UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2009
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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.)
26 Pearl Street, Norwalk, CT 06850-1647
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(Address of principal executive offices) (Zip code)
(203) 853-4321
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
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Indicate by check mark whether the Registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company.
See the definitions of "large accelerated filer," "accelerated filer" and
"smaller reporting company" in Rule 12b-2 of the Exchange Act. (check one)
Large accelerated filer Accelerated filer Non-accelerated filer Smaller
--- --- ---
reporting company X
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Indicate by check mark whether the Registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes No X
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Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date.
Date Class Shares Outstanding
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05/13/09 Common Stock - $1.00 Par Value 2,020,090
05/13/09 Class B Stock - $1.00 Par Value 286,814
(Immediately convertible into a like
number of shares of Common Stock.)
TRANS-LUX CORPORATION AND SUBSIDIARIES
Table of Contents
Page No.
Part I - Financial Information (unaudited) --------
Item 1. Condensed Consolidated Balance Sheets -
March 31, 2009 and December 31, 2008 1
Condensed Consolidated Statements of Operations -
Three Months Ended March 31, 2009 and 2008 2
Condensed Consolidated Statements of Cash Flows -
Three Months Ended March 31, 2009 and 2008 3
Notes to Condensed Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures about Market
Risk 15
Item 4. Controls and Procedures 15
Part II - Other Information
Item 1. Legal Proceedings 16
Item 1A. Risk Factors 16
Item 2. Unregistered Sales of Equity Securities and Use of
Proceeds 16
Item 3. Defaults upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits 17
Signatures 18
Exhibits
Part I - Financial Information
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TRANS-LUX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31 December 31
In thousands, except share data 2009 2008
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(unaudited) (see Note 1)
ASSETS
Current assets:
Cash and cash equivalents $ 1,542 $ 1,422
Cash in escrow 400 400
Available-for-sale securities - 135
Receivables, less allowance of $892 - 2009 and $926 - 2008 3,946 4,594
Unbilled receivables - 120
Inventories 6,127 6,592
Prepaids and other 882 1,167
Current assets associated with discontinued operations (Note 2) 127 149
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Total current assets 13,024 14,579
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Rental equipment 63,129 62,483
Less accumulated depreciation 36,738 35,358
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26,391 27,125
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Property, plant and equipment 7,637 7,511
Less accumulated depreciation 4,872 4,784
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2,765 2,727
Asset associated with discontinued operations (Note 2) 920 920
Other receivable 2,580 2,580
Goodwill 810 810
Other assets 2,086 2,106
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TOTAL ASSETS $48,576 $50,847
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,383 $ 3,151
Accrued liabilities 6,273 6,146
Current portion of long-term debt 2,680 2,945
Liabilities associated with discontinued operations (Note 2) 546 544
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Total current liabilities 11,882 12,786
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Long-term debt:
8 1/4% Limited convertible senior subordinated notes due 2012 10,129 10,129
9 1/2% Subordinated debentures due 2012 951 951
Notes payable 8,166 8,566
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19,246 19,646
Deferred credits, deposits and other 4,169 3,968
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Stockholders' equity:
Capital stock
Common - $1 par value - 5,500,000 shares authorized,
2,453,591 shares issued in 2009 and 2008 2,453 2,453
Class B - $1 par value - 1,000,000 shares authorized,
286,814 shares issued in 2009 and 2008 287 287
Additional paid-in-capital 14,742 14,741
Retained earnings 2,652 3,806
Accumulated other comprehensive loss (3,392) (3,377)
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16,742 17,910
Less treasury stock - at cost - 433,596 common shares in
2009 and 2008 3,463 3,463
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Total stockholders' equity 13,279 14,447
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $48,576 $50,847
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The accompanying notes are an integral part of these condensed consolidated financial statements.
1
TRANS-LUX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
THREE MONTHS ENDED
MARCH 31
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In thousands, except per share data 2009 2008
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Revenues:
Equipment rentals and maintenance $ 2,463 $ 2,739
Equipment sales 5,249 5,174
Real estate rentals 57 87
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Total revenues 7,769 8,000
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Operating expenses:
Cost of equipment rentals and maintenance 2,113 2,363
Cost of equipment sales 3,995 3,609
Cost of real estate rentals 15 25
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Total operating expenses 6,123 5,997
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Gross profit from operations 1,646 2,003
General and administrative expenses (2,351) (2,819)
Interest expense, net (408) (422)
Other income - 4
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Loss from continuing operations before income taxes (1,113) (1,234)
Income tax (expense) benefit (41) 48
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Loss from continuing operations (1,154) (1,186)
Income from discontinued operations - 159
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Net loss $(1,154) $(1,027)
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Loss per share continuing operations - basic and diluted $ (0.50) $ (0.52)
Earnings per share discontinued operations - basic and diluted - 0.07
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Total loss per share - basic and diluted $ (0.50) $ (0.45)
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Weighted average common shares outstanding - basic and diluted 2,307 2,307
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The accompanying notes are an integral part of these condensed consolidated financial statements.
