<PAGE> 1
Filed pursuant to Rule 424(b)(1)
Registration No. 33-65043
P R O S P E C T U S
1,850,000 SHARES
[LOGO]
COMMON SHARES
------------------------
Of the 1,850,000 Common Shares, without par value, offered hereby,
1,100,000 shares are being offered by LSI Industries Inc. and 750,000 shares are
being offered by the Selling Shareholders. The Company will receive no proceeds
from the sale of Common Shares by the Selling Shareholders. See "Selling
Shareholders." The Company's Common Shares are listed on the Nasdaq National
Market under the symbol "LYTS." On February 7, 1996, the last reported sale
price of the Common Shares as reported on the Nasdaq National Market was $17.50
per share.
SEE "RISK FACTORS" ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON SHARES OFFERED
HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
PRICE UNDERWRITING PROCEEDS PROCEEDS TO
TO DISCOUNTS AND TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) SHAREHOLDERS(3)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share...... $17.25 $1.02 $16.23 $16.23
- ----------------------------------------------------------------------------------------------------
Total(3)....... $31,912,500 $1,887,000 $17,853,000 $12,172,500
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
</TABLE>
(1) The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933. See "Underwriting."
(2) Before deducting expenses of this Offering, all of which are payable by the
Company, estimated at $500,000.
(3) The Company and the Selling Shareholders have granted to the Underwriters a
30-day option to purchase up to an additional 277,500 Common Shares at the
Price to Public to cover over-allotments, if any. If such option is
exercised in full, the total Price to Public, Underwriting Discounts and
Commissions, Proceeds to Company, and Proceeds to Selling Shareholders will
be $36,699,375, $2,170,050, $20,530,950, and $13,998,375, respectively. See
"Underwriting."
------------------------
The Common Shares are offered by the several Underwriters, subject to prior
sale, when, as and if issued to and accepted by them and subject to certain
conditions. The Underwriters reserve the right to withdraw, cancel, or modify
such offer and to reject orders, in whole or in part. Delivery of the
certificates representing the Common Shares against payment therefor is expected
on or about February 13, 1996 through the Depository Trust Company or at the
offices of Robert W. Baird & Co. Incorporated, Milwaukee, Wisconsin.
ROBERT W. BAIRD & CO.
INCORPORATED
A.G. EDWARDS & SONS, INC.
THE OHIO COMPANY
The date of this Prospectus is February 7, 1996.
<PAGE> 2
IN ITS NEW IMAGE CENTER, LSI INDUSTRIES COMBINES LIGHTING TECHNOLOGY AND
IMAGE CREATION THROUGH ADVANCED VISUALIZATION SYSTEMS, APPLICATIONS ENGINEERING
AND PRODUCT DISPLAYS TO GIVE ITS CUSTOMERS LIGHTING AND IMAGE SOLUTIONS.
[INSERT GATEFOLD HERE]
<PAGE> 3
AVAILABLE INFORMATION
LSI Industries Inc. is subject to the informational requirements of the
Securities Exchange Act of 1934 (File No. 0-13375) and in accordance therewith
files periodic reports and other information with the Securities and Exchange
Commission. LSI Industries Inc. has filed a Registration Statement on Form S-3
together with all amendments and exhibits thereto with the Commission under the
Securities Act of 1933 with respect to the offering (the "Offering") of
1,850,000 common shares, without par value (the "Common Shares"). This
Prospectus does not contain all the information contained in the Registration
Statement, to which reference is hereby made. Statements contained in this
Prospectus as to the terms of any contract or other document are not necessarily
complete with respect to each such contract, agreement or other document filed
as an exhibit to the Registration Statement. Reference is made to the exhibits
for a more complete description of the matter involved and each such statement
is qualified in its entirety by such references. Such reports, proxy and
information statements and other information filed with the Commission by LSI
Industries Inc. may be inspected at and obtained from the Commission at its
public reference facilities at 450 Fifth Street, N.W., Washington, D.C. 20549,
and at the Commission's regional offices located at Northwestern Atrium, 500
West Madison Street, Suite 1400, Chicago, Illinois, and at 7 World Trade Center,
Suite 1300, New York, New York. Copies of such material can also be obtained, at
prescribed rates, by mail from the Public Reference Section of the Commission at
its Washington, D.C. address set forth above. In addition, material filed by LSI
Industries Inc. can be obtained and inspected at the offices of the Nasdaq
National Market, 9513 Key West Avenue, Rockville, Maryland 20850, on which LSI's
Common Shares are listed.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
This Prospectus incorporates by reference certain documents relating to LSI
Industries Inc. which are not delivered herewith. These documents (other than
the exhibits to such documents, unless such exhibits are specifically
incorporated by reference into such documents) are available, without charge, on
oral or written request by any person to whom this Prospectus is delivered.
Written or telephone requests should be directed to Ronald S. Stowell, Chief
Financial Officer and Treasurer, 10000 Alliance Road, Cincinnati, Ohio 45242.
The following documents, which have been filed by LSI Industries Inc. with the
Commission, are hereby incorporated by reference in this Prospectus:
1. LSI Industries Inc.'s Annual Report on Form 10-K for the fiscal year
ended June 30, 1995.
2. LSI Industries Inc.'s Quarterly Reports on Form 10-Q for the Quarters
ended September 30 and December 31, 1995.
3. The description of LSI Industries Inc.'s Common Shares contained in the
Registration Statement on Form 8-A filed on April 11, 1985.
All documents filed by LSI Industries Inc. pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Securities Exchange Act of 1934 prior to the
termination of this Offering shall be deemed to be incorporated by reference in
this Prospectus. Any statement contained in a document incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON SHARES
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THE OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS (IF ANY) OR THEIR RESPECTIVE AFFILIATES MAY ENGAGE IN PASSIVE MARKET
MAKING TRANSACTIONS IN THE COMMON SHARES ON THE NASDAQ NATIONAL MARKET IN
ACCORDANCE WITH RULE 10b-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934.
3
<PAGE> 4
PROSPECTUS SUMMARY
The following is a summary of the more detailed information and financial
statements appearing elsewhere in this Prospectus. Unless otherwise indicated,
the information in this Prospectus assumes that the Underwriters' over-allotment
option will not be exercised. Unless the context otherwise requires, references
to the "Company" or "LSI" are to LSI Industries Inc.
THE COMPANY
LSI designs, engineers, manufactures and markets a broad array of quality,
high-value lighting and graphics products for commercial/industrial lighting
applications and corporate visual image programs. The Company's two core
business segments are the Lighting Group and the Graphics Group. The Lighting
Group is a leading supplier of outdoor, indoor, landscape and architectural
lighting for the commercial/industrial and the petroleum/convenience store
markets. The products of the Graphics Group comprise the major visual image
elements for the petroleum/convenience store market and for multi-site retail
operations. LSI integrates its lighting and graphics capabilities in order to
provide the principal indoor and outdoor aspects of a retail customer's
comprehensive image identification program.
The Company utilizes its lighting and graphics expertise and its nationwide
service capabilities to position itself as a single-source provider of
state-of-the-art lighting and graphics for image conscious retailers. To enhance
its competitive position, the Company has recently developed and opened its
Image Center which allows customers to create a computer generated "virtual"
prototype of their facilities after undergoing an LSI lighting and graphics
re-imaging program. The Company is the leading provider of lighting products and
services to the petroleum/convenience store industry and has effectively used
this leadership position to market its graphics expertise to customers in this
industry. The Company continues to use this strategy to penetrate other national
retailers with multi-site operations, including quick service and casual
restaurants, video rental and eyewear chains, retail chain stores and automobile
dealerships. Representative customers include Amoco, Arco, Chevron, Clark, Fina,
Shell, Texaco, Circle K, National Convenience Stores, Boston Market, Burger
King, Taco Bell, Wendy's, Best Buy, Target Stores, Chrysler, Ford, General
Motors, Saturn and Toyota.
The Company's sales growth has been driven by a number of factors,
including the general state of the economy and, in particular, LSI's core
petroleum customers. Additionally, the Company believes it has benefitted and
will continue to benefit from corporate downsizing and the related outsourcing
of certain non-core activities, such as visual identification projects, in
addition to several trends, including: (i) importance of improved lighting in
deterring crime and improving overall safety and security at retail facilities;
(ii) retailers' extended operating hours; (iii) consolidation within retailing
and the commensurate need to re-image acquired properties; (iv) retailers' need
to present a uniform visual corporate identity; and (v) retailers' efforts to
improve the effectiveness of merchandising and advertising through the use of
indoor and outdoor lighting and graphics.
LSI is a leader in both the commercial/industrial lighting market and in
the graphics markets. The Company attributes its success to its focus on an
ongoing business strategy, the principal components of which are to: maintain
leadership in commercial/industrial lighting; target select markets; serve as a
single-source provider of visual image programs; develop innovative products;
optimize product mix and manufacturing; and pursue complementary acquisitions.
From fiscal 1993 to fiscal 1995 net sales increased from $72.6 million to
$119.9 million while net income increased from $1.7 million to $6.2 million. In
fiscal 1995 the Lighting and Graphics segments represented 60.7% and 39.3% of
net sales and 48.1% and 51.9% of operating income, respectively.
4
<PAGE> 5
THE OFFERING
<TABLE>
<S> <C>
Common Shares offered by the Company......... 1,100,000 shares
Common Shares offered by the Selling
Shareholders............................... 750,000 shares
Total Common Shares offered.................. 1,850,000 shares
Common Shares to be outstanding after the
Offering(1)................................ 8,723,782 shares
Use of Proceeds.............................. To repay all bank indebtedness and for general
corporate purposes, including possible
acquisitions. See "Use of Proceeds."
Nasdaq National Market symbol................ LYTS
</TABLE>
- ---------------
(1) Based upon Common Shares outstanding as of December 31, 1995.
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED JUNE 30, DECEMBER 31,
------------------------------------------------ -------------------
1991 1992 1993 1994 1995 1994 1995
------- ------- ------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales................. $68,782 $69,182 $72,563 $93,535 $119,927 $61,684 $81,443
Gross profit.............. 21,730 21,793 22,774 31,105 39,771 21,032 25,766
Operating income.......... 645 306 2,618 7,140 10,262 6,439 8,139
Income (loss) from
continuing operations.. (99) (531) 1,669 4,190 6,174 4,008 4,887
Discontinued
operations(1).......... (995) (4,262) -- -- -- -- (1,500)
Net income (loss)......... $(1,094) $(4,793) $ 1,669 $ 4,190 $ 6,174 $ 4,008 $ 3,387
PER SHARE DATA:
Income (loss) from
continuing operations.. $ (0.01) $ (0.07) $ 0.23 $ 0.55 $ 0.79 $ 0.52 $ 0.61
Net income (loss)......... (0.15) (0.65) 0.23 0.55 0.79 0.52 0.42
Cash dividends............ 0.03 0.03 0.03 0.03 0.15 0.10 0.13
Average shares
outstanding(2)......... 7,367 7,367 7,385 7,656 7,802 7,760 7,980
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
ACTUAL AS ADJUSTED(3)
------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital..................................................... $18,789 $ 30,782
Total assets........................................................ 75,284 79,798
Long-term debt, including current maturities........................ 7,707 1,677
Total indebtedness.................................................. 14,516 1,677
Shareholders' equity................................................ 32,011 49,364
</TABLE>
- ---------------
(1) For 1991 and 1992, reflects loss from operations and loss on sale of the
Company's discontinued European operations, net of related income taxes. See
"The Company." For the first half of fiscal year 1996, reflects settlement
of an IRS audit related to the Company's 1992 discontinued European
operations. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
(2) Average shares outstanding represents Common Shares outstanding plus common
share equivalents.
(3) Adjusted to reflect the sale of 1,100,000 Common Shares by the Company and
the application of the estimated net proceeds. See "Use of Proceeds" and
"Capitalization."
5
<PAGE> 6
RISK FACTORS
Prospective investors should consider carefully, in addition to the other
information contained in this Prospectus, the following factors in evaluating
the Company and its business before purchasing the Common Shares offered hereby.
DEPENDENCE ON THE PETROLEUM INDUSTRY
During the most recent five years, approximately 44% to 53% of the
Company's net sales have been to the retail marketing segment of the petroleum
industry. Sales to this market segment are dependent upon the general conditions
prevailing in and the profitability of the petroleum industry. As such, the
Company's business is subject to reactions of the petroleum industry to world
political events, particularly those in the Middle East, and to the price and
supply of oil. Major disruptions in the petroleum industry generally result in a
curtailment of retail marketing efforts by the industry and thereby adversely
affect the Company's business.
CUSTOMER CONCENTRATION AND EARNINGS FLUCTUATIONS
Although the Company's primary customers change from time-to-time, the
Company has derived a significant portion of its sales from one or two large
petroleum companies in recent years. There can be no assurance that this pattern
will continue and that such major customers will always be replaced as major
visual image programs are completed. In addition, LSI's operating results
fluctuate due to the unpredictable nature and timing of orders from and
shipments to major corporate customers.
