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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
--- EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
or
--- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM
_____ TO ______
Commission File Number: 0-22352
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HOLOPHANE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 31-1288751
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
250 EAST BROAD STREET
SUITE 1400
COLUMBUS, OHIO 43215
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (614) 224-3134
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Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE PER SHARE
----------
Indicate by check mark whether the registrant (1) has filed all reports
to be filed by Section 13 or Section 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [x] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained, to the best knowledge of the
registrant, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment of this Form 10-K. [x]
The aggregate market value of the voting stock held by non-affiliates
of the registrant as of March 10, 1999 was approximately $217,830,336.
The number of shares outstanding of registrant's Common Stock as of
March 10, 1999: 10,586,541.
Documents incorporated by reference: The Annual Report to Stockholders
and the definitive Proxy Statement of Holophane Corporation relating to the 1999
Annual Meeting of Stockholders are incorporated by reference in Parts II and III
hereof.
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PART I
ITEM 1. BUSINESS
Holophane Corporation, a Delaware corporation, and its
subsidiaries (collectively "Holophane"), was formed in May 1989 to acquire
substantially all of the assets and capital stock of the Holophane Lighting
Division of Manville Sales Corporation and related entities.
Holophane, whose operations date back to 1895, is a vertically
integrated, international manufacturer and marketer of highly engineered
lighting fixtures and systems for a wide range of industrial, commercial and
outdoor applications. Holophane provides a variety of standard and specialized
fixtures for both interior and exterior lighting needs.
Holophane focuses its sales efforts through a factory sales
force and markets its products worldwide for use in both new construction and
retrofit applications.
PRODUCTS
Holophane manufactures and sells a series of industrial
fixtures designed to light large indoor spaces with high ceilings and also for
facilities with large pieces of equipment and lighting required at various
mounting heights. Holophane also produces numerous products tailored to highly
specific applications including hazardous location and explosion proof lighting.
Holophane manufactures outdoor area lighting products for
highway interchanges, tunnels and for other outdoor projects requiring large
areas to be illuminated. Holophane products are also used to light advertising
billboard signs, highway signs and building facades. In addition, Holophane
produces architectural specialty lighting for downtown renovations and housing
developments.
Holophane produces a line of commercial/institutional lighting
products designed for medium height applications where reflected light from the
ceiling can supplement the direct prismatic light source. Holophane also
manufactures a broad line of specialty fluorescent fixtures with an emphasis on
optical performance. Many of Holophane's industrial fixtures are also used in
commercial/institutional applications.
In addition, Holophane also produces an array of glass
refractors for street lighting fixtures and injection molded lenses designed to
be used in fluorescent fixtures.
MANUFACTURING
Holophane is a vertically integrated manufacturer with the
capability to produce glass, ballasts, injection molded plastic lenses and cast
aluminum components. Holophane has four U.S. manufacturing facilities located in
Ohio, two located in Texas and two in Mexico.
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Holophane also operates light manufacturing, assembly and warehousing facilities
in Milton Keynes, England.
RAW MATERIALS
Holophane's principal raw materials are aluminum, steel and
copper. Holophane avoids some of the price volatility of these materials by
purchasing most of its requirements through annual contracts. Holophane does not
rely on any single supplier for these materials and believes it has the ability
to quickly switch sources for any of these materials should the need arise.
RESEARCH AND DEVELOPMENT
New product development is an integral part of Holophane.
State of the art facilities, located in Newark, Ohio, include optical,
photometric, thermal, electrical and environmental laboratories. Costs
associated with research and development were $6.5 in 1998, $6.0 million in 1997
and $5.5 million in 1996.
EMPLOYEES
Holophane had an average of approximately 2,050 employees
during 1998. Approximately 390 employees are represented by the American Flint
Glass Workers Union (the "AFGWU"), the International Brotherhood of Electrical
Workers (the "IBEW") or the United Automobile Workers (the "UAW"). The IBEW
contract expires April 1, 1999; the UAW contract expires May 2, 1999 and the
AFGWU contract expires August 5, 2002.
CUSTOMERS
No single customer has accounted for more than 10% of
Holophane's consolidated net sales in any year. Consequently, Holophane believes
that the loss of any one customer would not have a material adverse effect on
its net sales.
COMPETITION
The lighting industry is highly competitive. Holophane's
competitors include lighting manufacturers of all sizes, some of which have
substantially greater resources than those of Holophane. Holophane competes in
the premium quality tier of the lighting market which consists of specialized
products characterized by higher value and lower unit sales. Most of Holophane's
competitors focus on commodity products.
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BACKLOG
Backlog represents booked orders which are believed by
Holophane to be firm. At February 28, 1999, total order backlog was $44.3
million compared to $38.8 million at February 28, 1998.
SEASONALITY
Due to the typically increased level of construction activity
in the third quarter, Holophane has historically experienced modestly greater
net sales in the second half of its fiscal year.
TRADEMARKS, LICENSING AGREEMENTS AND PATENTS
Holophane owns all of the rights to the principal trademarks
used in its domestic business and in the international markets in which it
participates. Holophane's principal trademarks are registered in the U.S. and in
many other countries, and Holophane considers protection of such trademarks to
be important to its business.
Holophane does not own the "HOLOPHANE" trademark in France,
but has rights in its use.
An unaffiliated Australian company owns trademark
registrations for the "HOLOPHANE" trademark in Australia and New Zealand.
Lighting products manufactured by the Company are marketed under the "Unique
Lighting Solutions" trademark through a joint venture arrangement among
Holophane Australia Corporation Pty. Ltd., a wholly-owned subsidiary of the
Company, and two unaffiliated third parties in Australia.
In addition, Holophane owns many patents relating to the
design of certain of its products, including sign lighting, area lighting and
street lighting products. Active patents have remaining lives ranging from one
year to 17 years.
INTERNATIONAL OPERATIONS
Net sales of the European operations were (pound)14.3 million
($23.8 million) in 1998, (pound)14.6 million ($23.9 million) in 1997 and
(pound)14.9 million ($23.4 million) in 1996. Net sales of other foreign
operations were $18.6 million in 1998, $9.7 million in 1997 and $9.6 million in
1996. With the exception of fluctuation in foreign currencies, the Company does
not believe that these operations are subject to risks which are significantly
different from those of domestic operations.
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ENVIRONMENTAL
Holophane's operations are subject to federal, state and local
regulatory requirements relating to environmental protection. Compliance with
these requirements has not had a material effect upon Holophane's capital
expenditure program. It is not anticipated that Holophane will have material
capital expenditures for environmental control facilities during the next fiscal
year.
YEAR 2000
During 1997, the company commenced an evaluation of the impact
of Year 2000 on all business systems, facilities, products and information
systems and developed an evaluation matrix from which Year 2000 compliance could
be monitored. Financial systems used by the company are vendor software products
that are certified by the vendor as Year 2000 ready releases. The company will
test the financial systems during 1999. An outside consulting firm conducted a
separate study of in-house manufacturing systems and all in-house manufacturing
systems have been modified and successfully tested for Year 2000. A separate
evaluation of manufacturing equipment is underway and will be completed in 1999.
All network systems were either migrated or upgraded to match Year 2000 ready
local area network (LAN) systems. Current installed LAN server equipment is Year
2000 ready. Personal computers, phone systems, timekeeping and security systems
will be Year 2000 ready prior to December 31, 1999. None of the company's other
information technology projects have been delayed due to the implementation of
the Year 2000 project.
Holophane estimates that the total cumulative cost of the
project will be approximately $200,000 which includes both internal and external
personnel costs related to modifying the systems. All costs related to the
project are being expensed as incurred and as of December 31, 1998,
approximately $140,000 of costs have been incurred. The costs of the project and
the expected completion dates are based on management's best estimate.
At this time, the company believes its most reasonable worst
case scenario is that key suppliers or service providers who have not resolved
their own Year 2000 issue may cause a disruption of service to the company's
critical business processes, which in turn could affect the company's ability to
manufacture and deliver product. The company cannot predict the outcome of other
companies' remediation efforts. The company has initiated formal inquiries with
suppliers with which it has active contracts to determine the extent to which
the company is vulnerable to those third parties' failure to remediate their own
Year 2000 issue. Alternative suppliers will be identified and used if necessary.
The company has an ongoing business interruption contingency
plan to address internal and external issues specific to the Year 2000 problem,
to the extent practicable. Depending on the status of third party Year 2000
readiness, these plans include changing suppliers, advanced purchases of
critical inventory and extending production scheduling.
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The preceding "Year 2000" discussion contains various
forward-looking statements which represent the company's belief or expectations
regarding future events. All forward-looking statements involve a number of
risks and uncertainties that could cause the actual results to differ materially
from the projected results. Factors that may cause these differences include,
but are not limited to, the availability of information technology resources;
the ability to identify and remediate all date sensitive computer code in
affected systems or equipment; and the actions of third parties with respect to
Year 2000 problems.
