Notes to the Condensed Consolidated Financial Statements
(Unaudited)
1.
Nature of Operations
Ballantyne Strong, Inc. (Ballantyne or the Company), a Delaware corporation, and its wholly owned subsidiaries Strong Westrex, Inc., Strong Technical Services, Inc., Strong/MDI Screen Systems, Inc., and Strong Westrex (Beijing) Trading Inc., design, develop, manufacture, service and distribute theatre and lighting systems. The Company's products and services are sold to movie exhibition companies, sports arenas, auditoriums, amusement parks and special venues.
2. Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
The condensed consolidated financial statements include the accounts of the Company and all majority owned and controlled domestic and foreign subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
The condensed consolidated financial statements included in this report are presented in accordance with the requirements of Form 10-Q and consequently do not include all of the disclosures normally required by accounting principles generally accepted in the United States of America for annual reporting purposes or those made in the Company's Annual Report on Form 10-K. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year-ended December 31, 2011.
The condensed consolidated balance sheet as of December 31, 2011 was derived from the Company's audited consolidated balance sheet as of that date. All other condensed consolidated financial statements contained herein are unaudited and, in the opinion of management, reflect all adjustments of a normal recurring nature necessary to present a fair statement of the financial position and the results of operations and cash flows for the respective interim periods. The results for interim periods are not necessarily indicative of trends or results expected for a full year.
Use of Management Estimates
The preparation of condensed consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results and changes in facts and circumstances may alter such estimates and affect results of operations and financial position in future periods.
Fair Value of Financial and Derivative Instruments
The categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Financial assets and liabilities carried at fair value will be classified and disclosed in one of the following three categories:
●
Level 1 - inputs to the valuation techniques are quoted prices in active markets for identical assets or liabilities
●
Level 2 - inputs to the valuation techniques are other than quoted prices but are observable for the assets or liabilities, either directly or indirectly
●
Level 3 - inputs to the valuation techniques are unobservable for the assets or liabilities
The following tables present the Company's financial assets and liabilities measured at fair value based upon the level within the fair value hierarchy in which the fair value measurements fall, as of September 30, 2012:
Fair Values Measured on a Recurring Basis:
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
$ in thousands
|
|
Cash and cash equivalents
|
|
$
|
36,763
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
36,763
|
|
Notes Receivable
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,217
|
|
|
$
|
2,217
|
|
Quantitative information about the Company's level 3 fair value measurements at September 30, 2012 is set forth below:
$ in thousands
|
|
Fair Value at
September 30, 2012
|
|
Valuation Technique
|
Unobservable input
|
|
Range
|
|
Notes Receivable
|
|
$
|
2,217
|
|
Discounted cash flow
|
Probability of Default
|
|
|
0
|
%
|
|
|
|
|
|
|
Prepayment rates
|
|
|
0
|
%
|
|
|
|
|
|
|
Loss severity
|
|
|
0
|
%
|
The significant unobservable inputs used in the fair value measurement of the Company's notes receivable are prepayment rates, probability of default and loss severity in the event of default. Significant increases (decreases) in any of these inputs in isolation would result in a significantly lower (higher) fair value measurement. Generally, a change in the assumption used for the probability of default is accompanied by a directionally similar change in the assumption used for the loss severity and directionally opposite change in the assumption used for prepayment rates.
The following table reconciles the beginning and ending balance of the Company's Notes Receivable fair value:
|
|
Nine months ended September 30,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
$ in thousands
|
|
Notes Receivable balance, beginning of period
|
|
$
|
2,062
|
|
|
$
|
|
|
Issuances of new notes
|
|
|
155
|
|
|
|
2,050
|
|
Notes Receivable balance, end of period
|
|
$
|
2,217
|
|
|
$
|
2,050
|
|
The following table presents the Company's financial assets and liabilities measured at fair value based upon the level within the fair value hierarchy in which the fair value measurements fall, as of December 31, 2011
:
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
$ in thousands
|
|
Cash and cash equivalents
|
|
$
|
39,889
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
39,889
|
|
Foreign currency forward contracts
|
|
$
|
|
|
|
$
|
4,723
|
|
|
$
|
|
|
|
$
|
4,723
|
|
Notes Receivable
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,062
|
|
|
$
|
2,062
|
|
The fair value of the foreign currency forward exchange contracts is measured based on the total amount of currency to be purchased and forward exchange rates as of the period end. See footnote 10 for additional information on the Company's foreign exchange contracts.
