-----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, PpFM8AV+IlVs7xU6BIV3P7U9wbOht5kAFzfBGXfcvedTgibBbJCX9qAp5BspU83O 7SmdDR58T7jUNoSlJ3DmXA== 0000914760-98-000064.txt : 19980323 0000914760-98-000064.hdr.sgml : 19980323 ACCESSION NUMBER: 0000914760-98-000064 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980320 SROS: NYSE 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: 98569700 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, 1997 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 9, 1998, 15,865,122 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 9, 1998, was approximately $357,956,815. Portions of the Proxy Statement for the Annual Meeting of Shareholders on April 16, 1998, are incorporated by reference in Part III of this report. Portions of the Annual Report to Shareholders for fiscal year ended December 31, 1997, are incorporated by reference in Parts I and II of this report. Page 1 of 81 PART I. ITEM 1. BUSINESS a. General Development of Business. The Company began operations in 1928 and has grown through both internal expansion and new business acquisitions. The Company has focused on expansion of the Lighting Segment and the Compressors and Vacuum Pumps Segment as its two core businesses. Significant additions to these two core segments have been ASF, Pneumotive, Brey, WISA, and Welch, all compressor and vacuum pump companies, acquired from 1987 through 1996; and the Lumec and Day-Brite Lighting additions in 1987 and 1989, respectively. These acquisitions have been strategically important as they allow the Company to offer a more complete product line and make the Company a more prominent participant in both the lighting and compressor and vacuum pump markets. The Lighting Segment operates in a multi-faceted industry, serving the consumer, commercial, industrial, and outdoor markets. Five companies in the U.S. and Canada, one of which is Thomas Industries, share a substantial portion of the market. Although the industry is subject to the cyclicality of residential and commercial construction activity, replacement and renovation activity moderates these cycles somewhat. Thomas is the leading supplier to the original equipment manufacturer (OEM) medical market and a significant participant in a variety of other OEM compressor and vacuum pump markets. Operations of the Compressor & Vacuum Pump Segment help the Company moderate the impact of the Lighting Segment's vulnerability to construction and economic cycles. 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. The Company operates two core businesses organized as a lighting segment which includes consumer, commercial, industrial, and outdoor lighting products; and a Compressor & Vacuum Pump segment which includes applications for industrial, medical, and laboratory markets. The Company designs, manufactures, markets, and sells these products. The Company operates numerous divisions and subsidiaries, with facilities throughout the U.S. and operations in Canada, Germany, and Mexico. The Company also maintains sales offices in Brazil, England, Italy, Hong Kong, Japan, and Taiwan and has joint ventures in the U.S. and Canada with a German company and a Belgian company. The Company maintains corporate offices in Louisville, Kentucky. ITEM 1. (Continued) Lighting Segment The Company's consumer lighting products are designed for a broad range of applications. The Company stresses product development to meet changing needs and demands. The Company typically targets the more upscale, single-family market but also has a line for the do-it-yourself segment. The Company also is strongly involved in the replacement lighting market, which is a growing component of the overall lighting industry. Consumer lighting fixtures are manufactured and sold in the U.S., Canada, and Mexico under the Thomas, Starlight, Capri, and Do-It-Yourself trade names; and those trade names are recognized as important to this Segment's business. The Company's consumer lighting line includes high-style chandeliers and bathroom fixtures, plus quality lighting products for foyers, dining rooms, living rooms, entertainment areas, kitchens, bedrooms, and outdoors. These products are distributed throughout the United States and Canada through a network of electrical distributors, lighting showrooms, and home centers, which, in turn, sell to electrical contractors, builders, and consumers. The Company is one of the leading manufacturers in North America of commercial and industrial lighting products, including track, recessed, fluorescent, high-intensity discharge ("HID"), and flexible wiring systems. These products are manufactured in the U.S., Canada, and Mexico under the trade names Thomas, C&M, Capri, Day-Brite, Electro/Connect, Emco, Gardco, Lumec, Matrix, McPhilben, and Omega trade names; and those trade names are recognized as important to this Segment's business. The Commercial and Industrial product line includes a broad range of fixtures for both indoor and outdoor applications including fluorescent, HID, track, downlighting, flexible wiring systems, outdoor area flood, parking, and path lighting, tunnel and street lighting, and micro processor controls. The Company stresses product development in order to provide innovative, efficient solutions to lighting needs. The Company's products are utilized in a variety of applications, including those in office, education, retail, health care, hospitality, industry, and municipal market segments. The Lighting Segment accounted for 68 percent of the Company's sales in 1997, compared to 67 percent in 1996 and 68 percent in 1995. Compressors and Vacuum Pumps Segment This Segment includes compressors and vacuum pumps manufactured under the Thomas and Welch names in the U.S. and ASF/Thomas in Europe. Thomas specializes in compressor applications below the 1.5 horsepower range for use in the finished products of other domestic or foreign manufacturers and in the manufacture of high vacuum systems for laboratory and chemical markets. Such compressors and vacuum pumps are used in medical equipment, vending machines, ITEM 1. (Continued) photocopiers, computer tape drives, automotive and transportation equipment, liquid dispensing applications, gasoline vapor and refrigerant recovery, waste disposal, and laboratory equipment. Thomas is the major compressor and vacuum pump participant in the medical OEM industry worldwide. 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. Its products also are manufactured for private-label sale in the construction, laboratory, and chemical markets. In addition, the Company manufactures and sells compressors and related accessories for commercial and consumer use. Sales, both domestic and international, traditionally are made through hardware stores, home centers, and building supply dealers. The U.S. operations manufacture rotary vane, linear, piston, and diaphragm compressors and vacuum pumps, as well as air motors and vacuum ejectors. These products are distributed worldwide to original equipment manufacturers as well as through fluid power and large compressor distributors. Primary markets served include medical, environmental, instrumentation, mobile, construction, laboratory, chemical, and consumer. The European operations manufacture a complementary line of miniature rotary vane, piston, linear, and diaphragm compressors and vacuum pumps, with expertise in applications of less than 1/8 horsepower. These products are currently distributed worldwide to original equipment manufacturers. Primary applications for products manufactured in Europe include medical, air and gas sampling, photography, and dish washing equipment, as well as laboratory instruments and leak detection devices. The Thomas, ASF/Thomas, Welch, Sprayit, and Medi-Pump trade names are recognized in the market and are important to the Segment. The Compressors and Vacuum Pumps Segment accounted for 32 percent of the Company's sales in 1997, compared to 33 percent in 1996 and 32 percent in 1995. --------------------- No single customer