10-Q 1 jun0310q.txt 10Q FOR PERIOD END JUNE 30,2003 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, 2003 ------------- Commission file number 1-2257 ------ TRANS-LUX CORPORATION ------------------------------------------------------ (Exact name of registrant as specified in its charter) Delaware 13-1394750 ------------------------------- ---------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 110 Richards Avenue, Norwalk, CT 06856-5090 ---------------------------------------- ---------- (Address of principal executive offices) (Zip code) (203) 853-4321 ---------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes No X --- --- Indicate the number of shares outstanding of each of the issuer's classes of Common Stock, as of the latest practicable date. Date Class Shares Outstanding -------- ------------------------------- ------------------ 8/13/03 Common Stock - $1.00 Par Value 973,243 8/13/03 Class B Stock - $1.00 Par Value 287,505 (Immediately convertible into a like number of shares of Common Stock.) TRANS-LUX CORPORATION AND SUBSIDIARIES Table of Contents Page No. -------- Part I - Financial Information Item 1. Consolidated Balance Sheets - June 30, 2003 and December 31, 2002 (unaudited) 1 Consolidated Statements of Operations - Three and Six Months Ended June 30, 2003 and 2002 (unaudited) 2 Consolidated Statements of Cash Flows - Six Months Ended June 30, 2003 and 2002 (unaudited) 3 Notes to Consolidated Financial Statements (unaudited) 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 Item 3. Quantitative and Qualitative Disclosures about Market Risk 12 Item 4. Controls and Procedures 12 Part II - Other Information Item 4. Submission of Matters to a Vote of Stockholders 13 Item 6. Exhibits and Reports on Form 8-K 13 Signatures 15 Exhibits Part I - Financial Information TRANS-LUX CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (unaudited)
June 30 December 31 In thousands, except share data 2003 2002 ------------------------------------------------------------------------------------------------------ ASSETS Current assets: Cash and cash equivalents $ 12,027 $ 8,270 Available-for-sale securities 575 522 Receivables, less allowance of $1,539 in 2003 and $1,009 in 2002 5,759 7,617 Unbilled receivables 1,098 966 Inventories 6,107 7,440 Prepaids and other 875 745 --------- --------- Total current assets 26,441 25,560 --------- --------- Rental equipment 90,480 88,374 Less accumulated depreciation 47,330 43,423 --------- --------- 43,150 44,951 --------- --------- Property, plant and equipment 41,315 47,427 Less accumulated depreciation and amortization 11,390 12,170 --------- --------- 29,925 35,257 --------- --------- Goodwill 1,035 1,264 Other assets 3,868 3,942 --------- --------- TOTAL ASSETS $104,419 $110,974 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 1,407 $ 2,754 Accrued liabilities 6,663 7,189 Current portion of long-term debt 2,979 3,763 --------- --------- Total current liabilities 11,049 13,706 --------- --------- Long-term debt: 7 1/2% convertible subordinated notes due 2006 30,177 30,177 9 1/2% subordinated debentures due 2012 1,057 1,057 Notes payable 30,413 35,975 --------- --------- 61,647 67,209 Deferred revenue, deposits and other 2,479 2,942 Deferred income taxes 5,228 4,092 --------- --------- Stockholders' equity: Capital stock Common - $1 par value - 5,500,000 shares authorized 2,452,900 shares issued in 2003 and 2002 2,453 2,453 Class B - $1 par value - 1,000,000 shares authorized 287,505 shares issued in 2003 and 2002 287 287 Additional paid-in-capital 13,901 13,901 Retained earnings 20,359 19,612 Accumulated other comprehensive loss (1,147) (1,391) --------- --------- 35,853 34,862 Less treasury stock - at cost - 1,479,688 shares in 2003 and 2002 (excludes additional 287,505 shares held in 2003 and 2002 for conversion of Class B stock) 11,837 11,837 --------- --------- Total stockholders' equity 24,016 23,025 --------- --------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $104,419 $110,974 ========= ========= ------------------------------------------------------------------------------------------------------- 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 2003 2002 2003 2002 --------------------------------------------------------------------------- -------------------- Revenues: Equipment rentals and maintenance $ 4,498 $ 5,153 $ 9,517 $10,782 Equipment sales 5,940 9,894 13,304 18,013 Theatre receipts and other 3,435 3,939 6,542 7,353 -------- -------- -------- -------- Total revenues 13,873 18,986 29,363 36,148 -------- -------- -------- -------- Operating expenses: Cost of equipment rentals and maintenance 3,560 3,405 7,118 6,758 Cost of equipment sales 4,181 7,432 9,912 13,379 Cost