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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
DECEMBER 31, 1995.
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 January 15, 1996: 7,623,782.
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LSI INDUSTRIES INC.
FORM 10-Q
FOR THE QUARTER ENDED DECEMBER 31, 1995
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........................................... 7
PART II. Other Information
ITEM 4. Submission of Matters to a Vote of Securityholders........ 11
ITEM 6. Exhibits and Reports on Form 8-K.......................... 12
Signatures .......................................................... 13
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LSI INDUSTRIES INC.
CONSOLIDATED INCOME STATEMENTS
(Unaudited)
Three Months Ended Six Months Ended
December 31 December 31
----------------------- ----------------------
(In thousands, except per 1995 1994 1995 1994
---- ---- ---- ----
share amounts)
Net sales $ 45,561 $ 32,364 $ 81,443 $ 61,684
Cost of products sold 31,737 21,190 55,677 40,652
-------- -------- -------- --------
Gross profit 13,824 11,174 25,766 21,032
Selling and administrative expenses 9,315 7,688 17,627 14,593
-------- -------- -------- --------
Operating income 4,509 3,486 8,139 6,439
Interest expense 207 115 350 179
Other expenses 11 10 16 19
-------- -------- -------- --------
Income from continuing opera-
tions before income taxes 4,291 3,361 7,773 6,241
Income tax expense 1,598 1,202 2,886 2,233
-------- -------- -------- --------
Income from continuing
operations 2,693 2,159 4,887 4,008
Discontinued operations (Note 6) (1,500) -- (1,500) --
-------- -------- -------- --------
Net income $ 1,193 $ 2,159 $ 3,387 $ 4,008
======== ======== ======== ========
Net income (loss) per common share
Continuing operations $ .34 $ .28 $ .61 $ .52
Discontinued operations (.19) -- (.19) --
-------- -------- -------- --------
Total net income per share $ .15 $ .28 $ .42 $ .52
======== ======== ======== ========
Average shares outstanding 8,006 7,770 7,980 7,760
======== ======== ======== ========
The accompanying Notes to Financial Statements are an integral part of these
financial statements.
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LSI INDUSTRIES INC.
CONSOLIDATED BALANCE SHEETS
(In thousands) December 31, June 30,
1995 1995
----------- ---------------------
(Unaudited) (Derived from Audited
ASSETS financial statements)
Current Assets
Cash $ 1,917 $ 2,124
Accounts receivable 29,530 19,273
Inventories 20,862 18,584
Other current assets 1,405 1,835
------- -------
Total current assets 53,714 41,816
Property, plant and equipment, net 20,251 19,398
Goodwill 1,319 1,339
------- -------
$75,284 $62,553
======= =======
LIABILITIES & SHAREHOLDERS' EQUITY
Current Liabilities
Notes payable to bank $ 6,809 $ --
Current maturities of long-term debt 844 842
Accounts payable 17,111 10,641
Accrued expenses 10,161 12,545
------- -------
Total current liabilities 34,925 24,028
Long-Term Debt 6,863 7,257
Other Long-Term Liabilities 1,485 1,815
Shareholders' Equity
Preferred shares, without par value; -- --
Authorized 1,000,000 shares; none issued
Common shares, without par value; 8,075 7,915
Authorized 30,000,000 shares;
Outstanding 7,623,782 and 7,554,229
shares, respectively
Retained earnings 23,936 21,538
------- -------
Total shareholders' equity 32,011 29,453
------- -------
$75,284 $62,553
======= =======
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)
(In thousands) Six Months Ended
December 31
----------------------
1995 1994
---- ----
Cash Flows From Operating Activities
Net income from continuing operations $ 4,887 $ 4,008
Non-cash items included in income
Depreciation and amortization 1,154 938
Deferred income taxes 50 60
(Gain) on disposition of fixed assets (4) --
Changes in operating assets and liabilities
Accounts receivable (10,257) (3,557)
Inventories (2,278) (3,500)
Accounts payable and other 3,898 (210)
Loss from discontinued operations (1,500)
Change in liability for discontinued operations 238 (30)
-------- -------
Net cash flows from operating activities (3,812) (2,291)
-------- -------
Cash Flows from Investing Activities
Purchase of property, plant and equipment (1,987) (1,647)
Proceeds from sale of fixed assets 4 --
-------- -------
Net cash flows from investing activities (1,983) (1,647)
-------- -------
Cash Flows from Financing Activities
Increase in lines of credit 6,809 303
Payment of long-term debt (392) (58)
Increase in long-term debt -- 3,700
Cash dividends paid (989) (676)
Exercise of stock options 160 161
-------- -------
Net cash flows from financing activities 5,588 3,430
-------- -------
Increase (decrease) in cash (207) (508)
Cash at beginning of year 2,124 1,614
-------- -------
Cash at end of period $ 1,917 $ 1,106
======== =======
Supplemental Cash Flow Information
Interest paid $ 189 $ 579
Income taxes paid $ 4,162 $ 2,752
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
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 December 31, 1995, and the results of its operations and
its cash flows for the periods ended December 31, 1995 and 1994. These
statements should be read in conjunction with the financial statements
and footnotes included in the fiscal 1995 annual report.
