UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2012
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.)
26 Pearl Street, Norwalk, CT 06850-1647
(Address of principal executive offices) (Zip code)
(203) 853-4321
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to file and post such files). Yes X No
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (check one)
Large accelerated filer ___ Accelerated filer ___ Non-accelerated filer ___ Smaller reporting company X
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No X
Indicate the number of shares outstanding of each of the issuer's classes of Common Stock, as of the latest practicable date.
Date Class Shares Outstanding
10/30/12 Common Stock - $0.001 Par Value 25,895,424
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Part I - Financial Information (unaudited) |
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Item 1. |
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Item 2. |
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Item 3. |
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Item 4. |
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Part II - Other Information |
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Item 1. |
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Item 1A. |
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Item 2. |
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Item 3. |
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Item 4. |
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Item 5. |
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Item 6. |
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Part I - Financial Information | ||||||
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TRANS-LUX CORPORATION AND SUBSIDIARIES | ||||||
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June 30 |
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December 31 | ||
In thousands, except share data |
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2012 |
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2011 | ||
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(unaudited) |
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(see Note 1) | ||
ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
713 |
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$ |
1,109 |
Receivables, less allowance of $84 - 2012 and $884 - 2011 |
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2,630 |
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2,060 |
Unbilled receivables |
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62 |
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63 |
Inventories |
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2,854 |
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2,875 |
Prepaids and other |
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528 |
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729 |
Total current assets |
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6,787 |
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6,836 |
Rental equipment |
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43,621 |
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43,252 |
Less accumulated depreciation |
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28,943 |
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27,060 |
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14,678 |
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16,192 |
Property, plant and equipment |
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4,443 |
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4,381 |
Less accumulated depreciation |
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2,436 |
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2,316 |
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2,007 |
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2,065 |
Asset held for sale |
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- |
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696 |
Goodwill |
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744 |
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744 |
Other assets |
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843 |
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926 |
TOTAL ASSETS |
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$ |
25,059 |
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$ |
27,459 |
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) |
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Current liabilities: |
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Accounts payable |
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$ |
1,787 |
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1,589 |
Accrued liabilities |
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7,306 |
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6,719 |
Current portion of long-term debt |
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3,822 |
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4,444 |
Warrant liabilities |
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3,511 |
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5,408 |
Total current liabilities |
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16,426 |
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18,160 |
Long-term debt: |
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Notes payable |
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487 |
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512 |
Deferred pension liability and other |
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5,200 |
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4,930 |
Total liabilities |
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22,113 |
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23,602 |
Redeemable convertible preferred stock: |
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Preferred - $0.001 par value - 500,000 shares authorized, |
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416,500 Series A convertible preferred shares issued in 2011 |
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- |
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6,138 |
Stockholders' equity (deficit): |
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Common Stock - $0.001 par value - 60,000,000 shares authorized, |
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25,895,424 shares issued in 2012 and 5,070,424 shares issued in 2011 |
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26 |
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5,071 |
Additional paid-in-capital |
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23,806 |
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12,620 |
Accumulated deficit |
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(14,374) |
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(13,443) |
Accumulated other comprehensive loss |
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(3,449) |
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(3,466) |
Less treasury stock - at cost - 383,596 common shares in 2012 and 2011 |
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(3,063) |
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(3,063) |
Total stockholders' equity (deficit) |
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2,946 |
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(2,281) |
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) |
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$ |
25,059 |
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$ |
27,459 |
The accompanying notes are an integral part of these condensed consolidated financial statements. |
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TRANS-LUX CORPORATION AND SUBSIDIARIES | ||||||||||||
(unaudited) | ||||||||||||
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Three Months Ended |
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Six Months Ended | ||||||||
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June 30 |
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June 30 | ||||||||
In thousands, except per share data |
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2012 |
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2011 |
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2012 |
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2011 |
Revenues: |
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Digital display sales |
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$ |
5,014 |
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$ |
3,119 |
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$ |
8,851 |
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$ |
5,967 |
Digital display lease and maintenance |
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1,822 |
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1,949 |
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3,590 |
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3,995 |
Real estate rentals |
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13 |
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22 |
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31 |
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45 |
Total revenues |
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6,849 |
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5,090 |
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12,472 |
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10,007 |
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Cost of revenues: |
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Cost of digital display sales |
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3,820 |
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2,628 |
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7,010 |
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4,963 |
Cost of digital display lease and maintenance |
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1,496 |
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1,617 |
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2,957 |
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3,249 |
Cost of real estate rentals |
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15 |
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16 |
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31 |
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33 |
Total cost of revenues |
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5,331 |
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4,261 |
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9,998 |
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8,245 |
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Gross profit from operations |
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1,518 |
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829 |
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2,474 |
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1,762 |
General and administrative expenses |
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(2,380) |
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(2,090) |
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(4,981) |
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(4,255) |
Restructuring costs |
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(163) |
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- |
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(173) |
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(70) |
Operating loss |
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(1,025) |
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(1,261) |
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(2,680) |
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(2,563) |
Interest expense, net |
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(74) |
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(363) |
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(187) |
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(724) |
Gain on debt extinguishment |
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56 |
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- |
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60 |
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- |
Change in warrant liabilities |
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1,789 |
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- |
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1,897 |
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- |
Income (loss) before income taxes |
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746 |
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(1,624) |
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(910) |
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(3,287) |
Income tax expense |
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(7) |
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(7) |
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(14) |
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(14) |
Income (loss) from continuing operations |
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739 |
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(1,631) |
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(924) |
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(3,301) |
Loss from discontinued operations |
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- |
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- |
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(7) |
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- |
Net income (loss) |
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$ |
739 |
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$ |
(1,631) |
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$ |
(931) |
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$ |
(3,301) |
Income (loss) per share continuing operations – basic and diluted |
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$ |
0.13 |
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$ |
(0.67) |
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$ |
(0.18) |
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$ |
(1.35) |
Loss per share discontinued operations – basic and diluted |
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- |
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- |
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- |
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- |
Total income (loss) per share – basic and diluted |
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$ |
0.13 |
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$ |
(0.67) |
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$ |
(0.18) |
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$ |
(1.35) |
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Weighted average common shares outstanding - basic and diluted |
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5,831 |
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2,443 |
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5,259 |
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2,443 |
The accompanying notes are an integral part of these condensed consolidated financial statements. |
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TRANS-LUX CORPORATION AND SUBSIDIARIES | ||||||
(unaudited) | ||||||
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Six Months Ended | ||||
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June 30 | ||||
In thousands |
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2012 |
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2011 | ||
Cash flows from operating activities |
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Net loss |
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$ |
(931) |
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$ |
(3,301) |
Loss from discontinued operations |
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7 |
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- |
Loss from continuing operations |
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(924) |
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(3,301) |
Adjustment to reconcile net loss from continuing operations to net |
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cash provided by operating activities: |
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Depreciation and amortization |
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2,046 |
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2,296 |
Stock compensation expense |
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3 |
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12 |
Gain on debt extinguishment |
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(60) |
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- |
Change in warrant liabilities |
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(1,897) |
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- |
Changes in operating assets and liabilities: |
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Receivables |
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(569) |
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656 |
Inventories |
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21 |
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348 |
Prepaids and other assets |
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241 |
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(161) |
Accounts payable and accrued liabilities |
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834 |
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793 |
Deferred pension liability and other |
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270 |
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178 |
Net cash (used in) provided by operating activities |
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(35) |
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821 |
Cash flows from investing activities |
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Equipment manufactured for rental |
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(369) |
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(457) |
Purchases of property, plant and equipment |
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(62) |
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(23) |
Net cash used in investing activities |
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(431) |
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(480) |
Cash flows from financing activities |
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Payments of long-term debt |
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(719) |
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(761) |
Proceeds from long-term debt |
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100 |
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650 |
Net cash used in financing activities |
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(619) |
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(111) |
Cash flows from discontinued operations |
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Cash provided by sale of asset of discontinued operations |
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689 |
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- |
Net (decrease) increase in cash and cash equivalents |
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(396) |
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230 |
Cash and cash equivalents at beginning of year |
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1,109 |
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|
398 |
Cash and cash equivalents at end of period |
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$ |
713 |
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$ |
628 |
Supplemental disclosure of cash flow information: |
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Interest paid |
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$ |
114 |
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$ |
139 |
Income taxes paid |
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- |
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- |
The accompanying notes are an integral part of these condensed consolidated financial statements. |
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3
TRANS-LUX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2012
(unaudited)
Financial information included herein is unaudited, however, such information reflects all adjustments (of a normal and recurring nature), which are, in the opinion of management, necessary for the fair presentation of the condensed consolidated financial statements for the interim periods. The results for the interim periods are not necessarily indicative of the results to be expected for the full year. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with rule 10-01 of Regulation S-X promulgated by the Securities and Exchange Commission and therefore do not include all information and footnote disclosures required under accounting principles generally accepted in the United States of America. It is suggested that the June 30, 2012 condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 2011. The Condensed Consolidated Balance Sheet at December 31, 2011 is derived from the December 31, 2011 audited financial statements.
There have been no material changes in our significant accounting policies during the six months ended June 30, 2012 as compared to the significant accounting policies described in our Annual Report on Form 10-K for the year ended December 31, 2011. The Company has evaluated subsequent events through the filing date of this Form 10-Q and has determined that there were no subsequent events to recognize or disclose in these financial statements.
Recent Accounting Pronouncements: In June 2011, the Financial Accounting Standards Board (“FASB”) issued new authoritative guidance on the presentation of comprehensive income. The new guidance requires an entity to present the components of net income and other comprehensive income either in one continuous statement, referred to as the statement of comprehensive income, or in two separate, but consecutive statements. The new guidance eliminates the current option to report other comprehensive income and its components in the statement of changes in shareholders’ equity. While the new guidance changes the presentation of comprehensive income, there are no changes to the components that are recognized in net income or other comprehensive income under current accounting guidance. This new guidance is effective for fiscal years beginning after December 15, 2011. In December 2011, FASB amended this guidance to postpone a requirement to present items that are reclassified from other comprehensive income to net income on the face of the financial statement where the components of net income and other comprehensive income are presented and reinstate previous guidance related to such reclassifications. The deferral did not affect the requirement to report comprehensive income either in a single continuous financial statement or in two separate but consecutive financial statements. The Company elected early adoption of the requirements to present a separate, consecutive comprehensive income statement in 2011. Adoption of the new guidance did not have an impact on the Company’s condensed consolidated financial statements, as the guidance impacted presentation only.
