LSI Industries Inc. Reports Operating Results (10-Q/A)
LSI Industries is an Image Solutions company combining integrated design manufacturing & technology to supply its own high quality lighting fixtures and graphics elements for applications in the retail specialty niche & commercial markets. The Company's Lighting Segment produces high performance products dedicated to the outdoor architectural outdoor indoor architectural indoor and accent/downlight markets. The Graphics Segment provides a vast array of products and services including signage menu board systems active digital signage decorative fixturing design support engineering & project management for custom programs for today's retail environment. The Company's Technology Segment develops and designs high performance light engines digital signage and other products using LED lighting technology including large format LED video screens for the entertainment & sports markets. LSI's major markets are the petroleum convenience store multisite retail & the commer Lsi Industries Inc. has a market cap of $151 million; its shares were traded at around $7 with a P/E ratio of 233.4 and P/S ratio of 0.7. The dividend yield of Lsi Industries Inc. stocks is 2.9%. Lsi Industries Inc. had an annual average earning growth of 8% over the past 5 years. Highlight of Business Operations:Gross profit of $18,179,000 in the first quarter of fiscal 2009 decreased 29% from the same period last year, and decreased from 28.6% to 24.0% as a percentage of net sales. The decrease in amount of gross profit is primarily due to decreased Graphics net sales and margins, partially offset by increased gross profit on increased lighting net sales. The following items also influenced the Companys gross profit margin on a consolidated basis: competitive pricing pressures; increased cost of materials; decreased direct labor reflective of less sales volume; decreased wage, compensation and benefits costs ($0.4 million in Lighting, $0.5 million in Graphics and $0.1 million in the All Other Category); $0.1 million of decreased depreciation (Lighting); $0.1 million decreased outside services (Graphics); $0.1 million decreased repairs and maintenance (Lighting); and $0.1 million decreased utilities and property taxes.
Selling and administrative expenses of $13,963,000 in the first quarter of fiscal year 2009 decreased $1.1 million, and increased to 18.4% as a percentage of net sales from 16.7% in the same period last year. Employee compensation and benefits expense decreased $0.5 million in the first quarter of fiscal 2009 as compared to the same period last year ($0.1 million in Lighting, $0.3 million in Graphics and $0.1 million in the All Other Category). Other changes of expense between years include net decreased warranty expense ($0.1 million increase in Lighting; $0.3 million decrease in Technology; $0.1 million decrease in the All Other Category), increased sales commission expense ($0.2 million in Lighting), increased research & development expense ($0.2 million, primarily in the Lighting Segment associated with research and development spending related to solid-state LED technology), reduced customer rebates and accommodations ($0.1 million in Graphics), decreased intangible asset amortization expense ($0.1 million in Technology) and decreased advertising and literature ($0.1 million in Lighting).
At September 30, 2008 the Company had working capital of $75.4 million, compared to $72.9 million at June 30, 2008. The ratio of current assets to current liabilities was 3.70 to 1 as compared to a ratio of 3.32 to 1 at June 30, 2008. The $2.6 million increase in working capital from June 30, 2008 to September 30, 2008 was primarily related to increased net accounts receivable ($8.6 million), increased other current assets ($0.5 million), decreased accounts payable ($0.3 million), decreased accrued expenses and customer prepayments ($2.1 million and $1.1 million, respectively) partially offset by decreased inventories ($3.0 million), decreased refundable income taxes ($1.2 million), and decreased cash and short-term investments ($5.8 million). The $5.8 million decrease in cash in the three months ended September 30, 2008 is primarily due to the seasonal increase in sales in the first quarter and the related $8.6 million increase in accounts receivable.
The Company used $3.2 million of cash from operating activities in the first quarter of fiscal 2009 as compared to a generation of $2.0 million last year. This $5.2 million decrease in net cash flows from operating activities is primarily the net result of less net income ($4.3 million unfavorable), an increase rather than a decrease in accounts receivable (unfavorable change of $11.4 million), less of a reduction in customer prepayments (favorable change of $6.5 million), a decrease rather than an increase in refundable income taxes (favorable change of $1.2 million), a decrease in inventories rather than an increase (favorable change of $4.7 million), a larger decrease in accounts payable and accrued expenses (unfavorable change of $0.9 million), decreased depreciation and amortization (unfavorable $0.2 million), and increased stock option expense (favorable $0.1 million). The fiscal 2008 significant reduction in customer prepayments is related to the completion of a menu board replacement program in the Graphics Segment.
The Company used $2.1 million of cash related to financing activities in the first quarter of fiscal 2009 as compared to a use of $3.6 million in the same period last year. The $1.5 million change between periods is primarily the result activities with the Companys lines of credit ($1.3 million favorable). The first quarter of fiscal 2008 was a period in which the debt that was borrowed was paid off during the quarter, and the first quarter of fiscal 2009 was a period of borrowings at period end. Cash dividend payments of $3,236,000 in the first quarter of fiscal 2009 were less than cash dividend payments of $3,875,000 in the same period last year. The $0.6 million reduction between years is the result of a special year-end dividend of approximately $1.1 million paid in the first quarter of fiscal 2008, partially offset by a higher per share dividend rate in the first quarter of fiscal 2009. Additionally, the Company had cash flow from the exercise of stock options in the first quarter of fiscal 2008, while there were no exercises in the first quarter of fiscal 2009 ($0.5 million unfavorable).
The Company adopted the provisions of FASB Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes, on July 1, 2007. As a result of adoption, the Company recognized $2,582,000 in reserves for uncertain tax positions and recorded a charge of $2,582,000 to the July 1, 2007 retained earnings balance. At June 30, 2008, tax and interest, net of potential federal tax benefits, were $2,098,000 and $534,000, respectively, of the total reserves of $3,225,000. Additionally, penalties were $593,000 of the reserve at June 30, 2008. Of the $3,225,000 reserve for uncertain tax positions, $2,632,000 would have an unfavorable impact on the effective tax rate if recognized.
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