LSI Industries Inc (LYTS) 2004 Q4 法說會逐字稿

Good afternoon, and welcome to the LSI fourth quarter and year end conference call. Today's moderators will be Mr. Bob Ready, President and Chief Executive Officer, and Mr. Ron Stowell, Vice President and Chief Financial Officer. During the discussion, all participants will be muted. If you have a question, you may press zero one on your telephone keypad. You will be able to ask your question in the order in which it was received. Now, without further delay, I will turn your call over to Mr. Bob Ready.

Thank you, good afternoon, everybody. First I'd like to say I appreciate the time that you will spend with us this afternoon, and hopefully when we get through the next part of our presentation, you will have a fair good feeling about how things are going with LSI. I'd like to start off by saying obviously to the -- the fourth quarter was obviously a very, very disappointing quarter, based on what happened in reference to the Lightron inventory, but we will talk about that a little bit later.

I really think it's a good time to take a step back and kind of give you an overview of the company. I know most of you know the company quite well, but I think it's a good opportunity for me to explain the strategy in more detail of the why's and wherefore's of where we are going for the future -- the future growth of our corporation. As most of you remember, in the formation of the company was niche market-oriented.

We've had a wonderful opportunity over the years to penetrate the petroleum, fast food and automotive industries, and those are still very much an important part of our strategy. They are niche markets, and they are a vital part of opportunity. The big disappointment for us, obviously, is the last couple years with the oil industry taking the directions that they have taken. As we go back and remember with the beginning of the mergers of all the big oils companies, we were very excited about the opportunity -- about the image changes and the tremendous volume of opportunity that we thought would exist.

Today as we look back, the disappointment was that the mergers went through. We didn't see the reimaging that we thought we would. I think timing had a lot to do with it, as it related to the circumstances of 9/11, and certainly the War in Iraq. A number of these companies are now internationally owned. They have a little different philosophy on image. I think that's going to change as time goes on, but it's very difficult to sit here and really forecast what the future of the oil industry will be as it relates to our types of products.

With that said, as I began to feel that level of change coming about, it was very, very important for LSI to take certain steps in restructuring our business plan. Certainly not simple -- very complicated, because we have such a deep culture in the small independent-type companies, our businesses that we had. Really had to do some soul searching, as we were looking at our business plan and understanding that the niche markets were such an important part of our business plan, and the fact of the matter is we weren't going to let that market share disappear.

We believe in it today. We believe that those markets are going to come back. I don't know what the time element will be. There are indications of certain programs that are beginning. We are very fortunate in the fact that one of the larger mergers, the Conoco Phillips program, is one of very strong interest with both our lighting and graphics products. We hope that with some of the work we're doing there that that will develop into some more interest on behalf of their competitors -- that's the way it's worked in the past. We hope that's the way it will work in the future.

So with that understanding and the unknown of what was going on in the world as related to oil and related to our special niche market, I made the decision that we were going to start a direction with this company that really required a whole different direction than we were used to, and that was obviously our commit to expand our business into the CNI commercial industrial from our lighting standpoint. Looking at our independent graphics businesses, in the original strategy of acquisition, it was my feeling in the early years as we were making acquisitions that we were looking for well-run companies, good entrepreneurs that had a lot of creative thinking in building their businesses.

We selectively picked those companies. And even though it may look -- after the situation of what happened in Lightron and to some extent [INAUDIBLE], that maybe our acquisition strategy wasn't as strong as it should be, I feel very, very strongly that what we did was the right thing to do, and I'll tell you why. As we developed the concept of developing what we call the image business, we were setting a course that basically most of our competitors just aren't doing. I think it would have been a huge mistake for LSI over the last couple years to develop a strategy that basically followed what the competitors are doing in our CNI business.

There is no question that LSI is not the big bear in the CNI business. We are number five. There are four other companies that are stronger and bigger in the CNI business. They've been in it a lot longer than we have. If we had taken the strategy just to try to compete with them one on one, I believe we would fail. In developing our product line, it meant for LSI to look at opportunities in an acquisition direction. It would have taken us years to develop certain products in order to compete.

