UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2006
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Commission file number 1-2257
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TRANS-LUX CORPORATION
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(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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(Address of Registrant's principal executive offices) (Zip code)
Registrant's telephone number, including area code: (203) 853-4321
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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
8 1/4% Limited Convertible Senior
Subordinated Notes due 2012 American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the Registrant is a well-known seasonal issuer, as
defined in Rule 405 of the Securities Act. Yes No X
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Indicate by check mark if the Registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. Yes No X
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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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CONTINUED
TRANS-LUX CORPORATION
2006 Form 10-K Cover Page Continued
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 or any amendment to this
Form 10-K. [ X ]
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
--- --- ---
Indicate by check mark whether the Registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes No X
--- ---
As of the close of business on March 30, 2007, there were outstanding, 2,019,355
shares of the Registrant's Common Stock and 286,814 shares of its Class B Stock.
Based on the closing stock price of the Common Stock on the American Stock
Exchange of $5.95 on June 30, 2006, 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 $5,977,000. (The value of a share of Common Stock is used as the value for
a share of Class B Stock, as there is no established market for Class B Stock,
which is convertible into Common Stock on a share-for-share basis.)
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Registrant's definitive Proxy Statement for the Annual Meeting
of Stockholders to be held May 31, 2007, to be filed with the Commission within
120 days of the Registrant's fiscal year end (the "Proxy Statement"), are
incorporated by reference into Part III, Items 10-14 of this Form 10-K to the
extent stated herein.
TRANS-LUX CORPORATION
2006 Form 10-K Annual Report
Table of Contents
PART I
Page
ITEM 1. Business 1
ITEM 1A. Risk Factors 5
ITEM 1B. Unresolved Staff Comments 7
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, Related Stockholder
Matters and Issuer Purchases of Equity Securities 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 15
ITEM 8. Financial Statements and Supplementary Data 15
ITEM 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 55
ITEM 9A. Controls and Procedures 55
ITEM 9B. Other Information 55
PART III
ITEM 10. Directors, Executive Officers and Corporate Governance 56
ITEM 11. Executive Compensation 56
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters 56
ITEM 13. Certain Relationships and Related Transactions, and Director
Independence 57
ITEM 14. Principal Accounting Fees and Services 57
PART IV
ITEM 15. Exhibits and Financial Statement Schedules 58
Signatures 60
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 diode), plasma and LCD technologies. Designed to meet the
evolving communications needs of both the indoor and outdoor markets, these
display products include text, graphic and video displays for stock and
commodity exchanges, financial institutions, college and high school sports
stadiums, schools, casinos, convention centers, corporate, government, theatres,
retail, airports, billboard sites and numerous other applications. In addition
to its core display business, the Company also owns and operates a chain of
motion picture theatres in the western Mountain States and income-producing real
estate properties.
ELECTRONIC INFORMATION DISPLAY PRODUCTS
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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, which performs on-site project management, 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
sector, and gaming. The financial sector, which includes trading floors,
exchanges, brokerage firms, banks, mutual fund companies and energy companies,
has long been a user of electronic information displays due to the need for
real-time dissemination of data. The major stock and commodity exchanges depend
on reliable information displays to post stock and commodity prices, trading
volumes, interest rates and other financial data. Brokerage firms use
electronic ticker displays for both customers and brokers; they have also
installed other larger displays 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. Bank and other
financial institutions also use information displays to advertise product
offerings to consumers. The Indoor division has a new line of advanced last
sale price displays, full color LED tickers, graphic 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, lobbies, 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, Indian gaming establishments and
racetracks. 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 and racetracks
also use electronic displays throughout their facilities
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to advertise to and attract gaming patrons. Equipment for the Indoor display
segment 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 schools, sports
stadiums, sports venues, gas stations, highway departments and outdoor
advertisers, such as digital billboards, attempting to capture the attention of
passers- by. The Outdoor division has a new line of LED message centers,
scoreboards and video displays available in monochrome and full color. The
Company has utilized its strong position in the Indoor display market combined
with several acquisitions to enhance its presence in the Outdoor display market.
Outdoor displays are installed in amusement parks, entertainment facilities,
high schools, college sports stadiums, city park and recreational facilities,
churches, racetracks, military installations, bridges and other roadway
installations, automobile dealerships, banks and other financial institutions.
This division generally sells through distributors and dealers. Equipment for
the Outdoor display segment 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, 2006 and 2005 was approximately $3.4 million and $3.9 million,
respectively. The December 31, 2006 backlog will be recognized in 2007. These
amounts include only the sale of products; they do not include new lease orders
or renewals of existing lease agreements that may be presently in-house.
ENGINEERING AND PRODUCT DEVELOPMENT
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The Company's ability to compete and operate successfully depends on its
ability to anticipate and respond to the changing technological and product
needs of its customers, among other factors. For this reason, the Company
continually develops enhancements to its existing product line and examines and
tests new display technologies.
During 2006 the Company's Outdoor display division continued to enhance
CaptiVue(TM), a line of outdoor full matrix LED message centers. CaptiVue
offers greater design flexibility, modularity and increased clarity at an
economical price, and is being well received in the commercial marketplace.
Recent enhancements include full color, monochrome blue configurations, higher
resolution and larger configurations for digital billboard applications. The
Company continued enhancements to its line of LED Fuel Price Changer displays,
which use CaptiVue technology, allow gasoline stations, truck stops, and
convenience stores to update fuel prices instantaneously to one facility or many
via their point-of-purchase systems without the use of ladders and other manual
equipment.
In 2005, the Company supplemented its LED product line with third-party
LED products to remain competitive in price, product offerings and performance.
The Company signed agreements with two leading providers of advanced LED video
display products under which Trans-Lux distributes their lines of display
products to its catalog sports market and non-sports markets, respectively.
Trans-Lux is private-labeling a portion of these products to non-sports markets
for both indoor and outdoor applications under the name CaptiVision(TM).
CaptiVision jumbo video monitors have the capability to deliver brilliant full
motion video and animation in billions of colors to corporate, financial and
entertainment markets where the presentation of multimedia, live-action,
advertising and promotions is of major importance.
The Company continued enhancements to its line of economical full-matrix
indoor graphic display products. GraphixWall(R) fixed size displays and
GraphixMax(TM) tileable displays for larger, custom sizes feature versatile
functionality at a lower cost, presenting line art, graphics and variable-sized
text at a competitive price. Applications for GraphixWall and GraphixMax
displays include flight information, baggage claim and way-funding at airports,
automatic call directories at contact centers, order processing support at
manufacturing facilities and for posting prices and promoting products in
financial and retail environments. Recent enhancements include a full color
version for additional color flexibility and impact.
Continued development of new indoor products includes new monochrome and
tricolor ticker displays utilizing improved LED display technology; curved and
flexible displays; higher speed processors for faster data access and improved
update speed; greater integration of blue LEDs to provide full color text,
graphics and video displays; wireless controlled displays; and new graphic
interface to display more data at higher resolutions.
As part of its ongoing development efforts, the Company seeks to package
certain products for specific market segments as well as to continually track
emerging technologies that can enhance its products. Full color, live video and
digital input technologies continue to be improved. The Company continued to
expand its PromoWall(R) product line, which combines several different display
technologies in attractive, self-contained enclosures. By combining the long
distance
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readability of a text-based LED display with the eye-catching motion of a
traveling display and the colorful graphic ability of LCD or plasma display,
promotional advertising and custom messages becomes even more dynamic.
The Company maintains a staff of 23 people who are responsible for product
development and support. The engineering, 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 $1,990,000, $2,213,000 and $2,449,000 in
2006, 2005 and 2004, respectively.
MARKETING AND DISTRIBUTION
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The Company markets its indoor and outdoor electronic information display
products in the U.S. and Canada using a combination of distribution channels,
including 24 direct sales representatives, three telemarketers and a network of
independent dealers and distributors. By working with software vendors and
using the internet to expand the quality and quantity of multimedia content that
can be delivered to our electronic displays, we are able to offer customers
relevant, timely information, content management software and display hardware
in the form of turnkey display communications packages.
The Company employs a number of different marketing techniques to attract
new customers, including direct marketing efforts by its sales force to known
and potential users of information displays; internet marketing; advertising in
industry publications; and exhibiting at approximately 19 domestic and
international trade shows annually.
Internationally, the Company uses a combination of internal sales people
and independent distributors to market its products outside the U.S. The
Company has existing relationships with approximately 17 independent
distributors worldwide covering Europe, the Middle East, South and Central
America, Canada, the Far East and Australia. Foreign 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, New York; Des Moines, Iowa; Las Vegas, Nevada;
Toronto, Ontario; and Brampton, Ontario; as well as approximately 22 satellite
offices in the U.S.
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 2006, 2005 and 2004 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
and Des Moines, Iowa, and consist principally of the manufacturing, assembly and
testing of display units, and related components. The Company performs most
subassembly and all final assembly of its products.
All product lines are design engineered by the Company and controlled
throughout the manufacturing process. The Company has the ability to produce
printed circuit board fabrications, very large sheet metal fabrications, cable
assemblies, and surface mount and through-hole designed assemblies. Some of the
subassembly processes are outsourced. 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 has the ability to rapidly modify its product lines. The
Company's displays are designed with flexibility in mind, enabling the Company
to customize its displays to meet different applications with a minimum of
lead-time. The Company designs certain of its materials to match components
furnished by suppliers. If such suppliers were unable to provide the Company
with those components, the Company would have to contract with other suppliers
to obtain replacement sources. Such replacement might result in engineering
design changes, as well as delays in obtaining such replacement components. The
Company believes it maintains suitable inventory and has contracts providing for
delivery of sufficient quantities of such components to meet its needs. The
Company also believes there presently are other qualified vendors of these
components. The Company does not acquire significant amount of purchases
directly from foreign suppliers, but certain components such as the LEDs are
manufactured by foreign sources.
3
The Company is ISO-9001-2000 registered by Underwriters Laboratories at
its Norwalk manufacturing facility. The Company's products are also third-party
certified as complying with applicable safety, electromagnetic emissions and
susceptibility requirements worldwide. The Company believes these distinctions
in its industry give it a competitive advantage in the global marketplace.
SERVICE AND SUPPORT
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The Company emphasizes the quality and reliability of its products and the
ability of its field service personnel and third-party agents to provide timely
and expert service to the Company's installed base. The Company believes that
the quality and timeliness of its on-site service personnel are important
components in the Company's ongoing and future success. The Company provides
turnkey installation and support for the products it leases and sells in the
United States and Canada. The Company provides training to end-users and
provides ongoing support to users who have questions regarding operating
procedures, equipment problems or other issues. The Company provides
installation and service to those who purchase and lease equipment. In the
market segments covered by the Company's dealers and distributors, they offer
support for the products they sell.
Personnel based in regional and satellite service locations throughout the
United States and Canada provide high quality and timely on-site service for the
installed rental equipment and maintenance base and other types of
customer-owned equipment. Purchasers or lessees of the Company's larger
products, such as financial exchanges, casinos and sports stadiums, often retain
the Company to provide on-site service through the deployment of a service
technician who is on-site daily or for the scheduled event. The Company
operates its National Technical Services and Repair Center from its Des Moines,
Iowa facility. Equipment repairs are performed in Des Moines and service
technicians are dispatched nationwide from the Des Moines facility. The
Company's field service is augmented by various 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
certain 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 leases 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 larger outdoor electronic display
and service organizations in the country.
The Company competes with a number of competitors, both larger and smaller
than itself, and with products based on different forms of technology. 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 65 screens in 10 locations in the western
Mountain States, which includes a fourteen-plex theatre in Loveland, Colorado,
which is a 50% owned joint venture partnership. In 2006, the Company closed a
non-profitable single screen theatre in Santa Fe, New Mexico to lease to the New
Mexico Department of Cultural Affairs for a motion picture museum. In 2005, the
Company expanded its Dillon, Colorado location by adding two additional screens
and purchased land in Silver City, New Mexico to construct a new multiplex
theatre. In 2004, the Company expanded its Durango, Colorado location by adding
two additional screens. 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'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 a national circuit compete with the Company's theatre. The
Company's theatres also face competition from all other forms of entertainment
competing for the public's leisure time and disposable income.
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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 431 employees as of February 28, 2007, of
which approximately 253 employees support the Company's electronic display
business. Approximately 13% of the employees are unionized. The Company
believes its employee relations are good.
ITEM 1A. RISK FACTORS
LEVERAGE
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As of December 31, 2006, the Company's total long-term debt (including
current portion) was $54.7 million. We expect we will incur indebtedness in
connection with the implementation of our growth strategy. Our ability to
satisfy our obligations will be dependent upon our future performance, which is
subject to prevailing economic conditions and financial, business and other
factors, including factors beyond our control. There can be no assurance that
our operating cash flows will be sufficient to meet our debt service
requirements or refinance indebtedness at maturity. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources."
RELIANCE ON KEY SUPPLIERS
-------------------------
We design certain of our materials to match components furnished by
suppliers. If such suppliers were unable or unwilling to provide us with those
components, we would have to contract with other suppliers to obtain replacement
sources. In particular, we purchase almost all of the LED module blocks used in
our electronic information displays from three suppliers. We do not have
long-term supply contracts with these suppliers. A change in suppliers of
either LED module blocks or certain other components may result in engineering
design changes, as well as delays in obtaining such replacement components. We
believe there are presently other qualified vendors of these components. Our
inability to obtain sufficient quantities of certain components as required, or
to develop alternative sources at acceptable prices and within a reasonable
time, could result in delays or reductions in product shipments that could have
a materially adverse effect on our business and results of operations.
COMPETITION
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Our electronic information displays compete with a number of competitors,
both larger and smaller than us, 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 to develop competitive
and more sophisticated products in the future. Our success is somewhat
dependent upon our ability to anticipate technological changes in the industry
and to successfully identify, obtain, develop and market new products that
satisfy evolving industry requirements. There can be no assurance that
competitors will not market new products which have perceived advantages over
our products or which, because of pricing strategies, render the products
currently sold by us less marketable or otherwise adversely affect our operating
margins.
Our motion picture theatres are subject to varying degrees of
competition in the geographic areas in which they operate. Our theatres also
face competition from all other forms of entertainment competing for the
public's leisure time and disposable income.
NATURE OF LEASING AND MAINTENANCE REVENUES
------------------------------------------
We derive a substantial percentage of our revenues from the leasing of our
electronic information displays, generally pursuant to leases that have an
average term of one to five years. Consequently, our future success is at least
partly dependent on our ability to obtain the renewal of existing leases or to
enter into new leases as existing leases expire. We also derive a significant
percentage of our revenues from maintenance agreements relating to our display
products. The average term of such agreements is generally one to five years.
A portion of the maintenance agreements are cancelable upon 30 days notice.
There can be no assurance that we will be successful in obtaining renewal of
existing leases or maintenance
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agreements, obtaining replacement leases or realizing the value of assets
currently under leases that are not renewed. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Results of
Operations."
DEPENDENCE ON KEY PERSONNEL
---------------------------
We believe that our President and Co-Chief Executive Officer, Michael R.
Mulcahy, and our Co-Chief Executive Officer and Executive Vice President,
Thomas Brandt, play a significant role in the success of the Company and the
loss of the services of either could have an adverse effect on the Company.
There can be no assurance that the Company would be able to find a suitable
replacement for either Mr. Mulcahy or Mr. Brandt. The Company has employment
agreements with Mr. Mulcahy and Mr. Brandt which expire in 2010 and 2009,
respectively, which may be extended by the employees in case of a
change-in-control approved by the present Board of Directors. The Company
believes that in addition to the above referenced key personnel, there is a core
group of executives that also plays a significant role in the success of the
Company.
