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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 DECEMBER 31, 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 January 30, 1998: 9,577,976
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LSI INDUSTRIES INC.
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FORM 10-Q
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FOR THE QUARTER ENDED DECEMBER 31, 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
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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 4. Submission of Matters to a Vote of Securityholders................ 12
ITEM 6. Exhibits and Reports on Form 8-K.................................. 13
Signatures .................................................................. 13
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PART I. FINANCIAL INFORMATION
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ITEM 1. FINANCIAL STATEMENTS
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LSI INDUSTRIES INC.
CONSOLIDATED INCOME STATEMENTS
(Unaudited)
Three Months Ended Six Months Ended
December 31 December 31
----------------------- ----------------
(in thousands, except per 1997 1996 1997 1996
share data; unaudited) -------- -------- -------- --------
Net sales $47,754 $37,539 $91,711 $74,424
Cost of products sold 30,634 24,281 59,072 49,026
-------- -------- -------- --------
Gross profit 17,120 13,258 32,639 25,398
Selling and administrative expenses 11,253 9,022 21,982 17,827
-------- -------- -------- --------
Operating income 5,867 4,236 10,657 7,571
Interest expense 26 24 52 54
Interest (income) (21) (174) (32) (301)
Other expense 5 12 20 26
-------- -------- -------- --------
Income before income taxes 5,857 4,374 10,617 7,792
Income tax expense 2,177 1,656 3,962 2,938
-------- -------- -------- --------
Net income $ 3,680 $ 2,718 $ 6,655 $ 4,854
======== ======== ======== ========
Earnings per common share
Basic $ .39 $ .30 $ .70 $ .54
========= ========= ========= =========
Diluted $ .38 $ .30 $ .68 $ .53
========= ========= ========= =========
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)
(In thousands, except share amounts) December 31, June 30,
1997 1997
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ASSETS
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Current Assets
Cash and cash equivalents $ 2,630 $ 2,612
Accounts receivable 29,300 27,412
Inventories 25,680 23,058
Other current assets 1,737 1,770
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Total current assets 59,347 54,852
Property, plant and equipment, net 27,596 27,145
Goodwill and other assets 12,999 13,192
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$99,942 $95,189
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LIABILITIES & SHAREHOLDERS' EQUITY
- ----------------------------------
Current Liabilities
Current maturities of long-term debt $ 189 $ 187
Accounts payable 10,242 12,337
Accrued expenses 13,802 12,136
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Total current liabilities 24,233 24,660
Long-Term Debt 1,133 1,195
Other Long-Term Liabilities 1,465 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 9,545,804 and 9,499,231
shares, respectively 34,555 34,516
Retained earnings 38,556 33,452
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Total shareholders' equity 73,111 67,968
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$99,942 $95,189
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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
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1997 1996
---- ----
Cash Flows from Operating Activities
Net income $ 6,655 $ 4,854
Non-cash items included in income
Depreciation and amortization 1,977 1,460
Deferred income taxes 60 60
Loss on disposition of fixed assets 20 6
Changes in operating assets and liabilities
Accounts receivable (1,888) 331
Inventories (2,622) 233
Accounts payable and other (314) (3,357)
Change in liability for discontinued operations (7) --
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Net cash flows from operating activities 3,881 3,587
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Cash Flows from Investing Activities
Purchase of property, plant and equipment (2,292) (1,373)
Proceeds from sale of fixed assets 11 --
------- -------
Net cash flows from investing activities (2,281) (1,373)
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Cash Flows from Financing Activities
Payment of long-term debt (60) (59)
Cash dividends paid (1,551) (1,173)
Deferred compensation plan (57) 55
Proceeds from issuance of common shares 86 142
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Net cash flows from financing activities (1,582) (1,035)
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Increase in cash and cash equivalents 18 1,179
Cash and cash equivalents at beginning of year 2,612 11,138
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Cash and cash equivalents at end of period $ 2,630 $12,317
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Supplemental Cash Flow Information
Interest paid $ 60 $ 53
Income taxes paid $ 3,626 $ 3,308
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 December 31, 1997, and the results of its operations and
its cash flows for the periods ended December 31, 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 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: 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.
