SELECTED FINANCIAL DATA
GENLYTE GROUP INCORPORATED AND SUBSIDIARIES
Amounts in thousands, except per share data
1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------
SUMMARY OF OPERATIONS
Net sales $978,302 664,095 487,961 456,860 445,660
Gross profit $329,676 230,653 169,405 154,722 138,120
Operating profit $ 86,861 59,290 37,621 28,448 21,955
Interest expense, net $ 4,584 3,857 4,085 5,649 7,986
Minority interest $ 25,268 8,485 -- -- --
Income before income taxes $ 57,009 46,948 33,536 22,799 13,969
Income tax provision $ 24,228 20,188 14,423 9,802 6,060
Net income $ 32,781 26,760 19,113 12,997 7,909
Return on:
Net sales 3.4% 4.0% 3.9% 2.8% 1.8%
Average stockholders' investment 17.8% 19.8% 20.4% 16.9% 12.1%
Average capital employed 13.5% 14.6% 14.6% 9.9% 5.5%
-------- ------- -------- ------- -------
YEAR-END POSITION
Working capital $175,702 180,032 81,961 71,366 75,719
Plant and equipment, net $104,989 105,679 59,618 60,380 64,149
Total assets $575,710 493,501 254,028 238,115 231,034
Capital employed:
Total debt $ 55,611 62,986 32,785 41,847 67,132
Stockholders' investment $202,542 166,232 103,729 83,783 69,900
-------- ------- -------- ------- -------
Total capital employed $258,153 229,218 136,514 125,630 137,032
-------- ------- -------- ------- -------
PER SHARE DATA
Net income:
Basic $ 2.37 1.96 1.46 1.01 0.62
Diluted $ 2.37 1.95 1.42 1.00 0.62
Stockholders' investment per average
share outstanding $ 14.63 12.14 7.72 6.42 5.46
Market range:
High $ 26 28 3/8 21 3/8 14 8
Low $ 16 15 3/4 9 7/8 6 4
-------- ------- -------- ------- -------
OTHER DATA
Orders on hand $102,080 90,474 54,206 42,247 51,093
Depreciation and amortization $ 23,835 15,066 12,156 14,550 15,657
Capital expenditures, net $ 20,514 17,436 11,597 10,405 10,232
Average shares outstanding(*) 13,849 13,690 13,436 13,055 12,804
Current ratio 2.0 2.3 1.9 1.8 2.0
Interest coverage ratio 13.4 13.2 9.2 5.0 2.7
Debt to total capital employed 21.5% 27.5% 24.0% 33.3% 49.0%
Number of stockholders 1,329 1,459 1,567 1,705 1,865
Average number of employees 5,343 3,671 2,767 2,581 2,657
Average sales per employee $ 183 181 176 177 168
-------- ------- -------- ------- -------
(*) including incremental common shares issuable under stock option plans
MANAGEMENT'S DISCUSSION AND ANALYSIS
Genlyte Group Incorporated And Subsidiaries
Note: Throughout this discussion the term "Company" as used herein refers to The
Genlyte Group Incorporated, including the consolidated results of The Genlyte
Group Incorporated and Genlyte Thomas Group LLC.
RESULTS OF OPERATIONS
Net sales for 1999 were $978.3 million, increasing by $314.2 million, or 47.3%
from 1998. Net sales for 1998 were 36.1% higher than 1997. The 1999 results
include the operations of Fibre Light U.S. LLC ("Fibre Light"), subsequent to
its formation on May 10, 1999, and Ledalite Architectural Products, Inc.
("Ledalite"), subsequent to its acquisition on June 30, 1999. The 1998 results
include the operations of Genlyte Thomas Group LLC ("Genlyte Thomas")
subsequent to its formation on August 30, 1998. Genlyte holds a 68% interest in
Genlyte Thomas and accounts for it on a fully consolidated basis. The remaining
32% interest in Genlyte Thomas is held by Thomas Industries Inc. ("Thomas").
Total net sales on a comparative, unaudited basis for all current Genlyte
businesses (including for the periods prior to the actual formation of Genlyte
Thomas) were approximately 4.1% higher in 1999 over 1998, which were
approximately 6.2% higher than the comparable 1997. The Company primarily serves
the commercial, residential and industrial lighting markets, the strength of
which over the past two years contributed substantially to the sales growth in
both years. New products introduced during both years have also contributed to
sales growth.
Gross profit of the Company increased to $329.7 million in 1999 from $230.7
million in 1998, a 42.9% increase following a $61.2 million or 36.2% growth in
gross profit from 1997 to 1998. Cost of sales increased to 66.3% of sales in
1999 from 65.3% in both 1998 and 1997. This is due to the higher mix of
commodity fluorescent lighting fixtures in 1999 from Genlyte Thomas sales
compared to the former Genlyte divisions for the first eight months of 1998.
This impact is being offset partially by the elimination of excess capacity with
the closing of a manufacturing facility in mid 1999.
Selling and administrative expenses as a percent of sales decreased to 24.8% in
1999 from 25.8% in 1998 and 27.0% in 1997. The continued reduction in selling
and administrative expense as a percent of sales is a result of maintaining
existing levels of fixed costs to support increased sales, and facility closings
which reduced certain variable costs as well as fixed selling and administrative
expenses. These reductions were partially offset by increased research and
development spending to support new product introductions.
Net interest expense amounted to $4.6 million in 1999, an increase over 1998 of
$0.7 million, after a decrease of $0.2 million from 1997. Net interest expense
was higher in 1999 due to the additional debt and related interest expense from
the Fibre Light and Ledalite acquisitions. The decrease in 1998 was due to a
reduction in interest rates from 1997 as well as a reduction in average net
borrowings for the year.
At December 31, 1999, a hypothetical 1% increase in interest rates would result
in a reduction of approximately $560 in pre-tax income. The estimated reduction
is based upon no change in the volume or composition of debt at December 31,
1999.
Minority interest represents the 32% share of Thomas in Genlyte Thomas.
The effective rate of income tax expense was approximately 42.5% in 1999, down
from the 43% rate for 1998 and 1997.
2
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash flows from operations continue to provide adequate capital to
meet operating and capital expenditures. A condensed consolidated statement of
cash flows follows:
For the years ended December 31,
---------------------------------
(Amounts in thousands) 1999 1998 1997
---------------------------------
EBITDA* $ 85,428 $ 65,871 $ 49,777
Interest expense, net (4,584) (3,857) (4,085)
Taxes on income (24,228) (20,188) (14,423)
Working capital, other 14,906 4,873 (12,684)
-------- -------- --------
Cash provided by operating activities 71,522 46,699 18,585
Cash used in investing activities, net (51,448) (15,555) (11,597)
Cash used in financing activities, net (5,969) (24,243) (8,229)
-------- -------- --------
Increase (decrease) in cash $ 14,105 $ 6,901 $ (1,241)
======== ======== ========
*Earnings before interest, taxes, depreciation, and amortization
Cash provided by operating activities increased $24.8 million and $28.1 million
in fiscal 1999 and 1998, respectively, reflecting higher net income and
increases in accounts payable and accrued expenses.
The Company had working capital of $175.7 million at December 31, 1999, a
reduction of $4.3 million from the $180.0 million at December 31, 1998.
