UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2011
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Commission file number 1-2257
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TRANS-LUX CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 13-1394750
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
26 Pearl Street, Norwalk, CT 06850-1647
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(Address of principal executive offices) (Zip code)
(203) 853-4321
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(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark whether the Registrant has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T (S232.405 of
this chapter) during the preceding 12 months (or for such shorter period that
the Registrant was required to file and post such files). Yes No
--- ---
Indicate by check mark whether the Registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company.
See the definitions of "large accelerated filer," "accelerated filer" and
"smaller reporting company" in Rule 12b-2 of the Exchange Act. (check one)
Large accelerated filer Accelerated filer Non-accelerated filer
--- --- ---
Smaller reporting company X
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Indicate by check mark whether the Registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes No X
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date.
Date Class Shares Outstanding
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05/13/11 Common Stock - $1.00 Par Value 2,442,923
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 - March 31, 2011
and December 31, 2010 (audited) 1
Condensed Consolidated Statements of Operations -
Three Months Ended March 31, 2011 and 2010 2
Condensed Consolidated Statements of Cash Flows -
Three Months Ended March 31, 2011 and 2010 3
Notes to Condensed Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
Item 3. Quantitative and Qualitative Disclosures about
Market Risk 21
Item 4. Controls and Procedures 21
Part II - Other Information
Item 1. Legal Proceedings 22
Item 1A. Risk Factors 22
Item 2. Unregistered Sales of Equity Securities and Use
of Proceeds 22
Item 3. Defaults upon Senior Securities 22
Item 4. (Removed and Reserved) 23
Item 5. Other Information 23
Item 6. Exhibits 23
Signatures 24
Exhibits
Part I - Financial Information
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TRANS-LUX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
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March 31 December 31
In thousands, except share data 2011 2010
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(unaudited) (see Note 1)
ASSETS
Current assets:
Cash and cash equivalents $ 435 $ 398
Receivables, less allowance of $1,528 - 2011 and $1,326 - 2010 2,395 2,970
Unbilled receivables - 11
Inventories 4,288 4,852
Prepaids and other 651 532
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Total current assets 7,769 8,763
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Rental equipment 50,447 50,229
Less accumulated depreciation 31,239 30,173
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19,208 20,056
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Property, plant and equipment 6,857 6,840
Less accumulated depreciation 4,642 4,571
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2,215 2,269
Asset held for sale 920 920
Goodwill 810 810
Other assets 579 624
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TOTAL ASSETS $ 31,501 $ 33,442
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LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 2,028 $ 2,459
Accrued liabilities 7,873 7,555
Current portion of long-term debt 16,030 16,378
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Total current liabilities 25,931 26,392
Long-term debt:
Notes payable 2,306 2,335
Deferred pension liability and other 4,799 4,685
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Total liabilities 33,036 33,412
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Stockholders' equity (deficit):
Common Stock - $1 par value - 5,500,000 shares authorized,
2,826,424 shares issued in 2011 and 2010 2,827 2,827
Additional paid-in-capital 14,285 14,279
Accumulated deficit (13,695) (12,025)
Accumulated other comprehensive loss (1,889) (1,988)
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1,528 3,093
Less treasury stock - at cost - 383,596 common shares in 2011
and 2010 3,063 3,063
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Total stockholders' equity (deficit) (1,535) 30
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 31,501 $ 33,442
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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)
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Three Months Ended
March 31
In thousands, except per share data 2011 2010
------------------------------------------------------------------------------------
Revenues:
Equipment rentals and maintenance $ 2,046 $ 2,268
Equipment sales 2,848 3,054
Real estate rentals 23 64
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Total revenues 4,917 5,386
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Cost of revenues:
Cost of equipment rentals and maintenance 1,632 1,879
Cost of equipment sales 2,335 2,555
Cost of real estate rentals 17 12
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Total cost of revenues 3,984 4,446
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Gross profit from operations 933 940
General and administrative expenses (2,165) (1,928)
Restructuring costs (70) -
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Operating loss (1,302) (988)
Interest expense, net (361) (418)
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Loss before income taxes (1,663) (1,406)
Income tax expense (7) (14)
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Net loss $(1,670) $(1,420)
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Loss per share - basic and diluted $ (0.68) $ (0.59)
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Weighted average common shares outstanding - basic and diluted 2,443 2,393
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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)
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Three Months Ended
March 31
In thousands 2011 2010
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Cash flows from operating activities
Net loss $(1,670) $(1,420)
Adjustment to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 1,147 1,374
Amortization of restricted Common Stock 6 -
Changes in operating assets and liabilities:
Receivables 586 (941)
Inventories 564 (22)
Prepaids and other assets (85) 120
Accounts payable and accrued liabilities (14) 1,330
Deferred pension liability and other 114 128
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Net cash provided by operating activities 648 569
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Cash flows from investing activities
Equipment manufactured for rental (218) (441)
Purchases of property, plant and equipment (17) (2)
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Net cash used in investing activities (235) (443)
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Cash flows from financing activities
Payments of long-term debt (377) (893)
Proceed from long-term debt - 650
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Net cash used in financing activities (377) (243)
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Cash flows from discontinued operations
Cash provided by operating activities of discontinued operations 1 38
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Net cash provided by discontinued operations 1 38
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Net increase (decrease) in cash and cash equivalents 37 (79)
Cash and cash equivalents at beginning of year 398 541
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Cash and cash equivalents at end of period $ 435 $ 462
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Supplemental disclosure of cash flow information:
Interest paid $ 125 $ 125
Income taxes paid - -
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The accompanying notes are an integral part of these condensed consolidated financial statements.