ITEM 2. PROPERTIES
The following sets forth information regarding the Company's
manufacturing and warehouse facilities:
<TABLE>
<CAPTION>
PRIMARY SQUARE
LOCATION FUNCTION FEET
- -------------------------------------------------------------------------
<S> <C> <C>
UNITED STATES:
- --------------
Newark, OH Manufacturing 352,000
Springfield, OH Manufacturing 46,000
Pataskala, OH Manufacturing 32,000
Utica, OH Manufacturing 119,000
Austin, TX Manufacturing 52,000
Brownsville, TX Assembly 15,000
MEXICO:
- -------
Matamoros Manufacturing 208,000
Mexico City Manufacturing 100,000
UK:
- ---
Milton Keynes Manufacturing 44,000
Milton Keynes Warehouse 10,000
</TABLE>
- ----------------
The Company's manufacturing and warehouse facilities are all
owned, except for the 10,000 square foot Milton Keynes warehouse and the
Brownsville facility. These facilities are all located in appropriately designed
buildings which are kept in good repair. The facilities have well maintained
equipment and sufficient capacity to produce present volumes.
The principal executive offices of the Company are located in
approximately 5,400 square feet of space at 250 East Broad Street, Columbus,
Ohio 43215 and are occupied pursuant to a lease which expires in July 1999.
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The Company also leases sales offices and warehouse facilities
in a number of major cities or suburbs, including Norcross, Georgia; Houston,
Texas; San Bruno and Los Angeles, California; Dearborn, Michigan; Minneapolis,
Minnesota; Montvale, New Jersey; Newark, Ohio; and Buda, Texas. The leases
expire from March 1, 1999 to May 31, 2001.
The Company also leases approximately 4,500 square feet of
office space in Brampton, Ontario, Canada. The lease expires April 30, 2001.
ITEM 3. LEGAL PROCEEDINGS
The Company, from time to time, is involved in routine
litigation incidental to its business. However, the Company is not a party to
any material legal proceeding, nor, to the Company's knowledge, has any material
legal proceeding been threatened against it.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
EXECUTIVE OFFICERS
The following table sets forth the names and ages of the
Company's executive officers and the positions they hold with the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH COMPANY
- ---- --- ---------------------
<S> <C> <C>
John R. DallePezze............. 55 Director, Chairman of the
Board, President and Chief
Executive Officer
Bruce A. Philp................. 47 Vice President, Finance,
Chief Financial Officer
and Secretary
John W. Harvey................. 54 Vice President, Manufacturing
S. Lee Keller.................. 51 Vice President, Sales
Robert P. St. Germain.......... 49 Vice President, Marketing
Robert E. Taylor............... 53 Vice President, Human Resources
Timothy Weisert................ 53 Vice President, Research and
Development
</TABLE>
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Mr. DallePezze has been a Director, President and Chief
Executive Officer of the Company since he joined the Company in October 1989 and
Chairman of the Board since February 1992. Prior to joining the Company, Mr.
DallePezze served from 1983 to 1989 as President of the McCullough Division of
N.L. Industries Inc. and Western Atlas International Inc. Prior to 1983, Mr.
DallePezze served as General Manager of the Lighting Products Division of
Corning Inc. Mr. DallePezze serves as a director of Belden, Inc., a wire and
cable manufacturer.
Mr. Philp has served as Vice President, Finance, Chief
Financial Officer and Secretary since July 1989. From January 1988 through July
1989, Mr. Philp was Director of Finance and Administration for the Holophane
Division of Manville and prior to that held various other finance positions
within Manville, beginning with the Holophane Division in 1974.
Mr. Harvey has served as Vice President, Manufacturing since
July 1989. Mr. Harvey joined Holophane in 1971 and served in various management
positions in engineering, and research and development and manufacturing from
1971 through July 1989.
Mr. Keller has served as Vice President, Sales since July
1989. Mr. Keller joined Holophane in 1970 and was Regional Sales Manager from
July 1985 through January 1988 and National Sales Manager from January 1988
through July 1989.
Mr. Taylor has served as Vice President, Human Resources since
July 1989. From June 1987 through July 1989 Mr. Taylor served as Manager, Human
Resources for the Holophane Division of Manville and was a Director of Human
Resources for Gulf Oil Corporation from 1985 until he joined the Holophane
Division in June 1987.
Mr. St. Germain has served as Vice President, Marketing since
October 1996. Prior to joining Holophane, Mr. St. Germain served from 1990 to
1996 as Vice President, Marketing and Strategic Planning at Northrop Grumman.
Mr. St. Germain served as Assistant to the President at Grumman Allied
Industries, Inc. from 1988 to 1990. Mr. St. Germain served from 1986 to 1988 as
Market Planning Manager at Grumman Systems Support, Inc., a subsidiary of
Grumman Allied Industries, Inc.
Mr. Weisert has served as Vice President, Research and
Development since July 1989. Mr. Weisert served as Director of Research and
Development for the Holophane Division of Manville from July 1988 through July
1989 and held various other positions in research and development since joining
the Holophane Division in 1978.
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PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The information required by Item 5 of Part II is set forth
under the caption "Quarterly Results of Operations" on page 8 of the 1998 Annual
Report to Stockholders of Holophane Corporation and is incorporated herein by
reference.
A recent last sales price for the shares of Common Stock as
reported by the New York Stock Exchange was $22.4375 on March 22, 1999. On March
10, 1999, there were approximately 2,300 holders of Common Stock, based upon the
number of holders of record and the number of individual participants in certain
security position listings.
No dividends on Common Stock were paid during 1998 or 1997 and
the Company does not anticipate paying cash dividends on its Common Stock in the
foreseeable future. Additional information on the Company's dividend payment
limitations appears in note 5 to the consolidated financial statements on pages
13 and 14 of the 1998 Annual Report to Stockholders of Holophane Corporation.
ITEM 6. SELECTED FINANCIAL DATA.
The information required by Item 6 of Part II is set forth
under the caption "Financial History" on page 20 of the 1998 Annual Report to
Stockholders of Holophane Corporation and is incorporated herein by reference.
ITEM 7. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The information required by Item 7 of Part II is set forth
under the caption "Management Discussion and Analysis" on pages 18 and 19 of the
1998 Annual Report to Stockholders of Holophane Corporation and is incorporated
herein by reference.
The Company has made and will make certain forward-looking
statements in its Annual Report, Form 10-K and in other contexts relating to
future growth and profitability targets and strategies designed to increase
total shareholder value. The Private Securities Litigation Reform Act of 1995
("the Act") provides a "safe harbor" for forward-looking statements to encourage
companies to provide prospective information, so long as those statements are
identified as forward-looking and are accompanied by meaningful cautionary
statements identifying important factors that could cause actual results to
differ materially from those discussed in the forward-looking statements.
The Company wishes to take advantage of the safe harbor
provisions of the Act. These forward-looking statements represent challenging
goals for the Company, and the achievement thereof is subject to a variety of
risks and assumptions. These forward-looking statements include, but are not
limited to, information regarding the future economic performance and financial
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condition of the Company, the plans and objectives of the Company's management,
and the Company's assumption regarding such performance and plans. Therefore, it
is possible that the Company's future actual financial results may differ
materially from those expressed in these forward-looking statements due to a
variety of factors, including, but not limited to:
o The Companies ability to maintain profit margins, to produce
and deliver its products on a timely basis, and to maintain
and develop additional production capacity as necessary to
meet demand;
o Competition among domestic and international manufacturers of
lighting products, many of whom have substantially greater
assets and resources than those of the Company;
o Inherent risk of international developments, including
currency exchange rates, economic conditions and regulatory
and cultural difficulties or delays in the Company's
development outside the United States;
o Changes in weather and economic conditions in the United
States and the impact of changes in interest rates; and
o The ability of the Company to improve its process and business
practices to keep pace with the economic, competitive and
technological environment.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Company's consolidated balance sheets as of December 31,
1998 and 1997 and the consolidated statements of income, stockholders' equity
and cash flows for each of the years ended December 31, 1998, 1997 and 1996, and
the related notes to the consolidated financial statements, together with the
independent auditors' report thereon appear on pages 8 through 17 of the 1998
Annual Report to Stockholders of Holophane Corporation and is incorporated
herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
None.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by Item 10 of Part III is
incorporated herein by reference from pages 7 and 8 of Part I included herein
and from the definitive Proxy Statement of Holophane Corporation for the
Company's 1999 Annual Meeting of Stockholders under the captions "Item 1
Election of Directors" and "Other Matters."
ITEM 11. EXECUTIVE COMPENSATION.
The information required by Item 11 of Part III is
incorporated herein by reference to the definitive Proxy Statement of Holophane
Corporation for the Company's 1999 Annual Meeting of Stockholders under the
caption "Executive Compensation."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The information required by Item 12 of Part III is
incorporated herein by reference to the definitive Proxy Statement of Holophane
Corporation for the Company's 1999 Annual Meeting of Stockholders under the
caption "Stock Ownership."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON
FORM 8-K.
(a) The following financial statements required to be
included in items 8 and 14 (a) (1) are incorporated
by reference from pages [8] through [17] of the 1998
Annual Report to Stockholders:
Consolidated Statements of Income for the Years
Ended December 31, 1998, 1997 and 1996
Consolidated Balance Sheets as of December 31, 1998
and 1997
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1998, 1997 and 1996
Consolidated Statements of Stockholders' Equity for
the Years Ended December 31, 1998, 1997 and
1996
Independent Auditors' Report
Notes to Consolidated Financial Statements for the
Years Ended December 31, 1998, 1997 and 1996
(b) Reports on Form 8-K.
