UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2004
Commission file number 1-2257
TRANS-LUX CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 13-1394750
- ------------------------------- ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
110 Richards Avenue, Norwalk, CT 06856-5090
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip code)
(203) 853-4321
----------------------------------------------------
(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
- --------- ------------------------------ ------------------
08/13/04 Common Stock - $1.00 Par Value 973,217
08/13/04 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 - June 30, 2004
and December 31, 2003 1
Consolidated Statements of Operations - Three and Six Months
Ended June 30, 2004 and 2003 2
Consolidated Statements of Cash Flows - Six Months
Ended June 30, 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 14
Item 4. Controls and Procedures 14
Part II - Other Information
Item 4. Submission of Matters to a Vote of Stockholders 15
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 17
Exhibits
Part I - Financial Information
TRANS-LUX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
June 30 December 31
In thousands, except share data 2004 2003
- ------------------------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 13,827 $ 12,022
Available-for-sale securities 506 393
Receivables, less allowance of $953 - 2004 and $1,092 - 2003 6,193 5,170
Unbilled receivables 1,115 729
Inventories 5,054 5,647
Prepaids and other 760 956
Assets of discontinued operation - 1,930
-------- --------
Total current assets 27,455 26,847
-------- --------
Rental equipment 91,524 89,560
Less accumulated depreciation 52,474 48,654
-------- --------
39,050 40,906
-------- --------
Property, plant and equipment 37,419 41,742
Less accumulated depreciation and amortization 8,901 11,763
-------- --------
28,518 29,979
Goodwill 1,004 1,035
Other assets 6,074 3,255
-------- --------
TOTAL ASSETS $102,101 $102,022
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,965 $ 1,535
Accrued liabilities 7,181 6,578
Current portion of long-term debt 2,654 2,637
Liabilities of discontinued operation - 414
-------- --------
Total current liabilities 11,800 11,164
-------- --------
Long-term debt:
7 1/2% convertible subordinated notes due 2006 12,309 30,177
8 1/4% limited convertible senior subordinated notes due 2012 17,868 -
9 1/2% subordinated debentures due 2012 1,057 1,057
Notes payable 24,478 29,271
-------- --------
55,712 60,505
Deferred credits, deposits and other 4,652 2,052
Deferred income taxes 5,029 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 21,278 20,490
Accumulated other comprehensive loss (1,173) (1,258)
-------- --------
36,746 35,873
Less treasury stock - at cost - 1,479,714 and 1,479,688 shares
in 2004 and 2003 (excludes additional 287,505 shares held
in 2004 and 2003 for conversion of Class B stock) 11,838 11,837
-------- --------
Total stockholders' equity 24,908 24,036
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $102,101 $102,022
======== ========
- --------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements.
1
TRANS-LUX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
-------------------- ------------------
In thousands, except per share data 2004 2003 2004 2003
- -----------------------------------------------------------------------------------------------------------------------
Revenues:
Equipment rentals and maintenance $ 4,371 $ 4,451 $ 8,619 $ 9,433
Equipment sales 5,242 5,645 10,102 12,749
Theatre receipts and other 3,499 3,435 6,720 6,542
------- ------- ------- -------
Total revenues 13,112 13,531 25,441 28,724
------- ------- ------- -------
Operating expenses:
Cost of equipment rentals and maintenance 3,393 3,502 6,544 7,004
Cost of equipment sales 3,623 4,026 6,878 9,632
Cost of theatre receipts and other 2,651 2,663 4,949 4,983
------- ------- ------- -------
Total operating expenses 9,667 10,191 18,371 21,619
------- ------- ------- -------
Gross profit from operations 3,445 3,340 7,070 7,105
General and administrative expenses 3,972 4,298 6,784 8,477
Interest income 19 4 52 33
Interest expense (941) (997) (1,889) (1,999)
Gain on sale of assets 2,536 2,629 2,536 4,207
Other income (expense) 32 (129) 44 (129)
Income from continuing operations before income taxes, ------- ------- ------- -------
income from joint venture and discontinued operation 1,119 549 1,029 740
Provision for income taxes 515 412 534 658
Income from joint venture 123 163 255 261
------- ------- ------- -------
Income from continuing operations 727 300 750 343
Income from discontinued operation, net of income taxes 112 268 127 492
------- ------- ------- -------
Net income $ 839 $ 568 $ 877 $ 835
======= ======= ======= =======
Earnings per share continuing operations
Basic $0.58 $0.24 $0.60 $0.27
Diluted $0.28 $0.18 $0.40 $0.27
Earnings per share discontinued operation
Basic $0.09 $0.21 $0.10 $0.39
Diluted $0.03 $0.08 $0.03 $0.14
Total earnings per share
Basic $0.67 $0.45 $0.70 $0.66
Diluted $0.31 $0.26 $0.43 $0.42
Average common shares outstanding
Basic 1,261 1,261 1,261 1,261
Diluted 4,022 3,418 3,725 3,418
Cash dividends per share:
Common stock $0.035 $0.035 $0.070 $0.070
Class B stock $0.0315 $0.0315 $0.0630 $0.0630
- ----------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements.
