LSI Industries Inc (LYTS) 2003 Q4 法說會逐字稿

Good afternoon. Welcome to the LSI Industries' fourth quarter year-end conference call. Today's host will be Mr. Bob Ready, CEO and President of LSI Industries, and Mr. Ron Stowell, Chief Financial Officer. During the discussion, all participants will be muted. You will be allowed to ask questions with the presentation. To ask a question, please press 0-1 on your telephone keypad. As a reminder, this conference is being recorded.

Now with no further delay, I will turn the conference over to Mr. Ready.

Thank you, Michelle. Good afternoon, everybody. I want to extend my appreciation for you taking the time to visit with us for the next few minutes, and Ron is with me. And as in prior conference calls, we'll kind of follow the same format. I'm going to talk a little bit about the quarter, and certainly the overall year, and I'm going to address a couple of areas that I think are of interest to all of us, and then spend a few minutes talking about what we feel about 2004, fiscal year 2004.

First, I want to say that things are a lot better than they have been in the past few months. For the first time in maybe a year, I'm beginning to really feel confident about things beginning to turn. That's not to say that we have everything back at the level that we would like to see it, but, definitely, we have a major improvement in our -- and we do this by measurement of request of applications, and certainly the discussions we have with our customers, but for the first time in 12, 13 months we've begun to see a tremendous interest back toward the types of products in the markets, and so forth, that we've been serving.

One of the things that we've spent the last year and a half -- when all of the wind started to go south with the economy changing, the war, and so forth -- the recognition and the realization that LSI's future is not going to depend on just the niche markets as we've had so much success with over the past 27 or 28 years that we've been in business. They will be maintained as a primary direction in our leadership role. We will definitely maintain our market share.

But the realization is, is that the oil business and to some degree the fast-food industry, has definitely changed. We've discussed that many times before, so I'm not going to spend a lot of time going through that, but the recognition is that LSI's future will be in other related markets, certainly the large national retail segment, certainly our Commercial/Industrial commitments, even some areas in technology that we're working on. But, generally, I've spent the last 12 to 13 months restructuring our whole corporation.

It's been a great challenge, but our people have come to the top and aided me in starting the development of a whole new future of this corporation. A good example is the consolidation of our graphics businesses, and David McCauley, who has emerged as the president of that group, combining our Houston and our Rhode Island and north Canton, Ohio, into a unified marketing and sales effort.

As a matter of fact, I called David this morning and said, "David, as you know, I have a conference call at 3:00. I would like to be able to get your comments as I would like to pass on to the attendees on our conference call." And I said, "Tell me what you think about the short term and overall long term of the conditions in our graphics business." All he said to me, and I will quote David, "Real good." And I haven't heard that from David for a number of months.

I think what he means by that is that there has definitely been a much stronger interest in what we're doing in the graphics part of our business, certainly the investments that we've made in our equipment and the strategy that we've used in order to make our mark or our image in the graphics industry. And the consolidation of those companies, I think, is going to have a major effect on our contribution in the years to come.

As you look overall at our petroleum business, things haven't changed much there. We still are dealing with the same situations as it relates to the unknown. We have seen an improvement in the interest, and there are indications that some companies are starting to move around a little bit into -- getting back to some of their image programs. I can't go into depth with that because it's still, in my opinion, a little bit too early to get too anxious about what that really means.

But we measure a lot of our lighting interests in our applications department. That's kind of our benchmark as it relates to requests for applications or suggestions in lighting layouts. We've seen a marked improvement in that area. If you look at our large national retail segment, that is definitely a very important part of where we're going, both lighting and graphics.

All of our divisions have had a major direction change as how they will be doing business in the future. And by that I mean that we are much leaner than we have ever been. We're very, very strong as it relates from a financial standpoint, understanding coming through such a difficult economic period. And what all this means, as far as my outlook, is that we are probably as well positioned in all major segments of our markets as we've ever been before. We're much better off in our Commercial/Industrial as a result of the agent changes that we've made.

