UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2011
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 1-13906
BALLANTYNE STRONG, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware |
|
47-0587703 |
(State or Other Jurisdiction of |
|
(IRS Employer |
Incorporation or Organization) |
|
Identification Number) |
|
|
|
4350 McKinley Street, Omaha, Nebraska |
|
68112 |
(Address of Principal Executive Offices) |
|
(Zip Code) |
(402) 453-4444
(Registrants telephone number, including area code:)
Indicate by check mark whether the 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 twelve 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 o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act (check one):
Large accelerated filer o |
|
Accelerated filer x |
|
|
|
Non-accelerated filer o |
|
Smaller reporting company o |
(Do not check if a smaller reporting company) |
|
|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
Indicate the number of shares outstanding of each of the issuers classes of common stock as of the latest practicable date:
Class |
|
Outstanding as of November 4, 2011 |
Common Stock, $.01, par value |
|
14,511,840 |
Item 1. Condensed Consolidated Financial Statements
Ballantyne Strong, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
September 30, 2011 and December 31, 2010
(In thousands)
(Unaudited)
|
|
September 30, |
|
December 31, |
| ||
Assets |
|
|
|
|
| ||
Current assets: |
|
|
|
|
| ||
Cash and cash equivalents |
|
$ |
22,444 |
|
$ |
22,250 |
|
Restricted cash |
|
209 |
|
209 |
| ||
Accounts receivable (net of allowance for doubtful accounts of $198 and $306, respectively) |
|
53,333 |
|
16,380 |
| ||
Unbilled receivables |
|
502 |
|
7,057 |
| ||
Inventories: |
|
|
|
|
| ||
Finished goods, net |
|
10,841 |
|
21,857 |
| ||
Work in process |
|
576 |
|
432 |
| ||
Raw materials and components, net |
|
5,637 |
|
5,651 |
| ||
Total inventories, net |
|
17,054 |
|
27,940 |
| ||
Recoverable income taxes |
|
285 |
|
5 |
| ||
Other current assets |
|
5,563 |
|
5,571 |
| ||
Total current assets |
|
99,390 |
|
79,412 |
| ||
Investment in joint venture |
|
1,917 |
|
2,070 |
| ||
Property, plant and equipment (net of accumulated depreciation of $10,041 and $9,426, respectively) |
|
10,871 |
|
9,750 |
| ||
Other non-current assets |
|
2,446 |
|
723 |
| ||
Deferred income taxes |
|
2,143 |
|
76 |
| ||
Total assets |
|
$ |
116,767 |
|
$ |
92,031 |
|
Liabilities and Stockholders Equity |
|
|
|
|
| ||
Current liabilities: |
|
|
|
|
| ||
Accounts payable |
|
$ |
40,549 |
|
$ |
30,751 |
|
Other accrued expenses |
|
3,825 |
|
3,890 |
| ||
Customer deposits/deferred revenue |
|
3,346 |
|
2,849 |
| ||
Income tax payable |
|
3,693 |
|
1,521 |
| ||
Total current liabilities |
|
51,413 |
|
39,011 |
| ||
Deferred revenue |
|
3,584 |
|
|
| ||
Other accrued expenses |
|
702 |
|
643 |
| ||
Total liabilities |
|
55,699 |
|
39,654 |
| ||
Commitments and contingencies |
|
|
|
|
| ||
Stockholders equity: |
|
|
|
|
| ||
Preferred stock, par value $.01 per share; Authorized 1,000 shares, none outstanding |
|
|
|
|
| ||
Common stock, par value $.01 per share; Authorized 25,000 shares; issued 16,659 shares in 2011 and 16,453 shares in 2010 |
|
167 |
|
165 |
| ||
Additional paid-in capital |
|
37,151 |
|
36,241 |
| ||
Accumulated other comprehensive income: |
|
|
|
|
| ||
Foreign currency translation |
|
(593 |
) |
260 |
| ||
Minimum pension liability |
|
80 |
|
80 |
| ||
Retained earnings |
|
39,746 |
|
31,014 |
| ||
|
|
76,551 |
|
67,760 |
| ||
Less 2,155 and 2,140 of common shares in treasury, at cost, respectively |
|
(15,483 |
) |
(15,383 |
) | ||
Total stockholders equity |
|
61,068 |
|
52,377 |
| ||
Total liabilities and stockholders equity |
|
$ |
116,767 |
|
$ |
92,031 |
|
See accompanying notes to consolidated financial statements.
Ballantyne Strong, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
Three and Nine Months Ended September 30, 2011 and 2010
(In thousands, except per share data)
(Unaudited)
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
| ||||||||
|
|
2011 |
|
2010 |
|
2011 |
|
2010 |
| ||||
Net revenues |
|
$ |
63,437 |
|
$ |
32,930 |
|
$ |
132,906 |
|
$ |
91,016 |
|
Cost of revenues |
|
53,387 |
|
26,461 |
|
110,019 |
|
74,281 |
| ||||
Gross profit |
|
10,050 |
|
6,469 |
|
22,887 |
|
16,735 |
| ||||
Selling and administrative expenses: |
|
|
|
|
|
|
|
|
| ||||
Selling |
|
933 |
|
726 |
|
2,924 |
|
2,280 |
| ||||
Administrative |
|
2,543 |
|
2,215 |
|
7,473 |
|
6,353 |
| ||||
Total selling and administrative expenses |
|
3,476 |
|
2,941 |
|
10,397 |
|
8,633 |
| ||||
Gain on the sale/disposal/transfer of assets |
|
13 |
|
7 |
|
36 |
|
178 |
| ||||
Income from operations |
|
6,587 |
|
3,535 |
|
12,526 |
|
8,280 |
| ||||
Net interest expense |
|
(12 |
) |
(8 |
) |
(38 |
) |
(10 |
) | ||||
Equity in income (loss) of joint venture |
|
207 |
|
(24 |
) |
(121 |
) |
802 |
| ||||
Other income (expense), net |
|
127 |
|
(79 |
) |
48 |
|
(106 |
) | ||||
Income before income taxes |
|
6,909 |
|
3,424 |
|
12,415 |
|
8,966 |
| ||||
Income tax expense |
|
(2,170 |
) |
(1,103 |
) |
(3,683 |
) |
(2,868 |
) | ||||
Net earnings |
|
$ |
4,739 |
|
$ |
2,321 |
|
$ |
8,732 |
|
$ |
6,098 |
|
Basic earnings per share |
|
$ |
0.33 |
|
$ |
0.16 |
|
$ |
0.61 |
|
$ |
0.43 |
|
Diluted earnings per share |
|
$ |
0.33 |
|
$ |
0.16 |
|
$ |
0.60 |
|
$ |
0.42 |
|
Weighted average shares outstanding: |
|
|
|
|
|
|
|
|
| ||||
Basic |
|
14,462 |
|
14,200 |
|
14,404 |
|
14,140 |
| ||||
Diluted |
|
14,488 |
|
14,418 |
|
14,483 |
|
14,363 |
|
See accompanying notes to consolidated financial statements.
Ballantyne Strong, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
Nine Months Ended September 30, 2011 and 2010
(In thousands)
(Unaudited)
|
|
Nine Months Ended September 30, |
| ||||
|
|
2011 |
|
2010 |
| ||
Cash flows from operating activities: |
|
|
|
|
| ||
Net earnings |
|
$ |
8,732 |
|
$ |
6,098 |
|
Adjustments to reconcile net earnings to net cash provided by (used in) operating activities: |
|
|
|
|
| ||
Provision for doubtful accounts |
|
(27 |
) |
62 |
| ||
Provision for obsolete inventory |
|
(131 |
) |
169 |
| ||
Provision for warranty reserve |
|
403 |
|
405 |
| ||
Depreciation of consignment inventory |
|
137 |
|
318 |
| ||
Depreciation of property, plant and equipment |
|
810 |
|
662 |
| ||
Amortization of intangibles |
|
342 |
|
321 |
| ||
Equity in (income) loss of joint venture |
|
121 |
|
(802 |
) | ||
Loss on forward contracts |
|
353 |
|
104 |
| ||
Gain on sale/disposal/transfer of assets |
|
(36 |
) |
(178 |
) | ||
Deferred income taxes |
|
(1,878 |
) |
191 |
| ||
Share-based compensation expense |
|
155 |
|
226 |
| ||
Excess tax benefits from share-based arrangements |
|
(301 |
) |
(156 |
) | ||
|
|
|
|
|
| ||
Changes in assets and liabilities: |
|
|
|
|
| ||
Accounts receivable |
|
(37,046 |
) |
(8,610 |
) | ||
Unbilled receivables |
|
6,555 |
|
(2,064 |
) | ||
Inventories |
|
10,983 |
|
(13,749 |
) | ||
Other assets |
|
(2,514 |
) |
(2,347 |
) | ||
Accounts payable |
|
9,889 |
|
16,500 |
| ||
Other accrued expenses |
|
(765 |
) |
25 |
| ||
Customer deposits/Deferred revenue |
|
498 |
|
1,356 |
| ||
Current income taxes |
|
2,450 |
|
(51 |
) | ||
Deferred revenue |
|
3,584 |
|
|
| ||
Net cash provided by (used in) operating activities |
|
2,314 |
|
(1,520 |
) | ||
|
|
|
|
|
| ||
Cash flows from investing activities: |
|
|
|
|
| ||
Return on investment from Joint Venture |
|
|
|
888 |
| ||
Proceeds from sale of assets |
|
47 |
|
28 |
| ||
Capital expenditures |
|
(2,436 |
) |
(4,398 |
) | ||
Net cash used in investing activities |
|
(2,389 |
) |
(3,482 |
) | ||
|
|
|
|
|
| ||
Cash flows from financing activities: |
|
|
|
|
| ||
Proceeds from exercise of stock options |
|
177 |
|
359 |
| ||
Excess tax benefits from share-based compensation |
|
301 |
|
157 |
| ||
Issuance of restricted stock |
|
164 |
|
|
| ||
Net cash provided by financing activities |
|
642 |
|
516 |
| ||
Effect of exchange rate changes on cash and cash equivalents |
|
(373 |
) |
64 |
| ||
Net increase (decrease) in cash and cash equivalents |
|
194 |
|
(4,422 |
) | ||
Cash and cash equivalents at beginning of year |
|
22,250 |
|
23,589 |
| ||
Cash and cash equivalents at end of year |
|
$ |
22,444 |
|
$ |
19,167 |
|
See accompanying notes to consolidated financial statements
Ballantyne Strong, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
Three and Nine Months Ended September 30, 2011 and 2010
(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 the American West Beijing Trading Company, Ltd., design, develop, manufacture, service and distribute theatre and lighting systems. The Companys products are distributed 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 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 Companys 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 Companys Annual Report on Form 10-K for the fiscal year-ended December 31, 2010.
In the opinion of management, the unaudited condensed consolidated financial statements of the Company 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.
No changes were made to the Companys significant accounting policies disclosed in Note 2 of the Notes to the Consolidated Financial Statements in the Companys Annual Report on Form 10-K for the fiscal year ending December 31, 2010.
Recently Issued Accounting Pronouncements
In May 2011, the FASB issued ASU No. 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs, which requires the categorization by level for items that are only required to be disclosed at fair value and information about transfers between Level 1 and Level 2. In addition, the ASU provides guidance on measuring the fair value of financial instruments managed within a portfolio and the application of premiums and discounts on fair value measurements. The ASU requires additional disclosure for Level 3 measurements regarding the sensitivity of fair value to changes in unobservable inputs and any interrelationships between those inputs. The guidance is effective for fiscal years beginning after December 15, 2011. The Company does not expect the adoption of this standard to impact the consolidated financial statements.
In June 2011, the FASB issued ASU No. 2011-05, Presentation of Comprehensive Income, which amends ASC 220, Comprehensive Income, by requiring all nonowner changes in stockholders equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The guidance is effective retrospectively for fiscal years and interim periods within those years beginning after December 15, 2011. The Company is still evaluating the method of adoption.
