A N N U A L R E P O R T 2 0 1 1
Leadership. Strength.
Innovation. Those are the key
values behind the smart vision
upon which LSI Industries Inc.
was founded when
established in 1976. Today LSI
demonstrates this in our
dedication to advancing
technology throughout all
aspects of our business. We
are a vertically integrated
manufacturer who combines
integrated technology, design
and manufacturing to
produce the most efficient,
high quality products
possible. Everything we build
is done right here in one of
our US plants.
We are committed to
advancing solid-state
technology to make
affordable, high performance,
energy efficient lighting and
custom graphic products that
bring value to our customers.
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 is a U.S. manufacturer with
marketing / sales efforts
throughout the world with
concentration currently on
North America, Latin America,
Australia, New Zealand, Asia,
Europe and the Middle East.
Our major markets include
the commercial / industrial
lighting, petroleum /
convenience store, multi-site
retail (including automobile
dealerships, restaurants and
national retail accounts),
sports and entertainment
markets. Headquartered in
Cincinnati, Ohio, LSI has
facilities 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.
I would like to detail our accomplishments during 2011.
As you will recall, LSI concluded its 2010 fiscal year in June
of last year poised to take advantage of a leaner
operations structure, a growing portfolio of technology
innovation and an enviable balance sheet. Prospects were
encouraging as we established a market leadership
position during the most dynamic technology shift to
occur in the lighting industry since Edison invented the
incandescent light bulb. We saw signs of improvement in
general market conditions and set aggressive goals for our
team to drive our company to a strong improvement in
income performance over the previous two years.
We are pleased to present the results of those efforts as
the company posted a double digit increase in revenue
along with a significant improvement in net income.
These gains were the direct result of improved volume,
reduced fixed and variable overhead cost structures and
growth in the new technology products across the
company. Our LED lighting sales grew to nearly 30% of all
lighting sold during 2011, reinforcing the positive impact
this important new product technology will have on the
company's results moving forward. A highlight of the year
was our completion of the most extensive single
deployment of exterior LED lighting in a retail
environment in the world to date.
As the world economy continued to struggle to attain
some level of consistency, the LSI management team
continued to focus on building strength, stability and
opportunity in this atmosphere of uncertainty. The
financial strength of the company remains as solid as it has
ever been with a debt free balance sheet and strong
positive cash flow.
Our workforce continues to strengthen as our
management team gains experience working through the
toughest economy we have seen in decades. Additionally,
we have taken advantage of the opportunity to draw
from the growing pool of available skilled workers that
are looking for the stability that LSI can offer. We remain
committed to our strategy to be the premier supplier of
U.S. manufactured products serving a worldwide market.
The lighting segment gained market recognition and
market share throughout Fiscal 2011 as
Commercial/Industrial market agents continued to look
beyond the traditional large lighting company competitors
for the kind of quality, service and product innovation
from a U.S. manufacturer that they cannot find from their
traditional manufacturing partners. LSI is becoming a true
preference brand in the commercial lighting market and
that means opportunity for the company and its agent
partners. Our new product introductions throughout the
year continued to demonstrate a real understanding of
the markets we serve.
In the fourth quarter we launched the latest generation of
our LED canopy product line, the Crossover® Gold. With
this introduction, we offer the market the best value
available to retrofit LSI's Scottsdale® canopy lighting
family, which has been available since 1995 and currently
has nearly two million product installations. With the
Crossover Gold, we are now in a position to replace these
fixtures with a more energy efficient LED lighting
solution. While we still must earn every single sale and
the rate of conversion is somewhat dependent upon the
overall economy, there is no doubt that this represents a
tremendous opportunity.
The number of visitors to our acclaimed iZone center
increased dramatically throughout the year. This,
combined with an entirely new website re-design,
reinforced our marketing strategy to aggressively
promote the LSI story world-wide. We will be expanding
the iZone concept into other LSI operations in 2012.
On the graphics side, we benefited from the program
nature of the business as we wrapped up the largest
reimaging program to date during the first half of the
year. As a result, Graphics sales grew slightly during the
year, but efficiency and cost control improvements
resulted in profits that more than doubled over the
previous year. However, as expected, this program’s
conclusion, combined with the overall softness in retail
program spending overall, made the second half of the
year much more challenging. Much of our product and
service offering in graphics is a discretionary purchase and
can often be delayed in difficult economic times.
However, it is important that we maintain our unique
service capabilities to process projects of this magnitude.
These capabilities, even in a time of limited demand and
right sizing initiatives, are a significant competitive
strength for LSI Graphics. Additionally, we continue to
invest in our client relationships, work to utilize our
network of lighting market relationships and have made
changes to our marketing and sales team to respond to
the challenge of stalled retail national account market
spending.
As we look to the future, our strategic plan is set to
establish ourselves as a leader in LED technology
world-wide. As part of this initiative, we are expanding
our International market throughout Europe and the
Middle East with our LED technology. As we are now in
our 35th year of business, we are proud of the fact that
we are one of the few major lighting companies that
have kept the manufacturing of these products in the U.S.
Our message to our markets is American Innovation –
American Made.
In closing, our Annual Shareholders’ meeting will be held
at our Corporate headquarters on November 17th. I hope
that you will be able to attend and experience the new
technology in person.
Sincerely,
Robert J. Ready
Chairman & CEO
Senior Partner of Keating Muething & Klekamp PLL
Chairman of the Board (retired) - Northlich, Inc.
Corporate Officers and Executive Management
Board of Directors
Robert J. Ready
Chairman of the Board
Chief Executive Officer
James P. Sferra
Secretary
Gary P. Kreider
Cincinnati, Ohio
Executive Vice President - Manufacturing
Robert J. Ready
Chief Executive Officer
Scott D. Ready
President, LSI Industries Inc.
James P. Sferra
Secretary
Executive Vice President - Manufacturing
Legal Counsel
Keating Muething & Klekamp PLL
Cincinnati, Ohio
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
Corporate Headquarters
LSI Industries Inc.
10000 Alliance Road
Cincinnati, Ohio 45242
Shareholder Information
Dividend Reinvestment Plan
Independent Registered Public Accounting
information, contact:
The LSI Industries Inc. annual shareholders' meeting
will be held Thursday, November 17, 2011 at 10:00
a.m. at the Company’s corporate offices located at
10000 Alliance Road, Cincinnati, Ohio.
Internet Site
Dennis B. Meyer
Director of Midmark Corporation
Versailles, Ohio
Wilfred T. O’Gara
Cincinnati, Ohio
Mark A. Serrianne
Cincinnati, Ohio
Chief Executive Officer – The O'Gara Group, Inc.
Ronald S. Stowell
Vice President
Chief Financial Officer, and Treasurer
David W. McCauley
President, LSI Graphic Solutions Plus
Scott D. Ready
President, LSI Lighting Solutions Plus
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
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.
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.
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(cid:59)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 2011.
OR
(cid:134)
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO .
Commission File No. 0-13375
LSI INDUSTRIES INC.
(Exact name of Registrant as specified in its charter)
Ohio
(State or other jurisdiction of
incorporation or organization)
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
Name of each exchange on which registered
Common shares, no par value
The NASDAQ Stock Market LLC
(NASDAQ Global Select Market)
Securities Registered Pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes (cid:31) No (cid:59)
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 (cid:31) No (cid:59)
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 (cid:59) No (cid:31)
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. (cid:59)
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 (cid:31) No (cid:31)
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 (cid:31)
Accelerated filer (cid:59)
Non-accelerated filer (cid:31)
Smaller reporting company (cid:31)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes (cid:31)
No (cid:59)
As of December 31, 2010, the aggregate market value of the registrant’s common stock held by non-affiliates of the
registrant was approximately $171,965,000 based upon a closing sale price of $8.46 per share as reported on The
NASDAQ Global Select Market.
At August 18, 2011 there were 24,048,248 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 2011 Annual Meeting of Shareholders are
incorporated by reference in Part III, as specified.
LSI INDUSTRIES INC.
2011 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
Begins on
Page
ITEM 1. BUSINESS
ITEM 1A. RISK FACTORS
ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 2. PROPERTIES
ITEM 3. LEGAL PROCEEDINGS
ITEM 4. [REMOVED AND RESERVED]
PART I
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
ITEM 6. SELECTED FINANCIAL DATA
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON 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
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
1
7
9
10
10
10
11
12
12
13
13
14
14
14
15
15
15
15
15
15
“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.
ITEM 1. BUSINESS
Our Company
PART I
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, JC Penney, 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 67% of our fiscal 2011 net sales; the
Graphics Segment, which represented 23% of our fiscal 2011 net sales; the Electronic Components Segment, which
represented 7% of our fiscal 2011 net sales; and an All Other Category, which represented 3% of our fiscal 2011 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 37%, 35%, and 23% of total net sales concentrated in this
market in the fiscal years ended June 30, 2011, 2010, and 2009, respectively. See Note 2 of Notes to Consolidated
Financial Statements beginning on page F-27 of this Form 10-K for additional information on business segments. Net sales
by segment are as follows (in thousands):
Lighting Segment
Graphics Segment
Electronic Components Segment
All Other Category
Total Net Sales
2011
196,550
68,155
21,449
7,347
293,501
$
$
$
2010
159,105
68,395
16,116
10,786
254,402
$
$
2009
160,475
60,765
—
12,559
233,799
1 ‐
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 solid-state LED,
high-intensity discharge metal-halide, and fluorescent. 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.
Lighting Segment fiscal 2011 net sales of $196,550,000 increased $37.4 million or 23.5% over fiscal 2010 net sales.
The $37.4 million increase in Lighting Segment net sales was primarily the result of a $19.8 million or 24.7% increase in
lighting sales to our niche markets of petroleum / convenience stores, automotive dealerships, and retail national accounts,
and a $17.5 million or 22.2% net increase in commissioned net sales to the commercial and industrial lighting market.
Fiscal 2011 Lighting Segment net sales to the petroleum / convenience store market of $61,066,000 increased $9.6 million
or 19% from fiscal 2010, and represented 31% of total Lighting Segment net sales as compared to 32% in the prior year.
White light solid-state LED light fixtures represent a growth area for the Company, with fiscal 2011 Lighting Segment
LED net sales of approximately $60,042,000 (approximately 31% of total Lighting Segment net sales), up 59% from the
prior year. The Lighting Segment replaced 7-Eleven, Inc.’s traditional lighting with solid-state LED lighting, with fiscal
2011 net sales of $10,243,000 and fiscal 2010 net sales of $21,391,000.
Lighting Segment fiscal 2010 net sales of $159,105,000 decreased $1.4 million or 0.9% from fiscal 2009 net sales.
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 Segment 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.
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 services for those customers who require the installation of interior or exterior
products (utilizing pre-qualified independent subcontractors throughout the United States).
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
2 ‐
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 slowed down during the recent 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.
Graphics Segment fiscal 2011 net sales of $68,155,000 decreased $0.2 million or 0.4% from fiscal 2010 net sales.
The $0.2 million decrease in Graphics Segment net sales in fiscal 2011 is primarily the result of image conversion
programs and sales to several petroleum / convenience store customers ($8.7 million net increase), and a fast food
restaurant chain ($1.1 million increase). These increases were offset by decreases to a national drug store retailer ($3.2
million decrease), two grocery retailers ($2.5 million decrease), the LED video sports screen market ($5.0 million
decrease), and changes in volume or completion of several other graphics programs. Fiscal 2011 Graphics Segment net
sales to the petroleum / convenience store market of $47,394,000 increased $8.9 million or 23% from fiscal 2010, and
represented 70% of total Graphics net sales as compared to 56% in the prior year. The Graphics Segment replaced 7-
Eleven, Inc.’s traditional signage lighting with solid-state LED lighting, with fiscal 2011 net sales of $29,709,000 and
fiscal 2010 net sales of $20,606,000. Graphics Segment net sales related to LED products totaled approximately
$4,938,000 in fiscal 2011 as compared to $20,275,000 in fiscal 2010 (approximately 7% and 30% of total Graphics
Segment net sales in fiscal 2011 and 2010, respectively).
Graphics Segment fiscal 2010 net sales of $68,395,000 increased $7.6 million or 12.6% over fiscal 2009 net sales.
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 several 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).
Electronic Components Segment
The Electronic Components Segment includes the results of LSI ADL Technology. This subsidiary operates in
Columbus, Ohio and 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. The Company acquired AdL
Technology in fiscal 2010 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.
Customer net sales of the Electronic Components Segment were $21,449,000 in fiscal 2011, up $5.3 million or 33%
over fiscal 2010 net sales of $16,116,000. In addition to these customer sales, the Electronic Components Segment
supplied a significant amount of electronic circuit boards to both the Lighting and Graphics Segments, with growth of
approximately 374% in these intersegment net sales in fiscal 2011.
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
three reportable business segments. Operating results of LSI Saco Technologies, LSI Images, LSI Adapt and LSI Marcole
are included in the All Other Category. The major products and services offered by operations included in the All Other
Category include: design, production, and support of high-performance light engines and large format video screens using
LED technology; exterior and interior menu board systems primarily for the quick service restaurant market; and
3 ‐
surveying, permitting and installation management services related to products of the Graphics Segment; and for fiscal
2010 and 2009, electrical wire harnesses (for LSI’s light fixtures and for the white goods or appliance industry). 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.