2
TRANS-LUX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
SIX MONTHS ENDED
JUNE 30
----------------------
In thousands 2004 2003
- -------------------------------------------------------------------------------------------------------------
Cash flows from operating activities
Net income $ 877 $ 835
Income from discontinued operation 127 492
-------- --------
Income from continuing operations 750 343
Adjustment to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 4,845 4,962
Income from joint venture (255) (261)
Deferred income taxes 780 1,063
Gain on sale of assets (2,536) (4,207)
Write down of available-for-sale securities - 129
Gain on sale of securities (11) -
Changes in operating assets and liabilities:
Receivables (1,409) 870
Inventories 593 554
Prepaids and other assets (121) (511)
Accounts payable and accruals 832 (1,007)
Deferred revenue, deposits and other 383 (463)
-------- --------
Net cash provided by operating activities 3,851 1,472
-------- --------
Cash flows from investing activities
Equipment manufactured for rental (1,964) (1,917)
Purchases of property, plant and equipment (1,811) (110)
Purchases of available-for-sale securities (239) -
Proceeds from sale of securities 100 -
Proceeds from joint venture 150 450
Proceeds from sale of assets 7,112 6,556
-------- --------
Net cash provided by investing activities 3,348 4,979
-------- --------
Cash flows from financing activities
Proceeds from long-term debt 19,481 17,000
Payments of long-term debt (24,257) (19,191)
Cash dividends (88) (88)
Purchase of treasury stock (1) -
-------- -------
Net cash used in financing activities (4,865) (2,279)
-------- --------
Net cash used in discontinued operation (529) (415)
-------- --------
Net increase in cash and cash equivalents 1,805 3,757
Cash and cash equivalents at beginning of year 12,022 8,270
-------- --------
Cash and cash equivalents at end of period $ 13,827 $ 12,027
======== ========
- ---------------------------------------------------------------------------------------------------------------
Interest paid $ 1,768 $ 1,861
Interest received 63 87
Income taxes refunded 167 119
- ---------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements.
3
TRANS-LUX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 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 June 30,
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
with a strike price equal to the market price of the underlying stock 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 and six months ended
June 30, 2004 and 2003 if the Company had applied the fair value recognition
provisions of SFAS 123 to stock-based employee compensation:
Three months ended June 30 Six months ended June 30
In thousands, except per share data 2004 2003 2004 2003
- ----------------------------------------------------------------------------------------------------------
Net income, as reported $ 839 $ 568 $ 877 $ 835
Deduct: Total stock-based employee compensation
expense determined under fair value based
method for all awards, net of tax 4 2 6 12
----- ----- ----- -----
Pro forma net income $ 835 $ 566 $ 871 $ 823
----- ----- ----- -----
Earnings per share:
As reported
Basic $0.67 $0.45 $0.70 $0.66
----- ----- ----- -----
Diluted $0.31 $0.26 $0.43 $0.42
----- ----- ----- -----
Pro forma
Basic $0.66 $0.45 $0.69 $0.65
----- ----- ----- -----
Diluted $0.31 $0.26 $0.43 $0.42
----- ----- ----- -----
4
Note 2 - Inventories
Inventories consist of the following:
June 30 December 31
In thousands 2004 2003
- -----------------------------------------------------------------
Raw materials and spare parts $3,416 $3,767
Work-in-progress 1,075 1,234
Finished goods 563 646
------ ------
$5,054 $5,647
------ ------
Note 3 - Long-Term Debt
During the six months ended June 30, 2004, long-term debt, including current
portion, decreased $4.8 million, primarily due to the use of the proceeds
received from the sale of the Company's Australian subsidiary and from the sale
of the Company's Norwalk, Connecticut headquarters to pay down debt and regular
scheduled payments of long-term debt, offset by $1.6 million of advances on a
construction loan to expand the Company's movie theatre in Durango, Colorado.
