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Article by DailyStocks_admin    (07-25-08 05:44 AM)

Filed with the SEC from July 10 to July 16:

Trans-Lux (TLX)
Mario Gabelli's Gamco Investors (GBL) would like to "understand the process undertaken and valuation considered" in the company's decision to sell its entertainment division. Trans-Lux has agreed to sell the unit to private-equity firm Marwit Capital for $24.5 million. Gamco Investors holds 949,500 shares (47%).

BUSINESS OVERVIEW

ELECTRONIC INFORMATION DISPLAY PRODUCTS

The Company's high performance electronic information displays are used to communicate messages and information in a variety of indoor and outdoor applications. The Company's product line encompasses a wide range of state- of-the-art electronic displays in various shape, size and color configurations. Most of the Company's display products include hardware components and sophisticated software. In both the indoor and outdoor markets 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; highways and major thoroughfares; 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 new line of advanced last sale price displays, full 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 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 new 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, bridges and other roadway installations, automobile dealerships, banks and other financial institutions. This division generally sells through distributors and dealers. 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, 2007 and 2006 was approximately $4.5 million and $3.4 million, respectively. The December 31, 2007 backlog is expected to be recognized in 2008. 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 2007 the Company's Outdoor display division continued to enhance CaptiVue(TM), a line of outdoor full matrix LED message centers. CaptiVue offers greater design flexibility, modularity and increased clarity at an economical price, and is being well received in the commercial marketplace. Recent enhancements include full color, monochrome blue configurations, higher resolution and larger configurations for digital billboard applications. The Company continued enhancements to its line of LED Fuel Price Changer displays, which use CaptiVue technology to allow gasoline stations, truck stops and convenience stores to update fuel prices instantaneously to one facility or many via their point-of-purchase systems without the use of ladders and other manual equipment.

In 2005, the Company supplemented its LED product line with third-party LED products to remain competitive in price, product offerings and performance. The Company offers the product of two leading providers of advanced LED video display products under which Trans-Lux distributes their lines of display products to its catalog sports market and non-sports markets, respectively. Trans-Lux is private-labeling a portion of 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 sized feature versatile functionality at a lower cost, presenting line art, graphics and variable-sized text at a competitive price. Applications for GraphixWall and GraphixMax displays include flight information, baggage claim and way-funding 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.

Continued development of new indoor products includes new monochrome and tri-color ticker displays utilizing improved LED display technology; curved and flexible displays; higher speed processors for faster data access and improved update speed; 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 to continually track emerging technologies that can enhance its products. Full color, live video and digital input technologies continue to be improved. The Company continued to expand its PromoWall(R) product line, which combines several different display technologies in attractive, self-contained enclosures. By combining the long distance readability of a text-based LED display with the eye-catching motion of a traveling display and the colorful graphic ability of LCD or plasma display, promotional advertising and custom messages becomes even more dynamic.

The Company maintains a staff of 23 people who are responsible for product development and support. The engineering, product enhancement and development efforts are supplemented by outside independent engineering consulting organizations and colleges where required. Engineering expense and product enhancement and development amounted to $1,770,000, $1,990,000 and $2,213,000 in 2007, 2006 and 2005, respectively.
MARKETING AND DISTRIBUTION

The Company markets its indoor and outdoor electronic information display products in the U.S. and Canada using a combination of distribution channels, including 18 direct sales representatives, four 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 19 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 17 independent distributors worldwide covering Europe, the Middle East, South and Central America, Canada, the Far East and Australia. Foreign sales have represented less than 10% of total revenues in the past three years but the Company believes that it is well positioned for expansion.

Headquartered in Norwalk, Connecticut, the Company has major sales and service offices in New York, New York; Des Moines, Iowa; Las Vegas, Nevada; Logan, Utah, Toronto, Ontario; and Brampton, Ontario; as well as approximately 16 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 2007, 2006 and 2005 did not include any single customer that accounted for more than 10% of total revenues.
MANUFACTURING AND OPERATIONS

The Company's production facilities are located in Norwalk, Connecticut and Des Moines, Iowa, and consist principally of the manufacturing, assembly and testing of display units, and related components. The Company performs most subassembly and all final assembly of its products.