Our product offering has increased. Our product offering quality-wise has improved. It's given us an opportunity to spend a great deal of time looking at our high-volume products as it relates to quality improvement, efficiencies in manufacturing, and certainly meeting the demand in the marketplace with a more extended product line. We've made some major introductions in both specification as well as commodity product, and we've really positioned ourselves with these new agents and our product offering.

As we look at the internal part of our business plan, we have literally gone through all of our operations. We have made all the proper corrections and changes that we feel are going to benefit us both internally as well as externally. We're starting to develop a stronger customer service effort. We've been pretty good in that area, but as you look into the future, and the customers are requiring and demanding a higher level of customer service, as we are with our vendors, it's obvious to me that this is a major area that will be a part of our growth plan as it relates to ease of doing business.

The implementation of our MIS systems is going well. The major conversion for Cincinnati will happen in November, but we're well-educated, and our team is working very, very diligently to make that a very smooth transition.

To give you a guidance as far as what I mean by being a lot better, if we take our Midwest Kansas City operation, five or six months ago when things were very, very difficult, the capacity there, for example, was probably at 60 to 70%. Today it's running at 110%. That has, obviously, stimulated a lot more effort in our Lightron operation in New York. As an example there, six months ago or so our backlog was probably around 2, 2.2, but again to give you an exact -- approximate number, today it's exceeding 7 million. So we've really seen a major change.

Are we out of the woods yet? I don't think so. I think there's a lot left to be said as far as where this economy is going. But for LSI, I think that we have definitely turned the corner, and we are hopefully on a continued up trend. Is it going to be steep? I don't know.

I'd be happy with a continue every month getting just a little bit better, a little bit stronger, but obviously understanding that we do have seasonal ups and downs, I don't think that that's going to change a whole lot. I think the image of LSI overall, and certainly in our markets that we serve, is pretty strong. We've spent a great deal of effort in maintaining that kind of a leadership role. I want to be sure that it is fully understood from all segments of our market that our niche markets are not going to be given up.

As a matter of fact, the efforts will be, as we strengthen ourselves in other areas, we will definitely maintain the market leadership. And when those markets do return, it will even benefit the company more so than in the past, because we've literally shifted the culture of LSI to be a much different company than it has been for the last 27 years. I think that the benefit from that is that we've opened up a much better opportunity in the markets that we are presently serving at maybe a lower level than we will be.

It's a commitment to the opportunities of the large national retail segment of our economy, tying in both our graphics and our lighting, and equally as important it's the commitment to our employees that we are striving to educate them at a better level, make them a more important part of the efficiency of our operation and have them be a stronger contribution to the bottom line. I think margins will start to improve because of the efficiencies that we've implemented. I believe that at today's point in LSI's history that we really are ready for any kind of growth that happens, and depending on what that growth is, that we will be able to handle it in a much more efficient manner at a lower cost, which hopefully in a very competitive market will still improve our margins.

One other thing that I would like to address, and probably the most difficult thing for me, because of the perception, and that's the impairment that we made available -- we put in our press release today. The impairment does not tell the tale of LSI. We started this process a year ago when the economics were very, very tough. The outlook was very guarded, because we had no indication of really what was going on there. If we were doing that same impairment today, it would be a lot different story.

The companies that are obviously the ones that affected the impairment the most, as I'm sure you're all aware of, was our New York operation, Lightron, and our Midwest operation, Midwest. Those companies are definitely a part of the future of LSI. We could not be where we are today without those acquisitions. And because of the direction with the SEC as it relates to the goodwill, we were, unfortunately, in a very difficult position. It's the old saying is "timing is everything", and certainly for us in that particular phase, we weren't in the right place at the right time as it relates to that impairment charge.

But it's behind us, and it's a direction that we felt was the proper direction, and since that point in time of about a year ago, things have dramatically changed. Definitely, our lighting business and certain phases of our retail segment are growing very, very strongly. Our Commercial/Industrial agents are coming on board one at a time as we can effectively ramp up our efficiencies. Last, but not least, our graphics businesses are in a very, very good state right now.

