The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements
.
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, 2017, the results of its operations for the three month periods ended September 30, 2017 and 2016, and its cash flows for the three month periods ended September 30, 2017 and 2016. These statements should be read in conjunction with the financial statements and footnotes included in the fiscal 2017 Annual Report on Form 10-K. Financial information as of June 30, 2017 has been derived from the Company’s audited consolidated financial statements.
NOTE 2
-
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation:
The 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. 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 five 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 commissioning of lighting controls; revenue from the management of media content and digital hardware related to active digital signage; 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. 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. Product revenue related to orders where the customer requires the Company to install the product is recognized when the product is installed. The Company provides product warranties and certain post-shipment service, support and maintenance of certain solid state LED video screens.
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 reco
gnized when all products at a customer site have been installed.
Revenue from the management of media content and digital hardware related to active digital signage is recognized evenly over the service period with the customer. Media content service periods with most customers range from one month to one year.
Shipping and handling revenue coincides with the recognition of revenue from sale of the product
.
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 the accounting standards on software revenue recognition. Our solid-state LED video screens and active digital signage contain software elements which the Company has determined are incidental.
Credit and Collections:
T
he 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. Receivables deemed uncollectable are written-off against the allowance for doubtful accounts receivable after all reasonable collection efforts have been exhausted. 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
,
|
|
|
June 30,
|
|
|
|
201
7
|
|
|
201
7
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
$
|
54,688
|
|
|
$
|
49,386
|
|
Less:
Allowance for doubtful accounts
|
|
|
(436
|
)
|
|
|
(506
|
)
|
Accounts receivable, net
|
|
$
|
54,252
|
|
|
$
|
48,880
|
|
Cash and Cash Equivalents:
The cash balance includes cash and cash equivalents which have original maturities of less than three months. Cash and cash equivalents consist primarily of bank deposits and a bank money market account that is stated at cost, which approximates fair value. The Company maintains balances at financial institutions in the United States.
In the United States, the FDIC limit for insurance coverage on non-interest bearing accounts is $250,000.
As of September 30, 2017 and June 30, 2017, the Company had bank balances of $5,080,127 and $4,615,000, respectively, without insurance coverage.
Inventories and Inventory Reserves:
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.
The Company maintains an inventory reserve
for obsolete and excess inventory. The Company first determines its obsolete inventory reserve by considering specific known obsolete items, and then by applying certain percentages to specific inventory categories based upon inventory turns. The Company uses various tools, in addition to inventory turns, to identify which inventory items have the potential to become obsolete. Judgment is used to establish excess and obsolete inventory reserves and management adjusts these reserves as more information becomes available about the ultimate disposition of the inventory item.
.
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. Leasehold improvements are depreciated over the shorter of fifteen years or the remaining term of the lease.
The
Company recorded $1,882,000 and $1,728,000 of depreciation expense in the first quarter of fiscal 2018 and 2017, respectively.
Goodwill and
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 seven and twenty years. The Company evaluates definite-lived intangible assets for possible impairment when triggering events are identified. 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, accounts receivable, accounts payable, and long-term debt.
The fair value of these financial instruments approximates carrying value because of their short-term maturity and/or variable, market-driven interest rates. The Company has no financial instruments with off-balance sheet risk.
Fair value measurements of nonfinancial assets and nonfinancial liabilities are primarily used in goodwill and other intangible asset impairment analyses, long-lived asset impairment analyses and in the purchase price of acquired companies. In certain cir
cumstances, a triggering event occurs such that a non-financial asset such as goodwill is required to be evaluated for impairment and deemed impaired. The accounting guidance on fair value measurement was used to measure the fair value of these nonfinancial assets and nonfinancial liabilities. In accordance with FASB Codification Topic 350-20, Intangibles – Goodwill and Other, Lighting Segment goodwill with a carrying amount of $57,373,000 was written down to its implied fair value of $29,373,000, resulting in an impairment charge of $28,000,000, which was included in earnings for the period
|
|
|
|
|
Fair Value Measurements Using
|
|
|
|
|
|
Description
|
|
Quarter Ended
9/30/2017
|
|
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
|
Significant
Other
Observable
inputs
(Level 2)
|
|
Significant
Unobservable
inputs
(Level 3)
|
|
|
Total
Gains
(Losses)
|
|
Lighting Segment Goodwill
|
|
$
|
29,373,000
|
|
|
|
|
$
|
29,373,000
|
|
|
$
|
(28,000,000
|
)
|
Product Warranties:
The Company offers a limited warranty that its products are free from 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, with some exceptions where the terms extend to 10 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 based upon historical claims as a percentage of sales 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:
|
|
Three
|
|
|
Three
|
|
|
Fiscal
|
|
|
|
Months Ended
|
|
|
Months Ended
|
|
|
Year Ended
|
|
(In thousands)
|
|
September 30,
|
|
|
September 30,
|
|
|
June 30,
|
|
|
|
201
7
|
|
|
201
6
|
|
|
201
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of the period
|
|
$
|
7,560
|
|
|
$
|
5,069
|
|
|
$
|
5,069
|
|
Additions charged to expense
|
|
|
927
|
|
|
|
903
|
|
|
|
4,956
|
|
Addition for acquired company
|
|
|
|
|
|
|
|
|
|
|
907
|
|
Deductions for repairs and r
eplacements
|
|
|
(1,818
|
)
|
|
|
(624
|
)
|
|
|
(3,372
|
)
|
Balance at end of the period
|
|
$
|
6,669
|
|
|
$
|
5,348
|
|
|
$
|
7,560
|
|
Research and Development Costs:
Research and development
costs are 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, outside legal costs and filing fees related to obtaining patents, supplies, depreciation and other administrative costs. The Company 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 $1,562,000 and $1,401,000 for the three months ended September 30, 2017 and 2016, respectively.
