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, 2020 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 ☒ 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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☒ 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.
Large accelerated filer ☐ |
Accelerated filer ☒ |
Emerging growth company ☐ |
Non-accelerated filer ☐ |
Smaller reporting company ☒ |
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 ☒
As of October 30, 2020, there were 26,355,467 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, 2020
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 |
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3 |
Condensed Consolidated Statements of Comprehensive Income |
4 |
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Condensed Consolidated Balance Sheets |
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5 |
Condensed Consolidated Statements of Shareholders’ Equity |
7 |
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Condensed Consolidated Statements of Cash Flows |
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8 |
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Notes to Condensed Consolidated Financial Statements |
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9 |
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ITEM 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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21 |
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ITEM 3. |
Quantitative and Qualitative Disclosures About Market Risk |
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27 |
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ITEM 4. |
Controls and Procedures |
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27 |
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PART II. Other Information |
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ITEM 2. |
Unregistered Sales of Equity Securities and Use of Proceeds |
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28 |
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ITEM 6. |
Exhibits |
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29 |
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Signatures |
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30 |
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) |
2020 |
2019 |
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Net Sales |
$ | 70,006 | $ | 88,701 | ||||
Cost of products and services sold |
51,731 | 66,588 | ||||||
Restructuring costs |
3 | 258 | ||||||
Gross profit |
18,272 | 21,855 | ||||||
Selling and administrative expenses |
16,070 | 19,862 | ||||||
Restructuring gains |
- | (4,846 | ) | |||||
Operating income |
2,202 | 6,839 | ||||||
Interest (income) |
(1 | ) | (1 | ) | ||||
Interest expense |
58 | 432 | ||||||
Other (income) expense |
(105 | ) | 82 | |||||
Income before income taxes |
2,250 | 6,326 | ||||||
Income tax expense |
260 | 1,851 | ||||||
Net income |
$ | 1,990 | $ | 4,475 | ||||
Earnings per common share (see Note 4) |
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Basic |
$ | 0.08 | $ | 0.17 | ||||
Diluted |
$ | 0.07 | $ | 0.17 | ||||
Weighted average common shares outstanding |
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Basic |
26,520 | 26,236 | ||||||
Diluted |
26,968 | 26,293 |
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.
LSI INDUSTRIES INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
Three Months Ended |
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September 30 |
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(In thousands) |
2020 |
2019 |
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Net Income |
$ | 1,990 | $ | 4,475 | ||||
Foreign currency translation adjustment |
45 | (23 | ) | |||||
Comprehensive Income |
$ | 2,035 | $ | 4,452 |
LSI INDUSTRIES INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30, |
June 30, |
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(In thousands, except shares) |
2020 |
2020 |
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ASSETS |
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Current assets |
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Cash and cash equivalents |
$ | 9,463 | $ | 3,517 | ||||
Accounts receivable, less allowance for doubtful accounts of $219 and $273, respectively |
44,122 | 37,836 | ||||||
Inventories |
37,351 | 38,752 | ||||||
Refundable income tax |
3,175 | 2,776 | ||||||
Other current assets |
3,832 | 2,977 | ||||||
Total current assets |
97,943 | 85,858 | ||||||
Property, Plant and Equipment, at cost |
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Land |
3,933 | 3,933 | ||||||
Buildings |
20,660 | 20,638 | ||||||
Machinery and equipment |
67,737 | 67,796 | ||||||
Buildings under finance leases |
2,033 | 2,033 | ||||||
Construction in progress |
772 | 440 | ||||||
95,135 | 94,840 | |||||||
Less accumulated depreciation |
(69,533 | ) | (68,305 | ) | ||||
Net property, plant and equipment |
25,602 | 26,535 | ||||||
Goodwill |
10,373 | 10,373 | ||||||
Other Intangible Assets, net |
29,289 | 29,960 | ||||||
Operating Lease Right-of-Use Assets |
8,195 | 8,663 | ||||||
Other Long-Term Assets, net |
10,393 | 10,874 | ||||||
Total assets |
$ | 181,795 | $ | 172,263 |
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) |
2020 |
2020 |
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LIABILITIES & SHAREHOLDERS' EQUITY |
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Current liabilities |
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Accounts payable |
$ | 20,292 | $ | 14,216 | ||||
Accrued expenses |
22,567 | 20,433 | ||||||
Total current liabilities |
42,859 | 34,649 | ||||||
Long-Term Debt |
- | - | ||||||
Finance Lease Liabilities |
1,694 | 1,755 | ||||||
Operating Lease Liabilities |
8,640 | 9,021 | ||||||
Other Long-Term Liabilities |
1,162 | 1,138 | ||||||
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 26,340,512 and 26,286,009 shares, respectively |
128,758 | 127,713 | ||||||
Treasury shares, without par value |
(1,504 | ) | (1,121 | ) | ||||
Deferred compensation plan |
1,504 | 1,121 | ||||||
Retained (loss) |
(1,270 | ) | (1,920 | ) | ||||
Accumulated other comprehensive loss |
(48 | ) | (93 | ) | ||||
Total shareholders' equity |
127,440 | 125,700 | ||||||
Total liabilities & shareholders' equity |
$ | 181,795 | $ | 172,263 |
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 Shares |
Amount |
Number Of Shares |
Amount |
Compensation Amount |
Comprehensive Income (Loss) |
Retained Earnings |
Shareholders' Equity |
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Balance at June 30, 2020 |
26,466 | $ | 127,713 | (180 | ) | $ | (1,121 | ) | $ | 1,121 | (93 | ) | $ | (1,920 | ) | $ | 125,700 | |||||||||||||||
Net Income |
- | - | - | - | - | - | 1,990 | 1,990 | ||||||||||||||||||||||||
Other comprehensive income |
- | - | - | - | - | 45 | - | 45 | ||||||||||||||||||||||||
Stock compensation awards |
12 | 75 | - | - | - | - | - | 75 | ||||||||||||||||||||||||
Restricted stock units issued |
28 | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Shares issued for deferred compensation |
62 | 412 | - | - | - | - | - | 412 | ||||||||||||||||||||||||
Activity of treasury shares, net |
- | - | (59 | ) | (383 | ) | - | - | - | (383 | ) | |||||||||||||||||||||
Deferred stock compensation |
- | - | - | - | 383 | - | - | 383 | ||||||||||||||||||||||||
Stock compensation expense |
- | 505 | - | - | - | - | - | 505 | ||||||||||||||||||||||||
Stock options exercised, net |
11 | 53 | - | - | - | - | - | 53 | ||||||||||||||||||||||||
Dividends — $0.20 per share |
- | - | - | - | - | - | (1,340 | ) | (1,340 | ) | ||||||||||||||||||||||
Balance at September 30, 2020 |
26,579 | $ | 128,758 | (239 | ) | $ | (1,504 | ) | $ | 1,504 | $ | (48 | ) | $ | (1,270 | ) | $ | 127,440 |
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.
LSI INDUSTRIES INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended |
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September 30 |
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(In thousands) |
2020 |
2019 |
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Cash Flows from Operating Activities |
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Net income |
$ | 1,990 | $ | 4,475 | ||||
Non-cash items included in net income |
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Depreciation and amortization |
2,033 | 2,399 | ||||||
Deferred income taxes |
381 | 1,823 | ||||||
Deferred compensation plan |
412 | 43 | ||||||
Stock compensation expense |
505 | 398 | ||||||
Issuance of common shares as compensation |
75 | 75 | ||||||
Gain on disposition of fixed assets |
- | (4,752 | ) | |||||
Allowance for doubtful accounts |
(38 | ) | 140 | |||||
Inventory obsolescence reserve |
496 | 298 | ||||||
Changes in certain assets and liabilities |
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Accounts receivable |
(6,136 | ) | (3,854 | ) | ||||
Inventories |
926 | 136 | ||||||
Refundable income taxes |
(393 | ) | (3 | ) | ||||
Accounts payable |
5,912 | 4,611 | ||||||
Accrued expenses and other |
(521 | ) | 440 | |||||
Customer prepayments |
1,997 | 130 | ||||||
Net cash flows provided by operating activities |
7,639 | 6,359 | ||||||
Cash Flows from Investing Activities |
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Purchases of property, plant and equipment |
(405 | ) | (355 | ) | ||||
Proceeds from the sale of fixed assets |
- | 12,338 | ||||||
Net cash flows (used in) provided by investing activities |
(405 | ) | 11,983 | |||||
Cash Flows from Financing Activities |
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Payments of long-term debt |
- | (51,612 | ) | |||||
Borrowings of long-term debt |
- | 35,252 | ||||||
Cash dividends paid |
(1,321 | ) | (1,319 | ) | ||||
Shares withheld for employees' taxes |
(5 | ) | (50 | ) | ||||
Payments on financing lease obligations |
(58 | ) | - | |||||
Proceeds from stock option exercises |
53 | - | ||||||
Net cash flows used in financing activities |
(1,331 | ) | (17,729 | ) | ||||
Change related to foreign currency |
43 | - | ||||||
Increase in cash and cash equivalents |
5,946 | 613 | ||||||
Cash and cash equivalents at beginning of period |
3,517 | 966 | ||||||
Cash and cash equivalents at end of period |
$ | 9,463 | $ | 1,579 |
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, 2020, the results of its operations for the three month periods ended September 30, 2020 and 2019, and its cash flows for the three month periods ended September 30, 2020 and 2019. These statements should be read in conjunction with the financial statements and footnotes included in the fiscal 2020 Annual Report on Form 10-K. Financial information as of June 30, 2020 has been derived from the Company’s audited consolidated financial statements.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation:
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 2020 Annual Report on Form 10-K. Significant changes to our accounting policies as a result of adopting Accounting Standards Update (“ASU”) 2016-02 (“ASU 2016-02”), “Leases (Topic 842)” (ASC 842) in the first quarter of fiscal 2020 are discussed below.
Revenue Recognition:
The Company recognizes revenue when it satisfies the performance obligation 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 the terms with the customer. The Company offers standard warranties that do not represent separate performance obligations.
Installation is a separate performance obligation, except for the Company’s 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 Graphics and select Lighting products are highly customized for specific customers. As a result, these customized products do not have an alternative use. For these products, the Company 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 print graphics branding |
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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 for its Graphics and select Lighting products. 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 its revenue and cash flows. The table presents a reconciliation of the disaggregation by reportable segments.
Three Months Ended |
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(In thousands) |
September 30, 2020 |
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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 |
$ | 40,040 | $ | 14,454 | ||||
Products and services transferred over time |
5,365 | 10,147 | ||||||
$ | 45,405 | $ | 24,601 |
Three Months Ended |
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September 30, 2020 |
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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 solutions, electronic circuit boards |
$ | 37,869 | $ | 5,081 | ||||
Legacy products |
7,074 | 14,325 | ||||||
Turnkey services and other |
462 | 5,195 | ||||||
$ | 45,405 | $ | 24,601 |
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 project management and 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 has 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, 2019, the Company adopted ASU 2016-02 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. In addition, the Company elected accounting policies to not record short-term leases on the balance sheet and to not separate lease and non-lease components.
The Company’s most significant leases are those related to certain manufacturing facilities along with a small office space. Besides these real estate leases, most other leases are insignificant and consist of leases related to a vehicle, forklifts and various office equipment. The adoption of the new lease standard resulted in the recognition of right-of-use assets (ROU assets) of $10.4 million, lease liabilities of $10.8 million which includes the impact of existing deferred rents and tenant improvement allowances and a $0.4 million adjustment to retained earnings 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 the consolidated statements of operations or consolidated statements of cash flow.
