SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 [ X ]
For the quarterly period ended: June 30, 1999
------------------------------------------------
OR
TRANSITION REPORT PURSUANT TO SECTION 12 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 [ ]
For the transition period from to
------------------------ -----------------------
Commission File Number 1-5426.
------------------------------
THOMAS INDUSTRIES INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 61-0505332
- ---------------------------------------- ------------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
4360 Brownsboro Road, Louisville, Kentucky 40207
- ---------------------------------------- ------------------------------
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: 502/893-4600
------------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ X ] No [ ]
The number of shares outstanding of issuer's Common Stock, $1 par value, as of
July 31, 1999, was 15,797,124 shares.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
THOMAS INDUSTRIES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(Dollars in Thousands Except Amounts Per Share)
Three Months Ended Six Months Ended
June 30 June 30
------------------ ------------------
1999 1998 1999 1998
---- ---- ---- ----
Net sales $47,467 $46,336 $93,768 $94,545
Cost of products sold 30,391 29,058 59,884 59,639
------ ------ ------ ------
Gross profit 17,076 17,278 33,884 34,906
Selling, general, and
administrative expenses 10,100 10,075 21,352 21,183
Equity income from Lighting 5,652 5,211 10,637 8,322
------ ------ ------ ------
Operating income 12,628 12,414 23,169 22,045
Interest expense 1,137 1,581 2,322 3,057
Interest income and other 543 79 1,044 258
------ ------ ------ ------
Income before income taxes 12,034 10,912 21,891 19,246
Income taxes 4,753 4,037 8,736 7,121
------ ------ ------ ------
Net income $ 7,281 $ 6,875 $13,155 $12,125
====== ====== ====== ======
Net income per share
Basic $.46 $.43 $.83 $.76
Diluted $.45 $.42 $.81 $.74
Dividends declared per share $.075 $.075 $.15 $.15
Weighted average number of
shares outstanding
Basic 15,791 15,874 15,775 15,869
Diluted 16,254 16,524 16,188 16,474
Effective August 30, 1998, Thomas Industries Inc. ("Thomas") and The Genlyte
Group ("Genlyte") formed Genlyte Thomas Group LLC ("GTG"), combining Thomas'
lighting business with Genlyte (the "Joint Venture"). Genlyte has a 68% interest
in GTG, and Thomas holds a 32% interest, which is accounted for using the equity
method of accounting. Thomas changed its method of accounting for the lighting
business contributed to GTG to the equity method effective January 1, 1998, the
beginning of Thomas' prior fiscal year, restating results for the quarters ended
March 31 and June 30, 1998. The restatement of results using the equity method
for the 1998 quarterly periods prior to consummation of the Joint Venture had no
effect on net income or common shareholders' equity but did reduce its revenues,
costs, assets, and liabilities, and changed certain components of cash flow.
See notes to condensed consolidated financial statements.
<PAGE>
THOMAS INDUSTRIES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
June 30 December 31
1999 1998*
---- ----
ASSETS
Current assets
Cash and cash equivalents $ 14,862 $ 18,205
Accounts receivable, less allowance
(1999--$632; 1998--$656) 23,078 19,205
Inventories:
Finished products 5,237 5,352
Raw materials 8,427 9,196
Work in process 4,457 5,638
------- -------
18,121 20,186
Deferred income taxes 2,867 2,997
Other current assets 4,216 3,650
------- -------
Total current assets 63,144 64,243
Investment in GTG 153,224 147,386
Property, plant, and equipment 73,977 73,115
Less accumulated depreciation and amortization 41,249 39,114
------- -------
32,728 34,001
Note receivable from GTG 22,287 22,287
Intangible assets--less accumulated amortization 7,733 8,248
Other assets 5,086 6,194
------- -------
Total assets $284,202 $282,359
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Notes payable $ -0- $ 235
Accounts payable 6,764 5,794
Other current liabilities 19,717 20,592
Current portion of long-term debt 7,782 7,782
------- -------
Total current liabilities 34,263 34,403
Deferred income taxes 5,738 5,863
Long-term debt (less current portion) 40,555 48,298
Other long-term liabilities 4,281 3,108
------- -------
Total liabilities 84,837 91,672
Shareholders' equity
Preferred Stock, $1 par value,
3,000,000 shares authorized--none issued -- --
Common Stock, $1 par value, shares authorized:
60,000,000; 1999--17,533,893
1998--17,485,909 17,534 17,486
Capital surplus 110,658 110,412
Retained earnings 99,066 88,277
Accumulated other comprehensive income (6,771) (4,351)
Less cost of treasury shares:
(1999--1,743,150; 1998--1,744,400) (21,122) (21,137)
------- -------
Total shareholders' equity 199,365 190,687
------- -------
Total liabilities and shareholders' equity $284,202 $282,359
======= =======
*Derived from the audited December 31, 1998, consolidated balance sheet. See
notes to condensed consolidated financial statements.
