1997
Lighting the Way Together
Annual Report
[Graphic Photo Omitted]
On the Cover: The Getty
Center, Los Angeles,
California. Over 14 years
under construction, costing
approximately $1 billion, the
recently opened Getty
Center is one of the most
significant architectural
projects of the century. 1.5
million people are expected
to visit in its first year.
Genlyte lighting was specified
by the project's lighting
consultant, for both indoor
and outdoor applications.
[Graphic Photo Omitted]
THE GENLYTE GROUP INCORPORATED IS A LEADING MANUFACTURER OF LIGHTING FIXTURES
AND CONTROLS FOR THE COMMERCIAL, INDUSTRIAL AND RESIDENTIAL MARKETS. OUR
PRODUCTS ARE SOLD UNDER THE BRAND NAMES OF BRONZELITE, CRESCENT, DIAMOND F,
EXCELINE, FORECAST, LIGHTOLIER CONTROLS, HADCO, LIGHTOLIER, STONCO AND WIDE-LITE
IN THE U.S. AND CFI FLUORESCENT, KEENE-WIDELITE, LIGHTOLIER, PRODEL AND STONCO
IN CANADA.
[Graphic Omitted]
Net Sales
'95 '96 '97
-------------------------
445.7 456.9 488.0
FINANCIAL HIGHLIGHTS
AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA 1997 1996 1995
- -----------------
OPERATING RESULTS
- -----------------
Net Sales $487,961 $456,860 $445,660
Gross Profit Margin 34.7% 33.9% 31.0%
Operating Profit $ 37,621 $ 28,448 $ 21,955
Net Income $ 19,113 $ 12,997 $ 7,909
Earnings Per Share:
Basic $ 1.46 $ 1.01 $ 0.62
Diluted $ 1.42 $ 1.00 $ 0.62
- ------------------
BALANCE SHEET DATA
- ------------------
Current Assets $174,106 $163,839 $151,058
Total Assets $254,028 $238,115 $231,034
Current Liabilities $ 92,145 $ 92,473 $ 75,339
Total Debt $ 32,785 $ 41,847 $ 67,132
Stockholders' Investment $103,729 $ 83,783 $ 69,900
Book Value Per Average Share $ 7.72 $ 6.42 $ 5.46
[THE FOLLOWING TABLES ARE REPRESENTATIVE OF GRAPHIC CHARTS.]
OPERATING NET EARNINGS
PROFIT INCOME PER SHARE
'97 37.6 '97 19.1 '97 1.42
'96 28.4 '96 13.0 '96 1.00
'95 22.0 '95 7.9 '95 0.62
HIGHLIGHTS
OF THE YEAR
TO OUR STOCKHOLDERS:
1997 WAS ANOTHER RECORD YEAR FOR GENLYTE. WE INTRODUCED MANY EXCITING NEW
PRODUCTS, ACHIEVED OUR BEST SALES GROWTH SINCE THE COMPANY BECAME PUBLIC, AND
EARNED RECORD PROFITS. We are proud of our accomplishments, and are confident
that we have positioned the company for continued growth and improved financial
performance. We enjoyed focused growth in 1997: we grew with customers who
appreciate the value of Genlyte's services with products we manufacture with
distinction and sell with confidence. We want to discuss three specific
activities in 1997 that have positioned Genlyte for future growth in sales and
profitability.
LYTENING(TM)/NEW PRODUCTS
Lytening is one of the most exciting new products introduced in the lighting
industry in many years, and the most successful product introduction in Genlyte
history. Lytening was conceived, designed, manufactured and marketed as a
complement to Lightolier's historic strength in high-performance quality
downlighting. Our customers welcomed Lytening and recognized its value and the
opportunity that this innovative product gave them to sell more downlighting and
earn more profit in a mature market. This product was only sold to Lightolier's
select distributors and gives them a distinct advantage in marketing an exciting
new product that is not offered through alternate channels of distribution. We
will continue to focus our product development, on which we spent more than $10
million in 1997, on those products that give our customers a competitive
advantage. We introduce hundreds of new products each year, and Lytening
typifies the care we take in directing product introductions to customers and
markets we value. While Lytening was clearly the most significant new product
that we introduced in 1997, we also introduced many other exciting and
innovative products in outdoor, fluorescent, decorative and controls. All of
these products will generate additional sales in 1998 and beyond. We began the
development of our new emergency lighting line, which will be introduced in
early 1999. Innovative products are very important to Genlyte, and we will
continue our aggressive new product developments in 1998.
CUSTOMER-FOCUSED TECHNOLOGY
We invested a substantial amount of money in 1997 and will invest more in 1998
to install Oracle software in our operating divisions to manage customer orders,
inventory, shipments and invoicing. When Oracle is in use throughout Genlyte,
our customers will be able to place one order for products made for stock from
all Genlyte divisions and have immediate access to timely information
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GENLYTE OUR BRANDS
------------------
LIGHTOLIER HIGH-QUALITY, INNOVATIVE RESIDENTIAL/COMMERCIAL LIGHTING:
DOWNLIGHTING, TRACK LIGHTING, DECORATIVE, FLUORESCENT AND CONTROLS.
FORECAST RESIDENTIAL DECORATIVE LIGHTING SOLD THROUGH LIGHTING SHOWROOMS.
CONTROLS ELECTRONIC DIMMING AND ENERGY-SAVING CONTROLS FOR
RESIDENTIAL/COMMERCIAL USE.
STONCO, CRESCENT & EXCELINE STANDARD, HIGH- VOLUME, CONTRACTOR-FRIENDLY
INDOOR/OUTDOOR LIGHTING DISTRIBUTED THROUGH ELECTRICAL WHOLESALERS AND SOLD
PRIMARILY TO ELECTRICAL CONTRACTORS.
WIDE-LITE ENERGY-EFFICIENT, HID INDOOR/OUTDOOR LIGHTING PRODUCTS AND CONTROLS
FOR COMMERCIAL, INDUSTRIAL, RECREATIONAL USE.
BRONZELITE HIGH-QUALITY, SPECIFICATION-GRADE COMMERCIAL LANDSCAPE LIGHTING.
HADCO SPECIFICATION-GRADE EXTERIOR ARCHITECTURAL LIGHTING FOR MUNICIPAL,
INDUSTRIAL, COMMERCIAL, LANDSCAPE USE.
DIAMOND F DECORATIVE RESIDENTIAL LIGHTING SOLD THROUGH DO-IT-YOURSELF HOME
CENTERS.
CANLYTE SALE IN CANADA OF LIGHTOLIER, CFI, KEENE-WIDELITE, STONCO AND HADCO
PRODUCT LINES.
about their orders, including product availability. We have already successfully
installed Oracle at one of our divisions, with additional divisions scheduled to
follow closely behind. We have made the investments in hardware, software and
skilled staff required to install Oracle for one reason: to better serve our
customers at a lower cost for them and for ourselves. This technology will make
it easier for all of us at Genlyte to reach our ultimate goal of providing our
customers with the best overall service in the industry.
GENLYTE DISTRIBUTION/SERVICE
Our inability to provide customers with excellent service has been an obstacle
to Genlyte's growth over the past several years. The installation of Oracle is
only part of that solution. We have studied our distribution coverage carefully
and concluded that we can improve our product delivery to our customers
dramatically by consolidating our distribution into several regional
distribution centers, strategically located throughout the United States. The
first of these distribution centers is scheduled to open this fall, serving our
customers on the East Coast. In addition to Oracle and our new distribution
network, each division is developing a customer service campaign for 1998 with
all employees participating to dramatically improve our service. Genlyte is
noted for having outstanding products, and we are dedicated to improving our
service to match our products.
We have spent the last three years improving the financial condition of
Genlyte. We have eliminated unprofitable product lines and reduced capacity at
less-productive facilities, while strengthening our balance sheet and reducing
our debt. At the same time we have made substantial investments in people,
products and technology to position Genlyte for growth. We are truly committed
to "Lighting the Way-Together," by providing excellent opportunities and
services for our customers, employees, vendors and shareholders. We will earn
your continued confidence and trust. We are confident that 1998 will be another
excellent year for Genlyte. Thank you for your ongoing support.
