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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 September 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
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
110 Richards Avenue, Norwalk, CT 06856-5090
- ---------------------------------------- ----------
(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
--- ---
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
- -------- ------------------------------- ------------------
11/12/02 Common Stock - $1.00 Par Value 973,243
11/12/02 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 -September 30, 2002
and December 31, 2001 (unaudited) 1
Consolidated Statements of Operations - Three
and Nine Months Ended September 30, 2002 and 2001
(unaudited) 2
Consolidated Statements of Cash Flows - Nine Months
Ended September 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
Item 4. Controls and Procedures 11
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
Certifications 14
Part I - Financial Information
------------------------------
TRANS-LUX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
September 30 December 31
In thousands, except share data 2002 2001
- -----------------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 5,667 $ 5,699
Available-for-sale securities 526 530
Receivables, less allowance of $1,403 in 2002 and $465 in 2001 10,900 9,503
Unbilled receivables 2,425 830
Inventories 7,010 6,837
Prepaids and other 865 762
------ ------
Total current assets 27,393 24,161
------ ------
Rental equipment 90,197 86,147
Less accumulated depreciation 44,915 39,328
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45,282 46,819
------ ------
Property, plant and equipment 48,377 47,944
Less accumulated depreciation and amortization 12,396 10,729
------ ------
35,981 37,215
Intangible assets 41 67
Goodwill 1,264 1,264
Other assets 4,081 4,371
------ ------
$114,042 $113,897
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,805 $ 4,614
Accrued liabilities 5,753 6,230
Current portion of long-term debt 5,471 3,331
------ ------
Total current liabilities 15,029 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 35,768 38,016
------ ------
67,002 69,250
Deferred revenue, deposits and other 3,047 2,930
Deferred income taxes 5,199 3,974
------ ------
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 19,519 19,360
Accumulated other comprehensive loss (558) (596)
------ ------
35,602 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
------ ------
Total stockholders' equity 23,765 23,568
------ ------
$114,042 $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 NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
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In thousands, except per share data 2002 2001 2002 2001
- -----------------------------------------------------------------------------------------------------
Revenues:
Equipment rentals and maintenance $ 5,103 $ 5,900 $15,885 $18,456
Equipment sales 13,448 9,358 31,461 25,111
Theatre receipts and other 3,465 3,477 10,818 9,641
------- ------- ------- -------
Total revenues 22,016 18,735 58,164 53,208
------- ------- ------- -------
Operating expenses:
Cost of equipment rentals and maintenance 3,582 3,319 10,340 10,033
Cost of equipment sales 9,524 6,496 22,903 17,505
Cost of theatre receipts and other 2,828 2,816 8,313 7,697
------- ------- ------- -------
Total operating expenses 15,934 12,631 41,556 35,235
------- ------- ------- -------
Gross profit from operations 6,082 6,104 16,608 17,973
General and administrative expenses 4,988 4,655 13,499 13,716
------- ------- ------- -------
1,094 1,449 3,109 4,257
Interest income 29 37 147 113
Interest expense (1,164) (1,412) (3,469) (4,306)
Other income 27 354 85 370
Income from joint venture 341 117 657 290
------- ------- ------- -------
Income before income taxes 327 545 529 724
Provision for income taxes 147 246 238 326
------- ------- ------- -------
Net income $ 180 $ 299 $ 291 $ 398
======= ======= ======= =======
Earnings per share - basic and diluted $ 0.14 $ 0.24 $ 0.23 $ 0.32
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 $ 0.105 $ 0.105
Class B stock $0.0315 $0.0315 $0.0945 $0.0945
- -----------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements.
