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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the fiscal year ended December 31, 1996
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Commission file number 1-2257
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TRANS-LUX CORPORATION
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(Exact name of Registrant as specified in its charter)
Delaware 13-1394750
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
110 Richards Avenue, Norwalk, CT 06856-5090
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(203) 853-4321
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(Address, zip code, and telephone number, including
area code, of Registrant's principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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Common Stock, $1.00 par value American Stock Exchange
9% Convertible Subordinated
Debentures due 2005 American Stock Exchange
7 1/2% Convertible Subordinated
Notes due 2006 American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K.[ ]
CONTINUED
TRANS-LUX CORPORATION
1996 10-K Cover Page Continued
The aggregate market value of the Registrant's Common and Class B Stock (based
upon the closing price on the American Stock Exchange) held by non-affiliates
on March 25, 1997 (based on the last sale price on the American Stock Exchange
as of such date) was $12,792,493. (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.)
As of the close of business on March 25, 1997, there were outstanding, 984,140
shares of the Registrant's Common Stock and 298,640 shares of its Class B
Stock.
DOCUMENTS INCORPORATED BY REFERENCE:
The Registrant's definitive Proxy Statement for the Annual Meeting of
Stockholders to be held May 22, 1997 (the "Proxy Statement") is incorporated
by reference in Part III, Items 10-13 of this Form 10-K to the extent stated
herein. Except with respect to information specifically incorporated by
reference in this Form 10-K, the Proxy Statement is not deemed to be filed as
a part hereof.
TRANS-LUX CORPORATION
1996 Form 10-K Annual Report
Table of Contents
PART I
Page
ITEM 1. Business 1
ITEM 2. Properties 6
ITEM 3. Legal Proceedings 7
ITEM 4. Submission of Matters to a Vote of Security Holders 7
PART II
ITEM 5. Market for the Registrant's Common Equity and Related Stockholder
Matters 7
ITEM 6. Selected Financial Data 8
ITEM 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations 10
ITEM 8. Financial Statements and Supplementary Data 12
ITEM 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 24
PART III
ITEM 10. Directors and Executive Officers of the Registrant 24
ITEM 11. Executive Compensation 25
ITEM 12. Security Ownership of Certain Beneficial Owners and Management 25
ITEM 13. Certain Relationships and Related Transactions 25
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 25
Signatures 29
PART I
ITEM 1. BUSINESS
Unless the context otherwise requires, the term "Company" as used herein
means Trans-Lux Corporation and its subsidiaries. The Company is a
manufacturer, distributor, and servicer of large-scale, real-time electronic
information displays for both indoor and outdoor use. These display systems
utilize LED and light bulb technologies to display real-time information
entered by the user or via a third party information supplier. The Company
provides high quality, reliable display products configured to suit its
customers' needs, and offers extensive on-site service and maintenance
coverage. The Company's display products include data, graphics, and picture
displays for stock and commodity exchanges, financial institutions, airports,
casinos, sports venues, convention centers, corporate, theatres, retail and
numerous other applications. In addition to the core display business, the
Company also operates a chain of motion picture theatres in the southwestern
United States and real estate used for both corporate and income-producing
purposes.
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, 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 Canada which performs on-site
service and maintenance for its customers.
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 markets the Company
serves. This approach ensures maximum product flexibility, reliability, ease
of service and minimum spare parts requirements.
The Company's electronic information display market can be broken down into
two distinct markets: the indoor market and the outdoor market. Electronic
information displays are used by financial institutions, including brokerage
firms, banks, saving and loans, insurance companies and mutual fund companies;
by retail outlets; by casinos, race tracks and other gaming establishments; by
outdoor advertising companies; in airports, train stations and bus terminals,
and other transportation facilities; on highways and major thoroughfares; and
by movie theatres, and in various other applications.
The Indoor Market: The indoor electronic display market is currently
dominated by three categories of users: financial, gaming and corporate. The
financial market segment, including trading floors, exchanges, brokerage firms
and mutual fund companies, has long been a user of electronic information
displays due to the need for the real-time dissemination of data. The major
stock and commodity exchanges depend on reliable information displays to post
stock and commodity prices, trading volumes, interest rates and other
financial information. Brokerage firms have increasingly installed electronic
ticker displays for both customers and brokers, and in the last few years have
installed larger displays to post major headline news events in their
brokerage offices to enable their sales force to stay up-to-date on the events
affecting general market conditions and specific stocks. The changing
regulatory environment in the financial marketplace has also resulted in the
influx of banks and other financial institutions into the brokerage business
and has resulted in these institutions increasingly using information displays
to advertise product offerings to consumers.
The proliferation of gaming establishments including casinos, Indian gaming
establishments, and off-track betting parlors, has resulted in the rapid
expansion of electronic information displays in the gaming industry. These
establishments generally use large information displays to post odds for race
and sporting events and to display timely information such as results, track
conditions, jockey weights and scratches. Casinos also use electronic
displays throughout their facilities to advertise to and attract gaming
patrons. This includes using electronic displays in conjunction with slot
machines to attract customer attention to potential payoffs and thus increase
customer play.
The corporate market 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,
inbound/outbound telemarketing centers and for employee communications.
Electronic displays have found acceptance in applications for the healthcare
industry such as out-patient pharmacies, military hospitals and HMOs which
desire 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 to promote concession sales.
Information displays are consistently used in airports, bus terminals and
train stations to post arrival and departure information and gate and baggage
claim information, which helps to guide passengers through these facilities.
Equipment orders generally have a lead time of 30 to 90 days depending on the
type of equipment ordered and material availability.
The Outdoor Market: The outdoor electronic display market is even more
diverse than the indoor market with displays being used by banks and other
financial institutions, gas stations, highway departments, sports stadiums and
outdoor advertisers attempting to capture the attention of passers-by. Over
the past four years, the Company has utilized its strong position in the
indoor market combined with several acquisitions to establish a growing
presence in the outdoor display market. Trans-Lux outdoor displays are
installed in amusement parks, entertainment facilities, professional and
college sports stadiums, military installations, bridges and other roadway
installations, automobile dealerships, banks and other financial institutions.
The equipment generally has a lead time of 30 to 60 days depending on the type
of equipment ordered and material availability.
The Company has made three acquisitions over the past four years in order
to establish and enhance its presence in the outdoor market. In August 1992,
after first managing the portfolio for approximately 15 months, the Company
acquired a portfolio of outdoor electric and electronic equipment displays
from American Electronic Displays, L.P. In August 1993, the Company expanded
its presence in the outdoor display market by acquiring a portfolio of outdoor
lease, maintenance and other contracts from Indicator Maintenance Corporation.
In January 1995, the Company acquired all of the capital stock of Integrated
Systems Engineering, Inc. ("ISE"), a manufacturer of outdoor electronic
displays.
International: The Company feels it is well positioned for expansion as
the globalization of the world economy continues. It is now active in Europe,
Latin America, South America, Australia and Asia. International installations
are in geographic locations which include South America, Europe and Asia. The
Company uses a combination of internal sales people and independent
distributors to market its products in Europe, South America, Asia and
Australia. The Company currently has manufacturing operations, service
centers and sales offices in New South Wales, Australia and Ontario, Canada.
The Company has existing relationships with approximately 30 independent
distributors worldwide covering Europe, South America, Asia and Australia.
Foreign revenues were less than 10% of consolidated revenues in 1996 and 1995
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and were approximately 15% in 1994.
Applications for the display products in the international marketplace
currently include stock and commodity exchanges and trading rooms, OTB
facilities, private clubs, banks, transportation facilities and casinos. The
equipment generally has lead times of 30 to 90 days depending on the type of
equipment ordered and material availability.
Sales Order Backlog (not including leases): The amount of sales order
backlog was approximately $4.2 million and $5.9 million at December 31, 1996
and 1995, respectively. The December 31, 1996 backlog will be recognized
throughout 1997. These amounts do not include leases or renewals of leases
presently in- house.
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. As such, the Company
continually examines and tests new display technologies and develops
enhancements to its existing products in order to meet the current and
anticipated future needs of its customers. Product enhancement work continues
in both the indoor and outdoor areas.
Development of new indoor products includes progressive meter and
controller systems for use in the gaming industry; smaller character displays
to post more information in a comparably sized area; higher speed processors
for faster data access and improved update speed; integration of blue LEDs to
provide full color text and graphics displays; a new graphics interface to
display more data in higher resolutions; and tricolor news displays providing
the ability to color-code and identify "hot" stories.
Development of new outdoor products includes the Spectra Lens System(TM)
which enables the Company to capitalize on full color, full matrix indoor
applications, particularly in the sports market and the 16 shades of gray
Spectra Lens System. This product will be targeted to customers who want an
animated display at a lower cost than full color. The Company is also
currently developing full color LED displays which will have application
particularly in the gaming market where entertainment value is important to
marketing properties and in the sports market where enhancing the presentation
of live action is of central importance.
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. Future technologies
under consideration are trending toward full color, live video, and digital
input. The Company is currently focused on certain technologies which
incorporate these features and which are expected to provide a choice of
products for the custom applications the Company's customers demand.
The Company maintains a staff of 34 people who are responsible for product
development and support in indoor and outdoor markets. The engineering and
product enhancement and development efforts are supplemented by outside
independent engineering consulting organizations where required. Engineering,
product enhancement and development amounted to $2,439,000, $2,139,000 and
$1,497,000 in 1996, 1995 and 1994, respectively.
-3-
MARKETING AND DISTRIBUTION
The Company markets its indoor and outdoor electronic information display
products primarily through its direct sales force and telemarketers which as
of December 31, 1996 consisted of 34 direct sales representatives and 8
telemarketers. The Company divides its domestic sales and marketing efforts
into two categories, renewal of existing product leases and product upgrades,
and the sale or lease of display products to new customers. In the indoor
market for leased equipment, the Company attempts to maintain an ongoing
relationship with its customers to discuss lease renewals. In the outdoor
market, sales personnel contact existing and potential customers to discuss
the customer's usage or requirements for display equipment. The Company also
uses primarily telemarketing personnel to maintain communication with its
installed base of lease equipment customers contacting them prior to the
expiration of existing leases in order to discuss lease renewal.
