UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark One)

For the quarterly period ended September 30, 2013June30, 2014

OR

For the transition period from                     to                   

Commission File Number: 1-13906

BALLANTYNE STRONG, INC.

(Exact Name of Registrant as Specified in Its Charter)

(402) 453-4444

(Registrant’s 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 ☒  No ☐

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 ☒  No ☐

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):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐  No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date:

TABLE OF CONTENTS

PART I.  Financial Information

Item 1.  Condensed Consolidated Financial Statements

Ballantyne Strong, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(In thousands)

See accompanying notes to condensed consolidated financial statements.

 Ballantyne Strong, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

Three and NineSix Months Ended SeptemberJune 30, 20132014 and 20122013

(In thousands, except per share data)

(Unaudited)

See accompanying notes to condensed consolidated financial statements. 

Ballantyne Strong, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income

Three and Nine Months Ended September 30, 2013 and 2012

(In thousands)

(Unaudited)

See accompanying notes to condensed consolidated financial statements.

Ballantyne Strong, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

Nine Months Ended September 30, 2013 and 2012

(In thousands)

(Unaudited)

See accompanying notes to condensed consolidated financial statements.

Ballantyne Strong, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income

Three andSix Months EndedJune 30, 2014 and 2013

(In thousands)

(Unaudited)

See accompanying notes to condensed consolidated financial statements.

Ballantyne Strong, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

Six Months EndedJune 30, 2014 and2013

(In thousands)

(Unaudited)

See accompanying notes to condensed consolidated financial statements.

Ballantyne Strong,Inc. and Subsidiaries

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

1.Nature of Operations

Ballantyne Strong, Inc. (“Ballantyne” or the “Company”), a Delaware corporation, and its wholly owned subsidiaries Strong Westrex, Inc., Strong Technical Services, Inc., Strong/MDI Screen Systems, Inc., Peintures Elite, Inc. (“Peintures”), and Strong Westrex (Beijing) Trading Inc., manufacture, distribute, integrateConvergent Corporation and service theatreConvergent Media Systems Corporation (“CMS”) designs, integrates, and installs technology solutions for a broad range of applications; develops and delivers out-of-home messaging, advertising and communications; manufactures projection screens and lighting systems on a worldwide basis.products; and provides managed services including monitoring of networked equipment to our customers. As of January 1, 2014 the legal entity Peintures Elite, Inc. was dissolved and consolidated into Strong/MDI Screen Systems, Inc.

The Company’s products are distributed to movie exhibition companies, sports arenas, auditoriums, amusement parksthe retail, financial, government and special venues.cinema markets throughout the world.

2. Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

The condensed consolidated financial statements include the accounts of the Company and all majority owned and controlled domestic and foreign subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

The condensed consolidated financial statements included in this report are presented in accordance with the requirements of Form 10-Q and consequently do not include all of the disclosures normally required by accounting principles generally accepted in the United States of America for annual reporting purposes or those made in the Company’s Annual Report on Form 10-K.  These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year-ended December 31, 2012.2013.

The condensed consolidated balance sheet as of December 31, 20122013 was derived from the Company’s audited consolidated balance sheet as of that date. All other condensed consolidated financial statements contained herein are unaudited and, in the opinion of management, reflect all adjustments of a normal recurring nature necessary to present a fair statement of the financial position and the results of operations and cash flows for the respective interim periods.  The results for interim periods are not necessarily indicative of trends or results expected for a full year.

Acquisitions

On September 13, 2013, the Company acquired Peintures Elite, Inc., a manufacturer of paint and lacquer products and the primary provider of paint used in the Company’s screen manufacturing. On October 1, 2013, the Company acquired CMS to provide digital technologies for out-of-home messaging, advertising and communication (the DOOH market) and Enterprise Video Solutions (“EVS”), which provides enterprises with the infrastructure necessary for communications, collaboration, training and education of employees.

The condensed consolidated financial statements as of December 31, 2013, June 30, 2014 and for the three and six month periods ended June 30, 2014, include amounts acquired from, as well as the results of operations of Peintures and CMS. Peintures is included in the systems integration segment and CMS is included in the managed services segment.

