ITEM 1. BUSINESS
Unless the context otherwise requires, the term "Company" as used herein refers to Trans-Lux Corporation and its subsidiaries. The Company is a manufacturer, distributor, and marketer of large-scale, real-time electronic information displays for both indoor and outdoor use. These display systems utilize LED and light bulb technologies to display real-time information entered by the user or via a third party information supplier. The Company provides high quality, reliable display products configured to suit its customers' needs, and offers extensive on-site service and maintenance. The Company's display products include data, graphics, and video displays for stock and commodity exchanges, financial institutions, sports venues, casinos, convention centers, corporate, government, theatres, retail, airports, and numerous other applications. In addition to its core display business, the Company also owns and operates a chain of motion picture theatres in the southwestern United States and owns real estate used for both corporate and income-producing purposes.
ELECTRONIC INFORMATION DISPLAY PRODUCTS - - - ---------------------------------------
The Company's high performance electronic information displays are used to communicate messages and information in a variety of indoor and outdoor applications. The Company's product line encompasses a wide range of state-of-the-art electronic displays in various shape, size and color configurations. Most of the Company's display products include hardware components and sophisticated software. In both the indoor and outdoor markets, which the Company serves, the Company adapts basic product types and technologies for specific use in various niche market applications. The Company also operates a direct service network throughout the United States and Canada which performs on-site service and maintenance for its customers and others.
The Company employs a modular engineering design strategy, allowing basic "building blocks" of electronic modules to be easily combined and configured in order to meet the broad application requirements of the markets it serves. This approach ensures product flexibility, reliability, ease of service and minimum spare parts requirements.
The Company's electronic information display market is broken down into two distinct markets: the indoor market and the outdoor market. Electronic information displays are used by financial institutions, including brokerage firms, banks, saving and loans, energy companies, insurance companies and mutual fund companies; by sports venues; educational institutions; outdoor advertising companies; by corporate and government communication centers; by retail outlets; by casinos, race tracks and other gaming establishments; in airports, train stations, bus terminals, and other transportation facilities; on highways and major thoroughfares; by movie theatres; by health maintenance organizations, and in various other applications.
The Indoor Market: The indoor electronic display market is currently dominated by three categories of users: financial, government and corporate, and gaming. The financial market segment which includes trading floors, exchanges, brokerage firms, mutual fund companies and energy companies, has long been a user of electronic information displays due to the need for real-time dissemination of data. The major stock and commodity exchanges depend on reliable information displays to post stock and commodity prices, trading volumes, interest rates and other financial information. Brokerage firms
continue to install electronic ticker displays for both customers and brokers, and have installed larger displays to post major headline news events in their brokerage offices to enable their sales force to stay up-to-date on the events affecting general market conditions and specific stocks. The changing regulatory environment in the financial marketplace has resulted in the influx of banks and other financial institutions into the brokerage business and the need for these institutions to use information displays to advertise product offerings to consumers.
The government and private market segment includes applications found in major corporations, public utilities and government agencies for the display of real-time, critical data in command/control centers, data centers, help desks, inbound/outbound telemarketing centers and for employee communications. Electronic displays have found acceptance in applications for the healthcare industry such as outpatient pharmacies; military hospitals and HMOs to automatically post patient names when prescriptions are ready for pick up. Theatres use electronic displays to post current box office and ticket information, directional information, promote concession sales and use the Company's Rear Window(TM) system for the hearing-impaired. Information displays are consistently used in airports, bus terminals and train stations to post arrival and departure information, and gate and baggage claim information, which helps to guide passengers through these facilities.
The gaming market segment includes casinos and Indian gaming establishments. These establishments generally use large information displays to post odds for race and sporting events and to display timely information such as results, track conditions, jockey weights and scratches. Casinos also use electronic displays throughout their facilities to advertise to and attract gaming patrons. This includes using electronic displays in conjunction with slot machines to attract customer attention to potential payoffs and thus increase customer play. Indoor equipment generally has a lead-time of 30 to 120 days depending on the size and type of equipment ordered and material availability.
The Outdoor Market: The outdoor electronic display market is even more diverse than the indoor market. Displays are being used by sports stadiums, banks and other financial institutions, gas stations, highway departments, educational institutions and outdoor advertisers attempting to capture the attention of passers-by. The Company has utilized its strong position in the indoor market combined with several acquisitions to enter and enhance its presence in the outdoor display market. The Company's acquisition in May 1997 of the catalog and custom scoreboard sign business of Fairtron Corporation (Fairtron), was in the outdoor display market. Outdoor displays are installed in amusement parks, entertainment facilities, high schools, minor league parks, professional and college sports stadiums, military installations, bridges and other roadway installations, automobile dealerships, banks and other financial institutions. Outdoor equipment generally has a lead-time of 10 to 120 days depending on the size and type of equipment ordered and material availability.
Sales Order Backlog (excluding leases): The amount of sales order backlog at December 31, 1998 was approximately $3.4 million compared with the December 31, 1997 sales order backlog of $7.3 million, which included a significant financial exchange order. The December 31, 1998 backlog will be recognized in 1999. These amounts do not include new lease orders or renewals of existing lease agreements presently in-house.
ENGINEERING AND PRODUCT DEVELOPMENT - - - -----------------------------------
The Company's ability to compete and operate successfully depends upon, among other factors, its ability to anticipate and respond to the changing technological and product needs of its customers. The Company continually examines and tests new display technologies and develops enhancements to its existing products in order to meet the needs of its customers. Product enhancement work continues in both the indoor and outdoor areas.
Development of new indoor products includes progressive meter and controller systems for use in the gaming industry; smaller character displays to post more information in a comparably sized area; higher speed processors for faster data access and improved update speed; integration of blue LED's to provide full color text and graphics displays; a new graphics interface to display more data in higher resolutions; and tricolor news displays providing the ability to color-code and identify "hot" stories.
The Company developed a full color LED video display for the outdoor market which has application particularly in the sports market where enhancing the presentation of live action is of central importance. To drive the video display, the Company developed the ProLine(TM) controller which is Windows 32- bit based. The Company also will be adding a new range of LED scoreboards to its Fair-Play(TM) catalog business.
The Company also developed Display Connection(TM), an electronic display system that uses the Internet to blend Dow Jones Newswires market data, business news headlines, and sports headlines and statistics with consumer messages to make indoor and outdoor displays more effective at focusing customers' attention. The new product is designed for banks, brokerages, hotels, airports, exhibition halls, casinos, retail stores, schools, and other venues where high traffic and conditions for immediate customer action are both present. Display Connection is currently compatible with the Company's VisionWriter(TM) displays and message centers, and other displays are now being developed.
As part of its ongoing development efforts, the Company seeks to package certain products for specific market segments as well as to continually track emerging technologies that can enhance its products. Future technologies under consideration are trending toward full color, live video, and digital input. The Company is currently focused on certain technologies which incorporate these features and which are expected to provide a choice of products for the custom applications its customer's demand.
The Company maintains a staff of 51 people who are responsible for product development and support. The engineering and product enhancement and development efforts are supplemented by outside independent engineering consulting organizations and colleges where required. Engineering, product enhancement and development amounted to $3,603,000, $2,819,000 and $2,439,000 in 1998, 1997 and 1996, respectively.
