UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2006
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Commission file number 1-2257
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TRANS-LUX CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 13-1394750
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
110 Richards Avenue, Norwalk, CT 06856-5090
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(Address of principal executive offices) (Zip code)
(203) 853-4321
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
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Indicate by check mark whether the Registrant is a large accelerated filer, an
accelerated filer or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (check
one)
Large accelerated filer Accelerated filer Non-accelerated filer X
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Indicate by check mark whether the Registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes No X
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Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date.
Date Class Shares Outstanding
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08/11/06 Common Stock - $1.00 Par Value 973,598
08/11/06 Class B Stock - $1.00 Par Value 286,814
(Immediately convertible into a like
number of shares of Common Stock.)
TRANS-LUX CORPORATION AND SUBSIDIARIES
Table of Contents
Page No.
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Part I - Financial Information (unaudited)
Item 1. Condensed Consolidated Balance Sheets - June 30, 2006
and December 31, 2005 (audited) 1
Condensed Consolidated Statements of Operations - Three
and Six Months Ended June 30, 2006 and 2005 2
Condensed Consolidated Statements of Cash Flows - Six
Months Ended June 30, 2006 and 2005 3
Notes to Condensed Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures about Market Risk 15
Item 4. Controls and Procedures 16
Part II - Other Information
Item 1A. Risk Factors 16
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits 18
Signatures 18
Exhibits
Part I - Financial Information
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TRANS-LUX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30 December 31
In thousands, except share data 2006 2005
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(unaudited) (audited)
ASSETS
Current assets:
Cash and cash equivalents $ 4,573 $ 13,610
Available-for-sale securities 176 431
Receivables, less allowance of $1,055 - 2006 and $935 - 2005 6,921 6,321
Unbilled receivables 1,000 842
Inventories 5,911 5,658
Prepaids and other 1,329 1,149
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Total current assets 19,910 28,011
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Rental equipment 93,787 91,648
Less accumulated depreciation 60,133 56,280
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33,654 35,368
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Property, plant and equipment 39,421 39,188
Less accumulated depreciation 10,599 9,850
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28,822 29,338
Goodwill 1,004 1,004
Other assets 6,329 6,829
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TOTAL ASSETS $89,719 $100,550
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,738 $ 2,821
Accrued liabilities 6,762 6,986
Current portion of long-term debt 2,174 14,145
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Total current liabilities 11,674 23,952
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Long-term debt:
8 1/4% limited convertible senior subordinated notes due 2012 17,976 17,868
9 1/2% subordinated debentures due 2012 1,057 1,057
Notes payable 33,137 29,440
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52,170 48,365
Deferred credits, deposits and other 2,566 2,859
Deferred income taxes 2,300 2,978
Stockholders' equity:
Capital stock
Common - $1 par value - 5,500,000 shares authorized,
2,453,591 shares issued in 2006 and 2005 2,453 2,453
Class B - $1 par value - 1,000,000 shares authorized,
286,814 shares issued in 2006 and 2005 287 287
Additional paid-in-capital 13,903 13,901
Retained earnings 17,374 18,883
Accumulated other comprehensive loss (1,167) (1,287)
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32,850 34,237
Less treasury stock - at cost - 1,480,045 shares in 2006 and 2005
(excludes additional 286,814 shares held in 2006 and 2005
for conversion of Class B stock) 11,841 11,841
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Total stockholders' equity 21,009 22,396
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $89,719 $100,550
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The accompanying notes are an integral part of these condensed consolidated financial statements.
1
TRANS-LUX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
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In thousands, except per share data 2006 2005 2006 2005
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Revenues:
Equipment rentals and maintenance $ 3,487 $ 3,830 $ 7,007 $ 7,605
Equipment sales 6,790 6,299 11,790 11,112
Theatre receipts and other 3,432 3,335 6,522 6,396
------- ------- ------- -------
Total revenues 13,709 13,464 25,319 25,113
------- ------- ------- -------
Operating expenses:
Cost of equipment rentals and maintenance 2,949 3,146 5,908 6,191
Cost of equipment sales 4,958 4,221 8,726 7,488
Cost of theatre receipts and other 2,455 2,447 4,615 4,647
------- ------- ------- -------
Total operating expenses 10,362 9,814 19,249 18,326
------- ------- ------- -------
Gross profit from operations 3,347 3,650 6,070 6,787
General and administrative expenses (3,102) (3,631) (6,480) (6,621)
Interest income 136 155 201 201
Interest expense (1,160) (1,048) (2,288) (2,040)
Gain on sale of assets - 108 - 108
Other income 19 27 18 52
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Loss from operations before income from joint
venture and income taxes (760) (739) (2,479) (1,513)
Income from joint venture 129 89 203 179
Income tax benefit 238 249 810 511
------- ------- ------- -------
Net loss $ (393) $ (401) $(1,466) $ (823)
======= ======= ======= =======
Loss per share - basic $ (0.31) $ (0.32) $ (1.16) $ (0.65)
======= ======= ======= =======
Average common shares outstanding - basic 1,260 1,261 1,260 1,261
======= ======= ======= =======
Cash dividends per share:
Common stock $ - $ 0.035 $ 0.035 $ 0.070
Class B stock $ - $0.0315 $0.0315 $0.0630
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The accompanying notes are an integral part of these condensed consolidated financial statements.
