NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The interim condensed consolidated financial statements are unaudited and are prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information, and rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. In the opinion of Management, the interim financial statements include all normal adjustments and disclosures necessary to present fairly the Company’s financial position as of September 30, 2013, the results of its operations for the three month periods ended September 30, 2013 and 2012, and its cash flows for the three month periods ended September 30, 2013 and 2012. These statements should be read in conjunction with the financial statements and footnotes included in the fiscal 2013 Annual Report on Form 10-K. Financial information as of June 30, 2013 has been derived from the Company’s audited consolidated financial statements.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation:
The condensed consolidated financial statements include the accounts of LSI Industries Inc. (an Ohio corporation) and its subsidiaries (collectively, 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 collectability 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 at each customer site have been installed.
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. In situations where the Company is responsible for re-imaging programs with multiple sites, each site is viewed as a separate unit of accounting and has stand-alone value to the customer. Revenue is recognized upon the Company’s complete performance at the location, which may include a site survey, graphics products, lighting products, and installation of products. The selling price assigned to each site is based upon an agreed upon price between the Company and its customer and reflects the estimated selling price for that site relative to the selling price for sites with similar image requirements.
The Company also evaluates the appropriateness of revenue recognition in accordance with ASC Subtopic 985-605, “Software: Revenue Recognition.” Our solid-state LED video screens, billboards and active digital signage contain software elements which the Company has determined are incidental and excluded from the scope of ASC Subtopic 985-605.
Credit and Collections:
The Company maintains allowances for doubtful accounts receivable for probable estimated losses resulting from either customer disputes or the inability of its customers to make required payments. If the financial condition of the Company’s customers were to deteriorate, resulting in their inability to make the required payments, the Company may be required to record additional allowances or charges against income. The Company determines its allowance for doubtful accounts by first considering all known collectability 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 receivable at the dates indicated.
(In thousands)
|
|
September 30,
2013
|
|
|
June 30,
2013
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
$
|
47,346
|
|
|
$
|
46,337
|
|
less Allowance for doubtful accounts
|
|
|
(417
|
)
|
|
|
(346
|
)
|
Accounts receivable, net
|
|
$
|
46,929
|
|
|
$
|
45,991
|
|
Cash and Cash Equivalents:
The cash balance includes cash and cash equivalents which have original maturities of less than three months. The Company maintains balances at financial institutions in the United States and Canada. The balances at financial institutions in Canada are not covered by insurance. The FDIC limit for insurance coverage on non-interest bearing accounts is $250,000. As of September 30, 2013 and June 30, 2013, the Company had bank balances of $9,101,000 and $7,688,000, respectively, without insurance coverage.
Inventories:
Inventories are stated at the lower of cost or market. Cost of inventories includes the cost of purchased raw materials and components, direct labor, as well as manufacturing overhead which is generally applied to inventory based on direct labor and on material content. 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 (years)
|
28
|
-
|
40
|
Machinery and equipment (years)
|
3
|
-
|
10
|
Computer software (years)
|
3
|
-
|
8
|
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 amortized over the shorter of fifteen years or the remaining term of the lease.
The Company recorded $1,210,000 and $1,161,000 of depreciation expense in the first quarter of fiscal 2014 and 2013, 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.
Fair Value:
The Company has financial instruments consisting primarily of cash and cash equivalents, revolving lines of credit, and on occasion, 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.
Fair value measurements of nonfinancial assets and nonfinancial liabilities are primarily used in goodwill and other intangible asset impairment analyses, in the purchase price of acquired companies (if any), and in the valuation of the contingent earn-out. The fair value measurement of these nonfinancial assets and nonfinancial liabilities is based on significant inputs not observable in the market and thus represent Level 3 measurements as defined in ASC 820, “Fair Value Measurement.”
