UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2006
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Commission file number 1-2257
TRANS-LUX CORPORATION
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(Exact name ofregistrant 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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(Address of principal executive offices) (Zip code)
(203) 853-4321
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
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Indicate by check mark whether the Registrant is a large accelerated filer, an
accelerated filer or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (check
one) Large accelerated filer Accelerated filer Non-accelerated filer x
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Indicate by check mark whether the Registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes No X
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date.
Date Class Shares Outstanding
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05/12/06 Common Stock - $1.00 Par Value 973,598
05/12/06 Class B Stock - $1.00 Par Value 286,814
(Immediately convertible into a like
number of shares of Common Stock.)
TRANS-LUX CORPORATION AND SUBSIDIARIES
Table of Contents
Page No.
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Part I - Financial Information (unaudited)
Item 1. Consolidated Balance Sheets - March 31, 2006
and December 31, 2005 (audited) 1
Consolidated Statements of Operations - Three Months
Ended March 31, 2006 and 2005 2
Consolidated Statements of Cash Flows - Three Months
Ended March 31, 2006 and 2005 3
Notes to Consolidated Condensed Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures about Market Risk 13
Item 4. Controls and Procedures 14
Part II - Other Information
Item 1A. Risk Factors 14
Item 5. Other Information 15
Item 6. Exhibits 15
Signatures 16
Exhibits
Part I - Financial Information
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TRANS-LUX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31 December 31
In thousands, except share data 2006 2005
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(unaudited) (audited)
ASSETS
Current assets:
Cash and cash equivalents $ 8,357 $ 13,610
Available-for-sale securities 438 431
Receivables, less allowance of $952 - 2006 and $935 - 2005 6,002 6,321
Unbilled receivables 759 842
Inventories 6,054 5,658
Prepaids and other 1,258 1,149
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Total current assets 22,868 28,011
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Rental equipment 92,805 91,648
Less accumulated depreciation 58,206 56,280
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34,599 35,368
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Property, plant and equipment 39,259 39,188
Less accumulated depreciation 10,226 9,850
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29,033 29,338
Goodwill 1,004 1,004
Other assets 6,205 6,829
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TOTAL ASSETS $ 93,709 $ 100,550
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,714 $ 2,821
Accrued liabilities 7,300 6,986
Current portion of long-term debt 14,285 14,145
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Total current liabilities 23,299 23,952
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Long-term debt:
8 1/4% limited convertible senior subordinated notes due 2012 17,976 17,868
9 1/2% subordinated debentures due 2012 1,057 1,057
Notes payable 24,907 29,440
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43,940 48,365
Deferred credits, deposits and other 2,790 2,859
Deferred income taxes 2,409 2,978
Stockholders' equity:
Capital stock
Common - $1 par value - 5,500,000 shares authorized,
2,453,591 shares issued in 2006 and 2005 2,453 2,453
Class B - $1 par value - 1,000,000 shares authorized,
286,814 shares issued in 2006 and 2005 287 287
Additional paid-in-capital 13,902 13,901
Retained earnings 17,767 18,883
Accumulated other comprehensive loss (1,297) (1,287)
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33,112 34,237
Less treasury stock - at cost - 1,480,045 shares in 2006 and 2005
(excludes additional 286,814 shares held in 2006 and 2005
for conversion of Class B stock) 11,841 11,841
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Total stockholders' equity 21,271 22,396
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 93,709 $ 100,550
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The accompanying notes are an integral part of these consolidated financial statements.