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% (3.41% at June 30, 2004) and maturing September
30, 2005. At June 30, 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
annual net income. At June 30, 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 ("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.
Note 4 - Sale of Assets and Discontinued Operation
Sale of Assets
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.
5
On June 3, 2004, the Company entered into a sale/leaseback of its Norwalk,
Connecticut headquarters for a sales price of $8.1 million, of which $5.5
million was paid in cash and the balance of $2.6 million is payable, with
interest, four years from closing. The Company leased back the property for
four years, after which a three-year lease for part of the building will take
effect. In accordance with SFAS No. 28 "Accounting for Sales with Leasebacks,"
the Company recorded a gain of approximately $2.5 million ($1.5 million, net of
tax), on the sale and deferred $2.2 million of the gain for a total gain of $4.7
million. The deferred gain represents the present value of the lease payments
over the term of the leaseback and will be recognized proportionately to the
rental charge over the next seven years. The $2.6 million balance of the
purchase price, included in other assets in the consolidated balance sheets, is
secured by a purchase money mortgage subordinate to a $3.5 million first
mortgage in favor of the purchaser's lender. In conjunction with the sale, the
Company prepaid $4.9 million of its long-term debt with its senior lenders.
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, and the operating results were assumed by the buyer 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.
The following table presents the financial results of the discontinued
operation:
Three months ended June 30 Six months ended June 30
In thousands, 2004 2003 2004 2003
- -------------------------------------------------------------------------------------------------------------
Revenues $ - $ 342 $ 135 $ 639
Operating expenses - 213 126 394
----- ----- ----- -----
Gross profit - 129 9 245
General and administrative expenses - (111) (126) (219)
Foreign currency gain - 393 141 642
Interest income - 17 3 35
Gain on sale of assets 112 - 112 -
Income tax provision - (160) (12) (211)
----- ----- ----- -----
Income from discontinued operation $ 112 $ 268 $ 127 $ 492
----- ----- ----- -----
Earnings per share:
Basic $0.09 $0.21 $0.10 $0.39
----- ----- ----- -----
Diluted $0.03 $0.08 $0.03 $0.14
----- ----- ----- -----
The following table presents the principal assets and liabilities of the
discontinued operation:
December 31
In thousands 2003
- ---------------------------------------------------------------
Accounts receivable $ 870
Inventories 114
Property and equipment, net 690
Other assets 256
------
Total assets of discontinued operation 1,930
Accrued expenses, accounts and income taxes payable 414
Intercompany payable (eliminated in consolidation) $1,924
6
Note 5 - Reporting Comprehensive Income
Total comprehensive income for the three and six months ended June 30, 2004 and 2003 is as follows:
Three months ended June 30 Six months ended June 30
In thousands 2004 2003 2004 2003
- ----------------------------------------------------------------------------------------------------------------
Net income $839 $568 $877 $ 835
---- ---- ---- ------
Other comprehensive income:
Unrealized foreign currency translation gain 90 88 106 134
Unrealized holding gain (loss) on securities (38) 18 (37) 53
Reclassification adjustment on securities - 129 - 129
Income tax benefit (expense) related to other
comprehensive income items 16 (58) 16 (72)
---- ---- ---- ------
Total other comprehensive income, net of taxes 68 177 85 244
---- ---- ---- ------
Comprehensive income $907 $745 $962 $1,079
---- ---- ---- ------
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.