of the Company accounted for 10 percent or more of consolidated net sales or 10 percent or more of any segment's net sales in 1997, 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 $90 million at December 31, 1997--46 percent Lighting and 54 percent Compressors and Vacuum Pumps--and $92 million at December 31, 1996--42 percent Lighting and 58 percent Compressors and Vacuum Pumps. The Company believes substantially all of ITEM 1. (Continued) such orders are firm, although some orders are subject to cancellation. Substantially all of these orders are expected to be filled in 1998. Competition in the lighting industry is strong in all markets served by the Company. It is estimated that five companies share a substantial majority of the market in the U.S. and Canada. Thomas Industries is one of these top five. The Company stresses high quality, and energy efficient lighting products, while providing value and strong customer support to compete in its markets. The Compressors and Vacuum Pumps Segment competes worldwide in the fractional horsepower compressor and vacuum pump markets. Thomas is the leading supplier to the OEM medical market and a significant participant in its other OEM markets. The Company believes that it has adequate sources of materials and supplies for each of its businesses. There is no significant seasonal impact on the business of any industry segment of the Company. The lighting industry continues to be dependent on the construction markets, which are subject to the overall health of the economy. Working capital is provided 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 1997, the Company spent $14.9 million 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 1996, the Company spent $14.3 million on these activities and during 1995, $13.4 million. 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 3,200 people at December 31, 1997. d. 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 1997 Annual Report to Shareholders, and incorporated herein by reference, for financial information about foreign and domestic operations. Export sales for the ITEM 1. (Continued) years 1997, 1996, and 1995, were $45,900,000, $41,400,000, and $40,900,000 respectively. e. 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, 47 1984 President, Chief Executive Officer, Chairman of the Executive Committee, and Director Richard J. Crossland Vice President; Lighting 54 1994 (A) Group Manager Cliff C. Moulton Vice President, 50 1993 (B) Business Development Phillip J. Stuecker Vice President of Finance, 46 1984 Chief Financial Officer, and Secretary Ronald D. Schneider Vice President; General 47 1992 (C) Manager, Commercial & Industrial Lighting Business Unit Gilbert R. Grady, Jr. Vice President, Corporate 61 1981 Human Resources Bernard R. Berntson Vice President; General 58 1992 (D) Manager, North American Compressor & Vacuum Pump Group Peter H. Bissinger Vice President; General 52 1992 (E) Manager, European Compressor & Vacuum Pump Group (A) Richard J. Crossland was elected an officer effective August 18, 1994. Mr. Crossland spent the previous 10 years with Philips Lighting Company, Somerset, New Jersey, where he was Group Vice President/General Manager of four divisions since 1990 and Vice President, Operations, of seven manufacturing facilities from 1989 to 1990. (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 Item 1. (Continued) Vice President and General Manager of the Skinner Valve Division, since 1987. (C) Ronald D. Schneider was elected an officer effective April 16, 1992. Mr. Schneider had held the position of Vice President, Lighting Operations since 1994 and prior to that was Director, Manufacturing Services for the Lighting Group and Manufacturing Services Manager at the Company's Power Air Division. (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.
All other officers listed have been executive officers for the past five years. 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
Lighting 8 5 1,706,187 Manufacturing plants 3 3 608,566 Distribution centers 0 3 64,525 Administrative offices Compressors and Vacuum 3 4 659,464 Manufacturing plants Pumps 0 3 11,440 Distribution centers Corporate 0 2 16,186 Corporate headquarters 2 1 279,700 Leased to third parties 2 0 210,200 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 1997 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 1997 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 1997 Annual Report to Shareholders and incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information required by this item is 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 1997 Annual Report to Shareholders and incorporated herein by reference. The ITEM 8. (Continued) Report of Independent Auditors is also set forth in Exhibit 13 and hereby incorporated herein by reference. 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 1997 Annual Report to Shareholders and incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. Reference is made to registrant's Proxy Statement for the Annual Meeting of Shareholders to be held on April 16, 1998, under the heading "Auditors." 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 16, 1998, 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 16, 1998, 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 16, 1998, 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 16, 1998, 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 1997 Annual Report to Shareholders, are included in Part II, Item 8: Consolidated Balance Sheets--December 31, 1997 and 1996 Consolidated Statements of Income--Years ended December 31, 1997, 1996, and 1995 Consolidated Statements of Shareholders' Equity--Years ended December 31, 1997, 1996, and 1995 Consolidated Statements of Cash Flows--Years ended December 31, 1997, 1996, and 1995 Notes to Consolidated Financial Statements--December 31, 1997 (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, 1988, hereby incorporated by reference. 3(b) Bylaws, as amended December 10, 1997. 4(a) Note Agreement dated January 19, 1990, by and among the Company and its Day-Brite Lighting, Inc., subsidiary, Allstate Life Insurance Company, and other investors filed as Exhibit 4 to ITEM 14. (Continued) Exhibit No. Exhibit registrant's report on Form 10-K dated March 22, 1990, hereby 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) Employment Agreement with Richard J. Crossland filed as Exhibit 10(c) to registrant's report on Form 10-K dated March 22, 1995, hereby incorporated by reference. 10(d) Trust Agreement, filed as Exhibit 10(1) to registrant's report on Form 10-Q dated November 11, 1988, hereby incorporated by reference. 10(e) 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(f) 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(g) 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(h) Nonemployee Director Stock Option Plan as Amended and Restated as of February 5, 1997, filed as ITEM 14. (Continued) Exhibit No. Exhibit Exhibit 10(h) to registrant's report on Form 10-K dated March 20, 1997, hereby incorporated by reference. 10(i) 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(j) 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. 13 Certain portions of the Company's 1997 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 KPMG Peat Marwick LLP. 27 Financial Data Schedule. Reports on Form 8-K During the fourth quarter of 1997, the Company filed the following reports on Form 8-K: Form 8-K dated October 16, 1997. Item 5. Other Events Three-for-two stock split on all shares of Common Stock. Form 8-K dated December 12, 1997. Item 5. Other Events Shareholder Rights Plan adopted. 