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)
|
|
Three
Months Ended
September 30,
2013
|
|
|
Three
Months Ended
September 30,
2012
|
|
|
Fiscal
Year Ended
June 30,
2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of the period
|
|
$
|
1,424
|
|
|
$
|
1,121
|
|
|
$
|
1,121
|
|
Additions charged to expense
|
|
|
587
|
|
|
|
172
|
|
|
|
2,134
|
|
Deductions for repairs and
replacements
|
|
|
(593
|
)
|
|
|
(212
|
)
|
|
|
(1,831
|
)
|
Balance at end of the period
|
|
$
|
1,418
|
|
|
$
|
1,081
|
|
|
$
|
1,424
|
|
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. The Company follows the requirements of ASC Subtopic 985-20, “Software: Costs of Software to be Sold, Leased, or Marketed,” and expenses as research and development all costs associated with development of software used in solid-state LED products. All costs are expensed as incurred and are included in selling and administrative expenses. Research and development costs related to both product and software development totaled $1,954,000 and $1,652,000 for the three months ended September 30, 2013 and 2012, respectively.
Earnings Per Common Share:
The computation of basic earnings per common share is based on the weighted average common shares outstanding for the period net of treasury shares held in the Company’s non-qualified deferred compensation plan. The computation of diluted earnings per share is based on the weighted average common shares outstanding for the period and includes common share equivalents. Common share equivalents include the dilutive effect of stock options, contingently issuable shares and common shares to be issued under a deferred compensation plan, all of which totaled 430,000 shares and 345,000 shares for the three months ended September 30, 2013 and 2012, respectively. See further discussion in Note 4.
New Accounting Pronouncements:
In July 2012, the Financial Accounting Standards Board issued ASU 2012-02, “Intangibles – Goodwill and Other (Topic 350): Testing Long-Lived Intangible Assets for Impairment.” This amended guidance is intended to simplify the test of indefinite-lived intangible assets for impairment by allowing companies to first assess qualitative factors to determine whether or not it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying value as the basis for determining whether it is necessary to perform the two-step impairment test. Current guidance requires companies to perform an annual indefinite-lived intangible asset impairment test. The amended guidance is effective for annual and interim tests performed for fiscal years beginning after September 15, 2012, or the Company’s fiscal year 2014, with early adoption permissible. The adoption of this standard in fiscal 2014 did not have a material impact on the financial statements.
In July 2013, the Financial Accounting Standards Board issued ASU 2013-11, “Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists.” This amended guidance is intended to eliminate the diversity that is in practice with regard to the financial statement presentation of unrecognized tax benefits when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. The amended guidance is effective for fiscal years and interim periods within those years, beginning after December 15, 2013, or the Company’s fiscal year 2015, with early adoption permissible. The adoption of this guidance is not expected to have a material impact on the financial statements.
Comprehensive Income:
The Company does not have any comprehensive income items other than net income. The functional currency of the Company’s Canadian operation is the U.S. dollar.
Subsequent Events:
The Company has evaluated subsequent events for potential recognition and disclosure through the date the condensed consolidated financial statements were filed. No items were identified during this evaluation that required adjustment to or disclosure in the accompanying financial statements.
Reclassifications:
A reclassification was made in the prior year cash flow statement to more accurately reflect the cash flow impact of the Allowance for Doubtful Accounts and the Inventory Obsolescence Reserve. The offset to these reclassifications was Accounts Receivable and Inventory, respectively. The prior year cash flow conforms to the current year presentation. There was no impact to earnings or net operating cash flows as a result of these reclassifications.
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 3 — BUSINESS SEGMENT INFORMATION
ASC 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 financial statements. Operating segments are identified as components of an enterprise for which separate discrete financial information is available for evaluation by the chief operating decision maker (the Company’s 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 Lighting Segment includes outdoor, indoor, and landscape lighting that has been fabricated and assembled for the commercial, industrial and multi-site retail lighting markets, the Company’s primary niche markets (petroleum / convenience store market, automotive dealership market, and quick service restaurant market), and LED solid state 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. The Lighting Segment includes the operations of LSI Ohio Operations, LSI Metal Fabrication, LSI MidWest Lighting and LSI Lightron. These operations have been integrated, have similar economic characteristics and meet the other requirements for aggregation in segment reporting.