3
TRANS-LUX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2011
(unaudited)
Note 1 - Basis of Presentation
Financial information included herein is unaudited, however, such information
reflects all adjustments (of a normal and recurring nature), which are, in the
opinion of management, necessary for the fair presentation of the condensed
consolidated financial statements for the interim periods. The results for the
interim periods are not necessarily indicative of the results to be expected for
the full year. The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with rule 10-01 of Regulation S-X
promulgated by the Securities and Exchange Commission and therefore do not
include all information and footnote disclosures required under accounting
principles generally accepted in the United States of America. It is suggested
that the March 31, 2011 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, 2010. The Condensed Consolidated Balance Sheet at December 31, 2010 is
derived from the December 31, 2010 audited financial statements.
There have been no material changes in our significant accounting policies
during the three months ended March 31, 2011 as compared to the significant
accounting policies described in our Annual Report on Form 10-K for the year
ended December 31, 2010. The Company has evaluated subsequent events through
the filing date of this Form 10-Q and has disclosed in Note 6 - Long-Term Debt
the extension of the maturity of the Credit Agreement to November 1, 2011.
Recent Accounting Pronouncements: In December 2010, the Financial Accounting
Standards Board issued Accounting Standards Update ("ASU") 2010-28, "Intangibles
- Goodwill and Other (Topic 350): When to Perform Step 2 of the Goodwill
Impairment Test for Reporting Units with Zero or Negative Carrying Amounts"
("ASU 2010-28"). ASU 2010-28 provides amendments to Topic 350 to modify Step 1
of the goodwill impairment test for reporting units with zero or negative
carrying amounts to clarify that, for those reporting units, an entity is
required to perform Step 2 of the goodwill impairment test if it is more likely
than not that a goodwill impairment exists. In determining whether it is more
likely than not that a goodwill impairment exists, an entity should consider
whether there are any adverse qualitative factors indicating that an impairment
may exist. For public entities, the amendments in this ASU are effective for
fiscal years, and interim periods within those years, beginning after December
15, 2010. Early adoption is not permitted. The adoption of ASU 2010-28 is not
expected to have an impact on the Company's consolidated financial statements.
Reclassifications: Certain reclassifications of prior year amounts have been
made to conform to the current year presentation.
4
Note 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 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 condensed 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 incurred a net
loss from continuing operations of $1.7 million for the three months ended March
31, 2011 and has a working capital deficiency of $18.2 million as of March 31,
2011. As further discussed in Note 6 - Long-Term Debt, the Company has not
remitted the December 1, 2009 and 2010 required sinking fund payments of
$105,700 each and has not remitted the June 1, 2010 and December 1, 2010
interest payments of $50,200 each on its 9 1/2% Subordinated debentures due 2012
(the "Debentures"). In addition, the Company has not remitted the March 1, 2010
and 2011 and September 1, 2010 interest payments of $417,800 each on its 8 1/4%
Limited convertible senior subordinated notes due 2012 (the "Notes"). Under the
terms of the indenture agreements that govern the Debentures and the 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 the Company receives such notice, the senior lender has the right to
demand payment on outstanding amounts under the Credit Agreement. The
outstanding Debentures, Notes and Credit Agreement debt have been classified as
Current portion of long-term debt in the Condensed Consolidated Balance Sheets.
These matters raise substantial doubt about the Company's ability to continue as
a going concern.
In May 2011, the senior lender agreed to extend the maturity date of the Credit
Agreement to November 1, 2011, remove the senior debt coverage ratio covenant
for the March 31, 2011 and June 30, 2011 periods and waived the December 31,
2010 non-compliance of the senior debt coverage ratio. The senior lender has
retained the right to call the Credit Agreement in the event that the holders of
the Debentures or the Notes demand payment. In 2010, the senior lender modified
the monthly principal payments, modified the maturity of the Credit Agreement
and reduced the availability under the revolving loan from $5.0 million to $4.3
million. 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 continues to be 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 the Notes, however there can be
no assurance that the Company will be successful in obtaining such financing and
if it obtains such financing, how the terms of such financing will affect the
Company.
5
The Company continues to manage a plan to improve operating results. The plan
includes a joint venture agreement with a People's Republic of China company to
establish a cooperative venture limited liability company in the People's
Republic of China to engage in research, engineering, development,
manufacturing, sale and distribution of LED lamps, LED digital signage and LED
lighting or similar products. The Company is pursuing new business
opportunities in the LED lighting market with energy-saving lighting solutions
and supplementing our established digital display and signage businesses with a
highly flexible, cost-efficient and creative means for facilities to enhance
their environments with LED lighting. The Company intends to feature a
comprehensive offering of the latest LED lighting technologies that provide
facilities and public infrastructure with "green" lighting solutions that emit
less heat, save energy and enable creative designs. The Company continues to
seek ways to reduce costs of components used in its products and other expenses
to improve sales margins, and continues to look at ways to lower overhead costs,
such as compensation and benefits. The plan includes partnering with an LED
supplier and offering several new high resolution LED large screen systems.
There can be no assurance that the Company will achieve higher sales, improved
margins or lower costs.
