SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 [ X ]
For the quarterly period ended: June 30, 2001
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Commission File Number 1-5426.
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THOMAS INDUSTRIES INC.
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(Exact name of registrant as specified in its charter)
Delaware 61-0505332
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
4360 Brownsboro Road, Louisville, Kentucky 40207
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(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: 502/893-4600
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Not Applicable
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(Former name, former address, and former fiscal year, if changed
since last report.)
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 28, 2001, was 15,181,786 shares.
Page 1 of 12
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
THOMAS INDUSTRIES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In Thousands Except Amounts Per Share)
Three Months Ended Six Months Ended
June 30 June 30
----------------------- -----------------------
2001 2000 2001 2000
---- ---- ---- ----
Net sales $46,915 $48,436 $96,611 $99,247
Cost of products sold 30,162 30,607 61,557 63,619
------ ------ ------ ------
Gross profit 16,753 17,829 35,054 35,628
Selling, general, and
administrative expenses 10,603 10,852 21,987 22,011
Equity income from Lighting 6,112 5,895 11,173 11,306
------ ------ ------ ------
Operating income 12,262 12,872 24,240 24,923
Interest expense 944 984 1,886 1,971
Interest income and other 407 1,297 1,019 1,872
------ ------ ------ ------
Income before income taxes 11,725 13,185 23,373 24,824
Income taxes 4,397 4,773 8,765 9,254
------ ------ ------ ------
Net income $ 7,328 $ 8,412 $14,608 $15,570
====== ====== ====== ======
Net income per share:
Basic $.48 $.54 $ .96 $1.00
Diluted $.47 $.53 $ .93 $.98
Dividends declared per share $.085 $.075 $.17 $.15
Weighted average number of shares outstanding:
Basic 15,163 15,515 15,140 15,549
Diluted 15,722 15,859 15,678 15,887
See notes to condensed consolidated financial statements.
2
THOMAS INDUSTRIES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
June 30 December 31
2001 2000*
---- ----
ASSETS
Current assets
Cash and cash equivalents $ 9,318 $ 13,941
Accounts receivable, less allowance
(2001--$800; 2000--$752) 23,903 22,255
Inventories:
Finished products 6,324 7,046
Raw materials 10,912 11,032
Work in process 4,277 4,210
------- -------
21,513 22,288
Deferred income taxes 3,073 3,082
Other current assets 2,843 2,251
------- -------
Total current assets 60,650 63,817
Investment in GTG 177,014 168,954
Property, plant, and equipment 90,736 87,556
Less accumulated depreciation and amortization 50,611 48,035
------- -------
40,125 39,521
Note receivable from GTG 22,287 22,287
Intangible assets--less accumulated amortization 9,271 10,111
Other assets 3,578 3,430
------- -------
Total assets $312,925 $308,120
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Notes payable $ 4,050 $ --
Accounts payable 6,417 7,385
Accrued Expenses and other current liabilities 16,142 18,014
Current portion of long-term debt 7,786 7,786
------- -------
Total current liabilities 34,395 33,185
Deferred income taxes 9,319 9,415
Long-term debt (less current portion) 34,969 40,727
Other long-term liabilities 6,803 7,436
------- -------
Total liabilities 85,486 90,763
Shareholders' equity
Preferred Stock, $1 par value,
3,000,000 shares authorized--none issued -- --
Common Stock, $1 par value, shares authorized:
60,000,000; Shares issued: 2001--17,795,483
2000--17,670,342 17,795 17,670
Capital surplus 113,238 111,982
Deferred compensation 733 401
Treasury stock held for deferred compensation (733) (401)
Retained earnings 147,184 135,153
Accumulated other comprehensive income (loss) (12,321) (9,058)
Less cost of treasury shares:
(2001--2,622,339; 2000--2,619,039) (38,457) (38,390)
------- -------
Total shareholders' equity 227,439 217,357
------- -------
Total liabilities and shareholders' equity $312,925 $308,120
======= =======
*Derived from the audited December 31, 2000, consolidated balance sheet.
See notes to condensed consolidated financial statements.