3. Earnings Per Common Share
Basic earnings per share have been computed on the basis of the weighted average number of shares of common stock outstanding. Diluted earnings 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. The following table provides the reconciliation between basic and diluted earnings per share:
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
| ||||||||
|
|
2011 |
|
2010 |
|
2011 |
|
2010 |
| ||||
(In thousands, except per share data) |
|
|
|
|
|
|
|
|
| ||||
Basic earnings per share: |
|
|
|
|
|
|
|
|
| ||||
Earnings applicable to common stock |
|
$ |
4,739 |
|
$ |
2,321 |
|
$ |
8,732 |
|
$ |
6,098 |
|
Basic weighted average common shares outstanding |
|
14,462 |
|
14,200 |
|
14,404 |
|
14,140 |
| ||||
Basic earnings per share |
|
$ |
0.33 |
|
$ |
0.16 |
|
$ |
0.61 |
|
$ |
0.43 |
|
Diluted earnings per share: |
|
|
|
|
|
|
|
|
| ||||
Earnings applicable to common stock |
|
$ |
4,739 |
|
$ |
2,321 |
|
$ |
8,732 |
|
$ |
6,098 |
|
Basic weighted average common shares outstanding |
|
14,462 |
|
14,200 |
|
14,404 |
|
14,140 |
| ||||
Dilutive effect of stock options and restricted stock awards |
|
26 |
|
218 |
|
79 |
|
223 |
| ||||
Dilutive weighted average common shares outstanding |
|
14,488 |
|
14,418 |
|
14,483 |
|
14,363 |
| ||||
Diluted earnings per share |
|
$ |
0.33 |
|
$ |
0.16 |
|
$ |
0.60 |
|
$ |
0.42 |
|
For the three and nine months ended September 30, 2011, options to purchase 52,200 shares of common stock at a weighted average price of $8.14, were outstanding but were not included in the computation of diluted earnings per share as the options exercise prices were greater than the average market price of the common shares for the respective periods. These options expire from October 2020 through July 2021. In addition, 12,600 shares and 10,200 shares of restricted stock were excluded from the diluted EPS calculation as these shares were anti-dilutive as of September 30, 2011 and September 30, 2010, respectively.
4. Comprehensive Income
The accumulated other comprehensive income (loss), net, shown in the Companys condensed consolidated balance sheets includes the pension liability adjustments and the accumulated foreign currency translation adjustment. The following table shows the difference between the Companys reported net earnings and its comprehensive income:
|
|
Three Months Ended |
|
Nine Months Ended |
| ||||||||
|
|
September 30, |
|
September 30, |
| ||||||||
|
|
2011 |
|
2010 |
|
2011 |
|
2010 |
| ||||
(In thousands) |
|
|
|
|
|
|
|
|
| ||||
Comprehensive income: |
|
|
|
|
|
|
|
|
| ||||
Net earnings |
|
$ |
4,739 |
|
$ |
2,321 |
|
$ |
8,732 |
|
$ |
6,098 |
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
| ||||
Foreign currency translation adjustment |
|
(1,270 |
) |
306 |
|
(853 |
) |
159 |
| ||||
Total comprehensive income |
|
$ |
3,469 |
|
$ |
2,627 |
|
$ |
7,879 |
|
$ |
6,257 |
|
5. Warranty Reserves
The Company generally grants a warranty to its customers for a one-year period following the sale of all new equipment, and on selected repaired equipment for a one-year period following the repair. The warranty period is extended under certain circumstances and for certain products. In most instances the digital products are covered by the manufacturing firms OEM warranty; however, there are certain customers where the Company may grant warranties in excess of the manufacturers warranty. The Company accrues for these costs at the time of sale or repair, when events dictate that additional accruals are necessary.
|
|
Three Months Ended |
|
Nine Months Ended |
| ||||||||
|
|
2011 |
|
2010 |
|
2011 |
|
2010 |
| ||||
(In thousands) |
|
|
|
|
|
|
|
|
| ||||
Warranty accrual at beginning of period |
|
$ |
961 |
|
$ |
412 |
|
$ |
848 |
|
$ |
378 |
|
Charged to expense |
|
185 |
|
177 |
|
411 |
|
406 |
| ||||
Amounts written off, net of recoveries |
|
(137 |
) |
(75 |
) |
(263 |
) |
(266 |
) | ||||
Foreign currency adjustment |
|
(1 |
) |
4 |
|
12 |
|
|
| ||||
Warranty accrual at end of period |
|
$ |
1,008 |
|
$ |
518 |
|
$ |
1,008 |
|
$ |
518 |
|
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 23, |
|
December 24, |
| ||
|
|
(In thousands) |
| ||||
Current assets |
|
$ |
3,786 |
|
$ |
3,316 |
|
Non-current assets |
|
3,847 |
|
9,419 |
| ||
Current liabilities |
|
(1,884 |
) |
(3,011 |
) | ||
Non-current liabilities |
|
(1,590 |
) |
(5,361 |
) | ||
Equity |
|
$ |
(4,159 |
) |
$ |
(4,363 |
) |
|
|
Three Months Ended |
|
Nine Months Ended |
| ||||||||
Statement of Operations |
|
2011 |
|
2010 |
|
2011 |
|
2010 |
| ||||
(In thousands) |
|
|
|
|
|
|
|
|
| ||||
Revenue |
|
$ |
5,666 |
|
$ |
1 |
|
$ |
5,668 |
|
$ |
8,239 |
|
Cost of sales |
|
(4,954 |
) |
(277 |
) |
(5,596 |
) |
(6,174 |
) | ||||
Selling and administrative expenses |
|
(96 |
) |
(60 |
) |
(175 |
) |
(207 |
) | ||||
Operating income (loss) |
|
616 |
|
(336 |
) |
(103 |
) |
1,858 |
| ||||
Other expense |
|
(24 |
) |
(86 |
) |
(101 |
) |
(283 |
) | ||||
Net income (loss) |
|
$ |
592 |
|
$ |
(422 |
) |
$ |
(204 |
) |
$ |
1,575 |
|
The Company accounts for its investment by the equity method. Under this method, the Company recorded its proportionate share of LLC net income (loss) based on the LLCs financial statements. 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 Companys portion of income (losses) of the LLC was approximately $0.2 million and $(0.1) million for the three and nine months ended September 30, 2011, respectively. The Companys portion of the income (loss) of the LLC was insignificant for the three months ended September 30, 2010 and $0.8 million for the nine months ended September 30, 2010, respectively.
The Company did not make any sales of digital theatre projection equipment, in the normal course of business, to the LLC during the three and nine months ended September 30, 2011 compared to sales of approximately $0.3 million and $5.0 million during the three and nine months ended September 30, 2010, respectively. The LLC in turn provided the digital projection equipment to third party customers under system use agreements. The Company recognized revenue of $2.3 million during the three and nine months ended September 30, 2011. Revenue recognized by the Company was $0.2 million and $4.1 million in the three and nine months ended September 30, 2010, respectively. Revenue recognized by the Company on any sale transaction to DL II is limited by its 44.4% ownership in the joint venture which will be recognized upon sale of the equipment to third parties.
During the third quarter the LLC made significant sales to certain third party customers amounting to $5.7 million in revenue resulting in operating income of $0.8 million.
Guarantees
The Company had provided guarantees to notes payable of $1.2 million at December 31, 2010 entered into by the LLC to finance digital projection equipment deployed in the normal course of business and had recorded an insignificant liability for the fair value of the obligations undertaken by issuing the guarantees. During the third quarter of 2011, the LLC paid off all notes payable effectively ending the Companys guarantee obligations as of September 30, 2011. Under the terms of the guarantees, the Company would have been required to pay the obligation had the LLC been in default of its loans or contract terms.
7. Fair Value of Financial Instruments
The fair value of the Companys cash and cash equivalents, accounts receivable, foreign currency contracts, accounts payable and accrued expenses equal or approximate their fair values due to the short-term nature of these instruments. The estimated fair values and related assumptions used to estimate fair value of the Companys financial instruments are disclosed below.
ASC 820 establishes a hierarchy for fair value measurements based upon observable independent market inputs and unobservable market assumptions. Inputs refer broadly to the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk. Considerable judgment is required in interpreting market data used to develop the estimates of fair value. The following represents the three categories of inputs used in determining the fair value of financial assets and liabilities:
Level 1: |
Quoted market prices in active markets for identical assets or liabilities. |
|
|
Level 2: |
Observable market based inputs or unobservable inputs that are corroborated by market data. |
|
|
Level 3: |
Unobservable inputs that are used in the measurement of assets and liabilities. Unobservable inputs require management to make certain projections and assumptions about the information that would be used by market participants in pricing the asset or liability. |
8. Income Taxes
Income taxes are accounted for under the asset and liability method. The Company uses an estimate of its annual effective rate based on the facts and circumstances at the time to record interim income tax expense. 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. In assessing whether the deferred tax assets will be realized, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized and a related valuation allowance is deemed necessary. As of September 30, 2011, a valuation allowance has not been recorded. However, if the Company experiences difficulties in achieving its forecasts of taxable income, the Company may be required to record a valuation allowance against the deferred tax assets recorded which would impact the Companys results of operations.
The effective tax rate (calculated as a ratio of income tax expense to pretax earnings, inclusive of equity method investment losses) was approximately 31.4% and 29.7% for the three and nine months ended September 30, 2011, respectively, as compared to 32.2% and 32.0% for the three and nine months ended September 30, 2010, respectively. The Companys estimated annual effective rate was lower than the 2010 comparable periods primarily due to an increase in the Section 199 deduction, additional tax credits to be generated in Canada, and Foreign statutory rates being lower than the U.S. statutory rate.
Federal and state income taxes have not been provided on accumulated but undistributed earnings of foreign subsidiaries aggregating approximately $17.4 million at September 30, 2011 and as such, earnings have been permanently reinvested in the business. The determination of the amount of the unrecognized deferred tax liability related to the undistributed earnings is not practicable. The Companys 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 2007 through 2010. In most cases, the Company has examinations open for State or local jurisdictions based on the particular jurisdictions statute of limitations. The Company does not currently have any examinations in process. As of September 30, 2011, total unrecognized tax benefits amounted to approximately $0.1 million.
Amounts related to estimated underpayment of income taxes, including interest and penalties, are classified as a component of tax expense in the consolidated statements of operations and were not material for the three and nine months ended September 30, 2011. Amounts accrued for estimated underpayment of income taxes amounted to $0.1 million as of September 30, 2011. The accruals largely related to state tax matters.
9. Stock Compensation
The Company accounts for awards of share-based compensation in accordance with ASC 718, Stock CompensationOverall, which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors based on estimated fair values. Share-based compensation expense recorded amounted to $0.1 million and $0.2 million for the three and nine months ended September 30, 2011, respectively and $0.1 and $0.2 million for the three and nine months ended September 30, 2010, respectively.
Options
The following table summarizes the Companys activities with respect to its stock options for the nine months ended September 30, 2011 as follows:
|
|
Number of |
|
Weighted |
|
Weighted |
|
Aggregate |
| ||
Outstanding at December 31, 2010 |
|
222,250 |
|
$ |
3.12 |
|
3.05 |
|
$ |
1,071,464 |
|
Granted |
|
2,200 |
|
4.07 |
|
|
|
|
| ||
Exercised |
|
(172,250 |
) |
1.62 |
|
|
|
|
| ||
Forfeited |
|
|
|
|
|
|
|
|
| ||
Outstanding at September 30, 2011 |
|
52,200 |
|
$ |
8.14 |
|
9.11 |
|
$ |
|
|
Exercisable at September 30, 2011 |
|
|
|
$ |
|
|
|
|
$ |
|
|
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, 2011.
The following table summarizes information about stock options outstanding and exercisable at September 30, 2011:
|
|
Options Outstanding at |
|
Options Exercisable at |
| |||||||||
Range of option exercise price |
|
Number of |
|
Weighted |
|
Weighted |
|
Number of |
|
Weighted |
|
Weighted |
| |
$4.07-$8.32 |
|
52,200 |
|
9.11 |
|
$ |
8.14 |
|
|
|
|
|
|
|
Restricted Stock Plans
In connection with the restricted stock granted to certain employees and non-employee directors, the Company is accruing 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, 2011, less than $0.1 million of unrecognized compensation cost related to non-vested restricted stock awards remained and is expected to be recognized over a weighted average period of 7 months.
