UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K10-K/A
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2002
Commission file number 1-2257
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TRANS-LUX CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 13-1394750
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
110 Richards Avenue, Norwalk, CT 06856-5090
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(203) 853-4321
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(Address, zip code, and telephone number, including
area code, of Registrant's principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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Common Stock, $1.00 par value American Stock Exchange
7 1/2% Convertible Subordinated
Notes due 2006 American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K. [ X ]
CONTINUED
TRANS-LUX CORPORATION
2002 Form 10-K10-K/A Cover Page Continued
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes No X
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As of the close of business on March 26, 2003, there were outstanding, 973,243
shares of the Registrant's Common Stock and 287,505 shares of its Class B Stock.
Based on the closing stock price of $5.75 on June 28, 2002, the last business
day of the Registrant's most recently completed second fiscal quarter, the
aggregate market value of the Registrant's Common and Class B Stock held by
non-affiliates of the Registrant was $5,817,683. (The value of a share of
Common Stock is used as the value for a share of Class B Stock, as there is no
established market for Class B Stock, which is convertible into Common Stock on
a share-for-share basis.)
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Registrant's definitive Proxy Statement for the Annual Meeting
of Stockholders to be held May 29, 2003, to be filed with the Commission within
120 days of the Registrant's fiscal year end, (the "Proxy Statement") are
incorporated by reference into Part III, Items 10-13 of this Form 10-K to the
extent stated herein.
________________________________________________________________________________
EXPLANATORY NOTE
The Company amends this Form 10-K for the year ended December 31, 2002 to
include the certifications pursuant to section 906 of the Sarbanes-Oxley Act of
2002 inadvertently omitted from the previous filing. In addition, the Company
removes the certifications pursuant to section 302 of the Sarbanes-Oxley Act
of 2002 inadvertently filed as exhibits and includes such certifications as
part of the Form 10-K document.
The filing of this amended Form 10-K shall not be deemed an admission that the
original filing, when made, included any untrue statement of a material fact or
omitted to state a material fact necessary to make a statement misleading.
TRANS-LUX CORPORATION
2002 Form 10-K10-K/A Annual Report
Table of Contents
PART I
Page
ITEM 1. Business 1
ITEM 2. Properties 7
ITEM 3. Legal Proceedings 7
ITEM 4. Submission of Matters to a Vote of Security Holders 8
PART II
ITEM 5. Market for the Registrant's Common Equity and Related
Stockholder Matters 8
ITEM 6. Selected Financial Data 9
ITEM 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk 14
ITEM 8. Financial Statements and Supplementary Data 15
ITEM 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 37
PART III
ITEM 10. Directors and Executive Officers of the Registrant 37
ITEM 11. Executive Compensation 38
ITEM 12. Security Ownership of Certain Beneficial Owners and Management 38
ITEM 13. Certain Relationships and Related Transactions 38
ITEM 14. Controls and Procedures 38
PART IV
ITEM 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K 39
Signatures 42
PART I
ITEM 1. BUSINESS
Unless the context otherwise requires, the term "Company" as used herein
refers to Trans-Lux Corporation and its subsidiaries. The Company is a
full-service provider of integrated multimedia systems for today's
communications environments. The essential elements of these systems are the
real-time, programmable electronic information displays the Company
manufactures, distributes and services. These display systems utilize LED
(light emitting diodes), plasma screens, and light bulb technologies. Designed
to meet the evolving communications needs of both the indoor and outdoor
markets, these display products include data, graphics, and video displays for
stock and commodity exchanges, financial institutions, sports stadiums and
venues, casinos, convention centers, corporate, government, theatres, retail,
airports, and numerous other applications. In addition to its core display
business, the Company also owns and operates a chain of motion picture theatres
in the western Mountain States, a national film booking service and
income-producing real estate properties.
ELECTRONIC INFORMATION DISPLAY PRODUCTS
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The Company's high performance electronic information displays are used to
communicate messages and information in a variety of indoor and outdoor
applications. The Company's product line encompasses a wide range of
state-of-the-art electronic displays in various shape, size and color
configurations. Most of the Company's display products include hardware
components and sophisticated software. In both the indoor and outdoor markets
in which the Company serves, the Company adapts basic product types and
technologies for specific use in various niche market applications. The Company
also operates a direct service network throughout the United States and parts of
Canada and Australia, which performs on-site installation, service and
maintenance for its customers and others.
The Company employs a modular engineering design strategy, allowing basic
"building blocks" of electronic modules to be easily combined and configured in
order to meet the broad application requirements of the industries it serves.
This approach ensures product flexibility, reliability, ease of service and
minimum spare parts requirements.
The Company's electronic information display market is broken down into two
distinct segments: the Indoor division and the Outdoor division. Electronic
information displays are used by financial institutions, including brokerage
firms, banks, energy companies, insurance companies and mutual fund companies;
by sports stadiums and venues; by educational institutions; by outdoor
advertising companies; by corporate and government communication centers; by
retail outlets; by casinos, race tracks and other gaming establishments; in
airports, train stations, bus terminals, and other transportation facilities; on
highways and major thoroughfares; by movie theatres; by health maintenance
organizations, and in various other applications.
Indoor Division: The indoor electronic display market is currently dominated
by three categories of users: financial, government and private, and gaming.
The financial market sector, which includes trading floors, exchanges, brokerage
firms, banks, mutual fund companies and energy companies, has long been a user
of electronic information displays due to the need for real-time dissemination
of data. The major stock and commodity exchanges depend on reliable information
displays to post stock and commodity prices, trading
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volumes, interest rates and other financial data. Brokerage firms continue to
install electronic ticker displays for both customers and brokers; they have
also installed other larger displays to post major headline news events in their
brokerage offices to enable their sales force to stay up-to-date on events
affecting general market conditions and specific stocks. The changing
regulatory environment in the financial marketplace has resulted in the influx
of banks and other financial institutions into the brokerage business and the
need for these institutions to use information displays to advertise product
offerings to consumers. The Indoor division has a new line of advanced last
sale ticker displays, full color LED tickers and video displays.
The government and private sector includes applications found in major
corporations, public utilities and government agencies for the display of
real-time, critical data in command/control centers, data centers, help desks,
visitor centers, inbound/outbound telemarketing centers, retail applications to
attract customers and for employee communications. Electronic displays have
found acceptance in applications for the healthcare industry such as outpatient
pharmacies; military hospitals and HMOs to automatically post patient names when
prescriptions are ready for pick up. Theatres use electronic displays to post
current box office and ticket information, directional information and promote
concession sales. Information displays are consistently used in airports, bus
terminals and train stations to post arrival and departure, gate and baggage
claim information, all of which help to guide passengers through these
facilities.
The gaming sector includes casinos and Indian gaming establishments. These
establishments generally use large information displays to post odds for race
and sporting events and to display timely information such as results, track
conditions, jockey weights and scratches. Casinos also use electronic displays
throughout their facilities to advertise to and attract gaming patrons. This
includes using electronic displays in conjunction with slot machines using
enhanced serial controllers to attract customer attention to potential payoffs
and thus increase customer play. Indoor equipment generally has a lead-time of
30 to 120 days depending on the size and type of equipment ordered and material
availability.
Outdoor Division: The outdoor electronic display market is even more diverse
than the Indoor division. Displays are being used by sports stadiums, sports
venues, banks and other financial institutions, gas stations, highway
departments, educational institutions and outdoor advertisers attempting to
capture the attention of passers-by. The Outdoor division has a new line of LED
message centers and video displays available in monochrome and full color. The
Company has utilized its strong position in the indoor market combined with
several acquisitions to enhance its presence in the outdoor display market.
Outdoor displays are installed in amusement parks, entertainment facilities,
high schools, major and minor league parks, professional and college sports
stadiums, city park and recreational facilities, churches, racetracks, military
installations, bridges and other roadway installations, automobile dealerships,
banks and other financial institutions. Outdoor equipment generally has a
lead-time of 10 to 120 days depending on the size and type of equipment ordered
and material availability.
Sales Order Backlog (excluding leases): The amount of sales order backlog at
December 31, 2002 was approximately $6.2 million compared with the December 31,
2001 sales order backlog of $9.3 million. The December 31, 2002 backlog will be
recognized in 2003. These amounts include only the sale of its products; they
do not include new lease orders or renewals of existing lease agreements that
may be presently in-house.
2
ENGINEERING AND PRODUCT DEVELOPMENT
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The Company's ability to compete and operate successfully depends upon, among
other factors, its ability to anticipate and respond to the changing
technological and product needs of its customers. The Company continually
examines and tests new display technologies and develops enhancements to its
existing product line in order to meet the needs of its customers.
The Company developed a full line of RainbowWall(R) high-resolution full
color LED displays for indoor and outdoor applications. RainbowWall delivers
brilliant video and graphics in billions of colors to sports and commercial
markets where the presentation of live-action, advertising, promotions and
entertainment is of central importance. ProLine(R), the Company's proprietary
controller software, is designed for RainbowWall applications that require
dynamic, fast-changing information and imagery. ProLine allows live or recorded
video, cable TV, newswire feeds and animations to be combined with text on a
single display in flexible zone layouts.
Continued development of new indoor products includes progressive meter and
serial controller systems for use in the gaming industry; new monochrome and
tricolor ticker displays utilizing improved LED display technology, curved and
flexible displays; higher speed processors for faster data access and improved
update speed; integration of blue LED's to provide full color text, graphics and
video displays; wireless controlled displays; a new graphics interface to
display more data in higher resolutions; and Market Scheduler, a turnkey display
content controller system that delivers real-time or delayed information to the
Company's LED Jets and Data Walls.
The Company developed full-color LED video displays for the outdoor market
which has applications particularly in the sports market where enhancing the
presentation of live action is of central importance. One example is the
recently introduced LED RainbowRibbon(R) fascia display system, which optimizes
advertising space on arena and stadium tier fascias by smoothly transitioning
between video, advertising, animations, scoring/statistics layouts and text.
As part of its ongoing development efforts, the Company seeks to package
certain products for specific market segments as well as to continually track
emerging technologies that can enhance its products. Full color, live video and
digital input technology continue to be developed. The Company is currently
focused on certain technologies that incorporate these features and which are
expected to provide a choice of products for the custom applications demanded by
its customers.
The Company maintains a staff of 45 people who are responsible for product
development and support. The engineering and product enhancement and
development efforts are supplemented by outside independent engineering
consulting organizations and colleges where required. Engineering expense, and
product enhancement and development amounted to $3,370,000, $4,098,000 and
$4,244,000 in 2002, 2001 and 2000, respectively.
MARKETING AND DISTRIBUTION
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The Company markets its indoor and outdoor electronic information display
products primarily through its 32 direct sales representatives, 5 telemarketers
and a network of independent dealers and distributors. Our
3
exclusive affiliation with a sports marketing firm, established in 2000,
resulted in orders in fiscal 2002. The Company uses a number of different
techniques in order to attract new customers, including direct marketing efforts
by its sales force to known or potential users of information displays,
advertising in industry publications, and exhibiting at approximately 18
domestic and international trade shows annually.
In the outdoor market, the Company supplements these efforts by using a
network of independent dealers and distributors who market and sell its
products. Working with software vendors and utilizing the internet to expand
the quality and quantity of the multimedia content that can be delivered to our
displays, we are able to offer customers total information and display
communications packages.
Internationally, the Company uses a combination of internal sales people and
independent distributors to market its products outside the U.S. The Company
currently has assembly operations, service centers and sales offices in New
South Wales, Australia; Toronto, Canada; and Brampton, Canada. The Company has
existing relationships with approximately 22 independent distributors worldwide
covering Europe, South and Central America, Canada, Asia and Australia.
International sales have represented less than 10% of total revenues in the past
three years, but the Company believes that it is well positioned for expansion.
Headquartered in Norwalk, Connecticut, the Company has major sales and service
offices in New York; Chicago; Las Vegas; Toronto, Canada; Brampton, Canada;
Logan, Utah; Des Moines, Iowa; and New South Wales, Australia, as well as
approximately 50 satellite offices in the United States and Canada.
The Company's equipment is both leased and sold. A significant portion of the
electronic information display revenues is from equipment rentals with current
lease terms ranging from 30 days to ten years.
The Company's revenues in 2002, 2001 and 2000 did not include any single
customer that accounted for more than 10% of total revenues.
MANUFACTURING AND OPERATIONS
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The Company's production facilities are located in Norwalk, Connecticut;
Logan, Utah; Des Moines, Iowa; and New South Wales, Australia and consist
principally of the manufacturing, assembly and testing of display units, and
related components. The Company performs most subassembly and all final
assembly of its products. During 2000, the Company completed the construction
of a new 55,000 square foot outdoor display manufacturing facility in Logan,
Utah.
All product lines are design engineered by the Company and controlled
throughout the manufacturing process. The Company has the ability to produce
printed circuit board fabrications, very large sheet metal fabrications, cable
assemblies, and surface mount and through-hole designed assemblies. The Company
produces more than 20,000 board assemblies annually which are tested with
state-of-the-art automated testing equipment. Additional board assembly
capacity is increased through outsourcing. The Company's production of many of
the subassemblies and all of the final assemblies gives the Company the control
needed for on-time delivery to its customers.
The Company also has the ability to rapidly modify its product lines. The
Company's displays are designed with flexibility in mind, enabling the Company
to customize its displays to meet different
4
applications with a minimum of lead-time. The Company also partners with large
distributors via volume purchase agreements, giving it the benefit of a third
party stocking its components ready for delivery on demand. The Company designs
certain of its materials to match components furnished by suppliers. If such
suppliers were unable to provide the Company with those components, the Company
would have to contract with other suppliers to obtain replacement sources. Such
replacement might result in engineering design changes, as well as delays in
obtaining such replacement components. The Company believes it maintains
suitable inventory and has contracts providing for delivery of sufficient
quantities of such components to meet its needs. The Company also believes
there presently are other qualified vendors of these components. The Company
does not acquire significant amount of purchases directly from foreign
suppliers, but certain components such as the LED's are manufactured by foreign
sources.
The Company is ISO-9001 registered by Underwriters Laboratories at its Norwalk
manufacturing facility. The Company's products are also third-party certified
as complying with applicable safety, electromagnetic emissions and
susceptibility requirements worldwide. The Company believes these distinctions
in its industry give it a competitive advantage in the global marketplace.
SERVICE AND SUPPORT
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The Company emphasizes the quality and reliability of its products and the
ability of its field service personnel to provide timely and expert service to
the Company's installed base. The Company believes that the quality and
timeliness of its on-site service personnel are important components in the
Company's success. The Company provides turnkey installation and support for
the products it leases and sells in the United States, Canada and Australia.
The Company provides training to end-users and provides ongoing support to users
who have questions regarding operating procedures, equipment problems or other
issues. The Company provides installation and service to those who purchase and
lease equipment. In the market segments covered by the Company's distributors,
the distributors offer support for the products they sell.
Personnel based in regional and satellite service locations throughout the
United States, Canada and Australia provide high quality and timely on-site
service for the installed rental equipment and maintenance base and other types
of customer owned equipment. Purchasers or lessees of the Company's larger
products, such as financial exchanges, casinos and sports stadiums, often retain
the Company to provide on-site service through the deployment of a service
technician who is on-site daily or for the scheduled event. The Company
recently consolidated its National Technical Services Center from Norcross,
Georgia to its Norwalk, Connecticut headquarters, which performs equipment
repairs and dispatches service technicians on a nationwide basis. The Company's
field service is augmented by various outdoor service companies in the United
States, Canada and overseas. From time to time the Company uses various
third-party service agents to install, service and/or assist in the service of
outdoor displays for reasons that include geographic area, size and height of
displays.
