UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2004
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Commission file number 1-2257
TRANS-LUX CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 13-1394750
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
110 Richards Avenue, Norwalk, CT 06856-5090
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(Address of principal executive offices) (Zip code)
(203) 853-4321
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes No X
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date.
Date Class Shares Outstanding
05/12/04 Common Stock - $1.00 Par Value 973,243
05/12/04 Class B Stock - $1.00 Par Value 287,505
(Immediately convertible into a like
number of shares of Common Stock.)
TRANS-LUX CORPORATION AND SUBSIDIARIES
Table of Contents
Page No.
Part I - Financial Information (unaudited)
Item 1. Consolidated Balance Sheets - March 31, 2004
and December 31, 2003 1
Consolidated Statements of Operations - Three Months
Ended March 31, 2004 and 2003 2
Consolidated Statements of Cash Flows - Three Months
Ended March 31, 2004 and 2003 3
Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures about Market Risk 12
Item 4. Controls and Procedures 12
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
Exhibits
Part I - Financial Information
TRANS-LUX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
March 31 December 31
In thousands, except share data 2004 2003
- ----------------------------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 12,898 $ 12,022
Available-for-sale securities 544 393
Receivables, less allowance of $998 - 2004 and $1,092 - 2003 6,070 5,170
Unbilled receivables 751 729
Inventories 5,167 5,647
Prepaids and other 1,144 956
Assets of discontinued operation 1,658 1,930
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Total current assets 28,232 26,847
-------- --------
Rental equipment 90,355 89,560
Less accumulated depreciation 50,577 48,654
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39,778 40,906
-------- --------
Property, plant and equipment 42,718 41,742
Less accumulated depreciation and amortization 12,173 11,763
-------- --------
30,545 29,979
Goodwill 1,035 1,035
Other assets 3,276 3,255
-------- --------
TOTAL ASSETS $102,866 $102,022
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,133 $ 1,535
Accrued liabilities 6,402 6,578
Current portion of long-term debt 3,113 2,637
Liabilities of discontinued operation 400 414
-------- --------
Total current liabilities 11,048 11,164
-------- --------
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 29,386 29,271
-------- --------
60,620 60,505
Deferred revenue, deposits and other 2,624 2,052
Deferred income taxes 4,560 4,265
Stockholders' equity: -------- --------
Capital stock
Common - $1 par value - 5,500,000 shares authorized
2,452,900 shares issued in 2004 and 2003 2,453 2,453
Class B - $1 par value - 1,000,000 shares authorized
287,505 shares issued in 2004 and 2003 287 287
Additional paid-in-capital 13,901 13,901
Retained earnings 20,483 20,490
Accumulated other comprehensive loss (1,273) (1,258)
-------- --------
35,851 35,873
Less treasury stock - at cost - 1,479,688 shares in 2004 and 2003
(excludes additional 287,505 shares held in 2004 and 2003
for conversion of Class B stock) 11,837 11,837
-------- --------
Total stockholders' equity 24,014 24,036
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $102,866 $102,022
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The accompanying notes are an integral part of these consolidated financial statements.
1
TRANS-LUX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
THREE MONTHS ENDED
MARCH 31
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In thousands, except per share data 2004 2003
- -------------------------------------------------------------------------------------------------------------
Revenues:
Equipment rentals and maintenance $ 4,248 $ 4,982
Equipment sales 4,860 7,104
Theatre receipts and other 3,221 3,107
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Total revenues 12,329 15,193
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Operating expenses:
Cost of equipment rentals and maintenance 3,151 3,502
Cost of equipment sales 3,255 5,606
Cost of theatre receipts and other 2,298 2,320
------- -------
Total operating expenses 8,704 11,428
------- -------
Gross profit from operations 3,625 3,765
General and administrative expenses 2,812 4,179
Interest income 33 29
Interest expense (948) (1,002)
Gain on sale of assets - 1,578
Other income 12 -
------- -------
Income (loss) from continuing operations before income taxes,
income from joint venture and discontinued operation (90) 191
Provision for income taxes 19 246
Income from joint venture 132 98
------- -------
Income from continuing operations 23 43
Income from discontinued operation, net of income taxes 15 224
------- -------
Net income $ 38 $ 267
======= =======
Earnings per share continuing operations - basic and diluted $ 0.02 $ 0.03
Earnings per share discontinued operation - basic and diluted 0.01 0.18
------- -------
Total earnings per share - basic and diluted $ 0.03 $ 0.21
======= =======
Average common shares outstanding - basic and diluted 1,261 1,261
======= =======
Cash dividends per share:
Common stock $ 0.035 $ 0.035
Class B stock $0.0315 $0.0315
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The accompanying notes are an integral part of these consolidated financial statements.