We had an opportunity to improve our rep force, which was -- whether it was the right time or the wrong time, it came about; and we had to move very, very quickly in order to obviously take advantage of that change. And so I made the decision about two years ago that we were going to start the direction of LSI and diversify ourselves into a more -- more complete direction as relates to our lighting; and then at the same time looking at our graphics business and how we might be able to strengthen ourselves as it would relate to the large national segment of our economy.

And so almost simultaneously, we started to develop the strategy of the CNI business in a much stronger direction than we had been in the past. We were committed to the -- maintaining the market share of our niche markets. We took the three graphics businesses and we basically rolled them into one strong direction -- which, by the way, two of -- all three of those were acquisitions, and have done very, very, very well.

The other part of the strategy was, was in looking at our lighting business, is that we certainly had to develop a much stronger image in the CNI business, and that was a commitment to some additional products that we developed and introduced. It was getting these other acquisitions, the other lighting companies, into a little different direction than what they were used to. These were all basically small companies. They all had a culture that was basically small in attitude and really small in size, when you look at the largest volume was around 22, $23 million. And in the CNI business that's very, very small. You are looking at a $7 billion industry, and you've got three or four of our major competitors, if not in the billion sales range, certainly close enough to it.

So we started thinking those companies and started to change the culture. Now that wasn't as easy as I thought it would be and I don't think anybody could have done any better with it, because it really took a lot of work to get these folks into a whole different direction as related to a unified approach to the market. And that's where we are a little bit different, based on our competition. I made the decision that just to follow them wouldn't be in our best interest, because they are the leaders and they have a much bigger market share and they could definitely have a big effect on how we approach the business.

So we started a strategy that basically took these independent acquisitions and start rolling them into one direction. We started changing the operations. We made a number of management changes as we started to learn more about the businesses that we had acquired. We tried very hard to help those folks understand our culture, because our culture has been successful. It's been straightforward. And that's basically the niche past of ourselves.

And that wasn't an easy strategy either, because at the same time the recognition was that in order to communicate the only way that we could bring these customers, these new companies, these new acquisitions on line was we had to evolve them in the new systems process. These companies, two of them didn't even have a systems in place.

Until most recently, Lightron had no systems. They had no bills and materials. They had no parts numbers. This company was built on a process and on how they penetrated in their area, in their niche market, and they had the kind of product line that we felt we needed as it would relate to a higher-end interior package, our midwest [INAUDIBLE] acquisition in Kansas City really guided us toward more of a commodity product line. You tie all this in from a timing standpoint,t and the economy goes to hell in a handbag, as we all know. So the strategy was, keep going forward, not go back, not start treading water, but really emphasize the changes that we were going to make. We were already committed, and we were going in that direction no matter what.

And as a result of that, with the economy going very flat and with our main business, and really more profitable business our niche markets also going flat. LSI found itself in a very unusual time -- well, if you want to call it that -- but we never varied from the plan. And the plan, I believe today, is as good as ever. And not as a result of one or two quarters. Our third quarter this year in 2004 was obviously a disappointment; but again, the third quarter has always been one of those challenges, as it would relate to the climate conditions in this country and budgets.

And with the economy basically really still very relatively flat as far as our segment of the business, that was a very, very tough quarter. We saw it, and we felt very strongly, and you can tell by some of the revenue improvement that the fourth quarter was going to be really strong. We knew that we were going to have tight margins, and I will explain that in a moment. What we didn't count on, and that was the adjustment in the inventory. And you are going to say, well, why didn't you see that? Why didn't you know that? Well, that's a great question to ask, and hindsight has a great way of answering those questions.

And you could go back in time and start putting some of the dots together, we probably should have seen some things. But we had a reorganization. We had a management change. Jim Sferra, our Corporate VP of Manufacturing, went in and took over the operations and starting getting deep into the company and its cultural changes and developing a stronger ability to really go into a higher efficient manufacturing mode. So at the time, we thought and felt strongly that the cost of the inventory was in place. But using the gross profit method, there's no way that you could really, really be sure that that's necessarily the -- that the costs are right.

And as a result of all the clean up and all the changes that went on, the big surprise happened; and I'll tell you what, it caught me by surprise as anything that has ever happened in my career. It was a tremendous disappointment; because we had worked so hard to pull our companies together and pull them through the economic turn down and start riding the improvement of the economy, which was beginning to show. You tie all that together, and then the other situation that happened was the steel price increases. Again, no way in the world that we could have anticipated that.