2
TRANS-LUX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
SIX MONTHS ENDED
JUNE 30
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In thousands 2006 2005
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Cash flows from operating activities
Net loss $ (1,466) $ (823)
Adjustment to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization 4,770 4,821
Income from joint venture (203) (179)
Deferred income taxes (684) (524)
Gain on sale of assets - (108)
Loss (gain) on sale of available-for-sale securities 15 (1)
Changes in operating assets and liabilities:
Receivables (758) (531)
Inventories (253) 73
Prepaids and other assets (423) (470)
Accounts payable and accruals (196) (1,101)
Deferred credits, deposits and other (293) (6)
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Net cash provided by operating activities 509 1,151
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Cash flows from investing activities
Equipment manufactured for rental (2,139) (1,881)
Purchases of property, plant and equipment (233) (575)
Purchases of available-for-sale securities - (114)
Proceeds from sale of available-for-sale securities 257 32
Proceeds from joint venture, net 778 175
Proceeds from sale of assets - 206
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Net cash used in investing activities (1,337) (2,157)
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Cash flows from financing activities
Proceeds from long-term debt 6,250 903
Payments of long-term debt (14,416) (676)
Cash dividends (43) (88)
Purchase of treasury stock - (2)
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Net cash (used in) provided by financing activities (8,209) 137
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Net decrease in cash and cash equivalents (9,037) (869)
Cash and cash equivalents at beginning of year 13,610 12,398
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Cash and cash equivalents at end of period $ 4,573 $11,529
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Interest paid $ 2,282 $ 1,812
Income taxes paid 164 164
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The accompanying notes are an integral part of these condensed consolidated financial statements.
3
TRANS-LUX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2006
(unaudited)
Note 1 - Basis of Presentation
Financial information included herein is unaudited, however, such information
reflects all adjustments (of a normal and recurring nature) which are, in the
opinion of management, necessary for the fair presentation of the consolidated
financial statements for the interim periods. The results for the interim
periods are not necessarily indicative of the results to be expected for the
full year. The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with rule 10-01 of Regulation S-X
promulgated by the Securities and Exchange Commission and therefore do not
include all information and footnote disclosures required under accounting
principles generally accepted in the United States of America. It is suggested
that the June 30, 2006 condensed consolidated financial statements should be
read in conjunction with the consolidated financial statements and notes
included in the Company's Annual Report on Form 10-K for the year ended December
31, 2005.
The Company has incurred losses for the three and six months ended June 30, 2006
of $393,000 and $1,466,000, respectively, and $1,793,000 for the year ended
December 31, 2005. However, the Company does have positive working capital of
$8.2 million as of June 30, 2006 and a positive cash flow from operations for
the six months ended June 30, 2006 of $509,000. Management believes that its
current cash resources will be sufficient to fund its operations and its current
obligations through June 30, 2007.
In December 2004, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 123 (revised 2004),
"Share-Based Payment" ("SFAS 123(R)"). SFAS 123(R) establishes standards that
require companies to record the cost resulting from all share-based payment
transactions using the fair value method. Transition under SFAS 123(R) requires
using a modified version of prospective application under which compensation
costs are recognized over the remaining service period for all unvested
share-based payments outstanding or a modified retrospective method under which
all prior periods impacted by SFAS 123 are restated. Effective January 1, 2006,
the Company adopted SFAS 123(R) using the modified prospective transition
method, whereby compensation costs are recognized in the consolidated statements
of operations in the period beginning in January 1, 2006. Accordingly,
compensation cost amounts for prior periods are presented in the Company's
footnotes but the consolidated financial statements have not been restated to
reflect, and do not retroactively include, the impact of SFAS 123(R). Stock-
based compensation expense related to stock options recognized under SFAS 123(R)
for the six months ended June 30, 2006 was approximately $2,000, net of tax.
See Note 5 - Stock Option Plans, for additional disclosures.
Note 2 - Inventories
Inventories consist of the following:
June 30 December 31
In thousands 2006 2005
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Raw materials $3,820 $3,740
Work-in-progress 1,437 1,411
Finished goods 654 507
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$5,911 $5,658
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Note 3 - Long-Term Debt
During the six months ended June 30, 2006, long-term debt, including current
portion, decreased $8.2 million. On June 15, 2006, the Company redeemed all of
its $12.2 million 7 1/2% Convertible Subordinated Notes due December 1, 2006
(the "7 1/2% Notes"). The 7 1/2% Notes were convertible at the option of the
holder into shares of Common Stock, $1 par value per share, of the Company at
any time prior to the close of business on the June 14, 2006 at the rate of
$14.013 per share, which conversion rate was substantially above the current
market price of the Common Stock. The Company utilized $6.1 million of its
non-revolving line of credit to finance one-half of the redemption of the 7 1/2%
Notes and utilized $6.1 million of cash for the remaining one-half. Also during
the six months ended June 30, 2006, the Company repaid $1.2 million of it
revolving loan facility and made regularly scheduled payments of long-term debt,
offset by $150,000 from the State of Iowa and City of Des Moines as a zero
percent interest loan for a five year term.
