SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 [ X ]
For the quarterly period ended: March 31, 2002
-------------------------------------------------
Commission File Number 1-5426.
-----------------------------
THOMAS INDUSTRIES INC.
--------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 61-0505332
---------------------------------------- ----------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
4360 Brownsboro Road, Louisville, Kentucky 40207
------------------------------------------ ----------------------------
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: 502/893-4600
----------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ X ] No [ ]
The number of shares outstanding of issuer's Common Stock, $1 par value, as of
April 29, 2002, was 15,276,114 shares.
Page 1 of 16
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
THOMAS INDUSTRIES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In Thousands Except Amounts Per Share)
Three Months Ended
March 31
--------
2002 2001
---- ----
Net sales $ 46,057 $49,696
Cost of products sold 29,162 31,395
-------- -------
Gross profit 16,895 18,301
Selling, general, and
administrative expenses 10,833 11,384
Equity income from Lighting 6,002 5,061
-------- -------
Operating income 12,064 11,978
Interest expense 619 942
Interest income and other 242 612
-------- -------
Income before income taxes 11,687 11,648
Income taxes 4,266 4,368
-------- -------
Net income $ 7,421 $ 7,280
======== =======
Net income per share:
Basic $ .49 $ .48
Diluted $ .47 $ .47
Dividends declared per share: $.085 $.085
Weighted average number of shares outstanding:
Basic 15,243 15,117
Diluted 15,762 15,620
See notes to condensed consolidated financial statements.
2
THOMAS INDUSTRIES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
March 31 December 31
2002 2001*
---- ----
ASSETS
Current assets
Cash and cash equivalents $ 21,094 $ 29,500
Accounts receivable, less allowance
(2002--$1,122; 2001--$1,103) 23,343 21,026
Inventories:
Finished products 6,572 6,311
Raw materials 10,925 10,882
Work in process 3,672 3,503
--------- ---------
21,169 20,696
Deferred income taxes 2,689 2,497
Other current assets 2,712 2,442
--------- ---------
Total current assets 71,007 76,161
Investment in GTG 185,306 179,219
Property, plant, and equipment 93,146 92,378
Less accumulated depreciation and amortization (54,297) (52,608)
--------- ---------
38,849 39,770
Goodwill 9,164 9,244
Other intangible assets - less accumulated
amortization 476 427
Other assets 2,175 1,893
--------- ---------
Total assets $ 306,977 $ 306,714
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 6,530 $ 6,861
Accrued expenses and other current liabilities 11,009 11,738
Dividends payable 1,296 1,295
Income taxes payable 5,685 2,501
Current portion of long-term debt 7,788 7,788
--------- ---------
Total current liabilities 32,308 30,183
Deferred income taxes 5,441 5,349
Long-term debt (less current portion) 17,194 24,938
Other long-term liabilities 8,300 8,531
--------- ---------
Total liabilities 63,243 69,001
Shareholders' equity
Preferred Stock, $1 par value,
3,000,000 shares authorized--none issued -- --
Common Stock, $1 par value, shares authorized:
60,000,000; Shares issued: 2002--17,881,875
2001--17,855,511 17,882 17,856
Capital surplus 114,735 114,342
Deferred compensation 783 739
Treasury stock held for deferred compensation (783) (739)
Retained earnings 164,286 158,161
Accumulated other comprehensive income (loss) (14,712) (14,189)
Less cost of treasury shares: 2,622,339 shares (38,457) (38,457)
--------- ---------
Total shareholders' equity 243,734 237,713
--------- ---------
Total liabilities and shareholders' equity $ 306,977 $ 306,714
========= =========
*Derived from the audited December 31, 2001, consolidated balance sheet. See
notes to condensed consolidated financial statements.
