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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
_____ EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED JUNE 30, 2000.
OR
_____ 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
Securities Registered Pursuant to Section 12(b) of the Act:
None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Shares
(No par value)
Indicate by check mark 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 (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Aggregate market value of the voting stock held by non-affiliates of the
registrant at September 7, 2000 was approximately $199,475,000, based on a
closing price of $21.00. At September 7, 2000 there were 10,283,870 shares of no
par value Common Shares issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement filed with the Commission for its
2000 annual meeting are incorporated by reference in Part III, as specified.
2
LSI INDUSTRIES INC.
2000 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
Begins on
Page
----
PART I
ITEM 1. BUSINESS................................................................................... 1
ITEM 2. PROPERTIES.................................................................................. 2
ITEM 3. LEGAL PROCEEDINGS........................................................................... 3
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS......................................... 3
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDERS' MATTERS................. 3
ITEM 6. SELECTED FINANCIAL DATA..................................................................... 4
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS....... 4
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.................................. 4
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................................................. 4
ITEM 9. DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE....................... 4
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.......................................... 5
ITEM 11. EXECUTIVE COMPENSATION...................................................................... 5
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.............................. 5
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............................................. 5
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, REPORTS ON FORM 8-K................................ 5
SIGNATURES................................................................................................ 7
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995
This Form 10-K 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.
i
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PART I
ITEM 1. BUSINESS
The Company's two business segments are the Image Group and the
Commercial/Industrial Lighting Group. Net sales by segment are as follows (in
thousands):
2000 1999 1998
---- ---- ----
Image Group $155,896 $159,277 $138,886
Commercial/Industrial
Lighting Group 79,705 68,512 50,253
-------- -------- --------
Total Net Sales $235,601 $227,789 $189,139
======== ======== ========
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 (acquired in the fourth quarter of fiscal year 1999). The
Commercial/Industrial Lighting Group manufactures and sells 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 Sports Lighting, Greenlee Lighting, LSI
Marcole, and LSI MidWest Lighting (acquired in the third quarter of fiscal year
1999). The Company's most significant market is the petroleum/convenience
store market with approximately 38%, 43% and 49% of net sales concentrated in
this market in the fiscal years ended June 30, 2000, June 30, 1999, and June 30,
1998, respectively. See Note 3 of Notes to Consolidated Financial Statements
beginning on page S-14 of this Form 10-K for additional information on business
segments.
The decrease in Image Group net sales is attributed primarily to
softness in the petroleum/convenience store market. Net sales to this
significant market were 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.
The Company believes that it is a low-cost producer for its types of
products, and as such, is in a position to promote its product lines with
substantial marketing and sales activities.
The Company is not dependent on any one supplier for any of its
component parts.
The Company's sales are partially seasonal as installation of outdoor
lighting and graphic systems in the northern states lessens during the harshest
winter months. The Company had a backlog of orders, believed by it to be firm,
of $19.5 million and $27.2 million at June 30, 2000 and 1999, respectively. All
orders are believed to be shippable within twelve months.
The Company has approximately 1,450 full-time and 50 temporary
employees. The Company has a comprehensive compensation and benefit program for
most employees, including competitive wages, a discretionary bonus plan, a
profit-sharing plan and retirement plan, a 401(k) savings plan, a non-qualified
deferred compensation plan (for certain employees), a stock option plan, and
medical and dental insurance.
-1-
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The Company sells its products throughout the United States and Canada.
LSI Industries encounters strong competition in all markets served by
the Company's product lines. The Company has many competitors, some of which
have greater financial and other resources. The Company considers product
quality and performance, price, customer service, prompt delivery, and
reputation to be important competitive factors.
The Company has several product and process patents which it has
obtained in the normal course of business. The Company in general does not
believe that patent protection is critical to its business, however it does
believe that patent protection is important for a few select products.
ITEM 2. PROPERTIES
The Company has nine facilities:
Description Size Location Status
----------- ---- -------- ------
1) LSI Industries Corporate 243,000 sq. ft., Cincinnati, OH Owned
Headquarters, and (includes 56,000
lighting fixture and sq. ft. of office
graphics manufacturing space)
2) LSI Industries pole 131,000 sq. ft. Cincinnati, OH Owned
manufacturing and dry
powder-coat painting
3) LSI Metal Fabrication 99,000 sq. ft. Independence, KY Owned
and LSI Images manu- (includes 5,000
facturing and dry sq. ft. of office
powder-coat painting space)
4) SGI Integrated Graphic 198,000 sq. ft. Houston, TX Leased
Systems office; screen (includes 34,000
printing manufacturing; sq. ft. of office space)
and architectural graphics
manufacturing
5) Greenlee Lighting office 40,000 sq. ft. Dallas, TX Leased
and manufacturing (includes 4,000 sq. ft.
of office space)
6) Grady McCauley office 212,000 sq. ft. North Canton, OH Owned
and manufacturing (includes 20,000
sq. ft. of office space)
7) LSI Marcole office and 39,000 sq. ft. Manchester, TN Owned
manufacturing of electrical (includes 5,000 sq. ft.
wire harnesses; contract of office space)
assembly services
-2-
5
8) LSI MidWest Lighting 145,000 sq. ft. Kansas City, KS Owned
office and manufacturing (includes 6,000 sq. ft.
of office space and
8,000 sq. ft. of leased
warehouse space)
9) LSI Retail Graphics office 27,000 sq. ft. Woonsocket, RI Owned
and manufacturing (includes 5,000 sq. ft.
of office space and
7,000 sq. ft. of leased
warehouse space)
The Company considers these facilities (total of 1,134,000 square feet) adequate
for its current level of operations.
ITEM 3. LEGAL PROCEEDINGS
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of the year covered by this report.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDERS'
MATTERS
Common share information appears in Note 12 - SUMMARY OF QUARTERLY
RESULTS (UNAUDITED) under "Range of share prices" on page S-22 of this
Form 10-K. Information related to "Earnings per share from continuing
operations" and "Cash dividends paid per share" appears in SELECTED
FINANCIAL DATA on page S-24 of this Form 10-K.
The Company's policy with respect to dividends is to pay a quarterly
cash dividend representing a payout ratio of between 10% and 20% of the
then current fiscal year net income forecast. In addition to the four
quarterly dividend payments, the Company may declare a special year-end
cash and/or stock dividend that, in conjunction with the regular
quarterly cash dividends, would achieve a target payout ratio of
between 20% and 40% of reported net income. The Company has paid annual
dividends since fiscal 1987 and quarterly dividends since fiscal 1995.
At August 21, 2000, there were 477 shareholders of record. The Company
believes this represents approximately 3,500 beneficial shareholders.
The Company's common shares are traded on the Nasdaq National Market
under the symbol LYTS.
