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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 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
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
110 Richards Avenue, Norwalk, CT 06856-5090
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(203) 853-4321
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(Address, zip code, and telephone number, including
area code, of Registrant's principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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Common Stock, $1.00 par value American Stock Exchange
7 1/2% Convertible Subordinated
Notes due 2006 American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K. [ X ]
CONTINUED
TRANS-LUX CORPORATION
2003 Form 10-K Cover Page Continued
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes No X
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As of the close of business on March 23, 2004, there were outstanding, 973,243
shares of the Registrant's Common Stock and 287,505 shares of its Class B Stock.
Based on the closing stock price of $6.20 on June 30, 2003, the last business
day of the Registrant's most recently completed second fiscal quarter, the
aggregate market value of the Registrant's Common and Class B Stock held by
non-affiliates of the Registrant was $6,261,000. (The value of a share of
Common Stock is used as the value for a share of Class B Stock, as there is no
established market for Class B Stock, which is convertible into Common Stock on
a share-for-share basis.)
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Registrant's definitive Proxy Statement for the Annual Meeting
of Stockholders to be held May 27, 2004, to be filed with the Commission within
120 days of the Registrant's fiscal year end (the "Proxy Statement"), are
incorporated by reference into Part III, Items 10-14 of this Form 10-K to the
extent stated herein.
TRANS-LUX CORPORATION
2003 Form 10-K Annual Report
Table of Contents
PART I
Page
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ITEM 1. Business 1
ITEM 2. Properties 6
ITEM 3. Legal Proceedings 7
ITEM 4. Submission of Matters to a Vote of Security Holders 7
PART II
ITEM 5. Market for the Registrant's Common Equity and Related Stockholder
Matters 8
ITEM 6. Selected Financial Data 8
ITEM 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk 14
ITEM 8. Financial Statements and Supplementary Data 15
ITEM 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 37
ITEM 9A. Controls and Procedures 37
PART III
ITEM 10. Directors and Executive Officers of the Registrant 38
ITEM 11. Executive Compensation 39
ITEM 12. Security Ownership of Certain Beneficial Owners and Management 39
ITEM 13. Certain Relationships and Related Transactions 39
ITEM 14. Principal Accounting Firm Fees 39
PART IV
ITEM 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K 40
Signatures 43
PART I
ITEM 1. BUSINESS
Unless the context otherwise requires, the term "Company" as used herein
refers to Trans-Lux Corporation and its subsidiaries. The Company is a
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 the Company
manufactures, distributes and services. These display systems utilize LED
(light emitting diodes), plasma screens, and light bulb technologies. Designed
to meet the evolving communications needs of both the indoor and outdoor
markets, these display products include data, graphics, and video displays for
stock and commodity exchanges, financial institutions, sports stadiums and
venues, casinos, convention centers, corporate, government, theatres, retail,
airports, and numerous other applications. In addition to its core display
business, the Company also owns and operates a chain of motion picture theatres
in the western Mountain States and income-producing real estate properties.
ELECTRONIC INFORMATION DISPLAY PRODUCTS
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The Company's high performance electronic information displays are used to
communicate messages and information in a variety of indoor and outdoor
applications. The Company's product line encompasses a wide range of
state-of-the-art electronic displays in various shape, size and color
configurations. Most of the Company's display products include hardware
components and sophisticated software. In both the indoor and outdoor markets
in which the Company serves, the Company adapts basic product types and
technologies for specific use in various niche market applications. The Company
also operates a direct service network throughout the United States and parts of
Canada and Australia, which performs on-site installation, service and
maintenance for its customers and others.
The Company employs a modular engineering design strategy, allowing basic
"building blocks" of electronic modules to be easily combined and configured in
order to meet the broad application requirements of the industries it serves.
This approach ensures product flexibility, reliability, ease of service and
minimum spare parts requirements.
The Company's electronic information display market is broken down into two
distinct segments: the Indoor division and the Outdoor division. Electronic
information displays are used by financial institutions, including brokerage
firms, banks, energy companies, insurance companies and mutual fund companies;
by sports stadiums and venues; by educational institutions; by outdoor
advertising companies; by corporate and government communication centers; by
retail outlets; by casinos, race tracks and other gaming establishments; in
airports, train stations, bus terminals, and other transportation facilities; on
highways and major thoroughfares; by movie theatres; by health maintenance
organizations, and in various other applications.
Indoor Division: The indoor electronic display market is currently
dominated by three categories of users: financial, government and corporate,
and gaming. The financial market sector, which includes trading floors,
exchanges, brokerage firms, banks, mutual fund companies and energy companies,
has long been a user of electronic information displays due to the need for
real-time dissemination of data. The major stock and commodity exchanges depend
on reliable information displays to post stock and commodity prices, trading
volumes, interest rates and other financial data. Brokerage firms use
electronic ticker displays for both customers and brokers; they have also
installed other larger displays
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to post major headline news events in their brokerage offices to enable their
sales force to stay up-to-date on events affecting general market conditions and
specific stocks. The change in regulatory environment in the financial
marketplace resulted in the influx of banks and other financial institutions
into the brokerage business and the need for these institutions to use
information displays to advertise product offerings to consumers. The Indoor
division has a new line of advanced last sale ticker displays, full color LED
tickers and video displays.
The government and corporate sector includes applications found in major
corporations, public utilities and government agencies for the display of
real-time, critical data in command/control centers, data centers, help desks,
visitor centers, inbound/outbound telemarketing centers, retail applications to
attract customers and for employee communications. Electronic displays have
found acceptance in applications for the healthcare industry such as outpatient
pharmacies; military hospitals and HMOs to automatically post patient names when
prescriptions are ready for pick up. Theatres use electronic displays to post
current box office and ticket information, directional information and promote
concession sales. Information displays are consistently used in airports, bus
terminals and train stations to post arrival and departure, gate and baggage
claim information, all of which help to guide passengers through these
facilities.
The gaming sector includes casinos and Indian gaming establishments. These
establishments generally use large information displays to post odds for race
and sporting events and to display timely information such as results, track
conditions, jockey weights and scratches. Casinos also use electronic displays
throughout their facilities to advertise to and attract gaming patrons. This
includes using electronic displays in conjunction with slot machines using
enhanced serial controllers to attract customer attention to potential payoffs
and thus increase customer play. Indoor equipment generally has a lead-time of
30 to 120 days depending on the size and type of equipment ordered and material
availability.
Outdoor Division: The outdoor electronic display market is even more
diverse than the Indoor division. Displays are being used by sports stadiums,
sports venues, banks and other financial institutions, gas stations, highway
departments, educational institutions and outdoor advertisers attempting to
capture the attention of passers-by. The Outdoor division has a new line of LED
message centers and video displays available in monochrome and full color. The
Company has utilized its strong position in the indoor market combined with
several acquisitions to enhance its presence in the outdoor display market.
Outdoor displays are installed in amusement parks, entertainment facilities,
high schools, college sports stadiums, city park and recreational facilities,
churches, racetracks, military installations, bridges and other roadway
installations, automobile dealerships, banks and other financial institutions.
Outdoor equipment generally has a lead-time of 10 to 90 days depending on the
size and type of equipment ordered and material availability.
Sales Order Backlog (excluding leases): The amount of sales order backlog
at December 31, 2003 was approximately $3.3 million compared with the December
31, 2002 sales order backlog of $6.2 million. The reduction in the sales order
backlog is partly due to the sale of the custom sports business during the first
quarter of 2003. The December 31, 2003 backlog will be recognized in 2004.
These amounts include only the sale of products; they do not include new lease
orders or renewals of existing lease agreements that may be presently in-house.
2
ENGINEERING AND PRODUCT DEVELOPMENT
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The Company's ability to compete and operate successfully depends upon,
among other factors, its ability to anticipate and respond to the changing
technological and product needs of its customers. The Company continually
examines and tests new display technologies and develops enhancements to its
existing product line in order to meet the needs of its customers.
The Company developed a full line of RainbowWall(R) high-resolution full
color LED displays for indoor and outdoor applications. RainbowWall delivers
brilliant video and animation in billions of colors to corporate, financial and
entertainment markets where the presentation of multimedia, live-action,
advertising and promotions is of central importance. ProLine(R), the Company's
proprietary controller software, is designed for RainbowWall applications that
require dynamic, fast-changing information and imagery. ProLine allows live or
recorded video, cable TV, newswire feeds and animations to be combined with text
on a single display in flexible zone layouts.
During 2003 the Company's Outdoor Display division announced the launch of
CaptiVue(TM), a new product line of outdoor full matrix LED message centers
offering greater design flexibility, modularity and increased clarity at an
economical price, which is being well received in the commercial marketplace.
Several new orders indicate interesting possibilities for this new product line.
Continued development of new indoor products includes new monochrome and
tricolor ticker displays utilizing improved LED display technology, curved and
flexible displays; higher speed processors for faster data access and improved
update speed; greater integration of blue LED's to provide full color text,
graphics and video displays; wireless controlled displays; a new graphics
interface to display more data at higher resolutions; and Market Scheduler, a
turnkey display content controller system that delivers real-time or delayed
financial information to the Company's LED Jets and Data Walls.
The Company obtained its first orders for tricolor GraphixWall(TM), its
recently developed, economical full-matrix indoor graphic display product and
continues to develop a full color version. Featuring flexible functionality at
a lower cost, GraphixWall provides a more competitive offering for industries
where price is critically important. Initial applications for GraphixWall
displays include flight information, baggage claim and way-finding at airports,
automatic call directories at contact centers and order processing support at
manufacturing facilities.
As part of its ongoing development efforts, the Company seeks to package
certain products for specific market segments as well as to continually track
emerging technologies that can enhance its products. Full color, live video and
digital input technologies continue to be improved. The Company developed
PromoWall(R), a new product line utilizing various technologies incorporating
these features, as well as flat screen displays, which are expected to provide a
choice of products for the custom applications demanded by its customers.
The Company maintains a staff of 26 people who are responsible for product
development and support. The engineering and product enhancement and
development efforts are supplemented by outside independent engineering
consulting organizations and colleges where required. Engineering expense, and
product enhancement and development amounted to $2,609,000, $3,370,000 and
$4,098,000 in 2003, 2002 and 2001, respectively, this reduction is partly due to
the sale of the custom sports business during the first quarter of 2003.
3
MARKETING AND DISTRIBUTION
- --------------------------
The Company markets its indoor and outdoor electronic information display
products primarily through its 24 direct sales representatives, 5 telemarketers
and a network of independent dealers and distributors. The Company uses a
number of different techniques in order to attract new customers, including
direct marketing efforts by its sales force to known or potential users of
information displays, advertising in industry publications, and exhibiting at
approximately 16 domestic and international trade shows annually.
In the outdoor market, the Company supplements these efforts by using a
network of independent dealers and distributors who market and sell its
products. Working with software vendors and utilizing the internet to expand
the quality and quantity of the multimedia content that can be delivered to our
displays, we are able to offer customers critical information and display
communications packages.
Internationally, the Company uses a combination of internal sales people and
independent distributors to market its products outside the U.S. The Company
currently has assembly operations, service centers and sales offices in New
South Wales, Australia; Toronto, Canada; and Brampton, Canada. The Company has
existing relationships with approximately 21 independent distributors worldwide
covering Europe, South and Central America, Canada, Asia and Australia.
International sales have represented less than 10% of total revenues in the past
three years, but the Company believes that it is well-positioned for expansion.
Headquartered in Norwalk, Connecticut, the Company has major sales and
service offices in New York; Chicago; Las Vegas; Toronto, Canada; Brampton,
Canada; Des Moines, Iowa; and New South Wales, Australia, as well as
approximately 44 satellite offices in the United States and Canada.
The Company's equipment is both leased and sold. A significant portion of
the electronic information display revenues is from equipment rentals with
current lease terms ranging from 30 days to ten years.
The Company's revenues in 2003, 2002 and 2001 did not include any single
customer that accounted for more than 10% of total revenues.
MANUFACTURING AND OPERATIONS
- ----------------------------
As of the end of the year, the Company's production facilities were located
in Norwalk, Connecticut; Des Moines, Iowa; and New South Wales, Australia and
consist principally of the manufacturing, assembly and testing of display units,
and related components. The Company performs most subassembly and all final
assembly of its products.
All product lines are design engineered by the Company and controlled
throughout the manufacturing process. The Company has the ability to produce
printed circuit board fabrications, very large sheet metal fabrications, cable
assemblies, and surface mount and through-hole designed assemblies. The Company
produces more than 10,000 board assemblies annually which are tested with
state-of-the-art automated testing equipment. Additional board assembly
capacity is increased through
4
outsourcing. The Company's production of many of the subassemblies and all of
the final assemblies gives the Company the control needed for on-time delivery
to its customers.
The Company also has the ability to rapidly modify its product lines. The
Company's displays are designed with flexibility in mind, enabling the Company
to customize its displays to meet different applications with a minimum of
lead-time. The Company designs certain of its materials to match components
furnished by suppliers. If such suppliers were unable to provide the Company
with those components, the Company would have to contract with other suppliers
to obtain replacement sources. Such replacement might result in engineering
design changes, as well as delays in obtaining such replacement components. The
Company believes it maintains suitable inventory and has contracts providing for
delivery of sufficient quantities of such components to meet its needs. The
Company also believes there presently are other qualified vendors of these
components. The Company does not acquire significant amount of purchases
directly from foreign suppliers, but certain components such as the LED's are
manufactured by foreign sources.
The Company is ISO-9001-2000 registered by Underwriters Laboratories at its
Norwalk manufacturing facility. The Company's products are also third-party
certified as complying with applicable safety, electromagnetic emissions and
susceptibility requirements worldwide. The Company believes these distinctions
in its industry give it a competitive advantage in the global marketplace.
SERVICE AND SUPPORT
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The Company emphasizes the quality and reliability of its products and the
ability of its field service personnel to provide timely and expert service to
the Company's installed base. The Company believes that the quality and
timeliness of its on-site service personnel are important components in the
Company's ongoing and future success. The Company provides turnkey installation
and support for the products it leases and sells in the United States, Canada
and Australia. The Company provides training to end-users and provides ongoing
support to users who have questions regarding operating procedures, equipment
problems or other issues. The Company provides installation and service to
those who purchase and lease equipment. In the market segments covered by the
Company's dealers and distributors, who offer support for the products they
sell.