MARKETING AND DISTRIBUTION - - - --------------------------
The Company markets its indoor and outdoor electronic information display products primarily through its 39 direct sales representatives, 7 telemarketers and a network of independent dealers and distributors. The Company divides its domestic sales and marketing efforts into two categories, renewal of existing
product leases and product upgrades, and the sale or lease of display products to new customers. In the indoor market for leased equipment, the Company attempts to maintain ongoing relationships with its customers to discuss lease renewals and upgrades. In the outdoor market, sales personnel contact existing and potential customers to discuss the customer's usage or requirements for display equipment. The Company also uses primarily telemarketing personnel to maintain communication with its installed base of lease equipment customers contacting them in order to obtain lease renewal and upgrades.
The Company uses a number of different techniques in order to attract new customers, including direct marketing efforts by its sales force to known or potential users of information displays, advertising in industry publications, and exhibiting at approximately 40 domestic and international trade shows annually. In the outdoor market, the Company supplements these efforts by using a network of independent dealers and distributors who market and sell its products.
Internationally, the Company uses a combination of internal sales people and independent distributors to market its products in Europe, South and Central America, Asia, Canada and Australia. The Company currently has assembly operations, service centers and sales offices in New South Wales, Australia and Mississauga, Canada. The Company has existing relationships with approximately 29 independent distributors worldwide covering Europe, South and Central America, Canada, Asia and Australia. International sales have represented less than 10% of total revenues in the past three years, but the Company believes that it is well positioned for expansion as the world economy recovers.
Headquartered in Norwalk, Connecticut, the Company has major sales and service offices in New York; Chicago; Las Vegas; Norcross, Georgia; Torrance, California; Mississauga, Canada; Logan, Utah; Des Moines, Iowa; and New South Wales, Australia, as well as 65 satellite offices in the United States and Canada.
The Company's equipment is both leased and sold. A significant portion of the electronic information display revenues are from equipment rentals with current lease terms ranging from 30 days to ten years.
The Company's revenues in 1998, 1997 and 1996 did not include any single customer that accounted for more than 10% of total revenues.
MANUFACTURING AND OPERATIONS - - - ----------------------------
The Company's production facilities are located in Norwalk, Connecticut; Logan, Utah; Des Moines, Iowa; Ontario, Canada and New South Wales, Australia and consist principally of the manufacturing, assembly and testing of display units, and related components. The Company performs most subassembly and all final assembly of its products.
All product lines are design engineered by the Company and controlled throughout the manufacturing process. The Company has the ability to produce printed circuit board fabrications, very large sheet metal fabrications, plastic molded parts, cable assemblies, and surface mount and through-hole designed assemblies. The Company produces more than 100,000 board assemblies annually which are tested with the latest state of the art automated testing equipment. Additional board assembly capacity is increased through outsourcing. The Company's production of many of the subassemblies and all of the final
assemblies gives the Company the control needed for on-time delivery to its customers.
The Company also has the ability to rapidly modify its product lines. The Company's displays are designed with flexibility in mind, enabling the Company to customize its displays to meet different applications with a minimum of lead-time. The Company's automated planning and purchasing department further enables it to secure materials in a timely fashion without maintaining excessive inventories. The Company also partners with large distributors via volume purchase agreements, giving it the benefit of a third party stocking its components ready for delivery on demand. The Company designs certain of its materials to match components furnished by suppliers. If such suppliers were unable to provide the Company with those components, the Company would have to contract with other suppliers to obtain replacement sources. Such replacement might result in engineering design changes, as well as delays in obtaining such replacement components. The Company believes it maintains suitable inventory and has contracts providing for delivery of sufficient quantities of such components to meet its needs. The Company also believes there presently are other qualified vendors of these components. The Company does not acquire a material amount of purchases directly from foreign suppliers, but certain components are manufactured by foreign sources.
The Company's products are third-party certified as complying with applicable safety, electromagnetic emissions and susceptibility requirements world wide. The Company is also ISO-9001 registered by Underwriters Laboratories for its Norwalk plant facility. The Company believes this distinction in its industry gives it a competitive advantage in the global marketplace.
SERVICE AND SUPPORT - - - -------------------
The Company emphasizes the quality and reliability of its products and the ability of its field service personnel to provide timely and expert service to the Company's installed base. The Company believes that the quality and timeliness of its on-site service personnel are important components in the Company's success. The Company provides turnkey installation and support for the products it leases and sells in the United States, Canada and Australia. The Company provides training to end-users and provides ongoing support to users who have questions regarding operating procedures, equipment problems or other issues. The Company provides service to customers who lease equipment and offers installation and service to those who purchase equipment. In the market segments the Company's distributors cover, the distributors offer support for the products they sell.
Personnel based in regional and satellite service locations throughout the United States, Canada and Australia provide high quality and timely on-site service for the installed equipment base. Purchasers or lessees of the Company's larger products, such as financial exchanges, casinos and sports facilities, often retain the Company to provide on-site service through the deployment of a service technician who is on- site daily or for the scheduled sporting event. The Company also maintains a National Technical Services Center in Norcross, Georgia, which performs equipment repairs and dispatches service technicians on a nationwide basis. The Company's field service is augmented by various outdoor service companies in the United States, Canada and overseas. From time to time the Company uses various third-party service agents to install, service and/or assist in the service of outdoor displays for reasons that include geographic area, size and unusual height of displays.
COMPETITION - - - -----------
The Company's offer of short and long-term leases to customers and its nationwide sales, service and installation capabilities are major competitive advantages in the display business. The Company believes that it is the largest supplier of large-scale stock and commodity and sports and race book gaming displays in the United States, as well as one of the largest outdoor electronic display and service organizations in the country.
The Company competes with a number of competitors, both larger and smaller than itself, and with products based on different forms of technology. In addition, there are several companies whose current products utilize similar technology and who possess the resources necessary to develop competitive and more sophisticated products in the future.
The Company's motion picture theatres are subject to varying degrees of competition in the geographic areas in which they operate. In some areas, theatres operated by national circuits compete with the Company's theatres. The Company's theatres also face competition from all other forms of entertainment competing for the public's leisure time and disposable income.
THEATRE OPERATIONS - - - ------------------
The Company currently operates 38 screens in 10 locations in the southwestern United States, which includes the 1997 acquisitions of the Gaslight Twin Cinema and the Lake Dillon Cinema fourplex, the additional 3 screens at the 1998 renovated Storyteller theatre in Taos, New Mexico, as well as a twelve- plex theatre in Loveland, Colorado which is a 50% owned joint venture. The Company's theatre revenues are generated from box office admissions, theatre concessions, theatre rentals and other sales. Theatre revenues are generally seasonal and coincide with the release dates of major films during the summer and holiday seasons. The Company is not currently operating any multimedia entertainment venues, but continues to stay abreast of innovations in this area of technology and continues to investigate new opportunities.
INTELLECTUAL PROPERTY - - - ---------------------
The Company owns or licenses a number of patents and holds a number of trademarks for its display equipment and theatrical enterprises and considers such patents, trademarks and licenses important to its business.