-3-
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ITEM 6. SELECTED FINANCIAL DATA
"Selected Financial Data" appears on page S-24 of this Form 10-K.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" appears on pages S-1 through S-4 of this Form
10-K.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See ITEM 1. BUSINESS on page 1 and MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS beginning on page S-1
of this Form 10-K. In addition, see the information set forth in NOTE 1
under "Fair value of financial instruments" beginning on page S-11 of
this Form 10-K.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Begins
Index to Financial Statements on Page
-------
Financial Statements:
Report of Independent Public Accountants S-5
Consolidated Income Statements for the years
ended June 30, 2000, 1999 and 1998 S-6
Consolidated Balance Sheets at June 30, 2000 and 1999 S-7
Consolidated Statements of Shareholders' Equity for
the years ended June 30, 2000, 1999 and 1998 S-9
Consolidated Statements of Cash Flows for the
years ended June 30, 2000, 1999 and 1998 S-10
Notes to Consolidated Financial Statements S-11
Financial Statement Schedules:
II - Valuation and Qualifying Accounts for the S-25
years ended June 30, 2000, 1999 and 1998
Schedules other than those listed above are omitted for the reason(s)
that they are either not applicable or not required or because the
information required is contained in the financial statements or notes
thereto. Selected quarterly financial data appears on page S-22 in NOTE
12 of the accompanying consolidated financial statements.
ITEM 9. DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
-4-
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PART III
ITEMS 10, 11, 12 and 13 of Part III are incorporated by reference to the LSI
Industries Inc. Proxy Statement for its Annual Meeting of Shareholders to be
held November 9, 2000, as filed with the Commission pursuant to Regulation 14A.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
(1) Financial Statements
Appear as part of Item 8 of this Form 10-K.
(2) Financial Statement Schedules
Appear as part of Item 8 of this Form 10-K.
(3) Exhibit list - listing of exhibits required to be filed with
Form 10-K incorporated by reference to Exhibit(s) filed as
part of:
10K-89 = Annual Report on Form 10-K for the fiscal year
ended June 30, 1989
10K-96 = Annual Report on Form 10-K for the fiscal year
ended June 30, 1996
10Q-9/99 = Quarterly Report on Form 10-Q for the quarter
ended September 30, 1999
S-3(96) = Form S-3 Registration Statement No. 33-65043
S-8(95-2) = Form S-8 Registration Statement No. 33-64723 for
the LSI Industries Inc. 1995 Directors' Stock
Option Plan
S-8(99) = Form S-8 Registration Statement No. 333-91531 for
the LSI Industries Inc. 1995 Stock Option Plan
or filed herewith where so noted.
EXHIBIT INDEX
Current
Form 10-K Report/ Exhibit
Exhibit No. Description of Exhibit Document Number
- ----------- ---------------------- -------- ------
3.1 Articles of Incorporation of LSI Industries Inc. S-3 (96) 3.1
3.2 Code of Regulations of LSI Industries Inc. S-3 (96) 3.2
4 Instruments Defining the Rights of o
Security Holders
-5-
8
Management Compensatory Agreements
----------------------------------
10.1 LSI Industries Inc. Retirement Plan 10Q-9/99 10.1
(Amended and Restated as of October 1, 1999)
10.2 1985 Stock Option Plan 10K-89 10.1
10.3 LSI Industries Inc. 1995 Stock Option Plan S-8 (99) 4.1
10.4 LSI Industries Inc. 1995 Directors' Stock
Option Plan S-8 (95-2) 4.1
10.5 LSI Industries Inc. Nonqualified Deferred 10K-96 10.5
Compensation Plan, and Rabbi Trust
Agreement
22 Subsidiaries of the Registrant Filed herewith
23 Consent of Independent Public Accountants Filed herewith
24 Powers of Attorney (4) Filed herewith
27 Financial Data Schedule Filed herewith
o The Company has no outstanding issue or indebtedness exceeding
10% of the Company's assets on a consolidated basis. A copy of
the instruments defining the right of security holders will be
furnished to the Commission upon request.
(b) Form 8-K:
There have been no reports on Form 8-K filed during the last quarter of
fiscal year 2000.
-6-
9
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
September 21, 2000 BY: /s/ Robert J. Ready
- ---------------------- ------------------------------------
Date Robert J. Ready
Chairman of the Board and President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title
- --------- -----
/s/ Robert J. Ready Chairman of the Board,
- ------------------------------------- Chief Executive Officer,
Robert J. Ready and President
Date: September 21, 2000 (Principal Executive Officer)
-------------------------
/s/ Ronald S. Stowell Vice President, Chief
- ------------------------------------- Financial Officer, and
Ronald S. Stowell Treasurer
Date: September 21, 2000 (Principal Financial and
------------------------- Accounting Officer)
*Michael J. Burke Director
- -------------------------------------
Michael J. Burke
*Allen L. Davis Director
- -------------------------------------
Allen L. Davis
*Wilfred T. O'Gara Director
- -------------------------------------
Wilfred T. O'Gara
*James P. Sferra Secretary; Executive
- ------------------------------------- Vice President -
James P. Sferra Manufacturing; and Director
*The undersigned, by signing his name hereto, executed this Annual Report on
Form 10-K on September 21, 2000, pursuant to Powers of Attorney executed by the
above named Directors of the Registrant and filed with the Securities and
Exchange Commission as Exhibit 24 hereto.
September 21, 2000 By:/s/ Ronald S. Stowell
- ---------------------- ------------------------------------
Date Attorney-in-Fact
-7-
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
SALES BY BUSINESS SEGMENT
(In thousands) 2000 1999 1998
---- ---- ----
Image Group $155,896 $159,277 $138,886
Commercial/Industrial
Lighting Group 79,705 68,512 50,253
-------- -------- --------
$235,601 $227,789 $189,139
======== ======== ========
RESULTS OF OPERATIONS
2000 COMPARED TO 1999
Net sales of $235,601,000 in fiscal 2000 increased 3% over fiscal 1999
net sales of $227,789,000. Results of the Image Group in fiscal 2000 include the
operations of LSI Retail Graphics (acquired April 1999; approximately 2% of net
sales in fiscal 2000). Results of the Commercial/Industrial Lighting Group in
fiscal 2000 include the operations of LSI MidWest Lighting (acquired January
1999; approximately 8% of net sales in fiscal 2000). Commercial/Industrial
Lighting Group net sales increased 16% and Image Group net sales decreased 2% in
fiscal 2000 as compared to the prior year. The increase in the Commercial/
Industrial Lighting Group is attributed primarily to the full year effect of the
acquisition of LSI MidWest Lighting, in addition to an approximate 2% sales
increase in this segment. The decrease in Image Group net sales is attributed
primarily to softness in the petroleum/convenience store market. Net sales to
this significant market were 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. The Company's graphics and petroleum
lighting sales volume, both components of the Image Group, were down
approximately 2% and 11%, respectively, as compared to the prior year. Net sales
of the Image Group to the petroleum/convenience store market represented 38%
and 43% of net sales in fiscal 2000 and fiscal 1999, respectively. While sales
prices were increased, inflation did not have a significant impact on sales in
2000 as competitive pricing pressures held price increases to a minimum.
Gross profit of $78,995,000 increased 2% over last year's gross profit
of $77,108,000, and decreased as a percentage of net sales to 33.5% in fiscal
year 2000 as compared to 33.9% in the prior year. The decrease in amount of
gross profit is due primarily to product mix changes between years and
competitive pricing in several markets, partially offset by the 3% increase in
net sales and improved efficiencies. Selling and administrative expenses
increased to $50,439,000 from $49,880,000 for a 1% increase, caused primarily by
increased net sales. As a percentage of net sales, selling and administrative
expenses were at 21.4% in fiscal 2000 as compared to 21.9% in the prior year.
