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Genlyte Group 10-Q 2007 UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM 10-Q
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d)
OF
THE SECURITIES EXCHANGE ACT OF 1934
For
the
quarterly period ended September 29, 2007
Commission
File Number 0-16960
_______________
 THE
GENLYTE GROUP INCORPORATED
10350
ORMSBY PARK PLACE
SUITE
601
LOUISVILLE,
KY 40223
(502)
420-9500
The
number of shares outstanding of the issuer’s common stock as of October 31, 2007
was 28,293,822.
THE
GENLYTE GROUP INCORPORATED
FORM
10-Q
FOR
THE QUARTER ENDED SEPTEMBER 29, 2007
TABLE
OF CONTENTS
PART
I. FINANCIAL INFORMATION
ITEM
1. FINANCIAL STATEMENTS
THE
GENLYTE GROUP INCORPORATED
NOTES
TO
CONSOLIDATED INTERIM FINANCIAL STATEMENTS
AS
OF SEPTEMBER 29, 2007
(Dollars
in thousands, except per share amounts)
(Unaudited)
(1) Summary
of Significant Accounting Policies
Basis
of Presentation: Throughout this Form 10-Q, “Company” as used herein
refers to The Genlyte Group Incorporated, including the consolidation of The
Genlyte Group Incorporated and all majority-owned
subsidiaries. “Genlyte” as used herein refers only to The Genlyte
Group Incorporated. “GTG” as used herein refers to Genlyte Thomas
Group LLC, which is owned 100% by Genlyte.
The
financial information presented is unaudited; however, such information reflects
all adjustments, consisting solely of normal recurring adjustments, which are,
in the opinion of management, necessary for a fair statement of results for
the
interim periods. The year-end 2006 balance sheet was derived from
audited financial statements, but does not include all disclosures required
by
accounting principles generally accepted in the United States
(“GAAP”). The financial information is presented in U.S. dollars and
has been prepared in accordance with rules and regulations of the Securities
and
Exchange Commission (“SEC”) for Form 10-Q. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with GAAP have been condensed or omitted pursuant to such rules
and
regulations. For further information refer to the consolidated
financial statements and notes thereto included in the Company’s Annual Report
on Form 10-K for the year ended December 31, 2006. The results of
operations for the three and nine month periods ended September 29, 2007 are
not
necessarily indicative of the results to be expected for the full
year.
Use
of Estimates: Management of the Company has made a number of estimates
and assumptions relating to the reporting of assets, liabilities, revenues,
and
expenses and the disclosure of contingent assets and liabilities to prepare
these financial statements in conformity with GAAP. Actual results
could differ from these estimates.
New
Accounting Standards Yet To Be Adopted: In September 2006,
the Financial Accounting Standards Board (“FASB”) issued Statement of Financial
Accounting Standards (“SFAS”) No. 157, “Fair Value Measurements” (“SFAS No.
157”). This new standard provides guidance for using fair value to
measure assets and liabilities. The FASB believes SFAS No. 157 also
responds to investors' requests for expanded information about the extent to
which companies measure assets and liabilities at fair value, the information
used to measure fair value, and the effect of fair value measurements on
earnings. SFAS No. 157 applies whenever other standards require (or
permit) assets or liabilities to be measured at fair value but does not expand
the use of fair value in any new circumstances. SFAS No. 157 will
become effective for the Company as of January 1, 2008. The Company
is currently assessing the effect of implementing this guidance, but does not
expect the adoption of SFAS No. 157 to have a material impact on the Company’s
financial condition or results of operations.
In
February 2007 the FASB issued SFAS No. 159, “The Fair Value Option for Financial
Assets and Financial Liabilities” (“SFAS No. 159”). SFAS No. 159
permits companies, at their election, to measure specified financial instruments
and warranty and insurance contracts at fair value on a contract-by-contract
basis, with changes in fair value recognized in earnings each reporting
period. The election, called the “fair value option,” will enable
some companies to reduce the volatility in reported earnings caused by measuring
related assets and liabilities differently, and it is simpler than using the
complex hedge-accounting requirements in SFAS No. 133, “Accounting for
Derivative Instruments and Hedging Activities,” to achieve similar
results. SFAS No. 159 will become effective for the Company as of
January 1, 2008. The Company is currently assessing the effect of
implementing this guidance, but does not expect the adoption of SFAS No. 159
to
have a material impact on the Company’s financial condition or results of
operations.
4
THE
GENLYTE GROUP INCORPORATED
NOTES
TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS (continued)
AS
OF SEPTEMBER 29, 2007
(Dollars
in thousands, except per share amounts)
(Unaudited)
(2)
Acquisitions
Hanover
Lantern in 2007: On February 1, 2007, the Company acquired
Hanover Lantern, Inc. (“Hanover”), which is located in Hanover,
Pennsylvania. Hanover was a privately held lighting fixture company
servicing the outdoor commercial, decorative, municipal, and residential
markets. Hanover’s group of recognized products complements the
Company’s current outdoor product lines. The preliminary purchase
price of $26,523 (including acquisition costs of $161) was financed with cash
on
hand.
The
Hanover acquisition was accounted for using the purchase method of
accounting. The latest preliminary determination of the fair market
value of net assets acquired resulted in an indicated excess of the purchase
price over the fair value of the net assets acquired (goodwill) of
$13,522. The Company is awaiting its final determination of the fair
value of intangible assets and property, plant, and
equipment. Accordingly, the amounts recorded could change as the
purchase price allocation is finalized. The operating results of
Hanover have been included in the Company’s consolidated financial statements
since the date of acquisition. The pro forma results and other
disclosures required by SFAS No. 141, “Business Combinations,” and Article 11 of
Regulation S-X have not been presented because Hanover is not considered a
material acquisition.
JJI
Lighting Group in 2006: On May 22, 2006, the Company acquired the JJI
Lighting Group Incorporated (“JJI”), which has manufacturing operations in
Franklin Park, IL; Mamaroneck, NY; Shelby, NC; Santa Ana, CA; Waterbury, CT;
Erie, PA; and Ludenscheid, Germany. Prior to the acquisition, JJI was
one of the largest privately held lighting fixture companies in the United
States and has a group of recognized niche lighting brands that complements
the
Company’s current product offerings. The purchase price of $122,387
(including acquisition costs of $2,578) was financed with $44,861 of the
Company’s available cash, cash equivalents, and short-term investment balances
plus $77,526 borrowed from the Company’s existing revolving credit facilities
and asset backed securitization agreement.
In
accordance with the purchase method of accounting, the total purchase price
was
allocated to the tangible and identifiable intangible assets and the liabilities
of JJI based on their estimated fair values as of May 22, 2006. The
excess of the purchase price over the fair value of acquired assets and
liabilities was allocated to goodwill.
The
final
allocation of the purchase price follows:
5
THE
GENLYTE GROUP INCORPORATED
NOTES
TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS (continued)
AS
OF SEPTEMBER 29, 2007
(Dollars
in thousands, except per share amounts)
(Unaudited)
*
Accrued
expenses include $7,590 of additional pension liability to terminate the defined
benefit plans related to domestic employees and $1,132 recorded under SFAS
No.
5, “Accounting for Contingencies” (“SFAS No. 5”) to withdraw from multiemployer
plans.
The
Company’s statement of income reflects the sales and earnings of JJI, as well as
increased net interest expense, and depreciation and amortization expenses
resulting from the acquisition since the date of the acquisition. On
an unaudited pro forma basis, assuming that the acquisition had occurred at
the
beginning of each period presented, the Company’s results for the three and nine
months ended September 30, 2006 would have been as follows:
*
Net
income and earnings per share include a tax provision benefit of $24,715 ($0.86
per share) related to corporate tax restructuring and foreign currency exchange
gain of $4,400 after tax ($0.15 per share) on the return of capital from
Canada.
These
pro
forma amounts do not purport to show the exact results that would have actually
been obtained if the acquisition had occurred as of the beginning of the periods
presented or that may be obtained in the future. Pro forma net income
for the periods presented reflects the following nonrecurring pro forma
adjustments: (1) a charge of $1,807 for amortization of profit in
backlog; and (2) a charge of $268 to cost of sales for the step-up to fair
market value of inventory.
Strand
Lighting in 2006: On July 11, 2006, the Company acquired the
U.S. and Hong Kong based operations of Strand Lighting (“Strand”) and certain
assets of Strand Lighting Ltd. of the U.K. as part of a restructuring undertaken
by Strand Lighting Ltd. Strand was founded in 1916 as a manufacturer
of entertainment lighting and lighting systems. The acquisition
complements the Company’s Vari-Lite, Entertainment Technology, and Lightolier
Controls product offerings and broadens the Company’s presence in the theatrical
and entertainment lighting markets. The purchase price of $9,425
(including acquisition costs of $623) was financed with cash on
hand.
The
Strand acquisition was accounted for using the purchase method of
accounting. The determination of the fair market value of net assets
acquired resulted in an excess of the purchase price over the fair value of
the
net assets acquired (goodwill) of $5,222. The operating results of
Strand have been included in the Company’s consolidated financial statements
since the date of acquisition. The pro forma results and other
disclosures required by SFAS No. 141, “Business Combinations,” and Article 11 of
Regulation S-X have not been presented because Strand is not considered a
material acquisition.