The carrying values of all other financial assets and liabilities including accounts receivable, accounts payable and accrued expenses reported in the consolidated balance sheets equal or approximate their fair values due to the short-term nature of these instruments. All non-financial assets that are not recognized or disclosed at fair value in the financial statements on a recurring basis, which includes non-financial long-lived assets, are measured at fair value in certain circumstances (for example, when there is evidence of impairment). During the nine months ended September 30, 2012 we did not have any significant non-recurring measurements of nonfinancial assets or liabilities.
Current Year Adoption of Accounting Pronouncements
In June 2011, the FASB issued Accounting Standards Update (ASU) No. 2011-05,
Presentation of Comprehensive Income
, which amends ASC 220,
Comprehensive Income
, by requiring all non-owner changes in shareholders' equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The guidance was effective retrospectively for fiscal years and interim periods within those years beginning after December 15, 2011. In December 2011, the FASB issued ASU No. 2011-12,
Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05
, which defers certain portions of ASU No. 2011-05 indefinitely and will be further deliberated by the FASB at a future date. The Company adopted the requirements of ASU 2011-05 by presenting a single Condensed Consolidated Statement of Comprehensive Income immediately following the Statement of Income. There was no other impact on the Company's condensed consolidated financial statements.
In May 2011, the FASB issued ASU No. 2011-04,
Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.
This update is intended to develop common fair value measurement and disclosure requirements and improve understandability. The Company prospectively adopted the requirements of ASU 2011-04 with expanded disclosures related to its fair value measurements. This update did not have a material effect on the condensed consolidated financial statements.
Recently Issued Accounting Pronouncements
There are no recently issued accounting pronouncements which the Company believes will materially impact its consolidated financial statements.
3. Correction of an Immaterial Error
During the three months ended September 30, 2012, the Company identified an immaterial error in the condensed consolidated statements of cash flows of the Company's prior 2012 interim periods related to the classification of approximately $1.5 million of cash distributions received in March 2012 that represented a return of the Company's investment in Digital Link II, an unconsolidated joint venture, as cash flows from operating activities. Since this cash distribution was deemed to be a return of the Company's investment in Digital Link II, it should have been classified as investing cash flows in the condensed consolidated statements of cash flows for the three and six month periods ended March 31, 2012 and June 30, 2012. The Company concluded that the error in presentation to prior interim periods is not material. The Company revised its presentation of the $1.5 million cash distribution in the condensed consolidated statements of cash flow for the nine-month period ended September 30, 2012 as an investing cash flow, and will also be reflected in future filings as investing cash flows, as applicable.
The adjustment has the effect of reducing previously reported cash provided by (used in) operating activities to ($1.5) million and increasing previously reported cash provided by investing activities to $1.5 million for the three months ended March 31, 2012. The adjustment has the effect of increasing previously reported cash used in operating activities to $5.7 million and increasing previously reported cash provided by investing activities to $4.4 million for the six months ended June 30, 2012.