All Other Category fiscal 2011 net sales of $7,347,000 decreased $3.4 million or 31.9% from fiscal 2010 primarily
as the net result of increased net sales of menu board systems ($0.2 million), decreased sales of LED video screens to the
entertainment and other markets ($3.0 million), no sales of electrical wire harnesses ($2.9 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 thereafter had no further sales of wire harnesses. Fiscal 2010 net sales of $10,786,000
decreased $1.8 million or 14.1% from fiscal 2009 primarily as the net result of decreased net sales to two quick service
restaurant menu board customers ($0.8 million), decreased net sales of LED video screens to the entertainment market
($0.3 million), decreased net sales of specialty LED lighting ($0.1 million), decreased net sales of electrical wire harnesses
($1.0 million) and changes in volume or completion of other customer programs.
Goodwill and Intangible Asset Impairment
There were no impairments of goodwill or intangible assets in fiscal 2011.
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 All
Other Category 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. Goodwill was not impaired in fiscal 2010.
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 totaling
$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.
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. We also have several product patents
which provide a competitive advantage. Our product development initiatives are designed to increase the value of our
4 ‐
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, Latin America,
Europe and the Middle East (about 5% 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, LED video screens, electronic
components, and other 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.
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
5 ‐
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. In
some Graphics programs, customers also give us a cash advance for the inventory that we stock for them. The Company’s
operations dealing with LED products generally carry LED and LED component inventory due to longer lead times, or
worldwide shortages of electronic components. LED products are generally made to order and shipped shortly after
assembly is complete. 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. Due to the worldwide shortage of electronic component parts, the
Company has increased its amount of component parts carried in inventory. 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.
We currently operate out of eleven manufacturing facilities and two sales facilities in seven U.S. states and Canada.
During fiscal 2011, we consolidated our smallest Lighting manufacturing facility into our largest facility.
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 also have several product and
process patents which have been obtained in the normal course of business which provide a competitive advantage in the
marketplace.
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 $28.7 million and
$60.5 million at June 30, 2011 and 2010, respectively. All orders are believed to be shippable or installed within twelve
months. The decrease as of June 30, 2011 relates primarily to the completion of 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 1,200 full-time and 282 temporary employees as of June 30, 2011. 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.
6 ‐
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.
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, political and market conditions.
Economic and political 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 and
political climate, including but not limited to the effects of weakness in domestic and foreign financial and 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 uncollectible receivables, 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.
7 ‐
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, light bulbs
and fluorescent tubes, lighting ballasts, sockets, wire harnesses, plastic, lenses, glass lenses, vinyls, inks, LEDs, electronic
components and corrugated cartons. Materials comprise the largest component of costs, representing approximately 62%
of the cost of sales in both 2011 and 2010. 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 2011, 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. Fluorescent tubes and other light bulbs contain
rare earth minerals, which have become more expensive and in short supply throughout the world, thereby affecting the
Company’s supply and cost of these light sources.
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 37% of our net sales in fiscal year 2011 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 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
8 ‐
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 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.
9 ‐
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 manufacturing and dry
powder-coat painting
122,000 sq. ft.
Cincinnati, OH
Owned
3)
LSI Metal Fabrication and LSI Images
manufacturing and dry powder-coat painting
98,000 sq. ft. (includes 5,000 sq. ft.
of office space)
Independence, KY
Owned
4)
LSI Integrated Graphics office; screen
printing manufacturing; and architectural
graphics manufacturing
198,000 sq. ft. (includes 34,000 sq.
ft. of office space)
Houston, TX
Leased
5)
LSI Industries sales and engineering office
9,000 sq. ft. (includes 3,000 sq. ft.
of office space)
Dallas, TX
Leased
6)
Grady McCauley office and manufacturing 210,000 sq. ft. (includes 20,000 sq.
North Canton, OH
Owned
7)
LSI MidWest Lighting office and
manufacturing
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)
Kansas City, KS
Owned
8)
LSI Retail Graphics office and
manufacturing
57,000 sq. ft. (includes 11,000 sq.
ft. of office space)
Woonsocket, RI
Owned (a)
9)
LSI Lightron office and manufacturing
170,000 sq. ft. (includes 10,000 sq.
ft. of office space)
New Windsor, NY
Owned and
Leased (b)
10)
LSI Adapt offices
2,000 sq. ft.
North Canton, OH
Charlotte, NC
Owned
Leased
11)
LSI Saco Technologies office and
manufacturing
29,000 sq. ft. (includes 6,000 sq. ft.
of office space)
Montreal, Canada
Leased
12)
LSI ADL Technology office and
manufacturing
57,000 sq. ft. (includes 11,000 sq.
ft. of office space)
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 1,358,000 square feet) adequate for its current level of operations.
ITEM 3. LEGAL PROCEEDINGS
Nothing to report.
ITEM 4. [REMOVED AND RESERVED]
10 ‐
PART II
ITEM 5. MARKET FOR 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-42 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-43 of this Form 10-K. LSI’s
shares of common stock are traded on the NASDAQ Global Select Market under the symbol “LYTS.”
The Company’s policy with respect to dividends 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 15, 2011, there were 497 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 2011 were as follows:
ISSUER PURCHASES OF EQUITY SECURITIES
(a) Total
Number of (b) Average Part of Publicly
(d) Maximum Number
(c) Total Number of (or Approximate Dollar
Shares Purchased as Value) of Shares that
May Yet Be Purchased
Period
4/1/11 to 4/30/11
5/1/11 to 5/31/11
6/1/11 to 6/30/11
Total
Shares
Price Paid Announced Plans or Under the Plans or
Purchased per Share
309 $
309 $
295 $
913 $
7.27
7.36
7.82
7.47
Programs
Programs
309
309
295
913
(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, 2011 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, 2006 in
the Company’s Common Shares and in each of the indexes presented; it also assumes reinvestment of dividends.
11 ‐
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among LSI Industries Inc., the NASDAQ Composite Index
and the Dow Jones US Electrical Components & Equipment Index
$140
$120
$100
$80
$60
$40
$20
$0
6/06
6/07
6/08
6/09
6/10
6/11
LSI Industries Inc.
NASDAQ Composite
Dow Jones US Electrical Components & Equipment
*$100 invested on 6/30/06 in stock or index, including reinvestment of dividends.
Fiscal year ending June 30.
Copyright© 2011 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-43 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-14 of this Form 10-K.
12 ‐
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.
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 current balance in the Company’s
short-term cash investments and absence of any outstanding variable rate debt, the adverse exposure to interest rate
fluctuations has decreased considerably. The Company’s outstanding mortgage debt is at a fixed rate of interest.
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, light bulbs,
fluorescent tubes, 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 and the
recent shortage in rare earth minerals used in fluorescent lamps, 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 and
fiscal 2011 have 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 fiscal year ended June 30, 2011, the raw material component of
cost of goods sold subject to price risk was approximately $138 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 8%, depending on the product,
effective with late April 2011 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
Report of Independent Registered Public Accounting Firm
Report of Independent Registered Public Accounting Firm
13 ‐
Begins
on Page
F-15
F-16
F-17
F-18
Consolidated Statements of Operations for the years ended June 30, 2011, 2010, and 2009
Consolidated Balance Sheets at June 30, 2011 and 2010
Consolidated Statements of Shareholders’ Equity for the years ended June 30, 2011, 2010, and 2009
Consolidated Statements of Cash Flows for the years ended June 30, 2011, 2010, and 2009
Notes to Consolidated Financial Statements
Financial Statement Schedules:
II — Valuation and Qualifying Accounts for the years ended June 30, 2011, 2010, and 2009
F-19
F-20
F-22
F-23
F-24
F-44
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, 2011.
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, 2011, 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-15.
ITEM 9B. OTHER INFORMATION
None.
14 ‐
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 17, 2011, 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, 2011.
(a)
(b)
Number of securities to
Weighted average
be issued upon
exercise of outstanding
exercise price of
options, warrants and outstanding options, (excluding securities
warrants and rights reflected in column (a))
compensation plans
rights
(c)
Number of securities
remaining available
for future issuance
under equity
2,123,939
—
2,123,939
$10.80
—
$10.80
705,779
—
705,779
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.
Exhibit
No.
Exhibit Description
3.1 Articles of Incorporation of LSI filed as Exhibit 3.1 to LSI’s Form S-3 Registration Statement File No. 33-65043.
3.2
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.
3.3 Amended and Restated Code of Regulations of LSI filed as Exhibit 3 to LSI’s Form 8-K filed January 22, 2009.
4.1 Form of Senior Indenture (incorporated by reference to Exhibit 4.3 to LSI’s Form S-3 filed on September 8, 2010).
4.2
Form of Subordinated Indenture (incorporated by reference to Exhibit 4.4 to LSI’s Form S-3 filed on September 8,
2010).
10.1
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.
15 ‐
10.2
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.
10.3
Amendment to Credit Agreement dated April 11, 2011 among the Registrant, PNC Bank, National Association, in
its capacity as administrative agent and syndication agent, PNC Bank, National Association, in its capacity as lender
and The Fifth Third Bank.
10.4
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.
10.5
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.
10.6
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.
10.7
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.
10.8
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.
10.9* LSI Industries Inc. Retirement Plan (Restated as of July 1, 2011).
10.10*
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.
10.11*
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.
10.12*
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.
10.13*
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.
10.14*
LSI Industries Inc. Nonqualified Deferred Compensation Plan (Amended and Restated as of November 18, 2010)
filed as Exhibit 10.1 to LSI’s Form 8-K filed November 24, 2010.
10.15*
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.
10.16*
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.
14
Code of Ethics filed as Exhibit 14 to LSI’s Form 10-K for the fiscal year ended June 30, 2004.
21
Subsidiaries of the Registrant
23.1
Consent of Independent Registered Public Accounting Firm (Grant Thornton LLP)
23.2
Consent of Independent Registered Public Accounting Firm (Deloitte & Touche LLP)
24.1
Power of Attorney
24.2
Board Resolutions – August 17, 2011
16 ‐
31.1
Certification of Principal Executive Officer required by Rule 13a-14(a)
31.2
Certification of Principal Financial Officer required by Rule 13a-14(a)
32.1
18 U.S.C. Section 1350 Certification of Principal Executive Officer
32.2
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.
17 ‐
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.
SIGNATURES
August 26, 2011
Date
LSI INDUSTRIES INC.
BY:
/s/ Robert J. Ready
Robert J. Ready
Chairman of the Board and Chief Executive Officer
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
/s/ Robert J. Ready
Robert J. Ready
Date: August 26, 2011
/s/ Robert J. Ready as Attorney-in-Fact
Ronald S. Stowell
Date: August 26, 2011
Title
Chairman of the Board and Chief Executive
Officer
(Principal Executive Officer)
Vice President, Chief Financial Officer, and
Treasurer
(Principal Financial and Accounting Officer)
/s/ Gary P. Kreider
Gary P. Kreider
Date: August 26, 2011
/s/ Dennis B. Meyer
Dennis B. Meyer
Date: August 26, 2011
/s/ Wilfred T. O’Gara
Wilfred T. O’Gara
Date: August 26, 2011
/s/ Mark A. Serrianne
Mark A. Serrianne
Date: August 26, 2011
/s/ James P. Sferra
James P. Sferra
Date: August 26, 2011
Director
Director
Director
Director
Executive Vice President
— Manufacturing, Secretary, and Director
18 ‐
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, as well as the Company’s consolidated financial statements and accompanying notes presented later in
this Form 10-K 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)
Lighting Segment
Graphics Segment
Electronic Components Segment
All Other Category
Operating Income (Loss) by Business Segment
(In thousands)
Lighting Segment
Graphics Segment
Electronic Components Segment
All Other Category
Corporate and Eliminations
Summary Comments
2011
196,550
68,155
21,449
7,347
293,501
2010
159,105
68,395
16,116
10,786
254,402
2011
2010
11,423
6,373
7,886
(543)
(8,835)
16,304
9,073
3,237
2,279
(1,807)
(10,873)
1,909
2009
160,475
60,765
—
12,559
233,799
2009
(3,884)
2,362
—
(4,321)
(8,568)
(14,411)
$
$
$
$
$
$
$
$
Fiscal 2011 net sales of $293,501,000 increased $39.1 million or 15.4% as compared to fiscal 2010. See Note 2
to the financial statements for discussion of the retroactive reclassification of the Company’s reportable business
segments. Net sales were favorably influenced by increased net sales of the Lighting Segment (up $37.4 million or
23.5%), and the Electronic Components Segment (up $5.3 million or 33.1%). Net sales were unfavorably influenced by
decreased net sales of the Graphics Segment (down $0.2 million or 0.4%), and the All Other Category (down $3.4 million
or 31.9%). Net sales to the petroleum / convenience store market, the Company’s largest niche market, were
$108,460,000 or 37% of total net sales and $89,952,000 or 35% of total net sales of fiscal 2011 and 2010,
respectively. The $18.5 million or 21% increase is primarily due to an increase of sales of solid-state LED lighting into
this market.
The Company recorded intangible asset impairment expenses in fiscal 2010 totaling $153,000 ($16,000 in the
Lighting Segment and $137,000 in the All Other Category). There were no such intangible asset impairment expenses in
fiscal 2011. The Company recorded significant goodwill 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 goodwill impairment expenses in fiscal 2011 or 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 2011. 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.