of theatre receipts and other 2,663 2,957 4,983 5,485 -------- -------- -------- -------- Total operating expenses 10,404 13,794 22,013 25,622 -------- -------- -------- -------- Gross profit from operations 3,469 5,192 7,350 10,526 General and administrative expenses 4,016 4,243 8,054 8,511 Interest income 21 95 68 118 Interest expense (997) (1,133) (1,999) (2,305) Gain on sale of assets 2,629 - 4,207 - Other income (expense) (129) 43 (129) 58 -------- -------- -------- -------- Income (loss) before income taxes and income 977 (46) 1,443 (114) from joint venture Provision for income taxes 572 53 869 91 Income from joint venture 163 164 261 316 -------- -------- -------- -------- Net income $ 568 $ 65 $ 835 $ 111 ======== ======== ======== ======== Earnings per share Basic $0.45 $0.05 $0.66 $0.09 Diluted $0.26 $0.05 $0.42 $0.09 Average common shares outstanding Basic 1,261 1,261 1,261 1,261 Diluted 3,418 1,261 3,418 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 2003 2002 ------------------------------------------------------------------------------------------------------- Cash flows from operating activities Net income $ 835 $ 111 Adjustment to reconcile net income to net cash provided by operating activities: Depreciation and amortization 5,081 5,073 Income from joint venture (261) (316) Deferred income taxes 1,063 993 Gain on sale of assets (4,207) - Write down of available-for-sale securities 129 - Changes in operating assets and liabilities: Receivables 1,264 (598) Inventories 540 (275) Prepaids and other assets (580) (114) Accounts payable and accruals (2,115) (1,829) Deferred revenue, deposits and other (463) (379) -------- -------- Net cash provided by operating activities 1,286 2,666 -------- -------- Cash flows from investing activities Equipment manufactured for rental (2,106) (2,276) Purchases of property, plant and equipment (150) (343) Proceeds from joint venture 450 436 Proceeds from sale of assets 6,556 - -------- -------- Net cash provided by (used in) investing activities 4,750 (2,183) -------- -------- Cash flows from financing activities Payments of long-term debt (19,191) (1,580) Proceeds from long-term debt 17,000 2,100 Cash dividends (88) (88) -------- -------- Net cash provided by (used in) financing activities (2,279) 432 -------- -------- Net increase in cash and cash equivalents 3,757 915 Cash and cash equivalents at beginning of year 8,270 5,699 -------- -------- Cash and cash equivalents at end of period $12,027 $ 6,614 ======== ======== ------------------------------------------------------------------------------------------------------- Interest paid $ 1,861 $ 2,190 Interest received 87 116 Income taxes refunded (119) (724) ------------------------------------------------------------------------------------------------------- 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, 2003 (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, 2003 consolidated financial statements should 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, 2002. Certain reclassifications of prior years' amounts have been made to conform to the current year's presentation. On January 1, 2002, the Company adopted the provisions of Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" (SFAS 142). Under SFAS 142, goodwill and indefinite-lived intangible assets are no longer amortized, but are reviewed annually for impairment, or more frequently if indications of potential impairment exist. The Company performed the requisite transitional impairment tests for goodwill as of January 1, 2002, which indicated that there was no transitional impairment loss. The Company performed the annual impairment tests for goodwill as of October 1, 2002 and had determined that goodwill was not impaired as of that date. All other intangible assets continue to be amortized over their useful lives and are evaluated when indicators of impairment exist. During the six months ended June 30, 2003, the Company wrote off $229,000 of goodwill relating to the sale of assets (see Note 4). In addition, during the six months ended June 30, 2003, the Company paid $450,000 for a 15-year non-compete agreement in Dillon, Colorado, where the Company operates a six-plex theatre in the same community. The Company records compensation expense for its stock-based employee compensation plans in accordance with the intrinsic-value method prescribed by APB Opinion No. 25, "Accounting for Stock Issued to Employees". Intrinsic value is the amount by which the market price of the underlying stock exceeds the exercise price of the stock option or award on the measurement date, generally the date of grant. The Company's options are issued at fair market value, accordingly, no compensation cost has been recognized for its stock option plans. In December 2002, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure" (SFAS 148), that amends Statement of Financial Accounting Standards No. 123 (SFAS 123), "Accounting for Stock-Based Compensation". The following table illustrates the effect on net income and earnings per share for the three and six month periods ended June 30, 2003 and 2002 if the Company had applied the fair value recognition provisions of SFAS 123 to stock-based employee compensation: 4