Information about the Company's operations in its three business segments for
the three and six months ended June 30, 2004 and 2003 is as follows:
Three months ended June 30 Six months ended June 30
In thousands 2004 2003 2004 2003
- ----------------------------------------------------------------------------------------------------------------
Revenues:
Indoor display $ 4,384 $ 4,760 $ 8,517 $ 9,569
Outdoor display 5,229 5,336 10,204(1) 12,613
Entertainment/real estate 3,499 3,435 6,720 6,542
------- ------- ------- -------
Total revenues 13,112 13,531 25,441 28,724
------- ------- ------- -------
Operating income (loss):
Indoor display 434 439 1,128 1,420
Outdoor display 254 (251) 565 (772)
Entertainment/real estate 802 748 1,746 1,423
------- ------- ------- -------
Total operating income from continuing operations 1,490 936 3,439 2,071
Other income 2,568 2,500 2,580 4,078
Corporate general and administrative expenses (1,894) (1,731) (2,898) (3,182)
Interest expense-net (922) (993) (1,837) (1,966)
Income tax provision (515) (412) (534) (658)
-------- ------- ------- -------
Income from continuing operations 727 300 750 343
Income from discontinued operation, net
of income taxes 112 268 127 492
------- ------- ------- -------
Net income $ 839 $ 568 $ 877 $ 835
------- ------- ------- -------
(1) Decrease primarily related to the sale of the custom sports business in March 2003.
7
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 June 30, 2004.
The following table presents the components of net periodic pension cost:
Three months ended June 30 Six months ended June 30
In thousands 2004 2003 2004 2003
- ----------------------------------------------------------------------------------------------------------------
Service cost $ - $ 127 $ - $ 254
Interest cost 152 148 304 296
Expected return on plan assets (148) (134) (296) (268)
Amortization of prior service cost 5 5 10 10
Amortization of net actuarial loss 61 55 122 110
Curtailment - 16 - 32
----- ----- ----- -----
Net periodic pension cost $ 70 $ 217 $ 140 $ 434
----- ----- ----- -----
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 was contributed 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.
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 and
six months ended June 30, 2004 and 2003, and summary balance sheet information
relates to MetroLux as of June 30, 2004 and December 31, 2003.
Three months ended June 30 Six months ended June 30
In thousands 2004 2003 2004 2003
- -----------------------------------------------------------------------------------------------------------------
Revenues $ 931 $ 998 $1,888 $1,848
Gross profit 528 591 1,073 1,064
Net income 246 327 510 523
Company's share of partnership net income 123 163 255 261
June 30 December 31
In thousands 2004 2003
- -------------------------------------------------------------------------------
Current assets $ 386 $ 341
Noncurrent assets 3,840 3,937
------ ------
Total assets 4,226 4,278
------ ------
Current liabilities 515 653
Noncurrent liabilities 1,733 1,859
------ ------
Total liabilities 2,248 2,512
------ ------
Company's equity in partnership net assets $ 989 $ 888
------ ------
The Company's equity in partnership net assets is reflected in other assets in
the consolidated balance sheets.
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). Also, on
June 3, 2004, the Company entered into a sale/leaseback of its Norwalk,
Connecticut headquarters. 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
Six Months Ended June 30, 2004 Compared to Six Months Ended June 30, 2003
Total revenues for the six months ended June 30, 2004 decreased 11.4% to $25.4
million from $28.7 million for the six months ended June 30, 2003, principally
due to the sale of the custom sports business during the first quarter of 2003.
As a result of the sale, the Company is 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 $1.1 million or 11.0%. Of this decrease,
Indoor display equipment rentals and maintenance revenues decreased $861,000 or
13.9%, primarily due to disconnects and non-renewals of equipment on rental and
maintenance on existing contracts in the financial services and energy markets,
and Indoor display equipment sales decreased $191,000 or 5.7%, due to a decline
in sales in the transportation 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 appear to be
improving, installations of new equipment tend to lag any economic turnaround.
