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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 June 30, 2003
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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
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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
--- ---
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes No X
--- ---
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
- -------- ------------------------------- ------------------
8/13/03 Common Stock - $1.00 Par Value 973,243
8/13/03 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.
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Part I - Financial Information
Item 1. Consolidated Balance Sheets - June 30, 2003
and December 31, 2002 (unaudited) 1
Consolidated Statements of Operations -
Three and Six Months Ended June 30, 2003
and 2002 (unaudited) 2
Consolidated Statements of Cash Flows -
Six Months Ended June 30, 2003 and 2002 (unaudited) 3
Notes to Consolidated Financial Statements (unaudited) 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures about Market
Risk 12
Item 4. Controls and Procedures 12
Part II - Other Information
Item 4. Submission of Matters to a Vote of Stockholders 13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 15
Exhibits
Part I - Financial Information
TRANS-LUX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
June 30 December 31
In thousands, except share data 2003 2002
- ------------------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 12,027 $ 8,270
Available-for-sale securities 575 522
Receivables, less allowance of $1,539 in 2003 and $1,009 in 2002 5,759 7,617
Unbilled receivables 1,098 966
Inventories 6,107 7,440
Prepaids and other 875 745
--------- ---------
Total current assets 26,441 25,560
--------- ---------
Rental equipment 90,480 88,374
Less accumulated depreciation 47,330 43,423
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43,150 44,951
--------- ---------
Property, plant and equipment 41,315 47,427
Less accumulated depreciation and amortization 11,390 12,170
--------- ---------
29,925 35,257
--------- ---------
Goodwill 1,035 1,264
Other assets 3,868 3,942
--------- ---------
TOTAL ASSETS $104,419 $110,974
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,407 $ 2,754
Accrued liabilities 6,663 7,189
Current portion of long-term debt 2,979 3,763
--------- ---------
Total current liabilities 11,049 13,706
--------- ---------
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 30,413 35,975
--------- ---------
61,647 67,209
Deferred revenue, deposits and other 2,479 2,942
Deferred income taxes 5,228 4,092
--------- ---------
Stockholders' equity:
Capital stock
Common - $1 par value - 5,500,000 shares authorized
2,452,900 shares issued in 2003 and 2002 2,453 2,453
Class B - $1 par value - 1,000,000 shares authorized
287,505 shares issued in 2003 and 2002 287 287
Additional paid-in-capital 13,901 13,901
Retained earnings 20,359 19,612
Accumulated other comprehensive loss (1,147) (1,391)
--------- ---------
35,853 34,862
Less treasury stock - at cost - 1,479,688 shares in 2003 and 2002
(excludes additional 287,505 shares held in 2003 and 2002
for conversion of Class B stock) 11,837 11,837
--------- ---------
Total stockholders' equity 24,016 23,025
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $104,419 $110,974
========= =========
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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
--------------------- --------------------
In thousands, except per share data 2003 2002 2003 2002
- --------------------------------------------------------------------------- --------------------
Revenues:
Equipment rentals and maintenance $ 4,498 $ 5,153 $ 9,517 $10,782
Equipment sales 5,940 9,894 13,304 18,013
Theatre receipts and other 3,435 3,939 6,542 7,353
-------- -------- -------- --------
Total revenues 13,873 18,986 29,363 36,148
-------- -------- -------- --------
Operating expenses:
Cost of equipment rentals and maintenance 3,560 3,405 7,118 6,758
Cost of equipment sales 4,181 7,432 9,912 13,379
Cost of theatre receipts and other 2,663 2,957 4,983 5,485
-------- -------- -------- --------
Total operating expenses 10,404 13,794 22,013 25,622
