-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NbuZQmJ/6pZVZg6nD4ecclMlPPOCqnbptycI6mpLqvTwjYAGxh35z73neXZEDNbq ihltSiMxBn5qzekqgKpyNg== 0000099106-04-000018.txt : 20040325 0000099106-04-000018.hdr.sgml : 20040325 20040325171121 ACCESSION NUMBER: 0000099106-04-000018 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 20031231 FILED AS OF DATE: 20040325 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRANS LUX CORP CENTRAL INDEX KEY: 0000099106 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS MANUFACTURING INDUSTRIES [3990] IRS NUMBER: 131394750 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-02257 FILM NUMBER: 04690384 BUSINESS ADDRESS: STREET 1: 110 RICHARDS AVE CITY: NORWALK STATE: CT ZIP: 06856-5090 BUSINESS PHONE: 2038534321 MAIL ADDRESS: STREET 1: 110 RICHARDS AVENUE CITY: NORWALK STATE: CT ZIP: 06856-5090 10-K 1 tlx200310k.txt TRANS-LUX 10K FOR YEAR ENDED 12/31/2003 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, 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 ------------------------------------------- (203) 853-4321 -------------- (Address, zip code, and telephone number, including area code, of Registrant's principal executive offices) Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered - ----------------------------- ----------------------------------------- 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 ----- ----- 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 2003 Form 10-K Cover Page Continued Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes No X ----- ----- As of the close of business on March 23, 2004, there were outstanding, 973,243 shares of the Registrant's Common Stock and 287,505 shares of its Class B Stock. Based on the closing stock price of $6.20 on June 30, 2003, the last business day of the Registrant's most recently completed second fiscal quarter, the aggregate market value of the Registrant's Common and Class B Stock held by non-affiliates of the Registrant was $6,261,000. (The value of a share of Common Stock is used as the value for a share of Class B Stock, as there is no established market for Class B Stock, which is convertible into Common Stock on a share-for-share basis.) DOCUMENTS INCORPORATED BY REFERENCE: Portions of the Registrant's definitive Proxy Statement for the Annual Meeting of Stockholders to be held May 27, 2004, to be filed with the Commission within 120 days of the Registrant's fiscal year end (the "Proxy Statement"), are incorporated by reference into Part III, Items 10-14 of this Form 10-K to the extent stated herein. TRANS-LUX CORPORATION 2003 Form 10-K Annual Report Table of Contents PART I Page ---- ITEM 1. Business 1 ITEM 2. Properties 6 ITEM 3. Legal Proceedings 7 ITEM 4. Submission of Matters to a Vote of Security Holders 7 PART II ITEM 5. Market for the Registrant's Common Equity and Related Stockholder Matters 8 ITEM 6. Selected Financial Data 8 ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk 14 ITEM 8. Financial Statements and Supplementary Data 15 ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 37 ITEM 9A. Controls and Procedures 37 PART III ITEM 10. Directors and Executive Officers of the Registrant 38 ITEM 11. Executive Compensation 39 ITEM 12. Security Ownership of Certain Beneficial Owners and Management 39 ITEM 13. Certain Relationships and Related Transactions 39 ITEM 14. Principal Accounting Firm Fees 39 PART IV ITEM 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K 40 Signatures 43 PART I ITEM 1. BUSINESS Unless the context otherwise requires, the term "Company" as used herein refers to Trans-Lux Corporation and its subsidiaries. The Company is a full-service provider of integrated multimedia systems for today's communications environments. The essential elements of these systems are the real-time, programmable electronic information displays the Company manufactures, distributes and services. These display systems utilize LED (light emitting diodes), plasma screens, and light bulb technologies. Designed to meet the evolving communications needs of both the indoor and outdoor markets, these display products include data, graphics, and video displays for stock and commodity exchanges, financial institutions, sports stadiums and venues, casinos, convention centers, corporate, government, theatres, retail, airports, and numerous other applications. In addition to its core display business, the Company also owns and operates a chain of motion picture theatres in the western Mountain States and income-producing real estate properties. ELECTRONIC INFORMATION DISPLAY PRODUCTS - --------------------------------------- The Company's high performance electronic information displays are used to communicate messages and information in a variety of indoor and outdoor applications. The Company's product line encompasses a wide range of state-of-the-art electronic displays in various shape, size and color configurations. Most of the Company's display products include hardware components and sophisticated software. In both the indoor and outdoor markets in which the Company serves, the Company adapts basic product types and technologies for specific use in various niche market applications. The Company also operates a direct service network throughout the United States and parts of Canada and Australia, which performs on-site installation, service and maintenance for its customers and others. The Company employs a modular engineering design strategy, allowing basic "building blocks" of electronic modules to be easily combined and configured in order to meet the broad application requirements of the industries it serves. This approach ensures product flexibility, reliability, ease of service and minimum spare parts requirements. The Company's electronic information display market is broken down into two distinct segments: the Indoor division and the Outdoor division. Electronic information displays are used by financial institutions, including brokerage firms, banks, energy companies, insurance companies and mutual fund companies; by sports stadiums and venues; by educational institutions; by outdoor advertising companies; by corporate and government communication centers; by retail outlets; by casinos, race tracks and other gaming establishments; in airports, train stations, bus terminals, and other transportation facilities; on highways and major thoroughfares; by movie theatres; by health maintenance organizations, and in various other applications. Indoor Division: The indoor electronic display market is currently dominated by three categories of users: financial, government and corporate, and gaming. The financial market sector, which includes trading floors, exchanges, brokerage firms, banks, mutual fund companies and energy companies, has long been a user of electronic information displays due to the need for real-time dissemination of data. The major stock and commodity exchanges depend on reliable information displays to post stock and commodity prices, trading volumes, interest rates and other financial data. Brokerage firms use electronic ticker displays for both customers and brokers; they have also installed other larger displays 1 to post major headline news events in their brokerage offices to enable their sales force to stay up-to-date on events affecting general market conditions and specific stocks. The change in regulatory environment in the financial marketplace resulted in the influx of banks and other financial institutions into the brokerage business and the need for these institutions to use information displays to advertise product offerings to consumers. The Indoor division has a new line of advanced last sale ticker displays, full color LED tickers and video displays. The government and corporate sector includes applications found in major corporations, public utilities and government agencies for the display of real-time, critical data in command/control centers, data centers, help desks, visitor centers, inbound/outbound telemarketing centers, retail applications to attract customers and for employee communications. Electronic displays have found acceptance in applications for the healthcare industry such as outpatient pharmacies; military hospitals and HMOs to automatically post patient names when prescriptions are ready for pick up. Theatres use electronic displays to post current box office and ticket information, directional information and promote concession sales. Information displays are consistently used in airports, bus terminals and train stations to post arrival and departure, gate and baggage claim information, all of which help to guide passengers through these facilities. The gaming sector includes casinos 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 using enhanced serial controllers 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. Outdoor Division: The outdoor electronic display market is even more diverse than the Indoor division. Displays are being used by sports stadiums, sports venues, banks and other financial institutions, gas stations, highway departments, educational institutions and outdoor advertisers attempting to capture the attention of passers-by. The Outdoor division has a new line of LED message centers and video displays available in monochrome and full color. The Company has utilized its strong position in the indoor market combined with several acquisitions to enhance its presence in the outdoor display market. Outdoor displays are installed in amusement parks, entertainment facilities, high schools, college sports stadiums, city park and recreational facilities, churches, racetracks, military installations, bridges and other roadway installations, automobile dealerships, banks and other financial institutions. Outdoor equipment generally has a lead-time of 10 to 90 days depending on the size and type of equipment ordered and material availability. Sales Order Backlog (excluding leases): The amount of sales order backlog at December 31, 2003 was approximately $3.3 million compared with the December 31, 2002 sales order backlog of $6.2 million. The reduction in the sales order backlog is partly due to the sale of the custom sports business during the first quarter of 2003. The December 31, 2003 backlog will be recognized in 2004. These amounts include only the sale of products; they do not include new lease orders or renewals of existing lease agreements that may be presently in-house. 2 ENGINEERING AND PRODUCT DEVELOPMENT - ----------------------------------- The Company's ability to compete and operate successfully depends upon, among other factors, its ability to anticipate and respond to the changing technological and product needs of its customers. The Company continually examines and tests new display technologies and develops enhancements to its existing product line in order to meet the needs of its customers. The Company developed a full line of RainbowWall(R) high-resolution full color LED displays for indoor and outdoor applications. RainbowWall delivers brilliant video and animation in billions of colors to corporate, financial and entertainment markets where the presentation of multimedia, live-action, advertising and promotions is of central importance. ProLine(R), the Company's proprietary controller software, is designed for RainbowWall applications that require dynamic, fast-changing information and imagery. ProLine allows live or recorded video, cable TV, newswire feeds and animations to be combined with text on a single display in flexible zone layouts. During 2003 the Company's Outdoor Display division announced the launch of CaptiVue(TM), a new product line of outdoor full matrix LED message centers offering greater design flexibility, modularity and increased clarity at an economical price, which is being well received in the commercial marketplace. Several new orders indicate interesting possibilities for this new product line. Continued development of new indoor products includes new monochrome and tricolor ticker displays utilizing improved LED display technology, curved and flexible displays; higher speed processors for faster data access and improved update speed; greater integration of blue LED's to provide full color text, graphics and video displays; wireless controlled displays; a new graphics interface to display more data at higher resolutions; and Market Scheduler, a turnkey display content controller system that delivers real-time or delayed financial information to the Company's LED Jets and Data Walls. The Company obtained its first orders for tricolor GraphixWall(TM), its recently developed, economical full-matrix indoor graphic display product and continues to develop a full color version. Featuring flexible functionality at a lower cost, GraphixWall provides a more competitive offering for industries where price is critically important. Initial applications for GraphixWall displays include flight information, baggage claim and way-finding at airports, automatic call directories at contact centers and order processing support at manufacturing facilities. As part of its ongoing development efforts, the Company seeks to package certain products for specific market segments as well as to continually track emerging technologies that can enhance its products. Full color, live video and digital input technologies continue to be improved. The Company developed PromoWall(R), a new product line utilizing various technologies incorporating these features, as well as flat screen displays, which are expected to provide a choice of products for the custom applications demanded by its customers. The Company maintains a staff of 26 people who are responsible for product development and support. The engineering and product enhancement and development efforts are supplemented by outside independent engineering consulting organizations and colleges where required. Engineering expense, and product enhancement and development amounted to $2,609,000, $3,370,000 and $4,098,000 in 2003, 2002 and 2001, respectively, this reduction is partly due to the sale of the custom sports business during the first quarter of 2003. 3 MARKETING AND DISTRIBUTION - -------------------------- The Company markets its indoor and outdoor electronic information display products primarily through its 24 direct sales representatives, 5 telemarketers and a network of independent dealers and distributors. 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 16 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. Working with software vendors and utilizing the internet to expand the quality and quantity of the multimedia content that can be delivered to our displays, we are able to offer customers critical information and display communications packages. Internationally, the Company uses a combination of internal sales people and independent distributors to market its products outside the U.S. The Company currently has assembly operations, service centers and sales offices in New South Wales, Australia; Toronto, Canada; and Brampton, Canada. The Company has existing relationships with approximately 21 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. Headquartered in Norwalk, Connecticut, the Company has major sales and service offices in New York; Chicago; Las Vegas; Toronto, Canada; Brampton, Canada; Des Moines, Iowa; and New South Wales, Australia, as well as approximately 44 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 is from equipment rentals with current lease terms ranging from 30 days to ten years. The Company's revenues in 2003, 2002 and 2001 did not include any single customer that accounted for more than 10% of total revenues. MANUFACTURING AND OPERATIONS - ---------------------------- As of the end of the year, the Company's production facilities were located in Norwalk, Connecticut; Des Moines, Iowa; 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, cable assemblies, and surface mount and through-hole designed assemblies. The Company produces more than 10,000 board assemblies annually which are tested with state-of-the-art automated testing equipment. Additional board assembly capacity is increased through 4 outsourcing. The Company's production of many of the subassemblies and all of the final assemblies gives the Company the control needed for on-time delivery to its customers. The Company also has the ability to rapidly modify its product lines. The Company's displays are designed with flexibility in mind, enabling the Company to customize its displays to meet different applications with a minimum of lead-time. The Company designs certain of its materials to match components furnished by suppliers. If such suppliers were unable to provide the Company with those components, the Company would have to contract with other suppliers to obtain replacement sources. Such replacement might result in engineering design changes, as well as delays in obtaining such replacement components. The Company believes it maintains suitable inventory and has contracts providing for delivery of sufficient quantities of such components to meet its needs. The Company also believes there presently are other qualified vendors of these components. The Company does not acquire significant amount of purchases directly from foreign suppliers, but certain components such as the LED's are manufactured by foreign sources. The Company is ISO-9001-2000 registered by Underwriters Laboratories at its Norwalk manufacturing facility. The Company's products are also third-party certified as complying with applicable safety, electromagnetic emissions and susceptibility requirements worldwide. The Company believes these distinctions in its industry give it a competitive advantage in the global marketplace. SERVICE AND SUPPORT - ------------------- The Company emphasizes the quality and reliability of its products and the ability of its field service personnel to provide timely and expert service to the Company's installed base. The Company believes that the quality and timeliness of its on-site service personnel are important components in the Company's ongoing and future success. The Company provides turnkey installation and support for the products it leases and sells in the United States, 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 installation and service to those who purchase and lease equipment. In the market segments covered by the Company's dealers and distributors, who 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 rental equipment and maintenance base and other types of customer owned equipment. Purchasers or lessees of the Company's larger products, such as financial exchanges, casinos and sports stadiums, often retain the Company to provide on-site service through the deployment of a service technician who is on-site daily or for the scheduled event. The Company operates its National Technical Services Center from its Norwalk, Connecticut headquarters, which performs equipment repairs and dispatches service technicians on a nationwide basis. The Company's field service is augmented by various 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 height of displays. COMPETITION - ----------- The Company's offer of short and long-term rentals to customers and its nationwide sales, service and installation capabilities are major competitive advantages in the display business. The 5 Company believes that it is the largest supplier of large-scale stock, commodity, sports and race book gaming displays in the United States, as well as one of the larger outdoor electronic display and service organizations in the country. The Company competes with a number of competitors, both larger and smaller than itself, and with products based on different forms of technology. In addition, there are several companies whose current products utilize similar technology and who possess the resources necessary to develop competitive and more sophisticated products in the future. THEATRE OPERATIONS - ------------------ The Company currently operates 60 screens in 11 locations in the western Mountain States. In 2001, the Company closed a three-plex theatre in Los Alamos, New Mexico. In 2002, the Company closed a single screen theatre in Santa Fe, New Mexico. In 2003, the Company closed a non-profitable four-plex theatre in Dillon, Colorado and is presently expanding its Durango, Colorado location by adding two additional screens. Construction is anticipated to be completed by April 2004. The Company also operates a twelve-plex theatre in Loveland, Colorado, which is a 50% owned joint venture partnership. The Company's theatre revenues are generated from box office admissions, theatre concessions, theatre rentals and other sales. Theatre revenues are generally seasonal and coincide with the release dates of major films during the summer and holiday seasons. The Company is not currently operating any multimedia entertainment venues, but continues to stay abreast of innovations in this area of technology and continues to investigate new opportunities. The Company also offers consultation, management operations services and film booking services for select non-owned independent theatres. The Company's motion picture theatres are subject to varying degrees of competition in the geographic areas in which they operate. In one area, theatres operated by 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. INTELLECTUAL PROPERTY - --------------------- The Company owns or licenses a number of patents and holds a number of trademarks for its display equipment and theatrical enterprises and considers such patents, licenses and trademarks important to its business. EMPLOYEES - --------- The Company has approximately 475 employees as of February 29, 2004, of which approximately 305 employees support the Company's electronic display business. Less than 1% of the employees are unionized. The Company believes its employee relations are good. 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 6 of its indoor display products. Approximately 9,500 square feet of the building is currently leased to others. In addition, the Company owns a facility in Des Moines, Iowa and theatre properties in: Sahuarita, Arizona Dillon, Colorado Durango, Colorado Loveland, Colorado (50% ownership) Espanola, New Mexico Los Lunas, New Mexico Santa Fe, New Mexico Taos, New Mexico Laramie, Wyoming The Company also leases 13 premises throughout North America and in Australia for use as sales, service and/or administrative operations, and leases 3 theatre locations. The aggregate rental expense was $528,000, $643,000 and $553,000 for the years ended December 31, 2003, 2002 and 2001, respectively. ITEM 3. LEGAL PROCEEDINGS The Company is subject to legal proceedings and claims, which arise in the ordinary course of its business. Management has received certain claims by customers related to contractual matters, which are being discussed, and believes that it has adequate provisions for such matters. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 7 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS (a) The Company's Common Stock is traded on the American Stock Exchange under the symbol "TLX." Sales prices are set forth in (d) below. (b) The Company had approximately 706 holders of record of its Common Stock and approximately 63 holders of record of its Class B Stock as of March 23, 2004. (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 2003. 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 ---- --- 2003 First Quarter $5.35 $4.75 Second Quarter 6.55 5.10 Third Quarter 7.79 6.00 Fourth Quarter 7.19 5.85 2002 First Quarter $6.24 $4.85 Second Quarter 7.80 5.20 Third Quarter 5.85 4.90 Fourth Quarter 6.15 4.79
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, 2003, which were derived from the audited consolidated financial statements of the Company and should be read in conjunction with them.
