Koninklijke Philips NV (PHG) 2004 Q2 法說會逐字稿

Good afternoon and welcome to the Thomas Industries and Genlyte Group second-quarter 2004 earnings conference call. At this time, all participants are in a listen-only mode. There will be two question-and-answer sessions during this conference. At that time if you wish to ask a question, please press star, 1 on your telephone keypad. If anyone should require operator assistance during the conference, please press star, zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ms. Laurie Lyons of Thomas Industries. Thank you, Ms. Lyons, you may begin.

Thank you. Good afternoon, everyone, and also welcome to those of you listening on our webcast. Today we'll begin our conference with The Genlyte Group Incorporated, Larry Powers, Chairman, President and CEO of Genlyte and Bill Ferko, Vice President and CFO will be giving an overview of their 2004 second-quarter results followed by a question-and-answer session. Immediately following we'll hear from Tim Brown, Chairman, President and CEO of Thomas Industries and Phil Stuecker, Vice President of Finance and CFO. Following their comments, there will be another Q&A specific to Thomas Industry's second-quarter earnings.

Before we begin, let me remind you that this afternoon's discussion may include forward-looking statements. These statements are based on our view of the world today and therefore are subject to risks and uncertainties which are discussed in more details on both Companies' most recent form Form 10-K. Obviously, actual future results may vary. I'll now turn it over to Mr. Larry Powers of the Genlyte Group. Larry.

Good afternoon, everyone. This has been an interesting time in the history of Genlyte and there's been some very significant events that have taken place in, you know, in the past few months with the decision that we reached to acquire the 32% that Thomas now owns in the Thomas Genlyte joint venture is kind of a -- the climax of a goal that we've had and I think will be a very good event and we'll talk a little more about it and Bill can fill you in on any more details a little later on. And the other significant event is the -- finally the conclusion of the King litigation, which has been ongoing ever since I've been the President and CEO of Genlyte and it's a -- it's a great relief to finally have this thing totally behind us. We've always told everyone that, you know, there was no justification, we believe, for this lawsuit to begin with, and we have finally proved ourselves that that was the case and so that is over and behind us forever. So those are two great milestones and this last quarter we had a, what I would characterize as a very interesting quarter.

Our sales, if you look at them on the surface look pretty good and they were good with, you know, with sales being up significantly over -- over prior year and certainly over our budget and what we had anticipated, but it's kind of interesting when you -- when you break it out, and I think it's important that we do that for you, in that our standard, what we call our traditional commercial business is still relatively flat. If you look around the country, you will note that there's not a lot of new office buildings going up. There's still a lot of under utilization of space in many of the big cities, in, you know, San Francisco and even -- even New York is still -- although New York has got a fair amount of retrofit going on, there's not much going on there and even Washington , D.C. A lot of these areas are still relatively soft.

And our retail, which is a very significant sector to us, even though retail sales have been relatively strong and business has been, you know, relatively good for the retail people, our business in the retail market has not been that strong the first half of this year. We characterize that as our national accounts business and our Lightolier national accounts business has been relatively flat this year. In fact, slightly down some. So our traditional commercial business has not been all that good. I think it started to pick up. There is -- there is little lead pockets of opportunity, a lot of little strip shopping malls, you know, banks, schools are still reasonably active, that type of thing, but the -- the significant amount of sales increase we got this year was from some of the companies that we've acquired recently: Shakespeare, the company we acquired just a little over year ago, that manufacturers fiberglass poles primarily for the utility market is doing outstanding.

Their sales growth has been tremendous. We're not sure exactly why, we know there's a lot of activity in the utility business. We also think because of the increase in steel poles recently, we may be getting some people that switch to fiberglass in lieu of steel. Steel traditionally is significantly lower priced and it even is still to this day, but some people may decide that fiberglass is a better choice and with the pricing, the differential having narrowed that gap somewhat, I think a lot of people have -- have switched over to fiberglass. So that business has been very strong. Our Vari-Lite business, which is the business that we acquired a year and a half ago, it -- has also been very active. We shipped quite a few products for the Greece Olympics, our business in Europe kind of -- that gives us kind of our first major presence in Europe is doing extremely well.

And so that business is very good and then some of our niche outdoor companies, some landscape lighting, some decorative street lighting, some of those types of businesses have also been very strong this, you know, this first half of this year, particularly this last quarter. Really, that's kind of the major reason for driving our sales increase. As we mentioned in our last conference call, we've had some discussions about the fact that we initiated a price increase. And we believe for the most part that price increase is holding. We're confident -- in fact, I just returned just a few minutes ago, uh, where I would have been meeting with several electrical distributors and electrical contractors and people in the industry and from all indications, everybody believed that we all made it a price increase, you know, our costs have all gone up, uh, in fact, if they continue to go up, we may need another price increase, if they continue to skyrocket as we've seen them here in recent weeks.

But we do feel reasonably confident that the price increase is going to hold, although if you -- if you look at our margins, we got some improvement and Bill can talk a little more to that detail a little later on. We've got some improvement in margins in the third quarter as a result of that but not as much as I had hoped for, because -- or at least our -- our EBIT percentage wasn't as high as I thought it should be, but that we had some unusual expenses again and Bill will talk to some of them. Talking a little bit about the third quarter, it's going to be a very unusual third quarter for us, and it's going to be one that's going to be most challenging for us for a variety of reasons. If you will recall, last year we -- we were involved in a lawsuit and we received approximately an $8 million settlement in the third quarter of last year, which inflated our earnings, obviously. We obviously won't have that this year. And then assuming and we believe that we will complete the acquisition of the -- of the joint venture, uh, we're going to have some significant costs associated with that.

We will have some additional depreciation and that as a result of the write-up of our, you know, fixed assets and that and Bill can talk to that a little more, we don't know the exact numbers on that yet but we're going to have those expenses, but because of purchase accounting, we're going to have to write off -- or write down those -- those 32% of -- of our, you know, orders and our inventory and that. So it's going to be an unusual quarter for us. As far as the sales activity, I don't see any significant reason for things to change much from where they are now, although I do believe that there was some future buying and I don't believe that we'll see our sales increases as strong in the third quarter as we saw them in the first or second quarter. And, again, a lot of that will depend on the strength -- the continuing strength of these niche businesses because I certainly do not see the commercial construction picking up dramatically. I think it'll stay at about the -- the current level and maybe improve slightly.

I just returned from a NEMA, which is a National Electrical Manufacturer's Association, meeting in Washington, D.C. last week and Dr. Don -- Don Lebbins(ph), who does the forecasting, is the economist for NEMA and I think probably the most knowledgeable person in this country about commercial construction, showed us his predictions of what's going to happen and he has, you know, kind of a slight uptick the remainder of this year and some improvement next year, but it's nothing dramatic that's going to really drive sales, you know, up substantially. So we got to depend a lot on our niche businesses to continue to be strong if we're going to continue to drive the sales increases that we've had. But all in all, I was very pleased with the quarter, only just a little disappointed. Our earnings should have been, uh, stronger based on our sales increase. And I'm hoping that we're going to get some more benefit in the third quarter from the price increase and hopefully we'll see some of these cost increases, probably not -- they're probably not going to stop but at least slow down some and not see them at the same rate that we've seen them over the past quarter and really throughout the first six months of this year. We -- we have seen a tremendous increases in freight and insurance and healthcare and, you know, with not much indication that those are going to slow too much going forward.

So with that, I'll turn it over to Bill and let him talk some more specifically and then we'll be happy to answer any questions that you might have.

