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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED JUNE 30, 1997.
OR
____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______ TO _______.
Commission File No. 0-13375
LSI Industries Inc.
State of Incorporation - Ohio
IRS Employer I.D. No. 31-0888951
10000 Alliance Road
Cincinnati, Ohio 45242
(513) 793-3200
Securities Registered Pursuant to Section 12(b) of the Act:
None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Shares
(No par value)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]
Aggregate market value of the voting stock held by non-affiliates of the
registrant at September 2, 1997 was approximately $123,796,000, based on a
closing price of $14.75. At September 2, 1997, 9,541,123 shares of no par value
Common Shares were issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement filed with the Commission for its
1997 annual meeting are incorporated by reference in Part III, as specified.
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LSI INDUSTRIES INC.
1997 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
<TABLE>
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Begins on
Page
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PART I
ITEM 1 - BUSINESS...................................................... 1
ITEM 2 - PROPERTIES.................................................... 2
ITEM 3 - LEGAL PROCEEDINGS............................................. 3
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS............................................... 3
PART II
ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
RELATED SHAREHOLDERS' MATTERS......................... 3
ITEM 6 - SELECTED FINANCIAL DATA....................................... 3
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS................... 3
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................... 3
ITEM 9 - DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.................................. 4
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT............ 4
ITEM 11 - EXECUTIVE COMPENSATION........................................ 4
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT...................................... 4
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................ 4
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, REPORTS ON
FORM 8-K.......................................... 4
SIGNATURES .......................................................... 6
</TABLE>
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PART I
ITEM 1 - BUSINESS
The Company's two business segments are the Image Group and the
Commercial/Industrial Lighting Group. Sales by continuing operations by
segment are as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Image Group $101,562 $110,808 $ 81,328
Commercial/Industrial
Lighting Group 43,180 41,925 38,599
-------- -------- --------
Total $144,742 $152,733 $119,927
======== ======== ========
</TABLE>
The Image Group manufactures and sells exterior and interior visual
image elements (lighting, graphics, and menu board systems) for the petroleum /
convenience store market and for multi-site retail operations. The Image Group
includes the operations of LSI Petroleum Lighting, LSI Automotive, LSI Images,
LSI Metal Fabrication, and SGI Integrated Graphic Systems. Grady McCauley,
acquired at the end of June 1997, will also operate in this segment. The
Commercial/Industrial Lighting Group manufactures and sells outdoor, indoor,
and landscape lighting for the commercial/industrial and multi-site retail
markets. The Commercial/Industrial Lighting Group includes the operations of
LSI Lighting Systems, Courtsider Lighting, and Greenlee Lighting. The Company's
most significant market is the petroleum/convenience store market with
approximately 50% of net sales concentrated in this market. See Note 3 of Notes
to Consolidated Financial Statements beginning on page S-14 of this Form 10-K
for additional information on business segments.
On June 30, 1997, the Company acquired substantially all assets and
assumed certain liabilities of Grady McCauley, Incorporated, a privately owned
manufacturer of custom interior graphics primarily for the retail market. For
financial statement purposes the acquisition was accounted for as a purchase
with operating results of Grady McCauley to be first included in the Company's
fiscal 1998 financial statements. The purchase price was 475,700 common shares
of the Company (valued at $6,000,000) plus $15.2 million in cash, exclusive of
acquisition costs. The purchase price exceeded the estimated fair value of net
assets acquired by $11.4 million, which is recorded as goodwill. See Note 11 of
Notes to Consolidated Financial Statements beginning on page S-20 of this Form
10-K for additional information on this acquisition.
The Company believes that it is a low-cost producer for its types of
products, and as such, is in a position to promote its product lines with
substantial marketing and sales activities.
The Company is not dependent on any one supplier for any of its
component parts.
The Company's sales are partially seasonal as installation of outdoor
lighting and graphic systems in the northern states lessens during the harshest
winter months. One customer, Chevron U.S.A. Inc. accounted for 12% of
consolidated net sales in 1996 and 14% in 1995. The Company had a backlog of
orders, believed by it to be firm, of $13.6 million and $9.6 million at June
30, 1997 and 1996, respectively. All orders are believed to be shippable within
twelve months.
The Company has approximately 1,100 full-time and 100 temporary
employees. The Company has a comprehensive compensation and benefit program for
employees, including
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competitive wages, a discretionary bonus plan, a profit-sharing plan and
retirement plan, a 401(k) savings plan, a non-qualified deferred compensation
plan (for certain employees), a stock option plan, and medical and dental
insurance.
The Company sells its products throughout the United States and
Canada.
LSI Industries 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. The Company considers product
quality and performance, price, customer service, prompt delivery, and
reputation to be important competitive factors.
The Company has several product and process patents which it has
obtained in the normal course of business. The Company does not believe that
patent protection is critical to its business.
ITEM 2 - PROPERTIES
The Company has six facilities:
<TABLE>
<CAPTION>
Description Size Location Status
----------- ---- -------- ------
<S> <C> <C> <C> <C>
1) LSI Corporate 225,000 sq. ft., Cincinnati, OH Owned
Headquarters, and (includes 38,000
lighting fixture and sq. ft. of office
graphics manufacturing space)
2) LSI pole manufac- 131,000 sq. ft. Cincinnati, OH Owned
turing and dry
powder-coat painting
3) LSI Metal Fabrication 96,000 sq. ft. Independence, KY Owned
and LSI Images manu- (includes 5,000
facturing and dry sq. ft. of office
powder-coat painting space)
4) SGI office; 237,000 sq. ft. Houston, TX Leased
screen printing (includes 31,000
manufacturing; and sq. ft. of office space
architectural graphics and 67,000 sq. ft. of
manufacturing outside warehouse
space)
5) Greenlee office 40,000 sq. ft. Dallas, TX Leased
and manufacturing (includes 4,000 sq. ft.
of office space)
6) Grady McCauley office 120,000 sq. ft. North Canton, OH Owned
and manufacturing (includes 20,000
(acquired June 30, 1997) sq. ft. of office space)
</TABLE>
The Company considers these facilities adequate for its current level of
operations.
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ITEM 3 - LEGAL PROCEEDINGS
None
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the fourth quarter of the year
covered by this report.
PART II
ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDERS'
MATTERS
"Common Share Information" appears on page S-21 of this Form 10-K.
ITEM 6 - SELECTED FINANCIAL DATA
"Selected Financial Data" appears on page S-22 of this Form 10-K.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" appears on pages S-1 through S-4 of this Form
10-K.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
Begins
Index to Financial Statements on Page
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Financial Statements:
Report of Independent Public Accountants S-5
Consolidated Income Statements for the years
ended June 30, 1997, 1996 and 1995 S-7
Consolidated Balance Sheets at June 30, 1997 and 1996 S-8
Consolidated Statements of Cash Flows for the
years ended June 30, 1997, 1996 and 1995 S-10
Consolidated Statements of Shareholders' Equity for
the years ended June 30, 1997, 1996 and 1995 S-11
Notes to Consolidated Financial Statements S-12
Financial Statement Schedules:
II - Valuation and Qualifying Accounts for the S-23
years ended June 30, 1997, 1996 and 1995
</TABLE>
Schedules other than those listed above are omitted for the reason(s)
that they are either not applicable or not required or because the
information required is contained in the financial statements or notes
thereto.