2
TRANS-LUX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
NINE MONTHS ENDED
SEPTEMBER 30
--------------------
In thousands 2002 2001
- ---------------------------------------------------------------------------------------------------
Cash flows from operating activities
Net income $ 291 $ 398
Adjustment to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 7,594 7,340
Income from joint venture (657) (290)
Deferred income taxes 1,139 326
Writedown of assets held for sale - 56
Gain on sale of fixed assets - (364)
Gain on repurchase of Company's 7 1/2% convertible subordinated notes - (5)
Changes in operating assets and liabilities:
Receivables (2,992) (3,255)
Inventories (173) 286
Prepaids and other assets (231) 799
Accounts payable and accruals (1,158) 235
Deferred revenue, deposits and other 117 (1,586)
----- -----
Net cash provided by operating activities 3,930 3,940
----- -----
Cash flows from investing activities
Equipment manufactured for rental (4,050) (6,407)
Purchases of property, plant and equipment (433) (428)
Proceeds from joint venture 761 719
Proceeds from the sale of fixed assets - 375
----- -----
Net cash used in investing activities (3,722) (5,741)
----- -----
Cash flows from financing activities
Repayment of long-term debt (2,208) (2,078)
Proceeds from long-term debt 2,100 4,580
Repurchase of Company's 7 1/2% convertible subordinated notes - (15)
Cash dividends (132) (133)
----- -----
Net cash provided by (used in) financing activities (240) 2,354
----- -----
Net increase (decrease) in cash and cash equivalents (32) 553
Cash and cash equivalents at beginning of year 5,699 3,920
----- -----
Cash and cash equivalents at end of period $ 5,667 $ 4,473
===== =====
- --------------------------------------------------------------------------------------------------
Interest paid $ 2,642 $ 3,397
Interest received 157 145
Income taxes paid (refunded) (656) 491
- --------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements.
3
TRANS-LUX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 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
September 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 had two interest
rate swap agreements effective through August 2002, having a notional value of
$4.3 million, to reduce exposure to interest fluctuations on its bank term
loans, which were 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 September 30,
2002, the Company did not have any derivative financial instruments.
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 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, other
than the reduction of goodwill amortization expense as explained further below.
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 nine months ended September 30, 2001 to the amounts adjusted for
the reduction of amortization expense, net of related income tax effect, is as
follows:
Three months ended Sept. 30 Nine months ended Sept. 30
In thousands 2002 2001 2002 2001
- ------------------------------------------------------------------------------------------------------
Net income, as reported $ 180 $ 299 $ 291 $ 398
Add back: goodwill amortization,
net of income taxes - 9 - 35
--- --- --- ---
Net income, adjusted $ 180 $ 308 $ 291 $ 433
=== === === ===
Earnings per share - basic and diluted:
Earnings per share, as reported $0.14 $0.24 $0.23 $0.32
Add back: goodwill amortization
earnings per share effect - 0.01 - 0.03
---- ---- ---- ----
Earnings per share, adjusted $0.14 $0.25 $0.23 $0.35
==== ==== ==== ====
______________________________________________________________________________________________________
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:
Sept. 30 Dec. 31
In thousands 2002 2001
- ---------------------------------------------------------
Raw materials and spare parts $4,235 $3,785
Work-in-progress 1,691 1,717
Finished goods 1,084 1,335
----- -----
$7,010 $6,837
===== =====
________________________________________________________
Note 3 - Long-Term Debt
For the three and nine months ended September 30, 2002, long-term debt decreased
$1.3 million and $2.2 million, respectively, which represented scheduled
payments of long-term debt and an increase in the current portion of long-term
debt. The Company has a $19.3 million bank Credit Agreement maturing July
2006, having quarterly installments of $1.1 million at variable interest rates
ranging from 3.61% to 4.06% at September 30, 2002. The Company is in
discussions with lenders to arrange additional working capital availability as
well as long-term liquidity. The Credit Agreement requires compliance with
certain financial covenants, which, at September 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
September 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 $195,000 and $221,000 for the three months ended September 30, 2002
and 2001, respectively; and $329,000 and $308,000 for the nine months ended
September 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 Sept. 30 Nine months ended Sept. 30
In thousands, except per share data 2002 2001 2002 2001
- ------------------------------------------------------------------------------------------------------
Basic and diluted earnings per share
computation:
Net income $ 180 $ 299 $ 291 $ 398
----- ----- ----- -----
Weighted average common shares outstanding 1,261 1,261 1,261 1,261
----- ----- ----- -----
Basic and diluted earnings per common share $ 0.14 $ 0.24 $ 0.23 $ 0.32
----- ----- ----- -----
_______________________________________________________________________________________________________
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.
