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, 2001. | |
OR | ||
o | 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 Noo
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.o
Aggregate market value of the voting stock held by non-affiliates of the registrant at September 5, 2001 was approximately $241,719,000, based on a closing price of $25.03. At September 5, 2001 there were 10,456,108 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 2001 annual meeting are incorporated by reference in Part III, as specified.
LSI INDUSTRIES INC.
2001 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
Begins on | ||
Page | ||
PART I | ||
ITEM 1. | BUSINESS | 1 |
ITEM 2. | PROPERTIES | 3 |
ITEM 3. | LEGAL PROCEEDINGS | 4 |
ITEM 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS | 4 |
PART II | ||
ITEM 5. | MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDERS' MATTERS | 4 |
ITEM 6. | SELECTED FINANCIAL DATA | 5 |
ITEM 7. | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 5 |
ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 5 |
ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA | 5 |
ITEM 9. | DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE | 6 |
PART III | ||
ITEM 10. | DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT | 6 |
ITEM 11. | EXECUTIVE COMPENSATION | 6 |
ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS | 6 |
ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS | 6 |
PART IV | ||
ITEM 14. | EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K | 6 |
SIGNATURES | 8 |
"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, and fluctuations in operating results or costs.
i
PART I
The Company's two business segments are the Image Segment and the Commercial / Industrial Lighting Segment. Net sales by segment are as follows (in thousands):
2001 | 2000 | 1999 | |||||||
Image Segment | $ | 147,021 | $ | 159,257 | $ | 162,299 | |||
Commercial / Industrial | |||||||||
Lighting Segment | 86,919 | 80,725 | 69,423 | ||||||
Total Net Sales | $ | 233,940 | $ | 239,982 | $ | 231,722 | |||
The Image Segment 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 Segment includes the operations of LSI Petroleum Lighting, LSI Automotive, LSI IMAGES, LSI Metal Fabrication, SGI Integrated Graphic Systems, Grady McCauley, LSI Retail Graphics and LSI Adapt (acquired in the third quarter of fiscal year 2001). The Commercial / Industrial Lighting Segment manufactures and sells outdoor, indoor, and landscape lighting for the commercial / industrial and multi-site retail markets. The Commercial / Industrial Lighting Segment includes the operations of LSI Lighting Systems, Courtsider Sports Lighting, Greenlee Lighting, LSI Marcole, LSI MidWest Lighting and LSI Lightron (acquired in the second quarter of fiscal year 2001). The Company's most significant market is the petroleum / convenience store market with approximately 36%, 38% and 43% of net sales concentrated in this market in the fiscal years ended June 30, 2001, June 30, 2000, and June 30, 1999, respectively. See Note 3 of Notes to Consolidated Financial Statements beginning on page S-15 of this Form 10-K for additional information on business segments.
The decrease in Image Segment net sales is attributed to several factors. Net sales to the petroleum / convenience store market continued to be adversely impacted by the temporary affects of mergers of major petroleum companies. The Company reported decreased menu board business in fiscal 2001 as compared to last year as a significant roll out program in fiscal 2000 with one customer neither repeated nor was it replaced with a program with another customer in fiscal 2001. These decreases were partially offset by increased interior graphics business in other markets, and by the inclusion of the results of LSI Adapt, acquired in January 2001 and representing approximately 2% of Image Segment net sales. The Company believes it is likely that net sales of the Image Segment will increase in fiscal 2002. Significant customers in the petroleum / convenience store market and a menu board system customer in the quick service restaurant market have indicated their intent to reimage their retail sites over a multi-year time period and have released some orders in the fourth quarter of fiscal 2001 to initiate roll out of their re-image programs.
The increase in Commercial / Industrial Lighting Segment net sales is attributed to the November 2000 acquisition of LSI Lightron (approximately 14% of net sales of this Segment). Excluding the acquisition of LSI Lightron, net sales in this segment decreased approximately 8% due to competitive markets and down economic conditions in the North American market.
The Company acquired substantially all of the net assets of Lightron of Cornwall, Inc. on November 21, 2000. The purchase price, exclusive of acquisition costs, was $25.9 million, a portion of which is subject to achievement of certain financial objectives over the first ten months subsequent to acquisition. The new subsidiary, LSI Lightron Inc., will continue to
operate in the New Windsor, New York area in the business of designing, manufacturing, and selling a line of high-end fluorescent, metal halide, halogen, recessed, surface, and high bay lighting fixtures, and LED exit signs for the commercial, industrial and retail markets. When the Company completes construction of a new facility in the first half of fiscal year 2002, the manufacturing assets, inventory, and remaining related acquired liabilities of Lightron of Cornwall will be transferred to LSI Lightron. Until such transfer of assets, a portion of the purchase price will remain in escrow and Lightron of Cornwall will be exclusively a manufacturer of light fixtures and products for LSI Lightron. Results of LSI Lightron are included in the Company's Commercial / Industrial Lighting Segment. The acquisition has been accounted for as a purchase, effective on the date of acquisition. An additional approximate $3 million of cash was used immediately following the acquisition to reduce acquired liabilities. The purchase price exceeded the estimated fair value of net assets acquired by approximately $16.5 million, which is recorded as goodwill and is being amortized over forty years.
The Company acquired substantially all of the net assets of ADaPT Engineering, Inc. effective January 1, 2001. The initial consideration for this purchase, exclusive of acquisition costs, was $4.5 million, consisting of $2.25 million in cash and 109,430 common shares of LSI Industries valued at $2.25 million, plus the assumption of certain liabilities related to ADaPT Engineering's business. In addition, a contingent "earn-out" having a maximum value of $2.0 million, payable in cash, could be earned during the first eighteen months after acquisition based upon achievement of certain financial performance. The performance in the first earn-out period ended June 30, 2001 was above the target and an earn-out payment of $0.5 million was made in the first quarter of fiscal year 2002. The new subsidiary, LSI Adapt Inc., is a multi-discipline service firm primarily focused on the retail petroleum / convenience store branded image programs, as well as other national retail customers. LSI Adapt specializes in integrated design, site engineering, permitting, project and construction management of national retail sites. Results of LSI Adapt are included in the Company's Image Segment. The acquisition has been accounted for as a purchase, effective on the date of acquisition. The initial purchase price, plus the earn-out consideration achieved to date, exceeded the estimated fair value of net assets acquired by approximately $3.2 million, which has been recorded as goodwill and is being amortized over fifteen years.
See Note 11 of Notes to Consolidated Financial Statements beginning on page S-22 of this Form 10-K for additional information on these acquisitions.
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 $34.1 million and $19.5 million at June 30, 2001 and 2000, respectively. All orders are believed to be shippable within twelve months.
The Company has approximately 1,500 full-time and 140 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.
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The Company sells its products throughout the United States and Canada.
In the first quarter of fiscal 2002 the Company announced a partnership with a company based in Australia that will market LSI lighting systems in both the Australian and New Zealand markets. This was not an acquisition but rather a true marketing partnership with a company that will operate as LSI Hamilton Lighting.