EMPLOYEES - - - ---------
The Company has approximately 641 employees as of February 28, 1999, of which approximately 500 employees support the Company's electronic display business. Less than 1% of the employees are unionized. The Company believes its employee relations are good.
ITEM 2.
ITEM 2. PROPERTIES
The Company's headquarters and principal executive offices are located at 110 Richards Avenue, Norwalk, Connecticut. The Company owns the 102,000 square foot facility located at such site, which is occupied by the Company and is used for administration, sales, engineering, production and assembly of its indoor display products. Approximately 14,000 square feet of the building is currently leased to others.
In addition, the Company owns facilities in: Torrance, California Norcross, Georgia Des Moines, Iowa Logan, Utah Mississauga, Canada.
Theatre Properties in: Sahuarita, Arizona Dillon, Colorado Durango, Colorado Santa Fe, New Mexico Taos, New Mexico.
The Company also leases 10 premises throughout North America and in Australia for use as sales, service and/or administrative operations, and leases seven theatre locations. The aggregate rental expense was $585,000, $456,000 and $296,000 for 1998, 1997 and 1996, respectively.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
The Company is subject to legal proceedings and claims which arise in the ordinary course of its business. In the opinion of management, the amount of ultimate liability with respect to these actions will not have a material adverse affect on the consolidated financial statements of the Company.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) The Company's Common Stock is traded on the American Stock Exchange under the symbol "TLX." Sales prices are set forth in (d) below.
(b) The Company had approximately 793 holders of record of its Common Stock and approximately 69 holders of record of its Class B Stock as of March 29, 1999.
(c) The Board of Directors approved four quarterly cash dividends of $0.035 per share for Common Stock and $0.0315 per share for Class B Stock during 1998. Management and the Board of Directors will continue to review payment of the quarterly cash dividends.
(d) The range of Common Stock prices on the American Stock Exchange are set forth in the following table:
High Low ---- ---
First Quarter $16 $13 5/8
Second Quarter 14 12 1/8
Third Quarter 12 15/16 8 5/8
Fourth Quarter 10 5 1/2
First Quarter $13 $11 1/8
Second Quarter 13 1/4 11 1/2
Third Quarter 15 1/2 12 1/4
Fourth Quarter 15 7/8 13 5/8
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
(a) The following table sets forth selected consolidated financial data with respect to the Company for the five years ended December 31, 1998, which were derived from the audited consolidated financial statements of the Company and should be read in conjunction with them.
(b) The following table sets forth quarterly financial data for the years ended December 31, 1998 and 1997:
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997 The Company's total revenues for the year ended December 31, 1998 increased 19.5% to $63.8 million from $53.4 million for the year ended December 31, 1997. Revenues from equipment rentals and maintenance decreased slightly to $23.2 million in 1998 from $23.5 million in 1997 or 1.2%. Indoor display rental and maintenance increased 6.9%, this increase was more than offset by the 11.9% continued, expected decrease from the outdoor lease and maintenance bases previously acquired. Revenues from equipment sales increased to $33.9 million in 1998 from $24.4 million in 1997 or 38.6%. Indoor display sales increased 42.6%, primarily due to an increase in the volume of sales. Outdoor display sales increased 36.5%, primarily attributable to the acquisition of the catalog and custom scoreboard sign business of Fairtron Corporation in May 1997 and increased sales of other outdoor products. Revenues from theatre receipts and other increased $1.3 million or 23.5% in 1998. This increase is primarily attributable to the acquisitions of the Lake Dillon Cinema in September 1997, the Gaslight Cinema in March 1997, the expansion of the Taos Storyteller Cinema from a four-plex to a seven-plex in February 1998, and increased concession sales.
Gross profit as a percentage of revenues was 37.9% in 1998 compared to 40.8% in 1997. The decrease in gross profit percentage was expected as the Company enters and increases its market share in existing and new industry segments of the outdoor market. Cost of equipment rentals and maintenance, includes field service expenses, plant repair costs, maintenance and depreciation. The indoor display cost of equipment rental and maintenance increased 13.4%, principally due to increased depreciation expense. The outdoor display cost of equipment rental and maintenance decreased slightly. The cost of equipment rentals and maintenance represented 54.4% of related revenues in 1998 compared to 50.7% in 1997. Cost of equipment sales increased $6.1 million or 39.6%. The indoor display cost of equipment sales increased 37.7%, primarily due to an increase in the volume of sales. During the fourth quarter of 1998, the Company adjusted certain indoor standard manufacturing cost estimates to year-to-date actual costs resulting in an increase of approximately $77,000 to net income in the quarter. The outdoor display cost of equipment sales increased 40.3%, principally due to the Fairtron acquisition and an increase in sales of other outdoor products. Due to the nature of the outdoor display market, the Company anticipates the gross profit margin to continue to decline somewhat as it enters and increases its market share in existing and new industry segments of this market. The cost of equipment sales represented 63.8% of related revenues in 1998 compared to 63.3% in 1997. Cost of theatre receipts and other, which includes film rental costs, increased $1.2 million or 29.0%, mainly as a result of the expansion of the theatre operations. The cost of theatre receipts and other represented 80.1% of related revenues in 1998 compared to 76.7% in 1997.
Total general and administrative expenses increased $2.0 million or 12.3%. The indoor display general and administrative expenses increased 3.4%, primarily due to expanded sales and marketing efforts. The outdoor display general and administrative expenses increased 16.5%, primarily due to the Fairtron acquisition. The entertainment and real estate general and administrative expenses increased slightly. Corporate general and administrative expenses increased 18.2%, primarily due to increased administrative support.
Interest income decreased $545,000, primarily attributable to the utilization of investments to acquire rental equipment and construct new theatres. Interest expense decreased $255,000, primarily due to a charge in 1997 of approximately $113,000 for the unamortized portion of the financing costs pertaining to the redemption of the 9% Convertible Subordinated Debentures (the 9% Debentures). Other income relates to the equity in earnings of the joint venture, MetroLux Theatres and gains on sales of securities.
The effective tax rate was 43.9% in 1998 and 47.0% in 1997. The decrease in the effective tax rate for 1998 was largely due to reduced foreign tax losses in 1998 compared to 1997.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996 The Company's total revenues for the year ended December 31, 1997 increased 17.8% to $53.4 million from $45.3 million for the year ended December 31, 1996. Revenues from equipment rentals and maintenance increased to $23.5 million in 1997 from $22.2 million in 1996 or 5.9%. Indoor display rental and maintenance increased 14.0%, primarily due to an increase in new business. Outdoor display rental and maintenance decreased 3.1%, primarily due to the continued, expected decline from the outdoor lease and maintenance bases previously acquired. Revenues from equipment sales increased to $24.4 million in 1997 from $18.7 million in 1996 or 30.4%. Indoor display sales decreased 38.8%, in 1996, the Company recognized certain significant sales which did not recur in 1997. Outdoor display sales increased 207.6%, primarily attributable to the Fairtron acquisition in May 1997 and increased sales of other outdoor products. Revenues from theatre receipts and other increased $1.1 million or 24.5% in 1997, primarily attributable to the acquisitions of the Gaslight Cinema in March 1997 and the Lake Dillon Cinema in September 1997, and increased concession sales.