The Company uses a number of different techniques in order to attract new
customers, including direct marketing efforts by its sales force to known or
potential users of information displays, advertising in industry publications,
and placing exhibits at approximately 20 domestic and international trade
shows annually. In the outdoor market, the Company supplements these efforts
by using a network of independent distributors who market and sell the
products of several manufacturers.
Internationally, the Company uses a combination of internal sales people
and independent distributors to market its products in Europe, South America,
Asia and Australia. The Company currently has manufacturing operations,
service centers and sales offices in New South Wales, Australia and Ontario,
Canada. The Company has existing relationships with approximately 30
independent distributors worldwide covering Europe, South America, Asia and
Australia. Historically, international sales have represented less than 15%
of the Company's revenues but the Company believes that it is positioned to
expand its international sales.
Headquartered in Norwalk, Connecticut, the Company has major sales and
service offices in New York, Chicago, Las Vegas, Norcross, Georgia, Torrance,
California, Ontario, Canada, Logan, Utah and New South Wales, Australia, as
well as 60 satellite offices in the United States and Canada.
The Company's equipment is both leased and sold. A majority of the
electronic information display business revenues are from equipment rentals
with current lease terms ranging from 30 days to ten years.
The Company's revenues in 1996, 1995 and 1994 did not include any single
customer that accounted for more than 10% of revenues.
MANUFACTURING AND OPERATIONS
The Company's production facilities are located in Norwalk, Connecticut,
Logan, Utah, Ontario, Canada and New South Wales, Australia and consist
principally of the manufacturing, assembly and testing of display units, and
related components. The Company performs most subassembly and all final
assembly of its products. Equipment orders generally have a lead time of 30
to 90 days depending on the size and type of the equipment, and material
availability.
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,
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plastic molded parts, cable assemblies, and surface mount and through hole
designed assemblies. The Company produces more than 100,000 board assemblies
annually which are tested with the latest state of the art automated test
equipment. 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 versatility in mind, enabling the Company
to customize its displays to meet different application with a minimum of lead
time. The Company's automated planning and purchasing department further
enables it to secure raw materials in a timely fashion without maintaining
excessive inventories. The Company also partners with large distributors via
volume purchase agreements, giving it the benefit of a third party stocking
its components ready for delivery on demand. 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 a material amount of purchases directly from foreign
suppliers, but certain components are manufactured by foreign sources.
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 success. The Company provides turnkey installation and support for
the products it leases or sells in the United States, Canada and Australia as
part of the installation. 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 service
to customers who lease equipment and offers installation and service to those
who purchase equipment. In the markets the Company's distributors cover, the
distributors offer support for the products they sell.
Personnel based in regional and satellite service locations throughout the
United States, Canada and Australia provide high quality and timely on-site
service for the installed equipment base. Purchasers or lessees of the
Company's larger products, such as financial exchanges, casinos and sports
facilities, 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
sporting event. The Company also maintains a National Technical Services
Center in the Atlanta, Georgia area which performs off-site equipment repairs
and dispatches service technicians on a nationwide basis. The Company's field
service is augmented by various outdoor service companies in the United
States, Canada and overseas. From time to time the Company uses various third
party service agents to install, service and/or assist in the service of
outdoor displays for reasons that include geographic area and unusual height
of displays.
COMPETITION
The Company supplies many of the large-scale electronic display products to
the financial services industry and the race and sports book segment of the
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gaming industry in the United States. The Company's offer of short-term
leases 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 and
commodity and gaming displays in the United States, as well as one of the
largest outdoor electronic signage 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.
The Company's motion picture theatres are subject to varying degrees of
competition in the geographic areas in which they operate. In some areas,
theatres operated by national circuits compete with the Company's theatres.
The Company's theatres also face competition from all other forms of
entertainment competing for the public's leisure time and disposable income.
THEATRE OPERATIONS
The Company currently operates 31 screens in nine locations in the
southwestern United States. This includes a twelve-plex theatre in Loveland,
Colorado which was built in late 1995 through a 50% owned joint venture. 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.
INTELLECTUAL PROPERTY
The Company owns or licenses a number of patents and holds a number of
trademarks for its communications equipment and theatrical enterprises and
considers such patents, trademarks and licenses important to its business.
EMPLOYEES
The Company has approximately 530 employees as of February 28, 1997, of
which 417 employees are related to the Company's electronics display business.
Less than 1% of the employees are unionized. The Company believes its
employee relations are good.
ITEM 2. PROPERTIES
The Company's headquarters and principal executive offices are located at
110 Richards Avenue, Norwalk, Connecticut. The Company owns the 102,000
square foot facility located at such site, of which approximately 14,000
square feet is currently leased to others. The balance of the building is
occupied by the Company and is also used for engineering, production and
assembly of its indoor displays and outdoor LED display products.
The Company owns facilities in Ontario, Canada, Torrance, California and
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Logan, Utah which it uses for administration, sales and service. The Ontario,
Canada and Logan, Utah sites are also used as production and assembly
facilities. In addition, the Company owns a facility in Norcross, Georgia
which it uses as its National Technical Services Center from which it
dispatches the Company's service technicians on a nationwide basis. The
Company also leases ten premises throughout North America and in Australia for
use as sales, service and/or administrative operations. Additionally, the
Company owns the buildings and land in Santa Fe, New Mexico, Taos, New Mexico,
and Durango, Colorado which house theatre operations.
The Company leases seven premises for sales and service operations, leases
five locations with motion picture operations and an office for its theatre
operations. In addition, the Company also leases land in Lebanon,
Pennsylvania on which it has a motion picture theatre building, which is
subleased to a third party. The aggregate rental expense was $296,000,
$238,000 and $267,000 for 1996, 1995 and 1994, respectively.
ITEM 3. LEGAL PROCEEDINGS
The Company is subject to legal proceedings and claims which arise in the
ordinary course of business, certain of which claims are reimburseable to the
Company from the Company's insurance carriers. In the opinion of management,
the amount of ultimate liability with respect to these actions, after
considering the related insurance reimbursements, will not have a material
adverse affect on the consolidated financial statements of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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 831 holders of record of its Common Stock
and approximately 67 holders of record of its Class B Stock as of March
25, 1997.
(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 1996. Management and the Board of Directors will continue to
review payment of the quarterly cash dividends.
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(d) The range of Common Share prices on the American Stock Exchange are set
forth in the following table:
High Low
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1996
First Quarter $ 9 5/8 $ 8 1/8
Second Quarter 16 1/2 8 5/8
Third Quarter 14 7/8 10 1/2
Fourth Quarter 13 3/4 10 7/8
1995
First Quarter $ 10 $ 8 7/8
Second Quarter 9 1/8 7 15/16
Third Quarter 9 1/4 7 13/16
Fourth Quarter 9 8
ITEM 6. SELECTED FINANCIAL DATA
(a) The following table sets forth selected consolidated financial data
with respect to the Company for the years ended December 31, 1996,
1995, 1994, 1993 and 1992 which were derived from the audited
consolidated financial statements of the Company and should be read in
conjunction with them.
Years Ended 1996 1995 1994 1993 1992
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(dollars in thousands, except share and per share amounts)
Revenues $45,285 $37,791 $33,742 $35,799 $24,130
Net income 1,250 1,066 1,314 (1) 489 (2) 272
Earnings per share:
Primary $0.97 $0.85 $1.04 (1) $0.39 (2) $0.22
Fully diluted $0.90 $0.81 $0.94 (1) * *
Cash dividends per share:
Common stock $0.14 $0.14 $0.14 $0.125 $0.12
Class B stock $0.126 $0.126 $0.126 $0.1125 $0.108
Shares outstanding at year end 1,264 1,254 1,248 1,248 1,250
Total assets $84,031 $57,460 $53,307 $52,138 $50,826
Long-term debt 48,112 22,495 19,693 21,156 20,723
Stockholders' equity 22,662 21,499 20,524 19,484 19,169
(1) 1994 reflects the positive impact of a settlement of a 1993 assessment of
income taxes and related interest expense incurred resulting from a 1986 state
income tax audit of approximately $360,000 (see note 2 below).
(2) 1993 reflects the impact of the assessment of income taxes and related
interest expense incurred resulting from a 1986 state income tax audit of
approximately $600,000.
* not dilutive
-8-
(b) The following table sets forth quarterly financial data for the years
ended December 31, 1996 and 1995:
(Unaudited)
Quarter Ended March 31 June 30 September 30 December 31 (1)
------------- -------- ------- ------------ -----------
(dollars in thousands, except per share amounts)
1996
Revenues $10,033 $10,591 $12,247 $12,414
Gross profit 3,969 4,080 4,579 5,152
Income before income taxes 427 467 604 705
Net income 248 271 350 381
Earnings per share:
Primary $ 0.20 $ 0.21 $ 0.27 $ 0.29
Fully diluted $ 0.19 $ 0.20 $ 0.25 $ 0.26
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
1995
Revenues $ 9,379 $ 9,861 $ 9,641 $ 8,910
Gross profit 3,913 4,078 3,976 3,418
Income before income taxes 340 390 532 577
Net income 197 226 309 334
Earnings per share:
Primary $ 0.16 $ 0.18 $ 0.24 $ 0.27
Fully diluted * * $ 0.23 $ 0.24
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) Fourth quarter 1996 includes a favorable billing adjustment and a favorable adjustment to previously accrued expenses.
* not dilutive
-9-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
The Company's total revenues for the year ended December 31, 1996 increased
19.8% to $45.3 million from $37.8 million for the year ended December 31,
1995. Revenues from equipment rentals and maintenance increased to $22.2
million in 1996 from $21.2 million in 1995 or 4.5%, primarily due to
additional indoor equipment rentals and favorable billing adjustments, offset
by the expected decline from the outdoor lease and maintenance bases
previously acquired. Revenues from equipment sales increased $6.4 million or
51.6% in 1996, primarily due to increased sales of indoor displays, which
included certain significant sales which are being recognized on the
percentage of completion basis and increased sales of outdoor displays as a
result of the acquisition of ISE in January 1995. Revenues from theatre
receipts and other increased $160,000 or 3.8% in 1996, primarily attributable
to increased concession sales at the theatres.
