10-Q 1 jun0110q.txt JUNE 2001 10Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2001 ------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ---------- ----------- Commission file number 1-2257 ------ TRANS-LUX CORPORATION (Exact name of registrant as specified in its charter) Delaware 13-1394750 ------------------------------- --------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 110 Richards Avenue, Norwalk, CT 06856-5090 ---------------------------------------- ------------ (Address of principal executive offices) (Zip code) (203) 853-4321 ---------------------------------------------------- (Registrant's telephone number, including area code) ---------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate the number of shares outstanding of each of the issuer's classes of Common Stock, as of the latest practicable date. Date Class Shares Outstanding ------- ------------------------------- ------------------ 8/13/01 Common Stock - $1.00 Par Value 965,905 8/13/01 Class B Stock - $1.00 Par Value 294,843 (Immediately convertible into a like number of shares of Common Stock.) TRANS-LUX CORPORATION AND SUBSIDIARIES Index Part I - Financial Information Page No. -------- Item 1. Consolidated Balance Sheets - June 30, 2001 (unaudited) and December 31, 2000 1 Consolidated Statements of Operations - Three and Six Months Ended June 30, 2001 and 2000 (unaudited) 2 Consolidated Statements of Cash Flows - Six Months Ended June 30, 2001 and 2000 (unaudited) 3 Notes to Consolidated Financial Statements (unaudited) 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 Item 3. Quantitative and Qualitative Disclosures about Market Risk 10 Part II - Other Information Item 4. Submission of Matters to a Vote of Stockholders 11 Item 6. Exhibits and Reports on Form 8-K 12 Signatures 12 Part I - Financial Information ------------------------------ TRANS-LUX CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
June 30 December 31 In thousands, except share data 2001 2000 ------------------------------------------------------------------------------------------------------ (unaudited) ASSETS Current assets: Cash and cash equivalents $ 3,808 $ 3,920 Available-for-sale securities 535 495 Receivables 8,468 8,010 Unbilled receivables 42 1,158 Inventories 8,179 7,781 Prepaids and other 307 754 -------- -------- Total current assets 21,339 22,118 -------- -------- Equipment on rental 85,489 80,725 Less accumulated depreciation 38,176 34,787 -------- -------- 47,313 45,938 -------- -------- Property, plant and equipment 48,877 48,528 Less accumulated depreciation and amortization 10,504 9,248 -------- -------- 38,373 39,280 Other assets 5,675 5,679 -------- -------- $112,700 $113,015 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 3,256 $ 4,214 Accrued liabilities 6,173 6,079 Current portion of long-term debt 2,648 2,562 -------- -------- Total current liabilities 12,077 12,855 -------- -------- Long-term debt: 7 1/2% convertible subordinated notes due 2006 30,177 30,197 9 1/2% subordinated debentures due 2012 1,057 1,057 Notes payable 39,435 37,298 -------- -------- 70,669 68,552 Deferred revenue, deposits and other 2,559 4,248 Deferred income taxes 3,702 3,664 -------- -------- Commitments and contingencies Stockholders' equity: Capital stock Common - $1 par value - 5,500,000 shares authorized 2,445,562 shares issued in 2001 and 2000 2,445 2,445 Class B - $1 par value - 1,000,000 shares authorized 294,843 shares issued in 2001 and 2000 295 295 Additional paid-in-capital 13,901 13,901 Retained earnings 19,039 19,029 Accumulated other comprehensive loss (150) (137) -------- -------- 35,530 35,533 Less treasury stock - at cost - 1,479,688 shares in 2001 and 2000 (excludes additional 294,843 shares held in 2001 and 2000 for conversion of Class B stock) 11,837 11,837 -------- -------- Total stockholders' equity 23,693 23,696 -------- -------- $112,700 $113,015 ======== ======== ______________________________________________________________________________________________________ The accompanying notes are an integral part of these consolidated financial statements.