No reports on Form 8-K were filed by the registrant
in the last quarter of the 1998 fiscal year.
(c) Exhibits:
3.1 Restated Certificate of Incorporation of the
Company. (Incorporated by reference to
Exhibit 3.1 to the Company's Registration
Statement on Form S-1, No. 33-68116.)
3.2 Bylaws of the Company. (Incorporated by
reference to Exhibit 3.2 to the Company's
Registration Statement on Form S-1, No. 33-
68116.)
10.1 Employment Agreement dated as of August 30,
1993 among Holophane Lighting, Inc., the
Company and John R. DallePezze.
(Incorporated by reference to Exhibit 10.7
to the Company's Registration Statement on
Form S-1, No. 33-68116.)
10.2 Termination Benefits Agreement dated as of
September 15, 1993 among Holophane Lighting,
Inc., the Company and Bruce Philp.
(Identical agreements were entered into with
John S. Forbes, John W. Harvey, S. Lee
Keller, Robert P. St. Germain, Robert E.
Taylor, Timothy Weisert and Jerome
Henderson). (Incorporated by reference
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to Exhibit 10.8 to the Company's
Registration Statement on Form S- 1, No.
33-68116.)
10.3 Incentive Stock Plan. (Incorporated by
reference to Exhibit 10.9 to the Company's
Registration Statement on Form S-1, No.
33-68116.)
10.4 1996 Incentive Stock Plan. (Incorporated by
reference to Appendix I of the Company's
1996 Proxy Statement.)
10.5 Supplemental Executive Retirement Plan.
(Incorporated by reference to Exhibit 10.12
to the Company's Registration Statement on
Form S- 1, No. 33-68116.)
10.6 Second Amended and Restated Credit Agreement
dated as of November 5, 1993 among Holophane
Company, Inc., the lenders named therein and
Wells Fargo Bank, N.A., as Administrative
Agent. (Incorporated by reference to Form
10-K for fiscal year ended December 31,
1993, File No. 0-22352.)
10.7 Amended and Restated Stockholders Agreement
dated as of October 15, 1993. (Incorporated
by reference to Exhibit 10.14 to the
Company's Registration Statement on Form
S-1, No. 33-68116.)
10.8 Termination Agreement dated as of September
1, 1993 between Holophane Lighting, Inc. and
Raebarn Corporation. (Incorporated by
reference to Exhibit 10.15 to the Company's
Registration Statement on Form S-1, No.
33-68116.)
10.9 Holophane Bonus Plan Revised February 19,
1997. (Incorporated by reference to Form
10-K for fiscal year ended December 31,
1996, File No. 0-22352.)
10.10 Holophane Corporation Employee Stock Option
Plan (Incorporated by reference to Appendix
I of the Company's 1998 Proxy Statement.)
21.1 Subsidiaries of the Company.
23.1 Consent of Deloitte & Touche LLP.
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(d) Financial Statement Schedule
The following independent auditors' report and
financial schedule for the years ended December 31,
1998, 1997 and 1996 are included in this Annual
Report on Form 10-K and should be read in
conjunction with the Consolidated Financial
Statements contained in the Annual Report to
Stockholders of Holophane Corporation:
Independent Auditors' Report
Schedule II - Valuation and Qualifying Accounts
All other financial statement schedules are omitted
because they are not applicable or the required
information is shown in the Consolidated Financial
Statements or Notes thereto.
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INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULES
To the Stockholders and Directors of Holophane Corporation
Columbus, Ohio
We have audited the consolidated financial statements of Holophane Corporation
and subsidiaries as of December 31, 1998 and 1997, and for each of the three
years in the period ended December 31, 1998, and have issued our report thereon
dated February 19, 1999; such financial statements and report are included in
your 1998 Annual Report to Stockholders and are incorporated herein by
reference. Our audits also included the consolidated financial statement
schedule of Holophane Corporation and subsidiaries, listed in Item 14. This
consolidated financial schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits. In
our opinion, such consolidated financial 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.
Deloitte & Touche LLP
Columbus, Ohio
February 19, 1999
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SCHEDULE II
<TABLE>
HOLOPHANE CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS (IN 000'S)
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<CAPTION>
Column A Column B Column C Column D Column E
-------- -------- -------- -------- --------
Additions
---------
Balance at Charged to Charged to Balance at
Beginning Costs and Other End
Description of Year Expenses Accounts (a) Deductions (b) of Year
----------- ------- -------- ------------ -------------- -------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts:
1998 $1,087 $106 $241 $103 $1,331
1997 1,016 230 (5) 154 1,087
1996 1,015 31 80 110 1,016
Inventory valuation allowance:
1998 $ 647 $154 $ 94 $260 $ 635
1997 689 338 (2) 378 647
1996 465 519 41 336 689
</TABLE>
(a) Includes acquisitions in 1998 and 1996.
(b) Represents uncollectible accounts written off or inventory items
disposed of, respectively.
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SIGNATURES
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, thereunto duly authorized, in the City of
Columbus, State of Ohio, on the 25th day of March, 1999.
Holophane Corporation
By: /s/ John R. DallePezze
---------------------------------
JOHN R. DALLEPEZZE
Chairman, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed by the following persons in the capacities and on
the dates indicated.
Signature Title Date
--------- ----- ----
/s/ John R. DallePezze Chairman of the Board of March 25, 1999
- ----------------------------- Directors; President and
JOHN R. DALLEPEZZE Chief Executive Officer
(Principal Executive Officer)
/s/ Bruce A. Philp Vice President Finance; March 25, 1999
- ----------------------------- Chief Financial Officer
BRUCE A. PHILP and Secretary (Principal
Financial and
Accounting Officer)
/s/ William R. Michaels Director March 25, 1999
- -----------------------------
WILLIAM R. MICHAELS
/s/ Robert L. Purdum Director March 25, 1999
- -----------------------------
ROBERT L. PURDUM
/s/ Anthony P. Scotto Director March 25, 1999
- -----------------------------
ANTHONY P. SCOTTO
/s/ Tadd C. Seitz Director March 25, 1999
- -----------------------------
TADD C. SEITZ
/s/ Jeffrey M. Wilkins Director March 25, 1999
- -----------------------------
JEFFREY M. WILKINS
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<TABLE>
<CAPTION>
Exhibit 13
CONSOLIDATED STATEMENTS OF INCOME
HOLOPHANE CORPORATION AND SUBSIDIARIES
(in thousands except per share data) Year Ended December 31,
1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES $214,875 $205,327 $190,939
Cost of goods sold 129,930 125,133 117,284
- -------------------------------------------------------------------------------------------------------------------
GROSS MARGIN 84,945 80,194 73,655
Selling and administrative 46,617 42,704 39,405
Research and development 6,463 6,037 5,533
Other expense 258 466 700
OPERATING INCOME 31,607 30,987 28,017
Interest expense 1,537 1,719 2,139
Interest income (404) (414) (527)
- -------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 30,474 29,682 26,405
Provision for income taxes 11,265 11,059 9,937
- -------------------------------------------------------------------------------------------------------------------
NET INCOME $19,209 $18,623 $ 16,468
===================================================================================================================
BASIC EARNINGS PER SHARE $1.77 $1.65 $ 1.44
DILUTED EARNINGS PER SHARE $1.72 $1.60 $ 1.40
Weighted Average Number of Shares Outstanding:
Basic 10,848 11,283 11,473
Diluted 11,190 11,663 11,779
===================================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<TABLE>
<CAPTION>
QUARTERLY RESULTS OF OPERATIONS
(UNAUDITED)
(in thousands except per share and market data) 1ST 2ND 3RD 4TH
- --------------------------------------------------------------------------------------------------------------------
1998
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $47,247 $51,453 $59,730 $56,445
Gross margin $18,332 $19,763 $23,729 $23,121
Operating income $5,383 $6,982 $9,856 $9,386
Net income $3,264 $4,175 $6,007 $5,763
Basic earnings per share $0.30 $0.38 $0.56 $0.54
Diluted earnings per share $0.29 $0.37 $0.54 $0.53
Market Prices: High $25.75 $30.00 $30.00 $26.00
Low $22.75 $21.00 $20.25 $18.00
- --------------------------------------------------------------------------------------------------------------------
1997
- --------------------------------------------------------------------------------------------------------------------
Net sales $46,408 $48,607 $56,437 $53,875
Gross margin $17,882 $18,754 $22,313 $21,245
Operating income $5,376 $6,502 $10,112 $8,997
Net income $3,110 $3,918 $6,161 $5,434
Basic earnings per share $0.27 $0.35 $0.55 $0.49
Diluted earnings per share $0.26 $0.34 $0.53 $0.47
Market Prices: High $22.00 $23.25 $24.25 $26.00
Low $18.75 $19.25 $18.38 $21.25
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 2
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
HOLOPHANE CORPORATION AND SUBSIDIARIES
($ in thousands except per share data) December 31,
1998 1997
- ---------------------------------------------------------------------------------------------------------------------
Assets
- ---------------------------------------------------------------------------------------------------------------------
Current Assets:
<S> <C> <C>
Cash and equivalents $5,535 $11,709
Accounts receivable (less allowance of $1,331 and $1,087, respectively) 32,992 29,903
Inventories 15,705 12,651
Prepaid and other assets 3,522 3,988
- ---------------------------------------------------------------------------------------------------------------------
Total Current Assets 57,754 58,251
- ---------------------------------------------------------------------------------------------------------------------
Property, Plant and Equipment, net 49,626 42,102
Goodwill (net of accumulated amortization of $4,171 and $3,124, respectively) 23,156 21,285
Other Assets 6,011 5,158
- ---------------------------------------------------------------------------------------------------------------------
TOTAL $136,547 $126,796
=====================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long term debt $ 278 $ 6,610
Trade payables 9,351 10,366
Compensation and employee benefits 8,305 8,881
Income taxes payable 1,312 1,987
Other accrued liabilities 4,753 3,678
- ---------------------------------------------------------------------------------------------------------------------
Total Current Liabilities 23,999 31,522
- ---------------------------------------------------------------------------------------------------------------------
Long Term Debt (less current maturities) 21,249 12,964
Long Term Compensation 4,661 3,522
Other Long Term Liabilities 4,440 3,685
Commitments and Contingencies - -
Stockholders' Equity:
Preferred stock (par value $.01 per share: 1,000,000 shares
authorized; none issued) Common stock (par value $.01 per share:
20,000,000 shares authorized; 11,895,861 shares issued) 119 119
Additional paid-in capital 42,760 43,143
Retained earnings 68,359 49,150
Common shares in treasury, at cost (1998: 1,333,413 shares; 1997: 880,014 shares) (26,706) (15,882)
Accumulated other comprehensive income (deficit) (2,334) (1,427)
- ---------------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 82,198 75,103
- ---------------------------------------------------------------------------------------------------------------------
Total $136,547 $126,796
=====================================================================================================================
The accompanying notes are an integral part of these consolidated financial statements.
