A N N U A L R E P O R T 2 0 1 0
This time last year I wrote to you about the steps we
were taking to return LSI Industries to a growth
oriented posture for fiscal 2010. Among the actions
we took were "right sizing" operations to fit weaker
end markets, maintaining a strong financial
condition, upgrading facilities and modernizing
equipment and production technologies, opening a
new iZone Technology Education Center, and
acquiring AdL Technology. Our plan for fiscal 2010
was one of preparation and one of change.
I am pleased to report that we are, I believe, on the
road to recovery. For the fiscal year ended June 30,
2010, net sales increased almost 9% over fiscal 2009
to $254.4 million, and we returned to profitable
operations. Particularly encouraging were fourth
quarter operating results which showed an increase
in net sales of over 27% compared to the fourth
quarter of fiscal 2009.
Our theme of preparation and change continued
during fiscal 2010 as we took additional actions
designed to capitalize on returning economic growth
and stronger demand for our lighting and graphics
products. For example, we aggressively continued
our development and introduction of solid-state LED
lighting fixtures. During fiscal 2010 approximately
24% of our Lighting net sales was solid-state LEDs.
Our acquisition of AdL Technology has provided
important vertical integration and allowed us to gain
more control over our supply chain for electronic
circuit boards and LED drivers. In addition, during
fiscal 2010 we established a relationship with a
manufacturer's rep agency and distributor to
promote sales in Europe and the Middle East, we
invested in capital equipment to provide
computer-controlled metal fabrication, and we
increased our capabilities in large format digital
printing with the purchase of two state-of-the-art
Vutek printing presses. We also completed the sale
of LSI Marcole and began the consolidation of LSI
Greenlee Lighting into our Cincinnati facility to be
completed in October 2010.
Our strategic growth vision has not changed as we
continue our commitment to developing new
product technologies for our markets while
maintaining and growing our world class lighting
and graphics capabilities. We believe LSI Industries is
very well positioned to capitalize on the growth of
the lighting industry over the next decade. The
already present trends of energy efficiency,
environmental legislation and cost effectiveness will
drive the direction of lighting products and related
technologies in the future. LSI is a leader in
providing and developing state-of-the-art efficient
LED lighting and dynamic LED graphic signage. The
potential of LSI Industries resides in how we think
about our long-term growth strategies while we
employ short-term oriented tactics and actions to cut
costs, improve efficiencies, and remain financially
sound. We are working to optimize results in
challenging market conditions and, at the same
time, are preparing the Company for further growth
opportunities.
LSI has paid regular cash dividends since 1989. With
a slowly improving outlook combined with a strong
cash flow and solid balance sheet, we have elected
to continue with the current indicated annual cash
dividend rate of $0.20 per share for fiscal 2011. We
believe that the cash dividends paid by LSI Industries
are important to our shareholders and the current
rate is comfortable for LSI. It would be our intention
to increase the cash dividend rate when actual
market conditions and operating results improve.
We are hopeful that the improved operating results
for fiscal 2010 represent the beginning of stronger
economic conditions for our lighting and graphics
markets, but it is too early to be certain. Although
the near term view of the economy is cloudy, we
believe the longer term outlook is very bright for LSI
Industries. As stated at the conclusion of last year's
Annual Report to Shareholders, "LSI Industries has
the right products, the stable financial platform, the
motivated employees, experienced management
teams and visionary technology innovation to take
advantage of stronger market conditions and an
increasing number of opportunities in the future."
Sincerely,
Robert J. Ready
Chairman, CEO and President
LSI Industries Inc. is an Image
Solutions company, dedicated
to advancing solid-state LED
technology in lighting and
graphics applications. We
combine integrated
technology, design, and
manufacturing to supply high
quality, environmentally
friendly lighting fixtures and
graphics elements for
commercial, retail and
specialty niche market
applications. LSI is a U.S.
manufacturer with marketing
/ sales efforts throughout the
world with concentration
currently on North American,
Latin American, Australian,
New Zealand, Asian,
European and Middle Eastern
markets.
Building upon its success with
LED lighting
its
fixtures and SmartVision®
solid-state LED video boards,
LSI is committed to producing
affordable, high performance,
energy efficient lighting and
graphic products for indoor
and outdoor use. We have a
vast offering of innovative
solutions for virtually any
lighting or graphics
application. Further, we can
provide design support,
engineering, installation and
project management for
custom graphics rollout
programs for today’s retail
environment.
LSI’s major markets are the
commercial / industrial
lighting, petroleum /
convenience store, multi-site
retail (including automobile
dealerships, restaurants and
national retail accounts),
sports and entertainment
markets. LSI employs
approximately 1,400 people
in facilities located in Ohio,
New York, North Carolina,
Kansas, Kentucky, Rhode
Island, Texas and Montreal,
Canada. The Company’s
common shares are traded on
the NASDAQ Global Select
Market under the symbol
LYTS.
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, 2010.
OR
____
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _____________ TO _____________.
Ohio
(State or other jurisdiction of
incorporation or organization)
Commission File No. 0-13375
LSI INDUSTRIES INC.
(Exact name of Registrant as specified in its charter)
10000 Alliance Road
Cincinnati, Ohio 45242
(Address of principal executive offices)
IRS Employer I.D.
No. 31-0888951
(513) 793-3200
(Telephone number of principal executive offices)
Securities Registered Pursuant to Section 12(b) of the Act:
Title of each class
Common shares, no par value
Name of each exchange on which registered
The NASDAQ Stock Market LLC
(NASDAQ Global Select Market)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes [ ]
No [ X]
Securities Registered Pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange
Act.
Yes [ ]
No [ X]
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes X No ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12
months (or for such shorter period that the registrant was required to submit and post such files).
Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a
smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company”
in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] Accelerated filer [ X] Non-accelerated filer [ ] Smaller reporting company [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes No X
As of December 31, 2009, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant
was approximately $159,904,000 based upon a closing sale price of $7.88 per share as reported on The NASDAQ Global Select
Market.
At August 27, 2010 there were 24,038,675 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 2010 Annual Meeting of Shareholders
are incorporated by reference in Part III, as specified.
LSI INDUSTRIES INC.
2010 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PART I
Begins on
Page
BUSINESS ......................................................................................................................
ITEM 1.
ITEM 1A. RISK FACTORS ..............................................................................................................
ITEM 1B. UNRESOLVED STAFF COMMENTS .................................................................................
PROPERTIES .................................................................................................................
ITEM 2.
LEGAL PROCEEDINGS .................................................................................................
ITEM 3.
[REMOVED AND RESERVED] ......................................................................................
ITEM 4.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES .......................
SELECTED FINANCIAL DATA .......................................................................................
ITEM 6.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS ....................................................
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ...........
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ........................................
ITEM 8.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ITEM 9.
ACCOUNTING AND FINANCIAL DISCLOSURE ....................................................
ITEM 9A. CONTROLS AND PROCEDURES .................................................................................
ITEM 9B. OTHER INFORMATION .................................................................................................
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE ..............
ITEM 11. EXECUTIVE COMPENSATION .....................................................................................
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS ...............................
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE .....................................................................................................
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES .....................................................
1
9
12
12
13
13
13
15
15
15
16
17
17
18
18
18
18
18
18
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES .............................................
18
PART IV
“Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995
This Form 10-K contains certain forward-looking statements that are subject to numerous assumptions, risks or uncertainties.
The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. Forward-looking
statements may be identified by words such as “estimates,” “anticipates,” “projects,” “plans,” “expects,” “intends,”
“believes,” “seeks,” “may,” “will,” “should” or the negative versions of those words and similar expressions, and by the
context in which they are used. Such statements, whether expressed or implied, are based upon current expectations of the
Company and speak only as of the date made. Actual results could differ materially from those contained in or implied by such
forward-looking statements as a result of a variety of risks and uncertainties over which the Company may have no control.
These risks and uncertainties include, but are not limited to, the impact of competitive products and services, product demand
and market acceptance risks, potential costs associated with litigation and regulatory compliance, reliance on key customers,
financial difficulties experienced by customers, the cyclical and seasonal nature of our business, the adequacy of reserves and
allowances for doubtful accounts, fluctuations in operating results or costs whether as a result of uncertainties inherent in tax
and accounting matters or otherwise, unexpected difficulties in integrating acquired businesses, the ability to retain key
employees of acquired businesses, unfavorable economic and market conditions, the results of asset impairment assessments
and the other risk factors that are identified herein. You are cautioned to not place undue reliance on these forward-looking
statements. In addition to the factors described in this paragraph, the risk factors identified in our Form 10-K and other filings
the Company may make with the SEC constitute risks and uncertainties that may affect the financial performance of the
Company and are incorporated herein by reference. The Company does not undertake and hereby disclaims any duty to update
any forward-looking statements to reflect subsequent events or circumstances.
PART I
ITEM 1. BUSINESS
Our Company
We are a leading provider of comprehensive corporate visual image solutions through the
combination of extensive screen and digital graphics capabilities, a wide variety of high quality indoor
and outdoor lighting products, and related professional services. We also provide graphics and lighting
products and professional services on a stand-alone basis. Our company is the leading provider of
corporate visual image solutions to the petroleum/convenience store industry. We use this leadership
position to penetrate national retailers and multi-site retailers, including quick service and casual
restaurants, eyewear chains, retail chain stores and automobile dealerships located primarily in the
United States. In addition, we are a leading provider of digital solid-state LED (light emitting diode)
video screens and LED specialty lighting to such markets or industries as sports stadiums and arenas,
digital billboards, and entertainment. We design and develop all aspects of the solid-state LED video
screens and lighting, from the electronic circuit board, to the software to drive and control the LEDs, to
the structure of the LED product.
Our focus on product development and innovation creates products that are essential
components of our customers’ corporate visual image strategy. We develop and manufacture lighting,
graphics and solid-state LED video screen and lighting products and distribute them through an
extensive multi-channel distribution network that allows us to effectively service our target markets.
Representative customers include BP, Chevron Texaco, 7-Eleven, ExxonMobil, Shell, Burger King,
Dairy Queen, Taco Bell, Wendy’s, Best Buy, CVS Caremark, Target Stores, Wal-Mart Stores, Inc.,
Chrysler, Ford, General Motors, Nissan, and Toyota. We service our customers at the corporate,
franchise and local levels.
We believe that national retailers and niche market companies are increasingly seeking single-
source suppliers with the project management skills and service expertise necessary to execute a
comprehensive visual image program. The integration of our graphics, lighting, technology and
professional services capabilities allows our customers to outsource to us the development of an entire
visual image program from the planning and design stage through installation. Our approach is to
combine standard, high-production lighting products, custom graphics applications and professional
services to create complete customer-focused visual image solutions. We also offer products and
services on a stand-alone basis to service our existing image solutions customers, to establish a
presence in a new market or to create a relationship with a new customer. We believe that our ability to
combine graphics and lighting products and professional services into a comprehensive visual image
solution differentiates us from our competitors who offer only stand-alone products for lighting or
graphics and who lack professional services offerings. During the past several years, we have
continued to enhance our ability to provide comprehensive corporate visual image solutions by adding
additional graphics capabilities, lighting products, LED video screens, LED lighting products and
professional services through acquisitions and internal development.
Our business is organized as follows: the Lighting Segment, which represented 63% of our
fiscal 2010 net sales; the Graphics Segment, which represented 27% of our fiscal 2010 net sales; the
Technology Segment, which represented 2% of our fiscal 2010 net sales; the Electronic Components
Segment, which represented 6% of our fiscal 2010 net sales; and an All Other Category, which
represented 2% of our fiscal 2010 net sales. Our most significant market, which includes sales of both
the Lighting Segment and the Graphics Segment, is the petroleum / convenience store market with
approximately 35%, 23%, and 28% of total net sales concentrated in this market in the fiscal years ended
June 30, 2010, 2009, and 2008, respectively. See Note 2 of Notes to Consolidated Financial Statements
beginning on page F-31 of this Form 10-K for additional information on business segments. Net sales by
segment are as follows (in thousands):
- 1 -
2010
$159,105
Lighting Segment
68,395
Graphics Segment
Technology Segment
4,505
Electronic Components Segment 16,116
6,281
All Other Category
$254,402
Total Net Sales
2009
$160,475
60,765
4,576
--
7,983
$233,799
2008
$183,694
85,244
9,136
--
27,212
$305,286
Lighting Segment
Our lighting segment manufactures and markets outdoor and indoor lighting for the commercial,
industrial and multi-site retail markets, including the petroleum / convenience store market. Our
products are designed and manufactured to provide maximum value and meet the high-quality,
competitively-priced product requirements of our niche markets. We generally avoid specialty or
custom-designed, low-volume products for single order opportunities. We do, however, design
proprietary products used by our national account customers in large volume, and occasionally also
provide custom products for large, specified projects. Our concentration is on our high-volume,
standard product lines that meet our customers’ needs. By focusing our product offerings, we achieve
significant manufacturing and cost efficiencies.
Our lighting fixtures, poles and brackets are produced in a variety of designs, styles and
finishes. Important functional variations include types of mounting, such as pole, bracket and surface,
and the nature of the light requirement, such as down-lighting, wall-wash lighting, canopy lighting, flood-
lighting, area lighting and security lighting. Our engineering staff performs photometric analyses, wind
load safety studies for all light fixtures and also designs our fixtures and lighting systems. Our lighting
products utilize a wide variety of different light sources, including high-intensity discharge metal-halide,
fluorescent, and solid-state LED. The major products and services offered within our lighting segment
include: exterior area lighting, interior lighting, canopy lighting, landscape lighting, LED lighting, light
poles, lighting analysis and photometric layouts. All of our products are designed for performance,
reliability, ease of installation and service, as well as attractive appearance. The Company also has a
focus on designing lighting system solutions and implementing strategies related to energy savings in
substantially all markets served.
We offer our customers expertise in developing and utilizing high-performance LED color and
white lightsource solutions for our Lighting, Graphics and Technology applications, which, when
combined with the Company’s lighting fixture expertise and technology has the potential to result in a
broad spectrum of white light LED fixtures that offer equivalent or improved lighting performance with
significant energy and maintenance savings as compared to the present metal halide and fluorescent
lighting fixtures.
The $1.4 million or 0.9% decrease in Lighting Segment net sales in fiscal 2010 is primarily the
net result of an $18.4 million or 18.9% decrease in commissioned net sales to the commercial and
industrial lighting market, partially offset by a $17.0 million or 27.0% increase in lighting sales to our
niche markets of petroleum / convenience stores, automotive dealerships, and retail national accounts
(7-Eleven, Inc. represented an increase of approximately $19.5 million as it replaced traditional lighting
with solid-state LED lighting). Fiscal 2010 Lighting Segment net sales to the petroleum / convenience
store market were approximately $51,462,000, representing 32% of total Lighting net sales. White light
solid-state LED light fixtures represent a growth area for the Company, with fiscal 2010 Lighting
Segment LED sales of approximately $37,800,000 (approximately 24% of total Lighting Segment net
sales) up 496% from the prior year.
The $23.2 million or 12.6% decrease in Lighting Segment net sales in fiscal 2009 was primarily
the result of a $13.3 million or 17% net decrease in lighting sales to our niche markets (petroleum /
- 2 -
convenience stores, automotive dealerships, and quick service restaurants) and national retail
accounts, and a $9.9 million or 9.2% decrease in commissioned net sales to the commercial / industrial
lighting market. Fiscal 2009 Lighting Segment net sales to the petroleum / convenience store market
were approximately $30,279,000, representing 19% of total Lighting net sales. White light solid-state
LED light fixtures represent a growth area for the Company, with such fiscal 2009 Lighting Segment
sales of approximately $6,340,000 (approximately 4% of total Lighting Segment net sales).
Graphics Segment
The Graphics Segment manufactures and sells exterior and interior visual image elements related
to graphics. These products are used in graphics displays and visual image programs in several
markets, including the petroleum/convenience store market and multi-site retail operations. Our
extensive lighting and graphics expertise, product offering, visual image solution implementation
capabilities and other professional services represent significant competitive advantages. We work
with corporations and design firms to establish and implement cost effective corporate visual image
programs. Increasingly, we have become the primary supplier of exterior and interior graphics for our
customers. We also offer installation or installation management (utilizing pre-qualified independent
subcontractors throughout the United States) services for those customers who require the installation
of interior or exterior graphics products.
Our business can be significantly impacted by participation in a customer’s “image conversion
program,” especially if it were to involve a “roll out” of that new image to a significant number of that
customer’s and its franchisees’ retail sites. The impact to our business can be very positive with growth
in net sales and profitability when we are engaged in an image conversion program. This can be
followed in subsequent periods by lesser amounts of business or negative comparisons following
completion of an image conversion program, unless we are successful in replacing that completed
business with participation in a new image conversion program of similar size with one or more
customers. An image conversion program can potentially involve any or all of the following
improvements, changes or refurbishments at a customer’s retail site: interior or exterior lighting (see
discussion above about our lighting segment), interior or exterior store signage and graphics, and
installation of these products in both the prototype and roll out phases of their program. We believe our
retail customers are implementing image conversions on a more frequent basis than in the past in order
to maintain a safe, fresh look or new image on their site in order to continue to attract customers to their
site, and maintain or grow their market share. However, this trend has slowed down during this
recessionary period.
The major products and services offered within our Graphics Segment include the following:
signage and canopy graphics, pump dispenser graphics, building fascia graphics, decals, interior
signage and marketing graphics, aisle markers, wall mural graphics, fleet graphics, prototype program
graphics, installation services for graphics products and solid state LED video screens for the sports
and advertising markets.
The $7.6 million or 12.6% increase in Graphics Segment net sales in fiscal 2010 is primarily the
result of image conversion programs and sales to ten petroleum / convenience store customers ($16.1
million net increase), and the LED video sports screen market ($0.2 million increase). These increases
were partially offset by the following decreases: a grocery retailer ($5.1 million decrease); five retail
customers ($1.2 million net decrease); a national drug store retailer ($0.7 million decrease); a lawn care
company ($0.4 million decrease); and changes in volume or completion of several other graphics
programs. Fiscal 2010 Graphics Segment net sales to the petroleum / convenience store market were
approximately $38,490,000, representing 56% of total Graphics net sales. Graphics Segment net sales
related to LED products and installation totaled approximately $20,275,000 (approximately 30% of total
Graphics Segment net sales).
- 3 -
The $24.5 million or 28.7% decrease in Graphics Segment net sales in fiscal 2009 was primarily
the result of completion of programs for certain graphics customers, including an image conversion
program for a national drug store retailer ($4.3 million decrease), two petroleum / convenience store
customers’ programs ($25.7 million decrease), reductions of net sales to ten other petroleum /
convenience store customers ($7.0 million decrease) and changes in volume or completion of other
graphics programs. These decreases were partially offset by increased net sales to certain other
customers, including a reimaging program for a grocery customer ($8.9 million increase), and sales of
solid-state LED video screens for sports markets ($5.7 million increase). Fiscal 2009 Graphics
Segment net sales to the petroleum / convenience store market were approximately $24,295,000,
representing 40% of total Graphics net sales. Graphics Segment net sales related to LED products and
installation totaled approximately $8,014,000 (approximately 13% of total Graphics Segment net sales).
Technology Segment
The Technology Segment, which is LSI Saco Technologies in Montreal, Canada, operates as a
worldwide leader and pioneer in the design, production, and support of high-performance light engines
and large format video screens using LED technology. LSI Saco Technologies offers its customers
expertise in developing and utilizing high-performance LED color and white lightsource solutions for
both lighting and graphics applications. This technology generated development in the Company’s
Lighting Segment of a broad spectrum of white light LED fixtures that offer equivalent or improved
lighting performance with significant energy and maintenance savings as compared to the traditional
metal halide and fluorescent lighting fixtures. Additionally, this LED technology is used in the
Company’s Graphics Segment to light, accent and provide color lighting to graphics display and visual
image programs of the Company’s retail, quick service restaurant and sports market customers.
The $0.1 million or 1.6% decrease in Technology Segment net sales in fiscal 2010 relates
primarily to decreased net sales of LED video screens to the entertainment market ($0.3 million) and
decreased net sales of specialty LED lighting (0.1 million), partially offset by increased net sales to
other customers. The $4.6 million or 50% decrease in Technology Segment net sales in fiscal 2009
related primarily to decreased sales of solid-state LED video screens for the sports and advertising
markets ($3.0 million) and decreased sales of specialty LED lighting ($2.1 million), partially offset by
increased sales of solid-state LED video screens to the entertainment market ($0.8 million).
Electronic Components Segment
The Electronic Components Segment was created on July 22, 2009 when the Company
acquired AdL Technology Inc., which it renamed LSI ADL Technology, at a total purchase price of
$15.8 million. The new subsidiary has continued to operate in Columbus, Ohio to design, engineer and
manufacture custom designed electronic circuit boards, assemblies and sub-assemblies used in
various applications including the control of solid-state LED lighting. The Company acquired AdL
Technology as a vertical integration of circuit boards for LED lighting as well as the Company’s other
LED product lines such as digital scoreboards, advertising ribbons and billboards. LSI ADL Technology
allows the Company to stay on the leading edge of product development, while at the same time
providing opportunities to drive down manufacturing costs and control delivery of key components.
Net sales of the Electronic Components Segment were $16,116,000 in fiscal year 2010. In
addition to these customer sales, the Electronic Components Segment also supplied a significant
amount of products to both the Lighting and Graphics Segments.
All Other Category
The All Other Category includes the results of all LSI operations that are not able to be
aggregated into one of the four reportable business segments. Operating results of LSI Marcole, LSI
Adapt, LSI Images as well as Corporate Administrative expenses are included in the All Other
- 4 -
Category. The major products and services offered by operations included in the All Other Category
include: electrical wire harnesses (for LSI’s light fixtures and for the white goods or appliance industry);
exterior and interior menu board systems primarily for the quick service restaurant market; and
surveying, permitting and installation management services related to products of the Graphics
Segment.
Fiscal 2010 net sales of $6,281,000 decreased $1.7 million or 21.3% from the prior year
primarily as the net result of decreased net sales to two quick service restaurant menu board customers
($0.8 million), decreased sales of electrical wire harnesses ($1.0 million) and changes in volume or
completion of other customer programs. The Company sold its wire harness operation and business at
the end of the third quarter of fiscal 2010 and will therefore have no further sales of wire harnesses.
Fiscal 2009 net sales of $7,983,000 decreased $19.2 million or 71% from the prior fiscal year primarily
as a net result of one menu board conversion program that was completed in fiscal 2008 ($19.8 million
decrease).
Goodwill and Intangible Asset Impairment
In fiscal 2010, we recorded a $153,000 non-cash intangible asset impairment charge. Due to
declining use of a trade name and a reduced outlook of future net sales, we determined that a trade
name with a $137,000 carrying value in the Technology Segment was fully impaired. Additionally the
Lighting Segment no longer sells a certain product that supported a $16,000 patent intangible asset,
therefore it was fully impaired.
In fiscal 2009, we recorded a $14,467,000 non-cash goodwill impairment charge. Charges
totaling $11,185,000 were recorded in the Lighting Segment, charges totaling $716,000 were recorded
in the Graphics Segment, and charges in the amount of $2,566,000 were recorded in the All Other
Category. Impairment tests conducted in three of the four fiscal quarters indicated there were full or
partial impairments of goodwill in one of our reporting units in our Lighting Segment, one reporting unit
in the Graphics Segment and one reporting unit in our All Other Category due to the combination of a
decline in the market capitalization of the Company at certain quarter-end balance sheet dates and a
decline in the estimated forecasted discounted cash flows which management attributes to a weaker
economic cycle impacting certain of our customers, notably national retailers.
