, thereby offering customers a complete food preparation, serving and merchandising program. The Company's restaurant product line is sold primarily through its dealer network to independent convenience store/fast food restaurant operators. The Company also sells its pressure fryers to equipment suppliers directly, on a private label basis, for resale to major chains such as Pathmark, Winn Dixie and Wal-Mart for use in their delicatessens and sit-down eateries. The Company believes that it has a competitive edge as a result of its ability to meet each individual customer's needs (whether for individual components or complete systems) by offering a wide variety of products (often designed to customer specifications) that are high quality, reliable and innovative, and complemented by value-added services related thereto. -2- RECENT CORPORATE DEVELOPMENTS On January 29, 1997, the Board of Directors declared a 3-for-2 split of its Common Stock. The stock split was in the form of a 50% Common Stock dividend payable March 5, 1997 to shareholders of record on February 10, 1997. On August 1, 1996, the Company completed an offering of its shares of capital stock pursuant to a Registration Statement on Form S-1 ("the Offering"). Pursuant to the Offering , the Company sold 1,100,000 shares of Common Stock to the public at the price of $12.125 per share. In addition, the Company granted the Underwriters an option, exercisable until August 31, 1996 to purchase an aggregate of up to 165,000 additional shares of Common Stock at $12.125 price per share less underwriting discounts and commissions, to cover over-allotments, if any. The underwriters purchased all 165,000 shares on August 16, 1996. The net proceeds to the Company from the Offering were $13,650,787. On January 23, 1996, the Board of Directors declared a 10% stock distribution, payable March 8, 1996, to stockholders of record on February 9, 1996. On September 6, 1995, the Company completed an initial public offering of shares of its Common Stock. Pursuant to the public offering, 1,380,000 shares of Common Stock were sold. The stock was sold by Canrad of Delaware Inc. Canrad of Delaware Inc. is a wholly owned subsidiary of Canrad Inc., a Delaware corporation, which in turn is a wholly owned subsidiary of ARC U.S.A. Corporation, a Delaware corporation. ARC U.S.A. Corporation is a wholly owned subsidiary of ARC International, a corporation headquartered in Toronto, Canada and listed on the American Stock Exchange. The Common Stock of the Company is also traded on the American Stock Exchange. HISTORY The Company's business was founded in 1932. From that time, the Company has manufactured and supplied equipment and services to the commercial motion picture projection industry. The origins of the Company's long-range follow spotlight products began when Strong Electric Corporation of Toledo, Ohio ("Strong") introduced its first lamphouse. From that time, Strong has been a leading developer of state-of-the-art lamphouses for commercial motion picture projectors and long-range follow spotlights. In 1976, Strong and the Company's other operations were acquired by Canrad Inc. as a means of vertically integrating Canrad Inc.'s other product lines which included the manufacture and sale of xenon short arc bulbs as the light source for commercial motion picture projection equipment and long-range follow spotlights. As a result of these acquisitions, Canrad Inc. was able to offer a complete commercial motion picture projection system. In order to further realize manufacturing efficiencies from related technologies and markets, the operations of Strong were integrated into the Company at the end of 1983. In addition, during 1983, the Company acquired the assets of the Simplex Projector Division of the National Screen Services Corporation, thereby expanding its commercial motion picture projection equipment business. -3- The Company further expanded its motion picture projection business with the 1993 acquisition of the business of the Cinema Products Division of Optical Radiation Corporation ("ORC"). This division designs, manufactures and sells commercial motion picture projection equipment on a worldwide basis and distributes ISCO-Optic lenses to the theatre and audio visual industries in North America. In December 1994, the Company increased its presence in the international marketplace with the acquisition of the business of Westrex Company Asia from Litton Systems, Inc. ("Westrex"). The Westrex acquisition provides the Company with a strategic location in the Far East and further access to the expanding economies of the Pacific Rim. The export market is becoming increasingly more significant to the Company's business. Net export sales have grown to approximately $11,304,800 or 22% of total net sales for the year ended December 31, 1996 as compared to approximately $6,150,800 or 21% of total net sales for the year ended December 31, 1994. Such net sales do not include sales of products to domestic dealers of both theatre and restaurant equipment and theatre chains which are ultimately exported. The Company's restaurant product line was initiated in the 1960s with the development of a pressure fryer for use in snack stands of drive-in theatres. The use of pressure fryers grew thereafter with the advent of fast food restaurants, convenience food stores and the expansion of precooked product offerings by delicatessens and sit-down eateries of chains such as Pathmark, Winn Dixie and Wal-Mart. The Company's commercial foodservice equipment product line has expanded to include a barbecue smoker/slow cooking oven and a rotisserie oven. This equipment is complemented by related items such as seasonings and marinades, paper serving products and point of purchase displays. BUSINESS STRATEGY The Company's business strategy is to continue its historical focus on (i) manufacturing capital equipment for the theatre and restaurant industries by maintaining and expanding the markets for existing product lines and diversifying into complementary new markets; and (ii) maintaining or achieving a leading or significant market presence in the principal industries in which it competes. Key elements of the Company's strategy include: - CUSTOMER RELATIONS. The Company develops and maintains strong customer relationships by offering a wide variety of standardized, commercial equipment; working closely with its customers to fully understand their needs; and furnishing value-added services such as (i) design and engineering expertise to develop products (often designed to customer specifications) that are high-quality, reliable and innovative; (ii) prompt delivery; and (iii) after-sale technical support. - EXPANDING INTERNATIONAL PRESENCE. The importance of the export market to the Company's product lines is significant. Net export sales as a percentage of total sales increased from 21% in 1994 to 22% in 1996. The Company's sales force travels extensively worldwide in the marketing of the Company's products. The acquisition of the business of Westrex is expected to further expand the Company's international -4- presence by providing the Company with a strategic location in the Far East and further access to the many expanding economies of the Pacific Rim. The Company also provides strategic support services to its domestic distributors planning to export the Company's products to markets located outside of the United States. - ACQUISITION GROWTH. The Company has recently expanded its commercial motion picture projection equipment operations through the Cinema Products Division of ORC and Westrex acquisitions. The Company will continue to seek to expand all of its operations through acquisitions of complementary or related niche market products. These acquisitions will potentially enable the Company to further capitalize upon its distribution channels, low cost manufacturing capabilities and experience and expertise in the theatre and restaurant industries. Given the highly fragmented nature of the entertainment lighting and restaurant industry sectors in which the Company operates, future acquisitions may primarily involve these industry sectors. - CONTROL OF COSTS. The Company has historically controlled the cost of manufacturing and selling its products by increasing throughput and updating component designs with the goal of reducing assembly time without affecting product quality. In addition, selling, general and administrative expenses as a percentage of net sales have decreased from 15.5% in 1994 to 13.6% in 1996. Through ongoing efforts to reduce labor costs, rationalize manufacturing and assembly processes and take advantage of certain efficiencies which occur as throughput increases, the Company will seek to continue to be a low cost producer. - REPLACEMENT PARTS. The Company benefits from its substantial installed base of commercial motion picture projection equipment and to a lesser extent from its installed base of long-range follow spotlights and specialty restaurant equipment. Many of the Company's products require periodic replacement of components under routine maintenance procedures. Net sales of replacement parts by the Company increased from approximately $4,717,000 in 1994 to approximately $6,132,000 in 1996. -5- INDUSTRY THEATRE PRODUCTS LINE The motion picture theatre industry celebrated its 100th anniversary in 1995. Management believes that the emergence of new forms of delivery systems, such as home video and network, syndicated and pay television, have not adversely affected attendance at motion picture theatres because the public continues to recognize the advantages of viewing a movie on a large screen with superior audio-visual quality. Moreover, increases in motion picture ticket prices have historically been below the annual increases in the overall cost of living and the movie going experience continues to remain an inexpensive form of entertainment relative to other out-of-home entertainment options. Management believes such continued viewing preference will account for a proliferation of new screens. The motion picture theatre industry has also recently introduced innovative techniques designed to enhance the movie going experience, an experience which cannot be duplicated at home. Many large single screen theatres have been replaced by multiplex theatres providing a wide range of film choices and have renovated their lobby and concession areas into restaurants and coffee bars in order to provide for all of a customer's evening entertainment needs. Multiplexes are also introducing forms of motion picture based entertainment not available on other forms of delivery systems such as 3-D and 360 degree films on large screens and motion simulation rides, which require new forms of commercial motion picture projection equipment manufactured by the Company and others. Management believes that there is a strong direct correlation between the motion picture theatre industry growth and the Company's net sales of commercial motion picture projection equipment. In order for a motion picture theatre operator to exhibit a motion picture, either the Company's or a competitor's commercial motion picture projection equipment must be used. According to data published by the National Association of Theatre Owners ("NATO"), the domestic theatre exhibition industry is comprised of approximately 400 exhibitors and approximately 29,000 screens. Since 1986, there has been a consolidation within the industry. Currently, the top ten theatre chains account for approximately 50% of the market and the top fifty chains account for approximately 80% of the market. These chains have expanded through the multiplexing concept and the refurbishing of existing theatres. Such expansion is expected to continue as regional theatre chains evolve into nationwide chains. The domestic theatre industry continues to be the primary initial distribution channel for new motion picture releases. Management believes that production of domestic feature films will continue to increase as a result of increasing demand for film product. Increasing demand is evidenced by the growth of the theatre exhibition industry outside of the United States and Canada. Since NATO began tracking motion picture revenues, 1994 marked the first time that the majority of theatrical revenues came from the export of American film products. Expanding economies in Latin America, Eastern Europe and parts of Asia will mean that more people in these areas will have both the leisure time and resources to spend on entertainment. The increased demand for film product is currently being met by an increase in production of feature films by the major studios. Moreover, management believes the emergence of stronger -6- and better capitalized independent producers and distributors should strengthen the film production industry. Management believes that an increased supply of feature films should positively affect the need for additional screens and commercial motion picture projection equipment. Management believes the entertainment lighting industry is highly fragmented and includes all forms of illumination from large wattage follow spotlights to smaller wattage fixed studio lights. The Company has concentrated on the long-range follow spotlight industry. The Company anticipates modest growth in the long-range follow spotlight market through the turn of the century. This is due to the growth of the large venue entertainment and sports industries in Asia, Africa, South America and the Middle East, as well as continued growth of such venues in Europe. New venues such as the Manchester Arena in the United Kingdom and anticipated projects in China, India, Egypt and Malaysia will all require long-range follow spotlights. Additionally, the rapidly changing demands of the entertainment lighting industry will force long-range follow spotlight users to replace existing equipment as newer, technologically advanced equipment becomes available. RESTAURANT PRODUCTS LINE The broad variety of foodservice equipment lends itself to specialization and one-product shops resulting in a commercial foodservice equipment industry that is highly fragmented. Management believes the highly fragmented nature of this industry provides excellent acquisition opportunities for the Company. The Company will seek acquisition opportunities that broaden its commercial foodservice equipment products line in order to strengthen its competitive position and enable it to enter new markets domestically and abroad. Management believes construction of new food establishments has been fueled in large part by the increasing introduction of new food concepts such as rotisserie chicken. Additionally, the market for the Company's commercial foodservice equipment has expanded through an increase in the number of foreign restaurants. The Company is currently seeking to capitalize on these trends through its Westrex acquisition, which provides the Company with a strategic location in the Far East and the expanding economies of the Pacific Rim, and the introduction of its rotisserie oven. Foodservice establishment expansion is being undertaken by, among others, many supermarkets which are seeking to draw sales away from fast food restaurants and convenience stores by expanding their delicatessen