Three months ended June 30 Six months ended June 30 In thousands, except per share data 2003 2002 2003 2002 ------------------------------------------------------------------------------------------------------- Net income, as reported $ 568 $ 65 $ 835 $ 111 Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of tax 2 13 12 16 ----- ----- ----- ----- Pro forma net income $ 566 $ 52 $ 823 $ 95 ----- ----- ----- ----- Earnings per share: As reported Basic $0.45 $0.05 $0.66 $0.09 ----- ----- ----- ----- Diluted $0.26 $0.05 $0.42 $0.09 ----- ----- ----- ----- Pro forma Basic $0.45 $0.04 $0.65 $0.08 ----- ----- ----- ----- Diluted $0.26 $0.04 $0.42 $0.08 ----- ----- ----- -----
Note 2 - Inventories Inventories consist of the following:
June 30 December 31 In thousands 2003 2002 --------------------------------------------------------- Raw materials and spare parts $4,212 $4,663 Work-in-progress 1,316 1,384 Finished goods 579 1,393 ------ ------ $6,107 $7,440 ====== ======
Note 3 - Long-Term Debt For the six months ended June 30, 2003, long-term debt, including current portion, decreased $6.3 million. The decrease primarily results from the assumption of $4.2 million in Industrial Revenue Bonds by the purchaser of the Company's custom sports business in Logan, Utah (see Note 4), and other regular scheduled payments of long-term debt. During the first quarter of 2003, the Company completed a refinancing of its senior debt with two term loans totaling $17.0 million and a revolving credit facility of up to $5.0 million at variable interest rates ranging from LIBOR plus 1.75% to Prime plus 0.25% (3.79% at June 30, 2003) and maturing September 30, 2005. At June 30, 2003, the entire revolving credit facility was available as none had been drawn. The bank credit agreement requires an annual facility fee on the unused commitment of .30%, and requires compliance with certain financial covenants, which include a fixed charge coverage ratio of 1.0 to 1.0, a total funded debt ratio of 5.0 to 1.0, a leverage ratio of 3.0 to 1.0 and maintaining a tangible net worth of not less than $19.5 million. At June 30, 2003, the Company was in compliance with such financial covenants. 5 Note 4 - Sale of Assets On June 30, 2003, the Company sold a parcel of vacant land adjacent to its corporate headquarters in Norwalk, Connecticut for a cash price of $3.0 million. The Company recorded a gain of approximately $1.3 million, net of tax, on the sale. On March 28, 2003, the Company sold its custom sports business located in Logan, Utah for $7.9 million, of which $3.7 million was paid in cash and $4.2 million was in assumption of two Industrial Revenue Bonds. The Company recorded a gain of approximately $745,000, net of tax, on the sale. As part of the sale, the Company recorded bonuses to certain continuing employees of $75,000, which was offset against the gain. As part of the asset purchase agreement, the Company provided standard representations and warranties with respect to the assets sold and guaranteed indemnification of up to $400,000, provided notification of the claim is made by the purchaser prior to December 30, 2003, and the Company would reacquire any sold accounts receivable greater than 90 days old. As of June 30, 2003, the Company reacquired $0.1 million of sold accounts receivable greater than 90 days old. The Company believes it will not incur any liability with respect to the guarantee, and accordingly does not believe the fair value of the guarantee is significant. As of August 13, 2003, the purchaser has not notified the Company of any claims relating to such guarantee. Note 5 - Reporting Comprehensive Income Total comprehensive income for the three and six months ended June 30, 2003 and 2002 is as follows:
Three months ended June 30 Six months ended June 30 In thousands 2003 2002 2003 2002 ----------------------------------------------------------------------------------------------------------------- Net income $568 $ 65 $ 835 $111 Unrealized foreign currency translation gain (loss) 89 13 134 (19) Unrealized holding gain (loss) on securities, net of tax 11 (10) 32 (12) Reclassification adjustment on securities, net of tax 78 - 78 - Unrealized derivative gain, net of tax - 26 - 54 ---- ---- ------ ---- Comprehensive income $746 $ 94 $1,079 $134 ---- ---- ------ ----