So with that I like to turn it -- Michelle, I'd like to turn it back to the folks and have a Q and A session if we would, please.

If you have a question at this time, please press the 0-1 key on your telephone. We have one question in the queue, and that question comes from Ian Fleischer.

Yeah, this is Ian Fleischer from Friedman, Billings, Ramsey. I just had a couple of things. First, can you comment a little bit about the year-over-year increase in your Commercial/Industrial business and what was driving that?

I think it goes back to the commitment that we made over a year and a half ago that the recognition for some of LSI's future strong growth would be in that Commercial/Industrial segment. The opportunities that we were able to take advantage of with some major rep changes that happened in the last year and a half with our industry. And certainly the overall direction that we've taken and to improve our market opportunities in that segment are beginning to show, I think, some very strong results.

What specific areas are you seeing strength? What industries?

I think it's, of course, from product development. It's the acquisitions of Lightron and Midwest, and having the right product offering. Those products also reinforce our opportunity when given in the niche markets because we didn't have interior packages before. We were primarily an exterior lighting company, and now we have the interior. And I think that now that we've streamlined the product line, we've actually changed the culture of those two companies from a private entrepreneurship attitude to now a much stronger national-type organization. Certainly the reps that are coming on board are giving us a better opportunity to sell more product, and that's where we believe that we will see a continued improvement in our revenue stream in that particular segment of our business.

Ian, just so you and the others recognize, the improvement that you referred to was the fourth quarter year-over-year, which was 14% up. Year to year it's still down about 4 to 5%, so the improvement has come in the fourth quarter for us.

But based on that market, I think that some of our competitors are down a little bit more than 4%, and so we're beginning to see a genuine increase on a month-to-month basis in that segment of our business. It's not been the greatest year to make comparables when you look at the economics of what's going on, and specifically, certainly we all understand in our country, but in our industry, both industrial as well as commercial. The residential has done very, very well overall because of low interest rates, but we're not in the residential lighting business. We're in the Commercial/Industrial and in the niche markets, and those have been affected dramatically based on our economy.

Can you talk a little bit about the imaging side of your business, particularly, I guess, the petroleum market? You're seeing better visibility there, or are you kind of still in the same type of pattern?

We're seeing a little bit. I'm not going to raise any big flags on that yet. That's a market that's extremely difficult to understand right now. You've heard me explain in the past about the consolidation of the oil companies which opened up huge opportunities for re-imaging. Then with 9/11 and the war and the situation, prices and gasoline, there's been a whole hodgepodge of things that basically have affected the condition of that market. I've been doing this for 41 years, and I've been through one -- actually, two of these, and I think it's just a matter of time. It will work itself through, as it's done in the past. Things will change, and the markets will change accordingly, and my commitment to this market, we built this company on that market, we're not going to forego it, we're not going to let competition come in and take anything away. I honestly believe that it will be an important part of some of our opportunities, and I think they will be more cyclical.

I think they will -- we won't see a market like we've enjoyed for the last 20-some years. I think we have a new market out there. It's influenced more internationally by the companies that have acquired these or merged with these companies. We have a more international flavor. The international method in petroleum marketing, as far as the way we operate, is different than the North American. There's an education time that's going to have to go through this process, and certainly product development to meet the needs. We're expanding our international capability by working closer with international agents to bring some of the unique products that LSI has developed into the petroleum business.

Our graphics business is feeling the same results. When there's that opportunity, and the oil industry is going to need the kind of graphic elements of the quick turnover in installation, the influence that we have adapted, our engineering group, which is very strong in the oil business, they are, too, expanding into other areas where we can use their expertise. If you lack at all those things and you understand -- and I'm not saying you personally, but you understand the way the market is beginning to change, LSI, I think, has quickly adapted to that change, and consequently, has, in the last year and six months or so, for me personally, this has probably been my biggest challenge, even more so than starting LSI from scratch in 1976.