sections to offer a selection of prepared foods cooked on-site. Although there can be no assurance, management believes the potential exists for increased net sales of its pressure fryers to this market. Management believes the potential for growth in the Company's net sales also exists in the renovation and refitting of foodservice establishment kitchens that is on the increase as these establishments attempt to accommodate new commercial foodservice equipment that is more automatic, more efficient, and smaller. Such renovations reduce the need for the establishments to hire more cooks or expand their kitchens in order to prepare a wider variety of meals. The Company's commercial foodservice equipment fit these criteria. -7- The expected lives of pressure fryers and other highly used commercial foodservice equipment is approximately seven years. The Company derives the majority of its commercial foodservice equipment net sales from sales of replacement equipment and parts thereof to independent convenience store/fast food restaurant operators. MANUFACTURING PROCESS The manufacturing operations of the Company for both product lines, which are conducted in Omaha, Nebraska, consist of machining, fabricating, assembly, and packaging and shipping. Omaha's central location has served to reduce the Company's transportation costs and delivery times of products to the East and West Coasts of the United States. The Company's manufacturing strategy is to increase cost efficiencies by operating its manufacturing facility at maximum capacity, employing flexible assembly processes that allow the Company to customize certain of its products, reducing labor costs through the increased use of computerized numerical control machines for the machining of products and using outside contractors as necessary to meet increased customer demand. The Company's machining operations generally run one 12-hour shift seven days a week and one 8-hour shift five days a week. The Company's fabrication and assembly operations generally run five days a week with one 9-hour shift each of those days. The principal raw materials and components used in the Company's manufacturing processes include aluminum, solid state electronic sub-assemblies and sheet metal. The Company utilizes a single contract manufacturer for each of its film platters and intermittent movement components for its commercial motion picture projection equipment and aluminum kettles for its pressure fryers. Although the Company has not to date experienced any significant difficulty in obtaining these components, no assurance can be given that shortages will not arise in the future. The loss of any one or more of such contract manufacturers could have a short-term adverse effect on the Company until alternative manufacturing arrangements were secured. The Company is not dependent upon any one contract manufacturer or supplier for the balance of its raw materials and components. The Company believes that there are adequate alternative sources of such raw materials and components of sufficient quantity and quality. PRODUCTS AND MARKETING THEATRE PRODUCTS LINE The Company is a leading manufacturer of commercial motion picture projection equipment. The Company's commercial motion picture projection equipment is used by major movie exhibition companies such as AMC Entertainment, Cineplex Odeon and Regal Cinemas. -8- MOTION PICTURE PROJECTION EQUIPMENT The Company's commercial motion picture projection equipment consists of 35mm and 70mm motion picture projectors, combination 35/70mm projectors, xenon lamphouses and power supplies, a console system combining a lamphouse and power supply into a single cabinet, soundhead reproducers, and related products such as film handling equipment and sound systems. The Company's commercial motion picture projection equipment is marketed under the industry-wide recognized trademarks of Strong-TM-, Simplex-TM-, Century-Registered Trademark-, Optimax-Registered Trademark- and Ballantyne-TM-. The Company's commercial motion picture projection equipment may be sold with other components of the Company as an integrated system or individually. The Company's commercial motion picture projection equipment is capable of fully outfitting and automating a motion picture projection booth. The Company's lamphouse consoles are unique to the industry in that they incorporate a single solid state power supply which allows for a broader range of wattages, thereby reducing operating costs as compared to inefficient copper and iron power transformers. The Company's lamphouse consoles incorporate all elements required for quality film presentations while requiring minimum booth floor space. The Company's film handling equipment consists of either a three- or five-deck platter and a make-up table which allows the reels of a full-length motion picture to be spliced together, thereby eliminating operator reel changing during the showing of the motion picture and the re-winding of film reels subsequent to showing. The Company, pursuant to a distribution agreement with IscoOptic GmbH of Germany, has the exclusive right to distribute ISCO-Optic lenses in North America. Under the distribution agreement, the Company's exclusive right continues, subject to the attainment of minimum sales quotas, through 2002 and thereafter is automatically renewed for successive two-year periods until terminated by either party upon 12 months' prior notice. ISCO-Optic lenses have developed a reputation for delivering high image quality and resolution over the entire motion picture screen. The Company distributes ISCO-Optic lenses to customers with operations in the theatre and audio visual industries. ISCO-Optic lenses have won two Academy Awards for technical achievement. The Company does not manufacture sound processors, but rather integrates sound processors manufactured by others, such as Dolby and Ultrastereo, into its projection consoles. In addition, the Company distributes the DSS Cinema Sound Processor (the "DSS System"), which is designed to be a low-cost, full-featured backup system for digital sound processors. The DSS System operates with all digital sound processors, thereby providing an analog default backup. The Company believes that the DSS System provides more features at a lower cost than competitive models. REPLACEMENT PARTS The Company has a significant number of motion picture projectors installed worldwide. Although these projectors have an average useful life in excess of 20 years, periodic replacement of components contained therein is required as a matter of routine maintenance. The Company believes that continued growth in the motion picture theatre industry should result in increased net sales of -9- replacement parts for the Company. Net sales of replacement parts were approximately $6,132,000, $4,879,000 and $4,717,000 for the years ended December 31, 1996, 1995 and 1994 respectively. RECENT MOTION PICTURE PRODUCT DEVELOPMENTS The Company is becoming increasingly involved in the development of projection equipment for incorporation into special venue market products such as virtual reality motion simulation rides. The Company has sold customized commercial motion picture projection equipment directly to special venue customers such as The Walt Disney Company, Imax Corporation and Iwerks Entertainment, Inc. for use at special venue sites such as the Magic Kingdom, EPCOT Center, IMAX Theatres, Universal Studios and Busch Gardens. The Company is working in conjunction with several of its customers to further develop special venue projection equipment. Another area of recent product development for the Company is the continuous loop projection system. This system uses a projector, power supply, loop platter, a mirror and a rear projection screen to project images. The system is designed to take advantage of normally unused space within a theatre lobby and projection room. The system projects feature film, theatre policy and concession trailers onto a screen facing prominently towards the lobby area. The system is a low-cost, low maintenance alternative to video systems and provides the theatre owner an opportunity to provide previews of coming attractions and to advertise items available from the concession stand for patrons as they wait to enter the theatre. SPOTLIGHTS The Company's long-range follow spotlights are high-intensity general use illumination products designed for both permanent installations and touring applications. The Company's long-range follow spotlights consist of eight basic models ranging in output from 400 watts to 3,000 watts. The Company's 400 watt spotlight model, which has a range of 20 to 150 feet, is compact, portable and appropriate for small venues and truss mounting. The Company's 3,000 watt spotlight model, which has a range of 300 to 600 feet, is a high-intensity xenon light spotlight appropriate for large theatres, arenas and stadiums. All of the Company's long-range follow spotlights employ a variable focal length lens system which increases the intensity of the beam of light as it is narrowed from flood to spot. The Company's long-range follow spotlights are marketed under the Strong-TM- trademark. The Company sells its long-range follow spotlights through dealers to equipment rental companies, arenas, stadiums, theme parks, theatres and auditoriums. The Company's spotlight products are used in, among other venues, the Toronto SkyDome, the United Center in Chicago, the Hoosier Dome, the Continental Air Arena in the New Jersey Meadowlands and the Sheffield Arena in the United Kingdom. The Company's long-range follow spotlights have been employed at special venue events such as the 1996 Summer Olympics in Atlanta, Georgia and world tours by the Rolling Stones, R.E.M. and Pink Floyd. -10- RESTAURANT PRODUCTS LINE The Company's restaurant product line consists of commercial foodservice equipment, principally pressure fryers, barbecue/slow roast ovens and rotisserie ovens. The Company's rotisserie oven is a new product which was introduced in December 1994. This equipment is complemented by related items such as seasonings and marinades, paper serving products and point of purchase displays. The Company's restaurant product line is marketed under the Flavor Crisp-Registered Trademark- and Flavor Pit-Registered Trademark- trademarks. The Company's pressure fryers account for the majority of its commercial foodservice equipment net sales. The pressure fryers consist of electric and gas-fired models with product capacities ranging from six to fifteen pounds. They are designed to pressure fry chicken pieces and other foods such as pork, veal or lamb chops, potatoes and other vegetables, fish and onion rings. Certain of the electric pressure fryers feature heating elements cast directly into the wall of the cooking pot which provides the user with several advantages, including lower energy consumption, extended cooking oil life and reduced cleanup time. These advantages reduce the operating costs of the user while still providing a high quality cooked product. The electric pressure fryers also feature an optional self-enclosed, self-venting exhaust hood which permits operation of the pressure fryer without needing to vent exhaust cooking vapors to the outside. The Company's other commercial foodservice equipment are the barbecue/slow cooking oven and the rotisserie oven. The barbecue/slow cooking ovens, which feature programmable controls for easy use and efficient operation, have product capacities ranging from 24 pounds of hamburger to 140 pounds of beef roast. The barbecue/slow cooking ovens slowly roast ribs, roasts, briskets, fish and poultry using either mesquite or hickory woods. The slow roasting process imparts a naturally smoked hickory or mesquite flavor to the food product with a minimum of shrinkage. This process also serves to extend the "shelf life" of the food product. The Company recently introduced its rotisserie oven which is capable of roasting chicken or other rotisserie foods. In addition to roasting the product, the rotisserie oven displays the product as it is roasting which serves as a counter top point of sale display. The rotisserie oven employs a vertical design which enables it to fit in a limited amount of kitchen or counter top space. The Company's gas-fired pressure fryers comply with the requirements of the American Gas Association and its electric pressure fryers and barbecue/slow cooking ovens comply with the requirements of Underwriters Laboratory. The Company's commercial foodservice equipment is supplemented by seasonings, marinades and barbecue sauces manufactured to the Company's specifications by Golden Dipt Company and other food product contractors, mesquite and hickory woods, paper serving products and point of purchase displays. By offering a complete line of commercial foodservice equipment, such as pressure fryers, and related items, such as seasonings and marinades, and paper serving products, the Company is able to provide customers with a complete merchandising program which includes food preparation, presentation, promotion and packaging. The Company has found that -11- certain of its customers value the opportunity to source all of their food preparation product needs from one supplier. The Company sells its restaurant product line through dealers primarily to independent convenience store/fast food restaurant operators. The Company also sells its pressure fryers to equipment suppliers directly, on a private label basis, for resale to major chains such as Pathmark, Winn Dixie and Wal-Mart for use in their delicatessens and sit-down eateries. QUALITY CONTROL The Company has implemented a quality control program for both of its product lines designed to ensure compliance with the Company's manufacturing and assembly specifications and the requirements of its customers. Essential elements of this program are the inspection of materials and components received from suppliers and the monitoring and testing of all of the Company's products during various stages of production and assembly. WARRANTY POLICY The Company provides a warranty to end users of substantially all of its products, which generally covers a period of 12 months, but may be extended under certain circumstances and for certain products. Under the Company's warranty policy, the Company will repair or replace defective products or components at its election. Costs of warranty service and product replacements have not been material to the Company's consolidated financial position and consolidated results of operations. SALES AND MARKETING The Company's commercial motion picture projection equipment is marketed under the direction of the Senior Vice President of Sales and four salesmen. This equipment is sold domestically principally through a group of approximately 30 dealers. Spotlight products are marketed under the direction of a national sales manager. Spotlight products are sold domestically through a group of approximately 70 dealers who do not handle the Company's other theatre products. The domestic dealers for commercial motion picture equipment and spotlights generally handle competing products. Restaurant products are marketed in the United States and Canada under the direction of a Vice President of Sales. These products