2
TRANS-LUX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
THREE MONTHS ENDED
MARCH 31
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In thousands 2009 2008
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Cash flows from operating activities
Net loss $(1,154) $(1,027)
Income from discontinued operations - (159)
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Loss from continuing operations (1,154) (1,186)
Adjustment to reconcile loss from continuing operations
to net cash provided by (used in) operating activities:
Depreciation and amortization 1,512 1,625
Changes in operating assets and liabilities:
Receivables 768 (339)
Inventories 465 90
Prepaids and other assets 261 -
Accounts payable and accruals (655) (296)
Deferred credits, deposits and other 201 64
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Net cash provided by (used in) operating activities 1,398 (42)
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Cash flows from investing activities
Equipment manufactured for rental (646) (933)
Purchases of property, plant and equipment (126) (62)
Proceeds from sale of available-for-sale securities 135 -
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Net cash used in investing activities (637) (995)
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Cash flows from financing activities
Payments of long-term debt (665) (674)
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Net cash used in financing activities (665) (674)
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Cash flows from discontinued operations
Cash provided by operating activities of discontinued operations 24 79
Cash used in investing activities of discontinued operations - (624)
Cash provided by financing activities of discontinued operations - 388
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Net cash provided by (used in) discontinued operations 24 (157)
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Net increase (decrease) in cash and cash equivalents 120 (1,868)
Cash and cash equivalents at beginning of year 1,422 6,591
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Cash and cash equivalents at end of period $ 1,542 $ 4,723
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Interest paid $ 543 $ 1,021
Income taxes paid - 5
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The accompanying notes are an integral part of these condensed consolidated financial statements.
3
TRANS-LUX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2009
(unaudited)
Note 1 - Basis of Presentation
Financial information included herein is unaudited, however, such information
reflects all adjustments (of a normal and recurring nature), which are, in the
opinion of management, necessary for the fair presentation of the condensed
consolidated financial statements for the interim periods. The results for the
interim periods are not necessarily indicative of the results to be expected for
the full year. The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with rule 10-01 of Regulation S-X
promulgated by the Securities and Exchange Commission and therefore do not
include all information and footnote disclosures required under accounting
principles generally accepted in the United States of America. It is suggested
that the March 31, 2009 condensed consolidated financial statements should be
read in conjunction with the consolidated financial statements and notes
included in the Company's Annual Report on Form 10-K for the year ended December
31, 2008. The Condensed Consolidated Balance Sheet at December 31, 2008 is
derived from the December 31, 2008 audited financial statements.
The Company has incurred losses from continuing operations for the three months
ended March 31, 2009 and 2008 of $1,154,000 and $1,186,000, respectively. The
Company has implemented several initiatives to continue to improve operational
results and cash flows over future periods. The Company's engineering staff
continues to work on areas to improve manufacturing efficiencies. The Company
also continues to explore ways to reduce costs and has reduced certain personnel
and related expenses and all non-union personnel salaries were reduced to lower
operating costs in the future. Union personnel have agreed to defer their
increase for ten months, until January 1, 2010. The Company continues to take
steps to reduce the cost to maintain the equipment on rentals and maintenance.
In addition, the Company is recording less interest expense as a result of
paying down debt with the net proceeds from the sale of the assets of the
Entertainment Division in the second quarter of 2008. See Note 2 - Discontinued
Operations to the condensed consolidated financial statements. The Company has
positive working capital of $1.1 million as of March 31, 2009. As of March 31,
2009, the Company has fully drawn its $5.0 million revolving loan facility,
which was modified subsequent to the end of the first quarter to extend the
maturity date to April 1, 2010. The Company's objective in regards to the
Credit Agreement is to obtain additional funds from external sources through
equity or additional debt financing and the Company is in discussions with
senior lenders and others to obtain additional borrowing capacity. While
management believes it will be successful, there can be no assurance that
management will be successful in achieving any of the above objectives.
We further believe that our cash, cash equivalents and cash provided from
continuing operations, which will depend upon our future operating performance,
which is subject to general economic, financial, competetive and other factors
that are beyond our control, should be sufficient to meet our anticipated needs
for working capital requirements.