Cost of Products and Services Sold:
Cost of products sold is primarily comprised of direct materials and supplies consumed in the manufacture of products, as well as manufacturing labor, depreciation expense and direct overhead expense necessary to acquire and convert the purchased materials and supplies into finished product. Cost of products sold also includes the cost to distribute products to customers, inbound freight costs, internal transfer costs, warehousing costs and other shipping and handling activity.
Cost of services sold is primarily comprised of the internal and external labor costs required to support the Company’s service revenue along with the management of media content.
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 nonqualified 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, restricted stock units, stock warrants, contingently issuable shares and common shares to be issued under a deferred compensation plan, all of which totaled 286,000 and 914,000 shares for the three month ended September 30, 2017 and 2016, respectively. See further discussion of earnings per share in Note 4.
Income Taxes:
The Company accounts for income taxes in accordance with the accounting
guidance for income taxes. Accordingly, deferred income taxes are provided on items that are reported as either income or expense in different time periods for financial reporting purposes than they are for income tax purposes. Deferred income tax assets are reported on the Company’s balance sheet. Significant management judgment is required in developing the Company’s income tax provision, including the estimation of taxable income and the effective income tax rates in the multiple taxing jurisdictions in which the Company operates, the estimation of the liability for uncertain income tax positions, the determination of deferred tax assets and liabilities, and any valuation allowances that might be required against deferred tax assets.
New Accounting Pronouncements:
In
June 2014, the Financial Accounting Standards Board issued ASU 2014-09, “Revenue from Contracts with Customers.” This amended guidance supersedes and replaces all existing U.S. GAAP revenue recognition guidance. The guidance established a new revenue recognition model, changes the basis for deciding when revenue is recognized, provides new and more detailed guidance on specific revenue topics, and expands and improves disclosures about revenue. In April 2016, the FASB issued ASU 2016-10, “Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing.” In May 2016, the FASB issued ASU 2016-12, “Revenue from Contracts with Customers: Narrow Scope Improvements and Practical Expedients.” In December 2016, the FASB issued ASU 2016-20, “Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers.” These three standards clarify or improve guidance from ASU 2014-09 and are effective for fiscal years and interim periods within those years, beginning after December 15, 2017, or the Company’s fiscal year 2019. The Company will adopt these standards no later than July 1, 2018. The Company is reviewing accounting policies and evaluating disclosures in the financial statements related to the new standard. The Company is also assessing potential changes to the business processes, internal controls, and information systems related to the adoption of the new standard. While the Company is currently assessing the impact of the new standard, the Company’s revenue is primarily generated from the sale of finished products to customers. Those sales predominantly contain a single delivery element and revenue is recognized at a single point in time when ownership, risks, and rewards transfer. The recognition of revenue from most product sales is largely unaffected by the new standard. However, with respect to certain product sales requiring installation, revenue is currently not recognized until the installation is complete. While the Company does not expect this new guidance to have a material impact on the amount of overall sales recognized, the timing of recognition of revenues from sales on certain projects may be affected. Our initial conclusions may change as we finalize our assessment and select a transition method during the next six to nine months.
In February 2016, the Financial Accounting Standards Board issued ASU 2016-02, “Leases.” The amended guidance requires an entity to recognize assets and liabilities that arise from leases. The amended guidance is effective for financial statements issued for fiscal years and interim periods within those years, beginning after December 15, 2018, or the Company
’s fiscal year 2020, with early adoption permitted. The Company has not yet determined the impact the amended guidance will have on its financial statements.
In March 2016, the Financial Accounting Standards Board issued ASU 2016-09, “
Improvements to Employee Share-Based Payment Accounting.” This amended guidance simplifies several aspects of the accounting for share-based payment award transactions. The amended guidance is effective for financial statements issued for fiscal years and interim periods within those years, beginning after December 15, 2016, or the Company’s fiscal year 2018. We adopted this standard on July 1, 2017 and recognized excess tax benefits of $81,010 in income tax expense during the three months ended September 30, 2017. The amount may not necessarily be indicative of future amounts that may be recognized as any excess tax benefits recognized would be dependent on future stock price, employee exercise behavior and applicable tax rates. Prior to July 1, 2017, excess tax benefits were recognized in additional paid-in capital. Additionally, excess tax benefits are now included in net cash flows provided by operating activities rather than net cash flows provided by financing activities in the Company’s Consolidated Statement of Cash Flows. The treatment of forfeitures has not changed, as the Company is electing to continue the current process of estimating forfeiture at the time of grant. The Company has no unrecognized excess tax benefits from prior periods to record upon the adoption of this ASU.
In January 2017, the Financial Accounting Standards Board issued ASU 2017-04, “Simplifying the Test for Goodwill Impairment”, which simplifies the testing for goodwill impairment by eliminating a previously required step. The standard is effective for financial statements issued for fiscal years beginning after December 15, 2019, or the Company
’s fiscal year 2021. Early adoption of the accounting standard is permitted, and the Company has elected to early adopt this standard. (See Footnote 7)
Comprehensive Income:
The Company does not have any comprehensive income items other than net income.
Subsequent Events:
The Company has evaluated subsequent events for potential recognition and disclosure through the date the consolidated financial statements were filed.
No items were identified during this evaluation that required adjustment to or disclosure in the accompanying financial statements.