The Graphics Segment designs, manufactures and installs exterior and interior visual image elements related to graphics. These products are used in visual image programs in several markets, including the petroleum / convenience store market and multi-site retail operations. 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, and various products used in various applications including the control of solid-state LED lighting and metal halide lighting. The Electronic Components Segment includes the operations of LSI ADL Technology as well as LSI Virticus. LSI ADL Technology sells electronic circuit boards, assemblies and sub-assemblies directly to customers and also has significant inter-segment sales to the Lighting Segment. LSI Virticus sells lighting control systems directly to customers and to the Lighting Segment. Products produced by this segment may have applications in the Company’s other LED product lines such as digital scoreboards, advertising ribbon boards and billboards.
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. The Operations of LSI Images (menu board systems), LSI Adapt (implementation, installation and program management services related to products of the Graphics and Lighting Segments) and 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 combined 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, expense related to the Company’s Board of Directors, stock option expense for options granted to corporate administration employees, certain consulting expenses, investor relations activities, and a portion of the Company’s legal, auditing and professional fee expenses. Corporate identifiable assets primarily consist of cash, invested cash (if any), refundable income taxes, and deferred income tax assets.
There was no concentration of consolidated net sales in the three months ended September 30, 2013 or 2012. There was no concentration of accounts receivable at September 30, 2013 and 2012.
Summarized financial information for the Company’s reportable business segments is provided for the indicated periods and as of September 30, 2013 and June 30, 2013:
(
In thousands)
|
|
Three Months Ended
September 30
|
|
|
|
2013
|
|
|
2012
|
|
Net Sales:
|
|
|
|
|
|
|
|
|
Lighting Segment
|
|
$
|
59,471
|
|
|
$
|
55,791
|
|
Graphics Segment
|
|
|
14,008
|
|
|
|
10,745
|
|
Electronic Components Segment
|
|
|
5,080
|
|
|
|
5,754
|
|
All Other Category
|
|
|
1,927
|
|
|
|
2,429
|
|
|
|
$
|
80,486
|
|
|
$
|
74,719
|
|
|
|
|
|
|
|
|
|
|
Operating Income (Loss):
|
|
|
|
|
|
|
|
|
Lighting Segment
|
|
$
|
3,811
|
|
|
$
|
4,513
|
|
Graphics Segment
|
|
|
163
|
|
|
|
(355
|
)
|
Electronic Components Segment
|
|
|
972
|
|
|
|
786
|
|
All Other Category
|
|
|
4
|
|
|
|
(2
|
)
|
Corporate and Eliminations
|
|
|
(2,111
|
)
|
|
|
(1,915
|
)
|
|
|
$
|
2,839
|
|
|
$
|
3,027
|
|
|
|
|
|
|
|
|
|
|
Capital Expenditures:
|
|
|
|
|
|
|
|
|
Lighting Segment
|
|
$
|
491
|
|
|
$
|
316
|
|
Graphics Segment
|
|
|
57
|
|
|
|
218
|
|
Electronic Components Segment
|
|
|
70
|
|
|
|
133
|
|
All Other Category
|
|
|
29
|
|
|
|
30
|
|
Corporate and Eliminations
|
|
|
583
|
|
|
|
639
|
|
|
|
$
|
1,230
|
|
|
$
|
1,336
|
|
|
|
|
|
|
|
|
|
|
Depreciation and Amortization:
|
|
|
|
|
|
|
|
|
Lighting Segment
|
|
$
|
706
|
|
|
$
|
1,165
|
|
Graphics Segment
|
|
|
221
|
|
|
|
222
|
|
Electronic Components Segment
|
|
|
366
|
|
|
|
320
|
|
All Other Category
|
|
|
40
|
|
|
|
47
|
|
Corporate and Eliminations
|
|
|
75
|
|
|
|
96
|
|
|
|
$
|
1,408
|
|
|
$
|
1,850
|
|
|
|
September 30,
2013
|
|
|
June 30, 2013