Years Ended 2003 2002 2001 2000 1999 - ----------- ---- ---- ---- ---- ---- In thousands, except per share data Revenues $ 57,574 $ 74,891 $ 70,171 $ 66,763 $ 62,818 Net income (loss) 1,054 428 509 (2,231) 788 Earnings (loss) per share: Basic $ 0.84 $ 0.34 $ 0.40 $ (1.77) $ 0.61 Diluted 0.70 0.34 0.40 (1.77) 0.61 Cash Dividends per share: Common stock $ 0.14 $ 0.14 $ 0.14 $ 0.14 $ 0.14 Class B stock 0.126 0.126 0.126 $ 0.126 0.126 Average common shares outstanding 1,261 1,261 1,261 1,261 1,286 Total assets $102,022 $111,199 $113,897 $113,015 $112,448 Long-term debt 60,505 67,209 69,250 68,552 65,952 Stockholders' equity 24,036 23,025 23,568 23,696 26,013
8 (b) The following table sets forth quarterly financial data for years ended December 31, 2003 and December 31, 2002:
Quarter Ended March 31 June 30 September 30 December 31(1) - ------------- -------- ------- ------------ -------------- In thousands, except per share data 2003 Revenues $15,490 $13,873 $14,848 $13,363 Gross Profit 3,881 3,469 4,621 4,008 Net Income 267 568 103 116 Earnings per share: Basic 0.21 0.45 0.08 0.10 Diluted 0.21 0.26 0.08 0.10 Cash Dividends per share: Common stock 0.035 0.035 0.035 0.035 Class B stock 0.0315 0.0315 0.0315 0.0315 2002 Revenues $17,162 $18,986 $22,016 $16,727 Gross Profit 5,334 5,192 6,082 4,430 Net Income 46 65 180 137 Earnings per share: Basic 0.04 0.05 0.14 0.11 Diluted 0.04 0.05 0.14 0.11 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) The Company recorded the following item during the quarter ended December 31, 2003: a decrease in the effective tax rate for the year, which had the effect of decreasing the quarterly income tax expense by approximately $124,000. During the quarter ended December 31, 2002, the Company recorded: (1) an increase to net income of $197,000 related to a sale of assets, and (2) a decrease in the effective tax rate for the year, which had the effect of decreasing the quarterly income tax expense by approximately $63,000.
9 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview Trans-Lux is a full service provider of integrated multimedia systems for today's communications environments. The essential elements of these systems are the real-time, programmable electronic information displays we manufacture, distribute and service. Designed to meet the evolving communications needs of both the indoor and outdoor markets, these displays are used primarily in applications for the financial, banking, gaming, corporate, transportation, entertainment and sports industries. In addition to its display business, the Company owns and operates a chain of motion picture theatres in the western Mountain States. The Company operates in three reportable segments: Indoor Display, Outdoor Display, and Entertainment/Real Estate. The Indoor Display segment includes worldwide revenues and related expenses from the rental, maintenance and sale of indoor displays. This segment includes the financial, gaming, government, retail and corporate industries. The Outdoor Display segment includes worldwide revenues and related expenses from the rental, maintenance and sale of outdoor displays. This segment includes the catalog sports, retail and commercial industries. The Entertainment/Real Estate segment includes the operations of the motion picture theatres in the western Mountain States and income-producing real estate properties. Critical Accounting Policies and Estimates Management's Discussion and Analysis of Financial Condition and Results of Operations discusses the Company's consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, management evaluates its estimates and judgments, including those related to percentage of completion, uncollectable accounts, inventories, goodwill and intangible assets, income taxes, warranty obligations, benefit plans, contingencies and litigation. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Senior management has discussed the development and selection of these accounting estimates and the related disclosures with the audit committee of the Board of Directors. Management believes the following critical accounting policies, among others, affect its more significant judgments and estimates used in the preparation of its consolidated financial statements. Percentage of Completion: The Company recognizes revenue on long-term equipment sales contracts using the percentage of completion method based on estimated incurred costs to the estimated total cost for each contract. Should actual total cost be different from estimated total cost, additional or a reduction of cost of sales may be required. Uncollectable Accounts: The Company maintains allowances for uncollectable accounts for estimated losses resulting from the inability of its customer to make required payments. Should non-payment by customers differ from the Company's estimates, a revision to increase or decrease the allowance for uncollectable accounts may be required. Inventories: The Company writes down its inventory for estimated obsolescence equal to the difference between the carrying value of the inventory and the estimated market value based upon assumptions about future demand and market conditions. If actual future demand or market conditions are less favorable than those projected by management, additional inventory write-downs may be required. Goodwill and Intangible Assets: The Company evaluates goodwill and intangible assets for possible impairment annually for goodwill and when events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable for other intangible assets. Future adverse changes in market conditions or poor operating results of underlying assets could result in an inability to recover the carrying value of the assets, thereby possibly requiring an impairment charge in the future. Income Taxes: The Company records a valuation allowance to reduce its deferred tax assets to the amount that it believes is more likely than not to be realized. While the Company has considered future taxable income and ongoing feasible tax planning strategies in assessing the need for the valuation allowance, in the event the Company were to determine that it would not be able to realize all or part of its net deferred tax assets in the future, an adjustment to the deferred tax assets would be charged to income in the period such determination was made. Likewise, should the Company determine that it would be able to realize its deferred tax assets in the future in excess of its net recorded amount, an adjustment to the deferred tax assets would increase income in the period such determination was made. Warranty Obligations: The Company provides for the estimated cost of product warranties at the time revenue is recognized. While the Company engages in product quality programs and processes, including evaluating the quality of the component suppliers, the warranty obligation is affected by product failure rates. Should actual product failure rates differ from the Company's estimates, revisions to increase or decrease the estimated warranty liability may be required. Benefit Plans: The Company is required to make estimates and assumptions to determine benefit plan liabilities, which include investment returns, rates of salary increases and discount rates. During 2003 and 2002, the Company recorded an after tax minimum pension liability adjustment in other comprehensive loss of $149,000 and $821,000, respectively. Estimates and assumptions are reviewed annually with the assistance of external actuarial professionals and adjusted as circumstances change. At December 31, 2003, plan assets were invested 55.8% in guaranteed investment contracts, 40.7% in equity and index funds, 2.5% in bonds and 1.0% in money market funds. The investment return assumption takes the asset mix into consideration. The assumed discount rate reflects the rate at which the pension benefits could be settled. At December 31, 2003, the weighted average rates used for the computation of benefit plan liabilities were: investment returns, 8.75%; rates of salary increases, 3.00%; and discount rate, 6.25%. Net periodic cost for 2004 will be based on the December 31, 2003 valuation. The defined benefit plan periodic cost was $867,000 in 2003, $755,000 in 2002 and $683,000 in 2001. At December 31, 2003, assuming no change in the other assumptions, a one percentage point change in investment returns 10 would affect the net periodic cost by $65,000 and a one percentage point change in the discount rate would affect the net periodic cost by $106,000. Quantitative and Qualitative Disclosures About Market Risks The Company's cash flows and earnings are subject to fluctuations from changes in interest rates and foreign currency exchange rates. The Company manages its exposures to these market risks through internally established policies and procedures and, when deemed appropriate, through the use of interest-rate swap agreements and forward exchange contracts. Long-term debt outstanding of $60.5 million at December 31, 2003, was generally at variable rates of interest ranging from 2.94% to 4.00% and fixed rates ranging from 7.50% to 9.50%. The Company does not enter into derivatives or other financial instruments for trading or speculative purposes. Results of Operations 2003 Compared to 2002 Total revenues for the year ended December 31, 2003 decreased 23.1% to $57.6 million from $74.9 million for the year ended December 31, 2002, principally due to the sale of the custom sports business during the first quarter of 2003 (see Note 7 to the Consolidated Financial Statements). Indoor display revenues decreased $2.3 million or 10.3%. Of this decrease, indoor display equipment rentals and maintenance revenues decreased $1.6 million or 11.1%, primarily due to disconnects and non-renewals of equipment on rental on existing contracts in the financial services and energy markets, and indoor display equipment sales decreased $676,000 or 8.8%, primarily in the financial services market. The financial services market continues to be negatively impacted due to the downturn in the economy, resulting in consolidation within that industry. Although the market conditions are improving, installations of new equipment tend to lag any economic turnaround. Outdoor display revenues decreased $14.3 million or 37.2%. Of this decrease, outdoor display equipment sales decreased $14.2 million or 44.4%, primarily in the custom outdoor sports sector, which decrease was a result of the sale of the custom sports business during the first quarter of 2003. Outdoor display equipment rentals and maintenance revenues decreased $166,000 or 2.5%, primarily due to the expected continuing decline in the outdoor equipment rentals and maintenance bases previously acquired. Entertainment/real estate revenues decreased $721,000 or 5.0%, primarily from a decrease in overall admissions of 6.2%, attributable to fewer screens in operation and fewer high grossing films compared to 2002. In January 2003, the Company closed its older non-profitable Lake Dillon theatre for a net payment of $34,000 to the landlord. In connection with its newer six-plex theatre in Dillon, Colorado, the Company entered into a 15-year non-compete agreement for $450,000, which was paid in 2003. Total operating income for the year ended December 31, 2003 decreased 35.7% to $6.2 million from $9.6 million for the year ended December 31, 2002, principally due to the decrease in revenues in indoor display equipment rentals and maintenance and the sale of the custom sports business during the first quarter of 2003. Indoor display operating income decreased $2.5 million or 46.5%, primarily as a result of the decrease in revenues in the financial services and energy markets. The cost of indoor displays represented 59.3% of related revenues in 2003 compared to 52.6% in 2002. The cost of indoor displays as a percentage of related revenues increased primarily due to higher depreciation expense and the relationship between field service costs of equipment rentals and maintenance increasing and the revenues from indoor equipment rentals and maintenance decreasing. The Company continues to strategically address the field service costs, and during 2003, consolidated its national field service center from Norcross, Georgia to its Norwalk, Connecticut headquarters. In addition, during the second quarter of 2003, the Company initiated certain cost saving measures and recorded a charge for lay-offs and early retirement incentives of approximately $19,000. Indoor display cost of equipment rentals and maintenance increased $121,000 or 1.1%, largely due to an increase in depreciation expense. Indoor display cost of equipment sales increased $35,000 or 0.9%, primarily due to volume mix. Indoor display general and administrative expenses increased $104,000 or 2.1%, principally due to increases in certain overhead costs such as medical, insurance and pension costs, and advertising. Outdoor display operating income decreased by $1.1 million to a loss of $263,000 in 2003 compared to a profit of $803,000 in 2002, primarily as a result of a decrease in outdoor display equipment sales attributed to the sale of the custom outdoor sports business during the first quarter of 2003 and the expected revenue decline in outdoor equipment rentals and maintenance bases from previous acquisitions. During the second quarter of 2003, the Company initiated certain cost saving measures and recorded a charge for lay-offs and early retirement incentives of approximately $47,000. The cost of outdoor displays represented 81.6% of related revenues in 2003 compared to 80.8% in 2002. Outdoor display cost of equipment sales decreased $11.2 million or 45.1%, primarily due to the decrease in volume as a result of the sale of the custom sports business during the first quarter of 2003. Outdoor display cost of equipment rentals and maintenance decreased $165,000 or 2.6%, primarily due to a decrease in field service costs. Outdoor display general and administrative expenses decreased $1.9 million or 28.5%, primarily due to the sale of the custom sports business during the first quarter of 2003. Cost of indoor and outdoor equipment rentals and maintenance includes field service expenses, plant repair costs, maintenance and depreciation. Entertainment/real estate operating income increased $113,000 or 3.3%, primarily due to a decrease in operating expenses. The cost of entertainment/real estate represented 74.3% of related revenues in 2003 compared to 77.4% in 2002. Cost of entertainment/real estate, which includes film rental costs and depreciation expense, decreased $984,000 or 8.8%, due to variable expenses such as film rental costs decreasing due to a decrease in overall box office revenues and a decrease in the film rental percentage as a percent of revenue. Entertainment/real estate general and administrative expenses increased $42,000 or 7.0% as a result of an increase in certain overhead costs such as medical and benefits. Corporate general and administrative expenses decreased $456,000 or 9.0%, principally resulting from certain cost saving measures initiated during the second quarter of 2003, which included a charge for lay-offs and early retirement incentives of approximately $46,000, a $970,000 positive impact of the effect of foreign currency exchange rates in 2003 compared to a $274,000 positive impact in 2002, offset by increases in certain overhead costs in medical and general insurance costs, pension and benefit costs. Net interest expense decreased $591,000, which is primarily attributable to the decrease in variable interest rates and renegotiated terms of certain debt in 2003 vs. 2002, a decrease in long-term debt due to the assumption of debt by the purchaser of the custom sports business and regular scheduled payments of long-term debt. The Company has a revolving credit facility to meet its short-term working capital requirements, if needed, which was fully available at December 31, 2003. The gain on sale of assets relates to the sales of vacant land and of the custom sports business. The income from joint venture relates to the operations of the theatre joint venture, MetroLux Theatres, in Loveland, Colorado. Other income primarily relates to the earned income portion of municipal forgivable loans offset by a 11 write-down of available-for-sale securities to reflect losses that were considered to be other than temporary. The effective tax rate for the year ended December 31, 2003 was 44.5%. The tax rate was favorably impacted primarily by the ability to recognize tax benefits for prior years' losses of one foreign subsidiary, offset by a higher tax rate in another foreign subsidiary. For the year ended December 31, 2002, the effective tax rate was 33.2%. The 2002 tax rate was also favorably impacted primarily by the ability to recognize tax benefits for prior years' losses of one foreign subsidiary, offset by a higher tax rate in another foreign subsidiary. 2002 Compared to 2001 Total revenues for the year ended December 31, 2002 increased 6.7% to $74.9 million from $70.2 million for the year ended December 31, 2001. Indoor display revenues decreased $3.6 million or 14.2%. Of this decrease, indoor display equipment rentals and maintenance revenues decreased $2.5 million or 14.9%, primarily due to disconnects and non-renewals of equipment on rental on existing contracts in the financial services market, and indoor display equipment sales decreased $1.1 million or 13.0%, also primarily in the financial services market. The financial services market continued to be negatively impacted due to the downturn in the economy, resulting in consolidation within that industry. Outdoor display revenues increased $7.0 million or 22.0%. Of this increase, outdoor display equipment sales increased $8.1 million or 33.7%, primarily in the custom outdoor sports business. This increase was offset by the decrease in outdoor display equipment rentals and maintenance revenues of $1.1 million or 14.2%, primarily due to the continuing expected revenue decline in the outdoor equipment rentals and maintenance bases previously acquired. Entertainment/real estate revenues increased $1.4 million or 10.6%. This increase is primarily from an increase in overall admissions of 7.6%, ticket prices and concessions, predominantly from 'same store' sales. On October 1, 2002, the Company entered into a lease settlement agreement for a net payment of $34,000 with the landlord at its older Lake Dillon theatre. The Company closed the theatre at the end of January 2003. In a separate transaction, the Company entered into a 15-year non-compete agreement for $450,000, paid in 2003, relating to its newer six-plex theatre in Dillon, Colorado. Total operating income for the year ended December 31, 2002 decreased 20.2% to $9.6 million from $12.0 million for the year ended December 31, 2001. Indoor display operating income decreased $2.6 million or 32.9%, primarily as a result of the decrease in revenues in the financial services market. The cost of indoor displays represented 52.6% of related revenues in 2002 compared to 46.4% in 2001. 