2
TRANS-LUX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
THREE MONTHS ENDED
MARCH 31
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In thousands 2004 2003
- ------------------------------------------------------------------------------------------------------------
Cash flows from operating activities
Net income $ 38 $ 267
Income from discontinued operation 15 224
------- --------
Income from continuing operations 23 43
Adjustment to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 2,444 2,915
Income from joint venture (132) (98)
Deferred income taxes 295 491
Gain on sale of assets - (1,578)
Gain on sale of securities (11) -
Changes in operating assets and liabilities:
Receivables (922) (431)
Inventories 480 164
Prepaids and other assets (188) (488)
Accounts payable and accruals (161) 44
Deferred revenue, deposits and other 572 (174)
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Net cash provided by operating activities 2,400 888
------- --------
Cash flows from investing activities
Equipment manufactured for rental (795) (943)
Purchases of property, plant and equipment (976) (422)
Purchases of available-for-sale securities (239) -
Proceeds from sale of securities 100 -
Proceeds from joint venture - 350
Proceeds from sale of assets - 3,757
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Net cash provided by (used in) investing activities (1,910) 2,742
------- --------
Cash flows from financing activities
Proceeds from long-term debt 870 17,000
Payments of long-term debt (279) (18,474)
Cash dividends (45) (45)
------- --------
Net cash provided by (used in) financing activities 546 (1,519)
------- --------
Net cash provided by (used in) discontinued operation (160) 228
Net increase in cash and cash equivalents 876 2,339
Cash and cash equivalents at beginning of year 12,022 8,270
------- --------
Cash and cash equivalents at end of period $12,898 $ 10,609
======= ========
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Interest paid $ 290 $ 422
Interest received 36 52
Income taxes refunded 201 119
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The accompanying notes are an integral part of these consolidated financial statements.
3
TRANS-LUX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2004
(unaudited)
Note 1 - Basis of Presentation
Financial information included herein is unaudited, however, such information
reflects all adjustments which are, in the opinion of management, necessary for
the fair presentation of the consolidated financial statements for the interim
periods. The results for the interim periods are not necessarily indicative of
the results to be expected for the full year. It is suggested that the March
31, 2004 consolidated financial statements should be read in conjunction with
the consolidated financial statements and notes included in the Company's Annual
Report on Form 10-K for the year ended December 31, 2003. Certain
reclassifications of prior years' amounts have been made to conform to the
current year's presentation.
In December 2003, the Financial Accounting Standards Board ("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, on
March 31, 2004, did not have a material impact on the Company's consolidated
financial statements.
The Company records compensation expense for its stock-based employee
compensation plans in accordance with the intrinsic-value method prescribed by
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees." Intrinsic value is the amount by which the market price of the
underlying stock exceeds the exercise price of the stock option or award on the
measurement date, generally the date of grant. The Company's options are issued
at fair market value at date of grant and, accordingly, no compensation cost has
been recognized for its stock option plans. In December 2002, the FASB issued
Statement of Financial Accounting Standards ("SFAS") No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure," that amends SFAS No.