3
THOMAS INDUSTRIES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Dollars in Thousands)
Three Months Ended
March 31
--------------------
2002 2001
Operating activities:
Net income $ 7,421 $ 7,280
Adjustments to reconcile net income to net
cash (used in)/provided by operating activities:
Depreciation 2,023 2,018
Amortization -- 122
Deferred income taxes (78) (334)
Equity income from GTG (6,002) (5,590)
Amortization of excess investment in GTG -- 529
Other items 27 24
Changes in operating assets and liabilities:
Accounts receivable (2,456) (2,720)
Inventories (616) (1,074)
Accounts payable (307) 19
Income taxes payable 3,207 2,645
Accrued expenses and other liabilities (890) (2,170)
Other (612) (834)
-------- --------
Net cash provided by (used in) operating activities 1,717 (85)
Investing activities:
Purchases of property, plant and equipment (1,275) (2,596)
Sale of property, plant and equipment 86 10
-------- --------
Net cash used in investing activities (1,189) (2,586)
Financing activities:
Proceeds from notes payable to banks, net -- 5,750
Payments on long-term debt (7,744) (7,744)
Treasury stock purchased -- (67)
Dividends paid (1,295) (1,129)
Stock options exercised 304 854
-------- --------
Net cash used in financing activities (8,735) (2,336)
Effect of exchange rate change (199) (646)
-------- --------
Net decrease in cash and cash equivalents (8,406) (5,653)
Cash and cash equivalents at beginning of period 29,500 13,941
-------- --------
Cash and cash equivalents at end of period $ 21,094 $ 8,288
======== ========
See notes to condensed consolidated financial statements.
4
THOMAS INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note A - Basis of Presentation
------------------------------
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial reporting and with the instructions to Form 10-Q and Article 10-01 of
Regulation S-X. Accordingly, they do not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements.
The results of operations for the three-month period ended March 31, 2002, are
not necessarily indicative of the results that may be expected for the year
ending December 31, 2002. In the opinion of management, all adjustments
considered necessary for a fair presentation have been included. For further
information, refer to the consolidated financial statements and footnotes
included in the Company's Annual Report on Form 10-K for the year ended December
31, 2001.
Note B - Contingencies
----------------------
In the normal course of business, the Company is a party to legal proceedings
and claims. When costs can be reasonably estimated, appropriate liabilities for
such matters are recorded. While management currently believes the amount of
ultimate liability, if any, with respect to these actions will not materially
affect the financial position, results of operations, or liquidity of the
Company, the ultimate outcome of any litigation is uncertain. Were an
unfavorable outcome to occur, the impact could be material to the Company.
Note C - Comprehensive Income
-----------------------------
Reconciliation of net income to comprehensive income for the periods indicated
follows.
(In Thousands)
For the three months ended March 31: 2002 2001
---- ----
Net income $7,421 $7,280
Foreign currency translation (523) (3,133)
------ ------
Comprehensive income $6,898 $4,147
====== ======
5
Note D - Net Income Per Share
-----------------------------
The computation of the numerator and denominator in computing basic and diluted
net income per share follows:
(In Thousands) Three Months Ended
March 31
--------
2002 2001
---- ----
Numerator:
Net income $ 7,421 $ 7,280
Denominator:
Weighted average shares outstanding 15,243 15,117
Effect of dilutive securities:
Director and employee stock options 482 486
Employee performance shares 37 17
------- -------
Dilutive potential common shares 519 503
------- -------
Denominator for diluted earnings per
share--adjusted weighted average
shares and assumed conversions 15,762 15,620
====== ======
Note E - Segment Disclosures
----------------------------
Three Months Ended
(In Thousands) March 31
--------
2002 2001
Total net sales including
intercompany sales
Pump and Compressor $ 51,957 $ 56,482
Intercompany sales
Pump and Compressor $ (5,900) $ (6,786)
-------- --------
Net sales to unaffiliated customers
Pump and Compressor $ 46,057 $ 49,696
======== ========
Operating income
Pump and Compressor $ 7,547 $ 8,543
Lighting* 6,002 5,061
Corporate (1,485) (1,626)
-------- --------
$ 12,064 $ 11,978
======== ========
*Three months ended March 31 consists of equity income of $6,053 in 2002 and
$5,642 in 2001 from our 32% interest in the joint venture, Genlyte Thomas Group
LLC (GTG), less $529 of amortization in 2001 of Thomas' excess investment and
less $51 in 2002 and $52 in 2001, related to expense recorded for Thomas
Industries stock options issued to GTG employees.
