Back to GetFilings.com
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, 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
-------------------------------------------
(203) 853-4321
--------------
(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:
Name of each exchange on
Title of each class which registered
- ----------------------------- ------------------------
Common Stock, $1.00 par value American Stock Exchange
7 1/2% Convertible Subordinated
Notes due 2006 American Stock Exchange
8 1/4% Limited Convertible Senior Subordinated
Notes due 2012 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
--- ---
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
2004 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
--- ---
As of the close of business on March 30, 2005, there were outstanding, 973,259
shares of the Registrant's Common Stock and 287,463 shares of its Class B Stock.
Based on the closing stock price of $6.90 on June 30, 2004, 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 $6,960,000. (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 19, 2005, 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
2004 Form 10-K Annual Report
Table of Contents
PART I
Page
ITEM 1. Business 1
ITEM 2. Properties 7
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 9
ITEM 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations 11
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk 15
ITEM 8. Financial Statements and Supplementary Data 16
ITEM 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 39
ITEM 9A. Controls and Procedures 39
ITEM 9B. Other Information 39
PART III
ITEM 10. Directors and Executive Officers of the Registrant 40
ITEM 11. Executive Compensation 41
ITEM 12. Security Ownership of Certain Beneficial Owners and Management 41
ITEM 13. Certain Relationships and Related Transactions 41
ITEM 14. Principal Accounting Firm Fees 41
PART IV
ITEM 15. Exhibits and Financial Statement Schedules 42
Signatures 45
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 and LCD screens, and light bulb based
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, schools, 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
- ---------------------------------------
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, 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 private
sector, and gaming. The financial 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
-1-
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 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 price displays, full color LED tickers, graphics and video displays.
The government and private 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, lobbies, 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, Indian gaming establishments and
racetracks. 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 and racetracks
also use electronic displays throughout their facilities to advertise to and
attract gaming patrons. Equipment for the Indoor display segment 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 schools, sports
stadiums, sports venues, gas stations, highway departments and outdoor
advertisers attempting to capture the attention of passers-by. The Outdoor
division has a new line of LED message centers, scoreboards and video displays
available in monochrome and full color. The Company has utilized its strong
position in the Indoor display 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. This division generally
sells through distributors and dealers. Equipment for the Outdoor display
segment 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, 2004 and 2003 was approximately $3.9 million and $3.3 million,
respectively. The December 31, 2004 backlog will be recognized in 2005. 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
- -----------------------------------
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 2004 the Company's Outdoor Display division continued to enhance
CaptiVue(TM), a new product line, launched in 2003, 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.
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; and a new graphics
interface to display more data at higher resolutions.
The Company recently developed tricolor GraphixWalls(TM), its economical
full-matrix indoor graphic display product. Featuring flexible functionality at
a lower cost, GraphixWall provides a more competitive offering. Applications
for GraphixWall displays include flight information, baggage claim and
way-finding at airports, automatic call directories at contact centers, order
processing support at manufacturing facilities, and for posting prices and
promoting products in financial and retail environments.
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 continued to
expand its PromoWall(R) product line, 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 $2,449,000, $2,609,000 and
$3,370,000 in 2004, 2003 and 2002, respectively. The reduction from 2002 is
principally 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 in the U.S. and Canada using a combination of distribution channels,
including 24 direct sales representatives, four telemarketers, a network of
independent dealers and distributors. By working with software vendors and
using the internet to expand the quality and quantity of multimedia content that
can be delivered to our electronic displays, we are able to offer customers
relevant, timely information, content management software and display hardware
in the form of turnkey display communications packages.
The Company employs a number of different marketing techniques to attract
new customers, including direct marketing efforts by its sales force to known
and potential users of information displays; internet marketing; advertising in
industry publications; and exhibiting at approximately 23 domestic and
international trade shows annually.
Internationally, the Company uses a combination of internal sales people and
independent distributors to market its products outside the U.S. The Company
has existing relationships with approximately 22 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.
In addition to its existing distribution networks, the Company signed an
agreement in January 2005 with a major, worldwide provider of electronic video
displays for the distribution of all Trans-Lux display products, including
scoreboards, commercial outdoor signs and indoor display products, on a
worldwide basis in conjunction with its own product line. Because this provider
employs approximately 50 sales representatives and 100 sales agents worldwide,
the agreement significantly increases the scope of the Company's distribution
channels around the globe.
Headquartered in Norwalk, Connecticut, the Company has major sales and
service offices in New York; Chicago; Des Moines, Iowa; Toronto, Ontario; and
Brampton, Ontario; as well as approximately 40 satellite offices in the U.S.
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 2004, 2003 and 2002 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 and Des Moines, Iowa, 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.
-4-
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 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
- -------------------
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 and
Canada. 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, they offer support for the products they
sell.
Personnel based in regional and satellite service locations throughout the
United States and Canada 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 service companies in
the United States, Canada and overseas. From time to time the Company uses
various
-5-
third-party service agents to install, service and/or assist in the service of
certain displays for reasons that include geographic area, size and height of
displays.
COMPETITION
- -----------
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 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
- ------------------
The Company currently operates 64 screens in 11 locations in the western
Mountain States, which includes a twelve-plex theatre in Loveland, Colorado,
which is a 50% owned joint venture partnership. 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. In 2004, the Company
expanded its Durango, Colorado location by adding two additional screens and in
January 2005 completed the expansion of its Dillon, Colorado location by adding
two additional screens. 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'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 a national circuit 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
- ---------------------
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
- ---------
The Company has approximately 470 employees as of February 28, 2005, 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.
-6-
ITEM 2. PROPERTIES
The Company's headquarters and principal executive offices are located at
110 Richards Avenue, Norwalk, Connecticut. During June 2004, the Company
entered into a sale/leaseback of its 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 of its indoor display products. The
Company leased back the property for four years, after which a three-year lease
for part of the building will take effect. Approximately 9,500 square feet of
the building is currently subleased to others.
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 nine premises throughout North America for use as
sales, service and/or administrative operations, and leases three theatre
locations. The aggregate rental expense was $737,000, $528,000 and $643,000 for
the years ended December 31, 2004, 2003 and 2002, respectively.
ITEM 3. LEGAL PROCEEDINGS
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.
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 685 holders of record of its Common Stock
and approximately 62 holders of record of its Class B Stock as of March
30, 2005.
(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 2004. 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
---- ---
2004
First Quarter $7.89 $5.99
Second Quarter 8.20 6.30
Third Quarter 7.02 6.10
Fourth Quarter 8.00 6.10
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
-8-
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, 2004,
which were derived from the audited consolidated financial statements
of the Company and should be read in conjunction with them.
Years Ended 2004 2003 2002 2001 2000
----------- ---- ---- ---- ---- ----
In thousands, except per share data
Revenues $ 52,579 $ 56,022 $ 73,206 $ 68,501 $ 65,829
Income (loss) from continuing operations 412 365 34 601 (1,737)
Income (loss) from discontinued operation 127 689 394 (92) (494)
Net income (loss) 539 1,054 428 509 (2,231)
Earnings (loss) per share continuing operations:
Basic $ 0.33 $ 0.29 $ 0.03 $ 0.47 $ (1.38)
Diluted 0.33 0.29 0.03 0.47 (1.38)
Earnings (loss) per share discontinued operation:
Basic $ 0.10 $ 0.55 $ 0.31 $ (0.07) $ (0.39)
Diluted 0.03 0.20 0.12 (0.07) (0.39)
Total earnings (loss) per share:
Basic $ 0.43 $ 0.84 $ 0.34 $ 0.40 $ (1.77)
Diluted 0.43 0.70 0.34 0.40 (1.77)
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 1,261
Total assets $101,114 $100,092 $109,433 $112,597 $112,060
Long-term debt 56,796 60,505 67,209 69,250 68,552
Stockholders' equity 24,605 24,036 23,025 23,568 23,696
-9-
(b) The following table sets forth quarterly financial data for years ended
December 31, 2004 and December 31, 2003:
Quarter Ended March 31 June 30 September 30 December 31(1)
- ------------- -------- ------- ------------ --------------
In thousands, except per share data
2004
Revenues $12,329 $13,112 $14,065 $13,073
Gross profit 3,625 3,445 3,805 3,182
Income (loss) from continuing operations 23 727 79 (417)
Income from discontinued operation 15 112 - -
Net income (loss) 38 839 79 (417)
Earnings (loss) per share continuing operations:
Basic 0.02 0.58 0.06 (0.33)
Diluted 0.02 0.28 0.06 (0.33)
Earnings per share discontinued operation:
Basic 0.01 0.09 - -
Diluted 0.01 0.03 - -
Total earnings (loss) per share:
Basic 0.03 0.67 0.06 (0.33)
Diluted 0.03 0.31 0.06 (0.33)
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
2003
Revenues $15,193 $13,531 $14,529 $12,769
Gross profit 3,765 3,340 4,483 3,839
Income (loss) from continuing operations 43 300 61 (39)
Income from discontinued operation 224 268 42 155
Net income 267 568 103 116
Earnings (loss) per share continuing operations:
Basic 0.03 0.24 0.05 (0.03)
Diluted 0.03 0.18 0.05 (0.03)
Earnings per share discontinued operation:
Basic 0.18 0.21 0.03 0.13
Diluted 0.18 0.08 0.01 0.04
Total 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
(1) During the quarter ended December 31, 2003, the Company recorded 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.