123 ("SFAS 123"), "Accounting for Stock-Based Compensation." The following
table illustrates the effect on net income and earnings per share for the three
months ended March 31, 2004 and 2003 if the Company had applied the fair value
recognition provisions of SFAS 123 to stock-based employee compensation:
Three months ended
March 31
In thousands, except per share data 2004 2003
- --------------------------------------------------------------------------
Net income, as reported $ 38 $ 267
Deduct: Total stock-based employee compensation
expense determined under fair value based
method for all awards, net of tax 2 10
----- -----
Pro forma net income $ 36 $ 257
Earnings per share: ----- -----
As reported - basic and diluted $0.03 $0.21
----- -----
Pro forma - basic and diluted $0.03 $0.20
----- -----
4
Note 2 - Inventories
Inventories consist of the following:
March 31 December 31
In thousands 2004 2003
- -----------------------------------------------------------------
Raw materials and spare parts $3,524 $3,767
Work-in-progress 1,097 1,234
Finished goods 546 646
------ ------
$5,167 $5,647
------ ------
Note 3 - Long-Term Debt
During the three months ended March 31, 2004, long-term debt, including current
portion, increased $591,000, primarily due to $870,000 of advances on a
construction loan to expand the Company's movie theatre in Durango, Colorado,
offset by regular scheduled payments of long-term debt. During the first
quarter of 2003, the Company completed a refinancing of its senior debt with two
term loans totaling $17.0 million and a revolving credit facility of up to $5.0
million at variable interest rates ranging from LIBOR plus 1.75% to Prime plus
0.25% (3.43% at March 31, 2004) and maturing September 30, 2005. At March 31,
2004, 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 0.25%, 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 $20.0 million, plus 50% of net income. At March 31,
2004, the Company was in compliance with such financial covenants. On April 14,
2004, the Company successfully completed its 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 7 1/2% Convertible Subordinated Notes
due 2006 (see Note 10).
Note 4 - Sale of Assets and Discontinued Operation
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 a result of the sale, the Company is
reporting lower revenues. The operations and cash flows of the custom sports
business were not clearly distinguishable from other components of the outdoor
display segment and therefore have not been reported as a discontinued
operation.
On April 28, 2004, the Company completed an agreement to sell the capital stock
of its Australian subsidiary, Trans-Lux Pty Limited ("PTY"), for $1.7 million in
cash, which was effective as of February 29, 2004. In accordance with the
provisions of SFAS No. 144, "Accounting For the Impairment or Disposal of
Long-lived Assets", the Company has accounted for PTY as a discontinued
operation. The consolidated financial statements reflect the assets and
liabilities of the discontinued operation and the operations for the current and
prior periods are reported as a discontinued operation.
5
The following table presents the financial results of the discontinued
operation:
Three months ended March 31
In thousands 2004 2003
- -----------------------------------------------------------------------------
Revenues $ 135 $ 297
Operating expenses 126 181
----- -----
Gross profit 9 116
General and administrative expenses (126) (108)
Foreign currency gain 141 249
Interest income 3 18
Income tax provision (12) (51)
----- -----
Income from discontinued operation $ 15 $ 224
----- -----
Earnings per share - basic and diluted $0.01 $0.18
----- -----
The following table presents the principal assets and liabilities of the
discontinued operation:
March 31 December 31
In thousands 2004 2003
- --------------------------------------------------------------------------------
Accounts receivable $ 566 $ 870
Inventories 121 114
Property and equipment, net 679 690
Other assets 292 256
------ ------
Total assets of discontinued operation 1,658 1,930
Accrued expenses, accounts and income taxes payable 400 414
Intercompany payable (eliminated in consolidation) $1,486 $1,924
Note 5 - Reporting Comprehensive Income
Total comprehensive income for the three months ended March 31, 2004 and 2003 is
as follows:
Three months ended March 31
In thousands 2004 2003
- ----------------------------------------------------------------------------
Net income $38 $267
Other comprehensive income: --- ----
Unrealized foreign currency translation gain 16 46
Unrealized holding gain on securities 1 35
Income taxes related to other comprehensive
income items - (14)
--- ----
Total other comprehensive income, net of taxes 17 67
--- ----
Comprehensive income $55 $334
--- ----
Note 6 - Business Segment Data
The Company evaluates segment performance and allocates resources based upon
operating income. The Company's operations are managed in three reportable
business segments. The Display Division comprises two operating segments,
Indoor display and Outdoor display. Both design, produce, lease, sell and
service large-scale, multi-color, real-time electronic information displays.
