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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, 1998
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Commission file number 1-2257
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TRANS-LUX CORPORATION
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(Exact name of Registrant as specified in its charter)
Delaware 13-1394750
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
110 Richards Avenue, Norwalk, CT 06856-5090
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(203) 853-4321
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(Address, zip code, and telephone number, including
area code, of Registrant's principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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Common Stock, $1.00 par value American Stock Exchange
7 1/2% Convertible Subordinated
Notes due 2006 American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K. [ X ]
CONTINUED
TRANS-LUX CORPORATION
1998 Form 10-K Cover Page Continued
As of the close of business on March 29, 1999, there were outstanding, 996,415
shares of the Registrant's Common Stock and 296,005 shares of its Class B Stock.
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 29, 1999 (based on the last sale price on the American Stock Exchange
as of such date) was $9,106,335. (The value of a share of Common Stock is used
as the value for a share of Class B Stock, as there is no established market for
Class B Stock, which is convertible into Common Stock on a share-for-share
basis.)
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Registrant's definitive Proxy Statement for the Annual Meeting
of Stockholders to be held May 27, 1999 (the "Proxy Statement") are incorporated
by reference into Part III, Items 10-13 of this Form 10-K to the extent stated
herein.
TRANS-LUX CORPORATION
1998 Form 10-K Annual Report
Table of Contents
PART I
Page
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ITEM 1. Business 1
ITEM 2. Properties 7
ITEM 3. Legal Proceedings 7
ITEM 4. Submission of Matters to a Vote of Security Holders 7
PART II
ITEM 5. Market for the Registrant's Common Equity and Related
Stockholder Matters 7
ITEM 6. Selected Financial Data 9
ITEM 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11
ITEM 8. Financial Statements and Supplementary Data 13
ITEM 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 25
PART III
ITEM 10. Directors and Executive Officers of the Registrant 25
ITEM 11. Executive Compensation 26
ITEM 12. Security Ownership of Certain Beneficial Owners and Management 26
ITEM 13. Certain Relationships and Related Transactions 26
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 26
Signatures 29
PART I
ITEM 1. BUSINESS
Unless the context otherwise requires, the term "Company" as used herein
refers to Trans-Lux Corporation and its subsidiaries. The Company is a
manufacturer, distributor, and marketer 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. The Company's display
products include data, graphics, and video displays for stock and commodity
exchanges, financial institutions, sports venues, casinos, convention centers,
corporate, government, theatres, retail, airports, and numerous other
applications. In addition to its core display business, the Company also owns
and operates a chain of motion picture theatres in the southwestern United
States and owns real estate used for both corporate and income-producing
purposes.
ELECTRONIC INFORMATION DISPLAY PRODUCTS
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The Company's high performance electronic information displays are used to
communicate messages and information in a variety of indoor and outdoor
applications. The Company's product line encompasses a wide range of
state-of-the-art electronic displays in various shape, size and color
configurations. Most of the Company's display products include hardware
components and sophisticated software. In both the indoor and outdoor markets,
which the Company serves, the Company adapts basic product types and
technologies for specific use in various niche market applications. The Company
also operates a direct service network throughout the United States and Canada
which performs on-site service and maintenance for its customers and others.
The Company employs a modular engineering design strategy, allowing basic
"building blocks" of electronic modules to be easily combined and configured in
order to meet the broad application requirements of the markets it serves. This
approach ensures product flexibility, reliability, ease of service and minimum
spare parts requirements.
The Company's electronic information display market is broken down into two
distinct markets: the indoor market and the outdoor market. Electronic
information displays are used by financial institutions, including brokerage
firms, banks, saving and loans, energy companies, insurance companies and mutual
fund companies; by sports venues; educational institutions; outdoor advertising
companies; by corporate and government communication centers; by retail outlets;
by casinos, race tracks and other gaming establishments; in airports, train
stations, bus terminals, and other transportation facilities; on highways and
major thoroughfares; by movie theatres; by health maintenance organizations, and
in various other applications.
The Indoor Market: The indoor electronic display market is currently
dominated by three categories of users: financial, government and corporate,
and gaming. The financial market segment which includes trading floors,
exchanges, brokerage firms, mutual fund companies and energy companies, has
long been a user of electronic information displays due to the need for
real-time dissemination of data. The major stock and commodity exchanges depend
on reliable information displays to post stock and commodity prices, trading
volumes, interest rates and other financial information. Brokerage firms
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continue to install electronic ticker displays for both customers and brokers,
and 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 resulted in the influx
of banks and other financial institutions into the brokerage business and the
need for these institutions to use information displays to advertise product
offerings to consumers.
The government and private market segment 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 outpatient pharmacies; military hospitals and HMOs to
automatically post patient names when prescriptions are ready for pick up.
Theatres use electronic displays to post current box office and ticket
information, directional information, promote concession sales and use the
Company's Rear Window(TM) system for the hearing-impaired. 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.
The gaming market segment includes casinos and Indian gaming establishments.
These establishments generally use large information displays to post odds for
race and sporting events and to display timely information such as results,
track conditions, jockey weights and scratches. Casinos also use electronic
displays throughout their facilities to advertise to and attract gaming patrons.
This includes using electronic displays in conjunction with slot machines to
attract customer attention to potential payoffs and thus increase customer play.
Indoor equipment generally has a lead-time of 30 to 120 days depending on the
size and type of equipment ordered and material availability.
The Outdoor Market: The outdoor electronic display market is even more
diverse than the indoor market. Displays are being used by sports stadiums,
banks and other financial institutions, gas stations, highway departments,
educational institutions and outdoor advertisers attempting to capture the
attention of passers-by. The Company has utilized its strong position in the
indoor market combined with several acquisitions to enter and enhance its
presence in the outdoor display market. The Company's acquisition in May 1997
of the catalog and custom scoreboard sign business of Fairtron Corporation
(Fairtron), was in the outdoor display market. Outdoor displays are installed
in amusement parks, entertainment facilities, high schools, minor league parks,
professional and college sports stadiums, military installations, bridges and
other roadway installations, automobile dealerships, banks and other financial
institutions. Outdoor equipment generally has a lead-time of 10 to 120 days
depending on the size and type of equipment ordered and material availability.
Sales Order Backlog (excluding leases): The amount of sales order backlog
at December 31, 1998 was approximately $3.4 million compared with the December
31, 1997 sales order backlog of $7.3 million, which included a significant
financial exchange order. The December 31, 1998 backlog will be recognized in
1999. These amounts do not include new lease orders or renewals of existing
lease agreements presently in-house.
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ENGINEERING AND PRODUCT DEVELOPMENT
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The Company's ability to compete and operate successfully depends upon, among
other factors, its ability to anticipate and respond to the changing
technological and product needs of its customers. The Company continually
examines and tests new display technologies and develops enhancements to its
existing products in order to meet the 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 LED's 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.
The Company developed a full color LED video display for the outdoor market
which has application particularly in the sports market where enhancing the
presentation of live action is of central importance. To drive the video
display, the Company developed the ProLine(TM) controller which is Windows 32-
bit based. The Company also will be adding a new range of LED scoreboards to
its Fair-Play(TM) catalog business.
The Company also developed Display Connection(TM), an electronic display
system that uses the Internet to blend Dow Jones Newswires market data, business
news headlines, and sports headlines and statistics with consumer messages to
make indoor and outdoor displays more effective at focusing customers'
attention. The new product is designed for banks, brokerages, hotels, airports,
exhibition halls, casinos, retail stores, schools, and other venues where high
traffic and conditions for immediate customer action are both present. Display
Connection is currently compatible with the Company's VisionWriter(TM) displays
and message centers, and other displays are now being developed.
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 its customer's demand.
The Company maintains a staff of 51 people who are responsible for product
development and support. The engineering and product enhancement and
development efforts are supplemented by outside independent engineering
consulting organizations and colleges where required. Engineering, product
enhancement and development amounted to $3,603,000, $2,819,000 and $2,439,000 in
1998, 1997 and 1996, respectively.
MARKETING AND DISTRIBUTION
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The Company markets its indoor and outdoor electronic information display
products primarily through its 39 direct sales representatives, 7 telemarketers
and a network of independent dealers and distributors. The Company divides its
domestic sales and marketing efforts into two categories, renewal of existing
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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 ongoing relationships with its customers to discuss lease
renewals and upgrades. 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 in order to obtain lease renewal and upgrades.
The Company uses a number of different techniques in order to attract new
customers, including direct marketing efforts by its sales force to known or
potential users of information displays, advertising in industry publications,
and exhibiting at approximately 40 domestic and international trade shows
annually. In the outdoor market, the Company supplements these efforts by using
a network of independent dealers and distributors who market and sell its
products.
Internationally, the Company uses a combination of internal sales people and
independent distributors to market its products in Europe, South and Central
America, Asia, Canada and Australia. The Company currently has assembly
operations, service centers and sales offices in New South Wales, Australia and
Mississauga, Canada. The Company has existing relationships with approximately
29 independent distributors worldwide covering Europe, South and Central
America, Canada, Asia and Australia. International sales have represented less
than 10% of total revenues in the past three years, but the Company believes
that it is well positioned for expansion as the world economy recovers.