Okay, thank you, Larry and good morning -- or good afternoon, everybody. As you saw in the release, we're pretty pleased with our second-quarter sales of $301 million being 18.6% over 2003. However, the backlog going into the third quarter is actually going to be lower than it was at the end of the second quarter from 2003. Year-to-date sales of 578.8 million are 17.6% higher than 2003. Acquisitions added, uh, just under 3% of the increase and there was a slight benefit from Canadian foreign currency being stronger this year in the sales front as well as the other issues that Larry just discussed earlier where several of our niche businesses are performing better than last year.

Operating profit of the second quarter of $27 million is 17.1% higher than 2003, so although the operating margin has deteriorated 10 basis points to 9% from 9.1% last year, uh, and again a lot of that is attributed to higher operating expenses in the area of legal expenses being 6.6 million higher than last year, um, approximately 2.7 million of higher group medical expenses, pension expenses are higher and our audit expenses are -- are going up exponentially. We're relatively pleased that second-quarter gross margin increased, uh, just under 1% from 34.9% last year to 35.7% this year. It's a little bit early in the price increase transition to draw too many conclusions from the -- from the margin increases. Again, the price increase was effective in May. There were some, you know, shipments that occurred during March and April at the old price and then whatever couldn't get shipped, uh, that was committed to leaked into the May and -- and June time frames.

So we'll get a better feel for that going into the third quarter here where more of the shipments should be at the higher prices. Um, acquisitions in the operating profit area added approximately $800,000 to the year-over-year operating income for the quarter. In the area of net income, net income increased 17.2% from 9.8 million last year to 11.5 million for the second quarter this year. Um, interest expense is really a non-event since we really have just cash balances and minimal debt. Year-to-date net -- net income of $22.4 million increased 20.1% over last year. Earnings per share of 83 cents are 15.3% higher than 2003 and year-to-date earnings per share are 18.2% higher than last year. In the cash generation area I'm pretty pleased, we're doing better than we were in the first quarter. First quarter was a big disappointment for us and we've had some fairly significant improvements in the cash flow area, where cash flow from operations net of capital expenditures for the quarter was 13.3 million compared to 10.5 million in 2003.

Our second-quarter working capital, less cash, cash equivalents and short-term investments, uh, increased to 204 million from $192 million last year, but it's done significantly higher sales. So working capital as a percentage of annualized sales actually decreased from 18.9% of sales last year to 16.9% of sales this year. Accounts receivable, some of the elements of accounts receivable is -- is 34, almost $35 million higher than June of last year and, again, as a percentage of sales, it's at 17.1%, which is slightly higher than the 16.6% of sales last year. Inventory increased only $6 million from last year at $151 million and dropped significantly to 12.5% of sales compared to 14% in the second quarter last year. Capital expenditures are a bit higher than we normally would be running at this point, where they were $6.1 million, uh, or 1.1 -- $1.9 million higher than last year.

We've got some fairly significant projects that are not normal for us. We have a large construction project in Canada with our Canlyte division. We've had some improvements to our Fall River, Massachusetts facility and a couple other fairly sizeable machinery projects going on as well. Total debt at the end of the quarter then was 11.3 million compared to 16 million last year. And our net debt or net cash position, net cash and short-term investments less -- less debt was 133.8 million compared to a net cash position, if you would, last year of $62.4 million. So that -- that available free cash increased significantly over the last 12 months. That's the end of my formal comments. I'm sure there's going to be questions about, you know, what's going to happen in the third quarter, uh, as well as, you know, some of the pro forma numbers. So why don't I just open up the line for those types of questions right now and we can zero in on them.

Operator, that's the end of my formal comments, if you could open the line up for questions.

Thank you. At this time, I would like to remind everyone, in order to ask a question, please press star, one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star, two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question comes from Andrew Meister, please state your question.

Hey, Larry, Bill, how are you.

Good.

Um, a couple of questions here. First of all, can you comment, A, on the tone of business, uh, so far here in July and then, number two, can you run through in more detail some of the expenses in the second quarter, specifically the legal and the pension, what those were attributed to and will they be ongoing?

Let me -- let's start with the legal first, Dan Fuller is here, who's our corporate attorney, and let Dan give you some indication as to -- to what happened in the -- in this quarter. We -- I mean, we had some unusual, uh, expenses, no question, in this quarter. Legal expenses will always be, you know, an issue. I mean, we have ongoing legal things all the time, but we did have an unusual quarter. So let me -- and actually we've had a pretty unusual first six months, so let me have Dan speak to that. Dan.

Thank you, Larry. Hi, Andrew. We're -- as everyone knows, we're generally involved in a variety of litigation cases and in the second quarter this year one of our patent cases in which we were the plaintiff went to trial. Unfortunately, we weren't successful in that case. Associated with that case there were certain counterclaims that have been filed and we are still dealing with those. We also have other cases which we are currently defending and the legal expenses related to all of those primarily hit in the second quarter. On a going-forward basis, we'll, of course, have legal expenses as a normal matter, as Larry mentioned, but do not expect to see a spike such as we did in the second quarter. However, as everyone knows, litigation is by its nature uncertain so things can change but as it stands right now we think the second quarter expense spike will not be repeated in the third quarter.

I'm sure, gentlemen, you do not tell what sort of an ongoing level of legal, uh, expenses are, but in terms of the -- the 6.6, I'm just trying to get t, you know, is this a particular case, a number of particular cases? And my sense is I shouldn't have that number in my -- my operating expenses for the third quarter or any other normal quarter, if you will.

Yeah. Andrew, I mean, we did spike out the increase -- the 6.6 million this year for the first quarter over last year. I'm sorry, for the second quarter compared to last year. Um, I mean, I think that, you know, if you want to take that out and add that back to the second quarter, I don't know how you adjust your numbers, but that would get you back to what our normal run rate is.

Okay.

You know, we also -- I also -- in the press release we broke out the fact that last year in the third quarter, although we had the -- the $8 million settlement, we had about a $900,000 worth of legal expenses in that quarter related to that transaction. These, you know, various legal issues that kind of ebb and flow and so they're relatively unpredictable.

And the reason, Andrew, that it was so high in this quarter was that, again, Dan mentioned to you, it was a result of this suit that we had that we were unsuccessful and then there's a whole, uh, litany of countersuits and that that are kind of going on and we hope over the next, you know, few months -- we don't know -- we're not sure how long it's going to take us, but we hope to get those resolved and then move on and get back to somewhat of a normalcy. But until those are resolved, we could have -- in fact there's one or two of those cases that potentially could end up in trial and if they do it will spike up again. Now, we hope that's not the case, but we don't know for sure.

Hey, Dan, can I just ask the question: What do you write in the press release, if you would have won the case?

I'm sorry.

I want to ask the question if the outcome of that case was favorable, what do you write in the press release, rather than what you did? So let's just assume the reverse happened.

Well, we had a -- Andrew, this -- look at what we did last year in the third quarter, when we had a favorable result as one of these major cases that we won, we came and told what we won and the cost of the case and what it was. I mean, we would have told you exactly what it was.

Okay. Fair enough.

Okay. And just to speak to your comments on the results so far in July, the last couple of weeks in June and for the first couple of weeks in July, we've definitely seen order input soften. Now, I commented to -- to my board in my -- in my monthly letter this month that that's not unusual this time of year. You get lots of vacations, some factory shutdowns, construction, it's not uncommon. So I can't give you any real strong indication that business is slowed. It definitely has slowed from earlier in the quarter, but is that, uh, systemic that it's going to slow in the third quarter? I think it's way too early to -- to tell that yet and I -- I think it's kind of business as usual right now, although there's no question that in the last three to four weeks our order input has softened.