During fiscal year 1999 the Company began the task of converting its
business operating software and systems company-wide. In addition work was
started on an e-business
S-1
11
strategy in fiscal year 2000. Total implementation costs expensed were
$1,226,000 ($0.08 per share, diluted) in fiscal 2000 and $245,000 ($0.02 per
share, diluted) in fiscal 1999. Net income during the estimated remaining
implementation period extending into fiscal 2003 is likely to be affected by the
implementation expense associated with this technology upgrade in amounts of
$0.01 to $0.02 per share, diluted, each quarter.
The Company reported net interest income of $868,000 in fiscal 2000 as
compared to net interest income of $253,000 in fiscal 1999 primarily reflective
of an increased amount of short-term cash investments at slightly increased
rates of return. The Company's effective tax rate increased to 37.8% in fiscal
2000 as compared to 37.6% in fiscal 1999 primarily due to increased amortization
of goodwill which is not deductible for tax purposes.
Income from continuing operations of $18,279,000 increased 7% over
$17,101,000 in fiscal 1999. The increased income from continuing operations
resulted from increased gross profit on increased net sales, and from the
reporting of a larger amount of net interest income in fiscal 2000 as compared
to 1999, partially offset by increased operating expenses and income taxes.
Diluted earnings per share from continuing operations of $1.77 increased 4% in
fiscal 2000 from $1.70 per share in fiscal 1999. The weighted average common
shares outstanding for purposes of computing diluted earnings per share
increased 3% in fiscal 2000 to 10,354,000 shares from 10,088,000 shares in 1999
primarily as a result of common shares issued for the exercise of stock options
during the year.
The Company recorded a $1.0 million ($0.10 per share) discontinued
operations charge, net of taxes, in the fourth quarter of fiscal 2000 for an
increase in the loss contingency related to a lease guaranty in connection with
its European operations which were discontinued in 1992. No charge to
discontinued operations was recorded in fiscal 1999. Attempts to date to resolve
this contingent liability have not been successful. The estimated amount that
the Company would expect to spend to settle these lease obligations is the $2.7
million now in its reserve. The Company will vigorously contest any litigation
or other action that could increase this liability. The maximum liability
through the expiration of the lease, including obligations with respect to
maintenance of the facility, could be approximately $4.5 million.
Net income of $17,279,000 increased 1% over $17,101,000 in fiscal 1999
primarily as a result of increased income from continuing operations, partially
offset by the charge to discontinued operations in fiscal 2000.
1999 COMPARED TO 1998
Net sales of $227,789,000 in fiscal 1999 increased 20% over fiscal 1998
net sales of $189,139,000. Results of the Image Group in fiscal 1999 include the
operations of LSI Retail Graphics (acquired April 1999; less than 1% of net
sales in fiscal 1999). Results of the Commercial/Industrial Lighting Group
include the operations of LSI MidWest Lighting (acquired January 1999;
approximately 4% of net sales in fiscal 1999). Commercial/Industrial Lighting
Group net sales increased 36% and Image Group net sales increased 15% in fiscal
1999 as compared to the prior year. The increase in the Commercial/Industrial
Lighting Group net sales resulted from growth in substantially all markets and
from inclusion of the results of LSI MidWest Lighting. The increase in Image
Group net sales is attributed to growth in substantially all markets and
products, particularly petroleum lighting, quick service restaurant, and
interior graphics, as well as to the inclusion of the results of LSI Retail
Graphics. Net sales
S-2
12
of the Image Group to the petroleum/convenience store market represented 43%
and 49% of net sales in 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 $77,108,000 increased 20% over last year's gross profit
of $64,480,000, and decreased as a percentage of net sales to 33.9% in fiscal
year 1999 as compared to 34.1% in the prior year. The increase in amount of
gross profit is due primarily to the 20% increase in net sales. The decrease in
gross profit percentage is primarily related to slightly lower margins from
businesses acquired in fiscal 1999. Selling and administrative expenses
increased to $49,880,000 from $44,286,000 primarily as a result of increased
sales volume and the addition of the acquired businesses. As a percentage of net
sales, selling and administrative expenses were at 21.9% in fiscal 1999 as
compared to 23.4% in the prior year.
The Company reported net interest income of $253,000 in fiscal 1999 as
compared to net interest income of $37,000 in fiscal 1998 primarily reflective
of an increased amount of short-term cash investments. The Company's effective
tax rate increased to 37.6% in fiscal 1999 as compared to 37.5% in fiscal 1998
primarily due to increased amortization of goodwill which is not deductible for
tax purposes.
Net income of $17,101,000 increased 36% over $12,587,000 in 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 $1.70 increased 32% in
fiscal 1999 from $1.29 per share in fiscal 1998. The weighted average common
shares outstanding for purposes of computing diluted earnings per share
increased 3% in fiscal 1999 to 10,088,000 shares from 9,790,000 shares in 1998
primarily as a result of common shares issued to acquire businesses and the
exercise of stock options during the year.
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 June 30, 2000 the Company had working capital of $61.1 million,
compared to $49.6 million at June 30, 1999. The ratio of current assets to
current liabilities increased to 3.36 to 1 from 2.56 to 1. The increased working
capital is primarily attributed to increased cash and other current assets, and
decreased accounts payable and accrued expenses, partially offset by a reduction
in accounts receivable and an increase in net liabilities from discontinued
operations.
The Company generated $19.8 million of cash from operating activities
in fiscal 2000 as compared to $20.6 million in fiscal 1999. The decrease in net
cash flows from operating activities in fiscal 2000 is primarily the net result
of a decrease in accounts payable and accrued expenses, and increases in
inventories and refundable income taxes, partially offset by increased net
income, a decrease in accounts receivable, an increase in net liabilities from
discontinued operations, and increased depreciation and amortization. The
decrease in
S-3
13
accounts receivable and accrued expenses is primarily the result of lower sales
volume and profitability in the fourth quarter of fiscal 2000 as compared to
fiscal 1999. As of June 30, 2000, the Company's days sales outstanding were at
approximately 55 days, increased from 54 days at June 30, 1999.
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 August 21, 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 $9.0 million in fiscal 2000 compare to $4.5 million in
fiscal 1999. Spending in fiscal year 2000 was primarily related to
capitalization of Company-wide enterprise resource planning software and related
implementation costs, expansion of the Company's facilities, equipment, and
tooling for new products. Capital expenditures totaling approximately $7 million
are planned for fiscal 2001, exclusive of business acquisitions.
On August 17, 2000 the Board of Directors declared a cash dividend of
$0.13 per share (approximately $1,339,000) comprised of a $0.08 per share
regular quarterly dividend and a $0.05 per share special year-end dividend, to
be paid September 12, 2000 to shareholders of record on September 5, 2000.
During fiscal 2000, the Company paid cash dividends each quarter. Cash paid for
dividends in fiscal 2000 was $4.0 million, a 22% increase over the $3.2 million
paid in fiscal 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.