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 to finance
purchases and/or redemptions of one-half of the 7 1/2% Notes, and a revolving
loan of up to $5.0 million at variable interest rates ranging from LIBOR plus
2.25% to Prime (ranging from 6.85% to 8.25% at June 30, 2006). The Credit
Agreement matures on January 1, 2008. The non-revolving line of credit is
convertible into a four-year amortizing term loan on December 31, 2006 and
matures January 1, 2008. At June 30, 2006, $6.1 million of the non-revolving
line of credit was outstanding and $3.8 million of the revolving loan was
outstanding, leaving $1.2 million available under the revolving loan facility.
The Credit Agreement requires an annual facility fee on the unused commitment of
0.25%, and requires compliance with certain financial covenants, which include a
fixed charge coverage ratio of 1.1 to 1.0 through June 30, 2006 and 1.2 to 1.0
for quarters ending September 30, 2006 and thereafter, a loan-to-value ratio of
not more than 50%, a leverage ratio of 3.0 to 1.0, a cap on capital expenditures
and maintaining accounts with an average monthly compensating balance of not
less than $750,000. At June 30, 2006, the Company was in compliance with the
forgoing financial covenants; but the Company was not in compliance with its
minimum tangible net worth of not less than $19.0 million, which its senior
lender has waived at June 30, 2006.
On March 13, 2006, the Company completed an offer to exchange $1,000 principal
amount of its 8 1/4% Limited Convertible Senior Subordinated Notes due 2012 (the
"8 1/4% Notes") for each $1,000 principal amount of its 7 1/2% Notes. The
exchange offer commenced February 6, 2006 and expired on March 13, 2006. A
total of $0.1 million principal amount of 7 1/2% Notes were exchanged, leaving
$12.2 million principal amount of 7 1/2% Notes outstanding, which were
subsequently redeemed. The 8 1/4% Notes provide for a higher interest rate,
which is payable semi-annually, have a longer term, are convertible into Common
Stock at a lower conversion price of $9.00 per share until March 1, 2007, may be
redeemed by the Company, in whole or in part, at declining premiums beginning
March 1, 2006, and are senior to the 7 1/2% Notes and the Company's 9 1/2%
Subordinated Debentures (the "Debentures") due 2012.
Note 4 - Reporting Comprehensive Loss
Total comprehensive loss for the three and six months ended June 30, 2006 and 2005 is as follows:
Three months ended June 30 Six months ended June 30
In thousands 2006 2005 2006 2005
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Net loss $(393) $(401) $(1,466) $(823)
----- ----- ------- -----
Other comprehensive income (loss):
Unrealized foreign currency translation gain (loss) 124 (24) 110 (40)
Unrealized holding gain (loss) on securities 10 7 17 (18)
Income taxes related to other comprehensive
income (loss) items (4) (3) (7) 7
----- ----- ------- -----
Total other comprehensive income (loss), net of tax 130 (20) 120 (51)
----- ----- ------- -----
Comprehensive loss $(263) $(421) $(1,346) $(874)
===== ===== ======= =====
Note 5 - Stock Option Plans
Effective January 1, 2006, the Company adopted the provisions of SFAS 123(R),
which establishes the accounting for stock-based awards exchanged for employee
services. SFAS 123(R) requires all share-based payments to employees, including
grants of employee stock options, to be measured at fair value and expensed in
the consolidated statement of operations over the service period (generally the
vesting period). The Company previously accounted for share-based compensation
plans under APB 25 and the related interpretations and provided the required
SFAS 123 pro forma disclosures for employee stock options.
The following summarizes the activity of the Company's stock options for the six
months ended June 30, 2006:
Weighted
Weighted Average
Average Remaining Aggregate
Exercise Contractual Intrinsic
Options Price ($) Term (Yrs) Value
----------------------------------------------------------------------------
Outstanding at beginning of year 71,300 6.10
Granted -
Exercised -
Terminated (500) 5.38
------
Outstanding at end of period 70,800 6.11 4.5
====== ===
Vested and expected to vest
at end of period 70,800 6.11 4.5 205,000
====== === =======
Exercisable at end of period 68,800 6.11 4.5 199,000
====== === =======
As of June 30, 2006, there was $1,000 of total unrecognized compensation cost
related to non-vested options granted under the Plans. That cost will be
recognized in the third quarter of 2006.
Expected volatility is based on historical volatility of the Company's stock and
the expected life of options is based on historical data with respect to
exercise periods.
Prior to the adoption of SFAS 123(R), the Company provided the disclosures
required under SFAS 123. The Company did not recognize stock option-based
compensation cost in our consolidated statements of operations for the periods
prior to the adoption of SFAS 123(R), as all options granted had an exercise
price equal to the market price of our common stock on the date of grant.
