UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002
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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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(Address of principal executive offices) (Zip code)
(203) 853-4321
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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 the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date.
Date Class Shares Outstanding
8/13/02 Common Stock - $1.00 Par Value 973,243
8/13/02 Class B Stock - $1.00 Par Value 287,505
(Immediately convertible into a like
number of shares of Common Stock.)
TRANS-LUX CORPORATION AND SUBSIDIARIES
Table of Contents
Page No.
Part I - Financial Information
Item 1. Consolidated Balance Sheets -June 30, 2002
and December 31, 2001 (unaudited) 1
Consolidated Statements of Operations
- Three and Six Months
Ended June 30, 2002 and 2001 (unaudited) 2
Consolidated Statements of Cash Flows
- Six Months Ended
June 30, 2002 and 2001 (unaudited) 3
Notes to Consolidated Financial Statements (unaudited) 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Item 3. Quantitative and Qualitative Disclosures about
Market Risk 11
Part II - Other Information
Item 4. Submission of Matters to a Vote of Stockholders 12
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
Part I - Financial Information
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TRANS-LUX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
June 30 December 31
In thousands, except share data 2002 2001
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ASSETS
Current assets:
Cash and cash equivalents $ 6,614 $ 5,699
Available-for-sale securities 525 530
Receivables, less allowance of $874 in 2002 and $465 in 2001 9,494 9,503
Unbilled receivables 1,437 830
Inventories 7,112 6,837
Prepaids and other 799 762
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Total current assets 25,981 24,161
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Equipment on rental 88,423 86,147
Less accumulated depreciation 43,063 39,328
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45,360 46,819
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Property, plant and equipment 48,287 47,944
Less accumulated depreciation and amortization 11,832 10,729
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36,455 37,215
Intangibles 47 67
Goodwill 1,264 1,264
Other assets 4,113 4,371
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$113,220 $113,897
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,124 $ 4,614
Accrued liabilities 5,813 6,230
Current portion of long-term debt 4,816 3,331
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Total current liabilities 13,753 14,175
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Long-term debt:
7 1/2% convertible subordinated notes due 2006 30,177 30,177
9 1/2% subordinated debentures due 2012 1,057 1,057
Notes payable 37,051 38,016
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68,285 69,250
Deferred revenue, deposits and other 2,551 2,930
Deferred income taxes 5,017 3,974
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Stockholders' equity:
Capital stock
Common - $1 par value - 5,500,000 shares authorized
2,452,900 shares issued in 2002 and 2001 2,453 2,453
Class B - $1 par value - 1,000,000 shares authorized
287,505 shares issued in 2002 and 2001 287 287
Additional paid-in-capital 13,901 13,901
Retained earnings 19,383 19,360
Accumulated other comprehensive loss (573) (596)
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35,451 35,405
Less treasury stock - at cost - 1,479,688 shares in 2002 and 2001
(excludes additional 287,505 shares held in 2002 and 2001
for conversion of Class B stock) 11,837 11,837
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Total stockholders' equity 23,614 23,568
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$113,220 $113,897
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The accompanying notes are an integral part of these consolidated financial statements.
1
TRANS-LUX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
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In thousands, except per share data 2002 2001 2002 2001
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Revenues:
Equipment rentals and maintenance $ 5,153 $ 6,064 $10,782 $12,556
Equipment sales 9,894 7,807 18,013 15,753
Theatre receipts and other 3,939 3,205 7,353 6,164
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Total revenues 18,986 17,076 36,148 34,473
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Operating expenses:
Cost of equipment rentals and maintenance 3,405 3,359 6,758 6,714
Cost of equipment sales 7,432 5,348 13,379 11,009
Cost of theatre receipts and other 2,957 2,638 5,485 4,881
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Total operating expenses 13,794 11,345 25,622 22,604
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Gross profit from operations 5,192 5,731 10,526 11,869
General and administrative expenses 4,243 4,243 8,511 9,061
------ ------ ------ ------
949 1,488 2,015 2,808
Interest income 95 31 118 76
Interest expense (1,133) (1,453) (2,305) (2,894)
Other income (expense) 43 (36) 58 16
Income from joint venture 164 103 316 173
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Income before income taxes 118 133 202 179
Provision for income taxes 53 59 91 80
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Net income $ 65 $ 74 $ 111 $ 99
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Earnings per share - basic and diluted $ 0.05 $ 0.06 $ 0.09 $ 0.08
Average common shares outstanding - basic and diluted 1,261 1,261 1,261 1,261
Cash dividends per share:
Common stock $ 0.035 $ 0.035 $ 0.070 $ 0.070
Class B stock $0.0315 $0.0315 $0.0630 $0.0630
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The accompanying notes are an integral part of these consolidated financial statements.
