UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
_________________________
FORM 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2019 OR |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ________________ TO ________________. |
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Commission File No. 0-13375
LSI Industries Inc. |
(Exact name of registrant as specified in its charter) |
Ohio |
31-0888951 |
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(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
10000 Alliance Road, Cincinnati, Ohio |
45242 |
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(Address of principal executive offices) |
(Zip Code) |
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(513) 793-3200 |
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Registrant’s telephone number, including area code) |
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
Common Stock, no par value |
LYTS |
NASDAQ Global Select Market |
Indicate by checkmark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. YES X NO ____
Indicate by checkmark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files).
YES X NO ____
Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer [ ] |
Accelerated filer [ X ] |
Emerging growth company [ ] |
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Non-accelerated filer [ ] |
Smaller reporting company [ X ] |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ____ NO X
As of October 25, 2019, there were 26,105,943 shares of the registrant's common stock, no par value per share, outstanding.
LSI INDUSTRIES INC.
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2019
INDEX
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Begins on Page |
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PART I. Financial Information |
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ITEM 1. |
Financial Statements (Unaudited) |
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Condensed Consolidated Statements of Operations |
3 |
Condensed Statements of Net Income |
4 |
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Condensed Consolidated Balance Sheets |
5 |
Condensed Statements of Shareholders’ Equity |
7 |
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Condensed Consolidated Statements of Cash Flows |
8 |
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Notes to Condensed Consolidated Financial Statements |
9 |
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ITEM 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
21 |
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ITEM 3. |
Quantitative and Qualitative Disclosures About Market Risk |
26 |
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ITEM 4. |
Controls and Procedures |
26 |
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PART II. Other Information |
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ITEM 2. |
Unregistered Sales of Equity Securities and Use of Proceeds |
27 |
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ITEM 6. |
Exhibits |
28 |
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Signatures |
29 |
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LSI INDUSTRIES INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended |
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September 30 |
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(In thousands, except per share data) |
2019 |
2018 |
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Net sales |
$ | 88,701 | $ | 84,957 | ||||
Cost of products and services sold |
66,588 | 63,541 | ||||||
Restructuring costs |
258 | 155 | ||||||
Gross profit |
21,855 | 21,261 | ||||||
Selling and administrative expenses |
19,862 | 18,327 | ||||||
Restructuring (gain) |
(4,846 |
) |
-- | |||||
Operating income |
6,839 | 2,934 | ||||||
Interest (income) |
(1 |
) |
(14 |
) |
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Interest expense |
432 | 532 | ||||||
Other expense |
82 | -- | ||||||
Income before income taxes |
6,326 | 2,416 | ||||||
Income tax expense |
1,851 | 667 | ||||||
Net income |
$ | 4,475 | $ | 1,749 | ||||
Earnings per common share (see Note 4) |
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Basic |
$ | 0.17 | $ | 0.07 | ||||
Diluted |
$ | 0.17 | $ | 0.07 | ||||
Weighted average common shares outstanding |
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Basic |
26,236 | 26,032 | ||||||
Diluted |
26,293 | 26,365 |
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.
LSI INDUSTRIES INC.
CONDENSED CONSOLIDATED STATEMENS OF NET INCOME
(Unaudited)
Three months Ended
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First Quarter |
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(In thousands) |
FY 2020 |
FY 2019 |
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Net Income |
$ | 4,475 | $ | 1,749 | ||||
Foreign currency translation adjustment |
23 | -- | ||||||
Comprehensive Income |
$ | 4,498 | $ | 1,749 |
LSI INDUSTRIES INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except shares) |
September 30, |
June 30, |
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2019 |
2019 |
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ASSETS |
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Current Assets |
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Cash and cash equivalents |
$ | 1,579 | $ | 966 | ||||
Accounts receivable, less allowance for doubtful accounts of $993 and $879, respectively |
58,442 | 54,728 | ||||||
Inventories |
43,078 | 43,512 | ||||||
Refundable income taxes |
885 | 882 | ||||||
Asset held for sale |
-- | 7,512 | ||||||
Other current assets |
3,554 | 3,380 | ||||||
Total current assets |
107,538 | 110,980 | ||||||
Property, Plant and Equipment, at cost |
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Land |
4,576 | 4,576 | ||||||
Buildings |
27,083 | 27,015 | ||||||
Machinery and equipment |
70,296 | 73,185 | ||||||
Construction in progress |
683 | 455 | ||||||
102,638 | 105,231 | |||||||
Less accumulated depreciation |
(72,127 |
) |
(73,255 |
) |
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Net property, plant and equipment |
30,511 | 31,976 | ||||||
Goodwill |
10,373 | 10,373 | ||||||
Other Intangible Assets, net |
31,972 | 32,647 | ||||||
Other Long-Term Assets, net |
23,127 | 15,124 | ||||||
Total assets |
$ | 203,521 | $ | 201,100 |
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.
LSI INDUSTRIES INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30, |
June 30, |
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(In thousands, except shares) |
2019 |
2019 |
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LIABILITIES & SHAREHOLDERS’ EQUITY |
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Current Liabilities |
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Accounts payable |
$ | 23.301 | $ | 18,664 | ||||
Accrued expenses |
21,871 | 21,211 | ||||||
Total current liabilities |
45,172 | 39,875 | ||||||
Long-Term Debt |
23,181 | 39,541 | ||||||
Other Long-Term Liabilities |
12,010 | 1,747 | ||||||
Commitments and Contingencies (Note 12) |
— | — | ||||||
Shareholders’ Equity |
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Preferred shares, without par value; Authorized 1,000,000 shares, none issued |
— | — | ||||||
Common shares, without par value; Authorized 40,000,000 shares; Outstanding 26,049,515 and 25,967,275 shares, respectively |
126,235 | 125,729 | ||||||
Treasury shares, without par value; |
(1,108 |
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(1,468 |
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Deferred compensation plan |
1,118 | 1,468 | ||||||
Retained (loss) |
(3,080 |
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(5,808 |
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Accumulated other comprehensive income |
(7 |
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16 | |||||
Total shareholders’ equity |
123,158 | 119,937 | ||||||
Total liabilities & shareholders’ equity |
$ | 203,521 | $ | 201,100 |
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.
LSI INDUSTRIES INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(Unaudited)
Common Shares |
Treasury Shares |
Key Executive |
Accumulated Other |
Total |
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Number Of |
Number Of |
Compensation |
Comprehensive |
Retained |
Shareholders' |
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Shares |
Amount |
Shares |
Amount |
Amount |
Inccome (Loss) |
Earnings |
Equity | |||||||||||||||||||||||||
Balance at June 30, 2018 |
25,884 | $ | 124,104 | (242 | ) | $ | (2,110 | ) | $ | 2,133 | - | $ | 15,124 | $ | 139,251 | |||||||||||||||||
Net Income |
- | - | - | - | - | - | 1,749 | 1,749 | ||||||||||||||||||||||||
Other comprehensive income |
- | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Stock compensation awards |
17 | 90 | - | - | - | - | - | 90 | ||||||||||||||||||||||||
Restricted stock untis issued |
97 | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Shares issued for deferred compensation |
27 | 126 | - | - | - | - | - | 126 | ||||||||||||||||||||||||
Activity of treasury shares, net |
- | - | 16 | 265 | - | - | - | 265 | ||||||||||||||||||||||||
Deferred stock compensation |
- | - | - | - | (264 | ) | - | - | (264 | ) | ||||||||||||||||||||||
Stock-based compensation expense |
- | 551 | - | - | - | - | - | 551 | ||||||||||||||||||||||||
Dividends — $0.20 per share |
- | - | - | - | - | - | (1,296 | ) | (1,296 | ) | ||||||||||||||||||||||
Cumulative effect of adoption of accounting guidance | - | - | - | - | - | - | 591 | 591 | ||||||||||||||||||||||||
Balance at September 30, 2018 |
26,025 | $ | 124,871 | (226 | ) | $ | (1,845 | ) | $ | 1,869 | $ | - | $ | 16,168 | $ | 141,063 |
Common Shares |
Treasury Shares |
Key Executive |
Accumulated Other |
Total |
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Number Of |
Number Of |
Compensation |
Comprehensive |
Retained |
Shareholders' |
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Shares |
Amount |
Shares |
Amount |
Amount |
Inccome (Loss) |
Earnings |
Equity | |||||||||||||||||||||||||
Balance at June 30, 2019 |
26,176 | $ | 125,729 | (209 | ) | $ | (1,468 | ) | $ | 1,468 | 16 | $ | (5,808 | ) | $ | 119,937 | ||||||||||||||||
Net Income |
- | - | - | - | - | - | 4,475 | 4,475 | ||||||||||||||||||||||||
Other comprehensive income |
- | - | - | - | - | (23 | ) | - | (23 | ) | ||||||||||||||||||||||
Stock compensation awards |
21 | 75 | - | - | - | - | - | 75 | ||||||||||||||||||||||||
Restricted stock untis issued |
18 | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Shares issued for deferred compensation |
7 | 33 | - | - | - | - | - | 33 | ||||||||||||||||||||||||
Activity of treasury shares, net |
- | - | 36 | 360 | - | - | - | 360 | ||||||||||||||||||||||||
Deferred stock compensation |
- | - | - | - | (350 | ) | - | - | (350 | ) | ||||||||||||||||||||||
Stock-based compensation expense |
- | 398 | - | - | - | - | - | 398 | ||||||||||||||||||||||||
Stock optons exercised, net |
- | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Dividends — $0.20 per share |
- | - | - | - | - | - | (1,319 | ) | (1,319 | ) | ||||||||||||||||||||||
Cumulative effect of adoption of accounting guidance | - | - | - | - | - | - | (428 | ) | (428 | ) | ||||||||||||||||||||||
Balance at September 30, 2019 |
26,222 | $ | 126,235 | (173 | ) | $ | (1,108 | ) | $ | 1,118 | $ | (7 | ) | $ | (3,080 | ) | $ | 123,158 |
LSI INDUSTRIES INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands) |
Three Months Ended |
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September 30 |
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2019 |
2018 |
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Cash Flows from Operating Activities |
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Net income |
$ | 4,475 | $ | 1,749 | ||||
Non-cash items included in net income: |
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Depreciation and amortization |
2,399 | 2,643 | ||||||
Deferred income taxes |
1,823 | 85 | ||||||
Deferred compensation plan |
43 | 127 | ||||||
Stock compensation expense |
398 | 551 | ||||||
Issuance of common shares as compensation |
75 | 90 | ||||||
Loss on disposition of fixed assets |
69 | -- | ||||||
(Gain) on disposition of facility |
(4,821 |
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-- | |||||
Allowance for doubtful accounts |
140 | (19 |
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Inventory obsolescence reserve |
298 | 766 | ||||||
Changes in certain assets and liabilities |
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Accounts receivable |
(3,854 |
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(4,218 |
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Inventories |
136 | (3,519 |
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Refundable income taxes |
(3 |
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587 | |||||
Accounts payable |
4,611 | 5,723 | ||||||
Accrued expenses and other |
440 | (3,172 |
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Customer prepayments |
130 | 795 | ||||||
Net cash flows provided by operating activities |
6,359 | 2,188 | ||||||
Cash Flows from Investing Activities |
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Proceeds from the sale of assets |
12,338 | -- | ||||||
Purchases of property, plant and equipment |
(355 |
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(648 |
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Net cash flows (used in) provided by investing activities |
11,983 | (648 |
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Cash Flows from Financing Activities |
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Payments of long-term debt |
(51,612 |
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(23,039 |
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Borrowings of long-term debt |
35,252 | 23,831 | ||||||
Cash dividends paid |
(1,319 |
) |
(1,296 |
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Shares withheld for employees’ taxes |
(50 |
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(52 |
) |
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Net cash flows (used in) financing activities |
(17,729 |
) |
(556 |
) |
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Increase in cash and cash equivalents |
613 | 984 | ||||||
Cash and cash equivalents at beginning of period |
966 | 3,178 | ||||||
Cash and cash equivalents at end of period |
$ | 1,579 | $ | 4,162 |
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.