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ITEM 9 - DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
PART III
ITEMS 10, 11, 12 and 13 of Part III are incorporated by reference to the LSI
Industries Inc. Proxy Statement for its Annual Meeting of Shareholders to be
held November 13, 1997, as filed with the Commission pursuant to Regulation
14A.
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a) The following documents are filed as part of this report:
(1) Financial Statements
Appear as part of Item 8 of this Form 10-K.
(2) Financial Statement Schedules
Appear as part of Item 8 of this Form 10-K.
(3) Exhibit list - listing of exhibits required to be filed with
Form 10-K incorporated by reference to Exhibit(s) filed as
part of:
Proxy-89 = Proxy statement for 1989 Annual Shareholders'
Meeting
10K-89 = Annual Report on Form 10-K for the fiscal year
ended June 30, 1989
10K-95 = Annual Report on Form 10-K for the fiscal year
ended June 30, 1995
10K-96 = Annual Report on Form 10-K for the fiscal year
ended June 30, 1996
S-3 (96) = Form S-3 Registration Statement No. 33-65043
S-8 (95-1) = Form S-8 Registration Statement No. 33-64721 for
the LSI Industries Inc. 1995 Stock Option Plan
S-8 (95-2) = Form S-8 Registration Statement No. 33-64723
for the LSI Industries Inc. 1995 Directors'
Stock Option Plan
or filed herewith where so noted.
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EXHIBIT INDEX
<TABLE>
<CAPTION>
Current
Form 10-K Report/ Exhibit
Exhibit No. Description of Exhibit Document Number
- ----------- ---------------------- -------- ------
<S> <C> <C>
3.1 Articles of Incorporation of LSI Industries Inc. S-3 (96) 3.1
3.2 Code of Regulations of LSI Industries Inc. S-3 (96) 3.2
4 Instruments Defining the Rights of o
Security Holders
Management Compensatory Agreements
10.1 LSI Industries Inc. Retirement Plan 10K-95 10.4
and Trust
10.2 1985 Stock Option Plan 10K-89 10.1
10.3 LSI Industries Inc. 1995 Stock Option Plan S-8 (95-1) 4.1
10.4 LSI Industries Inc. 1995 Directors' Stock
Option Plan S-8 (95-2) 4.1
10.5 LSI Industries Inc. Nonqualified Deferred 10K-96 10.5
Compensation Plan, and Rabbi Trust
Agreement
11 Statement Re Computation of Per Filed herewith
Share Earnings
22 Subsidiaries of the Registrant Filed herewith
23 Consent of Independent Public Accountants (2) Filed herewith
24 Powers of Attorney (4) Filed herewith
27 Financial Data Schedule Filed herewith
o The Company has no outstanding issue or indebtedness exceeding
10% of the Company's assets on a consolidated basis. A copy of
the instruments defining the right of security holders will be
furnished to the Commission upon request.
</TABLE>
(b) Form 8-K:
There have been no reports on Form 8-K filed during the last quarter
of fiscal year 1997.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
LSI INDUSTRIES INC.
September 10, 1997 BY: /s/ Robert J. Ready
- ------------------------- ------------------------
Date Robert J. Ready
Chairman of the Board and President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title
- --------- -----
<S> <C>
/s/ Robert J. Ready Chairman of the Board and President
- ----------------------- (Principal Executive Officer)
Robert J. Ready
Date: 9/10/97
---------
/s/ Ronald S. Stowell Chief Financial Officer and Treasurer
- ----------------------- (Principal Financial and Accounting Officer)
Ronald S. Stowell
Date: 9/10/97
---------
*Michael J. Burke Director
- -----------------------
Michael J. Burke
*Allen L. Davis Director
- -----------------------
Allen L. Davis
*James P. Sferra Secretary; Executive Vice President
- ----------------------- - Manufacturing; and Director
James P. Sferra
*John N. Taylor, Jr. Director
- -----------------------
John N. Taylor, Jr.
</TABLE>
*The undersigned, by signing his name hereto, executed this Annual Report on
Form 10-K on September 10, 1997, pursuant to Powers of Attorney executed by the
above named Directors of the Registrant and filed with the Securities and
Exchange Commission as Exhibit 24 hereto.
September 10, 1997 By: /s/ Ronald S. Stowell
- --------------------- -------------------------
Date Attorney-in-Fact
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
<TABLE>
<CAPTION>
SALES BY BUSINESS SEGMENT
(In thousands) 1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Image Group $101,562 $110,808 $ 81,328
Commercial/Industrial
Lighting Group 43,180 41,925 38,599
-------- -------- --------
$144,742 $152,733 $119,927
======== ======== ========
</TABLE>
RESULTS OF OPERATIONS
1997 COMPARED TO 1996
Net sales of $144,742,000 for 1997 compared to 1996 net sales of
$152,733,000 -- a 5% reduction. Image Group net sales decreased 8% while
Commercial/Industrial Lighting Group net sales increased 3% during fiscal
1997. The Company recorded strong sales growth in the multi-site retail market
which was more than offset by reduced sales in the petroleum/convenience
store market and commercial/industrial lighting market. Sales in the Image
Group to the petroleum/convenience store market, representing 50% of net
sales in fiscal 1997, decreased 12%. The reduction in net sales is primarily
related to significant re-imaging and re-lighting programs for customers last
year that did not repeat this year, as well as to lower volume of printed
graphics sales. The Company has one customer, Chevron U.S.A., who accounted for
12% of net sales (reported in the Image Group) in fiscal 1996. The Company
believes that it continues to maintain a good business relationship with this
continuing customer; however, the level of total net sales, which for fiscal
1997 was under ten percent of the Company's total net sales, is never assured
in the future. While sales prices were increased, inflation did not have a
significant impact on sales in fiscal 1997 as competitive pricing pressures
held price increases to a minimum.
Gross profit of $48,542,000 was increased slightly over last year's
gross profit; however, as a percentage of net sales, fiscal year 1997
performance improved to 33.5% as compared to 31.8% of net sales. With a 5%
reduction in net sales between years, the increase in gross profit as a
percentage of net sales is primarily due to improved manufacturing operating
efficiencies in the Company's lighting business, and to changes in lighting
product mix to higher margin products, partially offset by lower utilization of
manufacturing capacity in the Image Group's graphics operations. Selling and
administrative expenses decreased to $34,833,000 from $35,101,000 primarily as
a result of decreased sales volume as well as some non-recurring expenses in
1996, but increased to 24% of net sales in fiscal 1997 from 23% last year.
The Company reported net interest income of $487,000 in fiscal 1997 as
compared to net interest expense of $344,000 in fiscal 1996. The change
reflects the Company's use of the net proceeds from the February 1996 Public
Offering of Common Shares. Substantially all
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outstanding debt in February 1996 was retired with a portion of the net
proceeds. Remaining proceeds from the Public Offering were invested during the
year in high grade, short-term cash investments. Cash which had been invested
was used at the end of fiscal 1997 for an acquisition of a business (see also
LIQUIDITY AND CAPITAL RESOURCES). The Company's effective tax rate increased to
37.0% from 36.4% last year.
