<PAGE> 1
FORM 10-Q
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SECURITIES AND EXCHANGE COMMISSION
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WASHINGTON, D.C. 20549
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X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ----- EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997.
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
Indicate by checkmark 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, and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
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Common Shares, no par value. Shares Outstanding at October 30, 1997: 9,574,646
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LSI INDUSTRIES INC.
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FORM 10-Q
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FOR THE QUARTER ENDED SEPTEMBER 30, 1997
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INDEX
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Begins on
Page
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PART I. Financial Information
ITEM 1. Financial Statements
Consolidated Income Statements......................... 3
Consolidated Balance Sheets............................ 4
Consolidated Statements of Cash Flows.................. 5
Notes to Financial Statements.......................... 6
ITEM 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations........................................ 8
PART II. Other Information
ITEM 6. Exhibits and Reports on Form 8-K....................... 10
Signatures ....................................................... 10
Page 2
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PART I. FINANCIAL INFORMATION
-----------------------------
ITEM 1. FINANCIAL STATEMENTS
- -----------------------------
LSI INDUSTRIES INC.
CONSOLIDATED INCOME STATEMENTS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30
--------------------------
1997 1996
---- ----
(In thousands, except per
share amounts)
<S> <C> <C>
Net sales $43,957 $36,885
Cost of products sold 28,438 24,745
------- -------
Gross profit 15,519 12,140
Selling and administrative expenses 10,729 8,805
------- -------
Operating income 4,790 3,335
Interest expense 26 30
Interest (income) (11) (127)
Other expense 15 14
------- -------
Income before income taxes 4,760 3,418
Income tax expense 1,785 1,282
------- -------
Net income $ 2,975 $ 2,136
======= =======
Net income per common share $ .31 $ .23
======= =======
Weighted average shares outstanding 9,683 9,240
======= =======
</TABLE>
The accompanying Notes to Financial Statements are an integral part of these
financial statements.
Page 3
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LSI INDUSTRIES INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
(In thousands, except share amounts) September 30, June 30,
1997 1997
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ASSETS
- ------
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 2,763 $ 2,612
Accounts receivable 28,706 27,412
Inventories 24,936 23,058
Other current assets 1,850 1,770
------- -------
Total current assets 58,255 54,852
Property, plant and equipment, net 27,148 27,145
Goodwill and other assets 13,136 13,192
------- -------
$98,539 $95,189
======= =======
LIABILITIES & SHAREHOLDERS' EQUITY
- ----------------------------------
Current Liabilities
Notes payable to bank $ 462 $ --
Current maturities of long-term debt 188 187
Accounts payable 11,613 12,337
Accrued expenses 13,709 12,136
------- -------
Total current liabilities 25,972 24,660
Long-Term Debt 1,165 1,195
Other Long-Term Liabilities 1,421 1,366
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 9,538,563 and 9,499,231
shares, respectively 34,509 34,516
Retained earnings 35,472 33,452
------- -------
Total shareholders' equity 69,981 67,968
------- -------
$98,539 $95,189
======= =======
</TABLE>
The accompanying Notes to Financial Statements are an integral part of these
financial statements.
Page 4
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LSI INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
(In thousands) Three Months Ended
September 30
------------
1997 1996
---- ----
<S> <C> <C>
Cash Flows from Operating Activities
Net income $ 2,975 $ 2,136
Non-cash items included in income
Depreciation and amortization 980 710
Deferred income taxes 30 30
(Gain) loss on disposition of fixed assets 15 4
Changes in operating assets and liabilities
Accounts receivable (1,294) (1,613)
Inventories (1,878) 1,761
Accounts payable and other 766 (811)
Change in liability for discontinued operations (4) --
------- -------
Net cash flows from operating activities 1,590 2,217
------- -------
Cash Flows from Investing Activities
Purchase of property, plant and equipment (911) (608)
Proceeds from sale of fixed assets 1 --
------- -------
Net cash flows from investing activities (910) (608)
------- -------
Cash Flows from Financing Activities
Increase in notes payable to bank 462 344
Payment of long-term debt (29) (29)
Cash dividends paid (955) (722)
Deferred compensation plan (67) --
Proceeds from issuance of common shares 60 108
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Net cash flows from financing activities (529) (299)
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Increase (decrease) in cash and cash equivalents 151 1,310
Cash and cash equivalents at beginning of year 2,612 11,138
------- -------
Cash and cash equivalents at end of period $ 2,763 $12,448
======= =======
Supplemental Cash Flow Information
Interest paid $ 48 $ 39
Income taxes paid $ 1,243 $ 27
</TABLE>
The accompanying Notes to Financial Statements are an integral part of these
financial statements.