SEASONALITY
The Company's revenues are affected by the impact of weather on
construction and installation programs and the annual budget cycles of major
customers. Because of these seasonal factors, the Company typically experiences
its lowest sales for each year in the third quarter ending March 31. Third
quarter results in several fiscal years prior to 1994 show losses for that
quarter. The quarter ending March 31, 1996 may be adversely affected by business
interruptions associated with recent severe winter weather conditions.
COMPETITION
The lighting and graphics industries are highly competitive. LSI encounters
strong competition in all its markets. Competitors include manufacturers of
various sizes, some of which have greater financial and other resources than
does the Company.
6
<PAGE> 7
THE COMPANY
LSI was founded by its current senior management in 1976 to capitalize on
the experience of its founders in the lighting industry. LSI's business
originally emphasized sales of lighting products in the retail petroleum market.
LSI became a publicly held corporation in 1985.
Since 1985, the Company has expanded its original lighting business through
acquisitions and internal development, resulting in the Company's ability to
combine lighting and graphics products to meet the image development needs of
its large multi-site retail customers. The Company also produces menu boards for
restaurant operations and is a major supplier of outdoor, indoor, landscape and
architectural lighting for the commercial/industrial and the
petroleum/convenience store markets.
Acquisitions have been important to the Company's growth. Key acquisitions
have included Abolite Lighting which manufactures indoor commercial and
industrial lighting products and lighting fixtures, Greenlee Lighting Inc. which
manufactures specialty outdoor landscape and architectural feature lighting, and
SGI Integrated Graphic Systems, Inc. which produces corporate identity and
graphic elements including decals, structural graphics and fleet markings. The
Company's acquisition in December 1989 of a United Kingdom company, Duramark,
proved to be unsuccessful and the Company disposed of Duramark in the fourth
quarter of fiscal 1992 and reported losses from discontinued operations from
that business.
The Company's sales growth has been driven by a number of factors,
including the general state of the economy and, in particular, LSI's core
petroleum customers. Additionally, the Company believes it has benefitted and
will continue to benefit from corporate downsizing and the related outsourcing
of certain non-core activities, such as visual identification projects, in
addition to several trends, including: (i) importance of improved lighting in
deterring crime and improving overall safety and security at retail facilities;
(ii) retailers' extended operating hours; (iii) consolidation within retailing
and the commensurate need to re-image acquired properties; (iv) retailers' need
to present a uniform visual corporate identity; and (v) retailers' efforts to
improve the effectiveness of merchandising and advertising through the use of
indoor and outdoor lighting and graphics.
LSI is a leader in both the commercial/industrial lighting market and in
the graphics markets. The Company attributes its success to its focus on an
ongoing business strategy, the principal components of which are to: maintain
leadership in commercial/industrial lighting; target select markets; serve as a
single source provider of visual image programs; develop innovative products;
optimize product mix and manufacturing; and pursue complementary acquisitions.
From fiscal 1993 to fiscal 1995 net sales increased from $72.6 million to
$119.9 million while net income increased from $1.7 million to $6.2 million. In
fiscal 1995 the Lighting and Graphics segments represented 60.7% and 39.3% of
net sales and 48.1% and 51.9% of operating income, respectively.
The Company's executive offices are located at 10000 Alliance Road, P. O.
Box 42728, Cincinnati, Ohio 45242, and its telephone number is (513) 793-3200.
7
<PAGE> 8
USE OF PROCEEDS
The net proceeds to the Company from the sale of 1,100,000 Common Shares
offered hereby at an offering price of $17.25 per share are estimated to be
$17.4 million, after deducting estimated underwriting commissions and Offering
expenses payable by the Company ($20.0 million if the Underwriters' over-
allotment option is exercised in full). LSI will not receive any of the proceeds
from the sale of 750,000 Common Shares by the Selling Shareholders.
The Company intends to use a portion of the net proceeds to repay all
outstanding indebtedness under its revolving lines of credit and its term loan
facility with its banks. This indebtedness bears interest at rates from 6.8% to
7.3% per annum and was incurred for capital expenditures and working capital
purposes. At December 31, 1995, approximately $6.8 million was outstanding under
the Company's two revolving lines of credit which expire on November 21, 1996
and December 31, 1996, respectively. At the same date, approximately $6.0
million was outstanding under the Company's term loan facility which matures
December 2004. The revolving lines of credit will remain in place after the
Offering.
LSI intends to use the balance of the net proceeds for general corporate
purposes, including working capital to finance its planned growth and for
potential acquisitions. Although the Company frequently evaluates potential
acquisitions, the Company has no current understandings, agreements or
commitments with respect to any acquisition. Pending application, the net
proceeds will be invested in short-term investment grade securities.
8
<PAGE> 9
CAPITALIZATION
The following table sets forth the capitalization of the Company at
December 31, 1995, and as adjusted to give effect to the sale by the Company of
1,100,000 Common Shares offered hereby, and the application of the net proceeds
therefrom. See "Use of Proceeds." The table should be read in conjunction with
the Company's Consolidated Financial Statements and related Notes thereto
appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1995
-------------------------------------
ACTUAL ADJUSTMENTS AS ADJUSTED
------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
SHORT-TERM DEBT:
Notes payable to banks................................... $ 6,809 $(6,809) $ --
Current maturities of long-term debt..................... 844 (670) 174
------- ------- -------
Total short-term debt................................. $ 7,653 $(7,479) $ 174
======= ======= =======
LONG-TERM DEBT............................................. $ 6,863 $(5,360) $ 1,503
------- ------- -------
SHAREHOLDERS' EQUITY(1):
Preferred shares, without par value; 1,000,000 shares
authorized,
none issued........................................... -- -- --
Common shares, without par value; 30,000,000 shares
authorized, 7,623,782 shares outstanding, 8,723,782 as
adjusted.............................................. 8,075 17,353 25,428
Retained earnings........................................ 23,936 -- 23,936
------- ------- -------
Total shareholders' equity............................ 32,011 17,353 49,364
------- ------- -------
Total capitalization............................. $38,874 $11,993 $50,867
======= ======= =======
</TABLE>
- ---------------
(1) As of December 31, 1995, there were 904,704 Common Shares reserved for
issuance under the Company's stock option plans, of which 163,000 shares
were available for future grant, and options for 741,704 shares were
outstanding.
9
<PAGE> 10
DIVIDEND POLICY
LSI has paid cash dividends each year since 1988. Cash dividends of three
cents per share were paid in fiscal 1994 and fifteen cents per share in fiscal
1995. In addition, the Company paid a five percent stock dividend in fiscal
1995. In September 1995, the Company paid a special year-end cash dividend of
five cents per share plus a regular quarterly cash dividend of four cents per
share, and in November 1995 the Company paid a regular quarterly cash dividend
of four cents per share. In January 1996, the Board of Directors declared a
regular quarterly cash dividend of four cents per share payable February 9, 1996
to shareholders of record as of February 2, 1996.
The Company's dividend policy is to pay regular cash dividends on a
quarterly basis which are expected to represent a payout ratio of between 10 and
20 percent of expected net income in the year of payment. In addition, the
policy calls for the payment of special year-end dividends in cash and/or stock
that, in conjunction with regular quarterly dividends, would achieve a target
payout ratio of between 20 and 40 percent of reported net income. Although the
Company intends to continue this policy, the payment of future dividends is at
the discretion of the Board of Directors and will depend upon, among other
things, future earnings, capital requirements, the general financial condition
of the Company, general business conditions and other factors.
PRICE RANGE OF COMMON SHARES
LSI's Common Shares are traded on the Nasdaq National Market under the
symbol LYTS. The following table sets forth for the fiscal periods indicated the
high and low closing sale prices for the Common Shares, as adjusted to give
effect to all stock splits and stock dividends, as reported on the Nasdaq
National Market.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
FISCAL YEAR ENDED JUNE 30, 1994
First Quarter.............................................................. $ 4.29 $ 3.10
Second Quarter............................................................. 6.75 4.37
Third Quarter.............................................................. 7.46 6.03
Fourth Quarter............................................................. 7.30 5.72
FISCAL YEAR ENDED JUNE 30, 1995
First Quarter.............................................................. $ 8.17 $ 6.35
Second Quarter............................................................. 8.00 6.67
Third Quarter.............................................................. 9.67 7.33
Fourth Quarter............................................................. 12.92 9.33
FISCAL YEAR ENDED JUNE 30, 1996
First Quarter.............................................................. $21.50 $12.17
Second Quarter............................................................. 19.63 14.25
Third Quarter (through February 7, 1996)................................... 17.50 13.50
</TABLE>
On February 7, 1996, the last reported sale price for the Common Shares on
the Nasdaq National Market was $17.50 per share. As of December 31, 1995, there
were approximately 500 holders of record of the Common Shares, which the Company
believes represent approximately 2,500 beneficial holders.
10
<PAGE> 11
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following selected consolidated financial information for each of the
years in the five-year period ended June 30, 1995 has been derived from the
consolidated financial statements of the Company which have been audited by
Price Waterhouse LLP, independent accountants. The report of Price Waterhouse
LLP for each of the three years in the period ended June 30, 1995 appears
elsewhere in this Prospectus. The financial data for the six months ended
December 31, 1994 and 1995 are derived from the Company's unaudited consolidated
financial statements. In the opinion of management, the six month financial data
reflect all adjustments, consisting only of normal recurring adjustments,
necessary for a fair statement of such data and are not necessarily indicative
of results to be expected for the full year. The selected consolidated financial
data should be read in conjunction with the Consolidated Financial Statements
and Notes thereto appearing elsewhere in this Prospectus and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED JUNE 30, DECEMBER 31,
------------------------------------------------ -----------------
1991 1992 1993 1994 1995 1994 1995
------- ------- ------- ------- -------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales.............................. $68,782 $69,182 $72,563 $93,535 $119,927 $61,684 $81,443
Cost of products sold.................. 47,052 47,389 49,789 62,430 80,156 40,652 55,677
------- ------- ------- ------- -------- ------- -------
Gross profit........................... 21,730 21,793 22,774 31,105 39,771 21,032 25,766
Selling and administrative expenses.... 21,085 19,351 20,156 23,965 29,509 14,593 17,627
Restructuring charges(1)............... -- 2,136 -- -- -- -- --
------- ------- ------- ------- -------- ------- -------
Operating income....................... 645 306 2,618 7,140 10,262 6,439 8,139
Interest expense....................... 718 580 503 199 459 179 350
Other (income) expense................. 38 539 (481) 290 160 19 16
------- ------- ------- ------- -------- ------- -------
Income (loss) from continuing
operations before income taxes....... (111) (813) 2,596 6,651 9,643 6,241 7,773
Income taxes........................... (12) (282) 927 2,461 3,469 2,233 2,886
------- ------- ------- ------- -------- ------- -------
Income (loss) from continuing
operations........................... (99) (531) 1,669 4,190 6,174 4,008 4,887
Discontinued operations(2)............. (995) (4,262) -- -- -- -- (1,500)
------- ------- ------- ------- -------- ------- -------
Net income (loss)...................... $(1,094) $(4,793) $ 1,669 $ 4,190 $ 6,174 $ 4,008 $ 3,387
======= ======= ======= ======= ======== ======= =======
PER SHARE DATA:
Income (loss) from continuing
operations........................... $ (0.01) $ (0.07) $ 0.23 $ 0.55 $ 0.79 $ 0.52 $ 0.61
Net income (loss)...................... (0.15) (0.65) 0.23 0.55 0.79 0.52 0.42
Cash dividends......................... 0.03 0.03 0.03 0.03 0.15 0.10 0.13
Average shares
outstanding(3)....................... 7,367 7,367 7,385 7,656 7,802 7,760 7,980
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
------------------------------------------------ -----------------
1991 1992 1993 1994 1995 1994 1995
------- ------- ------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital........................ $10,846 $12,241 $10,268 $11,223 $ 17,788 $17,158 $18,789
Total assets........................... 43,651 41,231 38,051 46,287 62,553 53,635 75,284
Long-term debt, including current
maturities........................... 9,840 8,454 3,957 3,600 8,099 7,242 7,707
Total indebtedness..................... 9,840 8,454 5,269 3,600 8,099 7,545 14,516
Shareholders' equity................... 23,246 18,220 19,655 23,981 29,453 27,474 32,011
</TABLE>
- ---------------
(1) 1992 results include a non-recurring restructuring charge of $2,136,000
resulting from the consolidation of facilities.
(2) For 1991 and 1992, reflects loss from operations and loss on sale of the
Company's discontinued European operations, net of related income taxes. See
"The Company." For the first half of fiscal year 1996, reflects settlement
of an IRS audit related to the Company's 1992 discontinued European
operations. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
(3) Average shares outstanding represents Common Shares outstanding plus common
share equivalents.
