UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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
--- ---
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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08/13/09 Common Stock - $1.00 Par Value 2,020,090
08/13/09 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 -
June 30, 2009 and December 31, 2008 1
Condensed Consolidated Statements of Operations -
Three and Six Months Ended June 30, 2009 and 2008 2
Condensed Consolidated Statements of Cash Flows -
Six Months Ended June 30, 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 17
Item 4. Controls and Procedures 17
Part II - Other Information
Item 1. Legal Proceedings 18
Item 1A. Risk Factors 18
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 19
Item 3. Defaults upon Senior Securities 19
Item 4. Submission of Matters to a Vote of Security Holders 19
Item 5. Other Information 19
Item 6. Exhibits 19
Signatures 20
Exhibits
Part I - Financial Information
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TRANS-LUX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30 December 31
In thousands, except share data 2009 2008
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(unaudited) (see Note 1)
ASSETS
Current assets:
Cash and cash equivalents $ 1,742 $ 1,422
Cash in escrow 400 400
Available-for-sale securities - 135
Receivables, less allowance of $804 - 2009 and $926 - 2008 3,825 4,594
Unbilled receivables 8 120
Inventories 5,828 6,592
Prepaids and other 768 1,167
Current assets associated with discontinued operations (Note 2) 136 149
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Total current assets 12,707 14,579
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Rental equipment 63,542 62,483
Less accumulated depreciation 38,119 35,358
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25,423 27,125
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Property, plant and equipment 7,644 7,511
Less accumulated depreciation 4,956 4,784
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2,688 2,727
Asset held for sale 920 920
Other receivable - 2,580
Goodwill 810 810
Other assets 1,086 2,106
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TOTAL ASSETS $43,634 $50,847
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,411 $ 3,151
Accrued liabilities 6,555 6,146
Current portion of long-term debt 8,288 2,945
Liabilities associated with discontinued operations (Note 2) 547 544
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Total current liabilities 16,801 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 1,883 8,566
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12,963 19,646
Deferred credits, deposits and other 4,236 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 14,743 14,741
Retained earnings (1,153) 3,806
Accumulated other comprehensive loss (3,233) (3,377)
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13,097 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 9,634 14,447
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $43,634 $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 Six Months Ended
June 30 June 30
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In thousands, except per share data 2009 2008 2009 2008
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Revenues:
Equipment rentals and maintenance $ 2,449 $ 2,845 $ 4,912 $ 5,584
Equipment sales 4,935 7,491 10,184 12,665
Real estate rentals 59 81 116 168
------- ------- ------- -------
Total revenues 7,443 10,417 15,212 18,417
------- ------- ------- -------
Operating expenses:
Cost of equipment rentals and maintenance 2,063 2,409 4,176 4,772
Cost of equipment sales 3,728 5,220 7,723 8,829
Cost of real estate rentals 15 24 30 49
------- ------- ------- -------
Total operating expenses 5,806 7,653 11,929 13,650
------- ------- ------- -------
Gross profit from operations 1,637 2,764 3,283 4,767
General and administrative expenses (2,268) (2,791) (4,619) (5,610)
Interest expense, net (437) (342) (845) (764)
Write off of note receivable, net (2,686) - (2,686) -
Other income - - - 4
------- ------- ------- -------
Loss from continuing operations before income taxes (3,754) (369) (4,867) (1,603)
Income tax expense (51) (1,350) (92) (1,302)
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Loss from continuing operations (3,805) (1,719) (4,959) (2,905)
Loss from discontinued operations - (3,636) - (3,477)
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Net loss $(3,805) $(5,355) $(4,959) $(6,382)
======= ======= ======= =======
Loss per share continuing operations - basic and diluted $ (1.65) $ (0.74) $ (2.15) $ (1.26)
Loss per share discontinued operations - basic and diluted - (1.58) - (1.51)
------- ------- ------- -------
Total loss per share - basic and diluted $ (1.65) $ (2.32) $ (2.15) $ (2.77)
======= ======= ======= =======
Weighted average common shares outstanding - basic and diluted 2,307 2,307 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)
SIX MONTHS ENDED
JUNE 30
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In thousands 2009 2008
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Cash flows from operating activities
Net loss $(4,959) $(6,382)
Loss from discontinued operations - 3,477
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Loss from continuing operations (4,959) (2,905)
Adjustment to reconcile loss from continuing operations
to net cash provided by (used in) operating activities:
Depreciation and amortization 3,025 3,280
Write-off of note receivable 2,686 -
Changes in operating assets and liabilities:
Receivables 881 (1,407)
Inventories 764 237
Prepaids and other assets 1,118 143