NOTE 2: 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 consist of dilutive stock
options of which there were 384,000 and 257,000 shares, respectively,
for the three month periods ended December 31, 1995 and 1994, and
378,000 and 264,000 shares, respectively, for the six month periods
ended December 31, 1995 and 1994.
NOTE 3: INVENTORIES
Inventories consist of the following (in thousands):
December 31, 1995 June 30, 1995
----------------- -------------
(unaudited) (derived from audited
financial statements)
Raw Materials $12,106 $ 9,821
Work-in-Process and
Finished Goods 8,756 8,763
------- -------
$20,862 $18,584
======= =======
NOTE 4: CASH DIVIDENDS
The Company paid cash dividends of $676,000 and $989,000 in the six
month periods ended December 31, 1994 and 1995, respectively. In
January 1996, the Company's Board of Directors declared a $.04 per
share regular quarterly cash dividend ($305,000) payable on February 9,
1996 to shareholders of record February 2, 1996.
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NOTE 5: SALES TO MAJOR CUSTOMERS
The Company made sales in both the Lighting and Graphics segments to a
major customer, Chevron U.S.A., representing 11% and 15%, respectively,
of consolidated net sales in the three month periods ended December 31,
1995 and 1994, respectively, and 11% and 15%, respectively, for the six
month periods ended December 31, 1995 and 1994.
NOTE 6: INCOME TAXES
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) has completed its audit of the Company's
1989 through 1992 federal income tax returns. 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. In October 1994, the IRS proposed audit adjustments
which would have resulted in a return of approximately $2 million of
income taxes (plus interest) which had been refunded to the Company
with the filing of its 1992 income tax return.
The Company's settlement discussions with the IRS Appeals Division
relating to the proposed audit assessment were concluded in December
1995. An agreement was reached that will re-characterize a portion of
the 1992 loss associated with discontinued European operations as a
long term capital loss. The agreement will result in payment of
approximately $1.7 million (composed of taxes and interest), and in a
charge to discontinued operations of $1.5 million to increase the
Company's reserve for remaining liabilities associated with the
discontinued operations. During the quarter ending December 31, 1995,
the Company exhausted all alternatives to mitigate this issue and has
recorded the $1.5 million additional reserve for discontinued
operations in the second quarter of fiscal 1996.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
NET SALES BY BUSINESS SEGMENT
Three Months Ended Six Months Ended
(In thousands; unaudited) December 31 December 31
--------------------- ---------------------
1995 1994 1995 1994
---- ---- ---- ----
Lighting $30,210 $19,859 $52,741 $36,106
Graphics 15,351 12,505 28,702 25,578
------- ------- ------- -------
$45,561 $32,364 $81,443 $61,684
======= ======= ======= =======
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THREE MONTHS ENDED DECEMBER 31, 1995 COMPARED WITH THREE MONTHS ENDED DECEMBER
31, 1994
Net sales of $45.6 million increased 40.8% over second quarter net
sales last year of $32.4 million. Lighting segment sales increased 52.1% and
Graphics segment sales increased 22.8%, as a result of strong sales increases in
both the petroleum/convenience store market and the multi-site retail market.
