-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FMOWKfsddejKHBP44OHlpsdqZJ0Yd6n1z+PAohM20zZupU1iXmdnx/TiAdQIdSLk Sm+7+rJRM9U8tQ/+reozEQ== 0000099106-08-000031.txt : 20081117 0000099106-08-000031.hdr.sgml : 20081117 20081117172024 ACCESSION NUMBER: 0000099106-08-000031 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20080930 FILED AS OF DATE: 20081117 DATE AS OF CHANGE: 20081117 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRANS LUX CORP CENTRAL INDEX KEY: 0000099106 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS MANUFACTURING INDUSTRIES [3990] IRS NUMBER: 131394750 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-02257 FILM NUMBER: 081196342 BUSINESS ADDRESS: STREET 1: 110 RICHARDS AVE CITY: NORWALK STATE: CT ZIP: 06856-5090 BUSINESS PHONE: 2038534321 MAIL ADDRESS: STREET 1: 110 RICHARDS AVENUE CITY: NORWALK STATE: CT ZIP: 06856-5090 10-Q 1 sep0810q.txt SEPTEMBER 2008 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2008 ------------------ Commission file number 1-2257 ------ TRANS-LUX CORPORATION ------------------------------------------------------ (Exact name of registrant as specified in its charter) Delaware 13-1394750 - ------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 26 Pearl Street, Norwalk, CT 06850-1647 - ---------------------------------------- ---------- (Address of principal executive offices) (Zip code) (203) 853-4321 ---------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (check one) Large accelerated filer Accelerated filer Non-accelerated filer X --- --- --- Smaller reporting company --- Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No X --- --- Indicate the number of shares outstanding of each of the issuer's classes of Common Stock, as of the latest practicable date. Date Class Shares Outstanding - -------- ------------------------------------ ------------------ 11/13/08 Common Stock - $1.00 Par Value 2,020,090 11/13/08 Class B Stock - $1.00 Par Value 286,814 (Immediately convertible into a like number of shares of Common Stock.) TRANS-LUX CORPORATION AND SUBSIDIARIES Table of Contents Page No. -------- Part I - Financial Information (unaudited) Item 1. Condensed Consolidated Balance Sheets - September 30, 2008 and December 31, 2007 1 Condensed Consolidated Statements of Operations - Three and Nine Months Ended September 30, 2008 and 2007 2 Condensed Consolidated Statements of Cash Flows - Nine Months Ended September 30, 2008 and 2007 3 Notes to Condensed Consolidated Financial Statements 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 13 Item 3. Quantitative and Qualitative Disclosures about Market Risk 19 Item 4. Controls and Procedures 19 Part II - Other Information Item 1A. Risk Factors 19 Item 2. Unregistered Sales of Securities and Use of Proceeds 20 Item 3. Defaults upon Senior Securities 20 Item 4. Submission of Matters to a Vote of Security Holders 20 Item 5. Other Information 20 Item 6. Exhibits 21 Signatures 22 Exhibits
Part I - Financial Information ------------------------------ TRANS-LUX CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS September 30 December 31 In thousands, except share data 2008 2007 - ------------------------------------------------------------------------------------------- (unaudited) (see Note 1) ASSETS Current assets: Cash and cash equivalents $ 2,292 $ 6,591 Cash in escrow 400 - Available-for-sale securities 136 171 Receivables, less allowance of $917 - 2008 and $892 - 2007 7,108 5,233 Unbilled receivables 186 12 Other receivables 2,580 2,580 Inventories 6,514 6,768 Prepaids and other 1,006 1,204 Assets associated with discontinued operations (Note 2) 1,076 26,712 ------- ------- Total current assets 21,298 49,271 ------- ------- Rental equipment 69,228 66,626 Less accumulated depreciation 42,105 37,692 ------- ------- 27,123 28,934 ------- ------- Property, plant and equipment 7,715 7,323 Less accumulated depreciation 4,934 4,626 ------- ------- 2,781 2,697 Goodwill 1,004 1,004 Other assets 1,895 2,053 ------- ------- TOTAL ASSETS $54,101 $83,959 - ------------------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 3,319 $ 2,439 Accrued liabilities 6,216 6,537 Current portion of long-term debt 9,727 11,002 Liabilities associated with discontinued operations (Note 2) 663 16,250 ------- ------- Total current liabilities 19,925 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 1,057 1,057 Notes payable 2,350 8,833 ------- ------- 13,536 20,019 ------- ------- Deferred credits, deposits and other 3,044 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 14,738 14,733 Retained earnings 5,110 11,848 Accumulated other comprehensive loss (1,529) (1,262) ------- ------- 21,059 28,059 Less treasury stock - at cost - 433,596 common shares in 2008 and 2007 3,463 3,463 ------- ------- Total stockholders' equity 17,596 24,596 ------- ------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $54,101 $83,959 - ------------------------------------------------------------------------------------------- The accompanying notes are an integral part of these condensed consolidated financial statements.
1 TRANS-LUX CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) Three Months Ended Nine Months ended September 30 September 30 ----------------- ----------------- In thousands, except per share data 2008 2007 2008 2007 - ----------------------------------------------------------------------------------------- Revenues: Equipment rentals and maintenance $ 2,837 $ 3,036 $ 8,421 $ 9,268 Equipment sales 7,947 7,506 20,612 19,276 Real estate rentals 60 110 228 326 ------- ------- ------- ------- Total revenues 10,844 10,652 29,261 28,870 ------- ------- ------- ------- Operating expenses: Cost of equipment rentals and maintenance 2,379 2,794 7,151 8,280 Cost of equipment sales 6,005 5,253 14,834 13,716 Cost of real estate rentals 37 26 86 72 ------- ------- ------- ------- Total operating expenses 8,421 8,073 22,071 22,068 ------- ------- ------- ------- Gross profit from operations 2,423 2,579 7,190 6,802 General and administrative expenses (2,282) (2,827) (7,892) (9,336) Interest income 8 29 140 197 Interest expense (446) (630) (1,500) (1,999) Debt conversion cost - - - (1,475) Other income 1 15 5 608 ------- ------- ------- ------- Loss from continuing operations before income taxes (296) (834) (2,057) (5,203) Income tax (expense) benefit (84) 166 (234) 953 ------- ------- ------- ------- Loss from continuing operations (380) (668) (2,291) (4,250) Income (loss) from discontinued operations 24 368 (4,447) 1,284 ------- ------- ------- ------- Net loss $ (356) $ (300) $(6,738) $(2,966) ======= ======= ======= ======= Loss per share continuing operations - basic and diluted $ (0.16) $ (0.29) $ (0.99) $ (2.09) Income (loss) per share discontinued operations - basic and diluted 0.01 0.16 (1.93) 0.63 ------- ------- ------- ------- Total loss per share - basic and diluted $ (0.15) $ (0.13) $ (2.92) $ (1.46) ======= ======= ======= ======= Weighted average common shares outstanding - basic and diluted 2,307 2,305 2,307 2,026 ======= ======= ======= ======= - ----------------------------------------------------------------------------------------- The accompanying notes are an integral part of these condensed consolidated financial statements.