-------- -------- -------- --------
Gross profit from operations 3,469 5,192 7,350 10,526
General and administrative expenses 4,016 4,243 8,054 8,511
Interest income 21 95 68 118
Interest expense (997) (1,133) (1,999) (2,305)
Gain on sale of assets 2,629 - 4,207 -
Other income (expense) (129) 43 (129) 58
-------- -------- -------- --------
Income (loss) before income taxes and income 977 (46) 1,443 (114)
from joint venture
Provision for income taxes 572 53 869 91
Income from joint venture 163 164 261 316
-------- -------- -------- --------
Net income $ 568 $ 65 $ 835 $ 111
======== ======== ======== ========
Earnings per share
Basic $0.45 $0.05 $0.66 $0.09
Diluted $0.26 $0.05 $0.42 $0.09
Average common shares outstanding
Basic 1,261 1,261 1,261 1,261
Diluted 3,418 1,261 3,418 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
- -----------------------------------------------------------------------------------------------------
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
----------------------------
In thousands 2003 2002
- -------------------------------------------------------------------------------------------------------
Cash flows from operating activities
Net income $ 835 $ 111
Adjustment to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 5,081 5,073
Income from joint venture (261) (316)
Deferred income taxes 1,063 993
Gain on sale of assets (4,207) -
Write down of available-for-sale securities 129 -
Changes in operating assets and liabilities:
Receivables 1,264 (598)
Inventories 540 (275)
Prepaids and other assets (580) (114)
Accounts payable and accruals (2,115) (1,829)
Deferred revenue, deposits and other (463) (379)
-------- --------
Net cash provided by operating activities 1,286 2,666
-------- --------
Cash flows from investing activities
Equipment manufactured for rental (2,106) (2,276)
Purchases of property, plant and equipment (150) (343)
Proceeds from joint venture 450 436
Proceeds from sale of assets 6,556 -
-------- --------
Net cash provided by (used in) investing activities 4,750 (2,183)
-------- --------
Cash flows from financing activities
Payments of long-term debt (19,191) (1,580)
Proceeds from long-term debt 17,000 2,100
Cash dividends (88) (88)
-------- --------
Net cash provided by (used in) financing activities (2,279) 432
-------- --------
Net increase in cash and cash equivalents 3,757 915
Cash and cash equivalents at beginning of year 8,270 5,699
-------- --------
Cash and cash equivalents at end of period $12,027 $ 6,614
======== ========
- -------------------------------------------------------------------------------------------------------
Interest paid $ 1,861 $ 2,190
Interest received 87 116
Income taxes refunded (119) (724)
- -------------------------------------------------------------------------------------------------------
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, 2003
(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,
2003 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, 2002. Certain
reclassifications of prior years' amounts have been made to conform to the
current year's presentation.
On January 1, 2002, the Company adopted the provisions of Statement of Financial
Accounting Standards No. 142, "Goodwill and Other Intangible Assets" (SFAS
142). Under SFAS 142, goodwill and indefinite-lived intangible assets are no
longer amortized, but are reviewed annually for impairment, or more frequently
if indications of potential impairment exist. The Company performed the
requisite transitional impairment tests for goodwill as of January 1, 2002,
which indicated that there was no transitional impairment loss. The Company
performed the annual impairment tests for goodwill as of October 1, 2002 and had
determined that goodwill was not impaired as of that date. All other intangible
assets continue to be amortized over their useful lives and are evaluated when
indicators of impairment exist. During the six months ended June 30, 2003, the
Company wrote off $229,000 of goodwill relating to the sale of assets (see Note
4). In addition, during the six months ended June 30, 2003, the Company paid
$450,000 for a 15-year non-compete agreement in Dillon, Colorado, where the
Company operates a six-plex theatre in the same community.