Our Competitive Strengths
Single Source Comprehensive Visual Image Solution Provider. We believe that we are the only
company serving our target markets that combines significant graphics capabilities, lighting products
and installation implementation capabilities to create comprehensive image solutions. We believe that
our position as a single-source provider creates a competitive advantage over competitors who can
only address either the lighting or the graphics component of a customer’s corporate visual image
program. Using our broad visual image solutions capabilities, our customers can maintain complete
control over the creation of their visual image programs while avoiding the added complexity of
coordinating separate lighting and graphics suppliers and service providers. We can use high
technology software to produce computer-generated virtual prototypes of a customer’s new or improved
retail site image. We believe that these capabilities are unique to our target markets and they allow our
customers to make educated, cost-effective decisions quickly.
Proven Ability to Penetrate Target Markets. We have grown our business by establishing a
leadership position in the majority of our target markets as defined by our revenues, including
petroleum/convenience stores, automobile dealerships and specialty retailers. Although our
relationship with our customers may begin with the need for a single product or service, we leverage
our broad product and service offering to identify additional products and solutions. We combine
existing graphics, lighting and image element offerings, develop products and add services to create
comprehensive solutions for our customers.
- 5 -
Product Development Focus. We believe that our ability to successfully identify and develop
new products has allowed us to expand our market opportunity and enhance our market position. Our
product development initiatives are designed to increase the value of our product offering by
addressing the needs of our customers and target markets through innovative retrofit enhancements to
existing products or the development of new products. In addition, we believe our product development
process creates value for our customers by producing products that offer energy efficiency, low
maintenance requirements and long-term operating performance at competitive prices based upon the
latest technologies available.
Strong Relationships with our Customers. We have used our innovative products and high-
quality services to develop close, long-standing relationships with a large number of our customers.
Many of our customers are recognized among the leaders in their respective markets, including
customers such as BP, 7-Eleven, Chevron, CVS Caremark and Burger King. Their use of our products
and services raises the visibility of our capabilities and facilitates the acceptance of our products and
services in their markets. Within each of these markets, our ability to be a single source provider of
image solutions often creates repeat business opportunities through corporate reimaging programs.
We have served some of our customers since our inception in 1976.
Well-capitalized Balance Sheet. As part of our long-term operating strategy, we believe the
Company maintains a conservative capital structure. With a strong equity base, we are able to
preserve operating flexibility in times of industry expansion and contraction. In the current business
environment, a strong balance sheet demonstrates financial viability to our existing and targeted
customers. In addition, a strong balance sheet enables us to continue important R&D and capital
spending.
Aggressive Use of Our Image Center Capabilities. Our image center capabilities provide us
with a distinct competitive advantage to demonstrate the effectiveness of integrating graphics and
lighting into a complete corporate visual image program. Our technologically advanced image centers,
which demonstrate the depth and breadth of our product and service offerings, have become an
effective component of our sales process.
Maintain our Vertically Integrated Business Model. We consider our company to be a vertically
integrated manufacturer rather than a product assembler. We focus on developing unique customer-
oriented products, solutions and technology, and outsource certain non-core processes and product
components as necessary.
Sales, Marketing and Customers
Our lighting products are sold primarily throughout the United States, but also in Canada,
Australia and Latin America (about 3% of total net sales are outside the United States) using a
combination of regional sales managers, independent sales representatives and distributors. Although
in some cases we sell directly to national firms, more frequently we are designated as a preferred
vendor for product sales to customer-owned as well as franchised, licensed and dealer operations. Our
graphics products, which are program-driven, technology products, electronic components, and
products and services sold by operations in the All Other Category are sold primarily through our own
sales force. Our marketing approach and means of distribution vary by product line and by type of
market.
Sales are developed by contacts with national retail marketers, branded product companies,
franchise and dealer operations. In addition, sales are also achieved through recommendations from
local architects, engineers, petroleum and electrical distributors and contractors. Our sales are partially
seasonal as installation of outdoor lighting and graphic systems in the northern states decreases during
the winter months.
- 6 -
Our image center and i-Zone center capabilities are important parts of our sales process. The
image center, unique within the lighting and graphics industry, is a facility that can produce a computer-
generated virtual prototype of a customer’s facility on a large screen through the combination of high
technology software and audio/visual presentation. The i-Zone center is a digitally controlled facility
containing a large solid-state LED video screen and several displays that showcase our LED
technology and LED products. With these capabilities, our customers can instantly explore a wide
variety of lighting and graphics alternatives to develop consistent day and nighttime images. These
centers give our customers more options, greater control, and more effective time utilization in the
development of lighting, graphics and visual image solutions, all with much less expense than
traditional prototyping. In addition to being cost and time effective for our customers, we believe that
our image center and i-Zone center capabilities result in the best solution for our customers’ needs.
The image and i-Zone centers also contain comprehensive indoor and outdoor product display
areas that allow our customers to see many of our products and services in one setting. This aids our
customers in making quick and effective lighting and graphic design decisions through hands-on
product demonstrations and side-by-side comparisons. More importantly, these capabilities allow us to
expand our customer’s interest from just a single product into other products and solutions. We believe
that our image center and i-Zone center capabilities have further enhanced our position as a highly
qualified outsourcing partner capable of guiding a customer through image alternatives utilizing our
lighting and graphics products and services. We believe this capability distinguishes us from our
competitors and will become increasingly beneficial in attracting additional customers.
Manufacturing and Operations
We design, engineer and manufacture substantially all of our lighting and graphics products
through a vertically integrated business model. By emphasizing high-volume production of standard
product lines, we achieve significant manufacturing efficiencies. When appropriate, we utilize alliances
with vendors to outsource certain products and assemblies. LED products and related software are
engineered, designed and final-assembled by the Company, while a portion of the manufacturing has
been performed by select qualified vendors. We are not dependent on any one supplier for any of our
component parts.
The principal raw materials and purchased components used in the manufacturing of our
products are steel, aluminum, wire harnesses, sockets, lamps, certain fixture housings, acrylic and
glass lenses, lighting ballasts, inks, various graphics substrates such as decal material and vinyls,
LEDs and electrical components. We source these materials and components from a variety of
suppliers. Although an interruption of these supplies and components could disrupt our operations, we
believe generally that alternative sources of supply exist and could be readily arranged. We strive to
reduce price volatility in our purchases of raw materials and components through quarterly or annual
contracts with certain of our suppliers. Our lighting operations generally carry relatively small amounts
of finished goods inventory, except for certain products that are stocked to meet quick delivery
requirements. Most often, lighting products are made to order and shipped shortly after they are
manufactured. Our graphics operations manufacture custom graphics products for customers who
frequently require us to stock certain amounts of finished goods in exchange for their commitment to
that inventory. Our technology operation carries LED and LED component inventory due to longer lead
times, makes products to order and ships shortly after assembly is complete. In some Graphics
programs, customers also give us a cash advance for the inventory that we stock for them. Customers
purchasing LED video screens routinely give us cash advances for large projects prior to shipment.
Our electronic components operation purchases electronic components from multiple suppliers and
manufactures custom electronic circuit boards. Most products are made to order and, as a result, this
operation does not carry very much finished goods.
We believe we are a low-cost producer for our types of products, and as such, are in a position to
promote our product lines with substantial marketing and sales activities.
- 7 -
We currently operate out of thirteen manufacturing facilities in seven states and Canada.
During fiscal 2010 we sold a wire harness manufacturing facility and announced our intention to
consolidate our smallest Lighting manufacturing facility into our largest facility. This consolidation is
expected to be completed in the second quarter of fiscal 2011 and will reduce our number of facilities
down to twelve.
Our manufacturing operations are subject to various federal, state and local regulatory
requirements relating to environmental protection and occupational health and safety. We do not expect
to incur material capital expenditures with regard to these matters and believe our facilities are in
compliance with such regulations.
Competition
We experience strong competition in all segments of our business, and in all markets served by
our product lines. Although we have many competitors, some of which have greater financial and other
resources, we do not compete with the same companies across our entire product and service offerings.
We believe product quality and performance, price, customer service, prompt delivery, and reputation to
be important competitive factors.
We have several product and process patents which have been obtained in the normal course of
business. In general, we do not believe that patent protection is critical to our business, however we do
believe that patent protection is important for a few select products.
Additional Information
Our sales are partially seasonal as installation of outdoor lighting and graphic systems in the
northern states lessens during the harshest winter months. We had a backlog of orders, which we
believe to be firm, of $60.5 million and $40.5 million at June 30, 2010 and 2009, respectively. All orders
are believed to be shippable or installed within twelve months. The increase as of June 30, 2010 relates
primarily to a $38 million program with 7-Eleven, Inc. to install retrofit solid-state LED lighting at over
3,000 of its sites in North America.
We have approximately 1,160 full-time and 185 temporary employees as of June 30, 2010. We
offer a comprehensive compensation and benefit program to most employees, including competitive
wages, a discretionary bonus plan, a profit-sharing plan and retirement plan, and a 401(k) savings plan
(for U.S. employees), a non-qualified deferred compensation plan (for certain employees), an equity
compensation plan, and medical and dental insurance.
We file reports with the Securities and Exchange Commission (“SEC”) on Forms 10-K, 10-Q
and 8-K. You may read and copy any materials filed with the SEC at its public reference room at 100
F. Street, N.E., Room 1580, Washington, D.C. 20549. You may also obtain that information by calling
the SEC at 1-800-SEC-0330. The SEC maintains an internet website that contains reports, proxy and
information statements and other information regarding us. The address of that site is
http://www.sec.gov. Our internet address is http://www.lsi-industries.com. We make available free of
charge through our internet website our annual report on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K and any amendments to those reports filed or furnished pursuant to
Section 13(a) of the Securities Exchange Act of 1934 as soon as reasonably practical after we
electronically file them with the SEC. LSI is not including the other information contained on its website
as part of or incorporating it by reference into this Annual Report on Form 10-K.
LSI Industries Inc. is an Ohio corporation, incorporated in 1976.
- 8 -
ITEM 1A. RISK FACTORS
In addition to the other information set forth in this report, you should carefully consider the
following factors which could materially affect our business, financial condition, cash flows or future
results. Any one of these factors could cause the Company’s actual results to vary materially from
recent results or from anticipated future results. The risks described below are not the only risks facing
our Company. Additional risks and uncertainties not currently known to us or that we currently deem to
be immaterial also may materially adversely affect our business, financial condition and/or operating
results.
The markets in which we operate are subject to competitive pressures that could affect selling
prices, and therefore could adversely affect our operating results.
Our businesses operate in markets that are highly competitive, and we compete on the basis of
price, quality, service and/or brand name across the industries and markets served. Some of our
competitors for certain products, primarily in the Lighting Segment, have greater sales, assets and
financial resources than we have. Some of our competitors are based in foreign countries and have cost
structures and prices in foreign currencies. Accordingly, currency fluctuations could cause our U.S.
dollar-priced products to be less competitive than our competitors’ products which are priced in other
currencies. Competitive pressures could affect prices we charge our customers or demand for our
products, which could adversely affect our operating results. Additionally, customers for our products are
attempting to reduce the number of vendors from which they purchase in order to reduce the size and
diversity of their inventories and their transaction costs. To remain competitive, we will need to invest
continuously in manufacturing, marketing, customer service and support, and our distribution networks.
We may not have sufficient resources to continue to make such investments and we may be unable to
maintain our competitive position.
Lower levels of economic activity in our end markets could adversely affect our operating results.
Our businesses operate in several market segments including commercial, industrial, retail,
petroleum / convenience store and entertainment. Operating results can be negatively impacted by
volatility in these markets. Future downturns in any of the markets we serve could adversely affect our
overall sales and profitability.
Our operating results may be adversely affected by unfavorable economic and market
conditions.
Economic conditions worldwide have from time to time contributed to slowdowns in our industry
at large, as well as to the specific segments and markets in which we operate. When combined with
ongoing customer consolidation activity and periodic manufacturing and inventory initiatives, the current
uncertain macro-economic climate, including but not limited to the effects of weakness in credit
markets, could lead to reduced demand from our customers and increased price competition for our
products, increased risk of excess and obsolete inventories and higher overhead costs as a percentage
of revenue. If the markets in which we participate experience further economic downturns, as well as a
slow recovery period, this could negatively impact our sales and revenue generation, margins and
operating expenses, and consequently have a material adverse effect on our business, financial
condition and results of operations.
Price increases or significant shortages of raw materials and components could adversely affect
our operating margin.
The Company purchases large quantities of raw materials and components – mainly steel,
aluminum, lighting ballasts, sockets, wire harnesses, plastic, lenses, glass lenses, vinyls, inks, LEDs,
electronic components and corrugated cartons. Materials comprise the largest component of costs,
- 9 -
representing nearly 62% of the cost of sales in both 2010 and 2009. While we have multiple sources of
supply for each of our major requirements, significant shortages could disrupt the supply of raw materials.
Further increases in the price of these raw materials and components could further increase the
Company’s operating costs and materially adversely affect margins. Although the Company attempts to
pass along increased costs in the form of price increases to customers, the Company may be
unsuccessful in doing so for competitive reasons. Even when price increases are successful, the timing
of such price increases may lag significantly behind the incurrence of higher costs. As of August 2010,
there are selected electronic component parts and certain other parts shortages in the market place,
some of which have affected the Company’s manufacturing operations and shipment schedules even
though multiple suppliers may be available. The lead times from electronic component suppliers have
significantly increased for some component parts and prices of some of these electronic component parts
have increased during this period of shortages.
We have a concentration of net sales to the petroleum / convenience store market, and any
substantial change in this market could have an adverse affect on our business.
Approximately 35% of our net sales in fiscal year 2010 are concentrated in the petroleum /
convenience store market. Sales to this market segment are dependent upon the general conditions
prevailing in and the profitability of the petroleum and convenience store industries and general market
conditions. Our petroleum market business is subject to reactions by the petroleum industry to world
political events, particularly those in the Middle East, and to the price and supply of oil. Major disruptions
in the petroleum industry generally result in a curtailment of retail marketing efforts, including expansion
and refurbishing of retail outlets, by the petroleum industry and adversely affect our business. Any
substantial change in purchasing decisions by one or more of our largest customers, whether due to
actions by our competitors, customer financial constraints, industry factors or otherwise, could have an
adverse effect on our business.
Difficulties with integrating acquisitions could adversely affect operating costs and expected
benefits from those acquisitions.
We have pursued and may continue to seek potential acquisitions to complement and expand our
existing businesses, increase our revenues and profitability, and expand our markets. We cannot be
certain that we will be able to identify, acquire or profitably manage additional companies or successfully
integrate such additional companies without substantial costs, delays or other problems. Also,
companies acquired recently and in the future may not achieve revenues, profitability or cash flows that
justify our investment in them. We expect to spend significant time and effort in expanding our existing
businesses and identifying, completing and integrating acquisitions. We expect to face competition for
acquisition candidates which may limit the number of acquisition opportunities available to us, possibly
leading to a decrease in the rate of growth of our revenues and profitability, and may result in higher
acquisition prices. The success of these acquisitions we do make will depend on our ability to integrate
these businesses into our operations. We may encounter difficulties in integrating acquisitions into our
operations, retaining key employees of acquired companies and in managing strategic investments.
Therefore, we may not realize the degree or timing of the benefits anticipated when we first enter into a
transaction.
If acquisitions are made in the future and goodwill and intangible assets are recorded on the
balance sheet, circumstances could arise in which the goodwill and intangible assets could
become impaired and therefore would be written off.
We have pursued and will continue to seek potential acquisitions to complement and expand our
existing businesses, increase our revenues and profitability, and expand our markets through
acquisitions. As a result of acquisitions, we have significant goodwill and intangible assets recorded on
our balance sheet. We will continue to evaluate the recoverability of the carrying amount of our
goodwill and intangible assets on an ongoing basis, and we may incur substantial non-cash impairment
- 10 -
charges, which would adversely affect our financial results. There can be no assurance that the
outcome of such reviews in the future will not result in substantial impairment charges. Impairment
assessment inherently involves judgment as to assumptions about expected future cash flows and the
impact of market conditions on those assumptions. Future events and changing market conditions may
impact our assumptions as to prices, costs, holding periods or other factors that may result in changes
in our estimates of future cash flows. Although we believe the assumptions we used in testing for
impairment are reasonable, significant changes in any one of our assumptions could produce a
significantly different result. If there were to be a decline in our market capitalization and a decline in
estimated forecasted discounted cash flows, there could be an impairment of the goodwill and intangible
assets. A non-cash impairment charge could be material to the earnings of the reporting period in which
it is recorded.
If customers do not accept new products, we could experience a loss of competitive position
which could adversely affect future revenues.
The Company is committed to product innovation on a timely basis to meet customer demands.
Development of new products for targeted markets requires the Company to develop or otherwise
leverage leading technologies in a cost-effective and timely manner. Failure to meet these changing
demands could result in a loss of competitive position and seriously impact future revenues. Products or
technologies developed by others may render the Company’s products or technologies obsolete or
noncompetitive. A fundamental shift in technologies in key product markets could have a material
adverse effect on the Company’s operating results and competitive position within the industry. More
specifically, the development of new or enhanced products is a complex and uncertain process
requiring the anticipation of technological and market trends. We may experience design,
manufacturing, marketing or other difficulties, such as an inability to attract a sufficient number of
experienced engineers, that could delay or prevent our development, introduction or marketing of new
products or enhancements and result in unexpected expenses. Such difficulties could cause us to lose
business from our customers and could adversely affect our competitive position. In addition, added
expenses could decrease the profitability associated with those products that do not gain market
acceptance.
Our business is cyclical and seasonal, and in downward economic cycles our operating profits
and cash flows could be adversely affected.
Historically, sales of our products have been subject to cyclical variations caused by changes in
general economic conditions. Our revenues in our third quarter ending March 31 are also affected by the
impact of weather on construction and installation programs and the annual budget cycles of major
customers. The demand for our products reflects the capital investment decisions of our customers,
which depend upon the general economic conditions of the markets that our customers serve, including,
particularly, the petroleum and convenience store industries. During periods of expansion in construction
and industrial activity, we generally have benefited from increased demand for our products. Conversely,
downward economic cycles in these industries result in reductions in sales and pricing of our products,
which may reduce our profits and cash flow. During economic downturns, customers also tend to delay
purchases of new products. The cyclical and seasonal nature of our business could at times adversely
affect our liquidity and financial results.
A loss of key personnel or inability to attract qualified personnel could have an adverse affect on
our operating results.
The Company’s future success depends on the ability to attract and retain highly skilled technical,
managerial, marketing and finance personnel, and, to a significant extent, upon the efforts and abilities of
senior management. The Company’s management philosophy of cost-control results in a very lean
workforce. Future success of the Company will depend on, among other factors, the ability to attract and
- 11 -
retain other qualified personnel, particularly management, research and development engineers and
technical sales professionals. The loss of the services of any key employees or the failure to attract or
retain other qualified personnel could have a material adverse effect on the Company’s results of
operations.
The costs of litigation and compliance with environmental regulations, if significantly increased,
could have an adverse affect on our operating profits.
We are, and may in the future be, a party to any number of legal proceedings and claims,
including those involving patent litigation, product liability, employment matters, and environmental
matters, which could be significant. Given the inherent uncertainty of litigation, we can offer no assurance
that existing litigation or a future adverse development will not have a material adverse impact. We are
also subject to various laws and regulations relating to environmental protection and the discharge of
materials into the environment, and it could potentially be possible we could incur substantial costs as a
result of the noncompliance with or liability for clean up or other costs or damages under environmental
laws.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
The Company has thirteen facilities:
Description
Size
Location
Status
1) LSI Industries Corporate
Headquarters, and
lighting fixture and
graphics manufacturing
243,000 sq. ft.,
(includes 66,000
sq. ft. of office
space)
Cincinnati, OH
Owned
2) LSI Industries pole
122,000 sq. ft.
Cincinnati, OH
Owned
manufacturing and dry
powder-coat painting
3) LSI Metal Fabrication
and LSI Images manu-
facturing and dry
powder-coat painting
98,000 sq. ft.
(includes 5,000
sq. ft. of office
space)
4) LSI Integrated Graphics
office; screen printing
manufacturing; and
architectural graphics
manufacturing
5) Greenlee Lighting office
and manufacturing
198,000 sq. ft.
(includes 34,000 sq.
ft. of office space)
40,000 sq. ft.
(includes 4,000 sq. ft.
of office space)
- 12 -
Independence, KY
Owned
Houston, TX
Leased
Dallas, TX
Leased
6) Grady McCauley office
and manufacturing
7) LSI MidWest Lighting
office and manufacturing
8) LSI Retail Graphics office
and manufacturing
9) LSI Lightron office
and manufacturing
210,000 sq. ft.
(includes 20,000
sq. ft. of office space)
163,000 sq. ft.
(includes 6,000 sq. ft.
of office space and
27,000 sq. ft. of leased
warehouse space)
57,000 sq. ft.
(includes 11,000 sq. ft.
of office space)
170,000 sq. ft. (includes
10,000 sq. ft. of office
space)
10) LSI Adapt offices
2,000 sq. ft.
11) LSI Saco Technologies
office and manufacturing
12) LSI ADL Technology office
and manufacturing
30,000 sq. ft. (includes
7,000 sq. ft. of office
space)
57,000 sq. ft. (includes
11,000 sq. ft. of office
space)
North Canton, OH
Owned
Kansas City, KS
Owned and
Leased
Woonsocket, RI
Owned (a)
New Windsor, NY
Owned and
Leased (b)
North Canton, OH
Charlotte, NC
Owned
Leased
Montreal, Canada
Leased
Columbus, OH
Owned
(a) This represents two facilities.
(b) The land at this facility is leased and the building is owned.
The Company considers these facilities (total of 1,390,000 square feet) adequate for its current level of
operations.
ITEM 3.
LEGAL PROCEEDINGS
Nothing to report.
ITEM 4.
[REMOVED AND RESERVED]
PART II
ITEM 5.
MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
(a)
Common share information appears in Note 17 – SUMMARY OF QUARTERLY RESULTS
(UNAUDITED) under “Range of share prices” beginning on page F-48 of this Form 10-K.
Information related to “Earnings (loss) per share” and “Cash dividends paid per share”
appears in SELECTED FINANCIAL DATA on page F-50 of this Form 10-K. LSI’s shares of
common stock are traded on the NASDAQ Global Select Market under the symbol “LYTS.”
- 13 -
The Company’s policy with respect to dividends, as revised by the Board of Directors in
August 2007, is to pay a quarterly cash dividend representing a payout ratio of between 50%
and 70% of the then current fiscal year net income forecast. Accordingly, the Board of
Directors established a new indicated annual cash dividend rate of $0.20 per share
beginning with the first quarter of fiscal 2010 consistent with the above dividend policy. In
addition to the four quarterly dividend payments, the Company may declare a special year-
end cash and/or stock dividend. The Company has paid annual cash dividends beginning in
fiscal 1987 through fiscal 1994, and quarterly cash dividends since fiscal 1995.
At August 18, 2010, there were 502 shareholders of record. The Company believes this
represents approximately 3,000 beneficial shareholders.
(b)
The Company does not purchase into treasury its own common shares for general
purposes. However, the Company does purchase its own common shares, through a
Rabbi Trust, as investments of employee/participants of the LSI Industries Inc. Non-
Qualified Deferred Compensation Plan. Purchases of Company common shares for this
Plan in the fourth quarter of fiscal 2010 were as follows:
ISSUER PURCHASES OF EQUITY SECURITIES
(a) Total
Number of
Shares
Purchased
422
471
462
1,355
(b) Average
Price Paid
per Share
$6.95
$6.32
$5.43
$6.21
Period
4/1/10 to 4/30/10
5/1/10 to 5/31/10
6/1/10 to 6/30/10
Total
(c) Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs
422
471
462
1,355
(d) Maximum Number
(or Approximate Dollar
Value) of Shares that
May Yet Be Purchased
Under the Plans or
Programs
(1)
(1)
(1)
(1)
(1)
All acquisitions of shares reflected above have been made in connection with the Company's
Non-Qualified Deferred Compensation Plan, which does not contemplate a limit on shares to be
acquired.
The following graph compares the cumulative total shareholder return on the Company's Common
Shares during the five fiscal years ended June 30, 2010 with a cumulative total return on the NASDAQ
Stock Market Index (U.S. companies) and the Dow Jones Electrical Equipment Index. The comparison
assumes $100 was invested June 30, 2005 in the Company's Common Shares and in each of the
indexes presented; it also assumes reinvestment of dividends.
