Financial Highlights
(In thousands, except share data)
2000 1999 1998
---------- ---------- ----------
Operating Results
Net Sales $1,007,706 $ 978,302 $ 664,095
Gross Profit Margin 35.4% 34.0% 34.8%
Operating Profit 92,620 86,861 59,290
Net Income 36,304 32,781 26,760
Earnings Per Share:
Basic 2.68 2.37 1.96
Diluted 2.65 2.37 1.95
Balance Sheet Data
Current Assets $ 347,725 $ 344,067 $ 317,246
Total Assets 635,883 575,710 493,501
Current Liabilities 175,551 168,365 137,214
Total Debt 69,313 55,611 62,986
Stockholders' Investment 227,165 202,542 166,232
Book Value Per Average Share 16.61 14.63 12.14
1
SELECTED FINANCIAL DATA
The Genlyte Group Incorporated & Subsidiaries
(Amounts in thousands, except per share data)
2000 1999 1998 1997 1996
---------- ------- ------- ------- -------
SUMMARY OF OPERATIONS
Net sales $1,007,706 978,302 664,095 487,961 456,860
Gross profit $ 356,402 332,730 231,344 169,405 154,722
Operating profit $ 92,620 86,861 59,290 37,621 28,448
Interest expense, net $ 3,922 4,584 3,857 4,085 5,649
Minority interest $ 26,592 25,268 8,485 -- --
Income before income taxes $ 62,106 57,009 46,948 33,536 22,799
Income tax provision $ 25,802 24,228 20,188 14,423 9,802
Net income $ 36,304 32,781 26,760 19,113 12,997
Return on:
Net sales 3.6% 3.4% 4.0% 3.9% 2.8%
Average stockholders' investment 16.9% 17.8% 19.8% 20.4% 16.9%
Average capital employed 13.1% 13.5% 14.6% 14.6% 9.9%
---------- ------- ------- ------- -------
YEAR-END POSITION
Working capital $ 172,174 175,702 180,032 81,961 71,366
Net property, plant and equipment $ 113,001 104,989 105,679 59,618 60,380
Total assets $ 635,883 575,710 493,501 254,028 238,115
Capital employed:
Total debt $ 69,313 55,611 62,986 32,785 41,847
Stockholders' investment $ 227,165 202,542 166,232 103,729 83,783
---------- ------- ------- ------- -------
Total capital employed $ 296,478 258,153 229,218 136,514 125,630
---------- ------- ------- ------- -------
PER SHARE DATA
Net income:
Basic $ 2.68 2.37 1.96 1.46 1.01
Diluted $ 2.65 2.37 1.95 1.42 1.00
Stockholders' investment per average
share outstanding $ 16.61 14.63 12.14 7.72 6.42
Market range:
High $ 28.00 26.00 28.38 21.38 14.00
Low $ 18.13 16.00 15.75 9.88 6.00
---------- ------- ------- ------- -------
OTHER DATA
Orders on hand $ 95,887 102,080 90,474 54,206 42,247
Depreciation and amortization $ 25,664 23,835 15,066 12,156 14,550
Capital expenditures $ 28,423 20,514 17,436 11,597 10,405
Average shares outstanding(*) 13,675 13,849 13,690 13,436 13,055
Current ratio 2.0 2.0 2.3 1.9 1.8
Interest coverage ratio 16.8 13.4 13.2 9.2 5.0
Debt to total capital employed 23.4% 21.5% 27.5% 24.0% 33.3%
Number of stockholders 1,225 1,329 1,459 1,567 1,705
Average number of employees 5,475 5,343 3,671 2,767 2,581
Average sales per employee $ 184 183 181 176 177
---------- ------- ------- ------- -------
(*) including incremental common shares issuable under stock option plans
2
MANAGEMENT'S DISCUSSION AND ANALYSIS
The Genlyte Group Incorporated & 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 all majority-owned subsidiaries.
RESULTS OF OPERATIONS
Net sales for 2000 were $1,008 million, increasing by $29 million, or 3.0% from
1999. Net sales for 1999 were 47.3% higher than 1998. The 2000 results include
the operations of Translite Sonoma and Chloride Safety Systems subsequent to
their acquisitions on September 14 and October 1, 2000, respectively, plus a
full year's operations of Fibre Light and Ledalite, which were acquired in 1999.
The 1999 results include the results of Fibre Light, subsequent to its formation
on May 10, 1999, and Ledalite, subsequent to its acquisition on June 30, 1999.
The 1998 results include the operations of Genlyte Thomas Group LLC ("GTG")
subsequent to its formation on August 30, 1998. Genlyte holds a 68% interest in
GTG and accounts for it on a fully consolidated basis. The remaining 32%
interest in GTG is held by Thomas Industries Inc. ("Thomas").
Total net sales on a comparative basis for all current Company businesses
(including for the periods prior to the actual formation of GTG) were 1.1%
higher in 2000 compared to 1999, which were 4.2% higher than the comparable
1998. Net sales in 2000 were negatively impacted by intense competitive pressure
and some market softening in the stock and flow goods businesses. However, sales
in the architectural specification markets were strong. Net sales were also
negatively impacted by three other factors. First, in the Commercial segment, by
management's decision not to participate in some low margin fluorescent
business. Second, in the Residential segment, by continuing the strategy to
withdraw from lower margin do-it-yourself-business. Third, the Company
experienced some manufacturing disruptions and service problems while executing
the production transfers from the Milan, Illinois facility to San Marcos, Texas
and from Kent, Washington to Langley, British Columbia. The production transfers
were fully completed by December 31, 2000 and service levels have returned to
normal.
The Company does business primarily in the commercial lighting markets, with
71.9% of its 2000 net sales coming from this segment. This percentage is up
slightly from 70.4% in 1999 and 69.8% in 1998. Net sales in the residential
segment have been declining as a percentage of total Company net sales, because
of the strategy to withdraw from the do-it-yourself business - 13.7% in 2000,
14.8% in 1999, and 15.4% in 1998. This strategy has improved the segment's
overall profitability, as operating profit as a percentage of net sales was 7.9%
in 2000, compared to 5.4% in 1999 and 5.3% in 1998. The industrial and other
segment accounts for all remaining net sales and has been fairly constant as a
percentage of total company net sales. Management does not expect a significant
change in the ratio of each segment's net sales to total Company net sales in
the foreseeable future.
Housing starts in 2001 are projected to be below the 2000 levels, and a slowing
of commercial construction is predicted. However, due to significant new product
introductions and aggressive marketing programs, management is cautiously
optimistic that company net sales will not suffer the full impact of this
downturn. The Company expects 2001 revenues to be relatively flat in relation to
2000. The Company reached an agreement to become a supplier to Affiliated
Distributors, the largest distributor marketing group of electrical equipment
and industrial supplies in North America, which is expected to bolster 2001
sales.