The Company records compensation expense for its stock-based employee
compensation plans in accordance with the intrinsic-value method prescribed by
APB Opinion No. 25, "Accounting for Stock Issued to Employees". Intrinsic
value is the amount by which the market price of the underlying stock exceeds
the exercise price of the stock option or award on the measurement date,
generally the date of grant. The Company's options are issued at fair market
value, accordingly, no compensation cost has been recognized for its stock
option plans. In December 2002, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure" (SFAS 148), that amends
Statement of Financial Accounting Standards No. 123 (SFAS 123), "Accounting for
Stock-Based Compensation". The following table illustrates the effect on net
income and earnings per share for the three and six month periods ended June 30,
2003 and 2002 if the Company had applied the fair value recognition provisions
of SFAS 123 to stock-based employee compensation:
4
Three months ended June 30 Six months ended June 30
In thousands, except per share data 2003 2002 2003 2002
- -------------------------------------------------------------------------------------------------------
Net income, as reported $ 568 $ 65 $ 835 $ 111
Deduct: Total stock-based employee compensation
expense determined under fair value based
method for all awards, net of tax 2 13 12 16
----- ----- ----- -----
Pro forma net income $ 566 $ 52 $ 823 $ 95
----- ----- ----- -----
Earnings per share:
As reported
Basic $0.45 $0.05 $0.66 $0.09
----- ----- ----- -----
Diluted $0.26 $0.05 $0.42 $0.09
----- ----- ----- -----
Pro forma
Basic $0.45 $0.04 $0.65 $0.08
----- ----- ----- -----
Diluted $0.26 $0.04 $0.42 $0.08
----- ----- ----- -----
Note 2 - Inventories
Inventories consist of the following:
June 30 December 31
In thousands 2003 2002
- ---------------------------------------------------------
Raw materials and spare parts $4,212 $4,663
Work-in-progress 1,316 1,384
Finished goods 579 1,393
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$6,107 $7,440
====== ======
Note 3 - Long-Term Debt
For the six months ended June 30, 2003, long-term debt, including current
portion, decreased $6.3 million. The decrease primarily results from the
assumption of $4.2 million in Industrial Revenue Bonds by the purchaser of the
Company's custom sports business in Logan, Utah (see Note 4), and other regular
scheduled payments of long-term debt. During the first quarter of 2003, the
Company completed a refinancing of its senior debt with two term loans totaling
$17.0 million and a revolving credit facility of up to $5.0 million at variable
interest rates ranging from LIBOR plus 1.75% to Prime plus 0.25% (3.79% at June
30, 2003) and maturing September 30, 2005. At June 30, 2003, the entire
revolving credit facility was available as none had been drawn. The bank credit
agreement requires an annual facility fee on the unused commitment of .30%, and
requires compliance with certain financial covenants, which include a fixed
charge coverage ratio of 1.0 to 1.0, a total funded debt ratio of 5.0 to 1.0, a
leverage ratio of 3.0 to 1.0 and maintaining a tangible net worth of not less
than $19.5 million. At June 30, 2003, the Company was in compliance with such
financial covenants.
5
Note 4 - Sale of Assets
On June 30, 2003, the Company sold a parcel of vacant land adjacent to its
corporate headquarters in Norwalk, Connecticut for a cash price of $3.0 million.
The Company recorded a gain of approximately $1.3 million, net of tax, on the
sale. On March 28, 2003, the Company sold its custom sports business located in
Logan, Utah for $7.9 million, of which $3.7 million was paid in cash and $4.2
million was in assumption of two Industrial Revenue Bonds. The Company recorded
a gain of approximately $745,000, net of tax, on the sale. As part of the sale,
the Company recorded bonuses to certain continuing employees of $75,000, which
was offset against the gain. As part of the asset purchase agreement, the
Company provided standard representations and warranties with respect to the
assets sold and guaranteed indemnification of up to $400,000, provided
notification of the claim is made by the purchaser prior to December 30, 2003,
and the Company would reacquire any sold accounts receivable greater than 90
days old. As of June 30, 2003, the Company reacquired $0.1 million of sold
accounts receivable greater than 90 days old. The Company believes it will not
incur any liability with respect to the guarantee, and accordingly does not
believe the fair value of the guarantee is significant. As of August 13, 2003,
the purchaser has not notified the Company of any claims relating to such
guarantee.
Note 5 - Reporting Comprehensive Income
Total comprehensive income for the three and six months ended June 30, 2003 and
2002 is as follows:
Three months ended June 30 Six months ended June 30
In thousands 2003 2002 2003 2002
- -----------------------------------------------------------------------------------------------------------------
Net income $568 $ 65 $ 835 $111
Unrealized foreign currency translation gain (loss) 89 13 134 (19)
Unrealized holding gain (loss) on securities, net of tax 11 (10) 32 (12)
Reclassification adjustment on securities, net of tax 78 - 78 -
Unrealized derivative gain, net of tax - 26 - 54
---- ---- ------ ----
Comprehensive income $746 $ 94 $1,079 $134
---- ---- ------ ----
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 segment owns a chain of
motion picture theatres in the western Mountain States, a national film booking
service and income-producing real estate 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 six months ended June 30, 2003 and 2002 is as follows:
Three months ended June 30 Six months ended June 30
In thousands 2003 2002 2003 2002
- -----------------------------------------------------------------------------------------------------------------
Revenues:
Indoor display $ 5,102 $ 6,028 $10,208 $11,715
Outdoor display (1) 5,336 9,019 12,613 17,080
Entertainment/real estate 3,435 3,939 6,542 7,353
------- ------- ------- -------
Total revenues $13,873 $18,986 $29,363 $36,148
------- ------- ------- -------
Operating income (loss):
Indoor display $ 458 $ 1,242 $ 1,446 $ 2,653
Outdoor display (1) (251) 23 (772) 206
Entertainment/real estate 748 955 1,423 1,789
------- ------- ------- -------
Total operating income $ 955 $ 2,220 $ 2,097 $ 4,648
Other income 2,500 43 4,078 58
Corporate general and administrative expenses (1,339) (1,107) (2,540) (2,317)
Interest expense-net (976) (1,038) (1,931) (2,187)
Income tax provision (572) (53) (869) (91)
------- ------- ------- -------
Net income $ 568 $ 65 $ 835 $ 111
======= ======= ======= =======
(1) Decrease is primarily related to the sale of the custom sports business, see Note 4.