All product lines are design engineered by the Company and controlled throughout the manufacturing process. The Company has the ability to produce 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 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 is ISO-9001-2000 registered by Underwriters Laboratories at its Norwalk manufacturing facility. The Company's products are also third-party certified as complying with applicable safety, electromagnetic emissions and susceptibility requirements worldwide. The Company believes these distinctions in its industry give it a competitive advantage in the global marketplace.
SERVICE AND SUPPORT

The Company emphasizes the quality and reliability of its products and the ability of its field service personnel and third-party agents to provide timely and expert service to the Company's installed base. The Company believes that the quality and timeliness of its on-site service personnel are important components in the Company's 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. In the market segments covered by the Company's dealers and distributors, they offer support for the products they sell.

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

The Company's offer of short- and long-term leases to customers and its nationwide sales, service and installation capabilities are major competitive advantages in the display business. The Company believes that it is the largest supplier of large-scale stock, 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, and 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.
THEATRE OPERATIONS

The Company currently operates 65 screens in 10 locations in the western Mountain States, which includes a fourteen-plex theatre in Loveland, Colorado, which is a 50% owned joint venture partnership. In 2007, the Company began a four-screen expansion of its Espanola, New Mexico theatre, which is expected to open in the spring 2008. In 2006, the Company closed an unprofitable single screen theatre in Santa Fe, New Mexico to lease to the New Mexico Department of Cultural Affairs for a film museum. In 2005, the Company expanded its Dillon, Colorado location by adding two additional screens and purchased land in Silver City, New Mexico to construct a new multiplex theatre. The Company's theatre revenues are generated from box office admissions, theatre concessions, theatre rentals and other sales. Theatre revenues are generally seasonal and coincide with the release dates of major films during the summer and holiday seasons. The Company is not currently operating any multimedia entertainment venues, but continues to stay abreast of innovations in this area of technology and continues to investigate new opportunities.

The Company's motion picture theatres are subject to varying degrees of competition in the geographic areas in which they operate. The Company's theatres also face competition from all other forms of entertainment competing for the public's leisure time and disposable income.
INTELLECTUAL PROPERTY

The Company owns or licenses a number of patents and holds a number of trademarks for its display equipment and theatrical enterprises and considers such patents, licenses and trademarks important to its business.
EMPLOYEES

The Company has approximately 402 employees as of February 29, 2008 of which approximately 254 employees support the Company's electronic display business. Approximately 13% of the employees are unionized. The Company believes its employee relations are good.

CEO BACKGROUND

Matthew Brandt has served as a director since 2000. Mr. M. Brandt is Executive Vice President of Trans-Lux Corporation, President of Trans-Lux Corporation's Entertainment Subsidiaries; and Chairman of the Executive Committee of Trans-Lux Corporation since September 2006. He was formerly Vice Chairman of the Executive Committee of Trans-Lux Corporation.

Howard S. Modlin has served as a director since 1975. Mr. Modlin is an attorney and President of the firm Weisman Celler Spett & Modlin, P.C.; a Director of Fedders Corporation; and Chairman and Chief Executive Officer of General DataComm Industries, Inc.

Michael R. Mulcahy has served as a director since 2002. Mr. Mulcahy is President and Co-Chief Executive Officer of Trans-Lux Corporation and its Communication Subsidiaries.

Jean Firstenberg has served as a director since 1989, when she was elected an independent director. Ms. Firstenberg is a member of the Board of Trustees of the American Film Institute. She was formerly the President, Chief Executive Officer and a Director of the American Film Institute; and formerly a Trustee of Boston University.

Gene Jankowski has served as a director since 1994, when he was elected an independent director. In May 2003 he was elected by the Board to serve as Chairman of the Board (a non-executive position) of Trans-Lux Corporation. Mr. Jankowski is Chairman of Jankowski Communications System, Inc.; Advisor Managing Director of Veronis Suhler & Associates Inc.; and Chairman Emeritus of the American Film Institute. He was formerly a Director of TV Azteca; formerly Co-Chairman of St. Vincent's College; formerly a Trustee a of St. Vincent's Medical Center; and formerly President and Chairman of the CBS Broadcast Group.