EFFECT OF CERTAIN ANTI-TAKEOVER PROVISIONS AND CONTROL BY EXISTING STOCKHOLDERS
-------------------------------------------------------------------------------
Our Restated Certificate of Incorporation contains certain provisions that
could have the effect of making it more difficult for a third party to acquire,
or of discouraging a third party from attempting to acquire control of us. Such
provisions could limit the price that certain investors might be willing to pay
in the future for shares of our Common Stock, thus making it less likely that a
stockholder will receive a premium on any sale of shares. Under our Restated
Certificate of Incorporation, we have two classes of common stock outstanding,
Common Stock and Class B Stock, each with its own rights and preferences. Each
share of Class B Stock receives ten votes per share on all matters submitted to
a vote of the stockholders versus the one vote received for each share of Common
Stock. The Class B Stock is entitled to vote separately as a class on any
proposal for merger, consolidation and certain other significant transactions.
Moreover, our Board of Directors is divided into three classes, each of which
serves for a staggered three-year term, making it more difficult for a third
party to gain control of our Board. Our Restated Certificate of Incorporation
also has a provision that requires a four-fifths vote on any merger,
consolidation or sale of assets with or to an "Interested Person" or "Acquiring
Person."
Additionally, we are authorized to issue 500,000 shares of Preferred Stock
containing such rights, preferences, privileges and restrictions as may be fixed
by our Board of Directors which may adversely affect the voting power or other
rights of the holders of Common Stock or delay, defer or prevent a change in
control of the Company, or discourage bids for the Common Stock at a premium
over its market price or otherwise adversely affect the market price of the
Common Stock. Our Board of Directors is also authorized to issue 3,000,000
shares of Class A Stock, which is identical to the Common Stock but is
non-voting and is entitled to a 10% higher dividend than the Common Stock.
As of December 31, 2006, 14 stockholders who are executive officers and/or
directors of the Company beneficially own approximately 81.96% of our
outstanding Class B Stock, 18.65% of all classes and 64% of the voting power.
As a result, these stockholders collectively will continue to have the ability
to elect all of our directors and to veto major transactions for which a
stockholder vote is required under Delaware law, including mergers,
consolidations and certain other significant transactions. These stockholders
could also block tender offers for our Common Stock that could give stockholders
the opportunity to realize a premium over the then prevailing market price for
their shares of Common Stock.
LIMITED TRADING VOLUME AND VOLATILITY OF STOCK PRICE
----------------------------------------------------
Our Common Stock is not widely held and the volume of trading has been low
and sporadic. Accordingly, the Common Stock is subject to increased price
volatility and reduced liquidity. There can be no assurance a more active
trading market for the Common Stock will develop, or be sustained if it does
develop. The limited public float of our Common Stock could cause the market
price for the Common Stock to fluctuate substantially. In addition, stock
markets have experienced wide price and volume fluctuations in recent periods
and these fluctuations often have been unrelated to the operating performance of
the specific companies affected. Any of these factors could adversely affect
the market price of the Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
-------------------------------
Future sales of Common Stock in the public market by current stockholders
of the Company could adversely affect the market price for the Common Stock.
325,870 shares of Common Stock (including Class B Stock if converted into equal
amounts of Common Stock) may be sold in the public market by executive officers
and directors, subject to the limitations contained in Rule 144 under the
Securities Act of 1933, as amended. Sales of substantial amounts of the shares
of Common Stock in the public market, or even the potential for such sales,
could adversely affect the prevailing market price of our
6
Common Stock. See Note 15 - Stockholders' Equity with respect to additional
shares of Common Stock issued in exchange for the 8 1/4% Notes.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
The Company's headquarters and principal executive offices are located at
110 Richards Avenue, Norwalk, Connecticut. In June 2004, the Company entered
into a sale/leaseback of its 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. The
Company leased back the entire building for four years, after which a three-year
lease for part of the building will take effect. Approximately 9,500 square
feet of the building is currently subleased to others.
The Company owns a facility in Des Moines, Iowa and 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 owns land in Silver City, New Mexico, on which the
Company expects to construct and operate a multiplex movie theatre and other
commercial uses. The Company leases eight premises throughout North America for
use as sales, service and/or administrative operations, and leases three theatre
locations. The aggregate rental expense was $908,000, $1,053,000 and $737,000
for the years ended December 31, 2006, 2005 and 2004, respectively.
ITEM 3. LEGAL PROCEEDINGS
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
7
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
(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 617 holders of record of its Common Stock
and approximately 59 holders of record of its Class B Stock as of March
26, 2007.
(c) The Board of Directors approved one quarterly cash dividend of $0.035
per share for Common Stock and $0.0315 per share for Class B Stock
during the first quarter of 2006. Further quarterly cash dividends were
not declared in order to conserve cash and pay down debt. Management
and the Board of Directors will continue to review payment of quarterly
cash dividends.
(d) The range of Common Stock prices on the American Stock Exchange are set
forth in the following table:
High Low
---- ---
2006
----
First Quarter $6.60 $5.50
Second Quarter 6.55 5.50
Third Quarter 6.05 5.50
Fourth Quarter 7.85 6.00
2005
----
First Quarter $7.59 $7.00
Second Quarter 7.00 6.40
Third Quarter 7.00 6.00
Fourth Quarter 6.10 5.55
(e) The Company did not purchase any of its equity securities during any
month of the fourth fiscal quarter of 2006.
8
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, 2006, which
were derived from the audited consolidated financial statements of the
Company and should be read in conjunction with them.
Years Ended 2006 2005 2004 2003 2002
-----------------------------------------------------------------------------------------
In thousands, except per share data
Revenues $53,911 $ 54,368 $ 52,579 $ 56,022 $ 73,206
Income (loss) from continuing
operations (1,647) (1,793) 412 365 34
Income from discontinued operation - - 127 689 394
Net income (loss) (1,647) (1,793) 539 1,054 428
Earnings (loss) per share -
continuing operations:
Basic $ (1.31) $ (1.42) $ 0.33 $ 0.29 $ 0.03
Diluted (1.31) (1.42) 0.33 0.29 0.03
Earnings per share - discontinued
operation:
Basic $ - $ - $ 0.10 $ 0.55 $ 0.31
Diluted - - 0.03 0.20 0.12
Total earnings (loss) per share:
Basic $ (1.31) $ (1.42) $ 0.43 $ 0.84 $ 0.34
Diluted (1.31) (1.42) 0.43 0.70 0.34
Cash dividends per share:
Common stock $ 0.035 $ 0.14 $ 0.14 $ 0.14 $ 0.14
Class B stock 0.0315 0.126 0.126 0.126 0.126
Average common shares outstanding 1,260 1,261 1,261 1,261 1,261
Total assets $88,472 $100,550 $101,114 $100,092 $109,433
Long-term debt 51,537 48,365 56,796 60,505 67,209
Stockholders' equity 20,174 22,396 24,605 24,036 23,025
(b) The following table sets forth quarterly financial data for years ended December 31, 2006 and December 31, 2005:
Quarter Ended March 31 June 30 September 30 December 31
------------- -------- ------- ------------ -----------
In thousands, except per share data
2006
Revenues $11,610 $13,709 $15,437 $13,155
Gross profit 2,723 3,347 4,097 2,690
Net income (loss) (1,073) (393) 61 (242)
Earnings (loss) per share (0.85) (0.31) 0.04 (0.19)
Cash dividends per share:
Common stock 0.035 - - -
Class B stock 0.0315 - - -
2005
Revenues $11,649 $13,464 $15,356 $13,899
Gross profit 3,137 3,650 4,141 2,706
Net income (loss) (422) (401) 11 (981)
Earnings (loss) per share (0.33) (0.32) 0.01 (0.78)
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
9
ITEM 7. MANGEMENT'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. On April 28, 2004, the Company
sold its Australian operations, effective as of February 29, 2004. The Company
has accounted for the Australian operations as a discontinued operation.
Accordingly, the consolidated financial statements reflect the assets and
liabilities of the discontinued operation and the operations for the prior
periods are reported as a discontinued operation (see Note 6 - Sale of Assets
and Discontinued Operation). In addition, on June 3, 2004, the Company entered
into a sale/leaseback of its Norwalk, Connecticut headquarters (see Note 6 -
Sale of Assets and Discontinued Operation). The Entertainment/real estate
segment includes the operations of the motion picture theatres in the western
Mountain States and income-producing real estate properties.
Critical Accounting Policies and Estimates
Management's Discussion and Analysis of Financial Condition and Results of
Operations discusses the Company's consolidated financial statements, which have
been prepared in accordance with accounting principles generally accepted in the
United States of America. 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 ongoing basis,
management evaluates its estimates and judgments, including those related to
percentage of completion, uncollectable accounts, inventories, goodwill and
intangible assets, income taxes, warranty obligations, benefit plans,
contingencies and litigation. Management bases its estimates and judgments on
historical experience and on various other factors that are believed to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions. Senior management has
discussed the development and selection of these accounting estimates and the
related disclosures with the audit committee of the Board of Directors.
Management believes the following critical accounting policies, among
others, involve 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, an addition or a
reduction to cost of sales may be required.
Uncollectable Accounts: The Company maintains allowances for
uncollectable accounts for estimated losses resulting from the inability of its
customers 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. The Company uses the fair
market value approach to test for impairment of its goodwill and other factors
that are considered in the review for impairment include, economic trends, and
our market capitalization relative to net book value. The fair market
valuations used for the impairment tests can be affected by changes in the
estimates of revenue multiples and the discount rate used in the calculations.
No impairment resulted from the annual
10
reviews performed in 2006, 2005 or 2004. 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 2006 and 2005, the Company
recorded an after tax minimum pension liability adjustment in other
comprehensive loss of $567,000 and $301,000, respectively. Estimates and
assumptions are reviewed annually with the assistance of external actuarial
professionals and adjusted as circumstances change. At December 31, 2006, plan
assets were invested 48.8% in guaranteed investment contracts, 48.8% in equity
and index funds, 2.1% in bonds and 0.3% 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, 2006, the weighted average rates used for the computation of
benefit plan liabilities were: investment returns, 8.75%; rates of salary
increases, 3.00%; and discount rate, 6.00%. Net periodic cost for 2007 will be
based on the December 31, 2006 valuation. The defined benefit plan periodic
cost was $285,000 in 2006, $261,000 in 2005 and $280,000 in 2004. At December
31, 2006, assuming no change in the other assumptions, a one percentage point
change in investment returns would affect the net periodic cost by $75,000 and a
one percentage point change in the discount rate would affect the net periodic
cost by $105,000. As of December 31, 2003, the benefit service under the
defined benefit plan had been frozen and, accordingly, there is no service cost
for each of the three years ended December 31, 2006.
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. At December 31, 2006, long-term debt
outstanding of $34.9 million was at variable rates of interest ranging from
7.13% to 8.25% and $19.8 million was at fixed rates ranging from 7.0% to 9.5%.
The Company does not enter into derivatives or other financial instruments for
trading or speculative purposes and, at December 31, 2006, was not involved in
any derivative financial instruments.
Results of Operations
2006 Compared to 2005
Total revenues for the year ended December 31, 2006 decreased 0.8% to $53.9
million from $54.4 million for the year ended December 31, 2005, principally due
to a decrease in Indoor display equipment rentals and maintenance revenues
offset by an increase in Outdoor display sales revenues.
Indoor display revenues decreased $1.4 million or 9.2%. Of this decrease,
Indoor display equipment rentals and maintenance revenues decreased $1.1 million
or 11.8%, primarily due to disconnects and non-renewals of equipment on rental
and maintenance on existing contracts in the financial services market. The
financial services market continues to be negatively impacted by the current
consolidations within that industry. Although the market conditions appear to
be slowly improving, installations of new equipment tend to lag any economic
turnaround. Indoor display equipment sales decreased $291,000 or 5.0%,
primarily due to a reduction in sales to the corporate sector.
Outdoor display revenues increased $865,000 or 3.4%. Of this increase,
Outdoor display equipment sales increased $1.0 million or 5.0%, primarily in the
outdoor catalog sports market. This increase was offset by a $150,000 or 2.7%
decrease in the Outdoor display equipment rentals and maintenance revenues,
primarily due to the continued expected gradual revenue decline in the older
Outdoor display equipment rental and maintenance bases acquired in the early
1990s.
11
Entertainment/real estate revenues increased slightly. While box office
revenues remained level, there was an increase in concession sales, even though
the Company closed its single screen theatre in Santa Fe, New Mexico in April
2006.
Total operating income for the year ended December 31, 2006 decreased
7.8% to $4.2 million from $4.5 million for the year ended December 31, 2005,
principally due to the reduction in revenues in the Indoor display segment.
Indoor display operating income decreased $1.5 million to a loss of
$361,000 in 2006 compared to an operating income of $1.1 million in 2005,
primarily as a result of the decrease in revenues in the financial services
market and a decrease in the gross margin of sold equipment due to the product
mix. The cost of Indoor displays represented 75.0% of related revenues in 2006
compared to 66.4% in 2005. 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 decreasing, and the revenues
from Indoor display equipment rentals and maintenance also decreasing, but not
at the same rate. The Company continues to monitor and address the cost of its
field service operations to bring it in line with the revenues. The dispatch,
help desk and repair functions have been centralized into the Des Moines, Iowa
facility. Field service costs for the year ended December 31, 2006 compared to
2005 were reduced by approximately $160,000. Indoor display cost of equipment
rentals and maintenance decreased $298,000 or 3.9%, largely due to the reduction
in the rentals and maintenance bases. Cost of Indoor display equipment rentals
and maintenance includes field service expenses, plant repair costs, maintenance
and depreciation. Indoor display cost of equipment sales increased $565,000 or
22.2%, primarily due to reduced margins of the Indoor display equipment sales
due to product mix of sales to the transportation market. Indoor display
general and administrative expenses decreased $172,000 or 4.3% due to a $102,000
decrease in the allowance for uncollectable accounts receivable and a decrease
in salaries and benefits.
Outdoor display operating income increased $874,000 or 168.5%, primarily
as a result of the increase in volume of sales in the catalog scoreboard
business and a decrease in field service costs. The cost of Outdoor displays
represented 78.3% of related revenues in 2006 compared to 80.5% in 2005.
Outdoor display cost of equipment sales increased $613,000 or 4.0%, principally
due to the increase in volume. Outdoor display cost of equipment rentals and
maintenance decreased $499,000 or 9.5%, primarily due to a decrease in field
service costs. Field service costs for the year ended December 31, 2006
compared to 2005 were reduced by approximately $525,000. Cost of Outdoor
display equipment rentals and maintenance includes field service expenses, plant
repair costs, maintenance and depreciation. Outdoor display general and
administrative expenses decreased $123,000 or 2.7%, primarily due to a decrease
in certain sales overhead costs in the commercial outdoor business such as
trade shows, salaries, related benefits and travel.
Entertainment/real estate operating income increased $272,000 or 9.5%,
primarily due to an increase in MetroLux Theatres joint venture income of
$218,000 to $344,000 in 2006 from $126,000 in 2005. This increase was
attributable to a $264,000 impairment loss recorded in 2005 on the sale of the
old theatre building held for sale, which was sold in February 2006. MetroLux
Theatres relocated to a new state-of-the-art location in October 2005. The cost
of Entertainment/real estate represented 73.0% of related revenues in 2006
compared to 73.9% in 2005. Cost of theatre receipts and other, which includes
film rental costs and depreciation expense, decreased slightly, principally due
to film rental costs. Entertainment/real estate general and administrative
expenses increased $87,000 or 11.6%, primarily due to increased salaries and
related benefits.