COMPETITION
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The Company's offer of short and long-term rentals to customers and its
nationwide sales, service and installation capabilities are major competitive
advantages in the display business. The Company believes that it is the largest
supplier of large-scale stock, commodity, sports and race book gaming displays
in the United States, as well as one of the largest outdoor electronic display
and service organizations in the country.
5
The Company competes with a number of competitors, both larger and smaller
than itself, and with products based on different forms of technology. In
addition, there are several companies whose current products utilize similar
technology and who possess the resources necessary to develop competitive and
more sophisticated products in the future.
THEATRE OPERATIONS
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The Company currently operates 60 screens in 11 locations in the western
Mountain States. In 2000, the Company opened an eight-plex theatre in Los
Lunas, New Mexico and a six-plex theatre in the Green Valley, Arizona area and
closed a single theatre in Laramie, Wyoming. In 2001, the Company closed a
three-plex theatre in Los Alamos, New Mexico. In 2002, the Company closed a
single theatre in Santa Fe, New Mexico; and in January 2003, the Company closed
a four-plex theatre in Dillon, Colorado. The Company also operates a
twelve-plex theatre in Loveland, Colorado which is a 50% owned joint venture
partnership. The Company's theatre revenues are generated from box office
admissions, theatre concessions, theatre rentals and other sales. Theatre
revenues are generally seasonal and coincide with the release dates of major
films during the summer and holiday seasons. The Company is not currently
operating any multimedia entertainment venues, but continues to stay abreast of
innovations in this area of technology and continues to investigate new
opportunities. The Company also operates a film booking office, through which
it arranges film exhibition for its own theatres and for other independent
theatres around the country.
The Company's motion picture theatres are subject to varying degrees of
competition in the geographic areas in which they operate. In one area,
theatres operated by national circuits compete with the Company's theatres. The
Company's theatres also face competition from all other forms of entertainment
competing for the public's leisure time and disposable income.
INTELLECTUAL PROPERTY
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The Company owns or licenses a number of patents and holds a number of
trademarks for its display equipment and theatrical enterprises and considers
such patents, licenses and trademarks important to its business.
EMPLOYEES
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The Company has approximately 585 employees as of February 28, 2003, of which
approximately 420 employees support the Company's electronic display business.
Less than 1% of the employees are unionized. The Company believes its employee
relations are good.
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ITEM 2. PROPERTIES
The Company's headquarters and principal executive offices are located at 110
Richards Avenue, Norwalk, Connecticut. The Company owns the 102,000 square foot
facility located at such site, which is occupied by the Company and is used for
administration, sales, engineering, production and assembly of its indoor
display products. Approximately 11,500 square feet of the building is currently
leased to others.
In addition, the Company owns facilities in:
Des Moines, Iowa
Logan, Utah
Theatre Properties in:
Sahuarita, Arizona
Dillon, Colorado
Durango, Colorado
Espanola, New Mexico
Los Lunas, New Mexico
Santa Fe, New Mexico
Taos, New Mexico
Laramie, Wyoming
The Company also leases 13 premises throughout North America and in Australia
for use as sales, service and/or administrative operations, and leases 3 theatre
locations. The aggregate rental expense was $643,000, $553,000 and $687,000 for
the years ended December 31, 2002, 2001 and 2000, respectively.
ITEM 3. LEGAL PROCEEDINGS
The Company is subject to legal proceedings and claims which arise in the
ordinary course of its business. During June 1999, a jury in the state of New
Mexico awarded a former employee of the Company $15,000 in damages for lost
wages and emotional distress and $393,000 in punitive damages on a retaliatory
discharge claim. The Company denied the charges on the basis that the
termination was proper and appealed the verdict, which was affirmed. The
Company filed a certiorari petition that had been granted. In March 2002, the
Company reached a settlement with the plaintiff for an amount less than the
amount previously accrued, a portion of which was subject to insurance recovery.
In January 2000, a second former employee of the Company commenced a retaliatory
discharge action seeking compensatory and punitive damages in an unspecified
amount. The Company denied such allegations and asserted defenses including
that the former employee resigned following her failure to timely report to
work. During 2002, the Company reached a settlement with the plaintiff, which
was subject to insurance recovery. Management has received certain claims by
customers related to contractual matters, which are being discussed, and
believes that it has adequate provisions for such matters. The Company had been
involved in arbitration related to the construction of its six-plex movie
theatre in Dillon, Colorado. The contractor alleged claims against the Company
in the amount of $489,000 due under a contract. The Company denied any
liability and asserted claims in the amount of $467,000 that, among other
matters, the contractor failed to build the theatre in accordance with
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the architectural plans. The outcome of this arbitration was payment in the
amount of $84,000 to the contractor during 2001.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
(a) The Company's Common Stock is traded on the American Stock Exchange under
the symbol "TLX." Sales prices are set forth in (d) below.
(b) The Company had approximately 718 holders of record of its Common Stock
and approximately 66 holders of record of its Class B Stock as of March
26, 2003.
(c) The Board of Directors approved four quarterly cash dividends of $.035 per
share for Common Stock and $.0315 per share for Class B Stock during 2002.
Management and the Board of Directors will continue to review payment of
the quarterly cash dividends.
(d) The range of Common Stock prices on the American Stock Exchange are set
forth in the following table:
High Low
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2002
First Quarter $6.240 $4.850
Second Quarter 7.800 5.200
Third Quarter 5.850 4.900
Fourth Quarter 6.150 4.790
2001
First Quarter $5.250 $3.563
Second Quarter 7.050 4.200
Third Quarter 6.000 4.000
Fourth Quarter 6.700 4.000
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ITEM 6. SELECTED FINANCIAL DATA
(a) The following table sets forth selected consolidated financial data with
respect to the Company for the five years ended December 31, 2002, which
were derived from the audited consolidated financial statements of the
Company and should be read in conjunction with them.
Years Ended 2002 2001 2000 1999 1998
- ----------- ---- ---- ---- ---- ----
In thousands, except per share data
Revenues $ 74,891 $ 70,171 $ 66,763 $ 62,818 $63,778
Net income (loss) 428 509 (2,231) 788 1,699
Earnings (loss) per share:
Basic $ 0.34 $ 0.40 $ (1.77) $ 0.61 $ 1.32
Diluted $ 0.34 $ 0.40 $ (1.77) $ 0.61 $ 0.85
Cash dividends per share:
Common stock $ 0.14 $ 0.14 $ 0.14 $ 0.14 $ 0.14
Class B stock $ 0.126 $ 0.126 $ 0.126 $ 0.126 $ 0.126
Average common shares outstanding 1,261 1,261 1,261 1,286 1,290
Total assets $110,974 $113,897 $113,015 $112,448 $91,146
Long-term debt 65,418 69,250 68,552 65,952 49,523
Stockholders' equity 23,025 23,568 23,696 26,013 25,851
(b) The following table sets forth quarterly financial data for the years ended
December 31, 2002 and 2001:
Quarter Ended (unaudited) March 31 June 30 September 30 December 31 (1)
- ------------------------- -------- ------- ------------ ---------------
In thousands, except per share data
2002
Revenues $17,162 $18,986 $22,016 $16,727
Gross profit 5,334 5,192 6,082 4,430
Net income 46 65 180 137
Earnings per share $ 0.04 $ 0.05 $ 0.14 $ 0.11
Cash dividends per share:
Common stock $ 0.035 $ 0.035 $ 0.035 $ 0.035
Class B stock $0.0315 $0.0315 $0.0315 $0.0315
2001
Revenues $17,397 $17,076 $18,735 $16,963
Gross profit 6,138 5,731 6,104 5,563
Net income 25 74 299 111
Earnings per share $ 0.02 $ 0.06 $ 0.24 $ 0.08
Cash dividends per share:
Common stock $ 0.035 $ 0.035 $ 0.035 $ 0.035
Class B stock $0.0315 $0.0315 $0.0315 $0.0315
(1) The Company recorded the following items during the quarter ended December
31, 2002: (1) an increase to net income of $197,000 related to a sale of
assets, and (2) a decrease in the effective tax rate for the year, which had the
effect of decreasing the quarterly income tax expense by approximately $63,000.
During the quarter ended December 31, 2001, the Company recorded: (1) a
decrease to net income of $110,000 related to an increase in the allowance for
uncollectable accounts, (2) an increase to net income of $159,000 related to the
settlement of a legal matter (see Note 15), and (3) an increase in the effective
tax rate for the year, which had the effect of increasing the quarterly income
tax expense by approximately $50,000.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
Trans-Lux is a full service provider of integrated multimedia systems for
today's communications environments. The essential elements of these systems
are the real-time, programmable electronic information displays we manufacture,
distribute and service. Designed to meet the evolving communications needs of
both the indoor and outdoor markets, these displays are used primarily in
applications for the financial, banking, gaming, corporate, transportation,
entertainment and sports industries. In addition to its display business, the
Company owns and operates a chain of motion picture theatres in the western
Mountain States. The Company operates in three reportable segments: Indoor
Display, Outdoor Display, and Entertainment/Real Estate.
The Indoor Display segment includes worldwide revenues and related expenses
from the rental, maintenance and sale of indoor displays. This segment includes
the financial, gaming, government, retail and corporate industries. The Outdoor
Display segment includes worldwide revenues and related expenses from the
rental, maintenance and sale of outdoor displays. This segment includes the
custom sports, catalog sports, retail and commercial industries. The
Entertainment/Real Estate segment includes the operations of the motion picture
theatres in the western Mountain States, a national film booking service, and
income-producing real estate properties.
Critical Accounting Policies and Estimates
Management's Discussion and Analysis of Financial Condition and Results of
Operations discusses the Company's consolidated financial statements, which have
been prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and the disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. On an on-going basis, management
evaluates its estimates and judgments, including those related to percentage of
completion, uncollectable accounts, inventories, intangible assets, income
taxes, warranty obligations, benefit plans, contingencies and litigation.
Management bases its estimates and judgments on historical experience and on
various other factors that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions. Senior management has discussed the development and
selection of these accounting estimates and the related disclosures with the
audit committee of the Board of Directors.
Management believes the following critical accounting policies, among
others, affect its more significant judgments and estimates used in the
preparation of its consolidated financial statements.
Percentage of Completion: The Company recognizes revenue on long-term
equipment sales contracts using the percentage of completion method based on
estimated incurred costs to the estimated total cost for each contract. Should
actual total cost be different from estimated total cost, additional or a
reduction of cost of sales may be required.
Uncollectable Accounts: The Company maintains allowances for
uncollectable accounts for estimated losses resulting from the inability of its
customer to make required payments. Should non-payment by customers differ from
the Company's estimates, a revision to increase or decrease the allowance for
uncollectable accounts may be required.
Inventories: The Company writes down its inventory for estimated
obsolescence equal to the difference between the carrying value of the inventory
and the estimated market value based upon assumptions about future demand and
market conditions. If actual future demand or market conditions are less
favorable than those projected by management, additional inventory write-downs
may be required.
Goodwill and Intangible Assets: The Company evaluates goodwill and
intangible assets for possible impairment annually for goodwill and when events
or changes in circumstances indicate that the carrying amount of such assets may
not be recoverable for other intangible assets. Future adverse changes in
market conditions or poor operating results of underlying assets could result in
an inability to recover the carrying value of the assets, thereby possibly
requiring an impairment charge in the future.
Income Taxes: The Company records a valuation allowance to reduce its
deferred tax assets to the amount that it believes is more likely than not to be
realized. While the Company has considered future taxable income and ongoing
feasible tax planning strategies in assessing the need for the valuation
allowance, in the event the Company were to determine that it would not be able
to realize all or part of its net deferred tax assets in the future, an
adjustment to the deferred tax assets would be charged to income in the period
such determination was made. Likewise, should the Company determine that it
would be able to realize its deferred tax assets in the future in excess of its
net recorded amount, an adjustment to the deferred tax assets would increase
income in the period such determination was made.
Warranty Obligations: The Company provides for the estimated cost of
product warranties at the time revenue is recognized. While the Company engages
in product quality programs and processes, including evaluating the quality of
the component suppliers, the warranty obligation is affected by product failure
rates. Should actual product failure rates differ from the Company's estimates,
revisions to increase or decrease the estimated warranty liability may be
required.
Benefit Plans: The Company is required to make estimates and assumptions
to determine benefit plan liabilities, which include investment returns, rates
of salary increases and discount rates. During 2002 and 2001, the Company
recorded an after tax minimum pension liability adjustment in other
comprehensive loss of $821,000 and $373,000, respectively. Estimates and
assumptions are reviewed annually with the assistance of external actuarial
professionals and adjusted as circumstances change. At December 31, 2002, plan
assets were invested 78.5% in guaranteed investment contracts, 17.6% in equity
and index funds, 2.9% in bonds and 1.0% in money market funds. The investment
return assumption takes the asset mix into consideration. The assumed discount
rate reflects the rate at which the pension benefits could be settled. At
December 31, 2002, the weighted average rates used for the computation of
benefit plan liabilities were: investment returns, 8.75%; rates of salary
increases, 3.25%; and discount rate, 6.75%. Net periodic cost for 2003 will be
based on the December 31, 2002 valuation. The defined benefit plan periodic
cost was $755,000 in 2002, $683,000 in 2001 and $510,000 in 2000. At December
31, 2002, assuming no change in the other assumptions, a one percentage point
change in investment returns would affect the net periodic cost by $56,000 and a
one percentage point change in the discount rate would affect the net periodic
cost by $256,000.
10
Quantitative and Qualitative Disclosures About Market Risks
The Company's cash flows and earnings are subject to fluctuations from changes
in interest rates and foreign currency exchange rates. The Company manages its
exposures to these market risks through internally established policies and
procedures and, when deemed appropriate, through the use of interest-rate swap
agreements and forward exchange contracts. Long-term debt outstanding of $67.2
million at December 31, 2002, was generally at variable rates of interest
ranging from 1.40% to 7.50%. The Company does not enter into derivatives or
other financial instruments for trading or speculative purposes.
Results of Operations
2002 Compared to 2001
Total revenues for the year ended December 31, 2002 increased 6.7% to $74.9
million from $70.2 million for the year ended December 31, 2001. Indoor display
revenues decreased $3.6 million or 14.2%. Of this decrease, indoor display
equipment rentals and maintenance revenues decreased $2.5 million or 14.9%,
primarily due to disconnects and non-renewals of equipment on rental on existing
contracts in the financial services market, and indoor display equipment sales
decreased $1.1 million or 13.0%, also primarily in the financial services
market. The financial services market continues to be negatively impacted due
to the consolidation within that industry resulting mainly from the current
economic downturn.
Outdoor display revenues increased $7.0 million or 22.0%. Of this
increase, outdoor display equipment sales increased $8.1 million or 33.7%,
primarily in the custom outdoor sports segment. This increase was offset by the
decrease in outdoor display equipment rentals and maintenance revenues of $1.1
million or 14.2%, primarily due to the continuing expected revenue decline in
the outdoor equipment rentals and maintenance bases previously acquired.
Entertainment/real estate revenues increased $1.4 million or 10.6%. This
increase is primarily from an increase in overall admissions of 7.6%, ticket
prices and concessions, predominantly from 'same store' sales. On October 1,
2002, the Company entered into a lease settlement agreement for a net payment of
$34,000 with the landlord at its older Lake Dillon theatre. The Company closed
the theatre at the end of January 2003. In a separate transaction, the Company
entered into a 15-year non-compete agreement for $450,000, to be paid in 2003,
relating to its newer six-plex theatre in Dillon, Colorado.