The following table summarizes restricted stock activity for the nine months ended September 30, 2011:
|
|
Number of Restricted |
|
Weighted Average Grant |
| |
Nonvested at December 31, 2010 |
|
74,691 |
|
$ |
2.51 |
|
Granted |
|
33,559 |
|
6.92 |
| |
Shares vested |
|
(95,650 |
) |
3.66 |
| |
Shares forfeited |
|
|
|
|
| |
Nonvested at September 30, 2011 |
|
12,600 |
|
$ |
5.50 |
|
Employee Stock Purchase Plan
The estimated grant date fair value of purchase rights outstanding under the Employee Stock Purchase Plan was $3.96 per share using the Black-Scholes option-pricing model made with the following weighted average assumptions: risk-free interest rate of 0.12%, dividend yield of 0%, expected volatility of 38.8% and expected term of one year. 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, 2011 and 2010, respectively. At September 30, 2011, the total unrecognized estimated compensation cost was insignificant.
10. Related Party Transactions
The Company did not make any sales of digital theatre projection equipment, in the normal course of business, to its 44.4%-owned LLC with Real D during the nine months ended September 30, 2011 compared to sales of approximately $0.3 and $5.0 million during the three and nine months ended September 30, 2010, respectively. The LLC in turn provides the digital projection equipment to third party customers under system use agreements. The Company recognized revenue of $2.3 million during the three and nine months ended September 30, 2011 compared to $0.2 and $4.1 million in the three and nine months ended September 30, 2010, respectively. Revenue recognized by the Company on the sale transaction to the LLC is limited by its 44.4% ownership and will be recognized upon sale of the equipment to the third parties.
11. Foreign Exchange Contracts
The Companys 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. At September 30, 2011, the Company had open forward exchange contracts to purchase Canadian dollars at a fixed rate of U.S. dollars with notional amounts totaling $5.6 million. The Company recorded an unrealized loss of $0.4 million associated with these open contracts in its consolidated statement of operations at September 30, 2011 compared to an insignificant loss for the period ended September 30, 2010.
12. Note Receivable
During September 2011, the Company entered into an unsecured note receivable arrangement with CDF2 Holdings, LLC pertaining to the sale and installation of digital projection equipment. The note receivable accrues interest at a rate of 15% per annum which is paid in accordance with a cash flow waterfall schedule, as defined. Interest not paid in any particular year is added to the principal and accrues interest at 15%. As of September 30, 2011, the Company has recorded the note receivable at its fair value of $2.0 million and is included in other assets within the consolidated balance sheet.
13. Deferred Revenue
As of September 30, 2011, the Company has deferred $3.7 million of revenues associated with extended warranties provided to a third party exhibitor. Of the amounts recorded by the Company, $3.6 million is included in non-current deferred revenue on the consolidated balance sheet at September 30, 2011 as the Company expects to recognize the majority of this revenue over a period of approximately 5 years.
14. Commitments, Contingencies and Concentrations
Concentrations
The Companys top ten customers accounted for approximately 58% of consolidated net revenues for the nine months ended September 30, 2011. The top ten customers were from the theatre segment. Trade accounts receivable from these customers represented approximately 76% of net consolidated receivables at September 30, 2011. Sales to a significant theatre segment customer represented approximately 52% and 25% of consolidated net revenues for the three and nine months ended September 30, 2011, respectively. In addition, receivables from this theatre customer represented approximately 64% of consolidated receivables at September 30, 2011. 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 Companys significant customers could have a material adverse effect on the Companys 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.
Through distribution agreements with NEC, the Company distributes Starus DLP Cinema projectors to North and South America, Hong Kong, China and certain other areas of Asia. These agreements are non-exclusive distributorship agreements, some of which can be terminated with 90 day advance notice. NEC is the primary supplier of the digital products the Company distributes to the Theatre Industry. If the Company is unable to maintain its relationship with NEC, the results would have a material adverse impact on its business, financial condition and operating results until the Company could find an alternative source of digital equipment to distribute. The principal raw materials and components used in the Companys manufacturing processes include aluminum, reflectors, electronic subassemblies and sheet metal. The Company uses a single manufacturer for each of its digital projectors, intermittent movement components, reflectors, aluminum castings, lenses and xenon lamps. Although the Company has not to-date experienced a significant difficulty in obtaining these components, no assurance can be given that shortages will not arise in the future. The loss of any one or more of such contract manufacturers could have a short-term adverse effect on the Company until alternative manufacturing arrangements are secured.
Litigation
The Company may be involved in various claims and legal actions from time to time which are routine litigation matters incidental to the business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Companys financial condition, results of operations or liquidity.
15. Business Segment Information
The presentation of segment information reflects the manner in which management organizes segments for making operating decisions and assessing performance.
As of September 30, 2011, the Companys operations were conducted principally through two business segments: Theatre and Lighting. Theatre operations include the design, manufacture, assembly, sale and service of motion picture projectors, xenon lamp houses and power supplies. Theatre operations also include the sale and service of digital projection equipment and accessories, sound systems, xenon lamps and lenses. The lighting segment operations include the design, manufacture, 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 intercompany sales are eliminated in consolidation.
Ballantyne Strong, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
Three and Nine Months Ended September 30, 2011 and 2010
(Unaudited)
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
| ||||||||
(In thousands) |
|
2011 |
|
2010 |
|
2011 |
|
2010 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Net revenue |
|
|
|
|
|
|
|
|
| ||||
Theatre |
|
|
|
|
|
|
|
|
| ||||
Products |
|
$ |
58,071 |
|
$ |
29,527 |
|
$ |
120,452 |
|
$ |
82,929 |
|
Services |
|
4,616 |
|
2,198 |
|
10,008 |
|
5,234 |
| ||||
Total theatre |
|
62,687 |
|
31,725 |
|
130,460 |
|
88,163 |
| ||||
Lighting |
|
750 |
|
1,205 |
|
2,446 |
|
2,853 |
| ||||
Total revenue |
|
$ |
63,437 |
|
$ |
32,930 |
|
132,906 |
|
$ |
91,016 |
| |
|
|
|
|
|
|
|
|
|
| ||||
Operating Income |
|
|
|
|
|
|
|
|
| ||||
Theatre |
|
|
|
|
|
|
|
|
| ||||
Products |
|
$ |
6,509 |
|
$ |
4,540 |
|
$ |
15,298 |
|
$ |
12,058 |
|
Services |
|
1,758 |
|
292 |
|
2,165 |
|
267 |
| ||||
Total theatre |
|
8,267 |
|
4,832 |
|
17,463 |
|
12,325 |
| ||||
Lighting |
|
21 |
|
(23 |
) |
137 |
|
52 |
| ||||
Total segment operating income |
|
8,288 |
|
4,809 |
|
17,600 |
|
12,377 |
| ||||
Unallocated general and administrative expenses |
|
(1,714 |
) |
(1,281 |
) |
(5,110 |
) |
(4,275 |
) | ||||
Interest, net |
|
(12 |
) |
(8 |
) |
(38 |
) |
(9 |
) | ||||
Gain on sale of assets |
|
13 |
|
7 |
|
36 |
|
178 |
| ||||
Equity in income (loss) of joint venture |
|
207 |
|
(24 |
) |
(121 |
) |
802 |
| ||||
Other income (loss) |
|
127 |
|
(79 |
) |
48 |
|
(107 |
) | ||||
Income before income taxes |
|
$ |
6,909 |
|
$ |
3,424 |
|
$ |
12,415 |
|
$ |
8,966 |
|
|
|
|
|
|
|
|
|
|
| ||||
Expenditures on capital equipment |
|
|
|
|
|
|
|
|
| ||||
Theatre |
|
|
|
|
|
|
|
|
| ||||
Products |
|
$ |
389 |
|
$ |
1,077 |
|
$ |
2,347 |
|
$ |
4,312 |
|
Services |
|
10 |
|
23 |
|
82 |
|
62 |
| ||||
Total theatre |
|
399 |
|
1,100 |
|
2,429 |
|
4,374 |
| ||||
Lighting |
|
1 |
|
16 |
|
7 |
|
24 |
| ||||
Total |
|
$ |
400 |
|
$ |
1,116 |
|
2,436 |
|
$ |
4,398 |
| |
Depreciation and amortization |
|
|
|
|
|
|
|
|
| ||||
Theatre |
|
|
|
|
|
|
|
|
| ||||
Products |
|
$ |
382 |
|
$ |
324 |
|
$ |
1,126 |
|
$ |
1,132 |
|
Services |
|
36 |
|
41 |
|
138 |
|
144 |
| ||||
Total theatre |
|
418 |
|
365 |
|
1,264 |
|
1,276 |
| ||||
Lighting |
|
7 |
|
8 |
|
25 |
|
25 |
| ||||
Total |
|
$ |
425 |
|
$ |
373 |
|
$ |
1,289 |
|
$ |
1,301 |
|
Summary by Business Segments
|
|
September 30, |
|
December 31, 2010 |
| ||
|
|
(in thousands) |
| ||||
Identifiable assets |
|
|
|
|
| ||
Theatre |
|
|
|
|
| ||
Products |
|
$ |
109,284 |
|
$ |
86,156 |
|
Services |
|
4,920 |
|
3,358 |
| ||
Total theatre |
|
114,204 |
|
89,514 |
| ||
Lighting |
|
2,563 |
|
2,517 |
| ||
Total |
|
$ |
116,767 |
|
$ |
92,031 |
|
Summary by Geographical Area
(In thousands)
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
| ||||||||
|
|
2011 |
|
2010 |
|
2011 |
|
2010 |
| ||||
Net revenue |
|
|
|
|
|
|
|
|
| ||||
United States |
|
$ |
53,883 |
|
$ |
17,927 |
|
$ |
102,010 |
|
$ |
51,955 |
|
Canada |
|
513 |
|
1,254 |
|
1,812 |
|
3,405 |
| ||||
China |
|
6,892 |
|
9,298 |
|
19,238 |
|
19,344 |
| ||||
Asia (excluding China) |
|
915 |
|
508 |
|
2,404 |
|
1,340 |
| ||||
Mexico |
|
626 |
|
1,639 |
|
2,079 |
|
4,667 |
| ||||
South America |
|
496 |
|
1,767 |
|
3,457 |
|
8,100 |
| ||||
Europe |
|
111 |
|
501 |
|
1,221 |
|
2,010 |
| ||||
Other |
|
1 |
|
36 |
|
685 |
|
195 |
| ||||
Total |
|
$ |
63,437 |
|
$ |
32,930 |
|
$ |
132,906 |
|
$ |
91,016 |
|
|
|
September 30, 2011 |
|
December 31, |
| ||
|
|
(In thousands) |
| ||||
Identifiable assets |
|
|
|
|
| ||
United States |
|
$ |
86,466 |
|
$ |
59,972 |
|
China |
|
5,877 |
|
11,908 |
| ||
Asia (excluding China) |
|
7,897 |
|
5,781 |
| ||
Canada |
|
16,527 |
|
14,370 |
| ||
Total |
|
$ |
116,767 |
|
$ |
92,031 |
|
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.
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this report. Managements discussion and analysis contains not only historical information, but also forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Statements that are not historical are forward-looking and reflect expectations for future Company performance. For these statements, the Company claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.
Forward-looking statements involve a number of risks and uncertainties, including but not limited to those discussed in the Risk Factors section contained in Item 1A in our Annual Report on Form 10-K for the fiscal year ended December 31, 2010. Given the risks and uncertainties, readers should not place undue reliance on any forward-looking statement and should recognize that the statements are predictions of future results which may not occur as anticipated. Actual results could differ materially from those anticipated in the forward-looking statements and from historical results, due to the risks and uncertainties described herein, as well as others not now anticipated. New risk factors emerge from time to time and it is not possible for management to predict all such risk factors, nor can it assess the impact of all such factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Except where required by law, the Company assumes no obligation to update forward-looking statements to reflect actual results or changes in factors or assumptions affecting such forward-looking statements.
Overview
We are a manufacturer, distributor and service provider for the theatre exhibition industry on a worldwide basis. We also design, develop, manufacture and distribute lighting systems to the worldwide entertainment lighting industry through our Strong Entertainment Lighting segment.