-10-
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, 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 6). Also, on
June 3, 2004, the Company entered into a sale/leaseback of its Norwalk,
Connecticut headquarters (see Note 6). 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 ongoing 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, involve 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 customers 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 2004 and 2003, the Company
recorded an after tax minimum pension liability adjustment in other
comprehensive loss of $117,000 and $149,000, respectively. Estimates and
assumptions are reviewed annually with the assistance of external actuarial
professionals and adjusted as circumstances change. At December 31, 2004, plan
assets were invested 54.5% in guaranteed investment contracts, 42.0% in equity
and index funds, 2.3% in bonds and 1.2% 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, 2004, 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, 6.00%. Net periodic cost for 2005 will be
based
-11-
on the December 31, 2004 valuation. The defined benefit plan periodic cost was
$280,000 in 2004, $867,000 in 2003 and $755,000 in 2002. As of December 31,
2003, the benefit service under the defined benefit plan had been frozen and,
accordingly, there is no service cost for the year ended December 31, 2004. At
December 31, 2004, assuming no change in the other assumptions, a one percentage
point change in investment returns would affect the net periodic cost by $68,000
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. At December 31, 2004, long-term debt
outstanding of $25.6 million was at variable rates of interest ranging from
4.06% to 5.25% and $31.2 million was at 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 and, at December 31, 2004, was not involved in
any derivative financial instruments.
Results of Operations
2004 Compared to 2003
Total revenues for the year ended December 31, 2004 decreased 6.1% to $52.6
million from $56.0 million for the year ended December 31, 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 6 to the
Consolidated Financial Statements). 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 $671,000 or 3.7%. Of this decrease,
Indoor display equipment rentals and maintenance revenues decreased $1.4 million
or 11.3%, primarily due to disconnects and non-renewals of equipment on rental
and maintenance on existing contracts in the financial services and energy
markets, offset by an increase in Indoor display equipment sales of $738,000 or
13.2%, due to an increase in sales in the gaming 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 9.8%. Of this decrease,
Outdoor display equipment sales decreased $1.8 million or 10.3%, primarily 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 decreased $561,000 or 8.7%,
primarily due to the continued expected revenue decline in the Outdoor equipment
rentals and maintenance bases previously acquired.
Entertainment/real estate revenues decreased $384,000 or 2.8%. Gross box
office and concession revenues were basically level compared to 2003, but other
theatre-related income was lower. In April 2004, the Company expanded one of
its Durango, Colorado theatres from a five-plex 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 is in the process of a two screen expansion,
the Company entered into a 15-year noncompete agreement for $450,000, which was
paid in 2003.
Total operating income for the year ended December 31, 2004 decreased 5.7%
to $5.9 million from $6.3 million for the year ended December 31, 2003,
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 $543,000 or 18.2%, primarily as a
result of the decrease in revenues in the financial services and energy markets.
The cost of indoor displays represented 62.4% of related revenues in 2004
compared to 58.8% 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 increasing and the revenues
from indoor equipment rentals and maintenance decreasing. The Company initiated
certain cost saving measures in 2003 to reduce field service costs and continues
to strategically address the field service costs. Indoor display cost of
equipment rentals and maintenance increased $112,000 or 1.5%, largely due to an
increase in depreciation expense. Indoor display cost of equipment sales
increased $120,000 or 3.9%, primarily due to volume mix. Indoor display general
and administrative expenses decreased $360,000 or 8.1%, due to continued
reduction of certain overhead costs such as sales salaries, related payroll
benefits 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 to $386,000 in 2004 compared to a
loss of $263,000 in 2003, primarily as a result of the sale of the custom
outdoor sports business, which was sold during the first quarter of 2003, and
the Company initiating certain cost saving measures during the second quarter of
2003. The cost of outdoor displays represented 80.6% of related revenues in
2004 compared to 81.6% in 2003. This improvement is due to a reduction in field
service costs of approximately $413,000, the sale of the custom outdoor sports
business and a reduction in the cost of raw materials. Outdoor display cost of
equipment sales decreased $1.8 million or 13.2%, 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 $364,000 or 6.0%, primarily due to a decrease in field
service payroll, benefits and overhead expenses. Outdoor display general and
administrative expenses decreased $874,000 or 18.5%, primarily due to the sale
of the custom sports business during the first quarter of 2003 and collections
of previously reserved accounts receivable. Cost of outdoor equipment rentals
and maintenance includes field service expenses, plant repair costs, maintenance
and depreciation.
Entertainment/real estate operating income decreased $464,000 or 12.9%,
primarily due to an increase in other operating expenses and a decrease in
MetroLux Theatre joint venture income of $297,000 to $396,000 in 2004,
principally due to a reduction in box office revenue as a result of another
theatre chain opening a cinema in a neighboring town. The 2003 MetroLux Theatre
joint venture income was $693,000, which included a gain on the sale of vacant
land of $122,000. The cost of entertainment/real estate represented 75.4% of
related revenues in 2004 compared to 74.3% in 2003. Cost of entertainment/real
estate, which includes film rental costs and depreciation expense, decreased
$142,000 or 1.4%, due to a reduction in payroll and related benefits and certain
other operating expenses. Entertainment/real estate general and administrative
expenses decreased $75,000 or 11.7% due to a continued reduction of certain
overhead costs such as salaries and travel expenses.
Corporate general and administrative expenses decreased $1.6 million or
28.3%, 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, medical and general insurance
-12-
costs, and a $125,000 positive impact of the effect of foreign currency exchange
rates in 2004 compared to a $29,000 positive impact in 2003.
Net interest expense decreased $142,000, 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 offset by an increase
in variable interest rates. During December 2004, the Company successfully
completed an amendment of its senior debt, which includes a term loan of $10.0
million, a non-revolving line of credit of up to $6.2 million, and a revolving
loan of up to $5.0 million. To meet its short-term working capital
requirements, the revolving loan facility, if needed, was fully available at
December 31, 2004.
The gain on sale of assets in 2004 primarily relates to the sale/leaseback
of the Company's Norwalk, Connecticut headquarters. 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.
The effective tax rate for the year ended December 31, 2004 was 50.9%. For
the year ended December 31, 2003, the effective tax rate was 64.3%. Both
year-end rates were affected by foreign subsidiary income being taxed at higher
rates.
2003 Compared to 2002
Total revenues for the year ended December 31, 2003 decreased 23.5% to $56.0
million from $73.2 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 6 to the Consolidated Financial Statements).
Indoor display revenues decreased $2.1 million or 10.5%. Of this decrease,
indoor display equipment rentals and maintenance revenues decreased $1.6 million
or 11.3%, 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 $538,000 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 appear to be 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 noncompete agreement for
$450,000, which was paid in 2003.
Total operating income for the year ended December 31, 2003 decreased 33.2%
to $6.3 million from $9.4 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 $2.2 million or 42.3%, primarily
as a result of the decrease in revenues in the financial services and energy
markets. The cost of indoor displays represented 58.8% of related revenues in
2003 compared to 51.7% in 2002. The cost of indoor displays as a percentage of
related revenues increased primarily due to higher depreciation expense and the
relationship between field service costs of equipment rentals and maintenance
increasing and the revenues from indoor equipment rentals and maintenance
decreasing. The Company continues to strategically address the field service
costs, and 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 $36,000 or 0.5%, due to an increase in depreciation expense. Indoor
display cost of equipment sales increased $151,000 or 5.2%, primarily due to
volume mix. Indoor display general and administrative expenses decreased
$119,000 or 2.6%, principally resulting from certain cost saving measures
initiated during the second quarter of 2003.
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 increased $314,000 or 6.0%,
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 $29,000 positive impact of the
effect of foreign currency exchange rates in 2003 compared to a $56,000 negative
impact in 2002, and increases in certain overhead costs in medical and general
insurance costs, pension and benefit costs.
Net interest expense decreased $587,000, 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,
-13-
Colorado. Other income primarily relates to the earned income portion of
municipal forgivable loans offset by a 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 64.3%. For
the year ended December 31, 2002, the effective tax rate was 86.2%. Both
year-end rates were affected by foreign subsidiary income being taxed at higher
rates. The 2002 tax rate was further impacted by unused income tax credits and
state minimum franchise taxes in excess of state income tax rates.