4
In September 2011, FASB issued ASU 2011-08, “Intangibles - Goodwill and Other (Topic 350): Testing Goodwill Impairment” (“ASU 2011-08”). ASU 2011-08 is intended to simplify goodwill impairment testing by permitting assessment of qualitative factors to determine whether events and circumstances lead to the conclusion that it is necessary to perform the traditional two-step impairment test. Under this update, we are not required to calculate the fair value of our reporting units unless we conclude that it is more-likely-than-not (likelihood of more than 50%) that the carrying value of our reporting units is greater than the fair value of such units based on our assessment of events and circumstances. This update is effective for fiscal years beginning after December 15, 2011, with early adoption permitted. We plan to adopt the provisions of this update at the beginning of our 2012 fourth quarter, which has historically been the time at which we assessed the potential impairment of our goodwill and other indefinite lived intangible assets. The adoption of ASU 2011-08 is not expected to have a material impact on the Company’s condensed consolidated financial statements.
Reclassifications: Certain reclassifications of prior years amounts have been made to conform to the current year presentation.
Note 2 - Plan of Restructuring
The Company’s Board of Directors approved a comprehensive restructuring plan which included offers to the holders of the 8¼% Limited convertible senior subordinated notes due 2012 (the “Notes”) to receive $225, without accrued interest, plus 250 shares of the Company’s Common Stock for each $1,000 Note exchanged and to the holders of the 9½% Subordinated debentures due 2012 (the “Debentures”) to receive $100, without accrued interest, for each $1,000 Debenture exchanged. The Debentures are subordinate to the claims of the holders of the Notes and the Company’s senior lender under the Credit Agreement, among other senior claims. On November 14, 2011, $8,976,000 principal amount of the Notes and $718,000 principal amount of the Debentures were exchanged. The Company issued 2,244,000 shares of Common Stock in exchange for the Notes, which have not been registered under the Securities Exchange Act of 1933, as amended, and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements. In 2012, an additional $57,000 principal amount of the Notes and $5,000 principal amount of the Debentures were exchanged.
As part of the restructuring plan, on November 14, 2011 the Company completed the sale of an aggregate of $8.3 million of securities (the “Offering”) consisting of 416,500 shares of the Company’s Series A Convertible Preferred Stock, par value $0.001 per share (the “Preferred Stock”) having a stated value of $20.00 per share and convertible into 50 shares of the Company’s Common Stock, par value $0.001 per share (or an aggregate of 20,825,000 shares of Common Stock) and 4,165,000 one-year warrants (the “A Warrants”). These securities were issued at a purchase price of $20,000 per unit (the “Unit”). Each Unit consists of 1,000 shares of Preferred Stock, which are convertible into 50,000 shares of Common Stock and 10,000 A Warrants. Each A Warrant entitles the holder to purchase one share of the Company’s Common Stock and a three-year warrant (the “B Warrants”), at an exercise price of $0.20 per share. Each B Warrant shall entitle the holder to purchase one share of the Company’s Common Stock at an exercise price of $0.50 per share.
5
R.F. Lafferty & Co., Inc. (the “Placement Agent”), a FINRA registered broker-dealer, was engaged as Placement Agent in connection with the Offering. The Placement Agent was paid fees based upon a maximum of an $8,000,000 raise. Such fees consisted of a cash fee in the amount of $200,000, a one-year note for $200,000 at a 4.00% rate of interest and three-year warrants to purchase 24 Units (the “Placement Agent Warrants”). The A Warrants issuable upon exercise of the Placement Agent Warrants and the B Warrants issuable upon exercise of the A Warrants underlying the Placement Agent Warrants shall be substantially the same as the A Warrants and B Warrants sold in the Offering, except that they have the following exercise periods: (i) the A Warrants issuable upon exercise of the Placement Agent Warrants shall be exercisable for a period of two years from the date of exercise of the Placement Agent Warrants; and (ii) the B Warrants issuable upon exercise of the A Warrants underlying the Placement Agent Warrants shall be exercisable for a period equal to the longer of three years from the closing date of the restructuring transaction or one year from the date of exercise of the A Warrants underlying the Placement Agent Warrants. The Placement Agent Warrants are exercisable at a price of $0.50 per share, and the A Warrants and B Warrants issuable upon exercise of the Placement Agent Warrants will be exercisable at a price of $0.20 per share in the case of the A Warrants and $0.50 per share in the case of the B Warrants, on the same terms as provided in the A Warrants and B Warrants sold in the Offering.
At the Annual Meeting of Stockholders on June 26, 2012, among other things the stockholders approved to (a) increase the authorized shares of Common Stock to 60,000,000, (b) reduce the par value of Common Stock to $0.001, (c) reduce the par value of Preferred Stock to $0.001, (d) remove Class A Stock from authorized capital stock and (e) remove Class B Stock from authorized capital stock, and on July 2, 2012, the Company filed an Amended and Restated Certificate of Incorporation with the Secretary of State of Delaware containing these provisions, which is reflected in the June 30, 2012 Condensed Consolidated Balance Sheet. Pursuant to the filing of the Amended and Restated Certificate of Incorporation, the Company’s 416,500 issued and outstanding shares of Preferred Stock automatically converted into an aggregate of 20,825,000 shares of Common Stock in accordance with the terms of the Preferred Stock, the exercise price of the A Warrants was reduced from $1.00 per share to $0.20 per share in accordance with the terms of the A Warrants, the exercise price of the B Warrants was reduced from $1.00 per share to $0.50 share in accordance with the terms of the B Warrants, the exercise price of the Placement Agent Warrants was reduced from $1.00 per share to $0.50 per share and the exercise price of the warrants associated with the $650,000 of 4.00% secured notes was reduced from $1.00 per share to $0.10 per share in accordance with the terms of those warrants.
The net proceeds of the Offering were used to fund the restructuring of the Company’s outstanding debt, which included: (1) a cash settlement to holders of the Notes in the amount of $2,019,600; (2) a cash settlement to holders of the Debentures in the amount of $71,800; (3) a payment on the Company’s outstanding term loan with the senior lender in the amount of $320,833 and (4) a payment of $1.0 million on the Company’s outstanding revolving loan with the senior lender under the Credit Agreement. The net proceeds of the Offering remaining after the payments to the holders of the Notes and the Debentures and to the senior lender were used to pay the remaining $3.0 million outstanding under the revolving loan with the senior lender under the Credit Agreement and for working capital.
6
The investors, who own a substantial number of warrants to purchase our Common Stock will have substantial influence over the vote on key matters requiring stockholder approval. As of June 30, 2012, the investors have 8,330,000 warrants to purchase shares of our Common Stock issued in connection with their investment in the Preferred Stock, which does not include the 2,680,000 warrants held by the Placement Agent and the subscriber in connection with the $650,000 of 4.00% secured notes.
The Company began its restructuring plan in 2010 by reducing operating costs. The actions included the elimination of approximately 90 positions from our operations and the closing of our Stratford, Connecticut manufacturing facility. Total restructuring costs to date have been $1.4 million consisting of employee severance pay, facility closing costs representing primarily lease termination and asset write-off costs, and other fees directly related to the restructuring plan. The three months ending June 30, 2012 results include an additional restructuring charge of $163,000 consisting of severance directly related to the restructuring plan. The costs associated with the restructuring are included in a separate line item, Restructuring costs, in the Condensed Consolidated Statements of Operations. We expect that the majority of these costs will be paid over the next 12 months.
The following table shows the amounts expensed and paid for restructuring costs that were incurred during the six months ended June 30, 2012 and the remaining accrued balance of restructuring costs as of June 30, 2012, which is included in Accrued liabilities in the Condensed Consolidated Balance Sheets:
|
Balance December 31, 2011 |
Provision |
Payments and Other Adjustments |
Balance June 30, 2012 |
Severance costs (1) |
$43 |
$163 |
$24 |
$182 |
Other fees |
30 |
10 |
40 |
- |
|
$73 |
$173 |
$64 |
$182 |
(1) Represents salaries for employees separated from the Company.
The following table shows, by reportable segment, the restructuring costs incurred for the six months ended June 30, 2012 and the remaining accrued balance of restructuring costs as of June 30, 2012:
|
Balance December 31, 2011 |
Provision |
Payments and Other Adjustments |
Balance June 30, 2012 |
Digital display sales |
$ - |
$152 |
$ - |
$152 |
Digital display lease and maintenance |
73 |
21 |
64 |
30 |
|
$73 |
$173 |
$64 |
$182 |
Note 3 – Fair Value
The Company carries its money market funds and cash surrender value of life insurance related to its deferred compensation arrangements at fair value. The fair value of these instruments is determined using a three-tier fair value hierarchy. Based on this hierarchy, the Company determined the fair value of its money market funds using quoted market prices, a Level 1 or an observable input, and the cash surrender value of life insurance, a Level 2 based on observable inputs primarily from the counter party. The Company’s money market funds and the cash surrender value of life insurance had carrying amounts of $36,000 and $70,000 at June 30, 2012, respectively, and $261,000 and $70,000 at December 31, 2011, respectively. The carrying amounts of cash equivalents, accounts receivable and accounts payable approximate fair value due to the short maturities of these items. The fair value of the Company’s Notes and Debentures, using observable inputs, was $247,000 and $33,000 at June 30, 2012, respectively, and $259,000 and $34,000 at December 31, 2011, respectively. The fair value of the Company’s remaining long-term debt approximates its carrying value of $3.1 million and $3.5 million at June 30, 2012 and December 31, 2011, respectively.
7
Note 4 – Inventories
Inventories are stated at the lower of cost or market and consist of the following:
In thousands |
June 30 2012 |
December 31 2011 |
Raw materials |
$1,842 |
$1,826 |
Work-in-progress |
455 |
449 |
Finished goods |
557 |
600 |
|
$2,854 |
$2,875 |
Note 5 – Warrant Liabilities
As part of the Company’s restructuring plan, see Note 2 – Plan of Restructuring, the Company issued 4,165,000 one-year warrants (the “A Warrants”). Each A Warrant entitles the holder to purchase one share of the Company’s Common Stock and a three-year warrant (the “B Warrants”), at an exercise price of $0.20 per share. Each B Warrant shall entitle the holder to purchase one share of the Company’s Common Stock at an exercise price of $0.50 per share. The aggregate number of A Warrants and B Warrants to which the holders are entitled is 8,330,000.
In connection with the Offering, the Company issued 1,200,000 three-year warrants (the “Placement Agent Warrants”), 240,000 A Warrants issuable upon exercise of the Placement Agent Warrants, and 240,000 B Warrants issuable upon exercise of the A Warrants underlying the Placement Agent Warrants. The aggregate number of Placement Agent Warrants, A Warrants and B Warrants to which the Placement Agent is entitled is 1,680,000. Each Placement Agent Warrant entitles the Placement Agent to purchase one share of the Company’s Common Stock at an exercise price of $0.50 per share and a two-year A Warrant. Each A Warrant entitles the Placement Agent to purchase one share of the Company’s Common Stock and a three-year B Warrant at an exercise price of $0.20 per share. Each B Warrant shall entitle the Placement Agent to purchase one share of the Company’s Common Stock at an exercise price of $0.50 per share.
In connection with a private placement of $650,000 of 4.00% notes, see Note 6 – Long-Term Debt, the Company issued 1,000,000 five-year warrants to the subscriber. Each warrant entitles the subscriber to purchase one share of the Company’s Common Stock at an exercise price of $0.10 per share.