On July 1, 2020, the Company adopted ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments" (ASC 326 or "CECL"), which amended the impairment model by requiring entities to use a forward-looking approach based on expected losses rather than incurred losses to estimate credit losses on certain types of financial instruments, including trade receivables. The adoption of ASU 2016-13 did not have a material impact on the consolidated financial statements and related disclosures.
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, parking lot and garage markets, automotive dealerships, quick-service restaurants, grocery and pharmacy stores, and retail/national accounts. The Company serves these 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 which are 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 and menu board systems that are either digital or print by design. These products are used in visual image programs in several markets including the petroleum / convenience store market, quick-service restaurant market, the grocery store and pharmacy markets, as well as customers with multi-site retail operations. 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 expenses, 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, 2020 and 2019. There was no concentration of accounts receivable at September 30, 2020 or June 30, 2020.
Summarized financial information for the Company’s operating segments is provided for the indicated periods and as of September 30, 2020 and September 30, 2019:
Three Months Ended |
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(In thousands) |
September 30 |
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2020 |
2019 |
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Net Sales: |
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Lighting Segment |
$ | 45,405 | $ | 63,191 | ||||
Graphics Segment |
24,601 | 25,510 | ||||||
$ | 70,006 | $ | 88,701 | |||||
Operating Income (Loss): |
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Lighting Segment |
$ | 3,588 | $ | 9,159 | ||||
Graphics Segment |
1,823 | 1,017 | ||||||
Corporate and Eliminations |
(3,209 | ) | (3,337 | ) | ||||
$ | 2,202 | $ | 6,839 | |||||
Capital Expenditures: |
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Lighting Segment |
$ | 369 | $ | 330 | ||||
Graphics Segment |
27 | - | ||||||
Corporate and Eliminations |
9 | 25 | ||||||
$ | 405 | $ | 355 | |||||
Depreciation and Amortization: |
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Lighting Segment |
$ | 1,619 | $ | 1,778 | ||||
Graphics Segment |
358 | 386 | ||||||
Corporate and Eliminations |
56 | 235 | ||||||
$ | 2,033 | $ | 2,399 |
September 30,
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June 30,
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Identifiable Assets: |
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Lighting Segment |
$ | 120,449 | $ | 118,819 | ||||
Graphics Segment |
35,882 | 35,021 | ||||||
Corporate and Eliminations |
25,464 | 18,423 | ||||||
$ | 181,795 | $ | 172,263 |
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 |
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(In thousands) |
September 30 |
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2020 |
2019 |
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Lighting Segment inter-segment net sales |
$ | 4,080 | $ | 811 | ||||
Graphics Segment inter-segment net sales |
$ | 38 | $ | 24 |
The Company’s operations are located solely within North America. As a result, the geographic distribution of the Company’s net sales and long-lived assets originate within North America.
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):
(a) |
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. |
(b) |
Anti-dilutive securities were excluded from the computation of diluted net income per share for the three months ended September 30, 2020 and September 30, 2019 because the exercise price was greater than the average fair market price of the common shares or because the assumed proceeds from the award’s exercise or vesting was greater than the average fair market price of the common shares. |
NOTE 5 - INVENTORIES
The following information is provided as of the dates indicated:
September 30, |
June 30, |
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(In thousands) |
2020 |
2020 |
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Inventories: |
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Raw materials |
$ | 26,335 | $ | 27,331 | ||||
Work-in-progress |
1,465 | 1,566 | ||||||
Finished goods |
9,551 | 9,855 | ||||||
Total Inventories |
$ | 37,351 | $ | 38,752 |
NOTE 6 - ACCRUED EXPENSES
The following information is provided as of the dates indicated:
September 30, |
June 30, |
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(In thousands) |
2020 |
2020 |
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Accrued Expenses: |
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Accrued warranty |
$ | 6,639 | $ | 6,956 | ||||
Compensation and benefits |
6,179 | 6,001 | ||||||
Customer prepayments |
3,699 | 1,698 | ||||||
Accrued sales commissions |
1,473 | 1,289 | ||||||
Operating lease liabilities |
292 | 376 | ||||||
Finance lease liabilities |
242 | 239 | ||||||
Other accrued expenses |
4,043 | 3,874 | ||||||
Total Accrued Expenses |
$ | 22,567 | $ | 20,433 |
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 as of September 30, 2020 and June 30, 2020:
Goodwill |
||||||||||||
(In thousands) |
Lighting |
Graphics |
||||||||||
Segment |
Segment |
Total |
||||||||||
Goodwill |
$ | 86,711 | $ | 28,690 | $ | 115,401 | ||||||
Accumulated impairment losses |
(77,503 | ) | (27,525 | ) | (105,028 | ) | ||||||
Goodwill, net |
$ | 9,208 | $ | 1,165 | $ | 10,373 |
The following table presents the gross carrying amount and accumulated amortization by each major asset class:
Other Intangible Assets |
September 30, 2020 |
|||||||||||
(In thousands) |
Gross |
|||||||||||
Carrying |
Accumulated |
Net |
||||||||||
Amount |
Amortization |
Amount |
||||||||||
Amortized Intangible Assets |
||||||||||||
Customer relationships |
$ | 35,563 | $ | 14,644 | $ | 20,919 | ||||||
Patents |
338 | 285 | 53 | |||||||||
LED technology firmware, software |
16,066 | 12,973 | 3,093 | |||||||||
Trade name |
2,658 | 856 | 1,802 | |||||||||
Total Amortized Intangible Assets |
54,625 | 28,758 | 25,867 | |||||||||
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 | $ | 28,758 | $ | 29,289 |
Other Intangible Assets |
June 30, 2020 |
|||||||||||
(In thousands) |
Gross |
|||||||||||
Carrying |
Accumulated |
Net |
||||||||||
Amount |
Amortization |
Amount |
||||||||||
Amortized Intangible Assets |
||||||||||||
Customer relationships |
$ | 35,563 | $ | 14,129 | $ | 21,434 | ||||||
Patents |
338 | 277 | 61 | |||||||||
LED technology firmware, software |
16,066 | 12,852 | 3,214 | |||||||||
Trade name |
2,658 | 829 | 1,829 | |||||||||
Total Amortized Intangible Assets |
54,625 | 28,087 | 26,538 | |||||||||
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 | $ | 28,087 | $ | 29,960 |
Three Months Ended |
||||||||
September 30 |
||||||||
(In thousands) |
2020 |
2019 |
||||||
Amortization Expense of Other Intangible Assets |
$ | 671 | $ | 675 |
The Company expects to record annual amortization expense as follows:
(In thousands) |
||||
2021 |
$ | 2,682 | ||
2022 |
$ | 2,461 | ||
2023 |
$ | 2,412 | ||
2024 |
$ | 2,412 | ||
2025 |
$ | 2,412 | ||
After 2025 |
$ | 14,159 |
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 125 basis points for the second quarter of fiscal 2021. The Company expects to seek additional provisions for alternative interest rates when certain interbank offered rates are no longer available. 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, 2020, there were no borrowings against the line of credit, and $75.0 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, 2020.
NOTE 9 - CASH DIVIDENDS
The Company paid cash dividends of $1.3 million in both the three months ended September 30, 2020 and September 30, 2019. Dividends on restricted stock units in the amount of $81,663 and $34,842 were accrued as of September 30, 2020 and 2019, respectively. These dividends will be paid upon the vesting of the restricted stock units when shares are issued to the award recipients. In October 2020, the Board of Directors declared a regular quarterly cash dividend of $0.05 per share payable November 17, 2020 to shareholders of record as of November 9, 2020. 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 (“2019 Omnibus Plan”). The purpose of the 2019 Omnibus 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. The number of shares that remain reserved for issuance under the 2019 Omnibus Plan is 2,922,194 as of September 30, 2020. The 2019 Omnibus 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 Plan allows for the grant of stock options, stock appreciation rights, restricted stock awards, restricted stock units (“RSUs”), performance stock units (“PSUs”) and other stock-based awards.
In the first quarter of fiscal 2021, the Company granted 318,406 non-qualified serviced-based and inducement stock options with an exercise price of $6.80 to $7.06, and 134,017 PSUs and 131,126 RSUs at a fair value of $6.80. Stock compensation expense was $0.5 million and $0.4 million for the three months ended September 30, 2020 and 2019, respectively.
NOTE 11 - SUPPLEMENTAL CASH FLOW INFORMATION
Three Months Ended |
||||||||
(In thousands) |
September 30 |
|||||||
2020 |
2019 |
|||||||
Cash Payments: |
||||||||
Interest |
$ | 24 | $ | 464 | ||||
Income taxes |
$ | 223 | $ | - | ||||
Non-cash investing and financing activities |
||||||||
Issuance of common shares as compensation |
$ | 75 | $ | 75 | ||||
Issuance of common shares to fund deferred compensation plan |
$ | 412 | $ | 33 |
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, 2020, there were no such standby letters of credit issued. In August 2020, the Company experienced a cybersecurity incident. There was minimal business interruption and immaterial net financial impact resulting from the incident. For details regarding this incident, see the risk factor on page 7 of the Company’s fiscal 2020 Annual Report on Form 10-K.
NOTE 13 – SEVERANCE COSTS
The activity in the Company’s accrued severance liability is as follows for the periods indicated:
Three Months |
Three Months |
Fiscal Year |
||||||||||
Ended |
Ended |
Ended |
||||||||||
September 30, |
September 30, |
June 30, |
||||||||||
(In thousands) |
2020 |
2019 |
2020 |
|||||||||
Balance at beginning of period |
$ | 639 | $ | 1,134 | $ | 1,134 | ||||||
Accrual of expense |
- | 18 | 344 | |||||||||
Payments |
(225 | ) | (162 | ) | (839 | ) | ||||||
Balance at end of period |
$ | 414 | $ | 990 | $ | 639 |
The $0.4 million severance reserve reported as of September 30, 2020 has been classified as a current liability and will be paid out over the next twelve months.
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 were $12.3 million resulting in a gain of $4.8 million. The Company also incurred additional restructuring costs totaling $0.2 million in the first quarter of fiscal 2020 related to the closure of the New Windsor facility, which impacted both the Lighting and Graphics segment.