Corporate general and administrative expenses decreased $306,000 or
8.57%, primarily due to staff reductions, overall decreases in salaries and
related benefits and a $105,000 increase in the currency exchange gain in 2006.
Net interest expense increased $356,000 or 9.2%, due to an increase in the
interest rates of the variable rate debt. The gain on sale of assets in 2005
relates to the sale of vacant land in Taos, New Mexico.
The effective tax rate for the years ended December 31, 2006 and 2005 was
49.6% and 34.9%, respectively. The 2006 effective tax rate was affected by the
reversal of a deferred tax liability related to prior repurchases of the
Company's convertible debt.
2005 Compared to 2004
Total revenues for the year ended December 31, 2005 increased 3.4% to $54.4
million from $52.6 million for the year ended December 31, 2004, principally due
to an increase in Outdoor display sales revenues offset by a decrease in Indoor
display revenues.
Indoor display revenues decreased $2.1 million or 12.1%. Of this
decrease, Indoor display equipment rentals and maintenance revenues decreased
$1.6 million or 14.6%, primarily due to disconnects and non-renewals of
equipment on rental and maintenance on existing contracts in the financial
services market. The financial services market continues to be negatively
impacted by the current investment climate, resulting in consolidation within
that industry. Indoor display equipment sales decreased $486,000 or 7.7%,
primarily due to a reduction in sales from the financial services and gaming
markets.
12
Outdoor display revenues increased $3.9 million or 17.8%. Of this
increase, Outdoor display equipment sales increased $4.3 million or 27.2%, with
increases in volume of sale in both the catalog scoreboard business and
commercial business. Outdoor display equipment rentals and maintenance revenues
decreased $453,000 or 7.7%, primarily due to the continued expected revenue
decline in the older Outdoor display equipment rental and maintenance bases
acquired in the early 1990s.
Entertainment/real estate revenues remained level, which is better than
the decline the industry experienced in 2005. The Company expanded two of its
theatre locations with the opening of two additional screens to its existing
six-plex in Dillon, Colorado in January 2005 and two additional screens to its
existing five-plex in Durango, Colorado in April 2004.
Total operating income for the year ended December 31, 2005 decreased
24.0% to $4.5 million from $5.9 million for the year ended December 31, 2004,
principally due to the reduction in revenues in the Indoor display segment.
Indoor display operating income decreased $1.3 million or 53.3%, primarily
as a result of the decrease in revenues in the financial services and gaming
markets. The cost of Indoor displays represented 66.4% of related revenues in
2005 compared to 62.4% in 2004. 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 decreasing, and the revenues
from Indoor display equipment rentals and maintenance also decreasing but not at
the same rate. The Company has been working to restructure its field service
operations and has centralized the dispatch and help desk functions to its Des
Moines, Iowa facility and realigned its field service staff. Field service
costs for the year ended December 31, 2005 compared to 2004 were reduced by
approximately $106,000. Indoor display cost of equipment rentals and
maintenance decreased $69,000 or 0.9%. Cost of Indoor display equipment rentals
and maintenance includes field service expenses, plant repair costs, maintenance
and depreciation. Indoor display cost of equipment sales decreased $640,000 or
20.1%, primarily due to the decrease in revenues and the volume mix. Indoor
display general and administrative expenses decreased $89,000 or 2.2%.
Outdoor display operating income increased $133,000 or 34.7%, primarily as
a result of the increase in equipment sales. This increase is primarily due to
the increase in volume of sales in both the catalog scoreboard business and
commercial business. The cost of Outdoor displays represented 80.5% of related
revenues in 2005 compared to 80.6% in 2004. Outdoor display cost of equipment
sales increased $3.6 million or 30.4%, principally due to the increase in
volume. Outdoor display cost of equipment rentals and maintenance decreased
$499,000 or 8.7%, primarily due to a decrease in field service costs. Field
service costs for the year ended December 31, 2005 compared to 2004 were reduced
by approximately $555,000. Cost of Outdoor display equipment rentals and
maintenance includes field service expenses, plant repair costs, maintenance and
depreciation. Outdoor display general and administrative expenses increased
$640,000 or 16.6%, due to an increase in marketing expense and an increase in
commercial outdoor sales payroll, related benefits and travel.
Entertainment/real estate operating income decreased $260,000 or 8.3%,
primarily due to a 1.4% decrease in box office revenue, which is actually better
than the industry-wide trend for the year, and a decrease in MetroLux Theatres
joint venture income of $270,000 to $126,000 in 2005. This decrease was
attributable to an impairment loss of $264,000 on the old theatre building held
for sale, which was sold subsequent to year end. MetroLux Theatres relocated to
a new state-of-the-art location (also in Loveland, Colorado) in October 2005.
The cost of Entertainment/real estate represented 73.9% of related revenues in
2005 compared to 75.4% in 2004. Cost of theatre receipts and other, which
includes film rental costs and depreciation expense, decreased $191,000 or 1.9%,
primarily due to the reduction in admissions. Entertainment/real estate general
and administrative expenses increased $180,000 due to increased payroll and
related benefits.
Corporate general and administrative expenses decreased $389,000 or 9.8%,
due to reductions in insurance expense, payroll and related benefits.
Net interest expense increased $141,000 or 3.8%, due to an increase in the
interest rates of the variable rate debt and an increase in long-term debt at
December 31, 2005. The gain on sale of assets relates to the sale of vacant
land in Taos, New Mexico in 2005. The income from joint venture relates to the
operations of the theatre joint venture, MetroLux Theatres, in Loveland,
Colorado.
The effective tax rate for the years ended December 31, 2005 and 2004
was 34.9% and 50.9%, respectively. The rates were affected by the Canadian
subsidiary's income being taxed at higher rates than the domestic tax benefit.
Liquidity and Capital Resources
The Company has a bank Credit Agreement, which was modified subsequent to
year end to extend the maturity from January 1, 2008 to April 1, 2008, 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 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 7.60% to 8.25% at December 31, 2006).
The Credit Agreement matures on April 1, 2008. $6.1 million of the
non-revolving line of credit was drawn to finance one-half of the redemption of
the 7 1/2% Notes and as of December 31, 2006, has converted into a four-year
term loan also maturing April 1, 2008. At December 31, 2006, the entire
revolving loan facility had been drawn. The Credit Agreement requires an annual
facility fee on the unused commitment of 0.25%, and
13
requires compliance with certain financial covenants, which include a fixed
charge coverage ratio of 1.1 to 1.0, 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 $18.5 million and maintaining accounts with an average monthly compensating
balance of not less than $750,000. As of December 31, 2006, the Company was in
compliance with the forgoing financial covenants, but the Company was not in
compliance with the cap on capital expenditures, which its senior lender waived
subsequent to year end. The Company continues to be in discussion with its
senior lender to further extend the maturity of the Credit Agreement.
Although the Company has incurred losses for the last two years, it
believes that cash generated from operations together with cash and cash
equivalents on hand should be sufficient to fund its anticipated current and
near term cash requirements. The Company is in discussions with its senior
lender to restructure its existing Credit Agreement, which includes the
revolving loan facility, that matures April 1, 2008. The Company continually
evaluates the need and availability of long-term capital in order to meet its
cash requirements and fund potential new opportunities.
On March 13, 2006 and April 14, 2004, the Company completed two separate
offers 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. A total of $18.0 million principal amount
of 7 1/2% Notes were exchanged ($0.1 million in 2006 and $17.9 million in 2004),
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, were 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 and were senior to the 7 1/2% Notes and are
senior to the Company's 9 1/2% Subordinated Debentures due 2012 (the
"Debentures").
On March 15, 2007, the Company completed an offer to exchange 133 shares
of its Common Stock for each $1,000 principal amount of its 8 1/4% Notes. The
exchange offer commenced February 14, 2007 and expired on March 15, 2007. The
offer was for up to $9,000,000 principal amount, or approximately 50% of the
$18.0 million principal amount outstanding of the 8 1/4% Notes. A total of $7.8
million principal amount of the 8 1/4% Notes were exchanged, leaving $10.1
million principal amount of the 8 1/4% Notes outstanding.
Cash and cash equivalents decreased $7.8 million in 2006 compared to
increases of $1.2 million and $376,000 in 2005 and 2004, respectively. The
decrease in 2006 is primarily attributable to the reduction of long-term debt of
$7.8 million, investment in equipment manufactured for rental of $4.3 million
and purchases of property, plant and equipment of $0.7 million, offset by
increases from operating activities of $3.8 million, proceeds from the Company's
joint venture of $1.0 million and proceeds from the sale of available-for-sale
securities of $0.3 million. The increase in 2005 was primarily attributable to
an increase of long-term debt of $4.0 million, proceeds from the Company's joint
venture of $0.3 million and operating activities of $3.9 million, offset by the
investment in equipment manufactured for rental of $4.8 million and purchases of
property, plant and equipment of $2.0 million, which included expansion of the
Company's movie theatre in Dillon, Colorado and purchase of land in Silver City,
New Mexico. The increase in 2004 was primarily attributable to proceeds
received from sales of assets of $7.0 million, proceeds from the sale of
available-for-sale securities of $0.3 million, proceeds received from
construction loan borrowings of $1.5 million, proceeds from the Company's joint
venture of $0.2 million and operating activities of $5.1 million, offset by the
investment in equipment manufactured for rental of $5.3 million, purchases of
property, plant and equipment, including expansion of the Company's movie
theatres in Durango and Dillon, Colorado, of $3.0 million, purchases of
available-for-sale securities of $0.3 million, reduction in long-term debt of
$6.1 million, payments of dividends of $0.2 million and cash used by the
discontinued operation of $0.5 million. The Company experiences a favorable
collection cycle on its trade receivables.
Under various agreements, the Company is obligated to make future cash
payments in fixed amounts. These include payments under the Company's long-term
debt agreements, employment and consulting agreement payments and rent payments
required under operating lease agreements. The Company's long-term debt
requires interest payments. The Company has both variable and fixed interest
rate debt. Interest payments are projected based on actual interest payments
incurred in 2006 until the underlying debts matures.
The following table summarizes the Company's fixed cash obligations as of
December 31, 2006 over the next five fiscal years:
In thousands 2007 2008 2009 2010 2011
--------------------------------------------------------------------------------------------
Long-term debt, including interest $7,464 $21,666 $3,865 $3,826 $3,747
Employment and consulting
agreement obligations 1,604 1,371 796 419 349
Operating lease payments 750 514 315 293 136
------------------------------------------------------
Total $9,818 $23,551 $4,976 $4,538 $4,232
--------------------------------------------------------------------------------------------
14
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 has guaranteed $0.7 million (75%) of a $0.9 million business
loan to finance theatre equipment held by its joint venture, MetroLux Theatres,
until May 2011, and accordingly, has recognized a liability for $33,000. The
unrelated 50% partner of MetroLux Theatres also guaranteed $0.7 million (75%) of
the $0.9 million business loan. The assets of MetroLux Theatres collateralize
this business loan.
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.
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. The fair value of the Company's fixed rate
long-term debt is disclosed in Note 9 to the consolidated financial statements.
A one-percentage point change in interest rates would result in an annual
interest expense fluctuation of approximately $334,000. In addition, the
Company is exposed to foreign currency exchange rate risk mainly as a result of
investment in its Canadian subsidiary. A 10% change in the Canadian dollar
relative to the U.S. dollar would result in a currency exchange expense
fluctuation of approximately $17,000, based on dealer quotes, considering
current exchange rates. The Company does not enter into derivatives for trading
or speculative purposes and did not hold any derivative financial instruments at
December 31, 2006.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements and supplementary financial information
are set forth below:
15
Consolidated Statements of Operations
In thousands, except per share data Years ended December 31 2006 2005 2004
------------------------------------------------------------------------------------------------------
Revenues:
Equipment rentals and maintenance $13,621 $14,882 $16,944
Equipment sales 26,845 26,121 22,269
Theatre receipts and other 13,445 13,365 13,366
-----------------------------------
Total revenues 53,911 54,368 52,579
-----------------------------------
Operating expenses:
Cost of equipment rentals and maintenance 12,033 12,830 13,398
Cost of equipment sales 19,201 18,023 15,052
Cost of theatre receipts and other 9,820 9,881 10,072
-----------------------------------
Total operating expenses 41,054 40,734 38,522
-----------------------------------
Gross profit from operations 12,857 13,634 14,057
General and administrative expenses 12,328 12,843 12,501
Interest income 279 353 184
Interest expense (4,507) (4,225) (3,915)
Gain on sale of assets - 128 2,536
Other income 87 71 82
-----------------------------------
Income (loss) from continuing operations before income taxes,
income from joint venture and discontinued operation (3,612) (2,882) 443
Provision (benefit) for income taxes:
Current 234 370 366
Deferred (1,855) (1,333) 61
-----------------------------------
Total provision (benefit) for income taxes (1,621) (963) 427
-----------------------------------
Income from joint venture 344 126 396
-----------------------------------
Income (loss) from continuing operations (1,647) (1,793) 412
Income from discontinued operation, net of income taxes - - 127
-----------------------------------
Net income (loss) $(1,647) $(1,793) $ 539
====================================
Earnings (loss) per share - continuing operations:
Basic $ (1.31) $ (1.42) $ 0.33
Diluted $ (1.31) $ (1.42) $ 0.33
Earnings per share - discontinued operation:
Basic $ - $ - $ 0.10
Diluted $ - $ - $ 0.03
Total earnings (loss) per share:
Basic $ (1.31) $ (1.42) $ 0.43
Diluted $ (1.31) $ (1.42) $ 0.43
Weighted average common shares outstanding:
Basic 1,260 1,261 1,261
Diluted 1,260 1,261 3,932
------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements.
16
Consolidated Balance Sheets
In thousands, except share data December 31 2006 2005
--------------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 5,765 $ 13,610
Available-for-sale securities 199 431
Receivables, less allowance of $1,034 - 2006 and $935 - 2005 6,721 6,321
Unbilled receivables 962 842
Inventories 6,467 5,658
Prepaids and other 858 1,149
--------------------
Total current assets 20,972 28,011
--------------------
Rental equipment 88,903 91,648
Less accumulated depreciation 56,946 56,280
--------------------
31,957 35,368
--------------------
Property, plant and equipment 39,459 39,188
Less accumulated depreciation 10,948 9,850
--------------------
28,511 29,338
Goodwill 1,004 1,004
Other assets 6,028 6,829
--------------------
TOTAL ASSETS $88,472 $100,550
--------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,412 $ 2,821
Accrued liabilities 6,929 6,986
Current portion of long-term debt 3,162 14,145
--------------------
Total current liabilities 12,503 23,952
--------------------
Long-term debt:
8 1/4% Limited convertible senior subordinated notes due 2012 17,958 17,868
9 1/2% Subordinated debentures due 2012 1,057 1,057
Notes payable 32,522 29,440
--------------------
51,537 48,365
Deferred credits, deposits and other 3,782 2,859
Deferred income taxes 476 2,978
Commitments and contingencies
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 13,897 13,901
Retained earnings 17,193 18,883
Accumulated other comprehensive loss (1,853) (1,287)
--------------------
31,977 34,237
Less treasury stock - at cost - 1,475,588 shares in 2006 and 1,480,045
shares in 2005 (excludes additional 286,814 shares held in 2006
and 2005 for conversion of Class B stock) 11,803 11,841
--------------------
Total stockholders' equity 20,174 22,396
--------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $88,472 $100,550
--------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements.