4. Earnings (Loss) Per Common Share
Basic earnings (loss) per share have been computed on the basis of the weighted average number of shares of common stock outstanding. Diluted earnings (loss) per share has been computed on the basis of the weighted average number of shares of common stock outstanding after giving effect to potential common shares from dilutive stock options and certain non-vested shares of restricted stock. The following table provides the reconciliation between basic and diluted earnings (loss) per share:
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
(In thousands, except per share data)
|
Basic earnings per share:
|
Earnings (loss) applicable to common stock
|
|
$
|
(268
|
)
|
|
$
|
4,739
|
|
|
$
|
3,982
|
|
|
$
|
8,732
|
|
Basic weighted average common shares outstanding
|
|
|
13,959
|
|
|
|
14,462
|
|
|
|
14,055
|
|
|
|
14,404
|
|
Basic earnings (loss) per share
|
|
$
|
(0.02
|
)
|
|
$
|
0.33
|
|
|
$
|
0.28
|
|
|
$
|
0.61
|
|
Diluted earnings per share:
|
Earnings (loss) applicable to common stock
|
|
$
|
(268
|
)
|
|
$
|
4,739
|
|
|
$
|
3,982
|
|
|
$
|
8,732
|
|
Basic weighted average common shares outstanding
|
|
|
13,959
|
|
|
|
14,462
|
|
|
|
14,055
|
|
|
|
14,404
|
|
Dilutive effect of stock options and restricted stock awards
|
|
|
|
|
|
|
26
|
|
|
|
81
|
|
|
|
79
|
|
Dilutive weighted average common shares outstanding
|
|
|
13,959
|
|
|
|
14,488
|
|
|
|
14,136
|
|
|
|
14,483
|
|
Diluted earnings (loss) per share
|
|
$
|
(0.02
|
)
|
|
$
|
0.33
|
|
|
$
|
0.28
|
|
|
$
|
0.60
|
|
For the three and nine month periods ended September 30, 2012, options to purchase 50,000 shares of common stock were outstanding but were not included in the computation of diluted earnings (loss) per share as the option's exercise price was greater than the average market price of the common shares for the respective periods. An additional 79,000 options were excluded from the three month period ended September 30, 2012 as their inclusion would be anti-dilutive, thereby decreasing the net loss per share. For the three and nine month periods ended September 30, 2011, options to purchase 52,200 shares of common stock were outstanding but were not included in the computation of diluted earnings per share as the option's exercise price was greater than the average market price of the common shares for the respective periods.
5. Warranty Reserves
Historically, the Company has generally granted a warranty to its customers for a one-year period following the sale of manufactured film projection equipment and on selected repaired equipment for a one-year period. In most instances, the digital products are covered by the manufacturing firm's OEM warranty; however, there are certain customers where the Company may grant warranties in excess of the manufacturer's warranty for digital products. The Company accrues for these costs at the time of sale or repair. The following table summarizes warranty activity for the three and nine months ended September 30 2012 and 2011:
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warranty accrual at beginning of period
|
|
$
|
846
|
|
|
$
|
961
|
|
|
$
|
1,028
|
|
|
$
|
848
|
|
Charged to expense
|
|
|
98
|
|
|
|
185
|
|
|
|
321
|
|
|
|
411
|
|
Amounts written off, net of recoveries
|
|
|
(89
|
)
|
|
|
(137
|
)
|
|
|
(495
|
)
|
|
|
(263
|
)
|
Foreign currency adjustment
|
|
|
13
|
|
|
|
(1
|
)
|
|
|
14
|
|
|
|
12
|
|
Warranty accrual at end of period
|
|
$
|
868
|
|
|
$
|
1,008
|
|
|
$
|
868
|
|
|
$
|
1,008
|
|
6. Digital Link II Joint Venture
On March 6, 2007, the Company entered into an agreement with RealD to form an operating entity Digital Link II, LLC (the LLC). Under the agreement, the LLC was formed with the Company and RealD as the only two members with membership interests of 44.4% and 55.6%, respectively. The LLC was formed for purposes of commercializing certain 3D technology and to fund the deployment of digital projector systems and servers to exhibitors. Summarized financial data for the LLC is as follows (unaudited):
Balance Sheet
|
|
September 30,
2012
|
|
|
December 31,
2011
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
Current assets
|
|
$
|
87
|
|
|
$
|
3,758
|
|
Non-current assets
|
|
|
855
|
|
|
|
3,723
|
|
Current liabilities
|
|
|
650
|
|
|
|
1,890
|
|
Non-current liabilities
|
|
|
1,814
|
|
|
|
1,588
|
|
Equity (Deficit)
|
|
$
|
(1,522
|
)
|
|
$
|
4,003
|
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
Statement of Operations
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
1
|
|
|
$
|
5,666
|
|
|
$
|
3
|
|
|
$
|
5,668
|
|
Cost of sales
|
|
|
(24
|
)
|
|
|
(4,954
|
)
|
|
|
(151
|
)
|
|
|
(5,596
|
)
|
Selling and administrative expenses
|
|
|
(102
|
)
|
|
|
(96
|
)
|
|
|
(128
|
)
|
|
|
(175
|
)
|
Operating income (loss)
|
|
|
(125
|
)
|
|
|
616
|
|
|
|
(276
|
)
|
|
|
(103
|
)
|
Other income (expense)
|
|
|
(6
|
)
|
|
|
(24
|
)
|
|
|
404
|
|
|
|
(101
|
)
|
Net income (loss)
|
|
$
|
(131
|
)
|
|
$
|
592
|
|
|
$
|
128
|
|
|
$
|
(204
|
)
|
The Company accounts for its investment by the equity method. Under this method, the Company recorded its proportionate share of LLC net income or loss based on the LLC's financial statements as of September 21, 2012 and September 23, 2011, respectively. The LLC uses four 13-week periods for a total of 52 weeks to align its fiscal year-end with that of its majority interest holder, RealD. The Company's portion of income (loss) of the LLC was immaterial for the three and nine months ended September 30, 2012. The Company's portion of income (loss) of the LLC was approximately $0.2 million and ($0.1) million for the three and nine months ended September 30, 2011, respectively.