Accounts payable and accruals (1,185) 212
Deferred credits, deposits and other 371 115
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Net cash provided by (used in) operating activities 2,701 (325)
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Cash flows from investing activities
Equipment manufactured for rental (1,059) (1,635)
Purchases of property, plant and equipment (133) (374)
Proceeds from sale of available-for-sale securities 135 -
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Net cash used in investing activities (1,057) (2,009)
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Cash flows from financing activities
Payments of long-term debt (1,340) (1,343)
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Net cash used in financing activities (1,340) (1,343)
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Cash flows from discontinued operations
Cash provided by operating activities of discontinued operations 16 1,294
Cash used in investing activities of discontinued operations - (1,963)
Cash provided by financing activities of discontinued operations - 1,243
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Net cash provided by discontinued operations 16 574
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Net increase (decrease) in cash and cash equivalents 320 (3,103)
Cash and cash equivalents at beginning of year 1,422 6,591
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Cash and cash equivalents at end of period $ 1,742 $ 3,488
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Interest paid $ 740 $ 1,578
Income taxes paid 20 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
June 30, 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 June 30, 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 and six
months ended June 30, 2009 of $3.8 million and $5.0 million, respectively, which
includes a $2.7 million write off of a note receivable related to the former
Norwalk facility the Company sold in 2004. See Note 4 - Other Receivable. The
Company has generated cash provided by operating activities of continuing
operations of $2.7 million for the six months ended June 30, 2009 and used
$325,000 for the six months ended June 30, 2008. 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 certain manufacturing efficiencies. The cash flows of the Company
are tight, and in order to more effectively manage its cash resources in these
challenging economic times, the Company has, from time to time, had to increase
the timetable of the payment of some of its payables. The Company 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 payment of 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 recorded in the second quarter of 2008. See Note 2 -
Discontinued Operations to the condensed consolidated financial statements.
Although the Company is putting these cost saving initiatives into place, the
current economic condition continues to hinder our efforts and negatively impact
cash flow. As of June 30, 2009, the Company has fully drawn its $5.0 million
revolving loan facility, which is in an overdraft position of approximately
$300,000. Subsequent to the end of the second quarter, the senior lender waived
the overdraft and non-compliance with certain loan covenants and has agreed to
modify these requirements in an amendment to the Credit Agreement. The
Company's Credit Agreement with its senior lender matures April 1, 2010 and as a
4
result is recorded as a current liability, generating a negative working capital
ratio of 0.76 to 1.00. 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, but refinancing in the
current global credit environment has been a challenge and there can be no
assurance that management will be successful in achieving any of the above
objectives. The Company's inability to obtain replacement financing or to
further extend the maturity of the Credit Agreement, which matures on April 1,
2010, would have a negative impact on the Company's operations. We believe that
our cash, cash equivalents and cash provided by continuing operations depend
upon our future operating performance, and is subject to general economic,
financial, competitive and other factors that are beyond our control, and the
continued decline in the revenue of the lease base, generally should be
sufficient to meet our anticipated needs for working capital requirements in the
future. However, our cash is tight and difficult to manage, so there can be no
assurance that we will meet our anticipated needs for working capital in the
future.
Fair Value of Financial Instruments. In accordance with Statement of Financial
Accounting Standards No. 157, "Fair Value Measures" ("SFAS 157"), the Company
carries its money market funds and cash surrender value of life insurance
related to its deferred compensation arrangements at fair value. Under SFAS
157, the fair value of these instruments is determined using a three-tier fair
value hierarchy. Based on this hierarchy, the Company determined the fair value
of its money market funds and the cash surrender value of life insurance using
quoted market prices, a Level I or an observable input as defined under SFAS
157. The investments underlying the cash surrender value of life insurance
consist primarily of mutual funds with quoted prices in active markets. At June
30, 2009, the Company's money market funds and the cash surrender value of life
insurance had carrying amounts of $25,000 and $57,000, respectively. At
December 31, 2008, the Company's money market funds and the cash surrender value
of life insurance had carrying amounts of $25,000 and $328,000, respectively.