The Company's ratio of total debt to total capitalization was 21.5, 27.5 and
24.0 percent at December 31, 1999, 1998 and 1997 respectively, with total
capitalization defined as total debt plus total stockholders' investment. The
decrease during 1999 was due to the significant increase in cash provided by
operating activities, used in part to reduce outstanding debt, following an
increase in debt during 1998 incurred with the Genlyte Thomas formation.
Genlyte Thomas has a $150 million revolving credit agreement with various banks,
increasing it $25 million during 1999. At December 31, 1999, Genlyte Thomas had
zero outstanding borrowings and $39.4 million in outstanding letters of credit
under this agreement.
YEAR 2000 ISSUE
The Company developed and executed plans to prepare its information technology
systems and non-information technology systems with embedded technology for the
year 2000 conversion. The company experienced no significant disruptions as a
result of the date change to January 1, 2000, and is not currently aware of any
significant adverse impact affecting its major vendors or customers. The cost
for the year 2000 project was approximately $3.0 million, which was incurred
from 1996 through 1999. While there is no assurance that additional issues
related to the 2000 calendar will not develop, management believes the Company's
business will not be significantly affected in the future due to the year 2000
issue.
FORWARD-LOOKING STATEMENTS
The forward-looking statements made by the Company are based on estimates which
the Company believes are reasonable. This means that the Company's actual
results could differ materially from such estimates as a result of being
negatively affected as described above or otherwise positively affected.
3
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
Genlyte Group Incorporated And Subsidiaries
To the Stockholders of The Genlyte Group Incorporated:
We have audited the accompanying consolidated balance sheets of The Genlyte
Group Incorporated (a Delaware corporation) and subsidiaries as of December 31,
1999 and 1998, and the related consolidated statements of income, stockholders'
investment and cash flows for each of the three years in the period ended
December 31, 1999. 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 auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The Genlyte Group Incorporated
and subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States.
Arthur Andersen LLP
Louisville, Kentucky
February 2, 2000
4
CONSOLIDATED STATEMENTS OF INCOME
THE GENLYTE GROUP INCORPORATED AND SUBSIDIARIES
(Amounts in thousands, except per share data)
For the years ended December 31,
--------------------------------
1999 1998 1997
-------- -------- --------
Net sales $978,302 $664,095 $487,961
Cost of sales 648,626 433,442 318,556
-------- -------- --------
Gross profit 329,676 230,653 169,405
Selling and administrative expenses 242,815 171,363 131,784
-------- -------- --------
Operating profit 86,861 59,290 37,621
Interest expense, net 4,584 3,857 4,085
Minority interest 25,268 8,485 --
-------- -------- --------
Income before income taxes 57,009 46,948 33,536
Income tax provision 24,228 20,188 14,423
-------- -------- --------
Net income $ 32,781 $ 26,760 $ 19,113
======== ======== ========
Earnings per share:
Basic $ 2.37 $ 1.96 $ 1.46
Diluted $ 2.37 $ 1.95 $ 1.42
The accompanying notes are an integral part of these
consolidated financial statements.
5
CONSOLIDATED BALANCE SHEETS
THE GENLYTE GROUP INCORPORATED AND SUBSIDIARIES
(Amounts in thousands, except share data)
As of December 31,
-------------------------
1999 1998
----------- -----------
ASSETS:
CURRENT ASSETS:
Cash and cash equivalents $ 22,660 $ 8,555
Accounts receivable, less allowance for doubtful
accounts of $14,910 and $10,907, respectively 155,428 146,167
Inventories 136,041 137,004
Other current assets 29,938 25,520
----------- -----------
Total current assets 344,067 317,246
Plant and equipment, at cost
Land 6,537 7,290
Buildings and leasehold interests and improvements 87,951 82,856
Machinery and equipment 228,379 218,886
----------- -----------
Total plant and equipment 322,867 309,032
Less: accumulated depreciation and amortization 217,878 203,353
----------- -----------
Net plant and equipment 104,989 105,679
Cost in excess of net assets of acquired businesses 111,426 57,944
Other assets 15,228 12,632
----------- -----------
TOTAL ASSETS $ 575,710 $ 493,501
=========== ===========
LIABILITIES & STOCKHOLDERS' INVESTMENT:
CURRENT LIABILITIES:
Short-term borrowings and current portion of long-term debt $ 1,647 $ 2,134
Accounts payable 86,717 73,852
Accrued expenses 80,001 61,228
----------- -----------
Total current liabilities 168,365 137,214
Long-term debt 53,964 60,852
Deferred income taxes 31,797 22,192
Minority interest 98,940 84,649
Other liabilities 20,102 22,362
----------- -----------
Total liabilities 373,168 327,269
STOCKHOLDERS' INVESTMENT:
Common stock ($.01 par value, 30,000,000 shares authorized;
13,802,071 and 13,648,290 shares issued, respectively;
13,675,726 and 13,535,548 shares outstanding,
respectively) 137 136
Additional paid-in capital 17,761 16,207
Retained earnings 153,307 120,526
Accumulated other comprehensive income 31,337 29,363
----------- -----------
Total stockholders' investment 202,542 166,232
----------- -----------
TOTAL LIABILITIES & STOCKHOLDERS' INVESTMENT $ 575,710 $ 493,501
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
6
CONSOLIDATED STATEMENTS OF CASH FLOWS
THE GENLYTE GROUP INCORPORATED AND SUBSIDIARIES
(Amounts in thousands)
For the years ended December 31,
--------------------------------
1999 1998 1997
--------- -------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 32,781 $ 26,760 $ 19,113
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 23,835 15,066 12,156
Loss (gain) from disposal of plant and equipment (20) 259 (237)
Changes in assets and liabilities, net of effect of acquisitions:
(Increase) decrease in:
Accounts receivable (5,354) (5,432) (8,184)
Inventories 3,039 65 152
Other current assets (3,823) (3,575) (3,476)
Other assets (32,341) 2,611 (6,408)
Increase (decrease) in:
Accounts payable and accrued expenses 27,611 9,664 (328)
Deferred income taxes 9,481 (6,412) 3,460
Minority interest 14,291 5,412 --
Other liabilities (2,260) 2,521 1,897
Minimum pension liability 732 (732) --
All other, net 3,550 492 440
-------- -------- -------
Net cash provided by operating activities 71,522 46,699 18,585
-------- -------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions, net of cash acquired (30,934) 1,881 --
Purchases of plant and equipment (20,514) (17,436) (11,597)
-------- -------- -------
Net cash used in investing activities (51,448) (15,555) (11,597)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in short-term borrowings (1,932) (32,281) --
Proceeds from long-term debt 20,956 6,000 --
Payments on long-term debt (28,202) (220) (9,062)
Purchases of treasury stock (271) -- --
Stock options exercised 1,826 3,317 1,770
-------- -------- -------
Net cash used in financing activities (7,623) (23,184) (7,292)
-------- -------- -------
Effect of exchange rate changes on cash and cash equivalents 1,654 (1,059) (937)
-------- -------- -------
Net increase (decrease) in cash and cash equivalents 14,105 6,901 (1,241)
Cash and cash equivalents at beginning of year 8,555 1,654 2,895
-------- -------- -------
Cash and cash equivalents at end of year 22,660 8,555 1,654
======== ======== =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 4,517 $ 4,057 $ 3,256
Income taxes $ 20,275 $ 18,445 $ 20,350
The accompanying notes are an integral part of these consolidated financial
statements.