We had a very short period to do this, understanding the pressures of being a public company as well as the pressures of maintaining leadership in certain markets. I think we have really, really raised ourselves to an occasion that we've never had before. I think the oil business will maintain a very important part of LSI. But I think will you find in years to come that it won't be the main run anymore.

Just one other quick one. Do you have the operating income numbers for the two segments, Imaging and Commercial/Industrial?

I do, Ian. Be with you in just a second. Would you like the fourth quarter? year to date?

Fourth quarter and year to date, yeah.

Okay. Fourth quarter Image operating income was 2.3 million. So that's 1.1 million for C & I Lighting segment. Year to date is 9.3 million and 2.1 million.

Okay. Say that second part again. Year to date, 9.3 million?

Right. And the C & I Lighting is 2.1 million.

Okay. And -- okay. Gotcha. And can you comment about the SG&A expenses? Seems like as a percent of sales it picked up a bit. Can you just comment briefly on that?

The first thing I will remind everybody of is that last year in the fourth quarter we had $925,000 of settlements, favorable settlement on some patent litigation that we were involved in. When you take that out of the picture, or add that back to last year's expense, you will find that we have, in fact, decreased.

Okay.

We do not have a tick-up.

Thank you, Ian.

We have one other question in the queue, and that question comes from Andrew Meister. Go ahead, sir.

Hey, good afternoon, gentlemen. How are you today?

Very good.

How are you?

Doing just fine. Doing just fine. I do have a couple of questions here. Number one, obviously, starting out a little bit bigger picture, I'm wondering if you can run down some of the key products and how they're developing. I'm thinking of, of course, Encore. I'm thinking of some of the new things that you've put on, I think it's in LSI Greenlee, like the Hyperion, and then also sort of a rundown update on what's going on in the digital printing space. Then I will come back if I have something else.

Sure. Let me try to answer your question about the Encore. For those who may not know what that is, that's a new product line. It's actually beyond just a product. We call it the Encore Solution. This is an effort to bring into the market a much more efficient energy-type product with better efficiency and light distribution, and understanding the condition of the petroleum industry, this is primarily a petroleum product. It's been very, very slow. But the product now is being prototyped by many of the major oil companies.

I think that we're probably months away from -- unless all of a sudden we see a real major improvement in the attitude of the oil industry as it relates to imaging, but this is, again, another product that establishes another level, but also it's a product that really has an international capability versus just a North American. The international market has different type canopy designs. They're double deck versus single deck here in the U.S.

This is a universal product that was developed for both international and U.S. marketing. It is something that nobody else has. It's the type of product that is really a very, very long-term design product. By that I mean that it has great flexibility for improvement, and new type of lighting designs that we may have in the future, new ballast designs. It's really a thinking-forward-type design that we've built into this product. We feel very good about the product and the overall attitude of the market. Like anything else, it's a wait and see until we see how the market responds, both from the re-imaging and then how this product fits into it.

From a graphic standpoint again, that, particular part of the industry being very quiet, was still a very important part of what we do. We're right there in every single customer's face as it relates to the oil business. Certainly the -- and the -- I should say, again, on the lighting side, it's the support of our reps that are a very key part of the marketing strategy and the sales strategy. All of our reps are still there. They're still fighting every day.

Of course, they have other product non-related to LSI, and no competitive products in that particular market. We enjoy the exclusivity of our products with our reps in the petroleum industry. But our graphics folks feel the same way and see the same things that are going on in the lighting side. Again, it's a culture change that's come about -- the influence of the consolidations, the international involvement -- it's a new attitude, and we have structured ourselves to take advantage of whatever that happens. We can move very quickly on our feet, and we still have the same relationships.

When I say same relationships, the same interests -- people have changed, and, of course, that has been part of the culture change in the oil industry, but LSI is a very strong marketer in that oil business, and we will continue to be so in both the graphics and lighting side. We obviously have shifted gears. We have set our sites on our areas of our economics and our business plan, and we've taken the experience and the depth and the strong balance sheet into those markets, and we're beginning to see some very, very interesting changes as far as how LSI will fit into the future. I hope that answers your question as detailed as I can be.