In December 2007, the Financial Accounting Standard Board ("FASB") issued
Statement
4
of Financial Accounting Standards ("SFAS") No. 141R, "Business Combinations"
("SFAS 141R"), which replaces SFAS Statement No. 141. Under SFAS 141R, an
acquiring entity will be required to recognize all the assets acquired and
liabilities assumed in a transaction at the acquisition date fair value with
limited exceptions. SFAS 141R establishes principles and requirements for how
an acquirer recognizes and measures in its financial statements the identifiable
assets acquired, the liabilities assumed, any non-controlling interest in the
acquiree and the goodwill acquired. SFAS 141R also establishes disclosure
requirements that will enable users to evaluate the nature and financial effects
of the business combination. We will apply the provisions of SFAS 141R for
future transactions.
In December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in
Consolidated Financial Statements - An Amendment of ARB No. 51" ("SFAS 160").
SFAS 160 establishes new accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. Specifically, SFAS 160 requires the recognition of a noncontrolling
interest (minority interest) as equity in the consolidated financial statements
and separate from the parent's equity. The amount of net income attributable to
the noncontrolling interest will be included in consolidated net income on the
face of the income statement. SFAS 160 clarifies that changes in a parent's
ownership interest in a subsidiary that do not result in deconsolidation are
equity transactions if the parent retains its controlling financial interest.
In addition, SFAS 160 requires that a parent recognize a gain or loss in net
income when a subsidiary is deconsolidated. Such gain or loss will be measured
using the fair value of the noncontrolling equity investment on the
deconsolidation date. SFAS 160 also includes expanded disclosure requirements
regarding the interests of the parent and its noncontrolling interest. The
adoption of SFAS 160 on January 1, 2009 had no effect on the Company's financial
statements.
Note 2 - Discontinued Operations
On June 26, 2008, the Board of Directors approved the sale of substantially all
of the assets of the Entertainment Division, which was consummated on July 15,
2008 for a purchase price of $24.5 million, of which $7.4 million was paid in
cash, $0.4 million is in escrow and $16.7 million of debt was assumed by the
purchaser, including $0.3 million of debt of the joint venture, MetroLux
Theatres. The $0.4 million cash held in escrow will be released to the Company
on July 15, 2009, net of any purchase price adjustments. The buyer assumed the
operating results effective as of June 27, 2008. In accordance with the
provisions of SFAS No. 144, "Accounting For the Impairment or Disposal of
Long-lived Assets," the Company has accounted for the Entertainment Division as
discontinued operations and, accordingly, has restated all prior period
information.
In addition to the $24.5 million purchase price, there is a potential additional
purchase price of up to $2.3 million based on the performance of increased
theatre operations at the DreamCatcher Cinema, which was expanded from a
six-plex to a 10-plex in May 2008. However, there can be no assurance that
there will be any additional purchase price earned and none has been earned as
of the end of 2008. There was also a six-month option to purchase raw land from
the Company in Silver City, New Mexico for $0.9 million, which went unexercised.
As a result of the sale, the Company recorded a long-lived asset impairment
charge of $2.8 million as well as $2.0 million in disposal
5
costs during the quarter ended June 30, 2008. The Company has agreed not to
compete in the theatre business in certain Western states of the United States
for five years and has licensed the name "Trans-Lux Theatres" in connection with
such movie theatre circuit. Matthew Brandt and Thomas Brandt, former executive
officers of the Company, terminated their employment with the Company and became
full time officers of the buyer, managing the theatre business purchased. The
Company provided certain services on a transition basis for six months and is
also providing consulting services for a year, which consulting services will be
rendered by Richard Brandt, a director and consultant to the Company. The
Company received an opinion from an independent third party that the transaction
was fair to the stockholders of the Company from a financial point of view.
The $5.7 million net proceeds from the sale were used to prepay the term loan
under the Credit Agreement with the Company's senior lender. A total of $22.4
million of long-term debt has been paid down or assumed by the buyer as a result
of the sale.
The following table presents the financial results of the discontinued
operations for the three months ended March 31, 2008:
In thousands, except per share data
-----------------------------------------------------------------------
Revenues $3,101
Operating expenses 2,369
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Gross profit 732
General and administrative expenses (262)
Interest expense, net (331)
Income from joint venture 119
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Income from discontinued operations before income taxes 258
Income tax expense (99)
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Net income from discontinued operations $ 159
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Income per share discontinued operations - basic and diluted $ 0.07
-----------------------------------------------------------------------
Interest expense allocated to discontinued operations relates to the
Entertainment Division's long-term debt assumed by the buyer and/or repaid at
the closing and related to the portion of the Credit Agreement paid with the
sales proceeds.