We have two primary reportable core operating segments: theatre and lighting. Approximately 98% of 2011 sales were from theatre products and approximately 2% were lighting products. Additional information related to our reporting segments can be found in the notes to the consolidated financial statements.
Results of Consolidated Operations:
Revenues
The following table breaks out revenues by segment for the three and nine months ended September 30, 2011 and 2010, respectively.
|
|
Three Months Ended |
|
Nine Months Ended |
| ||||||||
|
|
2011 |
|
2010 |
|
2011 |
|
2010 |
| ||||
|
|
(In thousands) |
|
(In thousands) |
| ||||||||
Theatre |
|
|
|
|
|
|
|
|
| ||||
Products |
|
$ |
58,071 |
|
$ |
29,527 |
|
$ |
120,452 |
|
$ |
82,929 |
|
Services |
|
4,616 |
|
2,198 |
|
10,008 |
|
5,234 |
| ||||
Total theatre revenues |
|
62,687 |
|
31,725 |
|
130,460 |
|
88,163 |
| ||||
Lighting |
|
750 |
|
1,205 |
|
2,446 |
|
2,853 |
| ||||
Total net revenues |
|
$ |
63,437 |
|
$ |
32,930 |
|
$ |
132,906 |
|
$ |
91,016 |
|
Theatre Segment
Sales of theatre products and services increased to $62.7 million and $130.5 million during the three and nine months ended September 30, 2011, respectively. These results compare to $31.7 million and $88.2 million during the three and nine months ended September 30, 2010, respectively.
Digital Product Sales
Sales of digital products rose to $54.0 million during the three months ended September 30, 2011 compared to $20.2 million during the three months ended September 30, 2010. Sales of digital products also increased during the nine months ended September 30, 2011 to $99.8 million from $53.7 in the comparative period a year-ago.
The increase in digital sales for the periods presented resulted primarily from the following:
· A significant sale of digital projectors and accessories to a theatre customer which represented in excess of 55% of digital product revenues during the three months ended September 30, 2011.
· Other theatre exhibition customers continuing to replace their 35mm film projectors with digital systems as the industry transition to digital cinema continues.
Screen Product Sales
We generated screen sales of $2.4 million and $14.1 million during the three and nine months ended September 30, 2011 compared to $5.0 million and $13.0 million during the three and nine months ended September 30, 2010, respectively. Sales rose during the year-to-date period, however, third quarter sales were lower year-over-year, as a result of exhibitors accelerating their digital 3-D rollout in the past quarters to meet certain 3-D spring movie releases and the shifting of scheduled installations due to changing theatre construction timelines in China. We sell screens for both digital cinema and film applications. In some instances, a screen can be used interchangeably with either a digital projector or a film projector. However, there are certain digital 3D applications, such as Real Ds technology, that require special silver screens that we manufacture.
Service Revenues
We generated service revenues of $4.6 million and $10.0 million during the three and nine months ended September 30, 2011 compared to $2.2 million and $5.2 million during the three and nine months ended September 30, 2010. The reasons for the increase in business was due primarily to the follow items:
· Installation revenues pertaining to a sale to a major exhibition customer during the third quarter.
· The theatre exhibition industrys transition to digital cinema creating opportunities for our service group to sell installation, after sale-maintenance and network operations services.
As expected, revenues generated from servicing film equipment decreased to $0.2 million during the three months ended September 30, 2011 from $0.3 million a year-ago. Film service revenues also declined during the nine months ended September 30, 2011 to $0.8 million compared to $1.6 million a year-ago, a drop of 47%. We expect film service revenues to continue to fall as the transition to digital cinema continues.
Film Product Sales
The transition to digital cinema has impacted sales of film equipment, accessories and replacement parts and are expected to further decline in future periods. The following table is a comparative analysis for the three and nine months ended September 30, 2011 and 2010, respectively:
|
|
Three Months Ended |
|
Nine Months Ended |
| ||||||||
|
|
2011 |
|
2010 |
|
2011 |
|
2010 |
| ||||
|
|
(In thousands) |
|
(In thousands) |
| ||||||||
Film products |
|
|
|
|
|
|
|
|
| ||||
Equipment |
|
$ |
504 |
|
$ |
2,272 |
|
$ |
2,826 |
|
$ |
8,879 |
|
Parts |
|
855 |
|
1,410 |
|
2,551 |
|
4,243 |
| ||||
Lenses/Lamps |
|
353 |
|
677 |
|
1,205 |
|
3,170 |
| ||||
Total net revenues |
|
$ |
1,712 |
|
$ |
4,359 |
|
$ |
6,582 |
|
$ |
16,292 |
|
Lighting Segment
Sales of lighting products declined to $0.8 million during the three months ended September 30, 2011 from $1.2 million in the comparative period a year-ago primarily due to lower follow spotlight sales which fell to $0.4 million from $0.8 million during the 2010 period. Sales during the nine months ended September 30, 2011 also fell to $2.5 million from $2.9 million during the nine months ended September 30, 2010. Our lighting products continue to be impacted by lower demand for the construction or improvements of stadiums and auditoriums around the world.
Export Revenues
Sales outside the United States (mainly theatre sales) decreased to $9.6 million during the three months ended September 30, 2011 from $15.0 million in the comparable year-ago period resulting primarily from lower sales in South America, China, Canada, Mexico and Europe. Sales decreased to $30.9 million during the nine months ended September 30, 2011 from $39.1 million in the comparable year-ago period resulting primarily from lower sales in South America, Canada, Mexico and Europe.
The decline in export sales for the three and nine month periods is primarily a result of the timing of the digital cinema rollout in these countries coupled with lower sales of film equipment. Sales in China during the third quarter, in particular, were impacted by the shifting of scheduled installations due to changing theatre construction timelines in China.
Gross Profit
Consolidated gross profit amounted to $10.1 million with a 15.8 % gross margin during the three months ended September 30, 2011 compared to $6.5 million with a 19.6% gross margin during the three months ended September 30, 2010. Consolidated gross profit amounted to $22.9 million with a 17.2 % gross margin during the nine months ended September 30, 2011 compare to $16.7 million with an 18.4% gross margin during the nine months ended September 30, 2010.
The gross profit in the theatre segment amounted to $9.9 million or a gross margin of 15.6% during the three month period ended September 30, 2011 compared to $6.2 million or a 19.7% gross margin for the same period in 2010. The gross profit in the theatre segment amounted to $22.1 million or a gross margin of 17.0% during the nine month period ended September 30, 2011 compared to $16.0 million or a 18.2% gross margin for the same period in 2010. The gross profit results reflect the increase in digital revenues while the decline in gross margin is reflective of:
· A product mix consisting of more sales of digital products which carry substantially higher revenue price points but lower gross margins than our other products and services.
· Lower revenues from film replacement parts which historically carry strong margins.
· Lower screen revenues which carry higher manufacturing margins.
The gross profit in the lighting segment amounted to $0.2 million or a gross margin of 31.2% during the three month period ended September 30, 2011 compared to $0.2 million or a 18.3% gross margin for the same period in 2010. The gross profit in the lighting segment amounted to $0.8 million or a gross margin of 31.0% during the nine month period ended September 30, 2011 compared to $0.7 million or a 24.8% gross margin for the same period ended September 30, 2010 both resulting from a favorable product mix.
Selling Expenses
Selling expenses amounted to $0.9 million or 1.5% of revenues during the three months ended September 30, 2011 compared to $0.7 million or 2.2% of revenues during the three months ended September 30, 2010. During the nine months ended September 30, 2011 selling expenses amounted to $2.9 million or 2.2% of revenues compared to $2.3 million or 2.5% of revenues in the year-ago comparative period. The results for both the three and nine month periods reflect additional personnel and their associated costs to expand our international and service marketing efforts and to expand our sales offices in China.
General and Administrative Expenses
General and administrative expenses amounted to $2.5 million or 4.0% of revenues during the three months ended September30, 2011 compared to $2.2 million or 6.7% of revenues during the three months ended September 30, 2010. During the nine months ended September 30, 2011 general and administrative expenses amounted to $7.5 million or 5.6% of revenues compared to $6.4 million or 7.0% of revenues in the year-ago comparative period. The results reflect increases in personnel costs and professional fees due to the increase in business and also more severance charges as we transition from the film manufacturing business.
Other Financial Items
Three Months Ended September 30, 2011 and 2010
Our results for the three months ended September 30, 2011 reflect income of approximately $0.2 million pertaining to our 44.4% share of equity in the income from Digital Link II, LLC. The LLCs income for the quarter resulted from the sale of equipment to certain exhibition customers for projectors previously held in the LLC.
We recorded income tax expense of approximately $2.2 million in the 2011 period compared to $1.1 million in the 2010 period. The effective tax rate (calculated as a ratio of income tax expense to pretax earnings, inclusive of equity method investment earnings) was approximately 31.4% in the 2011 period compared to 32.2% in the year-ago period. 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.Our effective rate was lower than the prior year period in part due to recording estimates for certain Canadian R&D and Investment Tax Credits.
For the reasons outlined herein, we generated net earnings of approximately $4.7 million and basic and diluted earnings per share of $0.33 in 2011 compared to earnings of $2.3 million and basic and diluted earnings per share of $0.16 per share in the 2010 period, respectively.
Nine Months Ended September 30, 2011 and 2010
Our results for the nine months ended September 30, 2011 reflect a loss of approximately $0.1 million pertaining to our 44.4% share of equity in the loss from Digital Link II, LLC. This loss compares to income of $0.8 million a year-ago resulting from our share of gains the LLC recorded during the prior year resulting from sales of equipment to a certain exhibition customers for projectors previously held in the LLC.
We recorded income tax expense of approximately $3.7 million in the 2011 period compared to $2.9 million in the 2010 period. The effective tax rate (calculated as a ratio of income tax expense to pretax earnings, inclusive of equity method investment earnings) was approximately 29.7% in the 2011 period compared to 32.0% in the year-ago period. 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. Our effective rate was lower than the prior year period in part due to estimates for certain Canadian R&D and Investment Tax Credits.
For the reasons outlined herein, we generated net earnings in 2011 of approximately $8.7 million and basic and diluted earnings per share of $0.61 and $0.60, respectively compared to earnings of $6.1 million and basic and diluted earnings per share of $0.43 and $0.42 per share in the 2010 period, respectively.
Liquidity and Capital Resources
During the past several years, we have met our working capital and capital resource needs from either our operating or investing cash flows or a combination of both. We ended the third quarter with total cash and cash equivalents of $22.4 million compared to $20.8 million at June 30, 2011 and $22.3 million at December 31, 2010.
We are party to a $20 million Revolving Credit Agreement and Note (the Credit Agreement) with Wells Fargo Bank, N.A. (Wells Fargo). The borrowings from the Revolving Credit Agreement will primarily be used for working capital purposes and for other general corporate purposes. Our accounts receivable, general intangibles and inventory secure the Credit Agreement. Borrowings under the Credit Agreement bear interest at a rate equal to LIBOR plus 125 basis points and we pay a fee of 0.15% per annum on any unused portion. Since inception of the agreement no amounts have been borrowed on the Credit Agreement. The Credit Agreement is set to expire on June 30, 2012.
Net cash provided by operating activities amounted to $2.3 million during the nine months ended September 30, 2011 compared to net cash used in operating activities of $1.5 million during the same period a year-ago. The results primarily reflect operating income of $12.5 million, an $11 million decrease in inventory and increases of $10.0 million and $2.5 million in accounts payable and income taxes payable balances during the nine months ended September 30, 2011, respectively. These working capital changes were primarily offset by an increase in deferred income taxes of $1.9 million and a $30.5 million increase in receivables, which primarily related to the sale to a significant theatre customer recorded in the later part of the third quarter.
Net cash used in investing activities amounted to $2.4 million during the nine months ended September 30, 2011 compared to $3.5 million during the same period a year-ago. Investing activities during 2011 were primarily due to capital expenditures. Investing activities during 2010 resulted from capital expenditures of $4.4 million offset by a $0.9 million return of capital from our 44.4%-owned joint venture with RealD. The capital expenditures in both periods primarily pertain to the expansion of our screen manufacturing plant in Canada.