- 14 -
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among LSI Industries Inc., the NASDAQ Composite Index
and the Dow Jones US Electrical Components & Equipment Index
$160
$140
$120
$100
$80
$60
$40
$20
$0
6/05
6/06
6/07
6/08
6/09
6/10
LSI Industries Inc.
NASDAQ Composite
Dow Jones US Electrical Components & Equipment
*$100 invested on 6/30/05 in stock or index, including reinvestment of dividends.
Fiscal year ending June 30.
Copyright© 2010 Dow Jones & Co. All rights reserved.
The stock price performance included in this graph is not necessarily indicative of future stock price performance.
ITEM 6.
SELECTED FINANCIAL DATA
"Selected Financial Data" begins on page F-50 of this Form 10-K.
ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" appears on pages F-1 through F-17 of this Form 10-K.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk from changes in variable interest rates, changes in prices
of raw materials and component parts, and changes in foreign currency translation rates. Each of these
risks is discussed below.
- 15 -
Interest Rate Risk
The Company earns interest income on its cash, cash equivalents, and short-term investments (if
any) and pays interest expense on its debt. Because of variable interest rates, the Company is exposed
to the risk of interest rate fluctuations, which impact interest income, interest expense, and cash flows.
With the significant increase in the Company’s short-term cash investments and fourth quarter fiscal 2007
pay down of all variable rate debt, the adverse exposure to interest rate fluctuations has decreased
considerably.
All of the Company’s $35,000,000 available lines of credit are subject to interest rate fluctuations,
should the Company borrow on these lines of credit. Additionally, the Company expects to generate cash
from its operations that will subsequently be used to pay down as much of the debt (if any is outstanding)
as possible or invest cash in short-term investments (if no debt is outstanding), while still funding the
growth of the Company.
Raw Material Price Risk
The Company purchases large quantities of raw materials and components, mainly steel,
aluminum, lighting ballasts, sockets, wire harnesses, plastic, lenses, glass, vinyls, inks, LEDs, electronic
components, and corrugated cartons. The Company’s operating results could be affected by the
availability and price fluctuations of these materials. The Company uses multiple suppliers, has alternate
suppliers for most materials, and has no significant dependence on any single supplier. Other than
industry-wide electronic component supply shortages, the Company has not experienced any significant
supply problems in recent years. Supply shortages of certain electronic components and certain other
parts in fiscal 2010 has caused some production and shipment delays, and the Company is dealing with
some increased supply chain lead times. Price risk for these materials is related to increases in
commodity items that affect all users of the materials, including the Company’s competitors. For the year
ended June 30, 2010, the raw material component of cost of goods sold subject to price risk was
approximately $124 million. The Company does not actively hedge or use derivative instruments to
manage its risk in this area. The Company does, however, seek new vendors, negotiate with existing
vendors, and at times commit to minimum volume levels to mitigate price increases. The Company
negotiates supply agreements with certain vendors to lock in prices over a negotiated period of time. In
response to rising material prices, the Company’s Lighting Segment announced price increases ranging
from 4% to 6%, depending on the product, effective with late June 2010 orders. While competitors of the
Company’s lighting business have announced similar price increases, the lighting market remains very
price competitive. The Company’s Graphics Segment generally establishes new sales prices, reflective
of the then current raw material prices, for each custom graphics program as it begins.
Foreign Currency Translation Risk
As a result of the operation of a subsidiary in Montreal, Canada, the Company is exposed to
fluctuations in foreign currency exchange rates in the operation of its Canadian business. However, a
substantial amount of this business is conducted in U.S. dollars, therefore, any potential risk is deemed
immaterial. Additionally, the financial transactions and financial statements of this subsidiary are
recorded in U.S. dollars.
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Financial Statements
Financial Statements:
Management’s Report on Internal Control
Over Financial Reporting
Report of Independent Registered Public Accounting Firm
- 16 -
Begins
on Page
F-18
F-19
Report of Independent Registered Public Accounting Firm
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Operations for the years
ended June 30, 2010, 2009, and 2008
Consolidated Balance Sheets at June 30, 2010 and 2009
Consolidated Statements of Shareholders' Equity for
the years ended June 30, 2010, 2009, and 2008
Consolidated Statements of Cash Flows for the
years ended June 30, 2010, 2009, and 2008
Notes to Consolidated Financial Statements
Financial Statement Schedules:
II -
Valuation and Qualifying Accounts for the
years ended June 30, 2010, 2009, and 2008
F-20
F-21
F-22
F-23
F-25
F-26
F-27
F-51
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 is found in NOTE 17 of the
accompanying consolidated financial statements.
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures (as such term is defined in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 as amended (the “Exchange Act”))
that are designed to ensure that information required to be disclosed in the Company’s reports under the
Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the
SEC’s rules and forms, and that such information is accumulated and communicated to management,
including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate, to allow
timely decisions regarding required disclosure. The Company periodically reviews the design and
effectiveness of its disclosure controls and internal control over financial reporting. The Company makes
modifications to improve the design and effectiveness of its disclosure controls and internal control
structure, and may take other corrective action, if its reviews identify a need for such modifications or
actions. The Company’s disclosure controls and procedures are designed to provide reasonable
assurance of achieving their objectives.
As of the end of the period covered by this Form 10-K, an evaluation was completed under the
supervision and with the participation of our management, including our principal executive officer and
principal financial officer, regarding the design and effectiveness of our disclosure controls and
procedures. Based on this evaluation, our management, including our principal executive officer and
principal financial officer, has concluded that our disclosure controls and procedures were effective as of
June 30, 2010.
Changes in Internal Control
There were no changes in the Company’s internal control over financial reporting (as defined in
Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter ended June 30, 2010,
- 17 -
that have materially affected, or are reasonably likely to materially affect, the Company’s internal control
over financial reporting. See Management’s Report on Internal Control Over Financial Reporting on
page F-18.
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEMS 10, 11, 12, 13 and 14 of Part III are incorporated by reference to the LSI Industries Inc. Proxy
Statement for its Annual Meeting of Shareholders to be held November 18, 2010, as filed with the
Commission pursuant to Regulation 14A.
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
The following table presents information about the Company’s equity compensation plans (LSI
Industries Inc. 1995 Stock Option Plan, the LSI Industries Inc. 1995 Directors’ Stock Option Plan and
the 2003 Equity Compensation Plan) as of June 30, 2010.
(a)
Number of securities to
be issued upon
exercise of outstanding
options, warrants and
rights
(b)
Weighted average
exercise price of
outstanding options,
warrants and rights
(c)
Number of securities
remaining available
for future issuance
under equity
compensation plans
(excluding securities
reflected in column
(a))
2,123,086
--
2,123,086
$11.64
--
$11.64
833,585
--
833,585
Plan category
Equity compensation plans
approved by security holders
Equity compensation plans not
approved by security holders
Total
ITEM 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)
The following documents are filed as part of this report:
PART IV
(1) Consolidated Financial Statements
Appear as part of Item 8 of this Form 10-K.
(2) Consolidated Financial Statement Schedules
Appear as part of Item 8 of this Form 10-K.
(3)
Exhibits -- Exhibits set forth below are either on file with the Securities and
Exchange Commission and are incorporated by reference as exhibits hereto,
or are filed with this Form 10-K.
- 18 -
Exhibit No.
Exhibit Description
2.1
3.1
3.2
3.3
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
Purchase and Sale Agreement dated as of July 22, 2009 among LSI
Industries Inc., LSI Acquisition Inc., ADL Technology Inc., ADL Engineering
Inc., and Craig A. Miller, Kevin A. Kelly and David T. Feeney filed as Exhibit
2.1 to LSI’s Form 8-K filed July 24, 2009.
Articles of Incorporation of LSI filed as Exhibit 3.1 to LSI’s Form S-3
Registration Statement File No. 33-65043.
Amended Article Fourth of LSI’s Amended and Restated Articles of
Incorporation filed as Exhibit 3.1 to LSI’s Form 8-K filed November 19, 2009.
Amended and Restated Code of Regulations of LSI filed as Exhibit 3 to LSI’s
Form 8-K filed January 22, 2009.
Credit Agreement by and among LSI as the Borrower, the banks party thereto
as the lenders thereunder, PNC Bank National Association as the
Administrative Agent and the Syndication Agent, Dated as of March 30, 2001
filed as Exhibit 4 to LSI’s Form 10-K for the fiscal year ended June 30, 2001.
Amendment No. 6 to Credit Agreement dated January 12, 2007 among the
Registrant, PNC Bank, National Association, in its capacity as Lender and The
Fifth Third Bank filed as Exhibit 10.1 to LSI’s Form 8-K filed January 17, 2007.
Amendment to Credit Agreement dated November 4, 2009 among the
Registrant, PNC Bank, National Association, in the capacity as syndication
agent and administrative agent, PNC Bank, National Association, in its
capacity as lender and Fifth Third Bank filed as Exhibit 10.1 to LSI’s Form
10-Q for the quarter ended September 30, 2009.
Amendment to Credit Agreement dated March 31, 2010 among the
Registrant, PNC Bank, National Association, in its capacity as syndication
agent and administrative agent, PNC Bank, National Association, in its
capacity as lender and The Fifth Third Bank filed as Exhibit 10.1 to LSI’s Form
8-K filed March 31, 2010.
Loan Agreement dated January 12, 2007 among The Fifth Third Bank, LSI
Saco Technologies Inc. and LSI, as guarantor, filed as Exhibit 10.2 to LSI’s
Form 8-K filed January 17, 2007.
Continuing and Unlimited Guaranty Agreement dated January 12, 2007
executed by the Registrant filed as Exhibit 10.3 to LSI’s Form 8-K filed
January 17, 2007.
Amendment to Credit Agreement (Dated March 18, 2009) filed as Exhibit 10.1
to LSI’s Form 8-K filed March 18, 2009.
First Amendment to Loan Agreement and Guaranty dated as of June 8, 2007
among the Registrant, LSI Saco Technologies Inc., and Fifth Third Bank filed
as Exhibit 10.1 to LSI’s Form 8-K filed June 11, 2007.
- 19 -
10.9*
10.10*
10.11*
10.12*
10.13*
10.14*
10.15*
10.16*
10.17*
10.18*
10.19*
10.20
10.21
14
21
LSI Industries Inc. Retirement Plan (Amended and Restated as of February 1,
2006) filed as Exhibit 10.9 to LSI’s Form 10-K for the fiscal year ended June
30, 2009.
Fourth Amendment to the LSI Industries Inc. Retirement Plan (Amended and
Restated as of February 1, 2006) filed as Exhibit 10.10 to LSI’s Form 10-K for
the fiscal year ended June 30, 2009.
Fifth Amendment to the LSI Industries Inc. Retirement Plan (Amended and
Restated as of February 1, 2006) filed as Exhibit 10 to LSI’s Form 10-Q for the
quarter ended December 31, 2009.
LSI Industries Inc. 1995 Directors’ Stock Option Plan (Amended as of
December 6, 2001) filed as Exhibit 10 to LSI’s Form S-8 Registration
Statement File No. 333-100038.
LSI Industries Inc. 1995 Stock Option Plan (Amended as of December 6,
2001) filed as Exhibit 10 to LSI’s Form S-8 Registration Statement File No.
333-100039.
LSI Industries Inc. 2003 Equity Compensation Plan (Amended and Restated
through November 19, 2009) filed as Exhibit 10.1 to LSI’s Form 8-K filed
November 19, 2009.
Trust Agreement Establishing the Rabbi Trust Agreement by and between LSI
Industries Inc. and Prudential Bank & Trust, FSB filed as Exhibit 10.1 to LSI’s
Form 8-K filed January 5, 2006.
LSI Industries Inc. Nonqualified Deferred Compensation Plan (Amended and
Restated as of November 19, 2009) filed as Exhibit 10.2 to LSI’s Form 8-K
filed November 19, 2009.
Amended Agreement dated January 25, 2005 with Robert J. Ready filed as
Exhibit 10.1 to LSI’s Form 8-K filed January 27, 2005.
Amended Agreement dated January 25, 2005 with James P. Sferra filed as
Exhibit 10.2 to LSI’s Form 8-K filed January 27, 2005.
LSI Industries Inc. FY2010 Bonus Scorecard filed as Exhibit 99.2 to LSI’s
Form 8-K filed January 20, 2010.
Escrow Agreement dated as of July 22, 2009 among LSI Acquisition Inc.,
Craig A. Miller, Kevin A. Kelly, David T. Feeney and U.S. Bank, National
Association filed as Exhibit 10.1 to LSI’s Form 8-K filed July 24, 2009.
Registration Rights Agreement dated as of July 22, 2009 by and between LSI
Industries Inc. and Craig A. Miller, Kevin A. Kelly and David T. Feeney filed as
Exhibit 10.2 to LSI’s Form 8-K filed July 24, 2009.
Code of Ethics filed as Exhibit 14 to LSI’s Form 10-K for the fiscal year ended
June 30, 2004.
Subsidiaries of the Registrant
- 20 -
23.1
23.2
31.1
31.2
32.1
32.2
Consent of Independent Registered Public Accounting Firm (Grant Thornton
LLP)
Consent of Independent Registered Public Accounting Firm (Deloitte &
Touche LLP)
Certification of Principal Executive Officer required by Rule 13a-14(a)
Certification of Principal Financial Officer required by Rule 13a-14(a)
18 U.S.C. Section 1350 Certification of Principal Executive Officer
18 U.S.C. Section 1350 Certification of Principal Financial Officer
* Management Compensatory Agreements
LSI will provide shareholders with any exhibit upon the payment of a specified reasonable fee, which fee shall be limited
to LSI’s reasonable expenses in furnishing such exhibit. The exhibits identified herein as being filed with the SEC have
been so filed with the SEC but may not be included in this version of the Annual Report to Shareholders.
- 21 -
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
LSI INDUSTRIES INC.
September 8, 2010
Date
BY: /s/ Robert J. Ready
Robert J. Ready
Chairman of the Board, Chief Executive Officer
and President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the registrant and in the capacities and on the dates
indicated.
Signature
Title
/s/ Robert J. Ready
Robert J. Ready
Date: September 8, 2010
Chairman of the Board, Chief Executive
Officer, and President
(Principal Executive Officer)
/s/ Ronald S. Stowell
Ronald S. Stowell
Date: September 8, 2010
Vice President, Chief Financial Officer, and
Treasurer
(Principal Financial and Accounting Officer)
/s/ Gary P. Kreider
Gary P. Kreider
Date: September 8, 2010
/s/ Dennis B. Meyer
Dennis B. Meyer
Date: September 8, 2010
/s/ Wilfred T. O’Gara
Wilfred T. O’Gara
Date: September 8, 2010
/s/ Mark A. Serrianne
Mark A. Serrianne
Date: September 8, 2010
/s/ James P. Sferra
James P. Sferra
Date: September 8, 2010
Director
Director
Director
Director
Secretary; Executive Vice President
- Manufacturing; and Director
- 22 -
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Company’s “forward looking statements” and disclosures as presented earlier in this Form
10-K in the “Safe Harbor” Statement should be referred to when reading Management’s Discussion and
Analysis of Financial Condition and Results of Operations.
Net Sales by Business Segment
(In thousands)
2010 2009 2008
Lighting Segment
Graphics Segment
Technology Segment
Electronic Components Segment
All Other Category
$159,105
68,395
4,505
16,116
6,281
$254,402
$183,694
85,244
9,136
--
27,212
$305,286
$160,475
60,765
4,576
--
7,983
$233,799
Operating Income (Loss) by Business Segment
(In thousands)
2010 2009 2008
Lighting Segment
Graphics Segment
Technology Segment
Electronic Components Segment
All Other Category
$ 9,335
3,507
(653)
2,279
(12,559)
$ 1,909
$ (3,911)
2,646
(486)
--
(12,660)
$ (14,411)
$ 15,310
(14,027)
(4,876)
--
(7,377)
$ (10,970)
Summary Comments
Fiscal 2010 net sales of $254,402,000 increased $20.6 million or 8.8% as compared to fiscal
2009. Net sales were favorably influenced by increased net sales of the Graphics Segment (up $7.6
million or 12.6%), and the addition of the Electronic Components Segment (effective with the July 22,
2009 acquisition of AdL Technology) which added $16.1 million of net sales. Net sales were
unfavorably influenced by decreased All Other Category net sales (down $1.7 million or 21.3%),
decreased Lighting Segment net sales (down $1.4 million or 0.9%) and decreased Technology
Segment net sales (down $0.1 million or 1.6%). The Company sold its wire harness business in the
third quarter of fiscal 2010 and incurred a pre-tax loss of $639,000 which is included in the operating
loss of the All Other Category. In fiscal 2010, the Company recorded pre-tax intangible asset
impairments of $153,000, as compared to a fiscal 2009 pre-tax goodwill impairments totaling
$14,467,000 -- see the paragraph below regarding goodwill and intangible asset impairments and the
section below on Non-GAAP Financial Measures. Net sales to the Petroleum / Convenience Store
market, the Company’s largest niche market, were $89,952,000 or 35% of total net sales and
$54,574,000 or 23% of total net sales in fiscal 2010 and 2009, respectively. The $35.4 million or 65%
increase is primarily due to a program with 7-Eleven, Inc., who is replacing traditional canopy, site and
sign lighting with solid-state LED lighting ($36.6 million increase). The Company expects to
substantially complete the conversion to solid-state LED lighting at the remaining approximately 2,800
non-petroleum retail sites by the end of calendar 2010. Net sales to this petroleum / convenience store
customer are reported in both the Lighting and Graphics segments.
The Company recorded intangible asset impairment expenses in fiscal 2010 totaling $153,000
($16,000 in the Lighting Segment and $137,000 in the Technology Segment). There were no such
intangible asset impairment expenses in fiscal 2009. The Company recorded significant goodwill
F-1
impairment expenses in fiscal 2009 totaling $14,467,000 ($11.2 million in the Lighting Segment, $0.7
million in the Graphics Segment and $2.6 million in the All Other Category). There were no such
goodwill impairment expenses in fiscal 2010.
The Company also recorded significant acquisition-related and other professional fees
expenses in fiscal 2010, totaling $1,198,000 ($678,000 of inventory adjustments related to acquisition
fair value accounting on the opening balance sheet of LSI ADL Technology; and $520,000 of
acquisition transaction costs related to the acquisition of LSI ADL Technology). There were no such
similar significant expenses in fiscal 2009. See also the section below on Non-GAAP Financial
Measures.
The Company’s total net sales of products and services related to solid-state LED technology in
light fixtures and video screens for sports, advertising and entertainment markets have been recorded
as indicated in the table below. In addition, the Company sells certain elements of graphic identification
programs that contain solid-state LED light sources.
First Quarter
Second Quarter
First Half
Third Quarter
Nine Months
Fourth Quarter
Full Year
FY 2010 FY 2009 % Increase
$ 8,798
$17,999
18,533
2,784
11,582
36,532
11,510
3,086
14,668
48,042
14,538
4,262
$62,580
$18,930
105%
566%
215%
273%
228%
241%
231%
As fiscal 2010 progressed, the Company continued to encounter the effects of a global
economic recession with significant negative economic forces, including declining industrial production,
rapidly increasing unemployment, roller coaster commodity pricing, and record low confidence levels,
as well as issues such as malfunctioning credit markets which could affect many customers and a
decimated housing market that indirectly could affect the Company’s business. Taken as a whole,
these factors continue to cause a substantial reduction in demand for our lighting and graphics
products. Virtually all of our markets have been adversely impacted and our business has suffered as
a result. During these difficult and uncertain economic conditions, we continue to take a number of
proactive steps to “right size” LSI Industries to meet today’s challenges. Such actions include strict
control of expenses, capital expenditure reductions, close management of accounts receivable and
inventories, headcount reductions, and maintaining a conservative financial position coupled with
positive free cash flow. We believe the economy will continue to improve even though the time frame
for such improvement is uncertain at this time. As we continue to adjust our expense levels to lower
production rates and manage working capital efficiently, we are also strategically positioning the
business for future growth and are very positive about the longer term outlook and opportunities for the
Company, notwithstanding the current economic conditions that will likely continue to impact results
during the next several quarters. LSI is still facing a period of challenging business conditions in the
near term due to the general economic conditions, but expects to emerge a stronger and more efficient
company as business conditions improve.
Non-GAAP Financial Measures
The Company believes it is appropriate to evaluate its performance after making adjustments to
the U.S. GAAP net income (loss) for the 2010 and 2009 fiscal years. Adjusted net income and
earnings per share, which exclude the loss on the sale of LSI Marcole, goodwill and intangible asset
impairments, a loss contingency related to a menu board patent litigation, and the impact of the LSI
ADL Technology acquisition deal costs and acquisition-related fair value inventory adjustments, are
non-GAAP financial measures. We believe that these adjusted supplemental measures are useful in
assessing the operating performance of our business. These supplemental measures are used by our
F-2
management, including our chief operating decision maker, to evaluate business results. We exclude
these items because they are not representative of the ongoing results of operations of our business.
Below is a reconciliation of this non-GAAP measure to net income (loss) for the periods indicated.
(In thousands, except per share data; unaudited)
FY 2010 FY 2009 FY 2008
Diluted Diluted Diluted
Amount EPS Amount EPS Amount EPS
Reconciliation of net income (loss) to
adjusted net income:
Net income (loss) as reported $1,424
$0.06 $(13,414) $(0.62) $(13,048)
$(0.60)
Adjustment for the loss on sale of
LSI Marcole, inclusive of the
income tax effect
Adjustment for the acquisition
deal costs and acquisition-
related fair value inventory
adjustment, inclusive of the
income tax effect
Adjustment for the loss
contingency related to the menu
board patent litigation, inclusive
of the income tax effect
422(1)
0.02
--
--
--
--
791(2)
0.03
--
--
--
--
--
--
125(3)
0.01
1,741(4)
0.08
Adjustment for goodwill and intangible
asset impairments, inclusive of
the income tax effect
148(5)
0.01 13,583(6)
0.62
22,932(7)
1.05
Adjusted net income and
earnings per share
$2,785
$0.12 $ 294
$0.01 $11,625
$0.53
The income tax effects of the adjustments in the tables above were calculated using the
estimated U.S. effective income tax rates for the periods indicated, with appropriate
consideration given for the permanent non-deductible portion of the goodwill impairments in
fiscal 2009 and 2008. The income tax effects were as follows (In thousands):
(1) $217
(2) $407
(3) $75
(4) $1,059
(5) $5
(6) $884
(7) $5,023
F-3
Results of Operations
2010 Compared to 2009
Lighting Segment
(In thousands)
2010 2009
Net Sales
Gross Profit
Operating Income (Loss)
$159,105
$ 37,185
$ 9,335
$160,475
$ 36,403
$ (3,911)
Lighting Segment net sales of $159,105,000 in fiscal 2010 decreased 0.9% from fiscal 2009 net
sales of $160,475,000. The $1.4 million decrease in Lighting Segment net sales is primarily the net
result of a $17.0 million or 27% net increase in lighting sales to our niche markets (petroleum /
convenience store market net sales were up 70%, net sales to the automotive dealership market were
down 29%, and net sales to the quick service restaurant market were down 39%) and national retail
accounts, and an $18.4 million or 18.9% decrease in commissioned net sales to the commercial /
industrial lighting market. Sales of lighting to the petroleum / convenience store market represented
32% and 19% of Lighting Segment net sales in the fiscal years 2010 and 2009, respectively. Net sales
of lighting to this, the Company’s largest niche market, were up 70.0% from last year to $51,462,000,
with approximately $21.4 million related to a program with 7-Eleven, Inc., who is replacing traditional
canopy, site and sign lighting with solid-state LED lighting. The Company expects to continue to make
sales to this particular customer pursuant to new orders received for their non-petroleum convenience
stores to be converted in the first half of fiscal 2011. The petroleum / convenience store market has
been, and will continue to be, a very important niche market for the Company. The Lighting Segment’s
net sales of light fixtures having solid-state LED technology totaled $37.8 million in fiscal 2010,
representing a 496% increase from fiscal 2009 net sales of solid-state LED light fixtures of $6.3 million.
