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 September 30, 2008
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Commission file number 1-2257
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TRANS-LUX CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 13-1394750
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
26 Pearl Street, Norwalk, CT 06850-1647
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(Address of principal executive offices) (Zip code)
(203) 853-4321
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark whether the Registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company.
See the definitions of "large accelerated filer," "accelerated filer" and
"smaller reporting company" in Rule 12b-2 of the Exchange Act. (check one)
Large accelerated filer Accelerated filer Non-accelerated filer X
--- --- ---
Smaller reporting company
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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
-------- ------------------------------------ ------------------
11/13/08 Common Stock - $1.00 Par Value 2,020,090
11/13/08 Class B Stock - $1.00 Par Value 286,814
(Immediately convertible into a like
number of shares of Common Stock.)
TRANS-LUX CORPORATION AND SUBSIDIARIES
Table of Contents
Page No.
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Part I - Financial Information (unaudited)
Item 1. Condensed Consolidated Balance Sheets - September 30,
2008 and December 31, 2007 1
Condensed Consolidated Statements of Operations -
Three and Nine Months Ended September 30, 2008 and 2007 2
Condensed Consolidated Statements of Cash Flows - Nine
Months Ended September 30, 2008 and 2007 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 19
Item 4. Controls and Procedures 19
Part II - Other Information
Item 1A. Risk Factors 19
Item 2. Unregistered Sales of Securities and Use of Proceeds 20
Item 3. Defaults upon Senior Securities 20
Item 4. Submission of Matters to a Vote of Security Holders 20
Item 5. Other Information 20
Item 6. Exhibits 21
Signatures 22
Exhibits
Part I - Financial Information
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TRANS-LUX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30 December 31
In thousands, except share data 2008 2007
-------------------------------------------------------------------------------------------
(unaudited) (see Note 1)
ASSETS
Current assets:
Cash and cash equivalents $ 2,292 $ 6,591
Cash in escrow 400 -
Available-for-sale securities 136 171
Receivables, less allowance of $917 - 2008 and $892 - 2007 7,108 5,233
Unbilled receivables 186 12
Other receivables 2,580 2,580
Inventories 6,514 6,768
Prepaids and other 1,006 1,204
Assets associated with discontinued operations (Note 2) 1,076 26,712
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Total current assets 21,298 49,271
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Rental equipment 69,228 66,626
Less accumulated depreciation 42,105 37,692
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27,123 28,934
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Property, plant and equipment 7,715 7,323
Less accumulated depreciation 4,934 4,626
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2,781 2,697
Goodwill 1,004 1,004
Other assets 1,895 2,053
------- -------
TOTAL ASSETS $54,101 $83,959
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,319 $ 2,439
Accrued liabilities 6,216 6,537
Current portion of long-term debt 9,727 11,002
Liabilities associated with discontinued operations (Note 2) 663 16,250
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Total current liabilities 19,925 36,228
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Long-term debt:
8 1/4% Limited convertible senior subordinated notes due 2012 10,129 10,129
9 1/2% Subordinated debentures due 2012 1,057 1,057
Notes payable 2,350 8,833
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13,536 20,019
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Deferred credits, deposits and other 3,044 3,116
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Stockholders' equity:
Capital stock
Common - $1 par value - 5,500,000 shares authorized,
2,453,591 shares issued in 2008 and 2007 2,453 2,453
Class B - $1 par value - 1,000,000 shares authorized,
286,814 shares issued in 2008 and 2007 287 287
Additional paid-in-capital 14,738 14,733
Retained earnings 5,110 11,848
Accumulated other comprehensive loss (1,529) (1,262)
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21,059 28,059
Less treasury stock - at cost - 433,596 common
shares in 2008 and 2007 3,463 3,463
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Total stockholders' equity 17,596 24,596
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $54,101 $83,959
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The accompanying notes are an integral part of these condensed consolidated financial statements.
1
TRANS-LUX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three Months Ended Nine Months ended
September 30 September 30
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In thousands, except per share data 2008 2007 2008 2007
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Revenues:
Equipment rentals and maintenance $ 2,837 $ 3,036 $ 8,421 $ 9,268
Equipment sales 7,947 7,506 20,612 19,276
Real estate rentals 60 110 228 326
------- ------- ------- -------
Total revenues 10,844 10,652 29,261 28,870
------- ------- ------- -------
Operating expenses:
Cost of equipment rentals and maintenance 2,379 2,794 7,151 8,280
Cost of equipment sales 6,005 5,253 14,834 13,716
Cost of real estate rentals 37 26 86 72
------- ------- ------- -------
Total operating expenses 8,421 8,073 22,071 22,068
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Gross profit from operations 2,423 2,579 7,190 6,802
General and administrative expenses (2,282) (2,827) (7,892) (9,336)
Interest income 8 29 140 197
Interest expense (446) (630) (1,500) (1,999)
Debt conversion cost - - - (1,475)
Other income 1 15 5 608
------- ------- ------- -------
Loss from continuing operations before income taxes (296) (834) (2,057) (5,203)
Income tax (expense) benefit (84) 166 (234) 953
------- ------- ------- -------
Loss from continuing operations (380) (668) (2,291) (4,250)
Income (loss) from discontinued operations 24 368 (4,447) 1,284
------- ------- ------- -------
Net loss $ (356) $ (300) $(6,738) $(2,966)
======= ======= ======= =======
Loss per share continuing operations - basic
and diluted $ (0.16) $ (0.29) $ (0.99) $ (2.09)
Income (loss) per share discontinued
operations - basic and diluted 0.01 0.16 (1.93) 0.63
------- ------- ------- -------
Total loss per share - basic and diluted $ (0.15) $ (0.13) $ (2.92) $ (1.46)
======= ======= ======= =======
Weighted average common shares outstanding - basic
and diluted 2,307 2,305 2,307 2,026
======= ======= ======= =======
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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)
Nine Months Ended
September 30
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In thousands 2008 2007
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Cash flows from operating activities
Net loss $ (6,738) $(2,966)
Loss (income) from discontinued operations 4,447 (1,284)
-------- -------
Loss from continuing operations (2,291) (4,250)
Adjustment to reconcile loss from continuing operations
to net cash provided by operating activities:
Depreciation and amortization 4,872 5,919
Deferred income taxes 13 (1,074)
Exchange of 8 1/4% notes for common stock - 1,345
Changes in operating assets and liabilities:
Receivables (2,049) 75
Inventories 254 (918)
Prepaids and other assets 205 186
Accounts payable and accruals 319 1,211
Deferred credits, deposits and other (72) (651)
-------- -------
Net cash provided by operating activities
of continuing operations 1,251 1,843
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Cash flows from investing activities
Equipment manufactured for rental (2,602) (3,331)
Purchases of property, plant and equipment (392) (131)
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Net cash used in investing activities
of continuing operations (2,994) (3,462)
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Cash flows from financing activities
Payments of long-term debt (7,758) (1,580)
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Net cash used in financing activities
of continuing operations (7,758) (1,580)
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Cash flows from discontinued operations
Cash (used in) provided by operating activities
of discontinued operations (1,750) 1,383
Cash provided by investing activities of
discontinued operations 22,106 32
Cash used in financing activities of
discontinued operations (15,154) (511)
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Net cash provided by discontinued operations 5,202 904
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Net decrease in cash and cash equivalents (4,299) (2,295)
Cash and cash equivalents at beginning of year 6,591 5,765
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Cash and cash equivalents at end of period $ 2,292 $ 3,470
======== =======
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Interest paid $ 2,223 $ 2,161
Income taxes paid 166 5
Supplemental disclosures of non-cash financing activities:
Exchange of 8 1/4% notes for common stock - 7,829
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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
September 30, 2008
(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 September 30, 2008 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, 2007. The condensed consolidated balance sheet at December 31, 2007 is
derived from the December 31, 2007 audited financial statements.