1
TRANS-LUX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
THREE MONTHS ENDED
MARCH 31
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In thousands, except per share data 2006 2005
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Revenues:
Equipment rentals and maintenance $ 3,520 $ 3,775
Equipment sales 5,000 4,813
Theatre receipts and other 3,090 3,061
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Total revenues 11,610 11,649
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Operating expenses:
Cost of equipment rentals and maintenance 2,959 3,045
Cost of equipment sales 3,768 3,267
Cost of theatre receipts and other 2,160 2,200
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Total operating expenses 8,887 8,512
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Gross profit from operations 2,723 3,137
General and administrative expenses 3,378 2,990
Interest income 65 46
Interest expense (1,128) (992)
Other income (loss) (1) 25
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Loss from operations before income taxes and
income from joint venture (1,719) (774)
Benefit for income taxes (572) (262)
Income from joint venture 74 90
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Net Loss $(1,073) $ (422)
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Loss per share - basic $ (0.85) $ (0.33)
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Average common shares outstanding - basic 1,261 1,261
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Cash dividends per share:
Common stock $ 0.035 $ 0.035
Class B stock $0.0315 $0.0315
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The accompanying notes are an integral part of these consolidated financial
statements.
2
TRANS-LUX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
THREE MONTHS ENDED
MARCH 31
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In thousands 2006 2005
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Cash flows from operating activities
Net loss $(1,073) $ (422)
Adjustment to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization 2,371 2,396
Income from joint venture (74) (90)
Deferred income taxes (572) (240)
Gain on sale of available-for-sale securities - (1)
Changes in operating assets and liabilities:
Receivables 402 40
Inventories (396) (236)
Prepaids and other assets (108) (190)
Accounts payable and accruals (807) (1,399)
Deferred credits, deposits and other (68) 562
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Net cash (used in) provided by operating activities (325) 420
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Cash flows from investing activities
Equipment manufactured for rental (1,157) (979)
Purchases of property, plant and equipment (71) (328)
Purchases of available-for-sale securities - (114)
Proceeds from sale of available-for-sale securities - 31
Proceeds from joint venture, net 628 -
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Net cash used in investing activities (600) (1,390)
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Cash flows from financing activities
Proceeds from long-term debt 150 50
Payments of long-term debt (4,435) (231)
Cash dividends (43) (44)
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Net cash used in financing activities (4,328) (225)
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Net decrease in cash and cash equivalents (5,253) (1,195)
Cash and cash equivalents at beginning of year 13,610 12,398
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Cash and cash equivalents at end of period $ 8,357 $11,203
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Interest paid $ 996 $ 932
Interest received 65 47
Income taxes paid 139 160
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The accompanying notes are an integral part of these consolidated financial statements.
3
TRANS-LUX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
March 31, 2006
(unaudited)
Note 1 - Basis of Presentation
Financial information included herein is unaudited, however, such information
reflects all adjustments which are, in the opinion of management, necessary for
the fair presentation of the consolidated financial statements for the interim
periods. The results for the interim periods are not necessarily indicative of
the results to be expected for the full year. The accompanying unaudited
condensed consolidated financial statements have been prepared in accordance
with Rule 10-01 of Regulation S-X promulgated by the Securities and Exchange
Commission and therefore do not include all information and footnote disclosures
required under generally accepted accounting principles. It is suggested that
the March 31, 2006 consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes included in the
Company's Annual Report on Form 10-K for the year ended December 31, 2005.
The Company has incurred losses in the three-month period ended March 31, 2006
of $1,073,000 and $1,793,000 for the year ended December 31, 2005. The Company
also has a negative working capital of $431,000 as of March 31, 2006 and has
negative cash flows from operations for the three months ended March 31, 2006 of
$325,000. Additionally the Company has current debt obligations of $14,285,000,
which includes $12.2 million of the Company's 7 1/2% Notes that are due December
1, 2006. Management believes that its current cash resources will be sufficient
to fund its operations and its current obligations for the next twelve months.
Management's plans include the use of its non-revolving line of credit to fund
its current debt obligations (See Note 3) and monitoring and reducing expenses.
However, no assurance can be given at this time as to whether the Company will
be able to achieve these objectives.
In December 2004, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 123 (revised 2004),
"Share-Based Payment" ("SFAS 123(R)"). SFAS 123(R) establishes standards that
require companies to record the cost resulting from all share-based payment
transactions using the fair value method. Transition under SFAS 123(R)
requires using a modified version of prospective application under which
compensation costs are recognized over the remaining service period for all
unvested share-based payments outstanding or a modified retrospective method
under which all prior periods impacted by SFAS 123 are restated. Effective
January 1, 2006, the Company adopted SFAS 123(R) using the modified prospective
transition method, whereby compensation costs are recognized in the consolidated
statements of operations in the period beginning in January 1, 2006.