Okay. And then on pension.

Yeah, the pension really is really the pension and the insurance costs. Um, I think pension is kind of stabilized, Andrew. There's not going to be a significant increase year-over-year going forward. Once we get -- get through, uh , this -- really the third quarter. But the -- the insurance is something that just continues to -- to cause concern. I mean, of that 2.9 million, I can break them out. The pension was only a couple hundred thousand dollars, about $225,000, but -- but the group -- the medical insurance was about $2.7 million of that increase. So the big lion's share of that is, uh, just this huge increase in medical expenses that were, you know, we're continuing to, you know, try to find ways to deal with it and -- and, uh, you know, the employees are -- are picking up an increasing share or the burden. You know, we're working with carriers that are being more aggressive in negotiating with physician groups and trying to find lower costs ways of doing this but it's a never ending challenge. I think -- you know, we did have some nice results from manage care networks and environments in the late '90s.

Uh-huh.

And we're just not seeing that. You know, it's gone beyond that since then. So I -- we're like no -- I mean every company's in the same boat, I think, when it comes to this medical area.

Our next question comes from Ned Armstrong. Please state your question.

Yes, good afternoon. One question I had related to your comment about the retail markets. Uh, that they -- they weren't, uh, as strong as one might have expected. What do you attribute that to? Is that the nature of the market or are you not winning bids or not bidding jobs because pricing's slow? Can you describe that a little bit?

Well, it's -- it can be a combination of both. It -- that business is extremely competitive. One of the things that's happened, I think, as a result of the price increase, that a lot of these retailers have now gone back and said that they're going to rebid and a lot of them have threatened and, you know, they don't like price increases. And so a lot of them have said, well, we're not going to accept the price increases and we've been very firm in holding and told them that if they want to go back to bid they have to go back to bid because we're not backing off of that. I think is some of it. And I think -- but it's just not -- the building is -- is another major issue. A lot of them are just not building as many stores as they have been, and they're just kind of waiting to see. I think there's a little bit of a holding pattern with the election year, everything going on and I think everybody's just kind of sitting in anticipation and saying, you know, is things going to, you know, perk up and everything going to be fine or should we be a little more conservative and I think some of them are just being a little more cautious. We've gotten some very, very nice here recently retrofit contracts of some of the stores that -- that are redoing some major areas of their store, relighting is always a major focus on retailers when they want to redo stores,so we've got some really nice retrofit business. But a lot of the new store construction is just -- it's not that -- that vigorous right now.

One market I didn't hear you mention was the hotel market, have you been having success there?

We have. We have a lot of success. I used Louisville right here in our home town, they're building a big convention center, Marriott downtown here and we got that job and that, but the hotels and motels that are being built today are not the ones that we like particularly. It's more of the Budget Inns, the Hampton Inns, you know, the Holiday Inn Express, those are the types of hotels that are booming and they don't use a lot of the real nice high-end products that we like. We like the big convention center downtown and big resort hotels but there's fewer of those being built but we're pretty successful in that arena when they are being built in, you know, winning our share of that -- that market.

Have you benefited from any of these hotels that are changing hands, existing hotels that are changing ownership.

In some cases we do. There's some cases there's some nice retrofit projects, there's some things that happen to make them look alike. But -- any of the hotels are just like shopping centers in that, from time to time they -- they need a face lift and they go in and redo them. And if it's the high-end hotels and that we usually get involved and benefit from a lot of that.

Okay. And then, uh, a few calls back you had mentioned, uh, a provision in -- in the then energy bill that would benefit the -- the lighting businesses due to retrofits.

Right.

Is -- is there any chance that that may resurrect itself after the elections this year?

Well, it's even -- it's even before the elections this year. That -- that bill is back, uh, being debated almost as we speak again. We had a lengthy discussion about that last week in Washington, D.C. and there's still some hope that they're going to get some type of an energy bill. As you probably know, there's been a big fight and there's some people that don't think anything is really going to happen much before the election but there is no question that it -- there is a real need for a comprehensive energy bill in this country. And, you know, in our Federal Government is one of the -- the -- you know, great contributors to excessive energy consumption because you got all these federal courthouses and a lot of federal buildings, they're the largest owners of buildings in this country that are still using actually lamps and ballasts that are outdated and really not even supposed to be produced anymore and here our Federal Government. So we're hoping that the political arena can get together, but it always comes with a cost and as you know the budget with the, you know, the war in Iraq and all these other budget constraints it's one of those things that gets pushed around and there's lots of lobbying going on to try to protect, you know, some of the wildlife areas. There's lot of things tied to this energy bill, They're trying to get it broken out to where just some logical things make sense, such as give, you know, some kind of a tax incentive to people to go retrofit all of these old fixtures that -- that are consuming way too much energy and just a little bump to encourage people to do that. And I think with costs of energy going up and all that, I think that sooner or later that's going to happen. It's just a matter of when is that going to happen.

Okay. Thank you.

Our next question comes from Cliff Walsh, please state your question.

Yes, thank you. Can you give us an indication as to what the segment revenue was, Bill, do you have that information yet?

Yes. The commercial segment, uh, for the three months ended June -- July 3rd was 227.2 million, uh, residential segment was 36.4 million, and the industrial segment was 37.8 million.

37.8?

Yes.

Okay. Um, do you have any indication now that you've -- in terms of the closing of the Thomas deal when you think that's going to happen and also any new information in terms of, you know, where you think step-up values are going to be?

Yes, the Thomas deal is expected to close on Friday, July 30th, it'll be as of July 31st, as of the end of the month, with funding to occur on Monday, August 2nd. The step-ups are subject to appraisals that are currently ongoing and expected to continue until October. Uh, we have some very broad estimates of -- in the ranges of the step-ups for the, again, it's for the 32% only that -- the minority interest. Um, the backlog in inventory will be stepped up anywhere between 3 and $6 million. Fixed assets would be stepped up anywhere between 15 and 20 million dollars. Intangibles would be somewhere between 40 and 50 million and then the goodwill, the balance, would be going to goodwill, which is the difference between the step-ups and the $166 million of minority interest that's there right now. So I -- very broad ranges and we really will not get a very good feel for this until the appraisers get through that process.

Okay, great. Um, last question. In terms of price increases, are they something that you only pursue if your costs start rising, or is it something that you could -- you might try to do, um, you know, if activity picks up a little bit?

Well, we -- you know, one of the things that we try to do, and the best opportunity to get price increases is through the introduction of new products and that, which we are constant constantly doing. Lightolier just had in the month of May the largest introduction of new products ever in the history of the company, and they've always been very aggressive at introducing new products. You know, we try very hard to obtain 30% of our sales every year from new products that have been introduced within the previous two years, including the current year. So it's really three years. And, you know, we -- not all of our divisions are successful at that, but that's kind of ongoing. And when you come out with new products obviously you can set the pricing, you know, where you want to. Now, that means you still got to be competitive and all that. In the event that our costs continue to go up or we see our margin deteriorate or we're not happy with our margins or whatever we will certainly work to increase pricing. Unfortunately, you know, in our industry, where we -- in the United States we have roughly a 12% market share, it's pretty hard for us to in effect an overall price increase without kind of an industry, you know, of lamps or ballasts or steel or some of the other basic commodities going up to kind of justify it because a lot of our -- if our competitors and that don't see fit to increase prices and that then it becomes, you know, very difficult to -- to gain a price increase in this industry. And then what's happening over the -- you know, this -- this price increase that we just put into effect is really the first real effective price increase we've had in almost 10 years. I mean, we've had little blips here and there, some of our divisions have gotten a little here and there, you know, and we certainly have gotten some out of new product but I'm talking about a general across the board overall price increase. Some of the contractors and that, these newer contractors have only been in business for 10, 11 years or so, they're not used to it. They're used to prices going down and they're really finding it difficult and they don't really know how to deal with this and, you know, like I was talking to a couple contractors yesterday and I said, you know, you guys got to learn -- you got to learn how to deal with this. Those of us that have been around a long time understand that price increases to some degree is the nature of the business and you have to protect yourselves. They bid jobs out for long periods of time and didn't put any escalation clauses and now they're getting hit for the materials and so they're getting stuck and I hope we don't see some of them get in financial trouble as a result of that.

