UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 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 Registrant's principal executive offices) (Zip code)
Registrant's telephone number, including area code: (203) 853-4321
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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Common Stock, $1.00 par value NYSE Amex
8 1/4% Limited Convertible Senior
Subordinated Notes due 2012 NYSE Amex
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the Registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. Yes No X
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Indicate by check mark if the Registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. Yes No X
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Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
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CONTINUED
TRANS-LUX CORPORATION
2008 Form 10-K/A Cover Page Continued
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
Indicate by check mark whether the Registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company.
Large accelerated filer Accelerated filer Non-accelerated filer
--- --- ---
Smaller reporting company X
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Indicate by check mark whether the Registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes No X
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The aggregate market value of the Registrant's Common and Class B Stock held by
non-affiliates of the Registrant based upon the last sale price of the
Registrant's Common Stock reported on the NYSE Amex on June 30, 2008, was
approximately $9,238,000. (The value of a share of Common Stock is used as the
value for a share of Class B Stock, as there is no established market for Class
B Stock, which is convertible into Common Stock on a share-for-share basis.)
As of the close of business on April 21, 2009, there were outstanding 2,020,090
shares of the Registrant's Common Stock and 286,814 shares of its Class B Stock.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Registrant's definitive Proxy Statement for the Annual Meeting
of Stockholders, to be filed with the Commission within 120 days of the
Registrant's fiscal year end (the "Proxy Statement"), are incorporated by
reference into Part III, Items 10-14 of this Form 10-K to the extent stated
herein.
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EXPLANATORY NOTE
This Amendment No. 1 on Form 10-K/A amends our Annual Report on Form 10-K for
the fiscal year ended December 31, 2008, which was originally filed with the SEC
on April 15, 2009. We are filing this Form 10-K/A to include the Quarterly
Financial Data as set forth in Item 6(b), Management's Discussion and Analysis
of Financial Condition and Results of Operations as set forth in Item 7,
Financial Statements as set forth in Item 8, Controls and Procedures as set
forth in Item 9A and to include the certifications.
Except as described above, no other changes have been made to the original
filing.
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TRANS-LUX CORPORATION
2008 Form 10-K/A Annual Report
Table of Contents
PART I
Page
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ITEM 1. Business 1
ITEM 1A. Risk Factors 5
ITEM 1B. Unresolved Staff Comments 7
ITEM 2. Properties 7
ITEM 3. Legal Proceedings 7
ITEM 4. Submission of Matters to a Vote of Security Holders 7
PART II
ITEM 5. Market for the Registrant's Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity Securities 7
ITEM 6. Selected Financial Data 8
ITEM 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk 15
ITEM 8. Financial Statements and Supplementary Data 15
ITEM 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 38
ITEM 9A. Controls and Procedures 38
ITEM 9B. Other Information 39
PART III
ITEM 10. Directors, Executive Officers and Corporate Governance 39
ITEM 11. Executive Compensation 39
ITEM 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters 39
ITEM 13. Certain Relationships and Related Transactions, and
Director Independence 40
ITEM 14. Principal Accounting Fees and Services 40
PART IV
ITEM 15. Exhibits and Financial Statement Schedules 40
Signatures 42
PART I
ITEM 1. BUSINESS
Unless the context otherwise requires, the term "Company" as used herein refers
to Trans-Lux Corporation and its subsidiaries. The Company is a full-service
provider of integrated multimedia systems for today's communications
environments. The essential elements of these systems are the real-time,
programmable electronic information displays the Company manufactures,
distributes and services. These display systems utilize LED (light emitting
diode) technologies. Designed to meet the evolving communications needs of both
the indoor and outdoor markets, these display products include text, graphic and
video displays for stock and commodity exchanges, financial institutions,
college and high school sports stadiums, schools, casinos, convention centers,
corporate applications, government applications, theatres, retail sites,
airports, billboard sites and numerous other applications. In addition to its
core display business, the Company also owns an income-producing real estate
property.
On June 26, 2008, the Board of Directors approved the sale of substantially all
of the assets of the Entertainment Division, which was consummated on July 15,
2008 for a purchase price of $24.5 million, of which $7.4 million was paid in
cash, $0.4 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 Entertainment
Division operated motion picture theatres in the western Mountain States. The
Company has accounted for the Entertainment Division as discontinued operations
in the accompanying financial statements.
The following provides information of our continuing businesses.
ELECTRONIC INFORMATION DISPLAY PRODUCTS
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The Company's high performance electronic information displays are used to
communicate messages and information in a variety of indoor and outdoor
applications. The Company's product line encompasses a wide range of
state-of-the-art electronic displays in various size and color configurations.
Most of the Company's display products include hardware components and
sophisticated software. In both the indoor and outdoor markets in which the
Company serves, the Company adapts basic product types and technologies for
specific use in various niche market applications. The Company also operates a
direct service network throughout the United States and parts of Canada, which
performs on-site project management, installation, service and maintenance for
its customers and others.
The Company employs a modular engineering design strategy, allowing basic
'building blocks' of electronic modules to be easily combined and configured in
order to meet the broad application requirements of the industries it serves.
This approach ensures product flexibility, reliability, ease of service and
minimum spare parts requirements.
The Company's electronic information display market is broken down into two
distinct segments: the Indoor division and the Outdoor division. Electronic
information displays are used by financial institutions, including brokerage
firms, banks, energy companies, insurance companies and mutual fund companies;
sports stadiums and venues; educational institutions; outdoor advertising
companies; corporate and government communication centers; retail outlets;
casinos, race tracks and other gaming establishments; airports, train stations,
bus terminals and other transportation facilities; movie theatres; health
maintenance organizations and in various other applications.
Indoor Division: The indoor electronic display market is currently dominated by
three categories of users: financial, government/private sector and gaming.
The financial sector, which includes trading floors, exchanges, brokerage firms,
banks, mutual fund companies and energy companies, has long been a user of
electronic information displays due to the need for real-time dissemination of
data. The major stock and commodity exchanges depend on reliable information
displays to post stock and commodity prices, trading volumes, interest rates and
other financial data. Brokerage firms use electronic ticker displays for both
customers and brokers; they have also installed other larger displays to post
major headline news events in their brokerage offices to enable their sales
force to stay up-to-date on events affecting general market conditions and
specific stocks. Banks and other financial institutions also use information
displays to advertise product offerings to consumers. The Indoor division has a
product line of advanced last sale price displays, tri-color LED tickers and
graphic displays.
The government/private sector includes applications found in major corporations,
public utilities and government agencies for the display of real-time, critical
data in command/control centers, data centers, help desks, visitor centers,
lobbies, inbound/outbound telemarketing centers, retail applications to attract
customers and for employee
1
communications. Electronic displays have found acceptance in applications for
the healthcare industry such as outpatient pharmacies, military hospitals and
HMOs to automatically post patient names when prescriptions are ready for pick
up. Theatres use electronic displays to post current box office and ticket
information, directional information and promote concession sales. Information
displays are consistently used in airports, bus terminals and train stations to
post arrival and departure, gate and baggage claim information, all of which
help to guide passengers through these facilities.
The gaming sector includes casinos, Indian gaming establishments and racetracks.
These establishments generally use large information displays to post odds for
race and sporting events and to display timely information such as results,
track conditions, jockey weights and scratches. Casinos and racetracks also use
electronic displays throughout their facilities to advertise to and attract
gaming patrons. Equipment for the Indoor display segment generally has a
lead-time of 30 to 120 days depending on the size and type of equipment ordered
and material availability.
Outdoor Division: The outdoor electronic display market is even more diverse
than the Indoor division. Displays are being used by schools, sports stadiums,
sports venues, gas stations, highway departments and outdoor advertisers, such
as digital billboards, attempting to capture the attention of passers-by. The
Outdoor division has a product line of LED message centers, scoreboards and
video displays available in monochrome and full color. The Company has utilized
its strong position in the Indoor display market combined with several
acquisitions to enhance its presence in the Outdoor display market. Outdoor
displays are installed in amusement parks, entertainment facilities, high
schools, college sports stadiums, city park and recreational facilities,
churches, racetracks, military installations, automobile dealerships, banks and
other financial institutions. This division generally sells through dealers and
distributors. Equipment for the Outdoor display segment generally has a
lead-time of 10 to 120 days depending on the size and type of equipment ordered
and material availability.
Sales Order Backlog (excluding leases): The amount of sales order backlog at
December 31, 2008 and 2007 was approximately $3.9 million and $4.5 million,
respectively. The December 31, 2008 backlog is expected to be recognized in
2009. These amounts include only the sale of products; they do not include new
lease orders or renewals of existing lease agreements that may be presently
in-house.
ENGINEERING AND PRODUCT DEVELOPMENT
-----------------------------------
The Company's ability to compete and operate successfully depends on its ability
to anticipate and respond to the changing technological and product needs of its
customers, among other factors. For this reason, the Company continually
develops enhancements to its existing product line and examines and tests new
display technologies.
During 2008 the Company's Outdoor display division continued to enhance
CaptiVue(R), a line of outdoor full matrix LED message centers. CaptiVue offers
greater design flexibility, modularity and increased clarity at an economical
price. Recent enhancements include the introduction of a high resolution 20mm
full color model. The wireless scoreboard control was updated to incorporate
the newer generation radio systems. In parallel with the new radio system, the
Company introduced the MiScore(TM) and MiTime(TM) handheld, simple to operate
controllers.
The Company supplements its LED product line with third-party LED products to
remain competitive in price, product offerings and performance. The Company
offers the product of a leading provider of advanced LED video display products
that we distribute to the markets we serve. Trans-Lux is marketing these
products for both indoor and outdoor applications under the name
CaptiVision(TM). CaptiVision jumbo video monitors have the capability to
deliver brilliant full motion video and animation in billions of colors to
corporate, financial and entertainment markets where the presentation of
multimedia, live-action, advertising and promotions is of major importance.
The Company continued enhancements to its line of economical full-matrix indoor
graphic display products. GraphixWall(R) fixed size displays and GraphixMax(TM)
tileable displays for larger custom sizes feature versatile functionality at a
lower cost, presenting line art, graphics and variable-sized text. Applications
for GraphixWall and GraphixMax displays include flight information, baggage
claim and way-finding at airports, automatic call directories at contact
centers, order processing support at manufacturing facilities and for posting
prices and promoting products in financial and retail environments. Recent
enhancements include a full color version for additional color flexibility and
impact.
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Continued development of indoor products includes new monochrome and tri-color
ticker displays utilizing improved LED display technology; curved and flexible
displays; greater integration of blue LEDs to provide full color text and
graphic displays; wireless controlled displays; and a new graphic interface to
display more data at higher resolutions.
As part of its ongoing development efforts, the Company seeks to package certain
products for specific market segments as well as continually tracking emerging
technologies that can enhance its products. Full color, live video and digital
input technologies continue to be enhanced.
The Company maintains a staff of 17 people who are responsible for product
development and support. The engineering, product enhancement and development
efforts are supplemented by outside independent engineering consulting
organizations where required. Engineering expense and product enhancement and
development amounted to $2.0 million, $1.8 million and $2.0 million in 2008,
2007 and 2006, respectively.
MARKETING AND DISTRIBUTION
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The Company markets its indoor and outdoor electronic information display
products in the U.S. and Canada using a combination of distribution channels,
including 14 direct sales representatives, three telemarketers and a network of
independent dealers and distributors. By working with software vendors and
using the internet to expand the quality and quantity of multimedia content that
can be delivered to our electronic displays, we are able to offer customers
relevant, timely information, content management software and display hardware
in the form of turnkey display communications packages.
The Company employs a number of different marketing techniques to attract new
customers, including direct marketing efforts by its sales force to known and
potential users of information displays; internet marketing; advertising in
industry publications; and exhibiting at approximately 15 domestic and
international trade shows annually.
Internationally, the Company uses a combination of internal sales people and
independent distributors to market its products outside the U.S. The Company
has existing relationships with approximately 18 independent distributors
worldwide covering Europe, the Middle East, South and Central America, Africa,
the Far East and Australia. Foreign sales have represented less than 10% of
total revenues in the past three years.
Headquartered in Norwalk, Connecticut, the Company has sales and service offices
in New York, New York; Des Moines, Iowa; Logan, Utah; Toronto, Ontario; and
Burlington, Ontario; as well as approximately 17 satellite offices in the U.S.
The Company's equipment is both leased and sold. A significant portion of the
electronic information display revenues is from equipment rentals with current
lease terms ranging from 30 days to ten years.
The Company's revenues in 2008, 2007 and 2006 did not include any single
customer that accounted for more than 10% of total revenues.
MANUFACTURING AND OPERATIONS
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The Company's production facilities are located in Stratford, Connecticut and
Des Moines, Iowa. The Company relocated from its facility in Norwalk,
Connecticut to Stratford, Connecticut during 2008. The production facilities
consist principally of the manufacturing, assembly and testing of display units
and related components. The Company performs most subassembly and all final
assembly of its products.
All product lines are design engineered by the Company and controlled throughout
the manufacturing process. The Company has the ability to produce very large
sheet metal fabrications, cable assemblies and surface mount and through-hole
designed assemblies. Some of the subassembly processes are outsourced. The
Company's production of many of the subassemblies and all of the final
assemblies gives the Company the control needed for on-time delivery to its
customers.
The Company has the ability to rapidly modify its product lines. The Company's
displays are designed with flexibility in mind, enabling the Company to
customize its displays to meet different applications with a minimum of
lead-time. The Company designs certain of its materials to match components
furnished by suppliers. If such suppliers were unable
3
to provide the Company with those components, the Company would have to contract
with other suppliers to obtain replacement sources. Such replacement might
result in engineering design changes, as well as delays in obtaining such
replacement components. The Company believes it maintains suitable inventory
and has contracts providing for delivery of sufficient quantities of such
components to meet its needs. The Company also believes there presently are
other qualified vendors of these components. The Company does not acquire
significant amount of purchases directly from foreign suppliers, but certain key
components such as the LEDs and LED modules are manufactured by foreign sources.
The Company's products are third-party certified as complying with applicable
safety, electromagnetic emissions and susceptibility requirements worldwide.
SERVICE AND SUPPORT
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The Company emphasizes the quality and reliability of its products and the
ability of its field service personnel and third-party agents to provide timely
and expert service to the Company's rental equipment and maintenance bases and
other types of customer-owned equipment. The Company believes that the quality
and timeliness of its on-site service personnel are important components in the
Company's ongoing and future success. The Company provides turnkey installation
and support for the products it leases and sells in the United States and
Canada. The Company provides training to end-users and provides ongoing support
to users who have questions regarding operating procedures, equipment problems
or other issues. The Company provides installation and service to those who
purchase and lease equipment. The Company's dealers and distributors offer
support for the products they sell in the market segment they cover.