F ‐ 1
(In thousands)
First Quarter
Second Quarter
First Half
Third Quarter
Nine Months
Fourth Quarter
Full Year
LED Net Sales
FY 2011
FY 2010 % Change
$
$
16,673 $
17,585
34,258
12,943
47,201
21,453
68,654 $
17,999
18,533
36,532
11,510
48,042
14,538
62,580
(7.4)%
(5.1)%
(6.2)%
12.5%
(1.8)%
47.6%
9.7%
Fiscal 2011 LED net sales of $68,654,000 were up $6.1 million or 9.7% from fiscal 2010. The $68,654,000 total
LED net sales and the $6.1 million increase are primarily the result of Lighting Segment LED net sales of $60,042,000 (up
$22.2 million or 59%), Graphics Segment LED net sales of $4,938,000 (down $15.3 million or 76%, primarily due to
lower LED sports screen sales and lower LED lighting for signage) and All Other Category LED net sales of $3,674,000
(down $0.8 million or 18% in the entertainment market).
During the recession of 2008 through 2010, virtually all of our markets were adversely impacted and our business
suffered as a result. During these difficult and uncertain economic conditions, we took a number of proactive steps to meet
our operating challenges, including strict control of expenses, capital expenditure reductions, close management of
accounts receivable and inventories, prudent staffing decisions, and maintaining a conservative financial position coupled
with positive free cash flow. Economic conditions in many of the markets we serve now have continued to show
improvement in fiscal 2011. We continue to adjust our expense levels to production rates we are experiencing and to
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. 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 continue to 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 impact of
the LSI ADL Technology acquisition deal costs, acquisition-related fair value inventory adjustments, the loss on the sale
of LSI Marcole, goodwill and intangible asset impairments, and a loss contingency related to a menu board patent
litigation, 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 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.
F ‐ 2
(In thousands, except per share data; unaudited) Amount
Reconciliation of net income (loss) to adjusted
net income:
Diluted
EPS
Amount
FY 2011
FY 2010
Diluted
EPS
Amount
EPS
FY 2009
Diluted
Net income (loss) as reported
$ 10,828 $
0.44 $ 1,424
$
0.06 $(13,414) $ (0.62)
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
Adjustment for goodwill and intangible asset
impairments, inclusive of the income tax effect
—
—
422(1)
0.02
—
—
—
—
791 (2)
0.03
—
—
—
—
—(3)
—
125(3)
0.01
—
—
148(4)
0.01
13,583(5)
0.62
Adjusted net income and earnings per share
$ 10,828
0.44 $ 2,785
$
0.12 $ 294 $
0.01
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. The income tax effects were as follows (in thousands):
(1)
(2)
(3)
(4)
(5)
$217
$407
$75
$5
$884
Results of Operations
2011 Compared to 2010
Lighting Segment
(In thousands)
Net Sales
Gross Profit
Operating Income
2011
2010
$
$
$
196,550 $
44,499 $
11,423 $
159,105
37,185
9,073
Lighting Segment net sales of $196,550,000 in fiscal 2011 increased 23.5% from fiscal 2010 net sales of
$159,105,000. The $37.4 million increase in Lighting Segment net sales is primarily the net result of a $19.8 million or
24.7% net increase in lighting sales to our niche markets (petroleum / convenience store market net sales were up 19%, net
sales to the automotive dealership market were up 58%, and net sales to the quick service restaurant market were up 20%)
and national retail accounts, and a $17.5 million or 22.2% increase in commissioned net sales to the commercial /
industrial lighting market. Sales of lighting to the petroleum / convenience store market represented 31% and 32% of
Lighting Segment net sales in fiscal years 2011 and 2010, respectively. Lighting Segment net sales of lighting to this, the
Company’s largest niche market, were up 19% from fiscal 2010 to $61,066,000, with approximately $10.2 million related
to a program with 7-Eleven, Inc., who replaced traditional canopy, site and sign lighting with solid-state LED lighting.
F ‐ 3
Lighting Segment fiscal 2010 net sales to 7-Eleven, Inc. were approximately $21.4 million for a similar LED replacement
lighting program. 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
$60.0 million in fiscal 2011, representing a 59% increase from fiscal 2010 net sales of solid-state LED light fixtures of
$37.8 million.
Gross profit of $44,499,000 in fiscal 2011 increased $7.3 million or 20% from fiscal 2010, and decreased from
22.5% to 22.2% 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 increased net sales at decreased margins, and increased overhead
absorption. The following items also influenced the Lighting Segment’s gross profit margin: competitive pricing
pressures; $2.2 million increased freight costs; $0.3 million increased benefits and compensation; $0.3 million increased
warranty costs; $0.3 million increased utilities; $0.2 million increased repairs and maintenance; $0.4 million increased
outside service costs; $0.1 million increased depreciation expense; and $0.6 million increased manufacturing supplies
expense.
Selling and administrative expenses of $33,076,000 in fiscal 2011 increased $5.0 million from fiscal 2010. The
following items were the primary contributors to the increase: $0.1 million increased compensation and benefits expense;
$3.0 million increased sales commission expense reflective of increased net sales; $0.4 million increased research and
development expense; $0.8 million increased customer relations expense; $0.2 million increased outside services; $0.1
million increased sales samples expense; $0.1 million decreased communications expense; $0.1 million decreased royalty
income; $0.1 million increased advertising; and $0.5 million increased bad debt expense.
The Lighting Segment fiscal 2011 operating income of $11,423,000 increased $2.4 million or 25.9% from
operating income of $9,073,000 in fiscal 2010. This increase of $2.4 million was the net result of increased net sales,
increased gross profit (at lower margin percentages), and increased selling and administrative expenses.
Graphics Segment
(In thousands)
Net Sales
Gross Profit
Operating Income
2011
2010
$
$
$
68,155 $
16,903 $
6,373 $
68,395
13,781
3,237
Graphics Segment net sales of $68,155,000 in fiscal 2011 decreased 0.4% from fiscal 2010 net sales of
$68,395,000. The $0.2 million decrease in Graphics Segment net sales is primarily the net result of image conversion
programs and sales to twelve petroleum / convenience store customers ($8.7 million net increase), grocery market ($2.5
million decrease), the LED video sports screen market ($5.0 million decrease), a national drug store retailer ($3.2 million
decrease), a fast food restaurant chain ($1.1 million increase), and changes in volume or completion of several other
graphics programs. Sales of graphics products and services to the petroleum / convenience store market represented 70%
and 56% of Graphics Segment net sales in fiscal years 2011 and 2010, respectively. Graphics Segment net sales of
graphics to this, the Company’s largest niche market, were up 23% from fiscal 2010 to $47,394,000, with approximately
$29.7 million related to a program with 7-Eleven, Inc., who replaced traditional sign lighting with solid-state LED
lighting. 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 solid-state LED video screens and LED lighting for signage totaled $4.9
million in fiscal 2011 as compared to $20.3 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 the Lighting Segment, Graphics Segment,
or the All Other Category depending upon the product and/or service provided.
F ‐ 4
Gross profit of $16,903,000 in fiscal 2011 increased $3.1 million or 23% from fiscal 2010, and increased from
19.9% to 24.4% as a percentage of Graphics 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, and decreased overhead
absorption. The following items also influenced the Graphics Segment’s gross profit margin: competitive pricing
pressures; $0.1 million decreased freight costs; $0.1 million decreased warranty costs; $0.1 million decreased rent/lease
expense; and $0.1 million increased property taxes.
Selling and administrative expenses of $10,530,000 in fiscal 2011 were slightly lower than fiscal 2010. The
following items of expense changed between years as follows: $0.2 million decreased compensation and benefits; $0.1
million increased rent expense; $0.2 million decreased customer relations expense; $0.1 million increased outside services
expense; $0.1 million decreased sales commission expense; and increased expense related to a patent settlement
agreement.
The Graphics Segment fiscal 2011 operating income of $6,373,000 increased $3.1 million or 97% from operating
income of $3,237,000 in fiscal 2010. The $3.1 million increase in operating income was the result of decreased net sales,
increased gross profit, and decreased selling and administrative expenses.
Electronic Components Segment
(In thousands)
Net Sales
Gross Profit
Operating Income
2011
2010
$
$
$
21,449 $
9,601 $
7,886 $
16,116
3,847
2,279
Electronic Components Segment net sales of $21,449,000 in fiscal 2011 increased 33.1% from fiscal 2010 net
sales of $16,116,000. The $5.3 million increase in Electronic Components Segment net sales is primarily the net result of
a $2.9 million increase to industrial markets, $1.0 million decrease to telecommunications markets, $0.8 million increase
to retail markets, $0.5 million increase to medical markets and $0.2 million decrease to transportation related markets. In
addition to this segment’s growth in customer sales, its inter-segment net sales grew 374% in support of LED lighting
sales.
Gross profit of $9,601,000 in fiscal 2011 increased $5.8 million or 150% from fiscal 2010, and increased from
17.9% to 20.4% as a percentage of Electronic Components Segment net sales (customer plus inter-segment net sales).
Approximately $3.8 million of increased gross profit resulted from the significant increase in the amount of inter-segment
business as well as from increased Electronic Components customer net sales. Gross profit of the Electronic Components
Segment 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. The following items also influenced the Electronic Components Segment’s gross
profit margin: competitive pricing pressures; $0.2 million increase shipping costs; $0.4 million increased benefits and
compensation; $0.1 million increased outside services; and $0.5 million increased manufacturing supplies.
Selling and administrative expenses of $1,715,000 in fiscal 2011 increased $0.1 million from fiscal 2010. The
following items of expense changed between years as follows: $0.1 million increased employee compensation and
benefits expense; $0.1 million increased supplies; and $0.1 million increased repairs and maintenance.
The Electronic Components Segment fiscal 2011 operating income of $7,886,000 increased $5.6 million from
operating income of $2,279,000 in the same period of fiscal 2010. The $5.6 million increase in operating income was the
result of increased net sales and increased gross profit, partially offset by increased selling and administrative expenses.
F ‐ 5
All Other Category
(In thousands)
Net Sales
Gross Profit
Operating (Loss)
2011
2010
$
$
$
7,347 $
2,089 $
(543) $
10,786
1,267
(1,807)
All Other Category net sales of $7,347,000 in fiscal 2011 decreased 31.9% from fiscal 2010 net sales of
$10,786,000. The $3.4 million decrease in the All Other Category net sales is primarily the net result of net increased
sales of menu board systems ($0.2 million), decreased sales of LED video screens to the entertainment and other markets
($3.0 million), no sales of electrical wire harnesses ($2.9 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
therefore has no further sales or expenses related to wire harnesses.
The gross profit of $2,089,000 in fiscal 2011 increased $0.8 million or 65% from fiscal of 2010, and increased
from 7.1% to 16.2% as a percentage of the All Other Category 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 and increased margins. The following
items also influenced the All Other Category’s gross profit margin: competitive pricing pressures; $0.6 million decreased
indirect wage compensation and benefits; $0.5 million increased installation costs; $0.1 million decreased manufacturing
supplies; $0.1 million decreased utilities; $0.2 million decreased warranty expense; and $0.1 million decreased
depreciation expense.
Selling and administrative expenses of $2,632,000 in fiscal 2011 decreased $0.4 million or 14% as compared to
the prior year. Changes of expense between years include $0.2 million decreased benefits and compensation, $0.2 million
decreased royalty expense, $0.1 million decreased depreciation expense, and $0.3 million increased bad debt expense.
The All Other Category fiscal 2011 operating loss of $(543,000) compares to an operating loss of $(1,807,000) in
fiscal 2010. This $1.3 million decreased operating loss was the net result of decreased net sales, increased gross profit, and
decreased selling and administrative expenses. Sales and resulting gross margins were not high enough to cover selling
and administrative expenses.
Corporate and Eliminations
(In thousands)
Gross Profit
Operating (Loss)
2011
2010
$
$
(747) $
(8,835) $
(347)
(10,873)
The negative gross profit relates to the intercompany profit in inventory elimination.
Selling and administrative expenses of $8,088,000 in fiscal 2011 were down $2.4 million or 23.2% from the same
period of the prior year. The reduction in expense is primarily related to the net result of $1.3 million reduced
compensation and benefits expense, $0.1 million increased repair and maintenance expense, $0.1 million reduced audit
and accounting fees, $0.1 million reduced outside consulting services, $0.4 million reduced research and development
expenses, and no acquisition deal costs in fiscal 2011 as compared to $0.5 million in the prior year.
Consolidated Results
The Company reported net interest expense of $137,000 in fiscal 2011 as compared to net interest expense of
$125,000 in fiscal 2010. Commitment fees related to the unused portions of the Company’s lines of credit, interest
expense on a mortgage, and interest income on invested cash are included in the net interest expense amounts above.
F ‐ 6
The $5,339,000 income tax expense in fiscal 2011 represents a consolidated effective tax rate of 33.0%. This is
the net result of an income tax rate of 31.2% for the Company’s U.S. operations, 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 adjustments to deferred income tax liabilities, and by a
full valuation reserve on the Company’s Canadian tax position. 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 Company reported net income of $10,828,000 in fiscal 2011 as compared to net income of $1,424,000 in
fiscal 2010. The increased net income is primarily the result of increased net sales and increased gross profit, partially
offset by increased operating expenses and increased income tax expense. Diluted earnings per share were $0.44 in fiscal
2011 as compared to $0.06 in fiscal 2010. The weighted average common shares outstanding for purposes of computing
diluted earnings per share in fiscal 2011 was 24,339,000 shares as compared to 24,134,000 shares in fiscal 2010.