Gross profit of $37,185,000 in fiscal 2010 increased $0.8 million or 2.1% from fiscal 2009, and
increased from 21.9% to 22.5% as a percentage of Lighting Segment net sales (customer plus inter-
segment net sales). The increase in amount of gross profit is due to the net effect of decreased net
sales at increased margins, increased overhead absorption and reduced freight costs. The following
items also influenced the Lighting Segment’s gross profit margin: competitive pricing pressures; $1.0
million increased benefits and compensation; $1.1 million increased warranty costs; $0.4 million
decreased utilities; $0.3 million decreased depreciation expense; and $0.2 million increased property
and real estate taxes.
Selling and administrative expenses of $27,834,000 in fiscal year 2010 decreased $1.3 million
primarily as the net result of: increased employee compensation and benefits expense ($0.6 million);
decreased sales commission expense ($1.1 million); increased research and development expense
($0.9 million); decreased outside services expense ($0.2 million); decreased customer relations
expense ($0.5 million); decreased royalty expense ($0.4 million); and decreased warranty expense
($0.4 million).
The Lighting Segment recorded a fiscal 2010 patent intangible asset impairment expense of
$16,000 as compared to a fiscal 2009 goodwill impairment expense of $11,185,000, resulting in a
favorable change of $11.2 million.
The Lighting Segment fiscal 2010 operating income of $9,335,000 compares to an operating
loss of $(3,911,000) in fiscal 2009. This improvement of $13.2 million was the net result of decreased
net sales, increased gross profit, and decreased selling and administrative expenses, and decreased
impairment expense.
F-4
Graphics Segment
(In thousands)
2010 2009
Net Sales
Gross Profit
Operating Income
$68,395
$13,781
$ 3,507
$60,765
$13,382
$ 2,646
Graphics Segment net sales of $68,395,000 in fiscal 2010 increased 12.6% from fiscal 2009 net
sales of $60,765,000. The $7.6 million increase in Graphics Segment net sales is primarily the result of
image conversion programs and sales to ten petroleum / convenience store customers ($16.1 million
net increase), a grocery retailer ($5.1 million decrease), five retail customers ($1.2 million net
decrease), the LED video sports screen market ($0.2 million increase), a national drug store retailer
($0.7 million decrease), a lawn care company ($0.4 million decrease), and changes in volume or
completion of several other graphics programs. Sales of graphics products and services to the
petroleum / convenience store market represented 56% and 40% of Graphics Segment net sales in
fiscal years 2010 and 2009, respectively. Net sales of graphics to this, the Company’s largest niche
market, were up 58% from last year to $38,490,000, with approximately $17.1 million related to a
program with 7-Eleven, Inc., who is replacing traditional sign lighting with solid-state LED lighting. The
Company expects to continue to make sales to this particular customer pursuant to new orders
received for their non-petroleum convenience stores to be converted primarily in the first nine months of
fiscal year 2011. The petroleum / convenience store market has been, and will continue to be, a very
important niche market for the Company. The Graphics Segment net sales of products and services
related to solid-state LED video screens and LED lighting for signage totaled $20.3 million in fiscal 2010
as compared to $8.0 million in the prior year.
Image and brand programs, whether full conversions or enhancements, are important to the
Company’s strategic direction. Image programs include situations where our customers refurbish their
retail sites around the country by replacing some or all of the lighting, graphic elements, menu board
systems and possibly other items they may source from other suppliers. These image programs often
take several quarters to complete and involve both our customers’ corporate-owned sites as well as
their franchisee-owned sites, the latter of which involve separate sales efforts by the Company with
each franchisee. The Company may not always be able to replace net sales immediately when a large
image conversion program has concluded. Brand programs typically occur as new products are offered
or new departments are created within existing retail stores. Relative to net sales to a customer before
and after an image or brand program, net sales during the program are typically significantly higher,
depending upon how much business is awarded to the Company. Sales related to a customer’s image
or brand program are reported in either the Lighting Segment, Graphics Segment, or the All Other
Category depending upon the product and/or service provided.
Gross profit of $13,781,000 in fiscal 2010 increased $0.4 million or 3% from fiscal 2009, and
decreased from 21.5% to 19.9% as a percentage of Graphics Segment net sales (customer plus inter-
segment net sales). The increase in amount of gross profit is due to increased Graphics net sales at
lower margins. The following items also influenced the Graphics Segment’s gross profit margin:
competitive pricing pressures, and other manufacturing expenses in support of production requirements
($0.1 million of increased indirect wage, compensation and benefits costs; $0.4 million increased
warranty expense; $0.1 million decreased supplies expense; $0.1 million decreased rental expense;
and $0.3 million decreased depreciation and utilities).
Selling and administrative expenses of $10,274,000 in fiscal 2010 increased $0.3 million
primarily as a net result of decreased compensation and benefits ($0.1 million), increased bad debt
expense ($0.3 million), increased customer relations expense ($0.2 million), and decreased outside
services expense ($0.1 million).
F-5
The Graphics Segment recorded a fiscal 2009 goodwill impairment expense of $716,000 with
no similar expense in fiscal 2010, resulting in a favorable change of $0.7 million.
The Graphics Segment fiscal 2010 operating income of $3,507,000 increased $0.9 million or
32.5% from operating income of $2,646,000 in fiscal 2009. The $0.9 million increase in operating
income was the result of increased net sales, increased gross profit, increased selling and
administrative expenses, and decreased impairment expense.
Technology Segment
(In thousands)
2010 2009
Net Sales
Gross Profit
Operating Income (Loss)
$4,505
$ 734
$ (653)
$4,576
$1,028
$ (486)
Technology Segment net sales of $4,505,000 in fiscal 2010 decreased 1.6% from fiscal 2009
net sales of $4,576,000. The $0.1 million decrease in Technology Segment net sales is primarily the
result of decreased sales of solid-state LED video screens to the entertainment market ($0.3 million)
and decreased sales of specialty LED lighting ($0.1 million), partially offset by increased net sales to
other customers.
Gross profit of $734,000 in fiscal 2010 decreased $0.3 million from fiscal 2009, and changed
from 11.5% to 9.3% as a percentage of Technology Segment net sales (customer plus inter-segment
net sales). The decrease is related to the drop in sales volume and increased warranty expense ($0.2
million).
Selling and administrative expenses of $1,250,000 in fiscal year 2010 decreased $0.3 million,
and decreased to 15.8% from 16.9% as a percentage of Technology Segment net sales (customer plus
inter-segment net sales). Selling and administrative expenses were down in line with reduced net
sales, including $0.2 million reduced outside services, $0.2 million increased royalty expense, $0.1
million reduced bad debt reserve, $0.1 million reduced depreciation expense, $0.1 million reduced
intangible asset amortization expense, and $0.1 million reduced warranty expense.
The Technology Segment recorded a fiscal 2010 intangible asset impairment expense of
$137,000, with no similar expense in fiscal 2009, resulting in an unfavorable change of $0.1 million.
The Technology Segment fiscal 2010 operating loss of $(653,000) compares to an operating
loss of $(486,000) in fiscal 2009. The decrease in operating income of $0.2 million was the net result of
decreased net sales and gross profit, and a fiscal 2010 impairment expense, partially offset by
decreased selling and administrative expenses.
Electronic Components Segment
(In thousands)
2010 2009
Net Sales
Gross Profit
Operating Income
$16,116
$ 3,847
$ 2,279
$ --
$ --
$ --
Electronic Components Segment results include the operations of LSI ADL Technology, a
subsidiary that the Company acquired in July 2009. Therefore, the net sales and operating income in
F-6
fiscal 2010 are incremental additions to the Company’s results as there were no net sales or operating
income in fiscal 2009. Operating income in fiscal 2010 was reduced by $678,000 related to the roll-out
of fair value inventory adjustments for LSI ADL Technology’s sales of products that were in finished
goods or work-in-process inventory on the acquisition date and therefore were valued at fair value, as
opposed to manufactured cost, in the opening balance sheet in accordance with the requirements of
purchase accounting.
All Other Category
(In thousands)
2010 2009
Net Sales
Gross Profit
Operating (Loss)
$ 6,281
$ 186
$(12,559)
$ 7,983
$ 1,014
$(12,660)
All Other Category net sales of $6,281,000 in fiscal 2010 decreased 21.3% from fiscal 2009 net
sales of $7,983,000. The $1.7 million decrease in the All Other Category net sales is primarily the net
result of net decreased sales to two quick service restaurant menu board customers ($0.8 million),
decreased sales of electrical wire harnesses ($1.0 million) and changes in volume or completion of
other customer programs. The Company sold its wire harness operation and business at the end of the
third quarter of fiscal 2010 and will therefore have no further sales of wire harnesses.
The gross profit of $186,000 in fiscal 2010 compares to gross profit of $1,014,000 in fiscal 2009.
The change is primarily the result of the $639,000 loss recorded on the March 2010 sale of the assets
and business of the Company’s wire harness operation. The remaining $0.2 million decrease in
amount of gross profit is primarily due to decreased net sales and margins, and decreased indirect
wage compensation and benefits.
Selling and administrative expenses of $12,745,000, which includes Corporate administration
expenses, increased $1.6 million in fiscal year 2010. Changes of expense between years include
acquisition deal costs associated with the acquisition of LSI ADL Technology ($0.5 million increased
expense), increased compensation, benefits and stock option expense ($1.4 million), decreased menu
board patent settlement expense ($0.2 million), decreased outside services expense ($0.4 million),
decreased professional fees ($0.2 million), increased research and development expense ($0.2
million), decrease royalty income ($0.3 million), and decreased depreciation expense ($0.1 million).
The All Other Category recorded a fiscal 2009 goodwill impairment expense of $2,566,000 with
no similar expense in fiscal 2010, resulting in a favorable change of $2.6 million.
The All Other Category fiscal 2010 operating loss of $(12,559,000) compares to an operating
loss of $(12,660,000) in fiscal 2009. This $0.1 million decreased loss was the net result of decreased
net sales, decreased gross profit, and less goodwill impairment, partially offset by increased selling and
administrative expenses.
Consolidated Results
The Company reported net interest expense of $125,000 in fiscal 2010 as compared to net
interest income of $8,000 in fiscal 2009. The Company borrowed on its lines of credit occasionally in
fiscal 2009 and essentially its only borrowings in fiscal 2010 were related to the mortgage loan
assumed in the acquisition of AdL Technology. Commitment fees related to the unused portions of the
Company’s lines of credit, and interest income on invested cash are included in the net interest
expense amounts above.
F-7
The $360,000 income tax expense in fiscal 2010 represents a consolidated effective tax rate of
20.2%. This is the net result of a U.S. federal income tax rate of 34% influenced by certain permanent
book-tax differences that were significant relative to the amount of taxable income, by certain U.S.
federal and Canadian income tax credits, by a benefit related to uncertain income tax positions, by an
increase in state income taxes, and by full valuation reserves on the Company’s Canadian tax position
and a certain state deferred income tax asset. The income tax benefit in fiscal 2009 of $989,000
reflects a tax benefit of $105,000 related to the operations of the Company (which includes a $333,000
release of an uncertain income tax liability associated with a voluntary disclosure program) and a tax
benefit of $884,000 associated with the $14,467,000 impairment of goodwill (the majority of which was
non-deductible for tax purposes).
The Company reported a net income of $1,424,000 in fiscal 2010 as compared to a net loss of
$(13,414,000) in fiscal 2009. The increased net income is primarily the result of increased net sales,
increased gross profit, and significant goodwill impairment in fiscal 2009 as compared to a minor
intangible asset impairment in fiscal 2010, partially offset by increased operating expenses, increased
net interest expense and increased income tax expense. Diluted earnings per share were $0.06 in
fiscal 2010 as compared to a loss of $(0.62) last year. The weighted average common shares
outstanding for purposes of computing diluted earnings per share in fiscal 2010 were 24,134,000
shares as compared to 21,800,000 shares last year, with the increase in shares primarily related to the
weighted effect of the 2,469,676 common shares issued in July 2009 for the acquisition of AdL
Technology.
2009 Compared to 2008
Lighting Segment
(In thousands)
2009 2008
Net Sales
Gross Profit
Operating Income (Loss)
$160,475
$ 36,403
$ (3,911)
$183,694
$ 48,773
$ 15,310
Lighting Segment net sales of $160,475,000 in fiscal 2009 decreased 12.6% from fiscal 2008
net sales of $183,694,000. The $23.2 million decrease in Lighting Segment net sales is primarily the
result of a $13.3 million or 17% net decrease in lighting sales to our niche markets (petroleum /
convenience stores, automotive dealerships, and quick service restaurants) and national retail
accounts, and a $9.9 million or 9.2% decrease in commissioned net sales to the commercial / industrial
lighting market. Sales of lighting to the petroleum / convenience store market represented 19% and
16% of Lighting Segment net sales in fiscal years 2009 and 2008, respectively. Net sales of lighting to
this, the Company’s largest niche market, were up 2.2% from last year to $30,279,000. The petroleum
/ convenience store market has been, and will continue to be, a very important niche market for the
Company.
Gross profit of $36,403,000 in fiscal 2009 decreased $12.4 million or 25% from the same period
last year, and decreased from 25.9% to 21.9% as a percentage of Lighting Segment net sales
(customer plus intra-segment net sales). The decrease in amount of gross profit is due to decreased
Lighting net sales and margins, caused in part by higher manufacturing overhead costs as a
percentage of net sales due to the lower sales volume. The following items also influenced the Lighting
Segment’s gross profit margin: competitive pricing pressures; decreased direct labor as a percentage
of net sales; decreased indirect wage, compensation and benefits costs ($0.9 million decrease); $0.5
million decreased supplies; $0.4 million decreased depreciation expense; $0.3 million decreased
repairs and maintenance; $0.2 million decreased utilities; and $0.2 million decreased property and real
estate taxes.
F-8
Selling and administrative expenses of $29,129,000 in fiscal year 2009 decreased $3.2 million,
and increased to 18.2% as a percentage of Lighting Segment net sales from 17.6% in the same period
last year. Employee compensation and benefits expense increased $0.2 million in fiscal 2009 as
compared to last year, and other changes of expense between years include decreased sales
commission expense ($2.9 million), decreased advertising and literature expense ($0.2 million),
increased bad debt expense ($0.2 million), increased research and development expense ($0.7
million), decreased customer relations expense ($0.3 million) and increased outside services expense
($0.1 million).
The Company recorded a full impairment of goodwill in one reporting unit in the Lighting
Segment in fiscal 2009, and accordingly recorded a non-cash expense in the amount of $11,185,000 as
compared to impairments totaling $1,097,000 of certain intangible assets last year. The impairments in
both years were related to a decline in the market value of the Company’s stock as well as a decline in
the estimated forecasted discounted cash flows expected by the respective reporting units.
The Lighting Segment fiscal 2009 operating loss of $(3,911,000) compares to operating income
of $15,310,000 last year. This decrease of $19.2 million was the result of decreased net sales and
decreased gross profit, and increased impairment charges, partially offset by decreased selling and
administrative expenses.
Graphics Segment
(In thousands)
2009 2008
Net Sales
Gross Profit
Operating Income (Loss)
$60,765
$13,382
$ 2,646
$ 85,244
$ 21,507
$(14,027)
Graphics Segment net sales of $60,765,000 in fiscal 2009 decreased 28.7% from fiscal 2008
net sales of $85,244,000. The $24.5 million decrease in Graphics Segment net sales is primarily the
result of completion of programs for certain graphics customers, including an image conversion
program for a national drug store retailer ($4.3 million decrease), two petroleum / convenience store
customers’ programs ($25.7 million decrease), reductions of net sales to ten other petroleum /
convenience store customers ($7.0 million decrease) and changes in volume or completion of other
graphics programs. These decreases were partially offset by increased net sales to certain other
customers, including a reimaging program for a grocery customer ($8.9 million increase), and sales of
solid-state LED video screens for sports markets ($5.7 million increase). Sales responsibility related to
solid-state LED video screens for sports markets was transferred in fiscal 2009 from the Technology
Segment to the Graphics Segment. Sales of graphics products and services to the petroleum /
convenience store market represented 40% and 65% of Graphics Segment net sales in fiscal years
2009 and 2008, respectively. Net sales of graphics to this, the Company’s largest niche market, were
down 56% from last year to $24,295,000. The petroleum / convenience store market has been, and will
continue to be, a very important niche market for the Company. Net sales of products and services
related to solid-state LED video screens totaled $5.7 million in fiscal 2009, with no such sales in the
Graphics Segment last year.
Image and brand programs, whether full conversions or enhancements, are important to the
Company’s strategic direction. Image programs include situations where our customers refurbish their
retail sites around the country by replacing some or all of the lighting, graphic elements, menu board
systems and possibly other items they may source from other suppliers. These image programs often
take several quarters to complete and involve both our customers’ corporate-owned sites as well as
their franchisee-owned sites, the latter of which involve separate sales efforts by the Company with
each franchisee. The Company may not always be able to replace net sales immediately when a large
image conversion program has concluded. Brand programs typically occur as new products are offered
F-9
or new departments are created within an existing retail store. Relative to net sales to a customer
before and after an image or brand program, net sales during the program are typically significantly
higher, depending upon how much business is awarded to the Company. Sales related to a customer’s
image or brand program are reported in either the Lighting Segment, Graphics Segment, or the All
Other Category depending upon the product and/or service provided.
Gross profit of $13,382,000 in fiscal 2009 decreased $8.1 million or 38% from last year, and
decreased from 24.7% to 21.5% as a percentage of Graphics Segment net sales (customer plus intra-
segment net sales). The decrease in amount of gross profit is due both to decreased Graphics net
sales and margins (both product and installation), increased material costs as a percentage of Graphics
Segment net sales, and under utilized manufacturing capacity. The following items also influenced the
Graphics Segment’s gross profit margin: competitive pricing pressures, decreased direct labor
reflective of less sales volume, and other manufacturing expenses in support of production
requirements ($1.3 million of decreased indirect wage, compensation and benefits costs; $0.4 million
decreased supplies and repairs and maintenance; $0.2 million decreased outside services; and $0.2
million decreased depreciation and utilities).
Selling and administrative expenses of $10,020,000 in fiscal year 2009 decreased $1.8 million,
and increased to 16.5% as a percentage of Graphics Segment net sales from 13.8% in the same period
last year. Employee compensation and benefits expense decreased $0.8 million in fiscal 2009 as
compared to last year, and other changes of expense between years include decreased bad debt
expense ($0.2 million), decreased customer relations expense ($0.3 million), decreased outside
services expense ($0.2 million), decreased travel and entertainment ($0.1 million), decreased research
and development ($0.2 million) and decreased supplies expense ($0.1 million).
The Company recorded a full impairment of goodwill in one reporting unit in the Graphics
Segment in fiscal 2009, and accordingly recorded a non-cash expense in the amount of $716,000 as
compared to full or partial goodwill and intangible asset impairments of $23,739,000 last year. The
impairments in both years were related to a decline in the market value of the Company’s stock as well
as a decline in the estimated forecasted discounted cash flows expected by the respective reporting
units.
The Graphics Segment fiscal 2009 operating income of $2,646,000 compares to an operating
loss of $(14,027,000) last year. This increased operating income of $16.7 million was the result of
decreased net sales and decreased gross profit, offset by significantly decreased impairment charges
and by decreased selling and administrative expenses.
Technology Segment
(In thousands)
2009 2008
Net Sales
Gross Profit
Operating Income (Loss)
$4,576
$1,028
$ (486)
$ 9,136
$ 1,229
$(4,876)
Technology Segment net sales of $4,576,000 in fiscal 2009 decreased 49.9% from fiscal 2008
net sales of $9,136,000. The $4.6 million decrease in Technology Segment net sales is primarily the
net result of decreased sales of solid-state LED video screens for sports and advertising markets ($3.0
million) and decreased sales of specialty LED lighting ($2.1 million), partially offset by increased sales
of solid-state LED video screens to the entertainment market ($0.8 million). Sales responsibility related
to solid-state LED video screens for sports markets was transferred in fiscal 2009 from the Technology
Segment to the Graphics Segment.
F-10
Gross profit of $1,028,000 in fiscal 2009 decreased $0.2 million or 16% from the same period
last year, and decreased from 12.4% to 11.5% as a percentage of Technology Segment net sales
(customer plus intra-segment net sales). The decrease in amount of gross profit is due to decreased
Technology net sales and margins, partially offset by decreased indirect wages ($0.1 million).
Selling and administrative expenses of $1,514,000 in fiscal year 2009 decreased $1.5 million,
and increased to 33.1% as a percentage of Technology Segment net sales from 32.7% last year.
Employee compensation and benefits expense decreased $0.2 million in fiscal 2009 as compared to
last year, and other changes of expense between years include decreased warranty expense ($0.6
million), increased outside services ($0.2 million), decreased sales commissions expense ($0.2 million)
and decreased expense related to amortization of intangibles ($0.2 million).
The Company recorded a full impairment of goodwill in the reporting unit in the Technology
Segment in fiscal 2008, and accordingly recorded a non-cash expense in the amount of $3,119,000.
There was no impairment charge in fiscal 2009. The impairment was related to a decline in the market
value of the Company’s stock as well as a decline in the estimated forecasted discounted cash flows
expected by the reporting unit.
The Technology Segment fiscal 2009 operating loss of $(486,000) compares to an operating
loss of $(4,876,000) last year. This increase in operating income of $4.4 million was the net result of
decreased net sales and gross profit, offset by decreased selling and administrative expenses and no
impairment charge in fiscal 2009 as compared to a $3.1 million impairment in fiscal 2008.
All Other Category
(In thousands)
2009 2008
Net Sales
Gross Profit
Operating Income (Loss)
$ 7,983
$ 1,014
$(12,660)
$27,212
$ 8,918
$ (7,377)
All Other Category net sales of $7,983,000 in fiscal 2009 decreased 70.7% from fiscal 2008 net
sales of $27,212,000. The $19.2 million decrease in All Other Category net sales is primarily the result
of the fiscal 2008 completion of a menu board replacement program ($19.8 million decrease) and
changes in volume or completion of other customer programs.
Image and brand programs, whether full conversions or enhancements, are important to the
Company’s strategic direction. Image programs include situations where our customers refurbish their
retail sites around the country by replacing some or all of the lighting, graphic elements, menu board
systems and possibly other items they may source from other suppliers. These image programs often
take several quarters to complete and involve both our customers’ corporate-owned sites as well as
their franchisee-owned sites, the latter of which involve separate sales efforts by the Company with
each franchisee. The Company may not always be able to replace net sales immediately when a large
image conversion program has concluded. Brand programs typically occur as new products are offered
or new departments are created within an existing retail store. Relative to net sales to a customer
before and after an image or brand program, net sales during the program are typically significantly
higher, depending upon how much business is awarded to the Company. Sales related to a customer’s
image or brand program are reported in either the Lighting Segment, Graphics Segment, or the All
Other Category depending upon the product and/or service provided.
Gross profit of $1,014,000 in fiscal 2009 decreased $7.9 million or 89% from last year, and
decreased from 22.5% to 8.4% as a percentage of the All Other Category net sales (customer plus
intra-segment net sales). The decrease in amount of gross profit is primarily due to decreased net
sales and margins, competitive pricing pressures, partially offset by decreased direct labor reflective of
F-11
less sales volume, as well as decreased indirect wage, compensation and benefits costs ($0.1 million
reduction).
Selling and administrative expenses of $11,108,000, which includes Corporate administration
expenses, in fiscal year 2009 decreased $5.2 million. Changes of expense between years include
decreased employee compensation and benefits expense ($0.2 million), decreased menu board patent
infringement settlement costs ($2.6 million), decreased legal fees primarily as a result of settlement of
menu board patent litigation ($0.5 million), decreased research and development expense ($0.6
million), decreased depreciation expense ($0.4 million), increased audit/accounting and outside
services fees ($0.2 million), decreased customer relations expense ($0.1 million) and decreased
warranty expense ($0.1 million).