17
Consolidated Statements of Cash Flows
In thousands Years ended December 31 2006 2005 2004
-----------------------------------------------------------------------------------------------------
(restated)
Cash flows from operating activities
Net income (loss) $ (1,647) $(1,793) $ 539
Income from discontinued operation - - 127
----------------------------------------
Income (loss) from continuing operations (1,647) (1,793) 412
Adjustment to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 9,543 9,685 9,852
Income from joint venture (344) (126) (396)
Deferred income taxes (1,855) (1,332) 61
Gain on sale of assets - (108) (2,536)
Loss (gain) on sale of available-for-sale securities 15 (1) (27)
Cash used in discontinued operation - - (1,734)
Changes in operating assets and liabilities:
Receivables (520) (894) (675)
Inventories (809) (43) (918)
Prepaids and other assets 58 (335) (239)
Accounts payable and accruals (380) 39 1,581
Deferred credits, deposits and other (302) (1,220) (310)
----------------------------------------
Net cash provided by operating activities 3,759 3,872 5,071
----------------------------------------
Cash flows from investing activities
Equipment manufactured for rental (4,317) (4,831) (5,284)
Purchases of property, plant and equipment (673) (1,978) (3,039)
Purchases of available-for-sale securities - (114) (282)
Proceeds from sale of available-for-sale securities 257 32 307
Proceeds from joint venture, net 953 250 150
Proceeds from sale of assets - 190 7,028
Cash provided by discontinued operation - - 1,205
----------------------------------------
Net cash provided by (used in) investing activities (3,780) (6,451) 85
----------------------------------------
Cash flows from financing activities
Proceeds from long-term debt 6,250 6,020 20,596
Payments of long-term debt (14,043) (2,050) (25,198)
Purchase of treasury stock - (3) (1)
Proceeds from exercise of stock options 12 - -
Cash dividends (43) (176) (177)
----------------------------------------
Net cash provided by (used in) financing activities (7,824) 3,791 (4,780)
----------------------------------------
Net increase (decrease) in cash and cash equivalents (7,845) 1,212 376
Cash and cash equivalents at beginning of year 13,610 12,398 12,022
----------------------------------------
Cash and cash equivalents at end of year $ 5,765 $13,610 $ 12,398
-----------------------------------------------------------------------------------------------------
Interest paid $ 4,083 $ 3,106 $ 3,172
Income taxes paid 253 354 41
Supplemental disclosures of non-cash financing activities:
Exchange of 7 1/2% Notes 108 - 17,868
-----------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements.
18
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, 2006 Shares Amount Shares Amount Capital Stock Earnings Income (Loss)
----------------------------------------------------------------------------------------------------------------------------------
Balance January 1, 2004 2,452,900 $2,453 287,505 $287 $13,901 $(11,837) $20,490 $(1,258)
Net income - - - - - - 539 -
Cash dividends - - - - - - (177) -
Common stock acquired (26 shares) - - - - - (1) - -
Other comprehensive income (loss), net of tax:
Unrealized foreign currency translation - - - - - - - 329
Unrealized holding loss on securities - - - - - - - (4)
Minimum pension liability adjustment - - - - - - - (117)
Class B conversion to common stock 42 - (42) - - - - -
----------------------------------------------------------------------------------
Balance December 31, 2004 2,452,942 2,453 287,463 287 13,901 (11,838) 20,852 (1,050)
Net loss - - - - - - (1,793) -
Cash dividends - - - - - - (176) -
Common stock acquired (366 shares) - - - - - (3) - -
Other comprehensive income (loss), net of tax:
Unrealized foreign currency translation - - - - - - - 88
Unrealized holding loss on securities - - - - - - - (24)
Minimum pension liability adjustment - - - - - - - (301)
Class B conversion to common stock 649 - (649) - - - - -
----------------------------------------------------------------------------------
Balance December 31, 2005 2,453,591 2,453 286,814 287 13,901 (11,841) 18,883 (1,287)
Net loss - - - - - - (1,647) -
Cash dividends - - - - - - (43) -
Stock option compensation expense - - - - 4 - - -
Common stock issued (2,000 shares) - - - - - 18 - -
Stock options exercised (2,500 shares) - - - - (8) 20 - -
Other comprehensive income (loss), net of tax:
Unrealized foreign currency translation - - - - - - - (23)
Unrealized holding gain on securities - - - - - - - 24
Minimum pension liability adjustment - - - - - - - 354
Pension liability adjustment - SFAS 158 - - - - - - - (921)
----------------------------------------------------------------------------------
Balance December 31, 2006 2,453,591 $2,453 286,814 $287 $13,897 $(11,803) $17,193 $(1,853)
----------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements.
Consolidated Statements of Comprehensive Income (Loss)
In thousands Years ended December 31 2006 2005 2004
-----------------------------------------------------------------------------------
Net income (loss) $(1,647) $(1,793) $ 539
-----------------------------
Other comprehensive income (loss):
Unrealized foreign currency translation (23) 88 329
Unrealized holding gain (loss) on securities 40 (40) (7)
Minimum pension liability adjustment 306 (219) (196)
Pension liability adjustment - SFAS 158 (1,536) - -
Income tax benefit (expense) related to items
of other comprehensive income (loss) 647 (66) 82
-----------------------------
Total other comprehensive income (loss), net of tax (566) (237) 208
-----------------------------
Comprehensive income (loss) $(2,213) $(2,030) $ 747
-----------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements.
19
Notes To Consolidated Financial Statements
1. Summary of Significant Accounting Policies
Trans-Lux Corporation is a leading manufacturer and supplier of programmable
electronic information displays and owner/operator of cinemas.
Principles of consolidation: The consolidated financial statements include
the accounts of Trans-Lux Corporation, a Delaware corporation, and all
wholly-owned subsidiaries (the "Company"). The investment in a 50% owned joint
venture partnership, MetroLux Theatres, is reflected under the equity method and
is included in other assets in the Consolidated Balance Sheets and is recorded
as income from joint venture in the Consolidated Statements of Operations.
Intercompany balances and transactions have been eliminated in consolidation.
Use of 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. 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 valuation allowances, depreciation and
amortization, intangible assets, income taxes, warranty obligation, benefit
plans, contingencies and litigation.
Cash and cash equivalents: The Company considers all highly liquid
investments with a maturity of three months or less, when purchased, to be cash
equivalents. The Company's credit facility with its senior lender requires
maintaining accounts with an average monthly compensating balance of not less
than $750,000.
Available-for-sale securities: Available-for-sale securities consist of
mutual fixed income funds and are stated at fair value based on quoted market
prices. The Company determines realized gains and losses on the specific
identification basis. Unrealized gains and losses on investments
available-for-sale are reflected in accumulated other comprehensive loss in the
Consolidated Balance Sheets and as a separate item in the Consolidated
Statements of Comprehensive Income (Loss).
Accounts receivable: Receivables are carried at net realizable value.
Reserves for uncollectable accounts are provided based on historical experience
and current trends. The Company evaluates the adequacy of these reserves
regularly.
The following is a summary of the allowance for uncollectable accounts at December 31:
In thousands 2006 2005 2004
-------------------------------------------------------------------
Balance at beginning of year $ 935 $ 711 $1,092
Provisions 258 360 213
Deductions (159) (136) (594)
--------------------------------
Balance at end of year $1,034 $ 935 $ 711
-------------------------------------------------------------------
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 currently 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. Valuation allowances 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
valuation allowances regularly.
Rental equipment and property, plant and equipment: Rental equipment and
property, plant and equipment are stated at cost and 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.
20
The estimated useful lives are as follows:
Years
--------------------------------------------
Rental equipment 10 - 15
Buildings and improvements 10 - 40
Machinery, fixtures and equipment 4 - 15
Leaseholds and improvements 5 - 27
--------------------------------------------
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: Goodwill and intangible assets are accounted for
in accordance with the provisions of Statement of Financial Accounting Standards
("SFAS") No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"). Under
SFAS 142, goodwill and indefinite-lived intangible assets are no longer
amortized, but are reviewed annually for impairment, or more frequently if
indications of possible impairment exist.
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;
noncompete agreements over their term of 10 years; deferred financing costs over
the life of the related debt of two to 20 years; and other intangibles over 10
years. 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. The Company
annually evaluates the value of its goodwill and determines if it is impaired by
comparing the carrying value of goodwill to its estimated fair value. The
Company performed the annual impairment tests for goodwill as of October 1,
2006, 2005 and 2004, and determined that goodwill was not impaired as of those
dates. The Company also periodically evaluates the value of its other
intangible assets by comparing the carrying value with estimated future cash
flows. Other intangible assets are evaluated when indicators of impairment
exist.
Impairment or disposal of long-lived assets: The Company evaluates whether
there has been an impairment in any of its long-lived assets, excluding
goodwill, if certain circumstances indicate that a possible impairment may
exist. An impairment in value may exist 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.
Maintenance contracts: Purchased maintenance contracts are stated at cost
and are being amortized over their economic lives of 15 years using an
accelerated method, which contemplates contract expiration, fall-out and
non-renewal.
Revenue recognition: Revenue from rental of equipment and revenue from
maintenance contracts are recognized as they accrue during the term of the
respective agreements, which generally run for periods of one month to 10 years.
At December 31, 2006, the future minimum lease payments due the Company under
operating leases that expire at varying dates through 2016 for its rental
equipment and maintenance contracts, assuming no renewals of existing leases or
any new leases, aggregating $20,441,000 was as follows: $9,986,000 - 2007,
$4,876,000 - 2008, $2,782,000 - 2009, $1,483,000 - 2010, $737,000 - 2011,
$577,000 - thereafter. The Company recognizes revenues on long-term equipment
sales contracts, which require more than three months to complete, using the
percentage of completion method. The Company records unbilled receivables
representing amounts due under these long-term equipment sales contracts, which
have not been billed to the customer. Income is recognized based on the
percentage of incurred costs to the estimated total costs for each contract.
The determination of the estimated total costs is susceptible to change on these
sales contracts. Revenues on equipment sales, other than long-term equipment
sales contracts, are recognized upon shipment when title and risk of loss passes
to the customer. Theatre receipts and other revenues are recognized at the time
service is provided.
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.
Taxes on income: The Company computes income taxes using the asset and
liability method, under which deferred income taxes are provided for the
temporary differences between the financial reporting basis and the tax basis of
the assets and liabilities.
Foreign currency: The functional currency of the Company's non-U.S.
business operation is the applicable local currency. The assets and
liabilities of such operation 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 loss in the Consolidated Balance
Sheets and Concolidated Statements of Comprehensive Income (Loss). 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. The
Company was not involved in any derivative financial instruments during the
three years ended December 31, 2006.
21
Share-based compensation plans: On January 1, 2006, the Company adopted
SFAS No. 123 (revised 2004) "Share-Based Payment" ("SFAS 123R"), which requires
the measurement and recognition of compensation expense for all share-based
payment awards made to employees and directors including employee stock options
based on estimated fair values. Under the fair value recognition provisions of
SFAS 123R compensation is estimated at the grant date based on the fair value of
the awards expected to vest and recognized as expense ratably over the requisite
service period of the award. The Company has used the binomial options-pricing
valuation model to estimate fair value of share-based awards, which requires
various assumptions including estimating stock price volatility, expected life
of the stock option and risk free interest rate. For details on the accounting
effect of share-based compensation see Note 13 - Share-Based Compensation. The
Company elected the "modified prospective method" of transition as permitted by
SFAS 123R. Under this transition method, the Company is required to record
compensation expense or all awards granted after the date of adoption and for
the unvested portion of previously granted awards that were outstanding at the
date of adoption, and accordingly, periods prior to adoption were not restated.
SFAS 123R required the Company to apply an estimated forfeiture rate in
calculating the period expense, as opposed to recognizing forfeitures as an
expense reduction as they occur. The Company has not experienced any
forfeitures that would need to be taken into consideration in SFAS 123R
calculations.
Prior to January 1, 2006, the Company accounted for stock options granted in
accordance with the provisions and related interpretations of APB 25 as
permitted by Statement of Accounting Standards No. 123 "Accounting for
Stock-Based Compensation" ("SFAS 123"). Therefore, there was no share-based
compensation recorded in the Consolidated Statements of Operations related to
employee and director stock options for the years ended December 31, 2005 and
2004.
Recent accounting pronouncements: In May 2005, the Financial Accounting
Standards Board ("FASB") issued SFAS No. 154, "Accounting Changes and Error
Corrections - a replacement of APB Opinion No. 20 and FASB Statement No. 3."
This Statement requires, unless impracticable, retrospective application to the
prior periods' financial statements as the required method for reporting a
change in accounting principle in the absence of explicit transition
requirements specific to the newly adopted accounting principle. The provisions
of this Statement are effective for accounting changes and corrections of errors
made in fiscal years beginning after December 15, 2005. The adoption of this
Statement in 2006 did not have a material impact on the Company's financial
position or results of operations.
In April 2006, the FASB issued FSP FIN 46R-6, "Determining the Variability
to Be Considered in Applying FASB Interpretation No. 46R," which requires the
variability of an entity to be analyzed based on the design of the entity. The
nature and risks in the entity, as well as the purpose for the entity's creation
are examined to determine the variability in applying FIN 46R, "Consolidation of
Variable Interest Entities" ("FIN 46R"). The variability is used in applying
FIN 46R to determine whether an entity is a variable interest entity, which
interests are variable interests in the entity, and who is the primary
beneficiary of the variable interest entity. This Statement is effective for
all reporting periods beginning after June 15, 2006. The adoption of this
Statement in 2006 did not have a material impact on the Company's financial
position or results of operations.
In July 2006, the FASB issued FASB Interpretation No. 48, "Accounting for
Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109" ("FIN
48"). FIN 48 prescribes a recognition threshold and measurement attribute for
the financial statement recognition and measurement of a tax position taken in a
tax return. The Company must determine whether it is "more-likely-than-not"
that a tax position will be sustained upon examination, including resolution of
any related appeals or litigation processes, based on the technical merits of
the position. Once it is determined that a position meets the
more-likely-than-not recognition threshold, the position is measured to
determine the amount of benefit to recognize in the financial statements. FIN
48 applies to all tax positions related to income taxes subject to FASB
Statement No. 109, "Accounting for Income Taxes." The interpretation clearly
scopes out income tax positions related to FASB Statement No. 5, "Accounting
for Contingencies." The Company will adopt the provisions of this Statement in
2007. The cumulative effect of applying the provisions of FIN 48 will be
reported as an adjustment to the opening balance of retained earnings.
Management does not anticipate that the adoption of this statement will have a
material effect on the Company's financial condition and results of operations.
In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements"
("SFAS 157") that defines fair value, establishes a framework for measuring fair
value in generally accepted accounting principles and expands the disclosures
about fair value measurement. This Statement is effective for financial
statements issued for fiscal years beginning after November 15, 2007 and interim
periods within those fiscal years. Management is assessing the potential impact
of SFAS 157 on the Company's financial condition and results of operations.
In September 2006, the FASB issued SFAS No. 158, "Employers' Accounting for
Defined Benefit Plans and Other Postretirement Plans - an amendment of FASB
Statements No. 87, 88, 106, and 132(R)" ("SFAS 158"). SFAS 158 requires an
employer to recognize on its balance sheet the funded status of a benefit plan.
Gains or losses and prior service costs or credits that arise during the period
as a component of other comprehensive income are also required to be recognized.
In addition, SFAS 158 requires that the measurement date of defined benefit plan
assets and obligations must coincide with the year-end date and certain
disclosures are required in the notes to the consolidated financial statements.
The Company adopted SFAS 158 effective December 31, 2006. For details on the
accounting effect of the defined benefit plan, see Note 12 - Pension Plan.
