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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, 2000.
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 November 1, 2000: 10,303,497
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LSI INDUSTRIES INC.
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2000
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................................. 9
PART II. Other Information
ITEM 6. Exhibits and Reports on Form 8-K................ 12
Signatures ................................................ 12
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995
This Form 10-Q contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934 that involve substantial risks and uncertainties that could cause actual
results to differ materially from those expected. These include, but are not
limited to, the impact of competitive products, product demand and market
acceptance risks, reliance on key customers, unexpected difficulties in
integrating acquired businesses, unfavorable outcome in resolution of loss
contingencies, and fluctuations in operating results or costs.
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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
----------------------
(in thousands, except per 2000 1999
share data) ---- ----
<S> <C> <C>
Net sales $ 52,304 $ 64,014
Cost of products sold 35,712 42,919
-------- --------
Gross profit 16,592 21,095
Selling and administrative expenses 12,074 12,605
-------- --------
Operating income 4,518 8,490
Interest expense 31 120
Interest (income) (395) (283)
Other (income) expense (6) --
-------- --------
Income before income taxes 4,888 8,653
Income tax expense 1,907 3,296
-------- --------
Net income $ 2,981 $ 5,357
======== ========
Earnings per common share
Basic $ .29 $ .53
======== ========
Diluted $ .29 $ .52
======== ========
</TABLE>
The accompanying Notes to Financial Statements are an integral part of these
financial statements.
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LSI INDUSTRIES INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
(In thousands, except share amounts) September 30, June 30,
2000 2000
---- ----
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 20,461 $ 21,966
Accounts receivable 35,412 35,424
Inventories 25,978 25,293
Other current assets 4,081 4,397
-------- --------
Total current assets 85,932 87,080
Property, plant and equipment, net 38,166 37,122
Goodwill and other assets, net 22,409 22,581
-------- --------
$146,507 $146,783
======== ========
LIABILITIES & SHAREHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term debt $ 203 $ 203
Accounts payable 11,185 12,349
Accrued expenses 12,476 13,389
-------- --------
Total current liabilities 23,864 25,941
Long-Term Debt 1,466 1,498
Other Long-Term Liabilities 1,162 1,132
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 10,305,745 and 10,291,730
shares, respectively 47,879 47,719
Retained earnings 72,136 70,493
-------- --------
Total shareholders' equity 120,015 118,212
-------- --------
$146,507 $146,783
======== ========
</TABLE>
The accompanying Notes to Financial Statements are an integral part of these
financial statements.
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LSI INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
(In thousands) Three Months Ended
September 30
----------------------
2000 1999
---- ----
<S> <C> <C>
Cash Flows from Operating Activities
Net income $ 2,981 $ 5,357
Non-cash items included in income
Depreciation and amortization 1,256 1,370
Deferred income taxes 30 29
Deferred compensation plan 68 162
(Gain) on disposition of fixed assets (6) --
Changes in
Accounts receivable 12 (1,532)
Inventories (685) (1,221)
Accounts payable and other (1,715) (1,693)
Net liabilities from discontinued operations (46) (41)
-------- --------
Net cash flows from operating activities 1,895 2,431
-------- --------
Cash Flows from Investing Activities
Purchase of property, plant and equipment (2,128) (2,737)
Proceeds from sale of fixed assets 6 --
-------- --------
Net cash flows from investing activities (2,122) (2,737)
-------- --------
Cash Flows from Financing Activities
(Decrease) of borrowings under line of credit -- (379)
Payment of long-term debt (32) (35)
Cash dividends paid (1,338) (1,501)
Exercise of stock options 270 446
Purchase of treasury shares (178) (300)
-------- --------
Net cash flows from financing activities (1,278) (1,769)
-------- --------
Increase (decrease) in cash and cash equivalents (1,505) (2,075)
Cash and cash equivalents at beginning of year 21,966 13,881
-------- --------
Cash and cash equivalents at end of period $ 20,461 $ 11,806
======== ========
Supplemental Cash Flow Information
Interest paid $ 49 $ 56
Income taxes paid $ 60 $ 790
</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, 2000, and the results of its operations
and its cash flows for the periods ended September 30, 2000 and 1999.