S-4
14
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of LSI Industries Inc.:
We have audited the accompanying consolidated balance sheets of LSI
Industries Inc. (an Ohio corporation) and subsidiaries as of June 30, 2000 and
1999, and the related consolidated statements of income, shareholders' equity
and cash flows for each of the three years in the period ended June 30, 2000.
These financial statements and the schedule referred to below are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedule based on our audit.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of LSI Industries Inc.
and subsidiaries as of June 30, 2000 and 1999, and the results of their
operations and their cash flows for each of the three years in the period ended
June 30, 2000 in conformity with accounting principles generally accepted in the
United States.
Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index to the
financial statements is presented for purposes of complying with the Securities
and Exchange Commission's rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures applied
in the audit of the basic financial statements and, in our opinion, fairly
states in all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Cincinnati, Ohio
August 17, 2000
S-5
15
LSI INDUSTRIES INC.
CONSOLIDATED INCOME STATEMENTS
FOR THE YEARS ENDED JUNE 30, 2000, 1999, AND 1998
(In thousands, except per share)
2000 1999 1998
---- ---- ----
Net sales $235,601 $227,789 $189,139
Cost of products sold 156,606 150,681 124,659
-------- -------- --------
Gross profit 78,995 77,108 64,480
Selling and administrative expenses 50,439 49,880 44,286
-------- -------- --------
Operating income 28,556 27,228 20,194
Interest (income) (1,057) (477) (143)
Interest expense 189 224 106
Other expense 15 95 108
-------- -------- --------
Income from continuing operations
before income taxes 29,409 27,386 20,123
Income tax expense 11,130 10,285 7,536
-------- -------- --------
Income from continuing operations 18,279 17,101 12,587
Discontinued operations, net of tax
benefit of $538 1,000 -- --
-------- -------- --------
Net income $ 17,279 $ 17,101 $ 12,587
======== ======== ========
Earnings per common share from
continuing operations
Basic earnings per share $ 1.79 $ 1.73 $ 1.32
======== ======== ========
Diluted earnings per share $ 1.77 $ 1.70 $ 1.29
======== ======== ========
Earnings per common share
Basic earnings per share $ 1.69 $ 1.73 $ 1.32
======== ======== ========
Diluted earnings per share $ 1.67 $ 1.70 $ 1.29
======== ======== ========
The accompanying notes are an integral part of these financial statements.
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LSI INDUSTRIES INC.
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2000 AND 1999
(In thousands, except shares)
2000 1999
---- ----
ASSETS
Current Assets
Cash and cash equivalents $ 21,966 $ 13,881
Accounts receivable, less allowance
for doubtful accounts of $1,239
and $1,213, respectively 35,424 39,630
Inventories 25,293 25,261
Refundable income taxes 1,160 157
Other current assets 3,237 2,530
-------- --------
Total current assets 87,080 81,459
Property, Plant and Equipment, at cost
Land 3,947 3,863
Buildings 20,522 18,477
Machinery and equipment 32,436 29,430
Construction in progress 4,842 1,212
-------- --------
61,747 52,982
Less accumulated depreciation (24,625) (19,997)
-------- --------
Net property, plant and equipment 37,122 32,985
Goodwill, net 22,581 23,270
-------- --------
$146,783 $137,714
======== ========
The accompanying notes are an integral part of these financial statements.
S-7
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2000 1999
---- ----
LIABILITIES & SHAREHOLDERS' EQUITY
Current Liabilities
Notes payable to bank $ -- $ 379
Current maturities of long-term debt 203 196
Accounts payable 12,349 14,628
Accrued expenses 11,606 16,150
Net liabilities from discontinued operations 1,783 491
-------- --------
Total current liabilities 25,941 31,844
Long-Term Debt 1,498 1,705
Deferred Income Taxes 1,132 1,413
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 10,291,730 and 10,151,690
shares, respectively 47,719 45,588
Retained earnings 70,493 57,164
-------- --------
Total shareholders' equity 118,212 102,752
-------- --------
$146,783 $137,714
======== ========
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LSI INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 2000, 1999, AND 1998
(In thousands, except per share)
Common Shares
-------------------------
Number of Retained
Shares Amount Earnings Total
--------- ------ -------- -----
BALANCE AT JUNE 30, 1997 9,499 $34,516 $33,452 $ 67,968
Net income -- -- 12,587 12,587
Purchase of treasury shares (12) (233) -- (233)
Deferred stock compensation -- 209 -- 209
Stock options exercised, net 136 676 -- 676
Common shares issued for
acquisition 12 200 -- 200
Dividends - $.29 per share -- -- (2,750) (2,750)
------ ------- ------- --------
BALANCE AT JUNE 30, 1998 9,635 35,368 43,289 78,657
Net income -- -- 17,101 17,101
Purchase of treasury shares (12) (224) -- (224)
Deferred stock compensation -- 334 -- 334
Stock options exercised, net 124 1,285 -- 1,285
Common shares issued for
acquisitions 405 8,825 -- 8,825
Dividends - $.33 per share -- -- (3,226) (3,226)
------ ------- ------- --------
BALANCE AT JUNE 30, 1999 10,152 45,588 57,164 102,752
NET INCOME -- -- 17,279 17,279
PURCHASE OF TREASURY SHARES (14) (349) -- (349)
DEFERRED STOCK COMPENSATION -- 338 -- 338
STOCK OPTIONS EXERCISED, NET 154 2,142 -- 2,142
DIVIDENDS - $.39 PER SHARE -- -- (3,950) (3,950)
------ ------- ------- --------
BALANCE AT JUNE 30, 2000 10,292 $47,719 $70,493 $118,212
====== ======= ======= ========
The accompanying notes are an integral part of these financial statements.
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LSI INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 2000, 1999, AND 1998
(In thousands)
2000 1999 1998
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $17,279 $ 17,101 $12,587
Non-cash items included in income
Depreciation and amortization 5,511 4,813 4,375
Deferred income taxes (566) (84) (401)
Deferred compensation plan 338 334 209
Loss on disposition of fixed assets 15 95 108
Change (excluding effects of acquisitions) in
Accounts receivable 4,206 (4,075) (5,326)
Inventories (32) 2,273 (1,569)
Refundable income taxes (1,003) 117 --
Accounts payable (2,279) (262) 1,086
Accrued expenses and other (4,966) 348 3,235
Net liabilities from discontinued operations 1,292 (70) (21)
------- -------- -------
Net cash flows from operating activities 19,795 20,590 14,283
------- -------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant, and equipment (8,977) (4,455) (4,120)
Proceeds from sale of fixed assets 3 14 30
Acquisition of businesses, net of cash received -- (8,657) (712)
------- -------- -------
Net cash flows from investing activities (8,974) (13,098) (4,802)
------- -------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) of borrowings under line of credit (379) 379 --
Proceeds from issuance of long-term debt -- 919 --
Payment of long-term debt (200) (2,082) (448)
Cash dividends paid (3,950) (3,226) (2,750)
Exercise of stock options 2,142 1,285 676
Purchase of treasury shares (349) (224) (233)
------- -------- -------
Net cash flows from financing activities (2,736) (2,949) (2,755)
------- -------- -------
Increase in cash and cash equivalents 8,085 4,543 6,726
Cash and cash equivalents at beginning of year 13,881 9,338 2,612
------- -------- -------
Cash and cash equivalents at end of year $21,966 $ 13,881 $ 9,338
======= ======== =======
The accompanying notes are an integral part of these financial statements.