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 19, 1998 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; 3/19/98 Timothy C. Brown President; Chief Executive Officer; Director (Principal Executive Officer) /s/ Phillip J. Stuecker Vice President of Finance; 3/19/98 Phillip J. Stuecker Chief Financial Officer; Secretary (Principal Financial Officer) /s/ Ronald D. Wiseman Controller; Assistant 3/19/98 Ronald D. Wiseman Secretary (Principal Accounting Officer) /s/ Wallace H. Dunbar Director 3/19/98 Wallace H. Dunbar /s/ H. Joseph Ferguson Director 3/19/98 H. Joseph Ferguson /s/ Gene P. Gardner Director 3/19/98 Gene P. Gardner Signatures (Continued) Signature Title Date /s/ Lawrence E. Gloyd Director 3/19/98 Lawrence E. Gloyd /s/ William M. Jordan Director 3/19/98 William M. Jordan /s/ Ralph D. Ketchum Director 3/19/98 Ralph D. Ketchum /s/ Franklin J. Lunding, Jr. Director 3/19/98 Franklin J. Lunding, Jr. /s/ Anthony A. Massaro Director 3/19/98 Anthony A. Massaro Report of Independent Auditors Report of Independent Auditors The Board of Directors and Shareholders Thomas Industries Inc. We have audited the consolidated balance sheet of Thomas Industries Inc. and subsidiaries as of December 31, 1997 and 1996, and the related consolidated statements of income, shareholders' equity, and cash flows for the years then ended. Our audits also included the 1997 and 1996 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 and schedule of Thomas Industries Inc. and subsidiaries for the year ended December 31, 1995, were audited by other auditors whose report dated February 7, 1996, expressed an unqualified opinion on those statements and schedule. 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 provide a reasonable basis for our opinion. In our opinion, the 1997 and 1996 financial statements referred to above present fairly, in all material respects, the consolidated financial position of Thomas Industries Inc. and subsidiaries at December 31, 1997 and 1996, and the consolidated results of their operations and their cash flows for the years then ended in conformity with generally accepted accounting principles. Also, in our opinion, the related 1997 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, 1998 Independent Auditors' Report The Board of Directors and Shareholders Thomas Industries Inc. We have audited the accompanying consolidated statements of income, shareholders' equity, and cash flows of Thomas Industries Inc. and subsidiaries for the year ended December 31, 1995. In connection with our audits of the aforementioned consolidated financial statements, we also have audited the financial statement schedule for the year ended December 31, 1995, as listed in the accompanying index. These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule 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 consolidated financial statements referred to above present fairly, in all material respects, the results of operations and the cash flows of Thomas Industries Inc. and subsidiaries for the year ended December 31, 1995, 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/ KPMG Peat Marwick LLP Louisville, Kentucky February 6, 1998 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 sixty 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. Such notice must also include a signed consent of each such nominee to serve as a director of the Corporation, if elected. 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 nine 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 -- three members The term of office of directors of Class I shall expire at the 1999 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 RESULTS OF OPERATIONS The Company's sales and net income for 1997 achieved record levels. Net income for 1997 was $22.5 million, an increase of $5.1 million, or 29.0%, over 1996. Net sales increased 7.4% to $547.7 million in 1997 compared to $510.1 million in 1996. Net income for 1996 was $17.4 million, an increase of $4.6 million, or 36.3%, over 1995. Net sales increased 4.0% to $510.1 million in 1996 from $490.6 million in 1995. The Lighting Segment net sales for 1997 of $374.1 million were also a record and represent an increase of 10.0% over 1996 net sales, following an increase of 2.2% in 1996. The increase in 1997 was attributable to the strength of construction markets as all divisions reported higher sales. The increase in 1996 resulted from improvements in the Consumer Division and additional shipments in the Canadian market. Operating income for the Lighting Segment improved to $22.4 million in 1997, up from $16.3 million in 1996, and $11.4 million in 1995. The 1997 operating income represents a 36.9% improvement over 1996, while the 1996 level was 43.1% greater than 1995. The improvements were due to the additional volume, improved manufacturing efficiencies and continued implementation of cost containment programs. The Compressor & Vacuum Pump Segment achieved record net sales of $173.6 million in 1997, an increase of 2.1% over 1996, following an increase of 7.8% in 1996 over 1995. The increase in 1997 was due to the continued successful introduction of new products for new applications which offset pricing pressure in the medical markets. The increase for 1996 was due to the acquisition of Welch Vacuum Technology and the introduction of new products. For 1997, operating income increased to a record $30.9 million, or 7.0%, from 1996 due to the increased sales, improved efficiencies, cost containment in the manufacturing operations and favorable exchange rate conditions between the U.S. and Europe. Operating income for the Segment increased 1.4% to $28.9 million in 1996 compared to the 1995 level of $28.4 million due to the addition of Welch. Cost of products sold for 1997 was $378.7 million, an increase of 5.6%, due primarily to increased sales volume. In 1996, cost of products sold was $358.8 million, compared to $352.6 million in 1995, an increase of 1.8%. Cost of products sold as a percentage of net sales was 69.2% in 1997, compared to 70.3% and 71.9% in 1996 and 1995, respectively. Gross profit margins have improved as a result of the Company's ongoing commitment to cost reduction efforts and productivity improvement programs. Selling, general and administrative (SG&A) expenses were $127.5 million, $117.2 million, and $108.3 million in 1997, 1996 and 1995, respectively. As a percentage of net sales, SG&A expenses were 23.3% in 1997, compared to 23.0% and 22.1% in 1996 and 1995, respectively. The increase in SG&A expenses as a percentage of net sales is primarily due to additional information technology costs, including costs associated with Year 2000 software conversion requirements. Interest expense for 1997 declined $.9 million, or 11.6%, from 1996; while the 1996 interest expense declined $.9 million, or 11.0%, from 1995. The interest expense reductions in both years were due principally to the lower levels of long-term debt. Income taxes were $13.2 million, $10.3 million and $8.3 million in 1997, 1996 and 1995, respectively. The effective income tax rate was 37.0% in 1997, compared to 37.1% in 1996 and 39.3% in 1995. 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 these requirements. 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 undiscounted liabilities for such matters. During 1997, the Company employed an average of 3,300 people, compared to 3,150 in 1996. The increase was due to the additional sales volume. LIQUIDITY AND SOURCES OF CAPITAL Cash and cash equivalents decreased to $17.4 million at December 31, 1997, compared to $18.8 million and $18.3 million at December 31, 1996 and 1995, respectively. Cash flows from operations were $32.3 million in 1997 compared to $30.1 million in 1996 and $39.4 million in 1995. 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 1997, 1996 and 1995 totaling $34.7 million. Dividends declared in 1997 were $4.4 million, compared with $4.2 million in 1996 and $4.0 million in 1995. 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 7.5 cents per post-split share which, giving effect to the stock split, creates a 12.5 percent increase in the cash dividend. Working capital increased $6.4 million during 1997 from the December 31, 1996 level which had increased $5.0 million from December 31, 1995. From 1996 to 1997, accounts receivable increased $3.1 million and inventory increased $4.9 million due to the higher sales volume.
