10-Q 1 0001.txt 2ND QTR 10Q 2000 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [ X ] For the quarterly period ended: June 30, 2000 --------------------------- OR TRANSITION REPORT PURSUANT TO SECTION 12 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [ ] For the transition period from________________________to________________________ Commission File Number 1-5426. ----------------------------- THOMAS INDUSTRIES INC. -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 61-0505332 ------------------------------------------- -------------------- (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 4360 Brownsboro Road, Louisville, Kentucky 40207 ------------------------------------------- -------------------- (Address of principal executive office) (Zip Code) Registrant's telephone number, including area code: 502/893-4600 -------------------- 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 twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ] The number of shares outstanding of issuer's Common Stock, $1 par value, as of July 29, 2000, was 15,439,600 shares. Page 1 of 11 PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) THOMAS INDUSTRIES INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (In Thousands Except Amounts Per Share) Three Months Ended Six Months Ended June 30 June 30 ------------------ ------------------ 2000 1999 2000 1999 ---- ---- ---- ---- Net sales $47,968 $47,467 $98,354 $93,768 Cost of products sold 30,139 30,391 62,726 59,884 ------- ------- ------- ------- Gross profit 17,829 17,076 35,628 33,884 Selling, general, and administrative expenses 10,852 10,100 22,011 21,352 Equity income from Lighting 5,895 5,652 11,306 10,637 ------- ------- ------- ------- Operating income 12,872 12,628 24,923 23,169 Interest expense 984 1,137 1,971 2,322 Interest income and other 1,297 543 1,872 1,044 ------- ------- ------- ------- Income before income taxes 13,185 12,034 24,824 21,891 Income taxes 4,773 4,753 9,254 8,736 ------- ------- ------- ------- Net income $ 8,412 $ 7,281 $15,570 $13,155 ======= ======= ======= ======= Net income per share Basic $ .54 $ .46 $ 1.00 $ .83 Diluted $ .53 $ .45 $ .98 $ .81 Dividends declared per share $ .075 $ .075 $ .15 $ .15 Weighted average number of shares outstanding Basic 15,515 15,791 15,549 15,775 Diluted 15,859 16,254 15,887 16,188 See notes to condensed consolidated financial statements. 2 THOMAS INDUSTRIES INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in Thousands) (Unaudited) June 30 December 31 2000 1999* ---- ---- ASSETS Current assets Cash and cash equivalents $ 5,742 $ 16,487 Accounts receivable, less allowance (2000--$797; 1999--$698) 25,663 20,869 Inventories: Finished products 4,715 4,965 Raw materials 10,662 10,209 Work in process 4,697 4,577 ------- ------- 20,074 19,751 Deferred income taxes 2,799 2,634 Other current assets 3,384 3,370 ------- ------- Total current assets 57,662 63,111 Investment in GTG 164,870 158,865 Property, plant, and equipment 83,351 78,903 Less accumulated depreciation and amortization 47,111 42,751 ------- ------- 36,240 36,152 Note receivable from GTG 22,287 22,287 Intangible assets--less accumulated amortization 10,155 10,677 Other assets 2,907 2,884 ------- ------- Total assets $294,121 $293,976 ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Notes payable $ 650 $ -0- Accounts payable 6,967 7,794 Other current liabilities 18,426 15,289 Current portion of long-term debt 7,784 7,784 ------- ------- Total current liabilities 33,827 30,867 Deferred income taxes 5,928 6,027 Long-term debt (less current portion) 32,770 40,513 Other long-term liabilities 6,865 7,087 ------- ------- Total liabilities 79,390 84,494 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: 2000--17,622,396 1999--17,567,104 17,622 17,567 Capital surplus 111,681 110,988 Retained earnings 122,926 109,689 Accumulated other comprehensive income (loss) (8,511) (6,385) Less cost of treasury shares: (2000--2,154,150; 1999--1,807,650) (28,987) (22,377) ------- ------- Total shareholders' equity 214,731 209,482 ------- ------- Total liabilities and shareholders' equity $294,121 $293,976 ======= ======= *Derived from the audited December 31, 1999, consolidated balance sheet. See notes to condensed consolidated financial statements. 3 THOMAS INDUSTRIES INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (Dollars in Thousands) Six Months Ended June 30 2000 1999 ---- ---- Operating activities: Net income $ 15,570 $ 13,155 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 4,350 4,183 Deferred income taxes (246) 200 Equity income from Lighting (11,306) (10,637) Distributions from Lighting 4,891 5,390 Other items 168 56 Changes in operating assets and liabilities: Accounts receivable (5,430) (4,619) Inventories (918) 847 Accounts payable (714) 1,177 Accrued expenses and other liabilities 3,171 892 Other (427) (80) -------- -------- Net cash provided by operating activities 9,109 10,564 Investing activities: Purchases of property, plant, and equipment (4,152) (3,557) Sale of property, plant, and equipment 2 12 -------- -------- Net cash used in investing activities (4,150) (3,545) Financing activities: Proceeds from (payments on) notes payable to banks, net 650 (218) Payments on long-term debt, net (7,743) (7,743) Treasury stock purchased (6,610) -- Dividends paid (2,355) (2,377) Other 748 309 -------- -------- Net cash used in financing activities (15,310) (10,029) Effect of exchange rate change (394) (333) -------- -------- Net decrease in cash and cash equivalents (10,745) (3,343) Cash and cash equivalents at beginning of period 16,487 18,205 -------- -------- Cash and cash equivalents at end of period $ 5,742 $ 14,862 ======== ======== See notes to condensed consolidated financial statements. 