Carsonite
International Corporation in 2006: On September 26, 2006,
the Company acquired the assets of Carsonite International Corporation
(“Carsonite”), a subsidiary of Omega Polymer Technologies, Inc. (“Omega”) as
part of a restructuring undertaken by Omega. The acquisition
complements the Company’s current Shakespeare Composite Structures product
offerings in the utility, roadway, and park and recreation
markets. Carsonite has one owned factory located in Varnville, SC and
one leased factory located in Early Branch, SC. The purchase price of
$4,514 (including acquisition costs of $65) was financed with cash on
hand. No accounts payable or other liabilities were assumed as part
of this transaction. 6
THE
GENLYTE GROUP INCORPORATED
NOTES
TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS (continued)
AS
OF SEPTEMBER 29, 2007
(Dollars
in thousands, except per share amounts)
(Unaudited)
The
Carsonite acquisition was accounted for using the purchase method of
accounting. The determination of the fair market value of net assets
acquired was the same as the purchase price; thus, no goodwill was
recorded. The operating results of Carsonite have been included in
the Company’s consolidated financial statements since the date of
acquisition. The pro forma results and other disclosures required by
SFAS No. 141, “Business Combinations,” and Article 11 of Regulation S-X have not
been presented because Carsonite is not considered a material
acquisition.
(3)
Income Taxes
In
June
2006, the Financial Accounting Standards Board (“FASB”) issued FASB
Interpretation (“FIN”) No. 48, “Accounting for Uncertainty in Income Taxes - an
Interpretation of FASB Statement No. 109” (“FIN No. 48”). Under FIN
No. 48, a company may recognize the tax benefit from an uncertain tax position
only if it is more likely than not that the tax position will be sustained
on
examination by the taxing authorities, based on the technical merits of the
position. The tax benefits recognized in the financial statements from such
a
position should be measured based on the largest benefit that has a greater
than
fifty percent likelihood of being realized upon ultimate settlement. FIN No.
48
also provides guidance on derecognition, classification, interest and penalties
on income taxes, accounting in interim periods and requires increased
disclosures.
The
Company adopted the provisions of FIN No. 48 on January 1, 2007. As a
result of the implementation of FIN No. 48, the Company recognized a $646
increase in the liability for unrecognized tax benefits. This
increase in liability resulted in a decrease to the January 1, 2007 retained
earnings balance in the amount of $646 with no effect on deferred
tax. The amount of unrecognized tax benefits at January 1, 2007 is
$8,463 of which $6,831 would impact the Company’s effective tax rate, if
recognized. There have been no material changes to the unrecognized
tax benefits since adoption, other than discussed below.
The
Company recognizes accrued interest, net of tax benefits, and penalties related
to unrecognized tax benefits as part of the tax provision. As of
January 1, 2007, the Company had recorded liabilities of approximately $2,111
and $535 for the payment of interest and penalties, respectively.
All
federal income tax returns of Genlyte and its U.S. subsidiaries, who join in
the
filing of a U.S. consolidated federal income tax return, are closed through
2002. As of the date of adoption of FIN No. 48, Genlyte was under
examination for the tax year 2004. State income tax returns are
generally subject to examination for a period of 3-5 years after filing the
respective return. The state impact of the federal changes remains
subject to examination by various states for a period of up to one year after
formal notification to the states. As of the date of adoption of FIN
No. 48, Genlyte had three state income tax returns under
examination.
In
January 2006, Genlyte elected corporate taxpayer status for GTG, a Delaware
limited liability company. As a result of a change in tax
status effective January 1, 2006, the Company recognized a $24,715 ($0.86 per
share) benefit for the difference between the deferred taxes accumulated on
the
outside basis in GTG and the deferred taxes related to the assets held inside
GTG.
During
the second quarter of 2007 the Company entered into five-year voluntary
disclosure agreements with three states previously included in the Company’s
first quarter of 2007 FIN No. 48 analysis. As a result of these
agreements, the Company recognized a $1,263 benefit in reduced state tax,
interest and penalty exposure. Genlyte had four state income tax
returns in the process of examination as of June 30, 2007.
During
the third quarter of 2007 the Company entered into a voluntary disclosure
agreement with a state previously included in the Company’s first and second
quarter FIN No. 48 analysis. As a result of this agreement, the
Company recognized a $503 benefit in reduced state tax, interest, and penalty
exposure. Also during the third quarter of 2007, the 2003 federal,
the 2002 state four-year, and the 2003 state three-year statutes of limitations
closed. As a result of 7
THE
GENLYTE GROUP INCORPORATED
NOTES
TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS (continued)
AS
OF SEPTEMBER 29, 2007
(Dollars
in thousands, except per share amounts)
(Unaudited)
these
regulatory statutes of limitations closing, the Company recognized a $676
benefit in reduced federal and state tax and interest exposure.
The
Internal Revenue Service closed the 2004 audit during the quarter. As
a result of finalizing this audit, the Company recognized a $772 benefit in
reduced federal tax and interest exposure. The Company continues to
have three state income tax audits in process at September 29,
2007. The Company expects to reduce accrued tax liabilities by
approximately $452 over the next twelve months due to the closing of certain
state income tax returns.
The
effective tax rate was 37.1% for the first nine months of 2007 compared to
22.6%
for the first nine months of 2006. The effective tax rate for the
first nine months of 2006 was significantly lower than 2007, due to the above
mentioned recognition of the $24,715 one-time tax benefit. Excluding
the one-time tax benefit, the effective tax rate for the first nine months
of
2006 would have been 38.2%. The effective tax rate for the first nine
months of 2007 was lower than this adjusted 2006 rate primarily due to the
2006
recognition of $2,140 of additional tax expense, net of foreign tax credits,
for
the cash repatriation of $35,918 of earnings and capital from a wholly-owned
subsidiary in Canada. According to Accounting Principles Board
(“APB”) No. 23 “Accounting for Income Taxes – Special Areas,” deferred taxes are
to be immediately recorded upon the determination of repatriating undistributed
earnings of non-U.S. subsidiaries.
(4)
Comprehensive Income
Comprehensive
income for the three months ended September 29, 2007 and September 30, 2006
follows:
Comprehensive
income for the nine months ended September 29, 2007 and September 30, 2006
follows:
(5)
Earnings Per Share
The
calculation of the weighted average common shares outstanding assuming dilution
for the three months ended September 29, 2007 and September 30, 2006
follows:
8
THE
GENLYTE GROUP INCORPORATED
NOTES
TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS (continued)
AS
OF SEPTEMBER 29, 2007
(Dollars
in thousands, except per share amounts)
(Unaudited)
The
calculation of the weighted average common shares outstanding assuming dilution
for the nine months ended September 29, 2007 and September 30, 2006
follows:
(6)
Retirement and Other Postretirement Benefit Plans
The
components of net periodic benefit costs for U.S. and foreign pension plans
and
other postretirement plans for the three months ended September 29, 2007 and
September 30, 2006 follow:
9
THE
GENLYTE GROUP INCORPORATED
NOTES
TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS (continued)
AS
OF SEPTEMBER 29, 2007
(Dollars
in thousands, except per share amounts)
(Unaudited)
The
components of net periodic benefit costs for U.S. and foreign pension plans
and
other postretirement plans for the nine months ended September 29, 2007 and
September 30, 2006 follow:
(7)
Short-term Investments
Short-term
investments are classified as available-for-sale securities and are carried
on
the balance sheet at fair market value, which is equivalent to
cost. Short-term investments of $10,000 at September 29, 2007
consisted of AAA rated auction rate securities with original maturities ranging
from four to 36 years. However, these securities are callable at par
value (cost) based on seven to 35 days notification to the bondholders and
the
Company intends to hold for less than one year. Current period
adjustments to the carrying value of available-for-sale securities would be
included in accumulated other comprehensive income within stockholders’
equity.
As
of
August 2007, auctions for the Company’s investments in auction rate securities
failed. The failure resulted in the interest rate on these
investments resetting at Libor plus 68 basis points. While the
Company now earns a premium interest rate on the investments, the investments
are not liquid. In the event the Company needs to access these funds,
it will not be able to until a future auction on these investments is
successful. Since the secured assets within this investment remain
notionally valued at approximately the original PAR value of the initial
issuance, the Company did not record unrealized gains or losses associated
with
these investments, as they were not materially impaired.
(8)
Product Warranties
The
Company offers a limited warranty that its products are free of defects in
workmanship and materials. The specific terms and conditions
vary somewhat by product line, but generally cover defects returned within
one,
two, three, or five years from date of shipment. The Company records
warranty liabilities to cover the estimated future costs for repair or
replacement of defective returned products as well as products that need to
be
repaired or replaced in the field after installation. The Company
calculates its liability for warranty claims by applying a lag factor to the
Company’s historical warranty expense to estimate its normal ordinary exposure
on claims, as well as estimating the total amount to be incurred for known
extraordinary warranty issues. The Company periodically assesses the
adequacy of its recorded warranty liabilities and adjusts the amounts as
necessary. 10
THE
GENLYTE GROUP INCORPORATED
NOTES
TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS (continued)
AS
OF SEPTEMBER 29, 2007
(Dollars
in thousands, except per share amounts)
(Unaudited)
Changes
in the Company’s warranty liabilities, which are included in accrued expenses in
the accompanying consolidated balance sheets, during the nine months ended
September 29, 2007 and September 30, 2006 were as follows:
(9)
Long-Term Debt
As
disclosed in note (12) “Long-term and Short-term Debt” in the Company’s Annual
Report on Form 10-K for the year ended December 31, 2006, the Company’s credit
facilities contain affirmative and negative covenants that are usual and
customary for facilities of this nature. The credit facilities also
require the Company to provide a no default letter from the Company's
independent registered public accounting firm within 90 days of the Company's
fiscal year end. In May 2007, the Company determined that it was not
in compliance with this requirement relating to the years ended December 31,
2005 and 2006. On May 22, 2007, the Company obtained a waiver for
this requirement for the years ended December 31, 2005 and 2006.
