UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2009
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Commission file number 1-2257
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 Registrant's principal executive offices) (Zip code)
Registrant's telephone number, including area code: (203) 853-4321
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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Common Stock, $1.00 par value NYSE Amex
8 1/4% Limited Convertible Senior
Subordinated Notes due 2012 NYSE Amex
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the Registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. Yes No X
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Indicate by check mark if the Registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. Yes No X
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Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
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CONTINUED
TRANS-LUX CORPORATION
2009 Form 10-K Cover Page Continued
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Indicate by check mark whether the Registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company.
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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The aggregate market value of the Registrant's Common Stock held by
non-affiliates of the Registrant based upon the last sale price of the
Registrant's Common Stock reported on the NYSE Amex on June 30, 2009, was
approximately $1,891,000.
As of the close of business on April 14, 2010, there were outstanding 2,442,923
shares of the Registrant's Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Registrant's definitive Proxy Statement for the Annual Meeting
of Stockholders to be filed with the Commission within 120 days of the
Registrant's fiscal year end (the "Proxy Statement"), are incorporated by
reference into Part III, Items 10-14 of this Form 10-K to the extent stated
herein.
TRANS-LUX CORPORATION
2009 Form 10-K Annual Report
Table of Contents
PART I
Page
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ITEM 1. Business 1
ITEM 1A. Risk Factors 5
ITEM 1B. Unresolved Staff Comments 8
ITEM 2. Properties 8
ITEM 3. Legal Proceedings 8
ITEM 4. (Reserved) 9
PART II
ITEM 5. Market for the Registrant's Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity Securities 9
ITEM 6. Selected Financial Data 9
ITEM 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk 17
ITEM 8. Financial Statements and Supplementary Data 18
ITEM 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 36
ITEM 9A(T). Controls and Procedures 36
ITEM 9B. Other Information 37
PART III
ITEM 10. Directors, Executive Officers and Corporate Governance 37
ITEM 11. Executive Compensation 37
ITEM 12. Security Ownership of Certain Beneficial Owners and
Managament and Related Stockholder Matters 38
ITEM 13. Certain Relationships and Related Transactions, and
Director Independence 38
ITEM 14. Principal Accounting Fees and Services 38
PART IV
ITEM 15. Exhibits and Financial Statement Schedules 38
Signatures 41
PART I
In light of the unprecedented instability in the financial markets and the
severe slowdown in the overall economy, we do not have adequate liquidity,
including access to the debt and equity capital markets, to operate our business
in the manner in which we have historically operated. As a result, our
short-term business focus has been to preserve our liquidity position. We have
been successful in negotiating the renewal of the bank Credit Agreement, which
was due to mature on April 1, 2010. The senior lender has reduced the monthly
principal payments, modified the maturity of the Credit Agreement to May 1, 2011
and waived the non-compliance with certain financial and other covenants.
Substantially all of our eligible accounts receivable, inventory and other
assets are secured by the Credit Agreement. We cannot provide any assurance
that we would have sufficient cash and liquid assets to fund normal operations
during the period of time when we are required to repay amounts outstanding
under the Credit Agreement. Unless we are successful in obtaining additional
liquidity, we believe that we will not have sufficient cash and liquid assets to
fund normal operations for the next twelve months. In addition, the Company has
not made the required sinking fund payment of $105,700, on its 9 1/2%
Subordinated debentures (the "Debentures") which was due on December 1, 2009 and
did not make its March 1, 2010 interest payment of $417,800 on its 8 1/4%
Limited convertible senior subordinated notes (the "Notes"). As a result, if
the Company is unable to (i) to obtain additional liquidity for working capital,
(ii) make the required sinking fund payment on its Debentures, (iii) make the
required interest payment on its Notes, and (iv) make the required payments
under the Credit Agreement when due, there would be a significant adverse impact
on the financial position and operating results of the Company.
Moreover, because of the uncertainty surrounding our inability to obtain
additional liquidity and the potential of the noteholders and/or trustee to give
notice to the Company of a default on either the Debentures and the Notes, our
independent registered public accounting firm has issued an opinion on our
consolidated financial statements that states that the consolidated financial
statements were prepared assuming we will continue as a going concern, however
the opinion further states that the uncertainty regarding the inability to make
the required sinking fund payment on the Debentures and the interest payment on
the Notes and the potential of the senior lender accelerating the payments on
the Credit Agreement due to an event of default on the Debentures and Notes
raises substantial doubt about our ability to continue as a going concern.
ITEM 1. BUSINESS
Unless the context otherwise requires, the term "Company" as used herein refers
to Trans-Lux Corporation and its subsidiaries. The Company is a full-service
provider of integrated multimedia systems for today's communications
environments. The essential elements of these systems are the real-time,
programmable electronic information displays the Company manufactures,
distributes and services. These display systems utilize LED (light emitting
diode) technologies. Designed to meet the evolving communications needs of both
the indoor and outdoor markets, these display products include text, graphic and
video displays for stock and commodity exchanges, financial institutions,
college and high school sports stadiums, schools, casinos, convention centers,
corporate applications, government applications, theatres, retail sites,
airports, billboard sites and numerous other applications. In addition to its
core display business, the Company also owns an income-producing real estate
property.
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, $0.3 million is in escrow and $16.7 million of debt was assumed, including
$0.3 million of debt of the joint venture, MetroLux Theatres. The Entertainment
Division operated motion picture theatres in the western Mountain States. The
Company has accounted for the Entertainment Division as discontinued operations
in the accompanying financial statements.
The following provides information of our continuing businesses.
ELECTRONIC INFORMATION DISPLAY PRODUCTS
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The Company's high performance electronic information displays are used to
communicate messages and information in a variety of indoor and outdoor
applications. The Company's product line encompasses a wide range of
state-of-the-art electronic displays in various size and color configurations.
Most of the Company's display products include hardware components and
sophisticated software. In both the indoor and outdoor markets in which the
Company serves, the Company adapts basic product types and technologies for
specific use in various niche market applications. The Company also
1
operates a direct service network throughout the United States and parts of
Canada, which performs on-site project management, installation, service and
maintenance for its customers and others.
The Company employs a modular engineering design strategy, allowing basic
'building blocks' of electronic modules to be easily combined and configured in
order to meet the broad application requirements of the industries it serves.
This approach ensures product flexibility, reliability, ease of service and
minimum spare parts requirements.
The Company's electronic information display market is broken down into two
distinct segments: the Indoor division and the Outdoor division. Electronic
information displays are used by financial institutions, including brokerage
firms, banks, energy companies, insurance companies and mutual fund companies;
sports stadiums and venues; educational institutions; outdoor advertising
companies; corporate and government communication centers; retail outlets;
casinos, race tracks and other gaming establishments; airports, train stations,
bus terminals and other transportation facilities; movie theatres; health
maintenance organizations and in various other applications.
Indoor Division: The indoor electronic display market is currently dominated by
three categories of users: financial, government/private sector and gaming.
The financial sector, which includes trading floors, exchanges, brokerage firms,
banks, mutual fund companies and energy companies, has long been a user of
electronic information displays due to the need for real-time dissemination of
data. The major stock and commodity exchanges depend on reliable information
displays to post stock and commodity prices, trading volumes, interest rates and
other financial data. Brokerage firms use electronic ticker displays for both
customers and brokers; they have also installed other larger displays to post
major headline news events in their brokerage offices to enable their sales
force to stay up-to-date on events affecting general market conditions and
specific stocks. Banks and other financial institutions also use information
displays to advertise product offerings to consumers. The Indoor division has a
product line of advanced last sale price displays, tri-color LED tickers and
graphic displays.
The government/private sector includes applications found in major corporations,
public utilities and government agencies for the display of real-time, critical
data in command/control centers, data centers, help desks, visitor centers,
lobbies, inbound/outbound telemarketing centers, retail applications to attract
customers and for employee communications. Electronic displays have found
acceptance in applications for the healthcare industry such as outpatient
pharmacies, military hospitals and HMOs to automatically post patient names when
prescriptions are ready for pick up. Theatres use electronic displays to post
current box office and ticket information, directional information and promote
concession sales. Information displays are consistently used in airports, bus
terminals and train stations to post arrival and departure, gate and baggage
claim information, all of which help to guide passengers through these
facilities.
The gaming sector includes casinos, Indian gaming establishments and racetracks.
These establishments generally use large information displays to post odds for
race and sporting events and to display timely information such as results,
track conditions, jockey weights and scratches. Casinos and racetracks also use
electronic displays throughout their facilities to advertise to and attract
gaming patrons. Equipment for the Indoor display segment generally has a
lead-time of 30 to 120 days depending on the size and type of equipment ordered
and material availability.
Outdoor Division: The outdoor electronic display market is even more diverse
than the Indoor division. Displays are being used by schools, sports stadiums,
sports venues, gas stations, highway departments and outdoor advertisers, such
as digital billboards, attempting to capture the attention of passers-by. The
Outdoor division has a product line of LED message centers, scoreboards and
video displays available in monochrome and full color. The Company has utilized
its strong position in the Indoor display market combined with several
acquisitions to enhance its presence in the Outdoor display market. Outdoor
displays are installed in amusement parks, entertainment facilities, high
schools, college sports stadiums, city park and recreational facilities,
churches, racetracks, military installations, automobile dealerships, banks and
other financial institutions. This division generally sells through dealers and
distributors. Equipment for the Outdoor display segment generally has a
lead-time of 10 to 120 days depending on the size and type of equipment ordered
and material availability.
Sales Order Backlog (excluding leases): The amount of sales order backlog at
December 31, 2009 and 2008 was approximately $1.6 million and $3.9 million,
respectively. The December 31, 2009 backlog is expected to be recognized in
2010. These amounts include only the sale of products; they do not include new
lease orders or renewals of existing lease agreements that may be presently
in-house.
2
ENGINEERING AND PRODUCT DEVELOPMENT
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The Company's ability to compete and operate successfully depends on its ability
to anticipate and respond to the changing technological and product needs of its
customers, among other factors. For this reason, the Company continually
develops enhancements to its existing product line and examines and tests new
display technologies.
During 2009 the Company's Outdoor display division continued to enhance
CaptiVue(R), a line of outdoor full matrix LED message centers. CaptiVue offers
greater design flexibility, modularity and increased clarity at an economical
price. A new control system called ProWrite was introduced to replace the
current Proline and IseWrite controls. ProWrite provides greater functionality
and ease of use for the customer. Recent enhancements include the continual
update of the wireless scoreboard control that incorporates the newer generation
radio systems. In parallel with the new radio system, the Company continues to
update the MiScore(TM) and MiTime(TM) handheld, simple to operate controllers.
The Company supplements its LED product line with third-party LED products to
remain competitive in price, product offerings and performance. The Company
offers the product of a leading provider of advanced LED video display products
that we distribute to the markets we serve. Trans-Lux is marketing these
products for both indoor and outdoor applications under the name
CaptiVision(TM). CaptiVision jumbo video monitors have the capability to
deliver brilliant full motion video and animation in billions of colors to
corporate, financial and entertainment markets where the presentation of
multimedia, live-action, advertising and promotions is of major importance.
The Company continued enhancements to its line of economical full-matrix indoor
graphic display products. GraphixWall(R) fixed size displays and GraphixMax(TM)
tileable displays for larger custom sizes feature versatile functionality at a
lower cost, presenting line art, graphics and variable-sized text. Applications
for GraphixWall and GraphixMax displays include flight information, baggage
claim and way-finding at airports, automatic call directories at contact
centers, order processing support at manufacturing facilities and for posting
prices and promoting products in financial and retail environments. Recent
enhancements include a full color version for additional color flexibility and
impact.
Continued development of indoor products includes new monochrome and tri-color
ticker displays utilizing improved LED display technology; curved and flexible
displays; greater integration of blue LEDs to provide full color text and
graphic displays.
As part of its ongoing development efforts, the Company seeks to package certain
products for specific market segments as well as continually tracking emerging
technologies that can enhance its products. Full color, live video and digital
input technologies continue to be enhanced.
The Company maintains a staff of 14 people who are responsible for product
development and support. The engineering, product enhancement and development
efforts are supplemented by outside independent engineering consulting
organizations where required. Engineering expense and product enhancement and
development amounted to $1.5 million and $2.0 million in 2009 and 2008,
respectively.
MARKETING AND DISTRIBUTION
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The Company markets its indoor and outdoor electronic information display
products in the U.S. and Canada using a combination of distribution channels,
including 13 direct sales representatives, two telemarketers and a network of
independent dealers and distributors. By working with software vendors and
using the internet to expand the quality and quantity of multimedia content that
can be delivered to our electronic displays, we are able to offer customers
relevant, timely information, content management software and display hardware
in the form of turnkey display communications packages.
The Company employs a number of different marketing techniques to attract new
customers, including direct marketing efforts by its sales force to known and
potential users of information displays; internet marketing; advertising in
industry publications; and exhibiting at approximately 9 domestic and
international trade shows annually.
Internationally, the Company uses a combination of internal sales people and
independent distributors to market its products outside the U.S. The Company
has existing relationships with approximately 18 independent distributors
worldwide covering Europe, the Middle East, South and Central America, Africa,
the Far East and Australia. Foreign sales have represented less than 10% of
total revenues in the past two years.
3
Headquartered in Norwalk, Connecticut, the Company has sales and service offices
in Des Moines, Iowa; Burlington, Ontario; and Brampton, Ontario; as well as
approximately 18 satellite offices in the U.S.
The Company's equipment is both leased and sold. A significant portion of the
electronic information display revenues is from equipment rentals with current
lease terms ranging from 30 days to ten years.
The Company's revenues in 2009 and 2008 did not include any single customer that
accounted for more than 10% of total revenues.
MANUFACTURING AND OPERATIONS
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The Company's production facilities are located in Stratford, Connecticut and
Des Moines, Iowa. The Company relocated from its facility in Norwalk,
Connecticut to Stratford, Connecticut during 2008. The production facilities
consist principally of the manufacturing, assembly and testing of display units
and related components. The Company performs most subassembly and all final
assembly of its products.
All product lines are design engineered by the Company and controlled throughout
the manufacturing process. The Company has the ability to produce very large
sheet metal fabrications, cable assemblies and surface mount and through-hole
designed assemblies. Some of the subassembly processes are outsourced. The
Company's production of many of the subassemblies and all of the final
assemblies gives the Company the control needed for on-time delivery to its
customers.
The Company has the ability to rapidly modify its product lines. The Company's
displays are designed with flexibility in mind, enabling the Company to
customize its displays to meet different applications with a minimum of
lead-time. The Company designs certain of its materials to match components
furnished by suppliers. If such suppliers were unable to provide the Company
with those components, the Company would have to contract with other suppliers
to obtain replacement sources. Such replacement might result in engineering
design changes, as well as delays in obtaining such replacement components. The
Company believes it maintains suitable inventory and has contracts providing for
delivery of sufficient quantities of such components to meet its needs. The
Company also believes there presently are other qualified vendors of these
components. The Company does not acquire significant amount of purchases
directly from foreign suppliers, but certain key components such as the LEDs and
LED modules are manufactured by foreign sources. The Company's products are
third-party certified as complying with applicable safety, electromagnetic
emissions and susceptibility requirements worldwide.
SERVICE AND SUPPORT
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The Company emphasizes the quality and reliability of its products and the
ability of its field service personnel and third-party agents to provide timely
and expert service to the Company's rental equipment and maintenance bases and
other types of customer-owned equipment. The Company believes that the quality
and timeliness of its on-site service personnel are important components in the
Company's ongoing and future success. The Company provides turnkey installation
and support for the products it leases and sells in the United States and
Canada. The Company provides training to end-users and provides ongoing support
to users who have questions regarding operating procedures, equipment problems
or other issues. The Company provides installation and service to those who
purchase and lease equipment. The Company's dealers and distributors offer
support for the products they sell in the market segment they cover.