The following table presents information about restructuring costs for the periods indicated:
Three Months Ended |
||||||||
September 30 |
||||||||
(In thousands) |
2020 |
2019 |
||||||
Exit costs |
$ | 3 | $ | 184 | ||||
Impairment of fixed assets and accelerated depreciation |
- | 49 | ||||||
Gain on sale of facility |
- | (4,821 | ) | |||||
Total |
$ | 3 | $ | (4,588 | ) |
The following table presents a roll forward of the beginning and ending liability balances related to the restructuring costs:
Balance as of |
Balance as of |
|||||||||||||||||||
June 30, |
Restructuring |
September 30, |
||||||||||||||||||
(In thousands) |
2020 |
Expense |
Payments |
Adjustments |
2020 |
|||||||||||||||
Severance and termination benefits |
$ | 27 | $ | - | $ | - | $ | - | $ | 27 | ||||||||||
Other restructuring costs |
- | 3 | (3 | ) | - | $ | - | |||||||||||||
Total |
$ | 27 | $ | 3 | $ | (3 | ) | $ | - | $ | 27 |
NOTE 15 - LEASES
The Company leases certain manufacturing facilities along with a small office space, a company vehicle, several forklifts, several small tooling items, and various items of office equipment. All but one of the Company’s leases are operating leases. Leases have a remaining term of one to five 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. The Company elected not to record these leases on the balance sheet. For the three months ended September 30, 2020 and 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 |
Three months ended |
|||||||
(In thousands) |
September 30, 2020 |
September 30, 2019 |
||||||
Operating lease cost |
$ | 573 | $ | 587 | ||||
Financing lease cost: |
||||||||
Amortization of right of use assets |
73 | - | ||||||
Interest on lease liabilities |
24 | - | ||||||
Variable lease cost |
1 | - | ||||||
Total lease cost |
$ | 671 | $ | 587 |
Supplemental Cash Flow Information: |
||||||||
Three months ended |
Three months ended |
|||||||
(In thousands) |
September 30, 2020 |
September 30, 2019 |
||||||
Cash flows from operating leases |
||||||||
Fixed payments - operating cash flows |
$ | 570 | $ | 573 | ||||
Liability reduction - operating cash flows |
$ | 461 | $ | 443 | ||||
Cash flows from finance leases |
||||||||
Interest - operating cash flows |
$ | 24 | $ | - | ||||
Repayments of principal portion - financing cash flows |
$ | 58 | $ | - |
Operating Leases: |
At September 30, 2020 |
At June 30, 2020 |
||||||
Total operating right-of-use assets |
$ | 8,195 | $ | 8,663 | ||||
Accrued expenses (Current liabilities) |
$ | 292 | $ | 376 | ||||
Long-term operating lease liability |
8,640 | 9,021 | ||||||
Total operating lease liabilities |
$ | 8,932 | $ | 9,397 | ||||
Weighted Average remaining Lease Term (in years) |
4.36 | 4.59 | ||||||
Weighted Average Discount Rate |
4.85 | % | 4.85 | % |
Finance Leases: |
At September 30, 2020 |
At June 30, 2020 |
||||||
Buildings under finance leases |
$ | 2,033 | $ | 2,033 | ||||
Accumulated depreciation |
(121 | ) | (48 | ) | ||||
Total finance lease assets, net |
$ | 1,912 | $ | 1,985 | ||||
Accrued expenses (Current liabilities) |
$ | 242 | $ | 239 | ||||
Long-term finance lease liability |
1,694 | 1,755 | ||||||
Total finance lease liabilities |
$ | 1,936 | $ | 1,994 | ||||
Weighted Average remaining Lease Term (in years) |
6.58 | 6.83 | ||||||
Weighted Average Discount Rate |
4.86 | % | 4.86 | % |
Maturities of Lease Liability: |
Operating Lease | Finance Lease | ||||||
Liabilities |
Liabilities |
|||||||
2021 |
$ | 1,864 | $ | 270 | ||||
2022 |
2,293 | 329 | ||||||
2023 |
2,241 | 329 | ||||||
2024 |
1,924 | 335 | ||||||
2025 |
1,345 | 362 | ||||||
Thereafter |
360 | 664 | ||||||
Total lease payments |
10,027 | 2,289 | ||||||
Less: Interest |
(1,095 | ) | (353 | ) | ||||
Present Value of Lease Liabilities |
$ | 8,932 | $ | 1,936 |
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.
The Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law in March 2020. The CARES Act allows the Company to carry back a federal net operating loss to prior tax years, offset taxable income in those earlier tax years, and obtain a refund of income taxes that were paid at a higher statutory tax rate. During the first quarter of fiscal 2021, the IRS issued Treasury Regulations resulting in an increase to the expected net operating loss that can be carried back and the Company recognized an additional tax benefit of $0.4 million.
In the first quarter of fiscal 2020, the Company sold its New Windsor facility resulting in a book gain of $4.8 million. The Company was able to utilize a deferred tax asset of $0.9 million related to the sale of the facility.
Three Months Ended |
||||||||
September 30 |
||||||||
2020 |
2019 |
|||||||
Reconciliation of effective tax rate: |
||||||||
Provision for income taxes at the anticipated annual tax rate |
23.9 |
% |
24.1 |
% |
||||
Uncertain tax positions |
1.0 | 0.5 | ||||||
Tax rate changes |
(15.7 | ) | - | |||||
Shared-based compensation |
2.4 | 4.3 | ||||||
Other |
- | 0.4 | ||||||
Effective tax rate |
11.6 |
% |
29.3 |
% |
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, 2020, and our financial statements and the accompanying Notes to Financial Statements (Part I, Item 1 of this Form 10-Q).
Our 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.
COVID-19 Pandemic
The COVID-19 pandemic will likely continue to impact business activity across industries in the U.S. and worldwide. We remain committed to taking actions to address the health, safety and welfare of our employees, customers, agents and suppliers. The potential for additional outbreaks of COVID-19 in the U.S. and globally and the actions taken by governmental authorities in response to future resurgence are highly uncertain and unpredictable. Future developments such as these will determine the extent to which COVID-19 continues to impact our results of operations and financial conditions. See the risk factor captioned “Our financial condition and results of operations for fiscal 2021 and future periods may be adversely affected by the recent novel coronavirus disease (“COVID-19”) outbreak or other outbreaks of infectious disease or similar public health threats and the resulting economic impact” in Item 1A, Risk Factors, included in Part I of our Annual Report on Form 10-K for the fiscal year ended June 30, 2020 for an additional discussion of risks related to COVID-19.
Net Sales by Business Segment |
||||||||
Three Months Ended |
||||||||
September 30 |
||||||||
(In thousands) |
2020 |
2019 |
||||||
Lighting Segment |
$ | 45,405 | $ | 63,191 | ||||
Graphics Segment |
24,601 | 25,510 | ||||||
$ | 70,006 | $ | 88,701 |
Summary of Consolidated Results
Net sales of $70.0 million for the three months ended September 30, 2020 decreased $18.7 million or 21% as compared to net sales of $88.7 million for the three months ended September 30, 2019. Net sales were unfavorably influenced by decreased net sales of the Lighting Segment (a decrease of $17.8 million or 28%) and decreased net sales of the Graphics Segment (a decrease of $0.9 million or 4%).
Operating income of $2.2 million for the three months ended September 30, 2020 represents a $4.6 million decrease from operating income of $6.8 million in the three months ended September 30, 2019. The $4.6 million decrease from fiscal 2020 was impacted by the sale of the New Windsor, New York facility in the first quarter of fiscal 2020 which favorably resulted in a pre-tax gain of $4.8 million. When the impact of the sale of the New Windsor facility, other restructuring and plant closure costs and stock compensation expense are removed from the operating results, adjusted operating income, a Non-GAAP measure, was $2.7 million in the three months ended September 30, 2020 compared to $2.6 million in the three months ended September 30, 2019. Refer to “Non-GAAP Financial Measures” below.
We continue to maintain a strong balance sheet with a cash balance of $9.5 million and no long-term debt as of September 30, 2020. We believe that our liquidity position is adequate to meet our projected needs in the reasonably foreseeable future.
Non-GAAP Financial Measures
We believe it is appropriate to evaluate our 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 (gains) and stock compensation expense are Non-GAAP financial measures. Also included below are Non-GAAP financial measures including Earnings before Interest, Taxes, Depreciation and Amortization (EBITDA and Adjusted EBITDA), Free Cash Flow and Net Debt. 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. Although the impacts of some of these items have been recognized in prior periods and could recur in future periods, we exclude these items because they provide greater comparability and enhanced visibility into our results of operations. Below is a reconciliation of these Non-GAAP measures to operating income, net income, and earnings per share for the periods indicated along with the calculation of EBITDA and Adjusted EBITDA, Free Cash Flow and Net Debt.
Reconciliation of net income to adjusted net income |
||||||||||||||||||
Three Months Ended |
||||||||||||||||||
September 30 |
||||||||||||||||||
(In thousands, except per share data) |
2020 |
2019 |
||||||||||||||||
Diluted EPS |
Diluted EPS |
|||||||||||||||||
Net Income as reported |
$ | 1,990 | $ | 0.07 | $ | 4,475 | $ | 0.17 | ||||||||||
Restructuring and plant closure costs (gains) |
2 | (1) | - | (3,446 | ) | (3) | (0.13 | ) | ||||||||||
Stock compensation expense |
380 | (2) | 0.01 | 299 | (4) | 0.01 | ||||||||||||
Tax impact due to the change in the estimated annual tax rate used for GAAP reporting purposes |
(297 | ) | (0.01 | ) | 275 | 0.01 | ||||||||||||
Net Income adjusted |
$ | 2,075 | $ | 0.08 | $ | 1,603 | $ | 0.06 |
The following represents the income tax effects of the adjustments in the tables above, which were calculated using the estimated combined U.S. and Mexico effective income tax rates for the periods indicated (in thousands):
(1) $1
(2) $125
(3) ($1,142)
(4) $99
The reconciliation of reported net income and earnings per share to adjusted net income and earnings per share may not agree due to rounding differences and due to the difference between basic and dilutive weighted average shares outstanding in the computation of earnings per share.
Reconciliation of operating income to EBITDA and Adjusted EBITDA |
||||||||
Three Months Ended |
||||||||
September 30 |
||||||||
(In thousands) |
2020 |
2019 |
||||||
Operating Income as reported |
$ | 2,202 | $ | 6,839 | ||||
Depreciation and Amortization |
2,033 | 2,399 | ||||||
EBITDA |
$ | 4,235 | $ | 9,238 | ||||
Restructuring and plant closure costs (gains) |
3 | (4,588 | ) | |||||
Stock compensation expense |
505 | 398 | ||||||
Adjusted EBITDA |
$ | 4,743 | $ | 5,048 |
Reconciliation of Net Debt |
||||||||
September 30, |
June 30, |
|||||||
(In thousands) |
2020 |
2020 |
||||||
Long-Term Debt as reported |
$ | - | $ | - | ||||
Less: |
||||||||
Cash and cash equivalents as reported |
9,463 | 3,517 | ||||||
Net Debt |
$ | (9,463 | ) | $ | (3,517 | ) |
Results of Operations
THREE MONTHS ENDED SEPTEMBER 30, 2020 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2019
Lighting Segment |
||||||||
Three Months Ended |
||||||||
September 30 |
||||||||
(In thousands) |
2020 |
2019 |
||||||
Net Sales |
$ | 45,405 | $ | 63,191 | ||||
Gross Profit |
$ | 13,826 | $ | 17,219 | ||||
Operating Income |
$ | 3,588 | $ | 9,159 |
Lighting Segment net sales of $45.4 million in the three months ended September 30, 2020 decreased 28% from net sales of $63.2 million in the same period in fiscal 2020. The drop in sales is attributed to the impact of COVID-19 disruptions on construction markets in the fourth quarter of fiscal 2020 and the subsequent lower backlog entering the first quarter of fiscal 2021.
Gross profit of $13.8 million in the three months ended September 30, 2020 decreased $3.4 million or 20% from the same period of fiscal 2020 and increased from 26.9% to 27.9% as a percentage of Lighting Segment net sales (customer plus inter-segment net sales). The growth in gross profit as a percentage of net sales reflects the ongoing impact of our focus on higher-value market applications, the successful introduction of new products, cost savings from the closure of the New Windsor facility and product design cost reductions.
Selling and administrative expenses of $10.2 million in the three months ended September 30, 2020 increased $2.2 million from the same period of fiscal 2020 primarily due to the $4.8 million gain on the sale of the New Windsor facility in the first quarter of fiscal 2020. When the $4.8 million gain is removed from fiscal 2020 results, there was a $2.7 million decrease in selling and administrative expenses. The decrease in selling and administrative expenses is mostly driven by lower commission expense as a result of lower sales and a conscientious effort to reduce spending as a result of the pandemic.