Personnel based in regional and satellite service locations throughout the
United States, Canada and Australia provide high quality and timely on-site
service for the installed rental equipment and maintenance base and other types
of customer owned equipment. Purchasers or lessees of the Company's larger
products, such as financial exchanges, casinos and sports stadiums, often retain
the Company to provide on-site service through the deployment of a service
technician who is on-site daily or for the scheduled event. The Company
operates its National Technical Services Center from its Norwalk, Connecticut
headquarters, which performs equipment repairs and dispatches service
technicians on a nationwide basis. The Company's field service is augmented by
various outdoor service companies in the United States, Canada and overseas.
From time to time the Company uses various third-party service agents to
install, service and/or assist in the service of outdoor displays for reasons
that include geographic area, size and height of displays.
COMPETITION
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The Company's offer of short and long-term rentals to customers and its
nationwide sales, service and installation capabilities are major competitive
advantages in the display business. The
5
Company believes that it is the largest supplier of large-scale stock,
commodity, sports and race book gaming displays in the United States, as well as
one of the larger outdoor electronic display and service organizations in the
country.
The Company competes with a number of competitors, both larger and smaller
than itself, and with products based on different forms of technology. In
addition, there are several companies whose current products utilize similar
technology and who possess the resources necessary to develop competitive and
more sophisticated products in the future.
THEATRE OPERATIONS
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The Company currently operates 60 screens in 11 locations in the western
Mountain States. In 2001, the Company closed a three-plex theatre in Los
Alamos, New Mexico. In 2002, the Company closed a single screen theatre in
Santa Fe, New Mexico. In 2003, the Company closed a non-profitable four-plex
theatre in Dillon, Colorado and is presently expanding its Durango, Colorado
location by adding two additional screens. Construction is anticipated to be
completed by April 2004. The Company also operates a twelve-plex theatre in
Loveland, Colorado, which is a 50% owned joint venture partnership. The
Company's theatre revenues are generated from box office admissions, theatre
concessions, theatre rentals and other sales. Theatre revenues are generally
seasonal and coincide with the release dates of major films during the summer
and holiday seasons. The Company is not currently operating any multimedia
entertainment venues, but continues to stay abreast of innovations in this area
of technology and continues to investigate new opportunities. The Company also
offers consultation, management operations services and film booking services
for select non-owned independent theatres.
The Company's motion picture theatres are subject to varying degrees of
competition in the geographic areas in which they operate. In one area,
theatres operated by national circuits compete with the Company's theatres. The
Company's theatres also face competition from all other forms of entertainment
competing for the public's leisure time and disposable income.
INTELLECTUAL PROPERTY
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The Company owns or licenses a number of patents and holds a number of
trademarks for its display equipment and theatrical enterprises and considers
such patents, licenses and trademarks important to its business.
EMPLOYEES
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The Company has approximately 475 employees as of February 29, 2004, of
which approximately 305 employees support the Company's electronic display
business. Less than 1% of the employees are unionized. The Company believes
its employee relations are good.
ITEM 2. PROPERTIES
The Company's headquarters and principal executive offices are located at
110 Richards Avenue, Norwalk, Connecticut. The Company owns the 102,000 square
foot facility located at such site, which is occupied by the Company and is used
for administration, sales, engineering, production and assembly
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of its indoor display products. Approximately 9,500 square feet of the building
is currently leased to others.
In addition, the Company owns a facility in Des Moines, Iowa and theatre
properties in:
Sahuarita, Arizona
Dillon, Colorado
Durango, Colorado
Loveland, Colorado (50% ownership)
Espanola, New Mexico
Los Lunas, New Mexico
Santa Fe, New Mexico
Taos, New Mexico
Laramie, Wyoming
The Company also leases 13 premises throughout North America and in
Australia for use as sales, service and/or administrative operations, and leases
3 theatre locations. The aggregate rental expense was $528,000, $643,000 and
$553,000 for the years ended December 31, 2003, 2002 and 2001, respectively.
ITEM 3. LEGAL PROCEEDINGS
The Company is subject to legal proceedings and claims, which arise in the
ordinary course of its business. 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
7
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
(a) The Company's Common Stock is traded on the American Stock Exchange
under the symbol "TLX." Sales prices are set forth in (d) below.
(b) The Company had approximately 706 holders of record of its Common Stock
and approximately 63 holders of record of its Class B Stock as of March
23, 2004.
(c) The Board of Directors approved four quarterly cash dividends of $0.035
per share for Common Stock and $0.0315 per share for Class B Stock
during 2003. Management and the Board of Directors will continue to
review payment of the quarterly cash dividends.
(d) The range of Common Stock prices on the American Stock Exchange are set
forth in the following table:
High Low
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2003
First Quarter $5.35 $4.75
Second Quarter 6.55 5.10
Third Quarter 7.79 6.00
Fourth Quarter 7.19 5.85
2002
First Quarter $6.24 $4.85
Second Quarter 7.80 5.20
Third Quarter 5.85 4.90
Fourth Quarter 6.15 4.79
ITEM 6. SELECTED FINANCIAL DATA
(a) The following table sets forth selected consolidated financial data with
respect to the Company for the five years ended December 31, 2003, which
were derived from the audited consolidated financial statements of the
Company and should be read in conjunction with them.
Years Ended 2003 2002 2001 2000 1999
- ----------- ---- ---- ---- ---- ----
In thousands, except per share data
Revenues $ 57,574 $ 74,891 $ 70,171 $ 66,763 $ 62,818
Net income (loss) 1,054 428 509 (2,231) 788
Earnings (loss) per share:
Basic $ 0.84 $ 0.34 $ 0.40 $ (1.77) $ 0.61
Diluted 0.70 0.34 0.40 (1.77) 0.61
Cash Dividends per share:
Common stock $ 0.14 $ 0.14 $ 0.14 $ 0.14 $ 0.14
Class B stock 0.126 0.126 0.126 $ 0.126 0.126
Average common shares outstanding 1,261 1,261 1,261 1,261 1,286
Total assets $102,022 $111,199 $113,897 $113,015 $112,448
Long-term debt 60,505 67,209 69,250 68,552 65,952
Stockholders' equity 24,036 23,025 23,568 23,696 26,013
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(b) The following table sets forth quarterly financial data for years
ended December 31, 2003 and December 31, 2002:
Quarter Ended March 31 June 30 September 30 December 31(1)
- ------------- -------- ------- ------------ --------------
In thousands, except per share data
2003
Revenues $15,490 $13,873 $14,848 $13,363
Gross Profit 3,881 3,469 4,621 4,008
Net Income 267 568 103 116
Earnings per share:
Basic 0.21 0.45 0.08 0.10
Diluted 0.21 0.26 0.08 0.10
Cash Dividends per share:
Common stock 0.035 0.035 0.035 0.035
Class B stock 0.0315 0.0315 0.0315 0.0315
2002
Revenues $17,162 $18,986 $22,016 $16,727
Gross Profit 5,334 5,192 6,082 4,430
Net Income 46 65 180 137
Earnings per share:
Basic 0.04 0.05 0.14 0.11
Diluted 0.04 0.05 0.14 0.11
Cash Dividends per share:
Common stock 0.035 0.035 0.035 0.035
Class B stock 0.0315 0.0315 0.0315 0.0315
(1) The Company recorded the following item during the quarter ended
December 31, 2003: a decrease in the effective tax rate for the year, which had
the effect of decreasing the quarterly income tax expense by approximately
$124,000. During the quarter ended December 31, 2002, the Company recorded:
(1) an increase to net income of $197,000 related to a sale of assets, and (2) a
decrease in the effective tax rate for the year, which had the effect of
decreasing the quarterly income tax expense by approximately $63,000.
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ITEM 7. 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. 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, retail and corporate industries. The Outdoor
Display segment includes worldwide revenues and related expenses from the
rental, maintenance and sale of outdoor displays. This segment includes the
catalog sports, retail and commercial industries. The Entertainment/Real Estate
segment includes the operations of the motion picture theatres in the western
Mountain States and income-producing real estate properties.
Critical Accounting Policies and Estimates
Management's Discussion and Analysis of Financial Condition and Results of
Operations discusses the Company's consolidated financial statements, which have
been prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and the disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. On an on-going basis, management
evaluates its estimates and judgments, including those related to percentage of
completion, uncollectable accounts, inventories, goodwill and intangible assets,
income taxes, warranty obligations, benefit plans, contingencies and litigation.
Management bases its estimates and judgments on historical experience and on
various other factors that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions. Senior management has discussed the development and
selection of these accounting estimates and the related disclosures with the
audit committee of the Board of Directors.
Management believes the following critical accounting policies, among
others, affect its more significant judgments and estimates used in the
preparation of its consolidated financial statements.
Percentage of Completion: The Company recognizes revenue on long-term
equipment sales contracts using the percentage of completion method based on
estimated incurred costs to the estimated total cost for each contract. Should
actual total cost be different from estimated total cost, additional or a
reduction of cost of sales may be required.
Uncollectable Accounts: The Company maintains allowances for uncollectable
accounts for estimated losses resulting from the inability of its customer to
make required payments. Should non-payment by customers differ from the
Company's estimates, a revision to increase or decrease the allowance for
uncollectable accounts may be required.
Inventories: The Company writes down its inventory for estimated
obsolescence equal to the difference between the carrying value of the inventory
and the estimated market value based upon assumptions about future demand and
market conditions. If actual future demand or market conditions are less
favorable than those projected by management, additional inventory write-downs
may be required.
Goodwill and Intangible Assets: The Company evaluates goodwill and
intangible assets for possible impairment annually for goodwill and when events
or changes in circumstances indicate that the carrying amount of such assets may
not be recoverable for other intangible assets. Future adverse changes in
market conditions or poor operating results of underlying assets could result in
an inability to recover the carrying value of the assets, thereby possibly
requiring an impairment charge in the future.
Income Taxes: The Company records a valuation allowance to reduce its
deferred tax assets to the amount that it believes is more likely than not to be
realized. While the Company has considered future taxable income and ongoing
feasible tax planning strategies in assessing the need for the valuation
allowance, in the event the Company were to determine that it would not be able
to realize all or part of its net deferred tax assets in the future, an
adjustment to the deferred tax assets would be charged to income in the period
such determination was made. Likewise, should the Company determine that it
would be able to realize its deferred tax assets in the future in excess of its
net recorded amount, an adjustment to the deferred tax assets would increase
income in the period such determination was made.
Warranty Obligations: The Company provides for the estimated cost of
product warranties at the time revenue is recognized. While the Company engages
in product quality programs and processes, including evaluating the quality of
the component suppliers, the warranty obligation is affected by product failure
rates. Should actual product failure rates differ from the Company's estimates,
revisions to increase or decrease the estimated warranty liability may be
required.
Benefit Plans: The Company is required to make estimates and assumptions to
determine benefit plan liabilities, which include investment returns, rates of
salary increases and discount rates. During 2003 and 2002, the Company recorded
an after tax minimum pension liability adjustment in other comprehensive loss of
$149,000 and $821,000, respectively. Estimates and assumptions are reviewed
annually with the assistance of external actuarial professionals and adjusted as
circumstances change. At December 31, 2003, plan assets were invested 55.8% in
guaranteed investment contracts, 40.7% in equity and index funds, 2.5% in bonds
and 1.0% in money market funds. The investment return assumption takes the
asset mix into consideration. The assumed discount rate reflects the rate at
which the pension benefits could be settled. At December 31, 2003, the weighted
average rates used for the computation of benefit plan liabilities were:
investment returns, 8.75%; rates of salary increases, 3.00%; and discount rate,
6.25%. Net periodic cost for 2004 will be based on the December 31, 2003
valuation. The defined benefit plan periodic cost was $867,000 in 2003,
$755,000 in 2002 and $683,000 in 2001. At December 31, 2003, assuming no change
in the other assumptions, a one percentage point change in investment returns
10
would affect the net periodic cost by $65,000 and a one percentage point change
in the discount rate would affect the net periodic cost by $106,000.
Quantitative and Qualitative Disclosures About Market Risks
The Company's cash flows and earnings are subject to fluctuations from
changes in interest rates and foreign currency exchange rates. The Company
manages its exposures to these market risks through internally established
policies and procedures and, when deemed appropriate, through the use of
interest-rate swap agreements and forward exchange contracts. Long-term debt
outstanding of $60.5 million at December 31, 2003, was generally at variable
rates of interest ranging from 2.94% to 4.00% and fixed rates ranging from 7.50%
to 9.50%. The Company does not enter into derivatives or other financial
instruments for trading or speculative purposes.
Results of Operations
2003 Compared to 2002
Total revenues for the year ended December 31, 2003 decreased 23.1% to $57.6
million from $74.9 million for the year ended December 31, 2002, principally due
to the sale of the custom sports business during the first quarter of 2003 (see
Note 7 to the Consolidated Financial Statements).
Indoor display revenues decreased $2.3 million or 10.3%. Of this decrease,
indoor display equipment rentals and maintenance revenues decreased $1.6 million
or 11.1%, primarily due to disconnects and non-renewals of equipment on rental
on existing contracts in the financial services and energy markets, and indoor
display equipment sales decreased $676,000 or 8.8%, primarily in the financial
services market. The financial services market continues to be negatively
impacted due to the downturn in the economy, resulting in consolidation within
that industry. Although the market conditions are improving, installations of
new equipment tend to lag any economic turnaround.
Outdoor display revenues decreased $14.3 million or 37.2%. Of this
decrease, outdoor display equipment sales decreased $14.2 million or 44.4%,
primarily in the custom outdoor sports sector, which decrease was a result of
the sale of the custom sports business during the first quarter of 2003.
Outdoor display equipment rentals and maintenance revenues decreased $166,000 or
2.5%, primarily due to the expected continuing decline in the outdoor equipment
rentals and maintenance bases previously acquired.
Entertainment/real estate revenues decreased $721,000 or 5.0%, primarily
from a decrease in overall admissions of 6.2%, attributable to fewer screens in
operation and fewer high grossing films compared to 2002. In January 2003, the
Company closed its older non-profitable Lake Dillon theatre 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 2003.