Liquidity and Capital Resources
During December 2004, the Company successfully completed an amendment of its
senior debt, which includes a term loan of $10.0 million, a non-revolving line
of credit of up to $6.2 million for the purpose of financing 50% of the
redemption and/or purchase of the remaining Old Notes (defined below) on a
matching basis, and a revolving loan of up to $5.0 million at variable interest
rates ranging from LIBOR plus 2.25% to Prime plus 0.25% (4.80% at December 31,
2004). The term loan, non-revolving line of credit, and revolving loan mature
on January 1, 2012, January 1, 2007, and January 1, 2008, respectively. The
non-revolving line of credit is convertible into a Converted Term Loan maturing
January 1, 2012. At December 31, 2004, the entire non-revolving and revolving
loan facilities were available, as none had been drawn. The 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 1.1 to 1.0, a loan-to-value ratio of not more than 50%, a
leverage ratio of 3.0 to 1.0, maintaining a tangible net worth of not less than
$20.5 million plus 50% of net income beginning December 31, 2004 and maintaining
accounts with an average monthly compensating balance of not less than $750,000.
At December 31, 2004, the Company was in compliance with such financial
covenants.
The Company believes that cash generated from operations together with cash
and cash equivalents on hand and the current availability under the
non-revolving line of credit and revolving loan 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 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, which is payable semi-annually,
have a longer term, are convertible into Common Stock at a lower conversion
price of $9.00 per share until March 1, 2007, may be redeemed by the Company, in
whole or in part, at declining premiums beginning March 1, 2006 and are senior
to the Old Notes and the Company's 9 1/2% Subordinated Debentures due 2012. The
Indenture agreement related to the Old Notes 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.
Cash and cash equivalents increased $376,000 in 2004 compared to increases
of $3.8 and $2.6 million in 2003 and 2002, respectively. The increase in 2004
is primarily attributable to proceeds received from sales of assets of $7.0
million, proceeds from the sale of available-for-sale securities of $0.3
million, proceeds received from construction loan borrowings of $1.5 million,
proceeds from the Company's joint venture of $0.2 million, and operating
activities of $6.8 million, offset by the investment in equipment manufactured
for rental of $5.3 million, purchases of property, plant and equipment,
including expansion of the Company's movie theatres in Durango and Dillon,
Colorado, of $3.0 million, purchases of available-for-sale securities of $0.3
million, reduction in long-term debt of $6.1 million, payments of dividends of
$0.2 million, and cash used by the discontinued operation of $0.5 million. 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 Company's joint venture of $0.9 million, proceeds from the
sale of available-for-sale securities of $0.3 million and operating activities
of $6.6 million, offset by the investment in equipment manufactured for rental,
expansion of the Company's movie theatre in Durango, Colorado, other equipment
purchases of $5.3 million, reduction in long-term debt of $3.7 million, payments
of dividends of $0.2 million, and cash used by the discontinued operation of
$1.0 million. The increase in 2002 was primarily attributable to proceeds
received from sale of a building of $0.8 million, proceeds from the Company's
joint venture 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 $6.2 million, from financing activities of $1.8 million and cash
used by the discontinued operation of $0.2 million. 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, 2004 over the
next five fiscal years:
In thousands 2005 2006 2007 2008 2009
- --------------------------------------------------------------------------------
Current portion of long-term debt $1,744 $ - $ - $ - $ -
Long-term debt - 14,458 2,090 4,704 2,258
Employment and consulting
agreement obligations 1,095 473 404 404 404
Operating lease payments 749 650 472 360 264
------ ------- ------ ------ ------
Total $3,588 $15,581 $2,966 $5,468 $2,926
- --------------------------------------------------------------------------------
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 $1.1 million investment in the MetroLux Theatres joint venture
is accounted for under the equity method of accounting. The Company has
guaranteed $1.1 million (60%) of a $1.9 million mortgage loan held by MetroLux
Theatres.
During 2000, the Company entered into two sale/leaseback transactions for
theatre equipment that terminate in September 2005, which are classified as
operating leases. The Company has guaranteed up to a maximum of $403,000 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.
-14-
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 9 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 Canadian subsidiary. A 10%
change in the Canadian dollar relative to the U.S. dollar would result in a
currency exchange expense fluctuation of approximately $167,000. 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 $263,000.
-15-
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 2004 2003 2002
- ---------------------------------------------------------------------------------------------------------
Revenues:
Equipment rentals and maintenance $16,944 $18,915 $20,659
Equipment sales 22,269 23,357 38,076
Theatre receipts and other 13,366 13,750 14,471
---------------------------------
Total revenues 52,579 56,022 73,206
---------------------------------
Operating expenses:
Cost of equipment rentals and maintenance 13,398 13,650 13,778
Cost of equipment sales 15,052 16,731 27,811
Cost of theatre receipts and other 10,072 10,214 11,198
---------------------------------
Total operating expenses 38,522 40,595 52,787
---------------------------------
Gross profit from operations 14,057 15,427 20,419
General and administrative expenses 12,501 15,385 17,032
Interest income 184 49 118
Interest expense (3,915) (3,922) (4,578)
Gain on sale of assets 2,536 4,207 314
Other income (expense) 82 (46) 204
---------------------------------
Income (loss) from continuing operations before income taxes,
income from joint venture and discontinued operation 443 330 (555)
Provision (benefit) for income taxes:
Current 366 464 (369)
Deferred 61 194 581
---------------------------------
Total provision for income taxes 427 658 212
---------------------------------
Income from joint venture 396 693 801
---------------------------------
Income from continuing operations 412 365 34
Income from discontinued operation, net of income taxes 127 689 394
---------------------------------
Net income $ 539 $ 1,054 $ 428
=================================
Earnings per share continuing operations:
Basic $ 0.33 $ 0.29 $ 0.03
Diluted $ 0.33 $ 0.29 $ 0.03
Earnings per share discontinued operation:
Basic $ 0.10 $ 0.55 $ 0.31
Diluted $ 0.03 $ 0.20 $ 0.12
Total earnings per share:
Basic $ 0.43 $ 0.84 $ 0.34
Diluted $ 0.43 $ 0.70 $ 0.34
Average common shares outstanding:
Basic 1,261 1,261 1,261
Diluted 3,932 3,421 3,418
- ---------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements.
-16-
CONSOLIDATED BALANCE SHEETS
In thousands, except share data December 31 2004 2003
- ----------------------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 12,398 $ 12,022
Available-for-sale securities 388 393
Receivables, less allowance of $711 - 2004 and $1,092 - 2003 5,989 5,170
Unbilled receivables 585 729
Inventories 6,565 5,647
Prepaids and other 534 956
Assets of discontinued operation - 1,930
-----------------------
Total current assets 26,459 26,847
-----------------------
Rental equipment 90,938 89,560
Less accumulated depreciation 52,538 48,654
-----------------------
38,400 40,906
-----------------------
Property, plant and equipment 37,747 41,742
Less accumulated depreciation and amortization 8,787 11,763
-----------------------
28,960 29,979
Goodwill 1,004 1,004
Other assets 6,291 3,286
-----------------------
TOTAL ASSETS $101,114 $102,022
=======================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,413 $ 1,535
Accrued liabilities 7,353 6,578
Current portion of long-term debt 1,744 2,637
Liabilities of discontinued operation - 414
-----------------------
Total current liabilities 11,510 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 25,562 29,271
-----------------------
56,796 60,505
Deferred credits, deposits and other 3,959 2,052
Deferred income taxes 4,244 4,265
Commitments and contingencies
Stockholders' equity:
Capital stock
Common - $1 par value - 5,500,000 shares authorized,
2,452,942 and 2,452,900 shares issued in 2004 and 2003 2,453 2,453
Class B - $1 par value - 1,000,000 shares authorized,
287,463 and 287,505 shares issued in 2004 and 2003 287 287
Additional paid-in-capital 13,901 13,901
Retained earnings 20,852 20,490
Accumulated other comprehensive loss (1,050) (1,258)
-----------------------
36,443 35,873
Less treasury stock - at cost - 1,479,714 and 1,479,688 shares
in 2004 and 2003 (excludes additional 287,463 and 287,505
shares held in 2004 and 2003 for conversion of Class B stock) 11,838 11,837
-----------------------
Total stockholders' equity 24,605 24,036
-----------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $101,114 $102,022
=======================
The accompanying notes are an integral part of these consolidated financial statements.
