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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1999
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Commission file number 1-2257
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TRANS-LUX CORPORATION
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(Exact name of Registrant as specified in its charter)
Delaware 13-1394750
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
110 Richards Avenue, Norwalk, CT 06856-5090
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(203) 853-4321
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(Address, zip code, and telephone number, including
area code, of Registrant's principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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Common Stock, $1.00 par value American Stock Exchange
7 1/2% Convertible Subordinated
Notes due 2006 American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K. [ X ]
CONTINUED
TRANS-LUX CORPORATION
1999 Form 10-K Cover Page Continued
As of the close of business on March 27, 2000, there were outstanding, 964,759
shares of the Registrant's Common Stock and 296,005 shares of its Class B Stock.
The aggregate market value of the Registrant's Common and Class B Stock (based
upon the closing price on the American Stock Exchange) held by non- affiliates
on March 27, 2000 (based on the last sale price on the American Stock Exchange
as of such date) was $6,245,520. (The value of a share of Common Stock is used
as the value for a share of Class B Stock, as there is no established market for
Class B Stock, which is convertible into Common Stock on a share-for-share
basis.)
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Registrant's definitive Proxy Statement for the Annual Meeting
of Stockholders to be held May 31, 2000 (the "Proxy Statement") are incorporated
by reference into Part III, Items 10-13 of this Form 10-K to the extent stated
herein.
TRANS-LUX CORPORATION
1999 Form 10-K Annual Report
Table of Contents
PART I
Page
ITEM 1. Business 1
ITEM 2. Properties 7
ITEM 3. Legal Proceedings 7
ITEM 4. Submission of Matters to a Vote of Security Holders 8
PART II
ITEM 5. Market for the Registrant's Common Equity and Related
Stockholder Matters 8
ITEM 6. Selected Financial Data 9
ITEM 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11
ITEM 8. Financial Statements and Supplementary Data 14
ITEM 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 25
PART III
ITEM 10. Directors and Executive Officers of the Registrant 25
ITEM 11. Executive Compensation 26
ITEM 12. Security Ownership of Certain Beneficial Owners and Management 26
ITEM 13. Certain Relationships and Related Transactions 26
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K 26
Signatures 29
PART I
ITEM 1. BUSINESS
Unless the context otherwise requires, the term "Company" as used herein
refers to Trans-Lux Corporation and its subsidiaries. The Company is a
manufacturer, distributor, and marketer of large-scale, real-time electronic
information displays for both indoor and outdoor use. These display systems
utilize LED and light bulb technologies to display real-time information entered
by the user or via a third party information supplier. The Company provides
high quality, reliable display products configured to suit its customers needs,
and offers extensive on-site service and maintenance. The Company's display
products include data, graphics, and video displays for stock and commodity
exchanges, financial institutions, sports venues, casinos, convention centers,
corporate, government, theatres, retail, airports, and numerous other
applications. In addition to its core display business, the Company also owns
and operates a chain of motion picture theatres in the western Mountain States
and owns real estate used for both corporate and income-producing purposes.
ELECTRONIC INFORMATION DISPLAY PRODUCTS
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The Company's high performance electronic information displays are used to
communicate messages and information in a variety of indoor and outdoor
applications. The Company's product line encompasses a wide range of
state-of-the-art electronic displays in various shape, size and color
configurations. Most of the Company's display products include hardware
components and sophisticated software. In both the indoor and outdoor markets
which the Company serves, the Company adapts basic product types and
technologies for specific use in various niche market applications. The Company
also operates a direct service network throughout the United States and parts of
Canada and Australia which performs on-site service and maintenance for its
customers and others.
The Company employs a modular engineering design strategy, allowing basic
"building blocks" of electronic modules to be easily combined and configured in
order to meet the broad application requirements of the markets it serves. This
approach ensures product flexibility, reliability, ease of service and minimum
spare parts requirements.
The Company's electronic information display market is broken down into two
distinct markets: the indoor market and the outdoor market. Electronic
information displays are used by financial institutions, including brokerage
firms, banks, energy companies, insurance companies and mutual fund companies;
by sports venues; educational institutions; outdoor advertising companies; by
corporate and government communication centers; by retail outlets; by casinos,
race tracks and other gaming establishments; in airports, train stations, bus
terminals, and other transportation facilities; on highways and major
thoroughfares; by movie theatres; by health maintenance organizations, and in
various other applications.
The Indoor Market: The indoor electronic display market is currently
dominated by three categories of users: financial, government and corporate,
and gaming. The financial market segment, which includes trading floors,
exchanges, brokerage firms, banks, mutual fund companies and energy companies,
has long been a user of electronic information displays due to the need for
real-time dissemination of data. The major stock and commodity exchanges depend
on reliable information displays to post stock and commodity prices, trading
volumes, interest rates and other financial information. Brokerage firms
continue to install electronic ticker displays for both customers and brokers;
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they have also installed other larger displays to post major headline news
events in their brokerage offices to enable their sales force to stay up-to-date
on events affecting general market conditions and specific stocks. The changing
regulatory environment in the financial marketplace has resulted in the influx
of banks and other financial institutions into the brokerage business and the
need for these institutions to use information displays to advertise product
offerings to consumers.
The government and private market segment includes applications found in
major corporations, public utilities and government agencies for the display of
real-time, critical data in command/control centers, data centers, help desks,
visitor centers inbound/outbound telemarketing centers and for employee
communications. Electronic displays have found acceptance in applications for
the healthcare industry such as outpatient pharmacies; military hospitals and
HMOs to automatically post patient names when prescriptions are ready for pick
up. Theatres use electronic displays to post current box office and ticket
information, directional information, promote concession sales and use the
Company's Rear WindowTM system for the hearing-impaired. Information displays
are consistently used in airports, bus terminals and train stations to post
arrival and departure, gate and baggage claim information, all of which help to
guide passengers through these facilities.
The gaming market segment includes casinos and Indian gaming establishments.
These establishments generally use large information displays to post odds for
race and sporting events and to display timely information such as results,
track conditions, jockey weights and scratches. Casinos also use electronic
displays throughout their facilities to advertise to and attract gaming patrons.
This includes using electronic displays in conjunction with slot machines to
attract customer attention to potential payoffs and thus increase customer play.
Indoor equipment generally has a lead-time of 30 to 120 days depending on the
size and type of equipment ordered and material availability.
The Outdoor Market: The outdoor electronic display market is even more
diverse than the indoor market. Displays are being used by sports stadiums,
banks and other financial institutions, gas stations, highway departments,
educational institutions and outdoor advertisers attempting to capture the
attention of passers-by. The Company has utilized its strong position in the
indoor market combined with several acquisitions to enhance its presence in the
outdoor display market. The Company's acquisition in May 1997 of the catalog
and custom scoreboard sign business of Fairtron Corporation (Fairtron), was in
the outdoor display market. Outdoor displays are installed in amusement parks,
entertainment facilities, high schools, major and minor league parks,
professional and college sports stadiums, military installations, bridges and
other roadway installations, automobile dealerships, banks and other financial
institutions. Outdoor equipment generally has a lead-time of 10 to 120 days
depending on the size and type of equipment ordered and material availability.
Sales Order Backlog (excluding leases): The amount of sales order backlog at
December 31, 1999 was approximately $4.3 million compared with the December 31,
1998 sales order backlog of $3.4 million. The December 31, 1999 backlog will be
recognized in 2000. These amounts do not include new lease orders or renewals
of existing lease agreements presently in-house.
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ENGINEERING AND PRODUCT DEVELOPMENT
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The Company's ability to compete and operate successfully depends upon, among
other factors, its ability to anticipate and respond to the changing
technological and product needs of its customers. The Company continually
examines and tests new display technologies and develops enhancements to its
existing products in order to meet the needs of its customers. Product
enhancement work continues in both the indoor and outdoor areas.
Development of new indoor products includes progressive meter and controller
systems for use in the gaming industry; new monochrome and tricolor ticker
displays utilizing improved LED display technology, curved and flexible
displays; higher speed processors for faster data access and improved update
speed; integration of blue LED's to provide full color text graphics and video
displays; wireless controlled displays and a new graphics interface to display
more data in higher resolutions.
The Company developed a full color LED video display for the outdoor market
which has application particularly in the sports market where enhancing the
presentation of live action is of central importance. To drive the video
display, the Company developed the ProLineTM controller which is Windows 32-bit
software based. The Company also developed a wireless scoreboard controller, an
LED scoreboard and a bar-digit scoreboard for its Trans-Lux/Fair-PlayTM catalog
business.
The Company's Display ConnectionTM, is an electronic display system that uses
the Internet to blend Dow Jones Newswires market data, business news headlines,
and sports headlines and statistics with consumer messages to make indoor and
outdoor displays more effective at focusing customers' attention. This product
is designed for banks, brokerages, hotels, airports, exhibition halls, casinos,
retail stores, schools, and other venues where high traffic and conditions for
immediate customer action are both present. Display Connection is compatible
with the Company's VisionWriterTM displays and message centers, as well as most
outdoor displays.
As part of its ongoing development efforts, the Company seeks to package
certain products for specific market segments as well as to continually track
emerging technologies that can enhance its products. Future technologies under
consideration are trending toward full color, live video, and digital input.
The Company is currently focused on certain technologies which incorporate these
features and which are expected to provide a choice of products for the custom
applications demanded by its customers.
The Company maintains a staff of 52 people who are responsible for product
development and support. The engineering and product enhancement and
development efforts are supplemented by outside independent engineering
consulting organizations and colleges where required. Engineering, product
enhancement and development amounted to $4,280,000, $3,603,000 and $2,819,000 in
1999, 1998 and 1997, respectively.
MARKETING AND DISTRIBUTION
- - --------------------------
The Company markets its indoor and outdoor electronic information display
products primarily through its 41 direct sales representatives, 7 telemarketers
and a network of independent dealers and distributors. The Company divides its
domestic sales and marketing efforts into two categories, renewal of existing
3
product leases and product upgrades, and the sale or lease of display products
to new customers. In the indoor market for leased equipment, the Company
attempts to maintain ongoing relationships with its customers to discuss lease
renewals and upgrades. In the outdoor market, sales personnel contact existing
and potential customers to discuss the customer's usage or requirements for
display equipment. The Company also uses primarily telemarketing personnel to
maintain communication with its installed base of lease equipment customers,
contacting them in order to obtain lease renewal and upgrades.
The Company uses a number of different techniques in order to attract new
customers, including direct marketing efforts by its sales force to known or
potential users of information displays, advertising in industry publications,
and exhibiting at approximately 49 domestic and international trade shows
annually. In the outdoor market, the Company supplements these efforts by using
a network of independent dealers and distributors who market and sell its
products.