Total operating income for the year ended December 31, 2003 decreased 35.7%
to $6.2 million from $9.6 million for the year ended December 31, 2002,
principally due to the decrease in revenues in indoor display equipment rentals
and maintenance and the sale of the custom sports business during the first
quarter of 2003.
Indoor display operating income decreased $2.5 million or 46.5%, primarily
as a result of the decrease in revenues in the financial services and energy
markets. The cost of indoor displays represented 59.3% of related revenues in
2003 compared to 52.6% 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 during 2003, consolidated its national field service center from
Norcross, Georgia to its Norwalk, Connecticut headquarters. In addition, during
the second quarter of 2003, 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 rentals and maintenance
increased $121,000 or 1.1%, largely due to an increase in depreciation expense.
Indoor display cost of equipment sales increased $35,000 or 0.9%, primarily due
to volume mix. Indoor display general and administrative expenses increased
$104,000 or 2.1%, principally due to increases in certain overhead costs such as
medical, insurance and pension costs, and advertising.
Outdoor display operating income decreased by $1.1 million to a loss of
$263,000 in 2003 compared to a profit of $803,000 in 2002, primarily as a result
of a decrease in outdoor display equipment sales attributed to the sale of the
custom outdoor sports business during the first quarter of 2003 and the
expected revenue decline in outdoor equipment rentals and maintenance bases
from previous acquisitions. During the second quarter of 2003, 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 81.6% of related revenues in 2003 compared to 80.8% in
2002. Outdoor display cost of equipment sales decreased $11.2 million or 45.1%,
primarily due to the decrease in volume as a result of the sale of the custom
sports business during the first quarter of 2003. Outdoor display cost of
equipment rentals and maintenance decreased $165,000 or 2.6%, primarily due to a
decrease in field service costs. Outdoor display general and administrative
expenses decreased $1.9 million or 28.5%, primarily due to the sale of the
custom sports business during the first quarter of 2003. 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 $113,000 or 3.3%,
primarily due to a decrease in operating expenses. The cost of
entertainment/real estate represented 74.3% of related revenues in 2003 compared
to 77.4% in 2002. Cost of entertainment/real estate, which includes film rental
costs and depreciation expense, decreased $984,000 or 8.8%, due to variable
expenses such as film rental costs decreasing due to a decrease in overall box
office revenues and a decrease in the film rental percentage as a percent of
revenue. Entertainment/real estate general and administrative expenses
increased $42,000 or 7.0% as a result of an increase in certain overhead costs
such as medical and benefits.
Corporate general and administrative expenses decreased $456,000 or 9.0%,
principally resulting from certain cost saving measures initiated during the
second quarter of 2003, which included a charge for lay-offs and early
retirement incentives of approximately $46,000, a $970,000 positive impact of
the effect of foreign currency exchange rates in 2003 compared to a $274,000
positive impact in 2002, offset by increases in certain overhead costs in
medical and general insurance costs, pension and benefit costs.
Net interest expense decreased $591,000, which is primarily attributable to
the decrease in variable interest rates and renegotiated terms of certain debt
in 2003 vs. 2002, 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 Company has a revolving credit facility to meet its
short-term working capital requirements, if needed, which was fully available at
December 31, 2003. The gain on sale of assets relates to the sales of vacant
land and of the custom sports business. The income from joint venture relates
to the operations of the theatre joint venture, MetroLux Theatres, in Loveland,
Colorado. Other income primarily relates to the earned income portion of
municipal forgivable loans offset by a
11
write-down of available-for-sale securities to reflect losses that were
considered to be other than temporary.
The effective tax rate for the year ended December 31, 2003 was 44.5%. The
tax rate was favorably impacted primarily by the ability to recognize tax
benefits for prior years' losses of one foreign subsidiary, offset by a higher
tax rate in another foreign subsidiary. For the year ended December 31, 2002,
the effective tax rate was 33.2%. The 2002 tax rate was also favorably impacted
primarily by the ability to recognize tax benefits for prior years' losses of
one foreign subsidiary, offset by a higher tax rate in another foreign
subsidiary.
2002 Compared to 2001
Total revenues for the year ended December 31, 2002 increased 6.7% to $74.9
million from $70.2 million for the year ended December 31, 2001. Indoor display
revenues decreased $3.6 million or 14.2%. Of this decrease, indoor display
equipment rentals and maintenance revenues decreased $2.5 million or 14.9%,
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 $1.1 million or 13.0%, also primarily in the financial services
market. The financial services market continued to be negatively impacted due
to the downturn in the economy, resulting in consolidation within that industry.
Outdoor display revenues increased $7.0 million or 22.0%. Of this increase,
outdoor display equipment sales increased $8.1 million or 33.7%, primarily in
the custom outdoor sports business. This increase was offset by the decrease in
outdoor display equipment rentals and maintenance revenues of $1.1 million or
14.2%, primarily due to the continuing expected revenue decline in the outdoor
equipment rentals and maintenance bases previously acquired.
Entertainment/real estate revenues increased $1.4 million or 10.6%. This
increase is primarily from an increase in overall admissions of 7.6%, ticket
prices and concessions, predominantly from 'same store' sales. On October 1,
2002, the Company entered into a lease settlement agreement for a net payment of
$34,000 with the landlord at its older Lake Dillon theatre. The Company closed
the theatre at the end of January 2003. In a separate transaction, the Company
entered into a 15-year non-compete agreement for $450,000, paid in 2003,
relating to its newer six-plex theatre in Dillon, Colorado.
Total operating income for the year ended December 31, 2002 decreased 20.2%
to $9.6 million from $12.0 million for the year ended December 31, 2001. Indoor
display operating income decreased $2.6 million or 32.9%, primarily as a result
of the decrease in revenues in the financial services market. The cost of
indoor displays represented 52.6% of related revenues in 2002 compared to 46.4%
in 2001. 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 address
the field service costs and, in the first quarter of 2003, consolidated its
field service center from Norcross, Georgia to its Norwalk, Connecticut
headquarters. In addition, the Company continued to evaluate strategic
objectives for its field service offices. Indoor display cost of equipment
rental and maintenance increased $261,000 or 3.5%, largely due to an increase in
depreciation expense. Indoor display cost of equipment sales decreased $577,000
or 13.2%, primarily due to the decrease in volume. Indoor display general and
administrative expenses decreased $696,000 or 12.2%, due to continued reduction
of certain overhead costs such as sales and marketing expenses.
Outdoor display operating income decreased to $803,000 in 2002 compared to
$1.6 million in 2001, primarily as a result of the continuing expected revenue
decline in outdoor equipment rentals and maintenance bases from previous
acquisitions and field service costs increasing not in relation to the reduction
of the revenues from outdoor equipment rentals and maintenance. The cost of
outdoor displays represented 80.8% of related revenues in 2002 compared to 77.5%
in 2001. Outdoor display cost of equipment sales increased $6.5 million or
35.3%, principally due to the increase in volume and the nature of the sports
sector of the outdoor division. Outdoor display cost of equipment rentals and
maintenance increased slightly despite a decrease in rental and maintenance
contracts. Outdoor display general and administrative expenses increased $1.0
million or 18.8%, primarily due to increased sales support expenses such as
project management, commissions resulting from an increase in custom sports
revenues and an increase in the allowance for uncollectable accounts.
Entertainment/real estate operating income increased $940,000 or 37.1%,
primarily due to the increase in revenues and the increase in income from the
MetroLux Theatre joint venture of $405,000 due partly to the sale of a parcel of
land for which the Company's share of the gain was $203,000. The cost of
entertainment/real estate represented 77.4% of related revenues in 2002 compared
to 78.9% in 2001. Cost of entertainment/real estate, increased $868,000 or
8.4%, due to the increase in overall admissions. Entertainment/real estate
general and administrative expenses decreased slightly.
Corporate general and administrative expenses decreased $925,000 or 15.4%,
principally due to a $274,000 positive impact of the effect of foreign currency
exchange rates in 2002 compared to a $339,000 negative impact in 2001 (a net
change of $613,000), continued reduction of certain overhead costs, offset by an
increase in medical and general insurance costs and pension expense.
Net interest expense decreased $954,000, which is primarily attributable to
the decrease in variable interest rates in 2002 vs. 2001 and a decrease in
long-term debt due to scheduled payments. The Company used its revolving credit
facility to meet its short-term working capital requirements. Other income
primarily related to the gain on the sale of the Norcross facility, as well as
the earned income portion of municipal forgivable loans.
The effective tax rate for the year ended December 31, 2002 was 33.2%. The
tax rate was favorably impacted primarily by the ability to recognize tax
benefits for prior years' losses of one foreign subsidiary, offset by a higher
tax rate in another foreign subsidiary. For the year ended December 31, 2001,
the effective tax rate was 52.0%. The tax rate was unfavorably impacted
primarily by the inability to recognize tax benefits for current year losses of
one foreign subsidiary and a higher tax rate in another foreign subsidiary.
Recent Accounting Standards
In November 2002, the Financial Accounting Standards Board ("FASB") issued
FASB Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements
for Guarantees, Including Indirect Guarantees of Indebtedness of Others" ("FIN
45"). FIN 45 requires that upon issuance of a guarantee, a guarantor must
recognize a liability for the fair value of an obligation assumed under a
guarantee. FIN 45 also requires additional disclosures by a guarantor in its
interim and annual financial statements about the obligations associated with
guarantees issued. The provisions of FIN 45, which were effective for
qualifying guarantees entered into or modified after December 31, 2002, did not
have a material impact on the Company's financial statements. The disclosure
requirements were effective for the quarter ended March 31, 2003 (see Note 16
to the Consolidated Financial Statements).
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities" ("SFAS 149"). SFAS 149 is
effective for contracts entered into or modified after June 30, 2003, with
certain exceptions. SFAS 149 amends and clarifies accounting for derivative
instruments, including certain derivative instruments embedded in other
contracts and for hedging activities under SFAS No. 133, "Accounting for
Derivatives
12
and Hedging Activities." The Company does not currently engage in hedging
activities and the adoption of SFAS 149 did not have any effect on the Company's
consolidated financial statements.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity"
("SFAS 150"). SFAS 150 clarifies the accounting for certain financial
instruments with characteristics of both liabilities and equity and requires
that those instruments be classified as liabilities in statements of financial
position. Previously, many of those financial instruments were classified as
equity. SFAS 150 was effective for financial instruments entered into or
modified after May 31, 2003 and otherwise was effective at July 1, 2003. As the
Company does not have any of these financial instruments, the adoption of SFAS
150 did not have any impact on the Company's consolidated financial statements.
In December 2003, the FASB issued FASB Interpretation No. 46R,
"Consolidation of Variable Interest Entities, an Interpretation of Accounting
Research Bulletin No. 51 (revised December 2003)" ("FIN 46R"), which addresses
how a business enterprise should evaluate whether it has a controlling interest
in an entity through means other than voting rights and accordingly should
consolidate the entity. FIN 46R replaces FASB Interpretation No. 46, which was
issued in January 2003. Before concluding that it is appropriate to apply
Accounting Research Bulletin No. 51 voting interest consolidation model to an
entity, an enterprise must first determine that the entity is not a variable
interest entity. The adoption of FIN 46R is not expected to have a material
effect on the Company's consolidated financial statements on March 31, 2004.
Liquidity and Capital Resources
On February 13, 2003, the Company successfully completed a refinancing of
its senior debt which, at December 31, 2002, consisted of two term loans
outstanding, a $14.1 million loan at a rate of interest at LIBOR plus 2.25% and
a $4.1 million loan at a rate of interest at LIBOR plus 1.75%. The refinancing
included 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 December 31, 2003, $15.1
million was outstanding under the term loans and 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 0.30%, 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 plus 50% of net income beginning December 31, 2003. At
December 31, 2003, the Company was in compliance with all such financial
covenants. At December 31, 2003, the Company was not involved in any derivative
financial instruments.
The Company believes that cash generated from operations together with cash
and cash equivalents on hand and the current availability under the revolving
line of credit will be sufficient to fund its anticipated current and near term
cash requirements. The Company continually evaluates the need and availability
of long-term capital in order to fund potential new opportunities. On March 2,
2004, the Company commenced an Exchange Offer to exchange $1,000 principal
amount of its new 8 1/4% Limited Convertible Senior Subordinated Notes due 2012
for each $1,000 principal amount of its currently outstanding 7 1/2% Convertible
Subordinated Notes due 2006.
Cash and cash equivalents increased $3.8 million in 2003 compared to
increases of $2.6 and $1.8 million in 2002 and 2001, respectively. The increase
in 2003 is primarily attributable to proceeds received from sales of vacant land
of $2.8 million and the custom sports business of $3.4 million, proceeds from
the sale of securities of $0.3 million and operating activities of $5.7 million,
offset by the investment in equipment manufactured for rental, expansion of the
Company's movie theatre in Durango, Colorado, other equipment purchases of $5.4
million and reduction in long-term debt of $3.7 million. In addition, cash
flows from investing activities increased $0.9 million due to distributions
received from the MetroLux Theatres joint venture. The increase in 2002 was
primarily attributable to proceeds received from sale of a building of $0.8
million and operating activities of $9.2 million, offset by the investment in
equipment manufactured for rental and other equipment purchases of $6.4 million
and from financing activities of $1.8 million. In addition, cash flows from
investing activities increased $0.8 million from the MetroLux Theatres joint
venture. The increase in 2001 was primarily attributable to proceeds received
from sale of fixed assets of $0.4 million, an increase in financing activities
of $1.3 million, principally as a result of increased borrowings under the
revolving credit facility, and operating activities of $8.2 million, offset by
the investment in equipment manufactured for rental and other equipment
purchases of $8.9 million. In addition, cash flows from investing activities
increased $0.7 million from the MetroLux Theatres joint venture. The Company
experiences a favorable collection cycle on its trade receivables.