6
Information about the Company's operations in its three business segments for
the three and nine months ended September 30, 2002 and 2001 is as follows:
Three months ended Sept. 30 Nine months ended Sept. 30
In thousands 2002 2001 2002 2001
- ------------------------------------------------------------------------------------------------------
Revenues:
Indoor display $ 4,884 $ 5,894 $16,599 $19,292
Outdoor display 13,667 9,364 30,747 24,275
Entertainment/real estate 3,465 3,477 10,818 9,641
------ ------ ------ ------
Total revenues $22,016 $18,735 $58,164 $53,208
------ ------ ------ ------
Operating income:
Indoor display $ 921 $ 1,647 $ 3,574 $ 6,036
Outdoor display 1,590 871 1,796 1,428
Entertainment/real estate 777 612 2,566 1,629
------ ------ ------ ------
Total operating income $ 3,288 $ 3,130 $ 7,936 $ 9,093
Other income 27 354 85 370
Corporate general and administrative expenses (1,853) (1,564) (4,170) (4,546)
Interest expense-net (1,135) (1,375) (3,322) (4,193)
------ ------ ------ ------
Income before income taxes $ 327 $ 545 $ 529 $ 724
====== ====== ====== ======
- ------------------------------------------------------------------------------------------------------
Note 7 - Legal Proceedings and Claims
The Company is subject to legal proceedings and claims which arise in the
ordinary course of its business.
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
Nine Months Ended September 30, 2002 Compared to Nine Months Ended
September 30, 2001
Total revenues for the nine months ended September 30, 2002 increased 9.3%
to $58.2 million from $53.2 million for the nine months ended September 30,
2001. Indoor display revenues decreased $2.7 million
7
or 14.0%. Of this decrease, indoor display equipment rentals and maintenance
revenues decreased $1.7 million or 13.7%, 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 $976,000 or 14.5%,
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 $6.5 million or 26.7%. Of this increase,
outdoor display equipment sales increased $7.3 million or 39.9%, primarily in
the custom outdoor sports segment. This increase was offset by the decrease in
outdoor display equipment rentals and maintenance revenues of $854,000 or 14.5%,
primarily due to the continuing expected revenue decline in the older outdoor
equipment rentals and maintenance bases previously acquired.
Entertainment/real estate revenues increased $1.2 million or 12.2%. This
increase is primarily from an increase in overall admissions, ticket prices and
concessions, predominantly from `same store' sales. On October 1, 2002, the
Company entered into a lease settlement agreement for a net $34,000 with the
landlord at its older Lake Dillon, Colorado theatre. The Company will cease to
operate the theatre on or before January 31, 2003. In a separate unrelated
transaction, the Company entered into a 15-year non-compete agreement for
$450,000, to be paid in 2003, relating to its newer six-plex theatre in Dillon,
Colorado.
Total operating income for the nine months ended September 30, 2002 decreased
12.7% to $7.9 million from $9.1 million for the nine months ended September 30,
2001. Indoor display operating income decreased $2.5 million or 40.8%,
primarily as a result of the decrease in revenues in the financial services
market. The cost of indoor displays represented 53.1% of related revenues in
2002 compared to 45.8% in 2001. The cost of indoor displays as a percentage of
related revenues increased primarily due to the reduction of field service cost
of equipment rentals and maintenance not decreasing in relation to the reduction
in revenues. The Company continues to address the reduction in field service
costs. Indoor display cost of equipment rentals and maintenance increased
$292,000 or 5.4%, largely due to an increase in depreciation expense. Indoor
display cost of equipment sales decreased $319,000 or 9.4%, primarily due to the
decrease in volume. Indoor display general and administrative expenses
decreased $204,000 or 4.6%, due to continued reduction of certain overhead
costs.
Outdoor display operating income increased $368,000 or 25.8%, primarily as a
result of the increase in sales in the custom outdoor sports segment. The cost
of outdoor displays represented 79.4% of related revenues in 2002 compared to
77.0% in 2001. Outdoor display cost of equipment sales increased $5.7 million
or 40.6%, 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 remained level. Outdoor display general and
administrative expenses increased $372,000 or 9.0%, primarily due to increased
sales expenses and commissions resulting from an increase in custom sports
revenues and an increase in the reserve for doubtful accounts. Cost of indoor
and outdoor equipment rentals and maintenance includes field service expenses,
plant repair costs, maintenance and depreciation expense.
Entertainment/real estate operating income increased $937,000 or 57.5%,
primarily due to the increase in revenues and the increase in income from the
MetroLux Theatre joint venture due primarily to the sale of a parcel of land.
The cost of entertainment/real estate represented 76.8% of related revenues in
2002 compared to 79.8% in 2001. Cost of entertainment/real estate, which
includes film rental costs and depreciation expense, increased $616,000 or 8.0%,
due to the increase in overall admissions. Entertainment/real estate general
and administrative expenses remained level.