The carrying amounts of cash equivalents, accounts receivable and accounts
payable and accrued expenses approximate fair value due to the short maturities
of these items. At June 30, 2009, the fair value of the Company's 8 1/4%
Limited Convertible Subordinated Notes ("Notes") and the 9 1/2% Subordinated
Debentures ("Debentures"), using a Level II or an observable input as defined
under SFAS 157, was $6.9 million and $1.0 million, respectively. At December
31, 2008, the fair value of the Notes and the Debentures was $7.0 million and
$1.0 million, respectively. At June 30, 2009, the fair value of the Company's
remaining long-term debt approximates its carrying value of $10.1 million. At
December 31, 2008, the fair value of the Company's remaining long-term debt
approximates its carrying value of $11.5 million.
The Company has performed a review of events subsequent to the balance sheet
date through August 14, 2009, the date the financial statements were issued.
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
5
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 is subject to
resolution of two claims raised by the buyer. The net balance after resolution
of the two claims will be released to the Company later in 2009. The buyer
assumed the operating results effective as of June 27, 2008. The Company has
accounted for the Entertainment Division as discontinued operations.
In addition to the $24.5 million purchase price, there was a potential
additional purchase price 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, but none has been earned to date. 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 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 were 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 Condensed Consolidated Statements of Operations for the three and six month
period ended June 30, 2008 have been restated to reflect a reallocation of
interest expense and income tax expense between continuing operations and
discontinued operations to conform to adjustments made in connection with the
filing of the Company's annual report on Form 10-K for the year ended December
31, 2008. There was no change in the reported net loss for either period. The
following table summarizes these adjustments:
Three Months Ended Six Months Ended
In thousands, except per share data June 30, 2008 June 30, 2008
------------------------------------------------------------------------------------------------------
As Previously As Previously
Reported Restated Reported Restated
------------------------------------------
Revenues $ 3,144 $ 3,144 $ 6,245 $ 6,245
Operating expenses 2,623 2,623 4,992 4,992
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Gross profit 521 521 1,253 1,253
General and administrative expenses (297) (297) (559) (559)
Interest expense, net (224) (297) (470) (628)
Income from joint venture 120 120 239 239
Asset impairment/disposal costs (4,934) (4,934) (4,934) (4,934)
Income tax benefit - 1,251 - 1,152
------------------------------------------
Net loss from discontinued operations $(4,814) $(3,636) $(4,471) $(3,477)
==========================================
Loss per share discontinued operations - basic and diluted $ (2.09) $ (1.58) $ (1.94) $ (1.51)
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6
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 June 30, 2009 and
December 31, 2008:
June 30 December 31
In thousands 2009 2008
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Prepaids and other assets $136 $149
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Total assets associated with discontinued operations $136 $149
==================
Current liabilities $547 $544
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Total liabilities associated with discontinued operations $547 $544
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Note 3 - Inventories
Inventories are stated at the lower of cost or market and consist of the
following:
June 30 December 31
In thousands 2009 2008
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Raw materials $3,917 $4,769
Work-in-progress 1,332 1,317
Finished goods 579 506
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$5,828 $6,592
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Note 4 - Other Receivable
The Company had 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 was secured by a purchase money mortgage subordinated to a $3.5
million first mortgage in favor of the purchaser's bank. The purchaser had
defaulted on this payment and the Company pursued legal remedies. As of July
11, 2009, after the negative results of a foreclosure by sale by the first
mortgagee, the Company has written off this note receivable and related expense
for a total of $2.7 million in the second quarter of 2009.
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 2.00%, with a floor of 6.00% (6.00% at June 30, 2009),
which matures April 1,
7
2010 and recorded as a current liability. As of June 30, 2009, the Company has
fully drawn its $5.0 million revolving loan facility, which is in an overdraft
position of approximately $300,000. 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
loan-to-value ratio of not more than 50%, a cap on capital expenditures and a
leverage ratio. As of June 30, 2009, the Company was in compliance with the
foregoing financial covenants, but was not in compliance with the fixed charge
coverage ratio of 1.25 to 1.0 and maintaining a tangible net worth of not less
than $24.0 million. Subsequent to the second quarter, the bank waived the
overdraft position and financial covenant violation and has agreed to modify
these requirements in an amendment to the Credit Agreement. The amounts
outstanding under the Credit Agreement are collateralized by all of the Display
division assets.
