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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-K
(MARK ONE)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2004
COMMISSION FILE NUMBER 1-5426
---------------
THOMAS INDUSTRIES INC.
(Exact name of Registrant as specified in its Charter)
DELAWARE 61-0505332
(State of incorporation) (I.R.S. Employer Identification Number)
4360 BROWNSBORO ROAD, LOUISVILLE, KENTUCKY 40207
(Address of principal executive offices) (Zip Code)
502/893-4600
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE
SECURITIES EXCHANGE ACT OF 1934:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
Common Stock, $1 Par Value New York Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
---------------
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 12 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 |_|
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. |_|
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Securities Exchange Act of 1934) Yes |X| No |_|
The aggregate market value of the voting stock held by non-affiliates
of the Registrant at June 30, 2004, was approximately $502,350,000. The
aggregate market value was computed by using the closing price of the common
stock as of that date on the New York Stock Exchange. (For purposes of
calculating this amount only, all directors and executive officers of the
registrant have been treated as affiliates.)
As of March 10, 2005, 17,852,925 shares of the registrant's Common
Stock were outstanding (net of treasury shares and including directors' and
executive officers' shares).
PART I.
ITEM 1. BUSINESS
a. General Development of Business.
The Company that was eventually to become known as Thomas Industries Inc.
("Thomas" or the "Company") was founded in 1928 as the Electric Sprayit Company.
Electric Sprayit manufactured paint spraying machines, blowers, and air
compressors in Chicago, Illinois. In 1948, Mr. Lee B. Thomas and a group of
investors acquired Moe Brothers Manufacturing of Fort Atkinson, Wisconsin, a
manufacturer of residential lighting products. In 1953, Moe Lighting and The
Electric Sprayit Company merged to become Thomas Industries Inc. The Company was
incorporated in Delaware in 1928.
Although its roots were in lighting products and air compressors, Thomas began
to diversify in the 1960's and 1970's, acquiring companies that manufactured
consumer products along with tools, hardware, and specialty products. A new
strategic focus on lighting and pumps/compressors began in the 1980's and was
finalized in 1994 when the Company divested its last non-core business.
Significant additions to the Lighting business included the Lumec and Day-Brite
Lighting acquisitions in 1987 and 1989. On August 30, 1998, Thomas and The
Genlyte Group ("Genlyte") formed a lighting joint venture that combined
substantially all of the assets and liabilities of Genlyte and substantially all
of the lighting assets and related liabilities of Thomas to create Genlyte
Thomas Group LLC (GTG), estimated to be the third largest manufacturer of
lighting fixtures and controls in North America. Thomas owned a 32% interest in
the joint venture, and Genlyte owned a 68% interest. GTG made several
acquisitions from 1999 through 2003 to fill product voids, including Ledalite,
Translite, Chloride, Vari-Lite and Shakespeare. Effective with the close of
business on July 31, 2004, the Company sold its 32% joint venture interest in
GTG to The Genlyte Group Incorporated, thereby exiting the lighting business.
Significant additions to the Pump and Compressor business include ASF,
Pneumotive, Brey, WISA, Welch and Oberdorfer, which were made from 1987 through
1999. On August 29, 2002, the Company purchased substantially all the assets and
liabilities of Werner Rietschle Holding GmbH ("Rietschle"), a privately held
company based in Schopfheim, Germany. Rietschle is a world leader in vacuum and
pressure technology, which includes dry-running and oil-lubricated pumps,
blowers, compressors, and pressure/vacuum pumps utilizing rotary vane, screw,
roots and claw technologies. With the newly-launched Rietschle Thomas brand,
Thomas is pursuing further opportunities in markets such as printing, packaging,
woodworking and other applications that utilize these technologies.
On March 9, 2005, we announced that we have entered into an Agreement and Plan
of Merger ("Merger Agreement") with Gardner Denver, Inc. Under the terms of the
Merger Agreement, Gardner Denver will pay $40.00 per share in cash for all of
the issued and outstanding shares of common stock of Thomas. The transaction is
conditioned on obtaining requisite approval from the shareholders of Thomas,
necessary regulatory approvals and other customary closing conditions. Upon
closing of the acquisition, Thomas will become a subsidiary of Gardner Denver
and will no longer be a publicly traded company. The parties expect to close the
transaction during 2005.
b. Financial Information about Segments.
The information required by this item is set forth in Note 13 to the
consolidated financial statements.
c. Narrative Description of Business.
Pump and Compressor Segment
Thomas is a leading supplier of pumps and compressors to the original equipment
manufacturer (OEM) market in such applications as medical equipment, gasoline
vapor and refrigerant recovery, automotive and transportation applications,
printing, packaging, tape drives, and laboratory equipment.
The Company designs, manufactures, markets, sells and services these products
through worldwide operations. Pump and Compressor Group headquarters are as
follows: North American Group--Sheboygan, Wisconsin; European Group--Puchheim,
Germany; and Asia Pacific Group--Hong Kong, China.
The Company has four manufacturing operations in the United States which
manufacture rotary vane, linear, piston, and diaphragm pumps and compressors,
and various liquid pump technologies. These products are directly sold worldwide
to OEM's, as well as through fluid power and industrial distributors.
Three German operations manufacture a complementary line of rotary vane, piston,
linear, diaphragm, gear, side channel, radial, claw, screw, and rotary lobe
pumps and compressors, as well as various liquid pump technologies, air-centers
and centralized systems. These products are distributed worldwide. The German
operations also include a foundry which produces pump castings for internal use,
as well as automotive component castings.
A new manufacturing facility was constructed during late 2004 in Wuxi, China,
and production will start in the second quarter of 2005.
The Company also maintains sales and service facilities in Germany, U.S.A.,
England, Italy, Switzerland, Sweden, France, Denmark, the Netherlands, Hungary,
Austria, Slovakia, Czech Republic, China, Japan, Taiwan, Mexico, Korea, New
Zealand, Australia and Brazil. Systems sales and final assembly work is also
done in many of these facilities. The Corporate Office is in Louisville,
Kentucky.
The Company offers a wide selection of standard air compressors and vacuum pumps
and will modify or design its products to meet exacting OEM applications.
Products for the OEM market are now marketed under the Rietschle Thomas name
worldwide. Products for other users are marketed under the brand names Welch
(high vacuum pumps for laboratory and chemical markets), Air-Pac (pneumatic
construction equipment), Vakuumatic (leakage detection systems), Medi-Pump
(respiratory products), and Oberdorfer (bronze and high alloy liquid pumps).
The medical equipment market, which includes oxygen concentrators, nebulizers,
aspirators, and other devices, is important to the Company. Company sales to
medical equipment OEM's were approximately $96 million in 2004, $92 million in
2003, and $75 million in 2002. The 2002 amount only includes Rietschle for four
months. Oxygen concentrator OEM's represent a significant portion of the
Company's sales in the medical equipment market. The Company believes it has the
leading market share in compressors for the oxygen concentrator market
worldwide.
No single customer of the Company accounted for 10 percent or more of the
Company's net sales in 2004.
The backlog of unshipped orders was $89 million at December 31, 2004, and $80
million at December 31, 2003. The increase was primarily due to exchange rate
fluctuations. The Company believes substantially all of such orders are firm,
although some orders are subject to cancellation. Substantially all of these
orders are expected to be filled in 2005.
The Company believes that it has adequate sources of materials and supplies for
its business.
There is no significant seasonal impact on the business of the Company.
As of December 31, 2004, the Company had no line of credit facilities with its
banks and its long-term debt consisted of only capitalized lease obligations.
The Company has no loan agreements that include restrictions on working capital,
operating leases, tangible net worth, and the payment of cash dividends and
stock distributions. The Company expects to fund working capital requirements
from a combination of available cash balances and internally generated funds.
The Company has various patents and trademarks but does not consider its
business to be materially dependent upon any individual patent or trademark.
The Company competes across all of its product lines with many large and varied
manufacturers, both domestic and foreign. Some competitors are publicly-held
companies and others are private companies. The Company competes on the basis of
quality, performance, service, and price. Thomas believes that it is able to
maintain its competitive position because of the quality and breadth of its
products and services and its global presence.
During 2004, the Company spent $22,131,000 on research activities relating to
the development of new products and the improvement of existing products.
Substantially all of this amount was Company-sponsored activity. During 2003 and
2002, the Company spent $19,736,000 and $11,789,000, respectively, on these
activities. Research and development expenses with respect to the Rietschle
acquisition were only included for four months in 2002.
The Company, like other manufacturers, is subject to environmental rules and
regulations regarding the use, disposal, and cleanup of substances regulated
under environmental protection laws. It is the Company's policy to comply with
these rules and regulations, and the Company believes that its practices and
procedures are designed to comply with these rules and regulations. The Company
is involved in remedial efforts at certain of its present and former locations,
and when costs can be reasonably estimated, the Company records appropriate
liabilities for such matters. The Company does not believe that the ultimate
resolution of environmental matters will have a material adverse effect on its
consolidated financial position, results of operations, or liquidity.