Lighting Segment operating income of $3.6 million for the three months ended September 30, 2020 decreased $5.6 million from operating income of $9.2 million in the same period of fiscal 2020 primarily due to the $4.8 million pre-tax gain on the sale of the New Windsor facility in fiscal 2020.
Graphics Segment |
||||||||
Three Months Ended |
||||||||
September 30 |
||||||||
(In thousands) |
2020 |
2019 |
||||||
Net Sales |
$ | 24,601 | $ | 25,510 | ||||
Gross Profit |
$ | 4,442 | $ | 4,626 | ||||
Operating Income |
$ | 1,823 | $ | 1,017 |
Graphics Segment net sales of $24.6 million in the three months ended September 30, 2020 decreased $0.9 million or 4% from net sales of $25.5 million in the same period in fiscal 2020. The decrease in sales is from a reduction in the Petroleum market vertical partially offset by growth in the Other Retail and Digital market verticals. The pandemic continued to impact Graphics in the first quarter, resulting in a number of project installation delays.
Gross profit of $4.4 million in the three months ended September 30, 2020 decreased $0.2 million or 4% from the same period of fiscal 2020. Gross profit as a percentage of Graphic Segment net sales (customer plus inter-segment sales) was consistent from the prior year first quarter.
Selling and administrative expenses of $2.6 million decreased $1.0 million from $3.6 million in the same period of fiscal 2020. The decrease in selling and administrative expenses was due to lower operating costs as a result of an organizational realignment executed in the second half of fiscal 2020 and a conscientious effort to reduce spending as a result of the pandemic.
Graphics Segment operating income of $1.8 million in the three months ended September 30, 2020 increased $0.8 million from operating income of $1.0 million in the same period of fiscal 2020. The increase of $0.8 million was primarily due to lower operating expenses.
Corporate and Eliminations |
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Three Months Ended |
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September 30 |
||||||||
(In thousands) |
2020 |
2019 |
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Gross Profit |
$ | 4 | $ | 10 | ||||
Operating (Loss) |
$ | (3,209 | ) | $ | (3,337 | ) |
The gross profit relates to the change in the intercompany profit in inventory elimination.
Administrative expenses of $3.2 million in the three months ended September 30, 2020 decreased $0.1 million or 4% from the same period of fiscal 2020. The net decrease was the result of conscientious efforts to contain and reduce costs during the pandemic.
Consolidated Results
We reported $0.1 million net interest expense in the three months ended September 30, 2020 compared to $0.4 million net interest expense in the three months ended September 30, 2019. The decrease in interest expense from fiscal 2020 to fiscal 2021 is the result of lower levels of debt outstanding on our line of credit. We also recorded other income of $0.1 million in the three months ended September 30, 2020 compared to other expense of $0.1 million in the three months ended September 30, 2019, both of which are related to net foreign exchange currency transaction gains and losses through our Mexican subsidiary.
The $0.3 million income tax expense in the three months ended September 30, 2020 represents a consolidated effective tax rate of 11.6% and was driven by a favorable deferred tax asset adjustment related to a net operating loss carryback from the CARES Act. The $1.8 million income tax expense in the three months ended September 30, 2019 represents a consolidated effective tax rate of 29.3%, influenced mostly by the gain on the sale of the New Windsor facility and by certain permanent book-tax differences and by an expense related to uncertain income tax positions.
We reported net income of $2.0 million in the three months ended September 30, 2020 compared to net income of $4.5 million in the three months ended September 30, 2019. The decrease in net income is primarily driven by the $4.8 million gain on the sale of the New Windsor facility in the first quarter of fiscal 2020. When the impact of all Non-GAAP items is removed from both fiscal years, Non-GAAP adjusted net income was $2.1 million for the three months ended September 30, 2020 compared to adjusted net income of $1.6 million for the three months ended September 30, 2019 (Refer to the Non-GAAP tables above). The increase in Non-GAAP adjusted net income is primarily the net result of an improved gross profit margin, decreased interest expense, a lower effective tax rate and foreign exchange currency transaction gains, partially offset by decreased net sales. Diluted earnings per share of $0.07 was reported in the three months ended September 30, 2020 as compared to $0.17 diluted earnings per share in the same period of fiscal 2020. The weighted average common shares outstanding for purposes of computing diluted earnings per share in the three months ended September 30, 2020 were 26,968,000 shares as compared to 26,293,000 shares in the same period last year.
Liquidity and Capital Resources
We consider our level of cash on hand, borrowing capacity, current ratio and working capital levels to be our most important measures of short-term liquidity. For long-term liquidity indicators, we believe our ratio of long-term debt to equity and our historical levels of net cash flows from operating activities to be the most important measures.
At September 30, 2020, we had working capital of $55.1 million compared to $51.2 million at June 30, 2020. The ratio of current assets to current liabilities was 2.29 to 1 as compared to a ratio of 2.48 to 1 at June 30, 2020. The $3.9 million increase in working capital from June 30, 2020 to September 30, 2020 is primarily driven by a $6.3 million increase in in accounts receivable, a $5.9 million increase in cash, a $6.1 million increase in accounts payable, a $2.1 million increase in accrued expenses, a $1.2 million increase in other assets and a $1.4 million decrease in inventory.
We generated $7.6 million of cash from operating activities in the three months ended September 30, 2020 as compared to $6.4 million in the same period of fiscal 2020. This $1.2 million increase in net cash flows from operating activities is the result of our improved earnings as well as our ongoing strategy to aggressively manage our working capital which includes the reduction of accounts receivable days sales outstanding (DSO), while simultaneously managing our inventory levels for an anticipated slow but steady market recovery and also to support several new product launches.
Net accounts receivable were $44.1 million and $37.8 million at September 30, 2020 and June 30, 2020, respectively. DSO decreased to 54 days at September 30, 2020 from 56 days at June 30, 2020. We believe that our receivables are ultimately collectible or recoverable, net of certain reserves, and that aggregate allowances for doubtful accounts are adequate.
Net inventories of $37.4 million at September 30, 2020 decreased $1.4 million from $38.8 million at June 30, 2020. The decrease of $1.4 million is the result of a decrease in gross inventory of $1.1 million and an increase in obsolescence reserves of $0.3 million. Based on a strategy of balancing inventory reductions with customer service and the timing of shipments, net inventory decreased $1.7 million in the three months ended September 30, 2020 in the Lighting Segment which was partially offset by an increase in net inventory in the Graphics Segment of $0.1 million.
Cash generated from operations and borrowing capacity under our line of credit is our primary source of liquidity. We have a secured $75 million revolving line of credit with our bank, with $75 million of the credit line available as of October 15, 2020. This line of credit is a $75 million five-year credit line expiring in the third quarter of fiscal 2022. We are in compliance with all of our loan covenants. We believe that our $75 million line of credit plus cash flows from operating activities are adequate for fiscal 2021 operational and capital expenditure needs. However, as the impact of COVID-19 on the economy and our operations evolves, we will continue to assess our liquidity needs.
We used $0.4 million of cash related to investing activities in the three months ended September 30, 2020 as compared to $12.0 million of cash provided by investing activities in the same period of fiscal 2020, resulting in a decrease of $12.4 million. Capital expenditures was consistent in the three months ended September 30, 2020 and 2019. We sold our New Windsor manufacturing facility for $12.3 million in the first quarter of fiscal 2020, which was the primary contributing factor to the decrease in cash flow from investing activities from fiscal 2020 to fiscal 2021.
We used $1.3 million of cash related to financing activities in the three months ended September 30, 2020 compared to $17.7 million in the three months ended September 30, 2019. The $16.4 million change in cash flow was primarily the net result of payments of long-term debt in excess of borrowings which was primarily driven by cash flow from operations.
We have on our 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
We have no financial instruments with off-balance sheet risk and have no off-balance sheet arrangements.
Cash Dividends
In October 2020, the Board of Directors declared a regular quarterly cash dividend of $0.05 per share payable November 17, 2020 to shareholders of record as of November 9, 2020. The indicated annual cash dividend rate for fiscal 2021 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 our significant accounting policies is included in Note 1 to the audited consolidated financial statements of the Company’s fiscal 2020 Annual Report on Form 10-K.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Except for the broad effects of the COVID-19 pandemic as a result of its negative impact on the global economy and major financial markets, there have been no material changes in our exposure to market risk since June 30, 2020. Additional information can be found in Item 7A, Quantitative and Qualitative Disclosures About Market Risk, which appears on page 12 of the Annual Report on Form 10-K for the fiscal year ended June 30, 2020.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
We maintain 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 Exchange Act. Based upon our evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2020, 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
There have been no changes in our 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, 2020, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Effective September 28, 2020, the Compensation Committee of the Board of Directors granted inducement awards of stock options in accordance with NASDAQ Listing Rule 5635(c)(4) to Pablo Leguina, Senior Vice President - Sales. Mr. Leguina was granted an inducement stock option to purchase up to 75,000 shares of the Company’s common stock. The award was approved in connection with the commencement of his employment with the Company and has a ten-year term. The option is exercisable at a price of $7.06 per share (the closing price on September 28, 2020). Two-thirds of the options will vest on the second anniversary date of grant; the remaining shares will vest on the third anniversary date of grant. The grant of such awards is exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, as amended and/or Rule 701 promulgated pursuant to the Securities Act of 1933, as amended.
ITEM 6. EXHIBITS
Exhibits:
10.1 |
10.2 |
10.3 |
Form of 2019 Omnibus Award Plan Non-Qualified Stock Option Award Agreement* |
10.4 |
Form of 2019 Omnibus Award Plan Restricted Stock Unit Award Agreement* |
10.5 |
Form of 2019 Omnibus Award Plan Performance Stock Unit Award Agreement*++ |
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 Inline XBRL Instance Document
101.SCH Inline XBRL Taxonomy Extension Schema Document
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document
104 |
Cover Page Interactive Data File (formatted as Inline XBRL with applicable taxonomy extension information contained in Exhibits 101) |
* 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 5, 2020 |
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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 FY21
LONG-TERM INCENTIVE PLAN
Effective: August 19, 2020
LSI INDUSTRIES INC.
FY21 LONG-TERM INCENTIVE PLAN
Effective: August 19, 2020
The LSI Industries Inc. (Company) 2019 Omnibus Plan authorizes the Compensation Committee of the Board of Directors (Compensation Committee) to issue share-based incentive awards to Company Executives. The Fiscal Year 2020 Long Term Incentive Plan (LTIP) 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 19, 2020 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, 2023 (FY23). The LTIP sets for a threshold (or minimum), target and maximum goals to be achieved in FY23 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 FY23 if the FY23 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. Attached as Exhibit “3” is the LTIP Payout Matrix. Below is a summary of the Matrix:
Payout % |
2023 RONA |
2023 EBITDA Cumulative $ (000s) |
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Threshold |
[***] |
[***] |
[***] |
Target |
[***] |
[***] |
[***] |
Maximum |
[***] |
[***] |
[***] |
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 “4” hereto.