7
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT
THE GENLYTE GROUP INCORPORATED AND SUBSIDIARIES
Accumulated
Additional Other Total
Common Paid-in Retained Comprehensive Stockholders'
(Amounts in thousands) Stock Capital Earnings Income Investment
------------ ------------ ------------ ------------- -------------
Balance, December 31, 1996 $ 131 $ 11,125 $ 74,653 $ (2,126) $ 83,783
Net income -- -- 19,113 -- 19,113
Foreign currency translation adjustments -- -- -- (937) (937)
------------ ------------ ------------ --------- -----------
Total comprehensive income -- -- 19,113 (937) 18,176
Stock options exercised 4 1,766 -- -- 1,770
------------ ------------ ------------ --------- -----------
Balance, December 31, 1997 $ 135 $ 12,891 $ 93,766 $ (3,063) $ 103,729
Net income -- -- 26,760 -- 26,760
Gain on formation of Genlyte Thomas, before tax -- -- -- 56,984 56,984
Related tax effect -- -- -- (22,767) (22,767)
------------ ------------ ------------ --------- -----------
Gain on formation of Genlyte Thomas, after tax -- -- -- 34,217 34,217
Increase in minimum pension liability, before tax -- -- -- (1,220) (1,220)
Related tax effect -- -- -- 488 488
------------ ------------ ------------ --------- -----------
Increase in minimum pension liability, after tax -- -- -- (732) (732)
Foreign currency translation adjustments -- -- -- (1,059) (1,059)
------------ ------------ ------------ --------- -----------
Total comprehensive income -- -- 26,760 32,426 59,186
Stock options exercised 1 3,316 -- -- 3,317
------------ ------------ ------------ --------- -----------
Balance, December 31, 1998 $ 136 $ 16,207 $ 120,526 $ 29,363 $ 166,232
Net income -- -- 32,781 -- 32,781
Gain on formation of Genlyte Thomas, before tax -- -- -- (688) (688)
Related tax effect -- -- -- 276 276
------------ ------------ ------------ --------- -----------
Gain on formation of Genlyte Thomas, after tax -- -- -- (412) (412)
Decrease in minimum pension liability, before tax -- -- -- 1,220 1,220
Related tax effect -- -- -- (488) (488)
------------ ------------ ------------ --------- -----------
Decrease in minimum pension liability, after tax -- -- -- 732 732
Foreign currency translation adjustments -- -- -- 1,654 1,654
------------ ------------ ------------ --------- -----------
Total comprehensive income -- -- 32,781 1,974 34,755
Stock options exercised 1 1,825 -- -- 1,826
Treasury stock purchased -- (271) -- -- (271)
------------ ------------ ------------ --------- -----------
Balance, December 31, 1999 $ 137 $ 17,761 $ 153,307 $ 31,337 $ 202,542
============ ============ ============ ========= ===========
The accompanying notes are an integral part of these consolidated financial
statements.
8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Genlyte Group Incorporated And Subsidiaries
Amounts in thousands except per share data
NOTE: THROUGHOUT THESE NOTES, THE TERM "COMPANY" AS USED HEREIN REFERS TO THE
GENLYTE GROUP INCORPORATED, INCLUDING THE CONSOLIDATED RESULTS OF THE GENLYTE
GROUP INCORPORATED AND GENLYTE THOMAS GROUP LLC OPERATIONS.
(1) DESCRIPTION OF BUSINESS
The Genlyte Group Incorporated, a Delaware corporation ("Genlyte") is a United
States based multinational corporation. The Company designs, manufactures, and
sells lighting fixtures and controls for a wide variety of applications in the
commercial, residential, and industrial markets. The Company's products are
marketed primarily to distributors who resell the products for use in
commercial, residential, and industrial construction and remodeling.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION: The accompanying consolidated financial statements
include the accounts of Genlyte and all majority-owned subsidiaries, after
elimination of intercompany accounts and transactions. These statements include
the accounts of Genlyte Thomas Group LLC (Genlyte Thomas) from inception, August
30, 1998, through December 31, 1999. See Note 3 regarding the formation of
Genlyte Thomas. Investments in affiliates owned less than 50% are accounted for
using the equity method, under which Genlyte's share of these affiliates'
earnings is included in income as earned.
USE OF 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 period. Actual amounts could differ from those estimates.
The Company operates in a highly competitive business environment, and its sales
could be negatively affected by its inability to maintain or increase prices,
changes in geographic or product mix or the decision of its customers to
purchase competitive products instead of the Company's products. Sales could
also be affected by pricing, purchasing, financing, operational, advertising or
promotional decisions made by purchasers of the Company's products.
As the Company's business continues to expand outside the United States, the
Company could experience changes in its ability to obtain or hedge against
foreign currency rates and fluctuations in those rates. The Company could also
be affected by nationalizations; unstable governments, economies, or legal
systems; or intergovernmental disputes. These currency, economic and political
uncertainties may affect the Company's results.
CASH EQUIVALENTS: The Company considers all highly liquid investments with a
maturity of three months or less to be cash equivalents.
INVENTORIES: Inventories are stated at the lower of cost or market and include
materials, labor and overhead. Inventories at December 31 consisted of the
following:
1999 1998
------------ ------------
Raw materials and supplies $ 46,717 $ 43,167
Work in process 14,027 14,529
Finished goods 75,297 79,308
------------ ------------
Total inventories $ 136,041 $ 137,004
============ ============
9
Inventories valued using the last-in, first-out ("LIFO") method represented
approximately 83% and 89% of total inventories at December 31, 1999 and 1998,
respectively. Inventories not valued at LIFO (primarily inventories of Canadian
operations) are valued using the first-in, first-out ("FIFO") method.
During 1998, the Company changed its method of accounting for certain
inventories from the FIFO method to the LIFO method. This change, applied
prospectively from the date of the change, was made to have a consistent method
throughout the U.S. operations because the Thomas Lighting U.S. inventories, now
consolidated with Genlyte through the Genlyte Thomas Group LLC, are valued using
the LIFO method. This change increased net income by $507, or $.04 per diluted
share, in 1998.
On a FIFO basis, which approximates current cost, inventories would have been
$3,083 and $2,350 lower than reported at December 31, 1999 and 1998,
respectively.
ADVERTISING COSTS: The Company expenses advertising costs principally as
incurred. Certain catalog and literature costs are amortized over their useful
lives, generally 2 - 3 years. Advertising expenses were $13,416 in 1999, $9,480
in 1998, and 8,382 in 1997.
PLANT AND EQUIPMENT: The Company provides for depreciation of plant and
equipment, which also includes amortization of assets recorded under capital
leases, principally on a straight-line basis over the estimated useful lives of
the assets. Useful lives vary among the items in each classification, but
fall within the following ranges:
Buildings and leasehold interests
and improvements 10 - 40 years
Machinery and equipment 3 - 10 years
When the Company sells or otherwise disposes of plant and equipment, the asset
cost and accumulated depreciation are removed from the accounts, and any
resulting gain or loss is included in the consolidated statements of income.