Personnel based in regional and satellite service locations throughout the
United States and Canada provide high quality and timely on-site service for the
installed rental equipment and maintenance base and other types of
customer-owned equipment. Purchasers or lessees of the Company's larger
products, such as financial exchanges, casinos and sports stadiums, often retain
the Company to provide on-site service through the deployment of a service
technician who is on-site daily for scheduled events. The Company operates its
National Technical Services and Repair Center from its Des Moines, Iowa
facility. Equipment repairs are performed in Des Moines and service technicians
are dispatched nationwide from the Des Moines facility. The Company's field
service is augmented by various service companies in the United States, Canada
and overseas. From time to time the Company uses various third-party service
agents to install, service and/or assist in the service of certain displays for
reasons that include geographic area, size and height of displays.
4
COMPETITION
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The Company's offers of short and long-term leases to customers and its
nationwide sales, service and installation capabilities are major competitive
advantages in the display business. The Company believes that it is the largest
supplier of large-scale stock, commodity, sports and race book gaming displays
in the United States, as well as one of the larger outdoor electronic display
and service organizations in the country.
The Company competes with a number of competitors, both larger and smaller than
itself, with products based on different forms of technology. There are several
companies whose current products utilize similar technology and who possess the
resources necessary to develop competitive and more sophisticated products in
the future.
REAL ESTATE RENTAL OPERATIONS
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The Company owns an income-producing real estate property located in Santa Fe,
New Mexico, which currently has an 87% occupancy rate. This property has been
placed on the market for sale because it does not directly relate to our core
business. The Company also owns land in Silver City, New Mexico, which has been
placed on the market for sale because it does not directly relate to our core
business.
INTELLECTUAL PROPERTY
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The Company owns or licenses a number of patents and holds a number of
trademarks for its display equipment and considers such patents, licenses and
trademarks important to its business.
EMPLOYEES
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The Company has approximately 189 employees as of March 18, 2010. Approximately
22% of the employees are unionized. The Company believes its employee relations
are good.
ITEM 1A. RISK FACTORS
THERE IS SUBSTANTIAL DOUBT ABOUT OUR ABILITY TO CONTINUE AS A GOING CONCERN
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Our independent registered public accounting firm has issued an opinion on our
consolidated financial statements that states that the consolidated financial
statements were prepared assuming we will continue as a going concern and
further states that the continuing losses and uncertainty regarding the
inability to make the required sinking fund payment on the Debentures and the
interest payment on the Notes and the potential of the senior lender
accelerating the payments on the Credit Agreement due to an event of default on
the Debentures and Notes raises substantial doubt about our ability to continue
as a going concern. As a result, if the Company is unable to (i) obtain
additional liquidity for working capital, (ii) make the required sinking fund
payment on its Debentures, (iii) make the required interest payment on its
Notes, and (iv) make the required payments under the Credit Agreement when due,
there would be a significant adverse impact on our financial position and
operating results of the Company.
THE CURRENT GLOBAL ECONOMIC CRISIS HAS NEGATIVELY IMPACTED OUR BUSINESS
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The current continuing global economic crisis has adversely affected our
customers and our suppliers and businesses such as ours. As a result, it has
had a variety of negative effects on the Company such as reduction in revenues,
increased costs, lower gross margin percentages, increased allowances for
uncollectable accounts receivable and/or write-offs of accounts receivable,
impaired our ability to access credit markets and finance our operations and
could otherwise have material adverse effects on our business, results of
operations, financial condition and cash flows.
5
OPERATING LOSSES
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The Company has incurred operating losses for the past several years. During
the years 2009 and 2008, the Company incurred losses from continuing operations
of $8.8 million and $4.6 million, respectively, which includes a $2.7 million
write off in the second quarter of 2009 of a note receivable related to the
former Norwalk, Connecticut facility the Company sold in 2004. The Company is
dependent on future operating performance in order to generate sufficient cash
flows in order to continue to run its businesses. Future operating performance
is dependent on general economic conditions, as well as financial,
competitive and other factors beyond our control. As a result, we have
experienced a decline in our sales and lease bases. There can be no assurance
that we will be able to increase our revenue sufficiently to generate cash to
fund current operations.
DEFAULT ON INDEBTEDNESS
-----------------------
The Company has $10.1 million of Notes outstanding, which are no longer
convertible into common shares. Interest is payable semi-annually and may be
redeemed, in whole or in part, at par. The Company has not remitted the $0.4
million March 1, 2010 semi-annual interest payment to the trustee, which has
continued for 30 days. The non-payment constitutes an event of default under
the Indenture governing the Notes and the trustee, by notice to the Company, or
the holders of 25% of the principal outstanding, by notice to the Company and
the trustee, may declare the outstanding principal plus interest due and payable
immediately. When such notice is received by the Company, no payment shall be
made by the Company to the holders or trustee until the earlier of such
non-payment event of default is cured or waived or 179 days since receipt by the
trustee of notice of such event, unless the holder of Senior Indebtedness has
accelerated due date thereof. If the holder of Senior Indebtedness accelerates
the due date at any time, then no payment may be made until the default is cured
or waived. At December 31, 2009, the total amount outstanding is classified as
current portion of long-term debt.
In addition, the Company has $1.1 million of Debentures outstanding. The
Company has not remitted the December 1, 2009 annual sinking fund payment of
$105,700. The non-payment constitutes an Event of Default under the Indenture
governing the Debentures and the trustee, by notice to the Company, or the
holders of 25% of the principal outstanding, by notice to the Company and the
trustee, may declare the outstanding principal plus interest due and payable
immediately. During the continuation of any event which, with notice or lapse
of time or both, would constitute a default under any agreement under which
Senior Indebtedness is issued, if the effect of such default is to cause, or
permit the holder of such Senior Indebtedness to become due prior to its stated
maturity, no payment (including any required sinking fund payment) of principal,
premium or interest shall be made on the Debentures unless and until such
default shall have been remedied, if written notice of such default has been
given to the trustee by the Company or the holder of Senior Indebtedness. The
failure to make the sinking fund payment is an event of default under the Credit
Agreement since it involves indebtedness over $500,000 and no payment can be
made to such trustee or the holders at this time as such event has not been
waived. At December 31, 2009, the total amount outstanding is classified as
current portion of long-term debt.
In the event that the holders of the Notes or Debentures or trustees declare a
default and begins to exercise any of their rights and remedies in connection
with the non-payment defaults, this shall constitute a separate and distinct
event of default and the senior lender may exercise any and all rights and
remedies it may have. As a result, at December 31, 2009 the total amount
outstanding is classified as current portion of long-term debt. The amounts
outstanding under the Credit Agreement are collateralized by all of the Display
division assets.
PENSION PLAN WAIVER FILED
-------------------------
On March 12, 2010, the Company submitted to the Internal Revenue Service a
request for waiver of the minimum funding standard for its defined benefit plan.
The waiver request was submitted as a result of the current economic climate and
the current business hardship that the Company is experiencing. The waiver, if
granted, will defer payment of $285,000 of the minimum funding standard for the
2009 plan year. If the waiver is not granted, the Pension Benefit Guaranty
Corporation and the Internal Revenue Service have various enforcement remedies
they can implement to protect the participant's benefits, such as termination of
the plan or require the Company to make the unpaid contributions. At this time,
the Company is anticipating making its required contributions for the 2010 plan
year; however there is no assurance that the Company will be able to make all
payments. The senior lender has waived the default of non-payment of certain
pension plan contributions. In the event that any government agency takes any
enforcement action or otherwise exercises any rights and remedies it may have,
this shall constitute a separate and distinct event of default and the senior
lender may exercise any and all rights and remedies it may have.
6
LEVERAGE
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As of December 31, 2009, the Company's total long-term debt (including current
portion) was $19.2 million. We expect we will incur indebtedness in connection
with new rental equipment leases and working capital. Our ability to satisfy
our obligations will be dependent upon our future performance, which is subject
to prevailing economic conditions and financial, business and other factors,
including factors beyond our control. There can be no assurance that our
operating cash flows will be sufficient to meet our long-term debt service
requirements or that we will be able to refinance indebtedness at maturity. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources."
RELIANCE ON KEY SUPPLIERS
-------------------------
We design certain of our materials to match components furnished by suppliers.
If such suppliers were unable or unwilling to provide us with those components,
we would have to contract with other suppliers to obtain replacement sources.
In particular, we purchase almost all of the LED module blocks used in our
electronic information displays from three suppliers. We do not have long-term
supply contracts with these suppliers. A change in suppliers of either LED
module blocks or certain other components may result in engineering design
changes, as well as delays in obtaining such replacement components. We believe
there are presently other qualified vendors of these components. Our inability
to obtain sufficient quantities of certain components as required, or to develop
alternative sources at acceptable prices and within a reasonable time, could
result in delays or reductions in product shipments that could have a materially
adverse effect on our business and results of operations.
COMPETITION
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Our electronic information displays compete with a number of competitors, both
larger and smaller than us, and with products based on different forms of
technology. In addition, there are several companies whose current products
utilize similar technology and who possess the resources to develop competitive
and more sophisticated products in the future. Our success is somewhat
dependent upon our ability to anticipate technological changes in the industry
and to successfully identify, obtain, develop and market new products that
satisfy evolving industry requirements. There can be no assurance that
competitors will not market new products which have perceived advantages over
our products or which, because of pricing strategies, render the products
currently sold by us less marketable or otherwise adversely affect our operating
margins.
NATURE OF LEASING AND MAINTENANCE REVENUES
------------------------------------------
We derive a substantial percentage of our revenues from the leasing of our
electronic information displays, generally pursuant to leases that have an
average term of one to five years. Consequently, our future success is at least
partly dependent on our ability to obtain the renewal of existing leases or to
enter into new leases as existing leases expire. We also derive a significant
percentage of our revenues from maintenance agreements relating to our display
products. The average term of such agreements is generally one to five years.
A portion of the maintenance agreements is cancelable upon 30 days notice.
There can be no assurance that we will be successful in obtaining renewal of
existing leases or maintenance agreements, obtaining replacement leases or
realizing the value of assets currently under leases that are not renewed. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Results of Operations."
EFFECT OF CERTAIN ANTI-TAKEOVER PROVISIONS AND CONTROL BY EXISTING STOCKHOLDERS
-------------------------------------------------------------------------------
Our Restated Certificate of Incorporation contains certain provisions that could
have the effect of making it more difficult for a third party to acquire, or of
discouraging a third party from attempting to acquire control of us. Such
provisions could limit the price that certain investors might be willing to pay
in the future for shares of our Common Stock, thus making it less likely that a
stockholder will receive a premium on any sale of shares. Our Board of
Directors is divided into three classes, each of which serves for a staggered
three-year term, making it more difficult for a third party to gain control of
our Board. Our Restated Certificate of Incorporation also has a provision that
requires a four-fifths vote on any merger, consolidation or sale of assets with
or to an "Interested Person" or "Acquiring Person."
Additionally, we are authorized to issue 500,000 shares of Preferred Stock
containing such rights, preferences, privileges and
7
restrictions as may be fixed by our Board of Directors, which may adversely
affect the voting power or other rights of the holders of Common Stock or delay,
defer or prevent a change in control of the Company, or discourage bids for the
Common Stock at a premium over its market price or otherwise adversely affect
the market price of the Common Stock.
As of December 31, 2009, 13 stockholders who are executive officers and/or
directors of the Company beneficially own approximately 2.22% of the voting
power.
LIMITED TRADING VOLUME AND VOLATILITY OF STOCK PRICE
----------------------------------------------------
Our Common Stock is not widely held and the volume of trading has been
relatively low and sporadic. Accordingly, the Common Stock is subject to
increased price volatility and reduced liquidity. There can be no assurance a
more active trading market for the Common Stock will develop or be sustained if
it does develop. The limited public float of our Common Stock could cause the
market price for the Common Stock to fluctuate substantially. In addition,
stock markets have experienced wide price and volume fluctuations in recent
periods and these fluctuations often have been unrelated to the operating
performance of the specific companies affected. Any of these factors could
adversely affect the market price of the Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
-------------------------------
Future sales of Common Stock in the public market by current stockholders of the
Company could adversely affect the market price for the Common Stock. 54,588
shares of Common Stock may be sold in the public market by executive officers
and directors, subject to the limitations contained in Rule 144 under the
Securities Act of 1933, as amended. Sales of substantial amounts of the shares
of Common Stock in the public market, or even the potential for such sales,
could adversely affect the prevailing market price of our Common Stock. On
December 11, 2009, the stockholders approved an amendment to the Corporation's
Certificate of Incorporation to provide for the automatic conversion of each
share of Class B Stock into 1.3 shares of Common Stock as provided in a
Settlement Agreement approved by the United States District Court for the
Southern District of New York.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
In June 2008, the Company relocated its headquarters and principal executive
offices to a leased facility at 26 Pearl Street, Norwalk, Connecticut, which is
used for administration and sales, and relocated its engineering, manufacturing
and assembly of its indoor display products to a leased facility in Stratford,
Connecticut. Prior to relocating, the Company was located at 110 Richards
Avenue, Norwalk, Connecticut. The Company owns a facility in Des Moines, Iowa
where its outdoor operations are maintained.
In addition, the Company owns an income-producing real estate property in Santa
Fe, New Mexico and land in Silver City, New Mexico. Both of these properties
have been placed on the market for sale because they do not directly relate to
our core business. The Company leases seven other premises throughout North
America for use as sales, service and/or administrative operations. The
aggregate rental expense was $629,000 and $773,000 for the years ended December
31, 2009 and 2008, respectively.
ITEM 3. 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 that it
believes individually and in the aggregate will not have a material adverse
effect on the consolidated financial position or operations of the Company. In
addition, the Company and four of its former and current directors were party to
a legal proceeding entitled Gabelli Funds, LLC v. Brandt et al, 09 Civ. 0830
(KMK), who were then beneficial owners of forty-three percent of the common
stock of the Company. The proceeding was settled and a Notice of
8
Settlement was issued to the stockholders and certain actions approved at the
December 11, 2009 annual meeting of stockholders, which finalized the
settlement. It did not have an adverse impact on the consolidated financial
position or operations of the Company.
ITEM 4. (RESERVED)
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
(a) The Company's Common Stock is traded on the NYSE Amex under the symbol
"TLX." Sales prices are set forth in (d) below.
(b) The Company had approximately 638 holders of record of its Common Stock
as of April 14, 2010.
(c) The Board of Directors did not declare any cash dividends for Common
Stock and Class B Stock during 2009 in order to conserve cash and pay
down debt. Management and the Board of Directors will continue to
review payment of quarterly cash dividends.
(d) The range of Common Stock prices on the NYSE Amex are set forth in the
quarterly financial data table below in Item 6(b).
(e) The Company did not purchase any of its equity securities during any
month of the fourth fiscal quarter of 2009.
ITEM 6. SELECTED FINANCIAL DATA
(a) Not applicable.