(10)
Treasury Stock
The
Company uses the par value method to record purchases of treasury
stock. The excess of the par value of the common stock repurchased is
allocated to additional paid-in capital. On August 22, 2007,
Genlyte’s Board of Directors authorized the repurchase of up to 5% of the
Company’s outstanding common stock as of July 28, 2007, or 1,431,179
shares. During the three months ended September 29, 2007, the Company
repurchased 353,916 shares at an average price of $75.48 for an aggregate amount
of $26,714. The maximum number of shares remaining to repurchase
under the plan is 1,077,263. As of September 29, 2007 the company
held a total of 2,169,852 shares of treasury stock.
(11)
Stock Options
Effective
January 1, 2006, the Company adopted SFAS No. 123R (Revised 2004), “Accounting
for Stock-Based Compensation” (“SFAS No. 123R”), which establishes standards for
the accounting for transactions in which an entity exchanges its equity
instruments for goods or services. SFAS No. 123R eliminates the
alternative to use the intrinsic value method of APB Opinion No. 25, “Accounting
for Stock Issued to Employees” (“APB 25”), as permitted under SFAS No. 123,
“Accounting for Stock-Based Compensation” and SFAS No. 148, “Accounting for
Stock-Based Compensation – Transition and Disclosure – an Amendment of FASB
Statement No. 123.” SFAS No. 123R requires entities to recognize the
cost of employee services received in exchange for awards of equity instruments
based on the grant-date fair value of those awards (with limited
exceptions). That cost is recognized over the period during which an
employee is required to provide service in exchange for the award or the vesting
period. No compensation cost is recognized for equity instruments for
which employees do not render the requisite service. Changes in fair
value during the requisite service period will be recognized as compensation
cost over that period. The Company adopted SFAS No. 123R using the
modified prospective method and has applied it to the accounting for Genlyte’s
stock options. Under the modified prospective method, stock-based
compensation expense is recognized for all awards granted subsequent to December
31, 2005, based on the grant-date fair value estimated in accordance with the
provisions of SFAS No. 123R. Since all Genlyte stock options granted
prior to December 31, 2005 were for prior service, stock-based compensation
expense has not been, and will not be recognized for awards granted prior to
December 31, 2005, except for awards that may be subsequently modified or
repurchased. More detailed information of the Company’s stock option
plans can be found in the Company’s Annual Report on Form 10-K for the year
ended December 31, 2006. 11
THE
GENLYTE GROUP INCORPORATED
NOTES
TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS (continued)
AS
OF SEPTEMBER 29, 2007
(Dollars
in thousands, except per share amounts)
(Unaudited)
The
Company recognized $725 and $376 in stock-based compensation expense during
the
three months ended September 29, 2007 and September 30, 2006,
respectively. The Company recognized $1,737 and $644 in stock-based
compensation expense during the nine months ended September 29, 2007 and
September 30, 2006, respectively. This expense was related to stock
options granted in 2006 and 2007.
(12)
Contingencies
Litigation:
In the normal course of business, the Company is a plaintiff in various lawsuits
and is also subject to various legal claims which arise in the normal course
of
business, including being a defendant and/or being a potentially responsible
party in patent, trademark, product liability, environmental and contract claims
and litigation. Based on information currently available, it is the opinion
of
management that the ultimate resolution of all pending and threatened claims
against the Company will not have a material adverse effect on the financial
condition or results of operations of the Company. In addition, the
Company accrues contingent liabilities for legal claims against it when the
costs or exposures associated with the claims become probable and can be
reasonably estimated, in accordance with SFAS No. 5.
Environmental
Remediation: The Company’s operations are subject to
Federal, state, local, and foreign laws and regulations that have been enacted
to regulate the discharge of materials into the environment or otherwise
relating to the protection of the environment. The Company
establishes accruals for known environmental claims when the costs associated
with the claims become probable and can be reasonably estimated. The
Company had established accruals of $3,740 and $3,920 at September 29, 2007
and
December 31, 2006, respectively, that relate to estimated environmental
remediation plans at several Company facilities. The Company believes
these accruals are sufficient to cover estimated environmental costs at those
dates; however, management continually evaluates the adequacy of those accruals,
and they could change.
Guarantees
and Indemnities: The Company is a party to contracts entered into in
the normal course of business in which it is common for the Company to agree
to
indemnify third parties for certain liabilities that may arise out of or relate
to the subject matter of the contract. Generally, the Company does
not indemnify any third party from the third party’s independent liability, but
rather from liabilities that could arise due to the Company’s own actions,
inactions, or from products manufactured or sold by the Company. The
Company views such liabilities as potential or contingent liabilities of the
Company that could otherwise arise in the ordinary course of
business. While generally the Company cannot estimate the potential
amount of future payments under these indemnities until events arise that would
result in a liability under such indemnities, whenever any contingent liability
becomes probable and can be reasonably estimated, the Company records the
incurred costs and establishes an accrual for future expected related costs
or exposures.
In
connection with the purchase of assets and acquisitions of businesses, the
Company has from time to time agreed to indemnify the seller from liabilities
relating to events occurring prior to the purchase or for conditions existing
at
the time of the purchase or arising thereafter. These indemnities
generally include potential environmental liabilities relating to the acquired
business’s operations or activities, or operations directly associated with the
acquired assets or businesses, or for the sale of products, or for certain
actions or inactions, by the Company or by the acquired businesses, occurring
before and after the purchase of the acquired assets or
businesses. Indemnities associated with the acquisition of businesses
are generally potential or contingent liabilities of the Company that can arise
in the ordinary course of business. While generally the Company
cannot estimate the potential amount of future payments under these indemnities
until events arise that would result in a liability under such indemnities,
whenever any contingent liability becomes probable and can be reasonably
estimated, or if it is probable at the time the assets or businesses are
acquired, the Company records the incurred costs and establishes an accrual
for future related costs or exposures. 12
THE
GENLYTE GROUP INCORPORATED
NOTES
TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS (continued)
AS
OF SEPTEMBER 29, 2007
(Dollars
in thousands, except per share amounts)
(Unaudited)
The
Company has recorded contingent liabilities to the extent any indemnified
liabilities have been determined to be probable; as to unrecorded liabilities
relating to any other indemnification liabilities, the Company does not believe
that any amounts that it may be required to pay under any such indemnities
will
be material to the Company’s results of operations, financial condition, or
liquidity.
(13)
Segment Reporting
For
management reporting and control, the Company’s businesses are divided into
three operating segments: Commercial, Residential, and Industrial and
Other. Information regarding operating segments has been presented as
required by SFAS No. 131 “Disclosures about Segments of an Enterprise and
Related Information.” At September 29, 2007 the operating segments
were comprised as follows:
The
Commercial segment includes those products that are distributed to commercial
construction lighting markets including: retail, office, hospitality, school,
institutional, healthcare, etc. These end-users are similar in that
they follow similar market drivers and utilize similar lighting products and
distribution processes.
The
Residential segment includes those products that are distributed to residential
construction lighting markets including: single family homes, multi-family
homes, apartment buildings, and residential sub-divisions. These
end-users are similar in that they follow similar market drivers and utilize
similar lighting products and distribution processes. These customers
are differentiated from the Commercial segment, due to the type of products,
the
basic nature of the distribution process, and their end-user
markets.
The
Industrial and Other segment includes those products that are distributed to
industrial construction lighting and other markets including: factories,
warehouses, utilities, etc. These end-users are similar in that they
follow similar market drivers and utilize similar lighting products and
distribution processes. These customers are differentiated from the
Commercial and Residential segments, due to the type of products and the basic
nature of the distribution process.
Intersegment
sales are immaterial and eliminated in consolidation and therefore not presented
in the table below. Corporate expenses are allocated to the
segments. Information about the Company’s operating segments for the
three months ended September 29, 2007 and September 30, 2006
follows:
13
THE
GENLYTE GROUP INCORPORATED
NOTES
TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS (continued)
AS
OF SEPTEMBER 29, 2007
(Dollars
in thousands, except per share amounts)
(Unaudited)
Information
about the Company’s operating segments for the nine months ended September 29,
2007 and September 30, 2006 follows:
*
During
the third quarter of 2007, the Company changed the reporting of certain products
between the Commercial, Residential, and Industrial and Other
segments. The segment information presented above has been revised to
reflect these changes in product classification.
The
Company has operations throughout North America. Foreign net sales
and operating profit are primarily from Canadian operations, with a minor amount
in Germany and Hong Kong. The amounts below are attributed to each
country based on the selling division’s location. Information about
the Company’s operations by geographical area for the three months ended
September 29, 2007 and September 30, 2006 follows:
Information
about the Company’s operations by geographical area for the nine months ended
September 29, 2007 and September 30, 2006 follows:
No
material changes have occurred in total assets or long-lived assets since
December 31, 2006.
14
THE
GENLYTE GROUP INCORPORATED
NOTES
TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS (continued)
AS
OF SEPTEMBER 29, 2007
(Dollars
in thousands, except per share amounts)
(Unaudited)
(14)
Subsequent Event
From
October 31, 2007 through November 2, 2007, the Company repurchased 223,233
shares at an average price of $63.80 for an aggregate amount of
$14,243. The maximum number of shares remaining to repurchase under
the plan is 854,030.