Reclassifications

Certain prior year amounts presented in the condensed consolidated financial statements and notes thereto have been reclassified to conform to the current year presentation. These reclassifications did not impact the Company’s net income (loss) for 2014 or 2013.

Use of Management Estimates

The preparation of condensed consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results and changes in facts and circumstances may alter such estimates and affect results of operations and financial position in future periods.

Fair Value of Financial and Derivative Instruments

The categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Financial assets and liabilities carried at fair value will be classified and disclosed in one of the following three categories:

The following table presents the Company’s financial assets and liabilities measured at fair value based upon the level within the fair value hierarchy in which the fair value measurements fall, as of September 30, 2013:fall.

Fair Values Measured on a Recurring Basis:Basis at June 30, 2014:

Fair Values Measured on a Recurring Basis at December 31, 2013:

The notes receivable accrueaccrues interest at a rate of 15% per annum which is paid in accordance with an agreed-upon cash flow schedule.

Quantitative information about the Company’s level 3 fair value measurements at SeptemberJune 30, 20132014 is set forth below:

The significant unobservable inputs used in the fair value measurement of the Company’s notesnote receivable are prepayment rates, probability of default and loss severity in the event of default. Significant increases (decreases) in any of these inputs in isolation would result in a significantly lower (higher) fair value measurement. Generally, a change in the assumption used for the probability of default is accompanied by a directionally similar change in the assumption used for the loss severity and directionally opposite change in the assumption used for prepayment rates.

The following table reconciles the beginning and ending balance of the Company’s NotesNote Receivable fair value:

The following table presents the Company’s financial assets and liabilities measured at fair value based upon the level within the fair value hierarchy in which the fair value measurements fall, as of December 31, 2012:

The carrying values of all other financial assets and liabilities including accounts receivable, accounts payable and accrued expenses reported in the consolidated balance sheets equal or approximate their fair values due to the short-term nature of these instruments. All non-financial assets that are not recognized or disclosed at fair value in the financial statements on a recurring basis, which includes non-financial long-lived assets, are measured at fair value in certain circumstances (for example, when there is evidence of impairment).  During the ninesix months ended SeptemberJune 30, 20132014 we did not have any significant non-recurring measurements of non-financial assets or liabilities.

Recently Issued Accounting Pronouncements

There are no recentlyIn May 2014, the FASB issued accounting pronouncementsAccounting Standards Update No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”).  ASU 2014-09 requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The guidance is effective for the Company believes will materiallybeginning January 1, 2017 and may be adopted using a full retrospective or a modified cumulative effect approach. Early adoption is not permitted. The Company is currently evaluating the potential impact of adopting this guidance and has not yet selected a transition method nor has it determined the effect of the standard on its consolidatedongoing financial statements.reporting.

3. Acquisitions

On September 13, 2013, the Company acquired Peintures Elite, Inc. for $1.7 million in cash. Elite is a manufacturer of paint and lacquer products and has been the primary provider of paint for our screen manufacturing business. Approximately $1.2 million of the purchase price was allocated to goodwill and $0.6 million was allocated to amortizable other intangibles. This business is included within the Theatre segment. The amounts allocated to goodwill were primarily attributable to anticipated synergies and other intangibles that do not qualify for separate recognition. The fair value of the assets and liabilities related to the acquisition are subject to refinement as the Company completes our analyses of the fair values at the acquisition date. The pro forma effect of the acquisition was not material.

The Company paid a deposit of $17.4 million for the acquisition of Convergent Media Systems, Inc. (“CMS”), which closed on October 1, 2013, subsequent to the end of our third quarter of fiscal 2013. CMS was acquired from Sony Corporation for approximately $17.4 million in cash, which was the purchase price of $16.0 million adjusted for cash on hand in Canada and working capital variance based upon CMS’s targeted working capital. CMS provides digital technologies for out-of-home messaging, advertising and communication (the Digital Out-of-Home or DOOH market) and Enterprise Video Solutions (EVS), which provides enterprises with the infrastructure necessary for communication, collaboration, training and education of employees. CMS operates from its offices in the United States and Canada and has customers in North America. Due to the timing of the acquisition, the Company has not yet completed its purchase allocation and analysis. Therefore, it is impracticable to provide proforma information or further information related to the assets and liabilities acquired at this time. In addition, the Company expects to incur costs attributable to integration and reorganization actions associated with this acquisition in the fourth quarter.