The following is a detail of the assets and liabilities reported as discontinued
operations and classified as assets and liabilities associated with discontinued
operations in the Condensed Consolidated Balance Sheets as of March 31, 2009 and
December 31, 2008:
In thousands 2009 2008
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Prepaids and other assets $ 127 $ 149
Land 920 920
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Total assets associated with discontinued operations $1,047 $1,069
===============
Current liabilities $ 546 $ 544
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Total liabilities associated with discontinued operations $ 546 $ 544
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6
Note 3 - Inventories
Inventories are stated at the lower of cost or market and consist of the
following:
March 31 December 31
In thousands 2009 2008
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Raw materials $4,180 $4,769
Work-in-progress 1,474 1,317
Finished goods 473 506
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$6,127 $6,592
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Note 4 - Other Receivable
The Company has a $2.6 million note receivable that was due June 2008, relating
to the sale/leaseback of the Company's Norwalk, Connecticut facility in 2004.
The receivable is secured by a purchase money mortgage subordinated to a $3.5
million first mortgage in favor of the purchaser's bank. The purchaser has
defaulted on this payment and the Company is pursuing legal remedies. The
Company has classified the receivable as long term pending the outcome. The
base four-year term of the sale/leaseback ended in June 2008.
Note 5 - Long-Term Debt
The Company has a bank Credit Agreement, which provides for a term loan of $10.0
million, a non-revolving line of credit of up to $6.2 million (which is no
longer available) to finance purchases and/or redemptions of one-half of the 7
1/2% Subordinated Notes due 2006 (which were redeemed in June 2006 and no longer
outstanding), and a revolving loan of up to $5.0 million at a variable rate of
interest of Prime plus 1.75% (5.00% at March 31, 2009). Subsequent to the end
of the quarter, the rate of interest was modified to Prime plus 2.00%, with a
floor of 6.00%, the maturity of the Credit Agreement was extended to April 1,
2010, and certain of the financial covenants were modified. The Credit
Agreement requires an annual facility fee on the unused commitment of 0.25% and
requires compliance with certain financial covenants, as defined in the Credit
Agreement, which include a fixed charge coverage ratio of 1.1 to 1.0 for the
current quarter and 1.25 to 1.0 thereafter, a loan-to-value ratio of not more
than 50%, a cap on capital expenditures, a leverage ratio and maintaining a
tangible net worth of not less than $24.0 million. As of March 31, 2009, the
Company was in compliance with the financial covenants. The amounts outstanding
under the Credit Agreement are collateralized by all of the Display division
assets.
7
Note 6 - Reporting Comprehensive Loss
Total comprehensive loss for the three months ended March 31, 2009 and 2008 is
as follows:
Three months ended March 31
In thousands 2008 2009
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Net loss, as reported $(1,154) $(1,027)
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Other comprehensive (loss) income:
Unrealized foreign currency translation loss (15) (111)
Unrealized holding loss on available-for-sale securities - (4)
Income tax benefit related to items of other
comprehensive (loss) income - 1
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Total other comprehensive (loss) income, net of tax (15) (114)
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Comprehensive loss $(1,169) $(1,141)
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Note 7 - Pension Plan
As of December 31, 2003, the benefit service under the pension plan had been
frozen and, accordingly, there is no service cost. Effective April 30, 2009,
the compensation increments have been frozen and, accordingly, no additional
benefits are being accrued under the plan.
The following table presents the components of net periodic pension cost:
Three months ended March 31
In thousands 2009 2008
----------------------------------------------------------
Interest cost $ 150 $ 160
Expected return on plan assets (119) (158)
Amortization of prior service cost 4 4
Amortization of net actuarial loss 105 66
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Net periodic pension cost $ 140 $ 72
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As of March 31, 2009, the Company has recorded a current and long-term pension
liability of $0.5 million and $4.0 million, respectively. The minimum required
contribution for 2009 is expected to be $0.5 million. The Company will seek a
waiver to extend the due date for the quarterly payment of $96,000 which is
currently due May 15, 2009.
Note 8 - Stock Option Plans
The Company did not issue any stock options during the three months ended March
31, 2009 and 2008. The unrecognized compensation costs related to unvested
stock options granted under the Company's stock option plans was nominal.