The Company recorded a partial impairment of goodwill in one reporting unit in the All Other
Category in fiscal 2009, and accordingly recorded a non-cash expense in the amount of $2,566,000
with no similar impairment expense in the prior year. The impairment was related to a decline in the
market value of the Company’s stock as well as a decline in the estimated forecasted discounted cash
flows expected by that reporting unit.
The All Other Category fiscal 2009 operating loss of $(12,660,000) compares to an operating
loss of $(7,377,000) in the same period last year. This increased loss of $5.3 million was the result of
decreased net sales and decreased gross profit, and a goodwill impairment expense in fiscal 2009,
partially offset by decreased selling and administrative expenses.
Consolidated Results
The Company reported net interest income of $8,000 in fiscal 2009 as compared to net interest
income of $279,000 last year. The Company was in a positive cash position and was debt free for
substantially all of fiscal 2008 and generated interest income on invested cash. The Company was
occasionally in a borrowing position in fiscal 2009 and, when in a cash investment position, earned
interest at lower rates than the prior year.
The $989,000 income tax benefit in fiscal 2009 reflects a tax benefit of $105,000 related to the
operations of the Company (which includes a $333,000 release of an uncertain income tax liability
associated with a voluntary disclosure program) and a tax benefit of $884,000 associated with the
$14,467,000 impairment of goodwill (the majority of which was non-deductible for tax purposes).
Income tax expense in fiscal 2008 was $2,357,000, which is reflective of income tax expense on the
reduced normal operating results, $1.8 million of valuation reserves on the Company’s Canadian net
operating loss tax benefit and on Canadian tax credits, and the tax benefit recorded on the impairment
charges (goodwill and intangible assets), some of which is not deductible for tax purposes.
The Company reported a net loss of $(13,414,000) in fiscal 2009 as compared to a net loss of
$(13,048,000) last year. The increased net loss is primarily the result of decreased operating income in
all Segments (which includes pre-tax goodwill and intangible asset impairments of $14,467,000 and
$27,955,000 in fiscal years 2009 and 2008, respectively) and less net interest income, partially offset by
decreased income tax expense. The diluted loss per share was $(0.62) in fiscal 2009, as compared to
a diluted loss per share of $(0.60) last year. The weighted average common shares outstanding for
purposes of computing diluted (loss) per share in fiscal 2009 were 21,800,000 shares as compared to
21,764,000 shares last year.
F-12
Liquidity and Capital Resources
The Company considers its level of cash on hand, borrowing capacity, 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, 2010, the Company had working capital of $73.6 million, compared to $72.5 million
at June 30, 2009. The ratio of current assets to current liabilities was 3.85 to 1 as compared to a ratio
of 4.70 to 1 at June 30, 2009. The $1.1 million increase in working capital from June 30, 2009 to June
30, 2010, which was influenced by the acquisition of AdL Technology in July 2009, was primarily
related to increased cash and cash equivalents ($3.4 million), increased net accounts receivable ($5.6
million), partially offset by increased accounts payable ($3.3 million), increased accrued expenses ($2.9
million), decreased other current assets ($1.6 million), and decreased inventory ($0.1 million). The
Company has a strategy of aggressively managing working capital, including reduction of the accounts
receivable days sales outstanding (DSO) and reduction of inventory levels, without reducing service to
our customers.
The Company generated $16.7 million of cash from operating activities in fiscal 2010 as
compared to a generation of $16.5 million in the prior year. This $0.2 million increase in net cash flows
from operating activities is primarily the net result of greater net income ($14.8 million favorable), a loss
on the sale of a subsidiary ($0.6 million favorable), significant goodwill impairment in fiscal 2009 as
compared to a much smaller impairment of intangible assets in fiscal 2010 ($14.3 million unfavorable),
an increase in accounts receivable rather than a decrease (unfavorable change of $13.0 million), less
of a decrease in inventories (unfavorable change of $7.7 million), an increase in customer prepayments
rather than a slight decrease (favorable change of $0.4 million), an increase in accounts payable rather
than a decrease (favorable change of $8.7 million), an increase rather than a decrease in accrued
expenses and other (favorable $7.1 million), a decrease rather than an increase in refundable income
taxes (favorable $4.3 million), more of a reduction in the reserve for bad debts (unfavorable $0.1
million), an increase in the inventory obsolescence reserve rather than a decrease (favorable $0.4
million), increased stock option expense (favorable $1.4 million) and an increase in deferred income tax
assets rather than a decrease (unfavorable $2.6 million).
Net accounts receivable and notes receivable were $35.3 million and $29.7 million at June 30,
2010 and June 30, 2009, respectively. The increase of $5.6 million in net receivables is primarily due
to combined effects of a higher amount of net sales in the fourth quarter of fiscal 2010 as compared to
the fourth quarter of fiscal 2009, decreased DSO, and the addition of LSI ADL Technology ($3.0
million). The DSO decreased to 48 days at June 30, 2010 from 51 days at June 30, 2009. The
Company believes that its receivables are ultimately collectible or recoverable, net of certain reserves,
and that aggregate allowances for doubtful accounts are adequate.
Net inventories at June 30, 2010 decreased $0.1 million from June 30, 2009 levels. Based on a
strategy of reducing inventory and in response to customer programs and the timing of shipments, a net
inventory increase occurred in fiscal 2010 in the Lighting Segment of approximately $0.7 million (some
of this inventory supports certain graphics programs), and net inventory decreases occurred in the
Graphics Segment of approximately $0.8 million, in the Technology Segment of approximately $1.7
million and in the All Other Category of approximately $1.7 million (which was primarily related to the
Company’s sale of its wire harness operation). Additionally, the Company acquired AdL Technology
(reported in the Electronic Components Segment), which increased net inventory in fiscal 2010 by $3.5
million.
Cash generated from operations and borrowing capacity under two line of credit facilities are the
Company’s primary source of liquidity. The Company has an unsecured $30 million revolving line of
credit with its bank group, with all $30 million of the credit line available as of August 27, 2010. This
F-13
line of credit is a $30 million three year committed credit facility expiring in the third quarter of fiscal
2013. The Company previously also had a $10 million committed credit facility that it chose not to
renew and therefore let it expire in the third quarter of fiscal 2010. Additionally, the Company has a
separate $5 million line of credit, renewable annually in the third fiscal quarter, for the working capital
needs of its Canadian subsidiary, LSI Saco Technologies. As of August 27, 2010, all $5 million of this
line of credit is available. The Company believes that $35 million total renewed lines of credit plus cash
flows from operating activities are adequate for the Company’s fiscal 2011 operational and capital
expenditure needs. The Company is in compliance with all of its loan covenants.
The Company used $6.3 million of cash related to investing activities in fiscal 2010 as compared
to a use of $3.0 million in the prior year, an unfavorable change of $3.3 million. The primary change
between years relates to the amount of fixed assets purchased, $6,150,000 in fiscal 2010 as compared
to $2,994,000 last year ($3.2 million unfavorable). Spending in both periods is primarily for tooling and
equipment, with a manufacturing facility also being purchased in the fourth quarter of fiscal 2009. The
Company received $521,000 in proceeds from the sale of fixed assets, almost entirely from the sale of
the fixed assets of the Company’s wire harness operation. The other change between years relates to
the fiscal 2010 acquisition of AdL Technology, net of cash received ($0.7 million unfavorable). The
Company expects fiscal 2011 capital expenditures to be approximately $5.0 million, exclusive of
business acquisitions, if any.
The Company used $7.0 million of cash related to financing activities in fiscal 2010 as compared
to a use of $6.5 million in the prior year. The $0.5 million unfavorable change between periods is
primarily related to the payment of long-term debt on the opening balance sheet of the acquired LSI ADL
Technology as compared to the fiscal 2009 net zero activity on the Company’s line of credit ($2.2 million
unfavorable) and lower cash dividend payments ($1.7 million favorable). The $1.7 million reduction in
dividend payments between years is primarily the result of a lower per share quarterly dividend rate
beginning in the second quarter of fiscal 2009. The Company also used less cash in fiscal 2010 than in
the prior year to purchase treasury shares for its nonqualified deferred compensation plan ($0.1 million
favorable).
The Company has, or could have, on its balance sheet financial instruments consisting primarily
of cash and cash equivalents, short-term investments, 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.
Off-Balance Sheet Arrangements
The Company has no financial instruments with off-balance sheet risk and has no off balance sheet
arrangements.
Contractual Obligations as
of June 30, 2010 (a) Payments Due by Period
Long-Term Debt Obligations
Interest on Long-Term Debt
Operating Lease Obligations
Purchase Obligations
Other Long-Term Liabilities
Total
Total
$ 1,132
187
4,148
14,409
96
$19,972
Less than
1 year
1-3
years
3-5
years
More than
5 years
$ 33
87
1,607
14,020
86
$15,833
$1,099
100
2,334
333
10
$3,876
$ --
--
203
42
--
$245
$ --
--
4
14
_ --
$ 18
F-14
(a)
The liability for uncertain tax positions of $2.5 million is not included due to the uncertainty of
timing of payments.
On August 18, 2010 the Board of Directors declared a regular quarterly cash dividend of $0.05
per share (approximately $1,202,000) payable September 7, 2010 to shareholders of record on August
31, 2010. The Company’s cash dividend policy is that the indicated annual dividend rate will be set
between 50% and 70% of the expected net income for the current fiscal year. Consideration will also
be given by the Board to special year-end cash or stock dividends. The declaration and amount of any
cash and stock dividends will be determined by the Company’s Board of Directors, in its discretion,
based upon its evaluation of earnings, cash flow, capital requirements and future business
developments and opportunities, including acquisitions. Accordingly, the Board established the
indicated annual cash dividend rate of $0.20 per share beginning with the first quarter of fiscal 2011
consistent with the above dividend policy.
Critical Accounting Policies and Estimates
The Company is required to make estimates and judgments in the preparation of its financial
statements that affect the reported amounts of assets, liabilities, revenues and expenses, and related
footnote disclosures. The Company bases its estimates on historical experience and on various other
assumptions that are believed to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities. The Company
continually reviews these estimates and their underlying assumptions to ensure they remain
appropriate. The Company believes the items discussed below are among its most significant
accounting policies because they utilize estimates about the effect of matters that are inherently
uncertain and therefore are based on management’s judgment. Significant changes in the estimates or
assumptions related to any of the following critical accounting policies could possibly have a material
impact on the financial statements.
Revenue Recognition
Revenue is recognized when title to goods and risk of loss have passed to the customer, there
is persuasive evidence of a purchase arrangement, delivery has occurred or services have been
rendered, and collectibility is reasonably assured. Revenue is typically recognized at time of shipment.
In certain arrangements with customers, as is the case with the sale of some of our solid-state LED
video screens, revenue is recognized upon customer acceptance of the video screen at the job site.
Sales are recorded net of estimated returns, rebates and discounts. Amounts received from customers
prior to the recognition of revenue are accounted for as customer pre-payments and are included in
accrued expenses.
The Company has four sources of revenue: revenue from product sales; revenue from
installation of products; service revenue generated from providing integrated design, project and
construction management, site engineering and site permitting; and revenue from shipping and
handling.
Product revenue is recognized on product-only orders upon passing of title and risk of loss,
generally at time of shipment. However, product revenue related to orders where the customer requires
the Company to install the product is recognized when the product is installed. Other than normal product
warranties or the possibility of installation or post-shipment service, support and maintenance of certain
solid state LED video screens, billboards, or active digital signage, the Company has no post-shipment
responsibilities.
Installation revenue is recognized when the products have been fully installed. The Company is
not always responsible for installation of products it sells and has no post-installation responsibilities,
other than normal warranties.
F-15
Service revenue from integrated design, project and construction management, and site
permitting is recognized when all products have been installed at each individual retail site of the
customer on a proportional performance basis.
Shipping and handling revenue coincides with the recognition of revenue from sale of the
product.
The Company evaluates the appropriateness of revenue recognition in accordance with
Accounting Standards Codification (ASC) Subtopic 605-25, Revenue Recognition: Multiple–Element
Arrangements, and ASC Subtopic 985-605, Software: Revenue Recognition. Our solid-state LED video
screens, billboards and active digital signage contain software elements which the Company has
determined are incidental and excluded from the scope of ASC Subtopic 985-605.
Income Taxes
The Company accounts for income taxes in accordance with Accounting Standards Codification
Topic 740, Income Taxes. Accordingly, deferred income taxes are provided on items that are reported as
either income or expense in different time periods for financial reporting purposes than they are for
income tax purposes. Deferred income tax assets and liabilities are reported on the Company’s balance
sheet. Significant management judgment is required in developing the Company’s income tax provision,
including the determination of deferred tax assets and liabilities and any valuation allowances that might
be required against deferred tax assets.
The Company operates in multiple taxing jurisdictions and is subject to audit in these jurisdictions.
The Internal Revenue Service and other tax authorities routinely review the Company’s tax returns.
These audits can involve complex issues which may require an extended period of time to resolve. In
management’s opinion, adequate provision has been made for potential adjustments arising from these
examinations.
The Company is recording estimated interest and penalties related to potential underpayment of
income taxes as a component of tax expense in the Consolidated Statements of Operations. The
reserve for uncertain tax positions is not expected to change significantly in the next twelve months.
Asset Impairment
Carrying values of goodwill and other intangible assets with indefinite lives are reviewed at least
annually for possible impairment in accordance with Accounting Standards Codification Topic 350,
Intangibles – Goodwill and Other. The Company’s impairment review involves the estimation of the fair
value of goodwill and indefinite-lived intangible assets using a combination of a market approach and
an income (discounted cash flow) approach, at the reporting unit level, that requires significant
management judgment with respect to revenue and expense growth rates, changes in working capital
and the selection and use of an appropriate discount rate. The estimates of fair value of reporting units
are based on the best information available as of the date of the assessment. The use of different
assumptions would increase or decrease estimated discounted future operating cash flows and could
increase or decrease an impairment charge. Company management uses its judgment in assessing
whether assets may have become impaired between annual impairment tests. Indicators such as
adverse business conditions, economic factors and technological change or competitive activities may
signal that an asset has become impaired. Also see Note 6.
Carrying values for long-lived tangible assets and definite-lived intangible assets, excluding
goodwill and indefinite-lived intangible assets, are reviewed for possible impairment as circumstances
warrant as required by Accounting Standards Codification Topic 360, Property, Plant, and Equipment.
Impairment reviews are conducted at the judgment of Company management when it believes that a
F-16
change in circumstances in the business or external factors warrants a review. Circumstances such as
the discontinuation of a product or product line, a sudden or consistent decline in the forecast for a
product, changes in technology or in the way an asset is being used, a history of negative operating
cash flow, or an adverse change in legal factors or in the business climate, among others, may trigger
an impairment review. The Company’s initial impairment review to determine if a potential impairment
charge is required is based on an undiscounted cash flow analysis at the lowest level for which
identifiable cash flows exist. The analysis requires judgment with respect to changes in technology, the
continued success of product lines and future volume, revenue and expense growth rates, and discount
rates.
Credit and Collections
The Company maintains allowances for doubtful accounts receivable for probable estimated
losses resulting from either customer disputes or the inability of its customers to make required
payments. If the financial condition of the Company’s customers were to deteriorate, resulting in their
inability to make the required payments, the Company may be required to record additional allowances
or charges against income. The Company determines its allowance for doubtful accounts by first
considering all known collectibility problems of customers’ accounts, and then applying certain
percentages against the various aging categories based on the due date of the remaining receivables.
The resulting allowance for doubtful accounts receivable is an estimate based upon the Company’s
knowledge of its business and customer base, and historical trends. The Company also establishes
allowances, at the time revenue is recognized, for returns and allowances, discounts, pricing and other
possible customer deductions. These allowances are based upon historical trends.
New Accounting Pronouncements
In October 2009, the Financial Accounting Standards Board issued ASU 2009-14, “Certain
Revenue Arrangements That Include Software Elements.” This amended guidance clarifies when
revenue can be recognized when tangible products contain both software and non-software
components in a multiple deliverable arrangement. This update will be effective prospectively for
revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15,
2010 or the Company’s fiscal year 2011. The Company does not expect any impact on its consolidated
results of operations, cash flows or financial position when this amended guidance is adopted.
In October 2009, the Financial Accounting Standards Board issued ASU 2009-13, “Multiple
Deliverable Revenue Arrangements.” This amended guidance enables companies to account for
products or services (deliverables) separately rather than as a combined unit in certain circumstances.
Accounting Standards Codification Subtopic 605-25, Revenue Recognition: Multiple-Element
Arrangements, establishes the accounting and reporting guidance for arrangements under which the
vendor will perform multiple revenue-generating activities. The Subtopic addresses how to separate
deliverables and how to measure and allocate arrangement consideration to one or more units of
accounting. The amended guidance will be effective prospectively for revenue arrangements entered
into or materially modified in fiscal years beginning on or after June 15, 2010 or the Company’s fiscal
year 2011. The Company does not expect any impact on its consolidated results of operations, cash
flows or financial position when this amended guidance is adopted.
In April 2010, the Financial Accounting Standards Board issued ASU 2010-17, “Revenue
Recognition – Milestone Method.” The amended guidance provides the criteria that should be met for
determining whether the milestone method of revenue recognition is appropriate for research and
development transactions. The amended guidance will be effective prospectively for milestones
achieved in fiscal years beginning on or after June 15, 2010 or the company’s fiscal year 2011. The
Company does not expect any impact on its consolidated results of operations, cash flows or financial
position when the amended guidance is adopted.
F-17
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The Management of LSI Industries Inc. and subsidiaries (the “Company” or “LSI”) is responsible for the
preparation and accuracy of the financial statements and other information included in this report. LSI’s
Management is also responsible for establishing and maintaining adequate internal control over financial
reporting, as such term is defined in Securities Exchange Act Rules 13a-15(f). Under the supervision and
with the participation of Management, including LSI’s principal executive officer and principal financial
officer, the Company conducted an evaluation of the effectiveness of internal control over financial
reporting as of June 30, 2010, based on the criteria set forth in “Internal Control – Integrated Framework”
issued by the Committee of Sponsoring Organizations of the Treadway Commission.
A control system, no matter how well conceived and operated, can provide only reasonable assurance
that the objectives of the control system are met. Because of the inherent limitations in all control
systems, no evaluation of controls can provide absolute assurance that all control issues and instances of
fraud, if any, have been detected. These inherent limitations include the reality that judgments in decision
making can be faulty, the possibility of human error, and the circumvention or overriding of the controls
and procedures.
In meeting its responsibility for the reliability of the financial statements, the Company depends upon its
system of internal accounting controls. The system is designed to provide reasonable assurance that
assets are safeguarded and that transactions are properly authorized and recorded. The system is
supported by policies and guidelines, and by careful selection and training of financial management
personnel. The Company also has a Disclosure Controls Committee, whose responsibility is to help
ensure appropriate disclosures and presentation of the financial statements and notes thereto.
Additionally, the Company has an Internal Audit Department to assist in monitoring compliance with
financial policies and procedures.
The Board of Directors meets its responsibility for overview of the Company's financial statements
through its Audit Committee which is composed entirely of independent Directors who are not employees
of the Company. The Audit Committee meets periodically with Management and Internal Audit to review
and assess the activities of each in meeting their respective responsibilities. Grant Thornton LLP has full
access to the Audit Committee to discuss the results of their audit work, the adequacy of internal
accounting controls, and the quality of financial reporting.
Based upon LSI’s evaluation, the Company’s principal executive officer and principal financial officer
concluded that internal control over financial reporting was effective as of June 30, 2010. We reviewed
the results of Management’s assessment with the Audit Committee of our Board of Directors.
Additionally, our independent registered public accounting firm audited and independently assessed the
effectiveness of the Company’s internal control over financial reporting. Grant Thornton LLP, an
independent registered public accounting firm has issued an attestation report on the effectiveness of
the Company’s internal control over financial reporting, which is presented in the financial statements.
Robert J. Ready
President and Chief Executive Officer
(Principal Executive Officer)
Ronald S. Stowell
Vice President, Chief Financial Officer, and Treasurer
(Principal Financial Officer)
F-18
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of LSI Industries Inc.
Cincinnati, Ohio
We have audited LSI Industries Inc. (an Ohio corporation) and subsidiaries’ internal control over
financial reporting as of June 30, 2010, based on criteria established in Internal Control — Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO). LSI Industries Inc. and subsidiaries’ management is responsible for maintaining effective
internal control over financial reporting and for its assessment of the effectiveness of internal control
over financial reporting, included in the accompanying Management’s Report On Internal Control Over
Financial Reporting. Our responsibility is to express an opinion on LSI Industries Inc. and subsidiaries’
internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether effective internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, testing and evaluating the design and
operating effectiveness of internal control based on the assessed risk, and performing such other
procedures as we considered necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles. A company’s internal
control over financial reporting includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the
risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
In our opinion, LSI Industries Inc. and subsidiaries maintained, in all material respects, effective internal
control over financial reporting as of June 30, 2010, based on criteria established in Internal Control —
Integrated Framework issued by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated balance sheet and the related consolidated statements of
operations, shareholders’ equity, cash flows, and financial statement schedule as of and for the year
ended June 30, 2010 of LSI Industries Inc. and subsidiaries, and our report dated September 8, 2010
expressed an unqualified opinion on those financial statements and financial statement schedule.
/s/ Grant Thornton LLP
Cincinnati, Ohio
September 8, 2010
F-19
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
LSI Industries Inc.
Cincinnati, Ohio
We have audited the accompanying consolidated balance sheet of LSI Industries Inc. (an Ohio
corporation) and subsidiaries (the “Company”) as of June 30, 2010, and the related consolidated
statements of operations, shareholders’ equity, and cash flows for the year ended June 30, 2010. Our
audit of the basic consolidated financial statements included the financial statement schedule for the
year ended June 30, 2010 listed in the index appearing under Item 15. These financial statements and
financial statement schedule are the responsibility of the Company’s management. Our responsibility is
to express an opinion on these financial statements and financial statement schedule based on our
audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (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 audit provides 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, 2010, and the results of their
operations and their cash flows for the year ended June 30, 2010 in conformity with accounting
principles generally accepted in the United States of America. Also in our opinion, the related financial
statement schedule, when considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), LSI Industries Inc. and subsidiaries’ internal control over financial reporting as of
June 30, 2010, based on criteria established in Internal Control—Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated
September 8, 2010 expressed an unqualified opinion.
/s/ Grant Thornton LLP
Cincinnati, Ohio
September 8, 2010
F-20
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
LSI Industries Inc.
Cincinnati, Ohio
We have audited the accompanying consolidated balance sheet of LSI Industries Inc. and subsidiaries
(the “Company”) as of June 30, 2009, and the related consolidated statements of operations,
shareholders’ equity, and cash flows for each of the two years in the period ended June 30, 2009. Our
audits also included the consolidated financial statement schedule listed in the Index at Item 15 for the
years ended June 30, 2009 and 2008. These consolidated financial statements and financial statement
schedule are the responsibility of the Company’s management. Our responsibility is to express an
opinion on these financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board (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, such consolidated financial statements present fairly, in all material respects, the
financial position of LSI Industries Inc. and subsidiaries as of June 30, 2009, and the results of their
operations and their cash flows for each of the two years in the period ended June 30, 2009, in
conformity with accounting principles generally accepted in the United States of America. Also, in our
opinion, such consolidated financial statement schedule for the years ended June 30, 2009 and 2008,
when considered in relation to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
As discussed in Note 11 to the consolidated financial statements, the Company adopted the provisions
of accounting for uncertainty in income taxes in Financial Accounting Standards Board Accounting
Standards Codification Topic No. 740, Income Taxes, on July 1, 2007.