8
At the Annual Meeting of Stockholders on June 26, 2012, among other things the stockholders approved to (a) increase the authorized shares of Common Stock to 60,000,000, (b) reduce the par value of Common Stock to $0.001, (c) reduce the par value of Preferred Stock to $0.001, (d) remove Class A Stock from authorized capital stock and (e) remove Class B Stock from authorized capital stock, and on July 2, 2012, the Company filed an Amended and Restated Certificate of Incorporation with the Secretary of State of Delaware containing these provisions, which is reflected in the June 30, 2012 Condensed Consolidated Balance Sheet. Pursuant to the filing of the Amended and Restated Certificate of Incorporation, the Company’s 416,500 issued and outstanding shares of Preferred Stock automatically converted into an aggregate of 20,825,000 shares of Common Stock in accordance with the terms of the Preferred Stock, the exercise price of the A Warrants was reduced from $1.00 per share to $0.20 per share in accordance with the terms of the A Warrants, the exercise price of the B Warrants was reduced from $1.00 per share to $0.50 share in accordance with the terms of the B Warrants, the exercise price of the Placement Agent Warrants was reduced from $1.00 per share to $0.50 per share and the exercise price of the warrants associated with the $650,000 of 4.00% secured notes was reduced from $1.00 per share to $0.10 per share in accordance with the terms of those warrants.
All the warrants include a potential adjustment of the strike price if the Company sells or grants any option or warrant at a price per share less than the strike price of the warrants. Therefore, the warrants are not considered indexed to the Company’s Common Stock and are accounted for on a liability basis. The Company recorded non-cash gains of $1.8 million and $1.9 million for the three and six months ended June 30, 2012, respectively, related to changes in the value of the warrants issued in the Offering, to the Placement Agent and to the subscriber in connection with the $650,000 of 4.00% secured notes, which is included in a separate line item, Change in warrant liabilities, in the Condensed Consolidated Statements of Operations.
Note 6 – Long-Term Debt
As of June 30, 2012, the Company has $1.1 million of 8¼% Limited convertible senior subordinated notes due 2012 (the “Notes”) which are no longer convertible into common shares; interest was payable semi-annually and the Notes may be redeemed, in whole or in part, at par. The Company had not remitted the March 1, 2010 and 2011 and September 1, 2010 and 2011 semi-annual interest payments of $417,800 each and the March 1, 2012 semi-annual interest and principal payment of $1.4 million to the trustee. The non-payments constitute an event of default under the Indenture governing the Notes and the trustee, by notice to the Company, or the holders of 25% of the principal amount of the Notes outstanding, by notice to the Company and the trustee, may declare the outstanding principal plus interest due and payable immediately. When such notice is received by the Company, no payment shall be made by the Company to the holders or trustee until the earlier of such non-payment event of default is cured or waived or 179 days since receipt by the trustee of notice of such event, unless the holder of Senior Indebtedness has accelerated the due date thereof. If the holder of Senior Indebtedness accelerates the due date at any time, then no payment may be made until the default is cured or waived. At June 30, 2012, the total amount outstanding under the Notes is classified as Current portion of long-term debt in the Condensed Consolidated Balance Sheets. As part of the Company’s restructuring plan, see Note 2 – Plan of Restructuring, the Company offered the holders of the Notes to receive $225, without accrued interest, plus 250 shares of the Company’s Common Stock for each $1,000 Note exchanged. The offer expired on October 31, 2011. $9.0 million principal amount of the Notes were exchanged, leaving $1.2 million outstanding. The Company continues to consider further exchanges of the Notes on the same terms as previously offered and an additional $57,000 principal amount of the Notes have been exchanged.
9
As of June 30, 2012, the Company has $0.3 million of 9½% Subordinated debentures due 2012 (the “Debentures”) which were due in annual sinking fund payments of $105,700 beginning in 2009, which payments have not been remitted by the Company, with the remainder due in 2012; interest is payable semi-annually and the Debentures may be redeemed, in whole or in part, at par. The Company had not remitted the June 1, 2010, 2011 and 2012 and December 1, 2010 and 2011 semi-annual interest payments of $50,200 each to the trustee. The non-payments constitute an event of default under the Indenture governing the Debentures and the trustee, by notice to the Company, or the holders of 25% of the principal amount of the Debentures outstanding, by notice to the Company and the trustee, may declare the outstanding principal plus interest due and payable immediately. During the continuation of any event which, with notice or lapse of time or both, would constitute a default under any agreement under which Senior Indebtedness is issued, if the effect of such default is to cause or permit the holder of Senior Indebtedness to become due prior to its stated maturity, no payment (including any required sinking fund payments) of principal, premium or interest shall be made on the Debentures unless and until such default shall have been remedied, if written notice of such default has been given to the trustee by the Company or the holder of Senior Indebtedness. The failure to make the sinking fund and interest payments are events of default under the Credit Agreement and no payment can be made to such trustee or the holders at this time as such defaults have not been waived. At June 30, 2012, the total amount outstanding under the Debentures is classified as Current portion of long-term debt in the Condensed Consolidated Balance Sheets. As part of the Company’s restructuring plan, see Note 2 – Plan of Restructuring, the Company offered the holders of the Debentures to receive $100, without accrued interest, for each $1,000 Debenture exchanged. The offer expired on October 31, 2011. $0.7 million principal amount of the Debentures were exchanged, leaving $0.3 million outstanding. The Company continues to consider further exchanges of the Debentures on the same terms as previously offered and an additional $5,000 principal amount of the Debentures have been exchanged subsequent. The Debentures are subordinate to the claims of the holders of the Notes and the Company’s senior lender under the Credit Agreement, among other senior claims.
As part of the Company’s restructuring plan, the Company recorded gains of $56,000 and $60,000 for the three and six months ended June 30, 2012, respectively, on debt extinguishment of principal and accrued interest on the Notes and Debentures that have been exchanged.
The Company has a bank Credit Agreement, as amended, which provides for a revolving loan of up to $1.0 million, based on eligible accounts receivable and inventory, at a variable rate of interest of Prime plus 2.00%, (5.25% at June 30, 2012), which matures January 1, 2013. In June 2012, the senior lender reduced the revolving loan from $3.0 million to $1.0 million. In October 2012, the senior lender agreed to modify the maturity date of the Credit Agreement from November 1, 2012 to January 1, 2013. As of June 30, 2012, the Company has drawn $0.6 million against the revolving loan facility, of which $0.4 million was available for additional borrowing. The Credit Agreement requires an annual facility fee on the unused commitment of 0.25% and requires compliance with certain financial covenants, as defined in the Credit Agreement, which include a senior debt coverage ratio of not less than 1.75 to 1.00, a loan-to-value ratio of not more than 50% and a $1.0 million quarterly cap on capital expenditures. As of June 30, 2012, the Company was in compliance with the foregoing financial covenants, but was not in compliance with the minimum tangible net worth ratio of not less than $6.5 million ($5.7 million at June 30, 2012), which the senior lender waived subsequent to the end of the quarter. In addition, the senior lender has waived the defaults on the Notes and the Debentures, but in the event that the holders of the Notes or the Debentures or trustees declare a default and begin to exercise any of their rights or remedies in connection with the non-payment defaults, this shall constitute a separate and distinct event of default and the senior lender may exercise any and all rights or remedies it may have. The senior lender has also waived the default of non-payment of certain pension plan contributions, but in the event that any government agency takes any enforcement action or otherwise exercises any rights or remedies it may have, this shall constitute a separate and distinct event of default and the senior lender may exercise any and all rights or remedies it may have. The amounts outstanding under the Credit Agreement are collateralized by all of the Digital Display Division assets.
10
On June 17, 2011, the Company entered into a subscription agreement for a private placement consisting of $650,000 of 4.00% secured notes of the Company pursuant to Section 4(2) of the Securities Act of 1933, as amended, and Rule 506 promulgated thereunder. In connection with the purchase of these notes, the subscriber received a five-year warrant to purchase 1,000,000 shares of Common Stock of the Company at an exercise price of $0.10 per share. The financing was collateralized by the land held for sale located in Silver City, New Mexico, which was has been sold and the notes have been satisfied.
The Company has a $540,000 mortgage on its facility located in Des Moines, Iowa at a fixed rate of interest of 6.50% payable in monthly installments, which matures March 1, 2015 and requires a compensating balance of $200,000.
The Company has a $1.7 million mortgage on its real estate rental property located in Santa Fe, New Mexico at a variable rate of interest of Prime, with a floor of 6.75%, which was the interest rate in effect at June 30, 2012, payable in monthly installments, which matures December 12, 2012.
Note 7 – Pension Plan
The pension plan is frozen and, accordingly, no additional benefits are being accrued under the plan.
The following table presents the components of net periodic pension cost:
|
Three months ended June 30 |
Six months ended June 30 | ||
In thousands |
2012 |
2011 |
2012 |
2011 |
Interest cost |
$ 130 |
$ 137 |
$ 260 |
$ 274 |
Expected return on plan assets |
(109) |
(99) |
(219) |
(198) |
Amortization of net actuarial loss |
121 |
87 |
242 |
174 |
Net periodic pension cost |
$ 142 |
$ 125 |
$ 283 |
$ 250 |
11
As of June 30, 2012, the Company has recorded a current pension liability of $0.8 million, which is included in Accrued liabilities in the Condensed Consolidated Balance Sheets, and a long-term pension liability of $5.0 million, which is included in Deferred pension liability and other in the Condensed Consolidated Balance Sheets. The minimum required contribution for 2012 is expected to be $0.9 million.
The pension plan asset information included below is presented at fair value. ASC 820 establishes a framework for measuring fair value and required disclosures about assets and liabilities measured at fair value. The fair values of these assets are determined using a three-tier fair value hierarchy. Based on this hierarchy, the Company determined the fair value of its money market funds and mutual stock funds using quoted market prices, a Level 1 or an observable input, and the guaranteed investment contracts and equity and index funds, a Level 2 based on observable inputs and quoted prices in markets that are not active. The Company does not have any Level 3 pension assets, in which such valuation would be based on unobservable measurements and management’s estimates.
The following table presents the pension plan assets by level within the fair value hierarchy as of June 30, 2012:
In thousands |
Level 1 |
Level 2 |
Level 3 |
Total |
Guaranteed investment contracts |
$ - |
$2,016 |
$ - |
$2,016 |
Mutual stock funds |
1,023 |
- |
- |
1,023 |
Equity and index funds |
- |
2,725 |
- |
2,725 |
Money market funds |
41 |
- |
- |
41 |
Total pension plan assets |
$1,064 |
$4,741 |
$ - |
$5,805 |
In March 2011 and 2010, the Company submitted to the Internal Revenue Service requests for waivers of the minimum funding standard for its defined benefit plan. The waiver requests were submitted as a result of the economic climate and the business hardship that the Company was experiencing. The waivers, if granted, will defer payment of $559,000 and $285,000 of the minimum funding standard for the 2010 and 2009 plan years, respectively. If the waivers are not granted, the Pension Benefit Guaranty Corporation and the Internal Revenue Service have various enforcement remedies they can implement to protect the participant’s benefits, such as termination of the plan and require the Company to remit the unpaid contributions. The senior lender has waived the default of non-payment of certain pension plan contributions, but in the event that any government agency takes any enforcement action or otherwise exercises any rights or remedies it may have, this shall constitute a separate and distinct event of default and the senior lender may exercise any and all rights or remedies it may have. At this time, the Company is expecting to make its required contributions for the 2011 and 2012 plan years; however there is no assurance that the Company will be able to make all payments. In the event the Company requests waivers to defer payments in an amount greater than or equal to $1.0 million, the Pension Benefit Guaranty Corporation may place a lien on the Company’s assets for the amount owed.