Note F - Goodwill and Other Intangible Assets
---------------------------------------------
In July 2001, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 141, "Business Combinations" (SFAS
141) and SFAS No. 142, "Goodwill and Other Intangible Assets" (SFAS 142). These
statements established new accounting and reporting standards for business
combinations and associated goodwill and intangible assets. SFAS 141, effective
July 1, 2001, eliminates the pooling of interest method of accounting and
amortization of goodwill for
6
business combinations initiated after June 30, 2001. SFAS 142, effective January
1, 2002, requires that goodwill and intangible assets with indefinite useful
lives no longer be amortized, but instead be tested for impairment at least
annually. During the first phase of implementing SFAS 142, the Company was
required to identify its reporting units and to determine the carrying value of
each reporting unit by assigning the assets and liabilities, including the
existing goodwill and intangible assets, to those reporting units as of December
31, 2001. Based upon a discounted cash flow analysis, the Company concluded that
the fair value of its reporting units containing goodwill exceeded the carrying
value. As a result, no impairment loss was recorded or recognized as a
cumulative effect of a change in accounting principle. The Company is required
to perform additional impairment tests on an annual basis prior to the issuance
of the annual financial statements.
The following table provides comparative earnings and earnings per share had the
non-amortization provisions of SFAS 142 been adopted for all periods presented:
For Three Months Ended
March 31
--------
(Thousands of dollars, except per share data) 2002 2001
---- ----
Reported net income $7,421 $7,280
Add back: Pump and Compressor (P & C)
goodwill amortization, net of tax -- 96
Add back: Amortization of excess
investment in GTG, net of tax -- 414
Add back: Amortization for GTG, net of tax -- 327
Adjust: Intangible amortization, net -- 1
------ ------
Adjusted net income $7,421 $8,118
====== ======
Basic earnings per share:
Reported net income $ .49 $ .48
P & C goodwill amortization -- --
Amortization of excess investment in GTG -- .03
GTG amortization -- .02
Intangible amortization -- --
------ ------
Adjusted net income $ .49 $ .54
====== ======
Diluted earnings per share:
Reported net income $ .47 $ .47
P & C goodwill amortization -- --
Amortization of excess investment in GTG -- .03
GTG amortization -- .02
Intangible amortization -- --
------ ------
Adjusted net income $ .47 $ .52
====== ======
All other intangible assets have definite lives and are being amortized. In
accordance with FASB 142, the Company evaluated the remaining useful lives of
intangible assets as of January 1, 2002, and where appropriate, revisions to the
remaining period of amortization were made. Balances at March 31, 2002 and
December 31, 2001 are stated in thousands of dollars on the following table.
7
March 31, 2002 December 31, 2001
---------------------------- -----------------------------
Gross Gross
Carrying Accumulated Carrying Accumulated
Life Amount Amortization Life Amount Amortization
---- ------ ------------ ---- ------ ------------
Licenses 18-19 $435 $43 5-20 $437 $38
Patents 10-20 80 16 5-20 23 16
Other 10 31 11 40 31 10
---- ---- ---- ---
Total $546 $70 $491 $64
==== === ==== ===
The total intangible amortization expense for the quarters ended March 31, 2002
and 2001 were $6 and $8, respectively.
The estimated amortization expense stated in thousands of dollars for the next
five fiscal years beginning January 1, 2002 is as follows:
For the year ended December 31, 2002: $25
For the year ended December 31, 2003: $27
For the year ended December 31, 2004: $27
For the year ended December 31, 2005: $27
For the year ended December 31, 2006: $27
The total change in goodwill from December 31, 2001 to March 31, 2002, was
related to exchange rate fluctuation and was all associated with goodwill in the
Pump and Compressor Segment.
Note G - Genlyte Thomas Group LLC
---------------------------------
The following table contains certain unaudited financial information for the
Joint Venture.
Genlyte Thomas Group LLC
Condensed Financial Information
(Dollars in Thousands)
(Unaudited)
March 31 December 31
2002 2001
---- ----
GTG balance sheets:
Current assets $356,561 $343,044
Long-term assets 273,809 276,077
Current liabilities 161,403 170,545
Long-term liabilities 63,947 62,573
Three Months
Ended March 31
--------------
2002 2001
---- ----
GTG income statements (unaudited):
Net sales $232,026 $244,101
Gross profit 80,220 84,653
Earnings before interest and taxes 21,083 19,929
Net income(1) 18,916 17,632
Amounts recorded by Thomas Industries Inc.:
Equity income from GTG(2) $ 6,053 $ 5,642
Stock option expense (51) (52)
Amortization of excess investment(3) - (529)
----- ----
Equity income reported by Thomas $ 6,002 $ 5,061
======= ========
8
(1) Quarter ended March 31, 2002 includes a $1.3 million favorable impact from
the non-amortization provisions of FASB 142.