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 address the field service costs and, in the first quarter of 2003, consolidated its field service center from Norcross, Georgia to its Norwalk, Connecticut headquarters. In addition, the Company continued to evaluate strategic objectives for its field service offices. Indoor display cost of equipment rental and maintenance increased $261,000 or 3.5%, largely due to an increase in depreciation expense. Indoor display cost of equipment sales decreased $577,000 or 13.2%, primarily due to the decrease in volume. Indoor display general and administrative expenses decreased $696,000 or 12.2%, due to continued reduction of certain overhead costs such as sales and marketing expenses. Outdoor display operating income decreased to $803,000 in 2002 compared to $1.6 million in 2001, primarily as a result of the continuing expected revenue decline in outdoor equipment rentals and maintenance bases from previous acquisitions and field service costs increasing not in relation to the reduction of the revenues from outdoor equipment rentals and maintenance. The cost of outdoor displays represented 80.8% of related revenues in 2002 compared to 77.5% in 2001. Outdoor display cost of equipment sales increased $6.5 million or 35.3%, principally due to the increase in volume and the nature of the sports sector of the outdoor division. Outdoor display cost of equipment rentals and maintenance increased slightly despite a decrease in rental and maintenance contracts. Outdoor display general and administrative expenses increased $1.0 million or 18.8%, primarily due to increased sales support expenses such as project management, commissions resulting from an increase in custom sports revenues and an increase in the allowance for uncollectable accounts. Entertainment/real estate operating income increased $940,000 or 37.1%, primarily due to the increase in revenues and the increase in income from the MetroLux Theatre joint venture of $405,000 due partly to the sale of a parcel of land for which the Company's share of the gain was $203,000. The cost of entertainment/real estate represented 77.4% of related revenues in 2002 compared to 78.9% in 2001. Cost of entertainment/real estate, increased $868,000 or 8.4%, due to the increase in overall admissions. Entertainment/real estate general and administrative expenses decreased slightly. Corporate general and administrative expenses decreased $925,000 or 15.4%, principally due to a $274,000 positive impact of the effect of foreign currency exchange rates in 2002 compared to a $339,000 negative impact in 2001 (a net change of $613,000), continued reduction of certain overhead costs, offset by an increase in medical and general insurance costs and pension expense. Net interest expense decreased $954,000, which is primarily attributable to the decrease in variable interest rates in 2002 vs. 2001 and a decrease in long-term debt due to scheduled payments. The Company used its revolving credit facility to meet its short-term working capital requirements. Other income primarily related to the gain on the sale of the Norcross facility, as well as the earned income portion of municipal forgivable loans. The effective tax rate for the year ended December 31, 2002 was 33.2%. The tax rate was favorably impacted primarily by the ability to recognize tax benefits for prior years' losses of one foreign subsidiary, offset by a higher tax rate in another foreign subsidiary. For the year ended December 31, 2001, the effective tax rate was 52.0%. The tax rate was unfavorably impacted primarily by the inability to recognize tax benefits for current year losses of one foreign subsidiary and a higher tax rate in another foreign subsidiary. Recent Accounting Standards In November 2002, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others" ("FIN 45"). FIN 45 requires that upon issuance of a guarantee, a guarantor must recognize a liability for the fair value of an obligation assumed under a guarantee. FIN 45 also requires additional disclosures by a guarantor in its interim and annual financial statements about the obligations associated with guarantees issued. The provisions of FIN 45, which were effective for qualifying guarantees entered into or modified after December 31, 2002, did not have a material impact on the Company's financial statements. The disclosure requirements were effective for the quarter ended March 31, 2003 (see Note 16 to the Consolidated Financial Statements). In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities" ("SFAS 149"). SFAS 149 is effective for contracts entered into or modified after June 30, 2003, with certain exceptions. SFAS 149 amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities under SFAS No. 133, "Accounting for Derivatives 12 and Hedging Activities." The Company does not currently engage in hedging activities and the adoption of SFAS 149 did not have any effect on the Company's consolidated financial statements. In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity" ("SFAS 150"). SFAS 150 clarifies the accounting for certain financial instruments with characteristics of both liabilities and equity and requires that those instruments be classified as liabilities in statements of financial position. Previously, many of those financial instruments were classified as equity. SFAS 150 was effective for financial instruments entered into or modified after May 31, 2003 and otherwise was effective at July 1, 2003. As the Company does not have any of these financial instruments, the adoption of SFAS 150 did not have any impact on the Company's consolidated financial statements. In December 2003, the FASB issued FASB Interpretation No. 46R, "Consolidation of Variable Interest Entities, an Interpretation of Accounting Research Bulletin No. 51 (revised December 2003)" ("FIN 46R"), which addresses how a business enterprise should evaluate whether it has a controlling interest in an entity through means other than voting rights and accordingly should consolidate the entity. FIN 46R replaces FASB Interpretation No. 46, which was issued in January 2003. Before concluding that it is appropriate to apply Accounting Research Bulletin No. 51 voting interest consolidation model to an entity, an enterprise must first determine that the entity is not a variable interest entity. The adoption of FIN 46R is not expected to have a material effect on the Company's consolidated financial statements on March 31, 2004. Liquidity and Capital Resources On February 13, 2003, the Company successfully completed a refinancing of its senior debt which, at December 31, 2002, consisted of two term loans outstanding, a $14.1 million loan at a rate of interest at LIBOR plus 2.25% and a $4.1 million loan at a rate of interest at LIBOR plus 1.75%. The refinancing included 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 December 31, 2003, $15.1 million was outstanding under the term loans and 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 0.30%, 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 plus 50% of net income beginning December 31, 2003. At December 31, 2003, the Company was in compliance with all such financial covenants. At December 31, 2003, the Company was not involved in any derivative financial instruments. The Company believes that cash generated from operations together with cash and cash equivalents on hand and the current availability under the revolving line of credit will be sufficient to fund its anticipated current and near term cash requirements. The Company continually evaluates the need and availability of long-term capital in order to fund potential new opportunities. On March 2, 2004, the Company commenced an Exchange Offer to exchange $1,000 principal amount of its new 8 1/4% Limited Convertible Senior Subordinated Notes due 2012 for each $1,000 principal amount of its currently outstanding 7 1/2% Convertible Subordinated Notes due 2006. Cash and cash equivalents increased $3.8 million in 2003 compared to increases of $2.6 and $1.8 million in 2002 and 2001, respectively. The increase in 2003 is primarily attributable to proceeds received from sales of vacant land of $2.8 million and the custom sports business of $3.4 million, proceeds from the sale of securities of $0.3 million and operating activities of $5.7 million, offset by the investment in equipment manufactured for rental, expansion of the Company's movie theatre in Durango, Colorado, other equipment purchases of $5.4 million and reduction in long-term debt of $3.7 million. In addition, cash flows from investing activities increased $0.9 million due to distributions received from the MetroLux Theatres joint venture. The increase in 2002 was primarily attributable to proceeds received from sale of a building of $0.8 million and operating activities of $9.2 million, offset by the investment in equipment manufactured for rental and other equipment purchases of $6.4 million and from financing activities of $1.8 million. In addition, cash flows from investing activities increased $0.8 million from the MetroLux Theatres joint venture. The increase in 2001 was primarily attributable to proceeds received from sale of fixed assets of $0.4 million, an increase in financing activities of $1.3 million, principally as a result of increased borrowings under the revolving credit facility, and operating activities of $8.2 million, offset by the investment in equipment manufactured for rental and other equipment purchases of $8.9 million. In addition, cash flows from investing activities increased $0.7 million from the MetroLux Theatres joint venture. The Company experiences a favorable collection cycle on its trade receivables. Under various agreements, the Company is obligated to make future cash payments in fixed amounts. These include payments under the Company's long-term debt agreements, employment and consulting agreement payments and rent payments required under operating lease agreements. The following table summarizes the Company's fixed cash obligations as of December 31, 2003 over the next five fiscal years:
In thousands 2004 2005 2006 2007 2008 - ------------ ------ ------- ------ ------ ------ Short-term debt $2,637 $ - $ - $ - $ - Long-term debt - 14,974 31,466 1,310 3,013 Employment and consulting agreement obligations 1,572 917 420 393 393 Operating lease payments 432 381 295 119 96 ------ ------- ------- ------ ------ Total $4,641 $16,272 $32,181 $1,822 $3,502 ====== ======= ======= ====== ======
Off-Balance Sheet Arrangements: The Company has no majority-owned subsidiaries that are not included in the consolidated financial statements nor does it have any interests in or relationships with any special purpose off-balance sheet financing entities. The Company's $888,000 investment in the MetroLux Theatres joint venture is accounted for under the equity method of accounting. The Company has guaranteed $1.3 million (60%) of a $2.1 million mortgage loan held by MetroLux Theatres. During 2000, the Company entered into two sale/leaseback transactions for theatre equipment that are classified as operating leases. The Company has guaranteed up to a maximum of $712,000 if, upon default, the lessor cannot recover the unamortized balance. Safe Harbor Statement under the Private Securities Reform Act of 1995 The Company may, from time to time, provide estimates as to future performance. These forward-looking statements will be estimates, and may or may not be realized by the Company. The Company undertakes no duty to update such forward-looking statements. Many factors could cause actual results to differ from these forward-looking statements, including loss of market share through competition, introduction of competing products by others, pressure on prices from competition or purchasers of the Company's products, interest rate and foreign exchange fluctuations, terrorist acts and war. 13 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is subject to interest rate risk on its long-term debt. The Company manages its exposure to changes in interest rates by the use of variable and fixed interest rate debt. In addition, through August 2002, the Company had hedged its exposure to changes in interest rates on a portion of its variable debt by entering into interest rate swap agreements to lock in fixed interest rates for a portion of these borrowings. The fair value of the Company's fixed rate long-term debt is disclosed in Note 10 to the Consolidated Financial Statements. In addition, the Company is exposed to foreign currency exchange rate risk mainly as a result of investments in its Australian and Canadian subsidiaries. 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 $371,000. The fair value is based on dealer quotes, considering current exchange rates. The Company does not enter into derivatives for trading or speculative purposes. A one percentage point change in interest rates would result in an annual interest expense fluctuation of approximately $304,000. 14 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The consolidated financial statements and supplementary financial information are set forth below: CONSOLIDATED STATEMENTS OF OPERATIONS
In thousands, except per share data Years ended December 31 2003 2002 2001 - ---------------------------------------------------------------------------------------------------------------------------- Revenues: Equipment rentals and maintenance $19,087 $20,826 $24,405 Equipment sales 24,737 39,594 32,680 Theatre receipts and other 13,750 14,471 13,086 -------------------------------------------- Total revenues 57,574 74,891 70,171 -------------------------------------------- Operating expenses: Cost of equipment rentals and maintenance 13,881 13,959 13,528 Cost of equipment sales 17,500 28,696 22,777 Cost of theatre receipts and other 10,214 11,198 10,330 -------------------------------------------- Total operating expenses 41,595 53,853 46,635 -------------------------------------------- Gross profit from operations 15,979 21,038 23,536 General and administrative expenses 15,124 17,316 17,908 Interest income 113 177 157 Interest expense (3,922) (4,578) (5,532) Gain on sale of assets 4,207 314 306 Other income (expense) (46) 204 106 -------------------------------------------- Income (loss) before income taxes and income from joint venture 1,207 (161) 665 -------------------------------------------- Provision (benefit) for income taxes: Current 652 (369) (68) Deferred 194 581 621 -------------------------------------------- Total provision for income taxes 846 212 553 -------------------------------------------- Income from joint venture 693 801 397 -------------------------------------------- Net income $ 1,054 $ 428 $ 509 ============================================ Earnings per share: Basic $ 0.84 $ 0.34 $ 0.40 Diluted $ 0.70 $ 0.34 $ 0.40 Average common shares outstanding: Basic 1,261 1,261 1,261 Diluted 3,421 1,261 1,261 - ---------------------------------------------------------------------------------------------------------------------------- The accompanying notes are an integral part of these consolidated financial statements.
15 CONSOLIDATED BALANCE SHEETS
In thousands, except share data December 31 2003 2002 - -------------------------------------------------------------------------------------------------------------- ASSETS Current assets: Cash and cash equivalents $ 12,022 $ 8,270 Available-for-sale securities 393 522 Receivables, less allowance of $1,098 - 2003 and $1,009 - 2002 6,040 7,617 Unbilled receivables 729 966 Inventories 5,761 7,440 Prepaids and other 956 970 --------------------------- Total current assets 25,901 25,785 --------------------------- Rental equipment 90,500 88,374 Less accumulated depreciation 49,026 43,423 --------------------------- 41,474 44,951 --------------------------- Property, plant and equipment 42,007 47,427 Less accumulated depreciation and amortization 11,906 12,170 --------------------------- 30,101 35,257 Goodwill 1,035 1,264 Other assets 3,511 3,942 --------------------------- TOTAL ASSETS $102,022 $111,199 =========================== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 1,592 $ 2,754 Accrued liabilities 6,935 7,414 Current portion of long-term debt 2,637 3,763 --------------------------- Total current liabilities 11,164 13,931 --------------------------- 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 29,271 35,975 --------------------------- 60,505 67,209 Deferred revenue, deposits and other 2,052 2,942 Deferred income taxes 4,265 4,092 --------------------------- Commitments and contingencies 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 20,490 19,612 Accumulated other comprehensive loss (1,258) (1,391) --------------------------- 35,873 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 24,036 23,025 --------------------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $102,022 $111,199 =========================== - -------------------------------------------------------------------------------------------------------------- The accompanying notes are an integral part of these consolidated financial statements.
16 CONSOLIDATED STATEMENTS OF CASH FLOWS
In thousands Years ended December 31 2003 2002 2001 - -------------------------------------------------------------------------------------------------------------------------- Cash flows from operating activities Net income $ 1,054 $ 428 $ 509 Adjustment to reconcile net income to net cash provided by operating activities: Depreciation and amortization 9,983 10,247 10,067 Income from joint venture (693) (801) (397) Deferred income taxes 204 581 621 Gain on sale of assets (4,207) (314) (306) Write down of available-for-sale securities 129 - - Gain on sale of available-for-sale securities (28) - - Gain on repurchase of Company's 7 1/2% convertible subordinated notes - - (5) Changes in operating assets and liabilities: Receivables 1,286 1,750 (1,667) Inventories 886 (603) 944 Prepaids and other assets (404) (196) (28) Accounts payable and accruals (1,629) (1,926) (256) Deferred revenue, deposits and other (890) 32 (1,298) ------------------------------------ Net cash provided by operating activities 5,691 9,198 8,184 ------------------------------------ Cash flows from investing activities Equipment manufactured for rental (4,183) (5,625) (7,978) Purchases of property, plant and equipment (1,249) (750) (878) Purchases of available-for-sale securities (113) - - Proceeds from joint venture 900 775 734 Proceeds from sale of securities 312 - - Proceeds from sale of assets 6,245 758 423 ------------------------------------ Net cash provided by (used in) investing activities 1,912 (4,842) (7,699) ------------------------------------ Cash flows from financing activities Proceeds from long-term debt 17,438 2,233 4,130 Payments of long-term debt (21,113) (3,842) (2,643) Repurchase of Company's 7 1/2% convertible subordinated notes - - (15) Cash dividends (176) (176) (178) ------------------------------------ Net cash provided by (used in) financing activities (3,851) (1,785) 1,294 ------------------------------------ Net increase in cash and cash equivalents 3,752 2,571 1,779 Cash and cash equivalents at beginning of year 8,270 5,699 3,920 ------------------------------------ Cash and cash equivalents at end of year $ 12,022 $ 8,270 $ 5,699 ==================================== - -------------------------------------------------------------------------------------------------------------------------- Interest paid $ 3,661 $ 4,253 $ 5,241 Interest received 176 190 187 Income taxes paid (refunded) 272 (523) 411 - ---------------------------------------------------------------------------------------------------------------------------- The accompanying notes are an integral part of these consolidated financial statements.
17 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Accumulated Other Additional Comprehensive In thousands, except share data Common Stock Class B Paid-in Treasury Retained Income For the three years ended December 31, 2003 Shares Amount Shares Amount Capital Stock Earnings (Loss) - ----------------------------------------------------------------------------------------------------------------------------------- Balance January 1, 2001 2,445,562 $2,445 294,843 $295 $13,901 $(11,837) $19,029 $ (137) Net income - - - - - - 509 - Cash dividends - - - - - - (178) - Other comprehensive income (loss), net of tax: Unrealized foreign currency translation - - - - - - - 19 Unrealized holding loss - - - - - - - (9) Minimum pension liability adjustment - - - - - - - (373) Unrealized derivative loss - - - - - - - (96) Class B conversion to common stock 7,338 8 (7,338) (8) - - - - ---------------------------------------------------------------------------------- Balance December 31, 2001 2,452,900 2,453 287,505 287 13,901 (11,837) 19,360 (596) Net income - - - - - - 428 - Cash dividends - - - - - - (176) - Other comprehensive income (loss), net of tax: Unrealized foreign currency translation - - - - - - - (56) Unrealized holding loss - - - - - - - (14) Minimum pension liability adjustment - - - - - - - (821) Unrealized derivative gain - - - - - - - 96 ---------------------------------------------------------------------------------- Balance December 31, 2002 2,452,900 2,453 287,505 287 13,901 (11,837) 19,612 (1,391) Net income - - - - - - 1,054 - Cash dividends - - - - - - (176) - Other comprehensive income (loss), net of tax: Unrealized foreign currency translation - - - - - - - 179 Unrealized holding gain - - - - - - - 25 Reclassification adjustment on securities - - - - - - - 78 Minimum pension liability adjustment - - - - - - - (149) ---------------------------------------------------------------------------------- Balance December 31, 2003 2,452,900 $2,453 287,505 $287 $13,901 $(11,837) $20,490 $(1,258) ================================================================================== - ----------------------------------------------------------------------------------------------------------------------------------- The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
In thousands Years ended December 31 2003 2002 2001 - ------------------------------------------------------------------------------------------------- Net income $1,054 $ 428 $ 509 ------------------------------- Other comprehensive income (loss): Unrealized foreign currency translation 179 (56) 19 Unrealized holding gain (loss) on securities 42 (8) (16) Reclassification adjustment on securities 129 - - Minimum pension liability adjustment (247) (1,368) (621) Unrealized derivative gain (loss) - 174 (174) Income tax benefit related to items of other comprehensive income 30 463 333 ------------------------------- Total other comprehensive income (loss), net of tax 133 (795) (459) ------------------------------- Comprehensive income (loss) $1,187 $ (367) $ 50 =============================== - ------------------------------------------------------------------------------------------------- The accompanying notes are an integral part of these consolidated financial statements.