3. |
Restricted Stock Units. The Company may grant restricted stock units (RSUs) to the Employees. RSUs are time based and vest 50% one-year after the anniversary date of the grant and 25% on each of the next two anniversary dates. The form of RSU Award Agreement is set forth as Exhibit “5” 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 FY21 LTIP are set forth in the Compensation Committee resolution whereby this FY21 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 FY21 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. |
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, 2020 and ending June 30, 2023. The Company’s Adjusted EBITDA will be as reported in the Company’s Annual Report on Form 10-K for FY23 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 2019 Omnibus 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. |
In 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 2019 Omnibus Plan. |
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 2021
SHORT TERM INCENTIVE PLAN
Effective : August 19, 2020
LSI INDUSTRIES INC.
FISCAL YEAR 2021
SHORT TERM INCENTIVE PLAN
Effective August 19, 2020
The Fiscal Year 2021 Short Term Incentive Plan (STIP) is designed to motivate employees to achieve the LSI Industries Inc. (Company) fiscal year 2021 (FY21) 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 FY21 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.
a. |
Bonus Potential. The bonus potential is a percentage payout based on the Company’s attainment of the FY21 financial metrics for Adjusted EBITDA and Net Sales. The STIP sets for a Threshold (or minimum), Target and Maximum goals to be achieved in FY21 for each metric. If the threshold amount is not achieved for any performance metric, there shall be no payout under such metric. The payout matrix is attached as EXHIBIT “1” hereto. Below is a summary: |
1.1 |
Adjusted EBITDA Component |
Threshold: |
[***] |
Target: |
[***] |
Maximum: |
[***] |
1.2 |
Net Sales Component |
Threshold: |
[***] |
Target: |
[***] |
Maximum: |
[***] |
b. |
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. |
c. |
Payout Potential by Employee. The Compensation Committee has assigned each a STIP Target percentage of Base Salary. The Target Assignment is set forth on Exhibit “2” hereto. 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 is paid at [***] of Target and the Maximum is paid at [***] of Target.
The actual LTIP award payout will be interpolated between the percentages set forth 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 [***].
d. |
Retention of Discretion. The Compensation Committee maintains the discretion to award additional bonuses. |
e. |
Examples. Examples of the manner in which the payout shall be calculated under the FY21 STIP are set forth on the attached Exhibit “3”. |
f. |
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 FY21 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 62 and at least 5 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 FY21 shall be used to calculate the incentive amount that may be awarded under the STIP. |
EXHIBIT “1”- STIP PAYOUT MATRIX
[***]
EXHIBIT “3”- EXAMPLES
[***]
EXAMPLE 1
[***]
EXAMPLE 2
[***]
EXAMPLE 3
[***]
Exhibit 10.3
LSI INDUSTRIES INC. 2019 OMNIBUS AWARD PLAN
NON-QUALIFIED STOCK OPTION GRANT AGREEMENT
LSI INDUSTRIES INC. (the “Company”) hereby irrevocably grants you (the “Participant”), on _________, 2020 (the “Grant Date”) the right and option to purchase __________ shares of the Company’s common stock, no par value per share (“Common Stock”), subject to the restrictions, terms and conditions herein.
WHEREAS, the Compensation Committee (the “Committee”) of the Board of Directors of the Company (the “Board”) has determined that it would be in the best interests of the Company and its stockholders to grant the award of options provided for herein to the Participant, on the terms and conditions described in this Stock Option Grant Agreement (the “Agreement”); and
WHEREAS, the Company intends that the award of options provided for herein shall be governed by the terms and conditions of this Agreement and the Company’s 2019 Omnibus Award Plan (the “Plan”).
NOW, THEREFORE, for and in consideration of the promises and the covenants of the parties contained in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto, for themselves, and their permitted successors and assigns, hereby agree as follows:
1. |
Terms and Conditions. |
a. |
Vesting. The option herein granted shall become exercisable in whole or in part as follows: |
i. Exercisable as to 33% of the shares (rounded down to the nearest whole share) on the first anniversary of the Grant Date;
ii. Exercisable as to an additional 33% of the shares (rounded down to the nearest whole share) on the second anniversary of the Grant Date;
iii. Exercisable in its entirety on and after the third anniversary of the Grant Date;
iv. Exercisable in its entirety (x) upon the death of the Participant while the Participant is employed by the Company or (y) in the event of Disability (as defined in the Plan) of the Participant while the Participant is employed by the Company;
iv. If the Participant retires from the Company at any time following the first anniversary of this Agreement and at such time satisfies the Normal Retirement Criteria (defined below), the option herein granted shall continue to become exercisable as set forth in clauses (ii) through (iii) of this Section 1(a). The Normal Retirement Criteria will be satisfied if the Participant shall (x) retire (and satisfy the Company’s criteria for retirement at such time) from the Company, (y) be at least 55 years of age at the time of such retirement, and (z) have at least ten credited years of service with the Company or its subsidiaries at the time of such retirement;
v. If at the time of retirement the Participant satisfies the Normal Retirement Criteria and subsequently dies or becomes Disabled before the Participant’s option herein granted becomes exercisable in its entirety as set forth in clause (iii) of this Section 1(a), the option herein granted shall become exercisable as set forth in clause (iv) of this Section 1(a);
vi. Notwithstanding anything to the contrary in Section 1(a)(iv), in the event of a Change in Control (as defined in the Plan), unless the successor company, or a parent of the successor company in the Change in Control agrees to assume, replace, or substitute the option granted hereunder (as of the consummation of such Change in Control) with an option on substantially identical terms, as determined by the Committee, if the Participant’s employment with the Company or its Affiliates (or any successor thereto) is terminated within [twenty-four(24) months for Clark Galeese and Caneris/twelve (12) months for others] following a Change in Control either (x) by the Company or its Affiliates (or any successor thereto) without Cause (as defined in the Plan) or (y) by the Participant with Good Reason, the option granted hereunder shall become exercisable in its entirety as of the date of such termination. As used herein, “Good Reason” shall mean the occurrence of any of the following: (i) a material diminution in the Participant’s authority, duties or responsibilities or change in title or change in reporting relationship; (ii) a material diminution in the Participant’s annual base salary as in effect on the date of this Agreement or as the same may be increased from time to time; (iii) a material diminution in the budget over which the Participant retains authority; (iv) the Company fails to pay or provide any amount or benefit that the Company is obligated to pay or provide under this Agreement or any other employment, compensation, benefit or reimbursement plan, agreement or arrangement of the Company to which the Participant is a party or in which the Participant participates; (v) the relocation of the Participant’s principal place of employment to a location which increases the Participant’s one−way commuting distance by more than 50 miles, or the Company’s requiring the Participant to travel on business other than to an extent substantially consistent with the Participant’s business travel obligations prior to the Change in Control; (vi) a significant adverse change occurs, whether of a quantitative or qualitative nature, in the indemnification protection provided to the Participant for acts and omissions arising out of his service on behalf of the Company or any other entity at the request of the Company; or (vii) the Company fails to obtain the assumption of this Agreement pursuant to this Section. If the Participant does not terminate his employment within 60 days after the first occurrence of the circumstances giving rise to Good Reason, then the Participant will be deemed to have waived such right to terminate for Good Reason with respect to such circumstances.
b. |
Forfeiture. The unexercised portion of the option herein granted, to the extent the option is vested, shall automatically and without notice terminate and become null and void at the time of the earliest of the following to occur: |
i. |
the expiration of ten years from the date on which the option was granted; |
ii. |
the expiration of 90 days from the date of termination of the Participant’s employment from the Company in the event such termination of employment does not result from the Participant’s death or Disability (including, without limitation, Company’s termination of Participant’s employment without Cause or Participant’s termination of employment for Good Reason); |
iii. |
twelve months after the date of the Participant’s Disability when such Disability occurs while the Participant is employed by the Company; |
iv. |
twelve months after death of the Participant when the Participant dies while employed by the Company; and |
v. |
Participant’s termination of employment with the Company for Cause. |
c. |
Notwithstanding the foregoing, in the event that any unexercised portion of the option herein granted would terminate and become null and void in accordance with Section 1(b)and the Fair Market Value of the unexercised portion of the option herein granted exceeds the full price for each of the shares purchased pursuant to such option, the then vested portion of the option herein granted shall be deemed to be automatically exercised by the Participant on such last trading day by means of a net exercise without any action by the Participant. Upon such automatic exercise, the Company shall deliver to the Participant the number of shares of Common Stock for which the option was deemed exercised less the number of shares of Common Stock having a Fair Market Value, as of such date, sufficient to (1) pay the full price for each of the shares of Common Stock purchased pursuant to the option herein granted and (2) satisfy all applicable required tax withholding obligations. Any fractional share shall be settled in cash. For the avoidance of doubt, and notwithstanding any provision (or interpretation) of Section 1(b) to the contrary, the unexercised portion of the option herein granted shall automatically and without notice terminate and become null and void upon the expiration of ten years from the date of this Agreement. |
d. |
The full price for each of the shares purchased pursuant to the option herein granted shall be $______ per share. |
e. |
Full payment for shares purchased by the Participant shall be made at the time of the exercise of the option in whole or in part. No shares shall be issued until full payment therefore has been made, and the Participant shall have none of the rights of a shareholder with respect to any shares subject to this option until such shares shall have been issued. |
f. |
No option granted hereunder may be assigned, alienated, pledged, attached, sold, or otherwise transferred or encumbered by the Participant other than by will or by the laws of descent and distribution and any such purported assignment, alienation, pledge, attachment, sale, transfer, or encumbrance shall be void and unenforceable against the Company or any Affiliate. |
g. |
In the event of one or more stock splits, stock dividends, stock changes, reclassifications, recapitalizations, or combinations of shares prior to complete exercise of the option herein granted which change the character or amount of the shares subject to the option, this option to the extent that it shall not have been exercised, shall entitle the Participant or the Participant’s executors or administrators to receive in substitution such number and kind of shares as he, she or they would have been entitled to receive if the Participant or the Participant’s executors or administrators had actually owned the shares subject to this option at the time of the occurrence of such change; provided, however, that if the change is of such nature that the Participant or the Participant’s executors or administrators, upon exercise of the option, would receive property other than shares of stock, then the Board shall adjust the option so that he, she or they shall acquire only shares of stock upon exercise, making such adjustment in the number and kind of shares to be received as the Board shall, in its sole judgment, deem equitable; provided, further, that the foregoing shall not limit the Company’s ability to otherwise adjust the option in a manner consistent with Section 12 of the Plan. |
2. |
Restrictive Covenant; Clawback; Incorporation by Reference. |
a. |
Restrictive Covenant. The option granted hereunder is conditioned upon the Participant’s agreement to this Agreement and compliance with the Restrictive Covenant and Confidentiality Agreement executed by the Participant. |
b. |
Clawback. Notwithstanding anything to the contrary contained herein, the option granted hereunder may be terminated and become null and void without consideration if the Participant, as determined by the Committee in its sole discretion (i) engages in an activity that is in conflict with or adverse to the interests of the Company or any Affiliate, including but not limited to fraud or conduct contributing to any financial restatements or irregularities, or (ii) without the consent of the Company, while employed by or providing services to the Company or any Affiliate or after termination of such employment or service, violates a non-competition, non-solicitation or non-disclosure covenant or agreement (including, as applicable, the Restrictive Covenant and Confidentiality Agreement executed by the Participant) between the Participant and the Company or any Affiliate. If the Participant engages in any activity referred to in the preceding sentence, the Participant shall, at the sole discretion of the Committee, forfeit any gain realized in respect of the option granted hereunder (which gain shall be deemed to be an amount equal to the difference between the price for shares set forth in Section 1(d) above and the Fair Market Value (as defined in the Plan), on the applicable exercise date, of the shares of Common Stock for which the option was exercised), and repay such gain to the Company. |