Internationally, the Company uses a combination of internal sales people and
independent distributors to market its products in Europe, South and Central
America, Asia, Canada and Australia. The Company currently has assembly
operations, service centers and sales offices in New South Wales, Australia and
Mississauga, Canada. The Company has existing relationships with approximately
22 independent distributors worldwide covering Europe, South and Central
America, Canada, Asia and Australia. International sales have represented less
than 10% of total revenues in the past three years, but the Company believes
that it is well positioned for expansion.
Headquartered in Norwalk, Connecticut, the Company has major sales and
service offices in New York; Chicago; Las Vegas; Norcross, Georgia; Torrance,
California; Mississauga, Canada; Logan, Utah; Des Moines, Iowa; and New South
Wales, Australia, as well as approximately 66 satellite offices in the United
States and Canada.
The Company's equipment is both leased and sold. A significant portion of
the electronic information display revenues are from equipment rentals with
current lease terms ranging from 30 days to ten years.
The Company's revenues in 1999, 1998 and 1997 did not include any single
customer that accounted for more than 10% of total revenues.
MANUFACTURING AND OPERATIONS
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The Company's production facilities are located in Norwalk, Connecticut;
Logan, Utah; Des Moines, Iowa; Mississauga, Canada and New South Wales,
Australia and consist principally of the manufacturing, assembly and testing of
display units, and related components. The Company performs most subassembly
and all final assembly of its products. The Company is constructing a new
55,000 square foot outdoor display facility in Logan, Utah, which is expected to
be completed in the Spring of 2000.
All product lines are design engineered by the Company and controlled
throughout the manufacturing process. The Company has the ability to produce
printed circuit board fabrications, very large sheet metal fabrications, plastic
molded parts, cable assemblies, and surface mount and through-hole designed
assemblies. The Company produces more than 80,000 board assemblies annually
which are tested with the latest state of the art automated testing equipment.
Additional board assembly capacity is increased through outsourcing. The
4
Company's production of many of the subassemblies and all of the final
assemblies gives the Company the control needed for on-time delivery to its
customers.
The Company also has the ability to rapidly modify its product lines. The
Company's displays are designed with flexibility in mind, enabling the Company
to customize its displays to meet different applications with a minimum of
lead-time. The Company's automated planning and purchasing department further
enables it to secure materials in a timely fashion without maintaining excessive
inventories. The Company also partners with large distributors via volume
purchase agreements, giving it the benefit of a third party stocking its
components ready for delivery on demand. The Company designs certain of its
materials to match components furnished by suppliers. If such suppliers were
unable to provide the Company with those components, the Company would have to
contract with other suppliers to obtain replacement sources. Such replacement
might result in engineering design changes, as well as delays in obtaining such
replacement components. The Company believes it maintains suitable inventory
and has contracts providing for delivery of sufficient quantities of such
components to meet its needs. The Company also believes there presently are
other qualified vendors of these components. The Company does not acquire a
material amount of purchases directly from foreign suppliers, but certain
components are manufactured by foreign sources.
The Company is ISO-9001 registered by Underwriters Laboratories for its
Norwalk plant facility. The Company's products are also third-party certified
as complying with applicable safety, electromagnetic emissions and
susceptibility requirements world wide. The Company believes these distinctions
in its industry gives it a competitive advantage in the global marketplace.
SERVICE AND SUPPORT
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The Company emphasizes the quality and reliability of its products and the
ability of its field service personnel to provide timely and expert service to
the Company's installed base. The Company believes that the quality and
timeliness of its on-site service personnel are important components in the
Company's success. The Company provides turnkey installation and support for
the products it leases and sells in the United States, Canada and Australia.
The Company provides training to end-users and provides ongoing support to users
who have questions regarding operating procedures, equipment problems or other
issues. The Company provides service to customers who lease equipment and
offers installation and service to those who purchase equipment. In the market
segments the Company's distributors cover, the distributors offer support for
the products they sell.
Personnel based in regional and satellite service locations throughout the
United States, Canada and Australia provide high quality and timely on-site
service for the installed equipment rental and maintenance base and other types
of customer owned equipment. Purchasers or lessees of the Company's larger
products, such as financial exchanges, casinos and sports facilities, often
retain the Company to provide on-site service through the deployment of a
service technician who is on-site daily or for the scheduled sporting event.
The Company also maintains a National Technical Services Center in Norcross,
Georgia, which performs equipment repairs and dispatches service technicians on
a nationwide basis. The Company's field service is augmented by various outdoor
service companies in the United States, Canada and overseas. From time to time
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the Company uses various third-party service agents to install, service and/or
assist in the service of outdoor displays for reasons that include geographic
area, size and unusual height of displays.
COMPETITION
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The Company's offer of short and long-term leases to customers and its
nationwide sales, service and installation capabilities are major competitive
advantages in the display business. The Company believes that it is the largest
supplier of large-scale stock, commodity, sports and race book gaming displays
in the United States, as well as one of the largest outdoor electronic display
and service organizations in the country.
The Company competes with a number of competitors, both larger and smaller
than itself, and with products based on different forms of technology. In
addition, there are several companies whose current products utilize similar
technology and who possess the resources necessary to develop competitive and
more sophisticated products in the future.
The Company's motion picture theatres are subject to varying degrees of
competition in the geographic areas in which they operate. In one area,
theatres operated by national circuits compete with the Company's theatres. The
Company's theatres also face competition from all other forms of entertainment
competing for the public's leisure time and disposable income.
THEATRE OPERATIONS
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The Company currently operates 63 screens in 14 locations in the western
Mountain States. In 1997, the Company acquired the Gaslight Twin Cinema in
Durango, Colorado, and the Lake Dillon Cinema four-plex in Dillon, Colorado; in
1998, the Company expanded its Storyteller theatre in Taos, New Mexico to a
seven-plex; in 1999, the Company acquired a single and a four-plex theatre in
Laramie Wyoming, constructed a six-plex theatre in Espanola, New Mexico and a
six-plex theatre in Dillon, Colorado; and in 2000, the Company constructed an
eight-plex theatre in Los Lunas, New Mexico and has construction in progress on
a six-plex theatre in Green Valley, Arizona. The Company also has a twelve-plex
theatre in Loveland, Colorado which is a 50% owned joint venture partnership.
The Company's theatre revenues are generated from box office admissions, theatre
concessions, theatre rentals and other sales. Theatre revenues are generally
seasonal and coincide with the release dates of major films during the summer
and holiday seasons. The Company is not currently operating any multimedia
entertainment venues, but continues to stay abreast of innovations in this area
of technology and continues to investigate new opportunities. Commencing in the
first quarter of 2000, the Company opened a booking office to book films for its
owned theatres and other theatres.
INTELLECTUAL PROPERTY
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The Company owns or licenses a number of patents and holds a number of
trademarks for its display equipment and theatrical enterprises and considers
such patents, trademarks and licenses important to its business.
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EMPLOYEES
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The Company has approximately 765 employees as of February 29, 2000, of which
approximately 500 employees support the Company's electronic display business.
Less than 1% of the employees are unionized. The Company believes its employee
relations are good.
ITEM 2. PROPERTIES
The Company's headquarters and principal executive offices are located at 110
Richards Avenue, Norwalk, Connecticut. The Company owns the 102,000 square foot
facility located at such site, which is occupied by the Company and is used for
administration, sales, engineering, production and assembly of its indoor
display products. Approximately 14,000 square feet of the building is currently
leased to others.
In addition, the Company owns facilities in:
Torrance, California
Norcross, Georgia
Des Moines, Iowa
Logan, Utah
Mississauga, Canada.
Theatre Properties in :
Sahuarita, Arizona
Dillon, Colorado
Durango, Colorado
Espanola, New Mexico
Los Lunas, New Mexico
Santa Fe, New Mexico
Taos, New Mexico.
The Company also leases 9 premises throughout North America and in
Australia
for use as sales, service and/or administrative operations, and leases 9 theatre
locations. The aggregate rental expense was $601,000, $585,000 and $456,000 for
1999, 1998 and 1997, respectively.
ITEM 3. LEGAL PROCEEDINGS
The Company is subject to legal proceedings and claims which arise in the
ordinary course of its business. During June 1999, a jury in the state of New
Mexico awarded a former employee of the Company $15,000 in damages for lost
wages and emotional distress and $393,000 in punitive damages on a retaliatory
discharge claim. The Company denied the charges on the basis that the
termination was proper and is appealing such verdict. The Company believes it
has made adequate provisions during 1999 to cover such matters. In January
2000, a second former employee of the Company commenced a retaliatory discharge
action seeking compensatory and punitive damages in an unspecified amount. The
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Company has denied such allegations and asserted defenses including that the
former employee resigned following her failure to timely report to work.
Certain of the amounts are subject to insurance recoveries.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
(a) The Company's Common Stock is traded on the American Stock Exchange
under the symbol "TLX." Sales prices are set forth in (d) below.
(b) The Company had approximately 759 holders of record of its Common Stock
and approximately 69 holders of record of its Class B Stock as of
March 27, 2000.
(c) The Board of Directors approved four quarterly cash dividends of $0.035
per share for Common Stock and $0.0315 per share for Class B Stock
during 1999. Management and the Board of Directors will continue to
review payment of the quarterly cash dividends.
(d) The range of Common Stock prices on the American Stock Exchange are set
forth in the following table:
High Low
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1999
First Quarter $11 1/8 $ 8 1/2
Second Quarter 9 1/4 7 3/4
Third Quarter 8 1/4 5 7/8
Fourth Quarter 8 1/4 6 1/2
1998
First Quarter $16 $13 5/8
Second Quarter 14 12 1/8
Third Quarter 12 15/16 8 5/8
Fourth Quarter 10 5 1/2
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ITEM 6. SELECTED FINANCIAL DATA
(a) The following table sets forth selected consolidated financial data with
respect to the Company for the five years ended December 31, 1999, which
were derived from the audited consolidated financial statements of the
Company and should be read in conjunction with them.