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 3
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
HOLOPHANE CORPORATION AND SUBSIDIARIES
(in thousands) Year Ended December 31,
1998 1997 1996
- --------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income $ 19,209 $ 18,623 $ 16,468
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 8,189 6,905 6,487
Loss on disposal of property, plant and equipment 113 28 232
Provision for deferred income taxes 160 866 253
Change in assets and liabilities net of effects from acquisitions:
Accounts receivable (864) 2,966 (4,053)
Inventories (469) 580 1,568
Prepaid and other current assets 618 (356) (281)
Trade payables (1,491) (536) (1,171)
Compensation and employee benefits (856) 536 (732)
Income taxes payable (1,122) 812 (780)
Other, net 1,491 77 955
- --------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 24,978 30,501 18,946
- --------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
- --------------------------------------------------------------------------------------------------------
Purchase of investment securities (1,179) (1,906) (1,551)
Sale of investment securities 39 842 1,005
Capital expenditures (12,379) (8,007) (4,956)
Proceeds from the sale of assets 88 102 42
Acquisitions, net of cash acquired (674) 0 (6,100)
- --------------------------------------------------------------------------------------------------------
Net cash used in investing activities (14,105) (8,969) (11,560)
- --------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
- --------------------------------------------------------------------------------------------------------
Principal payments on long term debt (60,380) (6,381) (9,359)
Proceeds from long term debt 62,002 0 0
Purchase of treasury shares (12,676) (11,645) (3,769)
Payments to pre-acquisition shareholders (7,350) 0 0
Proceeds from the sale of treasury shares 677 214 385
- --------------------------------------------------------------------------------------------------------
Net cash used in financing activities (17,727) (17,812) (12,743)
- --------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash 680 (83) 73
- --------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and equivalents (6,174) 3,637 (5,284)
Cash and equivalents at beginning of year 11,709 8,072 13,356
- --------------------------------------------------------------------------------------------------------
Cash and equivalents at end of year $ 5,535 $ 11,709 $ 8,072
========================================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 1,457 $ 1,712 $ 2,160
Income taxes $ 11,057 $ 9,066 $ 10,472
Non-cash investing and financing activity:
Treasury shares used for acquisitions $ 704 $ 1,380 $ 2,145
Additional goodwill relating to contingent purchase price $ 1,020 $ 704 $ 1,381
Trade payables for property, plant and equipment $ 206 $ 687 $ 252
Capital leases for property, plant and equipment $ 0 $ 699 $ 0
Shares exchanged to exercise stock options $ 59 $ 488 $ 0
========================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 4
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' Equity
HOLOPHANE CORPORATION AND SUBSIDIARIES
($ in thousands)
<TABLE>
<CAPTION>
Accumulated
Common Stock Additional Treasury Stock Other
-------------------- Paid-in Retained --------------- Comprehensive Stockholders
Shares Amount Capital Earnings Shares Amount Income(Deficit) Equity
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1995 11,895,861 $119 $42,969 $14,059 425,148 ($4,529) ($2,229) $50,389
Comprehensive income
Net income 16,468 16,468
Translation adjustments(net of
tax benefit of $0) 1,460 1,460
--------
Comprehensive income 17,928
Shares used for acquisitions 780 (121,629) 1,365 2,145
Purchase of treasury shares 206,000 (3,769) (3,769)
Stock options exercised, including
related tax benefits 52 (36,150) 399 451
- -------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1996 11,895,861 119 43,801 30,527 473,369 (6,534) (769) 67,144
Comprehensive income
Net income 18,623 18,623
Translation adjustments
(net of tax benefit of $0) (658) (658)
---------
Comprehensive income 17,965
Shares used for acquisitions 13 (71,725) 1,367 1,380
Purchase of treasury shares 544,408 (12,133) (12,133)
Stock options exercised, including
related tax benefits (671) (66,038) 1,418 747
- -------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1997 11,895,861 119 43,143 49,150 880,014 (15,882) (1,427) 75,103
Comprehensive income
Net income 19,209 19,209
Translation adjustments
(net of tax benefit of $216) (907) (907)
---------
Comprehensive income 18,302
Shares used for acquisitions 91 (28,675) 613 704
Purchase of treasury shares 536,598 (12,676) (12,676)
Stock options exercised, including
related tax benefits (474) (54,524) 1,239 765
- -------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1998 11,895,861 $119 $42,760 $68,359 1,333,413 ($26,706) ($2,334) $82,198
===============================================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
INDEPENDENT AUDITOR'S REPORT
TO THE STOCKHOLDERS AND DIRECTORS OF HOLOPHANE CORPORATION
--------------------------------------------
We have audited the accompanying consolidated balance sheets of Holophane
Corporation and subsidiaries as of December 31, 1998 and 1997, and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the three years in the period ended December 31, 1998. These financial
statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
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
misstatements. 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, such consolidated financial statements present fairly, in
all material respects, the financial position of Holophane Corporation and
subsidiaries at December 31, 1998 and 1997, and results of their operations and
their cash flows for each of the three years in the period ended December 31,
1998 in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
- -------------------------
Deloitte & Touche LLP
Columbus, Ohio
February 19, 1999
<PAGE> 5
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The company is engaged in the manufacture and sale of lighting fixtures and
systems primarily for industrial, commercial and outdoor applications. The
company has operations in the United States, Canada, Mexico, United Kingdom,
Germany and Australia.
CONSOLIDATION
The consolidated financial statements include the accounts of Holophane
Corporation and all of its majority owned subsidiaries. All significant
intercompany transactions have been eliminated.
FOREIGN CURRENCY TRANSLATION
The assets and liabilities of the company's subsidiaries outside the United
States are translated into U.S. dollars at the rates of exchange in effect at
the balance sheet dates. Income and expense items are translated at the average
exchange rates prevailing during the period. Gains and losses resulting from
foreign currency transactions are recognized currently in net income and those
resulting from translation of financial statements are recognized currently in
comprehensive income.
DISCLOSURES REGARDING FINANCIAL
INSTRUMENTS
The carrying value of cash and equivalents, receivables, accrued liabilities and
accounts payable are considered to approximate fair value due to the relatively
short maturity of the respective instruments. For long-term debt, the interest
rates fluctuate with the London Interbank Offered Rate (LIBOR) or Prime Rate and
thus their carrying value is a reasonable estimate of fair value.
CASH AND EQUIVALENTS
The company considers money market funds and all highly liquid debt instruments
with an initial maturity of three months or less to be cash equivalents. At
December 31, 1998 and 1997, the company had approximately $732,000 and
$6,590,000, respectively, invested in bank commercial paper and U.S. treasury
related investments.
INVENTORIES
Inventories are valued at the lower of cost, determined on the first-in,
first-out basis, or market.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost. Depreciation is computed
using the straight-line method over the estimated useful lives of the assets
which range from one and one-half to forty years.
GOODWILL
The excess of purchase price over the fair values of net assets acquired is
amortized on a straight-line basis over forty years.