Leasehold interests and improvements are amortized over the terms of the
respective leases, or over their estimated useful lives, whichever is shorter.
Maintenance and repairs are expensed as incurred. Renewals and betterments are
capitalized and depreciated or amortized over the remaining useful lives of the
respective assets.
Accelerated methods of depreciation are used for income tax purposes, and
appropriate provisions are made for the related deferred income taxes.
COST IN EXCESS OF NET ASSETS OF ACQUIRED BUSINESSES: Cost in excess of net
assets of businesses acquired prior to 1971 is not amortized since, in the
opinion of management, there has been no diminution in value. For businesses
acquired subsequent to 1970, the cost in excess of net assets, aggregating
$132,587 as of December 31, 1999 and $75,466 as of December 31, 1998, is being
amortized on a straight-line basis over periods ranging from 10 to 40 years.
Accumulated amortization was $26,083 and $22,445 as of December 31, 1999 and
1998, respectively.
The Company periodically evaluates these intangible assets using discounted cash
flows to assess recoverability from future operations. Impairment would be
recognized as expense if a permanent diminution in value occurred. In the
opinion of management, no material diminution in value has occurred during the
periods presented in these consolidated financial statements.
RESEARCH AND DEVELOPMENT COSTS: Research and development costs are expensed as
incurred. These expenses were $8,086 in 1999, $7,237 in 1998, and $5,195 in
1997.
10
TRANSLATION OF FOREIGN CURRENCIES: Balance sheet accounts of foreign
subsidiaries are translated into U.S. dollars at the rates of exchange in effect
as of the balance sheet dates. The cumulative effects of such adjustments were
$2,468 and $4,122 at December 31, 1999 and 1998, respectively, and have been
charged to the cumulative foreign currency translation adjustment component of
stockholders' investment. Income and expenses are translated at the average
exchange rates prevailing during the year. Gains or losses resulting from
foreign currency transactions are included in net income.
FAIR VALUE OF FINANCIAL INSTRUMENTS: The carrying amounts of cash equivalents,
short-term borrowings and long-term debt approximate fair value.
RECLASSIFICATIONS: Certain prior year amounts have been reclassified to conform
to the current year presentation. These changes had no impact on previously
reported net income or stockholders' investment.
(3) FORMATION OF GENLYTE THOMAS GROUP LLC
On August 30, 1998, Genlyte and Thomas Industries Inc. ("Thomas") completed the
combination of the business of Genlyte with the lighting business of Thomas
("Thomas Lighting"), in the form of a limited liability company named Genlyte
Thomas Group LLC ("Genlyte Thomas"). Genlyte Thomas manufactures, sells,
markets, and distributes commercial, residential, and industrial lighting
fixtures and controls. Genlyte contributed substantially all of its assets and
liabilities to Genlyte Thomas and received a 68% interest in Genlyte Thomas.
Thomas contributed substantially all of its assets and certain related
liabilities comprising Thomas Lighting and received a 32% interest in Genlyte
Thomas. The percentage interests in Genlyte Thomas issued to Genlyte and Thomas
were based on arms-length negotiations between the parties with the assistance
of their financial advisers.
Under the purchase method of accounting, Genlyte's majority ownership of Genlyte
Thomas requires the assets and liabilities contributed by Thomas to Genlyte
Thomas to be valued at their fair values, as of the acquisition date, in the
Company's consolidated financial statements. The fair values attributed to the
Thomas assets and liabilities result from management's determination of purchase
accounting adjustments and are based upon available information and certain
assumptions that management considers reasonable under the circumstances. The
resulting cost in excess of the fair market value of net assets contributed by
Thomas of $32,412 is being amortized on a straight-line basis over 30 years. The
assets contributed by Genlyte to Genlyte Thomas are reflected at their
historical cost.
To the extent the actual net working capital contributed by Thomas Lighting
exceeded the target net working capital, Genlyte Thomas paid Thomas the
difference of $35,189. Of this amount, $34,175 was paid in 1998 and $1,014 was
paid in 1999, based on an adjustment to the Thomas net working capital. The
target net working capital was determined by a formula that considered Genlyte's
adjusted net working capital, Thomas Lighting's net working capital, and
Genlyte's net working capital as a percentage of net sales as of August 30,
1998.
Subject to the provisions in the Genlyte Thomas Group LLC Agreement (the "LLC
Agreement") regarding mandatory distributions described below, and the
requirement of special approval in certain instances, distributions to Genlyte
and Thomas (the "Partners"), respectively, will be made at such time and in such
amounts as determined by the Genlyte Thomas Management Board and shall be made
in cash or other property in proportion to the Partners' respective percentage
interests. Notwithstanding anything to the contrary provided in the LLC
Agreement, no distribution under the LLC Agreement shall be permitted to the
extent prohibited by Delaware law.
The LLC Agreement requires that Genlyte Thomas make the following distributions
to the Partners:
(i) a distribution to each Partner, based on its percentage interest, for tax
liabilities attributable to its participation as a Partner of Genlyte Thomas
based upon the effective tax rate of the Partner having the highest tax rate;
and
11
(ii) subject to the provisions of Delaware law and the terms of the primary
Genlyte Thomas credit facility, distributions (exclusive of the tax
distributions set forth above) to each of the Partners so that Thomas receives
at least an aggregate of $3,000 and Genlyte receives at least an aggregate of
$6,375 per fiscal year beginning in fiscal year 1999.
The formation of Genlyte Thomas and the contribution of the net assets of
Genlyte and Thomas Lighting to Genlyte Thomas in exchange for Genlyte's and
Thomas' respective interests in Genlyte Thomas described above is referred to
herein as the "Transaction."
Concurrent with the formation of Genlyte Thomas, Genlyte has recognized an
after-tax gain on the Transaction, which represents the excess of the fair
market value of Thomas Lighting's contributed net assets over the historical
book value of Genlyte's contributed net assets, net of deferred income taxes (as
set forth in the table below). Because of the 1999 adjustment of $1,014 to the
Thomas contribution referred to above, the after-tax gain initially recorded in
1998 was adjusted by $412 in 1999.
68 percent of the fair value of
Thomas Lighting $ 93,859
32 percent of the historical book value of
Genlyte's net assets contributed to
Genlyte Thomas 37,563
Deferred income taxes 22,491
--------
After-tax gain recognized by Genlyte on the formation
of Genlyte Thomas $ 33,805
========
The operating results of Genlyte Thomas have been included in Genlyte's
consolidated financial statements since August 30, 1998. On an unaudited pro
forma basis, assuming the Transaction described above had occurred at the
beginning of 1998, the results would have been:
Actual Pro-forma
1999 1998
------------ ------------
Net sales $ 978,302 $ 929,123
Net income 32,781 26,334
Earnings per share $ 2.37 $ 1.92
============ ============
The pro forma results do not purport to state exactly what Genlyte's results of
operations would have been had the Transaction in fact been consummated as of
the assumed date and for the period presented.