Net income for 2000 was $36.3 million ($2.65 per share), a 10.7% increase over
1999 net income of $32.8 million ($2.37 per share). Because of lower outstanding
shares due to our share repurchase program, earnings per share increased a
greater percentage (11.8%) than net income. The Company purchased 559,700 shares
of stock at an average price of $21.99 in 2000.
Cost of sales decreased to 64.6% of sales in 2000 from 66.0% in 1999 and 65.2%
in 1998. The decrease in 2000 is attributed to continuing raw material cost
savings resulting from the combination of Genlyte and Thomas Lighting, cost
savings realized from plant consolidations during 1999, and withdrawing from
some lower margin fluorescent and residential business. The increase in 1999 was
primarily due to the higher mix of lower margin commodity fluorescent and
3
residential lighting fixtures from GTG sales compared to the former Genlyte
divisions for the first eight months of 1998. The impact of this mix difference
was offset partially by raw material cost savings and cost savings realized from
plant consolidations beginning in 1999.
Selling and administrative expenses as a percentage of sales increased to 25.7%
in 2000 from 24.8% in 1999 and 25.7% in 1998. The increase in selling and
administrative expense as a percentage of sales in 2000 is attributable to an
increase in freight expense, which increased by 1.0% of sales. About half of
this increase was the result of a change in accounting for these costs. Freight
costs billed to customers were included in net sales in 2000; previously they
were netted against the related costs in selling and administrative expense. The
remainder of the increase is from the pass through of higher fuel costs by the
freight companies. The reduction in 1999 was 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.
Amortization of goodwill and other intangible assets increased $912,000 (24.6%)
to $4,616,000 in 2000 from $3,704,000 in 1999, following a $2,647,000 (250.4%)
increase in 1999. The increases are the result of additional goodwill and
intangible assets of $56.3 million in 2000, $57.1 million in1999, and $65.0
million in 1998 from the Translite Sonoma, Chloride Systems, and Ledalite
acquisitions and goodwill related to the formation of GTG.
Net interest expense amounted to $3,922,000 in 2000, a decrease of $662,000
compared to 1999, after an increase of $727,000 from 1998. Although interest
rates on the revolving credit facility and the industrial revenue bonds
increased in 2000, net interest expense was lower due to lower net debt (total
debt minus cash and cash equivalents) throughout most of the year. Net debt
increased, however, in the fourth quarter of 2000 because of the purchase of
Chloride Safety Systems for $52.3 million. The increase in net interest expense
in 1999 was due to higher net debt and related interest expense from the
Ledalite and Fibre Light acquisitions as well as a full year's interest on the
additional debt related to the formation of GTG.
At December 31, 2000, a hypothetical 1% increase in interest rates would result
in a reduction of $693,000 in pre-tax income. The estimated reduction is based
upon no change in the volume or composition of debt at December 31, 2000.
Minority interest represents the 32% ownership share of GTG by Thomas.
The effective rate of income tax expense was approximately 41.5% in 2000, down
from 42.5% in 1999, and down from 43% in 1998.
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
The Company focuses on its level of net debt (total debt minus cash and cash
equivalents), its level of working capital, and its current ratio as its most
important measures of short-term liquidity. For long-term liquidity, the Company
considers its ratio of total debt to total capital employed (total debt plus
total stockholders' investment) and trends in net debt and cash provided by
operating activities to be the most important measures. From both a short-term
and a long-term perspective, the Company's liquidity is very strong.
Net debt increased to $45.5 million at December 31, 2000, compared to $32.9
million at December 31, 1999. Total debt increased to $69.3 million at December
31, 2000, compared to $55.6 million at December 31, 1999, while cash and cash
equivalents increased to $23.8 million at December 31, 2000, compared to $22.7
million at December 31, 1999. The increase in borrowings was mainly due to the
acquisitions of Translite Sonoma and Chloride Safety Systems. The Company
borrowed $40 million to help fund these acquisitions, and repaid $32 million by
year-end.
Working capital at December 31, 2000 was $172.2 million, compared to $175.7
million at December 31, 1999. The current ratio was 2.0 at December 31, 2000 and
December 31, 1999.
The ratio of total debt to total capital employed at December 31, 2000 remained
very low at 23.4% compared to 21.5% at December 31, 1999. The Company is in a
very good position to add debt if needed. Cash provided by operating activities
4
has been strong enough for the Company to repay its debt quickly. Cash provided
by operating activities during 2000 was greater than any year in the Company's
history.
The Company has a $150 million revolving credit facility with various banks that
matures in August 2003. At December 31, 2000 the Company had $8 million in
borrowings and approximately $46 million in outstanding letters of credit under
this facility. The Company's remaining long-term debt at December 31, 2000
consisted of $19.0 million in Canadian dollar notes from the Ledalite
acquisition, $22.3 million payable to Thomas Industries Inc., $18.1 million in
industrial revenue bonds, and $1.9 million in capital leases and other. The
Company is in compliance with all of its debt covenants.
A condensed consolidated statement of cash flows follows:
For the years ended December 31,
(Dollars in thousands) 2000 1999 1998
- --------------------- -------- -------- --------
EBITDA* $ 91,692 $ 85,428 $ 65,871
Interest expense, net (3,922) (4,584) (3,857)
Taxes on income (25,802) (24,228) (20,188)
Working capital changes and other 26,427 15,565 7,275
-------- -------- --------
Cash provided by operating activities 88,395 72,181 49,101
Cash used in investing activities, net (87,568) (51,448) (15,555)
Cash provided by (used in) financing activities, net 1,658 (8,282) (25,586)
Effect of exchange rate changes (1,360) 1,654 (1,059)
-------- -------- --------
Increase in cash $ 1,125 $ 14,105 $ 6,901
======== ======== ========
*Earnings before interest, taxes, depreciation, and amortization
Cash provided by operating activities in 2000 was $16.2 million higher than in
1999. Net income and depreciation and amortization were $3.5 million and $1.8
million higher, respectively, but the main reason for the increase in cash
provided by operating activities was because of improved utilization of assets
and liabilities, net of the effect of acquisitions. Accounts receivable
decreased $18.1 million in 2000, compared to a $5.4 million increase in 1999.
Accounts receivable increased to an unusually high amount in 1999 because of
collection problems at certain divisions that were improved in 2000. Inventories
increased $10.7 million in 2000, compared to a $3.0 million decrease in 1999.