On June 26, 2008, the Board of Directors approved the sale of the assets of the
Entertainment Division. As a result of the sale, the Company has accounted for
the Entertainment Division as discontinued operations beginning in the second
quarter of 2008 and recorded long-lived asset impairment charges of $2.9 million
as well as $2.0 million in disposal costs in that quarter. See Note 2.
The Company has incurred net losses from continuing operations for the three and
nine months ended September 30, 2008 of $380,000 and $2.3 million, respectively,
but has generated cash provided by operating activities of continuing operations
of $1.3 million and $1.8 million for the nine months ended September 30, 2008
and 2007, respectively. The Company has implemented several initiatives to
continue to improve operational results and cash flows over future periods. The
Company's engineering staff continues to work on areas to improve manufacturing
efficiencies as well as expanding and improving the outdoor commercial products,
particularly digital billboards and fuel price changers to include larger LED
arrays, smaller LED pixel sizes for higher resolutions and additional features.
The Company believes the outdoor commercial market is a growing industry, and we
see increasing usage of digital signage in the outdoor commercial market. The
Company also continues to explore ways to reduce costs and relocated its Norwalk
facility in the second quarter of 2008 to lower operating costs in the future.
The Company continues to take steps to reduce the cost to maintain the equipment
on rental and maintenance. In addition, the Company is recording less interest
expense as a result of the exchange offer in the first quarter of 2007, see Note
5, paid down debt with the net proceeds from the sale of the assets of the
Entertainment Division, see Note 2, and a reduction in interest rates of its
variable rate debt. As of September 30, 2008, the total $9.6 million
outstanding under its Credit Agreement, which matures on August 1, 2009, has
been
4
classified as current, which includes the fully drawn $5.0 million revolving
loan facility. The Company has positive working capital of $1.4 million as of
September 30, 2008. The Company's objective in regards to the Credit Agreement
is to obtain additional funds from external sources through equity or additional
debt financing and the Company is in discussions with senior lenders and others
to obtain additional borrowing capacity. While management believes it will be
successful, there can be no assurance that management will be successful in
achieving any of the above objectives. Management further believes that its
current cash resources and cash provided by continuing operations will be
sufficient to fund its continuing operations and its current obligations through
September 30, 2009.
Note 2 - Discontinued Operations
On June 26, 2008, the Board of Directors approved the sale of the assets of the
Entertainment Division, which was consummated on July 15, 2008 for a purchase
price of $24.5 million, of which $7.4 million was paid in cash, $0.4 million is
in escrow and $16.7 million of debt was assumed, including $0.3 million of debt
of the joint venture, MetroLux Theatres. The $0.4 million cash held in escrow
will be released to the Company on July 15, 2009, net of any purchase price
adjustments. The buyer assumed the operating results effective as of June 27,
2008. In accordance with the provisions of SFAS No. 144, "Accounting For the
Impairment or Disposal of Long-lived Assets," the Company is accounting for the
Entertainment Division as discontinued operations.
In addition to the $24.5 million purchase price, there is a potential additional
purchase price of up to $2.3 million based on the performance of increased
theatre operations at the DreamCatcher Cinema, which was expanded from a
six-plex to a 10-plex in May 2008, and a six-month option to purchase raw land
from the Company in Silver City, New Mexico for $0.9 million. However, there
can be no assurance that there will be any additional purchase price earned or
that the option will be exercised. As a result of the sale, the Company
recorded a long-lived asset impairment charge of $2.9 million as well as $2.0
million in disposal costs for the quarter ended June 30, 2008.
The Company has agreed not to compete in the theatre business in certain Western
states of the United States for five years and has licensed the name "Trans-Lux
Theatres" in connection with such movie theatre circuit. Matthew Brandt and
Thomas Brandt, former executive officers of the Company, have become full time
officers of the buyer, managing the theatre business purchased. The Company is
providing certain services on a transition basis for up to six months and is
also providing consulting services for a year, which consulting services will be
rendered by Richard Brandt, a director and consultant to the Company. The
Company received an opinion from an independent third party that the transaction
was fair to the stockholders of the Company from a financial point of view.
The $5.8 million net proceeds from the sale were used to prepay the term loan
under the Credit Agreement with its senior lender and accordingly, the amount of
the term loan has been reclassified as current portion of long-term debt in the
Condensed Consolidated Balance Sheet as of December 31, 2007. A total of $22.4
million of long-term debt has been paid down or assumed by the buyer as
5
a result of the sale.