11
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Company's Consolidated Financial Statements and the Notes thereto appearing
elsewhere in this Prospectus.
OVERVIEW
LSI designs, engineers, manufactures and markets a broad array of quality,
high-value lighting and graphics products for commercial/industrial lighting
applications and for corporate visual image programs. The Company's two core
business segments are the Lighting Group and the Graphics Group. The Lighting
Group is a major supplier of outdoor, indoor, landscape and architectural
lighting for the commercial/industrial and the petroleum/convenience store
markets and is a producer and marketer of menu board systems. The Graphics
Group's products comprise the major visual image elements for the
petroleum/convenience store market and for multi-site retail operations. LSI
integrates its lighting and graphics capabilities in order to manufacture all
indoor and outdoor aspects of a retail customer's comprehensive image
identification program.
Net sales have increased from $72.6 million in fiscal 1993 to $119.9
million in fiscal 1995. Net income grew from $1.7 million to $6.2 million over
the same period. In fiscal 1995 the Lighting segment represented 60.7% of net
sales and 48.1% of operating income. The Graphics segment in fiscal 1995
represented 39.3% of net sales and 51.9% of operating income. This mix of net
sales and operating income demonstrates the emergence of LSI as a lighting and
graphics company from its origins as a lighting business.
Net sales are affected by the annual budget cycles of major customers and
by the impact of weather on construction and installation programs. Due to these
seasonal factors, the third fiscal quarter ending March 31 typically contributes
the lowest net sales in each fiscal year. Third quarter results in several
fiscal years prior to 1994 show losses for that quarter. The quarter ending
March 31, 1996 may be adversely affected by business interruptions associated
with recent severe winter weather conditions.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated certain income
statement data as a percentage of total revenues and the percentage change
between periods.
<TABLE>
<CAPTION>
PERCENTAGE CHANGE
-----------------------------
PERCENTAGE OF NET SALES SIX MONTHS
------------------------------------- YEARS ENDED ENDED
SIX MONTHS JUNE 30, DECEMBER 31,
ENDED ------------- -------------
YEARS ENDED JUNE 30, DECEMBER 31, 1994 1995 1995
--------------------- ------------- OVER OVER OVER
1993 1994 1995 1994 1995 1993 1994 1994
----- ----- ----- ----- ----- ----- ----- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales................................... 100.0% 100.0% 100.0% 100.0% 100.0% 28.9% 28.2% 32.0%
Cost of products sold....................... 68.6 66.7 66.8 65.9 68.4 25.4 28.4 37.0
Gross profit................................ 31.4 33.3 33.2 34.1 31.6 36.6 27.9 22.5
Selling and administrative expenses......... 27.8 25.7 24.6 23.7 21.6 18.9 23.1 20.8
Operating income............................ 3.6 7.6 8.6 10.4 10.0 172.7 43.7 26.4
Interest expense............................ .7 .2 .4 .3 .5 (60.4) 130.7 95.5
Other (income) expense...................... (.7) .3 .2 -- -- -- (44.8) (15.8)
Income from continuing operations before
income taxes.............................. 3.6 7.1 8.0 10.1 9.5 156.2 45.0 24.5
Income tax expense.......................... 1.3 2.6 2.8 3.6 3.5 165.5 41.0 29.2
Income from continuing operations........... 2.3 4.5 5.2 6.5 6.0 151.0 47.4 21.9
Discontinued operations..................... -- -- -- -- 1.8 -- -- --
Net income.................................. 2.3% 4.5% 5.2% 6.5% 4.2% 151.0% 47.4% (15.5)%
</TABLE>
Six Months Ended December 31, 1995 Compared to Six Months Ended December
31, 1994
Net sales of $81.4 million increased 32.0% over first half net sales last
year of $61.7 million. Lighting segment sales increased 46.1% and Graphics
segment sales increased 12.2%, as a result of strong lighting sales
12
<PAGE> 13
in both the petroleum/convenience store and the multi-site retail market. One
customer, Chevron U.S.A., accounted for 10.9% of net sales in the first half of
fiscal 1996 and 14.9% of net sales in the corresponding period of 1995. The
Company believes that it continues to maintain a good business relationship with
this major customer; however, the level of total sales is never assured in the
future. The increase in net sales in the six months ended December 31, 1995 was
primarily the result of increased volume. While sales prices were increased,
inflation did not have a significant impact on sales in the first half of fiscal
1996 as competitive pricing pressures held price increases to a minimum.
Gross profit of $25.8 million, or 31.6% of net sales, increased over last
year's first half gross profit of $21.0 million or 34.1% of net sales. The
increase in amount of gross profit is attributed primarily to the 32.0% increase
in net sales. A sales mix shift in the Company's Graphics segment to somewhat
lower margin programs, lower utilization of manufacturing capacity in the
graphics segment and an increase in lighting sales to the petroleum/convenience
store market provided influences that reduced the gross profit percentage.
Increased capacity utilization and improved direct labor efficiencies in the
lighting segment favorably impacted gross profit. Selling and administrative
expenses increased to $17.6 million primarily as a result of increased sales
volume, and were reduced to 21.6% of net sales in the first half of fiscal 1996
from 23.7% of net sales in the comparable period last year.
Interest expense increased from $179,000 to $350,000, primarily as a result
of increased average borrowings on the Company's revolving lines of credit and
term loan facilities in addition to increased effective borrowing rates. The
Company's effective tax rate increased to 37.1% as a result of the increased
provision for state income taxes.
Income from continuing operations of $4.9 million or $.61 per share
increased 21.9% from last year's first half income from continuing operations of
$4.0 million or $.52 per share as a result of increased sales and gross profit,
partially offset by increased selling and administrative expenses and an
increased provision for taxes.
As discussed in Note 9 to the financial statements and as previously
discussed in the Company's prior reports on Form 10-Q, the Company had been
involved in a dispute with the Internal Revenue Service (IRS) in which the IRS
proposed audit adjustments which could have resulted in a payment of income
taxes by the Company of approximately $2.0 million, plus interest. The proposed
adjustments related to the Company's 1992 discontinued operations and were
associated with income tax which had been refunded to the Company with the
filing of its 1992 income tax return. During the second quarter of fiscal 1996,
the Company exhausted all alternatives to mitigate this issue and reached a
settlement agreement in December 1995 which re-characterized a portion of the
1992 loss associated with discontinued European operations as a long term
capital loss. The agreement will result in payment of approximately $1.7 million
(composed of interest and taxes), of which approximately $1.2 million was paid
late in the second quarter of fiscal 1996. The Company recorded a charge to
discontinued operations of $1.5 million, or $.19 per share, in the second
quarter of fiscal 1996 to increase the reserve for remaining liabilities
associated with the discontinued operations. The Company anticipates no further
charges associated with the discontinued European operations.
Net income of $3.4 million, or $.42 per share, in the first half of fiscal
1996 compares to net income of $4.0 million, or $.52 per share, in last year's
first half. The change resulted from increased income from continuing operations
and the reduction associated with the discontinued operations.
Comparison of Fiscal Years Ended June 30, 1995 and June 30, 1994
Net sales of $119.9 million increased 28.2% over 1994 net sales of $93.5
million. Lighting segment sales increased 29.6% with sales increases in all
major markets served: the petroleum/convenience store market, the multi-site
retail market, and the commercial/industrial lighting market. Graphics segment
sales increased 26.1%, primarily as a result of strong sales into the
petroleum/convenience store market. One customer, Chevron U.S.A., accounted for
13.8% of net sales in 1995 and 12.6% of net sales in 1994. The Company believes
that it continues to maintain a good business relationship with this major
customer; however, the level of total sales is never assured in the future. The
increase in sales in 1995 was primarily the result of increased volume. While
sales prices were increased, inflation did not have a significant impact on
sales in 1995 as competitive pricing pressures held price increases to a
minimum.
13
<PAGE> 14
Gross profit of $39.8 million or 33.2% of net sales, increased over last
year's gross profit of $31.1 million or 33.3% of net sales. The increase in
amount of gross profit is attributed primarily to the 28.2% increase in net
sales. Increased sales volume caused some manufacturing inefficiencies,
increased employment levels and related training, and overtime and additional
shifts in the first half of the year. The Company experienced cost increases in
several raw materials and components from suppliers in the first half for which
sales price increases were implemented in the second half of the year. Selling
and administrative expenses of $29.5 million increased from $24.0 million but
decreased as a percentage of net sales to 24.6% from 25.7%, primarily as a
result of increased sales volume.
Interest expense increased in 1995 from $199,000 to $459,000 as a result of
increased average borrowings on the Company's revolving lines of credit and
long-term debt facilities in addition to increased effective borrowing rates.
Other expense consists primarily of losses on disposition of assets of $122,000
and $250,000 in 1995 and 1994, respectively. Income tax expense of $3.5 million
or 36.0% of income before taxes compares to tax expense of $2.5 million or 37.0%
last year. The increase in income tax expense is related primarily to the
increased taxable income. Net income of $6.2 million or $.79 per share increased
from last year's net income of $4.2 million or $.55 per share as a result of
increased sales and gross profit, partially offset by increased selling and
administrative expenses and an increased provision for taxes.
Comparison of Fiscal Year ended June 30, 1994 and June 30, 1993
Net sales of $93.5 million increased 28.9% over 1993 net sales of $72.6
million. Lighting segment sales increased 34.5% with sales increases in all
major markets served: the commercial/industrial lighting market, the
petroleum/convenience store market, and the multi-site retail market. Graphics
segment sales increased 21.4% with increases in sales of both graphics and
printed products in the petroleum/convenience store market, the multi-site
retail market, as well as other markets served. One customer, Chevron U.S.A.,
accounted for 12.6% of consolidated net sales in 1994 and 12.9% in 1993. The
Company believes that it continues to maintain a good business relationship with
this major customer; however, the level of total sales is never assured in the
future. Inflation did not have a significant impact on sales in 1994 as
competitive pricing pressures held price increases to a minimum.
Gross profit of $31.1 million, or 33.3% of net sales, increased over last
year's gross profit of $22.8 million or 31.4% of net sales. The 36.6% increase
in amount of gross profit is directly related to the 28.9% increase in net
sales, to economies associated with increased production and manufacturing
throughput, to facilities consolidation, and to an improved materials cost
percentage related to product mix and cost reduction programs. Selling and
administrative expenses of $24.0 million increased from $20.2 million, but
decreased as a percentage of net sales to 25.7% from 27.8%. The increase in
amount is primarily related to the increased sales volume and improved operating
performance.
Interest expense decreased in 1994 from $503,000 to $199,000 primarily as a
result of decreased average borrowings and also due to reduced effective
borrowing rates. Other expense consists primarily of $250,000 net loss on
disposition of assets in 1994 and a $520,000 gain on sale of an asset in 1993.
Income tax expense of $2.5 million or 37.0% of income before taxes compares to
tax expense of $0.9 million or 35.7% in 1993. The increase in income tax expense
is related primarily to the increased taxable income.
Net income of $4.2 million or $.55 per share increased from 1993 net income
of $1.7 million or $.23 per share due to the increased gross profit on higher
sales volume and to reduced interest expense, partially offset by the increased
selling and administrative expenses, loss on disposition of assets, and
increased tax provision.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1995 the Company had working capital of $18.8 million,
compared to $17.8 million at June 30, 1995. The ratio of current assets to
current liabilities decreased to 1.54 to 1 from 1.74 to 1 at June 30, 1995. The
increased working capital is primarily attributed to increases in accounts
receivable and inventories, and to a reduction in accrued expenses, partially
offset by increases in notes payable to banks, increases in accounts payable
(related to increased sales and production volumes), and decreases in cash and
refundable income taxes.
14
<PAGE> 15
The Company generated $1.8 million in cash from operating activities in
fiscal year 1995 as compared to $7.6 million in fiscal year 1994. The Company
generated less cash from operating activities in 1995 due to payment of $5.8
million of income tax (includes fiscal 1994 taxes as well as fiscal 1995
estimated tax payments), a $4.9 million increase in accounts receivable related
entirely to increased net sales, and a $7.5 million increase in inventories
related generally to increased sales and production volumes. Approximately $4.9
million of the $7.5 million increase in inventories between years is
specifically related to a temporary inventory stocking program for the Company's
largest customer, with approximately $4.2 million having been received from this
customer as a cash prepayment that has been classified as a current liability
until the inventory is shipped and revenue is recorded.