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management’s
Discussion and Analysis of Financial Condition and Results of Operations
(“MD&A”) is designed to provide a reader of our financial statements with a
narrative on our financial condition, results of operations, liquidity, critical
accounting policies, and outlook for the future. We believe it is
useful to read our MD&A in conjunction with Item 1. “Financial Statements”
of this Form 10-Q and our Annual Report on Form 10-K for the year ended December
31, 2006, as well as our reports on Forms 10-Q and 8-K and other publicly
available information.
OVERVIEW
We
consider ourselves the second largest manufacturer of lighting fixtures in
North
America, and the largest company in North America devoted exclusively to selling
lighting fixtures, controls, and related products. We participate
primarily in the commercial market, but also have a considerable position in
the
residential and industrial markets.
We
sell
products under 45 widely recognized and respected brand names. Part
of our strategy is to take advantage of brand name recognition and focus our
brands on specific markets, market channels or product
competencies. Our goal is to be one of the top two lighting companies
in each of our major markets. We sell primarily through wholesale
electrical distributors – mostly independent distributors and selective
relationships with national accounts – using multiple sales forces of direct
sales employees and independent sales representatives to maximize market
coverage.
We
consider ourselves the industry leader in product innovation, with a focus
on
energy efficiency. Our goal is to generate 30% of annual sales from
new products released within the past three years, and find that our most
profitable divisions achieve or come very close to the 30% goal. We
are committed to growth through market share penetration and strategic
acquisitions. We seek to grow our business at least 10% each year –
5% through internal growth (current and new products and markets) and 5% through
strategic acquisitions. Since the formation of GTG in 1998, we have
acquired twelve companies, in addition to the 32% minority interest in
GTG.
We
operate primarily in the commercial lighting markets, with 74.5% of our net
sales for the first nine months of 2007 coming from the Commercial
segment. Our commercial indoor and outdoor lighting business activity
accelerated during 2006 and continued growing through the end of the third
quarter of 2007 (although at a slower rate); while our Industrial and Other
segment continued to produce positive results. The non-residential
markets, including educational, offices, healthcare, hotels and restaurants,
are
experiencing moderate growth. The Residential segment significantly
weakened during the fourth quarter of 2006 and remained weak through the end
of
the third quarter of 2007 primarily due to a decrease in new home construction;
however, the rate of the slowdown seems to have flattened. Our total
net sales during the first nine months of 2007 grew by 10.5% compared to 2006
and our Commercial and Industrial and Other segments also enjoyed solid sales
growth of 14.4% and 9.2%, respectively. However, our Residential
segment declined 6.1% compared to the first nine months of 2006.
Even
though the cost of steel leveled off in 2006, it began another upward trend
in
the first nine months of 2007. In addition, we continue to see
year-over-year cost increases related to aluminum, copper, ballasts, corrugated
packaging and energy. These increases began to impact our product
costs in the second half of 2004, continued to have a significant impact through
the third quarter of 2007, and are expected to continue to impact results during
the remainder of 2007. We will continue to diligently improve cost
control and production efficiency, while attempting to improve margins by
optimizing product mix with higher value-added products and constantly
evaluating our pricing strategies.
In
response to realized and potential cost increases, we announced incremental
price increases effective with June 2006 orders. Many of our
divisions implemented additional price increases ranging from 3% to 12%
effective at various times during the first quarter of 2007 and additional
price
increases ranging from 3% to 12% effective during July 2007. We are
encouraged by the success of our new product and pricing strategies, which
help
protect our margins. Specifically, our ongoing industry leadership in
product development and excellence in the order and quotation process further
boosts the success of our price increases. As a result, our third
quarter 2007 gross profit margin
increased to 41.2% compared to 40.4% last year and the operating profit margin
increased during the third quarter of 2007 to 15.6% from 15.0% last
year. We continued to experience a year-over-year benefit from the
price increases and estimate that approximately 2% of the net sales increase
during the third quarter of 2007 was due to price. We did not
necessarily expect to attain the full amount of the announced price increases
due to competitive pressures, but we believe that holding a significant portion
of the price increases contributed to our successful third
quarter. In order to maintain these net sales and margin improvements
going forward, we will continue to periodically evaluate our pricing
strategies.
Cost
containment actions, such as the 2005 consolidation of our San Leandro,
California and San Marcos, Texas manufacturing facilities into an entirely
new
manufacturing facility in San Marcos, enable continuous cost and quality
improvements. The new facility is now fully operational with
significant sales and earnings improvements compared to last year when we
incurred $2.2 million in relocation expenses and start-up inefficiencies during
the first nine months of 2006. We also completed automation and
expansion projects in the last few years at our facilities in Massachusetts,
Mississippi, South Carolina, and Ontario. We elected to reinforce our
efficient North American production capabilities, which include 35 vertically
integrated factories accounting for over 80% of our total production, because
of
our dedication to superior customer service for our make-to-order specification
business.
Genlyte’s
acquisitions of Hanover Lantern (“Hanover”), which was effective on February 1,
2007; JJI Lighting Group Incorporated (“JJI”), which was effective on May 22,
2006; Strand Lighting (“Strand”), which was effective on July 11, 2006; and
Carsonite International (“Carsonite”), which was effective on September 26,
2006; significantly impacted Genlyte’s financial condition, results of
operations, and liquidity for the first nine months of 2007 compared to the
first nine months of 2006. The financing of acquisitions decreased
cash, cash equivalents, and short-term investments approximately $85.3 million,
increased debt approximately $77.5 million, and resulted in increased values
for
most of the balance sheet captions. The combination of the acquisitions
significantly impacted net income during the first nine months of 2007; however,
we expect the acquisitions to have a less significant comparative impact during
the remainder of the year since JJI, Strand, and Carsonite operated within
Genlyte during the fourth quarter of 2006.
The
results for the first nine months of 2006 were significantly impacted by some
notable items that affected the comparability with the first nine months of
2007. Specifically, we recognized a $24.7 million tax benefit related
to an election by GTG changing from partnership to corporate status for income
tax reporting purposes. As a result, deferred taxes accumulated on
the outside basis of GTG in excess of the deferred taxes on GTG’s inside basis,
were recognized through the tax provision as a benefit to net
income. This tax benefit was partially offset by $2.1 million of
additional tax expense for a dividend of foreign subsidiary
earnings. In addition, we recognized a $7.2 million foreign currency
exchange gain related to the return of capital from Canada, which was used
to
fund the acquisition of JJI. Also, we incurred $2.2 million of
operating expenses and start-up inefficiencies in the first nine months of
2006
related to the San Marcos employee relocation, plant consolidation, and
severance pay.
RESULTS
OF OPERATIONS
Comparison
of Third quarter 2007 to Third quarter 2006
Net
sales
for the third quarter of 2007 were $418.8 million, an increase of 2.1% compared
to 2006 third quarter net sales of $410.4 million. Net sales for the
Commercial segment increased by 5.4%, while net sales for the Residential
segment decreased by 12.4% and net sales for the Industrial and Other segment
decreased by 1.0%. The combination of the realization of previously
announced price increases, acquisitions of Carsonite and Hanover, and favorable
commercial construction activity helped us achieve higher net sales in the
third
quarter of 2007, but was substantially offset by the decline in the residential
market. Net sales for comparable operations, excluding the
acquisition impact of 2.5%, decreased 0.4% during the third quarter of 2007
compared to the third quarter of 2006. It should be noted that the
year-over-year net sales change was negatively impacted by the strong third
quarter in 2006 (a previous record quarter), in which net sales increased 26%
over prior year.
We
initiated price increases ranging from 5% to 15% effective for orders released
for shipment after June 2006, price increases ranging from 3% to 12% effective
at various times during the first quarter of 2007, and price increases at
select divisions
ranging from 3% to 12% during July 2007. The traditional volume and
price sales analysis in the lighting industry is very difficult to calculate
due
to product mix which includes thousands of different products and multiple
variations on most products. Any conclusions related to the effect of
volume versus price are mixed across segments, divisions, product lines,
geographic base, and customer profiles.
Net
sales
for U.S. operations increased 1.8%, while net sales for the Canadian operations
increased 5.1% compared to the third quarter of 2006. Without the
recent acquisitions (3.1% of net sales for U.S. operations) that impacted the
third quarter comparison, which consist entirely of U.S. operations, net sales
for U.S. operations decreased 1.3% compared to the third quarter of
2006. The decrease was primarily due to the decline in the
residential market plus the strong third quarter of 2006, offset by a
combination of price increases, new product offerings, and continued strength
in
our entertainment and healthcare lighting products. The stronger
Canadian dollar during the third quarter of 2007 compared to 2006 increased
U.S.
dollar sales of Canadian operations by $5.2 million. If the exchange
rate had remained constant, net sales of Canadian operations would have
decreased 2.2%. Net sales for Canadian operations decreased compared
to the prior year due to the decline in the residential market combined with
pressure from U.S. imports and the strong third quarter in 2006; which was
slightly offset by a combination of price increases, new product offerings,
and
continued strength in our institutional and healthcare lighting
products.
We
operate primarily in the commercial lighting markets, with 76.1% of our third
quarter 2007 net sales coming from the Commercial segment. This
percentage is up from 73.7% in third quarter 2006. Net sales of
$318.9 million for the Commercial segment during the third quarter of 2007
increased 5.4% from third quarter 2006 net sales of $302.6
million. The third quarter 2007 net sales for comparable operations,
excluding the acquisition impact of 1.3%, increased 4.1% over prior
year. Of the 4.1% organic growth in the Commercial segment, we
estimate that 1.8% is related to price increase, 0.7% is related to an increase
in volume, and 1.6% is related to a foreign exchange rate
benefit. The improvement in the commercial market is led by strength
in the institutional and healthcare construction and entertainment lighting
products. The slight volume increase is primarily due to a more
normal sales level following the strong third quarter in 2006, in which net
sales were up 26%.