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 sixteen 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) |
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7 | ) | LSI Marcole office and | 61,000 sq. ft. | Manchester, TN | Owned | |||
manufacturing of electrical | (includes 5,000 sq. ft. | |||||||
wire harnesses; contract | of office space) | |||||||
assembly services | ||||||||
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 | 29,000 sq. ft. | Woonsocket, RI | Owned | |||
and manufacturing | (includes 5,000 sq. ft. | |||||||
of office space and | ||||||||
9,000 sq. ft. of leased | ||||||||
warehouse space) | ||||||||
10 | ) | LSI Lightron office | 4,000 sq. ft. | New Windsor, NY | Leased | |||
11 | ) | LSI West Coast | 16,000 sq. ft. | Anaheim, CA | Leased | |||
Distribution Center | ||||||||
12 | ) | LSI Adapt offices | 12,000 sq. ft. | Westlake, OH | Leased | |||
Atlanta, GA | Leased | |||||||
Seattle, WA | Leased | |||||||
Portland, OR | Leased | |||||||
Fort Mill, SC | Leased |
The Company considers these facilities (total of 1,190,000 square feet) plus the 224,000 sq. ft. facility under construction in New Windsor, NY for LSI Lightron 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 |
A. | Common share information appears in Note 12 – SUMMARY OF QUARTERLY RESULTS (UNAUDITED) under “Range of share prices” on page S-24 of this Form 10-K. Information related to “Earnings per share from continuing operations” and |
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“Cash dividends paid per share” appears in SELECTED FINANCIAL DATA on page S-26 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 22, 2001, there were 424 shareholders of record. The Company believes this represents approximately 3,000 beneficial shareholders. The Company’s common shares are traded on the Nasdaq National Market under the symbol LYTS. | ||||
B. | Change in Securities | |||
During the quarterly period ended June 30, 2001, the Company issued 3,769 Common Shares pursuant to an Earn Out Agreement to an owner of a company which was acquired in fiscal year 1999. This issuance was exempt from the registration requirements of the Securities Act of 1933 as a private offering pursuant to Section 4(2) of that Act. |
ITEM 6. | SELECTED FINANCIAL DATA |
"Selected Financial Data" appears on page S-26 of this Form 10-K. |
ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
Index to Financial Statements | Begins on Page | |||
Financial Statements: | ||||
Report of Independent Public Accountants | S-6 | |||
Consolidated Income Statements for the years ended June 30, 2001, 2000, and 1999 | S-7 | |||
Consolidated Balance Sheets at June 30, 2001 and 2000 | S-8 | |||
Consolidated Statements of Shareholders' Equity for the years ended June 30, 2001, 2000, and 1999 | S-10 | |||
Consolidated Statements of Cash Flows for the years ended June 30, 2001, 2000, and 1999 | S-11 | |||
Notes to Consolidated Financial Statements | S-12 | |||
FinancialStatement Schedules: | ||||
II - | Valuation and Qualifying Accounts for the years ended June 30, 2001, 2000, and 1999 | S-27 |
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-24 in NOTE 12 of the accompanying consolidated financial statements. |
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ITEM 9. | DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
None
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 15, 2001, 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-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 |
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S-8 (95-2) = | Form S-8 Registration Statement No. 33-64723 for the LSIIndustries Inc. 1995 Directors’ Stock Option Plan | |||
S-8 (99) = | Form S-8 Registration Statement No. 333-91531 for the LSIIndustries 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 | CREDIT AGREEMENT By and Among LSI | Filed herewith | |||||
INDUSTRIES INC. as the Borrower, THE | |||||||
BANKS PARTY HERETO as the Lenders hereunder, | |||||||
PNC BANK NATIONAL ASSOCIATION as the | |||||||
Administrative Agent and the Syndication Agent, | |||||||
Dated as of March 30, 2001 | |||||||
10.1 | * | LSI Industries Inc. Retirement Plan | 10Q-9/99 | 10.1 | |||
(Amended and Restated as of October 1, 1999) | |||||||
10.2 | * | LSI Industries Inc. 1995 Stock Option Plan | S-8 (99) | 4.1 | |||
(Amended as of November 13, 1997) | |||||||
10.3 | * | LSI Industries Inc. 1995 Directors’ Stock | |||||
Option Plan | S-8 (95-2) | 4.1 | |||||
10.4 | * | 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 (5) | Filed herewith | |||||
*Management Compensatory Agreements |
(b) Form 8-K:
There have been no reports on Form 8-K filed during the last quarter of fiscal year 2001.
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Pursuanttothe requirementsofSection 13 or 15(d) of the Securities Exchange Act of1934, the registrant has duly caused this report to be signed on its behalfby the undersigned, thereuntoduly authorized.
LSI INDUSTRIES INC. | ||
September 14, 2001 | BY: | /s/ Robert J. Ready |
Date | Robert J. Ready | |
Chairman of the Board and President |
Pursuant to the requirements of the SecuritiesExchangeActof 1934, this report has been signed below by the followingpersons on behalf of the registrant and in the capacities and on the datesindicated.
Signature | Title | |
/s/ Robert J. Ready | Chairman of the Board, Chief Executive | |
Robert J. Ready | Officer, and President | |
Date:September14, 2001 | (PrincipalExecutiveOfficer) | |
/s/ Ronald S. Stowell | Vice President, Chief Financial Officer, and | |
Ronald S. Stowell | Treasurer | |
Date:September 14, 2001 | (PrincipalFinancial and Accounting Officer) | |
*Michael J.Burke | Director | |
Michael J. Burke | ||
*Allen L. Davis | Director | |
AllenL. Davis | ||
*DennisB. Meyer | Director | |
Dennis B. Meyer | ||
*Wilfred T. O’Gara | Director | |
Wilfred T. O’Gara | ||
*JamesP.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 14, 2001, pursuant toPowers of Attorney executed by the above named Directors of the Registrant and filed with the Securities and Exchange Commission as Exhibit 24 hereto.
September 14, 2001 | By: | /s/ Ronald S. Stowell | |
Date | Attorney-in-Fact |
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Sales by Business Segment | ||||||||
(In thousands) | 2001 | 2000 | 1999 | |||||
Image Segment | $ 147,021 | $ 159,257 | $ 162,299 | |||||
Commercial / Industrial | ||||||||
Lighting Segment | 86,919 | 80,725 | 69,423 | |||||
$233,940 | $ 239,982 | $ 231,722 | ||||||
Results of Operations
2001 COMPARED TO 2000
Net sales of $233,940,000 in fiscal 2001 decreased 3% compared to fiscal 2000 net sales of $239,982,000. Results of the Commercial / Industrial Lighting Segment in fiscal 2001 include the operations of LSI Lightron (acquired November 2000), and results of the Image Segment in fiscal 2001 include the operations of LSI Adapt (acquired January 2001). Commercial / Industrial Lighting Segment net sales increased 8% and Image Segment net sales decreased 8% in fiscal 2001 as compared to the prior year. The increase in Commercial / Industrial Lighting Segment is attributed to the November 2000 acquisition of LSI Lightron (approximately 14% of net sales of this Segment). Excluding the acquisition of LSI Lightron, net sales in this segment decreased approximately 8% due to competitive markets and down economic conditions in the North American market. The decrease in Image Segment net sales is attributed to several factors. Net sales to the petroleum / convenience store market continued to be adversely impacted by the temporary affects of mergers of major petroleum companies. The Company reported decreased menu board business in fiscal 2001 as compared to last year as a significant roll out program in fiscal 2000 with one customer neither repeated nor was it replaced with a program with another customer in fiscal 2001. These decreases were partially offset by increased interior graphics business in other markets, and by the inclusion of the results of LSI Adapt, acquired in January 2001 and representing approximately 2% of Image Segment net sales. The Company believes it is likely that net sales of the Image Segment will increase in fiscal 2002. Significant customers in the petroleum / convenience store market and a menu board system customer in the quick service restaurant market have indicated their intent to reimage their retail sites over a multi-year time period and have released some orders in the fourth quarter of fiscal 2001 to initiate roll out of their re-image programs. Net sales of the Image Segment to the petroleum / convenience store market represented 36% and 38% of total net sales in fiscal 2001 and fiscal 2000, respectively. Sales to this market declined 9% in fiscal 2001 as compared to last year. While sales prices were increased, inflation did not have a significant impact on sales in fiscal 2001 as competitive pricing pressures held price increases to a minimum.