[PHOTO]
/s/ Larry K. Powers
- -------------------
Larry K. Powers
President and Chief Executive Officer
[PHOTO OF LARRY K. POWERS]
/s/ Avrum I. Drazin
- -------------------
Avrum I. Drazin
Chairman of the Board
[PHOTO AVRUM I. DRAZIN]
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HIGHLIGHT OPERATIONS
--------------------
GOING FOR GROWTH THE GROUNDWORK IS LAID. WE HAVE CONTINUED TO REDUCE EXCESS
CAPACITY. SIGNIFICANTLY IMPROVED PRODUCTIVITY. LOWERED OUR COSTS. SEVERAL OF OUR
COMPANIES HAVE RECEIVED ISO REGISTRATION, CERTIFYING THEM AS "WORLD CLASS"
MANUFACTURERS, AND SEVERAL MORE ARE NEAR TO IT. GENLYTE IS POSITIONED FOR
GROWTH. THE FOLLOWING PAGES SHOW HOW WE'RE GOING TO ACHIEVE THAT GROWTH. THROUGH
INNOVATIVE PRODUCTS, LIKE LYTENING, WHICH HAS REVOLUTIONIZED DOWNLIGHT
INSTALLATION AND OPENED NEW MARKETS, AS WELL AS THROUGH THE HUNDREDS OF NEW
PRODUCTS THAT REFRESH AND UPDATE OUR LINES EACH YEAR, KEEPING GENLYTE ON THE
INDUSTRY'S FOREFRONT. THROUGH A VARIETY OF MANUFACTURING INITIATIVES AIMED AT
INCREASING OUR EFFICIENCY AND PRODUCTIVITY EVEN MORE, SO THAT WE CAN OFFER
HIGH-QUALITY PRODUCTS AT A COMPETITIVE PRICE. AND MOST IMPORTANTLY, THROUGH OUR
COMPANY-WIDE CUSTOMER SERVICE INITIATIVES, WHICH ARE FOCUSING EVERY RESOURCE --
TECHNOLOGY, WAREHOUSING, TRAINING, SALES --ON MAKING IT EASY FOR CUSTOMERS TO DO
BUSINESS WITH GENLYTE. WE ARE DETERMINED TO MAKE GENLYTE THE LIGHTING COMPANY
THAT NOT ONLY PROVIDES THE BEST LIGHTING SOLUTIONS BUT IS THE EASIEST DO
BUSINESS WITH. THE FOLLOWING PAGES SHOW THAT OUR COMMITMENT TO GROWTH IS BUILT
ON OUR COMMITMENT TO OUR CUSTOMER.
[PHOTO]
LYTECASTER
The beauty of Lytening goes beyond the unprecedented ease of
installation. Because the housing is designed to accommodate over 40
of Lightolier's existing Lytecaster reflector trims, Lytening is the
most versatile choice for residential and light commercial
downlighting. Lytening's various installation and lamping options
offer hundreds of lighting effects, from general lighting to wall
washing and accent lighting. To enhance its versatility even more, the
Lytening housing is dual-rated for use in both insulated and
non-insulated ceilings. For distributors, this extraordinary
flexibility means reduced inventory requirements; for contractors,
on-site logistics are greatly simplified.
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HIGHLIGHT NEW PRODUCT
- ---------------------
LYTENING(TM)
A REVOLUTION IN RECESSED DOWNLIGHTING In Genlyte's most significant product
launch of the year, LIGHTOLIER introduced Lytening, a new downlight housing that
vastly simplifies downlight installation while delivering superior performance
at a very competitive price.
The heart of the innovation lies in a unique mounting system, the
SwiveLock(TM), which enables a contractor to wire the housinG from below the
ceiling line, and then pivot it into position between the ceiling joists. This
feature eliminates the awkward job of wiring the housing in the cramped space
between the joists--resulting in huge time savings for contractors.
For Lightolier, known for leadership in innovative commercial and
residential lighting, Lytening marks an important expansion of its marketing
strategy to include the electrical contractor. The product's innovative,
patented design includes 10 "contractor friendly" installation and performance
features--the result of two years of research and development, and hundreds of
conversations with lighting contractors and distributors. Anything but a "me
too" product, Lytening advances the state of the art in residential downlight
installation.
Lytening demonstrates that even in a mature market like recessed
downlighting, dramatic innovations that truly respond to customers' needs will
open new doors to growth. Already a huge success for Lightolier and Genlyte, the
future of Lytening looks even brighter.
TELLING KEY CUSTOMERS ABOUT "THE WORLD'S BEST ENGINEERED DOWNLIGHT" WAS THE
THRUST OF A TWO-DAY LAUNCH EVENT HOSTED BY LIGHTOLIER. THE GUESTS, REPRESENTING
MORE THAN 75% OF LIGHTOLIER'S DISTRIBUTOR CHANNEL BUSINESS, WERE INTRODUCED TO
THE LYTENING PRODUCT IN A MULTI-MEDIA PRESENTATION AND A HANDS- ON INSTALLATION
TRAINING SESSION. THE LAUNCH WAS MADE UNDER THE HEADING OF "THE THIRD WAVE," THE
THIRD STAGE OF A MULTIYEAR PROGRAM THAT IS NOW FOCUSED ON ENHANCING CUSTOMER
SERVICE.
[PHOTO]
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HIGHLIGHT NEW PRODUCTS
- ----------------------
Innovation is a tradition at Genlyte. From the development of track lighting to
the first HID floodlight, to the first acrylic refractor globe for street
lighting, Genlyte companies have consistently been at the forefront. On these
pages you'll see a sampling of the year's new product highlights. These are just
a few of the hundreds of new products introduced in 1997 by Genlyte companies.
[PHOTO]
NEW "SOFT" FLUORESCENTS
The major trend in commercial fluorescent lighting is to bring together balanced
brightness and soft lighting effects with an architectural statement. CFI
FLUORESCENT of Canada--which has earned its reputation as a leader in
fluorescent lighting--is on the front wave of this trend with the Alter family
of soft lights. Alter Soft Lights are recessed indirect fluorescent luminaires
that blend high luminous efficacy with aesthetically pleasing soft lighting. By
eliminating shadows, glare and hot spots, Alter lights enhance the quality of
the visual environment while adding a feeling of spaciousness. CFI developed the
Alter product line in strategic alliance with Alter in France, demonstrating
another way Genlyte is filling gaps in our product lines and expanding our
markets.
KALEIDOSCOPE(TM) LUMINAIRES FROM EXCELINE ARE PERFECTLY SUITED TO THE
"TECHNO-STYLE" DECORS FOUND SO OFTEN TODAY IN RESTAURANTS AND SPECIALTY RETAIL
SPACES. THESE COLORFUL FIXTURES OFFER THE RUGGED AND DEPENDABLE DESIGN OF THE
WELL-KNOWN STONCO ROUGHLYTE(TM) VAPORTIGHT FIXTURE, BUT WITH A MORE REFINED
LOOK. THIS YEAR THE LINE WAS BROADENED WITH KALEIDOSHADES(TM), INTRODUCING AN
APPEALING NEW DESIGN FEATURE.
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[PHOTO]
LYTECOMMAND(TM)
[PHOTO]
Landscape lighting is no longer a matter of aesthetics alone--security and
safety have also become important issues. With the introduction of the
LyteCommand(TM) system, HADCO, a leader in outdoor street, area and landscape
lighting, has added a new dimension tO residential security. Consisting of a
command module, two motion sensors and two hand-held remote controls, the
LyteCommand uses infra red light to sense motion and radio frequency to signal
the command module that motion has been detected, triggering the lights. Among
the system's many distinctive features is a "panic button" on the hand-held
remote that overrides the control module to turn lights on instantly. In the
public domain, where vandalism can be an issue, Hadco has responded with the new
CL Bollards, which combine stylish design with vandal-proof durability.