2
TRANS-LUX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
SIX MONTHS ENDED
JUNE 30
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In thousands 2002 2001
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Cash flows from operating activities
Net income $ 111 $ 99
Adjustment to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 5,073 4,836
Income from joint venture (316) (173)
Deferred income taxes 993 80
Writedown of assets held for sale - 56
Gain on repurchase of Company's 7 1/2% convertible subordinated notes - (5)
Changes in operating assets and liabilities:
Receivables (598) 156
Inventories (275) (398)
Prepaids and other assets (114) 377
Accounts payable and accruals (1,829) (959)
Deferred revenue, deposits and other (379) (1,689)
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Net cash provided by operating activities 2,666 2,380
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Cash flows from investing activities
Equipment manufactured for rental (2,276) (4,764)
Purchases of property, plant and equipment (343) (349)
Proceeds from joint venture 436 502
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Net cash used in investing activities (2,183) (4,611)
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Cash flows from financing activities
Repayment of long-term debt (1,580) (1,457)
Proceeds from long-term debt 2,100 3,680
Repurchase of Company's 7 1/2% convertible subordinated notes - (15)
Cash dividends (88) (89)
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Net cash provided by financing activities 432 2,119
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Net increase (decrease) in cash and cash equivalents 915 (112)
Cash and cash equivalents at beginning of year 5,699 3,920
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Cash and cash equivalents at end of period $6,614 $3,808
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Interest paid $2,190 $2,708
Interest received 116 99
Income taxes paid (refunded) (724) 491
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The accompanying notes are an integral part of these consolidated financial statements.
3
TRANS-LUX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2002
(unaudited)
Note 1 - Basis of Presentation
Financial information included herein is unaudited, however, such information
reflects all adjustments which are, in the opinion of management, necessary for
the fair presentation of the consolidated financial statements for the interim
periods. The results for the interim periods are not necessarily indicative of
the results to be expected for the full year. It is suggested that the June 30,
2002 consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes included in the Company's Annual
Report and Form 10-K for the year ended December 31, 2001. Certain
reclassifications of prior years' amounts have been made to conform to the
current year's presentation.
The Company adopted 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 designate hedging instruments as either fair value, cash flow, or
hedges of a net investment in a foreign operation. All derivatives are to be
recognized as either assets or liabilities and measured at fair value. Gains or
losses resulting from changes in the values of those derivatives are accounted
for depending upon its designation and whether it qualifies for hedge
accounting. The Company has limited involvement with derivative financial
instruments and does not use them for trading purposes; they are only used to
manage and fix well-defined interest rate risks. The Company has two interest
rate swap agreements effective through August 2002, having a notional value of
$4.7 million, to reduce exposure to interest fluctuations on its bank term
loans, which are classified as cash flow hedges. The adoption of SFAS 133 at
January 1, 2001 resulted in the cumulative effect of an accounting change, net
of tax, of approximately $15,000 in other comprehensive loss. At June 30, 2002,
the mark-to-market loss for the interest rate swap hedge included in other
comprehensive loss totaled $54,000 (net of tax).
In June 2001, the Financial Accounting Standards Board (FASB) issued Statements
of Financial Accounting Standards No. 141, "Business Combinations," effective
July 1, 2001, and No. 142, "Goodwill and Other Intangible Assets" (SFAS 142),
effective for fiscal years beginning after December 15, 2001. Under SFAS 142,
goodwill and intangible assets deemed to have indefinite lives will no longer be
amortized but will be subject to annual impairment tests in accordance with the
statements. Goodwill relates primarily to reporting units within the outdoor
display segment. Other intangible assets will continue to be amortized over
their useful lives. The Company adopted the new rules of accounting for
goodwill and other intangible assets beginning in the first quarter of 2002.
The Company has performed the required impairment tests related to goodwill and
indefinite-lived intangible assets recorded on January 1, 2002 which indicated
that there was no transitional impairment loss. Accordingly, the adoption of
SFAS 142 did not have an impact on the Company's financial statements.
4
In accordance with SFAS 142, prior period amounts were not restated.