At December 31, 2004, the Company employed approximately 2,250 people.
Approximately 14.3% were represented by labor unions. Union contacts have
varying expiration dates beginning with June 30, 2005 and ending with March 7,
2008. Approximately 1.2% of employees were represented by labor unions with
contracts expiring within one year from December 31, 2004. The union agreements
have historically been renegotiated in a satisfactory manner.
Lighting Segment
On August 30, 1998, Thomas and Genlyte formed a lighting joint venture that
combined substantially all of the assets and liabilities of Genlyte and
substantially all of the lighting assets and related liabilities of Thomas to
create GTG, estimated to be the third largest manufacturer of lighting fixtures,
controls, and related products in North America. Thomas owned a 32% interest in
the joint venture and Genlyte owned a 68% interest. Effective with the close of
business on July 31, 2004, the Company sold its 32% joint venture interest in
Genlyte Thomas Group LLC (GTG) to The Genlyte Group Incorporated, thereby
exiting the lighting business.
Thomas' investment in GTG was accounted for using the equity method of
accounting
d. Financial Information about Geographic Areas.
See Note 13 to the consolidated financial statements.
e. Website Access to Company Reports and Corporate Governance Material
We make available free of charge through our website, www.thomasind.com, (1) our
annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on
Form 8-K and all amendments to those reports as soon as reasonably practicable
after such material is electronically filed with the Securities and Exchange
Commission and (2) the Audit Committee, Compensation Committee and Nominating
and Corporate Governance Committee charters, our Corporate Governance Guidelines
and our Corporate Compliance and Code of Ethics Policy. Our internet website and
the information contained therein or incorporated therein are not intended to be
incorporated into this Annual Report on Form 10-K.
f. Executive Officers of the Registrant
YEAR
FIRST ELECTED
NAME OFFICE OR POSITION WITH COMPANY AGE AS AN OFFICER
- ---- ------------------------------- --- -------------
Timothy C. Brown (A)............................ Chairman of the Board, President, Chief Executive 54 1984
Officer, and Director
Phillip J. Stuecker (B)......................... Vice President of Finance, Chief Financial Officer, 53 1984
and Secretary
Peter H. Bissinger (C).......................... Vice President; General Manager, European Pump and 59 1992
Compressor Group
Dieter W. Rietschle (D)......................... General Manager, TIWR Holding GmbH & Co. KG 58 2002
James J. Kregel (E)............................. Vice President; General Manager, North American 53 2003
Pump and Compressor Group
- ---------------
(A) Timothy C. Brown was elected Chairman of the Board on April 20, 1995, in
addition to his other duties of President and Chief Executive Officer. Prior to
this, Mr. Brown held various management positions in the Company including Chief
Operating Officer, Executive Vice President, and Vice President and Group
Manager of the Specialty Products Group.
(B) Phillip J. Stuecker was elected Vice President of Finance, Chief Financial
Officer, and Secretary on October 23, 1989. Prior to this, Mr. Stuecker held
various management positions in the Company including Vice President and
Treasurer.
(C) Peter H. Bissinger was elected an officer effective December 14, 1992, in
addition to his position of General Manager of the European Pump and Compressor
Group, which he has held since 1987.
(D) Dieter W. Rietschle was appointed a General Manager of TIWR Holding GmbH &
Co. KG, a wholly owned subsidiary of the Company, effective August 30, 2002.
This was the date Mr. Rietschle joined the Company as a result of the
acquisition of substantially all of the assets of Werner Rietschle Holding GmbH.
Prior to this date, Mr. Rietschle was General Manager of Werner Rietschle
Holding GmbH.
(E) James J. Kregel was elected an officer effective April 17, 2003, in addition
to his position of General Manager, Rietschle Thomas North American Pump and
Compressor Group, which he has held since March 1, 2003. Prior to this, Mr.
Kregel held the position of Assistant General Manager for the North American
Group from January 1, 2003, and the position of Director of Marketing and Sales
for the North American Group from January 1, 1991 to December 31, 2002.
ITEM 2. PROPERTIES
The Corporate offices of the Company are located in Louisville,
Kentucky. Due to the large number of individual locations and the diverse nature
of the operating facilities, specific description of the properties owned and
leased by the Company is not necessary to an understanding of the Company's
business. All of the buildings are of steel, masonry, and concrete construction,
are in generally good condition, provide adequate and suitable space for the
operations at each location, and are of sufficient capacity for present and
foreseeable future needs.
The following listing summarizes the Company's properties.
NUMBER
OF FACILITIES
-------------
COMBINED
SEGMENT OWNED LEASED SQUARE FEET NATURE OF FACILITIES
- ------- ----- ------ ----------- --------------------
Pump and Compressor............. 9 5 1,090,000 Manufacturing plants
7 53 424,000 Distribution and service centers
Corporate....................... -- 1 6,900 Corporate headquarters
2 -- 160,000 Leased to third parties
One owned manufacturing facility (50,000 sq. feet) in Wuxi, China, was
constructed during late 2004, but will not begin production until 2005.
ITEM 3. LEGAL PROCEEDINGS
On August 13, 2002, a petition was filed in the District Court of
Jefferson County, Texas, adding Thomas Industries Inc. as a third party
defendant in a lawsuit captioned Hydro Action, Inc. v. Jesse James, individually
and d/b/a James Backhoe Service of Dietrich, Illinois, Inc. and Original Septic
Solutions, Inc. (the "Third Party Plaintiffs") (the "Original Lawsuit"). The
Original Lawsuit alleged that the Company violated the Texas Deceptive Trade
Practices Act and breached warranties of merchantability and fitness for a
particular purpose with respect to pumps sold by the Company and used in septic
tanks manufactured or sold by the plaintiffs. The Original Lawsuit was stayed as
a result of the bankruptcy filing by Hydro Action, Inc. On October 8, 2003, a
lawsuit was filed against the Company, Gig Drewery, Yasunaga Corporation and
Aqua-Partners, Ltd. in the District Court of Jefferson County, Texas, making the
same allegations set forth in the Original Lawsuit and requesting class-action
certification. No class has been certified. The Third Party Plaintiffs are
plaintiffs in this action. This complaint has been amended to include
approximately 28 plaintiffs. The complaint currently seeks $3 million per
plaintiff and punitive and exemplary damages. The total sales related to these
products were approximately $900,000. On September 29, 2004, the case was
remanded to state court in Jefferson County and the stay is no longer in place.
Although this litigation is in the preliminary stages, the Company believes it
has meritorious defenses to the claims and intends to vigorously defend this
matter. Litigation is subject to many uncertainties and the Company cannot
guarantee the outcome of these proceedings. However, based upon information
currently available, the Company does not believe that the outcome of this
proceeding will have a material adverse effect on the consolidated financial
position, results of operations or cash flows of the Company.
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 consolidated 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
(a) Market Prices and Dividends of Common Stock
The Company's common stock is traded on the New York Stock Exchange
(ticker symbol TII). On , March 10, 2005 there were 1,650 security holders of
record. High and low closing stock prices and dividends per share for the last
two years were:
2004 2003
---- ----
MARKET PRICE MARKET PRICE
------------ ------------
CASH CASH
DIVIDENDS DIVIDENDS
QUARTER ENDED HIGH LOW DECLARED HIGH LOW DECLARED
- ------------- ---- --- -------- ---- --- --------
March 31.............................................. $35.30 $30.07 $0.095 $28.32 $24.26 $0.085
June 30............................................... 34.95 31.18 0.095 29.81 24.32 0.095
September 30.......................................... 33.57 29.73 0.095 28.65 26.40 0.095
December 31........................................... 39.92 33.00 0.095 34.66 27.88 0.095
Payment of future cash dividends will be at the discretion of the
Company's Board of Directors and will be dependent upon the earnings and
financial condition of the Company and any other factors deemed relevant by the
Board of Directors.
(b) The Company made no stock repurchases in 2004 or 2003.
