Ballantyne of Omaha, Inc.

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Ballantyne of Omaha, Inc.

4350 McKinley Street
Omaha, Nebraska 68123
U.S.A.
(402) 453-4444
(800) 424-1215
Fax: (402) 453-7238
Web site: http://www.ballantyne-omaha.com

Public Company
Incorporated: 1995
Employees: 298
Sales: $75 million (1998)
Stock Exchanges: New York
Ticker Symbol: BTN
SICs: 3861 Motion Picture Equipment & Suppliers; 3589 Service Industry Machinery; 5046 Restaurant Equipment & Supplies; 5099 Exporters; 7923 Theatrical Equipment & Supplies

Ballantyne of Omaha, Inc. is a leading developer, manufacturer, and distributor of commercial motion picture equipment and long-range follow spotlights in the United States and abroad. The company’s product lines are distributed on a worldwide basis through a network of more than 200 domestic and international dealers to major movie exhibitors, ride simulation operators, and sports arena and amusement park operators. The company’s broad range of both standard and custom-made equipment can completely outfit and automate a motion picture projection booth and is currently being used by major motion picture exhibitors such as AMC Entertainment, Regal Cinemas, Act III Theaters, Cinemark USA, and Cineplex Odeon. The company also manufactures commercial food service equipment, which is sold to convenience store and fast food restaurant operators and to equipment suppliers for resale on a private label basis.

The Early Years

Robert Scott Ballantyne of Hartington, Nebraska, founded the Scott-Ballantyne Company in Omaha in 1932. Ballantyne, who had two decades of experience working at film corporations and managing movie theaters, devoted his motion picture theater supply house to manufacturing sound and air conditioning equipment. By 1938 the Scott-Ballantyne Company was marketing its own 35mm projector, similar to the industry standard Simplex, and shortly thereafter it joined forces with Largen Manufacturing, another Nebraska business, to market and later manufacture the Largen line of amplifiers and soundheads and two lines of light houses. That year, Ballantyne moved his operation to Omaha’s “film row,” a street housing many of the city’s motion picture businesses.

During WWII almost all of Ballantyne’s production was taken up by the armed forces, but by war’s end the young company was positioned to take advantage of the new postwar rage: the drive-in theater. By 1949 Ballantyne had equipped 282 of the 846 drive-ins then operating in the United States with speakers, and by 1952 Scott-Ballantyne was selling everything needed to assemble a drive-in theater: speakers, projectors, amplifiers, pole-mounted junction boxes, and premanufactured screen towers. At the same time, the company positioned itself to keep pace with new developments in improved indoor sound by manufacturing its Royal Soundmaster systems, which utilized four-and six-channel amplifiers. In the early 1960s, in an effort to capture a portion of the concession business that accompanied drive-ins, Scott-Ballantyne expanded its scope of operations to include the manufacture of pressure fryers. These were followed by production of rotisserie and barbecue ovens.

From Drive-In to Multiplex: 1960s-80s

When Robert Ballantyne retired in 1960, he sold his company to ABC Vending Corporation of New York. ABC renamed the company Ballantyne Instruments and Electronics and sold it seven years later to Ogden Corporation. In 1970 Ogden sold Ballantyne again, this time to a group of investors headed by Ballantyne’s former managers. The company, now Ballantyne of Omaha, moved back to Nebraska, and with drive-in theaters on the wane, it introduced the Pro-35 projector, the first new American-made projector in 25 years. This equipment became increasingly popular with the “special venue” market found in museums and theme parks, such as Epcot Center, Universal Studios, and the simulation rides offered by Imax and the Iwerks Group.

The company changed hands again in 1976, this time when Canrad-Hanovia of New Jersey, a diversified manufacturer, purchased the business for $1 million. A short while earlier, Canrad had acquired the Toledo-based Strong Electric, known for its movie projector lamphouses and for setting the industry standard for arenas, stadiums, large theaters, and auditoriums in the 1950s with its Super Trouper, a carbon arc spot, and, in the 1970s, with its xenon-bulb Super Trouper. Canrad appointed Ronald Echtenkamp, a native Nebraskan and longtime Ballantyne employee, to be the company’s president and chief operating officer in 1981. In the mid-1980s Canrad merged Strong into Ballantyne’s operations in Omaha and created Strong International.