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 -
SEGMENT
REPORTING
INFORMATION
The accounting guidance on 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 or “CODM”) in making decisions on how to allocate resources and assess performance. In the first quarter of fiscal 2018, the Company merged its Technology Segment with the Lighting Segment to be in alignment with the financial information received by the Chief Executive Officer and how the business is managed. The Company’s two operating segments are Lighting and Graphics, each of which has a president who is responsible for that business and reports to the CODM.
Corporate and Eliminations, which captures the Company’s corporate administrative activities, is also reported in the segment information.
The Lighting Segment includes outdoor and indoor lighting utilizing both traditional and LED light sources that have been fabricated and assembled for the commercial
/industrial market, the petroleum / convenience store market, the automotive dealership market, the quick service restaurant market, along with other markets the Company serves. The Lighting Segment also includes the design, engineering, and manufacturing of electronic circuit boards, assemblies and sub-assemblies used to manufacture certain LED light fixtures and sold directly to customers.
The Graphics Segment designs, manufactures and installs exterior and interior visual image elements such as traditional graphics,
interior branding, electrical and architectural signage, active digital signage along with the management of media content related to digital signage, LED video screens, and menu board systems that are either digital or traditional by design. These products are used in visual image programs in several markets including, but not limited to the petroleum / convenience store market, multi-site retail operations, banking, and restaurants. The Graphics Segment implements, installs and provides program management services related to products sold by the Graphics Segment and by the Lighting Segment.
The Company
’s corporate administration activities are reported in the Corporate and Eliminations line item. These activities primarily include 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 (if any), and deferred income taxes.
There was no concentration of consolidated net sales in the three months ended September 30, 201
7 or 2016. There was no concentration of accounts receivable at September 30, 2017 or June 30, 2017.
Summarized financial information for the Company
’s operating segments is provided for the indicated periods and as of September 30, 2017 and September 30, 2016:
|
|
Three Months Ended
|
|
(
In thousands)
|
|
September 30
|
|
|
|
201
7
|
|
|
201
6
|
|
Net Sales:
|
|
|
|
|
|
|
|
|
Lighting Segment
|
|
$
|
68,428
|
|
|
$
|
65,265
|
|
Graphics
Segment
|
|
|
19,038
|
|
|
|
18,894
|
|
|
|
$
|
87,466
|
|
|
$
|
84,159
|
|
|
|
|
|
|
|
|
|
|
Operating Income (Loss):
|
|
|
|
|
|
|
|
|
Lighting Segment
|
|
$
|
(22,930
|
)
|
|
$
|
3,091
|
|
Graphics Segment
|
|
|
1,476
|
|
|
|
1,017
|
|
Corporate and Eliminations
|
|
|
(3,360
|
)
|
|
|
(3,042
|
)
|
|
|
$
|
(24,814
|
)
|
|
$
|
1,066
|
|
|
|
|
|
|
|
|
|
|
Capital Expenditures:
|
|
|
|
|
|
|
|
|
Lighting Segment
|
|
$
|
261
|
|
|
$
|
1,096
|
|
Graphics Segment
|
|
|
182
|
|
|
|
366
|
|
Corporate and Eliminations
|
|
|
55
|
|
|
|
498
|
|
|
|
$
|
498
|
|
|
$
|
1,960
|
|
|
|
|
|
|
|
|
|
|
Depreciation and Amortization:
|
|
|
|
|
|
|
|
|
Lighting Segment
|
|
$
|
1,901
|
|
|
$
|
1,192
|
|
Graphics Segment
|
|
|
379
|
|
|
|
360
|
|
Corporate and Eliminations
|
|
|
292
|
|
|
|
283
|
|
|
|
$
|
2,572
|
|
|
$
|
1,835
|
|
|
|
September 30,
201
7
|
|
|
June 30,
201
7
|
|
Identifiable Assets:
|
|
|
|
|
|
|
|
|
Lighting Segment
|
|
$
|
182,796
|
|
|
$
|
214,070
|
|
Graphics Segment
|
|
|
35,315
|
|
|
|
33,144
|
|
Corporate and Eliminations
|
|
|
21,078
|
|
|
|
9,466
|
|
|
|
$
|
239,189
|
|
|
$
|
256,680
|
|
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. 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 (if any), and deferred income tax assets.
The Company records a 10% mark-up on intersegment revenues. Any intersegment profit in inventory is eliminated in consolidation. Intersegment revenues were eliminated in consolidation as follows:
|
|
Three Months Ended
|
|
|
|
September 30
|
|
(In thousands)
|
|
201
7
|
|
|
201
6
|
|
|
|
|
|
|
|
|
|
|
Lighting Segment inter-segment net sales
|
|
$
|
715
|
|
|
$
|
753
|
|
|
|
|
|
|
|
|
|
|
Graphics Segment inter-segment net sales
|
|
$
|
31
|
|
|
$
|
132
|
|
The Company
’s operations are located solely within the United States. As a result, the geographic distribution of the Company’s net sales and long-lived assets originate within the United States.