Net cash provided by financing activities amounted to $0.6 million during the nine months ended September 30, 2011 compared to $0.5 million in comparable period a year ago. The activities in both periods were due to the issuance of restricted stock and also proceeds and tax benefits from share-based arrangements.
Hedging and Trading Activities
Our primary exposure to foreign currency fluctuations pertains to our subsidiaries in Canada and China. In certain instances, we may enter into a foreign exchange contract to manage a portion of this risk. For the period ended September 30, 2011 we recorded an unrealized loss of $0.4 million associated with these open contracts in our consolidated statement of operations. This loss compared to an insignificant loss in the year-ago period.
We do not have any trading activities that include non-exchange traded contracts at fair value.
Off Balance Sheet Arrangements and Contractual Obligations
Our off balance sheet arrangements consist principally of our postretirement benefit obligations and leasing various assets under operating leases. The future estimated payments under these arrangements are summarized below along with our other contractual obligations:
|
|
Payments Due by Period |
| |||||||||||||||||||
Contractual Obligations |
|
Total |
|
Remaining |
|
2012 |
|
2013 |
|
2014 |
|
2015 |
|
Thereafter |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Postretirement benefits |
|
176 |
|
8 |
|
18 |
|
19 |
|
20 |
|
20 |
|
91 |
| |||||||
Operating leases |
|
694 |
|
76 |
|
253 |
|
199 |
|
166 |
|
|
|
|
| |||||||
Contractual cash obligations |
|
$ |
870 |
|
$ |
84 |
|
$ |
271 |
|
$ |
218 |
|
$ |
186 |
|
$ |
20 |
|
$ |
91 |
|
In addition, we have accrued approximately $0.1 million for the estimated underpayment of income taxes we are obligated to pay. The accrual is primarily related to state tax matters. There were no other contractual obligations other than inventory and property, plant and equipment purchases in the ordinary course of business.
Guarantees
We had provided guarantees to notes payable of $1.2 million at December 31, 2010 entered into by our joint venture, Digital Link II, LLC to finance digital projection equipment deployed in the normal course of business. During the third quarter of 2011, the LLC paid off all notes effectively ending our guarantee obligations at September 30, 2011. Under the terms of the guarantees, the Company would have been required to pay the obligation had the LLC been in default of its loans or contract terms.
Seasonality
Generally, our business exhibits a moderate level of seasonality.
Inflation
We believe that the relatively moderate rates of inflation in recent years have not had a significant impact on our net revenues or profitability. Historically, we have been able to offset any inflationary effects by either increasing prices or improving cost efficiencies.
Recently Issued Accounting Pronouncements
In May 2011, the FASB issued ASU No. 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs, which requires the categorization by level for items that are only required to be disclosed at fair value and information about transfers between Level 1 and Level 2. In addition, the ASU provides guidance on measuring the fair value of financial instruments managed within a portfolio and the application of premiums and discounts on fair value measurements. The ASU requires additional disclosure for Level 3 measurements regarding the sensitivity of fair value to changes in unobservable inputs and any interrelationships between those inputs. The guidance is effective for fiscal years beginning after December 15, 2011. We do not expect the adoption of this standard to impact the consolidated financial statements.
In June 2011, the FASB issued ASU No. 2011-05, Presentation of Comprehensive Income, which amends ASC 220, Comprehensive Income, by requiring all nonowner changes in stockholders equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The guidance is effective retrospectively for fiscal years and interim periods within those years beginning after December 15, 2011. We are still evaluating the method of adoption.
Critical Accounting Policies and Estimates
In preparing our consolidated financial statements in conformity with U.S. generally accepted accounting principles; management must make a variety of decisions which impact the reported amounts and the related disclosures. These decisions include the selection of the appropriate accounting principles to be applied and the assumptions on which to base accounting estimates. In making these decisions, management applies its judgment based on its understanding and analysis of the relevant circumstances and our historical experience.
Our accounting policies and estimates that are most critical to the presentation of our results of operations and financial condition, and which require the greatest use of judgments and estimates by management, are designated as our critical accounting policies. See further discussion of our critical accounting policies under Item 7, Managements Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for our year ended December 31, 2010. We periodically re-evaluate and adjust our critical accounting policies as circumstances change. There were no significant changes in our critical accounting policies during the three months ended September 30, 2011.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The principal market risks affecting us are exposure to interest rates and foreign currency exchange rates. We market our products throughout the United States and the world. As a result, we could be adversely affected by such factors as changes in foreign currency rates and weak economic conditions. As a significant amount of our sales are currently denominated in U.S. dollars, a strengthening of the dollar can and sometimes has made our products less competitive in foreign markets.
Interest Rates We have a variable interest rate credit facility, however, we have no outstanding balances as of September 30, 2011. If we would borrow up to the maximum amount available under these facilities, a one percent increase in the interest rate would increase interest expense by $0.2 million per annum. Interest rate risks from our other interest-related accounts such as our postretirement obligations are not deemed significant.
Foreign Exchange Exposure to transactions denominated in a currency other than the entitys functional currency is primarily related to our China and Canadian subsidiaries. From time to time, as market conditions indicate, we will enter into foreign currency contracts to manage the risks associated with forecasted transactions. A portion of our cash in the China and Canadian subsidiaries is denominated in foreign currencies, where fluctuations in exchange rates will impact our cash balances in U.S. dollar terms. A hypothetical 10% change in the value of the U.S. dollar would impact our reported cash balance by approximately $0.4 million.
Item 4. Controls and Procedures
The Company carried out an evaluation under the supervision and with the participation of the Companys management, including the Companys Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Companys disclosure controls and procedures pursuant to Securities Exchange Act Rule 13a-15. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that as of the end of the period covered by this report, the Companys disclosure controls and procedures are effective at ensuring that information required to be disclosed in the reports that the Company files or submits under the Securities Exchange Act of 1934 (as amended) is (1) accumulated and communicated to management, including the Companys Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures and (2) recorded, processed, summarized and reported within the time periods specified in the SECs rules and forms. There have been no changes in the Companys internal control over financial reporting during the fiscal quarter for the period covered by this report that have materially affected, or are reasonably likely to materially affect, such internal control over financial reporting.
As we reported in our Annual Report on Form 10-K for the year ended December 31, 2010, the plaintiffs in the asbestos case entitled Manuel H.Chinea and Janet M. Chinea v. American Optical Company, Ballantyne Strong, Inc., a/k/a Ballantyne of Omaha, Inc., et al., filed in the Superior Court of the State of New York, agreed to dismiss the Company from the lawsuit. The Company was formally dismissed from the case on April 8, 2011. In addition, from time to time the Company may be involved in various claims and legal actions which are routine litigation matters incidental to the business. In the opinion of management, the ultimate disposition of these other matters will not have a material adverse effect on the Companys financial condition, results of operations or liquidity.
Item 1A Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2010 includes a detailed discussion of the Companys risk factors. There have been no material changes to the risk factors as previously disclosed.
See the Exhibit Index.
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 STRONG, INC. |
|
|
| |
|
|
|
|
|
By: |
/s/ GARY L. CAVEY |
|
By: |
/s/ MARY A. CARSTENS |
|
Gary L. Cavey, President, |
|
|
Mary A. Carstens, Chief Financial Officer |
|
Chief Executive Officer and Director |
|
|
|
|
|
|
|
|
Date: |
November 9, 2011 |
|
Date: |
November 9, 2011 |
EXHIBIT INDEX
|
|
|
|
Incorporated by Reference |
|
| ||||
Exhibit |
|
Document Description |
|
Form |
|
Exhibit |
|
Filing |
|
Filed |
|
|
|
|
|
|
|
|
|
|
|
10.26 |
|
Employment Agreement between the Company and Mary Carstens, dated July 26, 2011. |
|
|
|
|
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
31.1 |
|
Rule 13a-14(a) Certification of Chief Executive Officer. |
|
|
|
|
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
31.2 |
|
Rule 13a-14(a) Certification of Chief Financial Officer. |
|
|
|
|
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
32.1 |
|
18 U.S.C. Section 1350 Certification of Chief Executive Officer. |
|
|
|
|
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
32.2 |
|
18 U.S.C. Section 1350 Certification of Chief Financial Officer. |
|
|
|
|
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
101 |
|
The following materials from Ballantyne Strongs, Inc.s Quarterly Report on Form 10-Q for the quarter ended September 30, 2011, formatted in XBRL (Extensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated Statements of Cash Flows and (iv) the Notes to Condensed Consolidated Financial Statements. |
|
|
|
|
|
|
|
X |
Exhibit 10.26
EXECUTIVE EMPLOYMENT AGREEMENT
THIS AGREEMENT made and entered into this 26th day of July, 2011 by and between BALLANTYNE STRONG, INC., a Delaware corporation (the Company), and MARY CARSTENS (the Executive).
RECITALS:
This Executive Employment Agreement is made with reference to the following facts and objectives:
A. The Company has offered to employ Executive as Chief Financial Officer of Ballantyne Strong, Inc., in accordance with the terms and conditions set forth in this Agreement for the term provided in this Agreement, and
B. Executive has expressed her willingness to become Chief Financial Officer of Ballantyne Strong, Inc., in accordance with the terms and conditions set forth in this Agreement.
AGREEMENT:
NOW, THEREFORE, in consideration of mutual promises and covenants herein contained, the parties hereto intending to become legally bound agree as follows:
1. Employment.
The Company hereby agrees to employ the Executive and the Executive hereby agrees to be employed by the Company upon the terms and conditions hereinafter set forth.
2. Duties and Services.
2.1 Title and Duties. The Executive shall serve as Chief Financial Officer of the Company and shall perform such services as may be assigned to her from time to time by the President and Chief Executive Officer of the Company or the Board of Directors (Board), which services may include serving as an officer of the Company or any subsidiary of the Company.
2.2 Time. The Executive shall devote her full business time and attention to the business of the Company and to the promotion of the Companys best interest, subject to vacations, holidays, normal illnesses and a reasonable amount of time for civic, community and industry affairs. Executive shall at all times comply with Company policies, including, but not limited to the Companys Code of Ethics.
2.3 Travel. The Executive shall undertake such travel as may be necessary and desirable to promote the business and affairs of the Company, consistent with Executives position with the Company.
3. Term of Agreement.
3.1 Term. Executive shall be an employee at will and her employment shall continue until terminated in accordance with Section 9 below.
3.2 Change in Control of Company. In the event of a change in control of the Company, this Agreement shall continue in full force and effect and any termination of Executives employment after such change in control shall be considered a termination without cause in accordance with Section 9 below. For purposes of this Agreement, change of control means:
(i) the acquisition, whether directly or indirectly, of at least fifty percent (50%) of the voting power of the Company, by any individual, entity or group (within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended from time to time) other than employee benefit plan (or related trust) sponsored or maintained by the Company or any of its affiliates;
(ii) individuals who as of the effective date constitute the Board and subsequently elected members of the Board whose election is approved or recommended by at least a majority of such current members or their successors whose election was so approved or recommended, cease for any reason to constitute at least a majority of such Board.
(iii) consummation of (A) a merger, reorganization or consolidation with respect to which the individuals and entities who were the respective beneficial owners of the common stock and voting securities of the Company immediately before such merger, reorganization or consolidation do not, after such merger, reorganization or consolidation, beneficially own, directly or indirectly, more than fifty percent (50%) of, respectively, the then outstanding common shares and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors of the corporation resulting from such merger, reorganization or consolidation, or (B) the sale or other disposition of all or substantially all of the assets of the Company; or
(iv) The Companys shareholders approve a plan of liquidation or dissolution of the Company.
4. Compensation.
4.1 Base Salary. For all of the services to be rendered by the Executive under this Agreement, the Company shall pay the Executive a starting base salary of Two Hundred Thousand Dollars ($200,000.00) per year (Base Salary). The compensation paid hereunder to the Executive 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. The Base Salary will be subject to annual review and adjustment by the Chief Executive Officer and the Compensation Committee of the Board of Directors based upon Executives performance.
4.2 Additional Compensation. In addition to the Base Salary set forth in subparagraph 4.1 above, the Company shall pay the Executive additional compensation as set forth below.