1 TRANS-LUX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30 JUNE 30 ------------------- ------------------- In thousands, except per share data 2001 2000 2001 2000 --------------------------------------------------------------------------------------------------- Revenues: Equipment rentals and maintenance $ 6,064 $ 6,062 $12,556 $12,021 Equipment sales 7,807 7,674 15,753 14,052 Theatre receipts and other 3,205 2,876 6,164 5,191 -------- -------- -------- -------- Total revenues 17,076 16,612 34,473 31,264 -------- -------- -------- -------- Operating expenses: Cost of equipment rentals and maintenance 3,359 3,282 6,714 6,617 Cost of equipment sales 5,348 5,085 11,009 9,854 Cost of theatre receipts and other 2,638 2,425 4,881 4,350 -------- -------- -------- -------- Total operating expenses 11,345 10,792 22,604 20,821 -------- -------- -------- -------- Gross profit from operations 5,731 5,820 11,869 10,443 General and administrative expenses 4,243 4,477 9,061 9,227 -------- -------- -------- -------- 1,488 1,343 2,808 1,216 Interest income 31 136 76 232 Interest expense (1,453) (1,486) (2,894) (2,764) Other income (expense) (36) (5) 16 1 Income from joint venture 103 52 173 105 -------- -------- -------- -------- Income (loss) before income taxes 133 40 179 (1,210) Provision (benefit) for income taxes 59 17 80 (545) -------- -------- -------- -------- Net income (loss) $74 $23 $99 ($665) ======== ======== ======== ======== Earnings (loss) per share: Basic $0.06 $0.02 $0.08 ($0.53) Diluted $0.06 $0.02 $0.08 ($0.53) Average common shares outstanding: Basic 1,261 1,261 1,261 1,261 Diluted 1,261 1,261 1,261 1,261 Cash dividends per share: Common stock $0.035 $0.035 $0.070 $0.070 Class B stock $0.0315 $0.0315 $0.0630 $0.0630 --------------------------------------------------------------------------------------------------- The accompanying notes are an integral part of these consolidated financial statements.
2 TRANS-LUX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
SIX MONTHS ENDED JUNE 30 ------------------------ In thousands 2001 2000 --------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $ 99 $ (665) Adjustment to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 4,836 4,549 Net income of joint venture (173) (105) Deferred income taxes 80 (545) Write down of assets held for sale 56 - Loss on sale of securities - 13 Gain on purchase of Company's 7 1/2% convertible subordinated notes (5) (15) Changes in operating assets and liabilities: Receivables 156 1,003 Inventories (398) (850) Prepaids and other assets 377 (1,018) Accounts payable and accruals (959) (2,214) Deferred revenue, deposits and other (1,689) 147 -------- -------- Net cash provided by operating activities 2,380 300 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Equipment manufactured for rental (4,764) (4,066) Purchases of property, plant and equipment (349) (6,692) Usage of construction funds - 2,847 Proceeds from joint venture 502 48 Proceeds from sale of securities - 1,458 -------- -------- Net cash used in investing activities (4,611) (6,405) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from long-term debt 3,680 6,026 Repayment of long-term debt (1,457) (1,037) Purchase of Company's 7 1/2% convertible subordinated notes (15) (78) Cash dividends (89) (86) -------- -------- Net cash provided by financing activities 2,119 4,825 -------- -------- Net decrease in cash and cash equivalents (112) (1,280) Cash and cash equivalents at beginning of year 3,920 3,651 -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,808 $ 2,371 ======== ======== --------------------------------------------------------------------------------------------------------------- Interest paid $ 2,708 $ 2,678 Interest received 99 283 Income taxes paid (refunded) 491 (92) --------------------------------------------------------------------------------------------------------------- The accompanying notes are an integral part of these consolidated financial statements.