Reconciliation of the previously reported net income and earnings per share for
the three and six months ended June 30, 2001 to the amounts adjusted for the
reduction of amortization expense, net of related income tax effect, is as
follows:
Three months ended June 30 Six months ended June 30
In thousands 2002 2001 2002 2001
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Net income, as reported $ 65 $ 74 $ 111 $ 99
Add back: goodwill amortization, - 13 - 26
net of income taxes ---- ---- ---- ----
Net income, adjusted $ 65 $ 87 $ 111 $ 125
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Earnings per share - basic and diluted:
Earnings per share, as reported $0.05 $0.06 $0.09 $0.08
Add back: goodwill amortization - 0.01 - 0.02
earnings per share effect ---- ---- ---- ----
Earnings per share, adjusted $0.05 $0.07 $0.09 $0.10
==== ==== ==== ====
______________________________________________________________________________________________________
In April 2002, the FASB issued Statement of Financial Accounting Standards No.
145, "Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB
Statement No. 13, and Technical Corrections" (SFAS 145), effective for
financial statements issued after June 15, 2002. The adoption of SFAS 145,
relating to extinguishment of debt and certain lease transactions, did not have
an impact on the Company's financial statements.
In July 2002, the FASB issued Statement of Financial Accounting Standards No.
146, "Accounting for Exit or Disposal Activities" (SFAS 146). SFAS 146 will be
effective for the Company for disposal activities initiated after December 31,
2002. The Company is in the process of evaluating the effect that adopting SFAS
146 will have on its financial statements.
Note 2 - Inventories
Inventories consist of the following:
June 30 December 31
In thousands 2002 2001
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Raw materials and spare parts $3,082 $3,785
Work-in-progress 2,949 1,717
Finished goods 1,081 1,335
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$7,112 $6,837
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___________________________________________________________
Note 3 - Long-Term Debt
For the three and six months ended June 30, 2002, long-term debt increased $1.0
million and decreased $1.0 million, respectively, which represented borrowings
and payments on the revolving credit facility, scheduled payments of long-term
debt and an increase in the current portion of long-term debt. The Company has
a bank Credit Agreement that provided for a $15.0 million revolving credit
facility available until June 2002, which has been converted into a four-year
term loan. The Company will utilize currently available working capital for the
first quarterly installment of $937,500 plus interest at LIBOR plus 2.5% (4.36%
at June 30, 2002) due October 1, 2002. The Company is in discussions with
lenders to arrange additional working capital availability as well as long-term
liquidity. The Credit Agreement required an annual facility fee on the unused
commitment of .375%, and requires compliance with certain financial covenants,
which, at June 30, 2002, included a defined debt service coverage ratio of 1.40
to 1.0, a defined debt to cash flow ratio of 3.75 to 1.0 and an annual
limitation of $750,000 on cash dividends. At June 30, 2002, the Company was in
compliance with such financial covenants.
5
Note 4 - Reporting Comprehensive Income (Loss)
The components of other comprehensive income (loss) are foreign currency
translation adjustments relating to the foreign subsidiaries, unrealized holding
gains or losses on the available-for-sale securities, the effect of accounting
for hedges under SFAS 133 (see Note 1) and a minimum pension liability
adjustment relating to the defined benefit pension plan. Total comprehensive
income was $94,000 and $65,000 for the three months ended June 30, 2002 and
2001, respectively; and $134,000 and $87,000 for the six months ended June 30,
2002 and 2001, respectively.