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HIGHLIGHT
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[GRAPHIC]
IN THE HOME AUTOMATION MARKET, CONVENIENCE IS THE KEY, AND WITH GENLYTE'S NEW
LIGHTING INTERFACE, GETTING THE HOUSE READY TO "GO TO SLEEP" IS EVEN MORE
CONVENIENT. WITH A TOUCH OF A "GOOD NIGHT BUTTON" HOMEOWNERS CAN NOT ONLY ADJUST
THE THERMOSTAT, ARM THE ALARM SYSTEM AND SHUT DOWN THE HOME THEATER, BUT NOW
THEY CAN ALSO ADJUST THE LIGHTING SYSTEM TO THE DESIRED NIGHT SETTINGS.
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NEW TECHNOLOGIES
- ----------------
Electronic lighting controls are a fast-growing market for Genlyte as both
commercial and residential users seek new ways to integrate multiple systems,
increase energy efficiency and create flexible spaces with "multiple-scene"
lighting systems. Genlyte leads the way with its own research and development
for electronics--a commitment that is keeping us on the cutting edge of this
fast-changing, high-tech area.
New from LIGHTOLIER'S CONTROLS Division in 1997 is a computer interface
that enables a homeowner or commercial user to control lighting from their
central computer. With this RS-232/485 Interface, Lightolier's dimming systems
and whole house control systems (MultiSet, Compli Lytemode and Brilliance) can
be linked with security systems, HVAC control, audio visual, appliances, even
sprinklers. Genlyte is also in the vanguard with the "smart fixture" concept--
wireless controls that use radio signals to adjust lighting at the individual
fixture level. Imagine a future with precision light control, yet without
hardwiring of controls!
-------------------------------
HIGHLIGHT NEW DECORATIVE STYLES
-------------------------------
[PHOTO]
An architectural approach to lighting at the mirror, Alice is an elegant
surface-mounted bath fixture designed to look "built-in" rather than added on.
Featuring a choice of fluorescent or halogen sources, Alice provides glare-free,
shadow-free illumination for both sides of the face.
Decorative residential lighting is a fashion-driven business. For FORECAST,
which sells through lighting showrooms, and DIAMOND F, which sells through
do-it-yourself home centers, that means constantly refreshing and updating
product lines with new releases that capture the spirit of the times.
Strong in-house design and effective sourcing resulted in the introduction
of a wide array of new, high-style products at extremely competitive pricing.
One example--which capitalizes on the hot trend for weathered finishes--was the
release of an exclusive "silver rust" finish that was well received across the
country. Another trend is the rapid growth of energy-efficient decorative
lighting, and Genlyte companies are responding by expanding these "EnergySmart"
compact fluorescent lighting product lines.
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HIGHLIGHT EFFICIENCY
- --------------------
Genlyte's commitment to world-class manufacturing doesn't start and finish with
ISO certification. Our companies are living the commitment through a variety of
initiatives aimed at continuously improving our efficiency, productivity and
quality. From "Kaizen Blitzes" to re-engineering older plants, from new
facilities and advanced manufacturing equipment to innovative software, Genlyte
is investing in working smarter to better serve our customers.
KAIZEN IS A JAPANESE WORD THAT MEANS "CONTINUOUS IMPROVEMENT." THE KAIZEN BLITZ
IS A THREE-DAY FOCUSED ATTACK ON A SPECIFIC AREA BY A CROSS-FUNCTIONAL TEAM
DRAWN FROM BOTH INSIDE AND OUTSIDE THE CHOSEN WORK AREA.
[PHOTO]
KAIZEN BLITZ @ WIDE-LITE
Wide-Lite, known for its innovative, high-performance floodlighting
technologies, applied Kaizen Blitzes to several different product families with
extraordinary results, particularly for the Effex Area Luminaire, the newest
addition to Wide-Lite's Effex series of architectural lighting: assembly time
was virtually cut in half, square footage need for assembly was decreased by
20%, and there was a 125% increase in daily output capability, boosting our
ability to meet customer demand.
Effex Area Luminaires, the latest addition to WIDE-LITE'S Effex Series of
architectural lighting, offer more optical options than any other family of area
luminaires. Output and customer service benefited from the Kaizen Blitz.
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[PHOTO]
KAIZEN BLITZ!@STONCO
At Stonco, a Kaizen Blitz applied to the assembly process of the Multi-Bay
product family increased plant efficiency by an astonishing 16-18%, reducing
lead times and improving delivery to our customers.
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HIGHLIGHT
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[PHOTO]
CAMARGO, MEXICO
Genlyte's commitment to world-class manufacturing is demonstrated in all of our
companies, from older plants to our newest facility. At our newly expanded
Camargo facility, pictured above, all of the latest manufacturing techniques,
from cellular assembly to work teams, are in place. The banner displayed
captures the spirit of this team's Kaizen: "A Way to be better!" At CRESCENT, a
product representing 40% of the plant's volume was re-engineered to eliminate
linear assembly, replacing it with a multiple workstation system that easily
adapts to large runs or small.
KEENE-WIDELITE
POWERHOUSE
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EFFICIENCY
- ----------
Speed, cost-effectiveness and flexibility are critical to satisfying customers
and growing market share, and that's what drives CANLYTE'S commitment to
flexible manufacturing.
The focus on cost reduction begins while a product is still on the drawing
board. With the help of a recently adopted technology called Design for
Manufacturing and Assembly (DFMA), designers design products with manufacturing
processes and assembly in mind, resulting in fewer parts, reduced cycle times
and substantial cost savings. To take full advantage of DFMA, CFI Fluorescent
has invested in advanced sheet metal fabrication technology that not only makes
it possible to produce many kinds of parts on a cost-effective "just-in-time"
basis but also reduces labor and facilitates the use of robotic assembly. For
customers the benefit is clear: greater customization at a lower cost. These
important advances are already being adopted in the U.S. by Lightolier. At
Genlyte, strengths and innovations developed in one company are quickly shared.
[GRAPHIC]
DFMA was used to design the Radius Track head in an effort to design "the lowest
cost track head possible in Canada." The results: parts were reduced from 43 to
21, assembly time was practically cut in half, making it possible to double
daily output, and a 30% cost reduction was achieved!
[GRAPHIC]
CANADA
ASSEMBLY AREA
[GRAPHIC]
A look at KEENE-WIDELITE'S Powerhouse Assembly area shows the space-consuming,
physically demanding "spiderweb" of motion that existed pre-Kaizen. The diagram
at left reveals the impact of the Kaizen blitz, including improved ergonomics,
no bending, and minimal walking. The results: 73% decrease in travel, a 22%
decrease in hours per unit, and an overall reduction of assembly space by 39%!
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HIGHLIGHT CUSTOMER SERVICE
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VALUE-ADDED SERVICES Developing value-added services is another way Genlyte is
strengthening relationships with customers and distributors. In some cases, this
means putting new technologies to work. Lightolier's TECHEXPRESS is an advanced
resource for the lighting community, including a CD-ROM Specifier(TM) with
full-color product and application photos and a direct link to the Genesys(TM)
workstation, which helps lighting professionals by providing sophisticated
lighting calculation software to meet specification challenges for a wide range
of applications. LYTELINK is a new business planning software developed by
Canlyte for distributors. With LyteLink, distributors identify their objectives,
and then select from a menu of distributor support marketing tools grouped to
match specific objectives. This software clearly makes it easier for our
distributor partners to benefit from the training, displays, contractor programs
and end user programs created to support them.
[GRAPHIC]
SERVICE INITIATIVES
In the summer of 1997, LIGHTOLIER kicked off an innovative program called
"Yes We Can!" aimed at changing its internal attitude and approach to service.
Initial presentations were made to all Lightolier employees, and meetings were
held to generate ideas on how to improve service and establish a "yes we can"
working environment. After the ideas were compiled and prioritized, task forces
were formed to implement the best ones, and a new telephone greeting beginning
with the words "yes we can" was introduced at all facilities.