8
The following summarizes the activity of the Company's stock options for the
three months ended March 31, 2009:
Weighted
Weighted Average
Average Remaining Aggregate
Exercise Contractual Intrinsic
Options Price ($) Term (Yrs) Value
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Outstanding at beginning of year 33,500 5.22
Granted - -
Exercised - -
Terminated (2,000) 4.95
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Outstanding at end of period 31,500 5.23 3.4
====================================
Vested and expected to vest at end of period 31,500 5.23 3.4 -
====================================
Exercisable at end of period 31,500 5.23 3.4 -
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Note 9 - Loss Per Common Share
Basic and diluted loss per common share is computed by dividing net loss by the
weighted average number of common shares outstanding for the period. At March
31, 2009 and 2008, there were outstanding stock options to purchase 31,500 and
63,500 shares of Common Stock, respectively, which were excluded from the
calculation of diluted loss per share because their impact would have been
anti-dilutive.
Note 10 - Legal Proceedings and Claims
The Company is subject to legal proceedings and claims which arise in the
ordinary course of its business and/or which are covered by insurance. The
Company is party to a pending legal proceeding which is in the process of
possibly being settled and is not expected to have an adverse impact on the
consolidated financial position or operations of the Company. The Company is
also party to other pending legal proceedings and claims, which are covered by
insurance, that it believes will not have a material adverse effect on the
consolidated financial position or operations of the Company.
Note 11 - Business Segment Data
The Company evaluates segment performance and allocates resources based upon
operating income. The Company's operations are managed in three reportable
business segments. The Display Division comprises two operating segments,
Indoor display and Outdoor display. Both design, produce, lease, sell and
service large-scale, multi-color, real-time electronic information displays.
Both operating segments are conducted on a global basis, primarily through
operations in the U.S. The Company also has operations in Canada. The Indoor
display and Outdoor display segments are differentiated primarily by the
customers they serve. The Real estate rental segment owns an income-producing
property. Segment operating income is shown after operating expenses and
selling, general and administrative expenses directly associated with the
segment. Corporate general
9
and administrative items relate to costs that are not directly identifiable with
a segment. There are no intersegment sales. Of the total goodwill of $0.8
million, $0.7 million relates to the Outdoor display segment and $0.1 million
relates to the Indoor display segment.
Foreign revenues represent less than 10% of the Company's revenues and therefore
are not separately disclosed. The foreign operation does not manufacture its
own equipment; the domestic operation provides the equipment that the foreign
operation leases or sells. The foreign operation operates similarly to the
domestic operation and has similar profit margins.
Information about the Company's continuing operations in its three business
segments for the three months ended March 31, 2009 and 2008 is as follows:
Three months ended March 31
In thousands 2009 2008
-------------------------------------------------------------------------
Revenues:
Indoor display $ 2,375 $ 2,708
Outdoor display 5,337 5,205
Real estate rental 57 87
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Total revenues $ 7,769 $ 8,000
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Operating (loss) income:
Indoor display $ (219) $ (139)
Outdoor display 337 313
Real estate rental 39 59
-------------------
Total operating income 157 233
Other income - 4
Corporate general and administrative expenses (862) (1,049)
Interest expense, net (408) (422)
-------------------
Loss from continuing operations before income taxes (1,113) (1,234)
Income tax (expense) benefit (41) 48
-------------------
Net loss from continuing operations $(1,154) $(1,186)
-------------------------------------------------------------------------
10
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview
Trans-Lux is a full service provider of integrated multimedia systems for
today's communications environments. The essential elements of these systems
are the real-time, programmable electronic information displays we manufacture,
distribute and service. Designed to meet the evolving communications needs of
both the indoor and outdoor markets, these displays are used primarily in
applications for the financial, banking, gaming, corporate, advertising,
transportation, entertainment and sports industries. In addition to its display
business, the Company owns and operates an income producing rental property.
The Company operates in three reportable segments: Indoor display, Outdoor
display and Real estate rental.
On June 26, 2008, the Board of Directors approved the sale of the assets of the
Entertainment Division. As a result of the sale, the Company has accounted for
the Entertainment Division as discontinued operations beginning in the second
quarter of 2008 and recorded long-lived asset impairment charges of $2.8 million
as well as $2.0 million in disposal costs for the quarter ended June 30, 2008.
See Note 2 - Discontinued Operations to the condensed consolidated financial
statements. The following discussion and analysis of financial condition and
results of operations relates only to continuing operations.
The Indoor display segment includes worldwide revenues and related expenses from
the rental, maintenance and sale of indoor displays. This segment includes the
financial, government/private and gaming markets. The Outdoor display segment
includes worldwide revenues and related expenses from the rental, maintenance
and sale of outdoor displays. Included in this segment are catalog sports,
retail and commercial markets. The Real estate rental segment includes the
operations of an income-producing real estate property.