Under various agreements, the Company is obligated to make future cash
payments in fixed amounts. These include payments under the Company's long-term
debt agreements, employment and consulting agreement payments and rent payments
required under operating lease agreements. The following table summarizes the
Company's fixed cash obligations as of December 31, 2003 over the next five
fiscal years:
In thousands 2004 2005 2006 2007 2008
- ------------ ------ ------- ------ ------ ------
Short-term debt $2,637 $ - $ - $ - $ -
Long-term debt - 14,974 31,466 1,310 3,013
Employment and consulting
agreement obligations 1,572 917 420 393 393
Operating lease payments 432 381 295 119 96
------ ------- ------- ------ ------
Total $4,641 $16,272 $32,181 $1,822 $3,502
====== ======= ======= ====== ======
Off-Balance Sheet Arrangements: The Company has no majority-owned
subsidiaries that are not included in the consolidated financial statements nor
does it have any interests in or relationships with any special purpose
off-balance sheet financing entities.
The Company's $888,000 investment in the MetroLux Theatres joint venture is
accounted for under the equity method of accounting. The Company has guaranteed
$1.3 million (60%) of a $2.1 million mortgage loan held by MetroLux Theatres.
During 2000, the Company entered into two sale/leaseback transactions for
theatre equipment that are classified as operating leases. The Company has
guaranteed up to a maximum of $712,000 if, upon default, the lessor cannot
recover the unamortized balance.
Safe Harbor Statement under the Private Securities Reform Act of 1995
The Company may, from time to time, provide estimates as to future
performance. These forward-looking statements will be estimates, and may or may
not be realized by the Company. The Company undertakes no duty to update such
forward-looking statements. Many factors could cause actual results to differ
from these forward-looking statements, including loss of market 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.
13
ITEM 7A. 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, through August 2002, 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. The fair value of the Company's fixed
rate long-term debt is disclosed in Note 10 to the Consolidated Financial
Statements. In addition, the Company is exposed to foreign currency exchange
rate risk mainly as a result of investments in its Australian and Canadian
subsidiaries. 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 $371,000. The fair value is based on dealer quotes, considering
current exchange rates. The Company does not enter into derivatives for trading
or speculative purposes. A one percentage point change in interest rates would
result in an annual interest expense fluctuation of approximately $304,000.
14
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements and supplementary financial information
are set forth below:
CONSOLIDATED STATEMENTS OF OPERATIONS
In thousands, except per share data Years ended December 31 2003 2002 2001
- ----------------------------------------------------------------------------------------------------------------------------
Revenues:
Equipment rentals and maintenance $19,087 $20,826 $24,405
Equipment sales 24,737 39,594 32,680
Theatre receipts and other 13,750 14,471 13,086
--------------------------------------------
Total revenues 57,574 74,891 70,171
--------------------------------------------
Operating expenses:
Cost of equipment rentals and maintenance 13,881 13,959 13,528
Cost of equipment sales 17,500 28,696 22,777
Cost of theatre receipts and other 10,214 11,198 10,330
--------------------------------------------
Total operating expenses 41,595 53,853 46,635
--------------------------------------------
Gross profit from operations 15,979 21,038 23,536
General and administrative expenses 15,124 17,316 17,908
Interest income 113 177 157
Interest expense (3,922) (4,578) (5,532)
Gain on sale of assets 4,207 314 306
Other income (expense) (46) 204 106
--------------------------------------------
Income (loss) before income taxes and income
from joint venture 1,207 (161) 665
--------------------------------------------
Provision (benefit) for income taxes:
Current 652 (369) (68)
Deferred 194 581 621
--------------------------------------------
Total provision for income taxes 846 212 553
--------------------------------------------
Income from joint venture 693 801 397
--------------------------------------------
Net income $ 1,054 $ 428 $ 509
============================================
Earnings per share:
Basic $ 0.84 $ 0.34 $ 0.40
Diluted $ 0.70 $ 0.34 $ 0.40
Average common shares outstanding:
Basic 1,261 1,261 1,261
Diluted 3,421 1,261 1,261
- ----------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements.
15
CONSOLIDATED BALANCE SHEETS
In thousands, except share data December 31 2003 2002
- --------------------------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 12,022 $ 8,270
Available-for-sale securities 393 522
Receivables, less allowance of $1,098 - 2003 and $1,009 - 2002 6,040 7,617
Unbilled receivables 729 966
Inventories 5,761 7,440
Prepaids and other 956 970
---------------------------
Total current assets 25,901 25,785
---------------------------
Rental equipment 90,500 88,374
Less accumulated depreciation 49,026 43,423
---------------------------
41,474 44,951
---------------------------
Property, plant and equipment 42,007 47,427
Less accumulated depreciation and amortization 11,906 12,170
---------------------------
30,101 35,257
Goodwill 1,035 1,264
Other assets 3,511 3,942
---------------------------
TOTAL ASSETS $102,022 $111,199
===========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,592 $ 2,754
Accrued liabilities 6,935 7,414
Current portion of long-term debt 2,637 3,763
---------------------------
Total current liabilities 11,164 13,931
---------------------------
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 29,271 35,975
---------------------------
60,505 67,209
Deferred revenue, deposits and other 2,052 2,942
Deferred income taxes 4,265 4,092
---------------------------
Commitments and contingencies
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 20,490 19,612
Accumulated other comprehensive loss (1,258) (1,391)
---------------------------
35,873 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 24,036 23,025
---------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $102,022 $111,199
===========================
- --------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements.
16
CONSOLIDATED STATEMENTS OF CASH FLOWS
In thousands Years ended December 31 2003 2002 2001
- --------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities
Net income $ 1,054 $ 428 $ 509
Adjustment to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 9,983 10,247 10,067
Income from joint venture (693) (801) (397)
Deferred income taxes 204 581 621
Gain on sale of assets (4,207) (314) (306)
Write down of available-for-sale securities 129 - -
Gain on sale of available-for-sale securities (28) - -
Gain on repurchase of Company's 7 1/2% convertible subordinated notes - - (5)
Changes in operating assets and liabilities:
Receivables 1,286 1,750 (1,667)
Inventories 886 (603) 944
Prepaids and other assets (404) (196) (28)
Accounts payable and accruals (1,629) (1,926) (256)
Deferred revenue, deposits and other (890) 32 (1,298)
------------------------------------
Net cash provided by operating activities 5,691 9,198 8,184
------------------------------------
Cash flows from investing activities
Equipment manufactured for rental (4,183) (5,625) (7,978)
Purchases of property, plant and equipment (1,249) (750) (878)
Purchases of available-for-sale securities (113) - -
Proceeds from joint venture 900 775 734
Proceeds from sale of securities 312 - -
Proceeds from sale of assets 6,245 758 423
------------------------------------
Net cash provided by (used in) investing activities 1,912 (4,842) (7,699)
------------------------------------
Cash flows from financing activities
Proceeds from long-term debt 17,438 2,233 4,130
Payments of long-term debt (21,113) (3,842) (2,643)
Repurchase of Company's 7 1/2% convertible subordinated notes - - (15)
Cash dividends (176) (176) (178)
------------------------------------
Net cash provided by (used in) financing activities (3,851) (1,785) 1,294
------------------------------------
Net increase in cash and cash equivalents 3,752 2,571 1,779
Cash and cash equivalents at beginning of year 8,270 5,699 3,920
------------------------------------
Cash and cash equivalents at end of year $ 12,022 $ 8,270 $ 5,699
====================================
- --------------------------------------------------------------------------------------------------------------------------
Interest paid $ 3,661 $ 4,253 $ 5,241
Interest received 176 190 187
Income taxes paid (refunded) 272 (523) 411
- ----------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements.
17
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Accumulated
Other
Additional Comprehensive
In thousands, except share data Common Stock Class B Paid-in Treasury Retained Income
For the three years ended December 31, 2003 Shares Amount Shares Amount Capital Stock Earnings (Loss)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance January 1, 2001 2,445,562 $2,445 294,843 $295 $13,901 $(11,837) $19,029 $ (137)
Net income - - - - - - 509 -
Cash dividends - - - - - - (178) -
Other comprehensive income (loss), net of tax:
Unrealized foreign currency translation - - - - - - - 19
Unrealized holding loss - - - - - - - (9)
Minimum pension liability adjustment - - - - - - - (373)
Unrealized derivative loss - - - - - - - (96)
Class B conversion to common stock 7,338 8 (7,338) (8) - - - -
----------------------------------------------------------------------------------
Balance December 31, 2001 2,452,900 2,453 287,505 287 13,901 (11,837) 19,360 (596)
Net income - - - - - - 428 -
Cash dividends - - - - - - (176) -
Other comprehensive income (loss), net of tax:
Unrealized foreign currency translation - - - - - - - (56)
Unrealized holding loss - - - - - - - (14)
Minimum pension liability adjustment - - - - - - - (821)
Unrealized derivative gain - - - - - - - 96
----------------------------------------------------------------------------------
Balance December 31, 2002 2,452,900 2,453 287,505 287 13,901 (11,837) 19,612 (1,391)
Net income - - - - - - 1,054 -
Cash dividends - - - - - - (176) -
Other comprehensive income (loss), net of tax:
Unrealized foreign currency translation - - - - - - - 179
Unrealized holding gain - - - - - - - 25
Reclassification adjustment on securities - - - - - - - 78
Minimum pension liability adjustment - - - - - - - (149)
----------------------------------------------------------------------------------
Balance December 31, 2003 2,452,900 $2,453 287,505 $287 $13,901 $(11,837) $20,490 $(1,258)
==================================================================================
- -----------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
In thousands Years ended December 31 2003 2002 2001
- -------------------------------------------------------------------------------------------------
Net income $1,054 $ 428 $ 509
-------------------------------
Other comprehensive income (loss):
Unrealized foreign currency translation 179 (56) 19
Unrealized holding gain (loss) on securities 42 (8) (16)
Reclassification adjustment on securities 129 - -
Minimum pension liability adjustment (247) (1,368) (621)
Unrealized derivative gain (loss) - 174 (174)
Income tax benefit related to items of other
comprehensive income 30 463 333
-------------------------------
Total other comprehensive income (loss), net of tax 133 (795) (459)
-------------------------------
Comprehensive income (loss) $1,187 $ (367) $ 50
===============================
- -------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements.
18
Notes To Consolidated Financial Statements
1. Summary of Significant Accounting Policies
Trans-Lux Corporation is a leading manufacturer and supplier of programmable
electronic information displays and owner/operator of cinemas.
Principles of consolidation: The consolidated financial statements include
the accounts of Trans-Lux Corporation and its majority-owned subsidiaries (the
"Company"). The investment in a 50% owned joint venture partnership, MetroLux
Theatres, is reflected under the equity method and is included in other assets
in the Consolidated Balance Sheets and is recorded as a separate line in the
Consolidated Statements of Operations.
Use of estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Estimates and assumptions are reviewed periodically, and the effects of
revisions are reflected in the financial statements in the period in which they
are determined to be necessary. Estimates are used when accounting for such
items as costs of long-term sales contracts, allowance for uncollectable
accounts, inventory reserves, depreciation and amortization, intangible assets,
income taxes, warranty obligation, benefit plans, contingencies and litigation.
Cash equivalents: The Company considers all highly liquid investments with
a maturity of three months or less, when purchased, to be cash equivalents.
Available-for-sale securities: Available-for-sale securities consist of
mutual fixed income funds and equity securities and are stated at fair value
with changes in fair value reflected in other comprehensive income (loss).
Accounts receivable: Receivables are carried at net realizable value.
Reserves for uncollectable accounts are provided based on historical experience
and current trends. The Company evaluates the adequacy of these reserves
regularly.
The following is a summary of the allowance for uncollectable accounts at
December 31:
In thousands 2003 2002 2001
- ------------ ---- ---- ----
Balance at beginning of year $1,009 $ 465 $ 311
Provisions 724 835 298
Deductions (635) (291) (144)
------ ------ -----
Balance at end of year $1,098 $1,009 $ 465
====== ====== =====
Concentrations of credit risk with respect to accounts receivable are
limited due to the large number of customers and relatively small account
balances within the majority of the Company's customer base, and their
dispersion across different businesses. The Company periodically evaluates the
financial strength of its customers and believes that its credit risk exposure
is limited.
Inventories: Inventories are stated at the lower of cost (first-in,
first-out method) or market value. Reserves for slow moving and obsolete
inventories are provided based on historical experience and demand for servicing
of the displays. The Company evaluates the adequacy of these reserves
regularly.
Rental equipment and property, plant and equipment: Rental equipment and
property, plant and equipment are stated at cost and are being depreciated over
their respective useful lives using straight line or 150% declining balance
methods. Leaseholds and improvements are amortized over the lesser of the
useful lives or term of the lease.
The estimated useful lives are as follows:
Rental equipment 5 to 15 years
Buildings and improvements 10 to 40 years
Machinery, fixtures and equipment 4 to 15 years
Leaseholds and improvements 5 to 27 years
When rental equipment and property, plant and equipment are fully
depreciated, retired or otherwise disposed of, the cost and accumulated
depreciation are eliminated from the accounts.
Goodwill and intangibles: The Company adopted the provisions of Statement
of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other
Intangible Assets" ("SFAS 142"), effective January 1, 2002. 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 possible
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. In connection with the sale of the custom sports
business in the first quarter of 2003 (see Note 7), the Company reduced
goodwill by $229,000.
Goodwill represents the excess of purchase price over the estimated fair
value of net assets acquired. Identifiable intangible assets are recorded at
cost and amortized over their estimated useful life on a straight line basis;
non-compete agreements over their terms of seven and ten years; deferred
financing costs over the life of the related debt of two to 20 years; and other
intangibles over ten years. The Company periodically evaluates the value of its
goodwill and the period of amortization of its other intangible assets and
determines if such assets are impaired by comparing the carrying values with
estimated future undiscounted cash flows. The Company performed the annual
impairment tests for goodwill as of October 1, 2003 and 2002, and determined
that goodwill was not impaired as of those dates. Other intangible assets are
evaluated when indicators of impairment exist.
Maintenance contracts: Purchased maintenance contracts are stated at cost
and are being amortized over their economic lives of eight to 15 years using an
accelerated method, which contemplates contract expiration, fall-out and
non-renewal.
Impairment or disposal of long-lived assets: The Company evaluates whether
there has been an impairment in any of its long-lived assets, excluding
goodwill, if certain circumstances indicate that a possible impairment may
exist. An impairment in value exists when the carrying value of a long-lived
asset exceeds its undiscounted cash flows. If it is determined that an
impairment in value has occurred, the carrying value is written down to its fair
value.