4.2.1 Annual Bonus. Commencing with the Companys 2011 fiscal year, Executive will participate in the Companys annual bonus program with a bonus target equal to 35% of her Base Salary. The actual bonus earned will be subject to achievement of performance goals and other factors as established by the Compensation Committee or the Board.
4.2.2 Stock Options. On the date Executives employment with the Company commences, the Company will grant Executive 2,200 options pursuant to a stock option agreement in substantially the form attached hereto as Exhibit B.
4.2.3 Participation in Long-Term Incentive Plan. Executive will be eligible to participate in any regular long-term incentive grants based on performance as determined in the sole discretion of the Compensation Committee under the Ballantyne Strong, Inc. 2010 Long-Term Incentive Plan or any similar or successor long-term incentive plan.
5. Expenses and Vacation.
5.1 Travel and Entertainment Expense. The Company shall reimburse the Executive for all reasonable and necessary travel and entertainment expenses incurred by Executive in the performance of the Executives duties hereunder upon submission of vouchers and receipts evidencing such expenses in accordance with applicable Company policies.
5.2 Vacation. The Executive shall be entitled to vacation during each twelve (12) months of employment in accordance with the applicable Company policy, but in no event less than three (3) weeks per calendar year. All vacations shall be in addition to recognized national holidays. During all vacations, the Executives compensation and other benefits as stated herein shall continue to be paid in full. Such vacations shall be taken only at times convenient for the Company, as approved by the President.
6. Other Benefits.
6.1 Company Benefit Programs. In addition to the compensation and to the rights provided for elsewhere in this Agreement, the Executive shall be entitled to participate in each plan of the Company now or hereafter adopted and in effect from time to time 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, (a) profit sharing plan, (b) medical expense insurance program, and (c) pension plan. Nothing in this Agreement shall limit the Companys right to amend, modify and/or terminate any benefit plan, policies or programs at any time for any reason.
6.2 Relocation Expense Allowance. Executive will receive a relocation expense allowance for documented expenses of movement of household goods and other
miscellaneous expenses associated with Executives relocation to the Omaha metropolitan area. Executive shall be reimbursed for said expenses upon submission of vouchers and receipts evidencing such expenses.
6.3 Temporary Living Expense. Executive shall receive a temporary living expense to reimburse Executive for reasonable and customary temporary living expenses until Executive closes on a home in the Omaha metropolitan area. Executive shall also receive commuting expenses for travel to and from Executives Indiana home until Executive chooses on a home in the Omaha metropolitan area. Temporary living expenses and commuting expenses shall continue for a maximum period of six (6) months from the effective date of the Agreement. Executive shall be reimbursed for said expenses upon submission of vouchers and receipts evidencing such expenses, and approval by the President.
7. Stock Ownership Requirement. Executive shall be subject to the Companys stock ownership and retention policies, as may be in effect from time to time. Executive acknowledges such policies currently require that Executive to acquire and maintain holdings of the Companys common stock in an amount at least equal to fifty percent (50%) of her Base Salary within three years from the date her employment commences.
8. Severance. In the event Executives employment is terminated (a) by the Company without cause in accordance with Section 9.2 or (b) by the Executive for good cause in accordance with Section 9.3, then the Company shall remain liable for the Base Salary payable in accordance with Section 4.1 of this Agreement for a period of six (6) months after the date of Executives termination. In addition, the Company will pay the premiums for, or will reimburse the Executive for premiums paid for, continued health insurance coverage under COBRA for a period during which such Base Salary continuation payments are made. The severance benefits provided under this Section 8 shall constitute the sole severance benefits payable to Executive by the Company. The receipt of such payments by Executive shall be conditioned upon Executives continued compliance with the obligations set forth in Section 11 (Restrictive Covenants) and Employees execution of the Companys standard form of general release. The Executive shall also be entitled to receive any earned and unpaid amounts owed to her under Section 4 and such other accrued benefits as may be provided by Sections 5 and 6 above.
9. Termination.
9.1 Termination Due To Death Or Incapacity. Executives employment shall be terminated upon the Executives death, or by the Company, at its discretion, because of the Executives failure to perform substantially all the material duties of her position for a period of a least 180 consecutive calendar days due to physical or mental illness or injury.
9.1.1 If the Company elects to terminate this Agreement because of the Executives incapacity, it shall send her written notice thereof, setting forth in reasonable detail the facts and circumstances that provide the basis for its termination. If the Company and the Executive disagree as to the Executives incapacity, each may appoint a medical doctor to certify his or her opinion as to the Executives incapacity, and if the two doctors do not agree as to the Executives incapacity, the two doctors will appoint a third medical doctor to certify his or her
opinion as to the Executives incapacity, and the decision of the majority of the three doctors will prevail. The Company will bear all expenses for this procedure.
9.1.2 In the event of termination by reason of death, the Executives estate shall be paid all accrued sums due and owing under Section 4 above and such other benefits as may be provided by Sections 5 and 6 above.
9.1.3 In the event of termination by reason of incapacity, Executive shall continue to receive her full compensation during the 180-day period prior to any notice of termination. After the termination, Executive shall be entitled to any accrued amounts due and owing her under Section 4 and such other benefits as may be provided by Sections 5 and 6 above.
9.2 Termination by Company.
9.2.1 The Company may terminate the Executives employment at any time with or without cause. For purposes of this Agreement, circumstances constituting cause shall exist if the Executive has:
(a) acted dishonestly or incompetently or engaged in willful misconduct in performance of her executive duties;
(b) breached fiduciary duties owed to the Company;
(c) intentionally failed to perform reasonably assigned duties;
(d) willfully violated any law, rule or regulations, or court order (other than minor traffic violations or similar offenses), or otherwise committed any act which would have a material adverse impact on the business of the Company; and/or
(e) is in breach of her obligations under this Agreement and such breach is not cured by Executive within thirty (30) days after written notice to her.
9.2.2 In order for the Company to terminate the Executives employment for cause, Executive shall be sent written notice of termination, which specifically sets forth in reasonable detail the facts and circumstances upon which the President believes that the Executive has given the Company cause for termination of Executives employment. For purposes of this subsection, no acts or failures to act on the part of the Executive will be considered willful or willfully done unless done, or failed to be done, by the Executive in bad faith and without belief that the Executives action or omission was in the best interest of the Company.
9.2.3 Notwithstanding the foregoing, however, any conviction of the Executive for any crime involving violence, dishonesty, fraud or breach of trust or other felonious behavior, shall result in the automatic termination of the Executives employment, without notice.
9.2.4 In the event the Executive is terminated for cause, she shall be entitled to receive any accrued compensation that may be due and owing to her under Section 4 above, and any accrued vacation due her under Section 5 above, but no other benefits or compensation whatsoever. In the event the Executive is terminated without cause, she shall be eligible to receive severance benefits in accordance with Section 8 above.
9.3 Termination by the Executive with or without Good Reason.
9.3.1 The Executive may terminate employment by resignation at any time with or without good reason. For purposes of this Agreement, good reason shall arise in the event that the Company materially breaches its obligations to Executive under this Agreement.
9.3.2 In order for the Executive to resign for good reason, Executive shall provide the President, Chairman of the Board and Chairman of the Compensation Committee with written notice of her intent to resign for good reason, which notice specifically sets forth in reasonable detail the facts and circumstances upon which the Executive believes that the Company has materially breached its obligations under this Agreement, and affords the Company the opportunity to cure such breach within thirty (30) days after receipt of such written notice. In the event the Company fails to cure such breach, Executives resignation for good reason shall be effective at the end of such thirty (30) day period. In the event the Executive resigns for good reason, she shall be eligible to receive severance benefits in accordance with Section 8 above.
9.3.3 In the event the Executive resigns without good reason, she shall be entitled to receive any accrued compensation that may be due and owing to her under Section 4 above, and any accrued vacation due her under Section 5 above, but no other benefits or compensation whatsoever.
9.4 Date of Termination. For purposes of this Agreement, the date of the termination of Executives employment (Date of Termination) will be:
(a) if Executives employment is terminated by her death, the end of the month in which his death occurs;
(b) if Executives employment is terminated for incapacity, thirty (30) days after a notice of termination is given; or
(c) if Executives employment is terminated by Executive or the Company for any other reason, the date specified in the notice of termination, which will not be later than thirty (30) days after the date on which the notice of termination is given.
10. Employment by a Subsidiary. Either the Company or a subsidiary may be Executives legal employer. For purposes of this Agreement, any reference to Executives termination of employment with the Company means termination of employment with the
Company and all its subsidiaries, and does not include a transfer of employment between any of them. The obligations created under this Agreement are obligations of the Company. For purposes of this Section, a subsidiary means an entity more than fifty percent (50%) of whose equity interests are owned directly or indirectly by the Company.
11. Restrictive Covenants.
11.1 Need for Protection. Executive acknowledges that, because of her senior executive position with the Company, she has or will develop knowledge of the affairs of the Company and relationships with dealers, distributors and customers such that she could do serious damage to the financial welfare of the Company should she compete or assist others in competing with the business of the Company. Consequently, and in consideration of her employment with the Company, and for the benefits she is to receive under this Agreement, and for other good and valuable consideration, the receipt of which she hereby acknowledges, the Executive agrees as follows:
11.2 Confidential Information.
11.2.1 Non-disclosure. Except as the Company may permit or direct in writing, during the term of this Agreement and thereafter, Executive agrees that she will never disclose to any person or entity any confidential or proprietary information, knowledge or data of the Company which she may have obtained while in the employ of the Company, relating to any customers, customer lists, methods, distribution, sales, prices, profits, costs, contracts, inventories, suppliers, dealers, distributors, business prospects, business methods, manufacturing ideas, formulas, plans or techniques, research, trade secrets, or know-how of the Company.
11.2.2 Return of Records. All records, documents, software, computer disks and any other form of information relating to the business of the Company, which are or were prepared or created by Executive, or which may or did come into her possession during the term of her employment with the Company, including any and all copies thereof, shall be returned to or, as the case may be, shall remain in the possession of the Company.
11.2.3 Future Employment. Nothing in this section shall limit Executives right to carry the Executives accumulated career knowledge and professional skills to any future employment, subject to the specific limitations of the foregoing provisions of this Section and the respective covenants set forth below.
11.3 Covenant Not to Solicit.
The Executive agrees that she will not, during the period of her employment with the Company and for a period of two (2) years after she ceases to be employed by the Company for any reason:
(a) directly or indirectly, on behalf of herself or any other person or entity, engage in, or assist any other person or entity to engage in, the
manufacture, assembly, distribution, or sale to any customer, supplier, distributor or dealer of the Company wherever located, of motion picture and, lighting equipment within the markets served by the Company, or any other type of product manufactured, assembled, distributed or sold by the Company within served markets, if said customer, distributor or dealer is one with whom Executive had contact or on whose account Executive has worked during the twelve (12) months prior to the termination of her employment; or
(b) directly or indirectly, request or advise any of the aforesaid customers, distributors or dealers referred to in paragraph 11.3(a) above to curtail their business with the Company, or to patronize another business which is in competition with the Company; or
(c) directly or indirectly, on behalf of herself or any other person or entity, request, advise or solicit any employee of the Company to leave that employment in order to engage in, or to assist any other person or entity to engage in competition with the Company.
11.4 Judicial Modification. In the event that any court of law or equity shall consider or hold any aspect of this Section 11 to be unreasonable or otherwise unenforceable, the parties hereto agree that the aspect of this Section so found may be reduced or modified by appropriate order of the court and shall thereafter continue, as so modified, in full force and effect.
11.5 Injunctive Relief. The parties hereto acknowledge that the remedies at law for breach of this Section will be inadequate, and that Company shall be entitled to injunctive relief for violation thereof; provided, however, that nothing herein contained 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 Executive.
12. Inventions and Discoveries. The Executive hereby sells, transfers and assigns to the Company or to any person or entity designated by the Company, all of Executives right, title and interest in and to all inventions, ideas, disclosures and improvements, whether patented or unpatented, and copyrightable material made or conceived by the Executive, 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 Executive agrees to communicate promptly and to disclose to the Company in such form as the Executive 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 Executive 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.