(2) Quarter ended March 31, 2002 includes a $.4 million favorable impact from
the non-amortization provisions of FASB 142.
(3) Quarter ended March 31, 2002 includes a $.5 million favorable impact from
the non-amortization provisions of FASB 142.
Note H - New Accounting Pronouncements
--------------------------------------
FASB No. 141 and 142 are discussed in Note F above.
The FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets" (SFAS 144), dated August 2001. This statement supercedes SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of," and the acounting and reporting provisions of
Accounting Principles Board (APB) Opinion No. 30, "Reporting Results of
Operations - Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions." SFAS
144 requires that one accounting model be used for long-lived assets to be
disposed of by sale, whether previously held and used or newly acquired, and it
broadens the presentation of discontinued operations to include more disposal
transactions. The Company adopted the provisions of SFAS 144, as of January 1,
2002, which did not have an impact on our financial position and results of
operations.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Critical Accounting Policies and Estimates
------------------------------------------
Thomas' discussion and analysis of its financial condition and results of
operations are based upon Thomas' consolidated financial statements, which have
been prepared in accordance with accounting principles generally accepted in the
United States. When preparing these consolidated financial statements, the
Company is required to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenues and expenses, and related disclosure of
contingent assets and liabilities. The Company evaluates its estimates,
including, but not limited to, those related to product warranties, bad debts,
inventories, equity investments, income taxes, pensions and other
post-retirement benefits, contingencies, and litigation. The Company bases its
estimates on historical experience and on various other assumptions that are
believed to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from
these estimates under different assumptions or conditions.
In response to the Securities and Exchange Commission's (SEC) Release No.
33-8040, "Cautionary Advice Regarding Disclosure About Critical Accounting
Policies", the Company identified the following critical accounting policies
which affect its more significant judgments and estimates used in the
preparation of its consolidated financial statements. Based on the SEC's
suggestions, included with the accounting policies are potential
9
Item 2. Management's Discussion and Analysis - Continued
adverse results which could occur if different assumptions or conditions were to
prevail.
The Company maintains allowances for doubtful accounts for estimated losses
resulting from the inability of its customers to make required payments. If the
financial condition of Thomas' customers were to deteriorate, resulting in an
impairment of their ability to make payments, additional allowances may be
required. Thomas provides for the estimated cost of product warranties. While
the Company engages in extensive product quality programs and processes, should
actual product failure rates differ from estimates, revisions to the estimated
warranty liability would be required. Thomas writes down its inventory for
estimated obsolescence or unmarketable inventory equal to the difference between
the cost of inventory and the estimated market value based upon assumptions
about future demand and market conditions. If actual market conditions are less
favorable than those projected by management, additional inventory write-downs
may be required.
Thomas holds a 32 percent minority interest in the Genlyte Thomas Group LLC
(GTG) joint venture, which comprises Thomas' lighting segment and is accounted
for using the equity method. If future adverse changes in market conditions or
poor operating results of GTG occurred, it could result in losses or an
inability to recover the carrying value of the Company's investment, thereby
possibly requiring an impairment charge in the future. GTG's critical accounting
policies are determined separately by The Genlyte Group Incorporated, which owns
68 percent of GTG and consolidates the GTG results.
Results of Operations
---------------------
The Company's net income was $7.4 million in the first quarter ended March 31,
2002, compared to $7.3 million in the first quarter ended March 31, 2001. The
first quarter of 2002 was positively impacted by the change in accounting for
goodwill required by SFAS No. 142, which was effective January 1, 2002, and
eliminated the recording of goodwill amortization. Compared to the previous
year's first quarter, this change in accounting increased net income by $.8
million, or 5 cents per share. Excluding this impact for the accounting change,
net income in the quarter ended March 31, 2002, would have decreased 9.6% from
the previous year's first quarter, primarily due to lower sales and operating
income in the Pump and Compressor Segment, which is discussed below.
PUMP AND COMPRESSOR SEGMENT
Net sales during the first quarter ended March 31, 2002, decreased 7.3% to $46.1
million compared to $49.7 million for the first quarter of 2001. Our North
American operations continued to experience weak sales compared to the prior
year's period. The European operations also had a decrease in sales compared to
the 2001 first quarter, partly due to exchange rate impacts and to softness in
the North American market. The Asia Pacific operations showed improved sales,
despite weakening local currencies. Overall, first quarter sales would have
increased an additional 1.6% if measured in constant exchange rates.