Revenue recognition: Revenue from rental of equipment and revenue from
maintenance contracts are recognized as they accrue during the term of the
respective agreements. The Company recognizes revenues on long-term equipment
sales contracts, which require more than three months to complete, using the
percentage of completion method. The Company records unbilled receivables
representing amounts due under these long-term equipment sales contracts, which
have not been billed to the customer. Income is recognized based on the
percentage of incurred costs to the estimated total costs for each contract.
The determination of the estimated total costs is susceptible to significant
change on these sales contracts. Revenues on equipment sales, other than
long-term equipment sales contracts, are recognized upon shipment when title and
risk of loss passes to the customer. Theatre receipts and other revenues are
recognized at time service is provided.
19
Taxes on income: The Company computes income taxes using the asset and
liability method, under which deferred income taxes are provided for the
temporary differences between the financial reporting basis and the tax basis of
the assets and liabilities.
Foreign currency: The functional currency of the Company's non-U.S.
business operations is the applicable local currency. The assets and
liabilities of such operations are translated into U.S. dollars at the year-end
rate of exchange, and the income and cash flow statements are converted at the
average annual rate of exchange. The resulting translation adjustment is
recorded in accumulated other comprehensive income (loss) in the Consolidated
Balance Sheets. Gains and losses related to the settling of transactions not
denominated in the functional currency are recorded as a component of general
and administrative expenses in the Consolidated Statements of Operations.
Derivative financial instruments: The Company has limited involvement with
derivative financial instruments and does not use them for trading purposes;
they are only used to manage and fix well-defined interest rate risks. From
time to time the Company enters into interest rate swap agreements to reduce
exposure to interest fluctuations. The net gain or loss from the exchange of
interest rate payments is included in interest expense in the Consolidated
Statements of Operations and in interest paid in the Consolidated Statements of
Cash Flows.
Stock-based compensation plans: The Company records compensation expense
for its stock-based employee compensation plans, which are described more fully
in Note 14, 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. During 2003, 2002 and 2001, the Company issued all stock
options at 100% of market value at date of grant. Accordingly, no compensation
cost has been recognized for its stock option plans. In December 2002, the
Financial Accounting Standards Board ("FASB") issued SFAS No. 148, "Accounting
for Stock-Based Compensation - Transition and Disclosure" ("SFAS 148"), that
amends SFAS No. 123 ("SFAS 123"), "Accounting for Stock-Based Compensation."
The Company adopted the disclosure provisions of SFAS 148 at December 31, 2002.
The following table illustrates the effect on net income and earnings per share
for the years ended December 31, 2003, 2002 and 2001 if the Company had applied
the fair value recognition provisions of SFAS 123 to stock-based employee
compensation:
In thousands, except per share data 2003 2002 2001
- ----------------------------------- ---- ---- ----
Net income, as reported $1,054 $ 428 $ 509
Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all awards, net of tax 17 51 5
------ ----- -----
Pro forma net income $1,037 $ 377 $ 504
====== ===== =====
Earnings per share:
Basic, as reported $ 0.84 $0.34 $0.40
------ ----- -----
Diluted, as reported $ 0.70 $0.34 $0.40
------ ----- -----
Basic, pro forma $ 0.82 $0.30 $0.40
------ ----- -----
Diluted, pro forma $ 0.70 $0.30 $0.40
------ ----- -----
Accounting pronouncements: In November 2002, the FASB issued FASB
Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others" ("FIN 45").
FIN 45 requires that upon issuance of a guarantee, a guarantor must recognize a
liability for the fair value of an obligation assumed under a guarantee. FIN 45
also requires additional disclosures by a guarantor in its interim and annual
financial statements about the obligations associated with guarantees issued.
The provisions of FIN 45, which were effective for qualifying guarantees entered
into or modified after December 31, 2002, did not have a material impact on the
Company's financial statements. The disclosure requirements were effective for
the quarter ended March 31, 2003 (see Note 16).
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities" ("SFAS 149"). SFAS 149 is
effective for contracts entered into or modified after June 30, 2003, with
certain exceptions. SFAS 149 amends and clarifies accounting for derivative
instruments, including certain derivative instruments embedded in other
contracts and for hedging activities under SFAS 133, "Accounting for Derivatives
and Hedging Activities." The Company does not currently engage in hedging
activities and the adoption of SFAS 149 did not have any effect on the Company's
consolidated financial statements.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity"
("SFAS 150"). SFAS 150 clarifies the accounting for certain financial
instruments with characteristics of both liabilities and equity and requires
that those instruments be classified as liabilities in statements of financial
position. Previously, many of those financial instruments were classified as
equity. SFAS 150 was effective for financial instruments entered into or
modified after May 31, 2003 and otherwise was effective at July 1, 2003. As the
Company does not have any of these financial instruments, the adoption of SFAS
150 did not have any impact on the Company's consolidated financial statements.
In December 2003, the FASB issued FASB Interpretation No. 46R,
"Consolidation of Variable Interest Entities, an Interpretation of Accounting
Research Bulletin No. 51 (revised December 2003)" ("FIN 46R"), which addresses
how a business enterprise should evaluate whether it has a controlling interest
in an entity through means other than voting rights and accordingly should
consolidate the entity. FIN 46R replaces FASB Interpretation No. 46, which was
issued in January 2003. Before concluding that it is appropriate to apply
Accounting Research Bulletin No. 51 voting interest consolidation model to an
entity, an enterprise must first determine that the entity is not a variable
interest entity. The adoption of FIN 46R is not expected to have a material
effect on the Company's consolidated financial statements on March 31, 2004.
Reclassifications: Certain reclassifications of prior years' amounts have
been made to conform to the current year's presentation.
2. Available-for-Sale Securities
Available-for-sale securities are carried at estimated fair values and the
unrealized holding gains and losses are excluded from earnings and are reported
net of income taxes in accumulated other comprehensive loss until realized.
Adjustments of $103,000 and ($14,000) were made to equity to reflect the net
unrealized gains (losses) on available-for-sale securities at December 31, 2003
and 2002, respectively. During the second quarter of 2003, the Company wrote
down available-for-sale securities by $129,000 to reflect losses that were
considered to be other than temporary. The Company realized gains of $28,000 on
the sales of available-for-sale securities during 2003.
Available-for-sale securities consist of the following:
2003 2002
------------------ ------------------
Fair Unrealized Fair Unrealized
In thousands Value Losses Value Losses
- ------------ ----- ---------- ----- ----------
Mutual funds $349 $11 $522 $182
Equity securities 44 - - -
---- --- ---- ----
$393 $11 $522 $182
==== === ==== ====
20
3. Inventories
Inventories consist of the following:
In thousands 2003 2002
- ------------ ---- ----
Raw materials and spare parts $3,881 $4,663
Work-in-progress 1,234 1,384
Finished goods 646 1,393
------ ------
$5,761 $7,440
====== ======
4. Property, Plant and Equipment
Property, plant and equipment consist of the following:
In thousands 2003 2002
- ------------ ---- ----
Land, buildings and improvements $32,745 $36,529
Machinery, fixtures and equipment 8,271 9,918
Leaseholds and improvements 991 980
------- -------
$42,007 $47,427
======= =======
Land, buildings and equipment having a net book value of $26.8 million and
$33.0 million at December 31, 2003 and 2002, respectively, were pledged as
collateral under mortgage agreements.
5. Goodwill
Goodwill represents the excess of purchase price over the estimated fair value
of net assets acquired and all of such goodwill relates to the outdoor display
segment. The Company adopted the provisions of SFAS 142, effective January 1,
2002. Under SFAS 142, goodwill assets are no longer amortized, but are reviewed
annually for impairment, or more frequently if indications of possible
impairment exist.
In accordance with SFAS 142, prior period amounts were not restated.
Reconciliation of the previously reported net income and earnings per share for
the year ended December 31, 2001 to the amounts adjusted for the reduction of
amortization expense, net of related income tax effect, is as follows:
In thousands, except per share data 2001
- ----------------------------------- ----
Net income, as reported $ 509
Goodwill amortization, net of income taxes 58
-----
Net income, adjusted $ 567
=====
Earnings per share - basic and diluted, as reported $0.40
Goodwill amortization, net of income taxes 0.05
-----
Earnings per share - basic and diluted, adjusted $0.45
=====
In connection with the sale of the custom sports business in the first
quarter of 2003 (see Note 7), the Company reduced goodwill by $229,000.
6. Other Assets
Other assets consist of the following:
In thousands 2003 2002
- ------------ ---- ----
Deferred financing costs, net of accumulated
amortization of $1,495 - 2003 and $1,235 - 2002 $1,013 $1,145
Investment in joint venture (see Note 18) 888 1,091
Prepaids 548 635
Noncompete agreements, net of accumulated
amortization of $185 - 2003 and $122 - 2002 421 34
Maintenance contracts, net of accumulated
amortization of $2,130 - 2003 and $2,061 - 2002 257 326
Deposits and other 384 711
------ ------
$3,511 $3,942
====== ======
Deferred financing costs relate to the issuance of the 7 1/2% convertible
subordinated notes, the 9 1/2% subordinated debentures, mortgages and other
financing agreements.
Noncompete agreements relate to the acquisition of one of the outdoor
businesses, the acquisition of theatre leases and a restrictive covenant
agreement, entered into during October 2002 with the owner of the Dillon Center
complex ("Owner"), in Dillon, Colorado where the Company operates a six-plex
theatre in the same community, restricting the Owner from constructing,
operating, using or maintaining a movie theatre within the Dillon Center complex
for a 15-year period ending January 31, 2018. The amount of the restrictive
covenant agreement totaled $450,000, which was paid by the Company during 2003.
Maintenance contracts represent the present value of acquired agreements to
service outdoor display equipment.
Future amortization expense of intangible assets over the next five years is
expected as follows: $430,000 - 2004, $393,000 - 2005, $284,000 - 2006,
$114,000 - 2007, $113,000 - 2008.
7. 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 $1.5 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 $876,000, net of tax, on the sale. As part of the sale,
the Company recorded bonuses to certain continuing employees of $75,000, which
was included in the recorded gain. As part of sale, the Company would reacquire
any sold accounts receivable greater than 90 days old. During 2003, the Company
reacquired $108,000 of sold accounts receivable greater than 90 days old.
8. Taxes on Income
The components of income tax expense are as follows:
In thousands 2003 2002 2001
- ------------ ---- ---- ----
Current:
Federal $ - $(704) $(413)
State and local 110 (3) 27
Foreign 542 338 318
---- ----- -----
652 (369) (68)
---- ----- -----
Deferred:
Federal 157 600 605
State and local 37 (19) 16
---- ----- -----
194 581 621
---- ----- -----
Total income tax expense $846 $ 212 $ 553
==== ===== =====
Income taxes provided differed from the expected federal statutory rate of
34% as follows:
In thousands 2003 2002 2001
---- ---- ----
Statutory federal income tax rate 34.0% 34.0% 34.0%
State income taxes, net of federal benefit 5.1 (2.3) 2.7
Foreign operating losses (income) not providing
current tax benefit (expense) (4.5) (20.9) 2.9
Foreign income taxed at different rates 6.0 14.3 8.0
Unused income tax credits - 6.8 1.4
Other 3.9 1.3 3.0
---- ---- ----
Effective income tax rate 44.5% 33.2% 52.0%
==== ==== ====
21
Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax assets and liabilities are as follows:
In thousands 2003 2002
- ------------ ---- ----
Deferred tax asset:
Tax credit carryforwards $ 1,050 $ 1,051
Operating loss carryforwards 5,900 5,689
Net pension costs 700 834
Bad debts 394 377
Other 570 548
Valuation allowance (156) (227)
------- -------
8,458 8,272
------- -------
Deferred tax liability:
Depreciation 11,840 11,503
Gain on purchase of the Company's
9 1/2% subordinated debentures 439 439
Other 444 422
------- -------
12,723 12,364
------- -------
Net deferred tax liability $ 4,265 $ 4,092
======= =======
Tax credit carryforwards primarily relate to federal alternative minimum taxes
of $0.9 million paid by the Company, which may be carried forward indefinitely.
Operating tax loss carryforwards primarily relate to U.S. federal net operating
loss carryforwards of approximately $14.4 million, which begin to expire in
2019.
A valuation allowance has been established for the amount of deferred tax
assets related to state net operating loss carryforwards, which management
estimates will more likely than not expire unused.
9. Accrued Liabilities
Accrued liabilities consist of the following:
In thousands 2003 2002
- ------------ ---- ----
Pension liability (see Note 13) $1,908 $2,325
Compensation and employee benefits 1,382 1,573
Taxes payable 482 146
Interest payable 399 474
Warranty obligations 308 541
Other 2,456 2,355
------ ------
$6,935 $7,414
====== ======
Warranty obligations: The Company provides for the estimated cost of
product warranties at the time revenue is recognized. While the Company engages
in product quality programs and processes, including evaluating the quality of
the component suppliers, the warranty obligation is affected by product failure
rates. Should actual product failure rates differ from the Company's estimates,
revisions to increase or decrease the estimated warranty liability may be
required.
A summary of the warranty liabilities at December 31, follows:
In thousands 2003 2002 2001
- ------------ ---- ---- ----
Balance at beginning of year $ 541 $ 310 $ 350
Provisions 29 594 175
Deductions (262) (363) (215)
----- ----- -----
Balance at end of year $ 308 $ 541 $ 310
===== ===== =====
10. Long-Term Debt
Long-term debt consist of the following:
In thousands 2003 2002
------------ ---- ----
7 1/2% convertible subordinated notes due 2006 $30,177 $30,177
9 1/2% subordinated debentures due 2012 1,057 1,057
Term loans - banks secured, due in quarterly
installments through 2005 15,105 18,196
Real estate mortgages - secured, due in monthly
installments through 2020 16,525 17,017
Loan payable - IRB - 4,155
Loan payable - CEBA, secured, due in monthly
installments through 2006 at 0.0% and 6.0% 278 328
Capital lease obligation - secured, at 5.3% - 42
------- -------
63,142 70,972
Less portion due within one year 2,637 3,763
------- -------
Long-term debt $60,505 $67,209
======= =======
Payments of long-term debt due for the next five years are:
In thousands 2004 2005 2006 2007 2008
- ------------ ---- ---- ---- ---- ----
$2,637 $14,974 $31,466 $1,310 $3,013
------ ------- ------- ------ ------
The 7 1/2% convertible subordinated notes (the "Notes") are due in 2006.