13. Clawback. In addition to any compensation recovery (clawback) which may be required by law and regulation, Executive acknowledges and agrees that any compensation paid or awarded to Executive in connection with her employment with the Company shall be subject to the
Companys clawback requirements as set forth in the Companys Corporate Governance Principles and to any similar or successor provisions as may be in effect from time to time.
14. Tax Withholding. All payments made and benefits provided by the Company under this Agreement shall be reduced by any tax or other amounts required to be withheld by the Company under applicable law.
15. Survival of Obligations. All obligations of the Company and Executive that by their nature involve performance, in any particular, after the termination of Executives employment or the term of this Agreement, or that cannot be ascertained to have been fully performed until after the termination of Executives employment or the term of this Agreement, will survive the expiration or termination of the term of this Agreement.
16. Section 409A Compliance. The intent of the Company is that payments and benefits under this Agreement which are considered deferred compensation subject to Code Section 409A and the regulations and the guidance promulgated thereunder (collectively Code Section 409A) comply with Code Section 409A and be made and provided in compliance therewith. Accordingly:
(a) For purposes of the Agreement, the terms terminate, termination, termination of employment, and variations thereof, are intended to mean a termination of employment that constitutes a separation from service under Code Section 409A.
(b) If on the date of separation from service Executive is deemed to be a specified employee within the meaning of that term under Code Section 409A(a)(2)(B), then with regard to any payment or the provision of any benefit payable or provided because of such separation from service that constitutes deferred compensation subject to Code Section 409A, such payment or benefit shall be made or provided at the date which is the earlier of (A) the expiration of the six (6)-month period measured from the date of such separation from service, and (B) the date of such individuals death (the Delay Period). Upon the expiration of the Delay Period, all payments and benefits delayed pursuant to this paragraph (whether they would have otherwise been payable in a single sum or in installments in the absence of such delay) shall be paid or reimbursed to the Executive in a lump sum, and any remaining payments and benefits due shall be paid or provided in accordance with the normal payment dates specified for them herein.
(c) Notwithstanding anything to the contrary in this Agreement, all reimbursements and in-kind benefits provided under this Agreement shall be made or provided in accordance with the requirements of Section 409A of the Code, including, where applicable, the requirement that (A) any reimbursement is for expenses incurred during the Executives lifetime (or during a shorter period of time specified in this Agreement); (B) the amount of expenses eligible for reimbursement, or in-kind benefits provided, during a calendar year may not affect the expenses eligible for reimbursement, or in-kind benefits to be provided, in any other calendar year; (C) the reimbursement of an eligible expense will be made no later than the last day of the calendar year following the year in which the expense is incurred; and (D) the right to reimbursement or in-kind benefits is not subject to liquidation or exchange for another benefit.
(d) The Agreement may be amended in any respect deemed by the President or the Board or the Compensation Committee to be necessary in order to preserve compliance with Code Section 409A.
17. Officer Resignation. Upon termination of her employment with the Company for any reason, Executive shall resign, as of the date of such termination from any Corporate office held with the Company or any of its subsidiaries.
18. Miscellaneous. The following miscellaneous sections shall apply to this Agreement:
18.1 Modifications and Waivers. No provision of this Agreement may be modified, waived or discharged unless that modification, waiver or discharge is agreed to in writing by Executive and the President of the Company. No waiver by either party at any time of any breach by the other party of, or compliance with, any condition or provision of this Agreement to be performed by that other party, shall be deemed a waiver of similar or dissimilar provisions or conditions at the time, or at any prior or subsequent time.
18.2 Construction of Agreement. This Agreement supercedes any oral or written agreements between Executive and the Company and any oral representations by the Company to Executive with respect to the subject matter of this Agreement.
18.3 Governing Law. The validity, interpretation, construction and performance of this Agreement will be governed by the laws of the State of Nebraska.
18.4 Severability. If any one or more of the provisions of this Agreement, including but not limited to Section 11 hereof, or any word, phrase, clause, sentence or other portion of a provision is deemed illegal or unenforceable for any reason, that provision or portion will be modified or deleted in such a manner as to make this Agreement as modified legal and enforceable to the fullest extent permitted under applicable laws. The validity and enforceability of the remaining provisions or portions will remain in full force and effect.
18.5 Counterparts. This Agreement may be executed in two or more counterparts, each of which will take effect as an original and all of which will evidence one and the same agreement.
18.6 Successors and Assigns. This Agreement shall be binding upon, and shall inure to the benefit of the parties hereto and their respective heirs, beneficiaries, personal representatives, successors and assigns.
18.7 Notices. Any notice, request or other communication required to be given pursuant to the provisions of this Agreement shall be in writing and shall be deemed to have been given when delivered in person, on the next business day after being delivered to a nationally-recognized overnight courier service (for such next-day delivery) or five (5) days after being deposited in the United States mail, certified or registered, postage prepaid, return receipt requested and addressed to the other party at the respective addressees set forth below or to the other addresses of either party may have furnished to the other in
writing in accordance with this Section 18.7, provided that all notices to the Company will be directed to the attention of the President of the Company, and except that notice of change of address will be effective only upon receipt.
If to Company: |
Ballantyne Strong, Inc. |
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4350 McKinley Street |
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Omaha, NE 68142 |
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If to Executive: |
At the address for the Executive most recently |
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on file with the Company. |
18.8 Entire Agreement. This Agreement contains the entire agreement of the parties. All prior arrangements or understandings, whether written or oral, are merged herein. This Agreement 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.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date and year first above written.
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BALLANTYNE STRONG, INC. | |
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/s/ Gary Cavey |
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President |
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/s/ Mary Carstens | |
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MARY CARSTENS, Executive |
EXHIBIT A
BALLANTYNE STRONG, INC.
NON-QUALIFIED STOCK OPTION AGREEMENT
THIS NON-QUALIFIED STOCK OPTION AGREEMENT (Agreement), dated as of July 26, 2011 (Effective Date), is entered into between Ballantyne Strong, Inc., a Delaware corporation (the Company), and Mary Carstens (Executive).
WHEREAS, at its meeting on July 6, 2011, the Compensation Committee of the Companys Board of Directors (the Committee) approved material terms and conditions of Executives Employment as Chief Financial Officer of the Company, including the grant to Executive of nonqualified stock options to purchase shares of the Companys common stock, par value $.01 per share (the Common Stock), upon the terms and conditions set forth herein; and
WHEREAS, the Committee authorized the Chairman of the Committee to execute this Agreement on behalf of the Company, in accordance with the resolutions adopted by the Committee at its meeting as referenced above.
NOW, THEREFORE, in consideration of the services rendered and to be rendered by Executive and the mutual promises made herein and the mutual benefits to be derived there from, the Company and Executive agree as follows:
1. Grant of Options. The Company hereby grants to Executive the right and option to purchase, on the terms and conditions set forth herein, to the extent exercisable, all or any part of an aggregate of 2,200 shares of Common Stock at a price (Grant Price) of $4.07 per share of Common Stock (which is the closing market price on the American Stock Exchange of a share of Common Stock on the date hereof), subject to the provisions of this Agreement (the Option).
2. Exercisability of Option. Subject to Sections 5 and 6 below, the Option shall vest and become exercisable (subject to adjustment as provided in Section 7), on the first anniversary of the Effective Date. The Option may be exercised only to the extent it shall have vested and is exercisable, and, during Executives lifetime, only by Executive. In no event may the Executive exercise the Option, in whole or in part, after July 26, 2021 (the Expiration Date).
(a) Cumulative Exercisability. To the extent Executive does not, at the time of a particular exercise, purchase all the shares of Common Stock that Executive may then purchase, Executive has the right cumulatively thereafter to purchase any of such shares of Common Stock not so purchased until the Expiration Date or, if applicable, the earlier termination of the Option.
(b) No Fractional Shares; Minimum Exercise. Fractional share interests shall be disregarded, but may be cumulated. No fewer than 100 shares of Common Stock may be purchased at any one time, unless the number purchased is the total number at the time exercisable under the Option.
3. Exercise of Option. To the extent vested and exercisable, the Option may be exercised by the delivery to the Company of a written exercise notice stating the number of shares
of Common Stock to be purchased pursuant to the Option accompanied by payment of the Grant Price multiplied by the aggregate number of shares of Common Stock to be purchased (such payment to be made in accordance with Section 4) and the payment or provision for any applicable employment or other taxes or withholding for taxes thereon. Subject to Section 5 below, such Option shall be deemed to be exercised upon receipt and approval by the Company of such written exercise notice accompanied by the aggregate Grant Price and any other payments so required, as permitted pursuant to Section 4.
4. Method of Payment of Option. Payment of the aggregate Grant Price shall be payable to the Company in full in cash or its equivalent or in the sole discretion of the Committee, either:
(a) by tendering (either by actual delivery or attestation) previously acquired Shares having an aggregate Fair Market Value at the time of the exercise equal to the Exercise Price prior to their tender to satisfy the Exercise Price if acquired under this Plan or any other compensation plan maintained by the Company or have been purchased on the open market;
(b) by a cashless exercise (broker-assisted exercise) through a same-day sale commitment;
(c) by a combination of (a) and (b); or
(d) by any other method approved or accepted by the Committee.
5. Effect of Termination of Employment on Exercise Period. If Executives employment by the Company terminates, the following provisions shall apply with respect to vesting and exercise of the Option after the date of such termination (the Termination Date), except that in no event may any portion of the Option be exercised after the Expiration Date:
(a) If Executives employment terminates as a result of Executives death or incapacity (as defined in Section 9.1 of the Executives Employment Agreement), all unvested Options shall cease to vest as of the Termination Date and Executive (or Executives Personal Representative or Beneficiary, as the case may be) may exercise the Option within six (6) months of the Termination Date.
(b) If the Company terminates Executives employment without cause (under the terms of Executives Employment Agreement) or Executives employment terminates due to Executives resignation for good reason (under the terms of Executives Employment Agreement) all unvested Options shall vest as of the Termination Date and Executive may exercise the unexercised Options, in whole or in part, at any time within six (6) months of the Termination Date.
(c) If the Company terminates Executives employment for cause (as defined in the Employment Agreement) or Executive resigns other than for good reason under her Employment Agreement, any unvested portion of the Option shall cease to vest and be forfeited and Executive may exercise any vested, unexercised portion of the Option at any time within thirty (30) days of the Termination Date.
(d) If, at any time after the Termination Date and during the applicable period specified in Section 11 (Restrictive Covenants) of Executives Employment Agreement, Executive shall have breached any of the covenants set forth in such Section 11, any unexercised portion of the Option shall terminate as of the date of any such breach.
6. Effect of Change in Control on Vesting.
(a) In the event of a Change in Control (as defined below), all unvested Options shall vest and become exercisable as of the date of the Change in Control, and remain exercisable subject to the provisions of Section 5 above.
(b) For purposes of this Agreement, Change in Control means:
(i) the acquisition, whether directly or indirectly, of at least fifty percent (50%) of the voting power of the Company, by any individual, entity or group (within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended from time to time) other than employee benefit plan (or related trust) sponsored or maintained by the Company or any of its affiliates;
(ii) individuals who as of the Effective Date constitute the Board and subsequently elected members of the Board whose election is approved or recommended by at least a majority of such current members or their successors whose election was so approved or recommended, cease for any reason to constitute at least a majority of such Board.
(iii) Consummation of (A) a merger, reorganization or consolidation with respect to which the individuals and entities who were the respective beneficial owners of the Common Stock and voting securities of the Company immediately before such merger, reorganization or consolidation do not, after such merger, reorganization or consolidation, beneficially own, directly or indirectly, more than fifty percent (50%) of, respectively, the then outstanding common shares and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors of the corporation resulting from such merger, reorganization or consolidation, or (B) the sale or other disposition of all or substantially all of the assets of the Company; or
(iv) The Company s shareholders approve a plan of liquidation or dissolution of the Company.
7. Adjustments Upon Specified Events. In the event that the Committee, in its sole discretion, determines that any dividend or other distribution (whether in the form of cash, stock, or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, spin-off, combination, repurchase, or share exchange, or other similar corporate transaction or event, affects the Common Stock such that an adjustment is appropriate in order to preserve (but not increase) the rights of Executive, the Committee shall, in such manner, to such extent (if any) and at such times as it deems appropriate and equitable in the circumstances, make adjustments in the number, amount and type of shares of Common Stock (or other securities or property) subject to the Option and the Grant Price.