Outdoor display revenues decreased $2.4 million or 19.1%. Of this decrease,
Outdoor display equipment sales decreased $2.5 million or 26.2%, in the custom
outdoor sports sector, which decrease was primarily a result of the sale of the
custom sports business during the first quarter of 2003. Outdoor display
equipment rentals and maintenance revenues increased $47,000 or 1.5%, primarily
due to new equipment maintenance contracts.
9
Entertainment/real estate revenues increased $178,000 or 2.7%. This increase is
primarily from an increase in overall admissions and concessions. In April
2004, the Company expanded its Durango, Colorado theatre to a seven-plex. 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, which currently is in the process of a two
screen expansion, the Company entered into a 15-year non-compete agreement for
$450,000, which was paid in 2003.
Total operating income for the six months ended June 30, 2004 increased 66.1% to
$3.4 million from $2.1 million for the six months ended June 30, 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 $292,000 or 20.6%, primarily as a
result of the decrease in revenues in the financial services and energy markets.
The cost of indoor displays represented 63.2% of related revenues in 2004
compared to 58.3% 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 initiated certain cost saving measures in 2003 to reduce
field service costs and continues to strategically address the field service
costs. Field service costs in the first six months of 2004 compared to the
first six months of 2003 were reduced by approximately $87,000. Indoor display
cost of equipment sales decreased $148,000 or 8.5%, primarily due to volume mix.
Indoor display cost of equipment rentals and maintenance decreased $47,000 or
1.2%, 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 $565,000 or 22.0% due to continued reduction of certain overhead costs
such as sales salaries and travel expenses. Cost of indoor equipment rentals
and maintenance includes field service expenses, plant repair costs, maintenance
and depreciation.
Outdoor display operating income increased $1.3 million to $565,000 from a loss
of $772,000, 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 78.8% of related revenues in 2004 compared to
87.7% in 2003. This improvement is due to a reduction in field service costs
of approximately $402,000 primarily due to the sale of the custom outdoor
sports business, a reduction in the cost of raw materials and an improvement in
collections. Outdoor display cost of equipment sales decreased $2.6 million or
33.0%, 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 $413,000 or 13.0%,
primarily due to a decrease in field service costs payroll, benefits and
overhead expenses. Outdoor display general and administrative expenses
decreased $727,000 or 31.3%, primarily due to sale of the custom sports
business during the first quarter of 2003. Cost of outdoor equipment rentals
and maintenance includes field service expenses, plant repair costs,
maintenance and depreciation.
Entertainment/real estate operating income increased $323,000 or 22.7%,
primarily due to an increase in overall admissions and a decrease in operating
expenses. The cost of entertainment/real estate represented 73.6% of related
revenues in 2004 compared to 76.2% in 2003. Cost of entertainment/real estate,
which includes film rental costs and depreciation expense, decreased $34,000 or
0.7%. Entertainment/real estate general and administrative expenses decreased
$117,000 due to continued reduction of certain overhead costs such as salaries
and travel expenses.
10
Corporate general and administrative expenses decreased $284,000 or 8.9%,
principally resulting from certain cost saving measures initiated during the
second quarter of 2003 and reduction in certain overhead costs primarily in
pension and benefit costs offset by a $88,000 negative impact of the effect of
foreign currency rates in 2004 compared to a $126,000 positive impact in 2003.
Net interest expense decreased $129,000, 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, use of proceeds from the sale of its Australian
subsidiary in April 2004, the sale/leaseback of its headquarters facility in
June 2004 and regular scheduled payments of long-term debt. The gain on sale of
assets in 2004 relates to the sale/leaseback of its Norwalk, Connecticut
headquarters. The gain on sale of assets in 2003 relates to the sale of the
custom sports business and the sale of vacant land. The income from joint
venture relates to the operations of the theatre joint venture, MetroLux
Theatres, in Loveland, Colorado.
The effective tax rate for the six months ended June 30, 2004 and 2003 was 41.0%
and 51.0%, 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.