are sold through a group of approximately 40 authorized dealers who handle noncompeting products. The Company's products are distributed internationally through approximately 200 dealers. Historically, the Company has distributed only its theatre product line through Westrex. It is -12- expected that in the future, Westrex will also offer the Company's spotlight and restaurant products in Hong Kong and the Far East. In 1996 one customer accounted for approximately 16% of the Company's consolidated net sales. In 1995 one customer accounted for approximately 10% of the Company's consolidated net sales. In 1994 no one customer accounted for more than 10% of the Company's consolidated net sales. Export sales principally to customers in Canada, Mexico, Europe and Asia were approximately $11,304,800, $8,390,200 and $6,150,800 for the calendar years 1996, 1995 and 1994, respectively. Such amounts do not include sales of products to domestic dealers of both theatre and restaurant products and theatre chains which are ultimately exported. At December 31, 1996 and December 31, 1995, the Company had backlogs of approximately $10,029,000 and $4,900,000, respectively. Such backlogs consisted of orders received with a definite shipping date. The backlog is not seasonal in nature. Backlog figures are not necessarily indicative of sales or income for any full 12-month period. COMPETITION The market for motion picture projection equipment is highly competitive. Major competitors for the Company's theatre products include Christie Electric Corporation, Cinemeccanica and Kinoton. In addition to existing motion picture equipment manufacturers, the Company may also encounter competition from new competitors, as well as from new types of equipment. The Company competes in the commercial motion picture projection equipment industry primarily on the basis of price, quality and product line variety. The markets for the Company's long-range follow spotlights and restaurant products are highly competitive. The Company competes in the long-range follow spotlight industry primarily on the basis of price, quality and product line variety. The Company competes in the restaurant products industry primarily on the basis of price and equipment design. Competitors for the Company's long-range follow spotlight products include Lycian, Ushio, Pani and Kupo. The Company's restaurant products compete with Henny Penny Corp., BBQ King, the Broaster Company and Chester Fried Chicken. Certain of these competitors have significantly greater financial resources than the Company which may impede the ability of the Company to compete effectively. PATENTS, TRADEMARKS AND LICENSES The Company owns or otherwise has rights to trademarks used in conjunction with the sale of its products. The following trademarks are considered significant in terms of the current and contemplated operations of the Company: "Strong-TM-," "Simplex-TM-," "Century-Registered Trademark-," "Optimax-Registered Trademark-," "Ballantyne-TM-," "Flavor Crisp-Registered Trademark-," and "Flavor Pit-Registered Trademark-". These trademarks are protected by registration or common law widely throughout the world. The Company's registered trademarks expire between the years 2002 and 2008. ISCO-Optic-TM- is a trademark of IscoOptic GmbH. -13- The Company believes that its success will not be dependent upon patent protection, but rather upon the scientific and engineering "know-how" and research and production techniques. To the knowledge of the Company, there are no claims or suits threatened, pending or contemplated against it for infringement of any patents or trademarks. EMPLOYEES As of March 15, 1997, the Company had a total of 241 employees of which 3 were executive officers, 15 were managerial or supervisory personnel, 123 were manufacturing or production personnel, 15 were product engineering, design and development personnel and 85 were administrative, sales, service or warehousing and shipping employees. The Company is not a party to any collective bargaining agreement and believes its relationship with its employees to be good. ENVIRONMENTAL MATTERS The Company believes that it is in compliance with Federal, state and local provisions regulating the discharge of materials into the environment or otherwise relating to protection of the environment. The Company believes that continued compliance will not have a material effect upon the future capital expenditures, earnings or competitive position of the Company. The Company does not estimate any material capital expenditures for environmental control facilities during 1997. ITEM 2. PROPERTIES PROPERTIES The Company's headquarters and manufacturing facility are located at 4350 McKinley Street, Omaha, Nebraska, where it owns a building consisting of approximately 140,000 square feet on approximately 10.5 acres. The premises are used for offices and for the manufacture, assembly and distribution of its products. The Company's manufacturing facility was financed by industrial development revenue bonds ("IRBs") in the principal amount of $1,500,000. The IRBs are repayable over a ten-year period in monthly installments of approximately $19,000, including principal and interest, which commenced in October 1989. At December 31, 1996, the outstanding principal balance on the IRBs was approximately $361,200. The IRBs are secured by the Company's manufacturing facility and a letter of credit which reduces in amount coincident with reductions in outstanding principal. The annual fee on the letter of credit is equal to 1.375% of the average outstanding balance. The IRBs and the letter of credit securing the IRBs contain certain restrictive covenants which include, among other things, requirements relating to working capital, net worth, maintenance of debt-to-equity, interest coverage and current ratios and a restriction on the payment of cash dividends. ITEM 3. LEGAL PROCEEDINGS The Company is involved from time to time in litigation arising out of its operations in the normal course of business. As of March 15, 1997, there were no material pending legal proceedings to which the Company was a party or to which any of its properties were subject. -14- ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS During the fourth quarter of fiscal 1996, no issues were submitted to a vote of stockholders. -15- PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER'S MATTERS COMMON STOCK DATA: On March 14, 1997, the Company had 8,569,785 shares of common stock outstanding and 92 stockholders of record. MARKET: American Stock Exchange. SYMBOL: BTN. STOCK PRICE: The high and low sales prices of the Common Stock for each quarter of 1996 and 1995 are shown below: COMMON STOCK PRICE RANGE ------------------------ 1996 1995 -------------------- ------------------ HIGH LOW HIGH LOW ---- --- ---- --- First Quarter $ 9.20 6.82 - - Second Quarter $18.38 8.50 - - Third Quarter $16.50 10.00 7.16 6.19 Fourth Quarter $20.32 13.63 7.73 5.91 DIVIDENDS: The Company has not paid any cash dividends to its public stockholders. On January 29, 1997, the Board of Directors declared a 3-for-2 split of its common stock. The stock split was in the form of a 50% common stock dividend payable March 5, 1997 to stockholders of record on February 10, 1997. This table reflects the 10% stock distribution issued March 8, 1996 and does not reflect the 3-for-2 stock split payable March 5, 1997. ITEM 6. SELECTED FINANCIAL DATA The following table sets forth selected consolidated financial data for the Company as of and for each of the years in the five-year period ended December 31, 1996. -16-
Amounts in thousands except per share data. - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- FISCAL YEAR ENDING DECEMBER 31, ---------------------------------------------------------------------------- 1996 1995 1994 1993 1992 - ----------------------------------------------------------------------------------------------------------------------------------- For the fiscal year: - ----------------------------------------------------------------------------------------------------------------------------------- Net sales $51,754 $38,441 $28,758 $22,631 $18,214 Cost of sales 36,397 27,451 20,127 15,864 13,363 Gross profit 15,357 10,990 8,631 6,767 4,851 Selling, general and administrative expenses 7,047 5,681 4,442 3,823 3,020 Income from operations 8,310 5,309 4,189 2,944 1,831 Interest Expense 364 277 239 406 316 Income Before Income Taxes 7,946 5,032 3,950 2,538 1,515 Income Taxes 2,909 1,992 1,595 1,038 639 Net income 5,037 $3,040 $2,355 $1,500 $876 Net income per share (1) (2) .62 .42 .30 - ----------------------------------------------------------------------------------------------------------------------------------- At fiscal year-end: - ----------------------------------------------------------------------------------------------------------------------------------- Working capital $19,742 $8,625 $7,079 $4,773 $3,827 Total assets 32,462 19,828 16,674 15,919 11,127 Loan from parent 93 136 693 2,248 1,368 Intercompany payable to parent 458 8,059 1,607 2,317 1,160 Stockholders' equity 24,029 5,055 10,015 7,660 6,160 Weighted average shares outstanding(2) 8,094 6,654 6,600 - ----------------------------------------------------------------------------------------------------------------------------------- - -----------------------------------------------------------------------------------------------------------------------------------
(1) See Note 12 to Notes to Consolidated Financial Statements for description of net income per share calculation. (2) Adjusted for 10% stock distribution on March 8, 1996 and 3-for-2 stock split March 5, 1997. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO CONTAINED AS ITEM 8 HEREIN. GENERAL The Company, founded in 1932, manufactures capital equipment for the theatre and restaurant industries. The Company's theatre products segment consists of commercial motion picture projection equipment and long-range follow spotlights. The Company's restaurant products segment consists of commercial foodservice equipment, principally pressure fryers, barbecue/slow cooking ovens and rotisserie ovens. This equipment is complemented by related items, such as seasonings and marinades, paper serving products and point of purchase displays. -17- The Company was acquired by Canrad Inc. in 1976 as a means of vertically integrating Canrad Inc.'s other product segments which included the manufacture and sale of xenon short arc bulbs as the light source for motion picture projection equipment and long-range follow spotlight industries. RECENT ACQUISITIONS On December 2, 1994, the Company acquired certain net assets, primarily accounts receivable, inventories and the business of Westrex, a wholly owned subsidiary of Litton Systems Inc. for a purchase price of approximately $576,200. The purchase was paid for with $100,000 and a promissory note of the Company in the amount of approximately $476,200. From its location in Hong Kong, Westrex sells and services theatre equipment in Hong Kong and other countries located in the Pacific Rim. The Company expects to sell its spotlights and restaurant products in Hong Kong and the Far East through Westrex. RESULTS OF OPERATIONS YEAR ENDED DECEMBER 31, 1996 COMPARED TO THE YEAR ENDED DECEMBER 31, 1995 Net sales increased by $13,312,500 or 34.6% for the year ended December 31, 1996 as compared to the year ended December 31, 1995. The following table shows comparative net sales of Theatre Products and Restaurant Products for the respective periods: YEAR ENDED DECEMBER 31, ------------------------- 1996 1995 ---- ---- Theatre Products $49,387,700 $35,440,400 Restaurant Products 2,366,200 3,001,000 ---------- ---------- $51,753,900 $38,441,400 ---------- ---------- ---------- ---------- Net sales of Theatre Products increased by $13,947,300 or 39.4% for the twelve months ended December 31, 1996 as compared to the same period of the prior year. Within the segment, net sales of commercial motion picture projection equipment increased by approximately $13,763,400 or 41.1% and follow spotlights increased approximately $183,900 or 9.3%. The gain was attributable to increased sales of commercial motion picture projection systems, including projectors, soundhead reproducers, consoles, platters, lenses and replacement parts. The majority of the increase is attributable to net sales of commercial motion picture products to foreign customers and to domestic customers for end users expanding into foreign markets, an area where net export sales of Theatre Products increased by $2,915,000 or 35% from 1995. Net sales of replacement parts increased from approximately $4,879,000 in 1995 to approximately $6,131,500 in 1996. Net sales of Restaurant Products decreased by approximately $634,800. This decrease is due in part to a loss of two customer accounts, one major customer in the domestic market and a saturation of one foreign customer. -18- Gross profit as a percentage of net sales increased from 28.6% in 1995 to 29.7% in 1996. The increase is attributable to increased sales volume and throughput in manufacturing. Selling, general and administrative expenses increased approximately $1,366,000 for the year ended December 31, 1996 as compared to the same period of 1995. However, as a percentage of net sales, selling, general and administrative expenses decreased to 13.6% from 14.8% of net sales. In terms of the dollar increase, 1996 includes amounts paid under the Company's profit sharing plan which is reflective of the increased operating results and additional expenses incurred for a full year operating as a public company. The decrease as a percentage of sales resulted from the fact that the additional Theatre Products sales were generated without a significant increase in selling costs, including advertising, travel and the number of employees. Operating expenses include a management fee in the amount of approximately $300,000 for both periods. Interest expense amounted to approximately $363,500 for 1996 as compared to approximately $277,300 for 1995. Included in interest expense is interest incurred from the Norwest Bank revolving credit facility. The actual income tax expense amounted to approximately 37% as compared to a statutory rate of 34%. The difference relates to the effects of state income taxes and the non-deductibility of certain intangible expenses, principally goodwill. YEAR ENDED DECEMBER 31, 1995 COMPARED TO THE YEAR ENDED DECEMBER 31, 1994 Net sales increased by $9,683,000 or 33.7% for the year ended December 31, 1995 as compared to the year ended December 31, 1994. The following table shows comparative net sales of Theatre Products and Restaurant Products for the respective periods: YEAR ENDED DECEMBER 31, ---------------------------------- 1995 1994 ---- ---- Theatre Products. . . . . . . . $35,440,400 $25,731,200 Restaurant Products . . . . . . 