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
|
|
|
|
201
7
|
|
|
201
6
|
|
|
|
|
|
|
|
|
|
|
BASIC EARNINGS
(LOSS)
PER SHARE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
(loss)
|
|
$
|
(15,629
|
)
|
|
$
|
829
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding, net of treasury shares (a)
|
|
|
25,505
|
|
|
|
24,998
|
|
Weighted average vested restricted stock units outstanding
|
|
|
41
|
|
|
|
37
|
|
Weighted average shares outstanding in the Deferred Compensation Plan
|
|
|
245
|
|
|
|
240
|
|
Weighted average shares outstanding
|
|
|
25,791
|
|
|
|
25,275
|
|
|
|
|
|
|
|
|
|
|
Basic earnings
(loss) per share
|
|
$
|
(0.61
|
)
|
|
$
|
0.03
|
|
|
|
|
|
|
|
|
|
|
DILUTED EARNINGS
(LOSS)
PER SHARE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
(loss)
|
|
$
|
(15,629
|
)
|
|
$
|
829
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
25,791
|
|
|
|
25,275
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities (b):
|
|
|
|
|
|
|
|
|
Impact of common shares to be issued under stock option plans, and contingently issuable shares, if any
|
|
|
--
|
|
|
|
637
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding (c)
|
|
|
25,791
|
|
|
|
25,912
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings
(loss) per share
|
|
$
|
(0.61
|
)
|
|
$
|
0.03
|
|
|
(a)
|
Includes shares accounted for like treasury stock.
|
|
(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 3,791,936 common shares and 1,654,450 common shares at September 30, 2017 and 2016, respectively, were not included in the computation of the three month period for diluted earnings (loss) per share, respectively, because the exercise price was greater than the average fair market value of the common shares.
For the three months ended September 30, 2017, the effect of dilutive securities was not included in the calculation of diluted earnings (loss) per share because there was a net operating loss for the period.
|
NOTE
5
-
INVENTORIES
The following information is provided as of the dates indicated:
|
|
September 30,
|
|
|
June 30,
|
|
(In thousands)
|
|
201
7
|
|
|
201
7
|
|
|
|
|
|
|
|
|
|
|
Inventories:
|
|
|
|
|
|
|
|
|
Raw materials
|
|
$
|
31,332
|
|
|
$
|
32,421
|
|
Work-in-process
|
|
|
3,449
|
|
|
|
3,527
|
|
Finished goods
|
|
|
14,401
|
|
|
|
14,060
|
|
Total Inventories
|
|
$
|
49,182
|
|
|
$
|
50,008
|
|
NOTE
6
-
ACCRUED EXPENSES
The following information is provided as of the dates indicated:
|
|
September 30,
|
|
|
June 30,
|
|
(In thousands)
|
|
201
7
|
|
|
201
7
|
|
|
|
|
|
|
|
|
|
|
Accrued Expenses:
|
|
|
|
|
|
|
|
|
Compensation and benefits
|
|
$
|
6,867
|
|
|
$
|
9,759
|
|
Customer prepayments
|
|
|
1,480
|
|
|
|
1,061
|
|
Accrued sales commissions
|
|
|
1,986
|
|
|
|
2,314
|
|
Accrued warranty
|
|
|
6,669
|
|
|
|
7,560
|
|
Other accrued expenses
|
|
|
6,502
|
|
|
|
5,375
|
|
Total Accrued Expenses
|
|
$
|
23,504
|
|
|
$
|
26,069
|
|
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. 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 reporting units and indefinite-lived intangible assets using a combination of a market approach and an income (discounted cash flow) approach, at the reporting unit level. The estimation of the fair value of reporting units and intangible assets 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, a sustained significant drop in the Company’s stock price, economic factors, technological change, or competitive activities may signal that an asset has become impaired.
The Company identified its reporting units in conjunction with its annual goodwill impairment testing.
The Company has a total of three reporting units that contain goodwill. There are two reporting units within the Lighting Segment and one reporting unit within the Graphics Segment. One reporting unit previously reported in the Technology Segment has been transferred to the Lighting Segment as a result of the merge of the Technology Segment with the Lighting Segment (See Note 3). The Company relies upon a number of factors, judgments and estimates when conducting its impairment testing including, but not limited to, the Company’s stock price, operating results, forecasts, anticipated future cash flows and marketplace data. There are inherent uncertainties related to these factors and judgments in applying them to the analysis of goodwill impairment.
A sustained and significant
decline in the Company’s stock price in the first quarter of fiscal 2018 led management to believe that a triggering event occurred and that an interim goodwill impairment test was required for one the reporting units in the Lighting Segment that contains goodwill, as of September 30, 2017. Because the Company has elected to early adopt
ASU 2017-04, “Simplifying the Test for Goodwill Impairment”, the requirement to perform step 2 in the impairment test was not required. The result of the impairment test on the reporting unit in the Lighting Segment indicated that goodwill was impaired by $28,000,000.