Just to give you a feel for some of the cost increases that we're experiencing, just in some of the commodities. These are just -- it's not necessarily our costs because we don't want to share those with the whole world, but some of the commodity quotations or prices that we're seeing out there, hot rolled steel is up about 90%, cold rolled steel is up about -- over 100%, aluminum prices are up about 8% over last year. Corrugated is up somewhere between 10 and 25%, depending on the quote. Fuel costs are up around 20% over last year. Um, magnetic ballasts costs are up 5% to 8% over last year. So we have to get these price increases or, you know, it -- it's just going to not work out. So it's really important that we get the price increases and -- and I think it's important to everybody in the entire industry.

Okay, great. Thanks so much, guys.

Just a reminder, to ask a question, please press star one. Our next question comes from Craig Kennison, please state your question.

Good afternoon, everyone.

Hello, Craig, good afternoon.

Bill, what was organic growth in the quarter?

Uh, you mean base business-type growth? I'm not sure when you say organic growth what you mean.

I mean basically excluding your acquisitions and excluding foreign exchange, was it 16 -- or 15 to 16%.

Yeah, let's see. Acquisitions were about 2.7% and then the foreign exchange was about four tenths. So about 3% between the two of those.

So if we take 15.7%, break it up into pricing, volume, and mix, just get a sense for what really drove, uh, that fairly strong organic growth.

Right. Um, you know, the pricing would be roughly the eight tenths of 1%, roughly 1%, again, most of that came through in the month of June because, you know, really just became effective in May. So there's -- the rollout of orders that were -- were really at the old price. So not too much from price. Um, and the rest, then, is really between volume -- it's really mix because as Larry indicated earlier, it's the -- the strength in the, you know, the theatrical lighting markets, the strength in the outdoor lighting markets, the fiberglass pole business, uh, you know, the acquisitions that -- that, you know, had other tangental business that came with them. So it it's -- you know, there's some volume in those businesses. The volume in the, as Larry indicated, in the traditional office and, you know, the retail and hotel markets was -- you know, we don't have it broken out that way, but it's relatively soft. Um, that's really all I can give you right now, other than the mix that I indicated earlier with the commercial, residential, and industrial sitings.

And you mentioned that your price increase was holding, you also mentioned that the price increase was 5% to 8%, does that mean that you are getting a 5% to 8% price increase, or is it something less than that?

Well, that's what we hope we'll get. And like -- see, because of the way these orders, you know, fall out and that when the orders came in and the shipping and that, we -- we won't know -- we'll start really finding that out, I think, for the most part this month, really in July we should have pretty much full impact of that, so at the end of July, we'll have a pretty good indication to exactly what of that we are getting. And we feel right now, at least all of our guys are telling us that we're working very hard to hold prices and -- and, uh, you know, we think most of the price protection orders and things that we had have now, you know -- have now been shipped and so most of all of the new business that we're getting -- all the new business we're getting in now and most all of the business we're shipping now should be shipped at the new pricing.

Which is 5% to 8%?

That's correct.

In general.

That's correct.

And then on the legal expense, do I understand correctly you sued a company and lost and they countersued and the 6.6 million is a judgment against Genlyte or is it an accrual for a potential judgment?

It's not a judgment against us. We have no judgment against us. But what it is is a -- they -- they have sued us -- we -- we did, we had a suit against a company and -- and it went to trial and we lost, and during this suit, uh, they began this very aggressive action against us and have brought, I think, it's four suits, Dan?.

Three.

Three suits pending that they have brought against us that we're now having to aggressively defend ourselves on. So it has really driven up our legal expenses.

Why is it that it only drove up the second quarter, though, was that an accrual for what you expect in the future?

Well, there's ongoing -- there's ongoing accruals in every quarter for, you know, we calculated what the, you know, estimated legal expenses are and what's probable and then we calculate those. So there're -- there's accruals in every quarter for what the legal expenses are, but the surge really in the second quarter is because the trial took place, uh, for this case and during the second quarter of this year and there were,you know, there were I don't know, 15 or more lawyers on each side of this case. It was a pretty big trial that took place. And, you know, there were a lot of expenses that were incurred during that trial period. And, you know, those are still -- those -- you know, the bills are still rolling in on that and so that -- that is, you know, the type of accruals as well as expenses related to -- not just the expenses on that one case, but the other three that -- that Larry was talking about.

And in general, why is Genlyte suing, was it to defend patents.

That's correct. It was -- we believed that there was a major infringement on our patent, we still believe that. But it's -- you know, we lost in the court. We think we got some bad decisions by the judge but, you know, regardless we lost that suit. And that's a chance you have. Last year we won one and, you know, we -- we aggressively, uh, defend our -- our intellectual property when we believe that people are, you know, copying it and that was the case that we believed here.

And then -- and what's the nature of the suit against Genlyte?

It's suits that they have brought against us where they think that we're infringing, uh, and we think that most of it is pretty frivolous. But at the same time, we -- you know, you have to defend ourselves. They're obviously very unhappy with us because it did cost them a lot of money to defend themselves, which you can understand, and then they went out and have tried to find some things that we have done against them and we don't think that they'll prevail in any of these cases but again we have to defend ourselves.

And then relative to the Keene litigation, I would expect there would be reduced expenditures associated with that and secondly, is there an opportunity to, uh, do likewise to Keene and given the amount of money you guys have expended on that for what has turned out to be a frivolous lawsuit, could you recuperate some of those costs?

The spending on the Keene case has not been very significant since we won the initial judgment, uh, summary judgment about a year -- year ago, I think it was April or May.

But over 10 years you've spent a lot.

Ten years a lot was spent is correct. Over the last year or so, not too much has been spent. Again, uh, we were among several defendants on that case. Nenta's(ph) is -- is a bankruptcy trust, uh, it would be very difficult to -- you know, there's not that many issues to go back to them on, uh, in that type of a case. So unlike a -- a intellectual property where you can just kind of, you know, cherry-pick any one of hundreds of products that we may have out there and file a frivolous case, it's pretty hard to do that in a situation such as this Keene case.

And judges are very unlikely. You know, it's been -- it's been well-noted in our country, right or wrong, we can -- I can argue on both sides of the fence on this, you know, whole issue of having to defend yourself and spend a lot of money and even if you win, uh, but most of these judges are very, very unlikely that they will award attorney's fees unless they can -- somebody can prove that it really is a very frivolous. And we would never sue on a frivolous account. And, you know, I'm sure the Keene litigation, even though we thought it was frivolous, the other side I'm sure didn't feel it was frivolous for whatever the reason.