Other assets decreased slightly in 2000, compared to a $32.3 million increase in
1999 that was primarily due to an increase in goodwill. Accounts payable and
accrued expenses increased slightly in 2000, compared to a $27.6 million
increase in 1999.
Cash provided by operating activities in 1999 was $23.1 million higher than in
1998. Net income and depreciation and amortization were $6.0 million and $8.8
million higher, respectively, because the 1999 results included the operations
of GTG for a full year. Differences in the changes in assets and liabilities
account for the remaining increase in cash provided by operating activities.
Accounts payable, accrued expenses, deferred income taxes, and minority interest
all had larger increases in 1999 than in 1998.
Cash used in investing activities is comprised of acquisitions of businesses and
purchases of plant and equipment. In 2000, the Company paid $58.8 million to
purchase Translite Sonoma and Chloride Safety Systems and made an additional
$500,000 investment in Fibre Light. In 1999, the Company paid $31.5 million for
the Ledalite acquisition and the initial investment in Fibre Light. Purchases of
plant and equipment in 2000 were $7.9 million higher than in 1999 and $11.0
million higher than in 1998.
The Company has plans to spend approximately $30 million to build and relocate
into a new 300,000 square foot HID (high intensity discharge) manufacturing
plant in San Marcos, Texas. The facility, which is scheduled to open in 2002,
will provide world class manufacturing capability and replace current multiple
facilities. The Company entered into a $20 million synthetic lease agreement in
2000 to construct this plant, and approximately $1 million has been advanced as
of December 31, 2000. A synthetic lease is accounted for as an operating lease,
without capitalizing the building and recording the debt.
5
Cash provided by financing activities during 2000 was $1.7 million, with $1.4
million provided by stock options exercised, and the increase in total debt
virtually offset by the $12.3 million purchases of treasury stock. Cash used in
financing activities in 1999 was $8.3 million, primarily for payments on debt,
but very little purchases of treasury stock. Cash used in financing activities
in 1998 was $25.6 million, primarily for payments on debt.
Management believes that currently available cash and borrowing facilities,
combined with internally generated funds, will be sufficient to fund capital
expenditures as well as any increase in working capital required to accommodate
business needs in the foreseeable future. The Company continues to seek
opportunities to acquire businesses that fit its strategic growth plans.
Management believes adequate financing for any such investments will be
available through future borrowings.
In 2000 and 1999, 13.6% and 12.6%, respectively, of the Company's net sales were
generated from operations in Canada. In addition, the Company has production
facilities in Mexico. International operations are subject to fluctuations in
currency exchange rates. The Company monitors its currency exposure in each
country. Management cannot predict future foreign currency fluctuations, which
have and will continue to affect the Company's balance sheet and results of
operations.
FORWARD-LOOKING STATEMENTS
Certain statements in this Management's Discussion and Analysis, including
without limitation expectations as to future sales and operating results,
constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995 (the "Reform Act"). Words such as
"expects," anticipates," "believes," "plans," "intends," "estimates," and
similar expressions are intended to identify such forward-looking statements.
The statements involve known and unknown risks, uncertainties, and other factors
which may cause the actual results, performance, or achievements of the Company
to be materially different from any future results, performance, or achievements
expressed or implied by such forward-looking statements. Such factors include,
but are not limited to the following: the highly competitive nature of the
lighting business, the overall strength or weakness of the economy and the
commercial, residential, and industrial lighting markets, the ability to
maintain or increase prices, reliance on certain key customers, brand awareness,
acceptance of new product offerings, changes in customer demand, the performance
of outside sales representatives, availability and cost of raw materials,
availability and cost of labor, the costs and outcomes of legal proceedings,
foreign exchange rates, changes in tax rates and laws, and changes in interests
rates. The Company could also be affected by nationalization; unstable
governments, economies, or legal systems; or intergovernmental disputes in its
operations in and purchasing from foreign countries. The Company will not
undertake and specifically declines any obligation to update or correct any
forward-looking statements to reflect events or circumstances after the date of
such statements or to reflect the occurrence of anticipated or unanticipated
events.
6
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Genlyte Group Incorporated & 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,
2000 and 1999, and the related consolidated statements of income, stockholders'
investment and cash flows for each of the three years in the period ended
December 31, 2000. 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, 2000 and 1999, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2000, in conformity with accounting principles generally accepted
in the United States.
/s/ Arthur Andersen LLP
- -----------------------
Louisville, Kentucky
January 19, 2001
7
CONSOLIDATED STATEMENTS OF INCOME
The Genlyte Group Incorporated & Subsidiaries
(Dollars in thousands, except per share data)
For the years ended December 31,
2000 1999 1998
---------- ---------- ----------
Net sales $1,007,706 $ 978,302 $ 664,095
Cost of sales 651,304 645,572 432,751
---------- ---------- ----------
Gross profit 356,402 332,730 231,344
Selling and administrative expenses 259,166 242,165 170,997
Amortization of goodwill and other intangible assets 4,616 3,704 1,057
---------- ---------- ----------
Operating profit 92,620 86,861 59,290
Interest expense, net of interest income 3,922 4,584 3,857
Minority interest 26,592 25,268 8,485
---------- ---------- ----------
Income before income taxes 62,106 57,009 46,948
Income tax provision 25,802 24,228 20,188
---------- ---------- ----------
Net income $ 36,304 $ 32,781 $ 26,760
========== ========== ==========
Earnings per share:
Basic $ 2.68 $ 2.37 $ 1.96
Diluted $ 2.65 $ 2.37 $ 1.95
The accompanying notes are an integral part of these consolidated financial
statements.