Residential
segment net sales of $52.7 million in the third quarter of 2007 (12.6% of total
Company net sales) compared to $60.1 million in the third quarter of 2006 (14.6%
of total Company net sales), decreased by 12.4%. However, excluding
the acquisition impact of 4.8%, the Residential segment net sales actually
decreased by 17.2% due to a weaker residential construction market.
The
Industrial and Other segment accounts for all remaining net sales and was 11.3%
of total Company net sales for the third quarter of 2007 and 11.7% for the
third
quarter of 2006. Net sales of $47.2 million for the Industrial and
Other segment in the third quarter of 2007 decreased 1.0% from the third quarter
of 2006 net sales of $47.7 million. The Industrial and Other segment
also realized a significant benefit from recent acquisitions. The
third quarter 2007 net sales for comparable operations, excluding the
acquisition impact of 6.8%, decreased 7.8% over prior year primarily due to
a
decrease in volume related to an increase in offshore competition and our
unwillingness to compete for low margin business.
Cost
of
sales for the third quarter of 2007 was 58.8% of net sales, compared to 59.6%
in
the third quarter of 2006. Even though the market has experienced
significant increases in the cost of copper, aluminum, zinc coatings, ballasts,
inbound freight, energy, and group health insurance, we have been able to
improve our gross profit margin percentage to 41.2% in the third quarter of
2007, compared to 40.4% in the third quarter of 2006. The increased
gross profit margin is primarily attributed to the price increases previously
discussed. In addition, the product mix of higher value-added
products and our de-emphasis of lower margin business helped overall
margins. In order to maintain the gross profit margin improvements,
we will continue to periodically evaluate our pricing strategies.
Selling
and administrative expenses for the third quarter of 2007 were 25.4% of net
sales, compared to 24.9% in the third quarter of 2006. The selling
and administrative expenses as a percentage of net sales increased from prior
year primarily due to currency transaction (losses) and gains, which were $(2.8)
million and $4 thousand for the third quarter of 2007 and 2006,
respectively. Excluding the foreign currency transaction losses,
selling and administrative expenses for the third quarter of 2007 and 2006
were
24.7% and 24.9% of net sales, respectively. As
mentioned above, during the third quarter of 2007, we recorded a $2.8 million
($1.8 million after-tax) net loss in selling and administrative expenses related
to foreign currency transaction gains and losses primarily on Canadian division
cash, accounts receivable, and accounts payable balances denominated in U.S.
dollars. In a period of a strengthening Canadian dollar, net assets
denominated in U.S. dollars at the Canadian divisions result in currency
transaction losses. The opposite would occur in a period of a
weakening Canadian dollar. We do not hedge this activity with
derivative financial instruments and therefore are exposed to future gains
or
losses based on levels of cash, accounts receivable and accounts payable
denominated in U.S. dollars at Canadian operations and the fluctuation of the
Canadian dollar exchange rates.
The
strength of the Canadian dollar compared to the third quarter of last year
resulted in an $843 thousand benefit ($539 thousand after income taxes) from
translating operating income of Canadian operations at a higher exchange rate
than the third quarter of 2006. In addition, the strengthening
Canadian dollar from the second quarter of 2007 resulted in an $11.2 million
foreign currency translation adjustment gain (net of tax), which increased
accumulated other comprehensive income during the third quarter of
2007. In the third quarter of 2006, the weakening Canadian dollar
compared to the second quarter of 2006 resulted in a $120 thousand foreign
currency translation adjustment loss (net of tax). Other
comprehensive income is reflected in stockholders’ equity in the balance sheet
and is not reflected in results of operations in the statement of
income.
In
the
third quarter of 2007, interest expense was $2.1 million and interest income
was
$493 thousand (net interest expense of $1.6 million). During the
third quarter of 2006, interest expense was $3.1 million and interest income
was
$307 thousand (net interest expense of $2.7 million). Since average
cash and short-term investment balances were higher in the third quarter of
2007
compared to 2006, we recognized higher interest income in the third quarter
of
2007. Further, interest expense was lower in the third quarter of
2007 compared to 2006 due to the significant repayment of debt, a portion of
which was borrowed in 2006 to finance the acquisition of JJI.
The
effective tax rate was 37.1% for the third quarter of 2007 compared to 35.6%
for
the third quarter of 2006. The effective tax rate increased after
finalizing prior year tax return filings and adjusting valuation allowances
for
certain deferred tax assets not expected to be realized. Going
forward we expect the consolidated rate to be approximately 37%.
Net
income for the third quarter of 2007 was $40.1 million ($1.38 per diluted
share), an increase of 5.7% compared to the third quarter 2006 net income of
$38.0 million ($1.32 per diluted share). Net income in the third
quarter of 2007 benefited from the acquisitions of Hanover, which was effective
on February 1, 2007 and Carsonite, which was effective on September 26,
2006. Excluding recent acquisitions, net income for the third quarter
of 2007 would have increased 3.1% over prior year. The combination of
adding new products, maintaining previously announced price increases, and
cost
containment strategies helped us achieve higher comparable net income in the
third quarter of 2007.
Comparison
of the First Nine Months of 2007 to the First Nine Months of
2006
Net
sales
for the first nine months of 2007 were $1,222.1 million, an increase of 10.5%
compared to the first nine months of 2006 net sales of $1,105.6
million. Net sales for the Commercial segment increased by 14.4% and
net sales for the Industrial and Other segment increased by 9.2%, while net
sales for the Residential segment decreased by 6.1%. The combination
of the realization of previously announced price increases, acquisitions of
JJI,
Strand, Carsonite and Hanover, and favorable commercial construction activity
helped us achieve higher net sales in the first nine months of 2007, but was
somewhat offset by a decline in the residential market. Net sales for
comparable operations, excluding the acquisition impact of 8.5%, increased
2.0%
during the first nine months of 2007 compared to the first nine months of
2006.
We
initiated price increases ranging from 5% to 15% effective for orders released
for shipment after June 2006, price increases ranging from 3% to 12% effective
at various times during the first quarter of 2007, and price increases at select
divisions ranging from 3% to 12% effective during July 2007. Overall,
we believe that approximately 2% of the net sales increase during the first
nine
months of 2007 was related to price increases, with acquisitions accounting
for
the remaining
increase. The traditional volume and price sales analysis in the
lighting industry is very difficult to calculate due to product mix which
includes thousands of different products and multiple variations on most
products. Any conclusions related to the effect of volume versus
price are mixed across segments, divisions, product lines, geographic base,
and
customer profiles.
Net
sales
for U.S. operations increased 9.6%, while net sales for the Canadian operations
increased 7.4% compared to the first nine months of 2006. Without
recent acquisitions (8.6% of net sales for U.S. operations), which primarily
consist of U.S. operations but also include small operations in Germany and
Hong
Kong, net sales for U.S. operations increased 1.0% compared to the first nine
months of 2006. The increase was primarily due to a combination of
price increases, new product offerings, and continued strength in our
entertainment and outdoor lighting products; but was substantially offset by
the
decline in the residential market. The stronger Canadian dollar
during the first nine months of 2007 compared to 2006 increased U.S. dollar
sales of Canadian operations by $5.9 million. If the exchange rate
had remained constant, net sales of Canadian operations would have increased
4.2%. Net sales for Canadian operations increased compared to the
prior year due to a combination of price increases, new product offerings,
and
continued strength in our HID and outdoor lighting products.
We
operate primarily in the commercial lighting markets, with 74.5% of our net
sales for the first nine months of 2007 coming from the Commercial
segment. This percentage is up from 72.0% in the first nine months
2006. Net sales of $910.9 million for the Commercial segment during
the first nine months of 2007 increased 14.4% from the first nine months of
2006
net sales of $796.4 million. The majority of the recent acquisitions
are in the Commercial segment. The first nine months of 2007 net
sales for comparable operations, excluding the acquisition impact of 8.8%,
increased 5.6% over prior year. Of the 5.6% organic growth in the
Commercial segment, we estimate that 2.8% is related to price increases, 2.1%
is
related to additional volume, and 0.7% is due to exchange rate. The
improvement in the commercial market is led by strength in the institutional
and
healthcare construction, as well as our entertainment and outdoor lighting
products. In addition, the Energy Policy Act of 2005, which provides
tax incentives to install energy-efficient interior lighting systems, also
contributed to the volume increase in the Commercial segment.
Residential
segment net sales of $163.4 million in the first nine months of 2007 (13.4%
of
total Company net sales) compared to $173.9 million in the first nine months
of
2006 (15.7% of total Company net sales), decreased by 6.1%. However,
excluding acquisition impact of 5.4%, the Residential segment net sales actually
decreased by 11.5% due to a weaker residential construction market.
The
Industrial and Other segment accounts for all remaining net sales and was 12.1%
of total Company net sales for the first nine months of 2007 and 12.3% for
the
first nine months of 2006. Net sales of $147.8 million for the
Industrial and Other segment in the first nine months of 2007 increased 9.2%
from the first nine months of 2006 net sales of $135.3 million. The
Industrial and Other segment also realized a significant benefit from recent
acquisitions. The first nine months of 2007 net sales for comparable
operations, excluding the acquisition impact of 11.0%, decreased 1.8% over
prior
year, primarily due to a decrease in volume related to an increase in offshore
competition and our unwillingness to compete for low margin
business.