S-10
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION:
The consolidated financial statements include the accounts of LSI Industries
Inc. (an Ohio corporation) and its subsidiaries, all of which are wholly owned.
All significant intercompany transactions and balances have been eliminated.
REVENUE RECOGNITION:
Revenue is recognized when the customer accepts title and the resultant risks
and rewards of ownership. Generally this occurs upon shipment of goods or
shortly thereafter. Amounts received from customers prior to the recognition of
revenue are accounted for as customer pre-payments and are included in accrued
expenses.
CASH AND CASH EQUIVALENTS:
The cash balance includes cash and cash equivalents which have original
maturities of less than three months.
INVENTORIES:
Inventories are stated at the lower of cost or market. Cost is determined on the
first-in, first-out basis.
PROPERTY, PLANT AND EQUIPMENT AND RELATED DEPRECIATION:
Property, plant and equipment are stated at cost. Major additions and
betterments are capitalized while maintenance and repairs are expensed. For
financial reporting purposes, depreciation is computed on the straight-line
method over the estimated useful lives of the assets as follows:
Buildings 31 - 40 years
Machinery and equipment 3 - 10 years
GOODWILL:
The excess of cost over fair value of assets acquired ("goodwill") is amortized
over periods ranging between twenty and forty years. As of June 30, 2000 and
1999, accumulated amortization of goodwill was $1,827,000 and $1,138,000,
respectively. The Company periodically evaluates goodwill and other long-lived
assets for permanent impairment based upon anticipated cash flows. To date no
impairments have been recorded, nor are any anticipated.
FAIR VALUE OF FINANCIAL INSTRUMENTS:
The Company has financial instruments consisting primarily of cash and cash
equivalents, revolving lines of credit, and long-term debt. The fair value of
these financial instruments
S-11
21
approximates carrying value because of their short-term maturity and/or
variable, market-driven interest rates. The Company has no financial instruments
with off-balance sheet risk.
EMPLOYEE BENEFIT PLANS:
The Company has a defined contribution retirement plan and a discretionary
profit sharing plan covering substantially all of its employees, a second
discretionary profit sharing plan covering employees of one subsidiary, and a
non-qualified deferred compensation plan covering certain employees. The costs
of employee benefit plans are charged to expense and funded annually. Total
costs were $2,052,000 in 2000, $1,937,000 in 1999, and $1,641,000 in 1998.
INCOME TAXES:
Deferred income taxes are provided on items reported in income in different
periods for financial reporting and tax purposes.
EARNINGS PER COMMON SHARE:
The computation of basic earnings per common share is based on the weighted
average common shares outstanding for the period. The computation of diluted
earnings per share includes common share equivalents. Common share equivalents
include the dilutive effect of stock options, contingently issuable shares (for
which issuance has been determined to be probable), and common shares to be
issued under a deferred compensation plan, all of which totaled 159,000 shares
in 2000, 205,000 shares in 1999, and 231,000 shares in 1998. See also Notes 4
and 7.
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 financial statements of the Company were not impacted by
adoption of this new standard.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131 (SFAS No. 131), "Disclosures About
Segments of an Enterprise and Related Information." This Statement requires
disclosure related to each segment into which a company is organized by the
chief operating decision maker for the purpose of making operating decisions and
assessing performance. Reportable segments are based on products and services,
geography, legal structure, management structure and any manner in which
management disaggregates a company. The Company adopted SFAS No. 131 during
fiscal 1999. This Statement, which requires expansion or modification to
existing disclosures, had no impact on the Company's reported consolidated
financial position, results of operations or cash flows. See Note 3 for business
segment information.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 (SFAS No. 133), "Accounting for
Derivative Instruments and for Hedging Activities," which establishes standards
for reporting and disclosure of derivative and
S-12
22
hedging instruments. SFAS No. 133 is effective for fiscal years beginning after
June 15, 2000. The Company will not be affected by this new standard because the
Company has no derivative or hedging financial instruments.
RECLASSIFICATION:
Certain reclassifications have been made to prior year amounts in order to be
consistent with the presentation for the current year.
USE OF ESTIMATES:
The preparation of the financial statements in conformity with generally
accepted accounting principles requires the Company to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
NOTE 2 - DISCONTINUED OPERATIONS
In 1992 the Company sold the assets and operations of its U.K. subsidiary,
Duramark, to its management and reported a loss from discontinued operations.
Consideration received included cash and assumption of liabilities by
management. The remaining liabilities, including those associated with the lease
on the U.K. facility, which were not assumed by the management buy-out group of
the discontinued operations, net of related taxes, were retained by the Company.
The lease on the now vacant facility is guaranteed by the Company through its
expiration in March 2001. For the past several years the Company has been
involved in both litigation and negotiations related to lease payments (unpaid
since 1995), to maintenance of the facility, and to the remaining lease
obligation through March 2001 with the various entities associated with this
lease. In the fourth quarter of fiscal year 2000 the Company settled all
outstanding lease matters with a sublessee at less than amounts previously
anticipated. The $608,000 settlement payment received was added to the Company's
reserve for discontinued operations. In the first quarter of fiscal year 2001
the Company made an offer to settle all obligations with respect to the lease.
In the fourth quarter of fiscal year 2000 the Company recorded a charge to
discontinued operations of $1.5 million ($1.0 million net of income taxes or
$0.10 per share) to increase its reserve for remaining liabilities associated
with the lease. The Company expects settlement of lease obligations to
approximate the $2.7 million now in its reserve, and will vigorously contest any
litigation or other action that could increase this liability. The maximum
liability through the March 2001 expiration of the lease, including obligations
with respect to maintenance of the facility, could be approximately $4.5
million.
The reserve for discontinued operations incurred the following activity during
fiscal years 2000 and 1999:
(In thousands) 2000 1999
---- ----
Balance Beginning of year $ 755 $ 864
less: Payments made (156) (109)
S-13
23
plus: Settlement received 608 --
plus: Charge to discontinued
operations 1,538 --
------ ----
Balance June 30, 2000 $2,745 $755
====== ====
The Company's reserve for discontinued operations, net of related taxes, is
included in current liabilities in the amounts of $1,783,000 and $491,000 as of
June 30, 2000 and 1999, respectively.
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 38%, 43%, and 49% of net sales concentrated in this
market in fiscal 2000, 1999, and 1998, respectively.