Note 7 - Legal Proceedings and Claims
The Company is subject to legal proceedings and claims, which arise in the
ordinary course of its business. The Company is not a party to any pending
legal proceedings and claims that it believes will have a material adverse
effect on the consolidated financial position or operations of the Company.
7
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 (which the Company sold during the first quarter of 2003), 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, 2003 Compared to Six Months Ended June 30, 2002
Total revenues for the six months ended June 30, 2003 decreased 18.8% to $29.4
million from $36.1 million for the six months ended June 30, 2002. Indoor
display revenues decreased $1.5 million or 12.9%. Of this decrease, indoor
display equipment rentals and maintenance revenues decreased $1.1 million or
14.9%, primarily due to disconnects and non-renewals of equipment on rental and
maintenance on existing contracts in the financial services market, and indoor
display equipment sales decreased $405,000 or 9.4%, 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 slowdown.
Outdoor display revenues decreased $4.5 million or 26.2%. Of this decrease,
outdoor display equipment sales decreased $4.3 million or 31.5%, primarily in
the custom outdoor sports business, which decrease resulted mainly from the sale
of the custom sports business during the first quarter of 2003 (see Note 4).
Outdoor display equipment rentals and maintenance revenues decreased $163,000 or
4.8%, primarily due to the continued expected revenue decline in the outdoor
equipment rentals and maintenance bases previously acquired.
Entertainment/real estate revenues decreased $811,000 or 11.0%. This decrease
is primarily from a decrease in overall admissions and concessions, mainly
related to fewer high grossing films. The Company closed its older
non-profitable Lake Dillon theatre at the end of January 2003 for a net payment
of $34,000 to the landlord. In connection with its newer six-plex theatre in
Dillon, Colorado, the Company entered into a 15-year non-compete agreement for
$450,000, which was paid in installments during January and April 2003.
8
Total operating income for the six months ended June 30, 2003 decreased 54.9% to
$2.1 million from $4.6 million for the six months ended June 30, 2002. Indoor
display operating income decreased $1.2 million or 45.5%, primarily as a result
of the decrease in revenues in the financial services market. The cost of
indoor displays represented 58.5% of related revenues in 2003 compared to 52.7%
in 2002. The cost of indoor displays as a percentage of related revenues
increased primarily due to higher depreciation expense and the relationship
between field service costs of equipment rentals and maintenance increasing and
the revenues from indoor equipment rentals and maintenance decreasing. The
Company continues to strategically address the field service costs, and recently
consolidated its field service center from Norcross, Georgia to its Norwalk,
Connecticut headquarters. In addition, the Company initiated certain cost
saving measures and recorded a charge for lay-offs and early retirement
incentives of approximately $19,000. Indoor display cost of equipment sales
decreased $369,000 or 15.5%, primarily due to the decrease in volume. Indoor
display cost of equipment rentals and maintenance increased $164,000 or 4.3%,
largely due to an increase in depreciation expense. Indoor display general and
administrative expenses decreased $95,000 or 3.3% due to continued reduction of
certain overhead costs such as sales salaries and travel expenses.
Outdoor display operating income decreased $978,000 to a loss of $772,000, as a
result of a decrease in outdoor display equipment sales primarily in the custom
outdoor sports business, which was sold during the first quarter of 2003 (see
Note 4), the continuing expected revenue decline in outdoor equipment rentals
and maintenance bases from previous acquisitions and field service costs
increasing despite the reduction in revenues from outdoor equipment rentals and
maintenance. The Company initiated certain cost saving measures and recorded a
charge for lay-offs and early retirement incentives of approximately $47,000.