Income from Continuing Operations of $8,872,00 increased 7% over
$8,270,000 in fiscal 1996. The increased income resulted from an increased
gross profit percentage on lower net sales, decreased operating expenses, and
from the reporting of net interest income rather than net interest expense,
partially offset by an increased income tax provision. Per share earnings from
continuing operations in fiscal 1997 of $.97 compares to $.98 per share in
fiscal 1996. The weighted average common shares outstanding increased 9% in
1997 to 9,188,000 shares from 8,456,000 shares in 1996 primarily as a result of
the effect of the 1.2 million common shares issued in the Company's February
1996 Public Offering. Net income of $8,872,000, or $.97 per share, compares to
fiscal 1996 net income of $6,770,000, or $.80 per share. The increase resulted
from increased income from continuing operations in fiscal 1997 and the $1.5
million charge to Discontinued Operations taken in fiscal 1996 (as more fully
described below) with no similar charge in 1997.
Certain recently issued accounting pronouncements will affect the
Company's future financial statements and/or disclosures. See Note 1 to these
financial statements for additional discussion.
1996 COMPARED TO 1995
Net sales of $152,733,000 for 1996 increased 27% over 1995 net sales
of $119,927,000 with Image Group sales increasing 36% and Commercial/
Industrial Lighting Group sales increasing 9%. The Company experienced sales
growth in both the multi-site retail market and the commercial/industrial
lighting market, and had significant growth in its largest market, the
petroleum/convenience store market. One customer, Chevron U.S.A., accounted
for 12% of net sales in 1996 and 14% of net sales in 1995. The Company believes
that it continues to maintain a good business relationship with this major
customer; however, the level of total net sales is never assured in the future.
The increase in net sales in 1996 was primarily the result of increased volume.
While sales prices were increased, inflation did not have a significant impact
on sales in 1996 as competitive pricing pressures held price increases to a
minimum.
Gross profit of $48,512,000, or 31.8% of net sales, increased over
last year's gross profit of $39,771,000 or 33.2% of net sales. The increase in
amount of gross profit is attributed primarily to the 27% increase in net
sales. A sales mix shift in the Company's Image Group to somewhat lower gross
margin programs (including an increased level of prototype image programs),
lower utilization of graphics manufacturing capacity, and an increase in
lighting sales to the petroleum/convenience store market provided influences
that, in the aggregate, reduced the gross profit percentage. Selling and
administrative expenses increased to $35,101,000 from $29,509,000 primarily as
a result of increased sales volume, and were reduced to 23% of net sales in
1996 as compared to 25% last year.
S-2
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Net interest expense decreased in 1996 from $459,000 to $344,000,
primarily as a result of the paydown of substantially all of the Company's
outstanding debt in February 1996 with a portion of the net proceeds from the
Company's public offering of common shares (see also LIQUIDITY AND CAPITAL
RESOURCES). Other expense consists primarily of loss on disposition of fixed
assets, of which there was a greater amount in 1995. The Company's effective
tax rate increased to 36.4% from 36.0% last year as a result of the increased
provision for state income taxes.
Income from continuing operations of $8,270,000 or $.98 per share
increased 34% over 1995 levels of $6,174,000 or $.79 per share as a result of
increased net sales and gross profit, partially offset by increased selling and
administrative expenses and an increased provision for income taxes. The
weighted average common shares outstanding increased 8.4% in 1996 to 8,456,000
shares from 7,802,000 shares in 1995 primarily as a result of the effect of the
1.2 million common shares issued in the Company's public offering in February
1996.
The Company recorded a $1.5 million or $.18 per share charge to
Discontinued Operations in 1996 to increase the reserve for remaining
liabilities associated with its discontinued European operations. As discussed
in Note 9 to the financial statements, the Company had been involved in a
dispute with the Internal Revenue Service (IRS) in which the IRS proposed audit
adjustments to the Company's 1989 through 1992 federal income tax returns which
could have resulted in a payment of income taxes by the Company of
approximately $2.0 million, plus interest, which had been refunded to the
Company with the filing of its 1992 income tax return. The IRS 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 settlement discussions with the IRS Appeals Division relating to
the proposed audit assessment were concluded in December 1995. An agreement was
reached that re-characterized a portion of the 1992 loss associated with
discontinued European operations as a long-term capital loss. The agreement
resulted in payment of $1.7 million (composed of taxes and interest), and in
the $1.5 million charge to discontinued operations.
Net income of $6,770,000 or $.80 per share compares to fiscal 1995 net
income of $6,174,000 or $.79 per share. The change resulted from increased
income from continuing operations, partially reduced by the charge to
discontinued operations.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1997 the Company had working capital of $30,192,000,
compared to $36,146,000 at June 30, 1996. The ratio of current assets to
current liabilities decreased to 2.22 to 1 from 2.66 to 1. The decreased
working capital is primarily attributed to decreases in cash and cash
equivalents, and to increases in accounts receivable, inventories, accounts
payable, and accrued expenses. The acquisition of Grady McCauley (see Note 11)
on June 30, 1997 had the net effect of reducing working capital by $13.3
million on that date.
On June 30, 1997, the Company acquired substantially all assets and
assumed certain liabilities of Grady McCauley, Incorporated, a privately owned
manufacturer of custom interior graphics primarily for the retail market. For
financial statement purposes the acquisition was
S-3
<PAGE> 12
accounted for as a purchase with operating results of Grady McCauley to be
first included in the Company's fiscal 1998 financial statements. The purchase
price was 475,700 common shares of the Company (valued at $6,000,000) plus
$15.2 million in cash, exclusive of acquisition costs.
The Company generated $11,518,000 of cash from operating activities in
1997 as compared to $406,000 in 1996. The Company generated more cash from
operations in fiscal 1997 primarily because of increased net income,
significantly smaller increases in accounts receivable and inventories, and an
increase in accrued expenses. Without regard to the assets of Grady McCauley
which were acquired on June 30, 1997, the Company's days sales outstanding were
approximately 58 days as compared to 59 days at year end last year, and
inventories increased $.6 million with reductions in the Company's lighting
inventory and increases in the graphics inventory.
In addition to cash generated from operations, the Company's primary
source of liquidity continues to be its lines of credit. The Company has two
revolving lines of credit totaling $20 million, all of which is available as of
August 29, 1997. These lines of credit are unsecured and expire in 1998. The
Company believes that the total of available lines of credit plus cash flows
from operating activities is adequate for the Company's 1998 operational and
capital expenditure needs. The Company is in compliance with all of its loan
covenants. Capital expenditures of $2.6 million in 1997, excluding the
acquisition of Grady McCauley, compare to $3.4 million in 1996. Spending in
fiscal year 1997 was primarily related to manufacturing equipment and process
improvements. Capital expenditures of approximately $5 million are planned for
1998.
In August 1997, the Board of Directors declared regular quarterly and
special year-end cash dividends of $.05 per share each to be paid September 16,
1997 to shareholders of record on September 9, 1997. During fiscal 1997, the
Company paid cash dividends each quarter.
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 or through the issuance of common or preferred shares in payment for
acquired businesses.
S-4
<PAGE> 13
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of LSI Industries Inc.:
We have audited the accompanying consolidated balance sheets of LSI
Industries Inc. (an Ohio corporation) and subsidiaries as of June 30, 1997 and
1996, and the related consolidated statements of income, shareholders' equity
and cash flows for each of the two years in the period ended June 30, 1997.
These financial statements and the schedule referred to below are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedule based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit 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. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of LSI Industries Inc.
and subsidiaries as of June 30, 1997 and 1996, and the results of their
operations and their cash flows for each of the two years in the period ended
June 30, 1997 in conformity with generally accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index to the
financial statements is presented for purposes of complying with the Securities
and Exchange Commission's rules and is not part of the basic financial
statements. The information in this schedule as of June 30, 1997 and 1996 and
for each of the years in the period ended June 30, 1997 has been subjected to
the auditing procedures applied in the audit of the basic financial statements
and, in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
/s/ Arthur Andersen LLP
------------------------
Arthur Andersen LLP
Cincinnati, Ohio
August 11, 1997
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REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
LSI Industries Inc.