Accordingly, compensation cost amounts for prior periods are presented in the
Company's footnotes but the consolidated financial statements have not been
restated to reflect, and do not include, the impact of SFAS 123(R). Stock-
based compensation expense related to stock options recognized under SFAS 123(R)
for the three months ended March 31, 2006 was approximately $1,000, net of tax.
See Note 5 - Stock Option Plans, for additional disclosures.
4
Note 2 - Inventories
Inventories consist of the following:
March 31 December 31
In thousands 2006 2005
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Raw materials $3,875 $3,740
Work-in-progress 1,463 1,411
Finished goods 716 507
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$6,054 $5,658
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Note 3 - Long-Term Debt
During the three months ended March 31, 2006, long-term debt, including current
portion, decreased $4.3 million, primarily due to the $4.1 million repayment on
the revolving loan; and regular scheduled payments of long-term debt, offset by
a $150,000 zero percent interest loan for five years from the State of Iowa and
City of Des Moines.
The Company has a bank Credit Agreement, which was amended in 2006, which
provides for a term loan of $10.0 million, a non-revolving line of credit of up
to $6.2 million to finance purchases and/or redemptions of one-half of the 7
1/2% Convertible Subordinated Notes due December 1, 2006 (the "7 1/2% Notes"),
and a revolving loan of up to $5.0 million at variable interest rates ranging
from LIBOR plus 2.25% to Prime (ranging from 6.44% to 7.24% at March 31, 2006).
The Credit Agreement matures on January 1, 2008. The non-revolving line of
credit is convertible into a four-year amortizing term loan on December 31, 2006
and maturing January 1, 2008. At March 31, 2006, the non-revolving line of
credit was fully available as none had been drawn and $4.1 million was available
under the revolving loan facility. The Credit Agreement requires an annual
facility fee on the unused commitment of 0.25%, and requires compliance with
certain financial covenants, which include a fixed charge coverage ratio of 1.1
to 1.0 through June 30, 2006 and 1.2 to 1.0 for quarters ending September 30,
2006 and thereafter, a loan-to-value ratio of not more than 50%, a leverage
ratio of 3.0 to 1.0, maintaining a tangible net worth of not less than $19.0
million, a cap on capital expenditures and maintaining accounts with an average
monthly compensating balance of not less than $750,000. At March 31, 2006, the
Company was in compliance with all the financial covenants as set forth in the
amended Credit Agreement.
On March 13, 2006, the Company completed an offer to exchange $1,000 principal
amount of its 8 1/4% Limited Convertible Senior Subordinated Notes due 2012 (the
"8 1/4% Notes") for each $1,000 principal amount of its 7 1/2% Notes. The
exchange offer commenced February 6, 2006 and expired on March 13, 2006. A
total of $0.1 million principal amount of 7 1/2% Notes were exchanged, leaving
$12.2 million principal amount of 7 1/2% Notes outstanding. The 8 1/4% Notes
provide for a higher interest rate, which is payable semi-annually, have a
longer term, are convertible into Common Stock at a lower conversion price of
$9.00 per share until March 1, 2007, may be redeemed by the Company, in whole or
in part, at declining premiums beginning March 1, 2006 and are senior to the 7
1/2% Notes and the Company's 9 1/2% Subordinated Debentures (the "Debentures")
due 2012.