3
THOMAS INDUSTRIES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Dollars in Thousands)
Six Months Ended
June 30
------------------------
2001 2000
Operating activities:
Net income $14,608 $15,570
Adjustments to reconcile net income to net
cash (used in)/provided by operating activities:
Depreciation and amortization 4,248 4,350
Deferred income taxes (334) (246)
Equity income from Lighting (11,172) (11,306)
Distributions from Lighting 3,092 4,891
Other items 24 168
Changes in operating assets and liabilities:
Accounts receivable (2,317) (5,430)
Inventories (401) (918)
Accounts payable (801) (714)
Accrued expenses and other liabilities (2,341) 3,171
Other (175) (427)
------ ------
Net cash provided by operating activities 4,431 9,109
Investing activities:
Purchases of property, plant and equipment (5,244) (4,152)
Sale of property, plant and equipment 11 2
------ ------
Net cash used in investing activities (5,233) (4,150)
Financing activities:
Proceeds from notes payable to banks, net 4,050 650
Payments on long-term debt (7,758) (7,743)
Proceeds from long-term debt 2,000 --
Treasury stock purchased (67) (6,610)
Dividends paid (2,417) (2,355)
Other 1,381 748
------ ------
Net cash used in financing activities (2,811) (15,310)
Effect of exchange rate change (1,010) (394)
------- ------
Net decrease in cash and cash equivalents (4,623) (10,745)
Cash and cash equivalents at beginning of period 13,941 16,487
------ ------
Cash and cash equivalents at end of period $ 9,318 $5,742
====== =====
See notes to condensed consolidated financial statements.
4
THOMAS INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note A - Basis of Presentation
------------------------------
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial reporting and with the instructions to Form 10-Q and Article 10-01 of
Regulation S-X. Accordingly, they do not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements.
The results of operations for the six-month period ended June 30, 2001, are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2001. 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, 2000.
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 comprehensive income for the periods indicated
follows.
(In Thousands)
For the three months ended June 30: 2001 2000
---- ----
Net income $7,328 $8,412
Foreign currency translation (130) (911)
----- -----
Comprehensive income $7,198 $7,501
===== =====
For the six months ended June 30:
Net income $14,608 $15,570
Foreign currency translation (3,263) (2,126)
------ -------
Comprehensive income $11,345 $13,444
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5
Note D - Net Income Per Share
-----------------------------
The computation of the numerator and denominator in computing basic and diluted
net income per share follows:
(In Thousands) Three Months Six Months
Ended June 30 Ended June 30
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2001 2000 2001 2000
---- ---- ---- ----
Numerator:
Net income $ 7,328 $ 8,412 $14,608 $15,570
====== ====== ====== ======
Denominator:
Weighted average shares outstanding 15,163 15,515 15,140 15,549
Effect of dilutive securities:
Director and employee stock options 518 342 494 332
Employee performance shares 41 2 44 6
------ ------ ------ ------
Dilutive potential common shares 559 344 538 338
------ ------ ------ ------
Denominator for diluted earnings per
share--adjusted weighted average
shares and assumed conversions 15,722 15,859 15,678 15,887
====== ====== ====== ======
Note E - Genlyte Thomas Group LLC
---------------------------------
The following table contains certain unaudited financial information for the
Joint Venture.
Genlyte Thomas Group LLC
Condensed Financial Information
(Dollars in Thousands)
(Unaudited)
June 30 December 31
2001 2000
---- ----
Balance sheet:
Current assets $334,975 $326,626
Long-term assets 282,161 288,082
Current liabilities 159,705 177,454
Long-term liabilities 81,632 89,948
Three Months Six Months
Ended June 30 Ended June 30
------------- --------------
2001 2000 2001 2000
---- ---- ---- ----
Income statement:
Net sales $257,842 $253,214 $502,637 $499,574
Gross profit 90,655 86,938 176,002 170,878
Earnings before interest and taxes 23,686 22,210 43,615 42,406
Net income* 20,914 20,075 38,546 38,638
*Amounts recorded by Thomas Industries Inc.:
Equity income from GTG $ 6,692 $ 6,424 $ 12,334 $ 12,364
Stock option expense (51) -- (103) --
Amortization of excess investment (529) (529) (1,058) (1,058)
------- ------ ------- -------
Equity income reported by Thomas $ 6,112 5,895 $ 11,173 $ 11,306
======= ====== ======= =======
6
Note F - Receivables from Affiliate
-----------------------------------
Included in Other Long-Term Assets at June 30, 2001, and December 31, 2000, 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 and is payable on a
quarterly basis. The principal amount of the note is due on August 29, 2003, and
may be prepaid in whole or in part at any time without premium or penalty.