/s/ Deloitte & Touche LLP
Cincinnati, Ohio
September 11, 2009
F-21
LSI INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended June 30, 2010, 2009, and 2008
(In thousands, except per share)
2010 2009 2008
Net sales
$254,402
$233,799
$305,286
Cost of products and services sold
198,030
181,972
224,859
Loss on sale of subsidiary
639
--
--
Total cost of products and services sold
198,669
181,972
224,859
Gross profit
55,733
51,827
80,427
Selling and administrative expenses
53,671
51,571
60,642
Loss contingency (see Note 13)
--
200
2,800
Goodwill and intangible asset impairment
153
14,467
27,955
Operating income (loss)
1,909
(14,411)
(10,970)
Interest (income)
Interest expense
(28)
(97)
(360)
153
89
81
Income (loss) before income taxes
1,784
(14,403)
(10,691)
Income tax expense (benefit)
360
(989)
2,357
Net income (loss)
$ 1,424
$(13,414)
$(13,048)
Earnings (loss) per common share (see Note 4)
Basic
Diluted
Weighted average common shares
outstanding
$ 0.06
$ (0.62)
$ (0.60)
$ 0.06
$ (0.62)
$ (0.60)
Basic
Diluted
24,128
21,800
21,764
24,134
21,800
21,764
The accompanying notes are an
integral part of these financial statements.
F-22
LSI INDUSTRIES INC.
CONSOLIDATED BALANCE SHEETS
June 30, 2010 and 2009
(In thousands, except shares)
2010 2009
ASSETS
Current Assets
Cash and cash equivalents
$ 17,417
$ 13,986
Accounts and notes receivable, less
allowance for doubtful accounts of
$399 and $532, respectively
Inventories
Refundable income taxes
Other current assets
Total current assets
Property, Plant and Equipment, at cost
Land
Buildings
Machinery and equipment
Construction in progress
Less accumulated depreciation
Net property, plant and equipment
Goodwill, net
Other Intangible Assets, net
35,254
40,082
1,146
5,512
99,411
6,784
36,148
65,507
434
108,873
(63,962)
44,911
10,766
15,103
29,681
40,196
3,619
4,635
92,117
6,501
35,270
61,342
167
103,280
(61,237)
42,043
1,558
12,981
Other Long-Term Assets, net
3,654
4,419
Total assets
$173,845
$153,118
The accompanying notes are an
integral part of these financial statements.
F-23
2010 2009
LIABILITIES & SHAREHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term debt
Accounts payable
Accrued expenses
Total current liabilities
Other Long-Term Liabilities
Commitments and contingencies (Note 13)
Shareholders' Equity
Preferred shares, without par value;
Authorized 1,000,000 shares, none issued
Common shares, without par value;
Authorized 40,000,000 shares;
Outstanding 24,054,213 and 21,579,741
shares, respectively
Retained earnings
$ 33
12,553
13,257
25,843
3,784
--
--
$ --
9,249
10,368
19,617
3,028
--
--
99,963
44,255
82,833
47,640
Total shareholders' equity
144,218
130,473
Total liabilities & shareholders’ equity
$173,845
$153,118
The accompanying notes are an
integral part of these financial statements.
F-24
LSI INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the years ended June 30, 2010, 2009, and 2008
(In thousands, except per share)
Common Shares
Number of Retained
Shares Amount Earnings Total
Balance at June 30, 2007
21,493
$79,326
$96,735
$176,061
Net (loss)
Adoption of reserve for
uncertain tax positions
Stock compensation awards
Purchase of treasury shares, net
Deferred stock compensation
Stock option expense
Stock options exercised, net
--
--
2
(7)
--
--
97
--
(13,048)
(13,048)
--
44
(177)
150
1,246
1,076
(2,582)
(2,582)
--
--
--
--
--
44
(177)
150
1,246
1,076
Dividends - $0.63 per share
--
--
(13,580)
(13,580)
Balance at June 30, 2008
21,585
81,665
67,525
149,190
Net (loss)
Stock compensation awards
Purchase of treasury shares, net
Deferred stock compensation
Stock option expense
Stock options exercised, net
--
6
(11)
--
--
--
--
41
(29)
(28)
1,184
--
(13,414)
(13,414)
--
--
--
--
--
41
(29)
(28)
1,184
--
Dividends - $0.30 per share
--
--
(6,471)
(6,471)
Balance at June 30, 2009
21,580
82,833
47,640
130,473
Net income
Stock compensation awards
Purchase of treasury shares, net
Deferred stock compensation
Stock option expense
Stock options exercised, net
--
7
(2)
--
--
--
--
46
52
(49)
2,633
--
Common shares issued for acquisition
2,469
14,448
1,424
1,424
--
--
--
--
--
--
46
52
(49)
2,633
--
14,448
Dividends - $0.20 per share
--
--
(4,809)
(4,809)
Balance at June 30, 2010
24,054
$99,963
$44,255
$144,218
The accompanying notes are an integral part
of these financial statements.
F-25
LSI INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended June 30, 2010, 2009, and 2008
(In thousands) 2010 2009 2008
Cash Flows From Operating Activities
Net income (loss)
$ 1,424
$(13,414)
$(13,048)
Non-cash items included in net income (loss)
Depreciation and amortization
Loss on sale of a subsidiary
Goodwill and intangible asset impairment
Deferred income taxes
Deferred compensation plan
Stock option expense
Issuance of common shares as compensation
Loss on disposition of fixed assets
Allowance for doubtful accounts
Inventory obsolescence reserve
Change in certain assets and liabilities, net of acquisition
Accounts and notes receivable
Inventories
Refundable income taxes
Accounts payable
Accrued expenses and other
Customer prepayments
7,849
639
153
(1,564)
(49)
2,633
46
41
(142)
176
(3,751)
2,826
2,473
2,487
1,071
417
7,746
--
14,467
1,001
(28)
1,184
41
36
(53)
(228)
9,229
10,541
(1,785)
(6,203)
(6,044)
(4)
Net cash flows provided by operating activities
16,729
16,486
Cash Flows From Investing Activities
Purchases of property, plant, and equipment
Proceeds from sale of fixed assets
Proceeds from sale of short-term investments
Acquisition of a business, net of cash received
(6,150)
521
--
(675)
Net cash flows provided by (used in) investing activities
(6,304)
Cash Flows From Financing Activities
Payment of long-term debt
Proceeds from issuance of long-term debt
Cash dividends paid
Purchase of treasury shares
Issuance of treasury shares
Exercise of stock options
(2,237)
--
(4,809)
(111)
163
--
(2,994)
2
--
--
(2,992)
(1,282)
1,282
(6,471)
(188)
159
--
8,789
--
27,955
(5,904)
150
1,246
44
59
(237)
(32)
17,130
(746)
(1,470)
(4,382)
(224)
(16,670)
12,660
(3,723)
5
8,000
--
4,282
(958)
958
(13,580)
(262)
85
1,076
Net cash flows (used in) financing activities
(6,994)
(6,500)
(12,681)
Increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
The accompanying notes are an
integral part of these financial statements.
3,431
13,986
$17,417
6,994
6,992
$13,986
4,261
2,731
$ 6,992
F-26
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 intercompany transactions and balances have
been eliminated in consolidation.
Revenue Recognition:
Revenue is recognized when title to goods and risk of loss have passed to the customer, there is
persuasive evidence of a purchase arrangement, delivery has occurred or services have been
rendered, and collectibility is reasonably assured. Revenue from product sales is typically recognized
at time of shipment. In certain arrangements with customers, as is the case with the sale of some of
our solid-state LED (light emitting diode) video screens, revenue is recognized upon customer
acceptance of the video screen at the job site. Sales are recorded net of estimated returns, rebates
and discounts. Amounts received from customers prior to the recognition of revenue are accounted for
as customer pre-payments and are included in accrued expenses.
The Company has four sources of revenue: revenue from product sales; revenue from installation
of products; service revenue generated from providing integrated design, project and construction
management, site engineering and site permitting; and revenue from shipping and handling.
Product revenue is recognized on product-only orders upon passing of title and risk of loss, generally at
time of shipment. However, product revenue related to orders where the customer requires the Company
to install the product is recognized when the product is installed. Other than normal product warranties or
the possibility of installation or post-shipment service, support and maintenance of certain solid state LED
video screens, billboards, or active digital signage, the Company has no post-shipment responsibilities.
Installation revenue is recognized when the products have been fully installed. The Company is not
always responsible for installation of products it sells and has no post-installation responsibilities, other
than normal warranties.
Service revenue from integrated design, project and construction management, and site permitting is
recognized when all products have been installed at each individual retail site of the customer on a
proportional performance basis.
Shipping and handling revenue coincides with the recognition of revenue from sale of the product.
The Company evaluates the appropriateness of revenue recognition in accordance with Accounting
Standards Codification (ASC) Subtopic 605-25, Revenue Recognition: Multiple–Element Arrangements,
and ASC Subtopic 985-605, Software: Revenue Recognition. Our solid-state LED video screens,
billboards and active digital signage contain software elements which the Company has determined are
incidental and excluded from the scope of ASC Subtopic 985-605.
Credit and Collections:
The Company maintains allowances for doubtful accounts receivable for probable estimated losses
resulting from either customer disputes or the inability of its customers to make required payments. If
the financial condition of the Company’s customers were to deteriorate, resulting in their inability to
make the required payments, the Company may be required to record additional allowances or charges
against income. The Company determines its allowance for doubtful accounts by first considering all
F-27
known collectibility problems of customers’ accounts, and then applying certain percentages against the
various aging categories based on the due date of the remaining receivables. The resulting allowance
for doubtful accounts receivable is an estimate based upon the Company’s knowledge of its business
and customer base, and historical trends. The Company also establishes allowances, at the time
revenue is recognized, for returns, discounts, pricing and other possible customer deductions. These
allowances are based upon historical trends.
The following table presents the Company’s net accounts and notes receivable at the dates indicated.
(In thousands) June 30, June 30,
2010 2009
Accounts and notes receivable
less Allowance for doubtful accounts
Accounts and notes receivable, net
$35,653
(399)
$35,254
$30,213
(532)
$29,681
Cash and Cash Equivalents:
The cash balance includes cash and cash equivalents which have original maturities of less than three
months. The Company maintains balances at financial institutions in the United States and Canada. The
balances at financial institutions in Canada are not covered by insurance. As of June 30, 2010 and 2009,
the Company had bank balances of $18,530,000 and $1,741,000, respectively, in excess of FDIC insured
limits and therefore without insurance coverage.
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
Machinery and equipment
Computer software
28 - 40 years
3 - 10 years
3 - 8 years
Costs related to the purchase, internal development, and implementation of the Company’s fully
integrated enterprise resource planning/business operating software system are either capitalized or
expensed in accordance with ASC Subtopic 350-40, Intangibles – Goodwill and Other: Internal-Use
Software. Leasehold improvements are depreciated over the shorter of fifteen years or the remaining
term of the lease.
The following table presents the Company’s property, plant and equipment at the dates indicated.
(In thousands) June 30, June 30,
2010 2009
Property, plant and equipment, at cost
less Accumulated depreciation
Property, plant and equipment, net
$108,873
(63,962)
$ 44,911
$103,280
(61,237)
$ 42,043
F-28
The Company recorded $5,294,000, $5,667,000 and $6,463,000 of depreciation expense in the years
ended June 30, 2010, 2009 and 2008, respectively.
Intangible Assets:
Intangible assets consisting of customer relationships, trade names and trademarks, patents, technology
and software, and non-compete agreements are recorded on the Company's balance sheet. The
definite-lived intangible assets are being amortized to expense over periods ranging between two and
twenty years. The Company periodically evaluates definite-lived intangible assets for permanent
impairment. Neither indefinite-lived intangible assets nor the excess of cost over fair value of assets
acquired ("goodwill") are amortized, however they are subject to review for impairment. See additional
information about goodwill and intangibles in Note 6.
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.
Product Warranties:
The Company offers a limited warranty that its products are free of defects in workmanship and materials.
The specific terms and conditions vary somewhat by product line, but generally cover defective product
returned within one to five years from the date of shipment. The Company records warranty liabilities to
cover the estimated future costs for repair or replacement of defective returned products as well as
products that need to be repaired or replaced in the field after installation. The Company calculates its
liability for warranty claims by applying estimates to cover unknown claims, as well as estimating the total
amount to be incurred for known warranty issues. The Company periodically assesses the adequacy of
its recorded warranty liabilities and adjusts the amounts as necessary.
Changes in the Company’s warranty liabilities, which are included in accrued expenses in the
accompanying consolidated balance sheets, during the periods indicated below were as follows:
Twelve Twelve
Months Ended Months Ended
(In thousands) June 30, June 30,
2010 2009
Balance at beginning of the period
Additions charged to expense
Addition from acquisition
Deductions for repairs and replacements
Balance at end of the period
$ 223
1,870
5
(1,509)
$ 589
$257
557
--
(591)
$223
Employee Benefit Plans:
The Company has a defined contribution retirement plan and a discretionary profit sharing plan covering
substantially all of its non-union employees in the United States, 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 $943,000 in 2010, $1,592,000 in 2009, and $2,197,000
in 2008.
F-29
Research and Development Costs:
Research and development expenses are costs directly attributable to new product development,
including the development of new technology for both existing and new products, and consist of salaries,
payroll taxes, employee benefits, materials, supplies, depreciation and other administrative costs. All
costs are expensed as incurred and are classified as operating expenses. The Company follows the
requirements of ASC Subtopic 985-20, Software: Costs of Software to be Sold, Leased, or Marketed, by
expensing as research and development all costs associated with development of software used in solid-
state LED products. Research and development costs incurred related to both product and software
development totaled $5,148,000, $4,052,000 and $4,111,000 for the fiscal years ended June 30, 2010,
2009 and 2008, respectively.
Advertising Expense:
The Company recorded $281,000, $301,000, and $530,000 of advertising expense in 2010, 2009 and
2008, respectively. Advertising costs are expensed the first time the advertising occurs. Expense related
to printed product or capabilities literature, brochures, etc. is recorded on a ratable basis over the useful
life of that printed media.
Earnings Per Common Share:
The computation of basic earnings per common share is based on the weighted average common shares
outstanding for the period net of treasury shares held in the Company’s non-qualified deferred
compensation plan. The computation of diluted earnings per share is based on the weighted average
common shares outstanding for the period and includes common share equivalents. Common share
equivalents include the dilutive effect of stock options, contingently issuable shares and common shares
to be issued under a deferred compensation plan, all of which totaled 238,000 shares in 2010, 226,000
shares in 2009 and 210,000 shares in 2008. See further discussion in Note 4.
Stock Options:
The Company measures the cost of employee services received in exchange for an award of equity
instruments and recognizes this cost over the period during which an employee is required to provide the
services.
There were no disqualifying dispositions of shares from stock option exercises in fiscal years 2010 or
2009. The Company recorded $228,500 in fiscal 2008 as a reduction of federal income taxes payable,
$221,300 as an increase in common stock, and $7,200 as a reduction of income tax expense to reflect
the tax credits it will receive as a result of disqualifying dispositions of shares from stock option exercises.
This had the effect of reducing cash flow from operating activities and increasing cash flow from financing
activities by $221,300. See further discussion in Note 9.
New Accounting Pronouncements
In February 2010, the Financial Accounting Standards Board issued ASU 2010-09, “Subsequent
Events (Topic 855): Amendments to Certain Recognition and Disclosure Requirements.” The
amendments in the ASU remove the requirement for an SEC filer to disclose a date through which
subsequent events have been evaluated in both issued and revised financial statements. The
amended guidance was effective on February 24, 2010, the issuance date of the ASU. The Company
adopted this ASU during the three months ended March 31, 2010.
In February 2010, the Financial Accounting Standards Board issued ASU 2010-06, “Fair Value
Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements.”
The ASU amends the disclosure requirements related to Fair Value Measurements and Disclosures -
F-30
Overall Subtopic (Subtopic 820-10) of the FASB Accounting Standards Codification, originally issued as
FASB Statement No. 157, Fair Value Measurements. The intent of the amended guidance is improved
disclosure and increased transparency related to Fair Value Measurement in financial reporting. This
amended guidance is effective for interim and annual periods beginning after December 15, 2009,
except for the disaggregation requirement for the reconciliation disclosure of Level 3 measurements,
which is effective for fiscal years beginning after December 15, 2010 and for interim periods within
those years. The Company partially adopted the new guidance during the three months ended March
31, 2010 and there was no impact on the Company’s consolidated results of operations, cash flows or
financial position.
Comprehensive Income:
The Company does not have any comprehensive income items other than net income.
Subsequent Events:
The Company has evaluated subsequent events for potential recognition and disclosure for the year
ended June 30, 2010. No items were identified during this evaluation that required adjustment to or
disclosure in the accompanying financial statements.
Reclassifications:
Certain reclassifications may have been made to prior year amounts in order to be consistent with the
presentation for the current year.
Use of Estimates:
The preparation of the financial statements in conformity with accounting principles generally accepted in
the United States of America 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 - BUSINESS SEGMENT INFORMATION
Accounting Standards Codification Topic 280, Segment Reporting, establishes standards for reporting
information regarding operating segments in annual financial statements and requires selected
information of those segments to be presented in interim financial statements. Operating segments are
identified as components of an enterprise for which separate discrete financial information is available
for evaluation by the chief operating decision maker (the Company’s President and Chief Executive
Officer) in making decisions on how to allocate resources and assess performance. While the Company
has thirteen operating segments, one of which was sold during fiscal 2010, it has only four reportable
operating business segments (Lighting, Graphics, Technology, and Electronic Components) and an All
Other Category.
The Lighting Segment includes outdoor, indoor, and landscape lighting that has been fabricated and
assembled for the commercial, industrial and multi-site retail lighting markets, including the
petroleum/convenience store market. The Lighting Segment includes the operations of LSI Ohio
Operations, LSI Metal Fabrication, LSI MidWest Lighting, LSI Lightron and LSI Greenlee Lighting.
These operations have been integrated, have similar economic characteristics and meet the other
requirements for aggregation in segment reporting.
The Graphics Segment designs, manufactures and installs exterior and interior visual image elements
related to image programs, solid state LED digital advertising billboards, and solid state LED digital
sports video screens. These products are used in visual image programs in several markets, including
F-31
the petroleum/convenience store market, multi-site retail operations, sports and advertising. The
Graphics Segment includes the operations of Grady McCauley, LSI Retail Graphics and LSI Integrated
Graphic Systems, which have been aggregated as such facilities manufacture two-dimensional
graphics with the use of screen and digital printing, fabricate three-dimensional structural graphics sold
in the multi-site retail and petroleum/convenience store markets, and exhibit each of the similar
economic characteristics and meet the other requirements for aggregation in segment reporting.
The Technology Segment designs and produces high-performance light engines, large format video
screens using solid-state LED technology, and certain specialty LED lighting. The primary markets
served with LED video screens are the entertainment market, outdoor advertising billboard and sports
markets not served by our Graphics Segment. The Technology Segment includes the operations of
LSI Saco Technologies.
The Electronic Components Segment designs, engineers and manufactures custom designed
electronic circuit boards, assemblies and sub-assemblies used in various applications including the
control of solid-state LED lighting. Capabilities of this Segment also have applications in the
Company’s other LED product lines such as digital scoreboards, advertising ribbon boards and
billboards. The Electronic Components Segment includes the operations of LSI ADL Technology,
which was acquired by the Company on July 22, 2009. See further discussion in Note 15.
The All Other Category includes the Company’s operating segments that do not meet the aggregation
criteria, nor the criteria to be a separate reportable segment. Operations of LSI Images (menu board
systems) and LSI Adapt (surveying, permitting and installation management services related to
products of the Graphics Segment) are combined in the All Other Category. Operations of LSI Marcole
(electrical wire harnesses) are included in the All Other Category, although this business was sold in
March 2010. Additionally, the Company’s Corporate Administration expense is included in the All Other
Category.
Summarized financial information for the Company’s reportable business segments is provided for the
following periods and as of June 30, 2010, June 30, 2009 and June 30, 2008:
(In thousands) 2010 2009 2008
Net sales:
Lighting Segment
Graphics Segment
Technology Segment
Electronic Components Segment
All Other Category
Operating income (loss):
Lighting Segment
Graphics Segment
Technology Segment
Electronic Components Segment
All Other Category
Capital expenditures:
Lighting Segment
Graphics Segment
Technology Segment
Electronic Components Segment
All Other Category
$159,105
68,395
4,505
16,116
6,281
$254,402
$ 9,335
3,507
(653)
2,279
(12,559)
$ 1,909
$ 3,033
2,098
10
566
443
$ 6,150
$160,475
60,765
4,576
--
7,983
$233,799
$ (3,911)
2,646
(486)
--
(12,660)
$(14,411)
$ 977
1,933
45
--
39
$ 2,994
$183,694
85,244
9,136
--
27,212
$305,286
$ 15,310
(14,027)
(4,876)
--
(7,377)
$ (10,970)
$ 1,950
886
270
--
617
$ 3,723
F-32
Depreciation and amortization:
Lighting Segment
Graphics Segment
Technology Segment
Electronic Components Segment
All Other Category
$ 3,179
1,058
320
854
2,438
$ 7,849
$ 3,467
1,234
450
--
2,595
$ 7,746
$ 3,852
1,299
663
--
2,975
$ 8,789
June 30, June 30, June 30,
2010 2009 2008
Identifiable assets:
Lighting Segment
Graphics Segment
Technology Segment
Electronic Components Segment
All Other Category
$ 76,938
33,166
11,991
23,136
28,614
$173,845
$ 97,169
34,517
13,806
--
38,722
$184,214
$ 72,222
32,280
12,317
--
36,299
$153,118
Segment net sales represent sales to external customers. Intersegment revenues were eliminated in
consolidation as follows:
(In thousands) 2010 2009 2008
Lighting Segment intersegment
net sales
$ 6,383
$ 6,097
$ 4,278
Graphics Segment intersegment
net sales
$ 862
$ 1,479
$ 1,781
Technology Segment intersegment
net sales
$ 3,413
$ 4,400
$ 814
Electronic Components intersegment
net sales
$ 5,394
--
--
All Other Category intersegment
net sales
$ 3,562
$ 4,307
$12,755
Segment operating income, which is used in management’s evaluation of segment performance,
represents net sales less all operating expenses including impairment of goodwill and intangible assets,
but excluding interest expense and interest income.
Identifiable assets are those assets used by each segment in its operations. Corporate assets, which
consist primarily of cash and cash equivalents and short-term investments, refundable income taxes, and
certain intangible assets, are included in the All Other Category.
The Company considers its geographic areas to be: 1) the United States, and 2) Canada. The majority
of the Company’s operations are in the United States; one operation is in Canada. The geographic
distribution of the Company’s net sales and long-lived assets are as follows:
F-33
(In thousands) 2010 2009 2008
Net sales (a):
United States
Canada
$249,897
4,505
$254,402
$229,223
4,576
$233,799
$296,150
9,136
$305,286
June 30, June 30, June 30,
2010 2009 2008
Long-lived assets (b):
United States
Canada
$ 45,898
564
$ 46,462
$ 47,928
898
$ 48,826
$ 48,220
345
$ 48,565
a.
b.
Net sales are attributed to geographic areas based upon the location of the operation making the
sale.
Long-lived assets includes property, plant and equipment, and other long term assets. Goodwill
and intangible assets are not included in long-lived assets.
NOTE 3 - MAJOR CUSTOMER CONCENTRATIONS
The Company’s Lighting Segment and Graphics Segment net sales to 7-Eleven, Inc. represented
approximately $41,997,000 or 17% of consolidated net sales in the fiscal year ended June 30, 2010.
There were no customers or customer programs representing a concentration of 10% or more of the
Company’s net sales in the fiscal years ended June 30, 2009 or 2008. There was no concentration of
accounts receivable at June 30, 2010 or 2009.