Gross profit as a percentage of revenues was 40.8% in 1997 compared to 39.3% in 1996. Cost of equipment rentals and maintenance decreased $259,000 or 2.1%. Both the indoor display and outdoor display cost of equipment rental and maintenance decreased slightly, but were benefited by the favorable impact on depreciation expense resulting from a change in the estimate of the useful lives of rental equipment. The cost of equipment rentals and maintenance represented 50.7% of related revenues in 1997 compared to 54.9% in 1996. Cost of equipment sales increased $3.5 million or 29.1%. The indoor display cost of equipment sales decreased 50.7%, primarily due to certain significant sales recorded in 1996 that did not recur in 1997. The outdoor cost of equipment sales increased 240.4%, principally due to the Fairtron acquisition and an increase in sales of other outdoor products. During 1997, the gross profit margin benefited by the allocation of certain fixed overhead costs over larger production volume. The cost of equipment sales represented 63.3% of related revenues in 1997 compared to 64.0% in 1996. Cost of theatre receipts and other increased $838,000 or 25.0%, mainly as a result of the expansion of the theatre operations. The cost of theatre receipts and other represented 76.7% of related revenues in 1997 compared to 76.4% in 1996.
Total general and administrative expenses increased $2.8 million or 21.5%. The indoor display general and administrative expenses increased 9.8%, primarily due to expanded sales and marketing efforts. The outdoor display general and administrative expenses increased 83.3%, primarily due to the Fairtron acquisition and expanded sales and marketing efforts. The entertainment and real estate general and administrative expenses increased slightly. Corporate general and administrative expenses increased 5.7%, primarily due to increased administrative support, and the negative impact of the effect of foreign currency exchange rates, offset partially by a favorable litigation settlement.
Interest income increased $1.0 million, primarily attributable to increased investments from the proceeds of the issuance of the 7 1/2% Convertible Subordinated Notes due 2006 (the Notes). Interest expense increased $1.9 million, primarily due to the issuance of the Notes and a charge for the unamortized portion of the financing costs pertaining to the redemption of the 9% Debentures. Other income in 1997 related to the equity in earning of the joint venture, MetroLux Theatres and gains on sales of securities. Other expense in 1996 related to the share of loss of MetroLux Theatres, which included start up costs.
The effective tax rate was 47.0% in 1997 and 43.2% in 1996. The increase in the effective tax rate for 1997 was largely due to tax losses of the foreign subsidiaries, for which no tax benefit was recognized.
Accounting Standards
The Company adopted the provisions of Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" in the first quarter of 1998.
The Company will adopt the provisions of Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS 133) effective January 1, 2000. The standard requires companies to recognize all derivatives as either assets or liabilities and measure those instruments at fair value. Gains or losses resulting from changes in the values of those derivatives would be accounted for depending on the use of the derivative and whether it qualifies for hedge accounting. The Company does not expect the adoption of SFAS 133 to have a material impact on its consolidated financial statements.
Liquidity and Capital Resources
The Company's primary sources of liquidity and capital resources have been cash flow from operations and bank borrowings. In late 1996, the Company issued $27.5 million of the Notes. On January 14, 1997, the Underwriter exercised their overallotment option, bringing the total amount outstanding to $31.6 million. The related Indenture agreement contains certain financial covenants with which the Company is in compliance and expects to remain in compliance.
The Company believes that cash generated from operations together with the net proceeds of the issuance of the Notes will be sufficient to fund its anticipated near term cash requirements. The net proceeds of the Notes were used, in part, to pay down certain of the Company's debt, redemption of the outstanding 9% Debentures and to finance the Fairtron and theatre acquisitions. The Company has a $10.0 million revolving credit facility with its bank, which is available to June 2000, at which time the outstanding balance will convert into a five-year term loan. At December 31, 1998 the Company had $6.6 million additional borrowing capacity under this facility. Subsequent to year end, the revolving credit facility has been increased to $15.0 million and extended to June 2001.
The $545,000 decrease in cash and cash equivalents in 1998 is primarily attributable to investment in rental equipment and construction of theatres. The decrease of $17.4 million in 1997 was primarily due to the net investment of $7.3 million of the net proceeds of the Notes in available-for-sale securities, cash utilized for investment in rental equipment and cash utilized in connection with the acquisitions. The Company continues to experience a favorable collection cycle on its trade receivables. Unbilled receivables primarily relates to contracts being recognized on the percentage of completion basis.
The Company has two term loans under its Credit Agreement with First Union National Bank for a total of $8.7 million of indebtedness at a variable rate of interest of LIBOR plus 1.75%. The Company has two interest rate swap agreements in place, with a notional value equal to the amount of the two term loans and with corresponding maturity terms, which have the effect of converting the interest rate on such term loans to a fixed average annual rate of 7.86% through July 2002. The Credit Agreement facility contains certain financial covenants with which the Company must comply, absent a waiver by the bank, on a continuing basis, with which the Company is in compliance and expects to remain in compliance.
Year 2000 Considerations
Many currently installed computer systems and software products are coded to accept only two-digit entries in the date code field and cannot distinguish 21st century dates from 20th century dates. These date code fields will need to distinguish 21st century dates from 20th century dates and, as a result, many companies' software and computer systems may need to be upgraded or replaced in order to comply with such Year 2000 requirements. For the Company, this process involves modifying or replacing certain hardware and software. The Company has received software updates from its software vendors to make the software licensed to the Company Year 2000 compliant. The Company is utilizing both internal and external resources to reprogram, replace and test all of its software for Year 2000 compliance. The Company expects to complete the project by mid 1999 and believes that its level of preparedness is appropriate. The total cost for this project is estimated to be $350,000 of which $250,000 will be capitalized. The cost is being funded through operating cash flows and are not expected to have a material impact on the Company's cash flows, results of operations or financial condition. In addition, the Company is communicating with others with whom it does significant business to determine their Year 2000 compliance readiness and the extent to which the Company is vulnerable to any third-part Year 2000 issues. Failure by the Company and/or vendors and customers to complete Year 2000 compliance work in a timely manner could have a material adverse effect on certain of the Company's operations. The Company is in the process of developing contingency plans in the event it does not complete all phases of its Year 2000 project. The costs of this project and the expected completion dates are based on management's best estimates.