9
(b) The following table sets forth quarterly financial data for years ended
December 31, 2009 and 2008:
---------------------------------------------------------------------------------------------------------
In thousands, except per share data Quarters ended March 31 June 30 September 30 December 31
---------------------------------------------------------------------------------------------------------
2009
Revenues $ 7,769 $ 7,443 $ 8,006 $ 5,330
Gross profit 1,646 1,637 1,859 697
Net loss from continuing operations (1,154) (3,805) (782) (3,054)
Loss per share continuing operations (0.50) (1.65) (0.34) (1.31)
Cash dividends per share:
Common stock - - - -
Class B stock - - - -
Range of Common Stock prices on the NYSE Amex $0.20-0.90 $0.24-2.31 $0.78-3.50 $0.30-1.49
---------------------------------------------------------------------------------------------------------
2008
Revenues $ 8,000 $ 10,417 $ 10,844 $ 7,422
Gross profit 2,003 2,764 2,423 1,306
Loss from continuing operations (1,186) (1,719) (363) (1,348)
Income (loss) from discontinued operations 159 (3,636) 7 44
Net loss (1,027) (5,355) (356) (1,304)
Loss per share continuing operations (0.52) (0.74) (0.16) (0.58)
Earnings (loss) per share discontinued operations 0.07 (1.58) 0.01 0.01
Total loss per share (0.45) (2.32) (0.15) (0.57)
Cash dividends per share:
Common stock - - - -
Class B stock - - - -
Range of Common Stock prices on the NYSE Amex $3.00-6.70 $3.15-4.15 $1.80-6.10 $0.50-2.65
---------------------------------------------------------------------------------------------------------
10
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview
Trans-Lux is a full service provider of integrated multimedia systems for
today's communications environments. The essential elements of these systems
are the real-time, programmable electronic information displays we manufacture,
distribute and service. Designed to meet the evolving communications needs of
both the indoor and outdoor markets, these displays are used primarily in
applications for the financial, banking, gaming, corporate, advertising,
transportation, entertainment and sports industries. In addition to its display
business, the Company owns and operates an income producing real estate rental
property. The Company operates in three reportable segments: Indoor display,
Outdoor display and Real estate rental.
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 rental property.
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 3 - Discontinued Operations to the consolidated financial statements.
The following discussion and analysis of financial condition and results of
operations relates only to continuing operations.
Going Concern
Our independent registered public accounting firm has issued an opinion on our
consolidated financial statements that states that the consolidated financial
statements were prepared assuming we will continue as a going concern and
further states that the continuing losses and uncertainty regarding the
inability to make the required sinking fund payment on the Debentures and the
interest payment on the Notes and the potential of the senior lender
accelerating the payments on the Credit Agreement debt to an event of default on
the Debentures and Notes raises substantial doubt about our ability to continue
as a going concern. As a result, if the Company is unable to (i) obtain
additional liquidity for working capital, (ii) make the required sinking fund
payment on its Debentures, (iii) make the required interest payment on its
Notes, and (iv) make the required payments under the Credit Agreement when due,
there would be a significant adverse impact on the financial position and
operating results of the Company.
Critical Accounting Policies and Estimates
Management's Discussion and Analysis of Financial Condition and Results of
Operations discusses the Company's consolidated financial statements, which have
been prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of these financial statements
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. On an ongoing basis,
management evaluates its estimates and judgments, including those related to
percentage of completion, uncollectable accounts receivable, slow-moving and
obsolete inventories, goodwill and intangible assets, income taxes, warranty
obligations, pension plan obligations, contingencies and litigation. Management
bases its estimates and judgments on historical experience and on various other
factors that are believed to be reasonable under the circumstances, the results
of which form the basis for making judgments about the carrying values of assets
and liabilities that are not readily apparent from other sources. Actual
results may differ from these estimates under different assumptions or
conditions. Senior management has discussed the development and selection of
these accounting estimates and the related disclosures with the audit committee
of the Board of Directors.
11
Management believes the following critical accounting policies, among others,
involve its more significant judgments and estimates used in the preparation of
its consolidated financial statements:
Percentage of Completion: The Company recognizes revenue on long-term equipment
sales contracts using the percentage of completion method based on estimated
incurred costs to the estimated total cost for each contract. Should actual
total cost be different from estimated total cost, an addition or a reduction to
cost of sales may be required.
Uncollectable Accounts Receivable: The Company maintains allowances for
uncollectable accounts receivable for estimated losses resulting from the
inability of its customers to make required payments. Should non-payment by
customers differ from the Company's estimates, a revision to increase or
decrease the allowance for uncollectable accounts receivable may be required.
Slow-Moving and Obsolete Inventories: The Company writes down its inventory for
estimated obsolescence equal to the difference between the carrying value of the
inventory and the estimated market value based upon assumptions about future
demand and market conditions. If actual future demand or market conditions are
less favorable than those projected by management, additional inventory write
downs may be required.
Goodwill and Intangible Assets: The Company evaluates goodwill and intangible
assets for possible impairment annually for goodwill and when events or changes
in circumstances indicate that the carrying amount of such assets may not be
recoverable for other intangible assets. The Company uses the fair market value
approach to test for impairment of its goodwill, and considers other factors
including economic trends and our market capitalization relative to net book
value. The fair market valuations used for the impairment tests can be affected
by changes in the estimates of revenue multiples and the discount rate used in
the calculations. The October 1, 2009 annual review indicated no impairment of
goodwill. In 2008, the Company determined that all of the $194,000 of goodwill
associated with the commercial outdoor display business was impaired and wrote
it off. The impairment was predominantly due to economic trends. Goodwill in
our other businesses was not impaired. Future adverse changes in market
conditions or poor operating results of underlying assets could result in an
inability to recover the carrying value of the assets, thereby possibly
requiring an impairment charge in the future.
Income Taxes: The Company records a valuation allowance to reduce its deferred
tax assets to the amount that it believes is more likely than not to be
realized. While the Company has considered future taxable income and ongoing
feasible tax planning strategies in assessing the need for the valuation
allowance, in the event the Company were to determine that it would not be able
to realize all or part of its net deferred tax assets in the future, an
adjustment to the deferred tax assets would be charged to income in the period
such determination was made. Likewise, should the Company determine that it
would be able to realize its deferred tax assets in the future in excess of its
net recorded amount, an adjustment to the deferred tax assets would increase
income in the period such determination was made.
Warranty Obligations: The Company provides for the estimated cost of product
warranties at the time revenue is recognized. While the Company engages in
product quality programs and processes, including evaluating the quality of the
component suppliers, the warranty obligation is affected by product failure
rates. Should actual product failure rates differ from the Company's estimates,
revisions to increase or decrease the estimated warranty liability may be
required.
Pension Plan Obligations: The Company is required to make estimates and
assumptions to determine the obligation of our pension benefit plan, which
include investment returns, rates of salary increases and discount rates.
During 2009 and 2008, the Company recorded an after tax benefit in unrecognized
pension liability in other comprehensive loss of $1.1 million and $1.5 million,
respectively. Estimates and assumptions are reviewed annually with the
assistance of external actuarial professionals and adjusted as circumstances
change. At December 31, 2009, plan assets were invested 40.4% in guaranteed
investment contracts, 49.1% in equity and index funds, 1.9% in bonds and 8.6% in
money market funds. The investment return assumption takes the asset mix into
consideration. The assumed discount rate reflects the rate at which the pension
benefits could be settled. At December 31, 2009, the weighted average rates
used for the computation of benefit plan liabilities were: investment returns,
8.00% and discount rate, 6.00%. Net periodic cost for 2010 will be based on the
December 31, 2009 valuation. The defined benefit plan periodic cost was
$725,000 in 2009 and $291,000 in 2008. The 2009 net periodic pension cost
includes settlement/curtailment charges of $303,000. See Note 16 - Pension Plan
to the consolidated financial statements. At December 31, 2009, assuming no
change in the other assumptions, a one-percentage point change in investment
returns would affect the net periodic cost by $49,000 and a one-percentage point
change in the discount rate would affect the net periodic cost by $116,000. As
of December 31, 2003, the benefit service under the defined benefit plan had
been frozen and, accordingly, there is no service cost for each of the two years
ended December 31, 2009. In
12
March 2010 the Company submitted, to the Internal Revenue Service, a request for
waiver of the minimum funding standard for its defined benefit plan. The waiver
request was submitted as a result of the current economic climate and the
current business hardship that the Company is experiencing. The waiver, if
granted, will defer payment of the minimum funding standard for the 2009 plan
year. The Company has not made $242,000 of payment contributions in 2009. At
this time, the Company is anticipating to make its required contributions for
the 2010 plan year; however there is no assurance that we will be able to make
all payments.
Results of Operations
2009 Compared to 2008
Total revenues for the year ended December 31, 2009 decreased 22.2% to $28.5
million from $36.7 million for the year ended December 31, 2008, principally due
to decreases in both the Outdoor display and Indoor display sales revenues.
Indoor display revenues decreased $3.3 million or 29.0%. Of this decrease,
Indoor display equipment sales decreased $2.5 million or 54.5%, primarily due to
a decrease in sales from the financial services market. Indoor display
equipment rentals and maintenance revenues decreased $790,000 or 11.6%,
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 display sales and rentals and maintenance revenues.
Outdoor display revenues decreased $4.8 million or 19.2%. Of this decrease,
Outdoor display equipment sales decreased $4.3 million or 20.9%, in both the
catalog sports and commercial markets. Outdoor display equipment rentals and
maintenance revenues decreased $451,000 or 10.7%, primarily due to the continued
expected revenue decline in the older Outdoor display equipment rental and
maintenance bases acquired in the early 1990s. Also, the global recession has
negatively impacted the Outdoor sales and rentals and maintenance revenues as
well.
Real estate rental revenues decreased $31,000 or 11.2%, primarily due to the
termination of the sub-leases in June 2008 at our former Norwalk, Connecticut
location.
Total operating loss for the year ended December 31, 2009 was $259,000 compared
to an operating income of $1.4 million for the year ended December 31, 2008,
principally due to the decline in revenues, offset by an $806,000 decrease in
general and administrative expenses.
Indoor display operating loss increased to $1.8 million in 2009 compared to a
loss of $505,000 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 90.4% of related revenues in 2009 compared to
80.3% 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 $296,000 decrease in field service costs and a $455,000 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 $1.1 million or 43.4%, primarily due to the
decrease in revenues. Indoor display general and administrative expenses
decreased $175,000 or 6.3%, primarily due to a reduction in payroll and benefits
and related expenses, offset by a $603,000 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 $1.3 million.
Outdoor display operating income decreased to $1.4 million in 2009 compared to
$1.7 million in 2008, a decrease of $362,000 or 20.7%, primarily as a result of
the decreases in revenues, offset by a decrease in general and administrative
expenses. The cost of Outdoor displays represented 75.8% of related revenues in
2009 compared to 75.7% in 2008. Outdoor displays cost of equipment sales
decreased $3.2 million or 20.2%, principally due to the decrease in volume and
the sales mix. Outdoor displays cost of equipment rentals and maintenance
decreased $334,000 or 12.1%, primarily due to a $254,000 decrease in field
service costs to maintain the equipment and an $80,000 decrease in depreciation
expense. Outdoor display general and administrative expenses decreased $636,000
or 15.4%, primarily due to a reduction in selling payroll and benefits
13
and related expenses, offset by a $126,000 increase 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 and
union personnel had agreed to defer payment of their increase for ten months,
resulting in an annual cash savings of approximately $1.2 million.
Real estate rental operating income increased $7,000 or 4.5%, primarily due to
the decrease in expenses as a result of the termination of the sub-leases in
June 2008 at our former Norwalk, Connecticut location. The cost of Real estate
rental represented 24.9% of related revenues in 2009 compared to 37.7% in 2008.
Real estate rental general and administrative expenses remained level.
Corporate general and administrative expenses increased $987,000 or 31.8%. The
2009 corporate general and administrative expenses included a $528,000 negative
effect in the Canadian currency exchange, while 2008 included a $569,000 gain in
the Canadian currency exchange, a difference of $1.1 million. The 2009
corporate general and administrative expenses also included a $218,000 increase
in legal costs in connection with a lawsuit that settled in 2009 and an $826,000
charge in benefit costs related to a management retirement and
settlement/curtailment charges in its defined benefit pension plan. Due to
current economic conditions, all personnel salaries and consulting fees were
reduced, resulting in an annual savings of approximately $0.3 million. The
Company continues to monitor and reduce certain overhead costs and recorded a
decrease in facility expenses, payroll and related benefits such as fica and
medical costs.
Net interest expense increased $166,000 or 10.9%. Interest income decreased
$144,000, primarily due to the final interest income recorded in 2008 on the
remaining balance of the sale of our former Norwalk, Connecticut headquarters,
offset by an increase in interest expense due to an increase in the interest
rates of variable rate debt offset by a reduction in total debt.
The goodwill impairment in 2008 is a charge relating to a 1995 acquisition in
the outdoor commercial business. The Company's goodwill evaluation indicated
impairment as of October 1, 2008.
Other expenses represents a $2.7 million write off of a note receivable related
to the former Norwalk facility the Company sold in 2004. See Note 10 - Other
Receivable. The 2008 Other expenses primarily includes an $81,000 loss on
investments that were sold in January 2009.
The effective tax rate for the years ended December 31, 2009 and 2008 was 0.6%
and 39.5%, respectively. The 2009 effective tax rate was affected by the $2.9
million valuation allowance on its deferred tax assets as a result of reporting
pre-tax losses. The 2008 effective tax rate was affected by the $2.7 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, offset by income tax expense related to
the Company's Canadian subsidiary.
Liquidity and Capital Resources
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company has incurred significant
recurring losses from continuing operations over the past several years and has
a significant working capital deficiency. The Company had a loss from
continuing operations of $8.8 million in 2009, which includes a $2.7 million
write off in the second quarter of 2009 of a note receivable related to the
former Norwalk, Connecticut facility the Company sold in 2004, and had a working
capital deficiency of $16.0 million as of December 31, 2009. Further as
discussed in Note 13 - Long-Term Debt, the Company did not make the required
sinking fund payment of $105,700 on its 9 1/2% Subordinated debentures (the
"Debentures"), which was due on December 1, 2009, and did not make its interest
payment of $417,800 on its 8 1/4% Limited convertible senior subordinated notes
(the "Notes"), which was due on March 1, 2010. Under the terms of the indenture
agreements that govern the Debentures and Notes, the non-payments constitute
events of default; accordingly, the trustees or the holders of 25% of the
outstanding Debentures and Notes have the right to declare the outstanding
principal and interest due and payable immediately. In the event that such
notice is received by the Company, the bank has the right to demand payment on
outstanding amounts on the Credit Agreement. As such, all outstanding debt has
been classified as current in the accompanying balance sheet. These matters
raise substantial doubt about the Company's ability to continue as a going
concern. See "Risk Factors - There is substantial doubt about our ability to
continue as a going concern" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
14
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 the redemption 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, based on eligible
accounts receivable and inventory, at a variable rate of interest of Prime plus
2.00%, with a floor of 6.00% (6.00% at December 31, 2009), which was due to
mature April 1, 2010. Subsequent to year-end, the maturity of the Credit
Agreement was extended to May 1, 2011. As of December 31, 2009, the Company has
drawn $4.0 million against the revolving loan facility, of which $0.5 was
available for additional borrowing. 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 of not more than 50% and a $1.0 million cap on
capital expenditures. As of December 31, 2009, the Company was in compliance
with the forgoing financial covenants, but was not in compliance with the fixed
charge coverage ratio of 1.25 to 1.0 (0.45 to 1.0 at December 31, 2009), the
leverage ratio of not more than 2.0 to 1.0 (3.5 to 1.0 at December 31, 2009),
and maintaining a tangible net worth of not less than $20.0 million ($19.9
million at December 31, 2009), which the senior lender waived subsequent to
year-end. In addition, the senior lender has waived the default on the Notes
and Debentures. In the event that the holders of the Notes or Debentures or the
trustees declare a default and begins to exercise any of their rights and
remedies in connection with the non-payment defaults, this shall constitute a
separate and distinct event of default and the senior lender may exercise any
and all rights and remedies it may have. As a result, at December 31, 2009 the
total amount outstanding is classified as current portion of long-term debt. In
addition, the senior lender has waived the default of non-payment of certain
pension plan contributions. In the event that any government agency takes any
enforcement action or otherwise exercises any rights and remedies it may have,
this shall constitute a separate and distinct event of default and the senior
lender may exercise any and all rights and remedies it may have. 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 will be difficult to accomplish within the
next twelve months given the current global credit markets, economic conditions
and operating results of the Company. While management hopes it can be
successful in the long run, 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.