5
Note 4 - Reporting Comprehensive Income (Loss)
Total comprehensive loss for the three months ended March 31, 2006 and 2005 is
as follows:
Three months ended March 31
In thousands 2006 2005
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Net loss $(1,073) $ (422)
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Other comprehensive loss:
Unrealized foreign currency translation loss (14) (16)
Unrealized holding gain (loss) on securities 7 (25)
Income taxes related to other comprehensive
income (loss) items (3) 10
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Total other comprehensive loss, net of tax (10) (31)
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Comprehensive loss $(1,083) $ (453)
======== =======
Note 5 - Stock Option Plans
Effective January 1, 2006, the Company adopted the provisions of SFAS 123(R),
which establishes the accounting for stock-based awards exchanged for employee
services. SFAS 123(R) requires all share-based payments to employees, including
grants of employee stock options, to be measured at fair value and expensed in
the consolidated statement of operations over the service period (generally the
vesting period). We previously accounted for share-based compensation plans
under APB 25 and the related interpretations and provided the required SFAS 123
pro forma disclosures for employee stock options.
The Company did not issue any stock options during the three months ended March
31, 2006. The unrecognized compensation costs related to unvested stock options
granted under the Company's stock option plans was nominal.
Prior to the adoption of SFAS 123(R), we provided the disclosures required under
SFAS 123. We did not recognize stock option-based compensation cost in our
statement of operations for the periods prior to the adoption of SFAS 123(R), as
all options granted had an exercise price equal to the market price of our
common stock on the date of grant.
The following table illustrates the effect on net loss and loss per share for
the three months ended March 31, 2005 as if the Company had applied the fair
value recognition provisions of SFAS 123 to stock-based employee compensation:
Three months ended
In thousands, except per share data March 31, 2005
---------------------------------------------------------------
Net loss, as reported $ (422)
Deduct: Total stock-based employee compensation
expense determined under fair value based
method for all awards, net of tax 6
------
Pro forma net loss $ (428)
======
Loss per share:
As reported - basic $(0.33)
Pro forma - basic $(0.34)
------
6
In accordance with SFAS 123(R), the fair value of each option grant has been
estimated as of the date of grant using the binomial options-pricing model with
the following weighted average assumptions used:
Three months ended
March 31, 2005
------------------
Dividend yield 2.06%
Expected volatility 43.00%
Risk free interest rate 4.59%
Expected life (in years) 4.0
Note 6 - Business Segment Data
The Company evaluates segment performance and allocates resources based upon
operating income. The Company's operations are managed in three reportable
business segments. The Display Division comprises two operating segments,
Indoor display and Outdoor display. Both design, produce, lease, sell and
service large-scale, multi-color, real-time electronic information displays.
Both operating segments are conducted on a global basis, primarily through
operations in the U.S. The Company also has operations in Canada. The Indoor
display and Outdoor display segments are differentiated primarily by the
customers they serve. The Entertainment/Real Estate segment owns a chain of
motion picture theatres in the western Mountain States and income-producing real
estate properties. Segment operating income is shown after general and
administrative expenses directly associated with the segment and includes the
operating results of the joint venture activities. Corporate general and
administrative items relate to costs that are not directly identifiable with a
segment. There are no intersegment sales. Of the total goodwill of $1,004,000,
$938,000 relates to the Outdoor display segment and $66,000 relates to the
Indoor display segment.
Foreign revenues represent less than 10% of the Company's revenues and therefore
are not separately disclosed. The foreign operation does not manufacture their
own equipment; the domestic operation provides the equipment that the foreign
operation leases or sells. The foreign operation operates similarly to the
domestic operation and have similar profit margins.
7
Information about the Company's operations in its three business segments for
the three months ended March 31, 2006 and 2005 is as follows:
Three months ended March 31
In thousands 2006 2005
-----------------------------------------------------------------------
Revenues:
Indoor display $ 2,990 $ 3,434
Outdoor display 5,530 5,154
Entertainment/real estate 3,090 3,061
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Total revenues 11,610 11,649
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Operating income:
Indoor display (333) 309
Outdoor display 23 124
Entertainment/real estate 821 812
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Total operating income 511 1,245
Other income (loss) (1) 25
Corporate general and administrative expenses (1,092) (1,008)
Interest expense-net (1,063) (946)
Income tax benefit 572 262
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Net loss $(1,073) $ (422)
======= =======
Note 7 - Components of Net Periodic Pension Cost
As of December 31, 2003, the benefit service under the pension plan had been
frozen and, accordingly, there is no service cost for the periods ended March
31, 2006 and 2005.