Gross profit as a percentage of revenues was 39.3% in 1996 compared to
40.7% in 1995. Cost of equipment rentals and maintenance, which includes
field service expenses, plant repair costs and depreciation, increased
$807,000 or 7.1%, primarily due to operating expenses of the indoor displays.
The cost of equipment rentals and maintenance represented 54.9% of related
revenues in 1996 compared to 53.6% in 1995. Cost of equipment sales increased
$4.1 million or 52.5%, primarily due to certain significant indoor display
equipment sales, which due to the size of the orders had lower gross profit
margins and increased sales of outdoor displays. During 1996, the gross
profit margin was benefited by the allocation of certain fixed overhead costs
over larger production volume. Due to the nature of the outdoor display
market, the Company anticipates the gross profit margin to decline somewhat as
it enters and increases its market share in new industry segments of the
outdoor market. The cost of equipment sales represented 64.0% of related
revenues in 1996 compared to 63.6% in 1995. Cost of theatre receipts and
other, which includes film rental expenses, increased $164,000 or 5.1%. The
cost of theatre receipts and other represented 76.4% of related revenues in
1996 compared to 75.4% in 1995.
General and administrative expenses increased $1.7 million or 14.7%,
primarily due to expanded sales and marketing efforts and increased payroll
and benefits, partially offset by a favorable adjustment of previously accrued
expenses. General and administrative expenses decreased as a percentage of
revenues to 29.1% in 1996 compared to 30.4% in 1995.
Interest income increased $25,000, primarily attributable to increased
investments. Interest expense increased $121,000, primarily due to increased
bank borrowing for general corporate purposes on the revolving credit
facility. Other expense in 1996 relates to the operations of the theatre
joint venture, MetroLux Theatres, which includes start up costs. Other income
in 1995 was largely due to the sale of a theatre property in New Mexico.
The effective tax rate was 43.2% in 1996 and 42.0% in 1995.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
The Company's total revenues for the year ended December 31, 1995 increased
12.0% to $37.8 million in 1995 from $33.7 million for the year ended December
31, 1994. In January 1995, the Company acquired all the capital stock of ISE,
a manufacturer of outdoor electronic displays. Operating results for 1995
include a full twelve months from this acquisition. Revenues from equipment
rentals and maintenance decreased $447,000 or 2.1% during 1995, primarily due
to the expected decline in revenues from the two acquisitions of outdoor lease
and maintenance base portfolios from $11.7 million in 1994 to $10.8 million in
1995. Revenues from equipment sales increased $3.9 million or 45.5% in 1995.
The increase was largely attributable to the revenues generated from the
acquisition of ISE, which contributed $3.6 million in revenues in 1995.
Revenues from theatre receipts and other increased $630,000 in 1995, primarily
due to the inclusion of a full year of operations at the five-plex theatre in
Durango, Colorado which opened in mid-1994.
Gross profit as a percentage of revenues was 40.7% in 1995 compared to
42.5% in 1994. Cost of equipment rentals and maintenance decreased $571,000
or 4.8% in 1995, primarily due to a reduction in field service expenses. The
cost of equipment rentals and maintenance represented 53.6% of related
revenues in 1995 compared to 55.1% in 1994. Cost of equipment sales increased
$3.2 million or 70.2% in 1995, primarily due to the acquisition of ISE. The
cost of equipment sales represented 63.6% of related revenues in 1995 and 54.4%
in 1994. The increase in costs is primarily due to the expected lower profit
margins generated by ISE. Cost of theatre receipts and other increased
$321,000 or 11.2% in 1995, primarily due to a full year of operations at the
five-plex theatre in Durango, Colorado which opened in mid-1994. The cost of
theatre receipts and other represented 75.4% of related revenues in 1995 and
79.7% in 1994.
General and administrative expenses increased $471,000 or 4.3%, primarily
due to the acquisition of ISE. General and administrative expenses decreased
as a percentage of revenues to 30.4% in 1995, compared to 32.7% in 1994,
primarily as a result of economies of scale.
Interest income decreased $57,000 in 1995, primarily attributable to
reduced investments which were utilized for acquisitions. Interest expense
increased $845,000 during 1995, primarily as a result of the additional debt
incurred relative to the acquisition of ISE, in addition to the lower interest
expense recorded in 1994 as a result of a settlement of a prior year
assessment of interest resulting from a 1986 state income tax audit. Other
income in 1995 was largely due to the sale of a theatre property in New
Mexico.
The effective tax rate was 42.0% in 1995 and 36.3% in 1994. The increase
in the effective tax rate for 1995 was due to a settlement of a 1986 state
income tax audit in 1994, which lowered the effective tax rate in 1994.
-10-
ACCOUNTING STANDARDS
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 121, "Accounting for Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of " on January 1, 1996. In accordance with
the standard, the Company evaluates the carrying value of its long-lived
assets and identifiable intangibles, including goodwill, when events or
changes in circumstances indicate that the carrying amount of such assets may
not be recoverable. The adoption of the standard did not have an effect on
the Company's consolidated financial position or results of operations.
The Company also adopted the provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" on
January 1, 1996. As provided for in the standard, the Company elected to
continue to apply Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" and related Interpretations for employee stock
compensation measurement. See Note 15 - Stock Option Plans.
The Company will adopt the provisions of Statement of Financial Accounting
Standards No. 128, "Earnings per Share" in the fourth quarter of 1997. The
standard specifies the computation, presentation and disclosure requirements
for earnings per share. As required by the standard, the Company will restate
all prior period earnings per share data presented. The adoption of the new
standard is not expected to have a material effect on the Company's financial
statements.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company's primary sources of liquidity and capital
resources has been cash flow from operations and bank borrowings. During
1996, the Company issued $27.5 million of 7 1/2% convertible subordinated
notes due 2006. On January 14, 1997, the Underwriters exercised their
over-allotment option, bringing the total amount outstanding to $31.625
million.
The Company believes that cash generated from operations together with the
net proceeds of the issuance of the 7 1/2% convertible subordinated notes will
be sufficient to fund its anticipated future cash requirements. The net
proceeds from the Notes were used, in part, to pay down certain of the
Company's debt, which included prepayment of the 1997 principal amounts due
under the credit facility, payment of the balance outstanding under the
revolving credit facility and to call and retire the 9% convertible
subordinated debentures.
Cash and cash equivalents increased by $18.6 million in 1996 compared to a
decrease of $1.7 million in 1995. At December 31, 1996, cash and cash
equivalents consists primarily of investment-grade overnight repurchase
agreements. The increase in 1996 was primarily due to the net proceeds of the
issuance of the 7 1/2% convertible subordinated notes. The decrease in 1995
is primarily attributable to cash utilized to acquire ISE, repayment of its
long-term debt and an investment in a theatre joint venture. This was offset
by an increase of $1.1 million in deferred revenue and deposits, primarily due
to prepayments of annual billings not yet recorded as revenue. Although
receivables increased at December 31, 1996 compared to December 31, 1995, the
Company continues to experience a favorable collection cycle on its trade
receivables. At December 31, 1996, the Company had unbilled receivables
relating to certain significant contracts being recognized on the percentage
of completion basis.
The Company entered into a Credit Agreement in August 1995 restructuring
$15.6 million of indebtedness and a $4.0 million revolving credit facility
with First Union Bank. The revolving credit facility was increased to $7.0
million during 1996 accessible through June 1998, which is fully available at
December 31, 1996. During 1996, the revolving credit facility was
supplemented by $3.0 million, which was available to the Company at the
discretion of the bank, which expired January 31, 1997. The revolving credit
facility has subsequently been reduced to $5.0 million as of January 31, 1997.
The restructuring extended the terms at a variable rate of interest of LIBOR
plus 175 basis points. Simultaneously, the Company entered into an interest
rate swap for three years at a fixed rate of 7.86% for $15.6 million of
notional value to mitigate the risk of the variable interest rate. The
agreement relating to the Company's credit facility contains certain financial
covenants with which the Company must comply, absent a waiver by the bank, on
a continuing basis. The Company is a guarantor of a $3.0 million term loan to
MetroLux Theatres, the theatre joint venture. The owner of the non-related
general partner of the joint venture has guaranteed their pro rata portion of
the indebtedness to the Company.
The Company is currently evaluating its previously established estimates of
useful lives for its indoor and outdoor display rental equipment. Current and
historical experience indicate the actual useful lives of such rental
equipment may be in excess of those previously estimated.
On March 3, 1997, the Company announced it had signed a letter of intent to
acquire certain assets, including the sign catalog business and custom sign
business from Fairtron Corporation of Des Moines, Iowa. Closing of the
transaction is subject to negotiation and execution of definitive binding
agreements and due diligence by the Company.
.............................................................................
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.
-11-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements and supplementary financial
information are set forth below:
Consolidated Statements of Income
Years Ended December 31 1996 1995 1994
- - ---------------------------------------------------------------------------------------------------------
Revenues:
Equipment rentals and maintenance $22,162,000 $21,205,000 $21,652,000
Equipment sales 18,741,000 12,364,000 8,498,000
Theatre receipts and other 4,382,000 4,222,000 3,592,000
------------------------------------------
Total revenues 45,285,000 37,791,000 33,742,000
------------------------------------------
Operating expenses:
Cost of equipment rentals and maintenance 12,165,000 11,358,000 11,929,000
Cost of equipment sales 11,991,000 7,863,000 4,620,000
Cost of theatre receipts and other 3,349,000 3,185,000 2,864,000
------------------------------------------
Total operating expenses 27,505,000 22,406,000 19,413,000
------------------------------------------
Gross profit from operations 17,780,000 15,385,000 14,329,000
General and administrative expenses 13,184,000 11,494,000 11,023,000
------------------------------------------
4,596,000 3,891,000 3,306,000
Interest income 172,000 147,000 204,000
Interest expense (2,412,000) (2,291,000) (1,446,000)
Other income (expense) (153,000) 92,000 ---
------------------------------------------
Income before income taxes 2,203,000 1,839,000 2,064,000
------------------------------------------
Provision for income taxes:
Current 518,000 576,000 407,000
Deferred 435,000 197,000 343,000
------------------------------------------
953,000 773,000 750,000
------------------------------------------
Net income $ 1,250,000 $ 1,066,000 $ 1,314,000
------------------------------------------
Earnings per share:
Primary $0.97 $0.85 $1.04
Fully diluted $0.90 $0.81 $0.94
------------------------------------------
Average common and common equivalent shares outstanding:
Primary 1,284,000 1,259,000 1,260,000
Fully diluted 1,697,000 1,643,000 1,943,000
- - ---------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements.