Headquartered in Norwalk, Connecticut, the Company has major sales and
service offices in New York; Chicago; Las Vegas; Norcross, Georgia; Torrance,
California; Mississauga, Canada; Logan, Utah; Des Moines, Iowa; and New South
Wales, Australia, as well as 65 satellite offices in the United States and
Canada.
The Company's equipment is both leased and sold. A significant portion of the
electronic information display revenues are from equipment rentals with current
lease terms ranging from 30 days to ten years.
The Company's revenues in 1998, 1997 and 1996 did not include any single
customer that accounted for more than 10% of total revenues.
MANUFACTURING AND OPERATIONS
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The Company's production facilities are located in Norwalk, Connecticut;
Logan, Utah; Des Moines, Iowa; 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.
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, 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 testing equipment.
Additional board assembly capacity is increased through outsourcing. The
Company's production of many of the subassemblies and all of the final
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assemblies gives the Company the control needed for on-time delivery to its
customers.
The Company also has the ability to rapidly modify its product lines. The
Company's displays are designed with flexibility in mind, enabling the Company
to customize its displays to meet different applications with a minimum of
lead-time. The Company's automated planning and purchasing department further
enables it to secure 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.
The Company's products are third-party certified as complying with
applicable safety, electromagnetic emissions and susceptibility requirements
world wide. The Company is also ISO-9001 registered by Underwriters
Laboratories for its Norwalk plant facility. The Company believes this
distinction in its industry gives it a competitive advantage in the global
marketplace.
SERVICE AND SUPPORT
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The Company emphasizes the quality and reliability of its products and the
ability of its field service personnel to provide timely and expert service to
the Company's installed base. The Company believes that the quality and
timeliness of its on-site service personnel are important components in the
Company's success. The Company provides turnkey installation and support for
the products it leases and sells in the United States, Canada and Australia.
The Company provides training to end-users and provides ongoing support to users
who have questions regarding operating procedures, equipment problems or other
issues. The Company provides service to customers who lease equipment and
offers installation and service to those who purchase equipment. In the market
segments 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 Norcross, Georgia, which performs equipment repairs and dispatches service
technicians on a nationwide basis. The Company's field service is augmented by
various outdoor service companies in the United States, Canada and overseas.
From time to time the Company uses various third-party service agents to
install, service and/or assist in the service of outdoor displays for reasons
that include geographic area, size and unusual height of displays.
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COMPETITION
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The Company's offer of short and long-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 sports and race book gaming
displays in the United States, as well as one of the largest outdoor electronic
display and service organizations in the country.
The Company competes with a number of competitors, both larger and smaller
than itself, and with products based on different forms of technology. In
addition, there are several companies whose current products utilize similar
technology and who possess the resources necessary to develop competitive and
more sophisticated products in the future.
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
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The Company currently operates 38 screens in 10 locations in the southwestern
United States, which includes the 1997 acquisitions of the Gaslight Twin Cinema
and the Lake Dillon Cinema fourplex, the additional 3 screens at the 1998
renovated Storyteller theatre in Taos, New Mexico, as well as a twelve- plex
theatre in Loveland, Colorado which is 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
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The Company owns or licenses a number of patents and holds a number of
trademarks for its display equipment and theatrical enterprises and considers
such patents, trademarks and licenses important to its business.
EMPLOYEES
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The Company has approximately 641 employees as of February 28, 1999, of which
approximately 500 employees support the Company's electronic display business.
Less than 1% of the employees are unionized. The Company believes its employee
relations are good.
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ITEM 2. PROPERTIES
The Company's headquarters and principal executive offices are located at 110
Richards Avenue, Norwalk, Connecticut. The Company owns the 102,000 square foot
facility located at such site, which is occupied by the Company and is used for
administration, sales, engineering, production and assembly of its indoor
display products. Approximately 14,000 square feet of the building is currently
leased to others.
In addition, the Company owns facilities in:
Torrance, California
Norcross, Georgia
Des Moines, Iowa
Logan, Utah
Mississauga, Canada.
Theatre Properties in:
Sahuarita, Arizona
Dillon, Colorado
Durango, Colorado
Santa Fe, New Mexico
Taos, New Mexico.
The Company also leases 10 premises throughout North America and in Australia
for use as sales, service and/or administrative operations, and leases seven
theatre locations. The aggregate rental expense was $585,000, $456,000 and
$296,000 for 1998, 1997 and 1996, respectively.
ITEM 3. LEGAL PROCEEDINGS
The Company is subject to legal proceedings and claims which arise in the
ordinary course of its business. In the opinion of management, the amount of
ultimate liability with respect to these actions 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.
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(b) The Company had approximately 793 holders of record of its Common Stock
and approximately 69 holders of record of its Class B Stock as of
March 29, 1999.
(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
1998. Management and the Board of Directors will continue to review
payment of the quarterly cash dividends.
(d) The range of Common Stock prices on the American Stock Exchange are set
forth in the following table:
High Low
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1998
First Quarter $16 $13 5/8
Second Quarter 14 12 1/8
Third Quarter 12 15/16 8 5/8
Fourth Quarter 10 5 1/2
1997
First Quarter $13 $11 1/8
Second Quarter 13 1/4 11 1/2
Third Quarter 15 1/2 12 1/4
Fourth Quarter 15 7/8 13 5/8
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ITEM 6. SELECTED FINANCIAL DATA
(a) The following table sets forth selected consolidated financial data with
respect to the Company for the five years ended December 31, 1998, which
were derived from the audited consolidated financial statements of the
Company and should be read in conjunction with them.
Years Ended 1998 1997 1996 1995 1994
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In thousands, except per share data
Revenues $63,778 $53,363 $45,285 $37,791 $33,472
Net income 1,699 1,510 1,250 1,066 1,314 (1)
Earnings per share:
Basic $ 1.32 $ 1.18 $ 0.99 $ 0.85 $ 1.05 (1)
Diluted $ 0.85 $ 0.80 $ 0.89 $ 0.79 $ 0.92 (1)
Cash dividends per share:
Common stock $ 0.14 $ 0.14 $ 0.14 $ 0.14 $ 0.14
Class B stock $ 0.126 $ 0.126 $ 0.126 $ 0.126 $ 0.126
Average common shares outstanding 1,290 1,281 1,258 1,250 1,248
Total assets $91,146 $88,978 $84,031 $57,460 $53,307
Long-term obligations 49,523 49,452 48,112 22,495 19,693
Stockholders' equity 25,851 24,332 22,662 21,499 20,524
(1) 1994 reflects the positive impact of the settlement of an assessment of income taxes and related
interest expense resulting from a state income tax audit of approximately $360,000.
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(b) The following table sets forth quarterly financial data for the years ended
December 31, 1998 and 1997:
Quarter Ended (unaudited) March 31 June 30 September 30 December 31 (1)
In thousands, except per share data
1998
Revenues $15,956 $15,877 $16,739 $15,206
Gross profit 5,862 5,877 6,034 6,394
Income before income taxes 627 661 813 927
Net income 345 364 446 544
Earnings per share:
Basic $ 0.27 $ 0.28 $ 0.35 $ 0.42
Diluted $ 0.19 $ 0.19 $ 0.22 $ 0.25
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
1997
Revenues $10,548 $13,599 $14,367 $14,849
Gross profit 4,618 5,406 5,427 6,341
Income before income taxes 475 545 745 1,082
Net income 271 310 425 504
Earnings per share:
Basic $ 0.21 $ 0.24 $ 0.33 $ 0.40
Diluted $ 0.18 $ 0.18 $ 0.21 $ 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) During the fourth quarter of 1998 the Company adjusted certain standard manufacturing cost estimates
to year-to-date actual costs resulting in an increase of approximately $77,000 to net income in the quarter.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
The Company's total revenues for the year ended December 31, 1998 increased
19.5% to $63.8 million from $53.4 million for the year ended December 31, 1997.
Revenues from equipment rentals and maintenance decreased slightly to $23.2
million in 1998 from $23.5 million in 1997 or 1.2%. Indoor display rental and
maintenance increased 6.9%, this increase was more than offset by the 11.9%
continued, expected decrease from the outdoor lease and maintenance bases
previously acquired. Revenues from equipment sales increased to $33.9 million
in 1998 from $24.4 million in 1997 or 38.6%. Indoor display sales increased
42.6%, primarily due to an increase in the volume of sales. Outdoor display
sales increased 36.5%, primarily attributable to the acquisition of the catalog
and custom scoreboard sign business of Fairtron Corporation in May 1997 and
increased sales of other outdoor products. Revenues from theatre receipts and
other increased $1.3 million or 23.5% in 1998. This increase is primarily
attributable to the acquisitions of the Lake Dillon Cinema in September 1997,
the Gaslight Cinema in March 1997, the expansion of the Taos Storyteller Cinema
from a four-plex to a seven-plex in February 1998, and increased concession
sales.