4 THOMAS INDUSTRIES INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Note A - Basis of Presentation ------------------------------ The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial reporting and with the instructions to Form 10-Q and Article 10-01 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. The results of operations for the six-month period ended June 30, 2000, are not necessarily indicative of the results that may be expected for the year ending December 31, 2000. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. For further information, refer to the consolidated financial statements and footnotes included in the Company's Annual Report on Form 10-K for the year ended December 31, 1999. Note B - 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. Note C - Comprehensive Income ----------------------------- Reconciliation of net income to total comprehensive income for the periods indicated follows. (In Thousands) For the three months ended June 30: 2000 1999 ---- ---- Net income $8,412 $7,281 Minimum pension liability -- 1 Foreign currency translation (911) (699) ----- ----- Comprehensive income $7,501 $6,583 ===== ===== For the six months ended June 30: Net income $15,570 $13,155 Minimum pension liability -- 1 Foreign currency translation (2,126) (2,421) ------ ------ Comprehensive income $13,444 $10,735 ====== ====== 5 Note D - Net Income Per Share ----------------------------- The computation of the numerator and denominator in computing basic and diluted net income per share follows:
(In Thousands) Three Months Six Months Ended June 30 Ended June 30 ------------- ------------- 2000 1999 2000 1999 ---- ---- ---- ---- Numerator: Net income $ 8,412 $ 7,281 $15,570 $13,155 ======= ======= ======= ======= Denominator: Weighted average shares outstanding 15,515 15,791 15,549 15,775 Effect of dilutive securities: Director and employee stock options 342 418 332 369 Employee performance shares 2 45 6 44 ------- ------- ------- ------- Dilutive potential common shares 344 463 338 413 ------- ------- ------- ------- Denominator for diluted earnings per share--adjusted weighted average shares and assumed conversions 15,859 16,254 15,887 16,188 ======= ======= ======= =======
Note E - Genlyte Thomas Group LLC --------------------------------- The following table contains certain unaudited financial information for the Joint Venture. Genlyte Thomas Group LLC Condensed Financial Information (Dollars in Thousands) (Unaudited) June 30 December 31 2000 1999 ---- ---- Balance sheet: Current assets $341,957 $321,788 Long-term assets 229,694 231,643 Current liabilities 159,340 170,478 Long-term liabilities 81,071 73,785
Three Months Six Months Ended June 30 Ended June 30 ----------------- ------------------ 2000 1999 2000 1999 ---- ---- ---- ---- Income statement: Net sales $ 251,336 $ 243,645 $ 495,991 $ 481,121 Gross profit 84,143 79,470 165,489 156,848 Earnings before interest and taxes 22,210 21,237 42,406 40,390 Net income* 20,075 19,315 38,638 36,546 *Amounts recorded by Thomas Industries Inc.: Equity income from GTG $ 6,424 $ 6,181 $ 12,364 $ 11,695 Amortization of excess investment (529) (529) (1,058) (1,058) --------- --------- --------- --------- Equity income reported by Thomas $ 5,895 $ 5,652 $ 11,306 $ 10,637 ========= ========= ========= =========
6 Note F - Receivables from Affiliate ----------------------------------- Included in Other Long-Term Assets at June 30, 2000, and December 31, 1999, is $22,287,000 which represents a debt equalization note payable to Thomas by GTG related to the formation of the Joint Venture. Interest on the principal amount outstanding under the note accrues at a variable rate based on LIBOR plus the Offshore Rate Margin 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. Note G - Segment Disclosures ----------------------------
Three Months Ended Six Months Ended June 30 June 30 ---------------- ---------------- 2000 1999 2000 1999 ---- ---- ---- ---- Total net sales including intercompany sales Compressors & Vacuum Pumps $ 54,092 $ 51,007 $ 109,240 $ 101,301 Intercompany sales Compressors & Vacuum Pumps $ (6,124) $ (3,540) $ (10,886) $ (7,533) --------- --------- --------- --------- Net sales to unaffiliated customers Compressors & Vacuum Pumps $ 47,968 $ 47,467 $ 98,354 $ 93,768 ========= ========= ========= ========= Operating income Compressors & Vacuum Pumps $ 8,694 $ 8,363 $ 17,168 $ 16,128 Lighting* 5,895 5,652 11,306 10,637 Corporate (1,717) (1,387) (3,551) (3,596) --------- --------- --------- --------- $ 12,872 $ 12,628 $ 24,923 $ 23,169 ========= ========= ========= ========= *Represents 32% of GTG net income less amortization of excess investment.