The following table presents information about the Company's goodwill on the dates or for the periods indicated
:
Goodwill
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Lighting
|
|
|
Graphics
|
|
|
|
|
|
|
|
Segment
|
|
|
Segment
|
|
|
Total
|
|
Balance as of June 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$
|
94,564
|
|
|
$
|
28,690
|
|
|
$
|
123,254
|
|
Accumulated impairment losses
|
|
|
(37,191
|
)
|
|
|
(27,525
|
)
|
|
|
(64,716
|
)
|
Goodwill, net as of June 30, 2017
|
|
$
|
57,373
|
|
|
$
|
1,165
|
|
|
$
|
58,538
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill Impairment
|
|
|
(28,000
|
)
|
|
|
--
|
|
|
|
(28,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of September 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$
|
94,564
|
|
|
|
28,690
|
|
|
|
123,254
|
|
Accumulated impairment losses
|
|
|
(65,191
|
)
|
|
|
(27,525
|
)
|
|
|
(92,716
|
)
|
Goodwill, net as of September 30, 2017
|
|
$
|
29,373
|
|
|
$
|
1,165
|
|
|
$
|
30,538
|
|
The gross carrying amount and accumulated amortization by major other intangible asset class is as follows:
|
|
September
30, 2017
|
|
Other Intangible Assets
|
|
Gross
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Carrying
|
|
|
Accumulated
|
|
|
Net
|
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
Amortized Intangible Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
$
|
35,563
|
|
|
$
|
8,471
|
|
|
$
|
27,092
|
|
Patents
|
|
|
338
|
|
|
|
193
|
|
|
|
145
|
|
LED technology
firmware, software
|
|
|
16,066
|
|
|
|
11,378
|
|
|
|
4,688
|
|
Trade name
|
|
|
2,658
|
|
|
|
526
|
|
|
|
2,132
|
|
Non-compete agreements
|
|
|
710
|
|
|
|
710
|
|
|
|
--
|
|
Total Amortized Intangible Assets
|
|
|
55,335
|
|
|
|
21,278
|
|
|
|
34,057
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
$
|
58,757
|
|
|
$
|
21,278
|
|
|
$
|
37,479
|
|
|
|
June 30, 2017
|
|
Other Intangible Assets
|
|
Gross
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Carrying
|
|
|
Accumulated
|
|
|
Net
|
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
Amortized Intangible Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
$
|
35,563
|
|
|
$
|
7,956
|
|
|
$
|
27,607
|
|
Patents
|
|
|
338
|
|
|
|
186
|
|
|
|
152
|
|
LED technology
firmware, software
|
|
|
16,066
|
|
|
|
11,237
|
|
|
|
4,829
|
|
Trade name
|
|
|
2,658
|
|
|
|
499
|
|
|
|
2,159
|
|
Non-compete agreements
|
|
|
710
|
|
|
|
710
|
|
|
|
-
|
|
Total Amortized Intangible Assets
|
|
|
55,335
|
|
|
|
20,588
|
|
|
|
34,747
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
$
|
58,757
|
|
|
$
|
20,588
|
|
|
$
|
38,169
|
|
(In thousands)
|
|
Amortization Expense of
Other Intangible Assets
|
|
|
|
September 30, 201
7
|
|
|
September 30, 201
6
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
$
|
690
|
|
|
$
|
107
|
|
The Company expects to record
annual amortization expense as follows:
(In thousands)
|
|
|
|
|
|
|
|
|
|
201
8
|
|
$
|
2,760
|
|
201
9
|
|
$
|
2,760
|
|
2020
|
|
$
|
2,687
|
|
2021
|
|
$
|
2,682
|
|
2022
|
|
$
|
2,461
|
|
After 202
2
|
|
$
|
21,397
|
|
NOTE
8
- REVOLVING
LINE OF CREDIT
In February, 2017 the Company amended its
secured line of credit to a $100 million facility. The line of credit expires in the third quarter of fiscal 2022. 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 125 and 250 basis points depending upon the ratio of indebtedness to earnings before interest, taxes, depreciation and amortization (“EBITDA”), as defined in the line of credit agreement. The increment over LIBOR borrowing rate will remain at 175 basis points for the next twelve months. The fee on the unused balance of the $100 million committed line of credit is 15 basis points. Under the terms of this line of credit, the Company has agreed to a negative pledge of real estate assets and is required to comply with financial covenants that limit the ratio of indebtedness to EBITDA and require a minimum fixed charge coverage ratio. As of September 30, 2017, there was $51.9 million borrowed against the line of credit, and $48.1 million was available as of that date. Based on the terms of the line of credit and the maturity date, the debt has been classified as long term.
The Company is in compliance with all of its loan covenants as of
September 30, 2017
.
NOTE
9
-
CASH DIVIDENDS
The Company paid cash
dividends of $1,286,000 and $1,256,000 in the three months ended September 30, 2017 and 2016, respectively. Dividends on restricted stock units in the amount of $29,106 and $13,898 were accrued as of September 30, 2017 and 2016, respectively. These dividends will be paid upon the vesting of the restricted stock units when shares are issued to the award recipients. In October 2017, the Board of Directors declared a regular quarterly cash dividend of $0.05 per share payable November 14, 2017 to shareholders of record as of November 6, 2017.
The indicated annual cash dividend rate is $0.20 per share.
NOTE 10
-
EQUITY COMPENSATION
Stock Based Compensation
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 replaced all previous equity compensation plans. The options granted or stock awards made pursuant to this plan are granted at fair market value at the date of grant or award. Service-based options granted to non-employee directors become exercisable 25% each ninety days (cumulative) from the date of grant and options granted to employees generally become exercisable 25% per year (cumulative) beginning one year after the date of grant. Performance-based options granted to employees become exercisable 33.3% per year (cumulative) beginning one year after the date of grant. The maximum contractual term of the Company’s stock options is ten years. 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 1,366,738 shares, all of which were available for future grant or award as of September 30, 2017. 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. Service based and performance based stock options were granted and restricted stock units (“RSUs”) were awarded during the three months ended September 30, 2017. As of September 30, 2017, a total of 3,593,365 options for common shares were outstanding from this plan as well as one previous stock option plan (which has also been approved by shareholders), and of these, a total of 1,536,124 options for common shares were vested and exercisable. As of September 30, 2017, the approximate unvested stock option expense that will be recorded as expense in future periods is $3,029,686. The weighted average time over which this expense will be recorded is approximately 25 months. Additionally, as of September 30, 2017 a total of 194,150 restricted stock units were outstanding. The approximate unvested stock compensation expense that will be recorded as expense in future periods for the RSUs is $913,907. The weighted average time over which this expense will be recorded is approximately 33 months.