Steel over the years has been a product that we really didn't have a lot of concern with. Steel was -- was priced right. We were buying it well. We had good opportunities as related to the vendors that we had developed partnerships with, and then all of a sudden we get hit with these increases. And the first increase was over 35% of the type of products that we produce. And those are fluorescent interior lights -- our poles as a good example -- anchor bolts.

And not only was the price increased concerning to us, but then all of a sudden we found ourselves in some cases on allocation, which obviously is a very, very concerning direction as you are trying to develop growth. And so we went crazy, and we started going everywhere and anywhere trying to find as much steel out there as we could. We started the initiation of a price increase. We found ourselves in a competitive market where our competitors also were feeling the same pressures.

But then there was an extension of anywhere from 60 to 90 days basically from our competitors in the marketplace to maintain the prices that were already in place on certain contracts, certain orders. Both are release orders that are a very important part of the strategy in the lighting business. These are orders that have been placed and still waiting for relief dates. And so in order for to us stay competitive, and the fact that we had a lot of new agents on board, that we could not try to implement increases across the board that could have affected their business situation, because of what's established on a competitive level from the three or four larger companies.

So we found ourselves in a very, very unusual position. And my idea, my direction, was keep your head down and keep going. We were developing our own image. We knew very, very well that the pressures on margins were going to come about as a result of the steel -- primarily steel -- but it wasn't just steel. We obviously found indications of the balance that we buy, because they use a lot of steel components. The lamp people took an advantage of that and we saw lamp increases coming.

Our carton suppliers, we started to see indications of increases in cartons and materials. So here we are right in the middle of the beginning of the improvement in the economy, certainly a very, very tough situation as it related to price protection, and obviously, the competitive pricing. I can tell you right now that as we looked at this strategy, we didn't deviate from it, because we believe that our business plan is directed -- is right on where LSI belongs for the future.

If you look at the past history of the company, there are going to be bumps in the road. This is a business that we run; and as a result of that, these bumps come periodically. Unfortunately, the last year or so we experienced a few more bumps than ever in our history, but I think the times are unusual. And as a result, we were adjusting -- well, we were almost adjusting weekly on how to take on these challenges that we were experiencing.

I think the most important lesson that we learned was certainly the understanding of cultural changes in acquisitions. And as a result of that learning curve, as we look into future acquisitions, there will be a lot of things done differently. As far as the existing acquisitions, I can say this to you with absolutely complete confidence: That two of those acquisitions which appear to be acquisitions that didn't really work out, they are working out.

The situation with Adapt, our engineering group -- and I will -- and I can remind you that without them we might have had a different outtake on the large volume that we did with one of our major fast food marketers, had a minute board -- a change out. But we had a management difference than the original founders of the company Adapt. They had a little bit different attitude of how they wanted to do business versus how LSI as a corporation was doing business. And they were an important part of our strategy. And as we quickly learned, they were going left while we were going right -- or staying straight, I guess, is a better way to stay it.

And I will not put up with that, and I removed that management group and replaced them with a new team. We moved them into North Canton under the winning of David McCauley, the President of the graphics group. That's where they belong. So in the reorganization, in the consolidation of our graphics business, we now have the three main graphics businesses in Rhode Island, North Canton and Houston. And at the same time, we took our menu board process and concept and put that under the wing of David and the Adapt -- our installation business.

That's where they belong. David McCauley has been extensively one of the strongest contributions of the LSI family. There is a perfect example of how an acquisition can really go right when the management team from the day it starts has the attitude that we are in this because this is what we believe. An acquisition can go sour on you temporarily when the management team feels that they belong in another direct. We've made those corrections. We've made those changes. They are an important part of our strategy, and they will, they will be profitable, and they will be an important part of our growth plan. And to look back after a couple of quarters and say, you know,, is your strategy strong, is your strategy this? It doesn't make sense. Because we are in a business and we are in a very challenging environment today.

So I sit here today before you as the CEO of this company taking full responsibility for the decisions that we have been making over the last two years. I look at my business plan, and certainly very disappointed in Q4, and to some extent Q3, and say to myself, you know, our strategy is strong. Our strategy is right, and the reason I say that with such confidence is we have expanded the number of customers that we have. We have greater opportunities today. Our graphics business right now is extremely strong. It was a little bit soft coming into June. And the only reason it was a little bit soft -- and, of course, our graphics business has stronger margins -- was that one of the major players that we have worked very hard on in obtaining a conversion in their image program was a little bit late in kicking off their program. That program has kicked off today.