-12-
Consolidated Balance Sheets
December 31 1996 1995
- - -----------------------------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $19,274,000 $ 665,000
Available-for-sale securities 600,000 576,000
Receivables 4,173,000 2,403,000
Unbilled receivables 2,401,000 ---
Inventories 1,775,000 1,900,000
Prepaids and other current assets 348,000 466,000
--------------------------
Total current assets 28,571,000 6,010,000
--------------------------
Rental equipment 52,417,000 47,043,000
Less accumulated depreciation 18,465,000 16,265,000
--------------------------
33,952,000 30,778,000
--------------------------
Property, plant and equipment 21,655,000 20,913,000
Less accumulated depreciation and amortization 6,973,000 5,921,000
--------------------------
14,682,000 14,992,000
Prepaids, intangibles and other 4,772,000 4,081,000
Maintenance contracts, net 1,270,000 1,599,000
Note receivable, joint venture (excludes $94,000 current portion) 784,000 ---
--------------------------
$84,031,000 $57,460,000
- - -----------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accruals $ 6,174,000 $ 4,804,000
Income taxes payable 105,000 136,000
Short-term borrowings --- 500,000
Current portion of long-term debt 203,000 1,804,000
--------------------------
Total current liabilities 6,482,000 7,244,000
--------------------------
Long-term debt:
9% convertible subordinated debentures due 2005 4,811,000 4,874,000
9 1/2% subordinated debentures due 2012 1,057,000 1,057,000
7 1/2% convertible subordinated notes due 2006 27,500,000 ---
Notes payable 14,744,000 16,564,000
--------------------------
48,112,000 22,495,000
Deferred revenue and deposits 3,029,000 2,621,000
Deferred income taxes 3,745,000 3,600,000
Minority interest 1,000 1,000
--------------------------
Stockholders' equity:
Capital stock
Preferred - $1 par value - 500,000 shares authorized
Common - $1 par value - 5,500,000 shares authorized
2,441,765 shares issued in 1996 and 2,436,268 in 1995 2,442,000 2,436,000
Class B - $1 par value - 1,000,000 shares authorized
298,640 shares issued in 1996 and 304,137 in 1995 298,000 304,000
Class A - $1 par value - 3,000,000 shares authorized
Additional paid-in capital 13,818,000 13,806,000
Retained earnings 17,964,000 16,888,000
Other (58,000) (71,000)
--------------------------
34,464,000 33,363,000
Less treasury stock - at cost - 1,476,552 shares in 1996 and 1,488,837 in 1995
(excludes additional 298,640 shares held in 1996 and 304,137 in 1995
for conversion of Class B stock) 11,802,000 11,864,000
--------------------------
Total stockholders' equity 22,662,000 21,499,000
--------------------------
$84,031,000 $57,460,000
- - -----------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements.
-13-
Consolidated Statements of Cash Flows
Years Ended December 31 1996 1995 1994
- - -----------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities
Net income $ 1,250,000 $1,066,000 $ 1,314,000
Adjustment to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 7,104,000 6,901,000 6,513,000
Net loss of joint venture 153,000 --- ---
Deferred income taxes 134,000 475,000 (188,000)
Current deferred taxes --- 192,000 230,000
Minority interest --- (20,000) 20,000
Changes in operating assets and liabilities:
Receivables (1,770,000) (595,000) 1,062,000
Unbilled receivables (2,401,000) --- ---
Inventories 125,000 (361,000) (3,000)
Prepaids and other current assets 212,000 (309,000) 42,000
Prepaids, intangibles and other (1,526,000) (78,000) (85,000)
Accounts payable and accruals 1,370,000 (1,675,000) 370,000
Income taxes payable (31,000) (62,000) (48,000)
Deferred revenue and deposits 58,000 1,071,000 1,002,000
--------------------------------------
Net cash provided by operating activities 4,678,000 6,605,000 10,229,000
--------------------------------------
Cash flows from investing activities
Purchases of rental equipment (8,156,000) (5,932,000) (5,276,000)
Purchases of property, plant and equipment (1,102,000) (1,749,000) (3,187,000)
Payments for an acquisition --- (3,178,000) ---
Proceeds from acquisition note receivable --- 658,000 ---
Sale of assets --- 221,000 52,000
Proceeds from (investment in) joint venture 364,000 (480,000) (12,000)
Loan to joint venture (941,000) --- ---
Purchases of securities --- (494,000) (3,470,000)
Proceeds from sale of securities --- 1,582,000 3,978,000
--------------------------------------
Net cash (used in) investing activities (9,835,000) (9,372,000) (7,915,000)
--------------------------------------
Cash flows from financing activities
Proceeds from long-term debt 27,850,000 4,379,000 4,308,000
Repayment of long-term debt (3,421,000) (3,655,000) (2,163,000)
Proceeds from short-term borrowings --- 500,000 ---
Repayment of short-term borrowings (500,000) --- ---
Redemption of Company's 9% convertible subordinated debentures --- --- (3,080,000)
Proceeds from exercise of stock options and stock award 12,000 45,000 ---
Purchase of treasury stock (1,000) (1,000) (1,000)
Cash dividends (174,000) (171,000) (171,000)
--------------------------------------
Net cash provided by (used in) financing activities 23,766,000 1,097,000 (1,107,000)
--------------------------------------
Net increase (decrease) in cash and cash equivalents 18,609,000 (1,670,000) 1,207,000
Cash and cash equivalents at beginning of year 665,000 2,335,000 1,128,000
--------------------------------------
Cash and cash equivalents at end of year $19,274,000 $ 665,000 $ 2,335,000
- - -----------------------------------------------------------------------------------------------------------------------------
Interest paid $ 2,171,000 $1,851,000 $ 2,135,000
Interest received 180,000 176,000 214,000
Income taxes paid 749,000 661,000 756,000
- - -----------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements.
-14-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation: The consolidated financial statements
include the accounts of Trans-Lux Corporation and its majority-owned
subsidiaries (the "Company"). Investment in a 50% owned joint venture,
MetroLux Theatres, is reflected under the equity method.
Cash equivalents: The Company considers all highly liquid investments
with a maturity of three months or less, when purchased, to be cash
equivalents. At December 31, 1996, cash equivalents include approximately
$18.9 million investment-grade overnight repurchase agreements at a yield
of 6.8% per annum.
Available-for-sale securities: Available-for-sale securities consists of
common and preferred stock holdings and are stated at fair value.
Inventories: Inventories are stated at the lower of cost (first-in,
first-out method) or market value.
Rental equipment and property, plant and equipment: These assets 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 leases. The estimated useful lives are as follows:
- - ---------------------------------------------------------------------------
Rental equipment 5 to 15 years
Buildings and improvements 10 to 45 years
Machinery, fixtures and theatre equipment 4 to 15 years
Leaseholds and improvements 2 to 12 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.
Maintenance contracts: These assets are stated at cost and are being
amortized over their economic lives of eight to 15 years using an
accelerated method.
Revenue recognition: Rental income from leasing of equipment and revenue
from maintenance contracts are recognized as they accrue during the term of
the respective agreement. The Company recognizes revenues on long-term
equipment sales contracts, which require more than three months to
complete, using the percentage of completion method. At December 31, 1996,
the Company recorded unbilled receivables representing amounts due under
these long-term equipment sales contracts which have not yet been billed to
the customer. Income is recognized based on the percentage of incurred
costs to the estimated total costs. Revenue on equipment sales other than
long-term equipment sales contracts are recognized upon shipment. Theatre
receipts and other revenues are recognized at the time service is provided.
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.
Earnings per share: Primary earnings per share of Common and Class B
shares are based on the weighted average Common and Class B shares and
common equivalent shares outstanding during the period. Common equivalents
consist of options to purchase common stock, and their impact on earnings
per share is measured by application of the "treasury stock" method. Fully
diluted earnings per share assumes conversion of dilutive convertible
debentures, convertible notes and the assumed exercise of all common
equivalent shares. The Company will adopt the provisions of Statement of
Financial Accounting Standards No. 128 "Earnings per Share" in the fourth
quarter of 1997. The standard specifies the computation, presentation and
disclosure requirements for earnings per share. As required by the
standard, the Company will restate all prior period earnings per share data
presented. The adoption of the new standard is not expected to have a
material effect on the Company's financial statements.
Long-lived assets: The Company adopted the provisions of Statement of
Financial Accounting Standards No. 121, "Accounting for Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of" on January
1, 1996. In accordance with the standard, the Company evaluates the
carrying value of its long-lived assets and identifiable intangibles,
including goodwill, when events or changes in circumstances indicate that
the carrying amount of such assets may not be recoverable. The adoption of
the standard did not have an effect on the Company's consolidated financial
position or results of operations.
Stock-based compensation: The Company adopted the provisions of
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123") on January 1 1996. As provided for in
the standard, the Company elected to continue to apply Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" and related
Interpretations for employee stock compensation measurement. See Note 15 -
Stock Option Plans.
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.
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 losses are excluded from earnings and are reported
net of income taxes in a separate component of stockholders' equity until
realized. Adjustments of $58,000 and $71,000 were made to equity to
reflect the net unrealized losses on available-for-sale securities as of
December 31, 1996 and 1995, respectively.