Note 6 - Reporting Comprehensive Loss
Total comprehensive loss for the three and six months ended June 30, 2009 and
2008 is as follows:
Three Months Ended Six Months Ended
June 30 June 30
In thousands 2009 2008 2009 2008
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Net loss, as reported $(3,805) $(5,355) $(4,959) $(6,382)
-------------------------------------
Other comprehensive income (loss):
Unrealized foreign currency translation gain (loss) 159 20 144 (91)
Unrealized holding gain (loss) on available-for-
sale securities - 2 - (2)
Income tax benefit related to items of other
comprehensive income (loss) - - - 1
-------------------------------------
Total other comprehensive income (loss), net of tax 159 22 144 (92)
-------------------------------------
Comprehensive loss $(3,646) $(5,333) $(4,815) $(6,474)
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Note 7 - Pension Plan
As of December 31, 2003 the benefit service under the pension plan had been
frozen and as of April 30, 2009 the compensation increments have been frozen.
Accordingly, there is no service cost and no additional benefits being accrued
under the plan.
The following table presents the components of net periodic pension cost:
Three Months Ended Six Months Ended
June 30 June 30
In thousands 2009 2008 2009 2008
------------------------------------------------------------------------
Interest cost $ 150 $ 160 $ 300 $ 320
Expected return on plan assets (119) (158) (238) (316)
Amortization of prior service cost 4 4 8 8
Amortization of net actuarial loss 105 66 210 132
-----------------------------------
Net periodic pension cost $ 140 $ 72 $ 280 $ 144
------------------------------------------------------------------------
As of June 30, 2009, the Company has recorded a current and long-term pension
liability of $0.5 million and $4.1 million, respectively. The minimum required
contribution for 2009 is expected to
8
be $0.5 million, but the Company will seek a waiver to extend the May 15, 2009
and August 15, 2009 quarterly payments of $96,000.
Note 8 - Stock Option Plans
The Company issued options for 2,000 shares with an exercise price of $1.05 per
share and options for 3,000 shares with an exercise price of $3.85 per share
under the Non-Employee Director Stock Option Plan in June 2009 and June 2008,
respectively. The unrecognized compensation costs related to unvested stock
options granted under the Company's stock option plans was nominal.
The following summarizes the activity of the Company's stock options for the six
months ended June 30, 2009:
Weighted
Weighted Average
Average Remaining Aggregate
Exercise Contractual Intrinsic
Options Price ($) Term (Yrs) Value ($)
-------------------------------------------------------------------------------------------
Outstanding at beginning of year 33,500 5.22
Granted 2,000 1.05
Exercised - -
Terminated (2,000) 4.95
------
Outstanding at end of period 33,500 4.98 3.3
================================
Vested and expected to vest at end of period 31,500 5.23 3.2 -
============================================
Exercisable at end of period 31,500 5.23 3.2 -
-------------------------------------------------------------------------------------------
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 June
30, 2009 and 2008, there were outstanding stock options to purchase 33,500 and
66,000 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 being
settled, subject to court approval after notice to stockholders 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.
9
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 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 and six months ended June 30, 2009 and 2008 is as
follows:
Three Months Ended Six Months Ended
June 30 June 30
In thousands 2009 2008 2009 2008
------------------------------------------------------------------------------------------
Revenues:
Indoor display $ 2,216 $ 3,374 $ 4,591 $ 6,082
Outdoor display 5,168 6,962 10,505 12,167
Real estate rental 59 81 116 168
-------------------------------------
Total revenues $ 7,443 $10,417 $15,212 $18,417
-------------------------------------
Operating (loss) income:
Indoor display $ (350) $ 221 $ (569) $ 82
Outdoor display 703 775 1,040 1,088
Real estate rental 39 54 78 113
-------------------------------------
Total operating income 392 1,050 549 1,283
Other (expense) income (2,686) - (2,686) 4
Corporate general and administrative expenses (1,023) (1,077) (1,885) (2,126)
Interest expense, net (437) (342) (845) (764)
-------------------------------------
Loss from continuing operations before income taxes (3,754) (369) (4,867) (1,603)
Income tax expense (51) (1,350) (92) (1,302)
-------------------------------------
Net loss from continuing operations $(3,805) $(1,719) $(4,959) $(2,905)
------------------------------------------------------------------------------------------
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
Six Months Ended June 30, 2009 Compared to Six Months Ended June 30, 2008
Total revenues for the six months ended June 30, 2009 decreased $3.2 million or
17.4% to $15.2 million from $18.4 million for the six months ended June 30,
2008, primarily due to decreases in the Outdoor display and Indoor display sales
revenues. The global recession has negatively impacted Outdoor and Indoor
display sales and rentals and maintenance revenues.