My final question has to do with guidance. I know you're not providing but if we back out a 29 cents associated with legal expense, this quarter looked to be closer to $1.12, which was well ahead of consensus expectations, um, is there any reason to believe, given that you have, you know, a 5% to 8% price increase in the pipeline and at least generally better tone of business, that that shouldn't be the new quarterly run rate?

Yeah, well, Andrew -- or Craig, the third quarter is going to be really, uh, a challenge to try and predict. Let me talk about, if you would, the, kind of the outlook after the Thomas deal going forward.

Sure.

(Inaudible) minority acquisition. And we're going to have incremental depreciation and amortization expense. Again, we don't know what the step-up is going to be so we can't tell you exactly what that's going to be but it could be somewhere between 6 and $10 million, could be a little less, could be a little more. That's something you have -- this is all on an annualized basis. The interest expense, we're going to have approximately 300 million unfunded debt with an interest rate of between 3.5 and 4% with interest rate swaps that will put on some of that debt. So the -- the incremental interest expense will be about 10.5 to $12 million. And then our -- our foregone interest income on the roughly little over $100 million in cash that we have will be about a million to a million and a half. The amortization of the inventory and backlog step-up that I talked about earlier, uh, will be somewhere between 3 and $6 million and it will take two to three months to burn that off, so now that will be the income that Thomas otherwise would have received, if you would, on that inventory and backlog. But again, we will not get the benefit from those sales, like you would normally think would have fallen through to the bottom line because of the minority interest no longer being there. And then a potential tax expense related to -- there's -- we have cash that's in Canada, uh, we're not sure if we're going to bring that back or not but there's some fairly sizeable potential tax consequences if we do. And the tax consequences on that could be, in after tax dollars, between 3 and $6 million and that has not at all been close to being figured out. So all of those are going to be, you know, sorted out hopefully substantially between the end of -- the end of July and the end of September, during the third quarter, but it could significantly sway the -- the numbers during the third quarter one way or the other. Now, most of that will be sorted out, like the inventory, the backlog, the tax issues, so that after that it's fairly easy for you to -- I mean, it's -- it -- your typical forecast that you would put together after that where, you know, you derive your own sales and earnings forecasts beyond that. Does that help? Hopefully that gives you some idea.

Thank you. Our next question comes from Kent Mortensen, please state your question.

Good afternoon. Just two quick questions. One, just a followup to Craig. Are you thinking at some point, uh, during the third quarter of putting out a press release that brackets these a little bit closer? Just in terms of the extraordinary items, uh, in terms of backing them out, is that something that you're contemplating?

We -- we probably -- again, the appraisals related to all of this will probably be going -- ongoing until October, uh, so I'm hopeful that we'll get these numbers nailed down by the end of the third quarter. But it -- it -- we really aren't going to be able to make too much progress until the -- the appraisers get finished with -- they have to, just so you understand, they have to appraise 100% of the business, all of Genlyte Thomas, every factory and every piece of inventory and every patent -- over 500 patents, and then they look at the difference between the fair-market values of all that and what our book value is, and then step up 32%, take that difference and step it up 32%. It's a fairly elaborate process and very detailed and a lot of work and, um, your guess is as good as mine in terms of what numbers they're going to come up with. I've given you probably as much guidance as we're going to have until it'll be a fire drill coming down to the end of the third quarter trying to figure -- figure it out any more precisely than what I just gave you.

When do you think the tax expense decision will be made?

That will be ongoing. We have some analysis that we have to do with respect to foreign tax credits, you know, the amount of the dividend that we bring down from Canada will probably not be determined until after we complete that full analysis, and then we'll be reviewing that with our board. So it will be within the next -- you know, we do not need that money in Canada to effect the transaction with Thomas, um, but it would -- if we did bring it down it would reduce the potential interest expense so it's an analysis that will be ongoing for the next month or so.

Okay. Do you have --

The other thing I think you guys ought to take into expense, Bill mentioned briefly, but is a significant expense. We are floored by the cost of Sarbanes-Oxley. You know, this new -- to meet all these new requirements. That's going to be a substantial cost that we're going to have in the last six months of this year that we certainly hadn't anticipated anywhere near to the extent of what it's going to cost us.

Fair enough. And, you know, going to your earlier comment and I think Andrew touched upon this, too, about pricing. Uh, you'd said that you really kind of need the industry to kind of come along or at least some good excuses on why you should take pricing up. You know, based on what you're hearing so far on the Street, have your competitors been matching the pricing so far, or have they been taking advantage of it?

No, I think -- I think everybody -- as far as we know, everyone in our industry has announced a price increase and I think are pretty serious about it. I mean, they're being hit -- we're all in this together and we're all being hit with these same types of costs. I mean, you know, whether it be steel or aluminum or freight or whatever, we're all being hit with it. And -- and they need it as bad as we do. So I think it's a pretty -- a very, very well supported price increase industry-wide as far as we know at this point.

Excellent. That's good news. Thank you.

Our next question comes from Andrew Meister. Please state your question.

Uh, Larry, you mentioned something that was interesting about some of these contractors not being, you know, familiar with an inflationary environment. I'm wondering, maybe in your national accounts business or with certain customers, if ever you as a company have exposure to a contract that does not have escalators in it. And if so, what's -- what kind of steps do you take to, you know, remedy the situation if some of your costs are going up? Or do you just have to eat it?

Well, the one thing that we do, we have a very good solid credit department that monitor our major accounts and receivables. I mean, this is the hourly activity. So we're monitoring these -- these accounts very carefully. Now, we don't sell direct to any of these contractors, we sell through distributors. However, as has happened at sometimes in the past, if you see a significantly -- significant bankruptcies at the electrical contractor level, that gets passed and you see some distributors end up going bankrupt and that can pass through to us. The reason that I think over the past few years that we have seen very few bankruptcies in our industries, and I've -- I've commented that the reason that I believe that is the case, is because of -- of interest rates and how low interest rates are, people have been able to finance and do things during this downturn in the building construction cycle in the commercial that they weren't able to do say back in the '90s or in the '70s, '80s. I mean, I've been through this so many times and I've seen a lot more bankruptcies in the past, certainly, than we've seen this time. I can tell you that we are concerned about it and cautious of it and we watch it all the time, and could we end up having to eat some? The answer's yes. Do we monitor? We're also -- you know, we sell to a lot of major customers and people, whether it be people like Graybar, Sonepar, Rexal, these are major national, in some cases international, companies that are pretty well financed and then a lot of the independents that we sell to are a part of these marketing groups, buying groups and that where we do get some protection and some early warnings from these customers about potential problems because they -- they do protect some of the credit. So we think that we have pretty good protection, there's always some exposure, uh, in any case of a significant downturn or if interest rates would really blip up very quickly, uh, you know, there's certainly some exposure there, but nothing that I don't think that, you know, that we could handle and/or that our industry could handle and we're going to monitor it and do a very good job of staying on top of these collections and be sure we get our bills paid.

Our next question comes from Ned Armstrong, please state your question.

Looking at the segment results, it appears that while margins for the commercial business did reasonably well compared to last year, you got squeezed substantially in the residential and industrial arenas. What was the reason for that differential, is it the nature of which raw materials are used or -- or the composition of the work force in those sectors?

Our residential business is -- a substantial amount of that business is imported business. Uh, and -- and I -- you know, right off the top of my head, I don't think I can give you a real good answer. We'll -- we'll delve into those numbers in more detail, we're having a meeting this week with all of our managers and that in some more detail. Part of it just -- it just happens as a result of sometimes some contracts in our retail, you know, we have one large very big national chain that our decorative company sells to and it's very difficult to get price increases from them. And I don't know if that -- that might be part of the answer or not, I'm not sure, but we'll do some more checking into that and find out, I can assure you of that.