One customer, Chevron U.S.A., accounted for 11.1% of net sales in the second
quarter of fiscal 1996 and 15.1% of net sales in the corresponding period of
fiscal 1995. The Company believes that it continues to maintain a good business
relationship with this major customer; however, the level of total sales is
never assured in the future. The increase in net sales in the three months ended
December 31, 1995 was primarily the result of increased volume. While sales
prices were increased, inflation did not have a significant impact on sales in
the second quarter of fiscal 1996 as competitive pricing pressures held price
increases to a minimum.
Gross profit of $13.8 million, or 30.3% of net sales, increased over
last year's second quarter gross profit of $11.2 million or 34.5% of net sales.
The increase in amount of gross profit is attributed primarily to the 40.8%
increase in net sales. A sales mix shift in the Company's Graphics segment to
somewhat lower gross margin programs in the second quarter, lower utilization of
manufacturing capacity in the Graphics segment, and an increase in lighting
sales to the petroleum/convenience store market provided influences that reduced
the gross profit percentage. Increased capacity utilization and improved direct
labor efficiencies in the Lighting segment favorably impacted gross profit.
Selling and administrative expenses increased to $9.3 million primarily as a
result of increased sales volume, and were reduced to 20.4% of net sales in the
second quarter of fiscal 1996 from 23.8% of net sales in the comparable period
last year.
Interest expense increased from $115,000 to $207,000, primarily as a
result of increased average borrowings on the Company's revolving lines of
credit and term loan facilities in addition to increased effective borrowing
rates. The Company's effective tax rate increased to 37.2% as a result of the
increased provision for state income taxes.
Income from continuing operations of $2.7 million or $.34 per share
increased 24.7% from last year's second quarter income from continuing
operations of $2.2 million or $.28 per share as a result of increased sales and
gross profit, partially offset by increased selling and administrative expenses
and an increased provision for taxes.
As discussed in Note 6 to the financial statements and as previously
discussed in the Company's prior reports on Form 10-Q, the Company had been
involved in a dispute with the Internal Revenue Service (IRS) in which the IRS
proposed audit adjustments which could have resulted in a payment of income
taxes by the Company of approximately $2.0 million, plus interest. The proposed
adjustments related to the Company's 1992 discontinued operations and were
associated with income tax which had been refunded to the Company with the
filing of its 1992 income tax return. During the second quarter of fiscal 1996,
the Company exhausted all alternatives to mitigate this issue and reached a
settlement agreement in December 1995 which re-characterized a portion of the
1992 loss associated with discontinued European operations as a long term
capital loss. The agreement will result in payment of approximately
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$1.7 million (composed of interest and taxes), of which approximately $1.2
million was paid late in the second quarter of fiscal 1996. The Company recorded
a charge to discontinued operations of $1.5 million, or $.19 per share, in the
second quarter of fiscal 1996 to increase the reserve for remaining liabilities
associated with the discontinued operations. The Company anticipates no further
charges associated with the discontinued European operations.
Net income of $1.2 million, or $.15 per share, in the second quarter of
fiscal 1996 compares to net income of $2.2 million, or $.28 per share, in last
year's second quarter. The change results from increased income from continuing
operations and the reduction associated with the discontinued operations.
SIX MONTHS ENDED DECEMBER 31, 1995 COMPARED WITH SIX MONTHS ENDED DECEMBER 31,
1994
Net sales of $81.4 million increased 32.0% over first half net sales
last year of $61.7 million. Lighting segment sales increased 46.1% and Graphics
segment sales increased 12.2%, as a result of strong sales increases in both the
petroleum/convenience store market and the multi-site retail market. One
customer, Chevron U.S.A., accounted for 10.9% of net sales in the first half of
fiscal 1996 and 14.9% of net sales in the corresponding period of 1995. The
Company believes that it continues to maintain a good business relationship with
this major customer; however, the level of total sales is never assured in the
future. The increase in net sales in the six months ended December 31, 1995 was
primarily the result of increased volume. While sales prices were increased,
inflation did not have a significant impact on sales in the first half of fiscal
1996 as competitive pricing pressures held price increases to a minimum.
Gross profit of $25.8 million, or 31.6% of net sales, increased over
last year's first half gross profit of $21.0 million or 34.1% of net sales. The
increase in amount of gross profit is attributed primarily to the 32.0% increase
in net sales. A sales mix shift in the Company's Graphics segment to somewhat
lower gross margin programs, lower utilization of manufacturing capacity in the
Graphics segment, and an increase in lighting sales to the petroleum/convenience
store market provided influences that reduced the gross profit percentage.