The cost of outdoor displays represented 87.7% of related revenues in 2003
compared to 81.7% in 2002. Outdoor display cost of equipment sales decreased
$3.1 million or 28.2%, principally due to the decrease in volume, offset by
increased costs associated with the sale of the custom sports business in March
2003 (see Note 4). Outdoor display cost of equipment rentals and maintenance
increased $196,000 or 6.6%, primarily due to an increase in field service costs.
Outdoor display general and administrative expenses decreased $587,000 or 20.2%,
primarily due to sale of the custom sports business during the first quarter of
2003 (see Note 4). Cost of indoor and outdoor equipment rentals and maintenance
includes field service expenses, plant repair costs, maintenance and
depreciation.
Entertainment/real estate operating income decreased $366,000 or 20.5%,
primarily due to the decrease in revenues. The cost of entertainment/real
estate represented 76.2% of related revenues in 2003 compared to 74.6% in 2002.
Cost of entertainment/real estate, which includes film rental costs and
depreciation expense, decreased $502,000 or 9.2%, due to the decrease in overall
admissions. Entertainment/real estate general and administrative expenses
remained level.
Corporate general and administrative expenses increased $223,000 or 9.6%,
principally resulting from a charge for lay-offs and early retirement incentives
of approximately $46,000, increases in certain overhead costs due to pension,
medical and insurance costs and benefits, offset by a $768,000 positive impact
of the effect of foreign currency rates in 2003 compared to a $400,000 positive
impact in 2002.
Net interest expense decreased $256,000, which is primarily attributable to the
decrease in variable interest rates in 2003 vs. 2002 and a decrease in
long-term debt due to the assumption of debt by the purchaser of the custom
sports business and regular scheduled payments of long-term debt. The gain on
sale of assets relates to the sale of vacant land and the custom sports business
(see Note 4). The income from joint venture relates to the operations of the
theatre joint venture, MetroLux Theatres, in Loveland, Colorado.
The effective tax rate for the six months ended June 30, 2003 and 2002 was 51.0%
and 45.0%, respectively. The change in rate is due principally to the
non-deductibility of the $229,000 goodwill write-
9
off as a result of the sale of the custom sports business.
Three Months Ended June 30, 2003 Compared to Three Months Ended June 30, 2002
Total revenues for the three months ended June 30, 2003 decreased 26.9% to $13.9
million from $19.0 million for the three months ended June 30, 2002. Indoor
display revenues decreased $926,000 or 15.4%. Of this decrease, indoor display
equipment rentals and maintenance revenues decreased $594,000 or 16.8%,
primarily due to disconnects and non-renewals of equipment on rental and
maintenance on existing contracts in the financial services market, and indoor
display equipment sales decreased $332,000 or 13.4%, 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 slowdown.
Outdoor display revenues decreased $3.7 million or 40.8%. Of this decrease,
outdoor display equipment sales decreased $3.6 million or 48.9%, primarily in
the custom outdoor sports business, which decrease resulted mainly from the sale
of the custom sports business during the first quarter of 2003 (see Note 4).
Outdoor display equipment rentals and maintenance revenues decreased $62,000 or
3.9%, primarily due to the continued expected revenue decline in the outdoor
equipment rentals and maintenance bases previously acquired.
Entertainment/real estate revenues decreased $504,000 or 12.7%. This decrease
is primarily from a decrease in overall admissions and concessions, mainly
related to fewer high grossing films. In connection with its newer six-plex
theatre in Dillon, Colorado, the Company entered into a 15-year non-compete
agreement for $450,000, which was paid in installments during January and April
2003.
Total operating income for the three months ended June 30, 2003 decreased 57.0%
to $1.0 million from $2.2 million for the three months ended June 30, 2002.