The assets and liabilities associated with discontinued operations and related
results of operations as of December 31, 2007 have been reclassified in the
Condensed Consolidated Financial Statements as discontinued operations. The
following table presents the financial results of the discontinued operations:
Three months ended September 30 Nine months ended September 30
In thousands, except per share data 2008 2007 2008 2007
----------------------------------------------------------------------------------------------------
Revenues $ 4 $3,617 $ 6,249 $10,687
Operating expenses (16) 2,770 4,976 7,989
----- ------ ------- -------
Gross profit 20 847 1,273 2,698
General and administrative expenses (88) (266) (647) (796)
Interest income (expense) 15 (334) (455) (963)
Income from joint venture - 121 239 345
Asset impairment and loss on sale of division 77 - (4,857) -
Income tax expense - - - -
----- ------ ------- -------
Income (loss) from discontinued operations $ 24 $ 368 $(4,447) $ 1,284
===== ====== ======= =======
Income (loss) per share - basic and diluted $0.01 $ 0.16 $ (1.93) $ 0.63
===== ====== ======= =======
----------------------------------------------------------------------------------------------------
Interest expense allocated to discontinued operations relates to the
Entertainment Division's long-term debt assumed by the buyer.
The following is a detail of the assets and liabilities reported as discontinued
operations and classified as assets and liabilities associated with discontinued
operations in the Condensed Consolidated Balance Sheet as of September 30, 2008,
with comparative carrying amounts as of December 31, 2007:
September 30 December 31
In thousands 2008 2007
--------------------------------------------------------------------------------------
Inventories $ - $ 85
Prepaids and other assets 156 171
Property and equipment, net 920 25,397
Other assets - 1,059
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Total assets associated with discontinued operations $ 1,076 $26,712
======= =======
Current liabilities $ 663 $ 1,096
Long-term liabilities - 15,154
------- -------
Total liabilities associated with discontinued operations $ 663 $16,250
======= =======
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Operations of the Joint Venture - Discontinued Operations
The Company had a 50% ownership in a joint venture partnership, MetroLux
Theatres ("MetroLux"), accounted for by the equity method, which was included in
the sold assets of its Entertainment Division. The Company's equity in
partnership net assets is included in the assets associated with discontinued
operations in the Condensed Consolidated Balance Sheets at December 31, 2007.
6
Note 3 - Other Receivables
The Company has a $2.6 million receivable that was due June 2008, relating to
the sale/leaseback of the Company's Norwalk, Connecticut facility in 2004. The
receivable is secured by a purchase money mortgage subordinated to a $3.5
million first mortgage in favor of the purchaser's bank. The purchaser has
defaulted on this payment and the Company is pursuing legal remedies.
The base four-year term of the sale/leaseback ended in June 2008. The Company
terminated its subsequent three-year lease for part of the property during the
second quarter of 2007 and recognized the remaining $393,000 of the deferred
gain. The deferred gain represented the present value of the lease payments
over the term of the leaseback and had been recognized proportionately to the
rental charge over the base four-year term.
Note 4 - Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market
value and consist of the following:
September 30 December 31
In thousands 2008 2007
-----------------------------------------------
Raw materials $4,715 $4,743
Work-in-progres 1,190 1,351
Finished goods 609 674
------ ------
$6,514 $6,768
====== ======
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Note 5 - Long-Term Debt
During the nine months ended September 30, 2008, long-term debt, including
current portion, decreased $7.8 million, $2.0 million due to regularly scheduled
payments of long-term debt and $5.8 million as a result of the sale of the
Entertainment Division. See Note 2.
The Company has a bank Credit Agreement that provides for a term loan of $10.0
million, a non-revolving line of credit of up to $6.2 million to finance
purchases and/or redemptions of one-half of the 7 1/2% Notes, and a revolving
loan of up to $5.0 million at a variable rate of interest of Prime plus 1.75%
(6.75% at September 30, 2008). The Credit Agreement matures on August 1, 2009
and as of September 30, 2008 has been classified as current in the Condensed
Consolidated Balance Sheets. Effective December 31, 2006, $6.1 million of the
non-revolving line of credit was converted into a four-year term loan also
maturing August 1, 2009. At September 30, 2008, the entire revolving loan
facility had been drawn. The Credit Agreement requires an annual facility fee
on the unused commitment of 0.25%, and requires compliance with certain
financial covenants, which include a minimum tangible net worth of $17.0
million, a loan-to-value ratio of not more than 50%, a leverage
7
ratio, a cap on capital expenditures and maintaining accounts with an average
monthly compensating balance of not less than $750,000. As of September 30,
2008, the Company was in compliance with the forgoing financial covenants, but
was not in compliance with the fixed charge coverage ratio of 1.25 to 1.0, which
the senior lender waived subsequent to the end of the quarter. The amounts
outstanding under the Credit Agreement are collateralized by all of the Display
Division assets.
On March 15, 2007, the Company completed an offer to exchange 133 shares of its
Common Stock, $1 par value per share, for each $1,000 principal amount of its 8
1/4% Limited convertible senior subordinated notes due 2012 (the "8 1/4%
Notes"). The offer was for up to $9.0 million principal amount, or
approximately 50% of the $18.0 million principal amount outstanding of the 8
1/4% Notes. A total of $7.8 million principal amount of the 8 1/4% Notes were
exchanged, leaving $10.1 million principal amount of the 8 1/4% Notes
outstanding. A total of 1,041,257 shares of Common Stock were issued in the
exchange. In accordance with SFAS No. 84, "Induced Conversions of Convertible
Debt," the Company recorded a non-cash, non-tax deductible charge for the
exchange of debt for Common Stock and additional amortization of prepaid
financing costs aggregating $1.5 million in debt conversion cost as a result of
the exchange offer.