Cost
of
sales for the first nine months of 2007 was 59.4% of net sales, compared to
60.6% in the first nine months of 2006. Even though the market has
experienced significant increases in the cost of copper, aluminum, zinc
coatings, ballasts, inbound freight, energy, and group health insurance, we
have
been able to improve our gross profit margin percentage to 40.6% in the first
nine months of 2007, compared to 39.4% in the first nine months of
2006. The increased gross profit margin is primarily attributed to
the price increases previously discussed. In addition, the product
mix of higher value-added products and our de-emphasis of lower margin business
helped overall margins. In order to maintain the gross profit margin
improvements, we will continue to periodically evaluate our pricing
strategies.
Selling
and administrative expenses for the first nine months of 2007 were 25.4% of
net
sales, compared to 25.0% in the first nine months of 2006. The
selling and administrative expenses as a percentage of net sales increased
from
prior year primarily due to the acquisitions of JJI, Strand, Carsonite, and
Hanover (which have higher selling and administrative expenses as a percentage
of sales than the rest of the Company). In addition, currency
transaction losses of $5.4 million and
$989
thousand for the first nine months of 2007 and 2006, respectively, are included
in selling and administrative expenses. Excluding the acquisitions
and the foreign currency transaction losses, selling and administrative expenses
for the first nine months of 2007 and 2006 were 24.6% and 24.9% of net sales,
respectively. This decrease is primarily due to decreases in audit,
legal, and bad debt expenses, slightly offset by higher stock option
expense.
As
mentioned above, we recorded a $5.4 million ($3.5 million after income taxes)
net loss during the first nine months of 2007 in selling and administrative
expenses related to foreign currency transaction gains and losses primarily
on
Canadian division cash, accounts receivable, and accounts payable balances
denominated in U.S. dollars. In a period of a strengthening Canadian
dollar, net assets denominated in U.S. dollars at the Canadian divisions result
in currency transaction losses. The opposite would occur in a period
of a weakening Canadian dollar. During the first nine months of 2006,
we recorded a net currency transaction loss of $989 thousand ($670 thousand
after income taxes). We do not hedge this activity with derivative
financial instruments and therefore are exposed to future gains or losses based
on levels of cash, accounts receivable and accounts payable denominated in
U.S.
dollars at Canadian divisions and the fluctuation of the Canadian dollar
exchange rates.
The
strength of the Canadian dollar compared to the first nine months of last year
resulted in a $926 thousand pre-tax benefit, or a positive net income impact
of
$592 thousand after income taxes, from translating operating income of Canadian
divisions at a higher exchange rate than the first nine months of
2006. In addition, the strengthening Canadian dollar from year-end
resulted in a $23.8 million foreign currency translation adjustment (“CTA”) gain
(net of tax), which increased accumulated other comprehensive income during
the
first nine months of 2007. In the first nine months of 2006, the
strengthening Canadian dollar resulted in a $5.7 million CTA gain (net of
tax). However, CTA actually decreased accumulated other comprehensive
income during the first nine months of 2006 by $1.5 million, due to the $7.2
million reduction in CTA related to the foreign currency exchange gain from
returning capital from Canada. Other comprehensive income is
reflected in stockholders’ equity in the balance sheet and is not reflected in
results of operations in the statement of income.
In
the
first nine months of 2007, interest expense was $6.3 million and interest income
was $1.3 million (net interest expense of $5.0 million). During the
first nine months of 2006, interest expense was $7.2 million and interest income
was $1.6 million (net interest expense of $5.6 million). Since
average cash and short-term investment balances were lower during the first
nine
months of 2007 compared to 2006, we recognized lower interest income in the
first nine months of 2007. Further, interest expense was lower in the
first nine months of 2007 compared to 2006 due to the significant repayment
of
debt, which was borrowed in 2006 to finance the acquisition of JJI.
The
effective tax rate was 37.1% for the first nine months of 2007 compared to
22.6%
for the first nine months of 2006. The effective tax rate for the
first nine months of 2006 was significantly lower than 2007, due to the
requirement to recognize a $24.7 million one-time tax provision benefit related
to the change in corporate structuring of GTG from partnership status to
corporate status for income tax reporting purposes. As a result,
deferred taxes accumulated on the outside basis of GTG in excess of the deferred
taxes on GTG’s inside basis were recognized through the provision into net
income. Excluding the tax benefit, the effective tax rate for the
first nine months of 2006 would have been 38.2%. The effective tax
rate for the first nine months of 2007 was lower than this adjusted 2006 rate
primarily due to the recognition in 2006 of $2.1 million of additional tax
expense, net of foreign tax credits, for the cash repatriation of $35.9 million
in earnings and capital from a wholly-owned subsidiary in
Canada. According to Accounting Principles Board (“APB”) No. 23
“Accounting for Income Taxes – Special Areas,” deferred taxes are to be
immediately recorded upon the determination of repatriating undistributed
earnings of non-U.S. subsidiaries.
Net
income for the first nine months of 2007 was $112.5 million ($3.87 per diluted
share), a decrease of 8.2% compared to the first nine months 2006 net income
of
$122.5 million ($4.26 per diluted share). Net income in the first
nine months of 2006 benefited primarily from the $24.7 million ($0.86 per
diluted share) one-time tax provision benefit mentioned above, in addition
to
the $7.2 million or $4.4 million after-tax ($0.15 per diluted share) foreign
currency exchange gain related to the return of capital from Canada, which
was
used to fund the acquisition of JJI. Excluding the one-time tax
provision benefit and the foreign currency exchange gain, net income for the
first nine months of 2007 increased 20.4% over the 2006 adjusted net income
of
$93.4 million. Net income in the first nine months of 2007 benefited
from the acquisitions of Hanover, which was effective on February 1, 2007;
JJI,
which was effective
on May 22, 2006; Strand, which was effective on July 11, 2006; and Carsonite,
which was effective on September 26, 2006. Excluding the one-time tax
provision benefit, the foreign currency translation benefit, and recent
acquisitions, net income for the first nine months of 2007 would have increased
12.9% over prior year. The combination of adding new products,
maintaining previously announced price increases, and cost containment
strategies helped us achieve higher comparable net income in the first nine
months of 2007.
Outlook
for the Future
The
recovery in the commercial construction market, which began in the first quarter
of 2006, continued through the third quarter of 2007, and forecasts remain
generally optimistic. Office vacancy rates and hospitality occupancy
rates are improving; however, we are realizing pockets of softness in the light
commercial, suburban retail, office, restaurant, and stock and flow goods
markets in geographic areas where residential construction has previously
slowed. We continue to see strength in sales for the institutional
and healthcare construction businesses; as well as the theatrical and
entertainment businesses. In addition, the overall cost of building
materials and tightening of credit seem to be dampening some of the
momentum. Our outlook for the overall commercial construction market
is continued growth through mid 2008.
The
residential lighting market was significantly weaker during the fourth quarter
of 2006 as it started to realize the downturn in residential construction and
remained weak into the third quarter of 2007, although the rate of the slowdown
seemed to flatten. The downturn in the residential market could
continue to impact the smaller commercial construction projects, such as strip
shopping malls, small hotels, restaurants, banks, etc., which generally follow
the trend in the residential market. However, we plan to offset this
decline by focusing our efforts on new product development and developing new
markets and opportunities for growth.
Even
though the cost of steel leveled off in 2006, it began another upward trend
in
the first quarter of 2007 and we expect steel to further increase during the
remainder of 2007. In addition, we continue to see year-over-year
cost increases related to aluminum, copper, ballasts, corrugated packaging
and
energy. These increases began to impact our product costs in 2004 and
are expected to continue to impact results through the remainder of
2007. We will continue to diligently improve cost control and
production efficiency, while attempting to improve profit margins through a
better product mix with higher value-added products and periodic evaluation
of
our pricing strategies.
In
response to realized and potential cost increases, we announced price increases
ranging from 5% to 15% effective with June 2006 orders, price increases ranging
from 3% to 12% effective at various times during the first quarter of 2007,
and
price increases at select divisions ranging from 3% to 12% effective during
July
2007. Price increases are always subject to competitive pressure, and
we do not necessarily expect to attain the full amount of the announced
increases, but we believe we have attained enough of the price increases to
more
than offset the known or current cost increases. In order to maintain
net sales and profit margin improvements going forward, we will continue to
periodically evaluate our pricing strategies.
Genlyte’s
acquisitions of JJI, which was effective on May 22, 2006; Strand, which was
effective on July 11, 2006; and Carsonite, which was effective on September
26,
2006; will have a less significant impact on net sales and net income
comparisons to 2006 during the remainder of 2007 since these businesses operated
within Genlyte during the fourth quarter of 2006.
Foreign
currency exchange rates are unpredictable, and we are exposed to foreign
currency transaction gains and losses because of our net assets in Canada that
are denominated in U.S. dollars. If the Canadian dollar exchange rate
strengthens versus the U.S. dollar, we will realize foreign currency transaction
losses, which impact net income. Conversely, we would realize the
benefit of translating sales and income of Canadian operations at higher
exchange rates compared to the corresponding period of the preceding
year. In addition, we would record foreign currency translation gains
in accumulated other comprehensive income. If the Canadian dollar
weakens, we would realize foreign currency transaction gains in net income
and
foreign currency translation losses in accumulated other comprehensive
income. The
‘Energy Policy Act of 2005,’ which provides tax benefits for energy-efficient
interior lighting systems and was recently extended through 2008, will hopefully
continue to spur demand for our new energy-efficient products and enable our
country to deal with increasing energy costs. We have seen some
benefit from this legislation in our Commercial and Industrial and Other
segments over the past year, and we believe this energy legislation will
continue to have a positive impact on retrofit lighting business in the U.S.,
and may provide additional business opportunities through 2008.