(4) INVESTMENT IN FIBRE LIGHT AND ACQUISITION OF LEDALITE
On May 10, 1999, Genlyte Thomas acquired a 2% interest (with rights to acquire
an additional 6%) in Fibre Light International, based in Burleigh Heads,
Queensland, Australia. Fibre Light International is in the business of
commercializing fiber optic lighting technology. The two companies then formed a
jointly owned limited liability company named Fibre Light U.S. LLC ("Fibre
Light"), of which Genlyte Thomas owns 80%. Fibre Light will manufacture, market
and sell fiber optic lighting systems in the U.S.
On June 30, 1999, Genlyte Thomas acquired the assets and liabilities of
privately held Ledalite Architectural Products Inc. ("Ledalite"), located in
Vancouver, Canada. Ledalite designs, manufactures, and sells architectural
linear lighting systems for offices, schools, transportation facilities, and
other commercial buildings. The purchase prices of these acquisitions totaled
$31,469 (including costs of acquisition), consisting of approximately $8.5
million in cash payments and approximately $23 million in borrowings.
The Ledalite acquisition has been accounted for using the purchase method of
accounting. The preliminary determination of the excess of the purchase price
over the fair market value of net assets acquired of $22,392 is being amortized
12
on a straight-line basis over 30 years. The determination of these fair market
values as reflected in the balance sheet is subject to change.
The operating results of Fibre Light and Ledalite have been included in the
Company's consolidated financial statements since the dates of acquisition. On
an unaudited pro forma basis, assuming these acquisitions had occurred at the
beginning of 1999 and 1998, Genlyte's results would have been:
1999 1998
------------ ------------
Net sales $ 990,326 $ 686,069
Net income 32,492 25,913
Earnings per share $ 2.35 $ 1.89
============ ============
The pro forma results do not purport to state exactly what Genlyte's results of
operations would have been had the acquisitions in fact been consummated as of
the assumed dates and for the periods presented, nor are they necessarily
indicative of future consolidated results.
(5) EARNINGS PER SHARE
In 1997, Genlyte adopted Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" ("SFAS No. 128"). SFAS No. 128 requires the presentation of
basic earnings per share and diluted earnings per share. "Basic earnings per
share" represents net income divided by the weighted-average number of common
shares outstanding during the period. "Diluted earnings per share" represents
net income divided by the weighted-average number of common shares outstanding
during the period, adjusted for the incremental dilution of outstanding stock
options, and is consistent with Genlyte's historical presentation.
1999 1998 1997
------ ------ ------
Average common shares outstanding 13,831 13,671 13,127
Incremental common shares issuable:
Stock option plans 18 19 309
------ ------ ------
Average common shares
outstanding assuming dilution 13,849 13,690 13,436
====== ====== ======
(6) INCOME TAXES
The components of income before income taxes and the provisions for income taxes
for the years ended December 31 were as follows:
1999 1998 1997
-------- -------- --------
Income before income taxes:
Domestic $ 46,974 $ 41,867 $ 29,771
Foreign 10,035 5,081 3,765
-------- -------- --------
Income before income taxes $ 57,009 $ 46,948 $ 33,536
======== ======== ========
Income tax provision (benefit):
Domestic:
Currently payable $ 19,658 $ 18,457 $ 16,427
Deferred 89 (329) (3,411)
Foreign:
Currently payable 3,839 1,871 1,538
Deferred 642 189 (131)
-------- -------- --------
Income tax provision $ 24,228 $ 20,188 $ 14,423
======== ======== ========
13
A reconciliation of the statutory federal income tax rate to the Company's
effective income tax rate follows:
1999 1998 1997
---- ---- ----
Statutory federal rate 35.0% 35.0% 35.0%
State income taxes, net of federal tax benefits 3.1% 4.6% 5.2%
Minority interest share of foreign taxes 1.4% 0.8% --
Nondeductible portion of amortization and expenses 1.1% 1.0% 1.0%
Other 1.9% 1.6% 1.8%
---- ---- ----
Effective income tax rate 42.5% 43.0% 43.0%
==== ==== ====
Deferred income taxes are provided for significant income and expense items
recognized in different years for tax and financial reporting purposes.
Significant temporary differences creating deferred tax assets and liabilities
at December 31 follow:
1999 1998
------- -------
Deferred tax assets:
Allowance for doubtful accounts receivable $ 3,297 $ 2,830
Inventory reserves 5,281 6,145
Accrued compensation expenses 7,719 8,522
Other 4,270 8,705
------ ------
Total deferred tax assets 20,567 26,202
Deferred tax liabilities:
Accelerated depreciation 6,330 7,016
Gain on formation of Genlyte Thomas 22,491 22,767
Other 1,254 510
------- -------
Total deferred tax liabilities 30,075 30,293
------- -------
Net deferred tax liability $ 9,508 $ 4,091
======= =======
Classification:
Current asset $22,289 $18,101
Net long-term liability 31,797 22,192
------- -------
Net deferred tax liability $ 9,508 $ 4,091
======= =======
Deferred tax assets and liabilities are classified according to the related
asset and liability classification on the consolidated balance sheets.
Undistributed earnings of non-U.S. subsidiaries included in consolidated
retained earnings amounted to $32,133 at December 31, 1999. These earnings,
which reflected full provision for non-U.S. income taxes, are indefinitely
reinvested in non-U.S. operations or will be remitted substantially free of
additional tax. Accordingly, no provision has been made for taxes that may be
payable upon remittance of such earnings.
(7) LONG-TERM DEBT
Long-term debt at December 31 consisted of the following:
1999 1998
---------- ----------
Revolving credit notes $ -- $ 28,000
Canadian dollar notes 20,772 --
Industrial revenue bonds 10,500 10,500
Loan payable to Thomas 22,287 22,287
Capital leases and other 2,052 267
---------- ----------
55,611 61,054
Less: current maturities 1,647 202
---------- ----------
Total long-term debt $ 53,964 $ 60,852
========== ==========
14
Genlyte Thomas has a $150,000 revolving credit agreement (the "Facility") with
various banks that matures in 2003. Under the most restrictive borrowing
covenant, which is the fixed charge coverage ratio, Genlyte Thomas could incur
approximately $25,000 in additional fixed charges.
Total borrowings under the Facility as of December 31, 1999 and 1998, were $0
and $28,000, respectively. Outstanding borrowings bear interest at the option of
Genlyte Thomas based on the bank's base rate or the LIBOR rate plus a spread as
determined by total indebtedness. The borrowings as of December 31, 1998 were
classified as long-term because of Genlyte Thomas' intention to refinance these
obligations on a long-term basis through its revolving credit agreement. In
addition, Genlyte Thomas has outstanding approximately $39,400 of letters of
credit, which reduce the amount available to borrow under the Facility.
The amount outstanding under the Facility is secured, if requested by the
banking group, by liens on domestic accounts receivable, inventories, and
machinery and equipment, as well as the investments in certain subsidiaries of
Genlyte Thomas. The net book value of assets subject to lien at December 31,
1999 was $294,770.
Genlyte Thomas has CDN$30,000 of borrowings through its Canadian subsidiary
Genlyte Thomas Group Nova Scotia ULC. These borrowings will be repaid in
installments in each of the next five years. Interest rates on these borrowings
can be either the Canadian prime rate or the Canadian LIBOR rate plus a spread
of 50 basis points. These borrowings are backed by the letters of credit
mentioned above.