LSI INDUSTRIES INC.
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, 2019, the results of its operations for the three month periods ended September 30, 2019 and 2018, and its cash flows for the three month periods ended September 30, 2019 and 2018. These statements should be read in conjunction with the financial statements and footnotes included in the fiscal 2018 Annual Report on Form 10-K. Financial information as of June 30, 2019 has been derived from the Company’s audited consolidated financial statements.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the Company’s significant accounting policies is included in Note 1 to the audited consolidated financial statements of the Company’s fiscal 2019 Annual Report on Form 10-K. Significant changes to our accounting policies as a result of adopting ASU-2014-09 “Revenue from Contracts with Customers” (Topic 606) in the first quarter of fiscal 2019 and adopting ASU 2016-02, “Leases” in the first quarter of fiscal 2019, which are discussed below.
Revenue Recognition:
The Company recognizes revenue when it satisfies the performance obligations in its customer contracts or purchase orders. Most of the Company’s products have a single performance obligation which is satisfied at a point in time when control is transferred to the customer. Control is generally transferred at time of shipment when title and risk of ownership passes to the customer. For customer contracts with multiple performance obligations, the Company allocates the transaction price and any discounts to each performance obligation based on relative standalone selling prices. Payment terms are typically within 30 to 90 days from the shipping date, depending on our terms with the customer. The Company offers standard warranties that do not represent separate performance obligations.
Installation is a separate performance obligation, except for our digital signage products. For digital signage products, installation is not a separate performance obligation as the product and installation is the combined item promised in digital signage contracts. The Company is not always responsible for installation of products it sells and has no post-installation responsibilities other than standard warranties.
A number of the Company's products are highly customized. As a result, these customized products do not have an alternative use. For these products, the Company generally has a legal right to payment for performance to date and generally does not accept returns on these items. The measurement of performance is based upon cost plus a reasonable profit margin for work completed. Because there is no alternative use and there is a legal right to payment, the Company transfers control of the item as the item is being produced and therefore, recognizes revenue over time. The customized product types are as follows:
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Customer specific branded print graphics |
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Electrical components based on customer specifications |
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Digital signage and related media content |
The Company also offers installation services. Installation revenue is recognized over time as our customer simultaneously receives and consumes the benefits provided through the installation process.
For these customized products and installation services, revenue is recognized using a cost-based input method: recognizing revenue and gross profit as work is performed based on the relationship between the actual cost incurred and the total estimated cost for the contract.
Disaggregation of Revenue
The Company disaggregates the revenue from contracts with customers by the timing of revenue recognition because the Company believes it best depicts the nature, amount, and timing of our revenue and cash flows. The table presents a reconciliation of the disaggregation by reportable segments.
Three Months Ended September 30 |
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Lighting Segment |
Graphics Segment |
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Timing of revenue recognition |
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Products and services transferred at a point in time |
$ | 56,525 | $ | 17,725 | ||||
Products and services transferred over time |
6,666 | 7,785 | ||||||
$ | 63,191 | $ | 25,510 |
Three Months Ended September 30 |
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Lighting Segment |
Graphics Segment |
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Type of Product and Services |
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LED lighting, digital signage, electronic circuit boards |
$ | 54,483 | $ | 3,874 | ||||
Legacy Products |
8,038 | 16,700 | ||||||
Turnkey Services and Other |
670 | 4,936 | ||||||
$ | 63,191 | $ | 25,510 |
Legacy products include lighting fixtures utilizing light sources other than LED technology and printed two- and three-dimensional graphic products. Turnkey services and other includes installation services along with shipping and handling charges.
Practical Expedients and Exemptions
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The Company’s contracts with customers have an expected duration of one year or less, as such the Company applies the practical expedient to expense sales commissions as incurred and have omitted disclosures on the amount of remaining performance obligations. |
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Shipping costs that are not material in context of the delivery of products are expensed as incurred. |
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The Company’s accounts receivable balance represents the Company’s unconditional right to receive payment from its customers with contracts. Payments are generally due within 30 to 90 days of completion of the performance obligation and invoicing; therefore, payments do not contain significant financing components. |
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The Company collects sales tax and other taxes concurrent with revenue-producing activities which are excluded from revenue. Shipping and handling costs are treated as fulfillment activities and included in cost of products and services sold on the Consolidated Statements of Operations. |
New Accounting Pronouncements:
On July 1, 2018, the Company adopted ASU 2014-09. “Revenue from Contracts with Customers,” (Topic 606) using the modified retrospective adoption method which requires a cumulative effect adjustment to the opening balance of retained earnings. This approach was applied to contracts that were not completed as of June 30, 2018. Results for reporting periods beginning July 1, 2018 are presented under Topic 606, while prior period amounts are not adjusted and continue to be reported under the accounting standards in effect for the prior period. The Company recorded a net increase to beginning retained earnings of $591,000 on July 1, 2018 due to the cumulative impact of adopting Topic 606, as described below.
(In thousands) |
Balance as of June 30, 2018 |
Adjustments |
Opening Balance as of July 1, 2018 |
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Assets: |
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Accounts receivable, net |
$ | 50,609 | $ | 4,935 | $ | 55,544 | ||||||
Inventories, net |
$ | 50,994 | $ | (4,167 |
) |
$ | 46,827 | |||||
Other long-term assets, net |
$ | 9,786 | $ | (177 |
) |
$ | 9,609 | |||||
Shareholders’ Equity: |
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Retained earnings |
$ | 15,124 | $ | 591 | $ | 15,715 |
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 and interim periods within those years, beginning after December 15, 2018, or the Company’s fiscal 2020, with early adoption permitted. The Company adopted this guidance effective July 1, 2019 using a modified-retrospective transition method, under which it elected not to adjust comparative periods. The Company elected the package of practical expedients permitted under the new guidance to not reassess prior conclusions related to contracts containing leases, lease classification, and initial direct costs. In addition, the Company elected the practical expedient to not separate lease and non-lease component and the accounting policy election to not present leases with an initial term of twelve months or less on the balance sheet.
The Company’s most significant leases are those relating to its two manufacturing facilities along with a small office space. Besides these three real estate leases, most other leases are insignificant and consist of leases related to a vehicle, forklifts, small tooling, and various office equipment. All of the Company’s leases are operating leases and are included in other long-term assets with the corresponding liability in other long-term liabilities. Lease expense is recognized on a straight-line basis over the lease term. The Company used its incremental borrowing rate when determining the present value of lease payments. The adoption of the new lease standard resulted in the recognition of right-of-use assets (ROU assets) of $10.4 million and lease liabilities of 10.8 million which includes the impact of existing deferred rents and tenant improvement allowances on the consolidated balance sheets as of July 1, 2019 for the Company’s real estate leases. The adoption of the standard resulted in no material impact to consolidated statements of operations or consolidated statements of cash flow. (Refer to Note 15)
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 consolidated financial statements.
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. The Company’s two operating segments are Lighting and Graphics, with one executive team under the organizational structure reporting directly to the CODM with responsibilities for managing each segment. 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 Company’s markets, primarily petroleum / convenience stores, automotive dealerships, quick-service restaurants, grocery and pharmacy stores, and retail/national accounts. The Company also services lighting product customers through the commercial industrial, stock and flow, and renovation channels. 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, equity compensation expense for various equity awards 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, 2019 or 2018. There was no concentration of accounts receivable at September 30, 2018 or June 30, 2019.
Summarized financial information for the Company’s operating segments is provided for the indicated periods and as of September 30, 2019 and September 30, 2018:
Three Months Ended |
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(In thousands) |
September 30 |
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2019 |
2018 |
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Net Sales: |
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Lighting Segment |
$ | 63,191 | $ | 61,432 | ||||
Graphics Segment |
25,510 | 23,525 | ||||||
$ | 88,701 | $ | 84,957 | |||||
Operating Income (Loss): |
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Lighting Segment |
$ | 9,159 | $ | 3,850 | ||||
Graphics Segment |
1,017 | 2,387 | ||||||
Corporate and Eliminations |
(3,337 |
) |
(3,303 |
) |
||||
$ | 6,839 | $ | 2,934 | |||||
Capital Expenditures: |
||||||||
Lighting Segment |
$ | 330 | $ | 276 | ||||
Graphics Segment |
-- | 266 | ||||||
Corporate and Eliminations |
25 | 106 | ||||||
$ | 355 | $ | 648 | |||||
Depreciation and Amortization: |
||||||||
Lighting Segment |
$ | 1,778 | $ | 1,990 | ||||
Graphics Segment |
386 | 395 | ||||||
Corporate and Eliminations |
235 | 258 | ||||||
$ | 2,399 | $ | 2,643 |
September 30, 2019 |
June 30, 2019 |
|||||||
Identifiable Assets: |
||||||||
Lighting Segment |
$ | 141,647 | $ | 142,105 | ||||
Graphics Segment |
44,467 | 40,914 | ||||||
Corporate and Eliminations |
17,407 | 18,081 | ||||||
$ | 203,521 | $ | 201,100 |
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.