Note 6 - Reporting Comprehensive Loss
Total comprehensive loss for the three and nine months ended September 30, 2008
and 2007 is as follows:
Three months ended September 30 Nine months ended September 30
In thousands 2008 2007 2008 2007
-------------------------------------------------------------------------------------------------------
Net loss, as reported $(356) $(300) $(6,738) $(2,966)
----- ----- ------- -------
Other comprehensive income:
Unrealized foreign currency translation
(loss) gain (154) 234 (245) 504
Unrealized holding loss on
available-for-sale securities (33) (7) (35) (14)
Income tax benefit related to items
of other comprehensive income 12 3 13 6
----- ----- ------- -------
Total other comprehensive (loss) income,
net of tax (175) 230 (267) 496
----- ----- ------- -------
Comprehensive loss $(531) $ (70) $(7,005) $(2,470)
===== ===== ======= =======
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Note 7 - Income Taxes
The Company adopted the provisions of FIN 48 on January 1, 2007. As a result of
the implementation of FIN 48, the Company recognized a $250,000 adjustment for
interest and penalties in connection with uncertain tax positions. This
increase was accounted for as an adjustment to the beginning balance of retained
earnings. The Company's policy is to classify interest and penalties related to
uncertain tax positions in income tax expense.
The Company is subject to U.S. federal income tax as well as income tax in
multiple state and local jurisdictions and Canadian federal and provincial
income tax. Currently, no federal or state or
8
provincial income tax returns are under examination. The tax years 2005 through
2007 remain open to examination by the major taxing jurisdictions and the 2004
tax year remains open to examination by some state and local taxing
jurisdictions to which the Company is subject.
A valuation allowance has been established for the amount of deferred tax assets
related to Federal and state net operating loss carryforwards, which management
estimates will more likely than not expire unused.
Estimates of the annual effective tax rate benefit at the end of interim periods
are, of necessity, based on evaluations of possible future events and
transactions and may be subject to subsequent revision.
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 for the three and nine months
ended September 30, 2008 and 2007.
The following table presents the components of net periodic pension cost:
Three months ended September 30 Nine months ended September 30
In thousands 2008 2007 2008 2007
----------------------------------------------------------------------------------------------------
Interest cost $ 160 $ 160 $ 480 $ 480
Expected return on plan assets (158) (169) (474) (505)
Amortization of prior service cost 4 4 12 12
Amortization of net actuarial loss 66 70 198 212
----- ----- ----- -----
Net periodic pension cost $ 72 $ 65 $ 216 $ 199
===== ===== ===== =====
----------------------------------------------------------------------------------------------------
As of September 30, 2008, the Company has recorded current and long-term pension
liabilities of $0.1 million and $2.9 million, respectively. The contribution
for 2008 is $0.5 million, of which $0.4 million has already been contributed.
Note 9 - Stock Option Plans
During the nine-month period ended September 30, 2008, the Company issued
options for 3,000 shares with an exercise price of $3.85 per share under the
Non-Employee Director Stock Option Plan; none were issued during the nine-month
period ended September 30, 2007. The unrecognized compensation costs related to
unvested stock options granted under the Company's stock option plans was
nominal.
Expected volatility is based on historical volatility of the Company's stock and
the expected life of options is based on historical data with respect to
exercise periods.
9
The following summarizes the activity of the Company's stock options for the
nine months ended September 30, 2008:
Weighted
Weighted Average
Average Remaining Aggregate
Exercise Contractual Intrinsic
Options Price ($) Term (Yrs) Value ($)
------------------------------------------------------------------------------------------
Outstanding at beginning of year 65,000 6.08
Granted 3,000 3.85
Exercised - -
Terminated (34,500) 6.72
-------
Outstanding at end of period 33,500 5.22 3.7
======= ===
Vested and expected to vest at end of period 33,500 5.22 3.7 -
======= ===
Exercisable at end of period 28,000 5.34 3.4 -
======= ===
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Note 10 - Loss Per Common Share
Basic loss per common share is computed by dividing net loss by the weighted
average number of common shares outstanding for the period. At September 30,
2008 and 2007, outstanding stock options to purchase 33,500 and 62,500 shares,
respectively, of Common Stock 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. The Company is not a party to any pending
legal proceedings and claims that it believes will have a material adverse
effect on the consolidated financial position or results of operations of the
Company.
Note 12 - Business Segment Data
The Company evaluates segment performance and allocates resources based upon
operating income. The Company's continuing operations are managed in three
reportable business segments. The Display Division comprises two operating
segments, Indoor display and Outdoor display. Both design, produce, lease, sell
and service large-scale, multi-color, real-time electronic information displays.
Both operating segments are conducted on a global basis, primarily through
operations in the U.S. The Company also has operations in Canada. The Indoor
display and Outdoor display segments are differentiated primarily by the
customers they serve. The Real estate segment owns an income-producing real
estate property. Segment operating income is shown after operating expenses and
sales, general and administrative expenses directly associated with the segment.
Corporate general and administrative items relate to costs that are not directly
identifiable with a segment. There are no intersegment sales. Of the total
goodwill of $1.0 million, $0.9 million relates to the
10
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 U.S. domestic operation provides the equipment that the
foreign operation leases or sells. The foreign operation operates similarly to
the domestic operation and has similar profit margins.
Information about the Company's operations in its three business segments for
the three and nine months ended September 30, 2008 and 2007 is as follows:
Three months ended September 30 Nine months ended September 30
In thousands 2008 2007 2008 2007
----------------------------------------------------------------------------------------------------------------
Revenues:
Indoor display $ 3,223 $ 2,776 $ 9,305 $ 8,008
Outdoor display 7,561 7,766 19,728 20,536
Real estate 60 110 228 326
------- ------- ------- -------
Total revenues $10,844 $10,652 $29,261 $28,870
======= ======= ======= =======
Operating income (loss):
Indoor display $ (275) $ (374) $ (193) $(1,296)
Outdoor display 1,221 985 2,309 1,818
Real estate 21 81 134 245
------- ------- ------- -------
Total operating income 967 692 2,250 767
Other income 1 15 5 608
Corporate general and administrative expenses (826) (940) (2,952) (3,301)
Interest expense - net (438) (601) (1,360) (1,802)
Debt conversion cost - - - (1,475)
Income tax (expense) benefit (84) 166 (234) 953
------- ------- ------- -------
Loss from continuing operations (380) (668) (2,291) (4,250)
Income (loss) from discontinued operations 24 368 (4,447) 1,284
------- ------- ------- -------
Net loss $ (356) $ (300) $(6,738) $(2,966)
======= ======= ======= =======
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Note 13 - Recent Accounting Pronouncements
In September 2006, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 157, "Fair Value
Measurements" ("SFAS 157") that defines fair value, establishes a framework for
measuring fair value in accordance with accounting principles generally accepted
in the United States and expands the disclosures about fair value measurement.