10
Item 2. Management's Discussion and Analysis - Continued
Operating income for the first quarter ended March 31, 2002, was $7.5 million or
11.7% lower than the prior year amount of $8.5 million. The 2002 results were
positively impacted by $.1 million, due to the accounting change for goodwill
amortization. The overall decline was due to several factors including sales
volume shortfall, unfavorable manufacturing variances due to lower plant
utilization and unfavorable exchange rate effects. Excluding the impact of the
accounting change for goodwill amortization, gross margins decreased to 36.4%
compared to 36.8%, for first quarter 2002 versus 2001. SG&A expenses decreased
4.2% from 2001 to 2002 for the first quarter. Most of the SG&A decrease came in
the selling expense area while engineering and administrative expenses decreased
only slightly.
LIGHTING SEGMENT
The Lighting Segment (GTG Joint Venture) results increased 18.6% to $6.0 million
in the first quarter of 2002, compared to $5.1 million in the same period in
2001. The 2002 results were positively impacted by $.9 million, due to the
accounting change for goodwill amortization. This $.9 million impact includes
$.5 million related to amortization of Thomas' excess investment and $.4
million, which represents Thomas' 32% interest in GTG's $1.3 million of goodwill
amortization in 2001. Therefore, excluding the impact from the accounting
change, GTG's earnings were flat for the first quarter 2002 compared to 2001,
while sales decreased 4.9% for the same periods. GTG's sales shortfall was
primarily in the commercial business while earnings benefited from aggressive
cost control programs.
At any time on or after January 31, 2002, Thomas has the right (a "put right"),
but not the obligation, to require the Joint Venture (GTG) to purchase all, but
not less than all, of Thomas' ownership interest in GTG at the applicable
purchase price. The purchase price shall be equal to the "Fair Market Value" of
GTG multiplied by Thomas' ownership percentage in GTG. The "Fair Market Value"
means the value of the total interests in GTG computed as a going concern,
including the control premium. Further explanation can be found in our Joint
Proxy Statement dated July 23, 1998, which is on file with the Securities and
Exchange Commission. The Company will continue to review alternatives with
respect to the GTG put right.
CORPORATE
As noted in the Segment Disclosure footnote, consolidated operating income
includes corporate expenses. Corporate expenses decreased to $1.5 million in the
quarter of 2002, compared to $1.6 million in the same period last year. This
decline was primarily due to headcount and cost reductions initiated in the last
half of 2001.
Interest expense for the 2002 first quarter was $.6 million compared to $.9
million for the first quarter of 2001. The reduction in the first quarter period
was primarily related to the $7.7 million payment of long-term debt on January
31, 2002, which carried a 9.36% annual interest rate, as well as higher
short-term and other long-term borrowing levels in 2001.
Interest income and other for the 2002 first quarter was $.2 million compared to
$.6 million for the first quarter of 2001. The decrease was primarily related to
a $22.3 million note receivable with GTG, from which the Company received
interest income in the first quarter of 2001. GTG paid off this $22.3 million
note in November 2001 and the Company used some of these proceeds to partially
pay down long-term debt.
11
Item 2. Management's Discussion and Analysis - Continued
Income tax provisions were $4.3 million and $4.4 million for the first quarter
2002 and 2001, respectively. Effective tax rates were 36.5% for the 2002 first
quarter and 37.5% for the same period in 2001. The decline in the effective tax
rate was primarily due to the accounting change related to goodwill
amortization.
Liquidity and Sources of Capital
--------------------------------
Cash and cash equivalents decreased $8.4 million to $21.1 million at March 31,
2002, compared to $29.5 million at December 31, 2001. This decrease was
primarily related to the $7.7 million long-term debt payment on January 31,
2002. Cash flows provided by operations in the first quarter of 2002 were $1.7
million compared to cash flows used in operations of $.1 million in the first
quarter of 2001. The increase in cash flows were primarily related to lower
payments for income taxes and accrued liabilities in the first quarter of 2002
compared to 2001. Our first quarter net cash from operating activities has
historically been relatively low since the formation of the GTG joint venture.