18 Notes To Consolidated Financial Statements 1. Summary of Significant Accounting Policies Trans-Lux Corporation is a leading manufacturer and supplier of programmable electronic information displays and owner/operator of cinemas. Principles of consolidation: The consolidated financial statements include the accounts of Trans-Lux Corporation and its majority-owned subsidiaries (the "Company"). The investment in a 50% owned joint venture partnership, MetroLux Theatres, is reflected under the equity method and is included in other assets in the Consolidated Balance Sheets and is recorded as a separate line in the Consolidated Statements of Operations. Use of estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Estimates and assumptions are reviewed periodically, and the effects of revisions are reflected in the financial statements in the period in which they are determined to be necessary. Estimates are used when accounting for such items as costs of long-term sales contracts, allowance for uncollectable accounts, inventory reserves, depreciation and amortization, intangible assets, income taxes, warranty obligation, benefit plans, contingencies and litigation. Cash equivalents: The Company considers all highly liquid investments with a maturity of three months or less, when purchased, to be cash equivalents. Available-for-sale securities: Available-for-sale securities consist of mutual fixed income funds and equity securities and are stated at fair value with changes in fair value reflected in other comprehensive income (loss). Accounts receivable: Receivables are carried at net realizable value. Reserves for uncollectable accounts are provided based on historical experience and current trends. The Company evaluates the adequacy of these reserves regularly. The following is a summary of the allowance for uncollectable accounts at December 31:
In thousands 2003 2002 2001 - ------------ ---- ---- ---- Balance at beginning of year $1,009 $ 465 $ 311 Provisions 724 835 298 Deductions (635) (291) (144) ------ ------ ----- Balance at end of year $1,098 $1,009 $ 465 ====== ====== =====
Concentrations of credit risk with respect to accounts receivable are limited due to the large number of customers and relatively small account balances within the majority of the Company's customer base, and their dispersion across different businesses. The Company periodically evaluates the financial strength of its customers and believes that its credit risk exposure is limited. Inventories: Inventories are stated at the lower of cost (first-in, first-out method) or market value. Reserves for slow moving and obsolete inventories are provided based on historical experience and demand for servicing of the displays. The Company evaluates the adequacy of these reserves regularly. Rental equipment and property, plant and equipment: Rental equipment and property, plant and equipment are stated at cost and are being depreciated over their respective useful lives using straight line or 150% declining balance methods. Leaseholds and improvements are amortized over the lesser of the useful lives or term of the lease. The estimated useful lives are as follows: Rental equipment 5 to 15 years Buildings and improvements 10 to 40 years Machinery, fixtures and equipment 4 to 15 years Leaseholds and improvements 5 to 27 years When rental equipment and property, plant and equipment are fully depreciated, retired or otherwise disposed of, the cost and accumulated depreciation are eliminated from the accounts. Goodwill and intangibles: The Company adopted the provisions of Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"), effective January 1, 2002. Under SFAS 142, goodwill and indefinite-lived intangible assets are no longer amortized, but are reviewed annually for impairment, or more frequently if indications of possible impairment exist. The Company performed the requisite transitional impairment tests for goodwill as of January 1, 2002, which indicated that there was no transitional impairment loss. In connection with the sale of the custom sports business in the first quarter of 2003 (see Note 7), the Company reduced goodwill by $229,000. Goodwill represents the excess of purchase price over the estimated fair value of net assets acquired. Identifiable intangible assets are recorded at cost and amortized over their estimated useful life on a straight line basis; non-compete agreements over their terms of seven and ten years; deferred financing costs over the life of the related debt of two to 20 years; and other intangibles over ten years. The Company periodically evaluates the value of its goodwill and the period of amortization of its other intangible assets and determines if such assets are impaired by comparing the carrying values with estimated future undiscounted cash flows. The Company performed the annual impairment tests for goodwill as of October 1, 2003 and 2002, and determined that goodwill was not impaired as of those dates. Other intangible assets are evaluated when indicators of impairment exist. Maintenance contracts: Purchased maintenance contracts are stated at cost and are being amortized over their economic lives of eight to 15 years using an accelerated method, which contemplates contract expiration, fall-out and non-renewal. Impairment or disposal of long-lived assets: The Company evaluates whether there has been an impairment in any of its long-lived assets, excluding goodwill, if certain circumstances indicate that a possible impairment may exist. An impairment in value exists when the carrying value of a long-lived asset exceeds its undiscounted cash flows. If it is determined that an impairment in value has occurred, the carrying value is written down to its fair value. Revenue recognition: Revenue from rental of equipment and revenue from maintenance contracts are recognized as they accrue during the term of the respective agreements. The Company recognizes revenues on long-term equipment sales contracts, which require more than three months to complete, using the percentage of completion method. The Company records unbilled receivables representing amounts due under these long-term equipment sales contracts, which have not been billed to the customer. Income is recognized based on the percentage of incurred costs to the estimated total costs for each contract. The determination of the estimated total costs is susceptible to significant change on these sales contracts. Revenues on equipment sales, other than long-term equipment sales contracts, are recognized upon shipment when title and risk of loss passes to the customer. Theatre receipts and other revenues are recognized at time service is provided. 19 Taxes on income: The Company computes income taxes using the asset and liability method, under which deferred income taxes are provided for the temporary differences between the financial reporting basis and the tax basis of the assets and liabilities. Foreign currency: The functional currency of the Company's non-U.S. business operations is the applicable local currency. The assets and liabilities of such operations are translated into U.S. dollars at the year-end rate of exchange, and the income and cash flow statements are converted at the average annual rate of exchange. The resulting translation adjustment is recorded in accumulated other comprehensive income (loss) in the Consolidated Balance Sheets. Gains and losses related to the settling of transactions not denominated in the functional currency are recorded as a component of general and administrative expenses in the Consolidated Statements of Operations. Derivative financial instruments: The Company has limited involvement with derivative financial instruments and does not use them for trading purposes; they are only used to manage and fix well-defined interest rate risks. From time to time the Company enters into interest rate swap agreements to reduce exposure to interest fluctuations. The net gain or loss from the exchange of interest rate payments is included in interest expense in the Consolidated Statements of Operations and in interest paid in the Consolidated Statements of Cash Flows. Stock-based compensation plans: The Company records compensation expense for its stock-based employee compensation plans, which are described more fully in Note 14, in accordance with the intrinsic-value method prescribed by APB Opinion No. 25, "Accounting for Stock Issued to Employees." Intrinsic value is the amount by which the market price of the underlying stock exceeds the exercise price of the stock option or award on the measurement date, generally the date of grant. During 2003, 2002 and 2001, the Company issued all stock options at 100% of market value at date of grant. Accordingly, no compensation cost has been recognized for its stock option plans. In December 2002, the Financial Accounting Standards Board ("FASB") issued SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure" ("SFAS 148"), that amends SFAS No. 123 ("SFAS 123"), "Accounting for Stock-Based Compensation." The Company adopted the disclosure provisions of SFAS 148 at December 31, 2002. The following table illustrates the effect on net income and earnings per share for the years ended December 31, 2003, 2002 and 2001 if the Company had applied the fair value recognition provisions of SFAS 123 to stock-based employee compensation:
In thousands, except per share data 2003 2002 2001 - ----------------------------------- ---- ---- ---- Net income, as reported $1,054 $ 428 $ 509 Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of tax 17 51 5 ------ ----- ----- Pro forma net income $1,037 $ 377 $ 504 ====== ===== ===== Earnings per share: Basic, as reported $ 0.84 $0.34 $0.40 ------ ----- ----- Diluted, as reported $ 0.70 $0.34 $0.40 ------ ----- ----- Basic, pro forma $ 0.82 $0.30 $0.40 ------ ----- ----- Diluted, pro forma $ 0.70 $0.30 $0.40 ------ ----- -----
Accounting pronouncements: In November 2002, the FASB issued FASB Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others" ("FIN 45"). FIN 45 requires that upon issuance of a guarantee, a guarantor must recognize a liability for the fair value of an obligation assumed under a guarantee. FIN 45 also requires additional disclosures by a guarantor in its interim and annual financial statements about the obligations associated with guarantees issued. The provisions of FIN 45, which were effective for qualifying guarantees entered into or modified after December 31, 2002, did not have a material impact on the Company's financial statements. The disclosure requirements were effective for the quarter ended March 31, 2003 (see Note 16). In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities" ("SFAS 149"). SFAS 149 is effective for contracts entered into or modified after June 30, 2003, with certain exceptions. SFAS 149 amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities under SFAS 133, "Accounting for Derivatives and Hedging Activities." The Company does not currently engage in hedging activities and the adoption of SFAS 149 did not have any effect on the Company's consolidated financial statements. In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity" ("SFAS 150"). SFAS 150 clarifies the accounting for certain financial instruments with characteristics of both liabilities and equity and requires that those instruments be classified as liabilities in statements of financial position. Previously, many of those financial instruments were classified as equity. SFAS 150 was effective for financial instruments entered into or modified after May 31, 2003 and otherwise was effective at July 1, 2003. As the Company does not have any of these financial instruments, the adoption of SFAS 150 did not have any impact on the Company's consolidated financial statements. In December 2003, the FASB issued FASB Interpretation No. 46R, "Consolidation of Variable Interest Entities, an Interpretation of Accounting Research Bulletin No. 51 (revised December 2003)" ("FIN 46R"), which addresses how a business enterprise should evaluate whether it has a controlling interest in an entity through means other than voting rights and accordingly should consolidate the entity. FIN 46R replaces FASB Interpretation No. 46, which was issued in January 2003. Before concluding that it is appropriate to apply Accounting Research Bulletin No. 51 voting interest consolidation model to an entity, an enterprise must first determine that the entity is not a variable interest entity. The adoption of FIN 46R is not expected to have a material effect on the Company's consolidated financial statements on March 31, 2004. Reclassifications: Certain reclassifications of prior years' amounts have been made to conform to the current year's presentation. 2. Available-for-Sale Securities Available-for-sale securities are carried at estimated fair values and the unrealized holding gains and losses are excluded from earnings and are reported net of income taxes in accumulated other comprehensive loss until realized. Adjustments of $103,000 and ($14,000) were made to equity to reflect the net unrealized gains (losses) on available-for-sale securities at December 31, 2003 and 2002, respectively. During the second quarter of 2003, the Company wrote down available-for-sale securities by $129,000 to reflect losses that were considered to be other than temporary. The Company realized gains of $28,000 on the sales of available-for-sale securities during 2003. Available-for-sale securities consist of the following:
2003 2002 ------------------ ------------------ Fair Unrealized Fair Unrealized In thousands Value Losses Value Losses - ------------ ----- ---------- ----- ---------- Mutual funds $349 $11 $522 $182 Equity securities 44 - - - ---- --- ---- ---- $393 $11 $522 $182 ==== === ==== ====
20 3. Inventories Inventories consist of the following:
In thousands 2003 2002 - ------------ ---- ---- Raw materials and spare parts $3,881 $4,663 Work-in-progress 1,234 1,384 Finished goods 646 1,393 ------ ------ $5,761 $7,440 ====== ======
4. Property, Plant and Equipment Property, plant and equipment consist of the following:
In thousands 2003 2002 - ------------ ---- ---- Land, buildings and improvements $32,745 $36,529 Machinery, fixtures and equipment 8,271 9,918 Leaseholds and improvements 991 980 ------- ------- $42,007 $47,427 ======= =======
Land, buildings and equipment having a net book value of $26.8 million and $33.0 million at December 31, 2003 and 2002, respectively, were pledged as collateral under mortgage agreements. 5. Goodwill Goodwill represents the excess of purchase price over the estimated fair value of net assets acquired and all of such goodwill relates to the outdoor display segment. The Company adopted the provisions of SFAS 142, effective January 1, 2002. Under SFAS 142, goodwill assets are no longer amortized, but are reviewed annually for impairment, or more frequently if indications of possible impairment exist. In accordance with SFAS 142, prior period amounts were not restated. Reconciliation of the previously reported net income and earnings per share for the year ended December 31, 2001 to the amounts adjusted for the reduction of amortization expense, net of related income tax effect, is as follows:
In thousands, except per share data 2001 - ----------------------------------- ---- Net income, as reported $ 509 Goodwill amortization, net of income taxes 58 ----- Net income, adjusted $ 567 ===== Earnings per share - basic and diluted, as reported $0.40 Goodwill amortization, net of income taxes 0.05 ----- Earnings per share - basic and diluted, adjusted $0.45 =====
In connection with the sale of the custom sports business in the first quarter of 2003 (see Note 7), the Company reduced goodwill by $229,000. 6. Other Assets Other assets consist of the following:
In thousands 2003 2002 - ------------ ---- ---- Deferred financing costs, net of accumulated amortization of $1,495 - 2003 and $1,235 - 2002 $1,013 $1,145 Investment in joint venture (see Note 18) 888 1,091 Prepaids 548 635 Noncompete agreements, net of accumulated amortization of $185 - 2003 and $122 - 2002 421 34 Maintenance contracts, net of accumulated amortization of $2,130 - 2003 and $2,061 - 2002 257 326 Deposits and other 384 711 ------ ------ $3,511 $3,942 ====== ======
Deferred financing costs relate to the issuance of the 7 1/2% convertible subordinated notes, the 9 1/2% subordinated debentures, mortgages and other financing agreements. Noncompete agreements relate to the acquisition of one of the outdoor businesses, the acquisition of theatre leases and a restrictive covenant agreement, entered into during October 2002 with the owner of the Dillon Center complex ("Owner"), in Dillon, Colorado where the Company operates a six-plex theatre in the same community, restricting the Owner from constructing, operating, using or maintaining a movie theatre within the Dillon Center complex for a 15-year period ending January 31, 2018. The amount of the restrictive covenant agreement totaled $450,000, which was paid by the Company during 2003. Maintenance contracts represent the present value of acquired agreements to service outdoor display equipment. Future amortization expense of intangible assets over the next five years is expected as follows: $430,000 - 2004, $393,000 - 2005, $284,000 - 2006, $114,000 - 2007, $113,000 - 2008. 7. 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 $1.5 million, net of tax, on the sale. On March 28, 2003, the Company sold its custom sports business located in Logan, Utah for $7.9 million, of which $3.7 million was paid in cash and $4.2 million was in assumption of two Industrial Revenue Bonds. The Company recorded a gain of approximately $876,000, net of tax, on the sale. As part of the sale, the Company recorded bonuses to certain continuing employees of $75,000, which was included in the recorded gain. As part of sale, the Company would reacquire any sold accounts receivable greater than 90 days old. During 2003, the Company reacquired $108,000 of sold accounts receivable greater than 90 days old. 8. Taxes on Income The components of income tax expense are as follows:
In thousands 2003 2002 2001 - ------------ ---- ---- ---- Current: Federal $ - $(704) $(413) State and local 110 (3) 27 Foreign 542 338 318 ---- ----- ----- 652 (369) (68) ---- ----- ----- Deferred: Federal 157 600 605 State and local 37 (19) 16 ---- ----- ----- 194 581 621 ---- ----- ----- Total income tax expense $846 $ 212 $ 553 ==== ===== =====
Income taxes provided differed from the expected federal statutory rate of 34% as follows:
In thousands 2003 2002 2001 ---- ---- ---- Statutory federal income tax rate 34.0% 34.0% 34.0% State income taxes, net of federal benefit 5.1 (2.3) 2.7 Foreign operating losses (income) not providing current tax benefit (expense) (4.5) (20.9) 2.9 Foreign income taxed at different rates 6.0 14.3 8.0 Unused income tax credits - 6.8 1.4 Other 3.9 1.3 3.0 ---- ---- ---- Effective income tax rate 44.5% 33.2% 52.0% ==== ==== ====
21 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 2003 2002 - ------------ ---- ---- Deferred tax asset: Tax credit carryforwards $ 1,050 $ 1,051 Operating loss carryforwards 5,900 5,689 Net pension costs 700 834 Bad debts 394 377 Other 570 548 Valuation allowance (156) (227) ------- ------- 8,458 8,272 ------- ------- Deferred tax liability: Depreciation 11,840 11,503 Gain on purchase of the Company's 9 1/2% subordinated debentures 439 439 Other 444 422 ------- ------- 12,723 12,364 ------- ------- Net deferred tax liability $ 4,265 $ 4,092 ======= =======
Tax credit carryforwards primarily relate to federal alternative minimum taxes of $0.9 million paid by the Company, which may be carried forward indefinitely. Operating tax loss carryforwards primarily relate to U.S. federal net operating loss carryforwards of approximately $14.4 million, which begin to expire in 2019. A valuation allowance has been established for the amount of deferred tax assets related to state net operating loss carryforwards, which management estimates will more likely than not expire unused. 9. Accrued Liabilities Accrued liabilities consist of the following:
In thousands 2003 2002 - ------------ ---- ---- Pension liability (see Note 13) $1,908 $2,325 Compensation and employee benefits 1,382 1,573 Taxes payable 482 146 Interest payable 399 474 Warranty obligations 308 541 Other 2,456 2,355 ------ ------ $6,935 $7,414 ====== ======
Warranty obligations: The Company provides for the estimated cost of product warranties at the time revenue is recognized. While the Company engages in product quality programs and processes, including evaluating the quality of the component suppliers, the warranty obligation is affected by product failure rates. Should actual product failure rates differ from the Company's estimates, revisions to increase or decrease the estimated warranty liability may be required. A summary of the warranty liabilities at December 31, follows:
In thousands 2003 2002 2001 - ------------ ---- ---- ---- Balance at beginning of year $ 541 $ 310 $ 350 Provisions 29 594 175 Deductions (262) (363) (215) ----- ----- ----- Balance at end of year $ 308 $ 541 $ 310 ===== ===== =====