Note H - Accounting Pronouncement --------------------------------- In December 1999, the Securities and Exchange Commission staff released Staff Accounting Bulletin No. 101, "Revenue Recognition" ("SAB 101"). SAB 101 provides interpretive guidance on the recognition, presentation, and disclosure of revenue in financial statements. The accounting impact of SAB 101 is required to be determined no later than the Company's fourth quarter of 2000. If the Company determines that its revenue recognition policies must change to be in compliance with SAB 101, the implementation of SAB 101 will require the Company to report the impact of this change as a cumulative effect of a change in accounting principle as if SAB 101 had been implemented on January 1, 2000. The Company is currently evaluating the impact of SAB 101 to determine what effect, if any, it may have on the Company's consolidated financial position and results of operation. 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations --------------------- Net sales of $48.0 million during the second quarter ended June 30, 2000, were a record for any second quarter for the Compressor & Vacuum Pump business. This represented a 1.1 percent increase over the $47.5 million for the second quarter of 1999. This increase was less than anticipated since it followed an 8.8 percent sales increase when comparing our first quarter of 2000 with 1999. During the second quarter of this year, our North American operations had several large medical market accounts push out orders. Also, our European operations' sales were negatively affected by an unfavorable Euro exchange rate. When measured at a constant Euro exchange rate, our Compressor & Vacuum Pump net sales would have increased an additional 2.8 percent. Net sales for the six-month period ended June 30, 2000, were $98.4 million compared to $93.8 million for the prior year. The increase was attributable to strong results achieved in our North American and Asia Pacific operations during the first quarter of this year. When measuring our six-month period results at a constant Euro exchange rate, our Compressor & Vacuum Pump net sales would have increased an additional 2.9 percent. Operating income for the second quarter ended June 30, 2000, was $12.9 million compared to $12.6 million for the second quarter 1999. Our Compressor & Vacuum Pump Segment posted a 4.0 percent increase in operating income over the 1999 second quarter. This was principally due to increased sales volume and mix. Our Lighting Segment results increased to $5.9 million in the second quarter of 2000 compared to $5.7 million in the same period last year. Operating income for the six-month period ended June 30, 2000, was $24.9 million compared to $23.2 million in 1999. This increase was attributable to Compressor & Vacuum Pump sales volume increases and improved margins due to sales mix and cost reduction programs, as well as the strength of the Lighting Segment's earnings. Net income for the 2000 second quarter of $8.4 million was 15.5 percent higher than the $7.3 million for the comparable 1999 period. Excluding a one-time gain of $.8 million recorded in the second quarter of 2000, related to the proceeds of a life insurance policy, net income would have been $7.6 million. This would still represent a record net income for any quarter. Net income for the six-month period ended June 30, 2000, was $15.6 million compared to $13.2 million for the six-month period in 1999. The quarter and six-month increases over 1999 were due primarily to the increases in our Compressor & Vacuum Pump Segment's and Lighting Segment's earnings, the one-time gain from a life insurance policy, and lower interest expense as noted below. Interest expense for the 2000 second quarter was $1.0 million or 13.5 percent lower than the prior-year amount of $1.1 million. This reduction in interest expense was primarily related to the $7.7 million debt payment on January 31, 2000. This has been partially offset by interest on short-term borrowings, which are higher due to the funding of our stock repurchase program noted below. Interest expense for the six-month period ended June 30, 2000, was $2.0 million compared to $2.3 million in 1999. 8 Item 2. Management's Discussion and Analysis --Continued Included in Other Long-Term Assets at June 30, 2000,and December 31, 1999, is $22,287,000 which represents the debt equalization note payable to Thomas by GTG related to the formation of the Joint Venture. 