Gross profit as a percentage of revenues was 37.9% in 1998 compared to 40.8%
in 1997. The decrease in gross profit percentage was expected as the Company
enters and increases its market share in existing and new industry segments of
the outdoor market. Cost of equipment rentals and maintenance, includes field
service expenses, plant repair costs, maintenance and depreciation. The indoor
display cost of equipment rental and maintenance increased 13.4%, principally
due to increased depreciation expense. The outdoor display cost of equipment
rental and maintenance decreased slightly. The cost of equipment rentals and
maintenance represented 54.4% of related revenues in 1998 compared to 50.7% in
1997. Cost of equipment sales increased $6.1 million or 39.6%. The indoor
display cost of equipment sales increased 37.7%, primarily due to an increase in
the volume of sales. During the fourth quarter of 1998, the Company adjusted
certain indoor standard manufacturing cost estimates to year-to-date actual
costs resulting in an increase of approximately $77,000 to net income in the
quarter. The outdoor display cost of equipment sales increased 40.3%,
principally due to the Fairtron acquisition and an increase in sales of other
outdoor products. Due to the nature of the outdoor display market, the Company
anticipates the gross profit margin to continue to decline somewhat as it enters
and increases its market share in existing and new industry segments of this
market. The cost of equipment sales represented 63.8% of related revenues in
1998 compared to 63.3% in 1997. Cost of theatre receipts and other, which
includes film rental costs, increased $1.2 million or 29.0%, mainly as a result
of the expansion of the theatre operations. The cost of theatre receipts and
other represented 80.1% of related revenues in 1998 compared to 76.7% in 1997.
Total general and administrative expenses increased $2.0 million or 12.3%.
The indoor display general and administrative expenses increased 3.4%, primarily
due to expanded sales and marketing efforts. The outdoor display general and
administrative expenses increased 16.5%, primarily due to the Fairtron
acquisition. The entertainment and real estate general and administrative
expenses increased slightly. Corporate general and administrative expenses
increased 18.2%, primarily due to increased administrative support.
Interest income decreased $545,000, primarily attributable to the utilization
of investments to acquire rental equipment and construct new theatres. Interest
expense decreased $255,000, primarily due to a charge in 1997 of approximately
$113,000 for the unamortized portion of the financing costs pertaining to the
redemption of the 9% Convertible Subordinated Debentures (the 9% Debentures).
Other income relates to the equity in earnings of the joint venture, MetroLux
Theatres and gains on sales of securities.
The effective tax rate was 43.9% in 1998 and 47.0% in 1997. The decrease in
the effective tax rate for 1998 was largely due to reduced foreign tax losses in
1998 compared to 1997.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
The Company's total revenues for the year ended December 31, 1997 increased
17.8% to $53.4 million from $45.3 million for the year ended December 31, 1996.
Revenues from equipment rentals and maintenance increased to $23.5 million in
1997 from $22.2 million in 1996 or 5.9%. Indoor display rental and maintenance
increased 14.0%, primarily due to an increase in new business. Outdoor display
rental and maintenance decreased 3.1%, primarily due to the continued, expected
decline from the outdoor lease and maintenance bases previously acquired.
Revenues from equipment sales increased to $24.4 million in 1997 from $18.7
million in 1996 or 30.4%. Indoor display sales decreased 38.8%, in 1996, the
Company recognized certain significant sales which did not recur in 1997.
Outdoor display sales increased 207.6%, primarily attributable to the Fairtron
acquisition in May 1997 and increased sales of other outdoor products. Revenues
from theatre receipts and other increased $1.1 million or 24.5% in 1997,
primarily attributable to the acquisitions of the Gaslight Cinema in March 1997
and the Lake Dillon Cinema in September 1997, and increased concession sales.
Gross profit as a percentage of revenues was 40.8% in 1997 compared to 39.3%
in 1996. Cost of equipment rentals and maintenance decreased $259,000 or 2.1%.
Both the indoor display and outdoor display cost of equipment rental and
maintenance decreased slightly, but were benefited by the favorable impact on
depreciation expense resulting from a change in the estimate of the useful lives
of rental equipment. The cost of equipment rentals and maintenance represented
50.7% of related revenues in 1997 compared to 54.9% in 1996. Cost of equipment
sales increased $3.5 million or 29.1%. The indoor display cost of equipment
sales decreased 50.7%, primarily due to certain significant sales recorded in
1996 that did not recur in 1997. The outdoor cost of equipment sales increased
240.4%, principally due to the Fairtron acquisition and an increase in sales of
other outdoor products. During 1997, the gross profit margin benefited by the
allocation of certain fixed overhead costs over larger production volume. The
cost of equipment sales represented 63.3% of related revenues in 1997 compared
to 64.0% in 1996. Cost of theatre receipts and other increased $838,000 or
25.0%, mainly as a result of the expansion of the theatre operations. The cost
of theatre receipts and other represented 76.7% of related revenues in 1997
compared to 76.4% in 1996.
-11-
Total general and administrative expenses increased $2.8 million or 21.5%.
The indoor display general and administrative expenses increased 9.8%, primarily
due to expanded sales and marketing efforts. The outdoor display general and
administrative expenses increased 83.3%, primarily due to the Fairtron
acquisition and expanded sales and marketing efforts. The entertainment and
real estate general and administrative expenses increased slightly. Corporate
general and administrative expenses increased 5.7%, primarily due to increased
administrative support, and the negative impact of the effect of foreign
currency exchange rates, offset partially by a favorable litigation settlement.
Interest income increased $1.0 million, primarily attributable to increased
investments from the proceeds of the issuance of the 7 1/2% Convertible
Subordinated Notes due 2006 (the Notes). Interest expense increased $1.9
million, primarily due to the issuance of the Notes and a charge for the
unamortized portion of the financing costs pertaining to the redemption of the
9% Debentures. Other income in 1997 related to the equity in earning of the
joint venture, MetroLux Theatres and gains on sales of securities. Other
expense in 1996 related to the share of loss of MetroLux Theatres, which
included start up costs.
The effective tax rate was 47.0% in 1997 and 43.2% in 1996. The increase in
the effective tax rate for 1997 was largely due to tax losses of the foreign
subsidiaries, for which no tax benefit was recognized.
Accounting Standards
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" in the first quarter of
1998.
The Company will adopt the provisions of Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" (SFAS 133) effective January 1, 2000. The standard requires
companies to recognize all derivatives as either assets or liabilities and
measure those instruments at fair value. Gains or losses resulting from changes
in the values of those derivatives would be accounted for depending on the use
of the derivative and whether it qualifies for hedge accounting. The Company
does not expect the adoption of SFAS 133 to have a material impact on its
consolidated financial statements.
Liquidity and Capital Resources
The Company's primary sources of liquidity and capital resources have been cash
flow from operations and bank borrowings. In late 1996, the Company issued
$27.5 million of the Notes. On January 14, 1997, the Underwriter exercised
their overallotment option, bringing the total amount outstanding to $31.6
million. The related Indenture agreement contains certain financial covenants
with which the Company is in compliance and expects to remain in compliance.
The Company believes that cash generated from operations together with the
net proceeds of the issuance of the Notes will be sufficient to fund its
anticipated near term cash requirements. The net proceeds of the Notes were
used, in part, to pay down certain of the Company's debt, redemption of the
outstanding 9% Debentures and to finance the Fairtron and theatre acquisitions.
The Company has a $10.0 million revolving credit facility with its bank, which
is available to June 2000, at which time the outstanding balance will convert
into a five-year term loan. At December 31, 1998 the Company had $6.6 million
additional borrowing capacity under this facility. Subsequent to year end, the
revolving credit facility has been increased to $15.0 million and extended to
June 2001.
The $545,000 decrease in cash and cash equivalents in 1998 is primarily
attributable to investment in rental equipment and construction of theatres.
The decrease of $17.4 million in 1997 was primarily due to the net investment of
$7.3 million of the net proceeds of the Notes in available-for-sale securities,
cash utilized for investment in rental equipment and cash utilized in connection
with the acquisitions. The Company continues to experience a favorable
collection cycle on its trade receivables. Unbilled receivables primarily
relates to contracts being recognized on the percentage of completion basis.
The Company has two term loans under its Credit Agreement with First Union
National Bank for a total of $8.7 million of indebtedness at a variable rate of
interest of LIBOR plus 1.75%. The Company has two interest rate swap agreements
in place, with a notional value equal to the amount of the two term loans and
with corresponding maturity terms, which have the effect of converting the
interest rate on such term loans to a fixed average annual rate of 7.86% through
July 2002. The Credit Agreement facility contains certain financial covenants
with which the Company must comply, absent a waiver by the bank, on a continuing
basis, with which the Company is in compliance and expects to remain in
compliance.
Year 2000 Considerations
Many currently installed computer systems and software products are coded to
accept only two-digit entries in the date code field and cannot distinguish 21st
century dates from 20th century dates. These date code fields will need to
distinguish 21st century dates from 20th century dates and, as a result, many
companies' software and computer systems may need to be upgraded or replaced in
order to comply with such Year 2000 requirements. For the Company, this process
involves modifying or replacing certain hardware and software. The Company has
received software updates from its software vendors to make the software
licensed to the Company Year 2000 compliant. The Company is utilizing both
internal and external resources to reprogram, replace and test all of its
software for Year 2000 compliance. The Company expects to complete the project
by mid 1999 and believes that its level of preparedness is appropriate. The
total cost for this project is estimated to be $350,000 of which $250,000 will
be capitalized. The cost is being funded through operating cash flows and are
not expected to have a material impact on the Company's cash flows, results of
operations or financial condition. In addition, the Company is communicating
with others with whom it does significant business to determine their Year 2000
compliance readiness and the extent to which the Company is vulnerable to any
third-part Year 2000 issues. Failure by the Company and/or vendors and
customers to complete Year 2000 compliance work in a timely manner could have a
material adverse effect on certain of the Company's operations. The Company is
in the process of developing contingency plans in the event it does not complete
all phases of its Year 2000 project. The costs of this project and the expected
completion dates are based on management's best estimates.