Gross profit of $65,411,000 decreased 11% from last year's gross profit of $73,775,000, and decreased as a percentage of net sales to 28.0% in fiscal year 2001 as compared to 30.7%
S-1
in the prior year. The decrease in amount of gross profit is due primarily to the Company's lighting product lines that experienced lower sales volumes, related under absorbed manufacturing overhead and competitive pricing pressures. This decrease was partially offset by the added gross profit related to the two FY 2001 acquisitions. Selling and administrative expenses increased 7% to $48,175,000 from $45,219,000. The increase was caused primarily by the additions of LSI Lightron and LSI Adapt. As a percentage of net sales, selling and administrative expenses were at 20.6% in fiscal 2001 as compared to 18.8% in the prior year. The Company continued the task of converting its business operating software and systems company-wide. Total implementation costs expensed were $960,000 ($0.06 per share, diluted) in fiscal 2001 as compared to $1,030,000 ($0.06 per share, diluted) in fiscal 2000. Expenditures are expected to continue through fiscal 2003.
The Company reported interest income of $630,000 in fiscal 2001 as compared to interest income of $1,057,000 in fiscal 2000 primarily reflective of the Company being in a net borrowing position through the second half of fiscal 2001. Due to the cash acquisition of LSI Lightron, the Company became a net borrower and reported $607,000 of interest expense in fiscal 2001 as compared to $189,000 in the prior year. The Company's effective tax rate increased to 38.8% in fiscal 2001 as compared to 37.8% in fiscal 2000 primarily due to the tax treatment of goodwill and other items.
Income from continuing operations of $10,601,000 in fiscal 2001 decreased 42% from $18,279,000 last year. The decreased net income resulted from decreased gross profit on decreased net sales, increased selling and administrative expenses, increased interest expense and decreased interest income, partially offset by decreased income tax expense in fiscal 2001 as compared to 2000. Diluted earnings per share of $1.01 in fiscal 2001 decreased 43% from $1.77 per share reported in fiscal 2000. The weighted average common shares outstanding for purposes of computing diluted earnings per share increased 2% in fiscal 2001 to 10,523,000 shares from 10,354,000 shares in 2000 as a result of common shares issued both for the exercise of stock options and for an acquisition during the year.
The Company recorded a $0.7 million ($0.07 per share) discontinued operations charge, net of taxes, in the fourth quarter of fiscal 2001 to increase its loss contingency related to a lease guaranty in connection with its European operations which were discontinued in 1992. A settlement agreement was signed releasing the Company from all remaining obligations. Payment of the loss contingency of approximately $1.1 million was made in the first quarter of fiscal 2002. A similar discontinued operations charge of $1.0 million ($0.10 per share), net of taxes, was recorded in the fourth quarter of fiscal 2000 in connection with the lease guaranty.
Net income of $9,878,000 ($0.94 per share) in fiscal 2001 compares to net income of $17,279,000 ($1.67 per share) in fiscal 2000. The reduction is primarily the result of decreased income from continuing operations, partially offset by a decreased charge to discontinued operations in fiscal 2001.
2000 COMPARED TO 1999
Net sales of $239,982,000 in fiscal 2000 increased 4% over fiscal 1999 net sales of $231,722,000. Results of the Image Segment 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 Segment in fiscal 2000 include the operations of LSI MidWest Lighting (acquired January 1999; approximately 8% of net sales in fiscal 2000). Commercial /
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Industrial Lighting Segment net sales increased 16% and Image Segment net sales decreased 2% in fiscal 2000 as compared to the prior year. The increase in the Commercial / Industrial Lighting Segment 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 Segment 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's graphics and petroleum lighting sales volume, both components of the Image Segment, were down approximately 2% and 11%, respectively, as compared to the prior year. Net sales of the Image Segment 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 $73,775,000 increased 2% over last year's gross profit of $72,577,000, and decreased as a percentage of net sales to 30.7% in fiscal year 2000 as compared to 31.3% 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 4% increase in net sales and improved efficiencies. Selling and administrative expenses decreased to $45,219,000 from $45,349,000, a decrease of 0.3%. As a percentage of net sales, selling and administrative expenses were at 18.8% in fiscal 2000 as compared to 19.6% 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 strategy in Fiscal Year 2000. Total implementation costs expensed were $1,030,000 ($0.06 per share, diluted) in fiscal 2000 and $227,000 ($0.02 per share, diluted) in fiscal 1999.
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.
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.
S-3
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, 2001 the Company had working capital of $62.1 million, compared to $61.1 million at June 30, 2000. The ratio of current assets to current liabilities decreased to 3.09 to 1 from 3.36 to 1. The increased working capital is primarily attributed to increased accounts receivables and inventories, and decreased liabilities from discontinued operations, partially offset by decreased cash and cash equivalents, increased notes payable to bank, increased accounts payable, and increased accrued expenses. The Company's balance of cash and cash equivalents was substantially lower at June 30, 2001 as compared to June 30, 2000 primarily due to the acquisition of Lightron of Cornwall, Inc. for $25.9 million in November 2000, and due to the increased amount of accounts receivable.
The Company used $2.8 million of cash in operating activities in fiscal 2001 as compared to a generation of $19.8 million in fiscal 2000. The decrease in net cash flows from operating activities in fiscal 2001 is primarily the net result of a decrease in net income, increased accounts receivable and inventories, decreased accrued expenses, and fiscal 2001 payments related to the Company's discontinued operations liabilities, partially offset by increased refundable and deferred income taxes. As of June 2001, the Company's days sales outstanding were at approximately 73 days, increased from 55 days at June 30, 2000 due to slower collection cycles from several customers.
In addition to cash generated from operations, the Company's primary source of liquidity continues to be its line of credit. The Company has an unsecured $50 million revolving line of credit with its bank group. As of August 22, 2001 there was $29 million available on this line of credit. This line of credit is composed of a $30 million three year committed credit facility expiring in fiscal 2004 and a $20 million credit facility with an annual renewal in the third quarter of fiscal 2002. The Company believes that the total of available lines of credit plus cash flows from operating activities is adequate for the Company's fiscal 2002 operational and capital expenditure needs. The Company is in compliance with all of its loan covenants. Capital expenditures, exclusive of business acquisitions, of $6.5 million in fiscal 2001 compare to $9.0 million in fiscal 2000. Spending in fiscal year 2001 was primarily related to expansion of the Company's facilities, and to capitalization of Company-wide enterprise resource planning software and related implementation costs. Capital expenditures totaling approximately $12 million are planned for fiscal 2002, exclusive of business acquisitions.
The Company utilized significantly more cash flows from investing activities than the prior year due to the acquisition of substantially all of the net assets of Lightron of Cornwall, Inc. in the second quarter and substantially all of the net assets of ADaPT Engineering Inc. at the beginning of the third quarter. The cash purchase price of Lightron, exclusive of acquisition costs, was $25.9 million, a portion of which is subject to achievement of certain financial objectives over the first ten months subsequent to acquisition. The acquisition was accounted for as a purchase, effective on the date of acquisition. An additional approximately $3 million was used immediately following the acquisition to reduce acquired liabilities. The purchase price exceeded the estimated fair value of net assets acquired by approximately $16.5 million, which is recorded as goodwill and is being amortized over a period not to exceed forty years.
S-4
The purchase price allocation was based upon preliminary estimates of fair value of assets acquired and may be revised at a later date pending the achievement of certain financial objectives and other analysis.
The Company acquired substantially all of the net assets of ADaPT Engineering, Inc. effective January 1, 2001. The consideration for this purchase, exclusive of acquisition costs, was $4.5 million, consisting of $2.25 million in cash and 109,430 common shares of LSI Industries valued at $2.25 million, and the assumption of certain liabilities related to ADaPT Engineering's business. In addition, a contingent "earn-out" having a maximum value of $2.0 million, payable in cash, could be earned during the first eighteen months after acquisition. The performance in the first earn-out period ended June 30, 2001 was above the target and an earn-out payment of $0.5 million will be made in the first quarter of fiscal 2002. The acquisition has been accounted for as a purchase, effective on the date of acquisition. The purchase price, plus the earn-out consideration achieved, exceeded the estimated fair value of net assets acquired by approximately $3.2 million, which has been recorded as goodwill and will be amortized over a period not to exceed fifteen years. The purchase price allocation was based upon preliminary estimates of fair value of assets acquired and may be revised at a later date pending the completion of appraisals and other analysis.