-17-
CONSOLIDATED STATEMENTS OF CASH FLOWS
In thousands Years ended December 31 2004 2003 2002
- -----------------------------------------------------------------------------------------------------------------
Cash flows from operating activities
Net income $ 539 $ 1,054 $ 428
Income from discontinued operation 127 689 394
-------------------------------
Income from continuing operations 412 365 34
Adjustment to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 9,852 9,889 10,153
Income from joint venture (396) (693) (801)
Deferred income taxes 61 204 581
Gain on sale of assets (2,536) (4,207) (314)
Write down of available-for-sale securities - 129 -
Gain on sale of available-for-sale securities (27) (28) -
Changes in operating assets and liabilities:
Receivables (675) 1,379 2,019
Inventories (918) 916 (591)
Prepaids and other assets (239) (374) (132)
Accounts payable and accruals 1,581 (122) (1,809)
Deferred credits, deposits and other (310) (890) 32
-------------------------------
Net cash provided by operating activities 6,805 6,568 9,172
-------------------------------
Cash flows from investing activities
Equipment manufactured for rental (5,284) (4,145) (5,468)
Purchases of property, plant and equipment (3,039) (1,183) (691)
Purchases of available-for-sale securities (282) (113) -
Proceeds from sale of available-for-sale securities 307 312 -
Proceeds from joint venture, net 150 900 775
Proceeds from sale of assets 7,028 6,245 758
-------------------------------
Net cash provided by (used in) investing activities (1,120) 2,016 (4,626)
-------------------------------
Cash flows from financing activities
Proceeds from long-term debt 20,596 17,438 2,233
Payments of long-term debt (25,198) (21,113) (3,842)
Purchase of treasury stock (1) - -
Cash dividends (177) (176) (176)
-------------------------------
Net cash used in financing activities (4,780) (3,851) (1,785)
-------------------------------
Net cash used in discontinued operation (529) (981) (190)
-------------------------------
Net increase in cash and cash equivalents 376 3,752 2,571
Cash and cash equivalents at beginning of year 12,022 8,270 5,699
-------------------------------
Cash and cash equivalents at end of year $ 12,398 $ 12,022 $ 8,270
===============================
- -----------------------------------------------------------------------------------------------------------------
Interest paid $ 3,172 $ 3,661 $ 4,253
Interest received 162 112 131
Income taxes paid (refunded) 41 272 (523)
- -----------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements.
-18-
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Accumulated
Additional Other
In thousands, except share data Common Stock Class B Paid-in Treasury Retained Comprehensive
For the three years ended December 31, 2004 Shares Amount Shares Amount Capital Stock Earnings Income (Loss)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance January 1, 2002 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)
Net income - - - - - - 539 -
Cash dividends - - - - - - (177) -
Common stock acquired (26 shares) - - - - - (1) - -
Other comprehensive income (loss), net of tax:
Unrealized foreign currency translation - - - - - - - 329
Unrealized holding loss - - - - - - - (4)
Minimum pension liability adjustment - - - - - - - (117)
Class B conversion to common stock 42 - (42) - - - - -
----------------------------------------------------------------------------------
Balance December 31, 2004 2,452,942 $2,453 287,463 $287 $13,901 $(11,838) $20,852 $(1,050)
- -----------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
In thousands Years ended December 31 2004 2003 2002
- ---------------------------------------------------------------------------------------
Net income $ 539 $1,054 $ 428
---------------------------
Other comprehensive income (loss):
Unrealized foreign currency translation 329 179 (56)
Unrealized holding gain (loss) on securities (7) 42 (8)
Reclassification adjustment on securities - 129 -
Minimum pension liability adjustment (196) (247) (1,368)
Unrealized derivative gain - - 174
Income tax benefit related to items of other
comprehensive income 82 30 463
---------------------------
Total other comprehensive income (loss), net of tax 208 133 (795)
---------------------------
Comprehensive income (loss) $ 747 $1,187 $ (367)
- ---------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements.
-19-
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 income from joint venture
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 valuation allowances, 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. The
Company's credit facility with its senior lender requires maintaining accounts
with an average monthly compensating balance of not less than $750,000.
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 2004 2003 2002
- ----------------------------------------------------------------------
Balance at beginning of year $1,092 $1,009 $ 465
Provisions 213 718 835
Deductions (594) (635) (291)
--------------------------------
Balance at end of year $ 711 $1,092 $1,009
- ----------------------------------------------------------------------
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. Valuation allowances 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
valuation allowances 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 10 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 6), 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;
noncompete agreements over their terms of seven and 10 years; deferred
financing costs over the life of the related debt of two to 20 years; and other
intangibles over 10 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, 2004, 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 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 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.
-20-
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 13, 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 2004, 2003 and 2002, 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 2004, the
Financial Accounting Standards Board ("FASB") issued SFAS No. 123 (revised
2004), "Share-Based Payment" ("SFAS 123 (revised 2004)"). SFAS 123 (revised
2004) establishes standards that require companies to record the cost resulting
from all share-based payment transactions using the fair value method.
Transition under SFAS 123 (revised 2004) requires using a modified version of
prospective application under which compensation costs are recorded for all
unvested share-based payments outstanding or a modified retrospective method
under which all prior periods impacted by SFAS 123 are restated. SFAS 123
(revised 2004) is effective as of the first quarter that begins after June 15,
2005, with early adoption permitted.
The following table illustrates the effect on net income and earnings per share
for the years ended December 31, 2004, 2003 and 2002 if the Company had applied
the fair value recognition provisions of SFAS 123 to stock-based employee
compensation:
In thousands, except per share data 2004 2003 2002
- -------------------------------------------------------------------------------
Net income, as reported $ 539 $1,054 $ 428
Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all awards, net of tax 7 17 51
-------------------------
Pro forma net income $ 532 $1,037 $ 377
-------------------------
Earnings per share:
Basic, as reported $0.43 $ 0.84 $0.34
Diluted, as reported $0.43 $ 0.70 $0.34
-------------------------
Basic, pro forma $0.42 $ 0.82 $0.30
Diluted, pro forma $0.42 $ 0.70 $0.30
- -------------------------------------------------------------------------------
Accounting pronouncements: 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 the 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 any effect on the Company's consolidated financial
statements
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 $4,000 and $103,000 were made to equity to reflect the net
unrealized gains on available-for-sale securities at December 31, 2004 and 2003,
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 $27,000 and $28,000
on the sales of available-for-sale securities during 2004 and 2003,
respectively.
Available-for-sale securities consist of the following:
2004 2003
--------------------------------------------
Fair Unrealized Fair Unrealized
In thousands Value Losses Value Losses
- -----------------------------------------------------------------------
Mutual funds $330 $15 $349 $11
Equity securities 58 3 44 -
--------------------------------------------
$388 $18 $393 $11
- -----------------------------------------------------------------------
3. Inventories
Inventories consist of the following:
In thousands 2004 2003
- ----------------------------------------------------------------
Raw materials and spare parts $4,704 $3,767
Work-in-progress 1,357 1,234
Finished goods 504 646
------------------------
$6,565 $5,647
- ----------------------------------------------------------------
4. Property, Plant and Equipment
Property, plant and equipment consist of the following:
In thousands 2004 2003
- ----------------------------------------------------------------
Land, buildings and improvements $29,906 $33,391
Machinery, fixtures and equipment 6,864 7,374
Leaseholds and improvements 977 977
-------------------------
$37,747 $41,742
- ----------------------------------------------------------------
Land, buildings and equipment having a net book value of $26.1 million and $26.8
million at December 31, 2004 and 2003, respectively, were pledged as collateral
under mortgage agreements.
5. Other Assets
Other assets consist of the following:
In thousands 2004 2003
- -------------------------------------------------------------------------
Receivable - sale/leaseback of facility $2,580 $ -
Investment in joint venture (see Note 17) 1,133 888
Deferred financing costs, net of accumulated
amortization of $985 - 2004 and $1,495 - 2003 1,025 1,013
Noncompete agreements, net of accumulated
amortization of $239 - 2004 and $185 - 2003 367 421
Prepaids 295 323
Maintenance contracts, net of accumulated
amortization of $2,194 - 2004 and $2,130 - 2003 193 257
Deposits and other 698 384
---------------------
$6,291 $3,286
- -------------------------------------------------------------------------
-21-
The receivable - sale/leaseback of facility relates to a long-term receivable
secured by a purchase money mortgage subordinated to a $3.5 million first
mortgage in favor of the purchaser of the Norwalk, Connecticut facility (see
Note 6).
Deferred financing costs relate to the issuance of the 7 1/2% convertible
subordinated notes, the 8 1/4% limited convertible senior 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 $450,000 restrictive
covenant agreement relating to a theatre.
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: $288,000 - 2005, $267,000 - 2006, $194,000 - 2007,
$193,000 - 2008, $151,000 - 2009.