The following information is provided for the following periods:
(In thousands) 2000 1999 1998
---- ---- ----
NET SALES:
Image Group $155,896 $159,277 $138,886
Commercial/Industrial Lighting Group 79,705 68,512 50,253
-------- -------- --------
$235,601 $227,789 $189,139
======== ======== ========
OPERATING INCOME:
Image Group $ 21,024 $ 19,848 $ 15,056
Commercial/Industrial Lighting Group 7,532 7,380 5,138
-------- -------- --------
$ 28,556 $ 27,228 $ 20,194
======== ======== ========
IDENTIFIABLE ASSETS:
Image Group $ 84,513 $ 86,011 $ 79,487
Commercial/Industrial Lighting Group 38,588 37,645 20,730
123,101 123,656 100,217
Corporate 23,682 14,058 10,099
-------- -------- --------
$146,783 $137,714 $110,316
======== ======== ========
CAPITAL EXPENDITURES:
Image Group $ 6,279 $ 3,214 $ 3,029
Commercial/Industrial Lighting Group 2,698 1,241 1,091
-------- -------- --------
$ 8,977 $ 4,455 $ 4,120
======== ======== ========
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DEPRECIATION AND AMORTIZATION:
Image Group $ 3,687 $ 3,425 $ 3,410
Commercial/Industrial Lighting Group 1,824 1,388 965
-------- -------- --------
$ 5,511 $ 4,813 $ 4,375
======== ======== ========
Operating income of the business segments includes net sales less all operating
expenses, including allocations of corporate 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.
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:
(In thousands, except per share) 2000 1999 1998
---- ---- ----
BASIC EARNINGS PER SHARE
Income from continuing operations $18,279 $17,101 $12,587
======= ======= =======
Net income $17,279 $17,101 $12,587
======= ======= =======
Weighted average shares outstanding
during the period, net
of treasury shares 10,195 9,883 9,559
======= ======= =======
Basic earnings per share from continuing
operations $ 1.79 $ 1.73 $ 1.32
======= ======= =======
Basic earnings per share $ 1.69 $ 1.73 $ 1.32
======= ======= =======
DILUTED EARNINGS PER SHARE
Income from continuing operations $18,279 $17,101 $12,587
======= ======= =======
Net income $17,279 $17,101 $12,587
======= ======= =======
Weighted average shares outstanding
during the period, net of
treasury shares 10,195 9,883 9,559
Effect of dilutive securities (A):
Impact of common shares to be
issued under stock option plans,
a deferred compensation plan,
and contingently issuable shares 159 205 231
------- ------- -------
S-15
25
Weighted average shares
outstanding (B) 10,354 10,088 9,790
======= ======= =======
Diluted earnings per share from
continuing operations $ 1.77 $ 1.70 $ 1.29
======= ======= =======
Diluted earnings per share $ 1.67 $ 1.70 $ 1.29
======= ======= =======
(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 36,105 common shares, 14,359 common shares, and
4,390 common shares at June 30, 2000, 1999, and 1998, 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.
NOTE 5 - BALANCE SHEET DATA
The following information is provided as of June 30:
(In thousands) 2000 1999
---- ----
INVENTORIES:
Raw materials $11,824 $12,485
Work-in-process and
finished goods 13,469 12,776
------- -------
$25,293 $25,261
======= =======
ACCRUED EXPENSES:
Compensation and benefits $ 5,725 $ 8,659
Customer prepayments $ 1,144 $ 1,662
NOTE 6 - REVOLVING LINES OF CREDIT, AND LONG-TERM DEBT
The Company has two unsecured revolving lines of credit with its banks in the
aggregate amount of $32 million, all of which was available as of June 30, 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 for the third
year of commitment in the fourth quarter of fiscal 2001. Interest on the
revolving lines of credit is charged based upon an increment over the LIBOR rate
as periodically determined, or at the bank's base lending rate less an
increment, at the Company's option. The increment over the LIBOR borrowing rate,
as periodically determined, on the Company's primary line of credit fluctuates
between 50 and 95 basis points and the commitment fee on the unused balance
fluctuates between 15 and 25 basis points depending upon the ratio of
indebtedness to earnings before interest, taxes, depreciation and amortization
(EBITDA). The increment over the LIBOR borrowing rate, as periodically
determined, on the Company's secondary line of credit fluctuates between 50 and
125 basis points depending upon the ratio of indebtedness to tangible net worth.
The increment under the bank's base lending rate on both lines of credit
fluctuates between 150 and 75 basis points depending upon the same performance
ratios as under LIBOR borrowings. At June 30, 2000 the interest rate on this
revolving line of credit
S-16
26
would be 7.25%. Under terms of these agreements, the Company has agreed to a
negative pledge of assets, to maintain minimum levels of profitability and net
worth, and is subject to certain maximum levels of leverage. The Company did not
borrow under its revolving lines of credit during fiscal year 2000.
The Company has an Industrial Revenue Development Bond (IRB) borrowing in the
amount of $935,000 associated with its facility in Northern Kentucky. The term
of this IRB is 15 years with semi-annual interest payments and annual principal
payments for retirement of bond principal in increasing amounts over the term of
the bonds through fiscal 2010. The IRB interest rate, which is reestablished
semi-annually, is currently 5.0%, plus a 75 basis point letter of credit fee.
The IRB is secured by the Company's Kentucky real estate, which has a net
carrying value of $1.6 million.
The Company has equipment loans outstanding totaling $766,000 with a bank and a
governmental agency. The loans are for terms of seven years through fiscal 2006
at a weighted average interest rate of 5.6% and are secured by specified
equipment which has a net carrying value of $993,000. The Company makes monthly
principal and interest payments and is committed to specified job growth in its
facility in Northeast Ohio.
LONG-TERM DEBT: (In thousands) 2000 1999
---- ----
Industrial Revenue Development Bond at 5.0% $ 935 $1,005
Equipment loans (average rate of 5.6%) 766 896
------ ------
1,701 1,901
Less current maturities 203 196
------ ------
$1,498 $1,705
====== ======
Future maturities of long-term debt at June 30, 2000 are as follows (in
thousands):
2001 2002 2003 2004 2005 2006 and after
---- ---- ---- ---- ---- --------------
$203 $210 $212 $218 $226 $632
NOTE 7 - SHAREHOLDERS' EQUITY
The Company has stock option plans which cover all of its full-time employees
and has a plan covering all non-employee directors. The options granted pursuant
to these plans are granted at fair market value at date of grant. Options
granted to non-employee directors are immediately exercisable and options
granted to employees generally become exercisable 25% per year (cumulative)
beginning one year after the date of grant. The number of shares reserved for
issuance is 890,126, of which 329,750 shares were available for future grant as
of June 30, 2000. The plans allow for the grant of both incentive stock options
and non-qualified stock options. In the first quarter of fiscal year 2001 the
Company granted options to purchase 193,000 common shares to 46 key employees
and managers.
Statement of Financial Accounting Standards No. 123 (SFAS No. 123) requires, at
a minimum, pro forma disclosures of expense for stock-based awards based on
their fair values. The fair value of each option on the date of grant has been
estimated using the Black-Scholes option pricing model. The following weighted
average assumptions were used for grants in fiscal 2000, 1999, and 1998.
S-17
27
2000 1999 1998
---- ---- ----
Dividend yield 1.25% 1.25% 2%
Expected volatility 42% 44% 49%
Risk-free interest rate 6.14%-6.90% 4.45%-6.24% 5.56%-6.54%
Expected life 4-8 YRS. 4-8 yrs. 4-8 yrs.