Indoor display revenues decreased $1.5 million or 24.5%. Of this decrease,
Indoor display equipment sales decreased $1.1 million or 43.6%, primarily due to
a decrease in sales from the financial services market. Indoor display
equipment rentals and maintenance revenues decreased $366,000 or 10.5%,
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 by the wider use of flat-panel screens
for smaller applications.
11
Outdoor display revenues decreased $1.7 million or 13.7%. Of this decrease,
Outdoor display equipment sales decreased $1.4 million or 13.4%, primarily in
the catalog sports and commercial markets. Outdoor display equipment rentals
and maintenance revenues decreased $306,000 or 14.7%, 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 $52,000 or 31.0%, primarily due to the
termination of the sub-leases in June 2008 at our former Norwalk, CT location.
Total operating income for the six months ended June 30, 2009 decreased $734,000
or 57.2% to $549,000 from $1.3 million for the six months ended June 30, 2008,
principally due to the decline in revenues, offset by a decrease in general and
administrative expenses.
Indoor display operating income decreased $651,000 to an operating loss of
$569,000 in 2009 compared to operating income of $82,000 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 85.1% of
related revenues in 2009 compared to 75.4% in 2008. The cost of Indoor displays
as a percentage of related revenues increased primarily due to the decrease in
Indoor sales revenues, which have a higher gross profit margin than the Indoor
rentals and maintenance revenues, offset by a $162,000 decrease in depreciation
expense and a $211,000 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 $305,000 or
24.9%, primarily due to the decrease in revenues. Indoor display general and
administrative expenses decreased $162,000 or 11.4%, 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, certain personnel and
related expenses of the Indoor display business were reduced, resulting in
annual cash savings of approximately $1.1 million.
Outdoor display operating income decreased $48,000 or 4.4%, primarily as a
result of the decrease in revenues, offset by a decrease in general and
administrative expenses. The cost of Outdoor displays represented 76.1% of
related revenues in 2009 compared to 74.1% in 2008. Outdoor display cost of
equipment sales decreased $801,000 or 10.5%, principally due to the decrease in
volume and the sales mix. Outdoor display cost of equipment rentals and
maintenance decreased $224,000 or 15.9%, primarily due to a $191,000 decrease in
field service costs to maintain the equipment and a $33,000 decrease in
depreciation expense. Outdoor display general and administrative expenses
decreased $589,000 or 28.6%, 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, 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 $1.1 million.
Real estate rental operating income decreased $35,000 or 31.0%, primarily due to
the decrease in
12
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 26.7% of
related revenues in 2009 compared to 29.2% in 2008. Real estate rental general
and administrative expenses remained level.
Corporate general and administrative expenses decreased $241,000 or 11.3%,
primarily due to a decrease in facility expenses, payroll and benefits, such as
medical costs. The Company continues to monitor and reduce certain overhead
costs. Due to the current economic condition, all personnel salaries and
consulting fees were reduced, resulting in an annual savings of approximately
$0.3 million.
Net interest expense increased $81,000. Interest expense decreased $53,000
primarily due to a reduction in total debt, offset by an increase in the
interest rates of variable rate debt and interest income decreased $134,000,
primarily due to the final interest income recorded in 2008 on the remaining
balance of the sale of our former Norwalk, CT headquarters.
The effective tax rate for the six months ended June 30, 2009 and 2008 was 1.9%
and 81.2%, respectively. The 2009 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 effective tax rate was affected by the $2.6 million
valuation allowance on its deferred tax assets as a result of reporting a
pre-tax loss and the effect of allocating income taxes between continuing
operations and discontinued operations, and the income tax expense related to
the Company's Canadian subsidiary.
Three Months Ended June 30, 2009 Compared to Three Months Ended June 30, 2008
Total revenues for the three months ended June 30, 2009 decreased $3.0 million
or 28.5% to $7.4 million from $10.4 million for the three months ended June 30,
2008, primarily due to decreases in Outdoor display and Indoor display sales
revenues. The global recession has negatively impacted Outdoor and Indoor sales
and rentals and maintenance revenues.