On August 15, 2001 the Board of Directors declared a regular quarterly cash dividend of $0.085 per share (approximately $889,000), to be paid September 11, 2001 to shareholders of record on September 4, 2001. During fiscal 2001, the Company paid cash dividends in the amount of $4.0 million, essentially level the same amount as fiscal 2000.
In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 141 (SFAS No. 141), "Business Combinations," and issued Statement of Financial Accounting Standards No. 142 (SFAS No. 142), "Goodwill and Other Intangible Assets." SFAS No. 141 eliminates the pooling-of-interests method of accounting for business combinations and requires that all business combinations be accounted for as purchases. In addition, SFAS No. 141 establishes new rules concerning recognition of intangible assets arising in a purchase business combination and requires enhanced disclosure of information in the period in which a business combination is completed. SFAS No. 142 establishes new rules on accounting for goodwill whereby goodwill will no longer be amortized to expense, but rather will be subject to impairment review. SFAS No. 141 is effective for all business combinations initiated after June 30, 2001, and the Company has the option of adopting SFAS No. 142 either July 1, 2001 or July 1, 2002. Net income will increase when the amortization of goodwill to expense is stopped. The Company is currently evaluating the impact to its financial statements, financial position, results of operations and cash flows related to the implementation of these two Statements, and has not yet determined when SFAS No. 142 will be adopted.
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-5
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, 2001 and 2000, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended June 30, 2001. 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 audits.
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, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 2001 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 15, 2001
S-6
LSI INDUSTRIES INC.
CONSOLIDATED INCOME STATEMENTS
For the years ended June 30, 2001, 2000, and 1999
(In thousands, except per share)
2001 | 2000 | 1999 | |||||||||
Net sales | $ | 233,940 | $ | 239,982 | $ | 231,722 | |||||
Cost of products sold | 168,529 | 166,207 | 159,145 | ||||||||
Gross profit | 65,411 | 73,775 | 72,577 | ||||||||
Selling and administrative expenses | 48,175 | 45,219 | 45,349 | ||||||||
Operating income | 17,236 | 28,556 | 27,228 | ||||||||
Interest (income) | (630 | ) | (1,057 | ) | (477 | ) | |||||
Interest expense | 607 | 189 | 224 | ||||||||
Other (income) expense | (58 | ) | 15 | 95 | |||||||
Income from continuing operations | |||||||||||
before income taxes | 17,317 | 29,409 | 27,386 | ||||||||
Income tax expense | 6,716 | 11,130 | 10,285 | ||||||||
Income from continuing operations | 10,601 | 18,279 | 17,101 | ||||||||
Discontinued operations, net of tax | |||||||||||
benefit of $387 and $538, respectively | 723 | 1,000 | — | ||||||||
Net income | $ | 9,878 | $ | 17,279 | $ | 17,101 | |||||
Earnings per common share from | |||||||||||
continuing operations | |||||||||||
Basic earnings per share | $ | 1.02 | $ | 1.79 | $ | 1.73 | |||||
Diluted earnings per share | $ | 1.01 | $ | 1.77 | $ | 1.70 | |||||
Earnings per common share | |||||||||||
Basic earnings per share | $ | 0.95 | $ | 1.69 | $ | 1.73 | |||||
Diluted earnings per share | $ | 0.94 | $ | 1.67 | $ | 1.70 | |||||
Weighted average common shares outstanding | |||||||||||
Basic | 10,358 | 10,195 | 9,883 | ||||||||
Diluted | 10,523 | 10,354 | 10,088 | ||||||||
The accompanying notes are an
integral part of these financial statements.
S-7
LSI INDUSTRIES INC.
CONSOLIDATED BALANCE SHEETS
June 30, 2001 and 2000
(In thousands, except shares)
2001 | 2000 | |||||||
ASSETS | ||||||||
Current Assets | $ | 340 | $ | 21,966 | ||||
Cash and cash equivalents | ||||||||
Accounts receivable, less allowance | ||||||||
for doubtful accounts of $1,745 | ||||||||
and $1,239, respectively | 51,609 | 35,424 | ||||||
Inventories | 35,079 | 25,293 | ||||||
Refundable income taxes | 854 | 1,160 | ||||||
Other current assets | 3,898 | 3,237 | ||||||
Total current assets | 91,780 | 87,080 | ||||||
Property, Plant and Equipment, at cost | ||||||||
Land | 3,967 | 3,947 | ||||||
Buildings | 22,992 | 20,522 | ||||||
Machinery and equipment | 35,874 | 32,436 | ||||||
Construction in progress | 7,820 | 4,842 | ||||||
70,653 | 61,747 | |||||||
Less accumulated depreciation | (28,412 | ) | (24,625 | ) | ||||
Net property, plant and equipment | 42,241 | 37,122 | ||||||
Goodwill, net | 41,572 | 22,581 | ||||||
Other Assets, net | 6,166 | — | ||||||
$ | 181,759 | $ | 146,783 | |||||
The accompanying notes are an
integral part of these financial statements.
S-8
2001 | 2000 | ||||||||
LIABILITIES & SHAREHOLDERS' EQUITY | |||||||||
Current Liabilities | |||||||||
Notes payable to bank | $ | 552 | $ | — | |||||
Current maturities of long-term debt | 352 | 203 | |||||||
Accounts payable | 15,268 | 12,349 | |||||||
Accrued expenses | 12,778 | 11,606 | |||||||
Net liabilities from discontinued operations | 711 | 1,783 | |||||||
Total current liabilities | 29,661 | 25,941 | |||||||
Long-Term Debt | 23,638 | 1,498 | |||||||
Deferred Income Taxes | 1,267 | 1,132 | |||||||
Shareholders' Equity | |||||||||
Preferred shares, without par value; | |||||||||
Authorized 1,000,000 shares, none issued | — | — | |||||||
Common shares, without par value; | |||||||||
Authorized 30,000,000 shares; | |||||||||
Outstanding 10,438,469 and 10,291,730 | |||||||||
shares respectively | 50,808 | 47,719 | |||||||
Retained earnings | 76,385 | 70,493 | |||||||
Total shareholders' equity | 127,193 | 118,212 | |||||||
$ | 181,759 | $ | 146,783 | ||||||
The accompanying notes are an
integral part of these financial statements.