Total operating income for the year ended December 31, 2002 decreased 20.2%
to $9.6 million from $12.0 million for the year ended December 31, 2001. Indoor
display operating income decreased $2.6 million or 32.9%, primarily as a result
of the decrease in revenues in the financial services market. The cost of
indoor displays represented 52.6% of related revenues in 2002 compared to 46.4%
in 2001. The cost of indoor displays as a percentage of related revenues
increased primarily due to the relationship between field service costs of
equipment rentals and maintenance increasing and the revenues from indoor
equipment rentals and maintenance decreasing. The Company continues to address
the field service costs as the Company recently consolidated its field service
center from Norcross, Georgia to its Norwalk, Connecticut headquarters. In
addition, the Company will continue to evaluate strategic objectives for its
field service offices. Indoor display cost of equipment rental and maintenance
increased $261,000 or 3.5%, largely due to an increase in depreciation expense.
Indoor display cost of equipment sales decreased $577,000 or 13.2%, primarily
due to the decrease in volume. Indoor display general and administrative
expenses decreased $696,000 or 12.2%, due to continued reduction of certain
overhead costs such as sales and marketing expenses.
Outdoor display operating income decreased to $803,000 in 2002 compared
to $1.6 million in 2001, primarily as a result of the continuing expected
revenue decline in outdoor equipment rentals and maintenance bases from previous
acquisitions and field service costs increasing not in relation to the reduction
of the revenues from outdoor equipment rentals and maintenance. The cost of
outdoor displays represented 80.8% of related revenues in 2002 compared to 77.5%
in 2001. Outdoor display cost of equipment sales increased $6.5 million or
35.3%, principally due to the increase in volume and the nature of the sports
sector of the outdoor division. Outdoor display cost of equipment rental and
maintenance increased slightly despite a decrease in rental and maintenance
contracts. Outdoor display general and administrative expenses increased $1.0
million or 18.8%, primarily due to increased sales support expenses such as
project management, commissions resulting from an increase in custom sports
revenues and an increase in the allowance for uncollectable accounts. Cost of
indoor and outdoor equipment rentals and maintenance includes field service
expenses, plant repair costs, maintenance and depreciation.
Entertainment/real estate operating income increased $940,000 or 37.1%,
primarily due to the increase in revenues and the increase in income from the
MetroLux Theatre joint venture of $404,000, due partly to the sale of a parcel
of land; the Company's share of the gain was $203,000. The cost of
entertainment/real estate represented 77.4% of related revenues in 2002 compared
to 78.9% in 2001. Cost of entertainment/real estate, which includes film rental
costs and depreciation expense, increased $868,000 or 8.4%, due to the increase
in overall admissions. Entertainment/real estate general and administrative
expenses decreased slightly.
Corporate general and administrative expenses decreased $925,000 or 15.4%,
principally due to a $274,000 positive impact of the effect of foreign currency
exchange rates in 2002 compared to a $339,000 negative impact in 2001 (a net
change of $613,000), continued reduction of certain overhead costs, offset by an
increase in medical and general insurance costs and pension expense.
Net interest expense decreased $954,000, which is primarily attributable
to the decrease in variable interest rates in 2002 vs. 2001 and a decrease in
long-term debt due to scheduled payments. The Company uses its revolving credit
facility to meet its short-term working capital requirements. Other income
primarily relates to the gain on the sale of the Norcross facility, as well as
the earned income portion of municipal forgivable loans.
The effective tax rate for the year ended December 31, 2002 was 33.2%. The
tax rate was favorably impacted primarily by the ability to recognize tax
benefits for prior years' losses of one foreign subsidiary, offset by a higher
tax rate in another foreign subsidiary. For the year ended December 31, 2001,
the effective tax rate was 52.0%. The tax rate was unfavorably impacted
primarily by the inability to recognize tax benefits for current year losses of
one foreign subsidiary and a higher tax rate in another foreign subsidiary.
2001 Compared to 2000
Total revenues for the year ended December 31, 2001 increased 5.1% to $70.2
million from $66.8 million for the year ended December 31, 2000. Indoor display
revenues increased $1.1 million or 4.5%. Of this increase, indoor display
equipment rentals and maintenance revenues increased $726,000 or 4.6%, primarily
due to new rental and maintenance contracts and renewal of existing contracts,
and indoor display equipment sales increased $360,000 or 4.3%, primarily in the
gaming and financial industries segment.
Outdoor display revenues increased $1.1 million or 3.6%. Of this increase,
outdoor display equipment sales increased $1.4 million or
11
6.4%, primarily in the custom outdoor sports segment. This increase was offset
by the decrease in outdoor display equipment rentals and maintenance revenues of
$349,000 or 4.3%, primarily due to the continued expected revenue decline in the
outdoor rental and maintenance bases previously acquired.
Entertainment/real estate revenues increased $1.2 million or 10.3%. This
increase is primarily from the revenues from two newly constructed multiplex
theatres consisting of 14 screens in Los Lunas, NM and Sahuarita, AZ, which
opened in February 2000 and May 2000, respectively, and an increase in overall
admissions and ticket prices at the existing cinemas.
Total operating income for the year ended December 31, 2001 increased 45.6%
to $12.0 million from $8.3 million for the year ended December 31, 2000. Indoor
display operating income increased $458,000 or 6.1%, primarily as a result of
the increase in revenues. The cost of indoor displays represented 46.4% of
related revenues in 2001 compared to 45.7% in 2000. The cost of indoor displays
as a percentage of related revenues increased primarily due to a change in the
volume mix. Indoor display cost of equipment sales increased $464,000 or 11.9%,
primarily due to increased volume. Indoor display cost of equipment rentals and
maintenance increased $214,000 or 3.0%, largely due to increased depreciation
expense, mainly due to the increase in equipment on rental. Indoor display
general and administrative expenses decreased slightly.
Outdoor display operating income increased to $1.6 million in 2001 compared
to $370,000 in 2000, primarily as a result of an increase in revenues and a
decrease in general and administrative expenses. The cost of outdoor displays
represented 77.5% of related revenues in 2001 compared to 77.8% in 2000.
Outdoor display cost of equipment sales increased $1.1 million or 6.2%,
principally due to the increase in volume and the higher content of raw
materials due to the new LED technology and installation costs. Outdoor display
cost of equipment rentals and maintenance decreased $321,000 or 5.0%, primarily
due to reduced field service costs mainly as a result of the expected decline in
the outdoor rental and maintenance bases previously acquired. Outdoor display
general and administrative expenses decreased $843,000 or 13.1%, primarily due
to the consolidation of operations from prior acquisitions and a cost-cutting
program put into place in the fourth quarter of 2000.
Entertainment/real estate operating income increased $2.1 million, to
$2.5 million in 2001, primarily due to the increase in revenues due to theatre
expansion, an increase in overall admissions and ticket prices in the existing
cinemas, and the write-off of the $1.3 million intangible theatre asset and
equipment at the older Lake Dillon, CO theatre in 2000. During 2001, under the
terms of its lease, the Company was obligated to operate this theatre and
recorded a loss of approximately $250,000. When compared to 2000 (before the
write-off), the entertainment/real estate operating income would have increased
$811,000 or 47.1%. The cost of entertainment/real estate represented 78.9% of
related revenues for the year ended December 31, 2001 and 82.5% (before the
write-off) in 2000. Cost of entertainment/real estate increased $543,000 or
5.5% in 2001 when compared to the year 2000 (before the write-off) due to the
expansion of theatre operations and an increase in overall admissions in the
existing cinemas. Entertainment/real estate general and administrative expenses
decreased $84,000 or 11.9% due to a reduction in payroll costs. The income from
joint venture relates to the operations of the theatre joint venture, MetroLux
Theatre in Loveland, CO.
Corporate general and administrative expenses decreased $446,000 or 6.9%,
principally due to a settlement of a legal matter for an amount less than the
amount previously accrued (see Note 15), partially offset by an increase in the
allowance for uncollectable accounts, which were both recorded in the fourth
quarter of 2001, and a cost cutting program put into place in the fourth quarter
of 2000.
Net interest expense decreased $160,000, which is primarily attributable to
the decrease in variable interest rates in 2001 vs. 2000 offset by an increase
in long-term debt to fund increased operating activities. The Company uses its
revolving credit facility to meet its short-term working capital requirements.
Other income primarily relates to the gain from the sale of a theatre leasehold,
and the earned income portion of municipal forgivable loans offset partially by
a loss from the sale of the former Logan, UT manufacturing facility.
The effective tax rate for the year ended December 31, 2001 was 52.0%. The
tax rate was unfavorably impacted primarily by the inability to recognize tax
benefits for losses of one foreign subsidiary and a higher tax rate in another
foreign subsidiary. For the year ended December 31, 2000, the effective tax
benefit rate was 28.0%, which was unfavorably impacted primarily by the
inability to recognize tax benefits for losses of a foreign subsidiary. Such
benefits could be realized in the future to the extent the foreign subsidiary
shows profits.
Recent Accounting Standards
On July 1, 2001, the Company adopted Statement of Financial Accounting Standards
No. 141, "Business Combinations" (SFAS 141), and on January 1, 2002, adopted
Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets" (SFAS 142). SFAS 141 requires all business combinations
initiated after June 30, 2001 to be accounted for using the purchase method of
accounting. As required by SFAS 142, the Company discontinued amortizing the
remaining balances of goodwill beginning January 1, 2002. All remaining and
future acquired goodwill will be subject to impairment tests annually, or
earlier if indicators of potential impairment exist, using a fair-value-based
approach. All other intangible assets will continue to be amortized over their
estimated useful lives and assessed for impairment under Statement of Financial
Accounting Standards No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets" (SFAS 144).
In August 2001, the Financial Accounting Standards Board (FASB) issued SFAS
No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets,"
effective for fiscal years beginning after December 15, 2001. SFAS 144
addresses the accounting and reporting for the impairment or disposal of
long-lived assets, including the disposal of a segment of business. The Company
adopted SFAS 144 on January 1, 2002. The adoption of SFAS 144 did not have a
material impact on the Company's financial position and results of operations.
In April 2002, the FASB issued Statement of Financial Accounting Standards
No. 145, "Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB
Statement No. 13, and Technical Corrections" (SFAS 145), effective for
financial statements issued after June 15, 2002. The adoption of SFAS 145,
relating to extinguishments of debt and certain lease transactions, did not have
an impact on the Company's financial statements.
In June 2002, the FASB issued Statement of Financial Accounting Standards
No. 146, "Accounting for Costs associated with Exit or Disposal Activities"
(SFAS 146). SFAS 146 requires that a liability for a cost associated with an
exit or disposal activity be recognized when the liability is incurred and that
the initial measurement of a liability be at fair value. SFAS 146 is effective
for exit or disposal activities that are initiated after December 31, 2002. The
Company is currently evaluating the effects of SFAS 146, but does not expect
that the adoption of SFAS 146 would have a material effect on the Company's
results of operations.
In November 2002, the FASB issued FASB Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others" (FIN 45). FIN 45 requires that upon
issuance of a guarantee, a guarantor must recognize a liability for the fair
value of an obligation
12
assumed under a guarantee. FIN 45 also requires additional disclosures by a
guarantor in its interim and annual financial statements about the obligations
associated with guarantees issued. The recognition provisions of FIN 45 are
effective for any guarantees issued or modified after December 31, 2002. The
disclosure requirements are effective for financial statements of interim or
annual periods ending after December 15, 2002.
In December 2002, the FASB issued Statement of Financial Accounting
Standards No. 148, "Accounting for Stock-Based Compensation - Transition and
Disclosure" (SFAS 148), that amends Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" (SFAS 123) to provide
alternative methods of transition to SFAS 123's fair value method of accounting
for stock-based employee compensation. SFAS 148 also amends the disclosure
provisions of SFAS 123 and APB Opinion No. 28, "Interim Financial Reporting,"
to require disclosure in the summary of significant accounting policies of the
effects of an entity's accounting policy with respect to stock-based employee
compensation on reported net income and earnings per share in annual and interim
financial statements. The Statement does not amend SFAS 123 to require
companies to account for employee stock options using the fair value method.
Liquidity and Capital Resources
The Company had a $15.0 million revolving credit facility available until June
2002, at which time the outstanding balance converted into a four-year term
loan. At December 31, 2002, the outstanding balance of the converted term loan
was $14.1 million at a rate of interest at LIBOR plus 2.25%. At December 31,
2002, the Company had an additional term loan under its amended bank credit
agreement of which $4.1 million was outstanding at a rate of interest at LIBOR
plus 1.75%. On February 12, 2003, the Company successfully completed a
refinancing of its senior debt. The refinancing includes two term loans
totaling $17.0 million and a revolving line of credit of up to $5.0 million at
variable interest rates ranging from LIBOR plus 1.75% to prime plus 0.25% and
matures September 30, 2005. The entire revolving line is available as none has
been drawn.
The Company believes that cash generated from operations together with cash
and cash equivalents on hand and the current availability under the revolving
credit facility will be sufficient to fund its anticipated current and near term
cash requirements. The Company continually evaluates the need and availability
of long-term capital in order to fund potential new opportunities.
The Company had two interest rate swap agreements which expired on August
27, 2002. Such agreements had a notional value equal to the amount of the term
loans and with corresponding maturity terms to reduce exposure to interest
fluctuations, which were classified as cash flow hedges. The interest rate swap
agreements had the effect of converting the interest rate on the term loan to a
fixed annual rate of 7.88% through August 2002. At December 31, 2002, the
Company was not involved in any derivative financial instruments. The credit
agreement requires compliance with certain financial covenants, which at
December 31, 2002 included a defined debt service coverage ratio of 1.50 to 1.0,
a defined debt to cash flow ratio of 3.50 to 1.0 and an annual limitation of
$750,000 on cash dividends. At December 31, 2002, the Company was in compliance
with such financial covenants.
Cash and cash equivalents increased $2.6 million in 2002 compared to
increases of $1.8 million in 2001 and $0.3 million in 2000. The increase in
2002 is primarily attributable to proceeds received from sale of a building of
$0.8 million and operating activities of $9.2 million, offset by the investment
in equipment manufactured for rental and other equipment purchases of $6.4
million and from financing activities of $1.8 million. In addition, cash flows
from investing activities increased $0.8 million from the MetroLux Theatres
joint venture. The increase in 2001 was primarily attributable to proceeds
received from sale of fixed assets of $0.4 million, an increase in financing
activities of $1.3 million, principally as a result of increased borrowings
under the revolving credit facility, and operating activities of $8.2 million,
offset by the investment in equipment manufactured for rental and other
equipment purchases of $8.9 million. In addition, cash flows from investing
activities increased $0.7 million from the MetroLux Theatres joint venture. The
increase in 2000 was primarily attributable to proceeds received from sale of
fixed assets and securities of $5.8 million, an increase in financing activities
of $2.7 million and operating activities of $6.6 million, offset by an
investment in equipment on rental and construction of theatres of $15.0 million.
In addition, cash flows from investing activities increased $0.2 million from
the MetroLux Theatres joint venture. Although not as favorable as in previous
years, the Company experiences a favorable collection cycle on its trade
receivables.
Under various agreements, the Company is obligated to make future cash
payments in fixed amounts. These include payments under the Company's long-term
debt agreements and rent payments required under operating lease agreements.