FINANCIAL
CONDITION
Liquidity
and Capital Resources
We
focus
on our net cash or debt (cash and cash equivalents minus total debt) and working
capital (current assets minus current liabilities) as our most important
measures of short-term liquidity. For long-term liquidity, we
consider our ratio of total debt to total capital employed (total debt plus
total stockholders’ equity) and trends in net cash or debt and cash provided by
operating activities to be the most important measures.
We
were
in a net debt position (total debt exceeded cash, cash equivalents, and
short-term investments by $46.1 million) at September 29, 2007, compared to
net
debt of $71.2 million at December 31, 2006. Total debt decreased to
$128.4 million at September 29, 2007, compared to $147.9 million at December
31,
2006, while cash, cash equivalents, and short-term investments increased to
$82.4 million at September 29, 2007 compared to $76.7 million at December 31,
2006. Despite spending $24.3 million for acquisitions (net of cash
received) and $26.7 million to purchase treasury stock during the first nine
months of 2007, we were able to decrease net debt and increase cash, cash
equivalents, and short-term investments from year-end primarily due to the
strong cash flow from operations of $64.5 million in the third quarter of
2007.
Working
capital at September 29, 2007 was $254.8 million, compared to $171.7 million
at
December 31, 2006. This increase was primarily due to a $53.1 million
increase in accounts receivable, a $16.1 million decrease in accrued expenses
and a $20.8 million decrease in short-term debt, which was offset by a $17.8
million decrease in inventory. The accounts receivable increase
reflects a 10.5% growth in sales for the third quarter of 2007 compared to
the
fourth quarter of 2006. Accounts receivable as a percentage of sales
is normally at the lowest point of the year at the end of December as collection
efforts are heightened. In addition, the decrease in accrued expenses
is due to payments of accrued liabilities for incentive compensation, defined
contribution plan contributions, and customer rebates, which are accrued during
the year, reach their highest amount at the end of the year, and are paid out
in
the first quarter of the next year. Inventory was lower at September
29, 2007 compared to December 31, 2006 primarily due to a focus to reduce
inventory levels of residential lighting fixtures in the wake of the residential
market downturn. The current ratio (current assets divided by current
liabilities) was 1.8 at September 29, 2007, compared to 1.5 at December 31,
2006.
The
ratio
of total debt to total capital employed (total debt divided by stockholder’s
equity and total debt) at September 29, 2007 was 13.4%, compared to 17.3% at
December 31, 2006. Considering our expected strong cash flow, we believe this
level of debt is manageable.
Short-term
investments of $10.0 million at September 29, 2007 consisted of AAA rated
auction rate securities with original maturities ranging from four to 36
years. However, these securities are callable at par value (cost)
based on seven to 35 days notification to the bondholders and management
intends
to hold for less than one year. As of August 2007, auctions for our
investments in auction rate securities failed. The failure resulted
in the interest rate on these investments resetting at Libor plus 68 basis
points. While we now earn a premium interest rate on the investments,
the investments are not liquid. In the event we need to access these
funds, we will not be able to until a future auction on these investments
is
successful. Since the secured assets within this investment remain
notionally valued at approximately the original PAR value of the initial
issuance, we did not record unrealized gains or losses associated with these
investments, as they were not materially impaired.
A
summary
of the consolidated statements of cash flows for the nine months ended September
29, 2007 and September 30, 2006 follows:
During
the first nine months of 2007, we provided $83.1 million cash from operating
activities, compared to providing $53.8 million during the first nine months
of
2006. The primary reasons for the increase relate to higher net
income in 2007 compared to 2006, excluding the one-time tax provision benefit
and the one-time foreign currency exchange gain, and decreases in inventories
and accrued expenses during 2007, which were previously explained in the
working
capital discussion.
Cash
used
in investing activities during the first nine months of 2007 was $57.9 million,
including $22.0 million of recent acquisitions (net of cash received) and $10.0
million used to purchase short-term investments. Cash used in
investing activities during the first nine months of 2006 was $131.5 million,
including $131.8 million of cash used to acquire (net of cash received) JJI,
Strand, and Carsonite. In addition, purchases of plant and equipment
in the first nine months of 2007 of $26.0 million were $8.3 million higher
than
the first nine months of 2006. The increase in capital spending in
the first nine months of 2007 was primarily due to investments in flexible
manufacturing equipment, plus the increased capital expenditures related to
businesses recently acquired. Further, in the first nine months of
2006, proceeds from sales of short-term investments of $17.9 million were used
to fund the acquisition of JJI.
Cash
used
in financing activities during the first nine months of 2007 was $36.3 million,
with $21.2 million in net repayments of short-term and long-term
debt. Also, $26.7 million was used to purchase treasury stock and
$11.3 million was provided by cash and tax benefits from the exercise of stock
options. Cash provided by financing activities during the first nine
months of 2006 was $34.6 million, primarily with $21.2 million in net proceeds
of short-term and long-term debt. In addition, $8.7 million was
provided by cash and tax benefits from the exercise of stock options and $4.7
million was provided for disbursements outstanding.
As
mentioned above, we repurchased $26.7 million, or 353,916 shares at an average
price of $75.48, in treasury stock during the third quarter. As
approved by Genlyte’s Board of Directors on August 22, 2007, 1,077,263 shares
remain to be repurchased under the stock repurchase plan.
We
are
confident that currently available cash and cash equivalents, combined with
internally generated funds, will be sufficient to fund capital expenditures,
purchase treasury stock, as well as fund any increase in working capital
required to accommodate business needs in the next year. We continue
to seek opportunities to acquire businesses that fit our strategic growth
plans. We believe adequate financing for any such investments will be
available through cash on hand, future borrowings, or equity
offerings.
Debt
and Other Contractual Obligations
Genlyte
has credit facilities consisting of a $260.0 million U.S. revolving credit
facility and a $27.0 million (in Canadian dollars) Canadian revolving credit
facility with a syndicate of eleven banks maturing on October 31,
2010. According to this agreement, 65% of the capital stock of
certain foreign subsidiaries is pledged.
As
disclosed in note (12) “Long-term and Short-term Debt” in our Annual Report on
Form 10-K for the year ended December 31, 2006, our credit facilities contain
affirmative and negative covenants that are usual and customary for facilities
of this nature. The credit facilities also require us to provide a no
default letter from our independent registered public accounting firm within
90
days of our fiscal year end. In May 2007, we determined that we were
not
in
compliance with this requirement relating to the years ended December 31, 2005
and 2006. On May 22, 2007, we obtained a waiver for this requirement
for the years ended December 31, 2005 and 2006. As of September 29,
2007, we were in compliance with all of the covenants under our existing credit
facilities.
Our
long-term debt at September 29, 2007 consisted of $50.0 million outstanding
from
the $260.0 million U.S. revolving credit facility, $11.8 million in industrial
revenue bonds, and $1.1 million in other long-term debt. The
revolving credit facilities are unsecured. At September 29, 2007, we
had $21.1 million in outstanding letters of credit under the U.S. revolving
credit facility, which reduce the amount available to borrow and guarantee
the
industrial revenue bonds as well as insurance accruals. We had an
additional $1.4 million in letters of credit at September 29, 2007 that were
acquired with Hanover.
Our
short-term debt at September 29, 2007 consisted of a U.S. asset backed
securitization (“ABS”) agreement for $100 million “on balance sheet” financing,
entered into by Genlyte and its wholly owned subsidiary, Genlyte Receivables
Corporation, which matured on July 31, 2007 and was subsequently renewed for
one
additional year. The ABS agreement now expires on July 25,
2008. GTG trade accounts receivable are sold to Genlyte Receivables
Corporation, a bankruptcy-remote entity which pledges the accounts receivable
as
collateral. As of September 29, 2007, our short-term debt consisted
of $65.6 million outstanding under the ABS agreement. Net trade
accounts receivable pledged as collateral for the ABS loan were $187.0 million
at September 29, 2007.
Other
For
the
first nine months of 2007 and 2006, 18.6% and 18.0%, respectively, of our net
sales were generated from foreign operations, which are primarily in
Canada. International operations are subject to fluctuations in
currency exchange rates. We monitor our currency exposure in each
country, but do not actively hedge or use derivative financial instruments
to
manage exchange rate risk. We cannot predict future foreign currency
fluctuations, which have and will continue to affect our balance sheet and
statement of income. The cumulative effect of foreign currency
translation adjustments, included in accumulated other comprehensive income,
a
component of stockholders’ equity, was a $43.0 million gain as of September 29,
2007. Such adjustments were a gain of $23.8 million and a loss of
$1.5 million for the nine months ended September 29, 2007 and September 30,
2006, respectively. Pre-tax losses from translation of foreign
currency transactions, which are recorded in selling and administrative
expenses, were $5.4 million and $989 thousand for the nine months ended
September 29, 2007 and September 30, 2006, respectively.
NEW
ACCOUNTING STANDARDS
In
September 2006, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standards (“SFAS”) No. 157, “Fair Value
Measurements” (“SFAS No. 157”). This new standard provides guidance
for using fair value to measure assets and liabilities. The FASB
believes SFAS No. 157 also responds to investors' requests for expanded
information about the extent to which companies measure assets and liabilities
at fair value, the information used to measure fair value, and the effect of
fair value measurements on earnings. SFAS No. 157 applies whenever
other standards require (or permit) assets or liabilities to be measured at
fair
value but does not expand the use of fair value in any new
circumstances. SFAS No. 157 will become effective for Genlyte as of
January 1, 2008. We are currently assessing the effect of
implementing this guidance, but do not expect the adoption of SFAS No. 157
to
have a material impact on our financial condition or results of
operations.