Total long-term debt increased $4.5 million in fiscal year 1995 primarily
in support of $5.1 million of facilities and equipment expansion, and for
increased working capital to fund both the growth in business and a total of
$1.1 million of cash dividend payments. The Company used $3.8 million in cash
for operating activities in the first half of fiscal year 1996 as compared to a
use of $2.3 million in the first half of fiscal year 1995. The Company used more
cash in the first half of fiscal 1996 primarily because of the payment of
approximately $1.2 million associated with the settlement of the IRS audit
related to the discontinued European operations. In fiscal 1996, the increased
level of business resulted in significant increases in accounts receivable,
inventories, as well as increases in notes payable from banks and accounts
payable which supported the increased working capital need. As of December 31,
1995, the Company experienced an increase in days sales outstanding to
approximately 56 days, as compared to 53 days at June 30, 1995, along with the
overall increase in amounts due from customers related to the increased level of
sales, especially late in the quarter. Accrued expenses decreased by $2.4
million in the first half of fiscal 1996 primarily as a result of a reduction in
customer prepayments resulting from inventory shipments, and decreased by $2.6
million in the first half of fiscal 1995 primarily as a result of payment of
federal income taxes.
The combined effect during the first half of fiscal 1996 of inventories
increasing by $2.3 million with continued increased sales and production
requirements, receivables increasing by $10.3 million, capital spending of $2.0
million, and cash dividend payments of $1.0 million resulted in a slight
reduction of cash and in a $6.8 million increase in short term borrowings on the
Company's revolving lines of credit. The debt to equity ratio of .45 to 1 at
December 31, 1995 increased from .28 to 1 as of June 30, 1995. The Company's
primary source of liquidity continues to be its lines of credit, which carried
$8.5 million of available borrowing capacity as of February 6, 1996.
Capital expenditures of $2.0 million in the first half of fiscal year 1996
compare to $1.6 million in the comparable period last year. Spending in fiscal
year 1996 is primarily related to manufacturing equipment and process
improvements and is expected to total approximately $4.4 million for the full
year, with funding principally out of cash flows from operations as well as from
the Company's lines of credit. In January 1996, the Board of Directors declared
a regular quarterly cash dividend of four cents per share to be paid February 9,
1996 to shareholders of record February 2, 1996.
The Company has two revolving lines of credit totaling $13.0 million. After
the Offering, the Company will have approximately $30.8 million in working
capital and will have $13.0 million available under its two bank revolving lines
of credit. The Company believes that the total of available lines of credit plus
cash flows from operating activities is adequate for the Company's 1996
operational and capital expenditure needs. The Company is in compliance with all
of its loan covenants.
The Company continues to seek opportunities to invest in new products and
markets, and in acquisitions which fit its strategic growth plans in the
lighting and graphics markets. The Company believes that adequate financing for
any such investments or acquisitions will be available through future borrowings
due to the enhanced financial condition of the Company after the Offering or
through the issuance of Common Shares in payment for acquired businesses.
15
<PAGE> 16
QUARTERLY RESULTS
The following table presents certain unaudited financial information for
the last ten fiscal quarters:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------------------------------------------------------
9/30/93 12/31/93 3/31/94 6/30/94 9/30/94 12/31/94 3/31/95 6/30/95 9/30/95 12/31/95
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales................ $ 23,571 $ 25,312 $ 20,273 $ 24,379 $ 29,320 $ 32,364 $ 26,920 $ 31,323 $ 35,882 $ 45,561
Gross profit............. 8,169 8,764 6,325 7,847 9,858 11,174 8,570 10,169 11,942 13,824
Operating income......... 2,162 2,340 850 1,788 2,953 3,486 1,291 2,532 3,630 4,509
Income from continuing
operations............. 1,317 1,403 453 1,017 1,849 2,159 749 1,417 2,194 2,693
Net income............... 1,317 1,403 453 1,017 1,849 2,159 749 1,417 2,194 1,193
Per share data
Income from continuing
operations........... $ 0.18 $ 0.18 $ 0.06 $ 0.13 $ 0.24 $ 0.28 $ 0.10 $ 0.18 $ 0.28 $ 0.34
Net income............. $ 0.18 $ 0.18 $ 0.06 $ 0.13 $ 0.24 $ 0.28 $ 0.10 $ 0.18 $ 0.28 $ 0.15
</TABLE>
16
<PAGE> 17
BUSINESS
OVERVIEW
LSI designs, engineers, manufactures and markets a broad array of quality,
high-value lighting and graphics products for commercial/industrial lighting
applications and corporate visual image programs. The Company's two core
business segments are the Lighting Group and the Graphics Group. The Lighting
Group is a leading supplier of outdoor, indoor, landscape and architectural
lighting for the commercial/industrial and the petroleum/convenience store
markets. The products of the Graphics Group comprise the major elements of
visual image programs for the petroleum/convenience store market and for
multi-site retail operations. LSI integrates its lighting and graphics
capabilities in order to provide the principal indoor and outdoor aspects of a
retail customer's comprehensive image identification program.
The Company utilizes its lighting and graphics expertise and its nationwide
service capabilities to position itself as a single-source provider of
state-of-the-art lighting and graphics for image conscious retailers. The
Company is the leading provider of lighting products and services to the
petroleum/convenience store industry and has effectively used this leadership
position to market its graphics expertise to customers in this industry. The
Company continues to use this strategy to penetrate other national retailers
with multi-site operations, including quick service and casual restaurants,
video rental and eyewear chains, retail chain stores and automobile dealerships.
Representative customers include Amoco, Arco, Chevron, Clark, Fina, Shell,
Texaco, Circle K, National Convenience Stores, Boston Market, Burger King, Taco
Bell, Wendy's, Best Buy, Target Stores, Chrysler, Ford, General Motors, Saturn
and Toyota.
The integration of LSI's lighting and graphics capabilities allows its
customers to outsource to LSI the development of an entire visual image program
from design stage through installation. The Company believes national retailers
increasingly are seeking single-source suppliers that possess the ability to
combine a wide offering of lighting and graphics solutions with the project
management skills necessary to execute a comprehensive visual image program.
Management believes that LSI's unique ability to combine its extensive line of
lighting and graphics products and services differentiates the Company from its
competition.
The Company's sales growth has been driven by a number of factors,
including the general state of the economy and, in particular, LSI's core
petroleum customers. Additionally, the Company believes it has benefitted, and
will continue to benefit, from corporate downsizing and the related outsourcing
of certain non-core activities, such as visual identification projects, in
addition to several trends, including:
- importance of improved lighting in deterring crime and improving overall
safety and security at retail facilities;
- retailers' extended operating hours;
- consolidation within retailing and the commensurate need to re-image
acquired properties;
- retailers' need to present a uniform visual corporate identity; and
- retailers' efforts to improve the effectiveness of merchandising and
advertising through the use of indoor and outdoor lighting and graphics.
The Company has further increased the demand for both lighting and graphics
products by improving the energy efficiency and maintenance requirements of
several of its products. These improvements, together with the trends described
above, motivate customers to upgrade or "retrofit" older, established retail
locations. Such upgrades and "retrofits" account for a significant portion of
the Company's net sales.
17
<PAGE> 18
[CAMERA READY ART]
[The Schematic drawing on pages 18 and 19 shows the integration of the
Company's Lighting and 9 graphic products]
LSI Industries Inc. designs, engineers and manufactures a wide array of
lighting and graphics products for corporate identity programs. The Company
can coordinate all elements of a customer's program - design, color schemes,
materials, and products - to create a consistent image both day and night.
Supported by a strong manufacturing base, LSI offers a family of services to
develop, produce and implement these products.
- - Site Lighting
- - Building Lighting
- - Interior Lighting
- - Landscape Lighting
- - Illuminated Fascia
- - Structural Graphics
- - Menu Board Systems
- - Lightboxes
- - Graphics
- Interior
- Exterior
- Window
- Fleet
- - Graphic Overlays
- - Membrane Switches
The rendering below shows LSI's Lighting and graphics elements in a typical
petroleum/convenience store application. Many of these elements can be used in
any retail application.
18
<PAGE> 19
[CAMERA READY ART]
19
<PAGE> 20
BUSINESS STRATEGY
The Company is a leader in both the commercial/industrial lighting market
and in the graphics market. The Company attributes its success to its focus on
an on-going business strategy, the principal components of which are to:
- Maintain Leadership in Commercial/Industrial Lighting. LSI has
established itself as a leading supplier to the commercial/industrial
lighting market. With its wide selection of outdoor, indoor, landscape
and architectural lighting products and its large manufacturers'
representative force, LSI believes it is well positioned to increase its
penetration in this broad market.
- Target Select Markets. The Company focuses its marketing and
manufacturing activities on specific niche markets. Markets are evaluated
on the basis of size, profit opportunity, and market share potential. LSI
targets national retail customers who seek vendors that can provide a
consistent customer image across the country on a high volume basis. By
offering a full-range of industry-specific lighting and graphic products
and services, the Company believes it can offer unparalleled value to its
customers, thereby gaining competitive advantage. The Company is the
leading supplier of lighting products and a leading supplier of graphics
products to the petroleum/convenience store industry. The Company
believes its market share is in excess of 70% in the lighting segment of
the petroleum/convenience store industry.
- Serve as Single-Source Provider. LSI has positioned itself as a
single-source provider of integrated lighting and graphics products and
services for its customers, thereby allowing the Company to successfully
distinguish itself from its competitors. As the trend toward outsourcing
continues, the Company believes its customers place increasingly high
value on its one-stop service approach.
- Develop Innovative Products. LSI continually seeks to develop and
introduce technologically advanced and innovative products that
anticipate the changing needs of its customers. The Company pursues
alliances with certain key suppliers for the purpose of developing
high-value lighting and graphics products, such as the recently
introduced Scottsdale(TM) (patent pending) canopy lighting fixture. This
fixture, which was designed for new and "retrofit" canopy installations
primarily in the petroleum/convenience store market, generates levels of
light output equivalent to higher wattage fixtures while using
significantly less energy. In addition to cost advantages, the new
fixture provides ease of installation, low maintenance, and superior
long-term operating performance. The Scottsdale lighting fixture was
designed and developed in alliance with leading lamp and ballast
manufacturers.
- Optimize Product Mix and Manufacturing. The Company's products are
designed and manufactured to provide maximum value and meet the
high-quality, moderately-priced product requirements of the niche markets
served. LSI generally avoids specialty or custom-designed, low-volume
products and concentrates on relatively high-volume, standard product
lines. By focusing its product offerings, the Company achieves
significant manufacturing and cost efficiencies. The Company's lighting
products are generally produced and shipped within two weeks after
receipt of order. LSI believes its prompt shipment capability is
important to its customers.
- Pursue Complementary Acquisitions. LSI will continue to pursue
acquisitions of companies engaged in various aspects of the lighting and
graphics industries that it believes will be complementary to its
existing business. The Company's past acquisitions have contributed to
its historical growth in its commercial/industrial markets, provided
entry into new market segments and product line diversification, as well
as facilitated the integration of the Company's lighting and graphics
disciplines.
20
<PAGE> 21
PRODUCTS AND SERVICES
LSI operates in two business segments, the Lighting Group and the Graphics
Group. The schematic diagram on pages 18 and 19 shows the integration of some of
the Company's lighting and graphics products and illustrates the convenience of
using a single-source supplier.
The following table sets forth net sales and operating income data for the
Company's two business segments for the past three fiscal years and for the six
months ended December 31, 1995.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED JUNE 30,
--------------------------------- SIX MONTHS ENDED
1993 1994 1995 DECEMBER 31, 1995
------- -------- -------- -------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
NET SALES:
Lighting....................... $41,768 $ 56,159 $ 72,782 $52,741
Graphics....................... 30,795 37,376 47,145 28,702
------- ------- -------- -------
Total.................. $72,563 $ 93,535 $119,927 $81,443
======= ======= ======== =======
OPERATING INCOME:
Lighting....................... $ 1,004 $ 3,684 $ 4,937 $ 5,128
Graphics....................... 1,614 3,456 5,325 3,011
------- ------- -------- -------
Total.................. $ 2,618 $ 7,140 $ 10,262 $ 8,139
======= ======= ======== =======
</TABLE>
LIGHTING
The Company's lighting fixtures, poles and brackets are produced in a
variety of designs, styles and finishes. Important functional variations include
types of mounting, such as pole, bracket and surface, and the nature of the
light requirement, such as down-lighting, wall-wash lighting, flood-lighting,
area lighting and security lighting. The Company's engineering staff conducts
site studies, photometric analyses, and windload safety studies for its
customers and also designs the Company's fixtures and systems. The Company's
lighting products utilize high-intensity lamps, particularly metal-halide. All
of the Company's products are designed for economy and energy efficiency,
reliability, ease of installation and service, as well as attractive appearance.
The Company's Lighting Group, in descending order of contribution to net sales,
consists of:
LSI Lighting Systems
Lighting Systems, founded in 1976, produces a wide range of outdoor
lighting fixtures, poles and brackets. This business unit serves all major
segments of the outdoor lighting market, including petroleum/convenience
stores, automobile dealerships, recreational areas, landscaped areas,
sports facilities, shopping centers, roadways, parking garages, warehouses
and apartment and office complexes.