The following table presents the components of net periodic pension cost:
Three months ended March 31
In thousands 2006 2005
----------------------------------------------------------------
Service cost $ - $ -
Interest cost 153 156
Expected return on plan assets (163) (156)
Amortization of prior service cost 4 4
Amortization of net actuarial loss 77 67
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Net periodic pension cost $ 71 $ 71
===== =====
The minimum required contribution for 2006 is expected to be zero, but the
Company estimates that it will contribute between zero and $200,000 in 2006.
Note 8 - Legal Proceedings and Claims
The Company is subject to legal proceedings and claims, which arise in the
ordinary course of its business. The Company is not a party to any pending
legal proceedings and claims that it believes will have a material adverse
effect on the consolidated financial position or operations of the Company.
8
Note 9 - Joint Venture
The Company has a 50% ownership in a joint venture partnership, MetroLux
Theatres ("MetroLux"), accounted for by the equity method.
The following results of operations summary information relates to MetroLux for
the three months ended March 31, 2006 and 2005, and summary balance sheet
information relates to MetroLux as of March 31, 2006 and December 31, 2005:
Three months ended March 31
In thousands 2006 2005
--------------------------------------------------------------------
Revenues $1,141 $ 747
Gross profit 670 453
Net income 149 180
Company's share of partnership net income 74 90
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March 31 December 31
In thousands 2006 2005
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Current assets $ 292 $3,623
Noncurrent assets 1,927 2,021
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Total assets 2,219 5,644
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Current liabilities 405 2,751
Noncurrent liabilities 910 883
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Total liabilities 1,315 3,634
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Company's equity in partnership net assets $ 490 $1,047
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The Company's equity in partnership net assets is reflected in other assets in
the consolidated balance sheets.
9
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview
Trans-Lux is a full service provider of integrated multimedia systems for
today's communications environments. The essential elements of these systems
are the real-time, programmable electronic information displays we manufacture,
distribute and service. Designed to meet the evolving communications needs of
both the indoor and outdoor markets, these displays are used primarily in
applications for the financial, banking, gaming, corporate, transportation,
entertainment and sports industries. In addition to its display business, the
Company owns and operates a chain of motion picture theatres in the western
Mountain States. The Company operates in three reportable segments: Indoor
Display, Outdoor Display and Entertainment/Real Estate.
The Indoor display segment includes worldwide revenues and related expenses from
the rental, maintenance and sale of indoor displays. This segment includes the
financial, gaming, government and corporate markets. The Outdoor Display
segment includes worldwide revenues and related expenses from the rental,
maintenance and sale of outdoor displays. Included in this segment are catalog
sports, retail and commercial markets. The Entertainment/Real Estate segment
includes the operations of the motion picture theatres in the western Mountain
States and income-producing real estate properties.
Results of Operations
Three Months Ended March 31, 2006 Compared to Three Months Ended March 31, 2005
Total revenues for the three months ended March 31, 2006 remained level compared
to the three months ended March 31, 2005 at $11.6 million, although the Indoor
display rentals and maintenance revenues and sales revenues decreased, but were
offset by increases in Outdoor display sales revenues.
Indoor display revenues decreased $444,000 or 12.9%. Of this decrease, Indoor
display equipment rentals and maintenance revenues decreased $283,000 or 11.6%,
primarily due to disconnects and non-renewals of equipment on rental and
maintenance on existing contracts in the financial services market. Indoor
display equipment sales decreased $161,000 or 16.2%, primarily due to a
reduction in sales from the financial services market. The financial services
market continues to be negatively impacted by the current investment climate,
resulting in consolidation within that industry. Although the market conditions
appear to be slowly improving, installations of new equipment tend to lag any
economic turnaround.
Outdoor display revenues increased $376,000 or 7.3%. Of this increase, Outdoor
display equipment sales increased $349,000 or 9.1%, primarily in the outdoor
catalog sports market. Outdoor display equipment rentals and maintenance
revenues increased $27,000 or 2.0%, primarily due to an increase in out of
contract service and maintenance offset by the continued expected gradual
revenue decline in the older Outdoor display equipment rental and maintenance
bases acquired in the early 1990s.