S-9
LSI INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the years ended June 30, 2001, 2000, and 1999
(In thousands, except per share)
Common Shares | |||||||||||
Number of Shares | Amount | Retained Earnings | Total | ||||||||
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 | |||||||
Net income | — | — | 9,878 | 9,878 | |||||||
Purchase of treasury shares | (15 | ) | (305 | ) | — | (305 | ) | ||||
Deferred stock compensation | — | 248 | — | 248 | |||||||
Stock options exercised, net | 48 | 821 | — | 821 | |||||||
Common shares issued for | |||||||||||
acquisitions | 113 | 2,325 | — | 2,325 | |||||||
Dividends – $.39 per share | — | — | (3,986 | ) | (3,986 | ) | |||||
Balance at June 30, 2001 | 10,438 | $50,808 | $76,385 | $127,193 | |||||||
The accompanying notes are an integral part of these financial statements. |
S-10
LSI INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended June 30, 2001, 2000, and 1999
(In thousands)
2001 | 2000 | 1999 | ||||||||||
Cash Flows From Operating Activities | ||||||||||||
Net income | $ | 9,878 | $ | 17,279 | $ | 17,101 | ||||||
Non-cash items included in income | ||||||||||||
Depreciation and amortization | 5,558 | 5,511 | 4,813 | |||||||||
Deferred income taxes | 1,023 | (566 | ) | (84 | ) | |||||||
Deferred compensation plan | 248 | 338 | 334 | |||||||||
(Gain) loss on disposition of fixed assets | (58 | ) | 15 | 95 | ||||||||
Change (excluding effects of acquisitions) in | ||||||||||||
Accounts receivable | (12,107 | ) | 4,206 | (4,075 | ) | |||||||
Inventories | (5,450 | ) | (32 | ) | 2,273 | |||||||
Refundable income taxes | 306 | (1,003 | ) | 117 | ||||||||
Accounts payable | 504 | (2,279 | ) | (262 | ) | |||||||
Accrued expenses and other | (1,581 | (4,966 | ) | 348 | ||||||||
Net liabilities from discontinued operations | (1,072 | ) | 1,292 | (70 | ) | |||||||
Net cash flows from operating activities | (2,751 | ) | 19,795 | 20,590 | ||||||||
Cash Flows From Investing Activities | ||||||||||||
Purchase of property, plant, and equipment | (6,492 | ) | (8,977 | ) | (4,455 | ) | ||||||
Proceeds from sale of fixed assets | 155 | 3 | 14 | |||||||||
Acquisition of businesses, net of cash received | (29,163 | ) | — | (8,657 | ) | |||||||
Net cash flows from investing activities | (35,500 | ) | (8,974 | ) | (13,098 | ) | ||||||
Cash Flows From Financing Activities | ||||||||||||
Increase (decrease) of borrowings under line of credit | 552 | (379 | ) | 379 | ||||||||
Proceeds from issuance of long-term debt | 22,000 | — | 919 | |||||||||
Payment of long-term debt | (2,457 | ) | (200 | ) | (2,082 | ) | ||||||
Cash dividends paid | (3,986 | ) | (3,950 | ) | (3,226 | ) | ||||||
Exercise of stock options | 821 | 2,142 | 1,285 | |||||||||
Purchase of treasury shares | (305 | ) | (349 | ) | (224 | ) | ||||||
Net cash flows from financing activities | 16,625 | (2,736 | ) | (2,949 | ) | |||||||
Increase (decrease) in cash and cash equivalents | (21,626 | ) | 8,085 | 4,543 | ||||||||
Cash and cash equivalents at beginning of year | 21,966 | 13,881 | 9,338 | |||||||||
Cash and cash equivalents at end of year | $ | 340 | $ | 21,966 | $ | 13,881 | ||||||
The accompanying notes are an integral part of these financial statements. |
S-11
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 |
Computer software | 5 - 8 years |
Intangible assets:
Intangible assets consisting of customer lists, trade names, patents and trademarks are recorded on the Company's balance sheet and are being amortized to expense over periods ranging between two and seventeen years. The Company recorded intangibles amortization expense of $284,000 in fiscal 2001. As of June 30, 2001, accumulated amortization of intangible assets is $284,000. The excess of cost over fair value of assets acquired ("goodwill") is amortized to expense over periods ranging between fifteen and forty years. As of June 30, 2001 and 2000, accumulated amortization of goodwill was $2,849,000 and $1,827,000, respectively. The Company recorded goodwill amortization expense of $1,022,000, $689,000 and $476,000 in fiscal years 2001, 2000 and 1999, respectively. The Company periodically evaluates intangible assets, 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.
S-12
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 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 $1,581,000 in 2001, $2,052,000 in 2000, and $1,937,000 in 1999.
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 165,000 shares in 2001, 159,000 shares in 2000, and 205,000 shares in 1999. See also Notes 4 and 7.
Recent pronouncements:
In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133 (SFAS No. 133), "Accounting for Derivative Instruments and for Hedging Activities," which establishes standards for reporting and disclosure of derivative and hedging instruments. The Company adopted SFAS No. 133 in fiscal year 2001, but its financial statements were not affected by this new standard because the Company has no derivative or hedging financial instruments.
In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 141 (SFAS No. 141), "Business Combinations," and issued Statement of Financial Accounting Standards No. 142 (SFAS No. 142), "Goodwill and Other Intangible Assets." SFAS No. 141 eliminates the pooling-of-interests method of accounting for business combinations and requires that all business combinations be accounted for as purchases. In addition, SFAS No. 141 establishes new rules concerning recognition of intangible assets arising in a purchase business combination and requires enhanced disclosure of information in the period in which a business combination is completed. SFAS No. 142 establishes new rules on accounting for goodwill whereby goodwill will no longer be amortized to expense, but rather will be subject to impairment review. SFAS No. 141 is effective for all business combinations initiated after June 30, 2001, and the Company has the option ofadopting SFAS No. 142 either July 1, 2001 or July 1, 2002. The Company is currently
S-13
evaluating the impact to its financial statements, financial position, results of operations and cash flows related to the implementation of these two Statements, and has not yet determined when SFAS No. 142 will be adopted.
Reclassification:
Certain reclassifications have been made to prior year amounts in order to be consistent with the presentation for the current year. The most significant reclassification was related to the reclassification of shipping and handling revenue into net sales with related effects to cost of products sold and to selling and administrative expenses. As a result of implementing the Emerging Issues Task Force Issue 00-10 (Accounting for Shipping and Handling Fees and Costs), net sales increased $5,759,000, $4,381,000, and $3,933,000, cost of products sold increased $11,079,000, $9,601,000, and $8,464,000, and selling and administrative expenses decreased $5,320,000, $5,220,000, and $4,531,000, respectively for fiscal years 2001, 2000 and 1999.
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 was 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 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. During the fourth quarter of fiscal year 2001 the Company concluded lengthy negotiations related to the maintenance and repairs of the facility and recorded a charge to discontinued operations of $1.1 million ($0.7 million net of income taxes or $0.07 per share). The resultant reserve balance of $1.1 million as of June 30, 2001 is adequate to cover all remaining obligations of the Company with respect to this facility. Payment of these obligations is expected to occur in the first quarter of fiscal year 2002.
S-14
A summary of the activity in the reserve for discontinued operations during fiscal years 2001 and 2000 is as follows:
(In thousands) | 2001 | 2000 | |||||
Balance beginning of year | $ | 2,745 | $ | 755 | |||
less: Payments made | (2,764 | ) | (156 | ) | |||
plus: Settlement received | — | 608 | |||||
plus: Charge to discontinued operations | 1,110 | 1,538 | |||||
Balance end of year | $ | 1,091 | $ | 2,745 | |||
The Company's reserve for discontinued operations, net of related taxes, is included in current liabilities in the amounts of $711,000 and $1,783,000 as of June 30, 2001 and 2000, respectively.
NOTE 3 - BUSINESS SEGMENT INFORMATION
LSI operates in two business segments - the Image Segment and the Commercial / Industrial Lighting Segment. The Image Segment 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 Segment includes the operations of LSI Petroleum Lighting, LSI Automotive Lighting, LSI Images, LSI Metal Fabrication, LSI SGI Integrated Graphic Systems, LSI Grady McCauley, LSI Retail Graphics, and LSI Adapt. The Commercial / Industrial Lighting Segment manufactures and sells primarily outdoor, indoor, and landscape lighting for the commercial / industrial and multi-site retail markets. The Commercial / Industrial Lighting Segment includes the operations of LSI Lighting Systems, LSI Courtsider Lighting, LSI Greenlee Lighting, LSI Marcole, LSI MidWest Lighting and LSI Lightron. The Company's most significant market is the petroleum / convenience store market with approximately 36%, 38%, and 43% of net sales concentrated in this market in fiscal 2001, 2000, and 1999, respectively.