The Company receives no distributions from GTG until after the first quarter of
each year. In accordance with the joint venture agreement, the Company does
receive periodic reimbursements of income taxes beginning in the second quarter
and also receives a $3.0 million dividend in the fourth quarter of each year.
Dividends paid in the first quarter of 2002 were $1.3 million or $.085 per
share. The 2001 first quarter dividends paid were $1.1 million or $.075 per
share. The Company increased its quarterly dividend per share from $.075 to
$.085, effective with the April 1, 2001 dividend.
As of March 31, 2002, the Company had standby letters of credit totaling $4.5
million with expiration dates during 2002. The Company anticipates that these
letters of credit will be renewed at their expiration dates.
The Company announced in December 1999 that it planned to repurchase, from time
to time depending on market conditions and other factors, up to 15 percent, or
2,373,000 shares, of its outstanding Common Stock in the open market or through
privately negotiated transactions at the prevailing market prices. During the
first quarter of 2002, no purchases were made. Through March 31, 2002, the
Company has purchased, on a cumulative basis, 879,189 shares at a cost of $17.3
million, or an average cost of $19.72 per share. The Company plans to fund any
purchase of Company stock through a combination of cash flows generated from
operating activities and uncommitted borrowing arrangements.
12
Item 2. Management's Discussion and Analysis - Continued
Working capital decreased from $46.0 million at December 31, 2001, to $38.7
million at March 31, 2002, primarily due to the $7.7 million long-term debt
payment.
March 31 December 31
------------------------------
Dollars in Thousands
2002 2001
------------------------------
Working capital $38,699 $45,978
Current ratio 2.20 2.52
Long-term debt, less current portion $17,194 $24,938
Long-term debt to total capital 6.6% 9.5%
Certain loan agreements of the Company include restrictions on working capital,
operating leases, tangible net worth, and the payment of cash dividends and
stock distributions. Under the most restrictive of these arrangements, retained
earnings of $87.5 million are not restricted at March 31, 2002. Thomas is in
compliance with all covenants or other requirements set forth in its borrowing
agreements. In the event of non-compliance or if Thomas prepays the debt, then
Thomas would incur a penalty. At March 31, 2002, the prepayment penalty would
have been approximately $2.5 million on a pre-tax basis.
As of March 31, 2002, the Company had no short-term borrowing arrangements.
Thomas currently expects to fund expenditures for capital requirements as well
as liquidity needs from a combination of available cash balances, internally
generated funds, and, if necessary, short-term financing arrangements. The
Company does not have any bank committed lines of credit and management
believes, if short-term borrowings were needed to support the sales growth of
the business, that competitive financing could be obtained given the current
financial position of the Company. Cash in excess of operating requirements will
continue to be invested in high grade, short-term securities.
As disclosed in the footnotes to the consolidated financial statements, the
Company does have a 32 percent interest in the GTG joint venture, which is
accounted for using the equity method, and therefore, is an unconsolidated
entity. At March 31, 2002 and December 31, 2001, except as described above,
management was aware of no relationships with any other unconsolidated entities,
financial partnerships, structured finance entities, or special purpose entities
which would have been established for the purpose of facilitating off-balance
sheet arrangements or other contractually narrow or limited purposes.
Forward-Looking Statements
--------------------------
The Company makes forward-looking statements from time to time and desires to
take advantage of the "safe harbor" which is afforded such statements under the
Private Securities Litigation Reform Act of 1995 when they are accompanied by
meaningful cautionary statements identifying important factors that could cause
actual results to differ materially from those in the forward-looking
statements.
The statements contained in the foregoing "Management's Discussion and Analysis
of Financial Condition and Results of Operations," as well as other statements
contained in this Form 10-Q and statements contained in future filings with the
Securities and Exchange Commission and publicly disseminated press releases, and
statements which may be made from time to
13
Item 2. Management's Discussion and Analysis - Continued
time in the future by management of the Company in presentations to
shareholders, prospective investors, and others interested in the business and
financial affairs of the Company, which are not historical facts, are
forward-looking statements that involve risks and uncertainties that could cause
actual results to differ materially from those set forth in the forward-looking
statements. Any projections of financial performances or statements concerning
expectations as to future developments should not be construed in any manner as
a guarantee that such results or developments will, in fact, occur. There can be
no assurance that any forward-looking statement will be realized or that actual
results will not be significantly different from that set forth in such
forward-looking statement. In addition to the risks and uncertainties of
ordinary business operations, the forward-looking statements of the Company
referred to above are also subject to the following risks and uncertainties:
o The Company operates in a highly competitive business environment, and its
sales could be negatively affected by its inability to maintain or increase
prices, changes in geographic or product mix, or the decision of its
customers to purchase competitive products instead of the Company's
products. Sales could also be affected by pricing, purchasing, financing,
operational, advertising, or promotional decisions made by purchasers of
the Company's products.