12
Note 8 – Share-Based Compensation
The Company accounts for all share-based payments to employees and directors, including grants of employee stock options, at fair value and expenses the benefit in the Condensed Consolidated Statements of Operations over the service period (generally the vesting period). The fair value of each stock option granted is estimated on the date of grant using the Black-Scholes pricing valuation model, which requires various assumptions including estimating stock price volatility, expected life of the stock option and risk free interest rate. The Company applies an estimated forfeiture rate in calculating the period expense. The Company has not experienced any forfeitures that would need to be taken into consideration in its calculations.
The Company did not issue any stock options during the six months ended June 30, 2012 and 2011. There are no unrecognized compensation costs related to unvested stock options granted under the Company’s stock option plans.
The following table summarizes the activity of the Company's stock options for the six months ended June 30, 2012:
|
Options |
Weighted Average Exercise Price ($) |
Weighted Average Remaining Contractual Term (Yrs) |
Aggregate Intrinsic Value ($) |
Outstanding at beginning of year |
12,000 |
4.99 |
|
|
Granted |
- |
- |
|
|
Exercised |
- |
- |
|
|
Terminated |
5,000 |
4.14 |
|
|
Outstanding at end of period |
7,000 |
5.59 |
2.0 |
|
Vested and expected to vest at end of period |
7,000 |
5.59 |
2.0 |
- |
Exercisable at end of period |
7,000 |
5.59 |
2.0 |
- |
On February 16, 2010, the Board granted Mr. Jean-Marc (J.M.) Allain, the Company’s President and Chief Executive Officer, 50,000 shares of restricted Common Stock from treasury shares which vested 50% after one year and the remaining 50% after two years. The Company has recorded stock compensation expense over the vesting period and recorded $3,000 of stock compensation expense for the six months ended June 30, 2012.
Basic earnings (loss) per common share is computed by dividing net income (loss) by the weighted average number of common shares outstanding for the period. Diluted earnings (loss) per common share is computed by dividing net income (loss) by the weighted average number of common shares outstanding, adjusted for shares that would be assumed outstanding after warrants and stock options vested under the treasury stock method. At June 30, 2012, outstanding warrants convertible into 11,010,000 shares of Common Stock were excluded from the calculation of diluted earnings (loss) per share because their impact would have been anti-dilutive. At June 30, 2012 and 2011, there were outstanding stock options to purchase 7,000 and 23,000 shares of Common Stock, respectively, which were excluded from the calculation of diluted earnings (loss) per share because their impact would have been anti-dilutive.
13
The Company is subject to legal proceedings and claims which arise in the ordinary course of its business and/or which are covered by insurance that management believes individually and in the aggregate will not have a material adverse effect on the consolidated financial position or operations of the Company.
Operating segments are based on the Company’s business components about which separate financial information is available and are evaluated regularly by the Company’s chief operating decision maker 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 Digital Display Division comprises two operating segments: Digital display sales and Digital display lease and maintenance. Both design and produce large-scale, multi-color, real-time digital displays and LED lighting, which has a line of energy-saving lighting solutions that provide facilities and public infrastructure with “green” lighting solutions that emit less heat, save energy and enable creative designs. Both operating segments are conducted on a global basis, primarily through operations in the United States. The Company also has operations in Canada. The Digital display sales segment sells equipment and the Digital display lease and maintenance segment leases and maintains equipment. The Real estate rentals segment owns and operates an income-producing property. Segment operating (loss) income is shown after cost of revenues and general and administrative expenses directly associated with the segment. Corporate general and administrative items relate to costs that are not directly identifiable with a segment. There are no intersegment sales.
Foreign revenues represent less than 10% of the Company’s revenues and therefore are not separately disclosed. The foreign operation does not manufacture its own equipment; the domestic operation provides the equipment that the foreign operation leases or sells. The foreign operation operates similarly to the domestic operation and has similar profit margins. Foreign assets are immaterial.
14
Information about the Company’s continuing operations in its three business segments for the three and six months ended June 30, 2012 and 2011 is as follows:
|
Three Months Ended June 30 |
Six Months Ended June 30 | ||
In thousands |
2012 |
2011 |
2012 |
2011 |
Revenues: |
|
|
|
|
Digital display sales |
$ 5,014 |
$ 3,119 |
$ 8,851 |
$ 5,967 |
Digital display lease and maintenance |
1,822 |
1,949 |
3,590 |
3,995 |
Real estate rentals |
13 |
22 |
31 |
45 |
Total revenues |
$ 6,849 |
$ 5,090 |
$ 12,472 |
$ 10,007 |
Operating (loss) income: |
|
|
|
|
Digital display sales |
$ (369) |
$ (654) |
$ (1,510) |
$ (1,398) |
Digital display lease and maintenance |
152 |
97 |
368 |
277 |
Real estate rentals |
(14) |
3 |
(26) |
6 |
Corporate general and administrative expenses |
(794) |
(707) |
(1,512) |
(1,448) |
Total operating loss |
(1,025) |
(1,261) |
(2,680) |
(2,563) |
Interest expense, net |
(74) |
(363) |
(187) |
(724) |
Gain on debt extinguishment |
56 |
- |
60 |
- |
Change in warrant liabilities |
1,789 |
- |
1,897 |
- |
Income (loss) from continuing operations before income taxes |
746 |
(1,624) |
(910) |
(3,287) |
Income tax expense |
(7) |
(7) |
(14) |
(14) |
Income (loss) from continuing operations |
$ 793 |
$ (1,631) |
$ (924) |
$ (3,301) |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Trans-Lux is a leading supplier of LED technology for high resolution video displays and lighting applications. The essential elements of these systems are the real-time, programmable digital displays we design, manufacture, distribute and service. Designed to meet the digital signage solutions for any size venue’s indoor and outdoor needs, these displays are used primarily in applications for the financial, banking, gaming, corporate, advertising, transportation, entertainment and sports markets. The Company started a new business opportunity in the LED lighting market with energy-saving lighting solutions that features a comprehensive offering of the latest LED lighting technologies that provide facilities and public infrastructure with “green” lighting solutions that emit less heat, save energy and enable creative designs. The Company also owns and operates an income-producing rental property. The Company operates in three reportable segments: Digital display sales, Digital display lease and maintenance and Real estate rentals.
The Digital display sales segment includes worldwide revenues and related expenses from the sales of both indoor and outdoor digital display signage and LED lighting solutions. This segment includes the sales of digital signage across all markets, such as financial, gaming, government/private, transportation, scoreboards and advertising markets. The Digital display lease and maintenance segment includes worldwide revenues and related expenses from the lease and maintenance of both indoor and outdoor digital display signage. This segment includes the lease and maintenance of digital display signage across all markets. The Real estate rentals segment includes the operations of an income-producing real estate property.
15
Results of Operations
Six Months Ended June 30, 2012 Compared to Six Months Ended June 30, 2011
Total revenues for the six months ended June 30, 2012 increased $2.5 million or 24.6% to $12.5 million from $10.0 million for the six months ended June 30, 2011, primarily due to an increase in Digital display sales offset by a decrease in Digital display lease and maintenance revenues.
Digital display sales revenues increased $2.9 million or 48.3%, primarily in the LED lighting, catalog scoreboard and custom commercial sales markets.
Digital display lease and maintenance revenues decreased $405,000 or 10.1%, primarily due to the continued expected revenue decline in the older outdoor display equipment rental and maintenance bases acquired in the early 1990s. The global recession has negatively impacted the lease and maintenance revenues as well.
Real estate rentals revenues decreased $14,000 or 31.1%, due to the termination of a tenant lease in the first quarter of 2012 in our Santa Fe, New Mexico rental property due to the softness in the real estate market in Santa Fe, New Mexico.
Total operating loss for the six months ended June 30, 2012 increased $117,000 to $2.7 million from $2.6 million for the six months ended June 30, 2011, principally due to an increase in general and administrative expenses, offset by the increase in revenues.
Digital display sales operating loss increased $112,000 or 8.0%, primarily as a result of an increase in general and administrative expenses, offset by the increase in revenues. The cost of Digital display sales increased $2.0 million or 41.2%, primarily due to the increase in revenues. The cost of Digital display sales represented 79.2% of related revenues in 2012 compared to 83.2% in 2011. Digital display sales general and administrative expenses increased $949,000 or 39.5%, primarily due to the limited sponsorship agreement entered into with Joe Gibbs Racing and other consultant marketing expenses.
Digital display lease and maintenance operating income increased $91,000 or 32.9%, primarily as a result of a decrease in general and administrative expenses, offset by the reduction in revenues. The cost of Digital display lease and maintenance decreased $292,000 or 9.0%, primarily due to a $271,000 decrease in depreciation expense and a $22,000 decrease in field service costs to maintain the displays. The cost of Digital display lease and maintenance revenues represented 82.4% of related revenues in 2012 compared to 81.3% in 2011. The cost of Digital display lease and maintenance includes field service expenses, plant repair costs, maintenance and depreciation. Digital display lease and maintenance general and administrative expenses decreased $204,000 or 43.5%, primarily due to a decrease in bad debt expense.
Real estate rentals operating (loss) income decreased $32,000 to a loss of ($26,000) in 2012 compared to income of $6,000 in 2011, primarily due to the reduction of revenues and an increase in general and administrative expenses. The cost of Real estate rentals represented 100.0% of related revenues in 2012 compared to 73.3% in 2011. Real estate rentals general and administrative expenses increased $20,000 to $26,000 in 2012 compared to $6,000 in 2011, primarily due to an increase in bad debt expense.
16
Corporate general and administrative expenses increased $64,000 or 4.4%, primarily due to an increase in severance related restructuring costs and marketing expenses, offset by a reduction of $86,000 in the Canadian currency exchange loss.
Net interest expense decreased $537,000 or 74.2%, primarily due to the reduction in long-term debt as a result of the restructuring plan, see Note 2 to the condensed consolidated financial statements – Plan of Restructuring, as well as a reduction in amortization of prepaid financing costs.
The gain on debt extinguishment is attributable to exchanges of the 8¼% Notes and the 9½% Debentures. See Note 6 to the condensed consolidated financial statements – Long-Term Debt.
