-----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, H/MHb2Ls+VVePgucJNKajDs8BknwP4QpreGOfO7wnX79+1/4vGZ/npeWpzcso7WV 0GH8bVrYIY+2cmckuTLNHg== 0000914760-99-000074.txt : 19990330 0000914760-99-000074.hdr.sgml : 19990330 ACCESSION NUMBER: 0000914760-99-000074 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990329 FILER: COMPANY DATA: COMPANY CONFORMED NAME: THOMAS INDUSTRIES INC CENTRAL INDEX KEY: 0000097886 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC LIGHTING & WIRING EQUIPMENT [3640] IRS NUMBER: 610505332 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-05426 FILM NUMBER: 99575848 BUSINESS ADDRESS: STREET 1: 4360 BROWNBORO ROAD STREET 2: SUITE 300 CITY: LOUISVILLE STATE: KY ZIP: 40207 BUSINESS PHONE: 5028934600 MAIL ADDRESS: STREET 1: 4360 BROWNBORO ROAD STREET 2: SUITE 300 CITY: LOUISVILLE STATE: KY ZIP: 40207 10-K405 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended: December 31, 1998 Commission File Number 1-5426 THOMAS INDUSTRIES INC. (Exact name of Registrant as specified in its Charter) DELAWARE 61-0505332 (State of incorporation) (I.R.S. Employer Identification Number) 4360 BROWNSBORO ROAD, LOUISVILLE, KENTUCKY 40207 (Address of principal executive offices) (Zip Code) 502/893-4600 (Registrant's telephone number, including area code) SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE SECURITIES EXCHANGE ACT OF 1934: Title of Each Class Name of Each Exchange on which Registered Common Stock, $1 Par Value New York Stock Exchange Preferred Stock Purchase Rights New York Stock Exchange Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] Indicate by check mark whether the registrant (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. [X] As of March 12, 1999, 15,758,789 shares of the registrant's Common Stock were outstanding. The aggregate market value of the voting stock held by non-affiliates of the Registrant at March 12, 1999, was approximately $261,004,943. Portions of the Proxy Statement for the Annual Meeting of Shareholders on April 15, 1999, are incorporated by reference in Part III of this report. Portions of the Annual Report to Shareholders for fiscal year ended December 31, 1998, are incorporated by reference in Parts I and II of this report. PART I. ITEM 1. BUSINESS a. General Development of Business. The company that was eventually to become known as Thomas Industries ("Thomas"or the "Company") was founded in 1928 as the Electric Sprayit Company. Electric Sprayit manufactured spraying machines, blowers, and air compressors in Chicago, Illinois. In 1948, Mr. Lee B. Thomas and a group of investors acquired Moe Brothers Manufacturing of Fort Atkinson, Wisconsin, a manufacturer of residential lighting products. In 1953, Moe Lighting and The Electric Sprayit Company merged to become Thomas Industries Inc. Although its roots are in lighting products and air compressors, Thomas began to diversify further in the 1960's and 1970's, acquiring different types of consumer products along with tools, hardware, and specialty products. A new strategic focus that began in the 1980's was finalized in 1994 and led the Company to divest its non-core businesses and concentrate on Lighting and Compressors & Vacuum Pumps. Significant additions to these businesses on the Lighting side included the Lumec and Day-Brite Lighting acquisitions in 1987 and 1989 and Compressor & Vacuum Pump acquisitions which included ASF, Pneumotive, Brey, WISA, and Welch, made from 1987 through 1996. On August 30, 1998, Thomas and The Genlyte Group ("Genlyte") formed a lighting joint venture that combined substantially all of the assets and liabilities of Genlyte and substantially all of the lighting assets and related liabilities of Thomas to create Genlyte Thomas Group LLC, estimated to be the third largest lighting fixture manufacturer in North America. Thomas owns a 32% interest in the joint venture, and Genlyte owns a 68% interest. b. Financial Information about Industry Segments. The information required by this item is set forth in Exhibit 13 under the heading "Notes to Consolidated Financial Statements," which information is contained in the Company's Annual Report to Shareholders and incorporated herein by reference. c. Narrative Description of Business. Compressor & Vacuum Pump Segment With the lighting joint venture in place, Thomas is now focused on its Compressor & Vacuum Pump business. Thomas is the leading supplier to the original equipment manufacturer (OEM) market in such applications as medical equipment, gasoline vapor and refrigerant recovery, automotive and transportation applications, printing, tape drives, laboratory equipment, and many other applications for consumer, commercial, and industrial uses. The Company designs, manufactures, markets, and sells these products through operations worldwide. Group headquarters are as follows: North American Group--Sheboygan, Wisconsin; European Group-- Puchheim, Germany; and Asia Pacific Group--Hong Kong,China. The Company has three manufacturing operations in the United States which manufacture rotary vane, linear, piston, and diaphragm compressors and vacuum pumps, and vacuum ejectors. These products are distributed worldwide to original equipment manufacturers, as well as through fluid power and large compressor distributors. Three German operations manufacture a complementary line of rotary vane, miniature rotary vane, piston, linear, and diaphragm compressors and vacuum pumps. These products are currently distributed worldwide. The Company also maintains sales offices in England, Italy, Hong Kong, Japan, and Taiwan. The Corporate Office is in Louisville, Kentucky. The Company offers a wide selection of standard air compressors and vacuum pumps and will modify or design its products to meet exacting OEM applications. For the OEM market, the Company's compressors and vacuum pump products are manufactured under the names Thomas in the U.S. and ASF Thomas in Europe. Other vertically integrated products are marketed under the Welch (high vacuum systems for laboratory and chemical markets), Air-Pac (pnueumatic construction equipment), Vakuumatic (leakage detection systems) and Medi-Pump (respiratory products) brand names. The medical equipment market, which includes oxygen concentrators, nebulizers, aspirators, and other devices, is important to the Company. Worldwide sales to medical equipment OEM's were approximately $65 million in 1998 and $60 million in 1997. Oxygen concentrator OEM's represent approximately 50 percent of the total sales in the medical equipment market. The Company believes it has a major share in the oxygen concentrator OEM market worldwide. No single customer of the Company accounted for 10 percent or more of consolidated net sales or 10 percent or more of the Company's net sales in 1998, and no material part of the business is dependent upon a single customer the loss of which could have a materially adverse effect on the business of the Company. The backlog of unshipped orders was $47 million at December 31, 1998, and $48 million at December 31, 1997. The Company believes substantially all of such orders are firm, although some orders are subject to cancellation. Substantially all of these orders are expected to be filled in 1999. The Company believes that it has adequate sources of materials and supplies for its business. There is no significant seasonal impact on the business of the Company. Lighting Segment On August 30, 1998, Thomas and Genlyte formed a lighting joint venture that combined substantially all of the assets and liabilities of Genlyte and substantially all of the lighting assets and related liabilities of Thomas to create Genlyte Thomas Group LLC ("GTG"), estimated to be the third largest lighting fixture manufacturer in North America. Thomas owns a 32% interest in the joint venture, and Genlyte owns a 68% interest. GTG designs, manufactures, markets, and sells lighting fixtures for a wide variety of applications in the commercial, industrial, and residential markets. GTG operates in these three industry segments through the following divisions: Lightolier, Controls, Wide-Lite, Hadco, Diamond F, Supply (Crescent, ExceLine, and Stonco product lines), Consumer, Indoor, Accent, and Outdoor in the United States and Mexico; and Canlyte, Thomas Lighting Canada, Lumec, and ZED in Canada. GTG's products primarily utilize incandescent, fluorescent, and high-intensity discharge (HID) light sources and are marketed primarily to distributors who resell the products for use in new residential, commercial, and industrial construction as well as in remodeling existing structures. Because GTG does not principally sell directly to the end user of its products, it cannot determine precisely the percentage of its revenues derived from the sale of products installed in each type of building or the percentage of its products sold for new construction versus remodeling. GTG's sales, like those of the lighting fixture industry in general, are partly dependent on the level of activity in new construction and remodeling. GTG designs, manufactures, markets, and sells the following types of products: Indoor fixtures - Incandescent, fluorescent, and HID lighting fixtures and lighting controls for commercial, industrial, institutional, medical, sports, and residential markets, and task lighting for all markets. Outdoor fixtures - HID and incandescent lighting fixtures and accessories for commercial, industrial, institutional, sports, and residential markets. GTG's products are marketed by independent sales representatives and GTG direct sales personnel who sell to distributors, electrical wholesalers, mass merchandisers, and national accounts. In addition, GTG's products are promoted through architects, engineers, contractors, and building owners. The fixtures are principally sold throughout the United States, Canada, and Mexico. d. Other Working capital is financed principally from operating profits. The Company maintains adequate lines of credit and financial resources to meet the anticipated cash requirements in the year ahead. The Company has various patents and trademarks but does not consider its business to be materially dependent upon any individual patent or trademark. During 1998,the Company spent $9,085,000 on research activities relating to the development of new products and the improvement of existing products. Substantially all of this amount was Company-sponsored activity. During 1997, the Company spent $14,873,000 on these activities and during 1996, $14,338,000. The reduction in current-year research and development is primarily due to the formation of GTG. Continued compliance with present and reasonably expected federal, state, and local environmental regulations is not expected to have any material effect upon capital expenditures, earnings, or the competitive position of the Company and its subsidiaries. The Company employed approximately 1,050 people at December 31, 1998. e. Financial Information about Foreign and Domestic Operations and Export Sales. See Notes to Consolidated Financial Statements, as set forth in Exhibit 13, which information is contained in the Company's 1998 Annual Report to Shareholders, and incorporated herein by reference, for financial information about foreign and domestic operations. Export sales for the years 1998, 1997, and 1996, were $28,500,000, $45,900,000, and $41,400,000, respectively. f. Executive Officers of the Registrant. Year Office or Position First Elected Name with Company Age as an Officer Timothy C. Brown Chairman of the Board, 48 1984 (A) President, Chief Executive Officer, and Director Cliff C. Moulton Vice President, 51 1993 (B) Business Development Phillip J. Stuecker Vice President of Finance, 47 1984 (C) Chief Financial Officer, and Secretary Bernard R. Berntson Vice President; General 59 1992 (D) Manager, North American Compressor & Vacuum Pump Group Peter H. Bissinger Vice President; General 53 1992 (E) Manager, European Compressor & Vacuum Pump Group (A) TimothyC. Brown was elected Chairman of the Board on April 20, 1995, in addition to his other duties of President and Chief Executive Officer. Prior to this, Mr. Brown held various management positions in the Company including Chief Operating Officer, Executive Vice President, and Vice President and Group Manager of the Specialty Products Group. (B) Cliff C. Moulton was elected an officer effective March 1, 1993, and held the position of Vice President; Compressor and Vacuum Pump Group Manager. Mr. Moulton spent the previous 23 years with Honeywell Corporation in various management positions, most recently as Vice President and General Manager of the Skinner Valve Division, since 1987. (C) PhillipJ. Stuecker was elected Vice President of Finance, Chief Financial Officer, and Secretary on October 23, 1989. Prior to this, Mr. Stuecker held various management positions in the Company including Vice President and Treasurer. (D) Bernard R. Berntson was elected an officer effective December 14, 1992. Mr. Berntson had held the position of General Manager of the North American Compressor & Vacuum Pump Group since 1987. (E) Peter H. Bissinger was elected an officer effective December 14, 1992, in addition to his position of President of ASF Thomas GmbH, a wholly owned subsidiary of the Company. Mr. Bissinger had held the position of President of ASF GmbH since 1979. ITEM 2. PROPERTIES The Corporate offices of the Company are located in Louisville, Kentucky. Due to the large number of individual locations and the diverse nature of the operating facilities, specific description of the properties owned and leased by the Company is not necessary to an understanding of the Company's business. All of the buildings are of steel, masonry, and concrete construction, are in generally good condition, provide adequate and suitable space for the operations at each location, and are of sufficient capacity for present and foreseeable future needs. The following listing summarizes the Company's properties. Number of Facilities Combined Segment Owned Leased Square Feet Nature of Facilities Compressors and Vacuum 3 4 659,464 Manufacturing plants Pumps 0 3 11,000 Distribution centers Corporate 0 1 5,500 Corporate headquarters 2 1 279,700 Leased to third parties 2 0 203,000 Property for sale ITEM 3. LEGAL PROCEEDINGS In the normal course of business, the Company is a party to legal proceedings and claims. When costs can be reasonably estimated, appropriate liabilities for such matters are recorded. While management currently believes the amount of ultimate liability, if any, with respect to these actions will not materially affect the financial position, results of operations, or liquidity of the Company, the ultimate outcome of any litigation is uncertain. Were an unfavorable outcome to occur, the impact could be material to the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None PART II. ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS The information required by this item is set forth in Exhibit 13 under the headings "Common Stock Market Prices and Dividends," and "Notes to Consolidated Financial Statements," which information is contained in the Company's 1998 Annual Report to Shareholders and incorporated herein by reference. ITEM 6. SELECTED FINANCIAL DATA The information required by this item is set forth in Exhibit 13 under the heading "Five-Year Summary of Operations and Statistics," which information is contained in the Company's 1998 Annual Report to Shareholders and incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information required by this item is set forth in Exhibit 13 under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations," which information is contained in the Company's 1998 Annual Report to Shareholders and incorporated herein by reference. ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company's long-term debt bears interest at fixed rates; therefore, the Company's results of operations would only be affected by interest rate changes to the extent that variable rate, short-term notes payable are outstanding. At December 31, 1998, short-term notes payable are not significant. The Company has significant operations consisting of sales and manufacturing activities in foreign countries. As a result, the Company's financial results could be significantly affected by factors such as changes in foreign currency exchange rates or weak economic conditions in the foreign markets in which the Company manufactures or distributes its products. Currency exposures are concentrated in Germany but exist to a lesser extent in other parts of Western Europe and Asia. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The consolidated financial statements and notes to consolidated financial statements of the registrant and its subsidiaries are set forth in Exhibit 13 under the headings "Consolidated Financial Statements" and "Notes to Consolidated Financial Statements," which information is contained in the Company's 1998 Annual Report to Shareholders and incorporated herein by reference. The Report of Independent Auditors is also set forth in Exhibit 13 and hereby incorporated herein by reference. In addition, financial statements of GTG are included in this Form 10-K on pages F-1 to F-17. The supplementary data regarding quarterly results of operations is set forth in Exhibit 13 under the heading "Notes to Consolidated Financial Statements," which information is contained in the Company's 1998 Annual Report to Shareholders and incorporated herein by reference. Restated results for Thomas for the quarters ended March 31 and June 30, and results for the quarters ended September 30 and December 31, 1998, are shown below: THOMAS INDUSTRIES INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (Dollars in thousands except amounts per share) Three Months Ended March 31 June 30 Sept 30 Dec 30 Year-End 1998 1998 1998 1998 1998 Net sales $48,209 $46,336 $43,146 $39,529 $177,220 Cost of products sold 30,581 29,058 27,301 25,378 112,318 ------ ------ ------ ------ ------- Gross profit 17,628 17,278 15,845 14,151 64,902 SG&A expenses 10,855 9,945 9,898 9,674 40,805 Equity income (loss) 2,858 5,081 6,858 5,093 20,323 ------ ------ ------ ------ ------- Operating income 9,631 12,414 12,805 9,570 44,420 Interest expense 1,476 1,581 1,593 1,549 6,199 Other 179 79 78 849 1,185 ------ ------ ------ ------ ------- Income before taxes 8,334 10,912 11,290 8,870 39,406 Income tax provision 3,084 4,037 4,240 3,535 14,896 ------ ------ ------ ------ ------- Net income $ 5,250 $ 6,875 $ 7,050 $ 5,335 $ 24,510 ====== ====== ====== ====== ======= Net income per share -- Basic $0.33 $0.43 $0.44 $0.34 $1.54 -- Diluted $0.32 $0.42 $0.43 $0.33 $1.50 Dividends declared per share $.075 $.075 $.075 $.075 $.300 Weighted average number of common shares outstanding: -- Basic 15,864 15,874 15,881 15,889 15,877 -- Diluted 16,405 16,524 16,461 16,304 16,383 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None PART III. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT a. Directors of the Company The information required by this item is set forth in registrant's Proxy Statement for the Annual Meeting of Shareholders to be held on April 15, 1999, under the headings "Election of Directors" and "Section 16(a), Beneficial Ownership Reporting Compliance," which information is incorporated herein by reference. b. Executive Officers of the Company Reference is made to "Executive Officers of the Registrant" in Part I, Item 1.e. ITEM 11. EXECUTIVE COMPENSATION The information required by this item is set forth in registrant's Proxy Statement for the Annual Meeting of Shareholders to be held on April 15, 1999, under the headings "Executive Compensation," "Compensation Committee Interlocks and Insider Participation," and "Board of Directors," which information is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item is set forth in registrant's Proxy Statement for the Annual Meeting of Shareholders to be held on April 15, 1999, under the heading "Securities Beneficially Owned by Principal Shareholders and Management," which information is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item is set forth in registrant's Proxy Statement for the Annual Meeting of Shareholders to be held on April 15, 1999, under the headings "Board of Directors" and "Compensation Committee Interlocks and Insider Participation," which information is incorporated herein by reference. PART IV. ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K a. (1) Financial Statements The following consolidated financial statements of Thomas Industries Inc. and subsidiaries, included in the Company's 1998 Annual Report to Shareholders, are included in Part II, Item 8: Consolidated Balance Sheets -- December 31, 1998 and 1997 Consolidated Statements of Income -- Years ended December 31, 1998, 1997, and 1996 Consolidated Statements of Shareholders' Equity -- Years ended December 31, 1998, 1997, and 1996 Consolidated Statements of Cash Flows -- Years ended December 31, 1998, 1997, and 1996 Notes to Consolidated Financial Statements -- December 31, 1998 (2) Financial Statement Schedule Schedule II -- Valuation and Qualifying Accounts All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and, therefore, have been omitted. (3) Listing of Exhibits Exhibit No. Exhibit 3(a) Restated Certificate of Incorporation, as amended, filed as Exhibit 3(a) to registrant's report on Form 10-Q dated August 11, 1998, hereby incorporated by reference. 3(b) Bylaws, as amended to be effective April 15, 1999. 4(a) Note Agreement dated January 19, 1990, by and among the Company and Day-Brite Lighting, Inc., Allstate Life Insurance Company, and other investors filed as Exhibit 4 to report on Form 10-K dated March 22, 1990, hereby incorporated by reference. First Amendment to Note Agreement dated April 8, 1992, and Second Amendment to Note Agreement dated July 31, 1992, filed as Exhibit 4 to Form 10-Q filed August 12, 1992, herein incorporated by reference. Third Amendment to Note Agreement dated July 7, 1998, filed as Exhibit 4 to Form 10-Q filed November 16, 1998, herein incorporated by reference. Copies of debt instruments for which the related debt is less than 10% of consolidated total assets will be furnished to the Commission upon request. 4(b) Rights Agreement filed as Exhibit 1 to registrant's report on Form 8-K dated December 12, 1997, hereby incorporated by reference. 10(a) Employment Agreement with Phillip J. Stuecker filed as Exhibit 3(j) to registrant's report on Form 10-Q dated November 11, 1988, hereby incorporated by reference. 10(b) Employment Agreement with Cliff C. Moulton filed as Exhibit 10(b) to registrant's report on Form 10-K dated March 25, 1993, hereby incorporated by reference. 10(c) Trust Agreement, filed as Exhibit 10(1) to registrant's report on Form 10-Q dated November 11, 1988, hereby incorporated by reference. 10(d) Form of Indemnity Agreement and Amendment thereto entered into by the Company and each of its Executive Officers filed as Exhibits 10 (g) and (h) to registrant's report on Form 10-K dated March 23, 1988, hereby incorporated by reference. 10(e) Severance pay policy of the Company, effective October 1, 1988, covering all Executive Officers, filed as Exhibit 10(d) to registrant's report on Form 10-K dated March 23, 1989, hereby incorporated by reference. 10(f) 1987 Incentive Stock Plan as Amended, filed as Annex A to the registrant's Proxy Statement on March 17, 1989, hereby incorporated by reference. 10(g) Nonemployee Director Stock Option Plan as Amended and Restated as of February 5, 1997, filed as Exhibit Exhibit 10(h) to registrant's report on Form 10-K dated March 20, 1997, hereby incorporated by reference. 10(h) 1995 Incentive Stock Plan as Amended and Restated as of December 11, 1996, filed as Exhibit 10(i) to registrant's report on Form 10-K dated March 20, 1997, hereby incorporated by reference. 10(i) Employment Agreement with Timothy C. Brown dated January 29, 1997, filed as Exhibit 10(j) to registrant's report on Form 10-K dated March 20, 1997, hereby incorporated by reference. 10(j) Master Transaction Agreement by and between Thomas Industries Inc. and The Genlyte Group Incorporated dated April 28, 1998, filed as Exhibit 2.1 to registrant's report on Form 8-K dated July 24, 1998, hereby incorporated by reference. 10(k) Limited Liability Company Agreement of GT Lighting, LLC dated April 28, 1998, filed as Exhibit 2.2 to registrant's report on Form 8-K dated July 24, 1998, hereby incorporated by reference. 10(l) Capitalization Agreement among GT Lighting, LLC and Thomas Industries Inc., Tupelo Holdings Inc., Thomas Industries Holdings Inc., Gardco Mfg, Inc., Capri Lighting, Inc., Thomas Improts, Inc. and TI Industries Corporation dated April 28, 1998, filed as Exhibit 2.3 to registrant's report on Form 8-K dated July 24, 1998, hereby incorporated by reference. 10(m) Capitalization Agreement between GT Lighting, LLC and The Genlyte Group Incorporated dated April 28, 1998, filed as Exhibit 2.4 to registrant's report on Form 8-K dated July 24, 1998, hereby incorporated by reference. 13 Certain portions of the Company's 1998 Annual Report to Shareholders as specified in Parts I and II, hereby incorporated by reference in this Annual Report on Form 10-K. 21 Subsidiaries of the Registrant. 23(a) Consent of Ernst & Young LLP. 23(b) Consent of Arthur Andersen LLP. 27 Financial Data Schedule. b. Reports on Form 8-K There were no reports on Form 8-K for the three months ended December 31, 1998. c. Exhibits The exhibits filed as part of this Annual Report on Form 10-K are as specified in Item 14(a)(3) herein. S I G N A T U R E S Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, there unto duly authorized. THOMAS INDUSTRIES INC. Date: March 29, 1999 By /s/ Timothy C. Brown Timothy C. Brown, Chairman of the Board Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date /s/ Timothy C. Brown Chairman of the Board; 3/29/99 Timothy C. Brown President; Chief Executive Officer; Director (Principal Executive Officer) /s/ Phillip J. Stuecker Vice President of Finance; 3/29/99 Phillip J. Stuecker Chief Financial Officer; Secretary (Principal Financial Officer) /s/ Roger P. Whitton Controller; 3/29/99 Roger P. Whitton (Principal Accounting Officer) /s/ Wallace H. Dunbar Director 3/29/99 Wallace H. Dunbar /s/ H. Joseph Ferguson Director 3/29/99 H. Joseph Ferguson /s/ Gene P. Gardner Director 3/29/99 Gene P. Gardner /s/ Lawrence E. Gloyd Director 3/29/99 Lawrence E. Gloyd /s/ William M. Jordan Director 3/29/99 William M. Jordan /s/ Ralph D. Ketchum Director 3/29/99 Ralph D. Ketchum /s/ Franklin J. Lunding, Jr. Director 3/29/99 Franklin J. Lunding, Jr. /s/ Anthony A. Massaro Director 3/29/99 Anthony A. Massaro Report of Independent Auditors The Board of Directors and Shareholders Thomas Industries Inc. We have audited the consolidated balance sheets of Thomas Industries Inc. and subsidiaries as of December 31, 1998 and 1997, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 1998. Our audits also included the financial statement schedule listed in the Index at Item 14(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and schedule based on our audits. The financial statements of Genlyte Thomas Group LLC (GTG), a partnership formed on August 30, 1998 in which the Company has a 32% interest, have been audited by other auditors whose report has been furnished to us; insofar as our opinion on the consolidated financial statements relates to data included for GTG, it is based solely on their report. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the report of other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and the report of other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Thomas Industries Inc. and subsidiaries at December 31, 1998 and 1997, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /s/ Ernst & Young LLP Louisville, Kentucky February 11, 1999 Schedule II VALUATION AND QUALIFYING ACCOUNTS THOMAS INDUSTRIES INC. AND SUBSIDIARIES DECEMBER 31, 1998
BALANCE AT CHARGED TO CHARGED TO BALANCE AT DESCRIPTION BEGINNING COSTS OTHER ACCOUNTS- DEDUCTIONS- END OF OF PERIOD AND EXPENSES DESCRIBE DESCRIBE PERIOD Year ended December 31, 1998 Allowance for doubtful accounts 2,046,000 273,000 1,515,000 (3) 148,000 (1) 656,000 Allowance for obsolete and slow moving inventory 5,518,000 539,000 3,841,000 (3) 284,000 (2) 1,932,000 --------- ------- ------- -- --------- 7,564,000 812,000 432,000 2,588,000 ========= ======= ======= ========= Year ended December 31, 1997 Allowance for doubtful accounts 2,243,000 441,000 638,000 (1) 2,046,000 Allowance for obsolete and slow moving inventory 8,871,000 1,420,000 4,773,000 (2) 5,518,000 --------- ------- ------- -- --------- 11,114,000 1,861,000 5,411,000 7,564,000 ========= ======= ======= ========= Year ended December 31, 1996 Allowance for doubtful accounts 2,014,000 451,000 222,000 (1) 2,243,000 Allowance for obsolete and slow moving inventory 7,751,000 3,260,000 2,140,000 (2) 8,871,000 --------- ------- ------- -- --------- 9,765,000 3,711,000 2,362,000 11,114,000 ========= ======= ======= ========= (1) Uncollectible accounts written off, less recoveries on accounts previously written off and effect of translation in accordance with SFAS No. 52. (2) Disposal of obsolete inventory and effect of translation in accordance with SFAS No. 52. (3) Transfer of lighting reserve to GTG joint venture.
EXHIBIT INDEX Exhibit No. Exhibit Page 3(b) Bylaws, as amended to be effective April 15, 1999 19 13 Certain portions of the Company's 1998 Annual Report to Shareholders as specified in Parts I and II hereof to be incorporated by reference in this Annual Report on Form 10-K 32 21 Subsidiaries of the Registrant 78 23(a) Consent of Ernst & Young LLP 79 23(b) Consent of Arthur Andersen LLP 80 27 Financial Data Schedule 81 On August 30, 1998, Thomas and Genlyte formed a lighting joint venture that combined substantially all of the assets and liabilities of Genlyte and substantially all of the lighting assets and related liabilities of Thomas to create Genlyte Thomas Group LLC ("GTG"), estimated to be the third largest lighting fixture manufacturer in North America. Thomas owns a 32% interest in the joint venture, and Genlyte owns a 68% interest. Following are audited financial statements of GTG for the period from inception, August 30, through December 31, 1998. Report of Independent Public Accountants To the Partners of the Genlyte Thomas Group LLC: We have audited the accompanying consolidated balance sheet of the Genlyte Thomas Group LLC (a Delaware limited liability corporation) ("the Company") as of December 31, 1998, and the related consolidated statements of income, partners' equity and cash flows for the period from inception (August 30, 1998) through December 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Genlyte Thomas Group LLC as of December 31, 1998, and the results of its operations and its cash flows for the period from inception (August 30, 1998) through December 31, 1998, in conformity with generally accepted accounting principles. /s/ Arthur Andersen LLP Louisville, Kentucky February 10, 1999 CONSOLIDATED STATEMENT OF INCOME GENLYTE THOMAS GROUP LLC AND SUBSIDIARIES FOR THE PERIOD FROM INCEPTION, AUGUST 30, THROUGH DECEMBER 31, 1998 AMOUNTS IN THOUSANDS 1998 -------------- Net sales $ 324,111 Cost of sales 210,190 -------------- Gross profit 113,921 Selling and administrative expenses 85,144 -------------- Operating profit 28,777 Interest expense, net 1,252 -------------- Income before income taxes 27,525 Foreign income tax provision 1,009 -------------- Net income $ 26,516 ============== CONSOLIDATED BALANCE SHEET GENLYTE THOMAS GROUP LLC AND SUBSIDIARIES AS OF DECEMBER 31, 1998 AMOUNTS IN THOUSANDS 1998 --------------- ASSETS: CURRENT ASSETS: Cash and cash equivalents $ 8,533 Accounts receivable (less allowance for doubtful accounts of $10,907) 146,167 Inventories 137,004 Other current assets 9,305 --------------- Total current assets 301,009 Plant and equipment, at cost: Land 7,290 Buildings and leasehold interests and improvements 82,856 Machinery and equipment 218,639 --------------- Total plant and equipment 308,785 Less: Accumulated depreciation and amortization 203,106 --------------- Net plant and equipment 105,679 Cost in excess of net assets of acquired businesses 61,549 Other assets 12,632 --------------- TOTAL ASSETS $ 480,869 =============== LIABILITIES & PARTNERS' EQUITY: CURRENT LIABILITIES: Short-term borrowings $ 1,932 Accounts payable 73,797 Accrued expenses and current portion of long-term debt 58,339 --------------- Total current liabilities 134,068 Long-term debt 60,852 Accrued pension 14,895 Deferred foreign income taxes 597 Other liabilities 5,929 --------------- Total liabilities 216,341 PARTNERS' EQUITY Accumulated other comprehensive income (1,075) Other partners' equity 265,603 --------------- Total partners' equity 264,528 --------------- TOTAL LIABILITIES AND PARTNERS' EQUITY $ 480,869 =============== The accompanying notes are an integral part of this consolidated financial statement. CONSOLIDATED STATEMENT OF PARTNERS' EQUITY GENLYTE THOMAS GROUP LLC AND SUBSIDIARIES FOR THE PERIOD FROM INCEPTION, AUGUST 30, THROUGH DECEMBER 31, 1998 AMOUNTS IN THOUSANDS
Accumulated Other Comprehensive Other Total Income Partners' Equity Partners' Equity --------------------------------------------------------------- Contribution by Genlyte, August 30, 1998 $ - $ 168,379 $ 168,379 Contribution by Thomas, August 30, 1998 - 79,237 79,237 --------------------------------------------------------------- Total contributions - 247,616 247,616 Net income - 26,516 26,516 Minimum pension liability (1,793) - (1,793) Foreign currency translation adjustments 718 - 718 --------------------------------------------------------------- Total comprehensive income (1,075) 26,516 25,441 Distributions to partners - (8,529) (8,529) --------------------------------------------------------------- Partners' equity, December 31, 1998 $ (1,075) $ 265,603 $ 264,528 =============================================================== The accompanying notes are an integral part of this consolidated financial statement.
CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE PERIOD FROM INCEPTION, AUGUST 30, THROUGH DECEMBER 31, 1998 AMOUNTS IN THOUSANDS 1998 ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $26,516 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 7,305 Loss from disposal of plant and equipment 257 Changes in assets and liabilities: (Increase) decrease in: Accounts receivable 2,435 Inventories 1,344 Other current assets (1,336) Other assets (3,650) Increase (decrease) in: Accounts payable and accrued expenses 20,853 Deferred foreign income taxes 188 Accrued pension and other liabilities 4,730 Minimum pension liability (1,793) All other, net (359) ----------- Net cash provided by operating activities 56,490 ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of plant and equipment, net of disposals (8,086) ----------- Net cash used in investing activities (8,086) ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Decrease in debt, net (39,576) Distributions to partners (8,529) ----------- Net cash used in financing activities (48,105) ----------- Effect of exchange rate changes on cash and cash equivalents 718 ----------- Net increase in cash and cash equivalents 1,017 Cash and cash equivalents at beginning of period 7,516 ----------- Cash and cash equivalents at end of period $8,533 ----------- SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION CASH PAID DURING THE PERIOD FOR: Interest $1,693 Income taxes $ 469 The accompanying notes are an integral part of this consolidated financial statement. Genlyte Thomas Group LLC Notes to Financial Statements (Amounts in thousands) (1) DESCRIPTION OF BUSINESS The Genlyte Thomas Group LLC ("Genlyte Thomas" or the "Company") is a Delaware limited liability company. Genlyte Thomas designs, manufactures and sells lighting fixtures and controls for a wide variety of applications in the commercial, industrial and residential markets. Genlyte Thomas's products are marketed primarily to distributors who resell the products for use in residential, commercial and industrial construction and remodeling. The Company is the result of the business combination more fully discussed in Note 3. (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation: The accompanying consolidated financial statements include the accounts of Genlyte Thomas and all consolidated subsidiaries, after elimination of intercompany accounts and transactions. Non-consolidated affiliates are accounted for using the equity method, under which the Company's share of these affiliates' earnings is included in income as earned. Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual amounts could differ from those estimates. Cash Equivalents: The Company considers all highly liquid investments with a maturity of three months or less to be cash equivalents. Inventories: Inventories are stated at the lower of cost or market and include materials, labor and overhead. Inventories at December 31 consisted of the following: 1998 Raw materials and supplies $43,167 Work in process 14,529 Finished goods 79,308 ------- Total inventories $137,004 ======= Inventories valued using the last-in, first-out ("LIFO") method represented approximately 89% of total inventories at December 31, 1998. Inventories not valued at LIFO are valued using the first-in, first-out ("FIFO") method. On a FIFO basis, which approximates current cost, inventories would have been $2,350 lower than reported at December 31, 1998. Advertising Costs: The Company expenses advertising costs principally as incurred. Certain catalog and literature costs are amortized over their useful lives, generally 2 - 3 years. Plant and Equipment: The Company provides for depreciation of plant and equipment principally on a straight-line basis over the estimated useful lives of the assets. Useful lives vary among the items in each classification, but generally fall within the following ranges: Buildings and leasehold interests and improvements 10 - 40 years Machinery and equipment 3 - 10 years When the Company sells or otherwise disposes of property, the asset cost and accumulated depreciation are removed from the accounts, and any resulting gain or loss is included in the consolidated statement of income. Leasehold interests and improvements are amortized over the terms of the respective leases, or over their estimated useful lives, whichever is shorter. Maintenance and repairs are expensed as incurred. Renewals and betterments are capitalized and depreciated or amortized over the remaining useful lives of the respective assets. Cost in Excess of Net Assets of Acquired Businesses: Cost in excess of net assets of purchased businesses acquired prior to 1971 is not amortized since, in the opinion of management, there has been no diminution in value. For businesses acquired subsequent to 1970, the cost in excess of net assets, aggregating $79,071, is being amortized on a straight-line basis over periods ranging from 20 to 40 years. As of December 31, 1998, accumulated amortization was $22,445. The Company periodically evaluates these intangible assets using discounted cash flows to assess recoverability from future operations. Impairment would be recognized as expense if a permanent diminution in value occurred. In the opinion of management, no such diminution in value has occurred during the period presented in these consolidated financial statements. Research and Development Costs: Research and development costs are expensed as incurred. These expenses were $3,792 for the period from inception through December 31, 1998. Translation of Foreign Currencies: Balance sheet accounts of foreign subsidiaries are translated into U.S. dollars at the rates of exchange in effect as of the balance sheet date. The cumulative effects of such adjustments were $718 at December 31, 1998, and have been credited to partners' equity in the consolidated balance sheet. Income and expenses are translated at the average exchange rates prevailing during the year. Gains or losses resulting from foreign currency transactions are included in net income. Fair Value of Financial Instruments: The carrying amount of cash equivalents, short-term borrowings, and long-term debt approximate fair value due to the short maturities of these instruments. (3) FORMATION OF GENLYTE THOMAS GROUP LLC On August 30, 1998, The Genlyte Group Incorporated ("Genlyte") and Thomas Industries Inc. ("Thomas") completed the combination of the business of Genlyte with the lighting business of Thomas ("Thomas Lighting"), in the form of a limited liability company named Genlyte Thomas Group LLC. Genlyte contributed substantially all of its assets and liabilities to Genlyte Thomas and received a 68% interest in Genlyte Thomas. Thomas contributed substantially all of its assets and certain related liabilities comprising Thomas Lighting and received a 32% interest in Genlyte Thomas. The percentage interests in Genlyte Thomas issued to Genlyte and Thomas were based on arms-length negotiations between the parties with the assistance of their financial advisers. For accounting purposes, Genlyte's majority ownership of Genlyte Thomas requires the assets and liabilities contributed by Thomas Lighting to Genlyte Thomas to be valued at their fair values in Genlyte Thomas's consolidated financial statements. The fair values attributed to the Thomas Lighting assets and liabilities result from management's preliminary determination of purchase accounting adjustments and are based upon available information and certain assumptions that management considers reasonable under the circumstances. Consequently, the amounts reflected in Genlyte Thomas's opening balance sheet are subject to change. The assets contributed by Genlyte to Genlyte Thomas are reflected at their historical cost. To the extent the actual net working capital contributed by Thomas Lighting exceeded the target net working capital, Genlyte Thomas paid Thomas the difference in a one-time cash payment of $34,175. The target net working capital was determined by a formula that took into consideration Genlyte's adjusted net working capital, Thomas Lighting's net working capital, and Genlyte's net working capital as a percentage of net sales as of August 30, 1998. Subject to the provisions in the Genlyte Thomas Group LLC Agreement ("the LLC Agreement") regarding mandatory distributions described below, and the requirement of special approval in certain instances, distributions to Genlyte and Thomas ("the Partners"), respectively, will be made at such time and in such amounts as determined by the Company's Management Board and shall be made in cash or other property in proportion to the Partners' respective percentage interests. Notwithstanding anything to the contrary provided in the LLC Agreement, no distribution under the LLC Agreement shall be permitted to the extent prohibited by Delaware law. The LLC Agreement requires that the Company make the following distributions to the Partners: (i) A distribution to each Partner, based on its percentage interest, for tax liabilities attributable to its participation as a Partner of Genlyte Thomas based upon the effective tax rate of the Partner having the highest tax rate; and (ii) Subject to the provisions of Delaware law and the terms of the primary Genlyte Thomas credit facility, distributions (exclusive of the tax distributions set forth above) to each of the Partners so that Thomas receives at least an aggregate of $3,000 and Genlyte receives at least an aggregate of $6,375 per fiscal year beginning in fiscal year 1999. (4) INCOME TAXES The results of operations are included in the tax returns of the Partners, and accordingly, no provision has been recognized by the Company for U.S. federal or state income taxes. The Company's foreign subsidiaries are taxable corporations and current and deferred taxes are provided on their income. (5) LONG-TERM DEBT Long-term debt at December 31 consisted of the following: 1998 ---- Revolving credit notes $28,000 Industrial revenue bonds 10,500 Loan payable to Thomas 22,287 Other 267 ------ 61,054 ------ Less: Current maturities 202 ------ Total $60,852 ====== The Company entered into a $125,000 revolving credit agreement (the "Facility") with various banks in August 1998 that matures in 2003. The Facility contains several covenants, including a limitation on cash distributions to the Partners equal to the greater of $9,375 annually or 50% of the Company's cumulative net income since August 30, 1998. Under the most restrictive financial covenant, which is the fixed charge coverage ratio, the Company is allowed $29,000 in fixed charges, as defined in the Facility. The Company could incur approximately $25,000 in additional fixed charges. Total borrowings under the Facility as of December 31, 1998 were $28,000. Outstanding borrowings bear interest at the option of the Company based on the bank's base rate or the LIBOR rate plus a spread as determined by the Facility. The borrowings have been classified as long-term because of the Company's intention to refinance these obligations on a long-term basis through its revolving credit agreement. In addition, the Company has outstanding approximately $19,000 of letters of credit, which reduce the amount available to borrow under the Facility. The amount outstanding under the Facility is secured by liens on domestic accounts receivable, inventories, and machinery and equipment, as well as the investments in certain subsidiaries of the Company. The value of assets subject to lien at December 31, 1998 was $297,284. The Company has $10,500 of variable rate demand Industrial Revenue Bonds that mature during 2009 to 2010. The average borrowing rate on these bonds was 3.4% in 1998. These bonds are backed by the letters of credit mentioned above. The loan payable to Thomas accrues interest quarterly based on the 90 day LIBOR rate plus a spread as determined by the Facility. This loan can be prepaid in whole or in part without penalty, ultimately maturing in 2003. The annual maturities of long-term debt are summarized as follows: Year ending December 31 1999 $ 202 2000 65 2001 -- 2002 -- 2003 50,287 Thereafter 10,500 ------ Total long-term debt $61,054 ====== (6) RETIREMENT PLANS The Company has eight defined benefit plans (excluding four such plans at a Canadian subsidiary), which cover the majority of its employees. Benefits under the plans are calculated on years of service; additionally, benefits for salaried employees are based on a formula including an average salary calculation, while benefits for union employees are based on fixed amounts for each year of service. Genlyte Thomas uses September 30 as the measurement date for the retirement plan disclosure of the five former Genlyte plans, and December 31 for the three former Thomas plans. The Company also has other defined contribution plans, including those covering certain former Genlyte and Thomas employees. The 1998 contributions for such plans were determined as provided by the Capitalization Agreement dated April 28, 1998. The Company's policy for funded plans is to make contributions equal to or greater than the requirements prescribed by the Employee Retirement Income Security Act. The plans' assets consist primarily of stocks and bonds. The amounts included in the consolidated balance sheet, based on the funded status of the five former Genlyte defined benefit plans at September 30, 1998 follow: Retirement Benefits 1998 Change in Benefit Obligations Benefit obligations at October 1, 1997 $ -- Service cost 636 Interest cost 1,331 Benefits paid (259) Obligations assumed by Genlyte Thomas 59,456 Other--primarily actuarial gain (1,495) ------- Benefit obligations at September 30, 1998 $59,669 ====== Change in Plan Assets Plan assets at fair value at October 1, 1997 $ -- Actual return on plan assets 742 Employer contributions 380 Benefits paid (259) Assets assumed by Genlyte Thomas 44,228 ------ Plan assets at fair value at September 30, 1998 $45,091 ====== Funded Status of the Plans Plan assets (less than) benefit obligations $(14,587) Unrecognized transition obligation at adoption 381 Unrecognized actuarial loss 332 Unrecognized prior-service cost 2,320 ------ Accrued pension liability $(11,545) ====== Balance Sheet Asset (Liability) Accrued benefit liability $(14,895) Intangible asset 1,840 Accumulated other comprehensive income 1,510 ------ Net liability recognized $(11,545) ====== Assumptions as of September 30, 1998 Discount rate 6.75% Rate of compensation increase 5.00% Expected return on Plan assets 8.50% Components of Net Periodic Benefit Costs Service cost $ 636 Interest cost 1,331 Expected return on Plan assets (1,120) Amortization of prior-service cost 96 Recognized actuarial loss 93 ----- Net pension expense of defined benefit plan 1,036 ----- Multi-employer plans for certain union employees 45 ----- Total benefit costs from inception through December 31, 1998 $1,081 ===== A summary of the plans in which benefit obligations and accumulated benefit obligations exceed fair value of assets follows: Benefit obligation $59,669 Accumulated benefit obligation $52,010 Plan assets at fair value $45,091 The Company provides post-retirement medical and life insurance benefits for certain former Thomas retirees and employees and accrues the cost of such benefits during the service lives of such employees. A 1 percent change in the assumed health care cost trend rate would have approximately a $300 effect on the post-retirement benefit obligation and an insignificant effect on the post-retirement benefit expense. The amounts included in the consolidated balance sheet for the three defined benefit plans and post-retirement benefit plans assumed from Thomas and based on the funded status at December 31, 1998, follow: Retirement Post-Retirement Benefits Benefits 1998 1998 ---- ---- Change in Benefit Obligations Benefit obligations at January 1, 1998 $ -- $ -- Service cost 137 8 Interest cost 472 83 Benefits paid (404) (166) Obligations assumed by Genlyte Thomas 21,223 3,638 Other--primarily actuarial loss -- 94 ------ ----- Benefit obligations at December 31, 1998 $21,428 $3,657 ====== ===== Change in Plan Assets Plan assets at fair value at January 1, 1998 $ -- $ -- Actual return on Plan assets 3,967 -- Employer contributions 45 166 Benefits paid (404) (166) Assets assumed by Genlyte Thomas 20,203 -- ------ --- Plan assets at fair value at December 31, 1998 $23,811 $ -- ====== === Funded Status of the Plans Plan assets in excess of (less than) benefit obligations $2,383 $(3,657) Unrecognized net obligation at adoption 106 3,008 Unrecognized actuarial (gain) (1,475) (973) Unrecognized prior-service cost 1,697 -- ----- ---- Prepaid pension asset (post-retirement liability) $2,711 $(1,622) ===== ===== Balance Sheet Asset (Liability) repaid benefit costs $1,603 $ -- Accrued benefit liabilities (13) (1,622) Intangible assets 1,121 -- ----- ---- Net asset (liability) recognized $2,711 $(1,622) ===== ===== Assumptions as of December 31, 1998 Discount rate 6.75% 6.75% Expected return on Plan assets 9.00% -- Initial health care cost trend rate -- 8.00% Ultimate health care cost trend rate -- 4.50% Year ultimate trend is achieved -- 2006 Components of Net Periodic Benefit Costs Service cost $137 $ 8 Interest costs 472 83 Expected return on Plan assets (604) -- Amortization of transition amount 18 -- Amortization of prior-service cost 58 -- Recognized actuarial loss 11 69 --- --- Net pension expense of defined benefit plan 92 $160 === Defined contribution plans 720 Multi-employer plans for certain union employees 71 -- Total benefit costs from inception through December 31, 1998 $883 === The Company also maintains four defined benefit plans covering substantially all the employees of a Canadian subsidiary. The amounts included in the consolidated balance sheet, based on the funded status of these defined benefit plans at December 31, 1998, follow: 1998 ---- Change in Benefit Obligations Benefit obligations at January 1, 1998 $ -- Service cost 70 Interest cost 102 Benefit payments (72) Obligations assumed by Genlyte Thomas 4,418 Member contributions 44 ----- Benefit obligations at December 31, 1998 $4,562 ===== Change in Plan Assets Plan assets at fair value at January 1, 1998 $ -- Actual return on Plan assets 468 Employer contributions 60 Member contributions 45 Benefits paid (72) Assets assumed by Genlyte Thomas 4,629 Other (100) ----- Plan assets at fair value at December 31, 1998 $5,030 ===== Funded Status of Plans Plan assets in excess of benefit obligations $468 Unrecognized actuarial loss (54) Unrecognized transition obligation at adoption (36) Unrecognized prior-service credit (78) --- Prepaid pension asset at December 31, 1998 $300 === Assumptions as of December 31, 1998 Discount rate 6.5% Rate of compensation increase 4.0% Expected return on Plan assets 6.5% Components of Net Periodic Benefit Costs Service cost $ 70 Interest cost 102 Expected return on Plan assets (103) Amortization of transition amounts (1) Amortization of prior-service cost 2 --- Net benefit costs from inception through December 31, 1998 $ 70 === (7) ACCRUED EXPENSES Accrued expenses at December 31 consisted of the following: 1998 Salaries, wages, and withholdings $13,698 Employee benefits 16,503 Advertising and sales promotion 8,168 Foreign income and other taxes payable 4,227 Other accrued expenses 15,743 ------ Total accrued expenses $58,339 ====== (8) LEASE COMMITMENTS The Company rents office space, equipment, and computers under non-cancelable operating leases. Rental expense during the period from inception through December 31, 1998, amounted to $1,398. Future required minimum rental payments as of December 31, 1998, were as follows: 1999 $ 5,330 2000 3,788 2001 2,935 2002 1,131 2003 969 Thereafter 1,941 ------ Total $16,094 ====== (9) CONTINGENCIES In the normal course of business, the Company is a party to legal proceedings and claims. When costs can be reasonably estimated, appropriate liabilities for such matters are recorded. While management currently believes the amount of ultimate liability, if any, with respect to these actions will not materially affect the financial position, results of operations, or liquidity of the Company, the ultimate outcome of any litigation is uncertain. Were an unfavorable outcome to occur, the impact could be material to the Company. Additionally, the Company is a defendant and/or potentially responsible party, with other companies, in actions and proceedings under state and federal environmental laws, including the Federal Comprehensive Environmental Response Compensation and Liability Act, as Amended ("Superfund"). Management does not believe that the disposition of the lawsuits and/or proceedings will have a material effect on the Company's financial condition, results of operations, or liquidity. (10) SEGMENT REPORTING During the fourth quarter of 1998, the Company adopted Statement of Financial Accounting Standards No. 131, "Disclosures About Segments of an Enterprise and Related Information" (SFAS No. 131). SFAS No. 131 establishes standards for reporting information about operating segments in annual financial statements and requires selected information about operating segments in interim financial reports issued to stockholders. It also establishes standards for related disclosures about products and services and geographic areas. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision making group, in deciding how to allocate resources and in assessing performance. The Company's reportable operating segments include the Commercial Segment, the Residential Segment, and the Industrial and Other Segment. Intersegment sales are eliminated in consolidation and, therefore, are not presented in the table below. OPERATING SEGMENTS:
Commercial Residential Industrial and Other Total ------------------ ------------------- ---------------- --------------- Net sales $236,823 $49,300 $37,988 $324,111 Operating profit 22,891 2,293 3,593 28,777 Assets 351,364 73,144 56,361 480,869 Depreciation and amortization 5,338 1,111 856 7,305 Expenditures for property $ 5,908 $ 1,230 $ 948 $ 8,086