Okay. Thank you.

Our next question comes from Craig Kennison, please state your question.

Hi, thanks again. Just following up on my earlier question. You know, if we back out that legal expense, earnings this quarter, we're in the neighborhood of $1.12 and excluding the noise related to this transaction, does that serve as a decent basis for sort of core Genlyte quarterly earnings, uh, since there isn't that much seasonality to your earnings and it's material better -- materially better than the estimates that have been out there?

Well, yeah, there is some seasonality, Craig. I mean, the third quarter is typically the strongest quarter, just because, you know, construction markets try to get everything wrapped up before, in the retail area, before the Christmas-selling season and the other markets just because of weather and get buildings substantially done before the -- the cold weather sets in in the north. So -- and then schools and churches they try to get those all done before school starts. So the -- the third quarter is typically our stronger quarter. I mean, if you look at the relative -- if you can take out the Lithonia settlement from last year, uh, and take this legal -- all the legal out of, you know, third quarter of last year and second quarter of this year and -- and then try to do -- look at the relative increases last year, uh, versus this year. It's potentially a fair comparison. The other issue, though, is we think we had a pretty big surge in activity related to the price increase, where there were a lot of shipments in anticipation of the price increase. And -- and, uh , I don't know if you can extrapolate that run rate going into the third quarter of this year. I -- the base business, as we indicated, the traditional commercial construction, is really not that strong. I mean, there's nothing out there that leads us to indicate that like, office vacancy rates are at extraordinarily low levels, such that there's going to be a surge of office construction, you know, next month. Uh, it's just not there. Now, we do expect it to, you know, start toward the end of this year or into 2005, early 2005, but, uh, I think there's -- there's a lot of very -- how do I say this? Not -- it it's -- it's more than just the -- the legal expenses, it's also this price increase kind of fluctuation activity that is difficult to -- to predict how much of -- of the second quarter is -- is a surge that's just related to that.

Thank you. There are no further questions at this time. I would now like to turn the conference over to Tim Brown of Thomas Industries. Please go ahead, sir.

Okay. Good afternoon. We were pleased to announce that our second-quarter 2004 was a record in terms of sales for the second quarter for our Pump and Compressor Group and was a record second quarter in terms of earnings for Thomas Industries. Net sales for the quarter of 102.7 million are up 7% over 2003 and for the first half net sales of 212, uh, million were up almost 13% over 2003. I'd say both periods sales were helped by the strong euro versus the same periods a year ago. For the second quarter, the euro average was 121 versus about 112 in 2003, so you can see the difference there as we translate the sales from our European companies back into U.S. dollars and for the first half euro average was about 123 compared to 110 in 2003.

Net income was up 4% to 9.8 million or 55 cents a share compared to the 54 cents in the second quarter of 2003. And net income for the first half was 20.5 million or $1.15 a share compared to 18.2 million or $1.04 per share in 2003. Uh, you know, we did have a lot of expenses in the second quarter and as we noted in the release we did have additional expenses for the Wuppertal plant shutdown and for the Sarbanes-Oxley expenses that Larry talked about. The Wuppertal shutdown was completed in June and amounted to expenses of $1.1 million for the second quarter and $1.9 million for the first six months. As we also noted, we will incur additional shutdown costs mostly severance, for Wuppertal of 1.4 million in the second half.

Also in the second quarter, uh, as I mentioned earlier, we incurred incremental audit in Sarbanes-Oxley fees of $369,000 and we will occur -- incur additional incremental costs in the second half of about $855,000, bringing the total to about $1.2 million over and above what we had expected the time we put our forecast and budget together, uh, back in the fall of last year. And, of course, this doesn't include the significant internal time and expenses, uh, to comply with the Sarbanes-Oxley Act. Part of our problem of course is that we have European subsidiaries not familiar with some of the features and the controls that are required here and we've had to bring in outside consultants to help us with the documentation of those costs, which is extremely expensive and the fees have just grown, as I think Bill mentioned, exponentially. Sales in the second quarter at North America were down slightly from 2003, while both Europe and Asia Pacific posted nice gains. We saw strength in the following markets, printing and paper handling, environmental, laboratory, plastics and technology.

Food and beverage and our foundry sales were up in the second quarter. Some of the weaker markets that we experienced in the second quarter were medical, which was down about 5%, which was influenced by the loss of one large OEM that we commented on in the past, a business equipment sales were down and our automotive business actually was -- was light in the second quarter. I think as we indicated before, BMW, where we provide an active seat, uh, their sales into the U.S. are impacted by a regulation and a problem with the active seat in the passenger seat and air bag regulations and therefore the sales of those active seats in North America, at least for 2004, have been reduced. Hopefully we'll get some of that business back in 2005, uh, when they make some modifications. We continue to experience pricing pressures in key markets, uh, that certainly impact our margins. We really don't see this letting up and we have to be aggressive in our cost-reduction efforts to remain competitive.

We've now broken ground on our new plant in China and we expect completion by the end of the year with production in 2005. We were pleased to get the early mentioned Wuppertal shutdown behind us and we do look forward to the benefits of the consolidation in our new facility in Memmingham. We continue to make progress on our new system in Schopfheim that was implemented in August of last year. And we'll get more and more benefit from it as we move through the year and implement some additional manufacturing modules. We made nice improvements as well in reducing our past-due backlog situation. As I mentioned in my first-quarter comments, we had an extremely strong first quarter and should not expect the second half to be nearly as strong.

We traditionally do have more sales in the first half versus the second half and certainly this year will be no -- no different. Obviously we were pleased with the GTG results for the first half and, of course, as you know, we'll be closing, as was mentioned earlier on the sale, which has been successfully operated these past six years with an excellent job done by Larry Powers and his staff throughout North America. I think Phil Stuecker will give you some figures relative to the after-tax cash proceeds relative to that transaction. Obviously the challenge for us is now to redeploy the cash in the most meaningful way for our shareholders and management and the board of directors will carefully analyze the options that we have. As I look into the third and fourth quarter, I think sales in total will be ahead of the 2003 figures as a result of the stronger euro, which really didn't climb significantly until late in 2003.

Uh, as stated before, we do have the negative impact in the second half from, uh, you know, the European vacation schedules. You recall in the third quarter last year that was our real first year of experiencing a very strong, uh, impact of the European vacation, we'll have that of course in the third quarter. I mentioned earlier the loss of the key account that we said would be for this year a loss of about 4 to $5 million in sales. We have worked down the shop time past-due backlog that did favorably impact the first half of this year that we won't see the significant impact from that in the second half. And as I mentioned earlier, sales are typically stronger in the first half versus the second half. From a pump and compressor operating income standpoint in the third and fourth quarter excluding corporate expenses, we expect our results will be close to last year's figures although you have to take into account that we will have in the third and fourth quarter shutdown costs of $1.4 million from, uh, the Wuppertal shutdown that we talked about less some benefit going forward.

And, uh, another 664,000 of Sarbanes-Oxley documentation cost, uh, that I mentioned previously that will impact our Pump and Compressor Group operating cost. We of course hope that we'll be able to keep our Sarbanes-Oxley cost at this level but it's a new procedure for everyone, I think we've all been surprised as to the extent and the magnitude of the cost and the effort required. In the second half our results will also depend on the exchange rate situation as earnings are, uh, usually lower in a rising euro environment due to purchases of German products produced and then sold outside of the European Community. We're currently hedging about one year out on a portion of our euro intercompany purchase exposure. Corporate expenses in the second half will be a little higher than 2003 second half, due to increased costs for the China expansion, and, uh, corporate expenses for audit and Sarbanes, uh, will be offset by some reduction for GTG related expenses and of course the lower financing cost amortization that we have, uh, when we do pay off our debt, uh, with the transaction.