Just as Lightolier's success depends on every employee's participation, the
success of Genlyte's customer service initiative depends on each of our
companies' participation. To that end, every Genlyte company has developed its
own service program: Hadco's Seven Points of Light, Wide-Lite's Passion for
Performance, Canlyte's Journey to Excellence...Every program is reflective of
the individual company but moving toward Genlyte's overall customer service
goals.
ORDER PROCESSING AND WAREHOUSING Genlyte is using technology to make it easier
for customers to do business with us. The single most important development is
the advent of our new ORACLE software system, our first unified order processing
system. In the past, a customer who wanted to do business with several Genlyte
companies had to place orders through several separate systems. With Oracle, the
system is centralized and easy to use. Customers will experience a whole new
level of service as they take advantage of unparalleled access to product order
and inventory information. Eventually, Oracle will allow paperless transactions
through electronic order entry. Oracle is also significant, because its
implementation is a prerequisite to the totally revamped warehousing system
Genlyte is developing. Customers will be able to place a single order through
Oracle, and receive complete delivery from strategically located warehouses
carrying multiple Genlyte company product lines. This will save time and money
for our customers--making it easy indeed to do business with Genlyte.
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GENLYTE HAS EMBARKED ON A MULTIFACETED PROGRAM DEDICATED TO NOTHING LESS THAN A
COMPLETE OVERHAUL OF OUR APPROACH TO SERVICE. FUNDAMENTAL, COMPANY-WIDE CHANGES
ARE UNDERWAY--FROM TANGIBLE AREAS LIKE ORDER PROCESSING AND WAREHOUSING SYSTEMS,
TO THAT INTANGIBLE BUT VITAL ELEMENT CALLED ATTITUDE. OUR GOAL IS AMBITIOUS BUT
REALIZABLE: TO MAKE SERVICE A REASON TO BUY FROM GENLYTE, AND TO SIGNIFICANTLY
GROW OUR BUSINESS.
[PHOTO]
Listening to our customers and responding with products and value-added services
was the driving force behind STONCO'S expansion of its over-the-counter product
line. To help their electrical distributor customers compete more effectively
against do-it-yourself stores for contractors' business, Stonco broadened its
line of low-wattage quartz fixtures, motion sensors and dusk-to-dawn lights and
created colorful merchandisable packaging geared for contractor "pick up"
business. In a market where distributors are seeking to reduce their supplier
base, this kind of responsiveness has served to strengthen Stonco's
relationships with these valued customers.
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SELECTED FINANCIAL DATA
- -----------------------
GENLYTE GROUP INCORPORATED & SUBSIDIARIES
AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA 1997 1996 1995 1994 1993
- ---------------------
SUMMARY OF OPERATIONS
- ---------------------
Net sales $487,961 456,860 445,660 432,690 429,143
Gross profit $169,405 154,722 138,120 128,720 127,735
Operating profit $ 37,621 28,448 21,955 14,659 14,256
Interest expense, net $ 4,085 5,649 7,986 7,505 8,086
Income before income taxes $ 33,536 22,799 13,969 7,154 6,170
Income tax provision $ 14,423 9,802 6,060 2,937 2,697
Net income $ 19,113 12,997 7,909 4,217 3,473
Return on:
Net sales 3.9% 2.8% 1.8% 1.0% 0.8%
Average stockholders' investment 20.4% 16.9% 12.1% 7.1% 6.1%
Average capital employed 14.6% 9.9% 5.5% 2.7% 2.1%
- -----------------
YEAR END POSITION
- -----------------
Working capital $ 81,961 71,366 75,719 86,714 83,039
Plant and equipment, net $ 59,618 60,380 64,149 68,895 73,633
Total assets $254,028 238,115 231,034 240,178 241,762
Capital employed:
Total debt $ 32,785 41,847 67,132 90,047 100,419
Stockholders' investment $103,729 83,783 69,900 61,170 58,068
--------------------------------------------------------
Total capital employed $136,514 125,630 137,032 151,217 158,487
--------------------------------------------------------
- --------------
PER SHARE DATA
- --------------
Net income:
Basic $ 1.46 1.01 0.62 0.33 0.27
Diluted $ 1.42 1.00 0.62 0.33 0.27
Stockholders' investment per average
share outstanding $ 7.72 6.42 5.46 4.77 4.53
Market range:
High $ 21 3/8 14 8 5 1/2 7
Low $ 9 7/8 6 4 3 1/2 2 3/8
--------------------------------------------------------
- ----------
OTHER DATA
- ----------
Orders on hand $ 54,206 42,247 51,093 50,379 43,246
Depreciation and amortization $ 12,156 14,550 15,657 16,886 16,308
Capital expenditures, net $ 11,597 10,405 10,232 11,884 10,261
Average shares outstanding(a) 13,436 13,055 12,804 12,834 12,807
--------------------------------------------------------
Current ratio 1.9 1.8 2.0 2.2 2.2
Interest coverage ratio 9.2 5.0 2.7 2.0 1.8
Debt to total capital employed 24.0% 33.3% 49.0% 59.5% 63.4%
Number of stockholders 1,567 1,705 1,865 1,970 2,153
Average number of employees 2,767 2,581 2,657 2,838 2,999
Average sales per employee $176,350 177,009 167,731 152,463 143,095
--------------------------------------------------------
(a) Including incremental common shares issuable under stock option plans
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MANAGEMENT'S DISCUSSION AND ANALYSIS
- ------------------------------------
GENLYTE GROUP INCORPORATED & SUBSIDIARIES
- ---------------------
RESULTS OF OPERATIONS
- ---------------------
NET SALES Net sales for 1997 were $488.0 million, a $31.1 million, or 6.8
percent increase from 1996, following an $11.2 million, or 2.5 percent increase
from 1995 to 1996. For both years, new product introductions made significant
contributions to growth; in 1997, the introduction of a patented product called
Lytening(TM) was particularly important. Most of Genlyte's products are used in
commercial and industrial applications, so the strength in those markets, as
measured by the volume of new construction, aided the Company's growth. Domestic
net sales have continued growing from $381.5 million in 1995 to $396.4 million
in 1996 and to $423.2 million in 1997. After a decrease in net foreign sales,
principally in Canada, from $64.2 million in 1995 to $60.4 million in 1996, net
foreign sales rebounded to $64.8 million in 1997. The Canadian dollar has
steadily declined since early 1996, causing a 2.5% decline in sales reported in
U.S. dollars.
GROSS PROFIT/COST OF SALES Gross profit increased to $169.4 million in 1997 from
$154.7 million in 1996, a 9.5 percent increase following a $16.6 million, or
12.0 percent growth in gross profit from 1995 to 1996. Cost of sales continued
to decrease from 69.0 percent of sales in 1995 to 66.1 percent in 1996 to 65.3
percent in 1997. These trends are a result of the elimination of excess capacity
(two facilities were closed in each year), ongoing productivity improvements,
and the elimination of low margin products.
SELLING AND ADMINISTRATIVE Selling and administrative (S & A) expenses as a
percentage of sales decreased to 27.0 percent in 1997 from 27.6 in 1996 after
increasing from 26.1 percent in 1995. In 1996, Genlyte initiated a television
campaign designed to increase brand recognition of the Lightolier product line;
cost of this campaign contributed to the increase from 1995 to 1996. During both
years, S & A expense declined as a percentage of sales for two reasons: (1)
existing levels of fixed S & A costs were adequate to support increasing sales
and (2) facility closings reduced some variable and fixed S & A costs. These
declines were partially offset by increased research and development spending in
an effort to develop a steady flow of innovative products.
NET INTEREST EXPENSE Net interest expense amounted to $4.1 million, representing
a decrease of $1.6 million, or 27.7 percent, from 1996. This follows a decrease
in net interest expense of $2.3 million or 29.3% from 1995. These decreases were
attributable to lower average borrowings, plus a steady decrease in the
Company's average borrowing costs during both years. The favorable impact of a
net pay down in debt since 1995 of approximately $34.3 million will continue
into 1998.
TAXES ON INCOME The effective rate was approximately 43.0% in 1997, 1996 and
1995.