-15-
Available-for-sale securities consist of the following as of December 31,
1996 and 1995:
1996 1995
--------------------- ---------------------
Fair Unrealized Fair Unrealized
Value Loss Value Loss
- - ---------------------------------------------------------------------------
Equity securities $600,000 $58,000 $576,000 $71,000
- - ---------------------------------------------------------------------------
3. INVENTORIES
Inventories consist of the following:
1996 1995
- - --------------------------------------------------------------------------
Raw materials and spare parts $1,074,000 $1,191,000
Work-in-process 186,000 181,000
Finished goods 515,000 528,000
----------------------
$1,775,000 $1,900,000
- - --------------------------------------------------------------------------
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
1996 1995
- - --------------------------------------------------------------------------
Land, buildings and improvements $14,856,000 $14,767,000
Machinery, fixtures and equipment 5,760,000 5,129,000
Leaseholds and improvements 1,039,000 1,017,000
------------------------
$21,655,000 $20,913,000
- - --------------------------------------------------------------------------
Land, buildings and equipment having a net book value of $12,020,000 and
$12,292,000 at December 31, 1996 and 1995, respectively, were pledged as
collateral under borrowing agreements.
5. PREPAIDS, INTANGIBLES AND OTHER
Prepaids, intangibles and other consist of the following:
1996 1995
- - --------------------------------------------------------------------------
Prepaids and other $ 719,000 $1,005,000
Deferred debenture and note costs 1,836,000 206,000
Deferred financing costs 395,000 480,000
Acquisition costs 91,000 96,000
Deposits and advances 76,000 68,000
Patents 259,000 323,000
Goodwill and noncompete agreement 890,000 1,105,000
Investment in joint ventures 73,000 506,000
Long-term portion of officers' and
employees' loans 433,000 292,000
-------------------------
$4,772,000 $4,081,000
- - --------------------------------------------------------------------------
Deferred debenture and note costs represents costs attributable to the
7 1/2% convertible subordinated notes, the 9% convertible subordinated
debenture issue and the 9 1/2% subordinated debenture issue being amortized
over the respective lives of the issues on a straight line basis, and are
net of accumulated amortization of $692,000 and $670,000 at December 31,
1996 and 1995, respectively. Deferred financing costs represent costs
attributable to financing agreements being amortized over the lives of the
agreements on a straight line basis, and are net of accumulated
amortization of $502,000 and $349,000 at December 31, 1996 and 1995,
respectively. Acquisition costs represent the purchase price attributable
to intangibles being amortized over 30 years on a straight line basis, and
are net of accumulated amortization of $59,000 and $53,000 at December 31,
1996 and 1995, respectively. Patents represent costs attributable to
engineering and design costs of outdoor products being amortized over 14
years on a straight line basis, and are net of accumulated amortization of
$128,000 and $64,000 at December 31, 1996 and 1995, respectively. Goodwill
and noncompete agreement are costs attributable to the purchase costs
associated with the acquisition of ISE in January 1995. See Note 7 --
Acquisition. Goodwill is being amortized over 20 years on a straight line
basis, and is net of accumulated amortization of $72,000 and $35,000 at
December 31, 1996 and 1995, respectively. The noncompete agreement is
being amortized over five years on a straight line basis, the term of the
agreement, and is net of accumulated amortization of $196,000 and $96,000
at December 31, 1996 and 1995, respectively. Impairment of intangibles and
their associated useful lives are evaluated quarterly based on
recoverability of unamortized balances from expected future cash flows on
an undiscounted basis. The investment in joint ventures is primarily an
investment in MetroLux Theatres, a 12-plex theatre located in Loveland,
Colorado.
6. MAINTENANCE CONTRACTS
Maintenance contracts represent the present value of contracts the
Company has with customers to service their outdoor display equipment,
which were acquired during 1993. These contracts are being amortized over
their economic lives of eight to 15 years, on an accelerated method, which
contemplates contract expiration, fall out and non-renewals and are net of
accumulated amortization of $1,378,000 and $1,049,000 at December 31, 1996
and 1995, respectively.
7. ACQUISITION
During January 1995, the Company acquired all the capital stock of
Integrated Systems Engineering, Inc. ("ISE"), which manufactures outdoor
electronic signs, for a cash purchase price of approximately $2.7 million
plus payment of noncompete and consulting fees. The payments for the
acquisition are shown in the Consolidated Statements of Cash Flows net of
$1.9 million of liabilities assumed.
-16-
The acquisition has been accounted for using the purchase method of
accounting. The purchase price has been allocated on the basis of the fair
value of the assets acquired and liabilities assumed. Assets include land,
building, machinery and equipment, accounts receivable, inventory and
patents. The excess of the purchase price over the fair value of the net
assets acquired has been recorded as goodwill. Pro forma results of
operations as if the acquisition had occurred as of January 1, 1995 are not
presented, as the amounts are not materially different from those
presented.
The following pro forma financial information should be read in
conjunction with the Company's consolidated financial statements. The pro
forma information does not purport to represent what the Company's results
of operations or financial position would have been if the acquisition, in
fact, had occurred on January 1, 1994, or to project the Company's results
of operations or financial position for any future period or at any future
date. The results of operations have been included in the Company's
consolidated financial statements since the date of acquisition.
Unaudited 1994
- - --------------------------------------------------------------------
Revenues $38,284,000
Gross profit from operations $17,046,000
Net income $1,439,000
Earnings per share -- primary $1.14
Earnings per share -- fully diluted $1.00
- - --------------------------------------------------------------------
8. TAXES ON INCOME
The components of income tax expense are as follows:
Years ended December 31 1996 1995 1994
- - --------------------------------------------------------------------
Current:
Federal $349,000 $490,000 $229,000
State 169,000 86,000 150,000
Foreign --- --- 28,000
--------------------------------------
518,000 576,000 407,000
Deferred:
Federal 386,000 157,000 311,000
State 49,000 40,000 ---
Foreign --- --- 32,000
--------------------------------------
435,000 197,000 343,000
--------------------------------------
Total income tax expense $953,000 $773,000 $750,000
- - -------------------------------------------------------------------
1994 includes the favorable state tax settlement, which assessment was
recorded in a prior year.
Income taxes provided differed from the expected federal statutory rate
of 34% as follows:
1996 1995 1994
- - --------------------------------------------------------------------------
Statutory federal income tax rate 34.0% 34.0% 34.0%
State income taxes, net of federal benefit 6.5 4.5 8.1
Benefit of NOL --- --- (6.4)
Other 2.7 3.5 0.6
----------------------------
Effective income tax rate 43.2% 42.0% 36.3%
- - --------------------------------------------------------------------------
The tax effect of temporary differences giving rise to the Company's
deferred tax provision are as follows:
1996 1995 1994
- - --------------------------------------------------------------------------
Depreciation and amortization $502,000 $ 49,000 $180,000
Pension actuarial gain (92,000) (14,000) (30,000)
Supplemental retirement plan (21,000) (15,000) (143,000)
State income taxes 32,000 27,000 478,000
Impact of NOL ___ 191,000 61,000
AMT credit --- (25,000) (235,000)
Other 14,000 (16,000) 32,000
-------------------------------
Net deferred tax provision $435,000 $197,000 $343,000
- - --------------------------------------------------------------------------
The tax effects of the items comprising the net deferred tax asset
and liability at December 31, 1996 and 1995 in the Company's
statement of financial position are as follows:
1996 1995
- - --------------------------------------------------------------------------
Long-term liability
Deferred tax asset:
Operating loss carryforwards $ 120,000 $ 175,000
Excess financial reporting
depreciation and
amortization over tax
depreciation and amortization 442,000 331,000
Acquisition costs not deducted
for tax purposes 84,000 84,000
Net pension cost not deducted
for tax purposes 161,000 52,000
Supplemental retirement plan costs
not deducted for tax purposes 86,000 61,000
Tax credit carryforwards 477,000 397,000
Unrealized holding losses not
deducted for tax purposes 47,000 58,000
Bad debt expense not deducted
for tax purposes 33,000 37,000
Valuation allowance (224,000) (232,000)
---------------------
1,226,000 963,000
---------------------
Deferred tax liability:
Excess tax depreciation over
financial reporting depreciation 3,888,000 3,328,000
Gain on purchases of Company's
9% debentures not reported
for tax purposes 439,000 439,000
Net pension benefit not
reported for tax purposes 373,000 373,000
Foreign exchange gain not
reported for tax purposes 33,000 31,000
State income taxes 238,000 392,000
---------------------
4,971,000 4,563,000
---------------------
Net deferred tax liability $3,745,000 $3,600,000
- - --------------------------------------------------------------------------
-17-
The valuation allowance changed by $8,000 and $170,000 for the year ended
December 31, 1996 and 1995, respectively. The valuation allowance has been
established for the amount of deferred tax assets which management
estimates will more likely than not expire unused.
9. ACCOUNTS PAYABLE AND ACCRUALS
Accounts payable and accruals consist of the following:
1996 1995
- - --------------------------------------------------------------------------
Accounts payable $2,317,000 $1,730,000
Interest payable 603,000 368,000
Taxes payable 596,000 518,000
Accruals 2,658,000 2,188,000
---------------------
$6,174,000 $4,804,000
- - --------------------------------------------------------------------------
10. LONG-TERM DEBT
Long-term debt consists of the following:
1996 1995
- - --------------------------------------------------------------------------
7 1/2% convertible subordinated
notes due 2006 $27,500,000 $ ----
9% convertible subordinated
debentures due 2005 4,811,000 4,874,000
9 1/2% subordinated debentures
due 2012 1,057,000 1,057,000
Term loans -- bank, secured, due in
quarterly installments through 2002 11,944,000 15,177,000
Loan payable -- CDA, due in monthly
installments through 2002 at 5.0% 448,000 517,000
Real estate mortgages -- secured, due
in monthly and quarterly
installments through 2015 2,502,000 2,597,000
Capital lease obligation -- secured,
due in monthly installments
through 1999 at 9.5% 53,000 77,000
-----------------------
48,315,000 24,299,000
Less portion due within one year 203,000 1,804,000
-----------------------
$48,112,000 $22,495,000
- - --------------------------------------------------------------------------
Payments of long-term debt due for the next five years are:
1997 1998 1999 2000 2001
- - --------------------------------------------------------------------------
$203,000 $2,658,000 $1,792,000 $2,695,000 $1,718,000
- - --------------------------------------------------------------------------
The Company issued $27.5 million of 7 1/2% convertible subordinated notes due
2006 (the "Notes") on December 19, 1996. Interest is payable semiannually on
June 1 and December 1 of each year. The Notes are convertible into Common
Stock of the Company at any time after 60 days following the date of initial
issuance thereof and prior to maturity, at a conversion price of $14.013. The
Notes are redeemable, in whole or in part, at the option of the Company, at
any time on or after December 1, 2001 at declining premiums. The Indenture
agreement relating to the Notes contains certain financial covenants with
which the Company must comply on a continuing basis, which among others
includes a limitation on the incurrence of indebtedness of five times EBITDA
plus $5.0 million. On January 14, 1997, the Underwriters exercised their
over-allotment option, bringing the total amount outstanding to $31.625
million.