8
Corporate general and administrative expenses decreased $376,000 or 8.3%,
principally due to a $218,000 positive impact of the effect of foreign currency
rates in 2002 compared to a $282,000 negative impact in 2001, offset by an
increase in general insurance costs and pension expense.
Net interest expense decreased $871,000, which is primarily attributable to the
decrease in variable interest rates in 2002 vs. 2001. 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, and includes a gain from the sale of a
parcel of land.
The effective tax rate for the nine months ended September 30, 2002 and 2001 was
45.0%.
Three Months Ended September 30, 2002 Compared to Three Months Ended
September 30, 2001
Total revenues for the three months ended September 30, 2002 increased 17.5% to
$22.0 million from $18.7 million for the three months ended September 30, 2001.
Indoor display revenues decreased $1.0 million or 17.1%. Of this decrease,
indoor display equipment rentals and maintenance revenues decreased $560,000 or
14.0%, 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 $450,000 or 23.9%, 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 $4.3 million or 46.0%. Of this increase,
outdoor display equipment sales increased $4.5 million or 60.7%, primarily in
the custom outdoor sports segment. This increase was offset by the decrease in
outdoor display equipment rentals and maintenance revenues of $237,000 or 12.6%,
primarily due to the continuing expected revenue decline in the older outdoor
equipment rentals and maintenance bases previously acquired.
Entertainment/real estate revenues decreased slightly due to one less screen
operating in 2002 compared to 2001. Revenues from 'same store' sales increased
slightly.
Total operating income for the three months ended September 30, 2002 increased
5.0% to $3.3 million from $3.1 million for the three months ended September 30,
2001. Indoor display operating income decreased $726,000 or 44.1%, primarily as
a result of the decrease in revenues in the financial services market. The cost
of indoor displays represented 54.1% of related revenues in 2002 compared to
47.0% in 2001. The cost of indoor displays as a percentage of related revenues
increased primarily due to the reduction of field service cost of equipment
rentals and maintenance not decreasing in relation to the reduction in revenues.
The Company continues to address the reduction in field service costs. Indoor
display cost of equipment rentals and maintenance increased $174,000 or 9.9%,
largely due to increased depreciation expense. Indoor display cost of equipment
sales decreased $303,000 or 30.1%, primarily due to the decrease in volume.
Indoor display general and administrative expenses decreased $155,000 or 10.5%,
due to continued reduction of certain overhead costs.
Outdoor display operating income increased $719,000 or 82.5%, primarily as a
result of an increase in sales revenues. The cost of outdoor displays
represented 76.6% of related revenues in 2002 compared to 75.2% in 2001.
Outdoor display cost of equipment sales increased $3.3 million or 60.7%,
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 increased $89,000 or 5.7%, primarily due to an increase
in depreciation expense. Outdoor display general and administrative expenses
increased $164,000 or 11.3%,
9
primarily due to increased sales expenses and commissions resulting from an
increase in custom sports revenues and an increase in the reserve for doubtful
accounts.
Entertainment/real estate operating income increased $165,000 or 27.0%,
primarily due to the increase in income from the MetroLux Theatre joint venture
due primarily to the sale of a parcel of land. The cost of entertainment/real
estate represented 81.6% of related revenues in 2002 compared to 81.0% in 2001.
Cost of entertainment/real estate remained level. Entertainment/real estate
general and administrative expenses increased slightly.
Corporate general and administrative expenses increased $289,000 or 18.5%,
principally due to a $182,000 negative impact of the effect of foreign currency
rates in 2002 compared to a $107,000 negative impact in 2001, and an increase in
general insurance costs and pension expense.
Net interest expense decreased $240,000, which is primarily attributable to the
decrease in variable interest rates in 2002 vs. 2001. 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, and includes a gain from the sale of a
parcel of land.
The effective tax rate for the three months ended September 30, 2002 and
2001 was 45.0%.
Liquidity and Capital Resources
The regular quarterly cash dividend for the third 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 September 26, 2002 payable to
stockholders of record as of October 8, 2002 and was paid October 24, 2002.
The Company's current principal source of cash to fund liquidity needs are net
cash provided by operating activities. 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 Company has a $19.3 million bank Credit Agreement
maturing July 2006, having quarterly installments of $1.1 million at variable
interest rates ranging from 3.61% to 4.06% at September 30, 2002. The Credit
Agreement requires compliance with certain financial covenants, which at
September 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 September 30, 2002 the Company was in
compliance with such financial covenants.