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/Real Estate segment owns a chain of motion picture theatres in the western Mountain States, a national film booking service and income-producing real estate properties. Segment operating income is shown after general and administrative expenses directly associated with the segment and includes the operating results of the joint venture activities. Corporate general and administrative items relate to costs that are not directly identifiable with a segment. There are no intersegment sales. 6 Information about the Company's operations in its three business segments for the three and six months ended June 30, 2003 and 2002 is as follows:
Three months ended June 30 Six months ended June 30 In thousands 2003 2002 2003 2002 ----------------------------------------------------------------------------------------------------------------- Revenues: Indoor display $ 5,102 $ 6,028 $10,208 $11,715 Outdoor display (1) 5,336 9,019 12,613 17,080 Entertainment/real estate 3,435 3,939 6,542 7,353 ------- ------- ------- ------- Total revenues $13,873 $18,986 $29,363 $36,148 ------- ------- ------- ------- Operating income (loss): Indoor display $ 458 $ 1,242 $ 1,446 $ 2,653 Outdoor display (1) (251) 23 (772) 206 Entertainment/real estate 748 955 1,423 1,789 ------- ------- ------- ------- Total operating income $ 955 $ 2,220 $ 2,097 $ 4,648 Other income 2,500 43 4,078 58 Corporate general and administrative expenses (1,339) (1,107) (2,540) (2,317) Interest expense-net (976) (1,038) (1,931) (2,187) Income tax provision (572) (53) (869) (91) ------- ------- ------- ------- Net income $ 568 $ 65 $ 835 $ 111 ======= ======= ======= ======= (1) Decrease is primarily related to the sale of the custom sports business, see Note 4.
Note 7 - Legal Proceedings and Claims The Company is subject to legal proceedings and claims, which arise in the ordinary course of its business. The Company is not a party to any pending legal proceedings and claims that it believes will have a material adverse effect on the consolidated financial position or operations of the Company. 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Overview Trans-Lux is a full service provider of integrated multimedia systems for today's communications environments. The essential elements of these systems are the real-time, programmable electronic information displays we manufacture, distribute and service. Designed to meet the evolving communications needs of both the indoor and outdoor markets, these displays are used primarily in applications for the financial, banking, gaming, corporate, transportation, entertainment and sports industries. In addition to its display business, the Company owns and operates a chain of motion picture theatres in the western Mountain States, as well as a national film booking service. The Company operates in three reportable segments: Indoor Display, Outdoor Display, and Entertainment/Real Estate. The Indoor Display segment includes worldwide revenues and related expenses from the rental, maintenance and sale of indoor displays. This segment includes the financial, gaming, government and corporate markets. The Outdoor Display segment includes worldwide revenues and related expenses from the rental, maintenance and sale of outdoor displays. Included in this segment are the custom sports (which the Company sold during the first quarter of 2003), catalog sports, retail and commercial markets. The Entertainment/Real Estate segment includes the operations of the motion picture theatres in the western Mountain States, a national film booking service and income-producing real estate properties. Results of Operations Six Months Ended June 30, 2003 Compared to Six Months Ended June 30, 2002 Total revenues for the six months ended June 30, 2003 decreased 18.8% to $29.4 million from $36.1 million for the six months ended June 30, 2002. Indoor display revenues decreased $1.5 million or 12.9%. Of this decrease, indoor display equipment rentals and maintenance revenues decreased $1.1 million or 14.9%, primarily due to disconnects and non-renewals of equipment on rental and maintenance on existing contracts in the financial services market, and indoor display equipment sales decreased $405,000 or 9.4%, also primarily in the financial services market. The financial services market continues to be negatively impacted due to the consolidation within that industry resulting mainly from the current economic slowdown. Outdoor display revenues decreased $4.5 million or 26.2%. Of this decrease, outdoor display equipment sales decreased $4.3 million or 31.5%, primarily