Abolite Lighting
Abolite, acquired in 1989, produces a select line of indoor and
outdoor lighting products and specializes in designer-type fixtures
focusing on several market areas, including retail/shopping centers, casual
dining restaurants, sports facilities, theme parks, automotive dealerships
(interior) and various specialty commercial and recreational facilities.
Greenlee Lighting Inc.
Greenlee, acquired in 1988, produces specialty outdoor lighting for
commercial and residential landscape and architectural lighting
applications.
LSI Images
Images, established in fiscal 1995, is a manufacturer of menu board
systems. This business unit also markets the LSI family of products, both
lighting and graphics, to the quick service restaurant industry. Images
will focus on both freestanding quick service restaurants and less
traditional locations such as food
21
<PAGE> 22
service areas in petroleum/convenience stores, food courts, retail stores,
airports, and school lunchrooms. Sales of graphics products are reported
with the results of the Graphics Group.
GRAPHICS
The Graphics segment designs, manufactures and sells a variety of interior
and exterior screen printed graphics products used in visual image programs.
LSI's extensive product offering, capability of managing nationwide installation
programs, and lighting and graphics expertise provide significant competitive
advantages. The Company's staff works with corporations and their design firms
to establish and implement cost effective image programs. Increasingly, the
Company is asked to be the primary supplier of exterior and interior graphics
for its clients. The Company's Graphics Group, in descending order of
contribution to net sales, consists of:
SGI Integrated Graphic Systems, Inc.
SGI, acquired in 1989, produces various corporate identity graphic
elements including structural, point of purchase, fleet markings, and decal
graphics. This business unit's major markets are the petroleum/convenience
store, restaurant, and specialty retail markets. SGI also produces
high-tolerance graphics for the electronics and instrumentation industries.
In addition, SGI manages installation programs for its customers by hiring
local and regional contractors.
Insight Graphic Systems
Insight produces illuminated and non-illuminated fascia systems for
the petroleum/convenience store, quick service restaurant and banking
markets.
LIGHTING + GRAPHICS = IMAGE
LSI has been successful in its efforts to market its lighting and graphics
products and services on an integrated basis to customers in the
petroleum/convenience store market. The Company is actively promoting this dual
capability to other national retailers that have multi-site locations and
require a consistent visual image. The Company's unique ability to integrate
lighting and graphics allows it to position itself as a primary supplier of
visual image programs. With LSI's capabilities, a customer can avoid having to
separate its lighting and graphics projects among multiple suppliers.
Consequently, customers can consolidate project coordination with LSI to ensure
proper production, timely delivery of all elements and uniform presentation of
colors, logos and graphics. With the recent opening of the Image Center in
Cincinnati, Ohio, LSI can now offer its customers assistance with all phases of
their nationwide image programs: planning, implementation, installation and
maintenance.
The Image Center, unique within the lighting and graphics industry, is a
facility that can produce a computer-generated "virtual" prototype of a
customer's facility on a large screen through the combination of high tech
computer software with sophisticated audio/visual presentation. With this
system, the customer can instantly explore a wide variety of lighting and
graphics options developing consistent day and nighttime images.
LSI's Image Center gives the customer more options, greater control, and
more effective timing in the development of lighting and graphics solutions, all
with much less expense than traditional prototyping. The Image Center's
comprehensive product display areas, both inside and outside, aid the customer
in making quick and effective lighting and graphic design decisions through
hands-on product demonstration and training.
With the investment in the Image Center, LSI has further enhanced its
position as a highly qualified outsourcing partner capable of guiding a customer
through various image alternatives utilizing the Company's lighting and graphics
products and services. LSI believes this capability distinguishes it from its
competitors and will become increasingly beneficial in attracting customers in
the future.
22
<PAGE> 23
The following table sets forth the Company's principal product categories
sold to representative major markets:
<TABLE>
<CAPTION>
MAJOR MARKETS SERVED
----------------------------------------------------------------------------------------------
PETROLEUM/
CONVENIENCE COMMERCIAL/ AUTOMOTIVE QUICK SERVICE SHOPPING SPECIALTY
PRODUCT CATEGORIES STORE INDUSTRIAL DEALERSHIP RESTAURANT CENTER RETAIL
- ------------------------ -------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Site Lighting X X X X X X
- ------------------------------------------------------------------------------------------------------------------
Building Lighting X X X X X X
- ------------------------------------------------------------------------------------------------------------------
Landscape Lighting X X X X X X
- ------------------------------------------------------------------------------------------------------------------
Interior Lighting X X X X X
- ------------------------------------------------------------------------------------------------------------------
Fascia X X X
- ------------------------------------------------------------------------------------------------------------------
Menu Boards X
- ------------------------------------------------------------------------------------------------------------------
Lightboxes X X X X X X
- ------------------------------------------------------------------------------------------------------------------
Decals X X X
- ------------------------------------------------------------------------------------------------------------------
Fleet Markings X
- ------------------------------------------------------------------------------------------------------------------
Point-of-Sale Products X X X
- ------------------------------------------------------------------------------------------------------------------
Structural Graphics X
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
MARKETING AND CUSTOMERS
The Company's lighting products are sold nationwide using a combination of
regional sales managers, manufacturer representatives, and distributors. LSI
utilizes over 450 commissioned manufacturers' representatives employed by
approximately 100 independent sales agencies. Although in some cases the Company
sells directly to national firms, more frequently LSI is designated as a
preferred vendor for product sales to customer-owned as well as franchised,
licensed and dealer operations. The Company's graphics products are sold through
its own sales force and select manufacturer representatives. LSI's marketing
approach and means of distribution vary by product line and by type of market.
Both the Company's regional sales managers and its engineering staff provide
recommendations and full technical support for site studies, photometric
engineering, and windload safety factors.
Sales are developed by contacts with national retail marketers, franchise
and dealer operations. In addition, sales are also achieved through planning
departments, local architects, engineers, petroleum and electrical distributors
and contractors.
Representative customers in each of the Company's primary markets are set
forth in the following table:
<TABLE>
<CAPTION>
PETROLEUM/CONVENIENCE COMMERCIAL/ AUTOMOTIVE
STORE INDUSTRIAL DEALERSHIP
- ------------------------------------- ------------------------------------- -------------------------------------
<S> <C> <C>
Amoco Celebration Stations Chrysler
Arco Disney Pleasure Island Ford
Chevron Kenosha Dog Track General Motors
Circle K MGM Studios Honda
Clark Paramount Entertainment Nissan
Exxon Pittsburgh Airport Saturn
Fina Washington Metro Transit Authority Toyota
Shell
Texaco
</TABLE>
<TABLE>
<CAPTION>
QUICK SERVICE SHOPPING SPECIALTY
RESTAURANT CENTER RETAIL
- ------------------------------------- ------------------------------------- -------------------------------------
<S> <C> <C>
Boston Market Albertson's Ann Taylor
Burger King Best Buy Disney Imaginarium
Long John Silver's Builders Square Frank's Nursery
KFC Kmart The Limited
McDonald's Kohl's Tommy Hilfiger
Taco Bell Target Stores Value City
Wendy's Winn Dixie
</TABLE>
23
<PAGE> 24
MANUFACTURING AND PRODUCTION
LSI designs, engineers and manufactures substantially all of its lighting
and graphics products. By emphasizing high-volume production of standard product
lines LSI achieves significant manufacturing efficiencies. When appropriate, the
Company utilizes alliances with vendors to outsource certain products and
assemblies.
LSI Metal Fabrication, acquired in 1994, primarily serves as a support
facility for all of LSI's business units providing a wide range of precision
metal fabrication, metal stamping and powder coat finishing services.
The principal raw materials and purchased components used in manufacturing
the Company's products are steel, aluminum, wire, sockets, lamps, certain
fixture housings, acrylic and glass lenses, lighting ballasts, inks and various
substrates (decal material, vinyls, etc. for graphics). LSI sources these
materials and components from a variety of suppliers. Although an interruption
of these supplies and components could disrupt the Company's operations, LSI
believes that alternative sources of supply exist and could be readily arranged.
LSI strives to reduce price volatility in its purchases of raw materials and
components through quarterly and, in some cases, annual contracts with certain
of its suppliers.
The Company's manufacturing operations are subject to various federal,
state and local regulatory requirements relating to environmental protection and
occupational health and safety. The Company does not expect to incur material
capital expenditures with regard to these matters and believes its facilities
are in compliance with such regulations.
LSI relies on proprietary expertise, trademarks and, to a lesser extent,
patents to protect its rights regarding products, manufacturing processes, and
product development, all of which the Company believes are important to its
competitive position and success. The Company does not have any license
agreements and does not believe that patent protection is critical to the
success of its business.
COMPETITION
The lighting and graphics industries are highly competitive. LSI encounters
strong competition in all markets served by the Company's product lines. The
Company has many competitors, some of which have greater financial and other
resources. LSI considers product quality and performance, price, customer
service, prompt delivery and reputation to be important competitive factors.
EMPLOYEES
The Company has approximately 800 full-time employees, of whom 120 are
sales and marketing, 90 administrative, 40 engineering, and the remainder
manufacturing. In addition, the Company from time-to-time during high production
periods uses a substantial number of temporary employees, which may average as
high as 300, in order to meet customer demand for products. The Company has a
comprehensive compensation and benefit program for employees, including
competitive wages, a discretionary bonus plan, a profit-sharing plan, a
retirement plan, a stock option plan, and medical and dental insurance. None of
the Company's employees are covered by a collective bargaining agreement. LSI
has never experienced any work stoppages or slowdowns and considers its
relationship with its employees to be good.
24
<PAGE> 25
FACILITIES
The Company's facilities are as follows:
<TABLE>
<CAPTION>
DESCRIPTION SQ. FT. LOCATION STATUS
- ----------------------------------------------------- ------- ----------------------- ------
<S> <C> <C> <C>
LSI Corporate Headquarters, and lighting fixture and
graphics manufacturing............................. 225,000 Cincinnati, Ohio owned
LSI pole manufacturing and dry powder-coat
painting........................................... 131,000 Cincinnati, Ohio owned
LSI Metal Fabrication and LSI Images manufacturing
and dry powder-coat painting....................... 96,000 Independence, Kentucky owned
SGI office, screen printing, manufacturing, and
structural graphics manufacturing.................. 221,000 Houston, Texas leased
Greenlee office and manufacturing.................... 33,000 Dallas, Texas leased
-------
Total........................................... 706,000
</TABLE>
LSI considers these facilities adequate for its current level of operations
and does not anticipate any difficulty in locating additional facilities, if
required. The Company has sufficient property contiguous to its current owned
facilities to expand such facilities if required. The Company's equipment
consists primarily of metal-working, metal-treatment, painting and screen
printing equipment.
25
<PAGE> 26
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information with respect to the
directors and executive officers of the Company as of January 12, 1996:
<TABLE>
<CAPTION>
NAME AGE POSITION
-------------------------------------- --- --------------------------------------
<S> <C> <C>
Robert J. Ready....................... 55 President and Chairman of the Board
James P. Sferra....................... 56 Executive Vice
President - Manufacturing and Director
Donald E. Whipple..................... 60 President, LSI Lighting Systems and
Insight Graphic Systems, Secretary
and Director
John N. Taylor, Jr. .................. 60 Director
Michael J. Burke...................... 52 Director and Assistant Secretary
Allen L. Davis........................ 53 Director
Peter F. Carey........................ 48 President, SGI Integrated Graphic
Systems, Inc.
Ronald S. Stowell..................... 45 Chief Financial Officer and Treasurer
</TABLE>
Mr. Ready is the founder of the Company and has been its President and a
Director since 1976. Mr. Ready was appointed Chairman of the Board of Directors
in February 1985. Mr. Ready is also a Director of Meridian Diagnostics, Inc.
Mr. Sferra shared in the formation of the Company. Mr. Sferra has served as
Corporate Vice President of Manufacturing from November 1989 to November 1992,
and as Executive Vice President - Manufacturing since then. Prior to that, he
served as Vice President - Manufacturing of the LSI Lighting Systems division.
Mr. Sferra has served as a Director since 1976.
Mr. Whipple shared in the formation of the Company. Mr. Whipple has served
as President of LSI Lighting Systems and Insight Graphics since November 1989
and November 1991, respectively. Prior to that, he served as Executive Vice
President of the Company. Mr. Whipple has served as Director and as Secretary
since 1976. Mr. Whipple will retire in June 1996 but will continue as a
Director.
Mr. Taylor was elected a Director of the Company in November 1992. Mr.
Taylor is Chairman and Chief Executive Officer of Kurz-Kasch, Inc., a specialty
manufacturer of plastic-based components, precision solenoids, stators and coil
products, headquartered in Dayton, Ohio. Mr. Taylor is a Director of Robbins &
Myers, Inc.
Mr. Burke was elected a Director and Assistant Secretary of the Company in
February 1985. Mr. Burke is a Managing Partner of the Cincinnati law firm of
Keating, Muething & Klekamp, counsel to the Company, and has been associated
with Keating, Muething & Klekamp since 1968.