Note G - Segment Disclosures
----------------------------
Three Months Ended Six Months Ended
June 30 June 30
------------------- -----------------
2001 2000 2001 2000
---- ---- ---- ----
Total net sales including
intercompany sales
Pump and Compressor $52,423 $54,560 $108,905 $110,133
Intercompany sales
Pump and Compressor $(5,508) $(6,124) $(12,294) $(10,886)
------ ------ ------- -------
Net sales to unaffiliated customers
Pump and Compressor $46,915 $48,436 $ 96,611 $ 99,247
====== ====== ======= =======
Operating income
Pump and Compressor $ 7,566 $ 8,694 $ 16,109 $ 17,168
Lighting* 6,112 5,895 11,173 11,306
Corporate (1,416) (1,717) (3,042) (3,551)
------ ------ ------- -------
$12,262 $12,872 $ 24,240 $ 24,923
====== ====== ======= =======
*Three months ended June 30 consists of equity income of $6,692,000 in 2001 and
$6,424,000 in 2000 from our 32% interest in the joint venture, Genlyte Thomas
Group LLC (GTG), less $529,000 of amortization in both 2001 and 2000 of Thomas'
excess investment and less $51,000 in 2001 related to expense recorded for
Thomas Industries stock options issued to GTG employees. Six months ended June
30 consists of equity income of $12,334,000 in 2001 and $12,364,000 in 2000 from
our 32% interest in GTG, less $1,058,000 of amortization in both 2001 and 2000
of Thomas' excess investment and less $103,000 in 2001 related to expense
recorded for Thomas Industries stock options issued to GTG employees.
Note H - Accounting Pronouncement
---------------------------------
In September 2000, the Emerging Issues Task Force reached a consensus on Issue
00-10, "Accounting for Shipping and Handling Fees and Costs." The EITF requires
that all shipping and handling amounts billed to a customer in a sale
transaction be classified as revenue. The EITF also states that a company cannot
net the shipping and handling costs against the shipping and handling revenues
in the financial statements. Accordingly, Thomas has restated net sales and cost
of sales for the three months and six months ended June 30, 2000, by
reclassifying shipping and handling costs totaling $469,000 and $894,000
respectively, from net sales to costs of sales.
7
In July 2001, the Financial Accounting Standards Board issued SFAS No. 141,
"Business Combinations"(SFAS 141) and SFAS No. 142, "Goodwill and Other
Intangible Assets" (SFAS 142). These statements establish new accounting and
reporting standards for business combinations and associated goodwill and
intangible assets. SFAS 141, effective immediately, eliminates the pooling of
interest method of accounting and amortization of goodwill for business
combinations initiated after June 30, 2001. SFAS 142, effective January 1, 2002,
will require that goodwill and intangible assets with indefinite useful lives no
longer be amortized, but instead tested for impairment at least annually. We are
currently reviewing the statements to determine their impact on the Company's
results of operations and financial position.
Note I - Short-Term Borrowings
------------------------------
As of June 30, 2001, the Company had short-term borrowings of $4,050,000 which
bear interest at variable rates. These borrowings were primarily used to fund
working capital needs, capital expenditures, and our long-term debt payment.
Short-term borrowings at December 31, 2000, and June 30, 2000, were zero and
$650,000 respectively.
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, 2001, decreased 3.1% to $46.9
million compared to $48.4 million for the second quarter of 2000. The 2000 net
sales and cost of sales have been restated due to an Emerging Issues Task Force
consensus on Issue 00-10, "Accounting for Shipping and Handling Fees and Costs,"
as noted in our 2000 Annual Report. The North American operations had a decline
in net sales, primarily as a result of our larger OEM customers continuing to
push out orders, although we did see minor improvement late in the quarter. Our
European and Asia Pacific operations also showed lower net sales, primarily due
to weakening local currencies versus the strong U.S. dollar. Overall second
quarter sales would be 2.3% higher if measured in constant exchange rates. Net
sales for the six-month period ended June 30, 2001, were $96.6 million compared
to $99.2 million for the prior year. This decline was attributed to softness in
the North American operations, while the European and Asia Pacific operations
showed increases in net sales, despite weakening local currencies. Our overall
sales for the six-month period would be 2.7% higher if measured in constant
exchange rates.