During 1985, the Company issued $15.0 million of 9% convertible
subordinated debentures due 2005. The debentures are redeemable at the option
of the Company at par. An annual sinking fund requirement of $1,125,000 was
to commence December 1, 1995; however, at its option, the Company is
depositing with the Trustee debentures that have been repurchased and receive
a credit against such required payments. During 1994, the Company called for
redemption of approximately 39% of the outstanding debentures at 101.125% and
redeemed $3.1 million. The debentures were convertible into shares of the
Company's Common Stock at a conversion price of $12.70 per share. The Company
gave Notice of Redemption to redeem all of the outstanding debentures
effective February 27, 1997, and will record a charge of $113,000 ($66,000 net
of tax) for the unamortized portion of its financing costs in 1997.
During 1994, the Company issued $1.1 million of 9 1/2% subordinated
debentures due 2012. The debentures are redeemable at the option of the
Company at declining premiums after December 1, 1999. An annual sinking
fund requirement of $105,700 is to commence December 1, 2009.
The Company entered into a Credit Agreement with First Union Bank of
Connecticut in August 1995 restructuring $15.6 million of indebtedness and
a $4.0 million revolving credit facility. The restructuring extended the
term to an average of 11 years at a variable rate of interest of LIBOR plus
175 basis points (7.375% at December 31, 1996). Simultaneously, the
Company entered into interest rate swap agreements to reduce the impact of
changes in interest rates on its floating rate long-term debt. The
agreement relating to the Company's credit facility contains certain
financial covenants with which the Company must comply, absent a waiver by
the bank, on a continuing basis, which among others includes (1) the
Company must maintain a fixed charge coverage ratio of 1.05 to 1.0, and (2)
cash dividends may not exceed $750,000 in any year. At December 31, 1996,
the Company had outstanding two interest rate swap agreements with a
commercial bank, having a notional value of $11.9 million. The resulting
gain or loss on the swaps is included in interest expense. The agreements
-18-
effectively change the Company's interest rate exposure on its $6.8 million
floating rate installment note due quarterly through October 2002 to a
fixed rate of 7.86% and its $5.1 million floating rate installment note due
quarterly through July 2002 to a fixed rate of 7.86%. The notional value
of the interest rate swap agreements are reduced quarterly with the
installment payments on the notes and mature July 1, 1998. The aggregate
cost to terminate the interest rate swap agreements at December 31, 1996
was $143,000. The Company is subject to credit loss in the event of
nonperformance by other parties to the interest rate swap agreements.
However, the Company does not anticipate nonperformance by the
counterparties.
The $4.0 million revolving credit facility was increased to $7.0 million
during 1996, is at a variable rate of interest of LIBOR plus 200 basis
points (7.5% at December 31, 1996) and is available until June 1998. At
December 31, 1996, the Company had $7.0 million available under such
agreement, but has been reduced to $5.0 million as of January 31, 1997. In
the third quarter of 1996, the revolving credit facility was supplemented
by a $3.0 million revolving facility available to the Company at the
discretion of the bank, which expired January 31, 1997.
The Company has a first mortgage on a four-plex theatre in Taos, New
Mexico at an interest rate of prime plus 1% (9.25% at December 31, 1996)
with a balloon payment of $837,000 in 1998 and a first mortgage on a
five-plex theatre in Durango, Colorado at an interest rate of prime plus
1%, capped at 9% (9% at December 31, 1996) with a balloon payment of
$920,000 in 2000.
The fair value of the 7 1/2% convertible subordinated notes, the 9%
convertible subordinated debentures and the 9 1/2% subordinated debentures
are $27,500,000, $4,907,000 and $959,000, respectively, at December 31,
1996. The fair value of the remaining long-term debt approximates the
carrying value.
The theatrical joint venture, MetroLux Theatres, has a $3.0 million
first mortgage on the 12-plex theatre located in Loveland, Colorado. The
Company is the guarantor of the entire indebtedness. However, the owner of
the non-related general partner of the joint venture has guaranteed their
pro rata portion of the indebtedness to the Company.
11. STOCKHOLDERS' EQUITY
Changes in capital stock, additional paid-in capital, treasury stock and
retained earnings and other for the three years ended December 31, 1996 are
as follows:
Common Stock Class B Additional Retained
------------------------- ----------------------- Paid-in Treasury Earnings
Shares Amount Shares Amount Capital Stock and Other
- - ---------------------------------------------------------------------------------------------------------------------------------
Balance December 31, 1993 2,433,465 $2,433,000 306,547 $307,000 $13,804,000 $(11,910,000) $14,850,000
Net income --- --- --- --- --- --- 1,314,000
Cash dividends --- --- --- --- --- --- (171,000)
9% debentures conversion 393 1,000 --- --- 5,000 --- ---
Unrealized holding losses --- --- --- --- --- --- (107,000)
Common stock acquired (131 shares) --- --- --- --- --- (1,000) ---
Class B conversion to common stock 1,188 1,000 (1,188) (2,000) --- --- ---
------------------------------------------------------------------------------------------
Balance December 31, 1994 2,435,046 2,435,000 305,359 305,000 13,809,000 (11,911,000) 15,886,000
Net income --- --- --- --- --- --- 1,066,000
Cash dividends --- --- --- --- --- --- (171,000)
Unrealized holding gain --- --- --- --- --- --- 36,000
Exercise of stock options --- --- --- --- (4,000) 40,000 ---
Common stock acquired (56 shares) --- --- --- --- --- (1,000) ---
Common stock award --- --- --- --- 1,000 8,000 ---
Class B conversion to common stock 1,222 1,000 (1,222) (1,000) --- --- ---
-------------------------------------------------------------------------------------------
Balance December 31, 1995 2,436,268 2,436,000 304,137 304,000 13,806,000 (11,864,000) 16,817,000
Net income --- --- --- --- --- --- 1,250,000
Cash dividends --- --- --- --- --- --- (174,000)
9% debentures conversion --- --- --- --- 23,000 40,000 ---
Unrealized holding gain --- --- --- --- --- --- 13,000
Exercise of stock options --- --- --- --- (11,000) 23,000 ---
Common stock acquired (81 shares) --- --- --- --- --- (1,000) ---
Class B conversion to common stock 5,497 6,000 (5,497) (6,000) --- --- ---
-------------------------------------------------------------------------------------------
Balance December 31, 1996 2,441,765 $2,442,000 298,640 $298,000 $13,818,000 $(11,802,000) $17,906,000
- - ----------------------------------------------------------------------------------------------------------------------------------
-19-
During 1996, 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 1996 and January 1997. 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 higher
dividend.
During 1995, the stockholders approved 3 million shares of a new class of
capital stock designated Class A Stock, $1.00 par value. The stock has no
voting rights except as required by law and will receive a 10% higher
dividend than the Common Stock. A Certificate of Amendment authorizing the
Class A shares and adjusting the authorized shares of Common Stock to 5.5
million and Class B Stock to 1 million was filed during 1996. No specific
issuance of Class A Stock is presently contemplated.
At December 31, 1996, shares of Common Stock were reserved for as follows:
- - ----------------------------------------------------------------------------
Conversion of 7 1/2% convertible subordinated notes 1,962,000
Conversion of 9% convertible subordinated debentures 777,000
Stock options 85,000
- - ----------------------------------------------------------------------------
12. LEASES
The Company occupies theatre and other premises under operating leases
expiring at varying dates through 2007. Certain of the leases provide for
the payment of real estate taxes and other occupancy costs. In addition,
the Company has a long-term lease for a telephone system, which is
classified as a capital lease.
The following is a summary of future minimum lease payments due under
capital and operating leases at December 31, 1996:
Capital Operating
Year Lease Leases
- - -------------------------------------------------------------------------
1997 $30,000 $ 297,000
1998 30,000 238,000
1999 7,000 197,000
2000 --- 159,000
2001 --- 130,000
Thereafter --- 602,000
-----------------------
Total future minimum lease payments $67,000 $1,623,000
Amount representing interest 14,000 ----------
------
Present value of net minimum
lease payments 53,000
Current portion 24,000
------
Long-term portion $29,000
- - -------------------------------------------------------------------------
Total rent expense for all operating leases amounted to $296,000,
$238,000, and $267,000 in 1996, 1995 and 1994, respectively. At December
31, 1996, sublease income of $55,000 is to be received on non-cancelable
leases through 1997.
13. ENGINEERING DEVELOPMENT
Engineering development expense was $204,000, $172,000 and $238,000 for
1996, 1995 and 1994, respectively.
14. PENSION PLAN
All eligible salaried employees of Trans-Lux Corporation and certain of
its subsidiaries are covered by a non-contributory pension plan. Pension
benefits vest after five years of service and are based on years of service
and final average salary. The Company's funding policy is to contribute
annually an amount that can be deducted for Federal income tax purposes.
Contributions are intended to provide not only for benefits based on
service to date, but also for those benefits expected to be earned in the
future.