Increased capacity utilization and improved direct labor efficiencies in the
Lighting segment favorably impacted gross profit. Selling and administrative
expenses increased to $17.6 million primarily as a result of increased sales
volume, and were reduced to 21.6% of net sales in the first half of fiscal 1996
from 23.7% of net sales in the comparable period last year.
Interest expense increased from $179,000 to $350,000, primarily as a
result of increased average borrowings on the Company's revolving lines of
credit and term loan facilities in addition to increased effective borrowing
rates. The Company's effective tax rate increased to 37.1% as a result of the
increased provision for state income taxes.
Income from continuing operations of $4.9 million or $.61 per share
increased 21.9% from last year's first half income from continuing operations of
$4.0 million or $.52 per share as a result of increased sales and gross profit,
partially offset by increased selling and administrative expenses and an
increased provision for taxes.
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As discussed in Note 6 to the financial statements and as previously
discussed in the Company's prior reports on Form 10-Q, the Company had been
involved in a dispute with the Internal Revenue Service (IRS) in which the IRS
proposed audit adjustments which could have resulted in a payment of income
taxes by the Company of approximately $2.0 million, plus interest. The proposed
adjustments related to the Company's 1992 discontinued operations and were
associated with income tax which had been refunded to the Company with the
filing of its 1992 income tax return. During the second quarter of fiscal 1996,
the Company exhausted all alternatives to mitigate this issue and reached a
settlement agreement in December 1995 which re-characterized a portion of the
1992 loss associated with discontinued European operations as a long term
capital loss. The agreement will result in payment of approximately $1.7 million
(composed of interest and taxes), of which approximately $1.2 million was paid
late in the second quarter of fiscal 1996. The Company recorded a charge to
discontinued operations of $1.5 million, or $.19 per share, in the second
quarter of fiscal 1996 to increase the reserve for remaining liabilities
associated with the discontinued operations. The Company anticipates no further
charges associated with the discontinued European operations.
Net income of $3.4 million, or $.42 per share, in the first half of
fiscal 1996 compares to net income of $4.0 million, or $.52 per share, in last
year's first half. The change resulted from increased income from continuing
operations and the reduction associated with the discontinued operations.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1995 the Company had working capital of $18.8 million,
compared to $17.8 million at June 30, 1995. The ratio of current assets to
current liabilities decreased to 1.54 to 1 from 1.74 to 1 at June 30, 1995. The
increased working capital is primarily attributed to increases in accounts
receivable and inventories, and to a reduction in accrued expenses, partially
offset by increases in notes payable to banks, to increases in accounts payable
(related to increased sales and production levels), and to decreased cash and
other current assets.
The Company used $3.8 million of cash for operating activities in the
first half of fiscal 1996 as compared to a use of $2.3 million in the first half
of fiscal 1995. The Company used more cash in the first half of fiscal 1996
primarily because of the payment of approximately $1.2 million associated with
the settlement of the IRS audit related to the discontinued European operations.
In fiscal 1996, the increased level of business resulted in significant
increases in accounts receivable, inventories, as well as increases in notes
payable from banks and accounts payable which supported the increased working
capital need. As of December 31, 1995, the Company has experienced an increase
in days sales outstanding to approximately 56 days, as compared to 53 days at
June 30, 1995, along with the overall increase in amounts due from customers
related to the increased level of sales, especially late in the quarter.
The combined effect during the first half of fiscal 1996 of inventories
increasing by $2.3 million with continued increased sales and production
requirements, receivables increasing by $10.3 million, capital spending of $2.0
million, and cash dividend payments of $1.0 million resulted in a slight
reduction in cash and in a $6.8 million increase in short term borrowings on
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the Company's revolving lines of credit. The debt to equity ratio of .45 to 1 at
December 31,1995 increased from .28 to 1 as of June 30, 1995. The Company's
primary source of liquidity continues to be its lines of credit, which carried
$7.1 million of available borrowing capacity as of January 12, 1996.