In February 2008, the FASB amended SFAS 157 and issued FASB Staff Position No.
157-2 ("FSP 157-2"). FSP 157-2 excludes fair value lease calculations pursuant
to SFAS 13, as amended, from SFAS 157, but does not exclude assets and
liabilities acquired pursuant to SFAS 141R. FSP 157-2 defers the effective date
of SFAS 157 for non-financial assets and liabilities that are not recognized or
disclosed at fair value on a recurring basis by one year. The adoption of SFAS
157 and the related FSPs on January 1, 2008 did not have a material impact on
the financial condition or results of operations of the Company.
In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities" ("SFAS 159"). SFAS 159 permits
entities to choose to measure many financial instruments and certain other items
at fair value that are not currently required to be measured at fair
11
value. SFAS 159 also establishes presentation and disclosure requirements
designed to facilitate comparisons between entities that chose different
measurement attributes for similar assets and liabilities. The adoption of SFAS
159 on January 1, 2008 did not have a material impact on the financial condition
or results of operations of the Company.
In December 2007, the FASB issued SFAS No. 141R, "Business Combinations" ("SFAS
141R"), which replaces SFAS No. 141. Under SFAS 141R, an acquiring entity will
be required to recognize all the assets acquired and liabilities assumed in a
transaction at the acquisition date fair value with limited exceptions. SFAS
141R establishes principles and requirements for how an acquirer recognizes and
measures in its financial statements the identifiable assets acquired, the
liabilities assumed, any non-controlling interest in the acquiree and the
goodwill acquired. SFAS 141R also establishes disclosure requirements, which
will enable users to evaluate the nature and financial effects of the business
combination. SFAS 141R is effective for financial statements issued for fiscal
years beginning after December 15, 2008. Early adoption is prohibited. We have
not yet determined the impact, if any, that the implementation of SFAS 141R will
have on our results of operations or financial condition.
In December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in
Consolidated Financial Statements - An Amendment of ARB No. 51" ("SFAS 160").
SFAS 160 establishes new accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. Specifically, SFAS 160 requires the recognition of a noncontrolling
interest (minority interest) as equity in the consolidated financial statements
and separate from the parent's equity. The amount of net income attributable to
the noncontrolling interest will be included in consolidated net income on the
face of the income statement. SFAS 160 clarifies that changes in a parent's
ownership interest in a subsidiary that do not result in deconsolidation are
equity transactions if the parent retains its controlling financial interest.
In addition, SFAS 160 requires that a parent recognize a gain or loss in net
income when a subsidiary is deconsolidated. Such gain or loss will be measured
using the fair value of the noncontrolling equity investment on the
deconsolidation date. SFAS 160 also includes expanded disclosure requirements
regarding the interests of the parent and its noncontrolling interest. SFAS 160
is effective for fiscal years beginning on or after December 15, 2008. Early
adoption is prohibited. We have not yet determined the impact, if any, that the
implementation of SFAS 160 will have on our results of operations or financial
condition.
12
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Trans-Lux is a full service provider of integrated multimedia systems for
today's communications environments. The essential elements of these systems
are the real-time, programmable electronic information displays we manufacture,
distribute and service. Designed to meet the evolving communications needs of
both the indoor and outdoor markets, these displays are used primarily in
applications for the financial, banking, gaming, corporate, advertising,
transportation, entertainment and sports industries. In addition to its display
business, the Company owns and operates an income producing rental property.
The Company operates in three reportable segments: Indoor display, Outdoor
display and Real estate.
On June 26, 2008, the Board of Directors approved the sale of the assets of the
Entertainment Division. As a result of the sale, the Company has accounted for
the Entertainment Division as discontinued operations beginning in the second
quarter of 2008 and recorded long-lived asset impairment charges of $2.9 million
as well as $2.0 million in disposal costs for the quarter ended June 30, 2008.
See Note 2. The following discussion and analysis of financial condition and
results of operations relates only to continuing operations.
The Indoor display segment includes worldwide revenues and related expenses from
the rental, maintenance and sale of indoor displays. This segment includes the
financial, government/private and gaming markets. The Outdoor display segment
includes worldwide revenues and related expenses from the rental, maintenance
and sale of outdoor displays. Included in this segment are catalog sports,
retail, digital billboards and commercial markets. The Real estate segment
includes the operations of an income-producing real estate property.
Results of Operations
Nine Months Ended September 30, 2008 Compared to Nine Months Ended September 30,
2007
Total revenues for the nine months ended September 30, 2008 increased $391,000
or 1.4% to $29.3 million compared to $28.9 million for the nine months ended
September 30, 2007. Indoor display sales revenues increased, but were offset by
decreases in Indoor display rental and maintenance revenues, Outdoor display
revenues and Real estate rentals revenue.
Indoor display revenues increased $1.3 million or 16.2%. Of this increase,
Indoor display equipment sales increased $1.6 million or 67.2%, primarily due to
an increase in sales from the financial services and transportation markets.
Indoor display equipment rentals and maintenance revenues decreased $348,000 or
6.3%, primarily due to disconnects and non-renewals of equipment on rental and
maintenance on existing contracts in the financial services market. The
financial services market continues to be negatively impacted by the ongoing
consolidation within that industry and the wider use of flat-panel screens.
13
Outdoor display revenues decreased $808,000 or 3.9%. Of this decrease, Outdoor
display equipment rentals and maintenance revenues decreased $499,000 or 13.5%,
primarily due to the continued expected revenue decline in the older Outdoor
display equipment rental and maintenance bases acquired in the early 1990s.
Outdoor display equipment sales decreased $309,000 or 1.8%, primarily in the
commercial market, offset by increased sales in the catalog sports market.