<PAGE>
THOMAS INDUSTRIES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Dollars in Thousands)
Six Months Ended
June 30
----------------
1999 1998
Operating activities:
Net income $13,155 $12,125
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 3,933 3,748
Deferred income taxes 200 311
Equity income from Lighting (10,637) (8,322)
Distributions from/cash used by Lighting 5,390 (13,017)
Other items 56 316
Changes in operating assets and liabilities:
Accounts receivable (4,619) (3,979)
Inventories 847 (298)
Accounts payable 1,177 (3,330)
Accrued expenses and other liabilities 892 (1,301)
Other 474 (2,962)
------ -------
Net cash provided by (used in) operating activities 10,868 (16,709)
Investing activities:
Purchases of property, plant, and equipment (3,270) (2,901)
Sale of property, plant, and equipment 12 1
------ -------
Net cash used in investing activities (3,258) (2,900)
Financing activities:
(Payments on) proceeds from notes payable
to banks, net (218) 19,348
Payments on long-term debt, net (7,743) (6,505)
Dividends paid (2,377) (2,379)
Other (282) 141
------ -------
Net cash provided by (used in) financing activities (10,620) 10,605
Effect of exchange rate change (333) (50)
------- ------
Net decrease in cash and cash equivalents (3,343) (9,054)
Cash and cash equivalents at beginning of period 18,205 17,352
------ ------
Cash and cash equivalents at end of period $14,862 $ 8,298
====== ======
See notes to condensed consolidated financial statements.
<PAGE>
THOMAS INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note A - Basis of Presentation
- ------------------------------
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial reporting and with the instructions to Form 10-Q and Article 10-01 of
Regulation S-X. Accordingly, they do not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements.
The results of operations for the six-month period ended June 30, 1999, are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1999. In the opinion of management, all adjustments considered
necessary for a fair presentation have been included. For further information,
refer to the consolidated financial statements and footnotes included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1998.
Effective August 30, 1998, Thomas and Genlyte formed GTG, combining Thomas'
lighting business with Genlyte. Genlyte has a 68% interest in GTG, and Thomas
holds a 32% interest, which is accounted for using the equity method of
accounting. Thomas changed its method of accounting for the lighting business
contributed to GTG to the equity method effective January 1, 1998, the beginning
of Thomas' prior fiscal year, restating results for the quarters ended March 31
and June 30, 1998. The restatement of results using the equity method for the
1998 quarterly periods prior to consummation of the Joint Venture had no effect
on net income or common shareholders' equity but did reduce its revenues, costs,
assets, and liabilities, and changed certain components of cash flow. (See Note
D.)
Note B - Contingencies
- ----------------------
In the normal course of business, the Company is a party to legal proceedings
and claims. When costs can be reasonably estimated, appropriate liabilities for
such matters are recorded. While management currently believes the amount of
ultimate liability, if any, with respect to these actions will not materially
affect the financial position, results of operations, or liquidity of the
Company, the ultimate outcome of any litigation is uncertain. Were an
unfavorable outcome to occur, the impact could be material to the Company.
Note C - Comprehensive Income
- -----------------------------
Reconciliation of net income to total comprehensive income for the periods
indicated follows.
For the three months ended June 30: 1999 1998
---- ----
Net income $7,281 $6,875
Minimum pension liability 1 --
Foreign currency translation (699) (601)
----- -----
Comprehensive income $6,583 $6,274
===== =====
For the six months ended June 30:
Net income $13,155 $12,125
Minimum pension liability 1 --
Foreign currency translation (2,421) (802)
------ ------
Comprehensive income $10,735 $11,323
====== ======
Note D - Genlyte Thomas Group LLC
- ---------------------------------
The following table contains certain unaudited financial information for the
Joint Venture.