In
February 2007 the FASB issued SFAS No. 159, “The Fair Value Option for Financial
Assets and Financial Liabilities” (“SFAS No. 159”). SFAS No. 159
permits companies, at their election, to measure specified financial instruments
and warranty and insurance contracts at fair value on a contract-by-contract
basis, with changes in fair value recognized in earnings each reporting
period. The election, called the “fair value option,” will enable
some companies to reduce the volatility in reported earnings caused by measuring
related assets and liabilities differently, and it is simpler than using the
complex hedge-accounting requirements in SFAS No. 133, “Accounting for
Derivative Instruments and Hedging Activities,” to achieve similar
results. SFAS No. 159 will become effective for Genlyte as
of January 1, 2008. We are currently assessing the
effect of implementing this guidance, but do not expect the adoption of SFAS
No.
159 to have a material impact on our financial condition or results of
operations.
CRITICAL
ACCOUNTING POLICIES
“Management’s
Discussion and Analysis of Financial Condition and Results of Operations” is
based on our unaudited consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States (“GAAP”). The preparation of these unaudited
consolidated financial statements requires us to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure
of
contingent assets and liabilities at the dates of the financial statements
and
the reported amounts of revenues and expenses during the reporting
periods. On
an
on-going basis, we evaluate our estimates and assumptions, including those
related to sales returns and allowances, doubtful accounts receivable, slow
moving and obsolete inventory, income taxes, impairment of long-lived assets
including goodwill and other intangible assets, medical and casualty insurance
liabilities, warranty liabilities, pensions and other post-retirement benefits,
contingencies, environmental matters, and litigation. We base our
estimates and assumptions on our substantial historical experience, the guidance
of outside experts, industry data, and other relevant factors 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. Reported results would differ under different
assumptions, estimates, or conditions. Actual results will inevitably
differ from our estimates, and such differences could be material to the
financial statements.
For
a
detailed discussion of critical accounting policies that affect the more
significant estimates and assumptions used in the preparation of our
consolidated financial statements, please refer to our Form 10-K for the year
ended December 31, 2006. Management believes that other than the
adoption of FIN No. 48 during the first quarter of 2007, there have been no
significant changes to our significant accounting policies since December 31,
2006.
Income
Taxes
Significant
judgment is required in developing our income tax provision, including the
determination of deferred tax assets and liabilities and any valuation
allowances that might be required against deferred tax assets. We
operate in multiple taxing jurisdictions and are subject to audit in those
jurisdictions. Because of the complex issues involved, any
assessments can take an extended period of time to resolve. In our
opinion, adequate income tax provisions have been made and adequate tax accruals
exist to cover probable risks. However, results of Internal Revenue
Service or other jurisdictional audits, statute closings on prior tax returns,
and future tax law changes could have a material impact on our future tax
liabilities and provisions, impacting financial condition and results of
operations.
In
July 2006, the FASB issued FIN No. 48, which clarifies the accounting for
income taxes by prescribing the minimum recognition threshold as
“more-likely-than-not” that a tax position must meet before being recognized in
the financial statements. FIN No. 48 also provides guidance on
derecognition, classification, interest and penalties, accounting for income
taxes in interim periods, financial statement disclosure and transition
rules.
The
evaluation of a tax position in accordance with FIN No. 48 is a two-step
process. The first step is recognition: The enterprise determines
whether it is more likely than not that a tax position will be sustained upon
examination, including resolution of any litigation. The second step
is measurement: A tax position that meets the more-likely-than-not recognition
threshold is measured to determine the amount of benefit to recognize in the
financial statements. The tax position is measured at the largest benefit with
greater than 50 percent likelihood to be realized upon ultimate
resolution.
We
adopted the provisions of FIN No. 48 on January 1, 2007. As a result
of the implementation of FIN No. 48, we recognized a $646 thousand increase
in
the liability for unrecognized tax benefits. This increase in
liability resulted in a decrease to the January 1, 2007 retained earnings
balance in the amount of $646 thousand with no effect on deferred
tax. The
amount of unrecognized tax benefits at January 1, 2007 is $8.5 million, of
which
$6.8 million would impact our effective tax rate, if recognized.
NON-GAAP
FINANCIAL INFORMATION
To
supplement the consolidated financial statements presented in accordance
with
GAAP, we have presented adjusted operating results which include non-GAAP
financial information (such as adjusted net income, working capital, current
ratio, net debt, and total debt to total capital
employed). Management believes these non-GAAP financial measures are
good indicators of business performance and are provided to enhance the user’s
overall understanding of our current financial performance and prospects
for the
future. Specifically, management believes the non-GAAP financial
information provides useful information to investors by either excluding
or
adjusting certain items of operating results that were unusual and not
indicative of our core operating results or making calculations with financial
statement elements to provide additional financial measures. This
non-GAAP financial information should be considered in addition to, and not
as a
substitute for, or superior to, results prepared in accordance with
GAAP. The non-GAAP financial information included herein has been
reconciled to the nearest GAAP measure.
FORWARD-LOOKING
STATEMENTS
Certain
statements in this Management’s Discussion and Analysis of Financial Condition
and Results of Operations, including without limitation expectations as to
future sales and operating results, constitute “forward-looking statements”
within the meaning of the Private Securities Litigation Reform Act of 1995
(the
“Reform Act”). Words such as “expects,” “anticipates,” “believes,”
“plans,” “intends,” “estimates,” “projects,” “forecasts,” “outlook,” and similar
expressions are intended to identify such forward-looking
statements. The statements involve known and unknown risks,
uncertainties, and other factors which may cause our actual results,
performance, or achievements to be materially different from any future results,
performance, or achievements expressed or implied by such forward-looking
statements. Such factors include, but are not limited to, the following: the
highly competitive nature of the lighting business; the overall strength or
weakness of the economy, construction activity, and the commercial, residential,
and industrial lighting markets; terrorist activities or war and the effects
they may have on us or the overall economy; the ability to maintain or increase
prices; customer acceptance of new product offerings; ability to sell to
targeted markets; the performance of our specialty and niche businesses; demand
spurred by the Energy Policy Act of 2005, availability and cost of steel,
aluminum, copper, zinc coatings, corrugated packaging, ballasts, and other
raw
materials; work interruption or stoppage by union employees; increases in energy
and freight costs; workers’ compensation, casualty and group health insurance
costs; the costs and outcomes of various legal proceedings; increases in
interest costs arising from an increase in rates; the operating results of
recent acquisitions; future acquisitions; the loss of key management personnel;
foreign currency exchange rates; changes in tax rates or laws, and changes
in
accounting standards. We will not undertake and specifically decline any
obligation to update or correct any forward-looking statements to reflect events
or circumstances after the date of such statements or to reflect the occurrence
of anticipated or unanticipated events.
ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
There
have been no significant changes in the Company’s quantitative and qualitative
disclosures about market risk since the Company filed its Annual Report on
Form
10-K for the year ended December 31, 2006.
ITEM
4. CONTROLS AND PROCEDURES
Evaluation
of Disclosure Controls and Procedures
The
Company maintains disclosure controls and procedures that are designed to ensure
that information required to be disclosed in its Securities Exchange Act of
1934
(“Exchange Act”) reports is recorded, processed, summarized and reported within
the time periods specified in the Securities and Exchange Commission’s (the
“SEC’s”) rules and forms, and that such information is accumulated and
communicated to its management, including the Chief Executive Officer (“CEO”)
and Chief Financial Officer (“CFO”), as appropriate, to allow timely decisions
regarding required disclosure.
As
of the
end of the period covered by this report, the Company carried out an evaluation,
under the supervision and with the participation of the Company’s Disclosure
Committee and management, including the CEO and the CFO, of the effectiveness
of
the design and operation of the Company’s disclosure controls and procedures
pursuant to Exchange Act Rule 13a-15. Based upon, and as of the date
of, this evaluation, the CEO and the CFO concluded that the Company’s disclosure
controls and procedures were effective.
Changes
in Internal Control Over Financial Reporting
There
were no changes in the Company’s internal control over financial reporting
during the third quarter of 2007 that have materially affected, or are
reasonably likely to materially affect, the Company’s internal control over
financial reporting.
PART
II. OTHER INFORMATION
ITEM
1. LEGAL PROCEEDINGS
There
have been no significant changes in the status of legal proceedings since the
Company filed its Annual Report on Form 10-K for the year ended December 31,
2006.
ITEM
1A. RISK FACTORS
There
have been no significant changes in the status of risk factors since the Company
filed its Annual Report on Form 10-K for the year ended December 31,
2006.
ITEM
2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE
OF PROCEEDS
(c)
The
following table presents a summary of stock repurchases for the quarter ended
September 29, 2007.
(1) On
August
22, 2007, Genlyte’s Board of Directors authorized the repurchase of up to 5% of
the Company’s outstanding common stock as of July 28, 2007, or 1,431,179
shares. All shares were purchased as part of the publicly announced
plan.
ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
None
ITEM
6. EXHIBITS
Exhibits
are listed on the Exhibit Index on page 31.
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, Genlyte has duly
caused this report to be signed on its behalf as of November 5, 2007 by the
undersigned thereunto duly authorized.
EXHIBIT
INDEX
31
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