(11) GEOGRAPHICAL INFORMATION The Company has operations throughout North America. Information about the Company's operations by geographical area for the period from inception through December 31, 1998, follows. Foreign balances represent primarily Canada and some Mexico:
United States Foreign Total -------------- --------------- --------------- Net sales $283,052 $41,059 $324,111 Operating profit 25,393 3,384 28,777 Assets 420,572 60,297 480,869 Depreciation and amortization 6,185 1,120 7,305 Expenditures for property $ 6,357 $ 1,729 $ 8,086
(12) Related-Party Transactions The Company in the normal course of business has transactions with Genlyte and Thomas. These transactions consist primarily of interest payments to Thomas under the loan discussed in Note 5 and reimbursement for shared corporate expenses such as rent, office services, professional services, and shared personnel. For the period from inception through December 31, 1998, the Company had the following related party transactions: Payments to Thomas for: a) Interest under the loan agreement $461 Reimbursement of corporate expenses $170 Payments from Genlyte for reimbursement of corporate expenses $ 31 EX-3.(B) 2 Exhibit 3(b) BYLAWS OF THOMAS INDUSTRIES INC. ARTICLE I Offices The principal office of the Corporation in the State of Delaware is located at No. 306 South State Street, City of Dover, 19901, County of Kent, State of Delaware; and the name of the resident agent in charge thereof is the United States Corporation Company. The Company may also have offices at such other places, within or without the State of Delaware, as the Board of Directors may from time to time determine. ARTICLE II Shareholders Section 1. Annual Meeting. An annual meeting of the shareholders of the Corporation for the election of directors and for the transaction of such other business as may properly come before the meeting shall be held each year on such day during the month of April or May, and at such time and place, as may be fixed from time to time by the Board of Directors of the Corporation. Section 2. Special Meetings. Special meetings of the shareholders of the Corporation for any purpose or purposes may be called at any time by the Board of Directors or by a committee of the Board of Directors which has been duly designated by the Board of Directors and whose powers and authority, as provided in a resolution of the Board of Directors or in these Bylaws, include the power to call such meetings, but such special meetings may not be called by any other person or persons; provided, however, that if and to the extent that any special meeting of shareholders may be called by any other person or persons by the terms of any series of Preferred Stock then outstanding, then such special meeting may also be called by the person or persons, in the manner, at the times, and for the purposes so specified. Special meetings shall be held at such place within or without the State of Delaware as may be specified in the call thereof. Business transacted at all special meetings shall be confined to the objects stated in the call. Section 3. Notice of Meetings. Written notice of the annual meeting of the shareholders shall be served by the Secretary, either personally or by mail, upon each shareholder of record entitled to vote at such meeting, at least ten days before the meeting. Written notice of any special meeting of the shareholders shall be so served at least five days before the meeting. If mailed, the notice of a meeting shall be directed to a shareholder at his last known post office address. The notice of every meeting of the shareholders shall state the purpose or purposes for which the meeting is called and the time when and the place where it is to be held. Failure to serve personally or by mail such notice, or any irregularity therein, shall not affect the validity of such meeting or any of the proceedings thereat. Such notice may be waived in writing. Section 4. Quorum. At all meetings of the shareholders, the presence, in person or by proxy, of the holders of record of a majority of the shares of stock issued and outstanding, and entitled to vote thereat, shall be necessary and sufficient to constitute a quorum for the transaction of business, except as otherwise provided by law, by the Certificate of Incorporation, or by these Bylaws. In the absence of a quorum, the holders of record of a majority of the shares of stock present in person or by proxy, and entitled to vote thereat, or if no such shareholder is present in person or by proxy, any officer entitled to preside at, or act as secretary of, such meeting, without notice other than by announcement at the meeting, may adjourn the meeting from time to time, for a period of not more than thirty days at any one time until a quorum shall attend. At any such adjourned meeting at which a quorum shall be present in person or by proxy, any business may be transacted that might have been transacted at the meeting as originally called. Section 5. Voting. At each meeting of the shareholders, except as may be provided by the Certificate of Incorporation, as amended, or in a certificate filed by the Corporation pursuant to Section 151(g) of the Delaware General Corporation Law, each shareholder entitled to vote at such meeting shall be entitled to one vote for each share of stock standing in his name in the stock ledger of the Corporation and may vote either in person or by proxy, but no proxy shall be voted after three years from its date unless such proxy provides for a longer period. Every proxy must be executed in writing by the shareholder or by his duly authorized attorney and dated, but need not be sealed, witnessed, or acknowledged. At each meeting of the shareholders, if there shall be a quorum, the vote of the holders of a majority of the shares of stock present in person or by proxy, and entitled to vote thereat, shall decide all matters brought before such meeting, except as otherwise provided by law, by the Certificate of Incorporation, or by these Bylaws. Upon demand of any shareholder entitled to vote at a meeting of the shareholders or upon the direction of the presiding officer at such meeting, the vote upon any matter brought before such meeting shall be by ballot; but otherwise no such vote need be by ballot except as is provided in Article II, Section 10, of these Bylaws. Section 6. Presiding Officer and Secretary. At all meetings of the shareholders, the Chairman of the Board of Directors, or in his absence the President of the Corporation, or in his absence a Vice President, or if none be present, the appointee of the meeting, shall preside. The Secretary of the Corporation, or in his absence an Assistant Secretary, or if none be present, the appointee of the presiding officer of the meeting, shall act as secretary of the meeting. Section 7. Inspectors of Election. At each meeting of the shareholders at which any matter brought before the meeting is to be voted upon by ballot, the presiding officer of such meeting may, and if so required by Article II, Section 10, of the Bylaws shall, appoint two persons, who need not be shareholders, to act as Inspectors of Election at such meeting. The Inspectors so appointed, before entering on the discharge of their duties, shall take and subscribe an oath or affirmation faithfully to execute the duties of Inspectors at such meeting with strict impartiality and according to the best of their ability; and thereupon the Inspectors shall take charge of the polls and after the balloting shall canvass the votes and determine in accordance with law, and make a certificate to the Corporation of, the results of the vote taken. No director or candidate for the office of director shall be appointed an Inspector. Section 8. Nomination of Director Candidates and Other Shareholder Proposals. Nominations of candidates for election to the Board of Directors of the Corporation or any other matters to be considered at any meeting of the shareholders called for election of directors or for the consideration of any other matters (an "Election Meeting") may be made only by or at the direction of the Board of Directors or by a shareholder entitled to vote at such Election Meeting. All such nominations, or any other proposals, except those made by or at the direction of the Board of Directors, shall be made pursuant to timely notice in writing to the Secretary of the Corporation. To be timely, any such notice must be received at the principal executive offices of the Corporation not less than ninety days prior to the date of the Election Meeting and must set forth (i) the name, age, business address and residence address, and the principal occupation or employment of any nominee proposed in such notice, (ii) the name and address of the shareholder giving the notice as the same appears in the Corporation's stock ledger, (iii) the number of shares of capital stock of the Corporation which are beneficially owned by any such nominee and by such shareholder, (iv) such other information concerning any such nominee as would be required, under the rules of the Securities and Exchange Commission, in a proxy statement soliciting proxies for the election of such nominee, and (v) a description of any other matter proposed to be voted upon at the Election Meeting. If the presiding officer of an Election Meeting determines that a director nomination, or any other proposal, was not made in accordance with the foregoing procedures, such nomination or other proposal shall be void and shall be disregarded for all purposes. Section 9. List of Shareholders. At least ten days prior to every election of directors, a complete list of the shareholders entitled to vote at such election, arranged in alphabetical order and indicating the number of voting shares held by each, shall be prepared and certified by the Secretary or an Assistant Secretary. Such list shall be filed at the place where the election is to be held and shall at all times during the usual hours for business, and during the whole time of said election, be open to the examination of any shareholder. Section 10. Determination of Contested Elections. In the event that there are more candidates for election to the Board of Directors at a meeting of the shareholders than there are directors to be elected at such meeting (a "Contested Election"), the vote for election of directors shall be by ballot, and two Inspectors of Election for such meeting shall be appointed by the presiding officer of such meeting. ARTICLE III Directors Section 1. Number/Terms of Office. Except as provided by law or by the Certificate of Incorporation, or by these Bylaws, the powers, business, property, and affairs of the Corporation shall be exercised and managed by a Board of eight directors. The number of directors may be altered from time to time by an amendment of these Bylaws as hereinafter provided, but no reduction in the number of directors shall affect any director whose term of office shall not have expired. No director need be a shareholder. The directors shall be divided into three classes as follows: Class I -- three members Class II -- three members Class III -- two members The term of office of directors of Class I shall expire at the 2002 annual meeting of shareholders; the term of office of directors of Class II shall expire at the 2000 annual meeting of shareholders; and the term of office of directors of Class III shall expire at the 2001 annual meeting of shareholders. At each annual meeting of shareholders, directors of the class whose term then expires shall be elected for a full term of three years to succeed the directors of such class so that the term of office of the directors of one class shall expire in each year, provided that nothing herein shall be construed to prevent (a) the election of a director to succeed himself, (b) the election of a director for the remainder of an unexpired term in the class of directors to which he is elected, and (c) amendment of the Bylaws to increase or decrease the number of directors. Notwithstanding any other provision of these Bylaws, each director shall continue in office until his successor shall have been duly elected and shall qualify, or until his earlier resignation or removal in the manner provided in these Bylaws, or death. Section 2. Election of Directors/Vacancies. The members of each class of directors shall be elected at the annual meeting of the shareholders at which the term of office of such class expires, as provided herein. If for any reason any annual election of directors shall not be held on the day designated by these Bylaws, the directors shall cause such election to be held as soon thereafter as conveniently may be. Newly created directorships resulting from any increase in the authorized number of directors and vacancies in the Board of Directors from death, resignation, retirement, disqualification, removal from office, or other cause, shall be filled by a majority vote of the directors then in office; and directors so chosen shall hold office for a term expiring at the annual meeting at which the term of the class to which they shall have been elected expires. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director. Subject to the rights of the holder of any series of Preferred Stock then outstanding, (a) any director, or the entire Board of Directors, may be removed at any time, but only for cause; and (b) the affirmative vote of the holders of 75 percent of the voting power of all of the stock of the Corporation entitled to vote in the election of directors shall be required to remove a director from office. The shareholders of the Corporation are expressly prohibited from cumulating their votes in any election of directors of the Corporation. Section 3. Resignations. Any director may resign from his office at any time by delivering his resignation in writing to the Corporation; and the acceptance of such resignation, unless required by the terms thereof, shall not be necessary to make such resignation effective. Section 4. Meetings. The Board of Directors may hold its meetings in such place or places within or without the State of Delaware as the Board from time to time by resolution may determine or as shall be specified in the respective notices or waivers of notice thereof; and the directors may adopt such rules and regulations for the conduct of their meetings and the management of the Corporation, not inconsistent with these Bylaws, as they may deem proper. An annual meeting of the Board for the election of officers shall be held within three days following the day on which the annual meeting of the shareholders for the election of directors shall have been held. The Board of Directors, from time to time by resolution, may fix a time and place (or varying times and places) for the annual and other regular meetings of the Board provided that, unless a time and place is so fixed for any annual meeting of the Board, the same shall be held immediately following the annual meeting of the shareholders at the same place at which such meeting shall have been held. No notice of the annual or other regular meetings of the Board need be given. Other meetings of the Board of Directors shall be held whenever called by the Chairman of the Board or by any two of the directors for the time being in office; and the Secretary shall give notice of each such meeting to each director by mailing the same not later than the third day before the meeting, or personally, or by telegraphing, cabling, or telephoning, the same not later than two hours before the meeting. No notice of a meeting need be given if all the directors are present in person. Any business may be transacted at any meeting of the Board of Directors, whether or not specified in a notice of the meeting. Section 5. Quorum. A majority of the total number of directors constituting the whole Board shall constitute a quorum for the transaction of business. If there be less than a quorum at any meeting of the Board, a majority of those present (or if only one be present, then that one) may adjourn the meeting from time to time; and no further notice thereof need be given other than announcement at the meeting which shall be so adjourned. The act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors, except as may be otherwise specifically provided by law or by the Certificate of Incorporation or by these Bylaws. Section 6. Compensation of Directors. The Board of Directors shall have the authority to fix the compensation of the directors. A director may serve the Corporation in other capacities and receive compensation therefor. Section 7. Indemnification of Directors and Officers. (a) Each person who was or is a party or is threatened to be made a party to or is involved in any action, suit, or proceeding, whether civil, criminal, administrative, or investigative (hereinafter a "proceeding"), by reason of the fact that he, or a person of whom he is the legal representative, is or was a director or officer of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee, or agent of another corporation or of a partnership, joint venture, trust, or other enterprise, including service with respect to employee benefit plans, shall be indemnified and held harmless by the Corporation to the fullest extent permitted by the laws of Delaware as the same now or may hereafter exist (but, in the case of any change, only to the extent that such change permits the Corporation to provide broader indemnification rights than said law permitted the Corporation to provide prior to such change) against all costs, charges, expenses, liabilities, and losses (including attorneys' fees, judgments, fines, ERISA excise taxes, or penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by such person in connection therewith and such indemnification shall continue as to a person who has ceased to be a director, officer, employee, or agent and shall inure to the benefit of his heirs, executors, and administrators. The right to indemnification conferred in this Section shall be a contract right and shall include the right to be paid by the Corporation the expenses incurred in defending any such proceeding in advance of its final disposition upon receipt by the Corporation of an undertaking, by or on behalf of such director or officer, to repay all amounts so advanced if it shall ultimately be determined that the director or officer is not entitled to be indemnified under this section or otherwise. The Corporation may, by action of its Board of Directors, provide indemnification to employees and agents of the Corporation with the same scope and effect as the foregoing indemnification of directors and officers. (b) If a claim under subsection (a) of this Section is not paid in full by the Corporation within thirty days after a written claim has been received by the Corporation, the claimant may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant shall also be entitled to be paid the expense of prosecuting such claim. It shall be a defense to any action (other than an action brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition where the required undertaking has been tendered to the Corporation) that the claimant has failed to meet a standard of conduct which makes it permissible under Delaware law for the Corporation to indemnify the claimant for the amount claimed, but the burden of proving such defense shall be on the Corporation. Neither the failure of the Corporation (including its Board of Directors, independent legal counsel, or its shareholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is permissible in the circumstances because he has met such standard of conduct, nor an actual determination by the Corporation (including its Board of Directors, independent legal counsel, or its shareholders) that the claimant has not met such standard of conduct, nor the termination of any proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall be a defense to the action or create a presumption that the claimant has failed to meet the required standard of conduct. (c) The right to indemnification and the payment of expenses incurred in defending a proceeding in advance of its final disposition conferred in this Section shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, Bylaw, agreement, vote of shareholders or disinterested directors, or otherwise. (d) The Corporation may maintain insurance at its expense to protect itself and any director, officer, employee, or agent of the Corporation or another corporation, partnership, joint venture, trust, or other enterprise against any expense, liability, or loss whether or not the Corporation would have the power to indemnify such person against such expense, liability, or loss under Delaware law. (e) To the extent that any director, officer, employee, or agent of the Corporation is by reason of such position, or a position with another entity at the request of the Corporation, a witness in any proceeding, he shall be indemnified against all costs and expenses actually and reasonably incurred by him or on his behalf in connection therewith. (f) The Corporation may enter into indemnity agreements with the persons who are members of its Board of Directors from time to time, and with such officers, employees, and agents as the Board may designate, indemnity agreements providing in substance that the Corporation shall indemnify such persons to the fullest extent permitted by the laws of Delaware. (g) Any amendment, repeal, or modification of any provision of this Section by the shareholders or the Directors of the Corporation shall not adversely affect any right or protection of a director or officer of the Corporation existing at the time of such amendment, repeal, or modification. Section 8. Committees. The Board of Directors may, by resolution or resolutions, passed by a majority of the whole Board, from time to time designate an Executive Committee and such other committee or committees as it may determine, each committee to be headed by a chairman who shall be a member of the Board of Directors and elected by the Board of Directors. The