Indoor display revenues decreased $1.2 million or 34.3%. Of this decrease,
Indoor display equipment sales decreased $930,000 or 58.2%, primarily due to a
decrease in sales from the financial services market. Indoor display equipment
rentals and maintenance revenues decreased $227,000 or 12.8%, 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 by the wider use of flat-panel screens for smaller
applications.
Outdoor display revenues decreased $1.8 million or 25.8%. Of this decrease,
Outdoor display equipment sales decreased $1.6 million or 27.6%, primarily in
the catalog sports and commercial markets. Outdoor display equipment rentals
and maintenance revenues decreased $168,000 or 15.7%, 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 $22,000 or 27.2%, primarily due to the
termination of the sub-
13
leases in June 2008 at our former Norwalk, CT location.
Total operating income for the three months ended June 30, 2009 decreased
$657,000 or 62.6% to $393,000 from $1.1 million for the three months ended June
30, 2008, principally due to the decline in revenues, offset by a decrease in
general and administrative expenses.
Indoor display operating income decreased $571,000 to an operating loss of
$350,000 in 2009 compared to operating income of $221,000 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 87.1% of
related revenues in 2009 compared to 73.1% in 2008. The cost of Indoor displays
as a percentage of related revenues increased primarily due to the decrease in
Indoor sales revenues, which have a higher gross profit margin than the Indoor
rentals and maintenance revenues, offset by a $165,000 decrease in field service
costs and a $78,000 decrease in depreciation expense. 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 $290,000 or
38.3%, primarily due to the decrease in revenues. Indoor display general and
administrative expenses decreased $51,000 or 7.4%, 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, additional personnel and
related expenses of the Indoor display business were reduced during the quarter,
resulting in annual cash savings of approximately $0.2 million.
Outdoor display operating income decreased $71,000 or 9.2%, primarily as a
result of the decrease in revenues, offset by a decrease in general and
administrative expenses. The cost of Outdoor displays represented 74.7% of
related revenues in 2009 compared to 74.2% in 2008. Outdoor display cost of
equipment sales decreased $1.2 million or 26.9%, principally due to the decrease
in volume and the sales mix. Outdoor display cost of equipment rentals and
maintenance decreased $102,000 or 14.5%, primarily due to an $85,000 decrease in
field service costs to maintain the equipment and a $17,000 decrease in
depreciation expense. Outdoor display general and administrative expenses
decreased $419,000 or 41.0%, 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, additional personnel and related expenses of the commercial
business were reduced during the quarter, resulting in an annual cash savings of
approximately $0.1 million.
Real estate rental operating income decreased $15,000 or 27.8%, 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
27.1% of related revenues in 2009 compared to 29.6% in 2008. Real estate rental
general and administrative expenses remained level.
Corporate general and administrative expenses decreased $53,000 or 4.9%,
primarily due to a decrease in facility expenses, payroll and benefits, such as
medical costs. The Company continues to monitor and reduce certain overhead
costs.
14
Net interest expense increased $95,000. Interest expense decreased $7,000
primarily due to a reduction in total debt, offset by an increase in the
interest rates of variable rate debt and interest income decreased $102,000,
primarily due to the final interest income recorded in 2008 on the remaining
balance of the sale of our former Norwalk, CT headquarters.
The effective tax rate for the three months ended June 30, 2009 and 2008 was
1.4% and 366.0%, respectively. The 2009 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 effective tax rate was affected by the $2.6 million
valuation allowance on its deferred tax assets as a result of reporting a
pre-tax loss and the effect of allocating income taxes between continuing
operations and discontinued operations, and the income tax expense related to
the Company's Canadian subsidiary.
Liquidity and Capital Resources
During the six months ended June 30, 2009, long-term debt, including current
portion, decreased $1.3 million, due to regularly scheduled debt payments.