Years Ended 1999 1998 1997 1996 1995
- - ----------- ---- ---- ---- ---- ----
In thousands, except per share data
Revenues $ 62,818 $63,778 $53,363 $45,285 $37,791
Net income 788 1,699 1,510 1,250 1,066
Earnings per share:
Basic $ 0.61 $ 1.32 $ 1.18 $ 0.99 $ 0.85
Diluted 0.61 0.85 0.80 0.89 0.79
Cash dividends per share:
Common stock $ 0.14 $ 0.14 $ 0.14 $ 0.14 $ 0.14
Class B stock 0.126 0.126 0.126 0.126 0.126
Average common shares outstanding 1,286 1,290 1,281 1,258 1,250
Total assets $112,448 $91,146 $88,978 $84,031 $57,460
Long-term debt 65,952 49,523 49,452 48,112 22,495
Stockholders' equity 26,013 25,851 24,332 22,662 21,499
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(b) The following table sets forth quarterly financial data for the years ended
December 31, 1999 and 1998:
Quarter Ended (unaudited) March 31 June 30 September 30 December 31 (1)
In thousands, except per share data
1999
Revenues $13,485 $16,003 $17,569 $15,761
Gross profit 4,977 6,027 6,230 5,555
Income before income taxes 69 359 694 110
Net income 38 198 381 171
Earnings per share:
Basic $ 0.03 $ 0.15 $ 0.30 $ 0.13
Diluted (2) 0.03 0.15 0.21 0.13
Cash dividends per share:
Common stock $ 0.035 $ 0.035 $ 0.035 $ 0.035
Class B stock 0.0315 0.0315 0.0315 0.0315
1998
Revenues $15,956 $15,877 $16,739 $15,206
Gross profit 5,862 5,877 6,034 6,394
Income before income taxes 627 661 813 927
Net income 345 364 446 544
Earnings per share:
Basic $ 0.27 $ 0.28 $ 0.35 $ 0.42
Diluted 0.19 0.19 0.22 0.25
Cash dividends per share:
Common stock $ 0.035 $ 0.035 $ 0.035 $ 0.035
Class B stock 0.0315 0.0315 0.0315 0.0315
(1) During the fourth quarter of 1999, the Company adjusted certain research and development
expenses resulting in a decrease of approximately $78,000 to net income in the quarter. During
the fourth quarter of 1998 the Company adjusted certain standard manufacturing cost estimates to
year-to-date actual costs resulting in an increase of approximately $77,000 to net income in the
quarter.
(2) Diluted earnings per share is computed independently for each of the periods presented.
Accordingly, the sum of the quarterly diluted earnings per share amounts do not
equal the total for the year.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
1999 Compared to 1998
The Company's total revenues for the year ended December 31, 1999 decreased 1.5%
to $62.8 million from $63.8 million for the year ended December 31, 1998.
Revenues from equipment rentals and maintenance increased slightly to $23.5
million in 1999 from $23.2 million in 1998 or 1.3%. Of this increase, indoor
display rental and maintenance increased $1.0 million in 1999 or 7.2%, which was
offset by the $0.7 million or 8.0% continued, expected revenue decline in the
outdoor rental and maintenance bases previously acquired. Revenues from
equipment sales decreased to $31.3 million in 1999 from $33.9 million in 1998 or
7.6%. The decrease was in the indoor display segment, as 1998 indoor display
revenues included a multi-million dollar order from a major exchange, which did
not recur this year. Revenues from outdoor displays increased $1.0 million in
1999 or 4.5% from 1998, primarily in the outdoor sports division. Revenues from
theatre receipts and other increased $1.3 million or 19.5% in 1999. The
increase is primarily from the revenues from two newly constructed six-plex
theatres in Dillon, Colorado and Espanola, New Mexico and the acquisition of two
theatres in Wyoming in 1999.
Gross profit as a percentage of revenues was 36.3% in 1999 compared to 37.9%
in 1998. The decrease in the gross profit percentage was anticipated as the
Company attempts to increase its market share in the outdoor display market, and
expand its theatre operations, which is at a lower gross profit than the display
division. Due to the competitive nature of the outdoor display market, the
Company anticipates the gross profit margin to continue to decline somewhat as
it attempts to increase its market share in certain industry segments of this
market. Cost of equipment rentals and maintenance includes field service
expenses, plant repair costs, maintenance and depreciation. The indoor display
cost of equipment rental and maintenance increased 4.6%, principally due to
increased depreciation expense. The outdoor display cost of equipment rental
and maintenance increased 7.6%, principally due to competitive market
conditions. The cost of equipment rentals and maintenance represented 56.9% of
related revenues in 1999 compared to 54.4% in 1998. Cost of equipment sales
decreased $1.4 million or 6.7%. The indoor display cost of equipment sales
decreased 35.4%, primarily due to a large sale in 1998 which did not recur in
1999. The outdoor display cost of equipment sales increased 4.2%, principally
due to a receivables settlement with a customer. The cost of equipment sales
represented 64.5% of related revenues in 1999 compared to 63.8% in 1998. Cost
of theatre receipts and other, which includes film rental costs, increased $1.1
million or 20.2%, mainly as a result of the expansion of the theatre operations.
The cost of theatre receipts and other represented 80.6% of related revenues in
1999 compared to 80.1% in 1998.
Total general and administrative expenses increased slightly to $18.3
million in 1999 from $18.0 million in 1998. Corporate general and
administrative expenses decreased 3.3%, primarily due to the positive impact of
the effect of foreign currency exchange rates and reduced administrative
expenses, offset by the special litigation charge of $408,000 on a retaliatory
discharge claim (See Note 15). The indoor display general and administrative
expenses decreased 7.4%, primarily due to reduced sales overhead expenses. The
outdoor display general and administrative expenses increased 19.5%, primarily
due to expanded sales and marketing efforts. The entertainment and real estate
general and administrative expenses remained level.
Net interest expense increased $207,000, which is primarily attributable to
the increase in long-term debt for theatre expansion. Other income primarily
relates to the equity in earnings of the joint venture, MetroLux Theatres,
repurchase of $1,135,000 par value of the Company's 7-1/2% Convertible
Subordinated Notes, (the "Notes") and the earned income portion of municipal
forgivable loans.
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The effective tax rate was 36.0% in 1999 and 43.9% in 1998. The decrease in
the effective tax rate for 1999 was largely due to utilization of foreign tax
net operating losses by the international subsidiaries.
1998 Compared to 1997
The Company's total revenues for the year ended December 31, 1998 increased
19.5% to $63.8 million from $53.4 million for the year ended December 31, 1997.
Revenues from equipment rentals and maintenance decreased slightly to $23.2
million in 1998 from $23.5 million in 1997 or 1.2%. Indoor display rental and
maintenance increased 6.9%, this increase was more than offset by the 11.9%
continued, expected decrease from the outdoor lease and maintenance bases
previously acquired. Revenues from equipment sales increased to $33.9 million
in 1998 from $24.4 million in 1997 or 38.6%. Indoor display sales increased
42.6%, primarily due to an increase in the volume of sales. Outdoor display
sales increased 36.5%, primarily attributable to the acquisition of the catalog
and custom scoreboard sign business of Fairtron Corporation in May 1997 and
increased sales of other outdoor products. Revenues from theatre receipts and
other increased $1.3 million or 23.5% in 1998. This increase is primarily
attributable to the acquisitions of the Lake Dillon Cinema in September 1997,
the Gaslight Cinema in March 1997, the expansion of the Taos Storyteller Cinema
from a four-plex to a seven-plex in February 1998, and increased concession
sales.
Gross profit as a percentage of revenues was 37.9% in 1998 compared to 40.8%
in 1997. The indoor display cost of equipment rental and maintenance increased
13.4%, principally due to increased depreciation expense. The outdoor display
cost of equipment rental and maintenance decreased slightly. The cost of
equipment rentals and maintenance represented 54.4% of related revenues in 1998
compared to 50.7% in 1997. Cost of equipment sales increased $6.1 million or
39.6%. The indoor display cost of equipment sales increased 37.7%, primarily
due to an increase in the volume of sales. During the fourth quarter of 1998,
the Company adjusted certain indoor standard manufacturing cost estimates to
year-to-date actual costs resulting in an increase of approximately $77,000 to
net income in the quarter. The outdoor display cost of equipment sales
increased 40.3%, principally due to the Fairtron acquisition and an increase in
sales of other outdoor products. The cost of equipment sales represented 63.8%
of related revenues in 1998 compared to 63.3% in 1997. Cost of theatre receipts
and other increased $1.2 million or 29.0%, mainly as a result of the expansion
of the theatre operations. The cost of theatre receipts and other represented
80.1% of related revenues in 1998 compared to 76.7% in 1997.
Total general and administrative expenses increased $2.0 million or 12.3%.
The indoor display general and administrative expenses increased 3.4%, primarily
due to expanded sales and marketing efforts. The outdoor display general and
administrative expenses increased 16.5%, primarily due to the Fairtron
acquisition. The entertainment and real estate general and administrative
expenses increased slightly. Corporate general and administrative expenses
increased 18.2%, primarily due to increased administrative support.
Interest income decreased $545,000, primarily attributable to the
utilization of investments to acquire rental equipment and construct new
theatres. Interest expense decreased $255,000, primarily due to a charge in
1997 of approximately $113,000 for the unamortized portion of the financing
costs pertaining to the redemption of the 9% Convertible Subordinated Debentures
(the "9% Debentures"). Other income relates to the equity in earnings of the
joint venture, MetroLux Theatres and gains on sales of securities.
The effective tax rate was 43.9% in 1998 and 47.0% in 1997. The decrease in
the effective tax rate for 1998 was largely due to reduced foreign tax losses in
1998 compared to 1997.
Accounting Standards
The Company will adopt the provisions of Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" (SFAS 133) effective January 1, 2001. The standard requires
companies to recognize all derivatives as either assets or liabilities and
measure those instruments at fair value. Gains or losses resulting from changes
in the values of those derivatives would be accounted for depending on the use
of the derivative and whether it qualifies for hedge accounting. The Company
does not expect the adoption of SFAS 133 to have a material impact on its
consolidated financial statements.
12
Liquidity and Capital Resources
The Company has a $15.0 million revolving credit facility available until June
2002. At December 31, 1999, $8.8 million was outstanding, leaving $5.8 million
of additional borrowing capacity under this facility. The interest rate is
LIBOR plus 2.0%, (7.8225% at December 31, 1999). The Company has the option to
convert the outstanding balance into a four-year term loan. The revolving
credit facility also requires an annual facility fee on the total commitment of
.375%.
During 1999, the Company entered into $10.1 million of real estate
construction loans and mortgages, principally to fund the construction of
theatre expansion projects. At December 31, 1999, the interest rates ranged
from 7.75% to 8.65%.
Also during 1999, the Company entered into loan agreements with the City of
Logan, Cache County, Utah to issue $4.8 million of a combination of Tax-Exempt
and Taxable Revenue Bonds to finance the construction of a new 55,000 square
foot outdoor display facility in Logan, Utah. At December 31, 1999, the
interest rates were 5.5% and 6.75%, respectively, plus a 1.25% letter of credit
fee.
The Company is currently authorized by the Board of Directors to repurchase
up to $400,000 of its Common Stock. A total of 31,636 shares of Common Stock at
a cost of $226,000 were repurchased during 1999.
During 1999, the Company also repurchased $1,135,000 face value of its Notes
at an average price of $85.80, resulting in a gain of $69,000 (net of tax).
The Company believes that cash generated from operations together with cash
and cash equivalents on hand and the availability under the revolving credit
facility will be sufficient to fund its anticipated near term cash requirements.
The Company has two term loans under its amended bank Credit Agreement for a
total of $8.7 million of indebtedness at a rate of interest at LIBOR plus 1.75%.
The Company has two interest rate swap agreements in place, with a notional
value equal to the amount of the two term loans and with corresponding maturity
terms, which have the effect of converting the interest rate on such term loans
to a fixed average annual rates of 7.82% and 7.88% through July 2002. The
Credit Agreement contains certain financial covenants with which the Company
must comply, absent a waiver by the bank, on a continuing basis, with which the
Company is in compliance and expects to remain in compliance.