Personnel based in regional and satellite service locations throughout the
United States and Canada provide high quality and timely on-site service for the
installed rental equipment and maintenance base and other types of
customer-owned equipment. Purchasers or lessees of the Company's larger
products, such as financial exchanges, casinos and sports stadiums, often retain
the Company to provide on-site service through the deployment of a service
technician who is on-site daily for scheduled events. The Company operates its
National Technical Services and Repair Center from its Des Moines, Iowa
facility. Equipment repairs are performed in Des Moines and service technicians
are dispatched nationwide from the Des Moines facility. The Company's field
service is augmented by various service companies in the United States, Canada
and overseas. From time to time the Company uses various third-party service
agents to install, service and/or assist in the service of certain displays for
reasons that include geographic area, size and height of displays.
COMPETITION
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The Company's offers of short and long-term leases to customers and its
nationwide sales, service and installation capabilities are major competitive
advantages in the display business. The Company believes that it is the largest
supplier of large-scale stock, commodity, sports and race book gaming displays
in the United States, as well as one of the larger outdoor electronic display
and service organizations in the country.
The Company competes with a number of competitors, both larger and smaller than
itself, with products based on different forms of technology. There are several
companies whose current products utilize similar technology and who possess the
resources necessary to develop competitive and more sophisticated products in
the future.
REAL ESTATE RENTAL OPERATIONS
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The Company owns an income-producing real estate property located in Santa Fe,
New Mexico, which currently has a 81% occupancy rate. This property has been
placed on the market for sale because it does not directly relate to our core
business.
INTELLECTUAL PROPERTY
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The Company owns or licenses a number of patents and holds a number of
trademarks for its display equipment and considers such patents, licenses and
trademarks important to its business.
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EMPLOYEES
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The Company has approximately 224 employees as of March 2, 2009. Approximately
21% of the employees are unionized. The Company believes its employee relations
are good.
ITEM 1A. RISK FACTORS
THE CURRENT GLOBAL ECONOMIC CRISIS COULD NEGATIVELY IMPACT OUR BUSINESS
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The current global economic crisis could adversely affect our customers and our
suppliers and businesses such as ours. As a result, it could have a variety
of negative effects on the Company such as reduction in revenues, increased
costs, lower gross margin percentages, increased allowances for uncollectable
accounts receivable and/or write-offs of accounts receivable, impair our ability
to access credit markets and finance our operations and could otherwise have
material adverse effects on our business, results of operations, financial
condition and cash flows.
LEVERAGE
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As of December 31, 2008, the Company's total long-term debt (including current
portion) was $22.6 million. We expect we will incur indebtedness in connection
with new rental equipment leases and working capital. Our ability to satisfy
our obligations will be dependent upon our future performance, which is subject
to prevailing economic conditions and financial, business and other factors,
including factors beyond our control. There can be no assurance that our
operating cash flows will be sufficient to meet our long-term debt service
requirements or that we will be able to refinance indebtedness at maturity. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources."
RELIANCE ON KEY SUPPLIERS
-------------------------
We design certain of our materials to match components furnished by suppliers.
If such suppliers were unable or unwilling to provide us with those components,
we would have to contract with other suppliers to obtain replacement sources.
In particular, we purchase almost all of the LED module blocks used in our
electronic information displays from three suppliers. We do not have long-term
supply contracts with these suppliers. A change in suppliers of either LED
module blocks or certain other components may result in engineering design
changes, as well as delays in obtaining such replacement components. We believe
there are presently other qualified vendors of these components. Our inability
to obtain sufficient quantities of certain components as required, or to develop
alternative sources at acceptable prices and within a reasonable time, could
result in delays or reductions in product shipments that could have a materially
adverse effect on our business and results of operations.
COMPETITION
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Our electronic information displays compete with a number of competitors, both
larger and smaller than us, and with products based on different forms of
technology. In addition, there are several companies whose current products
utilize similar technology and who possess the resources to develop competitive
and more sophisticated products in the future. Our success is somewhat
dependent upon our ability to anticipate technological changes in the industry
and to successfully identify, obtain, develop and market new products that
satisfy evolving industry requirements. There can be no assurance that
competitors will not market new products which have perceived advantages over
our products or which, because of pricing strategies, render the products
currently sold by us less marketable or otherwise adversely affect our operating
margins.
NATURE OF LEASING AND MAINTENANCE REVENUES
------------------------------------------
We derive a substantial percentage of our revenues from the leasing of our
electronic information displays, generally pursuant to leases that have an
average term of one to five years. Consequently, our future success is at least
partly dependent on our ability to obtain the renewal of existing leases or to
enter into new leases as existing leases expire. We also derive a significant
percentage of our revenues from maintenance agreements relating to our display
products. The average term of such agreements is generally one to five years.
A portion of the maintenance agreements is cancelable
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upon 30 days notice. There can be no assurance that we will be successful in
obtaining renewal of existing leases or maintenance agreements, obtaining
replacement leases or realizing the value of assets currently under leases that
are not renewed. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Results of Operations."
DEPENDENCE ON KEY PERSONNEL
---------------------------
We believe that our President and Chief Executive Officer, Michael R. Mulcahy,
plays a significant role in the success of the Company and the loss of his
services could have an adverse effect on the Company. There can be no assurance
that the Company would be able to find a suitable replacement for Mr. Mulcahy.
The Company has an employment agreement with Mr. Mulcahy that expires in 2010,
which may be extended by the employee in case of a change-in-control approved by
the present Board of Directors. The Company believes that in addition to the
above referenced key personnel, there is a core group of executives that also
plays a significant role in the success of the Company.
EFFECT OF CERTAIN ANTI-TAKEOVER PROVISIONS AND CONTROL BY EXISTING STOCKHOLDERS
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Our Restated Certificate of Incorporation contains certain provisions that could
have the effect of making it more difficult for a third party to acquire, or of
discouraging a third party from attempting to acquire control of us. Such
provisions could limit the price that certain investors might be willing to pay
in the future for shares of our Common Stock, thus making it less likely that a
stockholder will receive a premium on any sale of shares. Under our Restated
Certificate of Incorporation, we have two classes of common stock outstanding,
Common Stock and Class B Stock, each with its own rights and preferences. Each
share of Class B Stock receives ten votes per share on all matters submitted to
a vote of the stockholders versus the one vote received for each share of Common
Stock. The Class B Stock is entitled to vote separately as a class on any
proposal for merger, consolidation and certain other significant transactions.
Moreover, our Board of Directors is divided into three classes, each of which
serves for a staggered three-year term, making it more difficult for a third
party to gain control of our Board. Our Restated Certificate of Incorporation
also has a provision that requires a four-fifths vote on any merger,
consolidation or sale of assets with or to an "Interested Person" or "Acquiring
Person."
Additionally, we are authorized to issue 500,000 shares of Preferred Stock
containing such rights, preferences, privileges and restrictions as may be fixed
by our Board of Directors, which may adversely affect the voting power or other
rights of the holders of Common Stock or delay, defer or prevent a change in
control of the Company, or discourage bids for the Common Stock at a premium
over its market price or otherwise adversely affect the market price of the
Common Stock. Our Board of Directors is also authorized to issue 3,000,000
shares of Class A Stock, which is identical to the Common Stock but is non-
voting and is entitled to a 10% higher dividend than the Common Stock.
As of December 31, 2008, 13 stockholders who are executive officers and/or
directors of the Company beneficially own approximately 81.96% of our
outstanding Class B Stock, 10.19% of all classes and 49.21% of the voting power.
So long as the Class B stock is outstanding, these stockholders collectively
will continue to have the ability to elect all of our directors and to veto
major transactions for which a stockholder vote is required under Delaware law,
including mergers, consolidations and certain other significant transactions.
These stockholders could also block tender offers for our Common Stock that
could give stockholders the opportunity to realize a premium over the then
prevailing market price for their shares of Common Stock.
LIMITED TRADING VOLUME AND VOLATILITY OF STOCK PRICE
----------------------------------------------------
Our Common Stock is not widely held and the volume of trading has been
relatively low and sporadic. Accordingly, the Common Stock is subject to
increased price volatility and reduced liquidity. There can be no assurance a
more active trading market for the Common Stock will develop or be sustained if
it does develop. The limited public float of our Common Stock could cause the
market price for the Common Stock to fluctuate substantially. In addition,
stock markets have experienced wide price and volume fluctuations in recent
periods and these fluctuations often have been unrelated to the operating
performance of the specific companies affected. Any of these factors could
adversely affect the market price of the Common Stock.
6
SHARES ELIGIBLE FOR FUTURE SALE
-------------------------------
Future sales of Common Stock in the public market by current stockholders of the
Company could adversely affect the market price for the Common Stock. 289,785
shares of Common Stock (including Class B Stock if converted into equal amounts
of Common Stock) may be sold in the public market by executive officers and
directors, subject to the limitations contained in Rule 144 under the Securities
Act of 1933, as amended. Sales of substantial amounts of the shares of Common
Stock in the public market, or even the potential for such sales, could
adversely affect the prevailing market price of our Common Stock.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
In June 2008, the Company relocated its headquarters and principal executive
offices to a leased facility at 26 Pearl Street, Norwalk, Connecticut, which is
used for administration and sales, and relocated its engineering, manufacturing
and assembly of its indoor display products to a leased facility in Stratford,
Connecticut. Prior to relocating the Company was located at 110 Richards
Avenue, Norwalk, Connecticut. The Company owns a facility in Des Moines, Iowa
where its outdoor operations are maintained.
In addition, the Company owns an income-producing real estate property in Santa
Fe, New Mexico and land in Silver City, New Mexico. Both of these properties
have been placed on the market for sale because they do not directly relate to
our core business. The Company leases six other premises throughout North
America for use as sales, service and/or administrative operations. The
aggregate rental expense was $773,000, $662,000 and $781,000 for the years ended
December 31, 2008, 2007 and 2006, respectively.
ITEM 3. LEGAL PROCEEDINGS
The Company is subject to legal proceedings and claims, which arise in the
ordinary course of its business and/or which are covered by insurance. The
Company and four of its directors are party to a pending legal proceeding
entitled Gabelli Funds, LLC v. Brandt et al, 09 Civ. 0830 (KMK), and GAMCO
Asset Management Inc., Gabelli Small Cap Growth Fund LLC, Gabelli Global
Multimedia Trust, Inc. Gabelli Dividend and Income Trust, and Gabelli
Convertible Fund LLC the owners of forty-three percent of the common stock of
the Company. The proceeding, which is in the process of possibly being settled,
is not expected to have an adverse impact on the consolidated financial position
or operations of the Company.
The Company is also party to other pending legal proceedings and claims, which
are covered by insurance, that it believes will not have a material adverse
effect on the consolidated financial position or operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
(a) The Company's Common Stock is traded on the NYSE Amex under the symbol
"TLX." Sales prices are set forth in (d) below.
7
(b) The Company had approximately 594 holders of record of its Common Stock
and approximately 59 holders of record of its Class B Stock as of April
14, 2009.
(c) The Board of Directors did not declare any cash dividends for Common
Stock and Class B Stock during 2008 in order to conserve cash and pay
down debt. Management and the Board of Directors will continue to
review payment of quarterly cash dividends.
(d) The range of Common Stock prices on the NYSE Amex are set forth in the
quarterly financial data table below in Item 6(b).
(e) The Company did not purchase any of its equity securities during any
month of the fourth fiscal quarter of 2008.
ITEM 6. SELECTED FINANCIAL DATA
(a) Not applicable.
(b) The following table sets forth quarterly financial data for years ended
December 31, 2008 and 2007:
In thousands, except per share data Quarters ended March 31 June 30 September 30 December 31
-----------------------------------------------------------------------------------------------------------
2008
Revenues $ 8,000 $ 10,417 $ 10,844 $ 7,422
Gross profit 2,003 2,764 2,423 1,306
Loss from continuing operations (1,186) (1,719) (363) (1,348)
Income (loss) from discontinued operations 159 (3,636) 7 44
Net loss (1,027) (5,355) (356) (1,304)
Loss per share continuing operations (0.52) (0.74) (0.16) (0.58)
Earnings (loss) per share discontinued operations 0.07 (1.58) 0.01 0.01
Total loss per share (0.45) (2.32) (0.15) (0.57)
Cash dividends per share:
Common stock - - - -
Class B stock - - - -
Range of Common Stock prices on the NYSE Amex $3.00 - 6.70 $3.15 - 4.15 $1.80 - 6.10 $0.50 - 2.65
-----------------------------------------------------------------------------------------------------------
2007 (1)
Revenues $ 8,703 $ 9,515 $ 10,652 $ 8,446
Gross profit 1,998 2,225 2,579 1,319
Loss from continuing operations (2,623) (472) (459) (2,258)
Income from discontinued operations 221 208 159 129
Net loss (2) (2,402) (264) (300) (2,129)
Loss per share continuing operations (1.80) (0.19) (0.20) (0.98)
Earnings per share discontinued operations 0.15 0.08 0.07 0.06
Total loss per share (1.65) (0.11) (0.13) (0.92)
Cash dividends per share:
Common stock - - - -
Class B stock - - - -
Range of Common Stock prices on the NYSE Amex $6.50 - 9.04 $5.85 - 7.45 $5.00 - 7.30 $4.55 - 6.40
-----------------------------------------------------------------------------------------------------------
(1) Restated to reflect the sale of the Entertainment Division on June 26, 2008, which is reported as
discontinued operations.
(2) The quarter ended March 31, 2007 net loss includes a $1.5 million debt conversion cost. The quarter
ended December 31, 2007 net loss includes a $1.0 million valuation allowance on deferred tax assets and
$0.4 million pension settlement charge.
8
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview
Trans-Lux is a full service provider of integrated multimedia systems for
today's communications environments. The essential elements of these systems
are the real-time, programmable electronic information displays we manufacture,
distribute and service. Designed to meet the evolving communications needs of
both the indoor and outdoor markets, these displays are used primarily in
applications for the financial, banking, gaming, corporate, advertising,
transportation, entertainment and sports industries. In addition to its display
business, the Company owns and operates an income producing rental property.
The Company operates in three reportable segments: Indoor display, Outdoor
display and Real estate rental.
The Indoor display segment includes worldwide revenues and related expenses from
the rental, maintenance and sale of indoor displays. This segment includes the
financial, government/private and gaming markets. The Outdoor display segment
includes worldwide revenues and related expenses from the rental, maintenance
and sale of outdoor displays. Included in this segment are catalog sports,
retail, digital billboards and commercial markets. The Real estate rental
segment includes an income-producing real estate property.
On June 26, 2008, the Board of Directors approved the sale of the assets of the
Entertainment Division. As a result of the sale, the Company has accounted for
the Entertainment Division as discontinued operations beginning in the second
quarter of 2008 and recorded long-lived asset impairment charges of $2.8 million
as well as $2.0 million in disposal costs for the quarter ended June 30, 2008.