Well, thanks, Bob. If we keep drilling down and, you know, focus on -- I believe you did -- you know, you directly quoted Mr. McCauley, we had spoken a little bit in the past of, you know, new technologies.

Right.

And sort of the turn and the cutting edge of technology in the digital area and things like that.

I'm sorry, I didn't address that. I meant to. I'm glad you brought that back. Yeah, let me share with you our vision and our thoughts on that.

As we look at this economy, in trying to figure out when we were going to come out of this at the end of the tunnel, and looking at our competition out there, and, of course, the graphics business is a very segmented -- fragmented-type business. A lot of small players out there, having as much difficulty as anybody can have, not having necessarily the financial resources, or in many cases the type of equipment. We've reinvested in our business, and the idea of the consolidation of bringing the divisions together and streamlining the operations and better utilizing our manufacturing facilities by doing what we did, we've emerged now as a graphics business with approximately 450 to 500 employees with probably six or seven hundred thousand square feet of production, certainly a national image.

The most important thing, to answer your question, is the investment in our digital and our sophistication in the type of equipment that we have in order to meet the customer's needs. And I don't think that there are many small companies out there that could have weathered this kind of a storm and continued to reinvest in their business as we have done. And I think a good answer to that would be the obvious where we were very fortunate to be recognized by the drugstore chain, CBS, and not speaking for those folks, but I think the recognition that we had this kind of depth, and then being selected as their major vendor, if not their only vendor as it relates to some of their roll-out re-imaging, does pretty well state that the direction that we've taken certainly can meet the needs of large national market retailers. And I think that that digital and that type of technology that's moving into our industry, LSI has been able to keep its facilities completely up to speed on that. We haven't had to take a step back.

We've taken that move to invest in that technology, because at some point it's always been our belief that we will come out of this. And one of the things that we're going to -- that we committed to then when we went into it, committed to it while we were going through it, and obviously looking at it now with the hope that we're coming out of it, is that we've kept our nose to the grindstone. We improved the efficiencies, we cut our companies down to very lean, we took some of those dollars, we reinvested into that so that when this thing came out we were going to be in a better position than probably anybody out there. And at the same time that we were doing this, we reduced some of our debt.

It certainly was a tremendous challenge to manage our businesses, and I give all the credit to the folks who have been part of the LSI family that took the challenge and stood up to the plate and did what I asked of them to do. And I think now that we're saying to you in this conference call that barring any, really, unforeseen economic downturns, LSI is definitely coming through, and we're on our way back.

That's good to hear. Just one more, and I will turn it over to somebody else with questions. It sounds as if that the hard decisions and the gut-wrenching decisions have been made, that we focus on execution and try and bring as much volume into the program as we possibly can, and then going forward. But my sense -- and this might even be a question for Ron -- is for this year, I'm trying to get a feel for what you did like in total Cap Ex and what you think some of the key expenditures were, and then also, next year, where do you think some of the key expenditures will be? Again, that's a leading question for the future, and then, that does it for me. Thanks.

Andrew, our Cap Ex this year was 5.2 million, which -- wait a minute. That was amortization and depreciation. Cap Ex was very close to that. I'll have it. But that's about the level that we would expect to see going forward.

So that's kind of sort of run with at 5 to 6 level.

Right. And that's at a normal -- that's tooling, that's equipment, that's replacement computers, that's, you know, some growth, if we have some growth. It does not represent new brick and mortar, so that's the level that we have had and we would expect as we go forward. There has been some capitalization on our One-World operating system in there that's included in that where it's appropriate, but that's about our maintenance level.

I'd like to also add to that, Andrew, because I think that's a very important question as we're looking at how we're rebuilding the foundation of this corporation. I've always been a believer, and those of you who have known me for some of the years that some of you have been with me, know that I'm not afraid to spend money. And I think that overall we've done a great job of investing our money into things that really are more future-oriented than just keeping up with competition. One of the things I was committed to during this period of time -- this, again, was a more difficult time that I've ever experienced in my career, because I really couldn't get a good feel for what was coming out there in the marketplace. It was very different than in the past. And, you know, whether you want to call it a risk or you want to call it, I think, just good business sense, the fact of the matter was, at the time that we were going through this, my recognition is you never wait for things to get better. You make things better.