6. Sale of Assets and Discontinued Operation
Sale of Assets
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. The $2.6 million receivable is included in other assets in the
Consolidated Balance Sheets. 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 and is
included in deferred credits, deposits and other in the Consolidated Balance
Sheets. The $2.6 million balance of the purchase price 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.
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 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.
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 prior periods are reported as a discontinued operation.
The following table presents the financial results of the discontinued
operation:
In thousands 2004 2003 2002
- ----------------------------------------------------------------
Revenues $ 135 $1,552 $1,685
Operating expenses 126 1,000 1,066
-------------------------
Gross profit 9 552 619
General and administrative expenses (126) (680) (614)
Foreign currency gain 141 941 330
Interest income 3 64 59
Gain on sale of assets 112 - -
Income tax provision (12) (188) -
-------------------------
Income from discontinued operation $ 127 $ 689 $ 394
-------------------------
Earnings per share:
Basic $0.10 $ 0.55 $ 0.31
Diluted $0.03 $ 0.20 $ 0.12
- ----------------------------------------------------------------
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
- ---------------------------------------------------------------
7. Taxes on Income
The components of income tax expense are as follows:
In thousands 2004 2003 2002
- -----------------------------------------------------------------------
Current:
Federal $ - $ - $(704)
State and local 60 110 (3)
Foreign 306 354 338
----------------------------------------
366 464 (369)
----------------------------------------
Deferred:
Federal 44 157 600
State and local 17 37 (19)
----------------------------------------
61 194 581
----------------------------------------
Total income tax expense $427 $658 $ 212
- -----------------------------------------------------------------------
Income taxes provided differed from the expected federal statutory rate of 34%
as follows:
2004 2003 2002
- ---------------------------------------------------------------------------
Statutory federal income tax rate 34.0% 34.0% 34.0%
State income taxes, net of federal benefit 6.0 9.5 (6.0)
Foreign income taxed at different rates 8.8 11.6 37.1
Unused income tax credits - - 17.8
Other 2.1 9.2 3.3
---------------------------
Effective income tax rate 50.9% 64.3% 86.2%
- ---------------------------------------------------------------------------
-22-
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 2004 2003
- ---------------------------------------------------------------
Deferred tax asset:
Tax credit carryforwards $ 1,050 $ 1,050
Operating loss carryforwards 5,089 5,900
Net pension costs 681 700
Bad debts 251 394
Other 703 570
Valuation allowance (68) (156)
----------------------
7,706 8,458
----------------------
Deferred tax liability:
Depreciation 10,979 11,840
Gain on purchase of the Company's
9% subordinated debentures 439 439
Other 532 444
----------------------
11,950 12,723
----------------------
Net deferred tax liability $ 4,244 $ 4,265
- ---------------------------------------------------------------
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 $12.9 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 and job credits, which
management estimates will more likely than not expire unused.
8. Accrued Liabilities
Accrued liabilities consist of the following:
In thousands 2004 2003
- --------------------------------------------------------------
Pension liability (see Note 12) $1,844 $1,908
Compensation and employee benefits 1,272 1,348
Interest payable 655 399
Taxes payable 656 294
Warranty obligations 260 308
Other 2,666 2,321
--------------------
$7,353 $6,578
- --------------------------------------------------------------
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 2004 2003 2002
- --------------------------------------------------------------------
Balance at beginning of year $308 $ 541 $ 310
Provisions - 29 594
Deductions (48) (262) (363)
------------------------
Balance at end of year $260 $ 308 $ 541
- --------------------------------------------------------------------
9. Long-Term Debt
Long-term debt consist of the following:
\
In thousands 2004 2003
- -------------------------------------------------------------------------
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
Term loan - bank secured, due in quarterly
installments through 2012 10,000 15,105
Real estate mortgages - secured, due in monthly
installments through 2024 17,078 16,525
Loans payable - CEBA, secured, due in monthly
installments through 2007 228 278
----------------------
58,540 63,142
Less portion due within one year 1,744 2,637
----------------------
Long-term debt $56,796 $60,505
- -------------------------------------------------------------------------
Payments of long-term debt due for the next five years are:
In thousands 2005 2006 2007 2008 2009
- ----------------------------------------------------------------
$1,744 $14,458 $2,090 $4,704 $2,258
- ----------------------------------------------------------------
The 7 1/2% Convertible Subordinated Notes (the "Old Notes") are due in 2006.
Interest is payable semiannually. The Old Notes are convertible into Common
Stock of the Company at a conversion price of $14.013 per share. The Old 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.
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 (the "New Notes") for each $1,000 principal amount
of its 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, which is payable semi-annually,
have a longer term, are convertible into Common Stock at a lower conversion
price of $9.00 per share until March 1, 2007, may be redeemed by the Company, in
whole or in part, at declining premiums beginning March 1, 2006 and are senior
to the Old Notes and the Company's 9 1/2% Subordinated Debentures (the
"Debentures") due 2012.
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 December 2004, the Company successfully completed an amendment of its
senior debt, which includes a term loan of $10.0 million, a non-revolving line
of credit of up to $6.2 million, and a revolving loan of up to $5.0 million at
variable interest rates ranging from LIBOR plus 2.25% to Prime plus 0.25% (4.80%
at December 31, 2004). The term loan, non-revolving line of credit, and
revolving loan mature on January 1, 2012, January 1, 2007, and January 1, 2008,
respectively. The non-revolving line of credit is convertible into a converted
term loan maturing January 1, 2012. At December 31, 2004, the entire line of
credit facility was available as none had been drawn. The 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 1.1 to 1.0, a loan-to-value ratio of not more than 50%, a
leverage ratio of 3.0 to 1.0, maintaining a tangible net worth of not less than
$20.5 million,
-23-
plus 50% of net income beginning December 31, 2004 and maintaining accounts with
an average monthly compensating balance of not less than $750,000. At December
31, 2004, the Company was in compliance with such financial covenants.
At December 31, 2004, the Company was not involved in any derivative
financial instruments.
The Company has mortgages on certain of its facilities at variable rates of
interest, which are payable in monthly installments, the last of which extends
to 2024. At December 31, 2004, such variable interest rates ranged from 4.06%
to 5.25%.
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 credits, 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 2004
and 2003 none was required to be repaid. At December 31, 2004, the non-forgiven
amount totaled $133,333 and is expected to be payable in even monthly
installments over two years at 6.0% interest, if not renegotiated.
During 2003, the Company incurred interest costs of $3.9 million. At
December 31, 2004, the fair value of the Notes and the Debentures was $30.7
million and $1.0 million, respectively. The fair value of the remaining
long-term debt approximates the carrying value.
10. Stockholders' Equity
During 2004, 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 2004 and
January 2005. 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 2.9 million and 2.2 million
at December 31, 2004 and 2003, respectively.
11. Engineering Development
Engineering development expense was $443,000, $469,000 and $496,000 for
2004, 2003, and 2002, respectively.
12. 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 and, accordingly, there is no service cost for the year ended
December 31, 2004.
For 2004 and 2003, 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, 2004.
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, 2004 and 2003, the Company's pension plan weighted average
asset allocations by asset category are as follows:
2004 2003
- ----------------------------------------------------------------
Guaranteed investment contracts 54.5% 55.8%
Equity and index funds 42.0 40.7
Bonds 2.3 2.5
Money market funds 1.2 1.0
----------------------
100.0% 100.0%
- ----------------------------------------------------------------
Bonds include $167,000 of the Company's 9 1/2% subordinated debentures for 2004
and 2003.
The funded status of the plan as of December 31, 2004 and 2003 is as
follows:
In thousands 2004 2003
- -----------------------------------------------------------------------------
Change in benefit obligation:
Benefit obligation at beginning of year $10,069 $ 9,476
Service cost - 509
Interest cost 609 593
Actuarial loss 446 613
Curtailment - (195)
Benefits paid (459) (927)
--------------------
Benefit obligation at end of year $10,665 $10,069
--------------------
Change in plan assets:
Fair value of plan assets at beginning of year $ 6,812 $ 5,684
Actual return on plan assets 503 605
Company contributions 524 1,450
Benefits paid (459) (927)
--------------------
Fair value of plan assets at end of year $ 7,380 $ 6,812
--------------------
Funded status:
Funded status (underfunded) $(3,285) $(3,257)
Unrecognized net actuarial loss 3,875 3,586
Unrecognized prior service cost 127 144
--------------------
Net amount $ 717 $ 473
--------------------
Amounts recognized in the balance sheet consist of:
Accrued benefit liability $(1,843) $(1,908)
Unrecognized prior service cost 127 144
Accumulated other comprehensive loss 2,433 2,237
--------------------
Net amount $ 717 $ 473
--------------------
Weighted average assumptions as of December 31:
Discount rate:
Components of cost 6.25% 6.75%
Benefit obligations 6.00% 6.25%
Expected return on plan assets 8.75% 8.75%
Rate of compensation increase 3.00% 3.00%
- -----------------------------------------------------------------------------
-24-
The accumulated benefit obligation at December 31, 2004 and 2003 was $9.2
million and $8.7 million, respectively. The Company estimates that a minimum of
approximately $56,000 in contributions will be made in 2005.