(Dollars in thousands) 1997 1996 1995 Working capital $ 92,258 $ 85,838 $ 80,837 Current ratio 2.09 2.02 1.96 Long-term debt, less current portion $ 55,006 $ 62,632 $ 70,791 Long-term debt to total capital 24.1% 28.4% 33.1%
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 $41.4 million are not restricted at December 31, 1997. As of December 31, 1997, the Company had available credit of $11.9 million with banks under short-term borrowing arrangements, $11.0 million of 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. RECENTLY ISSUED ACCOUNTING STANDARDS In June 1997, the Financial Accounting Standards Board (FASB) issued Statement No. 130, "Reporting Comprehensive Income", and Statement No. 131, "Disclosures about Segments of an Enterprise and Related Information". For a discussion of these statements and their impact on the Company, please refer to Note 2 of the Notes to the Consolidated Financial Statements on page 26. YEAR 2000 ISSUE Some of the Company's computer programs were written using two digits rather than four to define the applicable year. As a result, those computer programs have time-sensitive software that recognize a date using "00" as the year 1900 rather than the year 2000. This could cause disruptions of operations including, among other things, a temporary inability to process transactions, send invoices or engage in similar normal business activities. In 1996, the Company initiated a program to address this issue so that computer systems will function properly with respect to dates in the year 2000 and thereafter. To date, the Company has incurred and expensed approximately $2 million for assessment and modification of software under this program. The program is estimated to be completed not later than December 31, 1998, which is prior to any anticipated impact on operating systems. Future expenditures to complete the project are not expected to have a material effect on financial position or results of operations. There can be no guarantee regarding costs or completion date, and actual results could differ materially from those anticipated. Specific factors that might cause such material differences include, but are not limited to, the availability and cost of personnel trained in this area, the ability to locate and correct all relevant computer codes, and similar uncertainties. The Company has initiated formal communications with all significant suppliers and large customers to determine the extent to which the Company's interface systems are vulnerable to those third parties' failure to remediate their own Year 2000 issues. There is no guarantee that the systems of other companies on which the Company relies will be timely converted and would not have an adverse effect on the Company. 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," 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 that 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 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. FORWARD-LOOKING STATEMENTS (CONTINUED) The Compressor & 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. 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, 1998, there were 2,041 security holders of record. High and low stock prices and dividends for the last two years were: (Data have been restated to reflect a three-for-two stock split effective December 1, 1997.)
1997 1996 Cash Cash Market Price Dividends Market Price Dividends Quarter Ended High Low Declared High Low Declared March 31 $ 17.33 $ 13.67 $ .067 $ 15.92 $ 13.58 $ .067 June 30 19.33 14.33 .067 14.50 12.75 .067 September 30 20.42 18.50 .067 13.42 11.00 .067 December 31 22.33 19.38 .075 14.25 12.50 .067
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31 (In thousands, except share data) 1997 1996 1995 Net sales $ 547,702 $ 510,111 $ 490,573 Cost of products sold 378,746 358,778 352,551 Gross profit 168,956 151,333 138,022 Selling, general and administrative expenses 127,500 117,175 108,284 Interest expense 6,480 7,333 8,242 Interest income and other (668) (863) 443 133,312 123,645 116,969 Income before income taxes 35,644 27,688 21,053 Income taxes 13,174 10,272 8,278 Net income $ 22,470 $ 17,416 $ 12,775 Net income per share - Basic $ 1.42 $ 1.11 $ 0.84 Net income per share - Diluted 1.38 1.09 0.83 See accompanying notes.
CONSOLIDATED BALANCE SHEETS
December 31 (In thousands, except share data) 1997 1996 Assets Current assets: Cash and cash equivalents $ 17,352 $ 18,826 Accounts receivable, net 71,385 68,239 Inventories, net 74,128 69,247 Deferred income taxes 6,694 7,167 Other current assets 7,052 6,885 Total current assets 176,611 170,364 Property, plant and equipment, net 80,197 77,795 Intangible assets, net 56,333 58,687 Other assets 14,498 12,804 Total assets $ 327,639 $ 319,650 Liabilities and shareholders' equity Current liabilities: Notes payable to banks $ 2,564 $ 6,986 Accounts payable 31,094 27,377 Accrued expenses and other current liabilities 41,646 41,352 Dividends payable 1,189 1,053 Current portion of long-term debt 7,860 7,758 Total current liabilities 84,353 84,526 Deferred income taxes 8,802 8,603 Long-term debt, less current portion 55,006 62,632 Other long-term liabilities 6,073 6,187 Total liabilities 154,234 161,948 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: 1997 - 17,394,198; 1996 - 17,324,910 17,394 17,325 Capital surplus 109,750 109,431 Retained earnings 68,533 50,420 Foreign currency translation (4,587) (1,482) Minimum pension liability (473) (780) Less cost of treasury shares: 1,535,469 shares (17,212) (17,212) Total shareholders' equity 173,405 157,702 Total liabilities and shareholders' equity $ 327,639 $ 319,650 See accompanying notes.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years ended December 31 (In thousands) 1997 1996 1995 Common stock: Beginning of year $ 17,325 $ 17,229 $ 17,172 Stock options exercised 69 96 57 End of year 17,394 17,325 17,229 Capital surplus: Beginning of year 109,431 112,231 111,833 Treasury stock retired - (3,866) - Welch pooling of interests - 347 - Stock options exercised 319 719 398 End of year 109,750 109,431 112,231 Retained earnings: Beginning of year 50,420 40,003 31,264 Welch pooling of interests - (928) - Net income 22,470 17,416 12,775 Treasury stock retired - (1,902) - Cash dividends (4,357) (4,169) (4,036) End of year 68,533 50,420 40,003 Foreign currency translation: Beginning of year (1,482) (616) (2,478) Adjustment (3,105) (866) 1,862 End of year (4,587) (1,482) (616) Minimum pension liability: Beginning of year (780) (2,690) (1,045) Adjustment 307 1,910 (1,645) End of year (473) (780) (2,690) Treasury stock: Beginning of year (17,212) (22,980) (22,980) Treasury stock retired - 5,768 - End of year (17,212) (17,212) (22,980) Total shareholders' equity $ 173,405 $ 157,702$ 143,177 See accompanying notes.