And so we look forward to the third quarter on our graphics side, especially, being much stronger than the fourth quarter was; and with the same expectations, the margin should improve from that standpoint on our graphics business. And I look at our lighting business. And I know we have a new rep organization. I know that we are penetrating different markets. Our revenues were up. They weren't as profitable, as we have experienced before, because our product mix has changed. The environment has changed. The steel price increases have changed.

To this day, we don't know when steel will actually level out. We honestly thought back in May that we would start to see a leveling out on steel prices in August or September. That has not happened. So we will expect a continuation of pressure on margins on the lighting business. But I can tell you this: We will maintain a strong balance sheet, and I think that's one of the very strong pluses of going through a complete change over, a change in our total experience in doing business in the lightning side of our business, is that our balance sheet is as good as it ever was.

And I think that shows that even with tough margins, that we are running our business very smartly. Even during the toughest periods, we were investing in new equipment. We were making changes in the operations of our manufacturing facilities to make them more efficient. We are continually now working for different sources of steel materials throughout the world, and that has come about as a result of doing a much stronger investigation of what's available on the world market on steel.

Now that will take a little bit of time, but the fact of the matter is is that we are very, very much involved in trying to source steel and be sure that we've got enough of it when we need it, and hopefully at the right prices, based on the competitive issues and what the pricing market is. So in closing, as I sit here today reporting to you on the fourth quarter and fiscal year end, 2004 wasn't a bad year. It wasn't a great year. It's certainly disappointing to see the stock where it is. And we understand that, and we feel just as any shareholder would.

But is this company a good, strong public company? Absolutely. Do we have a strong future? I assure you that from my position, the future is as strong as it could ever be. We are in challenging times. We are becoming a better company as we learn how to get through these difficult periods. Never in my 43 year history had I every experienced the kind of changes that we've experienced in the steel -- as an example, in the material side of steel.

And when you look at the number of products from a lighting standpoint that use steel, every one of our products, every one of our light fixtures, whatever it may be, is affected to some degree, because it has a piece of steel in it, whether it be a balaste [PHONETIC] holder, or whether it be howse [PHONETIC], or whether it be a bracket or whether it be a pole or an anchor bolt, it doesn't make any difference Steel is used in every one of our products. Certainly, the competitiveness in the marketplace from the standpoint of the pressures because of the earlier part of the period of an economic slow down.

But we are beginning to see that change. We are beginning to see that hopefully the economy stays more positive. We are beginning to see our revenues improve. And now the challenge is to make those revenues more profitable, and we take that very seriously. We have effective teams in place in order to try to improve that. We have the opportunity with our graphics business to see improved margins as relates to their volume improvement.

And last but not least, we are still continuing on the course of evaluating our narrow casting technology. It is part of the global communication network. We are as committed to that today as we are when we announced it about a year ago, and we are continuing to work in exposing more and more of our customer base to our narrow casting capability.

So as I put my arms around LSI Industries today, and looking back to Q4, not great ,not to see the stock go the way it has been going. Certainly a huge disappointment, based on the fact that we did not see the inventory change that hit Lightron. We know why it happened. We know how it happened now, and we have taken all the corrective actions to change that and make that right. And we will also learn from that based on all of our other operations, and I will reemphasize that our other acquisitions, you don't have to worry about those acquisition.

You are not going to see a repeat of the Lightron situation. And I say that with confidence, because we had better processes and better systems in place with the other companies than Lightron had when we acquired them. Did we know that heads up? Yes. Would we by Lightron again? Yes. Would we change it differently earlier? Yes, but that's all hindsight, and as a result of that, I'm sitting here now looking at our first quarter 2005, and we feel very strongly, especially about the next two quarters. They look very, very strong. And, again, my commitment is, as well as the rest of the management team throughout the corporation, to really work effectively on the margin side.

That's where we know we have to go. And with that, I would like to turn it over to Ron Stowell. He's got a couple of comments, and then we will open it up to Q&A.