- -------------------
FINANCIAL CONDITION
- -------------------
LIQUIDITY AND CAPITAL RESOURCES The Company's financial position continues
to remain strong. Cash and cash equivalents totaled $1.7 million at December 31,
1997, compared to $2.9 million and $0.3 million at December 31, 1996 and 1995,
respectively. The Company had working capital of $82.0 million at December 31,
1997. The primary source of cash in 1997 consisted of funds provided by
operating activities of $18.6 million. The primary uses of cash in 1997
consisted of capital expenditures of $11.6 million, and repayment of debt of
$9.1 million.
The Company's ratio of total debt to total capitalization was 24.0 percent,
33.3 percent and 49.0 percent at December 31, 1997, 1996 and 1995, respectively,
with total capitalization defined as total debt plus total stockholders'
investment. The decrease in the Company's total debt is a direct result of
generating significant internal funds.
Management believes that currently available cash, borrowing facilities,
and its ability to increase its credit line if needed, combined with internally
generated funds should be sufficient to fund capital expenditures as well as any
increase in working capital that would be required to accommodate a higher level
of business activity.
The Company is in the process of conducting a comprehensive review of its
computer systems to identify those systems that may be unable to process data
accurately beyond the year 1999. A plan has been implemented whereby identified
systems will either be replaced or modified over the next eighteen months.
Management believes the execution of this plan will not cause significant
disruptions in the Company's operations and will principally involve costs which
would have been incurred for hardware and software replacement in the ordinary
course of business. The execution of this plan will not have a material effect
on the Company's results of operations.
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- ---------------------------------
CONSOLIDATED STATEMENTS OF INCOME
- ---------------------------------
GENLYTE GROUP INCORPORATED & SUBSIDIARIES
AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA
--------
FOR THE YEAR ENED DECEMBER 31. 1997 1996 1995
- ---------------------
SUMMARY OF OPERATIONS
- ---------------------
Net Sales $487,961 $456,860 $445,660
Cost of Sales 318,556 302,138 307,540
------------------------------
Gross Profit 169,405 154,722 138,120
Selling and administative expenses 131,784 126,274 116,165
------------------------------
Operating Profit 37,621 28,448 21,955
Interest expense, net 4,085 5,649 7,986
------------------------------
Income Before Income Taxes 33,536 22,799 13,969
Income tax provision 14,423 9,802 6,060
------------------------------
Net Income $ 19,113 $ 12,997 $ 7,909
------------------------------
Earnings Per Share:
Basic $ 1.46 $ 1.01 $ 0.62
Diluted $ 1.42 $ 1.00 $ 0.62
--------
The accompanying notes are an integral part of these consolidated finacial
statements.
- ------------------------------------------
QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
- ------------------------------------------
GENLYTE GROUP INCORPORATED & SUBSIDIARIES
AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA
--------------------------------------------------------------------
Quarter
1997 1st 2nd 3rd 4th Full Year
Net Sales $113,298 $120,700 $123,981 $129,982 $487,961
Operating Profit 7,104 9,386 9,718 11,413 37,621
Net Income 3,494 4,689 4,927 6,003 19,113
Earnings per Share:
Basic 0.27 0.36 0.38 0.45 1.46
Diluted 0.26 0.35 0.37 0.44 1.42
Market Price:
High 14 1/4 14 1/8 19 5/8 21 3/8 21 3/8
Low 9 7/8 10 1/8 12 5/8 15 1/2 9 7/8
--------------------------------------------------------------------
1996 1st 2nd 3rd 4th Full Year
Net Sales $108,662 $112,440 $116,036 $119,722 $456,860
Operating Profit 5,576 6,373 7,385 9,114 28,448
Net Income 2,293 2,751 3,436 4,517 12,997
Earnings per Share:
Basic 0.18 0.21 0.26 0.36 1.01
Diluted 0.18 0.21 0.26 0.35 1.00
Market Price:
High 8 1/4 8 9 7/8 14 14
Low 6 3/16 7 1/4 6 8 3/4 6
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- ---------------------------
CONSOLIDATED BALANCE SHEETS
- ---------------------------
GENLYTE GROUP INCORPORATED & SUBSIDIARIES
AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA
AS OF DECEMBER 31, 1997 1996
- ------
ASSETS
- ------
CURRENT ASSETS:
Cash and cash equivalents $ 1,654 $ 2,895
Accounts receivable (less allowances for doubtful accounts
of $6,864 and $8,222, respectively) 73,220 65,036
Inventories:
Raw materials and supplies 32,324 31,798
Work in progress 5,613 6,429
Finished goods 42,910 42,772
------------------------
80,847 80,999
Other current assets 18,385 14,909
------------------------
Total current assets 174,106 163,839
Plant and Equipment:
Land 4,286 4,969
Buildings and leasehold interests and improvements 55,570 54,205
Machinery and equipment 153,285 152,175
------------------------
213,141 211,349
Less: Accumulated depreciation and amortization 153,523 150,969
------------------------
59,618 60,380
Cost in Excess of Net Assets of Purchased Businesses 12,434 11,755
Other Assets 7,870 2,141
------------------------
Total Assets $254,028 $238,115
------------------------
- ----------------------------------------
LIABILITIES AND STOCKHOLDERS' INVESTMENT
- ----------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 49,433 $ 44,440
Accrued expenses:
Salaries and wages 9,933 8,863
Income taxes payable 866 6,963
Other accrued expenses 31,913 32,207
------------------------
42,712 48,033
------------------------
Total current liabilities 92,145 92,473
Long-term Debt 32,785 41,847
Deferred Income Taxes 6,828 3,368
Other Liabilities 18,541 16,644
Stockholders' Investment
Common stock ($.01 par value, 30,000,000 shares authorized;
13,502,090 and 13,092,900 shares issued, respectively;
13,389,313 and 12,990,782 shares outstanding, respectively) 135 131
Additional paid-in capital 9,828 8,999
Retained earnings 93,766 74,653
------------------------
Total stockholders' investment 103,729 83,783
------------------------
Total Liabilities and Stockholders' Investment $254,028 $238,115
------------------------
The accompanying notes are an integral part of these consolidated financial
statements.
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- ------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOW
- ------------------------------------
GENLYTE GROUP INCORPORATED & SUBSIDIARIES
AMOUNTS IN THOUSANDS FOR THE YEAR ENDED DECEMBER 31. 1997 1996 1995
- ------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES: $ 19,113 $ 12,997 $ 7,909
- ------------------------------------
Net Income
Adjustments to reconcile net income to net cash flows
provided by operating activities:
Depreciation and amortization 12,156 14,550 15,657
(Loss) gain from disposal of plant and equipment (237) 41 (61)
(Increase decrease in:
Accounts receivable (8,184) (3,012) 3,462
Inventories 152 (4,778) 2,522
Other current assets (3,476) (2,359) (2,687)
Other assets (6,408) 1,423 (2,500)
Increase (decrease) in:
Accounts payable and accrued expenses (328) 18,419 4,480
Deferred income tax liabilities 3,460 (1,294) (1,119)
Other liabilities 1,897 1,357 1,630
All other, net 440 91 (291)
--------------------------------
Net cash flows provided by operating activities 18,585 37,435 29,002
--------------------------------
- ------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
- ------------------------------------
Purchase of plant and equiptment, net (11,597) (10,405) (10,232)
--------------------------------
Net cash flows used in investing activities (11,597) (10,405) (10,232)
--------------------------------
- ------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
- ------------------------------------
Proceeds from issuance of common stock 1,770 994 255
Repayment of debt, net (9,062) (25,284) (22,866)
--------------------------------
Net cash flows used in financial activities (7,292) (24,290) (22,611)
--------------------------------
- -------------------------------
EFFECT OF EXCHANGE RATE CHANGES: (937) (108) 864
- ------------------------------- --------------------------------
Net (decrease) increase in cash and cash equivalents (1,241) 2,632 (2,977)
Cash and cash equivalents at beginning of each year 2,895 263 3,240
--------------------------------
Cash and cash equivalents at end of year $ 1,654 $ 2,895 $ 263
--------------------------------
- ------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
- ------------------------------------------------
CASH PAID DURING THE YEAR FOR:
Interest $ 3,256 $ 5,286 $ 7,355
--------------------------------
Income taxes $ 20,350 $ 9,853 $ 6,043
--------------------------------
The accompanying notes are an integral part of these consolidated financial
statements.