The change in warrant liabilities is attributable to the change in the fair market value of the warrants issued in connection with the restructuring plan. See Note 5 to the condensed consolidated financial statements – Warrant Liabilities.
The effective tax rate for the six months ended June 30, 2012 and 2011 was 1.5% and 0.4%, respectively. Both the 2012 and 2011 tax rate are being affected by the valuation allowance on the Company’s deferred tax assets as a result of reporting pre-tax losses. The income tax expense relates to the Company’s Canadian subsidiary.
Three Months Ended June 30, 2012 Compared to Three Months Ended June 30, 2011
Total revenues for the three months ended June 30, 2012 increased $1.8 million or 34.6% to $6.8 million from $5.1 million for the three months ended June 30, 2011, primarily due to an increase in Digital display sales offset by a decrease in Digital display lease and maintenance revenues.
Digital display sales revenues increased $1.9 million or 60.8%, primarily in the LED lighting, catalog scoreboard and custom commercial sales markets.
Digital display lease and maintenance revenues decreased $127,000 or 6.5%, primarily due to the continued expected revenue decline in the older outdoor display equipment rental and maintenance bases acquired in the early 1990s. The global recession has negatively impacted the lease and maintenance revenues as well.
Real estate rentals revenues decreased $9,000 or 40.9%, due to the termination of a tenant lease in the first quarter of 2012 in our Santa Fe, New Mexico rental property due to the softness in the real estate market in Santa Fe, New Mexico.
Total operating loss for the three months ended June 30, 2012 decreased $236,000 to $1.0 million from $1.3 million for the three months ended June 30, 2011, principally due to the increase in revenues, offset by an increase in general and administrative expenses.
17
Digital display sales operating loss decreased $285,000 or 43.6%, primarily as a result of the increase in revenues, offset by an increase in general and administrative expenses. The cost of Digital display sales increased $1.2 million or 45.4%, primarily due to the increase in revenues. The cost of Digital display sales represented 76.2% of related revenues in 2012 compared to 84.3% in 2011, primarily due as a result of a reduction in raw materials. Digital display sales general and administrative expenses increased $417,000 or 36.4%, primarily due to consultant marketing expenses.
Digital display lease and maintenance operating income increased $55,000 or 56.7%, primarily as a result of a decrease in general and administrative expenses, offset by the reduction in revenues. The cost of Digital display lease and maintenance decreased $122,000 or 7.5%, primarily due to a $136,000 decrease in depreciation expense, offset by a $14,000 increase in field service costs to maintain the displays. The cost of Digital display lease and maintenance revenues represented 82.1% of related revenues in 2012 compared to 83.0% in 2011. The cost of Digital display lease and maintenance includes field service expenses, plant repair costs, maintenance and depreciation. Digital display lease and maintenance general and administrative expenses decreased $60,000 or 25.5%, primarily due to a decrease in bad debt expense.
Real estate rentals operating (loss) income decreased $17,000 to a loss of ($14,000) in 2012 compared to income of $3,000 in 2011, primarily due to the reduction of revenues and an increase in general and administrative expenses. The cost of Real estate rentals represented 115.4% of related revenues in 2012 compared to 72.7% in 2011. Real estate rentals general and administrative expenses increased $9,000 to $12,000 in 2012 compared to $3,000 in 2011, primarily due to an increase in bad debt expense.
Corporate general and administrative expenses increased $87,000 or 12.3%, primarily due to an increase in severance related restructuring costs and marketing expenses, offset by a reduction of $75,000 in the Canadian currency exchange loss.
Net interest expense decreased $289,000 or 79.6%, primarily due to the reduction in long-term debt as a result of the restructuring plan, see Note 2 to the condensed consolidated financial statements – Plan of Restructuring, as well as a reduction in amortization of prepaid financing costs.
The gain on debt extinguishment is attributable to exchanges of the 8¼% Notes. See Note 6 to the condensed consolidated financial statements – Long-Term Debt.
The change in warrant liabilities is attributable to the change in the fair market value of the warrants issued in connection with the restructuring plan. See Note 5 to the condensed consolidated financial statements – Warrant Liabilities.
The effective tax rate for the three months ended June 30, 2012 and 2011 was 0.9% and 0.4%, respectively. Both the 2012 and 2011 tax rate are being affected by the valuation allowance on the Company’s deferred tax assets as a result of reporting pre-tax losses. The income tax expense relates to the Company’s Canadian subsidiary.
18
Liquidity and Capital Resources
The Company’s Board of Directors approved a comprehensive restructuring plan which included offers to the holders of the 8¼% Limited convertible senior subordinated notes due 2012 (the “Notes”) to receive $225, without accrued interest, plus 250 shares of the Company’s Common Stock for each $1,000 Note exchanged and to the holders of the 9½% Subordinated debentures due 2012 (the “Debentures”) to receive $100, without accrued interest, for each $1,000 Debenture exchanged. The Debentures are subordinate to the claims of the holders of the Notes and the Company’s senior lender under the Credit Agreement, among other senior claims. On November 14, 2011, $8,976,000 principal amount of the Notes and $718,000 principal amount of the Debentures were exchanged. The Company issued 2,244,000 shares of Common Stock in exchange for the Notes, which have not been registered under the Securities Exchange Act of 1933, as amended, and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements. In 2012, an additional $57,000 principal amount of the Notes and $5,000 principal amount of the Debentures were exchanged.
As part of the restructuring plan, on November 14, 2011 the Company completed the sale of an aggregate of $8.3 million of securities (the “Offering”) consisting of 416,500 shares of the Company’s Series A Convertible Preferred Stock, par value $0.001 per share (the “Preferred Stock”) having a stated value of $20.00 per share and convertible into 50 shares of the Company’s Common Stock, par value $0.001 per share (or an aggregate of 20,825,000 shares of Common Stock) and 4,165,000 one-year warrants (the “A Warrants”). These securities were issued at a purchase price of $20,000 per unit (the “Unit”). Each Unit consists of 1,000 shares of Preferred Stock, which are convertible into 50,000 shares of Common Stock and 10,000 A Warrants. Each A Warrant entitles the holder to purchase one share of the Company’s Common Stock and a three-year warrant (the “B Warrants”), at an exercise price of $0.20 per share. Each B Warrant shall entitle the holder to purchase one share of the Company’s Common Stock at an exercise price of $0.50 per share.
At the Annual Meeting of Stockholders on June 26, 2012, among other things the stockholders approved to (a) increase the authorized shares of Common Stock to 60,000,000, (b) reduce the par value of Common Stock to $0.001, (c) reduce the par value of Preferred Stock to $0.001, (d) remove Class A Stock from authorized capital stock and (e) remove Class B Stock from authorized capital stock, and on July 2, 2012, the Company filed an Amended and Restated Certificate of Incorporation with the Secretary of State of Delaware containing these provisions, which is reflected in the June 30, 2012 Condensed Consolidated Balance Sheet. Pursuant to the filing of the Amended and Restated Certificate of Incorporation, the Company’s 416,500 issued and outstanding shares of Preferred Stock automatically converted into an aggregate of 20,825,000 shares of Common Stock in accordance with the terms of the Preferred Stock, the exercise price of the A Warrants was reduced from $1.00 per share to $0.20 per share in accordance with the terms of the A Warrants, the exercise price of the B Warrants was reduced from $1.00 per share to $0.50 share in accordance with the terms of the B Warrants, the exercise price of the Placement Agent Warrants was reduced from $1.00 per share to $0.50 per share and the exercise price of the warrants associated with the $650,000 of 4.00% secured notes was reduced from $1.00 per share to $0.10 per share in accordance with the terms of those warrants.
19
The net proceeds of the Offering were used to fund the restructuring of the Company’s outstanding debt, which included: (1) a cash settlement to holders of the Notes in the amount of $2,019,600; (2) a cash settlement to holders of the Debentures in the amount of $71,800; (3) a payment on the Company’s outstanding term loan with the senior lender in the amount of $320,833 and (4) a payment of $1.0 million on the Company’s outstanding revolving loan with the senior lender under the Credit Agreement. The net proceeds of the Offering remaining after the payments to the holders of the Notes and the Debentures and to the senior lender were used to pay the remaining $3.0 million outstanding under the revolving loan with the senior lender under the Credit Agreement and for working capital.
We may require additional financing in the future in order to execute our operating plan. We cannot predict whether future financing, if any, will be in the form of equity, debt or a combination of both. We may not be able to obtain additional funds on a timely basis, on acceptable terms or at all.
The Company has a bank Credit Agreement, as amended, which provides for a revolving loan of up to $1.0 million, based on eligible accounts receivable and inventory, at a variable rate of interest of Prime plus 2.00%, (5.25% at June 30, 2012), which matures January 1, 2013. In June 2012, the senior lender reduced the revolving loan from $3.0 million to $1.0 million. In October 2012, the senior lender agreed to modify the maturity date of the Credit Agreement from November 1, 2012 to January 1, 2013. As of June 30, 2012, the Company has drawn $0.6 million against the revolving loan facility, of which $0.4 million was available for additional borrowing. The Credit Agreement requires an annual facility fee on the unused commitment of 0.25% and requires compliance with certain financial covenants, as defined in the Credit Agreement, which include a senior debt coverage ratio of not less than 1.75 to 1.00, a loan-to-value ratio of not more than 50% and a $1.0 million quarterly cap on capital expenditures. As of June 30, 2012, the Company was in compliance with the foregoing financial covenants, but was not in compliance with the minimum tangible net worth ratio of not less than $6.5 million ($5.8 million at June 30, 2012), which the senior lender waived subsequent to the end of the quarter. In addition, the senior lender has waived the defaults on the Notes and the Debentures, but in the event that the holders of the Notes or the Debentures or trustees declare a default and begin to exercise any of their rights or remedies in connection with the non-payment defaults, this shall constitute a separate and distinct event of default and the senior lender may exercise any and all rights or remedies it may have. The senior lender has also waived the default of non-payment of certain pension plan contributions, but in the event that any government agency takes any enforcement action or otherwise exercises any rights or remedies it may have, this shall constitute a separate and distinct event of default and the senior lender may exercise any and all rights or remedies it may have. The amounts outstanding under the Credit Agreement are collateralized by all of the Digital Display Division assets.