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) |
2019 |
2018 |
||||||
Lighting Segment inter-segment net sales |
$ | 811 | $ | 409 | ||||
Graphics Segment inter-segment net sales |
$ | 24 | $ | 31 |
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 |
||||||||
2019 |
2018 |
|||||||
BASIC EARNINGS (LOSS) PER SHARE |
||||||||
Net income |
$ | 4,475 | $ | 1,749 | ||||
Weighted average shares outstanding, net of treasury shares (a) |
26,024 | 25,752 | ||||||
Weighted average vested restricted stock units outstanding |
24 | 53 | ||||||
Weighted average shares outstanding in the Deferred Compensation Plan |
188 | 227 | ||||||
Weighted average shares outstanding |
26,236 | 26,032 | ||||||
Basic earnings per share |
$ | 0.17 | $ | 0.07 | ||||
DILUTED EARNINGS (LOSS) PER SHARE |
||||||||
Net income (loss) |
$ | 4,475 | $ | 1,749 | ||||
Weighted average shares outstanding |
||||||||
Basic |
26,236 | 26,032 | ||||||
Effect of dilutive securities (b): |
||||||||
Impact of common shares to be issued under stock option plans, and contingently issuable shares, if any |
57 | 333 | ||||||
Weighted average shares outstanding (c) |
26,293 | 26,365 | ||||||
Diluted earnings per share |
$ | 0.17 | $ | 0.07 |
(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 2,861,423 common shares and 3,146,466 common shares at September 30, 2019 and 2018, respectively, were not included in the computation of the three month period for diluted earnings per share, respectively, 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:
September 30, |
June 30, |
|||||||
(In thousands) |
2019 |
2019 |
||||||
Inventories: |
||||||||
Raw materials |
$ | 28,783 | $ | 27,927 | ||||
Work-in-process |
1,757 | 2,193 | ||||||
Finished goods |
12,538 | 13,392 | ||||||
Total Inventories |
$ | 43,078 | $ | 43,512 |
NOTE 6 - ACCRUED EXPENSES
The following information is provided as of the dates indicated:
September 30, |
June 30, |
|||||||
(In thousands) |
2019 |
2019 |
||||||
Accrued Expenses: |
||||||||
Compensation and benefits |
$ | 3,974 | $ | 5,319 | ||||
Customer prepayments |
1,898 | 1,768 | ||||||
Accrued sales commissions |
2,248 | 1,301 | ||||||
Accrued warranty |
7,666 | 7,687 | ||||||
Other accrued expenses |
6,085 | 5,136 | ||||||
Total Accrued Expenses |
$ | 21,871 | $ | 21,211 |
NOTE 7 - GOODWILL AND OTHER INTANGIBLE ASSETS
The 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 the reporting unit 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 unit 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 the fair value of reporting units are based on the best information available as of the date of the assessment. The fair value measurements of the reporting units are based on significant inputs not observable in the market and thus represent Level 3 measurements as defined by ASC 820 “Fair Value Measurements.” 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.
The Company identified its reporting units in conjunction with its annual goodwill impairment testing. The Company has a total of two reporting units that contain goodwill. There is one reporting unit within the Lighting Segment and one reporting unit within the Graphics Segment. 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.
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, 2019 |
||||||||||||
Goodwill |
$ | 94,564 | 28,690 | 123,254 | ||||||||
Accumulated impairment losses |
(85,356 |
) |
(27,525 |
) |
(112,881 |
) |
||||||
Goodwill, net as of June 30, 2019 |
$ | 9,208 | 1,165 | 10,373 | ||||||||
Balance as of September 30, 2019 |
||||||||||||
Goodwill |
$ | 94,564 | 28,690 | 123,254 | ||||||||
Accumulated impairment losses |
(85,356 |
) |
(27,525 |
) |
(112,881 |
) |
||||||
Goodwill, net as of September 30, 2019 |
$ | 9,208 | 1,165 | 10,373 |
The gross carrying amount and accumulated amortization by major other intangible asset class is as follows:
September 30, 2019 |
||||||||||||
Other Intangible Assets |
Gross |
|||||||||||
(In thousands) |
Carrying |
Accumulated |
Net |
|||||||||
Amount |
Amortization |
Amount |
||||||||||
Amortized Intangible Assets |
||||||||||||
Customer relationships |
$ | 35,563 | $ | 12,585 | $ | 22,978 | ||||||
Patents |
338 | 254 | 84 | |||||||||
LED technology firmware, software |
16,066 | 12,489 | 3,577 | |||||||||
Trade name |
2,658 | 747 | 1,911 | |||||||||
Total Amortized Intangible Assets |
54,625 | 26,075 | 28,550 | |||||||||
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 |
$ | 58,047 | $ | 26,075 | $ | 31,972 |
June 30, 2019 |
||||||||||||
Other Intangible Assets |
Gross |
|||||||||||
(In thousands) |
Carrying |
Accumulated |
Net |
|||||||||
Amount |
Amortization |
Amount |
||||||||||
Amortized Intangible Assets |
||||||||||||
Customer relationships |
$ | 35,563 | $ | 12,070 | $ | 23,493 | ||||||
Patents |
338 | 247 | 91 | |||||||||
LED technology |
16,066 | 12,364 | 3,702 | |||||||||
firmware, software |
2,658 | 719 | 1,939 | |||||||||
Trade name |
- | |||||||||||
Total Amortized Intangible Assets |
54,625 | 25,400 | 29,225 | |||||||||
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 |
$ | 58,047 | $ | 25,400 | $ | 32,647 |
(In thousands) |
Amortization Expense of Other Intangible Assets |
|||||||
September 30, 2019 |
September 30, 2018 |
|||||||
Three Months Ended |
$ | 675 | $ | 691 |
The Company expects to record annual amortization expense as follows:
NOTE 8 - REVOLVING LINE OF CREDIT
In February 2019, the Company amended its secured line of credit to a $75 million facility from a $100 million facility in order to better match its financing needs with an appropriate borrowing capacity. 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 be 200 basis points for the first quarter of fiscal 2020. The fee on the unused balance of the $75 million committed line of credit is 20 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, 2019, there was $23.2 million borrowed against the line of credit, and $51.8 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, 2019.
NOTE 9 - CASH DIVIDENDS
The Company paid cash dividends of $1,319,000 and $1,296,000 in the three months ended September 30, 2019 and 2018, respectively. Dividends on restricted stock units in the amount of $34,842 and $31,553 were accrued as of September 30, 2019 and 2018, respectively. These dividends will be paid upon the vesting of the restricted stock units when shares are issued to the award recipients. In November 2019, the Board of Directors declared a regular quarterly cash dividend of $0.05 per share payable November 26, 2019 to shareholders of record as of November 18, 2019. The indicated annual cash dividend rate is $0.20 per share.
NOTE 10 - EQUITY COMPENSATION
In November 2019, the Company’s shareholders approved the 2019 Omnibus Award Plan. The purpose of the plan is to provide a means through which the Company may attract and retain key personnel and to provide a means by which directors, officers, and employees can acquire and maintain an equity interest in the Company. This plan replaced the 2012 Stock Incentive Plan. The number of shares of common stock authorized for issuance under the plan is 2,650,000 which will be combined with the remaining shares available under the previous plan of 1,147,429 shares as of September 30, 2019 for total number of shares available for issuance of approximately 3.8 million. The plan implements the use of a fungible share ratio that consumes 2.5 available shares for every full value share awarded by the Company as stock compensation. The 2019 Omnibus Award Plan allows for the grant of non-qualified stock options, stock appreciation rights, restricted stock awards, performance stock units, and other stock-based awards.
In the first quarter of fiscal 2020, the Company granted 455,429 non-qualified serviced-based stock options with an exercise price of $3.83 and 199,310 Performance Stock Units and 81,917 Restricted Stock Units at a fair value of $3.83. Stock compensation expense was $398,000 and $551,000 in the first quarter of fiscal 2019 and 2018, respectively.
NOTE 11 - SUPPLEMENTAL CASH FLOW INFORMATION
(In thousands) |
Three Months Ended September 30 |
|||||||
2019 |
2018 |
|||||||
Cash payments: |
||||||||
Interest |
$ | 464 | $ | 518 | ||||
Income taxes |
$ | -- | $ | (39 |
) |
|||
Non-cash investing and financing activities: |
||||||||
Issuance of common shares as compensation |
$ | 75 | $ | 90 | ||||
Issuance of common shares to fund deferred compensation plan |
$ | 33 | $ | 127 |
NOTE 12 - 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 September 30, 2019, there were no such standby letters of credit issued.
NOTE 13 – SEVERANCE COSTS
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, |
|||||||||
2019 |
2018 |
2019 |
||||||||||
Balance at beginning of the period |
$ | 1,134 | $ | 1,772 | $ | 1,772 | ||||||
Accrual of expense |
18 | -- | 560 | |||||||||
Payments |
(162 |
) |
(197 |
) |
(1,198 |
) |
||||||
Adjustments |
-- | -- | -- | |||||||||
Balance at end of the period |
$ | 990 | $ | 1,575 | $ | 1,134 |
Of the total $990,000 reported as of September 30, 2019, $591,000 has been classified as a current liability and will be paid out over the next twelve months. The remaining $399,000 has been classified as a long-term liability.
NOTE 14 – RESTRUCTURING COSTS
In the first quarter of fiscal 2020, the Company sold its New Windsor, New York facility. The net proceeds from the sale was $12.3 million resulting in a gain of $4.8 million. The Company also incurred additional restructuring costs totaling $233,000 related to closure of the New York facility which impacted both the Lighting and Graphics segment.
The following table presents information about restructuring costs for the periods indicated:
Three |
Three |
|||||||
Months Ended |
Months Ended |
|||||||
(In thousands) |
September 30, |
September 30, |
||||||
2019 |
2018 |
|||||||
Severance benefits |
$ | -- | $ | 19 | ||||
Moving costs |
-- | 53 | ||||||
Impairment of fixed assets and accelerated depreciation |
49 | 43 | ||||||
Facility repairs |
-- | 40 | ||||||
Gain on sale of facility |
(4,821 |
) |
-- | |||||
Exit Costs |
184 | -- | ||||||
Total |
$ | (4,588 |
) |
$ | 155 |
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, 2019 |
Restructuring Expense |
Payments |
Adjustments |
Balance as of September 30, 2019 |
||||||||||||||||
Severance and termination benefits |
$ | 236 | $ | -- | $ | (131 |
) |
$ | -- | $ | 105 | |||||||||
Other restructuring costs |
-- | 184 | (184 |
) |
-- | -- | ||||||||||||||
Total |
$ | 236 | $ | 184 | $ | (315 |
) |
$ | -- | $ | 105 |
NOTE 15 - LEASES
The Company leases two of its manufacturing facilities along with a small office space, a company vehicle, several forklifts, several small tooling items, and various items of office equipment. All of the Company’s leases are operating leases and are included in other long-term assets with the corresponding liability in other long-term liabilities. Leases have a remaining term of 1 to 5 years some of which have an option to renew. The Company does not assume renewals in determining the lease term unless the renewals are deemed reasonably certain. The lease agreements do not contain any material residual guarantees or material variable lease payments.
The Company has periodically entered into short-term operating leases with an initial term of twelve months or less. These leases are not recorded on the balance sheet. For the three months ended September 30, 2019, the rent expense for these leases is immaterial.
