ITEM 1. BUSINESS
Holophane Corporation, a Delaware corporation, and its subsidiaries (collectively "Holophane"), was formed in May 1989 to acquire substantially all of the assets and capital stock of the Holophane Lighting Division of Manville Sales Corporation and related entities.
Holophane, whose operations date back to 1895, is a vertically integrated, international manufacturer and marketer of highly engineered lighting fixtures and systems for a wide range of industrial, commercial and outdoor applications. Holophane provides a variety of standard and specialized fixtures for both interior and exterior lighting needs.
Holophane focuses its sales efforts through a factory sales force and markets its products worldwide for use in both new construction and retrofit applications.
PRODUCTS
Holophane manufactures and sells a series of industrial fixtures designed to light large indoor spaces with high ceilings and also for facilities with large pieces of equipment and lighting required at various mounting heights. Holophane also produces numerous products tailored to highly specific applications including hazardous location and explosion proof lighting.
Holophane manufactures outdoor area lighting products for highway interchanges, tunnels and for other outdoor projects requiring large areas to be illuminated. Holophane products are also used to light advertising billboard signs, highway signs and building facades. In addition, Holophane produces architectural specialty lighting for downtown renovations and housing developments.
Holophane produces a line of commercial/institutional lighting products designed for medium height applications where reflected light from the ceiling can supplement the direct prismatic light source. Holophane also manufactures a broad line of specialty fluorescent fixtures with an emphasis on optical performance. Many of Holophane's industrial fixtures are also used in commercial/institutional applications.
In addition, Holophane also produces an array of glass refractors for street lighting fixtures and injection molded lenses designed to be used in fluorescent fixtures.
MANUFACTURING
Holophane is a vertically integrated manufacturer with the capability to produce glass, ballasts, injection molded plastic lenses and cast aluminum components. Holophane has four U.S. manufacturing facilities located in Ohio, two located in Texas and two in Mexico.
Holophane also operates light manufacturing, assembly and warehousing facilities in Milton Keynes, England.
RAW MATERIALS
Holophane's principal raw materials are aluminum, steel and copper. Holophane avoids some of the price volatility of these materials by purchasing most of its requirements through annual contracts. Holophane does not rely on any single supplier for these materials and believes it has the ability to quickly switch sources for any of these materials should the need arise.
RESEARCH AND DEVELOPMENT
New product development is an integral part of Holophane. State of the art facilities, located in Newark, Ohio, include optical, photometric, thermal, electrical and environmental laboratories. Costs associated with research and development were $6.5 in 1998, $6.0 million in 1997 and $5.5 million in 1996.
EMPLOYEES
Holophane had an average of approximately 2,050 employees during 1998. Approximately 390 employees are represented by the American Flint Glass Workers Union (the "AFGWU"), the International Brotherhood of Electrical Workers (the "IBEW") or the United Automobile Workers (the "UAW"). The IBEW contract expires April 1, 1999; the UAW contract expires May 2, 1999 and the AFGWU contract expires August 5, 2002.
CUSTOMERS
No single customer has accounted for more than 10% of Holophane's consolidated net sales in any year. Consequently, Holophane believes that the loss of any one customer would not have a material adverse effect on its net sales.
COMPETITION
The lighting industry is highly competitive. Holophane's competitors include lighting manufacturers of all sizes, some of which have substantially greater resources than those of Holophane. Holophane competes in the premium quality tier of the lighting market which consists of specialized products characterized by higher value and lower unit sales. Most of Holophane's competitors focus on commodity products.
BACKLOG
Backlog represents booked orders which are believed by Holophane to be firm. At February 28, 1999, total order backlog was $44.3 million compared to $38.8 million at February 28, 1998.
SEASONALITY
Due to the typically increased level of construction activity in the third quarter, Holophane has historically experienced modestly greater net sales in the second half of its fiscal year.
TRADEMARKS, LICENSING AGREEMENTS AND PATENTS
Holophane owns all of the rights to the principal trademarks used in its domestic business and in the international markets in which it participates. Holophane's principal trademarks are registered in the U.S. and in many other countries, and Holophane considers protection of such trademarks to be important to its business.
Holophane does not own the "HOLOPHANE" trademark in France, but has rights in its use.