And regardless of what was going to happen, the investment in some of this equipment and some of this tooling definitely is a direction that says we can drive our costs down. We had to drive our costs down. We had to be stronger than what normally would have been during a period of this for most companies. And that's the way that you keep a strong financial balance sheet. And that, I think, is an area that we have very, very good history, and I don't care how far anybody goes back into the history of this corporation, our balance sheet has been strong from almost day one. And that has allowed me over the years, that when times get tough, that we put more into the effort of becoming a better company because we have more time. Obviously, when you're blowing and going, you're just running so fast, you don't have a chance to do some of the things that you do when things slow down.

And I think where credit should be given to this company is the people that have rallied behind me and really done the things that are very difficult to do during down-turned economy. As a result of that, when things get better, the company becomes much stronger. If you go back into the 28-year history of LSI, you can draw a very definite line of how that has worked for us. And I think that we've gone through a very, very difficult time. I can't sit here and tell you 100% that I think it's over with, because we're all in the same boat. We just don't know yet, and the economics and the politics and the world, but I do feel this way, that as our customers' attitude improves, we're in a better position than we were two years ago to go after that opportunity.

Andrew, just to fine-tune those numbers, the depreciation this year, and amortization of intangibles, was 5.2. Cap Ex was 5.5, which was right on our 5-year average spending, if you exclude the Lightron facility.

Okay.

Hopefully that answers your question.

Yeah, that helps. I'll let someone else have a turn.

Thank you.

Thank you, guys.

There are no more questions at this time. Actually, Craig Kennison would like to ask a question. Go ahead, sir.

Good afternoon, everyone.

Craig, how are you?

Great. Good to hear you guys.

Thank you.

Just a question, if you care to comment on your outlook for 2004. If I look at the market and handicap what I see, it looks like the market's anticipating low single digit top line and maybe earnings per share around 60 cents. You sound more optimistic than that. Do you care to help us with that?

Yeah, I will be guarded optimistically, because it's still a little bit early in the game, but certain things have happened for us that we are feeling a little bit stronger in, in the future. I wish I could sit here and tell you two and three years out, but there's no way to do that. If I look at our strategic plan and the forecasts that are coming in from our sales part of our operation, guardedly, they're very optimistic because of all the things that we have talked about over the year and a half: the change in our rep organization, the investment in our equipment, in our tooling, the slimming down and just the overall change that we've taken in our company, being much more aggressive in other markets, bringing new product on-line. These are the kind of things that I think LSI, over our history, can be recognized as doing a great job in.

We have a couple of insurance policies out there. By that I mean, the question hasn't come up, I'm not necessarily in a position where I like to use companies' names, but there's one pretty good size retailer out there that we've been doing business with for four or five years in the lighting side of our business, and of the four companies or so that we've been doing -- that we're doing business with this company, LSI was always in the -- enjoying whatever we had, because we were thankful to have what we did have. We moved from the smaller position to the larger position, which will go in effect in February of 2004 calendar. It's a very major -- and we released it in our press release. We alluded to the fact of two major retailers. I'm sure you guys can put two and two together, who that is. It's just an opportunity that we've worked very hard at.

We invested heavily into a lot of time in developing what we felt was better products. We worked very hard on building our service capability. We did a lot of things that we felt were important to bring LSI into a new level in the lighting part of our business. And all that hard work and all that effort we have been selected to be a major, major player in the lighting roll-out over the next 24 months. And that is my insurance policy that basically says if everything else doesn't change a whole lot, we're certainly going to be in better position than we were the last year and a half. If things get better, in some of these areas that we feel that we have the opportunity, things are definitely going to be better for LSI.