Both operating segments are conducted on a global basis, primarily through
operations in the U.S. The Company also has operations in Canada. 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.
6
Information about the Company's operations in its three business segments for
the three months ended March 31, 2004 and 2003 is as follows:
Three months ended March 31
In thousands 2004 2003
- ------------------------------------------------------------------------------
Revenues:
Indoor display $ 4,133 $ 4,809
Outdoor display (1) 4,975 7,277
Entertainment/real estate 3,221 3,107
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Total revenues 12,329 15,193
------- -------
Operating income (loss):
Indoor display 694 981
Outdoor display 311 (521)
Entertainment/real estate 943 675
------- -------
Total operating income from continuing operations 1,948 1,135
Other income 12 1,578
Corporate general and administrative expenses (1,003) (1,451)
Interest expense-net (915) (973)
Income tax provision (19) (246)
------- -------
Income from continuing operations 23 43
Income from discontinued operation, net
of income taxes 15 224
------- -------
Net income $ 38 $ 267
------- -------
(1) Decrease primarily related to the sale of the custom sports business in
March 2003.
Note 7 - Components of Net Periodic Pension Cost
In December 2003, the FASB issued SFAS No. 132R, "Employers' Disclosures about
Pensions and Other Postretirement Benefits" ("SFAS 132R"). SFAS 132R revises
the financial statement disclosures required for pension and postretirement
obligations, including new interim disclosures. As of December 31, 2003, the
benefit service under the pension plan has been frozen and, accordingly, there
is no service cost for the period ended March 31, 2004.
The following table presents the components of net periodic pension cost:
Three months ended March 31
In thousands 2004 2003
- ------------------------------------------------------------------------
Service cost $ - $ 127
Interest cost 152 148
Expected return on plan assets (148) (134)
Amortization of prior service cost 5 5
Amortization of net actuarial loss 61 55
Curtailment - 16
------ ------
Net periodic pension cost $ 70 $ 217
------ ------
The Company previously disclosed in its financial statements for the year ended
December 31, 2003, that it expected to contribute $166,000 to its pension plan
in 2004. The Company has elected to contribute an increased amount of $524,000,
which it anticipates contributing in July 2004.
Note 8 - Legal Proceedings and Claims
The Company is subject to legal proceedings and claims, which arise in the
ordinary course of its business. The Company is not a party to any pending
legal proceedings and claims that it believes will have a material adverse
effect on the consolidated financial position or operations of the Company.
7
Note 9 - Joint Venture
The Company has a 50% ownership in a joint venture partnership, MetroLux
Theatres ("MetroLux"), accounted for by the equity method. The following
results of operations summary information relates to MetroLux for the three
months ended March 31, 2004 and 2003, and summary balance sheet information
relates to MetroLux as of March 31, 2004 and December 31, 2003.
Three months ended March 31
In thousands 2004 2003
- ----------------------------------------------------------------------------
Revenues $ 957 $ 850
Gross profit 545 473
Net income 264 196
Company's share of partnership net income 132 98
March 31 December 31
In thousands 2004 2003
- ----------------------------------------------------------------------------
Current assets $ 443 $ 341
Noncurrent assets 3,877 3,937
------ ------
Total assets 4,320 4,278
------ ------
Current liabilities 529 653
Noncurrent liabilities 1,760 1,859
------ ------
Total liabilities 2,289 2,512
------ ------
Company's equity in partnership net assets $1,016 $ 888
------ ------
The Company's equity in partnership net assets is reflected in other assets in
the consolidated balance sheet.
Note 10 - Subsequent Event
The Company successfully completed its offer 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 7 1/2% Convertible Subordinated
Notes due 2006 ("Old Notes"). The exchange offer commenced March 2, 2004 and
expired on April 14, 2004. A total of $17.9 million principal amount of Old
Notes were exchanged leaving $12.3 million principal amount of Old Notes
outstanding. The New Notes provide for a higher interest rate, have a longer
term, will be convertible into Common Stock at a lower conversion price of $9.00
per share until March 1, 2007 and are senior to the Old Notes and the Company's
9 1/2% Subordinated Debentures due 2012.