The following table illustrates the effect on net loss and loss per share for
the three and six months ended June 30, 2005 as if the Company had applied the
fair value recognition provisions of SFAS 123 to stock-based employee
compensation:
Three months ended Six months ended
In thousands, except per share data June 30, 2005 June 30, 2005
-----------------------------------------------------------------------------------------
Net loss, as reported $ (401) $ (823)
Deduct: Total stock-based employee compensation
expense determined under fair value based
method for all awards, net of tax 1 7
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Pro forma net loss $ (402) $ (830)
====== ======
Basic loss per share:
As reported $(0.32) $(0.65)
Pro forma $(0.32) $(0.66)
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In accordance with SFAS 123(R), the fair value of each option grant has been
estimated as of the date of grant using the binomial options-pricing model with
the following weighted average assumptions used:
Three and six months ended
June 30, 2005
----------------------------------------------------
Dividend yield 2.06%
Expected volatility 43.00%
Risk free interest rate 4.59%
Expected life (in years) 4.0
Note 6 - Business Segment Data
The Company evaluates segment performance and allocates resources based upon
operating income. The Company's operations are managed in three reportable
business segments. The Display Division comprises two operating segments,
Indoor display and Outdoor display. Both design, produce, lease, sell and
service large-scale, multi-color, real-time electronic information displays.
Both operating segments are conducted on a global basis, primarily through
operations in the U.S. The Company also has operations in Canada. The Indoor
display and Outdoor display segments are differentiated primarily by the
customers they serve. The Entertainment/Real Estate segment owns a chain of
motion picture theatres in the western Mountain States and income-producing real
estate properties. Segment operating income is shown after general and
administrative expenses directly associated with the segment and includes the
operating results of the joint venture activities. Corporate general and
administrative items relate to costs that are not directly identifiable with a
segment. There are no intersegment sales. Of the total goodwill of $1.0
million, $0.9 million relates to the Outdoor display segment and $0.1 million
relates to the Indoor display segment.
Foreign revenues represent less than 10% of the Company's revenues and therefore
are not separately disclosed. The foreign operation does not manufacture their
own equipment; the domestic operation provides the equipment that the foreign
operation leases or sells. The foreign operation operates similarly to the
domestic operation and has similar profit margins.
Information about the Company's operations in its three business segments for the three and six months
ended June 30, 2006 and 2005 is as follows:
Three months ended June 30 Six months ended June 30
In thousands 2006 2005 2006 2005
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Revenues:
Indoor display $ 3,335 $ 3,808 $ 6,325 $ 7,242
Outdoor display 6,942 6,321 12,472 11,475
Entertainment/real estate 3,432 3,335 6,522 6,396
------- ------- ------- -------
Total revenues 13,709 13,464 25,319 25,113
======= ======= ======= =======
Operating income (loss):
Indoor display (202) 390 (535) 699
Outdoor display 504 416 527 540
Entertainment/real estate 913 806 1,734 1,618
------- ------- ------- -------
Total operating income 1,215 1,612 1,726 2,857
Other income 19 135 18 160
Corporate general and administrative expenses (841) (1,504) (1,933) (2,512)
Interest expense - net (1,024) (893) (2,087) (1,839)
Income tax benefit 238 249 810 511
------- ------- ------- -------
Net loss $ (393) $ (401) $(1,466) $ (823)
======= ======= ======= =======
Note 7 - Components of Net Periodic Pension Cost
As of December 31, 2003, the benefit service under the pension plan had been
frozen and, accordingly, there is no service cost for the periods ended June 30,
2006 and 2005.
The following table presents the components of net periodic pension cost:
Three months ended June 30 Six months ended June 30
In thousands 2006 2005 2006 2005
-----------------------------------------------------------------------------------
Interest cost $ 153 $ 156 $ 306 $ 312
Expected return on plan assets (163) (156) (326) (312)
Amortization of prior service cost 4 4 8 8
Amortization of net actuarial loss 77 67 154 134
----- ----- ----- -----
Net periodic pension cost $ 71 $ 71 $ 142 $ 142
===== ===== ===== =====
The minimum required contribution for 2006 is expected to be zero, but the
Company estimates that it will contribute between zero and $200,000 in 2006.
Note 8 - Legal Proceedings and Claims
The Company is subject to legal proceedings and claims, which arise in the
ordinary course of its business. The Company is not a party to any pending
legal proceedings and claims that it believes will have a material adverse
effect on the consolidated financial position or operations of the Company.
Note 9 - Joint Venture
The Company has a 50% ownership in a joint venture partnership, MetroLux
Theatres ("MetroLux"), accounted for by the equity method.
The following results of operations summary information relates to MetroLux for
the three and six months ended June 30, 2006 and 2005, and summary balance sheet
information relates to MetroLux as of June 30, 2006 and December 31, 2005:
Three months ended June 30 Six months ended June 30
In thousands 2006 2005 2006 2005
-----------------------------------------------------------------------------------------------
Revenues $1,308 $848 $2,448 $1,595
Gross profit 757 470 1,427 923
Net income 257 178 406 358
Company's share of partnership net income 129 89 203 179
---------------------------------------------------
June 30 December 31
In thousands 2006 2005
----------------------------------------------------------------
Current assets $ 324 $3,623
Noncurrent assets 1,893 2,021
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Total assets 2,217 5,644
====== ======
Current liabilities 484 2,751
Noncurrent liabilities 872 883
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Total liabilities 1,356 3,634
====== ======
Company's equity in partnership net assets $ 513 $1,047
------ ------
The Company's equity in partnership net assets is reflected in other assets in
the consolidated balance sheets. The Company has guaranteed $0.7 million (75%)
of a $1.0 million business loan to finance theatre equipment at its new
fourteen-plex theatre held by MetroLux, until May 2011, and, accordingly has
recognized a liability for $42,000 at June 30, 2006. The unrelated 50% partner
of MetroLux also guaranteed $0.7 million (75%) of the $1.0 million business
loan. The assets of MetroLux collateralize this business loan.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview
Trans-Lux is a full service provider of integrated multimedia systems for
today's communications environments. The essential elements of these systems
are the real-time, programmable electronic information displays we manufacture,
distribute and service. Designed to meet the evolving communications needs of
both the indoor and outdoor markets, these displays are used primarily in
applications for the financial, banking, gaming, corporate, retail,
transportation, entertainment and sports industries. In addition to its display
business, the Company owns and operates a chain of motion picture theatres in
the western Mountain States. The Company operates in three reportable segments:
Indoor Display, Outdoor Display and Entertainment/Real Estate.