See Note 2 - Discontinued Operations to the consolidated financial statements.
The following discussion and analysis of financial condition and results of
operations relates only to continuing operations.
Critical Accounting Policies and Estimates
Management's Discussion and Analysis of Financial Condition and Results of
Operations discusses the Company's consolidated financial statements, which have
been prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of these financial statements
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. On an ongoing basis,
management evaluates its estimates and judgments, including those related to
percentage of completion, uncollectable accounts receivable, slow-moving and
obsolete inventories, goodwill and intangible assets, income taxes, warranty
obligations, pension plan obligations, contingencies and litigation. Management
bases its estimates and judgments on historical experience and on various other
factors that are believed to be reasonable under the circumstances, the results
of which form the basis for making judgments about the carrying values of assets
and liabilities that are not readily apparent from other sources. Actual
results may differ from these estimates under different assumptions or
conditions. Senior management has discussed the development and selection of
these accounting estimates and the related disclosures with the audit committee
of the Board of Directors.
Management believes the following critical accounting policies, among others,
involve its more significant judgments and estimates used in the preparation of
its consolidated financial statements:
Percentage of Completion: The Company recognizes revenue on long-term equipment
sales contracts using the percentage of completion method based on estimated
incurred costs to the estimated total cost for each contract. Should actual
total cost be different from estimated total cost, an addition or a reduction to
cost of sales may be required.
Uncollectable Accounts Receivable: The Company maintains allowances for
uncollectable accounts receivable for estimated losses resulting from the
inability of its customers to make required payments. Should non-payment by
customers differ from the Company's estimates, a revision to increase or
decrease the allowance for uncollectable accounts receivable may be required.
9
Slow-Moving and Obsolete Inventories: The Company writes down its inventory for
estimated obsolescence equal to the difference between the carrying value of the
inventory and the estimated market value based upon assumptions about future
demand and market conditions. If actual future demand or market conditions are
less favorable than those projected by management, additional inventory
write downs may be required.
Goodwill and Intangible Assets: The Company evaluates goodwill and intangible
assets for possible impairment annually for goodwill and when events or changes
in circumstances indicate that the carrying amount of such assets may not be
recoverable for other intangible assets. The Company uses the fair market value
approach to test for impairment of its goodwill, and considers other factors
including economic trends and our market capitalization relative to net book
value. The fair market valuations used for the impairment tests can be affected
by changes in the estimates of revenue multiples and the discount rate used in
the calculations. The October 1, 2008 annual review indicated an impairment of
$194,000 of the goodwill associated with the commercial outdoor display
business, predominantly due to economic trends. Goodwill in our other
businesses was not impaired. No impairment resulted from the annual reviews
performed in 2007 or 2006. Future adverse changes in market conditions or poor
operating results of underlying assets could result in an inability to recover
the carrying value of the assets, thereby possibly requiring an impairment
charge in the future.
Income Taxes: The Company records a valuation allowance to reduce its deferred
tax assets to the amount that it believes is more likely than not to be
realized. While the Company has considered future taxable income and ongoing
feasible tax planning strategies in assessing the need for the valuation
allowance, in the event the Company were to determine that it would not be able
to realize all or part of its net deferred tax assets in the future, an
adjustment to the deferred tax assets would be charged to income in the period
such determination was made. Likewise, should the Company determine that it
would be able to realize its deferred tax assets in the future in excess of its
net recorded amount, an adjustment to the deferred tax assets would increase
income in the period such determination was made.
Warranty Obligations: The Company provides for the estimated cost of product
warranties at the time revenue is recognized. While the Company engages in
product quality programs and processes, including evaluating the quality of the
component suppliers, the warranty obligation is affected by product failure
rates. Should actual product failure rates differ from the Company's estimates,
revisions to increase or decrease the estimated warranty liability may be
required.
Pension Plan Obligations: The Company is required to make estimates and
assumptions to determine the obligation of our pension benefit plan, which
include investment returns, rates of salary increases and discount rates.
During 2008 and 2007, the Company recorded an after tax change in unrecognized
pension liability in other comprehensive loss of $1.5 million and ($103,000),
respectively. Estimates and assumptions are reviewed annually with the
assistance of external actuarial professionals and adjusted as circumstances
change. At December 31, 2008, plan assets were invested 52.9% in guaranteed
investment contracts, 44.0% in equity and index funds and 3.1% in bonds. The
investment return assumption takes the asset mix into consideration. The
assumed discount rate reflects the rate at which the pension benefits could be
settled. At December 31, 2008, the weighted average rates used for the
computation of benefit plan liabilities were: investment returns, 8.75%; rates
of salary increases, 3.00%; and discount rate, 6.25%. Net periodic cost for
2009 will be based on the December 31, 2008 valuation. The defined benefit plan
periodic cost was $291,000 in 2008, $628,000 in 2007 and $285,000 in 2006. The
2007 periodic pension cost included a settlement charge of $366,000. See Note
14 - Pension Plan to the consolidated financial statements. At December 31,
2008, assuming no change in the other assumptions, a one percentage point change
in investment returns would affect the net periodic cost by $72,000 and a one
percentage point change in the discount rate would affect the net periodic cost
by $95,000. As of December 31, 2003, the benefit service under the defined
benefit plan had been frozen and, accordingly, there is no service cost for each
of the three years ended December 31, 2008.
Results of Operations
2008 Compared to 2007
Total revenues for the year ended December 31, 2008 decreased 1.7% to $36.7
million from $37.3 million for the year ended December 31, 2007, principally due
to decreases in both Indoor and Outdoor display equipment rentals and
maintenance revenues and Outdoor display sales revenues, offset by an increase
in Indoor display sales revenues.
Indoor display revenues increased $641,000 or 5.9%. Of this increase, Indoor
display equipment sales increased $1.2 million or 36.5%, primarily due an
increase in sales from the financial services, gaming and transportation
markets.
10
Indoor display equipment rentals and maintenance revenues decreased $606,000 or
8.2%, 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 current
investment climate resulting in consolidation within that industry and the wider
use of flat-panel screens for smaller applications. Also, due to the global
recession, both Indoor sales and rentals and maintenance revenues have been
negatively impacted and continue to be in 2009.
Outdoor display revenues decreased $1.1 million or 4.4%. Of this decrease,
Outdoor display equipment rentals and maintenance revenues decreased $672,000 or
13.8%, 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 $465,000 or 2.2%, primarily in
the commercial market, offset by increased sales in the catalog sports market.
Also, due to the global recession, both Outdoor sales and rentals and
maintenance revenues have been negatively impacted and continue to be in 2009.
Real estate rental revenues decreased $137,000 or 33.2%, 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 year ended December 31, 2008 increased to $1.4
million from $115,000 for the year ended December 31, 2007, principally due to
the increase in Indoor sales revenues, a reduction in general and administrative
expenses in both the Indoor and Outdoor display segments and a decrease in the
cost of Outdoor equipment rentals and maintenance.
Indoor display operating loss decreased to $505,000 in 2008 compared to a loss
of $1.6 million in 2007, primarily as a result of the increase in revenues in
the financial services, gaming and transportation markets, a decrease in
depreciation expense related to the equipment rentals base and a decrease in
general and administrative expenses. The cost of Indoor displays represented
80.3% of related revenues in 2008 compared to 81.5% in 2007. Indoor displays
cost of equipment rentals and maintenance as a percentage of related revenues
decreased primarily due to the relationship between the cost of equipment
rentals and maintenance decreasing, and the revenues from Indoor display
equipment rentals and maintenance also decreasing, but not at the same rate.
The Company continues to monitor and address the cost of its field service
operations to bring it in line with the revenues. Indoor displays cost of
equipment rentals and maintenance decreased $375,000 or 5.3%, primarily due to a
$422,000 decrease in depreciation expense, offset by a $47,000 increase in field
service costs to maintain the equipment. 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
$757,000 or 42.3%, primarily due to the increase in Indoor display sales and
reduced margins of the Indoor display equipment sales due to product mix of
sales to the transportation market. Indoor display general and administrative
expenses decreased $796,000 or 22.3%, primarily due to a reduction in selling
payroll and benefits and related expenses and a $265,000 decrease in bad debt
expense. Due to the current economic condition, subsequent to year-end, certain
personnel and related expenses of the Indoor display business were reduced,
resulting in annual cash savings of approximately $0.9 million.
Outdoor display operating income increased $365,000 or 26.4%, primarily as a
result of a decrease in depreciation expense related to the equipment rentals
base, offset by $194,000 for the write down of goodwill, predominantly due to
economic trends, relating to a 1995 acquisition in the outdoor commercial
business. The cost of Outdoor displays represented 75.7% of related revenues in
2008 compared to 77.7% in 2007. Outdoor displays cost of equipment rentals and
maintenance decreased $1.2 million or 30.6%, primarily due to a $573,000
decrease in depreciation expense and a $642,000 decrease in field service costs
to maintain the equipment. Cost of Outdoor display equipment rentals and
maintenance includes field service expenses, plant repair costs, maintenance and
depreciation. Outdoor display cost of equipment sales decreased $170,000 or
1.0%, principally due to the decrease in volume. Outdoor display general and
administrative expenses decreased $311,000 or 7.0%, primarily due to a $231,000
reduction in engineering expense. Due to the current economic condition,
subsequent to year-end, certain personnel and related expenses of the commercial
business were reduced, and all non-union personnel salaries were reduced,
resulting in an annual cash savings of approximately $1.0 million.
Real estate rental operating income decreased $137,000 or 46.6%, primarily due
the decrease in revenues due to less than full occupancy. The cost of Real
estate rental represented 37.7% of related revenues in 2008 compared to 26.4% in
2007. Both the cost of Real estate rental and the general and administrative
expenses remained level.
11
Corporate general and administrative expenses decreased $1.1 million or 26.4%,
primarily due a foreign currency gain of $569,000 compared to a foreign currency
loss of $259,000 in the prior year and decreases in personnel, benefits, legal
fees and audit fees. The Company continues to monitor and reduce certain
overhead costs. Due to current economic conditions, subsequent to year-end, all
personnel salaries and consulting fees were reduced, resulting in an annual
savings of approximately $0.3 million.
Net interest expense decreased $431,000 or 22.0%, due to lower interest rates of
the variable debt and a reduction in total debt.
Goodwill impairment is a charge relating to a 1995 acquisition in the outdoor
commercial business the Company wrote off. See Goodwill and Intangibles section
above. The Company's goodwill evaluation indicated an impairment as of October
1, 2008.
Other (loss) income includes an $81,000 loss on investments that were sold in
January 2009.
The effective tax rate for continuing operations for the years ended December
31, 2008 and 2007 was 39.5% and (15.9%), respectively. The 2008 effective tax
rate was affected by the $2.7 million valuation allowance on its deferred tax
assets as a result of reporting a pre-tax loss and the effect of allocating
income taxes between continuing operations and discontinued operations. The
2007 effective tax benefit rate was affected by the $1.5 million one-time,
non-cash, non-tax deductible debt conversion cost and the $1.0 million valuation
allowance on its deferred tax assets as a result of reporting a pre-tax loss in
recent years.
2007 Compared to 2006
Total revenues for the year ended December 31, 2007 decreased 8.7% to $37.3
million from $40.9 million for the year ended December 31, 2006, principally due
to a decrease in Indoor display sales.
Indoor display revenues decreased $3.0 million or 21.7%. Of this decrease,
Indoor display equipment sales decreased $2.1 million or 38.4%, primarily due to
a reduction in sales from the financial services and transportation markets.
Indoor display equipment rentals and maintenance revenues decreased $872,000 or
10.5%, 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 current
investment climate, resulting in consolidation within that industry; and the
wider use of flat-panel screens.
Outdoor display revenues decreased $559,000 or 2.1%. Of this decrease, Outdoor
display equipment rentals and maintenance revenues decreased $440,000 or 8.3%,
primarily due to the continued expected gradual revenue decline in the older
Outdoor display equipment rental and maintenance bases acquired in the early
1990s. Outdoor display equipment sales decreased less than 1.0%, predominantly
in the catalog sports market, offset by increases of billboard and commercial
revenues.
Real estate rental revenues remained level.
Total operating income for the year ended December 31, 2007 decreased to
$115,000 from $1.3 million for the year ended December 31, 2006, principally due
to the increased losses of the Indoor display segment.
Indoor display operating loss increased $1.2 million to a loss of $1.6 million
in 2007 compared to a loss of $361,000 in 2006, primarily as a result of the
decrease in revenues in the financial services and transportation markets. The
cost of Indoor displays represented 81.5% of related revenues in 2007 compared
to 75.0% in 2006. The cost of Indoor displays as a percentage of related
revenues increased primarily due to the relationship between field service costs
of equipment rentals and maintenance decreasing, and the revenues from Indoor
display equipment rentals and maintenance also decreasing, but not at the same
rate. The Company continues to monitor and address the cost of its field
service operations to try and bring it in line with the revenues and has
centralized the dispatch, help desk and repair functions into the Des Moines,
Iowa facility. Indoor display cost of equipment rentals and maintenance
decreased $223,000 or 3.1%, largely due to a $502,000 reduction in depreciation
expense, offset by an increase of $279,000 of field service costs. Cost of
Indoor display equipment rentals and maintenance includes field service
expenses, plant repair costs, maintenance and depreciation expense. Indoor
display cost of equipment sales decreased $1.3 million or 42.5%, primarily due
to the decrease in Indoor display sales. Indoor display general and
administrative expenses decreased
12
$261,000 or 6.8%, primarily due to a reduction in salaries, related benefits and
travel costs, offset by an increase in the allowance for doubtful accounts.
Outdoor display operating income decreased $12,000 or 0.9%, primarily as a
result of a decrease in catalog sports revenue and an increase in the allowance
for doubtful accounts, offset by a reduction in depreciation expense. The cost
of Outdoor displays represented 77.7% of related revenues in 2007 compared to
78.3% in 2006. Outdoor display cost of equipment sales increased by 1.1%,
primarily due to the cost of raw materials. Outdoor display cost of equipment
rentals and maintenance decreased $777,000 or 16.4%, primarily due to a decrease
in field service costs of $436,000 and a reduction in depreciation expense of
$341,000. Cost of Outdoor display equipment rentals and maintenance includes
field service expenses, plant repair costs, maintenance and depreciation
expense. Outdoor display general and administrative expenses increased
slightly.
Real estate rental operating income decreased $15,000 or 4.9%. The cost of Real
estate rental represented 26.4% of related revenues in 2007 compared to 24.3% in
2006. Real estate rental general and administrative expenses remained level.
Corporate general and administrative expenses increased $1.1 million or 35.9%,
primarily due to the negative effect of a $406,000 change in the currency
exchange gain/loss in 2007 compared to 2006, an increase of $374,000 in pension
expense and an increase in the cost of medical benefits.