In our opinion, the consolidated financial statements relating to the fiscal
year ended June 30, 1995, listed in the index appearing under ITEM 8 of this
Form 10-K, present fairly, in all material respects, the results of operations,
cash flows and changes in shareholders' equity of LSI Industries Inc. and its
subsidiaries for the year 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 audit. We conducted our
audit of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit 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
audit provides a reasonable basis for the opinion expressed above. We have not
audited the consolidated financial statements of LSI Industries Inc. for any
period subsequent to June 30, 1995.
/s/ Price Waterhouse LLP
- ---------------------------
Price Waterhouse LLP
Cincinnati, Ohio
August 18, 1995
S-6
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LSI INDUSTRIES INC.
CONSOLIDATED INCOME STATEMENTS
For the years ended June 30, 1997, 1996, and 1995
(In thousands, except per share)
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net sales $144,742 $152,733 $119,927
Cost of products sold 96,200 104,221 80,156
-------- -------- --------
Gross profit 48,542 48,512 39,771
Selling and administrative expenses 34,833 35,101 29,509
-------- -------- --------
Operating income 13,709 13,411 10,262
Interest (income) (528) (154) (39)
Interest expense 41 498 498
Other expense 114 62 160
-------- -------- --------
Income from continuing operations
before income taxes 14,082 13,005 9,643
Income tax expense 5,210 4,735 3,469
-------- -------- --------
Income from continuing operations 8,872 8,270 6,174
Discontinued operations -- (1,500) --
-------- -------- --------
Net income $ 8,872 $ 6,770 $ 6,174
======== ======== ========
Net income (loss) per share
Continuing operations $ .97 $ .98 $ .79
Discontinued operations -- (.18) --
-------- -------- --------
$ .97 $ .80 $ .79
======== ======== ========
Average shares outstanding (see Note 6) 9,188 8,456 7,802
</TABLE>
The accompanying notes are an integral part of these financial statements.
S-7
<PAGE> 16
LSI INDUSTRIES INC.
CONSOLIDATED BALANCE SHEETS
June 30, 1997 and 1996
(in thousands)
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 2,612 $11,138
Accounts receivable, less allowance
for doubtful accounts of $401 and $358,
respectively 27,412 24,825
Inventories 23,058 19,660
Refundable income taxes 157 345
Other current assets 1,613 1,901
------- -------
Total current assets 54,852 57,869
Property, Plant and Equipment, at cost
Land 3,348 2,741
Buildings 14,433 9,682
Machinery and equipment 22,893 19,082
------- -------
40,674 31,505
Less accumulated depreciation (13,529) (11,178)
------- -------
Net property, plant and equipment 27,145 20,327
Goodwill 12,639 1,300
Other Assets 553 --
------- -------
$95,189 $79,496
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
S-8
<PAGE> 17
LSI INDUSTRIES INC.
CONSOLIDATED BALANCE SHEETS (Continued)
June 30, 1997 and 1996
(in thousands)
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
LIABILITIES & SHAREHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term debt $ 187 $ 180
Accounts payable 12,337 10,855
Accrued expenses 12,136 10,688
------- -------
Total current liabilities 24,660 21,723
Long-Term Debt 1,195 1,382
Other Long-Term Liabilities 68 --
Deferred Income Taxes 1,298 1,654
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 9,499,231 and 8,964,491
shares, respectively
(see Note 6) 34,516 28,082
Retained earnings 33,452 26,655
------- -------
Total shareholders' equity 67,968 54,737
------- -------
$95,189 $79,496
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
S-9
<PAGE> 18
LSI INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended June 30, 1997, 1996 and 1995
(In thousands)
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income $ 8,872 $ 6,770 $ 6,174
Non-cash items included in income
Depreciation and amortization 2,975 2,456 2,074
Deferred income taxes (74) (129) 85
Loss on disposition of fixed assets 75 23 122
Change in
Accounts receivable (73) (5,552) (4,897)
Inventories (564) (1,076) (7,505)
Refundable income taxes 188 93 (438)
Accounts payable 92 214 2,683
Accrued expenses and other 44 (2,069) 3,590
Change in liability for discontinued operations (17) (324) (70)
------- ------- -------
Net cash flows from operating activities 11,518 406 1,818
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant, and equipment (2,587) (3,392) (5,117)
Proceeds from sale of fixed assets 3 23 12
Acquisition of business, net of cash received (15,639) -- --
------- ------- -------
Net cash flows from investing activities (18,223) (3,369) (5,105)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Payment of long-term debt (180) (6,537) (451)
Increase in long-term debt -- -- 4,950
Cash dividends paid (2,075) (1,653) (1,078)
Exercise of stock options 321 586 376
Deferred compensation plan 113 -- --
Proceeds from public offering of shares -- 19,581 --
------- ------- -------
Net cash flows from financing activities (1,821) 11,977 3,797
------- ------- -------
Increase (decrease) in cash and cash equivalents (8,526) 9,014 510
Cash and cash equivalents at beginning of year 11,138 2,124 1,614
------- ------- -------
Cash and cash equivalents at end of year $ 2,612 $11,138 $ 2,124
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
S-10
<PAGE> 19
LSI INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the years ended June 30, 1997, 1996, and 1995
(In thousands)
<TABLE>
<CAPTION>
Common Shares
-------------
Number of Retained
Shares Amount Earnings Total
------ ------ -------- -----
<S> <C> <C> <C> <C>
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 -- -- 6,770 6,770
Public offering of shares 1,233 19,581 -- 19,581
Stock options exercised 177 586 -- 586
Dividends - $.21 per share -- -- (1,653) (1,653)
------ ------- ------- -------
BALANCE AT JUNE 30, 1996 8,964 28,082 26,655 54,737
NET INCOME -- -- 8,872 8,872
PURCHASE OF TREASURY SHARES (21) (233) -- (233)
DEFERRED STOCK COMPENSATION -- 346 -- 346
STOCK OPTIONS EXERCISED 80 321 -- 321
COMMON SHARES ISSUED FOR
ACQUISITION 476 6,000 -- 6,000
DIVIDENDS - $.23 PER SHARE -- -- (2,075) (2,075)
------ ------- ------- -------
BALANCE AT JUNE 30, 1997 9,499 $34,516 $33,452 $67,968
====== ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
S-11
<PAGE> 20
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.
USE OF ESTIMATES:
The preparation of the financial statements in conformity with generally
accepted accounting principles requires the Company to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
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 pre-payments under accrued expenses.
CASH AND CASH EQUIVALENTS:
The cash balance includes cash and cash equivalents which have original
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 as follows:
Buildings 31 - 40 years
Machinery and equipment 3 - 10 years
S-12
<PAGE> 21
GOODWILL:
The excess of cost over fair value of assets acquired ("goodwill") is amortized
over a forty year period. As of June 30, 1997 and 1996, accumulated
amortization of goodwill was $326,000 and $287,000, 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.
FINANCIAL INSTRUMENTS:
The Company has financial instruments consisting primarily of cash and cash
equivalents, revolving lines of credit, and long-term debt. The fair value of
these financial instruments approximates carrying value because of their
short-term maturity and variable, market-driven interest rates. The Company has
no financial instruments with off balance sheet risk.