2 TRANS-LUX CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) Nine Months Ended September 30 --------------------- In thousands 2008 2007 - ------------------------------------------------------------------------------- Cash flows from operating activities Net loss $ (6,738) $(2,966) Loss (income) from discontinued operations 4,447 (1,284) -------- ------- Loss from continuing operations (2,291) (4,250) Adjustment to reconcile loss from continuing operations to net cash provided by operating activities: Depreciation and amortization 4,872 5,919 Deferred income taxes 13 (1,074) Exchange of 8 1/4% notes for common stock - 1,345 Changes in operating assets and liabilities: Receivables (2,049) 75 Inventories 254 (918) Prepaids and other assets 205 186 Accounts payable and accruals 319 1,211 Deferred credits, deposits and other (72) (651) -------- ------- Net cash provided by operating activities of continuing operations 1,251 1,843 -------- ------- Cash flows from investing activities Equipment manufactured for rental (2,602) (3,331) Purchases of property, plant and equipment (392) (131) -------- ------- Net cash used in investing activities of continuing operations (2,994) (3,462) -------- ------- Cash flows from financing activities Payments of long-term debt (7,758) (1,580) -------- ------- Net cash used in financing activities of continuing operations (7,758) (1,580) -------- ------- Cash flows from discontinued operations Cash (used in) provided by operating activities of discontinued operations (1,750) 1,383 Cash provided by investing activities of discontinued operations 22,106 32 Cash used in financing activities of discontinued operations (15,154) (511) -------- ------- Net cash provided by discontinued operations 5,202 904 -------- ------- Net decrease in cash and cash equivalents (4,299) (2,295) Cash and cash equivalents at beginning of year 6,591 5,765 -------- ------- Cash and cash equivalents at end of period $ 2,292 $ 3,470 ======== ======= - ------------------------------------------------------------------------------- Interest paid $ 2,223 $ 2,161 Income taxes paid 166 5 Supplemental disclosures of non-cash financing activities: Exchange of 8 1/4% notes for common stock - 7,829 - ------------------------------------------------------------------------------- The accompanying notes are an integral part of these condensed consolidated financial statements.
3 TRANS-LUX CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 30, 2008 (unaudited) Note 1 - Basis of Presentation Financial information included herein is unaudited, however, such information reflects all adjustments (of a normal and recurring nature), which are, in the opinion of management, necessary for the fair presentation of the condensed consolidated financial statements for the interim periods. The results for the interim periods are not necessarily indicative of the results to be expected for the full year. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with Rule 10-01 of Regulation S-X promulgated by the Securities and Exchange Commission and therefore do not include all information and footnote disclosures required under accounting principles generally accepted in the United States of America. It is suggested that the September 30, 2008 condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 2007. The condensed consolidated balance sheet at December 31, 2007 is derived from the December 31, 2007 audited financial statements. On June 26, 2008, the Board of Directors approved the sale of the assets of the Entertainment Division. As a result of the sale, the Company has accounted for the Entertainment Division as discontinued operations beginning in the second quarter of 2008 and recorded long-lived asset impairment charges of $2.9 million as well as $2.0 million in disposal costs in that quarter. See Note 2. The Company has incurred net losses from continuing operations for the three and nine months ended September 30, 2008 of $380,000 and $2.3 million, respectively, but has generated cash provided by operating activities of continuing operations of $1.3 million and $1.8 million for the nine months ended September 30, 2008 and 2007, respectively. The Company has implemented several initiatives to continue to improve operational results and cash flows over future periods. The Company's engineering staff continues to work on areas to improve manufacturing efficiencies as well as expanding and improving the outdoor commercial products, particularly digital billboards and fuel price changers to include larger LED arrays, smaller LED pixel sizes for higher resolutions and additional features. The Company believes the outdoor commercial market is a growing industry, and we see increasing usage of digital signage in the outdoor commercial market. The Company also continues to explore ways to reduce costs and relocated its Norwalk facility in the second quarter of 2008 to lower operating costs in the future. The Company continues to take steps to reduce the cost to maintain the equipment on rental and maintenance. In addition, the Company is recording less interest expense as a result of the exchange offer in the first quarter of 2007, see Note 5, paid down debt with the net proceeds from the sale of the assets of the Entertainment Division, see Note 2, and a reduction in interest rates of its variable rate debt. As of September 30, 2008, the total $9.6 million outstanding under its Credit Agreement, which matures on August 1, 2009, has been 4 classified as current, which includes the fully drawn $5.0 million revolving loan facility. The Company has positive working capital of $1.4 million as of September 30, 2008. The Company's objective in regards to the Credit Agreement is to obtain additional funds from external sources through equity or additional debt financing and the Company is in discussions with senior lenders and others to obtain additional borrowing capacity. While management believes it will be successful, there can be no assurance that management will be successful in achieving any of the above objectives. Management further believes that its current cash resources and cash provided by continuing operations will be sufficient to fund its continuing operations and its current obligations through September 30, 2009. Note 2 - Discontinued Operations On June 26, 2008, the Board of Directors approved the sale of the assets of the Entertainment Division, which was consummated on July 15, 2008 for a purchase price of $24.5 million, of which $7.4 million was paid in cash, $0.4 million is in escrow and $16.7 million of debt was assumed, including $0.3 million of debt of the joint venture, MetroLux Theatres. The $0.4 million cash held in escrow will be released to the Company on July 15, 2009, net of any purchase price adjustments. The buyer assumed the operating results effective as of June 27, 2008. In accordance with the provisions of SFAS No. 144, "Accounting For the Impairment or Disposal of Long-lived Assets," the Company is accounting for the Entertainment Division as discontinued operations. In addition to the $24.5 million purchase price, there is a potential additional purchase price of up to $2.3 million based on the performance of increased theatre operations at the DreamCatcher Cinema, which was expanded from a six-plex to a 10-plex in May 2008, and a six-month option to purchase raw land from the Company in Silver City, New Mexico for $0.9 million. However, there can be no assurance that there will be any additional purchase price earned or that the option will be exercised. As a result of the sale, the Company recorded a long-lived asset impairment charge of $2.9 million as well as $2.0 million in disposal costs for the quarter ended June 30, 2008. The Company has agreed not to compete in the theatre business in certain Western states of the United States for five years and has licensed the name "Trans-Lux Theatres" in connection with such movie theatre circuit. Matthew Brandt and Thomas Brandt, former executive officers of the Company, have become full time officers of the buyer, managing the theatre business purchased. The Company is providing certain services on a transition basis for up to six months and is also providing consulting services for a year, which consulting services will be rendered by