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31 (In thousands) 1997 1996 1995 Operating activities Net income $ 22,470 $ 17,416 $ 12,775 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 16,049 15,682 14,803 Deferred income taxes 1,410 198 75 Provision for losses on accounts receivable 441 451 519 Loss (gain) on asset disposals, net (838) 99 123 Changes in operating assets and liabilities net of effect of acquisitions: Accounts receivable (3,492) (5,434) (1,037) Inventories (6,048) 766 4,312 Other current assets (271) 998 1,282 Accounts payable 3,687 (174) 1,779 Accrued expenses and other liabilities 100 (366) 4,366 Other (1,243) 479 404 Net cash provided by operating activities 32,265 30,115 39,401 Investing activities Purchases of property, plant and equipment (17,696) (15,071) (12,288) Proceeds from sales of property, plant and equipment 1,117 159 1,458 Purchase of companies (net of cash acquired) (1,371) - - Net cash used in investing activities (17,950) (14,912) (10,830) Financing activities Payments on notes payable to banks, net (3,721) (704) (1,231) Payments on long-term debt (7,638) (12,458) (8,914) Dividends paid (4,221) (4,127) (4,033) Other 388 925 287 Net cash used in financing activities (15,192) (16,364) (13,891) Effect of exchange rate changes (597) 1,682 (1,425) Net (decrease) increase in cash and cash equivalents (1,474) 521 13,255 Cash and cash equivalents at beginning of year 18,826 18,305 5,050 Cash and cash equivalents at end of year $17,352 $18,826 $ 18,305 See accompanying notes.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - DESCRIPTION OF BUSINESS Thomas Industries Inc. and subsidiaries (the Company) operates two core businesses organized as a lighting segment and a compressor and vacuum pump segment. The Company designs, manufactures, markets and sells products within these segments. Manufacturing facilities are located in North America and Europe, with additional sales operations located in South America and Asia. Lighting products are sold principally in North America for consumer, commercial, industrial and outdoor applications. Compressor and vacuum pump products are sold worldwide, with principal markets in North America and Europe, primarily for applications of original equipment manufacturers. NOTE 2 - ACCOUNTING POLICIES 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 79% and 78% of consolidated inventories at December 31, 1997 and 1996, respectively. Inventories not on LIFO are valued using the first-in, first-out (FIFO) method. Inventories at December 31, consisted of the following: (In thousands) 1997 1996 Finished goods $ 35,472 $ 33,072 Raw materials 23,620 21,622 Work in process 15,036 14,553 Total inventories $ 74,128 $ 69,247 On a current cost basis, inventories would have been $11,007,000 and $11,505,000 higher than reported at December 31, 1997 and 1996, respectively. 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 at December 31 consisted of the following: (In thousands) 1997 1996 Land $ 6,195 $ 6,331 Buildings 31,564 31,470 Leasehold improvements 11,241 11,627 Machinery and equipment 105,977 100,292 154,977 149,720 Accumulated depreciation and amortization (74,780) (71,925) Total property, plant and equipment, net $ 80,197 $ 77,795 NOTE 2 - ACCOUNTING POLICIES (CONTINUED) 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 $19,916,000 and $18,368,000 at December 31, 1997 and 1996, respectively. The excess is being amortized over 40 years by the straight-line method. RESEARCH AND DEVELOPMENT COSTS Research and development costs, which include costs of product improvements and design, are expensed as incurred ($14,873,000 in 1997, $14,338,000 in 1996 and $13,405,000 in 1995). 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 foreign currency translation adjustment in shareholders' equity. RECENTLY ISSUED ACCOUNTING STANDARDS In June 1997, The Financial Accounting Standards Board (FASB) issued Statement No. 130, "Reporting Comprehensive Income" (SFAS 130), which requires disclosure of all items that are recognized under accounting standards as components of comprehensive income. SFAS 130 requires companies to classify items of other comprehensive income by their nature in a financial statement and to display the accumulated balance of other comprehensive income separately from retained earnings and capital surplus in the shareholders' equity section of the balance sheet. Also in June 1997, The FASB issued Statement No. 131, "Disclosures about Segments of an Enterprise and Related Information" (SFAS 131), which supersedes FASB Statement No. 14, "Financial Reporting for Segments of a Business Enterprise." SFAS 131 requires public companies to disclose financial and descriptive information about operating segments, which are defined as revenue-producing components for which separate financial information is produced internally that is subject to evaluation by the chief operation decision maker in deciding how to allocate resources to segments. The Company will adopt both Statements in 1998, neither of which is anticipated to significantly impact the financial statements or disclosures therein. OTHER Accounts receivable at December 31, 1997 and 1996 was net of an allowance for doubtful accounts of $2,046,000 and $2,243,000, respectively. Certain prior year amounts have been reclassified to conform to the current year presentation. NOTE 3 - NET INCOME PER SHARE In 1997, the Company adopted Statement of Financial Accounting Standards No. 128, "Earnings Per Share" (SFAS 128). SFAS 128 replaced the calculation of primary and fully diluted earnings per share with basic and diluted earnings per share. Unlike primary earnings per share, basic earnings per share excludes any dilutive effects of options, warrants and convertible securities. Net income per share amounts for all periods presented have been restated to conform to the SFAS 128 requirements. The computation of the numerator and denominator in computing basic and diluted net income per share follows:
(In thousands) 1997 1996 1995 Numerator: Net income $ 22,470 $ 17,416 $ 12,775 Denominator: Weighted average shares outstanding 15,837 15,756 15,136 Effect of dilutive securities: Director and employee stock options 422 265 213 Employee performance shares 13 - - Dilutive potential common shares 435 265 213 Denominator for diluted earnings per share -- adjusted weighted-average shares and assumed conversions 16,272 16,021 15,349
NOTE 4 - 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. NOTE 5 - INCOME TAXES A summary of the provision for income taxes follows:
(In thousands) 1997 1996 1995 Current: Federal $ 7,977 $ 6,946 $ 5,138 State 780 630 300 Foreign 3,007 2,498 2,765 11,764 10,074 8,203 Deferred: Federal and state 1,594 128 211 Foreign (184) 70 (136) 1,410 198 75 Total provision for income taxes $ 13,174 $ 10,272 $ 8,278 The U.S. and foreign components of income before income taxes follow: (In thousands) 1997 1996 1995 United States $ 27,360 $ 20,731 $ 14,973 Foreign 8,284 6,957 6,080 Income before income taxes $ 35,644 $ 27,688 $ 21,053 A reconciliation of the normal statutory federal income tax rate to the Company's effective income tax rate follows: 1997 1996 1995 U.S. statutory rate 35.0% 35.0% 35.0% State income taxes, net of federal tax benefits 1.4 1.5 .9 Nondeductible amortization of intangible assets 1.6 2.0 2.6 Foreign loss carryforwards (.9) (1.4) (1.1) Foreign tax rates 1.0 1.8 2.3 Other (1.1) (1.8) (.4) Effective income tax rate 37.0% 37.1% 39.3%