The following information is provided for the following periods:
(In thousands) | 2001 | 2000 | 1999 | |||||
Net sales: | ||||||||
Image Segment | $ | 147,021 | $ | 159,257 | $ | 162,299 | ||
Commercial / Industrial Lighting Segment | 86,919 | 80,725 | 69,423 | |||||
$ | 233,940 | $ | 239,982 | $ | 231,722 | |||
Operating income: | ||||||||
Image Segment | $ | 14,690 | $ | 21,024 | $ | 19,848 | ||
Commercial / Industrial Lighting Segment | 2,546 | 7,532 | 7,380 | |||||
$ | 17,236 | $ | 28,556 | $ | 27,228 | |||
S-15
Identifiable assets: | ||||||||
Image Segment | $ | 105,072 | $ | 84,513 | $ | 86,011 | ||
Commercial / Industrial Lighting Segment | 75,416 | 38,588 | 37,645 | |||||
180,488 | $ | 123,101 | $ | 123,656 | ||||
Corporate | 1,271 | 23,682 | 14,058 | |||||
$ | 181,759 | $ | 146,783 | $ | 137,714 | |||
Capital expenditures: | ||||||||
Image Segment | $ | 3,926 | $ | 6,279 | $ | 3,214 | ||
Commercial / Industrial Lighting Segment | 2,566 | 2,698 | 1,241 | |||||
$ | 6,492 | $ | 8,977 | $ | 4,455 | |||
Depreciation and amortization: | ||||||||
Image Segment | $ | 3,139 | $ | 3,687 | $ | 3,425 | ||
Commercial / Industrial Lighting Segment | 2,419 | 1,824 | 1,388 | |||||
$ | 5,558 | $ | 5,511 | $ | 4,813 | |||
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. The increase in identifiable assets in fiscal 2001 is primarily related to the two acquisitions made during the year (see footnote 11) and to increased levels of accounts receivable and inventories.
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) | 2001 | 2000 | 1999 | |||||
BASIC EARNINGS PER SHARE | ||||||||
Income from continuing operations | $ | 10,601 | $ | 18,279 | $ | 17,101 | ||
Net income | $ | 9,878 | $ | 17,279 | $ | 17,101 | ||
Weighted average shares outstanding | ||||||||
during the period, net | ||||||||
of treasury shares | 10,358 | 10,195 | 9,883 | |||||
Basic earnings per share from continuing | ||||||||
operations | $ | 1.02 | $ | 1.79 | $ | 1.73 | ||
Basic earnings per share | $ | .95 | $ | 1.69 | $ | 1.73 | ||
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DILUTED EARNINGS PER SHARE | |||||||||
Income from continuing operations | $ | 10,601 | $ | 18,279 | $ | 17,101 | |||
Net income | $ | 9,878 | $ | 17,279 | $ | 17,101 | |||
Weighted average shares outstanding | |||||||||
during the period, net of | |||||||||
treasury shares | 10,358 | 10,195 | 9,883 | ||||||
Effect of dilutive securities (A): | |||||||||
Impact of common shares to be | |||||||||
issued under stock option plans, | |||||||||
a deferred compensation plan, | |||||||||
and contingently issuable shares | 165 | 159 | 205 | ||||||
Weighted average shares | |||||||||
outstanding (B) | 10,523 | 10,354 | 10,088 | ||||||
Diluted earnings per share from | |||||||||
continuing operations | $ | 1.01 | $ | 1.77 | $ | 1.70 | |||
Diluted earnings per share | $ | .94 | $ | 1.67 | $ | 1.70 | |||
(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 49,817 common shares, 36,105 common shares, and 14,359 common shares at June 30, 2001, 2000, and 1999, 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) | 2001 | 2000 | ||||
Inventories: | ||||||
Raw materials | $ | 16,485 | $ | 11,824 | ||
Work-in-process and | ||||||
finished goods | 18,594 | 13,469 | ||||
$ | 35,079 | $ | 25,293 | |||
Accrued Expenses: | ||||||
Compensation and benefits | $ | 6,119 | $ | 5,725 | ||
Customer prepayments | $ | 1,729 | $ | 1,144 |
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NOTE 6 - REVOLVING LINES OF CREDIT AND LONG-TERM DEBT
The Company has an unsecured $50 million revolving line of credit with its bank group. As of June 30, 2001 the available portion of this line of credit was $27.4 million. A portion of this credit facility is a $20 million line of credit that expires in the third quarter of fiscal 2002. The remainder of the credit facility is a $30 million three year committed line of credit that expires in fiscal 2004 and that has an annual renewal for the third year of commitment in the third quarter of fiscal 2002. Interest on the revolving lines of credit is charged based upon an increment over the LIBOR rate as periodically determined, an increment over the Federal Funds Rate as periodically determined, or at the bank’s base lending rate, at the Company’s option. The increment over the LIBOR borrowing rate, as periodically determined, fluctuates between 50 and 75 basis points depending upon the ratio of indebtedness to earnings before interest, taxes, depreciation and amortization (EBITDA). The increment over the Federal Funds borrowing rate, as periodically determined, fluctuates between 150 and 200 basis points, and the commitment fee on the unused balance of the $30 million committed portion of the line of credit fluctuates between 15 and 25 basis points based upon the same leverage ratio. At June 30, 2001 the average interest rate on borrowings under this revolving line of credit was 4.4%. 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's borrowings under its bank credit facilities during fiscal year 2001 averaged approximately $8.3 million at an approximate average borrowing rate of 5.7%. 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 $860,000 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 4.5%, 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 $1,130,000 with monthly principal and interest payments extending through fiscal 2006. The weighted average interest rate of these loans is 5.9% and they are secured by specified equipment which has a net carrying value of $1,420,000. With one of these loans the Company is committed to specified job growth in its facility in Northeast Ohio.
Long-term debt: (In thousands) | 2001 | 2000 | ||||
Revolving Line of Credit (3 year committed line) | $ | 22,552 | $ | — | ||
Industrial Revenue Development Bond at 4.5% | 860 | 935 | ||||
Equipment loans (average rate of 5.9%) | 1,130 | 766 | ||||
24,542 | 1,701 | |||||
Less notes payable to bank | 552 | — | ||||
Total long-term debt | 23,990 | 1,701 | ||||
Less current maturities of long-term debt | 352 | 203 | ||||
Long-term debt | $ | 23,638 | $ | 1,498 | ||
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Future maturities of long-term debt at June 30, 2001 are as follows (in thousands):
2002 $352 | 2003 $365 | 2004 $22,385 | 2005 $240 | 2006 $218 | 2007and after $430 |
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 119,225 shares were available for future grant as of June 30, 2001. The plans allow for the grant of both incentive stock options and non-qualified stock options.
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 2001, 2000, and 1999.
2001 | 2000 | 1999 | |||||||
Dividend yield | 1.81 | % | 1.25 | % | 1.25 | % | |||
Expected volatility | 40 | % | 42 | % | 44 | % | |||
Risk-free interest rate | 4.54% - 6.50 | % | 6.14% - 6.90 | % | 4.45% - 6.24 | % | |||
Expected life | 4-8 yrs. | 4-8 yrs. | 4-8 yrs. |
At June 30, 2001, the 220,300 options granted during fiscal 2001 to employees and non-employee directors have exercise prices ranging from $15.44 to $22.05, fair values ranging from $4.24 to $8.93 per option, and remaining contractual lives of four to nine years. 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.
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, 2001, 2000, and 1999 would have been as follows:
(In thousands except earnings per share) | 2001 | 2000 | 1999 | ||||||||
Net income | |||||||||||
As reported | $ 9,878 | $17,279 | $17,101 | ||||||||
Pro forma | $ 9,380 | $17,035 | $16,629 |
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Earnings per common share | |||||||||
Basic | |||||||||
As reported | $ | .95 | $ | 1.69 | $ | 1.73 | |||
Pro forma | $ | .91 | $ | 1.67 | $ | 1.68 | |||
Diluted | |||||||||
As reported | $ | .94 | $ | 1.67 | $ | 1.70 | |||
Pro forma | $ | .91 | $ | 1.65 | $ | 1.66 |
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.