Richard Brandt, a director and consultant to the Company. The Company received an opinion from an independent third party that the transaction was fair to the stockholders of the Company from a financial point of view. The $5.8 million net proceeds from the sale were used to prepay the term loan under the Credit Agreement with its senior lender and accordingly, the amount of the term loan has been reclassified as current portion of long-term debt in the Condensed Consolidated Balance Sheet as of December 31, 2007. A total of $22.4 million of long-term debt has been paid down or assumed by the buyer as 5 a result of the sale. The assets and liabilities associated with discontinued operations and related results of operations as of December 31, 2007 have been reclassified in the Condensed Consolidated Financial Statements as discontinued operations. The following table presents the financial results of the discontinued operations: Three months ended September 30 Nine months ended September 30 In thousands, except per share data 2008 2007 2008 2007 - ---------------------------------------------------------------------------------------------------- Revenues $ 4 $3,617 $ 6,249 $10,687 Operating expenses (16) 2,770 4,976 7,989 ----- ------ ------- ------- Gross profit 20 847 1,273 2,698 General and administrative expenses (88) (266) (647) (796) Interest income (expense) 15 (334) (455) (963) Income from joint venture - 121 239 345 Asset impairment and loss on sale of division 77 - (4,857) - Income tax expense - - - - ----- ------ ------- ------- Income (loss) from discontinued operations $ 24 $ 368 $(4,447) $ 1,284 ===== ====== ======= ======= Income (loss) per share - basic and diluted $0.01 $ 0.16 $ (1.93) $ 0.63 ===== ====== ======= ======= - ----------------------------------------------------------------------------------------------------
Interest expense allocated to discontinued operations relates to the Entertainment Division's long-term debt assumed by the buyer. The following is a detail of the assets and liabilities reported as discontinued operations and classified as assets and liabilities associated with discontinued operations in the Condensed Consolidated Balance Sheet as of September 30, 2008, with comparative carrying amounts as of December 31, 2007: September 30 December 31 In thousands 2008 2007 - -------------------------------------------------------------------------------------- Inventories $ - $ 85 Prepaids and other assets 156 171 Property and equipment, net 920 25,397 Other assets - 1,059 ------- ------- Total assets associated with discontinued operations $ 1,076 $26,712 ======= ======= Current liabilities $ 663 $ 1,096 Long-term liabilities - 15,154 ------- ------- Total liabilities associated with discontinued operations $ 663 $16,250 ======= ======= - --------------------------------------------------------------------------------------
Operations of the Joint Venture - Discontinued Operations The Company had a 50% ownership in a joint venture partnership, MetroLux Theatres ("MetroLux"), accounted for by the equity method, which was included in the sold assets of its Entertainment Division. The Company's equity in partnership net assets is included in the assets associated with discontinued operations in the Condensed Consolidated Balance Sheets at December 31, 2007. 6 Note 3 - Other Receivables The Company has a $2.6 million receivable that was due June 2008, relating to the sale/leaseback of the Company's Norwalk, Connecticut facility in 2004. The receivable is secured by a purchase money mortgage subordinated to a $3.5 million first mortgage in favor of the purchaser's bank. The purchaser has defaulted on this payment and the Company is pursuing legal remedies. The base four-year term of the sale/leaseback ended in June 2008. The Company terminated its subsequent three-year lease for part of the property during the second quarter of 2007 and recognized the remaining $393,000 of the deferred gain. The deferred gain represented the present value of the lease payments over the term of the leaseback and had been recognized proportionately to the rental charge over the base four-year term. Note 4 - Inventories Inventories are stated at the lower of cost (first-in, first-out) or market value and consist of the following: September 30 December 31 In thousands 2008 2007 - ----------------------------------------------- Raw materials $4,715 $4,743 Work-in-progres 1,190 1,351 Finished goods 609 674 ------ ------ $6,514 $6,768 ====== ====== - -----------------------------------------------
Note 5 - Long-Term Debt During the nine months ended September 30, 2008, long-term debt, including current portion, decreased $7.8 million, $2.0 million due to regularly scheduled payments of long-term debt and $5.8 million as a result of the sale of the Entertainment Division. See Note 2. The Company has a bank Credit Agreement that provides for a term loan of $10.0 million, a non-revolving line of credit of up to $6.2 million to finance purchases and/or redemptions of one-half of the 7 1/2% Notes, and a revolving loan of up to $5.0 million at a variable rate of interest of Prime plus 1.75% (6.75% at September 30, 2008). The Credit Agreement matures on August 1, 2009 and as of September 30, 2008 has been classified as current in the Condensed Consolidated Balance Sheets. Effective December 31, 2006, $6.1 million of the non-revolving line of credit was converted into a four-year term loan also maturing August 1, 2009. At September 30, 2008, the entire revolving loan facility had been drawn. The Credit Agreement requires an annual facility fee on the unused commitment of 0.25%, and requires compliance with certain financial covenants, which include a minimum tangible net worth of $17.0 million, a loan-to-value ratio of not more than 50%, a leverage 7 ratio, a cap on capital expenditures and maintaining accounts with an average monthly compensating balance of not less than $750,000. As of September 30, 2008, the Company was in compliance with the forgoing financial covenants, but was not in compliance with the fixed charge coverage ratio of 1.25 to 1.0, which the senior lender waived subsequent to the end of the quarter. The amounts outstanding under the Credit Agreement are collateralized by all of the Display Division assets. On March 15, 2007, the Company completed an offer to exchange 133 shares of its Common Stock, $1 par value per share, for each $1,000 principal amount of its 8 1/4% Limited convertible senior subordinated notes due 2012 (the "8 1/4% Notes"). The offer was for up to $9.0 million principal amount, or approximately 50% of the $18.0 million principal amount outstanding of the 8 1/4% Notes. A total of $7.8 million principal amount of the 8 1/4% Notes were exchanged, leaving $10.1 million principal amount of the 8 1/4% Notes outstanding. A total of 1,041,257 shares of Common Stock were issued in the exchange. In accordance with SFAS No. 84, "Induced Conversions of Convertible Debt," the Company recorded a non-cash, non-tax deductible charge for the exchange of debt for Common Stock and additional amortization of prepaid financing costs aggregating $1.5 million in debt conversion cost as a result of the exchange offer. Note 6 - Reporting Comprehensive Loss Total comprehensive loss for the three and nine months ended September 30, 2008 and 2007 is as follows: Three months ended September 30 Nine months ended September 30 In thousands 2008 2007 2008 2007 - ------------------------------------------------------------------------------------------------------- Net loss, as reported $(356) $(300) $(6,738) $(2,966) ----- ----- ------- ------- Other comprehensive income: Unrealized foreign currency translation (loss) gain (154) 234 (245) 504 Unrealized holding loss on available-for-sale securities (33) (7) (35) (14) Income tax benefit related to items of other comprehensive income 12 3 13 6 ----- ----- ------- ------- Total other comprehensive (loss) income, net of tax (175) 230 (267) 496 ----- ----- ------- ------- Comprehensive loss $(531) $ (70) $(7,005) $(2,470) ===== ===== ======= ======= - -------------------------------------------------------------------------------------------------------