The following table presents the components of the net periodic pension
cost for the three years ended December 31, 2004:
In thousands 2004 2003 2002
- -------------------------------------------------------------------------
Service cost $ - $ 509 $ 556
Interest cost 609 593 602
Expected return on plan assets (591) (537) (547)
Amortization of prior service cost 17 19 18
Amortization of net actuarial loss 245 221 126
Curtailment - 62 -
---------------------------
Net periodic pension cost - funded plan $ 280 $ 867 $ 755
- -------------------------------------------------------------------------
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.
The 2003 payment was the final amount due under such agreement.
The Company does not offer any post-retirement benefits other than the
pension and the supplemental retirement benefits described herein.
13. 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. Under the Non-Statutory Stock Option Agreement, 10,000
shares of Common Stock were authorized and 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, 2002 184,859 112,059 72,800 $ 8.75
Terminated (21,720) (57,420) 35,700 9.86
Granted - 29,500 (29,500) 5.48
---------------------------------
Balance December 31, 2002 163,139 84,139 79,000 6.85
Terminated (2,400) (9,600) 7,200 7.81
Granted - 5,000 (5,000) 5.16
---------------------------------
Balance December 31, 2003 160,739 79,539 81,200 6.62
Terminated (4,500) (5,500) 1,000 10.29
Granted - 7,000 (7,000) 6.81
---------------------------------
Balance December 31, 2004 156,239 81,039 75,200 6.39
- ----------------------------------------------------------------------------
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, 2004, under the 1995 Plan, options
for 56,039 shares with exercise prices ranging from $5.40 to $15.1875 per share
were outstanding, 51,039 of which were exercisable. During 2004, options for
5,000 shares were granted with an exercise price of $7.00 per share, no options
were exercised, and no options expired. 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.
At December 31, 2004, under the 1992 Plan, no options were outstanding, all
remaining 4,500 shares expired in 2004, none of which were exercised. 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.
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, 2004, options for 15,000
shares with exercise prices ranging from $4.025 to $8.00 per share were
outstanding, 13,000 of which were exercisable. During 2004, options for 2,000
shares were granted with an exercise price of $6.35 per share, no options were
exercised, and options for 1,000 shares expired. 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.
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, 2004, the options for 10,000 shares with an exercise
price of $4.025 were outstanding and exercisable. During 2004, 2003 and 2002,
no options were exercised and no options expired.
The following tables summarize information about stock options outstanding at
December 31, 2004:
Weighted
Average Weighted
Range of Number Remaining Average
Exercise Prices Outstanding Contractual Life Exercise Price
- ---------------------------------------------------------------------------
$ 4.03 - $ 6.15 47,500 6.4 $ 5.05
6.16 - 7.00 8,000 7.7 6.81
7.01 - 8.13 11,739 .6 8.10
8.14 - 9.00 12,500 3.7 9.00
9.01 - 11.44 1,000 2.2 11.44
11.45 - 15.19 300 2.8 15.19
------
81,039 5.2 6.39
- ---------------------------------------------------------------------------
Weighted
Range of Number Average
Exercise Prices Exercisable Exercise Price
- ---------------------------------------------------------------------------
$ 4.03 - $ 6.15 47,500 $ 5.05
6.16 - 7.00 1,000 6.78
7.01 - 8.13 11,739 8.10
8.14 - 9.00 12,500 9.00
9.01 - 11.44 1,000 11.44
11.45 - 15.19 300 15.19
------
74,039 6.35
- ---------------------------------------------------------------------------
-25-
The estimated fair value of options granted during 2004, 2003 and 2002 was
$3.26, $2.18 and $2.71 per share, respectively. The fair value of options
granted under the Company's stock option plans during 2004, 2003 and 2002 was
estimated on dates of grant using the binomial options-pricing model with the
following weighted average assumptions used:
2004 2003 2002
- -------------------------------------------------------------------------
Dividend yield 2.04% 2.50% 2.51%
Expected volatility 44.00% 46.00% 47.00%
Risk free interest rate 4.92% 4.94% 4.78%
Expected lives of option grants (years) 4.0 4.0 4.0
- -------------------------------------------------------------------------
14. 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
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 26,039 in 2004 and 34,539 in 2003.
The following table sets forth the computation of basic and diluted earnings per
share:
In thousands, except per share data 2004 2003 2002
- ----------------------------------------------------------------------------------------
Numerator:
Income from continuing operations $ 412 $ 365 $ 34
Income from discontinued operation 127 689 394
------ ------ ------
Net income 539 1,054 428
Add interest expense on 7 1/2% convertible subordinated
notes, and 8 1/4% limited convertible senior
subordinated notes, net of tax 1,757 1,356 1,640
------ ------ ------
Net income, adjusted $2,296 $2,410 $2,068
------ ------ ------
Denominator:
Basic - weighted average common shares outstanding 1,261 1,261 1,261
Dilutive effect of:
Convertible notes 2,658 2,153 2,153
Stock options 13 7 4
------ ------ ------
Diluted shares outstanding 3,932 3,421 3,418
------ ------ ------
Earnings per share continuing operations:
Basic $ 0.33 $ 0.29 $ 0.03
Diluted $ 0.33 $ 0.29 $ 0.03
Earnings per share discontinued operation:
Basic $ 0.10 $ 0.55 $ 0.31
Diluted $ 0.03 $ 0.20 $ 0.12
Total earnings per share:
Basic $0.43 $0.84 $0.34
Diluted $0.43 $0.70 $0.34
- ----------------------------------------------------------------------------------------
15. 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 private company owned by the children of a certain board member
who is a former officer of the Company and performs the consulting services on
behalf of such company, which expires December 2011. At December 31, 2004, the
aggregate commitment for future salaries and consulting fees, excluding bonuses,
was approximately $3.6 million.
During 1996, the Company received a $350,000 grant from the State of
Connecticut Department of Economic Development, which is classified as deferred
credits, 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 was 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. 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.
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, 2004 are as
follows: $748,500 - 2005, $650,200 - 2006, $472,200 - 2007, $360,000 - 2008,
$263,500 - 2009, $1,186,400 - thereafter. Rent expense was $737,000, $528,000
and $643,000 for the years ended December 31, 2004, 2003 and 2002, respectively.
Guarantees: The Company has guaranteed $1.1 million (60%) of a $1.9 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 $402,800 if, upon default, the lessor cannot
recover the unamortized balance.
16. Business Segment Data
Operating segments are based on the Company's business components about
which separate financial information is available, and are 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. 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.
-26-
Information about the Company's operations in its three business segments
for the three years ended December 31, 2004 is as follows:
In thousands 2004 2003 2002
- -------------------------------------------------------------------------------------------------
Revenues:
Indoor display $ 17,356 $ 18,027 $20,144
Outdoor display 21,857 24,245 38,591
Entertainment/real estate 13,366 13,750 14,471
------------------------------------------
Total revenues $ 52,579 $ 56,022 $73,206
------------------------------------------
Operating income:
Indoor display $ 2,433 $ 2,976 $ 5,319
Outdoor display 386 (263) 803
Entertainment/real estate 3,123 3,587 3,474
------------------------------------------
Total operating income 5,942 6,300 9,596
Other income 2,618 4,161 519
Corporate general and administrative expenses (3,990) (5,565) (5,409)
Interest expense - net (3,731) (3,873) (4,460)
Income tax provision (427) (658) (212)
------------------------------------------
Income from continuing operations 412 365 34
Income from discontinued operation, net of taxes 127 689 394
------------------------------------------
Net income $ 539 $ 1,054 $ 428
------------------------------------------
Assets:
Indoor display $ 34,041 $ 35,963
Outdoor display 25,769 25,068
Entertainment/real estate 28,246 26,283
------------------------
Total identifiable assets 88,056 87,314
General corporate 13,058 12,778
Assets of discontinued operation - 1,930
------------------------
Total assets $101,114 $102,022
------------------------
Depreciation and amortization:
Indoor display $ 5,970 $ 5,987 $ 5,846
Outdoor display 2,463 2,484 2,911
Entertainment/real estate 955 933 924
General corporate 464 485 472
------------------------------------------
Total depreciation and amortization $ 9,852 $ 9,889 $10,153
------------------------------------------
Capital expenditures:
Indoor display $ 4,082 $ 3,823 $ 4,042
Outdoor display 1,476 723 1,678
Entertainment/real estate 2,703 724 337
General corporate 62 58 102
------------------------------------------
Total capital expenditures $ 8,323 $ 5,328 $ 6,159
- -------------------------------------------------------------------------------------------------
17. 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
years ended December 31, 2004, and balance sheet summary information as of
December 31, 2004 and 2003.