In the past, the Company sold digital theatre projection equipment, in the normal course of business, to the LLC. The LLC in turn provides and sells the digital projection equipment to third party customers under system use agreements or through sales agreements. Revenue recognized by the Company on the sale transaction to the LLC is limited by its 44.4% ownership in the joint venture which will be recognized upon sale of the equipment to the third parties. There were no sales to the LLC during the three and nine months ended September 30, 2012 and 2011. However, the Company recognized $0 and $0.2 million of gross margin during the three and nine months ended September 30, 2012, respectively, related to the LLC's sale of equipment to third parties. The Company recognized revenue of $2.3 million during the three and nine months ended September 30, 2011. The total receivable balance due from the LLC was insignificant at September 30, 2012 and December 31, 2011.
During the first quarter of 2012 the Company received a $1.5 million return of investment in the LLC. During the third quarter of 2012 the Company received a $1.0 million distribution from the LLC. The excess of the distribution received in the third quarter over the Company's carrying value in the LLC of approximately $0.7 million is included in accrued expenses. The distribution in excess of the carrying value will not be recorded as income until the Company determines that future contributions to the LLC will not be required. The Company received no distributions from the LLC in the nine months ended September 30, 2011.
7. Corporate-wide strategic initiative
Restructuring
In the fourth quarter of 2011, the Board of Directors and management of the Company approved a corporate-wide strategic initiative to refocus its worldwide digital equipment distribution business, services platform and cinema screen manufacturing business. The strategic initiative consisted of selling the Company's Omaha, Nebraska-based analog projector facility and manufacturing equipment and relocating its corporate headquarters to a new, smaller location in Omaha, which will also house its Network Operations Center. The Board and management determined that the best course of action for long-term success and future growth opportunities was to focus on its equipment distribution, cinema service and screen businesses while exiting the analog projector manufacturing business. Total life to date severance charges for the strategic initiative that began in 2011 are approximately $1.4 million, including $0.1 million in the three and nine months ended September 30, 2012. The strategic initiative is expected to be completed by the end of 2012.
The following table reconciles the beginning and ending restructuring balance for the nine months ended September 30, 2012 (in thousands):
Accrued severance at beginning of period
|
|
$
|
963
|
|
Severance expense included in Administrative Expenses
|
|
|
116
|
|
Severance paid
|
|
|
(796
|
)
|
Accrued severance at end of period
|
|
$
|
283
|
|
Assets Held For Sale
In connection with the strategic initiative discussed above, the Company reclassified its Nebraska-based analog projector facility, corporate headquarters and manufacturing equipment to held for sale. The assets were recorded at their carrying value of $1.8 million at December 31, 2011 as it was lower than the assets fair value less costs to sell. The following table summarizes the assets held for sale at September 30 2012 and December 31, 2011:
|
|
September 30, 2012
|
|
|
December 31, 2011
|
|
|
(In thousands)
|
Real Estate
|
|
$
|
|
|
|
$
|
1,696
|
|
Machinery and Equipment
|
|
|
|
|
|
|
114
|
|
Total
|
|
$
|
|
|
|
$
|
1,810
|
|
During the first quarter of 2012, the Company sold the analog projector manufacturing machinery and equipment previously classified as held for sale. The equipment was sold in March 2012 for approximately $1.0 million, resulting in a gain of approximately $0.9 million. In May 2012, the Company completed a sale leaseback transaction for the analog projector and corporate headquarters facility. The net cash proceeds from the transaction was $2.0 million. The Company leased the facility back at no cash rent through November 2012. However, the $0.2 million estimated fair value of the lease will be recognized as rent expense over the lease period and was included in the net proceeds to calculate the $0.5 million gain resulting from the sale of the facility. The Company is responsible for all taxes, utilities, insurance and other operational costs while it is occupying the facility.