8
CONSOLIDATED BALANCE SHEETS
The Genlyte Group Incorporated & Subsidiaries
(Dollars in thousands)
As of December 31,
2000 1999
-------- --------
ASSETS:
CURRENT ASSETS:
Cash and cash equivalents $ 23,785 $ 22,660
Accounts receivable, less allowance for doubtful
accounts of $11,014 and $14,910, respectively 142,784 155,428
Inventories 151,257 136,041
Other current assets 29,899 29,938
-------- --------
Total current assets 347,725 344,067
Property, plant and equipment, at cost
Land and land improvements 6,506 6,537
Buildings and leasehold improvements 83,594 87,951
Machinery and equipment 259,139 228,379
-------- --------
Total property, plant and equipment 349,239 322,867
Less: accumulated depreciation and amortization 236,238 217,878
-------- --------
Net property, plant and equipment 113,001 104,989
Goodwill, net of accumulated amortization 140,312 111,426
Other assets 34,845 15,228
-------- --------
TOTAL ASSETS $635,883 $575,710
======== ========
LIABILITIES & STOCKHOLDERS' INVESTMENT:
CURRENT LIABILITIES:
Current portion of long-term debt $ 2,661 $ 1,647
Accounts payable 96,794 86,717
Accrued expenses 76,096 80,001
-------- --------
Total current liabilities 175,551 168,365
Long-term debt 66,652 53,964
Deferred income taxes 32,508 31,797
Minority interest 111,000 98,940
Other liabilities 23,007 20,102
-------- --------
Total liabilities 408,718 373,168
STOCKHOLDERS' INVESTMENT:
Common stock ($.01 par value, 30,000,000 shares authorized;
13,951,246 and 13,802,071 shares issued, respectively;
13,263,290 and 13,675,726 shares outstanding, respectively) 133 137
Additional paid-in capital 7,557 17,761
Retained earnings 189,611 153,307
Accumulated other comprehensive income 29,864 31,337
-------- --------
Total stockholders' investment 227,165 202,542
-------- --------
TOTAL LIABILITIES & STOCKHOLDERS' INVESTMENT $635,883 $575,710
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
9
CONSOLIDATED STATEMENTS OF CASH FLOWS
The Genlyte Group Incorporated & Subsidiaries
(Dollars in thousands)
For the years ended December 31,
2000 1999 1998
-------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 36,304 $ 32,781 $ 26,760
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 25,664 23,835 15,066
Loss (gain) from disposal of plant and equipment (77) (20) 259
Changes in assets and liabilities, net of effect of acquisitions:
(Increase) decrease in:
Accounts receivable 18,181 (5,354) (5,432)
Inventories (10,726) 3,039 65
Other current assets 193 (3,823) (3,575)
Other assets 89 (32,341) 2,611
Increase (decrease) in:
Accounts payable and accrued expenses 643 27,611 9,664
Deferred income taxes 711 9,481 (6,412)
Minority interest 12,060 14,291 5,412
Other liabilities 2,848 (2,260) 2,521
Minimum pension liability (113) 732 (732)
All other, net 2,618 4,209 2,894
-------- -------- --------
Net cash provided by operating activities 88,395 72,181 49,101
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions, net of cash acquired (59,145) (30,934) 1,881
Purchases of plant and equipment (28,423) (20,514) (17,436)
-------- -------- --------
Net cash used in investing activities (87,568) (51,448) (15,555)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in short-term borrowings -- (1,932) (32,281)
Proceeds from long-term debt 47,600 20,956 6,000
Payments on long-term debt (35,029) (28,202) (220)
Purchases of treasury stock (12,305) (271) --
Stock options exercised 1,392 1,167 915
-------- -------- --------
Net cash provided by (used in) financing activities 1,658 (8,282) (25,586)
-------- -------- --------
Effect of exchange rate changes on cash and cash equivalents (1,360) 1,654 (1,059)
-------- -------- --------
Net increase in cash and cash equivalents 1,125 14,105 6,901
Cash and cash equivalents at beginning of year 22,660 8,555 1,654
-------- -------- --------
Cash and cash equivalents at end of year $ 23,785 $ 22,660 $ 8,555
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 3,334 $ 4,517 $ 4,057
Income taxes $ 27,697 $ 20,275 $ 18,445
The accompanying notes are an integral part of these consolidated financial
statements.
10
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT
The Genlyte Group Incorporated & Subsidiaries
(Dollars in thousands)
Accumulated
Other Total
Common Additional Retained Comprehensive Stockholders'
Stock Paid-in Capital Earnings Income Investment
--------- --------------- --------- ------------- -------------
Balance, December 31, 1997 $ 135 $ 12,891 $ 93,766 $ (3,063) $ 103,729
Net income - - 26,760 - 26,760
Gain on formation of GTG, before tax - - - 56,984 56,984
Related tax effect - - - (22,767) (22,767)
--------- --------- --------- --------- ---------
Gain on formation of GTG, 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 GTG, before tax - - - (688) (688)
Related tax effect - - - 276 276
--------- --------- --------- --------- ---------
Gain on formation of GTG, 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
Net income - - 36,304 - 36,304
Increase in minimum pension liability, before tax - - - (188) (188)
Related tax effect - - - 75 75
--------- --------- --------- --------- ---------
Increase in minimum pension liability, after tax - - - (113) (113)
Foreign currency translation adjustments - - - (1,360) (1,360)
--------- --------- --------- --------- ---------
Total comprehensive income - - 36,304 (1,473) 34,831
Stock options exercised 1 2,096 - - 2,097
Treasury stock purchased (5) (12,300) - - (12,305)
--------- --------- --------- --------- ---------
Balance, December 31, 2000 $ 133 $ 7,557 $ 189,611 $ 29,864 $ 227,165
========= ========= ========= ========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Genlyte Group Incorporated & Subsidiaries
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 all majority-owned subsidiaries.
(Dollars in thousands, except per share data)
(1) DESCRIPTION OF BUSINESS
The Genlyte Group Incorporated ("Genlyte"), a Delaware corporation, 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 ("GTG") from inception, August 30,
1998, through December 31, 2000. See note 3 regarding the formation of GTG.
Investments in affiliates owned less than 50% are accounted for using the equity
method, under which the Company'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.
REVENUE RECOGNITION: In December 1999, the Securities and Exchange Commission
issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements" ("SAB 101"), which provides the staff's views in applying generally
accepted accounting principles to selected revenue recognition issues. The
effective date of SAB 101 for the Company was the fourth quarter of 2000. SAB
101 had no impact on the Company's financial position or results of operations
in 2000 because the Company had been in compliance with the guidance of SAB 101.
The Company records sales revenue when products are shipped because that is the
point when the customer accepts title and the risks and rewards of ownership. A
provision for estimated returns and allowances is recorded as a sales deduction.
SHIPPING AND HANDLING COSTS: In compliance with Emerging Issues Task Force issue
00-10, the Company began in 2000 to include in net sales all amounts billed to
customers that relate to shipping and handling. Previously, such revenue was
netted against the related costs. The effect in 2000 was to reclassify $7,664 to
net sales from selling and administrative expenses. Prior year statements of
income have not been reclassified to conform to the 2000 classification, because
the amounts are not material. The amounts of shipping and handling costs
included in selling and administrative expenses were $52,805 in 2000, $40,814 in
1999, and $28,391 in 1998.
ADVERTISING COSTS: The Company expenses advertising costs principally as
incurred. Certain catalog, literature, and display costs are amortized over
their useful lives, from 6 to 36 months. Total advertising expenses were $12,221
in 2000, $13,416 in 1999, and $9,480 in 1998.