In thousands 2004 2003 2002
- ---------------------------------------------------------------------------
Revenues $3,548 $3,996 $4,116
Gross profit 1,004 1,358 1,447
Other income (expense) (74) 138 296
Net income 794 1,384 1,602
Company's share of partnership net income 396 693 801
--------------------------
Current assets 606 341
Noncurrent assets 3,897 3,937
----------------
Total assets 4,503 4,278
----------------
Current liabilities 608 653
Noncurrent liabilities 1,635 1,859
----------------
Total liabilities 2,243 2,512
----------------
Company's equity in partnership net assets $1,133 $ 888
- ---------------------------------------------------------------------------
The Company's equity in partnership net assets is reflected in other assets in
the Consolidated Balance Sheets.
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Trans-Lux Corporation
Norwalk, CT
We have audited the accompanying consolidated balance sheets of Trans-Lux
Corporation and subsidiaries (the "Company") as of December 31, 2004 and 2003,
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, 2004. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on the
financial statements based on our audits. We did not audit the 2002 financial
statements of MetroLux Theatres, the Company's joint venture investment, which
is accounted for by use of the equity method. The Company's income from joint
venture of $801,000 for the year ended December 31, 2002 is included in the
accompanying 2002 financial statements. The 2002 financial statements of
MetroLux Theatres were audited by other auditors whose report has been furnished
to us, and our opinion, insofar as it relates to the amount included for such
company in the 2002 financial statements, is based solely on the report of such
other auditors.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audit included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, 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, based on our audits and the report of the other auditor,
such consolidated financial statements present fairly, in all material respects,
the financial position of Trans-Lux Corporation and subsidiaries at December 31,
2004 and 2003, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 2004, in conformity with
accounting principles generally accepted in the United States of America.
/s/ Deloitte & Touche LLP
Stamford, CT
March 29, 2005
-27-
Guillen, Suede and Company
A Professional Corporation of Certified Public Accountants
21031 Ventura Boulevard, Suite 1105, Woodland Hills, CA 91364
TEL: (818) 348-4800 FAX: (818) 348-6326
Visit us on the web at www.gsandcocpa.com
Board of Directors
MetroLux Theatres
Norwalk, Connecticut
Independent Auditors' Report
We have audited the accompanying balance sheet of MetroLux Theatres as of
December 31, 2004, and the related statements of income, partners' equity, and
cash flows for the year 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 audit. The financial
statements of MetroLux Theatres as of December 31, 2003, were audited by other
auditors whose report dated February 26, 2004, expressed an unqualified opinion
on those statements.
We conducted our audit 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 audit provides 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, 2004, and the results of its operations and its cash flows for the
year then ended in conformity with accounting principles generally accepted in
the United States of America.
/s/ Guillen, Suede and Company
- ------------------------------
February 25, 2005
-28-
METROLUX THEATRES
BALANCE SHEETS
DECEMBER 31, 2004 AND 2003
(Dollars in thousands)
ASSETS
2004 2003
------ ------
CURRENT ASSETS:
Cash $ 541 $ 299
Concession supplies 13 13
Prepaid expenses and other current assets 52 15
Due from Partners - 14
------ ------
Total current assets 606 341
PROPERTY AND EQUIPMENT, net 3,882 3,917
INTANGIBLE ASSETS, NET 15 20
------ ------
$4,503 $4,278
====== ======
LIABILITIES AND PARTNERS' EQUITY
CURRENT LIABILITIES:
Film rentals payable $ 127 $ 159
Accounts payable and accrued expenses 165 171
Current portion of long-term debt 225 238
Deferred revenues 82 85
Due to Partners 9 -
------ ------
Total current liabilities 608 653
------ ------
LONG-TERM DEBT, net of current portion 1,635 1,859
------ ------
Total liabilities 2,243 2,512
COMMITMENTS - -
PARTNERS' EQUITY 2,260 1,766
------ ------
$4,503 $4,278
====== ======
The accompanying notes are an integral part of the financial statements.
-29-
METROLUX THEATRES
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
(Dollars in thousands)
2004 2003
------ ------
OPERATING REVENUES:
Theatre operations
Admissions $2,401 $2,765
Concessions 1,077 1,162
Other operating revenues 70 69
------ ------
Total operating revenues 3,548 3,996
------ ------
OPERATING EXPENSES:
Theatre operations
Film costs and advertising 1,389 1,566
Cost of concessions 209 183
Other operating expenses 946 889
Administrative expenses 136 112
------ ------
Total operating expenses 2,680 2,750
------ ------
INCOME FROM OPERATIONS 868 1,246
------ ------
OTHER (EXPENSE) INCOME:
Interest income 1 1
Gain on sale of property and equipment - 248
Interest expense (75) (88)
Write off of construction in progress - (23)
------ ------
Net other (expense) income (74) 138
------ ------
NET INCOME $ 794 $1,384
====== ======
The accompanying notes are an integral part of the financial statements.
-30-
METROLUX THEATRES
STATEMENTS OF PARTNERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
(Dollars in thousands)
Trans-Lux
Metro Colorado Loveland
Corporation Corporation Total
-------------- ----------- -------
PARTNERS' EQUITY, January 1, 2003 $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
EQUITY CONTRIBUTION FROM
LEASE GUARANTEE 17 17 34
PARTNERSHIP DISTRIBUTIONS (167) (167) (334)
NET INCOME 397 397 794
------ ------ -------
PARTNERS' EQUITY, December 31,
2004 $1,130 $1,130 $ 2,260
====== ====== =======
The accompanying notes are an integral part of the financial statements.
-31-
METROLUX THEATRES
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
(Dollars in thousands)
2004 2003
------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 794 $ 1,384
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 164 155
Gain on sale of property and equipment - (248)
Write off of construction in progress - 23
Changes in assets and liabilities:
Concession supplies - (4)
Prepaid expenses and other current assets (3) 2
Film rentals payable (32) (17)
Accounts payable and accrued expenses (6) (44)
Deferred revenues (3) (2)
Due from Partners 23 (10)
----- ------
Net cash provided by operating activities 937 1,239
----- ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net proceeds from sale of property and equipment - 327
Acquisition of property and equipment (124) (64)
----- -------
Net cash (used in) provided by investing activities (124) 263
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payment on long-term debt (237) (223)
Partnership distributions (334) (1,800)
----- -------
Net cash (used in) financing activities (571) (2,023)
NET INCREASE (DECREASE) IN CASH 242 (521)
CASH, beginning of year 299 820
----- -------
CASH, end of year $ 541 $ 299
----- -------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ 75 $ 89
===== =======
NON-CASH OPERATING AND FINANCING ACTIVITIES:
During the year ended December 31, 2004, the Company recorded prepaid rent through an increase in
equity in the amount of $34 (See Note 7).
The accompanying notes are an integral part of the financial statements.
-32-
METROLUX THEATRES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
Nature of Operations
--------------------
MetroLux Theatres (the "Company") is a general partnership between
Metro Colorado Corporation, a California corporation ("Metro
Colorado"), and Trans-Lux Loveland Corporation, a Colorado corporation
("Trans-Lux"). 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, or provided for, by 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.
-33-
METROLUX THEATRES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
-------------------------------------------------------
Concentration 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, 2004 and 2003 in excess of the FDIC
limit amounted to approximately $519 and $162, respectively.
Services from Partners
-----------------------
The Partners provide management and administrative services to the
Company. Trans-Lux provides oversight over the Company's movie theatre
operations and Metro Colorado provides accounting, payroll, human
resource and other management and administrative services. The
services provided by the Partners are deemed to be of equal value and
are not recognized on the financial statements of the Company.
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.
NOTE 2 - DUE FROM PARTNERS (Dollars in thousands)
----------------------------------------
As of December 31, 2004 and 2003, the net advances due (to) from the
general partners were approximately ($9) and $14, respectively. These
advances are unsecured, non-interest bearing and are expected to be
repaid within the next year.
During the year ended December 31, 2004, the Company received net
advances from the general partners of $23. During the year ended
December 31, 2003, the Company made net advances to general partners of
approximately $10.
-34-
METROLUX THEATRES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 3 - PROPERTY AND EQUIPMENT
----------------------
Property and equipment consist of the following for the years ended December 31:
2004 2003
------ ------
Buildings $4,027 $4,027
Improvements 66 66
Theatre equipment 231 231
Land 519 519
Construction in progress 124 -
Software 9 9
------ ------
4,976 4,852
Less: accumulated depreciation and amortization 1,094 935
------ ------
$3,882 $3,917
====== ======
Depreciation and amortization expense for the years ended December 31, 2004 and 2003 was approximately
$159 and $150, respectively.