10
Entertainment/Real Estate revenues increased $29,000 or 0.9%, box office
revenues remained level, but there was an increase in concession sales.
Total operating income for the three months ended March 31, 2006 decreased
$734,000 to $511,000 from $1.2 million for the three months ended March 31,
2005, principally due to the reduction in revenues in the Indoor display segment
and a decrease in the gross margin in both the Indoor and Outdoor sold equipment
due to the product mix.
Indoor display operating income decreased $642,000, from $309,000 to an
operating loss of $333,000, primarily as a result of the decrease in revenues in
the financial services market and a decrease in the gross margin on sold
equipment due to the product mix. The cost of Indoor displays represented 76.6%
of related revenues in 2006 compared to 62.6% in 2005. The cost of Indoor
displays as a percentage of related revenues increased primarily due to the
decrease in revenues from Indoor display equipment rentals and maintenance and
the costs to maintain the equipment, such as the field services costs remaining
level. Indoor display cost of equipment sales decreased $132,000 or 37.3%,
primarily due to the decrease in revenues and the product mix. There was a
decrease in the gross margin of Indoor display equipment sales due to the
product mix of sales to the transportation market. Indoor display general and
administrative expenses increased $58,000 or 6.0%, primarily due to an increase
in travel costs and commission. Cost of Indoor display equipment rentals and
maintenance includes field service expenses, plant repair costs, maintenance and
depreciation.
Outdoor display operating income decreased $102,000, from $124,000 to $22,000,
primarily as a result of the product mix, a $50,000 non-recurring material cost
and a $97,000 increase in the allowance for doubtful accounts receivable, offset
by a decrease of $100,000 in field service costs. The Company continues to
address the cost of field service to bring it in line with revenues from
equipment rentals and maintenance. The cost of outdoor displays represented
80.2% of related revenues in 2006 compared to 80.7% in 2005. Outdoor display
cost of equipment sales increased $369,000 or 12.7%, principally due to the
increase in volume. Outdoor display cost of equipment rentals and maintenance
decreased $94,000 or 7.5%, primarily due to a decrease in field service costs.
Outdoor display general and administrative expenses increased $203,000, or
23.3%, primarily due to an increase in engineering costs, travel costs, salaries
and benefits. Cost of Outdoor display equipment rentals and maintenance
includes field service expenses, plant repair costs, maintenance and
depreciation.
Entertainment/Real Estate operating income increased $10,000 or 1.3%, primarily
due to an increase in concession sales. The cost of entertainment/real estate
represented 69.9% of related revenues in 2006 compared to 71.9% in 2005. Cost
of entertainment/real estate, which includes film rental costs and depreciation
expense, decreased $40,000 or 1.8%, primarily due to the reduction in certain
overhead costs. Entertainment/Real Estate general and administrative expenses
increased $43,000 primarily due to increased salaries and travel costs.
Corporate general and administrative expenses increased $84,000 or 8.4%,
primarily due to an increase in salaries and benefits, such as medical costs.
The Company has taken additional measures to reduce certain overhead costs in
the first quarter of 2006, which should be reflected in future
11
quarters.
Net interest expense increased $117,000, which is primarily attributable to an
increase in variable interest rates. The income from joint venture relates to
the operations of the theatre joint venture, MetroLux Theatres, in Loveland,
Colorado, which is included in the Entertainment/real estate segment.
The effective tax rate for the three months ended March 31, 2006 and 2005 was
34.8% and 38.3%, respectively.
Liquidity and Capital Resources
The regular quarterly cash dividend for the first quarter of 2006 of $0.035 per
share on the Company's Common Stock and $0.0315 per share on the Company's Class
B Stock was declared by the Board of Directors on March 21, 2006, payable to
stockholders of record as of April 20, 2006, and was paid May 2, 2006.