Operating income for the second quarter ended June 30, 2001, was $12.3 million
or 4.7% lower than the prior-year amount of $12.9 million. The Pump and
Compressor Segment posted a 13.0% decrease in operating income over the 2000
second quarter. This was principally due to unfavorable manufacturing variances
incurred when production was scaled back to manage inventory levels at the
reduced sales volume. Additionally, unfavorable exchange rate impacted our
margins due to the weakening local currencies of the European and Asia Pacific
operating units. The Lighting Segment (GTG Joint Venture) results increased to
$6.1 million in the second quarter of 2001, compared to $5.9 million in the same
period last year. This was principally due to an increase in sales by GTG,
despite relatively soft market conditions. Corporate expenses decreased to $1.4
million in the second quarter of 2001, compared to $1.7 million in the same
period last year. This was primarily due to lower compensation and professional
fees in 2001. Operating income for the six-month period ended June 30, 2001, was
$24.2 million compared to $24.9
8
Item 2. Management's Discussion and Analysis - Continued
million in 2000. This decrease was attributable primarily to the Pump and
Compressor Segment's second quarter results, as explained above. Additionally,
the income from the Lighting Segment decreased to $11.2 million in the first
half of 2001, compared to $11.3 million in 2000. This was primarily due to the
Company's share of increased interest expense, foreign income tax, and domestic
franchise tax at the Joint Venture level, which occurred in the first quarter of
2001 due to acquisitions. Corporate expenses also decreased to $3.0 million in
2001, compared to $3.6 million in 2000, with the reduction primarily due to
reduced compensation and professional fees.
Net income for the 2001 second quarter of $7.3 million was 3.8 percent lower
than the $7.6 million for the comparable 2000 period, after excluding a one-time
gain of $.8 million from the proceeds of a life insurance policy recorded in the
second quarter of 2000. Net income for the six-month period ended June 30, 2001,
was $14.6 million compared to $14.8 million in 2000, after excluding the $.8
million one-time gain in 2000 noted above. The quarter and six-month decreases
from 2000, after excluding the $.8 million gain in 2000, were due primarily to
the changes noted in the operating income discussion above, but were partially
offset by lower interest expense and a lower effective tax rate in 2001.
Interest expense for the 2001 second quarter was $.9 million or 4.1 percent
lower than the 2000 amount of $1.0 million. The 2001 six-month interest expense
of $1.9 million was 4.3 percent lower than the $2.0 million for 2000. The
reductions in the second quarter and six-month periods were primarily related to
the $7.7 million payment of long-term debt on January 31, 2001, which carried a
9.36 percent annual interest rate. This payment did reduce interest expense over
the prior-year amounts but was partially offset by interest expense in 2001 on
higher amounts of short-term borrowings and additional long-term debt proceeds,
of which $8.0 million was received on September 29, 2000, and $2.0 million on
May 31, 2001. The additional short-term and long-term borrowings in 2001 were at
variable interest rates, which were lower than the comparable rates in 2000.
The note receivable from GTG at June 30, 2001, and December 31, 2000, is
$22,287,000, which represents the debt equalization note payable to Thomas by
GTG related to the formation of the Joint Venture. Interest on the principal
amount outstanding under the note accrues at a variable rate and is payable on a
quarterly basis. The principal amount of the note is due on August 29, 2003, and
may be prepaid in whole or in part at any time without premium or penalty.