Hi, good afternoon, everybody. I'd like make sure that everybody notice that our remarks today are related to our expectations with regard to a number of activities in which the company is engaged. Reliance should not be placed on these forward-looking statements because they involve risks and uncertainties that may cause our actual results to differ materially from those which we have talked about or may imply today.

The risks and uncertainties are delineated in our most recent press release and in our Forms 10K and 10Q, as filed with the SEC. I will take just a second away from your Q&A time to give numbers that I think some of you out there would normally be interested in. Let's see if I can hit most of them now. Our cash balance as of June 30th is $205,000. Our receivables are 42.5 million. Inventory is 47.7 million.

Our shareholders equity was reported on the press release of 128.9. At year end, we had 19,734,000 shares outstanding. For diluted EPS, we had 20,046,000 used to calculate EPS for the quarter. And 20,038,000 calculating for the -- for the fourth quarter. We've got cap ex coming in at 4.7 million. Depreciation and amortization of our intangibles, 5.9 million.

Debt on the balance sheet is 11.6 million. And I believe I probably hit most of your normal numbers, and I will be available for questions, whether it's now or later. With that, Farrell, I think we'll turn it over to questions and answers.

Thank you. If you have a question at this time, please press zero one on your telephone keypad. The first question comes from Mr. Ian Fleisher. Hold just one moment.

Can you hear me?

Yes.

Can you quantify the materials cost at all in your cost of sales? The increase in your materials cost?

I can tell you based on my best guesstimate without the numbers right in front of me, Ian, if we look at our major -- the major component, our steel price increases, overall, over the last three months, we've seen probably a 50% increase in material costs.

And how does that -- how does that impact your cost of sales?

Our -- of course, we don't normally report that, but we are -- about 45% of sales is represented by materials. Now this level of price increase, while we had some in the graphics area, was not as extensive in the graphics area.

Yeah, I think the other thing to know is that we are now beginning and patching on those price increases. Obviously, there's a certain percentage that are accepting it, and others that aren't. So we are literally pushing through all the increases that we can. And if it's a situation where the increases is so catastrophic that it's going to hurt totally the margin, we will walk away from that business.

And what kind of success are you having to this point on the pricing side?

I think we are beginning to see the increases coming through and being accepted, because everybody's doing it. The difficult period of time was really between May and June, when most of the industry guaranteed the prices that were on orders already in place through the 30th of June. And as a result of that, we had to stick with our situation, with our order level, as well. Otherwise, we would have probably lost some of that business, and with brand new reps on board, the last thing we could afford to do was starter losing business through these brand new agents. So we had to stick with it, and we did, and we fought through it, and the increases have been announced. The price books are out, and we're beginning to see the -- obviously, the acceptance. But it's still going to be a pricey market, because the problem with steel is that we're not getting prices beyond six to eight weeks. When we place an order with steel, the maximum price protection they will give us is six to eight weeks. That becomes a real challenge to, not just LSI, but all of us in this business as relates to pricing, as you're looking forward on quoting new jobs and the orders that may not be shipped until October, November. And obviously, the answer to that is that we are writing contracts with the -- with surcharges as a potential -- whatever that is -- passing on that increase, if it comes through during that period of time before the last price that we had and an increase comes. So again, it's a very delicate time right now as we are all going through this challenging period. As I said, in my 43 years, I don't ever remember anything like this.

And what magnitude are your price increases on a consolidated basis?

Well, it varies by product, obviously, because there's some steel and others. If you take our poles, for example, you are looking at easily anywhere from 10,12, 14, 16%. Again, maybe even higher depending on the gauge of the steel and the height of the pole and, of course, some of the biggest problems are it just increases the availability of steel. So it's a two-way challenge. So if you find yourself in a situation where you cannot finds certain types of steel, and you have to even go further in the market, and you could pay a higher price on that just to get it. And so it's a very, very unusual time. And we are working through this and we are learning from this and applying it. And I wish I could tell you that as far as we are concerned, this is behind us; but we still are looking into the future and we are not seeing the steel industry giving us any confidence level that it is behind us.

Okay, one other question and then I'll jump back in line. What was the inventory write down in the quarter?

We have a little over $2 million at Lightron. And, of course, that's -- as Bob indicated -- largely due to the gross profit and squeeze on margins and rising costs and some operational issues that were done to make the plant more efficient. So that's what we found.