Net interest expense decreased $633,000 or 24.4%, primarily due to the reduction
in the 8 1/4% Limited Convertible Senior Subordinated Notes due 2012, as a
result of the exchange offer in the first quarter of 2007, coupled with the
reduction of other long-term debt due to regularly scheduled payments and a
reduction in the interest rates of the variable rate debt.
The debt conversion cost relates to a $1.5 million one-time, non-cash, non-tax
deductible charge for the exchange of debt for Common Stock as a result of the
exchange offer. See Note 11 - Long-Term Debt to the consolidated financial
statements.
The effective tax benefit rate for continuing operations for the years ended
December 31, 2007 and 2006 was 15.9% and 46.9%, respectively. The 2007
effective tax benefit rate was affected by the $1.5 million one-time, non-cash,
non-tax deductible debt conversion cost and the $1.0 million valuation
allowance on its deferred tax assets as a result of reporting a pre-tax loss in
recent years. The 2006 effective tax benefit rate was affected by the reversal
of a deferred tax liability related to prior repurchases of the Company's
convertible debt.
Liquidity and Capital Resources
The Company has a bank Credit Agreement, which provides for a term loan of $10.0
million, a non-revolving line of credit of up to $6.2 million to finance
purchases and/or redemptions of one-half of the 7 1/2% Subordinated Notes due
2006 (which were redeemed in June 2006 and no longer outstanding), and a
revolving loan of up to $5.0 million at variable interest rates ranging from
LIBOR plus 2.25% to Prime (3.25% at December 31, 2008). Subsequent to year-end
the rate of interest was modified to Prime plus 2.00%, with a floor of 6.00%,
and the maturity date of the Credit Agreement was extended to April 1, 2010.
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
a loan-to-value ratio of not more than 50% and a leverage ratio. Subsequent to
year-end, the fixed charge coverage ratio was modified to 1.1 to 1.0 for two
quarters and the tangible net worth was redefined and modified to $24.0 million.
As of December 31, 2008, the Company was in compliance with the forgoing
financial covenants, but was not in compliance with the cap on capital
expenditures, which the senior lender waived subsequent to year-end. At
December 31, 2008, the entire revolving loan facility had been drawn. The
non-revolving line of credit is no longer available. The Company's objective in
regards to the Credit Agreement is to obtain additional funds from external
sources through equity or additional debt financing and the Company is in
discussions with senior lenders and others to obtain additional borrowing
capacity, which management believes it should be able to accomplish within the
next twelve months, but the current global credit market has been impacting the
timing of accomplishing these objectives. While management believes it will be
successful, there can be no assurance that management will be successful in
achieving these objectives. The Company continually evaluates the need and
availability of long-term capital in order to meet its cash requirements and
fund potential new opportunities.
13
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.
During 2007, the Company secured a five-year $2.0 million financing of its real
estate rental property in New Mexico at prime rate of interest, with a floor of
6.75%, which was the rate of interest at December 31, 2008.
No cash dividends for Common Stock and Class B Stock were declared by the Board
of Directors during 2008 or 2007 in order to conserve cash and pay down debt.
The Company has incurred net losses from continuing operations for the years
ended December 31, 2008, 2007 and 2006 of $4.6 million, $5.8 million and $2.3
million, respectively, but has generated cash provided by operating activities
of continuing operations of $1.6 million, $4.7 million and $2.4 million for the
years December 31, 2008, 2007 and 2006, 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 controllers and digital
billboards 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 once the economy begins to recover.
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 11 - Long-Term Debt to the consolidated financial statements, paid down
debt with the net proceeds from the sale of the assets of the Entertainment
Division, see Note 2 - Discontinued Operations to the consolidated financial
statements, and a reduction in interest rates of its variable rate debt. The
Company has positive working capital of $1.8 million as of December 31, 2008.
Management believes that its current cash resources and cash provided by
continuing operations should be sufficient to fund its continuing operations and
its current obligations through December 31, 2009.
Cash and cash equivalents decreased $5.2 million in 2008 compared to an increase
of $0.8 million in 2007 and a decrease of $7.8 million in 2006. The decrease in
2008 was primarily attributable to a $5.7 million payment of long-term debt with
the net proceeds from the sale of the assets of the Entertainment Division, in
addition to $2.7 million of regularly scheduled payments of long-term debt.
Operating activities provided $1.6 million, offset by the investment in
equipment manufactured for rental of $4.1 million and purchases of property,
plant and equipment of $0.4 million. The increase in 2007 was primarily
attributable to proceeds received from loan borrowings of $2.0 million and
operating activities of $4.7 million, offset by the investment in equipment
manufactured for rental of $3.9 million and purchases of property, plant and
equipment of $0.1 million. The decrease in 2006 is primarily attributable to
the net reduction of long-term debt of $6.8 million, investment in equipment
manufactured for rental of $4.3 million and purchases of property, plant and
equipment of $0.2 million, offset by increases from operating activities of $2.4
million and proceeds from the sale of available-for-sale securities of $0.3
million. The current economic environment has increased the Company's trade
receivables collection cycle, but continues to be favorable.
Under various agreements, the Company is obligated to make future cash payments
in fixed amounts. These include payments under the Company's long-term debt
agreements, employment and consulting agreement payments and rent payments
required under operating lease agreements. The Company has both variable and
fixed interest rate debt. Interest payments are projected based on actual
interest payments incurred in 2008 until the underlying debts mature.
14
The following table summarizes the Company's fixed cash obligations as of
December 31, 2008 over the next five fiscal years:
In thousands 2009 2010 2011 2012 2013
--------------------------------------------------------------------------
Long-term debt, including interest $4,469 $8,049 $1,249 $13,226 $ -
Employment and consulting
agreement obligations 911 425 302 197 197
Operating lease payments 534 417 402 271 77
--------------------------------------
Total $5,914 $8,891 $1,953 $13,694 $274
--------------------------------------------------------------------------
Off-Balance Sheet Arrangements: The Company has no majority-owned subsidiaries
that are not included in the consolidated financial statements nor does it have
any interests in or relationships with any special purpose off-balance sheet
financing entities.
Safe Harbor Statement under the Private Securities Reform Act of 1995
The Company may, from time to time, provide estimates as to future performance.
These forward-looking statements will be estimates, and may or may not be
realized by the Company. The Company undertakes no duty to update such forward-
looking statements. Many factors could cause actual results to differ from
these forward-looking statements, including loss of market share through
competition, introduction of competing products by others, pressure on prices
from competition or purchasers of the Company's products, interest rate and
foreign exchange fluctuations, terrorist acts and war.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is subject to interest rate risk on its long-term debt. The Company
manages its exposure to changes in interest rates by the use of variable and
fixed interest rate debt. The fair value of the Company's fixed rate long-term
debt is disclosed in Note 11 to the consolidated financial statements. A
one percentage point change in interest rates would result in an annual interest
expense fluctuation of approximately $111,000. In addition, the Company is
exposed to foreign currency exchange rate risk mainly as a result of investment
in its Canadian subsidiary. A 10% change in the Canadian dollar relative to the
U.S. dollar would result in a currency exchange expense fluctuation of
approximately $5,000, based on dealer quotes, considering current exchange
rates. The Company does not enter into derivatives for trading or speculative
purposes and did not hold any derivative financial instruments at December 31,
2008.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements and supplementary financial information
are set forth below:
15
Consolidated Statements of Operations
In thousands, except per share data Years ended December 31 2008 2007 2006
-------------------------------------------------------------------------------------------------------
Revenues:
Equipment rentals and maintenance $ 11,031 $ 12,310 $ 13,621
Equipment sales 25,376 24,593 26,845
Real estate rentals 276 413 420
--------------------------------
Total revenues 36,683 37,316 40,886
--------------------------------
Operating expenses:
Cost of equipment rentals and maintenance 9,443 11,033 12,033
Cost of equipment sales 18,640 18,053 19,201
Cost of real estate rentals 104 109 102
--------------------------------
Total operating expenses 28,187 29,195 31,336
--------------------------------
Gross profit from operations 8,496 8,121 9,550
General and administrative expenses (10,010) (12,227) (11,314)
Goodwill impairment (194) - -
Interest income 145 210 275
Interest expense (1,672) (2,168) (2,866)
Debt conversion cost - (1,475) -
Other (loss) income (75) 629 87
--------------------------------
Loss from continuing operations before income taxes (3,310) (6,910) (4,268)
Income tax (expense) benefit:
Current (203) (131) (234)
Deferred (1,103) 1,229 2,238
--------------------------------
Total income tax (expense) benefit (Note 9) (1,306) 1,098 2,004
--------------------------------
Loss from continuing operations (4,616) (5,812) (2,264)
Income (loss) from discontinued operations, net of income taxes (3,426) 717 617
--------------------------------
Net loss $ (8,042) $ (5,095) $ (1,647)
================================
Loss per share continuing operations - basic and diluted $ (2.00) $ (2.77) $ (1.80)
(Loss) earnings per share discontinued operations - basic and diluted (1.49) 0.34 0.49
--------------------------------
Total loss per share - basic and diluted $ (3.49) $ (2.43) $ (1.31)
================================
Weighted average common shares outstanding - basic and diluted 2,307 2,098 1,260
================================
-------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements.
16
Consolidated Balance Sheets
In thousands, except share data December 31 2008 2007
--------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 1,422 $ 6,591
Cash in escrow 400 -
Available-for-sale securities 135 171
Receivables, less allowance of $926 - 2008 and $892 - 2007 4,594 5,233
Unbilled receivables 120 12
Other receivable - 2,580
Inventories 6,592 6,768
Prepaids and other 1,167 1,204
Assets associated with discontinued operations (Note 2) 149 25,792
-------------------
Total current assets 14,579 48,351
-------------------
Rental equipment 62,483 66,626
Less accumulated depreciation 35,358 37,692
-------------------
27,125 28,934
-------------------
Property, plant and equipment 7,511 7,323
Less accumulated depreciation 4,784 4,626
-------------------
2,727 2,697
Asset associated with discontinued operations (Note 2) 920 920
Other receivable 2,580 -
Goodwill 810 1,004
Other assets 2,106 2,053
-------------------
TOTAL ASSETS $50,847 $83,959
--------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,151 $ 2,439
Accrued liabilities 6,146 6,537
Current portion of long-term debt 2,945 11,002
Liabilities associated with discontinued operations (Note 2) 544 16,250
-------------------
Total current liabilities 12,786 36,228
-------------------
Long-term debt:
8 1/4% Limited convertible senior subordinated notes due 2012 10,129 10,129
9 1/2% Subordinated debentures due 2012 951 1,057
Notes payable 8,566 8,833
-------------------
19,646 20,019
Deferred credits, deposits and other 3,968 3,116
-------------------
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 14,741 14,733
Retained earnings 3,806 11,848
Accumulated other comprehensive loss (3,377) (1,262)
-------------------
17,910 28,059
Less treasury stock - at cost - 433,596 common shares in 2008 and 2007 3,463 3,463
-------------------
Total stockholders' equity 14,447 24,596
-------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $50,847 $83,959
--------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements.
17
Consolidated Statements of Cash Flows
In thousands Years ended December 31 2008 2007 2006
-------------------------------------------------------------------------------------------------------------
Cash flows from operating activities
Net loss $(8,042) $(5,095) $ (1,647)
(Loss) income from discontinued operations (3,426) 717 617
-------------------------------
Loss from continuing operations (4,616) (5,812) (2,264)
Adjustment to reconcile loss from continuing operations
to net cash provided by operating activities:
Depreciation and amortization 6,398 7,752 8,555
Deferred income taxes (18) (1,137) (1,855)
Exchange of 8 1/4% Notes for Common Stock - 1,345 -
Loss on available-for-sale securities 81 - 15
Goodwill impairment 194 - -
Changes in operating assets and liabilities:
Receivables 531 2,438 (520)
Inventories 176 (378) (814)
Prepaids and other assets (147) (51) (15)
Accounts payable and accruals (366) 1,044 (381)
Deferred credits, deposits and other (595) (494) (302)
-------------------------------
Net cash provided by operating activities of continuing operations 1,638 4,707 2,419
-------------------------------
Cash flows from investing activities
Equipment manufactured for rental (4,050) (3,898) (4,317)
Purchases of property, plant and equipment (438) (149) (157)
Proceeds from sale of available-for-sale securities - - 257
-------------------------------
Net cash used in investing activities of continuing operations (4,488) (4,047) (4,217)
-------------------------------
Cash flows from financing activities
Proceeds from long-term debt - 2,000 6,250
Payments of long-term debt (8,430) (2,235) (13,068)
Proceeds from exercise of stock options - - 12
Cash dividends - - (43)
-------------------------------
Net cash used in financing activities of continuing operations (8,430) (235) (6,849)
-------------------------------
Cash flows from discontinued operations
Cash (used in) provided by operating activities of discontinued operations (441) 1,236 1,340
Cash provided by (used in) investing activities of discontinued operations 12,785 (375) 437
Cash used in financing activities of discontinued operations (6,233) (460) (975)
-------------------------------
Net cash provided by discontinued operations 6,111 401 802
-------------------------------
Net (decrease) increase in cash and cash equivalents (5,169) 826 (7,845)
Cash and cash equivalents at beginning of year 6,591 5,765 13,610
-------------------------------
Cash and cash equivalents at end of year $ 1,422 $ 6,591 $ 5,765
-------------------------------------------------------------------------------------------------------------
Interest paid $ 2,477 $ 3,936 $ 4,083
Income taxes paid 170 45 253
Supplemental disclosures of non-cash financing activities:
Exercise of stock options - 10 -
Exchange of 7 1/2% Notes - - 108
Exchange of 8 1/4% Notes for Common Stock - 7,829 -
-------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements.