On March 1, 2010, the Company refinanced it existing mortgage on its facility
located in Des Moines, Iowa, which was scheduled to mature in 2009 at a variable
rate of interest (3.38% at December 31, 2009) payable in monthly installments.
The refinancing was for $650,000 at a fixed rate of interest of 6.50% payable in
monthly installments, which matures on March 1, 2015. The Company used proceeds
of $390,000 to settle the prior debt and will use the $260,000 balance for
working capital needs. The Company also has a mortgage on its real estate
rental property located in Santa Fe, New Mexico at a variable rate of interest
of Prime, with a floor of 6.75%, which was the interest rate in effect at
December 31, 2009, payable in monthly installments through 2012.
No cash dividends for Common Stock and Class B Stock were declared by the Board
of Directors during 2009 or 2008 in order to conserve cash and pay down debt.
The Company has incurred net losses from continuing operations for the years
ended December 31, 2009 and 2008 of $8.8 million and $4.6 million, respectively,
and had a working capital deficiency of $16.0 million at December 31, 2009, but
has generated cash provided by operating activities of continuing operations of
$5.0 million and $1.6 million for the years December 31, 2009 and 2008,
respectively. The Company has implemented several initiatives to improve
operational results and cash flows over future periods. The Company continues
to explore ways to reduce costs and relocated its Norwalk facility in the second
quarter of 2008 to lower operating costs in the future. The Company continually
takes steps to reduce the cost to maintain the equipment on rental and
maintenance. In addition, the Company is recording less interest expense as a
result of the 2007 exchange offer, and paid down debt with the net proceeds from
the sale of the assets of the Entertainment Division, see Note 3 - Discontinued
Operations to the consolidated financial statements.
The Company is dependent on future operating performance in order to generate
sufficient cash flows in order to continue to run its businesses. Future
operating performance is dependent on general economic conditions, as well as
financial, competitive and other factors beyond our control. As a result, we
have experienced a decline in our sales and lease bases. 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, increased
the timetable of its payment of some of its payables. There can be no assurance
that we will meet our anticipated current and near term cash requirements. The
Company's objective in
15
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 May 1, 2011, and is in discussions with senior lenders and
others, but the current global credit environment has been and continues to be a
challenge in accomplishing these objectives. If the Company is unable to obtain
replacement financing before the maturity of the Credit Agreement on May 1,
2011, the bank has the right to call the loan. If the loan were called, the
Company would have difficulties meeting its obligations in the normal course of
business. The Company continually evaluates the need and availability of
long-term capital in order to meet its cash requirements.
The Company has $10.1 million of Notes outstanding, which are no longer
convertible into common shares. Interest is payable semi-annually and may be
redeemed, in whole or in part, at par. The Company has not remitted the $0.4
million March 1, 2010 semi-annual interest payment to the trustee, which has
continued for 30 days. The non-payment constitutes an event of default under
the Indenture governing the Notes and the trustee, by notice to the Company or
the holders of 25% of the principal outstanding, may declare the outstanding
principal plus interest due and payable immediately. When such notice is
received by the Company, no payment shall be made by the Company to the holders
or trustee until the earlier of such non-payment event of default is cured or
waived or 179 days since receipt by the trustee of notice of such event, unless
the holder of Senior Indebtedness has accelerated due date thereof. If the
holder of Senior Indebtedness accelerates the due date at any time, then no
payment may be made until the default is cured or waived.
In addition, the Company has $1.1 million of Debentures outstanding. The
Company has not remitted the December 1, 2009 annual sinking fund payment of
$105,700. The non-payment constitutes an event of default under the Indenture
governing the Debentures and the trustee, by notice to the Company, or the
holders of 25% of the principal outstanding, by notice to the Company and the
trustee, may declare the outstanding principal plus interest due and payable
immediately. During the continuation of any event which, with notice or lapse
of time or both, would constitute a default under any agreement under which
Senior Indebtedness is issued, if the effect of such default is to cause, or
permit the holder of Senior Indebtedness to become due prior to its stated
maturity, no payment (including any required sinking fund payment) of principal,
premium or interest shall be made on the Debentures unless and until such
default shall have been remedied, if written notice of such default has been
given to the trustee by the Company or the holder of Senior Indebtedness. The
failure to make the sinking fund payment is an event of default under the Credit
Agreement since it involves indebtedness over $500,000 and no payment can be
made to such trustee or the holders at this time as such event has not been
waived.
In March 2010, the Company submitted, to the Internal Revenue Service, a request
for waiver of the minimum funding standard for its defined benefit plan. The
waiver request was submitted as a result of the current economic climate and the
current business hardship that the Company is experiencing. The waiver, if
granted, will defer the payment of the minimum funding standard for the 2009
plan year. The Company has not made $242,000 of payment contributions for 2009.
The waiver, if granted, will defer the payment of $285,000 of the minimum
funding standard for the 2009 plan year. If the waiver is not granted, the
Pension Benefit Guaranty Corporation and the Internal Revenue Service have
various enforcement remedies they can implement to protect the participant's
benefits, such as termination of the plan or require the Company to make the
unpaid contributions. At this time, the Company is anticipating to make its
required contributions for the 2010 plan year, however there is no assurance
that we will be able to make all payments. Management believes that based on
its actions taken, current cash resources and cash provided by continuing
operations it will have difficulty funding continuing operations and its current
obligations over the next twelve months.
Cash and cash equivalents decreased $881,000 in 2009. The decrease was
primarily attributable to the investment in equipment for rental of $2.5
million, the investment in property, plant and equipment of $0.2 million,
scheduled payments of long-term debt of $2.4 million and the pay down on the
revolving loan facility of $1.0 million, offset by cash provided by operating
activities of $5.0 million and the proceeds from the sale of available-for-sale
securities of $0.1 million. The current economic environment has increased the
Company's trade receivables collection cycle, and its allowances for
uncollectible accounts receivable, but collections continues to be favorable.
A fundamental principle of the preparation of financial statements in accordance
with accounting principles generally accepted in the United States of America is
the assumption that an entity will continue in existence as a going concern,
which contemplates continuity of operations and the realization of assets and
settlement of liabilities occurring in the ordinary course of business. This
principle is applicable to all entities except for entities in liquidation or
entities for which liquidation appears imminent. In accordance with this
requirement, the Company has prepared its consolidated financial statements on a
going concern basis. While we have prepared our consolidated financial
statements on a going concern basis, the continuing losses and uncertainty
regarding the inability to make the required sinking fund payment on the
Debentures and the interest
16
payment on the Notes and the potential of the senior lender accelerating the
payments on the Credit Agreement due to an event of default on the Debentures
and Notes raises substantial doubt about our ability to continue as a going
concern. Therefore, we may not be able to realize our assets and settle our
liabilities in the ordinary course of business. Our consolidated financial
statements included in this annual report on Form 10-K do not reflect any
adjustments that might specifically result from the outcome of this uncertainty.
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 has both variable and
fixed interest rate debt. Interest payments are projected based on actual
interest payments incurred in 2009 until the underlying debts mature.
The following table summarizes the Company's fixed cash obligations as of
December 31, 2009 over the next five fiscal years:
------------------------------------------------------------------------------------
In thousands 2010 2011 2012 2013 2014
------------------------------------------------------------------------------------
Long-term debt, including interest $17,838 $ 281 $1,978 $ 89 $ 89
Employment and consulting agreement obligations 344 300 195 195 195
Operating lease payments 522 493 271 77 -
-----------------------------------
Total $18,704 $1,074 $2,444 $361 $284
------------------------------------------------------------------------------------
Off-Balance Sheet Arrangements: The Company has no majority-owned subsidiaries
that are not included in the consolidated financial statements nor does it have
any interests in or relationships with any special purpose off-balance sheet
financing entities.
Safe Harbor Statement under the Private Securities Reform Act of 1995
The Company may, from time to time, provide estimates as to future performance.
These forward-looking statements will be estimates, and may or may not be
realized by the Company. The Company undertakes no duty to update such
forward-looking statements. Many factors could cause actual results to differ
from these forward-looking statements, including loss of market share through
competition, introduction of competing products by others, pressure on prices
from competition or purchasers of the Company's products, interest rate and
foreign exchange fluctuations, terrorist acts and war.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is subject to interest rate risk on its long-term debt. The Company
manages its exposure to changes in interest rates by the use of variable and
fixed interest rate debt. The fair value of the Company's fixed rate long-term
debt is disclosed in Note 12 to the consolidated financial statements. A
one-percentage point change in interest rates would result in an annual interest
expense fluctuation of approximately $80,000. In addition, the Company is
exposed to foreign currency exchange rate risk mainly as a result of investment
in its Canadian subsidiary. A 10% change in the Canadian dollar relative to the
U.S. dollar would result in a currency exchange expense fluctuation of
approximately $323,000, based on dealer quotes, considering current exchange
rates. The Company does not enter into derivatives for trading or speculative
purposes and did not hold any derivative financial instruments at December 31,
2009.
17
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated Statements of Operations
---------------------------------------------------------------------------------------------
In thousands, except per share data Years ended December 31 2009 2008
---------------------------------------------------------------------------------------------
Revenues:
Equipment rentals and maintenance $ 9,790 $11,031
Equipment sales 18,513 25,376
Real estate rentals 245 276
-------------------
Total revenues 28,548 36,683
-------------------
Operating expenses:
Cost of equipment rentals and maintenance 8,358 9,443
Cost of equipment sales 14,290 18,640
Cost of real estate rentals 61 104
-------------------
Total operating expenses 22,709 28,187
-------------------
Gross profit from operations 5,839 8,496
General and administrative expenses (10,191) (10,010)
Goodwill impairment - (194)
Interest income 1 145
Interest expense (1,694) (1,672)
Other expenses (2,696) (75)
-------------------
Loss from continuing operations before income taxes (8,741) (3,310)
Income tax expense:
Current (54) (203)
Deferred - (1,103)
-------------------
Total income tax expense (Note 11) (54) (1,306)
-------------------
Loss from continuing operations (8,795) (4,616)
Loss from discontinued operations - (3,426)
--------------------
Net loss $ (8,795) $(8,042)
===================
Loss per share continuing operations - basic and diluted $ (3.81) $ (2.00)
Loss per share discontinued operations - basic and diluted - (1.49)
-------------------
Total loss per share - basic and diluted $ (3.81) $ (3.49)
===================
Weighted average common shares outstanding - basic and diluted 2,311 2,307
----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements.
18
Consolidated Balance Sheets
---------------------------------------------------------------------------------------------
In thousands, except share data December 31 2009 2008
---------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 541 $ 1,422
Cash in escrow 403 400
Available-for-sale securities - 135
Receivables, less allowance of $1,393 - 2009 and $926 - 2008 1,743 4,594
Unbilled receivables 29 120
Inventories 5,149 6,592
Prepaids and other 619 1,167
Current assets associated with discontinued operations (Note 3) 55 149
------------------
Total current assets 8,539 14,579
------------------
Rental equipment 58,164 62,483
Less accumulated depreciation 34,015 35,358
------------------
24,149 27,125
------------------
Property, plant and equipment 7,206 7,511
Less accumulated depreciation 4,667 4,784
------------------
2,539 2,727
Asset held for sale 920 920
Other receivable - 2,580
Goodwill 810 810
Other assets 926 2,106
------------------
TOTAL ASSETS $37,883 $50,847
---------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,410 $ 3,151
Accrued liabilities 5,658 6,146
Current portion of long-term debt 16,990 2,945
Liabilities associated with discontinued operations (Note 3) 487 544
------------------
Total current liabilities 24,545 12,786
------------------
Long-term debt:
8 1/4% Limited convertible senior subordinated notes due 2012 - 10,129
9 1/2% Subordinated debentures due 2012 - 951
Notes payable 2,193 8,566
------------------
2,193 19,646
Deferred credits, deposits and other 3,852 3,968
------------------
30,590 36,400
------------------
Stockholders' equity:
Capital stock
Common - $1 par value - 5,500,000 shares authorized,
2,826,424 shares issued in 2009 and 2,453,591 shares issued in 2008 2,827 2,453
Class B - $1 par value - 1,000,000 shares authorized,
no shares issued in 2009 and 286,814 shares issued in 2008 - 287
Additional paid-in-capital 14,657 14,741
(Accumulated deficit) retained earnings (4,989) 3,806
Accumulated other comprehensive loss (1,739) (3,377)
------------------
10,756 17,910
Less treasury stock - at cost - 433,596 common shares 3,463 3,463
------------------
Total stockholders' equity 7,293 14,447
------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $37,883 $50,847
---------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements.
19
Consolidated Statements of Cash Flows
---------------------------------------------------------------------------------------------
In thousands Years ended December 31 2009 2008
---------------------------------------------------------------------------------------------
Cash flows from operating activities
Net loss $(8,795) $(8,042)
Loss from discontinued operations - (3,426)
------------------
Loss from continuing operations (8,269) (4,616)
Adjustment to reconcile loss from continuing operations
to net cash provided by operating activities:
Depreciation and amortization 5,983 6,398
Deferred income taxes - (18)
Write-off of note receivable 2,686 -
Loss on available-for-sale securities - 81
Goodwill impairment - 194
Changes in operating assets and liabilities:
Receivables 2,942 531
Inventories 1,443 176
Prepaids and other assets 1,324 (147)
Accounts payable and accruals (1,723) (366)
Deferred credits, deposits and other 1,121 (595)
------------------
Net cash provided by operating activities of continuing operations 4,981 1,638
------------------
Cash flows from investing activities
Equipment manufactured for rental (2,456) (4,050)
Purchases of property, plant and equipment (186) (438)
Proceeds from sale of property, plant and equipment 18 -
Proceeds from sale of available-for-sale securities 135 -
------------------
Net cash used in investing activities of continuing operations (2,489) (4,488)
------------------
Cash flows from financing activities
Payments of long-term debt (3,407) (8,430)
------------------
Net cash used in financing activities of continuing operations (3,407) (8,430)
------------------
Cash flows from discontinued operations
Cash used in operating activities of discontinued operations 34 (441)
Cash provided by investing activities of discontinued operations - 12,785
Cash used in financing activities of discontinued operations - (6,233)
------------------
Net cash provided by discontinued operations 34 6,111
------------------
Net decrease in cash and cash equivalents (881) (5,169)
Cash and cash equivalents at beginning of year 1,422 6,591
------------------
Cash and cash equivalents at end of year $ 541 $1,422
---------------------------------------------------------------------------------------------
Interest paid $ 1,523 $2,477
Income taxes paid 9 170
---------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements.
20
Consolidated Statements of Stockholders' Equity
-----------------------------------------------------------------------------------------------------------------------------------
Accumulated
Retained Other
Earnings Compre- Total
Add'l (Accum- hensive Stock-
In thousands, except share data Common Stock Class B Paid-in Treasury ulated Income holders'
For the two years ended December 31, 2009 Shares Amt Shares Amt Capital Stock Deficit) (Loss) Equity
-----------------------------------------------------------------------------------------------------------------------------------
Balance January 1, 2008 2,453,591 $2,453 286,814 $ 287 $14,733 $(3,463) $11,848 $(1,262) $24,596
Net loss - - - - - - (8,042) - (8,042)
Stock option compensation expense - - - - 8 - - - 8
Other comprehensive income (loss), net of tax:
Unrealized foreign currency translation - - - - - - - (695) (695)
Unrealized holding loss on securities - - - - - - - (22) (22)
Realized loss on securities reclassified to
operating statement - - - - - - - 49 49
Change in unrecognized pension cost - - - - - - - (1,447) (1,447)
------------------------------------------------------------------------------------
Balance December 31, 2008 2,453,591 2,453 286,814 287 14,741 (3,463) 3,806 (3,377) 14,447
Net loss - - - - - - (8,795) - (8,795)
Stock option compensation expense - - - - 3 - - - 3
Exchange Class B Shares for Common Shares 372,833 374 (286,814) (287) (87) - - - -
Other comprehensive income (loss), net of tax:
Unrealized foreign currency translation - - - - - - - 503 503
Change in unrecognized pension cost - - - - - - - 1,135 1,135
------------------------------------------------------------------------------------
Balance December 31, 2009 2,826,424 $2,827 - $ - $14,657 $(3,463) $(4,989) $(1,739) $ 7,293
-----------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements.