In late 1996, the Company issued $27.5 million of the Notes. On January 14,
1997, the Underwriter exercised their overallotment option, bringing the total
amount outstanding to $31.6 million. In February 1997, the Company called all
the outstanding 9% Debentures for redemption.
Cash and cash equivalents increased $2.4 million in 1999 compared to a
decrease of $0.5 million in 1998. The increase in 1999 is primarily
attributable to an increase in accounts payable and accruals, offset somewhat by
an increase in trade receivables and inventories, primarily due to the increase
of sales and related cost of sales in the outdoor sports division. The decrease
in 1998 was primarily attributable to investments in rental equipment and
construction of theatres. The Company continues to experience a favorable
collection cycle on its trade receivables.
Year 2000 Update
The Company did not experience any significant malfunctions or errors in its
operating or business systems when the date changed from 1999 to 2000. Based on
operations since January 1, 2000, the Company does not expect any significant
impact to its ongoing business as a result of the Year 2000 issue, but if any
problems do occur, they are likely to be minor and correctable. In addition,
the Company could still be negatively impacted if its customers or suppliers are
adversely affected by the Year 2000 issue. The Company is not aware of any
significant Year 2000 problems that have arisen for its customers or suppliers.
The Company expended approximately $350,000 on Year 2000 readiness efforts
over a period of two years. The efforts included replacing certain hardware and
replacing or modifying non-compliant software, as well as identifying and
remediating Year 2000 problems.
Safe Harbor Statement under the Private Securities Reform Act of 1995
The Company may, from time to time, provide estimates as to future performance.
These forward looking statements will be estimates, and may or may not be
realized by the Company. The Company undertakes no duty to update such forward
looking statements. Many factors could cause actual results to differ from
these forward looking statements, including loss of market through competition,
introduction of competing products by others, pressure on prices from
competition or purchasers of the Company's products, and interest rate and
foreign exchange fluctuations.
13
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements and supplementary financial information
are set forth below:
CONSOLIDATED STATEMENTS OF INCOME
In thousands, except per share data Years ended December 31 1999 1998 1997
---------------------------------------------------------------------------------------------------------------
Revenues:
Equipment rentals and maintenance $23,490 $23,181 $23,472
Equipment sales 31,273 33,858 24,434
Theatre receipts and other 8,055 6,739 5,457
--------------------------------------
Total revenues 62,818 63,778 53,363
--------------------------------------
Operating expenses:
Cost of equipment rentals and maintenance 13,366 12,602 11,906
Cost of equipment sales 20,171 21,609 15,478
Cost of theatre receipts and other 6,492 5,400 4,187
--------------------------------------
Total operating expenses 40,029 39,611 31,571
--------------------------------------
Gross profit from operations 22,789 24,167 21,792
General and administrative expenses 18,341 17,993 16,023
--------------------------------------
4,448 6,174 5,769
Interest income 592 646 1,191
Interest expense (4,251) (4,098) (4,353)
Other income 443 306 240
--------------------------------------
Income before income taxes 1,232 3,028 2,847
--------------------------------------
Provision for income taxes:
Current 470 799 164
Deferred (26) 530 1,173
--------------------------------------
444 1,329 1,337
--------------------------------------
Net income $ 788 $ 1,699 $ 1,510
======================================
Earnings per share:
Basic $ 0.61 $ 1.32 $ 1.18
Diluted 0.61 0.85 0.80
--------------------------------------
Average common shares outstanding:
Basic 1,286 1,290 1,281
Diluted 1,288 3,554 3,617
---------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements.
14
CONSOLIDATED BALANCE SHEETS
In thousands, except share data December 31 1999 1998
------------------------------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 3,651 $ 1,298
Available-for-sale securities 3,666 4,914
Receivables, less allowance of $501 and $574 9,064 7,287
Inventories 6,146 5,381
Prepaids and other 890 734
-----------------------
Total current assets 23,417 19,614
-----------------------
Equipment on rental 75,200 70,654
Less accumulated depreciation 31,487 28,289
-----------------------
43,713 42,365
-----------------------
Property, plant and equipment 44,411 30,816
Less accumulated depreciation and amortization 8,832 8,433
-----------------------
35,579 22,383
Other assets 6,449 6,784
Construction funds 3,290 ----
-----------------------
$112,448 $91,146
-------------------------------------------------------------------------------------------=======================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,688 $ 1,703
Accrued liabilities 5,093 4,739
Current portion of long-term debt 2,381 258
-----------------------
Total current liabilities 12,162 6,700
-----------------------
Long-term debt:
7 1/2% convertible subordinated notes due 2006 30,490 31,625
9 1/2% subordinated debentures due 2012 1,057 1,057
Notes payable 34,405 16,841
-----------------------
65,952 49,523
Deferred revenue, deposits and other 3,715 4,254
Deferred income taxes 4,606 4,818
-----------------------
Commitments and contingencies
Stockholders' equity:
Capital stock
Common - $1 par value - 5,500,000 shares authorized
2,444,400 shares issued in 1999 and 2,443,119 in 1998 2,444 2,443
Class B - $1 par value - 1,000,000 shares authorized
296,005 shares issued in 1999 and 297,286 in 1998 296 297
Additional paid-in-capital 13,901 13,901
Retained earnings 21,434 20,821
Accumulated other comprehensive income (loss) (225) ----
-----------------------
37,850 37,462
Less treasury stock - at cost - 1,479,672 shares in 1999 and 1,448,016 in 1998
(excludes additional 296,005 shares held in 1999 and 297,286 in 1998
for conversion of Class B stock) 11,837 11,611
-----------------------
Total stockholders' equity 26,013 25,851
-----------------------
$112,448 $91,146
-------------------------------------------------------------------------------------------=======================
The accompanying notes are an integral part of these consolidated financial statements.
15
CONSOLIDATED STATEMENTS OF CASH FLOWS
In thousands Years ended December 31 1999 1998 1997
---------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities
Net income $ 788 $ 1,699 $ 1,510
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 8,682 7,862 7,076
Net income of joint venture (185) (183) (47)
Deferred income taxes (126) 108 956
Gain on sale of securities 3 (87) (193)
Gain on repurchase of Company's 7 1/2% convertible subordinated notes (108) ---- ----
Changes in operating assets and liabilities:
Receivables (1,777) (454) (579)
Inventories (765) (737) (786)
Prepaids and other assets (519) 622 1,071
Accounts payable and accruals 2,257 (348) (2,508)
Deferred revenue, deposits and other (539) 599 121
--------------------------------------
Net cash provided by operating activities 7,711 9,081 6,621
--------------------------------------
Cash flows from investing activities
Equipment manufactured for rental (7,373) (7,802) (10,500)
Purchases of property, plant and equipment (12,992) (5,160) (2,012)
Increase in construction funds (3,290) ---- ----
Payments for acquisitions (net) (1,163) ---- (2,283)
Proceeds from joint venture 94 94 94
Purchases of securities ---- ---- (18,343)
Proceeds from sale of securities 1,054 3,322 11,007
--------------------------------------
Net cash used in investing activities (23,670) (9,546) (22,037)
--------------------------------------
Cash flows from financing activities
Proceeds from long-term debt 20,671 1,876 7,325
Repayment of long-term debt (984) (1,805) (4,600)
Repurchase of Company's 7 1/2% convertible subordinated notes (974) ---- ----
Redemption of Company's 9% convertible subordinated debentures ---- ---- (4,573)
Proceeds from exercise of stock options ---- 24 10
Purchase of treasury stock (226) ---- ----
Cash dividends (175) (175) (177)
--------------------------------------
Net cash provided by (used in) financing activities 18,312 (80) (2,015)
--------------------------------------
Net increase (decrease) in cash and cash equivalents 2,353 (545) (17,431)
Cash and cash equivalents at beginning of year 1,298 1,843 19,274
--------------------------------------
Cash and cash equivalents at end of year $ 3,651 $ 1,298 $ 1,843
---------------------------------------------------------------------------------------------------------------------------
Interest paid $ 4,185 $ 3,674 $ 4,115
Interest received 617 733 1,016
Income taxes paid 1,003 519 694
---------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements.
16
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Accumulated
Additional Other
In thousands, except share data Common Stock Class B Paid-in Treasury Retained Comprehensive
For the three years ended December 31, 1999 Shares Amount Shares Amount Capital Stock Earnings Income
- - --------------------------------------------------------------------------------------------------------------------------------
Balance December 31, 1996 2,441,765 $2,442 298,640 $298 $13,818 $(11,802) $17,964 $ (58)
Net income --- --- --- --- --- --- 1,510 ---
Cash dividends --- --- --- --- --- --- (177) ---
Other comprehensive income:
Unrealized foreign currency translation --- --- --- --- --- --- --- 23
Unrealized holding gain --- --- --- --- --- --- --- 64
Conversion of 9% convertible
subordinated debentures --- --- --- --- 89 151 --- ---
Exercise of stock options --- --- --- --- (3) 13 --- ---
Class B conversion to common stock 1,000 1 (1,000) (1) --- --- --- ---
-----------------------------------------------------------------------------------
Balance December 31, 1997 2,442,765 2,443 297,640 297 13,904 (11,638) 19,297 29
Net income --- --- --- --- --- --- 1,699 ---
Cash dividends --- --- --- --- --- --- (175) ---
Other comprehensive income (loss):
Unrealized foreign currency translation --- --- --- --- --- --- --- 49
Unrealized holding loss --- --- --- --- --- --- --- (78)
Exercise of stock options --- --- --- --- (3) 27 --- ---
Class B conversion to common stock 354 --- (354) --- --- --- --- ---
-----------------------------------------------------------------------------------
Balance December 31, 1998 2,443,119 2,443 297,286 297 13,901 (11,611) 20,821 0
Net income --- --- --- --- --- --- 788 ---
Cash dividends --- --- --- --- --- --- (175) ---
Other comprehensive income (loss):
Unrealized foreign currency translation --- --- --- --- --- --- --- (142)
Unrealized holding loss --- --- --- --- --- --- --- (83)
Common stock acquired (31,656 shares) --- --- --- --- --- (226) --- ---
Class B conversion to common stock 1,281 1 (1,281) (1) --- --- --- ---
-----------------------------------------------------------------------------------
Balance December 31, 1999 2,444,400 $2,444 296,005 $296 $13,901 $(11,837) $21,434 $(225)
================================================================================================================================
The accompanying notes are an integral part of these consolidated statements.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
In thousands Years ended December 31 1999 1998 1997
------------------------------------------------------------------------------------------------------------------
Net income $ 788 $1,699 $1,510
Other comprehensive income / (loss), net of tax:
Unrealized foreign currency translation (142) 49 23
Unrealized holding gain / (loss) on securities (83) (78) 64
-----------------------------------
Total other comprehensive income / (loss) (225) (29) 87
Comprehensive income $ 563 $1,670 $1,597
------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements.