Note 5 - Earnings per Share
The following table presents the computation of basic and diluted earnings per common share:
Three months ended June 30 Six months ended June 30
In thousands, except per share data 2002 2001 2002 2001
- ------------------------------------------------------------------------------------------------------
Basic and diluted earnings per
share computation:
Net income $ 65 $ 74 $ 111 $ 99
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Weighted average common shares outstanding 1,261 1,261 1,261 1,261
----- ----- ----- -----
Basic and diluted earnings per common share $ 0.05 $ 0.06 $ 0.09 $ 0.08
----- ----- ----- -----
______________________________________________________________________________________________________
Note 6 - Business Segment Data
The Company evaluates segment performance and allocates resources based upon
operating income. The Company's operations are managed in 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/Real Estate Division owns a chain
of motion picture theatres in the western Mountain States, a national film
booking service and income-producing properties. 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 general and administrative items relate to costs that 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 and six months
ended June 30, 2002 and 2001 is as follows:
Three months ended June 30 Six months ended June 30
In thousands 2002 2001 2002 2001
- ------------------------------------------------------------------------------------------------------
Revenues:
Indoor display $ 6,028 $ 6,794 $11,715 $13,398
Outdoor display 9,019 7,077 17,080 14,911
Entertainment/real estate 3,939 3,205 7,353 6,164
------ ------ ------ ------
Total revenues $18,986 $17,076 $36,148 $34,473
------ ------ ------ ------
Operating income:
Indoor display $ 1,242 $ 2,143 $ 2,653 $ 4,389
Outdoor display 23 158 206 557
Entertainment/real estate 955 446 1,789 1,017
------ ------ ------ ------
Total operating income $ 2,220 $ 2,747 $ 4,648 $ 5,963
Other income (expense) 43 (36) 58 16
Corporate general and administrative expenses (1,107) (1,156) (2,317) (2,982)
Interest expense-net (1,038) (1,422) (2,187) (2,818)
------ ------ ------ ------
Income before income taxes $ 118 $ 133 $ 202 $ 179
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______________________________________________________________________________________________________
6
Note 7 - Legal Proceedings and Claims
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 appealed the verdict, which was affirmed. The
Company filed a certiorari petition that had been granted. The Company reached
a settlement with the plaintiff for an amount less than the amount previously
accrued, a portion of which was subject to insurance recovery. 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. The Company
reached a settlement with the plaintiff, which was subject to insurance
recovery. Management has received certain claims by customers related to
contractual matters, which are being discussed, and believes that it has
adequate provisions for such matters.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
Trans-Lux is a full service provider of integrated multimedia systems for
today's communications environments. The essential elements of these systems
are the real-time, programmable electronic information displays we manufacture,
distribute and service. Designed to meet the evolving communications needs of
both the indoor and outdoor markets, these displays are used primarily in
applications for the financial, banking, gaming, corporate, transportation,
entertainment and sports industries. In addition to its display business, the
Company owns and operates a chain of motion picture theatres in the western
Mountain States, as well as a national film booking service. The Company
operates in three reportable segments: Indoor Display, Outdoor Display, and
Entertainment/Real Estate.
The Indoor Display segment includes worldwide revenues and related expenses from
the rental, maintenance and sale of indoor displays. This segment includes the
financial, gaming, government and corporate markets. The Outdoor Display
segment includes worldwide revenues and related expenses from the rental,
maintenance and sale of outdoor displays. Included in this segment are the
custom sports, catalog sports, retail and commercial markets. The
Entertainment/Real Estate segment includes the operations of the motion picture
theatres in the western Mountain States, a national film booking service and
income-producing real estate properties.
Results of Operations
Six Months Ended June 30, 2002 Compared to Six Months Ended June 30, 2001
Total revenues for the six months ended June 30, 2002 increased 4.9% to $36.1
million from $34.5 million for the six months ended June 30, 2001. Indoor
display revenues decreased $1.7 million or 12.6%. Of this decrease, indoor
display equipment rentals and maintenance revenues decreased $1.2 million or
13.5%, primarily due to disconnects and non-renewals of equipment on rental on
existing contracts in the financial services market, and indoor display
equipment sales decreased $526,000 or 10.8%, also primarily in the financial
services market. The financial services market continues to be negatively
impacted due to the consolidation within that industry resulting mainly from the
current economic recession.
7
Outdoor display revenues increased $2.2 million or 14.5%. Of this increase,
outdoor display equipment sales increased $2.8 million or 25.6%, primarily in
the custom outdoor sports segment. This increase was offset by the decrease in
outdoor display equipment rentals and maintenance revenues of $617,000 or 15.4%,
primarily due to the continued expected revenue decline in the outdoor rentals
and maintenance bases previously acquired.
Entertainment/real estate revenues increased $1.2 million or 19.3%. This
increase is primarily from an increase in overall admissions, ticket prices and
concessions, predominantly from `same store' sales.