in the custom outdoor sports business, which decrease resulted mainly from the sale of the custom sports business during the first quarter of 2003 (see Note 4). Outdoor display equipment rentals and maintenance revenues decreased $163,000 or 4.8%, primarily due to the continued expected revenue decline in the outdoor equipment rentals and maintenance bases previously acquired. Entertainment/real estate revenues decreased $811,000 or 11.0%. This decrease is primarily from a decrease in overall admissions and concessions, mainly related to fewer high grossing films. The Company closed its older non-profitable Lake Dillon theatre at the end of January 2003 for a net payment of $34,000 to the landlord. In connection with its newer six-plex theatre in Dillon, Colorado, the Company entered into a 15-year non-compete agreement for $450,000, which was paid in installments during January and April 2003. 8 Total operating income for the six months ended June 30, 2003 decreased 54.9% to $2.1 million from $4.6 million for the six months ended June 30, 2002. Indoor display operating income decreased $1.2 million or 45.5%, primarily as a result of the decrease in revenues in the financial services market. The cost of indoor displays represented 58.5% of related revenues in 2003 compared to 52.7% in 2002. The cost of indoor displays as a percentage of related revenues increased primarily due to higher depreciation expense and the relationship between field service costs of equipment rentals and maintenance increasing and the revenues from indoor equipment rentals and maintenance decreasing. The Company continues to strategically address the field service costs, and recently consolidated its field service center from Norcross, Georgia to its Norwalk, Connecticut headquarters. In addition, the Company initiated certain cost saving measures and recorded a charge for lay-offs and early retirement incentives of approximately $19,000. Indoor display cost of equipment sales decreased $369,000 or 15.5%, primarily due to the decrease in volume. Indoor display cost of equipment rentals and maintenance increased $164,000 or 4.3%, largely due to an increase in depreciation expense. Indoor display general and administrative expenses decreased $95,000 or 3.3% due to continued reduction of certain overhead costs such as sales salaries and travel expenses. Outdoor display operating income decreased $978,000 to a loss of $772,000, as a result of a decrease in outdoor display equipment sales primarily in the custom outdoor sports business, which was sold during the first quarter of 2003 (see Note 4), the continuing expected revenue decline in outdoor equipment rentals and maintenance bases from previous acquisitions and field service costs increasing despite the reduction in revenues from outdoor equipment rentals and maintenance. The Company initiated certain cost saving measures and recorded a charge for lay-offs and early retirement incentives of approximately $47,000. The cost of outdoor displays represented 87.7% of related revenues in 2003 compared to 81.7% in 2002. Outdoor display cost of equipment sales decreased $3.1 million or 28.2%, principally due to the decrease in volume, offset by increased costs associated with the sale of the custom sports business in March 2003 (see Note 4). Outdoor display cost of equipment rentals and maintenance increased $196,000 or 6.6%, primarily due to an increase in field service costs. Outdoor display general and administrative expenses decreased $587,000 or 20.2%, primarily due to sale of the custom sports business during the first quarter of 2003 (see Note 4). Cost of indoor and outdoor equipment rentals and maintenance includes field service expenses, plant repair costs, maintenance and depreciation. Entertainment/real estate operating income decreased $366,000 or 20.5%, primarily due to the decrease in revenues. The cost of entertainment/real estate represented 76.2% of related revenues in 2003 compared to 74.6% in 2002. Cost of entertainment/real estate, which includes film rental costs and depreciation expense, decreased $502,000 or 9.2%, due to the decrease in overall admissions. Entertainment/real estate general and administrative expenses remained level. Corporate general and administrative expenses increased $223,000 or 9.6%, principally resulting from a charge for lay-offs and early retirement incentives of approximately $46,000, increases in certain overhead costs due to pension, medical and insurance costs and benefits, offset by a $768,000 positive impact of the effect of foreign currency rates in 2003 compared to a $400,000 positive impact in 2002. Net interest expense decreased $256,000, which is primarily attributable to the