RESEARCH AND DEVELOPMENT COSTS: Research and development costs are expensed as
incurred. These expenses were $8,510 in 2000, $8,086 in 1999, and $7,237 in
1998.
12
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:
2000 1999
-------- --------
Raw materials $ 55,651 $ 46,717
Work in process 13,484 14,027
Finished goods 82,122 75,297
-------- --------
Total inventories $151,257 $136,041
======== ========
Inventories valued using the last-in, first-out ("LIFO") method represented
approximately 83% of total inventories at December 31, 2000 and 1999.
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 was made to
have a consistent method throughout the U.S. operations because the Thomas
Lighting U.S. inventories, now consolidated with Genlyte through GTG, are valued
using the LIFO method. This change increased net income by $507, or $.04 per
diluted share, in 1998. The cumulative effect of this change was not reported in
the 1998 consolidated statement of income because it is not determinable.
On a FIFO basis, which approximates current cost, inventories would have been
$1,403 and $3,460 lower than reported at December 31, 2000 and 1999,
respectively.
PROPERTY, PLANT AND EQUIPMENT: The Company provides for depreciation of
property, plant and equipment, which also includes amortization of assets
recorded under capital leases, on a straight-line basis over the estimated
useful lives of the assets. Useful lives vary among the items in each
classification, but generally fall within the following ranges:
Land improvements 10 - 25 years
Buildings and leasehold improvements 10 - 40 years
Machinery and equipment 3 - 10 years
When the Company sells or otherwise disposes of property, 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 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 improvements 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.
GOODWILL: 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 $165,884 as of December 31, 2000 and $132,587 as of December
31, 1999, is being amortized on a straight-line basis over periods ranging from
10 to 40 years. Accumulated amortization was $30,494 and $26,083 as of December
31, 2000 and 1999, respectively.
13
The Company periodically evaluates goodwill and other intangible assets to
assess recoverability from future operations. An 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.
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 date. The cumulative effects of such adjustments were
$3,828 and $2,468 at December 31, 2000 and 1999, 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.
ACCOUNTING STANDARDS YET TO BE ADOPTED: Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS No. 133"), was issued in June 1998 and is effective for the
Company beginning in 2001. Statement of Financial Accounting Standards No. 138,
"Accounting for Certain Derivative Instruments and Certain Hedging Activities -
an Amendment of FASB Statement No. 133," was issued in June 2000 and is to be
adopted concurrently with SFAS No. 133. The Company does not currently
participate in any significant hedging activities, nor does it use any
significant derivative financial instruments.
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 ("GTG"). GTG manufactures, sells, markets, and distributes
commercial, residential, and industrial lighting fixtures and controls. Genlyte
contributed substantially all of its assets and liabilities to GTG and received
a 68% interest in GTG. Thomas contributed substantially all of the assets and
certain related liabilities of Thomas Lighting and received a 32% interest in
GTG. The percentage interests in GTG 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 GTG
required the assets and liabilities contributed by Thomas to GTG 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 resulted from management's determination of purchase accounting
adjustments and were based upon available information and certain assumptions
that management considered reasonable under the circumstances. The resulting
cost in excess of the fair market value of net assets contributed by Thomas
(goodwill) of $32,412 is being amortized on a straight-line basis over 30 years.
The assets contributed by Genlyte to GTG are reflected at their historical cost.
To the extent the actual net working capital contributed by Thomas Lighting
exceeded the target net working capital, GTG 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.
14
The formation of GTG and the contribution of the net assets of Genlyte and
Thomas Lighting to GTG in exchange for Genlyte's and Thomas' respective
interests in GTG described above are referred to herein as the "Transaction."
Concurrent with the formation of GTG, Genlyte 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 GTG 37,563
Deferred income taxes 22,491
-------
After-tax gain recognized by Genlyte on the formation
of GTG $33,805
=======
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 "Members"), respectively, will be made at such time and in such
amounts as determined by the GTG Management Board and shall be made in cash or
other property in proportion to the Members' 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 GTG make the following distributions to the
Members:
(i) a distribution to each Member, based on its percentage interest, for tax
liabilities attributable to its participation as a Member of GTG based upon the
effective tax rate of the Member having the highest tax rate; and
(ii) subject to the provisions of Delaware law and the terms of the primary GTG
credit facility, distributions (exclusive of the tax distributions set forth
above) to each of the Members so that Thomas receives at least an aggregate of
$3,000 and Genlyte receives at least an aggregate of $6,375 per year beginning
in 1999.
Also under the terms of the LLC Agreement, at any time on or after January 31,
2002, Thomas has the right (a "Put Right"), but not the obligation, to require
GTG to purchase all, but not less than all, of Thomas's 32% interest at the
appraised value of such interest. The appraised value shall be the fair market
value of GTG as a going concern, taking into account a control premium, and
determined by an appraisal process to be undertaken by recognized investment
banking firms chosen initially by Genlyte and Thomas. If GTG cannot secure the
necessary financing with respect to Thomas's exercise of its Put Right, then
Thomas has the right to cause GTG to be sold. Also, at any time after Thomas
exercises its Put Right, Genlyte has the right to cause GTG to be sold.
Also under the terms of the LLC Agreement, on or after the later to occur of (1)
the final settlement or disposition of the litigation described in note 15
"Contingencies" or (2) January 31, 2002, either Member has the right, but not
the obligation, to offer to buy the other Member's interest (the "Offer Right").
If the Members cannot agree on the terms, then GTG shall be sold to the highest
bidder. Either Member may participate in the bidding for the purchase of GTG.
Complete details of the Put Right, Offer Right, and appraisal process can be
found in the proxy statement pertaining to the formation of GTG, filed with the
Securities and Exchange Commission by Genlyte on July 23, 1998.
15
The operating results of GTG 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,
Genlyte's results would have been:
Actual Actual Pro Forma
2000 1999 1998
---------- ---------- ----------
Net sales $1,007,706 $ 978,302 $ 929,123
Net income 36,304 32,781 26,334
Earnings per share $ 2.68 $ 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, GTG acquired a 2% interest (with rights to acquire an
additional 6%) in Fibre Light International, based in 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 GTG owns 80%. Fibre
Light manufactures, markets, and sells fiber optic lighting systems in the U.S.
On July 5, 2000, GTG acquired an additional 2% interest in Fibre Light
International.
On June 30, 1999, GTG 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 original purchase prices of these acquisitions totaled $31,469 in 1999
(including costs of acquisition), consisting of approximately $8.5 million in
cash payments and approximately $23 million in borrowings. In 2000, an
additional $424 was paid to Ledalite's owners based on Ledalite's 1999 earnings
performance.