Note 7 - Income Taxes The Company adopted the provisions of FIN 48 on January 1, 2007. As a result of the implementation of FIN 48, the Company recognized a $250,000 adjustment for interest and penalties in connection with uncertain tax positions. This increase was accounted for as an adjustment to the beginning balance of retained earnings. The Company's policy is to classify interest and penalties related to uncertain tax positions in income tax expense. The Company is subject to U.S. federal income tax as well as income tax in multiple state and local jurisdictions and Canadian federal and provincial income tax. Currently, no federal or state or 8 provincial income tax returns are under examination. The tax years 2005 through 2007 remain open to examination by the major taxing jurisdictions and the 2004 tax year remains open to examination by some state and local taxing jurisdictions to which the Company is subject. A valuation allowance has been established for the amount of deferred tax assets related to Federal and state net operating loss carryforwards, which management estimates will more likely than not expire unused. Estimates of the annual effective tax rate benefit at the end of interim periods are, of necessity, based on evaluations of possible future events and transactions and may be subject to subsequent revision. Note 8 - Pension Plan As of December 31, 2003, the benefit service under the pension plan had been frozen and, accordingly, there is no service cost for the three and nine months ended September 30, 2008 and 2007. The following table presents the components of net periodic pension cost: Three months ended September 30 Nine months ended September 30 In thousands 2008 2007 2008 2007 - ---------------------------------------------------------------------------------------------------- Interest cost $ 160 $ 160 $ 480 $ 480 Expected return on plan assets (158) (169) (474) (505) Amortization of prior service cost 4 4 12 12 Amortization of net actuarial loss 66 70 198 212 ----- ----- ----- ----- Net periodic pension cost $ 72 $ 65 $ 216 $ 199 ===== ===== ===== ===== - ----------------------------------------------------------------------------------------------------
As of September 30, 2008, the Company has recorded current and long-term pension liabilities of $0.1 million and $2.9 million, respectively. The contribution for 2008 is $0.5 million, of which $0.4 million has already been contributed. Note 9 - Stock Option Plans During the nine-month period ended September 30, 2008, the Company issued options for 3,000 shares with an exercise price of $3.85 per share under the Non-Employee Director Stock Option Plan; none were issued during the nine-month period ended September 30, 2007. The unrecognized compensation costs related to unvested stock options granted under the Company's stock option plans was nominal. Expected volatility is based on historical volatility of the Company's stock and the expected life of options is based on historical data with respect to exercise periods. 9 The following summarizes the activity of the Company's stock options for the nine months ended September 30, 2008: Weighted Weighted Average Average Remaining Aggregate Exercise Contractual Intrinsic Options Price ($) Term (Yrs) Value ($) - ------------------------------------------------------------------------------------------ Outstanding at beginning of year 65,000 6.08 Granted 3,000 3.85 Exercised - - Terminated (34,500) 6.72 ------- Outstanding at end of period 33,500 5.22 3.7 ======= === Vested and expected to vest at end of period 33,500 5.22 3.7 - ======= === Exercisable at end of period 28,000 5.34 3.4 - ======= === - ------------------------------------------------------------------------------------------
Note 10 - Loss Per Common Share Basic loss per common share is computed by dividing net loss by the weighted average number of common shares outstanding for the period. At September 30, 2008 and 2007, outstanding stock options to purchase 33,500 and 62,500 shares, respectively, of Common Stock were excluded from the calculation of diluted loss per share because their impact would have been anti-dilutive. Note 11 - Legal Proceedings and Claims The Company is subject to legal proceedings and claims, which arise in the ordinary course of its business. The Company is not a party to any pending legal proceedings and claims that it believes will have a material adverse effect on the consolidated financial position or results of operations of the Company. Note 12 - Business Segment Data The Company evaluates segment performance and allocates resources based upon operating income. The Company's continuing operations are managed in three reportable business segments. The Display Division comprises two operating segments, Indoor display and Outdoor display. Both design, produce, lease, sell and service large-scale, multi-color, real-time electronic information displays. Both operating segments are conducted on a global basis, primarily through operations in the U.S. The Company also has operations in Canada. The Indoor display and Outdoor display segments are differentiated primarily by the customers they serve. The Real estate segment owns an income-producing real estate property. Segment operating income is shown after operating expenses and sales, general and administrative expenses directly associated with the segment. Corporate general and administrative items relate to costs that are not directly identifiable with a segment. There are no intersegment sales. Of the total goodwill of $1.0 million, $0.9 million relates to the 10 Outdoor display segment and $0.1 million relates to the Indoor display segment. Foreign revenues represent less than 10% of the Company's revenues and therefore are not separately disclosed. The foreign operation does not manufacture its own equipment; the U.S. domestic operation provides the equipment that the foreign operation leases or sells. The foreign operation operates similarly to the domestic operation and has similar profit margins. Information about the Company's operations in its three business segments for the three and nine months ended September 30, 2008 and 2007 is as follows: Three months ended September 30 Nine months ended September 30 In thousands 2008 2007 2008 2007 - ---------------------------------------------------------------------------------------------------------------- Revenues: Indoor display $ 3,223 $ 2,776 $ 9,305 $ 8,008 Outdoor display 7,561 7,766 19,728 20,536 Real estate 60 110 228 326 ------- ------- ------- ------- Total revenues $10,844 $10,652 $29,261 $28,870 ======= ======= ======= ======= Operating income (loss): Indoor display $ (275) $ (374) $ (193) $(1,296) Outdoor display 1,221 985 2,309 1,818 Real estate 21 81 134 245 ------- ------- ------- ------- Total operating income 967 692 2,250 767 Other income 1 15 5 608 Corporate general and administrative expenses (826) (940) (2,952) (3,301) Interest expense - net (438) (601) (1,360) (1,802) Debt conversion cost - - - (1,475) Income tax (expense) benefit (84) 166 (234) 953 ------- ------- ------- ------- Loss from continuing operations (380) (668) (2,291) (4,250) Income (loss) from discontinued operations 24 368 (4,447) 1,284 ------- ------- ------- ------- Net loss $ (356) $ (300) $(6,738) $(2,966) ======= ======= ======= ======= - ----------------------------------------------------------------------------------------------------------------