Safe Harbor Statement under the Private Securities Reform Act of 1995
The Company may, from time to time, provide estimates as to future performance. These forward looking statements will be estimates, and may or may not be realized by the Company. The Company undertakes no duty to update such forward looking statements. Many factors could cause actual results to differ from these forward looking statements, including loss of market through competition, introduction of competing products by others, pressure on prices from competition or purchasers of the Company's products, and interest rate and foreign exchange fluctuations.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements and supplementary financial information are set forth below:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies Principles of consolidation: The consolidated financial statements include the accounts of Trans-Lux Corporation and its majority-owned subsidiaries (the Company). Investment in a 50% owned joint venture, MetroLux Theatres, is reflected under the equity method and is recorded as a component of other income (expense) in the Consolidated Statements of Income. Cash equivalents: The Company considers all highly liquid investments with a maturity of three months or less, when purchased, to be cash equivalents. Available-for-sale securities: Available-for-sale securities consist of common and preferred stock holdings and corporate debt securities and are stated at fair value. Inventories: Inventories are stated at the lower of cost (first-in, first-out method) or market value. Equipment on rental and property, plant and equipment: Equipment on rental and property, plant and equipment are stated at cost and are being depreciated over their respective useful lives using straight line or 150% declining balance methods. Leaseholds and improvements are amortized over the lesser of the useful lives or term of the lease. The estimated useful lives are as follows:
Equipment on rental 5 to 15 years Buildings and improvements 10 to 45 years Machinery, fixtures and equipment 4 to 15 years Leaseholds and improvements 2 to 17 years
When equipment on rental and property, plant and equipment are fully depreciated, retired or otherwise disposed of, the cost and accumulated depreciation are eliminated from the accounts. Goodwill and intangibles: Goodwill and intangible assets are amortized on a straight line basis, using the following useful lives: Goodwill over 20 years; non-compete agreements over their contractual terms of five and seven years; deferred financing costs over the life of the related debt; and patents and other intangibles over 14 to 30 years. Maintenance contracts: Purchased maintenance contracts are stated at cost and are being amortized over their economic lives of eight to 15 years using an accelerated method which contemplates contract expiration, fall-out, and non-renewal. Impairment of long-lived assets: The Company evaluates long-lived assets, including intangible assets and goodwill, for possible impairment when events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. In making such an evaluation, the Company estimates the future cash flows expected to result from the use of the asset and its eventual disposition to measure whether the asset is recoverable. Revenue recognition: Rental revenue from leasing of equipment and revenue from maintenance contracts are recognized as they accrue during the term of the respective agreements. The Company recognizes revenues on long-term equipment sales contracts, which require more than three months to complete, using the percentage of completion method. The Company records unbilled receivables representing amounts due under these long-term equipment sales contracts which have not yet been billed to the customer. Income is recognized based on the percentage of incurred costs to the estimated total costs. Revenues on equipment sales, other than long-term equipment sales contracts, are recognized upon shipment. Theatre receipts and other revenues are recognized at time service is provided. Taxes on income: The Company computes income taxes using the asset and liability method, under which deferred income taxes are provided for the temporary differences between the financial reporting basis and the tax basis of the assets and liabilities. Foreign currency: The functional currency of the Company's non-U.S. business operations is the applicable local currency. The assets and liabilities of such operations are translated into U.S. dollars at the year-end rate of exchange, and the income and cash flow statements are converted at the average annual rate of exchange. The resulting translation adjustment is recorded as a component of stockholders' equity. Gains and losses related to the settling of transactions not denominated in the functional currency are recorded as a component of general and administrative expenses in the Consolidated Statements of Income. Derivative financial instruments: The Company has limited involvement with derivative financial instruments and does not use them for trading purposes; they are only used to manage well-defined interest rate risks. From time to time the Company enters into interest rate swap agreements to reduce exposure to interest fluctuations. The net gain or loss from the exchange of interest rate payments is included in interest expense in the Consolidated Statements of Income and in interest paid in the Consolidated Statements of Cash Flows. Accounting Pronouncement: The Company will adopt the provisions of Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS 133) effective January 1, 2000. The standard requires companies to recognize all derivatives as either assets or liabilities and measure those instruments at fair value. Gains or losses resulting from changes in the values of those derivatives would be accounted for depending on the use of the derivative and whether it qualifies for hedge accounting. The Company does not expect the adoption of SFAS 133 to have a material impact on its consolidated financial statements. Use of estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Reclassifications: Certain reclassifications of prior years' amounts have been made to conform to the current year's presentation.
2. Change in Estimate Effective January 1, 1997, the Company reevaluated and changed the estimated useful lives of its equipment on rental from eight to ten years for indoor rental equipment and from ten to 15 years for outdoor rental equipment. This change, accounted for prospectively over the remaining useful lives of such assets, aligned the depreciation periods to better reflect actual experience. In the year ended December 31, 1997 this resulted in a favorable impact to net income of approximately $530,000, basic earnings per share of $0.41 and diluted earnings per share of $0.13, as compared to depreciation expense in the year ended December 31, 1996.
3. Available-for-Sale Securities Available-for-sale securities are carried at estimated fair values and the unrealized holding gains and losses are excluded from earnings and are reported net of income taxes in a separate component of stockholders' equity until realized. Adjustments of ($53,000) and $6,000 were made to equity to reflect the net unrealized losses and gains on available-for-sale securities as of December 31, 1998 and 1997, respectively. The Company realized gains on the sales of available-for-sale securities of $88,000 in 1998 and $193,000 in 1997.
Available-for-sale securities consist of the following:
4. Inventories Inventories consist of the following:
5. Property, Plant and Equipment Property, plant and equipment consist of the following:
6. Prepaids, Intangibles and Other Prepaids, intangibles and other consist of the following:
Deferred financing costs relate to issuance of the 7 1/2% convertible subordinated notes and the 9 1/2% subordinated debentures, and other financing agreements.
Goodwill and noncompete agreements relate to the acquisition of Integrated Systems Engineering,Inc. and Fairtron.
The loan to the joint venture, MetroLux Theatres, had a balance of $690,000 and $784,000 at December 31, 1998 and 1997, respectively, of which $94,000 was classified as current at both dates.
7. Maintenance Contracts Maintenance contracts represent the present value of acquired agreements to service outdoor display equipment, and are net of accumulated amortization of $1,850,000 and $1,642,000, at December 31, 1998 and 1997, respectively.
8. Acquisition On May 1, 1997, the Company acquired the catalog and custom scoreboard sign business segment of Fairtron Corporation (Fairtron), an Iowa corporation. The acquisition has been accounted for using the purchase method of accounting. The purchase price of $7.3 million included the payment of approximately $104,000, noncompete and consulting fees and assumption of certain debt, and was allocated on the basis of the fair value of the assets acquired and liabilities assumed. The excess of the purchase price over the fair value of the net assets acquired has been recorded as goodwill. The agreement had also provided for a contingent purchase price of up to $250,000 based on future sales, which was terminated as a result of additional liabilities that were identified within the first year of operations. The historical financial results of Fairtron included both the catalog and custom scoreboard sign businesses, and also included certain expenses which are not expected to continue. Just prior to the acquisition, head count was
reduced. Subsequent to the acquisition, the Company has taken actions which it believes will reduce operating expenses through the consolidation of facilities and other cost saving measures. In addition, the Company's operation of the custom scoreboard business portion is anticipated to be at a lower level of activity because the Company does not expect to continue to manufacture certain scoreboards that produce lower profit margins. The effects of such actions are not included in the pro forma data. The pro forma data presented below should be read in conjunction with the Company's consolidated financial statements. The pro forma data does not purport to represent what the Company's results of operations or financial position would have been if the acquisition, in fact, had occurred on January 1, 1996 and January 1, 1997 or to project the Company's results of operations or financial position for any future period or at any future date. The results of operations have been included in the Company's consolidated financial statements since the date of acquisition.
9. Taxes on Income The components of income tax expense are as follows:
Income taxes provided differed from the expected federal statutory rate of 34% as follows:
Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities are as follows:
A valuation allowance has been established for the amount of deferred tax assets related to certain net operating loss carryforwards which management estimates will more likely than not expire unused.