(c) Equity Compensation Plan Information
The information set forth in the following table is as of December 31, 2004:
NUMBER OF SECURITIES TO NUMBER OF SECURITIES REMAINING
BE ISSUED UPON EXERCISE WEIGHTED-AVERAGE EXERCISE PRICE OF AVAILABLE FOR FUTURE ISSUANCE UNDER
OF OUTSTANDING OPTIONS, OUTSTANDING OPTIONS, WARRANTS AND EQUITY COMPENSATION PLANS (EXCLUDING
WARRANTS AND RIGHTS RIGHTS SECURITIES REFLECTED IN COLUMN (a))
------------------- ------ -----------------------------------
PLAN CATEGORY (a) (b) (c)
- ------------- --- --- ---
Equity compensation
plans approved by
security holders.. 993,940 $22.27 808,891
Equity compensation
plans not approved
by security holders -- -- --
------- ------ -------
Total............... 993,940 $22.27 808,891
------- ------ -------
ITEM 6. SELECTED FINANCIAL DATA
FIVE YEAR SUMMARY OF OPERATIONS AND STATISTICS
YEARS ENDED DECEMBER 31
-----------------------
2004 2003 2002(A) 2001 2000
---- ---- ------- ---- ----
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE)
EARNINGS STATISTICS
Net sales.......................................... $410,114 $376,774 $240,602 $184,382 $188,824
Cost of products sold.............................. 262,654 246,832 154,904 118,625 120,835
Selling, general, and administrative expenses...... 117,728 101,943 59,989 43,411 44,070
Equity income from GTG............................. 18,608(B) 32,138(F) 28,804 24,835 24,575
Gain on sale of GTG................................ 160,410(C) - - - -
Interest expense................................... 2,691 4,237 3,370 3,630 3,995
Income before income taxes and minority interest... $207,670(C) $55,679(F) $51,165 $45,040 $48,298(H)
As a percentage of net sales....................... 50.6% 14.8% 21.3% 24.4% 25.6%
Income taxes....................................... $93,516(D) $18,340 $18,452 $16,870 $18,213
Effective tax rate................................. 45.0% 32.9% 36.1% 37.5% 37.7%
Net income......................................... $114,154(E) $37,314(G) $32,692 $28,170 $30,085(I)
FINANCIAL POSITION
Working capital.................................... $355,779 $95,581 $82,030 $45,978 $30,677
Current ratio...................................... 7.2 TO 1 2.6 to 1 2.7 to 1 2.5 to 1 1.9 to 1
Property, plant and equipment--net................. $114,868 $108,350 $91,591 $39,770 $39,521
Total assets....................................... $621,936 $573,134 $491,016 $306,714 $306,112
Return on ending assets............................ 18.4% 6.5% 6.7% 9.2% 9.8%
Long-term debt, less current portion............... $7,751 $102,673 $104,047 $24,938 $40,727
Long-term debt to equity........................... 1.5% 26.8% 33.1% 10.5% 18.7%
Long-term debt to capital.......................... 1.4% 21.1% 24.9% 9.5% 15.8%
Shareholders' equity............................... $526,933 $383,355 $314,367 $237,713 $217,402
Return on beginning shareholders' equity........... 29.8% 11.9% 13.8% 13.0% 14.4%
DATA PER COMMON SHARE
Net income--diluted................................ $6.44(E) $2.12(G) $2.00 $1.80 $1.91(I)
Cash dividends declared............................ $0.38 $0.37 $0.34 $0.34 $0.30
Shareholders' equity............................... $29.15 $21.71 $17.84 $15.16 $14.09
Price range........................................ $39.92 $34.66 $30.50 $29.50 $23.25
TO to to to to
$29.73 $24.26 $22.50 $20.19 $17.50
Closing price...................................... $39.92 $34.66 $26.06 $25.00 $23.25
Price/earnings ratio............................... 6.2 16.4 13.0 13.9 12.2
OTHER DATA
Cash dividends declared............................ $6,651 $6,369 $5,502 $5,162 $4,621
Expenditures for property, plant and equipment..... $16,403 $20,108 $8,358 $8,548 $10,888
Depreciation and intangible amortization........... $16,340 $15,207 $10,468 $7,913 $7,463
Goodwill amortization (J).......................... N/A n/a n/a $483 $460
Average number of employees........................ 2,258 2,263 1,447 1,110 1,085
Average sales per employee......................... $181.9 $166.5 $166.3 $166.1 $174.0
Number of shareholders of record................... 1,689 1,811 1,991 2,064 2,193
Average number of diluted common shares outstanding 17,733,000 17,570,000 16,375,000 15,621,000 15,777,492
Actual number common shares outstanding............ 17,826,384 17,286,325 17,125,291 15,233,172 15,051,303
Market capitalization.............................. $711,629 $599,144 $446,285 $380,829 $349,943
SEGMENT INFORMATION
Net Sales--Pumps and Compressors................... $410,114 $376,774 $240,602 $184,382 $188,824
======== ======== ======== ======== ========
Operating Income
Pumps and Compressors............................ $40,936 $36,742 $31,675 $28,488 $31,607
Lighting (K)..................................... 18,608(B) 32,138(F) 28,804 24,835 24,575
Gain on Sale of Lighting (GTG)................... 160,410(C) - - - -
Corporate expenses............................... (11,204) (8,743) (5,966) (6,142) (7,688)(H)
Total Operating Income............................. $208,750 $60,137 $54,513 $47,181 $48,494
Note: See accompanying Notes to Consolidated Financial Statements and Management's Discussion and
Analysis of Financial Condition and Results of Operations
- ---------------
(A) Includes Rietschle results since the acquisition date on August 29,
2002.
(B) Includes GTG equity earnings through the sale date on July 31, 2004.
(C) Includes $160,410,000 of pre-tax gains related to the sale of GTG
effective with the close of business on July 31, 2004.
(D) Includes $76,275,000 of income tax, calculated at an effective rate of
47.6%, related to the sale of GTG.
(E) Includes $84,135,000, or $4.74 per share, of after-tax gains related
to the sale of GTG.
(F) Includes $2,272,000 of pre-tax gains related to the settlement of a
patent infringement lawsuit.
(G) Includes $1,400,000, or $.08 per share, of after-tax gains related to
the settlement of GTG's patent infringement lawsuit.
(H) Includes $1,632,000 of pre-tax gains related to insurance proceeds and
sale of securities; also includes a $1,000,000 pre-tax charge related
to environmental costs.
(I) Includes $1,315,000, or $.09 per share, of after-tax gains related to
insurance proceeds and sale of securities; also includes a $623,000,
or $.04 per share, after-tax charge related to environmental costs.
(J) In accordance with SFAS No. 142, goodwill is no longer amortized,
effective January 1, 2002 (see Note 2 in the consolidated financial
statements).
(K) Represents the Company's earnings from its 32% interest in the GTG
joint venture.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Company operates in the Pump and Compressor Segment and until July
31, 2004, also operated in the Lighting Segment. The Pump and Compressor Segment
designs, manufactures, markets, sells and services pump and compressor products
through worldwide operations. In August 2002, we significantly increased the
size of our pump and compressor business by acquiring substantially all the
assets and liabilities of Werner Rietschle Holding GmbH ("Rietschle"), a
privately held company based in Schopfheim, Germany. Rietschle's operating
results are included in the Company's operating results since the August 29,
2002 acquisition date. The Pump and Compressor Segment supplies products to
original equipment manufacturers (OEMs) in such markets as medical equipment,
environmental, automotive, printing, packaging and many others. An important
market for the Company is medical equipment, which includes compressors used in
oxygen concentrators, nebulizers, aspirators, and other devices.
As previously announced, sales to the OEM oxygen concentrator market
were reduced in 2004 by $6.8 million as a result of the loss of one of our
customer's oxygen concentrator product lines to a competitor beginning late in
the second quarter of 2004. Even with the loss of these sales, the Company
believes it has the leading share in the oxygen concentrator market worldwide.
Pricing in this market has continued to decline due to competition and threat of
foreign manufacturers.
In order to reduce our cost structure and remain price competitive, the
Company constructed a manufacturing facility in China during late 2004, which
should be in production in the first half of 2005. The Company incurred no
restructuring or exit costs at existing facilities in connection with this
production transfer and have no plans for any of these costs in 2005. We also
had no asset impairment charges or reduction in expected service lives of assets
at existing facilities related to this production transfer in 2004 and expect
none in 2005. During 2003, we closed our manufacturing facility in Fleurier,
Switzerland, and relocated this production to other facilities. In 2003, we also
built and opened a new facility in Memmingen, Germany and relocated our
operations from an older leased facility late in 2003. This new facility allows
the Company to produce in a more efficient manner and consolidate production. In
February 2004, the Company announced the closing of its Wuppertal, Germany
manufacturing facility, which generated approximately $2.8 million of one-time
costs in 2004. Production from the Wuppertal facility has now been transferred
to the new Memmingen facility. We believe these steps were necessary to better
position the Company for future growth opportunities and cost reductions.
We have received certain commodity cost increases, which have impacted
our costs, although we attempt to offset these with price increases and ongoing
cost reduction programs. The Company is also experiencing increased costs
related to requirements by Section 404 of the Sarbanes-Oxley Act. In 2004, the
Company recorded approximately $1.5 million of pre-tax charges related to
internal control documentation and testing for Sarbanes-Oxley compliance.
Until July 31, 2004, the Company also operated in the Lighting Segment
through its 32% interest in Genlyte Thomas Group LLC (GTG) joint venture. The
Company's investment in GTG was accounted for by using the equity method of
accounting. GTG designs, manufacturers, markets, and sells lighting fixtures for
a wide variety of applications in the commercial, industrial and residential
markets for both indoor and outdoor fixtures. Effective with the close of
business on July 31, 2004, the Company sold its 32% interest in GTG to The
Genlyte Group Incorporated for approximately $401 million, which generated an
$84.1 million net after-tax gain.