Consolidated Statements of Comprehensive Loss
---------------------------------------------------------------------------------------
In thousands Years ended December 31 2009 2008
---------------------------------------------------------------------------------------
Net loss $(8,795) $(8,042)
-------------------
Other comprehensive (loss) income:
Unrealized foreign currency translation gain (loss) 503 (695)
Unrealized holding loss on securities - (37)
Realized loss on securities reclassified to operating statement - 81
Change in unrecognized pension costs 1,135 (1,447)
Income tax expense related to items of
other comprehensive (loss) income - (17)
-------------------
Total other comprehensive (loss) income, net of tax 1,638 (2,115)
-------------------
Comprehensive loss $(7,157) $(10,157)
---------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements.
21
Notes To Consolidated Financial Statements
1. Summary of Significant Accounting Policies
Trans-Lux Corporation is a leading manufacturer and supplier of programmable
electronic information displays and owner/operator of a rental property.
Principles of consolidation: The consolidated financial statements include the
accounts of Trans-Lux Corporation, a Delaware corporation, and all wholly-owned
subsidiaries (the "Company"). Intercompany balances and transactions have been
eliminated in consolidation.
Discontinued operations. 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 in that
quarter, see Note 3 - Discontinued Operations.
Use of estimates: The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates. Estimates and assumptions are reviewed periodically and
the effects of revisions are reflected in the financial statements in the period
in which they are determined to be necessary. Estimates are used when
accounting for such items as costs of long-term sales contracts, allowance for
uncollectable accounts, inventory valuation allowances, depreciation and
amortization, intangible assets, income taxes, warranty obligation, benefit
plans, contingencies and litigation.
Cash and cash equivalents: The Company considers all highly liquid investments
with an original maturity of three months or less to be cash equivalents.
Available-for-sale securities: Available-for-sale securities consisted of fixed
income mutual funds and were stated at fair value based on quoted market prices
(Level 1 inputs). The Company determines realized gains and losses on the
specific identification basis. Unrealized gains and losses on investments
available for sale are reflected in accumulated other comprehensive loss in the
Consolidated Balance Sheets and as a separate item in the Consolidated
Statements of Comprehensive Loss. The Company sold its available-for-sale
securities in 2009.
Accounts receivable: Receivables are carried at net realizable value. Credit
is extended based on an evaluation of each customer's financial condition;
collateral is generally not required. Reserves for uncollectable accounts
receivable are provided based on historical experience and current trends. The
Company evaluates the adequacy of these reserves regularly.
The following is a summary of the allowance for uncollectable accounts at
December 31:
-------------------------------------------
In thousands 2009 2008
-------------------------------------------
Balance at beginning of year $ 926 $ 892
Provisions 1,118 334
Deductions (651) (300)
-------------
Balance at end of year $1,393 $ 926
-------------------------------------------
Concentrations of credit risk with respect to accounts receivable are limited
due to the large number of customers, the relatively small account balances
within the majority of the Company's customer base and their dispersion across
different businesses.
Inventories: Inventories are stated at the lower of cost (first-in, first-out
method) or market value. Valuation allowances for slow moving and obsolete
inventories are provided based on historical experience and demand for servicing
of the displays. The Company evaluates the adequacy of these valuation
allowances regularly.
Rental equipment and property, plant and equipment: Rental equipment and
property, plant and equipment are stated at cost and depreciated over their
respective useful lives using the straight-line method. Leaseholds and
improvements are amortized over the lesser of the useful lives or term of the
lease.
The estimated useful lives are as follows:
------------------------------------------
Years
------------------------------------------
Rental equipment 10 - 15
Buildings and improvements 10 - 40
Machinery, fixtures and equipment 5 - 15
Leaseholds and improvements 5
------------------------------------------
When rental equipment and property, plant and equipment are fully depreciated,
retired or otherwise disposed of, the cost and accumulated depreciation are
eliminated from the accounts.
Goodwill and intangibles: Goodwill represents the excess of purchase price over
the estimated fair value of net assets acquired. Identifiable intangible assets
are recorded at cost and amortized over their estimated useful life on a
straight line basis and deferred financing costs over the life of the related
debt of two to three years. Total goodwill is $810,000, of which $744,000
relates to
22
the Outdoor display segment and $66,000 relates to the Indoor display segment.
The Company annually evaluates the value of its goodwill on October 1 and
determines if it is impaired by comparing the carrying value of goodwill to its
estimated fair value. Fair value is determined using cash flow and other
valuation models (generally Level 3 inputs in the fair value hierarchy). There
were no impairments of goodwill in 2009. In 2008, the Company determined that
all of the $194,000 of goodwill associated with its commercial outdoor display
business was impaired and wrote it off in the fourth quarter. The impairment
was primarily due to economic trends. Goodwill in our other businesses was not
impaired. The Company also evaluates the value of its other intangible assets
by comparing the carrying value with estimated future cash flows when indicators
of possible impairment exist. There were no impairments of other intangibles in
2009 or 2008.
Impairment or disposal of long-lived assets: The Company evaluates whether
there has been an impairment in its long-lived assets if certain circumstances
indicate that a possible impairment may exist. An impairment in value may exist
when the carrying value of a long-lived asset exceeds its undiscounted cash
flows. If it is determined that an impairment in value has occurred, the
carrying value is written down to its fair value. There were no impairments in
2009 or 2008.
Revenue recognition: Revenue from rental of equipment and revenue from
maintenance contracts are recognized during the term of the respective
agreements, which generally run for periods of one month to 10 years. At
December 31, 2009, the future minimum lease payments due the Company under
operating leases that expire at varying dates through 2018 for its rental
equipment and maintenance contracts, assuming no renewals of existing leases or
any new leases, aggregating $17,472,000 was as follows: $7,350,000 - 2010,
$4,501,000 - 2011, $2,953,000 - 2012, $2,031,000 - 2013, $394,000 - 2014,
$243,000 - thereafter. The Company recognizes revenues on long-term equipment
sales contracts, which require more than three months to complete, using the
percentage of completion method. The Company records unbilled receivables
representing amounts due under these long-term equipment sales contracts, which
have not been billed to the customer. Income is recognized based on the
percentage of incurred costs to the estimated total costs for each contract.
The determination of the estimated total costs is susceptible to change on these
sales contracts. Revenues on equipment sales, other than long-term equipment
sales contracts, are recognized upon shipment when title and risk of loss passes
to the customer. Real estate rentals revenue is recognized monthly on a
straight-line basis during the term of the respective lease agreements.
Warranty obligations: The Company provides for the estimated cost of product
warranties at the time revenue is recognized. While the Company engages in
product quality programs and processes, including evaluating the quality of the
component suppliers, the warranty obligation is affected by product failure
rates. Should actual product failure rates differ from the Company's estimates,
revisions to increase or decrease the estimated warranty liability may be
required.
Taxes on income: Deferred income tax assets and liabilities are established for
temporary differences between the financial reporting basis and the tax basis of
the Company's assets and liabilities at tax rates expected to be in effect when
such temporary differences are expected to reverse and for operating loss
carryforwards. The temporary differences are primarily attributable to
operating loss carryforwards and depreciation. The Company records a valuation
allowance against net deferred income tax assets if, based upon the available
evidence, it is not more-likely-than-not that the deferred income tax assets
will be realized.
The Company considers whether it is "more-likely-than-not" that a tax position
will be sustained upon examination, including resolution of any related appeals
or litigation processes, based on the technical merits of the position. Once it
is determined that a position meets the more-likely-than-not recognition
threshold, the position is measured to determine the amount of benefit to
recognize in the financial statements. The Company's policy is to classify
interest and penalties related to uncertain tax positions in income tax expense.
To date, there have been no interest or penalties charged to the Company in
relation to the underpayment of income taxes. The Company's determinations
regarding uncertain income tax positions may be subject to review and adjustment
at a later date based upon factors including, but not limited to, an on-going
analysis of tax laws, regulations and interpretations thereof.
Foreign currency: The functional currency of the Company's Canadian business
operation is the Canadian dollar. The assets and liabilities of such operation
are translated into U.S. dollars at the year-end rate of exchange, and the
operating and cash flow statements are converted at the average annual rate of
exchange. The resulting translation adjustment is recorded in accumulated other
comprehensive loss in the Consolidated Balance Sheets and as a separate item in
the Consolidated Statements of Comprehensive Loss. Gains and losses related to
the settling of transactions not denominated in the functional currency are
recorded as a component of general and administrative expenses in the
Consolidated Statements of Operations.
Share-based compensation plans: The Company measures share-based payments to
employees and
23
directors at the grant date fair value of the instrument. The fair value is
estimated on the date of grant using the Black-Scholes valuation model, which
requires various assumptions including estimating stock price volatility,
expected life of the stock option and risk free interest rate. For details on
the accounting effect of share-based compensation, see Note 17 - Share-Based
Compensation.
Consideration of Subsequent Events: The Company evaluated events and
transactions occurring after December 31, 2009 through the date these
consolidated financial statements were issued, to identify subsequent events
which may need to be recognized or non-recognizable events which would need to
be disclosed. No recognizable events were identified; see Note 21 - Subsequent
Events for non-recognizable events or transactions identified for disclosure.
Recent accounting pronouncements: Effective July 1, 2009, the Company adopted
FASB's Accounting Standards Update 2009-01 which established ASC Topic 105,
"Generally Accepted Accounting Principles" (incorporating Statement of Financial
Accounting Standards ("SFAS") No. 168, "FASB Accounting Standards Codification
and the Hierarchy of Generally Accepted Accounting Principles,") which
establishes the FASB Accounting Standards Codification as the source of GAAP to
be applied to companies. The adoption had no effect on the Company's financial
statements.
In October 2009, the FASB issued Accounting Standards Update ("ASU") 2009-13,
"Multiple-Deliverable Revenue Arrangements" - a consensus of the FASB Emerging
Issues Task Force, to amend certain guidance in FASB ASC Topic 605 "Revenue
Recognition," Subtopic 25 "Multiple-Element Arrangements" ("ASC 605-25"). The
amended guidance in ASC 605-25 (1) modifies the separation criteria by
eliminating the criterion that requires objective and reliable evidence of fair
value for the undelivered item(s) and (2) eliminates the use of the residual
method of allocation and instead requires that arrangement consideration be
allocated, at the inception of the arrangement, to all deliverables based on
their relative selling price. The amended guidance in ASC 605-25 will be
effective prospectively for revenue arrangements entered into or materially
modified in fiscal years beginning on or after June 15, 2010, with early
adoption permitted. The Company is evaluating the impact the adoption of this
update might have on our consolidated results of operations and financial
condition.
In 2009, the Company adopted the provisions of ASC Topic 855, "Subsequent
Events," (incorporating SFAS No. 165, "Subsequent Events"). Such guidance
establishes general standards of accounting for, and disclosure of, events that
occur after the balance sheet date but before financial statements are issued.
In October 2008 and April 2009, the FASB issued supplemental guidance on
determining fair value when markets are not active, when volume and activity
levels have decreased significantly or when transactions are not orderly. Since
adopting the principles of fair value included in ASC Topic 820, "Fair Value
Measurements and Disclosures," the Company's practices for determining fair
value and for disclosures about the fair value of investments have been, and
continue to be, consistent with the guidance provided in the supplemental
guidance. Therefore, the Company's adoption of these items has not had any
effect on its financial position or results of operations. See Note 4 - Fair
Value for information on our assets and liabilities measured at fair value.
In August 2009, the FASB issued ASU 2009-05, "Measuring Liabilities at Fair
Value, to amend FASB ASC 820, Fair Value Measurements and Disclosures," to
clarify how entities should estimate the fair value of liabilities. ASC 820, as
amended, includes clarifying guidance for circumstances in which a quoted price
in an active market is not available, the effect of the existence of liability
transfer restrictions, and the effect of quoted prices for the identical
liability, including when the identical liability is traded as an asset. The
amended guidance in ASC 820 on measuring liabilities at fair value is effective
for the first interim or annual reporting period beginning after August 28,
2009. The amended guidance in ASC 820 does not have a significant effect on our
consolidated financial statements.
In January 2010, the FASB issued ASU 2010-06, "Fair Value Measurements and
Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements"
("ASC 2010-06"). ASU 2010-06 amends ASC 820-10 and clarifies and provides
additional disclosure requirements related to recurring and non-recurring fair
value measurements and employers' disclosures about postretirement benefit plan
assets. ASU 2010-06 is effective for interim and annual periods beginning after
December 15, 2009. The Company has provided the required benefit plan asset
information in Note 16 - Pension Plan.
Reclassifications: Certain reclassifications of prior years' amounts have been
made to conform to the current year's presentation.
2. Going Concern
A fundamental principle of the preparation of financial statements in accordance
with accounting principles generally accepted in the United States of America is
the assumption that an entity will continue in existence as a going concern,
which contemplates continuity of operations and the realization of assets and
settlement of
24
liabilities occurring in the ordinary course of business. This principle is
applicable to all entities except for entities in liquidation or entities for
which liquidation appears imminent. In accordance with this requirement, the
Company has prepared its consolidated financial statements on a going concern
basis.
The Company has incurred significant recurring losses from continuing operations
and has a significant working capital deficiency. The Company had a loss from
continuing operations of $8.8 million in 2009 and had a working capital
deficiency of $16.0 million as of December 31, 2009. Further as discussed in
Note 13, the Company did not make the required sinking fund payment of $105,700
on its 9 1/2% Subordinated debentures (the "Debentures"), which was due on
December 1, 2009, and did not make the interest payment of $417,800 on its 8
1/4% Limited convertible senior subordinated notes (the "Notes"), which was due
on March 1, 2010. Under the terms of the indenture agreements that govern the
Debentures and Notes, the non-payments constitute events of default;
accordingly, the trustees or the holders of 25% of the outstanding Debentures
and Notes have the right to declare the outstanding principal and interest due
and payable immediately. In the event that such notice is received by the
Company, the bank has the right to demand payment on outstanding amounts on the
Credit Agreement. As such, all outstanding debt has been classified as current
in the accompanying balance sheet. These matters raise substantial doubt about
the Company's ability to continue as a going concern.
In March 2010, the bank agreed to extend the maturity date of the Credit
Agreement to May 1, 2011 and has reduced the required future monthly payments on
the term portion of the debt. The bank has retained the right to call the
Credit Agreement in the event that the holders of the Debentures or Notes demand
payment. The Company also refinanced its mortgage on its Des Moines, Iowa
facility in March 2010, which provided an additional $260,000 for working
capital. The Company is currently involved in discussions with various entities
to obtain additional debt and/or equity financing including amounts that could
be used to settle the Debentures and Notes, however there can be no assurance
that the Company will be successful.
The Company continues to manage a plan to improve operating results. The plan
includes partnering with an LED supplier and offering several new high
resolution LED large screen systems, seeking ways to reduce costs of components
used in its products and other expenses to improve sales margins, and continue
to look at way to lower SG&A costs, such as compensation and benefits. There
can be no assurance that the Company will achieve higher sales, improved margins
or lower costs.
Because substantially all of the Company's eligible accounts receivable,
inventory and other assets are secured by the Credit Agreement, management
cannot provide any assurance that the Company would have sufficient cash and
liquid assets to fund normal operations during the period of time when it is
required to repay amounts outstanding under the Credit Agreement. Further, if
the Company is unable to obtain waivers or cure the defaults on the Debentures
and Notes, the Debentures and Notes could be called and be immediately due.