Genlyte Thomas Group LLC
Condensed Financial Information
(Dollars in Thousands)
Balance sheet as of June 30, 1999:
Current assets $330,385
Long-term assets 210,095
Current liabilities 132,347
Long-term liabilities 119,905
Three Months Six Months
Ended Ended
June 30, 1999 June 30, 1999
------------- -------------
Income statement:
Net sales $243,645 $481,121
Gross profits 79,470 156,848
Earnings before interest and taxes 21,236 40,390
Net income* 19,314 36,546
*Amounts recorded by Thomas Industries Inc.:
Equity income from GTG $6,181 $11,695
Amortization of excess investment (529) (1,058)
----- ------
Equity income reported by Thomas $5,652 $10,637
===== ======
Note E - Receivables from Affiliate
- -----------------------------------
Included in Other Long-Term Assets at June 30, 1999, is $22,287,000 which
represents a debt equalization note payable to Thomas by GTG related to the
formation of the Joint Venture. Interest on the principal amount outstanding
under the note accrues at a variable rate based on LIBOR plus the Offshore Rate
Margin and is payable on a quarterly basis. The principal amount of the note is
due on August 29, 2003, and may be prepaid in whole or in part at any time
without premium or penalty.
Note F - Segment Disclosures
- ----------------------------
Three Months Ended Six Months Ended
June 30 June 30
------------- --------------
1999 1998 1999 1998
---- ---- ---- ----
Total net sales including
intercompany sales
Compressors & Vacuum Pumps $51,007 $51,055 $101,301 $104,193
Intercompany sales
Compressors & Vacuum Pumps $(3,540) $(4,719) $ (7,533) $ (9,648)
------ ------ ------- -------
Net sales to unaffiliated customers
Compressors & Vacuum Pumps $47,467 $46,336 $ 93,768 $ 94,545
====== ====== ======= =======
Operating income
Compressors & Vacuum Pumps $ 8,363 $ 8,724 $ 16,128 $ 17,378
Lighting* 5,652 5,211 10,637 8,322
Corporate (1,387) (1,521) (3,596) (3,655)
------ ------ ------- -------
$12,628 $12,414 $ 23,169 $ 22,045
====== ====== ======= =======
*Represents 32% of GTG net income less amortization of excess investment.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
- ---------------------
Net sales during the second quarter ended June 30, 1999, which were a record for
any second quarter for the Compressor & Vacuum Pump business, were $47.5 million
compared to $46.3 million for the second quarter 1998. The 1998 net sales
reflect the application of the equity method with respect to the Company's
lighting business, which was contributed to GTG effective August 30, 1998,
retroactive to January 1, 1998, and therefore include only net sales for the
Compressor & Vacuum Pump Segment. The North American operations improved over
the first quarter results and rebounded significantly from a weak 1998 second
quarter. Our European operations continue to be soft, including sales to the
U.S. market. Net sales for the six-month period ended June 30, 1999, were $93.8
million compared to $94.5 million for the prior year. The shortfall was
attributable to a weak first quarter in 1999, primarily from softness in
European sales.
Operating income for the second quarter ended June 30, 1999, was $12.6 million
compared to $12.4 million for the second quarter 1998. The $8.4 million posted
in the second quarter of 1999 by the Compressor & Vacuum Pump Segment improved
nicely over the $7.8 million recorded in the first quarter of 1999 but was
slightly off from the $8.7 million in the second quarter 1998. North American
operating income improved over the second quarter of 1998 due to stronger sales.
European operating income decreased from the second quarter 1998 level due to
lower sales related to a general weakness in the European market and competitive
pressures in the U.S. market. Net equity earnings from GTG also contributed
favorably to the second quarter 1999 improvement over 1998 by $.4 million. The
1998 operating income reflects the application of the equity method for the
Lighting Segment retroactive to January 1, 1998. Operating income for the
six-month period ended June 30, 1999, was $23.2 million compared to $22.0
million for the six-month period in 1998. This increase was due to the strength
of the GTG earnings, which more than offset the reduction in our Compressor &
Vacuum Pump Segment.
Net income for the 1999 second quarter of $7.3 million was 5.9% higher than the
$6.9 million for the comparable 1998 period. It was also a record for any
quarter in the Company's history. Net income for the six-month period ended June
30, 1999, was $13.2 million compared to $12.1 million for the six-month period
in 1998. The quarter and six-month increases over 1998 were due primarily to the
increase in GTG's earnings, lower interest expense, and higher interest income
as noted below.