Okay, thank you. I'll jump back in line.

Thank you.

And with three further questions in queue, the next question comes from Craig Kennison.

Hi, good afternoon.

Hi, Craig.

Ron, just to follow up on that $2 million number, I couldn't do the math quick enough, what's the EPS impact?

Well, we are very careful to not issue any nonGAAP numbers, which that would be. But you can apply our tax rate, which would be 37%, and then divide it by the 20 million shares to get that EPS.

Okay, what's that number?

Let's see if your brain can work faster than mine.

I imagine that did you that on your own time at some point.

No, I have not, but it would appear to be, you know, about 7 cents or so.

If I look at our number of 17 cents prior to the pre-release, we were looking for 61 million in revenue. With the 66 million that you actually reported in revenue, we would have expected EPS of 20 cents. And so the inventory write down was significant, but there seems to have been a very significant impact elsewhere in the business. Would you attribute it all to steel? Or were there other factors?

Steel was certainly a part of it. Bob talked about our graphics business, which is expected to report strong results the first and second quarter of the fiscal '05. We saw '04, just due to the timing of the projects and a time when they were building, perhaps, the inventory late in the quarter, but not able to ship it until this quarter, we saw a fall off in their profitability, as they were kind of in between major projects, so to speak.

Well, and the other thing, Craig, we did take some volume at margins we that might not have in order to maintain our rep force. As you know, there's a lot of new management on board, and LSI is their main product line, and the competitiveness in the marketplace develops a situation where if you can't compete with them, then you have the -- you earn the unfortunate position where not only do you not get any commission, but you lose a customer. So selectively, we worked through this. We knew it was coming, and we did the best we could to protect all of our reps, based on the customers that they developed, and met pricing that we might not have met before; and I think that impact, along with materials, had a lot to do why those margins were so squeezed.

So when did you become aware that EPS were likely to be materially below expectations? It seems like certainly the inventory write down came late, possibly in the audit phase, but it looks like earnings were well shy of expectations, you know, as soon as the quarter ended. Is that fair to say?

No, I think where we really had a big surprise was in June, because we had some graphics business that we really were expecting that would have had much higher margins, and I think that if you look back in -- let me get my months straight here -- April and May, we were kind of right on track. We basically had this, from an EPS standpoint, right on track, and I think as things really started to -- and we shipped a lot of stuff in June, as you can see by that, because that's when the price protection was over. So we were really held very, very tight to that. And some of the other price increases that we've -- on the same sales that we were hoping to get with some of our bigger marketers, weren't accepted at that time. They are now. So it's a combination of thing that really, really impacted the month of June. Of course, the [INAUDIBLE] was the inventory situation Lightron created, but our company -- especially any quarter end -- any month end, actually -- but at year end, finds a way and intends to ship a ton of product and ton of where revenue is recorded in that last -- even the last week, especially in the graphics business. And you know, our backlog is five to six weeks. We don't have a lot of visibility. Some stuff comes in for immediate shipment. You know, there was perhaps a little less that came through than normally does come through, even in that last week of the month.

Why not stagger the incentive programs so that you have people that have incentives to meet expectations at different times during the month of -- during the quarter so you don't have that all coming at the same time?

I didn't say it was related to anything to do with incentives. It's related to when customers need product, when the programs are requiring deliveries. It doesn't really have anything to do with when the incentives are.

You know, I'm smiling when you said that, Greg. We have tried that many, many times in the past. And I'll tell you, the customers today, they wait until the very last minute and then they -- all of a sudden, they drop the bomb on you, and you are always hustling. We live in a different environment. Incentives don't do it. It's basically when will their time is available, when their time is right and then releasing orders. You can't imagine the nightmare that companies like ours go through in this industry of juggling schedules based on a contractor putting something on hold the day before you are going to produce it and then wanting it the day after -- I mean, it's just incredible. So I wish something like that strategy would work. We've tried it all and it just doesn't. It's a different culture of the types of people we're dealing with.

And then Bob, I know that your philosophy includes owning a strong share of the market. You've proven that in the petroleum market. Why does it make sense for LSI to be playing in the broader CNI market as the number five player?