Genlyte Thomas has $10,500 of variable rate demand Industrial Revenue Bonds that
mature during 2009 to 2010. The average borrowing rate on these bonds was 3.3%
in 1999 and 3.5% in 1998. These bonds are backed by the letters of credit
mentioned above.
The loan payable to Thomas accrues interest quarterly based on the 90 day LIBOR
rate plus a spread as determined by the Facility. This loan can be prepaid in
whole or in part without penalty, ultimately maturing in 2003.
The annual maturities of long-term debt are summarized as follows:
Year ending December 31
- --------------------------------------------------------------
2000 $ 1,647
2001 2,624
2002 3,402
2003 26,584
2004 10,541
Thereafter 10,813
---------
Total long-term debt $ 55,611
=========
(8) STOCK OPTIONS
The Genlyte 1998 Stock Option Plan (the "Plan") was established for the benefit
of key employees of Genlyte Thomas and directors of Genlyte. The Plan replaced
the 1988 stock option plan, options under which are currently outstanding. The
Plan provides that an aggregate of 2,000,000 shares of Genlyte common stock may
be granted as nonqualified stock options, provided that no options may be
granted if the number of shares of Genlyte common stock that may be issued upon
the exercise of outstanding options would exceed the lesser of 1,700,000 shares
of Genlyte common stock or 10% of the issued and outstanding shares of Genlyte
common stock.
The option exercise prices are established by the Board of Directors of Genlyte
and cannot be less than the higher of the book value or the fair market value of
a share of common stock on the date of the grant. Options become exercisable at
15
the rate of 50% per year commencing two years after the date of the grant.
Transactions under the 1998 and 1988 Stock Option Plans are summarized below:
Weighted Average
Exercise Price
Shares Per Share
------ ----------------
Outstanding December 31, 1996 1,021,973 $ 6.33
Granted 179,000 16.71
Exercised (396,031) 5.07
Canceled (93,992) 6.54
Outstanding December 31, 1997 710,950 9.63
Granted 235,960 20.03
Exercised (146,950) 6.27
Canceled (44,625) 13.54
Outstanding December 31, 1998 755,335 13.30
Granted 202,550 19.55
Exercised (152,800) 7.58
Canceled (45,175) 17.67
Outstanding December 31, 1999 759,910 15.86
Exercisable at End of Year
December 31, 1997 203,450 6.31
December 31, 1998 279,750 7.72
December 31, 1999 289,450 10.27
The weighted average fair values of options granted in 1999, 1998 and 1997 were
$9.51, $10.05, and $7.42, respectively. The options outstanding at December 31,
1999 have a weighted average remaining contractual life of 4.06 years.
The fair value of these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following assumptions:
1999 1998 1997
---- ---- ----
Risk free interest rate 5.78% 4.74% 5.89%
Expected life, in years 6.0 5.9 5.0
Expected volatility 40.5 45.6 45.8
Expected dividends -- -- --
The Black-Scholes pricing model was developed for use in estimating the fair
value of non-traded options that have a seven- year vesting restriction. In
addition, option valuation models require the input of highly subjective
assumptions, including the expected stock price volatility. Because Genlyte's
stock options have characteristics different from those of traded options, and
changes in the subjective assumptions can materially affect the fair value
estimate, in management's opinion, the existing models do not necessarily
provide a reliable single measurement of the fair value of Genlyte's stock
options.
The Company accounts for this plan under APB Opinion No. 25, under which no
compensation cost has been recognized. Had compensation cost for the plan been
determined consistent with Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS No. 123"), the Company's net
income and earnings per share would have been reduced to the pro forma amounts
below.
Because the method of accounting in SFAS No. 123 has not been applied to options
granted prior to January 1, 1995, the resulting pro forma compensation cost may
not be representative of that to be expected in future years.
16
1999 1998 1997
-------- -------- --------
Net income As reported $ 32,781 $ 26,760 $ 19,113
Pro forma 31,673 25,431 18,610
Earnings per share - basic As reported 2.37 1.96 1.46
Pro forma 2.29 1.86 1.42
Earnings per share - diluted As reported 2.37 1.95 1.42
Pro forma 2.29 1.86 1.38
(9) PREFERRED STOCK PURCHASE RIGHTS
On September 13, 1999, Genlyte declared a dividend, as of the expiration
(September 18, 1999) of the rights issued under the Stockholder Rights Plan
dated as of August 29, 1989, of one preferred stock purchase right for each
outstanding share of Genlyte's common stock. Under certain conditions, each
right may be exercised to purchase one one-hundredth of a share of junior
participating cumulative preferred stock at a price of $105.00 per share. The
preferred stock purchased upon exercise of the rights will have a minimum
preferential quarterly dividend of $25.00 per share and a minimum liquidation
payment of $100.00 per share. Each share of preferred stock will have one
hundred votes.
Rights become exercisable when a person, entity, or group of persons or entities
("Acquiring Person") acquires, or 10 business days following a tender offer to
acquire, ownership of 20% or more of Genlyte's outstanding common stock. In the
event that any person becomes an Acquiring Person, each right holder will have
the right to receive the number of shares of common stock having a then current
market value equal to two times the aggregate exercise price of such rights. If
Genlyte were to enter into certain business combination or disposition
transactions with an Acquiring Person, each right holder will have the right to
receive shares of common stock of the acquiring company having a value equal to
two times the aggregate exercise price of the rights.
Genlyte may redeem these rights in whole at a price of $.01 per right. The
rights expire on September 12, 2009.
(10) RETIREMENT PLANS
The Company has defined benefit plans which cover the majority of its full-time
employees. The Company's policy for funded plans is to make contributions equal
to or greater than the requirements prescribed by the Employee Retirement Income
Security Act. The plans' assets consist primarily of stocks and bonds. Pension
costs for all Company defined benefit plans are actuarially computed. The
Company also has other defined contribution plans, including those covering
certain former Genlyte and Thomas employees.