The Indoor Display segment includes worldwide revenues and related expenses from
the rental, maintenance and sale of indoor displays. This segment includes the
financial, gaming, government and corporate markets. The Outdoor Display
segment includes worldwide revenues and related expenses from the rental,
maintenance and sale of outdoor displays. Included in this segment are catalog
sports and commercial markets. The Entertainment/Real Estate segment includes
the operations of the motion picture theatres in the western Mountain States and
income-producing real estate properties.
Results of Operations
Six Months Ended June 30, 2006 Compared to Six Months Ended June 30, 2005
Total revenues for the six months ended June 30, 2006 increased $206,000 or 0.8%
to $25.3 million from $25.1 million for the six months ended June 30, 2005,
principally due to increases in Outdoor display sales revenues, offset by
decreases in Indoor display rentals and maintenance revenues and sales revenues.
Indoor display revenues decreased $917,000 or 12.7%. Of this decrease, Indoor
display equipment rentals and maintenance revenues decreased $556,000 or 11.4%,
primarily due to disconnects and non-renewals of equipment on rental and
maintenance on existing contracts in the financial services market. Indoor
display equipment sales decreased $361,000 or 15.3%, primarily due to a
reduction in sales from the financial services market. The financial services
market continues to be negatively impacted by the current investment climate,
resulting in consolidation within that industry. Although the market conditions
appear to be slowly improving, installations of new equipment tend to lag any
economic turnaround.
Outdoor display revenues increased $997,000 or 8.7%. Of this increase, Outdoor
display equipment sales increased $1.0 million or 11.9%, primarily in the
outdoor catalog sports market. Outdoor display equipment rentals and
maintenance revenues decreased $42,000 or 1.5%, primarily due to the continued
expected gradual revenue decline in the older Outdoor display equipment rental
and maintenance bases acquired in the early 1990s.
Entertainment/Real Estate revenues increased $126,000 or 2.0%, primarily due to
an increase in concession sales, while box office revenues remained level.
Total operating income for the six months ended June 30, 2006 decreased 39.6% to
$1.7 million from $2.9 million for the six months ended June 30, 2005,
principally due to the reduction in revenues in the Indoor display segment and a
decrease in the gross margin of the Indoor display segment due to the product
mix.
Indoor display operating income decreased $1.2 million, from an operating income
of $699,000 to an operating loss of $535,000, primarily as a result of the
decrease in revenues in the financial services market and a decrease in the
gross margin on sold equipment due to the product mix. The cost of Indoor
displays represented 75.0% of related revenues in 2006 compared to 63.8% in
2005. The cost of Indoor displays as a percentage of related revenues increased
primarily due to the relationship between field service costs of equipment
rentals and maintenance decreasing, and the revenues from Indoor display
equipment rentals and maintenance also decreasing but not at the same rate. The
Company continues to monitor and address the cost of field service to bring it
in line with revenues from equipment rentals and maintenance. Indoor display
cost of equipment sales increased $229,000 or 24.4%, primarily due to the
decrease in the gross margin of Indoor display equipment sales due to the
product mix of sales to the transportation market. Indoor display general and
administrative expenses increased $197,000 or 10.2%, primarily due to a $70,000
increase in the allowance for doubtful accounts receivable, and an increase in
travel costs and commission. Cost of Indoor display equipment rentals and
maintenance includes field service expenses, plant repair costs, maintenance and
depreciation.
Outdoor display operating income decreased $13,000 or 2.4%, primarily as a
result of the product mix and a $50,000 non-recurring material cost, offset by a
decrease of $187,000 in field service costs. The Company continues to address
the cost of field service to bring it in line with revenues from equipment
rentals and maintenance. The cost of Outdoor displays represented 79.3% of
related revenues in 2006 compared to 78.9% in 2005. Outdoor display cost of
equipment sales increased $1.0 million or 15.4%, principally due to the increase
in volume from the outdoor catalog sports market. Outdoor display cost of
equipment rentals and maintenance decreased $174,000 or 6.9%, primarily due to a
decrease in field service costs. Outdoor display general and administrative
expenses increased $175,000 or 9.3%, primarily due to an increase in engineering
costs, travel costs, salaries and benefits. Cost of Outdoor display equipment
rentals and maintenance includes field service expenses, plant repair costs,
maintenance and depreciation.