Such notice would trigger a default in the Credit Agreement. If the Credit
Agreement, Debentures and Notes are called, the Company would need to obtain new
financing; there can be no assurance that the Company will be able to do so. If
the debt is called and new financing cannot be arranged it is unlikely the
Company will be able to continue as a going concern. The accompanying financial
statements do not include any adjustments relating to the recoverability and
classification of asset carrying amounts or the amounts and classification of
liabilities that may result from the outcome of this uncertainty.
3. 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. At December 31, 2009, the $0.4 million cash held in escrow was
subject to resolution of two claims raised by the buyer; one claim was settled
subsequent to year end for $0.1 million. The remaining $0.3 million escrow is
subject to resolution of one claim and is not expected to be released to the
Company until the claim is settled. 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 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, but none had been earned. 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
25
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 also provided consulting services for a
year. 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 Company had a 50% ownership in a joint venture partnership, MetroLux
Theatres, accounted for by the equity method, which was included in the sold
assets of its Entertainment Division. 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 table presents
the financial results of the discontinued operations for the period from January
1, 2008 through June 27, 2008:
--------------------------------------------------------------------
In thousands, except per share data
--------------------------------------------------------------------
Revenues $ 6,249
Operating expenses 4,954
-------
Gross profit 1,295
General and administrative expenses (647)
Interest expense, net (626)
Income from joint venture 239
Asset impairment and loss on sale of division (4,808)
-------
Loss from discontinued operations before income tax benefit (4,547)
Income tax benefit 1,121
-------
Net loss from discontinued operations $(3,426)
=======
Loss per share discontinued operations - basic and diluted $ (1.49)
--------------------------------------------------------------------
4. Fair Value
The Company carries its money market funds and cash surrender value of life
insurance related to its deferred compensation arrangements at fair value. 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 using quoted market prices, a Level 1 or an observable
input, and the cash surrender value of life insurance, a Level 2 based on
observable inputs primarily from the counter party. At December 31, 2009, the
Company's money market funds and the cash surrender value of life insurance had
carrying amounts of $24,000 and $79,000, respectively. The carrying amounts of
cash equivalents, accounts receivable, accounts payable and accrued expenses
approximate fair value due to the short maturities of these items. At December
31, 2009, the fair value of the Company's Notes and Debentures, using observable
inputs, was $4.9 million and $0.6 million, respectively. At December 31, 2009,
the fair value of the Company's remaining long-term debt approximates its
carrying value of $8.0 million.
5. Available-for-Sale Securities
Available-for-sale securities are carried at estimated fair values and the
unrealized holding gains and losses are excluded from earnings and reported net
of income taxes in accumulated other comprehensive loss until realized. At
December 31, 2008, the Company recorded a write down of available-for-sale
securities by $81,000 to reflect other than temporary losses that were realized
in January 2009. An adjustment of $81,000 was recorded in accumulated other
comprehensive loss to reflect the unrealized loss on available-for-sale
securities at December 31, 2008, that were realized in January 2009.
Available-for-sale securities at December 31, 2008 consist of mutual funds with
a fair value of $135,000. There were no available-for-sale securities held at
December 31, 2009.
6. Inventories
Inventories consist of the following:
--------------------------------
In thousands 2009 2008
--------------------------------
Raw materials $3,695 $4,769
Work-in-progress 1,044 1,317
Finished goods 410 506
--------------
$5,149 $6,592
--------------------------------
7. Rental Equipment
Rental equipment consist of the following:
-----------------------------------------------
In thousands 2009 2008
-----------------------------------------------
Indoor rental equipment $40,739 $44,613
Outdoor rental equipment 17,425 17,870
----------------
Total 58,164 62,483
Less accumulated depreciation 34,015 35,358
----------------
Net rental equipment $24,149 $27,125
-----------------------------------------------
All the rental equipment is pledged as collateral under the Company's credit
facility.
26
8. Property, Plant and Equipment
Property, plant and equipment consist of the following:
--------------------------------------------------
In thousands 2009 2008
--------------------------------------------------
Land, buildings and improvements $2,832 $2,838
Machinery, fixtures and equipment 4,088 4,169
Leaseholds and improvements 286 504
--------------
Total 7,206 7,511
Less accumulated depreciation 4,667 4,784
--------------
Net property, plant and equipment $2,539 $2,727
--------------------------------------------------
Land, buildings and equipment having a net book value of $2.3 million and $2.4
million at December 31, 2009 and 2008, respectively, are pledged as collateral
under various mortgage and other financing agreements.
9. Other Assets
Other assets consist of the following:
-----------------------------------------------------------
In thousands 2009 2008
-----------------------------------------------------------
Spare parts $450 $ 550
Deferred financing costs, net of accumulated
amortization of $943 - 2009 and $752 - 2008 291 464
Prepaids 86 358
Deposits and other 99 734
------------
$926 $2,106
-----------------------------------------------------------
Deferred financing costs relate to the issuance of the Notes, the Debentures,
mortgages and other financing agreements and are being amortized over the terms
of the respective agreements.
Future amortization expense of intangible assets over the next five years is
expected as follows: $90,000 - 2010, $39,000 - 2011, $12,000 - 2012, $0 - 2013,
$0 - 2014.
10. 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. After the
negative results of a foreclosure by sale by the first mortgagee, the Company
wrote off this note receivable and related expense for a total of $2.7 million
in the second quarter of 2009.
11. Taxes on Income
The components of income tax expense (benefit) are as follows:
------------------------------------------------------------
In thousands 2009 2008
------------------------------------------------------------
Current:
Federal $ - $ -
State and local - -
Foreign 54 203
-------------
54 203
-------------
Deferred:
Federal - 1,359
State and local - (256)
-------------
- 1,103
-------------
Income tax expense - continuing operations 54 1,306
Income tax benefit - discontinued operations - (1,121)
-------------
Total income tax expense $54 $ 185
------------------------------------------------------------
Loss from continuing operations before income taxes from the United States is
$8.1 million and $4.3 million for the years ended December 31, 2009 and 2008,
respectively. (Loss) income from continuing operations before income taxes from
Canada is $(0.7) million and $0.9 million for the years ended December 31, 2009
and 2008, respectively.
Income tax benefits for continuing operations differed from the expected federal
statutory rate of 34.0% as follows:
-------------------------------------------------------------------
2009 2008
-------------------------------------------------------------------
Statutory federal income tax benefit rate (34.0%) (34.0%)
State income taxes, net of federal benefit (3.6) (5.1)
Foreign income taxed at different rates 3.2 (3.6)
Deferred tax asset valuation allowance 34.3 82.4
Other 0.7 (0.2)
---------------
Effective income tax rate - continuing operations 0.6% 39.5%
-------------------------------------------------------------------
27
Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred income tax assets and liabilities are as follows:
-------------------------------------------------
In thousands 2009 2008
-------------------------------------------------
Deferred income tax asset:
Tax credit carryforwards $ 1,034 $ 1,034
Operating loss carryforwards 9,981 8,455
Net pension costs 2,099 1,786
Allowance for bad debts 482 336
Accruals 1,083 723
Other 27 160
Valuation allowance (7,690) (4,570)
-----------------
7,016 7,924
-----------------
Deferred income tax liability:
Depreciation 6,583 7,502
Other 433 422
-----------------
7,016 7,924
-----------------
Net deferred income taxes $ - $ -
-------------------------------------------------
Tax credit carryforwards primarily relate to federal alternative minimum taxes
of $0.9 million paid by the Company, which may be carried forward indefinitely
and applied against regular federal taxes. Operating tax loss carryforwards
primarily relate to U.S. federal net operating loss carryforwards of
approximately $24.9 million, which begin to expire in 2019.
A valuation allowance has been established for the amount of deferred income tax
assets as management has concluded that it is more-likely-than-not that the
benefits from such assets will not be realized.
The Company has recorded approximately $250,000 for uncertain tax positions,
primarily related to state income taxes and related interest and penalties. The
Company's policy is to classify interest and penalties related to uncertain tax
positions in income tax expense. The accrual for uncertain tax positions has
not changed significantly in 2009 and 2008. The Company does not believe that
the liability for uncertain tax positions will change significantly in 2010.
The Company is subject to U.S. federal income tax as well as income tax in
multiple state and local jurisdictions and Canadian federal and provincial
income tax. Currently, no federal or state or provincial income tax returns are
under examination. The tax years 2005 through 2008 remain open to examination
by the major taxing jurisdictions and the 2004 tax year remains open to
examination by some state and local taxing jurisdictions to which the Company is
subject.
12. Accrued Liabilities
Accrued liabilities consist of the following:
-------------------------------------------------------------------
In thousands 2009 2008
-------------------------------------------------------------------
Deferred revenues $1,375 $1,418
Compensation and employee benefits 1,207 841
Taxes payable 529 396
Warranty obligations 389 489
Interest payable 332 349
Current portion of pension liability (see Note 16) 80 695
Other 1,746 1,958
---------------
$5,658 $6,146
-------------------------------------------------------------------
Warranty obligations: The Company provides for the estimated cost of product
warranties at the time revenue is recognized. While the Company engages in
product quality programs and processes, including evaluating the quality of the
component suppliers, the warranty obligation is affected by product failure
rates. Should actual product failure rates differ from the Company's estimates,
revisions to increase or decrease the estimated warranty liability may be
required. A summary of the warranty liabilities for each of the two years ended
December 31 is as follows:
--------------------------------------------
In thousands 2009 2008
--------------------------------------------
Balance at beginning of year $ 489 $ 317
Provisions 42 307
Deductions (142) (135)
-------------
Balance at end of year $ 389 $ 489
--------------------------------------------
13. Long-Term Debt
Long-term debt consist of the following:
----------------------------------------------------------
In thousands 2009 2008
----------------------------------------------------------
8 1/4% Limited convertible senior
subordinated notes due 2012 $10,129 $10,129
9 1/2% Subordinated debentures due 2012 1,057 1,057
Term loan - bank secured, due in
monthly installments through 2011 1,652 3,935
Revolving loan - bank secured 4,020 5,000
Real estate mortgages - secured, due
in monthly installments through 2012 2,285 2,397
Loans payable - CEBA, secured, due in
monthly installments through 2011 40 73
-----------------
19,183 22,591
Less portion due within one year 16,990 2,945
-----------------
Long-term debt $ 2,193 $19,646
----------------------------------------------------------
28
Payments of long-term debt due for the next five years are:
----------------------------------------------------
In thousands 2010 2011 2012 2013 2014
----------------------------------------------------
$16,990 $119 $1,822 $57 $60
----------------------------------------------------
The 8 1/4% Limited convertible senior subordinated notes due 2012 (the "Notes")
are no longer convertible into common shares, interest is payable semi-annually
and may be redeemed, in whole or in part, at par. The Company has not remitted
the March 1, 2010 semi-annual interest payment to the trustee, which has
continued for 30 days. The non-payment constitutes an event of default under
the Indenture governing the Notes and the trustee, by notice to the Company, or
the holders of 25% of the principal outstanding, by notice to the Company and
the trustee, may declare the outstanding principal plus interest due and payable
immediately. When such notice is received by the Company, no payment shall be
made by the Company to the holders or trustee until the earlier of such
non-payment event of default is cured or waived or 179 days since receipt by the
Trustee of notice of such event, unless the holder of Senior Indebtedness has
accelerated the due date thereof. If the holder of Senior Indebtedness
accelerates the due date at any time, then no payment may be made until the
default is cured or waived. At December 31, 2009, the total amount outstanding
is classified as current portion of long-term debt.
The 9 1/2% Subordinated debentures due 2012 (the "Debentures") are due in annual
sinking fund payments of $105,700 beginning in 2009, which payment has not been
remitted by the Company, with the remainder due in 2012, interest is payable
semi-annually and may be redeemed, in whole or in part, at par. The non-payment
constitutes an event of default under the Indenture governing the Debentures and
the trustee, by notice to the Company, or the holders of 25% of the principal
outstanding, by notice to the Company and the trustee, may declare the
outstanding principal plus interest due and payable immediately. During the
continuation of any event which, with notice or lapse of time or both, would
constitute a default under any agreement under which Senior Indebtedness is
issued, if the effect of such default is to cause, or permit the holder of
Senior Indebtedness to become due prior to its stated maturity, no payment
(including any required sinking fund payment) of principal, premium or interest
shall be made on the Debentures unless and until such default shall have been
remedied, if written notice of such default has been given to the trustee by the
Company or the holder of Senior Indebtedness. The failure to make the sinking
fund payment is an event of default under the Credit Agreement since it involves
indebtedness over $500,000 and no payment can be made to such trustee or the
holders at this time as such event has not been waived. At December 31, 2009,
the total amount outstanding is classified as current portion 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 the redemption 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, based on eligible
accounts receivable and inventory, at a variable rate of interest of Prime plus
2.00%, with a floor of 6.00% (6.00% at December 31, 2009), which was due to
mature April 1, 2010. Subsequent to year-end, the maturity of the Credit
Agreement was extended to May 1, 2011. As of December 31, 2009, the Company has
drawn $4.0 million against the revolving loan facility, of which $0.5 million
was available for additional borrowing. 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 of not more than 50%, and a $1.0 million cap on
capital expenditures. As of December 31, 2009, the Company was in compliance
with the forgoing financial covenants, but was not in compliance with the fixed
charge coverage ratio of not less than 1.25 to 1.0 (0.45 to 1.0 at December 31,
2009), the leverage ratio of not more than 2.0 to 1.0 (3.5 to 1.0 at December
31, 2009), and maintaining a tangible net worth of not less than $20.0 million
($19.9 million at December 31, 2009), which the senior lender waived subsequent
to year-end. In addition, the senior lender has waived the default on the Notes
and Debentures. In the event that the holders of the Notes or Debentures or
trustees declare a default and begins to exercise any of their rights and
remedies in connection with the non-payment defaults, this shall constitute a
separate and distinct event of default and the senior lender may exercise any
and all rights and remedies it may have. As a result, at December 31, 2009 the
total amount outstanding is classified as current portion of long-term debt. In
addition, the senior lender has waived the default of non-payment of certain
pension plan contributions. In the event that any government agency takes any
enforcement action or otherwise exercises any rights and remedies it may have,
this shall constitute a separate and distinct event of default and the senior
lender may exercise any and all rights and remedies it may have. The amounts
outstanding under the Credit Agreement are collateralized by all of the Display
division assets.
On March 1, 2010, the Company refinanced it existing mortgage on its facility
located in Des Moines, Iowa, which was scheduled to mature in 2009 at a variable
rate of interest (3.38% at December 31, 2009) payable in monthly installments.
The refinancing was for $650,000 at a fixed rate of interest of 6.50% payable in
monthly installments, which matures on March 1, 2015. The
29
Company used proceeds of $390,000 to settle the prior debt and will use the
$260,000 balance for working capital needs. The Company also has a mortgage on
its real estate rental property located in Santa Fe, New Mexico at a variable
rate of interest of Prime, with a floor of 6.75%, which was the interest rate in
effect at December 31, 2009, payable in monthly installments through 2012.
During 2006, the Company received $150,000 from the State of Iowa and City of
Des Moines as a zero percent interest loan, amortizing on a straight-line basis
for five years. At December 31, 2009, the present value of this loan, assuming
a 6% interest rate, the rate of previous loans from the State of Iowa and City
of Des Moines, is $40,000. The premium is being amortized using the effective
interest method and is included in the carrying value of the loan.