Because the Credit Agreement is secured by substantially all of the Company's
eligible accounts receivable, inventory and other assets, 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
the Notes, the Debentures and the 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 and,
even if it obtains such financing, how the terms of such financing will affect
the Company. 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. See Note 6 - Long-Term Debt for further details.
Note 3 - Plan of Restructuring
In the second quarter of 2010, the Company implemented a restructuring plan to
reduce operating costs. The 2010 actions included the elimination of
approximately 50 positions from our operations and the closing of our Stratford,
Connecticut manufacturing facility. The 2010 year-end results include a
restructuring charge of $1.1 million consisting of employee severance pay,
facility closing costs representing primarily lease termination and asset
write-off costs, and other fees directly related to the restructuring plan. The
2011 actions include the elimination of approximately 23 additional positions.
The 2011 results include an additional restructuring charge of $70,000
consisting of employee severance pay and other fees directly related to the
restructuring plan. The costs associated with the restructuring are included in
a separate line item, Restructuring costs in the Condensed Consolidated
Statements of Operations. We expect that the majority of these costs will be
paid over the next twelve months.
6
The following table shows the amounts expensed and paid for restructuring costs
that were incurred during the three months ended March 31, 2011 and the
remaining accrued balance of restructuring costs as of March 31, 2011, which is
included in Accrued liabilities in the Condensed Consolidated Balance Sheets.
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Balance Payments and Balance
December 31, 2010 Provision Other Adjustments March 31, 2011
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Severance costs (1) $ - $63 $ - $ 63
Facility closing costs (2) 215 5 45 175
Other fees 94 2 28 68
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$309 $70 $73 $306
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(1) Represents salaries for employees separated from the Company.
(2) Represents costs associated with the closing of the Stratford, Connecticut
facility (primarily lease termination costs) and leasehold improvement and
equipment write-offs.
The following table shows, by reportable segment, the restructuring costs
incurred during the three months ended March 31, 2011 and the remaining accrued
balance of restructuring costs as of March 31, 2011.
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Balance Payments and Balance
December 31, 2010 Provision Other Adjustments March 31, 2011
-----------------------------------------------------------------------------------------
Indoor display $309 $16 $73 $252
Outdoor display - 54 - 54
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$309 $70 $73 $306
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Note 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. The Company's money market
funds and the cash surrender value of life insurance had carrying amounts of
$3,000 and $67,000 at March 31, 2011, respectively, and $5,000 and $71,000 at
December 31, 2010, respectively. The carrying amounts of cash equivalents,
accounts receivable and accounts payable approximate fair value due to the short
maturities of these items. The fair value of the Company's Notes and
Debentures, using observable inputs, was $1.5 million and $0.1 million at March
31, 2011, respectively, and $1.2 million and $0.1 million at December 31, 2010,
respectively. The fair value of the Company's remaining long-term debt
approximates its carrying value of $7.2 million and $7.5 million at March 31,
2011 and December 31, 2010, respectively.
7
Note 5 - Inventories
Inventories are stated at the lower of cost or market and consist of the
following:
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March 31 December 31
In thousands 2011 2010
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Raw materials $3,694 $3,948
Work-in-progress 118 152
Finished goods 476 752
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$4,288 $4,852
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Note 6 - Long-Term Debt
The Company has $10.1 million of 8 1/4% Limited convertible senior subordinated
notes due 2012 (the "Notes") which are no longer convertible into common shares;
interest is payable semi-annually and the Notes may be redeemed, in whole or in
part, at par. The Company has not remitted the March 1, 2010 and 2011 and
September 1, 2010 semi-annual interest payments of $417,800 each to the trustee.
The non-payments constitute 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 amount of the Notes 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 March 31, 2011, the total principal amount
outstanding under the Notes is classified as Current portion of long-term debt
in the Condensed Consolidated Balance Sheets.
The Company has $1.1 million of 9 1/2% Subordinated debentures due 2012 (the
"Debentures") which are due in annual sinking fund payments of $105,700
beginning in 2009, which payments have not been remitted by the Company, with
the remainder due in 2012; interest is payable semi-annually and the Debentures
may be redeemed, in whole or in part, at par. The Company has not remitted the
June 1, 2010 and December 1, 2010 semi-annual interest payments of $50,200 each
to the trustee. The non-payments constitute 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 amount of the Debentures 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 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 and interest payments are events of default under the Credit Agreement and
no payment can be made to such trustee or the holders at this time as such
defaults have not been waived. At March 31, 2011, the total principal amount
outstanding under the
8
Debentures is classified as Current portion of long-term debt in the Condensed
Consolidated Balance Sheets.
The Company has a bank Credit Agreement, as amended, 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 are no
longer outstanding), and a revolving loan of up to $4.3 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 March 31, 2011), which was due
to mature May 1, 2011. In May 2011, the senior lender agreed to extend the
maturity date of the Credit Agreement to November 1, 2011, remove the senior
debt coverage ratio covenant for the March 31, 2011 and June 30, 2011 periods
and waived the December 31, 2010 non-compliance of the senior debt coverage
ratio. In 2010, the senior lender modified the monthly principal payments,
modified the maturity of the Credit Agreement and reduced the availability under
the revolving loan from $5.0 million to $4.3 million. As of March 31, 2011, the
Company has drawn $3.9 million against the revolving loan facility, of which
$0.3 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 more than 50% and a quarterly $1.0
million cap on capital expenditures. As of March 31, 2011, the Company was in
compliance with the foregoing financial covenants. The senior lender has waived
the defaults on the Notes and the Debentures, but in the event that the holders
of the Notes or the Debentures or trustees declare a default and begin to
exercise any of their rights or 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 or remedies it may have. In
addition, the senior lender has waived the default of non-payment of certain
pension plan contributions, but in the event that any government agency takes
any enforcement action or otherwise exercises any rights or remedies it may
have, this shall constitute a separate and distinct event of default and the
senior lender may exercise any and all rights or 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 its existing mortgage on its facility
located in Des Moines, Iowa. The refinancing was for $650,000 at a fixed rate
of interest of 6.50% payable in monthly installments, which matures March 1,
2015 and requires a compensating balance of $200,000. The Company used proceeds
of $390,000 to settle the prior debt and used the $260,000 balance for working
capital needs.