What we have that our competition doesn't necessarily have, that is the lighting side of our business, we have this business that we call graphics. And we have something there that our competition doesn't have, our lighting competition now, and as I will go back to my opening comment in talking to the president of our Graphic Solutions Plus division, I asked David, short term, long term, and he said, "Real good." So if you combine that with what we've done and the way we've leaned our company out, the way we've invested in tooling in order to make ourselves -- give ourselves an opportunity to have, hopefully, the leading edge when things improve, the new product introduction that we've done, the fact that we're going to maintain the leadership role in the oil industry -- and if it just comes back a little bit, that's, obviously, a much more additional plus to what we're doing -- the improvement that we've taken in all of our areas of doing business. Yeah, I feel good that, barring anything major, that we are going to be in a much better position than we have for the last two years.

Well, you're halfway into July -- I'm sorry, the first quarter, the quarter upcoming here. Any sense for what the revenue outlook looks at in the first quarter here?

I can't tell you that because I honestly, honestly don't know what July turned out to be. I think what's important is some of the things that we did in the last quarter is we're pretty clean company today. We looked at everything. We looked at our inventories, we looked at our receivables, our debt. We looked at every reserve, and I think we made all the appropriate decisions in order to strengthen that so that as you clean -- you know, I am so glad that fiscal 2003 is over. You can't imagine. It's been a lousy year when you look at all the things that's gone on. And the thing that I wanted to do is as we turn the page to fiscal 2004, that this company was as clean as it's ever been. And I think we have accomplished that.

So we're really starting at a new line than we have. Not that we don't do that, but this was the time to look at every single rock. We had the ability to do it, we had the time to do it, we had the people to do it, and we did it. And my feelings were that if we -- hopefully, no surprises at all in any area of our business plan, that we could start out, and if some of these things came to fruition that I've explained, and the market starts to tick up, I think that the continuation of quarter to quarter to quarter is going to get a little better every quarter, other than, obviously, our January, February, March, which is always a challenge, based on weather conditions and so forth. So, yeah, I feel a lot better about it. Hopefully, that answered what you asked.

Yeah, it certainly helps. I'm just trying to -- and it's my job to quantify your optimism, and maybe it would help me if I understood the size of this retail opportunity.

I can't really tell you that, but I can tell you this: It's very good for LSI. And I hope that in the on-coming months that we will be able to give the market a lot better guidance than we have in the past, because we have certain things that are in place. We have some programs that are real programs, and, again, we have new products out there that we're measuring the success, and as we get our companies up to a higher degree of service and more on-time scheduled deliveries, I think that we'll be in a position to give you better guidance. And I think that's going to take a couple of months. And I wish I could be more direct with you, but I can't, because we're so early into the first quarter.

Craig, the fiscal '04 is probably going to be one in which we'll gain additional momentum as the year progresses.

Yeah.

We're not going to start out of the gate sprinting. We're going to start out at a good pace and gradually gain momentum over the course of the four quarters.

That's because all this work that we've done, as David pointed out to me this morning when we were talking about some of the things that the graphics guys are going to improve. If you take some of the bigger programs we were successful in gaining towards the end of the year, all that work has been done. All of that -- investment in getting everything up to speed and all that work was absorbed in last quarter, and now we're beginning to ship a lot of that business. So, yeah, I just -- you know, you're going to see this engine start to, hopefully, crank up, and, hopefully, as month to month goes on, we'll see a continuation. And that's really what I said earlier, is that I want to see this growth continue on a steady growth rather than spikes that we've had. Some months were good, some months were terrible, and it makes such a difficult job planning for all that. But I think we're on a much more level course, and I think we'll be able to give you a little better guidance in the next month or so.

And then just finally, and thanks for your time, on the impairment charge, from the tone of what you're saying, it sounds as though if you had to do it all over again, you wouldn't take the charge. Is that what you're telling us?

The amount of the charge would undoubtedly be different because our business valuations that would come out of this process would be better because our business prospects at this point are better than they were a year ago. That was the message that we were communicating.

It's one of those issues where if we were starting today, it would be a lot different outlook than it was a year ago.