These statements should be read in conjunction with the financial
statements and footnotes included in the fiscal 2000 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 fiscal years beginning after
June 15, 2000. The Company has adopted SFAS No. 133 in the quarter
ended September 30, 2000, however there was no impact on the
consolidated financial statements because the Company has no derivative
or hedging instruments.
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, SGI Integrated Graphic Systems, Grady McCauley,
and LSI Retail Graphics. The Commercial / Industrial Lighting Group
manufactures and sells primarily 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, Greenlee Lighting, LSI
Marcole, and LSI MidWest Lighting. The Company's most significant
market is the petroleum / convenience store market with approximately
37% and 37% of net sales concentrated in this market in the three
months ended September 30, 2000, and 1999, respectively.
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The following information is provided for the following periods:
<TABLE>
<CAPTION>
Three Months Ended
September 30
------------------------
2000 1999
---- ----
<S> <C> <C>
(In thousands)
NET SALES:
Image Group $ 33,455 $ 42,396
Commercial / Industrial Lighting Group 18,849 21,618
--------- ---------
$ 52,304 $ 64,014
========= =========
OPERATING INCOME:
Image Group $ 3,461 $ 6,157
Commercial / Industrial Lighting Group 1,057 2,333
--------- ---------
$ 4,518 $ 8,490
========= =========
CAPITAL EXPENDITURES:
Image Group $ 1,614 $ 1,725
Commercial / Industrial Lighting Group 514 1,012
--------- ---------
$ 2,128 $ 2,737
========= =========
DEPRECIATION AND AMORTIZATION:
Image Group $ 814 $ 929
Commercial / Industrial Lighting Group 442 441
--------- ---------
$ 1,256 $ 1,370
========= =========
</TABLE>
<TABLE>
<CAPTION>
September 30 June 30
--------------------- ---------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
IDENTIFIABLE ASSETS:
Image Group $ 86,052 $ 86,741 $ 84,513 $ 86,011
Commercial / Industrial Lighting Group 37,496 39,136 38,588 37,645
-------- -------- -------- --------
123,548 125,877 123,101 123,656
Corporate 22,959 13,500 23,682 14,058
-------- -------- -------- --------
$146,507 $139,377 $146,783 $137,714
======== ======== ======== ========
</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.
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NOTE 4: EARNINGS PER COMMON SHARE
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
---------------------
2000 1999
---- ----
<S> <C> <C>
BASIC EARNINGS PER SHARE
Net income $ 2,981 $ 5,357
======= =======
Weighted average shares
outstanding during the period,
net of treasury shares 10,292 10,169
======= =======
Basic earnings per share $ .29 $ .53
======= =======
DILUTED EARNINGS PER SHARE
Net income $ 2,981 $ 5,357
======= =======
Weighted average shares
outstanding during the period,
net of treasury shares 10,292 10,169
Effect of dilutive securities (A):
Impact of common shares to be
issued under stock option plans,
a deferred compensation plan
and contingently issuable shares 143 192
------- -------
Weighted average shares
outstanding (B) 10,435 10,361
======= =======
Diluted earnings per share $ .29 $ .52
======= =======
</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 52,683 common shares during the three month
periods ended September 30, 2000 were not included in the computation
of diluted earnings per share because the exercise price was greater
than the average market value of the common shares.
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NOTE 5: INVENTORIES
Inventories consist of the following (in thousands):
September 30, 2000 June 30, 2000
------------------ -------------
Raw Materials $12,237 $11,824
Work-in-Process and
Finished Goods 13,741 13,469
------- -------
$25,978 $25,293
======= =======
NOTE 6: CASH DIVIDENDS
The Company paid cash dividends of $1,338,000 and $1,501,000 in the
three month periods ended September 30, 2000 and 1999, respectively. In
October 2000, the Company's Board of Directors declared an $0.085 per
share regular quarterly cash dividend ($876,000) payable on November
14, 2000 to shareholders of record November 7, 2000.