4. Earnings (Loss) Per Common Share

Basic earnings (loss) per share have been computed on the basis of the weighted average number of shares of common stock outstanding. Diluted earnings (loss) per share has been computed on the basis of the weighted average number of shares of common stock outstanding after giving effect to potential common shares from dilutive stock options and certain non-vested shares of restricted stock. The following table provides the reconciliation between basic and diluted earnings (loss) per share:

For the three and ninesix month periods ended SeptemberJune 30, 2013, grants and2014, options to purchase 291,000 and 293,200211,500 shares of common stock were outstanding but were not included in the computation of diluted earnings per share as the option’s exercise price was greater than the average market price of the common shares for the respective periods.  An additional 64,553 options were excluded from the six month period ended June 30, 2014 as their inclusion would be anti-dilutive, thereby decreasing the net loss per share. For the three and ninesix month periods ended SeptemberJune 30, 2012,2013, options to purchase 50,000253,500 and 255,700 shares of common stock were outstanding but were not included in the computation of diluted earnings (loss) per share as the option’s exercise price was greater than the average market price of the common shares for the respective periods. An additional 79,000 options were excluded from the three month period ended September 30, 2012 as their inclusion would be anti-dilutive, thereby decreasing the net loss per share. 

5.4. Warranty Reserves

The     Historically, the Company has generally granted a warranty to its customers for a one-year period following the sale of manufactured film projection equipment and distributed products.on selected repaired equipment for a one-year period. In most instances, the distributeddigital products are covered by the manufacturing firm’s OEM warranty on parts and we cover warranty labor cost when required. However,warranty; however, there are certain customers where the Company may grant warranties in excess of the manufacturer’s warranty for distributeddigital products. The Company accrues for these costs at the time of sale or repair. The following table summarizes warranty activity for the three and ninesix months ended SeptemberJune 30 20132014 and 2012:2013:

6.5. 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.  

The Company accounts for its investment by the equity method. Under this method, the Company recorded its proportionate share of LLC net income or loss based on the LLC’s financial statements as of September 20,June 30, 2014 and June 21, 2013, and September 21, 2012, respectively.  The LLC uses four 13-week periods for a total of 52 weeks to align its fiscal year-end with that of its majority interest holder, RealD.  The Company’s portion of gain (loss)income of the LLC was immaterial$0 and ($0.1)$0.1 million for the three and ninesix months ended SeptemberJune 30, 2013.2014.  The Company’s portion of income (loss) of the LLC was ($0.1)0.01) million and immaterial gain($0.1) million for the three and ninesix months ended SeptemberJune 30, 2012,2013, respectively.

In the past, the Company sold digital theatre projection equipment, in the normal course of business, to the LLC.  The LLC in turn provides and sells the digital projection equipment to third party customers under system use agreements or through sales agreements. Revenue recognized by the Company on the sale transaction to the LLC is limited by its 44.4% ownership in the joint venture which will be recognized upon sale of the equipment to the third parties. There were no sales to the LLC during the three and ninesix months ended SeptemberJune 30, 2013.  The Company recognized $02014 and $0.2 million of gross margin during the three and nine months ended September 30, 2012, respectively, related to the LLC’s sale of equipment to third parties.2013.  The total receivable balance due from the LLC was insignificant at SeptemberJune 30, 20132014 and December 31, 2012.2013.
     

During the first quarter of 2012 the Company received a $1.5 million distribution from the LLC. During the third quarter of 2012 the Company received a $1.0 million distribution from the LLC.     The Company received no distributions from the LLC in the ninesix months ended SeptemberJune 30, 2014 or June 30, 2013.