18
Consolidated Statements of Stockholders' Equity
Accumulated
Other
Compre- Total
Add'l hensive Stock-
In thousands, except share data Common Stock Class B Paid-in Treasury Retained Income holders'
For the three years ended December 31, 2008 Shares Amt Shares Amt Capital Stock Earnings (Loss) Equity
-----------------------------------------------------------------------------------------------------------------------------------
Balance January 1, 2006 2,453,591 $2,453 286,814 $287 $13,901 $(11,841) $18,883 $(1,287) $22,396
Net loss - - - - - - (1,647) - (1,647)
Cash dividends - - - - - - (43) - (43)
Stock option compensation expense - - - - 4 - - - 4
Common stock issued (2,000 shares) - - - - - 18 - - 18
Stock options exercised (2,500 shares) - - - - (8) 20 - - 12
Other comprehensive income (loss), net of tax:
Unrealized foreign currency translation - - - - - - - (23) (23)
Unrealized holding gain on securities - - - - - - - 24 24
Minimum pension liability adjustment - - - - - - - 354 354
Pension liability adjustment - SFAS 158 - - - - - - - (921) (921)
-----------------------------------------------------------------------------------
Balance December 31, 2006 2,453,591 2,453 286,814 287 13,897 (11,803) 17,193 (1,853) 20,174
Net loss - - - - - - (5,095) - (5,095)
Stock option compensation expense - - - - 1 - - - 1
Common stock issued (1,041,257 shares) - - - - 844 8,330 - - 9,174
Stock options exercised (2,500 shares) - - - - (9) 10 - - 1
Tax liability adjustment - FIN 48 - - - - - - (250) - (250)
Other comprehensive income (loss), net of tax:
Unrealized foreign currency translation - - - - - - - 505 505
Unrealized holding loss on securities - - - - - - - (17) (17)
Change in unrecognized pension cost - - - - - - - 103 103
-----------------------------------------------------------------------------------
Balance December 31, 2007 2,453,591 2,453 286,814 287 14,733 (3,463) 11,848 (1,262) 24,596
Net loss - - - - - - (8,042) - (8,042)
Stock option compensation expense - - - - 8 - - - 8
Other comprehensive income (loss), net of tax:
Unrealized foreign currency translation - - - - - - - (695) (695)
Unrealized holding loss on securities - - - - - - - (22) (22)
Realized loss on securities reclassified to
operating statement - - - - - - - 49 49
Change in unrecognized pension cost - - - - - - - (1,447) (1,447)
-----------------------------------------------------------------------------------
Balance December 31, 2008 2,453,591 $2,453 286,814 $287 $14,741 $ (3,463) $ 3,806 $(3,377) $14,447
-----------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements.
Consolidated Statements of Comprehensive Loss
In thousands Years ended December 31 2008 2007 2006
-------------------------------------------------------------------------------------------------
Net loss $ (8,042) $(5,095) $(1,647)
------------------------------
Other comprehensive (loss) income:
Unrealized foreign currency translation gain (loss) (695) 505 (23)
Unrealized holding gain (loss) on securities (37) (28) 40
Realized loss on securities reclassified to operating statement 81 - -
Change in unrecognized pension costs (1,447) 172 -
Minimum pension liability adjustment - - 306
Pension liability adjustment - SFAS 158 - - (1,536)
Income tax benefit (expense) related to items
of other comprehensive (loss) income (17) (58) 647
------------------------------
Total other comprehensive (loss) income, net of tax (2,115) 591 (566)
------------------------------
Comprehensive loss $(10,157) $(4,504) $(2,213)
-------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements.
19
Notes To Consolidated Financial Statements
1. Summary of Significant Accounting Policies
Trans-Lux Corporation is a leading manufacturer and supplier of programmable
electronic information displays and owner of a rental property.
Principles of consolidation: The consolidated financial statements include the
accounts of Trans-Lux Corporation, a Delaware corporation, and all wholly-owned
subsidiaries (the "Company"). Intercompany balances and transactions have been
eliminated in consolidation.
Discontinued operations: On June 26, 2008, the Board of Directors approved the
sale of substantially all of the assets of the Entertainment Division. As a
result of the sale, the Company has accounted for the Entertainment Division as
discontinued operations beginning in the second quarter of 2008 and recorded
long-lived asset impairment charges of $2.8 million as well as $2.0 million in
disposal costs in that quarter. Accordingly, the Company has restated all prior
period information to conform to the current year presentation. See Note 2 -
Discontinued Operations.
Use of estimates: The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates. Estimates and assumptions are reviewed periodically, and
the effects of revisions are reflected in the financial statements in the period
in which they are determined to be necessary. Estimates are used when
accounting for such items as costs of long-term sales contracts, allowance for
uncollectable accounts receivable, inventory valuation allowances, depreciation
and amortization, intangible assets, income taxes, warranty obligation, benefit
plans, contingencies and litigation.
Cash and cash equivalents: The Company considers all highly liquid investments
with an original maturity of three months or less to be cash equivalents.
Available-for-sale securities: Available-for-sale securities consist of fixed
income mutual funds and are stated at fair value based on quoted market prices
(level 1 inputs). The Company determines realized gains and losses on the
specific identification basis. Unrealized gains and losses on investments
available for sale are reflected in accumulated other comprehensive loss in the
Consolidated Balance Sheets and as a separate item in the Consolidated
Statements of Comprehensive Loss.
Accounts receivable: Receivables are carried at net realizable value. Credit
is extended based on an evaluation of each customer's financial condition,
collateral is generally not required. Reserves for uncollectable accounts
receivable are provided based on historical experience and current trends. The
Company evaluates the adequacy of these reserves regularly.
The following is a summary of the allowance for uncollectable accounts
receivable at December 31:
In thousands 2008 2007 2006
------------------------------------------------------
Balance at beginning of year $ 892 $1,034 $ 935
Provisions 334 607 258
Deductions (300) (749) (159)
-----------------------
Balance at end of year $ 926 $ 892 $1,034
------------------------------------------------------
Concentrations of credit risk with respect to accounts receivable are limited
due to the large number of customers and relatively small account balances
within the majority of the Company's customer base, and their dispersion across
different businesses.
Inventories: Inventories are stated at the lower of cost (first-in, first-out
method) or market value. Valuation allowances for slow moving and obsolete
inventories are provided based on historical experience and demand for servicing
of the displays. The Company evaluates the adequacy of these valuation
allowances regularly.
20
Rental equipment and property, plant and equipment: Rental equipment and
property, plant and equipment are stated at cost and depreciated over their
respective useful lives using the straight line method. Leaseholds and
improvements are amortized over the lesser of the useful lives or term of the
lease.
The estimated useful lives are as follows:
Years
-------------------------------------------
Rental equipment 10 - 15
Buildings and improvements 10 - 40
Machinery, fixtures and equipment 5 - 15
Leaseholds and improvements 5 - 10
-------------------------------------------
When rental equipment and property, plant and equipment are fully depreciated,
retired or otherwise disposed of, the cost and accumulated depreciation are
eliminated from the accounts.
Goodwill and intangibles: Goodwill represents the excess of purchase price over
the estimated fair value of net assets acquired. Identifiable intangible assets
are recorded at cost and amortized over their estimated useful life on a
straight line basis and deferred financing costs over the life of the related
debt of two to eight years. Total goodwill is $810,000, of which $744,000
relates to the Outdoor display segment and $66,000 relates to the Indoor display
segment.
The Company annually evaluates the value of its goodwill on October 1 and
determines if it is impaired by comparing the carrying value of goodwill to its
estimated fair value. Fair value is determined using cash flow and other
valuation models. In 2008, the Company determined that all of the $194,000 of
goodwill associated with its commercial outdoor display business was impaired
and wrote it off in the fourth quarter. The impairment was primarily due to
economic trends. Goodwill in our other businesses was not impaired. There were
no impairments of goodwill in 2007 and 2006. The Company also evaluates the
value of its other intangible assets by comparing the carrying value with
estimated future cash flows when indicators of possible impairment exist. There
were no impairments of other intangibles in 2008, 2007 or 2006.
Impairment or disposal of long-lived assets: The Company evaluates whether
there has been an impairment in any of its long-lived assets, excluding
goodwill, if certain circumstances indicate that a possible impairment may
exist. An impairment in value may exist when the carrying value of a long-lived
asset exceeds its undiscounted cash flows. If it is determined that an
impairment in value has occurred, the carrying value is written down to its fair
value. There were no impairments in 2008, 2007 or 2006.
Maintenance contracts: Purchased maintenance contracts are stated at cost and
were amortized over their economic lives of 15 years using an accelerated
method, which contemplated contract expiration, fall-out and non-renewal. As of
December 31, 2008, the purchased maintenance contracts are fully amortized.
Revenue recognition: Revenue from rental of equipment and revenue from
maintenance contracts are recognized during the term of the respective
agreements, which generally run for periods of one month to 10 years. At
December 31, 2008, the future minimum lease payments due the Company under
operating leases that expire at varying dates through 2018 for its rental
equipment and maintenance contracts, assuming no renewals of existing leases or
any new leases, aggregating $14,937,000 was as follows: $7,804,000 - 2009,
$3,412,000 - 2010, $1,995,000 - 2011, $953,000 - 2012, $475,000 - 2013, $298,000
- thereafter. The Company recognizes revenues on long-term equipment sales
contracts, which require more than three months to complete, using the
percentage of completion method. The Company records unbilled receivables
representing amounts due under these long-term equipment sales contracts, which
have not been billed to the customer. Income is recognized based on the
percentage of incurred costs to the estimated total costs for each contract.
The determination of the estimated total costs is susceptible to change on these
sales contracts. Revenues on equipment sales, other than long-term equipment
sales contracts, are recognized upon shipment when title and risk of loss passes
to the customer. Real estate rental revenue is recognized monthly on a straight
line basis during the term of the respective lease agreements.
Warranty obligations: The Company provides for the estimated cost of product
warranties at the time revenue is recognized. While the Company engages in
product quality programs and processes, including evaluating the quality of the
component suppliers, the warranty obligation is affected by product failure
rates. Should actual product failure rates differ from the Company's estimates,
revisions to increase or decrease the estimated warranty liability may be
required.
21
Taxes on income: Deferred income tax assets and liabilities are established for
temporary differences between the financial reporting basis and the tax basis of
the Company's assets and liabilities at tax rates expected to be in effect when
such temporary differences are expected to reverse and for operating loss
carryforwards. The temporary differences are primarily attributable to
operating loss carryforwards and depreciation. The Company records a valuation
allowance against net deferred income tax assets if, based upon the available
evidence, it is not more likely than not that the deferred income tax assets
will be realized.
Effective January 1, 2007, the Company adopted the provisions of Financial
Accounting Standard Board ("FASB") Interpretation No. 48, "Accounting for
Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109" ("FIN
48"). FIN 48 prescribes a recognition threshold and measurement attribute for
the financial statement recognition and measurement of a tax position taken in a
tax return. The Company must determine whether it is "more-likely-than-not"
that a tax position will be sustained upon examination, including resolution of
any related appeals or litigation processes, based on the technical merits of
the position. Once it is determined that a position meets the
more-likely-than-not recognition threshold, the position is measured to
determine the amount of benefit to recognize in the financial statements. FIN
48 applies to all tax positions related to income taxes subject to FASB
Statement No. 109, "Accounting for Income Taxes." The interpretation scopes out
income tax positions related to FASB Statement No. 5, "Accounting for
Contingencies." See Note 9 - Income Taxes.
As a result of the adoption of FIN 48 in 2007, the Company recognized a $250,000
adjustment for state income taxes, 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.
To date, there have been no interest or penalties charged to the Company in
relation to the underpayment of income taxes.
Foreign currency: The functional currency of the Company's non-U.S. business
operation is the applicable local currency. The assets and liabilities of such
operation 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 in accumulated
other comprehensive loss in the Consolidated Balance Sheets and as a separate
item in the Consolidated Statements of Comprehensive Income (Loss). Gains and
losses related to the settling of transactions not denominated in the functional
currency are recorded as a component of general and administrative expenses in
the Consolidated Statements of Operations.
Share-based compensation plans: On January 1, 2006, the Company adopted
Statement of Financial Accounting Standards ("SFAS") No. 123 (revised 2004)
"Share-Based Payment" ("SFAS 123R"), which requires the measurement and
recognition of compensation expense for all share-based payment awards made to
employees and directors including employee stock options based on estimated fair
values. Under the fair value recognition provisions of SFAS 123R compensation
is estimated at the grant date based on the fair value of the awards expected to
vest and recognized as expense ratably over the requisite service period of the
award. The Company has used the binomial options-pricing valuation model to
estimate fair value of share-based awards, which requires various assumptions
including estimating stock price volatility, expected life of the stock option
and risk free interest rate. For details on the accounting effect of
share-based compensation see Note 15 - Share-Based Compensation. The Company
elected the "modified prospective method" of transition as permitted by SFAS
123R. Under this transition method, the Company is required to record
compensation expense for all awards granted after the date of adoption and for
the unvested portion of previously granted awards that were outstanding at the
date of adoption, and accordingly, periods prior to adoption were not restated.
SFAS 123R required the Company to apply an estimated forfeiture rate in
calculating the period expense, as opposed to recognizing forfeitures as an
expense reduction as they occur. The Company has not experienced any
forfeitures that would need to be taken into consideration in SFAS 123R
calculations.
Recent accounting pronouncements: In September 2006, the FASB issued 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 measurements. On February 12, 2008, the FASB issued FASB Staff Position
No. FAS 157-2, "Effective Date of FASB Statement No. 157" ("FSP 157-2"). FSP
157-2 amended SFAS 157 by delaying the effective date of SFAS 157 for all
nonfinancial assets and nonfinancial liabilities, except those that are
recognized or disclosed at fair value in the financial statements on a recurring
basis (that is, at least annually). FSP 157-2 defers the effective date of SFAS
157 to fiscal years beginning after November 15, 2008, and interim periods
within those fiscal years for items within the scope of FSP 157-2. The Company
adopted the other provisions of SFAS 157 on January 1, 2008. The adoption of
SFAS 157 did not have a
22
significant effect on the Company's financial statements.
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 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, if elected. SFAS 159 is
effective for the Company's 2008 financial statements. The Company has not
elected to measure any additional assets or liabilities at fair value that are
not already measured at fair value under existing standards.
In December 2007, the FASB issued SFAS No. 141R, "Business Combinations" ("SFAS
141R"), which replaces FASB Statement 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 that will enable users to evaluate the nature and financial effects
of the business combination. SFAS 141R is effective for transactions completed
in fiscal years beginning after December 15, 2008. Early adoption is
prohibited.
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. Earlier
adoption is prohibited.
Reclassifications: Certain reclassifications of prior years' amounts have been
made to conform to the current year's presentation.
2. Discontinued Operations
On June 26, 2008, the Board of Directors approved the sale of substantially all
of the assets of the Entertainment Division, which was consummated on July 15,
2008 for a purchase price of $24.5 million, of which $7.4 million was paid in
cash, $0.4 million is in escrow and $16.7 million of debt was assumed by the
purchaser, including $0.3 million of debt of the joint venture, MetroLux
Theatres. 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 has accounted for the Entertainment Division as
discontinued operations, and accordingly, has restated all prior period
information.
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. However, there can be no assurance that
there will be any additional purchase price earned and none has been earned as
of December 31, 2008. There was also a six-month option to purchase raw land
from the Company in Silver City, New Mexico for $0.9 million, which went
unexercised. As a result of the sale, the Company recorded a long-lived asset
impairment charge of $2.8 million as well as $2.0 million in disposal costs
during the quarter ended June 30, 2008.