And can you just pin-point what forces you to accept an impairment charge that you're uncomfortable with today? What's the accounting mechanism that forces that?

I think it's just forecast. I think it's just strictly forecast.

The business valuation is developed as of our implementation date, Craig, which was July '02, and at that point, and going into the early parts of fiscal 2003, you know, the economy was still slipping down, the war was --I don't know, was the war still going? But the impact on the economy was very uncertain. This national retailer Bob talked about, we had no concept that we would get any of that business, you know, and the increase in the applications. That was now. It wasn't back then. So the forecast that we've developed for our reporting units that have goodwill reflected the business and the prospects as we knew them back then. Today, if we think things are improving, then the forecast that we are developing now for the business units that have goodwill on them are undoubtedly a little more healthy than they were before, and the business valuation is all driven on a discounted cash flow basis with using terminal values of the business and so on, but it's -- we're operating according to that FAS pronouncement 142 on how to value the business.

I think the other thing to remember is that we don't have a backlog to speak of. This company has never enjoyed a backlog, as you all probably remember, it's five to six weeks out there, so it's very, very difficult. And when you're looking at a very strong downed economy, at the time of this, there weren't a lot of bright flags flying around out there. So we followed it to the letter, and we did exactly what we were supposed to do. But, you know, as a CEO making investments in companies, perception is as much as certain things as others, and I just wanted to reiterate when I brought that up, that these companies are still the same companies I'd buy today and still the same companies that we needed to get where we are today. That was the reason I made the comment that I did.

That's helpful. Thank you.

Anybody else, Michelle?

We do have one more question in the queue, and that comes from Mr. Bill Weiss. Go ahead, sir.

Hi. Just wondering, your company-wide operating margin in the year just ended is about less than half of where you were three years ago at your last peak, and you've commented a couple of times on the amount of cost you've pulled out of the business, and you're running lean now, and better structured for the turn. I'm sure that the end markets have changed somewhat also, and maybe it's a slightly different world we're operating in today than we were three or four years ago, but as you think forward to a healthier environment, given your new cost structure and given your new mix of business, are we driving back toward a 10, 12% operating margin, or higher, or what are your thoughts as far as the operating model that you're trying to drive the business back toward?

Bill, obviously, we're going to do everything we can to get back into the best of times, understanding that our oil business is a much more profitable business than our Commercial/Industrial. It's a different market. There aren't as many players out there. We've maintained a leadership role by bringing new products on consistently. And when that part of the market literally fell apart, obviously, it had an effect. I personally feel that where we've structured ourselves is that we have a better opportunity to bring those margins back by a combination of our graphics opportunities, certainly the investments that we've made to lower our costs, hopefully, with higher volume, and volume is the driving factor right now. Those who have been around me a number of years know that I'm very reluctant to literally skin the company to its barest bones.

People are what make things happen. We've got some very seasoned, very, very educated people that we have trained. Many of them started with us when they were 18, 19 years old. And I have absolutely worked to the strongest ability to keep those people in place so that when things do come back, I'm not out training, trying to find more people. And I will tell you this, and I'll make this statement very clear. I think in my 41-year career, when you look at the overall attitude of the work force in this country, it's changed dramatically. I'm proud of the people that we have here. And we've kept those people here because it's a long-term venture that this company has available to it. And whether it will be double digit, I can't answer that today, but certainly the focus and the drive is to always try to achieve that maximum direction.

Thanks. Good luck.

Thank you. Anybody else?

There are no more questions at this time, sir.

Well, I want to thank everybody for taking the hour to be with us today. All I can say is, in my finishing remarks, I'm smiling a lot more today than I was six months ago, and time will prove whether I'm right or I'm wrong. But I think we're on the right road and I think we're doing all the right things and I think we have some great opportunities out there and we'll do everything in order to accomplish our goal, and that is to strengthen the overall operating results of LSI Industries and, hopefully, be a stronger stock for our shareholders. So with that, I want to thank you for your time, and, Michelle, I think that concludes our meeting.