ASSET IMPAIRMENTS
Annually, or more frequently if events or circumstances change, a determination
is made by management, in accordance with Statement of Financial Accounting
Standards (SFAS) 121, to ascertain whether property, plant and equipment,
goodwill and other intangible assets have been impaired based on the sum of
expected future undiscounted cash flows from operating activities. Based upon
its most recent analysis, the company believes that property, goodwill and other
intangibles at December 31, 1998 and 1997 are realizable and the depreciation
and amortization periods are appropriate.
SELF INSURANCE
The company is self-insured for certain health and workers' compensation
programs in the United States. The company purchases insurance to limit exposure
under these programs. Insurance for the health plan provides a stop-loss ceiling
of $100,000 per individual per year and an aggregate annual stop-loss ceiling
(based on enrollment) of $1,720,000, $1,709,000 and $1,585,000 for 1998, 1997
and 1996, respectively. Insurance for the workers' compensation plan contains a
stop-loss ceiling of $300,000 per event. The company accrues for both claims
reported but not yet paid and claims incurred but not yet reported.
MANAGEMENT ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the reporting periods.
Actual results could differ from those estimates.
REVENUE RECOGNITION
Revenues are recognized at the time the products are shipped.
ADVERTISING
Advertising costs are expensed as incurred. Advertising expense for 1998, 1997
and 1996 was $2,593,000, $2,447,000 and $2,365,000, respectively.
IMPACT OF NEW ACCOUNTING STANDARDS
In June 1998, SFAS 133, "Accounting for Derivative Instruments and Hedging
Activities," was issued and is required to be adopted for the company's 2000
annual financial statements. The company has not yet determined what, if any,
impact the adoption of this will have on its financial statements.
<PAGE> 6
2. ACQUISITION
HOLOPHANE S.A. DE C.V. (HOLOPHANE MEXICO) - On June 1, 1998, the company
acquired the stock of Holophane Mexico for $770,000. Under the terms of the
purchase agreement, the company will make additional payments of up to
$2,023,000, contingent upon Holophane Mexico achieving certain operating results
during the three year period ending December 31, 2000. At the date of
acquisition, the market value of assets acquired was $11,270,000 and liabilities
assumed were $10,770,000.
METALOPTICS, INC. - On September 1, 1996, the company acquired the stock of
MetalOptics, Inc. Under the terms of the purchase agreement, the company will
make additional payments of up to $500,000 and 154,589 additional shares of
common stock, contingent upon MetalOptics, Inc. achieving certain operating
results during the period ending December 31, 2001.
Any future amounts earned under these agreements will be recorded as additional
goodwill and amortized over the remaining life of the goodwill recognized at the
time of acquisition.
Results of operations after the acquisition dates are included in the
Consolidated Statements of Income. The following pro forma information (in
thousands, except earnings per share [EPS] amounts) has been prepared assuming
the Holophane Mexico and MetalOptics, Inc. acquisitions had taken place at the
beginning of 1997 and 1996, respectively. The pro forma information includes
adjustments for interest expense that would have been incurred to finance the
purchase, additional depreciation based on the fair market value of the
property, plant and equipment acquired and the amortization of goodwill arising
from the transaction, net of tax. The pro forma financial information is not
necessarily indicative of the results of operations as they would have been had
the transactions been effected on the assumed dates.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
1998 1997 1996
- ------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales $218,834 $215,652 $204,545
Net Income $19,285 $19,069 $17,088
Basic EPS $1.78 $1.69 $1.48
Diluted EPS $1.72 $1.63 $1.44
==================================================================
</TABLE>
3. INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
- ---------------------------------------------------------------
DECEMBER 31,
1998 1997
- ---------------------------------------------------------------
<S> <C> <C>
Raw materials $8,973 $7,610
Work in process 4,869 3,850
Finished goods 2,498 1,838
- ---------------------------------------------------------------
TOTAL 16,340 13,298
Less valuation allowance (635) (647)
- ---------------------------------------------------------------
TOTAL $15,705 $12,651
===============================================================
</TABLE>
4. PROPERTY, PLANT AND EQUIPMENT
The major classes of property, plant and equipment are
summarized as follows (in thousands):
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
DECEMBER 31,
1998 1997
- -----------------------------------------------------------------
<S> <C> <C>
Land $3,272 $2,322
Buildings and improvements 24,799 23,687
Machinery and equipment 57,822 51,016
Office and computer equipment 13,916 12,464
Construction in progress 3,654 1,670
- -----------------------------------------------------------------
TOTAL 103,463 91,159
Less accumulated depreciation (53,837) (49,057)
- -----------------------------------------------------------------
TOTAL $49,626 $42,102
=================================================================
</TABLE>
5. LONGTERM DEBT AND CREDIT FACILITIES
In March 1998, the company refinanced its debt with an unsecured $30,000,000
revolving credit agreement with National City Bank which matures on April 1,
2001. Under the new agreement, the company can elect to borrow Eurodollars or
domestic funds at .20% to .875% (Applicable Margin) in excess of the LIBOR or
Prime Rate, respectively. The Applicable Margin is determined by the ratio of
debt (as defined in the credit agreement) to the sum of operating income plus
depreciation and amortization. Based on the Applicable Margin, commitment fees
of .15% to .30% are charged on the average daily unused portion of the available
commitment. This credit agreement contains certain financial and operating
covenants.
<PAGE> 7
The old credit agreement consisted of a term loan that reduced semi-annually
until scheduled maturity on September 30, 2000 and a revolving commitment of up
to $15,000,000, collateralized by substantially all of the company's assets.
Interest rates as of December 31, 1998 and 1997 were 5.4% and 6.8%,
respectively.
Long term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
- --------------------------------------------------------------
DECEMBER 31,
1998 1997
- --------------------------------------------------------------
<S> <C> <C>
Revolving Loan $21,000 $0
Term loan 0 18,660
Capital lease obligations (Note 6) 515 883
Other borrowings 12 31
- --------------------------------------------------------------
Total 21,527 19,574
Less current maturities (278) (6,610)
==============================================================
Total $21,249 $12,964
==============================================================
</TABLE>
6. LEASES
The company leases certain computer and plant equipment under capital leases.
The cost of these assets leased under capital leases is approximately $818,000
and $1,326,000 at December 31, 1998 and 1997, respectively. In addition, the
company leases certain equipment and office space under non-cancelable operating
leases.
Future minimum lease payments are as follows (in thousands):
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
CAPITAL OPERATING
LEASES LEASES
- ----------------------------------------------------------------
<S> <C> <C>
1999 $294 $788
2000 256 394
2001 0 154
2002 0 95
2003 0 47
Thereafter 0 224
- ----------------------------------------------------------------
TOTAL MINIMUM LEASE
PAYMENTS 550 $1,702
Less amount representing
interest (35)
- ----------------------------------------
Present value of net minimum
lease payments (Note 5) $515
========================================
</TABLE>
Total rent expense under operating leases for 1998, 1997 and 1996 was
approximately $1,574,000, $1,693,000 and $1,381,000, respectively.
7. INCOME TAXES
The company follows the provisions of SFAS 109. The components of income before
income taxes are as follows (in thousands):
<TABLE>
<CAPTION>
- -----------------------------------------------------------
1998 1997 1996
- -----------------------------------------------------------
<S> <C> <C> <C>
Domestic $27,073 $27,068 $24,781
Foreign 3,401 2,614 1,624
- -----------------------------------------------------------
TOTAL $30,474 $29,682 $26,405
===========================================================
</TABLE>
The components of the provision (credit) for income taxes are as follows (in
thousands):
<TABLE>
<CAPTION>
- --------------------------------------------------------------
1998 1997 1996
- --------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $8,561 $8,366 $7,918
State and local 1,281 1,196 1,279
Foreign 1,263 631 487
- --------------------------------------------------------------
TOTAL CURRENT 11,105 10,193 9,684
Deferred:
Federal 480 550 171
State and local 106 373 37
Foreign (426) (57) 45
- --------------------------------------------------------------
TOTAL DEFERRED 160 866 253
TOTAL $ 11,265 $ 11,059 $ 9,937
==============================================================
</TABLE>
<TABLE>
<CAPTION>
The principal items accounting for the difference in the expected
tax expense on income before income taxes computed at the United
States statutory rate are as follows (in thousands):
- --------------------------------------------------------------
1998 1997 1996
- --------------------------------------------------------------
<S> <C> <C> <C>
Computed expense
at 35% of pretax
income $ 10,666 $ 10,389 $ 9,242
State and local
taxes (net of
federal and foreign
tax) 979 1.127 905
Elimination of
valuation allowance
on foreign
NOLS 0 (712) 0
Other (380) 255 (210)
- --------------------------------------------------------------
TOTAL $ 11,265 $ 11,059 $ 9,937
==============================================================
</TABLE>
<PAGE> 8
The tax effect of the items comprising the company's net deferred tax asset are
as follows (in thousands):
<TABLE>
<CAPTION>
- ---------------------------------------------------------------
DECEMBER 31,
1998 1997
- ---------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Intangibles $ 33 $ 365
Reserves 539 1,004
Compensation and employee
benefits 2,933 2,128
Other 1,182 1,184
- ---------------------------------------------------------------
TOTAL 4,687 4,681
Deferred tax liabilities:
Property, plant and equipment 3,258 2,260
- ---------------------------------------------------------------
NET DEFERRED TAX ASSET $1,429 $2,421
===============================================================
</TABLE>
At December 31, 1998 the company had foreign net operating loss carryforwards
(NOLs) totaling $545,000 which the company expects to fully utilize before it
expires in 2007.