22
Reclassifications: Certain reclassifications of prior years' amounts have
been made to conform to the current year's presentation.
2. Available-for-Sale Securities
Available-for-sale securities are carried at estimated fair values and the
unrealized holding gains and losses are excluded from earnings and reported net
of income taxes in accumulated other comprehensive income (loss) until realized.
An adjustment of $40,000 was recorded to reflect the unrealized loss on
available-for-sale securities at December 31, 2006 and an adjustment of $40,000
was recorded to reflect the unrealized gains on available-for-sale securities at
December 31, 2005. Management believes that these changes in the fair value of
securities are temporary. The Company realized a loss of $15,000 during 2006
and a gain of $1,000 during 2005 on the sales of available-for-sale securities.
Previously, an unrealized loss of $23,000 and $1,000, respectively, had been
recorded in accumulated other comprehensive income (loss) for these sold
available-for-sale securities.
Available-for-sale securities consist of the following:
In thousands 2006 2005
-------------------------------------------------------------
Fair Unrealized Fair Unrealized
Value Losses Value Losses
----------------------------------------
Mutual funds $199 $17 $284 $48
Equity securities - - 147 9
---------------------------------------
$199 $17 $431 $57
-------------------------------------------------------------
3. Inventories
Inventories consist of the following:
In thousands 2006 2005
----------------------------------------
Raw materials $4,508 $3,740
Work-in-progress 1,358 1,411
Finished goods 601 507
----------------
$6,467 $5,658
----------------------------------------
4. Property, Plant and Equipment
Property, plant and equipment consist of the following:
In thousands 2006 2005
------------------------------------------------------
Land, buildings and improvements $31,706 $31,239
Machinery, fixtures and equipment 6,765 6,969
Leaseholds and improvements 988 980
------------------
$39,459 $39,188
------------------------------------------------------
Land, buildings and equipment having a net book value of $25.6 million and $26.6
million at December 31, 2006 and 2005, respectively, were pledged as collateral
under various mortgage agreements.
23
5. Other Assets
Other assets consist of the following:
In thousands 2006 2005
------------------------------------------------------------------
Receivable - sale/leaseback of facility $2,580 $2,580
Deferred financing costs, net of accumulated
amortization of $641 - 2006 and $1,167 - 2005 798 878
Spare parts 750 850
Investment in joint venture (see Note 17) 444 1,099
Prepaids 347 374
Noncompete agreements, net of accumulated
amortization of $186 - 2006 and $271 - 2005 274 320
Maintenance contracts, net of accumulated
amortization of $2,303 - 2006 and $2,256 - 2005 84 131
Deposits and other 751 597
---------------
$6,028 $6,829
------------------------------------------------------------------
The receivable - sale/leaseback of facility relates to a long-term receivable
secured by a purchase money mortgage subordinated to a $3.5 million first
mortgage in favor of the purchaser of the Norwalk, Connecticut facility (see
Note 6).
Deferred financing costs relate to the issuance of the 8 1/4% limited
convertible senior subordinated notes, the 9 1/2% subordinated debentures,
mortgages and other financing agreements.
Noncompete agreements relate to the acquisition of theatre leases and a
$450,000 restrictive covenant agreement relating to a theatre acquisition.
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: $279,000 - 2007, $199,000 - 2008, $157,000 - 2009,
$156,000 - 2010, $153,000 - 2011.
6. Sale of Assets and Discontinued Operation
Sale of Assets
On June 3, 2004, the Company entered into a sale/leaseback of its Norwalk,
Connecticut facility for a sales price of $8.1 million, of which $5.5 million
was paid in cash and the balance of $2.6 million is payable, with interest, four
years from closing. The Company leased back the property for four years, after
which a three-year lease for part of the property will take effect. The $2.6
million receivable is included in other assets in the Consolidated Balance
Sheets. In accordance with SFAS No. 28, "Accounting for Sales with
Leasebacks," the Company recorded a gain of approximately $2.5 million ($1.5
million, net of tax) on the sale and deferred $2.2 million of the gain for a
total gain of $4.7 million. The deferred gain represents the present value of
the lease payments over the term of the leaseback and will be recognized
proportionately to the rental charge over the next seven years and is included
in deferred credits, deposits and other in the Consolidated Balance Sheets. The
$2.6 million balance of the purchase price is secured by a purchase money
mortgage subordinate to a $3.5 million first mortgage in favor of the
purchaser's lender. In conjunction with the sale, the Company prepaid $4.9
million of its long-term debt with its senior lenders.
Discontinued Operation
On April 28, 2004, the Company completed an agreement to sell the capital stock
of its Australian subsidiary, Trans-Lux Pty Limited ("PTY"), for $1.7 million in
cash, and the operating results were assumed by the buyer effective as of
February 29, 2004. In accordance with the provisions of SFAS No. 144,
"Accounting For the Impairment or Disposal of Long-lived Assets," the Company
has accounted for PTY as a discontinued operation. The consolidated financial
statements reflect the assets and liabilities of the discontinued operation and
the operations for the prior periods are reported as a discontinued operation.
24
The following table presents the financial results of the discontinued operation:
In thousands 2004
---------------------------------------------
Revenues $ 135
Operating expenses 126
-----
Gross profit 9
General and administrative expenses (126)
Foreign currency gain 141
Interest income 3
Gain on sale of assets 112
Income tax provision (12)
-----
Income from discontinued operation $ 127
-----
Earnings per share:
Basic $0.10
Diluted $0.03
---------------------------------------------
7. Taxes on Income
The components of income tax expense (benefit) are as follows:
In thousands 2006 2005 2004
---------------------------------------------------------------
Current:
Federal $ - $ - $ -
State and local - 78 60
Foreign 234 292 306
---------------------------
234 370 366
---------------------------
Deferred:
Federal (1,562) (1,122) 44
State and local (293) (211) 17
---------------------------
(1,855) (1,333) 61
---------------------------
Total income tax expense (benefit) $(1,621) $ (963) $427
---------------------------------------------------------------
Income (loss) from continuing operations before income taxes is from the United
States ($3,734) and ($3,396) and Canada $466 and $640 for the years ended
December 31, 2006 and 2005, respectively.
25
Income taxes provided differed from the expected federal statutory rate of 34.0% as follows:
2006 2005 2004
---------------------------------------------------------------------------
Statutory federal income tax (benefit) rate (34.0%) (34.0%) 34.0%
State income taxes, net of federal benefit (5.9) (3.1) 6.0
Foreign income taxed at different rates 2.3 2.7 8.8
Gain on purchase of the Company's
9% subordinated debentures (11.4) - -
Other (0.6) (0.5) 2.1
-----------------------------
Effective income tax rate (49.6%) (34.9%) 50.9%
---------------------------------------------------------------------------
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 2006 2005
-----------------------------------------------------------------
Deferred tax asset:
Tax credit carryforwards $1,038 $ 1,040
Operating loss carryforwards 5,932 5,363
Net pension costs 1,207 429
Bad debts 361 332
Other 482 657
Valuation allowance (56) (58)
--------------------
8,964 7,763
--------------------
Deferred tax liability:
Depreciation 8,930 9,830
Gain on purchase of the Company's
9% subordinated debentures - 439
Other 510 472
--------------------
9,440 10,741
--------------------
Net deferred tax liability $ 476 $ 2,978
-----------------------------------------------------------------
Tax credit carryforwards primarily relate to federal alternative minimum taxes
of $0.9 million paid by the Company, which may be carried forward indefinitely
and applied against regular federal taxes. Operating tax loss carryforwards
primarily relate to U.S. federal net operating loss carryforwards of
approximately $14.3 million, which begin to expire in 2019.
A valuation allowance has been established for the amount of deferred tax
assets related to state net operating loss carryforwards and job credits, which
management estimates will more likely than not expire unused.
8. Accrued Liabilities
Accrued liabilities consist of the following:
In thousands 2006 2005
----------------------------------------------------------
Deferred revenues $1,678 $1,693
Compensation and employee benefits 1,115 931
Interest payable 943 700
Taxes payable 482 703
Warranty obligations 186 212
Pension liability (see Note 12) 95 198
Other 2,430 2,549
------------------
$6,929 $6,986
----------------------------------------------------------
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
26
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 2006 2005 2004
-------------------------------------------------------
Balance at beginning of year $ 212 $ 260 $308
Provisions 139 100 -
Deductions (165) (148) (48)
-----------------------
Balance at end of year $ 186 $ 212 $260
-------------------------------------------------------
9. Long-Term Debt
Long-term debt consist of the following:
In thousands 2006 2005
-----------------------------------------------------------------------
7 1/2% Convertible subordinated notes due 2006 $ - $12,309
8 1/4% Limited convertible senior subordinated
notes due 2012 17,958 17,868
9 1/2% Subordinated debentures due 2012 1,057 1,057
Term loan - bank secured, due in quarterly
installments through 2008 14,350 9,000
Revolving loan - secured 5,000 5,000
Real estate mortgages - secured, due in monthly
installments through 2024 16,200 17,231
Loans payable - CEBA, secured, due in monthly
installments through 2007 134 45
-----------------
54,699 62,510
Less portion due within one year 3,162 14,145
-----------------
Long-term debt $51,537 $48,365
-----------------------------------------------------------------------
Payments of long-term debt due for the next five years are:
In thousands 2007 2008 2009 2010 2011
---------------------------------------------------------------------------
$3,162 $18,257 $1,202 $1,246 $1,255
---------------------------------------------------------------------------
The 7 1/2% Convertible Subordinated Notes (the "7 1/2% Notes") were due December
1, 2006. On June 15, 2006, the $12.2 million principal amount of outstanding 7
1/2% Notes were redeemed at par. Interest was payable semi-annually. The 7
1/2% Notes were convertible at the option of the holder into shares of Common
Stock, $1 par value per share, of the Company at any time prior to the close of
business on June 14, 2006 at the rate of $14.013 per share, which conversion
rate was substantially above the market price of the Common Stock. The Company
utilized $6.1 million of its non-revolving line of credit to finance one-half of
the redemption of the 7 1/2% Notes and utilized $6.1 million of cash for the
remaining one-half.
On March 13, 2006 and April 14, 2004, the Company completed two separate
offers 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. A total of $18.0 million principal amount
of the 7 1/2% Notes were exchanged, ($0.1 million in 2006 and $17.9 million in
2004) 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, were 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 and were senior to the 7 1/2% Notes and
are senior to the Company's 9 1/2% Subordinated Debentures due 2012 (the
"Debentures").
On March 15, 2007, the Company completed an offer to exchange 133 shares of
its Common Stock for each $1,000 principal amount of its 8 1/4% Notes. The
exchange offer commenced February 14, 2007 and expired on March 15, 2007. The
offer was for up to $9,000,000 principal amount, or approximately 50% of the
$18.0 million principal amount outstanding of the 8 1/4% Notes. A total of $7.8
million principal amount of the 8 1/4% Notes were exchanged, leaving $10.1
million principal amount of the 8 1/4% Notes outstanding.
The Debentures are due in annual sinking fund payments of $105,700 beginning
in 2009, with the remainder due in 2012. Interest is payable semi-annually.
The Debentures may be redeemed by the Company, in whole or in part, at declining
premiums.
27
The Company has a bank Credit Agreement, which was modified subsequent to
year end to extend the maturity from January 1, 2008 to April 1, 2008, 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 7.60% to 8.25% at
December 31, 2006). The Credit Agreement matures on April 1, 2008. $6.1
million of the non-revolving line of credit was drawn to finance one-half of the
redemption of the 7 1/2% Notes and as of December 31, 2006, was converted into a
four-year term loan maturing April 1, 2008. At December 31, 2006, the entire
revolving loan facility had been drawn. 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, 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 $18.5 million and
maintaining accounts with an average monthly compensating balance of not less
than $750,000. The amounts outstanding under the Credit Agreement are
collateralized by all of the Display division assets. As of December 31, 2006,
the Company was in compliance with the forgoing financial covenants, but the
Company was not in compliance with the cap on capital expenditures, which its
senior lender waived subsequent to year end.
The Company has mortgages on certain of its facilities at variable rates of
interest, which are payable in monthly installments, the last of which extends
to 2024. At December 31, 2006, such variable interest rates ranged from 7.13%
to 8.25%.
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 credits, deposits and other in the Consolidated Balance
Sheets prior to December 31, 2002 and in long-term debt between January 1, 2003
and September 30, 2005. The loans are forgiven on a pro-rata basis when
predetermined employment levels are attained. At December 31, 2002, the Company
had not met the maximum specified employment levels and, accordingly, would have
been required to pay the non-forgiven portion, but the agreement had been
amended in 2005 to allow the Company until December 31, 2007 to meet the
specified employment levels. In addition, during 2006, the Company received
$150,000 from the State of Iowa and City of Des Moines as a zero percent
interest loan, amortizing on a straight-line basis for five years. At December
31, 2006, the present value of this loan, assuming a 6% interest rate, the rate
of previous loans from the State of Iowa and City of Des Moines, is $116,000.
The $21,000 premium is being amortized using the effective interest method and
is included in the carrying value of the loan.
During 2006, the Company incurred interest costs of $4.5 million. At
December 31, 2006, the estimated fair value of the 8 1/4% Notes and the
Debentures was $17.6 million and $1.0 million, respectively. The estimated fair
value of the remaining long-term debt approximates the carrying value. At
December 31, 2006, the Company was not involved in any derivative financial
instruments.
10. Stockholders' Equity
During 2006, the Board of Directors declared one quarterly cash dividend of
$0.035 per share on the Company's Common Stock and $0.0315 per share on the
Company's Class B Stock, which was paid in April 2006. The Board of Directors
did not declare any further quarterly cash dividends on the Company's Common
Stock or on the Company's Class B Stock in order to preserve cash and pay down
debt. Each share of Class B Stock is convertible at any time into one share of
Common Stock and has ten votes per share, as compared to Common Stock, which has
one vote per share but receives a 10% higher dividend.
The Company has 3.0 million shares of authorized and unissued capital stock
designated as Class A Stock, $1.00 par value. Such shares have no voting rights
except as required by law and would receive a 10% higher dividend than the
Common Stock.
The Company also has 0.5 million shares of authorized and unissued capital
stock designated as Preferred Stock, $1.00 par value.
The stockholders previously approved an increase in the authorized shares of
Common Stock to 11.0 million and Class A Stock to 6.0 million. A Certificate of
Amendment increasing the authorized shares will be filed when deemed necessary.
Shares of Common Stock reserved for future issuance in connection with
convertible securities and stock option plans were 2.1 million and 2.9 million
at December 31, 2006 and 2005, respectively.
On March 15, 2007, 1,041,257 shares of Common Stock were issued in exchange
for $7,829,000 principal amount of the 8 1/4% Notes.
28
11. Engineering Development
Engineering development expense was $449,000, $383,000 and $443,000 for 2006,
2005, and 2004, respectively, which is included in general and administrative
expenses in the Consolidated Statements of Operations.
12. Pension Plan
On September 29, 2006, the FASB issued SFAS No. 158, "Employers' Accounting for
Defined Benefit Pension and Other Postretirement Plans" ("SFAS 158"). SFAS 158
requires, among other things, an employer to recognize the funded status of its
benefit plans in its balance sheet. The Company adopted SFAS 158 as of December
31, 2006.
