Thomas Industries

THOMAS INDUSTRIES

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Thomas Industries, founded in 1922, manufactures and distributes lighting fixtures, lamps, electric timing devices and other electrical products. Thomas organizes itself into four operating divisions based on products. The Lighting Fixtures division fabricates and assembles lighting fixtures for both residential and commercial applications. The division sells its products through a variety of distribution channels including both wholesalers and retailers.

The policy of the Lighting Fixtures division is to extend trade credit to select commercial customers. The division uses a statistical credit-scoring model to determine which customers should receive credit and how much credit a customer should receive. The model uses a variety of financial and credit characteristics of the customer (e.g., net assets, net income, cash provided by operations, years in business and credit references) with subjective weights and established heuristics for interpreting a credit score. For example, a customer with credit score between 75 and 85 may receive a trade credit line of no more than 1% of its annual cash provided by operations. The payment terms for all credit customers are the same: 2/10 net 30. The division’s collection policy is to notify all delinquent accounts (including suspension of further credit until the account is current) and finally to turn over accounts more than 90 days old to a third-party collection agency (the agency generally charges 15%-30% of amounts collected).

At the end of the prior year, the Lighting Fixtures division reported the following information about its trade accounts receivable using the “percentage of receivables” method of estimating uncollectible accounts:

December 31, 2005

Trade accounts receivable, gross $284,528

Allowance for uncollectible accounts 27,100

Trade accounts receivable, net $257,428

Gross trade accounts receivable of the Lighting Fixtures...