The Ledalite acquisition has been accounted for using the purchase method of
accounting. The excess of the total purchase price over the fair market value of
net assets acquired (goodwill) of $26,463 is being amortized on a straight-line
basis over 30 years.
The operating results of Fibre Light and Ledalite have been included in the
Company's consolidated financial statements since the respective dates of
acquisition. On an unaudited pro forma basis, assuming these acquisitions had
occurred at the beginning of 1999 and 1998, the Company's results would have
been:
Actual Pro Forma Pro Forma
2000 1999 1998
---------- ---------- ----------
Net sales $1,007,706 $ 990,326 $ 686,069
Net income 36,304 32,492 25,913
Earnings per share $ 2.68 $ 2.35 $ 1.89
========== ========== ==========
The pro forma results do not purport to state exactly what the Company's results
of operations would have been had the acquisitions in fact been consummated as
of the assumed dates and for the periods presented.
(5) ACQUISITIONS OF TRANSLITE SONOMA AND CHLORIDE SYSTEMS
As of September 14, 2000, the Company acquired Translite Limited ("Translite
Sonoma"), a San Carlos, California based manufacturer of low-voltage cable and
track lighting systems and decorative architectural glass lighting. Earlier in
2000, Translite Limited had expanded its operations by merging with Sonoma
Lighting Limited, which had been a manufacturer of decorative architectural
glass lighting. The Company purchased all of the outstanding capital stock of
Translite Limited for $6,427 (including costs of acquisition), borrowing $5,000
from the revolving credit facility and funding the remainder from cash on hand.
16
As of October 1, 2000, the Company acquired the assets of the emergency lighting
business of Chloride Power Electronics Incorporated ("Chloride Systems") from
the Chloride Group, PLC, in London, England. The purchase includes the U.S.
Chloride Systems and LightGuard emergency lighting brands. The purchase price
was $52,324 in cash plus the assumption of approximately $2,800 in liabilities.
The revolving credit facility was used to borrow $35,000 and cash on hand was
used to pay the remaining $17,324.
The Translite Sonoma and Chloride Systems acquisitions have 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
(goodwill) of $6,692 for Translite Sonoma and $23,016 for Chloride Systems is
being amortized on a straight-line basis over 30 years. The fair market value of
net assets acquired from Chloride Systems included $23,000 in intangible assets
for license and non-competition agreements, which are being amortized over 30
years. The determination of the fair market values as reflected in the balance
sheet is subject to change, with a final determination no later than one year
after the acquisition dates.
The operating results of Translite Sonoma and Chloride Systems have been
included in the Company's consolidated financial statements since the respective
dates of acquisition. On an unaudited pro forma basis, assuming these
acquisitions had occurred at the beginning of 2000 and 1999, the Company's
results would have been:
Pro Forma Pro Forma
2000 1999
---------- ----------
Net sales $1,035,139 $1,011,778
Net income 36,270 33,085
Earnings per share $ 2.65 $ 2.39
========== ==========
The pro forma results do not purport to state exactly what the Company'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.
(6) 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.
(Amounts in thousands) 2000 1999 1998
- --------------------- ------ ------ ------
Average common shares outstanding 13,557 13,831 13,671
Incremental common shares issuable: Stock option plans 118 18 19
------ ------ ------
Average common shares outstanding assuming dilution 13,675 13,849 13,690
====== ====== ======
(7) INCOME TAXES
The Company accounts for income taxes using the asset and liability method as
prescribed by Statement of Financial Accounting Standards No. 109 "Accounting
for Income Taxes." This method requires recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that have been
included in the financial statements or tax returns. Using the enacted tax rates
in effect for the years in which the differences are expected to reverse,
deferred tax assets and liabilities are determined based on the differences
between the financial reporting and tax bases of an asset or liability.
17
The components of income before income taxes and the provisions for income taxes
for the years ended December 31 were as follows:
2000 1999 1998
-------- -------- --------
Income before income taxes:
Domestic $ 46,793 $ 46,974 $ 41,867
Foreign 15,313 10,035 5,081
-------- -------- --------
Income before income taxes $ 62,106 $ 57,009 $ 46,948
======== ======== ========
Income tax provision (benefit):
Domestic:
Currently payable $ 16,964 $ 19,658 $ 18,457
Deferred 3,200 89 (329)
Foreign:
Currently payable 4,063 3,839 1,871
Deferred 1,575 642 189
-------- -------- --------
Income tax provision $ 25,802 $ 24,228 $ 20,188
======== ======== ========
A reconciliation of the statutory federal income tax rate to the Company's
effective income tax rate follows:
2000 1999 1998
---- ---- ----
Statutory federal rate 35.0% 35.0% 35.0%
State income taxes, net of federal tax benefits 3.3% 3.1% 4.6%
Minority interest share of foreign taxes 1.2% 1.4% 0.8%
Nondeductible portion of amortization and expenses 1.4% 1.1% 1.0%
Other 0.6% 1.9% 1.6%
---- ---- ----
Effective income tax rate 41.5% 42.5% 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:
2000 1999
------- -------
Deferred tax assets:
Allowance for doubtful accounts receivable $ 2,856 $ 3,297
Inventory reserves 8,166 5,281
Accrued compensation expenses 8,145 7,719
Other 890 4,270
------- -------
Total deferred tax assets $20,057 $20,567
Deferred tax liabilities:
Accelerated depreciation $ 5,110 $ 6,330
Gain on formation of GTG 22,491 22,491
Other 2,675 1,254
------- -------
Total deferred tax liabilities 30,276 30,075
------- -------
Net deferred tax liability $10,219 $ 9,508
======= =======
Classification:
Current asset $22,289 $22,289
Net long-term liability 32,508 31,797
------- -------
Net deferred tax liability $10,219 $ 9,508
======= =======
Deferred tax assets and liabilities are classified as current or long-term
according to the related asset and liability classification of the item
generating the deferred tax.
18
Undistributed earnings of non-U.S. subsidiaries and joint venture companies
aggregated $42 million on December 31, 2000 which, under existing law, will not
be subject to U.S. tax until distributed as dividends. Since the earnings have
been or are intended to be indefinitely reinvested in foreign operations, no
provision has been made for any U.S. taxes that may be applicable thereto.
Furthermore, the taxes paid to foreign governments on those earnings may be used
in whole or in part as credits against the U.S. tax on any dividends distributed
from such earnings. It is not practicable to estimate the amount of unrecognized
deferred U.S. taxes on these undistributed earnings.