committee or committees shall exercise only such powers of the Board of Directors as are specifically provided in said resolution or resolutions. The chairman of the Executive Committee, if any, shall report to the Board at its meetings upon the affairs of the Corporation. ARTICLE IV Officers and Agents Section 1. General Provisions. The officers of the Corporation shall be a President, a Treasurer, and a Secretary, and may include a Chairman of the Executive Committee, one or more Vice Presidents, any of which may be an Executive Vice President, one or more Assistant Treasurers, and one or more Assistant Secretaries. The Chairman of the Board of Directors and the President shall be chosen from among the directors. Any two offices, except those of President and Vice President, may be held by the same person; but no officer shall execute, acknowledge, or verify any instrument in more than one capacity if such instrument is required by law or by these Bylaws to be executed, acknowledged, or verified by any two or more officers. Each of such officers shall serve until the annual meeting of the Board of Directors next succeeding his appointment and until his successor shall have been chosen and shall have qualified. The Board of Directors may appoint such other officers, agents, and employees as it may deem necessary or proper, who shall respectively have such authority and perform such duties as may from time to time be prescribed by the Board of Directors. All officers, agents, and employees appointed by the Board of Directors shall be subject to removal at any time by the affirmative vote of a majority of the whole Board. Other agents and employees may be removed at any time by the Board of Directors, by the officer appointing them, or by any other superior officer upon whom such power of removal may be conferred by the Board of Directors. The salaries of the officers of the Corporation shall be fixed by the Board of Directors, but this power may be delegated to any officer. Section 2. The Chairman of the Board of Directors. The Chairman of the Board of Directors shall preside at all meetings of the shareholders and of the Board of Directors of the Corporation. At each annual meeting of the shareholders, he shall present a statement of the business of the Corporation for the preceding year and a report of its financial condition. Section 3. The President. The President shall be the Chief Executive Officer of the Corporation. He shall have general and active supervision of its business and affairs, and general charge of its property and employees, subject, however, to the control of the Board of Directors. He shall see that all resolutions and orders of the Board of Directors or of any committee thereof are carried into effect. He shall have power in the name of the Corporation and on its behalf to execute any and all deeds, mortgages, contracts, agreements, and other instruments in writing, and shall have such other powers as may be assigned to him by the Board of Directors. He shall have full power and authority on behalf of the Corporation to execute any shareholder's consent and to attend and vote in person or by proxy at any meeting of shareholders of any corporation in which the Corporation may own stock, and at any such meeting shall possess and may exercise any and all rights and powers incident to the ownership of such stock and which, as the owner thereof, the Corporation might have possessed and exercised if present. Section 4. Vice Presidents. Each Vice President shall have such powers and perform such duties as the Board of Directors, Chairman of the Board, or the President may from time to time prescribe, and shall perform such other duties as may be prescribed in these Bylaws. In the absence or inability to act of the Chairman of the Board or the President, the Vice President next in order as designated by the Board of Directors or, in the absence of such designation, senior in length of service in such capacity, shall perform all the duties and may exercise any of the powers of the President, subject to the control of the Board of Directors. The performance of any duty by a Vice President shall be conclusive evidence of his power to act. Section 5. The Treasurer. The Treasurer shall have the care and custody of all funds and securities of the Corporation which may come into his hands and shall deposit the same to the credit of the Corporation in such bank or banks or other depositary or depositaries as the Board of Directors may designate. He may endorse all commercial documents requiring endorsements for or on behalf of the Corporation and may sign all receipts and vouchers for payments made to the Corporation. He shall render an account of his transactions to the Board of Directors as often as they shall require the same and shall at all reasonable times exhibit his books and accounts to any director; shall cause to be entered regularly in books kept for that purpose full and accurate account of all monies received and paid by him on account of the Corporation; and shall have such further powers and duties as are incident to the position of Treasurer, subject to the control of the Board of Directors. He may be required by the Board of Directors to give a bond for the faithful discharge of his duties in such sum and with such surety as the Board may require. Section 6. The Secretary. The Secretary shall keep the minutes of all meetings of the Board of Directors and of the shareholders and shall attend to the giving and serving of all notices of the Corporation. He shall have custody of the seal of the Corporation and shall affix the seal to all certificates of shares of stock of the Corporation and to such other papers or documents as may be proper and, when the seal is so affixed, he shall attest the same by his signature whenever required. He shall have charge of the stock certificate book, transfer book, and stock ledger, and such other books and papers as the Board of Directors may direct. He shall, in general, perform all the duties of Secretary, subject to the control of the Board of Directors. Section 7. Assistant Treasurers. In the absence or inability of the Treasurer to act, any Assistant Treasurer may perform all the duties and exercise all of the powers of the Treasurer, subject to the control of the Board of Directors. The performance of any such duty shall be conclusive evidence of his power to act. Any Assistant Secretary shall also perform such other duties as the Secretary or the Board of Directors may from time to time assign to him. Section 8. Assistant Secretaries. In the absence or inability of the Secretary to act, any Assistant Secretary may perform all the duties and exercise all the powers of the Secretary, subject to the control of the Board of Directors. The performance of any such duty shall be conclusive evidence of his power to act. Any Assistant Secretary shall also perform such other duties as the Secretary or the Board of Directors may from time to time assign to him. Section 9. Other Officers. Other officers shall perform such duties and have such powers as may from time to time be assigned to them by the Board of Directors. Section 10. Delegation of Duties. In case of the absence of any officer of the Corporation, or for any other reason that the Board may deem sufficient, the Board may confer, for the time being, the powers or duties, or any of them, of such officer upon any other officer, or upon any director. ARTICLE V Capital Stock Section 1. Certificates for Shares. Certificates for shares of stock of the Corporation certifying the number and class of shares owned shall be issued to each shareholder in such form, not inconsistent with the Certificate of Incorporation and these Bylaws, as shall be approved by the Board of Directors. The certificates for the shares of each class shall be numbered and registered in the order in which they are issued and shall be signed by the Chairman of the Board of Directors or the President or a Vice President and by the Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer; and the seal of the Corporation shall be affixed thereto. However, where any such certificate is signed by a transfer agent and by a registrar of the Corporation, other than the Corporation itself or its employee, the signature of either the transfer agent or the registrar and of any such corporate officer or officers and the seal of the Corporation upon such certificate may be facsimiles, engraved, or printed. All certificates exchanged or returned to the Corporation shall be cancelled. Section 2. Transfer of Shares of Stock. Transfers of shares shall be made only upon the books of the Corporation by the holder, in person or by attorney lawfully constituted in writing, and on the surrender of the certificate or certificates for such shares properly assigned. The Board of Directors shall have the power to make all such rules and regulations, not inconsistent with the Certificate of Incorporation and these Bylaws, as they may deem expedient concerning the issue, transfer, and registration of certificates for shares of stock of the Corporation. Section 3. Lost, Stolen, or Destroyed Certificates. The Board of Directors, in their discretion, may require the owner of any certificate of stock alleged to have been lost, stolen, or destroyed, or his legal representatives, to give the Corporation a bond in such sum as they may direct, to indemnify the Corporation against any claim that may be made against it on account of the alleged loss, theft, or destruction of any such certificate, as a condition of the issue of a new certificate of stock in the place of any certificate theretofore issued alleged to have been lost, stolen, or destroyed. Proper and legal evidence of such loss, theft, or destruction shall be procured for the Board, if required. The Board of Directors in their discretion may refuse to issue such new certificate, save upon the order of some court having jurisdiction in such matters. Section 4. Record Date. The Board of Directors may fix in advance a date, not more than sixty days nor less than ten days preceding the date of any meeting of the shareholders and not more than sixty days preceding the date for the payment of any dividend, or the date for the allotment of rights, or the date when any change or conversion or exchange of capital stock shall go into effect, as a record date for the determination of the shareholders entitled to notice of, and to vote at, any such meeting and any adjournment thereof, or entitled to receive payment of any such dividend, or to any such allotment of rights, or to exercise the rights in respect of any such change, conversion or exchange of capital stock; and in such case such shareholders and only such shareholders as shall be shareholders of record on the date so fixed shall be entitled to such notice of, and to vote at, such meeting and any adjournment thereof, or to receive payment of such dividend, or to receive such allotment of rights, or to exercise such rights, as the case may be, notwithstanding any transfer of any stock on the books of the Corporation after any such record date fixed as aforesaid. Section 5. Maintenance and Inspection of Stock Ledger. The original or a duplicate stock ledger containing a list of the shareholders shall be maintained at the principal office or place of business of the Corporation and shall upon written demand under oath stating the purpose thereof, be available for inspection by any shareholder of record for any proper purpose in person or by attorney or other agent during the usual hours of business. A proper purpose shall mean a purpose reasonably related to such person's interest as a shareholder. In every instance where an attorney or other agent shall be the person who seeks the right to inspection, the demand under oath shall be accompanied by a power of attorney or such other writing which authorizes the attorney or other agent to so act on behalf of the shareholder. The demand under oath shall be directed to the Corporation at its registered office in Delaware or at its principal place of business. Section 6. Record Ownership. The Corporation shall be entitled to recognize the exclusive right of a person registered as such in the stock ledger of the Corporation as the owner of shares of the Corporation's stock to receive dividends and to vote as such owner and shall not be bound to recognize any equitable or other claim to or interest in such shares on the part of any other person, whether or not the Corporation shall have express or other notice thereof, except as otherwise provided by law. ARTICLE VI Seal The seal of the Corporation shall consist of a flat-faced, circular die with the name of the Corporation, the year of its incorporation, and the words "Corporate Seal" and "Delaware" inscribed thereon. ARTICLE VII Waiver Whenever any notice whatever is required to be given by statute, or under the provisions of the Certificate of Incorporation or Bylaws of this Corporation, a waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. ARTICLE VIII Checks, Notes, Drafts, Etc. Checks, notes, drafts, acceptances, bills of exchange, and other orders or obligations for the payment of money shall be signed by such officer or officers or person or persons as the Board of Directors shall from time to time determine. ARTICLE IX Amendments These Bylaws may be amended or repealed and new Bylaws adopted by the affirmative vote of a majority of the total number of directors (fixed by the Bylaws as in effect immediately prior to such vote) or by the affirmative vote of the holders of 75 percent of the voting power of the Corporation's stock outstanding and entitled to vote thereon. Such Bylaws may contain any provision for the regulation and management of the affairs of the Corporation and the rights or powers of its shareholders, directors, officers, or employees not inconsistent with the laws of the State of Delaware. EX-13 3 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS BASIS OF PRESENTATION Effective August 30, 1998, Thomas Industries and The Genlyte Group formed the Genlyte Thomas Group (GTG), combining the Thomas Lighting business and Genlyte. Genlyte has a 68% interest in GTG, and Thomas holds a 32% interest, which is accounted for using the equity method of accounting. Thomas changed its method of accounting for the lighting business contributed to GTG to the equity method effective January 1, 1998, the beginning of Thomas' current fiscal year. These changes had no effect on Thomas' net income or common shareholders' equity but did reduce its revenues, costs, assets and liabilities, and changed certain components of cash flow (See Note 2). Restatement of financial statements for years prior to 1998 is not permitted under generally accepted accounting principles; therefore, Thomas' financial statements for 1998 are not comparable to 1997 and 1996. RESULTS OF OPERATIONS The Company achieved record net income in 1998 of $24.5 million, which represents an increase of $2.0 million, or 9.1%, over 1997. Net income for 1997 was $22.5 million, an increase of $5.1 million, or 29.0%, over 1996. COMPRESSORS AND VACUUM PUMPS The Compressors and Vacuum Pumps Segment achieved record net sales of $177.2 million in 1998, an increase of 2.1% over 1997. Net sales in 1997 were $173.6 million, an increase of 2.1% compared to 1996. The increases in both years were due to the continued successful introduction of new products for new applications, which offset pricing pressure in the medical markets. Operating income for the Segment in 1998 decreased slightly to $30.7 million from the record $30.9 million achieved in 1997 primarily due to pricing pressures in the medical markets and the general weakness in OEM and distributor business as a result of the current global economic situation. For 1997, operating income increased by 7.0%, from 1996, due to increased sales, improved efficiencies, cost containment in the manufacturing operations and favorable exchange rate conditions between the U.S. and Europe. LIGHTING SEGMENT Operating income from lighting was $20.3 million in 1998 compared to $22.4 million in 1997. Results for 1998 include the operating income of the former Thomas Lighting group for the period ended August 29 prior to the formation of GTG, Thomas' 32% interest in GTG for the four months ended December 31, 1998, and amortization of Thomas' excess investment in GTG. The decrease in operating income of $2.1 million in 1998 was offset by a $5.7 million reduction of corporate expenses formerly needed to support the lighting operations. Operating income for the Lighting Segment in 1997 of $22.4 million represented a 36.9% improvement over 1996. The improvements were due to the additional volume, improved manufacturing efficiencies and continued implementation of cost containment programs. CORPORATE Interest expense for 1998 declined $.3 million, or 4.6%, from 1997 due primarily to the lower levels of long-term debt offset partially by higher levels of short-term borrowings in the first half of 1998. Interest expense for 1997 declined $.9 million, or 12.3%, from 1996 due principally to the lower levels of long-term debt. Income tax provisions were $14.9 million, $13.2 million, and $10.3 million in 1998, 1997 and 1996, respectively. The effective income tax rate was 37.8% in 1998, compared to 37.0% in 1997, and 37.1% in 1996. The Company, like other manufacturers, is subject to environmental rules and regulations regarding the use, disposal and cleanup of substances regulated under environmental protection laws. It is the Company's policy to comply with these rules and regulations, and the Company believes that its practices and procedures are designed to meet this compliance. The Company is involved in remedial efforts at certain of its present and former locations; and when costs can be reasonably estimated, the Company records appropriate liabilities for such matters. Estimated liabilities are not discounted to present value. The Company does not believe that the ultimate resolution of environmental matters will have a material adverse effect on its financial position, results of operations or liquidity. At December 31, 1998, the Company employed approximately 1,050 people. LIQUIDITY AND SOURCES OF CAPITAL Cash and cash equivalents increased to $18.2 million at December 31, 1998, compared to $17.4 million and $18.8 million at December 31, 1997 and 1996, respectively. Cash flows from operations were $24.2 million in 1998 compared to $32.3 million in 1997 and $30.1 million in 1996. These funds have been utilized in funding of capital expenditures and dividends over the three-year period, along with the net reductions of long-term and short-term debt during 1998, 1997 and 1996 totaling $33.5 million. Dividends paid in 1998 were $4.8 million compared with $4.2 million in 1997 and $4.1 million in 1996. In October 1997, the Board of Directors authorized a three-for-two stock split on all shares of Common Stock payable December 1, 1997. Also, in October 1997, the Board of Directors declared a cash dividend of 7 1/2 cents per post-split share which, giving effect to the stock split, creates a 12 1/2 % increase in the cash dividend. Working capital decreased to $29.8 million at December 31, 1998, from $92.3 million at December 31, 1997, due to the transfer of working capital to GTG. During 1997, working capital increased $6.4 million from the December 31, 1996, level. (Dollars in thousands) 1998 1997 1996 - -------------------------------------------------------------------------------- Working capital $29,840 $92,258 $85,838 Current ratio 1.87 2.09 2.02 Long-term debt, less current portion $48,298 $55,006 $62,632 Long-term debt to total capital 20.2% 24.1% 28.4% Certain loan agreements of the Company include restrictions on working capital, operating leases, tangible net worth, and the payment of cash dividends and stock distributions. Under the most restrictive of these arrangements, retained earnings of $52.8 million are not restricted at December 31, 1998. As of December 31, 1998, the Company had available credit of $13.6 million with banks under short-term borrowing arrangements which was unused and a $30.0 million revolving line of credit that expires in 2002 which was unused. Anticipated funds from operations, along with available short-term credit, are expected to be sufficient to meet cash requirements in the year ahead. Cash in excess of operating requirements will continue to be invested in high grade, short-term securities. YEAR 2000 ISSUE In the third quarter of 1996, the Company recognized the need to insure that its operations would not be adversely affected by Year 2000 computer hardware and software failures. Certain systems would fail, unless modified, to properly handle date-sensitive calculations for dates that crossed the century. Such systems could fail because the systems use only two digits rather than four to define a specific year. These failures would pose known risks to the future integrity of the Company's financial reports to virtually all aspects of the Company's operations, including the Company's ability to process sales transactions, fulfill customer orders and receive and manage inventories and other assets. Plans for achieving Year 2000 compliance were finalized during 1996 and included a goal to be complete by the end of the third quarter 1998. Accordingly, the Company completed a high-level analysis of the scope of the issues to be addressed, created a team of IT resources and contracted with a major software consulting firm to assist in the Year 2000 remediation efforts. The discovery phase of the problems and the plan for remediation were completed in 1997. Remediation and testing have been completed on most systems during the first nine months of 1998. The objective of these efforts is to achieve Year 2000 compliance with minimal effect on customer service or other disruption to, or loss of integrity in, business or financial operations. At this date, sources of potential failure have been identified with most of them having been remediated. We are currently