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- ---------------------------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT
- ---------------------------------------------------
GENLYTE GROUP INCORPORATED & SUBSIDIARIES
AMOUNTS IN THOUSANDS Common Additional Retained
Stock Paid-in Capital Earnings
- --------------------------
BALANCE, DECEMBER 31, 1994 $128 $7,295 $53,747
- -------------------------- -----------------------------------
Net income - - 7,909
Foreign currency translation adjustments - 566 -
Exercise of stock options 1 254 -
- --------------------------
BALANCE, DECEMBER 31, 1995 $129 $8,115 $61,656
- -------------------------- -----------------------------------
Net income - - 12,997
Foreign currency translation adjustments - (108) -
Exercise of stock options 2 992 -
- --------------------------
BALANCE, DECEMBER 31, 1996 $131 $8,999 $74,653
- -------------------------- -----------------------------------
Net Income - - 19,113
Foreign currency translation adjustments - (937) -
Exercise of stock options 4 1,766 -
- --------------------------
BALANCE, DECEMBER 31, 1997 $135 $9,828 $93,766
- -------------------------- -----------------------------------
The accompanying notes are an integral part of these consolidated financial
statements.
- ----------------------------------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- ----------------------------------------
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,
1997 and 1996, and the related consolidated statements of income, stockholders'
investment and cash flows for each of the three years in the period ended
December 31, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
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 audit provides 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, 1997 and 1996, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1997, in conformity with generally accepted accounting
principles.
/s/ Arthur Andersen LLP
- -----------------------
Arthur Andersen LLP
New York, New York, January 21, 1998
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- ------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA
- --------------------------
1 DESCRIPTION OF BUSINESS
- --------------------------
The Genlyte Group Incorporated ("Genlyte" or the "Company") is a United States
based multinational corporation. Genlyte designs, manufactures and sells
lighting fixtures and controls for a wide variety of applications in the
commercial, industrial and residential markets. Genlyte's products are marketed
primarily to distributors who resell the products for use in residential,
commercial and industrial construction and remodeling.
- ---------------------------------------------
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------
PRINCIPLES OF CONSOLIDATION: The accompanying consolidated financial statements
include the accounts of Genlyte after elimination of all material intercompany
accounts and transactions.
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.
CASH EQUIVALENTS: The Company considers all highly liquid debt instruments
purchased 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. During the third quarter of 1996, the Company
changed its method of accounting for certain inventories from the last-in,
first-out ("LIFO") method of accounting to the first-in, first-out ("FIFO")
method. This change, applied through the retroactive restatement of all prior
period financial statements, was made for the following reasons: (1) to improve
the measurement of operating results in light of reduced inflation rates; (2) to
enhance the comparability of the Company's financial statements by changing to
the predominant method utilized in the industry; and (3) to allow the Company to
reduce the costs incurred in administering the existing LIFO system. Although
this change in method did not affect net income in 1996, it decreased net income
by $421, or 3 cents per share in 1995.
PLANT AND EQUIPMENT: The Company provides for depreciation of plant and
equipment principally on a straight line basis over the useful lives of the
assets. Useful lives vary among the several classifications, as well as among
the constituent items in each classification, but generally 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 property, the asset cost
and accumulated depreciation are removed from the accounts and any resulting
gain or loss is included in the Consolidated Statement 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 PURCHASED BUSINESSES: Cost in excess of net
assets of purchased 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
$10,516, is being amortized over periods ranging from 20 to 40 years. For the
years ended december 31, 1997 and 1996, accumulated amortization was $3,262 and
$2,969, respectively.
The Company periodically evaluates its intangibles to assess recoverability
from future operations using discounted cash flows. Impairment would be
recognized in operating results if a permanent diminution in value occurred.
RESEARCH AND DEVELOPMENT COSTS: Research and development costs are expensed
as incurred. These expenses were $5,195 in 1997, $4,475 in 1996 and $2,551 in
1995.
TRANSLATION OF FOREIGN CURRENCIES: Balance sheet accounts of foreign
subsidiaries are translated at the rates of exchange in effect as of the balance
sheet date. The cumulative effects of such adjustments were $3,063 and $2,126 at
December 31, 1997 and 1996, respectively, and have been charged to the
Additional Paid-in-Capital account in 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 amount of cash
equivalents, letters of credit, and long-term debt approximate fair value.
- ----------------------------
3 EARNINGS PER COMMON SHARE
- ----------------------------
During the fourth quarter of 1997, the Company 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
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dilution of outstanding stock options and is consistent with the Company's
historical presentation.
1997 1996 1995
------------------------------
Average common shares
outstanding 13,127 12,859 12,732
Incremental common shares issuable:
Stock option plans 309 196 72
------------------------------
Average common shares
outstanding assuming dilution 13,436 13,055 12,804
------------------------------
- ---------------
4 INCOME TAXES
- ---------------
The components of income before income taxes and the provisions for income taxes
are as follows:
1997 1996 1995
--------------------------------
Income Before Income Taxes:
Domestic $ 29,771 $ 19,277 $ 10,992
Foreign 3,765 3,522 2,977
--------------------------------
$ 33,536 $ 22,799 $ 13,969
--------------------------------
Provision for Income Taxes:
Domestic:
Currently Payable $ 16,427 $ 11,332 $ 7,787
Deferred (3,411) (2,857) (2,982)
Foreign:
Currently Payable 1,538 1,475 1,230
Deferred (131) (148) 25
--------------------------------
$ 14,423 $ 9,802 $ 6,060
--------------------------------
Undistributed earnings of non-US subsidiaries included in consolidated
retained earnings amounted to $17,261 at December 31, 1997. These earnings,
which reflected full provision for non-US income taxes, are indefinitely
reinvested in non-US 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. The provision for income taxes
includes a deferred component that arose from the recording of certain items in
different periods for financial reporting and income tax purposes. The sources
of the domestic differences and the related tax effect are as follows:
1997 1996 1995
-------------------------------
Depreciation $(1,308) $(1,083) $(1,344)
Inventory Valuation (1,779) 410 (134)
Facility Rationalization Reserve - - 386
Pension Accruals (293) (118) (2)
Bad Debt Reserve 622 (1,259) (733)
Other Accruals/Reserves (1,046) (850) (1,201)
Intangibles Amortization 393 43 46
-------------------------------
Total Domestic Deferred
Tax Benefit $(3,411) $(2,857) $(2,982)
-------------------------------
In 1997, 1996 and 1995, the Company's effective tax rate was 43% of income
before income taxes. An analysis of the differences between the actual provision
for income taxes and the provision at the U.S. Federal statutory tax rate
follows:
1997 1996 1995
-----------------------------
Statutory Federal Rate $11,738 $7,979 $4,890
State & Local Taxes,
Net of Federal Tax Benefit 1,760 1,334 899
Other, Net 925 489 271
-----------------------------
Total Provision for Income Taxes $14,423 $9,802 $6,060
-----------------------------
The Company is currently being audited by the Internal Revenue Service and
certain state and local authorities for tax years 1993, 1994 and 1995. While
such audits have not been finalized, the Company believes it has adequately
provided for any additional taxes that may result.
- -----------------
5 LONG-TERM DEBT
- -----------------
Long-term debt consists of the following:
1997 1996
-----------------------------
Revolving Credit Notes $22,000 $31,000
Industrial Revenue Bonds 10,500 10,500
Other 343 398
-----------------------------
$32,843 $41,898
Less: Current Maturities 58 51
-----------------------------
Total $32,785 $41,847
-----------------------------
The Company maintains a revolving credit facility (the "Facility") of
$110,000 which reduces to $70,000 by 2000. Total borrowings under the Facility
as of December 31, 1997 and 1996 were $22,000 and $31,000, respectively. In
addition, the Company has issued approximately $19,000 of letters of credit
which reduce the amount available to borrow under the Facility. The interest
rate on amounts borrowed under the Facility is a floating rate related to, at
the option of the Company, either (1) a reference rate determined by the agent
bank plus a fixed spread, or (2) the London Interbank Offered Rate (LIBOR) plus
a fixed spread. The Company pays a commitment fee on the unused portion of the
Facility.