On March 9, 2005, we announced that we have entered into an Agreement
and Plan of Merger ("Merger Agreement") with Gardner Denver, Inc. Under the
terms of the Merger Agreement, Gardner Denver will pay $40.00 per share in cash
for all of the issued and outstanding shares of common stock of Thomas. The
transaction is conditioned on obtaining requisite approval from the shareholders
of Thomas, necessary regulatory approvals and other customary closing
conditions. Upon closing of the acquisition, Thomas will become a subsidiary of
Gardner Denver and will no longer be a publicly traded company. The parties
expect to close the transaction during 2005.
As discussed in Note 17 - Subsequent Event of the Notes to Consolidated
Financial Statements, on January 10, 2005, the Company acquired certain assets
of the side channel blower business of Ruey Chaang Electric Co, Ltd. of Taipei,
Taiwan for approximately $12.0 million. This acquisition will enhance the
Company's Asian presence and provide further opportunities for growth through
our global distribution network.
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 conformity with United States generally accepted
accounting principles. 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, pensions and other postretirement benefits,
income taxes, 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.
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. Included with the
accounting policies are potential changes to results, which could occur if
different assumptions or conditions were to prevail.
Allowance for Doubtful Accounts Receivable: The Company maintains
allowances for doubtful accounts for uncollectible invoices resulting from the
customer's inability or refusal to pay. Management's estimated allowances are
established based on an aging of accounts receivable and applying percentages
based on historical experience to aging categories. In addition, where the
Company is aware of a customer's inability to pay, it specifically reserves for
the potential bad debt to reduce the receivable to the amount it reasonably
believes will be collected. If the financial conditions of Thomas' customers
deteriorates, resulting in an impairment of their ability to make payments,
additional allowances would be required.
Reserve for Slow Moving and Obsolete Inventory: The Company records
inventory at the lower of cost or market. The Company estimates and reserves for
excess quantities of slow moving or obsolete inventory. These reserves are
primarily based upon management's assessment of the salability of the inventory,
historical usage of raw materials and historical demand for finished goods, and
estimated future usage and demand. An improper assessment of salability or
improper estimate of future usage or demand, or significant changes in usage or
demand could result in significant changes in the reserves and a positive or
negative impact on the Company's results of operations in the period the change
occurs.
Revenue Recognition: Revenue from product sales is recognized upon
title transfer, which occurs upon shipment, based on our customary terms of
sale, which are FOB shipping point. We do have exceptions to this general policy
which are described as follows:
1) Revenues from service and repair activities are approximately 6%
of our total sales. Some of these service and repair revenues do
not involve a shipment of product, but instead, relate to the
performance of a service or repair. Billings for these activities
are not made until the service activity has occurred. There are
other instances where we offer customers an annual service
contract, which we invoice in twelve monthly billings.
2) There are instances where we have consignment inventory
arrangements and in these instances, revenue is not recorded upon
shipment to our customer. Revenue is only recorded when our
customer ships the inventory to their customer or uses it for
other purposes. These consignment inventory arrangements are
insignificant.
3) There are instances where our terms of sale are FOB destination.
We record accounting entries at the end of reporting periods, to
make sure these revenues are deferred to the subsequent period.
These instances are insignificant.
Credit is extended based on local business customs and practices, and
collateral is not required. We estimate and record provisions for warranties in
the period the related products are sold. The warranty liabilities are
established based upon management's assessment of the various product warranty
periods, historical data and trends of warranty claims paid, and any current
information regarding specific warranty issues. 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.
Impairment of Goodwill: Statement of Financial Accounting Standards No.
142, "Goodwill and Other Intangible Assets" ("SFAS No. 142"), was issued in July
2001 and became effective for the Company on January 1, 2002. Goodwill is now
subject to an assessment for impairment on a reporting unit basis by applying a
fair-value-based test annually, and more frequently if circumstances indicate a
possible impairment. If a reporting unit's carrying value exceeds its fair
value, and the reporting unit's carrying value of its goodwill exceeds the
implied fair value of that goodwill, an impairment loss is recognized in an
amount equal to that excess. The evaluation of goodwill for impairment requires
management to use significant estimates and assumptions including, but not
limited to, projecting future revenue, operating results, and cash flow of each
of the Company's reporting units. Although management believes the estimates and
assumptions used in the evaluation of goodwill are reasonable, differences
between actual and projected revenue, operating results, and cash flow could
cause some of the Company's goodwill to be deemed impaired. If this were to
occur, the Company would be required to write down the goodwill, which could
have a material negative impact on the Company's results of operations and
financial condition.
Long-Lived Assets: The Company evaluates the recoverability of the
carrying amount on long-lived assets (including property, plant and equipment
and intangible assets with determinable lives) whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be fully
recoverable. We evaluate events or changes in circumstances based on a number of
factors including operating results, business plans and forecasts, general and
industry trends and economic projections and anticipated cash flows. An
impairment is assessed when the undiscounted expected future cash flows derived
from an asset are less than its carrying amount. Impairment losses are measured
as the amount by which the carrying value of an asset exceeds its fair value and
are recognized in earnings. To the extent actual cash flows differ from these
estimated amounts, results could be adversely affected.
Retirement Plans and Post-Retirement Benefit Plans: Assets and
liabilities of the Company's defined benefit plans are determined on an
actuarial basis and are affected by the estimated market value of plan assets,
estimates of the expected return on plan assets, and discount rates. Actual
changes in the fair market value of plan assets and differences between the
actual return on plan assets and the expected return on plan assets as well as
changes in the discount rate, will affect the amount of pension expense
recognized, impacting the Company's results of operations. The liability for
post-retirement medical and life insurance benefits is also determined on an
actuarial basis and is affected by assumptions including the discount rate and
expected trends in health care costs. Changes in the discount rate and
difference between actual and expected health care costs will affect the
recorded amount of post-retirement benefits expense, impacting the Company's
consolidated results of operations.
Self-Insurance Medical Claims: The Company is self-insured for the
medical benefit plans covering approximately 75% of its U.S. employees. The
Company estimates its liability for claims incurred by applying a lag factor to
the Company's historical claims and administrative cost experience. The validity
of the lag factor is evaluated periodically and revised if necessary. Although
management believes the current estimated liabilities for medical claims are
reasonable, changes in the lag in reporting claims, changes in claims
experience, unusually large claims, and other factors could materially affect
the recorded liabilities and expense, impacting the Company's consolidated
financial condition and results of operations.
Income Taxes: Significant management judgment is required in developing
the Company's income tax provision, including the determination of deferred tax
assets and liabilities and any valuation allowances that might be required
against deferred tax assets. The Company operates in multiple taxing
jurisdictions and is subject to audit in those jurisdictions. Because of the
complex issues involved, any assessments can take an extended period of time to
be resolved. In management's opinion, adequate income tax provisions have been
made and adequate tax reserves exist to cover probable risks. However, results
of Internal Revenue Service or other jurisdictional audits, closing of past
years' tax returns no longer subject to audit, and future tax law changes could
have a material impact on the Company's future tax liabilities and provisions,
impacting the Company's consolidated financial condition and results of
operations.
Contingencies and Litigation: As discussed in "Note 11 - Leases,
Commitments and Contingencies" in the Notes to Consolidated Financial
Statements, the Company is a party to legal proceedings and claims, as well as
environmental rules and regulations. 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 consolidated financial position,
results of operations, or liquidity of the Company, the ultimate outcome of
these matters is uncertain. Were an unfavorable outcome to occur, the impact
could be material to the Company.
RESULTS OF OPERATIONS
On August 29, 2002, the Company purchased substantially all the assets
and liabilities of Werner Rietschle Holding GmbH ("Rietschle"), a privately held
company based in Schopfheim, Germany. See Note 3 in the notes to consolidated
financial statements. Results of Rietschle are included in our operations
beginning August 29, 2002.
The Company's 2004 net income of $114.2 million was $76.9 million
higher than the $37.3 million for 2003. The 2004 net income included an $84.1
million, or $4.74 per share, net gain from the sale of our 32% joint venture
interest in GTG. Since the sale occurred effective with the close of business on
July 31, 2004, our 2004 results only included GTG equity earnings for seven
months versus twelve months in 2003. The 2003 net income included a
non-recurring gain of $1.4 million, or $.08 per share, related to the settlement
of GTG's patent infringement lawsuit. The 2003 net income of $37.3 million was
14.1% higher than the $32.7 million for 2002. The Rietschle operating results
were included for twelve months in 2003 versus four months in 2002.
PUMP AND COMPRESSOR SEGMENT
Net Sales
- ---------
Net sales for the Pump and Compressor Segment in 2004 increased $33.3
million, or 8.8%, to $410.1 million, compared to $376.8 million for 2003.
Approximately $22 million of the $33.3 million increase in 2004 net sales was
due to the effects of exchange rates. Net sales in the North American operations
increased $3.0 million, or 2.0%, to $156.2 million in 2004 compared to $153.2
million in 2003. This increase occurred even though our sales to the oxygen
concentrator OEM market were reduced in 2004 by $6.8 million as a result of the
loss of one of our customer's oxygen concentrator product lines to a competitor.