Echtenkamp positioned the company ideally to take advantage of the boom in the moving theater industry as the multiplex theater got under way. In 1982, with Ballantyne’s sales stalled at $7 million because of the decline in the drive-in industry, he bought the then-floundering Simplex Projection Company for $800,000, the cost of its inventory and accounts receivable in 1983. His vision and timing could not have been better. From 1983 to 1987, the number of screens in the United States went from 18,000 to 23,500, and sales of the sturdy Simplex doubled, while those of the original Ballantyne projectors increased as well. The trend toward multiplexing began to accelerate internationally at about the same time, prompting Ballantyne to look overseas to develop its market in the early 1990s.

Despite good prospects for continued growth, however, and with Ballantyne’s sales at a little more than $10 million, in 1988 Canrad decided to unload Ballantyne. ARC International Corporation, a Toronto builder of ice-skating rinks and manufacturer of products for cable television and telecommunications—satellite dishes, coaxial cables, electronic equipment, and ultraviolet lamps—headed by chairman Arnold Tenney, stepped in and purchased Ballantyne for $12 million in a leveraged buyout, reducing its debt by selling off Canrad’s other assets. Soon afterward, when Ballantyne outgrew its manufacturing plant, ARC went further into debt to buy a 140,000-square-foot factory in north Omaha that by 1989 housed Simplex, Ballantyne, and Strong.

The company now consisted of three divisions—Strong International spotlight, Flavor-Crisp restaurant division, and Strong International cinema—which experienced steady growth during the next several years. AMC, Cineplex Odeon, Cinemark USA, and Regal Cinemas all purchased standard projectors from Ballantyne, and Disney, Universal Studios, Imax, and Iwerks purchased specialized, custom-made equipment. Sales went from $16 million in 1989 to $29 million in 1994 by which time the company employed around 200 employees. With Strong and Ballantyne companies under one roof, Ballantyne technicians began to assemble, wire, and test units in-house before shipping them to theaters, an innovation that saved new or renovating theaters the trouble of assembling projector assemblies on site.

Strategic Acquisitions in the Early to Mid-1990s

Beginning in the early 1990s, Ballantyne undertook to broaden its sales base and clinch control of the projector market, while also looking for strategic acquisitions in the restaurant and spotlight industries. Sales in the latter two markets accounted for 7.8 percent and 6.5 percent of Ballantyne’s revenues, respectively. In March 1993, Tenney, chairman of the company, and Echtenkamp purchased the ailing cinema products division of Optical Radiation Corporation, manufacturer of the Century projector, a Simplex competitor. This acquisition gave Ballantyne control of about 65 percent of the movie projector market in the United States. In 1994 the company also acquired the Hong Kong firm of Litton-Westrex and renamed it Strong Westrex, to assist in the sales, service, and shipping of cinema and spotlight equipment to its customers in Hong Kong, mainland China, and Taiwan. This move enabled expansion of Ballantyne’s services into Malaysia, Japan, and other parts of Asia.

In September 1995 Ballantyne went public, raising $7.8 million to pay off ARC’s accumulated debt with the sale of 35 percent of the company, or 1.2 million shares of common stock. The company’s initial share price was set at about $7, but by the end of 1996, shares had risen to $19.87, quadrupling in value sometime in 1997, before settling down again in July at $22.50. During this period ARC lowered its holdings in Ballantyne from 50 to 23 percent, thereby raising fresh capital to pursue its main business and broaden its investor base.

At the same time, the demand for Ballantyne’s projection equipment reached an all-time high in 1997 with sales of projection booths rising from 1,500 in 1995 to 2,140 in 1996 to 2,500 in 1997. Thus surge was accompanied by an increase in the nation’s screen count to 29,731 at the end of 1996, up 30 percent since 1990. Revenues for the company were $70 million in 1997—up from $51.7 million in 1996—89 percent of which came from the company’s theater division. The company responded to this increase by expanding its Omaha plant, adding a $1.5 million, 21,000-square-foot addition to its manufacturing facility to help speed production and relieve the pressure of cramped working areas.

Company Perspectives:

Ballantyne believes that its position as a fully-integrated equipment manufacturer enables it to be more responsive to its customers’ specific design requirements, thereby giving it a competitive advantage over other manufacturers who rely more on outsourcing components. In addition, the company believes its expertise in engineering, manufacturing, prompt order fulfillment, delivery, after-sale technical support and emergency service have allowed the company to build and maintain strong customer relationships.