The amount outstanding under the Facility is secured by liens on domestic
accounts receivable, inventories and machinery and equipment, as well as the
investments in certain subsidiaries of the Company. The assets subject to lien
at December 31, 1997 was $164,476.
The terms of the Facility include various covenants that, among others,
limit the amounts that can be expended for cash dividends and purchases of
Company stock. No dividends were paid in 1997 or 1996. At December 31, 1997 and
1996 the Company was in compliance with all provisions of the Facility. The
Company expects that funds generated from operations combined with amounts
available under the Facility will fulfill anticipated cash requirements for the
Company through 1998.
The Company has $10,500 of variable rate demand Industrial Revenue Bonds
comprised of three issues of $5,000, $4,500 and $1,000 payable in 2010, 2009 and
2009, respectively. During 1997, the average interest rate on these bonds was
4.00%. The bonds are backed by a bank's letter of credit for the lives of the
bonds to guarantee payment of the bonds on the Company's behalf. The letter of
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credit is subject to annual renewals by the bank. The bonds are also secured by
liens on the related facilities and equipment. The Company has mortgages and
other debt at interest rates of 4.8% to 9.1% due from 1998 through 2002. The
annual maturities of long-term debt are summarized as follows:
Year Ending December 31
- -------------------------------------------------------------------------------
1999 $ 143
2000 22,054
2001 0
2002 88
Thereafter 10,500
- -------------------------------------------------------------------------------
Total Long-Term Debt $32,785
- -------------------------------------------------------------------------------
- ----------------
6 STOCK OPTIONS
- ----------------
The Genlyte 1988 Stock Option Plan (the "Plan") was established in 1988 for the
benefit of key employees and directors of Genlyte. 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 greater of 1,000,000 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.
Two types of options have been issued to key employees under the Plan:
merit options which are exercisable at the rate of 50% per year commencing two
years after the date of the grant and performance options which were granted as
incentives to certain key employees for obtaining specific financial goals.
Transactions under the Plan are summarized below:
Option or Exercise Price per Share
----------------------------------
Weighted
Shares Low High Average
- --------------------------------------------------------------------
Outstanding, December 31, 1994
1,013,383 4.53 8.75 5.02
Granted 337,067 4.88 7.63 6.99
Exercised (52,985) 4.53 5.50 4.81
Canceled (218,750) 4.53 8.75 5.38
Outstanding, December 31, 1995
1,078,715 4.53 7.63 5.58
Granted 211,750 7.50 10.25 8.44
Exercised (208,741) 4.53 7.00 4.80
Canceled (59,751) 4.53 8.00 5.48
Outstanding, December 31, 1996
1,021,973 4.53 10.25 6.33
Granted 179,000 11.50 18.00 16.71
Exercised (396,031) 4.53 7.63 5.07
Canceled (93,992) 4.53 14.50 6.54
Outstanding, December 31, 1997
710,950 4.56 18.00 9.63
Exercisable, December 31, 1997
203,450 4.56 7.63 6.31
- --------------------------------------------------------------------
The weighted average fair values of options granted in 1997 and 1996 were
$7.42 and $4.12, respectively. The options outstanding at December 31, 1997 have
a weighted average remaining contractual life of 3.36 years.
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 Standard 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
as follows:
1997 1996
- ------------------------------------------------------------------------
Net Income As Reported $19,113 $12,997
Pro Forma $18,610 $12,658
EPS As Reported $ 1.42 $ 1.00
Pro Forma $ 1.38 $ 0.97
- ------------------------------------------------------------------------
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.
The fair value of an option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following assumptions: weighted
average risk-free interest rates of 5.89 and 6.34 percent in 1997 and 1996,
respectively; no dividend payments; expected option lives of 5 years in 1997 and
1996; and expected volatility of 45.8 percent in 1997 and 1996 for the Company's
common stock.
- ----------------------------------
7 PREFERRED STOCK PURCHASE RIGHTS
- ----------------------------------
In August 1989, the Company declared a dividend of one preferred stock
purchase right on each share of the Company's common stock. Under certain
conditions, each right may be exercised to purchase one one-hundredth share of a
new series of junior participating cumulative preferred stock at an exercise
price of $75.00 per share. The right may only be exercised within ten (10)
business days after a person or group of persons (the "Holder") acquire, or
commence a tender offer to acquire, 20% or more of Genlyte's outstanding common
stock, or upon declaration by the Board of Directors. Upon the acquisition by
the Holder of 20% or more of the Company's outstanding common stock, each right
would represent the right to purchase, for $75.00, shares of the Company's
common stock with a market value of $150.00. The rights may be redeemed by the
Company at a price of $.01 per right and can be amended by the Company's
Directors during the 10 day period prior to the exercise date. These rights
expire in 1999.
The preferred stock purchased upon exercise of the rights will be entitled
to a minimum annual preferential dividend of $1.00 and a minimum liquidation
payment of $1.00 per one-hundredth share of preferred stock. If the Company were
to enter into certain business combination or disposition transactions with the
Holder, each right would also be entitled to purchase, for $75.00, shares of the
Holder's common stock with a market value of $150.00.
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8 PENSION PLAN
- ---------------
The Company has five pension plans, which cover the majority of its
employees. The Genlyte Corporation Retirement Plan is the Company's principal
retirement plan and covers most of the employees of the Company. Benefits under
that plan are based on years of service and highest average compensation during
any five consecutive years within the last ten years of employment. The
Company's pension plan assets consist primarily of publicly traded equity or
debt securities. Pension costs under the Company's retirement plans are
actuarially computed. Annual contributions are made to the plans in amounts
approximately equal to the pension cost expensed in the consolidated statements
of income.
The Company's pension cost for 1997, 1996 and 1995 consists of the
following:
1997 1996 1995
-------------------------
Service cost benefits earned during the year $ 1,483 $1,278 $1,147
Interest cost on benefits earned in prior years 3,633 3,358 3,265
Actual return on plan assets (7,527) (3,991) (5,938)
Deferred gain 4,631 1,329 3,585
Amortization of transition amounts 448 442 428
-------------------------
Net pension cost $ 2,668 $2,416 $2,487
-------------------------
At December 31, 1997, the Genlyte Corporation Retirement Plan had plan
assets which exceeded accumulated benefit obligations while the remaining plans
had accumulated benefit obligations which exceeded plan assets. At December 31,
1996, all of the Company's pension plans had accumulated benefit obligations
that exceeded plan assets. The following tables summarize the funded status of
the Company's pension plans and the related amounts that are recognized as
liabilities in the consolidated balance sheet:
Accumulated Benefits Exceed Assets
----------------------------------
1997 1996
--------------------
Actuarial present value of benefit obligations:
Vested benefit obligation $ 10,909 $ 42,061
Non-vested benefit obligation 845 552
--------------------
Accumulated benefit obligation 11,754 42,613
Effect of estimated future increases
in compensation 137 4,048
--------------------
Projected benefit obligation 11,891 46,661
Plan assets at fair value 7,387 40,622
--------------------
Projected benefit obligation in excess of plan assets 4,504 6,039
Unrecognized net obligation at adoption (209) (737)
Unrecognized net benefit since adoption 520 7,615
Unrecognized prior service cost (1,478) (2,109)
--------------------
Accrued pension liability as of December 31 $ 3,337 $ 10,808
--------------------
Assets Exceed Accumulated Benefits
----------------------------------
1997
--------
Actuarial present value of benefit obligations:
Vested benefit obligation $ 35,399
Non-vested benefit obligation 1,120
--------
Accumulated benefit obligation 36,519
Effect of estimated future increases
in compensation 4,109
--------
Projected benefit obligation 40,628
Plan assets at fair value 42,070
--------
Projected benefit obligation less plan assets (1,442)
Unrecognized net obligation at adoption (350)
Unrecognized net benefit since adoption 10,547
Unrecognized prior service cost (865)
--------
Accrued pension liability as of December 31 $ 7,890
--------
The discount rates and rates of increase in future compensation levels used
in determining the actuarial present value of the liabilities recognized on the
consolidated balance sheet were 7.50% and 5.0%, respectively, at September 30,
1997 and 7.75% and 5.0%, respectively, at September 30, 1996. The expected
long-term rate of return on plan assets was 8.5% at September 30, 1997 and 9.0%
at September 30, 1996.