Note 13 - Recent Accounting Pronouncements In September 2006, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 157, "Fair Value Measurements" ("SFAS 157") that defines fair value, establishes a framework for measuring fair value in accordance with accounting principles generally accepted in the United States and expands the disclosures about fair value measurement. In February 2008, the FASB amended SFAS 157 and issued FASB Staff Position No. 157-2 ("FSP 157-2"). FSP 157-2 excludes fair value lease calculations pursuant to SFAS 13, as amended, from SFAS 157, but does not exclude assets and liabilities acquired pursuant to SFAS 141R. FSP 157-2 defers the effective date of SFAS 157 for non-financial assets and liabilities that are not recognized or disclosed at fair value on a recurring basis by one year. The adoption of SFAS 157 and the related FSPs on January 1, 2008 did not have a material impact on the financial condition or results of operations of the Company. In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities" ("SFAS 159"). SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair 11 value. SFAS 159 also establishes presentation and disclosure requirements designed to facilitate comparisons between entities that chose different measurement attributes for similar assets and liabilities. The adoption of SFAS 159 on January 1, 2008 did not have a material impact on the financial condition or results of operations of the Company. In December 2007, the FASB issued SFAS No. 141R, "Business Combinations" ("SFAS 141R"), which replaces SFAS No. 141. Under SFAS 141R, an acquiring entity will be required to recognize all the assets acquired and liabilities assumed in a transaction at the acquisition date fair value with limited exceptions. SFAS 141R establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any non-controlling interest in the acquiree and the goodwill acquired. SFAS 141R also establishes disclosure requirements, which will enable users to evaluate the nature and financial effects of the business combination. SFAS 141R is effective for financial statements issued for fiscal years beginning after December 15, 2008. Early adoption is prohibited. We have not yet determined the impact, if any, that the implementation of SFAS 141R will have on our results of operations or financial condition. In December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in Consolidated Financial Statements - An Amendment of ARB No. 51" ("SFAS 160"). SFAS 160 establishes new accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. Specifically, SFAS 160 requires the recognition of a noncontrolling interest (minority interest) as equity in the consolidated financial statements and separate from the parent's equity. The amount of net income attributable to the noncontrolling interest will be included in consolidated net income on the face of the income statement. SFAS 160 clarifies that changes in a parent's ownership interest in a subsidiary that do not result in deconsolidation are equity transactions if the parent retains its controlling financial interest. In addition, SFAS 160 requires that a parent recognize a gain or loss in net income when a subsidiary is deconsolidated. Such gain or loss will be measured using the fair value of the noncontrolling equity investment on the deconsolidation date. SFAS 160 also includes expanded disclosure requirements regarding the interests of the parent and its noncontrolling interest. SFAS 160 is effective for fiscal years beginning on or after December 15, 2008. Early adoption is prohibited. We have not yet determined the impact, if any, that the implementation of SFAS 160 will have on our results of operations or financial condition. 12 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Trans-Lux is a full service provider of integrated multimedia systems for today's communications environments. The essential elements of these systems are the real-time, programmable electronic information displays we manufacture, distribute and service. Designed to meet the evolving communications needs of both the indoor and outdoor markets, these displays are used primarily in applications for the financial, banking, gaming, corporate, advertising, transportation, entertainment and sports industries. In addition to its display business, the Company owns and operates an income producing rental property. The Company operates in three reportable segments: Indoor display, Outdoor display and Real estate. On June 26, 2008, the Board of Directors approved the sale of the assets of the Entertainment Division. As a result of the sale, the Company has accounted for the Entertainment Division as discontinued operations beginning in the second quarter of 2008 and recorded long-lived asset impairment charges of $2.9 million as well as $2.0 million in disposal costs for the quarter ended June 30, 2008. See Note 2. The following discussion and analysis of financial condition and results of operations relates only to continuing operations. The Indoor display segment includes worldwide revenues and related expenses from the rental, maintenance and sale of indoor displays. This segment includes the financial, government/private and gaming markets. The Outdoor display segment includes worldwide revenues and related expenses from the rental, maintenance and sale of outdoor displays. Included in this segment are catalog sports, retail, digital billboards and commercial markets. The Real estate segment includes the operations of an income-producing real estate property. Results of Operations Nine Months Ended September 30, 2008 Compared to Nine Months Ended September 30, 2007 Total revenues for the nine months ended September 30, 2008 increased $391,000 or 1.4% to $29.3 million compared to $28.9 million for the nine months ended September 30, 2007. Indoor display sales revenues increased, but were offset by decreases in Indoor display rental and maintenance revenues, Outdoor display revenues and Real estate rentals revenue. Indoor display revenues increased $1.3 million or 16.2%. Of this increase, Indoor display equipment sales increased $1.6 million or 67.2%, primarily due to an increase in sales from the financial services and transportation markets. Indoor display equipment rentals and maintenance revenues decreased $348,000 or 6.3%, primarily due to disconnects and non-renewals of equipment on rental and maintenance on existing contracts in the financial services market. The financial services market continues to be negatively impacted by the ongoing consolidation within that industry and the wider use of flat-panel screens. 13 Outdoor display revenues decreased $808,000 or 3.9%. Of this decrease, Outdoor display equipment rentals and maintenance revenues decreased $499,000 or 13.5%, primarily due to the continued expected revenue decline in the older Outdoor display equipment rental and maintenance bases acquired in the early 1990s. Outdoor display equipment sales decreased $309,000 or 1.8%, primarily in the commercial market, offset by increased sales in the catalog sports market. Real estate rentals revenue decreased $98,000 or 30.1%, primarily due to less than full occupancy of the sub-leased portion of our former Norwalk, CT location, which sub-leases terminated in June 2008. Total operating income for the nine months ended September 30, 2008 increased $1.5 million to $2.3 million compared to $767,000 for the nine months ended September 30, 2007, principally due to the increase in Indoor sales revenues and a reduction in general and administrative expenses in both the Indoor and Outdoor display segments. Indoor display operating loss decreased to $193,000 in 2008 compared to a loss of $1.3 million in 2007, primarily as a result of the increase in revenues in the financial services and transportation markets. The cost of Indoor displays represented 77.7% of related revenues in 2008 compared to 80.0% in 2007. Indoor displays cost of equipment rentals and maintenance decreased $215,000 or 4.1%, primarily due to a $384,000 decrease in depreciation expense, offset by a $169,000 increase in field service costs to maintain the equipment. The Company continues to address the cost of field service to align with revenue levels. Cost of Indoor display equipment rentals and maintenance includes field service expenses, plant repair costs, maintenance and depreciation. Indoor display cost of equipment sales increased $1.0 million or 92.2%, primarily due to the increase in revenues. Indoor display general and administrative expenses decreased $633,000 or 21.8%, primarily due to a reduction in selling payroll and benefits and related expenses and a $204,000 decrease in the allowance for uncollectable accounts. Outdoor display operating income increased $491,000 or 27.0% to $2.3 million in 2008 compared to $1.8 million in 2007, primarily as a result of a decrease in field service costs to maintain the equipment on rental and maintenance contracts. The cost of Outdoor displays represented 74.8% of related revenues in 2008 compared to 75.9% in 2007. Outdoor display cost of equipment sales remained level. Outdoor display cost of equipment rentals and maintenance decreased $915,000 or 30.4%, primarily due to a $475,000 decrease in field service