Information involving the stock option plans for the years ended June 30, 2001, 2000, and 1999 is shown in the table below:
2001 | 2000 | 1999 | ||||||||||||||
Weighted | Weighted | Weighted | ||||||||||||||
Average | Average | Average | ||||||||||||||
Exercise | Exercise | Exercise | ||||||||||||||
(Shares in thousands) | Shares | Price | Shares | Price | Shares | Price | ||||||||||
Outstanding at beginning of year | 242 | $ | 16.13 | 408 | $ | 14.41 | 500 | $ | 12.70 | |||||||
Granted | 220 | $ | 16.10 | 19 | $ | 21.74 | 57 | $ | 19.82 | |||||||
Terminated | (11 | ) | $ | 15.69 | (7 | ) | $ | 16.03 | (8 | ) | $ | 16.23 | ||||
Exercised | (48 | ) | $ | 14.00 | (178 | ) | $ | 12.79 | (141 | ) | $ | 10.33 | ||||
Outstanding at end of year | 403 | $ | 16.38 | 242 | $ | 16.13 | 408 | $ | 14.41 | |||||||
Exercisable at end of year | 109 | $ | 16.39 | 109 | $ | 15.00 | 129 | $ | 12.92 | |||||||
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 74,261 and 59,566 common shares were held in the Plan as of June 30, 2001 and 2000, 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 | |||
1/1/99 | 357,143 | $ | 8,000,000 | ||
4/9/99 | 47,578 | $ | 825,000 | ||
1/10/01 | 109,430 | $ | 2,250,000 | ||
6/8/01 | 3,769 | $ | 75,000 |
On August 15, 2001, the Board of Directors declared a cash dividend of $0.085 per share to be paid September 11, 2001 to shareholders of record on September 4, 2001. Annual cash dividend payments made during fiscal years 2001, 2000, and 1999 were $0.39, $0.39, and $0.33 per share, respectively.
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NOTE 8 - LEASES
The Company leases certain of its facilities and equipment under operating lease arrangements. Rental expense was $1,536,000 in 2001, $1,385,000 in 2000, and $1,174,000 in 1999. Minimum annual rental commitments under non-cancelable operating leases are: $1,410,000 in 2002, $1,277,000 in 2003, $1,153,000 in 2004, $963,000 in 2005, $925,000 in 2006, and $2,049,000 in 2007 and beyond.
NOTE 9 - INCOME TAXES
The following information is provided for the years ended June 30:
(In thousands) | 2001 | 2000 | 1999 | ||||||
Provision (benefit) for income taxes: | |||||||||
Current federal | $ | 5,190 | $ | 10,773 | $ | 9,466 | |||
Current state and local | 588 | 923 | 903 | ||||||
Deferred | 938 | (566 | ) | (84 | ) | ||||
$ | 6,716 | $ | 11,130 | $ | 10,285 | ||||
Reconciliation to federal statutory rate: | |||||||||
Federal statutory tax rate | 34.8 | % | 35.0 | % | 35.0 | % | |||
State and local taxes | 2.2 | 2.0 | 2.1 | ||||||
Goodwill and other | 1.8 | .8 | .5 | ||||||
Effective tax rate | 38.8 | % | 37.8 | % | 37.6 | % | |||
The components of deferred income tax assets and (liabilities) at June 30, 2001 and 2000 are as follows:
(In thousands) | 2001 | 2000 | ||||
Reserves against current assets | $ | 1,054 | $ | 818 | ||
Prepaid expenses | (1,241 | ) | (707 | ) | ||
Accrued expenses | 960 | 882 | ||||
Depreciation | (1,944 | ) | (1,694 | ) | ||
Goodwill and acquisition costs | 160 | 132 | ||||
Deferred compensation | 516 | 430 | ||||
Net liabilities from discontinued operations | 380 | 962 | ||||
Net deferred income tax asset (liability) | $ | (115 | ) | $ | 823 | |
Reconciliation to the balance sheets as of June 30, 2001 and 2000: | ||||||
(In thousands) | 2001 | 2000 | ||||
Deferred income tax asset (liability) included in: | ||||||
Other current assets | $ | 772 | $ | 993 | ||
Net liabilities from discontinued operations | 380 | 962 | ||||
Long-term deferred income tax liability | (1,267 | ) | (1,132 | ) | ||
Net deferred income tax asset (liability) | $ | (115 | ) | $ | 823 | |
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NOTE 10 - SUPPLEMENTAL CASH FLOW INFORMATION
(In thousands) | 2001 | 2000 | 1999 | ||||||
Cash payments: | |||||||||
Interest | $ | 526 | $ | 160 | $ | 148 | |||
Income taxes | $ | 5,124 | $ | 12,520 | $ | 10,034 | |||
Non-cash investing and financing activities: | |||||||||
Value of common shares issued for acquisitions | $ | 2,325 | $ | — | $ | 8,825 | |||
Details of acquisitions: | |||||||||
Working capital, less cash | $ | 2,948 | $ | — | $ | 2,417 | |||
Property, plant & equipment | 2,976 | — | 5,241 | ||||||
Other assets, net | 5,551 | — | (947 | ) | |||||
Excess of purchase price paid over estimated | |||||||||
net assets of acquired businesses | 20,013 | — | 10,771 | ||||||
31,488 | — | 17,482 | |||||||
Less fair value of common shares issued | (2,325 | ) | — | (8,825 | ) | ||||
Cash paid for acquisitions | $ | 29,163 | $ | — | $ | 8,657 | |||
NOTE 11 - ACQUISITIONS
The Company acquired substantially all of the net assets of Lightron of Cornwall, Inc. on November 21, 2000. The purchase price, exclusive of acquisition costs, was $25.9 million, a portion of which is subject to achievement of certain financial objectives over the first ten months subsequent to acquisition. The new subsidiary, LSI Lightron Inc., will continue to operate in the New Windsor, New York area in the business of designing, manufacturing, and selling a line of high-end fluorescent, metal halide, halogen, recessed, surface, and high bay lighting fixtures, and LED exit signs for the commercial, industrial and retail markets. When the Company completes construction of a new facility in the first half of fiscal year 2002, the manufacturing assets, inventory, and remaining related acquired liabilities of Lightron of Cornwall will be transferred to LSI Lightron. Until such transfer of assets, a portion of the purchase price will remain in escrow and Lightron of Cornwall will be exclusively a manufacturer of light fixtures and products for LSI Lightron. Results of LSI Lightron are included in the Company's Commercial / Industrial Lighting Segment. The acquisition has been accounted for as a purchase, effective on the date of acquisition. An additional approximate $3 million of cash was used immediately following the acquisition to reduce acquired liabilities. The purchase price exceeded the estimated fair value of net assets acquired by approximately $16.5 million, which is recorded as goodwill and is being amortized over forty years. The purchase price allocation was based upon preliminary estimates of fair value of assets acquired and may be revised at a later date pending the completion of appraisals and other analysis.
The Company acquired substantially all of the net assets of ADaPT Engineering, Inc. effective January 1, 2001. The initial consideration for this purchase, exclusive of acquisition costs, was $4.5 million, consisting of $2.25 million in cash and 109,430 common shares of LSI Industries valued at $2.25 million, plus the assumption of certain liabilities related to ADaPT Engineering's business. In addition, a contingent "earn-out" having a maximum value of $2.0 million, payable in cash, could be earned during the first eighteen months after acquisition based upon achievement of certain financial performance. The performance in the first earn-out period
S-22
ended June 30, 2001 was above the target and an earn-out payment of $0.5 million was made in the first quarter of fiscal year 2002. The new subsidiary, LSI Adapt Inc., is a multi-discipline service firm primarily focused on the retail petroleum / convenience store branded image programs, as well as other national retail customers. LSI Adapt specializes in integrated design, site engineering, permitting, project and construction management of national retail sites. Results of LSI Adapt are included in the Company's Image Segment. The acquisition has been accounted for as a purchase, effective on the date of acquisition. The initial purchase price, plus the earn-out consideration achieved to date, exceeded the estimated fair value of net assets acquired by approximately $3.2 million, which has been recorded as goodwill and is being amortized over fifteen years. The purchase price allocation was based on preliminary estimates of fair value of assets acquired and may be revised at a later date pending the completion of appraisals and other analyses.