Indoor display operating income decreased $784,000 or 63.1%, primarily as a
result of the decrease in revenues in the financial services market. The cost
of indoor displays represented 59.8% of related revenues in 2003 compared to
55.3% in 2002. The cost of indoor displays as a percentage of related revenues
increased primarily due to the relationship between field service costs of
equipment rentals and maintenance increasing and the revenues from indoor
equipment rentals and maintenance decreasing. The Company continues to
strategically address the field service costs, and recently consolidated its
field service center from Norcross, Georgia to its Norwalk, Connecticut
headquarters. In addition, the Company initiated certain cost saving
measures and recorded a charge for lay-offs and early retirement incentives of
approximately $19,000. Indoor display cost of equipment sales decreased
$283,000 or 8.5%, primarily due to the change in volume mix. Indoor display
cost of equipment rentals and maintenance increased $64,000 or 3.4%, largely due
to increased depreciation expense. Indoor display general and administrative
expenses increased $140,000 or 9.6%, primarily due to lay-offs and early
retirement incentives.
Outdoor display operating income decreased $274,000 to a loss of $251,000, as a
result of a decrease in outdoor display equipment sales primarily in the custom
outdoor sports business, which was sold during the first quarter of 2003 (see
Note 4), the continuing expected revenue decline in outdoor equipment rentals
and maintenance bases from previous acquisitions and field service costs
increasing despite the reduction in revenues from outdoor equipment rentals and
maintenance. The Company initiated certain cost saving measures and recorded a
charge for lay-offs and early retirement incentives of approximately $47,000.
The cost of outdoor displays represented 87.9% of related revenues in 2003
compared to 83.2% in 2002. Outdoor display cost of equipment sales decreased
$2.9 million or 48.4%, principally due to the decrease in volume from the sale
of the custom outdoor sports business, during the first quarter of 2003 (see
Note 4).
10
Outdoor display cost of equipment rentals and maintenance increased $91,000 or
6.0%, primarily due to field service costs. Outdoor display general and
administrative expenses decreased $595,000, primarily due to the sale of the
custom outdoor sports business during the first quarter of 2003.
Entertainment/real estate operating income decreased $207,000 or 21.7%,
primarily due to the decrease in revenues. The cost of entertainment/real
estate represented 77.5% of related revenues in 2003 compared to 75.1% in 2002.
Cost of entertainment/real estate decreased $294,000 or 9.9%, due to the
decrease in overall admissions. Entertainment/real estate general and
administrative expenses remained level.
Corporate general and administrative expenses increased $232,000 or 21.0%,
principally resulting from increases in certain overhead costs due to pension,
medical and insurance costs and benefits, offset by a $424,000 positive impact
of the effect of foreign currency rates in 2003 compared to a $240,000 positive
impact in 2002.
Net interest expense decreased $62,000, which is primarily attributable to the
decrease in variable interest rates in 2003 vs. 2002 and a decrease in
long-term debt due to the assumption of debt by the purchaser of the custom
sports business in March 2003 and regular scheduled payments. The gain on sale
of assets relates to the sale of vacant land (see Note 4). The income from
joint venture relates to the operations of the theatre joint venture, MetroLux
Theatres, in Loveland, Colorado.
The effective tax rate for the three months ended June 30, 2003 and 2002 was
50.2% and 45.0%, respectively. The change in rate is due principally to an
increase in state taxes.
Liquidity and Capital Resources
The regular quarterly cash dividend for the second quarter of 2003 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 29, 2003, payable to
stockholders of record as of June 30, 2003 and was paid July 25, 2003.
During the first quarter of 2003, the Company refinanced its senior debt. The
refinancing consisted of two term loans totaling $17.0 million and a revolving
line of credit of up to $5.0 million at variable interest rates ranging from
LIBOR plus 1.75% to Prime plus 0.25% and matures September 30, 2005. At June
30, 2003, $16.5 million was outstanding under the term loans and the entire
revolving credit facility was available as none had been drawn. The bank credit
agreement contains certain financial covenants, which include a fixed charge
coverage ratio of 1.0 to 1.0, a total funded ratio of 5.0 to 1.0, a leverage
ratio of 3.0 to 1.0 and maintaining a tangible net worth of not less than $19.5
million. At June 30, 2003 the Company was in compliance with such financial
covenants.