Results of Operations
Three Months Ended March 31, 2009 Compared to Three Months Ended March 31, 2008
Total revenues for the three months ended March 31, 2009 decreased $231,000 or
2.9% to $7.8 million from $8.0 million for the three months ended March 31,
2008, primarily due to decreases in Indoor display revenues and Outdoor display
rentals and maintenance revenues, offset by an increase in Outdoor display sales
revenues.
Indoor display revenues decreased $333,000 or 12.3%. Of this decrease, Indoor
display equipment sales decreased $195,000 or 19.9%, primarily due to a decrease
in sales from the financial services market. Indoor display equipment rentals
and maintenance revenues decreased $139,000 or 8.1%, primarily due to
disconnects and non-renewals of equipment on rental 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 and the wider use of flat-panel screens for smaller
applications. Also, the global recession has negatively impacted Indoor
11
sales and rentals and maintenance revenues.
Outdoor display revenues increased $132,000 or 2.5%. Of this increase, Outdoor
display equipment sales increased $270,000 or 6.4%, primarily in the catalog
sports and commercial markets. Outdoor display equipment rentals and
maintenance revenues decreased $138,000 or 13.5%, primarily due to the continued
expected revenue decline in the older Outdoor display equipment rental and
maintenance bases acquired in the early 1990s.
Real estate rental revenues decreased $30,000 or 34.5%, primarily due to the
termination of the sub-leases in June 2008 at our former Norwalk, CT location.
Total operating income for the three months ended March 31, 2009 decreased
$76,000 or 32.6% to $157,000 from $233,000 for the three months ended March 31,
2008, principally due to the decline in revenues, offset by a decrease in
general and administrative expenses.
Indoor display operating loss increased $80,000 to $219,000 in 2009 compared to
$139,000 in 2008, primarily as a result of the decline in sales revenues, offset
by a decrease in general and administrative expenses. The cost of Indoor
displays represented 83.2% of related revenues in 2009 compared to 78.3% in
2008. Indoor displays cost of equipment rentals and maintenance as a percentage
of related revenues increased primarily due to an increase in material costs,
offset by a $83,000 decrease in depreciation expense and a $77,000 decrease in
field service costs. The Company continually addresses the cost of field
service to keep it in line with revenues from equipment rentals and maintenance.
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 $15,000 or 3.2%, primarily due to the decrease in
revenues, offset by increased material costs. Indoor display general and
administrative expenses decreased $111,000 or 15.3%, primarily due to a
reduction in payroll and benefits and related expenses, offset by an increase in
bad debt expense. Due to the current economic condition, during the first
quarter, certain personnel and related expenses of the Indoor display business
was reduced, resulting in annual cash savings of approximately $0.9 million.
Outdoor display operating income increased $24,000 or 7.7%, primarily as a
result of a decrease in general and administrative expenses, offset by increases
in material costs. The cost of Outdoor displays represented 77.4% of related
revenues in 2009 compared to 74.0% in 2008. Outdoor display cost of equipment
sales increased $401,000 or 12.8%, principally due to the increase in volume,
the sales mix and increases in material costs. Outdoor display cost of
equipment rentals and maintenance decreased $122,000 or 17.2%, primarily due to
a $104,000 decrease in field service costs to maintain the equipment and a
$17,000 decrease in depreciation expense. Outdoor display general and
administrative expenses decreased $170,000 or 16.3%, primarily due to a
reduction in selling payroll and benefits and related expenses, as well as a
decrease in bad debt expense. Cost of Outdoor display equipment rentals and
maintenance includes field service expenses, plant repair costs, maintenance and
depreciation. Due to the current economic condition, during the first quarter,
certain personnel and related expenses of the commercial business were reduced,
and all non-union personnel salaries were reduced, resulting in an annual cash
savings of approximately $1.0 million.
12
Real estate rental operating income decreased $20,000 or 33.9%, primarily due to
the decrease in revenues due to the termination of the sub-leases in June 2008
at our former Norwalk, CT location. The cost of Real estate rental represented
26.3% of related revenues in 2009 compared to 28.7% in 2008. Real estate rental
general and administrative expenses remained level.
Corporate general and administrative expenses decreased $187,000 or 17.8%,
primarily due to a decrease in facility expenses and benefits, such as medical
costs. The Company continues to monitor and reduce certain overhead costs. Due
to the current economic condition, during the first quarter, all personnel
salaries and consulting fees were reduced, resulting in an annual savings of
approximately $0.3 million.