3,001,000 3,027,200 ---------- ---------- $38,441,400 $28,758,400 ---------- ---------- ---------- ---------- Net Sales of Theatre Products increased by $9,709,200 or 37.7% for the twelve months ended December 31, 1995 as compared to the same period of the prior year. Within the segment, net sales of commercial motion pictures projection equipment increased by approximately $10,194,200 or 43.8% and follow spotlights decreased approximately $485,000 or 20%. The gain in commercial motion projection equipment was attributable to increased sales of commercial motion picture projection systems, including projectors, soundhead reproducers, consoles, platters, lenses and replacement parts. The majority of the increase is attributable to net sales of commercial motion picture products to foreign customers and to domestic customers for end users expanding into foreign markets, an area where net export sales of Theatre Products increased by $2,239,400 or 36% from 1994. Net sales of replacement parts increased from approximately $4,716,700 in 1994 to approximately $4,879,000 in 1995. Net Sales of Theatre Products in 1995 includes a full year of net sales of Westrex which was acquired on December 2, 1994. -19- Net sales of Restaurant Products remained relatively consistent between the respective periods, which is in part due to the Company's historical focus on the growth of the Theatre Products segment. Gross profit as a percentage of net sales decreased from 30% in 1994 to 28.6% in 1995. The decrease is primarily due to a full year of sales of Westrex which has a lower percentage of gross profit. Selling, general and administrative expenses increased approximately $1,239,000 for the period ended December 31, 1995 as compared to the same period of 1994. However, as a percentage of net sales, selling, general and administrative expenses decreased to 14.8% from 15.4% of net sales. In terms of the dollar increase, 1995 includes a full twelve months of operating expenses of Westrex, and includes amounts paid under the Company's profit sharing plan which is reflective of the increased operating results. The decrease as a percentage of sales resulted from the fact that the additional Theatre Product sales were generated without a significant increase in selling costs, including advertising, travel and the number of employees. Operating expenses include corporate overhead in the amount of approximately $300,000 for 1995 and $241,200 for 1994. Interest expense amounts to approximately $277,300 for 1995 as compared to approximately $238,700 for 1994. Included in interest expense in 1994 is an allocation of corporate interest relating to the Collar Agreement which expired on October 2, 1994, in the amount of approximately $129,700. Non-allocated interest expense increased to $277,300 for the year ended December 31, 1995 from approximately $109,000 for the year ended December 31, 1994. This increase resulted from the indebtedness incurred in connection with the revolving credit agreement with Norwest Bank. The actual income tax expense amounted to approximately 40% as compared to a statutory rate of 34%. The difference relates to the effects of state income taxes and the non-deductibility of certain intangible expenses, principally goodwill. -20- LIQUIDITY AND CAPITAL RESOURCES The Company has entered into a revolving credit agreement with Norwest Bank, Nebraska, N.A. ("Norwest Facility"). The Norwest Facility initially provides for a borrowing commitment of up to $10,000,000. The commitment will reduce by $500,000 on the first and second anniversary dates of such facility and $1,000,000 on the third and fourth anniversary dates thereof. The entire amount outstanding under the Norwest Facility will mature on August 30, 2000. At December 31, 1996, $9,500,000 was available for reborrowing under the Norwest Facility. Amounts repaid under the Norwest Facility will be available for reborrowing. Borrowings outstanding under the Norwest Facility will bear interest, payable monthly, at a rate equal to Norwest Bank's National Money Market Rate, as announced from time to time (8.25% at March 1, 1997). As of March 1, 1997, there were no borrowings under this facility. All of the Company's assets have been used to secure the Norwest Facility. The Norwest Facility agreement contains certain restrictive covenants which include, among other things, a prohibition on the payment of cash dividends and requirements relating to current, debt service coverage and total debt to tangible net worth ratios and tangible net worth. The IRBs, the letter of credit securing the IRBs and the Underwriting Agreement with J. W. Charles/CSG and the other underwriters of the Company's Offering also contain certain restrictive covenants which include, among other things, a prohibition on the payment of cash dividends. Long-term indebtedness, including the current portion, decreased during 1996 by approximately $7,601,000 to approximately $458,300 at December 31, 1996. Such long-term indebtedness at December 31, 1996, was comprised as follows: $361,200 outstanding pursuant to the 7.9% IRBs $ 97,100 non-compete agreement payable to ORC with imputed interest of 10% maturing in March 1997 The principal reason for the net decrease in outstanding borrowings during 1996 was the payoff of $7,090,000 from borrowings under the Norwest Facility and capital lease payoffs of manufacturing equipment in the amount of $215,000 through the use of proceeds from the August 1, 1996 equity offering. Also a payment of $91,800 pursuant to a non-compete agreement with Optical Radiation Corporation and $195,000 of payments made pursuant to the 7.9% Industrial Development Revenue Bond. Cash provided by operating activities decreased in 1996 by approximately $1,869,000. The Company anticipates that internally generated funds and borrowings under its new operating loan facility will be sufficient to meet its working capital needs. The Company expects that it will have capital expenditures of approximately $1,740,000 in 1997 which include manufacturing equipment and expansion of its current facility. The Company does not engage in any currency hedging activities in connection with its foreign operations and sales. -21- OTHER Accrued expenses at December 31, 1995 amounted to approximately $1,444,900. Such accrued expenses were approximately $1,655,900 at December 31, 1996. The increase was primarily attributable to increased profit sharing of approximately $365,400, resulting from the increase in operating results in 1996 over those attained in 1995. INFLATION The Company believes that the relatively moderate rates of inflation in recent years have not had a significant impact on its net sales or profitability. Historically, the Company has been able to offset any inflationary effects by either increasing prices or improving cost efficiencies. -22- ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEPENDENT AUDITORS' REPORT Board of Directors Ballantyne of Omaha, Inc. We have audited the accompanying consolidated financial statements of Ballantyne of Omaha, Inc. and subsidiaries as listed in the accompanying index. In connection with our audits of the consolidated financial statements, we have also audited the financial statement schedule as listed in the accompanying index. These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schecule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Ballantyne of Omaha, Inc. and subsidiaries at December 31, 1996 and 1995, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1996, in conformity with generally accepted accounting principles. Also, in our opinion the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. KPMG PEAT MARWICK LLP Omaha, Nebraska January 10, 1997 -23- BALLANTYNE OF OMAHA, INC. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS PAGE ---- CONSOLIDATED FINANCIAL STATEMENTS Consolidated Balance Sheets--December 31, 1996 and 1995 . . . . . . . . . . 25 Consolidated Statements of Income-Years ended December 31, 1996, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . 27 Consolidated Statements of Stockholders' Equity- Years ended December 31, 1996, 1995 and 1994. . . . . . . . . . . . . . . 28 Consolidated Statements of Cash Flows--Years ended December 31, 1996, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . 29 Notes to Consolidated Financial Statements Years ended December 31, 1996, 1995 and 1994. . . . . . . . . . . . . . . 31 Financial Statement Schedule Supporting Consolidated Financial Statements Schedule - Valuation and Qualifying Accounts . . . . . . . . . . . . . . 43 All other schedules have been omitted as the required information is inapplicable or the information is included in the consolidated financial statements or related notes. -24- Ballantyne of Omaha, Inc. and Subsidiaries Consolidated Balance Sheets DECEMBER 31, 1996 1995 ---- ---- Assets Current assets: Cash $ 6,042,593 204,172 Trade receivables, less allowance for doubtful receivables of $143,000 in 1996 and $118,003 in 1995 9,090,616 5,713,141 Inventories 11,901,123 9,306,157 Deferred income taxes 501,025 515,926 Other current assets 103,702 51,873 ---------- ---------- Total current assets 27,639,059 15,791,269 ---------- ---------- Property, plant and equipment, at cost: Land 313,500 313,500 Buildings and improvements 1,958,772 1,596,281 Machinery and equipment 4,230,702 3,193,963 ---------- ---------- 6,502,974 5,103,744 Less accumulated depreciation 2,639,165 2,169,125 ---------- ---------- Net property, plant and equipment 3,863,809 2,934,619 Goodwill, other intangibles and other assets, net 959,352 1,102,314 ---------- ---------- $32,462,220 19,828,202 ---------- ---------- ---------- ---------- (Continued) -25- Ballantyne of Omaha, Inc. and Subsidiaries Consolidated Balance Sheets, Continued DECEMBER 31, 1996 1995 ---- ---- Liabilities and Stockholders' Equity Current liabilities: Intercompany payable to parent $ 93,140 135,588 Current installments of long-term debt 308,107 839,508 Accounts payable 5,759,722 3,680,020 Accrued expenses 1,655,883 1,444,937 Income taxes payable 79,754 1,066,532 ---------- ---------- Total current liabilities 7,896,606 7,166,585 ---------- ---------- Deferred income taxes 386,472 386,472 Long-term debt, excluding current installments 150,195 7,219,930 Stockholders' equity: Preferred stock, par value $.01 per share; authorized 1,000,000 shares - - Common stock, par value $.01 per share; authorized 10,000,000 shares; issued and outstanding 8,569,785 shares in 1996 and 6,599,993 shares in 1995 85,698 66,000 Additional paid-in capital 18,906,556 4,989,215 Retained earnings 5,036,693 - ---------- ---------- Total stockholders' equity 24,028,947 5,055,215 ---------- ---------- Commitments and contingencies - - 32,462,220 19,828,202 ---------- ---------- ---------- ---------- See accompanying notes to consolidated financial statements. -26- Ballantyne of Omaha, Inc. and Subsidiaries Consolidated Statements of Income YEAR ENDED DECEMBER 31, 1996 1995 1994 ---- ---- ---- Net sales $51,753,864 38,441,396 28,758,446 Cost of sales 36,396,527 27,450,688 20,127,039 ---------- ---------- ---------- 15,357,337 10,990,708 8,631,407 Selling expenses 2,711,744 2,401,337 2,298,961 General and administrative expenses 4,035,709 2,979,738 1,902,137 Management fee charged by affiliate 300,000 300,000 241,188 ---------- ---------- ---------- Income from operations 8,309,884 5,309,633 4,189,121 Interest expense 363,508 277,323 108,977 Interest expense charged by affiliate - - 129,690 ---------- ---------- ---------- Income before income taxes 7,946,376 5,032,310 3,950,454 Income taxes 2,909,683 1,991,985 1,595,614 ---------- ---------- ---------- Net income 5,036,693 3,040,325 2,354,840 Net income per share $ .62 .42 .30 ---------- ---------- ---------- ---------- ---------- ---------- See accompanying notes to consolidated financial statements. -27- Ballantyne of Omaha, Inc. and Subsidiaries Consolidated Statements of Stockholders' Equity Years ended December 31, 1996, 1995 and 1994
Preferred Common Additional Retained Stock Stock Paid-In-Capital Earnings Total ----- ----- --------------- -------- ----- Balance at December 31, 1993 - $60,000 $3,602,714 $3,997,336 $7,660,050 Net income - - - 2,354,840 2,354,840 --- ------- ----------- ---------- ----------- Balance at December 31, 1994 - 60,000 3,602,714 6,352,176 10,014,890 Cash dividend paid - - - (8,000,000) (8,000,000) Net income - - - 3,040,325 3,040,325 Issuance of 10% stock distribution declared January 23, 1996, payable March 8, 1996 - 6,000 1,386,501 (1,392,501) - --- ------- ----------- ---------- ----------- Balance at December 31, 1995 - 66,000 4,989,215 - 5,055,215 Issuance of 1,897,500 shares of common stock August 1, 1996, net of offering expenses - 18,975 13,631,812 - 13,650,787 Issuance of 57,750 shares of common stock upon exercise of stock options - 578 226,922 - 227,500 Issuance of 14,543 shares of Common Stock under the Employees Stock Purchase Plan - 145 58,607 - 58,752 Net Income - - - 5,036,693 5,036,693 --- ------- ----------- ---------- ----------- Balance at December 31, 1996 - $85,698 $18,906,556 $5,036,693 $24,028,947 --- ------- ----------- ---------- ----------- --- ------- ----------- ---------- -----------
See accompanying notes to consolidated financial statements. -28- Ballantyne of Omaha, Inc. and Subsidiaries Consolidated Statements of Cash Flows YEAR ENDED DECEMBER 31, 1996 1995 1994 ---- ---- ---- Cash flows from operating activities: Net income $5,036,693 3,040,325 2,354,840 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation of plant and equipment 470,040 371,818 344,434 Other amortization 137,080 139,919 186,909 Deferred income taxes 14,901 (172,189) (86,821) Changes in assets and liabilities net of assets acquired: Trade receivables (3,377,475) (1,720,755) 276,012 Inventories (2,594,966) (1,443,621) (175,335) Other current assets (51,829) 2,499 9,502 Accounts payable 2,083,256 1,210,988 21,135 Accrued expenses 207,392 118,227 492,813 Income taxes payable (986,778) 882,015 10,076 Other assets 5,882 (7,039) (15,918) --------- --------- --------- Net cash provided by operating activities 944,196 2,422,187 3,417,647 --------- --------- --------- -29- Ballantyne of Omaha, Inc. and Subsidiaries Consolidated Statements of Cash Flows, Continued YEAR ENDED DECEMBER 31, ----------------------- 1996 1995 1994 ---- ---- ---- Cash flows from investing activities: Purchase of net assets - - (100,000) Capital expenditures (1,016,930) (244,108) (246,784) ---------- --------- --------- Net cash used in investing activities (1,016,930) (244,108) (346,784) ---------- --------- --------- Cash flows from financing activities: Repayments of long- term debt and revolving credit facility (7,983,436) (1,676,635) (1,282,960) Cash dividend paid - (8,000,000) - Proceeds from revolving credit facility - 8,000,000 - Net proceeds from equity offering 13,650,787 - - Proceeds from employee stock purchase 58,752 - - Proceeds from exercise of options 227,500 - - Change in intercompany payable to parent (42,448) (557,278) (1,555,048) ---------- --------- --------- Net cash used in financing activities 5,911,155 (2,233,913) (2,838,008) ---------- --------- --------- Net increase (decrease) in cash 5,838,421 (55,834) 232,855 Cash at beginning of period 204,172 260,006 27,151 ---------- --------- --------- Cash at end of period $6,042,593 204,172 260,006 ---------- --------- --------- ---------- --------- --------- See accompanying notes to consolidated financial statements. -30- Ballantyne of Omaha, Inc. and Subsidiaries Notes to Consolidated Financial Statements Years Ended December 31, 1996, 1995 and 1994 1. The Company Ballantyne of Omaha Inc., a Delaware corporation ("Ballantyne" or the "Company"), and its wholly-owned, subsidiaries Strong International Inc., Westrex and Flavor Crisp of America Inc., design, develop, manufacture and distribute commercial motion picture equipment, follow spotlights and restaurant equipment. The Company's products are distributed worldwide through a domestic and international dealer network and are sold to major movie exhibition companies, sports arenas, auditoriums, amusement parks, special venues, restaurants, supermarkets and convenience food stores. A majority (50.4%) of the Company's common stock is owned by Canrad of Delaware Inc. ("Canrad"), which is an indirect wholly owned subsidiary of ARC International Corporation. 