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. Working capital of $23.8 million at June 30, 2000, is $8.4 million lower than the amount at December 31, 1999, primarily resulting from the $7.7 million long-term debt payment on January 31, 2000, and from the $6.6 million spent in the first half of 2000 on the stock repurchase program. Since December 31, 1999, the Company has purchased an additional 346,500 shares for the stock repurchase program that was announced in December 1999. To date, the Company has purchased, on a cumulative basis, 442,000 shares at a cost of $8,424,508. Accounts receivable at June 30, 2000, have increased by 23.0% since December 31, 1999, due to higher sales volume and a larger concentration of accounts receivable with international customers, which typically have longer terms. The number of days sales in receivables at June 30, 2000, compared to December 31, 1999, has increased to 50.6 days from 48.0. Annualized inventory turnover at June 30, 2000, of 5.4 improved from the December 31, 1999, level of 5.0. 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 $69.1 million are not restricted at June 30, 2000. As of June 30, 2000, the Company had available credit of $5.6 million with banks under short-term borrowing arrangements, 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 investment grade, short-term securities. 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 two-year period. The software used by our European operations has been modified to accommodate the dual currencies during the transition period. A team is in place to monitor any changing EMU requirements and to establish the final conversion timetable for the single EMU currency. While management currently believes the Company has accommodated any required changes in its operations, there can be no assurance that its customers, suppliers, 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. 9 Item 2. Management's Discussion and Analysis --Continued Staff Accounting Bulletin No. 101 --------------------------------- In December 1999, the Securities and Exchange Commission staff released Staff Accounting Bulletin No. 101, "Revenue Recognition" ("SAB 101"). SAB 101 provides interpretive guidance on the recognition, presentation, and disclosure of revenue in financial statements. The accounting impact of SAB 101 is required to be determined no later than the Company's fourth quarter of 2000. If the Company determines that its revenue recognition policies must change to be in compliance with SAB 101, the implementation of SAB 101 will require the Company to report the impact of this change as a cumulative effect of a change in accounting principle as if SAB 101 had been implemented on January 1, 2000. The Company is currently evaluating the impact of SAB 101 to determine what effect, if any, it may have on the Company's consolidated financial position and results of operation. Item 3. 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 and cash flows would only be affected by interest rate changes to the extent that variable rate, short-term notes payable are outstanding. At June 30, 2000, there was $.7 million in short-term notes payable outstanding. The fair value of the Company's long-term debt is estimated based on current interest rates offered to the Company for similar instruments. The Company believes that the effect, if any, of reasonably possible near-term changes in interest rates on the Company's consolidated financial position would not be 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 Europe and Asia. 10 PART II. OTHER INFORMATION ------- ----------------- Item 4. Submission of Matters to a Vote of Security Holders (a) A regular Annual Meeting of Shareholders was held on April 20, 2000. (b) Class II Directors elected at the Annual Meeting of Shareholders were Timothy C. Brown, Wallace H. Dunbar, and Franklin J. Lunding, Jr. Directors whose term of office as a director continued after the meeting were H. Joseph Ferguson, Gene P. Gardner, Lawrence E. Gloyd, William M. Jordan, and Anthony A. Massaro. (c) The voting at the Annual Meeting of Shareholders was as follows: Proposal No. 1 - Election of Directors For Withheld --- -------- Timothy C. Brown 13,151,962 798,395 Wallace H. Dunbar 13,862,914 87,443 Franklin J. Lunding, Jr. 13,868,602 81,755 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits (4b) Amended and Restated Rights Agreement (27) Financial Data Schedule. (b) No reports on Form 8-K were filed during the quarter. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. THOMAS INDUSTRIES INC. --------------------------------------- Registrant /s/ Phillip J. Stuecker --------------------------------------- Phillip J. Stuecker, Vice President and Chief Financial Officer Date August 14, 2000 ----------------------- 11