2010 Compared to 2009
Lighting Segment
(In thousands)
Net Sales
Gross Profit
Operating Income (Loss)
2010
159,105
37,185
9,073
$
$
$
2009
160,475
36,403
(3,884)
$
$
$
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 fiscal 2009 to $51,462,000, with approximately $21.4 million related to a
program with 7-Eleven, Inc., who replaced traditional canopy, site and sign lighting with solid-state LED lighting. 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 $28,096,000 in fiscal year 2010 decreased $1.0 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 ($0.2 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 $9,073,000 compares to an operating loss of ($3,884,000)
in fiscal 2009. The improvement of $13.0 million was the net result of decreased net sales, increased gross profit,
decreased selling and administrative expenses, and decreased impairment expense.
F ‐ 7
Graphics Segment
(In thousands)
Net Sales
Gross Profit
Operating Income
2010
2009
$
$
$
68,395
13,781
3,237
$
$
$
60,765
13,382
2,362
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 fiscal 2009 to $38,490,000, with
approximately $17.1 million related to a program with 7-Eleven, Inc., who replaced traditional sign lighting with solid-
state LED lighting. 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 Segment 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 $10,544,000 in fiscal 2010 increased $0.2 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).
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 $3,237,000 increased $0.9 million or 37.0% from
operating income of $2,362,000 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.
Electronic Components Segment
(In thousands)
Net Sales
Gross Profit
Operating Income
2010
2009
$
$
$
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 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
F ‐ 8
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)
Net Sales
Gross Profit
Operating (Loss)
2010
2009
$
$
$
10,786
1,267
(1,807)
$
$
$
12,559
2,060
(4,321)
All Other Category net sales of $10,786,000 in fiscal 2010 decreased 14% from fiscal 2009 net sales of
$12,559,000. The $1.8 million decrease in the All Other Category net sales is primarily the net result of decreased sales to
two quick service restaurant menu board customers ($0.8 million), decreased sales of electrical wire harnesses
($1.0 million), decreased sales of solid state-state LED video screens to the entertainment market ($0.3 million) and
decreased sales of specialty LED lighting ($0.1 million). 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 $1,267,000 in fiscal 2010 compares to gross profit of $2,060,000 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 $2,937,000 decreased $878,000 in fiscal year 2010. Changes of expense
between years included decreased menu board patent settlement expense ($0.2 million), decreased outside services
expense ($0.2 million), decreased depreciation expense ($0.1 million), decreased warranty expense ($0.1 million),
decreased bad debt expense ($0.1 million), decreased rent and lease expense ($0.1 million), decreased research and
development costs ($0.1 million), decreased amortization expense ($0.1 million) and increased royalty expense ($.2
million).
The All Other Category recorded a fiscal 2009 goodwill impairment expense of $2,566,000 compared to a
$137,000 impairment expense in fiscal 2010, resulting in a favorable change of $2.4 million.
The All Other Category fiscal 2010 operating loss of $(1,807,000) compares to an operating loss of $(4,321,000)
in fiscal 2009. This $2.5 million decreased loss was the result of less goodwill impairment and decreased selling and
administrative expenses, partially offset by decreased sales and gross profit.
Corporate and Eliminations
(In thousands)
Net Sales
Gross Profit
Operating Income
2010
2009
$
$
$
--
(347)
(10,873)
$
$
$
--
(18)
(8,568)
The negative gross profit relates to elimination of the intercompany profit in inventory.
Selling and administrative expenses of $10,526,000 in fiscal 2010 increased $2 million primarily as the net result
of: increased compensation, benefits and stock option expense ($1.5 million); increased acquisition deal costs associated
with the acquisition of LSI ADL Technology ($0.5 million); increased research and development expenses ($0.3 million);
decreased depreciation expense ($0.1 million); and decreased professional fees and outside services ($0.6 million).
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
F ‐ 9
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.
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) in fiscal 2009. 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 in fiscal 2009, 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.
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, 2011, the Company had working capital of $84.5 million, compared to $73.6 million at June 30,
2010. The ratio of current assets to current liabilities was 4.92 to 1, compared to a ratio of 3.85 to 1 at June 30, 2010. The
$11.0 million increase in working capital from June 30, 2010 to June 30, 2011 was primarily related to the net effect of
increased net accounts receivable ($9.7 million), increased net inventory ($10.2 million), decreased accounts payable ($3.0
million), decreased accrued expenses ($1.3 million), and increased refundable income taxes ($0.6 million), partially offset
by decreased cash and cash equivalents ($13.4 million), and decreased other current assets ($0.5 million).
The Company used $3.8 million of cash in operating activities in fiscal 2011 as compared to a generation of $16.7
million in the prior year. This $20.5 million decrease in net cash flows from operating activities is primarily the net result
of greater net income (favorable change of $9.4 million), the prior year loss on sale of a subsidiary (unfavorable change of
$0.6 million), more of an increase in accounts receivable (unfavorable change of $6.4 million), an increase rather than a
decrease in inventories (unfavorable change of $13.3 million), an increase rather than a decrease in refundable income
taxes (unfavorable $3.1 million), a decrease rather than an increase in accounts payable (unfavorable change of $5.5
million), a decrease rather than an increase in customer prepayments (unfavorable $2.0 million), an increase rather than a
decrease in the allowance for doubtful accounts (favorable $0.6 million), more of an increase in the inventory
obsolescence reserve (favorable $0.1 million), less of an increase in accrued expenses and other (unfavorable $0.4
million), decreased stock option expense (unfavorable $1.8 million), and a decrease rather than an increase in deferred
income tax assets (favorable $2.6 million).
Net accounts receivable and notes receivable were $45.0 million and $35.3 million at June 30, 2011 and June 30,
2010, respectively. The increase of $9.7 million in net receivables is primarily due to combined effects of a higher amount
of net sales in the fourth quarter of fiscal 2011 as compared to the fourth quarter of fiscal 2010 at an increased DSO. The
DSO increased to 53 days at June 30, 2011 from 48 days at June 30, 2010. 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 of $50.3 million at June 30, 2011 increased $10.2 million from June 30, 2010 levels. Net
inventory increases occurred in fiscal 2011 in the Lighting Segment of approximately $7.1 million, in the Electronic
Components Segment of approximately $5.8 million, and net inventory decreases occurred in the Graphics Segment of
approximately $0.8 million and in the All Other Category of approximately $1.5 million. The majority of the inventory
increases were intentional as the Company increased its inventory of purchased electronic parts in the face of world-wide
shortages and increased finished goods of certain LED lighting fixtures in anticipation of customer roll-out programs.
F ‐ 10
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 in the
U.S., with all $30 million of the credit line available as of August 23, 2011. This line of credit is a $30 million three-year
committed credit facility expiring in the third quarter of fiscal 2014. Additionally, the Company has a separate $5 million
line of credit for the working capital needs of its Canadian subsidiary, LSI Saco Technologies. This line of credit is a $5
million multi-year committed credit facility expiring in the third quarter of fiscal 2013. As of August 23, 2011, all $5
million of this line of credit is available. The Company believes that $35 million total lines of credit plus cash flows from
operating activities are adequate for the Company’s fiscal 2012 operational and capital expenditure needs. The Company
is in compliance with all of its loan covenants.
The Company used $4.7 million of cash related to investing activities in fiscal 2011, compared to a use of $6.3
million in the prior year, a favorable change of $1.6 million. The change between years relates to the amount of fixed
assets purchased, $4,731,000 in fiscal 2011 as compared to $6,150,000 in the prior year ($1.4 million favorable), the larger
amount of proceeds from sale of assets in fiscal 2010 primarily related to the sale of LSI Marcole ($0.5 million
unfavorable) and the fiscal 2010 acquisition of AdL Technology, net of cash received ($0.7 million favorable). Capital
spending in both periods is primarily for tooling and equipment. The Company expects fiscal 2012 capital expenditures to
be approximately $5.0 million, exclusive of business acquisitions, if any.
The Company used $4.9 million of cash related to financing activities in fiscal 2011, compared to a use of $7.0
million in the same period of the prior year. The $2.1 million favorable change between periods is primarily related to the
payment of long-term debt on the opening balance sheet of the acquired LSI ADL Technology in the first quarter of fiscal
2010 as compared to nominal monthly principal payments in fiscal 2011 ($2.2 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, 2011 (a)
Total
Less than
1 year
1-3
years
3-5
years
More than
5 years
Payments Due by Period
Long-Term Debt Obligations
Interest on Long-Term Debt
Operating Lease Obligations
Purchase Obligations
Total
$
$
1,099
100
3,000
13,947
18,146
$
$
35
85
1,404
13,201
14,725
$
$
1,064
15
1,505
616
3,200
$
$
—
—
90
130
220
$
$
—
—
1
—
1
(a) The liability for uncertain tax positions of $2.0 million is not included due to the uncertainty of timing of payments.
Cash Dividends
On August 17, 2011, the Board of Directors declared a regular quarterly cash dividend of $0.05 per share
(approximately $1,202,000) payable September 6, 2011 to shareholders of record on August 30, 2011. 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 $0.24 per share beginning with the first quarter of fiscal 2012 consistent with the above dividend policy.
F ‐ 11
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.
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 estimation of taxable income and the effective income tax rates in the
multiple taxing jurisdictions in which the Company operates, the estimation of the liability for uncertain income tax
positions, 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.
F ‐ 12
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 7.
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 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 amount ultimately not collected may differ from the reserve established,
particularly in the case where percentages are applied against aging categories. In all cases, it is management’s goal to
carry a reserve against the Company’s accounts receivable which is adequate based upon the information available at that
time so that net accounts receivable is properly stated. 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.
Warranty Reserves
The Company maintains a warranty reserve which is reflective of its limited warranty policy. The warranty
reserve covers the estimated future costs to repair or replace defective product or installation services, whether the product
is returned or it is repaired in the field. The warranty reserve is first determined based upon known claims or issues, and
then by the application of a specific percentage of sales to cover general claims. The percentage applied to sales to
calculate general claims is based upon historical claims as a percentage of sales. Management addresses the adequacy of
its warranty reserves on a quarterly basis to ensure the reserve is accurate based upon the most current information.
Inventory Reserves
The Company maintains an inventory reserve for probable obsolescence of its inventory. The Company first
determines its obsolete inventory reserve by considering specific known obsolete items, and then by applying certain
F ‐ 13
percentages to specific inventory categories based upon inventory turns. The Company uses various tools, in addition to
inventory turns, to identify which inventory items have the potential to become obsolete. Significant judgment is used to
establish obsolescence reserves and management adjusts these reserves as more information becomes available about the
ultimate disposition of the inventory item. Management values inventory at lower of cost or market.
New Accounting Pronouncements
In December 2010, the Financial Accounting Standards Board issued ASU 2010-29, "Business Combinations
(Topic 805)." This amended guidance addresses the diversity in practice related to the interpretation of pro forma revenue
and earnings disclosure requirements for business combinations. The objective of this update is for preparers to use a
consistent method of reporting pro forma revenue and earnings as a result of a business combination. The amended
guidance is for annual reporting periods beginning on or after December 15, 2010 or the Company’s fiscal year 2012. The
Company will follow this guidance when it is adopted on future acquisitions.
F ‐ 14
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, 2011, 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, 2011. 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 ‐ 15
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
LSI Industries Inc.
We have audited LSI Industries Inc. (an Ohio corporation) and subsidiaries’ (the “Company”) internal control over
financial reporting as of June 30, 2011, based on criteria established in Internal Control — Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s 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 the Company’s 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, 2011, 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 sheets as of June 30, 2011 and 2010, and the related consolidated statements of
operations, shareholders’ equity, cash flows, and financial statement schedule as of and for the years ended June 30, 2011
and 2010 of the Company, and our report dated August 26, 2011 expressed an unqualified opinion on those financial
statements and financial statement schedule.
/s/ Grant Thornton LLP
Cincinnati, Ohio
August 26, 2011
F ‐ 16
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
LSI Industries Inc.
We have audited the accompanying consolidated balance sheets of LSI Industries Inc. (an Ohio corporation) and
subsidiaries (the “Company”) as of June 30, 2011 and 2010, and the related consolidated statements of operations,
shareholders’ equity, and cash flows for the years ended June 30, 2011 and 2010. Our audits of the basic consolidated
financial statements included the financial statement schedule for the years ended June 30, 2011 and 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 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, the consolidated financial statements referred to above present fairly, in all material respects, the financial
position of LSI Industries Inc. and subsidiaries as of June 30, 2011 and 2010, and the results of their operations and their
cash flows for the years ended June 30, 2011 and 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 consolidated 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), the Company’s internal control over financial reporting as of June 30, 2011, 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 August 26, 2011 expressed an unqualified opinion.
/s/ Grant Thornton LLP
Cincinnati, Ohio
August 26, 2011
F ‐ 17
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 statements of operations, shareholders’ equity, and cash flows of LSI
Industries Inc. and subsidiaries for the year ended June 30, 2009. Our audit also included the consolidated financial
statement schedule listed in the Index at Item 15 for the year ended June 30, 2009. 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 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, such consolidated financial statements present fairly, in all material respects, the results of LSI Industries
Inc. and subsidiaries’ operations and their cash flows for the year 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 year ended June 30, 2009, 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 2 to the consolidated financial statements, the disclosures in the accompanying 2009 financial
statements have been retrospectively adjusted for a change in the composition of reportable segments.