With that I think I'll turn it over to Phil and he can give you some financial comments and then we'll answer any questions.

Thank you, Tim and good afternoon. Our balance sheet remains very strong. We closed the second quarter with the cash balance of $33 million, an increase of $9 million since December 31st. Our net accounts receivable balance is 55 -- excuse me, $59.5 million, and our day sales outstanding at the end of the quarter is approximately 54 days. This is a slight deterioration from our year-end and first-quarter level, however, the quality of our accounts receivables remains very good and very strong and we expect to see an improvement in the days sales outstanding through the balance of the year. Our inventory balance is approximately $70 million and we are currently running at an annualized turn rate of four. As we had discussed in the past, from an asset management perspective, our biggest opportunity for improvement is in our inventory management and this is certainly an area we will continue to work very hard on through the balance of the year and obviously through 2005.

Other key balance-sheet figures for the end of the second quarter are as follows. Current assets $176 million, investment in GTG $225 million, goodwill $62.5 million, I might add that since December 31st, our goodwill balance has declined approximately $7 million due to opening balance sheet adjustments and foreign currency fluctuations. None of this obviously had any impact on our reported earnings. Uh, net property, plant and equipment as of the end of June is $107 million balance, total assets $596 million, notes payable $1 million, and the current portion of our long-term debt is $10 million. Long term debt is $104 million and our shareholder equity is 398 million. Our cash flow is generated from operating activities for the period ending June was approximately $9 million compared to 7.3 million in the first half of 2003.

Capital expenditures for the quarter and year-to-date were $3.8 million and $7.6 million respectively. Depreciation expense for the quarter and year-to-date was $4.1 million and $8.1 million respectively. Capital expenditures for the year is expected to be in the range of 20 to $21 million and depreciation expense is expected to be $17 million. Capital expenditures are expected to be higher in the second half due to the construction of our new China manufacturing facility and a new European warehouse that will be located in Schopfheim, Germany. As noted in our earnings release we do anticipate to close on the sale of our 32% interest in GTG on July 31st. Total cash proceeds is expected to be approximately $400 million.

Net proceeds after taking into account taxes and transaction expenses are estimated to be $317 million. We will be paying off approximately $103 million of our current and long-term debt. After we do this, the only remaining long-term debt on our books will be approximately $10 million which is related to capitalized leases. After we sell our interest in GTG, uh, we do expect a change in our effective tax rate. Going forward, when we look at our earnings from August through December of this year, we expect that effective tax rate to be approximately 38%. The primary reason for this increase is that the equity income that we have booked from GTG included foreign earnings net of taxes.

Uh, I would now like to open up the conference call for any questions that you may have for Tim or myself.

Thank you. At this time, I would like to remind everyone, in order to ask a question, please press star, one on your telephone keypad. You may press star, two if you would like to remove your question from the queue. Our first question comes from Ned Armstrong. Please state your question.

Yes, good afternoon.

Yes, Ned.

Can you just kind of go through the -- the different issues that you're discussing as it relates to the utilization of the proceeds from the sale of the GTG interest?

Yeah. I mean -- I mean, certainly there's a lot of, uh, alternatives that we have and we'll have a board meeting later this week that will be a, you know, a significant topic for us. Uh, we have been very active in working on and making contacts with a lot of companies relative to acquisitions. I would say that acquisitions would be the primary intent for us moving forward and to, you know, to grow our pump and compressor business, uh, as we've stated before.

Would, um -- I mean, are you looking at a series of acquisitions or is there a -- a Rietschle like company out there that you may be talking to and thinking about?

Uh, I mean, we have a number of companies that we're talking to. Uh, I'd say nothing imminent. We did have a transaction that we were working on that would have been a sizeable transaction for us but it actually fell through, uh, I think the resulting purchase price of the company that will acquire this target is well in excess of what we were willing to pay and we're going to choose our acquisitions, uh, where it makes sense.

Okay. With capital spending for 2005, Phil, what are you estimating that to be?

Well, I'm -- certainly don't expect it to be nearly as high as we had for this current year, in 2004. I expect in the range of 15 to $16 million.

Okay. And then just one real quick little question on the current long-term debt, how much do you say that balance was?

$10 million. It's like 9.7 or 9.8 million but roughly 10.

Okay. Thank you.

You're welcome.

Our next question comes from Michael Schneider. Please state your question.

Good afternoon, guys.

Hi.

Hello.

Maybe you could first talk about the North American market. You had a strong first quarter, it was benefited primarily by the medical market if -- if I recall. But why -- why the slight downtick especially as strong as industrial production had been at least through June?

The biggest reason, Mike, was that, uh, number one, as we've always had, pricing has continued to be tough and we continue to see, you know, pricing go down although we did take a price increase, uh, in the second quarter in the range of 3% to 5%, you know, it varies depending on what customer you're talking about and whether or not we have any contracts. Uh, but the -- but as -- you're right, the first quarter was extremely hot. The medical market was very, very strong. And then we did not ship any customer -- any shipments to the one customer that we did lose in the month of June, which had an impact of us -- on us.

And what do you think that medical customer cost you year-over-year in revenue in the second quarter?

Oh -- it's hard to say because it all so much depends on their competition but maybe in a range of 700 to 800,000.

Okay. And the price increase of 3% to 5%, what fraction of the revenue does that apply because you threw out some caveats at end if you had contracts, etc? So 3% to 5% was announced but how much did that really apply to.

Oh, gosh I would guess, you know, maybe 2% to 3% at the end of the day is what we might get.

Okay. Across the entire business?

Yeah.

Okay. And then the markets you ran through, Tim, could you run down just growth rates in rough terms, printing, packaging, environmental, just to give us a sense of where the strength was in detail.

Yeah. Our printing market, uh, was really quite strong in the second quarter, it was up over 20%, environmental, uh, was up about 11%. Our laboratory business in total was up 3% to 4%. Food and beverage was a nice increase, uh, in the second quarter -- let's see what -- that was up over 25%. So those were the key big increases, the foundry business was up 6% or 7%, I think.

Okay. And in terms of the negatives and medical was down 5 due to the loss of the oxygen concentrator or comp, but was it flat or up if you back out that account?

Yeah, it would have been up.

It would have been up. Any idea as to magnitude?

Gosh, I didn't pull that together, Mike.

Okay. And, uh, business equipment, what was that down?

That was down about 10%.

Hmm hmm. And then finally automotive.

Automotive in total, uh -- let's see. That was down about 12%.

Okay. What do you read in the printing and packaging now, Tim, because the European economy remains fairly lackluster, uh, printing and packaging is more associated with virtually,, in my eyes, are you getting a better feel for your deliveries in that market or is truly the end-market demand better?

I think, uh, they -- every four years they have the big show for printing-press manufacturers and that was held this spring. And, uh, I think it was a very good show for our customers. And I think they are very excited about, you know, increased orders, you know, in the second half. So I think -- you know, we saw some of that in the second -- in the second quarter and I think we'll see, you know, that continue into the third and fourth quarter. So the printing market was fairly strong.

And are you aware of any contracts similar to this medical product line that you expect to lose or, uh, are aware of having lost during the quarter?

Am I aware of what?

Any additional medical contracts or, you know, similar magnitude that you might have lost during the second quarter.