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 Segment. The initial 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 provided 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. An earn-out payment was made in the fourth quarter of fiscal year 2001 in the amount of $300,000 consisting of $225,000 cash and 3,769 common shares of LSI Industries valued at $75,000. The earn-out payment has been recorded as additional goodwill to be amortized over the remaining life of the original goodwill related to this acquisition. An additional approximate $1 million was used immediately following the acquisition to reduce acquired liabilities. The total purchase price exceeded the estimated fair value of net assets acquired by $3.5 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 Segment. 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 either of the first two years. 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 $7.7 million, which is recorded as goodwill and is being amortized over forty years.
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NOTE12 – SUMMARY OF QUARTERLY RESULTS (UNAUDITED)
(In thousands except per share data) | |||||||||||||||
Quarter Ended | Fiscal | ||||||||||||||
Sept. 30 | Dec. 31 | March 31 | June 30 | Year | |||||||||||
2001 | |||||||||||||||
Net sales | $53,609 | $59,839 | $53,935 | $66,557 | $233,940 | ||||||||||
Gross profit | 15,399 | 17,040 | 13,975 | 18,997 | 65,411 | ||||||||||
Income from continuing | |||||||||||||||
operations | 2,981 | 3,028 | 1,225 | 3,367 | 10,601 | ||||||||||
Earnings per share from | |||||||||||||||
continuing operations | |||||||||||||||
Basic | $ .29 | $ .29 | $ .12 | $ .32 | 1.02 | ||||||||||
Diluted | $ .29 | $ .29 | $ .12 | $ .32 | 1.01 | (a) | |||||||||
Range of share prices | |||||||||||||||
High | $ 22.94 | $ 22.00 | $ 22.00 | $ 26.95 | $ 26.95 | ||||||||||
Low | $ 14.50 | $ 16.50 | $ 17.75 | $ 18.01 | $ 14.50 | ||||||||||
2000 | |||||||||||||||
Net sales | $64,967 | $64,221 | $53,396 | $57,398 | $239,982 | ||||||||||
Gross profit | 20,115 | 20,348 | 15,934 | 17,378 | 73,775 | ||||||||||
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 | $54,447 | $57,074 | $54,304 | $65,897 | $231,722 | ||||||||||
Gross profit | 17,035 | 18,573 | 16,010 | 20,959 | 72,577 | ||||||||||
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 |
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(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 22, 2001, there were 424 shareholders of record. The Company believes this represents approximately 3,000 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: | |||||||||||||||
2001 | 2000 | 1999 | 1998 | 1997 | |||||||||||
Net sales | $233,940 | $239,982 | $231,722 | $193,439 | $148,188 | ||||||||||
Cost of products sold | 168,529 | 166,207 | 159,145 | 132,872 | 103,116 | ||||||||||
Operating expenses | 48,175 | 45,219 | 45,349 | 40,373 | 31,363 | ||||||||||
Operating income | 17,236 | 28,556 | 27,228 | 20,194 | 13,709 | ||||||||||
Interest (income) | (630 | ) | (1,057 | ) | (477 | ) | (143 | ) | (528 | ) | |||||
Interest expense | 607 | 189 | 224 | 106 | 41 | ||||||||||
Other (income) expense | (58 | ) | 15 | 95 | 108 | 114 | |||||||||
Income from continuing opera- | |||||||||||||||
tions before income taxes | 17,317 | 29,409 | 27,386 | 20,123 | 14,082 | ||||||||||
Income taxes | 6,716 | 11,130 | 10,285 | 7,536 | 5,210 | ||||||||||
Income from continuing | |||||||||||||||
operations | $ 10,601 | $ 18,279 | $ 17,101 | $ 12,587 | $ 8,872 | ||||||||||
Net income | $ 9,878 | $ 17,279 | $ 17,101 | $ 12,587 | $ 8,872 | ||||||||||
Earnings per common share from | |||||||||||||||
continuing operations | |||||||||||||||
Basic | $ 1.02 | $ 1.79 | $ 1.73 | $ 1.32 | $ .99 | ||||||||||
Diluted | $ 1.01 | $ 1.77 | $ 1.70 | $ 1.29 | $ .97 | ||||||||||
Cash dividends paid per share | $ .39 | $ .39 | $ .33 | $ .29 | $ .23 | ||||||||||
Weighted average common shares | |||||||||||||||
Basic | 10,358 | 10,195 | 9,883 | 9,559 | 9,004 | ||||||||||
Diluted | 10,523 | 10,354 | 10,088 | 9,790 | 9,188 | ||||||||||
Balance Sheet Data: | |||||||||||||||
(At June 30) | 2001 | 2000 | 1999 | 1998 | 1997 | ||||||||||
Working capital | $ 62,119 | $ 61,139 | $ 49,615 | $ 40,237 | $ 30,192 | ||||||||||
Total assets | 181,759 | 146,783 | 137,714 | 110,316 | 95,189 | ||||||||||
Long-term debt, | |||||||||||||||
including current | |||||||||||||||
maturities | 23,990 | 1,701 | 1,901 | 1,195 | 1,382 | ||||||||||
Shareholders' equity | 127,193 | 118,212 | 102,752 | 78,657 | 67,968 |
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LSI INDUSTRIES INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED JUNE 30, 2001, 2000, AND 1999
(In Thousands)
COLUMN A | COLUMN B | COLUMN C | COLUMN D | COLUMN E | |||||||||||||
Description | Balance Beginning of Period | Additions Charged to Costs and Expenses | (a) Deductions | Balance End of Period | |||||||||||||
Allowance for Doubtful Accounts: | |||||||||||||||||
Year Ended June 30, 2001 | $ | 1,239 | $ | 996 | (b) | $ | (490) | $ | 1,745 | ||||||||
Year Ended June 30, 2000 | $ | 1,213 | $ | 97 | $ | (71) | $ | 1,239 | |||||||||
Year Ended June 30, 1999 | $ | 560 | $ | 1,133 | (c) | $ | (480) | $ | 1,213 | ||||||||
Inventory Obsolescence Reserve: | |||||||||||||||||
Year Ended June 30, 2001 | $ | 794 | $ | 608 | (d) | $ | (352) | $ | 1,050 | ||||||||
Year Ended June 30, 2000 | $ | 1,083 | $ | 194 | $ | (483) | $ | 794 | |||||||||
Year Ended June 30, 1999 | $ | 841 | $ | 982 | $ | (740) | $ | 1,083 | |||||||||
Liabilities from Discontinued Operations: | |||||||||||||||||
Year Ended June 30, 2001 | $ | 2,745 | $ | 1,110 | $ | (2,764) | $ | 1,091 | |||||||||
Year Ended June 30, 2000 | $ | 755 | $ | 1,538 | $ | 452 | (e) | $ | 2,745 | ||||||||
Year Ended June 30, 1999 | $ | 864 | $ | — | $ | (109) | $ | 755 |
(a) For Allowance for Doubtful Accounts, deductions are uncollectible accounts charged off, less recoveries.
(b) Includes $274 resulting from net assets purchased in fiscal year 2001.
(c) Includes $190 resulting from net assets purchased in fiscal year 1999.
(d) Includes $83 resulting from net assets purchased in fiscal year 2001.
(e) Represents settlement received of $608 less payments made of $156.
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