The Company has certain leases that contain lease and non-lease components and has elected to utilize the practical expedient to account for these components together as a single lease component.
Lease expense is recognized on a straight-line basis over the lease term. The Company used its incremental borrowing rate when determining the present value of lease payments. The adoption of the new lease standard resulted in the recognition of right-of-use assets (ROU assets) of $10.4 million and lease liabilities of 10.8 million which includes the impact of existing deferred rents and tenant improvement allowances on the consolidated balance sheets as of July 1, 2019 for the Company’s real estate leases. The adoption of the new standard resulted in no material impact to the consolidated statements of operations or consolidated statements of cash flow.
Three Months Ended
|
||||
(in thousands) |
||||
Operating lease cost |
587 |
Supplemental Cash Flow Information: |
Three Months Ended
|
|||
(in thousands) |
||||
Operating cash flows from operating leases |
||||
Fixed payments |
573 | |||
Liability reduction |
443 |
At September 30, 2019 |
||||
Operating Leases: |
||||
Total operating right-of-use asset (Other long-term assets) |
9,953 | |||
Accrued Liabiltities (Current liabilities) |
324 | |||
Long-term operating lease liability (Other long-term liabilties) |
10,368 | |||
10,692 | ||||
Weighted Average Remaining Lease Term (in years) |
5.3 | |||
Weighted Average Discount Rate |
4.85 | % |
Maturities of Lease Liability: |
||||
2020 |
1,846 | |||
2021 |
2,303 | |||
2022 |
2,279 | |||
2023 |
2,244 | |||
2024 |
1,918 | |||
therefter |
1,680 | |||
Total lease payments |
12,270 | |||
Less: Interest |
(1,578 | ) | ||
Present Value of Lease Liabilities |
10,692 |
NOTE 16 – 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 2020, the Company sold its New Windsor, New York facility resulting in a book gain of $4.8 million. The Company was able to utilize a deferred tax asset of $864,000 related to the sale of the facility
Three Months Ended |
||||||||
September 30 |
||||||||
2019 |
2018 |
|||||||
Reconciliation to effective tax rate: |
||||||||
Provision for income taxes at the anticipated annual tax rate |
24.1 |
% |
23.0 |
% |
||||
Uncertain tax positions |
0.5 | 1.3 | ||||||
Shared based compensation |
4.3 | 3.3 | ||||||
Other |
0.4 | -- | ||||||
Effective tax rate |
29.3 |
% |
27.6 |
% |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Note About Forward-Looking Statements
This report includes estimates, projections, statements relating to our business plans, objectives, and expected operating results that are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements may appear throughout this report, including this section. These forward-looking statements generally are identified by the words “believe,” “project,” “expect,” “anticipate,” “estimate,” “intend,” “strategy,” “future,” “opportunity,” “plan,” “may,” “should,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties that may cause actual results to differ materially. We describe risks and uncertainties that could cause actual results and events to differ materially in in our Annual Report on Form 10-K in the following sections: “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Quantitative and Qualitative Disclosures about Market Risk,” and “Risk Factors.” All of those risks and uncertainties are incorporated herein by reference. We undertake no obligation to update or revise publicly any forward-looking statements, whether because of new information, future events, or otherwise.
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help the reader understand the results of operations and financial condition of LSI Industries Inc. MD&A is provided as a supplement to, and should be read in conjunction with, our Annual Report on Form 10-K for the year ended June 30, 2019, and our financial statements and the accompanying Notes to Financial Statements (Part I, Item 1 of this Form 10-Q).
The Company’s condensed consolidated financial statements, accompanying notes and the “Safe Harbor” Statement, each as appearing earlier in this report, should be referred to in conjunction with this Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Net Sales by Business Segment | ||||||||
(In thousands) |
Three Months Ended |
|||||||
September 30 |
||||||||
2019 |
2018 |
|||||||
Lighting Segment |
$ | 63,191 | $ | 61,432 | ||||
Graphics Segment |
25,510 | 23,525 | ||||||
$ | 88,701 | $ | 84,957 |
Summary Comments
Fiscal 2020 first quarter net sales of $88,701,000 increased $3.7 million or 4.4% as compared to first quarter fiscal 2019. Net sales were favorably influenced by increased net sales in both the Lighting Segment (up $1.8 million or 2.9%) and the Graphics Segment (up $2.0 million or 8.4%).
Fiscal 2020 first quarter operating income of $6.9 million increased $4.0 million from operating income of $2.9 million in the first quarter of fiscal 2019. The $4.0 million increase in operating income in fiscal 2019 was impacted by the sale of the Company’s New Windsor, New York facility in the first quarter of fiscal 2020 which favorably resulted in a pre-tax gain of $4.8 million. Also contributing to the period-over-period change in operating income is a one-time adjustment to the Company’s paid-time-off policy in fiscal 2019 which resulted in a favorable pre-tax adjustment to earnings of $1.2 million with no comparable event in fiscal 2020. When the impact of the sale of the New Windsor facility along with the other restructuring and plant closure costs are removed from the operating results along with the one-time adjustment to the Company’s paid-time-off policy in fiscal 2019, operating income period-over-period remained relatively flat. Refer to the discussions in the “results of operations” for each of the Company’s reportable segments for further explanation of the period-over-period change in sales and operating income.
Non-GAAP Financial Measures
The Company believes it is appropriate to evaluate its performance after making adjustments to the as-reported U.S. GAAP operating income, net income, and earnings per share. Adjusted operating income, net income and earnings per share, which exclude the impact of restructuring and plant closure costs, are non-GAAP financial measures. We believe that these adjusted supplemental measures are useful in assessing the operating performance of our business. These supplemental measures are used by our management, including our chief operating decision maker, to evaluate business results. We exclude these items because they are not representative of the ongoing results of operations of our business. Below is a reconciliation of these non-GAAP measures to operating income, net income, and earnings per share for the periods indicated.
Three Months Ended September 30 |
||||||||
(In thousands) |
2019 |
2018 |
||||||
Reconciliation of operating income to adjusted operating income |
||||||||
Operating Income as reported |
$ | 6,839 | $ | 2,934 | ||||
Restructuring and plant closure costs (includes a $4.8 million gain on the sale of the facility) |
(4,588 | ) | 590 | |||||
Adjusted Operating Income |
$ | 2,251 | $ | 3,524 |
Three months ended Septeber 30 |
||||||||||||||||||
(In thousands, except per share data) |
2019 |
2018 |
||||||||||||||||
Diluted |
Diluted |
|||||||||||||||||
Reconciliation of net income to adjusted net income |
EPS | EPS | ||||||||||||||||
Net Income as reported |
$ | 4,475 | $ | 0.17 | $ | 1,749 | $ | 0.07 | ||||||||||
Restructuring and plant closure costs |
(3,449 | ) | (0.13 | ) |
(1) |
454 | $ | 0.01 |
(2) |
|||||||||
Net Income adjusted |
$ | 1,026 | $ | 0.04 | $ | 2,203 | $ | 0.08 |
The income tax effects of the adjustments in the tables above were calculated using the estimated U.S. effective income tax rates for the periods indicated. The income tax effects were as follows (in thousands):
(1) $(1,139)
(2) $136
Results of Operations
THREE MONTHS ENDED SEPTEMBER 30, 2018 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2017
Lighting Segment |
||||||||
(In thousands) |
Three Months Ended |
|||||||
September 30 |
||||||||
2019 |
2018 |
|||||||
Net Sales |
$ | 63,191 | $ | 61,432 | ||||
Gross Profit |
$ | 17,219 | $ | 15,475 | ||||
Operating Income |
$ | 9,159 | $ | 3,850 |
Lighting Segment net sales of $63,191,000 in the first quarter of fiscal 2020 increased 2.9% from fiscal 2019 same period net sales of $61,432,000. Sales increased despite inconsistent market conditions as the Company continues to focus on growth in core market verticals including the Automotive, Petroleum, QSR and Retail parking lot markets.
Gross profit of $17,219,000 in the first quarter of fiscal 2020 increased $1.7million or 11.3% from the same period of fiscal 2019 and increased from 25.2% to 27.2% as a percentage of Lighting Segment net sales (customer plus inter-segment net sales). The growth in gross profit and gross profit as a percentage of sales is the result of an increase in sales and due to favorable price/mix. Also contributing to the period-over-period change in gross profit is the initial cost savings from the closure of the Company’s New Windsor, New York facility.
Selling and administrative expenses of $8,060,000 in the first quarter of fiscal year 2020 decreased $3.6 million from the same period of fiscal 2019 selling and administrative expenses of $11,625,000, primarily due to the $4.8 million gain on the sale of the New Windsor, New York facility. When the $4.8 million gain is removed from fiscal 2020 results, there was a $1.3 million or 11.1% increase in selling and administrative expenses. The increase in selling and administrative expenses is mostly driven by higher commission expense which is the result of increased sales volume and a one-time adjustment to the Company’s paid-time-off policy in fiscal 2019 with no comparable event in fiscal 2020.
The Lighting Segment first quarter fiscal 2019 operating income of $9,159,000 increased $5.3 million from operating income of $3,850,000 in the same period of fiscal 2019 primarily due to the $4.8million gain on the sale of its New Windsor, New York facility. When the impact of $4.8 million gain is removed from fiscal 2020 results along with the restructuring and plant closure costs in both fiscal years, fiscal 2020 Non-GAAP adjusted operating income of $4,510,000 was $70,000 higher than fiscal 2019 Non-GAAP adjusted operating income of $4,440,000. The increase in sales volume and gross profit was partially offset by higher selling and administrative expenses.
Graphics Segment |
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(In thousands) |
Three Months Ended |
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September 30 |
||||||||
2019 |
2018 |
|||||||
Net Sales |
$ | 25,510 | $ | 23,525 | ||||
Gross Profit |
$ | 4,626 | $ | 5,782 | ||||
Operating Income |
$ | 1,017 | $ | 2,387 |
Graphics Segment net sales of $25,510,000 in the first quarter of fiscal 2020 increased $2.0 million or 8.4% from fiscal 2019 same period net sales of $23,525,000. Growth was realized across three product market applications; petroleum, other retail printed graphics, and digital signage.
Gross profit of $4,626,000 in the first quarter of fiscal 2020 decreased $1.2 million or 20.0% from the same period of fiscal 2019. Gross profit as a percentage of segment net sales (customer plus inter-segment net sales) decreased from 24.6% in the first quarter of fiscal 2019 to 18.1% in the first quarter of fiscal 2020. The change in amount of gross profit is due to the net effect of increased net sales (customer plus inter-segment net sales) partially offset by a change in customer program mix. Graphics gross margin was unfavorably impacted by several factors including: new and early stage petroleum projects, improved inventory levels and impact of lower absorption, alignment of manufacturing resources required to support the transition from print to digital in certain market applications, and a one-time adjustment to the Company’s paid-time-off policy in fiscal 2019 with no comparable event in fiscal 2020.