8. Income Taxes
The effective tax rate (calculated as a ratio of income tax expense to pretax earnings, inclusive of equity method investment losses) was approximately 0.1% and 33.7% for the three and nine months ended September 30, 2012, respectively, as compared to 31.4% and 29.7% for the three and nine months ended September 30, 2011, respectively. The effective tax rate differs from the statutory rates primarily as a result of differing foreign and U.S. tax rates applied to respective pre-tax earnings by tax jurisdiction. The Company's estimated annual effective rate was higher in the nine months ended September 30, 2012 compared to the comparable period of 2011 due to lower earnings before tax for the Canada and Asia operations, which have lower tax rates. The effective rate for the three months ended September 30, 2012 was lower than the comparable period of 2011 due to lower earnings before tax for the Canada and Asia operations, which have lower tax rates. Additionally, the Company offset the tax benefit for the quarter with tax expense of approximately $0.1 million in the three months ended September 30, 2012 resulting from a change in the estimated tax rate for 2012, due to a reduction in the expected credits the Company will earn during the current year.
In July 2012, the Company was notified by the Chinese Customs Authority (the Authority) that they will be reviewing the Company's 2010 tax filings for outstanding Value Added Tax (VAT) due to the Authority. The Company is currently assessing the situation and is unable to determine the impact, if any, there will be to the financial statements. However, the Company believes it has all significant VAT taxes appropriately accrued in the financial statements at September 30, 2012.
The Company's uncertain tax positions are related to tax years that remain subject to examination by the relevant taxable authorities. The Company has examinations not yet initiated for Federal purposes for fiscal years 2005 through 2011. In most cases, the Company has examinations open for State or local jurisdictions based on the particular jurisdiction's statute of limitations. The Company does not currently have any examinations in process. As of September 30, 2012, total unrecognized tax benefits amounted to approximately $0.1 million.
9. Stock Compensation
The Company recognizes compensation expense for all share-based payment awards made to employees and directors based on their estimated fair values. Share-based compensation expense approximated the following for the three and nine months ended September 30, 2012 and 2011 (in thousands):
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
Share based compensation expense
|
|
$
|
10
|
|
|
$
|
59
|
|
|
$
|
289
|
|
|
$
|
154
|
|
Long-Term Incentive Plan
The Company's 2010 Long-Term Incentive Plan (2010 Plan) provides the Compensation Committee of the Board of Directors with the discretion to grant stock options, stock appreciation rights, restricted shares, restricted stock units, performance shares, or performance units. Vesting terms vary with each grant and may be subject to vesting upon a change in control of the Company. The total number of shares reserved for issuance under the 2010 Plan was 600,000 shares. During the nine months ended September 30, 2012, the Company awarded 139,000 options and 56,000 restricted stock shares under the 2010 Plan.
Options
As noted above, under the 2010 Plan, the Company granted options to purchase 139,000 shares of the Company's common stock during the nine months ended September 30, 2012. Options to purchase shares of common stock were granted with exercise prices equal to the fair value of the common stock on the date of grant and vest over a four-year period. The fair value of stock options granted was estimated using a Black-Scholes valuation model with the following assumptions:
Expected dividend yield at date of grant
|
|
|
0
|
%
|
Expected stock price volatility
|
|
|
57.0
|
%
|
Risk-free interest rate
|
|
|
1.3
|
%
|
Expected life of options (in years)
|
|
|
6
|
|
The risk-free interest rate assumptions were based on the U.S. Treasury yield curve in effect at the time of the grant. The expected volatility was based on historical monthly price changes of the Company's stock based on the expected life of the options at the date of grant. The expected life of options is the average number of years the Company estimates that options will be outstanding. The Company considers groups of associates that have similar historical exercise behavior separately for valuation purposes.