The following table summarizes the effect of required changes in the adoption of
SFAS 158 in our Consolidated Balance Sheet as of December 31, 2006:
Before adoption After adoption
of SFAS 158 Adjustments of SFAS 158
---------------------------------------------------------------------------------------------------------
Prepaids and other current assets $ 951 $ (93) $ 858
Total Assets 88,565 (93) 88,472
Deferred credits, deposits and other noncurrent liabilities 2,340 1,442 3,782
Deferred income taxes 1,090 (614) 476
Accumulated other comprehensive loss, net of tax (932) (921) (1,853)
Total stockholders' equity 21,095 (921) 20,174
Total Liabilities and Stockholders' Equity 88,565 (93) 88,472
---------------------------------------------------------------------------------------------------------
All eligible salaried employees of Trans-Lux Corporation and certain of its
subsidiaries are covered by a non-contributory defined benefit pension plan.
Pension benefits vest after five years of service and are based on years of
service and final average salary. The Company's general funding policy is to
contribute at least the required minimum amounts sufficient to satisfy
regulatory funding standards, but not more than the maximum tax-deductible
amount. As of December 31, 2003, the benefit service under the pension plan had
been frozen and, accordingly, there is no service cost for each of the three
years ended December 31, 2006.
For 2006 and 2005, due primarily to a drop in the discount rate and the
effect of the plan's investment experience at the December 31 measurement dates
on the valuation of plan assets, the accrued benefit obligation of the plan
exceeded the fair value of plan assets. The Company's pension obligations for
this plan exceeded plan assets by $3.0 million at December 31, 2006.
The Company employs a total return investment approach whereby a mix of
equities and fixed income investments are used to maximize the long-term return
of plan assets for a prudent level of risk. The intent of this strategy is to
minimize plan expenses by outperforming plan liabilities over the long run.
Risk tolerance is established through careful consideration of plan liabilities,
plan funded status and corporate financial condition. The portfolio contains a
diversified blend of equity and fixed income investments. Investment risk is
measured and monitored on an ongoing basis through annual liability
measurements, periodic asset/liability studies and quarterly investment
portfolio reviews.
At December 31, 2006 and 2005, the Company's pension plan weighted average asset
allocations by asset category are as follows:
2006 2005
----------------------------------------------------
Guaranteed investment contracts 48.8% 55.5%
Equity and index funds 48.8 42.3
Bonds 2.1 2.1
Money market funds 0.3 0.1
--------------
100.0% 100.0%
----------------------------------------------------
Bonds include $167,000 of the Company's 9 1/2% subordinated debentures for 2006
and 2005.
29
The funded status of the plan as of December 31, 2006 and 2005 is as follows:
In thousands 2006 2005
---------------------------------------------------------------------------
Change in benefit obligation:
Projected benefit obligation at beginning of year $11,024 $10,665
Interest cost 611 619
Actuarial loss 9 366
Benefits paid (738) (626)
--------------------
Projected benefit obligation at end of year $10,906 $11,024
--------------------
Change in plan assets:
Fair value of plan assets at beginning of year $ 7,862 $ 7,380
Actual return on plan assets 754 423
Company contributions - 685
Benefits paid (738) (626)
--------------------
Fair value of plan assets at end of year $ 7,878 $ 7,862
--------------------
Funded status:
Funded status (underfunded) $(3,028) $(3,162)
Net actuarial loss 3,790 4,192
Unrecognized prior service cost 93 110
--------------------
Net amount $ 855 $ 1,140
--------------------
Amounts recognized in the balance sheet consist of:
Accrued benefit liability $(1,585) $(1,622)
Unrecognized prior service cost 93 110
Accumulated other comprehensive loss 2,347 2,652
--------------------
Net amount $ 855 $ 1,140
--------------------
Weighted average assumptions as of December 31:
Discount rate:
Components of cost 5.75% 6.00%
Benefit obligations 6.00% 5.75%
Expected return on plan assets 8.75% 8.75%
Rate of compensation increase 3.00% 3.00%
---------------------------------------------------------------------------
The accumulated benefit obligation at December 31, 2006 and 2005 was $9.5
million. The minimum required contribution for 2007 is expected to be $95,000.
Expected projected benefit payments due for the next five years are:
In thousands 2007 2008 2009 2010 2011
-------------------------------------------------------------
$141 $545 $441 $509 $1,071
-------------------------------------------------------------
The following table presents the components of the net periodic pension cost for the three years ended
December 31, 2006:
In thousands 2006 2005 2004
---------------------------------------------------------
Interest cost $ 611 $ 619 $ 609
Expected return on plan assets (654) (643) (591)
Amortization of prior service cost 17 17 17
Amortization of net actuarial loss 311 268 245
---------------------
Net periodic pension cost $ 285 $ 261 $ 280
---------------------------------------------------------
The Company does not offer any post-retirement benefits other than the pension
retirement benefits described herein.
30
13. Share-Based Compensation
Effective January 1, 2006, the Company adopted the provisions of SFAS 123R,
which establishes the accounting for stock-based awards exchanged for employee
services. SFAS 123R requires all share-based payments to employees, including
grants of employee stock options, to be measured at fair value and expensed in
the Consolidated Statements of Operations over the service period (generally the
vesting period). The Company elected the "modified prospective method" of
transition as permitted by SFAS 123R. Under this transition method, the Company
is required to record compensation expense for all awards granted after the date
of adoption and for the unvested portion of previously granted awards that were
outstanding at the date of adoption, and accordingly, periods prior to adoption
were not restated. SFAS 123R required the Company to apply an estimated
forfeiture rate in calculating the period expense, as opposed to recognizing
forfeitures as an expense reduction as they occur. The Company has not
experienced any forfeitures that would need to be taken into consideration in
SFAS 123R calculations. The Company 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 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. Under the Non-Statutory Stock Option Agreement, 10,000
shares of Common Stock were authorized and issued to the former Chairman of the
Board.
Changes in the stock option plans are as follows:
Weighted
Number of Shares Average
---------------------------------- Exercise
Authorized Granted Available Price
------------------------------------------------------------------------------
Balance January 1, 2004 160,739 79,539 81,200 $ 6.62
Terminated (4,500) (5,500) 1,000 10.29
Granted - 7,000 (7,000) 6.81
-------------------------------
Balance December 31, 2004 156,239 81,039 75,200 6.39
Terminated (73,439) (11,739) (61,700) 8.10
Granted - 2,000 (2,000) 6.25
-------------------------------
Balance December 31, 2005 82,800 71,300 11,500 6.10
Terminated - (2,000) 2,000 6.08
Exercised (2,500) (2,500) - 4.95
Granted - 500 (500) 5.95
-------------------------------
Balance December 31, 2006 80,300 67,300 13,000 6.15
------------------------------------------------------------------------------
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, 2006 under the 1995 Plan, options
for 46,300 shares with exercise prices ranging from $5.40 to $15.1875 per share
were outstanding, all of which were exercisable. During 2006, no options were
exercised, granted or expired. During 2005, no options were exercised, and
options for 9,739 shares expired. During 2004, options for 5,000 shares were
granted with an exercise price of $7.00 per share, no options were exercised,
and no options expired. No additional options can be granted under the 1995
Plan.
Under the 1992 Plan, no additional options can be granted and at December
31, 2006, no options were outstanding. During 2004, no options were exercised,
and options for 4,500 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, 2006, options for 11,000
shares with exercise prices ranging from $4.025 to $7.00 per share were
outstanding, 10,500 of which were exercisable. During 2006, options for 500
shares were granted with an exercise price of $5.95 per share, 2,500 options
were exercised, which had an intrinsic value of $7,000 determined as a
difference between the market price at the date of exercise and the exercise
price, and options for 1,500 shares expired. During 2005, options for 2,000
shares were granted with an exercise price of $6.25 per share, no options were
exercised, and options for 2,000 shares expired. During 2004, options for 2,000
shares were granted with an exercise price of $6.35 per share, no options were
exercised, and options for 1,000 shares expired.
Under the Non-Statutory Stock Option Agreement for the former Chairman of
the Board, the option price must be at least 100% of the market value of the
Common Stock at time of grant and the exercise period is for 10 years from date
of
31
grant. At December 31, 2006, the options for 10,000 shares with an exercise
price of $4.025 were outstanding and exercisable. During 2006, 2005 and 2004,
no options were exercised and no options expired.
The following tables summarize information about stock options outstanding at
December 31, 2006:
Weighted
Average Weighted Aggregate
Range of Number Remaining Average Intrinsic
Exercise Prices Outstanding Contractual Life Exercise Price Value
----------------------------------------------------------------------------------
$ 4.03 - $ 5.39 14,500 3.7 $ 4.15 $ 32,000
5.40 - 6.15 30,500 4.9 5.49 82,000
6.16 - 7.00 8,500 5.8 6.76 31,000
7.01 - 9.00 12,500 1.7 9.00 56,000
9.01 - 11.44 1,000 0.2 11.44 4,000
11.45 - 15.19 300 0.8 15.19 1,000
------ --------
67,300 4.1 6.15 $206,000
----------------------------------------------------------------------------------
Weighted Aggregate
Range of Number Average Intrinsic
Exercise Prices Exercisable Exercise Price Value
----------------------------------------------------------------------------------
$ 4.03 - $ 5.39 14,500 $ 4.15 $ 32,000
5.40 - 6.15 30,000 5.48 81,000
6.16 - 7.00 8,500 6.76 31,000
7.01 - 9.00 12,500 9.00 56,000
9.01 - 11.44 1,000 11.44 4,000
11.45 - 15.19 300 15.19 1,000
------ --------
66,800 6.15 $205,000
----------------------------------------------------------------------------------
As of December 31, 2006 there was $1,000 of total unrecognized compensation cost
related to non-vested options granted under the Plans. That cost will be
recognized in 2007.
The estimated fair value of options granted during 2006, 2005 and 2004 was
$2.86, $2.66 and $3.26 per share, respectively. The fair value of options
granted under the Company's stock option plans during 2006, 2005 and 2004 was
estimated on dates of grant using the binomial options-pricing model with the
following weighted average assumptions used:
2006 2005 2004
-------------------------------------------------------------------
Dividend yield - 2.06% 2.04%
Expected volatility 42.17% 43.00% 44.00%
Risk free interest rate 4.76% 4.59% 4.92%
Expected lives of option grants (years) 4.0 4.0 4.0
-------------------------------------------------------------------
Prior to the adoption of SFAS 123R, the Company provided the disclosures
required under SFAS 123. The Company did not recognize stock option-based
compensation cost in our Consolidated Statements of Operations for the periods
prior to the adoption of SFAS 123R, as all options granted had an exercise
price equal to the market price of our Common Stock on the date of grant.
32
The following table illustrates the effect on net income (loss) and earnings
(loss) per share for the years ended December 31, 2005 and 2004 as if the
Company had applied the fair value recognition provisions of SFAS 123 to
stock-based employee compensation:
In thousands, except per share data 2005 2004
-----------------------------------------------------------------------------
Net income (loss), as reported $(1,793) $ 539
Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all awards, net of tax 9 7
-------------------
Pro forma net income (loss) $(1,802) $ 532
-------------------
Earnings (loss) per share:
Basic, as reported $ (1.42) $0.43
Diluted, as reported $ (1.42) $0.43
Basic, pro forma $ (1.43) $0.42
Diluted, pro forma $ (1.43) $0.42
-----------------------------------------------------------------------------
14. Earnings (Loss) Per Common Share
Basic earnings (loss) per common share is computed by dividing net income (loss)
by the weighted average number of common shares outstanding for the period. The
Company's diluted earnings per common share is calculated by adjusting net
income (loss) for the after-tax interest expense on convertible debt and
dividing that amount by the weighted average number of common shares
outstanding, adjusted for shares that would be assumed outstanding after
convertible debt conversion and stock options vested under the treasury stock
method. At December 31, 2006, outstanding debt convertible into 1,994,000
shares of Common Stock and outstanding stock options to purchase 67,300 shares
of Common Stock were excluded from the calculation of diluted earnings per share
because their impact would have been anti-dilutive.
33
The following table sets forth the computation of basic and diluted earnings (loss) per share:
In thousands, except per share data 2006 2005 2004
--------------------------------------------------------------------------------------------
Numerator:
Income (loss) from continuing operations $(1,647) $(1,793) $ 412
Income from discontinued operation - - 127
---------------------------
Net income (loss) (1,647) (1,793) 539
Add interest expense on 7 1/2% convertible subordinated
notes and 8 1/4% limited convertible senior
subordinated notes, net of tax - - 1,757
---------------------------
Net income (loss), adjusted $(1,647) $(1,793) $2,296
---------------------------
Denominator:
Basic - weighted average common shares outstanding 1,260 1,261 1,261
Dilutive effect of:
Convertible notes - - 2,658
Stock options - - 13
---------------------------
Diluted shares outstanding 1,260 1,261 3,932
---------------------------
Earnings (loss) per share - continuing operations:
Basic $ (1.31) $ (1.42) $ 0.33
Diluted $ (1.31) $ (1.42) $ 0.33
Earnings per share - discontinued operation:
Basic $ - $ - $ 0.10
Diluted $ - $ - $ 0.03
Total earnings (loss) per share:
Basic $ (1.31) $ (1.42) $ 0.43
Diluted $ (1.31) $ (1.42) $ 0.43
--------------------------------------------------------------------------------------------
15. Commitments and Contingencies
Commitments: The Company has employment agreements with certain executive
officers, which expire at various dates through March 2010 and a consulting
agreement, with a private consulting company owned by the family of a certain
board member who is a former officer of the Company and performs the consulting
services on behalf of the consulting company, which expires December 2011,
unless extended in accordance with its terms. At December 31, 2006, the
aggregate commitment for future salaries and consulting fees, excluding bonuses,
was approximately $4.5 million.
Contingencies: 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.
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, 2006
aggregating $3,042,000 are as follows: $750,000 - 2007, $514,000 - 2008,
$315,000 - 2009, $293,000 - 2010, $136,000 - 2011, $1,034,000 - thereafter.
Rent expense was $908,000, $1,053,000 and $737,000 for the years ended December
31, 2006, 2005 and 2004, respectively.
Guarantees: The Company has guaranteed $0.7 million (75%) of a $0.9 million
business loan to finance theatre equipment held by its joint venture, MetroLux
Theatres, until May 2011, and, accordingly has recognized a liability for
$33,000. The unrelated 50% partner of MetroLux Theatres also guaranteed $0.7
million (75%) of the $0.9 million business loan. The assets of MetroLux
Theatres collateralize this business loan.
16. Business Segment Data
Operating segments are based on the Company's business components about which
separate financial information is available, and are evaluated regularly by the
Company's chief operating decision 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-
34
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 operating expenses and sales, general and administrative expenses
directly associated with the segment and the Entertainment/real estate segment
includes the operating results of the theatre joint venture, MetroLux Theatres.
Corporate general and administrative items relate to costs that are not directly
identifiable with a segment. There are no intersegment sales.
Foreign revenues represent less than 10% of the Company's revenues and
therefore are not separately disclosed. The foreign operation does not
manufacture 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 has similar profit margins.