Selling and administrative expenses of $3,609,000 in the first quarter of fiscal 2020 increased $0.2 million or 6.3% from the same period of fiscal 2019 primarily as a result of increased development cost for potential customer programs.
The Graphics Segment first quarter fiscal 2020 operating income of $1,017,000 decreased $1.4 million or 57.4% from operating income of $2,387,000 in the same period of fiscal 2019. The decrease of $1.4 million was primarily the net result of increased net sales, decreased gross profit, decreased gross profit margin as a percentage of sales, and increased selling and administrative expenses.
Corporate and Eliminations | ||||||||
(In thousands) |
Three Months Ended |
|||||||
September 30 |
||||||||
2019 |
2018 |
|||||||
Gross Profit (Loss) |
$ | 10 | $ | 4 | ||||
Operating (Loss) |
$ | (3,337 | ) | $ | (3,303 | ) |
The gross profit or loss relates to the elimination of intercompany profit in inventory.
Administrative expenses of $3,340,000 in the first quarter of fiscal 2020 increased slightly from the same period of the prior year. The change is primarily the result of several small increases and decreases across several cost categories
Consolidated Results
The Company reported $431,000 net interest expense in the first quarter of fiscal 2020 compared to $518,000 net interest expense in the first quarter of fiscal 2019. The change from interest expense from fiscal 2019 to fiscal 2020 is primarily the result of reduced borrowings against the Company’s line of credit. The Company also incurred $82,000 expense related to net foreign currency transaction losses from transactions with its customer and suppliers through its Mexican subsidiary.
The $1,851,000 income tax expense in the first quarter of fiscal 2020 represents a consolidated effective tax rate of 29.3% influenced mostly by the gain on the sale of its New Windsor, New York facility and by certain permanent book-tax differences and by an expense related to uncertain income tax positions. The $667,000 income tax expense in the first quarter of fiscal 2019 is also by certain permanent book-tax differences and by an expense related to uncertain income tax positions.
The Company reported a net income of $4,475,000 in the first quarter of fiscal 2020 compared to net income of $1,749,000 in the same period of the prior year. The change in net income between fiscal 2019 and fiscal 2020 includes the $4.8 million gain on the sale of the Company’s New Windsor, New York facility along with other restructuring and plant closure costs. The change in net income is also the net result of increased net sales, increased gross profit, increased selling and administrative expenses, decreased interest expense, and a higher tax rate. Diluted earnings per share of $0.17 was reported in the first quarter of fiscal 2020 as compared to $0.07 diluted earnings per share in the same period of fiscal 2018. The weighted average common shares outstanding for purposes of computing diluted earnings per share in the first quarter of fiscal 2020 were 26,293,000 shares as compared to 26,365,000 shares in the same period last year.
Liquidity and Capital Resources
The Company considers its level of cash on hand, borrowing capacity, current ratio and working capital levels to be its most important measures of short-term liquidity. For long-term liquidity indicators, the Company believes its ratio of long-term debt to equity and its historical levels of net cash flows from operating activities to be the most important measures.
At September 30, 2019, the Company had working capital of $62.4 million, compared to $71.1 million at June 30, 2019. The ratio of current assets to current liabilities was 2.38 to 1 as compared to a ratio of 2.78 to 1 at June 30, 2019. The balance sheet at June 30, 2019 included an asset held for sale of $7.5 million which was sold in the first quarter of fiscal 2020. When June 30, 2019 current assets are restated to exclude the asset held for sale, adjusted working capital and current assets to current liability ratios are $63.6 million and 2.59 to 1 respectively, which provides for a more appropriate comparison to these results for September 30, 2019. The $1.2million decrease in working capital between these periods (as adjusted and excluding the sale of the New Windsor facility) is primarily driven by two offsetting variances: a $3.7million increase in accounts receivable and an increase in accounts payable of $4.6 million.
The Company generated $6.4 million of cash from operating activities in the first quarter of fiscal 2020 as compared to a source of cash of $2.2 million in the same period of the prior year. This $4.2 million increase in net cash flows from operating activities is the result the Company’s strategy to aggressively manage its working capital which includes the reduction of the accounts receivable days sales outstanding (DSO), increasing inventory turns while simultaneously reducing inventory levels, and effectively managing the Company’s supply chain which includes partnering with its suppliers to find the appropriate service level while effectively managing payment terms.
Net accounts receivable was $58.4 million and $54.7 million at September 30, 2019 and June 30, 2019, respectively. DSO decreased to 57 days at September 30, 2019 from 63 days at June 30, 2019. The Company believes that its receivables are ultimately collectible or recoverable, net of certain reserves, and that aggregate allowances for doubtful accounts are adequate.
Net inventories of $43.1 million at September 30, 2019 decreased $0.4 million from $43.5 million at June 30, 2019. The decrease of $0.4 million is the result of a decrease in gross inventory of $0.3 million and an increase in obsolescence reserves of $0.1 million. Based on a strategy of balancing inventory reductions with customer service and the timing of shipments, net inventory decreased 0.8 million in the first quarter of fiscal 2020 in the Graphics Segment which more than offset an increase in net inventory in the Lighting Segment of $0.4 million.
Cash generated from operations and borrowing capacity under the Company’s line of credit is the Company’s primary source of liquidity. The Company has a secured $75 million revolving line of credit with its bank, with $53.0 million of the credit line available as of October 21, 2019. This line of credit is a $75 million five-year credit line expiring in the third quarter of fiscal 2022. The Company believes that its $75 million line of credit plus cash flows from operating activities are adequate for the Company’s fiscal 2020 operational and capital expenditure needs. The Company is in compliance with all of its loan covenants.
The Company had a source of cash of $12.0 million related to investing activities in the first quarter of fiscal 2020 as compared to a use of cash of $0.6 million in the same period of the prior year, resulting in a favorable change of $12.6 million. Capital expenditures for the first quarter of fiscal 2020 decreased $0.3 million to $0.4 million from the same period in fiscal 2019. The Company sold its New Windsor, New York manufacturing facility for $12.3 million in the first quarter of fiscal 2020 which contributed to the change in cash flow from investing activities from fiscal 2019 to fiscal 2020.
The Company used $17.7 million of cash related to financing activities in the first quarter of fiscal 2020 compared to a use of cash of $0.5 million in the first quarter of fiscal 2019. The $17.2 million unfavorable change in cash flow was the net result of payments in excess of borrowings of long-term debt of $17.2 million.
The Company has, or could have, on its balance sheet financial instruments consisting primarily of cash and cash equivalents, short-term investments, revolving lines of credit, and long-term debt. The fair value of these financial instruments approximates carrying value because of their short-term maturity and/or variable, market-driven interest rates.
Off-Balance Sheet Arrangements
The Company has no financial instruments with off-balance sheet risk and has no off-balance sheet arrangements, except for various operating leases. However, none of these operating leases, individually or in the aggregate have or are reasonably likely to have a current effect on the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that is material.
Cash Dividends
In November 2019, the Board of Directors declared a regular quarterly cash dividend of $0.05 per share payable November 26, 2019 to shareholders of record as of November 18, 2019. The indicated annual cash dividend rate for fiscal 2020 is $0.20 per share. The Board of Directors has adopted a policy regarding dividends which indicates that dividends will be determined by the Board of Directors in its discretion based upon its evaluation of earnings, cash flow requirements, financial condition, debt levels, stock repurchases, future business developments and opportunities, and other factors deemed relevant.
Critical Accounting Policies and Estimates
A summary of the Company’s significant accounting policies is included in Note 1 to the audited consolidated financial statements of the Company’s fiscal 2019 Annual Report on Form 10-K.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in the Company’s exposure to market risk since June 30, 2019. Additional information can be found in Item 7A, Quantitative and Qualitative Disclosures About Market Risk, which appears on page 13 of the Annual Report on Form 10-K for the fiscal year ended June 30, 2019.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures (as such term is defined Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), that are designed to ensure that information required to be disclosed by a company in the reports that it files under the Exchange Act is recorded, processed, summarized and reported within required time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
We conducted, under the supervision of our management, including the Chief Executive Officer and Chief Financial Officer, an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934. Based upon our evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2019, our disclosure controls and procedures were effective. Management believes that the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q are fairly presented in all material respects in accordance with GAAP for interim financial statements, and the Company’s Chief Executive Officer and Chief Financial Officer have certified that, based on their knowledge, the condensed consolidated financial statements included in this report fairly present in all material respects the Company’s financial condition, results of operations and cash flows for each of the periods presented in this report.
Changes in Internal Control
During the quarter ended September 30, 2019, the Company enacted additional controls related to the adoption of ASU 2016-02, “Leases.” There have been no changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter ended September 30, 2019, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting, except as otherwise described in this Item 4.
PART II. OTHER INFORMATION
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
NONE
PART II.
Item 5. Other Information
The following information is provided pursuant to Form 8-K under the respective items identified below:
Item 5.02 -- Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.
(e) At the November 5, 2019 Annual Meeting of the Shareholders of LSI Industries Inc. (the “Company”), shareholders approved the 2019 Omnibus Award Plan (the “2019 Plan”). The 2019 Plan was unanimously approved by the Board of Directors subject to shareholder approval.
The objectives of the 2019 Plan are to provide long-term incentives to those persons with significant responsibility for the success and growth of the Company, to align the interests of such persons with those of the Company’s shareholders, to assist the Company in recruiting, retaining and motivating employees, directors and consultants on a competitive basis and to link compensation to performance. Under the 2019 Plan, employees of the Company will be eligible to receive awards. The 2019 Plan provides for a variety of equity award vehicles to maintain flexibility. The 2019 Plan will permit the grant of stock options, stock appreciation rights, restricted share awards, and restricted share units. A maximum of 2,650,000 shares will be available for grants of all equity awards under the 2019 Plan.
The foregoing summary of the 2019 Plan does not purport to be complete and is qualified in its entirety by reference to the full text of the 2019 Plan attached as Annex A to the Company’s Definitive Proxy Statement on Schedule 14A filed with the Securities and Exchange Commission on September 25, 2019.
Item 5.07 – Submission of Matters to a Vote of Security Holders.
The Annual Meeting of Shareholders of LSI Industries Inc. (“LSI”) was held on November 5, 2019 at which the following matters were submitted to a vote of shareholders:
(a) Votes regarding the election of six directors.
(b) Votes regarding the ratification of the Audit Committee’s appointment of Grant Thornton LLP as LSI’s Independent Registered Public Accounting Firm for fiscal 2020.
For |
Against |
Abstain |
24,088,729 | 153,693 | 59,395 |
(c) Votes regarding the approval of the Company’s 2019 Omnibus Award Plan.