3 TRANS-LUX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2001 (unaudited) Note 1 - Basis of Presentation Financial information included herein is unaudited, however, such information reflects all adjustments which are, in the opinion of management, necessary for the fair presentation of the consolidated financial statements for the interim periods. The results for the interim periods are not necessarily indicative of the results to be expected for the full year. It is suggested that the June 30, 2001 consolidated financial statements be read in conjunction with the consolidated financial statements and notes included in the Company's Annual Report and Form 10-K for the year ended December 31, 2000. Certain reclassifications of prior years' amounts have been made to conform to the current year's presentation. The Company adopted the provisions of Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS 133) effective January 1, 2001. The standard requires companies to designate hedging instruments as either fair value, cash flow, or hedges of a net investment in a foreign operation prior to adoption. All derivatives are to be recognized as either assets or liabilities and measured at fair value. Gains or losses resulting from changes in the values of those derivatives would be accounted for depending upon its designation and whether it qualifies for hedge accounting. The Company has limited involvement with derivative financial instruments and does not use them for trading purposes; they are only used to manage and fix well-defined interest rate risks. The Company has two interest rate swap agreements effective through August 2002, having a notional value of $6.3 million to reduce exposure to interest fluctuations on its bank term loans, which are classified as cash flow hedges. The adoption of SFAS 133 resulted in the cumulative effect of an accounting change, net of tax, of approximately $15,000 in other comprehensive loss. At June 30, 2001, the mark-to-market loss for the interest rate swap hedge included in other comprehensive income (loss) totaled $73,000. In June 2001, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards No. 141, "Business Combinations"effective July 1,2001, and No. 142, "Goodwill and Other Intangible Assets"(SFAS 142), effective for the fiscal years beginning after December 15, 2001. Under the new rules, goodwill and intangible assets deemed to have indefinite lives will no longer be amortized but will be subject to annual impairment tests in accordance with the statements. Other intangible assets will continue to be amortized over their useful lives. The Company will apply the new rules of accounting for goodwill and other intangible assets beginning in the first quarter of 2002. On an annual basis, the Company's amortization of goodwill approximates $97,000. During 2002, the Company will perform the required impairment tests of goodwill and indefinite-lived intangible assets as recorded on January 1, 2002. The Company has not yet determined what the effect of these tests will be on its earnings and financial position, if any. 4 Note 2 - Inventories Inventories consist of the following: June 30 December 31 In thousands 2001 2000 ------------------------------------------------------------------------- Raw materials and spare parts $5,000 $4,837 Work-in-progress 2,202 1,450 Finished goods 977 1,494 ------ ------ $8,179 $7,781 ====== ====== Note 3 - Long-Term Debt For the three and six months ended June 30, 2001, long-term debt increased $700,000 and $2.1 million, respectively, which primarily represents borrowings under the revolving credit facility, offset by repayment of long-term debt. The Company has a bank Credit Agreement that provides for a $15.0 million revolving credit facility, which is available until June 2002, and requires an annual facility fee on the unused commitment of .375%. At June 30, 2001, $12.5 million was outstanding leaving $2.5 million of additional borrowing capacity available under such facility. The Credit Agreement contains certain financial covenants, which at June 30, 2001 included a defined debt service coverage ratio of 1.25 to 1.0 and a defined debt to cash flow ratio of 4.25 to 1.0. At June 30, 2001 the Company was in compliance with such financial covenants. Note 4 - Reporting Comprehensive Income (Loss) The components of comprehensive income (loss) for the Company are foreign currency translation adjustments relating to the Company's foreign subsidiaries, unrealized holding gains or losses on the Company's available-for-sale securities and the effect of accounting for hedges under SFAS 133 (see Note 1). Total comprehensive income (loss) was $54,000 and $45,000 for the three months ended June 30, 2001 and 2000, respectively; and ($20,000) and ($617,000) for the six months ended June 30, 2001 and 2000, respectively. 5 Note 5 - Earnings (Loss) per Share The following table represents the computation of basic and diluted earnings (loss) per common share:
Three months ended June 30 Six months ended June 30 In thousands, except per share data 2001 2000 2001 2000 --------------------------------------------------------------------------------------------------------------------- Basic earnings (loss) per share computation: Net income (loss) $ 74 $ 23 $ 99 $ (665) ------- ------- ------- -------- Weighted average common shares outstanding 1,261 1,261 1,261 1,261 ------- ------- ------- -------- Basic earnings (loss) per common share $ 0.06 $ 0.02 $ 0.08 $ (0.53) ======= ======= ======= ======== Diluted earnings (loss) per share computation: Net income (loss) $ 74 $ 23 $ 99 $ (665) Add: After tax interest expense applicable to convertible debt (1) - - - - ------- ------- ------- -------- Adjusted net income (loss) $ 74 $ 23 $ 99 $ (665) ======= ======= ======= ======== Weighted average common shares outstanding 1,261 1,261 1,261 1,261 Assumes exercise of options reduced by the number of shares which could have been purchased with the proceeds from exercise of such options (2) - - - - Assumes conversion of 7 1/2% convertible subordinated notes (1) - - - - ------- ------- ------- -------- Total weighted average common shares 1,261 1,261 1,261 1,261 ======= ======= ======= ======== Diluted earnings (loss) per common share $ 0.06 $ 0.02 $ 0.08 $ (0.53) ======= ======= ======= ======== (1) The incremental shares from the assumed conversion of the Company's 7 1/2% convertible subordinated notes are not included in the diluted earnings (loss) per common share calculation, as the effect is antidilutive. (2) The 2001 diluted earnings per common share calculation does not include options to purchase 130,959 shares of common stock, which were outstanding, with exercise prices ranging from $5.375 to $15.1875 per share because the exercise prices were greater than the average market price of the common stock. The 2000 earnings (loss) per common share calculation does not include options to purchase 129,259 shares of common stock, as the effect is antidilutive.