10. Accounts Payable and Accruals Accounts payable and accruals consist of the following:
11. Long-Term Obligations Long-term obligations consist of the following:
Payments of long-term obligations due for the next five years are:
The 7 1/2% convertible subordinated notes (the Notes) are due in 2006. Interest is payable semiannually. The Notes are convertible into Common Stock of the Company at a conversion price of $14.013 per share. The Notes may be redeemed by the Company, in whole or in part, at any time on or after December 1, 2001 at declining premiums. The related Indenture agreement contains certain financial covenants which include limitations on the Company's ability to incur indebtedness of five times EBITDA plus $5.0 million. The 9 1/2% subordinated debentures (the Debentures) are due in annual sinking fund payments of $105,700, beginning in 2009 with the remainder due in 2012. Interest is payable semiannually. The Debentures may be redeemed by the Company, in whole or in part, at any time on or after December 1, 1999 at declining premiums. The Company has a Credit Agreement with First Union National Bank which provides for both term loan and revolving credit facilities. The Company has provided the bank with a security interest in substantially all assets of its display business. At December 31, 1998, term loans of $5.7 million and $3.0 million were outstanding, and an additional $3.4 million was borrowed under the revolving credit facility. The Credit Agreement contains certain financial covenants, including a defined debt service coverage ratio of 1.75 to 1.0, and a defined debt to cash flow ratio of 4.5 to 1.0; in addition, cash dividends may not exceed $750,000 in any year. The term loans bear interest at LIBOR plus 1.75%. At December 31, 1998 there were two interest rate swap agreements in place, with a notional value equal to the amount of the two term loans and with corresponding maturity terms, which have the effect of converting the interest rate on such term loans to a fixed average annual rate of 7.86% through July 2002. At December 31, 1998, the cost to terminate the interest rate swap agreements was $258,000. Payments on the $3.0 million term loan are due in even quarterly installments through July 2002. Subsequent to year end, the $5.7 million term loan payments were extended to require even quarterly installments through July 2004 and a final maturity of $3.3 million in August 2004. The borrowings under the revolving credit facility can be converted to a five-year term loan under the Credit Agreement. Upon conversion to a term loan, the revolving credit borrowings would be repayable in even quarterly installments until maturity. Subsequent to year end, the revolving credit facility under the Credit Agreement was increased from $10.0 to $15.0 million, and the facility was extended to June 2001. Interest is computed at LIBOR plus 2.0% (7.569% at December 31, 1998). The Company has mortgages on certain of its facilities, which are payable in monthly installments, the last of which extends to 2018. Depending upon the mortgage, the interest rate is either fixed, floating or adjustable. At December 31, 1998, such interest rates ranged from 7.75% to 8.65%. At December 31, 1998, the fair value of the Notes and the Debentures was $29.4 million and $1.0 million, respectively. The fair value of the remaining long-term debt approximates the carrying value.
12. Stockholders' Equity During 1998, the Board of Directors declared four quarterly cash dividends of $0.035 per share on the Company's Common Stock and $0.0315 per share on the Company's Class B Stock, which were paid in April, July and October 1998 and January 1999. Each share of Class B Stock is convertible at any time into one share of Common Stock and has ten votes per share, as compared to Common Stock which has one vote per share but receives a higher dividend. The Company has 3.0 million shares of authorized and unissued capital stock designated as Class A Stock, $1.00 par value. Such shares would have no voting rights except as required by law and would receive a 10% higher dividend than the Common Stock. The Company also has 0.5 million shares of authorized and unissued capital stock designated as Preferred Stock, $1.00 par value. During 1998, the stockholders approved an increase in the authorized shares of Common Stock to 11.0 million and Class A Stock to 6.0 million. A Certificate of Amendment increasing the authorized shares will be filed when deemed necessary. Shares of Common Stock reserved for future issuance in connection with convertible securities and stock option plans amounted to 2.3 million and 2.4 million, at December 31, 1998 and 1997, respectively. The Company adopted the provisions of Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS 130) during the first quarter of 1998, as required. SFAS 130 establishes standards for reporting and displaying comprehensive income and its components in a set of financial statements. The adoption of this standard had no impact on the Company's net income. Comprehensive income is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. Comprehensive income for the three years ended December 31, 1998, includes the following components:
13. Engineering Development Engineering development expense was $352,000, $322,000 and $204,000 for 1998, 1997 and 1996, respectively.
14. Pension Plan All eligible salaried employees of Trans-Lux Corporation and certain of its subsidiaries are covered by a non-contributory defined benefit pension plan. Pension benefits vest after five years of service and are based on years of service and final average salary. The Company's general funding policy is to contribute amounts sufficient to satisfy regulatory funding standards. Plan assets consist principally of insurance company funds, mutual funds and $99,000 in the Company's 9 1/2% subordinated debentures.
The funded status of the plan as of December 31, 1998 and 1997 are as follows:
The following items are components of the net periodic pension cost for the three years ended December 31, 1998:
In addition, the Company provides unfunded supplemental retirement benefits for the Chief Executive Officer. The Company accrued $97,000, $62,000 and $63,000 for 1998, 1997 and 1996, respectively, for such benefits. The total liability accrued was $375,000 and $278,000 at December 31, 1998 and 1997, respectively. The Company does not offer any postretirement benefits other than the pension and the supplemental retirement benefits described herein.
15. Stock Option Plans The Company has four stock option plans. The 1995 Stock Option Plan and the 1992 Stock Option Plan reserved 100,000 and 50,000 shares of Common Stock, respectively, for grant to key employees. The Non-Employee Director Stock Option Plan reserved 30,000 shares of Common Stock for grant. The Non-Statutory Stock Option Plan Agreement, which has terminated, originally reserved 12,500 shares of Common Stock for grant to the Chairman of the Board. Changes in the stock option plans are as follows:
Under the 1995 and 1992 Stock Option Plans, option prices must be at least 100% of the market value of the Common Stock at time of grant. No option may be exercised prior to one year after date of grant. Exercise periods are for ten years from date of grant (five years if the optionee owns more than 10% of the voting power) and terminate at a stipulated period of time after an employee's termination of employment. At December 31, 1998, under the 1995 Plan, options for 44,239 shares (granted in 1997 and 1995) with exercise prices ranging from $8.125 to $15.1875 per share were outstanding, 28,239 shares of which were exercisable. During 1998, options for 4,411 shares (granted in 1995) with an exercise price of $8.125 per share were exercised, and options for 900 shares
expired. During 1997, options for 27,100 shares' were granted at exercise prices ranging from $11.0625 to $15.1875 per share, and options for 1,350 shares (granted in 1995) with an exercise price of $8.125 per share were exercised. During 1996, 50,000 additional shares were authorized under the 1995 Stock Option Plan, and no options were exercised. At December 31, 1998, under the 1992 Plan, options for 31,570 shares (granted in 1995, 1994, 1993 and 1992) with exercise prices ranging from $6.3125 to $9.6875 per share were outstanding, all of which were exercisable. During 1998, options for 3,930 shares (granted in 1993 and 1992) with exercise prices ranging from $6.3125 to $7.5625 per share were exercised. During 1997, options for 5,294 shares (granted in 1993 and 1992) with exercise prices ranging from $6.3125 to $7.5625 per share were exercised. During 1996, options for 7,406 shares (granted in 1992) with an exercise price of $6.3125 per share were exercised, and options for 500 shares expired. Under the Non-Employee Director Stock Option Plan, option prices must be at least 100% of the market value of the Common Stock at time of grant. No option may be exercised prior to one year after date of grant and the optionee must be a director of the Company at time of exercise, except in certain cases as permitted by the Compensation Committee. Exercise periods are for six years from date of grant and terminate at a stipulated period of time after an optionee ceases to be a director. At December 31, 1998, options for 10,000 shares (granted in 1998, 1997, 1996, 1995 and 1994) with exercise prices ranging from $8.625 to $13.00 per share were outstanding, 9,000 shares of which were exercisable. During 1998, options for 1,000 shares were granted at an exercise price of $13.00 per share, and no options were exercised. During 1997, options for 500 shares were granted at an exercise price of $12.00 per share, and no options were exercised. During 1996, 15,000 additional shares were authorized, options for 7,000 shares were granted at an exercise price of $12.625 per share, and options for 1,000 shares (granted in 1994) with an exercise price of $9.6875 per share were exercised. Under the Non-Statutory Stock Option Agreement, option prices must be at least 100% of the market value of the Common Stock at time of grant. During 1998 the plan was terminated. No options were exercised during 1998, 1997 and 1996.