For |
Against |
Abstain |
16,969,309 | 1,581,199 | 75,464 |
(d) Advisory votes on the Company’s executive compensation as described in the Company’s Proxy Statement.
For |
Against |
Abstain |
Broker Non-Votes |
17,451,276 | 1,090,446 | 75,464 | 5,675,844 |
ITEM 6. EXHIBITS
Exhibits:
10.1 |
10.2 |
10.3 |
31.1 |
Certification of Principal Executive Officer required by Rule 13a-14(a) |
31.2 |
Certification of Principal Financial Officer required by Rule 13a-14(a) |
32.1 |
32.2 |
101.INS XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF XBRL Taxonomy Extension Definition Linkbase Document
101.LAB XBRL Taxonomy Extension Label Linkbase Document
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document
* Management compensatory agreement
++ Certain portions of this exhibit have been omitted pursuant to Item 601(b)(10) of Regulation S-K. The omitted information is not material and would likely cause competitive harm to the Registrant if publicly disclosed. The Registrant hereby agrees to furnish a copy of any omitted portion to the SEC upon request.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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LSI Industries Inc. |
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By: |
/s/ James A. Clark |
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James A. Clark |
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Chief Executive Officer and President |
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(Principal Executive Officer) |
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By: |
/s/ James E. Galeese |
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James E. Galeese |
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Executive Vice President and Chief Financial Officer |
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(Principal Financial Officer) |
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November 7, 2019 |
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Page 29
Exhibit 10.1
CERTAIN IDENTIFIED INFORMATION HAS BEEN EXCLUDED FROM THIS EXHIBIT BECAUSE IT IS NOT MATERIAL AND WOULD LIKELY CAUSE COMPETITIVE HARM TO THE REGISTRANT IF PUBLICLY DISCLOSED. [***]
LSI INDUSTRIES INC.
EXECUTIVE OFFICER FY20
LONG-TERM INCENTIVE PLAN
Effective: August 21, 2019
LSI INDUSTRIES INC.
FY20
LONG-TERM INCENTIVE PLAN
Effective: August 21, 2019
The LSI Industries Inc. (Company) Amended and Restated 2012 Stock Incentive Plan authorizes the Compensation Committee of the Board of Directors (Compensation Committee) to issue share-based incentive awards to employees. The Fiscal Year 2020 Long Term Incentive Plan (TIP) provides for grants to the Named Executive Officers (NEOs), and other employees of the Company designated by the Compensation Committee and the Chief Executive Officer (CEO). The employees receiving grants are collectively referred to as the “Employees”.
The LTIP has been approved by the Compensation Committee as a retention tool to encourage Employees to maintain long-term employment with the Company. The LTIP provides for the issuance of three types of share-based awards: stock options, performance stock units and restricted stock units. All LTIP awards are granted effective the close of business on August 21, 2019 and at such other times and in such other manner as may be approved or authorized by the Compensation Committee.
1. |
Stock Options. The Company may grant time-based stock option (Stock Options) awards to Employees. Stock Option awards have a ten-year exercise term; a three-year ratable vesting period; and a stated and fixed exercise price set by the Compensation Committee as the closing price of a share of Company common stock on the date of the grant. The Form of Stock Option Agreement is set forth as Exhibit “1” hereto. |
2. |
Performance Stock Units. The Company may grant performance stock units (PSUs) to the Employees. The vesting of such PSUs is subject to the achievement of designated metrics for Return on Net Assets (RONA) and cumulative Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (Adjusted EDITDA) at the completion of the three-year performance cycle concluding on June 30, 2022 (FY22) and more fully set forth in Exhibit A hereto. The LTIP sets for a threshold (or minimum), target and maximum goals to be achieved in FY22 for each metric. If the threshold amount is not achieved for any performance metric, there shall be no payout under such metric. The grant made to the employee is the target number of PSUs. The actual number of PSUs at vesting may stretch to a greater amount than the target amount if greater than target performance is achieved; and may be less than the target number of PSUs if less than target performance is achieved. RONA achievement accounts for 50% of the vesting of the PSUs and Cumulative Adjusted EBITDA accounts for 50% of the vesting of the PSUs. The PSUs shall cliff vest at the completion of FY22 if the FY22 threshold, target or maximum is met pursuant to the matrix set forth in section 2.1 below. The Form of PSU Award Agreement is set forth as Exhibit “2” hereto. |
2.1 PSU Performance and Payout Matrix. Set forth below are the thresholds, targets and maximums for RONA and Adjusted EBITDA and the payout associated therewith:
The actual LTIP award payout will be interpolated between the percentages set forth in the chart based on actual results. Examples of the Vesting of the PSUs are set forth on Exhibit “3” hereto.
3. |
Restricted Stock Units. The Company may grant restricted stock units (RSUs) to the Employees. RSUs are time based and vest annually in three equal installments over a three-year period. The Form of PSU Award Agreement is set forth as Exhibit “4” hereto. |
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4. | General Terms and Conditions. The following provisions apply to the LTIP: |
A. |
The value of the total LTIP award to each participant shall be apportioned among PSUs; RSUs and/or Stock Options, as determined by the Committee. The apportionment of the awards to the Named Executive Officers and the remaining Senior Officers shall be approved by the Compensation Committee. |
B. |
The actual grants to Employees on the date of the adoption of this FY20 LTIP are set forth in the Compensation Committee resolution whereby this FY20 LTIP is adopted. |
C. |
CEO Pool. The Compensation Committee hereby approves an additional pool of any combination of 3,000 Stock Options, RSUs and PSUs for grant by the CEO in FY20 to employees not previously receiving a LTIP award from the Compensation Committee. The pool awards have been set aside for grant to new employees and employees whom in the discretion of the CEO are deemed to merit an award. The employees receiving a grant from the pool, and the amount of the pool awards shall be within the discretion of the CEO. |
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D. | Definitions. |
1. |
“Cumulative Adjusted EBITDA” is defined as the Company’s cumulative consolidated earnings before interest, taxes, depreciation and amortization expenses as adjusted for certain unusual or non-recurring items for the period commencing July1, 2019 and ending June 30, 2022. The Company’s Adjusted EBITDA will be as reported in the Company’s Annual Report on Form 10-K for tFY20 and as approved by the Compensation Committee. |
2. |
“RONA” is defined as the Company’s consolidated Adjusted Net Income as percent of Net Assets, which derived by dividing Adjusted Net Income by Net Assets. For purposes of this definition, “Adjusted Net Income” is defined as non-GAAP Net Income which is developed and reported to the Company’s Board of Directors on a quarterly basis. For purposes of this definition, “Net Assets” is defined as working capital and net property, plant, and equipment (excluding goodwill and intangibles). |
E. |
Except to the extent provided in a grant agreement, LTIP participants must be continuously employed by the Company on (i) the specified award vesting for Stock Options and RSUs and (ii) the date designated for payout of the PSUs, in order to vest in such award or portion of such award. The Company will make the distribution of the PSUs awards to participants as soon as administratively practicable following the date of the award determination by the Compensation Committee. |
F. |
At the discretion of the CEO in consultation with the SVP of Human Resources, any type of lengthy leave of absence may result in an adjustment of the award. Leaves of absence include time away from work for reasons of short-term disability, FMLA leave, military leave, or other leave of absence. |
G. |
If a grantee Retires, or becomes disabled (as defined by Social Security) or deceased during the plan period, the Compensation Committee may consider a pro-rated award based to the grantee or the grantee’s beneficiary, as the case may be, upon the actual amount of base salary received during the plan period, subject to the terms and conditions of the 2012 Stock Incentive Plan. |
H. |
LTIP awards may be subject to assignment laws and other laws that require payment of the incentive award to an individual other than the grantee (such as IRS tax levies, child support arrearages, etc.). The Company will comply with all such applicable assignment laws. |
I. |
The LTIP does not create or imply the existence of a contract of employment. The Company reserves the right to amend, reduce, modify, interpret or discontinue all or part of the LTIP with or without reason as the Compensation Committee deems advisable in its sole and absolute discretion, subject to the terms and conditions of the 2012 Stock Incentive Plan and the terms and conditions of the grant documents. |
J. |
IIn the event the Company is required to prepare an accounting restatement due to the material noncompliance of the Company with any financial reporting requirement under the federal securities laws, the Compensation Committee shall require reimbursement to the Company of the PSUs granted hereunder where: (i) the payment was predicated upon achieving certain financial results that were subsequently the subject of a substantial restatement of the Company's financial statements filed with the SEC; (ii) the Compensation Committee determines the grantee engaged in intentional misconduct that caused or substantially caused the need for the accounting restatement; and (iii) a lower payment would have been made to such officer based upon the restated financial results. In each such instance, the Company will, to the extent practicable, seek to recover from the officer the amount by which any performance-based awards paid to such officer for the relevant period exceeded the lower payment that would have been made based on the restated financial results. |
K. |
In the event and to the extent Company common shares are issued pursuant to awards granted under the LTIP, each grantee who was a Named Executive Officer on the grant date and receives such Company common shares is required to retain for one year 100% of net after tax shares received upon exercise of the stock options or vesting of RSUs and PSUs, as the case may be. The holding requirement hereunder is subject to and restricted by any stock ownership guidelines or requirements established by the Company. |
L. |
The Company reserves the right to require each grantee to execute and deliver to the Company a non-competeInon-solicitation agreement as a condition of the grant of any award or the payment of any amounts as may be due under the LTIP. |
M. |
Capitalized terms not otherwise defined by this LTIP shall have the meanings ascribed to them in the Amended and Restated 2012 Stock Incentive Plan. |
Exhibit “3”
Examples
FORMULA FOR DETERMINATION OF THE NUMBER OF PSU SHARES UPON VESTING
[***]
EXAMPLE 1
[***]
EXAMPLE 2
[***]
EXAMPLE 3
[***]
4
Exhibit 10.2
CERTAIN IDENTIFIED INFORMATION HAS BEEN EXCLUDED FROM THIS EXHIBIT BECAUSE IT IS NOT MATERIAL AND WOULD LIKELY CAUSE COMPETITIVE HARM TO THE REGISTRANT IF PUBLICLY DISCLOSED. [***]
LSI INDSTRIES INC.
FISCAL YEAR 2020
SHORT TERM INCENTIVE PLAN
Effective : August 21, 2020
LSI INDUSTRIES INC.
FISCAL YEAR 2020
SHORT TERM INCENTIVE PLAN
Effective August 21, 2020
The Fiscal Year 2020 Short Term Incentive Plan (STIP) is designed to motivate employees to achieve the LSI Industries Inc. (Company) fiscal year 2020 (FY20) operating plan and its Adjusted EBITDA and Net Sales objectives. The STIP has been approved by the Company’s Compensation of the Board of Directors Committee (Compensation Committee). The FY20 STIP provides for the payment of cash incentive awards to employee’s if the stated Adjusted EBITDA and Net Sales metrics set forth herein are achieved.
