<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
--- EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30,
1998.
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
----- -----
Common Shares, no par value. Shares outstanding at October 30, 1998: 9,676,190
<PAGE> 2
LSI INDUSTRIES INC.
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1998
INDEX
Begins on
Page
----
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................ 11
Signatures ................................................ 11
Page 2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LSI INDUSTRIES INC.
CONSOLIDATED INCOME STATEMENTS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30
-------------------
(in thousands, except per 1998 1997
share data; unaudited) ---- ----
<S> <C> <C>
Net sales $ 53,414 $ 43,957
Cost of products sold 35,180 28,438
-------- --------
Gross profit 18,234 15,519
Selling and administrative expenses 11,973 10,729
-------- --------
Operating income 6,261 4,790
Interest expense 54 26
Interest (income) (128) (11)
Other expense 32 15
-------- --------
Income before income taxes 6,303 4,760
Income tax expense 2,391 1,785
-------- --------
Net income $ 3,912 $ 2,975
======== ========
Earnings per common share
Basic $ .41 $ .31
======== ========
Diluted $ .40 $ .31
======== ========
</TABLE>
The accompanying Notes to Financial Statements are an integral part of these
financial statements.
Page 3
<PAGE> 4
LSI INDUSTRIES INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
(In thousands, except share amounts) September 30, June 30,
1998 1998
-------- --------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 10,448 $ 9,338
Accounts receivable 31,838 33,184
Inventories 24,775 24,958
Other current assets 2,276 2,068
-------- --------
Total current assets 69,337 69,548
Property, plant and equipment, net 27,100 27,735
Goodwill and other assets, net 12,837 13,033
-------- --------
$109,274 $110,316
======== ========
LIABILITIES & SHAREHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term debt $ 164 $ 190
Accounts payable 11,942 13,689
Accrued expenses 13,318 15,432
-------- --------
Total current liabilities 25,424 29,311
Long-Term Debt 1,005 1,005
Other Long-Term Liabilities 1,261 1,343
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 9,674,696 and 9,634,608
shares, respectively 35,592 35,368
Retained earnings 45,992 43,289
-------- --------
Total shareholders' equity 81,584 78,657
-------- --------
$109,274 $110,316
======== ========
</TABLE>
The accompanying Notes to Financial Statements are an integral part of these
financial statements.
Page 4
<PAGE> 5
LSI INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
(In thousands) Three Months Ended
September 30
--------------------------
1998 1997
---- ----
<S> <C> <C>
Cash Flows from Operating Activities
Net income $ 3,912 $ 2,975
Non-cash items included in income
Depreciation and amortization 1,098 980
Deferred income taxes 30 30
Loss on disposition of fixed assets 32 15
Changes in operating assets and liabilities
Accounts receivable 1,346 (1,294)
Inventories 183 (1,878)
Accounts payable and other (4,064) 766
Change in liability for discontinued operations (5) (4)
------- -------
Net cash flows from operating activities 2,532 1,590
------- -------
Cash Flows from Investing Activities
Purchase of property, plant and equipment (411) (911)
Proceeds from sale of fixed assets -- 1
------- -------
Net cash flows from investing activities (411) (910)
------- -------
Cash Flows from Financing Activities
Increase in notes payable to bank -- 462
Payment of long-term debt (26) (29)
Cash dividends paid (1,209) (955)
Deferred compensation plan (49) (67)
Proceeds from issuance of common shares 273 60
------- -------
Net cash flows from financing activities (1,011) (529)
------- -------
Increase in cash and cash equivalents 1,110 151
Cash and cash equivalents at beginning of year 9,338 2,612
------- -------
Cash and cash equivalents at end of period $10,448 $ 2,763
======= =======
Supplemental Cash Flow Information
Interest paid $ 48 $ 48
======= =======
Income taxes paid $ 871 $ 1,243
======= =======
</TABLE>
The accompanying Notes to Financial Statements are an integral part of these
financial statements.
Page 5
<PAGE> 6
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, 1998, and the results of its operations
and its cash flows for the periods ended September 30, 1998 and 1997.
These statements should be read in conjunction with the financial
statements and footnotes included in the fiscal 1998 annual report.
NOTE 2: RECENT PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133 (SFAS No. 133), "Accounting
for Derivative Instruments and Hedging Activities," which establishes
standards for reporting and disclosure of derivative and hedging
instruments. SFAS No. 133 is effective for all fiscal quarters of all
fiscal years beginning after June 15, 1999. The Company will not be
affected by this new standard because the Company has no derivative or
hedging financial instruments.