An unaffiliated Australian company owns trademark registrations for the "HOLOPHANE" trademark in Australia and New Zealand. Lighting products manufactured by the Company are marketed under the "Unique Lighting Solutions" trademark through a joint venture arrangement among Holophane Australia Corporation Pty. Ltd., a wholly-owned subsidiary of the Company, and two unaffiliated third parties in Australia.
In addition, Holophane owns many patents relating to the design of certain of its products, including sign lighting, area lighting and street lighting products. Active patents have remaining lives ranging from one year to 17 years.
INTERNATIONAL OPERATIONS
Net sales of the European operations were (pound)14.3 million ($23.8 million) in 1998, (pound)14.6 million ($23.9 million) in 1997 and (pound)14.9 million ($23.4 million) in 1996. Net sales of other foreign operations were $18.6 million in 1998, $9.7 million in 1997 and $9.6 million in 1996. With the exception of fluctuation in foreign currencies, the Company does not believe that these operations are subject to risks which are significantly different from those of domestic operations.
ENVIRONMENTAL
Holophane's operations are subject to federal, state and local regulatory requirements relating to environmental protection. Compliance with these requirements has not had a material effect upon Holophane's capital expenditure program. It is not anticipated that Holophane will have material capital expenditures for environmental control facilities during the next fiscal year.
YEAR 2000
During 1997, the company commenced an evaluation of the impact of Year 2000 on all business systems, facilities, products and information systems and developed an evaluation matrix from which Year 2000 compliance could be monitored. Financial systems used by the company are vendor software products that are certified by the vendor as Year 2000 ready releases. The company will test the financial systems during 1999. An outside consulting firm conducted a separate study of in-house manufacturing systems and all in-house manufacturing systems have been modified and successfully tested for Year 2000. A separate evaluation of manufacturing equipment is underway and will be completed in 1999. All network systems were either migrated or upgraded to match Year 2000 ready local area network (LAN) systems. Current installed LAN server equipment is Year 2000 ready. Personal computers, phone systems, timekeeping and security systems will be Year 2000 ready prior to December 31, 1999. None of the company's other information technology projects have been delayed due to the implementation of the Year 2000 project.
Holophane estimates that the total cumulative cost of the project will be approximately $200,000 which includes both internal and external personnel costs related to modifying the systems. All costs related to the project are being expensed as incurred and as of December 31, 1998, approximately $140,000 of costs have been incurred. The costs of the project and the expected completion dates are based on management's best estimate.
At this time, the company believes its most reasonable worst case scenario is that key suppliers or service providers who have not resolved their own Year 2000 issue may cause a disruption of service to the company's critical business processes, which in turn could affect the company's ability to manufacture and deliver product. The company cannot predict the outcome of other companies' remediation efforts. The company has initiated formal inquiries with suppliers with which it has active contracts to determine the extent to which the company is vulnerable to those third parties' failure to remediate their own Year 2000 issue. Alternative suppliers will be identified and used if necessary.
The company has an ongoing business interruption contingency plan to address internal and external issues specific to the Year 2000 problem, to the extent practicable. Depending on the status of third party Year 2000 readiness, these plans include changing suppliers, advanced purchases of critical inventory and extending production scheduling.
The preceding "Year 2000" discussion contains various forward-looking statements which represent the company's belief or expectations regarding future events. All forward-looking statements involve a number of risks and uncertainties that could cause the actual results to differ materially from the projected results. Factors that may cause these differences include, but are not limited to, the availability of information technology resources; the ability to identify and remediate all date sensitive computer code in affected systems or equipment; and the actions of third parties with respect to Year 2000 problems.
ITEM 2.
ITEM 2. PROPERTIES
The following sets forth information regarding the Company's manufacturing and warehouse facilities:
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The Company's manufacturing and warehouse facilities are all owned, except for the 10,000 square foot Milton Keynes warehouse and the Brownsville facility. These facilities are all located in appropriately designed buildings which are kept in good repair. The facilities have well maintained equipment and sufficient capacity to produce present volumes.
The principal executive offices of the Company are located in approximately 5,400 square feet of space at 250 East Broad Street, Columbus, Ohio 43215 and are occupied pursuant to a lease which expires in July 1999.