The following table summarizes the Company's activities with respect to its stock options for the nine months ended September 30, 2012 as follows:
|
|
Number of
Options
|
|
|
Weighted
Average
Exercise Price
Per Share
|
|
|
Weighted
Average
Remaining
Contractual
Term
|
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding at December 31, 2011
|
|
|
52,200
|
|
|
$
|
8.14
|
|
|
|
8.86
|
|
|
$
|
|
|
Granted
|
|
|
139,000
|
|
|
|
4.70
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2012
|
|
|
191,200
|
|
|
$
|
5.64
|
|
|
|
8.94
|
|
|
$
|
|
|
Exercisable at September 30, 2012
|
|
|
18,867
|
|
|
$
|
8.14
|
|
|
|
8.11
|
|
|
$
|
|
|
The aggregate intrinsic value in the table above represents the total that would have been received by the option holders if all in-the-money options had been exercised on September 30, 2012.
The following table summarizes information about stock options outstanding and exercisable at September 30, 2012:
|
|
|
|
Options Outstanding at
September 30, 2012
|
|
|
Options Exercisable at
September 30, 2012
|
|
Range of option exercise price
|
|
Number of
options
|
|
|
Weighted
average
remaining
contractual
life
|
|
|
Weighted
average
exercise price
per option
|
|
|
Number of
options
|
|
|
Weighted
average
remaining
contractual
life
|
|
|
Weighted
average
exercise price
per option
|
|
$4.07
|
to
|
8.32
|
|
|
191,200
|
|
|
|
8.94
|
|
|
$
|
5.64
|
|
|
|
18,867
|
|
|
|
8.11
|
|
|
$
|
8.14
|
|
Restricted Stock Plans
The Company's 2005 Restricted Stock Plan (the 2005 Plan) provides for the grant of restricted stock awards. A total of 250,000 shares were reserved for issuance under the 2005 Plan. These shares are subject to such restrictions on transferability and other restrictions, if any, as the Compensation Committee may impose. During the nine months ended September 30, 2012, the Company awarded 28,210 restricted shares under the 2005 Plan, which shares vested and became unrestricted immediately.
The Ballantyne Strong, Inc. Non-Employee Directors' Restricted Stock Plan (the Non-Employee Plan) provides for the award of restricted shares to outside directors. A total of 250,000 shares are reserved for issuance under the Non-Employee Plan. During the nine months ended September 30, 2012, the Company granted 28,200 restricted shares under the Non-Employee Plan to the Board of Directors. These shares will vest the day preceding the Company's 2013 Annual Meeting of Stockholders.
As noted above, the Company awarded a total of 112,410 restricted shares under the 2010 Plan, the 2005 Plan and the Non-Employee Plan during the nine months ended September 30, 2012. In connection with the restricted stock granted to certain employees and non-employee directors, the Company accrues compensation expense based on the estimated number of shares expected to be issued utilizing the most current information available to the Company at the date of the financial statements. The Company estimates the fair value of restricted stock awards based upon the market price of the underlying common stock on the date of grant.
As of September 30, 2012, the total unrecognized compensation cost related to non-vested restricted stock awards was approximately $0.3 million which is expected to be recognized over a weighted average period of 2.4 years.
The following table summarizes restricted stock activity for the nine months ended September 30, 2012:
|
|
Number of Restricted
Stock Shares
|
|
|
Weighted Average Grant
Price Fair Value
|
|
Non-vested at December 31, 2011
|
|
|
12,600
|
|
|
$
|
5.93
|
|
Granted
|
|
|
112,410
|
|
|
|
5.16
|
|
Shares vested
|
|
|
(40,810
|
)
|
|
|
5.22
|
|
Shares forfeited
|
|
|
|
|
|
|
|
|
Non-vested at September 30, 2012
|
|
|
84,200
|
|
|
$
|
5.24
|
|
Employee Stock Purchase Plan
The estimated grant date fair value of purchase rights outstanding under the Employee Stock Purchase Plan at September 30, 2012 was $1.82 per share using the Black-Scholes option-pricing model made with the following weighted average assumptions:
Expected dividend yield at date of grant
|
|
|
0
|
%
|
Expected stock price volatility
|
|
|
36.88
|
%
|
Risk-free interest rate
|
|
|
0.18
|
%
|
Expected term (in years)
|
|
|
1
|
|
The Company recorded insignificant share-based compensation expense pertaining to the stock purchase plan with insignificant associated tax benefits for each of the three and nine months ended September 30, 2012 and 2011. At September 30, 2012, the total unrecognized estimated compensation cost was insignificant.