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LSI INDUSTRIES INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE 1: INTERIM FINANCIAL STATEMENTS
The interim financial statements are unaudited and are prepared in
accordance with rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such
rules and regulations. In the opinion of Management, the interim financial
statements include all normal adjustments and disclosures necessary to
present fairly the Company's financial position as of September 30, 1997,
and the results of its operations and its cash flows for the periods ended
September 30, 1997 and 1996. These statements should be read in
conjunction with the financial statements and footnotes included in the
fiscal 1997 annual report.
NOTE 2: RECENT PRONOUNCEMENTS
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 3: 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 188,000 and 245,000 shares, respectively, for the three month periods
ended September 30, 1997 and 1996.
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NOTE 4: INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
September 30, 1997 June 30, 1997
------------------ -------------
<S> <C> <C>
Raw Materials $11,169 $10,272
Work-in-Process and
Finished Goods 13,767 12,786
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$24,936 $23,058
======= =======
</TABLE>
NOTE 5: CASH DIVIDENDS
The Company paid cash dividends (including special year-end dividends) of
$955,000 and $722,000 in the three month periods ended September 30, 1997
and 1996, respectively. In October, 1997, the Company's Board of Directors
declared a $.0625 per share regular quarterly cash dividend ($596,000)
payable on November 18, 1997 to shareholders of record November 10, 1997.
NOTE 6: SHAREHOLDERS' EQUITY
The Company has a non-qualified Deferred Compensation Plan and a certain
portion of the Plan investments are in common shares of the Company. As of
September 30, 1997 a total of 32,854 common shares at a cost of $416,000
were held in the Plan, and, accordingly, have been recorded as treasury
shares.
NOTE 7: SALES TO MAJOR CUSTOMERS
The Company's sales in its Image Group (see discussion in Management's
Discussion and Analysis of Financial Condition and Results of Operations)
to a major customer, Chevron U.S.A., represented 11% of consolidated net
sales in both of the three month periods ended September 30, 1997 and
1996.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
- ------- -------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
<TABLE>
<CAPTION>
NET SALES BY BUSINESS SEGMENT
(In thousands, unaudited)
Three Months Ended
September 30
----------------------
1997 1996
---- ----
<S> <C> <C>
Image Group $31,799 $24,933
Commercial / Industrial
Lighting Group 12,158 11,952
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$43,957 $36,885
======= =======
</TABLE>
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED WITH THREE MONTHS ENDED
SEPTEMBER 30, 1996
Net sales of $43,957,000 in the first quarter of 1998 increased 19%
over first quarter net sales last year of $36,885,000. Quarterly results of the
Image Group in fiscal 1998 include the operations of the Company's new graphics
subsidiary, Grady McCauley, which was acquired June 30, 1997. Image Group net
sales increased 28% and Commercial / Industrial Lighting Group net sales
increased 2% during fiscal 1998. The increase in Image Group sales is
attributed to strong sales growth in the petroleum / convenience store market,
as well as to the inclusion of Grady McCauley in the operating results in
fiscal 1998. Sales in the Image Group to the petroleum / convenience store
market represented 46% and 47% of net sales in the first quarters of fiscal
1998 and fiscal 1997, respectively. The Company has one customer, Chevron
U.S.A., which accounted for 11% of net sales (reported in the Image segment) in
the first quarter of both fiscal 1998 and fiscal 1997. The Company believes
that it continues to maintain a good business relationship with this customer;
however, the level of total sales is never assured in the future. While sales
prices were increased, inflation did not have a significant impact on sales in
1998 as competitive pricing pressures held price increases to a minimum.
Gross profit of $15,519,000 increased 28% over last year's gross
profit of $12,140,000, and increased as a percentage of net sales to 35.3% in
the first quarter of fiscal year 1998 as compared to 32.9% in the same period
last year. The increase in gross profit is due primarily to the 19% increase in
net sales, to changes in lighting product mix to higher margin products, and to
improved manufacturing operating efficiencies in the Company's lighting
business. Increased volume and favorable customer program mix in the Company's
graphics operations also contributed to the increased gross profit. Selling and
administrative expenses increased to $10,729,000 from $8,805,000 primarily as a
result of increased sales volume and the addition of Grady McCauley. As a
percentage of net sales, selling and administrative expenses were 24.4% in the
first quarter of fiscal 1998 as compared to 23.9% in the same period last year.
The Company reported net interest expense of $15,000 in the first
quarter of fiscal 1998 as compared to net interest income of $97,000 in the
first quarter of fiscal 1997 reflective of the significantly reduced amount of
short-term cash investments during the quarter. Cash which had been invested
was used at the end of fiscal 1997 for the acquisition of Grady McCauley. The
Company's effective tax rate was 37.5% in the first quarter of both fiscal 1998
and 1997.