Payments of long-term debt due, including the $17.0 million term loans that
mature September 30, 2005, and the 7.5% convertible subordinated notes that
mature December 1, 2006, and the future minimum lease payments due under
operating leases for the remainder of 2003 and the next four years are as
follows:
Remainder of
In thousands 2003 2004 2005 2006 2007
- ------------ ---- ---- ---- ---- ----
Long-Term Debt $1,505 $2,982 $14,781 $31,307 $1,135
Operating Leases 242 428 359 292 118
------ ------ ------- ------- ------
Total $1,747 $3,410 $15,140 $31,599 $1,253
====== ====== ======= ======= ======
Cash and cash equivalents increased $3.8 million for the six months ended June
30, 2003 compared to a decrease of $915,000 in 2002. The increase in 2003 is
primarily attributable to cash received on the sale of vacant land and the
custom sports business, offset by investment in equipment and a repayment of
long-
11
term debt. Cash flows from investing activities also increased $450,000 from
the theatre joint venture. The increase in 2002 is primarily attributable to
cash flows from operating activities and from financing activities offset by the
investment in equipment manufactured for rental and other equipment purchases.
The Company reduced its long-term debt, including the current portion, during
the six months ended June 30, 2003 by $6.3 million, principally from the
assumption of $4.2 million of Industrial Revenue Bonds by the purchaser of the
custom sports business and scheduled payments of long-term debt.
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 is exposed to foreign
currency exchange rate risk mainly as a result of investments in its Australian
and Canadian subsidiaries. The Company may, from time to time, enter into
derivative contracts to manage its interest risk. The Company does not enter
into derivatives for trading or speculative purposes. At June 30, 2003, the
Company was not involved in any derivative financial instruments.
A one percentage point change in interest rates would result in an annual
interest expense fluctuation of approximately $316,000. 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 $398,000, based on dealer
quotes, considering current exchange rates.
Item 4. Controls and Procedures
Disclosure Controls and Procedures. The Company's President and Co-Chief
Executive Officer, Michael R. Mulcahy, the Company's Executive Vice President
and Co-Chief Executive Officer, Thomas Brandt and the Company's Executive Vice
President and Chief Financial Officer, Angela D. Toppi evaluated the
effectiveness of the design and operation of its disclosure controls and
procedures as of the end of the period covered by 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
Officer, and Angela D. Toppi, the Company's Executive Vice President and Chief
Financial Officer, have concluded that these controls and procedures are
effective as of the end of the period covered by this quarterly report.
Changes in Internal Control over Financial Reporting. During the fiscal quarter
ended June 30, 2003, there have been no changes in the Company's internal
control over financial reporting, identified in connection with our evaluation
thereof, that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
12
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 29,
2003 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
--- -------
Steven Baruch 3,679,366 92,097
Thomas Brandt 3,677,961 93,502
Howard M. Brenner 3,679,366 92,097
The following directors are continuing their terms as directors:
Matthew Brandt, Two-Years Remaining
Richard Brandt, One-Year Remaining
Jean Firstenberg, One-Year Remaining
Robert B. Greenes, Two-Years Remaining
Gene Jankowski, One-Year Remaining
Victor Liss, One-Year Remaining
Howard S. Modlin, Two-Years Remaining
Michael R. Mulcahy, 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 3,700,694 23,063 47,706
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10 Consulting Agreement with Richard Brandt dated as of June
1, 2003.
31.1 Certification of Michael R. Mulcahy, President and Co-Chief
Executive Officer, pursuant to Rule 13a-14(a) and 15d-14(a),
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.
31.2 Certification of Thomas Brandt, Executive Vice President
and Co-Chief Executive Officer, pursuant to Rule 13a-14(a)
and 15d-14(a), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
31.3 Certification of Angela D. Toppi, Executive Vice President
and Chief Financial Officer, pursuant to Rule 13a-14(a) and
15d-14(a), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
13
32.1 Certification of Michael R. Mulcahy, President and
Co-Chief Executive Officer, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
32.2 Certification of Thomas Brandt, Executive Vice President
and Co-Chief Executive Officer, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
32.3 Certification of Angela D. Toppi, Executive Vice President
and Chief Financial Officer, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K. During the quarter for which this report on
Form 10-Q is filed, the registrant filed the following:
Form 8-K dated May 14, 2003, press release pertaining to the
financial performance for the first quarter of 2003 results.
Form 8-K dated June 2, 2003, press release pertaining to the
election of a new chairman.
14
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, 2003
by /s/ Angela D. Toppi
--------------------
Angela D. Toppi
Executive Vice President and
Chief Financial Officer
15