The Company has a bank Credit Agreement, which was amended in 2006, which
provides for a term loan of $10.0 million, a non-revolving line of credit of up
to $6.2 million to finance purchases and/or redemptions of one-half of the
7 1/2% Notes, and a revolving loan of up to $5.0 million at variable interest
rates ranging from LIBOR plus 2.25% to Prime (ranging from 6.23% to 7.25% at
March 31, 2006). The Credit Agreement matures on January 1, 2008. The
non-revolving line of credit is convertible into a four-year amortizing term
loan on December 31, 2006 and maturing January 1, 2008. At March 31, 2006, the
non-revolving line of credit was fully available as none had been drawn and $4.1
million was available under the revolving loan facility. The Credit Agreement
requires an annual facility fee on the unused commitment of 0.25%, and requires
compliance with certain financial covenants, which include a fixed charge
coverage ratio of 1.1 to 1.0 through June 30, 2006 and 1.2 to 1.0 for quarters
ending September 30, 2006 and thereafter, a loan-to-value ratio of not more than
50%, a leverage ratio of 3.0 to 1.0, maintaining a tangible net worth of not
less than $19.0 million, a cap on capital expenditures and maintaining accounts
with an average monthly compensating balance of not less than $750,000. At
March 31, 2006, the Company was in compliance with all the financial covenants
as set forth in the amended Credit Agreement.
The Company continually evaluates the need and availability of long-term capital
and is concentrating on restructuring the current 7 1/2% Notes that are due
December 1, 2006.
On March 13, 2006, the Company completed an offer to exchange $1,000 principal
amount of its 8 1/4% Notes for each $1,000 principal amount of its 7 1/2% Notes.
The exchange offer commenced February 6, 2006 and expired on March 13, 2006. A
total of $0.1 million principal amount of 7 1/2% Notes were exchanged, leaving
$12.2 million principal amount of 7 1/2% Notes outstanding and $18.0 million
principal amount of the 8 1/4% Notes outstanding. The 8 1/4% Notes provide for
a higher interest rate, which is payable semi-annually, have a longer term, are
convertible into Common Stock at a lower conversion price of $9.00 per share
until March 1, 2007, may be redeemed by the Company, in whole or in part, at
declining premiums beginning March 1, 2006 and are senior to the 7 1/2% Notes
and the Company's 9 1/2% Debentures due 2012.
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Under various agreements, the Company is obligated to make future cash payments
in fixed amounts. These consist of payments under the Company's long-term debt
agreements, including the 7 1/2% Convertible Subordinated Notes not exchanged in
the Exchange Offer that mature December 1, 2006, employment and consulting
agreement payments and rent payments required under operating lease agreements.
The following table summarizes the Company's fixed cash obligations as of March
31, 2006 for the remainder of 2006 and the next four years:
Remainder of
--------------------------------------------------------------------------------
In thousands 2006 2007 2008 2009 2010
--------------------------------------------------------------------------------
Long-term debt, including interest $16,825 $5,453 $11,207 $3,891 $4,110
Employment and consulting
agreement obligations 1,281 1,640 1,435 860 482
Operating lease payments 552 533 446 316 293
------- ------ ------- ------ ------
Total $18,658 $7,626 $13,088 $5,067 $4,885
--------------------------------------------------------------------------------
Cash and cash equivalents decreased $5.3 million for the three months ended
March 31, 2006 compared to a decrease of $1.2 million in 2005. The decrease in
2006 is primarily attributable to a $4.1 million repayment on the revolving line
of credit and $0.3 million of scheduled payments of long-term debt, cash used in
operating activities of $325,000 and investment in equipment for rental. The
decrease in 2005 is primarily attributable to the investment in equipment for
rental, expansion of the Company's movie theatre in Dillon, Colorado and
scheduled payments of long-term debt.
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995
The Company may, from time to time, provide estimates as to future performance.