Interest is payable semiannually. The Notes are convertible into Common Stock
of the Company at a conversion price of $14.013 per share. The Notes may be
redeemed by the Company, in whole or in part, at declining premiums. The
related Indenture agreement requires compliance with certain financial
covenants, which include a limitation on the Company's ability to incur
indebtedness of five times EBITDA plus $5.0 million. During 2001, the Company
repurchased $20,000 face value of its Notes at $77.00, and recognized $2,000 of
income (net of tax). During March 2004, the Company commenced an Exchange Offer
of its Notes (see Note 19).
The 9 1/2% subordinated debentures (the "Debentures") are due in annual
sinking fund payments of $105,700 beginning in 2009, with the remainder due in
2012. Interest is payable semiannually. The Debentures may be redeemed by the
Company, in whole or in part, at declining premiums.
During the first quarter of 2003, the Company successfully completed a
refinancing of its senior debt, which includes 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% (3.43% at
December 31, 2003) and maturing September 30, 2005. At December 31, 2003, the
entire revolving credit facility was available as none had been drawn. The
credit agreement requires an annual facility fee on the unused commitment of
0.30%, 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, plus 50% of net income beginning December 31, 2003. At
December 31, 2003, the Company was in compliance with such financial covenants.
At December 31, 2003, the Company was not involved in any derivative
financial instruments. On January 1, 2001, the Company adopted the provisions
of SFAS 133 and recorded a cumulative effect of an accounting change, net of
tax, of approximately $15,000 in other comprehensive loss.
The Company has mortgages on certain of its facilities, which are payable in
monthly installments, the last of which extends to 2020. Depending upon the
mortgage, the interest rate is either floating or adjustable. At
December 31, 2003, such interest rates ranged from 2.94% to 4.00%.
On March 28, 2003, the Company sold its custom sports business located in
Logan, Utah. Part of the purchase price was the
22
assumption of two outstanding Industrial Revenue Bonds totaling $4.2 million
(see Note 7).
During 1999, the Company received $400,000 structured as forgivable loans
from the State of Iowa, City of Des Moines and Polk County, which were
classified as deferred revenue, deposits and other in the Consolidated Balance
Sheets prior to December 31, 2002. The loans were forgiven on a pro-rata basis
when predetermined employment levels were attained. As of December 31, 2002,
the Company did not meet the maximum specified employment levels and,
accordingly, is required to repay the non-forgiven portion, although during 2003
none was required to be repaid. At December 31, 2003, the non-forgiven amount
totaled $133,333 and is expected to be payable in even monthly installments over
two years at 6.0% interest.
During 2003, the Company incurred interest costs of $3.9 million. At
December 31, 2003, the fair value of the Notes and the Debentures was $28.4
million and $1.0 million, respectively. The fair value of the remaining
long-term debt approximates the carrying value.
11. Stockholders' Equity
During 2003, the Board of Directors declared four quarterly cash dividends
of $0.035 per share on the Company's Common Stock and $0.0315 per share on the
Company's Class B Stock, which were paid in April, July and October 2003 and
January 2004. Each share of Class B Stock is convertible at any time into one
share of Common Stock and has ten votes per share, as compared to Common Stock,
which has one vote per share but receives a 10% higher dividend.
The Company has 3.0 million shares of authorized and unissued capital stock
designated as Class A Stock, $1.00 par value. Such shares have no voting rights
except as required by law and would receive a 10% higher dividend than the
Common Stock. The Company also has 0.5 million shares of authorized and
unissued capital stock designated as Preferred Stock, $1.00 par value.
The stockholders previously approved an increase in the authorized shares of
Common Stock to 11.0 million and Class A Stock to 6.0 million. A Certificate of
Amendment increasing the authorized shares will be filed when deemed necessary.
Shares of Common Stock reserved for future issuance in connection with
convertible securities and stock option plans were 2.2 million at December 31,
2003 and 2002.
12. Engineering Development
Engineering development expense was $469,000, $496,000 and $297,000 for
2003, 2002, and 2001, respectively.
13. Pension Plan
All eligible salaried employees of Trans-Lux Corporation and certain of its
subsidiaries are covered by a non-contributory defined benefit pension plan.
Pension benefits vest after five years of service and are based on years of
service and final average salary. The Company's general funding policy is to
contribute at least the required minimum amounts sufficient to satisfy
regulatory funding standards, but not more than the maximum tax-deductible
amount. As of December 31, 2003, the benefit service under the pension plan has
been frozen.
For 2003 and 2002, due primarily to a drop in the discount rate and the
effect of the plan's investment experience at the December 31 measurement date
on the valuation of plan assets, the accrued benefit obligation of the plan
exceeded the fair value of plan assets. The Company's pension obligations for
this plan exceeded plan assets by $3.3 million at December 31, 2003.
The Company employs a total return investment approach whereby a mix of
equities and fixed income investments are used to maximize the long-term return
of plan assets for a prudent level of risk. The intent of this strategy is to
minimize plan expenses by outperforming plan liabilities over the long run.
Risk tolerance is established through careful consideration of plan liabilities,
plan funded status and corporate financial condition. The portfolio contains a
diversified blend of equity and fixed income investments. Investment risk is
measured and monitored on an ongoing basis through annual liability
measurements, periodic asset/liability studies and quarterly investment
portfolio reviews.
At December 31, 2003 and 2002, the Company's pension plan weighted-average
asset allocations by asset category are as follows:
2003 2002
---- ----
Guaranteed investment contracts 55.8% 78.5%
Equity and index funds 40.7 17.6
Bonds 2.5 2.9
Money market funds 1.0 1.0
------ ------
100.0% 100.0%
====== ======
Bonds include $167,000 of the Company's 9 1/2% subordinated debentures for
2003 and 2002.
The funded status of the plan as of December 31, 2003 and 2002 is as follows:
In thousands 2003 2002
------------ ---- ----
Change in benefit obligation:
-----------------------------
Benefit obligation at beginning of year $ 9,476 $ 8,861
Service cost 509 556
Interest cost 593 602
Actuarial loss 613 704
Amendments to plan - 67
Curtailment (195) -
Benefits paid (927) (1,314)
------- -------
Benefit obligation at end of year $10,069 $ 9,476
======= =======
Change in plan assets:
----------------------
Fair value of plan assets at beginning of year $5,684 $ 5,847
Actual return on plan assets 605 (80)
Company contributions 1,450 1,231
Benefits paid (927) (1,314)
------ -------
Fair value of plan assets at end of year $6,812 $ 5,684
====== =======
Funded status:
--------------
Funded status (underfunded) $(3,257) $(3,792)
Unrecognized net actuarial loss 3,586 3,457
Unrecognized prior service cost 144 225
------- -------
Net amount $ 473 $ (110)
======= =======
Amounts recognized in the balance sheet consist of:
---------------------------------------------------
Accrued benefit liability $(1,908) $(2,325)
Unrecognized prior service cost 144 225
Accumulated other comprehensive loss 2,237 1,990
------- -------
Net amount $ 473 $ (110)
======= =======
Weighted average assumptions as of December 31:
-----------------------------------------------
Discount rate:
Components of cost 6.75% 7.25%
Benefit obligations 6.25% 6.75%
Expected return on plan assets 8.75% 8.75%
Rate of compensation increase 3.00% 3.25%
The accumulated benefit obligation at December 31, 2003 and 2002 was $8.7
million and $8.0 million, respectively. The Company estimates that
approximately $166,000 in contributions will be made in 2004.
The following items are components of the net periodic pension cost for the
three years ended December 31, 2003:
In thousands 2003 2002 2001
- ------------ ---- ---- ----
Service cost $ 509 $ 556 $ 568
Interest cost 593 602 560
Expected return on plan assets (537) (547) (537)
Amortization of prior service cost 19 18 2
Amortization of net actuarial loss 221 126 90
Curtailment 62 - -
----- ----- -----
Net periodic pension cost - funded plan $ 867 $ 755 $ 683
===== ===== =====
23
In addition, the Company provided unfunded supplemental retirement benefits for
the retired former Chief Executive Officer. During 2003 and 2002, the Company
made payments totaling $174,000 and $332,000, respectively for such benefits.
In 2002, the Company accrued $50,000 for such benefits, and in 2001, the Company
recognized a benefit of $127,000 due to amendments to the pension plan. The
total liability accrued was $174,000 at December 31, 2002, which was paid during
2003.
The Company does not offer any post-retirement benefits other than the
pension and the supplemental retirement benefits described herein.
14. Stock Option Plans
The Company has four stock option plans. Under the 1995 Stock Option Plan and
the 1992 Stock Option Plan, 125,000 and 50,000 shares of Common Stock,
respectively, were authorized for grant to key employees. Under the
Non-Employee Director Stock Option Plan, 30,000 shares of Common Stock were
authorized for grant. During 2001, the Company adopted a Non-Statutory Stock
Option Agreement reserving 10,000 shares of Common Stock issued to the former
Chairman of the Board.
Changes in the stock option plans are as follows:
Weighted
Number of Shares Average
-------------------------------------- Exercise
Authorized Granted Available Price
---------- ------- --------- -----
Balance January 1, 2001 174,859 130,159 44,700 $9.26
Additional shares authorized 10,000 - 10,000 -
Terminated - (32,100) 32,100 8.86
Granted - 13,500 (13,500) 4.18
------- ------- ------- ----
Balance December 31, 2001 184,859 111,559 73,300 8.75
Terminated (21,720) (57,420) 35,700 9.86
Granted - 29,500 (29,500) 5.48
------- ------- ------- ----
Balance December 31, 2002 163,139 83,639 79,500 6.84
Terminated (2,400) (9,600) 7,200 7.81
Granted - 5,000 (5,000) 5.16
------- ------- ------- -----
Balance December 31, 2003 160,739 79,039 81,700 $6.61
======= ======= ======= =====
Under the 1995 and 1992 Stock Option Plans, option prices must be at least 100%
of the market value of the Common Stock at time of grant. No option may be
exercised prior to one year after date of grant. Exercise periods are for ten
years from date of grant (five years if the optionee owns more than 10% of the
voting power) and terminate at a stipulated period of time after an employee's
termination of employment. At December 31, 2003, under the 1995 Plan, options
for 51,039 shares with exercise prices ranging from $5.40 to $15.1875 per share
were outstanding, all were exercisable. During 2003, no options were exercised,
and options for 6,700 shares expired. During 2002, options for 27,500 shares
were granted at exercise prices ranging from $5.40 to $6.10 per share, no
options were exercised, and options for 28,700 shares expired. During 2001, no
options were exercised, and options for 30,600 shares expired.
At December 31, 2003, under the 1992 Plan, options for 4,500 shares with an
exercise price of $9.6875 per share were outstanding, all of which were
exercisable. During 2003, no options were exercised, and options for 2,400
shares expired. During 2002, no options were exercised, and options for 21,720
shares expired. During 2001, no options were exercised, and no options expired.
No further options may be granted under this plan.
Under the Non-Employee Director Stock Option Plan, option prices must be at
least 100% of the market value of the Common Stock at time of grant. No option
may be exercised prior to one year after date of grant and the optionee must be
a director of the Company at time of exercise, except in certain cases as
permitted by the Compensation Committee. Exercise periods are for six years
from date of grant and terminate at a stipulated period of time after an
optionee ceases to be a director. At December 31, 2003, options for 13,500
shares with exercise prices ranging from $4.025 to $13.00 per share were
outstanding, 8,500 of which were exercisable. During 2003, options for 5,000
shares were granted with exercise prices ranging from $4.95 to $7.00, no options
were exercised, and options for 500 shares expired. During 2002, options for
2,000 shares were granted with exercise prices ranging from $5.40 to $6.55, no
options were exercised, and options for 7,000 shares expired. During 2001,
options for 3,500 shares were granted with exercise prices ranging from $4.025
to $6.15, no options were exercised, and options for 1,500 shares expired.
Under the Non-Statutory Stock Option Agreement for the former Chairman of
the Board, the option price must be at least 100% of the market value of the
Common Stock at time of grant and the exercise period is for 10 years from date
of grant. At December 31, 2003, the options for 10,000 shares with an exercise
price of $4.025 were outstanding and exercisable. During 2003 and 2002, no
options were exercised and no options expired. During 2001, options for 10,000
shares were granted at an exercise price of $4.025, no options were exercised
and no options expired.
The following tables summarize information about stock options outstanding
at December 31, 2003:
Weighted
Average Weighted
Range of Number Remaining Average
Exercise Prices Outstanding Contractual Life Exercise Price
- --------------- ----------- ---------------- --------------
$ 4.03 - $6.15 47,500 7.4 $ 5.05
6.16 - 7.00 1,000 5.1 6.78
7.01 - 8.13 11,239 1.6 8.11
8.14 - 9.69 17,000 3.5 9.18
9.70 - 11.44 1,000 3.2 11.44
11.45 - 15.19 1,300 1.2 13.50
------ --- ------
79,039 5.5 $ 6.61
====== === ======
Weighted
Range of Number Average
Exercise Prices Exercisable Exercise Price
- ---------------- ----------- --------------
$ 4.03 - $6.15 43,000 $ 5.06
6.16 - 7.00 500 6.55
7.01 - 8.13 11,239 8.11
8.14 - 9.69 17,000 9.18
9.70 - 11.44 1,000 11.44
11.45 - 15.19 1,300 13.50
------ ------
74,039 $ 6.71
====== ======
The estimated fair value of options granted during 2003, 2002 and 2001 was
$2.18, $2.71 and $1.81 per share, respectively. The fair value of options
granted under the Company's stock option plans during 2003, 2002 and 2001 was
estimated on dates of grant using the binomial options-pricing model with the
following weighted average assumptions used:
2003 2002 2001
---- ---- ----
Dividend yield 2.50% 2.51% 2.72%
Expected volatility 46.00% 47.00% 41.00%
Risk free interest rate 4.94% 4.78% 5.46%
Expected lives of
option grants (years) 4.0 4.0 4.0
15. Earnings Per Common Share
Basic earnings per common share is computed by dividing net income by the
weighted average number of common shares outstanding for the period. The
Company's diluted earnings per common share is calculated by adjusting net
income for the after-tax interest expense on convertible debt and dividing that
amount by the weighted average number of common shares outstanding, adjusted for
shares that would be assumed outstanding after convertible debt conversion and
24
stock options vested under the treasury stock method. The weighted average
number of outstanding stock options, which were excluded from the calculation of
diluted earnings per share because their impact would have been antidilutive,
aggregated 34,539 in 2003.