8. Leaves of Absence. Absence from work caused by authorized sick leave or other leave approved in writing by the Company or the Committee shall not be considered a termination of employment by the Company for purposes of Section 5, unless otherwise determined by the Committee.
9. Section 409A of the Code. Notwithstanding anything herein to the contrary, (i) if, at the time of Executives termination of employment with the Company, Executive is a specified employee as defined in Section 409A of the Code, and the deferral of the commencement of any payments or benefits otherwise payable hereunder as a result of such termination of employment is necessary in order to prevent the imposition of any accelerated or additional tax under Section 409A of the Code, then the Company will defer the commencement of the payment of any such payments or other consideration hereunder (without any reduction in such payments or other consideration ultimately paid or provided to Executive) until the date that is six months following Executives termination of employment with the Company (or the earliest date as is permitted under Section 409A of the Code) and (ii) if any other payments of money or other consideration due to Executive hereunder would cause the application of an accelerated or additional tax under Section 409A of the Code, such payments or other consideration shall be deferred if deferral will make such payment or other consideration compliant under Section 409A of the Code, or otherwise such payment or other consideration shall be restructured, to the extent possible, in a manner, determined by the Committee or the Board, that does not cause such an accelerated or additional tax or result in additional cost to the Company. The Company shall consult with its legal counsel and tax accountants in good faith regarding the implementation of the provisions of this Section 9, which shall be done only in a manner that is reasonably acceptable to Executive; provided, however, that neither the Company, any subsidiary or other affiliate of the Company, nor any of their employees or representatives shall have any liability to the Executive with respect thereto.
10. Associated Stock Rights. Neither Executive nor any other person entitled to exercise the Option shall have any of the rights or privileges of a stockholder of the Company as to any shares of Common Stock subject to the Option until the issuance and delivery to her or such other person of a certificate (or book entry in lieu thereof) evidencing the shares of Common Stock registered in his or such other persons name. No adjustment will be made for dividends or other rights as a stockholder as to which the record date is prior to such date of delivery, except as otherwise provided in Section 7.
11. No Guarantee of Continued Service. Nothing contained in this Agreement constitutes an employment or service commitment by the Company, confers upon Executive any right to remain employed by the Company, interferes in any way with the right of the Company at any time to terminate such employment or affects the right of the Company to increase or decrease Executives other compensation or benefits. Nothing in this Section 11, however, is intended to adversely affect any independent contractual right of Executive under the Employment Agreement (or any other agreement between the Company and Executive) without her consent thereto.
12. Non-Transferability of Option. The Option and any other rights of Executive under this Agreement are nontransferable by the Executive other than by will or under the laws of descent and distribution. Any attempted assignment of the Option in violation of this Section shall
be null and void. In the discretion of the Committee, any attempt to transfer the Option other than under the terms of this Agreement, may terminate the Option.
13. Clawback Policy. Executive acknowledges receipt of a copy of the Ballantyne Strong, Inc.s Corporate Governance Principles adopted by the Board which include a clawback policy (Clawback Policy). Executive agrees that the Option shall be subject to all of the terms and conditions set forth in the Clawback Policy, including future amendments thereto, if any, which Clawback Policy is hereby incorporated by reference as part of this Agreement.
14. Notices. Any notice to be given under the terms of this Agreement shall be in writing and addressed: to the Company at 4350 McKinley Street, Omaha, NE 68142, to the attention of the Secretary; and to Executive at the most recent address on file with the Company, or at such other address as either party may hereafter designate in writing to the other.
15. Effect of Agreement. This Agreement shall be binding upon and inure to the benefit of any successor or successors of the Company, except to the extent the Committee determines otherwise.
16. Entire Agreement; Governing Law. This Agreement constitutes the entire agreement of the parties with respect to the subject matter hereof and supersedes in their entirety all prior undertakings and agreements of the Company and Executive with respect to the subject matter hereof. The construction, interpretation, performance and enforcement of this Agreement and the Option shall be governed by the internal substantive laws, but not the choice of law rules, of the State of Nebraska.
17. Amendment. The Committee may, at any time, and from time to time, alter, amend, modify, suspend or terminate this Agreement, in whole or in part, with Executives agreement.
18. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument.
19. Section Headings. The Section headings of this Agreement are for convenience of reference only and shall not be deemed to alter or affect any provision hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as President of the Company the date and year first written above.
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BALLANTYNE STRONG, INC. | |
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/s/ Gary Cavey |
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President |
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EXECUTIVE | |
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/s/ Mary Carstens |
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Mary Carstens |
Exhibit 31.1
CERTIFICATION
I, Gary L. Cavey, certify that:
1. I have reviewed this quarterly report on Form 10-Q for the quarter ended September 30, 2011 of Ballantyne Strong, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of registrants board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
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/s/ GARY L. CAVEY |
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Gary L. Cavey |
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President, Chief Executive Officer |
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November 9, 2011 |
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Exhibit 31.2
CERTIFICATION
I, Mary A. Carstens, certify that:
1. I have reviewed this quarterly report on Form 10-Q for the quarter ended September 30, 2011 of Ballantyne Strong, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of registrants board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
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By: |
/s/ MARY A. CARSTENS |
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Mary A. Carstens |
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Chief Financial Officer |
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November 9, 2011 |
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Exhibit 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
Pursuant to 18 U.S.C. Section 1350, as adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
The undersigned, Gary L. Cavey, Chief Executive Officer of Ballantyne Strong, Inc. (the Company), has executed this certification in connection with the filing with the Securities and Exchange Commission of the Companys Quarterly Report on Form 10-Q for the three months ended September 30, 2011 (the Report).
The undersigned hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to his knowledge that:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
IN WITNESS WHEREOF, the undersigned has executed this certification as of the 9th day of November, 2011.
/s/ GARY L. CAVEY |
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Gary L. Cavey |
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Chief Executive Officer |
|
A signed original of this written statement required by Section 906 has been provided to Ballantyne Strong, Inc. and will be retained by Ballantyne Strong, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 32.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
Pursuant to 18 U.S.C. Section 1350, as adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
The undersigned, Mary A. Carstens, Chief Financial Officer of Ballantyne Strong, Inc. (the Company), has executed this certification in connection with the filing with the Securities and Exchange Commission of the Companys Quarterly Report on Form 10-Q for the three months ended September 30, 2011 (the Report).
The undersigned hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to his knowledge that:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
IN WITNESS WHEREOF, the undersigned has executed this certification as of the 9th day of November, 2011.
/s/ MARY A. CARSTENS |
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Mary A. Carstens |
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Chief Financial Officer |
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A signed original of this written statement required by Section 906 has been provided to Ballantyne Strong, Inc. and will be retained by Ballantyne Strong, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
Condensed Consolidated Statements of Operations (USD $) In Thousands, except Per Share data | 3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2011 | Sep. 30, 2010 | Sep. 30, 2011 | Sep. 30, 2010 | |
Net revenues | $ 63,437 | $ 32,930 | $ 132,906 | $ 91,016 |
Cost of revenues | 53,387 | 26,461 | 110,019 | 74,281 |
Gross profit | 10,050 | 6,469 | 22,887 | 16,735 |
Selling and administrative expenses: | ||||
Selling | 933 | 726 | 2,924 | 2,280 |
Administrative | 2,543 | 2,215 | 7,473 | 6,353 |
Total selling and administrative expenses | 3,476 | 2,941 | 10,397 | 8,633 |
Gain on the sale/disposal/transfer of assets | 13 | 7 | 36 | 178 |
Income from operations | 6,587 | 3,535 | 12,526 | 8,280 |
Net interest expense | (12) | (8) | (38) | (10) |
Equity in income (loss) of joint venture | 207 | (24) | (121) | 802 |
Other income (expense), net | 127 | (79) | 48 | (106) |
Income before income taxes | 6,909 | 3,424 | 12,415 | 8,966 |
Income tax expense | (2,170) | (1,103) | (3,683) | (2,868) |
Net earnings | $ 4,739 | $ 2,321 | $ 8,732 | $ 6,098 |
Basic earnings per share (in dollars per share) | $ 0.33 | $ 0.16 | $ 0.61 | $ 0.43 |
Diluted earnings per share (in dollars per share) | $ 0.33 | $ 0.16 | $ 0.60 | $ 0.42 |
Weighted average shares outstanding: | ||||
Basic (in shares) | 14,462 | 14,200 | 14,404 | 14,140 |
Diluted (in shares) | 14,488 | 14,418 | 14,483 | 14,363 |
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Income Taxes | 9 Months Ended | |
---|---|---|
Sep. 30, 2011 | ||
Income Taxes | ||
Income Taxes |
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Deferred Revenue | 9 Months Ended | |
---|---|---|
Sep. 30, 2011 | ||
Deferred Revenue | ||
Deferred Revenue |
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Comprehensive Income | 9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Comprehensive Income |
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Related Party Transactions | 9 Months Ended | |
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Sep. 30, 2011 | ||
Related Party Transactions | ||
Related Party Transactions |
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Business Segment Information | 9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2011 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Business Segment Information | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Business Segment Information |
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Foreign Exchange Contracts | 9 Months Ended | |
---|---|---|
Sep. 30, 2011 | ||
Foreign Exchange Contracts | ||
Foreign Exchange Contracts |
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Stock Compensation | 9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2011 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock Compensation | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock Compensation |
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Summary of Significant Accounting Policies | 9 Months Ended | |
---|---|---|
Sep. 30, 2011 | ||
Summary of Significant Accounting Policies | ||
Summary of Significant Accounting Policies |
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Warranty Reserves | 9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Warranty Reserves | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Warranty Reserves |
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Digital Link II Joint Venture | 9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Digital Link II Joint Venture | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Digital Link II Joint Venture |
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Commitments, Contingencies and Concentrations | 9 Months Ended | |
---|---|---|
Sep. 30, 2011 | ||
Commitments, Contingencies and Concentrations | ||
Commitments, Contingencies and Concentrations |
|
Fair Value of Financial Instruments | 9 Months Ended | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2011 | ||||||||||||
Fair Value of Financial Instruments | ||||||||||||
Fair Value of Financial Instruments |
|
Nature of Operations | 9 Months Ended | |
---|---|---|
Sep. 30, 2011 | ||
Nature of Operations | ||
Nature of Operations |
|
Earnings Per Common Share | 9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2011 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Earnings Per Common Share | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Earnings Per Common Share |
|
Note Receivable | 9 Months Ended | |
---|---|---|
Sep. 30, 2011 | ||
Note Receivable | ||
Note Receivable |
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Document and Entity Information | 9 Months Ended | |
---|---|---|
Sep. 30, 2011 | Nov. 04, 2011 | |
Document and Entity Information | ||
Entity Registrant Name | BALLANTYNE STRONG, INC. | |
Entity Central Index Key | 0000946454 | |
Document Type | 10-Q | |
Document Period End Date | Sep. 30, 2011 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --12-31 | |
Entity Current Reporting Status | Yes | |
Entity Filer Category | Accelerated Filer | |
Entity Common Stock, Shares Outstanding | 14,511,840 | |
Document Fiscal Year Focus | 2011 | |
Document Fiscal Period Focus | Q3 |
Condensed Consolidated Balance Sheets (Parenthetical) (USD $) In Thousands, except Per Share data | Sep. 30, 2011 | Dec. 31, 2010 |
---|---|---|
Condensed Consolidated Balance Sheets | ||
Accounts receivable, allowance for doubtful accounts (in dollars) | $ 198 | $ 306 |
Property, plant and equipment, accumulated depreciation (in dollars) | $ 10,041 | $ 9,426 |
Preferred stock, par value (in dollars per share) | $ 0.01 | $ 0.01 |
Preferred stock, Authorized shares | 1,000 | 1,000 |
Preferred stock, outstanding shares | 0 | 0 |
Common stock, par value (in dollars per share) | $ 0.01 | $ 0.01 |
Common stock, Authorized shares | 25,000 | 25,000 |
Common stock, issued shares | 16,659 | 16,453 |
Common shares in treasury, shares | 2,155 | 2,140 |