17
Notes To Consolidated Financial Statements
1. Summary of Significant Accounting Policies
Principles of consolidation: The consolidated financial statements include the
accounts of Trans-Lux Corporation and its majority-owned subsidiaries (the
Company). The investment in a 50% owned joint venture partnership, MetroLux
Theatres, is reflected under the equity method and is recorded as a component of
other income in the Consolidated Statements of Income.
Cash equivalents: The Company considers all highly liquid investments
with a maturity of three months or less, when purchased, to be cash equivalents.
Available-for-sale securities: Available-for-sale securities consist
of common and preferred stock holdings and corporate debt securities and are
stated at fair value.
Inventories: Inventories are stated at the lower of cost (first-in,
first-out method) or market value.
Equipment on rental and property, plant and equipment: Equipment on
rental and property, plant and equipment are stated at cost and are being
depreciated over their respective useful lives using straight line or 150%
declining balance methods. Leaseholds and improvements are amortized over the
lesser of the useful lives or term of the lease. The estimated useful lives are
as follows:
- - ------------------------------------------------------------
Equipment on rental 5 to 15 years
Buildings and improvements 10 to 45 years
Machinery, fixtures and equipment 4 to 15 years
Leaseholds and improvements 2 to 17 years
- - ------------------------------------------------------------
When equipment on rental and property, plant and equipment are fully
depreciated, retired or otherwise disposed of, the cost and accumulated
depreciation are eliminated from the accounts.
Goodwill and intangibles: Goodwill and intangible assets are amortized
on a straight line basis, using the following useful lives: Goodwill over 20
years; non-compete agreements over their contractual terms of five and seven
years; deferred financing costs over the life of the related debt; and patents
and other intangibles over 14 to 30 years.
Maintenance contracts: Purchased maintenance contracts are stated at
cost and are being amortized over their economic lives of eight to 15 years
using an accelerated method which contemplates contract expiration, fall-out,
and non-renewal.
Impairment of long-lived assets: The Company evaluates long-lived
assets, including intangible assets and goodwill, for possible impairment when
events or changes in circumstances indicate that the carrying amount of such
assets may not be recoverable. In making such an evaluation, the Company
estimates the future cash flows expected to result from the use of the asset and
its eventual disposition to measure whether the asset is recoverable.
Revenue recognition: Rental revenue from leasing of equipment and
revenue from maintenance contracts are recognized as they accrue during the term
of the respective agreements. The Company recognizes revenues on long-term
equipment sales contracts, which require more than three months to complete,
using the percentage of completion method. The Company records unbilled
receivables representing amounts due under these long-term equipment sales
contracts which have not yet been billed to the customer. Income is recognized
based on the percentage of incurred costs to the estimated total costs.
Revenues on equipment sales, other than long-term equipment sales contracts, are
recognized upon shipment. Theatre receipts and other revenues are recognized at
time service is provided.
Taxes on income: The Company computes income taxes using the asset and
liability method, under which deferred income taxes are provided for the
temporary differences between the financial reporting basis and the tax basis of
the assets and liabilities.
Foreign currency: The functional currency of the Company's non-U.S.
business operations is the applicable local currency. The assets and
liabilities of such operations are translated into U.S. dollars at the year-
end rate of exchange, and the income and cash flow statements are converted at
the average annual rate of exchange. The resulting translation adjustment is
recorded as a separate component of stockholders' equity. Gains and losses
related to the settling of transactions not denominated in the functional
currency are recorded as a component of general and administrative expenses in
the Consolidated Statements of Income.
Derivative financial instruments: The Company has limited involvement
with derivative financial instruments and does not use them for trading
purposes; they are only used to manage well-defined interest rate risks. From
time to time the Company enters into interest rate swap agreements to reduce
exposure to interest fluctuations. The net gain or loss from the exchange of
interest rate payments is included in interest expense in the Consolidated
Statements of Income and in interest paid in the Consolidated Statements of Cash
Flows.
Accounting pronouncement: The Company will adopt the provisions of
Statement of Financial Accounting Standards No. 133 "Accounting for Derivative
Instruments and Hedging Activities" (SFAS 133) effective January 1, 2001. The
standard requires companies to recognize all derivatives as either assets or
liabilities and measure those instruments at fair value. Gains or losses
resulting from changes in the values of those derivatives would be accounted for
depending on the use of the derivative and whether it qualifies for hedge
accounting. The Company does not expect the adoption of SFAS 133 to have a
material impact on its consolidated financial statements.
Use of estimates: The preparation of financial statements in conformity
with 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 financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Reclassifications: Certain reclassifications of prior years' amounts
have been made to conform to the current year's presentation.
18
2. Available-for-Sale Securities
Available-for-sale securities are carried at estimated fair values and the
unrealized holding gains and losses are excluded from earnings and are reported
net of income taxes in a separate component of stockholders' equity until
realized. Adjustments of $105,000 and $53,000 (before reclassification
adjustment for realized gains and losses) were made to equity to reflect the net
unrealized losses on available-for-sale securities as of December 31, 1999 and
1998, respectively. The Company realized gains /(losses) on the sales of
available-for-sale securities of ($3,000) in 1999 and $88,000 in 1998.
Available-for-sale securities consist of the following:
1999 1998
- - ------------------------------------------------------------------------------
Fair Unrealized Fair Unrealized
In thousands Value Gains/(Losses) Value Gains/(Losses)
------------------------------------------------
Equity securities $ 473 $(232) $ 609 $(95)
Corporate debt securities-
maturities of up to 5 years 3,193 (45) 4,305 10
----- ----- ----- ----
$3,666 $(277) $4,914 $(85)
- - ------------------------------------------------------------------------------
3. Inventories
Inventories consist of the following:
In thousands 1999 1998
- - ----------------------------------------------------------------
Raw materials and spare parts $3,532 $3,230
Work-in-progress 1,459 1,218
Finished goods 1,155 933
----- -----
$6,146 $5,381
- - ----------------------------------------------------------------
4. Property, Plant and Equipment
Property, plant and equipment consist of the following:
In thousands 1999 1998
- - ----------------------------------------------------------------
Land, buildings and improvements $27,437 $18,335
Machinery, fixtures and equipment 13,133 9,558
Leaseholds and improvements 3,841 2,923
------ ------
$44,411 $30,816
- - ----------------------------------------------------------------
Land, buildings and equipment having a net book value of $20.5 million and $7.4
million at December 31, 1999 and 1998, respectively, were pledged as collateral
under mortgage agreements.
5. Other Assets
Other assets consist of the following:
In thousands 1999 1998
- - -------------------------------------------------------------------------------
Deferred financing costs, net of
accumulated amortization of $957 - 1999
and $729 - 1998 $1,861 $1,828
Goodwill and noncompete agreements,
net of accumulated amortization of $834 -
1999 and $630 - 1998 1,473 1,667
Investment in and loans to joint ventures 964 899
Prepaids, including pension asset 781 850
Maintenance contracts, net of accumulated
amortization of $1,980 - 1999
and $1,827 - 1998 645 798
Patents and other intangibles, net of
accumulated amortization of $386 - 1999
and $320 - 1998 152 218
Deposits and other 573 524
----- -----
$6,449 $6,784
- - -------------------------------------------------------------------------------
Deferred financing costs relate to issuance of the 7-1/2% convertible
subordinated notes, the 9-1/2% subordinated debentures, and other financing
agreements.
Goodwill and noncompete agreements relate to the acquisition of
Integrated Systems Engineering, Inc. and Fairtron.
The loan to the joint venture, MetroLux Theatres, had a balance of
$596,000 and $690,000 at December 31, 1999 and 1998, respectively, of which
$94,000 was classified as current at both dates.
Maintenance contracts represent the present value of acquired
agreements to service outdoor display equipment.
6. Acquisition
On May 1, 1997, the Company acquired the catalog and custom scoreboard sign
business segment of Fairtron Corporation "Fairtron", an Iowa corporation. The
results of operations have been included in the Company's consolidated financial
statements since the date of acquisition.
The pro forma data presented below gives effect to the acquisition as if
the acquisition had occurred on January 1, 1997. Such pro forma data should be
read in conjunction with the Company's consolidated financial statements, and
does not purport to represent what the Company's results of operations would
have been if the acquisition had actually occurred on January 1, 1997.
In thousands, except per share data 1997
- - ------------------------------------------------------------
Unaudited
Revenues $57,816
Net income $ 1,560
Earnings per share-basic $ 1.22
Earnings per share-diluted $ 0.81
- - ------------------------------------------------------------
7. Taxes on Income
The components of income tax expense are as follows:
In thousands 1999 1998 1997
- - ----------------------------------------------------------------------
Current:
Federal $277 $ 637 $ (1)
State and local 64 144 165
Foreign 129 18 -
----------------------------------
470 799 164
Deferred:
Federal (157) 304 1,094
State and local 131 226 79
----------------------------------
(26) 530 1,173
----------------------------------
Total income tax expense $444 $1,329 $1,337
- - ----------------------------------------------------------------------
Income taxes provided differed from the expected federal statutory rate of
34% as follows:
1999 1998 1997
- - -----------------------------------------------------------------------------
Statutory federal income tax rate 34.0% 34.0% 34.0%
State income taxes, net of federal benefit 10.4 8.1 5.7
Foreign losses / (income) (12.8) - 6.0
Other 4.4 1.8 1.3
----------------------------
Effective income tax rate 36.0% 43.9% 47.0%
- - -----------------------------------------------------------------------------
19
Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax assets and liabilities are as follows:
In thousands 1999 1998
- - ---------------------------------------------------------------------
Deferred tax asset:
Tax credit carryforwards $ 2,469 $2,143
Operating loss carryforwards 1,852 616
Depreciation and amortization 404 446
Net pension cost 247 204
Litigation 176 -
Other 695 591
Valuation allowance (219) (202)
---------------------
5,624 3,798
Deferred tax liability:
Depreciation 9,213 7,637
Gain on purchase of
Company's 9% debentures 439 439
Net pension benefit 373 373
Other 205 167
---------------------
10,230 8,616
---------------------
Net deferred tax liability $ 4,606 $4,818
- - --------------------------------------------------------------------
Tax credit carryforwards primarily relate to federal alternative minimum taxes
paid by the Company which may be carried forward indefinitely. Operating tax
loss carryforwards primarily relate to federal net operating loss carryforwards
of approximately $4.3 million which begin to expire in 2019.
A valuation allowance has been established for the amount of deferred tax assets
related to certain net operating loss carryforwards which management estimates
will more likely than not expire unused.