The following tables summarize information about stock options outstanding at December 31, 1998:
The estimated fair value of options granted during 1998, 1997 and 1996 was $5.24, $3.64, and $4.15 per share, respectively. The Company applies Accounting Principles Board Opinion No. 25 and related Interpretations in accounting for its stock option plans. Accordingly, no compensation cost has been recognized for its stock option plans. Had compensation cost for the Company's stock option plans been determined based on the fair value at option grant dates for awards in accordance with the accounting provisions of Statement of Financial Accounting Standards No. 123 (SFAS 123), the Company's net income and earnings per share for the years ended December 31, 1998, 1997 and 1996 would have been reduced to the pro forma amounts indicated below:
The fair value of options granted under the Company's stock option plans during 1998, 1997 and 1996 was estimated on dates of grant using the binomial options- pricing model with the following weighted-average assumptions used: dividend yield of approximately 1.24% in 1998, 1.05% in 1997, and 1.22% in 1996, expected volatility of approximately 38% in 1998, 33% in 1997, and 35% in 1996, risk free interest rate of approximately 5.1% in 1998 and 6.0% in 1997 and 1996, and expected lives of option grants of approximately four years in 1998, 1997 and 1996. The effects of applying SFAS 123 in this pro forma disclosure are not indicative of future pro forma effects, and additional awards in future years are anticipated.
16. Earnings per Share The following table represents the computation of basic and diluted earnings per common share for the three years ended December 31, 1998:
17. Commitments and Contingencies Contingencies: The Company has employment agreements with certain executive officers which expire at various dates through December 2007. At December 31, 1998, the aggregate commitment for future salaries, excluding bonuses, was approximately $5.8 million. During 1996, the Company received a $350,000 grant from the State of Connecticut Department of Economic Development. This grant will be forgiven under certain circumstances, which includes attainment of predetermined employment levels within the state and maintaining business operations within the state for a specified period of time. The Company is subject to legal proceedings and claims which arise in the ordinary course of its business. In the opinion of management, the amount of ultimate liability with respect to these actions will not have a material adverse affect on the consolidated financial statements of the Company. Operating leases: Theatre and other premises are occupied under operating leases that expire at varying dates through 2014. Certain of these leases provide for the payment of real estate taxes and other occupancy costs. Future minimum lease payments due under operating leases at December 31, 1998 are as follows: $487,000 - 1999, $381,000 - 2000, $305,000 - 2001, $280,000 - 2002, $283,000 - 2003, $1,943,000 - thereafter. Rent expense was $585,000, $456,000, and $296,000 in the years ended December 31, 1998, 1997 and 1996, respectively. Guarantees: The Company has guaranteed a $2.7 million mortgage loan obtained by its joint venture, MetroLux Theatres. The Company has received a guarantee from the unrelated general partner of MetroLux Theatres for their pro-rata share of the indebtedness.
18. Business Segment Data In the year ended December 31, 1998, the Company adopted the provisions of Statement of Financial Accounting Standards No. 131, "Disclosure about Segments of an Enterprise and Related Information", (SFAS 131). The standard causes operating segments to be based on components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. In accordance with SFAS 131, segment disclosures for prior years have been restated to conform to this standard. The Company evaluates segment performance and allocates resources based upon operating income. The Company's operations have been classified into 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 and Australia. The indoor display and outdoor display segments are differentiated primarily by the customers they serve. The Entertainment and Real Estate Division owns a chain of motion picture theatres in the southwestern U.S. and owns real estate used for both corporate and income-producing purposes in the U.S. and Canada. The accounting policies applied to segment information are the same as those described in the summary of significant accounting policies. 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 items relate to resources and costs which are not directly identifiable with a segment. There are no intersegment sales.
Information about the Company's operations in its three business segments for the three years ended December 31, 1998 are as follows:
Independent Auditors' Report
To the Board of Directors and Shareholders of Trans-Lux Corporation:
We have audited the accompanying consolidated balance sheets of Trans-Lux Corporation and subsidiaries as of December 31, 1998 and 1997 and the related consolidated statements of income, cash flows and stockholders' equity for each of the three years in the period ended December 31, 1998. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company and its subsidiaries at December 31, 1998 and 1997 and the results of their operations, their cash flows and their stockholders' equity for each of the three years in the period ended December 31, 1998 in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Stamford, Connecticut February 26, 1999
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) The information required by this Item with respect to directors is incorporated herein by reference to the Section entitled "Election of Directors" in the Company's Proxy Statement.
(b) The following executive officers were elected by the Board of Directors for the ensuing year and until their respective successors are elected.
Name Office Age -------------- --------------------------- --- Richard Brandt Chairman of the Board 71
Victor Liss Vice Chairman of the Board, 62 President and Chief Executive Officer
Michael R. Mulcahy Executive Vice President 50
Matthew Brandt Senior Vice President 35
Thomas Brandt Senior Vice President 35
Frank N. Daniels Senior Vice President 61
Karl P. Hirschauer Senior Vice President 53
Thomas F. Mahoney Senior Vice President 51
Al L. Miller Senior Vice President 53
Angela D. Toppi Senior Vice President, Treasurer, 43 Secretary and Chief Financial Officer
Messrs. R. Brandt, Liss, Mulcahy, Daniels, Hirschauer and Ms. Toppi have been associated in an executive capacity with the Company for more than five years.
Messrs. M. Brandt and T. Brandt were elected Senior Vice Presidents in charge of theatre operations on September 27, 1997 and have been employed since 1985. They served as Vice Presidents in charge of theatre operations between May 22, 1991 and September 27, 1997.
Mr. Mahoney was elected Senior Vice President in charge of sales on June 1, 1996 and has been employed by the Company since 1967. Mr. Mahoney served as Assistant Vice President of sales between December 1, 1994 and June 1, 1996.