|
|
Identifiable Assets:
|
|
|
|
|
|
|
|
|
Lighting Segment
|
|
$
|
93,672
|
|
|
$
|
90,536
|
|
Graphics Segment
|
|
|
26,483
|
|
|
|
28,792
|
|
Electronic Components Segment
|
|
|
31,740
|
|
|
|
30,926
|
|
All Other Category
|
|
|
6,727
|
|
|
|
6,361
|
|
Corporate and Eliminations
|
|
|
13,482
|
|
|
|
12,564
|
|
|
|
$
|
172,104
|
|
|
$
|
169,179
|
|
The segment net sales reported above represent sales to external customers. Segment operating income, which is used in management’s evaluation of segment performance, represents net sales less all operating expenses including impairment of goodwill, 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. Inter-segment revenues were eliminated in consolidation as follows:
|
|
Three Months Ended
September 30
|
|
(In thousands)
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
Lighting Segment inter-segment
net sales
|
|
$
|
898
|
|
|
$
|
657
|
|
|
|
|
|
|
|
|
|
|
Graphics Segment inter-segment
net sales
|
|
$
|
205
|
|
|
$
|
837
|
|
|
|
|
|
|
|
|
|
|
Electronic Components inter-segment
net sales
|
|
$
|
8,504
|
|
|
$
|
6,336
|
|
|
|
|
|
|
|
|
|
|
All other Category inter-segment
net sales
|
|
$
|
2,155
|
|
|
$
|
866
|
|
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)
|
|
Three Months Ended
September 30
|
|
|
|
2013
|
|
|
2012
|
|
Net Sales (a):
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
79,673
|
|
|
$
|
74,689
|
|
Canada
|
|
|
813
|
|
|
|
30
|
|
|
|
$
|
80,486
|
|
|
$
|
74,719
|
|
|
|
September 30,
2013
|
|
|
June 30,
2013
|
|
Long-lived Assets (b):
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
47,032
|
|
|
$
|
46,843
|
|
Canada
|
|
|
340
|
|
|
|
336
|
|
|
|
$
|
47,372
|
|
|
$
|
47,179
|
|
a.
|
Net sales are attributed to geographic areas based upon the location of the operation making the sale.
|
b.
|
Long-lived assets include property, plant and equipment, and other long term assets. Goodwill and intangible assets are not included in long-lived assets.
|
NOTE 4 — EARNINGS PER COMMON SHARE
The following table presents the amounts used to compute basic and diluted earnings per common share, as well as the effect of dilutive potential common shares on weighted average shares outstanding (in thousands, except per share data):
|
|
Three Months Ended
September 30
|
|
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
BASIC EARNINGS PER SHARE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1,865
|
|
|
$
|
1,830
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
during the period, net
of treasury shares (a)
|
|
|
24,057
|
|
|
|
24,028
|
|
Weighted average shares outstanding
in the Deferred Compensation Plan
during the period
|
|
|
296
|
|
|
|
276
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
24,353
|
|
|
|
24,304
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
0.08
|
|
|
$
|
0.08
|
|
|
|
|
|
|
|
|
|
|
DILUTED EARNINGS PER SHARE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1,865
|
|
|
$
|
1,830
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
24,353
|
|
|
|
24,304
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities (b):
|
|
|
|
|
|
|
|
|
Impact of common shares to be
issued under stock option plans,
and contingently issuable shares,
if any
|
|
|
134
|
|
|
|
69
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares
outstanding (c)
|
|
|
24,487
|
|
|
|
24,373
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
0.08
|
|
|
$
|
0.08
|
|
|
(a)
|
Includes shares accounted for like treasury stock in accordance with Accounting Standards Codification Topic 710, Compensation - General.