8
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview
Trans-Lux is a full service provider of integrated multimedia systems for
today's communications environments. The essential elements of these systems
are the real-time, programmable electronic information displays we manufacture,
distribute and service. Designed to meet the evolving communications needs of
both the indoor and outdoor markets, these displays are used primarily in
applications for the financial, banking, gaming, corporate, transportation,
entertainment and sports industries. In addition to its display business, the
Company owns and operates a chain of motion picture theatres in the western
Mountain States. The Company operates in three reportable segments: Indoor
Display, Outdoor Display and Entertainment/Real Estate.
The Indoor display segment includes worldwide revenues and related expenses from
the rental, maintenance and sale of indoor displays. This segment includes the
financial, gaming, government and corporate markets. The Outdoor Display
segment includes worldwide revenues and related expenses from the rental,
maintenance and sale of outdoor displays. Included in this segment are the
custom sports (which the Company sold during the first quarter of 2003), catalog
sports, retail and commercial markets. In addition, on April 28, 2004, the
Company sold its Australian operations, effective as of February 29, 2004. The
Company has accounted for the Australian operations as a discontinued operation.
Accordingly, the consolidated financial statements reflect the assets and
liabilities of the discontinued operation and the operations for the current and
prior periods are reported as a discontinued operation (see Note 4). The
Entertainment/Real Estate segment includes the operations of the motion picture
theatres in the western Mountain States and income-producing real estate
properties.
Results of Operations
Three Months Ended March 31, 2004 Compared to Three Months Ended March 31, 2003
Total revenues for the three months ended March 31, 2004 decreased 18.9% to
$12.3 million from $15.2 million for the three months ended March 31, 2003,
principally due to the sale of the custom sports business during the first
quarter of 2003 and is therefore reporting lower revenues (see Note 4). The
operations and cash flows of the custom sports business were not clearly
distinguishable from other components of the outdoor display segment and
therefore have not been reported as a discontinued operation.
Indoor display revenues decreased $676,000 or 14.1%. Of this decrease, Indoor
display equipment rentals and maintenance revenues decreased $776,000 or 23.6%,
primarily due to disconnects and non-renewals of equipment on rental and
maintenance on existing contracts in the financial services and energy markets,
while Indoor display equipment sales increased $100,000 or 6.6%, due to sales in
the retail and transportation markets. 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 $2.3 million or 31.6%. Of this decrease,
Outdoor display equipment sales decreased $2.3 million or 41.9%, 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 increased $41,000 or 2.4%, primarily
due to equipment maintenance contract renewals on existing contracts.
9
Entertainment/real estate revenues increased $114,000 or 3.7%. This increase is
primarily from an increase in overall admissions and concessions. 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 three months ended March 31, 2004 increased 71.6%
to $1.9 million from $1.1 million for the three months ended March 31, 2003,
principally due to the sale of the custom sports business during the first
quarter of 2003, which operated at a loss, and certain cost savings measures
initiated by the Company during the second quarter of 2003.
Indoor display operating income decreased $287,000 or 29.3%, primarily as a
result of the decrease in revenues in the financial services and energy markets.
The cost of indoor displays represented 63.4% of related revenues in 2004
compared to 57.0% in 2003. 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 decreasing and the revenues
from indoor equipment rentals and maintenance also decreasing but not at the
same rate. The Company continues to strategically address the field service
costs and initiated certain cost saving measures in 2003 to reduce field service
cost. Field service costs in the first quarter of 2004 compared to the first
quarter of 2003 were reduced by approximately $105,000. Indoor display cost of
equipment sales decreased $50,000 or 6.2%, primarily due to volume mix. Indoor
display cost of equipment rentals and maintenance decreased $72,000 or 3.7%,
largely due to certain cost savings measures initiated during the second quarter
of 2003, such as a reduction in field service costs payroll, benefits and
overhead expenses. Indoor display general and administrative expenses decreased
$267,000 or 24.6% due to continued reduction of certain overhead costs such as
sales salaries and travel expenses. Cost of indoor and outdoor equipment
rentals and maintenance includes field service expenses, plant repair costs,
maintenance and depreciation.