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Net income of $2,975,000 increased 39% over $2,136,000 in the first
quarter of fiscal 1997. The increased net income resulted from increased gross
profit on higher net sales, partially offset by increased operating expenses,
reduced interest income, and increased income taxes. Per share earnings in the
first quarter of fiscal 1998 of $.31 compares to $.23 per share in the same
period in fiscal 1997. The weighted average common shares outstanding increased
5% in 1998 to 9,683,000 shares from 9,240,000 shares in 1997 primarily as a
result the common shares used in the acquisition of Grady McCauley in June
1997.
Certain recently issued accounting pronouncements will affect the
Company's future financial statements and / or disclosures. See Note 2 to these
financial statements for additional discussion.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1997 the Company had working capital of $32.3
million, compared to $30.2 million at June 30, 1997. The ratio of current
assets to current liabilities increased to 2.24 to 1 from 2.22 to 1. The
increased working capital is primarily attributed to increased inventories and
accounts receivable, and reduced accounts payable, partially offset by
increased accrued expenses and notes payable to bank.
The Company generated $1.6 million of cash from operating activities
in the first three months of fiscal 1998 as compared to $2.2 million of cash
generated in the same period last year. The Company generated less cash in the
first three months of fiscal 1998 primarily due to significant inventory
increases in fiscal 1998 as compared to a significant decrease in fiscal 1997.
This decreased cash flow was partially offset by increased net income, and
increased depreciation and amortization expenses, as well as by reductions in
accounts payable and other accrued expenses in fiscal 1998 as compared to net
increases in fiscal 1997. As of September 30, 1997, the Company's days sales
outstanding were at approximately 59 days as compared to 64 days at June 30,
1997.
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 was available as
of October 28, 1997. The Company believes that the total available lines of
credit plus cash flows from operating activities is adequate for the Company's
anticipated 1998-1999 operational and capital expenditure needs. The Company is
in compliance with all of its loan covenants. Capital expenditures of $.9
million in the first three months of fiscal 1998 compare to $.6 million in the
same period last year. Expenditures in fiscal year 1998 are primarily related
to tooling for new products and to expansion of certain of the Company's
graphics operations. Capital expenditures totaling approximately $5 million are
planned for fiscal year 1998.
In October 1997, the Board of Directors declared a regular quarterly
cash dividend of $.0625 per share ($596,000) to be paid November 18, 1997 to
shareholders of record on November 10, 1997.
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.
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PART II. OTHER INFORMATION
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- -----------------------------------------
a) Exhibits
11 Statement Re Computation of Earnings Per Share
27 Financial Data Schedule
(b) Reports on Form 8-K
One Form 8-K was filed on July 14, 1997 to report
completion of the acquisition of substantially all
of the assets of Grady, McCauley Incorporated
effective June 30, 1997.
[All other items required in Part II have been omitted because
they are not applicable or are not required.]
SIGNATURES
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Pursuant to the requirements 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.
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BY: /s/ Robert J. Ready
-------------------------------------------
Robert J. Ready
President and Chief Executive Officer
(Principal Executive Officer)
BY: /s/ Ronald S. Stowell
--------------------------------------------
Ronald S. Stowell
Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
November 3, 1997
Page 10
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EXHIBIT 11
LSI INDUSTRIES INC.
STATEMENT RE COMPUTATION OF EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE)
<TABLE>
<CAPTION>
Three Months Ended
September 30
--------------------------
1997 1996
---- ----
<S> <C> <C>
NET INCOME $2,975 $2,136
- ---------- ====== ======
AVERAGE SHARES OUTSTANDING
- --------------------------
Weighted average shares
outstanding during the period,
net of treasury shares 9,495 8,995
Common Share Equivalents
Common Shares to be issued
under stock option plans and
a deferred compensation plan 188 245
------ ------
Average Shares Outstanding 9,683 9,240
====== ======
NET INCOME PER SHARE $ .31 $ .23
- -------------------- ====== ======
Note: 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.
</TABLE>
Page 11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE PERIOD ENDED SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000763532
<NAME> LSI INDUSTRIES INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 2,763
<SECURITIES> 0
<RECEIVABLES> 29,212
<ALLOWANCES> (506)
<INVENTORY> 24,936
<CURRENT-ASSETS> 58,255
<PP&E> 41,549
<DEPRECIATION> (14,401)
<TOTAL-ASSETS> 98,539
<CURRENT-LIABILITIES> 25,972
<BONDS> 1,165
0
0
<COMMON> 34,509
<OTHER-SE> 35,472
<TOTAL-LIABILITY-AND-EQUITY> 98,539
<SALES> 43,957
<TOTAL-REVENUES> 43,957
<CGS> 28,438
<TOTAL-COSTS> 10,594
<OTHER-EXPENSES> 15
<LOSS-PROVISION> 135
<INTEREST-EXPENSE> 15
<INCOME-PRETAX> 4,760
<INCOME-TAX> 1,785
<INCOME-CONTINUING> 2,975
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,975
<EPS-PRIMARY> 0.31
<EPS-DILUTED> 0.31
</TABLE>