The Company has agreed not to compete in the theatre business in certain Western
states of the United States for five years and has licensed the name "Trans-Lux
Theatres" in connection with such movie theatre circuit. Matthew Brandt
23
and Thomas Brandt, former executive officers of the Company, terminated their
employment with the Company and became full time officers of the buyer, managing
the theatre business purchased. The Company provided certain services on a
transition basis for six months and 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 $5.7 million net proceeds from the sale were used to prepay the term loan
under the Credit Agreement with the Company's senior lender and accordingly, the
amount of the term loan repayment also has been reclassified as current portion
of long-term debt in the 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 a result of the sale.
The assets and liabilities associated with discontinued operations and related
results of operations have been reclassified in the consolidated financial
statements as discontinued operations. The Company had a 50% ownership in a
joint venture partnership, MetroLux Theatres, accounted for by the equity
method, which was included in the sold assets of its Entertainment Division.
Interest expense allocated to discontinued operations relates to the
Entertainment Division's long-term debt assumed by the buyer and/or repaid at
the closing and related to the portion of the Credit Agreement paid with the
sales proceeds. The following table presents the financial results of the
discontinued operations for the period from January 1, 2008 through June 27,
2008 and for the years ended December 31, 2007 and 2006:
In thousands, except per share data 2008 2007 2006
--------------------------------------------------------------------------------------------------
Revenues $ 6,249 $13,889 $13,025
Operating expenses 4,954 10,419 9,718
-----------------------------
Gross profit 1,295 3,470 3,307
General and administrative expenses (647) (1,075) (1,014)
Interest expense, net (626) (1,687) (1,637)
Income from joint venture 239 454 344
Asset impairment and loss on sale of division (4,808) - -
-----------------------------
(Loss) income from discontinued operations before income taxes (4,547) 1,162 1,000
Income tax benefit (expense) 1,121 (445) (383)
-----------------------------
Net (loss) income from discontinued operations $(3,426) $ 717 $ 617
=============================
(Loss) income per share discontinued operations - basic and diluted $ (1.49) $ 0.34 $ 0.49
--------------------------------------------------------------------------------------------------
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 Consolidated Balance Sheets as of December 31, 2008 and 2007:
In thousands 2008 2007
------------------------------------------------------------------------------
Inventories $ - $ 85
Prepaids and other assets 149 171
Property and equipment, net 920 25,397
Other assets - 1,059
-----------------
Total assets associated with discontinued operations $1,069 $26,712
=================
Current liabilities $ 544 $ 1,096
Long-term liabilities - 15,154
-----------------
Total liabilities associated with discontinued operations $ 544 $16,250
------------------------------------------------------------------------------
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 reported net
of income taxes in accumulated other comprehensive income (loss) until realized.
At December 31, 2008, the Company recorded a write down of available-for-sale
securities by $81,000 to reflect other than temporary losses that were realized
in January 2009. An adjustment of $28,000 was recorded in accumulated other
comprehensive income (loss) to reflect the unrealized loss on available-for-sale
securities at December 31, 2007.
24
Available-for-sale securities consist of the following:
In thousands 2008 2007
----------------------------------------------------
Fair Unrealized Fair Unrealized
Value Losses Value Losses
------------------------------------
Mutual funds $135 $- $171 $45
----------------------------------------------------
4. Inventories
Inventories consist of the following:
In thousands 2008 2007
----------------------------------
Raw materials $4,769 $4,743
Work-in-progress 1,317 1,351
Finished goods 506 674
---------------
$6,592 $6,768
----------------------------------
5. Rental Equipment
Rental equipment consist of the following:
In thousands 2008 2007
-------------------------------------------
Indoor rental equipment $44,613 $48,506
Outdoor rental equipment 17,870 18,120
-----------------
$62,483 $66,626
-------------------------------------------
All the rental equipment is pledged as collateral under the Company's credit
facility.
6. Property, Plant and Equipment
Property, plant and equipment consist of the following:
In thousands 2008 2007
---------------------------------------------------
Land, buildings and improvements $2,838 $2,790
Machinery, fixtures and equipment 4,169 4,193
Leaseholds and improvements 504 340
---------------
$7,511 $7,323
---------------------------------------------------
Land, buildings and equipment having a net book value of $2.4 million and $2.6
million at December 31, 2008 and 2007, respectively, are pledged as collateral
under various mortgage and other financing agreements.
7. Other Assets
Other assets consist of the following:
In thousands 2008 2007
--------------------------------------------------------------
Spare parts $ 550 $ 650
Deferred financing costs, net of accumulated
amortization of $752 - 2008 and $821 - 2007 464 314
Prepaids 358 339
Maintenance contracts, net of accumulated
amortization of $2,345 - 2007 - 41
Deposits and other 734 709
---------------
$2,106 $2,053
--------------------------------------------------------------
25
Deferred financing costs relate to the issuance of the 8 1/4% Limited
convertible senior subordinated notes due 2012, the 9 1/2% Subordinated
debentures due 2012, mortgages and other financing agreements.
Maintenance contracts represented the present value of acquired agreements to
service outdoor display equipment. The 1993 acquisition of outdoor maintenance
contracts was fully amortized as of December 31, 2008 and the cost and
accumulated amortization were eliminated from the accounts.
Future amortization expense of intangible assets over the next five years is
expected as follows: $158,000 - 2009, $40,000 - 2010, $40,000 - 2011, $11,000 -
2012, $0 - 2013.
8. Other Receivable
The Company has a $2.6 million note receivable that was due June 2008, relating
to the sale/leaseback of the Company's Norwalk, Connecticut facility in 2004.
The receivable 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
Company reclassified the receivable to long term as of December 31, 2008 pending
the outcome. 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 $293,000 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.
9. Taxes on Income
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
state income taxes, 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 accrual
for uncertain tax positions did not change significantly in 2008 and 2007. The
Company does not believe that the liability for uncertain tax positions will
change significantly in 2009. The unrecognized tax liability, if recognized,
would reduce the Company's effective tax rate.
The Company is subject to U.S. federal income tax as well as income tax in
multiple state and local jurisdictions and Canadian federal and provincial
income tax. Currently, no federal or state or provincial income tax returns are
under examination. The tax years 2004 through 2007 remain open to examination
by the major taxing jurisdictions and the 2003 tax year remains open to
examination by some state and local taxing jurisdictions to which the Company is
subject. The Company believes that adequate accruals have been recorded for all
open years.
The components of income tax expense (benefit) are as follows:
In thousands 2008 2007 2006
-------------------------------------------------------------------------------------------
Current:
Federal $ - $ - $ -
State and local - - -
Foreign 203 131 234
-----------------------------
203 131 234
-----------------------------
Deferred:
Federal 1,359 (882) (1,884)
State and local (256) (347) (354)
-----------------------------
1,103 (1,229) (2,238)
-----------------------------
Income tax expense (benefit) - continuing operations 1,306 (1,098) (2,004)
Income tax (benefit) expense - discontinued operations (1,121) 445 383
-----------------------------
Total income tax expense (benefit) $ 185 $ (653) $(1,621)
-------------------------------------------------------------------------------------------
Loss from continuing operations before income taxes from the United States is
$4,255,000 and $7,073,000, offset by income from Canada of $945,000 and $163,000
for the years ended December 31, 2008 and 2007, respectively.
26
Income tax benefits for continuing operations differed from the expected federal
statutory rate of 34.0% as follows:
2008 2007 2006
-----------------------------------------------------------------------------
Statutory federal income tax benefit rate (34.0%) (34.0%) (34.0%)
State income taxes, net of federal benefit (5.1) (3.3) (5.5)
Foreign income taxed at different rates (3.6) 1.1 1.8
Gain on purchase of the Company's
9% subordinated debentures - - (8.7)
Debt conversion costs - 6.6 -
Deferred tax asset valuation allowance 82.4 13.9 -
Other (0.2) (0.2) (0.5)
-------------------------
Effective income tax rate - continuing operations 39.5% (15.9%) (46.9%)
-----------------------------------------------------------------------------
Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred income tax assets and liabilities are as follows:
In thousands 2008 2007
-------------------------------------------------------------------------------
Deferred income tax asset:
Tax credit carryforwards $ 1,034 $ 1,038
Operating loss carryforwards 8,455 7,790
Net pension costs 1,786 1,274
Bad debts 336 297
Accruals 723 599
Other 160 209
Valuation allowance (4,570) (1,270)
-----------------
7,924 9,937
-----------------
Deferred income tax liability:
Depreciation 7,502 8,394
Other 422 422
-----------------
7,924 8,816
-----------------
Net deferred income tax asset - continuing operations - 1,121
Net deferred income tax liability - discontinued operations - (1,121)
-----------------
Net deferred income taxes $ - $ -
-------------------------------------------------------------------------------
Tax credit carryforwards primarily relate to federal alternative minimum taxes
of $0.9 million paid by the Company, which may be carried forward indefinitely
and applied against regular federal taxes. Operating tax loss carryforwards
primarily relate to U.S. federal net operating loss carryforwards of
approximately $21.0 million, which begin to expire in 2019.
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.
10. Accrued Liabilities
Accrued liabilities consist of the following:
In thousands 2008 2007
--------------------------------------------------------------------
Deferred revenues $1,418 $1,950
Compensation and employee benefits 841 953
Current portion of pension liability (see Note 14) 695 210
Warranty obligations 489 317
Taxes payable 396 525
Interest payable 349 608
Other 1,958 1,974
---------------
$6,146 $6,537
--------------------------------------------------------------------
27
Warranty obligations: The Company provides for the estimated cost of product
warranties at the time revenue is recognized. While the Company engages in
product quality programs and processes, including evaluating the quality of the
component suppliers, the warranty obligation is affected by product failure
rates. Should actual product failure rates differ from the Company's estimates,
revisions to increase or decrease the estimated warranty liability may be
required. A summary of the warranty liabilities for each of the three years
ended December 31, 2008 is as follows:
In thousands 2008 2007 2006
----------------------------------------------------
Balance at beginning of year $ 317 $ 186 $ 212
Provisions 307 265 139
Deductions (135) (134) (165)
---------------------
Balance at end of year $ 489 $ 317 $ 186
----------------------------------------------------
11. Long-Term Debt
Long-term debt consist of the following:
In thousands 2008 2007
-----------------------------------------------------------------
8 1/4% Limited convertible senior subordinated
notes due 2012 $10,129 $10,129
9 1/2% Subordinated debentures due 2012 1,057 1,057
Term loan - bank secured, due in quarterly
installments through 2010 3,935 12,206
Revolving loan - bank secured 5,000 5,000
Real estate mortgages - bank secured, due in
monthly installments through 2012 2,397 2,526
Loans payable - CEBA, secured, due in monthly
installments through 2011 73 103
-----------------
22,591 31,021
Less portion due within one year 2,945 11,002
-----------------
Long-term debt $19,646 $20,019
-----------------------------------------------------------------
Payments of long-term debt due for the next five years are:
In thousands 2009 2010 2011 2012 2013
-------------------------------------------------------
$2,945 $6,859 $195 $12,592 $-
-------------------------------------------------------
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. The 8 1/4% Notes, which are no longer convertible into
common shares, are due in 2012, interest is payable semi-annually and may be
redeemed, in whole or in part, at par.
The 9 1/2% Subordinated debentures due 2012 (the "Debentures") are due in annual
sinking fund payments of $105,700 beginning in 2009, with the remainder due in
2012. Interest is payable semi-annually and may be redeemed, in whole or in
part, at par.
The Company has a bank Credit Agreement, which provides for a term loan of $10.0
million, a non-revolving line of credit of up to $6.2 million to finance
purchases and/or redemptions of one-half of the 7 1/2% Subordinated Notes due
2006 (which were redeemed in June 2006 and no longer outstanding), and a
revolving loan of up to $5.0 million at variable interest rates ranging from
LIBOR plus 2.25% to Prime (3.25% at December 31, 2008). Subsequent to year-end
the rate of interest was modified to Prime plus 2.00%, with a floor of 6.00%,
and the maturity date of the Credit Agreement was extended to April 1, 2010.
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
a loan-to-value ratio of not more than
28
50% and a leverage ratio. Subsequent to year-end, the fixed charge coverage
ratio was modified to 1.1 to 1.0 for two quarters and the tangible net worth was
redefined and modified to $24.0 million. As of December 31, 2008, the Company
was in compliance with the forgoing financial covenants, but was not in
compliance with the cap on capital expenditures, which the senior lender waived
subsequent to year-end. At December 31, 2008, the entire revolving loan
facility had been drawn. The non-revolving line of credit is no longer
available. The amounts outstanding under the Credit Agreement are
collateralized by all of the Display division assets.
The Company has a mortgage on its facility located in Des Moines, Iowa at a
variable rate of interest of LIBOR plus 1.75% (3.69% at December 31, 2008)
payable in monthly installments. Subsequent to year-end, certain modification
were made to the mortgage, including increasing the rate of interest to LIBOR
plus 3.00%, the cash flow coverage ratio calculation at the subsidiary level and
the maturity date to July 1, 2009. Accordingly, the outstanding balance is
recorded as a currently liability as of December 31, 2008. The Company also has
a mortgage on its real estate rental property located in Santa Fe, New Mexico at
a variable rate of interest of Prime, with a floor of 6.75%, which was the
interest rate in effect at December 31, 2008, payable in monthly installments
through 2012.
During 2006, the Company received $150,000 from the State of Iowa and City of
Des Moines as a zero percent interest loan, amortizing on a straight-line basis
for five years. At December 31, 2008, the present value of this loan, assuming
a 6% interest rate, the rate of previous loans from the State of Iowa and City
of Des Moines, is $65,000. The premium is being amortized using the effective
interest method and is included in the carrying value of the loan.
During 2008, the Company incurred $1.7 million of interest costs. At December
31, 2008, the estimated fair value of the 8 1/4% Notes and the Debentures was
$3.5 million and $1.0 million, respectively. The estimated fair value of the
remaining long-term debt approximates the carrying value. At December 31, 2008,
the Company was not involved in any derivative financial instruments.
12. Stockholders' Equity
During 2008, the Board of Directors did not declare any quarterly cash dividends
on the Company's Common Stock or on the Company's Class B Stock in order to
preserve cash and pay down debt. Each share of Class B Stock 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 10% 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 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.
The stockholders previously 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 stock
option plans were 33,500 and 65,000 at December 31, 2008 and 2007, respectively.
On March 15, 2007, 1,041,257 shares of Common Stock were issued in exchange for
$7,829,000 principal amount of the 8 1/4% Notes, resulting in an increase in
stockholder's equity of the same amount.
13. Engineering Development
Engineering development expense was $183,000, $414,000 and $449,000 for 2008,
2007 and 2006, respectively, which is included in general and administrative
expenses in the Consolidated Statements of Operations.
29
14. Pension Plan
On September 29, 2006, the FASB issued SFAS No. 158, "Employers' Accounting for
Defined Benefit Pension and Other Postretirement Plans" ("SFAS 158"). SFAS 158
requires, among other things, an employer to recognize the funded status of its
benefit plans in its balance sheet. The Company adopted SFAS 158 as of December
31, 2006. The adoption of SFAS 158 resulted in an increase to the Company's
accrued pension liability of $1,536,000.