The Company also leases sales offices and warehouse facilities in a number of major cities or suburbs, including Norcross, Georgia; Houston, Texas; San Bruno and Los Angeles, California; Dearborn, Michigan; Minneapolis, Minnesota; Montvale, New Jersey; Newark, Ohio; and Buda, Texas. The leases expire from March 1, 1999 to May 31, 2001.
The Company also leases approximately 4,500 square feet of office space in Brampton, Ontario, Canada. The lease expires April 30, 2001.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
The Company, from time to time, is involved in routine litigation incidental to its business. However, the Company is not a party to any material legal proceeding, nor, to the Company's knowledge, has any material legal proceeding been threatened against it.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
EXECUTIVE OFFICERS
The following table sets forth the names and ages of the Company's executive officers and the positions they hold with the Company:
Mr. DallePezze has been a Director, President and Chief Executive Officer of the Company since he joined the Company in October 1989 and Chairman of the Board since February 1992. Prior to joining the Company, Mr. DallePezze served from 1983 to 1989 as President of the McCullough Division of N.L. Industries Inc. and Western Atlas International Inc. Prior to 1983, Mr. DallePezze served as General Manager of the Lighting Products Division of Corning Inc. Mr. DallePezze serves as a director of Belden, Inc., a wire and cable manufacturer.
Mr. Philp has served as Vice President, Finance, Chief Financial Officer and Secretary since July 1989. From January 1988 through July 1989, Mr. Philp was Director of Finance and Administration for the Holophane Division of Manville and prior to that held various other finance positions within Manville, beginning with the Holophane Division in 1974.
Mr. Harvey has served as Vice President, Manufacturing since July 1989. Mr. Harvey joined Holophane in 1971 and served in various management positions in engineering, and research and development and manufacturing from 1971 through July 1989.
Mr. Keller has served as Vice President, Sales since July 1989. Mr. Keller joined Holophane in 1970 and was Regional Sales Manager from July 1985 through January 1988 and National Sales Manager from January 1988 through July 1989.
Mr. Taylor has served as Vice President, Human Resources since July 1989. From June 1987 through July 1989 Mr. Taylor served as Manager, Human Resources for the Holophane Division of Manville and was a Director of Human Resources for Gulf Oil Corporation from 1985 until he joined the Holophane Division in June 1987.
Mr. St. Germain has served as Vice President, Marketing since October 1996. Prior to joining Holophane, Mr. St. Germain served from 1990 to 1996 as Vice President, Marketing and Strategic Planning at Northrop Grumman. Mr. St. Germain served as Assistant to the President at Grumman Allied Industries, Inc. from 1988 to 1990. Mr. St. Germain served from 1986 to 1988 as Market Planning Manager at Grumman Systems Support, Inc., a subsidiary of Grumman Allied Industries, Inc.
Mr. Weisert has served as Vice President, Research and Development since July 1989. Mr. Weisert served as Director of Research and Development for the Holophane Division of Manville from July 1988 through July 1989 and held various other positions in research and development since joining the Holophane Division in 1978.
PART II
ITEM 5.
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The information required by Item 5 of Part II is set forth under the caption "Quarterly Results of Operations" on page 8 of the 1998 Annual Report to Stockholders of Holophane Corporation and is incorporated herein by reference.
A recent last sales price for the shares of Common Stock as reported by the New York Stock Exchange was $22.4375 on March 22, 1999. On March 10, 1999, there were approximately 2,300 holders of Common Stock, based upon the number of holders of record and the number of individual participants in certain security position listings.
No dividends on Common Stock were paid during 1998 or 1997 and the Company does not anticipate paying cash dividends on its Common Stock in the foreseeable future. Additional information on the Company's dividend payment limitations appears in note 5 to the consolidated financial statements on pages 13 and 14 of the 1998 Annual Report to Stockholders of Holophane Corporation.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA.
The information required by Item 6 of Part II is set forth under the caption "Financial History" on page 20 of the 1998 Annual Report to Stockholders of Holophane Corporation and is incorporated herein by reference.
ITEM 7.
ITEM 7. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The information required by Item 7 of Part II is set forth under the caption "Management Discussion and Analysis" on pages 18 and 19 of the 1998 Annual Report to Stockholders of Holophane Corporation and is incorporated herein by reference.