More than offsetting this $6.8 million decline in 2004 were increases of $4.3
million with other oxygen concentrator customers, as well as increases in other
medical market applications ($4.4 million), and industrial market applications
($1.5 million). European sales increased by $24.7 million, or 13.1%, to $214.0
million in 2004, compared to $189.3 million in 2003. Approximately $20.0 million
of the 2004 increase was due to foreign exchange rate fluctuations. Net sales in
the Asia Pacific operations increased $5.6 million, or 16.2%, to $39.9 million
in 2004, compared to $34.3 million in 2003. Approximately $2.0 million of the
2004 increase was due to foreign exchange rate fluctuations. Also contributing
to Asia Pacific's increase in 2004 were volume increases in the environmental
($.5 million) and industrial ($1.0 million) markets.
Net sales in 2003 increased $136.2 million, or 56.6%, to $376.8
million, compared to $240.6 million in 2002. Acquisitions accounted for $120.6
million of the 2003 increase in net sales, since the Rietschle acquisition was
only included for the last four months of 2002 versus twelve months in 2003.
Approximately $10.4 million of the 2003 sales increase was due to foreign
exchange fluctuations. The North American operations reported a $21.9 million,
or 16.6% increase over 2002 levels, as net sales increased from $131.3 million
in 2002 to $153.2 million in 2003. Acquisitions contributed $15.6 million to the
2003 increase. The remaining increase in North American sales related to
increased sales in the medical ($7.9 million) and automotive ($.9 million)
markets, which were partially offset by decreases in various other markets.
European operations posted a $98.6 million, or 108.6%, increase in net sales.
Net sales for Europe were $189.3 million for 2003, compared to $90.7 million in
2002. Acquisitions contributed $89.4 million of the 2003 increase, while foreign
exchange rate fluctuations increased 2003 net sales by approximately $8.8
million. Net sales in 2003 for the Asia Pacific operations increased $15.8
million, or 85.1%, to $34.3 million, compared to $18.5 million in 2002.
Approximately $15.6 million of the 2003 increase related to acquisitions, while
foreign exchange rate fluctuations increased 2003 sales by approximately $1.5
million. Asia Pacific 2003 net sales were negatively impacted by weaker sales in
the environmental ($.9 million) and medical ($.7 million) markets.
Gross Profit
- ------------
Gross profit for the Pump and Compressor Segment was $147.5 million or
36.0% of sales in 2004, compared to $129.9 million, or 34.5% of sales in 2003.
The improved gross profit percentage for 2004 is primarily related to favorable
sales mix and the improved efficiencies gained in 2004 from facility
rationalization plans implemented in 2003 and early 2004.
Gross profit was $129.9 million or 34.5% of sales in 2003, compared to
$85.7 million, or 35.6% of sales in 2002. The 2003 gross profit was negatively
impacted by costs incurred related to the 2003 facility rationalization plans.
Selling, General and Administrative Expenses
- --------------------------------------------
The Pump and Compressor Segment's 2004 selling, general and
administrative (SG&A) expenses were $106.5 million, or 26.0% of sales, compared
to $93.2 million, or 24.7% of sales in 2003. These exclude corporate expenses
which are discussed in a separate section below. The higher percent of sales in
2004 for SG&A expenses is primarily due to some expenses that were incurred in
2004, but not in 2003. These include expenses for the Wuppertal facility
shutdown ($2.7 million), higher professional fees related to internal control
documentation and testing for Sarbanes-Oxley Act compliance (SOX compliance)
($1.0 million) and higher incentive compensation expenses ($1.5 million).
The 2003 SG&A expenses were $93.2 million, or 24.7% of sales, compared
to $54.0 million, or 22.5% of sales in 2002. The higher percent of sales in 2003
for SG&A expenses is primarily due to having a full year of Rietschle sales and
service offices throughout the world, which require a higher level of SG&A costs
to operate, as well as increased personnel costs.
Operating Income
- ----------------
Operating income, excluding corporate expenses, in 2004 for the Pump
and Compressor Segment increased $4.2 million, or 11.4%, to $40.9 million,
compared to $36.7 million for 2003. As a percent to net sales, the 2004
operating income was 10% of net sales versus 9.8% in 2003. The North American
operations had a 2.3% decrease in operating income in 2004 versus 2003 due to
$.3 million of patent legal costs and general pricing pressures in certain
markets. The European and Asia Pacific operations posted double digit increases
in operating income for 2004 versus 2003. Europe benefited from the improved
efficiencies from facility rationalization changes. The Asia Pacific increase in
2004 was primarily due to volume gains.
Operating income in 2003 increased $5.0 million, or 16%, to $36.7
million, compared to $31.7 million for 2002. As a percent to net sales, the 2003
operating income was 9.8% of net sales versus 13.2% in 2002. Acquisitions
contributed $5.9 million of incremental operating income to 2003. Included in
2003 were relocation, moving and rearrangement expenses of $1.0 million which
lowered operating income. North American operations posted slightly lower
operating income in 2003 versus 2002, primarily due to competitive pricing
pressures in certain markets and applications. The European and Asia Pacific
operating income increased in 2003 compared to 2002, primarily due to
acquisitions.
LIGHTING SEGMENT
The Genlyte Group Incorporated (Genlyte) and Thomas formed Genlyte
Thomas Group LLC (GTG) on August 30, 1998. Effective with the close of business
on July 31, 2004, Thomas sold its 32% interest in GTG to Genlyte for
approximately $400.9 million. Thomas' investment in GTG was accounted for using
the equity method of accounting. The Lighting Segment's operating income
includes our 32% interest in GTG, as well as expenses related to Thomas stock
options issued to GTG employees. The Lighting Segment's operating income for the
seven months ended July 31, 2004, was $18.6 million, compared to $32.1 million
for the twelve months of 2003. Included in 2003 was a pre-tax gain of $2.3
million related to the settlement of GTG's patent infringement lawsuit. The
Lighting Segment's operating income was $32.1 million in 2003, compared to $28.8
million in 2002.
The calculation of the Company's adjusted book basis as of July 31,
2004 and gain on sale calculation are in the table that follow:
The Company's adjusted book basis in GTG as of July 31, 2004 was as
follows (in millions):
Investment in GTG at July 31, 2004 $230.5
Thomas' adjustment for accelerated option expense
treated as a transaction cost (.2)
Other comprehensive loss items:
Minimum pension liability 5.5
Foreign currency translation .5
------
Adjusted GTG book basis at July 31, 2004 $236.3
======
The gain on the sale of GTG, which the Company recorded in 2004, was
calculated as follows (in millions):
Total sale price $400.9
Transaction costs (4.2)
Net proceeds 396.7
Adjusted book basis at July 31, 2004 (236.3)
Pre-tax book gain 160.4
Income taxes (76.3)
Net after-tax gain $ 84.1
Earnings per share - diluted $ 4.74
This gain calculation is an estimate subject to final determination of
taxes of the transaction when tax returns are filed in 2005. The effective
income tax rate recorded on the gain of 47.6% is primarily due to the basis
differences for financial reporting and tax purposes in the joint venture
interest in GTG.
CORPORATE
Consolidated operating income includes corporate expenses. Corporate
expenses were $11.2 million for 2004, compared to $8.7 million for 2003. The
increase in 2004 corporate expenses relates to incremental environmental matters
($.8 million), higher personnel related costs ($.9 million), higher legal
expenses ($.6 million), expense related to the SOX compliance ($.5 million), and
additional costs related to expanding our presence in China ($.3 million).
Corporate expenses were $8.7 million for 2003, compared to $6.0 million for
2002. The increase in 2003 corporate expenses relates to higher professional
fees related to a reorganization of our legal structure ($.7 million), higher
accounting/tax fees ($.4 million), higher personnel related costs ($.5 million),
higher franchise taxes ($.3 million) and higher banking fees associated with the
Rietschle acquisition ($.4 million).
Interest expense for 2004 was $2.7 million compared to $4.2 million for
2003. The reduction in 2004 was primarily related to the pay down of long-term
debt that occurred with the proceeds from the July 31, 2004 sale of GTG. Senior
notes, which carried a 9.36% annual interest rate, in the amount of $7.7 million
were paid off on January 31, 2004. Industrial revenue bonds of $1.25 million
were paid off in July 2004. Then on August 2, 2004, the remaining $7.7 million
of senior notes, as well as our variable rate debt which included revolving
credit notes and short-term borrowing arrangements, were paid off. Interest
expense for 2003 was $4.2 million compared to $3.4 million for 2002. The
increase in 2003 was primarily related to having the Rietschle acquisition
related debt for the full year in 2003 versus four months in 2002. This was
partially offset due to the $7.7 million payment on January 31, 2003, of senior
notes carrying a 9.36% annual interest rate.
Interest income for 2004 was $2.3 million, compared to $.3 million for
2003. The increase in 2004 was due to the investment of the net amount received
on August 2, 2004 from the sale of our 32% interest in GTG. The net amount
represents proceeds received less long-term and short-term debt pay offs, as
well as associated income tax and transaction cost payments. The net amount was
invested in available-for-sale securities, which included tax advantaged debt
securities. Interest income for 2003 was $.3 million compared to $.5 million in
2002.