10. Long-Term Debt Long-term debt consist of the following:
In thousands 2003 2002 ------------ ---- ---- 7 1/2% convertible subordinated notes due 2006 $30,177 $30,177 9 1/2% subordinated debentures due 2012 1,057 1,057 Term loans - banks secured, due in quarterly installments through 2005 15,105 18,196 Real estate mortgages - secured, due in monthly installments through 2020 16,525 17,017 Loan payable - IRB - 4,155 Loan payable - CEBA, secured, due in monthly installments through 2006 at 0.0% and 6.0% 278 328 Capital lease obligation - secured, at 5.3% - 42 ------- ------- 63,142 70,972 Less portion due within one year 2,637 3,763 ------- ------- Long-term debt $60,505 $67,209 ======= =======
Payments of long-term debt due for the next five years are:
In thousands 2004 2005 2006 2007 2008 - ------------ ---- ---- ---- ---- ---- $2,637 $14,974 $31,466 $1,310 $3,013 ------ ------- ------- ------ ------
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 declining premiums. The related Indenture agreement requires compliance with certain financial covenants, which include a limitation on the Company's ability to incur indebtedness of five times EBITDA plus $5.0 million. During 2001, the Company repurchased $20,000 face value of its Notes at $77.00, and recognized $2,000 of income (net of tax). During March 2004, the Company commenced an Exchange Offer of its Notes (see Note 19). 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 declining premiums. During the first quarter of 2003, the Company successfully completed a refinancing of its senior debt, which includes 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% (3.43% at December 31, 2003) and maturing September 30, 2005. At December 31, 2003, the entire revolving credit facility was available as none had been drawn. The credit agreement requires an annual facility fee on the unused commitment of 0.30%, 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, plus 50% of net income beginning December 31, 2003. At December 31, 2003, the Company was in compliance with such financial covenants. At December 31, 2003, the Company was not involved in any derivative financial instruments. On January 1, 2001, the Company adopted the provisions of SFAS 133 and recorded a cumulative effect of an accounting change, net of tax, of approximately $15,000 in other comprehensive loss. The Company has mortgages on certain of its facilities, which are payable in monthly installments, the last of which extends to 2020. Depending upon the mortgage, the interest rate is either floating or adjustable. At December 31, 2003, such interest rates ranged from 2.94% to 4.00%. On March 28, 2003, the Company sold its custom sports business located in Logan, Utah. Part of the purchase price was the 22 assumption of two outstanding Industrial Revenue Bonds totaling $4.2 million (see Note 7). During 1999, the Company received $400,000 structured as forgivable loans from the State of Iowa, City of Des Moines and Polk County, which were classified as deferred revenue, deposits and other in the Consolidated Balance Sheets prior to December 31, 2002. The loans were forgiven on a pro-rata basis when predetermined employment levels were attained. As of December 31, 2002, the Company did not meet the maximum specified employment levels and, accordingly, is required to repay the non-forgiven portion, although during 2003 none was required to be repaid. At December 31, 2003, the non-forgiven amount totaled $133,333 and is expected to be payable in even monthly installments over two years at 6.0% interest. During 2003, the Company incurred interest costs of $3.9 million. At December 31, 2003, the fair value of the Notes and the Debentures was $28.4 million and $1.0 million, respectively. The fair value of the remaining long-term debt approximates the carrying value. 11. Stockholders' Equity During 2003, 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 2003 and January 2004. Each share of Class B Stock is convertible at any time into one share of Common Stock and has ten votes per share, as compared to Common Stock, which has one vote per share but receives a 10% higher dividend. The Company has 3.0 million shares of authorized and unissued capital stock designated as Class A Stock, $1.00 par value. Such shares have no voting rights except as required by law and would receive a 10% higher dividend than the Common Stock. The Company also has 0.5 million shares of authorized and unissued capital stock designated as Preferred Stock, $1.00 par value. The stockholders previously approved an increase in the authorized shares of Common Stock to 11.0 million and Class A Stock to 6.0 million. A Certificate of Amendment increasing the authorized shares will be filed when deemed necessary. Shares of Common Stock reserved for future issuance in connection with convertible securities and stock option plans were 2.2 million at December 31, 2003 and 2002. 12. Engineering Development Engineering development expense was $469,000, $496,000 and $297,000 for 2003, 2002, and 2001, respectively. 13. Pension Plan All eligible salaried employees of Trans-Lux Corporation and certain of its subsidiaries are covered by a non-contributory defined benefit pension plan. Pension benefits vest after five years of service and are based on years of service and final average salary. The Company's general funding policy is to contribute at least the required minimum amounts sufficient to satisfy regulatory funding standards, but not more than the maximum tax-deductible amount. As of December 31, 2003, the benefit service under the pension plan has been frozen. For 2003 and 2002, due primarily to a drop in the discount rate and the effect of the plan's investment experience at the December 31 measurement date on the valuation of plan assets, the accrued benefit obligation of the plan exceeded the fair value of plan assets. The Company's pension obligations for this plan exceeded plan assets by $3.3 million at December 31, 2003. The Company employs a total return investment approach whereby a mix of equities and fixed income investments are used to maximize the long-term return of plan assets for a prudent level of risk. The intent of this strategy is to minimize plan expenses by outperforming plan liabilities over the long run. Risk tolerance is established through careful consideration of plan liabilities, plan funded status and corporate financial condition. The portfolio contains a diversified blend of equity and fixed income investments. Investment risk is measured and monitored on an ongoing basis through annual liability measurements, periodic asset/liability studies and quarterly investment portfolio reviews. At December 31, 2003 and 2002, the Company's pension plan weighted-average asset allocations by asset category are as follows:
2003 2002 ---- ---- Guaranteed investment contracts 55.8% 78.5% Equity and index funds 40.7 17.6 Bonds 2.5 2.9 Money market funds 1.0 1.0 ------ ------ 100.0% 100.0% ====== ======
Bonds include $167,000 of the Company's 9 1/2% subordinated debentures for 2003 and 2002. The funded status of the plan as of December 31, 2003 and 2002 is as follows:
In thousands 2003 2002 ------------ ---- ---- Change in benefit obligation: ----------------------------- Benefit obligation at beginning of year $ 9,476 $ 8,861 Service cost 509 556 Interest cost 593 602 Actuarial loss 613 704 Amendments to plan - 67 Curtailment (195) - Benefits paid (927) (1,314) ------- ------- Benefit obligation at end of year $10,069 $ 9,476 ======= ======= Change in plan assets: ---------------------- Fair value of plan assets at beginning of year $5,684 $ 5,847 Actual return on plan assets 605 (80) Company contributions 1,450 1,231 Benefits paid (927) (1,314) ------ ------- Fair value of plan assets at end of year $6,812 $ 5,684 ====== ======= Funded status: -------------- Funded status (underfunded) $(3,257) $(3,792) Unrecognized net actuarial loss 3,586 3,457 Unrecognized prior service cost 144 225 ------- ------- Net amount $ 473 $ (110) ======= ======= Amounts recognized in the balance sheet consist of: --------------------------------------------------- Accrued benefit liability $(1,908) $(2,325) Unrecognized prior service cost 144 225 Accumulated other comprehensive loss 2,237 1,990 ------- ------- Net amount $ 473 $ (110) ======= ======= Weighted average assumptions as of December 31: ----------------------------------------------- Discount rate: Components of cost 6.75% 7.25% Benefit obligations 6.25% 6.75% Expected return on plan assets 8.75% 8.75% Rate of compensation increase 3.00% 3.25%
The accumulated benefit obligation at December 31, 2003 and 2002 was $8.7 million and $8.0 million, respectively. The Company estimates that approximately $166,000 in contributions will be made in 2004. The following items are components of the net periodic pension cost for the three years ended December 31, 2003:
In thousands 2003 2002 2001 - ------------ ---- ---- ---- Service cost $ 509 $ 556 $ 568 Interest cost 593 602 560 Expected return on plan assets (537) (547) (537) Amortization of prior service cost 19 18 2 Amortization of net actuarial loss 221 126 90 Curtailment 62 - - ----- ----- ----- Net periodic pension cost - funded plan $ 867 $ 755 $ 683 ===== ===== =====
23 In addition, the Company provided unfunded supplemental retirement benefits for the retired former Chief Executive Officer. During 2003 and 2002, the Company made payments totaling $174,000 and $332,000, respectively for such benefits. In 2002, the Company accrued $50,000 for such benefits, and in 2001, the Company recognized a benefit of $127,000 due to amendments to the pension plan. The total liability accrued was $174,000 at December 31, 2002, which was paid during 2003. The Company does not offer any post-retirement benefits other than the pension and the supplemental retirement benefits described herein. 14. Stock Option Plans The Company has four stock option plans. Under the 1995 Stock Option Plan and the 1992 Stock Option Plan, 125,000 and 50,000 shares of Common Stock, respectively, were authorized for grant to key employees. Under the Non-Employee Director Stock Option Plan, 30,000 shares of Common Stock were authorized for grant. During 2001, the Company adopted a Non-Statutory Stock Option Agreement reserving 10,000 shares of Common Stock issued to the former Chairman of the Board. Changes in the stock option plans are as follows:
Weighted Number of Shares Average -------------------------------------- Exercise Authorized Granted Available Price ---------- ------- --------- ----- Balance January 1, 2001 174,859 130,159 44,700 $9.26 Additional shares authorized 10,000 - 10,000 - Terminated - (32,100) 32,100 8.86 Granted - 13,500 (13,500) 4.18 ------- ------- ------- ---- Balance December 31, 2001 184,859 111,559 73,300 8.75 Terminated (21,720) (57,420) 35,700 9.86 Granted - 29,500 (29,500) 5.48 ------- ------- ------- ---- Balance December 31, 2002 163,139 83,639 79,500 6.84 Terminated (2,400) (9,600) 7,200 7.81 Granted - 5,000 (5,000) 5.16 ------- ------- ------- ----- Balance December 31, 2003 160,739 79,039 81,700 $6.61 ======= ======= ======= =====
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, 2003, under the 1995 Plan, options for 51,039 shares with exercise prices ranging from $5.40 to $15.1875 per share were outstanding, all were exercisable. During 2003, no options were exercised, and options for 6,700 shares expired. During 2002, options for 27,500 shares were granted at exercise prices ranging from $5.40 to $6.10 per share, no options were exercised, and options for 28,700 shares expired. During 2001, no options were exercised, and options for 30,600 shares expired. At December 31, 2003, under the 1992 Plan, options for 4,500 shares with an exercise price of $9.6875 per share were outstanding, all of which were exercisable. During 2003, no options were exercised, and options for 2,400 shares expired. During 2002, no options were exercised, and options for 21,720 shares expired. During 2001, no options were exercised, and no options expired. No further options may be granted under this plan. 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, 2003, options for 13,500 shares with exercise prices ranging from $4.025 to $13.00 per share were outstanding, 8,500 of which were exercisable. During 2003, options for 5,000 shares were granted with exercise prices ranging from $4.95 to $7.00, no options were exercised, and options for 500 shares expired. During 2002, options for 2,000 shares were granted with exercise prices ranging from $5.40 to $6.55, no options were exercised, and options for 7,000 shares expired. During 2001, options for 3,500 shares were granted with exercise prices ranging from $4.025 to $6.15, no options were exercised, and options for 1,500 shares expired. Under the Non-Statutory Stock Option Agreement for the former Chairman of the Board, the option price must be at least 100% of the market value of the Common Stock at time of grant and the exercise period is for 10 years from date of grant. At December 31, 2003, the options for 10,000 shares with an exercise price of $4.025 were outstanding and exercisable. During 2003 and 2002, no options were exercised and no options expired. During 2001, options for 10,000 shares were granted at an exercise price of $4.025, no options were exercised and no options expired. The following tables summarize information about stock options outstanding at December 31, 2003:
Weighted Average Weighted Range of Number Remaining Average Exercise Prices Outstanding Contractual Life Exercise Price - --------------- ----------- ---------------- -------------- $ 4.03 - $6.15 47,500 7.4 $ 5.05 6.16 - 7.00 1,000 5.1 6.78 7.01 - 8.13 11,239 1.6 8.11 8.14 - 9.69 17,000 3.5 9.18 9.70 - 11.44 1,000 3.2 11.44 11.45 - 15.19 1,300 1.2 13.50 ------ --- ------ 79,039 5.5 $ 6.61 ====== === ====== Weighted Range of Number Average Exercise Prices Exercisable Exercise Price - ---------------- ----------- -------------- $ 4.03 - $6.15 43,000 $ 5.06 6.16 - 7.00 500 6.55 7.01 - 8.13 11,239 8.11 8.14 - 9.69 17,000 9.18 9.70 - 11.44 1,000 11.44 11.45 - 15.19 1,300 13.50 ------ ------ 74,039 $ 6.71 ====== ======
The estimated fair value of options granted during 2003, 2002 and 2001 was $2.18, $2.71 and $1.81 per share, respectively. The fair value of options granted under the Company's stock option plans during 2003, 2002 and 2001 was estimated on dates of grant using the binomial options-pricing model with the following weighted average assumptions used:
2003 2002 2001 ---- ---- ---- Dividend yield 2.50% 2.51% 2.72% Expected volatility 46.00% 47.00% 41.00% Risk free interest rate 4.94% 4.78% 5.46% Expected lives of option grants (years) 4.0 4.0 4.0
15. Earnings Per Common Share Basic earnings per common share is computed by dividing net income by the weighted average number of common shares outstanding for the period. The Company's diluted earnings per common share is calculated by adjusting net income for the after-tax interest expense on convertible debt and dividing that amount by the weighted average number of common shares outstanding, adjusted for shares that would be assumed outstanding after convertible debt conversion and 24 stock options vested under the treasury stock method. The weighted average number of outstanding stock options, which were excluded from the calculation of diluted earnings per share because their impact would have been antidilutive, aggregated 34,539 in 2003. The following table sets forth the computation of basic and diluted earnings per share:
In thousands, except per share data 2003 2002 2001 ----------------------------------- ---- ---- ---- Numerator: Net income $1,054 $ 428 $ 509 Add interest expense on 7.5% convertible subordinate notes, net of tax 1,356 - - ------ ------ ------ Net income, adjusted $2,410 $ 428 $ 509 ====== ====== ====== Denominator: Basic - weighted average common shares outstanding 1,261 1,261 1,261 Dilutive effect of: Convertible notes 2,153 - - Stock options 7 - - ------ ------ ------ Diluted common shares outstanding 3,421 1,261 1,261 ====== ====== ====== Earnings per share - basic $ 0.84 $ 0.34 $ 0.40 ------ ------ ------ Earnings per share - diluted $ 0.70 $ 0.34 $ 0.40 ------ ------ ------
16. Commitments and Contingencies Contingencies: The Company has employment agreements with certain executive officers, which expire at various dates through March 2006, and a consulting agreement with a certain board member who is a former officer of the Company, which expires December 2011. At December 31, 2003, the aggregate commitment for future salaries and consulting fees, excluding bonuses, was approximately $4.9 million. During 1996, the Company received a $350,000 grant from the State of Connecticut Department of Economic Development, which is classified as deferred revenue, deposits and other in the Consolidated Balance Sheets. This grant will be forgiven under certain circumstances, which include attainment of predetermined employment levels within the state, which were satisfied, and maintaining business operations within the state for a specified period of time. The Company is subject to legal proceedings and claims which arise in the ordinary course of its business. Management has received certain claims by customers related to contractual matters, which are being discussed, and believes that it has adequate provisions for such matters. Operating leases: Theatre and other premises are occupied under operating leases that expire at varying dates through 2044. Certain of these leases provide for the payment of real estate taxes and other occupancy costs. Future minimum lease payments due under operating leases at December 31, 2003 are as follows: $431,500 - 2004, $381,200 - 2005, $294,700 - 2006, $119,300 - 2007, $96,400 - 2008, $1,051,200 - thereafter. Rent expense was $528,000, $643,000 and $553,000 for the years ended December 31, 2003, 2002 and 2001, respectively. Guarantees: The Company has guaranteed $1.3 million (60%) of a $2.1 million mortgage loan held by its joint venture, MetroLux Theatres, until December 2008. During 2000, the Company entered into two sale/leaseback transactions for theatre equipment that are classified as operating leases. The Company has guaranteed up to a maximum of $711,700 if, upon default, the lessor cannot recover the unamortized balance. 17. Business Segment Data Operating segments are based on the Company's business components about which separate financial information is available, and is evaluated regularly by the Company's chief operating decision makers in deciding how to allocate resources and in assessing performance. The Company evaluates segment performance and allocates resources based upon operating income. The Company's operations are managed in three reportable business segments. The Display Division comprises two operating segments, indoor display and outdoor display. Both design, produce, lease, sell and service large-scale, multi-color, real-time electronic information displays. Both operating segments are conducted on a global basis, primarily through operations in the U.S. The Company also has operations in Canada 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 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. Information about the Company's operations in its three business segments for the three years ended December 31, 2003 is as follows:
In thousands 2003 2002 2001 ------------ ---- ---- ---- Revenues: Indoor display $ 19,579 $ 21,829 $25,449 Outdoor display 24,245 38,591 31,636 Entertainment/real estate 13,750 14,471 13,086 -------- -------- ------- Total revenues $ 57,574 $ 74,891 $70,171 ======== ======== ======= Operating income: Indoor display $ 2,848 $ 5,324 $ 7,931 Outdoor display (263) 803 1,563 Entertainment/real estate 3,587 3,474 2,534 -------- -------- ------- Total operating income 6,172 9,601 12,028 Other income 4,161 519 412 Corporate general and administrative expenses (4,624) (5,079) (6,003) Interest expense - net (3,809) (4,401) (5,375) Income tax provision (846) (212) (553) -------- -------- ------- Net income $ 1,054 $ 428 $ 509 ======== ======== ======= Assets: Indoor display $ 37,893 $ 40,139 Outdoor display 25,068 35,331 Entertainment/real estate 26,283 26,421 -------- -------- Total identifiable assets 89,244 101,891 General corporate 12,778 9,308 -------- -------- Total assets $102,022 $111,199 ======== ======== Depreciation and amortization: Indoor display $ 6,081 $ 5,940 $ 5,643 Outdoor display 2,484 2,911 2,977 Entertainment/real estate 933 924 935 General corporate 485 472 512 -------- -------- ------- Total depreciation and amortization $ 9,983 $ 10,247 $10,067 ======== ======== ======= Capital expenditures: Indoor display $ 3,927 $ 4,258 $ 6,502 Outdoor display 723 1,678 1,801 Entertainment/real estate 724 337 435 General corporate 58 102 118 -------- -------- ------- Total capital expenditures $ 5,432 $ 6,375 $ 8,856 ======== ======== =======
25 18. Joint Venture The Company has a 50% ownership in a joint venture partnership, MetroLux Theatres ("MetroLux"), accounted for by the equity method. The following summary information relates to MetroLux as of December 31, 2003 and 2002 and for the years ended December 31, 2003, 2002 and 2001.