All eligible salaried employees of Trans-Lux Corporation and certain of its
subsidiaries are covered by a non-contributory defined benefit pension plan.
Pension benefits vest after five years of service and are based on years of
service and final average salary. The Company's general funding policy is to
contribute at least the required minimum amounts sufficient to satisfy
regulatory funding standards, but not more than the maximum tax-deductible
amount. As of December 31, 2003, the benefit service under the pension plan had
been frozen and, accordingly, there is no service cost for each of the three
years ended December 31, 2008. Effective April 30, 2009, the compensation
increments will be frozen, and accordingly, no additional benefits are being
accrued under the plan.
For 2008 and 2007, the accrued benefit obligation of the plan exceeded the fair
value of plan assets, due primarily to the plan's investment experience at the
December 31 measurement dates on the valuation of plan assets. The Company's
pension obligations for this plan exceeded plan assets by $4.5 million at
December 31, 2008.
The Company employs a total return investment approach whereby a mix of equities
and fixed income investments are used to maximize the long-term return of plan
assets for a prudent level of risk. The intent of this strategy is to minimize
plan expenses by outperforming plan liabilities over the long run. Risk
tolerance is established through careful consideration of plan liabilities, plan
funded status and corporate financial condition. The portfolio contains a
diversified blend of equity and fixed income investments. Investment risk is
measured and monitored on an ongoing basis through annual liability
measurements, periodic asset/liability studies and quarterly investment
portfolio reviews.
At December 31, 2008 and 2007, the Company's pension plan weighted average asset
allocations by asset category are as follows:
2008 2007
-----------------------------------------------
Guaranteed investment contracts 52.9% 42.2%
Equity and index funds 44.0 55.4
Bonds 3.1 2.3
Money market funds - 0.1
-------------
100.0% 100.0%
-----------------------------------------------
Bonds include $167,000 of the Company's 9 1/2% subordinated debentures for 2008
and 2007.
30
The funded status of the plan as of December 31, 2008 and 2007 is as follows:
In thousands 2008 2007
----------------------------------------------------------------------
Change in benefit obligation:
Projected benefit obligation at beginning of year $10,481 $10,906
Interest cost 640 641
Actuarial (gain) loss (413) 101
Benefits paid (803) (1,167)
-----------------
Projected benefit obligation at end of year 9,905 10,481
-----------------
Change in plan assets:
Fair value of plan assets at beginning of year 7,284 7,878
Actual return on plan assets (1,511) 286
Company contributions 460 287
Benefits paid (803) (1,167)
-----------------
Fair value of plan assets at end of year 5,430 7,284
-----------------
Funded status (underfunded) $(4,475) $(3,197)
=================
Amounts recognized in other comprehensive loss:
Net actuarial loss $ 5,099 $ 3,635
Unrecognized prior service cost 59 76
-----------------
$ 5,158 $ 3,711
=================
Weighted average assumptions as of December 31:
Discount rate:
Components of cost 6.25% 6.00%
Benefit obligations 6.25% 6.25%
Expected return on plan assets 8.75% 8.75%
Rate of compensation increase 3.00% 3.00%
----------------------------------------------------------------------
In 2009, the Company expects to amortize $420,000 of actuarial losses and
$17,000 of prior service costs to pension expense. The accumulated benefit
obligation at December 31, 2008 and 2007 was $9.4 million and $9.3 million,
respectively. The minimum required contribution for 2009 is expected to be
$695,000.
Expected projected benefit payments due for the next five years are:
In thousands 2009 2010 2011 2012 2013
-------------------------------------------------
$517 $402 $817 $762 $1,127
-------------------------------------------------
The following table presents the components of the net periodic pension cost for
the three years ended December 31, 2008:
In thousands 2008 2007 2006
--------------------------------------------------------
Interest cost $ 640 $ 641 $ 611
Expected return on plan assets (631) (677) (654)
Amortization of prior service cost 17 17 17
Amortization of net actuarial loss 265 281 311
Settlement charge - 366 -
-------------------
Net periodic pension cost $ 291 $ 628 $ 285
--------------------------------------------------------
In the fourth quarter of 2007 the Company recognized $366,000 of its
unrecognized losses as a settlement charge relating to the total lump sum
payments made during the year.
31
The following table presents the change in unrecognized pension costs recorded
in other comprehensive loss as of December 31, 2008 and 2007:
In thousands 2008 2007
-----------------------------------------------
Balance at beginning of year $3,711 $3,883
Net actuarial loss 1,729 492
Recognized loss (265) (647)
Recognized prior service cost (17) (17)
----------------
Balance at end of year $5,158 $3,711
-----------------------------------------------
The Company does not offer any post-retirement benefits other than the pension
retirement benefits described herein.
15. Share-Based Compensation
Effective January 1, 2006, the Company adopted the provisions of SFAS 123R,
which establishes the accounting for stock-based awards exchanged for employee
services. SFAS 123R requires all share-based payments to employees, including
grants of employee stock options, to be measured at fair value and expensed in
the Consolidated Statements of Operations over the service period (generally the
vesting period). The Company elected the "modified prospective method" of
transition as permitted by SFAS 123R. Under this transition method, the Company
is required to record compensation expense for all awards granted after the date
of adoption and for the unvested portion of previously granted awards that were
outstanding at the date of adoption, and accordingly, periods prior to adoption
were not restated. SFAS 123R required the Company to apply an estimated
forfeiture rate in calculating the period expense, as opposed to recognizing
forfeitures as an expense reduction as they occur. The Company has not
experienced any forfeitures that would need to be taken into consideration in
SFAS 123R calculations. The Company previously accounted for share-based
compensation plans under APB 25 and the related interpretations and provided the
required SFAS 123 pro forma disclosures for employee stock options.
The Company has three stock option plans. Under the 1995 Stock Option Plan,
125,000 shares of Common Stock were authorized for grant to key employees.
Under the Non-Employee Director Stock Option Plan, 30,000 shares of Common Stock
were authorized for grant. Under the Non-Statutory Stock Option Agreement,
10,000 shares of Common Stock were authorized and issued to the former Chairman
of the Board.
Changes in the stock option plans are as follows:
Weighted
Number of Shares Average
------------------------------- Exercise
Authorized Granted Available Price
---------------------------------------------------------------------
Balance January 1, 2006 82,800 71,300 11,500 $6.10
Terminated - (2,000) 2,000 6.08
Exercised (2,500) (2,500) - 4.95
Granted - 500 (500) 5.95
----------------------------
Balance December 31, 2006 80,300 67,300 13,000 6.15
Terminated (1,300) (2,300) 1,000 9.63
Exercised (2,500) (2,500) - 4.03
Granted - 2,500 (2,500) 5.45
----------------------------
Balance December 31, 2007 76,500 65,000 11,500 6.08
Terminated (32,500) (34,500) 2,000 6.72
Granted - 3,000 (3,000) 3.85
----------------------------
Balance December 31, 2008 44,000 33,500 10,500 5.22
---------------------------------------------------------------------
Under the 1995 Stock Option Plan, option prices must be at least 100% of the
market value of the Common Stock at time of grant. No option may be exercised
prior to one year after date of grant. Exercise periods are for ten years from
date of grant and terminate at a stipulated period of time after an employee's
termination of employment. At December 31, 2008, options for 12,500 shares with
exercise prices ranging from $5.40 to $7.00 per share were outstanding, all of
which were exercisable. During 2008, no shares were exercised or granted, and
options for 32,500 shares expired. During 2007, no options were exercised or
granted, and options for 1,300 shares expired. During 2006, no options were
exercised, granted or expired. No additional options can be granted under the
1995 Plan.
32
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, 2008, options for 11,000
shares with exercise prices ranging from $3.85 to $7.00 per share were
outstanding, 8,000 of which were exercisable. During 2008, options for 3,000
shares were granted with an exercise price of $3.85, options for 2,000 shares
expired and no options were exercised. During 2007, options for 2,500 shares
were granted with an exercise price of $5.45 per share, 2,500 options were
exercised, which had an intrinsic value of $10,000 determined as a difference
between the market price at the date of exercise and the exercise price, and
options for 1,000 shares expired. During 2006, options for 500 shares were
granted with an exercise price of $5.95 per share, 2,500 options were exercised,
which had an intrinsic value of $7,000, and options for 2,000 shares expired.
Under the Non-Statutory Stock Option Agreement for the former Chairman of the
Board, the option price must be at least 100% of the market value of the Common
Stock at time of grant and the exercise period is for 10 years from date of
grant. At December 31, 2008, the options for 10,000 shares with an exercise
price of $4.025 were outstanding and exercisable. During 2008, 2007 and 2006,
no options were exercised, granted or expired.
The following tables summarize information about stock options outstanding at
December 31, 2008:
Weighted
Average Weighted
Range of Remaining Average Aggregate
Exercise Number Contractual Exercise Intrinsic
Prices Outstanding Life Price Value
------------------------------------------------------------
$3.85 - $4.00 3,000 5.7 $3.85 -
4.01 - 5.39 12,000 2.6 4.18 -
5.40 - 6.09 8,000 4.1 5.45 -
6.10 - 6.99 5,000 3.2 6.20 -
7.00 - 8.59 5,500 5.1 7.00 -
----------- ---------
33,500 3.7 5.22 -
------------------------------------------------------------
Weighted
Range of Average Aggregate
Exercise Number Exercise Intrinsic
Prices Exercisable Price Value
------------------------------------------------------------
$3.85 - $4.00 - $ - -
4.01 - 5.39 12,000 4.18 -
5.40 - 6.09 8,000 5.45 -
6.10 - 6.99 5,000 6.20 -
7.00 - 8.59 5,500 7.00 -
----------- ---------
30,500 5.35 -
------------------------------------------------------------
All outstanding option prices are substantially over the current market price.
As of December 31, 2008 there was $2,000 of total unrecognized compensation cost
related to non-vested options granted under the Plans, which will be recognized
in 2009.
The estimated fair value of options granted during 2008, 2007 and 2006 was
$1.67, $1.83 and $2.86 per share, respectively. The fair value of options
granted under the Company's stock option plans during 2008, 2007 and 2006 was
estimated on dates of grant using the binomial options-pricing model with the
following weighted average assumptions used:
2008 2007 2006
--------------------------------------------------------------
Dividend yield - - -
Expected volatility 36.20% 23.82% 42.17%
Risk free interest rate 4.64% 4.34% 4.76%
Expected lives of option grants (years) 4.0 4.0 4.0
--------------------------------------------------------------
33
16. 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. The Company's
diluted loss per common share is calculated by adjusting net loss for the
after-tax interest expense on convertible debt and dividing that amount by the
weighted average number of common shares outstanding, adjusted for shares that
would be assumed outstanding after convertible debt conversion and stock options
vested under the treasury stock method. At December 31, 2008 and 2007, there
were outstanding stock options to purchase 30,500 and 65,000 shares of Common
Stock, respectively, which were excluded from the calculation of diluted loss
per share because their impact would have been anti-dilutive. At December 31,
2006, outstanding debt convertible into 1,994,000 shares of Common Stock and
outstanding stock options to purchase 67,300 shares of Common Stock were
excluded from the calculation of diluted loss per share because their impact
would have been anti-dilutive.
17. Commitments and Contingencies
Commitments: The Company has employment agreements with certain executive
officers, which expire at various dates through March 2010 and a consulting
agreement with a private consulting company owned by the family of a certain
board member who is a former officer of the Company and performs the consulting
services on behalf of the consulting company, which expires December 2014. At
December 31, 2008, the aggregate commitment for future salaries and consulting
fees, excluding bonuses, was approximately $2.2 million. Salaries/consulting
expense was $1.3 million, $1.2 million and $1.2 million for the years ended
December 31, 2008, 2007 and 2006, respectively.
Contingencies: The Company is subject to legal proceedings and claims which
arise in the ordinary course of its business and/or which are covered by
insurance. The Company is party to a pending legal proceeding, which is in the
process of possibly being settled, which is not expected to have an adverse
impact on the consolidated financial position or operations of the Company. The
Company is also party to other pending legal proceedings and claims, which are
covered by insurance, that it believes will not have a material adverse effect
on the consolidated financial position or operations of the Company.
Operating leases: Certain premises are occupied under operating leases that
expire at varying dates through 2013. Certain of these leases provide for the
payment of real estate taxes and other occupancy costs. Future minimum lease
payments due under operating leases at December 31, 2008 aggregating $1,701,000
are as follows: $534,000 - 2009, $417,000 - 2010, $402,000 - 2011, $271,000 -
2012, $77,000 - 2013. Rent expense was $773,000, $662,000 and $781,000 for the
years ended December 31, 2008, 2007 and 2006, respectively.
18. Business Segment Data
Operating segments are based on the Company's business components about which
separate financial information is available, and are evaluated regularly by the
Company's chief operating decision makers in deciding how to allocate resources
and in assessing performance.
The Company evaluates segment performance and allocates resources based upon
operating income. The Company's operations are managed in three reportable
business segments. The Display Division comprises two operating segments,
Indoor display and Outdoor display. Both design, produce, lease, sell and
service large-scale, multi-color, real-time electronic information displays.
Both operating segments are conducted on a global basis, primarily through
operations in the U.S. The Company also has operations in Canada. The Indoor
display and Outdoor display segments are differentiated primarily by the
customers they serve. The Real estate rental segment owns an income-producing
property. Segment operating income is shown after operating expenses and sales,
general and administrative expenses directly associated with the segment.
Corporate general and administrative items relate to costs that are not directly
identifiable with a segment. There are no intersegment sales.
Foreign revenues represent less than 10% of the Company's revenues and therefore
are not separately disclosed. The foreign operation does not manufacture its
own equipment; the domestic operation provides the equipment that the foreign
operation leases or sells. The foreign operation operates similarly to the
domestic operation and has similar profit margins.