Other income (expense) for 2004 was an expense of $.7 million compared
to an expense of $.5 million in 2003. The 2004 and 2003 expenses include foreign
currency transaction losses of $.6 million. Other income (expense) for 2003 was
an expense of $.5 million compared to an expense of $.4 million in 2002. The
amounts include foreign currency transaction losses of $.6 million in 2003 and
$.5 million in 2002.
Income tax provisions were $93.5 million, $18.3 million, and $18.5
million in 2004, 2003, and 2002, respectively. The effective income tax rate was
45.0% in 2004, compared to 32.9% in 2003 and 36.1% in 2002. The increase in the
2004 provision and rate was due to the inclusion of $76.3 million of tax
provision, calculated at a 47.6% rate, related to the sale of the Company's
joint venture interest in GTG. The higher effective tax rate was due to the
basis difference for financial reporting and tax purposes in the joint venture
interest in GTG. The 2004 provision and rate, excluding the impact of the sale
of GTG, are $17.2 million and 36.5%, respectively. The decline in the effective
rate in 2003 versus 2002 was primarily due to the effect of foreign tax rates
and the realization of income tax loss carryforward benefits in certain foreign
jurisdictions.
LIQUIDITY AND SOURCES OF CAPITAL
Cash flows used in operations in 2004 were $51.9 million compared to
cash flows provided by operations in 2003 of $32.4 million. The decrease in 2004
was primarily related to the payment of $76.3 million of income tax due on the
gain from the GTG sale transaction. Cash flows provided by operations in 2003
were $32.4 million compared to $27.6 million in 2002. The increase in 2003
versus 2002 was primarily related to increases in net income.
Cash provided by investing activities in 2004 was $257.3 million
compared to cash used in investing activities in 2003 of $23.2 million. The
increase in 2004 was primarily related to the $400.9 million of proceeds
received from the sale of GTG, of which, $133.6 million was used to purchase
short-term investments. The Company also received proceeds of $6.2 million,
which represents an adjustment to the Company's purchase price of Rietschle.
Capital expenditures decreased from $20.1 million in 2003 to $16.4 million in
2004. The 2003 capital expenditures included $5.0 million for a new
manufacturing facility in Germany. Cash used in investing activities was $23.2
million in 2003 compared to $92.4 million in 2002. The decrease in cash used was
primarily related to the Rietschle acquisition in August 2002 for $83.3 million.
Capital expenditures were $20.1 million in 2003, compared to $8.4 million in
2002. As noted previously, 2003 capital expenditures included $5.0 million for a
new German manufacturing facility, as well as a full year impact for Rietschle
locations versus only four months in 2002.
Cash used in financing activities was $104.3 million in 2004 compared
to $6.4 million in 2003. The increase in cash used in 2004 was primarily related
to the debt payments made as a result of having cash proceeds from the GTG sale
transaction. Financing activities used cash of $6.4 million in 2003 compared
with providing cash of $52.6 million in 2002. The change between 2002 and 2003
primarily relates to the debt associated with the Rietschle acquisition. In
2002, the Company borrowed $80.0 million to partially finance the Rietschle
acquisition, and also made payments of $22.8 million related to short-term and
long-term debt.
Dividends paid in 2004 were $6.6 million compared with $6.2 million in
2003 and $5.3 million in 2002. The increase in 2004 was primarily related to a
higher number of outstanding shares due to a higher number of stock options
being exercised in 2004, which increased since GTG employees were required to
exercise their options by December 31, 2004 or forfeit them. The 2003 dividends
increased over 2002 primarily due to the issuance of 1.8 million shares in
August 2002 in connection with the acquisition of Rietschle. Also, effective
with the April 1, 2003 dividend, the Company increased its quarterly dividend
per share from $.085 to $.095.
The following summarizes the Company's contractual obligations at
December 31, 2004, and the effect such obligations are expected to have on its
liquidity and cash flow in future periods.
LESS THAN 1-3 4-5 AFTER
TOTAL 1 YEAR YEARS YEARS 5 YEARS
----- ------ ----- ----- -------
(IN THOUSANDS)
Contractual Obligations:
Capital lease obligations..................................... $9,548 $1,797 $495 $506 $6,750
Operating leases.............................................. 21,421 5,630 8,299 5,845 1,647
Purchase obligations.......................................... 34,879 34,719 122 38 --
Other long-term obligations................................... 658 209 337 112 --
------- ------- ------ ------ ------
Total contractual obligations................................. $66,506 $42,355 $9,253 $6,501 $8,397
======= ======= ====== ====== ======
Purchase obligations are defined as an agreement to purchase goods or
services that is enforceable and legally binding on the Company. These primarily
relate to normal ongoing inventory purchase obligations but also include other
items such as capital commitments and service agreements. The purchase
obligation amounts do not represent the entire anticipated purchases in the
future, but represent only those items for which the Company is contractually
obligated as of December 31, 2004. There also may be circumstances where goods
and services are purchased as needed, with no enforceable and legally binding
commitment. For this reason, these numbers will not provide a complete and
reliable indicator of the Company's expected future cash outflows.
As of December 31, 2004, the Company had standby letters of credit
totaling $3,080,000 with expiration dates during 2005. 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 2004, no purchases were made. Through December 31, 2004, 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 its current cash position.
The Company has short-term investments and cash equivalents of $251.7
million as of December 31, 2004 that bear interest at variable rates. A 100
basis point movement in the interest rate would result in an approximate
$2,517,000 annualized effect on interest income and cash flows.
The Company has significant operations consisting of sales and
manufacturing activities in foreign countries. As a result, the Company's
consolidated financial results could be significantly affected by factors such
as changes in 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, Asia and South
America. The Company's objective is to reduce earnings and cash flow volatility
associated with foreign exchange rate changes to allow management to focus its
attention on its core business issues and challenges. Accordingly, the Company
enters into foreign currency forward contracts that change in value as foreign
exchange rates change to protect the value of anticipated foreign currency
revenues and expenses. The gains and losses on these contracts offset changes in
the value of the underlying transactions as they occur. The Euro is the only
currency hedged. At December 31, 2004, the Company held forward contracts
expiring through December 2005 to hedge probable, but not firmly committed,
intercompany inventory purchases. These hedging contracts are classified as cash
flow hedges and accordingly, are adjusted to current market values through other
comprehensive income until the underlying transactions are recognized. Upon
recognition, such gains and losses are recorded in operations as an adjustment
to the carrying amounts of the underlying transactions in the period in which
these transactions are recognized. At December 31, 2004, the foreign currency
forward contracts had a notional amount of Euro 6,000,000 and a fair value of
approximately $657,700. The fair value of the foreign currency forward
contracts, which represents an asset, is included in other current assets. The
amount of pre-tax net gain deferred through other comprehensive income as of
December 31, 2004 was approximately $631,900. There was $25,800 of gain
recognized in 2004. A 100 basis point movement in foreign currency rates on the
Company's open foreign exchange contracts at December 31, 2004 would not
materially affect the Company's consolidated financial statements.
Working capital increased from $95.6 million at December 31, 2003, to
$355.8 million at December 31, 2004, primarily due to the net proceeds from the
GTG sale transaction, which were invested after being reduced for payments for
long-term and short-term debt, income taxes, and transaction costs. Working
capital increased from $82.0 million at December 31, 2002, to $95.6 million at
December 31, 2003, primarily due to foreign currency exchange rate impacts.
DECEMBER 31
-----------
2004 2003 2002
---- ---- ----
(DOLLARS IN THOUSANDS)
Working capital................................ $355,779 $95,581 $82,030
Current ratio.................................. 7.20 2.59 2.66
Long-term debt, less current portion........... 7,751 $102,673 $104,047
Long-term debt to total capital................ 1.4% 21.1% 24.9%
The Company has no loan agreements which include restrictions on
working capital, operating leases, tangible net worth, and the payment of cash
dividends and stock distributions.
As of December 31, 2004, the Company had no revolving line of credit
facilities with its banks. As of December 31, 2004, the Company had no
uncommitted short-term borrowing arrangements.
NEW ACCOUNTING PRONOUNCEMENTS
In November 2004, the FASB issued Statement of Financial Accounting
Standards No. 151 (FASB 151), Inventory Costs. The Company is required to adopt
the provisions of FASB 151, on a prospective basis, as of January 1, 2006. FASB
151 clarifies the accounting for abnormal amounts of idle facility expense,
freight, handling costs, and wasted material. FASB 151 requires that those items
- - if abnormal - be recognized as expenses in the period incurred. In addition,
FASB 151 requires the allocation of fixed production overheads to the costs of
conversions based upon the normal capacity of the production facilities. The
Company has not yet determined what effect FASB 151 will have on its earnings
and financial position.