o The Pump and Compressor Segment operates in a market where technology
improvements and the introduction of products for new applications are
necessary for future growth. The Company could experience difficulties or
delays in the development, production, testing, and marketing of new
products. As an original equipment supplier, the Company's results of
operations are directly affected by the success of its customers' products.
o The Pump and Compressor Segment has several key customers, none of which
are 10% or more of our consolidated sales. However, the loss of any of
these key customers could have a negative affect on the Company's results.
o On an annual basis, the Company negotiates renewals for property, casualty,
workers compensation, general liability, product liability, and health
insurance coverages. Due to conditions within these insurance markets and
other factors beyond the Company's control, future coverages and the amount
of the related premiums could have a negative affect on the Company's
results.
o The Pump and Compressor Segment has the leading market share in the oxygen
concentrator Original Equipment Manufacturers (OEM) market worldwide. The
Company's market share could be reduced significantly due to a competitor,
the vertical integration by our customers, or new technology replacing
compressed air in oxygen concentrators. The loss of market share in the
oxygen concentrator OEM market could have a significant affect on the
Company's results.
o GTG, which comprises the Company's Lighting Segment, participates in a
highly competitive market that is dependent on the level of residential,
commercial, and industrial construction activity in North America. Changes
in interest rates, consumer preferences, office and plant occupancy rates,
and acceptance of new products affect the Lighting Segment.
14
Item 2. Management's Discussion and Analysis - Continued
o As the Company's business continues to expand outside the United States,
the Company could experience changes in its ability to obtain or hedge
against currency exchange rates and fluctuations in those rates. The
Company could also be affected by nationalizations; unstable governments,
economies, or legal systems; terrorist attacks; or inter-governmental
disputes. These currency, economic, and political uncertainties may affect
the Company's results.
The forward-looking statements made by the Company are based on estimates that
the Company believes are reasonable. This means that the Company's actual
results could differ materially from such estimates and expectations as a result
of being positively or negatively affected by the factors as described above, as
well as other unexpected, unanticipated, or unforeseen factors.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
The Company's long-term debt bears interest at fixed rates, with the exception
of the $1.25 million Industrial Revenue Bond that accrues interest at a variable
rate. Short-term borrowings are priced at variable interest rates. The Company's
results of operations and cash flows, therefore, would only be affected by
interest rate changes to the extent of variable rate debt. At March 31, 2002,
only the $1.25 million Industrial Revenue Bond was outstanding. A 100 basis
point movement in the interest rate on the $1.25 million bond would result in an
$12,500 annualized effect on interest expense and cash flows.
The Company also has short-term investments, included in cash equivalents, of
$20.2 million as of March 31, 2002 that bear interest at variable rates.
Therefore, a 100 basis point movement in the interest rate would result in an
approximate $202,000 annualized effect on interest income and cash flows.
The fair value of the Company's long-term debt is estimated based on current
interest rates offered to the Company for similar instruments. A 100 basis point
movement in the interest rate would result in an approximate $425,000 annualized
effect on the fair value of long-term debt.
The Company has significant operations consisting of sales and manufacturing
activities in foreign countries. As a result, the Company's financial results
could be significantly affected by factors such as changes in foreign currency
exchange rates or changing economic conditions in the foreign markets in which
the Company manufactures or distributes its products. Currency exposures for our
Pump and Compressor Segment are concentrated in Germany but exist to a lesser
extent in other parts of Europe and Asia. The Lighting Segment currency exposure
is primarily in Canada.
PART II. OTHER INFORMATION
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Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3(b) Bylaws, as amended April 18, 2002.
(b) No reports on Form 8-K were filed during the quarter.
15
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THOMAS INDUSTRIES INC.
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Registrant
/s/ Phillip J. Stuecker
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Phillip J. Stuecker, Vice President
and Chief Financial Officer
Date May 2, 2002
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