EMPLOYEE BENEFIT PLANS:
The Company has a defined contribution retirement plan and a discretionary
profit sharing plan covering substantially all of its employees, and a
non-qualified deferred compensation plan covering certain employees. The costs
of employee benefit plans are charged to expense and funded annually. Total
costs relating to continuing operations were $1,399,000 in 1997, $1,378,000 in
1996, 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.
Common share equivalents include the dilutive effect of stock options and
common shares to be issued under a deferred compensation plan of 184,000 shares
in 1997, 360,000 shares in 1996, and 287,000 shares in 1995. See also Note 6.
RECENT PRONOUNCEMENTS:
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121 (SFAS No. 121), "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,"
which requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. This statement also addresses the accounting for long-lived
assets that are expected to be disposed of in the future. The Company adopted
this standard in the first quarter of fiscal year 1997 with no impact on its
financial position, results of operations, or cash flows.
S-13
<PAGE> 22
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123 (SFAS No. 123), "Accounting for
Stock-Based Compensation," which indicates companies may recognize expense for
stock-based awards based on their fair value on the date of grant or, at a
minimum, requires pro forma disclosures in the Company's fiscal 1997 financial
statements. Rather than adopt the expense recognition provisions of SFAS No.
123, the Company has elected to follow Accounting Principles Board Opinion No.
25 (APB No. 25), "Accounting for Stock Issued to Employees" and related
interpretations and provide the disclosures required by SFAS No. 123 (See Note
6).
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 (SFAS No. 128), "Earnings Per Share,"
which replaces the presentation of basic and diluted earnings per share on the
face of the income statement for all entities with complex capital structures
and requires a reconciliation of both the numerator and denominator of the
basic and dilutive earnings per share computations. SFAS No. 128 is effective
for financial statements for both interim and annual periods ending after
December 15, 1997 (second quarter of fiscal 1998 for the Company). The Company
does not expect a material impact on earnings per share upon adoption of SFAS
No. 128.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 (SFAS No. 130), "Reporting Comprehensive
Income," which establishes standards for reporting and display of comprehensive
income and its components (revenues, expenses, gains, and losses) in a full set
of general-purpose financial statements. SFAS No. 130 is effective for
financial statements for annual periods beginning after December 15, 1997
(fiscal 1999 for the Company). The Company does not expect adoption to have a
significant impact on its financial statements.
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 and assumption of liabilities by
management. The remaining liabilities which were not assumed by the management
buy-out group of the discontinued operations, net of related taxes, are
included in accrued expenses in the amounts of $575,000 and $589,000 as of June
30, 1997 and 1996, respectively.
NOTE 3 - BUSINESS SEGMENT INFORMATION
LSI operates in two business segments - the Image Group and the Commercial/
Industrial Lighting Group. The Image Group manufactures and sells exterior and
interior visual image elements (lighting, graphics, and menu board systems) for
the petroleum/convenience store market and for multi-site retail operations.
The Image Group includes the operations of LSI Petroleum Lighting, LSI
Automotive, LSI IMAGES, LSI Metal Fabrication, and SGI Integrated Graphic
Systems. Grady McCauley, acquired at the end of June 1997, will also operate in
this segment. The Commercial/Industrial Lighting Group manufactures and sells
outdoor, indoor, and landscape lighting for the commercial/industrial and
multi-site retail markets. The Commercial/Industrial Lighting Group includes
the operations of LSI Lighting Systems, Courtsider Lighting, and Greenlee
Lighting. The Company's most significant market is the petroleum/convenience
store market with approximately 50% of net sales concentrated in this market.
S-14
<PAGE> 23
The following information is provided for the following periods:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
(In thousands)
NET SALES:
Image Group $101,562 $110,808 $ 81,328
Commercial/Industrial Lighting Group 43,180 41,925 38,599
-------- -------- --------
$144,742 $152,733 $119,927
======== ======== ========
OPERATING INCOME:
Image Group $ 9,055 $ 10,903 $ 6,938
Commercial/Industrial Lighting Group 4,654 2,508 3,324
-------- -------- --------
$ 13,709 $ 13,411 $ 10,262
======== ======== ========
IDENTIFIABLE ASSETS:
Image Group $ 74,284 $ 48,449 $ 39,350
Commercial/Industrial Lighting Group 17,734 19,223 20,363
-------- -------- --------
92,018 67,672 59,713
Corporate 3,171 11,824 2,840
-------- -------- --------
$ 95,189 $ 79,496 $ 62,553
======== ======== ========
CAPITAL EXPENDITURES:
Image Group $ 1,902 $ 2,085 $ 2,913
Commercial/Industrial Lighting Group 685 1,307 2,204
-------- -------- --------
$ 2,587 $ 3,392 $ 5,117
======== ======== ========
DEPRECIATION AND AMORTIZATION:
Image Group $ 2,085 $ 1,695 $ 1,201
Commercial/Industrial Lighting Group 890 761 873
-------- -------- --------
$ 2,975 $ 2,456 $ 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 cash equivalents, and refundable income taxes.
NOTE 4 - BALANCE SHEET DATA
The following information is provided as of June 30:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
(In thousands)
INVENTORIES:
Raw materials $10,272 $11,432
Work-in-process and
finished goods 12,786 8,228
------- -------
$23,058 $19,660
======= =======
</TABLE>
S-15
<PAGE> 24
<TABLE>
<S> <C> <C>
ACCRUED EXPENSES:
Compensation and benefits $ 3,797 $ 4,600
Customer prepayments $ 5,098 $ 2,395
</TABLE>
NOTE 5 - REVOLVING LINES OF CREDIT AND LONG-TERM DEBT
The Company has lines of credit with its banks in the aggregate amount of
$20,000,000, all of which was available at June 30, 1997. These revolving lines
of credit are unsecured and expire in fiscal year 1998. Interest on the
revolving lines of credit is charged based upon a 1.0 percentage point
increment over the LIBOR rate as periodically determined, or at the banks' base
lending rate less 1.25 percentage points, 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.
The Company has an Industrial Revenue Development Bond (IRB) borrowing in the
amount of $1,135,000 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, which is reestablished
semi-annually, is currently 4.6%, plus a .9% letter of credit fee. The IRB is
secured by the Company's Kentucky real estate, which has a net carrying value
of $1.4 million.
The Company has equipment loans outstanding totaling $247,000 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>
LONG-TERM DEBT: 1997 1996
---- ----
(In thousands)
<S> <C> <C>
Industrial Revenue Development Bond at 5.5% $1,135 $1,195
Equipment loans (average rate of 2.2%) 247 367
------ ------
1,382 1,562
Less current maturities 187 180
------ ------
$1,195 $1,382
====== ======
</TABLE>
Future maturities of long-term debt at June 30, 1997 are as follows
(in thousands):
<TABLE>
<CAPTION>
1998 1999 2000 2001 2002 2003 and after
---- ---- ---- ---- ---- --------------
<S> <C> <C> <C> <C> <C>
$187 $190 $ 70 $ 75 $ 80 $780
</TABLE>
NOTE 6 - SHAREHOLDERS' EQUITY
The Company generated $19.6 million in net proceeds from a public offering of
1,232,894 common shares in February 1996. The Company used 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.
S-16
<PAGE> 25
The Company has stock option plans which cover all of its full-time employees
and has a plan covering all non-employee directors. The options granted
pursuant to these plans are granted at fair market value at date of grant.