(8) LONG-TERM DEBT
Long-term debt at December 31 consisted of the following:
2000 1999
------- -------
Revolving credit notes $ 8,000 $ --
Canadian dollar notes 19,015 20,772
Industrial revenue bonds 18,100 10,500
Loan payable to Thomas 22,287 22,287
Capital leases and other 1,911 2,052
------- -------
69,313 55,611
Less: current maturities 2,661 1,647
------- -------
Total long-term debt $66,652 $53,964
======= =======
GTG 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, GTG could incur approximately $27,000 in
additional fixed charges.
Total borrowings under the Facility as of December 31, 2000 and 1999, were
$8,000 and $0, respectively. Outstanding borrowings bear interest at the option
of GTG based on the bank's base rate or the LIBOR rate plus a spread as
determined by total indebtedness. In addition, at December 31, 2000, GTG had
outstanding approximately $46 million 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
GTG. The net book value of assets subject to lien at December 31, 2000 was
$302,104.
GTG has $19,015 of borrowings through its Canadian subsidiary Genlyte Thomas
Group Nova Scotia ULC. These borrowings will be repaid in installments in each
of the next four 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.
GTG has $18,100 of variable rate demand Industrial Revenue Bonds that mature
during 2009 to 2020. The average borrowing rate on these bonds was 4.2% in 2000
and 3.3% in 1999. These bonds are backed by the letters of credit mentioned
above.
The unsecured 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 and matures in 2003.
19
The annual maturities of long-term debt are summarized as follows:
Year ending December 31
-------------------------------------------------------------
2001 $ 2,661
2002 3,491
2003 34,604
2004 10,278
2005 179
Thereafter 18,100
----------
Total long-term debt $ 69,313
==========
(9) STOCK OPTIONS
The Genlyte 1998 Stock Option Plan (the "Plan") was established for the benefit
of key employees of GTG 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
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, 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
Granted 97,700 20.32
Exercised (145,175) 9.66
Canceled (24,023) 16.67
Outstanding December 31, 2000 688,412 17.79
Exercisable at End of Year
December 31, 1998 279,750 7.72
December 31, 1999 289,450 10.27
December 31, 2000 306,764 15.21
The weighted average fair values of options granted in 2000, 1999, and 1998 were
$10.02, $9.51, and $10.05, respectively. The options outstanding at December 31,
2000 have a weighted average remaining contractual life of 4.2 years.
20
The fair value of these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following assumptions:
2000 1999 1998
---- ---- ----
Risk free interest rate 6.49% 5.78% 4.74%
Expected life, in years 6.0 6.0 5.9
Expected volatility 40.2 40.5 45.6
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.
2000 1999 1998
------- ------- -------
Net income As reported $36,304 $32,781 $26,760
Pro forma 35,731 31,673 25,431
Earnings per share - basic As reported 2.68 2.37 1.96
Pro forma 2.64 2.29 1.86
Earnings per share - diluted As reported 2.65 2.37 1.95
Pro forma 2.61 2.29 1.86
(10) 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.
21
(11) RETIREMENT PLANS
The Company has defined benefit plans which cover the majority of its full-time
employees. The Company uses September 30 as the measurement date for the
retirement plan disclosure. 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, 2000 and 1999
for the U.S. and Canadian Plans follow:
U.S. Plans Canadian Plans
2000 1999 2000 1999
-------- -------- -------- --------
CHANGE IN BENEFIT OBLIGATIONS
Benefit obligations, beginning $ 73,927 $ 81,097 $ 4,530 $ 4,562
Service cost 1,348 2,310 169 252
Interest cost 5,412 5,358 359 339
Benefits paid (5,179) (4,101) (364) (221)
Member contributions -- -- 153 --
Amendments 1,426 -- -- 38
Curtailment gain (1,146) -- -- --
Other - primarily actuarial (gain) loss 2,838 (10,737) (189) (440)
-------- -------- -------- --------
Benefit obligations, ending $ 78,626 $ 73,927 $ 4,658 $ 4,530
======== ======== ======== ========
CHANGE IN PLAN ASSETS
Plan assets at fair value, beginning $ 73,377 $ 68,902 $ 5,496 $ 5,030
Actual return on plan assets 7,837 6,965 887 80
Employer contributions 3,049 1,611 534 123
Member contributions -- -- 153 148
Benefits paid (5,179) (4,101) (364) (221)
Other -- -- (303) 336
-------- -------- -------- --------
Plan assets at fair value, ending $ 79,084 $ 73,377 $ 6,403 $ 5,496
======== ======== ======== ========
FUNDED STATUS OF THE PLANS
Plan assets in excess of (less than) benefit obligations
$ 458 $ (550) $ 1,745 $ 966
Unrecognized transition obligation at adoption -- 200 (30) (33)
Unrecognized actuarial gain (10,371) (11,563) (1,139) (718)
Unrecognized prior service cost 2,759 2,024 102 110
Contributions subsequent to measurement date 862 946 72 259
-------- -------- -------- --------
Net pension asset (liability) $ (6,292) $ (8,943) $ 750 $ 584
======== ======== ======== ========
BALANCE SHEET ASSET (LIABILITY)
Accrued pension liability $(12,480) $(13,763) $ -- $ --
Prepaid pension cost 4,242 4,468 750 584
Intangible asset 1,833 339 -- --
Accumulated other comprehensive income 113 13 -- --
-------- -------- -------- --------
Net asset (liability) recognized $ (6,292) $ (8,943) $ 750 $ 584
======== ======== ======== ========
WEIGHTED AVERAGE ASSUMPTIONS
Discount rate 7.75% 7.75% 7.75% 7.75%
Rate of compensation increase 4.00% 4.00% 4.00% 4.00%
Expected return on plan assets 9.00% 8.50% 7.75% 7.75%
22
U.S. Plans
2000 1999 1998
------- ------- -------
COMPONENTS OF NET PERIODIC BENEFIT COSTS
Service cost $ 1,348 $ 2,310 $ 1,789
Interest cost 5,412 5,358 4,281
Expected return on plan assets (5,898) (5,536) (3,800)
Amortization of transition amounts 102 181 18
Amortization of prior service cost 220 293 345
Recognized actuarial (gain) loss (295) 60 202
Net gain due to curtailment and settlement (580) -- --
------- ------- -------
Net pension expense of defined benefit plans 309 2,666 2,835
Defined contribution plans 2,665 1,574 623
Multi-employer plans for certain union employees 327 274 245
------- ------- -------
Total benefit costs $ 3,301 $ 4,514 $ 3,703
======= ======= =======
Canadian Plans
2000 1999 1998
------- ------- -------
COMPONENTS OF NET PERIODIC BENEFIT COSTS
Service cost $ 169 $ 252 $ 211
Interest cost 359 339 295
Expected return on plan assets (427) (368) (315)
Amortization of transition amounts (3) (6) (5)
Amortization of prior service cost 7 5 5
Recognized actuarial (gain) loss (10) (1) 2
------- ------- -------
Net pension expense of defined benefit plans 95 221 193
Defined contribution plans 196 152 59
------- ------- -------
Total benefit costs $ 291 $ 373 $ 252
======= ======= =======
A summary of the plans in which benefit obligations and accumulated benefit
obligations exceed fair value of assets follows:
2000 1999
------- -------
Benefit obligation $13,230 $ 6,830
Accumulated benefit obligation 13,230 6,569
Plan assets at fair value 9,929 3,470
Effective January 1, 2000 the Company has frozen the salaried pension plan of
certain employees. These employees are eligible for Company matching on their
401(k) contributions as well as being a participant in the GTG Retirement
Savings and Investment Plan. This resulted in a curtailment credit of $603,
which is a reduction of net pension expense in 2000.