NOTE 7: SHAREHOLDERS' EQUITY
The Company has a non-qualified Deferred Compensation Plan with all
Plan investments in common shares of the Company. A total of 68,426 and
59,566 common shares were held in the Plan as of September 30, 2000 and
June 30, 2000, respectively, 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)
Three Months Ended
September 30
---------------------
2000 1999
---- ----
Image Group $33,455 $42,396
Commercial / Industrial
Lighting Group 18,849 21,618
------- -------
$52,304 $64,014
======= =======
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RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1999
Net sales of $52,304,000 in the first quarter of fiscal 2001 decreased
18% from fiscal 2000 first quarter net sales of $64,014,000. Commercial /
Industrial Lighting Group net sales decreased 13% and Image Group net sales
decreased 21% in the first quarter of fiscal 2001 as compared to the prior year.
About half of the decrease in the Commercial / Industrial Lighting Group is
attributed to a wire harness program with no repeat sales since the second
quarter of fiscal 2000. The remaining decrease in Commercial / Industrial
Lighting was from both interior and exterior lighting, much of which the Company
believes is attributable to strategic changes in several territories to new
independent representative sales agencies during the past twelve months. The
decrease in Image Group net sales is attributed primarily to softness in the
petroleum / convenience store market. Net sales to this significant market
continued to be adversely impacted by the temporary affects of mergers of major
petroleum companies. The Company believes it is likely that net sales in the
first two quarters of fiscal year 2001 could remain near the level of the fourth
quarter of fiscal 2000 until various customers begin to implement and roll out
their re-image programs. Net sales of the Image Group to the petroleum /
convenience store market represented 37% of total net sales in the first
quarters of both fiscal 2001 and fiscal 2000. Sales to this market declined 19%
in the first quarter as compared to the period last year. While sales prices
were increased, inflation did not have a significant impact on sales in the
first quarter of fiscal 2001 as competitive pricing pressures held price
increases to a minimum.
Gross profit of $16,592,000 decreased 21% from last year's gross profit
of $21,095,000, and decreased as a percentage of net sales to 31.7% in the first
quarter of fiscal year 2001 as compared to 33.0% in the prior year. The decrease
in amount of gross profit is due primarily to the 18% decrease in net sales.
Selling and administrative expenses decreased 4% to $12,074,000 from
$12,605,000. The decrease was caused primarily by decreased net sales. As a
percentage of net sales, selling and administrative expenses were at 23.1% in
first quarter of fiscal 2001 as compared to 19.7% in the prior year. The Company
continued the task of converting its business operating software and systems
company-wide. Total implementation costs expensed were $180,000 ($0.01 per
share, diluted) in the first quarter of fiscal 2001 as compared to $58,000 in
the fiscal 2000 first quarter. Expenditures at approximately this level are
expected to continue for the remainder of fiscal 2001.
The Company reported net interest income of $364,000 in fiscal 2001 as
compared to net interest income of $163,000 in fiscal 2000 primarily reflective
of an increased amount of short-term cash investments at slightly increased
rates of return, and more short term borrowings during the fiscal 2000 first
quarter. The Company's effective tax rate increased to 39.0% in fiscal 2001 as
compared to 38.1% in fiscal 2000 primarily due to increased state and local
income tax expense.
Net Income of $2,981,000 in the first quarter of fiscal 2001 decreased
44% from $5,357,000 in the same period last year. The decreased net income
resulted from decreased gross profit on decreased net sales, partially offset by
decreased selling and administrative expenses, decreased income tax expense, and
from the reporting of a larger amount of net interest income in fiscal 2001 as
compared to 2000. Diluted earnings per share of $0.29 in the first quarter of
fiscal 2001 decreased 44% from $0.52 per share reported in the same period last
year. The weighted average common shares outstanding for purposes of computing
diluted earnings per share increased 1% in the first quarter of fiscal 2001 to
10,435,000 shares from 10,361,000 shares in 2000 primarily as a result of common
shares issued for the exercise of stock options during the year.