Note 6 - Business Segment Data The Company evaluates segment performance and allocates resources based upon operating income. The Company's operations are managed in three reportable business segments. The Display Division comprises two operating segments, indoor display and outdoor display. Both design, produce, lease, sell and service large-scale, multi-color, real-time electronic information displays. Both operating segments are conducted on a global basis, primarily through operations in the U.S. The Company also has operations in Canada 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 western Mountain States and owns real estate used for both corporate and income-producing purposes. 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 that are not directly identifiable with a segment. There are no intersegment sales. 6 Information about the Company's operations in its three business segments is as follows:
Three months ended June 30 Six months ended June 30 In thousands 2001 2000 2001 2000 ------------------------------------------------------------------------------------------------------------------- Revenues: Indoor display $ 6,794 $ 6,301 $13,398 $11,328 Outdoor display 7,077 7,435 14,911 14,745 Entertainment and real estate 3,205 2,876 6,164 5,191 ------- ------- ------- ------- Total revenues $17,076 $16,612 $34,473 $31,264 ======= ======= ======= ======= Operating income Indoor display $ 2,143 $ 2,300 $ 4,389 $ 3,678 Outdoor display 158 210 557 244 Entertainment and real estate 446 290 1,017 481 ------- ------- ------- ------- Total operating incomen $ 2,747 $ 2,800 $ 5,963 $ 4,403 Other income (loss) (36) (5) 16 1 Corporate general and administrative expenses (1,156) (1,405) (2,982) (3,082) Interest expense-net (1,422) (1,350) (2,818) (2,532) ------- ------- ------- ------- Income (loss) before income taxes $ 133 $ 40 $ 179 $(1,210) ======= ======= ======= =======
Note 7 - Contingencies The Company is subject to legal proceedings and claims that arise in the ordinary course of its business. During June 1999, a jury in the state of New Mexico awarded a former employee of the Company $15,000 in damages for lost wages and emotional distress and $393,000 in punitive damages on a retaliatory discharge claim. The Company denied the charges on the basis that the termination was proper and is appealing such verdict. In January 2000, a second former employee of the Company commenced a retaliatory discharge action seeking compensatory and punitive damages in an unspecified amount. The Company has denied such allegations and asserted defenses including that the former employee resigned following her failure to timely report to work. The Company believes it has made adequate provisions to cover such matters. Certain of the amounts are subject to insurance recoveries. The Company has filed a complaint related to an outdoor display account receivable and the customer has counter-claimed. Management believes that it has adequate provisions for this matter. The Company is currently also involved in arbitration related to the construction of its six-plex movie theatre in Dillon, Colorado. The contractor has alleged claims against the Company in the amount of $489,000 due under a contract. The Company has denied any liability and has asserted claims in the amount of $467,000 that, among other matters, the contractor failed to build the theatre in accordance with the architectural plans. The outcome of this arbitration is not determinable at this time. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations Six Months Ended June 30, 2001 Compared to Six Months Ended June 30, 2000 The Company's total revenues for the six months ended June 30, 2001 increased 10.3% to $34.5 million from $31.3 million for the six months ended June 30, 2000. Indoor display revenues increased $2.1 million or 18.3%. Of this increase, indoor display equipment rental and maintenance revenues increased $618,000 or 7.8%, primarily due to new rental and maintenance contracts and renewal of existing contracts, and indoor display equipment sales increased $1.5 million or 42.6%, primarily in the financial segment. Outdoor display revenues increased $166,000 or 1.1%. Of this increase, outdoor display equipment sales increased $249,000 or 2.3%, primarily in the outdoor sports segment. This was offset by the decrease in outdoor display equipment rental and maintenance revenues of $83,000 or 2.0%, primarily due to the continued expected decline in the outdoor lease and maintenance bases previously acquired. Entertainment 7 and real estate revenues increased $973,000 or 18.7%. This increase in revenues is primarily from two newly constructed multiplex theatres