Mr. Davis was elected a Director of the Company in February 1985. Mr. Davis
has been the President and Chief Executive Officer, and a Director of Provident
Bancorp, Inc. and The Provident Bank, Cincinnati, Ohio since 1986 and 1984,
respectively.
Mr. Stowell has served as Chief Financial Officer since joining the Company
in December 1992 and was appointed Treasurer in November 1993. Prior to that,
and since 1985, Mr. Stowell served as Corporate Controller of Essef Corporation,
Chardon, Ohio, a manufacturer of high performance composite and engineered
plastics products.
Mr. Carey has been President of SGI Integrated Graphic Systems since
November 1993 and was the Executive Vice President and Chief Operating Officer
from October 1991 to November 1993. From 1990 to September 1991 he was Executive
Vice President of Stout Industries, a screen printer of point-of-purchase signs.
Prior to that he was Vice President of Marketing of PlastiLine, Inc., a
manufacturer of outdoor signs.
None of the officers or directors is related.
26
<PAGE> 27
SELLING SHAREHOLDERS
The following table sets forth beneficial ownership of LSI Common Shares at
January 12, 1996, and after this Offering by each Selling Shareholder and by all
Directors and Executive Officers.
<TABLE>
<CAPTION>
PRIOR TO OFFERING AFTER OFFERING
------------------------------- -------------------------------
COMMON SHARES SHARES TO COMMON SHARES
NAME BENEFICIALLY OWNED PERCENTAGE BE SOLD BENEFICIALLY OWNED PERCENTAGE
- ------------------------------ ------------------ ---------- --------- ------------------ ----------
<S> <C> <C> <C> <C> <C>
Robert J. Ready............... 721,032(1) 9.4% 140,000 581,032(1) 6.6%
James P. Sferra............... 493,945(2) 6.4% 250,000 243,945(2) 2.8%
Donald E. Whipple............. 436,419(3) 5.7% 260,000(5) 176,419(3) 2.0%
John N. Taylor, Jr. .......... 361,450(4) 4.7% 100,000(6) 261,450(4) 3.0%
All Directors and Executive
Officers.................... 2,113,333 27.0% 750,000 1,363,333 15.3%
</TABLE>
- ---------------
(1) Includes exercisable options for 79,545 shares and 130,488 shares held in
trust for Mr. Ready's children.
(2) Includes exercisable options for 38,286 shares and 26,931 shares held by Mr.
Sferra's children.
(3) Includes exercisable options for 32,030 shares. Also includes 36,155 shares
held by Mr. Whipple's children before the Offering; 26,155 shares after the
Offering.
(4) Includes exercisable options for 5,500 shares. Also includes indirect
beneficial ownership for Mr. Taylor of 207,900 shares before the Offering;
157,900 shares after the Offering.
(5) Includes 10,000 shares held by a child of Mr. Whipple.
(6) Includes 50,000 shares held indirectly by Mr. Taylor.
DESCRIPTION OF CAPITAL STOCK
The following description is a summary and is qualified in its entirety by
the provisions of the Company's Articles of Incorporation, Code of Regulations
and the Ohio Revised Code.
COMMON SHARES
Holders of Common Shares are entitled to one vote for each share held of
record on all matters submitted to a vote of shareholders. Shareholders do not
have the right to cumulate their votes in the election of directors.
Holders of Common Shares are entitled to share in such dividends as the
Board of Directors, in its discretion, may declare. In the event of liquidation,
each outstanding Common Share entitles its holder to participate ratably in the
assets remaining after payment of liabilities. Shareholders have no preemptive
or other rights to subscribe for or purchase additional shares of any class of
stock or any other securities of the Company. There are no redemption or sinking
fund provisions with regard to the Common Shares. All outstanding Common Shares
are fully paid, validly issued and non-assessable.
The vote of holders of 66 2/3% of all outstanding Common Shares is required
to amend the Articles of Incorporation and to approve mergers, reorganizations,
and similar transactions.
PREFERRED SHARES
Up to 1,000,000 preferred shares may be issued from time to time in series
having such designated preferences and rights, qualifications, and limitations
as the Board of Directors may determine without any approval of shareholders.
Preferred shares could be given rights which would adversely affect the equity
of holders of Common Shares and could have preferences to Common Shares with
respect to dividend and liquidation rights. The preferred shares could have the
effect of acting as an anti-takeover device to prevent a change of control of
the Company.
27
<PAGE> 28
PROVISIONS AFFECTING BUSINESS COMBINATIONS
LSI's Articles of Incorporation require approval by 66 2/3% of the voting
power of disinterested shareholders for any business combination between an
interested shareholder and the Company for five years after such party became an
interested shareholder. An interested shareholder is one beneficially owning 15%
or more of the voting power. Business combinations include mergers, sales of
assets and similar transactions. The Articles of Incorporation also require any
person who becomes an interested shareholder to offer to purchase all voting
securities of LSI and securities convertible into or constituting warrants or
options to purchase such securities within 25 days after achieving 15%
ownership. The price to be paid would be the higher of the highest price paid by
the interested shareholder in acquiring such beneficial ownership or the highest
trading price during the 45 day period commencing 70 days prior to the date that
such person became an interested shareholder. These provisions are not
applicable if the proposed business combination is approved prior to its
consummation by a majority of disinterested directors or if the transaction by
which a person becomes an interested shareholder is approved any time prior to
that time by a majority of disinterested directors.
The Company is also subject to Chapter 1704 of the Ohio Revised Code which
prohibits the Company from entering into transactions with persons owning 10% or
more of the outstanding voting power of the Corporation for at least three years
after such person attains such 10% ownership unless the Board of Directors has
approved the acquisitions of shares resulting in such ownership. The Company is
also subject to sec.1701.831 of the Ohio General Corporation Law requiring
shareholder approval of acquisitions by persons beyond 20%, 33 1/3% and 50% of
the voting power of the Company. Ohio Revised Code sec.1707.043 requires a
person or entity making a proposal to acquire the control of the Corporation to
repay to the Company any profits made from trade in the Company's stock within
18 months after making the control proposal.
These provisions of the Company's Articles of Incorporation and Ohio Law
would be important in any attempted takeover of the Company and could operate,
depending on how utilized by the Board of Directors, either to discourage a
hostile takeover or to enable the Board to negotiate a higher price than may be
initially proposed in any such situation.
28
<PAGE> 29
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting
Agreement, the Company and the Selling Shareholders have agreed to sell to each
of the underwriters named below (the "Underwriters"), for whom Robert W. Baird
and Co. Incorporated, A.G. Edwards & Sons, Inc. and The Ohio Company are acting
as representatives (the "Representatives"), and each of the Underwriters has
severally agreed to purchase from the Company and the Selling Shareholders, the
respective number of Common Shares set forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS COMMON SHARES
------------------------------------------------------------- ---------------
<S> <C>
Robert W. Baird & Co. Incorporated........................... 406,667
A.G. Edwards & Sons, Inc..................................... 406,667
The Ohio Company............................................. 406,666
William Blair & Company...................................... 35,000
J.C. Bradford & Co. ......................................... 35,000
Dain Bosworth Incorporated................................... 35,000
EVEREN Securities, Inc. ..................................... 35,000
Gerard Klauer Mattison & Co., LLC............................ 35,000
Janney Montgomery Scott Inc. ................................ 35,000
Ladenburg, Thalmann & Co. Inc. .............................. 35,000
Legg Mason Wood Walker Incorporated.......................... 35,000
McDonald & Company Securities, Inc. ......................... 35,000
Mesirow Financial, Inc. ..................................... 35,000
Morgan Keegan & Company, Inc. ............................... 35,000
Needham & Company, Inc. ..................................... 35,000
Parker/Hunter Incorporated................................... 35,000
Pennsylvania Merchant Group Ltd. ............................ 35,000
Raymond James & Associates, Inc. ............................ 35,000
The Robinson-Humphrey Company, Inc. ......................... 35,000
Roney & Company, LLC ........................................ 35,000
Tucker Anthony Incorporated.................................. 35,000
---------
Total...................................................... 1,850,000
=========
</TABLE>
In the Underwriting Agreement, the Underwriters have agreed, subject to the
terms and conditions set forth therein, to purchase all 1,850,000 Common Shares
offered hereby if any such Common Shares are purchased. In the event of a
default by any Underwriter, the Underwriting Agreement provides that, in certain
circumstances, purchase commitments of the non-defaulting Underwriters may be
increased or the Underwriting Agreement may be terminated.
The Company and the Selling Shareholders have been advised by the
Representatives that the several Underwriters propose to offer such Common
Shares to the public at the public offering price set forth on the cover page of
this Prospectus, and to certain dealers at such prices less a concession not in
excess of $0.61 per share. The Underwriters may allow and such dealers may
re-allow a concession not in excess of $0.10 per share to other dealers.
The Company and the Selling Shareholders have granted to the Underwriters
an option, expiring 30 days from the date of this Prospectus, to purchase up to
277,500 additional Common Shares at the price to public less underwriting
discounts and commissions set forth on the cover page of this Prospectus. The
Underwriters may exercise such option solely to cover over-allotments, if any,
made in connection with the sale of Common Shares that the Underwriters have
agreed to purchase. To the extent the Underwriters exercise such option, each of
the Underwriters will have a firm commitment, subject to certain conditions, to
purchase a number of option shares proportionate to such Underwriter's initial
commitment.
29
<PAGE> 30
The Company and each of its officers and directors have agreed that they
will not sell, without the consent of the Representatives, any Common Shares or
any securities convertible into Common Shares during the 180 days following the
date of this Prospectus, except for the Common Shares offered in this Offering.
The Representatives will not consent to any shortening of such periods unless,
in their judgment, the timing of the sales and the number of Common Shares sold
as a result of any said consent would not have a material adverse effect on the
market for the Common Shares. In such event, such sales would not necessarily be
preceded by a public announcement of the Company or the Representatives that
such consent has been given.
The Underwriting Agreement provides that the Company and the Selling
Shareholders will indemnify the Underwriters against certain liabilities under
the Securities Act of 1933 or contribute to payments the Underwriters may be
required to make in respect thereof.
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for the
Company by Keating, Muething & Klekamp, Cincinnati, Ohio. Certain legal matters
in connection with this Offering will be passed upon for the Underwriters by
Taft, Stettinius & Hollister, Cincinnati, Ohio.
EXPERTS
The Consolidated Financial Statements of the Company as of June 30, 1994
and June 30, 1995, and for each of the three years in the period ended June 30,
1995 included in this Prospectus have been so included in reliance upon the
report of Price Waterhouse LLP, independent accountants, given on the authority
of said firm as experts in accounting and auditing.
30
<PAGE> 31
LSI INDUSTRIES INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants.................................................... F-2
Consolidated Balance Sheets at June 30, 1994, June 30, 1995 and December 31, 1995.... F-3
Consolidated Income Statements for the years ended June 30, 1993, 1994 and 1995 and
the six month periods ended December 31, 1994 and 1995............................. F-4
Consolidated Statements of Cash Flows for the years ended June 30, 1993, 1994 and
1995 and the six month periods ended December 31, 1994 and 1995.................... F-5
Consolidated Statements of Shareholders' Equity for the years ended June 30, 1993,
1994 and 1995 and the six months ended December 31, 1995........................... F-6
Notes to Consolidated Financial Statements........................................... F-7
</TABLE>
F-1
<PAGE> 32
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
LSI Industries Inc.
In our opinion, the accompanying consolidated balance sheets and related
consolidated statements of income, cash flows and shareholders' equity present
fairly, in all material respects, the financial position of LSI Industries Inc.
and its subsidiaries at June 30, 1994 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
June 30, 1995, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audits to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
Cincinnati, Ohio
August 18, 1995
F-2
<PAGE> 33
LSI INDUSTRIES INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30
------------------- DECEMBER 31
1994 1995 1995
------- ------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current Assets
Cash.................................................. $ 1,614 $ 2,124 $ 1,917
Accounts receivable, less allowance for doubtful
accounts of $265, $242, and $262, respectively..... 14,376 19,273 29,530
Inventories........................................... 11,079 18,584 20,862
Refundable income taxes............................... -- 438 --
Other current assets.................................. 1,390 1,397 1,405
------- ------- -------------
Total current assets............................... 28,459 41,816 53,714
Property, Plant and Equipment, at cost
Land.................................................. 2,482 2,512 2,512
Buildings............................................. 7,536 8,967 10,247
Machinery and equipment............................... 14,983 16,900 17,585
------- ------- -------------
25,001 28,379 30,344
Less accumulated depreciation......................... (8,550) (8,981) (10,093)
------- ------- -------------
Net property, plant and equipment..................... 16,451 19,398 20,251
Goodwill................................................ 1,377 1,339 1,319
------- ------- -------------
$46,287 $62,553 $ 75,284
======= ======= =============
LIABILITIES & SHAREHOLDERS' EQUITY
Current Liabilities
Notes payable to banks................................ $ -- $ -- $ 6,809
Current maturities of long-term debt.................. 265 842 844
Accounts payable...................................... 7,958 10,641 17,111
Accrued expenses...................................... 9,013 12,545 10,161
------- ------- -------------
Total current liabilities.......................... 17,236 24,028 34,925
Long-Term Debt.......................................... 3,335 7,257 6,863
Other Long-Term Liabilities............................. 460 380 --
Deferred Income Taxes................................... 1,275 1,435 1,485
Shareholders' Equity
Preferred shares, without par value; authorized
1,000,000 shares, none issued...................... -- -- --
Common shares, without par value; authorized
30,000,000 shares; outstanding 7,466,951, 7,554,229
and 7,623,782 shares, respectively, including the
effect of a three-for-two stock split (see Note
6)................................................. 7,539 7,915 8,075
Retained earnings..................................... 16,442 21,538 23,936
------- ------- -------------
Total shareholders' equity......................... 23,981 29,453 32,011
------- ------- -------------
$46,287 $62,553 $ 75,284
======= ======= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 34
LSI INDUSTRIES INC.