The amounts included in the accompanying consolidated balance sheets based on
the funded status of the defined benefit plans at September 30, 1999 and 1998
17
(September 30, 1999 and December 31, 1998 for the Canadian plans) follow:
U.S. Plans Canadian Plans
-------------------- --------------------
1999 1998 1999 1998
-------- -------- -------- --------
CHANGE IN BENEFIT OBLIGATIONS
Benefit obligations, beginning $ 81,097 $ 52,519 $ 4,562 $ 3,750
Service cost 2,310 1,789 252 211
Interest cost 5,358 4,281 339 295
Benefits paid (4,101) (3,436) (221) (258)
Amendments -- 260 38 --
Obligations assumed by Genlyte Thomas -- 21,223 -- --
Other-primarily actuarial (gain) loss (10,737) 4,461 (440) 564
-------- -------- -------- --------
Benefit obligation, ending $ 73,927 $ 81,097 $ 4,530 $ 4,562
======== ======== ======== ========
CHANGE IN PLAN ASSETS
Plan assets at fair value, beginning $ 68,902 $ 49,457 $ 5,030 $ 4,737
Actual return on plan assets 6,965 219 80 338
Employer contributions 1,611 2,459 123 178
Member contributions -- -- 148 135
Assets assumed by Genlyte Thomas -- 20,203 -- --
Benefits paid (4,101) (3,436) (221) (258)
Other -- -- 336 (100)
-------- -------- -------- --------
Plan assets at fair value, ending $ 73,377 $ 68,902 $ 5,496 $ 5,030
======== ======== ======== ========
FUNDED STATUS OF THE PLANS
Plan assets (less than) benefit obligations
$ (550) $(12,195) $ 966 $ 468
Unrecognized transition obligation at adoption 200 487 (33) (36)
Unrecognized actuarial (gain) (11,563) (1,143) (718) (52)
Unrecognized prior service cost 2,024 4,017 110 78
Contributions subsequent to measurement date 946 -- 259 --
-------- -------- -------- --------
Net pension asset (liability) $ (8,943) $ (8,834) $ 584 $ 458
======== ======== ======== ========
BALANCE SHEET ASSET (LIABILITY)
Accrued pension liability $(13,763) $(14,908) $ -- $ (12)
Prepaid pension cost 4,468 1,603 584 470
Intangible asset 339 2,961 -- --
Accumulated other comprehensive income 13 1,510 -- --
-------- -------- -------- --------
Net asset (liability) recognized $ (8,943) $ (8,834) $ 584 $ 458
======== ======== ======== ========
WEIGHTED AVERAGE ASSUMPTIONS
Discount rate 7.75% 6.75% 7.75% 6.50%
Rate of compensation increase 4.00% 5.00% 4.00% 4.00%
Expected return on plan assets 8.50% 8.50% 7.75% 6.50%
18
U.S. Plans
-----------------------------------
1999 1998 1997
---------- ---------- ----------
COMPONENTS OF NET PERIODIC BENEFIT COSTS
Service cost $ 2,310 $ 1,789 $ 1,483
Interest cost 5,358 4,281 3,633
Expected return on plan assets (5,536) (3,800) (2,895)
Amortization of transition amounts 181 18 --
Amortization of prior service cost 293 345 269
Recognized actuarial loss 60 202 178
---------- --------- ---------
Net pension expense of defined benefit plans 2,666 2,835 2,668
Defined contribution plans 671 720 --
Multi-employer plans 294 207 211
---------- --------- ---------
Total benefit costs $ 3,631 $ 3,762 $ 2,879
========== ========= =========
Canadian Plans
-----------------------------------
1999 1998 1997
---------- ---------- ----------
COMPONENTS OF NET PERIODIC BENEFIT COSTS
Service cost $ 252 $ 211 $ 142
Interest cost 339 295 300
Expected return on plan assets (368) (315) (368)
Amortization of transition amounts (6) (5) (6)
Amortization of prior service cost 5 5 5
Recognized actuarial (gain) loss (1) 2 (1)
---------- --------- ---------
Net pension expense of defined benefit plans 221 193 72
Multi-employer plans -- -- --
---------- --------- ---------
Total benefit costs $ 221 $ 193 $ 72
========== ========= =========
A summary of the plans in which benefit obligations and accumulated benefit
obligations exceed fair value of assets follows:
1999 1998
---------- ----------
Benefit obligation $ 6,830 $ 59,669
Accumulated benefit obligation 6,569 52,010
Plan assets at fair value 3,470 45,091
Effective January 1, 2000, the Company has frozen the salaried pension plan of
certain employees. These employees will be eligible for Company matching on
their 401(k) contributions as well as being a participant in the Genlyte Thomas
Retirement Savings and Investment Plan. This will result in a curtailment credit
of $603, which will be a reduction of net pension expense in 2000.
(11) POST-RETIREMENT PLANS
The Company provides post-retirement medical and life insurance benefits for
certain retirees and employees, and accrues the cost of such benefits during the
service lives of such employees.
The amounts included in the accompanying consolidated balance sheets for the
post-retirement benefit plans based on the funded status at September 30, 1999
and December 31, 1998, follow:
1999 1998
----------- -----------
CHANGE IN BENEFIT OBLIGATIONS
Benefit obligations, beginning $ 3,657 $ --
Service cost 39 8
Interest cost 294 83
Benefits paid (413) (166)
Obligations assumed by Genlyte Thomas -- 3,638
Other-primarily actuarial loss 574 94
----------- -----------
Benefit obligations, ending $ 4,151 $ 3,657
=========== ===========
FUNDED STATUS OF THE PLANS
Plan assets (less than) benefit obligation $ (4,151) $ (3,657)
Unrecognized net obligation at adoption -- 3,008
Unrecognized actuarial (gain) loss 574 (973)
----------- -----------
Accrued liability $ (3,577) $ (1,622)
=========== ===========
Employer contributions $ 413 $ 166
Benefits paid $ (413) $ (166)
COMPONENTS OF NET PERIODIC BENEFIT COSTS
Service cost $ 39 $ 8
Interest cost 294 83
Recognized actuarial loss -- 69
----------- -----------
Net expense of post-retirement plans $ 333 $ 160
=========== ===========
19
The assumed discount rates used in measuring the obligations as of September 30,
1999, and December 31, 1998 were 7.75% and 6.75%, respectively. The assumed
health care cost trend rate for 2000 was 7%, declining to 4.5% in 2006. A
one-percentage-point increase or decrease in the assumed health care cost trend
rate for each year would increase or decrease the obligation at September 30,
1999 by approximately $300, and the 1999 post-retirement benefit expense by
approximately $27.
(12) ACCRUED EXPENSES
Accrued expenses at December 31 consisted of the following:
1999 1998
---------- ----------
Employee related costs and benefits $ 30,267 $ 30,201
Advertising and sales promotion 8,331 8,168
Income and other taxes payable 9,043 6,075
Other accrued expenses 32,360 16,986
---------- ----------
Total accrued expenses $ 80,001 $ 61,430
========== ==========
(13) LEASE COMMITMENTS
The Company rents office space, equipment and computers under non-cancelable
operating leases. Rental expense for operating leases during 1999, 1998 and 1997
amounted to $6,184, $4,229, and $2,903, respectively. One division of the
Company also rents manufacturing and computer equipment and software under
agreements that are classified as capital leases. Future required minimum lease
payments as of December 31, 1999 were as follows:
Operating Capital
Leases Leases
------------ ------------
2000 $ 5,872 $ 746
2001 4,652 582
2002 2,896 448
2003 1,811 232
2004 1,697 300
Thereafter 1,499 --
------------ ------------
Total minimum lease payments $ 18,427 2,308
============
Less amount representing interest 344
------------
Present value of net minimum lease payments $ 1,964
============
(14) CONTINGENCIES
Genlyte has been named as one of a number of corporate and individual defendants
in an adversary proceeding filed on June 8, 1995, arising out of the Chapter 11
bankruptcy filing of Keene Corporation ("Keene"). Except for the last count, as
discussed below, the claims and causes of action set forth in the June 8, 1995
complaint (the "complaint") are substantially the same as were brought against
Genlyte in the U.S. District Court in New York in August 1993, (which original
proceeding was permanently enjoined as a result of Keene's reorganization plan).