The Company has a $1.8 million 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 March 31, 2011, payable
in monthly installments, which matures December 12, 2012.
On February 25, 2010, the Company took out a mortgage on the land held for sale
located in Silver City, New Mexico and repaid it on August 27, 2010. The
financing was for $100,000 at a fixed rate of interest of 7.80%, payable in
monthly interest only payments, which was due to mature on February 25, 2012.
9
Note 7 - Comprehensive Loss
Total comprehensive loss is as follows:
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Three months ended March 31
In thousands 2011 2010
--------------------------------------------------------------------------
Net loss, as reported $(1,670) $(1,420)
---------------------
Other comprehensive income:
Unrealized foreign currency translation gain 99 118
---------------------
Total other comprehensive income, net of tax 99 118
---------------------
Comprehensive loss $(1,571) $(1,302)
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Note 8 - Pension Plan
As of December 31, 2003, the benefit service under the pension plan had been
frozen and, accordingly, there is no service cost. As of April 30, 2009, the
compensation increments have been frozen and, accordingly, no additional
benefits are being accrued under the plan.
The following table presents the components of net periodic pension cost:
--------------------------------------------------------------
Three months ended March 31
In thousands 2011 2010
--------------------------------------------------------------
Interest cost $137 $ 135
Expected return on plan assets (99) (104)
Amortization of net actuarial loss 87 76
-------------------
Net periodic pension cost $125 $ 107
--------------------------------------------------------------
As of March 31, 2011, the Company has recorded a current pension liability of
$0.1 million, which is included in Accrued liabilities on the Condensed
Consolidated Balance Sheets, and a long-term pension liability of $4.6 million,
which is included in Deferred pension liability and other on the Condensed
Consolidated Balance Sheets. The minimum required contribution for 2011 is
expected to be $0.1 million.
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 assets and liabilities measured at fair value. The fair value
of these assets is 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 using quoted market prices, a Level 1 or an observable
input, the guaranteed investment contracts 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.
10
The following table presents the pension plan assets by level within the fair
value hierarchy as of March 31, 2011:
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In thousands Level 1 Level 2 Level 3 Total
-------------------------------------------------------------------
Guaranteed investment contracts $ - $1,824 $ - $1,824
Equity and index funds 3,563 - - 3,563
Bonds - 18 - 18
Money market funds 17 - - 17
---------------------------------
Total pension plan assets $3,580 $1,842 $ - $5,422
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In March 2011 and 2010, the Company submitted to the Internal Revenue Service
requests for waivers of the minimum funding standard for its defined benefit
plan. The waiver requests were submitted as a result of the current economic
climate and the current business hardship that the Company is experiencing. The
waivers, if granted, will defer payment of $559,000 and $285,000 of the minimum
funding standard for the 2010 and 2009 plan years, respectively. If the waivers
are not granted, the Pension Benefit Guaranty Corporation and the Internal
Revenue Service have various enforcement remedies they can implement to protect
the participant's benefits, such as termination of the plan and require the
Company to make the unpaid contributions. The senior lender has waived the
default of non-payment of certain pension plan contributions, but in the event
that any government agency takes any enforcement action or otherwise exercises
any rights or remedies it may have, this shall constitute a separate and
distinct event of default and the senior lender may exercise any and all rights
or remedies it may have. At this time, the Company is hoping to make its
required contributions for the 2011 plan year, however there is no assurance
that the Company will be able to make all payments.
Note 9 - Share-Based Compensation
The Company did not issue any stock options during the three months ended March
31, 2011 and 2010. There are no unrecognized compensation costs related to
unvested stock options granted under the Company's stock option plans.
The following table summarizes the activity of the Company's stock options for
the three months ended March 31, 2011:
-------------------------------------------------------------------------------------------
Weighted
Weighted Average
Average Remaining Aggregate
Exercise Contractual Intrinsic
Options Price ($) Term (Yrs) Value
-------------------------------------------------------------------------------------------
Outstanding at beginning of year 23,000 4.51
Granted - -
Exercised - -
Terminated - -
--------------------------------
Outstanding at end of period 23,000 4.51 1.8
================================
Vested and expected to vest at end of period 23,000 4.51 1.8 -
================================
Exercisable at end of period 23,000 4.51 1.8 -
-------------------------------------------------------------------------------------------
On February 16, 2010, the Board granted Mr. Jean-Marc (J.M.) Allain, the
Company's new President
11
and Chief Executive Officer, 50,000 shares of restricted Common Stock from
treasury shares which vested 50% after one year and the remaining 50% will vest
after two years. The Company is recording stock compensation expense over the
vesting period and recorded $6,000 of stock compensation expense for the period
ended March 31, 2011.