Interest expense for the 1999 second quarter was $1.1 million, or 28.1% lower
than the prior-year amount of $1.6 million. The decrease was attributed
primarily to a significant reduction in short-term debt, which was higher in the
second quarter of 1998 due to the funding of working capital needs of the
Lighting business. Also, long-term debt of $7.7 million was paid down on January
31, 1999, which reduced interest expense over the prior-year amount. Interest
income was $.3 million higher in the 1999 second quarter versus the 1998 second
quarter. The six-month period for 1999 reflected a $.6 million increase in
interest income over the prior year. These increases are primarily due to
interest received from GTG on a $22,287,000 note payable to Thomas.
Included in Other Long-Term Assets at June 30, 1999,is $22,287,000 which
represents the debt equalization note payable to Thomas by GTG related to the
formation of the Joint Venture. Interest on the principal amount outstanding
under the note accrues at a variable rate based on LIBOR plus the Offshore Rate
Margin and is payable on a quarterly basis. The principal amount of the note is
due on August 29, 2003, and may be prepaid in whole or in part at any time
without premium or penalty.
Working capital of $28.9 million at June 30, 1999, is $1.0 million lower than
the amount at December 31, 1998. Accounts receivable at June 30, 1999, have
increased by 20.2% since December 31, 1998, due to higher sales volume. The
number of days sales in receivables at June 30, 1999, compared to December 31,
1998, has decreased to 46.9 days from 49.1. Inventory turnover at June 30, 1999,
of 5.3 times per year improved significantly from the December 31, 1998, level
of 4.5.
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 $60.2 million are not restricted at June 30, 1999.
As of June 30, 1999, the Company had available credit of $12.0 million with
banks under short-term borrowing arrangements which was unused, and a $30
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 investment
grade, short-term securities.
Year 2000 Issue
- ---------------
In the third quarter of 1996, the Company recognized the need to ensure that its
operations would not be adversely affected by Year 2000 computer hardware and
software failures. Certain systems would fail, unless modified, to properly
handle date-sensitive calculations for dates that crossed the century. Such
systems could fail because the systems use only two digits rather than four to
define a specific year. These failures would pose known risks to the future
integrity of the Company's financial reports and to virtually all aspects of the
Company's operations, including the Company's ability to process sales
transactions, fulfill customer orders, and receive and manage inventories and
other assets.
Plans for achieving internal Year 2000 compliance were finalized during 1996 and
included a goal to be complete by the end of the third quarter 1998.
Accordingly, the Company completed a high level analysis of the scope of the
issues to be addressed, created a team of IT resources, and contracted with a
major software consulting firm to assist in the Year 2000 remediation efforts.
The discovery phase of the problems and the plan for remediation were completed
in 1997. Remediation and testing were completed on most systems during 1998. The
objective of these efforts is to achieve Year 2000 compliance with a minimal
effect on customer service or other disruption to, or loss of integrity in,
business or financial operations. At this date, sources of potential failure
have been identified, and we believe that they have all been remediated. We
believe that all critical software is now compliant.
The Company has performed a preliminary assessment of its material non-
Information Technology systems such as CAD systems, PBX systems, Environmental
Control systems, Elevator Control systems, and numeric control devices and,
based upon this preliminary assessment, believes that these systems are Year
2000 compliant.
The Company has initiated communications with its major suppliers and customers
to determine their Year 2000 compliant status and to identify any issues or
problems with respect to their Year 2000 preparedness that might adversely
affect their companies. The Company is continuing its efforts to obtain such
assurances from all critical suppliers. Failure of these third parties could
have a material impact on operations and/or the Company's ability to deliver
products. Contingency planning is being established and will be implemented in
an effort to minimize any impact from Year 2000 related failures.
Through June 30, 1999, approximately $2.4 million in costs, which includes
Compressors & Vacuum Pumps and Lighting costs, has been incurred in the
Company's efforts to achieve Year 2000 compliant systems. These costs have been
incurred over the 1996-1999 time frame and have not been, nor are expected to
be, a material incremental cost having an impact on the Company's operations,
financial condition, or liquidity and include the costs for both its Vacuum Pump
& Compressor business and the Company's former Lighting business. These costs
consist primarily of outsourced consulting and remediation efforts. Any
remaining costs for the Company are expected to be less than $25,000. There have
been no major system projects cancelled or delayed as a result of the Company's
Year 2000 costs.