NOTE 4 - INTANGIBLE ASSETS (Dollars in thousands)
----------------------------------------
Intangible assets consist of the following for the years ended December 31:
2004 2003
----- -----
Loan fees $29 $29
Less: accumulated amortization 14 9
--- ---
$15 $20
=== ===
Amortization expense related to intangible assets amounted to $5 for each of the years
ended December 31, 2004 and 2003.
-35-
METROLUX THEATRES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 5 - LONG-TERM DEBT (Dollars in thousands)
Long-term debt consists of the following for the years ended December 31:
2004 2003
------ ------
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 0.30% (4.95% and 3.70% at December 31,
2004 and 2003, respectively). 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 $890. The loan is
collateralized by the assets of the Company
and 60% of the debt is guaranteed by each of
the Partners.
$1,860 $2,097
Less: current portion 225 238
------ ------
$1,635 $1,859
====== ======
Maturities of long-term debt outstanding at December 31, 2004 are as follows:
Year Ending
December 31,
------------
2005 $ 225
2006 236
2007 248
2008 261
2009 890
------
$1,860
======
-36-
METROLUX THEATRES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 6 - DEFERRED REVENUES (Dollars in thousands)
----------------------------------------
Deferred revenues at December 31, 2004 and 2003 consist of gift certificates and group
activity passes that are used for concession goods and admissions at theatres,
respectively. The breakdowns is as follows as of December 31:
2004 2003
---- ----
Gift certificates $75 $75
Group activity passes 7 10
--- ---
$82 $85
=== ===
NOTE 7 - COMMITMENTS (Dollars in thousands)
----------------------------------
In August 2004, the Company signed a lease for a space for a new
multi-screen movie theatre. The theatre is under construction and is
expected to open in October 2005. The initial lease term is for 15
years and may be extended for a total of three extension periods of 5
years each. The lease requires minimum annual rent payments ranging
from $500 to $600 and contains a provision for an additional rent equal
to 10% of gross annual revenue if the revenues exceed certain
thresholds. The lease is guaranteed by Metropolitan Theatres
Corporation ("MTC"), a parent of Metro Colorado Corporation. The
future minimum rent payments are as follows:
Year Ending
December 31,
------------
2005 $ 83
2006 500
2007 500
2008 500
2009 500
2010-2014 2,742
2015-2019 2,992
Thereafter 100
-------
$7,917
=======
The Company has a month to month sublease agreement with an unrelated party for $2 a month.
For the years ending December 31, 2004 and 2003, the Company recognized $18 of sublease
income for each of the years.
-37-
METROLUX THEATRES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 7 - COMMITMENTS (Dollars in thousands) - CONTINUED
----------------------------------------------
In connection with the guarantee by MTC mentioned above, Trans-Lux paid
MTC $17 in consideration for the guarantee of the new lease. In
accordance with FASB Interpretation No. 45 - "Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others", the Company recorded the payment
by Trans-Lux, and the respective value of the guarantee for Metro
Colorado, as an equity contribution by the Partners, and an increase in
prepaid rent in the accompanying financial statements.
NOTE 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 employee's 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 the years ended
December 31, 2004 and 2003 were $3 and $2, respectively.
NOTE 9 - SALE OF ASSETS (Dollars in thousands)
-------------------------------------
During the year ended December 31, 2003, the Company sold land and
received net proceeds of $327. The sale resulted in a gain of $248
which was recorded in the year ended December 31, 2003.
-38-
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.
ITEM 9B. OTHER INFORMATION
During the last quarter of the period covered by this report on
Form 10-K, the registrant filed the following:
(a) Form 8-K dated November 10, 2004, pertaining to the financial
performance for the third quarter of 2004 set forth in
a press release.
(b) Form 8-K dated December 23, 2004, pertaining to the Company
entering into an amended and restated commercial loan and security
agreement.
-39-
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 56
Thomas Brandt Executive Vice President and Co-Chief 41
Executive Officer
Matthew Brandt Executive Vice President 41
Al L. Miller Executive Vice President 59
Angela D. Toppi Executive Vice President, Treasurer, 49
Secretary and Chief Financial Officer
Karl P. Hirschauer Senior Vice President 59
John Long Senior Vice President 58
Thomas F. Mahoney Senior Vice President 57
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.
-40-
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, 2004 upon exercise exercise price future issuance
- --------------------------------------------------------------------------------------------
Equity compensation plans approved
by stockholders 71,039 $6.72 75,200
Equity compensation plans not approved
by stockholders 10,000 $4.03 -
------ ------
Total 81,039 $6.39 75,200
------ ------
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 "Ratification of the selection of Independent
Registered Public Accounting Firm" in the Company's Proxy Statement.
-41-
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following documents are filed as part of this report:
(1) Consolidated Financial Statements of Trans-Lux Corporation:
Consolidated Statements of Operations for the Years Ended December
31, 2004, 2003 and 2002
Consolidated Balance Sheets as of December 31, 2004 and 2003
Consolidated Statements of Cash Flows for the Years Ended December
31, 2004, 2003 and 2002
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 2004, 2003 and 2002
Consolidated Statements of Comprehensive Income for the Years Ended
December 31, 2004, 2003 and 2002
Notes to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Financial statements of MetroLux Theatres, a 50% owned entity,
accounted for by the equity method:
Independent Auditors' Report
Balance Sheets as of December 31, 2004 and 2003
Statements of Income for the Years Ended December 31, 2004 and 2003
Statements of Partners' Equity for the Years Ended December 31,
2004 and 2003
Statements of Cash Flows for the Years Ended December 31, 2004 and
2003
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).
(c) Indenture dated as of March 1, 2004 (form of said indenture is
incorporated by reference to Exhibit 12(d) of Schedule TO dated
March 2, 2004).
10.1 Form of Indemnity Agreement -- Directors (form of said
agreement is incorporated by reference to Exhibit 10.1 of
Registration No. 333-15481).
-42-
10.2 Form of Indemnity Agreement -- Officers (form of said agreement
is incorporated by reference to Exhibit 10.2 of Registration
No. 333-15481).
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 (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 (incorporated by reference to Exhibit
10.3 of Form 10-K for the year ended December 31, 2003).
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) 1995 Stock Option Plan, as amended (incorporated by
reference to Proxy Statement dated April 7, 2000).
10.5 Amended and Restated Commercial Loan and Security Agreement
with People's Bank dated December 23, 2004 (incorporated by
reference to Exhibit 10(a) of Form 8-K filed December 28,
2004).
10.6 Consulting Agreement with Moving Images, LLC dated as of
December 1, 2004 and termination letter with Richard Brandt,
filed herewith.
10.7 Employment Agreement with Michael R. Mulcahy dated as of April
1, 2005, filed herewith.
10.8 Employment Agreement with Thomas Brandt dated as of April 1,
2005, filed herewith.
10.9 Employment Agreement with Angela D. Toppi dated as of April 1,
2005, filed herewith.
10.10 Employment Agreement with Matthew Brandt dated as of April 1,
2005, filed herewith.
10.11 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).
10.12 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).
10.13 Employment Agreement with Karl P. Hirschauer dated as of
April 1, 2003 (incorporated by reference to Exhibit 10.12 of
Form 10-K for the year ended December 31, 2003)
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.
-43-
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.
-44-
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 31, 2005
-45-
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 31, 2005
- -----------------------------------------
Gene F. Jankowski, Chairman of the Board
/s/ Victor Liss March 31, 2005
- -----------------------------------------
Victor Liss, Vice Chairman of the Board
/s/ Steven Baruch March 31, 2005
- -----------------------------------------
Steven Baruch, Director
/s/ Matthew Brandt March 31, 2005
- -----------------------------------------
Matthew Brandt, Executive Vice President
and Director
/s/ Richard Brandt March 31, 2005
- -----------------------------------------
Richard Brandt, Director
/s/ Thomas Brandt March 31, 2005
- -----------------------------------------
Thomas Brandt, Executive Vice President
and Co-Chief Executive Officer and Director
/s/ Howard M. Brenner March 31, 2005
- -----------------------------------------
Howard M. Brenner, Director
/s/ Jean Firstenberg March 31, 2005
- -----------------------------------------
Jean Firstenberg, Director
/s/ Robert B. Greenes March 31, 2005
- -----------------------------------------
Robert Greenes, Director
/s/ Howard S. Modlin March 31, 2005
- -----------------------------------------
Howard S. Modlin, Director
/s/ Michael R. Mulcahy March 31, 2005
- -----------------------------------------
Michael R. Mulcahy, President
and Co-Chief Executive Officer and Director
-46-