Victor Liss has served as a director since 1988, and has been an independent director since January 2007. In 1991 he was elected by the Board to serve as Vice Chairman of the Board (a non-executive position) of Trans-Lux Corporation. Mr. Liss is a Director of Wellpoint, Inc. and Wellpoint Financial Group; a Trustee of Norwalk Hospital; a Director of BNC Financial Group; and Chairman of the Board of the Bank of Fairfield (in formation). He was formerly Chairman of the Board of Trustees of Norwalk Hospital; formerly Co- Chairman of the Advisory Board to University College of Sacred Heart University; and formerly Consultant, President and Chief Executive Officer of Trans-Lux Corporation.

Richard Brandt had served as a director since 1954. Mr. R. Brandt had been Chairman of the Board of Trans-Lux Corporation from 1974 to 2003. Mr. R. Brandt is a management consultant to Trans-Lux Corporation; Chairman of the Audit and Compensation Committees and a Director of Presidential Realty Corporation; and Chairman Emeritus and Trustee of the American Film Institute. He was formerly a Trustee of The College of Santa Fe.

Thomas Brandt has served as a director since 2000. Mr. T. Brandt is Executive Vice President and Co-Chief Executive Officer of Trans-Lux Corporation and its Entertainment Subsidiaries.

Howard M. Brenner has served as a director since 1997, and has been an independent director since 2000. Mr. Brenner is Senior Advisor of MLGA Holding, Inc.; and a Director of Interep National Radio Sales, Inc. He was formerly Chairman and Chief Executive Officer of HCFP Brenner Securities LLC; formerly President of Brenner Securities; formerly Senior Vice President of Loewenbaum & Company Incorporated; formerly Vice Chairman of Southcoast Capital Corporation; formerly President of Drexel Burnham Lambert Incorporated; and formerly a member of the Board of Governors of the American Stock Exchange and District 10 Committee (NY) National Association of Securities Dealers Inc.

MANAGEMENT DISCUSSION FROM LATEST 10K

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, transportation, entertainment and sports industries. In addition to its display business, the Company owns and operates a chain of motion picture theatres in the western Mountain States. The Company operates in three reportable segments: Indoor display, Outdoor display and Entertainment/real estate.
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 Entertainment/real estate segment includes the operations of the motion picture theatres in the western Mountain States and income-producing real estate properties.

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, inventories, goodwill and intangible assets, income taxes, warranty obligations, benefit plans, 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: The Company maintains allowances for uncollectable accounts 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 may be required.
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 other factors that are considered in the review for impairment include, 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. No impairment resulted from the annual reviews performed in 2007, 2006 or 2005. 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 taxes 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.
Benefit Plans: The Company is required to make estimates and assumptions to determine benefit plan liabilities, which include investment returns, rates of salary increases and discount rates. During 2007 and 2006, the Company recorded an after tax minimum pension liability adjustment in other comprehensive loss of ($103,000) and $567,000, respectively. Estimates and assumptions are reviewed annually with the assistance of external actuarial professionals and adjusted as circumstances change. At December 31, 2007, plan assets were invested 42.2% in guaranteed investment contracts, 55.4% in equity and index funds, 2.3% in bonds and 0.1% in money market funds. 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, 2007, 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 2007 will be based on the December 31, 2007 valuation. The defined benefit plan periodic cost was $628,000 in 2007, $285,000 in 2006 and $261,000 in 2005. The 2007 periodic pension cost included a settlement charge of $366,000. At December 31, 2007, assuming no change in the other assumptions, a one percentage point change in investment returns would affect the net periodic cost by $77,000 and a one percentage point change in the discount rate would affect the net periodic cost by $128,000. 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, 2007.