consisting of 14 screens in Los Lunas, NM and Sahuarita, AZ which opened in February 2000 and May 2000, respectively, and an increase in overall admissions. Total operating income for the six months ended June 30, 2001 increased 35.4% to $6.0 million from $4.4 million for the six months ended June 30, 2000. Indoor display operating income increased $711,000 or 19.3%, primarily as a result of the increase in revenues. The cost of indoor displays represented 45.3% of related revenues for the six months ended June 30, 2001 and 44.6% in 2000. The cost of indoor displays as a percentage of related revenues increased primarily due to increases in material costs and a change in the volume mix. Indoor display cost of equipment sales increased $785,000 or 48.5%, due to increased volume. The indoor display cost of equipment rental and maintenance increased $241,000 or 7.0%. The indoor display general and administrative expenses increased $333,000 or 12.8%, primarily due to an increase in sales and marketing costs. Outdoor operating income increased $313,000, to $557,000, primarily as a result of the increase in sales volume. The cost of outdoor displays represented 78.1% of related revenues for the six months ended June 30, 2001 and 77.5% in 2000. Outdoor display cost of equipment sales increased $370,000 or 4.5%, due to increased volume and a higher content of raw materials, primarily due to the new LED technology. Outdoor display cost of equipment rental and maintenance decreased $144,000 or 4.5% due to the continued expected decline in the outdoor lease and maintenance bases previously acquired. The outdoor display general and administrative expenses decreased $373,000 or 12.1%, primarily due to a cost cutting program and consolidation of operations from prior acquisitions put into place in the fourth quarter of 2000. Cost of indoor and outdoor equipment rentals and maintenance includes field service expenses, plant repair costs, maintenance and depreciation. The entertainment and real estate operating income increased $536,000, to $1.0 million, primarily as a result of the increase in revenues due to theatre expansion and an increase in overall admissions. The cost of entertainment and real estate represented 79.2% of related revenues for the six months ended June 30, 2001 and 83.8% in 2000. The cost of entertainment and real estate as a percentage of related revenues improved primarily due to a reduction in payroll and payroll benefits. Cost of entertainment and real estate, which includes film rental costs and depreciation expense, increased $531,000 or 12.2% in 2001, primarily as a result of the expansion of theatre operations and an increase in overall admissions. The entertainment and real estate general and administrative expenses decreased slightly. Corporate general and administrative expenses decreased $100,000 or 3.2%, primarily due to a $175,000 negative impact of the effect of foreign currency exchange rates in 2001 versus a $272,000 negative impact in 2000. Net interest expense increased $286,000, which is primarily attributable to the increase in long- term debt for working capital use, the expansion of theatre operations and the new outdoor display manufacturing facility in Logan, Utah. Other income (expense) primarily relates to a charge for the former Logan, UT manufacturing facility held for sale, which was sold subsequent to the end of the quarter, and the earned income portion of municipal forgivable loans. The income from joint venture relates to the operations of the theatre joint venture, MetroLux Theatre in Loveland, CO. The effective tax rate at June 30, 2001 and 2000 was 45.0%. Three Months Ended June 30, 2001 Compared to Three Months Ended June 30, 2000 The Company's total revenues for the three months ended June 30, 2001 increased 2.8% to $17.1 million from $16.6 million for the three months ended June 30, 2000. Indoor display revenues increased $493,000 or 7.8%. Of this increase, indoor display equipment rental and maintenance revenues increased $198,000 8 or 4.9%, primarily due to new rental and maintenance contracts and renewal of existing contracts, and indoor display equipment sales increased $295,000 or 13.1%, primarily in the financial segment. Outdoor display revenues decreased $358,000 or 4.8%. Of this decrease, outdoor display equipment rental and maintenance revenues decreased $196,000 or 9.7%, and outdoor display equipment sales decreased $162,000 or 3.0%, primarily in the outdoor sports segment. Entertainment and real estate revenues increased $329,000 or 11.5%. This increase in revenues is primarily from the newly constructed multiplex theatre consisting of 6 screens in Sahuarita, AZ which