Mr. Miller was elected Senior Vice President in charge of manufacturing and materials on September 27, 1997 and has been employed by the Company since 1995. Mr. Miller served as Vice President in charge of manufacturing and materials between March 13, 1995 and September 27, 1997. Mr. Miller was self-employed as a consultant between 1994 and 1995.
(c) The information required by Item 405 of Regulation S-K is incorporated herein by reference to the Section entitled "Compliance with Section 16(a) of the Securities Exchange Act of 1934" in the Company's Proxy Statement.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein by reference to the Section entitled "Executive Compensation and Transactions with Management" in the Company's Proxy Statement.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated herein by reference to the Section entitled "Security Ownership of Certain Beneficial Owners, Directors and Executive Officers" in the Company's Proxy Statement.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated herein by reference to the Section entitled "Executive Compensation and Transactions with Management" in the Company's Proxy Statement.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report: (1) Financial Statements: Consolidated Statements of Income for the Years Ended December 31, 1998, 1997 and 1996. Consolidated Balance Sheets as of December 31, 1998 and 1997. Consolidated Statements of Cash Flows for the Years Ended December 31, 1998, 1997 and 1996. Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1998, 1997 and 1996. Notes to Consolidated Financial Statements. Independent Auditors' Report.
Individual financial statements for two 50% owned entities accounted for by the equity method, have been omitted because they do not constitute significant subsidiaries.
(2) Financial Statement Schedules: None
(3) Exhibits:
3(a) Form of Restated Certificate of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 of Registration No. 333-15481).
(b) By-Laws of the Registrant (incorporated by reference to Exhibit 3.2 of Registration No. 333-15481).
4(a) Indenture dated as of December 1, 1994 (form of said indenture is incorporated by reference to Exhibit 6 of Schedule 13E-4 Amendment No.2 dated December 23, 1994).
(b) Indenture dated as of December 1, 1996 (form of said indenture is incorporated by reference to Exhibit 4.2 of Registration No. 333-15481).
10.1 Form of Indemnity Agreement -- Directors (form of said agreement is incorporated by reference to Exhibit 10.1 of Registration No. 333-15481).
10.2 Form of Indemnity Agreement -- Officers (form of said agreement is incorporated by reference to Exhibit 10.2 of Registration No. 333-15481).
10.3 Amended and Restated Pension Plan dated August 14, 1996 (incorporated by reference to Exhibit 10.3 of Form 10-K for the year ended December 31, 1996).
10.4(a) 1989 Non-Employee Director Stock Option Plan, as amended (incorporated by reference to Exhibit 10.2 of Form 10-Q for the quarter ended September 30, 1996).
(b) 1992 Stock Option Plan (incorporated by reference to Proxy Statement dated April 3, 1992).
(c) 1995 Stock Option Plan, as amended (incorporated by reference to Proxy Statement dated April 22, 1996).
10.5 Credit Agreement with First Fidelity Bank dated as of August 28, 1995 (incorporated by reference to Exhibit 10(d) of Form 10-Q for the quarter ended September 30, 1995.) Fourth Amendment Agreement dated as of December 19, 1997 (incorporated by reference to Exhibit 10.5 of Form 10-K for the year ended December 31, 1997). Fifth Amendment Agreement dated as of March 24, 1998 (incorporated by reference to Exhibit 10.5 of Form 10-K for the year ended December 31, 1997). Sixth Amendment Agreement dated as of November 5, 1998, included herewith.
10.6 Employment Agreement with Richard Brandt dated as of September 11, 1998 (incorporated by reference to Exhibit 10(a) of Form 10-Q for the quarter ended September 30, 1998).
10.7 Employment Agreement with Victor Liss dated as of January 1, 1997 (incorporated by reference to Exhibit 10.7 of Form 10-K for the year ended December 31, 1996).
10.8 Employment Agreement with Michael R. Mulcahy dated as of June 1, 1998 (incorporated by reference to Exhibit 10(b) of Form 10-Q for the quarter ended September 30, 1998).
10.9 Employment Agreement with Frank Daniels dated as of January 1, 1997 (incorporated by reference to Exhibit 10.9 of Form 10-K for the year ended December 31, 1996).
10.10 Employment Agreement with Karl Hirschauer dated as of January 1, 1997 (incorporated by reference to Exhibit 10.10 of Form 10-K for the year ended December 31, 1996).
10.11 Employment Agreement with Thomas F. Mahoney dated as of June 1, 1998 (incorporated by reference to Exhibit 10 of Form 10-Q for the quarter ended June 30, 1998).
10.12 Employment Agreement with Al Miller dated as of January 1, 1999, included herewith.
10.13 Employment Agreement with Angela Toppi dated as of January 1, 1997 (incorporated by reference to Exhibit 10.12 of Form 10-K for the year ended December 31, 1996).
10.14 Agreement between Trans-Lux ISE Corporation and the Stockholders of Integrated Systems Engineering, Inc. dated as of January 17, 1995 (incorporated by reference to Exhibit 28(a) of Form 8-K filed January 23, 1995).
10.15 Agreement with Nottingham Partners, Deerfield Partners, Jonathan P. Schwartz and Nathaniel B. Guild dated April 4, 1991 (incorporated by reference to Exhibit 28(a) of Form 8-K filed April 9, 1991).
10.16 Agreement with Baupost Group, Inc. and Baupost Partners dated April 4, 1991 (incorporated by reference to Exhibit 28(b) of Form 8-K filed April 9, 1991).
10.17 Agreement between Trans-Lux Midwest Corporation and Fairtron Corporation dated as of April 30, 1997 (incorporated by reference to Exhibit 10(a) of Form 8-K filed May 15, 1997).
21 List of Subsidiaries, filed herewith.
27 Financial Data Schedule, which is submitted electronically to the Securities and Exchange Commission for information only and not filed.
(c) No reports on Form 8-K were filed during the last quarter of the period covered by this report.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized:
TRANS-LUX CORPORATION
by /s/ Angela D. Toppi ---------------------------- Angela D. Toppi Senior Vice President and Chief Financial Officer
by /s/ Robert P. Bosworth ---------------------------- Robert P. Bosworth Vice President and Chief Accounting Officer
Dated: March 29, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated:
/s/ Richard Brandt - - - ------------------------------------- March 29, 1999 Richard Brandt, Chairman of the Board
/s/ Victor Liss - - - ------------------------------------- March 29, 1999 Victor Liss, Vice Chairman of the Board, President and Chief Executive Officer
/s/ Steven Baruch - - - ------------------------------------- March 29, 1999 Steven Baruch, Director
/s/ Howard M. Brenner - - - ------------------------------------- March 29, 1999 Howard M. Brenner, Director
/s/ Jean Firstenberg - - - ------------------------------------- March 29, 1999 Jean Firstenberg, Director
/s/ Allen Fromme - - - ------------------------------------- March 29, 1999 Allan Fromme, PhD, Director
/s/ Robert Greenes - - - ------------------------------------- March 29, 1999 Robert Greenes, Director
- - - ------------------------------------- March 29, 1999 Gene F. Jankowski, Director
/s/ Howard S. Modlin - - - ------------------------------------- March 29, 1999 Howard S. Modlin, Director