NOTE 4 - EARNINGS PER COMMON SHARE
The following table presents the amounts used to compute basic and diluted earnings (loss) per common
share, as well as the effect of dilutive potential common shares on weighted average shares outstanding:
(In thousands, except per share data) 2010 2009 2008
BASIC EARNINGS (LOSS) PER SHARE
Net income (loss)
$ 1,424
$(13,414)
$(13,048)
Weighted average shares outstanding
during the period, net
of treasury shares (a)
Weighted average shares outstanding
in the Deferred Compensation Plan
during the period
Weighted average shares outstanding
23,896
21,574
21,554
232
24,128
226
21,800
210
21,764
Basic earnings (loss) per share
$ 0.06
$ (0.62)
$ (0.60)
DILUTED EARNINGS (LOSS) PER SHARE
Net income (loss)
$ 1,424
$(13,414)
$(13,048)
Weighted average shares outstanding
Basic
24,128
21,800
21,764
F-34
Effect of dilutive securities (b):
Impact of common shares to be
issued under stock option plans,
and contingently issuable shares,
if any
6
--
--
Weighted average shares
outstanding (c)
24,134
21,800
21,764
Diluted earnings (loss) per share
$ 0.06
$ (0.62)
$ (0.60)
(a)
Includes shares accounted for like treasury stock in accordance with Accounting Standards
Codification Topic 710, Compensation - General.
(b) 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.
(c) Options to purchase 2,046,573 common shares, 1,512,367 common shares, and 563,467
common shares at June 30, 2010, 2009, and 2008, 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) 2010 2009
Inventories:
Raw materials
Work-in-process
Finished goods
Accrued Expenses:
Compensation and benefits
Customer prepayments
Accrued sales commissions
Other accrued expenses
$19,029
8,891
12,162
$40,082
$ 6,725
2,233
884
3,415
$13,257
$20,498
7,097
12,601
$40,196
$ 5,788
1,816
919
1,845
$10,368
NOTE 6 - GOODWILL AND OTHER INTANGIBLE ASSETS
In accordance with Accounting Standards Codification (ASC) Topic 350, Intangibles – Goodwill and
Other, the Company is required to perform an annual impairment test of its goodwill and indefinite-lived
intangible assets. The Company performs this test as of July 1st of each fiscal year and on an interim
basis when an event occurs or circumstances change that would more likely than not reduce the fair
value of a reporting unit below its carrying amount. The Company uses a combination of the market
approach and the income (discounted cash flow) approach in determining the fair value of its reporting
units. Under ASC Topic 350, the goodwill impairment test is a two-step process. Under the first step,
the fair value of the Company’s reporting unit is compared to its respective carrying value. An indication
that goodwill is impaired occurs when the fair value of a reporting unit is less than the carrying value.
When there is an indication that goodwill is impaired, the Company is required to perform a second
step. In step two, the actual impairment of goodwill is calculated by comparing the implied fair value of
the goodwill with the carrying value of the goodwill.
F-35
The Company identified its reporting units in conjunction with its annual goodwill impairment testing.
The Company relies upon a number of factors, judgments and estimates when conducting its
impairment testing. These include operating results, forecasts, anticipated future cash flows and
marketplace data, to name a few. There are inherent uncertainties related to these factors and
judgments in applying them to the analysis of goodwill impairment.
Due to economic conditions, the effects of the recession on the Company’s markets and the decline in the
Company’s stock price, management believed that additional goodwill impairment tests were required as
of December 31, 2008, March 31, 2009 and June 30, 2009. The impairment test performed as of June
30, 2009 was actually the Company’s annual goodwill impairment test that was to be performed in fiscal
2010 as of July 1, 2009; however, because the conditions that resulted in goodwill impairment were
present as of June 30, 2009, the impairment charge of $260,000 was recorded as of that date. Based
upon the Company’s analysis as of these three balance sheet dates, it was determined that the goodwill
associated with three of the remaining five reporting units that contained goodwill was either fully or
partially impaired. The total amount of the goodwill impairment in fiscal 2009 was $14,467,000, of which
$11,185,000 was full impairment of the goodwill in one reporting unit in the Lighting Segment, $716,000
was full impairment of the goodwill in one reporting unit in the Graphics Segment, and $2,566,000 was a
partial impairment of goodwill in one reporting unit in the All Other Category. The impairment charges
were due to a combination of a decline in the market capitalization of the Company and/or a decline in the
estimated forecasted discounted cash flows since the previous goodwill impairment test was performed.
There were no triggering events in fiscal 2010 related to goodwill impairment testing and, as a result,
there was no impairment of goodwill recorded in fiscal 2010.
The following table presents information about the Company's goodwill on the dates or for the periods
indicated.
Goodwill
(In thousands) Electronic
Lighting Graphics Technology Components All Other
Segment Segment Segment Segment Category Total
Balance as of June 30, 2008
Goodwill
Accumulated impairment
losses
$34,913
$24,959
$3,119
$ --
$3,917
$66,908
(23,593)
$11,320
(23,985) (3,119)
$ 974
$ --
--
$ --
(186)
$3,731
(50,883)
$16,025
Impairment
(11,185)
(716)
--
--
(2,566)
(14,467)
Balance as of June 30, 2009
Goodwill
Accumulated impairment
losses
$34,913
$24,959 $3,119
$ --
$3,917
$66,908
(34,778)
$ 135
(24,701) (3,119)
$ 258 $ --
--
$ --
(2,752)
$1,165
(65,350)
$ 1,558
Acquisition
--
--
--
9,208
--
9,208
Balance as of June 30, 2010
Goodwill (a)
Accumulated impairment
losses (a)
$34,913
$24,959
$3,119
$9,208
$3,731
$75,930
(34,778)
$ 135
(24,701)
(3,119)
$ 258 $ --
--
(2,566)
$9,208 $1,165
(65,164)
$10,766
F-36
(a) One operating segment in the All Other Category with fully impaired goodwill of $186
was sold in fiscal 2010.
In fiscal 2010, the Company determined that an intangible asset with a net carrying value of $16,000 for
a patent in the Lighting Segment was fully impaired and that an intangible asset with a carrying value of
$137,000 for a trade name in the Technology Segment was also fully impaired. Accordingly, the
Company recorded $153,000 of intangible asset impairment expense in fiscal 2010.
The acquisition of LSI ADL Technology resulted in the following amortizable intangible assets being
recorded on the Company’s balance sheet as of the July 22, 2009 acquisition date: customer
relationships $2,880,000 (twelve year amortization period); Technology $780,000 (ten year amortization
period); trade name $460,000 (five year amortization period) and non-compete agreements $710,000
(seven year amortization period). The weighted average amortization period of these four intangible
assets is ten years three months. See further discussion in Note 15.
The gross carrying amount and accumulated amortization by major other intangible asset class is as
follows:
June 30, 2010
Intangible Assets Gross
Carrying Accumulated Net
(In thousands) Amount Amortization Amount
Amortized Intangible Assets
Customer relationships
Patents
LED Technology
firmware, software
Trade name
Non-compete agreements
$10,352
70
$ 4,950
42
$ 5,402
28
11,228
460
890
23,000
6,043
86
198
11,319
5,185
374
692
11,681
Indefinite-lived Intangible Assets
Trademarks and trade names 3,422
3,422
--
--
3,422
3,422
Total Intangible Assets
$26,422
$11,319
$15,103
June 30, 2009
Gross
Carrying Accumulated Net
(In thousands) Amount Amortization Amount
Amortized Intangible Assets
Customer relationships
Patents
LED Technology
firmware, software
Non-compete agreements
$ 7,472
110
10,448
630
18,660
$4,173
59
4,478
528
9,238
$3,299
51
5,970
102
9,422
F-37
Indefinite-lived Intangible Assets
Trademarks and trade names 3,559
3,559
--
--
3,559
3,559
Total Intangible Assets
$22,219
$9,238
$12,981
Amortization Expense of Other Intangible Assets
(In thousands) 2010 2009 2008
$2,555
$2,079
$2,326
The Company expects to record amortization expense through fiscal 2015 as follows: 2011
through 2012 -- $2,588,000 per year; 2013 -- $2,325,000; 2014 -- $619,000; 2015 -- $532,000;
and after 2015 -- $3,029,000.
NOTE 7 - REVOLVING LINES OF CREDIT AND LONG-TERM DEBT
The Company has a $30 million unsecured revolving line of credit with its bank group in the U.S., all of
which was available as of June 30, 2010. The line of credit expires in the third quarter of fiscal 2013.
Annually in the third quarter, the credit facility is renewable with respect to adding an additional year of
commitment, if the bank group so chooses, to replace the year just ended. Interest on the revolving
lines of credit is charged based upon an increment over the LIBOR rate as periodically determined, or
at the bank’s base lending rate, at the Company’s option. The increment over the LIBOR borrowing
rate, as periodically determined, fluctuates between 225 and 265 basis points depending upon the ratio
of indebtedness to earnings before interest, taxes, depreciation and amortization (EBITDA), as defined
in the credit facility. The fee on the unused balance of the $30 million committed line of credit is 25
basis points. Under terms of this credit facility, 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. A second U.S. revolving line of credit in the amount of $10 million, which the
Company chose to not renew, expired in the third quarter of fiscal 2010.
The Company also has a $5 million line of credit for its Canadian subsidiary. The line of credit expires
in the third quarter of fiscal 2011. Interest on the Canadian subsidiary’s line of credit is charged based
upon a 200 basis point increment over the LIBOR rate or based upon an increment over the United
States base rate if funds borrowed are denominated in U.S. dollars or an increment over the Canadian
prime rate if funds borrowed are denominated in Canadian dollars. There are no borrowings against
this line of credit as of June 30, 2010.
The Company assumed a mortgage loan with the acquisition of AdL Technology in July 2009. Monthly
principal payments of approximately $10,000 are to be made through August, 2012 at an interest rate
of 7.76%, at which time the balance is payable in full. The real estate of LSI ADL Technology has been
pledged as collateral for the mortgage.
(In thousands) June 30, 2010
Total mortgage balance
Less current maturities
Long-term debt
$1,132
33
$1,099
Maturities of long-term debt are as follows:
F-38
(In thousands)
Fiscal year ended June 30
2011
2012
2013
$ 33
34
1,065
$1,132
The Company also assumed approximately $2.2 million of additional long-term debt with the acquisition
of AdL Technology and paid it off at the time of the acquisition. In connection with the lines of credit,
the Company is required to comply with financial covenants that limit the amount of debt obligations,
require a minimum amount of tangible net worth, and limit the ratio of indebtedness to EBITDA
(earnings before income taxes, depreciation and amortization). The Company is in compliance with all
of its loan covenants as of June 30, 2010.
NOTE 8 - CASH DIVIDENDS
The Company paid cash dividends of $4,809,000, $6,471,000, and $13,580,000 in fiscal years 2010,
2009, and 2008, respectively. In August 2010, the Company’s Board of Directors declared a $0.05 per
share regular quarterly cash dividend (approximately $1,202,000) payable on September 7, 2010 to
shareholders of record August 31, 2010.
NOTE 9 - EQUITY COMPENSATION
Stock Options
The Company has an equity compensation plan that was approved by shareholders which covers all of
its full-time employees, outside directors and advisors. The options granted or stock awards made
pursuant to this plan are granted at fair market value at date of grant or award. Options granted to non-
employee directors become exercisable 25% each ninety days (cumulative) from date of grant and
options granted to employees generally become exercisable 25% per year (cumulative) beginning one
year after the date of grant. If a stock option holder’s employment with the Company terminates by
reason of death, disability or retirement, as defined in the Plan, any award shall be fully vested. The
number of shares reserved for issuance is 2,800,000, of which 833,585 shares were available for future
grant or award as of June 30, 2010. This plan allows for the grant of incentive stock options, non-
qualified stock options, stock appreciation rights, restricted and unrestricted stock awards, performance
stock awards, and other stock awards. As of June 30, 2010, a total of 2,123,086 options for common
shares were outstanding from this plan as well as two previous stock option plans (both of which had also
been approved by shareholders), and of these, a total of 1,051,211 options for common shares were
vested and exercisable. The approximate unvested stock option expense as of June 30, 2010 that will be
recorded as expense in future periods is $1,211,000. The weighted average time over which this
expense will be recorded is approximately 20 months.
The fair value of each option on the date of grant was estimated using the Black-Scholes option pricing
model. The below listed weighted average assumptions were used for grants in the periods indicated.
2010 2009 2008
Dividend yield
Expected volatility
Risk-free interest rate
Expected life
2.95%
52%
2.4%
4.3 yrs.
4.60%
45%
3.0%
5.1 yrs.
3.61%
36%
4.3%
4.3 yrs.
F-39
At June 30, 2010, the 648,500 options granted during fiscal 2010 to employees and non-employee
directors had exercise prices ranging from $5.37 to $8.40, fair values ranging from $1.87 to $2.87 per
option, and remaining contractual lives of nine years ten months to nearly ten years.
At June 30, 2009, the 365,800 options granted in fiscal 2009 to non-employee directors had exercise
prices ranging from $4.34 to $8.98, fair values ranging from $1.12 to $2.21, and remaining contractual
lives of approximately nine and one-half to ten years.
At June 30, 2008, the 328,200 options granted in fiscal 2008 to both employees and non-employee
directors had exercise prices ranging from $12.58 to $19.76, fair values ranging from $3.07 to $6.61, and
remaining contractual lives of between four years eight months and nine years two months.
The Company calculates stock option expense using the Black-Scholes method, and records the
expense on a straight line basis with an estimated 6.6% forfeiture rate. The expected volatility of the
Company’s stock was calculated based upon the historic monthly fluctuation in stock price for a period
approximating the expected life of option grants. The risk-free interest rate is the rate of a five year
Treasury security at constant, fixed maturity on the approximate date of the stock option grant. The
expected life of outstanding options is determined to be less than the contractual term for a period equal
to the aggregate group of option holders’ estimated weighted average time within which options will be
exercised. It is the Company’s policy that when stock options are exercised, new common shares shall
be issued. The Company recorded $2,633,000, $1,184,000, and $1,246,000 of expense related to stock
options in fiscal years 2010, 2009 and 2008, respectively. As of June 30, 2010, the Company expects
that approximately 1,015,400 outstanding stock options having a weighted average exercise price of
$10.42, intrinsic value of $9,400 and weighted average remaining contractual terms of 8.4 years will vest
in the future.
Information related to all stock options for the years ended June 30, 2010, 2009 and 2008 is shown in the
table below:
Twelve Months Ended June 30, 2010
Weighted Weighted
Average Average Aggregate
Exercise Remaining Intrinsic
Shares Price Contractual Term Value
Outstanding at 6/30/09
1,537,212
$ 13.07
6.4 years
$33,800
Granted
Forfeitures
Exercised
648,500
(62,626)
--
$ 8.24
$ 11.59
n/a
Outstanding at 6/30/10
2,123,086
$ 11.64
6.6 years
$15,270
Exercisable at 6/30/10
1,051,211
$ 12.98
4.7 years
$ 5,078
F-40
Twelve Months Ended June 30, 2009
Weighted Weighted
Average Average Aggregate
Exercise Remaining Intrinsic
Shares Price Contractual Term Value
Outstanding at 6/30/08
1,197,482
$ 14.44
6.5 years
$ --
Granted
Forfeitures
Exercised
365,800
(26,070)
--
$ 8.57
$ 12.68
--
$
Outstanding at 6/30/09
1,537,212
$ 13.07
6.4 years
$33,800
Exercisable at 6/30/09
830,087
$ 12.52
4.8 years
$ 2,550
Twelve Months Ended June 30, 2008
Weighted Weighted
Average Average Aggregate
Exercise Remaining Intrinsic
Shares Price Contractual Term Value
Outstanding at 6/30/07
983,788
$ 12.16
6.3 years
$5,642,400
Granted
Forfeitures
Exercised
328,200
(9,500)
(105,006)
$ 19.74
$ 16.81
$ 9.52
Outstanding at 6/30/08
1,197,482
$ 14.44
6.5 years
$ --
Exercisable at 6/30/08
615,482
$ 11.43
4.9 years
$ --
The aggregate intrinsic value of options exercised during the year ended June 30, 2008 was $913,700.
No options were exercised in the years ended June 30, 2010 and 2009.
The Company received $855,000 of cash and 8,068 common shares of the Company’s stock from
employees who exercised 105,006 options during the twelve months ended June 30, 2008. Additionally,
the Company recorded $228,500 in fiscal 2008 as a reduction of federal income taxes payable, $221,300
as an increase in common stock, and $7,200 as a reduction of income tax expense related to the
exercises of stock options in which the employees sold the common shares prior to the passage of twelve
months from the date of exercise.
Information related to unvested stock options for the twelve months ended June 30, 2010 is shown in the
table below:
F-41
Weighted Weighted
Average Average Aggregate
Exercise Remaining Intrinsic
Shares Price Contractual Term Value
Outstanding unvested
stock options at 6/30/09
8.3 years
707,125
$13.72
$31,245
Vested
Forfeitures
Granted
(255,500)
(28,250)
648,500
$14.18
$12.53
$ 8.24
Outstanding unvested
stock options at 6/30/10
Stock Compensation Awards
1,071,875
$10.32
8.4 years
$10,193
The Company awarded a total of 6,848 common shares in fiscal 2010, and 6,032 in fiscal 2009, and
2,558 in fiscal 2008 as stock compensation awards. These common shares were valued at their
approximate $45,538, $40,680 and $43,875 fair market values on their dates of issuance, respectively,
pursuant to the compensation programs for non-employee directors who receive a portion of their
compensation as an award of Company stock and for employees who receive a nominal stock award
following their twentieth employment anniversary. Stock compensation awards are made in the form of
newly issued common shares of the Company.
Deferred Compensation Plan
The Company has a non-qualified deferred compensation plan providing for both Company contributions
and participant deferrals of compensation. The Plan is fully funded in a Rabbi Trust. All Plan investments
are in common shares of the Company. As of June 30, 2010 there were 28 participants, all with fully
vested account balances. A total of 224,884 common shares with a cost of $2,403,600, and 222,832
common shares with a cost of $2,455,900 were held in the Plan as of June 30, 2010 and June 30, 2009,
respectively, and, accordingly, have been recorded as treasury shares. The change in the number of
shares held by this plan is the net result of share purchases and sales on the open stock market for
compensation deferred into the Plan and for distributions to terminated employees. The Company does
not issue new common shares for purposes of the non-qualified deferred compensation plan. The
Company accounts for assets held in the non-qualified deferred compensation plan in accordance with
Accounting Standards Codification Topic 710, Compensation – General. For fiscal year 2011, the
Company estimates the Rabbi Trust for the Nonqualified Deferred Compensation Plan will make net
repurchases in the range of 18,000 to 20,000 common shares of the Company. During fiscal years 2010
and 2009, the Company used approximately $110,600 and $188,500, respectively, to purchase common
shares of the Company in the open stock market for either employee salary deferrals or Company
contributions into the non-qualified deferred compensation plan. The Company does not currently
repurchase its own common shares for any other purpose.
NOTE 10 - LEASES AND PURCHASE COMMITMENTS
The Company leases certain of its facilities and equipment under operating lease arrangements. Rental
expense was $2,254,000 in 2010, $2,243,000 in 2009, and $2,554,000 in 2008. Minimum annual rental
commitments under non-cancelable operating leases are: $1,607,000 in 2011, $1,338,000 in 2012,
$996,000 in 2013, $185,000 in 2014 and $18,000 in 2015. Purchase commitments, including minimum
annual rental commitments, of the Company totaled $19,972,000 and $22,404,000 as of June 30, 2010
and June 30, 2009, respectively.
F-42
NOTE 11 - INCOME TAXES
The following information is provided for the years ended June 30:
(In thousands) 2010 2009 2008
Components of income (loss) before income taxes
United States
Foreign
Income (loss) before income taxes
Provision (benefit) for income taxes:
Current
U.S. federal
State and local
Foreign
Total current
Deferred
(1,564)
Total provision (benefit) for income taxes $ 360
$ 2,323
(539)
$ 1,784
$ 2,015
(12)
(79)
1,924
$(13,911)
(492)
$(14,403)
$ (5,818)
(4,873)
$(10,691)
$(1,629)
(147)
(214)
(1,990)
1,001
$ (989)
$ 7,523
928
(190)
8,261
(5,904)
$ 2,357
Reconciliation to federal statutory rate:
Federal statutory tax rate
State and local taxes, net of federal benefit
Impact of Foreign Operations
Federal and state tax credits
Goodwill
Valuation allowance
Domestic Production Activities Deduction
Other
Effective tax rate
34.0%
(11.5)
(9.3)
(5.8)
(0.5)
19.8
(4.6)
(1.9)
20.2%
34.0%
1.5
3.6
1.1
(27.9)
(3.2)
--
(2.2)
6.9%
35.0%
(5.8)
(1.3)
1.2
(36.2)
(15.6)
3.2
(2.5)
(22.0)%
The components of deferred income tax assets and (liabilities) at June 30, 2010 and 2009 are as follows:
(In thousands) 2010 2009
Reserves against current assets
Accrued expenses
Depreciation
Goodwill, acquisition costs and intangible assets
Deferred compensation
State net operating loss carryover and credits
Foreign net operating loss carryover and credits
Valuation reserve
$ 213
1,132
(2,701)
3,026
809
1,017
2,447
(2,531)
$ 160
1,093
(4,049)
5,181
890
958
1,940
(1,940)
Net deferred income tax asset
$ 3,412
$ 4,233
Reconciliation to the balance sheets as of June 30, 2010 and 2009:
(In thousands) 2010 2009
Deferred income tax asset included in:
Other current assets
Other long-term assets
Net deferred income tax asset
$1,345
2,067
$1,253
2,980
$3,412
$4,233
F-43
As of June 30, 2010 the Company has recorded a deferred state income tax asset in the amount of
$933,000, net of federal tax benefits, related to non-refundable New York state tax credits. As of June
30, 2009 the Company had recorded two deferred state income tax assets, one in the amount of $18,000
related to a state net operating loss carryover generated by the Company’s New York subsidiary, and the
other in the amount of $940,000, net of federal tax benefits, related to non-refundable New York state tax
credits. The Company has determined that these deferred state income tax assets totaling $933,000 and
$958,000 as of June 30, 2010 and 2009, respectively, do not require any valuation reserves because, in
accordance with Accounting Standards Codification Subtopic 740-10, Income Taxes: Overall, these
assets will, more likely than not, be realized. Additionally, the Company has recorded an $84,000
deferred state income tax asset related to a state net operating loss carryover in Tennessee, and has
determined that a full valuation reserve is required. This activity netted to an additional state income tax
expense (benefit) of $(59,000), $25,000 and $16,000 in fiscal years 2010, 2009 and 2008, respectively.
As of June 30, 2010 and 2009, the Company has recorded deferred tax assets for its Canadian
subsidiary related to net operating loss carryover and to research and development tax credits totaling
$2,447,000 and $1,940,000, respectively. In view of the impairment of the goodwill and certain
intangible assets on the financial statements of this subsidiary and a current series of loss years, the
Company has determined these assets, more likely than not, will not be realized. Additionally, the
Company has recorded an $84,000 deferred state tax asset related to its subsidiary in Tennessee.
Since this business was sold, the Company has determined this asset more likely than not, will not be
realized. Accordingly, full valuation reserves of $2,531,000 and $1,940,000 were recorded as of June
30, 2010 and 2009, respectively.
The Company adopted the provisions of accounting for uncertainty in income taxes (ASC Subtopic 740-
10, Income Taxes: Overall) 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, 2010, tax and interest, net of potential federal tax
benefits, were $1,660,000 and $449,000, respectively, of the total reserves of $2,456,000. Additionally,
penalties were $347,000 of the reserve at June 30, 2010. Of the $2,456,000 reserve for uncertain tax
positions, $2,109,000 would have an unfavorable impact on the effective tax rate if recognized. At June
30, 2009, tax and interest, net of potential federal tax benefits, were $1,873,000 and $447,000,
respectively, of the total reserves of $2,734,000. Additionally, penalties were $414,000 of the reserve
at June 30, 2009. Of the $2,734,000 reserve for uncertain tax positions, $2,320,000 would have an
unfavorable impact on the effective tax rate if recognized.