Stock Options
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 wer
e used for grants in the period indicated.
|
|
Three Months Ended
|
|
|
|
September 30
|
|
|
|
201
7
|
|
|
|
|
|
|
Dividend yield
|
|
|
3.4
|
%
|
Expected volatility
|
|
|
40.9
|
%
|
Risk-free interest rate
|
|
|
1.8
|
%
|
Expected life (years)
|
|
|
6.0
|
|
At September 30, 201
7, the 724,037 options granted during the first three months of fiscal 2018 to employees had exercise prices of $5.92 per share, fair values $1.71 per share, and remaining contractual lives of nine years, ten months.
At
September 30, 2016, the 832,500 options granted during the first three months of fiscal 2017 to employees had exercise prices ranging from $10.08 to $11.06 per share, fair values ranging from of $3.39 to $3.83 per share, and remaining contractual lives of between nine years, nine months and 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 8.3% forfeiture rate effective July 1, 2017. Previous estimated forfeiture rates were between 2.0% and 3.5% between the periods January 1, 2014 through June 30, 2017. 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 $
757,808 and $1,438,443 of expense related to stock options in the three months ended September 30, 2017 and 2016, respectively. As of September 30, 2017, the Company had 3,479,522 stock options that were vested and that were expected to vest, with a weighted average exercise price of $8.21 per share, an aggregate intrinsic value of $594,220 and weighted average remaining contractual terms of 7.6 years.
Information related to all stock options for the three months ended September 30, 201
7 and 2016 is shown in the following tables:
|
|
Three Months Ended September 30, 201
7
|
|
|
|
|
|
|
|
Weighted
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
Aggregate
|
|
|
|
|
|
|
|
Exercise
|
|
|
Remaining
|
|
|
Intrinsic
|
|
|
|
Shares
|
|
|
Price
|
|
|
Contractual Term (years)
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at 6/30/1
7
|
|
|
3,119,688
|
|
|
$
|
9.12
|
|
|
|
7.4
|
|
|
$
|
2,332,224
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
724,037
|
|
|
$
|
5.92
|
|
|
|
|
|
|
|
|
|
Forfeitures
|
|
|
(232,171
|
)
|
|
$
|
13.92
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(18,189
|
)
|
|
$
|
6.31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at 9/30/1
7
|
|
|
3,593,365
|
|
|
$
|
8.18
|
|
|
|
7.6
|
|
|
$
|
646,326
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at 9/30/1
7
|
|
|
1,536,124
|
|
|
$
|
8.26
|
|
|
|
5.9
|
|
|
$
|
111,768
|
|
|
|
Three Months Ended September 30, 2016
|
|
|
|
|
|
|
|
Weighted
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
Aggregate
|
|
|
|
|
|
|
|
Exercise
|
|
|
Remaining
|
|
|
Intrinsic
|
|
|
|
Shares
|
|
|
Price
|
|
|
Contractual Term (years)
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at 6/30/16
|
|
|
2,976,490
|
|
|
$
|
8.97
|
|
|
|
6.6
|
|
|
$
|
8,338,974
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
832,500
|
|
|
$
|
11.06
|
|
|
|
|
|
|
|
|
|
Forfeitures
|
|
|
(140,250
|
)
|
|
$
|
15.95
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(20,813
|
)
|
|
$
|
8.32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at 9/30/16
|
|
|
3,647,927
|
|
|
$
|
9.18
|
|
|
|
7.3
|
|
|
$
|
8,783,980
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at 9/30/16
|
|
|
1,586,188
|
|
|
$
|
8.91
|
|
|
|
5.1
|
|
|
$
|
4.982,876
|
|
The following table presents information related to unvested stock options:
|
|
|
|
|
|
Weighted-Average
|
|
|
|
|
|
|
|
Grant Date
|
|
|
|
Shares
|
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
Unvested at June 30, 2017
|
|
|
1,842,127
|
|
|
$
|
3.52
|
|
Granted
|
|
|
724,037
|
|
|
$
|
1.71
|
|
Vested
|
|
|
(384,602
|
)
|
|
$
|
3.58
|
|
Forfeited
|
|
|
(124,321
|
)
|
|
$
|
3.49
|
|
Unvested at September 30, 2017
|
|
|
2,057,241
|
|
|
$
|
2.87
|
|
The weighted average grant date fair value of options granted during the three months ended September 30, 201
7 and 2016 was $1.71 and $3.83, respectively. The aggregate intrinsic value of options exercised during the three months ended September 30, 2017 and 2016 was $20,156 and $50,160, respectively. The aggregate grant date fair value of options that vested during the three months ended September 30, 2017 and 2016 was $1,377,325 and $1,334,248, respectively. The Company received $114,770 and $173,185 of cash from employees who exercised options in the three month periods ended September 30, 2017 and 2016, respectively. In the first three months of fiscal 2018 the Company recorded $104,969 as a reduction of federal income taxes payable, $81,010 as an increase in expense, $5,973 as a reduction of income tax expense, and $180,006 as a reduction of the deferred tax asset related to the issuance of RSUs and 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. In the first three months of fiscal 2017 the Company recorded $78,040 as a reduction of federal income taxes payable, $165,856 as an increase in common stock, $8,880 as a reduction of income tax expense, and $183,665 as a reduction of the deferred tax asset related to the issuance of RSUs and 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.