costs to maintain the equipment and a $439,000 decrease in depreciation expense. Outdoor display general and administrative expenses decreased $462,000 or 14.8%, primarily due to a reduction in selling and administrative payroll and benefits and related expenses and a $116,000 decrease in the allowance for uncollectable accounts. Cost of Outdoor display equipment rentals and maintenance includes field service expenses, plant repair costs, maintenance and depreciation. Real estate rentals operating income decreased $111,000 or 45.3%, primarily due to the decrease in revenues. Cost of Real estate rentals increased slightly. The cost of Real estate rentals represented 38.2% of related revenues in 2008 compared to 22.1% in 2007. The cost of Real estate rentals as a percentage of related revenues increased primarily due to the reduction in revenues. Real estate 14 rentals general and administrative expenses remained level. Corporate general and administrative expenses decreased $349,000 or 10.6%, primarily due to decreases in benefits and legal expenses and a foreign currency gain of $107,000 compared to a foreign currency loss of $172,000 in the prior year. The Company continues to monitor and reduce certain overhead costs. Net interest expense decreased $442,000, due to lower interest rates of the variable debt and a reduction in total debt. The debt conversion cost of $1.5 million in 2007 relates to the one-time, non-cash, non-tax deductible charge for the exchange of debt for Common Stock relating to the exchange offer that was completed March 14, 2007. See Note 5. Other income of $608,000 in 2007 mainly relates to a gain resulting from the termination of an office lease. The effective tax rate for the nine months ended September 30, 2008 and 2007 was 3.6% and 24.3%, respectively. The 2008 rate was affected by the $2.9 million increase in the valuation allowance on its deferred tax assets as a result of reporting a pre-tax loss. The 2007 rate was affected by the $1.5 million one-time, non-cash, non-tax deductible charge relating to exchange of debt for Common Stock, see Note 5. The Company adopted the provisions of FIN 48 on January 1, 2007. See Note 7. The current year's income tax expense relates to the Company's Canadian subsidiary. Three Months Ended September 30, 2008 Compared to Three Months Ended September 30, 2007 Total revenues for the three months ended September 30, 2008 increased $192,000 or 1.8% to $10.8 million from $10.7 million for the three months ended September 30, 2007, primarily due to an increase in Indoor display sales revenues, offset by decreases in Indoor display rentals and maintenance revenues, Outdoor display revenues and Real estate rentals revenue. Indoor display revenues increased $447,000 or 16.1%. Of this increase, Indoor display equipment sales increased $503,000 or 49.9%, primarily due to an increase in sales from the financial services and transportation markets. Indoor display equipment rentals and maintenance revenues decreased $56,000 or 3.2%, primarily due to disconnects and non-renewals of equipment on rental and maintenance on existing contracts in the financial services market. The financial services market continues to be negatively impacted by the ongoing consolidation within that industry. Outdoor display revenues decreased $205,000 or 2.6%. Of this decrease, Outdoor display equipment rentals and maintenance revenues decreased $143,000 or 11.3%, primarily due to the continued expected revenue decline in the older Outdoor display equipment rental and maintenance bases acquired in the early 1990s. Outdoor display equipment sales decreased $62,000 or 1.0%, primarily in the outdoor commercial market, offset by an increase in the outdoor catalog sports market. Real estate rentals revenue decreased $50,000 or 45.5%, primarily due to the termination of the sub- 15 leases at our former Norwalk, CT location, which was vacated in June 2008. Total operating income for the three months ended September 30, 2008 increased $275,000 to $967,000 from $692,000 for the three months ended September 30, 2007, principally due to the increase in the Indoor sales revenues and a reduction in general and administrative expenses in the Outdoor display segment. Indoor display operating loss decreased $99,000 to $275,000 in 2008 compared to a loss of $374,000 in 2007, primarily as a result of the increase in revenues in the financial services and transportation markets. The cost of Indoor displays represented 82.0% of related revenues in 2008 compared to 83.0% in 2007. The cost of Indoor displays as a percentage of related revenues decreased primarily due to a $135,000 decrease in depreciation expense, offset by a $16,000 increase in field services costs to maintain the equipment. The Company continues to address the cost of field service to align with revenue levels. Cost of Indoor display equipment rentals and maintenance includes field service expenses, plant repair costs, maintenance and depreciation. Indoor display cost of equipment sales increased $459,000 or 94.4%, primarily due to the increase in revenues. Indoor display general and administrative expenses remained level, primarily due to a reduction in selling payroll and benefits and related expenses offset by a $95,000 increase in the allowance for uncollectable accounts. Outdoor display operating income increased $236,000 or 24.0% to $1.2 million in 2008 compared to $985,000 in 2007, primarily as a result of a reduction in general and administrative expenses. The cost of Outdoor displays represented 75.9% of related revenues in 2008 compared to 74.0% in 2007. Outdoor display cost of equipment sales increased $293,000 or 6.1%, principally due to the volume mix of products sold. Outdoor display cost of equipment rentals and maintenance decreased $298,000 or 30.5%, primarily due to a $151,000 decrease in field service costs to maintain the equipment and a $146,000 decrease in depreciation expense. Outdoor display general and administrative expenses decreased $438,000 or 42.2%, primarily due to a reduction in selling and administrative payroll and benefits and related expenses and a $81,000 decrease in the allowance for uncollectable accounts. Cost of Outdoor display equipment rentals and maintenance includes field service expenses, plant repair costs, maintenance and depreciation. Real estate rentals operating income decreased $60,000, primarily due to the decrease in revenues. Cost of Real estate rentals increased slightly. The cost of Real estate rentals represented 63.3% of related revenues in 2008 compared to 23.6% in 2007. The cost of Real estate rentals as a percentage of related revenues increased primarily due the reduction in revenues. Real estate rentals general and administrative expenses remained level. Corporate general and administrative expenses decreased $114,000 or 12.1%, primarily due to a decrease in benefits, legal expenses and audit fees and a foreign currency gain of $87,000 compared to a foreign currency loss of $99,000 in the prior year, offset by an increase in general insurance expenses. The Company continues to monitor and reduce certain overhead costs. Net interest expense decreased $163,000, due to lower interest rates of the variable debt and a reduction in total debt. 16 The effective tax rate for the three months ended September 30, 2008 and 2007 was 30.9% and 35.6%, respectively. The 2008 rate was affected by the $0.3 million increase in the valuation allowance on its deferred tax assets as a result of reporting a pre-tax loss. The current year's income tax expense relates to the Company's Canadian subsidiary. Liquidity and Capital Resources During the nine months ended September 30, 2008, long-term debt, including current portion, decreased a total of $7.8 million. Of this decrease, $2.0 million was due to regularly scheduled payments of long-term and $5.8 million was as a result of the sale of the Entertainment Division. See Note 2. The Company has a bank Credit Agreement that provides for a term loan of $10.0 million, a non-revolving line of credit of up to $6.2 million to finance purchases and/or redemptions of one-half of the 7 1/2% Convertible Subordinated Notes due December 1, 2006 (the "7 1/2% Notes") in September 2006 and a revolving loan of up to $5.0 million at a variable rate of interest