The following table summarizes the Company's fixed cash obligations as of
December 31, 2002 over the next five fiscal years:
In thousands 2003 2004 2005 2006 2007
- -------------------------------------------------------------------------------
Short-term debt $3,763 $ - $ - $ - $ -
Long-term debt - 3,205 15,009 31,576 1,430
Operating lease payments 560 449 424 295 118
----- ----- ------ ------ -----
Total $4,323 $3,654 $15,433 $31,871 $1,548
- -------------------------------------------------------------------------------
Off-Balance Sheet Arrangements: The Company has no majority-owned subsidiaries
that are not included in the consolidated financial statements nor does it have
any interests in or relationships with any special purpose off-balance sheet
financing entities.
The Company's $1.1 million investment in the MetroLux Theatres joint
venture is accounted for under the equity method of accounting. The Company has
guaranteed $1.4 million (60%) of a $2.3 million mortgage loan held by MetroLux
Theatres.
During 2000, the Company entered into two sale/leaseback transactions for
theatre equipment that are classified as operating leases. The Company has
guaranteed up to a maximum of $1.0 million if, upon default, the lessor
cannot recover the unamortized balance.
Safe Harbor Statement under the Private Securities Reform Act of 1995
The Company may, from time to time, provide estimates as to future performance.
These forward-looking statements will be estimates, and may or may not be
realized by the Company. The Company undertakes no duty to update such
forward-looking statements. Many factors could cause actual results to differ
from these forward-looking statements, including loss of market share through
competition, introduction of competing products by others, pressure on prices
from competition or purchasers of the Company's products, interest rate and
foreign exchange fluctuations, terrorist acts and war.
13
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is subject to interest rate risk on its long-term debt. The
Company manages its exposure to changes in interest rates by the use of variable
and fixed interest rate debt. In addition, through August 2002, the Company had
hedged its exposure to changes in interest rates on a portion of its variable
debt by entering into interest rate swap agreements to lock in fixed interest
rates for a portion of these borrowings. The fair value of the Company's fixed
rate long-term debt is disclosed in Note 10 to the Consolidated Financial
Statements. In addition, the Company is exposed to foreign currency exchange
rate risk mainly as a result of investments in its Australian and Canadian
subsidiaries. The Company does not enter into derivatives for trading or
speculative purposes.
At December 31, 2002, the Company was not involved in any derivative
financial instruments. The two interest rate swap agreements the Company had,
expired on August 27, 2002. Such agreements had a notional value equal to the
amount of the term loans and with corresponding maturity terms to reduce
exposure to interest fluctuations, which were classified as cash flow hedges.
The interest rate swap agreements had the effect of converting the interest rate
on such term loans to a fixed average annual rate of 7.88% through August 2002.
Interest differentials paid or received because of the swap agreements are
reflected as an adjustment to interest expense over the related debt period. A
one percentage point change in interest rates would result in an annual interest
expense fluctuation of approximately $352,000.
A 10% change in the Australian and Canadian dollar relative to the U.S.
dollar would result in a currency exchange expense fluctuation of approximately
$487,000. The fair value is based on dealer quotes, considering current
exchange rates.
14
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements and supplementary financial information
are set forth below:
CONSOLIDATED STATEMENTS OF OPERATIONS
In thousands, except per share data Years ended December 31 2002 2001 2000
- -------------------------------------------------------------------------------------------------
Revenues:
Equipment rentals and maintenance $20,826 $24,405 $24,026
Equipment sales 39,594 32,680 30,876
Theatre receipts and other 14,471 13,086 11,861
------- ------- -------
Total revenues 74,891 70,171 66,763
------- ------- -------
Operating expenses:
Cost of equipment rentals and maintenance 13,959 13,528 13,636
Cost of equipment sales 28,696 22,777 21,245
Cost of theatre receipts and other 11,198 10,330 9,787
Write down of theatre assets - - 1,306
------- ------- -------
Total operating expenses 53,853 46,635 45,974
------- ------- -------
Gross profit from operations 21,038 23,536 20,789
General and administrative expenses 17,316 17,908 19,331
------- ------- -------
3,722 5,628 1,458
Interest income 177 157 445
Interest expense (4,578) (5,532) (5,980)
Other income 518 412 626
------- ------- -------
Income (loss) before income taxes and income
from joint venture (161) 665 (3,451)
------- ------- -------
Provision (benefit) for income taxes:
Current (369) (68) 104
Deferred 581 621 (971)
------- ------- -------
Total provision (benefit) for income taxes 212 553 (867)
------- ------- -------
Income from joint venture 801 397 353
------- ------- -------
Net income (loss) $ 428 $ 509 $(2,231)
======= ======= =======
Earnings (loss) per share - basic and diluted $ 0.34 $ 0.40 $ (1.77)
Average common shares outstanding - basic and diluted 1,261 1,261 1,261
- -------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements.
15
CONSOLIDATED BALANCE SHEETS
In thousands, except share data December 31 2002 2001
- -------------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 8,270 $ 5,699
Available-for-sale securities 522 530
Receivables, less allowance of $1,009 and $465 7,617 9,503
Unbilled receivables 966 830
Inventories 7,440 6,837
Prepaids and other 745 762
-------- --------
Total current assets 25,560 24,161
-------- --------
Rental equipment 88,374 86,147
Less accumulated depreciation 43,423 39,328
-------- --------
44,951 46,819
-------- --------
Property, plant and equipment 47,427 47,944
Less accumulated depreciation and amortization 12,170 10,729
-------- --------
35,257 37,215
Goodwill 1,264 1,264
Other assets 3,942 4,438
-------- --------
TOTAL ASSETS $110,974 $113,897
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,754 $ 4,614
Accrued liabilities 7,189 6,230
Current portion of long-term debt 3,763 3,331
-------- --------
Total current liabilities 13,706 14,175
-------- --------
Long-term debt:
7 1/2% convertible subordinated notes due 2006 30,177 30,177
9 1/2% subordinated debentures due 2012 1,057 1,057
Notes payable 35,975 38,016
-------- --------
67,209 69,250
Deferred revenue, deposits and other 2,942 2,930
Deferred income taxes 4,092 3,974
-------- --------
Commitments and contingencies
Stockholders' equity:
Capital stock
Common - $1 par value - 5,500,000 shares authorized
2,452,900 shares issued in 2002 and 2001 2,453 2,453
Class B - $1 par value - 1,000,000 shares authorized
287,505 shares issued in 2002 and 2001 287 287
Additional paid-in-capital 13,901 13,901
Retained earnings 19,612 19,360
Accumulated other comprehensive loss (1,391) (596)
-------- --------
34,862 35,405
Less treasury stock - at cost - 1,479,688 shares in 2002 and 2001
(excludes additional 287,505 shares held in 2002 and 2001
for conversion of Class B stock) 11,837 11,837
-------- --------
Total stockholders' equity 23,025 23,568
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $110,974 $113,897
======== ========
- -------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements.
16
CONSOLIDATED STATEMENTS OF CASH FLOWS
In thousands Years ended December 31 2002 2001 2000
- -----------------------------------------------------------------------------------------------------
Cash flows from operating activities
Net income (loss) $ 428 $ 509 $(2,231)
Adjustment to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 10,247 10,067 9,532
Income from joint venture (801) (397) (353)
Deferred income taxes 581 621 (971)
Gain on sale of fixed assets (314) (306) (585)
Loss on sale of securities - - 54
Gain on repurchase of Company's 7 1/2% convertible subordinated notes - (5) (49)
Write-off of non-recoverable assets - - 1,451
Changes in operating assets and liabilities:
Receivables 1,750 (1,667) 10
Inventories (603) 944 (1,635)
Prepaids and other assets 29 (28) 339
Accounts payable and accruals (2,151) (256) 564
Deferred revenue, deposits and other 32 (1,298) 433
------- ------- -------
Net cash provided by operating activities 9,198 8,184 6,559
------- ------- -------
Cash flows from investing activities
Equipment manufactured for rental (5,625) (7,978) (8,708)
Purchases of property, plant and equipment (750) (878) (9,607)
Useage of construction funds - - 3,290
Proceeds from joint venture 775 734 227
Proceeds from sale of securities - - 3,182
Proceeds from sale of fixed assets 758 423 2,659
------- ------- -------
Net cash used in investing activities (4,842) (7,699) (8,957)
------- ------- -------
Cash flows from financing activities
Proceeds from long-term debt 2,233 4,130 5,430
Repayment of long-term debt (3,842) (2,643) (2,356)
Repurchase of Company's 7 1/2% convertible subordinated notes - (15) (233)
Cash dividends (176) (178) (174)
------- ------- -------
Net cash provided by (used in) financing activities (1,785) 1,294 2,667
------- ------- -------
Net increase in cash and cash equivalents 2,571 1,779 269
Cash and cash equivalents at beginning of year 5,699 3,920 3,651
------- ------- -------
Cash and cash equivalents at end of year $ 8,270 $ 5,699 $ 3,920
======= ======= =======
- -----------------------------------------------------------------------------------------------------
Interest paid $ 4,253 $ 5,241 $ 5,657
Interest received 190 187 558
Income taxes paid (refunded) (523) 411 (14)
- -----------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements.
17
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Accumulated
Additional Other
In thousands, except share data Common Stock Class B Paid-in Treasury Retained Comprehensive
For the three years ended December 31, 2002 Shares Amount Shares Amount Capital Stock Earnings Income (Loss)
- ---------------------------------------------------------------------------------------------------------------------------------
Balance January 1, 2000 2,444,400 $2,444 296,005 $296 $13,901 $(11,837) $21,434 $ (225)
Net income (loss) - - - - - - (2,231) -
Cash dividends - - - - - - (174) -
Other comprehensive income, net of tax:
Unrealized foreign currency translation - - - - - - - 20
Unrealized holding gain - - - - - - - 68
Class B conversion to common stock 1,162 1 (1,162) (1) - - - -
------------------------------------------------------------------------------
Balance December 31, 2000 2,445,562 2,445 294,843 295 13,901 (11,837) 19,029 (137)
Net income - - - - - - 509 -
Cash dividends - - - - - - (178) -
Other comprehensive income (loss), net of tax:
Unrealized foreign currency translation - - - - - - - 19
Unrealized holding loss - - - - - - - (9)
Minimum pension liability adjustment - - - - - - - (373)
Unrealized derivative loss - - - - - - - (96)
Class B conversion to common stock 7,338 8 (7,338) (8) - - - -
------------------------------------------------------------------------------
Balance December 31, 2001 2,452,900 2,453 287,505 287 13,901 (11,837) 19,360 (596)
Net income - - - - - - 428 -
Cash dividends - - - - - - (176) -
Other comprehensive income (loss), net of tax:
Unrealized foreign currency translation - - - - - - - (56)
Unrealized holding loss - - - - - - - (14)
Minimum pension liability adjustment - - - - - - - (821)
Unrealized derivative gain - - - - - - - 96
------------------------------------------------------------------------------
Balance December 31, 2002 2,452,900 $2,453 287,505 $287 $13,901 $(11,837) $19,612 $(1,391)
- ---------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
In thousands Years ended December 31 2002 2001 2000
- ------------------------------------------------------------------------------------------
Net income (loss) $ 428 $ 509 $(2,231)
-----------------------------
Other comprehensive income (loss), net of tax:
Unrealized foreign currency translation (56) 19 20
Unrealized holding gain (loss) on securities (14) (9) 68
Minimum pension liability adjustment (821) (373) -
Unrealized derivative gain (loss) 96 (96) -
-----------------------------
Total other comprehensive income (loss) (795) (459) 88
-----------------------------
Comprehensive income (loss) $(367) $ 50 $(2,143)
- ------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements.
18
Notes To Consolidated Financial Statements
1. Summary of Significant Accounting Policies
Principles of consolidation: The consolidated financial statements include the
accounts of Trans-Lux Corporation and its majority-owned subsidiaries (the
Company). The investment in a 50% owned joint venture partnership, MetroLux
Theatres, is reflected under the equity method and is recorded as a separate
line in the Consolidated Statements of Operations.
Use of estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Estimates and assumptions are reviewed periodically, and the effects of
revisions are reflected in the financial statements in the period in which they
are determined to be necessary. Estimates are used when accounting for such
items as costs of long-term sales contracts, allowance for uncollectable
accounts, inventory reserves, depreciation and amortization, intangible assets,
income taxes, warranty obligation, benefit plans, contingencies and litigation.
Cash equivalents: The Company considers all highly liquid investments
with a maturity of three months or less, when purchased, to be cash equivalents.
Available-for-sale securities: Available-for-sale securities consist of
mutual fixed income funds and are stated at fair value.
Accounts receivable: Receivables are carried at net realizable value.
Reserves for uncollectable accounts are provided based on historical experience
and current trends. The Company evaluates the adequacy of these reserves
regularly.
The following is a summary of the allowance for uncollectable accounts at
December 31:
In thousands 2002 2001 2000
- -------------------------------------------------------------------
Balance at beginning of year $ 465 $ 311 $ 501
Provisions 835 298 97
Deductions (291) (144) (287)
----- --- ---
Balance at end of year $1,009 $ 465 $ 311
- -------------------------------------------------------------------
Concentrations of credit risk with respect to accounts receivable are limited
due to the large number of customers and relatively small account balances
within the majority of the Company's customer base, and their dispersion across
different businesses. The Company periodically evaluates the financial strength
of its customers and believes that its credit risk exposure is limited.
Inventories: Inventories are stated at the lower of cost (first-in,
first-out method) or market value. Reserves for slow moving and obsolete
inventories are provided based on historical experience and demand for servicing
of the displays. The Company evaluates the adequacy of these reserves
regularly.
Rental equipment and property, plant and equipment: Rental equipment and
property, plant and equipment are stated at cost and are being depreciated over
their respective useful lives using straight line or 150% declining balance
methods. Leaseholds and improvements are amortized over the lesser of the
useful lives or term of the lease. The estimated useful lives are as follows:
Rental equipment 5 to 15 years
Buildings and improvements 10 to 40 years
Machinery, fixtures and equipment 4 to 15 years
Leaseholds and improvements 5 to 27 years
When rental equipment and property, plant and equipment are fully depreciated,
retired or otherwise disposed of, the cost and accumulated depreciation are
eliminated from the accounts.
Goodwill and intangibles: The Company adopted the provisions of Statement
of Financial Accounting Standards No. 142, "Goodwill and Other Intangible
Assets" (SFAS 142), effective January 1, 2002. Under SFAS 142, goodwill and
indefinite-lived intangible assets are no longer amortized, but are reviewed
annually for impairment, or more frequently if indications of possible
impairment exist. The Company performed the requisite transitional impairment
tests for goodwill as of January 1, 2002, which indicated that there was no
transitional impairment loss.
Goodwill represents the excess of purchase price over the estimated fair
value of net assets acquired. Identifiable intangible assets are recorded at
cost and amortized over their estimated useful life on a straight line basis;
non-compete agreements over their contractual terms of seven and ten years;
deferred financing costs over the life of the related debt of 10 to 20 years;
and patents and other intangibles over seven to ten years. The Company
periodically evaluates the value of its goodwill and the period of amortization
of its other intangible assets and determines if such assets are impaired by
comparing the carrying values with estimated future undiscounted cash flows.
The Company performed the annual impairment tests for goodwill as of October 1,
2002 and has determined that goodwill was not impaired as of that date. Other
intangible assets are evaluated when indicators of impairment exist.
Maintenance contracts: Purchased maintenance contracts are stated at cost
and are being amortized over their economic lives of eight to 15 years using an
accelerated method which contemplates contract expiration, fall-out, and
non-renewal.