Net interest expense decreased $14,000 due to a reduction in total debt, offset
by an increase in the interest rates of the variable rate debt.
The effective tax rate (benefit) for the three months ended March 31, 2009 and
2008 was 3.7% and (3.9%), respectively. Both the 2009 and 2008 tax rate is
being affected by the valuation allowance on its deferred tax assets as a result
of reporting pre-tax losses. The current year's income tax expense relates to
the Company's Canadian subsidiary. The 2008 tax rate benefit relates to the
benefit from the loss from continuing operations, offset by income tax expense
related to the Company's Canadian subsidiary.
Liquidity and Capital Resources
During the three months ended March 31, 2009, long-term debt, including current
portion, decreased $665,000, due to regularly scheduled payments of long-term
debt.
The Company has a bank Credit Agreement, which provides for a term loan of $10.0
million, a non-revolving line of credit of up to $6.2 million (which is no
longer available) to finance purchases and/or redemptions of one-half of the 7
1/2% Subordinated Notes due 2006 (which were redeemed in June 2006 and no longer
outstanding), and a revolving loan of up to $5.0 million at a variable rate of
interest of Prime plus 1.75% (5.00% at March 31, 2009). Subsequent to the end
of the quarter, the rate of interest was modified to Prime plus 2.00%, with a
floor of 6.00%, the maturity of the Credit Agreement was extended to April 1,
2010, and certain of the financial covenants were modified. The Credit
Agreement requires an annual facility fee on the unused commitment of 0.25% and
requires compliance with certain financial covenants, as defined in the Credit
Agreement, which include a fixed charge coverage ratio of 1.1 to 1.0 for the
current quarter and 1.25 to 1.0 thereafter, a loan-to-value ratio of not more
than 50%, a cap on capital expenditures, a leverage ratio and maintaining a
tangible net worth of not less than $24.0 million. As of March 31, 2009, the
Company was in compliance with the forgoing financial covenants. The Company's
objective in regards to the Credit Agreement is to obtain additional funds from
external sources through equity or additional debt financing. The Company is in
discussions with senior lenders and others to obtain additional borrowing
capacity, which management believes it should be able to accomplish within the
next twelve months, but the current global credit market has been impacting the
timing of accomplishing these objectives. While management believes it will be
successful, there can be no assurance that
13
management will be successful in achieving these objectives. The Company
continually evaluates the need and availability of long-term capital in order to
meet its cash requirements and fund potential new opportunities. The amounts
outstanding under the Credit Agreement are collateralized by all of the Display
division assets.
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 current interest rates
until the underlying debts mature.
The following table summarizes the Company's fixed cash obligations as of March
31, 2009 for the remainder of 2009 and the next four years:
Remainder of
In thousands 2009 2010 2011 2012 2013
-----------------------------------------------------------------------------
Long-term debt, including interest $3,252 $8,049 $1,249 $13,229 $ -
Employment and consulting
agreement obligations 597 425 302 197 197
Operating lease payments 392 417 402 271 77
-----------------------------------------
Total $4,241 $8,891 $1,953 $13,697 $274
-----------------------------------------------------------------------------
Cash and cash equivalents increased $120,000 for the three months ended March
31, 2009 compared to a decrease of $1.9 million for the three months ended March
31, 2008. The increase in 2009 is primarily attributable to cash provided by
operating activities of $1.4 million and the proceeds from sale of
available-for-sale securities of $135,000, offset by the investment in equipment
for rental of $646,000, the investment in property, plant and equipment of
$126,000 and scheduled payments of long-term debt of $665,000. The decrease in
2008 is primarily attributable to the investment in equipment for rental of
$933,000, the investment in property, plant and equipment of $62,000, scheduled
payments of long-term debt of $674,000 and cash used in operating activities of
$42,000.
Although the Company has incurred losses from continuing operations, it believes
that cash provided by continuing operations, which will depend upon our future
operating performance, which is subject to general economic, financial,
competetive and other factors that are beyond its control, together with cash
and cash equivalents on hand should be sufficient to fund anticipated current
and near term cash requirements. The Company's objective in regards to the
Credit Agreement is to obtain additional funds from external sources through
equity or additional debt financing and is in discussions with senior lenders
and others. The Company continually evaluates the need and availability of
long-term capital in order to meet its cash requirements.
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995
The Company may, from time to time, provide estimates as to future performance.