decrease in variable interest rates in 2003 vs. 2002 and a decrease in long-term debt due to the assumption of debt by the purchaser of the custom sports business and regular scheduled payments of long-term debt. The gain on sale of assets relates to the sale of vacant land and the custom sports business (see Note 4). The income from joint venture relates to the operations of the theatre joint venture, MetroLux Theatres, in Loveland, Colorado. The effective tax rate for the six months ended June 30, 2003 and 2002 was 51.0% and 45.0%, respectively. The change in rate is due principally to the non-deductibility of the $229,000 goodwill write- 9 off as a result of the sale of the custom sports business. Three Months Ended June 30, 2003 Compared to Three Months Ended June 30, 2002 Total revenues for the three months ended June 30, 2003 decreased 26.9% to $13.9 million from $19.0 million for the three months ended June 30, 2002. Indoor display revenues decreased $926,000 or 15.4%. Of this decrease, indoor display equipment rentals and maintenance revenues decreased $594,000 or 16.8%, primarily due to disconnects and non-renewals of equipment on rental and maintenance on existing contracts in the financial services market, and indoor display equipment sales decreased $332,000 or 13.4%, also primarily in the financial services market. The financial services market continues to be negatively impacted due to the consolidation within that industry resulting mainly from the current economic slowdown. Outdoor display revenues decreased $3.7 million or 40.8%. Of this decrease, outdoor display equipment sales decreased $3.6 million or 48.9%, primarily in the custom outdoor sports business, which decrease resulted mainly from the sale of the custom sports business during the first quarter of 2003 (see Note 4). Outdoor display equipment rentals and maintenance revenues decreased $62,000 or 3.9%, primarily due to the continued expected revenue decline in the outdoor equipment rentals and maintenance bases previously acquired. Entertainment/real estate revenues decreased $504,000 or 12.7%. This decrease is primarily from a decrease in overall admissions and concessions, mainly related to fewer high grossing films. In connection with its newer six-plex theatre in Dillon, Colorado, the Company entered into a 15-year non-compete agreement for $450,000, which was paid in installments during January and April 2003. Total operating income for the three months ended June 30, 2003 decreased 57.0% to $1.0 million from $2.2 million for the three months ended June 30, 2002. Indoor display operating income decreased $784,000 or 63.1%, primarily as a result of the decrease in revenues in the financial services market. The cost of indoor displays represented 59.8% of related revenues in 2003 compared to 55.3% in 2002. The cost of indoor displays as a percentage of related revenues increased primarily due to the relationship between field service costs of equipment rentals and maintenance increasing and the revenues from indoor equipment rentals and maintenance decreasing. The Company continues to strategically address the field service costs, and recently consolidated its field service center from Norcross, Georgia to its Norwalk, Connecticut headquarters. In addition, the Company initiated certain cost saving measures and recorded a charge for lay-offs and early retirement incentives of approximately $19,000. Indoor display cost of equipment sales decreased $283,000 or 8.5%, primarily due to the change in volume mix. Indoor display cost of equipment rentals and maintenance increased $64,000 or 3.4%, largely due to increased depreciation expense. Indoor display general and administrative expenses increased $140,000 or 9.6%, primarily due to lay-offs and early retirement incentives. Outdoor display operating income decreased $274,000 to a loss of $251,000, as a result of a decrease in outdoor display equipment sales primarily in the custom outdoor sports business, which was sold during the first quarter of 2003 (see Note 4), the continuing expected revenue decline in outdoor equipment rentals and maintenance bases from previous acquisitions and field service costs increasing despite the reduction in revenues from outdoor equipment rentals and maintenance. The Company initiated certain cost saving measures and recorded a charge for lay-offs and early retirement incentives of approximately $47,000. The cost of outdoor displays represented 87.9% of related revenues in 2003 compared to 83.2% in 2002. Outdoor display cost of equipment sales decreased $2.9 million or 48.4%, principally due to the decrease in volume from the sale of the custom outdoor sports business, during the first quarter of 2003 (see Note 4). 