Capital expenditures of $2.0 million in the first half of fiscal 1996
compare to $1.6 million in the comparable period last year. Spending in fiscal
year 1996 is primarily related to manufacturing equipment and process
improvements and is expected to total approximately $4.4 million for the full
year, with funding principally out of cash flows from operations as well as from
the Company's lines of credit. In January 1996, the Board of Directors declared
a regular quarterly cash dividend of $.04 per share to be paid February 9, 1996
to shareholders of record February 2, 1996.
The Company's third quarter ending March 31st typically produces the
lowest revenue of the year due to annual budgetary cycles of many of its large
customers and due to poor weather conditions. The third quarter of fiscal 1996
may be adversely affected by business interruptions associated with the recent
severe winter weather conditions on the East Coast.
In December 1995, the Company filed a Registration Statement with the
Securities and Exchange Commission for a Public Offering 1.8 million common
shares. A total of 1.1 million common shares will be offered for sale by the
Company and .7 million common shares will be offered for sale by Selling
Shareholders. The Company anticipates the Public Offering to occur in the third
fiscal quarter, although there can be no assurance as to whether the offering
will be successful.
The Company has two revolving lines of credit totaling $13.0 million.
After the Offering, the Company will have approximately $28.2 million in working
capital and will have $13.0 million available under its two bank revolving lines
of credit. The Company believes that the total of available lines of credit plus
cash flows from operating activities is adequate for the Company's 1996
operational and capital expenditure needs. The Company is in compliance with all
of its loan covenants.
The Company continues to seek opportunities to invest in new products
and markets, and in acquisitions which fit its strategic growth plans in the
lighting and graphics markets. The Company believes that adequate financing for
any such investments or acquisitions will be available through future borrowings
due to the enhanced financial condition of the Company after the Public Offering
or through the issuance of common shares in payment for acquired businesses.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS
At the Company's Annual Meeting of Shareholders held November 16, 1995,
the following actions were taken by shareholders:
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4.1 All persons nominated as Class A Directors were elected with the
votes for each person being:
--------------------------------------------------------------------------------------
Shares - Withheld Shares
Name Shares For Authority Abstained
--------------------------------------------------------------------------------------
Michael J. Burke 6,445,499 398,469 None
--------------------------------------------------------------------------------------
Robert J. Ready 6,446,012 397,956 None
--------------------------------------------------------------------------------------
John N. Taylor, Jr. 6,446,019 397,949 None
--------------------------------------------------------------------------------------
4.2 The selection of Price Waterhouse LLP as independent public
accountants for fiscal year 1996 was ratified by the following vote:
-----------------------------------------------------------------------------------
Shares For Shares Against Shares Abstained Broker Non-Votes
-----------------------------------------------------------------------------------
6,717,037 16,890 110,041 None
-----------------------------------------------------------------------------------
4.3 The adoption of the LSI Industries Inc. 1995 Stock Option Plan was
ratified by the following vote:
-----------------------------------------------------------------------------------
Shares For Shares Against Shares Abstained Broker Non-Votes
-----------------------------------------------------------------------------------
4,385,727 1,251,675 120,954 1,085,612
-----------------------------------------------------------------------------------
4.4 The adoption of the LSI Industries Inc. 1995 Directors' Stock
Option Plan was ratified by the following vote:
-----------------------------------------------------------------------------------
Shares For Shares Against Shares Abstained Broker Non-Votes
-----------------------------------------------------------------------------------
5,181,049 434,339 142,967 1,085,613
-----------------------------------------------------------------------------------
4.5 The Amendment of the Articles of Incorporation to increase the
authorized shares was ratified by the following vote:
-----------------------------------------------------------------------------------
Shares For Shares Against Shares Abstained Broker Non-Votes
-----------------------------------------------------------------------------------
5,822,740 887,405 133,823 None
-----------------------------------------------------------------------------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
10.1 Promissory Note dated December 31, 1995 with The Provident
Bank
10.2 Amended and Restated Revolving Note dated November 21, 1995
with The Fifth Third Bank
11 Statement Re Computation of Earnings Per Share
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(b) Form 8-K
No reports on Form 8-K have been 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:
---------------------------------------------
Robert J. Ready
President and Chief Executive Officer
(Principal Executive Officer)
BY:
---------------------------------------------
Ronald S. Stowell
Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
January 16, 1996
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