Entertainment/Real Estate operating income increased $116,000 or 7.2%, primarily
due to an increase in concession sales. The cost of Entertainment/real estate
represented 70.8% of related revenues in 2006 compared to 72.7% in 2005. Cost
of Entertainment/real estate, which includes film rental costs and depreciation
expense, decreased $32,000 or 0.7%, primarily due to the reduction in certain
operating expenses. Entertainment/Real Estate general and administrative
expenses increased $66,000 primarily due to increased salaries and travel costs.
Corporate general and administrative expenses decreased $579,000 or 23.0%,
primarily due to reductions in insurance expense, payroll and benefits, and the
positive effect of a currency exchange gain in 2006 of $89,000 compared to a
currency exchange loss of $58,000 in 2005.
Net interest expense increased $248,000 or 13.5%, which is primarily
attributable to an increase in variable interest rates. The income from joint
venture relates to the operations of the theatre joint venture, MetroLux
Theatres, in Loveland, Colorado, which is included in the Entertainment/real
estate segment.
The effective tax rates for the six months ended June 30, 2006 and 2005 were
35.6% and 38.3%, respectively.
Three Months Ended June 30, 2006 Compared to Three Months Ended June 30, 2005
Total revenues for the three months ended June 30, 2006 increased $245,000 or
1.8% to $13.7 million from $13.5 million for the three months ended June 30,
2005, principally due to increases in Outdoor display sales revenues, offset by
decreases in Indoor display rentals and maintenance revenues and sales revenues.
Indoor display revenues decreased $472,000 or 12.4%. Of this decrease, Indoor
display equipment rentals and maintenance revenues decreased $272,000 or 11.1%,
primarily due to disconnects and non-renewals of equipment on rental and
maintenance on existing contracts in the financial services market. Indoor
display equipment sales decreased $200,000 or 14.7%, primarily due to a
reduction in sales from the financial services market. The financial services
market continues to be negatively impacted by the current investment climate,
resulting in consolidation within that industry. Although the market conditions
appear to be slowly improving, installations of new equipment tend to lag any
economic turnaround.
Outdoor display revenues increased $620,000 or 9.8%. Of this increase, Outdoor
display equipment sales increased $690,000 or 14.0%, primarily in the outdoor
catalog sports market. Outdoor display equipment rentals and maintenance
revenues decreased $70,000 or 5.1%, primarily due to the continued expected
gradual revenue decline in the older Outdoor display equipment rental and
maintenance bases acquired in the early 1990s.
Entertainment/Real Estate revenues increased $97,000 or 2.9%, primarily due to
an increase in concession sales, while box office revenues remained level.
Total operating income for the three months ended June 30, 2006 decreased
$397,000 to $1.2 million from $1.6 million for the three months ended June 30,
2005, principally due to the reduction in revenues in the Indoor display segment
and a decrease in the gross margin in the Indoor display segment due to the
product mix.
Indoor display operating income decreased $591,000, from an operating income of
$390,000 to an operating loss of $201,000, primarily as a result of the decrease
in revenues in the financial services market and a decrease in the gross margin
on sold equipment due to the product mix. The cost of Indoor displays
represented 73.4% of related revenues in 2006 compared to 64.9% in 2005. The
cost of Indoor displays as a percentage of related revenues increased primarily
due to the relationship between field service costs of equipment rentals and
maintenance decreasing, and the revenues from Indoor display equipment rentals
and maintenance also decreasing but not at the same rate. The Company reduced
the cost of field service by $89,000 during the three months ended June 30, 2006
and continues to monitor and address these costs to bring them in line with
revenues from equipment rentals and maintenance. Indoor display cost of
equipment sales increased $97,000 or 16.6%, primarily due to the decrease in the
gross margin of Indoor display equipment sales due to the product mix of sales
to the transportation market. Indoor display general and administrative
expenses increased $139,000 or 14.6%, primarily due to an increase in travel
costs and commission. Cost of Indoor display equipment rentals and maintenance
includes field service expenses, plant repair costs, maintenance and
depreciation.
Outdoor display operating income increased $88,000 or 21.1%, primarily as a
result of a decrease of $87,000 in field service costs. The Company continues
to monitor and address the cost of field service to bring it in line with
revenues from equipment rentals and maintenance. The cost of Outdoor displays
represented 78.6% of related revenues in 2006 compared to 77.5% in 2005.
Outdoor display cost of equipment sales increased $640,000 or 17.6%, principally
due to the increase in volume from the outdoor catalog sports market. Outdoor
display cost of equipment rentals and maintenance decreased $80,000 or 6.3%,
primarily due to a decrease in field service costs. Outdoor display general and
administrative expenses decreased $28,000 or 2.8%, primarily due to a reduction
in certain selling expenses. Cost of Outdoor display equipment rentals and
maintenance includes field service expenses, plant repair costs, maintenance and
depreciation.
Entertainment/Real Estate operating income increased $106,000 or 13.1%,
primarily due to an increase in concession sales. The cost of
Entertainment/real estate represented 71.5% of related revenues in 2006 compared
to 73.4% in 2005. Cost of Entertainment/real estate, which includes film rental
costs and depreciation expense, remained level. Entertainment/Real Estate
general and administrative expenses increased $23,000 or 13.6%, primarily due to
increased salaries and travel costs.
Corporate general and administrative expenses decreased $663,000 or 44.1%,
primarily due to reductions in insurance expense, payroll and benefits, and the
positive effect of a currency exchange gain in 2006 of $94,000 compared to a
currency exchange loss of $46,000 in 2005.