Real estate rentals revenue decreased $98,000 or 30.1%, primarily due to less
than full occupancy of the sub-leased portion of our former Norwalk, CT
location, which sub-leases terminated in June 2008.
Total operating income for the nine months ended September 30, 2008 increased
$1.5 million to $2.3 million compared to $767,000 for the nine months ended
September 30, 2007, principally due to the increase in Indoor sales revenues and
a reduction in general and administrative expenses in both the Indoor and
Outdoor display segments.
Indoor display operating loss decreased to $193,000 in 2008 compared to a loss
of $1.3 million in 2007, primarily as a result of the increase in revenues in
the financial services and transportation markets. The cost of Indoor displays
represented 77.7% of related revenues in 2008 compared to 80.0% in 2007. Indoor
displays cost of equipment rentals and maintenance decreased $215,000 or 4.1%,
primarily due to a $384,000 decrease in depreciation expense, offset by a
$169,000 increase in field service costs to maintain the equipment. The Company
continues to address the cost of field service to align with revenue levels.
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 $1.0 million or 92.2%, primarily due to the
increase in revenues. Indoor display general and administrative expenses
decreased $633,000 or 21.8%, primarily due to a reduction in selling payroll and
benefits and related expenses and a $204,000 decrease in the allowance for
uncollectable accounts.
Outdoor display operating income increased $491,000 or 27.0% to $2.3 million in
2008 compared to $1.8 million in 2007, primarily as a result of a decrease in
field service costs to maintain the equipment on rental and maintenance
contracts. The cost of Outdoor displays represented 74.8% of related revenues
in 2008 compared to 75.9% in 2007. Outdoor display cost of equipment sales
remained level. Outdoor display cost of equipment rentals and maintenance
decreased $915,000 or 30.4%, primarily due to a $475,000 decrease in field
service costs to maintain the equipment and a $439,000 decrease in depreciation
expense. Outdoor display general and administrative expenses decreased $462,000
or 14.8%, primarily due to a reduction in selling and administrative payroll and
benefits and related expenses and a $116,000 decrease in the allowance for
uncollectable accounts. Cost of Outdoor display equipment rentals and
maintenance includes field service expenses, plant repair costs, maintenance and
depreciation.
Real estate rentals operating income decreased $111,000 or 45.3%, primarily due
to the decrease in revenues. Cost of Real estate rentals increased slightly.
The cost of Real estate rentals represented 38.2% of related revenues in 2008
compared to 22.1% in 2007. The cost of Real estate rentals as a percentage of
related revenues increased primarily due to the reduction in revenues. Real
estate
14
rentals general and administrative expenses remained level.
Corporate general and administrative expenses decreased $349,000 or 10.6%,
primarily due to decreases in benefits and legal expenses and a foreign currency
gain of $107,000 compared to a foreign currency loss of $172,000 in the prior
year. The Company continues to monitor and reduce certain overhead costs.
Net interest expense decreased $442,000, due to lower interest rates of the
variable debt and a reduction in total debt. The debt conversion cost of $1.5
million in 2007 relates to the one-time, non-cash, non-tax deductible charge for
the exchange of debt for Common Stock relating to the exchange offer that was
completed March 14, 2007. See Note 5.
Other income of $608,000 in 2007 mainly relates to a gain resulting from the
termination of an office lease.
The effective tax rate for the nine months ended September 30, 2008 and 2007 was
3.6% and 24.3%, respectively. The 2008 rate was affected by the $2.9 million
increase in the valuation allowance on its deferred tax assets as a result of
reporting a pre-tax loss. The 2007 rate was affected by the $1.5 million
one-time, non-cash, non-tax deductible charge relating to exchange of debt for
Common Stock, see Note 5. The Company adopted the provisions of FIN 48 on
January 1, 2007. See Note 7. The current year's income tax expense relates to
the Company's Canadian subsidiary.
Three Months Ended September 30, 2008 Compared to Three Months Ended September
30, 2007
Total revenues for the three months ended September 30, 2008 increased $192,000
or 1.8% to $10.8 million from $10.7 million for the three months ended September
30, 2007, primarily due to an increase in Indoor display sales revenues, offset
by decreases in Indoor display rentals and maintenance revenues, Outdoor display
revenues and Real estate rentals revenue.
Indoor display revenues increased $447,000 or 16.1%. Of this increase, Indoor
display equipment sales increased $503,000 or 49.9%, primarily due to an
increase in sales from the financial services and transportation markets.
Indoor display equipment rentals and maintenance revenues decreased $56,000 or
3.2%, primarily due to disconnects and non-renewals of equipment on rental and
maintenance on existing contracts in the financial services market. The
financial services market continues to be negatively impacted by the ongoing
consolidation within that industry.
Outdoor display revenues decreased $205,000 or 2.6%. Of this decrease, Outdoor
display equipment rentals and maintenance revenues decreased $143,000 or 11.3%,
primarily due to the continued expected revenue decline in the older Outdoor
display equipment rental and maintenance bases acquired in the early 1990s.
Outdoor display equipment sales decreased $62,000 or 1.0%, primarily in the
outdoor commercial market, offset by an increase in the outdoor catalog sports
market.
Real estate rentals revenue decreased $50,000 or 45.5%, primarily due to the
termination of the sub-
15
leases at our former Norwalk, CT location, which was vacated in June 2008.
Total operating income for the three months ended September 30, 2008 increased
$275,000 to $967,000 from $692,000 for the three months ended September 30,
2007, principally due to the increase in the Indoor sales revenues and a
reduction in general and administrative expenses in the Outdoor display segment.
Indoor display operating loss decreased $99,000 to $275,000 in 2008 compared to
a loss of $374,000 in 2007, primarily as a result of the increase in revenues in
the financial services and transportation markets. The cost of Indoor displays
represented 82.0% of related revenues in 2008 compared to 83.0% in 2007. The
cost of Indoor displays as a percentage of related revenues decreased primarily
due to a $135,000 decrease in depreciation expense, offset by a $16,000 increase
in field services costs to maintain the equipment. The Company continues to
address the cost of field service to align with revenue levels. 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 $459,000 or 94.4%, primarily due to the increase in revenues.