Note 10 - Loss Per Common Share
Basic and diluted loss per common share is computed by dividing net loss by the
weighted average number of common shares outstanding for the period. In periods
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
stock options vested under the treasury stock method. At March 31, 2011 and
2010, there were outstanding stock options to purchase 23,000 and 26,000 shares
of Common Stock, respectively, which were excluded from the calculation of
diluted loss per share because their impact would have been anti-dilutive.
Note 11 - Legal Proceedings and Claims
The Company is subject to legal proceedings and claims which arise in the
ordinary course of its business and/or which are covered by insurance 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.
Note 12 - 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 four 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 United States. The Company also has operations in Canada.
The Indoor display and Outdoor display segments are differentiated primarily by
the customers they serve. The new LED lighting segment intends to sell
energy-saving lighting solutions that provide facilities and public
infrastructure with "green" lighting solutions that emit less heat, save energy
and enable creative designs. The Real estate rental segment owns and operates
an income-producing property. Segment operating (loss) income is shown after
cost of revenues 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. Of the total goodwill of $0.8 million, $0.7 million relates
12
to the Outdoor display segment and $0.1 million relates to the Indoor display
segment.
Foreign revenues represent less than 10% of the Company's revenues and therefore
are not separately disclosed. The foreign operation does not manufacture its
own equipment; the domestic operation provides the equipment that the foreign
operation leases or sells. The foreign operation operates similarly to the
domestic operation and has similar profit margins.
Information about the Company's continuing operations in its four business
segments for the three months ended March 31, 2011 and 2010 is as follows:
------------------------------------------------------------------
In thousands 2011 2010
------------------------------------------------------------------
Revenues:
Indoor display $ 1,980 $ 1,683
Outdoor display 2,914 3,639
LED lighting - -
Real estate rental 23 64
-----------------
Total revenues $ 4,917 $ 5,386
-----------------
Operating (loss) income:
Indoor display $ (240) $ (320)
Outdoor display (283) 187
LED lighting (41) -
Real estate rental 3 49
Corporate general and administrative expenses (741) (904)
-----------------
Total operating loss (1,302) (988)
Interest expense, net (361) (418)
-----------------
Loss before income taxes (1,663) (1,406)
Income tax expense (7) (14)
-----------------
Net loss $(1,670) $(1,420)
------------------------------------------------------------------
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview
Trans-Lux is a leading designer and manufacturer of digital display signage
solutions. The essential elements of these systems are the real-time,
programmable electronic information displays we design, manufacture, distribute
and service. Designed to meet the digital signage solutions for any size
venue's indoor and outdoor needs, these displays are used primarily in
applications for the financial, banking, gaming, corporate, advertising,
transportation, entertainment and sports markets. In 2010 the Company started a
new business opportunity in the LED lighting market with energy-saving lighting
solutions that will feature a comprehensive offering of the latest LED lighting
technologies that provide facilities and public infrastructure with "green"
lighting solutions that emit less heat, save energy and enable creative designs.
The Company also owns and operates an income-producing rental property. The
Company operates in four reportable segments: Indoor display, Outdoor display,
LED lighting 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
13
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
LED lighting segment will include worldwide revenues and related expenses from
the sale of LED lighting products. The Real estate rental segment includes the
operations of an income-producing real estate property.
Going Concern
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. In May
2011, we were successful in negotiating the renewal of the bank Credit
Agreement; the senior lender agreed to extend the maturity date of the Credit
Agreement to November 1, 2011, remove the senior debt coverage ratio covenant
for the March 31, 2011 and June 30, 2011 periods and waived the December 31,
2010 non-compliance of the senior debt coverage ratio. In 2010, the senior
lender modified the monthly principal payments, modified the maturity of the
Credit Agreement and reduced the availability under the revolving loan from $5.0
million to $4.3 million. The Credit Agreement is secured by substantially all
of our eligible accounts receivable, inventory and other assets. 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 12 months. The Company
has not remitted the December 1, 2009 and 2010 required sinking fund payments of
$105,700 each on its 9 1/2% Subordinated debentures due 2012 (the "Debentures")
and the June 1, 2010 and December 1, 2010 interest payments of $50,200 each. In
addition, the Company has not remitted the March 1, 2010 and 2011 and September
1, 2010 interest payments of $417,800 each on its 8 1/4% Limited convertible
senior subordinated notes due 2012 (the "Notes"). As a result, if the Company
is unable to (i) obtain additional liquidity for working capital, (ii) make the
required sinking fund payments on the Debentures, (iii) make the required
interest payments on the Notes and the Debentures 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 ability 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 or the Notes, our
independent registered public accounting firm has issued an opinion on our 2010
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 ability to make
the required sinking fund payments on the Debentures and the interest payments
on the Notes and the Debentures and the potential of the senior lender
accelerating the payments under the Credit Agreement due to the events of
default on the Debentures and the Notes raises substantial doubt about our
ability to continue as a going concern. See Note 2 - Going Concern to the
condensed consolidated financial statements.
14
Results of Operations
Three Months Ended March 31, 2011 Compared to Three Months Ended March 31, 2010
Total revenues for the three months ended March 31, 2011 decreased $469,000 or
8.7% to $4.9 million from $5.4 million for the three months ended March 31,
2010, primarily due to a decrease in Outdoor display sales revenues offset by an
increase in Indoor display sales revenues.