Three Months Ended June 30, 2004 Compared to Three Months Ended June 30, 2003
Total revenues for the three months ended June 30, 2004 decreased 3.1% to $13.1
million from $13.5 million for the three months ended June 30, 2003. Indoor
display revenues decreased $376,000 or 7.9%. Of this decrease, Indoor display
equipment rentals and maintenance revenues decreased $85,000 or 2.9%, primarily
due to disconnects and non-renewals of equipment on rental and maintenance on
existing contracts in the financial services and energy markets, and Indoor
display equipment sales decreased $291,000 or 15.7%, due to a decline in sales
in the transportation 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 appear to be
improving, installations of new equipment tend to lag any economic turnaround.
Outdoor display revenues decreased $107,000 or 2.0%. Of this decrease, Outdoor
display equipment sales decreased $113,000 or 3.0%, primarily in the custom
outdoor commercial business. Outdoor display equipment rentals and maintenance
revenues increased $6,000 or 0.4%, primarily due to new equipment maintenance
contracts.
Entertainment/real estate revenues increased $64,000 or 2.0%. This increase is
primarily from an increase in overall admissions and concessions. In April
2004, the Company expanded its Durango, Colorado theatre to a seven-plex.
Total operating income for the three months ended June 30, 2004 increased 59.4%
to $1.5 million from $935,000 for the three months ended June 30, 2003,
principally due to certain cost savings measures, such as field service costs,
initiated by the Company during the second quarter of 2003.
Indoor display operating income decreased $5,000 or 1.1%, primarily as a result
of the decrease in revenues in the financial services and energy markets. The
cost of indoor displays represented 63.0% of related revenues in 2004 compared
to 59.6% 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 initiated certain cost saving measures in 2003 to reduce field
11
service costs and continues to strategically address the field service costs.
Indoor display cost of equipment sales decreased $98,000 or 10.5%, primarily due
to volume mix. Indoor display cost of equipment rentals and maintenance
increased slightly. Indoor display general and administrative expenses
decreased $298,000 or 20.1% due to continued reduction of certain overhead costs
such as sales salaries and travel expenses. Cost of indoor equipment rentals
and maintenance includes field service expenses, plant repair costs, maintenance
and depreciation.
Outdoor display operating income increased $505,000 to $254,000 from a loss of
$251,000. The principal factors contributing to such increase were a reduction
in field service costs of approximately $127,000, a reduction in the cost of
raw materials and an improvement in collections. The cost of outdoor displays
represented 81.3% of related revenues in 2004 compared to 87.9% in 2003.
Outdoor display cost of equipment sales decreased $306,000 or 9.9%, principally
due to the decrease in volume. Outdoor display cost of equipment rentals and
maintenance decreased $134,000 or 8.4%, primarily due to a decrease in field
service costs payroll, benefits and overhead expenses. Outdoor display general
and administrative expenses decreased $172,000 or 19.2%, primarily due to a
reduction in overhead costs such as sales expenses. Cost of outdoor equipment
rentals and maintenance includes field service expenses, plant repair costs,
maintenance and depreciation.
Entertainment/real estate operating income increased $55,000 or 7.4%, primarily
due to an increase in overall admissions and a decrease in operating expenses.
The cost of entertainment/real estate represented 75.8% of related revenues in
2004 compared to 77.5% in 2003. Cost of entertainment/real estate, which
includes film rental costs and depreciation expense, decreased $11,000 or 0.4%.
Entertainment/real estate general and administrative expenses decreased $20,000
due to continued reduction of certain overhead costs such as salaries and travel
expenses.
Corporate general and administrative expenses increased $164,000 or 9.5%,
principally resulting from a $92,000 negative impact of the effect of foreign
currency rates in 2004 compared to a $31,000 positive impact in 2003.
Net interest expense decreased $71,000, 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, use of proceeds from the sale of its Australian
subsidiary in April 2004, the sale/leaseback of its headquarters facility in
June 2004 and regular scheduled payments of long-term debt. The gain on sale of
assets in 2004 relates to the sale/leaseback of its Norwalk, Connecticut
headquarters. The gain on sale of assets in 2003 relates to the sale of vacant
land. The income from joint venture relates to the operations of the theatre
joint venture, MetroLux Theatres, in Loveland, Colorado.
The effective tax rate for the three months ended June 30, 2004 and 2003 was
41.0% and 50.2%, 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 second 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 May 27, 2004, payable to
stockholders of record as of June 30, 2004, and was paid July 23, 2004.