At December 31, 1998 unremitted earnings of subsidiaries outside the United
States were approximately $8,420,000. The company intends to indefinitely
reinvest the undistributed earnings of its foreign subsidiaries or to repatriate
them only when it is tax effective to do so. Accordingly, no deferred income
taxes for additional United States federal income taxes from distribution of
foreign earnings have been recorded.
8. EMPLOYEE BENEFIT PLANS
The company has five 401(k) defined contribution savings plans covering
substantially all United States union and non-union employees. The plans, which
provide for both optional and mandatory company contributions of up to 5%, are
intended to qualify under Section 401(k) of the Internal Revenue Code. The
company matches participant contributions of up to 3% of their salary. The
company's Canadian subsidiary has a defined contribution savings plan covering
substantially all employees. The expense charged to operations under these plans
was $2,196,000, $2,530,000 and $2,133,000 for 1998, 1997 and 1996, respectively.
On June 1, 1998, the company acquired Holophane Mexico, including its pension
benefit plan. Holophane Mexico's benefit plan consists of a seniority premium
based on years of service and final salary (as defined under the Mexican Federal
Labor Laws) covering all full time employees and a defined benefit based on
years of service and average salary over the last five years of service covering
all full time non-union employees.
Holophane Europe has a defined benefit plan, covering substantially all of its
employees, in which benefits are based primarily on years of service and
employee compensation near retirement.
The company's funding policy is in accordance with local laws and income tax
regulations. Fund assets consist primarily of common stocks, common trust funds
and government securities.
The following table sets forth the funded status of Holophane Europe's and
Holophane Mexico's plan and amounts recognized in the company's balance sheets
(in thousands):
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
DECEMBER 31,
1998 1997
- ----------------------------------------------------------------
<S> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning
of year $10,552 $8,751
Service cost 734 777
Interest cost 813 709
Actuarial gain 1,307 709
Acquisition 907 0
Exchange (gain)/loss (35) (304)
Benefits paid (1,972) (90)
- ----------------------------------------------------------------
Benefit obligation at end of year 12,306 10,552
- ----------------------------------------------------------------
Change in plan assets:
Fair value of plan assets at
beginning of year 11,417 9,914
Actual return on plan assets 1,924 1,217
Acquisition 868 0
Employer contributions 508 499
Plan participants' contributions 240 236
Exchange (gain)/loss (27) (358)
Benefits paid (1,972) (91)
- ----------------------------------------------------------------
Fair value of plan assets at end
of year 12,958 11,417
- ----------------------------------------------------------------
Funded status 652 865
Unrecognized net actuarial costs 144 173
Unrecognized prior service cost (390) (655)
- ----------------------------------------------------------------
Prepaid benefit cost $406 $383
================================================================
</TABLE>
Weighted average actuarial assumptions used in the accounting for the plans were
as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------
1998 1997 1996
- ---------------------------------------------------------------
<S> <C> <C> <C>
Discount rate 7.41% 7.50% 8.50%
Expected return on plan
assets 8.03% 8.50% 8.50%
Rate of compensation
increase 5.10% 5.25% 6.25%
===============================================================
</TABLE>
<PAGE> 9
Net periodic benefit cost included in the company's Consolidated Statements
of Income consisted of the following components (in thousands):
<TABLE>
<CAPTION>
- ---------------------------------------------------------------
1998 1997 1996
- ---------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 734 $ 777 $ 682
Interest cost 813 709 545
Plan participants'
contributions (240) (236) (222)
Expected return on
plan assets (899) (787) (748)
Amortization of prior
service costs 33 33 1
Recognized net
actuarial loss 10 0 0
- ---------------------------------------------------------------
Net periodic benefit
cost $ 451 $ 496 $ 258
===============================================================
</TABLE>
The company's Supplemental Executive Retirement Plan (SERP) allows participants
to defer up to 50% of their annual bonus. Deferred compensation under the SERP
is used to fund a Rabbi Trust. Gains and losses on participant's accounts
directly offset the SERP liability for each participant. The fair value of the
investment included in other assets and offsetting liability was $4,661,000 and
$3,522,000 at December 31, 1998 and 1997, respectively.
9. STOCK OPTIONS
On April 30, 1998, the stockholders approved an Employee Stock Purchase Plan
(ESPP) within the meaning of Section 423 of the Internal Revenue Code with
300,000 shares of stock for its U.S. and Canadian subsidiaries. The 1997
Offering granted under the plan allows eligible employees to have up to 5% of
their first $50,000 of annual compensation during the two year grant period
withheld from payroll to purchase company stock on December 31, 1999 at an
option price of $20.30 which was established on December 15, 1997 at 85% of the
average trade value. As of December 31, 1998, 69,000 of the 84,000 options
granted were outstanding.
The 1996 and 1993 Holophane Corporation Incentive Stock Plans authorize the
grant of options, restricted stock and awards of performance shares of common
stock to officers, key employees and directors. Options are to be granted at
exercise prices equal to the fair market value of such stock as of the date of
grant. All options granted have a maximum term of 10 years. Employee options
vest ratably over four years and directors' options vest in six months. The
weighted average remaining contractual life of these options is 6.8 years. The
number of authorized options to be granted under these plans are 800,000 and
1,182,000, respectively. Stock option activity is summarized as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
1998 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding at
beginning of year 1,097,637 972,825 802,425
Weighted average exercise price $ 14.79 $ 13.14 $ 11.27
Granted 207,800 234,100 209,600
Weighted average exercise price $ 24.84 $ 20.76 $ 19.88
Exercised (56,912) (66,038) (36,150)
Weighted average exercise price $ 12.93 $ 10.64 $ 10.67
Canceled (16,338) (43,250) (3,050)
Weighted average exercise price $ 19.09 $ 16.19 $ 14.15
- -------------------------------------------------------------------------------
Outstanding at end
of year 1,232,187 1,097,637 972,825
Weighted average exercise price $ 16.51 $ 14.79 $ 13.14
===============================================================================
Exercisable at end
of year 768,129 606,091 421,800
Weighted average exercise price $ 13.70 $ 12.45 $ 11.60
===============================================================================
Available for grant at
end of year 612,255 801,329 963,900
===============================================================================
</TABLE>
The company applies Accounting Principles Board Opinion 25 in accounting for its
fixed stock compensation plans. Accordingly, no compensation cost has been
recognized for the plans in 1998, 1997 or 1996.