NOTE 3: COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 130 (SFAS No. 130), "Reporting
Comprehensive Income," which established 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. The Company adopted SFAS No. 130 in the quarter ended
September 30, 1998. For the periods disclosed, periods ending September
30, 1998 and 1997, comprehensive income is equal to the net income
reported.
NOTE 4: EARNINGS PER COMMON SHARE
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 (SFAS No. 128),
"Earnings Per Share," which requires 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. The Company adopted SFAS No. 128
effective with the second quarter of fiscal year 1998. All prior period
earnings per share have been restated for the new disclosure.
Page 6
<PAGE> 7
NOTE 4: EARNINGS PER COMMON SHARE (continued)
The following table presents the amounts used to compute earnings per
common share and the effect of dilutive potential common shares on net
income and weighted average shares outstanding:
<TABLE>
<CAPTION>
Three Months Ended
September 30
------------------------
1998 1997
---- ----
<S> <C> <C>
BASIC EARNINGS PER SHARE
Net income $3,912 $2,975
====== ======
Weighted average shares
outstanding during the period,
net of treasury shares 9,658 9,495
====== ======
Basic earnings per share $ .41 $ .31
====== ======
DILUTED EARNINGS PER SHARE
Net income $3,912 $2,975
====== ======
Weighted average shares
outstanding during the period,
net of treasury shares 9,658 9,495
Effect of dilutive securities:
Impact of common shares to
be issued under stock option
plans and a deferred compensation
plan (A) (B) 191 188
------ ------
Weighted average shares outstanding 9,849 9,683
====== ======
Diluted earnings per share $ .40 $ .31
====== ======
</TABLE>
(A) Calculated using the "Treasury Stock" method as if dilutive
securities were exercised and the funds were used to purchase Common
Shares at the average market price during the period.
(B) Options to purchase 46,094 common shares during the quarter ended
September 30, 1997 were not included in the computation of diluted
earnings per share because the exercise price was greater than the
average fair market value of the common shares.
Page 7
<PAGE> 8
NOTE 5: INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
September 30, 1998 June 30, 1998
------------------ -------------
<S> <C> <C>
Raw Materials $12,624 $12,192
Work-in-Process and
Finished Goods 12,151 12,766
------- -------
$24,775 $24,958
======= =======
</TABLE>
NOTE 6: CASH DIVIDENDS
The Company paid cash dividends of $1,209,000 and $955,000 in the three
month periods ended September 30, 1998 and 1997, respectively. In
October 1998, the Company's Board of Directors declared a $.0675 per
share regular quarterly cash dividend ($653,000) payable on November
17, 1998 to shareholders of record November 10, 1998.
NOTE 7: SHAREHOLDERS' EQUITY
The Company has a non-qualified Deferred Compensation Plan with all
Plan investments in common shares of the Company. As of September 30,
1998 a total of 40,544 common shares at a cost of $598,056 were held in
the Plan, and, accordingly, have been recorded as treasury shares.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
NET SALES BY BUSINESS SEGMENT
(In thousands, unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30
------------------------
1998 1997
---- ----
<S> <C> <C>
Image Group $37,954 $31,799
Commercial / Industrial
Lighting Group 15,460 12,158
------- -------
$53,414 $43,957
======= =======
</TABLE>
Page 8
<PAGE> 9
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED WITH THREE MONTHS ENDED SEPTEMBER
30, 1997
Net sales of $53,414,000 in the first quarter of fiscal 1999 increased
22% over fiscal 1998 first quarter net sales of $43,957,000. Image Group net
sales increased 19% and Commercial / Industrial Lighting Group net sales
increased 27% in the first quarter of fiscal 1999 as compared to the prior year.
The increase in Commercial / Industrial Lighting Group net sales is attributed
to growth in substantially all markets. The increase in Image Group sales is
attributed to growth in substantially all markets and products, particularly
petroleum lighting, graphics, and quick service restaurant. Net sales of the
Image Group to the petroleum / convenience store market represented 47% and 46%
of net sales in the first quarters of fiscal 1999 and fiscal 1998, respectively.
While sales prices were increased, inflation did not have a significant impact
on sales in 1999 as competitive pricing pressures held price increases to a
minimum.
Gross profit of $18,234,000 increased 17% over last year's first
quarter gross profit of $15,519,000, and decreased as a percentage of net sales
to 34.1% in fiscal year 1999 as compared to 35.3% in the prior year. The
increase in amount of gross profit is due primarily to the 22% increase in net
sales. The decrease in gross profit percentage is primarily related to a product
mix of increased lighting sales in the Company's Commercial / Industrial
Lighting Group. Selling and administrative expenses increased to $11,973,000
from $10,729,000 primarily as a result of increased sales volume. As a
percentage of net sales, selling and administrative expenses were at 22.4% in
the first quarter of fiscal 1999 as compared to 24.4% in the prior year.