The funded status of the plan at December 31, 1996 and 1995 are as
follows:
1996 1995
- - -----------------------------------------------------------------------
Fair value of plan assets $4,389,000 $4,172,000
Actuarial present value of benefits for ----------------------
service rendered to date:
Accumulated benefits based on salaries
to date, including vested benefits
of $3,377,000 and $2,879,000 for
1996 and 1995, respectively 3,482,000 2,985,000
Additional benefits based on
estimated future salary levels 1,396,000 1,286,000
----------------------
Projected benefit obligation (PBO) 4,878,000 4,271,000
----------------------
Plan assets less than PBO (489,000) (99,000)
Unrecognized prior service cost 20,000 22,000
Unrecognized net loss from past
experience different from
that assumed 1,033,000 952,000
Unrecognized net asset on
January 1, 1985 being recognized
over 13.38 years (52,000) (92,000)
----------------------
Prepaid pension cost $ 512,000 $ 783,000
- - -----------------------------------------------------------------------
The following items are components of the net pension cost for 1996:
- - -----------------------------------------------------------------------
Present value of benefits earned during the period $355,000
Interest cost on projected benefit obligation 318,000
Actual return on plan assets (257,000)
Net amortization and deferral (146,000)
-------
Net pension cost $270,000
- - ----------------------------------------------------------------------
Plan assets are invested in insurance company funds and $99,000 in the
Company's 9 1/2% subordinated debentures. The weighted average discount
rate used in determining the actuarial present value of the PBO was 7.5% in
1996 and 1995. The rate of increase in future compensation levels used in
determining the actuarial present value of the PBO was 4.0% in 1996 and
1995. The expected long-term rate of return on assets was 9.5 % in 1996
and 1995.
-20-
The Company provides supplemental retirement benefits for the Chief
Executive Officer, during 1996, the Company accrued $63,000 for such
benefits. At December 31, 1996 and 1995, respectively, the total liability
accrued was $216,000 and $153,000.
The Company's pension and supplemental pension costs for the years ended
December 31, 1996, 1995 and 1994 were $353,000, $183,000 and $226,000,
respectively.
The Company does not offer any postretirement benefits other than the
pension and the supplemental retirement benefits described herein.
As of January 1, 1994, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 112, "Employers' Accounting for
Postemployment Benefits." The standard requires the accrual of estimated
costs of benefits to former or inactive employees after employment but
before retirement. The Company did not accrue any additional liability for
such benefits during 1996.
15. STOCK OPTION PLANS
The Company has five stock option plans. The 1995 Stock Option Plan and
the 1992 Stock Option Plan reserved 100,000 and 50,000 shares of Common
Stock, respectively, for issue to key employees. Stock Option Plan II
terminated, and accordingly, additional shares cannot be granted under such
plan, which originally reserved 50,000 shares of Common Stock. The
Non-Employee Director Stock Option Plan reserved 30,000 shares of Common
Stock for grant. The Non-Statutory Stock Option Plan Agreement reserved
12,500 shares of Common Stock for grant to the Chairman of the Board.
Changes in the stock option plans are as follows:
Weighted
Number of Shares Average
--------------------------------- Exercise
Authorized Granted Available Price
- - ----------------------------------------------------------------------------
Balance December 31, 1993 101,900 80,500 21,400 $ 7.36
Terminated (3,500) (8,000) 4,500 7.47
Granted --- 17,000 (17,000) 8.77
-------------------------------------------
Balance December 31, 1994 98,400 89,500 8,900 7.62
Additional authorized shares 50,000 --- 50,000 ---
Terminated (19,700) (25,200) 5,500 7.54
Granted --- 28,200 (28,200) 8.14
Exercised (5,000) (5,000) --- 7.23
-------------------------------------------
Balance December 31, 1995 123,700 87,500 36,200 7.83
Additional authorized shares 65,000 --- 65,000 ---
Terminated --- (1,500) 1,500 8.56
Granted --- 7,000 (7,000) 12.63
Exercised (8,406) (8,406) --- 6.71
-------------------------------------------
Balance December 31, 1996 180,294 84,594 95,700 $ 8.33
- - ----------------------------------------------------------------------------
Under the 1995 Stock Option Plan and the 1992 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. 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.
During 1996, an additional 50,000 shares were authorized under the 1995
Stock Option Plan. At December 31, 1996, under the 1995 Plan, options for
22,800 shares (granted in 1995) with an exercise price of $8.125 per share
were outstanding, all of which were exercisable. No shares were exercised
during 1996 and 1995. During 1996, options for 1,000 shares expired. At
December 31, 1996, under the 1992 Plan, options for 40,794 shares (granted
in 1995, 1994, 1993 and 1992) with exercise prices ranging from $6.3125 to
$9.6875 per share were outstanding, all of which were exercisable. During
1996, options for 7,406 shares (granted in 1992) with an exercise price of
$6.3125 per share were exercised, and options for 500 shares expired.
During 1995, options for 1,300 shares (granted in 1992) with an exercise
price of $6.3125 per share were exercised and options for 1,000 shares
expired. During 1994, options for 4,500 shares expired, no options were
exercised.
Under Stock Option Plan II, option prices must be at least 100% of the
market value of the Common Stock at time of grant. Exercise periods are for
six 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, 1995, all 19,700
options under the plan had terminated. During 1995, options for 2,200 shares
(granted in 1989) with an exercise price of $7.625 per share were exercised.
During 1994, options for 3,500 shares expired, no options were exercised.
Under the Non-Employee Director Stock Option Plan, options 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 options terminate at a stipulated
period of time after an optionee ceases to be a director. At December 31,
1996, options for 8,500 shares (granted in 1996, 1995 and 1994) with exercise
prices ranging from $8.625 to $12.625 per share were outstanding, 1,500
options were exercisable. During 1996, options for 1,000 shares (granted in
1994) with an exercise price of $9.6875 per share were exercised. During
1995, an option for 1,500 shares (granted in 1989) with an option price of
$7.4375 per share was exercised. During 1995, options for 4,500 shares
expired. No options were exercised during 1994.
Under the Non-Statutory Stock Option Agreement, the option must be at
least 100% of the market value of the Common Stock at time of grant. The
exercise period is for ten years from date of grant. At December 31, 1996, an
option for 12,500 shares (granted in 1993) with an exercise price of $7.50 per
share was outstanding, which is exercisable. No options were exercised during
1996, 1995 and 1994.
-21-
The following tables summarize information about stock options
outstanding at December 31, 1996:
Range of Weighted Average Weighted
Exercise Number Remaining Average
Prices Outstanding Contractual Life Exercise Price
- - ---------------------------------------------------------------------
$6.31 -- $ 7.56 30,994 4 $ 7.19
7.57 -- 8.63 37,200 8 8.14
8.64 -- 9.69 9,400 7 9.60
9.70 -- 12.63 7,000 6 12.63
-------------------------------------------------
84,594 6 $ 8.33
- - ---------------------------------------------------------------------
Range of Number Weighted Average
Exercise Prices Exercisable Exercise Price
- - ---------------------------------------------------------------------
$6.31 -- $ 7.56 30,994 $ 7.19
7.57 -- 8.63 37,200 8.14
8.64 -- 9.69 9,400 9.60
9.70 -- 12.63 0 12.63
--------------------------------------
77,594 $ 7.94
- - ---------------------------------------------------------------------
The estimated fair value of options granted during 1996 and 1995 were $4.15
and $2.67 per share, respectively. The Company applies Accounting Principles
Board Opinion No. 25 and related Interpretations in accounting for its stock
option plans. Accordingly, no compensation cost has been recognized for its
stock option plans. Had compensation cost for the Company's stock option
plans been determined based on the fair value at option grant dates for awards
in accordance with accounting provisions of SFAS 123, the Company's net income
and earnings per share for the years ended December 31, 1996 and 1995 would
have been reduced to the pro forma amounts indicated below:
Net income applicable to common shareholders 1996 1995
- - ------------------------------------------------------------------------
Primary:
As reported $1,250,000 $1,066,000
Pro forma 1,223,000 1,047,000
- - ------------------------------------------------------------------------
Net income per common and common equivalent share
- - ------------------------------------------------------------------------
Primary:
As reported $0.97 $0.85
Pro forma 0.95 0.83
Fully diluted:
As reported 0.90 0.81
Pro forma 0.88 0.80
- - ------------------------------------------------------------------------
The fair value of options granted under the Company's stock option plans
during 1996 and 1995 was estimated on dates of grant using the binomial
options-pricing model with the following weighted-average assumptions used:
dividend yield of approximately 1.2%, expected volatility of approximately
35%, risk free interest rate of approximately 6%, and expected lives of
options granted of approximately four years. The effects of applying SFAS 123
in this pro forma disclosure are not indicative of future pro forma effects.
SFAS 123 does not apply to awards prior to 1995, and additional awards in
future years are anticipated.
16. COMMITMENTS AND CONTINGENCIES
The Company has employment agreements with certain executive officers
which expire at various dates through December 2002. The aggregate
commitment for future salaries at December 31, 1996, excluding bonuses, is
approximately $4,513,000.
During 1996, the Company received a $350,000 grant from the State of
Connecticut Department of Economic Development. This grant will be forgiven
under certain circumstances, which includes attainment of predetermined
employment levels within the state 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, certain of which claims are reimburseable
to the Company from the Company's insurance carriers. In the opinion of
management, the amount of ultimate liability with respect to these actions,
after considering the related insurance reimbursements, will not have a
material adverse affect on the consolidated financial statements of the
Company.
On March 3, 1997, the Company announced it had signed a letter of intent
to acquire certain assets, including the sign catalog business and custom
sign business from Fairtron Corporation of Des Moines, Iowa. Closing of
the transaction is subject to negotiation and execution of definitive
binding agreements and due diligence by the Company.
17. BUSINESS SEGMENT DATA
The Company's operations have been classified into two business segments.
The Communications Division designs, produces, leases, sells and services
large-scale, multi-color, real-time electronic information displays for
both indoor and outdoor use. The Entertainment and Real Estate Division
owns a chain of motion picture theatres in the southwestern United States
and owns real estate used for both corporate and income-producing purposes
in the United States and Canada.