Safe Harbor Statement under the Private Securities Reform Act of 1995
The Company may, from time to time, provide estimates as to future performance.
These forward looking statements will be estimates, and may or may not be
realized by the Company. The Company undertakes no duty to update such forward
looking statements. Many factors could cause actual results to differ from
these forward looking statements, including loss of market through competition,
introduction of competing products by others, pressure on prices from
competition or purchasers of the Company's products, and interest rate and
foreign exchange fluctuations.
-12-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements and supplementary financial information
are set forth below:
CONSOLIDATED STATEMENTS OF INCOME
In thousands, except share data Years ended December 31 1998 1997 1996
---- ---- ----
Revenues:
Equipment rentals and maintenance $23,181 $23,472 $22,162
Equipment sales 33,858 24,434 18,741
Theatre receipts and other 6,739 5,457 4,382
------- ------- -------
Total revenues 63,778 53,363 45,285
------- ------- -------
Operating expenses:
Cost of equipment rentals and maintenance 12,602 11,906 12,165
Cost of equipment sales 21,609 15,478 11,991
Cost of theatre receipts and other 5,400 4,187 3,349
------- ------- -------
Total operating expenses 39,611 31,571 27,505
------- ------- -------
Gross profit from operations 24,167 21,792 17,780
General and administrative expenses 17,993 16,023 13,184
------- ------- -------
6,174 5,769 4,596
Interest income 646 1,191 172
Interest expense (4,098) (4,353) (2,412)
Other income (expense) 306 240 (153)
------- ------- -------
Income before income taxes 3,028 2,847 2,203
------- ------- -------
Provision for income taxes:
Current 799 164 518
Deferred 530 1,173 435
------- ------- -------
1,329 1,337 953
------- ------- -------
Net income $ 1,699 $ 1,510 $ 1,250
======= ======= =======
Earnings per share:
Basic $ 1.32 $ 1.18 $ 0.99
Diluted $ 0.85 $ 0.80 $ 0.89
------- ------- -------
Average common shares outstanding:
Basic 1,290 1,281 1,258
Diluted 3,554 3,617 1,704
The accompanying notes are an integral part of these consolidated financial statements.
-13-
CONSOLIDATED BALANCE SHEETS
In thousands, except share data December 31 1998 1997
---- ----
ASSETS
Current assets:
Cash and cash equivalents $ 1,298 $ 1,843
Available-for-sale securities 4,914 8,245
Receivables 7,287 6,833
Unbilled receivables 374 620
Inventories 5,381 4,644
Prepaids and other 360 831
------- -------
Total current assets 19,614 23,016
------- -------
Equipment on rental 70,654 62,910
Less accumulated depreciation 28,289 23,009
------- -------
42,365 39,901
------- -------
Property, plant and equipment 30,816 27,064
Less accumulated depreciation and amortization 8,433 8,070
------- -------
22,383 18,994
Prepaids, intangibles and other 5,986 6,061
Maintenance contracts, net 798 1,006
------- -------
$91,146 $88,978
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accruals $ 6,167 $ 6,814
Income taxes payable 275 ---
Current portion of long-term debt 258 258
------- -------
Total current liabilities 6,700 7,072
------- -------
Long-term obligations:
7 1/2% convertible subordinated notes due 2006 31,625 31,625
9 1/2% subordinated debentures due 2012 1,057 1,057
Obligations payable 16,841 16,770
------- -------
49,523 49,452
Deferred revenue, deposits and other 4,254 3,369
Deferred income taxes 4,818 4,753
------- -------
Stockholders' equity:
Capital stock
Common - $1 par value - 5,500,000 shares authorized
2,443,119 shares issued in 1998 and 2,442,765 in 1997 2,443 2,443
Class B - $1 par value - 1,000,000 shares authorized
297,286 shares issued in 1998 and 297,640 in 1997 297 297
Additional paid-in-capital 13,901 13,904
Retained earnings 20,821 19,297
Accumulated other comprehensive income --- 29
------- -------
37,462 35,970
Less treasury stock - at cost - 1,448,016 shares in 1998 and 1,453,722 in 1997
(excludes additional 297,286 shares held in 1998 and 297,640 in 1997 for 11,611 11,638
conversion of Class B stock) ------- -------
Total stockholders' equity 25,851 24,332
------- -------
$91,146 $88,978
======= =======
The accompanying notes are an integral part of these consolidated financial statements.
-14-
CONSOLIDATED STATEMENTS OF CASH FLOWS
In thousands Years ended December 31 1998 1997 1996
---- ---- ----
Cash flows from operating activities
Net income $1,699 $1,510 $1,250
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 7,862 7,076 7,104
Net (income) loss of joint venture (183) (47) 153
Deferred income taxes 108 956 134
Gain on sale of securities (87) (193) ---
Changes in operating assets and liabilities:
Receivables (454) (579) (1,770)
Unbilled receivables 246 1,781 (2,401)
Inventories (737) (786) 125
Prepaids and other 376 (710) (1,314)
Accounts payable and accruals (623) (2,403) 1,370
Income taxes payable 275 (105) (31)
Deferred revenue, deposits and other 599 121 58
------ ------ ------
Net cash provided by operating activities 9,081 6,621 4,678
------ ------ ------
Cash flows from investing actiivities
Equipment manufactured for rental (7,802) (10,500) (8,156)
Purchases of property, plant and equipment (5,160) (2,012) (1,102)
Payments for acquisitions (net) --- (2,283) ---
Proceeds from joint venture 94 94 364
Loan to joint venture --- --- (941)
Purchases of available-for-sale securities --- (18,343) ---
Redemption of available-for-sale securities 3,322 11,007 ---
------ ------ ------
Net cash used in investing activities (9,546) (22,037) (9,835)
------ ------ ------
Cash flows from financing activities
Proceeds from long-term obligations 1,876 7,325 27,850
Repayment of long-term obligations (1,805) (4,600) (3,421)
Repayment of short-term borrowings --- --- (500)
Redemption of Company's 9% convertible subordinated debentures --- (4,573) ---
Proceeds from exercise of stock options 24 10 12
Purchase of treasury stock --- --- (1)
Cash dividends (175) (177) (174)
------ ------ ------
Net cash provided by (used in) financing activities (80) (2,015) 23,766
------ ------ ------
Net increase (decrease) in cash and cash equivalents (545) (17,431) 18,609
Cash and cash equivalents at beginning of year 1,843 19,274 665
------ ------ ------
Cash and cash equivalents at end of year $1,298 $1,843 $19,274
------ ------ ------
Interest paid $3,674 $4,115 $2,171
Interest received 733 1,016 180
Income taxes paid 519 694 749
------ ------ ------
The accompanying notes are an integral part of these consolidated financial statements.
-15-
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Accumulated
Common Stock Class B Additional Other
In thousands, except share data ------------ ------- Paid-in Treasury Retained Comprehensive
For the three years ended Shares Amount Shares Amount Capital Stock Earnings Income
December 31, 1998 --------- ------ -------- ------- ---------- --------- --------- -------------
Balance December 31, 1995 2,436,268 $2,436 304,137 $304 $13,806 $(11,864) $16,888 $(71)
Net income --- --- --- --- --- --- 1,250 ---
Cash dividends --- --- --- --- --- --- (174) ---
Other comprehensive income:
Unrealized holding gain --- --- --- --- --- --- --- 13
Conversion of 9% convertible --- --- --- --- --- --- --- ---
subordinated debentures --- --- --- --- 23 40 --- ---
Exercise of stock options --- --- --- --- (11) 23 --- ---
Common stock acquired (81 shares) --- --- --- --- --- (1) --- ---
Class B conversion to common stock 5,497 6 (5,497) (6) --- --- --- ---
--------- ----- -------- ------- ---------- --------- --------- -------------
Balance December 31, 1996 2,441,765 2,442 298,640 298 13,818 (11,802) 17,964 (58)
Net income --- --- --- --- --- --- 1,510 ---
Cash dividends --- --- --- --- --- --- (177) ---
Other comprehensive income:
Unrealized foreign currency trans --- --- --- --- --- --- --- 23
Unrealized holding gain --- --- --- --- --- --- --- 64
Conversion of 9% convertible --- --- --- --- --- --- --- ---
subordinated debentures --- --- --- --- 89 151 --- ---
Exercise of stock options --- --- --- --- (3) 13 --- ---
Class B conversion to common stock 1,000 1 (1,000) (1) --- --- --- ---
--------- ----- -------- ------- ---------- --------- --------- -------------
Balance December 31, 1997 2,442,765 2,443 297,640 297 13,904 (11,638) 19,297 29
Net income --- --- --- --- --- --- 1,699 ---
Cash dividends --- --- --- --- --- --- (175) ---
Other comprehensive income:
Unrealized foreign currency trans --- --- --- --- --- --- --- 49
Unrealized holding loss --- --- --- --- --- --- --- (78)
Exercise of stock options --- --- --- --- (3) 27 --- ---
Class B conversion to common stock 354 --- (354) --- --- --- --- ---
--------- ----- -------- ------- ---------- --------- --------- -------------
Balance December 31, 1998 2,443,119 $2,443 297,286 $297 $13,901 $(11,611) $20,821 $0
========= ====== ======== ======= ========== ========= ========= =============
The accompanying notes are an integral part of these consolidated financial
statements.