These forward-looking statements will be estimates and may or may not be
realized by the Company. The Company undertakes no duty to update such
forward-looking statements. Many factors could cause actual results to differ
from these forward-looking statements, including loss of market share through
competition, introduction of competing products by others, pressure on prices
from competition
14
or purchasers of the Company's products, interest rate and foreign exchange
fluctuations, terrorist acts and war.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company is subject to interest rate risk on its long-term debt. The Company
manages its exposure to changes in interest rates by the use of variable and
fixed interest rate debt. In addition the Company is exposed to foreign
currency exchange rate risk mainly as a result of its investment in its Canadian
subsidiary. The Company may, from time to time, enter into derivative contracts
to manage its interest risk. The Company does not enter into derivatives for
trading or speculative purposes. At March 31, 2009, the Company did not hold
any derivative financial instruments.
A one-percentage point change in interest rates would result in an annual
interest expense fluctuation of approximately $104,000. A 10% change in the
Canadian dollar relative to the U.S. dollar would result in a currency exchange
expense fluctuation of approximately $16,000, based on dealer quotes,
considering current exchange rates.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures. As required by Rule 13a-15
under the Securities Exchange Act of 1934, as of the end of the period covered
by this report, we have carried out an evaluation, under the supervision and
with the participation of our management, including our Chief Executive Officer
and Chief Financial Officer (our principal executive officer and principal
financial officer), of the effectiveness of the design and operation of our
disclosure controls and procedures. Our Chief Executive Officer and Chief
Financial Officer have concluded that our disclosure controls and procedures are
effective to ensure that information required to be disclosed by us in the
reports that we file or submit under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the rules and forms
of the Securities and Exchange Commission and that such information is
accumulated and communicated to our management (including our Chief Executive
Officer and Chief Financial Officer) to allow timely decisions regarding
required disclosures. Based on such evaluation, our Chief Executive Officer and
Chief Financial Officer have concluded these disclosure controls are effective
as of March 31, 2009.
Changes in Internal Control over Financial Reporting. There has been no change
in the Company's internal control over financial reporting, that occurred in the
quarter ended March 31, 2009, that has materially affected, or is reasonably
likely to materially affect, the Company's internal control over financial
reporting.
15
Part II - Other Information
---------------------------
Item 1. Legal Proceedings
The Company is subject to legal proceedings and claims, which arise in the
ordinary course of its business and/or which are covered by insurance. The
Company and four of its directors are party to a pending legal proceeding
entitled Gabelli Funds, LLC v. Brandt et al, 09 Civ. 0830 (KMK), beneficial
owners of thirty-nine percent of the common stock of the Company. The
proceeding, which is in the process of possibly being settled, is not expected
to have an adverse impact on the consolidated financial position or operations
of the Company.
The Company is also party to other pending legal proceedings and claims, which
are covered by insurance, that it believes will not have a material adverse
effect on the consolidated financial position or operations of the Company.
Item 1A. Risk Factors
The Company is subject to a number of risks including general business and
financial risk factors. Any or all of such factors could have a material
adverse effect on the business, financial condition or results of operations of
the Company. You should carefully consider the following risk factors, in
addition to those identified in our Annual Report on Form 10-K for the year
ended December 31, 2008.
The Company has incurred losses from continuing operations for the three months
ended March 31, 2009 and 2008 of $1,154,000 and $1,186,000, respectively. As of
March 31, 2009, the Company has fully drawn its $5.0 million revolving loan
facility, which was amended subsequent to the first quarter to extend the
maturity date to April 1, 2010. The Company's objective in regards to the
Credit Agreement is to obtain additional funds from external sources through
equity or additional debt financing and the Company is in discussions with
senior lenders and others to obtain additional borrowing capacity, which
management believes it should be able to accomplish within the next twelve
months, but the current global credit market has been impacting the timing of
accomplishing these objectives. While management believes it will be
successful, there can be no assurance that management will be successful in
achieving these objectives. The Company continually evaluates the need and
availability of long-term capital in order to meet its cash requirements and
fund potential new opportunities.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
16
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits
31.1 Certification of Michael R. Mulcahy, President and Chief Executive
Officer, pursuant to Rule 13a-14(a) and 15d-14(a), as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Angela D. Toppi, Executive Vice President and Chief
Financial Officer, pursuant to Rule 13a-14(a) and 15d-14(a), as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of Michael R. Mulcahy, President and Chief Executive
Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification of 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.
17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TRANS-LUX CORPORATION
---------------------
(Registrant)
Date: May 14, 2009
by /s/ Angela D. Toppi
-----------------------------
Angela D. Toppi
Executive Vice President and
Chief Financial Officer
18