The above expectations are subject to uncertainties. For example, if the Company
is unsuccessful in identifying or fixing all Year 2000 problems in our critical
operations, or if we are affected by the inability of our suppliers or major
customers to continue operations due to such problems, our results of operations
or financial condition could be materially affected.
The Company has a minority interest in GTG, which has advised the Company that
it is currently in the process of identifying and remediating its Year 2000
issues as well as conducting a review to gain reasonable assurances that its
business partners are addressing Year 2000 issues. If GTG is unsuccessful in
identifying or remediating all Year 2000 problems in its critical operations, or
if it is affected by the inability of its suppliers or major customers to
continue operations due to such problems, this could have an impact on the
Company's financial results and condition.
New European Currency
- ---------------------
Eleven European countries (The European Monetary Union) have implemented a
single currency zone as of January 1, 1999. The new currency (Euro) will
eventually replace the existing currencies of the participating countries. It is
expected that this transition from the various currencies to the Euro will occur
over a three-year period. Since the Company's European Operations may have to
accommodate dual currencies during this period, modifications to our third-party
software at our European locations may be necessary. A team has been formed to
monitor EMU developments, evaluate the requirements, develop and execute action
plans and work with our third party software providers to address this issue.
While management currently believes the Company will be able to accommodate any
required changes in its operations without significant costs, there can be no
assurance that the Company, its customers, suppliers and service providers or
government agencies will all meet the Euro currency requirements in a timely
manner. Such failure to complete the necessary work on a timely basis could
result in material financial risk.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company's long-term debt bears interest at fixed rates; therefore, the
Company's results of operations would only be affected by interest rate changes
to the extent that variable rate, short-term notes payable are outstanding. At
June 30, 1999, short-term notes payable are not significant.
The Company has significant operations consisting of sales and manufacturing
activities in foreign countries. As a result, the Company's financial results
could be significantly affected by factors such as changes in foreign currency
exchange rates or weak economic conditions in the foreign markets in which the
Company manufactures or distributes its products. Currency exposures are
concentrated in Germany but exist to a lesser extent in other parts of Western
Europe and Asia.
PART II. OTHER INFORMATION
- ------- -----------------
Item 4. Submission of Matters to a Vote of Security Holders
(a) A regular Annual Meeting of Shareholders was held on April
15, 1999
(b) Class I Directors elected at the Annual Meeting of
Shareholders were Gene P. Gardner, Lawrence E. Gloyd, and
William M. Jordan. Directors whose term of office as a
director continued after the meeting were Timothy C. Brown,
Wallace H. Dunbar, H. Joseph Ferguson, Franklin J. Lunding,
Jr., and Anthony A. Massaro.
(c) The voting at the Annual Meeting of Shareholders was as
follows:
Proposal No. 1 -- Election of Directors
For Withheld
--- --------
Gene P. Gardner 13,548,326 159,355
Lawrence E. Gloyd 13,542,668 165,013
William M. Jordan 13,556,440 151,241
Proposal No. 2 -- Approval of the amendment of the
Corporation's 1995 Incentive Stock Plan to increase
the number of shares of Common Stock reserved for the
Plan by 750,000 shares
For Against Abstain
--- ------- -------
10,329,072 3,275,072 103,537
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(27) Financial Data Schedule.
(b) No reports on Form 8-K were filed during the quarter.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THOMAS INDUSTRIES INC
---------------------------------------
Registrant
/s/ Phillip J. Stuecker
---------------------------------------
Phillip J. Stuecker, Vice President and
Chief Financial Officer
Date August 12, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 14,862
<SECURITIES> 0
<RECEIVABLES> 23,710
<ALLOWANCES> 632
<INVENTORY> 18,121
<CURRENT-ASSETS> 63,144
<PP&E> 73,977
<DEPRECIATION> 41,249
<TOTAL-ASSETS> 284,202
<CURRENT-LIABILITIES> 34,263
<BONDS> 40,555
0
0
<COMMON> 17,525
<OTHER-SE> 181,840
<TOTAL-LIABILITY-AND-EQUITY> 284,202
<SALES> 93,768
<TOTAL-REVENUES> 93,768
<CGS> 59,884
<TOTAL-COSTS> 59,884
<OTHER-EXPENSES> 9,615
<LOSS-PROVISION> 56
<INTEREST-EXPENSE> 2,322
<INCOME-PRETAX> 21,891
<INCOME-TAX> 8,736
<INCOME-CONTINUING> 13,155
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<NET-INCOME> 13,155
<EPS-BASIC> .83
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</TABLE>