Total operating income for the six months ended June 30, 2002 decreased 22.1% to
$4.6 million from $6.0 million for the six months ended June 30, 2001. Indoor
display operating income decreased $1.7 million or 39.6%, primarily as a result
of the decrease in revenues in the financial services market. The cost of
indoor displays represented 52.7% of related revenues in 2002 compared to 45.3%
in 2001. The cost of indoor displays as a percentage of related revenues
increased primarily due to the cost of equipment rentals and maintenance not
decreasing in relation to the reduction in revenues and a change in the volume
mix. Indoor display cost of equipment sales decreased $16,000 or 0.7%,
primarily due to the decrease in volume. Indoor display cost of equipment
rentals and maintenance increased $118,000 or 3.2%, largely due to an increase
in depreciation expense. Indoor display general and administrative expenses
decreased slightly.
Outdoor display operating income decreased $351,000 or 63.0%, primarily as a
result of a decrease in rental revenues while rental expenses remained level
primarily due to fixed depreciation expense. The cost of outdoor displays
represented 81.7% of related revenues in 2002 compared to 78.1% in 2001.
Outdoor display cost of equipment sales increased $2.4 million or 27.7%,
principally due to the increase in volume and the competitive nature of the
sports sector of the outdoor division. Outdoor display cost of equipment
rentals and maintenance decreased $74,000 or 2.4%, primarily due to reduced
field service costs mainly as a result of the expected decline in the outdoor
rentals and maintenance bases previously acquired, although not in proportion to
the reduction in revenues. Outdoor display general and administrative expenses
increased $208,000 or 7.7%, primarily due to increased sales expenses and
commissions resulting from an increase in custom sports revenues. Cost of
indoor and outdoor equipment rentals and maintenance includes field service
expenses, plant repair costs, maintenance and depreciation.
Entertainment/real estate operating income increased $772,000 or 75.9%,
primarily due to the increase in revenues. The cost of entertainment/real
estate represented 74.6% of related revenues in 2002 compared to 79.2% in 2001.
Cost of entertainment/real estate, which includes film rental costs and
depreciation expense, increased $604,000 or 12.4%, due to the increase in
overall admissions. Entertainment/real estate general and administrative
expenses decreased slightly.
Corporate general and administrative expenses decreased $665,000 or 22.3%,
principally due to a $400,000 positive impact of the effect of foreign currency
rates in 2002 compared to a $175,000 negative impact in 2001, and the continued
reduction of certain overhead costs.
Net interest expense decreased $631,000, which is primarily attributable to the
decrease in variable interest rates in 2002 vs. 2001 offset by an increase in
long-term debt to fund increased operating activities, primarily related to the
increase in the backlog of outdoor sports orders. The Company used its
revolving credit facility to meet its short-term working capital requirements.
Other income primarily relates to the earned income portion of municipal
forgivable loans. The income from joint venture relates to the operations of
the theatre joint venture, MetroLux Theatre in Loveland, Colorado.
The effective tax rate for the six months ended June 30, 2002 and 2001 was
45.0%.
8
Three Months Ended June 30, 2002 Compared to Three Months Ended June 30, 2001
Total revenues for the three months June 30, 2002 increased 11.2% to $19.0
million from $17.1 million for the three months ended June 30, 2001. Indoor
display revenues decreased $766,000 or 11.3%. Of this decrease, indoor display
equipment rentals and maintenance revenues decreased $696,000 or 16.4%,
primarily due to disconnects and non-renewals of equipment on rental on existing
contracts in the financial services market, and indoor display equipment sales
decreased $70,000 or 2.7%, also primarily in the financial services market. The
financial services market continues to be negatively impacted due to the
consolidation within that industry resulting mainly from the current economic
recession.
Outdoor display revenues increased $1.9 million or 27.4%. Of this increase,
outdoor display equipment sales increased $2.1 million or 41.1%, primarily in
the custom outdoor sports segment. This increase was offset by the decrease in
outdoor display equipment rentals and maintenance revenues of $215,000 or 11.8%,
primarily due to the continued expected revenue decline in the outdoor rentals
and maintenance bases previously acquired.
Entertainment/real estate revenues increased $734,000 or 23.0%. This increase
is primarily from an increase in overall admissions, ticket prices and
concessions, predominantly from `same store' sales.
Total operating income for the three months ended June 30, 2002 decreased 19.1%
to $2.2 million from $2.7 million for the three months ended June 30, 2001.
Indoor display operating income decreased $901,000 or 42.1%, primarily as a
result of the decrease in revenues in the financial services market. The cost
of indoor displays represented 55.3% of related revenues in 2002 compared to
46.3% in 2001. The cost of indoor displays as a percentage of related revenues
increased primarily due to the cost of equipment rentals and maintenance not
decreasing in relation to the reduction in revenues and a change in the volume
mix. Indoor display cost of equipment sales increased $129,000 or 9.9%,
primarily due to the change in volume mix. Indoor display cost of equipment
rentals and maintenance increased $60,000 or 3.3%, largely due to increased
depreciation expense. Indoor display general and administrative expenses
decreased slightly.