Impairment or disposal of long-lived assets: The Company adopted the
provisions of Statement of Financial Accounting Standards No. 144, "Accounting
for the Impairment or Disposal of Long-Lived Assets" (SFAS 144), effective
January 1, 2002. In accordance with SFAS No. 144, the Company evaluates
whether there has been an impairment in any of its long-lived assets if certain
circumstances indicate that a possible impairment may exist. An impairment in
value exists when the carrying value of a long-lived asset exceeds its
undiscounted cash flows. If it is determined that an impairment in value has
occurred, the carrying value is written down to its fair value.
Revenue recognition: Revenue from rental of equipment and revenue
from maintenance contracts are recognized as they accrue during the term of the
respective agreements. The Company recognizes revenues on long-term equipment
sales contracts, which require more than three months to complete, using the
percentage of completion method. The Company records unbilled receivables
representing amounts due under these long-term equipment sales contracts which
have not been billed to the customer. Income is recognized based on the
percentage of incurred costs to the estimated total costs for each contract.
The determination of the estimated total costs are susceptible to significant
change on these sales contracts. Revenues on equipment sales, other than
long-term equipment sales contracts, are recognized upon shipment. Theatre
receipts and other revenues are recognized at time service is provided.
Taxes on income: The Company computes income taxes using the asset and
liability method, under which deferred income taxes are provided for the
temporary differences between the financial reporting basis and the tax basis of
the assets and liabilities.
19
Foreign currency: The functional currency of the Company's non-U.S.
business operations is the applicable local currency. The assets and
liabilities of such operations are translated into U.S. dollars at the year-
end rate of exchange, and the income and cash flow statements are converted at
the average annual rate of exchange. The resulting translation adjustment is
recorded in accumulated other comprehensive income (loss) in the Consolidated
Balance Sheets. Gains and losses related to the settling of transactions not
denominated in the functional currency are recorded as a component of general
and administrative expenses in the Consolidated Statements of Operations.
Derivative financial instruments: The Company has limited involvement
with derivative financial instruments and does not use them for trading
purposes; they are only used to manage and fix well-defined interest rate risks.
From time to time the Company enters into interest rate swap agreements to
reduce exposure to interest fluctuations. The net gain or loss from the
exchange of interest rate payments is included in interest expense in the
Consolidated Statements of Operations and in interest paid in the Consolidated
Statements of Cash Flows.
Stock-Based Compensation Plans: The Company records compensation expense
for its stock-based employee compensation plans in accordance with the
intrinsic-value method prescribed by APB Opinion No. 25, "Accounting for Stock
Issued to Employees". Intrinsic value is the amount by which the market price
of the underlying stock exceeds the exercise price of the stock option or award
on the measurement date, generally the date of grant. Accordingly, no
compensation cost has been recognized for its stock option plans. In December
2002, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure" (SFAS 148), that amends Statement of
Financial Accounting Standards No. 123 (SFAS 123), "Accounting for Stock-Based
Compensation". The Company adopted the disclosure provisions of SFAS 148 at
December 31, 2002.
The following table illustrates the effect on net income (loss) and earnings
(loss) per share for the years ended December 31, 2002, 2001 and 2000 if the
Company had applied the fair value recognition provisions of SFAS 123 to
stock-based employee compensation:
In thousands, except per share data 2002 2001 2000
- -------------------------------------------------------------------------
Net income (loss), as reported $ 428 $ 509 $(2,231)
Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all awards,
net of tax 51 5 43
---- ---- -----
Pro forma net income (loss) $ 377 $ 504 $(2,274)
---- ---- -----
Earnings (loss) per share
Basic and diluted, as reported $0.34 $0.40 $ (1.77)
---- ---- -----
Basic and diluted, pro forma $0.30 $0.40 $ (1.80)
- -------------------------------------------------------------------------
Accounting pronouncements: On July 1, 2001, the Company adopted Statement of
Financial Accounting Standards No. 141, "Business Combinations" (SFAS 141), and
on January 1, 2002 adopted SFAS 142, "Goodwill and Other Intangible Assets".
SFAS 141 requires all business combinations initiated after June 30, 2001 to be
accounted for using the purchase method of accounting. As required by SFAS 142,
the Company discontinued amortizing the remaining balances of goodwill beginning
January 1, 2002. All remaining and future acquired goodwill will be subject to
impairment tests annually, or earlier if indicators of potential impairment
exist, using a fair-value-based approach. All other intangible assets will
continue to be amortized over their estimated useful lives and assessed for
impairment under SFAS 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets."
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," effective for fiscal years
beginning after December 15, 2001. SFAS 144 addresses the accounting and
reporting for the impairment or disposal of long-lived assets, including the
disposal of a segment of business. The Company adopted SFAS 144 on January 1,
2002. The adoption of SFAS 144 did not have a material impact on the Company's
financial position and results of operations.
In April 2002, the FASB issued Statement of Financial Accounting Standards
No. 145, "Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB
Statement No. 13, and Technical Corrections" (SFAS 145), effective for
financial statements issued after June 15, 2002. The adoption of SFAS 145,
relating to extinguishments of debt and certain lease transactions, did not have
an impact on the Company's financial statements.
In June 2002, the FASB issued Statement of Financial Accounting Standards
No. 146, "Accounting for Costs associated with Exit or Disposal Activities"
(SFAS 146). SFAS 146 requires that a liability for a cost associated with an
exit or disposal activity be recognized when the liability is incurred and that
the initial measurement of a liability be at fair value. SFAS 146 is effective
for exit or disposal activities that are initiated after December 31, 2002. The
Company is currently evaluating the effects of SFAS 146, but does not expect
that the adoption of SFAS 146 would have a material effect on the Company's
financial statements.
In November 2002, the FASB issued FASB Interpretation No. 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others" (FIN 45). FIN 45 requires that
upon issuance of a guarantee, a guarantor must recognize a liability for the
fair value of an obligation assumed under a guarantee. FIN 45 also requires
additional disclosures by a guarantor in its interim and annual financial
statements about the obligations associated with guarantees issued. The
recognition provisions of FIN 45 are effective for any guarantees issued or
modified after December 31, 2002. The disclosure requirements are effective for
financial statements of interim or annual periods ending after December 15, 2002
(see Note 15).
Reclassifications: Certain reclassifications of prior year's amounts have
been made to conform to the current year's presentation.
2. Available-for-Sale Securities
Available-for-sale securities are carried at estimated fair values and the
unrealized holding gains and losses are excluded from earnings and are reported
net of income taxes in accumulated other comprehensive loss until realized.
Adjustments of $14,000 and $21,000 were made to equity to reflect the net
unrealized losses on available-for-sale securities as of December 31, 2002 and
2001, respectively.
Available-for-sale securities consist of the following:
2002 2001
--------------------------------------------
Fair Unrealized Fair Unrealized
In thousands Value Losses Value Losses
- -------------------------------------------------------------------------
Mutual funds $522 $182 $530 $174
- -------------------------------------------------------------------------
3. Inventories
Inventories consist of the following:
In thousands 2002 2001
- ---------------------------------------------------------
Raw materials and spare parts $4,663 $3,785
Work-in-progress 1,384 1,717
Finished goods 1,393 1,335
----- -----
$7,440 $6,837
- ---------------------------------------------------------
20
4. Property, Plant and Equipment
Property, plant and equipment consist of the following:
In thousands 2002 2001
- -----------------------------------------------------------------
Land, buildings and improvements $36,529 $36,912
Machinery, fixtures and equipment 9,918 10,037
Leaseholds and improvements 980 995
------ ------
$47,427 $47,944
- -----------------------------------------------------------------
Land, buildings and equipment having a net book value of $33.0 million and $34.6
million at December 31, 2002 and 2001, respectively, were pledged as collateral
under mortgage agreements.
5. Goodwill
Goodwill represents the excess of purchase price over the estimated fair value
of net assets acquired and all of such goodwill relates to the outdoor display
segment. The Company adopted the provisions of SFAS 142, "Goodwill and Other
Intangible Assets," effective January 1, 2002. Under SFAS 142, goodwill assets
are no longer amortized, but are reviewed annually for impairment, or more
frequently if indications of possible impairment exist. The Company performed
the requisite transitional impairment tests for goodwill assets as of January 1,
2002, which indicated that there was no transitional impairment loss. In
addition, the Company periodically evaluates the value of its goodwill and
determines if such assets are impaired by comparing the carrying values with
estimated future undiscounted cash flows. The Company performed the annual
impairment tests for goodwill as of October 1, 2002 and has determined that
goodwill was not impaired as of that date. Accordingly, the adoption of SFAS
142 did not have an impact on the Company's financial statements, other than the
reduction of goodwill amortization expense as explained further below.
In accordance with SFAS 142, prior period amounts were not restated.
Reconciliation of the previously reported net income and earnings per share for
the three years ended December 31, 2002 to the amounts adjusted for the
reduction of amortization expense, net of related income tax effect, is as
follows:
In thousands, except per share data 2002 2001 2000
- ------------------------------------------------------------------------
Net income (loss), as reported $ 428 $ 509 $(2,231)
Goodwill amortization, net of
income taxes - 58 71
---- ---- -----
Net income (loss), adjusted $ 428 $ 567 $(2,160)
---- ---- -----
Earnings (loss) per share - basic
and diluted:
Earnings (loss) per share, as reported $0.34 $0.40 $ (1.77)
Goodwill amortization, net of
income taxes - 0.05 0.06
---- ---- -----
Earnings (loss) per share, adjusted $0.34 $0.45 $ (1.71)
- ------------------------------------------------------------------------
6. Other Assets
Other assets consist of the following:
In thousands 2002 2001
- ----------------------------------------------------------------------
Deferred financing costs, net of
accumulated amortization of $1,235 - 2002
and $1,399 - 2001 $1,145 $1,412
Investment in joint venture 1,091 1,065
Prepaids 635 838
Maintenance contracts, net of accumulated
amortization of $2,061 - 2002
and $2,220 - 2001 326 406
Noncompete agreements, net of accumulated
amortization of $122 - 2002
and $98 - 2001 34 58
Patents, net of accumulated amortization
of $467 - 2002 and $458 - 2001 - 9
Deposits and other 711 650
----- -----
$3,942 $4,438
- ----------------------------------------------------------------------
Deferred financing costs relate to issuance of the 7 1/2% convertible
subordinated notes, the 9 1/2% subordinated debentures, mortgages and other
financing agreements.
Noncompete agreements relate to the acquisition of one of the outdoor
businesses and the acquisition of theatre leases.
Maintenance contracts represent the present value of acquired agreements
to service outdoor display equipment.
Future amortization expense of intangible assets over the next five years
is expected as follows: $408,000 - 2003, $379,000 - 2004, $356,000 - 2005,
$290,000 - 2006, $120,000 - 2007.
7. Write-Off of Assets
During the fourth quarter of 2000, the Company recorded an impairment charge of
$1,306,000 relating to an intangible theatre asset and equipment at its older
Lake Dillon, Colorado, theatre, and $145,000 for certain older outdoor
manufacturing equipment. The charge relating to the theatre was taken as a
result of continuing disappointing box office receipts resulting in part from
the Company's opening of a modern six-plex theatre in the same community in
1999. The Company recorded this impairment after analyzing its latest plans and
projections of cash flows for this theatre, and determined that a charge was
appropriate at that time. Previously, management had been working various
strategies to improve operating results that were not having the desired effect,
resulting in the need to record an impairment at that time. Under the terms of
its lease, the Company was obligated to operate the theatre until 2014.
However, on October 1, 2002, the Company entered into an agreement to terminate
the lease as of January 31, 2003, at a net cost of $34,000. The charge for the
outdoor manufacturing equipment relates to assets held for sale at its former
Logan, Utah manufacturing facility after recent marketplace activity provided
indication that the Company's carrying value was in excess of net realizable
value. During the third quarter 2001, this facility was sold, and a $56,000
loss was recorded.
8. Taxes on Income
The components of income tax expense (benefit) are as follows:
In thousands 2002 2001 2000
- ------------------------------------------------------------------------
Current:
Federal $(704) $(413) $(320)
State and local (3) 27 (23)
Foreign 338 318 447
--- --- ---
(369) (68) 104
Deferred:
Federal 600 605 (601)
State and local (19) 16 (313)
Foreign - - (57)
--- --- ---
581 621 (971)
--- --- ---
Total income tax expense (benefit) $ 212 $ 553 $(867)
- ------------------------------------------------------------------------
Income taxes provided (benefit) differed from the expected federal statutory
rate of 34% as follows:
2002 2001 2000
- ----------------------------------------------------------------------------
Statutory federal income tax (benefit) rate 34.0% 34.0% (34.0%)
State income taxes, net of federal benefit (2.3) 2.7 (7.2)
Foreign operating losses (income) not
providing current tax benefit (expense) (20.9) 2.9 5.4
Foreign income taxed at different rates 14.3 8.0 2.7
Unused income tax credits 6.8 1.4 3.9
Other 1.3 3.0 1.2
---- ---- ----
Effective income tax rate (benefit) 33.2% 52.0% (28.0%)
- ----------------------------------------------------------------------------
21
Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
Significant components
of the Company's deferred tax assets and liabilities are as follows:
In thousands 2002 2001
- ---------------------------------------------------------------
Deferred tax asset:
Tax credit carryforwards $ 1,051 $ 1,988
Operating loss carryforwards 5,689 4,392
Net pension cost 834 475
Bad debts 377 159
Litigation - 86
Other 548 629
Valuation allowance (227) (304)
------ ------
8,272 7,425
------ ------
Deferred tax liability:
Depreciation 11,503 10,722
Gain on purchase of the Company's
9 1/2% subordinated debentures 439 439
Other 422 238
------ ------
12,364 11,399
------ ------
Net deferred tax liability $ 4,092 $ 3,974
- ---------------------------------------------------------------
Tax credit carryforwards primarily relate to federal alternative minimum taxes
of $1.0 million paid by the Company, which may be carried forward indefinitely.
Operating tax loss carryforwards primarily relate to U.S. federal net operating
loss carryforwards of approximately $13.7 million, which begin to expire in 2019
and Australian net operating loss carryforwards of approximately $0.1 million,
which begin to expire in 2007.
A valuation allowance has been established for the amount of deferred tax
assets related to the Australian and state net operating loss carryforwards,
which management estimates will more likely than not expire unused.
9. Accrued Liabilities
Accrued liabilities consist of the following:
In thousands 2002 2001
- ---------------------------------------------------------------
Pension liability $2,100 $1,207
Compensation and employee benefits 1,573 1,712
Warranty obligations 541 310
Interest payable 474 704
Taxes payable 146 222
Other 2,355 2,075
----- -----
$7,189 $6,230
- ---------------------------------------------------------------
Warranty obligations - The Company provides for the estimated cost of product
warranties at the time revenue is recognized. While the Company engages in
product quality programs and processes, including evaluating the quality of the
component suppliers, the warranty obligation is affected by product failure
rates. Should actual product failure rates differ from the Company's estimates,
revisions to increase or decrease the estimated warranty liability may be
required.
A summary of the warranty liabilities at December 31, follows:
In thousands 2002 2001 2000
- ------------------------------------------------------------------
Balance at beginning of year $ 310 $ 350 $ 711
Provisions 594 175 34
Deductions (363) (215) (395)
--- --- ---
Balance at end of year $ 541 $ 310 $ 350
- ------------------------------------------------------------------
10. Long-Term Debt
Long-term debt consist of the following:
In thousands 2002 2001
- -------------------------------------------------------------------------------
7 1/2% convertible subordinated notes due 2006 $30,177 $30,177
9 1/2% subordinated debentures due 2012 1,057 1,057
Term loans - bank, secured due in quarterly installments
through 2006 18,196 5,479
Revolving credit facility - bank secured - 12,900
Real estate mortgages - secured, due in monthly
installments through 2020 17,017 18,200
Loan payable - IRB, due in annual installments through
2014 4,155 4,390
Loans payable - CEBA, secured, due in monthly
installments through 2006 at 0.0% and 6.0% 328 245
Loan payable - CDA, secured due in monthly installments
through 2002 at 5.0% - 54
Capital lease obligation - secured, due in monthly
installments through 2004 at 5.3% 42 79
------ ------
70,972 72,581
Less portion due within one year 3,763 3,331
------ ------
Long-term debt $67,209 $69,250
- -------------------------------------------------------------------------------
Payments of long-term debt due for the next five years are:
In thousands 2003 2004 2005 2006 2007
- -----------------------------------------------------------------
$3,763 $3,205 $15,009 $31,576 $1,430
- -----------------------------------------------------------------
The 7 1/2% convertible subordinated notes (the "Notes") are due in 2006.