2. Summary of Significant Accounting Policies The principal accounting policies upon which the accompanying consolidated financial statements are based are summarized as follows: a. Basis of Presentation The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. b. Inventories Inventories are stated at the lower of cost (first-in, first-out) or market and include appropriate elements of material, labor and manufacturing overhead. c. Goodwill and Other Intangibles The excess of cost over the fair value of assets of business acquired is stated at cost less accumulated amortization and is being amortized on a straight-line basis over the expected periods to be benefited, 5 to 25 years. Accumulated amortization as of December 31, 1996 and 1995 amounted to $632,983 and $584,875, respectively. The Company assesses and would recognize any deficiency of the recoverability of this intangible asset by determining whether the amortization of the asset balance over its remaining life can be recovered through undiscounted future operating cash flows of the acquired operations. -31- Other intangibles, including a noncompete agreement, are stated at cost less accumulated amortization and are amortized on a straight-line basis over the estimated useful lives or stated contract terms which include periods ranging from 4 to 17 years. Accumulated amortization as of December 31, 1996 and 1995 amounted to $419,559 and $324,705, respectively, d. Depreciation Depreciation of plant and equipment is provided over the estimated useful lives of the respective assets using the straight-line method. Charges are made to operations in amounts sufficient to write off the cost of such assets over their estimated useful lives. e. Income Taxes Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. f. Revenue Recognition The Company recognizes revenue from product sales upon shipment to the customer. g. Research and Development Research and development costs are charged to operations in the period incurred. Such costs charged to operations amounted to $484,527, $362,690, and $326,338 for the years ended December 31, 1996, 1995 and 1994, respectively. h. Fair Value of Financial Instruments Statement of Financial Accounting Standards SFAS No. 107 "Disclosure about Fair Value of Financial Instruments," defines the fair value of a financial instrument as the amount at which the instruments could be exchanged into a current transaction between willing parties. Cash, trade receivables, intercompany payable to parent, debt and accounts payable reported in the consolidated balance sheet equal or approximate fair values. I. Use of Estimates Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. -32- 3. Common Stock a. Equity Offering On August 1, 1996, the Company completed an offering of its shares of capital stock pursuant to a Registration Statement on Form S-1 ("the Offering"). Pursuant to the Offering, the Company sold 1,100,000 shares of Common Stock to the public at the price of $12.125 per share. In addition, the Company granted the Underwriters an option, exercisable until August 31, 1996 to purchase an aggregate of up to 165,000 additional shares of Common Stock at $12.125 price per share less underwriting discounts and commissions, to cover over-allotments, if any. The underwriters purchased all 165,000 shares on August 16, 1996. The net proceeds to the Company from the Offering were $13,650,787. b. Initial Public Offering On September 6, 1995, the Company completed the initial public offering of its shares of capital Stock pursuant to its Registration Statement on Form S-1 (the "IPO"). Pursuant to the IPO, Canrad of Delaware Inc., ("Canrad"), the holder of record of all of the outstanding shares of capital stock of Ballantyne, sold 1,200,000 shares of Ballantyne common stock to the public at an IPO price of $6.50. In connection with the IPO, on June 30, 1995, the Company effected a 400,000-to-1 stock exchange which has been given retroactive effect in the accompanying consolidated statements of stockholders' equity. The authorized common stock of Ballantyne was increased from 100,000 shares to 10,000,000 shares and the 10 issued shares increased to 4,000,000 shares. As a result, $40,000 was transferred from additional paid-in capital to common stock. In addition, the Company is authorized to issue up to 1,000,000 shares of preferred stock, $.01 per value. On October 2, 1995, an additional 180,000 shares of Ballantyne were sold by Canrad at the IPO price of $6.50. Share information and per share prices have not been adjusted for the stock distribution or stock split for the above offerings. -33- 4. Inventories Inventories consist of the following: DECEMBER 31 ----------------------------------- 1996 1995 Raw materials and supplies $ 8,888,123 6,708,016 Work in process 2,184,945 1,167,433 Finished goods 828,055 1,430,708 ---------- --------- $11,901,123 9,306,157 ---------- --------- ---------- --------- 5. Long-term Debt Long-term debt consists of the following: DECEMBER 31 ----------------------------------- 1996 1995 Industrial Development Revenue Bonds, bearing interest at 7.9%, due in monthly installments of $19,336 including principal and interest, maturing October 1998. The bonds are secured by the Company's facility and letters of credit $ 361,193 556,194 $10,000,000 revolving credit facility with Norwest Bank Nebraska, N.A, bearing interest at prime (8.25% at December 31, 1996) due September 30, 2000. The credit facility is secured by all of the Company's assets. Paid in full. - 7,090,000 Capital lease obligations bearing interest rates ranging from 8.125% to 8.9%. Paid in full. - 225,229 Note payable to Optical Radiation Corporation, with imputed interest of 10%, payable in annual installments of $100,000 including principal and interest, maturing March 1997 97,109 188,015 ------- --------- Total long-term debt 458,302 8,059,438 Less current installments of long-term debt 308,107 839,508 ------- --------- Long-term debt, excluding current installments $150,195 7,219,930 ------- --------- ------- --------- -34- The Norwest Bank Nebraska, N.A. (Norwest Bank) revolving credit facility initially provides for a borrowing commitment of up to $10,000,000. The commitment will reduce by $500,000 on the first and second anniversary dates of such facility and $1,000,000 on the third and fourth anniversary dates thereof. The entire amount outstanding under the Norwest Bank revolving credit facility will mature on August 30, 2000. At December 31, 1996, $9,500,000 was available for borrowing under the Norwest Facility. Amounts repaid under the Norwest Bank revolving credit facility are available for reborrowing. The Company initially borrowed $8,000,000 under the facility for a dividend payment to Canrad of Delaware Inc. The Norwest Bank revolving credit facility contains certain restrictive covenants which include, among other matters, a prohibition on the payment of dividends and requirements relating to working capital, current ratios, debt service ratios, total debt to tangible net worth ratios and tangible net worth. At December 31, 1996, the Company was in compliance with the covenants. The Industrial Development Revenue Bonds agreement and the letter of credit securing the agreement contain certain restrictive covenants which include, among other matters, requirements relating to working capital, net worth, maintenance of debt-to-equity, interest coverage and current ratios and a restriction on the payment of cash dividends. The Company was in compliance with such covenants. The letter of credit is for approximately $603,324 at December 31, 1996. Such amount reduces as monthly payments are made. The annual commission with respect to the letter of credit is 1.375% of the average outstanding balance. Annual maturities of long-term debt are as follow: 1997 - $308,107 and 1998 $150,195. 6. Income Taxes The provision for income taxes consists of: YEARS ENDED DECEMBER 31, ------------------------ 1996 1995 1994 ---- ---- ---- Current: Federal $2,623,375 1,846,255 1,350,460 State 267,400 292,639 331,975 Foreign 4,007 25,280 - Deferred - Federal 14,901 (172,189) (86,821) --------- --------- --------- $2,909,683 1,991,985 1,595,614 --------- --------- --------- --------- --------- --------- -35- Actual tax expense differs from the "expected" tax expense (computed by applying the U.S. Federal corporate tax rate of 34% to income before income taxes) as follows: YEARS ENDED DECEMBER 31, ------------------------ 1996 1995 1994 ---- ---- ---- Computed "expected" tax expense $2,701,768 1,710,985 1,343,154 State income taxes, net of Federal benefit 176,484 193,142 219,105 Goodwill and other non- deductible amortization 16,356 16,356 33,355 Other 15,075 71,502 - --------- --------- --------- $2,909,683 1,991,985 1,595,614 --------- --------- --------- --------- --------- --------- The deferred tax liability and deferred tax assets were comprised of the following: DECEMBER 31 ----------------------------------- 1996 1995 ---- ---- Deferred tax liability - Depreciation $386,472 386,472 Deferred tax assets: Inventory reserves 299,025 326,641 Accounts receivable reserve 48,620 40,131 Other 153,380 149,154 ------- ------- 501,025 515,926 ------- ------- Net deferred tax asset $114,553 129,454 ------- ------- ------- ------- There was no valuation allowance for deferred tax assets of December 31, 1996 or 1995. Based upon the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies, management believes it is more likely than not the Company will realize the benefits of deferred tax assets as of December 31, 1996. -36- 7. Supplemental Cash Flow Information Supplemental disclosures to the consolidated statements of cash flows are as follows: YEARS ENDED DECEMBER 31, ------------------------ 1996 1995 1994 ---- ---- ---- Interest paid $ 353,039 225,773 238,667 --------- --------- --------- --------- --------- --------- Income taxes paid $3,878,500 1,282,159 1,578,104 --------- --------- --------- --------- --------- --------- Other noncash activities in 1996 included approximately $382,300 of additional capital lease obligations in exchange for equipment. Other noncash activities in 1995 included approximately $129,400 of additional capital lease obligations in exchange for equipment. Other noncash activities in 1994 included the incurrence of approximately $476,200 of long-term debt for the purchase of Westrex. In addition, the Company incurred approximately $96,000 of additional capital lease obligations in exchange for equipment. 8. Retirement Plans The Company sponsors a defined contribution plan (the "Plan") for all employees. Pursuant to the provisions of the Plan, employees may defer up to 6% of their compensation. The Company will match 50% of the amount deferred. An additional amount of up to 9% of the employee's compensation for the year may also be deferred with no matching contribution by the Company. The contributions made to the Plan by the Company for the years ended December 31, 1996, 1995 and 1994 amounted to $99,826, $91,984 and $83,625, respectively. 9. Related Party Transactions The following amounts were charged to operations of Ballantyne by Canrad: YEARS ENDED DECEMBER 31, ------------------------ 1996 1995 1994 ---- ---- ---- Management fees $300,000 300,000 241,188 ---------- --------- --------- ---------- --------- --------- Interest expense $ - - 129,690 ---------- --------- --------- ---------- --------- --------- Federal and Nebraska state income taxes $ - 1,225,211 1,553,639 ---------- --------- --------- ---------- --------- --------- One of the Board of Directors, who was appointed during 1995, serves as General Counsel for the Company. Fees paid to the Board Member's firm in 1996 and 1995 were not significant. -37- 10. Acquisitions Purchase of Westrex Company, Asia On December 2, 1994, the Company acquired certain assets, primarily accounts receivable and inventories, of Westrex Company, Asia (Westrex), a wholly owned subsidiary of Litton Systems Inc. (Litton), for a purchase price of approximately $576,200. The purchase was made for $100,000 in cash and a note in the amount of approximately $476,200 to Litton. From its Hong Kong location, Westrex sells and services theater equipment in Hong Kong and other countries of the Pacific Rim. Annual revenues of Westrex are approximately $2,800,000. No goodwill was recorded in connection with the acquisition. This acquisition has been treated as a purchase and, accordingly, the Company's consolidated financial statements reflect the operations of Westrex beginning December 1, 1994. 11. Industry Segment Information The Company's operations are conducted principally through two segments: Theatre and Restaurant. Theatre operations include the design, manufacture, assembly and sale of motion picture projectors, xenon lamphouses and power supplies, sound systems, follow spotlights and the sale of film handling equipment and lenses. Restaurant includes the design, manufacture, assembly and sale of pressure fryers, smoke ovens and rotisseries and sale of seasonings, marinades and barbeques sauces, mesquite and hickory woods and point of purchase displays. Export sales principally to customers in Mexico, Canada, Europe and Asia were $11,304,800, $8,390,200 and $6,150,800 for 1996, 1995 and 1994, respectively. Sales to one customer represented approximately sixteen percent (16%) of consolidated net sales in the year ended December 31, 1996. The balance in trade accounts receivable owed by this customer was $1,062,100 at December 31, 1996. For the year ended December 31, 1995 sales to one customer represented approximately ten percent (10%) of consolidated net sales. The balance in trade accounts receivables owed by this customer was $957,000 at December 31, 1995. No one customer represented more than 10% of consolidated net sales for the year ended December 31, 1994. Financial instruments which potentially expose the Company to a concentration of credit risk principally consist of accounts receivable. The Company sells products to a large number of customers in many different geographic regions. To minimize credit concentration risk, the Company performs ongoing credit evaluations of its customers' financial condition. It should be noted that industry segment information may be of limited usefulness in comparing an industry segment of the Company with a similar industry segment of another enterprise. Selected information by major industry segment is summarized below for the year ended 1994: The restaurant segment does not represent ten percent of combined revenue, operating profit or identifiable assets in 1996 or 1995. -38- DECEMBER 31, 1994 THEATRE RESTAURANT TOTAL - ----------------- ------- ---------- ----- Net sales $ 25,731,253 3,027,193 28,758,446 ----------- --------- ---------- ----------- --------- ---------- Operating income $ 4,123,846 65,275 4,189,121 ----------- --------- ---------- ----------- --------- ---------- Interest expense 238,667 Income before income taxes $ 3,950,454 ----------- Depreciation and amortization: Plant and equipment $ 309,991 34,443 344,434 Other 181,677 5,232 186,909 ----------- --------- ---------- ----------- --------- ---------- Identifiable assets $ 14,915,128 1,759,273 16,674,401 ----------- --------- ---------- ----------- --------- ---------- Capital expenditures $ 212,502 34,282 246,784 ----------- --------- ---------- ----------- --------- ---------- 12. Capital Stock a. Option Plans The Company has adopted a 1995 Incentive and Non-Incentive Stock Option Plan and a 1995 Non-Employee Directors Non-Incentive Stock Option Plan (the "Plans"). A total of 825,000 shares of Ballantyne common stock have been reserved for issuance pursuant to these Plans. The 1995 Stock Option Plan provides for the granting of incentive and non-incentive stock options. The 1995 Outside Directors Stock Option Plan provides for the granting of non-incentive stock options only. The per share exercise price of incentive stock options may not be less than 100% of the fair market value of a share of Ballantyne common stock on the date of grant (110% of fair market value in the case of an incentive stock option granted to any person who, at the time the incentive stock option is granted, owns (or is considered as owning within the meaning of Section 424 (d) of the Internal Revenue Code of 1986, as amended) stock possessing more than 10% of the total combined voting powers of all classes of stock of the Company or any parent or subsidiary). With respect to non-incentive stock options, the per share exercise price may not be less than 85% of the fair market value of a share of Ballantyne common stock on the date of grant. -39- Information as to shares subject to Stock Option Plans is as follows:
Weighted average Number of Exercise price exercise Option per option price ------ ---------- ----- Options outstanding at December 31, 1994 - - - Granted 750,750 $3.94-4.39 $4.01 ------- --------- ---- Options outstanding at December 31, 1995 750,750 3.94-4.39 4.01 Granted 24,750 4.85 4.85 Exercised (57,750) 3.94 3.94 ------- --------- ---- Options outstanding at December 31, 1996 717,750 3.94-4.85 4.04 ------- --------- ---- Exercisable options at December 31, 1996 717,750 3.94-4.85 4.04 ------- --------- ----
The Company has also adopted the 1995 Employee Stock Purchase Plan. The Employee Stock Purchase Plan provides for the purchase of shares of Ballantyne common stock by eligible employees at a per share purchase price equal to 85% of the fair market value of a share of Ballantyne common stock at either the beginning or end of the offering period, as defined, whichever is lower. Purchases are made through payroll deductions of up to 10% of each participating employee's salary and participants are limited to purchasing 1,000 shares of Ballantyne common stock in any offering period. 150,000 shares of Ballantyne common stock have been reserved pursuant to the Employee Stock Purchase Plan. The Company applies APB Opinion No. 25 and related Interpretations in accounting for its plan and the exercise price of all options issued have equaled the market value of the stock on the date of grant. Accordingly, no compensation cost has been recognized for any of the aforementioned stock compensation plans. Had compensation cost for the Company's stock compensation plans been determined consistent with FASB Statement No. 123, the Company's net income and earnings per share would have been reduced to the pro forma amounts indicated below: -40- 1996 1995 ---- ---- Net income As Reported $5,036,693 $3,040,325 Pro forma $3,059,454 $2,062,200 Primary earnings As Reported $0.62 $0.42 per share Pro forma $0.29 $0.19 The fair value of each option grant is estimated on the date of grant using Black-Scholes option-pricing model with the following weighted-average assumptions used for grants in 1996 and 1995: dividend yield of 0.0 percent; expected volatility of 75 percent; risk-free interest rate of 6.15 percent; and expected lives of ten years for the 1995 Stock Option Plan options and three to five years for the other stock compensation plans. All per share and number of share information have been adjusted for the 10% stock distribution as well as the 3-for-2 stock split. b. Warrants The Company has granted Merita Bank Ltd., the primary lending bank of Canrad, a warrant to purchase 323,400 shares of Ballantyne common stock. The warrant is exercisable at a per share price of $3.94. All shares subject to the warrant are exercisable at December 31, 1996. The number of shares under warrant and the per share price have been adjusted for the effect of the 10% stock distribution issued on March 8, 1996 and the 3-for-2 stock split issued March 5, 1997. c. Change of Control A substantial portion of the shares of Ballantyne common stock owned by Canrad are pledged to secure Canrad's obligation under a credit facility provided by Merita Bank Ltd. During the period, if any, that one or more events of default shall have occurred and are continuing under such credit facility, Merita Bank Ltd. shall have the right to sell all or any portion of such pledged shares at one or more public or private sales called and conducted in any manner permitted by the New York Uniform Commercial Code. The sale of all or a substantial portion of such pledged shares could result in a change of control of Ballantyne. 13. Net Income Per Share Net income per share is based on the weighted average number of common shares outstanding. The effects of the assumed exercise of outstanding stock options and warrants have been included in the income per share calculation for the period that the shares were assumed issued using the treasury stock method. Net income per share also reflects the effect of the assumed interest expense less related tax effects of the $8,000,000 borrowing pursuant to the Norwest Bank revolving credit facility which is assumed to be outstanding as of the beginning of the earliest period presented, with no repayment being made during 1995 and 1994. -41- Weighted average shares outstanding amounted to 8,094,417 for the year ended December 31, 1996, 6,654,344 for the year ended December 31, 1995 and, 6,600,000 for the year ended December 31, 1994. The Company's Board of Directors declared a 3-for-2 stock split of the Company's common stock on January 29, 1997. The stock split was in the form of a 50% common stock dividend payable March 5, 1997 to shareholders of record on February 10, 1997. As a result of the stock split, Ballantyne's outstanding shares of common stock increased to approximately 8,569,785 at December 31, 1996. Per share data have been restated to reflect this stock split as of the earliest period presented. The Company's Board of Directors declared a 10% stock distribution on January 23, 1996, which was issued on March 8, 1996, to shareholders of record on February 9, 1996. This stock distribution resulted in the issuance of 600,000 shares of common stock. Per share data have been restated to reflect these stock distributions as of the earliest period presented. The stock distribution is not considered a distribution of earnings except to the extent that the Company has retained earnings, but rather had the effect of increasing the number of outstanding shares. 14. Commitments and Contingencies The Company has in place a profit sharing plan for key management employees. Amounts due pursuant to the plan are based upon the attainment of specific operating levels that are established by the Board of Directors. Amounts charged to operations pursuant to the profit sharing plan amounted to $913,676, $538,247 and $425,052 for 1996, 1995 and 1994, respectively. The amounts payable of $913,676 at December 31, 1996 and $538,247 at December 31, 1995 are included in accrued expenses in the accompanying consolidated balance sheets. During 1994, the Company entered into a deferred compensation agreement with its President and Chief Executive Officer providing for monthly payments of $5,000 commencing with his date of retirement or death and continuing for twenty four months thereafter. Deferred compensation expense was approximately $24,000 for the year ended December 31, 1996 and $48,000 for the years ended December 31, 1995 and 1994, respectively. No amounts payable under the agreement are vested. -42- SCHEDULE Ballantyne Of Omaha, Inc. and Subsidiaries Valuation and Qualifying Accounts
Balance at Charged to Amounts Balance beginning costs and written at end of year expenses off(1) of year ------- -------- ------ ------- Year ended December 31, 1996 - Allowance for doubtful accounts $118,003 63,995 38,998 143,000 ------- ------ ------ ------- ------- ------ ------ ------- Year ended December 31, 1995 - Allowance for doubtful accounts $100,000 21,600 3,567 118,003 ------- ------ ------ ------- ------- ------ ------ ------- Year ended December 31, 1994 - Allowance for doubtful accounts $107,827 14,442 22,269 100,000 ------- ------ ------ ------- ------- ------ ------ -------
(1) The deductions from reserves are net of recoveries. -43- PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Incorporated by reference from the Ballantyne of Omaha, Inc. Proxy Statement for Annual Meeting of Stockholders to be held June 10, 1997, under the captions ELECTION OF DIRECTORS, LIST OF CURRENT EXECUTIVE OFFICERS OF THE COMPANY, and ADDITIONAL INFORMATION - Compliance with Section 16(a) of the Securities Exchange Act of 1934. ITEM 11. EXECUTIVE COMPENSATION Incorporated by reference from the Ballantyne of Omaha, Inc. Proxy Statement for Annual Meeting of Stockholders to be held June 10, 1997, under the caption EXECUTIVE COMPENSATION. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Incorporated by reference from the Ballantyne of Omaha, Inc. Proxy Statement for Annual Meeting of Stockholders to be held June 10, 1997, under the captions GENERAL and ELECTION OF DIRECTORS. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Incorporated by reference from the Ballantyne of Omaha, Inc. Proxy Statement for Annual Meeting of Stockholders to be held June 10, 1997, under the caption RELATED PARTY TRANSACTIONS. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K a. The following documents are filed as part of this report: Page No. -------- 1. Financial Statements: An Index to the Financial Statements filed as a part of this report is contained in Item 8 Financial Statements of the Registrant's subsidiaries are omitted because the Registrant is primarily an operating company and the subsidiaries are wholly owned -44- b. Reports on Form 8-K filed for the three months ended December 31, 1996 1. None c. Exhibits (Numbered in accordance with Item 601 of Regulation S-K): 3.1 Certificate of Incorporation as amended through July 20, 1995 (incorporated by reference to Exhibits 3.1 and 3.3 to the Registration Statement on Form S-1, File No. 33-93244) (the "Form S-1") 3.2 Bylaws as amended through August 24, 1995 (incorporated by reference to Exhibit 3.2 to the Form S-1) 4.1 Trust Indenture dated as of September 1, 1988 by and between the County of Douglas, Nebraska and FirsTier Bank, National Association, Omaha (incorporated by reference to Exhibit 4.1 to the Form S-1) 4.2 Loan Agreement dated August 30, 1995, as amended November 24, 1995 between the Company and Norwest Bank, N.A. (incorporated by reference to Exhibit 4.2 to the Company's Annual Report on Form 10-K filed for the year ended December 31, 1995)(the "Form 10-K") 10.1 Employment Agreement between the Company and Ronald H. Echtenkamp dated October 1, 1991 (incorporated by reference to Exhibit 10.1 to the Form S-1) 10.1.1 Amendment to Employment Agreement between the Company and Ronald H. Echtenkamp dated March 18, 1994 (incorporated by reference to Exhibit 10.2 to the Form S-1) 10.1.2 Second Amendment dated July 20, 1995 to Employment Agreement between the Company and Ronald H. Echtenkamp (incorporated by reference to Exhibit 10.12 to the Form S-1) 10.1.3 Third Amendment dated January 20,1997 to Employment Agreement between the Company and Ronald H. Echtenkamp...........49 10.1.4 Consulting Agreement dated March 3, 1997 between the Company and Ronald H. Echtenkamp.................................50 -45- 10.3 Employment Agreement between the Company and John Wilmers dated October 15, 1991 (incorporated by reference to Exhibit 10.3 to the Form S-1) 10.3.1 Extension to Employment Agreement between the Company and John Wilmers dated July 8, 1996 (incorporated by reference to Exhibit 10.16 to the Form 10-Q for the quarter ended June 30, 1996) (the "Form 10-Q") 10.3.2 Employment Agreement between the Company and John Wilmers dated January 1, 1997....................................53 10.4 Lease and Agreement dated September 1, 1988 by and between County of Douglas, Nebraska and the Company (incorporated by reference to Exhibit 10.4 to the Form S-1) 10.5 Guaranty Agreement dated September 1, 1988 between the Company and FirsTier Bank, National Association, Omaha (incorporated by reference to Exhibit 10.5 to the Form S-1) 10.6 Distributorship Agreement dated as of March 1, 1992 between IscoOptic Gmbh and the Company (incorporated by reference to Exhibit 10.6 to the Form S-1) 10.7 Form of 1995 Stock Option Plan (incorporated by reference to Exhibit 10.7 to the Form S-1) 10.8 Form of 1995 Outside Directors Stock Option Plan (incorporated by reference to Exhibit 10.8 to the Form S-1) 10.8.1 Amendment to 1995 Outside Directors Stock Option Plan, as amended through July 8, 1996 (incorporated by reference to exhibit 10.8 to the Form 10-Q) 10.9 Form of 1995 Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.9 to the Form S-1) 10.9.1 Amendment to the 1995 Employee Stock Purchase Plan...............61 -46- 10.10 Form of Management Services Agreement by and between the Company and Canrad, Inc. (incorporated by reference to Exhibit 10.10 to the Form S-1) 10.11 Profit Sharing Plan (incorporated by reference to Exhibit 10.11 to the Form S-1) 10.11.1 Amendment to the Profit Sharing Plan.............................62 10.13 Letter of Engagement dated December 22, 1995 between the Company and Geller & Friend Capital Partners, Inc., including 50,000 share stock option (incorporated by reference to Exhibit 10.13 to the Form 10-K) 10.14 Stock Option Agreement dated as of September 19, 1995 between the Company and Jaffoni & Collins Incorporated (incorporated by reference to Exhibit 10.14 to the Form 10-Q) 11 Computation of net earnings per share (included in Financial Statements) 21 Registrant owns 100% of the outstanding capital stock of the following subsidiaries: a. Strong International Inc. b. Arnold's, Inc. 23 Consent of KPMG Peat Marwick LLP.................................63 -47- SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. BALLANTYNE OF OMAHA, INC. By: /s/ John Wilmers By: /s/ Brad French ------------------------------------ ------------------------- John Wilmers, President, Brad French, Secretary, Chief Executive