34
Information about the Company's continuing operations in its three business
segments as of December 31, 2008 and 2007 and for the three years ended December
31, 2008 is as follows:
In thousands 2008 2007 2006
--------------------------------------------------------------------------------
Revenues:
Indoor display $11,496 $10,855 $13,859
Outdoor display 24,911 26,048 26,607
Real estate rental 276 413 420
---------------------------
Total revenues $36,683 $37,316 $40,886
---------------------------
Operating income (loss):
Indoor display $ (505) $(1,560) $ (361)
Outdoor display 1,746 1,381 1,393
Real estate rental 157 294 309
---------------------------
Total operating income 1,398 115 1,341
Other (loss) income (75) 629 87
Corporate general and administrative expenses (3,106) (4,221) (3,105)
Interest expense - net (1,527) (1,958) (2,591)
Debt conversion cost - (1,475) -
---------------------------
Loss from continuing operations before income taxes (3,310) (6,910) (4,268)
Income tax (expense) benefit (1,306) 1,098 2,004
---------------------------
Net loss from continuing operations $(4,616) $(5,812) $(2,264)
---------------------------
Assets:
Indoor display $25,629 $27,855
Outdoor display 21,271 21,711
Real estate rental 921 919
Discontinued operations 1,069 26,712
-----------------
Total identifiable assets 48,890 77,197
General corporate 1,957 6,762
-----------------
Total assets $50,847 $83,959
-----------------
Depreciation and amortization:
Indoor display $ 4,726 $ 5,229 $ 5,709
Outdoor display 1,474 2,111 2,532
Real estate rental 55 55 50
General corporate 143 357 264
---------------------------
Total depreciation and amortization $ 6,398 $ 7,752 $ 8,555
---------------------------
Capital expenditures:
Indoor display $ 2,923 $ 3,182 $ 3,690
Outdoor display 1,296 857 748
Real estate rental 48 5 35
General corporate 221 3 1
---------------------------
Total capital expenditures $ 4,488 $ 4,047 $ 4,474
--------------------------------------------------------------------------------
------------------------------
35
Reports of Independent Registered Public Accounting Firms
Report of UHY LLP, Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Trans-Lux Corporation
We have audited the accompanying consolidated balance sheet of Trans-Lux
Corporation and subsidiaries (the "Company") as of December 31, 2008, and the
related consolidated statements of operations, comprehensive loss, stockholders'
equity, and cash flows for the year then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. We were not engaged to
perform an audit of the Company's internal controls over financial reporting.
Our audit included consideration of internal control over financial reporting as
a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Company's internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of the
Company as of December 31, 2008, and the consolidated results of its operations
and its cash flows for the year then ended in conformity with accounting
principles generally accepted in the United States of America.
/s/ UHY LLP
Hartford, Connecticut
April 22, 2009
36
Report of Eisner LLP, Independent Registered Accounting Firm
To the Board of Directors and Stockholders of Trans-Lux Corporation
We have audited the consolidated balance sheet of Trans-Lux Corporation and its
subsidiaries (the "Company") as of December 31, 2007 and the related
consolidated statements of operations, stockholders' equity, comprehensive
loss and cash flows for each of the years in the two-year period ended
December 31, 2007. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. We were not engaged to
perform an audit of the Company's internal control over financial reporting.
Our audits include consideration of internal control over financial reporting as
a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Company's internal control over financial reporting.
Accordingly, we express no such opinion. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements enumerated above present fairly, in all
material respects, the consolidated financial position of Trans-Lux Corporation
and its subsidiaries as of December 31, 2007, and the consolidated results of
their operations and their consolidated cash flows for each of the years in the
two-year period ended December 31, 2007, in conformity with accounting
principles generally accepted in the United States.
As discussed in Note 9 to the consolidated financial statements, the Company
adopted the provisions of Financial Accounting Standard Board Interpretation No.
48, "Accounting for Uncertainty in Income Taxes, an Interpretation of FASB
Statement No. 109," effective January 1, 2007.
As discussed in Note 2 to the consolidated financial statements, the
accompanying December 31, 2007 and 2006 consolidated financial statements have
been retroactively restated to report amounts attributable to discontinued
operations separately.
/s/ Eisner LLP
New York, New York
March 28, 2008 (April 22, 2009 as to the discontinued operations presentation
discussed in Note 2)
37
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9A(T). CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures. As of the end of
the period covered by this Annual Report, we carried out an
evaluation, under the supervision and with the participation of our
management, including our Chief Executive Officer and Chief
Financial Officer (its principal executive officer and principal
financial officer), of the effectiveness of the design and
operation of our disclosure controls and procedures (as defined in
the Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)).
Our Chief Executive Officer and Chief Financial Officer have
concluded that our disclosure controls and procedures are effective
to ensure that information required to be disclosed by us in the
reports that we file or submit under the Exchange Act is recorded,
processed, summarized and reported within the time periods
specified in the rules and forms of the Securities and Exchange
Commission and that such information is accumulated and
communicated to our management (including our Chief Executive
Officer and Chief Financial Officer) to allow timely decisions
regarding required disclosures, except this filing, which we
believe will be a one time event, was not timely filed. Based on
such evaluation, our Chief Executive Officer and Chief Financial
Officer have concluded these disclosure controls are effective as
of December 31, 2008.
(b) Changes in internal control over financial reporting. There has
been no change in the Company's internal control over financial
reporting that occurred in the fourth fiscal quarter that has
materially affected, or is reasonably likely to materially affect,
the Company's internal control over financial reporting.
(c) Management's Report on Internal Control Over Financial Reporting.
The management of the Company is responsible for establishing and
maintaining adequate internal control over financial reporting for
the Company as defined in Rule 13a-15(f) under the Securities
Exchange Act of 1934. A company's internal control over financial
reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with accounting principles generally accepted in the
United States. A company's internal control over financial
reporting includes policies and procedures that (1) pertain to the
maintenance of records that in reasonable detail accurately and
fairly reflect the transactions and dispositions of the assets of
the Company; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements
in accordance with accounting principles generally accepted in the
United States, and that receipts and expenditures of the Company
are being made only in accordance with authorizations of management
and directors of the Company; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the Company's assets that could
have a material effect on the financial statements. Our internal
control system was designed to provide reasonable assurance to our
management and Board of Directors regarding the preparation and
fair presentation of published financial statements. Because of
its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Projections of any
evaluation of effectiveness to future periods are subject to the
risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or
procedures may deteriorate. This annual report does not include an
attestation report of the Company's registered public accounting
firm regarding internal control over financial reporting.
Management's report was not subject to attestation by the Company's
registered public accounting firm pursuant to temporary rules of
the Securities and Exchange Commission that permit the Company to
provide only management's report in this annual report.
The Company's management assessed its internal control over
financial reporting as of December 31, 2008 using the criteria set
forth by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). Management, including the Company's Chief
Executive Officer and its Chief Financial Officer, based on their
evaluation of the Company's internal control over financial
reporting (as defined in Securities Exchange Act Rule 13a-15(f)),
have concluded that the Company's internal control over financial
reporting was effective as of December 31, 2008.
38
ITEM 9B. OTHER INFORMATION
All information required to be reported in a report on Form 8-K during the
fourth quarter covered by this Form 10-K has been reported.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
(a) The information required by this Item with respect to directors is
incorporated herein by reference to the Section entitled "Election of
Directors" in the Company's Proxy Statement.
(b) The following executive officers were elected by the Board of
Directors for the ensuing year and until their respective successors
are elected:
Name Office Age
------------------ ------------------------------------- ---
Michael R. Mulcahy President and Chief Executive Officer 60
Angela D. Toppi Executive Vice President, Treasurer, 53
Secretary and Chief Financial Officer
Al L. Miller Executive Vice President 63
Karl P. Hirschauer Senior Vice President 61
Thomas F. Mahoney Senior Vice President 61
Messrs. Mulcahy, Miller, Hirschauer, Mahoney and Ms. Toppi have each been
associated in an executive capacity with the Company for more than five
years.
(c) The information required by Items 405, 406 and 407 of Regulation S-K
is incorporated herein by reference to the Sections entitled
"Compliance with Section 16(a) of the Securities Exchange Act of
1934," "Code of Ethics" and "Corporate Governance" in the Company's
Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein by reference to the
Section entitled "Executive Compensation and Transactions with Management" in
the Company's Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The information required by this Item is incorporated herein by reference to the
Section entitled "Security Ownership of Certain Beneficial Owners, Directors and
Executive Officers" in the Company's Proxy Statement.
Equity Compensation Plan Information
------------------------------------
Securities Weighted Securities
to be issued average available for
December 31, 2008 upon exercise exercise price future issuance
-----------------------------------------------------------------------------------------------------
Equity compensation plans approved by stockholders 23,500 $5.72 10,500
Equity compensation plans not approved by stockholders 10,000 4.03 -
------ ------
Total 33,500 5.22 10,500
-----------------------------------------------------------------------------------------------------
39
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
The information required by this Item is incorporated herein by reference to the
Section entitled "Executive Compensation and Transactions with Management" in
the Company's Proxy Statement.
ITEM 14. PRINCIPAL ACCOUNTING FIRM FEES AND SERVICES
The information required by this Item is incorporated herein by reference to the
Section entitled "Ratification of the Selection of Independent Registered
Accounting Firm" in the Company's Proxy Statement.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following documents are filed as part of this report:
1 Consolidated Financial Statements of Trans-Lux Corporation:
Consolidated Statements of Operations for the Years Ended
December 31, 2008, 2007 and 2006
Consolidated Balance Sheets as of December 31, 2008 and 2007
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2008, 2007 and 2006
Consolidated Statements of Stockholders' Equity for the Years
Ended December 31, 2008, 2007 and 2006
Consolidated Statements of Comprehensive Loss for the Years Ended
December 31, 2008, 2007 and 2006
Notes to Consolidated Financial Statements
Reports of Independent Registered Public Accounting Firms
2 Financial Statement Schedules: None.
3 Exhibits:
3(a) Form of Restated Certificate of Incorporation of the
Registrant (incorporated by reference to Exhibit 3.1 of
Registration No. 333-15481).
(b) By-Laws of the Registrant (incorporated by reference to Exhibit
3(b) of Form 10-K for the year ended December 31, 2001).
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 March 1, 2004 (form of said indenture is
incorporated by reference to Exhibit 12(d) of Schedule TO dated
March 2, 2004).
10.1 Form of Indemnity Agreement - Directors (form of said agreement
is incorporated by reference to Exhibit 10.1 of Registration No.
333-15481).
10.2 Form of Indemnity Agreement - Officers (form of said agreement is
incorporated by reference to Exhibit 10.2 of Registration No.
333-15481).
10.3 Amended and Restated Pension Plan dated January 1, 2001 and
Amendment No. 1 dated as of April 1, 2002 (incorporated by
reference to Exhibit 10.3 of Form 10-K for the year ended
December 31, 2001). Amendment No. 2 dated as of December 31,
2002 (incorporated by reference to Exhibit 10.3 of Form 10-K for
the year ended December 31, 2002). Amendment No. 3 dated as of
December 31, 2003 (incorporated by reference to Exhibit 10.3 of
Form 10-K for the
40
year ended December 31, 2003). Amendment No. 4 dated as of
December 31, 2008 (incorporated by reference to Exhibit 10.3 of
Form 10-K for the year ended December 31, 2008).
10.4 Supplemental Executive Retirement Plan dated January 1, 2009
(incorporated by reference to Exhibit 10.1 of Form 8-K dated
January 6, 2009).
10.5(a) 1989 Non-Employee Director Stock Option Plan, as amended
(incorporated by reference to Exhibit 10.4(a) of Form 10-K for
the year ended December 31, 1999).
(b) 1995 Stock Option Plan, as amended (incorporated by reference to
Proxy Statement dated April 7, 2000).
10.6 Amended and Restated Commercial Loan and Security Agreement with
People's Bank dated December 23, 2004 (incorporated by reference
to Exhibit 10(a) of Form 8-K filed December 28, 2004). Amendment
No. 1 dated as of December 31, 2005 (incorporated by reference
to Exhibit 10.2 of Form 10-Q for the quarter ended March 31,
2006). Letter amendments dated as of September 30, 2006 and
December 31, 2006 (incorporated by reference to Exhibit 10.5 of
Form 10-K for the year ended December 31, 2006). Amendment No.
5 dated August 9, 2007 (incorporated by reference to Exhibit 10.1
of Form 10-Q for the quarter ended June 30, 2007). Amendment No.
9 dated July 15, 2008 (incorporated by reference to Exhibit 10.1
of Form 10-Q for the quarter ended June 30, 2008).
10.7 Consulting Agreement with Moving Images, LLC dated as of December
1, 2004 and termination letter with Richard Brandt (incorporated
by reference to Exhibit 10.6 of Form 10-K for the year ended
December 31, 2004). Amendment dated December 7, 2005
(incorporated by reference to Exhibit 10.6 of Form 10-K for the
year ended December 31, 2005). Amendment dated as of March 28,
2007 (incorporated by reference to Exhibit 10.1 of Form 10-Q for
the quarter ended March 31, 2007). Amendment dated December 31,
2008 (incorporated by reference to Exhibit 10.4 of Form 8-K dated
January 6, 2009).
10.8 Amended and Restated Employment Agreement with Michael R.
Mulcahy dated January 1, 2009 (incorporated by reference to
Exhibit 10.2 of Form 8-K dated January 6, 2009).
10.9 Employment Agreement with Angela D. Toppi dated as of April 1,
2005 (incorporated by reference to Exhibit 10.9 of Form 10-K for
the year ended December 31, 2004).
10.10 Amended and Restated Employment Agreement with Al Miller dated
January 1, 2009 (incorporated by reference to Exhibit 10.3 of
Form 8-K dated January 6, 2009).
10.11 Employment Agreement with Karl Hirschauer dated as of April 1,
2008 (incorporated by reference to Exhibit 10.1 of Form 10-Q for
the quarter ended March 31, 2008).
21 List of Subsidiaries (incorporated by reference to Exhibit 21 of
Form 10-K for the year ended December 31, 2008).
31.1 Certification of 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, filed herewith.
31.2 Certification of Angela D. Toppi, Executive Vice President and
Chief Financial Officer, pursuant to Rule 13a-14(a) and
15d-14(a), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002, filed herewith.
32.1 Certification of 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, filed herewith.
41
32.2 Certification of Angela D. Toppi, Executive Vice President and
Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, filed herewith.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized:
TRANS-LUX CORPORATION
by: /s/ Angela D. Toppi
----------------------------
Angela D. Toppi
Executive Vice President and
Chief Financial Officer
Dated: April 22, 2009
42
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the date indicated:
/s/ Gene F. Jankowski April 22, 2009
----------------------------------------
Gene F. Jankowski, Chairman of the Board
/s/ Victor Liss April 22, 2009
----------------------------------------
Victor Liss, Vice Chairman of the Board
/s/ Matthew Brandt April 22, 2009
----------------------------------------
Matthew Brandt, Director
/s/ Richard Brandt April 22, 2009
----------------------------------------
Richard Brandt, Director
/s/ Thomas Brandt April 22, 2009
----------------------------------------
Thomas Brandt, Director
April 22, 2009
----------------------------------------
Howard M. Brenner, Director
/s/ Jean Firstenberg April 22, 2009
----------------------------------------
Jean Firstenberg, Director
/s/ Howard S. Modlin April 22, 2009
----------------------------------------
Howard S. Modlin, Director
/s/ Michael R. Mulcahy April 22, 2009
----------------------------------------
Michael R. Mulcahy, President, Chief
Executive Officer and Director
43