The following data present 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:
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NOTE 3: EARNINGS PER COMMON SHARE (continued)
Three Months Ended Six Months Ended
December 31 December 31
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1997 1996 1997 1996
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BASIC EARNINGS PER SHARE
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Net Income $3,680 $2,718 $6,655 $4,854
====== ====== ====== ======
Weighted Average Shares Outstanding
Weighted average shares
outstanding during the period,
net of treasury shares 9,542 9,017 9,533 9,006
====== ====== ====== ======
Basic Earnings per Share $ .39 $ .30 $ .70 $ .54
====== ====== ====== ======
DILUTED EARNINGS PER SHARE
- --------------------------
Net Income $3,680 $2,718 $6,655 $4,854
====== ====== ====== ======
Weighted Average Shares Outstanding
Weighted average shares
outstanding during the period,
net of treasury shares 9,542 9,017 9,533 9,006
Effect of Dilutive Securities:
Common Shares to be issued
under stock option plans and
a deferred compensation plan 222 149 202 204
------ ------ ------ ------
Average Shares Outstanding 9,764 9,166 9,735 9,210
====== ====== ====== ======
Diluted Earnings per Share $ .38 $ .30 $ .68 $ .53
[see (A) and (B) below] ====== ====== ====== ======
(A) Calculated using the "Treasury Stock" method as if options were
exercised and the funds were used to purchase Common Shares at the
average market price during the period.
(B) Options to purchase 500 common shares and 311,141 common shares
during the quarters ended December 31, 1997 and 1996, respectively,
and 14,716 common shares and 16,452 common shares during the six
month periods ended December 31, 1997 and 1996, respectively, 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.
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NOTE 4: INVENTORIES
Inventories consist of the following (in thousands):
December 31, 1997 June 30, 1997
----------------- -------------
Raw Materials $12,026 $10,272
Work-in-Process and
Finished Goods 13,654 12,786
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$25,680 $23,058
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NOTE 5: CASH DIVIDENDS
The Company paid cash dividends of $1,551,000 and $1,173,000 in the six
month periods ended December 31, 1997 and 1996, respectively. In
January, 1998, the Company's Board of Directors declared a $.0625 per
share regular quarterly cash dividend ($597,000) payable on February
17, 1998 to shareholders of record February 10, 1998.
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 December 31, 1997 a total of 32,053 common shares at a
cost of $424,000 were held in the Plan, and, accordingly, have been
recorded as treasury shares.
NOTE 7: SUBSEQUENT EVENT
The Company acquired the outstanding common stock of Marcole
Industries, Inc. on February 6, 1998 as well as the building and real
estate in Manchester, Tennessee from which Marcole will continue to
operate. Total purchase price was approximately $900,000, which
includes 12,000 common shares of LSI Industries. The new subsidiary,
LSI Marcole Inc., is a manufacturer of electrical wire harnesses for
the appliance and white goods industry. The acquisition will be
accounted for as a purchase, effective on the date of acquisition.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
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CONDITION AND RESULTS OF OPERATIONS
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NET SALES BY BUSINESS SEGMENT
(In thousands, unaudited)
Three Months Ended Six Months Ended
December 31 December 31
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1997 1996 1997 1996
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Image Group $35,034 $26,203 $66,833 $51,136
Commercial/Industrial
Lighting Group 12,720 11,336 24,878 23,288
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$47,754 $37,539 $91,711 $74,424
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RESULTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 1997 COMPARED WITH THREE MONTHS ENDED DECEMBER
31, 1996
Net sales of $47,754,000 in the second quarter of 1998 increased 27%
over second quarter net sales last year of $37,539,000. 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 34% and Commercial/Industrial Lighting Group net sales
increased 12% in the fiscal 1998 second quarter as compared to the prior year.