/s/ Deloitte & Touche LLP
Cincinnati, Ohio
September 11, 2009 (August 26, 2011 as to the 2009 segment information in Note 2)
F ‐ 18
LSI INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended June 30, 2011, 2010, and 2009
(In thousands, except per share data)
2011
2010
2009
Net sales
$
293,501
$
254,402
$
233,799
Cost of products and services sold
221,156
198,030
181,972
Loss on sale of subsidiary
—
639
—
Total cost of products and services sold
221,156
198,669
181,972
Gross profit
72,345
55,733
51,827
Selling and administrative expenses
56,041
53,671
51,571
Loss contingency (see Note 14)
Goodwill and intangible asset impairments
—
—
—
200
153
14,467
Operating income (loss)
16,304
1,909
(14,411)
Interest (income)
Interest expense
(43)
180
(28)
153
(97)
89
Income (loss) before income taxes
16,167
1,784
(14,403)
Income tax expense (benefit)
Net income (loss)
Earnings (loss) per common share (see Note 4)
Basic
Diluted
Weighted average common shares outstanding
Basic
Diluted
The accompanying notes are an
integral part of these financial statements.
5,339
360
(989)
$
10,828
$
1,424
$
(13,414)
$
$
0.45
0.44
$
$
0.06
0.06
$
$
(0.62)
(0.62)
24,287
24,128
21,800
24,339
24,134
21,800
F ‐ 19
LSI INDUSTRIES INC.
CONSOLIDATED BALANCE SHEETS
June 30, 2011 and 2010
(In thousands, except shares)
ASSETS
Current Assets
2011
2010
Cash and cash equivalents
$
4,056
$
17,417
Accounts and notes receivable, less allowance for doubtful accounts of $826 and $399,
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
Other Long-Term Assets, net
Total assets
The accompanying notes are an
integral part of these financial statements.
44,974
35,254
50,298
40,082
1,795
4,977
1,146
5,512
106,100
99,411
6,848
37,228
68,064
427
112,567
(68,283 )
44,284
6,784
36,148
65,507
434
108,873
(63,962)
44,911
10,766
10,766
12,514
15,103
2,357
3,654
$
176,021
$
173,845
F ‐ 20
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 14)
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 24,047,485 and 24,054,213 shares, respectively
Retained earnings
Total shareholders’ equity
2011
2010
$
$
35
9,568
11,973
33
12,553
13,257
21,576
25,843
3,227
3,784
—
—
—
—
100,944
50,274
99,963
44,255
151,218
144,218
Total liabilities & shareholders’ equity
$
176,021
$
173,845
The accompanying notes are an
integral part of these financial statements.
F ‐ 21
LSI INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
For the years ended June 30, 2011, 2010, and 2009
(In thousands, except per share data)
Common Shares
Number of
Shares
Amount
Retained
Earnings
Total
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
Dividends — $0.30 per share
—
6
(11)
—
—
—
—
—
41
(29)
(28)
1,184
—
—
(13,414)
—
—
—
—
—
(6,471)
(13,414)
41
(29)
(28)
1,184
—
(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
Common shares issued for acquisition
Dividends — $0.20 per share
—
7
(2)
—
—
—
2,469
—
—
46
52
(49)
2,633
—
14,448
—
1,424
—
—
—
—
—
—
(4,809)
1,424
46
52
(49)
2,633
—
14,448
(4,809)
Balance at June 30, 2010
24,054
99,963
44,255
144,218
Net income
Stock compensation awards
Purchase of treasury shares, net
Deferred stock compensation
Stock option expense
Stock options exercised, net
Dividends — $0.20 per share
—
6
(20)
—
—
7
—
—
41
(96)
126
851
59
—
10,828
—
—
—
—
—
(4,809)
10,828
41
(96)
126
851
59
(4,809)
Balance at June 30, 2011
24,047
$
100,944
$
50,274
$
151,218
The accompanying notes are an
integral part of these financial statements.
F ‐ 22
LSI INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended June 30, 2011, 2010, and 2009
(In thousands)
Cash Flows From Operating Activities
Net income (loss)
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
2011
2010
2009
$
10,828 $
1,424 $
(13,414)
7,877
—
—
1,003
126
851
41
15
427
276
7,849
639
153
(1,564)
(49)
2,633
46
41
(142)
176
(10,147)
(10,492)
(649)
(2,985)
645
(1,622)
(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 (used in) operating activities
(3,806)
16,729
16,486
Cash Flows From Investing Activities
Purchases of property, plant, and equipment
Proceeds from sale of fixed assets
Acquisition of a business, net of cash received
(4,731)
55
—
(6,150)
521
(675)
(2,994)
2
—
Net cash flows (used in) investing activities
(4,676)
(6,304)
(2,992)
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
(33)
—
(4,809)
(118)
22
59
(2,237)
—
(4,809)
(111)
163
—
(1,282)
1,282
(6,471)
(188)
159
—
Net cash flows (used in) financing activities
(4,879)
(6,994)
(6,500)
Increase (decrease) in cash and cash equivalents
(13,361)
3,431
6,994
Cash and cash equivalents at beginning of year
17,417
13,986
6,992
Cash and cash equivalents at end of year
The accompanying notes are an
integral part of these financial statements.
$
4,056 $ 17,417 $
13,986
F ‐ 23
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
(the “Company”), 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 essential to the functionality of the tangible
product and are thus 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 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.
F ‐ 24
(In thousands)
Accounts and notes receivable
less Allowance for doubtful accounts
Accounts and notes receivable, net
Cash and Cash Equivalents:
June 30,
2011
June 30,
2010
$
$
45,800 $
(826)
44,974 $
35,653
(399)
35,254
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, 2011 and 2010, the Company had bank balances of
$1,235,000 and $18,561,000, 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)
Property, plant and equipment, at cost
less Accumulated depreciation
Property, plant and equipment, net
June 30,
2011
June 30,
2010
$
$
112,567
(68,283)
44,284
$
$
108,873
(63,962)
44,911
The Company recorded $5,288,000, $5,294,000 and $5,667,000 of depreciation expense in the years ended June 30, 2011,
2010 and 2009, 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 7.
F ‐ 25
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 products 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:
(In thousands)
Balance at beginning of the period
Additions charged to expense
Addition from acquisition
Deductions for repairs and replacements
Balance at end of the period
Employee Benefit Plans:
Twelve
Twelve
Months Ended Months Ended
June 30,
2011
June 30,
2010
$
$
589 $
1,606
--
(1,533)
662 $
223
1,870
5
(1,509)
589
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 $941,000 in
2011, $943,000 in 2010, and $1,592,000 in 2009.
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 related to both product and software development totaled
$5,162,000, $5,148,000, and $4,052,000 for fiscal years ended June 30, 2011, 2010 and 2009, respectively, and are
included in selling and administrative expenses.
Advertising Expense:
The Company recorded $397,000, $281,000, and $301,000 of advertising expense in 2011, 2010 and 2009, 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
F ‐ 26
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 293,000 shares in 2011, 238,000
shares in 2010 and 226,000 shares in 2009. 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 at the grant
date, based on the fair value of the award and recognizes this cost over the period during which an employee is required to
provide the services.
The Company recorded $2,300 in fiscal 2011 as a reduction of federal income taxes payable, $58,800 as an increase in
common stock, and $2,300 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 increasing cash flow from financing
activities by $58,800. See further discussion in Note 10. There were no disqualifying dispositions of shares from stock
option exercises in fiscal years 2010 or 2009.
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 was effective for
revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. The
Company adopted the amended guidance on July 1, 2010. There was no impact on the consolidated results of operations,
cash flows or financial position as a result of the amended guidance.
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, established 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
was effective for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15,
2010. The Company adopted the amended guidance on July 1, 2010. There was no impact on the consolidated results of
operations, cash flows or financial position as a result of the amended guidance.
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 through the date the consolidated
financial statements were filed. 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. For segment reporting, the Technology Segment has been reclassified into the All Other Category, and
Corporate and Eliminations has been separately stated. See further discussion in Note 2.
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
F ‐ 27
separate discrete financial information is available for evaluation by the chief operating decision maker (the Company’s
Chief Executive Officer) in making decisions on how to allocate resources and assess performance. While the Company
has twelve operating segments, it has only three reportable operating business segments (Lighting, Graphics, and
Electronic Components), an All Other Category, and Corporate and Eliminations.
The Company made changes to its reportable business segments in fiscal 2011. The Technology Segment was reclassified
into the All Other Category because there were no quantitative measures or qualitative factors that required the operating
results of LSI Saco Technologies to be reported in a separate business segment. The Company also reclassified its
Corporate Administration and intercompany eliminations out of the All Other Category and into a separate line item in the
business segment disclosures because this presents a more appropriate disclosure of operating income (loss) of the All
Other Category. Additionally, the Company reclassified an indefinite lived trade name intangible asset and its related
intercompany royalty income from the Corporate Administration balance sheet and operating results to the balance sheet
and operating results of the Lighting Segment. Also, certain definite lived LED technology intangible assets and related
amortization expenses were reclassified from the Corporate Administration balance sheet and operating results to the
balance sheets and operating results of the Lighting Segment and the Graphics Segment. All intersegment royalty income
related to these LED technology intangible assets has been reclassified from the Corporate Administration operating
results to the Graphics Segment operating results. The changes described in this paragraph were made for all reported
periods in these financial statements, and they had no impact on the Company’s consolidated results.
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 LSI Greenlee facility in Dallas, Texas was
consolidated into the Company’s main lighting facility in Ohio in the second quarter of fiscal 2011.
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 (LED video
screens are designed and manufactured by the Company’s Lighting Segment and by LSI Saco in the All Other Category).
These products are used in visual image programs in several markets, including 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 each exhibit similar economic characteristics and meet the
other requirements for aggregation in segment reporting.
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.
The All Other Category includes the Company’s operating segments that neither 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, operations of LSI Saco Technologies (designs and produces high-
performance light engines, large format video screens using solid-state LED technology, and certain specialty LED
lighting) are included in the All Other Category.
The Company’s Corporate Administration activities are reported in a line item titled Corporate and Eliminations. This
primarily includes intercompany profit in inventory eliminations, expense related to certain corporate officers and support
staff, the Company’s internal audit staff, the Company’s Board of Directors, stock option expense, certain consulting
expenses, investor relations activities, a portion of the Company’s legal, auditing and professional fee expenses, and
certain research and development expense. Corporate identifiable assets primarily consist of cash, invested cash (if any),
refundable income taxes, and deferred income tax assets.
Summarized financial information for the Company’s reportable business segments is provided for the following periods
and as of June 30, 2011, June 30, 2010 and June 30, 2009:
F ‐ 28
(In thousands)
Net sales:
Lighting Segment
Graphics Segment
Electronic Components Segment
All Other Category
Operating income (loss):
Lighting Segment
Graphics Segment
Electronic Components Segment
All Other Category
Corporate and Eliminations
Capital expenditures:
Lighting Segment
Graphics Segment
Electronic Components Segment
All Other Category
Corporate and Eliminations
Depreciation and amortization:
Lighting Segment
Graphics Segment
Electronic Components Segment
All Other Category
Corporate and Eliminations
2011
2010
2009
196,550
68,155
21,449
7,347
293,501
11,423
6,373
7,886
(543)
(8,835)
16,304
3,231
171
855
119
355
4,731
3,858
2,000
944
242
833
7,877
$
$
$
$
$
$
$
$
159,105
68,395
16,116
10,786
254,402
9,073
3,237
2,279
(1,807)
(10,873)
1,909
3,033
2,098
566
89
364
6,150
3,703
2,026
854
404
862
7,849
$
$
$
$
$
$
$
$
160,475
60,765
—
12,559
233,799
(3,884)
2,362
—
(4,321)
(8,568)
(14,411)
977
1,933
—
59
25
2,994
3,989
2,204
—
576
977
7,746
$
$
$
$
$
$
$
$
F ‐ 29
Identifiable assets:
Lighting Segment
Graphics Segment
Electronic Components Segment
All Other Category
Corporate and Eliminations
June 30,
2011
June 30,
2010
June 30,
2009
$
$
100,659 $
29,516
31,072
9,963
4,811
176,021 $
81,927 $
36,077
23,136
15,372
17,333
173,845 $
77,733
36,161
—
18,130
21,094
153,118
Segment net sales represent sales to external customers. Intersegment revenues were eliminated in consolidation as
follows:
(In thousands)
2011
2010
2009
Lighting Segment intersegment net sales
Graphics Segment intersegment net sales
Electronic Components intersegment net sales
All Other Category intersegment net sales
$
$
$
$
3,530
1,024
$
$
6,383
862
$
$
25,570
5,394
6,097
1,479
—
5,568
$
6,975
$
8,707
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 identifiable assets primarily consist
of cash, invested cash (if any), refundable income taxes, and deferred income tax assets.
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, with one operation in Canada. The geographic distribution of the Company’s net sales
and long-lived assets are as follows:
(In thousands)
Net sales (a):
United States
Canada
Long-lived assets (b):
United States
Canada
2011
2010
2009
$
$
$
$
289,827
3,674
293,501
$
$
249,897
4,505
254,402
June 30,
2011
June 30,
2010
46,343
298
46,641
$
$
48,220
345
48,565
$
$
$
$
229,223
4,576
233,799
June 30,
2009
45,898
564
46,462
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.