Payments of long-term debt due 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 $1,301 $5,485 $5,533 $8,142 $4,494
Operating Leases 207 850 737 723 624
----- ----- ----- ----- -----
Total $1,508 $6,335 $6,270 $8,865 $5,118
===== ===== ===== ===== =====
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 decreased $32,000 for the nine months ended September
30, 2002 compared
10
to an increase of $553,000 in 2001. The decrease in 2002 is primarily
attributable to the investment in equipment manufactured for rental and other
equipment purchases of $4.5 million and from financing activities of $0.2
million, offset by operating activities of $3.9 million. Cash flows from
financing activities also increased $0.8 million from the MetroLux Theatre joint
venture. The increase in 2001 was primarily attributable to cash flows from
operating activities of $3.9 million and from financing activities of $2.4
million offset by the investment in equipment manufactured for rental and other
equipment purchases of $6.5 million. Cash flows from financing activities also
increased $0.7 million from the MetroLux Theatre joint venture.
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 certain of 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 had 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 September 30, 2002, the Company was not involved in any derivative financial
instruments. However, the Company may consider certain interest rate risk
strategies in the future. The two interest rate swap agreements the Company had
expired August 27, 2002.
A one percentage point change in interest rates would result in an annual
interest expense fluctuation of approximately $356,000.
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
$433,000. The fair value is based on dealer quotes, considering current
exchange rates.
Item 4. Controls and Procedures
(a) Evaluation of disclosure controls and procedures.
The Company evaluated the effectiveness of the design and operation of its
disclosure controls and procedures as of a date within 90 days of the filing
date of this quarterly report. The Company's disclosure controls and procedures
are designed to ensure that information required to be disclosed by the Company
in the reports that are filed or submitted under the Securities Exchange Act of
1934 is recorded, processed, summarized and reported, within the time periods
specified in the Securities and Exchange Commission's rules and forms. Based on
this evaluation, Michael R. Mulcahy, the Company's President and Co-Chief
Executive Officer, Thomas Brandt, the Company's Executive Vice President and
Co-Chief Executive
11
Officer, and Angela D. Toppi, the Company's Executive Vice President and Chief
Financial Officer, have concluded that these controls and procedures are
effective.
(b) Changes in internal controls.
There have been no significant changes in the Company's internal controls or in
other factors that could significantly affect these controls subsequent to the
date of the Company's evaluation, and there were no significant deficiencies and
material weaknesses requiring corrective action.
Part II - Other Information
---------------------------
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
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.
12
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: November 13, 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
CERTIFICATION
I, Michael R. Mulcahy, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Trans-Lux Corporation,
the "registrant";
2. Based on my knowledge, the quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have;
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing the
equivalent function);
a) all significant deficiencies in the design or operation of the
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
14
6. The registrant's other certifying officers and I have indicated in this
quarterly report there were no significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, and there
were no significant deficiencies and material weaknesses requiring
corrective action.
/s/ Michael R. Mulcahy
________________________________________
Date: November 13, 2002 President and Co-Chief Executive Officer
Michael R. Mulcahy
15
CERTIFICATION
I, Thomas Brandt, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Trans-Lux Corporation,
the "registrant";
2. Based on my knowledge, the quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have;
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing the
equivalent function);
a) all significant deficiencies in the design or operation of the
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
16
6. The registrant's other certifying officers and I have indicated in this
quarterly report there were no significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, and
there were no significant deficiencies and material weaknesses requiring
corrective action.
/s/ Thomas Brandt
_____________________________________
Date: November 13, 2002 Executive Vice President and Co-Chief
Executive Officer
Thomas Brandt
17
CERTIFICATION
I, Angela D. Toppi, certify, that:
1. I have reviewed this quarterly report on Form 10-Q of Trans-Lux Corporation,
the "registrant";
2. Based on my knowledge, the quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have;
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing the
equivalent function);
a) all significant deficiencies in the design or operation of the
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
18
6. The registrant's other certifying officers and I have indicated in this
quarterly report there were no significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, and
there were no significant deficiencies and material weaknesses requiring
corrective action.
/s/ Angela D. Toppi
_________________________________
Date: November 13, 2002 Executive Vice President and
Chief Financial Officer
Angela D. Toppi
19