8. Accrued Liabilities
Accrued liabilities consist of the following:
In thousands 1999 1998
- - --------------------------------------------------------------------
Compensation and employee benefits $1,298 $1,613
Taxes payable 999 1,149
Interest payable 617 487
Other 2,179 1,490
--------------------
$5,093 $4,739
- - --------------------------------------------------------------------
9. Long-Term Debt
Long-term debt consist of the following:
In thousands 1999 1998
- - ------------------------------------------------------------------------------
7-1/2% convertible subordinated notes due 2006 $30,490 $31,625
9-1/2% subordinated debentures due 2012 1,057 1,057
Term loans - bank, secured due in quarterly installments
through 2005 8,712 8,712
Revolving credit facility - bank, secured 8,750 3,400
Real estate mortgages - secured, due in monthly
installments through 2020 9,478 4,506
Loan payable - IRB, due in annual installments through
2014 4,825 -
Construction loans - secured 4,326 -
Loan payable - CEBA, secured due in monthly installments
through 2006 at 0.0% 336 -
Loan payable - CDA, secured due in monthly installments
through 2002 at 5.0% 219 299
Capital lease obligations - secured, due in monthly
installments through 2004 at 5.3% 140 182
-------------------
68,333 49,781
Less portion due within one year 2,381 258
-------------------
Long-term debt $65,952 $49,523
- - ------------------------------------------------------------------------------
Payments of long-term debt due for the next five years are:
In thousands 2000 2001 2002 2003 2004
- - --------------------------------------------------------------------
$2,381 $2,463 $2,756 $3,601 $3,637
- - --------------------------------------------------------------------
The 7-1/2% convertible subordinated notes (the "Notes") are due in 2006.
Interest is payable semiannually. The Notes are convertible into Common Stock
of the Company at a conversion price of $14.013 per share. The Notes may be
redeemed by the Company, in whole or in part, at any time on or after December
1, 2001 at declining premiums. The related Indenture agreement contains certain
financial covenants which include limitations on the Company's ability to incur
indebtedness of five times EBITDA plus $5.0 million. During 1999, the Company
repurchased $1,135,000 face value of its Notes at an average price of $85.80.
The Company recognized $69,000 of income (net of tax), $0.05 per share, basic
and diluted.
The 9-1/2% subordinated debentures (the "Debentures") are due in annual
sinking fund payments of $105,700, beginning in 2009 with the remainder due in
2012. Interest is payable semiannually. The Debentures may be redeemed by the
Company, in whole or in part, at any time on or after December 1, 1999 at
declining premiums.
The Company has a bank Credit Agreement, which was amended subsequent to
year end, which provides for both term loans and a $15 million revolving credit
facility which is available until June 2002. The Company has provided the bank
with a security interest in substantially all assets of its display business.
At December 31, 1999, under the term loans, $5.7 million and $3.0 million were
outstanding, under the revolving credit facility, $8.8 million was outstanding
leaving $5.8 million in borrowing capacity under this facility. The Credit
Agreement contains certain financial covenants including a defined debt service
coverage ratio of 1.75 to 1.0, a defined debt to cash flow ratio of 3.5 to 1.0
and a limitation on cash dividends. The term loans bear interest at LIBOR plus
1.75%. At December 31, 1999 there were two interest rate swap agreements in
place, with a notional value equal to the amount of the two term loans and with
corresponding maturity terms, which have the effect of converting the interest
rate on such term loans to a fixed average annual rate of 7.86% through July
2002. At December 31, 1999, the gain to the Company to terminate the interest
rate swap agreements was $79,000. Payments on the $3.0 million term loan are
due in even quarterly installments through July 2002, payments on the $5.7
million term loan are due in even quarterly installments through July 2005 and a
final maturity of $2.7 million in August 2005.
The borrowings under the revolving credit facility can be converted to a
four-year term loan under the Credit Agreement. Upon conversion to a term loan,
the revolving credit borrowings would be repayable in even quarterly
installments until maturity. Interest is computed at LIBOR plus 2.0% (7.8225%
at December 31, 1999).
The Company has mortgages on certain of its facilities, which are
payable in monthly installments, the last of which extends to 2020. Depending
upon the mortgage, the interest rate is either fixed, floating or adjustable.
At December 31, 1999, such interest rates ranged from 7.75% to 8.65%.
20
On June 3, 1999 as part of a loan agreement entered into with the City of
Logan, Cache County, Utah, the Company financed $4.8 million of a combination of
Tax-Exempt and Taxable Revenue Bonds ("Bonds") for the construction of a new
55,000 square foot outdoor display facility in Logan, Utah. The Bonds are
secured by an irrevocable letter of credit issued by a bank. At the direction
of the Company, the Bonds may be redeemed in whole or in part prior to maturity
date. The Bonds were issued with a variable interest rate based upon a Weekly
Rate (as determined by a Remarketing Agent) which is the minimum rate necessary
for the Remarketing Agent to sell the Bonds on the effective date of such Weekly
Rate at a price equal to 100% of the Bonds' principal amount without regard to
accrued interest. The Company may from time to time change the method of
determining the interest rate to a daily, weekly, commercial paper or long-term
interest rate. At December 31, 1999, the interest rates on the Bonds were 5.50%
and 6.75%, respectively, plus a 1.25% letter of credit fee.
The Company has construction loans for certain of its theatre properties
being constructed, which do not require monthly principal installments and
mature in 2000. Certain of the loans will convert into mortgages with a final
maturity in 2020. Depending on the loan, the interest rate is either fixed or
floating. At December 31, 1999, such interest rates ranged from 7.75% to 8.65%.
During 1999, the Company incurred interest costs of $4.6 million of which
$0.4 million was capitalized during construction of qualified assets. At
December 31, 1999, the fair value of the Notes and the Debentures was $26.2
million and $1.0 million, respectively. The fair value of the remaining
long-term debt approximates the carrying value.
10. Stockholders' Equity
During 1999, the Board of Directors declared four quarterly cash dividends of
$0.035 per share on the Company's Common Stock and $0.0315 per share on the
Company's Class B Stock, which were paid in April, July and October 1999 and
January 2000. Each share of Class B Stock is convertible at any time into one
share of Common Stock and has ten votes per share, as compared to Common Stock
which has one vote per share but receives a higher dividend.
The Company has 3.0 million shares of authorized and unissued capital
stock designated as Class A Stock, $1.00 par value. Such shares would have no
voting rights except as required by law and would receive a 10% higher dividend
than the Common Stock. The Company also has 0.5 million shares of authorized
and unissued capital stock designated as Preferred Stock, $1.00 par value.
During 1999, the Board of Directors authorized the repurchase, from time
to time, of up to $400,000 in shares of the Company's Common Stock. As of
December 31, 1999, under this program, the Company had purchased 31,656 shares
at a cost of $226,000.
During 1998, the stockholders approved an increase in the authorized
shares of Common Stock to 11.0 million and Class A Stock to 6.0 million. A
Certificate of Amendment increasing the authorized shares will be filed when
deemed necessary.
Shares of Common Stock reserved for future issuance in connection with
convertible securities and stock option plans were 2.3 million at both December
31, 1999 and 1998.
11. Engineering Development
Engineering development expense was $535,000, $352,000 and $322,000 for 1999,
1998 and 1997, respectively.
12. Pension Plan
All eligible salaried employees of Trans-Lux Corporation and certain of its
subsidiaries are covered by a non-contributory defined benefit pension plan.
Pension benefits vest after five years of service and are based on years of
service and final average salary. The Company's general funding policy is to
contribute amounts sufficient to satisfy regulatory funding standards. At
December 31, 1999, plan assets consist principally of insurance company funds,
mutual funds and $92,000 in the Company's 9-1/2% subordinated debentures.
The funded status of the plan as of December 31, 1999 and 1998 is as
follows:
In thousands 1999 1998
- - -----------------------------------------------------------------------------
Change in projected benefit obligation
- - --------------------------------------
Projected benefit obligation at beginning of year $6,625 $ 5,740
Service cost 565 535
Interest cost 446 401
Actuarial (gain)/loss (657) 273
Benefits paid (541) (324)
------ ------
Projected benefit obligation at end of year $6,438 $ 6,625
------ ------
Change in plan assets
- - ---------------------
Fair value of plan assets at beginning of year $5,320 $ 4,612
Actual return on plan assets 752 475
Company contributions 457 557
Benefits paid (541) (324)
------ ------
Fair value of plan assets at end of year $5,988 $ 5,320
------ ------
Funded status (underfunded)
- - ---------------------------
Funded status $ (450) $(1,305)
Unrecognized net actuarial (gain)/loss 732 1,693
Unrecognized prior service cost 13 15
------ ------
Prepaid benefit cost $ 295 $ 403
------ ------
Weighted-average assumptions as of December 31
- - ----------------------------------------------
Discount rate 7.75% 6.75%
Expected return on plan assets 9.50% 9.50%
Rate of compensation increase 4.50% 4.00%
- - ------------------------------------------------------------------------------
The following items are components of the net periodic pension cost for the
three years ended December 31, 1999:
In thousands 1999 1998 1997
- - -----------------------------------------------------------------------------
Service cost $ 565 $ 535 $ 371
Interest cost 446 401 365
Expected return on plan assets (536) (481) (429)
Amortization of prior service cost 2 2 2
Amortization of transition asset - (12) (40)
Amortization of net actuarial loss 88 59 36
--- --- ---
Net periodic pension cost - funded plan $ 565 $ 504 $ 305
- - -----------------------------------------------------------------------------
In addition, the Company provides unfunded supplemental retirement benefits for
the Chief Executive Officer. The Company accrued $97,000, $97,000 and $62,000
for 1999, 1998 and 1997, respectively, for such benefits. The total liability
accrued was $472,000, $375,000 and $278,000 at December 31, 1999, 1998 and 1997,
respectively.
The Company does not offer any postretirement benefits other than the
pension and the supplemental retirement benefits described herein.
21
13. Stock Option Plans
The Company has three stock option plans. The 1995 Stock Option Plan and the
1992 Stock Option Plan reserved 100,000 and 50,000 shares of Common Stock,
respectively, for grant to key employees. The Non-Employee Director Stock
Option Plan reserved 30,000 shares of Common Stock for grant.
Changes in the stock option plans are as follows:
Weighted
Number of Shares Average
Authorized Granted Available Exercise Price
- - --------------------------------------------------------------------------------
Balance December 31, 1996 180,294 85,594 94,700 $ 8.33
Granted - 27,600 (27,600) 11.26
Exercised (6,644) (6,644) - 7.33
----------------------------------------------------
Balance December 31, 1997 173,650 106,550 67,100 9.14
Terminated (12,500) (13,400) 900 7.54
Granted - 1,000 (1,000) 13.00
Exercised (8,341) (8,341) - 7.57
----------------------------------------------------
Balance December 31, 1998 152,809 85,809 67,000 9.58
Terminated (300) (1,300) 1,000 7.71
Granted - 44,000 (44,000) 8.83
----------------------------------------------------
Balance December 31, 1999 152,509 128,509 24,000 $ 9.35
- - --------------------------------------------------------------------------------
Under the 1995 and 1992 Stock Option Plans, option prices must be at least 100%
of the market value of the Common Stock at time of grant. No option may be
exercised prior to one year after date of grant. Exercise periods are for ten
years from date of grant (five years if the optionee owns more than 10% of the
voting power) and terminate at a stipulated period of time after an employee's
termination of employment. At December 31, 1999, under the 1995 Plan, options
for 85,739 shares (granted in 1999, 1998, 1997 and 1995) with exercise prices
ranging from $8.125 to $15.1875 per share were outstanding, 48,739 shares of
which were exercisable. During 1999, options for 42,500 shares were granted at
exercise prices ranging from $8.80 to $9.00 per share, no options were exercised
and options for 1,000 shares expired. During 1998, options for 4,411 shares
(granted in 1995) with an exercise price of $8.125 per share were exercised, and
options for 900 shares expired. During 1997, options for 27,100 shares were
granted at exercise prices ranging from $11.0625 to $15.1875 per share, and
options for 1,350 shares (granted in 1995) with an exercise price of $8.125 per
share were exercised.