1. |
Bonus Potential. The bonus potential is a percentage payout based on the Company’s attainment of the FY2020 financial metrics for Adjusted EBITDA and Net Sales. The STIP sets for a threshold (or minimum), target and maximum goals to be achieved in FY20 for each metric. If the threshold amount is not achieved for any performance metric, there shall be no payout under such metric. |
1.1 |
Adjusted EBITDA Component |
Threshold: [***]
Target: [***]
Maximum: [***]
1.2 |
Net Sales Component. |
Threshold: [***]
Target: [***]
Maximum: [***]
2. |
Performance Mix. The STI payout shall be based eighty percent (80%) on achievement of the Adjusted EBITDA metric and twenty percent (20%) on achievement of the Net Sales metric. |
3. |
Payout Potential by Employee Group. Each employee shall be assigned to a position category for purposes of administration of the STIP. The bonus amount is based on a percentage of the employee’s base salary or annual hourly wages. An employee may not be moved to a different position category unless a formal request has been submitted and approved by the CEO. The threshold, target and maximum potential payout for each category of employee is set forth in the table below. |
Threshold Achievement |
Target Achievement |
Maximum Achievement |
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Category | |||
B6 CEO | [***] | [***] | [***] |
B5A Senior Executives | [***] | [***] | [***] |
B5B Executives | [***] | [***] | [***] |
B4 Executives | [***] | [***] | [***] |
B3 Managers | [***] | [***] | [***] |
B2 Salaried | [***] | [***] | [***] |
B1 Hourly | [***] | [***] | [***] |
The actual LTIP award payout will be interpolated between the percentages set forth in the above chart based on actual results.
Notwithstanding anything in this STIP to the contrary, an adjustment shall be made to the above stated thresholds, targets and maximums by multiplying by said percentages by [***].
4. |
Retention of Discretion. The Compensation Committee maintains the discretion to award additional bonuses. |
5. |
Examples. Examples of the manner in which the payout shall be calculated under the FY20 STIP are set forth on the attached Exhibit “1”. |
6. |
General Terms and Conditions. The following terms and conditions govern the STIP: |
A. |
The STIP covers all employees of the Company and its subsidiaries except for certain sales employees who participate in individual commission-based or quota-based bonus plans unique to such employees’ sales territory or vertical. An employee who participates in a commission-based or a quota-based bonus plan is not eligible to participate in the STIP, except as permitted in the discretion of the CEO. |
B. |
STIP incentive award payments to Named Executive Officers and other Corporate Officers shall be approved by the Company’s Compensation Committee. The CEO may make discretionary modifications of the calculated STIP incentive award of non-Named Executive Officers and Corporate Officers to decrease or increase an employee’s bonus for special objectives or subjective circumstances. An employee must be employed on the date of the payment of the STIP in order to be eligible to receive a STIP payment. |
C. |
Definitions: |
“Adjusted EBITDA” is defined as the Company’s consolidated earnings before interest, taxes, depreciation and amortization expenses as adjusted for certain unusual or non-recurring items. The Company’s Adjusted EBITDA will be as reported in the Company’s Annual Report on Form 10-K for tFY20 and as approved by the Compensation Committee.
“Net Sales” is the number reported as such in the Company’s financial statements.
“Retire” means to retire from the Company at or after the age of 65 or after the later of the age 55 and ten years of service.
D. |
The Company’s fiscal year commences July 1st and concludes on June 30th. Employees hired after July 1st and before April 1st will have their STIP prorated to the number of days employed in the fiscal year. Employees hired after March 31st will not be eligible to participate in the STIP. |
E. |
At the discretion of the CEO in consultation with the SVP of Human Resources, any type of lengthy leave of absence could result in a pro-rata reduction of the calculated award. Leaves of absence may include time away from work for reasons of short-term disability, FMLA leave, military leave, or other leave of absence. |
F. |
If an employee Retires or becomes disabled (as defined by Social Security) or deceased during the fiscal year, the Company may consider a pro-rated incentive award payment based upon the actual amount of base salary received during the fiscal year prior to the date of retirement, disability or death. |
G. |
STIP Incentive award payments can be subject to assignment laws and other laws that require payment of the incentive award to other than the employee (IRS tax levies, child support arrearages, etc.). The Company will comply with all such applicable assignment laws. |
H. |
The STIP does not create or imply the existence of a contract of employment. The Company reserves the right to amend, reduce, modify, interpret or discontinue all or any part of the STIP with or without reason as the Compensation Committee deems advisable in its sole and absolute discretion. |
I. |
An employee’s actual base salary paid on the last day of FY20 shall be used to calculate the incentive amount that may be awarded under the STIP. |
Exhibit “1”
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EXAMPLE 1
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EXAMPLE 2
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EXAMPLE 3
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6
Exhibit 10.3
CERTAIN IDENTIFIED INFORMATION HAS BEEN EXCLUDED FROM THIS EXHIBIT BECAUSE IT IS NOT MATERIAL AND WOULD LIKELY CAUSE COMPETITIVE HARM TO THE REGISTRANT IF PUBLICLY DISCLOSED. [***]
Exhibit “2”
LSI INDUSTRIES INC
LSI Industries Inc 2012 Stock Incentive Plan
Performance Share Award Agreement (FY2020)
This PERFORMANCE SHARE Units AWARD AGREEMENT (the “Agreement”), granted under the LSI Industries Inc Stock Incentive Plan, as amended (the “Plan”) is effective as of August 21, 2019 and is made between LSI Industries Inc, an Ohio corporation (the “Company”) and (the “Recipient”).
Preliminary Statements
WHEREAS, the Company has determined that it is desirable and in its best interests to grant to the Recipient shares of the Company’s common stock (the “Stock”) subject to performance conditions, in order to provide the Recipient with a significant interest in the Company’s growth so that the Recipient will have a greater incentive to perform at the highest level and further the interests of the Company and the shareholders of the Company (the “Award”); and
WHEREAS, any capitalized term not herein defined shall have the meaning as set forth in the Plan.
NOW, THEREFORE, in consideration of the mutual promises and covenants contained herein:
1. Grant of Performance Shares. On the terms and conditions of this Agreement and the Plan, the Committee grants to the Recipient a performance share unit award based on the criteria established by the Compensation Committee that are described in Section 2 below (the “Performance Shares”). The target number of Performance Shares to be issued pursuant to the Award is ___________shares (the “Target Shares”) and the maximum number of Performance Shares that may be issued pursuant to the Award is____________ shares. The extent to which the Award shall become vested and non-forfeitable shall be determined in accordance with the provisions of Section 2 below. The date of grant of the Award is August 21, 2019 (the “Grant Date”).
The Recipient’s right, if any, to continue to be employed by the Company will not be enlarged or otherwise affected by the receipt of this Award, and the receipt of this Award will not in any way restrict the right of the Company to terminate the Recipient’s employment at any time.
2. Vesting of the Performance Shares. Except as provided in Section 3 below, the Recipient shall vest in the Award in accordance with the following provisions:
(a) Performance Cycle. The Performance Cycle for the Award shall commence on June 30, 2019 and shall end on the final day of the Company’s 2022 fiscal year (June 30, 2022).
(b) Percentage of Target Shares earned and Thresholds, Targets and Maximums. Subject to Section 4 below, the extent to which the Award shall become earned at the end of the Performance Cycle shall be based upon the Company’s Cumulative Adjusted EBITDA during the performance cycle and the ending return on net assets (“RONA”) in the last fiscal year of the Performance Cycle (the “Performance Criteria”). Cumulative Adjusted EBITDA and RONA each represent 50% of the of the entire component of the PSU. Set forth below are the thresholds, targets and maximums for RONA and Adjusted EBITDA and the payout percentage associated therewith:
The Recipient shall earn 100% of the Target Shares if the Company has achieved Cumulative adjusted EBITDA of [***] during the performance cycle and [***] the last fiscal year of the Performance Cycle. Generally, the percentage of Target Shares earned at the end of the Performance Cycle based on the Performance Criteria shall be determined according to the following charts, however the actual Awards of Performance Shares will be interpolated between the percentages set forth in the following chart based on actual results:
Cumulative Adjusted EBITDA Performance Level (50% of Earned PSUs) |
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P RONA Performance Level (50% of Earned PSUs) |
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(c) Board Certification. Promptly after the Audit Committee of the Board approves the Company’s financial statements for the fiscal year in which the end of the Performance Cycle occurs, the Committee must determine and certify whether, and to what extent, the Performance Criteria have been achieved.
(d) Vesting. Unless otherwise provided in Section 3 below, the Recipient shall only vest in the earned portion of the Award, if any, on the Payment Date, as provided under Section 5 herein; provided that the Recipient remains in the continuous employment of the Company through the Payment Date. All vesting in the Award, if applicable, shall occur only on the Payment Date; there shall be no proportionate vesting in the Award prior to the Payment Date.
3. Acceleration of Vesting of the Award. Notwithstanding Section 2(d) above, upon the occurrence of any of the following events, the Recipient shall become fully vested in a pro-rata portion of the Award (as determined under Section 3(c) below):
(a) the termination of the Recipient’s employment with the Company by reason of the Recipient’s death or disability (within the meaning of Section 409A of the Code); or
(b) the termination of the Recipient’s employment with the Company within 18 months following a Change in Control and provided that the Recipient executes a non-revocable written release in the form provided by the Company or its successors.
(c) Calculation of Pro-Rata Accelerated Shares. The actual number of Performance Shares that shall be paid upon the occurrence of an event specified in Section 3(a) or (b) is the amount of Performance Shares Target, as if the Recipient were still employed on June 30, 2022, multiplied by a fraction; the numerator of which is the total number of complete months worked by the Recipient during the Performance Cycle, and the denominator of which is 36, the total number of months in the Performance Cycle.
4. Forfeiture of the Award. Any portion of the Award that is unvested shall automatically be forfeited on the date that the Recipient ceases to be employed by the Company.
5. Payment of Awards. Except as specifically provided in Section 5(c):
(a) Payment of awards shall be made on a date as soon as administratively practicable following the completion of the Performance Cycle, (the “Payment Date”). The payment of awards under this Agreement is conditioned upon the Recipient’s execution of a written “Non-competition, Non-Disclosure and Non-solicitation Agreement” in a form acceptable to the Company.
(b) On the Payment Date, the Recipient shall be entered as the stockholder of record for the number of Performance Shares covered by the Award which the Committee determines, in writing, have been earned and certified pursuant to Sections 2(b) and 2(c) respectively, and which have vested pursuant to Section 2(d).
(c) Notwithstanding anything in this Agreement to the contrary, payment of any amount under this Agreement shall be subject to the approval of the Plan by the Company’s shareholders in a manner that complies with Code Section 162(m). If the shareholders of the Company do not approve the Plan in a manner that complies with Code Section 162(m), the Award shall be immediately forfeited.