20
The Company has $1.1 million of 8¼% Limited convertible senior subordinated notes due 2012 (the “Notes”) which are no longer convertible into common shares; interest was payable semi-annually and the Notes may be redeemed, in whole or in part, at par. The Company had not remitted the March 1, 2010 and 2011 and September 1, 2010 and 2011 semi-annual interest payments of $417,800 each and the March 1, 2012 semi-annual interest and principal payment of $1.4 million to the trustee. The non-payments constitute an event of default under the Indenture governing the Notes and the trustee, by notice to the Company, or the holders of 25% of the principal amount of the Notes outstanding, by notice to the Company and the trustee, may declare the outstanding principal plus interest due and payable immediately. When such notice is received by the Company, no payment shall be made by the Company to the holders or trustee until the earlier of such non-payment event of default is cured or waived or 179 days since receipt by the trustee of notice of such event, unless the holder of Senior Indebtedness has accelerated the due date thereof. If the holder of Senior Indebtedness accelerates the due date at any time, then no payment may be made until the default is cured or waived. As part of the Company’s restructuring plan, the Company offered the holders of the Notes to receive $225, without accrued interest, plus 250 shares of the Company’s Common Stock for each $1,000 Note exchanged. The offer expired on October 31, 2011. $9.0 million principal amount of the Notes were exchanged, leaving $1.2 million outstanding. The Company continues to consider further exchanges of the Notes on the same terms as previously offered and an additional $57,000 principal amount of the Notes have been exchanged. The Common Stock offered in exchange for the Notes have not been registered under the Securities Exchange Act of 1933, as amended, and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements.
In addition, the Company has $0.3 million of 9½% Subordinated debentures due 2012 (the “Debentures”) which were due in annual sinking fund payments of $105,700 beginning in 2009, which payments have not been remitted by the Company, with the remainder due in 2012; interest is payable semi-annually and the Debentures may be redeemed, in whole or in part, at par. The Company has not remitted the June 1, 2010, 2011 and 2012 and December 1, 2010 and 2011 semi-annual interest payments of $50,200 each to the trustee. The non-payments constitute an event of default under the Indenture governing the Debentures and the trustee, by notice to the Company, or the holders of 25% of the principal amount of the Debentures outstanding, by notice to the Company and the trustee, may declare the outstanding principal plus interest due and payable immediately. During the continuation of any event which, with notice or lapse of time or both, would constitute a default under any agreement under which Senior Indebtedness is issued, if the effect of such default is to cause or permit the holder of Senior Indebtedness to become due prior to its stated maturity, no payment (including any required sinking fund payments) of principal, premium or interest shall be made on the Debentures unless and until such default shall have been remedied, if written notice of such default has been given to the trustee by the Company or the holder of Senior Indebtedness. The failure to make the sinking fund and interest payments are events of default under the Credit Agreement and no payment can be made to such trustee or the holders at this time as such defaults have not been waived. As part of the Company’s restructuring plan, the Company offered the holders of the Debentures to receive $100, without accrued interest, for each $1,000 Debenture exchanged. The offer expired on October 31, 2011. $0.7 million principal amount of the Debentures were exchanged, leaving $0.3 million outstanding. The Company continues to consider further exchanges of the Debentures on the same terms as previously offered and an additional $5,000 principal amount of the Debentures were exchanged. The Debentures are subordinate to the claims of the holders of the Notes and the Company’s senior lender under the Credit Agreement, among other senior claims.
On June 17, 2011, the Company entered into a subscription agreement for a private placement consisting of $650,000 of 4.00% secured notes of the Company pursuant to Section 4(2) of the Securities Act of 1933, as amended, and Rule 506 promulgated thereunder. In connection with the purchase of these notes, the subscriber received a five-year warrant to purchase 1,000,000 shares of Common Stock of the Company at an exercise price of $0.10 per share. The financing was collateralized by the land held for sale located in Silver City, New Mexico, which has been sold and the notes have been satisfied.
21
The Company has a $540,000 mortgage on its facility located in Des Moines, Iowa at a fixed rate of interest of 6.50% payable in monthly installments, which matures March 1, 2015 and requires a compensating balance of $200,000.
The Company has a $1.7 million mortgage on its real estate rental property located in Santa Fe, New Mexico at a variable rate of interest of Prime, with a floor of 6.75%, which was the interest rate in effect at June 30, 2012, payable in monthly installments, which matures December 12, 2012.
The Company is dependent on future operating performance in order to generate sufficient cash flows in order to continue to run its businesses. Future operating performance is dependent on general economic conditions, as well as financial, competitive and other factors beyond our control. As a result, we have experienced a decline in the lease and maintenance bases. The cash flows of the Company are constrained, and in order to more effectively manage its cash resources in these challenging economic times, the Company has, from time to time, increased the timetable of its payment of some of its payables. There can be no assurance that we will meet our anticipated current and near term cash requirements. The Company’s objective in regards to the Credit Agreement is to obtain additional funds from external sources through equity or additional debt financing prior to the maturity of the Credit Agreement on January 1, 2013, and is in discussions with senior lenders and others, but has no agreements, commitments or understanding from such senior lenders or others with respect to obtaining any additional funds, and the current global credit environment has been and continues to be a challenge in accomplishing these objectives. If the Company is unable to obtain replacement financing before the maturity of the Credit Agreement on January 1, 2013, the senior lender has the right to declare all amounts outstanding thereunder due and payable. Without the availability under the revolving loan, the Company would have difficulties meeting its obligations in the normal course of business. Management believes that based on its actions taken, current cash resources and cash provided by continuing operations should 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 meet its cash requirements.
22
The Company used $35,000 more cash than was provided by operating activities and generated cash provided by operating activities of $821,000 for the six months ended June 30, 2012 and 2011, respectively. The Company continues to explore initiatives to improve operational results and cash flows over future periods. The Company continues to explore ways to reduce operational and overhead costs. The Company periodically takes steps to reduce the cost to maintain the equipment on rental and maintenance.
In March 2011 and 2010, the Company submitted to the Internal Revenue Service requests for waivers of the minimum funding standard for its defined benefit plan. The waiver requests were submitted as a result of the economic climate and the business hardship that the Company was experiencing. The waivers, if granted, will defer payment of $559,000 and $285,000 of the minimum funding standard for the 2010 and 2009 plan years, respectively. If the waivers are not granted, the Pension Benefit Guaranty Corporation and the Internal Revenue Service have various enforcement remedies they can implement to protect the participant’s benefits, such as termination of the plan and require the Company to make the unpaid contributions. The senior lender has waived the default of non-payment of certain pension plan contributions, but in the event that any government agency takes any enforcement action or otherwise exercises any rights or remedies it may have, this shall constitute a separate and distinct event of default and the senior lender may exercise any and all rights or remedies it may have. At this time, the Company is expecting to make its required contributions for the 2011 and 2012 plan years; however, there is no assurance that the Company will be able to make all payments. In the event the Company requests waivers to defer payments in an amount greater than or equal to $1.0 million, the Pension Benefit Guaranty Corporation may place a lien on the Company’s assets for the amount owed.
Cash and cash equivalents decreased $396,000 for the six months ended June 30, 2012 compared to an increase of $230,000 for the six months ended June 30, 2011. The decrease in 2012 is primarily attributable to the investment in equipment for rental of $369,000, investment in property, plant and equipment of $62,000, scheduled payments of long-term debt of $55,000, the $650,000 pay down of the mortgage related to the Silver City land which was sold and the cash used in operating activities of $35,000. The increase in 2011 is primarily attributable to cash provided by operating activities of $821,000, offset by investment in equipment for rental of $457,000, investment in property, plant and equipment of $23,000, scheduled payments of long-term debt of $367,000 and $395,000 of payments on the revolving credit facility and term loan. In addition, the Company obtained a mortgage on its land held for sale located in Silver City, New Mexico for $650,000.
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 agreement payments and rent payments required under operating lease agreements. The Company has both variable and fixed interest rate debt. Interest payments are projected based on actual interest payments incurred until the underlying debts mature.
The following table summarizes the Company’s fixed cash obligations as of June 30, 2012 for the remainder of 2012 and the next four years:
|
Remainder of |
|
|
|
|
In thousands |
2012 |
2013 |
2014 |
2015 |
2016 |
Long-term debt, including interest |
$3,290 |
$ 689 |
$ 89 |
$400 |
$ - |
Employment agreement obligations |
138 |
275 |
275 |
34 |
- |
Operating lease payments |
114 |
72 |
- |
- |
- |
Total |
$3,542 |
$1,036 |
$364 |
$434 |
$ - |
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995
The Company may, from time to time, provide estimates as to future performance. These forward-looking statements will be estimates and may or may not be realized by the Company. The Company undertakes no duty to update such forward-looking statements. Many factors could cause actual results to differ from these forward-looking statements, including loss of market share through competition, introduction of competing products by others, pressure on prices from competition or purchasers of the Company’s products, interest rate and foreign exchange fluctuations, terrorist acts and war.
23
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. The fair value of the Company’s fixed rate long-term debt is disclosed in Note 3 to the condensed consolidated financial statements – Fair Value. A one-percentage point change in interest rates would result in an annual interest expense fluctuation of approximately $23,000. In addition, the Company is exposed to foreign currency exchange rate risk mainly as a result of its investment in its Canadian subsidiary. A 10% change in the Canadian dollar relative to the U.S. dollar would result in a currency exchange expense fluctuation of approximately $324,000, based on dealer quotes, considering current exchange rates. The Company does not enter into derivatives for trading or speculative purposes. At June 30, 2012, the Company did not hold any derivative financial instruments.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures. As required by Rule 13a-15 under the Securities Exchange Act of 1934, as of the end of the period covered by this report, we have carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer (our principal executive officer and principal financial officer), of the effectiveness of the design and operation of our disclosure controls and procedures. Our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission and that such information is accumulated and communicated to our management (including our Chief Executive Officer and Chief Financial Officer) to allow timely decisions regarding required disclosures. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls are effective as of June 30, 2012.
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 quarter ended June 30, 2012, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
24
Part II – Other Information
The Company is subject to legal proceedings and claims which arise in the ordinary course of its business and/or which are covered by insurance that management believes individually and in the aggregate will not have a material adverse effect on the consolidated financial position or operations of the Company.
The Company is subject to a number of risks including general business and financial risk factors. Any or all of such factors could have a material adverse effect on the business, financial condition or results of operations of the Company. You should carefully consider the risk factors identified in our Annual Report on Form 10-K for the year ended December 31, 2011.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults upon Senior Securities
As disclosed in Note 6 to the condensed consolidated financial statements – Long-Term Debt, the Company has $1.1 million of 8¼% Limited convertible senior subordinated notes due 2012 (the “Notes”) which are no longer convertible into common shares; interest was payable semi-annually and the Notes may be redeemed, in whole or in part, at par. The Company has not remitted the March 1, 2010 and 2011 and September 1, 2010 and 2011 semi-annual interest payments of $417,800 each and the March 1, 2012 semi-annual interest and principal payment of $1.4 million to the trustee. The non-payments constitute an event of default under the Indenture governing the Notes and the trustee, by notice to the Company, or the holders of 25% of the principal amount of the Notes outstanding, by notice to the Company and the trustee, may declare the outstanding principal plus interest due and payable immediately. When such notice is received by the Company, no payment shall be made by the Company to the holders or trustee until the earlier of such non-payment event of default is cured or waived or 179 days since receipt by the trustee of notice of such event, unless the holder of Senior Indebtedness has accelerated the due date thereof. If the holder of Senior Indebtedness accelerates the due date at any time, then no payment may be made until the default is cured or waived. At June 30, 2012, the total principal amount outstanding under the Notes is classified as Current portion of long-term debt in the Condensed Consolidated Balance Sheets.