Interest is payable semiannually. The Notes are convertible into Common Stock
of the Company at a conversion price of $14.013 per share. The Notes may be
redeemed by the Company, in whole or in part, at declining premiums. The
related Indenture agreement requires compliance with certain financial
covenants, which include a limitation on the Company's ability to incur
indebtedness of five times EBITDA plus $5.0 million. During 2001, the Company
repurchased $20,000 face value of its Notes at $77.00, and recognized $2,000 of
income (net of tax).
The 9 1/2% subordinated debentures (the "Debentures") are due in annual
sinking fund payments of $105,700 beginning in 2009, with the remainder due in
2012. Interest is payable semiannually. The Debentures may be redeemed by the
Company, in whole or in part, at declining premiums.
The Company has a bank credit agreement which provides for both term loans
and a $15 million revolving credit facility, including letters of credit, which
was available until June 2002, and required an annual facility fee on the unused
commitment of 0.375%. On June 30, 2002, the Company converted its $15 million
revolving credit facility into a four-year term loan payable in equal quarterly
installments of $937,500 plus interest at LIBOR plus 2.25% (3.63% at December
31, 2002). The Company has provided the bank with a security interest in
substantially all assets of its display business. At December 31, 2002, the
outstanding balance of the converted term loan was $14,062,500. Also, under the
credit agreement, the Company has an additional term loan, of which $4.1 million
was outstanding at December 31, 2002, which bears interest at LIBOR plus 1.75%
(3.56% at December 31, 2002) and is payable in even quarterly installments of
$133,333 through July 2005 and a final maturity of $2.8 million in August 2005.
The credit agreement requires compliance with certain financial covenants which,
at December 31, 2002, included a defined debt service coverage ratio of 1.50 to
1.0, a defined debt to cash flow ratio of 3.50 to 1.0 and an annual limitation
of $750,000 on cash dividends. At December 31, 2002, the Company was in
compliance with such financial covenants. At December 31, 2002, the Company was
not involved in any derivative financial instruments. The two interest rate
swap agreements the Company had expired on August 27, 2002. Such agreements had
a notional value equal to the amount of the term
22
loans and with corresponding maturity terms to reduce exposure to interest
fluctuations, which were classified as cash flow hedges. The interest rate swap
agreements had the effect of converting the interest rate on the term loan to a
fixed annual rate of 7.88% through August 2002. On January 1, 2001, the Company
adopted the provisions of SFAS 133 and recorded a cumulative effect of an
accounting change, net of tax, of approximately $15,000 in other comprehensive
income (loss). See Note 18, Subsequent Event, on the refinancing of the term
loans.
The Company has mortgages on certain of its facilities, which are payable
in monthly installments, the last of which extends to 2020. Depending upon the
mortgage, the interest rate is either fixed, floating or adjustable. At
December 31, 2002, such interest rates ranged from 3.18% to 7.50%.
On June 3, 1999, as part of a loan agreement entered into with the City of
Logan, Cache County, Utah, the Company financed $4.8 million of a combination of
Tax-Exempt and Taxable Revenue Bonds ("Bonds") for the construction of its new
55,000 square foot outdoor display manufacturing facility in Logan, Utah. The
Bonds are secured by an irrevocable letter of credit issued by a bank. At the
direction of the Company, the Bonds may be redeemed, in whole or in part, prior
to the maturity date. The Bonds were issued with a variable interest rate based
upon a Weekly Rate (as determined by a Remarketing Agent), which is the minimum
rate necessary for the Remarketing Agent to sell the Bonds on the effective date
of such Weekly Rate at a price equal to 100% of the Bonds' principal amount
without regard to accrued interest. The Company may, from time to time, change
the method of determining the interest rate to a daily, weekly, commercial paper
or long-term interest rate. At December 31, 2002, the interest rates on the
Bonds were 1.52% and 1.75%, respectively, plus a 1.25% letter of credit fee.
During 1999, the Company received $400,000 structured as forgivable loans
from the State of Iowa, City of Des Moines and Polk County, which were
classified as deferred revenue, deposits and other in the Consolidated Balance
Sheets prior to December 31, 2002. The loans were forgiven on a pro-rata basis
when predetermined employment levels were attained. As of December 31, 2002,
the Company did not meet the maximum specified employment levels and,
accordingly, is required to repay the non-forgiven portion. At December 31,
2002, the non-forgiven amount totaled $133,333 and is payable in even monthly
installments through 2006 at 6.0% interest.
During 2002, the Company incurred interest costs of $4.6 million. At
December 31, 2002, the fair value of the Notes and the Debentures was $24.1
million and $1.0 million, respectively. The fair value of the remaining
long-term debt approximates the carrying value.
11. Stockholders' Equity
During 2002, the Board of Directors declared four quarterly cash dividends of
$0.035 per share on the Company's Common Stock and $0.0315 per share on the
Company's Class B Stock, which were paid in April, July and October 2002 and
January 2003. Each share of Class B Stock is convertible at any time into one
share of Common Stock and has ten votes per share, as compared to Common Stock
which has one vote per share but receives a higher dividend.
The Company has 3.0 million shares of authorized and unissued capital
stock designated as Class A Stock, $1.00 par value. Such shares have no voting
rights except as required by law and would receive a 10% higher dividend than
the Common Stock. The Company also has 0.5 million shares of authorized and
unissued capital stock designated as Preferred Stock, $1.00 par value.
The stockholders previously approved an increase in the authorized shares
of Common Stock to 11.0 million and Class A Stock to 6.0 million. A Certificate
of Amendment increasing the authorized shares will be filed when deemed
necessary.
Shares of Common Stock reserved for future issuance in connection with
convertible securities and stock option plans were 2.2 million and 2.3 million
at December 31, 2002 and 2001, respectively.
12. Engineering Development
Engineering development expense was $496,000, $297,000 and $326,000 for 2002,
2001 and 2000, respectively.
13. Pension Plan
All eligible salaried employees of Trans-Lux Corporation and certain of its
subsidiaries are covered by a non-contributory defined benefit pension plan.
Pension benefits vest after five years of service and are based on years of
service and final average salary. The Company's general funding policy is to
contribute at least the required minimum amounts sufficient to satisfy
regulatory funding standards, but not more than the maximum tax-deductible
amount. At December 31, 2002, plan assets consist principally of guaranteed
investment contracts, equity and index funds, money market funds and $167,000 in
the Company's 9 1/2% subordinated debentures.
The funded status of the plan as of December 31, 2002 and 2001 is as follows:
In thousands 2002 2001
- ---------------------------------------------------------------------------------
Change in benefit obligation
Benefit obligation at beginning of year $ 8,861 $ 7,597
Service cost 556 568
Interest cost 602 560
Actuarial loss 704 46
Amendments to plan 67 167
Benefits paid (1,314) (77)
----- -----
Benefit obligation at end of year $ 9,476 $ 8,861
----- -----
Change in plan assets
Fair value of plan assets at beginning of year $ 5,847 $ 5,625
Actual return on plan assets (80) (12)
Company contributions 1,231 311
Benefits paid (1,314) (77)
----- -----
Fair value of plan assets at end of year $ 5,684 $ 5,847
----- -----
Funded status
Funded status (underfunded) $(3,792) $(3,014)
Unrecognized net actuarial loss 3,457 2,253
Unrecognized prior service cost 225 175
----- -----
Net amount recognized $ (110) $ (586)
----- -----
Amounts recognized in the balance sheet consist of
Accrued pension liability $(2,325) $(1,382)
Unrecognized prior service cost 225 175
Accumulated other comprehensive loss 1,990 621
----- -----
Net amount recognized $ (110) $ (586)
----- -----
Weighted-average assumptions as of December 31
Discount rate 6.75% 7.25%
Expected return on plan assets 8.75% 9.50%
Rate of compensation increase 3.25% 3.75%
- ---------------------------------------------------------------------------------
The following items are components of the net periodic pension cost for the
three years ended December 31, 2002:
In thousands 2002 2001 2000
- ---------------------------------------------------------------------------------
Service cost $ 556 $ 568 $ 568
Interest cost 602 560 493
Expected return on plan assets (547) (537) (561)
Amortization of prior service cost 18 2 2
Amortization of net actuarial loss 126 90 8
--- --- ---
Net periodic pension cost - funded plan $ 755 $ 683 $ 510
- ---------------------------------------------------------------------------------
23
In addition, the Company provided unfunded supplemental retirement benefits for
the retired Chief Executive Officer. During 2002, the Company made payments
totaling $332,000 and accrued $50,000 for such benefits. In 2001, the Company
recognized a benefit of $127,000 due to amendments to the pension plan and
accrued $111,000 for 2000. The total liability accrued was $174,000 and
$456,000 at December 31, 2002 and 2001, respectively.
The Company does not offer any postretirement benefits other than the
pension and the supplemental retirement benefits described herein.
14. Stock Option Plans
The Company has four stock option plans. Under the 1995 Stock Option Plan and
the 1992 Stock Option Plan, 125,000 and 50,000 shares of Common Stock,
respectively, were authorized for grant to key employees. Under the Non-
Employee Director Stock Option Plan, 30,000 shares of Common Stock were
authorized for grant. During 2001, the Company adopted a Non-Statutory Stock
Option Agreement reserving 10,000 shares of Common Stock for issue to the
Chairman of the Board.
Changes in the stock option plans are as follows:
Number of Shares Weighted
---------------- Average
Authorized Granted Available Exercise Price
- ---------------------------------------------------------------------------------
Balance January 1, 2000 152,509 128,509 24,000 $9.35
Additional shares authorized 25,000 - 25,000 -
Terminated (2,650) (3,850) 1,200 8.16
Granted - 5,500 (5,500) 6.40
------- ------- ------ ----
Balance December 31, 2000 174,859 130,159 44,700 9.26
Additional shares authorized 10,000 - 10,000 -
Terminated - (32,100) 32,100 8.86
Granted - 13,500 (13,500) 4.18
------- ------- ------ ----
Balance December 31, 2001 184,859 111,559 73,300 8.75
Terminated (21,720) (57,420) 35,700 9.86
Granted - 29,500 (29,500) 5.48
------- ------- ------ ----
Balance December 31, 2002 163,139 83,639 79,500 $6.84
- ---------------------------------------------------------------------------------
Under the 1995 and 1992 Stock Option Plans, option prices must be at least 100%
of the market value of the Common Stock at time of grant. No option may be
exercised prior to one year after date of grant. Exercise periods are for ten
years from date of grant (five years if the optionee owns more than 10% of the
voting power) and terminate at a stipulated period of time after an employee's
termination of employment. At December 31, 2002, under the 1995 Plan, options
for 57,739 shares with exercise prices ranging from $5.40 to $15.1875 per share
were outstanding, 30,239 of which were exercisable. During 2002, options for
27,500 shares were granted at exercise prices ranging from $5.40 to $6.10 per
share, no options were exercised, and options for 28,700 shares expired. During
2001, no options were exercised, and options for 30,600 shares expired. During
2000, options for 5,000 shares were granted at an exercise price of $6.50 per
share, no options were exercised, and options for 1,200 shares expired.
At December 31, 2002, under the 1992 Plan, options for 6,900 shares with
exercise prices ranging from $9.4375 to $9.6875 per share were outstanding, all
of which were exercisable. During 2002, no options were exercised, and options
for 21,720 shares expired. During 2001, no options were exercised, and no
options expired. During 2000, no options were exercised, and options for 2,650
shares expired.
Under the Non-Employee Director Stock Option Plan, option prices must be
at least 100% of the market value of the Common Stock at time of grant. No
option may be exercised prior to one year after date of grant and the optionee
must be a director of the Company at time of exercise, except in certain cases
as permitted by the Compensation Committee. Exercise periods are for six years
from date of grant and terminate at a stipulated period of time after an
optionee ceases to be a director. At December 31, 2002, options for 9,000
shares with exercise prices ranging from $4.025 to $13.00 per share were
outstanding, 7,000 of which were exercisable. During 2002, options for 2,000
shares were granted with exercise prices ranging from $5.40 to $6.55, no options
were exercised, and options for 7,000 shares expired. During 2001, options for
3,500 shares were granted with exercise prices ranging from $4.025 to $6.15, no
options were exercised, and options for 1,500 shares expired. During 2000,
options for 500 shares were granted at an exercise price of $5.375 per share, no
options were exercised, and no options expired.
Under the Non-Statutory Stock Option Agreement for the Chairman of the
Board, the option price must be at least 100% of the market value of the Common
Stock at time of grant and the exercise period is for ten years from date of
grant. At December 31, 2002, the options for 10,000 shares with an exercise
price of $4.025 were outstanding and exercisable. During 2002, no options were
exercised and no options expired. During 2001, options for 10,000 shares were
granted at an exercise price of $4.025, no options were exercised and no options
expired.
The following tables summarize information about stock options outstanding at
December 31, 2002:
Weighted Average
Range of Number Remaining Weighted Average
Exercise Prices Outstanding Contractual Life Exercise Price
- -------------------------------------------------------------------------------
$ 4.03 - $6.31 43,000 8.6 $ 5.06
6.32 - 7.56 5,500 7.0 6.50
7.57 - 8.13 12,939 2.6 8.11
8.14 - 9.69 19,400 4.1 9.21
9.70 - 12.63 1,500 2.9 11.63
12.64 - 15.19 1,300 2.2 13.50
------ --- -----
83,639 6.3 $ 6.84
- -------------------------------------------------------------------------------
Range of Number Weighted Average
Exercise Prices Exercisable Exercise Price
- ----------------------------------------------------------
$ 4.03 - $6.31 14,000 $ 4.23
6.32 - 7.56 5,000 6.50
7.57 - 8.13 12,939 8.11
8.14 - 9.69 19,400 9.21
9.70 - 12.63 1,500 11.63
12.64 - 15.19 1,300 13.50
------ -----
54,139 $ 7.58
- ----------------------------------------------------------
The estimated fair value of options granted during 2002, 2001 and 2000 was
$2.71, $1.81 and $2.69 per share, respectively. The fair value of options
granted under the Company's stock option plans during 2002, 2001 and 2000 was
estimated on dates of grant using the binomial options-pricing model with the
following weighted-average assumptions used: dividend yield of approximately
2.51% in 2002, 2.72% in 2001 and 2.60% in 2000, expected volatility of
approximately 47% in 2002, 41% in 2001 and 37% in 2000, risk free interest rate
of approximately 4.78% in 2002, 5.46% in 2001, and 5.48% in 2000, and expected
lives of option grants of approximately four years in 2002, 2001 and 2000.
24
15. Commitments and Contingencies
Contingencies: The Company has employment agreements with certain executive
officers, which expire at various dates through December 2010. At December 31,
2002, the aggregate commitment for future salaries, excluding bonuses, was
approximately $5.6 million.