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 at December 31 follow:
(In thousands) 1997 1996 Deferred tax assets: Net operating loss carryforwards $ 1,856 $ 3,060 Allowance for doubtful accounts receivable 644 680 Inventory reserves 1,658 2,786 Accrued compensation expenses 2,853 2,731 Other 3,093 2,740 10,104 11,997 Less valuation allowance 1,856 3,060 Net deferred tax asset 8,248 8,937 Deferred tax liabilities: Accelerated depreciation 7,030 6,705 Inventory valuation 1,844 1,858 Pension expense 1,318 1,140 Other 597 881 10,789 10,584 Net deferred tax liability $ 2,541 $ 1,647 Classification: Current asset $ 6,694 $ 7,167 Long-term asset 1,554 1,770 Current liability 1,987 1,981 Long-term liability 8,802 8,603 Net deferred tax liability $ 2,541 $ 1,647
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 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 a $1,856,000 valuation allowance, provided for income tax loss carryforwards in U.S. and foreign jurisdictions, the realization of which is not assured within the carryforward periods. The net future tax benefit and date of expiration of such loss carryforwards are as follows: $64,000, January 1, 1999; $6,000, January 1, 2000; $7,000, January 1, 2001; $269,000, January 1, 2005; $108,000, January 1, 2006; and $1,402,000 between January 1, 2007 and January 1, 2010. The Company's foreign subsidiaries have accumulated undistributed earnings ($31,921,000 at December 31, 1997) 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 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 $13,911,000 in 1997, $13,179,000 in 1996 and $7,200,000 in 1995. NOTE 6 - LONG-TERM DEBT AND CREDIT ARRANGEMENTS Long-term debt consists principally of 9.36% senior notes with annual maturities through 2005 ($54,080,000 and $61,810,000 at December 31, 1997 and 1996, respectively). The fair value of the Company's long-term debt at December 31, 1997 and 1996 was $60,000,000 and $66,700,000, respectively. Maturities of long-term debt for the next five years are as follow: 1998 - $7,860,000; 1999 - $7,887,000; 2000 - $7,784,000; 2001 - $7,857,000; and 2002 - $7,789,000. 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 most restrictive of these arrangements, retained earnings of $41,400,000 were not restricted at December 31, 1997. As of December 31, 1997, the Company had available credit of $11,900,000 with banks under short-term borrowing arrangements, $11,000,000 of which was unused, and a $30,000,000 revolving line of credit that expires in 2002, which was unused. Cash paid for interest was $6,805,000 in 1997, $7,591,000 in 1996 and $8,533,000 in 1995. The weighted average interest rates on notes payable to banks at December 31, 1997 and 1996 were 4.30% and 4.04%, respectively. NOTE 7 - SHAREHOLDERS' EQUITY STOCK SPLIT On October 16, 1997, the Board of Directors authorized a three- for-two stock split to be effected in the form of a 50 percent stock dividend on all shares of common stock, payable December 1, 1997, for shareholders of record November 14, 1997. All share data included in these consolidated financial statements and related footnotes have been restated to reflect this stock split. 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, 1997, there were nine non-employee directors in office, and 102,000 options had been awarded under this Plan. NOTE 7 - SHAREHOLDERS' EQUITY (CONTINUED) In 1996, the Company 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 has 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:
1997 1996 1995 Risk-free interest rate 5.5% 6.5% 6.5% Expected life, in years 6.5 8.0 8.0 Expected volatility 0.264 0.273 0.273 Expected dividend yield 1.8% 2.0% 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) 1997 1996 1995 Net income As reported $ 22,470 $ 17,416 $ 12,775 Pro forma 21,882 17,024 12,669 Net income per share - Basic As reported 1.42 1.11 .84 Pro forma 1.38 1.08 .83 Net income per share - Diluted As reported 1.38 1.09 .83 Pro forma 1.34 1.06 .83
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. NOTE 7 - SHAREHOLDERS' EQUITY (CONTINUED) A summary of stock option activity for all plans follows:
(Options in thousands) 1997 1996 1995 Weighted Weighted Weighted Options Average Price Options Average Price Options Average Price Beginning of year 1,174 $11.02 1,026 $10.01 837 $ 8.59 Granted 269 21.31 269 13.98 269 14.13 Exercised (95) 8.92 (98) 8.59 (66) 10.26 Forfeited or expired (2) 12.49 (23) 11.20 (14) 8.58 End of year 1,346 $13.22 1,174 $11.02 1,026 $ 10.01 Exercisable at end of year 559 $ 9.69 506 $ 8.74 473 $ 8.46
The weighted average fair value of options granted was $6.67 in 1997, $5.05 in 1996 and $5.15 in 1995 using a Black-Scholes option pricing model. Options outstanding at December 31, 1997 had option prices ranging from $6.58 to $21.75 and expire at various dates between April 20, 1999 and December 9, 2007 (with a weighted-average remaining contractual life of 7.6 years). There are 545,421 shares reserved for future grant, of which 270,775 shares are reserved for the Non-Employee Director Stock Option Plan. In addition to the options listed above, 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 - RETIREMENT 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. 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. A summary of pension expense follows:
(In thousands) 1997 1996 1995 Defined benefit plans: Service cost-benefits earned during the period $ 482 $ 502 $ 362 Interest cost on projected benefit obligation 1,994 1,806 1,598 Actual return on plan assets (5,598) (3,130) (4,368) Net amortization and deferral 3,551 1,283 3,264 Net pension cost of defined benefit plans 429 461 856 Defined contribution plans 3,307 3,206 2,685 Multi-employer plans for certain union employees and other 160 154 217 Total pension expense $ 3,896 $ 3,821 $ 3,758 The assumptions used in the accounting for the funded status of defined benefit plans follow: 1997 1996 1995 Weighted average discount rates 7.15% 8.00% 7.15% Expected long-term rates of return on assets 9.00% 9.00% 9.00%
The following table sets forth the funded status and amounts recognized in the consolidated balance sheets for the Company's defined benefit pension plans:
(In thousands) 1997 1996 Assets Exceed Accumulated Assets Exceed Accumulated Accumulated Benefits Exceed Accumulated Benefits Exceed Benefits Assets Benefits Assets Actuarial present value of benefit obligations: Vested benefit obligation $ 16,304 $ 11,678 $ 16,775 $ 8,067 Accumulated benefit obligation 16,882 12,378 17,245 8,266 Plan assets at fair value 19,060 11,440 19,012 7,062 Accumulated benefit obligation less than (in excess of) plan assets 2,178 (938) 1,767 (1,204) Unrecognized net (gain) loss (469) 727 (172) 780 Unrecognized net obligation, net of amortization 547 1,685 716 1,374 Additional minimum liability - (2,412) - (2,154) Prepaid pension asset (liability) $ 2,256 $ (938) $ 2,311 $ (1,204)