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 2.00%, with a floor of 6.00% (6.00% at June 30, 2009),
which matures April 1, 2010. 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
loan-to-value ratio of not more than 50%, a cap on capital expenditures and a
leverage ratio. As of June 30, 2009, the Company was in compliance with the
foregoing financial covenants, but was not in compliance with the fixed charge
coverage ratio of 1.25 to 1.0 and maintaining a tangible net worth of not less
than $24.0 million, which the bank waived and modified subsequent to the second
quarter and has agreed to modify these requirements in an amendment to the
Credit Agreement. The Company's ongoing objective in regards to the Credit
Agreement is to obtain additional funds from external sources through equity or
additional debt financing within the next twelve months. The Company is in
discussions with senior lenders and others to obtain additional borrowing
capacity, but refinancing in the current global credit environment has been a
challenge and there can be no assurance that management will be successful in
achieving any of the above objectives. The Company's inability to obtain
replacement financing or to further extend the maturity of the Credit Agreement,
which matures on April 1, 2010, would have a negative impact on the Company's
operations. 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
15
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 June
30, 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 $2,379 $8,049 $1,249 $13,232 $ -
Employment and consulting
agreement obligations 398 425 302 197 197
Operating lease payments 260 414 400 271 77
-----------------------------------------
Total $3,037 $8,888 $1,951 $13,700 $274
-----------------------------------------------------------------------------------
Cash and cash equivalents increased $320,000 for the six months ended June 30,
2009 compared to a decrease of $3.1 million for the six months ended June 30,
2008. The increase in 2009 is primarily attributable to cash provided by
operating activities of $2.7 million and the proceeds from sale of
available-for-sale securities of $135,000, offset by the investment in equipment
for rental of $1.1 million, the investment in property, plant and equipment of
$133,000 and scheduled payments of long-term debt of $1.3 million. The decrease
in 2008 is primarily attributable to the investment in equipment for rental of
$1.6 million, scheduled payments of long-term debt of $1.3 million and the
investment in property, plant and equipment of $374,000 and the cash used in
operating activities of $325,000.
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, and is subject to general economic, financial,
competitive and other factors that are beyond its control, and the decline in
the revenues of the lease base, together with cash and cash equivalents on hand
should be sufficient to fund anticipated current and near term cash
requirements. However, the cash flows of the Company are tight, and in order to
more effectively manage its cash resources in these challenging economic times,
the Company has, from time to time, had to increase the timetable of its payment
of some of its payables. There can be no assurance that we will meet out
anticipated current and near term cash requirements. The Company's objective
in regards to the Credit Agreement is to obtain additional funds from external
sources through equity or additional debt financing prior to the maturity of the
Credit Agreement on April 1, 2010, and is in discussions with senior lenders and
others, but the current global credit environment has been a challenge in
accomplishing these objectives. 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
16
competition, introduction of competing products by others, pressure on prices
from competition or purchasers of the Company's products, interest rate and
foreign exchange fluctuations, terrorist acts and war.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company is subject to interest rate risk on its long-term debt. The Company
manages its exposure to changes in interest rates by the use of variable and
fixed interest rate debt. In addition the Company is exposed to foreign
currency exchange rate risk mainly as a result of 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 June 30, 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 $98,000. A 10% change in the
Canadian dollar relative to the U.S. dollar would result in a currency exchange
expense fluctuation of approximately $296,000, 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 June 30, 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 June 30, 2009, that has materially affected, or is reasonably
likely to materially affect, the Company's internal control over financial
reporting.
17
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, two of its current directors and two former directors are party to a
pending legal proceeding entitled Gabelli Funds, LLC v. Brandt et al, 09 Civ.
0830 (KMK), beneficial owners of forty-one percent of the common stock of the
Company. The two former directors, who previously indicated that they would not
stand for reelection or would resign, have resigned in connection with the
settlement agreement. The proceeding, which is in the process of being settled,
subject to court approval after notice to stockholders, 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 and six
months ended June 30, 2009 of $3.8 million and $5.0 million, respectively, which
includes a $2.7 million write off of a note receivable related to the former
Norwalk facility the Company sold in 2004. See Note 4 - Other Receivable. As
of June 30, 2009, the Company has fully drawn its $5.0 million revolving loan
facility, which is in an overdraft position of approximately $300,000, which the
bank waived and has agreed to modify in an amendment to the Credit Agreement,
which matures 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 prior to the maturity of the Credit Agreement. The
Company is in discussions with senior lenders and others to obtain additional
borrowing capacity, which management hopes to be able to accomplish within the
next twelve months, but the current global credit market has been negatively
impacting the timing of accomplishing these objectives, there can be no
assurance that management will be successful in achieving these objectives. The
Company's inability to obtain replacement financing before the maturity of it
Credit Agreement on April 1, 2010 would have a negative impact on the Company's
operations. The Company continually evaluates the need and availability of
long-term capital in order to meet its cash requirements and fund potential new
opportunities.
18
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
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.
19
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: August 14, 2009
by /s/ Angela D. Toppi
---------------------
Angela D. Toppi
Executive Vice President and
Chief Financial Officer
20