14. Stockholders' Equity
During 2009 and 2008, the Board of Directors did not declare any quarterly cash
dividends on the Company's Common Stock or on the Company's Class B Stock in
order to preserve cash and pay down debt. Each share of Class B Stock was
convertible at any time into one share of Common Stock and had ten votes per
share, as compared to Common Stock, which has one vote per share but receives a
10% higher dividend. On December 11, 2009, the stockholders approved an
amendment to the Corporation's Certificate of Incorporation to provide for the
automatic conversion of each share of Class B Stock into 1.3 shares of Common
Stock as provided in a Settlement Agreement approved by the United States
District Court for the Southern District of New York, and accordingly no Class B
Stock is outstanding at December 31, 2009.
The Company also has 0.5 million shares of authorized and unissued capital stock
designated as Preferred Stock, $1.00 par value.
Shares of Common Stock reserved for future issuance in connection with
convertible securities and stock option plans were 26,000 and 33,500 at December
31, 2009 and 2008, respectively.
15. Engineering Development
Engineering development expense was $122,000 and $183,000 for 2009 and 2008,
respectively, which is included in general and administrative expenses in the
Consolidated Statements of Operations.
16. Pension Plan
All eligible salaried employees of Trans-Lux Corporation and certain of its
subsidiaries are covered by a non-contributory defined benefit pension plan.
Pension benefits vest after five years of service and are based on years of
service and final average salary. The Company's general funding policy is to
contribute at least the required minimum amounts sufficient to satisfy
regulatory funding standards, but not more than the maximum tax-deductible
amount. As of December 31, 2003, the benefit service under the pension plan had
been frozen and, accordingly, there is no service cost for each of the two years
ended December 31, 2009. On April 30, 2009, the compensation increments were
frozen, and accordingly, no additional benefits are being accrued under the
plan. As a result, during 2009 the plan incurred a curtailment charge of
$53,000. In addition, due to lump-sum benefit payments, the plan incurred a
settlement charge of $250,000 during 2009.
For 2009 and 2008, the accrued benefit obligation of the plan exceeded the fair
value of plan assets, due primarily to the plan's investment experience. The
Company's pension obligations for this plan exceeded plan assets by $3.8 million
at December 31, 2009.
The Company employs a total return investment approach whereby a mix of equities
and fixed income investments are used to maximize the long-term return of plan
assets for a prudent level of risk. The intent of this strategy is to minimize
plan expenses by outperforming plan liabilities over the long run. Risk
tolerance is established through careful consideration of plan liabilities, plan
funded status and corporate financial condition. The portfolio contains a
diversified blend of equity and fixed income investments. Investment risk is
measured and monitored on an ongoing basis through annual liability
measurements, periodic asset/liability studies and quarterly investment
portfolio reviews.
At December 31, 2009 and 2008, the Company's pension plan weighted average asset
allocations by asset category are as follows:
----------------------------------------------
2009 2008
----------------------------------------------
Guaranteed investment contracts 40.4% 52.9%
Equity and index funds 49.1 44.0
Bonds 1.9 3.1
Money market funds 8.6 -
-------------
100.0% 100.0%
----------------------------------------------
Bonds include $102,000 and $167,000 of the Company's 9 1/2% Debentures for 2009
and 2008, respectively.
The pension plan asset information included below is presented at fair value.
ASC 820 establishes a framework for measuring fair value and required
disclosures about
30
assets and liabilities measured at fair value. The fair value of these assets
are determined using a three-tier fair value hierarchy. Based on this
hierarchy, the Company determined the fair value of its money market funds,
equity and index funds and guaranteed investment contracts using quoted market
prices, a Level 1 or an observable input, and bonds, a Level 2 based on
observable inputs and quoted prices in markets that are not active. The Company
does not have any Level 3 pension assets, in which such valuation would be based
on unobservable measurements and management's estimates.
The following table presents the pension plan assets by level within the fair
value hierarchy as of December 31, 2009:
-------------------------------------------------------------------
In thousands Level 1 Level 2 Level 3 Total
-------------------------------------------------------------------
Guaranteed investment contracts $2,199 $ - $- $2,199
Equity and index funds 2,673 - - 2,673
Bonds - 102 - 102
Money market funds 467 - - 467
---------------------------------
$5,339 $102 $- $5,441
-------------------------------------------------------------------
The funded status of the plan as of December 31, 2009 and 2008 is as follows:
--------------------------------------------------------------------
In thousands 2009 2008
--------------------------------------------------------------------
Change in benefit obligation:
Projected benefit obligation at beginning of year $ 9,905 $10,481
Interest cost 571 640
Settlement/curtailment charges (416) -
Actuarial (gain) loss 159 (413)
Benefits paid (967) (803)
-----------------
Projected benefit obligation at end of year 9,252 9,905
-----------------
Change in plan assets:
Fair value of plan assets at beginning of year 5,430 7,284
Actual return on plan assets 725 (1,511)
Company contributions 253 460
Benefits paid (967) (803)
-----------------
Fair value of plan assets at end of year 5,441 5,430
-----------------
Funded status (underfunded) $(3,811) $(4,475)
=================
Amounts recognized in other comprehensive loss:
Net actuarial loss $ 4,023 $ 5,099
Unrecognized prior service cost - 59
-----------------
$ 4,023 $ 5,158
=================
Weighted average assumptions as of December 31:
Discount rate:
Components of cost 6.25% 6.25%
Benefit obligations 6.00% 6.25%
Expected return on plan assets 8.00% 8.75%
Rate of compensation increase N/A 3.00%
--------------------------------------------------------------------
The Company determines the long-term rate of return for plan assets by studying
historical markets and the long-term relationships between equity securities and
fixed income securities, with the widely-accepted capital market principal that
assets with higher volatility generate higher returns over the long run. The
8.0% expected long-term rate of return on plan assets is determined based on
long-term historical performance of plan assets, current asset allocation and
projected long-term rates of return.
In 2010, the Company expects to amortize $306,000 of actuarial losses to pension
expense. The accumulated benefit obligation at December 31, 2009 and 2008 was
$9.3 million and $9.4 million, respectively. The minimum required contribution
for 2010 is expected to be $80,000. In March 2010, the Company submitted to the
Internal Revenue Service a request for waiver of the minimum funding standard
for its defined benefit plan. The waiver request was submitted as a result of
the current economic climate and the current business hardship that the Company
is experiencing. The waiver, if granted, will defer payment of $285,000 of the
minimum funding standard for the 2009 plan year. If the waiver is not granted,
the Pension Benefit Guaranty Corporation and the Internal Revenue Service has
various enforcement remedies they can implement to protect the participant's
benefits; such as termination of the plan and require the Company to make the
unpaid contributions. The senior lender has waived the default of non-payment
of certain pension plan contributions. In the event that any government agency
takes any enforcement action or otherwise exercises any rights and remedies it
may have, this shall constitute a separate and distinct event of default and the
senior lender may exercise any and all rights and remedies it may have. At this
time, the Company is anticipating making its required contributions for the 2010
plan year; however there is no assurance that the Company will be able to make
all payments.
Expected projected benefit payments due for the next five years are:
--------------------------------------------------
In thousands 2010 2011 2012 2013 2014
--------------------------------------------------
$473 $829 $786 $1,031 $344
--------------------------------------------------
The following table presents the components of the net periodic pension cost for
the two years ended December 31, 2009:
-------------------------------------------------
In thousands 2009 2008
-------------------------------------------------
Interest cost $ 571 $ 640
Expected return on plan assets (428) (631)
Amortization of prior service cost 6 17
Amortization of net actuarial loss 273 265
Settlement/curtailment charges 303 -
-------------
Net periodic pension cost $ 725 $ 291
-------------------------------------------------
31
The following table presents the change in unrecognized pension costs recorded
in other comprehensive loss as of December 31, 2009 and 2008:
----------------------------------------------
In thousands 2009 2008
----------------------------------------------
Balance at beginning of year $5,158 $3,711
Net actuarial loss (gain) (553) 1,729
Recognized loss (273) (265)
Settlement charge (250) -
Curtailment charge (53) -
Recognized prior service cost (6) (17)
---------------
Balance at end of year $4,023 $5,158
----------------------------------------------
In addition, the Company provided unfunded supplemental retirement benefits for
the retired Chief Executive Officer. During 2009 the Company accrued $0.5
million for such benefits. The Company does not offer any post-retirement
benefits other than the pension and supplemental retirement benefits described
herein.
17. Share-Based Compensation
The Company accounts for all share-based payments to employees and directors,
including grants of employee stock options, at fair value and expenses the
benefit in the Consolidated Statements of Operations over the service period
(generally the vesting period). The fair value of each stock option granted is
estimated on the date of grant using the Black-Scholes pricing valuation model,
which requires various assumptions including estimating stock price volatility,
expected life of the stock option and risk free interest rate. The Company
applies an estimated forfeiture rate in calculating the period expense. The
Company has not experienced any forfeitures that would need to be taken into
consideration in its calculations.
The Company has three stock option plans. Under the 1995 Stock Option Plan,
125,000 shares of Common Stock were authorized for grant to key employees.
Under the Non-Employee Director Stock Option Plan, 30,000 shares of Common Stock
were authorized for grant. Under the Non-Statutory Stock Option Agreement,
10,000 shares of Common Stock were authorized and issued to the former Chairman
of the Board.
Changes in the stock option plans are as follows:
----------------------------------------------------------------------
Weighted
Number of Shares Average
-------------------------------- Exercise
Authorized Granted Available Price
----------------------------------------------------------------------
Balance January 1, 2008 76,500 65,000 11,500 $6.08
Expired (32,500) (34,500) 2,000 6.72
Granted - 3,000 (3,000) 3.85
-----------------------------
Balance December 31, 2008 44,000 33,500 10,500 5.22
Expired - (11,500) 6,500 5.18
Granted - 4,000 (4,000) 0.91
-----------------------------
Balance December 31, 2009 44,000 26,000 13,000 4.57
----------------------------------------------------------------------
Under the 1995 Stock Option Plan, option prices must be at least 100% of the
market value of the Common Stock at time of grant. No option may be exercised
prior to one year after date of grant. Exercise periods are for ten years from
date of grant and terminate at a stipulated period of time after an employee's
termination of employment. At December 31, 2009, options for 7,500 shares with
exercise prices ranging from $6.10 to $7.00 per share were outstanding, all of
which were exercisable. During 2009, no shares were exercised or granted, and
options for 5,000 shares expired. During 2008, no options were exercised or
granted, and options for 32,500 shares expired. No additional options can be
granted under the 1995 Plan.
Under the Non-Employee Director Stock Option Plan, option prices must be at
least 100% of the market value of the Common Stock at time of grant. No option
may be exercised prior to one year after date of grant and the optionee must be
a director of the Company at time of exercise, except in certain cases as
permitted by the Compensation Committee. Exercise periods are for six years
from date of grant and terminate at a stipulated period of time after an
optionee ceases to be a director. At December 31, 2009, options for 8,500
shares with exercise prices ranging from $0.65 to $6.35 per share were
outstanding, 5,000 of which were exercisable. During 2009, options for 4,000
shares were granted with exercise prices ranging from $0.65 to $1.10 per share,
and options for 6,500 shares expired; no options were exercised. During 2008,
options for 3,000 shares were granted with an exercise price of $3.85, and
options for 2,000 shares expired; no options were exercised.
Under the Non-Statutory Stock Option Agreement for the former Chairman of the
Board, the option price must be at least 100% of the market value of the Common
Stock at time of grant and the exercise period is for 10 years from date of
grant. At December 31, 2009, the options for
32
10,000 shares with an exercise price of $4.025 were outstanding and exercisable.
During 2009 and 2008, no options were exercised, granted or expired.
The following tables summarize information about stock options outstanding at
December 31, 2009:
-------------------------------------------------------------------
Weighted Weighted
Average Average Aggregate
Range of Number Remaining Exercise Intrinsic
Exercise Prices Outstanding Contractual Life Price Value
-------------------------------------------------------------------
$0.65 - $1.99 3,500 5.8 $0.88 $ -
2.00 - 4.99 12,500 2.5 3.99 -
5.00 - 5.99 500 3.0 5.95 -
6.00 - 6.99 4,500 2.2 6.19 -
7.00 - 7.99 5,000 4.5 7.00 -
----------- ---------
26,000 3.3 4.57 $ -
-------------------------------------------------------------------
-------------------------------------------------------------------
Weighted
Average Aggregate
Range of Number Exercise Intrinsic
Exercise Prices Exercisable Price Value
-------------------------------------------------------------------
$0.65 - $1.99 - $ - $ -
2.00 - 4.99 12,500 3.99 -
5.00 - 5.99 500 5.95 -
6.00 - 6.99 4,500 6.19 -
7.00 - 7.99 5,000 7.00 -
----------- ---------
22,500 5.14 $ -
-------------------------------------------------------------------
All outstanding option prices are substantially over the current market price.
As of December 31, 2009, there was $1,000 of total unrecognized compensation
cost related to non-vested options granted under the Plans, which will be
recognized in 2010.
The estimated fair value of options granted during 2009 and 2008 is $0.56 and
$1.67 per share, respectively. The fair value of options granted under the
Company's stock option plans during 2009 and 2008 was estimated on dates of
grant using the Black-Scholes model with the following weighted average
assumptions used:
--------------------------------------------------------
2009 2008
--------------------------------------------------------
Dividend yield - -
Expected volatility 120.94% 36.20%
Risk free interest rate 4.56% 4.64%
Expected lives of option grants (years) 4.0 4.0
--------------------------------------------------------
18. Loss Per Common Share
Basic loss per common share is computed by dividing net loss by the weighted
average number of common shares outstanding for the period. In years when the
Company reports net income, diluted per common share amounts are calculated by
adjusting net income by the weighted average number of common shares
outstanding, adjusted for shares that would be assumed outstanding after
convertible debt conversion and stock options vested under the treasury stock
method. At December 31, 2009 and 2008, there were outstanding stock options to
purchase 22,500 and 30,500 shares of Common Stock, respectively, which were
excluded from the calculation of diluted loss per share because their impact
would have been anti-dilutive.
19. Commitments and Contingencies
Commitments: The Company has employment agreements with certain executive
officers, which expire at various dates through March 2010, and a consulting
agreement with a private consulting company owned by the family of a certain
former board member who is a former officer of the Company and performs the
consulting services on behalf of the consulting company, which expires December
2014. At December 31, 2009, the aggregate commitment for future salaries and
consulting fees, excluding bonuses, was approximately $1.2 million. Contractual
salaries/consulting expense was $1.1 million and $1.3 million for the years
ended December 31, 2009 and 2008, respectively.
Contingencies: 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 that it believes individually and in the aggregate will not have a
material adverse effect on the consolidated financial position or operations of
the Company.
Operating leases: Certain premises are occupied under operating leases that
expire at varying dates through 2013. Certain of these leases provide for the
payment of real estate taxes and other occupancy costs. Future minimum lease
payments due under operating leases at December 31, 2009 aggregating $1,363,000
are as follows: $522,000 - 2010, $493,000 - 2011, $271,000 - 2012, $77,000 -
2013, $0 - 2014. Rent expense was $629,000 and $773,000 for the years ended
December 31, 2009 and 2008, respectively.
20. Business Segment Data
Operating segments are based on the Company's business components about which
separate financial information is available, and are evaluated regularly by the
Company's chief operating decision makers in deciding how to allocate resources
and in assessing performance.
The Company evaluates segment performance and allocates resources based upon
operating income. The Company's operations are managed in three reportable
business segments. The Display Division comprises two
33
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 sales, 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.