The defined benefit plans' assets at December 31, 1997 consisted primarily of listed stocks and bonds, including 65,500 shares of Company common stock having a market value of $1,294,000 at that date. NOTE 9 - OTHER POSTRETIREMENT BENEFIT PLANS The Company provides postretirement medical and life insurance benefits for certain retirees and employees, and accrues the cost of such benefits during the service lives of such employees. Net periodic postretirement benefit cost includes the following components:
(In thousands) 1997 1996 1995 Service cost on benefits earned $ 38 $ 50 $ 42 Interest cost on benefits obligation 359 356 439 Net amortization and deferral 216 233 344 Net periodic postretirement benefit cost $ 613 $ 639 $ 825
The following table sets forth the status and amounts recognized in the consolidated balance sheets for the Company's postretirement benefit plans:
(In thousands) 1997 1996 Retiree participants $ 4,042 $ 3,834 Fully eligible active participants 181 239 Other active participants 675 701 Accumulated postretirement benefit obligation 4,898 4,774 Unrecognized prior service cost (36) (38) Unrecognized net gain 548 725 Unrecognized transition obligation (3,468) (3,699) Accrued postretirement benefit liability $ 1,942 $ 1,762
Assumptions used to measure expected health care costs follow:
1997 1996 1995 Discount rate 7.15% 8.00% 7.15% Initial health care cost trend rate 8.00% 9.00% 9.00% Ultimate health care cost trend rate 4.50% 5.00% 5.50% Year ultimate trend rate is achieved 2006 2004 2004
The health care cost trend rate assumption has a significant effect on the amounts reported. For example, increasing the assumed health care cost trend rates by one percentage point in each year would increase the accumulated postretirement benefit obligation as of December 31, 1997 by $445,000 and the aggregate of the service and interest cost components of net periodic postretirement benefit cost for the year ended December 31, 1997 by $36,000. NOTE 10 - LEASES, COMMITMENTS AND CONTINGENCIES Total rental expense was $4,888,000 in 1997; $4,664,000 in 1996 and $4,554,000 in 1995. Future minimum rentals under non- cancelable operating leases are as follows: 1998 - $3,195,000; 1999 - $2,802,000; 2000 - $2,155,000; 2001 - $1,709,000; 2002 - $1,299,000 and thereafter - $5,300,000. The Company had letters of credit outstanding in the amount of $5,176,000 at December 31, 1997. 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 undiscounted liabilities for such matters. 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 11 - ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES A summary of accrued expenses and other current liabilities at December 31 follows:
(In thousands) 1997 1996 Accrued wages, taxes and withholdings $ 12,702 $ 10,173 Accrued insurance 5,056 4,952 Accrued sales expense 5,913 5,447 Income taxes payable 1,463 3,565 Other current liabilities 16,512 17,215 Total accrued expenses and other current liabilities $ 41,646 $ 41,352
NOTE 12 - SUMMARY OF QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) Unaudited quarterly results of operations follow (in thousands, except share data):
Net Sales Gross Profit Net Income 1997 1996 1997 1996 1997 1996 1st Qtr. $ 126,356 $ 123,524 $ 38,257 $ 35,119 $ 4,002 $ 2,625 2nd Qtr. 139,989 127,868 43,540 37,209 6,430 4,448 3rd Qtr. 141,204 129,611 44,181 39,188 7,025 5,902 4th Qtr. 140,153 129,108 42,978 39,817 5,013 4,441 $ 547,702 $ 510,111 $ 168,956 $151,333 $ 22,470 $ 17,416
Basic Net Income Diluted Net Income Per Share Per share 1997 1996 1997 1996 1st Qtr. $ 0.25 $ 0.17 $ 0.25 $ 0.16 2nd Qtr. 0.41 0.28 0.39 0.28 3rd Qtr. 0.44 0.38 0.43 0.37 4th Qtr. 0.32 0.28 0.31 0.28 $ 1.42 $ 1.11 $ 1.38 $ 1.09
The 1996 and first three quarters of 1997 net income per share amounts have been restated to comply with Statement of Financial Accounting Standards No. 128, "Earnings Per Share." NOTE 13 - INDUSTRY SEGMENT INFORMATION Industry segment information follows:
Compressors & (In thousands) Lighting Vacuum Pumps Corporate Consolidated 1997 Net sales $ 374,065 $ 173,637 $ - $ 547,702 Operating income 22,378 30,879 - 53,257 General corporate expenses - - 11,801 11,801 Identifiable assets 222,449 85,878 19,312 327,639 Depreciation and amortization expense 9,345 6,530 174 16,049 Capital expenditures 9,006 8,441 249 17,696 1996 Net sales $ 340,047 $ 170,064 $ - $ 510,111 Operating income 16,348 28,857 - 45,205 General corporate expenses - - 11,047 11,047 Identifiable assets 211,173 86,259 22,218 319,650 Depreciation and amortization expense 8,934 6,537 211 15,682 Capital expenditures 7,675 7,122 274 15,071 1995 Net sales $ 332,842 $ 157,731 $ - $ 490,573 Operating income 11,425 28,446 - 39,871 General corporate expenses - - 10,133 10,133 Identifiable assets 204,707 82,299 26,527 313,533 Depreciation and amortization expense 8,784 5,803 216 14,803 Capital expenditures 5,849 6,241 198 12,288
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:
United (In thousands) States Canada Europe Eliminations Consolidated 1997 Net sales to unaffiliated customers $ 455,727 $ 42,971 $ 49,004 $ - $ 547,702 Intercompany sales 14,257 489 9,139 (23,885) - Total net sales 469,984 43,460 58,143 (23,885) 547,702 Operating income 44,323 1,355 7,579 - 53,257 Identifiable assets 266,409 33,219 28,011 - 327,639 1996 Net sales to unaffiliated customers $ 421,758 $38,704 $49,649 $ - $510,111 Intercompany sales 12,387 674 7,009 (20,070) - Total net sales 434,145 39,378 56,658 (20,070) 510,111 Operating income 38,432 750 6,023 - 45,205 Identifiable assets 260,661 28,107 30,882 - 319,650 1995 Net sales to unaffiliated customers $ 403,955 $35,051 $51,567 $ - $490,573 Intercompany sales 10,484 541 6,630 (17,655) - Total net sales 414,439 35,592 58,197 (17,655) 490,573 Operating income 32,765 729 6,377 - 39,871 Identifiable assets 253,438 26,336 33,759 - 313,533
REPORTS OF MANAGEMENT AND INDEPENDENT AUDITORS RESPONSIBILITY FOR FINANCIAL REPORTING THE BOARD OF DIRECTORS AND SHAREHOLDERS THOMAS INDUSTRIES INC. The financial statements herein have been prepared under management direction from accounting records which management believes present 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, including an internal audit function, 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, 1998 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, 1997 and 1996, and the related consolidated statements of income, shareholders' equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. The financial statements of Thomas Industries Inc. and subsidiaries for the year ended December 31, 1995, were audited by other auditors whose report dated February 7, 1996, expressed an unqualified opinion on those statements. 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 audit provides a reasonable basis for our opinion. In our opinion, the 1997 and 1996 financial statements referred to above present fairly, in all material respects, the consolidated financial position of Thomas Industries Inc. and subsidiaries at December 31, 1997 and 1996, and the consolidated results of their operations and their cash flows for the years then ended, in conformity with generally accepted accounting principles. Louisville, Kentucky February 11, 1998 FIVE YEAR SUMMARY OF OPERATIONS AND STATISTICS