-16-
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 and is recorded as a component of other income
(expense) in the Consolidated Statements of Income.
Cash equivalents: The Company considers all highly liquid investments
with a maturity of three months or less, when purchased, to be cash equivalents.
Available-for-sale securities: Available-for-sale securities
consist of common and preferred stock holdings and corporate debt securities and
are stated at fair value.
Inventories: Inventories are stated at the lower of cost (first-in,
first-out method) or market value.
Equipment on rental and property, plant and equipment: Equipment on
rental and property, plant and equipment are stated at cost and are being
depreciated over their respective useful lives using straight line or 150%
declining balance methods. Leaseholds and improvements are amortized over the
lesser of the useful lives or term of the lease. The estimated useful lives are
as follows:
Equipment on rental 5 to 15 years
Buildings and improvements 10 to 45 years
Machinery, fixtures and equipment 4 to 15 years
Leaseholds and improvements 2 to 17 years
When equipment on rental and property, plant and equipment are fully
depreciated, retired or otherwise disposed of, the cost and accumulated
depreciation are eliminated from the accounts.
Goodwill and intangibles: Goodwill and intangible assets are amortized
on a straight line basis, using the following useful lives: Goodwill over 20
years; non-compete agreements over their contractual terms of five and seven
years; deferred financing costs over the life of the related debt; and patents
and other intangibles over 14 to 30 years.
Maintenance contracts: Purchased maintenance contracts are stated at
cost and are being amortized over their economic lives of eight to 15 years
using an accelerated method which contemplates contract expiration, fall-out,
and non-renewal.
Impairment of long-lived assets: The Company evaluates long-lived
assets, including intangible assets and goodwill, for possible impairment when
events or changes in circumstances indicate that the carrying amount of such
assets may not be recoverable. In making such an evaluation, the Company
estimates the future cash flows expected to result from the use of the asset and
its eventual disposition to measure whether the asset is recoverable.
Revenue recognition: Rental revenue from leasing of equipment and
revenue from maintenance contracts are recognized as they accrue during the term
of the respective agreements. The Company recognizes revenues on long-term
equipment sales contracts, which require more than three months to complete,
using the percentage of completion method. The Company records unbilled
receivables representing amounts due under these long-term equipment sales
contracts which have not yet been billed to the customer. Income is recognized
based on the percentage of incurred costs to the estimated total costs.
Revenues on equipment sales, other than long-term equipment sales contracts, are
recognized upon shipment. Theatre receipts and other revenues are recognized at
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.
Foreign currency: The functional currency of the Company's non-U.S.
business operations is the applicable local currency. The assets and
liabilities of such operations are translated into U.S. dollars at the year-end
rate of exchange, and the income and cash flow statements are converted at the
average annual rate of exchange. The resulting translation adjustment is
recorded as a component of stockholders' equity. Gains and losses related to
the settling of transactions not denominated in the functional currency are
recorded as a component of general and administrative expenses in the
Consolidated Statements of Income.
Derivative financial instruments: The Company has limited involvement
with derivative financial instruments and does not use them for trading
purposes; they are only used to manage well-defined interest rate risks. From
time to time the Company enters into interest rate swap agreements to reduce
exposure to interest fluctuations. The net gain or loss from the exchange of
interest rate payments is included in interest expense in the Consolidated
Statements of Income and in interest paid in the Consolidated Statements of Cash
Flows.
Accounting Pronouncement: The Company will adopt the provisions of
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS 133) effective January 1, 2000. The
standard requires companies to recognize all derivatives as either assets or
liabilities and measure those instruments at fair value. Gains or losses
resulting from changes in the values of those derivatives would be accounted for
depending on the use of the derivative and whether it qualifies for hedge
accounting. The Company does not expect the adoption of SFAS 133 to have a
material impact on its consolidated financial statements.
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.
-17-
2. Change in Estimate
Effective January 1, 1997, the Company reevaluated and changed the estimated
useful lives of its equipment on rental from eight to ten years for indoor
rental equipment and from ten to 15 years for outdoor rental equipment. This
change, accounted for prospectively over the remaining useful lives of such
assets, aligned the depreciation periods to better reflect actual experience.
In the year ended December 31, 1997 this resulted in a favorable impact to net
income of approximately $530,000, basic earnings per share of $0.41 and diluted
earnings per share of $0.13, as compared to depreciation expense in the year
ended December 31, 1996.
3. Available-for-Sale Securities
Available-for-sale securities are carried at estimated fair values and the
unrealized holding gains and losses are excluded from earnings and are reported
net of income taxes in a separate component of stockholders' equity until
realized. Adjustments of ($53,000) and $6,000 were made to equity to reflect
the net unrealized losses and gains on available-for-sale securities as of
December 31, 1998 and 1997, respectively. The Company realized gains on the
sales of available-for-sale securities of $88,000 in 1998 and $193,000 in 1997.
Available-for-sale securities consist of the following:
In thousands 1998 1997
Fair Unrealized Fair Unrealized
Value Gains/(Losses) Value Gains/(Losses)
----------------------------------------------
Equity securities $ 609 $(95) $ 660 $(45)
Corporate debt securities:
Maturities of up to 5 years 4,305 10 6,330 31
Maturities of 5 to 10 years - - 1,255 25
------ ----- ------ -----
$4,914 $(85) $8,245 $ 11
------ ----- ------ -----
4. Inventories
Inventories consist of the following:
In thousands 1998 1997
Raw materials and spare parts $3,230 $1,993
Work-in-progress 1,218 553
Finished goods 933 2,098
------ ------
$5,381 $4,644
------ ------
5. Property, Plant and Equipment
Property, plant and equipment consist of the following:
In thousands 1998 1997
Land, buildings and improvements $18,335 $16,824
Machinery, fixtures and equipment 9,558 7,312
Leaseholds and improvements 2,923 2,928
------- -------
$30,816 $27,064
------- -------
Land, buildings and equipment having a net book value of $7.4 million and $6.1
million at December 31, 1998 and 1997, respectively, were pledged as collateral
under mortgage agreements.
6. Prepaids, Intangibles and Other
Prepaids, intangibles and other consist of the following:
In thousands 1998 1997
Deferred financing costs, net of
accumulated amortization of $729 - 1998
and $445 - 1997 $1,828 $2,069
Goodwill and noncompete agreements,
net of accumulated amortization of $630-
1998 and $438 - 1997 1,667 1,572
Investment in and loans to joint ventures 899 810
Prepaids, including pension asset 850 798
Patents and other intangibles, net of
accumulated amortization of $320 -1998
and $254 - 1997 218 284
Other 524 528
------ ------
$5,986 $6,061
------ ------
Deferred financing costs relate to issuance of the 7 1/2% convertible
subordinated notes and the 9 1/2% subordinated debentures, and other financing
agreements.
Goodwill and noncompete agreements relate to the acquisition of
Integrated Systems Engineering,Inc. and Fairtron.
The loan to the joint venture, MetroLux Theatres, had a balance of
$690,000 and $784,000 at December 31, 1998 and 1997, respectively, of which
$94,000 was classified as current at both dates.
7. Maintenance Contracts
Maintenance contracts represent the present value of acquired agreements to
service outdoor display equipment, and are net of accumulated amortization of
$1,850,000 and $1,642,000, at December 31, 1998 and 1997, respectively.
8. Acquisition
On May 1, 1997, the Company acquired the catalog and custom scoreboard sign
business segment of Fairtron Corporation (Fairtron), an Iowa corporation. The
acquisition has been accounted for using the purchase method of accounting. The
purchase price of $7.3 million included the payment of approximately $104,000,
noncompete and consulting fees and assumption of certain debt, and was allocated
on the basis of the fair value of the assets acquired and liabilities assumed.
The excess of the purchase price over the fair value of the net assets acquired
has been recorded as goodwill. The agreement had also provided for a contingent
purchase price of up to $250,000 based on future sales, which was terminated as
a result of additional liabilities that were identified within the first year of
operations.
The historical financial results of Fairtron included both the catalog
and custom scoreboard sign businesses, and also included certain expenses which
are not expected to continue. Just prior to the acquisition, head count was
-18-
reduced. Subsequent to the acquisition, the Company has taken actions which it
believes will reduce operating expenses through the consolidation of facilities
and other cost saving measures. In addition, the Company's operation of the
custom scoreboard business portion is anticipated to be at a lower level of
activity because the Company does not expect to continue to manufacture certain
scoreboards that produce lower profit margins. The effects of such actions are
not included in the pro forma data.
The pro forma data presented below should be read in conjunction with
the Company's consolidated financial statements. The pro forma data 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,
1996 and January 1, 1997 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.