At June 30, 2000, the 18,800 options granted during fiscal 2000 to employees and
non-employee directors have exercise prices ranging from $17.69 to $23.25, fair
values ranging from $7.49 to $11.84 per option, and remaining contractual lives
of four to nine years. The 56,900 options granted during fiscal 1999 to
employees and non-employee directors had, at June 30, 1999, exercise prices
ranging from $16.88 to $23.00, fair values ranging from $8.49 to $11.89 per
option, and remaining contractual lives of four to nine years. The 154,400
options granted during fiscal 1998 to employees and non-employee directors had,
as of June 30, 1998, exercise prices ranging from $14.00 to $19.00, fair values
ranging from $6.16 to $9.44, and remaining contractual lives of four to nine
years.
If the Company had adopted the expense recognition provisions of SFAS No. 123,
net income and earnings per share for the years ended June 30, 2000, 1999, and
1998 would have been as follows:
(In thousands except earnings per share) 2000 1999 1998
---- ---- ----
Net income
As reported $17,279 $17,101 $12,587
Pro forma $17,035 $16,629 $12,225
Earnings per common share
Basic
As reported $ 1.69 $ 1.73 $ 1.32
Pro forma $ 1.67 $ 1.68 $ 1.28
Diluted
As reported $ 1.67 $ 1.70 $ 1.29
Pro forma $ 1.65 $ 1.66 $ 1.26
Since SFAS No. 123 has not been applied to options granted prior to December 15,
1994, the resulting compensation cost shown above may not be representative of
that expected in future years.
S-18
28
Information involving the stock option plans for the years ended June 30, 2000,
1999, and 1998 is shown in the table below:
2000 1999 1998
------------------- ------------------- -------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
(Shares in thousands) Shares Price Shares Price Shares Price
------ ----- ------ ----- ------ -----
Outstanding at beginning of year 408 $14.41 500 $12.70 518 $ 9.89
Granted 19 21.74 57 19.82 154 15.31
Terminated (7) 16.03 (8) 16.23 (17) 13.86
Exercised (178) 12.79 (141) 10.33 (155) 5.79
---- ---- ----
Outstanding at end of year 242 $16.13 408 $14.41 500 $12.70
==== ==== ====
Exercisable at end of year 109 $15.00 129 $12.92 128 $ 9.40
==== ==== ====
The Company implemented a non-qualified Deferred Compensation Plan in fiscal
1997. All Plan investments are in common shares of the Company. A total of
59,566 and 45,030 common shares were held in the Plan as of June 30, 2000 and
1999, respectively, and, accordingly, have been recorded as treasury shares.
On the dates indicated, the Company issued the following amounts of common
shares as a portion of the purchase price for acquired businesses (see further
discussion in Note 11):
Number of Stated
Date Common Shares Value
---- ------------- -----
6/30/97 475,700 $6,000,000
2/6/98 12,000 $ 200,000
1/1/99 357,143 $8,000,000
4/9/99 47,578 $ 825,000
On August 17, 2000, the Board of Directors declared a cash dividend of $0.13 per
share, comprised of a $0.08 regular quarterly dividend and a $0.05 special
year-end dividend, to be paid September 12, 2000 to shareholders of record on
September 5, 2000. Annual cash dividend payments made during fiscal years 2000,
1999, and 1998 were $0.39, $0.33, and $0.29 per share, respectively.
NOTE 8 - LEASES
The Company leases certain of its facilities and equipment under operating lease
arrangements. Rental expense was $1,385,000 in 2000, $1,174,000 in 1999, and
$1,094,000 in 1998. Minimum annual rental commitments under non-cancelable
operating leases are: $1,013,000 in 2001, $318,000 in 2002, $76,000 in 2003,
$8,000 in 2004, and $1,000 in 2005.
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29
NOTE 9 - INCOME TAXES
The following information is provided for the years ended June 30:
(In thousands) 2000 1999 1998
---- ---- ----
PROVISION (BENEFIT) FOR INCOME TAXES:
Current federal $10,773 $ 9,466 $7,143
Current state and local 923 903 794
Deferred (566) (84) (401)
------- ------- ------
$11,130 $10,285 $7,536
======= ======= ======
RECONCILIATION TO FEDERAL STATUTORY RATE:
Federal statutory tax rate 35.0% 35.0% 35.0%
State and local taxes 2.0 2.1 2.6
Goodwill and other .8 .5 (.1)
------- ------- ------
Effective tax rate 37.8% 37.6% 37.5%
======= ======= ======
The components of deferred income tax assets and (liabilities) at June 30, 2000
and 1999 are as follows:
(In thousands) 2000 1999
---- ----
Reserves against current assets $ 818 $ 862
Prepaid expenses (707) (410)
Accrued expenses 882 953
Depreciation (1,694) (1,853)
Goodwill and acquisition costs 132 129
Deferred compensation 430 311
Net liabilities from discontinued operations 962 264
------- -------
Net deferred income tax asset $ 823 $ 256
======= =======
Reconciliation to the balance sheets as of June 30, 2000 and 1999:
(In thousands) 2000 1999
---- ----
Deferred income tax asset (liability) included in:
Other current assets $ 993 $ 1,405
Net liabilities from discontinued operations 962 264
Long-term deferred income tax liability (1,132) (1,413)
------- -------
Net deferred income tax asset $ 823 $ 256
======= =======
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NOTE 10 - SUPPLEMENTAL CASH FLOW INFORMATION
(In thousands) 2000 1999 1998
---- ---- ----
Cash payments:
Interest $ 160 $ 148 $ 126
Income taxes $12,520 $10,034 $7,184
Non-cash investing and financing activities:
Value of common shares issued for
acquisitions $ -- $ 8,825 $ 200
Details of acquisitions:
Working capital, less cash $ -- $ 2,417 $ 59
Property, plant & equipment -- 5,241 647
Other assets, net -- (947) (4)
Excess of purchase price paid over estimated
net assets of acquired businesses $ -- 10,771 210
------- ------- ------
-- 17,482 912
Less fair value of common shares issued -- (8,825) (200)
------- ------- ------
Cash paid for acquisitions $ -- $ 8,657 $ 712
======= ======= ======
NOTE 11 - ACQUISITIONS
On April 9, 1999, the Company acquired substantially all assets and assumed
certain liabilities of Retail Graphics, Inc., a privately owned manufacturer of
interior graphics primarily for the retail store market. For financial statement
purposes the acquisition was accounted for as a purchase with operating results
of LSI Retail Graphics first included in the Company's fourth quarter fiscal
1999 results in the Image Group. The total purchase price for the business,
exclusive of acquisition costs, was $3,300,000, consisting of $2,475,000 in cash
and 47,578 common shares of the Company (valued at $825,000). The acquisition
provides for a contingent "earn-out" having a maximum value of $600,000, payable
in similar percentages of cash and common shares, which could be earned during
the first two years after acquisition providing certain minimum net sales and
earnings thresholds are exceeded. There was no earn-out paid at the conclusion
of year one. An additional approximate $1 million was used immediately following
the acquisition to reduce acquired liabilities. The purchase price exceeded the
estimated fair value of net assets acquired by $3.2 million, which is recorded
as goodwill and is being amortized over twenty years.