Outdoor display operating income increased $832,000 to $311,000 from a loss of
$521,000, primarily as a result of a decrease in outdoor display equipment sales
attributable to the sale of the custom outdoor sports business, which was sold
during the first quarter of 2003, which operated at a loss. The cost of outdoor
displays represented 76.1% of related revenues in 2004 compared to 87.5% in
2003. This improvement is due to a reduction in field service costs of
approximately $275,000 primarily due to the sale of the custom outdoor sports
business and a reduction in field service costs such as payroll and related
benefits. Outdoor display cost of equipment sales decreased $2.3 million or
47.9%, principally 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 $279,000 or 17.8%, primarily due
to a decrease in field service costs payroll, benefits and overhead expenses.
Outdoor display general and administrative expenses decreased $555,000 or 38.8%,
primarily due to 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 $268,000 or 39.7%,
primarily due to an increase in overall admissions and a decrease in operating
expenses. The cost of entertainment/real estate represented 71.3% of related
revenues in 2004 compared to 74.7% in 2003. Cost of entertainment/real estate,
which includes film rental costs and depreciation expense, decreased $23,000 or
1.0%. Entertainment/real estate general and administrative expenses decreased
$97,000 due to continued reduction of certain overhead costs such as salaries
and travel expenses.
10
Corporate general and administrative expenses decreased $448,000 or 30.9%,
principally resulting from certain cost saving measures initiated during the
second quarter of 2003 and reduction in certain overhead costs in medical and
general insurance costs, pension and benefit costs offset by a $3,000 positive
impact of the effect of foreign currency rates in 2004 compared to a $95,000
positive impact in 2003.
Net interest expense decreased $58,000, which is primarily attributable to a
decrease in long-term debt due to the assumption of debt by the purchaser of the
custom sports business and regular scheduled payments of long-term debt. The
gain on sale of assets, in 2003, relates to the sale of the custom sports
business. The income from joint venture relates to the operations of the
theatre joint venture, MetroLux Theatres, in Loveland, Colorado.
The effective tax rate for the three months ended March 31, 2004 and 2003 was
45.0% and 52.7%, respectively. The higher rate in 2003 was due principally to
the non-deductibility of a $229,000 write-off of goodwill resulting from the
sale of the custom sports business.
Liquidity and Capital Resources
The regular quarterly cash dividend for the first quarter of 2004 of $0.035 per
share on the Company's Common Stock and $0.0315 per share on the Company's Class
B Stock was declared by the Board of Directors on March 24, 2004, payable to
stockholders of record as of April 20, 2004, and was paid April 30, 2004.
During the first quarter of 2003, the Company refinanced its senior debt. The
refinancing consisted of two term loans totaling $17.0 million and a revolving
line of credit of up to $5.0 million at variable interest rates ranging from
LIBOR plus 1.75% to Prime plus 0.25% and matures September 30, 2005. At March
31, 2004, $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 contains certain financial covenants, which include a fixed charge
coverage ratio of 1.0 to 1.0, a total funded ratio of 5.0 to 1.0, a leverage
ratio of 3.0 to 1.0 and maintaining a tangible net worth of not less than $20.0
million, plus 50% of net income. At March 31, 2004, the Company was in
compliance with such financial covenants. The Company continues to evaluate the
need and availability of long-term capital.
The Company successfully completed its 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 7 1/2% Convertible Subordinated Notes due
2006. The exchange offer commenced March 2, 2004 and expired on April 14, 2004.
A total of $17.9 million principal amount of Old Notes were exchanged. The New
Notes provide for a higher interest rate, have a longer term, will be
convertible into Common Stock at a lower conversion price of $9.00 per share
until 2007 and are senior to the Old Notes and the Company's 9 1/2% Subordinated
Debentures due 2012.