The Company has made and will make certain forward-looking statements in its Annual Report, Form 10-K and in other contexts relating to future growth and profitability targets and strategies designed to increase total shareholder value. The Private Securities Litigation Reform Act of 1995 ("the Act") provides a "safe harbor" for forward-looking statements to encourage companies to provide prospective information, so long as those statements are identified as forward-looking and are accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those discussed in the forward-looking statements.
The Company wishes to take advantage of the safe harbor provisions of the Act. These forward-looking statements represent challenging goals for the Company, and the achievement thereof is subject to a variety of risks and assumptions. These forward-looking statements include, but are not limited to, information regarding the future economic performance and financial
condition of the Company, the plans and objectives of the Company's management, and the Company's assumption regarding such performance and plans. Therefore, it is possible that the Company's future actual financial results may differ materially from those expressed in these forward-looking statements due to a variety of factors, including, but not limited to:
o The Companies ability to maintain profit margins, to produce and deliver its products on a timely basis, and to maintain and develop additional production capacity as necessary to meet demand;
o Competition among domestic and international manufacturers of lighting products, many of whom have substantially greater assets and resources than those of the Company;
o Inherent risk of international developments, including currency exchange rates, economic conditions and regulatory and cultural difficulties or delays in the Company's development outside the United States;
o Changes in weather and economic conditions in the United States and the impact of changes in interest rates; and
o The ability of the Company to improve its process and business practices to keep pace with the economic, competitive and technological environment.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Company's consolidated balance sheets as of December 31, 1998 and 1997 and the consolidated statements of income, stockholders' equity and cash flows for each of the years ended December 31, 1998, 1997 and 1996, and the related notes to the consolidated financial statements, together with the independent auditors' report thereon appear on pages 8 through 17 of the 1998 Annual Report to Stockholders of Holophane Corporation and is incorporated herein by reference.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by Item 10 of Part III is incorporated herein by reference from pages 7 and 8 of Part I included herein and from the definitive Proxy Statement of Holophane Corporation for the Company's 1999 Annual Meeting of Stockholders under the captions "Item 1 Election of Directors" and "Other Matters."
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by Item 11 of Part III is incorporated herein by reference to the definitive Proxy Statement of Holophane Corporation for the Company's 1999 Annual Meeting of Stockholders under the caption "Executive Compensation."
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by Item 12 of Part III is incorporated herein by reference to the definitive Proxy Statement of Holophane Corporation for the Company's 1999 Annual Meeting of Stockholders under the caption "Stock Ownership."
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K.
(a) The following financial statements required to be included in items 8 and 14 (a) (1) are incorporated by reference from pages [8] through [17] of the 1998 Annual Report to Stockholders:
Consolidated Statements of Income for the Years Ended December 31, 1998, 1997 and 1996 Consolidated Balance Sheets as of December 31, 1998 and 1997 Consolidated Statements of Cash Flows for the Years Ended December 31, 1998, 1997 and 1996 Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1998, 1997 and Independent Auditors' Report Notes to Consolidated Financial Statements for the Years Ended December 31, 1998, 1997 and 1996
(b) Reports on Form 8-K.
No reports on Form 8-K were filed by the registrant in the last quarter of the 1998 fiscal year.
(c) Exhibits:
3.1 Restated Certificate of Incorporation of the Company. (Incorporated by reference to Exhibit 3.1 to the Company's Registration Statement on Form S-1, No. 33-68116.)
3.2 Bylaws of the Company. (Incorporated by reference to Exhibit 3.2 to the Company's Registration Statement on Form S-1, No. 33- 68116.)
10.1 Employment Agreement dated as of August 30, 1993 among Holophane Lighting, Inc., the Company and John R. DallePezze. (Incorporated by reference to Exhibit 10.7 to the Company's Registration Statement on Form S-1, No. 33-68116.)
10.2 Termination Benefits Agreement dated as of September 15, 1993 among Holophane Lighting, Inc., the Company and Bruce Philp. (Identical agreements were entered into with John S. Forbes, John W. Harvey, S. Lee Keller, Robert P. St. Germain, Robert E. Taylor, Timothy Weisert and Jerome Henderson). (Incorporated by reference
to Exhibit 10.8 to the Company's Registration Statement on Form S- 1, No. 33-68116.)