awaiting one third-party payroll software provider to provide a compliant version of its software. We believe this software will be compliant before our known failure date. The Company has performed a preliminary assessment of its material non-information technology systems such as CAD systems, PBX systems, environmental control systems, elevator control systems and NC devices and, based upon this preliminary assessment, believes that these systems are Year 2000 compliant. The Company has initiated communications with all its major suppliers and customers to determine their Year 2000 compliant status and to identify any issues or problems with respect to their Year 2000 preparedness that might adversely affect their companies. The Company is continuing its efforts to obtain such assurances from all critical suppliers. Failure of these third parties could have a material impact on operations and/or the Company's ability to deliver products. Contingency planning will be established and implemented in an effort to minimize any impact from Year 2000 related failures. Through December 1998, approximately $2.35 million in costs, which includes Compressors and Vacuum Pumps and Lighting costs, have been incurred in the Company's efforts to achieve Year 2000 compliant systems. These costs have been incurred over the 1996-1998 timeframe and have not been, nor are expected to be, a material incremental cost having an impact on the Company's operations, financial condition or liquidity and include the costs for both its Vacuum Pump and Compressor business and the Company's former Lighting business. These costs consist primarily of outsourced consulting and remediation efforts. Any remaining costs for the Company are expected to be less than $75,000 and do not include any costs to be incurred by GTG. There have been no major system projects cancelled or delayed as a result of the Company's Year 2000 costs. The above expectations are subject to uncertainties. For example, if the Company is unsuccessful in identifying or fixing all Year 2000 problems in our critical operations, or if we are affected by the inability of our suppliers or major customers to continue operations due to such problems, our results of operations or financial condition could be materially impacted. The Company has a minority interest in GTG which has advised the Company that it is currently in the process of identifying and remediating its Year 2000 issues, as well as conducting a review to gain reasonable assurances that its business partners are addressing Year 2000 issues. If GTG is unsuccessful in identifying or remediating all Year 2000 problems in its critical operations, or if it is affected by the inability of its suppliers or major customers to continue operations due to such problems, this could have an impact on the Company's financial results and condition. NEW EUROPEAN CURRENCY Eleven European countries (The European Monetary Union) have implemented a single currency zone as of January 1, 1999. The new currency (Euro) will eventually replace the existing currencies of the participating countries. It is expected that this transition from the various currencies to the Euro will occur over a three-year period. Since the Company's European Operations may have to accommodate dual currencies during this period, modifications to our third-party software at our European locations may be necessary. A team has been formed to monitor EMU developments, evaluate the requirements, develop and execute action plans and work with our third-party software providers to address this issue. While management currently believes the Company will be able to accommodate any required changes in its operations without significant costs, there can be no assurance that the Company, its customers, suppliers and service providers or government agencies will all meet the Euro currency requirements in a timely manner. Such failure to complete the necessary work on a timely basis could result in material financial risk. FORWARD-LOOKING STATEMENTS The Company makes forward-looking statements from time to time and desires to take advantage of the "safe harbor" which is afforded such statements under the Private Securities Litigation Reform Act of 1995 when they are accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those in the forward-looking statements. The statements contained in the foregoing "Management's Discussion and Analysis of Financial Condition and Results of Operations," as well as other statements contained in this annual report, and statements contained in future filings with the Securities and Exchange Commission and publicly disseminated press releases, and statements which may be made from time to time in the future by management of the Company in presentations to shareholders, prospective investors and others interested in the business and financial affairs of the Company which are not historical facts, are forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those set forth in the forward-looking statements. Any projections of financial performances or statements concerning expectations as to future developments should not be construed in any manner as a guarantee that such results or developments will, in fact, occur. There can be no assurance that any forward-looking statement will be realized or that actual results will not be significantly different from those set forth in such forward-looking statement. In addition to the risks and uncertainties of ordinary business operations, the forward-looking statements of the Company referred to above are also subject to the following risks and uncertainties: The Company operates in a highly competitive business environment, and its sales could be negatively affected by its inability to maintain or increase prices, changes in geographic or product mix or the decision of its customers to purchase competitive products instead of the Company's products. Sales could also be affected by pricing, purchasing, financing, operational, advertising or promotional decisions made by purchasers of the Company's products. The Compressor and Vacuum Pump Segment operates in a market where technological improvements and the introduction of products for new applications are necessary for future growth. The Company could experience difficulties or delays in the development, production, testing and marketing of new products. As an original equipment supplier, the Company's results of operations are directly affected by the success of customer products. GTG, which comprises the Company's Lighting Segment, participates in a highly competitive market that is dependent on the level of residential, commercial and industrial construction activity. Changes in consumer preferences and acceptance of new products affect the Lighting Segment. As the Company's business continues to expand outside the United States, the Company could experience changes in its ability to obtain or hedge against foreign currency rates and fluctuations in those rates. The Company could also be affected by nationalizations; unstable governments, economies, or legal systems; or intergovernmental disputes. These currency, economic and political uncertainties may affect the Company's results. The forward-looking statements made by the Company are based on estimates which the Company believes are reasonable. This means that the Company's actual results could differ materially from such estimates as a result of being negatively affected as described above or otherwise positively affected. COMMON STOCK MARKET PRICES AND DIVIDENDS The Company's common stock is traded on the New York Stock Exchange (ticker symbol TII). On February 11, 1999, there were 1,925 security holders of record. High and low stock prices and dividends for the last two years were: 1998 1997 ----------------------------------------------------- Cash Cash Market Price Dividends Market Price Dividends Quarter Ended High Low Declared High Low Declared - -------------------------------------------------------------------------------- March 31 $23.75 $18.88 $.075 $17.33 $13.67 $.067 June 30 26.38 22.19 .075 19.33 14.33 .067 September 30 26.63 18.56 .075 20.42 18.50 .067 December 31 21.19 17.06 .075 22.33 19.38 .075 CONSOLIDATED STATEMENTS OF INCOME Years ended December 31 ------------------------------ (In thousands, except share data) 1998 1997 1996 - -------------------------------------------------------------------------------- Net sales $177,220 $547,702 $510,111 Cost of products sold 112,318 378,746 358,778 - -------------------------------------------------------------------------------- GROSS PROFIT 64,902 168,956 151,333 Selling, general and administrative expenses 40,805 127,969 117,659 Equity income from Lighting 20,323 -- -- - -------------------------------------------------------------------------------- Operating income 44,420 40,987 34,642 Interest expense 6,199 6,480 7,333 Interest income and other 1,185 1,137 379 - -------------------------------------------------------------------------------- INCOME BEFORE INCOME TAXES 39,406 35,644 27,688 Income taxes 14,896 13,174 10,272 - -------------------------------------------------------------------------------- NET INCOME $ 24,510 $ 22,470 $ 17,416 - -------------------------------------------------------------------------------- NET INCOME PER SHARE - BASIC $ 1.54 $ 1.42 $ 1.11 - DILUTED 1.50 1.38 1.09 See accompanying notes. CONSOLIDATED BALANCE SHEETS December 31 ---------------------- (In thousands, except share data) 1998 1997 - -------------------------------------------------------------------------------- ASSETS Current assets: Cash and cash equivalents $ 18,205 $ 17,352 Accounts receivable, net 19,205 71,385 Inventories, net 20,186 74,128 Deferred income taxes 2,997 6,694 Other current assets 3,650 7,052 - -------------------------------------------------------------------------------- TOTAL CURRENT ASSETS 64,243 176,611 Property, plant and equipment, net 34,001 80,197 Investment in GTG 147,386 -- Note receivable from GTG 22,287 -- Intangible assets, net 8,248 56,333 Other assets 6,194 14,498 - -------------------------------------------------------------------------------- TOTAL ASSETS $ 282,359 $ 327,639 - -------------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Notes payable to banks $ 235 $ 2,564 Accounts payable 5,794 31,094 Accrued expenses and other current liabilities 19,397 41,646 Dividends payable 1,195 1,189 Current portion of long-term debt 7,782 7,860 - -------------------------------------------------------------------------------- TOTAL CURRENT LIABILITIES 34,403 84,353 Deferred income taxes 5,863 8,802 Long-term debt, less current portion 48,298 55,006 Other long-term liabilities 3,108 6,073 - -------------------------------------------------------------------------------- TOTAL LIABILITIES 91,672 154,234 Shareholders' equity: Preferred stock, $1 par value, 3,000,000 shares authorized - none issued -- -- Common stock, $1 par value, shares authorized: 60,000,000; shares issued: 1998 - 17,485,909; 1997 - 17,394,198 17,486 17,394 Capital surplus 110,412 109,750 Retained earnings 88,277 68,533 Accumulated other comprehensive income (4,351) (5,060) Less cost of treasury shares: 1,744,400 shares in 1998; 1,535,469 shares in 1997 (21,137) (17,212) TOTAL SHAREHOLDERS' EQUITY 190,687 173,405 - -------------------------------------------------------------------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 282,359 $ 327,639 - -------------------------------------------------------------------------------- See accompanying notes. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Years ended December 31 ------------------------------------ (In thousands) 1998 1997 1996 - -------------------------------------------------------------------------------- COMMON STOCK: Beginning of year $ 17,394 $ 17,325 $ 17,229 Stock options exercised 92 69 96 - -------------------------------------------------------------------------------- END OF YEAR 17,486 17,394 17,325 CAPITAL SURPLUS: Beginning of year 109,750 109,431 112,231 Treasury stock retired and other 12 -- (3,866) Welch pooling of interests -- -- 347 Stock options exercised 650 319 719 - -------------------------------------------------------------------------------- END OF YEAR 110,412 109,750 109,431 RETAINED EARNINGS: Beginning of year 68,533 50,420 40,003 Welch pooling of interests -- -- (928) Net income 24,510 22,470 17,416 Treasury stock retired -- -- (1,902) Cash dividends (4,766) (4,357) (4,169) - -------------------------------------------------------------------------------- END OF YEAR 88,277 68,533 50,420 ACCUMULATED OTHER COMPREHENSIVE INCOME: Beginning of year (5,060) (2,262) (3,306) Other comprehensive income (1) 709 (2,798 1,044 - -------------------------------------------------------------------------------- END OF YEAR (4,351) (5,060) (2,262) TREASURY STOCK: Beginning of year (17,212) (17,212) (22,980) Treasury stock purchased (3,938) -- -- Treasury stock retired and other 13 -- 5,768 - -------------------------------------------------------------------------------- END OF YEAR (21,137) (17,212) (17,212) - -------------------------------------------------------------------------------- TOTAL SHAREHOLDERS' EQUITY $ 190,687 $ 173,405 $ 157,702 - -------------------------------------------------------------------------------- (1) A reconciliation of net income to total comprehensive income follows. Years ended December 31 ------------------------------------- (In thousands) 1998 1997 1996 - -------------------------------------------------------------------------------- Net income $ 24,510 $ 22,470 $ 17,416 Other comprehensive income: Minimum pension liability 57 495 1,910 Related tax expense (22) (188) -- Foreign currency translation 674 (3,105) (866) - -------------------------------------------------------------------------------- Total comprehensive income $ 25,219 $ 19,672 $ 18,460 - -------------------------------------------------------------------------------- At December 31, 1998, accumulated other comprehensive income was a loss of $4,351,000, comprised of foreign currency translation losses of $3,913,000 and a minimum pension liability of $438,000. See accompanying notes. CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31 ---------------------------------- (In thousands) 1998 1997 1996 - ----------------------------------------------------------------------------------- OPERATING ACTIVITIES Net income $ 24,510 $ 22,470 $ 17,416 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 7,176 16,049 15,682 Deferred income taxes 74 1,410 198 Equity income from Lighting (20,323) -- -- Distributions from Lighting 19,053 -- -- Other items 182 (397) 550 Changes in operating assets and liabilities net of effect of acquisitions: Accounts receivable (1,700) (3,492) (5,434) Inventories 2,249 (6,048) 766 Accounts payable (4,032) 3,687 (174) Accrued expenses and other liabilities (1,232) 100 (366) Other (1,760) (1,514) 1,477 Net cash provided by operating activities 24,197 32,265 30,115 INVESTING ACTIVITIES Purchases of property, plant and equipment (6,978) (17,696) (15,071) Sales of property, plant and equipment 367 1,117 159 Purchase of companies (net of cash acquired) -- (1,371) -- Net cash used in investing activities (6,611) (17,950) (14,912) FINANCING ACTIVITIES Payments on notes payable to banks, net (2,408) (3,721) (704) Payments on long-term debt, net (6,530) (7,638) (12,458) Treasury stock purchased (3,938) -- -- Dividends paid (4,760) (4,221) (4,127) Other 767 388 925 Net cash used in financing activities (16,869) (15,192) (16,364) Effect of exchange rate change 136 (597) 1,682 Net increase (decrease) in cash and cash equivalents 853 (1,474) 521 Cash and cash equivalents at beginning of year 17,352 18,826 18,305 Cash and cash equivalents at end of year $ 18,205 $ 17,352 $ 18,826 See accompanying notes.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. DESCRIPTION OF BUSINESS Thomas Industries Inc. and subsidiaries (the Company or Thomas) and affiliates operate in two business segments: the compressors and vacuum pumps segment and the lighting segment. The Company designs, manufactures and sells compressors and vacuum pumps for use in global original equipment manufacturing applications as well as construction equipment, leakage detection systems and laboratory equipment. Manufacturing facilities are located in North America and Europe, with additional sales and distribution operations located in Asia. The Company operates in the lighting segment through its 32% interest in the Genlyte Thomas Group LLC (GTG). GTG, which was formed during 1998 as discussed below, designs, manufactures, markets and sells lighting products principally in North America for consumer, commercial, industrial and outdoor applications. NOTE 2. ACCOUNTING POLICIES BASIS OF PRESENTATION Effective August 30, 1998, the Company and The Genlyte Group (Genlyte) formed GTG, combining Thomas' and Genlyte's lighting businesses. Genlyte has a 68% interest in GTG, and Thomas holds a 32% interest, which is accounted for using the equity method of accounting. Thomas changed its method of accounting for its lighting business to the equity method effective January 1, 1998, the beginning of Thomas' current fiscal year. This change had no effect on Thomas' net income or common shareholders' equity but did reduce its revenues, costs, assets, liabilities, and number of employees. Financial statements for years prior to 1998 were not restated; therefore, Thomas' financial statements for 1998 are not comparable to 1997 and 1996. At December 31, 1998, Thomas' investment in GTG exceeded its underlying equity in net assets by $62,737,000. For the four months ended December 31, 1998, equity income was reduced by $733,000 which represents straight-line amortization of the excess investment. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company. Affiliates not required to be consolidated are accounted for using the equity method, under which the Company's share of earnings of these affiliates is included in income as earned. Intercompany accounts and transactions are eliminated. USE OF ESTIMATES Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with generally accepted accounting principles. Actual results could differ from these estimates. INVENTORIES Inventories are valued at the lower of cost or market. Inventories valued using the last-in, first-out (LIFO) method represented approximately 46% and 79% of consolidated inventories at December 31, 1998 and 1997, respectively. Inventories not on LIFO are valued using the first-in, first-out (FIFO) method. Inventories at December 31 consist of the following: NOTE 2. ACCOUNTING POLICIES (CONTINUED) (In thousands) 1998 1997 - -------------------------------------------------------------------------------- Finished goods $ 5,352 $35,472 Raw materials 9,196 23,620 Work in process 5,638 15,036 - -------------------------------------------------------------------------------- Total inventories $20,186 $74,128 - -------------------------------------------------------------------------------- On a current cost basis, inventories would have been $4,341,000 and $11,007,000 higher than reported at December 31, 1998 and 1997, respectively. The reduction in current-year inventory is primarily due to the formation of GTG. PROPERTY, PLANT AND EQUIPMENT The cost of property, plant and equipment is depreciated principally by the straight-line method over their estimated useful lives. Property, plant and equipment consisted of the following: (In thousands) 1998 1997 - -------------------------------------------------------------------------------- Land $ 722 $ 6,195 Buildings 13,466 31,564 Leasehold improvements 3,581 11,241 Machinery and equipment 55,346 105,977 - -------------------------------------------------------------------------------- 73,115 154,977 Accumulated depreciation and amortization (39,114) (74,780) - -------------------------------------------------------------------------------- Total property, plant and equipment, net $34,001 $80,197 - -------------------------------------------------------------------------------- The reduction in current-year property, plant and equipment is primarily due to the formation of GTG. INTANGIBLE ASSETS Intangible assets represent the excess of cost over the fair value of net assets of companies acquired and are stated net of accumulated amortization of $4,187,000 and $19,916,000 at December 31, 1998 and 1997, respectively. Excess of cost over the fair value of net assets acquired (or goodwill) generally is amortized on a straight-line basis over 40 years. LONG-LIVED ASSETS The carrying amount of long-lived assets, including goodwill, is reviewed if facts and circumstances suggest that it may be impaired. If this review indicates that long-lived assets will not be recoverable, as determined based on the estimated undiscounted cash flows of the entity acquired over the remaining amortization period, the carrying amount of the long-lived assets is reduced by the estimated shortfall of cash flows. The Company assesses long-lived assets for impairment under Financial Accounting Standards Board Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. RESEARCH AND DEVELOPMENT COSTS Research and development costs, which include costs of product improvements and design, are expensed as incurred ($9,085,000 in 1998, $14,873,000 in 1997 and $14,338,000 in 1996). The reduction in current-year research and development is primarily due to the formation of GTG. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2. ACCOUNTING POLICIES (CONTINUED) FINANCIAL INSTRUMENTS Various methods and assumptions are used by the Company in estimating its fair value disclosures for significant financial instruments. Fair values of cash equivalents approximate their carrying amount because they are highly liquid investments with a maturity of less than three months when purchased. The fair value of notes payable to banks approximates its carrying amount. The fair value of long-term debt is based on the present value of the underlying cash flows discounted at the current estimated borrowing rates available to the Company. FOREIGN CURRENCY TRANSLATION The local currency is the functional currency for the Company's foreign subsidiaries. Results are translated into U.S. dollars using monthly average exchange rates, while balance sheet accounts are translated using year-end exchange rates. The resulting translation adjustments are included as a component of accumulated other comprehensive income in shareholders' equity. OTHER Accounts receivable at December 31, 1998 and 1997, was net of an allowance for doubtful accounts of $656,000 and $2,046,000, respectively. The reduction in current-year allowance for doubtful accounts is primarily due to the formation of GTG. Certain prior-year amounts have been reclassified to conform to the current-year presentation. NOTE 3. NET INCOME PER SHARE The computation of the numerator and denominator in computing basic and diluted net income per share follows: (In thousands) 1998 1997 1996 - -------------------------------------------------------------------------------- Numerator: Net income $24,510 $22,470 $17,416 - -------------------------------------------------------------------------------- Denominator: Weighted average shares outstanding 15,877 15,837 15,756 Effect of dilutive securities: Director and employee stock options 474 422 265 Employee performance shares 32 13 -- - -------------------------------------------------------------------------------- Dilutive potential common shares 506 435 265 - -------------------------------------------------------------------------------- Denominator for diluted earnings per share- adjusted weighted-average shares and assumed conversions 16,383 16,272 16,021 - -------------------------------------------------------------------------------- NOTE 4. EQUITY INVESTMENT Genlyte Thomas Group LLC (GTG) is an affiliated company accounted for on the equity method. See Notes 1 and 2 for a description of GTG, as well as a discussion of the adoption of the equity method of accounting. Summarized financial information reported by the affiliate and a summary of the amounts recorded on Thomas' consolidated financial statements follow. GTG is organized as a limited liability corporation (LLC) that has elected to be taxed as a partnership for U.S. income tax purposes. Therefore, Thomas and Genlyte are responsible for income taxes applicable to their share of GTG's taxable income. The net income reflected below for GTG does not include any provision for U.S. income taxes which will be incurred by Thomas and Genlyte. At December 31, 1998, Thomas' retained earnings include $4,320,000 of after-tax undistributed earnings from GTG accounted for on the equity method. NOTE 4. EQUITY INVESTMENT (CONTINUED) (In thousands) - -------------------------------------------------------------------------------- GTG BALANCE SHEET AT DECEMBER 31, 1998: Cash & cash equivalents $ 8,533 Accounts receivable, net 146,167 Inventory, net Other current assets 9,305 - -------------------------------------------------------------------------------- Total current assets 301,009 Property, plant, & equipment, net 105,679 Goodwill, net 61,549 Sundry 12,632 - -------------------------------------------------------------------------------- Total assets $480,869 - -------------------------------------------------------------------------------- Total current liabilities $134,068 Other liabilities 21,421 Note payable to Thomas Industries 22,287 Long-term debt 38,565 Shareholders' equity 264,528 - -------------------------------------------------------------------------------- Total liabilities & shareholders' equity $480,869 - -------------------------------------------------------------------------------- GTG INCOME STATEMENT(1) Net sales $324,111 Cost of sales 210,190 - -------------------------------------------------------------------------------- Gross profit 113,921 SG&A expense 85,144 - -------------------------------------------------------------------------------- Operating profit 28,777 Interest expense, net 1,252 - -------------------------------------------------------------------------------- Income before taxes 27,525 Income taxes (Foreign) 1,009(2) - -------------------------------------------------------------------------------- Net income $ 26,516 - -------------------------------------------------------------------------------- Amounts recorded by Thomas Investment $147,386(3) Note receivable 22,287(4) Equity income 20,323(5) Distributions received 19,053(6) (1) Amounts represent results of operations for GTG for the four months ended December 31, 1998 (since inception). (2) GTG is organized as a limited liability corporation (LLC) that has elected to be taxed as a partnership for U.S. income tax purposes. GTG is subject to certain foreign income taxes. (3) At December 31, 1998, Thomas' investment in GTG exceeded its underlying equity in net assets by $62,737,000. For the four months ended December 31, 1998, equity income was reduced by $733,000 which represents straight-line amortization of the excess investment. (4) The note receivable from GTG represents a debt equalization note issued to Thomas at the formation of GTG. Interest on the principal amount outstanding under the note accrues at a variable rate and is payable on a quarterly basis. The principal amount of the note is due on August 29, 2003, and may be prepaid in whole or in part at any time without premium or penalty. (5) Consists of $12,571,000 of income from Thomas' former lighting operations for the eight months ended August 30, 1998 (which were restated to the equity method), $8,485,000 of equity income from GTG for the four months ended December 31, 1998 less $733,000 of amortization of Thomas' excess investment. (6) Consists of $16,324,000 of cash flows from Thomas' former lighting operations and distributions of $2,729,000 received from GTG. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 5. INCOME TAXES A summary of the provision for income taxes follows: (In thousands) 1998 1997 1996 - -------------------------------------------------------------------------------- Current: Federal $ 9,937 $ 7,977 $ 6,946 State 1,508 780 630 Foreign 3,377 3,007 2,498 14,822 11,764 10,074 - -------------------------------------------------------------------------------- Deferred: Federal and state 61 1,594 128 Foreign 13 (184) 70 - -------------------------------------------------------------------------------- 74 1,410 198 - -------------------------------------------------------------------------------- Total provision for income taxes $ 14,896 $ 13,174 $ 10,272 - -------------------------------------------------------------------------------- The U.S. and foreign components of income before income taxes follow: (In thousands) 1998 1997 1996 - -------------------------------------------------------------------------------- United States $29,687 $27,360 $20,731 Foreign 9,719 8,284 6,957 - -------------------------------------------------------------------------------- Income before income taxes $39,406 $35,644 $27,688 - -------------------------------------------------------------------------------- A reconciliation of the normal statutory federal income tax rate to the Company's effective income tax rate follows: 1998 1997 1996 - -------------------------------------------------------------------------------- U.S. statutory rate 35.0% 35.0% 35.0% State income taxes, net of federal tax benefits 2.5 1.4 1.5 Nondeductible amortization of intangible assets 1.0 1.6 2.0 Loss carryforwards (.4) (.9) (1.4) Foreign taxes .3 1.0 1.8 Other (.6) (1.1) (1.8) - -------------------------------------------------------------------------------- Effective income tax rate 37.8% 37.0% 37.1% - -------------------------------------------------------------------------------- NOTE 5. INCOME TAXES (CONTINUED) Deferred income taxes are provided for significant income and expense items recognized in different years for tax and financial reporting purposes. Temporary differences which gave rise to significant deferred tax assets and liabilities follow: (In thousands) 1998 1997 - -------------------------------------------------------------------------------- Deferred tax assets: Net operating loss carryforwards $ 939 $ 1,856 Allowance for doubtful accounts receivable 119 644 Inventory reserves 535 1,658 Accrued compensation expenses 1,201 2,853 Other 1,869 3,093 - -------------------------------------------------------------------------------- 4,663 10,104 Less valuation allowance (939) 1,856 - -------------------------------------------------------------------------------- Net deferred tax asset 3,724 8,248 Deferred tax liabilities: Accelerated depreciation 3,701 7,030 Inventory valuation 453 1,844 Pension expense 315 1,318 Investment in unconsolidated affiliates 1,504 -- Other 343 597 - -------------------------------------------------------------------------------- 6,316 10,789 - -------------------------------------------------------------------------------- Net deferred tax liability $ 2,592 $ 2,541 - -------------------------------------------------------------------------------- Classification: Current asset $ 2,997 $ 6,694 Long-term asset 727 1,554 Current liability 453 1,987 Long-term liability 5,863 8,802 - -------------------------------------------------------------------------------- Net deferred tax liability $ 2,592 $ 2,541 - -------------------------------------------------------------------------------- Deferred tax assets and liabilities are classified according to the related asset and liability classification on the consolidated balance sheet. The realization of deferred tax assets is dependent upon the Company's generating future taxable income when temporary differences become deductible. Based upon historical and projected levels of taxable income, management believes it is more likely than not the Company will realize the benefits of the deductible differences, net of the valuation allowance of $939,000. The valuation allowance is provided for income tax loss carryforward benefits for federal and state income tax purposes which expire over a five-year period beginning in 2006, the realization of which is not assured within the carryforward periods. The Company's foreign subsidiaries have accumulated undistributed earnings ($23,668,000 at December 31, 1998) on which U.S. taxes have not been provided. Under current tax regulations and with the availability of certain tax credits, it is management's belief that the likelihood of the Company's incurring significant taxes on any distribution of such accumulated earnings is remote. Dividends, if any, would be paid principally from current earnings. The Company made federal, state, and foreign income tax payments of $14,476,000 in 1998, $13,911,000 in 1997 and $13,179,000 in 1996. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 6. LONG-TERM DEBT AND CREDIT ARRANGEMENTS Long-term debt consists principally of 9.36% senior notes with annual maturities through 2005 ($46,350,000 and $54,080,000 at December 31, 1998 and 1997, respectively). The fair value of the Company's long-term debt at December 31, 1998 and 1997, was $53,800,000 and $60,000,000, respectively. Maturities of long-term debt for the next five years are as follow: 1999-$7,782,000; 2000-$7,784,000; 2001-$7,786,000; 2002-$7,788,000; and 2003-$7,791,000. Certain loan agreements of the Company include restrictions on working capital, operating leases, tangible net worth and the payment of cash dividends and stock distributions. Under the mostrestrictive of these arrangements, retained earnings of $52,800,000 were not restricted at December 31, 1998. As of December 31, 1998, the Company had available credit of $13,600,000 with banks under short-term borrowing arrangements which was unused and a $30,000,000 revolving line of credit that expires in 2002, which was unused. Cash paid for interest was $6,426,000 in 1998, $6,805,000 in 1997 and $7,591,000 in 1996. The weighted average interest rates on short-term borrowings at December 31, 1998 and 1997, were 6.18% and 4.30%, respectively. NOTE 7. SHAREHOLDERS' EQUITY STOCK INCENTIVE PLANS At the April 20, 1995, Annual Meeting, the Company's shareholders approved the Company's 1995 Incentive Stock Plan. An aggregate of 900,000 shares of common stock, plus all shares remaining under the Company's 1987 Incentive Stock Plan, were reserved for issuance under this Plan. Under this Plan, options may be granted to employees at not less than market value at date of grant. All options granted have 10-year terms and vest and become fully exercisable at the end of five years of continued employment. The Company's 1987 Incentive Stock Plan was terminated, except with respect to outstanding options which may be exercised through 2005. At the April 21, 1994, Annual Meeting, the Company's shareholders approved the Non-Employee Director Stock Option Plan. Under this Plan, each continuing non-employee director in office on the date of each annual meeting is awarded options to purchase 3,000 shares of common stock at not less than market value at date of grant. All options granted have 10-year terms and vest and become fully exercisable on the date granted. This Plan provides for options to be awarded at each annual meeting through 2004 or until 375,000 options have been granted. At December 31, 1998, there were eight non-employee directors in office, and 126,000 options had been awarded under this Plan. NOTE 7. SHAREHOLDERS' EQUITY (CONTINUED) The Company has adopted Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS 123). In accordance with SFAS 123, the Company has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related Interpretations, in accounting for its stock-based compensation because, as discussed below, the alternative fair value accounting provided for under SFAS 123 requires use of option valuation models that were not developed for use in valuing stock options. Under APB 25, because the exercise price of the Company's stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. Pro forma information regarding net income and earnings per share is required by SFAS 123, which also requires that the information be determined as if the Company had accounted for its employee stock options granted subsequent to December 31, 1994, under the fair value method of SFAS 123. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions: 1998 1997 1996 - -------------------------------------------------------------------------------- Risk-free interest rate 4.8% 5.5% 6.5% Expected life, in years 6.5 6.5 8.0 Expected volatility 0.280 0.264 0.273 Expected dividend yield 1.7% 1.8% 2.0% The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restriction and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions, including the expected stock price volatility. Because the Company's stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its stock options. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The Company's pro forma information follows: (In thousands, except share data) 1998 1997 1996 - -------------------------------------------------------------------------------- Net income As reported $24,510 $22,470 $17,416 Pro forma 23,668 21,882 17,024 Net income per share As reported 1.54 1.42 1.11 Basic Pro forma 1.49 1.38 1.08 Net income per share As reported 1.50 1.38 1.09 Diluted Pro forma 1.44 1.34 1.06 Because SFAS 123 is applicable only to options granted subsequent to December 31, 1994, its pro forma effect will not be fully reflected until 1999. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 7. SHAREHOLDERS' EQUITY (CONTINUED) A summary of stock option activity for all plans follows: 1998 1997 1996 - -------------------------------------------------------------------------------- Weighted Weighted Weighted Average Average Average Options Price Options Price Options Price - -------------------------------------------------------------------------------- Beginning of year 1,345,400 $13.22 1,174,110 $11.02 1,026,288 $10.01 Granted 263,500 19.04 269,000 21.31 268,500 13.98 Exercised (108,867) 9.70 (95,211) 8.92 (97,924) 8.59 Forfeited or expired (2,450) 18.19 (2,499) 12.49 (22,754) 11.20 - -------------------------------------------------------------------------------- End of year 1,497,583 $14.49 1,345,400 $13.22 1,174,110 $11.02 - -------------------------------------------------------------------------------- Exercisable at end of year 654,576 $10.95 559,481 $ 9.69 506,390 $ 8.74 The weighted average fair value of options granted was $5.98 in 1998, $6.67 in 1997 and $5.05 in 1996 using a Black-Scholes option pricing model. Options outstanding at December 31, 1998, had option prices ranging from $6.58 to $23.63 and expire at various dates between April 20, 1999, and December 14, 2008, (with a weighted-average remaining contractual life of 7.3 years). There are 285,553 shares reserved for future grant, of which 242,600 shares are reserved for the Non-Employee Director Stock Option Plan. In addition to the options listed above, 11,800 performance share awards were granted in December 1998, and 13,215 performance share awards were granted in December 1997 and December 1996. Awards may be earned based on the total shareholder return of the Company during the three-year periods commencing January 1 following the grant date. SHAREHOLDER RIGHTS PLAN On December 10, 1997, the Board of Directors of the Company adopted a shareholder rights plan (the Rights Plan) pursuant to which preferred stock purchase rights (the Rights) were declared and distributed to the holders of the Company's common stock. The Rights Plan provides that the Rights separate from the common stock and become exercisable if a person or group of persons working together acquires at least 20% of the common stock (a 20% Acquisition) or announces a tender offer which would result in ownership by that person or group of at least 20% of the common stock (a 20% Tender Offer). Upon a 20% Acquisition, the holders of Rights may purchase the common stock at half price. If, following the separation of the Rights from the common stock, the Company is acquired in a merger or sale of assets, holders of Rights may purchase the acquiring company's stock at half price. Notwithstanding the foregoing discussion, under the Rights Plan, the Board of Directors has flexibility in certain events. In order to provide maximum flexibility, the Board of Directors may delay the date upon which the Rights become exercisable in the event of a 20% Tender Offer. In addition, the Board of Directors has the option to exchange one share of common stock for each outstanding Right at any time after a 20% Acquisition but before the acquirer has purchased 50% of the outstanding common stock. The Rights may also be redeemed at two cents per Right at any time prior to a 20% Acquisition or a 20% Tender Offer. NOTE 8. EMPLOYEE BENEFIT PLANS The Company has noncontributory defined benefit pension plans and contributory defined contribution plans covering its hourly union employees. The defined benefit plans primarily provide flat benefits of stated amounts for each year of service. The Company's policy is to fund pension costs deductible for income tax purposes. NOTE 8. EMPLOYEE BENEFIT PLANS (CONTINUED) The Company also sponsors defined contribution pension plans covering substantially all U.S. employees whose compensation is not determined by collective bargaining. Annual contributions are determined by the Board of Directors.
Pension benefits Other postretirement benefits --------------------------------------------------- (In thousands) 1998 1997 1998 1997 - -------------------------------------------------------------------------------------------------- CHANGE IN BENEFIT OBLIGATIONS Benefit obligations at beginning of year $ 29,260 $ 25,511 $ 4,898 $ 4,725 Service cost 193 482 22 38 Interest cost 669 1,994 359 Plan amendments -- 349 -- -- Benefits paid (610) (2,069) (417) (432) Obligations assumed by GTG (19,563) -- (4,211) -- Actuarial loss 363 2,993 394 208 Benefit obligations at end of year $ 10,312 $ 29,260 $ 733 $ 4,898 CHANGE IN PLAN ASSETS Value of plan assets at beginning of year $ 30,500 $ 26,074 $ -- $ -- Actual return on plan assets 1,934 5,598 -- -- Employer contributions 115 897 417 432 Benefits paid (610) (2,069) (417) (432) Assets transferred to GTG (20,736) -- -- -- Value of plan assets at end of year $ 11,203 $ 30,500 $ -- $ -- The defined benefit plans' assets at December 31, 1998, consisted primarily of listed stocks and bonds, including 14,430 shares of Company common stock having a market value of $283,000 at that date. FUNDED STATUS OF THE PLANS Assets less accumulated obligations $ 891 $ 1,240 $ (733) $(4,898) Unrecognized actuarial (gain) loss (302) 258 66 (548) Unrecognized transition gain 4 161 -- -- Unrecognized prior service cost 496 2,071 262 3,504 Net asset (liability) recognized at end of year $ 1,089 $ 3,730 $ (405) $(1,942) The accumulated benefit obligation and plan assets for pension plans with accumulated benefit obligations in excess of plan assets were $3,251,000 and $2,993,000 as of December 31, 1998, and $12,378,000 and $11,440,000 as of December 31, 1997. BALANCE SHEET ASSETS (LIABILITIES) Prepaid benefit costs $ 788 $ 2,256 $ -- $ -- Accrued benefit liabilities (258) (974) (405) (1,942) Intangible assets 427 1,685 -- -- Accumulated other comprehensive income 132 763 -- -- Net asset (liability) recognized at end of year $ 1,089 $ 3,730 $ (405) $(1,942) ASSUMPTIONS AS OF DECEMBER 31 Discount rate 6.75% 7.15% 6.75% 7.15% Expected return on plan assets 9.00% 9.00% -- -- Initial health care cost trend rate -- -- 8.00% 8.00% Ultimate health care cost trend rate -- -- 4.50% 4.50% Year ultimate rate is achieved -- -- 2006 2006 A one-percentage-point change in the assumed health care cost trend rate would not have a significant effect on the other postretirement benefits amounts reported above.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 8. EMPLOYEE BENEFIT PLANS (CONTINUED) The following table details the components of pension and other postretirement benefit costs.