The following table sets forth the computation of basic and diluted earnings per
share:
In thousands, except per share data 2003 2002 2001
----------------------------------- ---- ---- ----
Numerator:
Net income $1,054 $ 428 $ 509
Add interest expense on 7.5% convertible subordinate
notes, net of tax 1,356 - -
------ ------ ------
Net income, adjusted $2,410 $ 428 $ 509
====== ====== ======
Denominator:
Basic - weighted average common shares outstanding 1,261 1,261 1,261
Dilutive effect of:
Convertible notes 2,153 - -
Stock options 7 - -
------ ------ ------
Diluted common shares outstanding 3,421 1,261 1,261
====== ====== ======
Earnings per share - basic $ 0.84 $ 0.34 $ 0.40
------ ------ ------
Earnings per share - diluted $ 0.70 $ 0.34 $ 0.40
------ ------ ------
16. Commitments and Contingencies
Contingencies: The Company has employment agreements with certain executive
officers, which expire at various dates through March 2006, and a consulting
agreement with a certain board member who is a former officer of the Company,
which expires December 2011. At December 31, 2003, the aggregate commitment for
future salaries and consulting fees, excluding bonuses, was approximately $4.9
million.
During 1996, the Company received a $350,000 grant from the State of
Connecticut Department of Economic Development, which is classified as deferred
revenue, deposits and other in the Consolidated Balance Sheets. This grant will
be forgiven under certain circumstances, which include attainment of
predetermined employment levels within the state, which were satisfied, and
maintaining business operations within the state for a specified period of time.
The Company is subject to legal proceedings and claims which arise in the
ordinary course of its business. 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.
Operating leases: Theatre and other premises are occupied under operating
leases that expire at varying dates through 2044. Certain of these leases
provide for the payment of real estate taxes and other occupancy costs. Future
minimum lease payments due under operating leases at December 31, 2003 are as
follows: $431,500 - 2004, $381,200 - 2005, $294,700 - 2006, $119,300 - 2007,
$96,400 - 2008, $1,051,200 - thereafter. Rent expense was $528,000, $643,000
and $553,000 for the years ended December 31, 2003, 2002 and 2001, respectively.
Guarantees: The Company has guaranteed $1.3 million (60%) of a $2.1 million
mortgage loan held by its joint venture, MetroLux Theatres, until December 2008.
During 2000, the Company entered into two sale/leaseback transactions for
theatre equipment that are classified as operating leases. The Company has
guaranteed up to a maximum of $711,700 if, upon default, the lessor cannot
recover the unamortized balance.
17. Business Segment Data
Operating segments are based on the Company's business components about
which separate financial information is available, and is evaluated regularly by
the Company's chief operating decision makers in deciding how to allocate
resources and in assessing performance.
The Company evaluates segment performance and allocates resources based upon
operating income. The Company's operations 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 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.
Information about the Company's operations in its three business segments
for the three years ended December 31, 2003 is as follows:
In thousands 2003 2002 2001
------------ ---- ---- ----
Revenues:
Indoor display $ 19,579 $ 21,829 $25,449
Outdoor display 24,245 38,591 31,636
Entertainment/real estate 13,750 14,471 13,086
-------- -------- -------
Total revenues $ 57,574 $ 74,891 $70,171
======== ======== =======
Operating income:
Indoor display $ 2,848 $ 5,324 $ 7,931
Outdoor display (263) 803 1,563
Entertainment/real estate 3,587 3,474 2,534
-------- -------- -------
Total operating income 6,172 9,601 12,028
Other income 4,161 519 412
Corporate general and administrative expenses (4,624) (5,079) (6,003)
Interest expense - net (3,809) (4,401) (5,375)
Income tax provision (846) (212) (553)
-------- -------- -------
Net income $ 1,054 $ 428 $ 509
======== ======== =======
Assets:
Indoor display $ 37,893 $ 40,139
Outdoor display 25,068 35,331
Entertainment/real estate 26,283 26,421
-------- --------
Total identifiable assets 89,244 101,891
General corporate 12,778 9,308
-------- --------
Total assets $102,022 $111,199
======== ========
Depreciation and amortization:
Indoor display $ 6,081 $ 5,940 $ 5,643
Outdoor display 2,484 2,911 2,977
Entertainment/real estate 933 924 935
General corporate 485 472 512
-------- -------- -------
Total depreciation and amortization $ 9,983 $ 10,247 $10,067
======== ======== =======
Capital expenditures:
Indoor display $ 3,927 $ 4,258 $ 6,502
Outdoor display 723 1,678 1,801
Entertainment/real estate 724 337 435
General corporate 58 102 118
-------- -------- -------
Total capital expenditures $ 5,432 $ 6,375 $ 8,856
======== ======== =======
25
18. Joint Venture
The Company has a 50% ownership in a joint venture partnership, MetroLux
Theatres ("MetroLux"), accounted for by the equity method. The following
summary information relates to MetroLux as of December 31, 2003 and 2002 and for
the years ended December 31, 2003, 2002 and 2001.
In thousands 2003 2002 2001
------------ ---- ---- ----
Revenues $3,996 $4,116 $3,538
Gross profit 1,358 1,447 1,108
Other income (expense) 138 296 (204)
Net income 1,384 1,602 794
Company's share of partnership net income 693 801 397
----- ----- -----
Current assets 341 850
Noncurrent assets 3,937 4,130
----- -----
Total assets 4,278 4,980
----- -----
Current liabilities 653 701
Noncurrent liabilities 1,859 2,097
----- -----
Total liabilities 2,512 2,798
----- -----
Company's equity in partnership net assets $ 888 $1,091
19. Subsequent Event
On March 2, 2004, the Company commenced an Exchange Offer ("Exchange Offer")
offering to exchange $1,000 principal amount of its new 8 1/4% Limited
Convertible Senior Subordinated Notes due 2012 ("New Notes") for each $1,000
principal amount of its currently outstanding 7 1/2% Convertible Subordinated
Notes due 2006 ("Old Notes"). The Exchange Offer will be for up to $15.0
million principal amount, representing approximately 49.7% of the $30.2 million
outstanding principal amount of the Old Notes. If more than $15.0 million
principal amount of the Old Notes is tendered, all tenders will be accepted on a
pro rata basis unless the Company elects to accept all such tendered Old Notes.
If less than $4.0 million principal amount of the Old Notes is tendered, the
Company reserves the right to either accept or reject such lesser tendered
amount. The New Notes will be senior to the Old Notes and the Debentures. The
New Notes will pay a higher interest rate than the Old Notes, and have a longer
maturity, later call date, a lower conversion price of $9.00 per share compared
to the conversion price of $14.013 per share of the Old Notes, and be
convertible into Common Stock through March 1, 2007. The Exchange Offer
currently expires on March 31, 2004.
Independent Auditors' Report
To the Board of Directors and Stockholders of Trans-Lux Corporation:
We have audited the accompanying consolidated balance sheets of Trans-Lux
Corporation and its subsidiaries as of December 31, 2003 and 2002, and the
related consolidated statements of operations, stockholders' equity,
comprehensive income, and cash flows for each of the three years in the period
ended December 31, 2003. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits. We did not audit the
2002 and 2001 financial statements of MetroLux Theatres, the Company's joint
venture investment which is accounted for by use of the equity method. The
Company's equity of $1,091,000 in MetroLux Theatres' net assets at December 31,
2002 and of $801,000 and $397,000 in that company's net income for the years
ended December 31, 2002 and 2001, respectively are included in the accompanying
2002 and 2001 financial statements. The 2002 and 2001 financial statements of
MetroLux Theatres were audited by other auditors whose reports have been
furnished to us, and our opinion, insofar as it relates to the amounts included
for such company in the 2002 and 2001 financial statements, is based solely on
the reports of such other auditors.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits and the reports of
the other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of the other auditors,
such consolidated financial statements present fairly, in all material respects,
the financial position of the Company and its subsidiaries at December 31, 2003
and 2002, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 2003 in conformity with
accounting principles generally accepted in the United States of America.
As discussed in Note 5 of the Notes to the Consolidated Financial
Statements, as of January 1, 2002, the Company changed its method of accounting
for goodwill to conform to Statement of Financial Accounting Standards No. 142,
"Goodwill and Other Intangible Assets."
/s/ Deloitte & Touche LLP
Stamford, Connecticut
March 24, 2004
26
Partners
MetroLux Theatres
Norwalk, Connecticut
Independent Auditor's Report
We have audited the accompanying balance sheets of MetroLux Theatres as of
December 31, 2003 and 2002 and the related statements of income, partners'
equity and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of MetroLux Theatres as of
December 31, 2003 and 2002, and the results of its operations and its cash flows
for the years then ended in conformity with accounting principles generally
accepted in the United States of America.
/s/ Kellogg & Andelson
February 26, 2004
Sherman Oaks, California
27
METROLUX THEATRES
BALANCE SHEETS
DECEMBER 31, 2003 AND 2002
(Dollars in thousands)
ASSETS
2003 2002
------- -------
CURRENT ASSETS:
Cash $ 299 $ 820
Concession supplies 13 9
Prepaid expenses and other current assets 15 17
Due from partners 14 4
------- -------
Total current assets 341 850
PROPERTY AND EQUIPMENT, net 3,917 4,105
INTANGIBLE ASSETS, net 20 25
------- -------
$ 4,278 $ 4,980
======= =======
LIABILITIES AND PARTNERS' EQUITY
CURRENT LIABILITIES:
Film rentals payable $ 159 $ 176
Accounts payable and accrued expenses 171 215
Current portion of long-term debt 238 223
Deferred revenues 85 87
------- -------
Total current liabilities 653 701
LONG-TERM DEBT, net of current portion 1,859 2,097
------- -------
Total liabilities 2,512 2,798
COMMITMENTS - -
PARTNERS' EQUITY 1,766 2,182
------- -------
$ 4,278 $ 4,980
======= =======
28
METROLUX THEATRES
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
(Dollars in thousands)
2003 2002
------- -------
OPERATING REVENUES:
Theatre operations
Admissions $ 2,765 $ 2,810
Concessions 1,162 1,219
Other operating revenue 69 87
------- -------
Total operating revenues 3,996 4,116
------- -------
OPERATING EXPENSES:
Theatre operations
Film costs and advertising 1,566 1,544
Cost of concessions 183 239
Other operating expenses 889 886
Administrative expenses 112 141
------- -------
Total operating expenses 2,750 2,810
------- -------
INCOME FROM OPERATIONS 1,246 1,306
------- -------
OTHER INCOME (EXPENSE):
Interest income 1 1
Gain on sale of property and equipment 248 405
Interest expense (88) (110)
Write off of construction in progress (23) -
------- -------
Net other income 138 296
------- -------
NET INCOME $ 1,384 $ 1,602
======= =======
29
METROLUX THEATRES
STATEMENTS OF PARTNERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
(Dollars in thousands)
Trans-Lux
Metro Colorado Loveland
Corporation Corporation Total
-------------- ----------- ---------
PARTNERS' EQUITY, January 1, 2002 $ 1,065 $ 1,065 $ 2,130
PARTNERSHIP DISTRIBUTIONS (775) (775) (1,550)
NET INCOME 801 801 1,602
-------- -------- ---------
PARTNERS' EQUITY, December 31, 2002 1,091 1,091 2,182
PARTNERSHIP DISTRIBUTIONS (900) (900) (1,800)
NET INCOME 692 692 1,384
-------- -------- ---------
PARTNERS' EQUITY, December 31, 2003 $ 883 $ 883 $ 1,766
======== ======== =========
30
METROLUX THEATRES
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
(Dollars in thousands)
2003 2002
-------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,384 $ 1,602
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 155 151
Gain on sale of property and equipment (248) (405)
Write off of construction in progress 23 -
Changes in assets and liabilities:
Concession supplies (4) 1
Prepaid expenses and other current assets 2 (6)
Due from partners (10) (3)
Film rentals payable (17) (35)
Accounts payable and accrued expenses (44) 51
Deferred revenues (2) 16
-------- --------
Net cash provided by operating activities 1,239 1,372
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net proceeds from sale of property and equipment 327 514
Acquisition of property and equipment (64) (30)
Acquisition of intangible assets - (13)
-------- --------
Net cash provided by investing activities 263 471
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payment on long-term debt (223) (180)
Partnership distributions (1,800) (1,550)
-------- --------
Net cash (used in) financing activities (2,023) (1,730)
-------- --------
NET CHANGE IN CASH (521) 113
CASH, beginning of year 820 707
-------- --------
CASH, end of year $ 299 $ 820
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ 89 $ 110
======== ========
31
METROLUX THEATRES
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
MetroLux Theatres (the "Company") is a general partnership entered between
Metro Colorado Corporation, a California corporation, and Trans-Lux Loveland
Corporation, a Colorado corporation. The partnership was created for the
purpose of engaging in the business of constructing, purchasing, owning and
performing all functions in relation to the operation of a multi-screen
movie theatre, ancillary real estate and other entertainment uses in
Loveland, Colorado.
Property and Equipment
----------------------
Property and equipment are stated at cost, net of accumulated depreciation.
Depreciation is provided utilizing straight-line and accelerated methods
over the estimated useful lives of the assets as follows:
Buildings and improvements 10-39 years
Theatre equipment 5-10 years
Software 3 years
Major repairs and replacements are capitalized and ordinary maintenance and
repairs are charged to operations as incurred.
Intangible Assets
-----------------
Intangible assets consist of loan fees net of accumulated amortization.
Amortization is provided utilizing the straight-line method over the term of
the loan.
Income Taxes
------------
The Company is treated as a partnership for federal and state income tax
purposes. Consequently, federal and state income taxes are not payable by,
or provided for, the Company. Partners are taxed individually on their
shares of the Company's earnings. The Company's net income or loss is
allocated among the partners in accordance with their percentage of
ownership.