In thousands 2003 2002 2001 ------------ ---- ---- ---- Revenues $3,996 $4,116 $3,538 Gross profit 1,358 1,447 1,108 Other income (expense) 138 296 (204) Net income 1,384 1,602 794 Company's share of partnership net income 693 801 397 ----- ----- ----- Current assets 341 850 Noncurrent assets 3,937 4,130 ----- ----- Total assets 4,278 4,980 ----- ----- Current liabilities 653 701 Noncurrent liabilities 1,859 2,097 ----- ----- Total liabilities 2,512 2,798 ----- ----- Company's equity in partnership net assets $ 888 $1,091
19. Subsequent Event On March 2, 2004, the Company commenced an Exchange Offer ("Exchange Offer") offering to exchange $1,000 principal amount of its new 8 1/4% Limited Convertible Senior Subordinated Notes due 2012 ("New Notes") for each $1,000 principal amount of its currently outstanding 7 1/2% Convertible Subordinated Notes due 2006 ("Old Notes"). The Exchange Offer will be for up to $15.0 million principal amount, representing approximately 49.7% of the $30.2 million outstanding principal amount of the Old Notes. If more than $15.0 million principal amount of the Old Notes is tendered, all tenders will be accepted on a pro rata basis unless the Company elects to accept all such tendered Old Notes. If less than $4.0 million principal amount of the Old Notes is tendered, the Company reserves the right to either accept or reject such lesser tendered amount. The New Notes will be senior to the Old Notes and the Debentures. The New Notes will pay a higher interest rate than the Old Notes, and have a longer maturity, later call date, a lower conversion price of $9.00 per share compared to the conversion price of $14.013 per share of the Old Notes, and be convertible into Common Stock through March 1, 2007. The Exchange Offer currently expires on March 31, 2004. Independent Auditors' Report To the Board of Directors and Stockholders of Trans-Lux Corporation: We have audited the accompanying consolidated balance sheets of Trans-Lux Corporation and its subsidiaries as of December 31, 2003 and 2002, and the related consolidated statements of operations, stockholders' equity, comprehensive income, and cash flows for each of the three years in the period ended December 31, 2003. 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 did not audit the 2002 and 2001 financial statements of MetroLux Theatres, the Company's joint venture investment which is accounted for by use of the equity method. The Company's equity of $1,091,000 in MetroLux Theatres' net assets at December 31, 2002 and of $801,000 and $397,000 in that company's net income for the years ended December 31, 2002 and 2001, respectively are included in the accompanying 2002 and 2001 financial statements. The 2002 and 2001 financial statements of MetroLux Theatres were audited by other auditors whose reports have been furnished to us, and our opinion, insofar as it relates to the amounts included for such company in the 2002 and 2001 financial statements, is based solely on the reports of such other auditors. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the reports of the other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and the reports of the other auditors, such consolidated financial statements present fairly, in all material respects, the financial position of the Company and its subsidiaries at December 31, 2003 and 2002, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2003 in conformity with accounting principles generally accepted in the United States of America. As discussed in Note 5 of the Notes to the Consolidated Financial Statements, as of January 1, 2002, the Company changed its method of accounting for goodwill to conform to Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets." /s/ Deloitte & Touche LLP Stamford, Connecticut March 24, 2004 26 Partners MetroLux Theatres Norwalk, Connecticut Independent Auditor's Report We have audited the accompanying balance sheets of MetroLux Theatres as of December 31, 2003 and 2002 and the related statements of income, partners' equity and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits 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, the financial statements referred to above present fairly, in all material respects, the financial position of MetroLux Theatres as of December 31, 2003 and 2002, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. /s/ Kellogg & Andelson February 26, 2004 Sherman Oaks, California 27 METROLUX THEATRES BALANCE SHEETS DECEMBER 31, 2003 AND 2002 (Dollars in thousands)
ASSETS 2003 2002 ------- ------- CURRENT ASSETS: Cash $ 299 $ 820 Concession supplies 13 9 Prepaid expenses and other current assets 15 17 Due from partners 14 4 ------- ------- Total current assets 341 850 PROPERTY AND EQUIPMENT, net 3,917 4,105 INTANGIBLE ASSETS, net 20 25 ------- ------- $ 4,278 $ 4,980 ======= ======= LIABILITIES AND PARTNERS' EQUITY CURRENT LIABILITIES: Film rentals payable $ 159 $ 176 Accounts payable and accrued expenses 171 215 Current portion of long-term debt 238 223 Deferred revenues 85 87 ------- ------- Total current liabilities 653 701 LONG-TERM DEBT, net of current portion 1,859 2,097 ------- ------- Total liabilities 2,512 2,798 COMMITMENTS - - PARTNERS' EQUITY 1,766 2,182 ------- ------- $ 4,278 $ 4,980 ======= =======
28 METROLUX THEATRES STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002 (Dollars in thousands)
2003 2002 ------- ------- OPERATING REVENUES: Theatre operations Admissions $ 2,765 $ 2,810 Concessions 1,162 1,219 Other operating revenue 69 87 ------- ------- Total operating revenues 3,996 4,116 ------- ------- OPERATING EXPENSES: Theatre operations Film costs and advertising 1,566 1,544 Cost of concessions 183 239 Other operating expenses 889 886 Administrative expenses 112 141 ------- ------- Total operating expenses 2,750 2,810 ------- ------- INCOME FROM OPERATIONS 1,246 1,306 ------- ------- OTHER INCOME (EXPENSE): Interest income 1 1 Gain on sale of property and equipment 248 405 Interest expense (88) (110) Write off of construction in progress (23) - ------- ------- Net other income 138 296 ------- ------- NET INCOME $ 1,384 $ 1,602 ======= =======
29 METROLUX THEATRES STATEMENTS OF PARTNERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002 (Dollars in thousands)
Trans-Lux Metro Colorado Loveland Corporation Corporation Total -------------- ----------- --------- PARTNERS' EQUITY, January 1, 2002 $ 1,065 $ 1,065 $ 2,130 PARTNERSHIP DISTRIBUTIONS (775) (775) (1,550) NET INCOME 801 801 1,602 -------- -------- --------- PARTNERS' EQUITY, December 31, 2002 1,091 1,091 2,182 PARTNERSHIP DISTRIBUTIONS (900) (900) (1,800) NET INCOME 692 692 1,384 -------- -------- --------- PARTNERS' EQUITY, December 31, 2003 $ 883 $ 883 $ 1,766 ======== ======== =========
30 METROLUX THEATRES STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002 (Dollars in thousands)
2003 2002 -------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 1,384 $ 1,602 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 155 151 Gain on sale of property and equipment (248) (405) Write off of construction in progress 23 - Changes in assets and liabilities: Concession supplies (4) 1 Prepaid expenses and other current assets 2 (6) Due from partners (10) (3) Film rentals payable (17) (35) Accounts payable and accrued expenses (44) 51 Deferred revenues (2) 16 -------- -------- Net cash provided by operating activities 1,239 1,372 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Net proceeds from sale of property and equipment 327 514 Acquisition of property and equipment (64) (30) Acquisition of intangible assets - (13) -------- -------- Net cash provided by investing activities 263 471 -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Principal payment on long-term debt (223) (180) Partnership distributions (1,800) (1,550) -------- -------- Net cash (used in) financing activities (2,023) (1,730) -------- -------- NET CHANGE IN CASH (521) 113 CASH, beginning of year 820 707 -------- -------- CASH, end of year $ 299 $ 820 ======== ======== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Interest paid $ 89 $ 110 ======== ========
31 METROLUX THEATRES NOTES TO FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ------------------------------------------ MetroLux Theatres (the "Company") is a general partnership entered between Metro Colorado Corporation, a California corporation, and Trans-Lux Loveland Corporation, a Colorado corporation. The partnership was created for the purpose of engaging in the business of constructing, purchasing, owning and performing all functions in relation to the operation of a multi-screen movie theatre, ancillary real estate and other entertainment uses in Loveland, Colorado. Property and Equipment ---------------------- Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is provided utilizing straight-line and accelerated methods over the estimated useful lives of the assets as follows: Buildings and improvements 10-39 years Theatre equipment 5-10 years Software 3 years Major repairs and replacements are capitalized and ordinary maintenance and repairs are charged to operations as incurred. Intangible Assets ----------------- Intangible assets consist of loan fees net of accumulated amortization. Amortization is provided utilizing the straight-line method over the term of the loan. Income Taxes ------------ The Company is treated as a partnership for federal and state income tax purposes. Consequently, federal and state income taxes are not payable by, or provided for, the Company. Partners are taxed individually on their shares of the Company's earnings. The Company's net income or loss is allocated among the partners in accordance with their percentage of ownership. Revenue Recognition ------------------- The Company recognizes revenue when tickets and concession goods are sold. Revenue from gift certificates and group activity is recognized when they are redeemed. Concentrations of Credit Risk (Dollars in thousands) ---------------------------------------------------- Financial instruments which potentially subject the Company to concentrations of credit risk consist of cash. The Company places its cash with high credit quality financial institutions. Total amounts for the years ended December 31, 2003 and 2002 in excess of the FDIC limit amounted to approximately $162 and $704, respectively. 32 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED Management Estimates -------------------- The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 2. DUE FROM PARTNERS (Dollars in thousands) ---------------------------------------- As of December 31, 2003 and 2002, the net advances due from the general partners were approximately $14 and $4, respectively. These advances are unsecured, non-interest bearing and are expected to be repaid within the next year. 3. PROPERTY AND EQUIPMENT (Dollars in thousands) --------------------------------------------- Property and equipment consist of the following for the years ended December 31:
2003 2002 --------- --------- Buildings $ 4,027 $ 4,027 Improvements 66 45 Theatre equipment 231 197 Land 519 598 Construction in progress - 23 Software 9 - --------- --------- 4,852 4,890 Less: accumulated depreciation and amortization 935 785 ---------- --------- $ 3,917 $ 4,105 ========== =========
Depreciation and amortization expense for the years ended December 31, 2003 and 2002 was approximately $150 and $147, respectively. 33 4. INTANGIBLE ASSETS (Dollars in thousands) ---------------------------------------- Intangible assets consist of the following for the years ended December 31:
2003 2002 ---------- -------- Loan fees $ 29 $ 29 Less: accumulated amortization 9 4 ---------- -------- $ 20 $ 25 ========== ========
Amortization expense related to intangible assets amounted to $5 and $4 for the years ended December 31, 2003 and 2002. 5. LONG-TERM DEBT (Dollars in thousands) -------------------------------------
Long-term debt consists of the following for the years ended December 31: 2003 2002 --------- -------- The Company has a $2.5 million real estate loan with a bank. Borrowings under the term loan bear interest at the bank's prime rate minus .30% fixed (3.70% and 3.95% at December 31, 2003 and 2002, respectively) for one year. Payments under the agreement are in equal monthly installments of approximately $26 of principal and interest, maturing January 2009 with one last payment of interest and principal of approximately $815. The loan is collateralized by the assets of the Company and 60% of the debt is guaranteed by each of the partners. $ 2,097 $ 2,320 Less: current portion 238 223 --------- --------- $ 1,859 $ 2,097 ========= =========
34 5. LONG-TERM DEBT - CONTINUED (Dollars in thousands) ------------------------------------------------- Maturities of long-term debt outstanding at December 31, 2003 are as follows:
Year Ending December 31, ------------ 2004 $ 238 2005 247 2006 257 2007 266 2008 276 Thereafter 813 ----------- $ 2,097 ===========
6. DEFERRED REVENUES (Dollars in thousands) ---------------------------------------- Deferred revenues at December 31, 2003 and 2002 consist of gift certificates and group activity passes that are used for concession goods and admissions at theatres, respectively. The breakdown is as follows as of December 31:
2003 2002 ------- ------- Gift certificates $ 75 $ 83 Group activity passes 10 4 ------- ------- $ 85 $ 87 ======= =======
7. COMMITMENTS (Dollars in thousands) ---------------------------------- On November 1996, the Company entered into a month to month sublease agreement with an unrelated party for $2 a month. For both years ending December 31, 2003 and 2002, the Company recognized $18 of sublease income. 35 8. PENSION PLAN (Dollars in thousands) ----------------------------------- The Company has adopted a Safe Harbor Plan covering substantially all of its employees. Participating employees may contribute 1% to 20% of their salary, subject to required participating percentages of 401(k) regulations. The Company contributes, at the discretion of management, a matching of 100% of the first 3% of the employees contribution and matches 50% of the 2% of the employee's contribution up to a maximum of 5% of the employee's gross salary. Contributions made for both years ended December 31, 2003 and 2002 were $2. 9. SALE OF ASSETS (Dollars in thousands) ------------------------------------- During the years ended December 31, 2003 and 2002, the Company sold land and received net proceeds of $327 and $514, respectively, and recorded a gain of approximately $248 and $405, respectively, related to the sale. 10. RELATED PARTY TRANSACTIONS (Dollars in thousands) ------------------------------------------------- The Company repaid advances to general partners' during the year ended December 31, 2002 in the amount of approximately $3. During the year ended December 31, 2003, the Company made net advances to general partners of approximately $10. 36 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. ITEM 9A. CONTROLS AND PROCEDURES (a) Evaluation of disclosure controls and procedures. The Company's President and Co-Chief Executive Officer, Michael R. Mulcahy, the Company's Executive Vice President and Co-Chief Executive Officer, Thomas Brandt, and the Company's Executive Vice President and Chief Financial Officer, Angela D. Toppi have evaluated the effectiveness of the design and operation of its disclosure controls and procedures as of a date within 90 days of the filing date of this annual report. The Company's disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in the reports that are filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. Based on this evaluation, the Company's Co-Chief Executive Officers and Chief Financial Officer have concluded that these controls are effective. (b) Changes in internal control over financial reporting. There has been no change in the Company's internal control over financial reporting that occurred in the fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting. 37 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (a) The information required by this Item with respect to directors is incorporated herein by reference to the Section entitled "Election of Directors" in the Company's Proxy Statement. (b) The following executive officers were elected by the Board of Directors for the ensuing year and until their respective successors are elected.