Restricted Stock Units
A total of
91,490 restricted stock units with a fair value of $5.92 per share were awarded to employees during the three months ended September 30, 2017. A total of 71,700 restricted stock units with a fair value of $11.06 per share were awarded to employees during the three months ended September 30, 2016. The Company determined the fair value of the awards based on the closing price of the Company stock on the date the restricted stock units were awarded. The RSUs have a four year ratable vesting period. The restricted stock units are non-voting, but accrue cash dividends at the same per share rate as those cash dividends declared and paid on LSI’s common stock. Dividends on RSUs in the amount of $29,106 and $13,898 were accrued as of September 30, 2017 and 2016, respectively. Accrued dividends are paid to the holder upon vesting of the RSUs and issuance of shares.
The following table presents information related to restricted stock units:
|
|
|
|
|
|
Weighted-Average
|
|
|
|
|
|
|
|
Grant Date
|
|
|
|
Shares
|
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
Unvested at June 30, 2017
|
|
|
133,335
|
|
|
$
|
10.38
|
|
Awarded
|
|
|
91,490
|
|
|
$
|
5.92
|
|
Shares Issued
|
|
|
(30,675
|
)
|
|
$
|
10.30
|
|
Unvested at September 30, 2017
|
|
|
194,150
|
|
|
$
|
8.29
|
|
As of September 30, 201
7, the 194,150 restricted stock units had a remaining contractual life of between 1 years 10 months and 3 years 9 months. Of the 194,150 RSUs outstanding, 180,984 are vested and expected to vest in the future. An estimated forfeiture rate of 8.3% was used in the calculation of expense related to the restricted stock units. The Company recorded $255,415 of expense related to restricted stock units in the three months ended September 30, 2017.
As of September 30, 201
6, the 118,575 outstanding restricted stock units had a remaining contractual life of 2 years 9 months and 3 years 9 months. Of the 118,575 RSUs outstanding, 113,868 are expected to vest as of September 30, 2016. An estimated forfeiture rate of 3.4% was used in the calculation of expense related to the restricted stock units. The Company recorded $302,301 of expense related to restricted stock units in the three months ended September 30, 2016.
Director and Employee Stock Compensation Awards
The Company awarded a total of
8,550 and 9,470 common shares in the three months ended September 30, 2017 and 2016, respectively, as stock compensation awards. These common shares were valued at their approximate $77,976 and $103,100 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 and for employees who received a nominal recognition award in the form 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, 201
7 there were 38 participants, all with fully vested account balances. A total of 241,095 common shares with a cost of $2,180,397, and 257,898 common shares with a cost of $2,456,875 were held in the plan as of September 30, 2017 and June 30, 2017, 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 issued 31,922 new common shares for purposes of the non-qualified deferred compensation plan. The Company used approximately $106,537 and $343,700 to purchase 15,225 and 34,587 common shares of the Company in the open stock market during the three months ended September 30, 2017 and 2016, respectively, for either employee salary deferrals or Company contributions into the non-qualified deferred compensation plan.
For fiscal year 201
8, the Company estimates the Rabbi Trust for the Nonqualified Deferred Compensation Plan will make net repurchases of 15,225 common shares of the Company. The Company does not currently repurchase its own common shares for any other purpose.
NOTE 1
1
- SUPPLEMENTAL CASH FLOW INFORMATION
(In thousands)
|
|
Three Months Ended
September 30
|
|
|
|
201
7
|
|
|
201
6
|
|
Cash payments:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
382
|
|
|
$
|
13
|
|
Income taxes
|
|
$
|
--
|
|
|
$
|
1,022
|
|
NOTE 1
2
-
COMMITMENTS AND CONTINGENCIES
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 June 30, 2017, there were no such standby letters of credit issued.
NOTE 1
3
– SEVERANCE COSTS
The Company recorded severance expense
of $0 and $145,000 in the three months ended September 30, 2017 and 2016, respectively. This severance expense was related to reductions in staffing not related to plant restructuring. See further discussion of restructuring expenses in Note 14.
The activity in the Company
’s Accrued Severance Liability is as follows for the periods indicated:
|
|
Three
|
|
|
Three
|
|
|
Fiscal
|
|
|
|
Months Ended
|
|
|
Months Ended
|
|
|
Year Ended
|
|
(In thousands)
|
|
September 30,
|
|
|
September 30,
|
|
|
June 30,
|
|
|
|
201
7
|
|
|
201
6
|
|
|
201
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of the period
|
|
$
|
235
|
|
|
$
|
39
|
|
|
$
|
39
|
|
Accrual of expense
|
|
|
--
|
|
|
|
145
|
|
|
|
523
|
|
Payments
|
|
|
(159
|
)
|
|
|
(119
|
)
|
|
|
(313
|
)
|
Adjustments
|
|
|
--
|
|
|
|
--
|
|
|
|
(14
|
)
|
Balance at end of the period
|
|
$
|
76
|
|
|
$
|
65
|
|
|
$
|
235
|
|
NOTE 1
4 – RESTRUCTURING COSTS
On September 22, 2016, the Company announced plans to close its lighting facility in Kansas City, Kansas. The decision was based upon the market shift away from fluorescent and other technologies and the
rapid movement to LED lighting which is produced at other LSI facilities. The Company expects to continue to meet the demand for products containing fluorescent light sources as long as these products are commercially viable. All operations at the Kansas City facility ceased prior to December 31, 2016. Fiscal 2017 restructuring costs related to the closure of the Kansas City facility were $944,000. There have been no restructuring costs in fiscal 2018
. These costs primarily included employee-related costs (primarily severance), the impairment of manufacturing equipment, plant shut down costs, costs related to the preparation of the facility for sale, legal costs, and other related costs. In addition, there was also an inventory write-down of $485,000 recorded in fiscal 2017. The write-down was related to inventory that was previously realizable until the decision in the first quarter of fiscal 2017 to shut down the Kanas City plant due to the planned curtailment of the manufacturing of fluorescent light fixtures. The Company owned the facility in Kansas City and realized a $1,361,000 gain when the facility was sold.