Indoor display general and administrative expenses remained level, primarily due
to a reduction in selling payroll and benefits and related expenses offset by a
$95,000 increase in the allowance for uncollectable accounts.
Outdoor display operating income increased $236,000 or 24.0% to $1.2 million in
2008 compared to $985,000 in 2007, primarily as a result of a reduction in
general and administrative expenses. The cost of Outdoor displays represented
75.9% of related revenues in 2008 compared to 74.0% in 2007. Outdoor display
cost of equipment sales increased $293,000 or 6.1%, principally due to the
volume mix of products sold. Outdoor display cost of equipment rentals and
maintenance decreased $298,000 or 30.5%, primarily due to a $151,000 decrease in
field service costs to maintain the equipment and a $146,000 decrease in
depreciation expense. Outdoor display general and administrative expenses
decreased $438,000 or 42.2%, primarily due to a reduction in selling and
administrative payroll and benefits and related expenses and a $81,000 decrease
in the allowance for uncollectable accounts. Cost of Outdoor display equipment
rentals and maintenance includes field service expenses, plant repair costs,
maintenance and depreciation.
Real estate rentals operating income decreased $60,000, primarily due to the
decrease in revenues. Cost of Real estate rentals increased slightly. The cost
of Real estate rentals represented 63.3% of related revenues in 2008 compared to
23.6% in 2007. The cost of Real estate rentals as a percentage of related
revenues increased primarily due the reduction in revenues. Real estate rentals
general and administrative expenses remained level.
Corporate general and administrative expenses decreased $114,000 or 12.1%,
primarily due to a decrease in benefits, legal expenses and audit fees and a
foreign currency gain of $87,000 compared to a foreign currency loss of $99,000
in the prior year, offset by an increase in general insurance expenses. The
Company continues to monitor and reduce certain overhead costs.
Net interest expense decreased $163,000, due to lower interest rates of the
variable debt and a reduction in total debt.
16
The effective tax rate for the three months ended September 30, 2008 and 2007
was 30.9% and 35.6%, respectively. The 2008 rate was affected by the $0.3
million increase in the valuation allowance on its deferred tax assets as a
result of reporting a pre-tax loss. The current year's income tax expense
relates to the Company's Canadian subsidiary.
Liquidity and Capital Resources
During the nine months ended September 30, 2008, long-term debt, including
current portion, decreased a total of $7.8 million. Of this decrease, $2.0
million was due to regularly scheduled payments of long-term and $5.8 million
was as a result of the sale of the Entertainment Division. See Note 2.
The Company has a bank Credit Agreement that provides for a term loan of $10.0
million, a non-revolving line of credit of up to $6.2 million to finance
purchases and/or redemptions of one-half of the 7 1/2% Convertible Subordinated
Notes due December 1, 2006 (the "7 1/2% Notes") in September 2006 and a
revolving loan of up to $5.0 million at a variable rate of interest of Prime
plus 1.75% (6.75% at September 30, 2008). The Credit Agreement matures on
August 1, 2009 and as of September 30, 2008 has been classified as current in
the Condensed Consolidated Balance Sheets. Effective December 31, 2006, $6.1
million of the non-revolving line of credit was converted into a four-year term
loan also maturing August 1, 2009. At September 30, 2008, the entire revolving
loan facility had been drawn. The Credit Agreement requires an annual facility
fee on the unused commitment of 0.25%, and requires compliance with certain
financial covenants, which include a minimum tangible net worth of $17.0
million, a loan-to-value ratio of not more than 50%, a leverage ratio, a cap on
capital expenditures and maintaining accounts with an average monthly
compensating balance of not less than $750,000. As of September 30, 2008, the
Company was in compliance with the forgoing financial covenants, but was not in
compliance with the fixed charge coverage ratio of 1.25 to 1.0, which the senior
lender waived subsequent to the end of the quarter. The Company is in
discussion with senior lenders and others to obtain additional borrowing
capacity.
On March 15, 2007, the Company completed an offer to exchange 133 shares of its
Common Stock, $1 par value per share, for each $1,000 principal amount of its 8
1/4% Limited Convertible Senior Subordinated Notes due 2012 (the "8 1/4%
Notes"). The offer was for up to $9.0 million principal amount, or
approximately 50% of the $18.0 million principal amount outstanding of the 8
1/4% Notes. A total of $7.8 million principal amount of the 8 1/4% Notes were
exchanged, leaving $10.1 million principal amount of the 8 1/4% Notes
outstanding. A total of 1,041,257 shares of Common Stock were issued in the
exchange. In accordance with FASB No. 84, "Induced Conversions of Convertible
Debt," the Company recorded a non-cash, non-tax deductible charge for the
exchange of debt for Common Stock and additional amortization of prepaid
financing costs aggregating $1.5 million in debt conversion cost as a result of
the exchange offer.
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.
17
The Company's long-term debt requires interest payments. The Company has both
variable and fixed interest rate debt. Interest payments are projected based on
current interest rates until the underlying debts mature.
The following table summarizes the Company's fixed cash obligations of its
continuing operations as of September 30, 2008 for the remainder of 2008 and the
next four years:
Remainder of
In thousands 2008 2009 2010 2011 2012
-------------------------------------------------------------------------------------
Long-term debt, including interest $1,340 $10,766 $1,362 $1,345 $13,735
Employment and consulting
agreement obligations 315 912 427 303 198
Operating lease payments 163 509 425 406 272
------ ------- ------ ------ -------
Total $1,818 $12,187 $2,214 $2,054 $14,205
-------------------------------------------------------------------------------------
Cash and cash equivalents decreased $4.3 million for the nine months ended
September 30, 2008 compared to a decrease of $2.3 million for the nine months
ended September 30, 2007. The decrease in 2008 from continuing operations is
primarily attributable to the investment in equipment for rental and property,
plant and equipment of $3.0 million and $2.0 million of scheduled payments of
long-term debt, offset by $1.3 million of cash provided by operating
activities. The decrease in 2008 from discontinued operations is $0.6 million,
$5.2 million of cash provided by discontinued operations, offset by $5.7 million
of payments of long-term debt as a result of the sale of the Entertainment
Division with the net proceeds. The decrease in 2007 from continuing operations
is primarily attributable to the investment in equipment for rental of $3.3
million and $1.6 million of scheduled payments of long-term debt, offset by $1.8
million of cash provided by operating activities of continuing operations. The
increase in 2007 from discontinued operations is $0.9 million of cash provided
by discontinued operations.