In accordance with SFAS 123, the fair value approach has not been applied to
stock options granted prior to January 1, 1995. The compensation cost calculated
under SFAS 123 is recognized over the vesting period of the stock options. Fair
value is estimated on the date of grant using the Black-Scholes option pricing
model with the following weighted average assumptions:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------
INCENTIVE STOCK PLAN ESPP
1998 1997 1996 1998
- ---------------------------------------------------------------
<S> <C> <C> <C> <C>
Weighted average
fair value $9.87 $7.95 $6.74 $6.68
Risk-free interest
rate 5.73% 6.19% 5.88% 5.68%
Dividend yield 0 0 0 0
Volatility factor .252 .254 .230 .254
Weighted average
expected life (years) 6.5 5.8 5.5 2.0
===============================================================
</TABLE>
<PAGE> 10
Had compensation costs for stock options been determined based on the fair value
at the grant dates for awards under the plan consistent with the method of SFAS
123, the company's net earnings and EPS would have been reduced to the pro forma
amounts indicated as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------
1998 1997 1996
- -----------------------------------------------------------
<S> <C> <C> <C>
Net Income:
As reported $19,209 $18,623 $16,468
Pro forma $17,895 $17,832 $15,919
Basic EPS:
As reported $1.77 $1.65 $1.44
Pro forma $1.65 $1.58 $1.39
Diluted EPS:
As reported $1.72 $1.60 $1.40
Pro forma $1.60 $1.53 $1.35
===========================================================
</TABLE>
The following table summarizes stock options outstanding and exercisable at
December 31, 1998 (shares in thousands):
<TABLE>
<CAPTION>
- -----------------------------------------------------------
Outstanding Exercisable
- -----------------------------------------------------------
Exercise Average Average Average
Price Remaining Exercise Exercise
Range Options Life Price Options Price
- -----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$10-$13 629 5.4 yrs $11.34 574 $11.31
$18-$27 603 8.2 yrs $21.90 194 $20.78
===========================================================
</TABLE>
All share data is presented in accordance with SFAS 128. The reconciliation of
basic and diluted shares outstanding is as follows (in thousands):
<TABLE>
<CAPTION>
- ----------------------------------------------------------
1998 1997 1996
- ----------------------------------------------------------
<S> <C> <C> <C>
Basic shares
outstanding 10,848 11,283 11,473
Dilutive securities:
Stock options 338 373 281
Contingent shares 4 7 25
- ----------------------------------------------------------
Dilutive shares
outstanding 11,190 11,663 11,779
==========================================================
</TABLE>
The following options to purchase shares of common stock were outstanding during
each year, but were not included in the computation of diluted EPS because the
option's exercise price was greater than the average market price of the common
shares for all quarters during the year and, therefore, the effect would be
anti-dilutive:
<TABLE>
<CAPTION>
- -----------------------------------------------------------
1998 1997 1996
- -----------------------------------------------------------
<S> <C> <C> <C>
Number of options 30,000 0 174,000
Weighted average
exercise price $27.19 $0.00 $20.38
===========================================================
</TABLE>
The company has adopted SFAS 131, "Disclosures about Segments of a Business
Enterprise and Related Information." The company operates predominantly in one
industry segment, that being the design, manufacture and sale of lighting
fixtures. No single customer accounted for as much as 10% of consolidated net
sales. The following table presents information about the company managed by
geographic area (in thousands):
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
1998 1997 1996
- ----------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES TO CUSTOMERS
United States $172,519 $171,749 $157,981
Europe 23,762 23,908 23,376
Other 18,594 9,670 9,582
- ----------------------------------------------------------------------
TOTAL $214,875 $205,327 $190,939
======================================================================
TRANSFERS BETWEEN GEOGRAPHIC AREAS
(eliminated in consolidation)
United States $10,046 $7,268 $7,694
Other 256 271 0
- ----------------------------------------------------------------------
TOTAL $10,302 $7,539 $7,694
======================================================================
OPERATING INCOME
United States $27,813 $27,688 $25,882
Europe 2,286 1,945 1,791
Other 1,508 1,354 344
- ----------------------------------------------------------------------
TOTAL $31,607 $30,987 $28,017
======================================================================
IDENTIFIABLE ASSETS
United States $100,045 $102,934 $101,361
Europe 20,585 20,268 20,166
Other 15,917 3,594 2,440
- ----------------------------------------------------------------------
TOTAL $136,547 $126,796 $123,967
======================================================================
CAPITAL SPENDING
United States $11,172 $7,607 $4,212
Europe 655 291 438
Other 552 109 306
- ----------------------------------------------------------------------
TOTAL $12,379 $8,007 $4,956
======================================================================
DEPRECIATION & AMORTIZATION
United States $7,143 $6,057 $5,615
Europe 684 755 741
Other 362 93 131
- ----------------------------------------------------------------------
TOTAL $8,189 $6,905 $6,487
======================================================================
</TABLE>
<PAGE> 11
MANAGEMENT DISCUSSION
AND ANALYSIS
RESULTS OF OPERATIONS 1998 COMPARED WITH 1997
Net sales for the year were at a record level of $214.9 million, an increase of
$9.6 million, or 4.7% over 1997, up 1.2% due to internal growth and 3.5% from
the acquisition of Holophane Mexico in June 1998. Total domestic sales of $172.5
million grew 0.5% in 1998. Domestic sales growth slowed in 1998 due to increased
competition in the area of industrial and commercial products, offset somewhat
by strong sales growth in the area of historically styled lighting products.
Canadian sales were up 29.6% in local currency compared to previous year, a
result of a strong backlog of business entering 1998. Holophane Europe sales
were down 1.6% in local currency, reflecting stronger demand in the United
Kingdom, offset by soft sales volume in continental Europe.
Gross margin increased $4.8 million or 5.9% to $84.9 million in 1998. Gross
margin as a percent of sales increased in 1998 to 39.5% compared to 39.1% in
1997. The increase is the result of higher sales volume, favorable price/mix and
lower purchased material costs.
Selling and administrative expenses were $46.6 million, or 21.7% of sales,
compared to $42.7 million or 20.8% of sales in 1997. One-time spending relating
to a second national sales conference and implementation of a new sales force
automation system increased spending by approximately $0.9 million in 1998.
Adjusting for the Holophane Mexico acquisition, research and development
spending was 3.1% in 1998, compared to 3.2% in 1997.
Interest expense of $1.5 million decreased $0.2 million in 1998 compared to 1997
due to lower outstanding balances and lower average interest rates. Interest
income of $0.4 million in 1998 was flat with 1997.
The tax rate in 1998 was 37.0%, down from 37.3% experienced in 1997. The lower
effective income tax rate in 1998 is primarily due to the tax benefit of
inflation adjustments in Mexico.
Net income was $19.2 million in 1998, compared to $18.6 million in 1997. Basic
and diluted earnings per share rose to $1.77 and $1.72 per share, respectively,
up from $1.65 and $1.60 per share, respectively in 1997.
Overall, increased net sales, lower net interest costs and a lower effective tax
rate led to higher net earnings for 1998.
RESULTS OF OPERATIONS 1997 COMPARED WITH 1996
Net sales for the year were at a record level of $205.3 million, an increase of
$14.4 million, or 7.5% over 1996. Domestic sales of $171.7 million grew 8.7% in
1997, up 1.7% due to internal growth and 7.0% from the 1996 acquisition of
MetalOptics. Canadian sales were down approximately 1% in local currency
compared to previous year, a result of continued weak economic activity.
Holophane Europe sales were down 2.1% in local currency, reflecting a recovering
business climate in the United Kingdom, offset by a softened Deutschmark and a
decline in sales volume in continental Europe.
Gross margin increased $6.5 million or 8.8% to $80.2 million in 1997. Gross
margin as a percent of sales increased in 1997 to 39.1% compared to 38.6% in
1996. The increase is the result of higher sales volume, favorable price/mix and
lower purchased material costs.
Selling and administrative expenses were $42.7 million, or 20.8% of sales,
compared to $39.4 million or 20.6% of sales in 1996. Additional staffing and
other general spending contributed to increased expense in 1997. Adjusting for
the MetalOptics acquisition, research and development spending was 3.2% in 1997,
compared to 3.0% in 1996.
Interest expense of $1.7 million decreased $0.4 million in 1997 compared to 1996
due to lower outstanding balances and lower average interest rates. Interest
income also decreased $0.1 million in 1997 due to lower average interest rates.
The tax rate in 1997 was 37.3%, down from 37.6% experienced in 1996. The lower
effective income tax rate in 1997 is primarily due to benefits generated by the
Foreign Sales Corporation and the elimination of the valuation allowance for
foreign NOL's resulting in no tax expense on Canadian income.
Net income was $18.6 million in 1997, compared to $16.5 million in 1996. Basic
and diluted earnings per share rose to $1.65 and $1.60 per share, respectively,
up from $1.44 and $1.40 per share, respectively in 1996.
Overall, increased net sales, lower net interest costs and a lower effective tax
rate led to higher net earnings for 1997.
CAPITAL RESOURCES AND LIQUIDITY
Holophane's principal sources of liquidity have been cash generated from
operating activities and amounts available under the bank agreement. During the
three year period ended December 31, 1998, the company generated approximately
$74.4 million of cash from operating activities. Holophane has significantly
reduced working capital requirements through programs implemented in the past
that emphasize accounts receivable, inventory and accounts payable management.
As of December 31, 1998, the company had $5.5 million in cash and cash
equivalents.
<PAGE> 12
At December 31, 1998, outstanding long-term indebtedness amounted to $21.5
million (including the current portion of $0.2 million). This represents an
increase of approximately $2.0 million from December 31, 1997.
In March 1998, the company refinanced its debt with an unsecured $30 million
revolving credit agreement with National City Bank which matures on April 1,
2001. Under the new agreement, the company can elect to borrow Eurodollars or
domestic funds at .20% to .875% in excess of the LIBOR or Prime rate. At
year-end 1998 there was $9 million available for borrowing under the credit
agreement.
Holophane's primary liquidity requirements are the funding of capital
expenditures, treasury stock purchases, periodic principal and scheduled
interest payments on indebtedness and working capital needs. Capital
expenditures in 1998 totaled $12.4 million, as compared to $8.0 million in 1997
and $5.0 million in 1996. The company used $12.7 million and $11.6 million to
purchase shares into treasury in 1998 and 1997, respectively. Cash on hand,
funds generated from operations and amounts available under the credit agreement
are expected to adequately fulfill Holophane's anticipated requirements in 1999.
IMPACT OF INFLATION
The company is subject to the effects of inflation. While the company attempts
to pass along inflationary increases in its costs by increasing the selling
prices of its products, it has not always been successful in passing along the
entire amount of such increases due to the level of competition in its markets.
The operating efficiencies and reduced unit cost of production which have been
achieved through the company's capital expenditure programs and other process
improvements have mitigated the impact of inflation on the company's cost
structure.
SAFE HARBOR STATEMENT
Except for the historical information contained herein, the matters discussed in
this annual report are forward-looking statements which involve risks and
uncertainties, including but not limited to economic, competitive, governmental
and technological factors affecting the company's operations, markets, services
and related products, prices and other factors discussed in the company's prior
filings with the Securities and Exchange Commission.
STOCK MARKET PRICES AND DIVIDENDS
On July 6, 1998, the company's common stock began trading on the New York Stock
Exchange under the symbol "HLP." From the date of the company's initial public
offering in 1993 until July 3, 1998, the company's common stock had been listed
on the NASDAQ National Market under the symbol "HLPH." As of March 10, 1999,
there were approximately 2,300 record holders of the company's common stock. See
Quarterly Results of Operations on page 8 for market prices on common stock
during 1998 and 1997. No dividends on the common stock were paid in 1998 or
1997.