Payments of long-term debt due, including the $15.1 million term loans that
mature September 30, 2005, and the 7.5% convertible subordinated notes not
exchanged that mature December 1, 2006, employment and consulting agreement
payments and the future minimum lease payments due under operating leases for
the remainder of 2004 and the next four years are as follows:
Remainder of
In thousands 2004 2005 2006 2007 2008
- ------------ ---- ---- ---- ---- ----
Long-term debt $2,359 $14,974 $13,598 $1,310 $3,013
Employment and consulting
agreement obligations 1,286 1,085 463 393 393
Operating leases 324 382 295 119 96
------ ------- ------- ------ ------
Total $3,969 $16,441 $14,356 $1,822 $3,502
====== ======= ======= ====== ======
11
Cash and cash equivalents increased $876,000 for the three months ended March
31, 2004 compared to an increase of $2.3 million in 2003. The increase in 2004
is primarily attributable to cash provided by operating activities from
continuing operations of $2.4 million, proceeds received from construction loan
borrowings and proceeds from the sale of available-for-sale securities, offset
by investment in equipment for rental, expansion of the Company's movie theatre
in Durango, Colorado, purchases of available-for-sale securities and scheduled
payments of long-term debt. The increase in 2003 is primarily attributable to
proceeds received from the sale of the custom sports business, offset by
investment in equipment for rental and a repayment of long-term debt.
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995
The Company may, from time to time, provide estimates as to future performance.
These forward-looking statements will be estimates, and may or may not be
realized by the Company. The Company undertakes no duty to update such
forward-looking statements. Many factors could cause actual results to differ
from these forward-looking statements, including loss of market share through
competition, introduction of competing products by others, pressure on prices
from competition or purchasers of the Company's products, interest rate and
foreign exchange fluctuations, terrorist acts and war.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company is subject to interest rate risk on its long-term debt. The Company
manages its exposure to changes in interest rates by the use of variable and
fixed interest rate debt. In addition the Company is exposed to foreign
currency exchange rate risk mainly as a result of investment in its Canadian
subsidiary and previously its Australian subsidiary. The Company may, from time
to time, enter into derivative contracts to manage its interest risk. The
Company does not enter into derivatives for trading or speculative purposes. At
March 31, 2004, the Company did not hold in any derivative financial
instruments.
A one percentage point change in interest rates would result in an annual
interest expense fluctuation of approximately $307,000. A 10% change in the
Canadian dollar relative to the U.S. dollar would result in a currency exchange
expense fluctuation of approximately $202,000, based on dealer quotes,
considering current exchange rates.
Item 4. Controls and Procedures
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 the end of the period covered by this quarterly
report. The Company's disclosure controls and procedures are designed to ensure
that material 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 and procedures are effective.
12
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
first fiscal quarter that has materially affected, or is reasonably likely to
materially affect, the Company's internal control over financial reporting.
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
31.1 Certification of Michael R. Mulcahy, President and
Co-Chief Executive Officer, pursuant to Rule 13a-14(a)
and 15d-14(a), as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
31.2 Certification of Thomas Brandt, Executive Vice
President and Co-Chief Executive Officer, pursuant to
Rule 13a-14(a) and 15d-14(a), as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
31.3 Certification of Angela D. Toppi, Executive Vice
President and Chief Financial Officer, pursuant to Rule
13a-14(a) and 15d-14(a), as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of Michael R. Mulcahy, President and
Co-Chief Executive Officer, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
32.2 Certification of Thomas Brandt, Executive Vice
President and Co-Chief Executive Officer, pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
32.3 Certification of Angela D. Toppi, Executive Vice
President and Chief Financial Officer, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K. During the quarter for which this
report on Form 10-Q is filed, the registrant filed the
following:
Form 8-K dated March 24, 2004, press release pertaining to the
financial performance for the fourth quarter of 2003 and annual
results.
13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TRANS-LUX CORPORATION
---------------------
(Registrant)
Date: May 13, 2004
by /s/ Angela D. Toppi
--------------------
Angela D. Toppi
Executive Vice President and
Chief Financial Officer
14