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LIQUIDITY AND CAPITAL RESOURCES
The Company considers its level of cash on hand, its current ratio and
working capital levels to be its most important measures of short-term
liquidity. For long-term liquidity indicators, the Company believes its ratio of
long-term debt to equity and its historical levels of net cash flows from
operating activities to be the most important measures.
At September 30, 2000 the Company had working capital of $62.1 million,
compared to $61.1 million at June 30, 2000. The ratio of current assets to
current liabilities increased to 3.60 to 1 from 3.36 to 1. The increased working
capital is primarily attributed to increased inventories, and decreased accounts
payable and accrued expenses, partially offset by reductions in cash and other
current assets.
The Company generated $1.9 million of cash from operating activities in
the first quarter of fiscal 2001 as compared to $2.4 million in same period of
fiscal 2000. The decrease in net cash flows from operating activities in fiscal
2001 is primarily the net result of a decrease in net income, partially offset
by a decrease in accounts receivable and less of an increase in inventories. The
decrease in accounts receivable is primarily the result of lower sales volume in
the first quarter of fiscal 2001 as compared to the first quarter of fiscal
2000. As of September 30, 2000, the Company's days sales outstanding were at
approximately 61 days, increased from 55 days at June 30, 2000 due to slower
collection cycles from several customers.
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
unsecured revolving lines of credit totaling $32 million, all of which was
available as of November 1, 2000. A $12 million line of credit expires in the
third quarter of fiscal 2001. The primary line of credit in the amount of $20
million is a three year committed credit facility expiring in fiscal 2003 with
an annual renewal in the fourth quarter of fiscal 2001. The Company believes
that the total of available lines of credit plus cash flows from operating
activities is adequate for the Company's fiscal 2001 operational and capital
expenditure needs. The Company is in compliance with all of its loan covenants.
Capital expenditures of $2.1 million in the first quarter of fiscal 2001 compare
to $2.7 million in the same period of fiscal 2000. Spending in fiscal year 2001
was primarily related to expansion of the Company's facilities, and to
capitalization of Company-wide enterprise resource planning software and related
implementation costs. Capital expenditures totaling approximately $7 million are
planned for fiscal 2001, exclusive of business acquisitions.
On October 26, 2000 the Board of Directors declared a regular quarterly
cash dividend of $0.085 per share (approximately $876,000), to be paid November
14, 2000 to shareholders of record on November 7, 2000. During the first quarter
of fiscal 2000, the Company paid cash dividends in the amount of $1.3 million,
down from the $1.5 million paid in the same period of fiscal 2000.
The Company has announced that it has agreed to acquire substantially
all of the net assets of Lightron of Cornwall, Inc. in a transaction that is
expected to close in mid-November 2000 for cash plus assumption of certain
liabilities. Lightron, with net sales of approximately $25 million, is engaged
in the business of designing, manufacturing, and selling a high-end of
fluorescent, metal halide, halogen, recessed, surface, high bay and track
lighting fixtures, and LED exit signs for the commercial, industrial and retail
markets. The Company also announced that it has entered into a letter of intent
to purchase all of the assets and business of ADaPT Engineering, Inc. The
purchase price is approximately $4.5 million in cash and LSI Industries common
stock, and in addition the assumption of certain liabilities and a contingent
cash "earn-out" provided certain minimum earnings thresholds are exceeded.
ADaPT, with sales of
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approximately $5 million, is a multi-discipline service firm primarily focused
on the retail petroleum / convenience store branded image programs, as well as
other national retail customers. The acquisition is expected to be completed in
December 2000.
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.
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 9, 2000
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