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LSI Industries Inc. Reports Operating Results (10-Q/A)

September 02, 2009 | About:

LSI Industries Inc. (LYTS) filed Amended Quarterly Report for the period ended 2008-12-31.

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:

Net sales of $60,787,000 in the second quarter of fiscal 2009 decreased 27.7% from fiscal 2008 second quarter net sales of $84,062,000. Lighting Segment net sales decreased 7.5% to $43,291,000, Graphics Segment net sales decreased 51.9% to $13,891,000, Technology Segment net sales decreased 43.5% to $1,172,000 and net sales of the All Other Category decreased 61.5% to $2,433,000 as compared to the prior year. Sales to the petroleum / convenience store market represented 22% and 34% of net sales in the second quarter of fiscal years 2009 and 2008, respectively. Net sales to this, the Company’s largest niche market, are reported in both the Lighting and Graphics Segments, depending upon the product or service sold, and were down 53% from last year to $13,484,000 as Lighting sales decreased 11% and Graphics sales to this market decreased 70%. The petroleum / convenience store market has been, and will continue to be, a very important niche market for the Company; however, if sales to other markets and customers increase more than net sales to this market, then the percentage of net sales to the petroleum / convenience store market would be expected to decline. See Note 3 to these financial statements on Major Customer Concentrations. Net sales of products and services related to solid state LED technology in light fixtures and video screens for sports, advertising and entertainment markets totaled $2.0 million in the three month period ended December 31, 2008, representing approximately a 2% decrease from the same period last year. In addition, the Company sells certain elements of graphic identification programs that contain solid state LED light sources.

Selling and administrative expenses of $14,014,000 in the second quarter of fiscal year 2009 decreased $1.7 million, and increased to 23.1% as a percentage of net sales from 18.7% in the same period last year. Employee compensation and benefits expense decreased a net $0.1 million in the second quarter of fiscal 2009 as compared to the same period last year ($0.1 million decrease in Lighting, $0.3 million decrease in Graphics, $0.1 million decrease in Technology and $0.4 million increase in the All Other Category). Other changes of expense between years include decreased sales commission expense ($1.0 million in Lighting), decreased warranty expense ($0.3 million primarily in Technology), decreased outside services expense ($0.3 million in Lighting and Graphics), increased research & development expense ($0.2 million, primarily in the Lighting Segment associated with research and development spending related to solid-state LED technology), decreased legal fees ($0.2 million in the All Other Category), increased menu board litigation settlement costs ($0.2 million in the All Other Category), net increased bad debt expense ($0.2 million increase in Lighting, $0.1 million decrease in Graphics and $0.1 million increase in Technology), decreased intangible asset amortization expense ($0.1 million in Technology) and decreased advertising and literature ($0.1 million in Lighting).

Gross profit of $31,436,000 in the first half of fiscal 2009 decreased 36% from the same period last year, and decreased from 28.3% to 23.0% as a percentage of net sales. The decrease in amount of gross profit is due both to decreased Graphics net sales and margins, both product and installation, as well as decreased gross profit margin on slightly lower Lighting net sales. The following items also influenced the Company’s gross profit margin on a consolidated basis: competitive pricing pressures; increased cost of materials in the Lighting Segment; decreased direct labor reflective of less sales volume; net decreased wage, compensation and benefits costs ($0.2 million increase in Lighting, $0.8 million decrease in Graphics and $0.1 million decrease in the All Other Category); decreased supplies ($0.1 million in Lighting and $0.2 million in Graphics); $0.3 million of decreased depreciation in the Lighting Segment; $0.2 million decreased repairs and maintenance, primarily in the Lighting Segment; and net decreased outside services ($0.1 million increase in Lighting and $0.2 million decrease in Graphics.

Selling and administrative expenses of $27,977,000 in the first half of fiscal year 2009 decreased $2.8 million, and increased to 20.5% as a percentage of net sales from 17.7% in the same period last year. Employee compensation and benefits expense decreased $0.6 million in the first half of fiscal 2009 as compared to the same period last year ($0.2 million decrease in Lighting, $0.7 million decrease in Graphics and $0.3 million increase in the All Other Category. Other changes of expense between years include decreased sales commission expense ($0.9 million in the Lighting Segment), decreased warranty expense (0.1 million in Graphics and $0.6 million in Technology), decreased outside services expense ($0.3 million, primarily in the Graphics Segment), net increased research & development expense ($0.5 million increase in Lighting associated primarily with research and development spending related to solid-state LED technology, and $0.1 million decrease in Graphics), decreased legal fees ($0.2 million, primarily in the All Other Category), increased menu board litigation settlement costs ($0.2 million in the All Other Category), increased bad debt expense ($0.1 million increase in Lighting, $0.2 million decrease in Graphics and $0.2 million increase in Technology), decreased intangible asset amortization expense ($0.1 million), decreased supplies ($0.1 million) and decreased advertising and literature ($0.1 million in the Lighting Segment).

At December 31, 2008 the Company had working capital of $73.6 million, compared to $72.9 million at June 30, 2008. The ratio of current assets to current liabilities was 4.72 to 1 as compared to a ratio of 3.32 to 1 at June 30, 2008. The $0.7 million increase in working capital from June 30, 2008 to December 31, 2008 was primarily related to decreased accounts payable ($4.8 million), decreased accrued expenses and customer prepayments ($6.0 million and $0.9 million, respectively), increased cash and cash equivalents ($1.2 million), partially offset by decreased inventory ($6.6 million), decreased net accounts receivable ($3.6 million), and decreased other current assets ($2.0 million).

The Company generated $6.6 million of cash from operating activities in the first half of fiscal 2009 as compared to a generation of $7.3 million last year. This $0.7 million decrease in net cash flows from operating activities is primarily the net result of less net income ($22.5 million unfavorable), a non-cash goodwill impairment charge in fiscal 2009 ($13.3 million favorable), less of a reduction in accounts receivable (unfavorable change of $9.5 million), a decrease in inventories rather than an increase (favorable change of $7.6 million), less of a reduction in customer prepayments (favorable change of $10.5 million), a smaller decrease in accounts payable and accrued expenses (favorable change of $0.1 million), decreased depreciation and amortization (unfavorable $0.5 million), larger increases in the reserves for bad debts and inventory obsolescence (favorable $0.2 million) and an increase in deferred income tax assets rather than a decrease (unfavorable $0.6 million). The fiscal 2008 significant reduction in customer prepayments is related to the completion of a menu board replacement program in the Graphics Segment.

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