Net interest expense increased $131,000 or 14.7%, which is primarily
attributable to an increase in variable interest rates. The income from joint
venture relates to the operations of the theatre joint venture, MetroLux
Theatres, in Loveland, Colorado, which is included in the Entertainment/real
estate segment.
The effective tax rates for the three months ended June 30, 2006 and 2005 were
37.7% and 38.3%, respectively.
Liquidity and Capital Resources
On June 13, 2006, the Board of Directors of the Corporation did not declare a
regular quarterly cash dividend for the second quarter of 2006 of $0.035 per
share on the Company's Common Stock and $0.0315 per share on the Company's Class
B Stock in order to conserve cash and prepay debt.
On June 15, 2006, the Company redeemed all of its $12.2 million 7 1/2% Notes.
The 7 1/2% Notes were convertible at the option of the holder into shares of
Common Stock, $1 par value per share, of the Company at any time prior to the
close of business on the June 14, 2006 at the rate of $14.013 per share, which
conversion rate was substantially above the current market price of the Common
Stock. The Company utilized $6.1 million of its non-revolving line of credit to
finance one-half of the redemption of the 7 1/2% Notes and utilized $6.1 million
of cash for the remaining one-half.
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 to finance
purchases and/or redemptions of one-half of the 7 1/2% Convertible Subordinated
Notes due December 1, 2006, and a revolving loan of up to $5.0 million at
variable interest rates ranging from LIBOR plus 2.25% to Prime (ranging from
6.85% to 8.25% at June 30, 2006). The Credit Agreement matures on January 1,
2008. The non-revolving line of credit is convertible into a four-year
amortizing term loan on December 31, 2006 and matures January 1, 2008. At June
30, 2006, $6.1 million of the non-revolving line of credit was outstanding and
$3.8 million of the revolving loan was outstanding, leaving $1.2 million
available under the revolving loan facility. The Credit Agreement requires an
annual facility fee on the unused commitment of 0.25%, and requires compliance
with certain financial covenants, which include a fixed charge coverage ratio of
1.1 to 1.0 through June 30, 2006 and 1.2 to 1.0 for quarters ending September
30, 2006 and thereafter, a loan-to-value ratio of not more than 50%, a leverage
ratio of 3.0 to 1.0, a cap on capital expenditures and maintaining accounts with
an average monthly compensating balance of not less than $750,000. At June 30,
2006, the Company was in compliance with the forgoing financial covenants; but
the Company was not in compliance with its minimum tangible net worth of not
less than $19.0 million, which its senior lender has waived at June 30, 2006.
On March 13, 2006, the Company completed an offer to exchange $1,000 principal
amount of its 8 1/4% Notes for each $1,000 principal amount of its 7 1/2% Notes.
The exchange offer commenced February 6, 2006 and expired on March 13, 2006. A
total of $0.1 million principal amount of 7 1/2% Notes were exchanged, leaving
$12.2 million principal amount of 7 1/2% Notes outstanding, and $18.0 million
principal amount of the 8 1/4% Notes outstanding. The 7 1/2% Notes were
subsequently redeemed. The 8 1/4% Notes provide for a higher interest rate,
which is payable semi-annually, have a longer term, are convertible into Common
Stock at a lower conversion price of $9.00 per share until March 1, 2007, may be
redeemed by the Company, in whole or in part, at declining premiums beginning
March 1, 2006, and are senior to the 7 1/2% Notes and the Company's Debentures.
Under various agreements, the Company is obligated to make future cash payments
in fixed amounts. These consist of payments under the Company's long-term debt
agreements, employment and consulting agreement payments and rent payments
required under operating lease agreements.
The following table summarizes the Company's fixed cash obligations as of June
30, 2006 for the remainder of 2006 and the next four years:
Remainder of
In thousands 2006 2007 2008 2009 2010
-------------------------------------------------------------------------------
Long-term debt, including interest $2,544 $7,348 $20,188 $3,869 $3,810
Employment and consulting
agreement obligations 831 1,667 1,435 860 482
Operating lease payments 373 533 446 316 293
------ ------ ------- ------ ------
Total $3,748 $9,548 $22,069 $5,045 $4,585
-------------------------------------------------------------------------------
Cash and cash equivalents decreased $9.0 million for the six months ended June
30, 2006 compared to a decrease of $0.9 million in 2005. The decrease in 2006
is primarily attributable to the redemption of the outstanding $12.2 million 7
1/2% Notes on June 15, 2006. The Company utilized $6.1 million of its
non-revolving line of credit to finance one-half of the redemption of the 7 1/2%
Notes and utilized $6.1 million of cash for the remaining one-half. The Company
also made a net $1.2 million repayment on the revolving line of credit and $1.1
million of scheduled payments of long-term debt, and made investments in
equipment for rental, offset by the proceeds from the joint venture. The
decrease in 2005 is primarily attributable to the investment in equipment for
rental, expansion of the Company's movie theatre in Dillon, Colorado and
scheduled payments of long-term debt.
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995
The Company may, from time to time, provide estimates as to future performance.