In December 2004, FASB issued Statement of Financial Accounting
Standards No. 123 (revised 2004) (FASB 123R), Share-Based Payment. FASB 123R
will require the Company to expense share-based payments, including employee
stock options, based on their fair value. The Company is required to adopt the
provisions of FASB 123R effective as of the beginning of its third quarter in
2005, however, earlier adoption in 2005 is allowed. FASB 123R provides
alternative methods of adoption which include prospective application and a
modified retroactive application. The Company adopted the fair-value method of
accounting for share-based payments effective January 1, 2003 using the
prospective method described in FASB Statement No. 148, Accounting for
Stock-Based Compensation - Transition and Disclosure. Currently, the Company
uses the Black-Scholes-Merton formula to estimate the value of stock options
granted to employees and expects to continue to use this acceptable option
valuation model upon the required adoption of Statement 123R on July 1, 2005.
Because Statement 123R must be applied not only to new awards, but to previously
granted awards that are not fully vested on the effective date, and because the
Company adopted Statement 123 using the prospective transition method (which
applied only to awards granted, modified or settled after the adoption date),
compensation cost for some previously granted awards that were not recognized
under Statement 123 will be recognized under Statement 123R. However, had we
adopted Statement 123R in prior periods, the impact of that standard would have
approximated the impact of Statement 123 as described in the disclosure of pro
forma net income and earnings per share noted above. Statement 123R also
requires the benefits of tax deductions in excess of recognized compensation
cost to be reported as a financing cash flow, rather than as an operating cash
flow as required under current literature. This requirement will reduce net
operating cash flows and increase net financing cash flows in periods after
adoption. While the Company cannot estimate what those amounts will be in the
future (because they depend on, among other things, when those employees
exercise stock options), the amount of operating cash flows recognized in prior
periods for such excess tax deductions were $2,805,000, $464,000, and $221,000
in 2004, 2003 and 2002, respectively. The 2004 amount was significantly higher
than 2003 and 2002 due primarily to the increased options exercised by GTG
employees. The vesting of options to GTG employees was accelerated and the
options became 100% vested as of July 31, 2004. As part of the GTG sale
agreement, the GTG employees had until December 31, 2004 to exercise or forfeit
their options.
In December 2004, the FASB issued FASB Staff Position (FSP) 109-1,
"Application of FASB Statement No. 109, Accounting for Income Taxes, to the Tax
Deduction on Qualified Production Activities Provided by the American Jobs
Creation Act of 2004" and FSP 109-2, "Accounting for Disclosure Guidance for the
Foreign Earnings Repatriation Provision within the American Jobs Creation Act of
2004." FSP 109-1 provides a tax deduction on qualified production activities,
while FSP 109-2 introduces a special one-time dividends-received deduction on
the repatriation of certain foreign earnings to a U.S. taxpayer, provided
certain criteria are met. The Company has adopted both of these staff positions
in 2004 (See Note 7).
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-K Report 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 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 performance 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 The Company believes that the Pump and Compressor Segment has a
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. As noted in the
overview section, the Company noted that in 2004 it lost $6.8
million in sales from this market beginning in the second quarter
of 2004. The further loss of significant market share in the
oxygen concentrator OEM market could have a significant adverse
affect on the Company's results.
o With the Rietschle acquisition, the Company has a larger
percentage of its net assets exposed to foreign currency risks.
As a result, this increased exposure to foreign currency risks
may adversely affect the Company's results.
o With the Rietschle acquisition, the Company has a leading market
share in supplying compressors and systems to the printing
industry worldwide. The Company's market share could be reduced
significantly due to competition or technology. The loss of
market share in the printing industry could have a significant
adverse affect on the Company's results.
o As the Company's business continues to expand outside the United
States, the Company could experience currency exchange rate
fluctuations. 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.
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.
The forward-looking statements made by the Company are based on
estimates that the Company believes are reasonable. However, 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 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has short-term investments and cash equivalents of $251.7
million as of December 31, 2004 that bear interest at variable rates. A 100
basis point movement in the interest rate would result in an approximate
$2,517,000 annualized effect on interest income and cash flows.
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
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, Asia and South America. The
Company's objective is to reduce earnings and cash flow volatility associated
with foreign exchange rate changes to allow management to focus its attention on
its core business issues and challenges. Accordingly, the Company enters into
foreign currency forward contracts that change in value as foreign exchange
rates change to protect the value of anticipated foreign currency revenues and
expenses. The gains and losses on these contracts offset changes in the value of
the underlying transactions as they occur. The Euro is the only currency hedged.
At December 31, 2004, the Company held forward contracts expiring through
December 2005 to hedge probable, but not firmly committed, intercompany
inventory purchases. These hedging contracts are classified as cash flow hedges
and accordingly, are adjusted to current market values through other
comprehensive income until the underlying transactions are recognized. Upon
recognition, such gains and losses are recorded in operations as an adjustment
to the carrying amounts of the underlying transactions in the period in which
these transactions are recognized. At December 31, 2004, the foreign currency
forward contracts had a notional amount of Euro 6,000,000 and a fair value of
approximately $657,700. The fair value of the foreign currency forward
contracts, which represents an asset, is included in other current assets. The
amount of pre-tax net gain deferred through other comprehensive income as of
December 31, 2004 was approximately $631,900. There was $25,800 of gain
recognized in 2004. A 100 basis point movement in foreign currency rates on the
Company's open foreign exchange contracts at December 31, 2004 would not
materially affect the Company's financial statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
In addition to the audited financial statements of Thomas Industries
Inc. which follow, the financial statements of GTG are included in this Form
10-K on pages F-1 to F-28.
MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our management is responsible for establishing and maintaining adequate
internal controls over financial reporting, as such term is defined in Exchange
Act Rule 13a-15(f) and 15d-15(f). Under the supervision and with the
participation of our management, including our principal executive officer and
principal financial officer, we conducted an evaluation of the effectiveness of
our internal control over financial reporting as of December 31, 2004 based on
the framework in Internal Control - Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO). Based on that
evaluation, our management concluded that our internal control over financial
reporting was effective as of December 31, 2004.
Management's assessment of the effectiveness of our internal control
over financial reporting as of December 31, 2004 has been audited by Ernst &
Young LLP, an independent registered public accounting firm, as stated in their
report which is included elsewhere herein.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and
Shareholders of Thomas Industries Inc.
We have audited management's assessment, included in the accompanying
Management's Report on Internal Control Over Financial Reporting, that Thomas
Industries Inc. maintained effective internal control over financial reporting
as of December 31, 2004, based on criteria established in Internal
Control--Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (the COSO criteria). Thomas Industries
Inc.'s management is responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness of internal
control over financial reporting. Our responsibility is to express an opinion on
management's assessment and an opinion on the effectiveness of the company's
internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, evaluating management's assessment, testing and evaluating
the design and operating effectiveness of internal control, and performing such
other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
In our opinion, management's assessment that Thomas Industries Inc. maintained
effective internal control over financial reporting as of December 31, 2004, is
fairly stated, in all material respects, based on the COSO criteria. Also, in
our opinion, Thomas Industries Inc. maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2004,
based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the 2004 consolidated financial
statements of Thomas Industries Inc. and our report dated March 10, 2005
expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Louisville, Kentucky
March 10, 2005
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Shareholders of Thomas Industries Inc:
We have audited the accompanying consolidated balance sheets of Thomas
Industries Inc. (a Delaware corporation) as of December 31, 2004 and 2003, and
the related consolidated statements of income, shareholders' equity, and cash
flows for each of the three years in the period ended December 31, 2004. Our
audits also included the financial statement schedule listed in the Index at
Item 15(a). These financial statements and schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Thomas Industries
Inc. at December 31, 2004 and 2003, and the consolidated results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2004, in conformity with U.S. generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
We also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the effectiveness of Thomas
Industries Inc.'s internal control over financial reporting as of December 31,
2004, based on criteria established in Internal Control--Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission
and our report dated March 10, 2005 expressed an unqualified opinion thereon.
/s/Ernst & Young LLP
Louisville, Kentucky
March 10, 2005
THOMAS INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31
-----------------------
2004 2003 2002
---- ---- ----
(IN THOUSANDS, EXCEPT SHARE DATA)
Net sales............................................................................ $410,114 $376,774 $240,602
Cost of products sold................................................................ 262,654 246,832 154,904
-------- -------- --------
Gross profit......................................................................... 147,460 129,942 85,698
Selling, general and administrative expenses......................................... 117,728 101,943 59,989
Equity income from GTG............................................................... 18,608 32,138 28,804
Gain on sale of GTG.................................................................. 160,410 - -
-------- -------- --------
Operating income..................................................................... 208,750 60,137 54,513
Interest expense..................................................................... 2,691 4,237 3,370
Interest income...................................................................... 2,335 312 456
Other income (expense)............................................................... (724) (533) (434)
-------- -------- --------
Income before income taxes and minority interest..................................... 207,670 55,679 51,165
Income taxes......................................................................... 93,516 18,340 18,452
-------- -------- --------
Income before minority interest...................................................... 114,154 37,339 32,713
Minority interest, net of tax........................................................ - 25 21
-------- -------- --------
Net income........................................................................... $114,154 $37,314 $32,692
======== ======= =======
Net income per share
--Basic.......................................................................... $6.53 $2.17 $2.06
--Diluted........................................................................ $6.44 $2.12 $2.00
Dividends declared per share......................................................... $0.38 $0.37 $0.34
See accompanying notes.