These forward-looking statements will be estimates, and may or may not be
realized by the Company. The Company undertakes no duty to update such
forward-looking statements. Many factors could cause actual results to differ
from these forward-looking statements, including loss of market share through
competition, introduction of competing products by others, pressure on prices
from competition or purchasers of the Company's products, interest rate and
foreign exchange fluctuations, terrorist acts and war.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company is subject to interest rate risk on its long-term debt. The Company
manages its exposure to changes in interest rates by the use of variable and
fixed interest rate debt. In addition the Company is exposed to foreign
currency exchange rate risk mainly as a result of investment in its Canadian
subsidiary and previously its Australian subsidiary. The Company may, from time
to time, enter into derivative contracts to manage its interest risk. The
Company does not enter into derivatives for trading or speculative purposes. At
March 31, 2006, the Company did not hold any derivative financial instruments.
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A one percentage point change in interest rates would result in an annual
interest expense fluctuation of approximately $251,000. A 10% change in the
Canadian dollar relative to the U.S. dollar would result in a currency exchange
expense fluctuation of approximately $152,000, based on dealer quotes,
considering current exchange rates.
Item 4. Controls and Procedures
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 the end of the period covered by this quarterly
report. The Company's disclosure controls and procedures are designed to ensure
that material 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. Our disclosure
controls and procedures include components of our internal controls over
financial reporting. Management's assessment of the effectiveness of our
internal controls over financial reporting is expressed at the level of
reasonable assurance because a control system, no matter how well designed and
operated, can provide only reasonable, but not absolute assurance that the
control system's objectives will be met. Based on this evaluation, the
Company's Co-Chief Executive Officers and Chief Financial Officer have concluded
that these controls and procedures are effective.
Changes in Internal Control over Financial Reporting. There has been no change
in the Company's internal control over financial reporting, that occurred in the
first fiscal quarter, that has materially affected, or is reasonably likely to
materially affect, the Company's internal control over financial reporting.
Part II - Other Information
Item 1A. Risk Factors
The Company is subject to a number of risks including general business and
financial risk factors. Any or all of such factors could have a material
adverse effect on the business, financial condition or results of operations of
the Company. You should carefully consider the following risk factors, in
addition to those identified in our Annual Report on Form 10-K for the year
ended December 31, 2005.
The Company has incurred losses in the three-month period ended March 31, 2006
of $1,073,000 and $1,793,000 for the year ended December 31, 2005. The Company
also has a negative working capital of $431,000 as of March 31, 2006 and has
negative cash flows from operations for the three
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months ended March 31, 2006 of $325,000. Additionally the Company has current
debt obligations of $14,285,000, which includes $12.2 million of the Company's 7
1/2% Notes that are due December 1, 2006. Management believes that its current
cash resources will be sufficient to fund its operations and its current
obligations for the next twelve months. Management's plans include the use of
its non-revolving line of credit to fund its current debt obligations (See Note
3) and monitoring and reducing expenses. However, no assurance can be given at
this time as to whether the Company will be able to achieve these objectives.
Item 5. Other Information
None.
Item 6. Exhibits
10.1 Employment Agreement with Karl Hirschauer dated as of April 1,
2006, filed herewith.
10.2 Amendment No. 1 to the Amended and Restated Commercial Loan and
Security Agreement with People's Bank dated as of December 31,
2005, filed herewith
31.1 Certification of Michael R. Mulcahy, President and Co-Chief
Executive Officer, pursuant to Rule 13a-14(a) and 15d-14(a), as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Thomas Brandt, Executive Vice President and
Co-Chief Executive Officer, pursuant to Rule 13a-14(a) and
15d-14(a), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
31.3 Certification of Angela D. Toppi, Executive Vice President and
Chief Financial Officer, pursuant to Rule 13a-14(a) and 15d-14(a),
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
32.1 Certification of Michael R. Mulcahy, President and Co-Chief
Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification of Thomas Brandt, Executive Vice President and
Co-Chief Executive Officer, pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
32.3 Certification of Angela D. Toppi, Executive Vice President and
Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TRANS-LUX CORPORATION
---------------------
(Registrant)
Date: May 15, 2006
by /s/ Angela D. Toppi
-----------------------------
Angela D. Toppi
Executive Vice President and
Chief Financial Officer
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