6. Intangible Assets

Intangible assets consisted of the following at June 30, 2014:

Intangible assets consisted of the following at December 31, 2013:

The Company recorded amortization expense relating to other identifiable intangible assets of $0.1 million and $0.02 million for the six months ended June 30, 2014 and 2013, respectively.

The following table shows the Company’s estimated future amortization expense related to intangible assets for the next five years.

7. Corporate-wide strategic initiativeGoodwill

The following represents a summary of changes in the Company’s carrying amount of goodwill for the quarter ended June 30, 2014:

8.Restructuring Activities

In connection with the integration of the 2013 CMS acquisition, as well as the Company’s ongoing plans to improve efficiency and effectiveness of its operations, the Company initiated plans in the fourth quarter of 2011,2013 to reduce headcount and move the Board of Directors and managementCompany’s warehouse from Omaha, Nebraska to Georgia. The Company recorded $1.4 million in severance costs it expects to incur in relation to the integration. Additionally, $0.06 million in costs were recorded for site closure of the Company approved a corporate-wide strategic initiative to refocus its worldwide digital equipment distribution business, services platform and cinema screen manufacturing business and exit the analog projector manufacturing business.Omaha warehouse. The strategic initiative consisted of selling the Company’s Omaha, Nebraska-based analog projector facility and manufacturing equipment and relocating its corporate headquarters to a new, smaller location in Omaha, which also houses its Network Operations Center. Total life to date severance charges for the strategic initiative begun in 2011 are approximately $1.4 million. The strategicrestructuring initiative is expected to be completed by the endfirst quarter of 2013.2015.

The following table reconciles the beginning and ending restructuring balance for the ninesix months ended SeptemberJune 30, 2013,2014, which areis included in accrued expenses:

8.9. Debt

The Company is a party to a $20 million Revolving Credit Agreement and Note (collectively, the “Credit Agreement”) with Wells Fargo Bank, N.A. (“Wells Fargo”). The Company may request an increase in the Credit Agreement of up to an additional $5 million; however, any advances on the additional $5 million are subject to approval of Wells Fargo. The borrowings from the Credit Agreement are to be used for working capital purposes and for other general corporate purposes. The Company’s accounts receivable, general intangibles and inventory secure the Credit Agreement.

The Credit Agreement contains certain covenants, including those relating to our financial condition. The primary financial condition covenants pertain to maintaining a ratio of total liabilities to tangible net worth of less than 2 to 1, working capital of $20 million and beginning December 31, 2014 net income before taxes of $1 on a rolling 4-quarter basis, as defined in the Credit Agreement. Other covenants pertain to items such as certain limits on incurring additional debt or lease obligations, certain limits on issuing guarantees and certain limits on loans, advances and investments with third parties. Upon the occurrence of any event of default specified in the Credit Agreement, including a change in control of the Company (as defined in the Credit Agreement), all amounts due there under may be declared to be immediately due and payable.

The Credit Agreement expires June 30, 2015 at which time all unpaid principal and interest is due. Since inception of the agreement, no amounts have been borrowed on the Credit Agreement. At June 30, 2014, the Company had availability of $20 million.

10. Income Taxes

The effective tax rate (calculated as a ratio of income tax expenseexpense/benefit to pretax earnings, inclusive of equity method investment losses) was approximately 47.8%518.7% and 21.0%74.5% for the three and ninesix months ended SeptemberJune 30, 2013,2014, respectively as compared to 0.1% and 33.7%20.0% for the three and ninesix months ended SeptemberJune 30, 2012,2013, respectively. The effective tax rate differs from the statutory rates primarily as a result of differing foreign and U.S. tax rates applied to respective pre-tax earnings by tax jurisdiction. The Company’s estimated annual effective rate was higher in the three and six months ended SeptemberJune 30, 20132014 compared to the comparable periodperiods of 20122013 due to the generated tax benefits from U.S. operating losses at significantly higher proportion of earnings beforerates more than offsetting the tax being within our US operations, which has a higher tax rate. The Company’s estimated annual effective rate was lower in the nine months ended September 30, 2013 comparedexpense related to the comparable period of 2012 due to higher proportion of earnings before tax being within our Canadian operations, Strong/MDI Screen Systems, Inc., which has a lower tax rate. In addition the effective tax rate for the three months and nine months ended September 30, 2013 were impacted as the Company also recorded $0.03 million of additional tax expense due to return to provision adjustments related to filing the 2012 tax returns.