In thousands, except per share data 1997 1996
Unaudited
Revenues $57,816 $59,856
Net income $ 1,560 $ 793
Earnings per share-basic $ 1.22 $ 0.63
Earnings per share-diluted $ 0.81 $ 0.63
9. Taxes on Income
The components of income tax expense are as follows:
In thousands 1998 1997 1996
Current:
Federal $ 637 $ (1) $349
State and local 144 165 169
Foreign 18 - -
------ ------ ----
799 164 518
Deferred:
Federal 304 1,094 386
State and local 226 79 49
------ ------ ----
530 1,173 435
------ ------ ----
Total income tax expense $1,329 $1,337 $953
------ ------ ----
Income taxes provided differed from the expected federal statutory rate of 34%
as follows:
1998 1997 1996
Statutory federal income tax rate 34.0% 34.0% 34.0%
State income taxes, net of federal benefit 8.1 5.7 6.5
Foreign losses - 6.0 -
Other 1.8 1.3 2.7
---- ---- ----
Effective income tax rate 43.9% 47.0% 43.2%
---- ---- ----
Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax assets and liabilities are as follows:
In thousands 1998 1997
Long-term liability
Deferred tax asset:
Tax credit carryforwards $2,143 $1,085
Operating loss carryforwards 616 150
Depreciation and amortization 446 463
Net pension cost 204 126
Other 591 325
Valuation allowance (202) (246)
------ ------
3,798 1,903
Deferred tax liability:
Depreciation 7,637 5,659
Gain on purchase of
Company's 9% debentures 439 439
Net pension benefit 373 373
Other 167 185
------ ------
8,616 6,656
------ ------
Net deferred tax liability $4,818 $4,753
------ ------
A valuation allowance has been established for the amount of deferred tax assets
related to certain net operating loss carryforwards which management estimates
will more likely than not expire unused.
10. Accounts Payable and Accruals
Accounts payable and accruals consist of the following:
In thousands 1998 1997
Accounts payable $1,703 $2,627
Compensation and employee benefits 1,613 1,404
Taxes payable 874 656
Interest payable 487 275
Accruals 1,490 1,852
------ ------
$6,167 $6,814
------ ------
11. Long-Term Obligations
Long-term obligations consist of the following:
In thousands 1998 1997
7 1/2% convertible subordinated
notes due 2006 $31,625 $31,625
9 1/2% subordinated debentures
due 2012 1,057 1,057
Term loans-bank, secured due in
quarterly installments through 2004 8,712 10,328
Revolving credit facility - bank,
secured 3,400 3,200
Real estate mortgages - secured, due
in monthly installments through 2018 4,506 3,095
Loan payable - CDA, due in monthly
installments through 2002 at 5.0% 299 375
Capital lease obligations -
secured, due in monthly installments
through 2004 at 5.3% 182 30
------- -------
49,781 49,710
Less portion due within one year 258 258
------- -------
Long-term obligations $49,523 $49,452
------- -------
-19-
Payments of long-term obligations due for the next five years are:
In thousands 1999 2000 2001 2002 2003
$258 $1,886 $2,076 $2,289 $1,448
The 7 1/2% convertible subordinated notes (the Notes) are due in 2006. Interest
is payable semiannually. The Notes are convertible into Common Stock of the
Company at a conversion price of $14.013 per share. The Notes may be redeemed
by the Company, in whole or in part, at any time on or after December 1, 2001 at
declining premiums. The related Indenture agreement contains certain financial
covenants which include limitations on the Company's ability to incur
indebtedness of five times EBITDA plus $5.0 million.
The 9 1/2% subordinated debentures (the Debentures) are due in annual
sinking fund payments of $105,700, beginning in 2009 with the remainder due in
2012. Interest is payable semiannually. The Debentures may be redeemed by the
Company, in whole or in part, at any time on or after December 1, 1999 at
declining premiums.
The Company has a Credit Agreement with First Union National Bank which
provides for both term loan and revolving credit facilities. The Company has
provided the bank with a security interest in substantially all assets of its
display business. At December 31, 1998, term loans of $5.7 million and $3.0
million were outstanding, and an additional $3.4 million was borrowed under the
revolving credit facility. The Credit Agreement contains certain financial
covenants, including a defined debt service coverage ratio of 1.75 to 1.0, and a
defined debt to cash flow ratio of 4.5 to 1.0; in addition, cash dividends may
not exceed $750,000 in any year. The term loans bear interest at LIBOR plus
1.75%. At December 31, 1998 there were two interest rate swap agreements in
place, with a notional value equal to the amount of the two term loans and with
corresponding maturity terms, which have the effect of converting the interest
rate on such term loans to a fixed average annual rate of 7.86% through July
2002. At December 31, 1998, the cost to terminate the interest rate swap
agreements was $258,000. Payments on the $3.0 million term loan are due in even
quarterly installments through July 2002. Subsequent to year end, the $5.7
million term loan payments were extended to require even quarterly installments
through July 2004 and a final maturity of $3.3 million in August 2004.
The borrowings under the revolving credit facility can be converted to a
five-year term loan under the Credit Agreement. Upon conversion to a term loan,
the revolving credit borrowings would be repayable in even quarterly
installments until maturity. Subsequent to year end, the revolving credit
facility under the Credit Agreement was increased from $10.0 to $15.0 million,
and the facility was extended to June 2001. Interest is computed at LIBOR plus
2.0% (7.569% at December 31, 1998).
The Company has mortgages on certain of its facilities, which are
payable in monthly installments, the last of which extends to 2018. Depending
upon the mortgage, the interest rate is either fixed, floating or adjustable.
At December 31, 1998, such interest rates ranged from 7.75% to 8.65%.
At December 31, 1998, the fair value of the Notes and the Debentures was
$29.4 million and $1.0 million, respectively. The fair value of the remaining
long-term debt approximates the carrying value.
12. Stockholders' Equity
During 1998, 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 1998 and
January 1999. 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.
The Company has 3.0 million shares of authorized and unissued capital
stock designated as Class A Stock, $1.00 par value. Such shares would have no
voting rights except as required by law and would receive a 10% higher dividend
than the Common Stock. The Company also has 0.5 million shares of authorized
and unissued capital stock designated as Preferred Stock, $1.00 par value.
During 1998, the stockholders approved an increase in the authorized
shares of Common Stock to 11.0 million and Class A Stock to 6.0 million. A
Certificate of Amendment increasing the authorized shares will be filed when
deemed necessary.
Shares of Common Stock reserved for future issuance in connection with
convertible securities and stock option plans amounted to 2.3 million and 2.4
million, at December 31, 1998 and 1997, respectively.
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" (SFAS 130) during the first
quarter of 1998, as required. SFAS 130 establishes standards for reporting and
displaying comprehensive income and its components in a set of financial
statements. The adoption of this standard had no impact on the Company's net
income. Comprehensive income is defined as the change in equity of a business
enterprise during a period from transactions and other events and circumstances
from non-owner sources.
Comprehensive income for the three years ended December 31, 1998,
includes the following components:
In thousands 1998 1997 1996
Net income $1,699 $1,510 $1,250
------- ------ ------
Other comprehensive income / (loss):
Unrealized foreign currency translation 49 23 -
Unrealized holding gain / (loss) (78) 64 13
------- ------ ------
Total other comprehensive income / (loss) (29) 87 13
------- ------ ------
Comprehensive income $1,670 $1,597 $1,263
------- ------ ------
-20-
13. Engineering Development
Engineering development expense was $352,000, $322,000 and $204,000 for 1998,
1997 and 1996, respectively.
14. Pension Plan
All eligible salaried employees of Trans-Lux Corporation and certain of its
subsidiaries are covered by a non-contributory defined benefit pension plan.
Pension benefits vest after five years of service and are based on years of
service and final average salary. The Company's general funding policy is to
contribute amounts sufficient to satisfy regulatory funding standards. Plan
assets consist principally of insurance company funds, mutual funds and $99,000
in the Company's 9 1/2% subordinated debentures.
The funded status of the plan as of December 31, 1998 and 1997 are as
follows:
In thousands 1998 1997
Change in projected benefit obligation
- - - --------------------------------------
Projected benefit obligation at beginning of year $ 5,740 $ 4,878
Service cost 535 371
Interest cost 401 365
Actuarial loss 273 371
Benefits paid (324) (245)
------- -------
Projected benefit obligation at end of year $ 6,625 $ 5,740
------- -------
Change in plan assets
- - - ---------------------
Fair value of plan assets at beginning of year $ 4,612 $ 4,389
Actual return on plan assets 475 325
Company contributions 557 143
Benefits paid (324) (245)
------- -------
Fair value of plan assets at end of year $ 5,320 $ 4,612
------- -------
Funded status (underfunded)
- - - ---------------------------
Funded status $(1,305) $(1,128)
Unrecognized net actuarial loss 1,693 1,472
Unrecognized prior service cost 15 18
Unrecognized net transition asset -- (12)
------- -------
Prepaid benefit cost $ 403 $ 350
------- -------
Weighted-average assumptions as of December 31
- - - ----------------------------------------------
Discount rate 6.75% 7.00%
Expected return on plan assets 9.50% 9.50%
Rate of compensation increase 4.00% 4.00%
The following items are components of the net periodic pension cost for the
three years ended December 31, 1998:
In thousands 1998 1997 1996
Service cost $ 535 $ 371 $ 355
Interest cost 401 365 318
Expected return on plan assets (481) (429) (400)
Amortization of prior service cost 2 2 2
Amortization of transition asset (12) (40) (40)
Amortization of net actuarial loss 59 36 35
----- ----- -----
Net periodic pension cost - funded plan $ 504 $ 305 $ 270
----- ----- -----
In addition, the Company provides unfunded supplemental retirement benefits for
the Chief Executive Officer. The Company accrued $97,000, $62,000 and $63,000
for 1998, 1997 and 1996, respectively, for such benefits. The total liability
accrued was $375,000 and $278,000 at December 31, 1998 and 1997, respectively.