Options granted to non-employee directors are immediately exercisable and
options granted to employees generally become exercisable 25% per year
(cumulative) beginning one year after the date of grant. The number of shares
reserved for issuance is 695,100, of which 177,300 shares were available for
future grant as of June 30, 1997. The plans allow for the grant of both
incentive stock options and non-qualified stock options. At June 30, 1997,
there were 180,300 options exercisable at an average price of $6.10 per share.
On June 30, 1997 the Company issued 475,700 common shares at a stated value of
$6,000,000 as a portion of the purchase price of an acquired business. See
further discussion in Note 11.
The issuance of SFAS No. 123 requires, at a minimum, pro forma disclosures of
expense for stock-based awards based on their fair values. The fair value of
each option on the date of grant has been estimated using the Black-Scholes
option pricing model. The following weighted average assumptions were used for
grants in fiscal 1997 and 1996.
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Dividend yield 2% 2%
Expected volatility 43% 38%
Risk-free interest rate 6.17%-6.28% 5.91%-6.64%
Expected life 4-8 yrs. 4-8 yrs.
</TABLE>
At June 30, 1997, the 6,900 options granted during fiscal 1997 to employees and
non-employee directors have exercise prices ranging from $11.25 to $13.66, fair
values ranging from $4.91 to $5.26 per option, and remaining contractual lives
of five to ten years. The 342,100 options granted during fiscal 1996 to
employees and non-employee directors have exercise prices ranging from $12.83
to $19.50, fair values ranging from $4.18 to $7.05, and remaining contractual
lives of four to nine years.
If the Company had adopted the expense recognition provisions of SFAS No. 123,
net income and earnings per share for the years ended June 30, 1997 and 1996
would have been as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
(In thousands except earnings per share)
Net income
As reported $8,872 $6,770
Pro forma $8,646 $6,539
Earnings per share
As reported $ .97 $ .80
Pro forma $ .95 $ .78
</TABLE>
Since SFAS No. 123 has not been applied to options granted prior to December
15, 1994, the resulting compensation cost shown above may not be representative
of that expected in future years.
Transactions involving the stock option plans for the years ended June 30, 1997,
1996 and 1995 are shown in the table below:
S-17
<PAGE> 26
<TABLE>
<CAPTION>
1997 1996 1995
------------------- ------------------- -------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
(Shares in thousands) Shares Price Shares Price Shares Price
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 619 $9.04 492 $4.13 554 $3.56
Granted 7 11.68 342 13.14 42 9.71
Terminated (21) 12.95 (22) 12.10 (12) 3.37
Exercised (87) 3.23 (193) 3.43 (92) 3.37
--- ---- ---
Outstanding at end of year 518 $9.89 619 $9.04 492 $4.13
=== ==== ===
</TABLE>
The Company implemented a non-qualified Deferred Compensation Plan in fiscal
1997 and a certain portion of the Plan's investments are in common shares of
the Company. As of June 30, 1997 a total of 21,045 common shares were held in
the Plan and, accordingly, have been recorded as treasury shares.
On August 20, 1997, the Board of Directors declared a regular quarterly
dividend of $.05 per share and a special $.05 per share cash dividend to be
paid September 16, 1997 to shareholders of record on September 9, 1997. Annual
cash dividend payments made during fiscal years 1997, 1996 and 1995 were $.23,
$.21, and $.15 per share, respectively.
NOTE 7 - SALES TO MAJOR CUSTOMERS
The Company made sales in the Image Group to a major customer which exceeded
10% of consolidated net sales. Sales to Chevron U.S.A. represented 12% of
consolidated net sales in 1996 and 14% in 1995.
NOTE 8 - LEASES
The Company leases certain of its facilities and equipment under operating
lease arrangements. Rental expense was $920,000 in 1997, $656,000 in 1996,
$835,000 in 1995. Minimum annual rental commitments under non-cancelable
operating leases are: $981,000 in 1998; $950,000 in 1999, $942,000 in 2000,
$852,000 in 2001, and $332,000 thereafter.
NOTE 9 - INCOME TAXES
The following information is provided for the years ended June 30:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(In thousands)
<S> <C> <C> <C>
PROVISION (BENEFIT) FOR INCOME TAXES:
Current federal $4,705 $4,290 $3,179
Current state and local 579 574 205
Deferred (74) (129) 85
------ ------ ------
$5,210 $4,735 $3,469
====== ====== ======
</TABLE>
S-18
<PAGE> 27
<TABLE>
<S> <C> <C> <C>
RECONCILIATION TO FEDERAL STATUTORY RATE:
Federal statutory tax rate 34.3% 34.2% 34.0%
State and local taxes 2.7 2.9 1.4
Goodwill and other -- (.7) .6
---- ---- ----
Effective tax rate 37.0% 36.4% 36.0%
==== ==== ====
</TABLE>
The components of deferred income tax assets and liabilities at June 30, 1997
and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
(In thousands)
<S> <C> <C>
CURRENT ASSETS (LIABILITIES):
Reserves against current assets $ 267 $ 385
Prepaid expenses (101) (164)
Accrued expenses 593 663
------ ------
Deferred income tax asset included in Other Current
Assets on the Consolidated Balance Sheets $ 759 $ 884
====== ======
NONCURRENT (ASSETS) LIABILITIES:
Depreciation $1,595 $1,654
Goodwill and acquisition costs (154) --
Deferred compensation (143) --
------ ------
$1,298 $1,654
====== ======
</TABLE>
The Company discontinued its European operations in 1992 and reported a $4.3
million loss, net of a $3.2 million income tax benefit. The Internal Revenue
Service (IRS) completed its audit of the Company's 1989 through 1992 federal
income tax returns and proposed audit adjustments which would have resulted in
a return of approximately $2 million of income taxes (plus interest) to the IRS
which had been refunded to the Company with the filing of its 1992 income tax
return. The IRS 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's settlement discussions with the IRS Appeals Division relating to
the proposed audit assessment were concluded in December 1995. An agreement was
reached that re-characterized a portion of the 1992 loss associated with
discontinued European operations as a long-term capital loss. The agreement
resulted in payment of $1.7 million (composed of taxes and interest), and in a
fiscal 1996 charge to discontinued operations of $1.5 million to increase the
Company's reserve for remaining liabilities associated with the discontinued
operations.
NOTE 10 - SUPPLEMENTAL CASH FLOW INFORMATION
(In thousands)
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash payments:
Interest $ 109 $ 924 $ 438
Income taxes $ 4,786 $ 5,588 $ 5,831
</TABLE>
S-19
<PAGE> 28
<TABLE>
<S> <C> <C> <C>
Non-cash investing and financing activities:
Common shares issued for acquisition $ 6,000 $ -- $ --
Details of acquisition:
Working capital, less cash $ 2,377 $ -- $ --
Property, plant & equipment 7,245 -- --
Other assets, net 232 -- --
Excess of purchase price paid over estimated
net assets of acquired business 11,785 -- --
------- ---------- ----------
21,639 -- --
less common shares issued (6,000) -- --
------- ---------- ----------
Cash paid for acquisition $15,639 $ -- $ --
======= ========== ==========
</TABLE>
NOTE 11 - ACQUISITION
On June 30, 1997, the Company acquired substantially all assets and assumed
certain liabilities of Grady McCauley, Incorporated, a privately owned
manufacturer of custom interior graphics primarily for the retail market. For
financial statement purposes the acquisition was accounted for as a purchase
with operating results of Grady McCauley to be first included in the Company's
fiscal 1998 financial statements. The purchase price was 475,700 common shares
of the Company (valued at $6,000,000) plus $15.2 million in cash, exclusive of
acquisition costs. The purchase price exceeded the estimated fair value of net
assets acquired by $11.8 million, which is recorded as goodwill and is being
amortized over forty years. The allocation was based on preliminary estimates
and may be revised at a later date pending the completion of certain appraisals
and other analysis.