The Company’s uncertain tax positions are related to tax years that remain subject to examination by the relevant taxable authorities. The Company has examinations not yet initiated for Federal purposes for fiscal years 20052009 through 2010 and 2012. In most cases, the Company has examinations open for State or local jurisdictions based on the particular jurisdiction’s statute of limitations. The Company does not currently have any state or local examinations in process. As of SeptemberJune 30, 2013,2014, total unrecognized tax benefits amounted to approximately $0.2$0.03 million.

9.11. Stock Compensation

The Company recognizes compensation expense for all share-based payment awards made to employees and directors based on their estimated fair values.  Share-based compensation expense included in selling and administrative expenses approximated the following$0.1 million and $0.2 million for thethree and ninesix months ended SeptemberJune 30, 2014 and 2013, and 2012 (in thousands):respectively.

Long-Term Incentive Plan

The Company’s 2010 Long-Term Incentive Plan (“2010 Plan”) provides the Compensation Committee of the Board of Directors with the discretion to grant stock options, stock appreciation rights, restricted shares, restricted stock units, performance shares, or performance units.  Vesting terms vary with each grant and may be subject to vesting upon a “change in control” of the Company. The totalOn May 14, 2014, the Company’s stockholders approved an amendment to the 2010 Plan to increase the number of shares reservedof common stock that are available for issuance under the 2010 Plan wasfrom 600,000 to 1,600,000 shares. During the nine months ended September 30, 2013, the Company awarded 22,500 options and 9,000 restricted stock shares under the 2010 Plan.

Options

As noted above, under the 2010 Plan, the Company granted options to purchase 22,500 shares of the Company’s common stock during the nine months ended September 30, 2013.  Options to purchase shares of common stock were granted with exercise prices equal to the fair value of the common stock on the date of grant and vest over a four-year period.  The fair value of stock options granted was estimated using a Black-Scholes valuation model with the following assumptions:

The risk-free interest rate assumptions were based on the U.S. Treasury yield curve in effect at the time of the grant.  The expected volatility was based on historical monthly price changes of the Company’s stock based on the expected life of the options at the date of grant.  The expected life of options is the average number of years the Company estimates that options will be outstanding.  The Company considers groups of associates that have similar historical exercise behavior separately for valuation purposes.

The following table summarizes the Company’s activities with respect to its stock options for the ninesix months ended SeptemberJune 30, 20132014 as follows: 

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 and sold on SeptemberJune 30, 2013.2014.

As of June 30, 2014, the total unrecognized compensation cost related to stock option awards was approximately $0.2 million which is expected to be recognized over a weighted average period of 1.5 years.

The following table summarizes information about stock options outstanding and exercisable at SeptemberJune 30, 2013:2014:

Restricted Stock Plans

The Company’s 2005 Restricted Stock Plan (the “2005 Plan”) provides for the grant of restricted stock awards.  A total of 250,000 shares were reserved for issuance under the 2005 Plan.  These shares are subject to such restrictions on transferability and other restrictions, if any, as the Compensation Committee may impose. During the nine months ended September 30, 2013, the Company awarded 41,000 restricted shares under the 2005 Plan, which vest annually over a three year period.

The Ballantyne Strong, Inc. 2014 Non-Employee Directors’ Restricted Stock Plan (the “Non-Employee Plan”) provides for the award of restricted shares to outside directors. A total of 250,000200,000 shares are reserved for issuance under the Non-Employee Plan. During the ninesix months ended SeptemberJune 30, 2013,2014, the Company granted 37,50041,760 restricted shares under the Non-Employee Plan to the Board of Directors. These shares will vest the day preceding the Company’s 20142015 Annual Meeting of Stockholders.