35
Information about the Company's operations in its three business segments as of
December 31, 2006 and 2005 and for the three years ended December 31, 2006 is as
follows:
In thousands 2006 2005 2004
----------------------------------------------------------------------------------
Revenues:
Indoor display $13,859 $ 15,261 $17,356
Outdoor display 26,607 25,742 21,857
Entertainment/real estate 13,445 13,365 13,366
-----------------------------
Total revenues $53,911 $ 54,368 $52,579
-----------------------------
Operating income (loss):
Indoor display $ (361) $ 1,136 $ 2,433
Outdoor display 1,393 520 386
Entertainment/real estate 3,135 2,862 3,123
-----------------------------
Total operating income 4,167 4,518 5,942
Other income 87 199 2,618
Corporate general and administrative expenses (3,294) (3,601) (3,990)
Interest expense - net (4,228) (3,872) (3,731)
Income tax benefit (provision) 1,621 963 (427)
-----------------------------
Income (loss) from continuing operations (1,647) (1,793) 412
Income from discontinued operation, net of taxes - - 127
-----------------------------
Net income (loss) $(1,647) $ (1,793) $ 539
-----------------------------
Assets:
Indoor display $31,529 $ 33,546
Outdoor display 23,287 24,105
Entertainment/real estate 27,691 28,858
------------------
Total identifiable assets 82,507 86,509
General corporate 5,965 14,041
------------------
Total assets $88,472 $100,550
------------------
Depreciation and amortization:
Indoor display $ 5,709 $ 5,894 $ 5,970
Outdoor display 2,532 2,521 2,463
Entertainment/real estate 1,038 1,016 955
General corporate 264 254 464
-----------------------------
Total depreciation and amortization $ 9,543 $ 9,685 $ 9,852
-----------------------------
Capital expenditures:
Indoor display $ 3,690 $ 4,270 $ 4,082
Outdoor display 748 883 1,476
Entertainment/real estate 551 1,654 2,703
General corporate 1 2 62
-----------------------------
Total capital expenditures $ 4,990 $ 6,809 $ 8,323
----------------------------------------------------------------------------------
36
17. 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
years ended December 31, 2006, and balance sheet summary information as of
December 31, 2006 and 2005:
In thousands 2006 2005 2004
----------------------------------------------------------------------------------
Revenues $5,235 $3,656 $3,548
Gross profit 909 929 938
Other income (expense) (121) (616) (78)
Net income 688 252 794
Company's share of partnership net income 344 126 396
----------------------------------------------------------------------------------
Current assets 634 3,623
Noncurrent assets 1,851 2,021
-----------------
Total assets 2,485 5,644
-----------------
Current liabilities 859 2,654
Noncurrent liabilities 832 980
-----------------
Total liabilities 1,691 3,634
-----------------
Company's equity in partnership net assets $ 412 $1,047
----------------------------------------------------------------------------------
The Company's equity in partnership net assets is reflected in other assets in
the Consolidated Balance Sheets.
18. Statements of Cash Flows
During 2005, the Company changed the presentation of its Consolidated Statements
of Cash Flows to separately present the cash flows from the discontinued
operation within the categories of operating and investing activities. There
were no cash flows from financing activities related to the discontinued
operation.
A summary of the effects of the change in presentation in the Consolidated
Statements of Cash Flows for the year ended December 31, 2004 is as follows:
In thousands 2004
----------------------------------------------------------------------------------
Net cash provided by operating activities as previously reported $ 6,805
Cash used in discontinued operation (1,734)
-------
Net cash provided by operating activities as currently reported $ 5,071
-------
Net cash flows used in investing activities as previously reported $(1,120)
Cash provided by discontinued operation 1,205
-------
Net cash provided by investing activities as currently reported $ 85
----------------------------------------------------------------------------------
___________________________
37
Reports of Independent Registered Public Accounting Firms
To the Board of Directors and Stockholders of Trans-Lux Corporation
We have audited the consolidated balance sheets of Trans-Lux Corporation
and its subsidiaries (the "Company") as of December 31, 2006 and 2005 and the
related consolidated statements of operations, stockholders' equity,
comprehensive income (loss) and cash flows for each of the years in the two-year
period ended December 31, 2006. 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 the standards of the Public
Company Accounting Oversight Board (United States). 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 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 enumerated above present fairly,
in all material respects, the consolidated financial position of the Company and
its subsidiaries as of December 31, 2006 and 2005, and the consolidated results
of their operations and their consolidated cash flows for each of the years in
the two-year period ended December 31, 2006, in conformity with accounting
principles generally accepted in the United States of America.
As discussed in Note 12 to the consolidated financial statements, the
Company recognized the funded status of its benefit plans in its consolidated
balance sheet effective December 31, 2006, in adopting the new accounting
standard for Employers' Accounting for Defined Benefit Pension and Other
Postretirement Plans.
Eisner LLP
New York, New York
April 2, 2007
To the Board of Directors and Stockholders of Trans-Lux Corporation
Norwalk, CT
We have audited the accompanying consolidated statements of operations,
stockholders' equity, comprehensive income and cash flows for the year ended
December 31, 2004. 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 audit.
We conducted our audit in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audit included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion such consolidated financial statements present fairly, in
all material respects, the results of operations and cash flows of Trans-Lux
Corporation and subsidiaries for the year ended December 31, 2004, in conformity
with accounting principles generally accepted in the United States of America.
As discussed in Note 18, in 2005, the Company changed the presentation of
its consolidated statements of cash flows to present the cash flows from
operating and investing activities of the discontinued operation within the
respective categories of operating and investing activities of the Company and
retroactively restated the consolidated statement of cash flows for the year
ended December 31, 2004, for the change.
Deloitte & Touche LLP
Stamford, CT
March 29, 2005 (March 27, 2006 as to Note 18)
38
METROLUX THEATRES
FINANCIAL STATEMENTS
DECEMBER 31, 2006, 2005 AND 2004
39
CONTENTS
Page
INDEPENDENT AUDITORS' REPORT 41
FINANCIAL STATEMENTS:
Balance Sheets 42
Statements of Income 43
Statements of Partners' Equity 44
Statements of Cash Flows 45-46
NOTES TO THE FINANCIAL STATEMENTS 47-54
40
GUILLEN, SUEDE
AND COMPANY
A PROFESSIONAL CORPORATION OF CERTIFIED PUBLIC ACCOUNTANTS
23480 Park Sorrento, Suite 100B, Calabasas, CA 91302
TEL: (818) 348-4800 FAX: (818) 348-6326 WEB: www.gsandcocpa.com
Board of Directors
MetroLux Theatres
Norwalk, Connecticut
Independent Auditors' Report
We have audited the accompanying balance sheets of MetroLux Theatres as of
December 31, 2006, 2005 and 2004, 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, 2006, 2005 and 2004, 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/ Guillen, Suede and Company
March 9, 2007
41
METROLUX THEATRES
BALANCE SHEETS
DECEMBER 31, 2006, 2005 AND 2004
(Dollars in thousands)
ASSETS
2006 2005 2004
------ ------ ------
CURRENT ASSETS:
Cash $ 499 $ 465 $ 541
Concession supplies 25 21 13
Prepaid expenses and other current assets 110 85 52
Long-lived assets held for sale - 3,052 -
------ ------ ------
Total current assets 634 3,623 606
PROPERTY AND EQUIPMENT, net 1,841 1,990 3,882
INTANGIBLE ASSETS, NET 10 31 15
------ ------ ------
$2,485 $5,644 $4,503
====== ====== ======
LIABILITIES AND PARTNERS' EQUITY
CURRENT LIABILITIES:
Film rentals payable $ 201 $ 192 $ 127
Accounts payable and accrued expenses 336 280 165
Current portion of long-term debt 179 2,053 225
Deferred revenues 115 103 82
Due to Partners 28 26 9
------ ------ ------
Total current liabilities 859 2,654 608
DEFERRED LEASE LIABILITY 131 97 -
LONG-TERM DEBT, net of current portion 701 883 1,635
------ ------ ------
Total liabilities 1,691 3,634 2,243
COMMITMENTS - - -
PARTNERS' EQUITY 794 2,010 2,260
------ ------ ------
$2,485 $5,644 $4,503
====== ====== ======
The accompanying notes are an integral part of the financial statements
42
METROLUX THEATRES
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
(Dollars in thousands)
2006 2005 2004
------ ------ ------
OPERATING REVENUES:
Theatre operations
Admissions $3,464 $2,419 $2,401
Concessions 1,701 1,177 1,077
Other operating revenues 70 60 70
------ ------ ------
Total operating revenues 5,235 3,656 3,548
------ ------ ------
OPERATING EXPENSES:
Theatre operations
Film costs and advertising 1,918 1,333 1,389
Cost of concessions 262 189 209
Other operating expenses 2,146 1,205 1,012
Administrative expenses 100 61 66
------ ------ ------
Total operating expenses 4,426 2,788 2,676
------ ------ ------
INCOME FROM OPERATIONS 809 868 872
------ ------ ------
OTHER (EXPENSE) INCOME:
Interest income 1 6 1
Interest expense (92) (94) (79)
Impairment loss - long-lived assets held for sale - (528) -
Loss on sale of property and equipment (30) - -
------ ------ ------
Net other (expense) (121) (616) (78)
------ ------ ------
NET INCOME $ 688 $ 252 $ 794
====== ====== ======
The accompanying notes are an integral part of the financial statements
43
METROLUX THEATRES
STATEMENTS OF PARTNERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
(Dollars in thousands)
Trans-Lux
Metro Colorado Loveland
Corporation Corporation Total
-------------- ------------ ---------
PARTNERS' EQUITY, December 31, 2003 $ 883 $ 883 $ 1,766
EQUITY CONTRIBUTION FROM LEASE
GUARANTEE 17 17 34
PARTNERSHIP DISTRIBUTIONS (167) (167) (334)
NET INCOME 397 397 794
------ ------ -------
PARTNERS' EQUITY, December 31, 2004 1,130 1,130 2,260
EQUITY CONTRIBUTION FROM LEASE
GUARANTEE 16 16 32
PARTNERSHIP DISTRIBUTIONS (267) (267) (534)
NET INCOME 126 126 252
------ ------ -------
PARTNERS' EQUITY, December 31, 2005 1,005 1,005 2,010
EQUITY CONTRIBUTION FROM LEASE
GUARANTEE 17 17 34
PARTNERSHIP DISTRIBUTIONS (969) (969) (1,938)
NET INCOME 344 344 688
------ ------ -------
PARTNERS' EQUITY, December 31, 2006 $ 397 $ 397 $ 794
====== ====== =======
The accompanying notes are an integral part of the financial statements
44
METROLUX THEATRES
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
(Dollars in thousands)
2006 2005 2004
------ ------ ------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 688 $ 252 $ 794
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 270 174 164
Impairment loss - long-lived assets held for sale - 528 -
Loss on sale of property and equipment 30 - -
Changes in assets and liabilities:
Concession supplies (4) (8) -
Prepaid expenses and other current assets 9 (1) (3)
Film rentals payable 9 65 (32)
Accounts payable and accrued expenses 97 115 (6)
Deferred revenues 12 21 (3)
Due to Partners 2 17 23
Deferred lease liability 34 97 -
------ ------ ------
Net cash provided by operating activities 1,147 1,260 937
------ ------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net proceeds from sale of property and equipment 1,381 - -
Acquisition of property and equipment (136) (1,857) (124)
Acquisition of intangible assets - (21) -
------ ------ ------
Net cash provided by (used in) investing activities 1,245 (1,878) (124)
------ ------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payment on long-term debt (420) (224) (237)
Proceeds from new long-term debt - 1,300 -
Partnership distributions (1,938) (534) (334)
------ ------ ------
Net cash (used in) provided by financing activities (2,358) 542 (571)
------ ------ ------
NET INCREASE (DECREASE) IN CASH 34 (76) 242
CASH, beginning of year 465 541 299
------ ------ ------
CASH, end of year $ 499 $ 465 $ 541
====== ====== ======
45
METROLUX THEATRES
STATEMENTS OF CASH FLOWS - CONTINUED
FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
(Dollars in thousands)
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ 92 $ 90 $ 75
====== ====== ======
NON-CASH OPERATING, INVESTING AND FINANCING ACTIVITIES:
In February 2006, the Company completed the sale of its previous facility for
the gross selling price of $3,200. As part of the sales transaction, the
Company paid off the remaining balance of its real estate loan with a bank of
$1,636, and property tax and other cost allocations that totaled $41. The net
proceeds received from the sale, after the selling expenses, totaled $1,381.
During the year ended December 31, 2005, the Company moved its operations into
a new leased theatre facility and adopted a plan to sell the previous
facility's land and building. The Company reclassified the land, building and
improvements with total original cost of $4,612, and the related accumulated
depreciation of $1,032 as long-lived assets held for sale, and recorded an
impairment loss of $528 to adjust the net book value of the assets to fair
value.
During the years ended December 31, 2006, 2005 and 2004, the Company recorded
prepaid rent through an increase in equity in the amounts of $34, $32 and $34,
respectively (See Note 8).
The accompanying notes are an integral part of the financial statements
46
METROLUX THEATRES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
Nature of Operations
--------------------
MetroLux Theatres (the "Company") is a general partnership between
Metro Colorado Corporation, a California corporation ("Metro
Colorado"), and Trans-Lux Loveland Corporation, a Colorado corporation
("Trans-Lux"). 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. Prior to November 2005, the Company operated a 12 screen
movie theatre located in property owned by the Company. Beginning in
November 2005, the Company moved into a 14 screen movie theatre leased
under a long-term lease.
Property and Equipment
----------------------
Property and equipment are stated at cost, net of accumulated
depreciation. Depreciation is provided utilizing straight-line and
accelerated methods over the estimated useful lives of the assets as
follows:
Buildings and improvements 10-39 years
Theatre equipment 5-10 years
Software 3 years
Major repairs and replacements are capitalized and ordinary maintenance
and repairs are charged to operations as incurred.
Intangible Assets
-----------------
Intangible assets consist of loan fees net of accumulated amortization.
Amortization is provided utilizing the straight-line method over the
term of the loan.
Income Taxes
------------
The Company is treated as a partnership for federal and state income
tax purposes. Consequently, federal and state income taxes are not
payable, or provided for, by the Company. Partners are taxed
individually on their share of the Company's earnings. The Company's
net income or loss is allocated among the Partners in accordance with
their percentage of ownership.
47
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
------------------------------------------------------
Revenue and Expense Recognition
-------------------------------
The Company recognizes revenue when admission tickets and concession
goods are sold. Revenue from gift certificates and group activity is
recognized when they are redeemed. Film rental costs are recognized
based on the applicable box office receipts and mutually agreed film
licensing arrangements.
Advertising (Dollars in thousands)
----------------------------------
The Company's advertising costs are expensed as incurred. The
advertising costs for the years ended December 31, 2006, 2005 and 2004
totaled $58, $84 and $68, respectively.
Lease Accounting
----------------
The Company accounts for leased properties under the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 13,
"Accounting for Leases", and other authoritative accounting literature.
The Company determined that its facility lease is an operating lease,
and recognizes the lease expense on a straight-line basis over the
lease term. The differences between lease payments and recognized
expense are charged to deferred lease liability.
Concentration 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, 2006, 2005 and 2004 in excess of the
FDIC limit amounted to approximately $308, $307 and $519, respectively.
Services from Partners
----------------------
The Partners provide management and administrative services to the
Company. Trans-Lux provides oversight over the Company's movie theatre
operations and Metro Colorado provides accounting, payroll, human
resources and other management and administrative services. The
services provided by the Partners are deemed to be of equal value and
are not recognized on the financial statements of the Company.
48
NOTE 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 amounts on the 2004 and 2005 financial statements have been
reclassified to conform to 2006 presentation.
NOTE 2 - PROPERTY AND EQUIPMENT (Dollars in thousands)
---------------------------------------------
Property and equipment consist of the following for the years ended December 31:
2006 2005 2004
------ ------ ------
Buildings $ - $ - $4,027
Improvements 1,657 1,532 66
Theatre equipment 670 662 231
Land - - 519
Construction in progress - 18 124
Software 9 9 9
------ ------ ------
2,336 2,221 4,976
Less: accumulated depreciation and
amortization 495 231 1,094
------ ------ ------
$1,841 $1,990 $3,882
====== ====== ======
Depreciation and amortization expense for the years ended December 31,
2006, 2005 and 2004 was approximately $264, $169 and $159,
respectively.