10. Foreign Exchange Contracts
The Company's primary exposure to foreign currency fluctuations pertains to its subsidiaries in Canada and China. In certain instances the Company may enter into foreign exchange forward contracts to manage a portion of this risk. The Company has not designated its foreign exchange forward contracts as hedges.
The following table presents the gross fair value of derivative instruments, all of which are not designated as hedging instruments:
|
|
|
Asset Derivatives
|
|
(in thousands)
|
Classification
|
|
September 30,
2012
|
|
|
December 31,
2011
|
|
Foreign exchange forward contracts
|
Other current liabilities
|
|
$
|
|
|
|
$
|
4,723
|
|
The above fair value at December 31, 2011 is offset against $4.7 million in other current liabilities, resulting in a net amount of $7 thousand of net liability. All cash flows related to our foreign currency exchange contracts are classified as operating cash flows. We recognized in other income, the following realized and unrealized gains from foreign currency forward exchange contracts:
|
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
(in thousands)
|
Classification
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
|
Foreign exchange forward contracts
|
Other Income (Loss)
|
|
$
|
(16
|
)
|
|
$
|
(380
|
)
|
|
$
|
145
|
|
|
$
|
(397
|
)
|
See Note 1 for further information related to the Company's foreign exchange forward contracts.
11. Commitments, Contingencies and Concentrations
Concentrations
The Company's top ten customers accounted for approximately 35.8% and 50.3% of total consolidated net revenues for the three and nine months ended September 30, 2012, respectively, and were from the theatre segment. Trade accounts receivable from these customers represented approximately 30.8% of net consolidated receivables at September 30, 2012. Sales to CDF2 Holdings, LLC represented approximately 3.0% and 13.6% of consolidated sales for the three and nine months ended September 30, 2012, respectively. Additionally, receivables from this customer represented approximately 9.7% of net consolidated receivables at September 30, 2012, respectively. While the Company believes its relationships with such customers are stable, most arrangements are made by purchase order and are terminable at will by either party. A significant decrease or interruption in business from the Company's significant customers could have a material adverse effect on the Company's business, financial condition and results of operations. The Company could also be adversely affected by such factors as changes in foreign currency rates and weak economic and political conditions in each of the countries in which the Company sells its products.
Financial instruments that potentially expose the Company to a concentration of credit risk principally consist of accounts receivable. The Company sells product 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.
Leases
The Company and its subsidiaries lease plant and office facilities, furniture, autos and equipment under operating leases expiring through 2023. These leases generally contain renewal options and the Company expects to renew or replace certain of these leases in the ordinary course of business.
The Company's future minimum lease payments for operating leases are as follows:
|
|
|
|
|
|
Payments due by period ($ in thousands)
|
|
|
|
Total
|
|
|
Remainder
2012
|
|
|
2013
|
|
|
2014
|
|
|
2015
|
|
|
2016
|
|
|
Thereafter
|
|
Operating leases
|
|
$
|
4,146
|
|
|
$
|
91
|
|
|
$
|
506
|
|
|
$
|
524
|
|
|
$
|
342
|
|
|
$
|
353
|
|
|
$
|
2,330
|
|
12. Business Segment Information
As of September 30, 2012, the Company's operations were conducted principally through two business segments: Theatre and Lighting. Theatre operations include the sale and service of digital projection equipment, sound systems, xenon lamps, lenses and other accessories. The lighting segment operations include the design, assembly and sale of follow spotlights, stationary searchlights and computer operated lighting systems for the motion picture production, television, live entertainment, theme parks and architectural industries. The Company allocates resources to business segments and evaluates the performance of these segments based upon reported segment operating profit. All significant intercompany sales are eliminated in consolidation.