|
|
(b)
|
Calculated using the “Treasury Stock” method as if dilutive securities were exercised and the funds were used to purchase common shares at the average market price during the period.
|
|
(c)
|
Options to purchase 2,184,025 common shares and 1,838,650 common shares at September 30, 2013 and 2012, respectively, were not included in the computation of diluted earnings per share because the exercise price was greater than the average fair market value of the common shares.
|
NOTE 5 — INVENTORIES
The following information is provided as of the dates indicated:
(In thousands)
|
|
September 30,
2013
|
|
|
June 30,
2013
|
|
|
|
|
|
|
|
|
|
|
Inventories:
|
|
|
|
|
|
|
|
|
Raw materials
|
|
$
|
27,951
|
|
|
$
|
28,113
|
|
Work-in-process
|
|
|
6,347
|
|
|
|
4,959
|
|
Finished goods
|
|
|
8,809
|
|
|
|
9,021
|
|
Total Inventories
|
|
$
|
43,107
|
|
|
$
|
42,093
|
|
NOTE 6 — ACCRUED EXPENSES
The following information is provided as of the dates indicated:
(In thousands)
|
|
September 30,
2013
|
|
|
June 30,
2013
|
|
|
|
|
|
|
|
|
|
|
Accrued Expenses:
|
|
|
|
|
|
|
|
|
Compensation and benefits
|
|
$
|
6,834
|
|
|
$
|
8,023
|
|
Customer prepayments
|
|
|
2,384
|
|
|
|
947
|
|
Accrued sales commissions
|
|
|
1,730
|
|
|
|
1,595
|
|
Other accrued expenses
|
|
|
3,667
|
|
|
|
3,216
|
|
Total Accrued Expenses
|
|
$
|
14,615
|
|
|
$
|
13,781
|
|
NOTE 7 - GOODWILL AND OTHER INTANGIBLE ASSETS
Carrying values of goodwill and other intangible assets with indefinite lives are reviewed at least annually for possible impairment in accordance with ASC Topic 350, “Intangibles – Goodwill and Other.” The Company may first assess qualitative factors in order to determine if goodwill and indefinite-lived intangible assets are impaired. If through the qualitative assessment it is determined that it is more likely than not that goodwill and indefinite-lived assets are not impaired, no further testing is required. If it is determined more likely than not that goodwill and indefinite-lived assets are impaired, or if the Company elects not to first assess qualitative factors, the Company’s impairment testing continues with 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. Based on this assessment, no such potential impairment conditions were noted during the three month periods ended September 30, 2013 and 2012.
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.
The following table presents information about the Company's goodwill on the dates or for the periods indicated.
Goodwill
|
|
|
|
|
|
|
|
|
|
Electronic
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Lighting
Segment
|
|
|
Graphics
Segment
|
|
|
Components
Segment
|
|
|
All Other
Category
|
|
|
Total
|
|
Balance as of June 30, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$
|
34,913
|
|
|
$
|
24,959
|
|
|
$
|
11,621
|
|
|
$
|
6,850
|
|
|
$
|
78,343
|
|
Accumulated impairment losses
|
|
|
(34,778
|
)
|
|
|
(24,959
|
)
|
|
|
(2,413
|
)
|
|
|
(5,685
|
)
|
|
|
(67,835
|
)
|
Goodwill, net as of June 30, 2013
|
|
|
135
|
|
|
|
--
|
|
|
|
9,208
|
|
|
|
1,165
|
|
|
|
10,508
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of September 30, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
34,913
|
|
|
|
24,959
|
|
|
|
11,621
|
|
|
|
6,850
|
|
|
|
78,343
|
|
Accumulated impairment losses
|
|
|
(34,778
|
)
|
|
|
(24,959
|
)
|
|
|
(2,413
|
)
|
|
|
(5,685
|
)
|
|
|
(67,835
|
)
|
Goodwill, net as of September 30, 2013
|
|
$
|
135
|
|
|
$
|
--
|
|
|
$
|
9,208
|
|
|
$
|
1,165
|
|
|
$
|
10,508
|
|
In the first quarter of fiscal 2014, the Company purchased intellectual property related to certain lighting control systems. The cost of this intellectual property was $268,000 and it is being amortized over a nine year period.