Indoor display revenues increased $297,000 or 17.6%. Of this increase, Indoor
display equipment sales increased $416,000 or 119.9%, primarily due to an
increase in sales from the gaming market. Indoor display equipment rentals and
maintenance revenues decreased $119,000 or 8.9%, 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 rentals and
maintenance revenues.
Outdoor display revenues decreased $725,000 or 19.9%. Of this decrease, Outdoor
display equipment sales decreased $622,000 or 23.0%, primarily in the catalog
sports market principally due to decreases in state and local budgets and in the
commercial market. Outdoor display equipment rentals and maintenance revenues
decreased $103,000 or 11.1%, primarily due to the continued expected revenue
decline in the older Outdoor display equipment rental and maintenance bases
acquired in the early 1990s. The global recession has negatively impacted the
Outdoor sales and rentals and maintenance revenues as well.
LED lighting is a start-up business and has not generated any revenues for the
quarter ended March 31, 2011.
Real estate rental revenues decreased $41,000 or 64.1%, due to the termination
of a tenant lease in the fourth quarter of 2010 in our Santa Fe, New Mexico
rental property.
Total operating loss for the three months ended March 31, 2011 increased
$314,000 to $1.3 million from $988,000 for the three months ended March 31,
2010, principally due to an increase in general and administrative expenses.
Indoor display operating loss decreased $80,000 to $240,000 in 2011 compared to
$320,000 in 2010, primarily as a result of the increase in sales, offset by an
increase in general and administrative expenses. The cost of Indoor displays
represented 80.1% of related revenues in 2011 compared to 93.3% in 2010. Indoor
display cost of equipment rentals and maintenance as a percentage of related
revenues decreased primarily due to a $164,000 decrease in depreciation expense
and a $26,000 decrease in field service costs. The Company periodically
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 increased $206,000 or
85.1%, primarily due to
15
the increase in revenues. Indoor display general and administrative expenses
increased $201,000 or 46.4%, primarily due to an increase in payroll and
benefits and related expenses and a $97,000 increase in bad debt expense, as
well as an additional $16,000 restructuring charge.
Outdoor display operating income decreased $470,000 to a loss of $283,000 in
2011 compared to income of $187,000 in 2010, primarily as a result of a decrease
in revenues and an increase in general and administrative expenses. The cost of
Outdoor displays represented 81.7% of related revenues in 2011 compared to 78.7%
in 2010. Outdoor display cost of equipment sales decreased $426,000 or 18.4%,
principally due to the decrease in volume. Outdoor display cost of equipment
rentals and maintenance decreased $57,000 or 10.3%, primarily due to a $31,000
decrease in depreciation expense and a $26,000 decrease in field service costs
to maintain the equipment. Cost of Outdoor display equipment rentals and
maintenance includes field service expenses, plant repair costs, maintenance and
depreciation. Outdoor display general and administrative expenses
increased $228,000 or 38.8%, primarily due to a $140,000 increase in bad debt
expense, as well as an additional $54,000 restructuring charge.
LED lighting operating loss was $41,000 in 2011, primarily due to the start-up
expenses of this new segment.
Real estate rental operating income decreased $46,000 to $3,000 in 2011 compared
to $49,000 in 2010, primarily due to the termination of a tenant lease in the
fourth quarter of 2010. The cost of Real estate rental represented 73.9% of
related revenues in 2011 compared to 18.8% in 2010. Real estate rental general
and administrative expenses remained level.
Corporate general and administrative expenses decreased $163,000 or 18.0%. The
2011 corporate general and administrative expenses include a reduction of
$33,000 in the Canadian currency exchange loss. Reductions in consulting and
medical expenses also contributed to the decrease this year. The Company
continues to monitor and reduce certain overhead costs such as benefit and
medical costs.
Net interest expense decreased $57,000 or 13.6%, primarily due to scheduled
payments of long-term debt as well as a reduction in amortization of prepaid
financing costs compared to 2010.
The effective tax rate for the three months ended March 31, 2011 and 2010 was
0.5% and 1.0%, respectively. Both the 2011 and 2010 tax rate are being affected
by the valuation allowance on the Company's deferred tax assets as a result of
reporting pre-tax losses. The income tax expense relates to the Company's
Canadian subsidiary.
Liquidity and Capital Resources
The accompanying unaudited condensed consolidated 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 and
has a significant working capital deficiency. The Company incurred a net loss
of $1.7 million for the three months ended March 31, 2011 and has a
16
working capital deficiency of $18.2 million as of March 31, 2011. In addition,
the Company reported a loss from continuing operations of $7.1 million for the
year ended December 31, 2010. The results for the three months ended March 31,
2011 include a $70,000 restructuring charge related to the restructuring plan,
as further discussed in Note 3 - Plan of Restructuring to the condensed
consolidated financial statements. As further discussed in Note 6 - Long-Term
Debt to the condensed consolidated financial statements, the Company has not
remitted the December 1, 2009 and 2010 required sinking fund payments of
$105,700 each on its 9 1/2% Subordinated debentures due 2012 (the "Debentures")
and the June 1, 2010 and December 1, 2010 interest payments of $50,200 each to
the trustee. In addition, the Company has not remitted the March 1, 2010 and
2011 and September 1, 2010 interest payments of $417,800 each on its 8 1/4%
Limited convertible senior subordinated notes due 2012 (the "Notes"). 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 the Company receives such notice, the senior lender has the right to
demand payment on outstanding amounts under the Credit Agreement. The
outstanding Debentures, Notes and Credit Agreement debt have been classified as
Current portion of long-term debt on the accompanying Condensed Consolidated
Balance Sheets. These matters raise substantial doubt about the Company's
ability to continue as a going concern.