6. Dividend Equivalent Rights. If any Performance Shares are awarded to the Recipient pursuant to this Agreement, then the Recipient shall also be entitled to receive a number of shares of Stock equal to (A) (i) the number of Performance Shares awarded to the Recipient under Section 2 multiplied by (ii) the cumulative amount of cash dividends paid by the Company that the Recipient would have received had he owned the awarded Performance Shares on each dividend record date through the Payment Date, divided by (B) the closing price of the Stock on the Payment Date; provided, however, that cash will be paid in lieu of any fractional shares the Recipient would be entitled to receive under this Section 6.
7. Tax Payment Upon Vesting.
(a) At such time as the Recipient is entered as the stockholder of record with respect to the Performance Shares earned pursuant to this Agreement, the Recipient (or his/her personal representative) shall deliver to the Company, within ten (10) days after the occurrence of such registration specified above (or in the event of death, within ten (10) days of the appointment of the personal representative) (a “Payment Date”), either a check payable to the Company in the amount of all withholding tax obligations (whether federal, state, local or foreign income or social insurance tax), imposed on the Recipient and the Company by reason of the awarding of the Performance Shares, or a withholding election form to be provided by the Company upon request by the Recipient (or personal representative).
(b) In the event the Recipient or his personal representative elects to satisfy the withholding obligation by executing the withholding election form, the Recipient’s actual number of vested shares of Performance Shares shall be reduced by the smallest number of whole shares of Stock which, when multiplied by the Fair Market Value of the Stock on the Payment Date, is sufficient to satisfy the amount of the withholding tax obligations imposed on the Company by reason of the Recipient being recorded as the stockholder of record of the earned Performance Shares. In the event that the Recipient fails to tender either the required certified check or withholding election, the Recipient shall be deemed to have elected and executed the withholding election form.
8. Effect of Changes in Capitalization or Change in Control.
(a) Changes in Stock. If the outstanding shares of Stock are increased or decreased or changed into or exchanged for a different number or kind of shares or other securities of the Company by reason of any recapitalization, reclassification, stock split, reverse split, combination of shares, exchange of shares, stock dividend or other distribution payable in capital stock, or other increase or decrease in such shares effected without receipt of consideration by the Company occurring after the date the Award is granted, then, in the Board’s discretion, a proportionate and appropriate adjustment may be made by the Board in the number and kind of shares subject to the Award, so that the proportionate interest of the Recipient immediately following such event shall, to the extent practicable, be the same as immediately prior to such event. In the event of any distribution to the Company’s stockholders of securities of any other entity or other assets (other than dividends payable in cash or stock of the Company) without receipt of consideration by the Company, the Board shall, in such manner as it deems appropriate, adjust the number and kind of shares subject to the Award to reflect such distribution.
(b) Reorganization in Which the Company Is the Surviving Company. Subject to 8(c) below, if the Company shall be the surviving Company in any reorganization, merger, or consolidation of the Company with one or more other companies or other entities, the Award shall pertain to and apply to the securities to which a holder of the number of shares of Stock subject to the Award would have been entitled immediately following such reorganization, merger, or consolidation, with a corresponding proportionate adjustment of the Award, as may be applicable so that the aggregate value of the Award thereafter shall be the same as the aggregate value of the Award immediately before such reorganization, merger, or consolidation.
(c) Change in Control. In the event of a Change in Control, the Board may (i) make provisions in connection with such transaction for the continuation of the Award; (ii) reach an agreement with the acquiring or surviving entity that the acquiring or surviving entity will assume the obligation of the Company under the Award; (iii) reach an agreement with the acquiring or surviving entity that the acquiring or surviving entity will convert the Award into an
award of at least equal value, determined as of the date of the transaction, to purchase stock of the acquiring or surviving entity; or (iv) terminate the Award effective upon the date of the applicable transaction and either make, within sixty (60) days after the date of the applicable transaction, a cash payment to the Recipient equal to product of the number of shares of Stock subject to the Award and the Fair Market Value, as of the date of the applicable transaction, of the shares of Stock subject to the Award; provided, however, that the Board determines that any such modification does not have a substantial adverse economic impact on the Recipient as determined at the time of such modification.
9. General Restrictions. The Company shall not be required to sell or issue any shares of Stock under the Award if the sale or issuance of such shares would constitute a violation by the Recipient or by the Company of any provision of any law or regulation of any governmental authority, including without limitation any federal or state securities laws or regulations. If at any time the Company shall determine, in its discretion, that the listing, registration, or qualification of any shares subject to the Award upon any securities exchange or under any state or federal law, or the consent or approval of any government regulatory body, is necessary or desirable as a condition of, or in connection with, the issuance or purchase of shares, the Award may not be exercised in whole or in part unless such listing, registration, qualification, consent, or approval shall have been effected or obtained free of any conditions not acceptable to the Company, and any delay caused thereby shall in no way affect the date of termination of the Award. Specifically in connection with the Securities Act of 1933 (as now in effect or as hereafter amended), unless a registration statement under such Act is in effect with respect to the shares of Stock covered by the Award, the Company shall not be required to sell or issue such shares unless the Company has received evidence satisfactory to it that the holder of the Award may acquire such shares pursuant to an exemption from registration under such Act. Any determination in this connection by the Company shall be final, binding, and conclusive. The Company may, but shall in no event be obligated to, register any securities covered hereby pursuant to the Securities Act of 1933 (as now in effect or as hereafter amended). The Company shall not be obligated to take any affirmative action in order to cause the issuance of shares pursuant to the Award to comply with any law or regulation of any governmental authority. As to any jurisdiction that expressly imposes the requirement that the Award shall not be exercisable unless and until the shares of Stock covered by the Award are registered or are subject to an available exemption from registration, the exercise of the Award (under circumstances in which the laws of such jurisdiction apply) shall be deemed conditioned upon the effectiveness of such registration or the availability of such an exemption.
10. Restrictions On Transfer. Other than by will or under the laws of descent and distribution, the Recipient shall not have the right to make or permit to occur any transfer, pledge or hypothecation of all or any portion of any unvested portion of the Award, whether outright or as security, with or without consideration, voluntary or involuntary. Any such transfer, pledge or hypothecation not made in accordance with this Agreement shall be deemed null and void.
11. Interpretation of this Agreement. All decisions and interpretations made by the Committee or the Board with regard to any question arising under this Agreement shall be final, binding and conclusive on the Company and the Recipient and any other person entitled to receive the benefits of the Award as provided for herein.
12. Governing Law. The validity, interpretation and enforcement of this Agreement are governed in all respects by the laws of the State of Delaware, without giving effect to its conflict of laws principles, and by the laws of the United States of America.
13. Binding Effect. Subject to all restrictions provided for in this Agreement and by applicable law relating to assignment and transfer of this Agreement and the Award provided for herein, this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, executors, administrators, successors, and assigns.
14. Notice. Any notice hereunder by the Recipient to the Company shall be in writing and shall be deemed duly given if mailed or delivered to the Company at its principal office, addressed to the attention of the Board, or if so mailed or delivered to such other address as the Company may hereafter designate by notice to the Recipient. Any notice hereunder by the Company to the Recipient shall be in writing and shall be deemed duly given if mailed or delivered to the Recipient at the address specified below by the Recipient for such purpose, or if so mailed or delivered to such other address as the Recipient may hereafter designate by written notice given to the Company.
15. Severability. In the event that any one or more of the provisions or portion thereof contained in this Agreement shall for any reason be held to be invalid, illegal or unenforceable in any respect, the same shall not invalidate or otherwise affect any other provisions of this Agreement, and this Agreement shall be construed as if the invalid, illegal or unenforceable provision or portion thereof had never been contained herein.
16. Effectiveness of Agreement. This Agreement shall not be effective unless Recipient executes and delivers within 10 business days of the date of this Agreement (i) this Agreement and (ii) the attached Agreement to Protect Company Assets (the “Asset Protection Agreement”), unless Recipient has previously executed and delivered a Asset Protection Agreement.
17. Entire Agreement. This Agreement constitutes the entire agreement and supersedes all prior understandings and agreements written or oral, of the parties hereto with respect to the subject matter hereof. There is no representation or statement made by any party on which another party has relied which is not included in this Agreement. Neither this Agreement nor any term hereof may be amended, waived, discharged, or terminated except by a written instrument signed by the Company and the Recipient; provided, however, that the Company unilaterally may waive any provision hereof in writing to the extent that such waiver does not adversely affect the interests of the Recipient hereunder, but no such waiver shall operate as or be construed to be a subsequent waiver of the same provision or a waiver of any other provision hereof.
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered this Agreement or caused this Agreement to be duly executed and delivered on his or its behalf, as of the day and year first above written.
LSI INDUSTRIES INC |
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RECIPIENT
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EXHIBIT 31.1
Certification of Principal Executive Officer
Pursuant to Rule 13a-14(a)
I, James A. Clark, certify that:
1. I have reviewed this quarterly report on Form 10-Q of LSI Industries Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: November 7, 2019 |
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/s/ James A. Clark |
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Principal Executive Officer |
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EXHIBIT 31.2
Certification of Principal Financial Officer
Pursuant to Rule 13a-14(a)
I, James E. Galeese, certify that:
1. I have reviewed this quarterly report on Form 10-Q of LSI Industries Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: November 7, 2019 |
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/s/ James E. Galeese |
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Principal Financial Officer |
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EXHIBIT 32.1
CERTIFICATION OF JAMES A. CLARK
Pursuant to Section 1350 of Chapter 63 of the
United States Code and Rule 13a-14b
In connection with the filing with the Securities and Exchange Commission of the Quarterly Report of LSI Industries Inc. (the “Company”) on Form 10-Q for the quarter ended September 30, 2019 (the “Report”), I, James A. Clark, Principal Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
(1) |
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
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The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
/s/ James A. Clark |
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James A. Clark |
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Chief Executive Officer and President |
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Date: November 7, 2019 |
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A signed original of this written statement required by Section 906 has been provided to LSI Industries Inc. and will be retained by LSI Industries Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
EXHIBIT 32.2
CERTIFICATION OF JAMES E. GALEESE
Pursuant to Section 1350 of Chapter 63 of the
United States Code and Rule 13a-14b
In connection with the filing with the Securities and Exchange Commission of the Quarterly Report of LSI Industries Inc. (the “Company”) on Form 10-Q for the quarter ended September 30, 2019 (the “Report”), I, James E. Galeese, Principal Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
(1) |
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
(2) |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
/s/ James E. Galeese |
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James E. Galeese |
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Executive Vice President and Chief Financial Officer |
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Date: November 7, 2019 |
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A signed original of this written statement required by Section 906 has been provided to LSI Industries Inc. and will be retained by LSI Industries Inc. and furnished to the Securities and Exchange Commission or its staff upon request.