During 1996, the Company received a $350,000 grant from the State of
Connecticut Department of Economic Development, which is classified as deferred
revenue, deposits and other in the Consolidated Balance Sheets. This grant will
be forgiven under certain circumstances, which include attainment of
predetermined employment levels within the state and maintaining business
operations within the state for a specified period of time.
The Company is subject to legal proceedings and claims which arise in the
ordinary course of its business. During June 1999, a jury in the state of New
Mexico awarded a former employee of the Company $15,000 in damages for lost
wages and emotional distress and $393,000 in punitive damages on a retaliatory
discharge claim. The Company denied the charges on the basis that the
termination was proper and appealed the verdict, which was affirmed. The
Company filed a certiorari petition that had been granted. In March 2002, the
Company reached a settlement with the plaintiff for an amount less than the
amount previously accrued, a portion of which was subject to insurance recovery.
In January 2000, a second former employee of the Company commenced a retaliatory
discharge action seeking compensatory and punitive damages in an unspecified
amount. The Company denied such allegations and asserted defenses including
that the former employee resigned following her failure to timely report to
work. During 2002, the Company reached a settlement with the plaintiff, which
was subject to insurance recovery.
Management has received certain claims by customers related to contractual
matters, which are being discussed, and believes that it has adequate provisions
for such matters.
The Company had been involved in arbitration related to the construction
of its six-plex movie theatre in Dillon, Colorado. The contractor alleged
claims against the Company in the amount of $489,000 due under a contract. The
Company denied any liability and asserted claims in the amount of $467,000 that,
among other matters, the contractor failed to build the theatre in accordance
with the architectural plans. The outcome of this arbitration was payment in
the amount of $84,000 to the contractor during 2001.
Operating leases: Theatre and other premises are occupied under operating
leases that expire at varying dates through 2044. Certain of these leases
provide for the payment of real estate taxes and other occupancy costs. Future
minimum lease payments due under operating leases at December 31, 2002 are as
follows: $560,000 - 2003, $449,000 - 2004, $424,000 - 2005, $295,000 - 2006,
$118,000 - 2007, $1,054,000 - thereafter. Rent expense was $643,000, $553,000
and $687,000 for the years ended December 31, 2002, 2001 and 2000, respectively.
Commitments: On October 1, 2002, the Company entered into an agreement to
early terminate its existing Lake Dillon theatre lease in Dillon, Colorado,
which expires December 31, 2014, for a net payment of $34,000 on January 31,
2003, the new termination date of the lease.
On October 17, 2002, the Company entered into a restrictive covenant
agreement, with the owner of the Dillon Center complex ("Owner"), in Dillon,
Colorado where the Company operates a six-plex theatre in the same community,
which restricts the Owner from constructing, operating using or maintaining a
movie theatre within the Dillon Center complex for a 15-year period ending
January 31, 2018. In consideration for the restrictions, the Company will pay
Owner a sum of $450,000 in two installments during 2003.
Guarantees: The Company has guaranteed $1.4 million (60%) of a $2.3
million mortgage loan held by its joint venture, MetroLux Theatres, until
December 2008.
During 2000, the Company entered into two sale/leaseback transactions for
theatre equipment that are classified as operating leases. The Company has
guaranteed up to a maximum of $1,005,500 if, upon default, the lessor cannot
recover the unamortized balance.
16. Business Segment Data
Operating segments are based on the Company's business components about which
separate financial information is available, and is evaluated regularly by the
Company's chief operating decision makers in deciding how to allocate resources
and in assessing performance.
The Company evaluates segment performance and allocates resources based
upon operating income. The Company's operations are managed in three reportable
business segments. The Display Division comprises two operating segments,
indoor display and outdoor display. Both design, produce, lease, sell and
service large-scale, multi-color, real-time electronic information displays.
Both operating segments are conducted on a global basis, primarily through
operations in the U.S. The Company also has operations in Canada and Australia.
The indoor display and outdoor display segments are differentiated primarily by
the customers they serve. The Entertainment/Real Estate Division owns a chain
of motion picture theatres in the western Mountain States, a national film
booking service, and income-producing real estate properties. Segment operating
income is shown after general and administrative expenses directly associated
with the segment and includes the operating results of the joint venture
activities. Corporate general and administrative items relate to costs that are
not directly identifiable with a segment. There are no intersegment sales.
Information about the Company's operations in its three business segments for
the three years ended December 31, 2002 is as follows:
In thousands 2002 2001 2000
- -------------------------------------------------------------------------------
Revenues:
Indoor display $ 21,829 $ 25,449 $24,363
Outdoor display 38,591 31,636 30,539
Entertainment/real estate 14,471 13,086 11,861
------- ------- ------
Total revenues $ 74,891 $ 70,171 $66,763
------- ------- ------
Operating income:
Indoor display $ 5,324 $ 7,931 $ 7,473
Outdoor display 803 1,563 370
Entertainment/real estate 3,474 2,534 417
------- ------- ------
Total operating income 9,601 12,028 8,260
Other income 519 412 626
Corporate general and administrative expenses (5,079) (6,003) (6,449)
Interest expense - net (4,401) (5,375) (5,535)
Income tax (provision) benefit (212) (553) 867
------- ------- ------
Net income (loss) $ 428 $ 509 $(2,231)
------- ------- ------
Assets:
Indoor display $ 39,914 $ 43,592
Outdoor display 35,331 36,529
Entertainment/real estate 26,421 26,891
------- -------
Total identifiable assets 101,666 107,012
General corporate 9,308 6,885
------- -------
Total assets $110,974 $113,897
------- -------
Depreciation and amortization:
Indoor display $ 5,940 $ 5,643 $ 5,187
Outdoor display 2,911 2,977 2,791
Entertainment/real estate 924 935 993
General corporate 472 512 561
------- ------- ------
Total depreciation and amortization $ 10,247 $ 10,067 $ 9,532
------- ------- ------
Capital expenditures:
Indoor display $ 4,258 $ 6,502 $ 7,162
Outdoor display 1,678 1,801 5,202
Entertainment/real estate 337 435 5,822
General corporate 102 118 129
------- ------- ------
Total capital expenditures $ 6,375 $ 8,856 $18,315
- -------------------------------------------------------------------------------
25
17. Fourth Quarter Events (unaudited)
The Company recorded the following items during the quarter ended December 31,
2002: (1) an increase to net income of $197,000 related to a sale of assets,
and (2) a decrease in the effective tax rate for the year, which had the effect
of decreasing the quarterly income tax expense by approximately $63,000. During
the quarter ended December 31, 2001, the Company recorded: (1) a decrease to
net income of $110,000 related to an increase in the allowance for uncollectable
accounts, (2) an increase to net income of $159,000 related to the settlement of
a legal matter (see Note 15), and (3) an increase in the effective tax rate for
the year, which had the effect of increasing the quarterly income tax expense by
approximately $50,000.
18. Subsequent Event
The Company successfully completed a refinancing of its senior debt with
People's Bank and The Bank of New York on February 12, 2003. The refinancing
includes two term loans totaling $17 million and a revolving line of credit of
up to $5 million at variable interest rates ranging from LIBOR plus 1.75% to
Prime plus 0.25% and matures September 30, 2005. On February 12, 2003, the
entire revolving line was available as none had been drawn at that date.
Independent Auditors' Report
To the Board of Directors and Stockholders of Trans-Lux Corporation,
Norwalk, Connecticut:
We have audited the accompanying consolidated balance sheets of Trans-Lux
Corporation and its subsidiaries as of December 31, 2002 and 2001, and the
related consolidated statements of operations, stockholders' equity,
comprehensive income, and cash flows for each of the three years in the period
ended December 31, 2002. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits. We did not audit the
2002 and 2001 financial statements of MetroLux Theatres, the Company's joint
venture investment which is accounted for by use of the equity method. The
Company's equity of $1,091,000 and $1,065,000 in MetroLux Theatres' net assets
at December 31, 2002 and 2001, respectively, and of $801,000 and $397,000 in
that company's net income for the years ended December 31, 2002 and 2001,
respectively are included in the accompanying 2002 and 2001 financial
statements. The 2002 and 2001 financial statements of MetroLux Theatres were
audited by other auditors whose reports have been furnished to us, and our
opinion, insofar as it relates to the amounts included for such company in the
2002 and 2001 financial statements, is based solely on the reports of such other
auditors.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits and the reports of
the other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of the other auditors,
such consolidated financial statements present fairly, in all material respects,
the financial position of the Company and its subsidiaries at December 31, 2002
and 2001, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 2002 in conformity with
accounting principles generally accepted in the United States of America.
As discussed in Note 5 of the Notes to the Consolidated Financial
Statements, as of January 1, 2002, the Company changed its method of accounting
for goodwill to conform to Statement of Financial Accounting Standards No. 142,
"Goodwill and Other Intangible Assets".
/s/ Deloitte & Touche LLP
Stamford, Connecticut
March 19, 2003
26
Partners
MetroLux Theatres
Norwalk, Connecticut
Independent Auditor's Report
We have audited the accompanying balance sheets of MetroLux Theatres as of
December 31, 2002 and 2001 and the related statements of income, partners'
equity and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of MetroLux Theatres as of
December 31, 2002 and 2001, and the results of its operations and its cash flows
for the years then ended in conformity with accounting principles generally
accepted in the United States of America.
/s/ Kellogg & Andelson
February 11, 2003
27
METROLUX THEATRES
BALANCE SHEETS
DECEMBER 31, 2002 AND 2001
(Dollars in thousands)
ASSETS
2002 2001
---- ----
CURRENT ASSETS:
Cash $ 820 $ 707
Concession supplies 9 10
Prepaid expenses and other current assets 17 11
Due from partners 4 1
----- -----
Total current assets 850 729
PROPERTY AND EQUIPMENT, net 4,105 4,331
INTANGIBLE ASSETS, net 25 16
----- -----
$4,980 $5,076
===== =====
LIABILITIES AND PARTNERS' EQUITY
CURRENT LIABILITIES:
Film rentals payable $ 176 $ 211
Accounts payable and accrued expenses 215 164
Current portion of long-term debt 223 207
Deferred revenues 87 71
----- -----
Total current liabilities 701 653
LONG-TERM DEBT, net of current portion 2,097 2,293
----- -----
Total liabilities 2,798 2,946
COMMITMENTS - -
PARTNERS' EQUITY 2,182 2,130
----- -----
$4,980 $5,076
===== =====
28
METROLUX THEATRES
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001
(Dollars in thousands)
2002 2001
---- ----
OPERATING REVENUES:
Theatre operations
Admissions $2,810 $2,434
Concessions 1,219 1,045
Other operating revenues 87 59
----- -----
Total operating revenues 4,116 3,538
----- -----
OPERATING EXPENSES:
Theatre operations
Film costs and advertising 1,544 1,379
Cost of concessions 239 183
Other operating expenses 886 868
Administrative expenses 141 110
----- -----
Total operating expenses 2,810 2,540
----- -----
INCOME FROM OPERATIONS 1,306 998
----- -----
OTHER INCOME (EXPENSE):
Interest income 1 5
Gain on sale of assets 405 43
Interest expense (110) (252)
----- -----
Net other income (expense) 296 (204)
----- -----
NET INCOME $1,602 $ 794
===== =====
29
METROLUX THEATRES
STATEMENTS OF PARTNERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001
(Dollars in thousands)
Trans-Lux
Metro Colorado Loveland
Corporation Corporation Total
----------- ----------- -----
PARTNERS' EQUITY, January 1, 2001 $ 816 $ 816 $1,632
PARTNERSHIP DISTRIBUTIONS (148) (148) (296)
NET INCOME 397 397 794
----- ----- -----
PARTNERS' EQUITY, January 1, 2002 1,065 1,065 2,130
PARTNERSHIP DISTRIBUTIONS (775) (775) (1,550)
NET INCOME 801 801 1,602
----- ----- -----
PARTNERS' EQUITY, December 31, 2002 $1,091 $1,091 $2,182
===== ===== =====
30
METROLUX THEATRES
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001
(Dollars in thousands)
2002 2001
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,602 $ 794
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 151 146
Gain on sale of property and equipment (405) (42)
Write off of prepaid financing costs - 30
Changes in assets and liabilities:
Concession supplies 1 -
Prepaid expenses and other current assets (6) (2)
Due from partners (3) (162)
Film rentals payable (35) 76
Accounts payable and accrued expenses 51 (4)
Deferred revenue 16 6
----- -----
Net cash provided by operating activities 1,372 842
----- -----
CASH FLOWS FROM INVESTING ACTIVITIES:
Net proceeds from sale of property and equipment 514 45
Acquisition of property and equipment (30) (178)
Acquisition of intangible assets (13) -
----- -----
Net cash provided by (used in) investing activities 471 (133)
----- -----
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on note to general partner - (502)
Net proceeds from issuance of long-term debt - 157
Principal payment on long-term debt (180) (129)
Partnership distributions (1,550) (296)
----- -----
Net cash (used in) financing activities (1,730) (770)
----- -----
NET CHANGE IN CASH 113 (61)
CASH, beginning of year 707 768
----- -----
CASH, end of year $ 820 $ 707
===== ====
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ 110 $ 251
===== ====
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
On December 28, 2001, the Company refinanced their long-term note with a new
bank. The amount refinanced was approximately $2,343 along with approximately
$16 of loan fees deducted out of net proceeds.
31
METROLUX THEATRES
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
MetroLux Theatres (the "Company") is a general partnership entered between
Metro Colorado Corporation, a California corporation, and Trans-Lux
Loveland Corporation, a Colorado corporation. The partnership was created
for the purpose of engaging in the business of constructing, purchasing,
owning and performing all functions in relation to the operation of a
multi-screen movie theatre, ancillary real estate and other entertainment
uses in Loveland, Colorado.
Property and Equipment
----------------------
Property and equipment are stated at cost, net of accumulated depreciation.
Depreciation is provided utilizing straight-line and accelerated methods
over the estimated useful lives of the assets as follows:
Buildings and improvements 10-39 years
Theatre equipment 5-10 years
Major repairs and replacements are capitalized and ordinary maintenance and
repairs are charged to operations as incurred.
Intangible Assets
-----------------
Intangible assets consist of loan fees net of accumulated amortization.
Amortization is provided utilizing straight-line method over the term of
the loan.
Income Taxes
------------
The Company is treated as a partnership for federal and state income tax
purposes. Consequently, federal and state income taxes are not payable by,
or provided for, the Company. Partners are taxed individually on their
shares of the Company's earnings. The Company's net income or loss is
allocated among the partners in accordance with their percentage of
ownership.
Revenue Recognition
-------------------
The Company recognizes revenue when tickets and concession goods are sold.
Revenue from gift certificates and group activity is recognized when they
are redeemed.
Concentrations of Credit Risk (Dollars in thousands)
----------------------------------------------------
Financial instruments which potentially subject the Company to
concentrations of credit risk consist of cash. The Company places its cash
with high credit quality financial institutions. Total amounts for the
years ended December 31, 2002 and 2001 in excess of the FDIC limit amounted
to approximately $704 and $415, respectively.
32
METROLUX THEATRES
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
------------------------------------------------------
Management Estimates
--------------------
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Reclassifications
-----------------
Certain reclassifications have been made to the 2001 financial statements
to conform to the 2002 presentation.
2. DUE FROM PARTNERS (Dollars in thousands)
----------------------------------------
As of December 31, 2002 and 2001, the net advances due from the general
partners were approximately $4 and $1, respectively. These advances are
unsecured, non-interest bearing and are expected to be repaid within the
next year.