The Company has a bank Credit Agreement, as amended, 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 are no
longer outstanding), and a revolving loan of up to $4.3 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 March 31, 2011), which was due
to mature May 1, 2011. In May 2011, the senior lender agreed to extend the
maturity date of the Credit Agreement to November 1, 2011, remove the senior
debt coverage ratio covenant for the March 31, 2011 and June 30, 2011
periods and waived the December 31, 2010 non-compliance of the senior debt
coverage ratio. In 2010, the senior lender modified the monthly principal
payments, modified the maturity of the Credit Agreement and reduced the
availability under the revolving loan from $5.0 million to $4.3 million. As of
March 31, 2011, the Company has drawn $3.9 million against the revolving loan
facility, of which $0.3 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 more than 50%
and a quarterly $1.0 million cap on capital expenditures. As of March 31, 2011,
the Company was in compliance with the foregoing financial covenants. The
senior lender has waived the defaults on the Notes and the Debentures, but in
the event that the holders of the Notes or the Debentures or trustees declare a
default and begin to exercise any of their rights or 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 or remedies it may
have. In addition, the senior lender has waived the default of non-payment of
certain pension plan contributions, but in the event that any government agency
takes any enforcement action or otherwise exercises any rights or remedies it
may have, this shall constitute a separate and distinct event of default and the
senior lender may exercise any and all rights or remedies it may have. The
Company's objective in regards to the Credit Agreement is to
17
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. The amounts
outstanding under the Credit Agreement are collateralized by all of the Display
division assets.
On March 1, 2010, the Company refinanced its existing mortgage on its facility
located in Des Moines, Iowa. 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 and requires a compensating balance of $200,000. The Company used proceeds
of $390,000 to settle the prior debt and used the $260,000 balance for working
capital needs.
The Company has a $1.8 million 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 March 31, 2011, payable
in monthly installments through December 12, 2012.
On February 25, 2010, the Company took out a mortgage on land held for sale
located in Silver City, New Mexico and repaid it on August 27, 2010. The
financing was for $100,000 at a fixed rate of interest of 7.80% payable in
monthly interest only payments, which was due to mature on February 25, 2012.
The Company has generated cash provided by operating activities from operations
of $648,000 and $569,000 for the three months ended March 31, 2011 and 2010,
respectively. The Company has implemented several initiatives to improve
operational results and cash flows over future periods, including the closing of
the Stratford, Connecticut manufacturing facility in 2010. The Company
continues to explore ways to reduce operational and overhead costs. The Company
periodically takes steps to reduce the cost to maintain the equipment on rental
and maintenance.
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 and maintenance bases. The
cash flows of the Company are constrained, 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 regards to the
Credit Agreement is to obtain additional funds from external sources through
equity or additional debt financing prior to the new maturity of the Credit
Agreement of November 1, 2011, and is in discussions with senior lenders and
others, but has no agreements, commitments or understanding from such senior
lenders or others with respect to obtaining any additional funds, and the
current global credit environment has been and continues to be a challenge in
accomplishing these
18
objectives. If the Company is unable to obtain replacement financing before the
new maturity of the Credit Agreement on November 1, 2011, the senior lender 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. Interest is payable
semi-annually and the Notes may be redeemed, in whole or in part, at par. The
Company has not remitted the March 1, 2010 and 2011 and September 1, 2010
semi-annual interest payments of $417,800 each to the trustee. The non-payments
constitute 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.
In addition, the Company has $1.1 million of Debentures outstanding. The
Company has not remitted the December 1, 2009 and 2010 annual sinking fund
payments of $105,700 each to the trustee. Interest is payable semi-annually and
the Debentures may be redeemed, in whole or in part, at par. The Company has
not remitted the June 1, 2010 and December 1, 2010 semi-annual interest payments
of $50,200 each to the trustee. The non-payments constitute 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 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
payments is an event of default under the Credit Agreement and no payment can be
made to such trustee or the holders at this time as such event has not been
waived.
In March 2011 and 2010, the Company submitted to the Internal Revenue Service
requests for waivers of the minimum funding standard for its defined benefit
plan. The waiver requests were submitted as a result of the current economic
climate and the current business hardship that the Company is experiencing. The
waivers, if granted, will defer payment of $559,000 and $285,000 of the minimum
funding standard for the 2010 and 2009 plan years, respectively. If the waivers
are 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 and require the
Company to make the unpaid contributions. The senior lender has waived the
default of non-payment of certain pension plan contributions, but in the event
that any government agency takes any enforcement action or otherwise exercises
any rights or remedies it
19
may have, this shall constitute a separate and distinct event of default and the
senior lender may exercise any and all rights or remedies it may have. At this
time, the Company is hoping to make its required contributions for the 2011 plan
year; however there is no assurance that the Company will be able to make all
payments.