As disclosed in Note 6 to the condensed consolidated financial statements – Long-Term Debt, the Company has $0.3 million of 9½% Subordinated debentures due 2012 (the “Debentures”) which were due in annual sinking fund payments of $105,700 beginning in 2009, which payments have not been remitted by the Company, with the remainder due in 2012; interest is payable semi-annually and the Debentures may be redeemed, in whole or in part, at par. The Company has not remitted the June 1, 2010, 2011 and 2012 and December 1, 2010 and 2011 semi-annual interest payments of $50,200 each to the trustee. The non-payments constitute an event of default under the Indenture governing the Debentures and the trustee, by notice to the Company, or the holders of 25% of the principal amount of the Debentures outstanding, by notice to the Company and the trustee, may declare the outstanding principal plus interest due and payable immediately. During the continuation of any event which, with notice or lapse of time or both, would constitute a default under any agreement under which Senior Indebtedness is issued, if the effect of such default is to cause, or permit the holder of Senior Indebtedness to become due prior to its stated maturity, no payment of principal, premium or interest shall be made on the Debentures unless and until such default shall have been remedied, if written notice of such default has been given to the trustee by the Company or the holder of Senior Indebtedness. The failure to make the sinking fund and interest payments are events of default under the Credit Agreement and no payment can be made to such trustee or the holders at this time as such events of default have not been waived. At June 30, 2012, the total principal amount outstanding under the Debentures is classified as Current portion of long-term debt in the Condensed Consolidated Balance Sheets.
25
Not applicable.
On July 26, 2012, the Company filed a Form S-1 Registration Statement under the Securities Act of 1933 to register 31,835,000 shares of the Company’s Common Stock, par value $0.001 per share.
10.1 Amendment No. 21 to the Amended and Restated Commercial Loan and Security Agreement with People’s United Bank dated October 25, 2012, filed herewith.
31.1 Certification of Jean-Marc Allain, President and Chief Executive Officer, pursuant to Rule 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Sami Sassoun, Senior 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.
32.1 Certification of Jean-Marc Allain, President and Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification of Sami Sassoun, Senior 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.
26
101* The following interactive data files pursuant to Rule 405 of Regulation S-T from Trans-Lux Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2012 are formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets – June 30, 2012 and December 31, 2011, (ii) the Condensed Consolidated Statements of Operations – Three and Six Months Ended June 30, 2012 and 2011, (iii) the Condensed Consolidated Statements of Comprehensive Income (Loss) –Three and Six Months Ended June 30, 2012 and 2011, (iv) the Condensed Consolidated Statements of Cash Flows – Six Months Ended June 30, 2012 and 2011 and (v) Notes to Condensed Consolidated Financial Statements detailed tagged.
* Furnished herewith. Pursuant to Rule 406T of Regulation S-T, the interactive data files on Exhibits 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, and otherwise are not subject to liability under those sections.
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
TRANS-LUX CORPORATION
(Registrant)
by /s/ Sami Sassoun
Sami Sassoun
Executive Vice President and
Chief Financial Officer
by /s/ Todd Dupee
Todd Dupee
Vice President and Controller
Date: October 31, 2012
27
Exhibit 10.1
WAIVER AND AMENDMENT NO. 21 TO AMENDED AND RESTATED COMMERCIAL LOAN AND SECURITY AGREEMENT
This WAIVER AND AMENDMENT NO. 21 TO AMENDED AND RESTATED COMMERCIAL LOAN AND SECURITY AGREEMENT (this “Agreement”) is made as of the __25th___ day of October, 2012, by and among TRANS-LUX CORPORATION, a Delaware corporation, with its chief executive office and principal place of business located at 26 Pearl Street, Norwalk, Connecticut 06850 (“Borrower”), each of the other corporations signatory hereto as guarantors (collectively, the “Guarantors”), and PEOPLE’S UNITED BANK (formerly known as People’s Bank), a Connecticut chartered banking corporation with an office located at 350 Bedford Street, Stamford, Connecticut 06901 (“Lender”).
W I T N E S S E T H:
WHEREAS, Lender has made certain loans (collectively, the “Loans”) to Borrower pursuant to a certain Amended and Restated Commercial Loan and Security Agreement dated as of December 23, 2004 (the “Original LSA”), as amended by a certain Amendment No.1 to Amended and Restated Commercial Loan and Security Agreement dated as of May 9, 2006, as further amended by a letter agreement dated November 16, 2006, as further amended by a letter agreement dated April 2, 2007, as further amended by a letter agreement dated May 17, 2007 as further amended by a certain Amendment No. 5 to Amended and Restated Commercial Loan and Security Agreement dated as of August 9, 2007, as further amended by a letter agreement dated March 24, 2008, as further amended by a letter agreement dated March 27, 2008, as further amended by a certain Amendment No. 8 to Amended and Restated Commercial Loan and Security Agreement dated as of May 20, 2008, as further amended by a certain Amendment No. 9 to Amended and Restated Commercial Loan and Security Agreement dated as of July 16, 2008, as further amended by a letter agreement dated August 13, 2008, as further amended by a letter agreement dated November 14, 2008, as further amended by a letter agreement dated November 20, 2008, as further amended by a certain Amendment No. 13 to Amended and Restated Commercial Loan and Security Agreement and Waiver Agreement dated as of September 4, 2009, as further amended by a certain Amendment No. 14 to Amended and Restated Commercial Loan and Security Agreement and Waiver Agreement dated as of April 2, 2010, as further amended by a certain Amendment No. 15 to Amended and Restated Commercial Loan and Security Agreement and Waiver Agreement dated as of August 1, 2010, as further amended by a certain, as further amended by a certain Amendment No. 16 to Amended and Restated Commercial Loan and Security Agreement and Waiver Agreement dated as of May 1, 2011, as further amended by a certain Amendment No. 17 to Amended and Restated Commercial Loan and Security Agreement and Consent Agreement dated as of June 15, 2011, as further amended by a certain Amendment No. 18 to Amended and Restated Commercial Loan and Security Agreement and Note Amendment dated as of November 1, 2011, as further amended by certain letter agreements dated November 14, 2011 and December 1, 2011, as further amended by a certain Waiver and Amendment No. 19 to Amended and Restated Commercial Loan and Security Agreement dated as of December 31, 2011, and as further amended by a certain Amendment No. 20 to Amended and Restated Loan and Security Agreement dated as of March 30, 2012 (collectively, the “Prior Amendments”);
WHEREAS, in addition to the Prior Amendments, the Original LSA was also amended by a letter agreement dated April 20, 2009, a letter agreement dated August 14, 2009, a letter agreement dated April 16, 2012, and a letter agreement dated May 21, 2012 (collectively, the “Letter Agreements”) (the Original LSA, as amended by the Prior Amendments and the Letter Agreements and as further amended from time to time, being hereinafter referred to as, the “LSA”);
WHEREAS, capitalized terms not otherwise defined in this Agreement shall have the meanings ascribed to them in the LSA;
WHEREAS, (a) the Guarantors (other than Trans-Lux Southwest Corporation and Trans-Lux Energy Corporation) have guaranteed all obligations of the Borrower to the Lender under the LSA and related Loan Documents pursuant to a certain Amended and Restated Unlimited Guaranty dated as of December 23, 2004 (as the same may be amended or reaffirmed from time to time, the “Original Guarantor Guaranty”); and (b) Trans-Lux Southwest Corporation and Trans-Lux Energy Corporation have guaranteed all obligations of the Borrower to the Lender under the LSA and related Loan Documents pursuant to a certain Unlimited Guaranty dated as of May 1, 2011 (as the same may be amended or reaffirmed from time to time, the “Additional Guarantor Guaranty” and together with the Original Guarantor Guaranty, the “Guaranty”);
WHEREAS, as security for its obligations to the Lender, including, without limitation, those arising under the LSA the Borrower has, among other things, granted to the Lender a lien on and security interest in all of its personal property assets pursuant to the LSA;
WHEREAS, as security for their respective obligations to the Lender under the Guaranty, each Secured Guarantor has granted to the Lender a lien on and security interest in all of its personal property assets pursuant to a certain Amended and Restated Guarantor Security Agreement dated as of December 23, 2004 (as the same may be amended or reaffirmed from time to time, the “Guarantor Security Agreement”);
WHEREAS, the Borrower has repaid the Converted Term Loan in full and, as of the date hereof, the only credit facilities available to the Borrower under the LSA are the Revolving Loan facility and the Letter of Credit sub-facility);
WHEREAS, on or about November 9, 2011, Trans-Lux Loveland Corporation merged into Trans-Lux Movie Operations Corporation with Trans-Lux Movie Operations Corporation being the surviving corporation;
WHEREAS, on December 15, 2011, Trans-Lux Real Estate Corporation, a Texas corporation and Trans-Lux Movie Operations Corporation, a Texas corporation were voluntarily dissolved;
WHEREAS, Borrower and the Guarantors (collectively, the “Obligors”) have requested Lender: (a) to waive certain financial covenant defaults; and (b) to extend the maturity date of the Revolving Loan to January 1, 2013, and
WHEREAS, Section 10.1 of the LSA provides that no modification or amendment of the Credit Agreement shall be effective unless the same shall be in writing and signed by the Lender and Borrower.
NOW, THEREFORE, in consideration of One Dollar ($1.00) and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Lender and each Obligor agree as follows:
1. Acknowledgments, Affirmations and Representations and Warranties.
a. The Obligors acknowledge, affirm, represent and warrant that:
(i) All of the statements contained herein are true and correct and that each understands that the Lender is relying on the truth and completeness of such statements to enter into this Agreement.
(ii) As of October _25th___, 2012, the Borrower is legally and validly indebted to the Lender by virtue of the Revolving Loan in the principal outstanding amount of [$1,000,000], plus interest and fees accrued and accruing on each of the foregoing and costs and expenses of collection, including without limitation, attorneys' fees, relating thereto and there is no defense, offset or counterclaim with respect to any of the foregoing or independent claim or action against the Lender.
(iii) Each Guarantor is legally and validly indebted to the Lender by virtue of the Guaranty and there is no defense, offset or counterclaim with respect thereto or independent claim or action against the Lender.
(iv) The resolutions previously adopted by the Board of Directors of the Borrower and provided to the Lender have not in any way been rescinded or modified and have been in full force and effect since their adoption to and including the date hereof and are now in full force and effect, except to the extent that they have been modified or supplemented to authorize this Agreement and the documents and transactions described herein.
(v) The Borrower has the power and authority to enter into, and has taken all necessary corporate action to authorize, this Agreement and the transactions contemplated hereby and thereby.
(vi) The resolutions previously adopted by the Board of Directors of each of the Guarantors and provided to the Lender have not in any way been rescinded or modified and have been in full force and effect since their adoption to and including the date hereof and are now in full force and effect, except to the extent that they have been modified or supplemented to authorize this Agreement and the documents and transactions described herein.