The Company has a number of plans for hourly personnel, including union
(single or multi-employer) pension plans, for which the Company's obligation is
a defined contribution amount. The basis for the contribution includes union
contract amounts, usually based on an amount per hour worked, and percentages of
employee contributions. Expenses recorded under these plans were $211, $344 and
$355 in 1997, 1996 and 1995, respectively.
Genlyte also maintains four defined benefit plans covering substantially
all of the employees of its Canadian subsidiary. Net pension costs for these
plans included the following:
1997 1996 1995
-----------------------
Service cost benefits earned during the year $ 142 $ 145 $ 121
Interest cost on benefits earned in prior years 300 264 246
Actual return on plan assets (751) (706) (183)
Deferred gain (loss) 387 394 (81)
Amortization of transition amounts (6) (3) (3)
-----------------------
Net Pension Cost $ 72 $ 94 $ 100
-----------------------
The funded status of these plans are as follows:
1997 1996
---------------
Actuarial present value of benefits obligations:
Vested benefit obligation $3,322 $3,060
Non-vested benefit obligation 61 50
----------------
Accumulated benefit obligation 3,383 3,110
Effect of estimated future increases in compensation3 367 449
----------------
Projected benefit obligation 3,750 3,559
Plan assets at fair value 4,737 4,219
----------------
Projected benefit obligation less plan assets (987) (660)
Unrecognized net obligation at adoption 40 46
Unrecognized net benefit since adoption 474 227
----------------
Prepaid pension cost as of December 31 $ (473) $ (387)
----------------
The discount rates and rate of increase in future compensation levels used
in determining the actuarial present value of the projected benefit obligations
were both 8%, at December 31, 1997 and 1996. The expected long-term rate of
return on assets was 8% at both December 31, 1997 and 1996.
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9 LEASE COMMITMENTS
- --------------------
The Company rents office space, equipment and computers under noncancellable
operating leases. Rental expense during 1997, 1996 and 1995 amounted to $2,903,
$2,446 and $4,127, respectively. Future required minimum rental payments as of
December 31, 1997 were as follows:
1998 $ 3,542
1999 2,713
2000 1,936
2001 1,428
2002 648
Thereafter 1,354
- --------------------------------------------------------------------------------
Total $11,621
- --------------------------------------------------------------------------------
- ----------------
10 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 are substantially the same as
were brought against Genlyte in the U.S. District Court in New York in August
1993, which have been permanently enjoined from proceedings as a result of
Keene's reorganization plan. The new 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 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. 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.
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. Genlyte and other defendants filed motions to dismiss the complaint and
motions for summary judgment on statute of limitations grounds on September 15,
1997, which were fully briefed and presented to the Court on December 15, 1997.
Oral argument was conducted on the summary judgment motion on February 13, 1998
and Genlyte is awaiting decisions of the Court on the other motions. Discovery
has been stayed until March 27, 1998. 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
environment laws including the Federal Comprehensive Environmental Response
Compensation and Liability Act, as amended ("Superfund"). Such actions include,
but are not limited to, the Keystone Sanitation Landfill site located in
Pennsylvania, in which the United States Environmental Protection Agency has
sought remedial action and reimbursement for past costs.
Management does not believe that the disposition of the lawsuits and/or
proceedings will have a material effect on the Company's financial condition or
results of operations.
- ---------------------------
11 GEOGRAPHICAL INFORMATION
- ---------------------------
The Company has operations throughout North America. Information about the
Company's operations by geographical area for the years ended December 31, 1997,
1996 and 1995, is as follows:
Net Sales Operating Profit Assets
----------------------------------------
1997
United States $423,185 $33,837 $224,969
Foreign 64,776 3,784 29,059
----------------------------------------
Total $487,961 $37,621 $254,028
1996
United States $396,444 $25,139 $206,829
Foreign 60,416 3,309 31,286
----------------------------------------
Total $456,860 $28,448 $238,115
1995
United States $381,489 $18,960 $199,849
Foreign 64,171 2,995 31,185
----------------------------------------
Total $445,660 $21,955 $231,034
----------------------------------------
- -----------------------
STOCKHOLDER INFORMATION
- -----------------------
CORPORATE OFFICES
2345 Vauxhall Road, P.O. Box 3148, Union, NJ 07083-1948
INVESTOR RELATIONS
Information and Form 10-K Please call or write
the Investor Relations Department
at (908) 810-4518
STOCK LISTING Genlyte common stock is traded on the NASDAQ
National Market System under the symbol GLYT
TRANSFER AGENT
Bank of New York, 101 Barclay Street, New York, NY 10286
(800) 524-4458
e-mail: Shareowner-svcs@bankofny.com
http://www.stock.bankofny.com
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP, 1345 Avenue of the Americas
New York, NY 10105
ANNUAL MEETING
The Annual Stockholders' Meeting will be held at
1345 Avenue of
the Americas, 3rd floor, New York, NY on April 23, 1998
P
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- ------------------
BOARD OF DIRECTORS
- ------------------
[PHOTO]
GLENN W. BAILEY
DIRECTOR
[PHOTO]
ROBERT B. CADWALLADER
DIRECTOR
[PHOTO]
AVRUM I. DRAZIN*
CHAIRMAN
[PHOTO]
DAVID M. ENGELMAN
DIRECTOR
[PHOTO]
FRED HELLER
DIRECTOR & CHAIRMAN EMERITUS
[PHOTO]
FRANK METZGER
DIRECTOR
[PHOTO]
LARRY K. POWERS*
PRESIDENT &
CHIEF EXECUTIVE OFFICER
- -------------------
EXECUTIVE COMMITTEE
- -------------------
[PHOTO]
NEIL M. BARDACH+
VICE PRESIDENT & CHIEF FINANCIAL OFFICER
[PHOTO]
STEVEN R. CARSON
VICE PRESIDENT &
GENERAL MANAGER CONTROLS
[PHOTO]
ZIA EFTEKHAR
PRESIDENT, LIGHTOLIER
[PHOTO]
MICHAEL J. FARRELL
PRESIDENT,
KEENE-WIDELITE
[PHOTO]
HENRY M. GLOVER
VICE PRESIDENT & GENERAL MANAGER WIDE-LITE
[PHOTO]
CHARLES M. HAVERS
PRESIDENT,
SUPPLY DIVISION
[PHOTO]
RENE MARINEAU
EXECUTIVE VICE PRESIDENT, CANLYTE
[PHOTO]
DENNIS W. MUSSELMAN
VICE PRESIDENT &
GENERAL MANAGER HADCO/BRONZELITE
[PHOTO]
DONNA R. RATLIFF+
VICE PRESIDENT ADMINISTRATION & CORPORATE SECRETARY
[PHOTO]
JON SAYAH
VICE PRESIDENT &
GENERAL MANAGER DIAMOND F/DECORATIVE
* Also an officer and member of
the Executive Committee
+ Also an officer of the company
Cover Photograph: (C) J. Paul Getty Trust.
Photo: Scott Frances/Esto
Inside Front Cover Photograph:
(C) 1997 Todd Eberle
Design: George/Gerard Design, NYC
================================================================================
GENLYTE
Visit us online@
http://www.genlyte.com
lightolier.com
crescentlighting.com
diamondf.com
forecastlighting.com
hadcolighting.com
stoncolighting.com
wide-lite.com
canlyte.com
Corporate Offices
2345 Vauxhall Road
P.O. Box 3148
Union, NJ 07083-1948
================================================================================