The gross carrying amount and accumulated amortization by major other intangible asset class is as follows:
|
|
September 30, 2013
|
|
Other Intangible Assets
|
|
Gross
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Net
Amount
|
|
Amortized Intangible Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
$
|
10,352
|
|
|
$
|
7,152
|
|
|
$
|
3,200
|
|
Patents
|
|
|
338
|
|
|
|
58
|
|
|
|
280
|
|
LED technology
|
|
|
|
|
|
|
|
|
|
|
|
|
firmware, software
|
|
|
12,361
|
|
|
|
11,018
|
|
|
|
1,343
|
|
Trade name
|
|
|
460
|
|
|
|
385
|
|
|
|
75
|
|
Non-compete agreements
|
|
|
768
|
|
|
|
439
|
|
|
|
329
|
|
Total Amortized Intangible Assets
|
|
|
24,279
|
|
|
|
19,052
|
|
|
|
5,227
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indefinite-lived Intangible Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks and trade names
|
|
|
3,422
|
|
|
|
--
|
|
|
|
3,422
|
|
Total Indefinite-lived Intangible Assets
|
|
|
3,422
|
|
|
|
--
|
|
|
|
3,422
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Other Intangible Assets
|
|
$
|
27,701
|
|
|
$
|
19,052
|
|
|
$
|
8,649
|
|
|
|
June 30, 2013
|
|
(In thousands)
|
|
Gross
Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Net
Amount
|
|
Amortized Intangible Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
$
|
10,352
|
|
|
$
|
7,068
|
|
|
$
|
3,284
|
|
Patents
|
|
|
70
|
|
|
|
55
|
|
|
|
15
|
|
LED technology
firmware, software
|
|
|
12,361
|
|
|
|
10,958
|
|
|
|
1,403
|
|
Trade name
|
|
|
460
|
|
|
|
362
|
|
|
|
98
|
|
Non-compete agreements
|
|
|
948
|
|
|
|
591
|
|
|
|
357
|
|
Total Amortized Intangible Assets
|
|
|
24,191
|
|
|
|
19,034
|
|
|
|
5,157
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indefinite-lived Intangible Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks and trade names
|
|
|
3,422
|
|
|
|
--
|
|
|
|
3,422
|
|
Total Indefinite-lived Intangible Assets
|
|
|
3,422
|
|
|
|
--
|
|
|
|
3,422
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Other Intangible Assets
|
|
$
|
27,613
|
|
|
$
|
19,034
|
|
|
$
|
8,579
|
|
(In thousands)
|
|
Amortization Expense of
Other Intangible Assets
|
|
|
|
September 30, 2013
|
|
|
September 30, 2012
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
$
|
198
|
|
|
$
|
689
|
|
The Company expects to record amortization expense as follows:
(In thousands)
|
|
|
|
|
|
|
|
|
|
2014
|
|
$
|
816
|
|
2015
|
|
$
|
735
|
|
2016
|
|
$
|
730
|
|
2017
|
|
$
|
634
|
|
2018
|
|
$
|
623
|
|
After 2018
|
|
$
|
1,887
|
|
NOTE 8 - REVOLVING LINES OF CREDIT
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 September 30, 2013. The line of credit expires in the third quarter of fiscal 2016. Annually in the third quarter, the credit facility is renewable with respect to adding an additional year of commitment, if the bank group and the Company so choose, to replace the year just ended. Interest on the revolving line 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 the 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 2015. 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 September 30, 2013.
The Company is in compliance with all of its loan covenants as of September 30, 2013.