Officer, and Director Treasurer, and Chief Financial Officer Date: March 27, 1997 Date: March 27, 1997 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. By: /s/ Arnold S. Tenney By: /s/ Ronald H. Echtenkamp ------------------------------ ------------------------------ Arnold S. Tenney, Chairman and Ronald H. Echtenkamp, Director Vice-Chairman and Director Date: March 27, 1997 Date: March 27, 1997 By: /s/ Jeffrey D. Chelin By: /s/ Colin G. Campbell ------------------------------ ------------------------------ Jeffrey D. Chelin, Director Colin G. Campbell, Director Date: March 27, 1997 Date: March 27, 1997 By: /s/ Yale Richards By: /s/ Marshall Geller ------------------------------ ----------------------------- Yale Richards, Director Marshall Geller, Director Date: March 27, 1997 Date: March 27, 1997 -48- EX-10.1-3 2 EXHIBIT 10.1.3 Exhibit 10.1.3 THIRD AMENDMENT TO EMPLOYMENT AGREEMENT The Agreement made as of October 1, 1991, by and between BALLANTYNE OF OMAHA, INC. ("Ballantyne"), an Omaha corporation, with offices at 4350 McKinley Road, Omaha, Nebraska 68112 (the "Company"), and RONALD H ECHTENKAMP, an individual residing at 3105 South 134th Avenue, Omaha, Nebraska 68144 (the "Employee"), and amended on the 16th day of April, 1994, and on the 20th day of July, 1995, is further amended, retroactive to January 1, 1996, as follows: That portion of Paragraph 5 (b), which states: "No participant may receive in any fiscal year, a profit sharing amount that exceeds 150% of such participant's base salary. (i.e., salary excluding bonuses, commissions, overtime payments or any other form of compensation.)" is hereby deleted in its entirety. All other terms, provisions and conditions set forth in the Agreement of October 1, 1991, and the amendments entered into on April 16, 1994, and July 20, 1995, shall be and remain the same. IN WITNESS WHEREOF, the parties hereto have executed this Third Amendment to Employment Agreement on this 20th day of January, 1997. BALLANTYNE OF OMAHA, INC. BY: /s/ Arnold S. Tenney ----------------------------------- Arnold S. Tenney, Chairman /s/ Ronald H. Echtenkamp ----------------------------------- Ronald H. Echtenkamp, Employee -49- EX-10.1-4 3 EXHIBIT 10.1.4 Exhibit 10.1.4 CONSULTING AGREEMENT THIS AGREEMENT made and entered into this 3rd day of March, 1997, by and between Ballantyne of Omaha, Inc., ("Ballantyne"), a Delaware corporation with its principal offices at 4350 McKinley Street, Omaha, Nebraska 68112 (the "Company"), and Ronald H. Echtenkamp, an individual residing at 3105 South 134th Avenue, Omaha, Nebraska 68144 ("Echtenkamp"). WITNESSETH WHEREAS, Echtenkamp has been a key employee of Ballantyne for many years, and has been serving as President of the Company since 1981; and WHEREAS, effective March 31, 1997, Echtenkamp's Employment Contract with the Company will terminate, and Echtenkamp will no longer be an employee of the Company, but will serve as Vice-Chairman of the Board of Directors; and WHEREAS, the Company wishes to continue to have the benefit of Echtenkamp's experience, counsel and advice in the operation of its business, and wishes to retain him as a consultant, and Echtenkamp is agreeable thereto. NOW, THEREFORE, it is agreed by and between the parties hereto, as follows: 1. EXTENSION OF EMPLOYMENT. Echtenkamp will remain an employee of the Company through and including May 1, 1997, at the same rate of compensation as provided for in his existing Employment Contract. 2. ENGAGEMENT AS CONSULTANT. Company hereby engages Echtenkamp as a consultant for a term beginning April 29, 1997, and terminating on December 31, 1997, and Echtenkamp hereby accepts such engagement. 3. ACTIVITIES OF CONSULTANT. During the term of this Agreement, Echtenkamp will assist the Company in the continued operation of its business, and will render counsel and advice, and such other services as the Company desires, with the particular assignment of pursuing and negotiating acquisitions of other businesses. During this period, Echtenkamp will continue to serve as Vice-Chairman of the Board. It is contemplated that Echtenkamp will devote 5 (five) days of his time per month, or up to forty (40) days during the period of April 29, 1997, through December 31, 1997. 4. COMPENSATION. As compensation for his services to be rendered to the Company, the Company will compensate Echtenkamp at the rate of Four Thousand Five Hundred -50- Dollars ($4,500.00) per month. In addition, Echtenkamp will be reimbursed for all out-of-pocket expenses incurred on behalf of the Company. If Echtenkamp shall devote more than forty (40) days of his time on behalf of the Company during the term of this Contract, he will be paid additional compensation at the rate of Seven Hundred Dollars ($700.00) per day. 5. OFFICE. Echtenkamp will maintain his office at premises other than the offices of the Company, but will be entitled to use secretarial services provided by the Company. 6. INSURANCE. As additional consideration for the services to be performed by Echtenkamp, the Company agrees to provide him Executive Retirement Supplemental Insurance, including prescription drug coverage, for himself and his spouse after they reach the age of sixty-five (65) years, for which the Employee will pay up to Seventy-Five Dollars ($75.00) each for himself and his spouse per month. 7. RESTRICTIVE COVENANTS. Echtenkamp agrees to continue to be bound by the provisions of Section 8, 9 and 10 of his Employment Contract dated October 1, 1991, as though they were part of this Consulting Agreement, and the provisions thereof are incorporated herein by this reference. 8. INDEPENDENT CONTRACTOR. For the purposes of this Agreement, and the services to be rendered hereunder, Echtenkamp shall, at all times, be an independent contractor and shall not be considered an employee of the Company. 9. MISCELLANEOUS. The following miscellaneous provisions shall apply to this Agreement; A. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement and understandings between the parties with respect to the subject matter hereof, and supersedes all prior agreements and understanding, oral and written, between the parties with respect thereto. The Agreement may be amended or supplemented at any time only by an instrument in writing signed by both of the parties. B. APPLICABLE LAW. This Agreement shall be construed and enforced in accordance with the laws of the State of Nebraska. C. BINDING EFFECT. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective personal representatives, heirs, successors and assigns, except that the obligations of Echtenkamp hereunder may not be assigned. D. NOTICES Any notice requires or permitted to be given under this Agreement shall be sufficient if in writing and sent to the other party by certified mail, return receipt requested, to the address for such party set forth above. -51- E. HEADINGS. The headings of the sections herein are for convenience only and shall not be construed as in any manner defining, limiting, or describing the scope or intent of the particular sections to which they refer, or as affecting the meaning or construction of the language in the body of such sections. 10. NEGOTIATION OF NEW AGREEMENT. The parties hereto hereby express their intention to negotiate a new Consulting Contract, prior to December 31, 1997. IN WITNESS WHEREOF, the parties hereto have set their hands the date first above written. BALLANTYNE OF OMAHA, INC. BY: /s/ John Wilmers ----------------------------------- President BY: /s/ Ronald H. Echtenkamp ----------------------------------- -52- EX-10.3-2 4 EXHIBIT 10.3.2 Exhibit 10.3.2 EMPLOYMENT AGREEMENT THIS AGREEMENT made as of January 1, 1997, by and between BALLANTYNE OF OMAHA, INC. (Ballantyne), an Delaware corporation with offices at 4350 McKinley Street, Omaha, Nebraska 68112 (the "Company"), and John P. Wilmers an individual residing at 17116 "S" Street, Omaha, Nebraska 68135 (the "Employee"). W I T N E S S E T H WHEREAS, the Employee has been a key employee of Ballantyne for many years, and in connection therewith entered into an employment agreement with Ballantyne dated October 14, 1991; and an extension agreement with reference thereto on July 8, 1996; WHEREAS, the Employee and Ballantyne desire to execute a new employment agreement; NOW, THEREFORE, in consideration of the mutual promises and covenants herein contained, the parties intending to be legally bound agree as follows: 1. TERMINATION OF PRIOR EMPLOYMENT AGREEMENT. The employment agreement between Ballantyne and the Employee, dated October 15, 1991 and the extension agreement dated July 8, 1996 , are hereby terminated and shall be of no further force and effect. 2. EMPLOYMENT. The Company hereby employs the Employee and the Employee hereby agrees to be employed by the Company upon the terms and conditions hereinafter set forth. Until March 31, 1997, the Employee shall continue to perform those duties set forth in the prior agreement dated October 14, 1991. Effective April 1, 1997, the Employee agrees to serve as President and CEO of Ballantyne of Omaha, Inc., and in such capacity to exercise general direction and control over its total business operations. 3. DUTIES AND SERVICES. (a) The Employee shall perform such services as may be assigned to the Employee by the Chairman or Board of Directors. (b) The Employee agrees to devote all of the Employee's time and efforts to the performance of the Employee's duties as an employee of the Company. The Employee shall not during the term hereof perform any services for any person, firm or corporation, other than as approved in writing by the Company. The prohibitions of this section shall apply to indirect activities of the Employee as well as direct activities, and will accordingly -53- prohibit activities of persons with whom the Employee is "affiliated", as that term is defined under the Securities Act of 1933, as amended, and the Rules and Regulations thereunder. (c) The Employee shall undertake such travel as may be necessary or desirable to promote the business and affairs of the Company. 4. TERM. (a) Except as otherwise hereinafter specifically provided, the term of this employment agreement shall be for a period of five years from the date hereof. (b) Notwithstanding anything to the contrary provided herein, the Company or the Employee may give the other 120 days notice prior to the end of the term, or of any extension or renewal thereof, of such party's intention to negotiate a new employment arrangement commencing at the end of the term or to terminate this contract. In the event no such notice is given, the term described at subparagraph (a) above shall automatically continue for an additional year, and this subsection (b) shall be applicable again within such extension. (c) This Agreement may be terminated by the Company, at its discretion, upon the Employee's death, inability to perform or incapacity (being defined as inability to perform normal activities and functions for a period of 180 consecutive days), or for cause. A termination for cause for purposes of this Agreement shall be that the Employee (I) acted dishonestly or incompetently or engaged in willful misconduct in the performance of the Employee's duties, (ii) breached a fiduciary duty to the Company, (iii) intentionally failed to perform reasonably assigned duties, (iv) willfully violated any law, rule or regulation (other than minor traffic violations or similar offenses) or any final cease and desist order, or (v) breached this Agreement and such breach is not cured by Employee after ten (10) days written notice. (d) This Agreement may be terminated by the Employee in the event that Company breaches this Agreement and such breach is not cured by the Company after 10 days written notice. (e) In the event the Company shall be sold, either by a sale of assets or corporate stock, the purchaser shall assume this contract of employment. If, at the time of such sale, the remaining term of this contract shall be less than three years, the purchaser shall have the option to extend the term for a period expiring three years from the closing date of the sale. The purchaser shall have ninety days from the closing date to exercise this option. If the purchaser shall fail to exercise this option within such ninety days, then, upon termination of the term of this contract, Employee shall continue to be paid the basic compensation as set forth in Paragraph 5 (a) from the date of termination until the expiration of three years following the closing date of the sale (the "additional period"). Employee -54- shall receive no additional compensation, as described in Paragraph 5 (b) during such additional period. 5. COMPENSATION. (a) BASIC COMPENSATION. For all of the services to be rendered by the Employee in any capacity hereunder, the Company shall pay the Employee salary at the annual rate of one hundred sixty-five thousand dollars and the Company shall review such salary annually as of January 1 during each subsequent year of this Agreement but in no event shall the basic compensation in each subsequent year be less than the aforesaid amount. The compensation paid hereunder to the Employee shall be paid in accordance with the payroll practices conducted by the Company and shall be subject to the customary withholding taxes and other employment taxes as required with respect to compensation paid by a corporation to an employee. (b) ADDITIONAL COMPENSATION. In addition to the basic compensation set forth at Paragraph 5(a) above, the Company shall pay the Employee additional compensation based upon the following profit sharing program: The profit sharing equity threshold shall be based on the equity as of the beginning of the fiscal year. Such threshold is to be set at 20% of equity as defined. The profit sharing pool shall be based on operating income (income before income taxes, but after management fees, amortization of goodwill, other costs associated with acquisitions, and interest from debt incurred with respect to acquisitions of business or of plant and capital equipment). The pool shall be set at 14%. The pool shall be calculated as 14% of operating income, as defined above, in excess of the 20% of the equity threshold, as defined above, for any fiscal year. The Employee will determine the allocation of the pool between participants, subject to approval of the Compensation Committee. The Employee's portion of the profit sharing pool may not exceed 40% of the total pool. -55- For illustrative purposes only, the following is an example of the profit sharing calculation based on return on equity for the 1994. Threshold Percentage 20% Equity Beginning of Year 7,660,050 Times: Threshold Percentage 20% Threshold Amount 1,532,010 Operating Income 4,189,121 Add Back: Accrued Estimated Profit Sharing Expense 445,053 Operating Income before Profit Share 4,634,174 Less: Threshold 1,532,010 Profit Share Earnings 3,102,164 Times: Pool Percentage 14% Pool Amount 434,302 (c) DEFINITION: PAYMENT. Computation of additional compensation shall be made by the company within 30 days of the end of each calendar year, and shall be paid within one month from the date the Company makes such determination. (d) SERVICES FOR LESS THAN A FULL YEAR. Except as provided at subsection (e), with respect to the determination of additional compensation for any calendar year in which an Employee does not render services hereunder for the full twelve month period, the Company shall compute the additional compensation in the same manner as described at subsection (b), for the period from the commencement of such fiscal period (i.e., January 1) through the last day of the calendar month preceding termination. (e) TERMINATION OF EMPLOYMENT. Upon termination of employment for any reason, the Employee shall be entitled to receive the basic compensation accrued but unpaid as of the date of termination. Upon termination of employment of the Employee by the Company for any reason other than for cause, the Employee shall also be entitled to receive the additional compensation computed as set forth above. Nothing herein contained shall be construed to deprive Employee of any other remedy at law or in equity for breach of this contract by Company if Employee's employment is terminated by the Company without cause. (f) DISPUTES. In the event of a dispute in the calculation of additional compensation by the Company hereunder relating to the calculation of net sales or pre-tax earnings of the Company, such net sales and pre-tax earnings shall be determined by the certified public accountant retained by the Company, and such determination (including any -56- allocations with respect to transactions between the Company and its affiliates) shall be absolute, conclusive and binding upon the Company and the Employee, except in the event of gross malfeasance or fraud. The company and the Employee shall each pay one half of the fees and disbursements of such certified public accountants with respect to such determination. 