Years ended December 31 (Dollars in thousands, except share data) 1997 1996 1995 1994 1993 Earnings Statistics Net sales $547,702 $510,111 $490,573 $456,565 $450,149 Cost of products sold 378,746 358,778 352,551 329,338 326,396 Selling, general and administrative expenses 127,500 117,175 108,284 104,091 102,440 Interest expense 6,480 7,333 8,242 9,225 10,279 Income before income taxes 35,644 27,688 21,053 18,198 7,820 As a percentage of net sales 6.5% 5.4% 4.3% 4.0% 1.7% Income taxes 13,174 10,272 8,278 7,656 4,015 Effective tax rate 37.0% 37.1% 39.3% 42.1% 51.3% Net income 22,470 17,416 12,775 10,542(A) 3,805(B) Financial Position Working capital $ 92,258 $ 85,838 $ 80,837 $ 77,558 $ 78,466 Current ratio 2.1 to 1 2.0 to 1 2.0 to 1 2.0 to 1 2.1 to 1 Property, plant and equipment, net 80,197 77,795 75,710 75,962 76,587 Total assets 327,639 319,650 313,533 305,071 302,760 Return on ending assets 6.9% 5.4% 4.1% 3.5% 1.3% Long-term debt 55,006 62,632 70,791 79,693 87,509 Long-term debt to total capital 24.1% 28.4% 33.1% 37.3% 41.2% Shareholders' equity 173,405 157,702 143,177 133,766 125,049 Return on beginning shareholders' equity 14.2% 12.2% 9.6% 8.4% 2.9% Data Per Common Share (C) Net income $ 1.38 $ 1.09 $ 0.83 $ 0.70 $ 0.25 Cash dividends declared 0.28 0.27 0.27 0.27 0.27 Shareholders' equity 10.59 9.99 9.43 8.85 8.30 Share price - High 22.33 15.92 16.08 10.92 9.33 Low 13.67 11.00 9.08 8.50 6.08 Close 19.75 13.92 15.67 9.58 8.75 Price/earnings ratio 14.3 12.8 18.9 13.7 35.0 Other Data Cash dividends declared $ 4,357 $ 4,169 $ 4,036 $ 4,024 $ 4,014 Expenditures for property, plant & equipment 17,696 15,071 12,288 16,301 13,908 Depreciation and amortization 16,049 15,682 14,803 15,524 16,517 Average number of employees 3,300 3,150 3,100 3,190 3,390 Sales per average number of employees 166.0 161.9 158.2 143.1 132.8 Number of shareholders of record 2,057 2,232 2,407 2,677 2,903 Average number common shares outstanding (C) 16,271,678 16,021,026 15,348,828 15,090,654 15,052,758 Segment Information Net sales Lighting $374,065 $340,047 $332,842 $304,047 $298,432 Compressors & Vacuum Pumps 173,637 170,064 157,731 146,323 127,896 Other - - - 6,195 23,821 Total net sales $547,702 $510,111 $490,573 $456,565 $450,149 Operating income Lighting $ 22,378 $ 16,348 $ 11,425 $ 4,856 $ 120(B) Compressors & Vacuum Pumps 30,879 28,857 28,446 29,252 26,183 Other - - - (263) 710 Total operating income $ 53,257 $ 45,205 $ 39,871 $ 33,845 $ 27,013
Note: See accompanying Notes to Consolidated Financial Statements and Management's Discussion and Analysis of Financial Condition and Results of Operations. (A) 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. (B) Includes 1993 after-tax charge of $2,040,000 (pre-tax of $3,500,000) for restructuring costs and credit of $1,148,000 (pre-tax of $1,900,000) for LIFO accounting change. (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% Capri Lighting, Inc. California 100% Eclairage ZED Inc. Province of Quebec, Canada 100% Gardco Manufacturing, Inc. California 100% Lumec, Inc. Province of Quebec, 100% Canada Pouliot Designs Corporation Minnesota 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 Corp. Province of Ontario, 100% Canada Thomas Industries Export, Inc. U.S. Virgin Islands 100% Thomas Industries Holdings Inc. Delaware 100% Tupelo Holdings Inc. Delaware 100% Thomas Lighting de Mexico, S.A. de C.V. Mexico 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 Lumec-Schreder Inc. Province of Quebec, 50% Canada Thomas Americas Industria e Commercio, LTDA Brazil 95% Yamada Day-Brite, Ltd. Japan 50%
EX-23.(A) 5 Exhibit 23(a) 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, 1997 and 1996, and the related consolidated statements of income, shareholders' equity, and cash flows for the years then ended. Our audits also included the 1997 and 1996 financial statement schedules listed in the Index at Item 14(a). These financial statements and schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and schedules based on our audits. The financial statements and schedule of Thomas Industries Inc. and subsidiaries for the year ended December 31, 1995 were audited by other auditors whose report dated February 7, 1996 expressed an unqualified opinion on those statements and schedule. 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 provides a reasonable basis for our opinion. In our opinion, the 1997 and 1996 financial statements referred to above present fairly, in all material respects, the consolidated financial position of Thomas Industries Inc. and subsidiaries at December 31, 1997 and 1996, and the consolidated results of their operations and their cash flows for the years then ended in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein. /s/ Ernst & Young LLP Louisville, Kentucky February 11,1998 EX-23.(B) 6 Exhibit 23(b) Independent Auditors' Report The Board of Directors and Shareholders Thomas Industries Inc.: We have audited the accompanying consolidated statements of income, shareholders' equity, and cash flows of Thomas Industries, Inc. and subsidiaries for the year ended December 31, 1995. In connection with our audit of the aforementioned consolidated financial statements, we also have audited the financial statement schedule for the year ended December 31, 1995 as listed in the accompanying index. These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule 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 consolidated financial statements referred to above present fairly, in all material respects, the results of operations and the cash flows of Thomas Industries, Inc. and subsidiaries for the year ended December 31, 1995, 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/ KPMG PEAT MARWICK LLP Louisville, Kentucky February 7, 1996 EX-27 7
5 1,000 YEAR YEAR YEAR DEC-31-1997 DEC-31-1996 DEC-31-1995 DEC-31-1997 DEC-31-1996 DEC-31-1995 17,352 18,826 18,305 0 0 0 73,431 70,482 63,989 2,046 2,243 2,014 74,128 69,247 68,065 176,611 170,364 164,739 154,977 149,720 146,903 74,780 71,925 71,193 327,639 319,650 313,533 84,353 84,526 83,902 55,006 62,632 70,791 0 0 11,486 0 0 0 17,394 11,550 0 156,011 146,152 131,691 327,639 319,650 313,533 547,702 510,111 490,573 547,702 510,111 490,573 378,746 358,778 352,551 378,746 358,778 352,551 126,391 115,861 108,208 441 451 519 6,480 7,333 8,242 35,644 27,688 21,053 13,174 10,272 8,278 22,470 17,416 12,775 0 0 0 0 0 0 0 0 0 22,470 17,416 12,775 1.42 1.11 .84 1.38 1.09 .83 Restated.
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