opened in May 2000 and an increase in overall admissions. Total operating income for the three months ended June 30, 2001 decreased 1.9% to $2.7 million from $2.8 million for the three months ended June 30, 2000. Indoor display operating income decreased $157,000 or 6.8%. The cost of indoor displays represented 46.3% of related revenues for the three months ended June 30, 2001 and 42.5% in 2000. The cost of indoor displays as a percentage of related revenues increased primarily due to increases in material costs and a change in the volume mix. Indoor display cost of equipment sales increased $465,000 or 17.4%, due to increased volume. The indoor display cost of equipment rental and maintenance increased $176,000 or 10.6%, primarily due to increased volume. The indoor display general and administrative expenses increased $185,000 or 14.0%, primarily due to increases in sales and marketing costs. Outdoor operating income decreased $53,000 to $158,000. The cost of outdoor displays represented 78.6% of related revenues for the six months ended June 30, 2001 and 76.5% in 2000. The cost of outdoor displays as a percentage of revenue increased primarily due to a higher content of raw materials, mainly due to the new LED technology. Outdoor display cost of equipment rental and maintenance decreased $99,000 or 6.1%, due to a reduction in payroll and related expenses. Outdoor display cost of equipment sales decreased slightly. The outdoor display general and administrative expenses decreased $180,000 or 11.7%, primarily due to a cost cutting program and consolidation of operations from prior acquisitions put into place in the fourth quarter of 2000. Cost of indoor and outdoor equipment rentals and maintenance includes field service expenses, plant repair costs, maintenance and depreciation. The entertainment and real estate operating income increased $156,000, to $446,000, primarily as a result of the increase in revenues due to theatre expansion and an increase in overall admissions. The cost of entertainment and real estate represented 82.3% of related revenues for the three months ended June 30, 2001 and 84.3% in 2000. The cost of entertainment and real estate as a percentage of related revenues improved primarily due to a reduction in payroll and payroll benefits. Cost of entertainment and real estate, which includes film rental costs and depreciation expense, increased $213,000 or 8.8% in 2001, mainly as a result of the expansion of theatre operations and an increase in overall admissions. The entertainment and real estate general and administrative expenses decreased slightly. Corporate general and administrative expenses decreased $250,000 or 17.8%, primarily due to a $168,000 positive impact of the effect of foreign currency exchange rates in 2001 versus a $68,000 negative impact in 2000 (a net change of $236,000). Net interest expense increased $72,000, which is primarily attributable to the increase in long-term debt for working capital use, the expansion of theatre operations and the new outdoor display manufacturing facility in Logan, Utah, offset by a reduction in interest rates. Other income (expense) primarily relates to a charge for the former Logan, UT manufacturing facility held for sale, which was sold subsequent to the end of the quarter, and the earned income portion of municipal forgivable loans. The income from joint venture relates to the operations of the theatre joint venture, MetroLux Theatre in Loveland, CO. The effective tax rate at June 30, 2001 and 2000 was 45.0%. 9 Liquidity and Capital Resources The regular quarterly cash dividend for the second quarter of 2001 of $0.035 per share on the Company's Common Stock and $0.0315 per share on the Company's Class B Stock was declared by the Board of Directors on June 1, 2001 payable to stockholders of record as of June 22, 2001 and was paid July 18, 2001. The Company has a $15.0 million revolving credit facility under its Credit Agreement that is available until June 2002, and requires an annual facility fee on the unused commitment of .375%. The Company has the option to convert the outstanding balance into a four-year term loan. At June 30, 2001, $12.5 million was outstanding leaving $2.5 million of additional borrowing capacity available under such facility. The Credit Agreement contains certain financial covenants, which at June 30, 2001 included a defined debt service coverage ratio of 1.25 to 1.0, a defined debt to cash flow ratio of 4.25 to 1.0 and an annual limitation of $750,000 on cash dividends. At June 30, 2001 the Company was in compliance with such financial covenants. The Company believes that cash generated from operations together with the cash and