The complaint is being prosecuted by the Creditors Trust created for the benefit
of Keene's creditors (the "Trust"), seeking from the defendants, collectively,
damages in excess of $700 million, rescission of certain asset sale and stock
transactions, and other relief. With respect to Genlyte, the complaint (some of
the claims of which have since been restricted, as noted below) principally
20
maintains that certain lighting assets of Keene were sold to a predecessor of
Genlyte in 1984 at less than fair value, while both Keene and Genlyte were
wholly-owned subsidiaries of Bairnco Corporation ("Bairnco"). The complaint also
challenges Bairnco's spin-off of Genlyte in August 1988. Other allegations are
that Genlyte, as well as other corporate defendants, are liable as corporate
successors to Keene. The complaint fails to specify the amount of damages sought
against Genlyte. The complaint also alleges a violation of the Racketeer
Influenced and Corrupt Organizations Act ("RICO").
Following confirmation of the Keene reorganization plan, the parties moved to
withdraw the case from bankruptcy court to the Southern District of New York
Federal District Court. The case is now pending before the Federal District
Court. On October 13, 1998, the Court issued an opinion dismissing certain
counts as to Genlyte and certain other corporate defendants. In particular, the
Court dismissed the count of the complaint against Genlyte that alleged the 1988
spin-off was a fraudulent transaction, and the count alleging a violation of
RICO. The Court also denied a motion to dismiss the challenge to the 1984
transaction on statute of limitations grounds and ruled that the complaint
should not be dismissed for failure to specifically plead fraud.
On January 5 and 6, 1999, the Court rendered additional rulings further
restricting the claims by the Trust against Genlyte and other corporate
defendants, and dismissing the claims against all remaining individual
defendants except one. The primary effect of the rulings with respect to claims
against Genlyte was to require the Trust to prove that the 1984 sale of certain
lighting assets of Keene was made with actual intent to defraud present and
future creditors of Genlyte's predecessor.
Discovery, which was stayed since commencement of the action, is now ongoing.
Genlyte has filed its answer to the complaint, denying liability, and is in the
process of responding to and requesting discovery. Genlyte believes that it has
meritorious defenses to the adversary proceeding and will defend said action
vigorously.
Additionally, the Company is a defendant and/or potentially responsible party,
with other companies, in actions and proceedings under state and Federal
environmental laws including the Federal Comprehensive Environmental Response
Compensation and Liability Act, as amended ("Superfund"). Management does not
believe that the disposition of the lawsuits and/or proceedings will have a
material effect on the Company's financial condition, results of operations, or
liquidity.
In the normal course of business, the Company is a party to legal proceedings
and claims. When costs can be reasonably estimated, appropriate liabilities or
reserves 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 condition, 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.
(15) SEGMENT REPORTING
In 1998, the Company adopted Statement of Financial Accounting Standards No.
131, "Disclosures About Segments of an Enterprise and Related Information"
("SFAS No. 131"). Operating segments are defined as components of an enterprise
about which separate financial information is available that is evaluated
regularly by the chief operating decision maker, or decision making group, in
deciding how to allocate resources and in assessing performance. The Company's
reportable operating segments include the Commercial Segment, the Residential
Segment, and the Industrial and Other Segment. Intersegment sales are eliminated
in consolidation and therefore not presented in the table below.
Operating Segments:
Industrial
1999 Commercial Residential and Other Total
- ---- ---------- ----------- ---------- --------
Net sales $689,167 $145,040 $144,095 $978,302
Operating profit 65,938 7,898 13,025 86,861
Assets 391,493 96,007 88,210 575,710
Depreciation and amortization 16,595 3,532 3,708 23,835
Expenditures for plant and equipment 14,399 3,023 3,092 20,514
21
Industrial
1998 Commercial Residential and Other Total
- ---- ---------- ----------- ---------- --------
Net sales $463,761 $102,327 $ 98,007 $664,095
Operating profit 44,565 5,439 9,286 59,290
Assets 344,629 76,041 72,831 493,501
Depreciation and amortization 10,522 2,321 2,223 15,066
Expenditures for plant and equipment 12,176 2,687 2,573 17,436
Industrial
1997 Commercial Residential and Other Total
- ---- ---------- ----------- ---------- --------
Net sales $342,675 $ 73,270 $ 72,016 $487,961
Operating profit 28,189 3,249 6,183 37,621
Assets 178,393 38,144 37,491 254,028
Depreciation and amortization 8,537 1,825 1,794 12,156
Expenditures for plant and equipment 8,144 1,741 1,712 11,597
(16) GEOGRAPHICAL INFORMATION
The Company has operations throughout North America. Information about the
Company's operations by geographical area for the years ended December 31, 1999,
1998 and 1997 follows. Foreign balances represent primarily Canada and some
Mexico.
1999 U.S. FOREIGN TOTAL
- ---- -------- -------- --------
Net sales $855,199 $123,103 $978,302
Operating profit 73,719 13,142 86,861
Assets 441,008 134,702 575,710
Depreciation and amortization 19,178 4,657 23,835
Expenditures for plant and equipment 16,506 4,008 20,514
1998 U.S. FOREIGN TOTAL
- ---- -------- -------- --------
Net sales $578,308 $ 85,787 $664,095
Operating profit 52,807 6,483 59,290
Assets 433,204 60,297 493,501
Depreciation and amortization 12,613 2,453 15,066
Expenditures for plant and equipment 11,088 6,348 17,436
1997 U.S. FOREIGN TOTAL
- ---- -------- -------- --------
Net sales $423,185 $ 64,776 $487,961
Operating profit 33,837 3,784 37,621
Assets 224,969 29,059 254,028
Depreciation and amortization 10,254 1,902 12,156
Expenditures for plant and equipment 9,717 1,880 11,597
22
(17) QUARTERLY RESULTS OF OPERATIONS
Quarter
-----------------------------------------
1999 1st 2nd 3rd 4th Full Year
- ---- -------- -------- -------- -------- ---------
Net sales $237,476 $243,645 $257,811 $239,370 $978,302
Operating profit 18,912 21,044 24,276 22,629 86,861
Net income 6,955 7,860 9,258 8,708 32,781
Earnings per share:
Basic .50 .57 .67 .63 2.37
Diluted .50 .57 .66 .63 2.37
Market price
High 19 3/8 23 9/16 26 25 7/8 26
Low 16 16 1/2 21 7/16 20 1/8 16
Quarter
-----------------------------------------
1998 1st 2nd 3rd 4th Full Year
- ---- -------- -------- -------- -------- ---------
Net sales $130,124 $130,327 $174,178 $229,466 $664,095
Operating profit 11,625 12,339 16,330 18,996 59,290
Net income 6,146 6,475 6,900 7,239 26,760
Earnings per share:
Basic .46 .47 .50 .53 1.96
Diluted .45 .47 .50 .53 1.95
Market price
High 20 28 3/8 27 7/8 20 3/4 28 3/8
Low 15 3/4 19 3/4 17 16 15 3/4
(18) SUBSEQUENT EVENTS
On February 8, 2000, the Company announced that it has reached a tentative
agreement to acquire Translite Systems, Inc., a San Carlos, California based
manufacturer and marketer of low-voltage cable and track lighting systems.
Translite Systems, Inc. is one of the leading designers and manufacturers of
accent track systems for commercial, retail and residential applications.
On February 22, 2000, Genlyte announced that it plans to repurchase up to 5%, or
approximately 700,000 shares, of its outstanding shares of common stock in the
open market or through privately negotiated transactions at the prevailing
market price. Shares purchased will be held in the corporate treasury and will
be used for general corporate purposes.
23