of Prime plus 1.75% (6.75% at September 30, 2008). The Credit Agreement matures on August 1, 2009 and as of September 30, 2008 has been classified as current in the Condensed Consolidated Balance Sheets. Effective December 31, 2006, $6.1 million of the non-revolving line of credit was converted into a four-year term loan also maturing August 1, 2009. At September 30, 2008, the entire revolving loan facility had been drawn. The Credit Agreement requires an annual facility fee on the unused commitment of 0.25%, and requires compliance with certain financial covenants, which include a minimum tangible net worth of $17.0 million, a loan-to-value ratio of not more than 50%, a leverage ratio, a cap on capital expenditures and maintaining accounts with an average monthly compensating balance of not less than $750,000. As of September 30, 2008, the Company was in compliance with the forgoing financial covenants, but was not in compliance with the fixed charge coverage ratio of 1.25 to 1.0, which the senior lender waived subsequent to the end of the quarter. The Company is in discussion with senior lenders and others to obtain additional borrowing capacity. On March 15, 2007, the Company completed an offer to exchange 133 shares of its Common Stock, $1 par value per share, for each $1,000 principal amount of its 8 1/4% Limited Convertible Senior Subordinated Notes due 2012 (the "8 1/4% Notes"). The offer was for up to $9.0 million principal amount, or approximately 50% of the $18.0 million principal amount outstanding of the 8 1/4% Notes. A total of $7.8 million principal amount of the 8 1/4% Notes were exchanged, leaving $10.1 million principal amount of the 8 1/4% Notes outstanding. A total of 1,041,257 shares of Common Stock were issued in the exchange. In accordance with FASB No. 84, "Induced Conversions of Convertible Debt," the Company recorded a non-cash, non-tax deductible charge for the exchange of debt for Common Stock and additional amortization of prepaid financing costs aggregating $1.5 million in debt conversion cost as a result of the exchange offer. Under various agreements, the Company is obligated to make future cash payments in fixed amounts. These include payments under the Company's long-term debt agreements, employment and consulting agreement payments and rent payments required under operating lease agreements. 17 The Company's long-term debt requires interest payments. The Company has both variable and fixed interest rate debt. Interest payments are projected based on current interest rates until the underlying debts mature. The following table summarizes the Company's fixed cash obligations of its continuing operations as of September 30, 2008 for the remainder of 2008 and the next four years: Remainder of In thousands 2008 2009 2010 2011 2012 - ------------------------------------------------------------------------------------- Long-term debt, including interest $1,340 $10,766 $1,362 $1,345 $13,735 Employment and consulting agreement obligations 315 912 427 303 198 Operating lease payments 163 509 425 406 272 ------ ------- ------ ------ ------- Total $1,818 $12,187 $2,214 $2,054 $14,205 - -------------------------------------------------------------------------------------
Cash and cash equivalents decreased $4.3 million for the nine months ended September 30, 2008 compared to a decrease of $2.3 million for the nine months ended September 30, 2007. The decrease in 2008 from continuing operations is primarily attributable to the investment in equipment for rental and property, plant and equipment of $3.0 million and $2.0 million of scheduled payments of long-term debt, offset by $1.3 million of cash provided by operating activities. The decrease in 2008 from discontinued operations is $0.6 million, $5.2 million of cash provided by discontinued operations, offset by $5.7 million of payments of long-term debt as a result of the sale of the Entertainment Division with the net proceeds. The decrease in 2007 from continuing operations is primarily attributable to the investment in equipment for rental of $3.3 million and $1.6 million of scheduled payments of long-term debt, offset by $1.8 million of cash provided by operating activities of continuing operations. The increase in 2007 from discontinued operations is $0.9 million of cash provided by discontinued operations. Although the Company has incurred losses from continuing operations, it believes that cash generated from continuing operations together with cash and cash equivalents on hand should be sufficient to fund anticipated current and near term cash requirements. The Company's objective in regards to the Credit Agreement is to obtain additional funds from external sources through equity or additional debt financing and is in discussions with senior lenders and others. The Company continually evaluates the need and availability of long-term capital in order to meet its cash requirements. Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995 The Company may, from time to time, provide estimates as to future performance. These forward-looking statements will be estimates, and may or may not be realized by the Company. The Company undertakes no duty to update such forward-looking statements. Many factors could cause actual results to differ from these forward-looking statements, including loss of market share through competition, introduction of competing products by others, pressure on prices from competition or purchasers of the Company's products, interest rate and foreign exchange fluctuations, terrorist acts and war. 18 Item 3. Quantitative and Qualitative Disclosures about Market Risk The Company is subject to interest rate risk on its long-term debt. The Company manages its exposure to changes in interest rates by the use of variable and fixed interest rate debt. In addition the Company is exposed to foreign currency exchange rate risk mainly as a result of its investment in its Canadian subsidiary. The Company may, from time to time, enter into derivative contracts to manage its interest risk. The Company does not enter into derivatives for trading or speculative purposes. At September 30, 2008, the Company did not hold any derivative financial instruments. A one-percentage point change in interest rates would result in an annual interest expense fluctuation of approximately $119,000. A 10% change in the Canadian dollar relative to the U.S. dollar would result in a currency exchange expense fluctuation of approximately $304,000, based on dealer quotes, considering current exchange rates. Item 4. Controls and Procedures Evaluation of Disclosure Controls and Procedures. As required by Rule 13a-15 under the Securities Exchange Act of 1934, as of the end of the period covered by this report, we have carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer (our principal executive officer and principal financial officer), of the effectiveness of the design and operation of our disclosure controls and procedures. Our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission and that such information is accumulated and communicated to our management (including our Chief Executive Officer and Chief Financial Officer) to allow timely decisions regarding required disclosures. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded these disclosure controls are effective as of September 30, 2008. Changes in Internal Control over Financial Reporting. There has been no change in the Company's internal control over financial reporting, that occurred in 2008, that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting. Part II - Other Information Item 1A. Risk Factors The Company is subject to a number of risks including general business and financial risk factors, particularly because of the weakened economy affected by the current adverse market environment. Any or all of such factors could have a material adverse effect on the business, financial condition or 19 results of operations of the Company. You should carefully consider the following risk factors, in addition to those identified in our Annual Report on Form 10-K for the year ended December 31, 2007. On June 26, 2008, the Board of Directors approved the sale of the assets of the Entertainment Division. As a result of the sale, the Company has accounted for the Entertainment Division as discontinued operations beginning in the second quarter of 2008 and recorded long-lived asset impairment charges of $2.9 million as well as $2.0 million in disposal costs for the quarter ended June 30, 2008. See Note 2. The Company has incurred net losses from continuing operations for the three and nine months ended September 30, 2008 of $380,000 and $2.3 million, respectively, but has generated cash provided by operating activities of continuing operations of $1.3 million and $1.8 million for the nine months ended September 30, 2008 and 2007, respectively. The Company has positive working capital of $1.4 million as of September 30, 2008. As of September 30, 2008, the total $9.6 million outstanding under its Credit Agreement, which matures on August 1, 2009, has been classified as current, which includes the fully drawn $5.0 million revolving loan facility. The Company's objective in regards to the Credit Agreement is to obtain additional funds from external sources through equity or additional debt financing and is in discussions with senior lenders and others to obtain additional borrowing capacity. While management believes it will be successful, there can be no assurance that management will be successful in achieving any of the above objectives. Management further believes that its current cash resources and cash provided by continuing operations will be sufficient to fund its continuing operations and its current obligations through September 30, 2009. Item 2. Unregistered Sales of Securities and Use of Proceeds None. Item 3. Defaults upon Senior Securities None. Item 4. Submission of Matters to a Vote of Security Holders None. Item 5. Other Information As a result of the sale by the Company of the assets of the Entertainment Division, Thomas Brandt, 20 who had been Co-CEO of the Company and head of its real estate operations, theatre construction and expansion, does not plan to stand for re-election to the Trans-Lux Board of Directors in June of 2009, when his present term expires. He is now employed by the Storyteller Theaters Corporation, which acquired the Entertainment Division. In addition, Matthew Brandt, who had been President of the Entertainment Division, plans to resign from the Trans-Lux Board of Directors in June of 2009, even though his present term as director would normally not expire until 2011. He is also now employed by the Storyteller Theaters Corporation. This would leave only one Brandt family member, Richard Brandt, as a Trans-Lux Director. He indicates that he will stand for re-election in June of 2009, when his present term expires. He has been with the Company since 1950 and had been Chairman of the Board and CEO before his retirement. He is presently an active consultant to the Company, which includes providing consulting services to Storyteller Theaters Corporation on behalf of the Company. Item 6. Exhibits 31.1 Certification of Michael R. Mulcahy, President and Chief Executive Officer, pursuant to Rule 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification of Angela D. Toppi, Executive Vice President and Chief Financial Officer, pursuant to Rule 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Certification of Michael R. Mulcahy, President and Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2 Certification of Angela D. Toppi, Executive Vice President and Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 21 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. TRANS-LUX CORPORATION --------------------- (Registrant) Date: November 17, 2008 by /s/ Angela D. Toppi ---------------------------- Angela D. Toppi Executive Vice President and Chief Financial Officer 22 EX-31.1 2 tlxex311.txt CERTIFICATION - M. MULCAHY EXHIBIT 31.1 CERTIFICATION I, Michael R. Mulcahy, President and Chief Executive Officer of Trans-Lux Corporation, certify that: 1. I have reviewed this Report on Form 10-Q (the "Report") of Trans-Lux Corporation; 2. Based on my knowledge, this Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Report; 3. Based on my knowledge, the financial statements, and other financial information included in this Report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this Report; 4. The Registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15 (e) and 15d-15(e)) for the Registrant and have; a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Report is being prepared; b) evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in this Report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this Report based on such evaluation; and c) disclosed in this Report any change in the Registrant's internal control over financial reporting that occurred during the Registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting. 5. The Registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant's auditors and the audit committee of the Registrant's board of directors: a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal control over financial reporting. /s/ Michael R. Mulcahy ------------------------------------- Date: November 17, 2008 Michael R. Mulcahy President and Chief Executive Officer EX-31.2 3 tlxex312.txt CERTIFICATION - A. TOPPI EXHIBIT 31.2 CERTIFICATION I, Angela D. Toppi, Executive Vice President and Chief Financial Officer of Trans-Lux Corporation, certify that: 1. I have reviewed this Report on Form 10-Q (the "Report") of Trans-Lux Corporation; 2. Based on my knowledge, this Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Report; 3. Based on my knowledge, the financial statements, and other financial information included in this Report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this Report; 4. The Registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15 (e) and 15d-15(e)) for the Registrant and have; a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Report is being prepared; b) evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in this Report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this Report based on such evaluation; and c) disclosed in this Report any change in the Registrant's internal control over financial reporting that occurred during the Registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting. 5. The Registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant's auditors and the audit committee of the Registrant's board of directors: a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal control over financial reporting. /s/ Angela D. Toppi ----------------------------- Date: November 17, 2008 Angela D. Toppi Executive Vice President and Chief Financial Officer EX-32.1 4 tlxex321.txt CERTIFICATION, SEC 906 - M. MULCAHY EXHIBIT 32.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code), I, Michael R. Mulcahy, President and Chief Executive Officer of Trans-Lux Corporation, do hereby certify, to the best of my knowledge that: (1) The Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2008 being filed with the Securities and Exchange Commission (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. This Certification accompanies this Form 10-Q as an exhibit, but shall not be deemed as having been filed for purposes of Section 18 of the Securities Exchange Act of 1934 or as a separate disclosure document of the Registrant or the certifying officer. /s/ Michael R. Mulcahy ------------------------------------- Date: November 17, 2008 Michael R. Mulcahy President and Chief Executive Officer EX-32.2 5 tlxex322.txt CERTIFICATION, SEC 906 - A. TOPPI EXHIBIT 32.2 CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code), I, Angela D. Toppi, Executive Vice President and Chief Financial Officer of Trans-Lux Corporation, do hereby certify, to the best of my knowledge that: (1) The Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2008 being filed with the Securities and Exchange Commission (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. This Certification accompanies this Form 10-Q as an exhibit, but shall not be deemed as having been filed for purposes of Section 18 of the Securities Exchange Act of 1934 or as a separate disclosure document of the Registrant or the certifying officer. /s/ Angela D. Toppi -------------------------------- Date: November 17, 2008 Angela D. Toppi Executive Vice President and Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----