The Company reported net interest income of $74,000 in the first
quarter of fiscal 1999 as compared to net interest expense of $15,000 in fiscal
1998 reflective of an increased amount short-term cash investments. The
Company's effective tax rate increased to 37.9% in the first quarter of fiscal
1999 as compared to 37.5% in fiscal 1998 primarily due to increased provision of
state and local income tax.
Net income of $3,912,000 increased 31% over $2,975,000 in the first
quarter of fiscal 1998. The increased net income resulted from increased gross
profit on higher net sales, and from the reporting of a larger amount of net
interest income in fiscal 1999 as compared to 1998, partially offset by
increased operating expenses and income taxes. Diluted earnings per share of
$0.40 increased 29% in the first quarter of fiscal 1999 from $0.31 per share in
fiscal 1998. The weighted average common shares outstanding for purposes of
computing diluted earnings per share increased 2% in the first quarter of fiscal
1999 to 9,849,000 shares from 9,683,000 shares in 1998 primarily as a result of
the exercise of stock options during the year.
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.
Page 9
<PAGE> 10
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1998 the Company had working capital of $43.9 million,
compared to $40.2 million at June 30, 1998. The ratio of current assets to
current liabilities increased to 2.73 to 1 from 2.37 to 1. The increased working
capital is primarily attributed to increased cash, and decreased accrued
expenses and accounts payable, partially offset by decreased accounts receivable
and inventories.
The Company generated $2.5 million of cash from operating activities in
the first quarter of fiscal 1999 as compared to $1.6 million fiscal 1998. The
Company generated more cash in the first three months of fiscal 1999 primarily
due to increased net income, and reductions of accounts receivable and
inventories, partially offset by decreases in accounts payable and accrued
expenses. As of September 30, 1998, the Company's day's sales outstanding were
at approximately 53 days as compared to 55 days at June 30, 1998. Accrued
expenses decreased significantly reflective of first quarter payments related to
the Company's compensation and retirement plans, and accounts payable decreased
in line with the flow of inventory replenishment.
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 $24 million, all of which was available as of
November 6, 1998. These lines of credit are unsecured and expire in fiscal 1999.
The Company believes that the total of available lines of credit plus cash flows
from operating activities is adequate for the Company's fiscal 1999 operational
and capital expenditure needs. The Company is in compliance with all of its loan
covenants. Capital expenditures of $.4 million in the first quarter of fiscal
1999 compare to $.9 million in the prior year. Capital expenditures totaling
approximately $6 million are planned for fiscal 1999, exclusive of business
acquisitions.
In October 1998, the Board of Directors declared a regular quarterly
cash dividend of $.0675 per share ($653,000) to be paid November 17, 1998 to
shareholders of record on November 10, 1998.
The Company has completed a review of its business systems, office
support systems, and its facilities and equipment with respect to year 2000
programming deficiencies. The review has extended to major suppliers and
customers, and this element of the review is expected to be completed by June
30, 1999. The Company does not anticipate material costs to be incurred to
modify or replace any affected systems. The Company anticipates completion of
this process prior to June 30, 1999.
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.
Page 10
<PAGE> 11
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
27 Financial Data Schedule
b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter for
which this Report is filed.
[All other items required in Part II have been omitted because
they are not applicable or are not required.]
SIGNATURES
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.
BY: /s/ Robert J. Ready
----------------------------------------------
Robert J. Ready
President and Chief Executive Officer
(Principal Executive Officer)
BY: /s/ Ronald S. Stowell
----------------------------------------------
Ronald S. Stowell
Vice President, Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
November 6, 1998
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
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000763532
<NAME> LSI INDUSTRIES INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<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>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 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> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 10,448
<SECURITIES> 0
<RECEIVABLES> 32,604
<ALLOWANCES> (766)
<INVENTORY> 24,775
<CURRENT-ASSETS> 69,337
<PP&E> 45,022
<DEPRECIATION> (17,922)
<TOTAL-ASSETS> 109,274
<CURRENT-LIABILITIES> 25,424
<BONDS> 1,005
0
0
<COMMON> 35,592
<OTHER-SE> 45,992
<TOTAL-LIABILITY-AND-EQUITY> 109,274
<SALES> 53,414
<TOTAL-REVENUES> 53,414
<CGS> 35,180
<TOTAL-COSTS> 11,973
<OTHER-EXPENSES> 32
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (74)
<INCOME-PRETAX> 6,303
<INCOME-TAX> 2,391
<INCOME-CONTINUING> 6,303
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,303
<EPS-PRIMARY> .41
<EPS-DILUTED> .40
</TABLE>