cash equivalents on hand and the availability under the revolving credit facility will be sufficient to fund its anticipated near term cash requirements. Cash and cash equivalents decreased $112,000 for the six months ended June 30, 2001 compared to a decrease of $1.3 million in 2000. The decrease in 2001 is primarily attributable to a decrease in deferred revenue as a result of certain contracts being recorded on a percentage of completion basis. The decrease in 2000 is primarily attributable to the decrease in accounts payable and accruals, and cash utilized for investment in rental equipment and construction of theatres. The $2.1 million proceeds from long-term debt for the six months ended June 30, 2001 relate to borrowings under the revolving credit facility for purchases of equipment for rental and for working capital use. Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995 The Company may, from time to time, provide estimates as to future performance. These forward looking statements will be estimates, and may or may not be realized by the Company. The Company undertakes no duty to update such forward looking statements. Many factors could cause actual results to differ from these forward looking statements, including loss of market share through competition, introduction of competing products by others, pressure on prices from competition or purchasers of the Company's products, and interest rate and foreign exchange fluctuations such as the decline in the value of the Australian dollar. Item 3. Quantitative and Qualitative Disclosures about Market Risk The Company is subject to interest rate risk on its long-term debt. The Company manages its exposure to changes in interest rates by the use of variable and fixed interest rate debt. In addition the Company has hedged its exposure to changes in interest rates on a portion of its variable debt by entering into interest rate swap agreements to lock in fixed interest rates for a portion of these borrowings. In addition, the Company is exposed to foreign currency exchange rate risk mainly as a result of investments in the Australian and Canadian subsidiaries. The Company does not enter into derivatives for trading or speculative purposes. 10 At June 30, 2001, the Company had two interest rate swap agreements effective through August 2002, on a notional amount of $6.3 million. The receive rate is based on a 90 day LIBOR rate. The receive and pay rates related to the interest rate swap were 6.63% and an average of 7.87%, respectively. The fair value of the interest rate swap agreements were approximately ($73,000), net of tax. Interest differentials to be paid or received because of the swap agreements are reflected as an adjustment to interest expense over the related debt period. A one percentage point change in interest rates would result in an annual interest expense fluctuation of approximately $320,000. A 10% change in the Australian and Canadian dollar relative to the U.S. dollar would result in a currency exchange expense fluctuation of approximately $334,000. The fair value is based on dealer quotes, considering current exchange rates. Part II - Other Information --------------------------- Item 4. Submission of Matters to a Vote of Stockholders The Annual Meeting of Stockholders of Trans-Lux Corporation was held on June 1, 2001 for the purpose of electing directors and approving the appointment of auditors as set forth below. All of management's nominees for directors for a three-year term as listed in the proxy statement were elected by the following vote: For Not For --- ------- Richard Brandt 3,708,583 118,950 Jean Firstenberg 3,709,583 117,950 Gene Jankowski 3,709,583 117,950 Victor Liss 3,709,583 117,950 The following directors are continuing their terms as directors: Matthew Brandt, One-Year Remaining Robert B. Greenes, One-Year Remaining Howard S. Modlin, One-Year Remaining Steven Baruch, Two-Years Remaining Thomas Brandt, Two-Years Remaining Howard M. Brenner, Two-Years Remaining The recommendation to retain Deloitte & Touche LLP as the independent auditors for the Corporation was approved by the following vote: For Against Abstain --- ------- ------- Total: 3,711,289 92,197 26,020 11 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 10(a) Amendment to Employment Agreement with Michael R. Mulcahy dated as of May 31, 2001. 10(b) Amendment to Employment Agreement with Thomas F. Mahoney dated as of May 31, 2001. (b) No reports on Form 8-K were filed during the quarter covered by this report. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. TRANS-LUX CORPORATION (Registrant) Date: August 14, 2001 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 12