Related Markets in the Middle to Late 1990s

Echtenkamp, now vice-chairman of the board, also elected to initiate a strategy of aggressive expansion into the entertainment lighting business in 1997. This strategy had a dual rationale. Strong spotlights were already in use in numerous sports venues, including Chicago’s United Center and the Toronto Skydome; they were taken on tour by the Rolling Stones and Pink Floyd and accounted for about 85 percent of the follow spot market in the United States in 1995. Yet Ballantyne’s share of light sales had reached only $5.4 million in 1997 and, although this figure represented an annual doubling of revenues since 1995, Echtenkamp reasoned that it could go much higher with a larger segment of the industry under Ballantyne’s control. Then, too, the motion picture theater industry had experienced increasing competition from in-home sources of entertainment and, whereas the multiplex market showed no signs of abatement, according to the National Association of Theater Owners, some analysts believed that the domestic market for new projectors was nearly saturated. Even factoring in the as yet untapped European and Asian multiplex markets, Ballantyne recognized that growth in the production of projectors could not be limitless.

The first phase of the acquisition strategy initiated by Echtenkamp occurred with the 1997 acquisition of Xenotech, a California-based manufacturer and distributor of high-intensity searchlights and lighting systems. The rationale behind this purchase was to build Xenotech’s share of the entertainment lighting market by leveraging Ballantyne’s capital resources. Previously outsourced components began to be manufactured at Ball1998 the Xeno-techs-antyne’s expanded plant, and the Hong Kong-based Westrex subsidiary was assigned the role of increasing Xenotech’s equipment sales and rental business to a full-service, global distribution network. Later in 1997, Ballantyne opened its Seattle Xenotech office and also added Skytracker of America to its Xenotech operation. Skytracker was a manufacturer of single- and multiple-head xenon searchlights, such as those used to attract customers to business locations such as car dealerships. In 1998 the Xenotech-Strong division of Ballantyne launched a new business unit, Nocturn, focusing on ultraviolet effects for entertainment and architectural applications.

At about the same time that Ballantyne was expanding through acquisitions, it increasingly began to focus its theater supply sales on overseas markets. In the United States in the late 1990s, there was one screen for every 9,800 people, in Germany there was one screen per 17,700 people, and in Mexico there was one screen per 61,000 people. AMC opened a 13-screen theater in Japan in 1996, and Cinemark USA built 92 screens in Mexico in a period of two years in the mid-1990s. According to a U.K.-based media market research firm that year, Europe’s screen count would increase by approximately 2,000 through the year 2000. Ballantyne’s net sales to foreign customers had increased from $11.3 million in 1995 to $18.5 million in 1997, representing about 27 percent of Ballantyne’s sales abroad, and Echtenkamp projected that by 2001, 40 percent of the company’s theater revenues would come from abroad.

New Technology: Late 1990s and Beyond

The company also sought to protect its future by diversifying into new realms. Ballantyne management expected film projectors to remain the film-delivery method of choice until at least the end of the first decade of the 21st century; in 1998, however, they entered into an agreement with MegaSystems of Wayne, Pennsylvania to manufacture a 3D large-format projection system to be distributed by Megasystems. In 1998 Ballantyne acquired Design and Manufacturing, an Illinois-based supplier of film platter systems with 16,000 units then in use in movie theaters throughout the world. Ballantyne had been Design and Manufacturing’s largest customer and the acquisition was intended to reduce costs and increase efficiency in the projection system assembly process. Ballantyne also began to develop theater automation systems, capable of connecting to a desktop or laptop computer, that enabled remote control of a cinema megaplex. And the Simplex was updated as the Simplex Millenium with LED framing illumination and other improvements.

Although the company had a leading position in the domestic motion picture projection equipment market by the end of 1998, with a 56 percent gain in profits on a 36 percent rise in sales, both the domestic and international markets for its products were highly competitive, with competition coming chiefly from Cinemeccanica S.p.A., an Italian privately held company, and from the domestic Christie Electric. The markets for its long-range follow spotlight and other illumination and restaurant products were also highly competitive, leading Ballantyne to capitalize on its ability as an integrated manufacturer of customized products to seek to become the leading provider of state-of-the-art special venue products. Yet Ballantyne remained optimistic about its future at the close of the 1990s, as evidenced by its late-1998 decision to repurchase up to ten percent of its outstanding common stock. It competed and planned to continue to compete primarily on the basis of the quality, prompt delivery, price, and product customization of its goods and the after-sale technical support it provided.