c. |
Incorporation by Reference. The provisions of the Plan are hereby incorporated herein by reference. Except as otherwise expressly set forth herein, this Agreement shall be construed in accordance with the provisions of the Plan and any capitalized terms not otherwise defined in this Agreement shall have the definitions set forth in the Plan. In the event that any provision of this Agreement is inconsistent with the terms of the Plan, the terms of this Agreement will control. The Committee acting pursuant to the Plan, as constituted from time to time, shall, except as expressly provided otherwise herein, have the right to determine any questions which arise in connection with the grant of the option described herein. |
3. |
Compliance with Legal Requirements. The granting and delivery of the option granted hereunder, and any other obligations of the Company under this Agreement, shall be subject to all applicable federal, state, local, and foreign laws, rules, and regulations and to such approvals by any regulatory or governmental agency as may be required. |
4. |
Transferability. The option granted hereunder may not be assigned, alienated, pledged, attached, sold, or otherwise transferred or encumbered by the Participant other than by will or by the laws of descent and distribution and any such purported assignment, alienation, pledge, attachment, sale, transfer, or encumbrance shall be void and unenforceable against the Company or any Affiliate. |
5. |
Miscellaneous. |
a. |
Waiver. Any right of the Company contained in this Agreement may be waived in writing by the Committee. No waiver of any right hereunder by any party shall operate as a waiver of any other right, or as a waiver of the same right with respect to any subsequent occasion for its exercise, or as a waiver of any right to damages. No waiver by any party of any breach of this Agreement shall be held to constitute a waiver of any other breach or a waiver of the continuation of the same breach. |
b. |
Severability. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, and each other provision of this Agreement shall be severable and enforceable to the extent permitted by law. |
c. |
No Right to Employment. Nothing contained in this Agreement shall be construed as giving the Participant any right to be retained, in any position, as an employee, consultant, or director of the Company or its Affiliates or shall interfere with or restrict in any way the right of the Company or its Affiliates, which are hereby expressly reserved, to remove, terminate or discharge the Participant with or without cause at any time for any reason whatsoever. Although over the course of employment terms and conditions of employment may change, the at-will term of employment of the Participant will not change. |
d. |
Successors. The terms of this Agreement shall be binding upon and inure to the benefit of the Company, its successors and assigns, the Participant and the beneficiaries, executors, administrators, heirs and successors of the Participant. |
e. |
Entire Agreement. This Agreement, the Plan and, if applicable, the Restrictive Covenant and Confidentiality Agreement contain the entire agreement and understanding of the parties hereto with respect to the subject matter contained herein and supersede all prior communications, representations and negotiations in respect thereto; provided, however, the Participant understands that the Participant may have an existing agreement(s) with the Company, through prior awards, acquisition of a prior employer or otherwise, that may include the same or similar covenants as those in the Restrictive Covenant and Confidentiality Agreement referenced above, and acknowledges that the Restrictive Covenant and Confidentiality Agreement is meant to supplement any such agreement(s) such that the covenants in the agreements that provide the Company with the greatest protection enforceable under applicable law shall control, and that the parties do not intend to create any ambiguity or conflict through the execution of the Restrictive Covenant and Confidentiality Agreement that would release the Participant from the obligations the Participant has assumed under the restrictive covenants in any of these agreements. No change, modification or waiver of any provision of this Agreement shall be valid unless the same be in writing and signed by the parties hereto, except for any changes permitted without consent of the Participant under the Plan. |
f. |
Governing Law. This Agreement shall be construed and interpreted in accordance with the laws of the State of Ohio without regard to principles of conflicts of law thereof, or principles of conflicts of laws of any other jurisdiction which could cause the application of the laws of any jurisdiction other than the State of Ohio. Each of the Company and the Participant submits to the exclusive jurisdiction (both personal and subject matter) of (i) the United States District Court for the Southern District of Ohio sitting in Cincinnati, Ohio and its appellate courts, and (ii) any court of the State of Ohio sitting in Cincinnati, Ohio and its appellate courts, for the purposes of all legal actions and proceedings arising out of or related to this Agreement. |
g. |
Headings. The headings of the Sections hereof are provided for convenience only and are not to serve as a basis for interpretation or construction and shall not constitute a part of this Agreement. |
By accepting this Agreement through the online acceptance tool on ________________ website, the Participant agrees to all of the terms and conditions in this Agreement and the Plan and consents to the electronic delivery of any documents that the Company elects to deliver in connection with this Agreement.
LSI INDUSTRIES INC. | |||
By: | |||
Name: |
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Title: |
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PARTICIPANT | |||
Name: |
Exhibit 10.4
FY21 Grant Under The
LSI INDUSTRIES INC. 2019 OMNIBUS AWARD PLAN
RESTRICTED STOCK UNIT AWARD AGREEMENT
LSI INDUSTRIES INC. (the “Company”), pursuant to the 2019 Omnibus Award Plan, as amended from time to time (the “Plan”), hereby irrevocably grants you (the “Participant”), on _________, 2020 (the “Grant Date”) a forfeitable Restricted Stock Unit Award (the “Restricted Unit Award”) representing the right to receive shares of Company common stock, no par value per share (“Common Stock”), subject to the restrictions, terms and conditions herein.
WHEREAS, the Compensation Committee (the “Committee”) of the Board of Directors of the Company (the “Board”) has determined that it would be in the best interests of the Company and its shareholders to grant the award provided for herein to the Participant, on the terms and conditions described in this Restricted Stock Unit Award Agreement (the “Agreement”).
NOW, THEREFORE, for and in consideration of the promises and the covenants of the parties contained in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto, for themselves, and their permitted successors and assigns, hereby agree as follows:
1. Terms and Conditions.
a. Grant; Vesting. Subject to and upon the terms, conditions, and restrictions set forth in this Agreement and in the Plan, the Company hereby grants to the Participant as of the Grant Date, a total of __________ restricted stock units (“Restricted Units”) which shall be credited in a book entry account established for the Participant until payment in accordance with Section 1(d). Subject to the other terms and conditions contained in this Agreement and the Plan, the restrictions on the Restricted Units shall lapse over the three years after the Grant Date (the “Restricted Period”) as follows: (i) with respect to Fifty Percent (50%) of the Restricted Units, on the first anniversary of the Grant Date (the “First Vesting Date”); (ii) with respect to Twenty-Five Percent (25%) of the Restricted Units, on the second anniversary of the Grant Date (the “Second Vesting Date”); and (iii) with respect to Twenty-Five Percent (25%) of the Restricted Units, on the third anniversary of the Grant Date (the “Third Vesting Date”, and collectively with the First Vesting Date and the Second Vesting Date, the “Vesting Dates”). Restricted Units that have not yet vested pursuant to Section 1(a) shall be forfeited automatically without further action or notice if the Participant ceases to be employed by the Company other than as provided below. All of the Restricted Units shall vest in full prior to the Vesting Dates upon the occurrence of any of the following: (A) the Participant dies while in the employ of the Company; or (B) the Participant has a Disability that results in a separation from employment with Company. If an offer letter or employment agreement to which Participant is a party with the Company provides for vesting in other circumstances, such as Company terminating Participant’s employment without Cause or Participant terminating employment for Good Reason, the terms and conditions relating to vesting in such offer letter or employment agreement shall apply.
b. Retirement. If the Participant retires from the Company at any time following the first anniversary of this Agreement and at such time satisfies the Normal Retirement Criteria (defined below), the Restricted Unit Award herein granted shall continue to vest as set forth in clauses (ii) and (iii) of Section 1(a). The Normal Retirement Criteria will be satisfied if the Participant separates from employment with the Company and the Participant (x) retires (and satisfies the Company’s criteria for retirement at such time) from the Company, (y) is at least 55 years of age at the time of such retirement, and (z) has at least ten credited years of service with the Company or its subsidiaries at the time of such retirement. If at the time of retirement the Participant satisfies the Normal Retirement Criteria and subsequently dies or becomes Disabled before the Participant’s Restricted Units herein granted become vested in their entirety the Restricted Units herein granted shall become vested as set forth the penultimate sentence of Section 1(a).
c. Change in Control. Notwithstanding anything to the contrary in Section 1, in the event of a Change in Control, unless the successor company, or a parent of the successor company in the Change in Control agrees to assume, replace, or substitute unvested portion of the Restricted Unit Award granted hereunder (as of the consummation of such Change in Control) with restricted units on substantially identical terms, as determined by the Committee, if the Participant’s employment with the Company or its Affiliates (or any successor thereto) is terminated within [twenty four (24) for Clark, Galeese and Caneris and twelve (12) months for other NEOs] months following a Change in Control either (x) by the Company or its Affiliates (or any successor thereto) without Cause or (y) by the Participant with Good Reason, the Restricted Units granted hereunder shall vest in full as of the date of such termination. As used herein, “Good Reason” shall mean the occurrence of any of the following: (i) a material diminution in the Participant’s authority, duties or responsibilities or change in title or change in reporting relationship; (ii) a material diminution in the Participant’s annual base salary as in effect on the date of this Agreement or as the same may be increased from time to time; (iii) a material diminution in the budget over which the Participant retains authority; (iv) the Company fails to pay or provide any amount or benefit that the Company is obligated to pay or provide under this Agreement or any other employment, compensation, benefit or reimbursement plan, agreement or arrangement of the Company to which the Participant is a party or in which the Participant participates; (v) the relocation of the Participant’s principal place of employment to a location which increases the Participant’s one−way commuting distance by more than 50 miles, or the Company’s requiring the Participant to travel on business other than to an extent substantially consistent with the Participant’s business travel obligations prior to the Change in Control; (vi) a significant adverse change occurs, whether of a quantitative or qualitative nature, in the indemnification protection provided to the Participant for acts and omissions arising out of his service on behalf of the Company or any other entity at the request of the Company; or (vii) the Company fails to obtain the assumption of this Agreement pursuant to this Section. If the Participant does not terminate his employment within 60 days after the first occurrence of the circumstances giving rise to Good Reason, then the Participant will be deemed to have waived such right to terminate for Good Reason with respect to such circumstances.
d. Payment; Share Ownership; Dividend Equivalents. The Company shall settle as soon as administratively possible after the applicable Vesting Date, any vested portion of the Restricted Unit Award by the payment to the Participant of one share of Common Stock (a “Share”) for each vested Restricted Unit, subject to any applicable tax withholding requirements. If the Participant is deemed a Specified Employee at the time of the Vesting Date, then such payment will be delayed until the earlier of the date that is six months following the Vesting Date and the Participant’s death. At no time prior to such Vesting Date shall the Participant be deemed for any purpose to be the owner of shares of Common Stock in connection with a Restricted Unit Award and the Participant shall have no right prior to applicable Vesting Dates to vote Shares in respect of the Restricted Unit Award. However, the Participant shall possess dividend equivalent payment rights with respect to the Restricted Units granted pursuant to this Agreement as of the Grant Date. Any dividend equivalent payment on the Restricted Units shall be based on the number of Restricted Units credited to the Participant as of the dividend record date and such credited dividend equivalent payment amount shall be paid in accordance with quarterly dividend declarations by the Board of Directors on the Common Stock. The Participant will not have any rights of a shareholder of the Company with respect to the Restricted Units until the delivery of the underlying Shares. The obligations of the Company under this Agreement will be merely that of an unfunded and unsecured promise of the Company to deliver Shares in the future, and the rights of the Participant will be no greater than that of an unsecured general creditor. No assets of the Company will be held or set aside as security for the obligations of the Company under this Agreement.
e. Forfeiture. Except as otherwise determined by the Committee in its sole discretion or as set forth in Section 1, unvested portion of Restricted Unit Awards shall be forfeited without consideration to the Participant upon the Participant’s termination of employment with the Company or its Affiliates for any reason.