12
During the first quarter of 2003, the Company refinanced its senior debt. The
refinancing consisted of two term loans totaling $17.0 million and a revolving
line of credit of up to $5.0 million at variable interest rates ranging from
LIBOR plus 1.75% to Prime plus 0.25% and matures September 30, 2005. At June
30, 2004, $9.3 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 June 30, 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 $9.3 million term loans that
mature September 30, 2005, and the 7 1/2% 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 $1,148 $10,074 $13,598 $1,310 $3,013
Employment and consulting
agreement obligations 868 1,085 463 393 393
Operating leases 367 710 675 516 383
------ ------- ------- ------ ------
Total $2,383 $11,869 $14,736 $2,219 $3,789
------ ------- ------- ------ ------
Cash and cash equivalents increased $1.8 million for the six months ended June
30, 2004 compared to an increase of $3.8 million in 2003. The increase in 2004
is primarily attributable to cash provided by operating activities from
continuing operations of $3.9 million, proceeds from the sale of assets of $7.1
million, proceeds received from construction loan borrowings of $1.6 million and
proceeds from the Company's joint venture of $0.2 million, offset by investment
in equipment for rental of $2.0 million, purchases of property, plant and
equipment including expansion of the Company's movie theatre in Durango,
Colorado of $1.8 million, purchases of available-for-sale securities of $0.2
million, payments of long-term debt of $6.4 million, payments of dividends of
$0.1 million and cash used by discontinued operation of $0.5 million. 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.
13
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
June 30, 2004, the Company did not hold any derivative financial instruments.
A one percentage point change in interest rates would result in an annual
interest expense fluctuation of approximately $256,000. A 10% change in the
Canadian dollar relative to the U.S. dollar would result in a currency exchange
expense fluctuation of approximately $212,000, 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.
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.
14
Part II - Other Information
Item 4. Submission of Matters to a Vote of Stockholders
The Annual Meeting of Stockholders of Trans-Lux Corporation was held on May 27,
2004 for the purpose of electing directors and approving the appointment of
auditors as set forth below.
All of management's nominees for directors for a three-year term as listed in
the proxy statement were elected by the following vote:
For Withheld
--- --------
Richard Brandt 3,525,056 179,059
Jean Firstenberg 3,578,923 125,192
Gene Jankowski 3,578,923 125,192
Victor Liss 3,572,056 132,059
The following directors are continuing their terms as directors:
Steven Baruch, Two-Years Remaining
Matthew Brandt, One-Year Remaining
Thomas Brandt, Two-Years Remaining
Howard M. Brenner, Two-Years Remaining
Robert B. Greenes, One-Year Remaining
Howard S. Modlin, One-Year Remaining
Michael R. Mulcahy, One-Year Remaining
The recommendation to retain Deloitte & Touche LLP as the independent auditors
for the Corporation was approved by the following vote:
For Against Abstain
--- ------- -------
Totals 3,653,635 5,358 45,122
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10 Employment Agreement with Angela D. Toppi dated as of March
24, 2004, 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.
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.
15
32.1 Certification of Michael R. Mulcahy, President and Co-Chief
Executive Officer, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
32.2 Certification of Thomas Brandt, Executive Vice President and
Co-Chief Executive Officer, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
32.3 Certification of Angela D. Toppi, Executive Vice President
and Chief Financial Officer, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K. During the quarter for which this report on
Form 10-Q is filed, the registrant filed the following:
Form 8-K dated May 11, 2004, press release pertaining to the
financial performance for the first quarter of 2004 and sale of
Australian subsidiary.
Form 8-K dated May 19, 2004, pertaining to Trans-Lux Corporation
board of directors' adoption of a Code of Business Conduct and
Ethics Guidelines.
Form 8-K dated June 3, 2004, pertaining to the sale/leaseback of
the Company's Norwalk, Connecticut headquarters.
16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TRANS-LUX CORPORATION
---------------------
(Registrant)
Date: August 16, 2004
by /s/ Angela D. Toppi
--------------------
Angela D. Toppi
Executive Vice President and
Chief Financial Officer
17