Although the Company has incurred losses from continuing operations, it believes
that cash generated from continuing operations together with cash and cash
equivalents on hand should be sufficient to fund 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 and is in discussions with senior lenders and others.
The Company continually evaluates the need and availability of long-term capital
in order to meet its cash requirements.
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995
The Company may, from time to time, provide estimates as to future performance.
These forward-looking statements will be estimates, and may or may not be
realized by the Company. The Company undertakes no duty to update such
forward-looking statements. Many factors could cause actual results to differ
from these forward-looking statements, including loss of market share through
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.
18
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company is subject to interest rate risk on its long-term debt. The Company
manages its exposure to changes in interest rates by the use of variable and
fixed interest rate debt. In addition the Company is exposed to foreign
currency exchange rate risk mainly as a result of its investment in its Canadian
subsidiary. The Company may, from time to time, enter into derivative contracts
to manage its interest risk. The Company does not enter into derivatives for
trading or speculative purposes. At September 30, 2008, the Company did not
hold any derivative financial instruments.
A one-percentage point change in interest rates would result in an annual
interest expense fluctuation of approximately $119,000. A 10% change in the
Canadian dollar relative to the U.S. dollar would result in a currency exchange
expense fluctuation of approximately $304,000, based on dealer quotes,
considering current exchange rates.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures. As required by Rule 13a-15
under the Securities Exchange Act of 1934, as of the end of the period covered
by this report, we have carried out an evaluation, under the supervision and
with the participation of our management, including our Chief Executive Officer
and Chief Financial Officer (our principal executive officer and principal
financial officer), of the effectiveness of the design and operation of our
disclosure controls and procedures. Our Chief Executive Officer and Chief
Financial Officer have concluded that our disclosure controls and procedures are
effective to ensure that information required to be disclosed by us in the
reports that we file or submit under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the rules and forms
of the Securities and Exchange Commission and that such information is
accumulated and communicated to our management (including our Chief Executive
Officer and Chief Financial Officer) to allow timely decisions regarding
required disclosures. Based on such evaluation, our Chief Executive Officer and
Chief Financial Officer have concluded these disclosure controls are effective
as of September 30, 2008.
Changes in Internal Control over Financial Reporting. There has been no change
in the Company's internal control over financial reporting, that occurred in
2008, that has materially affected, or is reasonably likely to materially
affect, the Company's internal control over financial reporting.
Part II - Other Information
Item 1A. Risk Factors
The Company is subject to a number of risks including general business and
financial risk factors, particularly because of the weakened economy affected by
the current adverse market environment. Any or all of such factors could have a
material adverse effect on the business, financial condition or
19
results of operations of the Company. You should carefully consider the
following risk factors, in addition to those identified in our Annual Report on
Form 10-K for the year ended December 31, 2007.
On June 26, 2008, the Board of Directors approved the sale of the assets of the
Entertainment Division. As a result of the sale, the Company has accounted for
the Entertainment Division as discontinued operations beginning in the second
quarter of 2008 and recorded long-lived asset impairment charges of $2.9 million
as well as $2.0 million in disposal costs for the quarter ended June 30, 2008.
See Note 2.
The Company has incurred net losses from continuing operations for the three and
nine months ended September 30, 2008 of $380,000 and $2.3 million, respectively,
but has generated cash provided by operating activities of continuing operations
of $1.3 million and $1.8 million for the nine months ended September 30, 2008
and 2007, respectively. The Company has positive working capital of $1.4
million as of September 30, 2008. As of September 30, 2008, the total $9.6
million outstanding under its Credit Agreement, which matures on August 1, 2009,
has been classified as current, which includes the fully drawn $5.0 million
revolving loan facility. The Company's objective in regards to the Credit
Agreement is to obtain additional funds from external sources through equity or
additional debt financing and is in discussions with senior lenders and others
to obtain additional borrowing capacity. While management believes it will be
successful, there can be no assurance that management will be successful in
achieving any of the above objectives. Management further believes that its
current cash resources and cash provided by continuing operations will be
sufficient to fund its continuing operations and its current obligations through
September 30, 2009.
Item 2. Unregistered Sales of Securities and Use of Proceeds
None.
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
As a result of the sale by the Company of the assets of the Entertainment
Division, Thomas Brandt,
20
who had been Co-CEO of the Company and head of its real estate operations,
theatre construction and expansion, does not plan to stand for re-election to
the Trans-Lux Board of Directors in June of 2009, when his present term expires.
He is now employed by the Storyteller Theaters Corporation, which acquired the
Entertainment Division. In addition, Matthew Brandt, who had been President of
the Entertainment Division, plans to resign from the Trans-Lux Board of
Directors in June of 2009, even though his present term as director would
normally not expire until 2011. He is also now employed by the Storyteller
Theaters Corporation. This would leave only one Brandt family member, Richard
Brandt, as a Trans-Lux Director. He indicates that he will stand for
re-election in June of 2009, when his present term expires. He has been with
the Company since 1950 and had been Chairman of the Board and CEO before his
retirement. He is presently an active consultant to the Company, which includes
providing consulting services to Storyteller Theaters Corporation on behalf of
the Company.
Item 6. Exhibits
31.1 Certification of Michael R. Mulcahy, President and Chief
Executive Officer, pursuant to Rule 13a-14(a) and 15d-14(a), as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Angela D. Toppi, Executive Vice President and
Chief Financial Officer, pursuant to Rule 13a-14(a) and 15d-14(a),
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
32.1 Certification of Michael R. Mulcahy, President and Chief
Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification of Angela D. Toppi, Executive Vice President and
Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TRANS-LUX CORPORATION
---------------------
(Registrant)
Date: November 17, 2008
by /s/ Angela D. Toppi
----------------------------
Angela D. Toppi
Executive Vice President and
Chief Financial Officer
22