Cash and cash equivalents increased $37,000 for the three months ended March 31,
2011 compared to a decrease of $79,000 for the three months ended March 31,
2010. The increase in 2011 is primarily attributable to cash provided by
operating activities of $648,000, offset by the investment in equipment for
rental of $218,000, the investment in property, plant and equipment of $17,000,
scheduled payments of long-term debt of $187,000 and $190,000 of payments on its
revolving credit facility. The decrease in 2010 is primarily attributable to
the investment in equipment for rental of $441,000, the investment in property,
plant and equipment of $2,000, scheduled payments of long-term debt of $418,000
and $85,000 of payments on its revolving credit facility, offset by cash
provided by operating activities of $569,000. In addition, the Company
refinanced its Des Moines mortgage in 2010, netting an additional $260,000 for
working capital needs.
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 condensed 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 payments
on the Debentures and the interest payments on the Debentures and the Notes and
the potential of the senior lender accelerating the payments under 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 condensed consolidated financial statements
included in this quarterly report on Form 10-Q 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 until the underlying debts mature.
20
The following table summarizes the Company's fixed cash obligations as of March
31, 2011 for the remainder of 2011 and the next four years:
--------------------------------------------------------------------------------------
Remainder of
In thousands 2011 2012 2013 2014 2015
--------------------------------------------------------------------------------------
Long-term debt, including interest $17,884 $1,978 $ 89 $ 89 $400
Employment and consulting agreement obligations 488 226 195 195 -
Operating lease payments 199 172 72 - -
---------------------------------
Total $18,571 $2,376 $356 $284 $400
--------------------------------------------------------------------------------------
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. The fair value of the Company's fixed rate long-term
debt is disclosed in Note 4 - Fair Value to the condensed consolidated financial
statements. A one-percentage point change in interest rates would result in an
annual interest expense fluctuation of approximately $65,000. In addition, the
Company is exposed to foreign currency exchange rate risk mainly as a result of
its 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 $340,000, based on dealer quotes, considering
current exchange rates. The Company does not enter into derivatives for trading
or speculative purposes. At March 31, 2011, the Company did not hold any
derivative financial instruments.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures. As required by Rule 13a-15
under the Securities Exchange Act of 1934, as of the end of the period covered
by this report, we have carried out an evaluation, under the supervision and
with the participation of our management, including our Chief Executive Officer
and Chief Financial Officer (our principal executive officer and principal
financial officer), of the effectiveness of the design and operation of our
disclosure controls and procedures. Our Chief Executive Officer and Chief
Financial Officer have concluded that our disclosure controls and procedures are
effective to ensure that information required to be disclosed by us in the
reports that we file or submit under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the rules and forms
of the Securities and Exchange Commission
21
and that such information is accumulated and communicated to our management
(including our Chief Executive Officer and Chief Financial Officer) to allow
timely decisions regarding required disclosures. Based on such evaluation, our
Chief Executive Officer and Chief Financial Officer have concluded these
disclosure controls are effective as of March 31, 2011.
Changes in Internal Control over Financial Reporting. There has been no change
in the Company's internal control over financial reporting, that occurred in the
quarter ended March 31, 2011, that has materially affected, or is reasonably
likely to materially affect, the Company's internal control over financial
reporting.
Part II - Other Information
---------------------------
Item 1. Legal Proceedings
The Company is subject to legal proceedings and claims which arise in the
ordinary course of its business and/or which are covered by insurance 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.
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 risk factors identified in our
Annual Report on Form 10-K for the year ended December 31, 2010.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults upon Senior Securities
As disclosed in Note 6 - Long-Term Debt to the condensed consolidated financial
statements, the Company has $10.1 million of 8 1/4% Limited convertible senior
subordinated notes due 2012 (the "Notes") which are no longer convertible into
common shares; interest is payable semi-annually and the Notes may be redeemed,
in whole or in part, at par. The Company has not remitted the March 1, 2010 and
2011 and September 1, 2010 semi-annual interest payments of $417,800 each to the
trustee. The non-payments constitute 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 amount of the Notes outstanding, by notice to the Company
and the trustee, may declare the outstanding principal plus
22
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 March 31, 2011, the total
principal amount outstanding under the Notes is classified as Current portion of
long-term debt in the Condensed Consolidated Balance Sheets.
Also disclosed in Note 6 - Long-Term Debt to the condensed consolidated
financial statements, the Company has $1.1 million of 9 1/2% Subordinated
debentures due 2012 (the "Debentures") which are due in annual sinking fund
payments of $105,700 beginning in 2009, which payments have not been remitted by
the Company, with the remainder due in 2012; interest is payable semi-annually
and the Debentures may be redeemed, in whole or in part, at par. The Company
has not remitted the June 1, 2010 and December 1, 2010 semi-annual interest
payments of $50,200 each to the trustee. The non-payments constitute 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 amount of the
Debentures 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 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 and interest payments are events of default
under the Credit Agreement and no payment can be made to such trustee or the
holders at this time as such events of default have not been waived. At March
31, 2011, the total principal amount outstanding under the Debentures is
classified as Current portion of long-term debt in the Condensed Consolidated
Balance Sheets.
Item 4. (Removed and Reserved)
Item 5. Other Information
None.
Item 6. Exhibits
10.1 Amendment No. 16 to the Amended and Restated Commercial Loan and Security
Agreement with People's United Bank dated as of May 1, 2011, filed
herewith.
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
23
2002.
31.2 Certification of Angela D. Toppi, Executive Vice President and Chief
Financial Officer, pursuant to Rule 13a-14(a) and 15d-14(a), as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of 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.
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.
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)
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
Date: May 16, 2011
24