Pension benefits Other postretirement benefits ----------------------------------------------------------- (In thousands) 1998 1997 1996 1998 1997 1996 - ---------------------------------------------------------------------------------------------- Service cost $ 193 $ 482 $ 502 $ 22 $ 38 $ 50 Interest cost 669 1,994 1,806 47 359 356 Expected return on plan assets (853) (2,275) (2,098) -- -- -- Other amortization and deferral 46 228 251 (14) 216 233 - ----------------------------------------------------------------------------------------------- $ 55 $ 429 $ 461 $ 55 $ 613 $ 639 - -----------------------------------------------------------------------------------------------
Thomas sponsors various defined contribution plans to assist eligible employees in providing for retirement or other future needs. Company contributions to these plans amounted to $1,169,000 in 1998, $3,307,000 in 1997 and $3,206,000 in 1996. Current-year Company contributions included in these financial statements decreased as a result of the formation of GTG. NOTE 9. LEASES, COMMITMENTS, AND CONTINGENCIES Rental expense was $2,722,000 in 1998; $4,888,000 in 1997 and $4,664,000 in 1996. Future minimum rentals under non-cancellable operating leases are as follow: 1999-$2,000,000; 2000-$1,945,000; 2001-$1,656,000; 2002-$1,603,000; 2003-$1,163,000; and thereafter-$4,786,000. The reduction in current-year rental expense is primarily due to the formation of GTG. The Company had letters of credit outstanding in the amount of $4,963,000 at December 31, 1998. The Company, like other similar manufacturers, is subject to environmental rules and regulations regarding the use, disposal and cleanup of substances regulated under environmental protection laws. It is the Company's policy to comply with these rules and regulations, and the Company believes that its practices and procedures are designed to meet this compliance. The Company is involved in remedial efforts at certain of its present and former locations; and when costs can be reasonably estimated, the Company records appropriate liabilities for such matters. Estimated liabilities are not discounted to present value. The Company does not believe that the ultimate resolution of environmental matters will have a material adverse effect on its financial position, results of operations or liquidity. In the normal course of business, the Company is a party to legal proceedings and claims. When costs can be reasonably estimated, appropriate liabilities for such matters are recorded. While management currently believes the amount of ultimate liability, if any, with respect to these actions will not materially affect the financial position, results of operations, or liquidity of the Company, the ultimate outcome of any litigation is uncertain. Were an unfavorable outcome to occur, the impact could be material to the Company. NOTE 10. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES A summary of accrued expenses and other current liabilities follows: (In thousands) 1998 1997 - -------------------------------------------------------------------------------- Accrued wages, taxes and withholdings $ 4,401 $12,702 Accrued insurance 1,732 5,056 Accrued sales expense 910 5,913 Income taxes payable 3,865 1,463 Other current liabilities 8,489 16,512 - -------------------------------------------------------------------------------- Total accrued expenses and other current liabilities $19,397 $41,646 - -------------------------------------------------------------------------------- The reduction in current-year accrued expenses and other current liabilities is primarily due to the formation of GTG. NOTE 11. SUMMARY OF QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) Unaudited quarterly results of operations follow: (In thousands, Net Sales Gross Profit Net Income except share data)-------------------------------------------------------------- 1998 1997 1998 1997 1998 1997 - -------------------------------------------------------------------------------- 1st Qtr $ 48,209 $126,356 $ 17,628 $ 38,257 $ 5,250 $ 4,002 2nd Qtr 46,336 139,989 17,278 43,540 6,875 6,430 3rd Qtr 43,146 141,204 15,845 44,181 7,050 7,025 4th Qtr 39,529 140,153 14,151 42,978 5,335 5,013 - -------------------------------------------------------------------------------- $177,220 $547,702 $ 64,902 $168,956 $ 24,510 $ 22,470 - -------------------------------------------------------------------------------- Basic Net Income Diluted Net Income Per Share Per Share ---------------------------------------------- 1998 1997 1998 1997 - -------------------------------------------------------------------------------- 1st Qtr $0.33 $0.25 $0.32 $0.25 2nd Qtr 0.43 0.41 0.42 0.39 3rd Qtr 0.44 0.44 0.43 0.43 4th Qtr 0.34 0.32 0.33 0.31 - -------------------------------------------------------------------------------- $1.54 $1.42 $1.50 $1.38 - -------------------------------------------------------------------------------- NOTE 12. ACQUISITION On March 15, 1996, the Company acquired Welch Vacuum Technology, Inc., of Skokie, Illinois, a manufacturer of high vacuum systems for laboratory and chemical markets. Welch was acquired in exchange for 514,574 shares of common stock of the Company in a transaction accounted for as a pooling of interests. Due to immateriality, prior-year financial statements were not restated. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 13. INDUSTRY SEGMENT INFORMATION Industry segment information follows: (In thousands) 1998 1997 1996 - ------------------------------------------------------------------------------- REVENUES Sales and operating revenues Compressors & Vacuum Pumps $ 177,220 $ 173,637 $ 170,064 Lighting -- 374,065 340,047 - ------------------------------------------------------------------------------- $ 177,220 $ 547,702 $ 510,111 - ------------------------------------------------------------------------------- OPERATING INCOME (LOSS) Compressors & Vacuum Pumps $ 30,743 $ 30,879 $ 28,857 Lighting 20,323 22,423 16,832 Corporate (6,646) (12,315) (11,047) - ------------------------------------------------------------------------------- $ 44,420 $ 40,987 $ 34,642 - ------------------------------------------------------------------------------- ASSETS Compressors & Vacuum Pumps $ 89,736 $ 85,878 $ 86,259 Lighting 147,386 222,449 211,173 Corporate 45,237 19,312 22,218 - ------------------------------------------------------------------------------- $ 282,359 $ 327,639 $ 319,650 - ------------------------------------------------------------------------------- INVESTMENT IN EQUITY AFFILIATES Lighting $ 147,386 $ -- $ -- EXPENSES NOT AFFECTING CASH Depreciation and amortization Compressors & Vacuum Pumps $ 7,008 $ 6,530 $ 6,537 Lighting -- 9,345 8,934 Corporate 168 174 211 - ------------------------------------------------------------------------------- $ 7,176 $ 16,049 $ 15,682 - ------------------------------------------------------------------------------- ADDITIONS TO PROPERTY, PLANT AND EQUIPMENT Compressors & Vacuum Pumps $ 6,703 $ 8,441 $ 7,122 Lighting -- 9,006 7,675 Corporate 275 249 274 - ------------------------------------------------------------------------------- $ 6,978 $ 17,696 $ 15,071 - ------------------------------------------------------------------------------- Intersegment and interlocation sales are not significant and have been eliminated from the above tabulation. Operating income by segment is gross profit less operating expenses, excluding interest, general corporate expenses, other income and income taxes. NOTE 13. INDUSTRY SEGMENT INFORMATION (CONTINUED) Information by geographic area follows: (In thousands) 1998 1997 1996 - -------------------------------------------------------------------------------- REVENUES Total net sales including intercompany sales United States $ 131,253 $ 469,984 $ 434,145 Canada -- 43,460 39,378 Europe 58,877 58,143 56,658 - -------------------------------------------------------------------------------- $ 190,130 $ 571,587 $ 530,181 - -------------------------------------------------------------------------------- Intercompany sales United States $ (5,698) $ (14,257) $ (12,387) Canada -- (489) (674) Europe (7,212) (9,139) (7,009) - -------------------------------------------------------------------------------- $ (12,910) $ (23,885) $ (20,070) - -------------------------------------------------------------------------------- Net sales to unaffiliated customers United States $ 125,555 $ 455,727 $ 421,758 Canada -- 42,971 38,704 Europe 51,665 49,004 49,649 - -------------------------------------------------------------------------------- $ 177,220 $ 547,702 $ 510,111 - -------------------------------------------------------------------------------- OPERATING INCOME United States $ 35,901 $ 31,981 $ 27,498 Canada -- 1,427 1,121 Europe 8,519 7,579 6,023 - -------------------------------------------------------------------------------- $ 44,420 $ 40,987 $ 34,642 - -------------------------------------------------------------------------------- LONG-LIVED ASSETS United States $ 27,472 $ 69,879 $ 64,445 Canada -- 6,666 6,879 Europe 7,784 7,057 7,531 - -------------------------------------------------------------------------------- $ 35,256 $ 83,602 $ 78,855 - -------------------------------------------------------------------------------- REPORTS OF MANAGEMENT AND INDEPENDENT AUDITORS RESPONSIBILITY FOR FINANCIAL REPORTING Board of Directors and Shareholders Thomas Industries Inc. The financial statements herein have been prepared under management direction from accounting records which management believes presents fairly the transactions and financial position of the Company. They were developed in accordance with generally accepted accounting principles appropriate in the circumstances. Management has established internal control systems and procedures to provide reasonable assurance that assets are maintained and accounted for in accordance with its authorizations and that transactions are recorded in a manner to ensure reliable financial information. The Company has a formally stated and communicated policy demanding of employees high ethical standards in their conduct of its business. The Audit Committee of the Board of Directors is composed of outside directors who meet regularly with management, internal auditors and independent auditors to review audit plans and fees, independence of auditors, internal controls, financial reports and related matters. The Committee has unrestricted access to the independent and internal auditors with or without management attendance. Timothy C. Brown Chairman of the Board President Chief Executive Officer Phillip J. Stuecker Vice President of Finance Chief Financial Officer Secretary Louisville, Kentucky February 11, 1999 REPORT OF INDEPENDENT AUDITORS Board of Directors and Shareholders Thomas Industries Inc. We have audited the consolidated balance sheets of Thomas Industries Inc. and subsidiaries as of December 31, 1998 and 1997, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. The financial statements of Genlyte Thomas Group LLC (GTG), a partnership formed on August 30, 1998, in which the Company has a 32% interest, have been audited by other auditors whose report has been furnished to us; insofar as our opinion on the consolidated financial statements relates to data included for GTG, it is based solely on their report. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the report of other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and the report of other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Thomas Industries Inc. and subsidiaries at December 31, 1998 and 1997, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. /s/ Ernst & Young LLP Louisville, Kentucky February 11, 1999
FIVE YEAR SUMMARY OF OPERATIONS AND STATISTICS Years ended December 31 -------------------------------------------------------------------------------- (Dollars in thousands except per share) 1998(A) 1997 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------------------------------ EARNINGS STATISTICS Net sales $ 177,220 $ 547,702 $ 510,111 $ 490,573 $ 456,565 Cost of products sold 112,318 378,746 358,778 352,551 329,338 Selling, general, and administrative expenses 40,805 127,969 117,659 108,284 104,091 Equity income from lighting 20,323 -- -- -- -- Interest expense 6,199 6,480 7,333 8,242 9,225 Income before income taxes 39,406 35,644 27,688 21,053 18,198 As a percentage of net sales 22.2% 6.5% 5.4% 4.3% 4.0% Income taxes 14,896 13,174 10,272 8,278 7,656 Effective tax rate 37.8% 37.0% 37.1% 39.3% 42.1% Net income 24,510 22,470 17,416 12,775 10,542(B) FINANCIAL POSITION Working capital $ 29,840 $ 92,258 $ 85,838 $ 80,837 $ 77,558 Current ratio 1.9 to 1 2.1 to 1 2.0 to 1 2.0 to 1 2.0 to 1 Property, plant and equipment - net 34,001 80,197 77,795 75,710 75,962 Total assets 282,359 327,639 319,650 313,533 305,071 Return on ending assets 8.7% 6.9% 5.4% 4.1% 3.5% Long-term debt, less current portion 48,298 55,006 62,632 70,791 79,693 Long-term debt to capital 20.2% 24.1% 28.4% 33.1% 37.3% Shareholders' equity 190,687 173,405 157,702 143,177 133,766 Return on beginning shareholders' equity 14.1% 14.2% 12.2% 9.6% 8.4% DATA PER COMMON SHARE (C) Net income $ 1.50 $ 1.38 $ 1.09 $ 0.83 $ 0.70 Cash dividends declared 0.30 0.28 0.27 0.27 0.27 Shareholders' equity 11.73 10.59 9.99 9.43 8.85 Price range 26.63 22.33 15.92 16.08 10.92 to to to to to 17.06 13.67 11.00 9.08 8.50 Closing price 19.625 19.75 13.92 15.67 9.58 Price/earnings ratio 13.1 14.3 12.8 18.8 13.7 OTHER DATA Cash dividends declared $ 4,766 $ 4,357 $ 4,169 $ 4,036 $ 4,024 Expenditures for property, plant and equipment 6,978 17,696 15,071 12,288 16,301 Depreciation and amortization 7,176 16,049 15,682 14,803 15,524 Average number of employees 1,050 3,300 3,150 3,100 3,190 Average sales per employee 168.8 166.0 161.9 158.2 143.1 Number of shareholders of record 1,950 2,057 2,232 2,407 2,677 Average number common shares outstanding (C) 16,382,928 16,271,678 16,021,026 15,348,828 15,090,654 SEGMENT INFORMATION Net Sales Compressors & Vacuum Pumps $ 177,220 $ 173,637 $ 170,064 $ 157,731 $ 146,323 Lighting -- 374,065 340,047 332,842 304,047 Other -- -- -- -- 6,195 Total Net Sales $ 177,220 $ 547,702 $ 510,111 $ 490,573 $ 456,565 Operating Income Compressors & Vacuum Pumps $ 30,743 $ 30,879 $ 28,857 $ 28,446 $ 29,252 Lighting 20,323 22,423 16,832 11,193 4,618 Other -- -- -- -- (263) Corporate expenses (6,646) (12,315) (11,047) (10,133) (10,709) Total Operating Income $ 44,420 $ 40,987 $ 34,642 $ 29,506 $ 22,898 Note: See accompanying Notes to Consolidated Financial Statements and Management's Discussion and Analysis of Financial Condition and Results of Operations. (A) Thomas Industries changed its method of accounting for its lighting business (contributed to GTG) to the equity method, effective January 1, 1998, the beginning of Thomas' current fiscal year. This change had no effect on Thomas' net income or common shareholders' equity but did reduce its revenues, costs, assets, liabilities, and number of employees. Financial statements for years prior to 1998 were not restated; therefore, some information in Thomas' financial statements and highlights for 1998 is not comparable to prior years. (B) Divestitures -- major divestitures and the effect on net income in the year of divestiture include Builders Brass Works and Portland Willamette in 1994 for a gain of $3,000,000. (C) Adjusted for 1997 stock split.
EX-21 4 Exhibit 21. SUBSIDIARIES OF THE REGISTRANT Place of Percentage of Name of Company Incorporation Voting Securities --------------- ------------- ----------------- ASF Thomas Limited United Kingdom 100% ASF Thomas Industries Holding Deutschland GmbH Germany 100% ASF Thomas Industries GmbH, Puchheim Germany 100% ASF Thomas Industries GmbH, Memmingen Germany 100% ASF Thomas Industries GmbH & Co. KG, Wuppertal Germany 100% ASF Thomas, Inc. Georgia 100% Blue Grass Holdings Inc. Nevada 100% T.I. Industries Corporation Delaware 100% TI Pneumotive, Inc. Delaware 100% Thomas Group U.K., Inc. Delaware 100% Thomas Imports, Inc. Nevada 100% Thomas Industries Asia Pacific, Inc. Delaware 100% Thomas Industries Asia Pacific, Ltd. Hong Kong 100% Thomas Industries Export, Inc. U.S. Virgin Islands 100% Thomas Industries Holdings Inc. Delaware 100% Tupelo Holdings Inc. Delaware 100% Thomas Technologies, Inc. Delaware 100% Welch Vacuum Technology, Inc. Delaware 100% NON WHOLLY OWNED SUBSIDIARIES Place of Percentage of Name of Company Incorporation Voting Securities --------------- ------------- ----------------- Thomas Americas Industria e Commercio, LTDA Brazil 95% EX-23.(A) 5 Exhibit 23(a) Consent of Independent Auditors We consent to the incorporation by reference in the Registration Statement (Form S-3 No. 333-05629) and related Prospectus and in the Registration Statements (Forms S-8 No. 33-16257, No. 33-51653, No. 33-54689, No. 33-59099, and No. 333-34175) of Thomas Industries Inc. of our report dated February 11, 1998, with respect to the consolidated financial statements and schedule of Thomas Industries Inc. and subsidiaries included in the Annual Report (Form 10-K) for the years ended December 31, 1997 and 1996. /s/ Ernst & Young LLP Louisville, Kentucky March 16, 1998 EX-23.(B) 6 Exhibit 23(b) Consent of Independent Auditors As independent auditors, we hereby consent to the incorporation by reference in the Registration Statement (Form S-3 No. 333-05629) and related Prospectus and in the Registration Statements (Forms S-8 No. 33-16257 No. 33-54689, No. 33-59099, and No. 333-34175) of Thomas Industries Inc. of our report dated February 10, 1999, with respect to the consolidated financial statements of The Genlyte Thomas Group LLC included in the Annual Report (Form 10-K) for the year ended December 31, 1998. /s/ Arthur Andersen LLP Louisville, Kentucky March 24, 1999 EX-27 7
5 1,000 YEAR YEAR DEC-31-1998 DEC-31-1997 DEC-31-1998 DEC-31-1997 18,205 17,352 0 0 19,861 73,431 656 2,046 20,186 74,128 64,243 176,611 73,115 154,977 39,114 74,780 282,359 327,639 34,403 84,353 48,298 55,006 0 0 0 0 17,486 17,394 173,201 156,011 282,359 327,639 177,220 547,702 177,220 547,702 112,318 378,746 112,318 378,746 19,068 126,391 229 441 6,199 6,480 39,406 35,644 14,896 13,174 24,510 22,470 0 0 0 0 0 0 24,510 22,470 1.54 1.42 1.50 1.38 RESTATED.
-----END PRIVACY-ENHANCED MESSAGE-----