F ‐ 30
NOTE 3 — MAJOR CUSTOMER CONCENTRATIONS
The Company’s Lighting Segment and Graphics Segment net sales to 7-Eleven, Inc. represented approximately $39,952,000 or
14% and $41,997,000 or 17% of consolidated net sales in the fiscal years ended June 30, 2011 and 2010, respectively. There
were no customers or customer programs representing a concentration of 10% or more of the Company’s net sales in the fiscal
year ended June 30, 2009. There was no concentration of accounts receivable at June 30, 2011 or 2010.
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)
BASIC EARNINGS (LOSS) PER SHARE
2011
2010
2009
Net income (loss)
$
10,828
$
1,424
$
(13,414)
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
24,046
23,896
21,574
241
24,287
232
24,128
226
21,800
Basic earnings (loss) per share
$
0.45
$
0.06
$
(0.62)
DILUTED EARNINGS (LOSS) PER SHARE
Net income (loss)
$
10,828
$
1,424
$
(13,414)
Weighted average shares outstanding
Basic
24,287
24,128
21,800
Effect of dilutive securities (b):
Impact of common shares to be issued under stock option plans, and
contingently issuable shares, if any
52
6
—
Weighted average shares outstanding (c)
24,339
24,134
21,800
Diluted earnings (loss) per share
$
0.44
$
0.06
$
(0.62)
(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 1,881,395 common shares, 2,046,573 common shares, and 1,512,367 common shares at June 30,
2011, 2010, and 2009, 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.
F ‐ 31
NOTE 5 — INVENTORIES
The following information is provided as of the dates indicated:
(In thousands)
Inventories:
Raw materials
Work-in-process
Finished goods
NOTE 6 - ACCRUED EXPENSES
The following information is provided as of the dates indicated:
(In thousands)
Accrued Expenses:
Compensation and benefits
Customer prepayments
Accrued sales commissions
Other accrued expenses
June 30,
2011
June 30,
2010
$
$
32,374
5,965
11,959
50,298
$
$
19,029
8,891
12,162
40,082
June 30,
2011
June 30,
2010
$
$
7,589
611
1,419
2,354
11,973
$
$
6,725
2,233
884
3,415
13,257
NOTE 7 - 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
performed this test as of July 1st of each fiscal year, with the last test performed using this date as of July 1, 2010. The
Company decided in fiscal 2011 to change the annual testing from July 1st to March 1st in order to reduce administrative
burden. The change from a testing date of July 1st to March 1st resulted in two impairment tests in fiscal 2011 that were
eight months apart. The Company also performs the test 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.
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 an additional goodwill impairment test was required as of 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 test was performed as of that date. 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.
Based upon the Company’s analyses as of July 1, 2010, it was determined that the goodwill associated with the four
reporting units that contained goodwill was not impaired. The goodwill impairment test in the Electronic Components
Segment passed with an estimated business enterprise value that was $2.2 million or 10% above the carrying value of this
reporting unit. The goodwill impairment test in the All Other Category passed with an estimated business enterprise value
that was $0.9 million or 84% above the carrying value of the reporting unit. The goodwill impairment tests in the Lighting
and Graphics Segments passed with significant and substantial margin (in excess of 600% and 150%, respectively).
F ‐ 32
The Company performed a second annual goodwill impairment test, as of March 1, 2011, as a result of the change in the
timing of the performance of the annual test as noted above. Based upon the Company’s analyses as of March 1, 2011, it
was determined that the goodwill associated with the four reporting units that contained goodwill was not impaired. The
goodwill impairment test in the Electronic Components Segment passed with an estimated business enterprise value that
was $16.5 million or 69% above the carrying value of this reporting unit. The goodwill impairment test in the All Other
Category passed with an estimated business enterprise value that was $2.3 million or 265% above the carrying value of the
reporting unit. The goodwill impairment tests in the Lighting and Graphics Segments passed (in excess of 42% and 91%,
respectively).
The following table presents information about the Company's goodwill on the dates or for the periods indicated.
Goodwill
(In thousands)
Balance as of June 30, 2010
Goodwill
Accumulated impairment
Losses
Balance as of June 30, 2011
Goodwill
Accumulated impairment
Losses
Lighting
Segment
Graphics
Segment
Electronic
Components All Other
Category
Segment
Total
$
34,913 $
24,959 $
9,208 $
6,850 $
75,930
(34,778)
135 $
(24,701)
258 $
$
--
9,208 $
(5,685)
1,165 $
(65,164)
10,766
$
34,913 $
24,959 $
9,208 $
6,850 $
75,930
(34,778)
135 $
(24,701)
258 $
$
--
9,208 $
(5,685)
1,165 $
(65,164)
10,766
Based upon the Company’s analysis as of July 1, 2010, it was determined that its indefinite-lived intangible assets were
not impaired. The Company performed a second annual indefinite-lived intangible asset impairment test, as of March 1,
2011, as a result of the change in the timing of the performance of the annual test. Based upon the Company’s analysis as
of March 1, 2011, it was determined that its indefinite-lived intangible assets were not impaired.
Based upon the Company’s analysis as of July 1, 2009, it was 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 All Other Category was also fully impaired. Accordingly, the Company recorded
$153,000 of intangible asset impairment expense in fiscal 2010.
F ‐ 33
The gross carrying amount and accumulated amortization by major other intangible asset class is as follows:
Intangible Assets
(In thousands)
Amortized Intangible Assets
Customer relationships
Patents
LED technology firmware, software
Trade name
Non-compete agreements
Indefinite-lived Intangible Assets
Trademarks and trade names
June 30, 2011
Gross
Carrying
Amount
Accumulated
Amortization
Net
Amount
$
10,352 $
70
11,228
460
890
23,000
5,745 $
46
7,614
178
325
13,908
3,422
3,422
--
--
4,607
24
3,614
282
565
9,092
3,422
3,422
Total Intangible Assets
$
26,422 $
13,908 $
12,514
(In thousands)
Amortized Intangible Assets
Customer relationships
Patents
LED technology firmware, software
Trade name
Non-compete agreements
Indefinite-lived Intangible Assets
Trademarks and trade names
June 30, 2010
Gross
Carrying
Amount
Accumulated
Amortization
Net
Amount
$
10,352 $
70
11,228
460
890
23,000
3,422
3,422
4,950 $
42
6,043
86
198
11,319
--
--
5,402
28
5,185
374
692
11,681
3,422
3,422
Total Intangible Assets
$
26,422 $
11,319 $
15,103
(In thousands)
Amortization Expense of Other Intangible
Assets
2010
2009
2011
$
2,589 $
2,555 $
2,079
The Company expects to record amortization expense as follows: fiscal 2012 -- $2,588,000; 2013 -- $2,323,000; 2014 --
$619,000; 2015 -- $533,000; 2016 -- $527,000; and after 2016 -- $2,502,000.
NOTE 8 — 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, 2011. The line of credit expires in the third quarter of fiscal 2014. 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
F ‐ 34
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 175 and 215 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 and 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.
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 2012. 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, 2011.
The Company assumed a mortgage loan with the acquisition of AdL Technology in July 2009. Monthly principal and
interest 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. 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.
The Company is in compliance with all of its loan covenants as of June 30, 2011.
(In thousands)
Total mortgage balance
Less current maturities
Long-term debt
Maturities of long-term debt are as follows:
(In thousands)
Fiscal year ended June 30
2012
2013
NOTE 9 — CASH DIVIDENDS
June 30,
2011
June 30,
2010
$
$
1,099
35
1,064
$
$
1,132
33
1,099
$
35
1,064
$ 1,099
The Company paid cash dividends of $4,809,000, $4,809,000, and $6,471,000 in fiscal years 2011, 2010, and 2009,
respectively. In August 2011, the Company’s Board of Directors declared a $0.05 per share regular quarterly cash dividend
(approximately $1,202,000) payable on September 6, 2011 to shareholders of record August 30, 2011.
NOTE 10 — 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 certain 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, the Plan generally provides for acceleration
of vesting. The number of shares reserved for issuance is 2,800,000, of which 705,779 shares were available for future
grant or award as of June 30, 2011. 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, 2011, a total of 2,123,939 options for common shares were outstanding from this plan as well as two previous
F ‐ 35
stock option plans (both of which had also been approved by shareholders), and of these, a total of 1,192,814 options for
common shares were vested and exercisable. The approximate unvested stock option expense as of June 30, 2011 that will
be recorded as expense in future periods is $781,072. The weighted average time over which this expense will be recorded
is approximately 18 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.
Dividend yield
Expected volatility
Risk-free interest rate
Expected life
2011
2010
2009
3.74%
53%
1.4%
4.5 yrs.
2.95%
52%
2.4%
4.3 yrs.
4.60%
45%
3.0%
5.1 yrs.
At June 30, 2011, the 288,200 options granted in fiscal 2011 to both employees and non-employee directors had exercise
prices ranging from $4.84 to $8.92, fair values ranging from $1.60 to $3.37, and remaining contractual lives of between
nine years and nine years five months.
At June 30, 2010, the 648,500 options granted during fiscal 2010 to both 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.
The Company calculates stock option expense using the Black-Scholes model. Stock option expense is recorded on a
straight line basis with an estimated 3.6% forfeiture rate effective April 1, 2011, with the previous estimated forfeiture rate
having been 3.0% effective July 1, 2010 and 6.55% prior to July 1, 2010. 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 $851,755, $2,633,000 and $1,184,000 of expense related to stock options in fiscal
years 2011, 2010 and 2009, respectively. As of June 30, 2011, the Company expects that approximately 910,780
outstanding stock options having a weighted average exercise price of $8.21 per share, intrinsic value of $811,134 and
weighted average remaining contractual terms of 8.1 years will vest in the future.
Information related to all stock options for the years ended June 30, 2011, 2010 and 2009 is shown in the following table:
F ‐ 36
Twelve Months Ended June 30, 2011
Weighted
Average
Exercise
Price
Shares
Weighted
Average
Remaining
Contractual Term
Aggregate
Intrinsic
Value
Outstanding at 6/30/10
2,123,086 $
11.64
6.6 years $
15,270
Granted
Forfeitures
Exercised
288,200 $
$
(280,347)
$
(7,000)
5.29
11.53
8.40
Outstanding at 6/30/11
2,123,939 $
10.80
6.3 years $
955,401
Exercisable at 6/30/11
1,192,814 $
12.85
5.0 years $
112,594
Twelve Months Ended June 30, 2010
Weighted
Average
Exercise
Price
Shares
Weighted
Average
Remaining
Contractual Term
Aggregate
Intrinsic
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
Twelve Months Ended June 30, 2009
Weighted
Average
Exercise
Price
Shares
Weighted
Average
Remaining
Contractual Term
Aggregate
Intrinsic
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
The aggregate intrinsic value of options exercised during the year ended June 30, 2011 was $6,526. No
options were exercised in the years ended June 30, 2010 and 2009.
F ‐ 37
Stock Compensation Awards
The Company awarded a total of 6,256 common shares in fiscal 2011, 6,848 common shares in fiscal 2010, and 6,032
common shares in fiscal 2009 as stock compensation awards. These common shares were valued at their approximate
$40,900, $45,538, and $40,680 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. This plan is fully funded in a Rabbi Trust. All plan investments are in common shares of the
Company. As of June 30, 2011 there were 27 participants, all with fully vested account balances. A total of 244,868
common shares with a cost of $2,499,700, and 224,884 common shares with a cost of $2,403,600 were held in the plan as
of June 30, 2011 and June 30, 2010, 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 2012, the Company estimates the Rabbi Trust for the Nonqualified Deferred
Compensation Plan will make net repurchases in the range of 26,000 to 28,000 common shares of the Company. During
fiscal years 2011 and 2010, the Company used approximately $117,900 and $110,660, 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 11 — LEASES AND PURCHASE COMMITMENTS
Purchase commitments, including minimum annual rental commitments, of the Company totaled $18,146,000 and
$19,972,000 as of June 30, 2011 and June 30, 2010, respectively. The Company leases certain of its facilities and
equipment under operating lease arrangements. The facility leases contain the option to renew for periods ranging from
one to five years. Rental expense was $2,858,000 in 2011, $2,254,000 in 2010, and $2,243,000 in 2009. Minimum annual
rental commitments under non-cancelable operating leases are indicated in the table below:
2012
$1,404,000
2013
$1,156,000
2014
$349,000
2015
$56,000
2016
$34,000
NOTE 12 — INCOME TAXES
The following information is provided for the years ended June 30:
(In thousands)
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
Total provision (benefit) for income taxes
2011
2010
2009
$
$
$
$
$
$
$
17,309
(1,263)
16,046
4,047
393
(104)
4,336
1,003
5,339
$
$
$
2,323
(539)
1,784
2,015
(12)
(79)
1,924
(1,564)
360
$
(13,911)
(492)
(14,403)
(1,629)
(147)
(214)
(1,990)
1,001
(989)
F ‐ 38
(In thousands)
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
2011
2010
2009
34.3%
1.4
(1.5)
(0.9)
(0.1)
3.5
(2.7)
(1.0)
33.0%
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%
The components of deferred income tax assets and (liabilities) at June 30, 2011 and 2010 are as follows:
(In thousands)
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
Net deferred income tax asset
Reconciliation to the balance sheets as of June 30, 2011 and 2010:
(In thousands)
Deferred income tax asset included in:
Other current assets
Other long-term assets
Net deferred income tax asset
2011
2010
$
$
233
1,276
(3,534)
2,597
893
1,858
3,286
(4,200)
213
1,132
(2,701)
3,026
809
1,841
2,447
(3,355)
$
2,409
$
3,412
2011
2010
$
$
1,509
900
$
1,345
2,067
2,409
$
3,412
As of June 30, 2011 and 2010, the Company has recorded a deferred state income tax asset in the amount of $944,000 and
$933,000, respectively, 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 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, as of June 30, 2011 and 2010, the Company has recorded a deferred state income tax asset in the
amount of $90,000 and $84,000, respectively, 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 $11,000, $(59,000), and $25,000 in fiscal years 2011, 2010 and 2009, respectively.