These forward-looking statements will be estimates, and may or may not be
realized by the Company. The Company undertakes no duty to update such
forward-looking statements. Many factors could cause actual results to differ
from these forward-looking statements, including loss of market share through
competition, introduction of competing products by others, pressure on prices
from competition or purchasers of the Company's products, interest rate and
foreign exchange fluctuations, terrorist acts and war.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company is subject to interest rate risk on its long-term debt. The Company
manages its exposure to changes in interest rates by the use of variable and
fixed interest rate debt. In addition the Company is exposed to foreign
currency exchange rate risk mainly as a result of its investment in its Canadian
subsidiary. The Company may, from time to time, enter into derivative contracts
to manage its interest risk. The Company does not enter into derivatives for
trading or speculative purposes. At June 30, 2006, the Company did not hold any
derivative financial instruments.
A one percentage point change in interest rates would result in an annual
interest expense fluctuation of approximately $334,000. A 10% change in the
Canadian dollar relative to the U.S. dollar would result in a currency exchange
expense fluctuation of approximately $170,000, based on dealer quotes,
considering current exchange rates.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures. The Company's President and
Co-Chief Executive Officer, Michael R. Mulcahy, the Company's Executive Vice
President and Co-Chief Executive Officer, Thomas Brandt, and the Company's
Executive Vice President and Chief Financial Officer, Angela D. Toppi, have
evaluated the effectiveness of the design and operation of its disclosure
controls and procedures as of the end of the period covered by this quarterly
report. The Company's disclosure controls and procedures are designed to ensure
that material information required to be disclosed by the Company in the reports
that are filed or submitted under the Securities Exchange Act of 1934 is
recorded, processed, summarized and reported within the time periods specified
in the Securities and Exchange Commission's rules and forms. Our disclosure
controls and procedures include components of our internal controls over
financial reporting. Management's assessment of the effectiveness of our
internal controls over financial reporting is expressed at the level of
reasonable assurance because a control system, no matter how well designed and
operated, can provide only reasonable, but not absolute assurance that the
control system's objectives will be met. Based on this evaluation, the
Company's Co-Chief Executive Officers and Chief Financial Officer have concluded
that these controls and procedures are effective.
Changes in Internal Control over Financial Reporting. There has been no change
in the Company's internal control over financial reporting, that occurred in the
second fiscal quarter, that has materially affected, or is reasonably likely to
materially affect, the Company's internal control over financial reporting.
Part II - Other Information
---------------------------
Item 1A. Risk Factors
The Company is subject to a number of risks including general business and
financial risk factors. Any or all of such factors could have a material
adverse effect on the business, financial condition or results of operations of
the Company. You should carefully consider the following risk factors, in
addition to those identified in our Annual Report on Form 10-K for the year
ended December 31, 2005.
The Company has incurred losses for the three and six months ended June 30, 2006
of $393,000 and $1,466,000, respectively, and $1,793,000 for the year ended
December 31, 2005. However, the Company does have positive working capital of
$8.2 million as of June 30, 2006 and a positive cash flow from operations for
the six months ended June 30, 2006 of $509,000. Management believes that its
current cash resources will be sufficient to fund its operations and its current
obligations through June 30, 2007.
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders of Trans-Lux Corporation was held on June 13,
2006 for the purpose of electing directors and ratifying the retention of
auditors as set forth below.
All of management's nominees for directors for a three-year term as listed in
the proxy statement were elected by the following vote:
For Withheld
--- --------
Steven Baruch 3,615,676 151,425
Thomas Brandt 3,563,451 203,650
Howard M. Brenner 3,619,371 147,730
The following directors are continuing their terms as directors:
Gene Jankowski, One-Year Remaining
Richard Brandt, One-Year Remaining
Jean Firstenberg, One-Year Remaining
Victor Liss, One-Year Remaining
Matthew Brandt, Two-Years Remaining
Robert B. Greenes, Two-Years Remaining
Howard S. Modlin, Two-Years Remaining
Michael R. Mulcahy, Two-Years Remaining
The recommendation to ratify the retention of Eisner LLP as the independent
auditors for the Company was approved by the following vote:
For Against Abstain
--- ------- -------
Totals 3,584,849 135,737 46,515
Item 5. Other Information
During the quarter for which this report on Form 10-Q is filed, the registrant
filed a Form 8-K dated June 13, 2006, stating that the Board of Directors of the
Corporation did not declare a quarterly dividend in order to conserve cash and
pay debt.
Item 6. Exhibits
31.1 Certification of Michael R. Mulcahy, President and Co-Chief
Executive Officer, pursuant to Rule 13a-14(a) and 15d-14(a), as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Thomas Brandt, Executive Vice President and
Co-Chief Executive Officer, pursuant to Rule 13a-14(a) and
15d-14(a), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
31.3 Certification of Angela D. Toppi, Executive Vice President and
Chief Financial Officer, pursuant to Rule 13a-14(a) and 15d-14(a),
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
32.1 Certification of Michael R. Mulcahy, President and Co-Chief
Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification of Thomas Brandt, Executive Vice President and
Co-Chief Executive Officer, pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
32.3 Certification of Angela D. Toppi, Executive Vice President and
Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TRANS-LUX CORPORATION
---------------------
(Registrant)
Date: August 14, 2006
by /s/ Angela D. Toppi
--------------------
Angela D. Toppi
Executive Vice President and
Chief Financial Officer