The increase in Image Group sales is attributed to growth in substantially all
markets and products, particularly graphics, and quick service restaurant, as
well as to the inclusion of Grady McCauley in the operating results in fiscal
1998. Net sales of the Image Group to the petroleum/convenience store market
represented 47% and 49% of net sales in the second quarters of fiscal 1998 and
fiscal 1997, respectively. 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 $17,120,000 increased 29% over last year's gross profit
of $13,258,000, and increased as a percentage of net sales to 35.9% in the
second quarter of fiscal year 1998 as compared to 35.3% in the same period last
year. The increase in gross profit is due primarily to the 27% 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. The Company's graphics operations reported an improved aggregate gross
profit percentage with interior retail graphics achieving a higher gross margin
and the exterior graphics reporting a less favorable program mix. Selling and
administrative expenses increased to $11,253,000 from $9,022,000 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 at 23.6% in
the second quarter of fiscal 1998 as compared to 24.0% in the same period last
year.
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The Company reported net interest expense of $5,000 in the second
quarter of fiscal 1998 as compared to net interest income of $150,000 in the
second 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 37.2% in the second quarter of fiscal 1998 as
compared to 37.9% in the second quarter of fiscal 1997.
Net income of $3,680,000 increased 35% over $2,718,000 in the second
quarter of fiscal 1997. The increased net income resulted from increased gross
profit on higher net sales, partially offset by increased operating expenses,
increased income taxes, and from the reporting of net interest income in fiscal
1997 as compared to net interest expense in fiscal 1998. Diluted earnings per
share in the second quarter of fiscal 1998 of $.38 compares to $.30 per share in
the same period in fiscal 1997. The weighted average common shares outstanding
for purposes of computing diluted earnings per share increased 7% in 1998 to
9,765,000 shares from 9,149,000 shares in 1997 primarily as a result of 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.
SIX MONTHS ENDED DECEMBER 31, 1997 COMPARED WITH SIX MONTHS ENDED DECEMBER 31,
1996
Net sales of $91,711,000 in the first half of 1998 increased 23% over
first half net sales last year of $74,424,000. 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 31% and Commercial/Industrial Lighting Group net sales increased 7%
in the fiscal 1998 first half as compared to the prior year. The increase in
Image Group sales is attributed to growth in graphics, petroleum lighting, and
quick service restaurant, as well as to the inclusion of Grady McCauley in the
operating results in fiscal 1998. Net sales of the Image Group to the
petroleum/convenience store market represented 47% and 48% of net sales in the
first half of fiscal 1998 and fiscal 1997, respectively. 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 $32,639,000 increased 29% over last year's gross profit
of $25,398,000, and increased as a percentage of net sales to 35.6% in the first
half of fiscal year 1998 as compared to 34.1% in the same period last year. The
increase in gross profit is due primarily to the 23% 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. The
Company's graphics operations reported improved gross profit percentage with
increased sales volume and the addition of Grady McCauley. Selling and
administrative expenses increased to $21,982,000 from $17,827,000 primarily as a
result of increased sales volume and the addition of Grady McCauley. As a
percentage of net sales, selling and administrative expenses remained at 24.0%.
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The Company reported net interest expense of $20,000 in the first half
of fiscal 1998 as compared to net interest income of $247,000 in the first half
of fiscal 1997 reflective of the significantly reduced amount of short-term cash
investments during the first half of fiscal 1998. 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 37.3% in the first half of fiscal 1998 as
compared to 37.7% in the first half of fiscal 1997.
Net income of $6,655,000 increased 37% over $4,854,000 in the first
half of fiscal 1997. The increased net income resulted from increased gross
profit on higher net sales, partially offset by increased operating expenses,
increased income taxes, and from the reporting of net interest income in fiscal
1997 as compared to net interest expense in 1998. Diluted earnings per share in
the first half of fiscal 1998 of $.68 compares to $.53 per share in the same
period in fiscal 1997. The weighted average common shares outstanding for
purposes of computing diluted earnings per share increased 6% in 1998 to
9,732,000 shares from 9,193,000 shares in 1997 primarily as a result of 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 December 31, 1997 the Company had working capital of $35.1 million,
compared to $30.2 million at June 30, 1997. The ratio of current assets to
current liabilities increased to 2.45 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.