No.

Okay. And in terms of -- I'm sorry I'm bouncing around here trying to tick off a list -- Schopfheim, I'm sorry, Wuppertal and the backlog there and then also Schopfheim, could you give us a sense, are you done drawing these backlogs down, are you getting the product out or is there still some benefit, at least lingering, into the third quarter?

Oh, there'll be a little bit benefit left, but, uh, you know, we have worked that down.

Okay. And, uh, let's see. And I guess, uh, Phil, maybe you can answer a question on the accounts receivable related to GTG. If I recall, there was a note, uh, of something like 13 or 15 million within the receivables. Is indeed -- does that come out now in the third quarter.

Mike, that was paid off several years ago.

I thought there was an intercompany loan or something still on the balance sheet.

No.

Okay. Um, and then finally, Tim, just two questions. First on the pace of orders. Is -- you certainly have signaled some seasonal caution about the second half, is there anything about the pace of orders during the quarter, and maybe you could discuss it, that gives you -- or it leads to some of your caution, or is it truly just for seasonal reasons?

Well, I think it's seasonal. I think we've seen the pace slow down a little bit as well.

In July as well?

Yep.

Any explanation or any particular marker?

No. I mean, it's -- I don't know whether -- we get that periodically, you know, we'll have a good input period and then it'll start to slow down but as I said, the second half is traditionally slower, uh, than the first half. But I don't know of any business that we've lost at all.

But stepping back, do you sense that just the pace of demand or unit demand has actually begun to taper off in the second quarter.

Yes, toward the end of the quarter.

Toward the end of the quarter. And was it Europe or the U.S. or both?

I'd say mostly the U.S. and a little bit in Europe. Asia still seems to be going fairly strong.

Okay. And then final question just you mentioned the board meets next week. There was the poison pill proposal passed by the shareholders, what is -- have you had any discussions with the board about it and what is your recommendation going to be next week.

Yeah. I mean, that's a board decision we have not discussed that yet. You know, as I said, we'll meet later on this week and discuss it and probably discuss it again in October.

And have you made a recommendation as part of your preparation for the board?

No.

Okay. All right. I'll get back in line. Thanks, guys.

Just a reminder, to ask a question, please press star, one. Our next question comes from Michael Schneider. Please go ahead.

Guys, just some cleanup. Phil, what did currency contribute in the quarter?

Probably for the quarter maybe, uh, 60% of the -- closest 60% of that increase in sales was currency.

Okay. Do you have the dollar figure, by chance?

No. You just calculate it.

Okay.

Look at what the percentage increase. It was more than half the increase was currency.

Okay. And then, uh, let's see. The number of days. We had talked about this last quarter, uh, guys, that -- I think there was three extra production arguably selling days in the second quarter, do you happen to know what the comparison was this quarter for you?

I -- probably equal-- by now Mike it probably had no impact on us I would say.

Okay. And then the cost of materials, it trended -- steel, etc., trended down during the second quarter but just in the last two weeks it spiked immensely. What are you seeing and does this give you any pause for the second half or do you feel you're insulated from the price increase that went out.

Well, I mean, we still have, you know, some impact that -- you know, prices continue to go up we'll have some impact. Steel's not a huge impact to us. Aluminum would be our biggest impact.

And have you seen those type of runnups in the last few weeks, Phil.

No, not significantly. I mean -- you know, we were still running higher than what we had in the budget certainly when the -- last year, but, uh, nothing dramatic recently.

Okay. And could you just close I guess the conversation with the discussion of new products, new applications, anything that's on the horizon in the second half that might drive incremental growth.

I mean, we do have some new applications and -- for some customers in medical. We've got some industrial applications, uh, that we're working on, beverage dispensing has been a very good market for us that has been growing and new applications. I'd say those are some of the key ones.

Can you give us some details on the medical or the industrial.

I'd rather not on the medical, just for competitive reasons.

And industrial?

Industrial we're working, uh, on some applications that will revolve around a blower application again for competitive reasons we're not talking about what that is.

Okay. And, Phil, do you care to give us any bounds now around the third-quarter guidance, uh, given that we'll be scrubbing our models at the joint venture equity income, do you -- do you expect operating income for the Pump and Compressor Group to be up in the second half, Tim, you mentioned you expect sales to be up, but operating income as well after all of these kind of administrative expenses.

I think we said for the second half, you know, we thought we'd likely be about the same as last year, uh, you know, that's after those charges hit us.

So that's -- that's taking into account the --

Yes.

Restructuring charges.

Yes.

So after those you'll be up.

Yes.

Okay. And when you say, uh, excluding the charges, do you mean Sarbanes-Oxley as well, or exclusive of those?

That as well as the Wuppertal shutdown.

Okay. Okay, thanks again.

Our next question comes from the Joe Wikler(ph). Please state your question.

Good afternoon.

Hi, Joe.

Hi, Joe.

So after the sale of your joint venture and just -- you'll have -- and when you pay tax you'll have about $18 a share in cash, that's correct, isn't it.

Yeah, that's all right.

Okay.

Correct.

So, um -- and -- and just remind me, what the multiple of EBITDA that you -- that was -- that you got for your joint venture interest. What did you -- what -- if you -- if you sort of annualized Genlyte's earnings or the -- the Thomas Genlyte earnings, what would be the EBITDA that your -- that you used for the calculation for the sale?

It was about eight and a half.

Eight and a half. Is it likely that you're going to be able to make acquisitions at a lower EBITDA multiple than you sold for?

Well, at that range or lower we would hope.

Yeah. I mean, don't forget you've got the -- you've got the hundred odd million dollars of taxes you're going to pay, so on -- so on an after-tax adjusted basis, it seems to me that you'll do well to just match -- if you make acquisitions, it will be a -- be a favorable outcome if you just match and replace the -- your -- your joint-venture equity income.

Uh-huh, yes.

So in view of that, uh -- so -- so if that's the best case, sort of just matching what you -- what you've already sold, um, what about, um, alternatives like, um, let's see -- so -- so if you have $18 a share in cash and you subtract that from 32, you get the -- the company is worth -- is basically selling for $14 a share just for your pump and compressor business the way it stands now.

Okay.

So is that -- that -- that $14 a share is probably less than 8.5 times EBITDA, isn't it?

I don't know. You'd have to run the numbers.

Well, I mean, if -.

Based on a current trading, it probably is.

Yeah. So -- so why -- so why would you then go out and make an acquisition as opposed to buying in as much stock as you can at current prices?

That's certainly an alternative, Joe, that we would discuss.

All right. And -- and would another alternative, um, -- I mean, you didn't say this specifically, but you were -- when, I think, you were asked the question, you were -- you mentioned that acquisitions was -- appeared to be top-most on your mind --

If we can find the right acquisition.

Yeah. Uh, but, uh, certainly the -- the other choices would be share buybacks or a one-time very substantial cash dividend.

That's correct. That's another alternative as well.

Yeah.

At today's tax rates on those cash dividends.

That's right. But I mean, I was -- I was frantically trying to calculate what, you know, what -- what your ongoing -- what -- at $14 a share, what your EBITDA -- um, on just your pump and compressor business, what the enterprise value was.

Yeah.

And I suspect -- and I came out to be a number that was less than 8.5.

Yeah. I think that's right.

Yeah. Okay. Those are -- that was sort of my thoughts I wanted to make sure we -- we were all talking about the same thing.

Yeah.

Ladies and gentlemen, there are no further questions at this time. We would like to thank you for participating in today's teleconference. This concludes the program, you may now disconnect. Thank you.