The Company does not offer any postretirement benefits other than the
pension and the supplemental retirement benefits described herein.
15. Stock Option Plans
The Company has four 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 grant to key employees. The Non-Employee Director Stock
Option Plan reserved 30,000 shares of Common Stock for grant. The Non-Statutory
Stock Option Plan Agreement, which has terminated, originally 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, 1995 123,700 87,500 36,200 $7.83
Additional shares authorized 65,000 - 65,000 -
Terminated - (500) 500 8.56
Granted - 7,000 (7,000) 12.63
Exercised (8,406) (8,406) - 6.71
---------- ------- ------- -----
Balance December 31, 1996 180,294 85,594 94,700 8.33
Granted - 27,600 (27,600) 11.26
Exercise (6,644) (6,644) - 7.33
---------- ------- ------- -----
Balance December 31, 1997 173,650 106,550 67,100 9.14
Terminated (12,500) (13,400) 900 7.54
Granted - 1,000 (1,000) 13.00
Exercised (8,341) (8,341) - 7.57
---------- ------- ------- -----
Balance December 31, 1998 152,809 85,809 67,000 $9.58
---------- ------- ------- -----
Under the 1995 and 1992 Stock Option Plans, option prices must be at least 100%
of the market value of the Common Stock at time of grant. No option may be
exercised prior to one year after date of grant. Exercise periods are for ten
years from date of grant (five years if the optionee owns more than 10% of the
voting power) and terminate at a stipulated period of time after an employee's
termination of employment. At December 31, 1998, under the 1995 Plan, options
for 44,239 shares (granted in 1997 and 1995) with exercise prices ranging from
$8.125 to $15.1875 per share were outstanding, 28,239 shares of which were
exercisable. During 1998, options for 4,411 shares (granted in 1995) with an
exercise price of $8.125 per share were exercised, and options for 900 shares
-21-
expired. During 1997, options for 27,100 shares' were granted at exercise
prices ranging from $11.0625 to $15.1875 per share, and options for 1,350 shares
(granted in 1995) with an exercise price of $8.125 per share were exercised.
During 1996, 50,000 additional shares were authorized under the 1995 Stock
Option Plan, and no options were exercised. At December 31, 1998, under the
1992 Plan, options for 31,570 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 1998, options for 3,930 shares (granted in
1993 and 1992) with exercise prices ranging from $6.3125 to $7.5625 per share
were exercised. During 1997, options for 5,294 shares (granted in 1993 and
1992) with exercise prices ranging from $6.3125 to $7.5625 per share were
exercised. 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.
Under the Non-Employee Director Stock Option Plan, option prices must be
at least 100% of the market value of the Common Stock at time of grant. No
option may be exercised prior to one year after date of grant and the optionee
must be a director of the Company at time of exercise, except in certain cases
as permitted by the Compensation Committee. Exercise periods are for six years
from date of grant and terminate at a stipulated period of time after an
optionee ceases to be a director. At December 31, 1998, options for 10,000
shares (granted in 1998, 1997, 1996, 1995 and 1994) with exercise prices
ranging from $8.625 to $13.00 per share were outstanding, 9,000 shares of which
were exercisable. During 1998, options for 1,000 shares were granted at an
exercise price of $13.00 per share, and no options were exercised. During 1997,
options for 500 shares were granted at an exercise price of $12.00 per share,
and no options were exercised. During 1996, 15,000 additional shares were
authorized, options for 7,000 shares were granted at an exercise price of
$12.625 per share, and options for 1,000 shares (granted in 1994) with an
exercise price of $9.6875 per share were exercised.
Under the Non-Statutory Stock Option Agreement, option prices must be at
least 100% of the market value of the Common Stock at time of grant. During
1998 the plan was terminated. No options were exercised during 1998, 1997 and
1996.
The following tables summarize information about stock options
outstanding at December 31, 1998:
Weighted Average
Range of Number Remaining Weighted Average
Exercise Prices Outstanding Contractual Life Exercise Price
- - - --------------- ----------- ---------------- ----------------
$6.31 - $7.56 9,270 4.2 $6.84
7.57 - 8.63 31,539 6.2 8.14
8.64 - 9.69 9,400 5.1 9.60
9.70 - 12.63 33,500 7.1 11.41
12.64 - 15.19 2,100 7.2 14.15
------ --- -----
85,809 6.2 $9.58
------ --- -----
Range of Number Weighted Average
Exercise Prices Excercisable Exercise Price
- - - --------------- ------------ --------------
$6.31 - $7.56 9,270 $ 6.84
7.57 - 8.63 31,539 8.14
8.64 - 9.69 9,400 9.60
9.70 - 12.63 17,500 11.74
12.64 - 15.19 1,100 15.19
------ ------
68,809 $ 9.19
The estimated fair value of options granted during 1998, 1997 and 1996 was
$5.24, $3.64, and $4.15 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 the accounting provisions of Statement of Financial
Accounting Standards No. 123 (SFAS 123), the Company's net income and earnings
per share for the years ended December 31, 1998, 1997 and 1996 would have been
reduced to the pro forma amounts indicated below:
In thousands, except per share data 1998 1997 1996
Net income applicable to common shareholders
Basic:
As reported $1,699 $1,510 $1,250
Pro forma 1,676 1,477 1,223
- - - ----------------------------------------------------------------------------
Net income per common and common equivalent share
Basic:
As reported $ 1.32 $ 1.18 $ 0.99
Pro forma 1.30 1.15 0.97
Diluted:
As reported 0.85 0.80 0.89
Pro forma 0.84 0.79 0.87
The fair value of options granted under the Company's stock option plans during
1998, 1997 and 1996 was estimated on dates of grant using the binomial options-
pricing model with the following weighted-average assumptions used: dividend
yield of approximately 1.24% in 1998, 1.05% in 1997, and 1.22% in 1996, expected
volatility of approximately 38% in 1998, 33% in 1997, and 35% in 1996, risk free
interest rate of approximately 5.1% in 1998 and 6.0% in 1997 and 1996, and
expected lives of option grants of approximately four years in 1998, 1997 and
1996. The effects of applying SFAS 123 in this pro forma disclosure are not
indicative of future pro forma effects, and additional awards in future years
are anticipated.
-22-
16. Earnings per Share
The following table represents the computation of basic and diluted earnings per
common share for the three years ended December 31, 1998:
In thousands, except share data 1998 1997 1996
Basic earnings per share computation:
Net income $1,699 $1,510 $1,250
------ ------ ------
Weighted average common
shares outstanding 1,290 1,281 1,258
------ ------ ------
Basic earnings per common share $ 1.32 $ 1.18 $ 0.99
------ ------ ------
Diluted earnings per share computation:
Net income $1,699 $1,510 $1,250
Add: After tax interest expense
applicable to convertible debt 1,411 1,447 276
Add: After tax changes to income
applicable to assumed conversion (98) (78) (16)
Adjusted net income $3,012 $2,879 $1,510
------ ------ ------
Weighted average common
shares outstanding 1,290 1,281 1,258
Assumes exercise of options reduced
by the number of shares which could
have been purchased with the
proceeds from exercise of such options 7 30 33
Assumes conversion of 9% convertible
subordinated debentures - 59 381
Assumes conversion of 7 1/2%
convertible subordinated notes 2,257 2,247 32
------ ------ ------
Total weighted average shares 3,554 3,617 1,704
------ ------ ------
Diluted earnings per common share $0.85 $0.80 $ 0.89
------ ------ ------
17. Commitments and Contingencies
Contingencies: The Company has employment agreements with certain executive
officers which expire at various dates through December 2007. At December 31,
1998, the aggregate commitment for future salaries, excluding bonuses, was
approximately $5.8 million.
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. In the opinion of management, the amount
of ultimate liability with respect to these actions will not have a material
adverse affect on the consolidated financial statements of the Company.
Operating leases: Theatre and other premises are occupied under
operating leases that expire at varying dates through 2014. Certain of these
leases provide for the payment of real estate taxes and other occupancy costs.
Future minimum lease payments due under operating leases at December 31, 1998
are as follows: $487,000 - 1999, $381,000 - 2000, $305,000 - 2001, $280,000 -
2002, $283,000 - 2003, $1,943,000 - thereafter. Rent expense was $585,000,
$456,000, and $296,000 in the years ended December 31, 1998, 1997 and 1996,
respectively.
Guarantees: The Company has guaranteed a $2.7 million mortgage loan
obtained by its joint venture, MetroLux Theatres. The Company has received a
guarantee from the unrelated general partner of MetroLux Theatres for their
pro-rata share of the indebtedness.
18. Business Segment Data
In the year ended December 31, 1998, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 131, "Disclosure about Segments
of an Enterprise and Related Information", (SFAS 131). The standard causes
operating segments to be based on components of an enterprise about which
separate financial information is available that is evaluated regularly by the
chief operating decision maker in deciding how to allocate resources and in
assessing performance. In accordance with SFAS 131, segment disclosures for
prior years have been restated to conform to this standard.