THOMAS INDUSTRIES INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31
-----------
2004 2003
---- ----
(IN THOUSANDS)
ASSETS
Current assets:
Cash and cash equivalents....................................................................... $133,472 $23,933
Short-term investments.......................................................................... 133,627 --
Accounts receivable, net........................................................................ 58,305 52,819
Inventories..................................................................................... 75,207 65,895
Deferred income taxes........................................................................... 5,101 6,688
Other current assets............................................................................ 7,514 6,287
-------- -------
Total current assets.............................................................................. 413,226 155,622
Property, plant and equipment, net................................................................ 114,868 108,350
Investment in GTG................................................................................. - 214,405
Goodwill.......................................................................................... 68,639 70,164
Other intangible assets, net...................................................................... 22,659 21,788
Other assets...................................................................................... 2,544 2,805
-------- -------
Total assets...................................................................................... $621,936 $573,134
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable................................................................................... $ -- $3,088
Accounts payable................................................................................ 17,999 14,312
Accrued expenses and other current liabilities.................................................. 34,204 30,519
Dividends payable............................................................................... 1,689 1,642
Income taxes payable............................................................................ 1,758 595
Current portion of long-term debt............................................................... 1,797 9,885
-------- -------
Total current liabilities......................................................................... 57,447 60,041
Deferred income taxes............................................................................. 8,978 6,177
Long-term debt, less current portion.............................................................. 7,751 102,673
Long-term pension liability....................................................................... 12,170 11,279
Other long-term liabilities....................................................................... 8,657 9,609
-------- -------
Total liabilities................................................................................. 95,003 189,779
Shareholders' equity:
Preferred stock, $1 par value, shares authorized: 3,000,000, none issued........................ -- --
Common stock, $1 par value, shares authorized: 60,000,000, shares issued: 2004-18,648,723;
2003-18,108,664............................................................................... 18,649 18,109
Capital surplus................................................................................. 149,586 137,041
Deferred compensation........................................................................... 1,558 1,211
Treasury stock held for deferred compensation................................................... (1,558) (1,211)
Retained earnings............................................................................... 323,799 216,296
Accumulated other comprehensive income ......................................................... 46,958 23,968
Less cost of 822,339 treasury shares............................................................ (12,059) (12,059)
-------- -------
Total shareholders' equity........................................................................ 526,933 383,355
-------- -------
Total liabilities and shareholders' equity........................................................ $621,936 $573,134
======== ========
See accompanying notes.
THOMAS INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31
-----------------------
2004 2003 2002
---- ---- ----
(IN THOUSANDS)
Common stock:
Beginning of year.................................................................. $18,109 $17,948 $17,856
Stock options exercised............................................................ 528 147 89
Shares issued to deferred share trust.............................................. 11 14 3
Other.............................................................................. 1 -- --
-------- -------- --------
End of year.......................................................................... 18,649 18,109 17,948
Capital surplus:
Beginning of year.................................................................. 137,041 133,964 114,342
Treasury shares issued in connection with acquisition.............................. -- -- 18,356
Stock options exercised............................................................ 8,384 1,703 657
Tax benefit from options exercised and other....................................... 3,818 1,039 517
Shares issued to deferred share trust.............................................. 343 335 92
-------- -------- --------
End of year.......................................................................... 149,586 137,041 133,964
-------- -------- --------
Deferred compensation:
Beginning of year.................................................................. 1,211 846 739
Deferred compensation.............................................................. 347 365 107
-------- -------- --------
End of year.......................................................................... 1,558 1,211 846
-------- -------- --------
Treasury stock held for deferred compensation:
Beginning of year.................................................................. (1,211) (846) (739)
Increase in treasury stock held for deferred compensation.......................... (347) (365) (107)
End of year.......................................................................... (1,558) (1,211) (846)
Retained earnings:
Beginning of year.................................................................. 216,296 185,351 158,161
Net income......................................................................... 114,154 37,314 32,692
Cash dividends declared............................................................ (6,651) (6,369) (5,502)
-------- -------- --------
End of year.......................................................................... 323,799 216,296 185,351
-------- -------- --------
Accumulated other comprehensive income (loss):
Beginning of year.................................................................. 23,968 (10,837) (14,189)
Other comprehensive income (loss)(1)............................................... 22,990 34,805 3,352
-------- -------- --------
End of year.......................................................................... 46,958 23,968 (10,837)
-------- -------- --------
Treasury stock:
Beginning of year.................................................................. (12,059) (12,059) (38,457)
Treasury shares issued in connection with acquisition.............................. -- -- 26,398
-------- -------- --------
End of year.......................................................................... (12,059) (12,059) (12,059)
-------- -------- --------
Total shareholders' equity........................................................... $526,933 $383,355 $314,367
======== ======== ========
(1) A reconciliation of net income to total comprehensive income follows.
YEARS ENDED DECEMBER 31
-----------------------
2004 2003 2002
---- ---- ----
(IN THOUSANDS)
Net income........................................................................... $114,154 $37,314 $32,692
Other comprehensive income (loss):
Minimum pension liability (increase)............................................... 7,942 (225) (6,783)
Related tax expense.............................................................. (3,012) 196 2,476
Derivative adjustment.............................................................. 454 178 --
Related tax expense (credit)..................................................... (173) (67) --
Foreign currency translation....................................................... 17,779 34,723 7,659
-------- -------- --------
Total change in other comprehensive income (loss).................................... 22,990 34,805 3,352
-------- -------- --------
Total comprehensive income........................................................... $137,144 $72,119 $36,044
======== ======= =======
Accumulated other comprehensive income (loss) was comprised of foreign currency
translation gains (losses) of $47,922,000, $30,143,000 and ($4,580,000), and
minimum pension liabilities, net of tax, of ($1,356,000), ($6,286,000) and
($6,257,000), at December 31, 2004, 2003, and 2002, respectively. The change in
the minimum pension liabilities was primarily due to the GTG sale transaction.
Additionally, accumulated other comprehensive income (loss) included gains of
$392,000 and $111,000, net of tax, from derivative adjustments, at December 31,
2004 and 2003.
See accompanying notes.
THOMAS INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
YEARS ENDED DECEMBER 31
-----------------------
2004 2003 2002
---- ---- ----
(IN THOUSANDS)
OPERATING ACTIVITIES
Net income.................................................................................. $114,154 $37,314 $32,692
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation and intangible amortization.................................................. 16,340 15,207 10,468
Deferred income taxes..................................................................... 1,376 1,326 621
Equity income from GTG.................................................................... (18,608) (32,138) (28,804)
Gain on sale of GTG....................................................................... (160,410) -- --
Distributions from GTG.................................................................... 4,350 13,299 13,785
Other items............................................................................... 966 462 1,291
Changes in operating assets and liabilities net of effect of acquisitions:
Accounts receivable..................................................................... (3,312) 2,927 (2,344)
Inventories............................................................................. (4,905) (3,970) 555
Accounts payable........................................................................ 2,827 (2,512) (1,379)
Income taxes payable.................................................................... 4,086 758 (1,663)
Accrued expenses and other current liabilities.......................................... (2,007) 6,598 1,523
Other................................................................................... (6,768) (6,918) 828
-------- ------- -------
Net cash (used in) provided by operating activities......................................... (51,911) 32,353 27,573
INVESTING ACTIVITIES
Purchases of property, plant and equipment.................................................. (16,403) (20,108) (8,358)
Proceeds from sale of property, plant and equipment......................................... 268 327 828
Proceeds from sale of GTG................................................................... 400,902 -- --
Purchases of short-term investments......................................................... (431,322) -- --
Proceeds from sale of short-term investments................................................ 297,695 -- --
Adjustments (payments) for purchase of companies, net of cash acquired...................... 6,154 (3,418) (84,898)
-------- ------- -------
Net cash provided by (used in) investing activities......................................... 257,294 (23,199) (92,428)
FINANCING ACTIVITIES
Proceeds from (payments on) short-term debt, net............................................ (2,904) 1,334 (642)
Payments on long-term debt.................................................................. (122,356) (19,672) (22,173)
Proceeds from long-term debt................................................................ 18,638 16,247 80,000
Dividends paid.............................................................................. (6,604) (6,182) (5,342)
Proceeds from stock options exercised....................................................... 8,912 1,850 745
-------- ------- -------
Net cash (used in) provided by financing activities......................................... (104,314) (6,423) 52,588
Effect of exchange rate changes on cash..................................................... 8,470 2,323 1,646
-------- ------- -------
Net increase (decrease) in cash and cash equivalents........................................ 109,539 5,054 (10,621)
Cash and cash equivalents at beginning of year.............................................. 23,933 18,879 29,500
-------- ------- -------
Cash and cash equivalents at end of year.................................................... $133,472 $23,933 $18,879