10 Outdoor display cost of equipment rentals and maintenance increased $91,000 or 6.0%, primarily due to field service costs. Outdoor display general and administrative expenses decreased $595,000, primarily due to the sale of the custom outdoor sports business during the first quarter of 2003. Entertainment/real estate operating income decreased $207,000 or 21.7%, primarily due to the decrease in revenues. The cost of entertainment/real estate represented 77.5% of related revenues in 2003 compared to 75.1% in 2002. Cost of entertainment/real estate decreased $294,000 or 9.9%, due to the decrease in overall admissions. Entertainment/real estate general and administrative expenses remained level. Corporate general and administrative expenses increased $232,000 or 21.0%, principally resulting from increases in certain overhead costs due to pension, medical and insurance costs and benefits, offset by a $424,000 positive impact of the effect of foreign currency rates in 2003 compared to a $240,000 positive impact in 2002. Net interest expense decreased $62,000, which is primarily attributable to the decrease in variable interest rates in 2003 vs. 2002 and a decrease in long-term debt due to the assumption of debt by the purchaser of the custom sports business in March 2003 and regular scheduled payments. The gain on sale of assets relates to the sale of vacant land (see Note 4). The income from joint venture relates to the operations of the theatre joint venture, MetroLux Theatres, in Loveland, Colorado. The effective tax rate for the three months ended June 30, 2003 and 2002 was 50.2% and 45.0%, respectively. The change in rate is due principally to an increase in state taxes. Liquidity and Capital Resources The regular quarterly cash dividend for the second quarter of 2003 of $0.035 per share on the Company's Common Stock and $0.0315 per share on the Company's Class B Stock was declared by the Board of Directors on May 29, 2003, payable to stockholders of record as of June 30, 2003 and was paid July 25, 2003. During the first quarter of 2003, the Company refinanced its senior debt. The refinancing consisted of two term loans totaling $17.0 million and a revolving line of credit of up to $5.0 million at variable interest rates ranging from LIBOR plus 1.75% to Prime plus 0.25% and matures September 30, 2005. At June 30, 2003, $16.5 million was outstanding under the term loans and the entire revolving credit facility was available as none had been drawn. The bank credit agreement contains certain financial covenants, which include a fixed charge coverage ratio of 1.0 to 1.0, a total funded ratio of 5.0 to 1.0, a leverage ratio of 3.0 to 1.0 and maintaining a tangible net worth of not less than $19.5 million. At June 30, 2003 the Company was in compliance with such financial covenants. Payments of long-term debt due, including the $17.0 million term loans that mature September 30, 2005, and the 7.5% convertible subordinated notes that mature December 1, 2006, and the future minimum lease payments due under operating leases for the remainder of 2003 and the next four years are as follows:
Remainder of In thousands 2003 2004 2005 2006 2007 ------------ ---- ---- ---- ---- ---- Long-Term Debt $1,505 $2,982 $14,781 $31,307 $1,135 Operating Leases 242 428 359 292 118 ------ ------ ------- ------- ------ Total $1,747 $3,410 $15,140 $31,599 $1,253 ====== ====== ======= ======= ======
Cash and cash equivalents increased $3.8 million for the six months ended June 30, 2003 compared to a decrease of $915,000 in 2002. The increase in 2003 is primarily attributable to cash received on the sale of vacant land and the custom sports business, offset by investment in equipment and a repayment of long- 11 term debt. Cash flows from investing activities also increased $450,000 from the theatre joint venture. The increase in 2002 is primarily attributable to cash flows from operating activities and from financing activities offset by the investment in equipment manufactured for rental and other equipment purchases. The Company reduced its long-term debt, including the current portion, during the six months ended June 30, 2003 by $6.3 million, principally from the assumption of $4.2 million of Industrial Revenue Bonds by the purchaser of the custom sports business and scheduled payments of long-term debt. Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995 The Company may, from time to time, provide estimates as to future performance. These forward-looking statements will be estimates, and may or may not be realized by the Company. The Company undertakes no duty to update such forward-looking statements. Many factors could cause actual results to differ from these forward-looking statements, including loss of market share through competition, introduction of competing products by others, pressure on prices from competition or purchasers of the Company's products, interest rate and foreign exchange fluctuations, terrorist acts and war. Item 3. Quantitative and Qualitative Disclosures about Market Risk The Company is subject to interest rate risk on its long-term debt. The Company manages its exposure to changes in interest rates by the use of variable and fixed interest rate debt. In addition the Company is exposed to foreign currency exchange rate risk mainly as a result of investments in its Australian and Canadian subsidiaries. The Company may, from time to time, enter into derivative contracts to manage its interest risk. The Company does not enter into derivatives for trading or speculative purposes. At June 30, 2003, the Company was not involved in any derivative financial instruments. A one percentage point change in interest rates would result in an annual interest expense fluctuation of approximately $316,000. 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 $398,000, based on dealer quotes, considering current exchange rates. Item 4. Controls and Procedures Disclosure Controls and Procedures. The Company's President and Co-Chief Executive Officer, Michael R. Mulcahy, the Company's Executive Vice President and Co-Chief Executive Officer, Thomas Brandt and the Company's Executive Vice President and Chief Financial Officer, Angela D. Toppi evaluated the effectiveness of the design and operation of its disclosure controls and procedures as of the end of the period covered by this quarterly report. The Company's disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in the reports that are filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. Based on this evaluation, Michael R. Mulcahy, the Company's President and Co-Chief Executive Officer, Thomas Brandt, the Company's Executive Vice President and Co-Chief Executive Officer, and Angela D. Toppi, the Company's Executive Vice President and Chief Financial Officer, have concluded that these controls and procedures are effective as of the end of the period covered by this quarterly report. Changes in Internal Control over Financial Reporting. During the fiscal quarter ended June 30, 2003, there have been no changes in the Company's internal control over financial reporting, identified in connection with our evaluation thereof, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 12 Part II - Other Information Item 4. Submission of Matters to a Vote of Stockholders The Annual Meeting of Stockholders of Trans-Lux Corporation was held on May 29, 2003 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 --- ------- Steven Baruch 3,679,366 92,097 Thomas Brandt 3,677,961 93,502 Howard M. Brenner 3,679,366 92,097 The following directors are continuing their terms as directors: Matthew Brandt, Two-Years Remaining Richard Brandt, One-Year Remaining Jean Firstenberg, One-Year Remaining Robert B. Greenes, Two-Years Remaining Gene Jankowski, One-Year Remaining Victor Liss, One-Year Remaining Howard S. Modlin, Two-Years Remaining Michael R. Mulcahy, 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 --- ------- ------- Totals 3,700,694 23,063 47,706 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 10 Consulting Agreement with Richard Brandt dated as of June 1, 2003. 31.1 Certification of Michael R. Mulcahy, President and Co-Chief Executive Officer, pursuant to Rule 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification of Thomas Brandt, Executive Vice President and Co-Chief Executive Officer, pursuant to Rule 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.3 Certification of Angela D. Toppi, Executive Vice President and Chief Financial Officer, pursuant to Rule 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 13 32.1 Certification of Michael R. Mulcahy, President and Co-Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2 Certification of Thomas Brandt, Executive Vice President and Co-Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.3 Certification of Angela D. Toppi, Executive Vice President and Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (b) Reports on Form 8-K. During the quarter for which this report on Form 10-Q is filed, the registrant filed the following: Form 8-K dated May 14, 2003, press release pertaining to the financial performance for the first quarter of 2003 results. Form 8-K dated June 2, 2003, press release pertaining to the election of a new chairman. 14 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, 2003 by /s/ Angela D. Toppi -------------------- Angela D. Toppi Executive Vice President and Chief Financial Officer 15