The Company recognized a $216,000 tax benefit in fiscal 2010, a $226,000 tax benefit in fiscal 2009
and a $385,000 tax expense in 2008 related to the change in reserves for uncertain tax positions. The
Company is recording estimated interest and penalties related to potential underpayment of income
taxes as a component of tax expense in the Consolidated Statements of Operations. The reserve for
uncertain tax positions is not expected to change significantly in the next twelve months.
The fiscal 2010 and 2009 activity in the Liability for Uncertain Tax Positions, which is included in Other
Long-Term Liabilities, was as follows:
(in thousands) 2010 2009 2008
Balance at beginning of the fiscal year
Unrecognized tax reserve – July 1, 2007 adoption
Increases – tax positions in prior period
Decreases – tax positions in prior period
Increases – tax positions in current period
Decreases – tax positions in current period
Settlements and payments
$2,693
--
--
(255)
37
--
(85)
$3,040
--
--
--
14
--
(361)
$ --
2,449
349
--
436
--
(179)
F-44
Lapse of statute of limitations
Unrecognized tax reserve -- end of the fiscal year
(24)
$2,366
--
$2,693
(15)
$3,040
The Company files a consolidated federal income tax return in the United States, and files various
combined and separate tax returns in several foreign, state, and local jurisdictions. With limited
exceptions, the Company is no longer subject to U.S. Federal, state and local tax examinations by tax
authorities for fiscal years ending prior to June 30, 2007. The Company’s U.S. Federal income tax
return for the fiscal year ended June 30, 2009 is currently under examination by the Internal Revenue
Service.
NOTE 12 - SUPPLEMENTAL CASH FLOW INFORMATION
(In thousands) 2010 2009 2008
Cash payments:
Interest
Income taxes
Issuance of common shares as compensation
NOTE 13 – LOSS CONTINGENCY
$144
$519
$ 46
$119
$564
$ 73
$10,877
$ 41
$ 44
The Company is party to various negotiations, customer bankruptcies, and legal proceedings arising in
the normal course of business. The Company had been the defendant for a number of years in a
complex lawsuit alleging patent infringement with respect to some of the Company’s menu board
systems sold over approximately eleven years. Pursuant to settlement discussions initiated by the
plaintiffs, the Company made a $2,800,000 offer to settle this matter and, accordingly, recorded a loss
contingency reserve in the fourth quarter of fiscal 2008. Following additional discussions in the second
quarter of fiscal 2009, the Company reached a full and complete settlement of all matters related to this
menu board patent infringement lawsuit. Accordingly, an additional $200,000 expense was recorded in
the second quarter of fiscal 2009 and a payment of $3,000,000 was made to the plaintiffs.
NOTE 14 – RELATED PARTY TRANSACTIONS
The Company has recorded expense for the following related party transactions in the fiscal years
indicated (amounts in thousands):
2010 2009 2008
Keating Muething & Klekamp PLL
American Engineering and Metal Working
3970957 Canada Inc.
$277
$200
$181
$266
$202
$180
$177
$192
$189
As of the balance sheet date indicated, the Company had the following liabilities recorded with respect to
related party transactions (amounts in thousands):
June 30, June 30,
2010 2009
Keating Muething & Klekamp PLL
American Engineering and Metal Working
$ 34
$ 61
$ 89
$ 2
The law firm of Keating Muething & Klekamp PLL, of which one of the Company’s independent outside
directors is a senior partner, is the Company’s primary outside law firm providing legal services in most all
areas required other than patents and intellectual property. The manufacturing firm of American
Engineering and Metal Working, which is owned and operated by the son of the president of the
F-45
Company’s Graphics Segment, provides metal fabricated components. 3970957 Canada Inc., which is
owned by the former president and another executive of the Company’s LSI Saco Technologies
subsidiary, owns the building that the Canadian operation occupies and rents. All related parties provide
the Company either products or services at market-based arms-length prices.
NOTE 15 – ACQUISITION
On July 22, 2009, the Company completed the acquisition of certain net assets and 100% of the
business of three related companies (AdL Technology, AdL Engineering and Kelmilfeen – collectively,
“AdL” or “AdL Technology”), which were privately owned and based in Columbus, Ohio. This new
100% owned subsidiary operates under the name of LSI ADL Technology Inc. Consideration for the
asset purchase of these businesses totaled $15,781,480, and consisted of 2,469,676 shares of LSI’s
unregistered common stock (the fair value of which was determined based upon the closing market
price of LSI’s common shares on the acquisition date) and cash of $1,333,875. The purchase price
exceeded the fair value of the net assets being acquired, and therefore goodwill in the amount of
$9,208,000 was recorded with this acquisition. Additionally, LSI assumed long-term debt of $3,368,874
in the purchase of substantially all net assets of these businesses. The goodwill associated with this
acquisition consists largely of the synergies expected from combining AdL and LSI Industries and the
vertical integration of the design and manufacture of electronic circuit boards used in many of the
Company’s products. None of the goodwill will be deductible by the Company for tax purposes. There
were no contingent liabilities or assets associated with the purchase of AdL. There were $520,000 of
acquisition transaction costs included in the financial results for the fiscal year ended June 30, 2010 in
selling and administrative expenses, and $678,000 of expense in cost of products sold related to the
roll-out of fair value inventory adjustments for LSI ADL Technology’s sales of products that were in
finished goods or work-in-process inventory on the acquisition date and therefore were valued at fair
value, as opposed to manufactured cost, in the opening balance sheet in accordance with the
requirements of purchase accounting. The operations of LSI ADL Technology are included in the
Company’s operating results beginning July 23, 2009. The results of LSI ADL Technology are reported
in a separate reportable business segment named the Electronic Components Segment.
The recognized amounts of identifiable assets acquired and liabilities assumed with the acquisition of
AdL Technology were as follows:
(In thousands)
Financial assets
Inventory
Property, plant and equipment
Identifiable intangible assets
Financial liabilities
Total identifiable net assets
Goodwill
Total purchase consideration
$ 2,398
3,677
3,094
4,830
(7,426)
6,573
9,208
$15,781
A liability of $5,000 was recognized in the opening balance sheet (included in financial liabilities above)
for expected warranty claims on products sold by AdL Technology prior to acquisition. Additionally, the
Company recorded a deferred tax liability of $2,154,000 in the opening balance sheet related primarily
to intangible assets, inventory and fixed asset depreciation.
LSI ADL Technology Inc. designs, engineers, and manufactures custom designed circuit boards,
assemblies, and sub-assemblies used in various applications including the control of solid-state LED
lighting. With the acquisition of AdL, we made a decision to further establish and advance our
leadership position in LED lighting by vertically integrating our capabilities in connection with designing,
engineering, and producing the solid-state electronics that control and power LEDs. LSI ADL
Technology allows us to stay on the leading edge of product development, while at the same time
F-46
provide opportunities to drive down manufacturing costs and control delivery of key components. LSI
ADL’s capabilities also have applications in our other LED product lines such as digital scoreboards,
advertising ribbon boards and billboards. The management team and substantially all employees of the
acquired companies remain with LSI ADL Technology.
The results of LSI ADL Technology included in the fiscal 2010 consolidated results of the Company are
net sales of $16,116,000 and net income of $1,448,000.
The consolidated proforma results of the combined entities of LSI Industries and LSI ADL Technology,
had the acquisition date been July 1, 2007, are as follows for the periods indicated:
(In thousands; unaudited)
Net
Sales Net Income (Loss)
Consolidated pro forma fiscal 2010
$255,111
$ 1,488
Consolidated pro forma fiscal 2009
$250,422
$(12,011)
Consolidated pro forma fiscal 2008
$322,674
$(11,663)
The fiscal 2010 consolidated pro forma results listed above include pre-tax expenses for acquisition
deal costs and an acquisition-related fair value inventory adjustment, totaling $1,198,000. Fiscal 2009
and 2008 have no similar pre-tax expenses. These pre-tax expenses are included in the as reported
consolidated fiscal 2010 results.
NOTE 16 – SALE OF LSI MARCOLE
On January 20, 2010, the Board of Directors approved a plan to close the LSI Marcole facility in
Manchester, Tennessee. This facility manufactures wire harnesses used in the manufacture of LSI’s
light fixtures and also sells wire harness to select outside customers. The Company decided to sell this
facility primarily due to low cost competition of wire harnesses produced outside the United States.
While the Company expected to cease production at the facility by April 2, 2010, an interested buyer
came forward and purchased certain assets and the business of LSI Marcole on March 30, 2010. The
Company received $500,000 of the sales proceeds in cash as well as interest bearing promissory notes
in the amount of $669,682 to be paid in full via quarterly payments through June 2011. The Company
recorded a $638,747 loss on the sale of certain LSI Marcole assets in cost of products and services
sold in the third quarter of fiscal 2010. Subsequent to the sale of the LSI Marcole assets, the Company
will continue to purchase wire harnesses from the new owner of the facility pursuant to a manufacturing
and supply agreement. The operating results of LSI Marcole are reported under the All Other
Category.
The assets and liabilities of LSI Marcole were comprised of the following on the dates indicated:
(In thousands) June 30, December 31, June 30,
2010 2009 2009
Accounts receivable, net
Notes receivable, current portion
Inventory
Other current assets
Property, plant and equipment, net
Other assets
Total Assets
$ 349
--
1,520
143
978
1
$2,991
$ 316
--
1,491
160
1,024
2
$2,993
$ 1
670
--
14
--
--
$ 685
F-47
The net customer sales and operating (loss) of LSI Marcole for the periods indicated were as follows:
(In thousands)
2010 2009 2008
Net sales
$ 2,886
$3,970
$3,621
Operating (loss)
$(1,101)
$ (614)
$ (475)
NOTE 17 - SUMMARY OF QUARTERLY RESULTS (UNAUDITED)
(In thousands except per share data)
Quarter Ended Fiscal
Sept. 30 Dec. 31 March 31 June 30 Year
2010
Net sales
Gross profit
Net income (loss)
$67,676
16,597
1,637
$69,374
16,300
1,592
$53,466
8,873
(2,532)
$63,886
13,963
727
$254,402
55,733
1,424
Earnings (loss) per share
Basic
Diluted
Range of share prices
High
Low
2009
Net sales
Gross profit
Loss contingency
Goodwill impairment
Net income (loss)
Earnings (loss) per share
Basic
Diluted
Range of share prices
High
Low
2008
Net sales
Gross profit
Loss contingency
Goodwill and intangible
asset impairment
Net income (loss)
$ 0.07
$ 0.07
$ 0.07
$ 0.07
$ (.10)
$ (.10)
$ 0.03
$ 0.03
$ 0.06(a)
$ 0.06(a)
$ 8.48
$ 5.05
$ 8.43
$ 6.52
$ 8.42
$ 5.50
$ 7.41
$ 4.86
$ 8.48
$ 4.86
$75,838
18,179
--
--
2,687
$60,787
13,257
200
13,250
(13,377)
$46,989
8,774
--
957
(2,467)
$50,185
11,617
--
260
(257)
$233,799
51,827
200
14,467
(13,414)
$ 0.12
$ 0.12
$ (0.61)
$ (0.61)
$ (0.11)
$ (0.11)
$ (0.01)
$ (0.01)
$ (0.62)(a)
$ (0.62)(a)
$ 10.91
$ 7.02
$ 8.28
$ 4.25
$ 7.39
$ 2.75
$ 6.51
$ 4.15
$ 10.91
$ 2.75
$90,001
25,751
--
$84,062
23,459
--
$64,780
15,982
--
$66,443
15,235
2,800
$305,286
80,427
2,800
--
6,953
--
4,823
--
997
27,955
(25,821)
27,955
(13,048)
F-48
Earnings (loss) per share
Basic
Diluted
Range of share prices
High
Low
$ 0.32
$ 0.32
$ 0.22
$ 0.22
$ 0.05
$ 0.05
$ (1.18)
$ (1.18)
$ (0.60)(a)
$ (0.60)(a)
$ 21.39
$ 15.70
$ 23.05
$ 17.42
$ 18.65
$ 8.12
$ 14.41
$ 8.04
$ 23.05
$ 8.04
(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 19, 2010, there were 502 shareholders of record. The Company believes this represents
approximately 3,000 beneficial shareholders.
F-49
LSI INDUSTRIES INC.
SELECTED FINANCIAL DATA
(In thousands except per share data)
The following data has been selected from the Consolidated Financial Statements of the Company for the periods
and dates indicated:
Statement of Operations Data:
2010 2009 2008 2007 2006
Net sales
Cost of products and services sold
Loss on sale of a subsidiary
Operating expenses
Loss contingency (a)
Goodwill and intangible asset
$254,402
198,030
639
53,671
--
$233,799
181,972
--
51,571
200
$305,286
224,859
--
60,642
2,800
$337,453
248,274
--
57,219
(590)
$280,470
209,057
--
49,898
--
impairment (b)
153
14,467
27,955
--
--
Operating income (loss)
Interest (income)
Interest expense
1,909
(28)
153
(14,411)
(97)
89
(10,970)
(360)
81
32,550
(139)
962
Income (loss) before income taxes
Income taxes
1,784
360
(14,403)
(989)
(10,691)
2,357
31,727
10,938
21,515
(550)
78
21,987
7,544
Net income (loss)
$ 1,424
$(13,414)
$(13,048)
$ 20,789
$ 14,443
Earnings (loss) per common share
Basic
Diluted
$ 0.06
$ 0.06
$ (0.62)
$ (0.62)
$ (0.60)
$ (0.60)
$ 0.96
$ 0.95
$ 0.72
$ 0.71
Cash dividends paid per share
$ 0.20
$ 0.30
$ 0.63
$ 0.51
$ 0.56
Weighted average common shares
Basic
Diluted
24,128
24,134
21,800
21,800
21,764
21,764
21,676
21,924
20,194
20,429
Balance Sheet Data:
(At June 30)
2010 2009 2008 2007 2006
Working capital
Total assets
Long-term debt,
including current
maturities
Shareholders' equity
$ 73,568
173,845
$ 72,500
153,118
$ 72,863
184,214
$ 68,397
233,612
$ 66,787
224,401
1,132
144,218
--
130,473
--
149,190
--
176,061
16,593
164,985
(a)
(b)
The Company recorded loss contingency reserves in fiscal years 2009 and 2008, and reversed a loss
contingency reserve in fiscal 2007 – all related to a patent litigation matter. See Note 14.
The Company recorded a significant impairment of goodwill and intangible assets in fiscal 2009 and 2008.
See Note 6.
F-50
LSI INDUSTRIES INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED JUNE 30, 2010, 2009, AND 2008
(In Thousands)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
Additions Additions
Balance Charged to from Balance
Beginning Costs and Acquired (a) End of
Description of Period Expenses Company Deductions Period
Allowance for Doubtful Accounts:
Year Ended June 30, 2010
Year Ended June 30, 2009
Year Ended June 30, 2008
$ 532
$ 585
$ 822
$ 424
$ 135
$ 155
Inventory Obsolescence Reserve:
Year Ended June 30, 2010
Year Ended June 30, 2009
Year Ended June 30, 2008
$1,410
$1,638
$1,606
$1,517
$1,568
$1,479
Deferred Tax Asset Valuation Reserve:
Year Ended June 30, 2010
Year Ended June 30, 2009
Year Ended June 30, 2008
$1,940
$1,819
$ --
$ 591
$ 121
$1,819
$ 9
$ --
$ --
$89
$ --
$ --
$ --
$ --
$ --
$ (566)
$ (188)
$ (392)
$ 399
$ 532
$ 585
$(1,479)
$(1,796)
$(1,447)
$1,537
$1,410
$1,638
$ --
$ --
$ --
$2,531
$1,940
$1,819
(a)
For Allowance for Doubtful Accounts, deductions are uncollectible accounts charged off, less
recoveries.
F-51
Subsidiary
Grady McCauley Inc.
EXHIBIT 21
Subsidiaries of the Registrant
Business and
Location
Digital image and screen printed
graphics
North Canton, OH
Percent
Owned by
Registrant
State of
Incorporation
100%
Ohio
LSI Greenlee Lighting Inc.
Landscape lighting
Dallas, TX
LSI Adapt Inc.
Project management and installation
services
North Canton, OH
100%
Delaware
100%
Ohio
*LSI ADL Technology Inc.
Electronic Circuit Boards
Columbus, OH
100%
Ohio
LSI Kentucky LLC
LSI Lightron Inc.
Menu board systems; metal fabrication
Independence, KY
100%
Ohio
Fluorescent lighting
New Windsor, NY
100%
Ohio
LSI Marcole Inc.
[Inactive]
100%
Tennessee
LSI MidWest Lighting Inc.
Fluorescent lighting
Kansas City, KS
LSI Retail Graphics LLC
Interior graphics and signs
Woonsocket, RI
LSI Integrated Graphics LLC Screen and digital printed materials,
and illuminated and non-illuminated
architectural graphics
Houston, TX
LSI Saco Technologies Inc.
LED lighting and LED video screen
manufacturing, research and
development
Montreal, Quebec
100%
Kansas
100%
Ohio
100%
Ohio
100%
Quebec, Canada
*This subsidiary was acquired July 22, 2009.
EXHIBIT 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We have issued our reports dated September 8, 2010, with respect to the consolidated financial
statements, schedule and internal control over financial reporting included in the Annual Report of LSI
Industries Inc. on Form 10-K for the year ended June 30, 2010. We hereby consent to the incorporation
by reference of said reports in the Registration Statements of LSI Industries Inc. on Forms S-8 (File No.
333-11503, effective September 6, 1996, File No. 333-91531, effective November 23, 1999, File No.
333-100038, effective September 24, 2002, File No. 333-100039, effective September 24, 2002 and
File No. 33-333-110784, effective November 26, 2003).
/s/ Grant Thornton LLP
Cincinnati, Ohio
September 8, 2010
EXHIBIT 23.2
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statement Nos. 333-11503, 333-91531,
333-100038, 333-100039, and 333-110784 on Form S-8 of our report dated September 11, 2009
relating to the consolidated financial statements and financial statement schedule of LSI Industries Inc.
(which report expresses an unqualified opinion and includes an explanatory paragraph relating to the
adoption of the provisions of accounting for uncertainty in income taxes in Financial Accounting
Standards Board Accounting Standards Codification Topic No. 740, Income Taxes, on July 1, 2007),
appearing in this Annual Report on Form 10-K of LSI Industries Inc. for the year ended June 30, 2010.
/s/ Deloitte & Touche LLP
Cincinnati, Ohio
September 8, 2010
Certification of Principal Executive Officer
Pursuant to Rule 13a-14(a)
EXHIBIT 31.1
I, Robert J. Ready, certify that:
1.
I have reviewed this annual report on Form 10-K of LSI Industries Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this
report, fairly present in all material respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls
and procedures to be designed under our supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control
over financial reporting to be designed under our supervision, to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant’s internal control over financial
reporting that occurred during the registrant’s fourth fiscal quarter that has materially affected, or is
reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of
registrant’s board of directors:
(a)
All significant deficiencies and material weaknesses in the design or operation of internal
control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to
record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who
have a significant role in the registrant’s internal control over financial reporting.
Date: September 8, 2010
/s/ Robert J. Ready
Principal Executive Officer
Certification of Principal Financial Officer
Pursuant to Rule 13a-14(a)
EXHIBIT 31.2
I, Ronald S. Stowell, certify that:
1.
I have reviewed this annual report on Form 10-K of LSI Industries Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this
report, fairly present in all material respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls
and procedures to be designed under our supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control
over financial reporting to be designed under our supervision, to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant’s internal control over financial
reporting that occurred during the registrant’s fourth fiscal quarter that has materially affected, or is
reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of
registrant’s board of directors:
(a)
All significant deficiencies and material weaknesses in the design or operation of internal
control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to
record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who
have a significant role in the registrant’s internal control over financial reporting.
Date: September 8, 2010
/s/ Ronald S. Stowell
Principal Financial Officer
CERTIFICATION OF ROBERT J. READY
Pursuant to Section 1350 of Chapter 63 of the
United States Code and Rule 13a-14b
EXHIBIT 32.1
In connection with the filing with the Securities and Exchange Commission of the Annual Report of LSI
Industries Inc. (the “Company”) on Form 10-K for the fiscal year ended June 30, 2010 (the “Report”), I,
Robert J. Ready, Principal Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as
adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
(1)
(2)
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the financial
condition and results of operations of the Company.
/s/ Robert J. Ready
Robert J. Ready
Chairman of the Board, Chief Executive Officer and President
September 8, 2010
A signed original of this written statement required by Section 906 has
been provided to LSI Industries Inc. and will be retained by LSI Industries
Inc. and furnished to the Securities and Exchange Commission or its staff
upon request.
CERTIFICATION OF RONALD S. STOWELL
Pursuant to Section 1350 of Chapter 63 of the
United States Code and Rule 13a-14b
EXHIBIT 32.2
In connection with the filing with the Securities and Exchange Commission of the Annual Report of LSI
Industries Inc. (the “Company”) on Form 10-K for the fiscal year ended June 30, 2010 (the “Report”), I,
Ronald S. Stowell, Principal Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as
adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
(1)
(2)
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the financial
condition and results of operations of the Company.
/s/ Ronald S. Stowell
Ronald S. Stowell
Vice President, Chief Financial Officer, and Treasurer
September 8, 2010
A signed original of this written statement required by Section 906 has
been provided to LSI Industries Inc. and will be retained by LSI Industries
Inc. and furnished to the Securities and Exchange Commission or its staff
upon request.
Board of Directors
Robert J. Ready
Chairman of the Board
Chief Executive Officer and President
James P. Sferra
Secretary
Executive Vice President - Manufacturing
Gary P. Kreider
Senior Partner of Keating Muething & Klekamp PLL
Cincinnati, Ohio
Corporate Officers and Executive Management
Robert J. Ready
Chief Executive Officer and President
James P. Sferra
Secretary; Executive Vice President - Manufacturing
Ronald S. Stowell
Vice President, Chief Financial Officer, and Treasurer
Dennis B. Meyer
Director of Midmark Corporation
Versailles, Ohio
Wilfred T. O’Gara
Chief Executive Officer – The O'Gara Group, Inc.
Cincinnati, Ohio
Mark A. Serrianne
Chairman of the Board (retired) - Northlich, Inc.
Cincinnati, Ohio
David W. McCauley
President LSI Graphic Solutions Plus
Scott D. Ready
President LSI Lighting Solutions Plus
Shareholder Information
Dividend Reinvestment Plan
Legal Counsel
Keating Muething & Klekamp PLL
Cincinnati, Ohio
Independent Registered Public Accounting
Firm
Grant Thornton LLP
Cincinnati, Ohio
Transfer Agent and Registrar
Computershare Trust Company, N.A.
250 Royall Street, Mail Stop 1A
Canton, Massachusetts 02021-1011
Annual Meeting
The LSI Industries Inc. annual shareholders' meeting
will be held Thursday, November 18, 2010 at 10:00
a.m. at the Company’s corporate offices located at
10000 Alliance Road, Cincinnati, Ohio.
Corporate Headquarters
LSI Industries Inc.
10000 Alliance Road
Cincinnati, Ohio 45242
The LSI Industries Automatic Dividend Reinvestment
and Stock Purchase Plan offers registered shareholders
and employees an opportunity to purchase additional
shares through automatic dividend reinvestment
and/or optional cash investments. For additional
information, contact:
Computershare Trust Company, N.A.
250 Royall Street, Mail Stop 1A
Canton, Massachusetts 02021-1011
(312) 588-4990
(866) 770-0656
E-mail: web.queries@computershare.com
Internet: www.computershare.com
Market for the Company’s Common Shares
LSI Industries Inc. Common Shares are traded on the NASDAQ
Global Select Market under the symbol LYTS.
Internet Site
The LSI Industries site on the Internet, www.lsi-industries.com,
contains the Company’s 10-K and 10-Q filings, proxy
statements, other SEC filings, annual reports, news releases,
stock prices, and a variety of other information about LSI
Industries and its products and services.