YEAR 2000
During 1998, the company commenced an evaluation of the impact of Year 2000 on
all business systems, facilities, products and information systems and developed
an evaluation matrix from which Year 2000 compliance could be monitored.
Financial systems used by the company are vendor software products that are
certified by the vendor as Year 2000 ready releases. The company will test the
financial systems during 1999. An outside consulting firm conducted a separate
study of in-house manufacturing systems and all in-house manufacturing systems
have been modified and successfully tested for Year 2000. A separate evaluation
of manufacturing equipment is underway and will be completed in 1999. All
network systems were either migrated or upgraded to match Year 2000 ready local
area network (LAN) systems. Current installed LAN server equipment is Year 2000
ready. Personal computers, phone systems, timekeeping and security systems will
be Year 2000 ready prior to December 31, 1999. None of the company's other
information technology projects have been delayed due to the implementation of
the Year 2000 project.
Holophane estimates that the total cumulative cost of the project will be
approximately $200,000 which includes both internal and external personnel costs
related to modifying the systems. All costs related to the project are being
expensed as incurred and as of December 31, 1998, approximately $140,000 of
costs have been incurred. The costs of the project and the expected completion
dates are based on management's best estimate.
At this time, the company believes its most reasonable worst case scenario is
that key suppliers or service providers who have not resolved their own Year
2000 issue may cause a disruption of service to the company's critical business
processes, which in turn could affect the company's ability to manufacture and
deliver product. The company cannot predict the outcome of other companies'
remediation efforts. The company has initiated formal inquiries with suppliers
with which it has active contracts to determine the extent to which the company
is vulnerable to those third parties' failure to remediate their own Year 2000
issue. Alternative suppliers will be identified and used if necessary.
The company has an ongoing business interruption contingency plan to address
internal and external issues specific to the Year 2000 problem, to the extent
practicable. Depending on the status of third party Year 2000 readiness, these
plans include changing suppliers, advanced purchases of critical inventory and
extending production scheduling.
<PAGE> 13
FINANCIAL HISTORY
<TABLE>
<CAPTION>
Holophane Corporation and Subsidiaries
YEAR ENDED DECEMBER 31,
(in thousands except per share data) 1998 1997 1996 1995 1994 1993 1992 1991 1990
- ----------------------------------------------------------------------------------------------------------------------------
SUMMARY OF OPERATIONS
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $214,875 $205,327 $190,939 $181,069 $150,997 $138,818 $129,863 $118,166 $115,650
Gross margin 84,945 80,194 73,655 70,478 58,407 53,594 47,074 42,029 39,261
Nonrecurring items 0 0 0 0 3,875 3,424 0 0 0
Operating income 31,607 30,987 28,017 28,722 18,580 13,880 12,035 7,773 9,468
Interest expense, net 1,133 1,305 1,612 2,245 2,255 6,230 8,220 9,887 10,848
Income (loss) before income taxes,
cumulative effect of accounting
change and extraordinary item 30,474 29,682 26,405 26,477 16,325 7,650 3,815 (2,114) (1,380)
Provision for income taxes 11,265 11,059 9,937 10,435 6,837 3,075 661 64 227
Income (loss) before cumulative
effect of accounting change and
extraordinary item 19,209 18,623 16,468 16,042 9,488 4,575 3,154 (2,178) (1,607)
Cumulative effect of accounting change(a) 0 0 0 0 0 3,693 0 0 0
Extraordinary items, net of tax (b) 0 0 0 0 0 (4,098) 0 0 (5,464)
Net income (loss) 19,209 18,623 16,468 16,042 9,488 4,170 3,154 (2,178) (7,071)
Preferred stock dividends 0 0 0 0 0 2,137 2,260 1,958 1,845
Net income (loss) available to common
stockholders $19,209 $18,623 $16,468 $16,042 $9,488 $2,033 $894 ($4,136) ($8,916)
- ----------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA
- ----------------------------------------------------------------------------------------------------------------------------
Working capital:
Cash $5,535 $11,709 $8,072 $13,356 $11,473 $11,788 $3,013 $1,145 $2,156
Other $28,220 $15,020 $19,117 $12,688 $8,437 $5,550 $5,498 $16,121 $16,647
Total assets $136,547 $126,796 $123,967 $110,779 $99,352 $95,915 $88,014 $99,745 $111,494
Debt $21,527 $19,574 $25,256 $31,410 $37,722 $45,671 $63,777 $76,677 $82,550
Redeemable, preferred stock $0 $0 $0 $0 $0 $0 $16,905 $14,645 $12,687
Stockholders' equity (deficit) $82,198 $75,103 $67,144 $50,389 $34,722 $27,201 ($10,608) ($7,546) ($2,858)
- -----------------------------------------------------------------------------------------------------------------------------
PER COMMON SHARE DATA (c)
- -----------------------------------------------------------------------------------------------------------------------------
Basic net earnings (loss) before
cumulative effect of accounting
change and extraordinary items $1.77 $1.65 $1.44 $1.40 $0.82 $0.29 $0.11 ($0.53) ($0.45)
Basic net earnings (loss) $1.77 $1.65 $1.44 $1.40 $0.82 $0.24 $0.11 ($0.53) ($1.16)
Diluted net earnings (loss) $1.72 $1.60 $1.40 $1.37 $0.82 $0.24 $0.11 ($0.53) ($1.16)
Book value $7.78 $6.82 $5.88 $4.39 $3.03 $2.33 __ _ _
- -----------------------------------------------------------------------------------------------------------------------------
OTHER DATA
- -----------------------------------------------------------------------------------------------------------------------------
Gross margin as a % of sales 39.5% 39.1% 38.6% 38.9% 38.7% 38.6% 36.2% 35.6% 33.9%
Operating income as a % of sales 14.7% 15.1% 14.7% 15.9% 12.3% 10.0% 9.3% 6.6% 8.2%
Weighted average number of basic
common shares (c) 10,848 11,283 11,473 11,468 11,580 8,414 7,775 7,765 7,665
Weighted average number of diluted
common shares (c) 11,190 11,663 11,779 11,723 11,628 8,415 7,775 7,765 7,665
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Represents the effect of adopting SFAS 109, "Accounting for Income Taxes."
(b) Relates to early retirement of debt.
(c) Adjusted to reflect stock splits.
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF THE COMPANY
(i) Holophane Canada Inc., a Canadian corporation.
(ii) Luxfab Limited, a United Kingdom corporation and the holding company
for Holophane Europe Limited, Holophane Lighting Limited and Holophane
Lichttechnik.
(iii) Holophane Lichttechnik, a German GmbH.
(iv) Holophane Europe Limited, a United Kingdom corporation.
(v) Holophane Lighting Limited, a United Kingdom corporation.
(vi) MetalOptics, Inc., a Texas corporation.
(vii) Antique Street Lamps, Inc., a Texas corporation, and the holding
company for Castlight.
(viii) Castlight, a Mexican corporation.
(ix) Holophane International, Inc., a Barbados corporation.
(x) Holophane Australia Corporation Pty. Limited, holding company for 50.2%
of Unique Lighting Solutions Pty. Limited and 50.2% of The Austphane
Trust.
(xi) Unique Lighting Solutions Pty. Limited, an Australian corporation,
Trustee of The Austphane Trust.
(xii) The Austphane Trust, an Australian unit trust.
(xiii) HSA Acquisition Corporation, an Ohio corporation, and the holding
company for ID Limited and Holophane S.A. de C.V.
(xiv) ID Limited, an Isle of Mann Corporation.
(xv) Holophane S.A. de C.V., a Mexican corporation.
(xvi) Holophane Holding Company, an Ohio corporation.
(xvii) Holophane Market Development Corporation, a Cayman Islands corporation
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements No.
33-71034, No. 33- 71488 and No. 333-40569 of Holophane Corporation on Form S-8
of our reports dated February 19, 1999, appearing in and incorporated by
reference in this Annual Report on Form 10-K of Holophane Corporation for the
year ended December 31, 1998.
Deloitte & Touche LLP
Columbus, Ohio
March 25, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 5,535
<SECURITIES> 0
<RECEIVABLES> 34,323
<ALLOWANCES> 1,331
<INVENTORY> 15,705
<CURRENT-ASSETS> 57,754
<PP&E> 103,463
<DEPRECIATION> 53,837
<TOTAL-ASSETS> 136,547
<CURRENT-LIABILITIES> 23,999
<BONDS> 0
0
0
<COMMON> 119
<OTHER-SE> 82,079
<TOTAL-LIABILITY-AND-EQUITY> 136,547
<SALES> 214,875
<TOTAL-REVENUES> 214,875
<CGS> 129,930
<TOTAL-COSTS> 183,010
<OTHER-EXPENSES> 258
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,537
<INCOME-PRETAX> 30,474
<INCOME-TAX> 11,265
<INCOME-CONTINUING> 19,209
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,209
<EPS-PRIMARY> 1.77
<EPS-DILUTED> 1.72
</TABLE>