2. |
Restrictive Covenant Agreement; Clawback; Incorporation by Reference. |
a. Restrictive Covenant Agreement. This Restricted Unit Award is conditioned upon the Participant’s agreement to this Agreement and compliance with the Restrictive Covenant and Confidentiality Agreement executed by the Participant in favor of the Company (“Restrictive Covenant Agreement”). If such Participant does not agree (whether electronically or otherwise) to this Agreement and the Restrictive Covenant Agreement within ninety (90) days from the date of the Restricted Unit Award, the Restricted Unit Award shall be terminable by the Company.
b. Clawback/Forfeiture. Notwithstanding anything to the contrary contained herein, the Restricted Unit Award may be forfeited without consideration if the Participant, as determined by the Committee in its sole discretion (i) engages in an activity that is in conflict with or adverse to the interests of the Company or any Affiliate, including but not limited to fraud or conduct contributing to any financial restatements or irregularities, or (ii) without the consent of the Company, while employed by or providing services to the Company or any Affiliate or after termination of such employment or service, violates a non-competition, non-solicitation or non-disclosure covenant or agreement between the Participant and the Company or any Affiliate, including without limitation, the Restrictive Covenant Agreement. If the Participant engages in any activity referred to in the preceding sentence, the Participant shall, at the sole discretion of the Committee, forfeit the amount of Shares paid in respect of the Restricted Unit Award, including, without limitation, any and all Shares and dividend equivalents, and repay such to the Company.
3. Incorporation by Reference. The provisions of the Plan are hereby incorporated herein by reference. Except as otherwise expressly set forth herein, this Agreement shall be construed in accordance with the provisions of the Plan and any capitalized terms not otherwise defined in this Agreement shall have the definitions set forth in the Plan. In the event that any provision of this Agreement is inconsistent with the terms of the Plan, the terms of this Agreement shall control. The Committee acting pursuant to the Plan, as constituted from time to time, shall, except as expressly provided otherwise herein, have the right to determine any questions which arise in connection with the grant of the Restricted Unit Award. The number and kind of Shares deliverable pursuant to the Restricted Unit Award are subject to adjustment as provided in Section 12 of the Plan.
1. |
Compliance with Legal Requirements. The granting and delivery of Restricted Unit Award, as applicable, and any other obligations of the Company under this Agreement, shall be subject to all applicable federal, state, local and foreign laws, rules and regulations and to such approvals by any regulatory or governmental agency as may be required. |
2. |
Transferability. No Restricted Unit Award may be assigned, alienated, pledged, attached, sold or otherwise transferred or encumbered by the Participant other than by will or by the laws of descent and distribution and any such purported assignment, alienation, pledge, attachment, sale, transfer or encumbrance shall be void and unenforceable against the Company or any Affiliate. |
3. |
Miscellaneous. |
a. |
Waiver. Any right of the Company contained in this Agreement may be waived in writing by the Committee. No waiver of any right hereunder by any party shall operate as a waiver of any other right, or as a waiver of the same right with respect to any subsequent occasion for its exercise, or as a waiver of any right to damages. No waiver by any party of any breach of this Agreement shall be held to constitute a waiver of any other breach or a waiver of the continuation of the same breach. |
b. |
Severability. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement and each other provision of this Agreement shall be severable and enforceable to the extent permitted by law. |
c. |
No Right to Employment. Nothing contained in this Agreement shall be construed as giving the Participant any right to be retained, in any position, as an employee, consultant, or director of the Company or its Affiliates or shall interfere with or restrict in any way the right of the Company or its Affiliates, which are hereby expressly reserved, to remove, terminate or discharge the Participant with or without cause at any time for any reason whatsoever. Although over the course of employment terms and conditions of employment may change, the at-will term of employment of the Participant will not change. |
d. |
Successors. The terms of this Agreement shall be binding upon and inure to the benefit of the Company, its successors and assigns, the Participant and the beneficiaries, executors, administrators, heirs and successors of the Participant. |
e. |
Relation to Other Benefits. Any economic or other benefit to the Participant under this Agreement or the Plan shall not be taken into account in determining any benefits to which the Participant may be entitled under any profit-sharing, retirement or other benefit or compensation plan maintained by the Company and shall not affect the amount of any life insurance coverage available to any beneficiary under any life insurance plan covering employees of the Company. |
f. |
Taxes and Withholding. To the extent that the Company is required to withhold any federal, state, local, foreign or other tax in connection with the Restricted Units or dividend equivalent payments thereon pursuant to this Agreement, it shall be a condition to earning the award that the Participant make arrangements satisfactory to the Company for payment of such taxes required to be withheld. The Committee may, in its sole discretion, require the Participant to satisfy such required withholding obligation by surrendering to the Company a portion of the Shares earned by the Participant hereunder, and the Shares so surrendered by the Participant shall be credited against any such withholding obligation at the Fair Market Value of such Shares on the date of surrender or in such other reasonable manner as determined by the Company. |
g. |
Amendments. Subject to the terms of the Plan, the Committee may modify this Agreement upon written notice to the Participant. Any amendment to the Plan shall be deemed to be an amendment to this Agreement to the extent that the amendment is applicable hereto; provided, however, no amendment of the Plan or this Agreement shall adversely affect the rights of the Participant under this Agreement without the Participant's consent unless the Committee determines, in good faith, that such amendment is required for the Agreement to either be exempt from the application of, or comply with, the requirements of Section 409A of the Code, or as otherwise may be provided in the Plan. |
h. |
Section 409A of the Code. It is intended that the Restricted Units shall be exempt from the application of, or comply with, the requirements of Section 409A of the Code. The terms of this Agreement shall be construed, administered, and governed in a manner that effects such intent, and the Committee shall not take any action that would be inconsistent with such intent. Without limiting the foregoing, the Restricted Units shall not be deferred, accelerated, extended, paid out, settled, adjusted, substituted, exchanged or modified in a manner that would cause the award to fail to satisfy the conditions of an applicable exception from the requirements of Section 409A of the Code or otherwise would subject the Participant to the additional tax imposed under Section 409A of the Code. |
i. |
Entire Agreement. No change, modification or waiver of any provision of this Agreement shall be valid unless the same be in writing and signed by the parties hereto, except for any changes permitted without consent of the Participant under the Plan. |
j. |
Governing Law. This Agreement shall be construed and interpreted in accordance with the laws of the State of Ohio without regard to principles of conflicts of law thereof, or principles of conflicts of laws of any other jurisdiction which could cause the application of the laws of any jurisdiction other than the State of Ohio. Each of the Company and the Participant submits to the exclusive jurisdiction (both personal and subject matter) of (i) the United States District Court for the Southern District of Ohio sitting in Cincinnati, Ohio and its appellate courts, and (ii) any court of the State of Ohio sitting in Cincinnati, Ohio and its appellate courts, for the purposes of all legal actions and proceedings arising out of or related to this Agreement. |
k. |
Headings. The headings of the Sections hereof are provided for convenience only and are not to serve as a basis for interpretation or construction and shall not constitute a part of this Agreement. |
[Signature Pages To Follow]
By accepting this Agreement through the online acceptance tool on ________________ website, the Participant agrees to all of the terms and conditions in this Agreement and the Plan and consents to the electronic delivery of any documents that the Company elects to deliver in connection with this Agreement.
LSI INDUSTRIES INC. | |||
By: |
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Name: |
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Title: |
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PARTICIPANT | |||
Name: | |||
Exhibit 10.5
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. [***]
FY21 Grant Under
LSI INDUSTRIES INC. 2019 OMNIBUS AWARD PLAN
PERFORMANCE STOCK UNIT AWARD AGREEMENT
LSI INDUSTRIES INC. (the “Company”), pursuant to the 2019 Omnibus Award Plan, as amended from time to time (the “Plan”), as well as the Company's Fiscal Year 2021 Long Term Incentive Plan (the “LTIP”) hereby irrevocably grants you (the “Participant”), on ____________, 2020 (the “Grant Date”), a Performance Stock Unit Award (the “Award”) of forfeitable performance stock units of the Company (“PSUs”), each PSU representing the right to receive one share of the Company’s common stock, no par value per share (“Common Stock”), subject to the restrictions, terms and conditions herein.
WHEREAS, the Participant has been selected as a participant in the three-year performance stock unit program of the Company covering the Company’s 2021, 2022 and 2023 fiscal years; and
WHEREAS, the Compensation Committee (the “Committee”) of the Board of Directors of the Company (the “Board”) has determined that it would be in the best interests of the Company and its shareholders to grant the award provided for herein to the Participant, on the terms and conditions described in this Performance Stock Unit Award Agreement (the “Agreement”).
NOW, THEREFORE, for and in consideration of the promises and the covenants of the parties contained in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto, for themselves, and their permitted successors and assigns, hereby agree as follows:
1. Terms and Conditions.
a. |
Award. Subject to the other terms and conditions contained in this Agreement and in the Plan, the Company hereby grants to the Participant as of the Grant Date the Award of PSUs described herein. The Threshold Number of PSUs, Target Number of PSUs and Maximum Number of PSUs, as the case may be, to which the Participant may be entitled are set forth on Appendix A. The actual number of PSUs that are earned, if any, pursuant to the terms and conditions of the Award will be determined by the Committee (the “Total Award”) and shall be computed in accordance with the terms and conditions of this Agreement and Appendix A. |
b. |
Performance Period. Subject to the other terms and conditions contained in this Agreement, the performance period for the Award commenced on July 1, 2020 and shall terminate on June 30, 2023 (the “Performance Period”). The extent to which the Award shall be earned at the end of the Performance Period shall be based upon the Company’s Cumulative Adjusted EBITDA during the Performance Period and the ending return on net assets (“RONA”) in the last fiscal year of the Performance Period (the “Performance Criteria”). Cumulative Adjusted EBITDA and RONA each represent 50% of the entire component of the PSU. Payout percentages are identified on Appendix A. |
c. |
Settlement. The Company shall settle the Award by causing one share of Common Stock for each PSU in the Total Award that is outstanding (and not previously forfeited) as of the Payout Date to be registered in the name of the Participant and held in book-entry form on the Payout Date. |
2.Forfeiture of PSUs.