The Company also announced the consolidation of the Beaverton, Oregon facility into other LSI facilities. The light assembly of products
in the Beaverton facility was moved to the Company’s Columbus, Ohio facility, and administration and engineering functions were moved to the Company’s Cincinnati, Ohio facility. This consolidation was completed September 30, 2016. As a result of this consolidation, restructuring charges of $377,000 were recorded in fiscal 2017, with the majority of this representing the costs related to the remaining period of the facility’s lease and severance costs for employees who formerly worked in the Beaverton facility. There were not restructuring charges in fiscal 2018.
In November 2016, the Company announced the consolidation of the Woonsocket, Rhode Island manufacturing operation into its North Canton, Ohio operation. The manufacturing operations in Woonso
cket ceased prior to December 31, 2016. The Company owns the facility in Woonsocket and realized a small gain when the facility was sold in September 2017. Total restructuring costs related to the consolidation of the Woonsocket facility were $452,000 in fiscal 2017. These costs primarily include employee-related costs (severance), plant shut down costs, costs related to the preparation of the facility for sale, legal costs, and other related costs. There have been no restructuring charges in fiscal 2018.
Management does not expect any significant restructuring charges for fiscal 2018. All previously announced restructuring projects were completed in fiscal 2017 and all restructuring charges were recorded in fiscal 2017.
T
he following table presents information about restructuring costs for the periods indicated:
|
|
Three
|
|
|
Three
|
|
|
|
Months Ended
|
|
|
Months Ended
|
|
(In thousands)
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
Severance and other termination benefits
|
|
$
|
--
|
|
|
$
|
165
|
|
Lease obligation
|
|
|
--
|
|
|
|
213
|
|
Impairment of fixed assets and accelerated depreciation
|
|
|
--
|
|
|
|
273
|
|
Other
|
|
|
--
|
|
|
|
5
|
|
Total
|
|
$
|
--
|
|
|
$
|
656
|
|
The following table presents res
tructuring costs incurred by line item in the consolidated statement of operations in which the costs are included:
|
|
Three Months Ended
|
|
(In thousands)
|
|
September 30
|
|
|
|
2016
|
|
|
|
|
|
|
Cost of Goods Sold
|
|
$
|
503
|
|
Operating Expenses
|
|
|
153
|
|
Total
|
|
$
|
656
|
|
The following table presents information about restructuring costs by segm
ent for the periods indicated:
|
|
Three
|
|
|
Three
|
|
|
|
Months Ended
|
|
|
Months Ended
|
|
(In thousands)
|
|
September 30,
|
|
|
September 30
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
Lighting Segment
|
|
$
|
--
|
|
|
$
|
545
|
|
Graphics Segment
|
|
|
--
|
|
|
|
--
|
|
Corporate and Eliminations
|
|
|
--
|
|
|
|
111
|
|
Total
|
|
$
|
--
|
|
|
$
|
656
|
|
The following table presents a
roll forward of the beginning and ending liability balances related to the restructuring costs:
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of
June 30,
2017
|
|
|
Restructuring
Expense
|
|
|
Payments
|
|
|
Adjustments
|
|
|
Balance
as of
September 30,
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance and termination b
enefits
|
|
$
|
--
|
|
|
$
|
--
|
|
|
|
--
|
|
|
$
|
--
|
|
|
$
|
--
|
|
Lease o
bligation
|
|
|
85
|
|
|
|
--
|
|
|
|
(43
|
)
|
|
|
--
|
|
|
|
42
|
|
Other
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
Total
|
|
$
|
85
|
|
|
$
|
--
|
|
|
$
|
(43
|
)
|
|
$
|
--
|
|
|
$
|
42
|
|
Refer to Note 13
for information regarding additional severance expenses that are not included in the restructuring costs identified in this footnote.
NOTE 15
– INCOME TAXES
The Company's effective income tax rate is based on expected income, statutory rates and tax planning opportunities available in the various jurisdictions in which it operates. For interim financial reporting, the Company estimates the annual income tax rate based on projected taxable income for the full year and records a quarterly income tax provision or benefit in accordance with the anticipated annual rate. The Company refines the estimates of the year's taxable income as new information becomes available, including actual year-to-date financial results. This continual estimation process often results in a change to the expected effective income tax rate for the year. When this occurs, the Company adjusts the income tax provision during the quarter in which the change in estimate occurs so that the year-to-date provision reflects the expected income tax rate. Significant judgment is required in determining the effective tax rate and in evaluating tax positions.
In the first quarter of fiscal 2018, a deferred tax asset of $10.7 million was created as a result of the impairment of goodwill in the Lighting reporting unit. (See footnote 7)
|
|
Three Months Ended
|
|
|
|
September 30
|
|
|
|
201
7
|
|
|
201
6
|
|
Reconciliation to effective tax rate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes at the anticipated annual tax rate
|
|
|
33.7
|
%
|
|
|
32.0
|
%
|
Uncertain tax positions
|
|
|
(0.2
|
)
|
|
|
(1.3
|
)
|
Difference betwe
en deferred and current tax rate related to the impairment of goodwill
|
|
|
4.8
|
|
|
|
--
|
|
Deferred tax asset adjustment
|
|
|
--
|
|
|
|
(6.7
|
)
|
Other
|
|
|
(0.3
|
)
|
|
|
(0.8
|
)
|
Effective tax rate
|
|
|
38.0
|
%
|
|
|
23.2
|
%
|