Name Office Age - -------------------- ------------------------------------------ --- Michael R. Mulcahy President and Co-Chief Executive Officer 55 Thomas Brandt Executive Vice President and Co-Chief 40 Executive Officer Matthew Brandt Executive Vice President 40 Al L. Miller Executive Vice President 58 Angela D. Toppi Executive Vice President, Treasurer, 48 Secretary and Chief Financial Officer Karl P. Hirschauer Senior Vice President 58 John Long Senior Vice President 57 Thomas F. Mahoney Senior Vice President 56
Messrs. Mulcahy, T. Brandt, M. Brandt, Miller, Hirschauer, Mahoney and Ms. Toppi have been associated in an executive capacity with the Company for more than five years. Mr. Long was elected Senior Vice President in charge of Outdoor Operations on March 24, 2004 and has been employed by the Company since 1997. Mr. Long served as Senior Vice President of Outdoor Display Subsidiaries between March 27, 2002 and March 24, 2004 and served as Vice President of Trans-Lux Midwest Corporation between December 10, 1998 and March 27, 2002. (c) The information required by Item 405 of Regulation S-K is incorporated herein by reference to the Section entitled "Compliance with Section 16(a) of the Securities Exchange Act of 1934" in the Company's Proxy Statement. 38 ITEM 11. EXECUTIVE COMPENSATION The information required by this Item is incorporated herein by reference to the Section entitled "Executive Compensation and Transactions with Management" in the Company's Proxy Statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this Item is incorporated herein by reference to the Section entitled "Security Ownership of Certain Beneficial Owners, Directors and Executive Officers" in the Company's Proxy Statement. Equity Compensation Plan Information
Securities Weighted Securities to be issued average available for December 31, 2003 upon exercise exercise price future issuance - --------------------------------------- ------------- -------------- --------------- Equity compensation plans approved by stockholders 69,039 $6.99 81,700 Equity compensation plans not approved by stockholders 10,000 $4.03 - ------ ----- ------ Total 79,039 $6.61 81,700 ====== ===== ======
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this Item is incorporated herein by reference to the Section entitled "Executive Compensation and Transactions with Management" in the Company's Proxy Statement. ITEM 14. PRINCIPAL ACCOUNTING FIRM FEES The information required by this Item is incorporated herein by reference to the Section entitled "Independent Auditors" in the Company's Proxy Statement. 39 PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this report: (1) Financial Statements of Trans-Lux Corporation Consolidated Statements of Operations for the Years Ended December 31, 2003, 2002 and 2001 Consolidated Balance Sheets as of December 31, 2003 and 2002 Consolidated Statements of Cash Flows for the Years Ended December 31, 2003, 2002 and 2001 Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2003, 2002 and 2001 Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2003, 2002 and 2001 Notes to Consolidated Financial Statements Independent Auditors' Report Financial statements of MetroLux Theatres, a 50% owned entity, accounted for by the equity method: Independent Auditors' Report Balance Sheets as of December 31, 2003 and 2002 Statements of Income for the Years Ended December 31, 2003 and 2002 Statements of Partners' Equity for the Years Ended December 31, 2003 and 2002 Statements of Cash Flows for the Years Ended December 31, 2003 and 2002 Notes to Financial Statements (2) Financial Statement Schedules: None. (3) Exhibits: 3(a) Form of Restated Certificate of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 of Registration No. 333-15481). (b) By-Laws of the Registrant (incorporated by reference to Exhibit 3(b) of Form 10-K for the year ended December 31, 2001). 4(a) Indenture dated as of December 1, 1994 (form of said indenture is incorporated by reference to Exhibit 6 of Schedule 13E-4 Amendment No.2 dated December 23, 1994). (b) Indenture dated as of December 1, 1996 (form of said indenture is incorporated by reference to Exhibit 4.2 of Registration No. 333-15481). 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). 40 10.3 Amended and Restated Pension Plan dated January 1, 2001 and Amendment No. 1 dated as of April 1, 2002 (incorporated by reference to Exhibit 10.3 of Form 10-K for the year ended December 31, 2001). Amendment No. 2 dated as of December 31, 2002 to the Amended and Restated Pension Plan dated January 1, 2001 (incorporated by reference to Exhibit 10.3 of Form 10-K for the year ended December 31, 2002). Amendment No. 3 dated as of December 31, 2003 to the Amended and Restated Pension Plan dated January 1, 2001, filed herewith. 10.4(a)1989 Non-Employee Director Stock Option Plan, as amended (incorporated by reference to Exhibit 10.4(a) of Form 10-K for the year ended December 31, 1999). (b) 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 7, 2000). 10.5 Commercial Loan and Security Agreement dated as of February 12, 2003 among Trans-Lux Corporation, People's Bank as Agent and People's Bank and The Bank of New York (incorporated by reference to Exhibit 10(a) of Form 8-K filed February 13, 2003). First Amendment to the Commercial Loan and Security Agreement and Waiver Agreement dated May 13, 2003 (incorporated by reference to Exhibit 10(a) of Form 10-Q for the quarter ended March 31, 2003). 10.6 Consulting Agreement with Richard Brandt dated as of June 1, 2003 (incorporated by reference to Exhibit 10(a) of Form 10-Q for the quarter ended June 30, 2003). 10.7 Employment Agreement with Michael R. Mulcahy dated as of April 1, 2002 (incorporated by reference to Exhibit 10.8 of Form 10-K for the year ended December 31, 2001). 10.8 Employment Agreement with Thomas Brandt dated as of April 1, 2002 (incorporated by reference to Exhibit 10.9 of Form 10-K for the year ended December 31, 2001). 10.9 Employment Agreement with Matthew Brandt dated as of April 1, 2002 (incorporated by reference to Exhibit 10.10 of Form 10-K for the year ended December 31, 2001). 10.10 Employment Agreement with Al Miller dated as of April 1, 2002 (incorporated by reference to Exhibit 10.11 of Form 10-K for the year ended December 31, 2001). 10.11 Employment Agreement with Thomas F. Mahoney dated as of June 1, 2002 (incorporated by reference to Exhibit 10(a) of Form 10-Q for the quarter ended June 30, 2002). 10.12 Employment Agreement with Karl P. Hirschauer dated as of April 1, 2003, filed herewith. 41 10.13 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. 31.1 Certification of Michael R. Mulcahy, President and Co-Chief Executive Officer, pursuant to Rule 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith. 31.2 Certification of Thomas Brandt, Executive Vice President and Co-Chief Executive Officer, pursuant to Rule 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith. 31.3 Certification of Angela D. Toppi, Executive Vice President and Chief Financial Officer, pursuant to Rule 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith. 32.1 Certification of Michael R. Mulcahy, President and Co-Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith. 32.2 Certification of Thomas Brandt, Executive Vice President and Co-Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith. 32.3 Certification of Angela D. Toppi, Executive Vice President and Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes- Oxley Act of 2002, filed herewith. (b) Reports on Form 8-K. During the last quarter of the period covered by this report on Form 10-K, the registrant filed a Form 8-K dated November 13, 2003, pertaining to the financial performance for the third quarter of 2003 results set forth in a press release. 42 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized: TRANS-LUX CORPORATION by: /s/ Angela D. Toppi -------------------- Angela D. Toppi Executive Vice President and Chief Financial Officer Dated: March 25, 2004 43 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated: /s/ Gene F. Jankowski March 25, 2004 - ---------------------------------------- Gene F. Jankowski, Chairman of the Board /s/ Victor Liss March 25, 2004 - ---------------------------------------- Victor Liss, Vice Chairman of the Board /s/ Steven Baruch March 25, 2004 - ---------------------------------------- Steven Baruch, Director /s/ Matthew Brandt March 25, 2004 - --------------------------------------- Matthew Brandt, Executive Vice President and Director /s/ Richard Brandt March 25, 2004 - --------------------------------------- Richard Brandt, Director /s/ Thomas Brandt March 25, 2004 - --------------------------------------- Thomas Brandt, Executive Vice President and Co-Chief Executive Officer and Director /s/ Howard M. Brenner March 25, 2004 - --------------------------------------- Howard M. Brenner, Director /s/ Jean Firstenberg March 25, 2004 - ---------------------------------------- Jean Firstenberg, Director /s/ Robert B. Greenes March 25, 2004 - ---------------------------------------- Robert Greenes, Director /s/ Howard S. Modlin March 25, 2004 - --------------------------------------- Howard S. Modlin, Director /s/ Michael R. Mulcahy March 25, 2004 - ---------------------------------------- Michael R. Mulcahy, President and Co-Chief Executive Officer and Director 44 EX-10.3 3 ex100310k.txt AMMENDENT NO. 3 TO PENSION PLAN EXHIBIT 10.3 AMENDMENT NO. 3 TO THE RETIREMENT PENSION PLAN FOR EMPLOYEES OF TRANS-LUX CORPORATION AND CERTAIN OF ITS SUBSIDIARIES AND/OR AFFILIATES As Amended and Restated Effective as of January 1, 2001 WHEREAS, Trans-Lux Corporation ("Company") maintains the Retirement Pension Plan for Employees of Trans-Lux Corporation and Certain of its Subsidiaries and/or Affiliates ("Plan"), as amended and restated effective January 1, 2001; and WHEREAS, in accordance with the power reserved to it in Section 15.1 of the Plan, the Board of Directors of the Company may amend the Plan from time to time, subject to certain conditions not now relevant; and WHEREAS, the Company deems it advisable to amend the Plan to eliminate the accrual of Credited Service for benefit calculation purposes beginning January 1, 2004; NOW THEREFORE, it is RESOLVED, that effective as of December 31, 2003 the Plan be, and it hereby is, amended as follows: 1. Section 1.1 of the Plan is hereby amended to read in its entirety as follows: 1.1 "Accrued Benefit" means the annual amount of a Member's retirement benefit under the normal form of payment provided in Section 5.2 hereof and payable as of the Member's Normal Retirement Date or as of the date 1 the Member otherwise ceases to be an Employee, whichever is applicable. A Member's Accrued Benefit shall be computed in accordance with Section 4.1 hereof based on the Member's Salary at the time of computation and his expected years of Credited Service at the date of calculation; provided, however, that the Member's Credited Service for periods commencing on and after January 1, 2004 shall not be taken into account. A Member's Accrued Benefit shall not be reduced on account of any increase in the Member's age or service." 2. A new Section 4.4 is hereby added to the Plan to read in its entirety as follows: 4.4 "Limit on Credited Service Notwithstanding anything in the Plan to the contrary, a Member's Credited Service for periods on and after January 1, 2004 shall be disregarded for all purposes of this Section IV." To record the adoption of this amendment to the Plan, Trans-Lux Corporation has authorized its officers to affix its corporate name and seal this 11th day of December, 2003. [CORPORATE SEAL] TRANS-LUX CORPORATION Attest: /s/ Carmen Rodriguez By: /s/ Angela D. Toppi --------------------- -------------------- 2 EX-10.12 4 hirschauer.txt EMPLOYMENT AGREEMENT - K. HIRSCHAUER EXHIBIT 10.12 AGREEMENT made as of the 1st day of April 2003 effective January l, 2003 by and between TRANS-LUX CORPORATION, a Delaware corporation having an office at 110 Richards Avenue, Norwalk, Connecticut 06856-5090 (hereinafter called "Employer"), and KARL HIRSCHAUER residing at 10 Douglas Lane, New Fairfield, CT 06812 (hereinafter called, "Employee"). W I T N E S S E T H: 1. Employer hereby employs Employee, and Employee hereby accepts employment, upon the terms and conditions hereinafter set forth. 2. (a) The term ("Term") of the Agreement shall be the period commencing on January l, 2003 and terminating December 3l, 2005. (b) In the event that Employee remains or continues in the employ of Employer after the Term, such employment, in the absence of a further written agreement, shall be on an at-will basis, terminable by either party hereto on thirty (30) days' notice to the other and, upon the 30th day following such notice the employment of Employee shall terminate. (c) Upon expiration of the Term of this Agreement, neither party shall have any further obligations or liabilities to the other except as otherwise specifically provided in this Agreement. 3. Employee shall be employed in an executive and/or engineering capacity of Employer (and such of its affiliates, divisions and subsidiaries as Employer 1 shall designate). Employer shall use its best efforts to cause Employee to be elected and continue to be elected a Senior Vice President of Employer during the Term of this Agreement. The precise services of Employee may be designated or assigned from time to time at the direction of the Board of Directors, the Chairman of the Board, or President, and all of the services to be rendered hereunder by Employee shall at all times be subject to the control, direction and supervision of the Board of Directors of Employer, to which Employee does hereby agree to be bound. Employee shall devote his entire time, attention and energies during usual business hours (subject to Employer's policy with respect to holidays and illnesses for comparable executives of Employer) to the business and affairs of Employer, its affiliates, divisions and subsidiaries as Employer shall from time to time direct. Employee further agrees during the Term of this Agreement to serve as an officer or director of Employer or of any affiliate or subsidiary of Employer as Employer may request, and if Employee serves as such officer or a director he will do so without additional compensation, other than director's fees or honoraria, if any. During the Term of this Agreement and during any subsequent employment of Employee by Employer, Employee shall use his best efforts, skills and abilities in the performance of his services hereunder and to promote the interests of Employer, its affiliates, divisions and subsidiaries. Employee shall not, during the Term and during any subsequent employment of Employee by Employer, be engaged in any other business activity, whether or not such business activity is pursued for gain, profit or other pecuniary advantage. The foregoing shall not be construed as preventing Employee from investing his assets in such form or manner as will not require any services on the part of Employee in the operation of the affairs of the companies in which such investments are made, provided, however, that Employee shall not, either directly or indirectly, be a director of or make any investments in any company or 2 companies which are engaged in businesses competitive with those conducted by Employer or by any of its subsidiaries or affiliates except where such investments are in stock of a company listed on a national securities exchange, and such stock of Employee does not exceed one percent (1%) of the outstanding shares of stock of such listed company. Employee shall not at any time during or after the Term of this Agreement use (except on behalf of Employer) divulge, furnish or make accessible to any third person or organization any confidential information concerning Employer or any of its subsidiaries or affiliates or the businesses of any of the foregoing including, without limitation, inventions, confidential methods of operations and organization, confidential sources of supply, identity of employees, customer 1ists and confidential financial information. 4. (a) For all services rendered by Employee during the Term of this Agreement, Employer shall pay Employee a salary at the rate of ONE HUNDRED FORTY THOUSAND DOLLARS ($140,000) per annum during the period January l, 2003, to April 13, 2003; at the rate of ONE HUNDRED FORTY-FIVE THOUSAND DOLLARS ($145,000) per annum during the period April 14, 2003 to December 31, 2003; at the rate of ONE HUNDRED FIFTY-TWO THOUSAND DOLLARS ($l52,000) per annum during the period January 1, 2004 to December 31, 2004; and at the rate of ONE HUNDRED SIXTY THOUSAND DOLLARS ($160,000) per annum during the period January 1, 2005 to December 31, 2005. Such salary shall be payable weekly, or monthly, or in accordance with the payroll practices of Employer for its executives. The Employee shall also be entitled to all rights and benefits for which he shall be eligible under any stock option plan, bonus, participation or extra compensation plans, pensions, group insurance or other benefits which Employer presently provides, or may provide for him and for its employees generally. This Agreement shall not be deemed abrogated or terminated if Employer, in its discretion, 3 shall determine to increase the compensation of Employee for any period of time, or if the Employee shall accept such increase. All payments under this Agreement are in United States dollars unless otherwise specified. (b) Employer may make appropriate deductions from the said payments required to be made in this Section 4 to Employee to comply with all governmental withholding requirements. (c) If, during the Term of this Agreement and if the Employee is still in the employ of Employer, Employee shall be prevented from performing or be unable to perform, or fail to perform, his duties by reason of illness or any other incapacity for (4) consecutive months (excluding normal vacation time) during the Term hereof, Employer agrees to pay Employee thereafter during the Term for the duration of such incapacity 35% of the base salary which Employee would otherwise have been entitled to receive if not for the illness or other incapacity. (d) The Board upon the recommendation of the Compensation Committee of the Board shall consider no later than May 31, 2004, 2005, and 2006, respectively (provided there is no delay in obtaining the financial statements as provided below, but in no event later than 45 days following receipt thereof) the grant of a bonus ("Bonus") to Employee based on Employee's performance for the immediately preceding fiscal year. Notwithstanding the foregoing, based on Employer's annual pre-tax consolidated earnings in the applicable Fiscal Year, Employer shall pay Employee a Bonus at the rate of three-eighths of one percent 4 (.375%) for the fiscal years ending December 31, 2003, 2004, and 2005. The Bonuses shall not exceed $20,000 for any year. No Bonus shall be payable for any Fiscal Year in which the annual pre tax consolidated earnings determined in accordance with Section 4(d) are less than $250,000. There shall be excluded from the calculation of pre-tax consolidated earnings during the Term of this Agreement (1) the amount by which (x) any item or items of unusual or extraordinary gain in the aggregate exceeds 20% of the Employer's net book value as at the end of the immediate preceding fiscal year or (y) any item of unusual or extraordinary loss in the aggregate exceeds 20% of the Employer's net book value as at the end of the immediate preceding fiscal year, in each case in (x) and (y) above as determined in accordance with generally accepted accounting principles and items of gain and loss shall not be netted against each other for purpose of the above 20% calculation, or (2) any contractual Bonuses and/or contractual profit participations accrued or paid to Employee or other employees. Provided Employee is not in default of the Agreement, the Board may, in any event, even if any of the aforesaid pre-tax consolidated earnings levels are not exceeded, grant the Employee the aforesaid Bonus or any portion thereof for such year based on his performance. Notwithstanding anything to the contrary contained herein, if Employee is not in the employ of Employer at the end of any aforesaid 2003, 2004 or 2005 fiscal year, no Bonus shall be paid for such fiscal year. In the event of Employee's death on 5 or after January 1 of 2004, 2005 or 2006, any Bonus to which he is otherwise entitled for the prior fiscal year shall be paid to his widow if she shall survive him or if she shall predecease him to his surviving issue per stirpes and not per capita. Such pre-tax consolidated earnings shall be fixed and determined by the independent certified public accountants regularly employed by Employer. Such independent certified public accountants, in ascertaining such pre-tax consolidated earnings, shall apply all accounting practices and procedures heretofore applied by Employer's independent certified public accountants in arriving at such annual pre-tax consolidated earnings as disclosed in Employer's annual statement for that year of profit and loss released to its stockholders. The determination by such independent certified public accountants shall be final, absolute and controlling upon the parties. Notwithstanding the foregoing, any interest expense savings resulting from conversion of the Employer's 7 1/2% Convertible Subordinated Notes due 2006 may be included or excluded in such calculation by the Board in its sole discretion. Payment of such amount, if any is due, shall be made for each year by Employer to Employee within sixty (60) days after which such accountant shall have furnished such statement to Employer disclosing Employer's pre-tax consolidated earnings for each of the years 2003, 2004 and 2005. Employer undertakes to use reasonable efforts to cause said accountants to prepare and furnish such statements within one hundred thirty (130) days from the close of each such fiscal year and to cause said independent certified public accountants, concommitantly with delivery of such statement by accountants to it, to deliver a copy of such statement to Employee. The Employer shall not have any liability to Employee arising out of any delays with respect to the foregoing. (e) In the event Employee dies during the Term of this Agreement while the Employee is still in the Employ of Employer, Employer shall pay 6 to Employee's widow or his surviving issue, as the case may be, for the balance of the Term of the Agreement, or eighteen (18) months, whichever is less, annual death benefits payable weekly or in accordance with Employer's payroll practices in an amount equal to 35% of Employee's then annual base salary rate. 5. During the Term of this Agreement, Employer will reimburse Employee for traveling or other out-of-pocket expenses and disbursements incurred by Employee with Employer's approval in furtherance of the businesses of Employer, its affiliates, divisions or subsidiaries, upon presentation of such supporting information as Employer may from time to time request. 