a. |
Termination of Employment Generally. Except as otherwise determined by the Company in its sole discretion or as otherwise provided in this Agreement or Appendix A to this Agreement, all PSUs shall be forfeited without consideration to the Participant upon the Participant’s termination of employment with the Company or its Affiliates for any reason (and the Participant shall forfeit any rights to receive shares of Common Stock or cash in respect of the Award). |
b. |
Termination due to Death, Disability or Retirement. In the event the Participant’s employment with the Company is terminated due to death, Disability (as defined in the Plan) or retirement (defined for purposes of this Agreement as voluntary termination of employment at or after age 55 with 10 years of service with the Company or its Affiliates), the Participant shall be entitled to receive a prorated portion of the Award determined in accordance with Section 3. |
2. |
Performance Determinations. |
a. |
If the Participant is employed with the Company or its Affiliates at the completion of the Performance Period, then following completion of the Performance Period the Company will determine the amount of the Total Award payable to the Participant based on Appendix A. |
b. |
If the Participant’s employment with the Company or its Affiliates has terminated prior to the end of the Performance Period due to death, Disability, or retirement (defined for purposes of this Agreement as voluntary termination of employment at or after age 55 with 10 years of service with the Company or its Affiliates),then as soon as administratively feasible (in the Committee’s sole discretion) following such termination the Company will determine the Total Award payable to Participant. The Total Award shall be calculated based on the Target Number of PSUs identified on Appendix A multiplied by a fraction, the numerator of which is the total number of complete months worked by the Participant during the performance Period, and the denominator of which is thirty-six (36), the total number of months in the Performance Period. |
c. |
If, in connection with a Change in Control, the successor company, or a parent of the successor company, in the Change in Control does not agree to assume, replace, or substitute the PSUs granted hereunder (as of the consummation of such Change in Control) with PSUs on substantially identical terms, as determined by the Committee, then as of immediately prior to such Change in Control, the Company will determine the Total Award, calculated based on the Target Award. |
d. |
Payment of awards shall be made on a date (the “Payment Date”) as soon as administratively practicable following the completion of the Performance Period (the “Vesting Date”). On the Payment Date, the Participant shall be entered as the stockholder of record for the number of PSUs covered by the Award which the Committee determines, in writing, have been earned and certified pursuant to Appendix A, and which have vested pursuant to the terms and conditions of this Agreement. If the Participant is deemed a Specified Employee at the time of the Vesting Date, then to the extent necessary to prevent any accelerated or additional tax under Section 409A of the Code, such payment will be delayed until the earlier of the date that is six months following the Vesting Date and the Participant’s death. |
e. |
Except as may be otherwise provided in this Agreement, at no time prior to such Vesting Date shall the Participant be deemed for any purpose to be the owner of shares of Common Stock in connection with an Award and the Participant shall have no right prior to applicable Vesting Dates to vote Shares in respect of the Award. The Participant will not have any rights of a shareholder of the Company with respect to the PSUs until the delivery of the underlying Shares. The obligations of the Company under this Agreement will be merely that of an unfunded and unsecured promise of the Company to deliver Shares in the future, and the rights of the Participant will be no greater than that of an unsecured general creditor. No assets of the Company will be held or set aside as security for the obligations of the Company under this Agreement. |
f. |
All determinations with respect to the Award or this Agreement by the Company or Committee, including, without limitation, determinations of the Total Award, and timing of settlements, shall be within the Company’s absolute discretion and shall be final, binding and conclusive on the Participant. |
3. |
Restrictive Covenant Agreement; Clawback; Incorporation by Reference. |
a. |
Restrictive Covenant Agreement. This Award is conditioned upon the Participant’s agreement to this Agreement and compliance with the Company’s Restrictive Covenant and Confidentiality Agreement executed by the Participant in favor of the Company (“Restrictive Covenant Agreement”). |
b. |
Clawback/Forfeiture. Notwithstanding anything to the contrary contained herein, the PSUs may be forfeited without consideration if the Participant, as determined by the Committee in its sole discretion (i) engages in an activity that is in conflict with or adverse to the interests of the Company or any Affiliate, including but not limited to fraud or conduct contributing to any financial restatements or irregularities, or (ii) without the consent of the Company, while employed by or providing services to the Company or any Affiliate or after termination of such employment or service, violates a non-competition, non-solicitation or non-disclosure covenant or agreement between the Participant and the Company or any Affiliate including, without limitation, the Restrictive Covenant Agreement. If the Participant engages in any activity referred to in the preceding sentence, the Participant shall, at the sole discretion of the Committee, forfeit the amount of Shares paid in respect of the PSUs, including, without limitation, any and all Shares, and repay such to the Company. |
c. |
Incorporation by Reference. The provisions of the Plan are hereby incorporated herein by reference. Except as otherwise expressly set forth herein, this Agreement shall be construed in accordance with the provisions of the Plan and any capitalized terms not otherwise defined in this Agreement shall have the definitions set forth in the Plan. In the event that any provision of this Agreement is inconsistent with the terms of the Plan, the terms of this Agreement shall control. The Committee acting pursuant to the Plan, as constituted from time to time, shall, except as expressly provided otherwise herein, have the right to determine any questions which arise in connection with the grant of the Award. The number and kind of Shares deliverable pursuant to the Award are subject to adjustment as provided in Section 12 of the Plan. |
4. |
Compliance with Legal Requirements. The granting and delivery of the Award, and any other obligations of the Company under this Agreement, shall be subject to all applicable federal, state, local, and foreign laws, rules, and regulations and to such approvals by any regulatory or governmental agency as may be required. |
5. |
Transferability. The PSUs granted hereunder may not be assigned, alienated, pledged, attached, sold, or otherwise transferred or encumbered by the Participant other than by will or by the laws of descent and distribution and any such purported assignment, alienation, pledge, attachment, sale, transfer, or encumbrance shall be void and unenforceable against the Company or any Affiliate. |
6. |
Miscellaneous. |
a. |
Waiver. Any right of the Company contained in this Agreement may be waived in writing by the Committee. No waiver of any right hereunder by any party shall operate as a waiver of any other right, or as a waiver of the same right with respect to any subsequent occasion for its exercise, or as a waiver of any right to damages. No waiver by any party of any breach of this Agreement shall be held to constitute a waiver of any other breach or a waiver of the continuation of the same breach. |
b. |
Severability. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement and each other provision of this Agreement shall be severable and enforceable to the extent permitted by law. |
c. |
No Right to Employment. Nothing contained in this Agreement shall be construed as giving the Participant any right to be retained, in any position, as an employee, consultant, or director of the Company or its Affiliates or shall interfere with or restrict in any way the right of the Company or its Affiliates, which are hereby expressly reserved, to remove, terminate or discharge the Participant with or without cause at any time for any reason whatsoever. Although over the course of employment terms and conditions of employment may change, the at-will term of employment of the Participant will not change. |
d. |
Successors. The terms of this Agreement shall be binding upon and inure to the benefit of the Company, its successors and assigns, the Participant and the beneficiaries, executors, administrators, heirs and successors of the Participant. |
e. |
Relation to Other Benefits. Any economic or other benefit to the Participant under this Agreement or the Plan shall not be taken into account in determining any benefits to which the Participant may be entitled under any profit-sharing, retirement or other benefit or compensation plan maintained by the Company and shall not affect the amount of any life insurance coverage available to any beneficiary under any life insurance plan covering employees of the Company. |
f. |
Taxes and Withholding. To the extent that the Company is required to withhold any federal, state, local, foreign or other tax in connection with the PSUs thereon pursuant to this Agreement, it shall be a condition to earning the award that the Participant make arrangements satisfactory to the Company for payment of such taxes required to be withheld. The Committee may, in its sole discretion, require the Participant to satisfy such required withholding obligation by surrendering to the Company a portion of the Shares earned by the Participant hereunder, and the Shares so surrendered by the Participant shall be credited against any such withholding obligation at the Fair Market Value of such Shares on the date of surrender or in such other reasonable manner as determined by the Company. |
g. |
Amendments. Subject to the terms of the Plan, the Committee may modify this Agreement upon written notice to the Participant. Any amendment to the Plan shall be deemed to be an amendment to this Agreement to the extent that the amendment is applicable hereto; provided, however, no amendment of the Plan or this Agreement shall adversely affect the rights of the Participant under this Agreement without the Participant's consent unless the Committee determines, in good faith, that such amendment is required for the Agreement to either be exempt from the application of, or comply with, the requirements of Section 409A of the Code, or as otherwise may be provided in the Plan. |
h. |
Section 409A of the Code. It is intended that the PSUs shall be exempt from the application of, or comply with, the requirements of Section 409A of the Code. The terms of this Agreement shall be construed, administered, and governed in a manner that effects such intent, and the Committee shall not take any action that would be inconsistent with such intent. Without limiting the foregoing, the PSUs shall not be deferred, accelerated, extended, paid out, settled, adjusted, substituted, exchanged or modified in a manner that would cause the award to fail to satisfy the conditions of an applicable exception from the requirements of Section 409A of the Code or otherwise would subject the Participant to the additional tax imposed under Section 409A of the Code. |
i. |
Entire Agreement. This Agreement, the Plan and, if applicable, the Restrictive Covenant Agreement contain the entire agreement and understanding of the parties hereto with respect to the subject matter contained herein and supersede all prior communications, representations and negotiations in respect thereto; provided, however, the Participant understands that the Participant may have an existing agreement(s) with the Company, through prior awards, acquisition of a prior employer or otherwise, that may include the same or similar covenants as those in the Restrictive Covenant Agreement, and acknowledges that the Restrictive Covenant Agreement is meant to supplement any such agreement(s) such that the covenants in the agreements that provide the Company with the greatest protection enforceable under applicable law shall control, and that the parties do not intend to create any ambiguity or conflict that would release the Participant from the obligations the Participant has assumed under the restrictive covenants in any of these agreements, including the Restrictive Covenant Agreement. No change, modification or waiver of any provision of this Agreement shall be valid unless the same be in writing and signed by the parties hereto, except for any changes permitted without consent of the Participant under the Plan. |
j. |
Governing Law. This Agreement shall be construed and interpreted in accordance with the laws of the State of Ohio without regard to principles of conflicts of law thereof, or principles of conflicts of laws of any other jurisdiction which could cause the application of the laws of any jurisdiction other than the State of Ohio. Each of the Company and the Participant submits to the exclusive jurisdiction (both personal and subject matter) of (i) the United States District Court for the Southern District of Ohio sitting in Cincinnati, Ohio and its appellate courts, and (ii) any court of the State of Ohio sitting in Cincinnati, Ohio and its appellate courts, for the purposes of all legal actions and proceedings arising out of or related to this Agreement. |
k. |
Headings. The headings of the Sections hereof are provided for convenience only and are not to serve as a basis for interpretation or construction and shall not constitute a part of this Agreement. |
By accepting this Agreement through the online acceptance tool on ________________ website, the Participant agrees to all of the terms and conditions in this Agreement and the Plan and consents to the electronic delivery of any documents that the Company elects to deliver in connection with this Agreement.
LSI INDUSTRIES INC. | |||
By: |
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Name: |
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Title: |
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PARTICIPANT | |||
Name: |
Appendix A
Threshold Number of PSUs: |
— |
Target Number of PSUs: |
— |
Maximum Number of PSUs: |
— |
The Participant shall earn 100% of the Target Number of PSUs if the Company has achieved Cumulative Adjusted EBITDA of [***] during the Performance Period and a RONA of [***] the last fiscal year of the Performance Period. Generally, the percentage of Target Number of PSUs earned at the end of the Performance Period based on the Performance Criteria shall be determined according to the following tables, however the actual number of PSUs to which the Participant shall be entitled 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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Payout Level |
||
[***] |
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[***] |
||
[***] |
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[***] |
||
[***] |
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[***] |
||
[***] |
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[***] |
RONA Performance Level (50% of Earned PSUs) |
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Payout Level |
[***] |
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[***] |
[***] |
|
[***] |
[***] |
|
[***] |
[***] |
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[***] |
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PSU Grant: Three Year |
||
Payout % |
RONA 2022 |
EBITDA Cumulative $ (000s) |
|
Threshold |
[***] |
[***] |
[***] |
Target |
[***] |
[***] |
[***] |
Maximum |
[***] |
[***] |
[***] |
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.
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 5, 2020 |
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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 5, 2020 |
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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, 2020 (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 |
(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 A. Clark |
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James A. Clark |
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Chief Executive Officer and President |
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Date: November 5, 2020 |
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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, 2020 (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 5, 2020 |
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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.