Well, it's very simple. Can you imagine where we would be today if we didn't start making those -- taking those directions? Remember this, that the number one player was at one time number five. I'm not suggesting that we are trying to go out there and take all this market share away from everybody. There's a certain element of business out there that's CNI business that I think fits LSI very, very well, and we've packaged ourselves now with a lighting product offering that we've never had before. It was just a month or two ago that we announced that for the first time ever, we put a lighting buyers guide out, which took all the LSI products between two covers. We never had that before. And I think now it's just a process of going through this time issue and really focusing. If we didn't focus on the CNI and if we didn't start the development program when we did, and you take that petroleum business and the fast food business,s which was really very, very flat in the last 18, 19 months, where would LSI be today without the moves that we've made? And I think we'd be in a world of hurt.

Okay. Thank you.

We have three follow-up questions in queue. The next question comes from Rick [INAUDIBLE].

Yeah, with Columbia Management.

Hey, Rick, I owe you a phone call. I've been so busy the last day and a half, but I will call you back.

I'll be in in the office in an hour or so.

Okay.

One, I guess, you know, related to I think Craig's question on some of the things you mentioned in your pre-release that contributed to the shortfall. You guys should be able to put the pennies per share in the various buckets and come up with what contributed to the -- to all elements in the shortfall. I strongly encourage your CFO to do the math if he hasn't, because that's a pretty disappointing statement in and of itself. Secondly, I guess I have a question. I read somewhere that one of the analysts that follows you found an article that suggested that Shell Texaco has done 10,000 reimages since their merger, and we haven't heard a lot about -- of you talking about them as a significant customer over the last year or two. Can you bring us up to date on whether you're playing or you're not playing? How many you've done with them? Who else is doing them if you're not?

Yeah, there are different -- there are different levels of what they call reimaging. And let me assure you of this: We are a player in every one of those reimaging programs. In the last two years, because of the international involvement of the way these companies are emerging, we have been very selective. There's a company that got into this business by the name of Color Arts -- about a $45 million graphics business in Wisconsin. And they decided that they were going to be main player in some of these reimages. And they went in and they bought all this business at a very low price. We walked away from a lot of that business on that basis. Color Arts filed chapter seven just about six weeks ago. We are involved with different segments of that reimaging. There are certain parts -- and they are small parts. Most of it's graphic elements and to some degree it might be a change of a sign. It might be a change of a decal. Some of those thing we don't make. And some of those thing don't fit our production. But I can assure you that from a reimaging, as it relates to the products that we make, we are involved with those. But there isn't anything that is really big. To say 10,000 sites, that could be 400 or $500 decals that go on a pump, and based on the fact that what the profit contribution is, is that we do walk away from business like that. So it's very difficult to tell you exactly what we have and what we don't have as it would relate to the number of sites that are out there. There are a lot of these sites, too, that they've talked about -- and I've read some of those articles, too, and I can tell you that those articles aren't always accurate, either. We've seen numbers floating around that we know are not true. Some of them come from an international level. Some of them are just information that's thrown out there that they've done this work. And we sit there and say to ourselves, where is that work? That hasn't happened here. So I don't know that I would be totally secure in my thinking that an article that you saw would give you those kinds of numbers. But we are involved with every major oil company to this day.

I guess, so you're saying Color Arts was the main beneficiary of the 10,000 conversions?

No, I'm not saying that at all. Color Art came in and took business from the industry, from us, with BP, with Conoco, with Phillips, with Sun Oil Company, to name three. I don't know all the companies that they took it away. I can tell you this right now; that they are not in business. And -- well, actually, somebody's invested $5 million in the last article I read in a $40 million company. They filed chapter seven, not even Chapter 1I. We are now working on the opportunity with some of those companies, for example, to see if we can fulfill some of their needs, but certainly at a profitable margin and not at the type of margins that Color Arts took, otherwise they would be in business today. And I am just using that as an example.

I'll hold most of my questions until when you get back to me.

Sure.

But I do have one more comment, because you mentioned that, I think in your prepared remarks on experiencing the bumps of late. You should know this as well as anybody, because you own a million shares yourself, but you have -- LSI has not made -- has not experienced any appreciation in nine-plus years in the stock. You are at the same price you were nine-plus years ago, and that's more than a few bumps in the road, and I will tell you it's very disappointing.