NOTE 9 - CASH DIVIDENDS
The Company paid cash dividends of $1,443,000 and $1,441,000 in the three months ended September 30, 2013 and 2012, respectively. In October 2013, the Board of Directors declared a regular quarterly cash dividend of $0.06 per share payable November 12, 2013 to shareholders of record November 5, 2013. The cash dividend indicated annual rate for fiscal 2014 is $0.24 per share.
NOTE 10 — EQUITY COMPENSATION
Stock Options
The Company has an equity compensation plan that was approved by shareholders in November 2012 and that covers all of its full-time employees, outside directors and certain advisors. This 2012 Stock Incentive Plan replaces all previous equity compensation plans. 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 699,971 shares (includes 331,523 shares transferred in from the previous plan), all of which were available for future grant or award as of September 30, 2013. 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 September 30, 2013, a total of 2,740,850 options for common shares were outstanding from this plan as well as two previous stock option plans (each of which had also been approved by shareholders), and of these, a total of 1,932,987 options for common shares were vested and exercisable. As of September 30, 2013, the approximate unvested stock option expense that will be recorded as expense in future periods is $867,074. The weighted average time over which this expense will be recorded is approximately 35 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.
|
|
Three Months Ended
September 30
|
|
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
Dividend yield
|
|
|
3.3
|
%
|
|
|
3.6
|
%
|
Expected volatility
|
|
|
53
|
%
|
|
|
51
|
%
|
Risk-free interest rate
|
|
|
1.7
|
%
|
|
|
0.6
|
%
|
Expected life (years)
|
|
|
5.5
|
|
|
|
4.7
|
|
At September 30, 2013, the 421,000 options granted during the first three months of fiscal 2014 to employees had exercise prices of $7.20 per share, fair values of $2.64 per share, and remaining contractual lives of nine years eleven months.
At September 30, 2012, the 408,750 options granted during the first three months of fiscal 2013 to both employees and non-employee directors had exercise prices of $6.58 per share, fair values of $2.11 per share, and remaining contractual lives of nine years eleven months.
The Company calculates stock option expense using the Black-Scholes model. Stock option expense is recorded on a straight line basis, or sooner if the grantee is retirement eligible as defined in the 2012 Stock Incentive Plan, with an estimated 2.2% forfeiture rate effective July 1, 2013. Previous estimated forfeiture rates were 2.3% effective January 1, 2013, 3.4% effective October 1, 2012, 4.1% effective April 1, 2012, 3.6% effective April 1, 2011, 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 $685,659 and $518,393 of expense related to stock options in the three months ended September 30, 2013 and 2012, respectively. As of September 30, 2013, the Company had 2,723,918 stock options that were vested and that were expected to vest, with a weighted average exercise price of $9.55 per share, an aggregate intrinsic value of $2,324,254 and weighted average remaining contractual terms of 6.1 years.
Information related to all stock options for the three months ended September 30, 2013 and 2012 is shown in the following table:
|
|
Three Months Ended September 30, 2013
|
|
|
|
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual Term
(years)
|
|
|
Aggregate
Intrinsic
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at 6/30/13
|
|
|
2,341,150
|
|
|
$
|
9.95
|
|
|
|
5.6
|
|
|
$
|
1,544,896
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
421,000
|
|
|
$
|
7.20
|
|
|
|
|
|
|
|
|
|
Forfeitures
|
|
|
(18,675
|
)
|
|
$
|
10.31
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(2,625
|
)
|
|
$
|
5.60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at 9/30/13
|
|
|
2,740,850
|
|
|
$
|
9.53
|
|
|
|
6.1
|
|
|
$
|
2,350,457
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at 9/30/13
|
|
|
1,932,987
|
|
|
$
|
10.67
|
|
|
|
4.8
|
|
|
$
|
1,032,942
|
|
|
|
Three Months Ended September 30, 2012
|
|
|
|
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual Term
(years)
|
|
|
Aggregate
Intrinsic
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at 6/30/12
|
|
|
2,006,250
|
|
|
$
|
10.64
|
|
|
|
5.8
|
|
|
$
|
654,747
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
408,750
|
|
|
$
|
6.58
|
|
|
|
|
|
|
|
|
|
Forfeitures
|
|
|
(13,800
|
)
|
|
$
|
19.76
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(1,500
|
)
|
|
$
|
5.21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at 9/30/12
|
|
|
2,399,700
|
|
|
$
|
9.90
|
|
|
|
6.3
|
|
|
$
|
585,326
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at 9/30/12
|
|
|
1,669,725
|
|
|
$
|
11.31
|
|
|
|
5.2
|
|
|
$
|
293,398
|
|
The aggregate intrinsic value of options exercised during the three months ended September 30, 2013 and 2012 were $6,428 and $2,084, respectively. The Company received $14,704 and $7,815 of cash from employees who exercised options in the three month periods ended September 30, 2013 and 2012, respectively. Additionally, the Company recorded $2,250 as a reduction of federal income taxes payable, $735 as an increase in common stock, and $1,515 as a reduction of income tax expense related to the exercises of stock options in which the employees sold the common shares prior to the passage of twelve months from the date of exercise.