CONSOLIDATED INCOME STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEARS ENDED JUNE 30 DECEMBER 31
-------------------------------- -------------------
1993 1994 1995 1994 1995
------- ------- -------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales.............................. $72,563 $93,535 $119,927 $61,684 $81,443
Cost of products sold.................. 49,789 62,430 80,156 40,652 55,677
------- ------- -------- ------- -------
Gross profit......................... 22,774 31,105 39,771 21,032 25,766
Selling and administrative expenses.... 20,156 23,965 29,509 14,593 17,627
------- ------- -------- ------- -------
Operating income..................... 2,618 7,140 10,262 6,439 8,139
Interest expense....................... 503 199 459 179 350
Other (income) expense................. (481) 290 160 19 16
------- ------- -------- ------- -------
Income from continuing operations
before income taxes............... 2,596 6,651 9,643 6,241 7,773
Income tax expense..................... 927 2,461 3,469 2,233 2,886
------- ------- -------- ------- -------
Income from continuing operations.... 1,669 4,190 6,174 4,008 4,887
Discontinued operations................ -- -- -- -- (1,500)
------- ------- -------- ------- -------
Net income........................... $ 1,669 $ 4,190 $ 6,174 $ 4,008 $ 3,387
======= ======= ======== ======= =======
Net income per share
Continuing operations................ $ .23 $ .55 $ .79 $ .52 $ .61
Discontinued operations.............. -- -- -- -- (.19)
------- ------- -------- ------- -------
Net income per share.............. $ .23 $ .55 $ .79 $ .52 $ .42
======= ======= ======== ======= =======
Average shares outstanding............. 7,385 7,656 7,802 7,760 7,980
(see Note 6)
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 35
LSI INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED JUNE 30 ENDED DECEMBER 31
------------------------------- -------------------
1993 1994 1995 1994 1995
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Income from continuing operations...... $ 1,669 $ 4,190 $ 6,174 $ 4,008 $ 4,887
Non-cash items included in income
Depreciation and amortization....... 1,731 1,794 2,074 938 1,154
Deferred income taxes............... 691 (234) 85 60 50
Loss (gain) on disposition of fixed
assets............................ -- 250 122 -- (4)
Change in
Accounts receivable................. (672) (2,744) (4,897) (3,557) (10,257)
Inventories......................... 44 (3,481) (7,505) (3,500) (2,278)
Refundable income taxes............. 2,228 134 (438) -- 438
Accounts payable.................... 208 2,087 2,683 2,452 6,470
Accrued expenses and other.......... (58) 5,833 3,590 (2,662) (3,010)
Loss from discontinued operations...... -- -- -- -- (1,500)
Net cash used by discontinued
operations
Other changes in net assets....... (1,232) (245) (70) (30) 238
------- ------- ------- ------- -------
Net cash flows from operating
activities................... 4,609 7,584 1,818 (2,291) (3,812)
------- ------- ------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant, and
equipment........................... (1,253) (4,609) (5,117) (1,647) (1,987)
Proceeds from sale of fixed assets..... -- 13 12 -- 4
------- ------- ------- ------- -------
Net cash flows from investing
activities................... (1,253) (4,596) (5,105) (1,647) (1,983)
------- ------- ------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in lines of
credit.............................. (1,458) (1,312) -- 303 6,809
Payment of long-term debt.............. (1,727) (3,957) (451) (58) (392)
Increase in long-term debt............. -- 3,600 4,950 3,700 --
Cash dividends paid.................... (234) (234) (1,078) (676) (989)
Exercise of stock options.............. -- 370 376 161 160
------- ------- ------- ------- -------
Net cash flows from financing
activities................... (3,419) (1,533) 3,797 3,430 5,588
------- ------- ------- ------- -------
Increase (decrease) in cash.............. (63) 1,455 510 (508) (207)
Cash at beginning of period.............. 222 159 1,614 1,614 2,124
------- ------- ------- ------- -------
Cash at end of period.................... $ 159 $ 1,614 $ 2,124 $ 1,106 $ 1,917
======= ======= ======= ======= =======
Supplemental cash flow information
Interest paid.......................... $ 540 $ 210 $ 438 $ 579 $ 189
Income taxes paid (refunded), net...... $(2,010) $ 204 $ 5,831 $ 2,752 $ 4,162
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 36
LSI INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
COMMON SHARES
--------------------
NUMBER OF RETAINED
SHARES AMOUNT EARNINGS TOTAL
--------- ------ --------- -------
<S> <C> <C> <C> <C>
BALANCE AT JUNE 30, 1992...................... 7,367 $7,169 $11,051 $18,220
Net income.................................. -- -- 1,669 1,669
Dividend -- $.03 per share.................. -- -- (234) (234)
--------- ------ -------- -------
BALANCE AT JUNE 30, 1993...................... 7,367 7,169 12,486 19,655
Net income.................................. -- -- 4,190 4,190
Stock options exercised..................... 100 370 -- 370
Dividend -- $.03 per share.................. -- -- (234) (234)
--------- ------ -------- -------
BALANCE AT JUNE 30, 1994...................... 7,467 7,539 16,442 23,981
Net income.................................. -- -- 6,174 6,174
Stock options exercised..................... 87 376 -- 376
Dividends -- $.15 per share................. -- -- (1,078) (1,078)
--------- ------ -------- -------
BALANCE AT JUNE 30, 1995...................... 7,554 7,915 21,538 29,453
Net income (a).............................. -- -- 3,387 3,387
Stock options exercised (a)................. 69 160 -- 160
Dividends -- $.13 per share (a)............. -- -- (989) (989)
--------- ------ -------- -------
BALANCE AT DECEMBER 31, 1995 (a).............. 7,623 $8,075 $23,936 $32,011
========== ======= ======== =======
</TABLE>
- ---------------
(a) Unaudited information
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 37
LSI INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION:
The consolidated financial statements include the accounts of LSI
Industries Inc. and its subsidiaries, all of which are wholly owned. All
significant intercompany transactions have been eliminated.
RECLASSIFICATION:
Certain reclassifications have been made to prior year amounts in order to
be consistent with the presentation for the current year.
REVENUE RECOGNITION:
Revenue is recognized when the customer accepts title and the resultant
risks and rewards of ownership. Generally this occurs upon shipment of goods or
shortly thereafter. Amounts received from customers prior to the recognition of
revenue are accounted for as customer prepayments.
CASH:
The cash balance includes cash and cash equivalents which have maturities
of less than three months.
INVENTORIES:
Inventories are stated at the lower of cost or market. Cost is determined
on the first-in, first-out basis.
PROPERTY, PLANT AND EQUIPMENT AND RELATED DEPRECIATION:
Property, plant and equipment are stated at cost. Major additions and
betterments are capitalized while maintenance and repairs are expensed. For
financial reporting purposes, depreciation is computed on the straight-line
method over the estimated useful lives of the assets.
GOODWILL:
The excess of cost over fair value of assets acquired ("goodwill") is
amortized over a forty year period. As of June 30, 1994 and 1995, accumulated
amortization of goodwill was $210,000 and $248,000, respectively. The Company
periodically evaluates goodwill and other long-lived assets for permanent
impairment based upon anticipated cash flows. To date no impairments have been
recorded, nor are any anticipated.
EMPLOYEE BENEFIT PLANS:
The Company has a defined contribution retirement plan and a discretionary
profit sharing plan covering substantially all of its employees. The costs of
employee benefit plans are charged to expense and funded annually. Total costs
relating to continuing operations were $567,000 in 1993, $942,000 in 1994 and
$1,004,000 in 1995.
INCOME TAXES:
Deferred income taxes are provided on items reported in income in different
periods for financial reporting and tax purposes.
NET INCOME PER COMMON SHARE:
The computation of net income per common share is based on the weighted
average common shares outstanding for the period, including common share
equivalents (dilutive stock options). Dilutive stock options amounted to 18,000
shares in 1993, 236,000 shares in 1994 and 287,000 shares in 1995. See also Note
6.
F-7
<PAGE> 38
UNAUDITED INTERIM FINANCIAL INFORMATION:
The interim financial information for the six month periods ended December
31, 1994 and 1995 and as of December 31, 1995 are unaudited. In the opinion of
management, the accompanying interim financial information has been prepared on
a basis consistent with the audited financial statements and include all
adjustments, consisting of only normal, recurring adjustments, necessary to
present fairly the Company's financial position and results of operations for
the periods then ended.
SUPPLEMENTARY DATA (UNAUDITED):
The supplementary earnings per share information presented below for the
year ended June 30, 1995 and for the six month periods ended December 31, 1994
and 1995 has been prepared assuming: (1) the offering of common shares described
in this Prospectus had occurred at the beginning of fiscal year 1995, and
subsequently as required during the periods presented, at the anticipated net
offering proceeds per share to generate cash to repay bank debt, resulting in
reduced interest expense, net of tax, and (ii) an increase in common shares
outstanding sufficient to repay the bank debt during the periods presented.
<TABLE>
<CAPTION>
INCOME FROM
CONTINUING
OPERATIONS
-----------
<S> <C>
Fiscal year 1995....................................................... $0.77
Six months ended
December 31, 1994.................................................... $0.50
December 31, 1995.................................................... $0.58
</TABLE>
NOTE 2 -- DISCONTINUED OPERATIONS
In 1992 the Company sold the assets and operations of its U.K. subsidiary,
Duramark, to its management and reported a loss from discontinued operations.
Consideration received included cash, assumption of liabilities by management,
and rights to a percentage of future profits of the operation earned on or
before May 31, 1996 (to which no value was assigned). The maximum amount
receivable is not material, is subject to a time limit, and realizability is
believed not to be certain.
The remaining liabilities which were not assumed by the management buy-out
group of the discontinued operations, net of related taxes, have been classified
in the consolidated balance sheets as follows:
<TABLE>
<CAPTION>
JUNE 30 JUNE 30
1994 1995
------- -------
<S> <C> <C>
(in thousands)
Accrued expenses........................................... $ 396 $ 429
Other long-term liabilities................................ 460 380
------- -------
Total................................................. $ 856 $ 809
======= =======
</TABLE>
NOTE 3 -- BUSINESS SEGMENT INFORMATION
LSI operates in two business segments -- Lighting and Graphics. The
Lighting segment manufactures and sells outdoor, indoor and landscape lighting
fixtures as well as menu boards and light boxes to the petroleum/convenience
store, multi-site retail and commercial/industrial markets. The Lighting segment
includes the operations of LSI Lighting Systems, Abolite Lighting, Greenlee
Lighting, LSI Images, and LSI Metal Fabrication. The Graphics segment
manufactures and sells screen printed materials and architectural graphic
structures for the petroleum/convenience store and multi-site retail markets.
The Graphics segment includes the operations of SGI and Insight Graphics.
F-8
<PAGE> 39
The following information is provided for the following periods:
<TABLE>
<CAPTION>
1993 1994 1995
------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
NET SALES:
Lighting................................................... $41,768 $56,159 $ 72,782
Graphics................................................... 30,795 37,376 47,145
------- ------- --------
$72,563 $93,535 $119,927
======= ======= ========
OPERATING INCOME:
Lighting................................................... $ 1,004 $ 3,684 $ 4,937
Graphics................................................... 1,614 3,456 5,325
------- ------- --------
$ 2,618 $ 7,140 $ 10,262
======= ======= ========
IDENTIFIABLE ASSETS:
Lighting................................................... $23,465 $29,912 $ 36,433
Graphics................................................... 12,447 14,523 23,280
------- ------- --------
35,912 44,435 59,713
Corporate.................................................. 2,139 1,852 2,840
------- ------- --------
$38,051 $46,287 $ 62,553
======= ======= ========
CAPITAL EXPENDITURES:
Lighting................................................... $ 904 $ 3,747 $ 3,814
Graphics................................................... 349 862 1,303
------- ------- --------
$ 1,253 $ 4,609 $ 5,117
======= ======= ========
DEPRECIATION AND AMORTIZATION:
Lighting................................................... $ 1,103 $ 1,133 $ 1,404
Graphics................................................... 628 661 670
------- ------- --------
$ 1,731 $ 1,794 $ 2,074
======= ======= ========
</TABLE>
Operating income of the business segments includes sales less all operating
expenses including allocations of corporate expense, but excluding interest
expense. Sales between business segments are immaterial.