Information about the Company's operations in its two business segments
for the three years ended December 31, 1996 is as follows:
-22-
1996 1995 1994
- - ----------------------------------------------------------------------------
Revenues
Communications $40,903,000 $33,569,000 $30,150,000
Entertainment
and real estate 4,382,000 4,222,000 3,592,000
--------------------------------------------
$45,285,000 $37,791,000 $33,742,000
Operating income
Communications $10,125,000 $ 9,500,000 $ 8,881,000
Entertainment
and real estate 335,000 548,000 204,000
--------------------------------------------
10,460,000 10,048,000 9,085,000
Other income --- 92,000 ---
General and
administrative
expenses (6,017,000) (6,157,000) (5,779,000)
Interest expense -- net (2,240,000) (2,144,000) (1,242,000)
--------------------------------------------
Income before taxes $ 2,203,000 $ 1,839,000 $ 2,064,000
--------------------------------------------
Assets
Communications $58,096,000 $49,565,000 $42,684,000
Entertainment
and real estate 6,061,000 6,654,000 6,685,000
--------------------------------------------
Total identifiable assets 64,157,000 56,219,000 49,369,000
Cash and available-
for-sale securities 19,874,000 1,241,000 3,938,000
--------------------------------------------
$84,031,000 $57,460,000 $53,307,000
--------------------------------------------
Depreciation and
amortization
Communications $ 6,620,000 $ 6,403,000 $ 5,951,000
Entertainment
and real estate 327,000 301,000 264,000
General corporate 157,000 197,000 298,000
--------------------------------------------
$ 7,104,000 $ 6,901,000 $ 6,513,000
--------------------------------------------
Capital expenditures
Communications $ 9,157,000 $ 7,461,000 $ 6,240,000
Entertainment
and real estate 101,000 220,000 2,223,000
--------------------------------------------
$ 9,258,000 $ 7,681,000 $ 8,463,000
- - ----------------------------------------------------------------------------
General and administrative expenses consist of general corporate expenses
not deemed to be operating expenses and have therefore not been allocated.
No single customer accounted for 10% or more of total revenues in 1996,
1995 or 1994. Foreign revenues were less than 10% of revenues in 1996 and
1995 and were approximately 15% in 1994.
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Trans-Lux Corporation:
We have audited the accompanying consolidated balance sheets
of Trans-Lux Corporation and subsidiaries as of December 31,
1996 and 1995 and the related consolidated statements of income
and cash flows for each of the three years in the period ended
December 31, 1996. These consolidated financial statements are
the responsibility of the Company's management. Our responsi-
bility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. 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 beleive that our audits
provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of the
Company and its subsidiaries at December 31, 1996 and 1995
and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1996 in
conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Stamford, Connecticut
February 28, 1997
-23-
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
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
------------------ ----------------------------- ---
Richard Brandt Chairman of the Board 69
Victor Liss Vice Chairman of the Board 60
President, Chief Executive
Officer and Director
Michael R. Mulcahy Executive Vice President 48
Frank N. Daniels Senior Vice President 59
Karl P. Hirschauer Senior Vice President 51
Thomas F. Mahoney Senior Vice President 49
Angela D. Toppi Senior Vice President, Treasurer 41
Secretary and Chief Financial
Officer
Messrs. Brandt, Liss and Daniels have been associated in an executive
capacity with the Company for more than five years.
Mr. Mulcahy was elected Executive Vice President in charge of sales,
marketing and engineering operations on May 18, 1995 and has been employed by
the Company since 1967. Mr. Mulcahy served as Senior Vice President in
charge of sales between December 8, 1993 and May 18, 1995 and as Vice
President in sales between 1989 and December 8, 1993.
Mr. Hirschauer was elected Senior Vice President in charge of engineering
and product development on December 8, 1993 and has been employed by the
Company since 1980. Mr. Hirschauer served as Vice President in charge of
engineering between 1984 and December 8, 1993.
-24-
Mr. Mahoney was elected Senior Vice President in charge of sales on July
1, 1996 and has been employed by the Company since 1967. Mr. Mahoney served
as Assistant Vice President in sales between December 1, 1994 and June 30,
1996.
Ms. Toppi was elected Senior Vice President in charge of finance on
September 29, 1995. Ms. Toppi has served as Secretary of the Company since
July 23, 1992, Chief Financial Officer since March 19, 1992 and Treasurer
since 1988.
(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.
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.
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.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) The following documents are filed as part of this report:
(1) Financial Statements:
Consolidated Statements of Income for the Years Ended December 31,
1996, 1995 and 1994.
Consolidated Balance Sheets as of December 31, 1996 and 1995.
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1996, 1995 and 1994.
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Notes to Consolidated Financial Statements.
Independent Auditors' Report
Individual financial statements for two 50% owned entities accounted for by
the equity method, have been omitted because they do not constitute
significant subsidiaries.
(2) Schedules: None
(3) Exhibits included herein:
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 Exhibit
3.2 of Registration No. 333-15481).
4(a) Indenture dated as of December 1, 1994 (form of said
indenture is incorporated by reference to Exhibit 6 of
Schedule 13E-4 Amendment No. 2 dated December 23, 1994).
(b) Indenture dated as of December 1, 1996 (form of said
indenture is incorporated by reference to Exhibit 4.2 of
Registration No. 333-15481).
10.1 Form of Indemnity Agreement -- Directors (form of said
agreement is incorporated by reference to Exhibit 10.1 of
Registration No. 333-15481).
10.2 Form of Indemnity Agreement -- Officers (form of said
agreement is incorporated by reference to Exhibit 10.2 of
Registration No. 333-15481).
10.3 Amended and Restated Pension Plan dated August 14, 1996,
included herein.
10.4(a) 1989 Non-Employee Director Stock Option Plan, as amended
(incorporated by reference to Exhibit 10.2 of Form 10-Q for
the quarter ended September 30, 1996).
(b) 1992 Stock Option Plan (incorporated by reference to Proxy
Statement dated April 3, 1992).
(c) Richard Brandt Stock Option Agreement dated January 1, 1993
(incorporated by reference to Exhibit 10(d) of Form 10-K for
the year ended December 31, 1992).
(d) 1995 Stock Option Plan, as amended (incorporated by reference
to Proxy Statement dated April 22, 1996).
10.5 Credit Agreement with First Fidelity Bank dated as of August
28, 1995 (incorporated by reference to Exhibit 10 of Form
10-Q for the quarter ended September 30, 1995). First
Amendment Agreement (incorporated by reference to Exhibit
10(a) of Form 10-Q for the quarter ended June 30, 1996).
Letter Amendment dated August 12, 1996 (incorporated by
reference to Exhibit 10(b) of Form 10-Q for the quarter ended
June 30, 1996). Second Amendment Agreement (incorporated by
reference to Exhibit 10.1 of Form 10-Q for the quarter ended
September 30, 1996).
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10.6 Employment Agreement with Richard Brandt dated August 16,
1996 (incorporated by reference to Exhibit 10.3 in
Registration No. 333-15481).
10.7 Employment Agreement with Victor Liss dated as of January 1,
1997, included herewith.
10.8 Employment Agreement with Michael R. Mulcahy dated as of
June 1, 1994 (incorporated by reference to Exhibit 28(d) of
Form 10-Q for the quarter ended September 30, 1994).
Amendment No. One to Employment Agreement dated June 1, 1995
(incorporated by reference to Exhibit 28(a) of Form 10-Q for
the quarter ended June 30, 1995).
10.9 Employment Agreement with Frank Daniels dated as of January
1, 1997, included herewith.
10.10 Employment Agreement with Karl Hirschauer dated as of January
1, 1997, included herewith.
10.11 Employment Agreement with Thomas F. Mahoney dated as of June
1, 1996 (incorporated by reference to Exhibit 28(a) of Form
10-Q for the quarter ended June 30, 1996).
10.12 Employment Agreement with Angela Toppi dated as of January 1,
1997, included herewith.
10.13 Asset Purchase Agreement between Trans-Lux Consulting
Corporation and American Electronic Displays, L.P. dated
July 9, 1992 (incorporated by reference to Form 8-K filed
July 13, 1992). Amendment to Asset Purchase Agreement dated
as of August 21, 1992 (incorporated by reference to Form 8-K
filed August 28, 1992). Bankruptcy Court order approving
sale (incorporated by reference to Form 8-K filed August 28,
1992).
10.14 Asset Purchase Agreement between Trans-Lux Sign Corporation
and Indicator Maintenance Corporation dated August 4, 1993
(incorporated by reference to Exhibit 28(b) of Form 10-Q for
the quarter ended September 30, 1993).
10.15 Agreement between Trans-Lux ISE Corporation and the
Stockholders of Integrated Systems Engineering, Inc. dated
as of January 17, 1995 (incorporated by reference to Exhibit
28(a) of Form 8-K filed January 23, 1995).
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10.16 Agreement with Nottingham Partners, Deerfield Partners,
Jonathan P. Schwartz and Nathaniel B. Guild dated April 4,
1991 (incorporated by reference to Exhibit 28(a) of Form 8-K
filed April 9, 1991).
10.17 Agreement with Baupost Group, Inc. and Baupost Partners
dated April 4, 1991 (incorporated by reference to Exhibit
28(b) of Form 8-K filed April 9, 1991).
11 Computation of Earnings Per Share filed herewith.
21 List of Subsidiaries filed herewith.
27 Financial Data Schedule, which is submitted electronically to
the Securities and Exchange Commission for information only
and not filed.
(b) No reports on Form 8-K were filed during the last quarter of the period
covered by this report.
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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
Senior Vice President and
Chief Financial Officer
by /s/ Robert A. Carroll
-------------------------
Robert A. Carroll
Controller and Chief Accounting Officer
Dated: March 31, 1997
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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/ Richard Brandt March 31, 1997
- - --------------------------------------
Richard Brandt, Chairman of the Board
/s/ Victor Liss March 31, 1997
- - -------------------------------------
Victor Liss, Vice Chairman of the
Board, President and Chief Executive
Officer
/s/ Steven Baruch March 31, 1997
- - --------------------------------------
Steven Baruch, Director
/s/ Jean Firstenberg March 31, 1997
- - --------------------------------------
Jean Firstenberg, Director
/s/ Allan Fromme March 31, 1997
- - --------------------------------------
Allan Fromme, PhD, Director
/s/ Robert Greenes March 31, 1997
- - --------------------------------------
Robert Greenes, Director
/s/ Eugene Jankowski March 31, 1997
- - --------------------------------------
Eugene Jankowski, Director
/s/ Howard S. Modlin March 31, 1997
- - --------------------------------------
Howard S. Modlin, Director