10.3 Incentive Stock Plan. (Incorporated by reference to Exhibit 10.9 to the Company's Registration Statement on Form S-1, No. 33-68116.)
10.4 1996 Incentive Stock Plan. (Incorporated by reference to Appendix I of the Company's 1996 Proxy Statement.)
10.5 Supplemental Executive Retirement Plan. (Incorporated by reference to Exhibit 10.12 to the Company's Registration Statement on Form S- 1, No. 33-68116.)
10.6 Second Amended and Restated Credit Agreement dated as of November 5, 1993 among Holophane Company, Inc., the lenders named therein and Wells Fargo Bank, N.A., as Administrative Agent. (Incorporated by reference to Form 10-K for fiscal year ended December 31, 1993, File No. 0-22352.)
10.7 Amended and Restated Stockholders Agreement dated as of October 15, 1993. (Incorporated by reference to Exhibit 10.14 to the Company's Registration Statement on Form S-1, No. 33-68116.)
10.8 Termination Agreement dated as of September 1, 1993 between Holophane Lighting, Inc. and Raebarn Corporation. (Incorporated by reference to Exhibit 10.15 to the Company's Registration Statement on Form S-1, No. 33-68116.)
10.9 Holophane Bonus Plan Revised February 19, 1997. (Incorporated by reference to Form 10-K for fiscal year ended December 31, 1996, File No. 0-22352.)
10.10 Holophane Corporation Employee Stock Option Plan (Incorporated by reference to Appendix I of the Company's 1998 Proxy Statement.)
21.1 Subsidiaries of the Company.
23.1 Consent of Deloitte & Touche LLP.
(d) Financial Statement Schedule
The following independent auditors' report and financial schedule for the years ended December 31, 1998, 1997 and 1996 are included in this Annual Report on Form 10-K and should be read in conjunction with the Consolidated Financial Statements contained in the Annual Report to Stockholders of Holophane Corporation:
Independent Auditors' Report Schedule II - Valuation and Qualifying Accounts
All other financial statement schedules are omitted because they are not applicable or the required information is shown in the Consolidated Financial Statements or Notes thereto.
INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULES
To the Stockholders and Directors of Holophane Corporation Columbus, Ohio
We have audited the consolidated financial statements of Holophane Corporation and subsidiaries as of December 31, 1998 and 1997, and for each of the three years in the period ended December 31, 1998, and have issued our report thereon dated February 19, 1999; such financial statements and report are included in your 1998 Annual Report to Stockholders and are incorporated herein by reference. Our audits also included the consolidated financial statement schedule of Holophane Corporation and subsidiaries, listed in Item 14. This consolidated financial schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such consolidated financial schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
Deloitte & Touche LLP Columbus, Ohio February 19, 1999
SCHEDULE II
(a) Includes acquisitions in 1998 and 1996.
(b) Represents uncollectible accounts written off or inventory items disposed of, respectively.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Columbus, State of Ohio, on the 25th day of March, 1999.
Holophane Corporation
By: /s/ John R. DallePezze --------------------------------- JOHN R. DALLEPEZZE Chairman, President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed by the following persons in the capacities and on the dates indicated.
Signature Title Date --------- ----- ----
/s/ John R. DallePezze Chairman of the Board of March 25, 1999 - ----------------------------- Directors; President and JOHN R. DALLEPEZZE Chief Executive Officer (Principal Executive Officer)
/s/ Bruce A. Philp Vice President Finance; March 25, 1999 - ----------------------------- Chief Financial Officer BRUCE A. PHILP and Secretary (Principal Financial and Accounting Officer)
/s/ William R. Michaels Director March 25, 1999 - ----------------------------- WILLIAM R. MICHAELS
/s/ Robert L. Purdum Director March 25, 1999 - ----------------------------- ROBERT L. PURDUM
/s/ Anthony P. Scotto Director March 25, 1999 - ----------------------------- ANTHONY P. SCOTTO
/s/ Tadd C. Seitz Director March 25, 1999 - ----------------------------- TADD C. SEITZ
/s/ Jeffrey M. Wilkins Director March 25, 1999 - ----------------------------- JEFFREY M. WILKINS