The Company generated $3.9 million of cash from operating activities in
the first six months of fiscal 1998 as compared to $3.6 million of cash
generated in the same period last year. The Company generated more cash in the
first six months of fiscal 1998 primarily due to increased net income and
increased depreciation and amortization expenses. Additionally, significant
increases in accounts receivable and inventories in fiscal 1998 compared to
modest reductions in fiscal 1997, and a significantly larger fiscal 1997
decrease in accounts payable and accrued expenses contributed to the change
between years in net cash flows from operating activities. As of December 31,
1997, the Company's days sales outstanding were at approximately 62 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
February 2, 1998. The Company believes that the total of available lines of
credit plus cash flows from operating activities is adequate for the Company's
1998-1999 operational and capital expenditure needs. The Company is in
compliance with all of its loan covenants. Capital expenditures of $2.3 million
in the first six months of fiscal 1998 compare to $1.4 million in the same
period last year. Spending in fiscal year 1998 is 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 1998.
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In January 1998, the Board of Directors declared a regular quarterly
cash dividend of $.0625 per share ($597,000) to be paid February 17, 1998 to
shareholders of record on February 10, 1998.
The Company has completed preliminary reviews of its business systems,
office support systems, and its facilities and equipment with respect to year
2000 programming deficiencies. The review is also extending to major suppliers
and customers. The Company currently does not anticipate material costs to be
incurred to detect, modify, or replace any affected systems. The Company
anticipates completion of this process prior to June 30, 1999.
The Company acquired the outstanding common stock of Marcole
Industries, Inc. on February 6, 1998 as well as the building and real estate in
Manchester, Tennessee from which Marcole will continue to operate. Total
purchase price was approximately $900,000, which includes 12,000 common shares
of LSI Industries. The new subsidiary, LSI Marcole Inc., is a manufacturer of
electrical wire harnesses for the appliance and white goods industry. The
acquisition will be accounted for as a purchase, effective on the date of
acquisition.
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
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS
- ------- --------------------------------------------------
At the Company's Annual Meeting of Shareholders held November 13, 1997,
the following actions were taken by shareholders:
4.1 All persons nominated as Class A Directors were elected with the
votes for each person being:
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Shares - Withheld Shares
Name Shares For Authority Abstained
----------------------------- ---------------------- ------------------------ ------------------
Michael J. Burke 8,648,012 16,709 N/A
----------------------------- ---------------------- ------------------------ ------------------
Robert J. Ready 8,648,602 16,119 N/A
----------------------------- ---------------------- ------------------------ ------------------
John N. Taylor, Jr. 8,648,312 16,409 N/A
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4.2 Amendment of the LSI Industries Inc. 1995 Stock Option Plan:
- ------------------ --------------------- ------------------------ -------------------------
Shares For Shares Against Shares Abstained Broker Non-Votes
- ------------------ --------------------- ------------------------ -------------------------
7,268,846 1,346,590 49,285 N/A
- ------------------ --------------------- ------------------------ -------------------------
4.3 The selection of Arthur Andersen LLP as independent public
accountants for fiscal year 1998 was ratified by the following vote:
- ------------------ --------------------- ------------------------ -------------------------
Shares For Shares Against Shares Abstained Broker Non-Votes
- ------------------ --------------------- ------------------------ -------------------------
8,642,739 10,354 11,628 N/A
- ------------------ --------------------- ------------------------ -------------------------
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
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a) Exhibits
11 Statement Re Computation of Earnings Per Share
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
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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
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Robert J. Ready
President and Chief Executive Officer
(Principal Executive Officer)
BY: /s/ Ronald S. Stowell
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Ronald S. Stowell
Vice President, Chief Financial Officer
and Treasurer (Principal Financial and
Accounting Officer)
February 9, 1998
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