Stock Compensation Awards
The Company awarded a total of 5,940 and 1,692 common shares in the three months ended September 30, 2013 and 2012, respectively, as stock compensation awards. These common shares were valued at their approximate $47,500 and $12,000 fair market values based on their stock price at dates of issuance multiplied by the number of common shares awarded, respectively, pursuant to the compensation programs for non-employee directors who receive a portion of their compensation as an award of Company stock. 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 September 30, 2013 there were 31 participants, all with fully vested account balances. A total of 306,432 common shares with a cost of $2,921,000, and 288,505 common shares with a cost of $2,791,000 were held in the plan as of September 30, 2013 and June 30, 2013, 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. The Company used approximately $129,900 and $121,400 to purchase 17,927 and 18,100 common shares of the Company in the open stock market during the three months ended September 30, 2013 and 2012, respectively, for either employee salary deferrals or Company contributions into the non-qualified deferred compensation plan. For fiscal year 2014, the Company estimates the Rabbi Trust for the Nonqualified Deferred Compensation Plan will make net repurchases in the range of 22,000 to 25,000 common shares of the Company. The Company does not currently repurchase its own common shares for any other purpose.
NOTE 11 - SUPPLEMENTAL CASH FLOW INFORMATION
(In thousands)
|
|
Three Months Ended
September 30
|
|
|
|
2013
|
|
|
2012
|
|
Cash payments:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
19
|
|
|
$
|
19
|
|
Income taxes
|
|
$
|
20
|
|
|
$
|
837
|
|
|
|
|
|
|
|
|
|
|
Issuance of common shares as compensation
|
|
$
|
48
|
|
|
$
|
12
|
|
NOTE 12 – COMMITMENTS AND CONTINGENCIES
As part of the acquisition of Virticus Corporation on March 19, 2012, a contingent Earn-Out liability of $877,000 was recorded based on the fair value of estimated Earn-Out payments. This discounted liability is to be paid over a five year period, contingent upon reaching certain sales in each year over the five year period (fiscal year 2013 through fiscal year 2017). In December 2012, as a result of modified sales forecasts for LSI Virticus, the fair value of the Earn-Out liability was adjusted to $218,000. In June 2013, another revised forecast was provided which in turn reduced the remaining Earn-Out liability to zero. In addition to the $877,000 reversal of the Earn-Out liability, which was recorded in selling and administrative expenses in Corporate and Eliminations, $20,000 of accrued interest expense was also reversed. As of September 30, 2013, the maximum potential undiscounted liability related to the Earn-Out is $4 million. This would be based upon the achievement of a defined level of sales of lighting control systems in fiscal years 2014 through 2017. The likelihood of this occurring is not considered probable.
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. The Company does not disclose a range of potential loss because the likelihood of such a loss is remote. 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 may occasionally issue a standby letter of credit in favor of third parties. As of September 30, 2013, there were no standby letter of credit agreements.