3. PROPERTY AND EQUIPMENT (Dollars in thousands)
---------------------------------------------
Property and equipment consist of the following for the years ended
December 31:
2002 2001
---- ----
Buildings $4,027 $4,027
Improvements 45 38
Theatre equipment 197 197
Land 598 707
Construction in progress 23 -
----- -----
4,890 4,969
Less: accumulated depreciation and amortization 785 638
----- -----
$4,105 $4,331
===== =====
Depreciation and amortization expense for the years ended December 31, 2002
and 2001 was approximately $147 and $146, respectively.
33
METROLUX THEATRES
NOTES TO FINANCIAL STATEMENTS
4. INTANGIBLE ASSETS (Dollars in thousands)
----------------------------------------
Intangible assets consist of the following for the years ended December 31:
2002 2001
---- ----
Loan fees $ 29 $ 16
Less: accumulated amortization 4 -
----- -----
$ 25 $ 16
===== =====
Amortization expense related to intangible assets amounted to $4 for the
year ended December 31, 2002. There was no amortization expense for the
year ended December 31, 2001.
5. LONG-TERM DEBT (Dollars in thousands)
-------------------------------------
Long-term debt consists of the following for the years ended December 31:
2002 2001
---- ----
The Company has a $2.5 million real estate
loan with a bank. Borrowings under the term
loan bear interest at the bank's prime rate
minus .30% fixed (3.95% and 4.45% at December
31, 2002 and 2001, respectively) for one
year. Principal payments under the agreement
are in equal monthly installments of
approximately $26 of principal and interest,
maturing January 2009 with one last payment
of approximately $927. The loan is
collateralized by the assets of the Company
and 60% of the debt is guaranteed by each of
the partners. $2,320 $2,500
Less: current portion 223 207
----- -----
$2,097 $2,293
===== =====
34
METROLUX THEATRES
NOTES TO FINANCIAL STATEMENTS
5. LONG-TERM DEBT - CONTINUED (Dollars in thousands)
-------------------------------------------------
Maturities of long-term debt outstanding at December 31, 2002 are as
follows:
Year Ending
December 31,
------------
2003 $ 223
2004 224
2005 233
2006 244
2007 255
Thereafter 1,141
-----
$2,320
=====
6. DEFERRED REVENUES (Dollars in thousands)
----------------------------------------
Deferred revenues at December 31, 2002 and 2001 consist of gift
certificates and group activity passes that are used for concession goods
and admissions at theatres, respectively. The breakdown is as follows as
of December 31:
2002 2001
---- ----
Gift certificates $ 83 $ 68
Group activity passes 4 3
----- -----
$ 87 $ 71
===== =====
7. COMMITMENTS (Dollars in thousands)
----------------------------------
On November 1996, the Company entered into a month to month sublease
agreement with an unrelated party for $2 a month. For both years ending
December 31, 2002 and 2001, the Company recognized $18 of sublease income.
35
METROLUX THEATRES
NOTES TO FINANCIAL STATEMENTS
8. PENSION PLAN (Dollars in thousands)
-----------------------------------
The Company has adopted a Tax Savings Plan covering substantially all of
its employees. Participating employees may contribute 1% to 20% of their
salary, subject to required participating percentages of 401(k)
regulations.
The Company contributes, at the discretion of management, a matching
contribution of 50% of the employees' contribution up to a maximum of 8% of
the employees' gross salary. Employees are vested 25% per year after
completing one year of service and are fully vested after four years.
Contributions made for the years ended December 31, 2002 and 2001 were $2
and $1, respectively.
9. SALE OF ASSETS (Dollars in thousands)
-------------------------------------
During the years ended December 31, 2002 and 2001, the Company sold land
and received proceeds of $514 and $45, respectively, and recorded a gain of
approximately $405 and $43, respectively, related to the sale.
10. RELATED PARTY TRANSACTIONS (Dollars in thousands)
-------------------------------------------------
During the year ended December 31, 2001, the Company paid off a note to a
general partner in the amount of approximately $502. Additionally, the
Company repaid advances to general partners' during the years ended
December 31, 2002 and 2001 in the amount of approximately $3 and $162,
respectively.
11. SUBSEQUENT EVENT (Dollars in thousands)
---------------------------------------
In January 2003, the Company made distributions to its general partners in
the aggregate amount of $500.
36
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) The information required by this Item with respect to directors is
incorporated herein by reference to the Section entitled "Election of
Directors" in the Company's Proxy Statement.
(b) The following executive officers were elected by the Board of Directors
for the ensuing year and until their respective successors are elected.
Name Office Age
- ------------------ ------------------------------ ---
Michael R. Mulcahy President and Co-Chief Executive Officer 54
Thomas Brandt Executive Vice President and Co-Chief 39
Executive Officer
Matthew Brandt Executive Vice President 39
Al L. Miller Executive Vice President 57
Angela D. Toppi Executive Vice President, Treasurer, 47
Secretary and Chief Financial Officer
Karl P. Hirschauer Senior Vice President 57
Thomas F. Mahoney Senior Vice President 55
Messrs. Mulcahy, T. Brandt, M. Brandt, Miller, Hirschauer, Mahoney and
Ms. Toppi have been associated in an executive capacity with the Company for
more than five years.
(c) The information required by Item 405 of Regulation S-K is incorporated
herein by reference to the Section entitled "Compliance with Section 16(a)
of the Securities Exchange Act of 1934" in the Company's Proxy Statement.
37
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein by reference to the
Section entitled "Executive Compensation and Transactions with Management" in
the Company's Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated herein by reference to the
Section entitled "Security Ownership of Certain Beneficial Owners, Directors and
Executive Officers" in the Company's Proxy Statement.
Equity Compensation Plan Information
------------------------------------
Securities Weighted Securities
to be issued average vailable for
December 31, 2002 upon exercise exercise price future issuance
- ---------------------------------------------------------------------------------------------
Equity compensation plans approved
by stockholders 73,639 $7.22 79,500
Equity compensation plans not approved
by stockholders 10,000 4.03 -
--------------------------------------------------
Total 83,639 $6.84 79,500
- ---------------------------------------------------------------------------------------------
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated herein by reference
to the Section entitled "Executive Compensation and Transactions with
Management" in the Company's Proxy Statement.
ITEM 14. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures. The Company's
President and Co-Chief Executive Officer, Michael R. Mulcahy, the Company's
Executive Vice President and Co-Chief Executive Officer, Thomas Brandt, and the
Company's Executive Vice President and Chief Financial Officer, Angela D. Toppi
have evaluated the effectiveness of the design and operation of its disclosure
controls and procedures as of a date within 90 days of the filing date of this
annual report. The Company's disclosure controls and procedures are designed to
ensure that information required to be disclosed by the Company in the reports
that are filed or submitted under the Securities Exchange Act of 1934 is
recorded, processed, summarized, and reported within the time periods specified
in the Securities and Exchange Commission's rules and forms. Based on this
evaluation, the Company's Co-Chief Executive Officers and Chief Financial
Officer have concluded that these controls are effective.
(b) Change in internal controls. There have been no significant changes in
the Company's internal controls or in other factors that could significantly
affect these controls subsequent to the date of the Company's evaluation,
including any corrective actions with regard to significant material
deficiencies or material weaknesses.
38
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
(1) Financial Statements of Trans-Lux Corporation
Consolidated Statements of Operations for the Years Ended December
31, 2002, 2001 and 2000
Consolidated Balance Sheets as of December 31, 2002 and 2001
Consolidated Statements of Cash Flows for the Years Ended December
31, 2002, 2001 and 2000
Consolidated Statements of Stockholders' Equity for the Years
Ended December 31, 2002, 2001 and 2000
Consolidated Statements of Comprehensive Income for the Years
Ended December 31, 2002, 2001 and 2000
Notes to Consolidated Financial Statements
Independent Auditors' Report
Financial statements of MetroLux Theatres, a 50% owned entity,
accounted for by the equity method:
Independent Auditors' Report
Balance Sheets as of December 31, 2002 and 2001
Statements of Income for the Years Ended December 31, 2002 and 2001
Statements of Partners' Equity for the Years Ended December 31,
2002 and 2001
Statements of Cash Flows for the Years Ended December 31, 2002 and
2001
Notes to Financial Statements
(2) Financial Statement Schedules: None.
(3) Exhibits:
3(a) Form of Restated Certificate of Incorporation of the Registrant
(incorporated by reference to Exhibit 3.1 of Registration No.
333-15481).
(b) By-Laws of the Registrant (incorporated by reference to Exhibit
3(b) of Form 10-K for the year ended December 31, 2001).
4(a) Indenture dated as of December 1, 1994 (form of said indenture is
incorporated by reference to Exhibit 6 of Schedule 13E-4 Amendment
No.2 dated December 23, 1994).
(b) Indenture dated as of December 1, 1996 (form of said indenture is
incorporated by reference to Exhibit 4.2 of Registration No.
333-15481).
39
10.1 Form of Indemnity Agreement -- Directors (form of said agreement is
incorporated by reference to Exhibit 10.1 of Registration No.
333-15481).
10.2 Form of Indemnity Agreement -- Officers (form of said agreement is
incorporated by reference to Exhibit 10.2 of Registration No.
333-15481).
10.3 Amended and Restated Pension Plan dated January 1, 2001 and
Amendment No. 1 dated as of April 1, 2002 (incorporated by
reference to Exhibit 10.3 of Form 10-K for the year ended December
31, 2001). Amendment No. 2 dated as of December 31, 2002 to the
Amended and Restated Pension Plan dated January 1, 2001, filed
herewith.
10.4(a) 1989 Non-Employee Director Stock Option Plan, as amended
(incorporated by reference to Exhibit 10.4(a) of Form 10-K for the
year ended December 31, 1999).
(b) 1992 Stock Option Plan (incorporated by reference to Proxy
Statement dated April 3, 1992).
(c) 1995 Stock Option Plan, as amended (incorporated by reference to
Proxy Statement dated April 7, 2000).
10.5 Commercial Loan and Security Agreement dated as of February 12,
2003 among Trans-Lux Corporation, People's Bank as Agent and
People's Bank and The Bank of New York (incorporated by reference
to Exhibit 10(a) of Form 8-K filed February 13, 2003).
10.6 Employment Agreement with Richard Brandt dated as of September 1,
2000 (incorporated by reference to Exhibit 10(a) of Form 10-Q for
the quarter ended September 30, 2000).
10.7 Consulting Agreement with Victor Liss dated as of April 1, 2002
(incorporated by reference to Exhibit 10.7 of Form 10-K for the
year ended December 31, 2001).
10.8 Employment Agreement with Michael R. Mulcahy dated as of April 1,
2002 (incorporated by reference to Exhibit 10.8 of Form 10-K for
the year ended December 31, 2001).
10.9 Employment Agreement with Thomas Brandt dated as of April 1, 2002
(incorporated by reference to Exhibit 10.9 of Form 10-K for the
year ended December 31, 2001).
10.10 Employment Agreement with Matthew Brandt dated as of April 1, 2002
(incorporated by reference to Exhibit 10.10 of Form 10-K for the
year ended December 31, 2001).
10.11 Employment Agreement with Al Miller dated as of April 1, 2002
(incorporated by reference to Exhibit 10.11 of Form 10-K for the
year ended December 31, 2001).
10.12 Employment Agreement with Thomas F. Mahoney dated as of June 1,
2002 (incorporated by reference to Exhibit 10(a) of Form 10-Q for
the quarter ended June 30, 2002).
10.13 Agreement between Trans-Lux Midwest Corporation and Fairtron
Corporation dated as of April 30, 1997 (incorporated by reference
to Exhibit 10(a) of Form 8-K filed May 15, 1997).
40
21 List of Subsidiaries, filed herewith.
99.1 Certification furnished pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 - Michael R. Mulcahy, President and
Co-Chief Executive Officer.
99.2 Certification furnished pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 - Thomas Brandt, Executive Vice
President and Co-Chief Executive Officer.
99.3 Certification furnished pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 - Angela D. Toppi, Executive Vice
President and Chief Financial Officer.
(b) No reports on Form 8-K were filed during the last quarter of the period
covered by this report.
41
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized:
TRANS-LUX CORPORATION
by /s/ Angela D. Toppi
---------------------
Angela D. Toppi
Executive Vice President and
Chief Financial Officer
by /s/ Robert P. Bosworth
------------------------
Robert P. Bosworth
Vice President and
Chief Accounting Officer
Dated: March 27,May 15, 2003
42
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated:
/s/ Richard Brandt March 27,May 15, 2003
- --------------------------------------
Richard Brandt, Chairman of the Board
/s/ Victor Liss March 27,May 15, 2003
- --------------------------------------
Victor Liss, Vice Chairman of the Board
/s/ Steven Baruch March 27, 2003
- --------------------------------------
Steven Baruch, Director
/s/ Matthew Brandt March 27,May 15, 2003
- --------------------------------------
Matthew Brandt, Executive Vice President and Director
/s/ Thomas Brandt March 27,May 15, 2003
- --------------------------------------
Thomas Brandt, Executive Vice President
and Co-Chief Executive Officer and Director
/s/ Howard M. Brenner March 27, 2003
- --------------------------------------
Howard M. Brenner, Director
/s/ Jean Firstenberg March 27, 2003
- --------------------------------------
Jean Firstenberg, Director
/s/ Robert B. Greenes March 27, 2003
- --------------------------------------
Robert Greenes, Director
/s/ Gene F. Jankowski March 27, 2003
- --------------------------------------
Gene F. Jankowski, Director
/s/ Howard S. Modlin March 27,May 15, 2003
- --------------------------------------
Howard S. Modlin, Director
/s/ Michael R. Mulcahy March 27,May 15, 2003
- --------------------------------------
Michael R. Mulcahy, President
and Co-Chief Executive Officer
and Director
43
CERTIFICATION
I, Michael R. Mulcahy, certify that:
1. I have reviewed this annual report on Form 10-K/A of Trans-Lux Corporation,
the "registrant".
2. Based on my knowledge, this annual 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 annual report;
3. Based on my knowledge, the financial statements and other financial
information included in this annual 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 annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures 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 annual report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing the
equivalent function);
a) all significant deficiencies in the design or operation of the internal
controls which could adversely affect the registrant's ability to
record, process, summarize, and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
/s/ Michael R. Mulcahy
----------------------------------------
Date: May 15, 2003 President and Co-Chief Executive Officer
Michael R. Mulcahy
44
CERTIFICATION
I, Thomas Brandt, certify that:
1. I have reviewed this annual report on Form 10-K/A of Trans-Lux Corporation,
the "registrant".
2. Based on my knowledge, this annual 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 annual report;
3. Based on my knowledge, the financial statements and other financial
information included in this annual 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 annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures 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 annual report is
being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing the
equivalent function);
a) all significant deficiencies in the design or operation of the internal
controls which could adversely affect the registrant's ability to
record, process, summarize, and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
/s/ Thomas Brandt
------------------------------------------
Date: May 15, 2003 Executive Vice President and Co-Chief Executive
Officer
Thomas Brandt
45
CERTIFICATION
I, Angela D. Toppi, certify that:
1. I have reviewed this annual report on Form 10-K/A of Trans-Lux Corporation,
the "registrant".
2. Based on my knowledge, this annual 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 annual report;
3. Based on my knowledge, the financial statements and other financial
information included in this annual 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 annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures 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 annual report is
being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing the
equivalent function);
a) all significant deficiencies in the design or operation of the internal
controls which could adversely affect the registrant's ability to
record, process, summarize, and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
/s/ Angela D. Toppi
-------------------------------------------
Date: May 15, 2003 Executive Vice President and Chief Financial
Officer
Angela D. Toppi
46