Outdoor display operating income decreased $135,000 or 84.8%, primarily as a
result of a decrease in rentals and maintenance revenues. The cost of outdoor
displays represented 83.2% of related revenues in 2002 compared to 78.6% in
2001. Outdoor display cost of equipment sales increased $2.0 million or 48.4%,
principally due to the increase in volume and the competitive nature of the
sports sector of the outdoor division. Outdoor display cost of equipment
rentals and maintenance decreased $14,000 or 0.9%, primarily due to reduced
field service costs mainly as a result of the expected decline in the outdoor
rentals and maintenance bases previously acquired, although not in proportion to
the reduction in revenues. Outdoor display general and administrative expenses
increased $135,000 or 10.0%, primarily due to increased sales expenses and
commissions resulting from an increase in custom sports revenues.
Entertainment/real estate operating income increased $509,000 or 114.3%,
primarily due to the increase in revenues. The cost of entertainment/real
estate represented 75.1% of related revenues in 2002 compared to 82.3% in 2001.
Cost of entertainment/real estate increased $319,000 or 12.1%, due to the
increase in overall admissions. Entertainment/real estate general and
administrative expenses decreased slightly.
Corporate general and administrative expenses decreased $49,000 or 4.2%,
principally due to a $240,000 positive impact of the effect of foreign currency
rates in 2002 compared to a $168,000 positive impact in 2001.
9
Net interest expense decreased $384,000, which is primarily attributable to the
decrease in variable interest rates in 2002 vs. 2001 offset by an increase in
long-term debt to fund increased operating activities, primarily related to the
increase in the backlog of outdoor sports orders. The Company used its
revolving credit facility to meet its short-term working capital requirements.
Other income primarily relates to the earned income portion of municipal
forgivable loans. The income from joint venture relates to the operations of
the theatre joint venture, MetroLux Theatre in Loveland, Colorado.
The effective tax rate for the three months ended June 30, 2002 and 2001 was
45.0%.
Liquidity and Capital Resources
The regular quarterly cash dividend for the second quarter of 2002 of $0.035 per
share on the Company's Common Stock and $0.0315 per share on the Company's Class
B Stock was declared by the Board of Directors on May 30, 2002 payable to
stockholders of record as of June 28, 2002 and was paid July 24, 2002.
The Company had a $15.0 million revolving credit facility available until June
2002, which has been converted into a four-year term loan. The Company will
utilize currently available working capital for the first quarterly installment
of $937,500 plus interest at LIBOR plus 2.5% (4.36% at June 30, 2002), due
October 1, 2002. In order to fund on-going and potential new business, the
Company is currently in discussions with lenders to arrange additional near-term
working capital availability as well as long-term liquidity. The Company
believes it will be successful in arranging additional working capital
availability, and in addition, continues to examine measures that will allow for
the cash and cash equivalents on hand to be sufficient to fund its requirements.
The interest rate on the revolving credit facility was LIBOR plus 2.0% (3.86% at
June 30, 2002). The revolving credit facility also required an annual facility
fee on the unused commitment of .375%. The Credit Agreement contains certain
financial covenants, which at June 30, 2002 included a defined debt service
coverage ratio of 1.40 to 1.0, a defined debt to cash flow ratio of 3.75 to 1.0
and an annual limitation of $750,000 on cash dividends. At June 30, 2002 the
Company was in compliance with such financial covenants.
Payments of long-term debt due, including the $15.0 million revolving credit
facility which converted into a four-year term loan June 2002, and the future
minimum lease payments due under operating leases for the remainder of 2002 and
the next four years are as follows:
Remainder of
In thousands 2002 2003 2004 2005 2006
- ------------ ------ ------ ------ ------ ------
Long-Term Debt $1,935 $5,485 $5,533 $8,142 $4,495
Operating Leases 459 892 821 783 684
----- ----- ----- ----- -----
Total $2,394 $6,377 $6,354 $8,925 $5,179
===== ===== ===== ===== =====
The above amounts do not include any principal payments related to the 7.5%
convertible subordinated notes that mature December 1, 2006.