6. EXPENSES AND VACATIONS. (a) The Company shall reimburse the Employee for all reasonable and necessary travel and entertainment expenses incurred by the Employee in the performance of the Employee's duties hereunder upon submission of vouchers and receipts evidencing such expenses. In addition, the Company shall provide the Employee with an automobile to be used in the performance of the Employee's duties hereunder. (b) The Employee shall be entitled to vacation during each twelve months of employment in accordance with applicable Company policy. All vacations shall be in addition to recognized national holidays. During all vacations, the Employee's compensation and other benefits as stated herein shall continue be paid in full. Such vacations shall be taken only at times convenient for the Company. 7. OTHER BENEFITS. In addition to the compensation and to the rights provided for elsewhere in this agreement, the Employee shall be entitled to participate in each plan of the company now or hereafter adopted for the benefit of executive employees of the Company, to the extent permitted by such plans and by applicable law, including, but not limited to, (I) profit sharing plan, (ii) medical expense insurance program, (iii) pension plan, and (iv) incentive compensation plan. (a) The Company further agrees to continue the Employee's medical coverage for Employee and his eligible dependents, at the Company's expense, until the Employee attains age 65, and for the Employee's spouse until she attains the age of 65, even though such events may occur after this agreement expires, provided the Employee remains in the employ of the Company until his retirement. After age 65, the Employee and his eligible dependents, shall only be entitled to medical insurance coverage to the extent, if any, that the Company provides such coverage for other retired senior executives, except that the Company shall continue to provide medical coverage for the Employee's spouse until she attains the age of 65, provided the Employee remains in the employ of the Company until his retirement. 8. DISCLOSURE OF INFORMATION. The Employee acknowledges that the Company's trade secrets as they may exist from time to time, including, but not limited to, the company's list of customers, processes, ideas, plans, programs, procedures and know-how, are valuable, special and unique assets of the Company's business, access to and knowledge of which are essential to the performance of the Employee's duties hereunder. The parties agree that the Employee will not, during or after the term of the Employee's employment by the Company, -57- disclose such secrets to any person, firm, corporation, association or other entity or use such secrets for any reason or purpose whatsoever; nor shall the Employee make use of any such property for the Employee's own purposes or for the benefit of any person, firm, corporation or other entity (except the Company) under any circumstances during or after the term of the Employee's employment. Nothing in this section shall limit the Employe's right to carry the Employee's accumulated career knowledge and professional skills to any future employment, subject to the specific limitations of the foregoing provisions of this section and the restrictive covenant elsewhere set forth herein. 9. RESTRICTIVE COVENANT. The Employee agrees that at the expiration of this Agreement or at termination for any reason whatsoever, the Employee shall not, for a period of three years thereafter, engage in any business, as principal, employee or otherwise, which competes with the Company in the United States with respect to the manufacture, production, assembling, distribution, or sale of products which are the same or similar or related to use or function to those which are manufactured, assembled, sold, or being developed by the Company at any time during the Employee's employment with the Company, or directly or indirectly solicit or contact any present or past (one having active contact within twelve months prior to termination of the Employee's employment) distributor, dealer, customer, client, employee or consultant of the Company (or the Company's subsidiaries or affiliates). It is the desire and intent of the parties that the provision of this section shall be enforced to the fullest extent permissible under the laws and public policies applied in each jurisdiction in which enforcement is sought. The parties hereto recognize and agree that in the event of the breach of any provision of this covenant, there is not a remedy at law adequate to protect the rights and interest of the Company set forth herein, and the parties therefore agree that the Company shall have the right to an injunction enjoining the Employee from violating the provisions of this section. Nothing herein shall be construed as prohibiting the Company from pursuing any other remedies available for such breach or threatened breach, including the recovery of damages from the Employee. In the event that any restriction contained in this covenant is deemed by any court to be void because it is for an excessive period of time or restricts the Employee from engaging in a business competing with the Company in an excessive geographical area, it is agreed by the parties that said court shall have the right to decrease the time period or geographical area covered by such restriction to a time period and/or geographical area which is not excessive. It is understood and agreed that in the event the Company terminates the Employee without cause or if the Company breaches this Agreement and does not cure said breach as provided in paragraph 3(d), the provisions of paragraph 9 are null and void. 10. INVENTIONS AND DISCOVERIES. The Employee hereby sells, transfers and assigns to the Company or to any person or entity designated by the Company all of the entire right, title and interest of the Employee in and to all inventions, ideas, disclosures and -58- improvements, whether patented or unpatented, and copyrightable material made or conceived by the Employee, solely or jointly, during the term hereof which relate to the products and services provided by the Company or which otherwise relate or pertain to the business, functions or operations of the Company. The Employee agrees to communicate promptly and to disclose to the Company in such form as the Employee may be required to do so all information, details and data pertaining to such inventions, ideas, disclosures and improvements and to execute and deliver to the Company such formal transfers and assignments and such other papers and documents as may be required of the Employee to permit the Company or any person or entity designated by the Company to file and prosecute the patent applications and, as to copyrightable material, to obtain copyrights thereof. 11. NOTICES. Any notice required or permitted to be given under this Agreement shall be sufficient if in writing and if sent by certified mail, return receipt requested, to the Employee's residence, in the case of the Employee, or to the Company, at the principal offices of Ballantyne of Omaha, Inc.. 12. CONSTRUCTION OF AGREEMENT. This agreement is intended to be construed and enforced in accordance with the laws of the State of Nebraska, in the same manner as those executed and performed entirely within the State of Nebraska, and without regard to or aid of any presumption or other rule requiring construction against the party drawing or causing this Agreement to be drawn. 13. COMMENCEMENT OF ACTIONS OF PROCEEDINGS. Any action or proceeding brought by a party hereto against another and arising out of the Agreement or any breach thereof, may be commenced by the service of process in the same manner as a notice may be served under this Agreement. 14. NON-WAIVER. No provision of this Agreement shall be deemed to have been waived except if such waiver is contained in a notice given to the party claiming such waiver has occurred and no such waiver shall be deemed to be a waiver of any other or further similar or dissimilar obligation or liability of the party in whose favor the waiver was given.. 15. ILLEGALITY. If any provision or provisions hereof (or any part thereof) or the application thereof to any particular facts or circumstances shall be illegal and unenforceable by reason of any statute or rule of law, the remaining provisions (or parts thereof) of this Agreement or the applications of the particular provision or provisions (or parts thereof) to the other facts or circumstances shall not be affected thereby and shall remain in full force and effect, it being the intention by this section to make clear the agreement of the parties that this Agreement shall be enforced insofar as it may be enforced consistent with law. 16. HEADINGS. The headings of the sections herein are for convenience only and are part of this Agreement and shall not affect the interpretation thereof. -59- 17. ENTIRE AGREEMENT. This Agreement contains the entire agreement of the parties. All prior arrangements or understandings are merged herein. It may not be changed orally, but only by an agreement in writing signed by the party against whom enforcement of any waiver, change, modification, extension or discharge is sought. 18. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon, and shall inure to the benefit of, the successors and assigns of the Company, whether by merger, consolidation, sale or lease of assets, or otherwise. 19. DEFINITION AND GENDER. All terms used herein shall have their defined meaning, unless the context clearly indicates otherwise. Pronouns for defined terms shall be construed as masculine, feminine, or neuter, or in the singular or plural, as the sense required, and to include any and all successors and substitutions therefor. IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date and year first above written. BALLANTYNE OF OMAHA, INC. By: /s/ Arnold Tenney --------------------------- Arnold Tenney Chairman By: /s/ John P. Wilmers --------------------------- John P. Wilmers -60- EX-10.9-1 5 EXHIBIT 10.9.1 Exhibit 10.9.1 AMENDMENT TO THE 1995 EMPLOYEE STOCK PURCHASE PLAN The Board of Directors approved, at a special meeting on January 20, 1997, the following resolutions amending the 1995 Employee Stock Purchase Plan: "RESOLVED, that pursuant to Section 10.9 of the Corporation's 1995 Employee Stock Purchase Plan, the maximum number of shares of Common Stock of the Corporation which may be sold pursuant to the Options exercised under the Plan, as set forth in Section 4.1 of the Plan is reduced from 250,000 (increased to 275,000 pursuant to a ten percent (10%) stock dividend in January 1996) to 100,000. RESOLVED FURTHER, that pursuant to Section 4.3 of the Corporation's 1995 Employee Stock Purchase Plan, the Board of Directors and the Committee hereby adjust and increase the number of shares reserved under the Plan from 100,000 to 150,000 effective upon the payment date of a 3 for 2 stock spilt effected in the form of a fifty percent (50%) stock dividend as declared by the Board of Directors on January 20, 1997." -61- EX-10.11-1 6 EXHIBIT 10.11-1 Exhibit 10.11.1 AMENDMENT TO THE PROFIT SHARING PLAN The Compensation Committee recommended and the Board of Directors approved, at a special meeting on January 20, 1997, the following changes to the Profit Sharing Plan: A: Commencing in 1997, the profit sharing pool will be calculated on profits in excess of a threshold amount equal to 20% of the Company's book value at the beginning of the year. B: The profit sharing pool will be based on operating income (income before income taxes, but after management fees, authorization of good will, other costs associated with acquisitions, and interest on debt incurred with respect to acquisition of businesses or of plant and capital equipment). C: The Pool will be calculated at 14% of income, as defined above, in excess of the 20% of equity threshold, as defined above, for any fiscal year. D: The Chief Executive Officer will determine the allocation of the pool among participants subject to approval of the Compensation Committee. The Chief Executive Officer's portion of the pool may not exceed 40% of the total. E: The restriction that no participant may receive in any fiscal year a profit sharing distribution exceeding 150% of his base salary will be eliminated, retroactive to January 1, 1996. The Committee also recommended that Mr. Echtenkamp's Employment Contract be amended to eliminate this provision, retroactive to January 1, 1996. -62- EX-23 7 EXHIBIT 23 Exhibit 23 The Board of Directors Ballantyne of Omaha, Inc. We consent to incorporation by reference in the registration statements (No. 33-93244) on Form S-8 and (No. 333-22357) on Form S-3 of Ballantyne of Omaha, Inc. of our report dated January 10, 1997, relating to the consolidated balance sheets of Ballantyne of Omaha, Inc. and subsidiaries as of December 31, 1996, and 1995, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1996, and related schedule, which report appears in the December 31, 1996 annual report on Form 10-K of Ballantyne of Omaha, Inc. (signed) KPMG Peat Marwick LLP Omaha, Nebraska March 27, 1997 -63- EX-27 8 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10K DATED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. YEAR DEC-31-1996 JAN-01-1996 DEC-31-1996 6,042,593 0 9,233,616 143,000 11,901,123 27,639,059 6,502,974 2,639,165 32,462,220 7,896,606 150,195 0 0 85,698 23,943,249 32,462,220 51,753,864 51,753,864 36,396,527 36,396,527 6,983,458 63,995 363,508 7,946,376 2,909,683 5,036,693 0 0 0 5,036,693 .62 .62
-----END PRIVACY-ENHANCED MESSAGE-----