The following unaudited pro forma consolidated results give effect to the above
acquisition as though it had been acquired at the beginning of each period
presented. The pro forma information has been presented for comparative
purposes only and does not purport to be indicative of the results of
operations which actually would have resulted had the acquisition been made at
the beginning of the earliest period presented, or of results which may occur
in the future.
<TABLE>
<CAPTION>
1997 1996
---- ----
(In thousands except earnings per share;
unaudited)
<S> <C> <C>
Net Sales $159,082 $167,034
Income from Continuing Operations $ 8,901 $ 8,577
Net Income $ 8,901 $ 7,077
Earnings per Share
Continuing Operations $ .92 $ .96
Total $ .92 $ .79
</TABLE>
S-20
<PAGE> 29
NOTE 12 - SUMMARY OF QUARTERLY RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
Quarter Ended
----------------------------------------------------- Fiscal
Sept. 30 Dec. 31 March 31 June 30 Year
-------- ------- -------- ------- ----
<S> <C> <C> <C> <C> <C>
1997
Net sales $36,885 $37,539 $30,836 $39,482 $144,742
Gross profit 12,140 13,258 10,013 13,131 48,542
Net income 2,136 2,718 1,269 2,749 8,872
Earnings per share $ .23 $ .30 $ .14 $ .30 $ .97
Range of share prices
High $ 17.75 $ 16.50 $ 14.00 $ 15.25 $ 17.75
Low $ 13.88 $ 10.00 $ 12.00 $ 10.50 $ 10.00
1996
Net sales $35,882 $45,561 $33,495 $37,795 $152,733
Gross profit 11,942 13,824 10,001 12,745 48,512
Income from continuing
operations 2,194 2,693 948 2,435 8,270
Net income 2,194 1,193 948 2,435 6,770
Earnings per share
Income from continuing
operations $ .28 $ .34 $ .11 $ .26 $ .98(a)
Net income $ .28 $ .15 $ .11 $ .26 $ .80
Range of share prices
High $ 15.50 $ 19.63 $ 18.25 $ 19.75 $ 19.75
Low $ 12.17 $ 14.25 $ 13.50 $ 16.75 $ 12.17
</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.
At August 26, 1997, there were 471 shareholders of record. The Company believes
this represents approximately 2,800 beneficial shareholders.
S-21
<PAGE> 30
LSI INDUSTRIES INC.
SELECTED FINANCIAL DATA
(In thousands except per share)
The following data has been selected from the Consolidated Financial Statements
of the Company for the periods and dates indicated:
INCOME STATEMENT DATA:
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net sales $144,742 $152,733 $119,927 $93,535 $72,563
Cost of products sold 96,200 104,221 80,156 62,430 49,789
Operating expenses 34,833 35,101 29,509 23,965 20,156
------- -------- ------- ------- -------
Operating income 13,709 13,411 10,262 7,140 2,618
Interest (income) (528) (154) (39) (25) (5)
Interest expense 41 498 498 226 508
Other (income) expense 114 62 160 290 (481)
------- -------- ------- ------- -------
Income from continuing opera-
tions before income taxes 14,082 13,005 9,643 6,651 2,596
Income taxes 5,210 4,735 3,469 2,461 927
------- -------- ------- ------- -------
Income from continuing
operations $ 8,872 $ 8,270 $ 6,174 $ 4,190 $ 1,669
======== ========= ========= ======= =======
Net income $ 8,872 $ 6,770 $ 6,174 $ 4,190 $ 1,669
======== ========= ========= ======= =======
Per share data
Income from continuing
operations $ .97 $ .98 $ .79 $ .55 $ .23
Net income $ .97 $ .80 $ .79 $ .55 $ .23
Cash dividends $ .23 $ .21 $ .15 $ .03 $ .03
Average number of
shares outstanding (a) 9,188 8,456 7,802 7,656 7,385
BALANCE SHEET DATA:
(At June 30) 1997 1996 1995 1994 1993
---- ---- ---- ---- ----
Working capital $ 30,192 $ 36,146 $ 17,788 $11,223 $10,268
Total assets 95,189 79,496 62,553 46,287 38,051
Long-term debt,
including current
maturities 1,382 1,562 8,099 3,600 3,957
Shareholders' equity 67,968 54,737 29,453 23,981 19,655
</TABLE>
(a) Average shares outstanding represents common shares outstanding plus
the dilutive impact of common share equivalents (stock options).
S-22
<PAGE> 31
LSI INDUSTRIES INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED JUNE 30, 1997, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- -------- -------- -------- --------
Additions
Balance Charged to Balance
Beginning Costs and (A) End of
Description of Period Expenses Deductions Period
- ----------- --------- -------- ---------- ------
<S> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
Year Ended June 30, 1997 $358 $ 11 (B) $ 32 $401
Year Ended June 30, 1996 $242 $328 $(212) $358
Year Ended June 30, 1995 $265 $103 $(126) $242
INVENTORY OBSOLESCENCE RESERVES:
Year Ended June 30, 1997 $694 $525 (C) $(668) $551
Year Ended June 30, 1996 $453 $892 $(651) $694
Year Ended June 30, 1995 $306 $302 $(155) $453
</TABLE>
(A) For allowance for doubtful accounts, deductions are uncollectible accounts
charged off, less recoveries.
(B) Includes $50 resulting from net assets purchased on June 30, 1997.
(C) Includes $100 resulting from net assets purchased on June 30, 1997.
S-23
<PAGE> 32
LSI INDUSTRIES INC.
Form 10-K
June 30, 1997
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
- ------ ----------------------
<S> <C>
11 Statement Re Computation of Earnings Per Share
22 Subsidiaries of the Registrant
23 Consent of Independent Public Accountants (2)
24 Powers of Attorney (4)
27 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 11
Statement Re Computation of Earnings Per Share
(In Thousands, Except Per Share)
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
NET INCOME
Income from Continuing Operations $8,872 $8,270 $6,174
Discontinued Operations -- (1,500) --
------ ------ ------
Net Income $8,872 $6,770 $6,174
====== ====== ======
AVERAGE SHARES OUTSTANDING
Weighted average shares
outstanding during the period,
net of treasury shares 9,004 8,096 7,515
Common Share Equivalents:
Impact of Common Shares to be issued
under Stock Option Plan (a) 184 360 287
------ ------ ------
9,188 8,456 7,802
====== ====== ======
NET INCOME PER SHARE
Continuing Operations $ .97 $ .98 $ .79
Discontinued Operations -- (.18) --
------ ------ ------
Net Income per share $ .97 $ .80 $ .79
====== ====== ======
</TABLE>
Notes (a): Calculated using the "Treasury Stock" method as if options
were exercised and the funds were used to purchase Common
Shares at the average market price during the period.