Results of Operations

2007 Compared to 2006

Total revenues for the year ended December 31, 2007 decreased 5.0% to $51.2 million from $53.9 million for the year ended December 31, 2006. Entertainment/real estate revenues increased but were offset by decreases in both Indoor display revenues and Outdoor display revenues.
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. The decrease in indoor display equipment rentals and maintenance revenues have lessened over last year, which indicates that the market conditions appear to be slowly improving, although the Company does continue to take disconnects and non-renewal of existing equipment on rental and maintenance, the Company does enter into new lease contracts.
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.
Entertainment/real estate revenues increased $857,000 or 6.4%. Both box office revenues and concession sales increased due to a slight increase in attendance and price increases. The Company closed its single screen theatre in Santa Fe, New Mexico in April 2006.
Total operating income for the year ended December 31, 2007 decreased 24.1% to $3.2 million from $4.2 million for the year ended December 31, 2006, principally due to the increased losses of the Indoor display segment.
Indoor display operating income decreased $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 $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. 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.
Entertainment/real estate operating income increased $206,000 or 6.6%, primarily due to the increase in box office revenues and an increase in the MetroLux Theatres joint venture income of $110,000 or 32.0%. The cost of Entertainment/real estate represented 73.6% of related revenues in 2007 compared to 73.0% in 2006. Cost of theatre receipts and other, which includes film rental costs, other operating costs and depreciation expense, increased $708,000 or 7.2%, principally due to the increase in box office revenues, as well as an increase in payroll costs due to federal and state minimum wage increases. Entertainment/real estate general and administrative expenses increased $53,000 or 6.4%, primarily due to increases in payroll and travel costs.
Corporate general and administrative expenses increased $1.1 million or 34.1%, 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 $583,000 or 13.8%, 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 9 - Long-Term Debt to the Consolidated Financial Statements.
The effective tax benefit rate for the years ended December 31, 2007 and 2006 was 11.4% and 49.6%, 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.

MANAGEMENT DISCUSSION FOR LATEST QUARTER

Results of Operations

Three Months Ended March 31, 2008 Compared to Three Months Ended March 31, 2007

Total revenues for the three months ended March 31, 2008 decreased $1.0 million or 8.5% to $11.1 million from $12.1 million for the three months ended March 31, 2007, primarily due to decreases in Outdoor display revenues and Entertainment/real estate revenues, offset by increases in Indoor display revenues.

Indoor display revenues increased $190,000 or 7.5%. Of this increase, Indoor display equipment sales increased $394,000 or 67.0%, primarily due to an increase in sales from the financial services and gaming markets. Indoor display equipment rentals and maintenance revenues decreased $204,000 or 10.6%, primarily due to disconnects and non-renewals of equipment on rental on existing contracts in the financial services market. The financial services market continues to be negatively impacted by the current investment climate, resulting in consolidation within that industry, and the wider use of flat-panel screens. The decrease in indoor display equipment rentals and maintenance revenues has lessened over last year, which indicates that the market conditions appear to be slowly improving, although the Company does continue to take disconnects and non renewal of existing equipment on rental and maintenance; however the Company also enters into new lease contracts.

Outdoor display revenues decreased $872,000 or 14.3%. Of this decrease, Outdoor display equipment sales decreased $695,000 or 14.2%, primarily in the outdoor commercial markets and catalog sports. Outdoor display equipment rentals and maintenance revenues decreased $177,000 or 14.9%, primarily due to the continued expected revenue decline in the older Outdoor display equipment rental and maintenance bases acquired in the early 1990s.

Entertainment/real estate revenues decreased $347,000 or 9.8%, primarily due to a decrease in box office revenues due to a lack of blockbuster films.

Total operating income for the three months ended March 31, 2008 increased $152,000 or 21.0% to $875,000 from $723,000 for the three months ended March 31, 2007, principally due to decreases in the allowance for uncollectable accounts and general and administrative expenses, such as payroll and benefits, offset by the decline in revenues.

Indoor display operating income increased $347,000 to a loss of $139,000 in 2008 compared to a loss of $486,000 in 2007, primarily as a result of a decrease in general and administrative expenses. The cost of Indoor displays represented 78.3% of related revenues in 2008 compared to 77.3% in 2007. The cost of Indoor displays as a percentage of related revenues increased primarily due to the decrease in revenues from Indoor display equipment rentals and maintenance and a $27,000 increase in field service costs to maintain the equipment, offset by a $122,000 decrease in depreciation expense. The Company continually addresses the cost of field service to keep it in line with revenues from equipment rentals and maintenance. Cost of Indoor display equipment rentals and maintenance includes field service expenses, plant repair costs, maintenance and depreciation. Indoor display cost of equipment sales increased $268,000, primarily due to the increase in revenues. Indoor display general and administrative expenses decreased $331,000 or 31.3%, primarily due to a reduction in selling payroll and benefits and related expenses and a $157,000 decrease in the allowance for uncollectable accounts.