Identifiable assets are those assets used by each segment in its
operations, including allocations of shared assets. Corporate assets consist
primarily of cash, and refundable income taxes and, in fiscal 1993, a net
receivable related to an asset that had been held for sale.
NOTE 4 -- BALANCE SHEET DATA
<TABLE>
<CAPTION>
JUNE 30
------------------- DECEMBER 31
(in thousands) 1994 1995 1995
------- ------- ------------
(UNAUDITED)
<S> <C> <C> <C>
INVENTORIES:
Raw materials.................................... $ 5,926 $ 9,821 $ 12,106
Work-in-process and finished goods............... 5,153 8,763 8,756
------- ------- ------------
$11,079 $18,584 $ 20,862
======= ======= ============
ACCRUED EXPENSES:
Compensation and benefits........................ $ 3,447 $ 4,070 $ 2,668
Accrued income taxes............................. $ 2,490 $ 360 $ 757
Customer prepayments............................. $ 593 $ 5,648 $ 2,589
</TABLE>
F-9
<PAGE> 40
NOTE 5 -- REVOLVING LINES OF CREDIT AND LONG-TERM DEBT
The Company has lines of credit with its banks in the aggregate amount of
$13,000,000, all of which is available at June 30, 1995. These revolving lines
of credit are unsecured and expire in fiscal year 1996. The Company has a
$6,700,000 term loan agreement with one of its banks and as of June 30, 1995,
$6,365,000 is outstanding. Equal quarterly principal payments, plus interest,
continue through December 2004. The term loan is secured by the Company's Ohio
real estate and selected equipment, with a total net carrying value of $11.3
million. Interest on the revolving lines of credit and the term loan is charged
based upon a 1.0 and a 1.25 percentage point increment, respectively, over the
LIBOR rate as periodically determined, or at the banks' base lending rate, at
the Company's option. Under terms of these agreements, the Company has agreed to
maintain minimum levels of profitability and net worth, and is subject to
certain maximum levels of leverage.
In February 1995 the Company completed an Industrial Revenue Development
Bond (IRB) borrowing in the amount of $1,250,000 associated with its facility in
Northern Kentucky. The term of this IRB is 15 years with semi-annual interest
payments and annual principal payments for retirement of bond principal in
increasing amounts over the term of the bonds. The IRB interest rate is
re-established semi-annually and is currently 6.15%, including a letter of
credit fee. The IRB is secured by the Company's Kentucky real estate, which has
a net carrying value of $1.2 million.
The Company has equipment loans outstanding totaling $484,000 with two
governmental agencies in Kentucky. The loans are for terms of five years at a
weighted average interest rate of 2.2% and are secured by the Company's Kentucky
equipment which has a net carrying value of $1.3 million. The Company makes
quarterly principal and interest payments of $32,000 through June 1999 and has
committed to specified job growth in its Kentucky facility.
<TABLE>
<CAPTION>
JUNE 30
-----------------
(in thousands) 1994 1995
------ ------
<S> <C> <C>
LONG-TERM DEBT:
Term loan at 7.25%............................................. $3,000 $6,365
Industrial Revenue Development Bond at 6.15%................... -- 1,250
Equipment loans (average rate of 2.2%)......................... 600 484
------ ------
3,600 8,099
Less current maturities........................................ 265 842
------ ------
$3,335 $7,257
====== ======
</TABLE>
Future maturities of long-term debt at June 30, 1995 are as follows (in
thousands):
<TABLE>
<CAPTION>
1996 1997 1998 1999 2000 2001 AND AFTER
- ----- ----- ----- ----- ----- --------------
<S> <C> <C> <C> <C> <C>
$842 $850 $858 $860 $740 $3,949
</TABLE>
NOTE 6 -- SHAREHOLDERS' EQUITY
The Company has stock option plans which cover all of its full-time
employees and has a plan covering all non-employee directors. The stock option
plan for directors and a new plan for employees were adopted by the Board of
Directors in May 1995, subject to shareholder approval in November 1995. The
options granted pursuant to these plans are granted at fair market value at date
of grant and generally become exercisable 25% per year (cumulative) beginning
one year after the date of grant at the fair market value of the Common Shares
at the date of grant. The number of shares reserved for issuance is 982,800, of
which 491,000 shares are available for future grant as of June 30, 1995. The
plan allows for the grant of both incentive stock options and non-qualified
stock options.
F-10
<PAGE> 41
<TABLE>
<CAPTION>
SHARES AVERAGE
(IN THOUSANDS) PRICE
-------------- -------
<S> <C> <C>
OPTIONS OUTSTANDING AT JUNE 30, 1992...................... 450 $3.36
Options granted......................................... 113 2.23
Options terminated...................................... (50) 3.45
----
OPTIONS OUTSTANDING AT JUNE 30, 1993...................... 513 3.13
Options granted......................................... 182 4.58
Options terminated...................................... (34) 3.37
Options exercised....................................... (107) 3.28
----
OPTIONS OUTSTANDING AT JUNE 30, 1994...................... 554 3.56
Options granted......................................... 42 9.71
Options terminated...................................... (12) 3.37
Options exercised....................................... (92) 3.37
----
OPTIONS OUTSTANDING AT JUNE 30, 1995...................... 492 $4.13
====
</TABLE>
At June 30, 1995, there were 281,000 options exercisable at an average
price of $4.22 per share.
On August 18, 1995, the Board of Directors declared a regular quarterly
dividend of $.04 per share and a special $.05 per share cash dividend to be paid
September 22, 1995 to shareholders of record on September 11, 1995. Earnings per
share and common shares outstanding for all periods reflect a three-for-two
stock split effective August 4, 1995. Annual cash dividend payments made during
fiscal years 1993, 1994 and 1995 were $.03, $.03, and $.15, respectively.
NOTE 7 -- SALES TO MAJOR CUSTOMERS
The Company made sales in both the Lighting and Graphics segments to a
major customer which exceeded 10% of consolidated net sales. Sales to Chevron
U.S.A. represented 14% of consolidated net sales in 1995 and 13% in both 1994
and 1993.
NOTE 8 -- LEASES
The Company leases certain of its facilities and equipment under operating
lease arrangements. Rental expense was $788,000 in 1993, $846,000 in 1994, and
$835,000 in 1995. Minimum annual rental commitments under non-cancelable
operating leases are: $654,000 in 1996; $605,000 in 1997; $541,000 in 1998; and
$352,000 in 1999.
F-11
<PAGE> 42
NOTE 9 -- INCOME TAXES
The following information is provided for the years ended June 30:
<TABLE>
<CAPTION>
1993 1994 1995
---- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
PROVISION (BENEFIT) FOR INCOME TAXES:
Current federal.................................................. $143 $2,582 $3,179
Current state and local.......................................... 93 113 205
Deferred......................................................... 691 (234) 85
---- ------ ------
$927 $2,461 $3,469
==== ====== ======
DEFERRED INCOME TAX COMPONENTS:
Depreciation..................................................... $112 $ (691) $ 160
Accrued and prepaid expenses..................................... 74 (21) (75)
Alternative minimum tax credit carry forward..................... -- 283 --
Restructuring charges............................................ 305 195 --
Reserve established for sale of asset............................ 200 -- --
---- ------ ------
$691 $ (234) $ 85
==== ====== ======
RECONCILIATION TO FEDERAL STATUTORY RATE:
Federal statutory tax rate....................................... 34.0% 34.0% 34.0%
State and local taxes............................................ 2.4 1.1 1.4
Goodwill and other............................................... (0.7) 1.9 .6
---- ------ ------
Effective tax rate............................................... 35.7% 37.0% 36.0%
==== ====== ======
</TABLE>
The components of deferred income tax assets and liabilities at June 30,
1994 and 1995 are as follows:
<TABLE>
<CAPTION>
1994 1995
------ ------
(IN THOUSANDS)
<S> <C> <C>
Current assets (liabilities):
Reserves against current assets.................................. $ 194 $ 269
Prepaid expenses................................................. (226) (106)
Accrued expenses................................................. 493 373
------ ------
Deferred income tax asset included in Other Current Assets on the
Consolidated Balance Sheets...................................... $ 461 $ 536
====== ======
Noncurrent liabilities:
Depreciation..................................................... $1,275 $1,435
------ ------
Deferred income tax liabilities as reported on the Consolidated
Balance Sheets................................................... $1,275 $1,435
====== ======
</TABLE>
The Internal Revenue Service (IRS) has completed its audit of the Company's
1989 through 1992 federal income tax returns. In October 1994, the IRS proposed
audit adjustments which would result in a return of approximately $2 million of
income taxes (plus interest) which had been refunded to the Company with the
filing of its 1992 income tax return. The IRS has questioned the tax treatment
of the loss associated with the discontinued operations, specifically as to
whether it should receive ordinary loss or capital loss treatment. The Company
vigorously protested these adjustments and filed a final protest with the IRS
Appeals Division.
(Unaudited information):
The Company's settlement discussions with the IRS Appeals Division relating
to the proposed audit assessment were concluded in December 1995. An agreement
was reached that will re-characterize a portion
F-12
<PAGE> 43
of the 1992 loss associated with discontinued European operations as a long term
capital loss. The agreement will result in payment of approximately $1.7 million
(composed of taxes and interest), and in a charge to discontinued operations of
approximately $1.5 million to increase the Company's reserve for remaining
liabilities associated with the discontinued operations. During the quarter
ending December 31, 1995, the Company exhausted all alternatives to mitigate
this issue and has recorded the $1.5 million additional reserve for discontinued
operations in the second quarter of fiscal 1996.
NOTE 10 -- SUMMARY OF QUARTERLY RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------ FISCAL
SEPT. 30 DEC. 31 MARCH 31 JUNE 30 YEAR
-------- ------- -------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
1994
Net sales............................... $23,571 $25,312 $20,273 $24,379 $ 93,535
Gross profit............................ 8,169 8,764 6,325 7,847 31,105
Net income.............................. 1,317 1,403 453 1,017 4,190
Earnings per share........................ $ .18 $ .18 $ .06 $ .13 $ .55
Range of share prices
High.................................... $ 4.50 $ 7.09 $ 7.83 $ 7.67
Low..................................... $ 3.25 $ 4.59 $ 6.33 $ 6.00
1995
Net sales............................... $29,320 $32,364 $26,920 $31,323 $119,927
Gross profit............................ 9,858 11,174 8,570 10,169 39,771
Net income.............................. 1,849 2,159 749 1,417 6,174
Earnings per share........................ $ .24 $ .28 $ .10 $ .18 $ .79(a)
Range of share prices
High.................................... $ 8.33 $ 8.00 $ 9.67 $ 12.92
Low..................................... $ 6.67 $ 6.67 $ 7.33 $ 9.33
</TABLE>
- ---------------
(a) The total of the earnings per share for each of the four quarters does not
equal the total earnings per share for the full year because the
calculations are based on the average shares outstanding during each of the
individual periods.
F-13
<PAGE> 44
(THIS PAGE INTENTIONALLY LEFT BLANK)
<PAGE> 45
[INSERT PHOTOS]
The inside back cover depicts pictures of the Company's products including
pictures of the exterior of restaurants, site lighting at a shopping center and
exterior lighting at an entertainment theme park.
<PAGE> 46
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED IN CONNECTION
WITH THE OFFER MADE BY THIS PROSPECTUS TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS. IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY, ANY SELLING SHAREHOLDERS OR BY ANY OF THE
UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS
NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS
OF THE COMPANY SINCE THE DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER OR SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary.................... 4
Risk Factors.......................... 6
The Company........................... 7
Use of Proceeds....................... 8
Capitalization........................ 9
Dividend Policy....................... 10
Price Range of Common Shares.......... 10
Selected Consolidated Financial
Information......................... 11
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 12
Business.............................. 17
Executive Officers and Directors...... 26
Selling Shareholders.................. 27
Description of Capital Stock.......... 27
Underwriting.......................... 29
Legal Matters......................... 30
Experts............................... 30
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
1,850,000 SHARES
[LOGO]
COMMON SHARES
-------------------------
P R O S P E C T U S
-------------------------
ROBERT W. BAIRD & CO.
INCORPORATED
A.G. EDWARDS & SONS, INC.
THE OHIO COMPANY
February 7, 1996
- ------------------------------------------------------
- ------------------------------------------------------