<PAGE> 1
EXHIBIT 22
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
Percent
Business and Owned by State of
Subsidiary Location Registrant Incorporation
- ---------- -------- ---------- -------------
<S> <C> <C> <C>
SGI Integrated Graphic Limited Partner 100% Delaware
Systems Inc. Wilmington, Delaware
SGI Delaware Systems Inc. General Partner 100% Delaware
Wilmington, Delaware
SGI Integrated Graphic Screen printed materials, 100% Delaware
Systems L.P. and illuminated and non- (Partnership)
illuminated architectural
graphics
Houston, Texas
Greenlee Lighting Inc. Limited Partner 100% Delaware
Wilmington, Delaware
Greenlee Incorporated General Partner 100% Delaware
Wilmington, Delaware
Greenlee Lighting L.P. Landscape Lighting 100% Delaware
Dallas, Texas (Partnership)
Grady McCauley Inc. Digital image and screen 100% Ohio
printed graphics
North Canton, Ohio
</TABLE>
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectuses
constituting part of the Registration Statement on Form S-8 (No. 33-3490, No.
33-19326, No. 33-30840, No. 33-64721, No. 33-64723, and No. 333-11503) and part
of the Registration Statement on Form S-3 (No. 333-31239) of LSI Industries Inc.
of our report dated August 18, 1995, which appears on page S-6 of this Form
10-K.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Cincinnati, Ohio
September 10, 1997
<PAGE> 2
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report included in this Form 10-K, into the Company's previously filed
Registration Statement File No.'s 33-3490, 33-19326, 33-30840, 33-64721,
33-64723, 333-11503, and 333-31239.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Cincinnati, Ohio
September 10, 1997
<PAGE> 1
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer and/or
director of LSI Industries Inc., an Ohio corporation, which is about to file an
annual report on Form 10-K for the fiscal year ended June 30, 1997, under
provisions of the Securities Exchange Act of 1934, with the Securities and
Exchange Commission, Washington, D.C., hereby constitutes and appoints Robert
J. Ready or Ronald S. Stowell his true and lawful attorney-in-fact and agent,
and each of them with full power to act without the other, his true and lawful
attorney-in-fact and agent, for him and in his name, place and stead, in any
and all capacities, to sign such Form 10-K and any and all amendments thereof,
with power where appropriate to affix the corporate seal of said corporation
thereto and to attest to said seal, and to file such Form 10-K and each such
amendment, with all exhibits thereto, and any and all other documents, in
connection therewith, with the Securities and Exchange Commission, hereby
grants unto said attorney-in-fact and agent, and each of them, full power and
authority to do and perform any and all acts and things requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as
he might or could do in person and hereby ratifies and confirms all that said
attorney-in-fact and agent, or either of them may lawfully do or cause to be
done by virtue thereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand on this
20th day of August, 1997.
/s/ MICHAEL J. BURKE
-------------------------------
Michael J. Burke
<PAGE> 2
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer and/or
director of LSI Industries Inc., an Ohio corporation, which is about to file an
annual report on Form 10-K for the fiscal year ended June 30, 1997, under
provisions of the Securities Exchange Act of 1934, with the Securities and
Exchange Commission, Washington, D.C., hereby constitutes and appoints Robert
J. Ready or Ronald S. Stowell his true and lawful attorney-in-fact and agent,
and each of them with full power to act without the other, his true and lawful
attorney-in-fact and agent, for him and in his name, place and stead, in any
and all capacities, to sign such Form 10-K and any and all amendments thereof,
with power where appropriate to affix the corporate seal of said corporation
thereto and to attest to said seal, and to file such Form 10-K and each such
amendment, with all exhibits thereto, and any and all other documents, in
connection therewith, with the Securities and Exchange Commission, hereby
grants unto said attorney-in-fact and agent, and each of them, full power and
authority to do and perform any and all acts and things requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as
he might or could do in person and hereby ratifies and confirms all that said
attorney-in-fact and agent, or either of them may lawfully do or cause to be
done by virtue thereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand on this
20th day of August, 1997.
/s/ ALLEN L. DAVIS
------------------------------
Allen L. Davis
<PAGE> 3
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer and/or
director of LSI Industries Inc., an Ohio corporation, which is about to file an
annual report on Form 10-K for the fiscal year ended June 30, 1997, under
provisions of the Securities Exchange Act of 1934, with the Securities and
Exchange Commission, Washington, D.C., hereby constitutes and appoints Robert
J. Ready or Ronald S. Stowell his true and lawful attorney-in-fact and agent,
and each of them with full power to act without the other, his true and lawful
attorney-in-fact and agent, for him and in his name, place and stead, in any
and all capacities, to sign such Form 10-K and any and all amendments thereof,
with power where appropriate to affix the corporate seal of said corporation
thereto and to attest to said seal, and to file such Form 10-K and each such
amendment, with all exhibits thereto, and any and all other documents, in
connection therewith, with the Securities and Exchange Commission, hereby
grants unto said attorney-in-fact and agent, and each of them, full power and
authority to do and perform any and all acts and things requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as
he might or could do in person and hereby ratifies and confirms all that said
attorney-in-fact and agent, or either of them may lawfully do or cause to be
done by virtue thereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand on this
20th day of August, 1997.
/s/ JAMES P. SFERRA
-------------------------------
James P. Sferra
<PAGE> 4
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer and/or
director of LSI Industries Inc., an Ohio corporation, which is about to file an
annual report on Form 10-K for the fiscal year ended June 30, 1997, under
provisions of the Securities Exchange Act of 1934, with the Securities and
Exchange Commission, Washington, D.C., hereby constitutes and appoints Robert
J. Ready or Ronald S. Stowell his true and lawful attorney-in-fact and agent,
and each of them with full power to act without the other, his true and lawful
attorney-in-fact and agent, for him and in his name, place and stead, in any
and all capacities, to sign such Form 10-K and any and all amendments thereof,
with power where appropriate to affix the corporate seal of said corporation
thereto and to attest to said seal, and to file such Form 10-K and each such
amendment, with all exhibits thereto, and any and all other documents, in
connection therewith, with the Securities and Exchange Commission, hereby
grants unto said attorney-in-fact and agent, and each of them, full power and
authority to do and perform any and all acts and things requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as
he might or could do in person and hereby ratifies and confirms all that said
attorney-in-fact and agent, or either of them may lawfully do or cause to be
done by virtue thereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand on this
20th day of August, 1997.
/s/ JOHN N. TAYLOR, JR.
------------------------------
John N. Taylor, Jr.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K
FOR THE YEAR ENDED JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000763532
<NAME> LSI INDUSTRIES INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 2,612
<SECURITIES> 0
<RECEIVABLES> 27,813
<ALLOWANCES> (401)
<INVENTORY> 23,058
<CURRENT-ASSETS> 54,852
<PP&E> 40,674
<DEPRECIATION> (13,529)
<TOTAL-ASSETS> 95,189
<CURRENT-LIABILITIES> 24,660
<BONDS> 1,195
0
0
<COMMON> 34,516
<OTHER-SE> 33,452
<TOTAL-LIABILITY-AND-EQUITY> 95,189
<SALES> 144,742
<TOTAL-REVENUES> 144,742
<CGS> 96,200
<TOTAL-COSTS> 34,872
<OTHER-EXPENSES> 114
<LOSS-PROVISION> (39)
<INTEREST-EXPENSE> (487)
<INCOME-PRETAX> 14,082
<INCOME-TAX> 5,210
<INCOME-CONTINUING> 8,872
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,872
<EPS-PRIMARY> .97
<EPS-DILUTED> .97
</TABLE>