6. During the Term of this Agreement, Employee shall be entitled to a vacation during the usual vacation period of Employer in accordance with such vacation schedules as Employer may prescribe. 7. Both parties recognize that the services to be rendered by Employee pursuant to this Agreement are extraordinary and unique. During the Term of this Agreement, and during any subsequent employment of Employee by Employer, Employee shall not, directly or indirectly, enter into the employ of or render any services to any person, partnership, association or corporation engaged in a business or businesses in anyway, directly or indirectly, competitive to those now or hereafter engaged in by Employer or by any of its subsidiaries during the Term of this Agreement and during any subsequent employment of Employee by Employer and Employee shall not engage in any such business, directly or indirectly on his own account and, except as permitted by Section 3 of this Agreement, Employee shall not become interested in any such business, directly or indirectly, as an individual, partner, shareholder, director, officer, principal, agent, employee, trustee, consultant, or in any 7 other relationship or capacity. For a period of two (2) years following termination of employment for any reason, Employee shall not directly or indirectly (i) engage or otherwise be involved in the recruitment or employment of any Employer employee or (ii) solicit or render any service directly or indirectly to any other person or entity with regard to soliciting any customer of the Employer during the two (2) year period prior to termination of employment with respect to products or services competitive with products or services of Employer. Employee shall at no time during or after employment disclose to any person, other than Employer, or otherwise use any information of or regarding Employer except on behalf of Employer, nor communicate, publish, or otherwise transmit, in any manner whatsoever, untrue information or negative, competitive, personal or other information or comments regarding Employer. In addition, Employee agrees that all lists, materials, books, files, reports, correspondence, records and other documents and information ("Employer Materials") used, prepared or made available to Employee, shall be and shall remain the property of Employer. Upon the termination of employment of Employee or the expiration of this Agreement, whichever is earlier, all Employer Materials shall be immediately returned to Trans-Lux Corporation, and Employee shall not make or retain any copies thereof, nor disclose or otherwise use any information relating to said Employer Materials to any other party. As used herein the term Employer shall include Employer, Employer's subsidiaries and affiliates, and any individuals employed or formerly employed by any of them. Employer shall be entitled, if it so elects, to institute and prosecute proceedings in any court of competent jurisdiction, either in law or in equity, to obtain damages for any breach of this Agreement, or to enjoin Employee from any breach of this Agreement, but nothing herein contained shall be construed to prevent Employer from pursuing such other remedies as Employer may elect to invoke. In addition to the obligations of the Employee contained in this 8 Agreement, Employee agrees to be bound by the provisions contained in Exhibits A and B to this Agreement. 8. In the event any provision of Section 7 of this Agreement shall be held invalid or unenforceable by reason of the geographic or business scope or the duration thereof, such invalidity or unenforceability shall attach only to such provision and shall not affect or render invalid or unenforceable any other provision of this Agreement, and this Agreement shall be construed as if the geographic or business scope or the duration of such provision had been more narrowly drawn so as not to be invalid or unenforceable. 9. The waiver by Employer of a breach of any provision of this Agreement by Employee shall not operate or be construed as a waiver of any subsequent breach by Employee. 10. Any notice required or permitted to be given under this Agreement shall be sufficient if in writing and served personally or sent by United States certified or registered mail, return receipt requested, or overnight courier such as Federal Express or Airborne to his address as stated on Employer's records, in the case of Employee, or to the office of Trans-Lux Corporation, attention of the President, 110 Richards Avenue, Norwalk, Connecticut 06856-5090, in the case of Employer, or such other address as designated in writing by the parties. 11. This Agreement shall be construed in accordance with the laws of the State of New York. 9 12. This instrument contains the entire agreement between the parties and supersedes as of January l, 2003 the Employment Agreement between the parties dated December 13, 1999, effective January 1, 2000, except for any Bonus for 2002 payable in 2003 in accordance with paragraph 4(d) of such agreement. It may not be changed, modified, extended or renewed orally except by an agreement in writing signed by the party against whom enforcement of any waiver, change, modification, discharge or extension is sought. IN WITNESS WHEREOF, this Agreement has been duly executed on the day and year above written. TRANS-LUX CORPORATION By /s/ Michael R. Mulcahy ------------------------ President /s/ Karl Hirschauer ------------------------- Karl Hirschauer 10 EXHIBIT A TO EMPLOYMENT AGREEMENT EFFECTIVE AS OF JANUARY 1, 2003 ADDITIONAL OBLIGATIONS OF EMPLOYEE 1. All inventions, developments and improvements conceived or made by Employee, solely or jointly with others, during the period of Employee's employment by the Employer, whether or not conceived during business hours, which pertain to any product, goods, apparatus, equipment, systems, methods or processes made, used or sold by the Employer, or with regard to which the Employer is conducting research or development work, either alone or in cooperation with others, shall be a work made for hire, under the supervision of the Employer, and shall be the property of the Employer, whether patentable or not. 2. Employee agrees to promptly and voluntarily disclose to the Employer all such inventions, developments, and improvements conceived or made by Employee during the period of Employee's employment, and one year thereafter, and to sign, when requested by Employer any United States and foreign patent applications or any divisional, continuing, renewal or reissue applications pertaining thereto, and to provide the Employer or its agents or attorneys with all reasonable assistance in the preparation and presentation of patent or copyright applications, drawings, specifications and the like, provided that all fees pertaining to such applications are to be paid by the Employer. Employee also agree to assign to the Employer all such inventions, developments and improvements and any United States and foreign patent applications or divisional, continuing, renewal or reissue applications pertaining thereto, and any patent issuing thereon, and Employee agrees to sign any assignments or other instruments that might, in the opinion of the Employer, be required to carry out this provision. Employee will perform Employee's obligations under this paragraph without requesting or receiving any payment therefore other than Employee's usual salary from the Employer. 3. In any action, claim, or proceeding in which this Agreement or any provision thereof is in issue, the parties agree that the Employer shall have the benefit of a prima facie presumption that any invention, development or improvement as referred to in paragraph 1 which is disclosed or offered to others, or published or reduced to practice by Employee within a period of one year after the termination of Employee's employment with Employer, or any such inventions, developments or improvements disclosed in a patent application filed by Employee within one year of the termination of Employee's employment by Employer, was conceived or made during the period of Employee's employment. 4. All work done by Employee for the Employer relating in any way to the conception, design, development, support, maintenance, sales or leasing of 11 products for the Employer is the property of the Employer and Employee hereby assigns to the Employer all of Employee's rights therein. This paragraph applies to work performed by Employee before and after the signing of this Agreement. Trans-Lux Corporation By /s/ Michael R. Mulcahy ------------------------ President /s/ Karl Hirschauer ------------------------- Karl Hirschauer 12 EX-21 5 ex210310k.txt LIST OF SUBSIDIARIES EXHIBIT 21 SUBSIDIARIES OF THE COMPANY A. As of December 31, 2003 the following are subsidiaries more than 50% owned (included in the consolidated financial statements):
Jurisdiction of Percentage Name Incorporation Owned - ------------------------------------------------- ---------------- ------------- Trans-Lux Canada Ltd. Canada 100% Trans-Lux Castle Rock Corporation (2) Colorado 100 Trans-Lux Cinema Consulting Corporation (4) California 100 Trans-Lux Cocteau Corporation (6) New Mexico 100 Trans-Lux Colorado Corporation (6) Colorado 100 Trans-Lux Desert Sky Corporation (6) Arizona 100 Trans-Lux Display Corporation Delaware 100 Trans-Lux Dreamcatcher Corporation (6) New Mexico 100 Trans-Lux Durango Corporation (5) Colorado 100 Trans-Lux Experience Corporation New York 100 Trans-Lux Four Corners Corporation (5) New Mexico 100 Trans-Lux FSC Corporation (3) Barbados 100 Trans-Lux High Five Corporation (6) Colorado 100 Trans-Lux Holding Corporation Connecticut 100 Trans-Lux Investment Corporation Delaware 100 Trans-Lux Laramie Corporation (6) Wyoming 100 Trans-Lux Loma Corporation (6) New Mexico 100 Trans-Lux Los Lunas Corporation (5) New Mexico 100 Trans-Lux Loveland Corporation (6) Colorado 100 Trans-Lux Midwest Corporation Iowa 100 Trans-Lux Montezuma Corporation (5) New Mexico 100 Trans-Lux Movie Operations Corporation (4) Texas 100 Trans-Lux Multimedia Corporation New York 100 Trans-Lux New Mexico Corporation (6) New Mexico 100 Trans-Lux Pennsylvania Corporation (2) Pennsylvania 100 Trans-Lux Pty Limited Australia 100 Trans-Lux Real Estate Corporation (4) Texas 100 Trans-Lux Seaport Corporation New York 100 Trans-Lux Service Corporation New York 100 Trans-Lux Skyline Corporation (6) Colorado 100 Trans-Lux Southwest Corporation (6) New Mexico 100 Trans-Lux Starlight Corporation (6) New Mexico 100 Trans-Lux Storyteller Corporation (6) New Mexico 100 Trans-Lux Summit Corporation (5) Colorado 100 Trans-Lux Syndicated Programs Corporation New York 100 Trans-Lux Taos Corporation (5) New Mexico 100 Trans-Lux Theatres Corporation (1) Texas 100 Trans-Lux Valley Corporation (5) Arizona 100 Trans-Lux West Corporation Utah 100 Trans-Lux Wyoming Corporation (5) Wyoming 100 1 (1) Wholly-owned subsidiary of Trans-Lux Investment Corporation. (2) Wholly-owned subsidiary of Trans-Lux Theatres Corporation. (3) Wholly-owned subsidiary of Trans-Lux Syndicated Programs Corporation. (4) Wholly-owned subsidiary of Trans-Lux Holding Corporation. (5) Wholly-owned subsidiary of Trans-Lux Real Estate Corporation. (6) Wholly-owned subsidiary of Trans-Lux Movie Operations Corporation.
B. Other entities (accounted for in the consolidated financial statements under the equity method): MetroLux Theatres - A joint venture partnership in which Trans-Lux Loveland Corporation, listed in A. above as a wholly-owned subsidiary of the Registrant, is a 50% venture. Metro Colorado Corporation owns the remaining 50% of the joint venture and is unrelated to the Registrant. 2 EX-31.1 6 ex31103.txt CERTIFICATION-PRESIDENT & CO-CHIEF EXECUTIVE OFFICER EXHIBIT 31.1 CERTIFICATION I, Michael R. Mulcahy, President and Co-Chief Executive Officer of Trans-Lux Corporation certify that: 1. I have reviewed this Annual Report on Form 10-K (the "Report") of Trans-Lux Corporation; 2. Based on my knowledge, this Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Report; 3. Based on my knowledge, the financial statements, and other financial information included in this Report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this Report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15 (e) and 15d-15(e)) for the registrant and have; a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this Report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this Report based on such evaluation; and c) disclosed in this Report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of this annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. /s/ Michael R. Mulcahy ----------------------------------------- Date: March 25, 2004 President and Co-Chief Executive Officer Michael R. Mulcahy EX-31.2 7 ex31203.txt CERTIFICATION-EXECUTIVE VICE PRESIDENT AND CO-CHIEF EXECUTIVE OFFICER EXHIBIT 31.2 CERTIFICATION I, Thomas Brandt, Executive Vice President and Co-Chief Executive Officer of Trans-Lux Corporation certify that: 1. I have reviewed this Annual Report on Form 10-K (the "Report") of Trans-Lux Corporation; 2. Based on my knowledge, this Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Report; 3. Based on my knowledge, the financial statements, and other financial information included in this Report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this Report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15 (e) and 15d-15(e)) for the registrant and have; a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this Report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this Report based on such evaluation; and c) disclosed in this Report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of this annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. /s/ Thomas Brandt ------------------------------------ Date: March 25, 2004 Executive Vice President and Co-Chief Executive Officer Thomas Brandt EX-31.3 8 ex31303.txt CERTIFICATION-EXECUTIVE VICE PRESIDENT & CHIEF FINANCIAL OFFICER EXHIBIT 31.3 CERTIFICATION I, Angela D. Toppi, Executive Vice President and Chief Financial Officer of Trans-Lux Corporation certify that: 1. I have reviewed this Annual Report on Form 10-K (the "Report") of Trans-Lux Corporation; 2. Based on my knowledge, this Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Report; 3. Based on my knowledge, the financial statements, and other financial information included in this Report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this Report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15 (e) and 15d-15(e)) for the registrant and have; a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this Report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this Report based on such evaluation; and c) disclosed in this Report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of this annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. /s/ Angela D. Toppi ----------------------------------- Date: March 25, 2004 Executive Vice President and Chief Financial Officer Angela D. Toppi EX-32.1 9 ex32103.txt CERTIFICATION SEC 906-PRESIDENT AND CO-CHIEF EXECUTIVE OFFICER EXHIBIT 32.1 CERTIFICATION OF 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 I, Michael R. Mulcahy, President and Co-Chief Executive Officer of Trans-Lux Corporation (the "Company"), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350 to the best of my knowledge, that: (1) The Annual Report on Form 10-K for the fiscal year ended December 31, 2003 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, (15 U.S.C. 78m or 78o(d)); and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Michael R. Mulcahy -------------------------------------------- Date: March 25, 2004 President and Co-Chief Executive Officer Michael R. Mulcahy This Certification accompanies this Form 10-K as an exhibit, but shall not be deemed as having been filed for purposes of Section 18 of the Securities Exchange Act of 1934 or as a separate disclosure document of the Company or the certifying officer. EX-32.2 10 ex32203.txt CERTIFICATION SEC 906-EXECUTIVE VICE PRESIDENT AND CO-CHIEF EXECUTIVE OFFICER EXHIBIT 32.2 CERTIFICATION OF 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 I, Thomas Brandt, Executive Vice President and Co-Chief Executive Officer of Trans-Lux Corporation (the "Company"), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350 to the best of my knowledge, that: (1) The Annual Report on Form 10-K for the fiscal year ended December 31, 2003 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, (15 U.S.C. 78m or 78o(d)); and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Thomas Brandt --------------------------------- Date: March 25, 2004 Executive Vice President and Co-Chief Executive Officer Thomas Brandt This Certification accompanies this Form 10-K as an exhibit, but shall not be deemed as having been filed for purposes of Section 18 of the Securities Exchange Act of 1934 or as a separate disclosure document of the Company or the certifying officer. EX-32.3 11 ex32303.txt CERTIFICATION SEC 906-EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER EXHIBIT 32.3 CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 I, Angela D. Toppi, Executive Vice President and Chief Financial Officer of Trans-Lux Corporation (the "Company"), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350 to the best of my knowledge, that: (1) The Annual Report on Form 10-K for the fiscal year ended December 31, 2003 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, (15 U.S.C. 78m or 78o(d)); and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Angela D. Toppi ----------------------------------- Date: March 25, 2004 Executive Vice President and Chief Financial Officer Angela D. Toppi This Certification accompanies this Form 10-K as an exhibit, but shall not be deemed as having been filed for purposes of Section 18 of the Securities Exchange Act of 1934 or as a separate disclosure document of the Company or the certifying officer. -----END PRIVACY-ENHANCED MESSAGE-----