As of June 30, 2011 and 2010, 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 $3,286,000 and $2,447,000, 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, as of June 30, 2011 and 2010, the Company has recorded a deferred state tax asset in the amount of $90,000
and $84,000, respectively, 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. Additionally, the Company has recorded a deferred state
income tax asset in the amount of $824,000, net of federal tax benefit, related to non-refundable New York state tax
credits, and has determined that a valuation reserve is required. These credits do not expire, but the Company has
F ‐ 39
determined this asset more likely than not, will not be realized within the next twenty years. Accordingly, full valuation
reserves of $4,200,000 and $3,355,000 were recorded as of June 30, 2011 and 2010, respectively.
The Company accounts for uncertain tax positions in accordance with Accounting Standards Codification 740-10. At
June 30, 2011, tax and interest, net of potential federal tax benefits, were $1,214,000 and $452,000, respectively, of the
total reserve for uncertain tax positions of $1,999,000. Additionally, penalties were $305,000 of the reserve at June 30,
2011. Of the $1,999,000 reserve for uncertain tax positions, $1,694,000 would have an unfavorable impact on the effective
tax rate if recognized. At June 30, 2010, tax and interest, net of potential federal tax benefits, were $1,660,000 and
$449,000, respectively, of the total reserve for uncertain tax positions 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.
The Company recognized a $300,000 tax benefit in fiscal 2011, a $216,000 tax benefit in fiscal 2010, and a $226,000 tax
benefit in fiscal 2009 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 2011, 2010 and 2009 activity in the Liability for Uncertain Tax Positions, which is included in Other Long-
Term Liabilities, was as follows:
(in thousands)
2011
2010
2009
Balance at beginning of the fiscal year
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
Lapse of statute of limitations
Balance at end of the fiscal year
$
$
2,366
—
(172)
74
—
—
(358)
1,910
$
$
2,693
—
(255)
37
—
(85)
(24)
2,366
$
$
3,040
—
—
14
—
(361)
—
2,693
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.
NOTE 13 — SUPPLEMENTAL CASH FLOW INFORMATION
(In thousands)
Cash payments:
Interest
Income taxes
Issuance of common shares as compensation
Issuance of common shares for acquisition
NOTE 14 — COMMITMENTS AND CONTINGENCIES
2011
2010
2009
$
$
$
$
138
6,373
41
--
$
$
$
$
144
519
46
14,448
$
$
$
$
119
564
41
--
The Company is party to various negotiations, customer bankruptcies, and legal proceedings arising in the normal course
of business. The Company provides reserves for these matters when a loss is probable and reasonably estimable. In the
opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Company’s
financial position, results of operations, cash flows or liquidity.
The Company was named as one of several defendants in a lawsuit filed in August 2010 alleging patent infringement with
respect to alleged two way communication features in the Company’s solid-state LED video screens sold over the past four
and one half years. The plaintiff was seeking unspecified damages related to the alleged patent infringement. The
Company and the plaintiff concluded discussions related to this lawsuit, settled this matter and entered into a license
agreement. While the Company believes its LED video screen designs do not infringe upon the plaintiff’s patent,
management believed it was in the best interest of the Company in the third quarter of fiscal 2011 to reach agreement with
the plaintiff for settlement.
F ‐ 40
The Company also 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 15 — RELATED PARTY TRANSACTIONS
The Company has recorded expense for the following related party transactions in the fiscal years indicated (amounts in
thousands):
Keating Muething & Klekamp PLL
American Engineering and Metal Working
3970957 Canada Inc.
2011
2010
2009
$
$
$
127
178
181
$
$
$
277
200
181
$
$
$
266
202
180
As of the balance sheet date indicated, the Company had the following liabilities recorded with respect to related party
transactions (amounts in thousands):
Keating Muething & Klekamp PLL
American Engineering and Metal Working
June 30,
2011
June 30,
2010
$
$
9
6
$
$
34
61
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 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 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 which was paid in full. 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 has continued to purchase wire harnesses from the new owner of the facility pursuant to a manufacturing and
supply agreement. The operating results of LSI Marcole were reported under the All Other Category.
The assets and liabilities of LSI Marcole were comprised of the following on the dates indicated:
(In thousands)
Accounts receivable, net
Note receivable, current portion
Other current assets
Total Assets
F ‐ 41
June 30,
2010
1
670
14
685
$
$
The net customer sales and operating (loss) of LSI Marcole for the periods indicated were as follows:
(In thousands)
Net sales
Operating (loss)
2010
2009
$
$
2,886
(1,101)
$
$
3,970
(614)
NOTE 17 — SUMMARY OF QUARTERLY RESULTS (UNAUDITED)
(In thousands except per share data)
Sept. 30
Dec. 31
March 31
June 30
Quarter Ended
Fiscal
Year
2011
Net sales
Gross profit
Net income
Earnings per share
Basic
Diluted
Range of share prices
High
Low
2010
Net sales
Gross profit
Net income (loss)
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
$
79,851 $
20,622
4,268
74,805 $
18,647
2,948
64,628 $
16,324
2,115
74,217 $
16,752
1,497
293,501
72,345
10,828
$
$
$
$
$
$
$
$
$
$
0.18 $
0.18 $
0.12 $
0.12 $
0.09 $
0.09 $
0.06 $
0.06 $
0.45
0.44(a)
6.46 $
4.69 $
9.61 $
6.38 $
8.79 $
6.86 $
8.62 $
6.90 $
9.61
4.69
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
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
(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 15, 2011, there were 497 shareholders of record. The Company believes this represents approximately 3,000
beneficial shareholders.
F ‐ 42
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:
Net sales
Cost of products and services sold
Loss on sale of a subsidiary
Operating expenses
Loss contingency (a)
Goodwill and intangible asset
impairment (b)
Operating income (loss)
Interest (income)
Interest expense
Income (loss) before income taxes
Income taxes
2011
2010
2009
2008
2007
$
$
293,501
221,156
—
56,041
—
$
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)
—
153
14,467
27,955
—
16,304
(43)
180
16,167
5,339
1,909
(28)
153
1,784
360
(14,411)
(97)
89
(14,403)
(989)
(10,970)
(360)
81
(10,691)
2,357
32,550
(139)
962
31,727
10,938
Net income (loss)
$
10,828
$
1,424
$
(13,414)
$
(13,048)
$
20,789
Earnings (loss) per common share
Basic
Diluted
Cash dividends paid per share
Weighted average common shares
Basic
Diluted
Balance Sheet Data:
(At June 30)
$
$
$
0.45
0.44
0.20
$
$
$
0.06
0.06
0.20
$
$
$
(0.62)
(0.62)
0.30
$
$
$
(0.60)
(0.60)
0.63
$
$
$
0.96
0.95
0.51
24,287
24,339
24,128
24,134
21,800
21,800
21,764
21,764
21,676
21,924
2011
2010
2009
2008
2007
Working capital
Total assets
Long-term debt, including current
maturities
Shareholders’ equity
$
84,524
176,021
$
73,568
173,845
$
72,500
153,118
$
72,863
184,214
$
68,397
233,612
1,099
151,218
1,132
144,218
—
130,473
—
149,190
—
176,061
(a) 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.
(b) The Company recorded a significant impairment of goodwill and intangible assets in fiscal 2009 and 2008. See Note 7.
F ‐ 43
LSI INDUSTRIES INC. AND SUBSIDIARIES
SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED JUNE 30, 2011, 2010, AND 2009
(In Thousands)
COLUMN A
COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
Balance
Beginning
of Period
Additions
Charged to
Costs and
Expenses
Additions
from
Acquired
Company Deductions
(a)
Balance
End of
Period
Description
Allowance for Doubtful Accounts:
Year Ended June 30, 2011
Year Ended June 30, 2010
Year Ended June 30, 2009
$
$
$
399 $
532 $
585 $
1,183 $
424 $
135 $
— $
9 $
— $
(756) $
(566) $
(188) $
826
399
532
Inventory Obsolescence Reserve:
Year Ended June 30, 2011
Year Ended June 30, 2010
Year Ended June 30, 2009
$
$
$
1,537 $
1,410 $
1,638 $
1,422 $
1,517 $
1,568 $
— $
89 $
— $
(1,146) $
(1,479) $
(1,796) $
1,813
1,537
1,410
Deferred Tax Asset Valuation
Reserve:
Year Ended June 30, 2011
Year Ended June 30, 2010
Year Ended June 30, 2009
$
$
$
3,355 $
1,940 $
1,819 $
845 $
1,415 $
121 $
— $
— $
— $
— $
— $
— $
4,200
3,355
1,940
(a) For Allowance for Doubtful Accounts, deductions are uncollectible accounts charged off, less recoveries.
F ‐ 44
AMENDMENT TO CREDIT AGREEMENT
EXHIBIT 10.3
LSI INDUSTRIES INC., an Ohio corporation (the "Borrower"), the financial institutions listed on the signature
pages hereto (the "Lenders"), and PNC BANK, NATIONAL ASSOCIATION, as administrative agent and syndication agent
for the Lenders (in such capacity the "Administrative Agent" or "Agent"), agree as follows as of April 11, 2011:
1.
Recitals.
1.1
1.2
On March 30, 2001, the Agent, the Borrower and the Lenders entered into a Credit Agreement (as previously
amended, the "Credit Agreement"). Capitalized terms used herein and not otherwise defined herein will have
the meanings given such terms in the Credit Agreement.
The Borrower, the Agent and the Lenders desire to amend the Credit Agreement pursuant to this Amendment
to Credit Agreement (the "Amendment").
2.
Amendments.
2.1
Section 1.1 of the Credit Agreement is amended to change the definition of Applicable Euro-Rate Margin to
provide as follows:
Applicable Euro-Rate Margin: The number of basis points based upon the Borrower's Leverage
Ratio as at the end of the most recently completed Fiscal Quarter, all as set forth below.
Leverage Ratio
Borrower's Leverage Ratio is
less than 1.00:1.00
Borrower's Leverage Ratio is
equal to or greater than 1.00:1.00
but less than or equal to
1.50:1.00
Borrower's Leverage Ratio is
greater than 1.50:1.00
Applicable Euro-Rate
Margin for Loans under
the Revolving Credit
Commitment
175 basis points
Applicable Euro-
Rate Margin for
Swingline Loans
187.5 basis points
190 basis points
200 basis points
215 basis points
235 basis points
2.2
Section 1.1 of the Credit Agreement is amended to change the definition of Revolving Credit Termination
Date to provide as follows:
Revolving Credit Termination Date: March 31, 2014 as to the Three Year Notes and the
Swingline Note.
3.
Representations, Warranties and Covenants. To induce the Lenders and the Agent to enter into this Amendment,
the Borrower represents, warrants and covenants as follows:
3.1
3.2
3.3
The representations and warranties of the Borrower contained in the Credit Agreement are deemed to have
been made again on and as of the date of execution of this Amendment.
No Default or Event of Default exists on the date hereof.
The person executing this Amendment and the loan documents to be executed in connection herewith on
behalf of the Borrower is a duly elected and acting officer of the Borrower and is duly authorized by the
Board of Directors of the Borrower to execute and deliver such documents on behalf of the Borrower.
4.
Claims; Release of Claims. The Borrower represents and warrants to the Lenders and the Agent that the Borrower
does not have any claims, counterclaims, setoffs, actions or causes of action, damages or liabilities of any kind or
nature whatsoever whether at law or in equity, in contract or in tort, whether now accrued or hereafter maturing
(collectively, "Claims") against the Agent, any Lender, their respective direct or indirect parent corporations or any
direct or indirect affiliates of such parent corporations, or any of the foregoing's respective directors, officers,
employees, agents, attorneys and legal representatives, or the heirs, administrators, successors or assigns of any of
them (collectively, "Lender Parties") that directly or indirectly arise out of, are based upon, or are in any manner
connected with, any Prior Related Event. As an inducement to the Lenders and the Agent to enter into this
Amendment, the Borrower on behalf of itself and its successors and assigns hereby knowingly and voluntarily releases
and discharges all Lender Parties from any and all Claims, whether known or unknown, that directly or indirectly arise
out of, are based upon, or are in any manner connected with, any Prior Related Event. As used herein, the term "Prior
Related Event" means any transaction, event, circumstance, action, failure to act, or occurrence of any sort or type
which occurred, existed, was taken, was permitted or begun at any time prior to the date hereof or occurred, existed,
was taken, was permitted or begun in accordance with, pursuant to, or by virtue of, any of the terms of the Credit
Agreement or any Loan Document or which was related to or connected in any manner, directly or indirectly, to the
credit facilities described in the Credit Agreement.
5.
Conditions. The Agent's and each Lender's consent to this Amendment are subject to the fulfillment of the following
conditions:
5.1
5.2
The Borrower shall have executed and delivered to the Agent an original of this Amendment.