At December 31, 1999, under the 1992 Plan, options for 31,270 shares
(granted in 1995, 1994, 1993 and 1992) with exercise prices ranging from $6.3125
to $9.6875 per share were outstanding, all of which were exercisable. During
1999, no options were exercised, and options for 300 shares expired. During
1998, options for 3,930 shares (granted in 1993 and 1992) with exercise prices
ranging from $6.3125 to $7.5625 per share were exercised. During 1997, options
for 5,294 shares (granted in 1993 and 1992) with exercise prices ranging from
$6.3125 to $7.5625 per share were exercised.
Under the Non-Employee Director Stock Option Plan, option prices must be
at least 100% of the market value of the Common Stock at time of grant. No
option may be exercised prior to one year after date of grant and the optionee
must be a director of the Company at time of exercise, except in certain cases
as permitted by the Compensation Committee. Exercise periods are for six years
from date of grant and terminate at a stipulated period of time after an
optionee ceases to be a director. At December 31, 1999, options for 11,500
shares (granted in 1999, 1998, 1997, 1996, 1995, and 1994) with exercise prices
ranging from $8.00 to $13.00 per share were outstanding, 10,000 shares of which
were exercisable. During 1999, options for 1,500 shares were granted at an
exercise price of $8.00 per share, and no options were exercised. During 1998,
options for 1,000 shares were granted at an exercise price of $13.00 per share,
and no options were exercised. During 1997, options for 500 shares were granted
at an exercise price of $12.00 per share, and no options were exercised.
The following tables summarize information about stock options outstanding
at December 31, 1999:
Weighted Average
Range of Number Remaining Weighted Average
Exercise Prices Outstanding Contractual Life Exercise Price
- - ----------------------------------------------------------------------------
$ 6.31 - $ 7.56 8,970 3.2 $ 6.86
7.57 - 8.63 32,039 5.2 8.13
8.64 - 9.69 51,900 5.6 8.99
9.70 - 12.63 33,500 6.1 11.41
12.64 - 15.19 2,100 6.2 14.15
-------------------------------------------------------
128,509 5.5 $ 9.35
- - ----------------------------------------------------------------------------
Range of Number Weighted Average
Exercise Prices Excercisable Exercise Price
- - -------------------------------------------------------------
$ 6.31 - $ 7.56 8,970 $ 6.86
7.57 - 8.63 30,539 8.14
8.64 - 9.69 21,900 9.26
9.70 - 12.63 26,500 11.51
12.64 - 15.19 2,100 14.15
-------------------------------------
90,009 $ 9.42
- - -------------------------------------------------------------
The estimated fair value of options granted during 1999, 1998 and 1997 was
$3.93, $5.24, and $3.64 per share, respectively. The Company applies Accounting
Principles Board Opinion No. 25 and related Interpretations in accounting for
its stock option plans. Accordingly, no compensation cost has been recognized
for its stock option plans. Had compensation cost for the Company's stock
option plans been determined based on the fair value at option grant dates for
awards in accordance with the accounting provisions of Statement of Financial
Accounting Standards No. 123 (SFAS 123), the Company's net income and earnings
per share for the years ended December 31, 1999, 1998 and 1997 would have been
reduced to the pro forma amounts indicated below:
In thousands, except per share data 1999 1998 1997
- - ------------------------------------------------------------------------------
Net income applicable to common shareholders
Basic:
As reported $788 $1,699 $1,510
Pro forma 737 1,676 1,477
- - ------------------------------------------------------------------------------
Net income per common and common equivalent share
Basic:
As reported $0.61 $ 1.32 $ 1.18
Pro forma 0.56 1.30 1.15
Diluted:
As reported 0.61 0.85 0.80
Pro forma 0.56 0.84 0.79
- - ------------------------------------------------------------------------------
The fair value of options granted under the Company's stock option plans during
1999, 1998 and 1997 was estimated on dates of grant using the binomial
options-pricing model with the following weighted-average assumptions used:
dividend yield of approximately 1.77% in 1999, 1.24% in 1998, and 1.05% in 1997,
expected volatility of approximately 37% in 1999, 38% in 1998, and 33% in 1997,
risk free interest rate of approximately 6.48% in 1999, 5.1% in 1998 and 6.0% in
22
1997, and expected lives of option grants of approximately four years in 1999,
1998 and 1997. The effects of applying SFAS 123 in this pro forma disclosure
are not indicative of future pro forma effects, and additional awards in future
years are anticipated.
14. Earnings per Share
The following table represents the computation of basic and diluted earnings per
common share for the three years ended December 31, 1999:
In thousands, except per share data 1999 1998 1997
- - ------------------------------------------------------------------------------
Basic earnings per share computation:
Net income $ 788 $1,699 $1,510
---------------------------------
Weighted average common
shares outstanding 1,286 1,290 1,281
---------------------------------
Basic earnings per common share $ 0.61 $ 1.32 1.18
---------------------------------
Diluted earnings per share computation:
Net income $ 788 $1,699 $1,510
Add: After tax interest expense
applicable to convertible debt (1) - 1,411 1,447
Add: After tax changes to income
applicable to assumed conversion - (98) (78)
---------------------------------
Adjusted net income $ 788 $3,012 $2,879
---------------------------------
Weighted average common
shares outstanding 1,286 1,290 1,281
Assumes exercise of options reduced
by the number of shares which could
have been purchased with the proceeds
from exercise of such options (2) 2 7 30
Assumes conversion of 9% convertible
subordinated debentures - - 59
Assumes conversion of 7-1/2%
convertible subordinated notes (1) - 2,257 2,247
---------------------------------
Total weighted average shares 1,288 3,554 3,617
---------------------------------
Diluted earnings per common share $ 0.61 $ 0.85 $ 0.80
- - ------------------------------------------------------------------------------
(1) The incremental shares from the assumed conversion of the Company's 7-1/2%
convertible subordinated notes are not included in the 1999 diluted earnings
per share calculation, as the effect is antidilutive.
(2) Options to purchase 89 shares of common stock with exercise prices ranging
from $8.625 to $15.1875 per share were outstanding at December 31, 1999, but
were not included in the 1999 diluted earnings per share calculation because
the options exercise price was greater than the average market price of the
common share.
15. Commitments and Contingencies
Contingencies: The Company has employment agreements with certain executive
officers which expire at various dates through December 2007. At December 31,
1999, the aggregate commitment for future salaries, excluding bonuses, was
approximately $5.3 million.
During 1999, the Company received $400,000 structured as forgivable loans
from the State of Iowa, City of Des Moines and Polk County which are classified
as deferred revenue, deposits and other in the Consolidated Balance Sheet. The
loans will be forgiven on a pro-rata basis when predetermined employment levels
are attained.
During 1996, the Company received a $350,000 grant from the State of
Connecticut Department of Economic Development which are classified as deferred
revenue, deposits and other in the Consolidated Balance Sheet. This grant will
be forgiven under certain circumstances, which includes attainment of
predetermined employment levels within the state and maintaining business
operations within the state for a specified period of time.
The Company is subject to legal proceedings and claims which arise in the
ordinary course of its business. During June 1999, a jury in the state of New
Mexico awarded a former employee of the Company $15,000 in damages for lost
wages and emotional distress and $393,000 in punitive damages on a retaliatory
discharge claim. The Company denied the charges on the basis that the
termination was proper and is appealing such verdict. The Company believes it
has made adequate provisions during 1999 to cover such matters. In January
2000, a second former employee of the Company commenced a retaliatory discharge
action seeking compensatory and punitive damages in an unspecified amount. The
Company has denied such allegations and asserted defenses including that the
former employee resigned following her failure to timely report to work.
Certain of the amounts are subject to insurance recoveries.
Operating leases: Theatre and other premises are occupied under operating
leases that expire at varying dates through 2044. Certain of these leases
provide for the payment of real estate taxes and other occupancy costs. Future
minimum lease payments due under operating leases at December 31, 1999 are as
follows: $685,000 - 2000, $541,000 - 2001, $487,000 - 2002, $492,000 - 2003,
$474,000 - 2004, $4,263,000 - thereafter. Rent expense was $601,000, $585,000,
and $456,000 in the years ended December 31, 1999, 1998 and 1997, respectively.
Guarantees: The Company has guaranteed a $2.6 million mortgage loan
obtained by its joint venture, MetroLux Theatres. The Company has received a
guarantee from the unrelated general partner of MetroLux Theatres for their
pro-rata share of the indebtedness.
16. Business Segment Data
Operating segments are based on the Company's business components about which
separate financial information is available, and is evaluated regularly by the
Company's chief operating decision maker, in deciding how to allocate resources
and in assessing performance.
The Company evaluates segment performance and allocates resources based
upon operating income. The Company's operations have been classified into three
reportable business segments. The Display Division comprises two operating
segments, indoor display and outdoor display. Both design, produce, lease, sell
and service large-scale, multi-color, real-time electronic information displays.
Both operating segments are conducted on a global basis, primarily through
operations in the U.S. The Company also has operations in Canada and Australia.
The indoor display and outdoor display segments are differentiated primarily by
the customers they serve. The Entertainment and Real Estate Division owns and
operates a chain of motion picture theatres in the western Mountain States and
owns real estate used for both corporate and income-producing purposes in the
U.S. and Canada. The accounting policies applied to segment information are
the same as those described in the summary of significant accounting policies.
23
Segment operating income is shown after general and administrative expenses
directly associated with the segment and includes the operating results of the
joint venture activities. Corporate items relate to resources and costs which
are not directly identifiable with a segment. There are no intersegment sales.