Rick [INAUDIBLE], I will disagree with you right now in front of everybody. If you take into consideration the stock splits, there have to have been at least three ore four in that time period -- I can look it up, but it's in our web site. I think before you -- I'll say this because it upsets me -- you've know me a long time -- that you'd make that statement, and I think that you need to do a little bit of homework.

I think, Bob, we'll have to discuss later, but excluding dividends, your stock hasn't appreciated a dime in nine years.

Okay. I disagree.

There are two further questions in queue. The next question comes from Cliff Walsh.

Good afternoon.

Hey, Cliff.

Can you discuss -- you alluded to three new business opportunities in the press release. Can you give us some color in terms of the size and possibly the timing of those opportunities?

Yeah, yes, you probably are aware, I don't like to mention names, but certainly one of them is in the drug chain related area, and quite sizeable. And the other one, one of the other ones, is in the petroleum, and I did mention that name, And that was the Phillips Conoco reimaging that we believe is starting, based on them on their releasing -- hopefully starting to release some of the graphics part of their business. That looks like about a three-year program. And the third one, which is a sizable one, is in our fast food business, and I don't want to get into specifics with that, but we've developed a product and we are now just awaiting the purchase order for release in order to start the program, and we are hoping -- and I say this with tongue in cheek -- that we will see that kick lose by September. It will take us about eight weeks to ramp up for it, but those are the three that we were alluding to. There are others that we feel are very good. There's another one in the oil bus that we are starting to see an interest in. And we've had this business, but there hasn't been going on. So those are just a few examples. We've been very fortunate with some of the Cold Stone program in our graphics side, and that has been ongoing and a continuation. So there's a lot of interest out there, and there's a lot of opportunity out there. And, again, it's the graphics business where we have our highest hope for improved margins. The lighting business, we are going to fighting through for the next -- certainly the next few months, until we see some of these price increases, especially from steel, level out.

Okay. Now given the stock decline over the last, you know, seven, eight months, any likelihood of share repurchases? You know, where do we stand at this point?

We've discussed that, as it has been brought up to me many times from different folks, and we still feel very strongly that this is not the right time to do that. I think, you know, when you look at the strength in our balance sheet, just to retire stock at this point in time with a lot of other things that still have to be done, it just doesn't make sense to me at all. And to be quite honest with you, the Board of Directors support that as well. So it's just that, a feeling that I have and have had that the company has a lot more to offer based on putting that money, certainly, better to work than just retiring some stock, because we've had an unfortunate decline in our stock price.

Okay. Just for the record, in 1995 the stock price was below $5. That's it for me.

Thank you.

Thank you.

We have one further question in queue. The next question comes from Ian Fleisher.

Yeah, hi, just a quick follow up. What was the operating income number for graphics in lighting?

I recognize that somebody out there wants that, but haven't come across with that. Thanks for keeping me honest there, Ian. I'm sorry, you wanted the full year?

I will take the quarter and the full year, actually, if you have it. Full year, lighting was 8.8 million, graphics was 5.2 million, and a total of 14.0. In the quarter, our lighting was 1.8 million graphics was .1 million. Okay. Thanks.

Thanks, Ian.

There no further questions in queue at this time.

Well, thank you for your time, and my closing remarks are very basic, is that we've outlined to you our business strategy and we feel very strongly about it. We think it's the right thing for LSI. We are in a very competitive era in our history. We are very strong, and we have a lot of opportunity. And if the economy continues to grow, we will grow with it. We know what our challenges are. We know what we have to do. We are working on those improved margins, which is what everybody wants, including me. As Rick pointed out, I am a major shareholder and nobody is more disappointed than I; but I am not going to vary from my strategy. I think it's the right strategy. I think that LSI has a tremendous amount of opportunity. We've proven that in the past; and we will continue to move forward. The alternatives are very, very limited. And we are committed to the way we've been doing business and successfully doing business; and we will do the very, very best to bring that -- bring that feeling back into our stock so that folks out there that own the LSI stock are proud of the fact that they own it. And that is my number one goal; and that all stems around developing a stronger contribution from the profitability side. So with that, I want to thank you for your time, and if you have any other questions, please, by all means, give Ron or myself a call. Thank you.

Thank you. That concludes today's conference call