Outdoor display operating income increased $22,000 or 7.6%, primarily as a result of a decrease in the Outdoor display cost of equipment rentals and maintenance. The cost of Outdoor displays represented 74.0% of related revenues in 2008 compared to 77.9% in 2007. Outdoor display cost of equipment sales decreased $589,000 or 15.8%, principally due to the decrease in volume. Outdoor display cost of equipment rentals and maintenance decreased $295,000 or 29.4%, primarily due to a $148,000 decrease in field service costs to maintain the equipment and a $146,000 decrease in depreciation expense. Outdoor display general and administrative expenses remained level. Cost of Outdoor display equipment rentals and maintenance includes field service expenses, plant repair costs, maintenance and depreciation.

Entertainment/real estate operating income decreased $217,000 or 23.6%, primarily due to the decreases in box office revenues due to a lack of blockbuster films. Cost of Entertainment/real estate, which includes film rental costs, concession costs, operating expenses and depreciation expense, decreased $98,000 or 3.9%, primarily due to the decreases in revenues. The cost of Entertainment/real estate represented 75.1% of related revenues in 2008 compared to 70.5% in 2007. This increases is due to an increase in certain operating expenses, such as credit card fees and payroll costs. Entertainment/real estate general and administrative expenses remained level.

Corporate general and administrative expenses decreased $178,000 or 13.9%, primarily due to a decrease in benefits, such as medical costs. The Company continues to monitor and reduce certain overhead costs.

Net interest expense decreased $272,000 due lower interest rates of the variable rate debt and a reduction in total debt. The debt conversion cost of $1.5 million relates to the one-time, non-cash, non-tax deductible charge for the exchange of debt for Common Stock as a result of the exchange offer that was completed March 14, 2007, see Note 3. The income from joint venture relates to the operations of the theatre joint venture, MetroLux Theatres, in Loveland, Colorado, which is included in the Entertainment/real estate segment.

The effective tax rate for the three months ended March 31, 2008 and 2007 was 5.2% and 21.4%, respectively. The 2008 rate was affected by the $0.4 million valuation allowance on its deferred tax assets as a result of reporting a pre-tax loss in recent years. 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 3. The Company adopted the provisions of FIN 48 on January 1, 2007, see Note 5.

Liquidity and Capital Resources

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 the three months ended March 31, 2008, long-term debt, including current portion, decreased $0.3 million, due to $0.9 million of regularly scheduled payments of long-term debt offset $0.6 million of borrowing on the DreamCatcher Cinema construction loan.

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% Notes, and a revolving loan of up to $5.0 million at variable interest rates ranging from LIBOR plus 2.25% to Prime (ranging from 5.25% to 5.39% at March 31, 2008). The Credit Agreement was amended subsequent to the first quarter to extend the maturity to August 1, 2009. Effective December 31, 2006, $6.1 million of the non-revolving line of credit was converted into a four-year. At March 31, 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 fixed charge coverage ratio of 1.1 to 1.0, a loan-to-value ratio of not more than 50%, a cap on capital expenditures, a leverage ratio and maintaining accounts with an average monthly compensating balance of not less than $750,000. As of March 31, 2008, the Company was in compliance with the forgoing financial covenants, but the Company was not in compliance with maintaining a tangible net worth of not less than $23.5 million, which its senior lender waived subsequent to the end of the quarter. In addition, the tangible net worth covenant was modified to $21.0 million as of June 30, 2008. The amounts outstanding under the Credit Agreement are collateralized by all of the Display division assets.

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'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.

Cash and cash equivalents decreased $1.9 million for the three months ended March 31, 2008 compared to a decrease of $0.5 million for the three months ended March 31, 2007. The decrease in 2008 is primarily attributable to the investment in equipment for rental of $0.9 million, the investment in property, plant and equipment of $0.9 million, which includes the expansion of the DreamCatcher Cinema, and $0.9 million of scheduled payments of long-term debt, offset by $0.6 million of proceeds from long-term debt and proceeds from the Company's joint venture of $0.3 million, with cash provided by and used in operations offsetting each other. The decrease in 2007 is primarily attributable to the investment in equipment for rental of $1.4 million and $0.8 million of scheduled payments of long-term debt, offset by $1.8 million of cash provided by operating activities.

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