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 as of December 31, 2009 and 2008 and for the two years ended December
31, 2009 is as follows:
-----------------------------------------------------------------------
In thousands 2009 2008
-----------------------------------------------------------------------
Revenues:
Indoor display $ 8,163 $11,496
Outdoor display 20,140 24,911
Real estate rental 245 276
------------------
Total revenues $28,548 $36,683
------------------
Operating (loss) income:
Indoor display $(1,807) $ (505)
Outdoor display 1,384 1,746
Real estate rental 164 157
------------------
Total operating (loss) income (259) 1,398
Other expenses (2,696) (75)
Corporate general and administrative expenses (4,093) (3,106)
Interest expense - net (1,693) (1,527)
------------------
Loss from continuing operations before income taxes (8,741) (3,310)
Income tax expense (54) (1,306)
------------------
Net loss from continuing operations $(8,795) $(4,616)
------------------
-----------------------------------------------------------------------
In thousands 2009 2008
-----------------------------------------------------------------------
Assets:
Indoor display $18,204 $25,629
Outdoor display 16,889 21,271
Real estate rental 1,791 921
Discontinued operations 55 1,069
------------------
Total identifiable assets 36,939 48,890
General corporate 944 1,957
------------------
Total assets $37,883 $50,847
------------------
Depreciation and amortization:
Indoor display $ 4,365 $ 4,726
Outdoor display 1,359 1,474
Real estate rental 49 55
General corporate 210 143
------------------
Total depreciation and amortization $ 5,983 $ 6,398
------------------
Capital expenditures:
Indoor display $ 1,667 $ 2,923
Outdoor display 968 1,296
Real estate rental 7 48
General corporate - 221
------------------
Total capital expenditures $ 2,642 $ 4,488
-----------------------------------------------------------------------
21. Subsequent Events
On February 16, 2010, the Company hired J.M. Allain as its new President and
Chief Executive Officer. He replaced Michael R. Mulcahy who retired due to
health and personal reasons on December 31, 2009. Mr. Allain has a background
in global systems integration, marketing and sales management for enterprises
ranging from start-ups to multinational companies and has established experience
in a number of technology-driven industries, including data communication.
On March 1, 2010, the Company refinanced it existing mortgage on its facility
located in Des Moines, Iowa. See Note 13 - Long Term Debt.
The Company has not remitted the March 1, 2010 semi-annual interest payment on
the Notes to the trustee. See Note 13 - Long Term Debt.
Subsequent to the end of the year, the Company received a waiver from its senior
lender for certain financial covenants that were not in compliance and modified
the maturity of the Credit Agreement to May 1, 2011. See Note 13 - Long Term
Debt.
Subsequent to the end of the year, the Company submitted to the Internal Revenue
Service a request for waiver of the minimum funding standard for its defined
benefit plan. See Note 16 - Pension Plan.
34
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Trans-Lux Corporation
We have audited the accompanying consolidated balance sheets of Trans-Lux
Corporation and subsidiaries (the "Company") as of December 31, 2009 and 2008,
and the related consolidated statements of operations, comprehensive loss,
stockholders' equity, and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Company is not
required to have, nor were we were engaged to perform, an audit of the Company's
internal controls over financial reporting. An audit includes consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company's internal control
over financial reporting. Accordingly, we express no such opinion. An audit
also includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Company as of
December 31, 2009 and 2008, and the results of its operations and its cash flows
for the years then ended in conformity with accounting principles generally
accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to
the consolidated financial statements, the Company has incurred significant
recurring losses from continuing operations and has a significant working
capital deficiency. In 2009, the Company had a loss from continuing operations
of $8.8 million and has a working capital deficiency of $16.0 million as of
December 31, 2009. Further, the Company is in default of the indenture
agreements governing its outstanding 9 1/2% Subordinated Debentures (the
Debentures) and its 8 1/4% Limited Convertible Senior Subordinated Notes (the
Notes) so that the trustees or holders of 25% of the outstanding Debentures and
Notes have the right to demand payment immediately. These matters raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 2. The
financial statements do not include any adjustments relating to the
recoverability and classification of asset carrying amounts or the amounts and
classification of liabilities that may result from the outcome of this
uncertainty.
/s/ UHY LLP
Hartford, Connecticut
April 15, 2010
35
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9A(T). CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures. As of the end of
the period covered by this Annual Report, we carried out an
evaluation, under the supervision and with the participation of our
management, including our Chief Executive Officer and Chief
Financial Officer (its principal executive officer and principal
financial officer), of the effectiveness of the design and
operation of our disclosure controls and procedures (as defined in
the Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)).
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 December 31, 2009.
(b) Changes in internal control over financial reporting. There has
been no change in the Company's internal control over financial
reporting that occurred in the fourth fiscal quarter that has
materially affected, or is reasonably likely to materially affect,
the Company's internal control over financial reporting.
(c) Management's Report on Internal Control Over Financial Reporting.
The management of the Company is responsible for establishing and
maintaining adequate internal control over financial reporting for
the Company as defined in Rule 13a-15(f) under the Securities
Exchange Act of 1934. A company's internal control over financial
reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with accounting principles generally accepted in the
United States. A company's internal control over financial
reporting includes policies and procedures that (1) pertain to the
maintenance of records that in reasonable detail accurately and
fairly reflect the transactions and dispositions of the assets of
the Company; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements
in accordance with accounting principles generally accepted in the
United States, and that receipts and expenditures of the Company
are being made only in accordance with authorizations of management
and directors of the Company; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the Company's assets that could
have a material effect on the financial statements. Our internal
control system was designed to provide reasonable assurance to our
management and Board of Directors regarding the preparation and
fair presentation of published financial statements. Because of
its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Projections of any
evaluation of effectiveness to future periods are subject to the
risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or
procedures may deteriorate. This annual report does not include an
attestation report of the Company's registered public accounting
firm regarding internal control over financial reporting.
Management's report was not subject to attestation by the Company's
registered public accounting firm pursuant to temporary rules of
the Securities and Exchange Commission that permit the Company to
provide only management's report in this annual report.
The Company's management assessed its internal control over
financial reporting as of December 31, 2009 using the criteria set
forth by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). Management, including the Company's Chief
Executive Officer and its Chief Financial Officer, based on their
evaluation of the Company's internal control over financial
reporting (as defined in
36
Securities Exchange Act Rule 13a-15(f)), have concluded that the
Company's internal control over financial reporting was effective
as of December 31, 2009.
ITEM 9B. OTHER INFORMATION
All information required to be reported in a report on Form 8-K during the
fourth quarter covered by this Form 10-K has been reported.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
(a) The information required by this Item with respect to directors is
incorporated herein by reference to the Section entitled "Election
of Directors" in the Company's Proxy Statement.
(b) The following executive officers were elected by the Board of
Directors for the ensuing year and until their respective
successors are elected:
Name Office Age
---------------------- -------------------------------------------- ---
Jean-Marc Allain (1) President and Chief Executive Officer 40
Michael R. Mulcahy (2) Former President and Chief Executive Officer 61
Angela D. Toppi Executive Vice President, Treasurer, 54
Secretary and Chief Financial Officer
Al L. Miller Executive Vice President 64
Karl P. Hirschauer Senior Vice President 62
Thomas F. Mahoney Senior Vice President 62
(1) Joined the Company on February 16, 2010.
(2) Retired on December 31, 2009.
Mr. Allain became the President and CEO of Trans-Lux Corporation on
February 16, 2010. Mr. Allain served as President of Panasonic
Solutions Company from July 2008 through October 2009; Vice President of
Duos Technologies from August 2007 through June 2008; General Manager of
Netversant Solutions from October 2004 through June 2005; and Vice
President of Adesta, LLC from May 2002 through September 2004. Mr.
Allain has familiarity with the operational requirements of complex
organizations and has experience dealing with reorganizations and
turnarounds. Messrs. Mulcahy, Miller, Hirschauer, Mahoney and Ms.
Toppi have each been associated in an executive capacity with the Company
for more than five years.
(c) The information required by Items 405, 406 and 407 of Regulation S-K
is incorporated herein by reference to the Sections entitled
"Compliance with Section 16(a) of the Securities Exchange Act of
1934," "Code of Ethics" and "Corporate Governance" in the Company's
Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein by reference to the
Section entitled "Executive Compensation and Transactions with Management" in
the Company's Proxy Statement.
37
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The information required by this Item is incorporated herein by reference to the
Section entitled "Security Ownership of Certain Beneficial Owners, Directors and
Executive Officers" in the Company's Proxy Statement.
Equity Compensation Plan Information
------------------------------------
------------------------------------------------------------------------------------------------------
Securities Weighted Securities
to be issued average available for
December 31, 2009 upon exercise exercise price future issuance
------------------------------------------------------------------------------------------------------
Equity compensation plans approved by stockholders 16,000 $4.91 13,000
Equity compensation plans not approved by stockholders 10,000 4.03 -
------ ------
Total 26,000 4.57 13,000
------------------------------------------------------------------------------------------------------
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
The information required by this Item is incorporated herein by reference to the
Section entitled "Executive Compensation and Transactions with Management" in
the Company's Proxy Statement.
ITEM 14. PRINCIPAL ACCOUNTING FIRM FEES AND SERVICES
The information required by this Item is incorporated herein by reference to the
Section entitled "Ratification of the Selection of Independent Registered
Accounting Firm" in the Company's Proxy Statement.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following documents are filed as part of this report:
1 Consolidated Financial Statements of Trans-Lux Corporation:
Consolidated Statements of Operations for the Years Ended
December 31, 2009 and 2008
Consolidated Balance Sheets as of December 31, 2009 and 2008
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2009 and 2008
Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 2009 and 2008
Consolidated Statements of Comprehensive Loss for the Years
Ended December 31, 2009 and 2008
Notes to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
2 Financial Statement Schedules: None.
3 Exhibits:
3(a) Form of Restated Certificate of Incorporation of the
Registrant (incorporated by reference to Exhibit 3.1 of
Registration No. 333-15481).
(b) By-Laws of the Registrant (incorporated by reference to Exhibit
3(b) of Form 10-K for the year ended December 31, 2001).
Amendment dated December 11, 2009, filed herewith.
4(a) Indenture dated as of December 1, 1994 (form of said indenture is
incorporated by reference to Exhibit 6 of Schedule 13E-4
Amendment No. 2 dated December 23, 1994).
38
(b) Indenture dated as of March 1, 2004 (form of said indenture is
incorporated by reference to Exhibit 12(d) of Schedule TO dated
March 2, 2004).
10.1 Form of Indemnity Agreement - Directors (form of said
agreement is incorporated by reference to Exhibit 10.1 of
Registration No. 333-15481).
10.2 Form of Indemnity Agreement - Officers (form of said agreement is
incorporated by reference to Exhibit 10.2 of Registration No.
333-15481).
10.3 Amended and Restated Pension Plan dated January 1, 2001 and
Amendment No. 1 dated as of April 1, 2002 (incorporated by
reference to Exhibit 10.3 of Form 10-K for the year ended
December 31, 2001). Amendment No. 2 dated as of December 31,
2002 (incorporated by reference to Exhibit 10.3 of Form 10-K for
the year ended December 31, 2002). Amendment No. 3 dated as of
December 31, 2003 (incorporated by reference to Exhibit 10.3 of
Form 10-K for the year ended December 31, 2003). Amendment No.
4 dated as of December 31, 2008 (incorporated by reference to
Exhibit 10.3 of Form 10-K for the year ended December 31, 2008).
10.4 Supplemental Executive Retirement Plan with Michael R. Mulcahy
dated January 1, 2009 (incorporated by reference to Exhibit 10.1
of Form 8-K dated January 6, 2009).
10.5(a) 1989 Non-Employee Director Stock Option Plan, as amended
(incorporated by reference to Exhibit 10.4(a) of Form 10-K for
the year ended December 31, 1999).
(b) 1995 Stock Option Plan, as amended (incorporated by reference to
Proxy Statement dated April 7, 2000).
10.6 Amended and Restated Commercial Loan and Security Agreement with
People's Bank dated December 23, 2004 (incorporated by reference
to Exhibit 10(a) of Form 8-K filed December 28, 2004). Amendment
No. 1 dated as of December 31, 2005 (incorporated by reference
to Exhibit 10.2 of Form 10-Q for the quarter ended March 31,
2006). Letter amendments dated as of September 30, 2006 and
December 31, 2006 (incorporated by reference to Exhibit 10.5 of
Form 10-K for the year ended December 31, 2006). Amendment No.
5 dated August 9, 2007 (incorporated by reference to Exhibit 10.1
of Form 10-Q for the quarter ended June 30, 2007). Amendment No.
9 dated July 15, 2008 (incorporated by reference to Exhibit 10.1
of Form 10-Q for the quarter ended June 30, 2008). Amendment No.
13 dated September 4, 2009 and Amendment No. 14 dated April 2,
2010, filed herewith.
10.7 Consulting Agreement with Moving Images, LLC dated as of December
1, 2004 and termination letter with Richard Brandt (incorporated
by reference to Exhibit 10.6 of Form 10-K for the year ended
December 31, 2004). Amendment dated December 7, 2005
(incorporated by reference to Exhibit 10.6 of Form 10-K for the
year ended December 31, 2005). Amendment dated as of March 28,
2007 (incorporated by reference to Exhibit 10.1 of Form 10-Q for
the quarter ended March 31, 2007). Amendment dated December 31,
2008 (incorporated by reference to Exhibit 10.4 of Form 8-K dated
January 6, 2009).
10.8 Employment Agreement with Jean-Marc Allain dated February 16,
2010 (incorporated by reference to Exhibit 10.1 of Form 8-K dated
February 18, 2010).
10.9 Restricted Stock Agreement with Jean-Marc Allain dated February
16, 2010 (incorporated by reference to Exhibit 10.2 of Form 8-K
dated February 18, 2010).
10.10 Employment Agreement with Angela D. Toppi dated as of April 1,
2005 (incorporated by reference to Exhibit 10.9 of Form 10-K for
the year ended December 31, 2004).
39
10.11 Amended and Restated Employment Agreement with Al Miller dated
January 1, 2009 (incorporated by reference to Exhibit 10.3 of
Form 8-K dated January 6, 2009).
10.12 Employment Agreement with Karl Hirschauer dated as of April 1,
2008 (incorporated by reference to Exhibit 10.1 of Form 10-Q for
the quarter ended March 31, 2008).
10.13 Employment Agreement with Thomas F. Mahoney dated as of June 1,
2002 (incorporated by reference to Exhibit 10(a) of Form 10-Q
for the quarter ended June 30, 2002).
21 List of Subsidiaries (incorporated by reference to Exhibit 21 of
Form 10-K for the year ended December 31, 2008).
31.1 Certification of Jean-Marc Allain, 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, filed
herewith.
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, filed herewith.
32.1 Certification of Jean-Marc Allain, 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, filed herewith.
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, filed herewith.
40
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized:
TRANS-LUX CORPORATION
by: /s/ Angela D. Toppi
-----------------------------
Angela D. Toppi
Executive Vice President and
Chief Financial Officer
by: /s/ Todd Dupee
-----------------------------
Todd Dupee
Vice President and Controller
Dated: April 15, 2010
41
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the date indicated:
/s/ Gene F. Jankowski April 15, 2010
------------------------------------------------
Gene F. Jankowski, Chairman of the Board
/s/ Victor Liss April 15, 2010
------------------------------------------------
Victor Liss, Vice Chairman of the Board
/s/ Glenn J. Angiolillo April 15, 2010
------------------------------------------------
Glenn J. Angiolillo, Director
/s/ Jean Firstenberg April 15, 2010
------------------------------------------------
Jean Firstenberg, Director
/s/ Howard S. Modlin April 15, 2010
------------------------------------------------
Howard S. Modlin, Director
/s/ Michael R. Mulcahy April 15, 2010
------------------------------------------------
Michael R. Mulcahy, Director
/s/ George W. Schiele April 15, 2010
------------------------------------------------
George W. Schiele, Director
/s/ Angela D. Toppi April 15, 2010
------------------------------------------------
Angela D. Toppi, Executive Vice President,
Chief Financial Officer, Secretary and Director
/s/ Salvatore J. Zizza April 15, 2010
------------------------------------------------
Salvatore J. Zizza, Director
42