Information about the Company's operations in its three business segments for
the three years ended December 31, 1999 is as follows:
In thousands 1999 1998 1997
- - -------------------------------------------------------------------------------
Revenues:
Indoor display $ 23,419 $25,983 $21,557
Outdoor display 31,344 31,056 26,349
Entertainment and real estate 8,055 6,739 5,457
---------------------------------
Total revenues $ 62,818 $63,778 $53,363
---------------------------------
Operating income:
Indoor display $ 7,331 $ 7,650 $ 5,794
Outdoor display 2,252 4,078 4,539
Entertainment and real estate 1,027 811 711
---------------------------------
Total operating income 10,610 12,539 11,044
Other income 258 123 193
Corporate general and administrative expenses (5,977) (6,182) (5,228)
Interest expense - net (3,659) (3,452) (3,162)
---------------------------------
Income before income taxes $ 1,232 $ 3,028 $ 2,847
---------------------------------
Assets:
Indoor display $ 42,283 $40,719
Outdoor display 36,956 30,502
Entertainment and real estate 24,931 12,704
--------------------
Total identifiable assets 104,170 83,925
General corporate 8,278 7,221
--------------------
Total assets $112,448 $91,146
--------------------
Depreciation and amortization:
Indoor display $ 4,853 $ 4,238 $ 3,464
Outdoor display 2,581 2,459 2,344
Entertainment and real estate 594 475 380
General corporate 654 690 888
---------------------------------
Total depreciation and amortization $ 8,682 $ 7,862 $ 7,076
---------------------------------
Capital expenditures:
Indoor display $ 5,820 $ 6,847 $ 9,215
Outdoor display 4,147 1,798 2,061
Entertainment and real estate 10,101 3,920 1,039
General corporate 297 397 197
---------------------------------
Total capital expenditures $ 20,365 $12,962 $12,512
- - ------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
DELOITTE & TOUCHE
To the Board of Directors and Stockholders of Trans-Lux Corporation:
We have audited the accompanying consolidated balance sheets of Trans-Lux
Corporation and subsidiaries as of December 31, 1999 and 1998 and the related
consolidated statements of income, comprehensive income, cash flows and
stockholders' equity for each of the three years in the period ended December
31, 1999. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company and its
subsidiaries at December 31, 1999 and 1998 and the results of their operations,
and their cash flows for each of the three years in the period ended December
31, 1999 in conformity with accounting principles generally accepted in the
United States of America.
/s/ DELOITTE & TOUCHE LLP
Stamford, Connecticut
February 29, 2000
24
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) The information required by this Item with respect to directors is
incorporated herein by reference to the Section entitled "Election of
Directors" in the Company's Proxy Statement.
(b) The following executive officers were elected by the Board of Directors
for the ensuing year and until their respective successors are elected.
Name Office Age
------------------ ----------------------------- ---
Richard Brandt Chairman of the Board 72
Victor Liss Vice Chairman of the Board, 63
President and Chief Executive
Officer
Michael R. Mulcahy Executive Vice President 51
Matthew Brandt Senior Vice President 36
Thomas Brandt Senior Vice President 36
Karl P. Hirschauer Senior Vice President 54
Thomas F. Mahoney Senior Vice President 52
Al L. Miller Senior Vice President 54
Angela D. Toppi Senior Vice President, Treasurer, 44
Secretary and Chief Financial Officer
Messrs. R. Brandt, Liss, Mulcahy, Hirschauer and Ms. Toppi have been
associated in an executive capacity with the Company for more than five years.
Messrs. M. Brandt and T. Brandt were elected Senior Vice Presidents
in charge of theatre operations on September 27, 1997 and have been employed
since 1985. They each served as Vice Presidents in charge of theatre operations
between May 22, 1991 and September 27, 1997.
Mr. Mahoney was elected Senior Vice President in charge of sales on
June 1, 1996 and has been employed by the Company since 1967. Mr. Mahoney
served as Assistant Vice President of sales between December 1, 1994 and June 1,
1996.
25
Mr. Miller was elected Senior Vice President in charge of manufacturing
and materials on September 27, 1997, on February 1, 2000, field service
operations was added to his area of responsibility. Mr. Miller has been
employed by the Company since 1995. Mr. Miller served as Vice President in
charge of manufacturing and materials between March 13, 1995 and September 27,
1997. Mr. Miller was self-employed as a consultant between 1994 and 1995.
(c) The information required by Item 405 of Regulation S-K is incorporated
herein by reference to the Section entitled "Compliance with Section 16(a)
of the Securities Exchange Act of 1934" in the Company's Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein by reference to
the Section entitled "Executive Compensation and Transactions with Management"
in the Company's Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated herein by reference to
the Section entitled "Security Ownership of Certain Beneficial Owners, Directors
and Executive Officers" in the Company's Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated herein by reference to
the Section entitled "Executive Compensation and Transactions with Management"
in the Company's Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
(1) Financial Statements:
Consolidated Statements of Income for the Years Ended December
31, 1999, 1998 and 1997.
Consolidated Balance Sheets as of December 31, 1999 and 1998.
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1999, 1998 and 1997.
Consolidated Statements of Stockholders' Equity for the Years
Ended December 31, 1999, 1998 and 1997.
Consolidated Statements of Comprehensive Income for the Years
Ended December 31, 1999, 1998 and 1997.
Notes to Consolidated Financial Statements.
Independent Auditors' Report.
Individual financial statements for a 50% owned entity accounted for by
the equity method, has been omitted because it does not constitute a
significant subsidiary.
26
(2) Financial Statement Schedules: None
(3) Exhibits:
3(a) Form of Restated Certificate of Incorporation of the Registrant
(incorporated by reference to Exhibit 3.1 of Registration No.
333-15481).
(b) By-Laws of the Registrant (incorporated by reference to Exhibit
3.2 of Registration No. 333-15481).
4(a) Indenture dated as of December 1, 1994 (form of said indenture
is incorporated by reference to Exhibit 6 of Schedule 13E-4
Amendment No.2 dated December 23, 1994).
(b) Indenture dated as of December 1, 1996 (form of said indenture
is incorporated by reference to Exhibit 4.2 of Registration No.
333-15481).
10.1 Form of Indemnity Agreement -- Directors (form of said
agreement is incorporated by reference to Exhibit 10.1 of
Registration No. 333-15481).
10.2 Form of Indemnity Agreement -- Officers (form of said agreement
is incorporated by reference to Exhibit 10.2 of Registration
No. 333-15481).
10.3 Amended and Restated Pension Plan dated August 14, 1996
(incorporated by reference to Exhibit 10.3 of Form 10-K for the
year ended December 31, 1996).
10.4(a) 1989 Non-Employee Director Stock Option Plan, as amended,
included herewith.
(b) 1992 Stock Option Plan (incorporated by reference to Proxy
Statement dated April 3, 1992).
(c) 1995 Stock Option Plan, as amended (incorporated by reference
to Proxy Statement dated April 22, 1996).
10.5 Credit Agreement with First Fidelity Bank dated as of August
28, 1995 (incorporated by reference to Exhibit 10(d) of Form
10-Q for the quarter ended September 30, 1995.) Fourth
Amendment Agreement dated as of December 19, 1997 (incorporated
by reference to Exhibit 10.5 of Form 10-K for the year ended
December 31, 1997). Sixth Amendment Agreement dated as of
November 5, 1998, (incorporated by reference to Exhibit 10.5 of
Form 10-K for the year ended December 31, 1998). Seventh
Amendment Agreement dated as of March 31, 1999 (incorporated by
reference to Exhibit 10 of Form 10-Q for the quarter ended
March 31, 1999). Eighth Amendment Agreement dated as of June
3, 1999 (incorporated by reference to Exhibit 10 of Form 10-Q
for the quarter ended June 30, 1999). Ninth Amendment
Agreement dated as of December 31, 1999, included herewith.
10.6 Employment Agreement with Richard Brandt dated as of September
11, 1998 (incorporated by reference to Exhibit 10(a) of Form
10-Q for the quarter ended September 30, 1998).
27
10.7 Employment Agreement with Victor Liss dated as of January 1,
1997 (incorporated by reference to Exhibit 10.7 of Form 10-K
for the year ended December 31, 1996). Amendment to Employment
Agreement with Victor Liss dated as of September 23, 1999,
included herewith.
10.8 Employment Agreement with Michael R. Mulcahy dated as of June
1, 1998 (incorporated by reference to Exhibit 10(b) of Form
10-Q for the quarter ended September 30, 1998).
10.10 Employment Agreement with Karl Hirschauer dated as of January
1, 2000, included herewith.
10.11 Employment Agreement with Thomas F. Mahoney dated as of June
1, 1998 (incorporated by reference to Exhibit 10 of Form 10-Q
for the quarter ended June 30, 1998).
10.12 Employment Agreement with Al Miller dated as of January 1, 1999
(incorporated by reference to Exhibit 10.12 of Form 10-K for
the year ended December 31, 1998). Amendment to Employment
Agreement with Al Miller dated as of January 1, 2000, included
herewith.
10.13 Employment Agreement with Angela Toppi dated as of January 1,
2000, included herewith.
10.14 Agreement with Nottingham Partners, Deerfield Partners,
Jonathan P. Schwartz and Nathaniel B. Guild dated April 4,
1991 (incorporated by reference to Exhibit 28(a) of Form 8-K
filed April 9, 1991).
10.15 Agreement with Baupost Group, Inc. and Baupost Partners dated
April 4, 1991 (incorporated by reference to Exhibit 28(b) of
Form 8-K filed April 9, 1991).
10.16 Agreement between Trans-Lux Midwest Corporation and Fairtron
Corporation dated as of April 30, 1997 (incorporated by
reference to Exhibit 10(a) of Form 8-K filed May 15, 1997).
21 List of Subsidiaries, included herewith.
27 Financial Data Schedule, which is submitted electronically to
the Securities and Exchange Commission for information only and
not filed.
(c) No reports on Form 8-K were filed during the last quarter of the period
covered by this report.
28
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized:
TRANS-LUX CORPORATION
by /s/ Angela D. Toppi
---------------------
Angela D. Toppi
Senior Vice President and
Chief Financial Officer
by /s/ Robert P. Bosworth
-------------------------
Robert P. Bosworth
Vice President and
Chief Accounting Officer
Dated: March 28, 2000
29
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated:
/s/ Richard Brandt March 28, 2000
- - -------------------------------------
Richard Brandt, Chairman of the Board
/s/ Victor Liss March 28, 2000
- - -------------------------------------
Victor Liss, Vice Chairman of the
Board, President and Chief Executive
Officer
/s/ Steven Baruch March 28, 2000
- - -------------------------------------
Steven Baruch, Director
/s/ Howard M. Brenner March 28, 2000
- - -------------------------------------
Howard M. Brenner, Director
/s/ Jean Firstenberg March 28, 2000
- - -------------------------------------
Jean Firstenberg, Director
/s/ Allan Fromme March 28, 2000
- - -------------------------------------
Allan Fromme, PhD, Director
/s/ Robert Greenes March 28, 2000
- - -------------------------------------
Robert Greenes, Director
/s/ Gene F. Jankowski March 28, 2000
- - -------------------------------------
Gene F. Jankowski, Director
/s/ Howard S. Modlin March 28, 2000
- - -------------------------------------
Howard S. Modlin, Director
30