The Company evaluates segment performance and allocates resources based
upon operating income. The Company's operations have been classified into three
reportable business segments. The Display Division comprises two operating
segments, indoor display and outdoor display. Both design, produce, lease, sell
and service large-scale, multi-color, real-time electronic information displays.
Both operating segments are conducted on a global basis, primarily through
operations in the U.S. The Company also has operations in Canada and Australia.
The indoor display and outdoor display segments are differentiated primarily by
the customers they serve. The Entertainment and Real Estate Division owns a
chain of motion picture theatres in the southwestern U.S. and owns real estate
used for both corporate and income-producing purposes in the U.S. and Canada.
The accounting policies applied to segment information are the same as
those described in the summary of significant accounting policies. Segment
operating income is shown after general and administrative expenses directly
associated with the segment and includes the operating results of the joint
venture activities. Corporate items relate to resources and costs which are
not directly identifiable with a segment. There are no intersegment sales.
-23-
Information about the Company's operations in its three business
segments for the three years ended December 31, 1998 are as follows:
In thousands 1998 1997 1996
Revenues:
Indoor display $25,983 $21,557 $25,160
Outdoor display 31,056 26,349 15,743
Entertainment and real estate 6,739 5,457 4,382
------- ------- -------
Total revenues $63,778 $53,363 $45,285
------- ------- -------
Operating income:
Indoor display $ 7,650 $ 5,794 $ 5,475
Outdoor display 4,078 4,539 3,579
Entertainment and real estate 811 711 335
------- ------- -------
12,539 11,044 9,389
Other income 123 193 -
Corporate general and administrative expenses (6,182) (5,228) (4,946)
Interest expense - net (3,452) (3,162) (2,240)
------- ------- -------
Income before income taxes $ 3,028 $ 2,847 $ 2,203
------- ------- -------
Assets:
Indoor display $40,719 $38,889
Outdoor display 30,502 30,006
Entertainment and real estate 12,704 8,968
------- -------
Total identifiable assets 83,925 77,863
General corporate 7,221 11,115
------- -------
Total assets $91,146 $88,978
------- -------
Depreciation and amortization:
Indoor display $ 4,238 $ 3,464 $ 3,741
Outdoor display 2,459 2,344 2,453
Entertainment and real estate 475 380 327
General corporate 690 888 583
------- ------- -------
Total depreciation and amortization $ 7,862 $ 7,076 $ 7,104
------- ------- -------
Capital expenditures:
Indoor display $ 6,847 $ 9,215 $ 7,542
Outdoor display 1,798 2,061 1,272
Entertainment and real estate 3,920 1,039 101
General corporate 397 197 343
------- ------- -------
Total capital expenditures $12,962 $12,512 $ 9,258
------- ------- -------
Independent Auditors' Report
To the Board of Directors and Shareholders of Trans-Lux Corporation:
We have audited the accompanying consolidated balance sheets of Trans-Lux
Corporation and subsidiaries as of December 31, 1998 and 1997 and the related
consolidated statements of income, cash flows and stockholders' equity for each
of the three years in the period ended December 31, 1998. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We 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 believe 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, 1998 and 1997 and the results of their operations,
their cash flows and their stockholders' equity for each of the three years in
the period ended December 31, 1998 in conformity with generally accepted
accounting principles.
/s/ Deloitte & Touche LLP
Stamford, Connecticut
February 26, 1999
-24-
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 71
Victor Liss Vice Chairman of the Board, 62
President and Chief Executive
Officer
Michael R. Mulcahy Executive Vice President 50
Matthew Brandt Senior Vice President 35
Thomas Brandt Senior Vice President 35
Frank N. Daniels Senior Vice President 61
Karl P. Hirschauer Senior Vice President 53
Thomas F. Mahoney Senior Vice President 51
Al L. Miller Senior Vice President 53
Angela D. Toppi Senior Vice President, Treasurer, 43
Secretary and Chief Financial
Officer
Messrs. R. Brandt, Liss, Mulcahy, Daniels, Hirschauer and Ms. Toppi
have been associated in an executive capacity with the Company for more
than five years.
Messrs. M. Brandt and T. Brandt were elected Senior Vice Presidents
in charge of theatre operations on September 27, 1997 and have been
employed since 1985. They served as Vice Presidents in charge of
theatre operations between May 22, 1991 and September 27, 1997.
-25-
Mr. Mahoney was elected Senior Vice President in charge of sales on
June 1, 1996 and has been employed by the Company since 1967. Mr. Mahoney
served as Assistant Vice President of sales between December 1, 1994 and
June 1, 1996.
Mr. Miller was elected Senior Vice President in charge of
manufacturing and materials on September 27, 1997 and has been employed
by the Company since 1995. Mr. Miller served as Vice President in
charge of manufacturing and materials between March 13, 1995 and
September 27, 1997. Mr. Miller was self-employed as a consultant
between 1994 and 1995.
(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,
1998, 1997 and 1996.
Consolidated Balance Sheets as of December 31, 1998 and 1997.
Consolidated Statements of Cash Flows for the Years Ended December
31, 1998, 1997 and 1996.
Consolidated Statements of Stockholders' Equity for the Years
Ended December 31, 1998, 1997 and 1996.
Notes to Consolidated Financial Statements.
Independent Auditors' Report.
-26-
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) Financial Statement Schedules: None
(3) Exhibits:
3(a) Form of Restated Certificate of Incorporation of the Registrant
(incorporated by reference to Exhibit 3.1 of Registration No.
333-15481).
(b) By-Laws of the Registrant (incorporated by reference to Exhibit
3.2 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
(incorporated by reference to Exhibit 10.3 of Form 10-K for the
year ended December 31, 1996).
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) 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(d) of Form 10-Q for
the quarter ended September 30, 1995.) Fourth Amendment Agreement
dated as of December 19, 1997 (incorporated by reference to
Exhibit 10.5 of Form 10-K for the year ended December 31, 1997).
Fifth Amendment Agreement dated as of March 24, 1998 (incorporated
by reference to Exhibit 10.5 of Form 10-K for the year ended
December 31, 1997). Sixth Amendment Agreement dated as of
November 5, 1998, included herewith.
10.6 Employment Agreement with Richard Brandt dated as of September 11,
1998 (incorporated by reference to Exhibit 10(a) of Form 10-Q for
the quarter ended September 30, 1998).
10.7 Employment Agreement with Victor Liss dated as of January 1, 1997
(incorporated by reference to Exhibit 10.7 of Form 10-K for the
year ended December 31, 1996).
-27-
10.8 Employment Agreement with Michael R. Mulcahy dated as of June 1,
1998 (incorporated by reference to Exhibit 10(b) of Form 10-Q for
the quarter ended September 30, 1998).
10.9 Employment Agreement with Frank Daniels dated as of January 1,
1997 (incorporated by reference to Exhibit 10.9 of Form 10-K for
the year ended December 31, 1996).
10.10 Employment Agreement with Karl Hirschauer dated as of January 1,
1997 (incorporated by reference to Exhibit 10.10 of Form 10-K for
the year ended December 31, 1996).
10.11 Employment Agreement with Thomas F. Mahoney dated as of June 1,
1998 (incorporated by reference to Exhibit 10 of Form 10-Q for the
quarter ended June 30, 1998).
10.12 Employment Agreement with Al Miller dated as of January 1, 1999,
included herewith.
10.13 Employment Agreement with Angela Toppi dated as of January 1, 1997
(incorporated by reference to Exhibit 10.12 of Form 10-K for the
year ended December 31, 1996).
10.14 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).
10.15 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).
10.16 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).
10.17 Agreement between Trans-Lux Midwest Corporation and Fairtron
Corporation dated as of April 30, 1997 (incorporated by reference
to Exhibit 10(a) of Form 8-K filed May 15, 1997).
21 List of Subsidiaries, filed herewith.
27 Financial Data Schedule, which is submitted electronically to the
Securities and Exchange Commission for information only and not
filed.
(c) No reports on Form 8-K were filed during the last quarter of the period
covered by this report.
-28-
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 P. Bosworth
----------------------------
Robert P. Bosworth
Vice President and
Chief Accounting Officer
Dated: March 29, 1999
-29-
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 29, 1999
Richard Brandt, Chairman of the Board
/s/ Victor Liss
- - - ------------------------------------- March 29, 1999
Victor Liss, Vice Chairman of the
Board, President and Chief Executive
Officer
/s/ Steven Baruch
- - - ------------------------------------- March 29, 1999
Steven Baruch, Director
/s/ Howard M. Brenner
- - - ------------------------------------- March 29, 1999
Howard M. Brenner, Director
/s/ Jean Firstenberg
- - - ------------------------------------- March 29, 1999
Jean Firstenberg, Director
/s/ Allen Fromme
- - - ------------------------------------- March 29, 1999
Allan Fromme, PhD, Director
/s/ Robert Greenes
- - - ------------------------------------- March 29, 1999
Robert Greenes, Director
- - - ------------------------------------- March 29, 1999
Gene F. Jankowski, Director
/s/ Howard S. Modlin
- - - ------------------------------------- March 29, 1999
Howard S. Modlin, Director