The representations and warranties in Section 3 above shall be true.
6.
General.
6.1
6.2
6.3
6.4
6.5
6.6
6.7
The Borrower shall pay all expenses and reasonable attorneys' fees incurred by the Agent or any Lender in
connection with the preparation, execution and delivery of this Amendment and the related documents. Such
fees may be deducted by Lender from any accounts maintained by the Borrower with the Agent or any
Lender.
Except as expressly modified herein, the Credit Agreement, as amended, is and remains in full force and
effect.
Nothing contained herein will be construed as waiving any Default or Event of Default under the Credit
Agreement or will affect or impair any right, power or remedy of any Lender or the Agent under or with
respect to the Credit Agreement or any other Loan Document.
This Amendment will be binding upon and inure to the benefit of the Borrower, the Agent, each Lender and
their respective successors and assigns.
All representations, warranties and covenants made by the Borrower herein will survive the execution and
delivery of this Amendment.
This Amendment may be executed in one or more counterparts, each of which will be deemed an original
and all of which together will constitute one and the same instrument.
This Amendment will in all respects be governed and construed in accordance with the laws of the State of
Ohio, without regard to conflict of laws principles.
[signature page follows]
IN WITNESS WHEREOF, the parties hereto have executed and delivered this Amendment to Credit Agreement as of
the date first set forth above.
BORROWER:
LSI INDUSTRIES INC.
/s/ Ronald S. Stowell
By:
Name: Ronald S. Stowell
Title: Vice President, Chief Financial Officer and Treasurer
AGENT:
PNC BANK, NATIONAL ASSOCIATION,
in its capacity as Administrative Agent and
Syndication Agent
/s/ Gregory S. Buchanan
By:
Name: Gregory S. Buchanan
Title: Senior Vice President
LENDERS:
PNC BANK, NATIONAL ASSOCIATION,
in its capacity as a Lender
/s/ Gregory S. Buchanan
By:
Name: Gregory S. Buchanan
Title: Senior Vice President
FIFTH THIRD BANK, in its capacity as a Lender
/s/ Christopher R. Ramos
By:
Name: Christopher R. Ramos
Title: Vice President
This page intentionally left blank.
This page intentionally left blank.
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
Business and
Location
Percent
Owned by
Registrant
State of
Incorporation
Subsidiary
Grady McCauley Inc.
Digital image and screen printed graphics
North Canton, OH
LSI Adapt Inc.
Project management and installation services
North Canton, OH
LSI ADL Technology Inc.
Electronic Circuit Boards
Columbus, OH
LSI Greenlee Lighting Inc.
[Inactive]
LSI Kentucky LLC
LSI Lightron Inc.
Menu board systems; metal fabrication
Independence, KY
Fluorescent lighting
New Windsor, NY
LSI Marcole Inc.
[Inactive]
LSI MidWest Lighting Inc.
Fluorescent lighting
Kansas City, KS
LSI Retail Graphics LLC
Interior graphics and signs
Woonsocket, RI
LSI Integrated Graphics LLC
LSI Saco Technologies Inc.
Screen and digital printed materials,
and illuminated and non-illuminated
architectural graphics
Houston, TX
LED lighting and LED video screen
manufacturing, research and
Development
Montreal, Quebec
100 %
Ohio
100 %
Ohio
100 %
Ohio
100 %
Delaware
100 %
Ohio
100 %
Ohio
100 %
Tennessee
100 %
Kansas
100 %
Ohio
100 %
Ohio
100 % Quebec, Canada
EXHIBIT 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We have issued our reports dated August 26, 2011, with respect to the consolidated financial statements, financial
statement 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, 2011. 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, File No. 333-110784, effective November 26, 2003 and File No. 333-169264, effective
September 8, 2010) and Form S-3 (File No. 333-169266, effective September 28, 2010).
/s/ Grant Thornton LLP
Cincinnati, Ohio
August 26, 2011
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
EXHIBIT 23.2
We consent to the incorporation by reference in Registration Statement Nos. 333-11503, 333-91531, 333-100038, 333-
100039, 333-110784, and 333-169264 on Form S-8 and Registration Statement No. 333-169266 on Form S-3 of our report
dated September 11, 2009 (August 26, 2011 as to the 2009 segment information in Note 2) relating to the consolidated
financial statements and financial statement schedule of LSI Industries Inc. and subsidiaries (which report expresses an
unqualified opinion and includes an explanatory paragraph relating to a change in the composition of reportable segments),
appearing in this Annual Report on Form 10-K of LSI Industries Inc. for the year ended June 30, 2011.
/s/ Deloitte & Touche LLP
Cincinnati, Ohio
August 26, 2011
EXHIBIT 24.1
POWER OF ATTORNEY
The undersigned does hereby appoint Robert J. Ready and Scott D. Ready and each of them, severally, his true and lawful
attorney or attorneys to execute on behalf of the undersigned (whether on behalf of LSI Industries Inc. (the “Company”),
or as an officer thereof, or by attesting the seal of the Company, or otherwise) the Form 10−K Annual Report of the
Company for the fiscal year ended June 30, 2011 under the Securities Exchange Act of 1934, including amendments
thereto and all exhibits and other documents in connection therewith.
IN WITNESS WHEREOF, this instrument has been duly executed as of the 17th day of August, 2011.
LSI INDUSTRIES INC.
By: /s/ Ronald S. Stowell
Ronald S. Stowell
Vice President, Chief Financial Officer and
Treasurer
(Principal Financial and Accounting Officer)
/s/ Ronald S. Stowell
RONALD S. STOWELL
EXHIBIT 24.2
RESOLUTIONS
I, James P. Sferra, Executive Vice President—Manufacturing, and Secretary of LSI Industries Inc. (the “Company”), a
corporation duly organized and existing under the laws of the State of Ohio, do hereby certify that the following is a true
copy of resolutions adopted at a meeting of the Board of Directors of the Company on August 17, 2011 in accordance with
the provisions of the Amended and Restated Code of Regulations of said Company:
“RESOLVED, that the proposed form of Form 10−K Annual Report of the Company for the fiscal year ended June 30,
2011 attached hereto is hereby approved with such changes as the proper officers of the Company, with the advice of
counsel, deem appropriate; and
RESOLVED, that Ronald S. Stowell, an officer who is required to execute the aforesaid Form 10−K Annual Report or any
amendments thereto (whether on behalf of the Company or as an officer thereof, or by attesting the seal of the Company,
or otherwise) is hereby authorized to execute a power of attorney appointing Robert J. Ready and Scott D. Ready and each
of them, severally, his true and lawful attorney or attorneys to execute in his name, place and stead (in any such capacity)
such Form 10−K Annual Report and any and all amendments thereto and any and all exhibits and other documents
necessary or incidental in connection therewith and to file the same with the Securities and Exchange Commission, each of
said attorneys to have power to act with or without the others, and to have full power and authority to do and perform in
the name and on behalf of such officer, as the case may be, every act whatsoever necessary or advisable to be done in the
premises as fully and to all intents and purposes as such officer might or could do in person.”
IN WITNESS WHEREOF, I have hereunto subscribed my signature this 17th day of August, 2011.
LSI INDUSTRIES INC.
By:
/s/ James P. Sferra
James P. Sferra, Executive Vice President –
Manufacturing, and Secretary
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: August 26, 2011
/s/ Robert J. Ready
Principal Executive Officer
Certification of Principal Financial Officer
Pursuant to Rule 13a-14(a)
EXHIBIT 31.2
I, Jeffery S. Bastian, 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: August 26, 2011
/s/ Jeffery S. Bastian
Jeffery S. Bastian
Acting 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, 2011 (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) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) 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
Chairman of the Board and Chief Executive Officer
August 26, 2011
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 JEFFERY S. BASTIAN
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, 2011 (the “Report”), I, Jeffrey S. Bastian, Acting
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) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
/s/ Jeffery S. Bastian
Jeffery S. Bastian
Acting Principal Financial Officer
August 26, 2011
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.
Leadership. Strength.
Innovation. Those are the key
values behind the smart vision
upon which LSI Industries Inc.
was founded when
established in 1976. Today LSI
demonstrates this in our
dedication to advancing
technology throughout all
aspects of our business. We
are a vertically integrated
manufacturer who combines
integrated technology, design
and manufacturing to
produce the most efficient,
high quality products
possible. Everything we build
is done right here in one of
our US plants.
We are committed to
advancing solid-state
technology to make
affordable, high performance,
energy efficient lighting and
custom graphic products that
bring value to our customers.
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 is a U.S. manufacturer with
marketing / sales efforts
throughout the world with
concentration currently on
North America, Latin America,
Australia, New Zealand, Asia,
Europe and the Middle East.
Our major markets include
the commercial / industrial
lighting, petroleum /
convenience store, multi-site
retail (including automobile
dealerships, restaurants and
national retail accounts),
sports and entertainment
markets. Headquartered in
Cincinnati, Ohio, LSI has
facilities 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.
I would like to detail our accomplishments during 2011.
As you will recall, LSI concluded its 2010 fiscal year in June
of last year poised to take advantage of a leaner
operations structure, a growing portfolio of technology
innovation and an enviable balance sheet. Prospects were
encouraging as we established a market leadership
position during the most dynamic technology shift to
occur in the lighting industry since Edison invented the
incandescent light bulb. We saw signs of improvement in
general market conditions and set aggressive goals for our
team to drive our company to a strong improvement in
income performance over the previous two years.
We are pleased to present the results of those efforts as
the company posted a double digit increase in revenue
along with a significant improvement in net income.
These gains were the direct result of improved volume,
reduced fixed and variable overhead cost structures and
growth in the new technology products across the
company. Our LED lighting sales grew to nearly 30% of all
lighting sold during 2011, reinforcing the positive impact
this important new product technology will have on the
company's results moving forward. A highlight of the year
was our completion of the most extensive single
deployment of exterior LED lighting in a retail
environment in the world to date.
As the world economy continued to struggle to attain
some level of consistency, the LSI management team
continued to focus on building strength, stability and
opportunity in this atmosphere of uncertainty. The
financial strength of the company remains as solid as it has
ever been with a debt free balance sheet and strong
positive cash flow.
Our workforce continues to strengthen as our
management team gains experience working through the
toughest economy we have seen in decades. Additionally,
we have taken advantage of the opportunity to draw
from the growing pool of available skilled workers that
are looking for the stability that LSI can offer. We remain
committed to our strategy to be the premier supplier of
U.S. manufactured products serving a worldwide market.
The lighting segment gained market recognition and
market share throughout Fiscal 2011 as
Commercial/Industrial market agents continued to look
beyond the traditional large lighting company competitors
for the kind of quality, service and product innovation
from a U.S. manufacturer that they cannot find from their
traditional manufacturing partners. LSI is becoming a true
preference brand in the commercial lighting market and
that means opportunity for the company and its agent
partners. Our new product introductions throughout the
year continued to demonstrate a real understanding of
the markets we serve.
In the fourth quarter we launched the latest generation of
our LED canopy product line, the Crossover® Gold. With
this introduction, we offer the market the best value
available to retrofit LSI's Scottsdale® canopy lighting
family, which has been available since 1995 and currently
has nearly two million product installations. With the
Crossover Gold, we are now in a position to replace these
fixtures with a more energy efficient LED lighting
solution. While we still must earn every single sale and
the rate of conversion is somewhat dependent upon the
overall economy, there is no doubt that this represents a
tremendous opportunity.
The number of visitors to our acclaimed iZone center
increased dramatically throughout the year. This,
combined with an entirely new website re-design,
reinforced our marketing strategy to aggressively
promote the LSI story world-wide. We will be expanding
the iZone concept into other LSI operations in 2012.
On the graphics side, we benefited from the program
nature of the business as we wrapped up the largest
reimaging program to date during the first half of the
year. As a result, Graphics sales grew slightly during the
year, but efficiency and cost control improvements
resulted in profits that more than doubled over the
previous year. However, as expected, this program’s
conclusion, combined with the overall softness in retail
program spending overall, made the second half of the
year much more challenging. Much of our product and
service offering in graphics is a discretionary purchase and
can often be delayed in difficult economic times.
However, it is important that we maintain our unique
service capabilities to process projects of this magnitude.
These capabilities, even in a time of limited demand and
right sizing initiatives, are a significant competitive
strength for LSI Graphics. Additionally, we continue to
invest in our client relationships, work to utilize our
network of lighting market relationships and have made
changes to our marketing and sales team to respond to
the challenge of stalled retail national account market
spending.
As we look to the future, our strategic plan is set to
establish ourselves as a leader in LED technology
world-wide. As part of this initiative, we are expanding
our International market throughout Europe and the
Middle East with our LED technology. As we are now in
our 35th year of business, we are proud of the fact that
we are one of the few major lighting companies that
have kept the manufacturing of these products in the U.S.
Our message to our markets is American Innovation –
American Made.
In closing, our Annual Shareholders’ meeting will be held
at our Corporate headquarters on November 17th. I hope
that you will be able to attend and experience the new
technology in person.
Sincerely,
Robert J. Ready
Chairman & CEO
Board of Directors
Robert J. Ready
Chairman of the Board
Chief Executive Officer
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
Scott D. Ready
President, LSI Industries Inc.
James P. Sferra
Secretary
Executive Vice President - Manufacturing
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
Ronald S. Stowell
Vice President
Chief Financial Officer, and Treasurer
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 17, 2011 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.
A N N U A L R E P O R T 2 0 1 1