Summary by Business Segments
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
(In thousands)
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Theatre
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products
|
|
$
|
34,145
|
|
|
$
|
58,071
|
|
|
$
|
116,546
|
|
|
$
|
120,452
|
|
Services
|
|
|
4,276
|
|
|
|
4,616
|
|
|
|
11,240
|
|
|
|
10,008
|
|
Total theatre
|
|
|
38,421
|
|
|
|
62,687
|
|
|
|
127,786
|
|
|
|
130,460
|
|
Lighting
|
|
|
839
|
|
|
|
750
|
|
|
|
2,201
|
|
|
|
2,446
|
|
Total revenue
|
|
$
|
39,260
|
|
|
$
|
63,437
|
|
|
$
|
129,987
|
|
|
$
|
132,906
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Theatre
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products
|
|
$
|
1,617
|
|
|
$
|
6,509
|
|
|
$
|
9,096
|
|
|
$
|
15,298
|
|
Services
|
|
|
148
|
|
|
|
1,758
|
|
|
|
1,236
|
|
|
|
2,165
|
|
Total theatre
|
|
|
1,765
|
|
|
|
8,267
|
|
|
|
10,332
|
|
|
|
17,463
|
|
Lighting
|
|
|
44
|
|
|
|
21
|
|
|
|
(169
|
)
|
|
|
137
|
|
Total segment operating income
|
|
|
1,809
|
|
|
|
8,288
|
|
|
|
10,163
|
|
|
|
17,600
|
|
Unallocated general and administrative expenses
|
|
|
(1,782
|
)
|
|
|
(1,714
|
)
|
|
|
(5,697
|
)
|
|
|
(5,110
|
)
|
Interest, net
|
|
|
(8
|
)
|
|
|
(12
|
)
|
|
|
(30
|
)
|
|
|
(38
|
)
|
Gain (Loss) on sale of assets
|
|
|
(17
|
)
|
|
|
13
|
|
|
|
1,361
|
|
|
|
36
|
|
Equity income (loss) of joint venture
|
|
|
(65
|
)
|
|
|
207
|
|
|
|
1
|
|
|
|
(121
|
)
|
Other income (loss)
|
|
|
(205
|
)
|
|
|
127
|
|
|
|
208
|
|
|
|
48
|
|
Income (Loss) before income taxes
|
|
$
|
(268
|
)
|
|
$
|
6,909
|
|
|
$
|
6,006
|
|
|
$
|
12,415
|
|
(In thousands)
|
|
September 30, 2012
|
|
|
December 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable assets
|
|
|
|
|
|
|
|
|
Theatre
|
|
|
|
|
|
|
|
|
Products
|
|
$
|
90,812
|
|
|
$
|
107,016
|
|
Services
|
|
|
4,800
|
|
|
|
3,508
|
|
Total theatre
|
|
|
95,612
|
|
|
|
110,524
|
|
Lighting
|
|
|
3,262
|
|
|
|
2,932
|
|
Total
|
|
$
|
98,874
|
|
|
$
|
113,456
|
|
Summary by Geographical Area
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
(In thousands)
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
|
Net revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
30,050
|
|
|
$
|
53,883
|
|
|
$
|
107,579
|
|
|
$
|
102,010
|
|
China
|
|
|
4,263
|
|
|
|
6,892
|
|
|
|
12,261
|
|
|
|
19,238
|
|
South America
|
|
|
3,271
|
|
|
|
496
|
|
|
|
3,873
|
|
|
|
3,457
|
|
Canada
|
|
|
537
|
|
|
|
513
|
|
|
|
2,950
|
|
|
|
1,812
|
|
Asia (excluding China)
|
|
|
841
|
|
|
|
915
|
|
|
|
1,847
|
|
|
|
2,404
|
|
Mexico
|
|
|
152
|
|
|
|
626
|
|
|
|
546
|
|
|
|
2,079
|
|
Europe
|
|
|
146
|
|
|
|
111
|
|
|
|
488
|
|
|
|
1,221
|
|
Other
|
|
|
|
|
|
|
1
|
|
|
|
443
|
|
|
|
685
|
|
Total
|
|
$
|
39,260
|
|
|
$
|
63,437
|
|
|
$
|
129,987
|
|
|
$
|
132,906
|
|
(In thousands)
|
|
September 30, 2012
|
|
|
December 31, 2011
|
|
|
|
|
|
|
|
|
|
|
Identifiable assets
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
66,042
|
|
|
$
|
80,885
|
|
Canada
|
|
|
20,197
|
|
|
|
17,671
|
|
Asia (excluding China)
|
|
|
7,676
|
|
|
|
6,963
|
|
China
|
|
|
4,959
|
|
|
|
7,937
|
|
Total
|
|
$
|
98,874
|
|
|
$
|
113,456
|
|
Net revenues by business segment are to unaffiliated customers. Identifiable assets by geographical area are based on location of facilities. Net sales by geographical area are based on destination of sales.