The Company completed the acquisition of Mid-West Chandelier Company and Fairfax
Lighting, Inc., two privately owned manufacturers of interior fluorescent
lighting fixtures, effective January 1, 1999. For financial statement purposes
these acquisitions were accounted for as purchases with operating results of LSI
MidWest Lighting first included in the Company's third quarter fiscal 1999
results in the Commercial/Industrial Lighting Group. The total purchase price
for the two companies was $16,000,000, exclusive of acquisition costs,
consisting of $8,000,000 in cash and 357,143 common shares of the Company
(valued at $8,000,000). The acquisition provides for a contingent "earn-out"
having a maximum value of $1 million in cash and $1 million in stock which could
be earned during the three years subsequent to the merger providing certain
minimum earnings thresholds are exceeded. There was no earn-out paid at the
conclusion of year one. An additional approximate $1 million was used
immediately following the acquisition to reduce acquired liabilities. The
purchase price
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exceeded the estimated fair value of net assets acquired by $7.7 million, which
is recorded as goodwill and is being amortized over forty years.
On February 6, 1998, the Company acquired the outstanding common shares of
Marcole, Inc., a privately owned manufacturer of electrical wiring harnesses
primarily for the appliance industry. For financial statement purposes the
acquisition was accounted for as a purchase with operating results of Marcole
first included in the Company's fiscal 1998 third quarter financial statements
in the Commercial/Industrial Lighting Group. The purchase price was 12,000
common shares of the Company (valued at $200,000) plus $712,000 in cash. The
purchase price exceeded the estimated fair value of net assets acquired by
$210,000, which is recorded as goodwill and is being amortized over forty years.
NOTE 12 - SUMMARY OF QUARTERLY RESULTS (UNAUDITED)
(In thousands except per share data)
Quarter Ended
---------------------------------------------------------- Fiscal
Sept. 30 Dec. 31 March 31 June 30 Year
-------- ------- -------- ------- ----
2000
Net sales $64,014 $62,967 $52,326 $56,294 $235,601
Gross profit 21,095 21,747 17,324 18,829 78,995
Income from continuing
operations 5,357 5,646 3,170 4,106 18,279
Earnings per share from
continuing operations
Basic $ .53 $ .55 $ .31 $ .40 $ 1.79
Diluted $ .52 $ .55 $ .31 $ .40 $ 1.77(a)
Range of share prices
High $ 25.25 $ 25.50 $ 21.56 $ 22.16 $ 25.50
Low $ 22.63 $ 19.13 $ 14.69 $ 12.50 $ 12.50
1999
Net sales $53,414 $56,059 $53,408 $64,908 $227,789
Gross profit 18,234 19,759 17,009 22,106 77,108
Income from continuing
operations 3,912 4,668 3,083 5,438 17,101
Earnings per share
Basic $ .41 $ .48 $ .31 $ .54 $ 1.73(a)
Diluted $ .40 $ .47 $ .30 $ .53 $ 1.70
Range of share prices
High $ 22.00 $ 23.00 $ 22.75 $ 24.38 $ 24.38
Low $ 17.25 $ 15.75 $ 15.88 $ 17.25 $ 15.75
1998
Net sales $43,957 $47,754 $43,386 $54,042 $189,139
Gross profit 15,519 17,120 13,717 18,124 64,480
Income from continuing
operations 2,975 3,680 1,917 4,015 12,587
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Earnings per share
Basic $ .31 $ .39 $ .20 $ .42 $ 1.32
Diluted $ .31 $ .38 $ .20 $ .41 $ 1.29(a)
Range of share prices
High $ 17.38 $ 19.38 $ 22.75 $ 24.00 $ 24.00
Low $ 13.50 $ 15.75 $ 16.75 $ 18.38 $ 13.50
(a) The total of the earnings per share for each of the four quarters does
not equal the total earnings per share for the full year because the
calculations are based on the average shares outstanding during each of
the individual periods.
At August 21, 2000, there were 477 shareholders of record. The Company believes
this represents approximately 3,500 beneficial shareholders.
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LSI INDUSTRIES INC.
SELECTED FINANCIAL DATA
(In thousands except per share)
The following data has been selected from the Consolidated Financial Statements
of the Company for the periods and dates indicated:
INCOME STATEMENT DATA:
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Net sales $235,601 $227,789 $189,139 $144,742 $152,733
Cost of products sold 156,606 150,681 124,659 96,200 104,221
Operating expenses 50,439 49,880 44,286 34,833 35,101
-------- -------- -------- -------- --------
Operating income 28,556 27,228 20,194 13,709 13,411
Interest (income) (1,057) (477) (143) (528) (154)
Interest expense 189 224 106 41 498
Other expense 15 95 108 114 62
-------- -------- -------- -------- --------
Income from continuing opera-
tions before income taxes 29,409 27,386 20,123 14,082 13,005
Income taxes 11,130 10,285 7,536 5,210 4,735
-------- -------- -------- -------- --------
Income from continuing
operations $ 18,279 $ 17,101 $ 12,587 $ 8,872 $ 8,270
======== ======== ======== ======== ========
Net income $ 17,279 $ 17,101 $ 12,587 $ 8,872 $ 6,770
======== ======== ======== ======== ========
Earnings per common share from
continuing operations
Basic $ 1.79 $ 1.73 $ 1.32 $ .99 $ 1.02
Diluted $ 1.77 $ 1.70 $ 1.29 $ .97 $ .98
Cash dividends paid per share $ .39 $ .33 $ .29 $ .23 $ .21
Weighted average common shares
Basic 10,195 9,883 9,559 9,004 8,096
Diluted 10,354 10,088 9,790 9,188 8,456
BALANCE SHEET DATA:
(At June 30) 2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Working capital $ 61,139 $ 49,615 $ 40,237 $ 30,192 $ 36,146
Total assets 146,783 137,714 110,316 95,189 79,496
Long-term debt,
including current
maturities 1,701 1,901 1,195 1,382 1,562
Shareholders' equity 118,212 102,752 78,657 67,968 54,737
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LSI INDUSTRIES INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED JUNE 30, 2000, 1999 AND 1998
(IN THOUSANDS)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- -------- -------- -------- --------
Additions
Balance Charged to Balance
Beginning Costs and (A) End of
Description of Period Expenses Deductions Period
- ----------- --------- -------- ---------- ------
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
Year Ended June 30, 2000 $1,213 $ 97 $ (71) $1,239
Year Ended June 30, 1999 $ 560 $1,133 (B) $(480) $1,213
Year Ended June 30, 1998 $ 401 $465 $(306) $ 560
INVENTORY OBSOLESCENCE RESERVES:
Year Ended June 30, 2000 $1,083 $194 $(483) $ 794
Year Ended June 30, 1999 $ 841 $982 $(740) $1,083
Year Ended June 30, 1998 $ 551 $688 $(398) $ 841
(A) For allowance for doubtful accounts, deductions are uncollectible accounts
charged off, less recoveries.
(B) Includes $190 resulting from net assets purchased in fiscal year 1999.
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