Working capital of $26.3 million at June 30, 2001, is $4.3 million lower than
the amount at December 31, 2000, primarily resulting from the $7.7 million
long-term debt payment on January 31, 2001, and capital expenditures of $5.2
million, offset by proceeds from short-term borrowings of $4.1 million, proceeds
from long-term borrowings of $2.0 million received May 31, 2001, and
distributions of $3.1 million from GTG. For the period December 31, 2000,
through June 30, 2001, the Company purchased an additional 3,300 shares for the
stock repurchase program that was announced in December 1999. Through August 13,
2001, the Company has purchased, on a cumulative basis, 879,189 shares at an
aggregate cost of $17.3 million. Accounts receivable at June 30, 2001, have
increased by 7.4 percent since December 31, 2000, due to a higher concentration
of shipments occurring toward the end of the second quarter of 2001 compared to
the end of the fourth quarter of 2000. The number of days sales in receivables
at June 30, 2001, compared to December 31, 2000, has decreased to 48.1 days from
49.3. Inventory at June 30, 2001, has decreased
9
Item 2. Management's Discussion and Analysis - Continued
3.5 percent since December 31, 2000; while annualized inventory turnover at June
30, 2001, of 4.84 decreased from the December 31, 2000, level of 5.04.
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 $75.6 million are not restricted at June 30, 2001.
As of June 30, 2001, the Company had available credit of $10 million with banks
under borrowing arrangements and all of this was being used. Anticipated funds
from operations, along with available short-term credit, are expected to be
sufficient to meet cash requirements in the year ahead. Cash in excess of
operating requirements will continue to be invested in investment grade,
short-term securities.
New European Currency
---------------------
Eleven European countries (The European Monetary Union) have implemented a
single currency zone as of January 1, 1999. The new currency (Euro) will
eventually replace the existing currencies of the participating countries. The
transition from the various currencies to the euro is occurring over a
three-year period and will become effective in 2002. The software used by our
European operations has been modified to accommodate the dual currencies during
the transition period. A team is in place to monitor any changing EMU
requirements and has established the final conversion timetable for the single
EMU currency.
While management currently believes the Company has accommodated any required
changes in its operations, there can be no assurance that its customers,
suppliers, service providers, or government agencies will all meet the euro
currency requirements in a timely manner. Such failure to complete the necessary
work on a timely basis could result in material financial risk.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
The Company's long-term debt bears interest at fixed rates with the exception of
the $10 million note that accrues interest at variable rates. The Company's
results of operations and cash flows, therefore, would only be affected by
interest rate changes to the extent of variable rate debt. At June 30, 2001, the
variable rate debt outstanding was $14.1 million, consisting of the $10 million
long-term note and the $4.1 million of short-term borrowings. A 100 basis point
movement in the interest rate on the $14.1 million variable rate debt would
result in a $141,000 annualized effect on interest expense and cash flows.
The Company also has a long-term note receivable from GTG of $22,287,000 that
bears interest at a variable rate. Therefore, a 100 basis point movement in the
interest rate on the $22,287,000 note would result in an approximate $223,000
annualized effect on interest income and cash flows.
The fair value of the Company's long-term debt with fixed interest rates is
estimated based on current interest rates offered to the Company for similar
instruments. A 100 basis point movement in the interest rate would result in an
approximate $625,000 annualized effect on the fair value of long-term debt.
10
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 changing economic conditions in the foreign markets in which
the Company manufactures or distributes its products. Currency exposures for our
Pump and Compressor Segment are concentrated in Germany but exist to a lesser
extent in other parts of Europe and Asia. The Lighting Segment currency exposure
is primarily in Canada.
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 19, 2001.
(b) Class III Directors elected at the Annual Meeting of
Shareholders were H. Joseph Ferguson and Anthony A.
Massaro. Directors whose term of office as a director
continued after the meeting were Timothy C. Brown,
Wallace H. Dunbar, Gene P. Gardner, Lawrence E. Gloyd,
William M. Jordan, and Franklin J. Lunding, Jr.
(c) The voting at the Annual Meeting of Shareholders was
as follows:
Proposal No. 1 - Election of Directors
For Withheld
--- --------
H. Joseph Ferguson 13,882,369 56,184
Anthony A. Massaro 13,882,816 55,737
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10,000,000 credit arrangement will be filed with the
Commission upon its request in accordance with S-K
Item 601 (4)(iii)(A).
(b) A Form 8-K was filed on April 24, 2001, announcing the
appointment of Arthur Andersen LLP as the registrant's
independent auditors for 2001 and the termination of
Ernst & Young LLP as the previous independent
auditors.
11
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 13, 2001
-----------------------
12