In connection with the restricted stock granted to certain employees and non-employee directors, the Company accrues compensation expense based on the estimated number of shares expected to be issued utilizing the most current information available to the Company at the date of the financial statements. The Company estimates the fair value of restricted stock awards based upon the market price of the underlying common stock on the date of grant.

As of SeptemberJune 30, 2013,2014, the total unrecognized compensation cost related to non-vested restricted stock awards was approximately $0.7$0.4 million which is expected to be recognized over a weighted average period of 2.11.5 years.

The following table summarizes restricted stock activity for the ninesix months ended SeptemberJune 30, 2013:2014:

Employee Stock Purchase Plan12.  Foreign Exchange Contracts

The estimated grant date fair value of purchase rights outstanding under the Employee Stock Purchase Plan at September 30, 2013 was $1.57 per share using the Black-Scholes option-pricing model made with the following weighted average assumptions:

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, 2013 and 2012. At September 30, 2013, the total unrecognized estimated compensation cost was insignificant.

10.  Foreign Exchange Contracts

The Company’s primary exposure to foreign currency fluctuations pertains to its subsidiaries in Canada and China. In certain instances the Company may enter into foreign exchange forward contracts to manage a portion of this risk. The Company has not designated its foreign exchange forward contracts as hedges.

The following table presents the gross fair value of derivative instruments, all of which are not designated as hedging instruments:

The above fair value at September 30, 2013 is offset against $10.0 million in other current assets, resulting in a net amount of $0.02 million of net asset.     All cash flows related to our foreign currency exchange contracts are classified as operating cash flows.  We recognized in other income, the following realized and unrealized gains from foreign currency forward exchange contracts:

11.13.  Commitments, Contingencies and Concentrations

Concentrations

The Company’s top ten customers accounted for approximately 53.5%45.5% and 43.3%43.1% of total consolidated net revenues for the three and ninesix months ended SeptemberJune 30, 2013, respectively, and were from the theatre segment.2014, respectively. Trade accounts receivable from these customers represented approximately 33.1%33.7% of net consolidated receivables at SeptemberJune 30, 2013.2014. While the Company believes its relationships with such customers are stable, most arrangements are made by purchase order and are terminable at will by either party. A significant decrease or interruption in business from the Company’s significant customers could have a material adverse effect on the Company’s business, financial condition and results of operations. The Company could also be adversely affected by such factors as changes in foreign currency rates and weak economic and political conditions in each of the countries in which the Company sells its products.products and services.

Financial instruments that potentially expose the Company to a concentration of credit risk principally consist of accounts receivable. The Company sells product to a large number of customers in many different geographic regions. To minimize credit concentration risk, the Company performs ongoing credit evaluations of its customers’ financial condition.

Leases

The Company and its subsidiaries lease plant and office facilities, furniture, autos and equipment under operating leases expiring through 2023. These leases generally contain renewal options and the Company expects to renew or replace certain of these leases in the ordinary course of business.

The Company’s future minimum lease payments for operating leases are as follows:

12.14.  Business Segment Information

During the fourth quarter of 2013, the Company revised its operating segments, which are organized based on the business leadership views operating the business after the integration of the acquired entities. All prior year segment data has been restated to conform to the new segments. As of SeptemberJune 30, 2013,2014, the Company’s operations were conducted principally through two business segments: TheatreSystems Integration and Lighting. TheatreManaged Services. Systems Integration operations include the sale and service of digital projection equipment, screens, sound systems xenon lamps, lenses and other accessories. The lighting segment operations includein addition to the design, assembly and sale of follow spotlights, stationary searchlightsfollowspots and computer operatedother lighting systems forproducts. Managed Services operations include the motion picture production, television, live entertainment, theme parksdelivery of end to end digital signage solutions, video communication solutions, content creation and architectural industries.management and service of digital signage and digital cinema equipment. The Company allocates resources to business segments and evaluates the performance of these segments based upon reported segment operating profit. AllThe Company records intersegment sales at costs approximating market and has eliminated all significant intercompany sales are eliminated in consolidation.

Summary by Business Segments