Revenue Recognition
-------------------
The Company recognizes revenue when tickets and concession goods are sold.
Revenue from gift certificates and group activity is recognized when they
are redeemed.
Concentrations of Credit Risk (Dollars in thousands)
----------------------------------------------------
Financial instruments which potentially subject the Company to
concentrations of credit risk consist of cash. The Company places its cash
with high credit quality financial institutions. Total amounts for the
years ended December 31, 2003 and 2002 in excess of the FDIC limit amounted
to approximately $162 and $704, respectively.
32
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
Management Estimates
--------------------
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates.
2. DUE FROM PARTNERS (Dollars in thousands)
----------------------------------------
As of December 31, 2003 and 2002, the net advances due from the general
partners were approximately $14 and $4, respectively. These advances are
unsecured, non-interest bearing and are expected to be repaid within the
next year.
3. PROPERTY AND EQUIPMENT (Dollars in thousands)
---------------------------------------------
Property and equipment consist of the following for the years ended December
31:
2003 2002
--------- ---------
Buildings $ 4,027 $ 4,027
Improvements 66 45
Theatre equipment 231 197
Land 519 598
Construction in progress - 23
Software 9 -
--------- ---------
4,852 4,890
Less: accumulated depreciation and amortization 935 785
---------- ---------
$ 3,917 $ 4,105
========== =========
Depreciation and amortization expense for the years ended December 31, 2003
and 2002 was approximately $150 and $147, respectively.
33
4. INTANGIBLE ASSETS (Dollars in thousands)
----------------------------------------
Intangible assets consist of the following for the years ended December 31:
2003 2002
---------- --------
Loan fees $ 29 $ 29
Less: accumulated amortization 9 4
---------- --------
$ 20 $ 25
========== ========
Amortization expense related to intangible assets amounted to $5 and $4 for
the years ended December 31, 2003 and 2002.
5. LONG-TERM DEBT (Dollars in thousands)
-------------------------------------
Long-term debt consists of the following for the years ended December 31:
2003 2002
--------- --------
The Company has a $2.5 million real estate
loan with a bank. Borrowings under the term
loan bear interest at the bank's prime rate
minus .30% fixed (3.70% and 3.95% at December
31, 2003 and 2002, respectively) for one year.
Payments under the agreement are in equal
monthly installments of approximately $26 of
principal and interest, maturing January 2009
with one last payment of interest and
principal of approximately $815. The loan is
collateralized by the assets of the Company
and 60% of the debt is guaranteed by each of
the partners.
$ 2,097 $ 2,320
Less: current portion 238 223
--------- ---------
$ 1,859 $ 2,097
========= =========
34
5. LONG-TERM DEBT - CONTINUED (Dollars in thousands)
-------------------------------------------------
Maturities of long-term debt outstanding at December 31, 2003 are as
follows:
Year Ending
December 31,
------------
2004 $ 238
2005 247
2006 257
2007 266
2008 276
Thereafter 813
-----------
$ 2,097
===========
6. DEFERRED REVENUES (Dollars in thousands)
----------------------------------------
Deferred revenues at December 31, 2003 and 2002 consist of gift certificates
and group activity passes that are used for concession goods and admissions
at theatres, respectively. The breakdown is as follows as of December 31:
2003 2002
------- -------
Gift certificates $ 75 $ 83
Group activity passes 10 4
------- -------
$ 85 $ 87
======= =======
7. COMMITMENTS (Dollars in thousands)
----------------------------------
On November 1996, the Company entered into a month to month sublease
agreement with an unrelated party for $2 a month. For both years ending
December 31, 2003 and 2002, the Company recognized $18 of sublease income.
35
8. PENSION PLAN (Dollars in thousands)
-----------------------------------
The Company has adopted a Safe Harbor Plan covering substantially all of its
employees. Participating employees may contribute 1% to 20% of their
salary, subject to required participating percentages of 401(k) regulations.
The Company contributes, at the discretion of management, a matching of 100%
of the first 3% of the employees contribution and matches 50% of the 2% of
the employee's contribution up to a maximum of 5% of the employee's gross
salary. Contributions made for both years ended December 31, 2003 and 2002
were $2.
9. SALE OF ASSETS (Dollars in thousands)
-------------------------------------
During the years ended December 31, 2003 and 2002, the Company sold land and
received net proceeds of $327 and $514, respectively, and recorded a gain of
approximately $248 and $405, respectively, related to the sale.
10. RELATED PARTY TRANSACTIONS (Dollars in thousands)
-------------------------------------------------
The Company repaid advances to general partners' during the year ended
December 31, 2002 in the amount of approximately $3. During the year ended
December 31, 2003, the Company made net advances to general partners of
approximately $10.
36
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
(a) Evaluation of 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 have 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 annual 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, the Company's Co-Chief Executive
Officers and Chief Financial Officer have concluded that these
controls are effective.
(b) Changes in internal control over financial reporting. There has
been no change in the Company's internal control over financial
reporting that occurred in the fourth fiscal quarter that has
materially affected, or is reasonably likely to materially affect,
the Company's internal control over financial reporting.
37
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) The information required by this Item with respect to directors is
incorporated herein by reference to the Section entitled "Election
of Directors" in the Company's Proxy Statement.
(b) The following executive officers were elected by the Board of
Directors for the ensuing year and until their respective
successors are elected.
Name Office Age
- -------------------- ------------------------------------------ ---
Michael R. Mulcahy President and Co-Chief Executive Officer 55
Thomas Brandt Executive Vice President and Co-Chief 40
Executive Officer
Matthew Brandt Executive Vice President 40
Al L. Miller Executive Vice President 58
Angela D. Toppi Executive Vice President, Treasurer, 48
Secretary and Chief Financial Officer
Karl P. Hirschauer Senior Vice President 58
John Long Senior Vice President 57
Thomas F. Mahoney Senior Vice President 56
Messrs. Mulcahy, T. Brandt, M. Brandt, Miller, Hirschauer, Mahoney and
Ms. Toppi have been associated in an executive capacity with the Company for
more than five years. Mr. Long was elected Senior Vice President in charge of
Outdoor Operations on March 24, 2004 and has been employed by the Company since
1997. Mr. Long served as Senior Vice President of Outdoor Display Subsidiaries
between March 27, 2002 and March 24, 2004 and served as Vice President of
Trans-Lux Midwest Corporation between December 10, 1998 and March 27, 2002.
(c) The information required by Item 405 of Regulation S-K is incorporated
herein by reference to the Section entitled "Compliance with Section
16(a) of the Securities Exchange Act of 1934" in the Company's Proxy
Statement.
38
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein by reference to
the Section entitled "Executive Compensation and Transactions with
Management" in the Company's Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated herein by reference to
the Section entitled "Security Ownership of Certain Beneficial Owners,
Directors and Executive Officers" in the Company's Proxy Statement.
Equity Compensation Plan Information
Securities Weighted Securities
to be issued average available for
December 31, 2003 upon exercise exercise price future issuance
- --------------------------------------- ------------- -------------- ---------------
Equity compensation plans approved
by stockholders 69,039 $6.99 81,700
Equity compensation plans not approved
by stockholders 10,000 $4.03 -
------ ----- ------
Total 79,039 $6.61 81,700
====== ===== ======
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated herein by reference to
the Section entitled "Executive Compensation and Transactions with
Management" in the Company's Proxy Statement.
ITEM 14. PRINCIPAL ACCOUNTING FIRM FEES
The information required by this Item is incorporated herein by reference to
the Section entitled "Independent Auditors" in the Company's Proxy
Statement.
39
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
(1) Financial Statements of Trans-Lux Corporation
Consolidated Statements of Operations for the Years Ended
December 31, 2003, 2002 and 2001
Consolidated Balance Sheets as of December 31, 2003 and 2002
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2003, 2002 and 2001
Consolidated Statements of Stockholders' Equity for the Years
Ended December 31, 2003, 2002 and 2001
Consolidated Statements of Comprehensive Income for the Years
Ended December 31, 2003, 2002 and 2001
Notes to Consolidated Financial Statements
Independent Auditors' Report
Financial statements of MetroLux Theatres, a 50% owned entity,
accounted for by the equity method:
Independent Auditors' Report
Balance Sheets as of December 31, 2003 and 2002
Statements of Income for the Years Ended December 31, 2003 and
2002
Statements of Partners' Equity for the Years Ended December 31,
2003 and 2002
Statements of Cash Flows for the Years Ended December 31, 2003
and 2002
Notes to Financial Statements
(2) Financial Statement Schedules: None.
(3) Exhibits:
3(a) Form of Restated Certificate of Incorporation of the
Registrant (incorporated by reference to Exhibit 3.1 of
Registration No. 333-15481).
(b) By-Laws of the Registrant (incorporated by reference to
Exhibit 3(b) of Form 10-K for the year ended December 31,
2001).
4(a) Indenture dated as of December 1, 1994 (form of said
indenture is incorporated by reference to Exhibit 6 of
Schedule 13E-4 Amendment No.2 dated December 23, 1994).
(b) Indenture dated as of December 1, 1996 (form of said
indenture is incorporated by reference to Exhibit 4.2 of
Registration No. 333-15481).
10.1 Form of Indemnity Agreement - Directors (form of said
agreement is incorporated by reference to Exhibit 10.1 of
Registration No. 333-15481).
10.2 Form of Indemnity Agreement - Officers (form of said
agreement is incorporated by reference to Exhibit 10.2 of
Registration No. 333-15481).
40
10.3 Amended and Restated Pension Plan dated January 1, 2001 and
Amendment No. 1 dated as of April 1, 2002 (incorporated by
reference to Exhibit 10.3 of Form 10-K for the year
ended December 31, 2001). Amendment No. 2 dated as of
December 31, 2002 to the Amended and Restated Pension Plan
dated January 1, 2001 (incorporated by reference to
Exhibit 10.3 of Form 10-K for the year ended December 31,
2002). Amendment No. 3 dated as of December 31, 2003 to the
Amended and Restated Pension Plan dated January 1, 2001,
filed herewith.
10.4(a)1989 Non-Employee Director Stock Option Plan, as amended
(incorporated by reference to Exhibit 10.4(a) of Form 10-K
for the year ended December 31, 1999).
(b) 1992 Stock Option Plan (incorporated by reference to
Proxy Statement dated April 3, 1992).
(c) 1995 Stock Option Plan, as amended (incorporated by
reference to Proxy Statement dated April 7, 2000).
10.5 Commercial Loan and Security Agreement dated as of February
12, 2003 among Trans-Lux Corporation, People's Bank as Agent
and People's Bank and The Bank of New York (incorporated by
reference to Exhibit 10(a) of Form 8-K filed February 13,
2003). First Amendment to the Commercial Loan and Security
Agreement and Waiver Agreement dated May 13, 2003
(incorporated by reference to Exhibit 10(a) of Form 10-Q for
the quarter ended March 31, 2003).
10.6 Consulting Agreement with Richard Brandt dated as of June
1, 2003 (incorporated by reference to Exhibit 10(a) of Form
10-Q for the quarter ended June 30, 2003).
10.7 Employment Agreement with Michael R. Mulcahy dated as of
April 1, 2002 (incorporated by reference to Exhibit 10.8 of
Form 10-K for the year ended December 31, 2001).
10.8 Employment Agreement with Thomas Brandt dated as of April 1,
2002 (incorporated by reference to Exhibit 10.9 of Form 10-K
for the year ended December 31, 2001).
10.9 Employment Agreement with Matthew Brandt dated as of April
1, 2002 (incorporated by reference to Exhibit 10.10 of Form
10-K for the year ended December 31, 2001).
10.10 Employment Agreement with Al Miller dated as of April 1,
2002 (incorporated by reference to Exhibit 10.11 of Form 10-K
for the year ended December 31, 2001).
10.11 Employment Agreement with Thomas F. Mahoney dated as of June
1, 2002 (incorporated by reference to Exhibit 10(a) of Form
10-Q for the quarter ended June 30, 2002).
10.12 Employment Agreement with Karl P. Hirschauer dated as of
April 1, 2003, filed herewith.
41
10.13 Agreement between Trans-Lux Midwest Corporation and Fairtron
Corporation dated as of April 30, 1997 (incorporated by
reference to Exhibit 10(a) of Form 8-K filed May 15, 1997).
21 List of Subsidiaries, filed herewith.
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, filed herewith.
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, filed herewith.
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, filed herewith.
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, filed herewith.
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, filed herewith.
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, filed herewith.
(b) Reports on Form 8-K. During the last quarter of the period
covered by this report on Form 10-K, the registrant filed a
Form 8-K dated November 13, 2003, pertaining to the financial
performance for the third quarter of 2003 results set forth
in a press release.
42
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized:
TRANS-LUX CORPORATION
by: /s/ Angela D. Toppi
--------------------
Angela D. Toppi
Executive Vice President and
Chief Financial Officer
Dated: March 25, 2004
43
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated:
/s/ Gene F. Jankowski March 25, 2004
- ----------------------------------------
Gene F. Jankowski, Chairman of the Board
/s/ Victor Liss March 25, 2004
- ----------------------------------------
Victor Liss, Vice Chairman of the Board
/s/ Steven Baruch March 25, 2004
- ----------------------------------------
Steven Baruch, Director
/s/ Matthew Brandt March 25, 2004
- ---------------------------------------
Matthew Brandt, Executive Vice President
and Director
/s/ Richard Brandt March 25, 2004
- ---------------------------------------
Richard Brandt, Director
/s/ Thomas Brandt March 25, 2004
- ---------------------------------------
Thomas Brandt, Executive Vice President
and Co-Chief Executive Officer and Director
/s/ Howard M. Brenner March 25, 2004
- ---------------------------------------
Howard M. Brenner, Director
/s/ Jean Firstenberg March 25, 2004
- ----------------------------------------
Jean Firstenberg, Director
/s/ Robert B. Greenes March 25, 2004
- ----------------------------------------
Robert Greenes, Director
/s/ Howard S. Modlin March 25, 2004
- ---------------------------------------
Howard S. Modlin, Director
/s/ Michael R. Mulcahy March 25, 2004
- ----------------------------------------
Michael R. Mulcahy, President
and Co-Chief Executive Officer and Director
44