49
NOTE 3 - LONG-LIVED ASSETS HELD FOR SALE (Dollars in thousands)
------------------------------------------------------
On October 28, 2005, the Company moved its operations into a new
theatre facility in Loveland, Colorado, and adopted a plan to sell its
previously used facility. The Company reclassified the net book value
of the assets to be sold as long-lived assets held for sale, and
adjusted the net book value of the assets to the estimated fair value,
which resulted in an asset impairment loss of $528. The sale was
completed in February 2006, and resulted in an additional loss of $30.
As of December 31, 2005, long-lived assets held for sale consisted of
the following:
Buildings $4,027
Improvements 66
Land 519
------
4,612
Less: accumulated depreciation 1,032
------
3,580
Less: asset impairment loss 528
------
$3,052
======
NOTE 4 - INTANGIBLE ASSETS (Dollars in thousands)
----------------------------------------
Intangible assets consist of the following for the years ended December
31:
2006 2005 2004
---- ---- ----
Loan fees $35 $50 $29
Less: accumulated amortization 25 19 14
--- --- ---
$10 $31 $15
Amortization expense related to intangible assets amounted to $6, $5
and $5, for the years ended December 31, 2006, 2005 and 2004,
respectively.
50
NOTE 5 - DUE TO PARTNERS (Dollars in thousands)
--------------------------------------
As of December 31, 2006, 2005 and 2004, the net advances due to the
general partners were approximately $28, $26 and $9, respectively.
These advances represent the difference between allocations and
reimbursements of certain shared costs, and are unsecured, non-interest
bearing and are expected to be repaid within the next year.
During the years ended December 31, 2006, 2005 and 2004, the Company
made net advances to the general partners of approximately $2, $17 and
$23, respectively.
NOTE 6 - LONG-TERM DEBT (Dollars in thousands)
-------------------------------------
Long-term debt consists of the following for the years ended December
31:
2006 2005 2004
------ ------ ------
A $2.5 million real estate loan with
a bank. Borrowings under the term
loan bear interest at the bank's
prime rate minus 0.30% (6.95% and
4.95% at December 31, 2005 and 2004,
respectively). Payments under the
agreement are in equal monthly
installments of approximately $26 of
principal and interest, maturing
January 2009 with the remaining
unpaid principal due upon maturity.
The loan is collateralized by the
assets of the Company and 60% of the
debt is guaranteed by each of the
Partners. The loan was paid off in
full upon the sale of the land and
building on February 28, 2006. The
entire loan balance is included in
current portion of long-term debt
at December 31, 2005.
$ - $1,636 $1,860
51
NOTE 6 - LONG-TERM DEBT (Dollars in thousands) - CONTINUED
-------------------------------------------------
Long-term debt consists of the following for the years ended December
31:
2006 2005 2004
------ ------ ------
A $1.3 million bank loan obtained in
November 2005. Borrowings under the
loan bear interest at LIBOR rate plus
2.0% (7.32% at December 31, 2006).
The loan requires a $325 payment upon
the sale of the old theatre facility,
59 equal monthly payments of
principal and interest of $19
beginning in June 2006, with the
remaining unpaid principal due upon
maturity in May 2011. The loan is
collateralized by the assets of the
Company and 75% of the debt is
guaranteed by each of the Partners.
880 1,300 -
---- ------ ------
880 2,936 1,860
Less: current portion 179 2,053 225
---- ------ ------
$701 $ 883 $1,635
==== ====== ======
Maturities of long-term debt outstanding at December 31, 2006 are as
follows:
Year Ending
December 31,
------------
2007 $175
2008 188
2009 202
2010 218
2011 97
----
$880
====
The bank loan obtained in 2005 includes various restrictive covenants,
including, among others, provisions relating to maintenance of certain
financial ratios and reporting covenants.
52
NOTE 7 - DEFERRED REVENUES (Dollars in thousands)
----------------------------------------
Deferred revenues at December 31, 2006, 2005 and 2004 consist of gift
certificates and group activity passes that are used for concession
goods and admission at theatres, respectively. The breakdown is as
follows at December 31:
2006 2005 2004
------ ------ ------
Gift certificates $107 $ 96 $75
Group activity passes 8 7 7
---- ---- ---
$115 $103 $82
==== ==== ===
NOTE 8 - COMMITMENTS (Dollars in thousands)
----------------------------------
In August 2004, the Company entered into a lease for a new multi-screen
movie theatre, which opened on October 28, 2005. The initial lease
term is for 15 years and may be extended for a total of three extension
periods of 5 years each. The lease requires minimum annual rent
payments beginning in January 2006, ranging from $500 to $600 and
contains a provision for an additional rent equal to 10% of the amount
by which gross annual revenue exceeds a certain threshold. The lease
is guaranteed by Metropolitan Theatres Corporation ("MTC"), a parent
of Metro Colorado Corporation. The future minimum rent payments are as
follows:
Year Ending
December 31,
------------
2007 $ 500
2008 500
2009 500
2010 500
2011 546
2012-2016 2,796
2017-2021 2,442
------
$7,784
======
The Company subleases space for certain exhibits and meetings on a
month-to-month basis to unrelated parties. For the years ending
December 31, 2006, 2005 and 2004, the revenue recognized for such
rentals totaled $22, $18 and $18, respectively.
53
NOTE 8 - COMMITMENTS (Dollars in thousands) - CONTINUED
----------------------------------------------
In connection with a guarantee by MTC, in 2006, 2005 and 2004,
Trans-Lux paid MTC $17, $16 and $17, respectively, in consideration for
the guarantee of the new lease. In accordance with FASB Interpretation
No. 45 - "Guarantor's Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others",
the Company recorded the payment by Trans-Lux, and the respective value
of the guarantee for Metro Colorado, as an equity contribution by the
Partners, and an increase in prepaid rent in the accompanying financial
statements.
NOTE 9 - PENSION PLAN (Dollars in thousands)
-----------------------------------
The Company's employees may elect to participate in a 401(k) pension
plan sponsored by the parent of Metro Colorado, after they meet certain
period of service and age eligibility requirements. Participating
employees may contribute 1% to 100% of their salary, subject to limits
based on the applicable tax regulations.
The pension plan elected Safe Harbor provisions, where the Company
provides a matching of 100% of the first 3% of the employee's
contribution and matches 50% of the next 2% of the employee's
contribution up to a maximum of 4% of the employee's gross salary. The
contributions are fully vested when funded. The Company's matching
contributions totaled $3 for each of the years ended December 31, 2006,
2005 and 2004.
54
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures. The Company's
President and Co-Chief Executive Officer, Michael R. Mulcahy, the
Company's Executive Vice President and Co-Chief Executive Officer,
Thomas Brandt, and the Company's Executive Vice President and
Chief Financial Officer, Angela D. Toppi, have evaluated the
effectiveness of the design and operation of its disclosure controls
and procedures as of a date within 90 days of the filing date of this
annual report. The Company's disclosure controls and procedures are
designed to ensure that information required to be disclosed by the
Company in the reports that are filed or submitted under the
Securities Exchange Act of 1934 is recorded, processed, summarized,
and reported within the time periods specified in the Securities and
Exchange Commission's rules and forms. 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 are effective.
(b) Changes in internal control over financial reporting. There has been
no change in the Company's internal control over financial reporting
that occurred in the fourth fiscal quarter that has materially
affected, or is reasonably likely to materially affect, the Company's
internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
All information required to be reported in a report on Form 8-K during
the fourth quarter covered by this Form 10-K has been reported.
55
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
(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 58
Thomas Brandt Executive Vice President and Co-Chief 43
Executive Officer
Matthew Brandt Executive Vice President 43
Al L. Miller Executive Vice President 61
Angela D. Toppi Executive Vice President, Treasurer, 51
Secretary and Chief Financial Officer
Karl P. Hirschauer Senior Vice President 61
John Long Senior Vice President 60
Thomas F. Mahoney Senior Vice President 59
Messrs. Mulcahy, T. Brandt, M. Brandt, Miller, Hirschauer, Mahoney and
Ms. Toppi have been associated in an executive capacity with the Company
for more than five years. Mr. Long was elected Senior Vice President in
charge of Outdoor Operations on March 24, 2004 and has been employed by
the Company since 1997. Mr. Long served as Senior Vice President of
Outdoor Display Subsidiaries between March 27, 2002 and March 24, 2004
and served as Vice President of Trans-Lux Midwest Corporation between
December 10, 1998 and March 27, 2002.
(c) The information required by Items 405, 406 and 407 of Regulation S-K
is incorporated herein by reference to the Sections entitled
Compliance with Section 16(a) of the Securities Exchange Act of
1934," "Code of Ethics" and "Corporate Governance" in the
Company's Proxy Statement.
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 AND RELATED STOCKHOLDER MATTERS
The information required by this Item is incorporated herein by reference
to the Section entitled "Security Ownership of Certain Beneficial Owners,
Directors and Executive Officers" in the Company's Proxy Statement.
Equity Compensation Plan Information
------------------------------------
Securities Weighted Securities
to be issued average available for
December 31, 2006 upon exercise exercise price future issuance
----------------------------------------------------------------------------------------------------------------
Equity compensation plans approved by stockholders 57,300 $6.52 13,000
Equity compensation plans not approved by stockholders 10,000 $4.03 -
------ ------
Total 67,300 $6.15 13,000
----------------------------------------------------------------------------------------------------------------
56
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
The information required by this Item is incorporated herein by reference
to the Section entitled "Executive Compensation and Transactions with
Management" in the Company's Proxy Statement.
ITEM 14. PRINCIPAL ACCOUNTING FIRM FEES AND SERVICES
The information required by this Item is incorporated herein by reference
to the Section entitled "Ratification of the Selection of Independent
Registered Accounting Firm" in the Company's Proxy Statement.
57
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following documents are filed as part of this report:
(1) Consolidated Financial Statements of Trans-Lux Corporation
Consolidated Statements of Operations for the Years Ended
December 31, 2006, 2005 and 2004
Consolidated Balance Sheets as of December 31, 2006 and 2005
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2006, 2005 and 2004
Consolidated Statements of Stockholders' Equity for the Years
Ended December 31, 2006, 2005 and 2004
Consolidated Statements of Comprehensive Income for the Years
Ended December 31, 2006, 2005 and 2004
Notes to Consolidated Financial Statements
Reports of Independent Registered Public Accounting Firms
Financial statements of MetroLux Theatres, a 50% owned entity,
accounted for by the equity method:
Independent Auditors' Report
Balance Sheets as of December 31, 2006 and 2005
Statements of Income for the Years Ended December 31, 2006,
2005 and 2004
Statements of Partners' Equity for the Years Ended December
31, 2006, 2005 and 2004
Statements of Cash Flows for the Years Ended December 31,
2006, 2005 and 2004
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 March 1, 2004 (form of said
indenture is incorporated by reference to Exhibit 12(d)
of Schedule TO dated March 2, 2004).
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 (incorporated by reference
to Exhibit 10.3 of Form 10-K for the year ended December
31, 2002). Amendment No. 3 dated as of December 31, 2003
(incorporated by reference to Exhibit 10.3 of Form 10-K
for the year ended December 31, 2003).
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) 1995 Stock Option Plan, as amended (incorporated by
reference to Proxy Statement dated April 7, 2000).
58
10.5 Amended and Restated Commercial Loan and Security
Agreement with People's Bank dated December 23, 2004
(incorporated by reference to Exhibit 10(a) of Form
8-K filed December 28, 2004). Amendment No. 1 dated as
of December 31, 2005 (incorporated by reference to
Exhibit 10.2 of Form 10-Q for the quarter ended March 31,
2006). Letter amendments dated as of September 30, 2006
and December 31, 2006, filed herewith.
10.6 Consulting Agreement with Moving Images, LLC dated as of
December 1, 2004 and termination letter with Richard
Brandt (incorporated by reference to Exhibit 10.6 of Form
10-K for the year ended December 31, 2004). Amendment
dated December 7, 2005 (incorporated by reference to
Exhibit 10.6 of Form 10-K for the year ended December 31,
2005).
10.7 Employment Agreement with Michael R. Mulcahy dated as of
April 1, 2005 (incorporated by reference to Exhibit 10.7
of Form 10-K for the year ended December 31, 2004).
10.8 Employment Agreement with Thomas Brandt dated as of April
1, 2005 (incorporated by reference to Exhibit 10.8 of
Form 10-K for the year ended December 31, 2004).
10.9 Employment Agreement with Angela D. Toppi dated as of
April 1, 2005 (incorporated by reference to Exhibit 10.9
of Form 10-K for the year ended December 31, 2004).
10.10 Employment Agreement with Matthew Brandt dated as of
April 1, 2005 (incorporated by reference to Exhibit
10.10 of Form 10-K for the year ended December 31, 2004).
10.11 Employment Agreement with Al Miller dated as of April 1,
2005 (incorporated by reference to Exhibit 10.1 of Form
10-Q for the quarter ended June 30, 2005).
10.12 Employment Agreement with Karl Hirschauer dated as of
April 1, 2006 (incorporated by reference to Exhibit 10.1
of Form 10-Q for the quarter ended March 31, 2006).
10.13 Employment Agreement with John Long dated as of April 1,
2005 (incorporated by reference to Exhibit 10.2 of Form
10-Q for the quarter ended June 30, 2005).
21 List of Subsidiaries, filed herewith.
31.1 Certification of Michael R. Mulcahy, President and
Co-Chief Executive Officer, pursuant to Rule 13a-14(a)
and 15d-14(a), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002, filed herewith.
31.2 Certification of Thomas Brandt, Executive Vice President
and Co-Chief Executive Officer, pursuant to Rule 13a-
14(a) and 15d-14(a), as adopted pursuant to Section 302
of the Sarbanes-Oxley Act of 2002, filed herewith.
31.3 Certification of Angela D. Toppi, Executive Vice
President and Chief Financial Officer,pursuant to Rule
13a-14(a) and 15d-14(a), as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 2002, filed herewith.
32.1 Certification of Michael R. Mulcahy, President and
Co-Chief Executive Officer, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, filed herewith.
32.2 Certification of Thomas Brandt, Executive Vice President
and Co-Chief Executive Officer, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, filed herewith.
32.3 Certification of Angela D. Toppi, Executive Vice
President and Chief Financial Officer, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, filed herewith.
59
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized:
TRANS-LUX CORPORATION
by: /s/ Angela D. Toppi
-------------------------
Angela D. Toppi
Executive Vice President and
Chief Financial Officer
Dated: April 2, 2007
60
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the date indicated:
/s/ Gene F. Jankowski April 2, 2007
------------------------------------------
Gene F. Jankowski, Chairman of the Board
/s/ Victor Liss April 2, 2007
------------------------------------------
Victor Liss, Vice Chairman of the Board
/s/ Matthew Brandt April 2, 2007
------------------------------------------
Matthew Brandt, Executive Vice President
and Director
/s/ Richard Brandt April 2, 2007
------------------------------------------
Richard Brandt, Director
/s/ Thomas Brandt April 2, 2007
------------------------------------------
Thomas Brandt, Executive Vice President
and Co-Chief Executive Officer and Director
/s/ Howard M. Brenner April 2, 2007
------------------------------------------
Howard M. Brenner, Director
/s/ Jean Firstenberg April 2, 2007
------------------------------------------
Jean Firstenberg, Director
/s/ Howard S. Modlin April 2, 2007
------------------------------------------
Howard S. Modlin, Director
/s/ Michael R. Mulcahy April 2, 2007
------------------------------------------
Michael R. Mulcahy, President
and Co-Chief Executive Officer and Director
61