Cash and cash equivalents increased $915,000 for the six months ended June 30,
2002 compared to a decrease of $112,000 in 2001. The increase in 2002 is
primarily attributable to cash flows from operating activities of $2.7 million
and from financing activities of $0.4 million offset by the investment in
equipment manufactured for rental and other equipment purchases of $2.6 million.
Cash flows from financing activities also increased $0.4 million from the
MetroLux Theatre joint venture. The decrease in 2001 was primarily attributable
to cash flows from operating activities of $2.4 million and from financing
activities of $2.1 million offset by the investment in equipment manufactured
for rental and other equipment purchases of $5.1 million. Cash flows from
financing activities also increased $0.5 million from the MetroLux Theatre joint
venture.
10
The $1.0 million reduction in long-term debt for the six months ended June 30,
2002 related to scheduled payments of long-term debt and an increase in the
current portion of long-term debt due to the revolving credit facility.
Safe Harbor Statement under the Private Securities Litigation 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 share through
competition, introduction of competing products by others, pressure on prices
from competition or purchasers of the Company's products, interest rate and
foreign exchange fluctuations, terrorist acts and war.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company is subject to interest rate risk on its long-term debt. The Company
manages its exposure to changes in interest rates by the use of variable and
fixed interest rate debt. In addition the Company has hedged its exposure to
changes in interest rates on a portion of its variable debt by entering into
interest rate swap agreements to lock in fixed interest rates for a portion of
these borrowings. In addition, the Company is exposed to foreign currency
exchange rate risk mainly as a result of investments in its Australian and
Canadian subsidiaries. The Company does not enter into derivatives for trading
or speculative purposes.
At June 30, 2002, the Company had two interest rate swap agreements effective
through August 2002, on a notional amount of $4.7 million. The receive rate is
based on a 90 day LIBOR rate. The receive and pay rates related to the interest
rate swap were 3.79% and an average of 7.88%, respectively. The fair value of
the interest rate swap agreements was approximately ($42,000), net of tax.
Interest differentials to be paid or received because of the swap agreements are
reflected as an adjustment to interest expense over the related debt period. A
one percentage point change in interest rates would result in an annual interest
expense fluctuation of approximately $324,000.
A 10% change in the Australian and Canadian dollar relative to the U.S. dollar
would result in a currency exchange expense fluctuation of approximately
$464,000. The fair value is based on dealer quotes, considering current
exchange rates.
11
Part II - Other Information
---------------------------
Item 4. Submission of Matters to a Vote of Stockholders
The Annual Meeting of Stockholders of Trans-Lux Corporation was held on May 30,
2002 for the purpose of electing directors and approving the appointment of
auditors as set forth below.
All of management's nominees for directors for a three-year term as listed in
the proxy statement were elected by the following vote:
For Not For
--- -------
Matthew Brandt 3,543,530 52,111
Robert B. Greenes 3,545,859 49,782
Howard S. Modlin 3,545,459 50,182
Michael R. Mulcahy 3,544,590 51,051
The following directors are continuing their terms as directors:
Steven Baruch, One-Year Remaining
Thomas Brandt, One-Year Remaining
Howard M. Brenner, One-Year Remaining
Richard Brandt, Two-Years Remaining
Jean Firstenberg, Two-Years Remaining
Gene Jankowski, Two-Years Remaining
Victor Liss, Two-Years Remaining
The recommendation to retain Deloitte & Touche LLP as the independent auditors
for the Corporation was approved by the following vote:
For Against Abstain
--- ------- -------
Totals 3,539,319 27,746 28,576
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10(a) Employment Agreement with Thomas F.
Mahoney dated as of June 1, 2002
99.1 Statement Furnished Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 - Michael R. Mulcahy,
President and Co-Chief Executive Officer
99.2 Statement Furnished Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 - Thomas Brandt, Executive
Vice President and Co-Chief Executive Officer
99.3 Statement Furnished Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 - Angela D. Toppi,
Executive Vice President and Chief Financial Officer
(b) No reports on Form 8-K were filed during the quarter covered by
this report.
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SIGNATURES
Pursuant to the requirements 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
---------------------
(Registrant)
Date: August 14, 2002
by /s/ Angela D. Toppi
----------------------------
Angela D. Toppi
Executive Vice President and
Chief Financial Officer
by /s/ Robert P. Bosworth
----------------------------
Robert P. Bosworth
Vice President and
Chief Accounting Officer
13