(vii) Each Guarantor has the power and authority to enter into, and has taken all necessary corporate action to authorize, this Agreement and the transactions contemplated hereby and thereby.
(viii) All representations, warranties and covenants contained in, and schedules and exhibits to, the LSA, the Guaranty and the other Loan Documents are true and correct in all material respects on and as of the date hereof, are incorporated herein by reference and are hereby remade.
(ix) After giving effect to the waivers set forth herein, no Default currently exists under the LSA, the Guaranty or any of the other Loan Documents and no condition exists which would constitute a default or an event of default (howsoever defined) under any of the Loan Documents but for the giving of notice or passage of time, or both.
(x) The consummation of the transactions contemplated hereby is not prevented or limited by, nor does it conflict with or result in a breach of terms, conditions or provisions of the Borrower's or any Guarantor’s Certificate of Incorporation or Bylaws or any evidence of indebtedness, agreement or instrument of whatever nature to which the Borrower or any Guarantor is a party or by which it is bound, does not constitute a default under any of the foregoing and does not violate any federal, state or local law, regulation or order or any order of any court or agency which is binding upon the Borrower or any Guarantor.
2. Amendment of LSA and other Loan Documents.
a. Section 1.1 of the LSA entitled “Defined Terms” is hereby amended as follows:
(i) by adding the following terms in alphabetical order:
“Adjusted Net Eligible Accounts Receivable” means 85% of the difference of: (a) the net amount of Eligible Accounts Receivable of the Borrower, minus (b) the Reserved Amount.
“Reserved Amount” means 79% of the net amount of Eligible Accounts Receivable of the Borrower.
(ii) by deleting the definition of “Borrowing Base” set forth therein in its entirety and by substituting the following therefor:
“Borrowing Base” means, at the relevant time of reference, the amount which is equal to the lesser of: (i) the sum of (A) 85% of the net amount of Eligible Accounts Receivable of all Secured Guarantors outstanding at such date, plus (B) the Adjusted Net Eligible Accounts Receivable of the Borrower outstanding at such date, and (ii) the Revolving Loan Commitment. For purposes hereof, the net amount of Eligible Accounts Receivable at any time shall be the face amount of such Eligible Accounts Receivable less any and all accounts receivable chargebacks, returns, rebates, discounts, credits, allowances or excise taxes of any nature at any time issued, owing, claimed by Account Debtors, granted, outstanding or payable in connection with such Accounts at such time.
(iii) by deleting the definition of “Maturity Date” set forth therein in its entirety and by substituting the following therefor:
-4-
“Maturity Date” means with respect to all outstanding Revolving Loans, January 1, 2013.
(iv) by deleting the definition of “Termination Date” in its entirety and by substituting the following therefor:
“Termination Date” means with respect to the Revolving Loan Commitment, January 1, 2013
b. Each of the Obligors agrees and acknowledges that pursuant to the letter agreement dated May 21, 2012, the Revolving Loan Commitment was permanently reduced to $1,000,000.
c. Any reference in any of the Notes or any of the other Loan Documents to the Amended and Restated Commercial Loan and Security Agreement between the Borrower and the Lender dated as of December 23, 2004 (howsoever defined) shall be amended to refer to and mean the Original LSA, as amended by the Prior Amendments and Letter Agreements, and as further amended and modified by this Agreement.
3. Waiver. The Obligors agree and acknowledge that the Borrower is in default of the minimum Tangible Net Worth covenant set forth in Section 7.2 of the LSA for the periods ending June 30, 2012 and September 30, 2012 (the “Covenant Defaults”) and have requested the Lender to waive compliance of said minimum Tangible Net Worth covenant for such periods. The Lender hereby agrees to waive the Covenant Defaults. The Obligors agree and acknowledge that the waiver of the Covenant Defaults is a one-time waiver for the periods specifically specified above and the execution, delivery and effectiveness of this Agreement shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy of the Lender under the LSA or any of the other Loan Documents, nor constitute or be construed or interpreted, directly or by implication, as a waiver of or an amendment or modification to any other obligation of any Obligor to the Lender under the LSA or any of the other Loan Documents.
4. Conditions to Effectiveness. The effectiveness of this Agreement is subject to the prior satisfaction of the following conditions precedent (the date of such satisfaction herein referred to as the “Amendment Effective Date”):
a. The representations and warranties of the Obligors contained herein shall be true and correct in all material respects.
b. There shall exist no Default or Event of Default.
c. The Lender shall have received evidence satisfactory to the Lender that all requisite corporate and company action necessary for the valid execution, delivery and performance by each of the Obligors of this Agreement and all other instruments and documents delivered by the Obligors, or any one of them, in connection herewith has been taken including, without limitation, evidence satisfactory to the Lender that Mr. Jean-Marc Allain has the power and authority to execute and deliver this Agreement on behalf of each of the Obligors.
d. The Borrower shall pay to the Lender a waiver and extension fee equal to $25,000.00 (the “Waiver and Extension Fee”).
5. Effect of Amendment; Reaffirmation of Liens and other Obligations. Lender and each Obligor hereby agree and acknowledge that (except as provided in this Agreement), the LSA, the Guaranty, the Notes and the other Loan Documents (together with all Schedules and Exhibits attached thereto) remain in full force and effect and have not been modified or amended in any respect, it being the intention of Lender and each Obligor that this Agreement and the LSA be read, construed and interpreted as one and the same instrument. In addition, without limiting the generality of the foregoing: (i) the Borrower acknowledges, affirms and agrees that the Lender’s security interest in the Collateral shall continue to secure any and all of the Borrower's indebtedness to the Lender, including without limitation, the indebtedness arising under the LSA, as amended hereby; and (ii) each Guarantor acknowledges, affirms and agrees that (A) the Obligations of the Borrower to the Lender which have been guaranteed by such Guarantor include, without limitation the Loans, as modified hereby; and (B) each Secured Guarantor acknowledges, affirms and agrees that the Lender’s security interest in the Collateral (as defined in the Guarantor Security Agreement) shall continue to secure the payment and performance of all of its obligations and liabilities to the Lender arising under the Guaranty.
6. Fees and Expenses. In addition to the Waiver and Extension Fee, the Borrower agrees to pay all reasonable legal fees and expenses of Lender incurred in connection with the preparation, negotiation and execution of this Agreement.
7. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Connecticut (except its conflicts of laws provisions).
8. Counterparts. This Agreement may be executed in any number of identical counterparts, each of which shall be deemed to be an original, and all of which shall collectively constitute a single agreement, fully binding upon and enforceable against the parties hereto.
9. Capitalized Terms. All capitalized terms not otherwise defined in this Agreement shall have the meanings ascribed to such terms in the LSA.
10. Benefit. This Agreement shall inure to the benefit of and bind the parties hereto and their respective successors and assigns.
[NEXT PAGE IS A SIGNATURE PAGE]
IN WITNESS WHEREOF, Lender, Borrower and Guarantors have executed this Agreement as of the date first above written.
WITNESSES:
/s/ Witness By: /s/ J.M. Allain
Name: J.M. Allain
Its: Pres. And CEO
Duly Authorized
TRANS-LUX DISPLAY CORPORATION
TRANS-LUX MIDWEST CORPORATION
TRANS-LUX COMMERCIAL CORPORATION (f/k/a Trans-Lux West Corporation)
TRANS-LUX SERVICE CORPORATION
TRANS-LUX MONTEZUMA CORPORATION
TRANS-LUX MULTIMEDIA CORPORATION
TRANS-LUX SOUTHWEST CORPORATION
TRANS-LUX ENERGY CORPORATION
/s/ Witness
/s/ Witness By: /s/ J.M. Allain
Name: J.M. Allain
Its: Pres. And CEO
/s/ Witness PEOPLE’S UNITED BANK (formerly known as
People’s Bank)
/s/ Witness By: ___/s/ Sean McGrath_____________________
Name: Sean McGrath
Its: VP
Duly Authorized
EXHIBIT 31.1
TRANS-LUX CORPORATION
CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER
PURSUANT TO RULE 13a-14(a) UNDER THE EXCHANGE ACT
I, Jean-Marc Allain, certify that:
1. I have reviewed this quarterly report on Form 10-Q 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 officer 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) 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
d) 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 an 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 officer 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/ J.M. Allain | |
Date: October 31, 2012 | Jean-Marc Allain |
President and Chief Executive Officer |
EXHIBIT 31.2
TRANS-LUX CORPORATION
CERTIFICATION OF THE CHIEF FINANCIAL OFFICER
PURSUANT TO RULE 13a-14(a) UNDER THE EXCHANGE ACT
I, Sami Sassoun, certify that:
1. I have reviewed this quarterly report on Form 10-Q 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 officer 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) 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
d) 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 an 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 officer 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/ Sami Sassoun | |
Date: October 31, 2012 | Sami Sassoun |
Senior Vice President and | |
Chief Financial Officer |
EXHIBIT 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code), I, Jean-Marc Allain, President and Chief Executive Officer of Trans-Lux Corporation (the “Registrant”), do hereby certify, to the best of my knowledge that:
(1) The Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2012 being filed with the Securities and Exchange Commission (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.
This Certification accompanies this Form 10-Q 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 Registrant or the certifying officer.
/s/ J.M. Allain
Date: October 31, 2012 Jean-Marc Allain
President and Chief Executive Officer
EXHIBIT 32.2
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
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code), I, Sami Sassoun, Senior Vice President and Chief Financial Officer of Trans-Lux Corporation (the “Registrant”), do hereby certify, to the best of my knowledge that:
(1) The Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2012 being filed with the Securities and Exchange Commission (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.
This Certification accompanies this Form 10-Q 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 Registrant or the certifying officer.
/s/ Sami Sassoun | |
Date: October 31, 2012 | Sami Sassoun |
Senior Vice President and | |
Chief Financial Officer |
Share-Based Compensation (Detail) (USD $)
|
6 Months Ended | |
---|---|---|
Jun. 30, 2012
|
Jun. 30, 2011
|
|
Employee Stock Ownership Plan (ESOP), Fair Value of Shares Subject to Repurchase Obligation | $ 50,000 | |
Share-based Compensation | $ 3,000 | $ 12,000 |
Plan of Restructuring (Detail) - Plan of Restructuring Segment (USD $)
In Thousands, unless otherwise specified |
6 Months Ended | |
---|---|---|
Jun. 30, 2012
|
Dec. 31, 2011
|
|
Segmented Restructuring Balance | $ 182 | $ 73 |
Segmented Restructuring Provision | 173 | |
Segmented Restructuring Payment and Other Adjustment | 64 | |
Digital Display Sales [Member]
|
||
Segmented Restructuring Balance | 152 | |
Segmented Restructuring Provision | 152 | |
Segmented Restructuring Payment and Other Adjustment | ||
Digital Display Lease and Maintenance [Member]
|
||
Segmented Restructuring Balance | 30 | 73 |
Segmented Restructuring Provision | 21 | |
Segmented Restructuring Payment and Other Adjustment | $ 64 |
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