(12) 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.
23
The amounts included in the accompanying consolidated balance sheets for the
post-retirement benefit plans based on the funded status at September 30, 2000
and December 31, 1999, follow:
2000 1999
------- -------
CHANGE IN BENEFIT OBLIGATIONS
Benefit obligations, beginning $ 4,151 $ 3,657
Service cost 36 39
Interest cost 303 294
Benefits paid (472) (413)
Other - primarily actuarial loss 1 574
------- -------
Benefit obligations, ending $ 4,019 $ 4,151
======= =======
FUNDED STATUS OF THE PLANS
Plan assets less than benefit obligations $(4,019) $(4,151)
Unrecognized actuarial loss 564 574
------- -------
Accrued liability $(3,455) $(3,577)
======= =======
Employer contributions $ 472 $ 413
Benefits paid $ (472) $ (413)
2000 1999 1998
---- ---- ----
COMPONENTS OF NET PERIODIC BENEFIT COSTS
Service costs $ 36 $ 39 $ 8
Interest costs 303 294 83
Recognized actuarial loss 10 -- 69
---- ---- ----
Net expense of post-retirement plans $349 $333 $160
==== ==== ====
The assumed discount rate used in measuring the obligations as of September 30,
2000 and 1999 was 7.75%. 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, 2000 by approximately $300, and the 2000
post-retirement benefit expense by approximately $28.
(13) ACCRUED EXPENSES
Accrued expenses at December 31 consisted of the following:
2000 1999
------- -------
Employee related costs and benefits $30,038 $30,267
Advertising and sales promotion 10,018 8,331
Income and other taxes payable 7,786 9,043
Other accrued expenses 28,254 32,360
------- -------
Total accrued expenses $76,096 $80,001
======= =======
(14) LEASE COMMITMENTS
The Company rents office space, equipment, and computers under non-cancelable
operating leases. Rental expense for operating leases during 2000, 1999 and 1998
amounted to $7,764, $6,184, and $4,229, respectively. One division of the
Company also rents manufacturing and computer equipment and software under
agreements that are classified as capital leases.
24
Future required minimum lease payments as of December 31, 2000 were as follows:
Operating Capital
Leases Leases
--------- ---------
2001 $ 8,378 $ 561
2002 5,102 425
2003 3,675 224
2004 2,171 167
2005 1,738 144
Thereafter 5,535 --
--------- ---------
Total minimum lease payments $ 26,599 $ 1,521
=========
Less amount representing interest 197
---------
Present value of net minimum lease payments $ 1,324
=========
The Company entered into a $20 million synthetic lease agreement to finance the
land and building for a 300,000 square foot manufacturing facility in San
Marcos, Texas that is expected to open in 2002. As of December 31, 2000,
approximately $1 million had been advanced under this agreement. A synthetic
lease is accounted for as an operating lease.
(15) CONTINGENCIES
Genlyte was 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
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.
25
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.
(16) RELATED-PARTY TRANSACTIONS
The Company in the normal course of business has transactions with Thomas. These
transactions consist primarily of interest payments under the loan discussed in
note 8 "Long-term Debt" and reimbursement for shared corporate expenses such as
rent, office services, professional services, and shared personnel.
The Company had related party payables to Thomas of $199 and $652 as of December
31, 2000 and 1999, respectively.
For the years ended December 31, 2000 and 1999, and for the period from the
inception of GTG, August 30, through December 31, 1998, the Company had the
following related party transactions:
2000 1999 1998
------ ------ ------
Payments to Thomas for:
Interest under the loan agreement $1,543 $1,281 $ 461
Reimbursement of corporate expenses 515 496 173
(17) 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"). 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.
26
Operating Segments:
Industrial
2000 Commercial Residential and Other Total
- ---- ----------- ----------- ----------- -----------
Net sales $ 724,350 $ 137,838 $ 145,518 $ 1,007,706
Operating profit 67,952 10,897 13,771 92,620
Assets 457,920 86,470 91,493 635,883
Depreciation and amortization 18,197 3,739 3,728 25,664
Expenditures for plant & equipment 20,389 3,424 4,610 28,423
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 & equipment 14,399 3,023 3,092 20,514
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 & equipment 12,176 2,687 2,573 17,436
(18) GEOGRAPHICAL INFORMATION
The Company has operations throughout North America. Information about the
Company's operations by geographical area for the years ended December 31, 2000,
1999 and 1998 follows. Foreign balances represent primarily Canada and some
Mexico.
2000 U.S. Foreign Total
- ---- ---------- ---------- ----------
Net sales $ 870,209 $ 137,497 $1,007,706
Operating profit 76,428 16,192 92,620
Assets 503,987 131,896 635,883
Depreciation and amortization 19,749 5,915 25,664
Expenditures for plant & equipment 19,923 8,500 28,423
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 & 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 & equipment 11,088 6,348 17,436
27
(19) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
Quarter
2000 1st 2nd 3rd 4th Full Year
- ---- ------------- ------------- ------------- ------------- -------------
Net sales $ 246,360 $ 253,214 $ 259,292 $ 248,840 $ 1,007,706
Operating profit 19,928 21,938 24,345 26,409 92,620
Net income 7,654 8,621 9,871 10,158 36,304
Earnings per share:
Basic .56 .64 .73 .77 2.68
Diluted .55 .63 .73 .76 2.65
Market price
High 22.44 22.75 25.56 28.00 28.00
Low 18.97 18.13 21.25 22.88 18.13
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 19.38 23.56 26.00 25.88 26.00
Low 16.00 16.50 21.44 20.13 16.00
28